form10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2009.
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 No. 1-13696.
AK
STEEL HOLDING CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
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31-1401455
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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9227
Centre Pointe Drive, West Chester, Ohio
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45069
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (513) 425-5000.
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each
Class
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Name of Each Exchange on Which
Registered
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Common
Stock $.01 Par Value
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes T No £.
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes £ No T.
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 T No £.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. T.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such
files). Yes T No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Act.
Large
accelerated filer
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T
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Accelerated
filer
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£
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Non-accelerated
filer
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£
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Smaller
reporting company
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£
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Indicate
by check mark whether the registrant is a shell company, as defined in Rule
12b-2 of the Securities Exchange Act of 1934. Yes £ No T.
Aggregate
market value of the registrant’s voting stock held by non-affiliates at June 30,
2009: $2,076,650,398.
At
February 19, 2010, there were 109,866,415 shares of the registrant’s Common
Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The
information required to be furnished pursuant to Part III of this Form 10-K will
be set forth in, and incorporated by reference from, the registrant’s definitive
proxy statement for the annual meeting of stockholders (the “2010 Proxy
Statement”), which will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year ended December 31,
2009.
AK
Steel Holding Corporation
(Dollars
in millions, except per share and per ton amounts)
Operations
Overview
AK
Steel Holding Corporation (“AK Holding”) is a corporation formed under the laws
of Delaware in 1993 and is a fully-integrated producer of flat-rolled carbon,
stainless and electrical steels and tubular products through its wholly-owned
subsidiary, AK Steel Corporation (“AK Steel” and, together with AK Holding, the
“Company”). AK Steel is the successor through merger to Armco Inc.,
which was formed in 1900.
The
Company’s operations consist of seven steelmaking and finishing plants located
in Indiana, Kentucky, Ohio and Pennsylvania that produce flat-rolled carbon
steels, including premium-quality coated, cold-rolled and hot-rolled products,
and specialty stainless and electrical steels that are sold in hot band, and
sheet and strip form. The Company’s operations also include AK Tube
LLC (“AK Tube”), which further finishes flat-rolled carbon and stainless steel
at two tube plants, one located in Ohio and one located in Indiana, into welded
steel tubing used in the automotive, large truck and construction
markets. In addition, the Company’s operations include European
trading companies that buy and sell steel and steel products and other
materials.
Customers
In
conducting its steel operations, the Company principally directs its marketing
efforts toward those customers who require the highest quality flat-rolled steel
with precise “just-in-time” delivery and technical support. Management believes
that the Company’s enhanced product quality and delivery capabilities, and its
emphasis on customer technical support and product planning, are critical
factors in its ability to serve this segment of the market. The
Company’s standards of excellence have been embraced by a wide array of diverse
customers and, accordingly, no single customer accounted for more than 10% of
net sales of the Company during 2009.
The
Company’s flat-rolled carbon steel products are sold primarily to automotive
manufacturers and to customers in the infrastructure and manufacturing
markets. This includes electrical transmission, heating, ventilation
and air conditioning, and appliances. The Company also sells coated,
cold rolled, and hot rolled carbon steel products to distributors, service
centers and converters who may further process these products prior to reselling
them. To the extent management believes necessary, the Company
carries increased inventory levels to meet the requirements of certain of its
customers for “just-in-time” delivery.
The
Company sells its stainless steel products to manufacturers and their suppliers
in the automotive industry, to manufacturers of food handling, chemical
processing, pollution control, medical and health equipment and to distributors
and service centers. The Company sells electrical steels, which are
iron-silicon alloys with unique magnetic properties, primarily to manufacturers
of power transmission and distribution transformers and electrical motors and
generators in the infrastructure and manufacturing markets.
The
Company sells its carbon products principally to customers in the United
States. The Company’s electrical and stainless steel products are
sold both domestically and internationally. The Company’s customer
base is geographically diverse and, there is no single country outside of the
United States as to which sales are material relative to the Company’s total
sales revenue. The Company attributes revenue from foreign
countries based upon the destination of physical shipment of a
product. Revenue from direct sales, and sales as a percentage
of total sales, in 2009, 2008 and 2007 domestically and internationally were as
follows:
Geographic
Area
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2009
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2008
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2007
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Net Sales
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%
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Net Sales
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%
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Net Sales
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%
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United
States
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$ |
3,309.8 |
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81 |
% |
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$ |
6,376.4 |
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83 |
% |
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$ |
6,077.9 |
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87 |
% |
Foreign
Countries
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767.0 |
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19 |
% |
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1,267.9 |
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17 |
% |
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925.1 |
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13 |
% |
Total
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$ |
4,076.8 |
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100 |
% |
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$ |
7,644.3 |
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100 |
% |
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$ |
7,003.0 |
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100 |
% |
The
Company does not have any material long-lived assets located outside of the
United States.
The
Company’s sales in 2009 were adversely impacted by significantly depressed
global economic conditions, and, particularly, declines in the automotive market
and construction markets, both residential and non-residential. The
effects of the recession on each of the Company’s markets resulted in declines
in shipments in every product category
for
the Company. The most significant decline was felt in the
distributors and converters market, due to reduced end-use demand, inventory
reduction throughout the supply chain, and falling steel prices, which resulted
in a decrease in its percentage of total Company sales as compared to the
Company’s other two markets.
Despite
an absolute reduction in total direct automotive sales from year to year, the
Company’s direct automotive revenues as a percent of its total business rose to
approximately 36% in 2009, compared to 32% in 2008. The relative
increase in automotive sales was principally due to that market being the most
heavily weighted toward contract business. During downturns, contract business
maintains more consistent volumes and provides greater price stability than spot
market business because of contractual requirements that limit demand and price
volatility. The Company’s infrastructure and manufacturing market
sales also experienced a reduction in absolute dollars of sales. The
percentage of Company revenue attributable to that market increased, however, to
31% of total Company revenue in 2009, from 29% in 2008, primarily as a result of
the relatively greater revenue decline in the distributors and converters
market.
The
following table sets forth the percentage of the Company’s net sales
attributable to each of its markets:
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Years
Ended December 31,
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Market
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2009
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2008
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2007
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Automotive
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36%
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32%
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40%
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Infrastructure
and Manufacturing (a)
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31%
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29%
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26%
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Distributors
and Converters (a)
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33%
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39%
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34%
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(a)
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Prior
to 2008, the Company historically referred to these markets by somewhat
different names. In 2008, the names were updated to simplify
them, but the nature of the product sales and customers included in each
market was not changed. More specifically, the market
previously described as “Appliance, Industrial Machinery and Equipment,
and Construction” now is referred to as “Infrastructure and
Manufacturing,” and the market previously described as “Distributors,
Service Centers and Converters” now is referred to as “Distributors and
Converters.” No change was made to the name of the market
described as “Automotive.”
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The
Company is a party to contracts with all of its major automotive and most of its
infrastructure and manufacturing industry customers. These contracts, which are
primarily one year in duration, set forth prices to be paid for each product
during their term. Approximately 83% of the Company’s shipments to
current contract customers permit price adjustments to reflect changes in
prevailing market conditions or certain energy and raw material
costs. Approximately 55% of the Company’s shipments of flat-rolled
steel products in 2009 were made to contract customers, and the balance of the
Company’s shipments were made in the spot market at prevailing prices at the
time of sale.
In
2009, the automotive industry experienced its worst market conditions in
decades. The dramatic downturn in the domestic and global economies,
which started in the fall of 2008, significantly reduced demand for light
vehicles. As a result, North American light vehicle production in
2009 was substantially below historic levels. Because the automotive
market continues to be an important element of the Company’s business, reduced
North American light vehicle production adversely impacts the Company’s total
sales and shipments. Lower prices and shipments to the automotive
market contributed to a dramatic decrease in the Company’s total sales in
2009. Although the Company has seen an improvement in shipments since
the low point in 2009, a level of sales significantly below recent historic
levels likely will continue throughout 2010. At this point, it is impossible to
determine when, or if, the domestic and/or global economies will return to
pre-recession levels.
In
addition, continued low levels of North American light vehicle production could
cause further financial difficulties (including possible bankruptcy filings) for
additional automotive manufacturers and suppliers to the automotive industry,
many of whom are customers of the Company. The Company could be
adversely impacted by such financial difficulties and bankruptcies, including
not only reductions in future sales, but also losses associated with an
inability to collect outstanding accounts receivables from those
customers. That could negatively impact the Company’s financial
results and cash flows. The Company is continuing to monitor this
situation closely and has taken steps to try to mitigate its exposure to such
adverse impacts, but because of current market conditions and the volume of
business involved, it cannot eliminate these risks entirely.
Raw
Materials and Other Inputs
The
principal raw materials required for the Company’s steel manufacturing
operations are iron ore, coal, coke, chrome, nickel, silicon, manganese, zinc,
limestone, and carbon and stainless steel scrap. The Company also
uses large volumes of natural gas, electricity and oxygen in its steel
manufacturing operations. In addition, the Company
historically
has purchased approximately 500,000 to 700,000 tons annually of carbon steel
slabs from other steel producers to supplement the production from its own
steelmaking facilities, though it did not do so in 2009 because of substantially
reduced demand for the Company’s products. The Company makes most of
its purchases of iron ore, coal, coke and oxygen at negotiated prices under
annual and multi-year agreements. The Company typically makes
purchases of carbon steel slabs, carbon and stainless steel scrap, natural gas,
a majority of its electricity, and other raw materials at prevailing market
prices, which are subject to price fluctuations in accordance with supply and
demand. The Company enters into financial instruments designated as
hedges with respect to some purchases of natural gas and certain raw materials,
the prices of which may be subject to volatile fluctuations. In 2009,
the Company experienced a significant decline in raw material and energy costs,
primarily carbon scrap, nickel and natural gas.
To
the extent that multi-year contracts are available in the marketplace, the
Company has used such contracts to secure adequate sources of supply to satisfy
key raw materials needs for the next three to five years. Where
multi-year contracts are not available, or are not available on terms acceptable
to the Company, the Company continues to seek to secure the remainder of its raw
materials needs through annual contracts or spot purchases. The
Company also continues to attempt to reduce the risk of future supply shortages
by considering equity investments with respect to certain raw materials and by
evaluating alternative sources and substitute materials.
The
Company currently believes that it either has, or will be able to secure,
adequate sources of supply for its raw material and energy requirements for
2010. As a result, however, of lower than normal year-end inventories
in 2009, and increased demand beyond the Company’s initial projections for 2010,
the Company still needs to secure additional volumes of some raw materials,
principally iron ore, for 2010. Based on current reduced demand for
most raw materials, the Company does not anticipate major shortages in the
market unless substantial supply capacity is taken out of the
market. The potential exists, however, for production disruptions due
to shortages of raw materials in the future. If such a disruption
were to occur, it could have a material impact on the Company’s financial
condition, operations and cash flows.
The
Company produces most of the coke it consumes in its blast furnaces, but had
also been purchasing approximately 350,000 net tons annually from a third party
pursuant to a ten-year supply contract (the “Shenango Coke Contract”) which
expired on December 31, 2009. In anticipation of the expiration of
the Shenango Coke Contract, the Company entered into a long-term agreement with
Haverhill North Coke Company (“SunCoke Haverhill”), an affiliate of SunCoke
Energy, Inc. (“SunCoke”), to provide the Company with metallurgical-grade coke
from the SunCoke Haverhill facility in southern Ohio. Under the
agreement, SunCoke Haverhill provides AK Steel with up to 550,000 tons of coke
annually. The Company will also benefit under the agreement from
electricity co-generated from the heat recovery coke battery. This is
in addition to the previously announced project with Middletown Coke Company,
Inc., another SunCoke affiliate (“Middletown Coke”), to construct a new
state-of-the-art, environmentally friendly heat-recovery coke battery contiguous
to the Company’s Middletown Works which will be capable of producing 550,000 net
tons of metallurgical grade coke annually. It is likely that the
Company will need the production from both SunCoke facilities due to reduced
production available from, and uncertainties with respect to, the Company’s
Ashland, Kentucky coke batteries as a result of environmental
issues. To the extent the two SunCoke facilities, combined with the
Company’s existing coke batteries in Ashland, Kentucky and Middletown, Ohio,
provide more coke than the Company needs for its steel production, the Company
anticipates that it will be able to sell any excess coke in the merchant coke
market.
Research
and Development
The
Company conducts a broad range of research and development activities aimed at
improving existing products and manufacturing processes and developing new
products and processes. Research and development costs incurred in
2009, 2008 and 2007 were $6.2, $8.1 and $8.0, respectively.
Employees
At
December 31, 2009, the Company’s operations included approximately 6,500
employees, of which approximately 4,900 are represented by labor unions under
various contracts that will expire in the years 2010 through
2013. See discussion under Labor Agreements in the Liquidity and Capital
Resources section below for additional information on these
agreements. Because of the extraordinary economic conditions which
have adversely impacted the Company’s business, the Company announced in late
2008 that it would temporarily idle certain facilities and lay off some of its
employees. By the end of 2009, most of the idled facilities had been
returned to production and most of the laid-off employees had been returned to
work. However, some of the Company’s facilities continue to be idled
and some of its employees continue to be laid off. That circumstance
is expected to continue until market conditions improve.
Competition
The
Company competes with domestic and foreign flat-rolled carbon, stainless and
electrical steel producers (both integrated steel producers and mini-mill
producers) and producers of plastics, aluminum and other materials that can be
used in lieu of flat-rolled steels in manufactured
products. Mini-mills generally offer a narrower range of products
than integrated steel mills, but can have some competitive cost advantages as a
result of their different production processes and typically non-union work
forces. Price, quality, on-time delivery and customer service are the
primary competitive factors in the steel industry and vary in relative
importance according to the category of product and customer
requirements.
Domestic
steel producers, including the Company, face significant competition from
foreign producers. For a variety of reasons, these foreign producers
often are able to sell products in the United States at prices substantially
lower than domestic producers. These reasons include lower labor, raw material,
energy and regulatory costs, as well as significant government subsidies and
preferential trade practices in their home countries. The annual
level of imports of foreign steel into the United States also is affected to
varying degrees by the strength of demand for steel outside the United States
and the relative strength or weakness of the U.S. dollar against various foreign
currencies. U.S. imports of finished steel decreased slightly from
the 2008 level and accounted for approximately 22% of domestic steel market
demand in 2009. By comparison, imports of finished steel accounted
for approximately 29% and 27%, respectively, of domestic steel demand in 2008
and 2007.
The
Company’s ability to compete has been negatively impacted by the bankruptcies of
numerous domestic steel companies, including several former major competitors of
the Company, and the subsequent and continuing global steel industry
consolidation. Those bankruptcies facilitated the global
consolidation of the steel industry by enabling other entities to purchase and
operate the facilities of the bankrupt steel companies without accepting any
responsibility for most, and in some instances any, pension or healthcare
obligations to the retirees of the bankrupt companies. In contrast,
the Company has continued to provide pension and healthcare benefits to its
retirees, resulting in a competitive disadvantage compared to certain other
domestic integrated steel companies and the mini-mills that do not provide such
benefits to any or most of their retirees. Over the course of the
last several years, however, the Company has negotiated progressive new labor
agreements that have significantly reduced total employment costs at all of its
union-represented facilities. The new labor agreements have increased
the Company’s ability to compete in the highly competitive global steel market
while, at the same time, enhancing the ability of the Company to continue to
support its retirees’ pension and healthcare needs. In addition, the
Company has eliminated approximately $1.0 billion of its retiree healthcare
costs associated with a group of retirees from its Middletown Works as part of
the settlement reached with those retirees in October 2007. For a
more detailed description of this settlement, see the discussion in the “Legal Contingencies” section
of Note 9 to the Consolidated Financial Statements in Item 7 below.
The
Company also is facing the likelihood of increased competition from
foreign-based and domestic steel producers who have announced plans, or have
already started to build or expand steel production and/or finishing facilities
in the United States.
Environmental
Information
with respect to the Company’s environmental compliance, remediation and
proceedings may be found in Note 9 to Consolidated Financial Statements in Item
7 of this Form 10-K, which is incorporated herein by reference.
Executive
Officers of the Registrant
The
following table sets forth the name, age and principal position with the Company
of each of its executive officers as of February 19, 2010:
Name
|
Age
|
Positions with the
Company
|
James
L. Wainscott
|
52
|
Chairman
of the Board, President and Chief Executive Officer
|
David
C. Horn
|
58
|
Senior
Vice President, General Counsel and Secretary
|
John
F. Kaloski
|
60
|
Senior
Vice President, Operations
|
Albert
E. Ferrara, Jr.
|
61
|
Vice
President, Finance and Chief Financial Officer
|
Douglas
W. Gant
|
51
|
Vice
President, Sales and Customer Service
|
Alan
H. McCoy
|
58
|
Vice
President, Government and Public Relations
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Lawrence
F. Zizzo, Jr.
|
61
|
Vice
President, Human Resources
|
James
L. Wainscott was elected Chairman of the Board of Directors of the Company,
effective January 1, 2006, and elected President and Chief Executive Officer in
October 2003. Previously, Mr. Wainscott had been the Company’s
Chief
Financial Officer since July 1998. Mr. Wainscott also served as
Treasurer from April 1995 until April 2001. He was elected Senior
Vice President in January 2000, having previously served as a Vice President
from April 1995 until that date. Before joining the Company, Mr.
Wainscott held a number of increasingly responsible financial positions for
National Steel Corporation, and was elected Treasurer and Assistant Secretary
for National Steel in 1993.
David
C. Horn was elected Senior Vice President, General Counsel and Secretary in
January 2005. Mr. Horn was elected Vice President and General Counsel
in April 2001 and assumed the additional position of Secretary in August
2003. Before joining the Company as Assistant General Counsel in
December 2000, Mr. Horn was a partner in the Cincinnati-based law firm now known
as Frost Brown Todd LLC.
John
F. Kaloski was elected Senior Vice President, Operations in January
2005. Mr. Kaloski was named Vice President in April
2003. Prior to joining the Company in October 2002 as Director,
Operations Technology, Mr. Kaloski served as a Senior Vice President at
National Steel Corporation and held senior management positions at U.S. Steel
Corporation.
Albert
E. Ferrara, Jr. was elected Vice President, Finance and Chief Financial Officer
in November 2003. Mr. Ferrara joined the Company in June 2003 as
Director, Strategic Planning and was named Acting Chief Financial Officer in
September 2003. Prior to joining the Company, Mr. Ferrara was Vice
President, Corporate Development for NS Group, Inc., a tubular products
producer, and previously held positions as Senior Vice President and Treasurer
with U.S. Steel Corporation and Vice President, Strategic Planning at USX
Corporation.
Douglas
W. Gant was elected Vice President, Sales and Customer Service in January
2004. From February 2001 until that date, Mr. Gant was Director,
Sales and Marketing, having previously served as General Manager, Sales since
May 1999. Mr. Gant was a regional sales manager from September 1995
until May 1999.
Alan
H. McCoy was elected Vice President, Government and Public Relations in January
1997. From 1994 to 1997, Mr. McCoy was General Manager, Public
Relations.
Lawrence
F. Zizzo, Jr. was elected Vice President, Human Resources in January
2004. Before joining the Company, Mr. Zizzo was Vice President, Human
Resources at National Steel Corporation. Prior to that position, Mr.
Zizzo was Regional Director, Human Resources at National Steel.
Available
Information
The
Company maintains an internet website at www.aksteel.com. Information
about the Company is available on the website free of charge, including the
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission. Information on the Company’s
website is not incorporated by reference into this report.
The
Company cautions readers that its business activities involve risks and
uncertainties that could cause actual results to differ materially from those
currently expected by management. The most significant of those risks
are:
●
|
Risk of reduced selling prices
and shipments associated with a cyclical
industry. Historically, the steel industry has been a
cyclical industry. The dramatic downturn in the domestic and
global economies which began in the fall of 2008 adversely affected demand
for the Company’s products, which has resulted in lower prices and
shipments for such products. Such lower prices and shipments
caused a significant reduction in the Company’s sales in 2009 and, while
there has been some improvement in recent months, it is likely that sales
will not return to pre-2009 levels during 2010. This downturn
in market conditions also may adversely impact the Company’s efforts to
negotiate higher prices in 2010 with its contract customers. At
this time, it is impossible to determine when or if the domestic and/or
global economies will return to pre-recession levels. There
thus is a risk of continued adverse impact on demand for the Company’s
products, the prices for those products, and the Company’s sales and
shipments of those products as a result of the ongoing weakness in the
economy. In addition, global economic conditions remain fragile
and the possibility remains that the domestic or global economies may not
recover as quickly as we have anticipated, or could even deteriorate,
which likely would result in a corresponding fall in demand for the
Company’s products and negatively impact the Company’s business, financial
results and cash flows.
|
●
|
Risk of severe financial
hardship or bankruptcy of one of more of the Company’s major
customers. Many, if not most, of the Company’s
customers have shared the immense financial and operational challenges
faced by the Company during the recent intense recession. For
example, in 2009 two major automotive manufacturers, General Motors and
Chrysler, received billions of dollars in loans from the federal
government and went through a bankruptcy reorganization. While
both of those companies have emerged from bankruptcy and are operating,
the domestic automotive industry continues to experience significantly
reduced light vehicle sales compared to recent historic
levels. This continued weakness could lead to increased
financial difficulties or even bankruptcy filings by other automotive
manufacturers and suppliers to the automotive industry, many of whom are
customers of the Company. The Company could be adversely
impacted by such financial hardship or bankruptcies. The nature
of that impact could be not only a reduction in future sales, but also a
loss associated with the potential inability to collect all outstanding
accounts receivables. Either event could negatively impact the
Company’s financial results and cash
flows.
|
●
|
Risk of reduced demand in key
product markets. Although significantly reduced from
prior years, the automotive and housing markets remain important elements
of the Company’s business. Though conditions have improved in
recent months, both markets continue to suffer from the severe economic
downturn that started in the fall of 2008. If North American
automotive production, in general, or by one or more of the Company’s
major automotive customers in particular, were to be further reduced
significantly as a result of this economic downturn or other causes, it
likely would negatively affect the Company’s sales, financial results and
cash flows. Similarly, if demand for the Company’s products
sold to the housing market were to be further reduced significantly, it
could negatively affect the Company’s sales, financial results and cash
flows.
|
●
|
Risk of increased global steel
production and imports. Actions by the Company’s foreign
or domestic competitors to increase production in and/or exports to the
United States could result in an increased supply of steel in the United
States, which could result in lower prices for the Company’s products and
negatively impact the Company’s sales, financial results and cash
flows. In fact, significant planned increases in production
capacity in the United States have been announced by competitors of the
Company and new steelmaking and finishing facilities are under
construction. In addition, foreign competitors, especially
those in China, have substantially increased their production capacity in
the last few years. This increased foreign production has
contributed to a high level of imports of foreign steel into the United
States in recent years and creates a risk of even greater levels of
imports, depending upon foreign market and economic conditions, the value
of the U.S. dollar relative to other currencies, and other such variables
beyond the Company’s control. This would adversely affect the
Company’s sales, financial results and cash
flows.
|
●
|
Risk of changes in the cost of
raw materials and energy. Approximately 55% of the
Company’s shipments are pursuant to contracts having durations of six
months or more. Approximately 83% of the Company’s shipments to
contract customers include variable pricing mechanisms to adjust the price
or to impose a surcharge based upon changes in certain raw material and
energy costs, but those adjustments do not always reflect all of the
underlying raw material and energy cost changes. Many of the
Company’s contracts contain fixed prices that do not allow a pass through
of all of the raw material and energy cost increases or
decreases. Approximately 45% of the Company’s shipments are in
the spot market, therefore pricing for these products fluctuates regularly
based on prevailing market conditions. Thus, the price at which
the Company sells steel will not necessarily change in tandem with changes
in its raw material and energy costs. As a result, a
significant increase in raw material or energy costs could adversely
impact the Company’s financial results. This impact can be
exacerbated by the Company’s “last in, first out” (“LIFO”) method for
valuing inventories when there are significant changes in the cost of raw
materials or energy or in the Company’s raw material inventory
levels. The impact of LIFO accounting may be particularly
significant with respect to period-to-period
comparisons.
|
●
|
Risks relating to the supply of
raw materials. The Company has certain raw material
supply contracts, particularly with respect to iron ore, which have terms
providing for minimum annual purchases, subject to exceptions for force
majeure and other circumstances impacting the legal enforceability of the
contracts. If demand for the Company’s products falls for an
extended period significantly below what was projected at the time these
contracts were entered into, the Company could be required to purchase
quantities of raw materials, particularly iron ore, which exceed its
|
|
anticipated future annual
needs. Conversely, however, if demand for the Company’s
products increases beyond what was projected, there is a risk that the
Company would not have adequate supplies of all raw materials under
contract and that it might be unable to secure all of the raw materials it
needs to meet the increased demand, or to secure them at reasonable prices
that will not adversely impact the Company’s financial results and cash
flows. |
●
|
Risk of production disruption
at the Company. Under normal business conditions, the
Company operates its facilities at production levels at or near
capacity. High levels of production are important to the
Company’s financial results because they enable the Company to spread its
fixed costs over a greater number of tons. Production
disruptions could be caused by the idling of facilities due to reduced
demand, such as resulting from the recent economic
downturn. Such production disruptions also could be caused by
unanticipated plant outages or equipment failures, particularly under
circumstances where the Company lacks adequate redundant facilities, such
as with respect to its hot mill. Production also could be
adversely impacted by transportation or raw material or energy supply
disruptions, or poor quality of raw materials, particularly scrap, coal,
coke, iron ore, alloys and purchased carbon slabs. This would
adversely affect the Company’s sales, financial results and cash
flows.
|
●
|
Risks associated with the
Company’s healthcare obligations. The Company provides
healthcare coverage to its active employees and its retirees, as well as
to certain members of their families. The Company is
self-insured with respect to substantially all of its healthcare
coverage. While the Company has mitigated its exposure to
rising healthcare costs through cost sharing and healthcare cost caps, the
cost of providing such healthcare coverage is greater on a relative basis
for the Company than for other steel companies against whom the Company
competes which either provide a lesser level of benefits, require that
their participants pay more for the benefits they receive, or do not
provide coverage to as broad a group of participants (e.g., they do not
provide retiree healthcare benefits). Moreover, litigation has
been filed against the Company on behalf of various groups of its retirees
alleging that the Company lacked the authority to impose certain cost
sharing and healthcare cost caps. If that litigation is
successful, it could adversely affect the Company’s financial results and
could adversely affect the long-term ability of the Company to provide
future healthcare benefits. In addition, the potential impacts
of federal healthcare legislation could adversely affect the Company’s
financial condition through increased
costs.
|
●
|
Risks associated with the
Company’s pension obligations. The Company’s pension
trust is currently underfunded to meet its long-term obligations,
primarily as a result of below-expectation investment returns in the early
years of the prior decade, as well as the dramatic decline in the
financial markets that began in late 2008. The extent of
underfunding is directly affected by changes in interest rates and asset
returns in the securities markets. It is also affected by the
rate and age of employee retirements, along with other actuarial
experiences compared to projections. These items affect pension
plan assets and the calculation of pension and other postretirement
benefit obligations and expenses. Such changes could increase
the cost to the Company of those obligations, which could have a material
adverse affect on the Company’s results and its ability to meet those
obligations. In addition, changes in the law, rules, or
governmental regulations with respect to pension funding also could
materially and adversely affect the cash flow of the Company and its
ability to meet its pension and other benefit obligations. In
addition, under the method of accounting used by the Company with respect
to its pension and other postretirement obligations, the Company is
required to recognize into its results of operations, as a non-cash
“corridor” adjustment, any unrecognized actuarial net gains or losses that
exceed 10% of the larger of projected benefit obligations or plan
assets. A corridor charge, if required after a re-measurement
of the Company’s pension obligations, historically has been recorded in
the fourth quarter of the fiscal year. In past years, these
corridor charges have had a significant negative impact on the Company’s
financial statements.
|
●
|
Risk of not timely reaching new
labor agreements. The labor agreement with the United
Steelworkers of America Local 1865, which represents approximately 750
hourly employees at the Company’s West Works located in Ashland, Kentucky,
expires on September 1, 2010. The Company intends to negotiate
with the union to reach a new, competitive labor agreement in advance of
the current expiration date. The Company cannot predict at this
time, however, when a new, competitive labor agreement with the union at
the Ashland West Works will be reached or what the impact of such an
agreement on the Company’s operating costs, operating income and cash
|
|
flow
will be. There is the potential of a work stoppage at this location if the
Company and the union cannot reach a timely agreement in contract
negotiations. If there were to be a work stoppage, it could
have a material impact on the Company’s operations and financial
results.
|
●
|
Risks associated with major
litigation, arbitrations, environmental issues and other
contingencies. The Company has described several
significant legal and environmental proceedings in Note 9 to the
Consolidated Financial Statements in Item 7 of this report. An
adverse result in one or more of those proceedings could negatively impact
the Company’s financial results and cash
flows.
|
●
|
Risks associated with
environmental compliance. Due to the nature and extent
of environmental issues affecting the Company’s operations and
obligations, changes in application or scope of environmental regulations
applicable to the Company could have a significant adverse impact on the
Company’s operations and financial results and cash
flows.
|
●
|
Risks associated with climate
change and greenhouse gas emission limitations. The United States
has not ratified the 1997 Kyoto Protocol Treaty (the “Kyoto Protocol”) and
the Company does not produce steel in a country which has ratified that
treaty. Negotiations for a treaty which would succeed the Kyoto Protocol
are ongoing and it is not known yet what the terms of that successor
treaty ultimately will be or if the United States will ratify it. It
appears, however, that limitations on greenhouse gas emissions may be
imposed in the United States at some point in the future through federally
enacted legislation. Bills recently introduced in the United States
Congress are aimed at limiting carbon emissions from companies which
conduct business that is carbon-intensive. Such bills, if
enacted, would apply to the steel industry, generally, and the Company, in
particular. Among other potential material items, each bill
includes a proposed system of carbon emission credits issued to certain
companies, similar to the European Union’s existing “cap and trade”
system. That said, each of these bills is likely to be altered
substantially as they move through the legislative process, making it
difficult at this time to forecast what the final legislation, if any,
will look like and the resulting effects on the Company. If
legislation similar to these bills is enacted, however, the Company likely
will suffer negative financial impact as a result of increased energy,
environmental and other costs in order to comply with the limitations that
would be imposed on greenhouse gas emissions. In addition, depending
upon whether similar limitations are imposed globally, the legislation
could negatively impact the Company’s ability to compete with foreign
steel companies situated in areas not subject to such limitations.
Unless and until the legislation is enacted and its terms are known,
however, the Company cannot reasonably or reliably estimate the impact of
such legislation on its financial condition, operating performance or
ability to compete.
|
●
|
Risks associated with
financial, credit, capital and/or banking markets. In
the ordinary course of business, the Company’s risks include its ability
to access competitive financial, credit, capital and/or banking
markets. Currently, the Company believes it has adequate access
to these markets to meet its reasonably anticipated business
needs. The Company both provides and receives normal trade
financing to and from its customers and suppliers. To the
extent access to competitive financial, credit, capital and/or banking
markets by the Company, or its customers or suppliers, is impaired, the
Company’s operations, financial results and cash flows could be adversely
impacted.
|
While
the previously listed items represent the most significant risks to the Company,
the Company regularly monitors and reports risks to management and the Board of
Directors by means of a formal Total Enterprise Risk Management
program.
The
Company has no unresolved Securities and Exchange Commission staff
comments.
The
Company is leasing a building in West Chester, Ohio which the Company is using
as its corporate headquarters. The lease commenced in 2007 and the
initial term is twelve years with two five-year options to extend the
lease. The Company continues to own its former headquarters and
research buildings, but has razed other surrounding buildings located in
Middletown, Ohio. Steelmaking, finishing and tubing operations are
conducted at nine facilities located in Indiana, Kentucky, Ohio and
Pennsylvania. All of these facilities are owned by the Company, either directly
or through wholly-owned subsidiaries.
Middletown
Works is situated on approximately 2,400 acres in Middletown,
Ohio. It consists of a coke facility, blast furnace, basic oxygen
furnaces and continuous caster for the production of carbon
steel. Also located at the Middletown site are a hot rolling mill,
cold rolling mill, two pickling lines, four annealing facilities, two temper
mills and three coating lines for finishing the product.
Ashland
Works is located on approximately 600 acres in Ashland, Kentucky. It
consists of a coke facility, blast furnace, basic oxygen furnaces and continuous
caster for the production of carbon steel. A coating line at Ashland
also helps to complete the finishing operation of the material processed at the
Middletown plant.
Rockport
Works is located on approximately 1,700 acres near Rockport,
Indiana. The 1.7 million square-foot plant consists of a
state-of-the-art continuous cold rolling mill, a continuous hot-dip galvanizing
and galvannealing line, a continuous carbon and stainless steel pickling line, a
continuous stainless steel annealing and pickling line, hydrogen annealing
facilities and a temper mill.
Butler
Works is situated on approximately 1,300 acres in Butler,
Pennsylvania. The 3.5 million square-foot plant produces stainless,
electrical and carbon steel. Melting takes place in three electric
arc furnaces that feed an argon-oxygen decarburization unit. These
units feed two double strand continuous casters. The Butler Works
also includes a hot rolling mill, annealing and pickling units and two fully
automated tandem cold rolling mills. It also has various intermediate and
finishing operations for both stainless and electrical steels.
Coshocton
Works is located on approximately 650 acres in Coshocton, Ohio. The
570,000 square-foot stainless steel finishing plant contains two Sendzimer mills
and two Z-high mills for cold reduction, four annealing and pickling lines, nine
bell annealing furnaces, four hydrogen annealing furnaces, two bright annealing
lines and other processing equipment, including temper rolling, slitting and
packaging facilities.
Mansfield
Works is located on approximately 350 acres in Mansfield, Ohio. The
1.1 million square-foot facility produces stainless steel and includes a melt
shop with two electric arc furnaces, an argon-oxygen decarburization unit, a
thin-slab continuous caster, and a six-stand hot rolling mill.
Zanesville
Works is located on 130 acres in Zanesville, Ohio. It consists of a
508,000 square-foot finishing plant for some of the stainless and electrical
steel produced at Butler Works and Mansfield Works and has a Sendzimer cold
rolling mill, annealing and pickling lines, high temperature box anneal and
other decarburization and coating units.
AK
Tube’s Walbridge plant, located in Ohio, operates six electric resistance weld
tube mills and two slitters housed in a 330,000 square foot
facility. AK Tube’s Columbus plant, located in Indiana, is a 142,000
square-foot facility with eight electric resistance weld and two laser weld tube
mills.
Information
with respect to this item may be found in Note 9 to Consolidated Financial
Statements in Item 7 of this Form 10-K, which is incorporated herein by
reference.
Item
4.
|
Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities.
|
|
|
AK
Holding’s common stock has been listed on the New York Stock Exchange since
April 5, 1995 (symbol: AKS). The table below sets forth, for the
calendar quarters indicated, the reported high and low sales prices of the
common stock:
|
|
2009
|
|
|
2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
First
Quarter
|
|
$ |
13.07 |
|
|
$ |
5.39 |
|
|
$ |
57.19 |
|
|
$ |
34.20 |
|
Second
Quarter
|
|
$ |
21.70 |
|
|
$ |
6.81 |
|
|
$ |
73.07 |
|
|
$ |
54.21 |
|
Third
Quarter
|
|
$ |
24.27 |
|
|
$ |
14.77 |
|
|
$ |
68.10 |
|
|
$ |
22.54 |
|
Fourth
Quarter
|
|
$ |
22.80 |
|
|
$ |
15.03 |
|
|
$ |
25.42 |
|
|
$ |
5.20 |
|
As
of February 19, 2010 there were 109,866,415 shares of common stock outstanding
and held of record by 5,007 stockholders. The closing stock price on
February 19, 2010 was $23.36
per share. Because depositories, brokers and other nominees held many
of these shares, the number of record holders is not representative of the
number of beneficial holders.
The
payment of cash dividends is subject to a restrictive covenant contained in the
instruments governing the Company’s outstanding senior debt. The
covenant allows the payment of dividends, if declared by the Board of Directors,
and the redemption or purchase of shares of its outstanding capital stock,
subject to a formula that reflects cumulative net earnings. During
the period from 2001 to the third quarter of 2007, the Company was not permitted
under the formula to pay a cash dividend on its common stock or repurchase its
shares as a result of cumulative losses recorded before and during that
period. During the third quarter of 2007, the cumulative losses
calculated under the formula were eliminated due to the improved financial
performance of the Company. Accordingly, since that time, payment of
a cash dividend and repurchase of the Company’s shares have been permissible
under the senior debt covenants. As of December 31, 2009, the
limitation on these restricted payments was approximately
$55.2. Restrictive covenants also are contained in the instruments
governing the Company’s $850.0 asset-based revolving credit
facility. Under the credit facility covenants, dividends and share
repurchases are not restricted unless availability falls below $150.0, at which
point dividends would be limited to $12.0 annually and share repurchases would
be prohibited. As of December 31, 2009, the availability under the
asset-based revolving credit facility of $600.4 significantly exceeds
$150.0. Accordingly, there currently are no covenant restrictions on
the Company’s ability to declare and pay a dividend to its
shareholders.
The
Company established an initial quarterly common stock dividend rate of $0.05 per
share effective with the March 2008 dividend payment. Information
concerning the amount and frequency of dividends declared and paid in 2009 and
2008 is as follows:
2009 COMMON STOCK
DIVIDENDS
|
|
Record
Date
|
|
Payment
Date
|
|
Per
Share
|
February
13, 2009
|
|
March
10, 2009
|
|
$0.05
|
May
15, 2009
|
|
June
10, 2009
|
|
$0.05
|
August
14, 2009
|
|
September
10, 2009
|
|
$0.05
|
November
13, 2009
|
|
December
10, 2009
|
|
$0.05
|
|
|
|
Total
|
$0.20
|
2008 COMMON STOCK
DIVIDENDS
|
|
Record
Date
|
|
Payment
Date
|
|
Per
Share
|
February
15, 2008
|
|
March
10, 2008
|
|
$0.05
|
May
16, 2008
|
|
June
10, 2008
|
|
$0.05
|
August
15, 2008
|
|
September
10, 2008
|
|
$0.05
|
November
14, 2008
|
|
December
10, 2008
|
|
$0.05
|
|
|
|
Total
|
$0.20
|
On
January 25, 2010, the Company announced that its Board of Directors declared a
quarterly cash dividend of $0.05 per share of common stock, payable on March 10,
2010, to shareholders of record on February 12, 2010.
There
were no unregistered sales of equity securities in the quarter or year ended
December 31, 2009.
ISSUER
PURCHASES OF EQUITY SECURITIES
Period
|
|
Total
Number of Shares Purchased (1) (2)
|
|
|
Average
Price Paid Per Share (1) (2)
|
|
|
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced
Program (2)
|
|
|
Approximate
Dollar Value of Shares that May Yet be Purchased Under the Plans or
Programs (2)
|
|
October
1 through 31, 2009
|
|
|
481 |
|
|
$ |
20.53 |
|
|
|
— |
|
|
|
|
November
1 through 30, 2009
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
December
1 through 31, 2009
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
Total
|
|
|
481 |
|
|
$ |
20.53 |
|
|
|
— |
|
|
$ |
125.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During
the quarter, the Company repurchased 481 shares of common stock owned by
participants in its restricted stock awards program under the terms of the
AK Steel Holding Corporation Stock Incentive Plan. In order to
satisfy the requirement that an amount be withheld that is sufficient to
pay federal, state and local taxes due upon the vesting of the restricted
stock, employees are permitted to have the Company withhold shares having
a fair market value equal to the minimum statutory withholding rate which
could be imposed on the transaction. The Company repurchases
the withheld shares at the average of the reported high and low sales
prices on the day the shares are
withheld.
|
(2)
|
On
October 21, 2008, the Company announced that its Board of Directors had
authorized the Company to repurchase, from time to time, up to $150.0 of
its outstanding equity securities. This stock repurchase plan
superseded and replaced a previous stock repurchase plan announced in
2000. There is no expiration date specified in the Board of
Directors’ authorization. The Company’s ability to purchase
shares under this authorization is subject to the same debt covenants
discussed above that can restrict dividend payments.
|
The
following graph compares cumulative total stockholder return on the Company’s
common stock for the five-year period from January 1, 2005 through December 31,
2009 with the cumulative total return for the same period of (i) the Standard
& Poor’s 500 Stock Index and (ii) S&P 500 Metals & Mining
Index. The S&P 500 Metals & Mining Index is made up of AK
Steel Holding Corporation, Alcoa Inc., Titanium Metals Corporation, Newmont
Mining Corporation, Nucor Corporation, Freeport-McMoRan Copper & Gold Inc.,
Allegheny Technologies Inc., Cliffs Natural Resources, Inc., and United States
Steel Corporation. These comparisons assume an investment of $100 at
the commencement of the period and reinvestment of dividends.
Cumulative
Total Returns
January
1, 2005 through December 31, 2009
(Value
of $100 invested on January 1, 2005)
The
following selected historical consolidated financial data for each of the five
years in the period ended December 31, 2009 have been derived from the Company’s
audited consolidated financial statements. The selected historical consolidated
financial data presented herein are qualified in their entirety by, and should
be read in conjunction with, the consolidated financial statements of the
Company set forth in Item 7 and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” set forth in Item 6.
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(dollars
in millions, except per share data)
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
4,076.8 |
|
|
$ |
7,644.3 |
|
|
$ |
7,003.0 |
|
|
$ |
6,069.0 |
|
|
$ |
5,647.4 |
|
Cost
of products sold (exclusive of items below)
|
|
|
3,749.6 |
|
|
|
6,491.1 |
|
|
|
5,919.0 |
|
|
|
5,452.7 |
|
|
|
4,996.8 |
|
Selling
and administrative expenses
|
|
|
192.7 |
|
|
|
223.6 |
|
|
|
223.5 |
|
|
|
207.7 |
|
|
|
208.4 |
|
Depreciation
|
|
|
204.6 |
|
|
|
202.1 |
|
|
|
196.3 |
|
|
|
194.0 |
|
|
|
196.4 |
|
Other
operating items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and other postretirement benefits corridor charges (1)
|
|
|
— |
|
|
|
660.1 |
|
|
|
— |
|
|
|
133.2 |
|
|
|
54.2 |
|
Asset
impairment charges (2)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31.7 |
|
Curtailment
and labor contract charges (1)
|
|
|
— |
|
|
|
39.4 |
|
|
|
39.8 |
|
|
|
15.8 |
|
|
|
12.9 |
|
Impairment
of equity investment (3)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
33.9 |
|
Total
operating costs
|
|
|
4,146.9 |
|
|
|
7,616.3 |
|
|
|
6,378.6 |
|
|
|
6,003.4 |
|
|
|
5,534.3 |
|
Operating
profit (loss)
|
|
|
(70.1 |
) |
|
|
28.0 |
|
|
|
624.4 |
|
|
|
65.6 |
|
|
|
113.1 |
|
Interest
expense
|
|
|
37.0 |
|
|
|
46.5 |
|
|
|
68.3 |
|
|
|
89.1 |
|
|
|
86.8 |
|
Interest
income (4)
|
|
|
2.7 |
|
|
|
10.5 |
|
|
|
32.2 |
|
|
|
21.2 |
|
|
|
9.1 |
|
Other
income (expense)
|
|
|
6.4 |
|
|
|
1.6 |
|
|
|
3.7 |
|
|
|
0.3 |
|
|
|
3.6 |
|
Income
(loss) from continuing operations before income tax
|
|
|
(98.0 |
) |
|
|
(6.4 |
) |
|
|
592.0 |
|
|
|
(2.0 |
) |
|
|
39.0 |
|
Income
tax provision (benefit) due to state tax law changes
|
|
|
5.1 |
|
|
|
— |
|
|
|
(11.4 |
) |
|
|
5.7 |
|
|
|
32.6 |
|
Income
tax provision (benefit)
|
|
|
(25.1 |
) |
|
|
(10.9 |
) |
|
|
215.0 |
|
|
|
(20.8 |
) |
|
|
6.2 |
|
Net
income (loss) from continuing operations
|
|
|
(78.0 |
) |
|
|
4.5 |
|
|
|
388.4 |
|
|
|
13.1 |
|
|
|
0.2 |
|
Cumulative
effect of accounting change (5)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.5 |
) |
Less:
Net income (loss) attributable to non-controlling interest
|
|
|
(3.4 |
) |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
1.1 |
|
|
|
1.0 |
|
Net
income (loss) attributable to AK Steel Holding Corporation
|
|
$ |
(74.6 |
) |
|
$ |
4.0 |
|
|
$ |
387.7 |
|
|
$ |
12.0 |
|
|
$ |
(2.3 |
) |
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
(0.68 |
) |
|
$ |
0.04 |
|
|
$ |
3.50 |
|
|
$ |
0.11 |
|
|
$ |
(0.01 |
) |
Cumulative
effect of accounting change
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.01 |
) |
Net
income (loss)
|
|
$ |
(0.68 |
) |
|
$ |
0.04 |
|
|
$ |
3.50 |
|
|
$ |
0.11 |
|
|
$ |
(0.02 |
) |
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$ |
(0.68 |
) |
|
$ |
0.04 |
|
|
$ |
3.46 |
|
|
$ |
0.11 |
|
|
$ |
(0.01 |
) |
Cumulative
effect of accounting change
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.01 |
) |
Net
income (loss)
|
|
$ |
(0.68 |
) |
|
$ |
0.04 |
|
|
$ |
3.46 |
|
|
$ |
0.11 |
|
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
461.7 |
|
|
$ |
562.7 |
|
|
$ |
713.6 |
|
|
$ |
519.4 |
|
|
$ |
519.6 |
|
Working
capital
|
|
|
889.4 |
|
|
|
1,268.6 |
|
|
|
1,453.9 |
|
|
|
1,616.0 |
|
|
|
1,343.0 |
|
Total
assets
|
|
|
4,274.7 |
|
|
|
4,682.0 |
|
|
|
5,197.4 |
|
|
|
5,517.6 |
|
|
|
5,487.9 |
|
Current
portion of long-term debt
|
|
|
0.7 |
|
|
|
0.7 |
|
|
|
12.7 |
|
|
|
— |
|
|
|
— |
|
Long-term
debt (excluding current portion)
|
|
|
605.8 |
|
|
|
632.6 |
|
|
|
652.7 |
|
|
|
1,115.2 |
|
|
|
1,114.9 |
|
Current
portion of pension and postretirement benefit obligations
|
|
|
144.1 |
|
|
|
152.4 |
|
|
|
158.0 |
|
|
|
157.0 |
|
|
|
237.0 |
|
Long-term
pension and postretirement benefit obligations (excluding current
portion)
|
|
|
1,856.2 |
|
|
|
2,144.2 |
|
|
|
2,537.2 |
|
|
|
2,927.6 |
|
|
|
3,115.6 |
|
Total
stockholders’ equity
|
|
|
880.1 |
|
|
|
970.7 |
|
|
|
877.3 |
|
|
|
419.6 |
|
|
|
222.9 |
|
Cash
dividend declared
|
|
|
22.0 |
|
|
|
22.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Under
its method of accounting for pensions and other postretirement benefits,
the Company recorded non-cash corridor charges in 2008, 2006 and
2005. Included in 2008 is a curtailment charge of $39.4
associated with a cap imposed on a defined benefit pension plan for
salaried employees. Included in 2007 are curtailment charges of
$15.1 and $24.7 associated with new labor agreements at the Company’s
Mansfield Works and Middletown Works, respectively. Included in
2006 is a curtailment charge of $10.8 associated with then-new Butler and
Zanesville Works labor agreements and one-time charges of $5.0 related to
contract negotiations. Included in 2005 is a curtailment charge
of $12.9 associated with the then-new labor agreement at the Company’s
Ashland Works. See Item 6, Management’s Discussion and Analysis
of Financial Condition and Results of Operations, and Note 1 to the
consolidated financial statements for additional
information.
|
(2)
|
In
2005, the Company recorded an asset impairment charge of $31.7 related to
certain previously idled stainless processing equipment at its Butler and
Mansfield Works.
|
(3)
|
In
2005, the Company recorded an asset and equity investment impairment
charge of $33.9 related to a decision by AK-ISG Steel Coating Company to
indefinitely idle its electrogalvanizing line by March 31,
2006.
|
(4)
|
In
2007, the Company recorded $12.5 in interest income as a result of
interest received related to the recapitalization of Combined Metals, LLC,
a private stainless steel processing company in which AK Steel holds a 40%
equity interest.
|
(5)
|
The
fourth quarter of 2005 reflected a change within Financial Accounting
Standards Board Accounting Standards Codification (“ASC”) Subtopic 410-20,
“Asset Retirement Obligations”, and resulted in the Company recording a
charge of $1.5, net of tax.
|
Item
6.
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
|
|
|
Operations
Overview
The
Company’s operations consist of seven steelmaking and finishing plants that
produce flat-rolled carbon steels, including premium-quality coated, cold-rolled
and hot-rolled products, and specialty stainless and electrical steels that are
sold in hot band, sheet and strip form. These products are sold to
the automotive, infrastructure and manufacturing, and distributors and
converters markets. The Company sells its carbon products principally
to domestic customers. The Company’s electrical and stainless steel
products are sold both domestically and, increasingly,
internationally. The Company’s continuing operations also include two
plants operated by AK Tube where flat-rolled carbon and stainless steel is
further finished into welded steel tubing. In addition, the Company operates
European trading companies that buy and sell steel and steel products and other
materials.
Safety,
quality and productivity are the focal points of AK Steel’s operations and the
hallmarks of its success. In 2009, the Company experienced another
year of outstanding safety performance and received a variety of
awards. The coke plants in Ashland, Kentucky and Middletown, Ohio,
were co-recipients in 2009 of the Max Eward Safety Award, which annually
recognizes the coke plant with the best safety record in the U.S. among members
of the American Coke and Coal Chemicals Institute. The Ashland coke
plant received this award for the fourth consecutive year and the Middletown
coke plant is now an eight-time recipient of the award. The Company’s
Zanesville Works was honored in 2009 by the Ohio Bureau of Workers Compensation
with three awards for its safety performance. Also in 2009, the
Columbus, Indiana and Walbridge, Ohio plants of AK Tube LLC, a wholly-owned
subsidiary of the Company, were recognized for their outstanding safety
performances in 2008 by the Fabricators & Manufacturers Association,
International and CNA Insurance. Furthermore, AK Tube’s Columbus,
Indiana plant was re-certified as a “Star” site in the Voluntary Protection
Program (“VPP”) of the Indiana Department of Labor’s Occupational Safety
and
Health Administration (“OSHA”), a prestigious designation signifying that the
excellence of its safety programs exceeded the requirements established by
OSHA. AK Tube’s Columbus plant has been VPP Star certified since
2006. The Company’s Rockport and Zanesville Works experienced no
recordable injuries for 2009.
The
Company also had outstanding performance with respect to quality in
2009. The Company continued to be recognized in leading surveys for
being industry-best in overall quality for carbon, stainless and electrical
steels. Jacobson and Associates recently named the Company number one
in overall customer satisfaction, quality and delivery. The Company
also received a variety of quality awards from customers and others in
2009.
With
respect to productivity, the severe downturn in the economy in 2009 resulted in
the Company reducing its operations substantially and idling various pieces of
equipment and facilities at various times throughout the year. Thus,
in 2009 the Company focused on making and finishing its products in the most
cost effective manner possible to conserve cash, reduce costs and maximize its
competitiveness. As a result of a general improvement in steel
demand, the Company was able to increase its production levels at virtually all
of its facilities during the second half of 2009.
Despite
the downturn in the economy and the need to conserve cash, the Company continued
to perform maintenance in 2009 where needed and to invest its capital for the
future. For example, the Company invested approximately $27.0 to
successfully complete the reline of the hearth and bosh sections for its
Middletown Works blast furnace.
Also
in 2009, the Company announced that it had reached agreement with Haverhill
North Coke Company (“SunCoke Haverhill”), an affiliate of SunCoke Energy, Inc.
(“SunCoke”) to provide the Company with metallurgical-grade coke from the
SunCoke Haverhill facility in southern Ohio. Under the agreement,
SunCoke Haverhill provides AK Steel with up to 550,000 tons of coke
annually. The Company will also benefit under the agreement from the
electricity co-generated from the heat recovery coke battery. This is
in addition to the previously announced project with Middletown Coke Company,
Inc., another SunCoke affiliate (“Middletown Coke”), to construct a new
state-of-the-art, environmentally friendly heat-recovery coke battery contiguous
to the Company’s Middletown Works which will be capable of producing 550,000 net
tons of metallurgical grade coke annually. It is likely that the
Company will need the production from both SunCoke facilities due to reduced
production available from, and uncertainties with respect to, the Company’s
Ashland, Kentucky coke batteries as a result of environmental
issues. To the extent the two SunCoke facilities, combined with the
Company’s existing coke batteries in Ashland, Kentucky and Middletown, Ohio,
provide more coke than the Company needs for its steel production, the Company
anticipates that it will be able to sell any excess coke in the merchant coke
market.
2009
Financial Results Overview
The
Company faced challenging times throughout 2009 as the entire steel industry was
adversely impacted by the significant decline in the domestic and global
economies. The Company took immediate and proactive measures to
address the challenging economic conditions, including reducing its operations
to match customer demand, reducing overhead costs, implementing a five-percent
pay cut for all salaried employees until conditions improved at the start of the
fourth quarter, locking and freezing the defined benefit plans for its salaried
employees, temporary layoffs of hourly and salaried employees, and reducing the
size of its salaried workforce by offering an early retirement package and
eliminating positions. While 2009 began with weak demand for the
Company’s products, market conditions improved as the year progressed and the
Company improved its financial performance each quarter throughout
2009. The Company achieved both operating profit and net income in
the second half of 2009. For the full year, the Company reported an
operating loss of $70.1 and a net loss attributable to AK Steel
Holding Corporation of $74.6, or $0.68 per share.
The
Company reported record low shipments in the first half of 2009 but saw
significant improvement in the second half as the recession bottomed out and
customer demand began to improve. In fact, the Company finished the
year strong with shipments of 1,368,300 tons in the fourth
quarter. This still was below the record levels experienced in 2008,
but nearly double the record low shipments the Company experienced in the second
quarter of 2009.
In
the face of extremely challenging economic conditions and depressed sales, the
Company took proactive steps to maintain a strong liquidity position during
2009. At the end of 2009, the Company had cash of
$461.7. While this was less than the $562.7 in cash the Company had
at the end of 2008, it was an excellent result under the circumstances,
particularly given that the Company was able to achieve it without accessing the
capital markets or utilizing its credit facility for cash. The
Company’s solid year-end cash position, along with $600.4 of availability under
its credit facility, resulted in total liquidity of almost $1.1 billion as of
December 31, 2009.
Key
Factors Generally Impacting Financial Results
The
key factor impacting the Company’s 2009 financial results was the severe decline
in the domestic and global economies which began late in 2008 and continued
throughout 2009. Although the Company began to see improvements for
the demand for its products in the second half of 2009, overall for the year it
experienced a significant decline in demand for all of its
products. This severe decline resulted in the Company reducing its
operations to try to match customer demand, including periodically idling
various operations throughout the year. These steps were required to
mitigate the financial impact to the Company and to allow it to manage its
working capital in an efficient manner.
2009
Compared to 2008
Shipments
Steel
shipments in 2009 were 3,935,500 tons, compared to 5,866,000 tons in
2008. The year-over-year reduction was primarily the result of
decreased customer demand throughout the year due to the severe decline in
overall economic conditions. Shipments declined in all reported
product categories in 2009 compared to 2008, but the percentage of decline was
greatest with respect to hot-rolled steel products. As a
result, the Company’s value-added shipments as a percent of total volume shipped
increased to 85.5% in 2009 compared to 80.7% in 2008. Tons shipped by
product category for 2009 and 2008, with percent of total shipments, were as
follows:
(tons
in thousands) |
|
2009
|
|
|
2008
|
|
Stainless/electrical
|
|
|
670.0 |
|
|
|
17.0 |
% |
|
|
957.1 |
|
|
|
16.3 |
% |
Coated
|
|
|
1,791.6 |
|
|
|
45.5 |
% |
|
|
2,477.8 |
|
|
|
42.2 |
% |
Cold-rolled
|
|
|
821.4 |
|
|
|
20.9 |
% |
|
|
1,185.2 |
|
|
|
20.2 |
% |
Tubular
|
|
|
83.2 |
|
|
|
2.1 |
% |
|
|
117.3 |
|
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
value-added shipments
|
|
|
3,366.2 |
|
|
|
85.5 |
% |
|
|
4,737.4 |
|
|
|
80.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hot-rolled
|
|
|
414.4 |
|
|
|
10.5 |
% |
|
|
949.2 |
|
|
|
16.2 |
% |
Secondary
|
|
|
154.9 |
|
|
|
4.0 |
% |
|
|
179.4 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
non value-added shipments
|
|
|
569.3 |
|
|
|
14.5 |
% |
|
|
1,128.6 |
|
|
|
19.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shipments
|
|
|
3,935.5 |
|
|
|
100.0 |
% |
|
|
5,866.0 |
|
|
|
100.0 |
% |
Net
Sales
Net
sales in 2009 were $4,076.8, down 47% from the Company’s all-time annual record
for net sales of $7,644.3 in 2008. The year-to-year decrease resulted
from lower selling prices across all of the Company’s product categories as a
result of the severe decline in the demand for steel products driven by the
economic recession. The average selling price was $1,036 per net ton
in 2009, compared to $1,303 per net ton in 2008. The Company has
variable pricing mechanisms with most of its contract customers, under which
both rising and falling commodity costs are passed through to the customer
during the life of the contract. The Company had such variable
pricing mechanisms with respect to approximately 83% of its contract shipments
in 2009. In 2009, the Company experienced a significant decline in
its raw material and energy costs. As a consequence, surcharges to
customers were reduced and that contributed to both the lower average selling
price and the lower net sales for the year.
Net
sales to customers outside the United States were $767.0, or 19% of total steel
sales, for 2009, compared to $1,267.9, or 17% of total steel sales, for
2008. A substantial majority of the revenue from sales outside of the
United States is associated with electrical and stainless steel
products. The increase in the percentage of total sales represented
by international sales in 2009 was principally due to the fact that domestic
sales declined proportionately more than international sales.
Although
the percentage of the Company’s net sales attributable to the automotive
industry increased in 2009 versus 2008, its total volume of direct automotive
sales declined. The decline in automotive sales was principally
the result of significantly reduced light vehicle production in North America
due to the downturn in the economy, which led to reduced orders from the
Company’s automotive customers. The lowest point of customer demand
was in the second quarter of the year, and demand began to increase during the
second half of 2009. This increase in demand was buoyed by the United
States federal government’s “cash for clunkers” program in the third quarter
which helped boost
the
sale of light vehicles in the United States and subsequently resulted in the
need for automotive manufacturers to increase vehicle production, spurring
demand for the Company’s automotive market products.
The
Company likewise experienced a decline in its sales to the infrastructure and
manufacturing markets. This decrease also was driven primarily by the
decline in global and domestic economies. Sales of the Company’s
electrical steel products make up a significant component of its infrastructure
and manufacturing sales. Those electrical steel sales were down
significantly in 2009 principally because of the decline in the United States
housing market, which drives the need for new electrical
transformers. To a much lesser degree, the Company’s electrical steel
sales were negatively impacted in the fourth quarter of 2009 by the trade cases
initiated in China with respect to grain oriented electrical steel imported from
the United States and Russia into China.
The
most significant sales decline in 2009 was in the distributors and converters
market, particularly with respect to hot-rolled steel
shipments. During 2007 and the first half of 2008, spot market
pricing in the steel industry rose to unprecedented levels. As a
result, the Company elected to increase its sales to the spot market as a means
of maximizing its earnings. Starting, however, in the second half of
2008 and continuing through most of 2009, the opposite was true - that is, the
spot market price for steel, particularly hot-rolled steel, declined and the
Company made a concerted effort to move away from such sales. This
led to a disproportionate decline in sales to the distributor and converter
market relative to the Company’s other markets, which typically are more heavily
weighted toward contract sales.
The
following table sets forth the percentage of the Company’s net sales
attributable to each of its markets:
Market
|
|
2009
|
|
|
2008
|
|
Automotive
|
|
|
36 |
% |
|
|
32 |
% |
Infrastructure
and Manufacturing (a)
|
|
|
31 |
% |
|
|
29 |
% |
Distributors
and Converters (a)
|
|
|
33 |
% |
|
|
39 |
% |
(a)
|
Prior
to 2008, the Company historically referred to these markets by somewhat
different names. In 2008, the names were updated to simplify
them, but the nature of the product sales and customers included in each
market was not changed. For more information, see the footnote
to the table contained in the discussion of Customers in Item
1.
|
Operating Profit (Loss) and Adjusted
Operating Profit
The
Company reported an operating loss for 2009 of $70.1, compared to an operating
profit of $28.0 for 2008. Included in 2008 annual results were a pre-tax,
non-cash corridor charge and a pre-tax, non-cash pension curtailment charge,
which are described more fully below. The exclusion of those charges
for 2008 would have resulted in adjusted operating profit of $727.5 for
2008. Exclusion of the non-cash charges from the operating results is
presented in order to clarify the effects of those charges on the Company’s
operating results and to reflect more clearly the operating performance of the
Company on a comparative basis for 2009 and 2008.
In
2009, the Company incurred no corridor charges. In 2008, however, the
Company incurred a pension corridor charge of $660.1. A corridor
charge, if required after a re-measurement of the Company’s pension and/or other
postretirement obligations, historically has been recorded in the fourth quarter
of the year in accordance with the method of accounting for pension and other
postretirement benefits which the Company adopted as a result of its merger with
Armco Inc. in 1999. Since 2001, the Company has recorded
approximately $2.5 billion in non-cash pre-tax corridor charges as a result of
this accounting treatment. These corridor charges have had a
significant negative impact on the Company’s financial statements including a
substantial increase in the Company’s accumulated deficit. Though
these corridor charges have been required in seven of the last nine years, it is
impossible to reliably forecast or predict whether they will occur in future
years or, if they do, what the magnitude will be. They are driven
mainly by events and circumstances beyond the Company’s control, primarily
changes in interest rates, performance of the financial markets, healthcare cost
trends and mortality and retirement experience.
The
Company also experienced a pension curtailment charge in 2008. This
curtailment charge was the result of salaried workforce cost reductions
implemented by the Company. A defined benefit plan covering all
salaried employees was “locked and frozen” and was replaced with a defined
contribution pension plan. Under the new defined contribution pension
plan, the Company makes a fixed percent contribution to the participants’
retirement accounts, but no longer guarantees a minimum or specific level of
retirement benefit. As a result, the Company was required to
recognize in the fourth quarter of 2008 the past service pension expense that
previously would have been amortized.
Additional
information concerning both the pension corridor charge and the pension
curtailment charge is contained in the “Pension & Other Postretirement
Employee Benefit Charges” section below.
Management
believes that reporting adjusted operating profit (as a total and on a per-ton
basis), which is not a financial measure under generally accepted accounting
principles (“GAAP”), more clearly reflects the Company’s current operating
results and provides investors with a better understanding of the Company’s
overall financial performance. In addition, the adjusted operating
results facilitate the ability to compare the Company’s financial results to
those of our competitors. Management views the reported results of
adjusted operating profit as an important operating performance measure and, as
such, believes that the GAAP financial measure most directly comparable to it is
operating profit. Adjusted operating profit is used by management as
a supplemental financial measure to evaluate the performance of the
business. Management believes that the non-GAAP measure, when
analyzed in conjunction with the Company’s GAAP results and the accompanying
reconciliations, provides additional insight into the financial trends of the
Company’s business versus the GAAP results alone. Management also
believes that investors and potential investors in the Company’s securities
should not rely on adjusted operating profit as a substitute for any GAAP
financial measure and the Company encourages investors and potential investors
to review the reconciliations of adjusted operating profit to the comparable
GAAP financial measure. While management believes that the non-GAAP
measures allow for comparability to competitors, the most significant limitation
on that comparison is that the Company immediately recognizes the pension and
other postretirement benefit corridor charges, if required, after a
re-measurement of the liability, historically, in the fourth quarter of the
year. The Company’s competitors do not recognize these pension and
other postretirement costs immediately, but instead, amortize these costs over
future years. Management compensates for the limitations of this
non-GAAP financial measure by recommending that this non-GAAP measure be
evaluated in conjunction with the GAAP financial measure.
The
following table reflects the reconciliation of non-GAAP financial measures for
the full year 2009 and 2008 results:
Reconciliation
of Operating Profit (Loss) to Adjusted Operating Profit (Loss)
|
|
2009
|
|
|
2008
|
|
Operating
profit (loss), as reported
|
|
$ |
(70.1 |
) |
|
$ |
28.0 |
|
Pension
corridor charge
|
|
|
— |
|
|
|
660.1 |
|
Curtailment
charge
|
|
|
— |
|
|
|
39.4 |
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit (loss)
|
|
$ |
(70.1 |
) |
|
$ |
727.5 |
|
Reconciliation
of Operating Profit (Loss) Per Ton to Adjusted Operating Profit (Loss) Per
Ton
|
|
2009
|
|
|
2008
|
|
Operating
profit (loss) per ton, as reported
|
|
$ |
(18 |
) |
|
$ |
5 |
|
Pension
corridor charge per ton
|
|
|
— |
|
|
|
112 |
|
Curtailment
charge per ton
|
|
|
— |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit (loss) per ton
|
|
$ |
(18 |
) |
|
$ |
124 |
|
Operating
Costs
Operating
costs in 2009 and 2008 were $4,146.9 and $7,616.3, respectively. The
primary reason that operating costs for 2009 were lower was the substantial
decrease in sales from 2008 to 2009. Also contributing in 2009 were
reduced raw material and energy costs and a LIFO credit instead of a LIFO
charge. The Company experienced lower raw material and energy costs
in 2009, primarily associated with carbon scrap, natural gas and alloys, as a
result of reduced pricing in response to the global decline in business
conditions. The Company recorded a LIFO credit in 2009 of $417.2 as a
result of its lower raw material costs, as well as a decline in its year-end
inventories. The Company lowered inventory levels as the year
progressed to conserve cash and to align with customer
demand. Conversely, in 2008, demand for raw materials increased
throughout much of the year, resulting in rising prices for raw materials until
the fourth quarter. As a result of such progressively increasing
costs in 2008, the Company recorded a LIFO charge in 2008 of
$283.3.
Selling
and Administrative Expense
The
Company’s selling and administrative expense decreased to $192.7 in 2009 from
$223.6 in 2008. This decline is the result of a reduction in the
salaried workforce, a 5% pay cut for all salaried employees which applied for
the first
three
quarters of 2009, additional cost sharing for employees’ health care costs,
lower overhead costs as the result of locking and freezing the Company’s defined
benefit pension plan for all salaried employees, and lower insurance
costs. There was also an overall reduction in spending in response to
the economic downturn.
Depreciation
Expense
Depreciation
expense increased to $204.6 in 2009 from $202.1 in 2008, consistent with the
increases in the Company’s capital investments in recent years.
Goodwill
Impairment
The
Company is required to review its goodwill for possible impairment at least
annually and did so in 2009 and 2008. Management judgment is used to
evaluate the impact of changes in operations and to estimate future cash flows
to measure fair value. Assumptions such as forecasted growth rates
and cost of capital are consistent with internal projections. The
evaluation requires that the reporting unit underlying the goodwill be measured
at fair value and, if this value is less than the carrying value of the unit, a
second test must be performed. Under the second test, the current
fair value of the reporting unit is allocated to the assets and liabilities of
the unit including an amount for “implied” goodwill. If implied
goodwill is less than the net carrying amount of goodwill, the difference
becomes the amount of the impairment that must be recorded in that
year. Neither the 2009 nor the 2008 annual reviews identified any
goodwill impairment for the Company.
Pension
& Other Postretirement Employee Benefit Charges
The
Company adopted its method of accounting for pension and other postretirement
benefit plans at the time of its merger with Armco Inc. in
1999. Under such method, the Company did not incur a corridor charge
in 2009, but did incur a non-cash, pre-tax corridor charge in 2008 of $660.1
with respect to its pension benefit plans. Pursuant to this method of
accounting, the Company is required to recognize into its results of operations,
as a non-cash “corridor” adjustment, any unrecognized actuarial net gains or
losses that exceed 10% of the larger of projected benefit obligations or plan
assets. Prior to January 31, 2009, amounts inside this 10% corridor
were amortized over the average remaining service life of active plan
participants. Beginning January 31, 2009, the date of the “lock and
freeze” of a defined benefit pension plan covering all salaried employees, the
actuarial gains and losses will be amortized over the plan participants’ life
expectancy. Actuarial net gains and losses occur when actual
experience differs from any of the many assumptions used to value the benefit
plans, or when the assumptions change, as they may each year when a valuation is
performed. The effect of prevailing interest rates on the discount
rate used to value projected plan obligations as of the December 31 measurement
date is one of the more important factors used to determine the Company’s
year-end liability, corridor adjustment and subsequent year’s expense for these
benefit plans. The 2008 corridor charge of $660.1 was caused
principally by actuarial losses on the investment performance of pension
assets. The Company did not incur a corridor charge related to
other postretirement benefits in 2009 or 2008.
ASC
Topic 715 “Compensation-Retirement Benefits” provides guidance for accounting
for pensions and other postretirement benefit plans. This guidance
requires companies to recognize on their balance sheet the overfunded or
underfunded position of their plans with a corresponding adjustment to
accumulated other comprehensive income, net of tax. The Company
changed its measurement date from October 31 to December 31 during 2008 to meet
the requirements of ASC Subparagraph 715-20-65-1. The change in the
measurement date resulted in an increase in the deferred tax asset of $5.6, an
increase to pension and other postretirement benefit liabilities of $15.8, a
decrease to retained earnings of $7.4 and a decrease to accumulated other
comprehensive income of $2.8.
In
the fourth quarter of 2008, the Company recognized a curtailment charge of $39.4
as a result of the Company’s decision to “lock and freeze”, as of January 31,
2009, the accruals for a defined benefit pension plan covering all salaried
employees. The defined benefit pension accruals were replaced by a
fixed percent contribution to a defined contribution pension plan. As
a result, the Company was required to recognize in the fourth quarter of 2008
the past service pension expense that previously would have been
amortized.
Interest
Expense
The
Company’s interest expense for 2009 was $37.0, which was $9.5 lower than in
2008. This decrease was due primarily to the Company’s early
redemption during 2009 of $26.4 of its $550.0 outstanding senior notes due in
2012 and lower interest rates on the Company’s variable rate
debt. The Company also recognized higher capitalized interest due
primarily to the ongoing electrical steel projects at the Company’s Butler
Works.
Interest
Income
The
Company’s interest income for 2009 was $2.7, which was $7.8 lower than in
2008. The reduction is attributable to lower levels of cash and cash
equivalents, as well as lower returns earned on that cash and cash equivalents
in 2009 compared to 2008.
Other
Income
The
Company’s other income for 2009 was $6.4, which was $4.8 higher than in
2008. This increase was due primarily to foreign exchange gains as a
result of the strengthening of the euro against the dollar.
Income
Taxes
In
2009, the Company had an income tax benefit of $20.0, which included a charge of
$5.1 due to a state tax law change, compared to an income tax benefit of $10.9
in 2008. This increase in the tax benefit was due primarily to a
higher pre-tax loss in 2009.
Net
Income (Loss) Attributable to AK Steel Holding Corporation
The
Company’s net loss in 2009 was $74.6, or $0.68 per diluted share. In
2008, the Company reported net income of $4.0, or $0.04 per diluted share. The
reduction in 2009 compared to 2008 was principally a result of the severe
economic downturn in the domestic and global economies, which caused a
significant decline in sales in all of the Company’s markets. The
Company had sales of $4,076.8 for 2009 compared to record sales of $7,644.3 for
2008. This extraordinary decline in sales was attributable to both a
decline in volume and a decline in average selling price. The
detrimental impact of this loss of revenue from 2008 to 2009 on the Company’s
net results was partially offset by the fact that the Company incurred a pre-tax
non-cash curtailment charge and a pre-tax, non-cash pension corridor charge in
2008 which totaled $699.5. There were no curtailment or corridor
charges in 2009.
2008
Compared to 2007
Shipments
Steel
shipments in 2008 were 5,866,000 tons, compared to 6,478,700 tons in
2007. The year-to-year decrease was primarily the result of decreased
sales in the fourth quarter due to the extreme decline in overall economic
conditions. Shipments of stainless, coated, cold-rolled and tubular
products all declined in 2008 compared to 2007. Partially offsetting
these declines were increases in shipments of the Company’s high-end,
grain-oriented electrical steel products and shipments by the Company’s European
operations. The increase in high-end electrical steel shipments
was principally the result of strong demand for such products through the first
nine months of the year, both domestically and internationally, and was
facilitated by the Company’s prior capital investments to increase its
production capacity of electrical steel products. As a result of the
overall decline throughout most of the Company’s business, the value-added
shipments remained relatively constant at 80.7% compared to
80.3%. Tons shipped by product category for 2008 and 2007 were as
follows:
(tons
in thousands) |
|
|
2008
|
|
|
2007
|
|
Stainless/electrical
|
|
|
957.1 |
|
|
|
16.3 |
% |
|
|
1,072.0 |
|
|
|
16.5 |
% |
Coated
|
|
|
2,477.8 |
|
|
|
42.2 |
% |
|
|
2,665.2 |
|
|
|
41.1 |
% |
Cold-rolled
|
|
|
1,185.2 |
|
|
|
20.2 |
% |
|
|
1,325.7 |
|
|
|
20.5 |
% |
Tubular
|
|
|
117.3 |
|
|
|
2.0 |
% |
|
|
144.7 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
value-added shipments
|
|
|
4,737.4 |
|
|
|
80.7 |
% |
|
|
5,207.6 |
|
|
|
80.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hot-rolled
|
|
|
949.2 |
|
|
|
16.2 |
% |
|
|
1,008.5 |
|
|
|
15.6 |
% |
Secondary
|
|
|
179.4 |
|
|
|
3.1 |
% |
|
|
262.6 |
|
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
non value-added shipments
|
|
|
1,128.6 |
|
|
|
19.3 |
% |
|
|
1,271.1 |
|
|
|
19.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shipments
|
|
|
5,866.0 |
|
|
|
100.0 |
% |
|
|
6,478.7 |
|
|
|
100.0 |
% |
Net
Sales
The
Company set an all-time record for net sales in 2008 of $7,644.3, up 9% from the
2007 then-record sales of $7,003.0. The year-to-year increase was
driven by a record 2008 average annual selling price of $1,303 per ton
compared
to $1,081 per ton in 2007. Several factors helped drive this
improvement. First, the Company benefited from an increase in pricing
related to its contract business, with approximately 50% of its total shipments
for the year being made subject to such pricing. Second, with respect
to the Company’s spot market sales, prices increased as a result of strong
demand during the first nine month of the year, before retreating significantly
during the fourth quarter. Third, over the course of the last several years, the
Company has focused on optimizing its product mix to focus on growing its niche
markets where its profit margins are strongest. Lastly, as a result
of volatile raw material and energy costs, the Company has negotiated variable
pricing mechanisms with most of its contract customers, which enable the Company
to pass on rising or falling commodity and energy costs during the life of the
contract. The Company had such variable pricing mechanisms with
respect to approximately 75% of its contract shipments in 2008.
Net
sales to customers outside the United States were $1,267.9, or 17% or total
steel sales, for 2008, and $925.1, or 13% of total steel sales, for
2007. A substantial majority of the revenue outside of the United
States is associated with electrical and stainless steel products.
The
Company’s direct automotive sales declined to approximately 32% of the Company’s
total sales in 2008, compared to 40% in 2007. The relative decline in
automotive sales is principally the result of significantly reduced light
vehicle production in North America due to the downturn in the economy, which
led to reduced orders from the Company’s automotive customers, particularly in
the fourth quarter of 2008. It also is attributable to an increased
volume of sales into the spot market of hot rolled products to non-automotive
customers. Also contributing to the decline in the percentage of
direct automotive sales was an increase in the Company’s revenues from 2007 to
2008 attributable to electrical steel products which are included below in the
infrastructure and manufacturing markets for the Company’s
products. The increase in revenue for electrical steel products was
the result of both higher prices and increased shipments, particularly with
respect to high-end, grain-oriented electrical steel products. The
Company’s infrastructure and manufacturing market sales increased to 29% of the
Company’s total sales in 2008, compared to 26% in 2007. This increase
is principally the result of the increased electrical steel sales and reduced
direct automotive sales. The Company’s distributor and converter
sales increased to 39% from 34% in 2007. The principal reason for
this percentage increase also was the decline in direct automotive
sales. The following table sets forth the percentage of the Company’s
net sales attributable to various markets:
Market
|
|
2008
|
|
|
2007
|
|
Automotive
|
|
|
32 |
% |
|
|
40 |
% |
Infrastructure
and Manufacturing (a)
|
|
|
29 |
% |
|
|
26 |
% |
Distributors
and Converters (a)
|
|
|
39 |
% |
|
|
34 |
% |
(a)
|
The
Company historically has referred to these markets by somewhat different
names. The names have been updated to simplify them, but the
nature of the product sales and customers included in each market has not
changed. For more information, see the footnote to the table
contained in the discussion of Customers in Item
1.
|
Operating Profit and Adjusted
Operating Profit
The
Company reported an operating profit for 2008 of $28.0, compared to an operating
profit of $624.4 for 2007. Included in 2008 and 2007 annual results were
pre-tax, primarily non-cash corridor charges, which are described more fully
below. The exclusion of those charges results in record adjusted
operating profit for 2008 of $727.5 compared to $664.2 for 2007.
Exclusion
of the non-cash charges, discussed below, from the operating results is
presented in order to clarify the effects of those charges on the Company’s
operating results and to more clearly reflect the operating performance of the
Company on a comparative basis for 2008 and 2007. The excluded
charges consist of a pension corridor charge in 2008 and pension curtailment
charges in 2008 and 2007.
The
Company incurred a corridor charge in 2008 of $660.1 related to its pension
obligations. There were no corridor charges in 2007. A
corridor charge, if required after a re-measurement of the Company's pension and
other postretirement obligations, historically has been recorded in the fourth
quarter of the year in accordance with the method of accounting for pension and
other postretirement benefits which the Company adopted as a result of its
merger with Armco Inc. in 1999. Since 2001, the Company has recorded
approximately $2.5 billion in non-cash pre-tax corridor charges as a result of
this accounting treatment. These corridor charges have had a
significant negative impact on the Company’s financial statements including a
substantial reduction in the Company’s accumulated
deficit. Additional information concerning these corridor charges is
contained in the “Pension
& Other Postretirement Employee Benefit Charges” section
below. Though these corridor charges have been required in seven of
the last eight years, it is impossible to reliably forecast or predict whether
they will occur in future years or, if they do, what the magnitude will
be. They are driven mainly by events and circumstances beyond the
Company’s control, primarily
changes
in interest rates, performance of the financial markets, healthcare cost trends
and mortality and retirement experience.
The
2008 curtailment charge was a result of salaried workforce cost reductions
implemented by the Company. A defined benefit plan covering all
salaried employees was “locked and frozen” and was replaced with a fixed percent
contribution to a defined contribution pension plan. As a result, the
Company was required to recognize in the fourth quarter of 2008 the past service
pension expense that previously would have been amortized. Additional
information concerning this charge is contained in the “Pension & Other Postretirement
Employee Benefit Charges” section below.
The
2007 curtailment charge was a result of new labor agreements that the Company
entered into with the represented employees at the Company’s Middletown Works
and Mansfield Works. Under these agreements, the existing defined
benefit pension plan was “locked and frozen” in 2007, with subsequent Company
contributions being made to multiemployer pension trusts. As a
result, the Company was required to recognize in 2007 the past service pension
expense that previously would have been amortized. These new labor
agreements extend until 2011 and no further curtailment or other charges are
anticipated to occur for the duration of the agreements. Additional
information concerning these charges is contained in the “Pension & Other Postretirement
Employee Benefit Charges” section below.
Management
believes that reporting adjusted operating profit (as a total and on a per-ton
basis), which is not a financial measure under generally accepted accounting
principles (“GAAP”), more clearly reflects the Company’s current operating
results and provides investors with a better understanding of the Company’s
overall financial performance. In addition, the adjusted operating
results facilitate the ability to compare the Company’s financial results to
those of our competitors. Management views the reported results of
adjusted operating profit as an important operating performance measure and, as
such, believes that the GAAP financial measure most directly comparable to it is
operating profit. Adjusted operating profit is used by management as
a supplemental financial measure to evaluate the performance of the
business. Management believes that the non-GAAP measure, when
analyzed in conjunction with the Company’s GAAP results and the accompanying
reconciliations, provides additional insight into the financial trends of the
Company’s business versus the GAAP results alone. Management also
believes that investors and potential investors in the Company’s securities
should not rely on adjusted operating profit as a substitute for any GAAP
financial measure and the Company encourages investors and potential investors
to review the reconciliations of adjusted operating profit to the comparable
GAAP financial measure. While management believes that the non-GAAP
measures allow for comparability to competitors, the most significant limitation
on that comparison is that the Company immediately recognizes the pension and
other postretirement benefit corridor charges, if required, after a
re-measurement of the liability, historically, in the fourth quarter of the
year. The Company’s competitors do not recognize these pension and
other postretirement costs immediately, but instead, amortize these costs over
future years. Management compensates for the limitations of this
non-GAAP financial measure by recommending that this non-GAAP measure be
evaluated in conjunction with the GAAP financial measure.
The
following table reflects the reconciliation of non-GAAP financial measures for
the full year 2008 and 2007 results:
Reconciliation
of Operating Profit to Adjusted Operating Profit
|
|
2008
|
|
|
2007
|
|
Operating
profit, as reported
|
|
$ |
28.0 |
|
|
$ |
624.4 |
|
Pension
corridor charge
|
|
|
660.1 |
|
|
|
— |
|
Curtailment
charges
|
|
|
39.4 |
|
|
|
39.8 |
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit
|
|
$ |
727.5 |
|
|
$ |
664.2 |
|
Reconciliation
of Operating Profit Per Ton to Adjusted Operating Profit Per Ton
|
|
2008
|
|
|
2007
|
|
Operating
profit per ton, as reported
|
|
$ |
5 |
|
|
$ |
96 |
|
Pension
corridor charge per ton
|
|
|
112 |
|
|
|
— |
|
Curtailment
charges per ton
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
Adjusted
operating profit per ton
|
|
$ |
124 |
|
|
$ |
103 |
|
Reconciliation
of Pre-Tax Income (Loss) to Adjusted Pre-Tax Income
|
|
2008
|
|
|
2007
|
|
Pre-tax
income (loss), as reported
|
|
$ |
(6.4 |
) |
|
$ |
592.0 |
|
Pension
corridor charge
|
|
|
660.1 |
|
|
|
— |
|
Curtailment
charges
|
|
|
39.4 |
|
|
|
39.8 |
|
|
|
|
|
|
|
|
|
|
Adjusted
pre-tax income
|
|
$ |
693.1 |
|
|
$ |
631.8 |
|
Operating
Costs
Operating
costs in 2008 and 2007 were $7,616.3 and $6,378.6,
respectively. Operating costs for 2008 were negatively affected by
higher steelmaking input costs, principally with respect to certain raw
materials and energy costs. Total 2008 costs for various raw
materials, including iron ore, alloys, zinc, aluminum, and purchased slabs,
increased by over $780. As a result of the progressively increasing
costs during both years, the Company recorded LIFO charges in 2008 and 2007 of
$283.3 and $31.2, respectively. In 2008, the Company benefited from
the lower costs associated with lower retiree healthcare benefits resulting from
the settlement in the first quarter of 2008 with a group of retirees from its
Middletown Works. Operating costs were higher in 2007 as the result
of an unplanned outage at its Ashland Works blast furnace during the third and
fourth quarters of 2007.
Selling
and Administrative Expense
The
Company’s selling and administrative expense increased slightly to $223.6 in
2008 from $223.5 in 2007.
Depreciation
Expense
Depreciation
expense increased to $202.1 in 2008 from $196.3 in 2007, in line with the
increases in the Company’s capital investments in recent years.
Goodwill
Impairment
The
Company is required to review its goodwill for possible impairment at least
annually. The 2008 and 2007 annual reviews did not result in any
goodwill impairment for the Company.
Pension
& Other Postretirement Employee Benefit Charges
The
Company adopted its method of accounting for pension and other postretirement
benefit plans at the time of its merger with Armco Inc. in
1999. Under such method, the Company incurred a non-cash, pre-tax
corridor charge in 2008 of $660.1 with respect to its pension benefit
plans. Pursuant to this method of accounting, the Company is required
to recognize into its results of operations, as a non-cash “corridor”
adjustment, any unrecognized actuarial net gains or losses that exceed 10% of
the larger of projected benefit obligations or plan assets. Prior to
January 31, 2009, amounts inside this 10% corridor were amortized over the
average remaining service life of active plan participants. Beginning
January 31, 2009, the date of the “lock and freeze” of a defined benefit pension
plan covering all salaried employees, the actuarial gains and losses will be
amortized over the plan participants’ life expectancy. Actuarial net
gains and losses occur when actual experience differs from any of the many
assumptions used to value the benefit plans, or when the assumptions change, as
they may each year when a valuation is performed. The effect of
prevailing interest rates on the discount rate used to value projected plan
obligations as of the December 31 measurement date is one of the more important
factors used to determine the Company’s year-end liability, corridor adjustment
and subsequent year’s expense for these benefit plans. The 2008
corridor charge of $660.1 was caused principally by actuarial losses on the
investment performance of pension assets. The Company did not
incur an other postretirement employee benefit corridor charge in
2008. There were no corridor charges incurred in 2007.
ASC
Topic 715, “Compensation-Retirement Benefits” provides guidance for accounting
for pensions and other postretirement benefit plans. This guidance
requires companies to recognize on their balance sheet the overfunded or
underfunded position of their plans with a corresponding adjustment to
accumulated other comprehensive income, net of tax. The Company
changed its measurement date from October 31 to December 31 during 2008 to meet
the requirements of ASC Subparagraph 715-20-65-1. The change in the
measurement data resulted in an increase in the deferred tax asset of $5.6, an
increase to pension and other postretirement benefit liabilities of $15.8, a
decrease to retained earnings of $7.4 and a decrease to accumulated other
comprehensive income of $2.8.
In
the fourth quarter of 2008, the Company recognized a curtailment charge of $39.4
as a result of the Company’s decision to “lock and freeze”, as of January 31,
2009, the accruals for a defined benefit pension plan covering all salaried
employees. The defined benefit pension accruals were replaced by a
fixed percent contribution to a defined contribution pension plan. As
a result, the Company was required to recognize in the fourth quarter of 2008
the past service pension expense that previously would have been
amortized.
In
2007, the Company recognized curtailment charges associated with new labor
agreements at the Company’s Mansfield Works and Middletown Works of $15.1 and
$24.7, respectively. Under these agreements, the existing defined
benefit pension plan at each facility was “locked and frozen” with subsequent
Company contributions being made to multiemployer pension trusts. As
a result, the Company was required to recognize in 2007 the past service pension
expense that previously would have been amortized. On balance, the
Company expects the future benefits associated with the new labor agreement,
including the locking and freezing of the defined benefit plans will outweigh
the one-time curtailment charges and the ongoing contributions to the
multiemployer pension trusts.
Interest
Expense
The
Company’s interest expense for 2008 was $46.5, which was $21.8 lower than in
2007. This decrease was due primarily to the Company’s early
redemption during 2007 of the entire $450.0 of outstanding 7 7/8% senior notes
due in 2009. While the Company experienced some of the benefit of
that reduction in interest expense during 2007, it experienced the full benefit
for the first time in 2008.
Interest
Income
The
Company’s interest income for 2008 was $10.5, which was $21.7 lower than in
2007. This decrease was due primarily to the fact that the Company
received $12.5 of interest in 2007 as a result of the recapitalization of
Combined Metals of Chicago, LLC, a private stainless steel processing company in
which the Company holds a 40% equity interest. The reduction also is
attributable to lower levels of cash and cash equivalents, as well as lower
returns earned on that cash and cash equivalents in 2008 compared to
2007.
Other
Income
The
Company’s other income for 2008 was $1.6, which was $2.1 lower than in
2007. This decrease was due primarily to foreign exchange losses
partially offset by gains associated with the repurchase of $19.6 par value of
the Company’s $550.0 outstanding 7 3/4% senior notes due in 2012.
Income
Taxes
In
2008, the Company had an income tax benefit of $10.9, compared to an income tax
provision of $203.6 in 2007, which included a benefit of $11.4 due to state tax
law changes. This reduction was due primarily to a significantly
lower level of pre-tax income in 2008.
Net
Income Attributable to AK Steel Holding Corporation
The
Company’s net income in 2008 was $4.0, or $0.04 per diluted share. In
2007, the Company reported net income of $387.7, or $3.46 per diluted share. The
reduction in 2008 compared to 2007 was principally a result of the negative
impact of the pre-tax pension corridor and curtailment charges incurred in 2008,
which was partially offset by the beneficial impact of significantly increased
sales. In 2008, the Company’s pre-tax curtailment charge and
pension corridor charge totaled $699.5. In 2007, the Company recorded
pension curtailment charges of $39.8 and incurred no corridor
charges. The Company had record sales of $7,644.3 for 2008 compared
to $7,003.0 in 2007. This record sales performance was driven by a
record 2008 average selling price of approximately $1,303 per ton compared to
$1,081 per ton in 2007. The benefit of the record 2008 sales was
partially offset by higher raw material costs, a higher LIFO charge and higher
operating costs associated with the reduction in production levels in the fourth
quarter of 2008 as a result of the significant decline in economic conditions
which severely impacted the steel industry.
Outlook
All
of the statements in this Outlook section are subject
to, and qualified by, the information in the Forward Looking Statements
section below.
The
Company currently expects first quarter 2010 shipments to be essentially flat
compared to the fourth quarter of 2009 shipments of approximately 1.4 million
tons. As is typically the case, we expect the first quarter to be our
lowest
shipment
quarter of the year. We expect our average selling price to rise
approximately 4% to 5% over the previous quarter level, driven by both an
increase in the demand for steel products due to improving economic conditions
and the passing through, where possible, of rising input costs. The
Company anticipates lower operating and maintenance costs compared to the fourth
quarter of 2009 due to improved operating rates and a continuous improvement in
all areas of our business. In addition, the Company expects
maintenance outage costs in the first quarter of 2010 to be approximately $18.0
lower than in the fourth quarter of 2009. Conversely, while the
Company recorded a significant LIFO credit in the fourth quarter of 2009, it
expects to incur a LIFO charge in the first quarter of 2010, driven by higher
costs for raw materials. Netting the positive and negative factors,
the Company expects to report an operating profit of approximately $35 per ton
for the first quarter of 2010. For the remainder of the year, the
Company currently anticipates higher quarterly shipment levels and higher
average selling prices than during the first quarter of 2010.
Other
factors relevant to the Company’s full-year 2010 outlook include the
following:
1)
|
The
Company estimates capital investments of about $200.0 in 2010, which would
almost be equal to the anticipated 2010 depreciation
expenses. A substantial portion of the 2010 capital budget is
designated for the planned expansion and upgrade of the melt shop at the
Company’s Butler Works.
|
2)
|
The
Company anticipates interest expense on its long-term debt to be
relatively flat, year over year.
|
3)
|
The
Company expects pension and other postretirement employee benefit expense
to decrease by approximately $40.0 in 2010, due to higher than expected
pension fund investment returns in 2009 and lower other postretirement
obligation costs due to continued cost control measures. Also,
interest cost is expected to be lower on both the pension and other
postretirement benefit obligations due to lower discount
rates.
|
4)
5)
|
The
Company projects a book tax rate for 2010 of approximately 39%, and
estimates that its cash tax rate will be less than 5%.
The Company currently is assuming an approximate 30%
increase in the price it pays for iron ore in
2010.
|
There
are many factors which could significantly impact this outlook. In
the current economic environment, it is extremely difficult to provide reliable
financial forecasts, even on a quarterly basis. The foregoing outlook
thus is subject to change depending on developments in the economy, in the
Company’s business, and in the businesses of the Company’s
customers. For example, although electrical steel sales have
increased from 2009 levels, the market for electrical steel products is
recovering more slowly than had been originally anticipated and, if this
continues, it could adversely impact the Company's total electrical steel sales
for 2010. With respect to carbon steel products, there is a risk that the
current recalls of certain Toyota vehicles could have a negative impact on North
American vehicle production by Toyota and, because Toyota is an important
customer of AK Steel, on demand for the Company’s steel products. To date,
however, there has been minimal adverse impact on the Company’s sales to Toyota
and Toyota has publicly announced that it has identified fixes to the problems
that caused the recalls. It is a developing situation, however, and
the Company continues to monitor it closely. Even if the impact of
the recalls on Toyota’s North American vehicle sales becomes greater than is
presently anticipated, the Company has no reason to believe that it will
significantly reduce overall demand for vehicles in North America. Under such
circumstances, because the Company sells its steel to all major automotive
manufacturers in North America, any reduction in the Company’s sales to Toyota
likely would be substantially offset by an increase in sales to other automotive
manufacturers.
Liquidity
and Capital Resources
At
December 31, 2009, the Company had $461.7 of cash and cash equivalents and
$600.4 of availability under the Company’s $850.0 five-year revolving credit
facility for total liquidity of $1,062.1. At December 31, 2009, there
were no outstanding borrowings under the credit facility; however, the
availability reflects the reduction of $136.9 associated with outstanding
letters of credit. The Company’s obligation under its credit facility
is secured by its inventory and accounts receivable. Thus,
availability also may be reduced by a decline in the level of eligible
collateral, which can fluctuate monthly under the terms of the credit
facility. The Company’s eligible collateral, after application of
applicable advance rates, totaled $737.3 as of December 31, 2009. The
Company has no significant scheduled debt payments due until June 2012 when its
7 3/4% senior notes are due. In addition, the Company’s credit
facility expires in February 2012.
During
2009, cash generated by operating activities totaled $58.8, due primarily to
lower inventories, which was partially offset by a contribution to the
Middletown Works retirees VEBA Trust and contributions to the pension
trust. The Company generated $138.7 of cash from managing the level
of accounts receivable, inventories, accounts payable and current liabilities
due primarily to the lower level of inventories mentioned
above. Management believes that the Company’s receivables and current
liability levels are reflective of the current business
environment.
During
2009, the Company made pension contributions totaling
$210.0. Contributions of $50.0 were made in the first and second
quarters. The third quarter pension contribution of $110.0 was double
the $55.0 that was required for the
balance
of 2009 and reduced the Company’s 2010 contribution obligation to approximately
$105.0. A $75.0 contribution toward that total was made in the first
quarter of 2010. The most recent contribution increased the Company’s
total pension contributions since 2005 to over $1.1 billion. The
Company estimates annual required pension contributions for the years 2011 and
2012 to be approximately $275.0 each year. The calculation of
estimated future pension contributions requires the use of assumptions
concerning future events. The most significant of these assumptions
relate to future investment performance of the pension funds, actuarial data
relating to plan participants, and the interest rate used to discount future
benefits to their present value. Because of the variability of factors
underlying these assumptions, including the possibility of changes to pension
legislation in the future, the reliability of estimated future pension
contributions decreases as the length of time until the contributions must be
made increases. For a more detailed discussion of the pension
contribution estimates, see Employee Benefit Obligations
below.
Cash
used by investing activities in 2009 totaled $133.4. This includes
$109.5 of capital investments and $24.0 related to the investment by Middletown
Coke Company, Inc. in capital equipment for the coke plant being constructed in
Middletown, Ohio, as discussed above in the “Operations Overview” section of
this Item 6 and as further discussed below. The Middletown Coke
capital investment is funded by its parent SunCoke and is reflected as a payable
from Middletown Coke to SunCoke.
The
Company entered into a 20-year supply contract in 2008 with Middletown Coke to
provide the Company with metallurgical-grade coke and electrical
power. The coke and power will come from a new facility to be
constructed, owned and operated by Middletown Coke adjacent to the Company’s
Middletown Works. Even though the Company has no ownership interest
in Middletown Coke, the expected production from the facility is completely
committed to the Company. As such, Middletown Coke is deemed to be a
variable interest entity and the financial results of Middletown Coke are
required to be consolidated with the results of the Company as directed by ASC
Topic 810, “Consolidation”. At December 31, 2009, Middletown Coke had
approximately $71.9 in assets comprised mainly of construction in
progress. Additionally, Middletown Coke had approximately $74.8 in
liabilities, comprised mainly of payables to its parent, SunCoke.
Cash
used by financing activities in 2009 totaled $26.4. This includes
$23.5 to repurchase a portion of the Company’s debt obligations, the purchase of
$11.4 of the Company’s common stock primarily related to the Company’s share
repurchase program, and the payment of common stock dividends in the amount of
$22.0. The collective amount of these uses was offset by $29.0 in
advances from noncontrolling interest owner SunCoke to Middletown Coke, and $0.5
in proceeds resulting from the exercise by recipients of the Company’s stock
options.
In
July 2008, the Company announced a $21.0 capital investment to further expand
the Company’s production capabilities for high-end, grain-oriented electrical
steels. The project includes installation of new production equipment
at the Company’s Butler Works to utilize the Company’s proprietary special
annealing technology, as well as upgrades to an existing processing line at
Butler Works. In addition to enhancing production capacity for higher
quality grades of electrical steels, the project also will help improve the
Company’s product mix flexibility. The Company currently expects the
project to be completed in 2010. This capital investment is a part of
a previously-announced project currently underway at the Company’s Butler and
Zanesville Works which is the Company’s fourth project since 2005 to expand
production of electrical steels.
During
2009, the Company repurchased $26.4 of the original $550.0 par value of its 7
3/4% senior notes due in 2012, with cash payments totaling $22.8. In
connection with these repurchases, the Company incurred non-cash, pre-tax gains
of approximately $3.6 in 2009. The repurchases were funded from the
Company’s existing cash balances. In 2010, the Company from time to
time may continue to make cash repurchases of its outstanding senior notes
though open market purchases, privately negotiated transactions or
otherwise. Such repurchases, if any, will depend upon whether any
senior notes are offered to the Company by the holders, prevailing market
conditions, the Company’s cash and liquidity position and needs, and other
relevant factors. The amounts involved in the repurchases may or may
not be material.
During
2009, the Company repurchased $11.4 of its common stock. In 2010, the
Company from time to time may continue to purchase stock in accordance with the
Company’s share repurchase program.
The
Company believes that its current liquidity will be adequate to meet its
obligations for the foreseeable future. With respect to short-term
sources of cash, the Company’s primary sources are cash generated by operations,
and if necessary, borrowings from its revolving credit
facility. Despite the downturn in the global economic markets which
commenced in the latter part of 2008 and continued through 2009, in 2009 the
Company made pension payments of $210.0, contributions to the Middletown Works
retirees VEBA trust of $65.0, and funded postretirement benefit obligation costs
of $108.5. Even taking into account the above mentioned cash
outflows, the Company generated $58.8 of cash flow from operations in
2009.
Other
primary uses of cash include capital expenditures, repayment and repurchase of
debt and related interest, repurchase of common shares and dividends on common
stock. In 2009, 2008 and 2007 the Company made capital expenditures
of $109.5, $166.8 and $104.4, respectively. In 2009, 2008 and
2007 the Company made total debt repayments and repurchases of $23.5, $26.9 and
$450.0, respectively. While the 2009 and 2008 debt-related payments
were primarily for the repurchase of senior notes due in 2012, the full 2007
amount was used to redeem all of the Company’s outstanding senior notes due in
2009.
As
to longer-term obligations, the Company has significant debt maturities and
other obligations that come due after 2010, including estimated cash
contributions to its qualified pension plans, based on current legislation and
actuarial assumptions. For further information, see the Tabular Disclosure of Contractual
Obligations section below. The Company’s $850.0 revolving
credit facility expiring in 2012 is secured by the Company’s product inventory
and accounts receivable and contains restrictions on, among other things,
distributions and dividends, acquisitions and investments, indebtedness, liens
and affiliated transactions. The facility requires maintenance of a
minimum fixed charge coverage ratio of 1 to 1 if availability under the facility
falls below $125.0. The Company is in compliance with its credit
facility covenants and, absent the occurrence of unexpected adverse events,
expects that it will remain in compliance for the foreseeable
future. At December 31, 2009, the Company had no outstanding
borrowings under the credit facility; however, availability was reduced by
$136.9 due to outstanding letters of credit. In addition,
availability under the facility can fluctuate monthly as a result of changes in
the amount of eligible collateral, such as the Company’s inventory and accounts
receivable. As of December 31, 2009, the Company’s eligible
collateral, after application of applicable advance rates, totaled
$737.3.
The
instruments governing the Company’s outstanding 7-3/4% senior notes due in 2012
include a minimum interest coverage ratio of at least 2.5 to 1 for the
incurrence of debt. As discussed below, failure to meet this covenant
limits to $100.0 the amount of debt that the Company can incur in addition to
the aggregate amount outstanding under the senior notes and the availability at
the time under the credit facility. At December 31, 2009, the ratio
fell below the 2.5 to 1 incurrence test.
Notwithstanding
the current limit on its ability to incur additional debt, as discussed in the
preceding paragraph, the Company believes that it will be able to meet its cash
requirements for the foreseeable future in light of its cash generated from
operations, significant availability under its revolving credit facility, and
ability to access the capital markets to refinance and/or repay debt and other
obligations as they come due. Uncertainties related to the global and
U.S. economies and financial markets, however, could restrict the Company’s
flexibility with respect to its available liquidity sources, such as preventing
the Company from refinancing those liabilities at more favorable rates than
those currently available.
Dividends
The
payment of cash dividends is subject to a restrictive covenant contained in the
instruments governing the Company’s outstanding senior debt. The
covenant allows the payment of dividends, if declared by the Board of Directors,
and the redemption or purchase of shares of its outstanding capital stock,
subject to a formula that reflects cumulative net earnings. From 2001
through the first half of 2007, the Company was not permitted under that formula
to pay a cash dividend on its common stock as a result of cumulative losses
recorded over several years. During the third quarter 2007, the
cumulative losses calculated under the formula were eliminated due to the
improved financial performance of the Company. Accordingly, a cash
dividend has been permissible since that time under the Company’s senior debt
covenants. Restrictive covenants also are contained in the
instruments governing the Company’s $850.0 asset-based revolving credit
facility. Under the credit facility covenants, dividends are not
restricted unless availability falls below $150.0, at which point dividends
would be limited to $12.0 annually. Currently, the availability under
the credit facility significantly exceeds $150.0. Accordingly, there
currently are no covenant restrictions on the Company’s ability to declare and
pay a dividend to its shareholders.
The
Company established an initial quarterly common stock dividend rate of $0.05 per
share effective with the March 2008 dividend payment. Information
concerning the amount and frequency of dividends declared and paid in 2009 is as
follows:
2009 COMMON STOCK
DIVIDENDS
|
|
Record
Date
|
|
Payment
Date
|
|
Per
Share
|
February
13, 2009
|
|
March
10, 2009
|
|
$0.05
|
May
15, 2009
|
|
June
10, 2009
|
|
$0.05
|
August
14, 2009
|
|
September
10, 2009
|
|
$0.05
|
November
13, 2009
|
|
December
10, 2009
|
|
$0.05
|
|
|
|
Total
|
$0.20
|
On
January 25, 2010, the Company announced that its Board of Directors had declared
a quarterly cash dividend of $0.05 per share of common stock, payable on March
10, 2010, to shareholders of record on February 12, 2010.
Financial
Covenants
The
indentures governing the Company’s outstanding 7 3/4% senior notes due in 2012
and its $850.0 revolving credit facility contain restrictions and covenants that
may limit the Company’s operating flexibility.
The
senior note indenture includes restrictive covenants regarding (a) the use of
proceeds from asset sales, (b) some investments, (c) the amount of
sale/leaseback transactions, and (d) transactions by subsidiaries and with
affiliates. Furthermore, the senior note indenture imposes the
following additional financial covenants:
·
|
A
minimum interest coverage ratio of at least 2.5 to 1 for the incurrence of
debt. Failure to currently meet this covenant limits the amount
of additional debt the Company can incur to $100.0. This
limitation does not apply to borrowings from the revolving credit
facility. At December 31, 2009, the ratio fell below the 2.5 to
1 incurrence test. Because of the Company’s current cash
and liquidity position, however, it does not expect the restriction
imposed by its noncompliance with this covenant to have a materially
adverse effect on the Company or its operations. This number is
calculated by dividing the interest expense, including capitalized
interest and fees on letters of credit, into EBITDA (defined, essentially,
as operating income (i) before interest, income taxes, depreciation,
amortization of intangible assets and restricted stock, extraordinary
items and purchase accounting and asset distributions, (ii) adjusted for
income before income taxes for discontinued operations, and (iii) reduced
for the charges related to impairment of goodwill special charges, and
pension and other postretirement employee benefit obligation corridor
charges). The corridor charges are amortized over a 10-year
period for this calculation.
|
·
|
A
limitation on “restricted payments,” which consist primarily of dividends
and share repurchases, of $25.0 plus 50% of cumulative net income (or
minus 100% of cumulative net loss) from April 1, 2002. As of
December 31, 2009, the limitation on restricted payments was
$55.2.
|
The
Company’s $850.0 five-year revolving credit facility secured by the Company’s
product inventory and accounts receivable contains restrictions on, among other
things, distributions and dividends, acquisitions and investments, indebtedness,
liens and affiliate transactions. None of these restrictions affect
or limit the Company’s ability to conduct its business in the ordinary
course. In addition, the facility requires maintenance of a minimum
fixed charge coverage ratio of 1 to 1 if availability under the facility is less
than $125.0.
Capital
Investments
The
Company anticipates 2010 capital investments of approximately $200.0, which the
Company expects to be funded from cash generated from operations. In
addition, with respect to prior capital investments, the Commonwealth of
Kentucky has provided the Company the ability to receive tax incentives in the
form of payroll tax and other withholdings over a 10-year period to help defray
the costs for the installation of a vacuum degasser and caster modifications at
its Ashland Works under the Kentucky Industrial Revitalization Act Tax Credit
Program. These tax incentives are based on certain employment levels
and thus may vary if employment levels are below the designated minimum
levels. Through December 31, 2009, the Company has accumulated $14.7
in such withholdings, which amount is included as a reduction of property, plant
and equipment in the consolidated financial statements.
To
meet the anticipated long-term growth in demand for energy efficient products
used in power generation and distribution transformers, the Company previously
announced that it is expanding its production capacity for high-end,
grain-oriented electrical steels. The Company has announced capital
investments totaling $268.0 to achieve this increased electrical steel
capacity. At December 31, 2009, spending for these future capital
investments totaled
approximately
$186.0. Included in the estimate of 2010 capital investments is
approximately $87.5 related to the projects to increase electrical steel
capacity which slightly exceeds the originally announced amount.
Employee Benefit
Obligations
Under
its method of accounting for pension and other postretirement benefit plans, the
Company recognizes, as of the Company’s measurement date of December 31, any
unrecognized actuarial gains and losses that exceed 10% of the larger of
projected benefit obligations or plan assets (the “corridor”). The
Company incurred no corridor charges in 2009. In 2008, the
unrecognized losses attributable to the Company’s qualified pension plans
exceeded the corridor by $660.1, primarily as a result of poor pension asset
investment returns. Accordingly, the Company incurred a pre-tax
corridor charge of $660.1 in the fourth quarter of 2008. There was no
corridor charge in 2008 associated with the Company’s other postretirement
benefit plans.
The
Company changed its measurement date from October 31 to December 31 during 2008
to meet the requirements of ASC Subparagraph 715-20-65-1. The change
in the measurement data resulted in an increase in the deferred tax asset of
$5.6, an increase to pension and other postretirement benefit liabilities of
$15.8, a decrease to retained earnings of $7.4 and a decrease to accumulated
other comprehensive income of $2.8.
Based
on current assumptions, the Company anticipates that its required pension
funding contributions during 2010 will total approximately $105.0. A
$75.0 contribution toward that total was made in the first quarter of
2010. The amount and timing of future required contributions to the
pension trust depend on the use of assumptions concerning future
events. The most significant of these assumptions relate to future
investment performance of the pension funds, actuarial data relating to plan
participants and the benchmark interest rate used to discount benefits to their
present value. Because of the variability of factors underlying these
assumptions, including the possibility of future pension legislation, the
reliability of estimated future pension contributions decreases as the length of
time until the contribution must be made increases. Currently, the
Company’s major pension plans are significantly underfunded. As a
result, absent major increases in long-term interest rates, above average
returns on pension plan assets and/or changes in legislated funding
requirements, the Company will be required to make contributions to its pension
trusts of varying amounts in the long-term. Some of these
contributions could be substantial. Currently, the Company estimates annual
required contributions for 2011 and 2012 to average approximately $275.0 in each
year.
The
Company provides healthcare benefits to most of its employees and
retirees. Based on the assumptions used to value other postretirement
benefits, primarily retiree healthcare and life insurance benefits, annual cash
payments for these benefits are expected to be in a range of $16.1 to $80.0 for
each of the next 30 years. These payments do not include the two
remaining $65.0 contributions to the VEBA Trust which are required as part of
the Settlement of the Middletown Works Retiree Healthcare Benefit
Litigation. For a more detailed description of the Settlement, see
the discussion below and in the “Legal Contingencies” section
of Note 9 to the Consolidated Financial Statements in Item 7
below. The total projected future benefit obligation of the Company
with respect to payments for healthcare benefits is included in “Pension and
other postretirement benefit obligations” in the Company’s consolidated
financial statements. The net amount recognized by the Company as of
the end of 2009 for future payment of such healthcare benefit obligations was
$875.6.
Accounting
for retiree healthcare benefits requires the use of actuarial methods and
assumptions, including assumptions about current employees’ future retirement
dates, the anticipated mortality rate of retirees, anticipated future increases
in healthcare costs and the obligation of the Company under future collective
bargaining agreements with respect to healthcare benefits for
retirees. Changing any of these assumptions could have a material
impact on the calculation of the Company’s total obligation for future
healthcare benefits. For example, the Company’s calculation of its
future retiree healthcare benefit obligation as of the end of 2009 assumed that
the Company would continue to provide healthcare benefits to current and future
retirees. If this assumption is altered, it could have a material
effect on the calculation of the Company’s total future retiree healthcare
benefit obligation. This assumption could be altered as a result of
one or more of the following developments or other unforeseen
events.
First,
retirees could consent to a change in the current level of healthcare benefits
provided to them. Second, in certain instances, the union which
represented a particular group of retirees when they were employed by the
Company could, in the course of negotiations with the Company, accept such a
change. Third, in certain instances, at or following the expiration
of a collective bargaining agreement which affects the Company’s obligation to
provide healthcare benefits to retired employees, the Company could take action
to modify or terminate the benefits provided to those retirees without the
agreement of those retirees or the union, subject to the right of the union
subsequently to bargain to alter or reverse such action by the
Company. The precise circumstances under which retiree healthcare
benefits may be altered unilaterally or by agreement with a particular union
vary depending on the terms of the relevant collective bargaining
agreement. Some of these developments already have occurred and
either already have impacted, or may
impact
in the future, the Company’s retiree healthcare benefit
obligation. The most significant of these developments are summarized
below.
In
December 2008, the Company announced that all salaried employees accruing
service in a defined benefit pension plan would have their benefit “locked and
frozen” as of January 31, 2009. The accruals for the defined benefit
plan have been replaced by a fixed percent contribution to a defined
contribution pension plan. This action required the Company to
recognize the past service pension expense that previously would have been
amortized as a curtailment charge in 2008 of $39.4.
Since
late 2003, the Company has negotiated new labor agreements with the various
unions at all of its represented facilities. In addition, during this
time period the new labor contracts and the Company’s overall actions to reduce
employment costs have resulted in a significant reduction in the Company’s other
postretirement benefit (“OPEB”) liability. Under GAAP, the Company
may not recognize this benefit immediately. Rather, it is required to
amortize the net benefits of this reduction into future years. The
Company thus will be able to recognize the benefit of this net reduction
annually through its earnings in the future as a reduction in its other
postretirement benefit costs.
In
October 2007, the Company announced that it had reached a settlement (the
“Settlement”) of the claims in litigation filed against the Company by retirees
of its Middletown Works relating to their retiree health and welfare
benefits. The Settlement was approved by the federal district court
on February 21, 2008 and, subject to a pending appeal, reduced the Company’s
total OPEB liability of approximately $2.0 billion as of September 30, 2007 by
approximately $1.0 billion. Under the terms of the Settlement,
AK Steel was obligated to initially fund the VEBA Trust with a contribution of
$468.0 in cash within two business days of the effective date of the
Settlement. AK Steel made this contribution on March 4,
2008. AK Steel further is obligated under the Settlement to make
three subsequent annual cash contributions of $65.0 each, for a total
contribution of $663.0. AK Steel has timely made the first of these
three annual cash contributions of $65.0, leaving it obligated to make two more
annual cash contributions of $65.0 each in March of 2010 and 2011,
respectively. For a more detailed description of the Settlement, see
the discussion in the “Legal
Contingencies” section of Note 9 to the Consolidated Financial Statements
in Item 7 below.
Labor
Agreements
At
December 31, 2009, the Company’s operations included approximately 6,500
employees, of which approximately 4,900 are represented by labor unions under
various contracts that will expire in the years 2010 through 2013.
The
labor contract for approximately 340 hourly employees represented by the United
Autoworkers Local 3462 at the Company’s Coshocton, Ohio plant was scheduled to
expire on March 31, 2010. In December 2009, the members of that union
ratified an extension of the existing contract through March 31,
2013.
An
agreement with the United Steelworkers of America Local 1865, which represents
approximately 750 hourly employees at the Company’s Ashland, Kentucky, West
Works is scheduled to expire on September 1, 2010.
The
labor contract for approximately 100 hourly production and maintenance employees
represented by United Steelworkers of America Local 1915 at the Walbridge, Ohio
facility of AK Tube, LLC, a wholly-owned subsidiary of the Company, was
scheduled to expire on January 25, 2009. In January 2009, the members
of that union ratified a new three-year labor agreement which will expire on
January 22, 2012.
Energy
and Raw Material Hedging
The
Company enters into derivative transactions in the ordinary course of business
to hedge the cost of natural gas and certain raw materials. At
December 31, 2009, the consolidated balance sheets included other current assets
of $1.9, other non-current assets of $0.1 and accrued liabilities of $5.8 for
the fair value of these derivatives. Changes in the prices paid for
the related commodities are expected to offset the effect on cash of settling
these amounts.
Off
Balance Sheet Arrangements
There
were no off balance sheet arrangements as of December 31, 2009.
Potential
Impact of Climate Change Legislation
At
this time the Company is unable to determine whether any of the pending
legislative bills in Congress relating to climate change are reasonably likely
to become law. Even in the event that any of the pending bills are
enacted, the Company cannot anticipate the final form of such laws, or the
extent to which they will be applicable to the Company
and
its operations. As a result, the Company currently has no reasonable
basis on which it can reliably predict or estimate the specific effects any
eventually enacted laws may have on the Company or how the Company may be able
to mitigate any negative impacts on its business and operations.
There
exists the possibility, however, that limitations on greenhouse gas emissions
may be imposed in the United States at some point in the future through some
form of federally enacted regulation or legislation. For example, the U.S.
EPA has proposed to regulate carbon emissions under the federal Clean Air
Act. In addition, bills recently introduced in the United
States Congress aim to limit carbon emissions over long periods of time from
facilities which emit significant amounts of greenhouse
gases. Such bills, if enacted, would apply to the steel
industry, in general, and to the Company, in particular, because the process of
producing steel from elemental iron results in the creation of carbon dioxide,
one of the targeted greenhouse gases. Although the Company and other
steel producers in the United States are actively participating in research and
development efforts to develop breakthrough technology for low- or zero-emission
steelmaking processes, the development of such technologies will take time and
their potential for success cannot be accurately determined. To
address this need for the development of new technologies, not just in the steel
industry but elsewhere, some of the proposed legislative bills include a system
of carbon emission credits, which would be available to certain companies for a
period of time, similar to the European Union’s existing “cap and trade”
system. Each of these bills is likely to be altered substantially as
it moves through the legislative process, making it virtually impossible at this
time to forecast the provisions of any final legislation and the resulting
effects on the Company.
If
regulation or legislation regulating carbon emissions is enacted, however, it is
reasonable to assume that the net financial impact on the Company will be
negative, despite some potential beneficial aspects discussed
below. On balance, such regulation or legislation likely would cause
the Company to incur increased energy, environmental and other costs in order to
comply with the limitations that would be imposed on greenhouse gas
emissions. For example, the Company likely would incur the direct cost of
purchasing carbon emissions credits for its own
operations. Similarly, to the extent that the Company’s raw material
and/or energy suppliers likewise would have to purchase such credits, they may
pass their own increased costs on to the Company through price
hikes. The Company likely also would incur increased capital
costs as a result of cap and trade legislation. Such costs could take
the form of new or retrofitted equipment, or the development of new technologies
(e.g., sequestration),
to try to control or reduce greenhouse gas emissions. In addition, if
similar cap and trade requirements were not imposed globally, the domestic
legislation could negatively impact the Company’s ability to compete with
foreign steel companies not subject to similar requirements.
The
enactment of climate control legislation or regulation also could have some
beneficial impact on the Company, which may somewhat mitigate the adverse
effects noted above. For example, to the extent that climate change
legislation provides incentives for energy efficiency, the Company could benefit
from increased sales of its grain-oriented electrical steel products, which are
among the most energy efficient in the world. The Company sells its
electrical steels, which are iron-silicon alloys with unique magnetic
properties, primarily to manufacturers of power transmission and distribution
transformers and electrical motors and generators. The sale of such
products may be enhanced by climate control legislation in different
ways. For instance, to the extent that the legislation may
promote the use of renewable energy technology, such as wind or solar
technology, it could increase demand for the Company’s high-efficiency
electrical steel products used in power transformers, which are needed to
connect these new sources to the electricity grid. In addition,
effective January 1, 2010, the U.S. Department of Energy adopted higher
efficiency standards for certain types of power distribution transformers and
these new standards are usually achieved through the use of more, and more
highly efficient, electrical steels. Implementation of even higher
efficiency standards for the future is being studied.
The
likelihood of such legislation or regulation is uncertain, and any effect on the
Company would depend on the final terms of such legislation or
regulation. Presently, the Company is unable to predict with any
reasonable degree of accuracy when or even if climate control legislation or
regulation will be enacted, or if so, what will be their terms and applicability
to the Company. In the meantime, the items described above
provide some indication of the potential impact on the Company of climate
control legislation or regulation generally. The Company will
continue to monitor the progress of such legislation and/or regulation
closely.
Tabular
Disclosure of Contractual Obligations
In
the ordinary course of business, the Company enters into agreements under which
it is obligated to make legally enforceable future payments. These
agreements include those related to borrowing money, leasing equipment and
purchasing goods and services. The following table summarizes by
category expected future cash outflows associated with contractual obligations
in effect as of December 31, 2009.
|
|
Payment
due by period
|
|
Contractual
Obligations (a)
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
|
Total
|
|
Long-term
debt obligations
|
|
$ |
0.7 |
|
|
$ |
505.5 |
|
|
$ |
1.5 |
|
|
$ |
99.3 |
|
|
$ |
607.0 |
|
Interest
on long-term debt obligations
|
|
|
42.1 |
|
|
|
64.6 |
|
|
|
6.0 |
|
|
|
31.0 |
|
|
|
143.7 |
|
Operating
lease obligations
|
|
|
5.1 |
|
|
|
8.4 |
|
|
|
7.2 |
|
|
|
14.8 |
|
|
|
35.5 |
|
Purchase
obligations and commitments
|
|
|
1,426.2 |
|
|
|
2,045.0 |
|
|
|
1,008.6 |
|
|
|
717.0 |
|
|
|
5,196.8 |
|
Other
long-term liabilities
|
|
|
— |
|
|
|
43.0 |
|
|
|
23.4 |
|
|
|
53.2 |
|
|
|
119.6 |
|
Total
|
|
$ |
1,474.1 |
|
|
$ |
2,666.5 |
|
|
$ |
1,046.7 |
|
|
$ |
915.3 |
|
|
$ |
6,102.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The
Company plans to make future cash contributions to its defined benefit
pension plans. The estimate for these contributions is approximately
$105.0 in 2010. A $75.0 contribution toward that total was made
in the first quarter of 2010. The Company estimates annual
pension contributions for the years 2011 and 2012 to average approximately
$275.0 in each year. Estimates of cash contributions to be made
after 2011 cannot be reliably determined at this time due to the number of
variable factors which impact the calculation of defined benefit pension
plan contributions. The Company also is required to make benefit payments
for retiree medical benefits. After reflecting the Settlement
with Middletown Works retirees, estimated payments for 2010 are $80.0 and
are projected to range from $16.1 to $80.0 for each of the next 30
years. These payments do not include the two remaining $65.0
payments to the VEBA Trust. For a more detailed description of
this Settlement, see the discussion in the Legal Contingencies”
section of Note 9 to the Consolidated Financial Statements in Item 7
below.
|
In
calculating the amounts for purchase obligations, the Company first identified
all contracts under which the Company has a legally enforceable obligation to
purchase products or services from the vendor and/or make payments to the vendor
for an identifiable period of time. Then for each identified
contract, the Company determined its best estimate of payments to be made under
the contract assuming (1) the continued operation of existing production
facilities, (2) normal business levels, (3) the contract would be adhered to in
good faith by both parties throughout its term and (4) prices are as set forth
in the contract. Because of changes in the markets it serves, changes
in business decisions regarding production levels or unforeseen events, the
actual amounts paid under these contracts could differ significantly from the
numbers presented above. For example, as is the case currently with
the contracts entered into with certain of the Company’s raw material suppliers,
circumstances could arise which create exceptions to minimum purchase
obligations that are set forth in the contracts. The purchase
obligations set forth in the table above have been calculated without regard to
such exceptions.
A
number of the Company’s purchase contracts specify a minimum volume or price for
the products or services covered by the contract. If the Company were
to purchase only the minimums specified, the payments set forth in the table
would be reduced. Under “requirements contracts” the quantities of
goods or services the Company is required to purchase may vary depending on its
needs, which are dependent on production levels and market conditions at the
time. If the Company’s business deteriorates or increases, the amount
it is required to purchase under such a contract would likely
change. Many of the Company’s agreements for the purchase of goods
and services allow the Company to terminate the contract without penalty upon 30
to 90 days’ prior notice. Any such termination could reduce the
projected payments.
The
Company’s consolidated balance sheets contain reserves for pension and other
postretirement benefits and other long-term liabilities. The benefit
plan liabilities are calculated using actuarial assumptions that the Company
believes are reasonable under the circumstances. However, because
changes in circumstances can have a significant effect on the liabilities and
expenses associated with these plans including, in the case of pensions, pending
or future legislation, the Company cannot reasonably and accurately project
payments into the future. While the Company does include information
about these plans in the above table, it also discusses these benefits elsewhere
in this Management’s Discussion and Analysis of Financial Condition and Results
of Operations and in the notes to its consolidated financial statements, set
forth in Item 7.
The other
long-term liabilities on the Company’s consolidated balance sheets include
reserves for environmental and legal issues, employment-related benefits and
insurance, liabilities established pursuant to ASC Topic 740, “Income Taxes”
with regard to uncertain tax positions, and other reserves. These
amounts generally do not arise from contractual negotiations with the parties
receiving payment in exchange for goods and services. The ultimate
amount and timing of payments are subject to significant uncertainty and, in
many cases, are contingent on the occurrence of
future
events, such as the filing of a claim or completion of due diligence
investigations, settlement negotiations, audit and examinations by taxing
authorities, documentation or legal proceedings.
Critical
Accounting Policies and Estimates
The
Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States of America. These
principles permit choices among alternatives and require numerous estimates of
financial matters. The Company believes the accounting principles
chosen are appropriate under the circumstances, and that the estimates,
judgments and assumptions involved in its financial reporting are
reasonable.
Revenue
Recognition
Revenue
from sales of products is recognized at the time title and the risks and rewards
of ownership pass. This occurs when the products are shipped per customers’
instructions, the sales price is fixed and determinable, and collection is
reasonably assured.
Inventory
Costing
Inventories
are valued at the lower of cost or market. The cost of the majority
of inventories is measured on the last in, first out (“LIFO”)
method. The LIFO method allocates the most recent costs to cost of
products sold and, therefore, recognizes into operating results fluctuations in
raw material, energy and other inventoriable costs more quickly than other
methods. Other inventories, consisting mostly of foreign inventories
and certain raw materials, are measured principally at average
cost.
Use
of Estimates
Accounting
estimates are based on historical experience and information that is available
to management about current events and actions the Company may take in the
future. Significant items subject to estimates and assumptions
include the carrying value of long-lived assets; valuation allowances for
receivables, inventories and deferred income tax assets; environmental and legal
liabilities; and assets and obligations related to employee benefit
plans. There can be no assurance that actual results will not differ
from these estimates.
The
Company maintains an allowance for doubtful accounts as a reserve for the loss
that would be incurred if a customer is unable to pay amounts due to the
Company. The Company determines this based on various factors,
including the customer’s financial condition. While losses due to
customer defaults have been low, if in the future the financial condition of
some customers deteriorates to an extent that may affect their ability to pay,
additional allowances may be needed. Approximately 29% of the
Company’s trade receivables outstanding at December 31, 2009 are due from
businesses associated with the U.S. automotive industry, including General
Motors, Chrysler and Ford. Except in a few situations where the risk
warrants it, collateral is not required on trade receivables. In
light, however, of the current economic conditions which have had a particularly
detrimental impact on the automotive industry, the Company is monitoring its
trade receivables position even more closely than normal. While the
Company currently still believes the trade receivables recorded on its balance
sheet will be collected, in the event of default in payment of a trade
receivable, the Company would follow normal collection procedures.
The
Company records a valuation allowance to reduce its deferred tax asset to an
amount that is more likely than not to be realized. In estimating
levels of future taxable income needed to realize the deferred tax asset, the
Company has considered historical results of operations and the cyclical nature
of the steel business and would, if necessary, consider the implementation of
prudent and feasible tax planning strategies to generate future taxable
income. If future taxable income is less than the amount that has
been assumed in determining the deferred tax asset, then an increase in the
valuation allowance will be required, with a corresponding charge against
income. On the other hand, if future taxable income exceeds the level
that has been assumed in calculating the deferred tax asset, the valuation
allowance could be reduced, with a corresponding credit to
income. In the current year, there was an increase in the
valuation allowance related to state deferred tax assets for loss carryforwards
and tax credits in certain states. These states have limited
carryforward periods and limits on how much loss carryforward can be used to
offset estimated future taxable income annually. These factors caused
an increase in the Company’s valuation allowance for 2009. A
valuation allowance has not been recorded on the Company’s temporary
differences, nor its federal net operating loss carryforwards, which do not
begin to expire until 2028, as the Company believes that the estimated levels of
future taxable income is sufficient such that it is more likely than not that it
will realize these deferred tax assets.
The
Company is involved in a number of environmental and other legal
proceedings. The Company records a liability when it has determined
that litigation has commenced or a claim or assessment has been asserted and,
based on available information, it is probable that the outcome of such
litigation, claim or assessment, whether by decision or settlement, will be
unfavorable and the amount of the liability is reasonably
estimable. The Company measures the liability using available
information, including the extent of damage, similar historical situations, its
allocable share of the liability and, in the case of environmental liabilities,
the need to provide site investigation, remediation and future monitoring and
maintenance. Accruals of probable costs have been made based on a
combination of litigation and settlement strategies on a case-by-case basis and,
where appropriate, are supplemented with incurred but not reported development
reserves. However, amounts recognized in the financial statements in
accordance with accounting principles generally accepted in the United States
exclude costs that are not probable or that may not be currently
estimable. The ultimate costs of these environmental and legal
proceedings may, therefore, be higher than those currently recorded on the
Company’s financial statements. In addition, results of operations in
any future period could be materially affected by changes in assumptions or by
the effectiveness of the Company’s strategies.
Pension
and Other Postretirement Benefit Plans
Under
its method of accounting for pension and other postretirement benefit plans, the
Company recognizes into income, as of the Company’s measurement date, any
unrecognized actuarial net gains or losses that exceed 10% of the larger of
projected benefit obligations or plan assets, defined as the
corridor. This method results in faster recognition of actuarial net
gains and losses than the minimum amortization method permitted by prevailing
accounting standards and used by the vast majority of companies in the United
States. Faster recognition under this method also results in the
potential for highly volatile and difficult to forecast corridor adjustments,
similar to those recognized by the Company in recent years. Prior to
January 31, 2009, amounts inside this 10% corridor were amortized over the
average remaining service life of active plan participants. Beginning
January 31, 2009, the date of the “lock and freeze” of a defined benefit pension
plan covering all salaried employees, the actuarial gains and losses will be
amortized over the plan participants’ life expectancy.
ASC
Topic 715 requires the Company to fully recognize and disclose an asset or
liability for the overfunded or underfunded status of its benefit plans in
financial statements. The Company changed its measurement date from
October 31 to December 31 during 2008 to meet the requirements of ASC
Subparagraph 715-20-65-1. The change in the measurement data resulted
in an increase in the deferred tax asset of $5.6, an increase to pension and
other postretirement benefit liabilities of $15.8, a decrease to retained
earnings of $7.4 and a decrease to accumulated other comprehensive income of
$2.8.
Under
the applicable accounting standards, actuarial net gains and losses occur when
actual experience differs from any of the many assumptions used to value the
benefit plans or when the assumptions change, as they may each year when a
valuation is performed. The major factors contributing to actuarial
gains and losses for pension plans are the differences between expected and
actual returns on plan assets and changes in the discount rate used to value
pension liabilities as of the measurement date. For other
postretirement benefit plans, differences in estimated versus actual healthcare
costs, changes in assumed healthcare cost trend rates or a change in the
difference between the discount rate and the healthcare trend rate are major
factors contributing to actuarial gains and losses. In addition to
the potential for corridor adjustments, these factors affect future net periodic
benefit expenses. Changes in key assumptions can have a material
effect on the amount of annual expense recognized. For example, a
one-percentage-point decrease in the expected rate of return on pension plan
assets would increase the projected 2010 pension expense by approximately $23.7
before tax. Based on the Company’s liability as of December 31, 2009,
a one-percentage-point increase in the assumed healthcare trend rate would
increase the projected 2010 other postretirement benefit expense by
approximately $0.6 before tax. The discount rate used to value
liabilities and assets affects both pensions and other postretirement benefit
calculations. Similarly, a one-quarter-percentage-point decrease in
this rate would decrease pension expense by less than $0.1 and decrease the
other postretirement credit by $0.1. These estimates exclude any
potential corridor adjustments.
Property,
Plant and Equipment
The
total weighted average useful life of the Company’s machinery and equipment is
18.3 years based on the depreciable life of the assets. The Company
recognizes costs associated with major maintenance activities at its operating
facilities in the period in which they occur.
Investments
The
Company’s financial statements consolidate the operations and accounts of the
Company and all subsidiaries in which the Company has a controlling
interest. The Company also has investments in associated companies
that are accounted for under the equity method and, because the operations of
these companies are integrated with the Company’s basic steelmaking operations,
its proportionate share of their income (loss) is reflected in the Company’s
cost of products sold in the consolidated statements of
operations. In addition, the Company holds investments in debt
securities and minor holdings in equity securities, which are accounted for as
available-for-sale or held-to-maturity cost investments. At December
31, 2009, the Company had no investments that it accounted for as trading
securities. Each of the Company’s investments is subject to a review
for impairment, if and when, circumstances indicate that a loss in value below
its carrying amount is other than temporary. Under these
circumstances, the Company would write the investment down to its fair value,
which would become its new carrying amount.
The
Company’s investment in AFSG Holdings, Inc. represents the carrying value of its
discontinued insurance and finance leasing businesses, which have been largely
liquidated. The activities of the remaining operating companies are
being classified as “runoff” and the companies are accounted for, collectively,
as a discontinued operation under the liquidation basis of accounting, whereby
future cash inflows and outflows are considered. The Company is under
no obligation to support the operations or liabilities of these
companies.
Financial
Instruments
The
Company is a party to derivative instruments that are designated and qualify as
hedges under ASC Topic 815, “Derivatives and Hedging”. The Company’s
objective in using such instruments is to protect its earnings and cash flows
from fluctuations in the fair value of selected commodities and
currencies. For example, in the ordinary course of business, the
Company uses cash settled commodity price swaps, with a duration of up to three
years, to hedge the price of a portion of its natural gas, nickel, aluminum and
zinc requirements. The Company designates the natural gas swaps as
cash flow hedges and the changes in their fair value, excluding the ineffective
portion, are recorded in other comprehensive income. Subsequent gains
and losses are recognized into cost of products sold in the same period as the
underlying physical transaction. Other commodity swaps are marked to
market recognizing gains or losses into earnings. The pre-tax net
loss recognized in earnings during 2009 for natural gas hedges representing the
component of the derivative instruments’ current effectiveness and excluded from
the assessment of hedge effectiveness was $9.4 and was recorded in cost of
products sold. At December 31, 2009, currently valued outstanding
commodity hedges would result in the reclassification into earnings of $1.3 in
net-of-tax losses within the next twelve months. Based on such
reviews as it deems reasonable and appropriate, the Company believes that all
counterparties to its outstanding derivative instruments are entities with
substantial credit worthiness.
Goodwill
At
December 31, 2009 and 2008, the Company’s assets included $37.1 of goodwill,
which is less than 1% of the Company’s assets. Each year, as required
by ASC Subtopic 350-20, “Goodwill”, the Company performs an evaluation of
goodwill to test this balance for possible impairment. Management
judgment is used to evaluate the impact of changes in operations and to estimate
future cash flows to measure fair value. Assumptions such as
forecasted growth rates and cost of capital are consistent with internal
projections. The evaluation requires that the reporting unit
underlying the goodwill be measured at fair value and, if this value is less
than the carrying value of the unit, a second test must be
performed. Under the second test, the current fair value of the
reporting unit is allocated to the assets and liabilities of the unit including
an amount for “implied” goodwill. If implied goodwill is less than
the net carrying amount of goodwill, the difference becomes the amount of the
impairment that must be recorded in that year. The Company’s
businesses operate in highly cyclical industries and the valuation of these
businesses can be expected to fluctuate, which may lead to further impairment
charges in future operating costs. The 2009 annual review did not result in any
goodwill impairment for the Company.
New
Accounting Pronouncements
Certain
amounts in prior year financial statements have been reclassified to reflect the
reporting requirements of ASC Subparagraph 810-10-65-1, “Transition Related to
FASB Statements No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51, and No. 164, Not-for-Profit Entities:
Mergers and Acquisitions”.
ASC
Topic 810, “Consolidation”, as amended, requires an enterprise to perform an
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest
entity. The
amendment
to ASC Topic 810 is effective for fiscal years beginning on or after November
15, 2009. The Company believes that this guidance does not alter the
accounting treatment previously accorded to the consolidation of Middletown Coke
and Vicksmetal/Armco Associates.
Earnings
per share have been restated in prior periods in conformity with ASC
Subparagraph 260-10-65-2, “Transition Related to FSP EITF 03-6-1”.
Effective
with this Form 10-K, the Company has amended its disclosure relating to
postretirement benefit plan assets in compliance with ASC Subparagraph
715-20-65-2, “Transition related to FSP FAS 132(R)-1, Employers’ Disclosures
about Postretirement Benefit Plan Assets”. The disclosure now
includes discussion on:
· investment
policies and strategies;
· categories
of plan assets;
· fair
value measurements of plan assets; and
· significant
concentrations of risk.
No
other new accounting pronouncement issued or effective during the 2009 fiscal
year has had or is expected to have a material impact on the Company’s
consolidated financial statements.
Forward-Looking
Statements
Certain
statements made or incorporated by reference in this Form 10-K, or made in press
releases or in oral presentations made by Company employees, reflect
management’s estimates and beliefs and are intended to be, and are hereby
identified as “forward-looking statements” for purposes of the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. In particular, these include (but are not limited to)
statements in the foregoing sections entitled Raw Materials, Employees,
Competition, Environmental, Risk Factors, Legal Proceedings, Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
Operations Overview, Key Factors Generally Impacting Financial Results, Outlook,
Liquidity and Capital Resources, Tabular Disclosure of Contractual
Obligations, Critical Accounting
Policies and Estimates, and New Accounting Pronouncements. In
addition, these include statements in Item 6A, Quantitative and Qualitative
Disclosure about Market Risk and in the Notes to Consolidated Financial
Statements in the paragraphs entitled, Property Plant and Equipment, Goodwill
and Other Intangible Assets, Pension and Other Postretirement Benefits
Accounting, Concentrations of Credit Risk, Union Contracts, Financial
Instruments, Income Taxes, Commitments, and Environmental and Legal
Contingencies.
The
Company cautions readers that such forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
currently expected by management. See Item 1A Risk Factors for more
information on certain of these risks and uncertainties.
Except
as required by law, the Company disclaims any obligation to update any
forward-looking statements to reflect future developments of
events.
In
the ordinary course of business, the Company’s primary areas of market risk
include changes in (a) interest rates, (b) the prices of raw materials and
energy sources, and (c) foreign currency exchange rates. The Company
manages interest rate risk by issuing variable- and fixed-rate debt, and
currently has $504.0 of fixed-rate debt and $103.0 of variable-rate debt
outstanding. The fair value of this debt as of December 31, 2009
was $609.6. A reduction in prevailing interest rates or improvement
in the Company’s credit rating could increase the fair value of this
debt. A reduction in the rate used to discount total future principal
and interest payments of 1% would result in an increase in the total fair value
of the Company’s long-term debt of approximately $38.8. An
unfavorable effect on the Company’s financial results and cash flows from
exposure to interest rate declines and a corresponding increase in the fair
value of its debt would result only if the Company elected to repurchase its
outstanding debt securities at prevailing market prices.
With
regard to raw materials and energy sources, natural gas prices, in particular,
have been highly volatile. At normal consumption levels, a one dollar
per MCF change in natural gas prices would result in an approximate $40.0 change
in annual pre-tax operating results, excluding the offsetting effects of any
then-existing hedging instruments. In addition, the cost of scrap
(which is purchased in the spot market and is not susceptible to hedging) and
the cost of iron ore both have been volatile over the course of the last several
years. Collectively, these and other raw material and energy cost
fluctuations have affected the Company’s margins and made it more difficult to
forecast because much of the Company’s revenue comes from annual or longer
contracts with its customers. To address such cost
volatility,
where competitively possible, the Company attempts to add a surcharge to the
price of steel it sells to the spot market and to negotiate a variable pricing
mechanism with its contract customers that allows the Company to adjust selling
prices in response to changes in the cost of certain raw materials and
energy. In addition, in the case of stainless steel, increased costs
for nickel, chrome and molybdenum can usually be recovered through established
price surcharges. Approximately 55% of the Company’s shipments in
2009 were made under contracts having durations of six months or
more. The Company anticipates that its percentage of contract sales
will be similar in 2010. Approximately 83% of the Company’s shipments
to contract customers in 2009 permitted an adjustment of selling prices in
response to changes in the cost of certain raw materials and
energy. Therefore, fluctuations in the price of energy (particularly
natural gas), raw materials (such as scrap, purchased slabs, coal, iron ore, and
zinc) or other commodities will be, in part, passed on to the Company’s
customers rather than absorbed solely by the Company.
In
addition, in order to further minimize its exposure to fluctuations in raw
material costs, and to secure an adequate supply of raw materials, the Company
has entered into multi-year purchase agreements for certain raw materials that
provide for fixed prices or only a limited variable price
mechanism. While enabling the Company to reduce its exposure to
fluctuations in raw material costs, this also exposes the Company to an element
of market risk relative to its sales contracts. Currently,
approximately 55% of the Company’s sales contracts have durations of six months
or more. Approximately 17% of those contracts have fixed price terms
and the other 83% have some form of variable pricing which does not necessarily
enable the Company to recoup the full amount of increases in its raw material
and energy costs. After new contracts are negotiated with the
Company’s customers, the average sales prices could increase or
decrease. If that average sales price decreases, the Company may not
be able to reduce its raw material costs to a corresponding degree due to the
multi-year term and fixed price nature of some of its raw material purchase
contracts. In addition, some of the Company’s existing multi-year
supply contracts, particularly with respect to iron ore, have required minimum
purchase quantities. Under adverse economic conditions, such as were
present in 2009, those minimums may exceed the Company’s
needs. Subject to exceptions for force majeure and other
circumstances impacting the legal enforceability of the contracts, such minimum
purchase requirements could require the Company to purchase quantities of raw
materials, particularly iron ore, which significantly exceed its anticipated
needs. Under such circumstances, the Company would attempt to
negotiate agreements for new purchase quantities. There is a risk,
however, that in one or more instances the Company would not be successful in
securing lower purchase quantities, either through negotiation or
litigation. In that event, the Company would likely need to purchase
more of a particular raw material in a particular year than it needs, negatively
impacting its cash flow.
The
Company uses cash settled commodity price swaps and/or options to hedge the
price of a portion of its natural gas, nickel, aluminum and zinc
requirements. The Company’s hedging strategy is designed to protect
it against normal volatility. However, abnormal price increases in
any of these commodity markets could negatively impact operating
costs. The effective portion of the gains and losses from the use of
these instruments for natural gas are deferred in accumulated other
comprehensive loss on the consolidated balance sheets and recognized into cost
of products sold in the same period as the underlying physical
transaction. At December 31, 2009, accumulated other comprehensive
loss included $1.3 in unrealized net-of-tax losses for the fair value of these
derivative instruments. All other commodity price swaps and options
are marked to market and recognized into cost of products sold with the offset
recognized as other current assets or other accrued liabilities. At
December 31, 2009, other current assets of $1.9, other non-current assets of
$0.1 and accrued liabilities of $5.8 were included on the consolidated balance
sheets for the fair value of these commodity hedges. The following
table presents the negative effect on pre-tax income of a hypothetical change in
the fair value of derivative instruments outstanding at December 31, 2009 due to
an assumed 10% and 25% decrease in the market price of each of the indicated
commodities.
Commodity
Derivative
|
|
10%
Decrease
|
|
|
25%
Decrease
|
|
Natural
Gas
|
|
$ |
6.9 |
|
|
$ |
17.2 |
|
Nickel
|
|
|
0.8 |
|
|
|
2.1 |
|
Because
these instruments are structured and used as hedges, these hypothetical losses
would be offset by the benefit of lower prices paid for the physical commodity
used in the normal production cycle. The Company currently does not
enter into swap or option contracts for trading purposes.
The
Company is also subject to risks of exchange rate fluctuations on a small
portion of intercompany receivables that are denominated in foreign
currencies. The Company occasionally uses forward currency contracts
to manage exposures to certain of these currency price
fluctuations. At December 31, 2009, the Company had outstanding
forward currency contracts with a total notional value of $23.3 for the sale of
euros. At December 31, 2009, the fair value of the Company’s
outstanding forward currency contracts was $0.9. Based on the
contracts outstanding at the end of 2009, a 10% increase in the dollar to euro
exchange rate would result in a $2.3 pre-tax loss in the value of those
contracts, which would offset the income benefit of a more favorable exchange
rate.
AK
Steel Holding Corporation and Subsidiaries
|
|
Index
to Consolidated Financial Statements
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED
FINANCIAL STATEMENTS
The
Company prepares its consolidated financial statements and financial statement
schedule in conformity with accounting principles generally accepted in the
United States of America. These principles permit choices among
alternatives and require numerous estimates of financial matters. The
Company believes the accounting principles chosen are appropriate under the
circumstances, and that the estimates, judgments and assumptions involved in its
financial reporting are reasonable.
The
Company’s management is responsible for the integrity and objectivity of the
financial information presented in its consolidated financial
statements. It maintains a system of internal accounting controls
designed to provide reasonable assurance that Company employees comply with
stated policies and procedures, that the Company’s assets are safeguarded and
that its financial reports are fairly presented. On a regular basis,
the Company’s financial management discusses internal accounting controls and
financial reporting matters with its independent registered public accounting
firm and its Audit Committee, composed solely of independent outside
directors. The independent registered public accounting firm and the
Audit Committee also meet privately to discuss and assess the Company’s
accounting controls and financial reporting.
Dated:
|
February
23, 2010
|
|
/s/
|
JAMES
L. WAINSCOTT
|
|
|
|
|
James
L. Wainscott
|
|
|
|
|
Chairman
of the Board, President
|
|
|
|
|
and
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
Dated:
|
February
23, 2010
|
|
/s/
|
ALBERT
E. FERRARA, Jr.
|
|
|
|
|
Albert
E. Ferrara, Jr.
|
|
|
|
|
Vice
President, Finance and
|
|
|
|
|
Chief
Financial Officer
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
AK
Steel Holding Corporation
West
Chester, Ohio
We
have audited the accompanying consolidated balance sheets of AK Steel Holding
Corporation and subsidiaries (the “Company”) as of December 31, 2009 and 2008,
and the related consolidated statements of operations, stockholders’ equity,
cash flows, and comprehensive income (loss) for each of the three years in the
period ended December 31, 2009. Our audits also included the
financial statement schedule listed in the Index to Exhibits at Item
14. These financial statements and financial statement schedule are
the responsibility of the Company’s management. Our responsibility is
to express an opinion on the financial statements and financial statement
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and subsidiaries at
December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company’s internal control over
financial reporting as of December 31, 2009 based on the criteria established in
Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 23, 2010 expressed an
unqualified opinion on the Company’s internal control over financial
reporting.
/s/
DELOITTE & TOUCHE LLP
Cincinnati,
Ohio
February
23, 2010
AK
STEEL HOLDING CORPORATION
|
|
|
|
For
the Years Ended December 31, 2009, 2008 and 2007
|
|
(dollars
in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
$ |
4,076.8 |
|
|
$ |
7,644.3 |
|
|
$ |
7,003.0 |
|
Cost
of products sold (exclusive of items shown below)
|
|
|
3,749.6 |
|
|
|
6,491.1 |
|
|
|
5,919.0 |
|
Selling
and administrative expenses
|
|
|
192.7 |
|
|
|
223.6 |
|
|
|
223.5 |
|
Depreciation
|
|
|
204.6 |
|
|
|
202.1 |
|
|
|
196.3 |
|
Other
operating items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
corridor charge
|
|
|
— |
|
|
|
660.1 |
|
|
|
— |
|
Curtailment
charges
|
|
|
— |
|
|
|
39.4 |
|
|
|
39.8 |
|
Total
operating costs
|
|
|
4,146.9 |
|
|
|
7,616.3 |
|
|
|
6,378.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit (loss)
|
|
|
(70.1 |
) |
|
|
28.0 |
|
|
|
624.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
37.0 |
|
|
|
46.5 |
|
|
|
68.3 |
|
Interest
income
|
|
|
2.7 |
|
|
|
10.5 |
|
|
|
32.2 |
|
Other
income (expense)
|
|
|
6.4 |
|
|
|
1.6 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(98.0 |
) |
|
|
(6.4 |
) |
|
|
592.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision (benefit) due to state law changes
|
|
|
5.1 |
|
|
|
— |
|
|
|
(11.4 |
) |
Income
tax provision (benefit)
|
|
|
(25.1 |
) |
|
|
(10.9 |
) |
|
|
215.0 |
|
Total
income tax provision (benefit)
|
|
|
(20.0 |
) |
|
|
(10.9 |
) |
|
|
203.6 |
|
Net
income (loss)
|
|
|
(78.0 |
) |
|
|
4.5 |
|
|
|
388.4 |
|
Less:
Net income (loss) attributable to noncontrolling interests
|
|
|
(3.4 |
) |
|
|
0.5 |
|
|
|
0.7 |
|
Net
income (loss) attributable to AK Steel Holding Corporation
|
|
$ |
(74.6 |
) |
|
$ |
4.0 |
|
|
$ |
387.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share attributable to AK Steel Holding
Corporation
|
|
$ |
(0.68 |
) |
|
$ |
0.04 |
|
|
$ |
3.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share attributable to AK Steel Holding
Corporation
|
|
$ |
(0.68 |
) |
|
$ |
0.04 |
|
|
$ |
3.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
AK
STEEL HOLDING CORPORATION
|
|
|
|
December
31, 2009 and 2008
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
461.7 |
|
|
$ |
562.7 |
|
Accounts
receivable, net
|
|
|
463.1 |
|
|
|
469.9 |
|
Inventory,
net
|
|
|
416.7 |
|
|
|
566.8 |
|
Deferred
tax asset, current
|
|
|
223.9 |
|
|
|
333.0 |
|
Other
current assets
|
|
|
64.7 |
|
|
|
70.4 |
|
Total
Current Assets
|
|
|
1,630.1 |
|
|
|
2,002.8 |
|
Property,
Plant and Equipment
|
|
|
5,385.1 |
|
|
|
5,282.1 |
|
Accumulated
depreciation
|
|
|
(3,409.1 |
) |
|
|
(3,220.8 |
) |
Property,
plant and equipment, net
|
|
|
1,976.0 |
|
|
|
2,061.3 |
|
Other
Assets:
|
|
|
|
|
|
|
|
|
Investment
in AFSG Holdings, Inc.
|
|
|
55.6 |
|
|
|
55.6 |
|
Other
investments
|
|
|
52.1 |
|
|
|
50.4 |
|
Goodwill
|
|
|
37.1 |
|
|
|
37.1 |
|
Other
intangible assets
|
|
|
0.2 |
|
|
|
0.3 |
|
Deferred
tax asset, non-current
|
|
|
514.7 |
|
|
|
459.1 |
|
Other
non-current assets
|
|
|
8.9 |
|
|
|
15.4 |
|
Total
Non-current Assets
|
|
|
668.6 |
|
|
|
617.9 |
|
TOTAL
ASSETS
|
|
$ |
4,274.7 |
|
|
$ |
4,682.0 |
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
438.9 |
|
|
$ |
348.1 |
|
Accrued
liabilities
|
|
|
157.0 |
|
|
|
233.0 |
|
Current
portion of long-term debt
|
|
|
0.7 |
|
|
|
0.7 |
|
Current
portion of pension and other postretirement benefit
obligations
|
|
|
144.1 |
|
|
|
152.4 |
|
Total
Current Liabilities
|
|
|
740.7 |
|
|
|
734.2 |
|
Non-current
Liabilities:
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
605.8 |
|
|
|
632.6 |
|
Pension
and other postretirement benefit obligations
|
|
|
1,856.2 |
|
|
|
2,144.2 |
|
Other
non-current liabilities
|
|
|
191.9 |
|
|
|
200.3 |
|
Total
Non-current Liabilities
|
|
|
2,653.9 |
|
|
|
2,977.1 |
|
TOTAL
LIABILITIES
|
|
|
3,394.6 |
|
|
|
3,711.3 |
|
Commitments
and Contingencies (see Note 8)
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, authorized 25,000,000 shares
|
|
|
— |
|
|
|
— |
|
Common
stock, authorized 200,000,000 shares of $.01 par value each; issued 2009,
121,881,816 shares, 2008, 121,105,429 shares; outstanding 2009,
109,394,455 shares, 2008, 110,394,774 shares
|
|
|
1.2 |
|
|
|
1.2 |
|
Additional
paid-in capital
|
|
|
1,911.4 |
|
|
|
1,898.9 |
|
Treasury
stock, common shares at cost, 2009, 12,487,361; 2008, 10,710,655
shares
|
|
|
(162.2 |
) |
|
|
(150.8 |
) |
Accumulated
deficit
|
|
|
(1,037.5 |
) |
|
|
(940.9 |
) |
Accumulated
other comprehensive income
|
|
|
167.9 |
|
|
|
159.6 |
|
Total
AK Steel Holding Corporation Stockholders’ Equity
|
|
|
880.8 |
|
|
|
968.0 |
|
Noncontrolling
interest
|
|
|
(0.7 |
) |
|
|
2.7 |
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
880.1 |
|
|
|
970.7 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
4,274.7 |
|
|
$ |
4,682.0 |
|
See
notes to consolidated financial statements.
AK
STEEL HOLDING CORPORATION
|
|
|
|
For
the Years Ended December 31, 2009, 2008 and 2007
|
|
(dollars
in millions)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(78.0 |
) |
|
$ |
4.5 |
|
|
$ |
388.4 |
|
Adjustments
to reconcile net income (loss) to cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
204.6 |
|
|
|
202.1 |
|
|
|
196.3 |
|
Amortization
|
|
|
12.1 |
|
|
|
11.8 |
|
|
|
14.8 |
|
Provision
for doubtful accounts
|
|
|
7.2 |
|
|
|
0.5 |
|
|
|
2.7 |
|
Deferred
income taxes
|
|
|
47.3 |
|
|
|
(27.8 |
) |
|
|
127.2 |
|
Contributions
to pension trust
|
|
|
(210.0 |
) |
|
|
(225.0 |
) |
|
|
(250.0 |
) |
Pension
corridor charge
|
|
|
— |
|
|
|
660.1 |
|
|
|
— |
|
Curtailment
charges
|
|
|
— |
|
|
|
39.4 |
|
|
|
39.8 |
|
Contributions
to Middletown retirees VEBA
|
|
|
(65.0 |
) |
|
|
(468.0 |
) |
|
|
— |
|
Excess
tax benefits from stock-based compensation
|
|
|
— |
|
|
|
(12.2 |
) |
|
|
(6.5 |
) |
Other
operating items, net
|
|
|
82.5 |
|
|
|
(10.8 |
) |
|
|
0.9 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1.0 |
) |
|
|
203.0 |
|
|
|
21.0 |
|
Inventories
|
|
|
150.1 |
|
|
|
84.0 |
|
|
|
204.5 |
|
Accounts
payable and other current liabilities
|
|
|
(8.5 |
) |
|
|
(254.6 |
) |
|
|
41.1 |
|
Accounts
payable and other current liabilities-Middletown Coke
|
|
|
(1.9 |
) |
|
|
2.2 |
|
|
|
— |
|
Other
assets
|
|
|
10.2 |
|
|
|
(27.3 |
) |
|
|
(1.3 |
) |
Other
assets-Middletown Coke
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
Pension
asset and obligation
|
|
|
49.9 |
|
|
|
1.1 |
|
|
|
2.1 |
|
Postretirement
benefit obligation
|
|
|
(108.5 |
) |
|
|
(87.1 |
) |
|
|
(69.3 |
) |
Other
liabilities
|
|
|
(32.1 |
) |
|
|
(12.8 |
) |
|
|
(8.8 |
) |
Total
adjustments
|
|
|
136.8 |
|
|
|
78.6 |
|
|
|
314.5 |
|
Net
cash flows from operating activities
|
|
|
58.8 |
|
|
|
83.1 |
|
|
|
702.9 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
investments
|
|
|
(109.5 |
) |
|
|
(166.8 |
) |
|
|
(104.4 |
) |
Capital
investments-Middletown Coke
|
|
|
(24.0 |
) |
|
|
(47.7 |
) |
|
|
— |
|
Proceeds
from the sale of property, plant and equipment
|
|
|
0.5 |
|
|
|
8.4 |
|
|
|
0.3 |
|
Proceeds
from draw on restricted funds for emission control
expenditures
|
|
|
— |
|
|
|
— |
|
|
|
2.5 |
|
Proceeds
from note receivable from equity investments
|
|
|
— |
|
|
|
— |
|
|
|
27.4 |
|
Purchase
of investments
|
|
|
— |
|
|
|
(12.1 |
) |
|
|
(12.3 |
) |
Restricted
cash to collateralize letter of credit
|
|
|
— |
|
|
|
— |
|
|
|
12.6 |
|
Other
investing items, net
|
|
|
(0.4 |
) |
|
|
0.4 |
|
|
|
0.9 |
|
Net
cash flows from investing activities
|
|
|
(133.4 |
) |
|
|
(217.8 |
) |
|
|
(73.0 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of long-term debt
|
|
|
(23.5 |
) |
|
|
(26.9 |
) |
|
|
(450.0 |
) |
Fees
related to new credit facility or new debt
|
|
|
— |
|
|
|
— |
|
|
|
(2.6 |
) |
Proceeds
from exercise of stock options
|
|
|
0.5 |
|
|
|
3.4 |
|
|
|
9.2 |
|
Purchase
of treasury stock
|
|
|
(11.4 |
) |
|
|
(24.0 |
) |
|
|
(2.4 |
) |
Excess
tax benefits from stock-based compensation
|
|
|
— |
|
|
|
12.2 |
|
|
|
6.5 |
|
Common
stock dividends paid
|
|
|
(22.0 |
) |
|
|
(22.4 |
) |
|
|
— |
|
Advances
from noncontrolling interest owner to Middletown Coke
|
|
|
29.0 |
|
|
|
45.5 |
|
|
|
— |
|
Other
financing items, net
|
|
|
1.0 |
|
|
|
(4.0 |
) |
|
|
3.6 |
|
Net
cash flows from financing activities
|
|
|
(26.4 |
) |
|
|
(16.2 |
) |
|
|
(435.7 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
(101.0 |
) |
|
|
(150.9 |
) |
|
|
194.2 |
|
Cash
and cash equivalents, beginning of year
|
|
|
562.7 |
|
|
|
713.6 |
|
|
|
519.4 |
|
Cash
and cash equivalents, end of year
|
|
$ |
461.7 |
|
|
$ |
562.7 |
|
|
$ |
713.6 |
|
See
notes to consolidated financial statements.
AK
STEEL HOLDING CORPORATION
|
|
|
|
(dollars
in millions)
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-In-Capital
|
|
|
Treasury
Stock
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Compre-hensive Income/
(Loss)
|
|
|
Non-controlling
interest
|
|
|
Total
|
|
Balance,
December 31, 2006
|
|
$ |
1.2 |
|
|
$ |
1,841.4 |
|
|
$ |
(124.4 |
) |
|
$ |
(1,296.1 |
) |
|
$ |
(5.1 |
) |
|
$ |
2.6 |
|
|
$ |
419.6 |
|
Adjustment
to initially apply
ASC Topic 740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.7 |
) |
|
|
|
|
|
|
|
|
|
|
(6.7 |
) |
Net
income attributable to AK Steel Holding Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387.7 |
|
|
|
|
|
|
|
|
|
|
|
387.7 |
|
Change
in unamortized performance shares
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
Change
in unamortized stock options
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
Issuance
of restricted stock, net
|
|
|
|
|
|
|
4.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7 |
|
Change
in unamortized restricted stock
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
Unrealized
gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Stock
options exercised
|
|
|
|
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.2 |
|
Tax
benefit from common stock compensation
|
|
|
|
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.7 |
|
Purchase
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
Derivative
instrument hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
Foreign
currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6 |
|
|
|
|
|
|
|
3.6 |
|
Pension
and OPEB adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.0 |
|
|
|
|
|
|
|
49.0 |
|
Non-controlling
interest-Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
0.7 |
|
Non-controlling
interest-Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
(0.7 |
) |
Balance,
December 31, 2007
|
|
$ |
1.2 |
|
|
$ |
1,867.6 |
|
|
$ |
(126.8 |
) |
|
$ |
(915.1 |
) |
|
$ |
47.8 |
|
|
$ |
2.6 |
|
|
$ |
877.3 |
|
AK
STEEL HOLDING CORPORATION
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
(dollars
in millions)
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-In-Capital
|
|
|
Treasury
Stock
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Compre-hensive Income/
(Loss)
|
|
|
Noncontrolling
interest
|
|
|
Total
|
|
Balance,
December 31, 2007
|
|
$ |
1.2 |
|
|
$ |
1,867.6 |
|
|
$ |
(126.8 |
) |
|
$ |
(915.1 |
) |
|
$ |
47.8 |
|
|
$ |
2.6 |
|
|
$ |
877.3 |
|
Net
income attributable to AK Steel Holding Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
4.0 |
|
Two-month
change in pension/OPEB measurement date, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.4 |
) |
|
|
|
|
|
|
|
|
|
|
(7.4 |
) |
Change
in unamortized performance shares
|
|
|
|
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1 |
|
Change
in unamortized stock options
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
Issuance
of restricted stock, net
|
|
|
|
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.5 |
|
Change
in unamortized restricted stock
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
Unrealized
loss on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
|
|
|
|
|
(4.1 |
) |
Stock
options exercised
|
|
|
|
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4 |
|
Tax
benefit from common stock compensation
|
|
|
|
|
|
|
16.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.4 |
|
Purchase
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(24.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24.0 |
) |
Derivative
instrument hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31.0 |
) |
|
|
|
|
|
|
(31.0 |
) |
Foreign
currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.0 |
) |
|
|
|
|
|
|
(4.0 |
) |
Pension
and OPEB adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150.9 |
|
|
|
|
|
|
|
150.9 |
|
Common
stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.4 |
) |
|
|
|
|
|
|
|
|
|
|
(22.4 |
) |
Non-controlling
interest-Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
0.5 |
|
Non-controlling
interest-Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
Balance,
December 31, 2008
|
|
$ |
1.2 |
|
|
$ |
1,898.9 |
|
|
$ |
(150.8 |
) |
|
$ |
(940.9 |
) |
|
$ |
159.6 |
|
|
$ |
2.7 |
|
|
$ |
970.7 |
|
AK
STEEL HOLDING CORPORATION
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
(dollars
in millions)
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-In-Capital
|
|
|
Treasury
Stock
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Compre-hensive Income/
(Loss)
|
|
|
Noncontrolling
interest
|
|
|
Total
|
|
Balance,
December 31, 2008
|
|
$ |
1.2 |
|
|
$ |
1,898.9 |
|
|
$ |
(150.8 |
) |
|
$ |
(940.9 |
) |
|
$ |
159.6 |
|
|
$ |
2.7 |
|
|
$ |
970.7 |
|
Net
loss attributable to AK Steel Holding Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74.6 |
) |
|
|
|
|
|
|
|
|
|
|
(74.6 |
) |
Change
in unamortized performance shares
|
|
|
|
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.7 |
|
Change
in unamortized stock options
|
|
|
|
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0 |
|
Issuance
of restricted stock, net
|
|
|
|
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
Issuance
of restricted stock units
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
Change
in unamortized restricted stock
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
Unrealized
gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|
|
|
|
|
|
2.3 |
|
Stock
options exercised
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
Tax
provision from common stock compensation
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
Purchase
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(11.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.4 |
) |
Derivative
instrument hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.7 |
|
|
|
|
|
|
|
27.7 |
|
Foreign
currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
Pension
and OPEB adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.7 |
) |
|
|
|
|
|
|
(22.7 |
) |
Common
stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.0 |
) |
|
|
|
|
|
|
|
|
|
|
(22.0 |
) |
Non-controlling
interest-Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.4 |
) |
|
|
(3.4 |
) |
Balance,
December 31, 2009
|
|
$ |
1.2 |
|
|
$ |
1,911.4 |
|
|
$ |
(162.2 |
) |
|
$ |
(1,037.5 |
) |
|
$ |
167.9 |
|
|
$ |
(0.7 |
) |
|
$ |
880.1 |
|
See
notes to consolidated financial statements.
AK
STEEL HOLDING CORPORATION
|
|
|
|
For
the Years Ended December 31, 2009, 2008 and 2007
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
income (loss) attributable to AK Steel Holding Corporation
|
|
$ |
(74.6 |
) |
|
$ |
4.0 |
|
|
$ |
387.7 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
1.0 |
|
|
|
(4.0 |
) |
|
|
3.6 |
|
Derivative
instrument hedges, mark to market:
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses
arising in period
|
|
|
(12.4 |
) |
|
|
(20.5 |
) |
|
|
(8.6 |
) |
Less:
Reclassification of (gains) losses included in net income
|
|
|
40.1 |
|
|
|
(10.5 |
) |
|
|
8.9 |
|
Unrealized
gains (losses) on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) arising during period
|
|
|
2.3 |
|
|
|
(4.1 |
) |
|
|
— |
|
Pension
and OPEB adjustment
|
|
|
(22.7 |
) |
|
|
153.6 |
|
|
|
49.0 |
|
Comprehensive
income (loss)
|
|
$ |
(66.3 |
) |
|
$ |
118.5 |
|
|
$ |
440.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
AK
STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars
in millions, except per share amounts)
NOTE
1 - Summary of Significant Accounting
Policies
|
Basis of Presentation: These
financial statements consolidate the operations and accounts of AK Steel Holding
Corporation (“AK Holding”), its 100%-owned subsidiary AK Steel Corporation (“AK
Steel,” and together with AK Holding, the “Company”), all subsidiaries in which
the Company has a controlling interest, and Middletown Coke Company, Inc.
(“Middletown Coke”), which is a variable interest entity whose financial results
are required to be consolidated with the results of the Company according to
FASB Accounting Standards Codification (“ASC”) Topic 810,
“Consolidation”. The Company also operates European trading companies
that buy and sell steel and steel products and other materials.
Use of Estimates: The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of
management estimates and assumptions that affect the amounts
reported. These estimates are based on historical experience and
information that is available to management about current events and actions the
Company may take in the future. Significant items subject to
estimates and assumptions include the carrying value of long-lived assets;
valuation allowances for receivables, inventories and deferred income tax
assets; legal and environmental liabilities; and assets and obligations related
to employee benefit plans. There can be no assurance that actual
results will not differ from these estimates.
Costs of Products
Sold: Cost of products sold for the Company consists primarily
of raw materials, energy costs and supplies consumed in the manufacturing
process, manufacturing labor, contract labor and direct overhead expense
necessary to manufacture the finished steel product as well as distribution and
warehousing costs. The Company’s proportionate share of the income
(loss) of investments in associated companies that are accounted for under the
equity method is also included in costs of products sold since these operations
are integrated with the Company’s overall steelmaking operations.
Revenue Recognition: Revenue
from sales of products is recognized at the time title and the risks and rewards
of ownership pass. This is when the products are shipped per
customers’ instructions, the sales price is fixed and determinable, and
collection is reasonably assured.
Cash Equivalents: Cash
equivalents include short-term, highly liquid investments that are readily
convertible to known amounts of cash and are of an original maturity of three
months or less.
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
paid (received) during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
(net of interest capitalized)
|
|
$ |
49.7 |
|
|
$ |
48.6 |
|
|
$ |
79.3 |
|
Income
taxes
|
|
|
(24.0 |
) |
|
|
57.1 |
|
|
|
39.1 |
|
Supplemental Cash Flow Information
Regarding Non-Cash Investing and Financing Activities: The Company
granted common stock to certain employees and/or restricted stock units to
directors with values, net of cancellations, of $3.8, $5.5 and $4.6 in 2009,
2008 and 2007, respectively, under its restricted stock award programs (see Note
3). The Company had open accounts payables and accruals at December
31, 2009, 2008 and 2007 of $16.8, $28.7 and $37.8, respectively, related to
property, plant and equipment purchases.
Accounts Receivable: The
allowance for doubtful accounts was $13.4 and $11.8 at December 31, 2009 and
2008, respectively. The Company maintains an allowance for doubtful
accounts as a reserve for the loss that would be incurred if a customer is
unable to pay amounts due to the Company. The Company determines this
based on various factors, including the customer’s financial
condition.
Inventories: Inventories
are valued at the lower of cost or market. The cost of the majority
of inventories is measured on the last in, first out (“LIFO”)
method. Other inventories are measured principally at average cost
and consist mostly of foreign inventories and certain raw
materials.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
|
|
2009
|
|
|
2008
|
|
Inventories
on LIFO:
|
|
|
|
|
|
|
Finished
and semi-finished
|
|
$ |
597.4 |
|
|
$ |
850.8 |
|
Raw
materials and supplies
|
|
|
205.5 |
|
|
|
496.0 |
|
Adjustment
to state inventories at LIFO value
|
|
|
(405.2 |
) |
|
|
(822.4 |
) |
Total
|
|
|
397.7 |
|
|
|
524.4 |
|
Other
inventories
|
|
|
19.0 |
|
|
|
42.4 |
|
Total
inventories
|
|
$ |
416.7 |
|
|
$ |
566.8 |
|
|
|
|
|
|
|
|
|
|
During
2009, 2008 and 2007, liquidation of LIFO layers generated income of $96.8,
$181.9 and $45.5, respectively.
Property, Plant and Equipment:
Plant and equipment are depreciated under the straight-line method over
their estimated lives. Land improvements are depreciated over 20
years, leaseholds, over the life of the lease, buildings, over 40 years and
machinery and equipment, over two to 20 years. The estimated weighted
average life of the Company’s machinery and equipment is 18.3
years. The Company recognizes costs associated with major maintenance
activities at its operating facilities in the period in which they
occur. The Company’s property, plant and equipment balances as of
December 31, 2009 and 2008 are as follows:
|
|
2009
|
|
|
2008
|
|
Land,
land improvements and leaseholds
|
|
$ |
149.3 |
|
|
$ |
149.1 |
|
Buildings
|
|
|
366.2 |
|
|
|
366.0 |
|
Machinery
and equipment
|
|
|
4,714.3 |
|
|
|
4,631.3 |
|
Construction
in progress
|
|
|
155.3 |
|
|
|
135.7 |
|
Total
|
|
|
5,385.1 |
|
|
|
5,282.1 |
|
Less
accumulated depreciation
|
|
|
(3,409.1 |
) |
|
|
(3,220.8 |
) |
Property,
plant and equipment, net
|
|
$ |
1,976.0 |
|
|
$ |
2,061.3 |
|
|
|
|
|
|
|
|
|
|
The
amount of interest on capital projects capitalized in 2009 and 2008 was $7.8 and
$4.4, respectively. The Company reviews the carrying value of
long-lived assets to be held and used and long-lived assets to be disposed of
when events and circumstances warrant such a review. The carrying
value of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition
of the asset. If the carrying value of a long-lived asset exceeds its
fair value an impairment has occurred and a loss is recognized based on the
amount by which the carrying value exceeds the fair market value less cost to
dispose for assets to be sold or abandoned. Fair market value is
determined using quoted market prices, estimates based on prices of similar
assets or anticipated cash flows discounted at a rate commensurate with
risk.
Investments: The
Company has investments in associated companies that are accounted for under the
equity method. Because the operations of these companies are
integrated with its basic steelmaking operations, the Company includes its
proportionate share of the income of these associated companies in cost of
products sold in the Company’s consolidated statements of
operations. Operating income includes income (loss) from equity
companies of ($2.0), $2.5 and $7.4 in 2009, 2008 and 2007,
respectively.
The
Company received a cash payment of $42.7 in December 2007 resulting from the
recapitalization of Combined Metals of Chicago L.L.C. (“Combined Metals”), a
private stainless steel processing company in which it holds an equity
interest. The cash payment represents a $27.4 partial repayment of
the $35.0 note receivable held by the Company and $15.3 for
interest. A pre-tax benefit of $12.5 in interest income was recorded
in the fourth quarter of 2007. The Company continues to have a 40%
equity interest in Combined Metals.
The
Company holds equity interests in companies that produce products or own
processes that have a synergistic relationship with the Company’s
products. Each of these investments is subject to a review for
impairment, if and when, circumstances indicate that a loss in value below its
carrying amount is other than temporary. Under these circumstances,
the Company would write down the investment to its fair value, which would then
become its new carrying amount. No impairment was necessary based on
the reviews conducted in 2009, 2008 and 2007.
The
Company’s investment in AFSG Holdings, Inc. represents the carrying value of its
discontinued insurance and finance leasing businesses, which have been largely
liquidated. The activities of the remaining operating companies are
being “run off” and the companies are accounted for as a discontinued operation
under the liquidation basis of
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
accounting,
whereby future cash inflows and outflows are considered. The Company
is under no obligation to support the operations or liabilities of these
companies.
Related Party Transactions:
The Company regularly transacts business with its equity
investees. The following relates to the Company’s transactions with
these unconsolidated subsidiaries for the years indicated:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Sales
to equity investees
|
|
$ |
14.1 |
|
|
$ |
65.0 |
|
|
$ |
59.9 |
|
Purchases
from equity investees
|
|
|
14.0 |
|
|
|
21.6 |
|
|
|
21.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Accounts
receivable from equity investees
|
|
$ |
1.5 |
|
|
$ |
1.5 |
|
Accounts
payable to equity investees
|
|
|
0.9 |
|
|
|
2.4 |
|
Notes
receivable from equity investees
|
|
|
7.6 |
|
|
|
7.6 |
|
Goodwill and Other Intangible
Assets: As of December 31, 2009 and 2008, goodwill on the consolidated
balance sheets was $37.1, related primarily to the Company’s tubular
business. Other intangible assets on the consolidated balance sheets
was $0.2 and $0.3 at December 31, 2009 and 2008, respectively. Goodwill is
reviewed for possible impairment at least annually. Considering
operating results and the estimated fair value of the business, the 2009 and
2008 annual reviews did not result in any goodwill impairment for the
Company.
Pension and Other Postretirement
Benefits: Under its method of accounting for pension and other
postretirement benefit plans, the Company recognizes into income, as of the
Company’s measurement date, any unrecognized actuarial net gains or losses that
exceed 10% of the larger of projected benefit obligations or plan assets,
defined as the “corridor”. Prior to January 31, 2009, amounts inside
this 10% corridor were amortized over the average remaining service life of
active plan participants. Beginning January 31, 2009, the date of the
“lock and freeze” of a defined benefit pension plan covering all salaried
employees, the actuarial gains and losses will be amortized over the plan
participants’ life expectancy. The Company adopted this method of
accounting for pension and other postretirement benefit obligations as a result
of its merger with Armco Inc. in 1999. Actuarial net gains and losses
occur when actual experience differs from any of the many assumptions used to
value the plans. Differences between the expected and actual returns
on plan assets and changes in interest rates, which affect the discount rates
used to value projected plan obligations, can have a significant impact on the
calculation of pension net gains and losses from year to year. For
other postretirement benefit plans, increases in healthcare trend rates that
outpace discount rates could cause unrecognized net losses to increase to the
point that an outside-the-corridor charge would be necessary. In
2008, the Company incurred a pre-tax pension corridor charge of $660.1 related
to its pension obligations. The corridor charge was due mainly to the
negative investment performance of the related pension assets offset slightly by
the gain in the obligation due to the increase in the discount
rate. The Company did not incur an other postretirement employee
benefit corridor charge in 2008. There were no corridor charges in
2009.
ASC
Topic 715, “Compensation-Retirement Benefits” requires the Company to fully
recognize and disclose an asset or liability for the overfunded or underfunded
status of its benefit plans in its financial statements. In the first
quarter of 2008, the Company adopted the measurement date provisions of ASC
Subparagraph 715-20-65-1. As a result, the Company recorded a $12.0
pre-tax charge to retained earnings and a $7.4 pre-tax charge to accumulated
other comprehensive income to reflect the two months’ amount of other
postretirement net periodic benefit cost that had been delayed as the result of
the October 31, 2007 measurement date. In addition, the Company
recorded a minimal charge to retained earnings and a $3.5 pre-tax increase to
accumulated other comprehensive income to reflect the two months’ amount of
pension net periodic benefit cost that had been delayed as the result of the
October 31, 2007 measurement date. These amounts were determined
using the October 31, 2007 measurement date valuation.
Income Taxes: As more fully
explained in Note 4, the Company records deferred tax assets, primarily related
to amounts previously expensed in the consolidated financial statements, which
become deductible in the tax return upon payment in the future. These
amounts include pension and other postretirement benefit reserves and other
reserves which have been accrued. To the extent the Company has
regular and alternative minimum taxable income, it utilizes any existing regular
and alternative minimum tax net operating loss carryovers to reduce its federal
income tax liability. The Company files income tax returns in various
state and local tax jurisdictions, and to the extent that net
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
operating
loss carryovers are available, the Company reduces its jurisdictional tax
liability. Where state or local tax jurisdiction net operating loss
carryovers are not available or are limited, the Company pays income
taxes.
The
tax losses and tax credit carryforwards may be used to offset future taxable
income, and their benefit is reflected in the deferred tax
assets. These deferred tax asset components are partially offset by
deferred tax liabilities, primarily related to fixed assets which have been
depreciated at a faster rate for tax purposes than for financial reporting
purposes. In order to recognize fully the deferred tax asset, the
Company must generate sufficient taxable income to utilize its temporary
differences and net operating loss and tax credit carryforwards before they
expire. The Company records a valuation allowance to reduce its
deferred tax assets to an amount that is more likely than not to be
realized. The valuation allowance is regularly reviewed for
adequacy.
Amounts
recorded as income taxes reflect the provisions of ASC Topic 740, “Income Taxes”
which clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements and prescribes standards for the recognition and
measurement of tax positions taken or expected to be taken on a tax
return.
Earnings per Share:
Reconciliation of numerators and denominators for basic and diluted EPS
computations is as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
income (loss) attributable to AK Holding
|
|
$ |
(74.6 |
) |
|
$ |
4.0 |
|
|
$ |
387.7 |
|
Less:
Distributed earnings to common stockholders and holders of certain stock
compensation awards
|
|
|
22.0 |
|
|
|
22.4 |
|
|
|
— |
|
Undistributed
earnings (losses)
|
|
$ |
(96.6 |
) |
|
$ |
(18.4 |
) |
|
$ |
387.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stockholders earnings – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed
earnings to common stockholders
|
|
$ |
21.8 |
|
|
$ |
22.3 |
|
|
$ |
— |
|
Undistributed
earnings (losses) to common stockholders
|
|
|
(96.0 |
) |
|
|
(18.3 |
) |
|
|
387.7 |
|
Common
stockholders earnings (losses) – basic
|
|
$ |
(74.2 |
) |
|
$ |
4.0 |
|
|
$ |
387.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stockholders earnings – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed
earnings to common stockholders
|
|
$ |
21.8 |
|
|
$ |
22.3 |
|
|
$ |
— |
|
Undistributed
earnings (losses) to common stockholders
|
|
|
(96.0 |
) |
|
|
(18.3 |
) |
|
|
387.7 |
|
Common
stockholders earnings (losses) – diluted
|
|
$ |
(74.2 |
) |
|
$ |
4.0 |
|
|
$ |
387.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding (weighted average in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding for basic earnings per share
|
|
|
109.0 |
|
|
|
111.4 |
|
|
|
110.8 |
|
Effect
of dilutive stock-based compensation
|
|
|
— |
|
|
|
0.3 |
|
|
|
1.1 |
|
Common
shares outstanding for diluted earnings per share
|
|
|
109.0 |
|
|
|
111.7 |
|
|
|
111.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed
earnings
|
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
$ |
— |
|
Undistributed
earnings (losses)
|
|
|
(0.88 |
) |
|
|
(0.16 |
) |
|
|
3.50 |
|
Basic
earnings (losses) per share
|
|
$ |
(0.68 |
) |
|
$ |
0.04 |
|
|
$ |
3.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed
earnings
|
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
$ |
— |
|
Undistributed
earnings (losses)
|
|
|
(0.88 |
) |
|
|
(0.16 |
) |
|
|
3.46 |
|
Diluted
earnings (losses) per share
|
|
$ |
(0.68 |
) |
|
$ |
0.04 |
|
|
$ |
3.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
in 2009, earnings per share (“EPS”) has been calculated utilizing the
“two-class” method by dividing the sum of distributed earnings to common
stockholders and undistributed earnings allocated to common stockholders by the
weighted average number of common shares outstanding during the
period. In applying the “two-class” method, undistributed earnings
are allocated to both common shares and participating
securities. The restricted stock granted by AK Steel is
entitled to dividends and meets the criteria of a participating
security.
EPS
for the year ended December 31, 2008 was recalculated using the two-class
method. The two class method did not change the diluted EPS or the
basic EPS for this period. There were no dividends for the year ended
December 31, 2007, therefore EPS was not recalculated.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
At
the end of each of the above years, the Company had outstanding stock options
whose exercise or conversion could, under certain circumstances, further dilute
earnings per share. The shares of potentially issuable common stock
that were not included in the above weighted average shares outstanding were
393,669 at December 31, 2009, 750 at December 31, 2008, and 10,000 at December
31, 2007. To include them would have had an anti-dilutive effect on
earnings per share for the years presented.
Share-Based
Compensation: Compensation costs related to all stock awards
granted under the Company’s Stock Incentive Plan are charged against income
during their vesting period. In 2009, 2008, and 2007, the Company
recognized compensation costs of $13.1, $11.7, and $9.3, respectively, under ASC
Topic 718, “Compensation-Stock Compensation” for stock options, performance
shares, restricted stock and restricted stock units.
Stock Ownership: On July 21,
2005, the Board of Directors of AK Holding, upon the joint recommendation of its
Nominating and Governance Committee and its Management Development and
Compensation Committee, adopted stock ownership guidelines for directors and
executive officers of the Company. The share ownership target for the
Company’s President and Chief Executive Officer was established on July 21,
2005, the date the guidelines were adopted, and is expressed as a number of
shares of the Company’s common stock equal in market value to three times his
annual base salary as of that date. The share ownership target for the other
executive officers also was established on July 21, 2005 and likewise is
expressed as a number of shares of the Company’s common stock equal in market
value to either one or one-and-one-half times the officer’s annual base salary
as of that same date. In each instance, once established, the share
ownership target number remains static unless adjusted by the Management
Development and Compensation Committee. All existing executive
officers currently are in compliance with their applicable stock ownership
guidelines. New executive officers will be expected to attain a
specified minimum level of target ownership approved by the Board within a
period of three years from the date he or she is first elected an executive
officer of the Company. The stock ownership guidelines applicable to
Directors were changed effective October 16, 2008 as a result of the adoption by
the Board of the use of restricted stock units rather than restricted stock for
the equity portion of Directors’ compensation. Under the new stock
ownership guidelines for Directors, each Director is expected to hold at least
25% of the shares of the Company’s common stock issued to the Director pursuant
to a restricted stock unit award until at least six months following the
Director’s termination of service on the Board.
Research and Development
Costs: The Company conducts a broad range of research and development
activities aimed at improving existing products and manufacturing processes and
developing new products and processes. Research and development
costs, which are recorded as expense when incurred, totaled $6.2, $8.1 and $8.0
in 2009, 2008 and 2007, respectively.
Concentrations of Credit
Risk: The Company operates in a single business segment and is primarily
a producer of carbon, stainless and electrical steels and steel products, which
are sold to a number of markets, including automotive, industrial machinery and
equipment, construction, power distribution and appliances. The
following presents net sales by product line:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Stainless
and electrical
|
|
$ |
1,736.2 |
|
|
$ |
3,234.5 |
|
|
$ |
3,074.9 |
|
Carbon
|
|
|
2,207.6 |
|
|
|
4,188.4 |
|
|
|
3,684.6 |
|
Tubular
|
|
|
131.7 |
|
|
|
221.4 |
|
|
|
243.4 |
|
Other,
primarily conversion services
|
|
|
1.3 |
|
|
|
— |
|
|
|
0.1 |
|
Total
|
|
$ |
4,076.8 |
|
|
$ |
7,644.3 |
|
|
$ |
7,003.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following sets forth the percentage of the Company’s net sales attributable to
various markets:
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Automotive
|
|
|
36 |
% |
|
|
32 |
% |
|
|
40 |
% |
Infrastructure
and Manufacturing (a)
|
|
|
31 |
% |
|
|
29 |
% |
|
|
26 |
% |
Distributors
and Converters (a)
|
|
|
33 |
% |
|
|
39 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Prior
to 2008, the Company historically referred to these markets by somewhat
different names. In 2008, the names were updated to simplify
them, but the nature of the product sales and customers included in each
market was not changed.
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
No
customer accounted for more than 10% of net sales of the Company during 2009,
2008 or 2007. The Company sells domestically to customers primarily
in the Midwestern and Eastern United States and to foreign customers, primarily
in Canada, Mexico, China and Western Europe. Net sales to customers
located outside the United States totaled $767.0, $1,267.9 and $925.1 for 2009,
2008 and 2007, respectively. Approximately 29% and 28% of trade
receivables outstanding at December 31, 2009 and 2008, respectively, are due
from businesses associated with the U.S. automotive industry. Except
in a few situations where the risk warrants it, collateral is not required on
trade receivables. While the Company believes its recorded trade
receivables will be collected, in the event of default the Company would follow
normal collection procedures.
Union Contracts: At December
31, 2009, the Company’s operations included approximately 6,500 employees, of
which approximately 4,900 are represented by labor unions under various
contracts that currently will expire in the years 2010 through
2013. The labor contract for approximately 100 hourly production and
maintenance employees represented by United Steelworkers of America Local 1915
at the Walbridge, Ohio facility of AK Tube, LLC, a wholly-owned subsidiary of
the Company, was scheduled to expire on January 25, 2009. In January
2009, the members of that union ratified a new three-year labor agreement which
will expire on January 22, 2012. The labor contract for approximately
340 hourly employees represented by the United Autoworkers Local 3462 at the
Company’s Coshocton, Ohio plant was scheduled to expire on March 31,
2010. In December 2009, the members of that union ratified an
extension of the existing contract through March 31, 2013. An
agreement with the United Steelworkers of America Local 1865, which represents
approximately 750 hourly employees at the Company’s Ashland, Kentucky’s West
Works is scheduled to expire on September 1, 2010.
Financial Instruments:
Investments in debt securities are classified as held-to-maturity because the
Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost,
adjusted for amortization of premiums and accretion of discounts to
maturity. Investments in equity securities are classified as
available-for-sale. Available-for-sale securities are carried at fair
value, with unrealized gains and losses, net of tax, reported in other
comprehensive income. Realized gains and losses on sales of
available-for-sale securities are computed based upon initial cost adjusted for
any other than temporary declines in fair value. The Company has no
investments that are considered to be trading securities.
Debt
and equity securities are subject to a review for impairment if and when
circumstances indicate that a loss in value is other than
temporary. Under these circumstances, the Company would write down a
held-to-maturity security to its fair value, which would then become its new
carrying amount or, in the case of an available-for-sale security, would record
a realized loss to reduce the value from which unrealized gains or losses are
computed. At December 31, 2009, total unrealized losses on securities
in an unrealized loss position, net of tax, were $1.6, and the Company does not
believe those losses are other than temporary.
The
carrying value of the Company’s financial instruments does not differ materially
from their estimated fair value at the end of 2009 and 2008 with the exception
of the Company’s long-term debt. At December 31, 2009, the fair value
of the Company’s long-term debt, including current maturities, was approximately
$609.6. The fair value estimate was based on financial market
information available to management as of December 31,
2009. Management is not aware of any significant factors that would
materially alter this estimate since that date. The fair value of the
Company’s long-term debt, including current maturities, at December 31, 2008 was
approximately $515.8.
The
Company is a party to derivative instruments that are designated and qualify as
hedges under ASC Topic 815, “Derivatives and Hedging”. The Company
may also enter into derivative instruments to which it does not apply hedge
accounting treatment. The Company’s objective in using these
instruments is to protect its earnings and cash flows from fluctuations in the
fair value of selected commodities and currencies.
In
the ordinary course of business, the Company’s income and cash flows may be
affected by fluctuations in the price of certain commodities used in its
production processes. The Company has implemented raw material and
energy surcharges for its spot market customers and some of its contract
customers. For certain commodities where such exposure exists, the
Company uses cash settled commodity price swaps, collars and purchase options,
with a duration of up to three years, to hedge the price of a portion of its
natural gas, nickel, aluminum and zinc requirements. The Company
designates the natural gas instruments as cash flow hedges and the effective
portion of the changes in their fair value are recorded in other comprehensive
income. Subsequent gains and losses are recognized into cost of
products sold in the same period as the underlying physical
transaction. The pre-tax net loss recognized in earnings during 2009
representing the component of the derivative instruments’ current effectiveness
and excluded from the assessment of hedge effectiveness was $9.4 and was
recorded in cost of products sold. At December 31, 2009, currently
valued outstanding commodity hedges would result in the reclassification into
earnings of $1.3 in net-of-tax losses within the next twelve
months. At December 31, 2008, currently valued outstanding commodity
hedges would have resulted in the reclassification into earnings of $24.9 in
net-of-tax losses within the next twelve months. The
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
nickel,
aluminum and zinc hedges are marked to market and recognized into cost of
products sold with the offset recognized as current assets or accrued
liabilities. At December 31, 2009, other current assets, other
non-current assets and accrued liabilities included $1.9, $0.1 and $5.8,
respectively, for the fair value of these commodity hedges.
In
addition, in the ordinary course of business, the Company is subject to risks
associated with exchange rate fluctuations on monies received from its European
subsidiaries and other customers invoiced in European currencies. In
order to mitigate this risk, the Company has entered into a series of agreements
for the forward sale of euros at fixed dollar rates. The forward
contracts are entered into with durations of up to a year. A typical
contract is used as a cash flow hedge for the period from when an order is taken
to when a sale is recognized, at which time it converts into a fair value hedge
of a euro-denominated receivable. The Company does not classify these
hedges as derivatives for accounting purposes and the hedges are marked to
market on a quarterly basis with the expense or income recorded in other
income. At December 31, 2009 and 2008, the Company had outstanding
forward currency contracts with a total value of $23.3 and $26.7, respectively,
for the sale of euros.
The
Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objectives and strategies for
undertaking various hedge transactions. In this documentation, the
Company specifically identifies the asset, liability, firm commitment or
forecasted transaction that has been designated as a hedged item and states how
the hedging instrument is expected to hedge the risks related to that
item. The Company formally measures effectiveness of its hedging
relationships both at the hedge inception and on an ongoing
basis. The Company discontinues hedge accounting prospectively when
it determines that the derivative is no longer effective in offsetting changes
in the fair value or cash flows of a hedged item; when the derivative expires or
is sold, terminated or exercised; when it is probable that the forecasted
transaction will not occur; when a hedged firm commitment no longer meets the
definition of a firm commitment; or when management determines that designation
of the derivative as a hedge instrument is no longer appropriate.
Ashland Works Outage: The Company experienced
an unplanned outage at its Ashland Works blast furnace late in the third quarter
of 2007 that continued into the fourth quarter 2007. For 2007, the
Company recorded as a reduction to cost of sales and a corresponding accounts
receivable an estimated insurance recovery of $34.0 related to this blast
furnace outage for direct costs associated with the outage. Of this
amount, $15.0 was received during the fourth quarter of 2007, and the balance
was received in the first quarter of 2008.
Curtailment Charges: There
were no curtailment charges in 2009. In 2008, the Company recognized
a curtailment charge of $39.4 related to “locking and freezing” a defined
benefit plan covering all salaried employees and replacing it with a fixed
percent contribution to a defined contribution pension plan. In
2007, the Company recognized a curtailment charge of $15.1 as a result of the
new labor contract at the Company’s Mansfield Works and $24.7 as a result of the
new labor contract at the Company’s Middletown Works.
Asbestos and Environmental Insurance
Settlements: The Company is, and has been for a number of years, in the
process of remediating sites where hazardous material may have been released,
including sites no longer owned by the Company. In addition, a number
of lawsuits alleging asbestos exposure have been filed and continue to be filed
against the Company. The Company has established reserves for
estimated probable costs related to asbestos claim settlements and environmental
investigation, monitoring and remediation. If the reserves are not
adequate to meet future claims, operating results and cash flows may be
negatively impacted. The reserves do not consider the potential for
insurance recoveries. The Company previously entered into insurance
settlements with certain of its insurance carriers relating to its environmental
and asbestos liabilities. As a result of these settlements, several
insurance policies have been commuted. Coverage for environmental and
asbestos liabilities under those policies was disputed and the settlement amount
represented a negotiated dollar value the Company accepted for reimbursement of
past environmental and asbestos expenditures and, to a lesser extent, to release
the insurance companies from a responsibility to reimburse the Company for
future covered expenditures under the policies. However, under the
terms of the settlements, the Company does have partial insurance coverage for
some future asbestos claims. In addition, other existing insurance
policies covering asbestos and environmental contingencies may serve to mitigate
future covered expenditures.
New Accounting Pronouncements:
Certain
amounts in prior year financial statements have been reclassified to reflect the
reporting requirements of ASC Subparagraph 810-10-65-1, “Transition Related to
FASB Statements No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51, and No. 164, Not-for-Profit Entities:
Mergers and Acquisitions”.
ASC
Topic 810, “Consolidation”, as amended, requires an enterprise to perform an
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest
entity. This Statement is effective for fiscal years beginning on or
after November 15, 2009. The Company believes that this
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
guidance
does not alter the accounting treatment previously accorded to the consolidation
of Middletown Coke and Vicksmetal/Armco Associates.
Earnings
per share have been restated in prior periods in conformity with ASC
Subparagraph 260-10-65-2, “Transition Related to FSP EITF 03-6-1”.
Effective
with this Form 10-K, the Company has amended its disclosure relating to
postretirement benefit plan assets in compliance with ASC Subparagraph
715-20-65-2, “Transition related to FSP FAS 132(R)-1, Employers’ Disclosures
about Postretirement Benefit Plan Assets”. The disclosure includes
discussion on:
· investment
policies and strategies;
· categories
of plan assets;
· fair
value measurements of plan assets; and
· significant
concentrations of risk.
No
other new accounting pronouncement issued or effective during the 2009 fiscal
year has had or is expected to have a material impact on the Company’s
consolidated financial statements.
Comprehensive Income and Accumulated
Other Comprehensive Income (Loss): Comprehensive income in the Statement
of Comprehensive Income (Loss) is presented net of an approximate 38% tax
rate. The components of accumulated other comprehensive income (loss)
at December 31 are as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Foreign
currency translation
|
|
$ |
4.3 |
|
|
$ |
3.3 |
|
|
$ |
7.3 |
|
Derivative
instrument hedges
|
|
|
(1.3 |
) |
|
|
(29.0 |
) |
|
|
2.0 |
|
Unrealized
gain (loss) on investments
|
|
|
(1.6 |
) |
|
|
(3.9 |
) |
|
|
0.2 |
|
Employee
benefit liability
|
|
|
166.5 |
|
|
|
189.2 |
|
|
|
38.3 |
|
Total
|
|
$ |
167.9 |
|
|
$ |
159.6 |
|
|
$ |
47.8 |
|
NOTE
2 - Pension and Other Postretirement
Benefits
|
The
Company provides noncontributory pension and various healthcare and life
insurance benefits to most employees and retirees. The major pension
plans are not fully funded and, based on current assumptions, the Company plans
to contribute approximately $105.0 to the master pension trust during
2010. Of this total, $75.0 was made in the first quarter of 2010,
leaving approximately $30.0 to be made during the remainder of
2010. The Company made $210.0 in contributions during
2009. As of December 31, 2009, the Company expects approximately
$152.1 in other postretirement benefit payments in 2010. These
payments will be offset by an estimate of $7.1 in Medicare Part D Employer
Subsidy. The schedules below include amounts calculated based on a
benefit obligation and asset valuation measurement dates of December 31, 2009
and 2008, respectively.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Change
in benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligations at beginning of year
|
|
$ |
3,517.5 |
|
|
$ |
3,716.8 |
|
|
$ |
981.5 |
|
|
$ |
1,941.2 |
|
Adjustment
due to change in measurement date
|
|
|
— |
|
|
|
36.8 |
|
|
|
— |
|
|
|
19.3 |
|
Service
cost
|
|
|
3.7 |
|
|
|
8.1 |
|
|
|
4.0 |
|
|
|
4.4 |
|
Interest
cost
|
|
|
207.7 |
|
|
|
212.9 |
|
|
|
55.2 |
|
|
|
72.5 |
|
Plan
participants’ contributions
|
|
|
— |
|
|
|
— |
|
|
|
25.5 |
|
|
|
31.9 |
|
Actuarial
loss (gain)
|
|
|
161.0 |
|
|
|
(53.7 |
) |
|
|
(13.9 |
) |
|
|
(74.8 |
) |
Amendments
|
|
|
(0.3 |
) |
|
|
10.2 |
|
|
|
— |
|
|
|
(368.3 |
) |
Curtailments
|
|
|
— |
|
|
|
(22.3 |
) |
|
|
— |
|
|
|
— |
|
Settlement
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Contributions
to Middletown retirees VEBA
|
|
|
— |
|
|
|
— |
|
|
|
(65.0 |
) |
|
|
(468.0 |
) |
Benefits
paid
|
|
|
(394.7 |
) |
|
|
(391.3 |
) |
|
|
(110.7 |
) |
|
|
(176.7 |
) |
Benefit
obligations at end of year
|
|
$ |
3,494.8 |
|
|
$ |
3,517.5 |
|
|
$ |
876.6 |
|
|
$ |
981.5 |
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$ |
2,201.6 |
|
|
$ |
2,939.1 |
|
|
$ |
0.8 |
|
|
$ |
23.7 |
|
Actual
(loss) gain on plan assets
|
|
|
346.2 |
|
|
|
(573.0 |
) |
|
|
— |
|
|
|
— |
|
Employer
contributions
|
|
|
217.1 |
|
|
|
226.8 |
|
|
|
85.4 |
|
|
|
121.9 |
|
Settlement
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Plan
participants’ contributions
|
|
|
— |
|
|
|
— |
|
|
|
25.5 |
|
|
|
31.9 |
|
Benefits
paid
|
|
|
(394.7 |
) |
|
|
(391.3 |
) |
|
|
(110.7 |
) |
|
|
(176.7 |
) |
Fair
value of plan assets at end of year
|
|
$ |
2,370.1 |
|
|
$ |
2,201.6 |
|
|
$ |
1.0 |
|
|
$ |
0.8 |
|
Funded
status
|
|
$ |
(1,124.7 |
) |
|
$ |
(1,315.9 |
) |
|
$ |
(875.6 |
) |
|
$ |
(980.7 |
) |
Amounts
recognized in the consolidated balance sheets as of December
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$ |
(4.7 |
) |
|
$ |
(1.9 |
) |
|
$ |
(139.4 |
) |
|
$ |
(150.5 |
) |
Noncurrent
liabilities
|
|
|
(1,120.0 |
) |
|
|
(1,314.0 |
) |
|
|
(736.2 |
) |
|
|
(830.2 |
) |
Net
amount recognized
|
|
$ |
(1,124.7 |
) |
|
$ |
(1,315.9 |
) |
|
$ |
(875.6 |
) |
|
$ |
(980.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in accumulated other comprehensive income as of December
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial
loss
|
|
$ |
317.1 |
|
|
$ |
344.2 |
|
|
$ |
(64.2 |
) |
|
$ |
(53.7 |
) |
Prior
service cost (credit)
|
|
|
16.1 |
|
|
|
19.4 |
|
|
|
(539.2 |
) |
|
|
(618.1 |
) |
Net
amount recognized
|
|
$ |
333.2 |
|
|
$ |
363.6 |
|
|
$ |
(603.4 |
) |
|
$ |
(671.8 |
) |
Other
changes in plan assets and benefit obligations recognized in other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial (gain) loss
|
|
$ |
(9.1 |
) |
|
$ |
779.2 |
|
|
$ |
(13.9 |
) |
|
$ |
(97.0 |
) |
Recognized
actuarial gain (loss)
|
|
|
(17.9 |
) |
|
|
(679.9 |
) |
|
|
3.4 |
|
|
|
(3.1 |
) |
Prior
service cost (credit)
|
|
|
(0.3 |
) |
|
|
10.2 |
|
|
|
— |
|
|
|
(368.2 |
) |
Recognized
prior service (cost) credit
|
|
|
(3.0 |
) |
|
|
(44.0 |
) |
|
|
78.9 |
|
|
|
80.7 |
|
Total
recognized in other comprehensive income (loss)
|
|
$ |
(30.3 |
) |
|
$ |
65.5 |
|
|
$ |
68.4 |
|
|
$ |
(387.6 |
) |
The
accumulated benefit obligation for all defined benefit pension plans was
$3,474.4 and $3,493.2 at December 31, 2009 and 2008, respectively.
The
curtailment charge in 2008 resulted from a decision in 2008 to “lock and
freeze”, as of January 31, 2009, the accruals for a defined benefit pension plan
covering all salaried employees. The accruals to the defined benefit
pension plan have been replaced by a fixed percent contribution to a defined
contribution pension plan.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
The
following table presents estimated future benefit payments to
beneficiaries:
|
|
Pension
Plans
|
|
|
Other
Benefits
(a)
|
|
|
Medicare
Subsidy
(a)
|
|
2010
|
|
$ |
328.8 |
|
|
$ |
87.1 |
|
|
$ |
(7.1 |
) |
2011
|
|
|
310.9 |
|
|
|
83.9 |
|
|
|
(7.5 |
) |
2012
|
|
|
316.4 |
|
|
|
80.5 |
|
|
|
(6.2 |
) |
2013
|
|
|
312.8 |
|
|
|
77.1 |
|
|
|
(5.6 |
) |
2014
|
|
|
293.3 |
|
|
|
73.6 |
|
|
|
(5.6 |
) |
2015
through 2019
|
|
|
1,368.0 |
|
|
|
319.8 |
|
|
|
(26.2 |
) |
Total
|
|
$ |
2,930.2 |
|
|
$ |
722.0 |
|
|
$ |
(58.2 |
) |
(a)
|
These
figures reflect the benefit of the Settlement with the Middletown Works
retirees (see Note 9), but exclude the two annual $65.0 payments required
to be made by the Company in March of 2010 and 2011 related to
that Settlement.
|
Year-end
assumptions used to value current year assets and liabilities and determine
subsequent year expenses are as follows:
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Discount
rate
|
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
6.00 |
% |
|
|
5.50 |
% |
|
|
6.25 |
% |
|
|
6.00 |
% |
Expected
return on plan assets
|
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
8.50 |
% |
|
(a)
|
|
|
(a)
|
|
|
(a)
|
|
Rate
of compensation increase
|
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
Subsequent
year healthcare cost trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.00 |
% |
|
|
7.00 |
% |
|
|
8.00 |
% |
Ultimate
healthcare cost trend rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
4.50 |
% |
Year
ultimate healthcare cost trend rate begins
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2014 |
|
|
|
2012 |
|
|
|
2012 |
|
(a)
|
Historically,
the Company has only pre-funded Other Benefits to a limited
extent. To the extent there has been such pre-funding to date,
the funding has been in a trust account on a relatively short-term basis
and the assets have not been invested with the expectation of long-term
investment returns.
|
For
measurement purposes, healthcare costs are assumed to increase 8% during 2010,
after which this rate decreases 1% per year until reaching the ultimate trend
rate of 4.5% in 2014.
The
discount rate was determined by projecting the plan’s expected future benefit
payments, as defined for the projected benefit obligation, discounting those
expected payments using a theoretical zero-coupon spot yield curve derived from
a universe of high-quality bonds as of the measurement date, and solving for the
single equivalent discount rate that resulted in the same projected benefit
obligation. The fixed-income data as of the measurement date was obtained from
Bloomberg. Constraints were applied with respect to callability (callable
bonds with explicit call schedules were excluded; bonds with “make-whole” call
provisions were included) and credit quality (rated Aa or better by Moody’s
Investor Service).
The
following relates to pension plans with an accumulated benefit obligation in
excess of plan assets.
|
|
2009
|
|
|
2008
|
|
Projected
benefit obligation
|
|
$ |
3,494.8 |
|
|
$ |
3,517.5 |
|
Accumulated
benefit obligation
|
|
|
3,474.4 |
|
|
|
3,493.2 |
|
Fair
value of plan assets
|
|
|
2,370.1 |
|
|
|
2,201.6 |
|
Pension
and other postretirement benefit plan assets are invested in the master pension
trust comprised primarily of investments in indexed and actively managed
funds. A fiduciary committee establishes the target asset mix and
monitors asset performance. The master pension trust’s projected
long-term rate of return is determined by the AK Steel master pension trust
asset allocation, which is based on the investment policy statement, and
long-term capital market return assumptions provided by an investment manager
for the master pension trust.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
The
Company has developed an investment policy which takes into account the
liquidity requirements, expected investment return, expected asset risk, as well
as standard industry practices. The target asset allocation for the
plan assets is 60% equity, 38% fixed income, and 2%
cash. Equity exposure includes securities in domestic and
international corporations. The fixed income securities consist
primarily of investment grade corporate bonds as well as U.S.
Treasuries. Additionally, the fixed income portfolio holds a small
tactical allocation to high yield.
The
master pension trust classifies its investments into Level 1, which refers
to securities valued using the quoted prices from active markets for identical
assets; Level 2, which refers to securities not traded on an active market
but for which observable market inputs are readily available; and Level 3,
which refers to securities valued based on significant unobservable inputs.
Assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The following
table sets forth by level within the fair value hierarchy a summary of the
plan’s investments measured at fair value on recurring basis at
December 31, 2009.
|
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
|
|
Asset
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Equity Portfolio
|
(a)
|
|
$ |
213.0 |
|
|
$ |
693.3 |
|
|
|
|
|
$ |
906.3 |
|
EAFE
Equity Portfolio
|
(a)
|
|
|
153.1 |
|
|
|
158.4 |
|
|
|
|
|
|
311.5 |
|
Emerging
Market Equity Portfolio
|
(a)
|
|
|
|
|
|
|
34.1 |
|
|
|
|
|
|
34.1 |
|
GTAA
Equity Portfolio
|
(b)
|
|
|
|
|
|
|
143.1 |
|
|
|
|
|
|
143.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Grade Corporate
|
(c)
|
|
|
|
|
|
|
517.1 |
|
|
|
|
|
|
517.1 |
|
U.S.
Treasuries
|
(c)
|
|
|
|
|
|
|
58.7 |
|
|
|
|
|
|
58.7 |
|
GTAA
Debt
|
(d)
|
|
|
|
|
|
|
238.7 |
|
|
|
|
|
|
238.7 |
|
International
|
(e)
|
|
|
|
|
|
|
8.0 |
|
|
|
|
|
|
8.0 |
|
High
Yield
|
(f)
|
|
|
|
|
|
|
112.9 |
|
|
|
|
|
|
112.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Types of Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Equity Funds
|
(g)
|
|
|
|
|
|
|
|
|
|
$ |
4.5 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
35.2 |
|
|
|
|
|
|
|
|
|
|
|
35.2 |
|
Total
|
|
|
$ |
401.3 |
|
|
$ |
1,964.3 |
|
|
$ |
4.5 |
|
|
$ |
2,370.1 |
|
(a)
- Level 2 assets consists of common collective trusts which own securities
within the Russell 3000 Index (U.S. Equity Portfolio), Morgan Stanley Capital
International (“MSCI”) Europe, Australasia and Far East (“EAFE”) Index (EAFE
Equity Portfolio) and MSCI Emerging Market Index (Emerging Market Equity
Portfolio).
(b)
- Level 2 Global Tactical Asset Allocation (“GTAA”) Equity Portfolio is a global
asset class with investments in cash market securities (i.e., stocks and bonds),
exchange-traded funds and Commodity Futures Trading Commissions (“CFTC”)
approved futures, currency forwards and options.
(c)
- Level 2 assets consist of common collective trusts which own U.S. Treasuries
and U.S. Investment Grade Corporate bonds.
(d)
- Level 2 GTAA Debt Portfolio is a global asset class with investments in cash
market securities (i.e., stocks and bonds),
exchange-traded funds, synthetic debt and equity, CFTC approved futures,
currency forwards, options and certain swaps.
(e)
- Level 2 International Bond Portfolio consists of common collective trusts
which hold bonds of International Corporations.
(f)
- Level 2 High Yield Portfolio consists of bonds of U.S. Corporate High Yield
issuers.
(g)
- Level 3 Private Equity Fund consists of several private equity funds with no
remaining capital commitments.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Level
3 assets activity for 2009 is as follows:
Level
3 Assets
|
|
Capital
International Emerging
Markets
LP
|
|
|
TCW
Venture
Capital
|
|
|
Venture
Capital
Miscellaneous
|
|
|
Total
|
|
Beginning
balance – January 1, 2009
|
|
$ |
3.3 |
|
|
$ |
2.4 |
|
|
$ |
0.1 |
|
|
$ |
5.8 |
|
Realized
gains (losses)
|
|
|
0.4 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
0.3 |
|
Unrealized
gains (losses)
|
|
|
0.4 |
|
|
|
0.9 |
|
|
|
0.1 |
|
|
|
1.4 |
|
Other
– Income Fees
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
Distribution
to master pension trust
|
|
|
(1.5 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
(2.9 |
) |
Ending
balance – December 31, 2009
|
|
$ |
2.6 |
|
|
$ |
1.7 |
|
|
$ |
0.2 |
|
|
$ |
4.5 |
|
The
master pension trust’s projected long-term rate of return is determined by the
AK Steel master pension trust asset allocation, which is based on the investment
policy statement, and long-term capital market return assumptions provided by an
investment manager for the master pension trust.
The
fair value of other postretirement benefit assets was $1.0. These assets are
invested strictly in a money market account at the plan’s trustee.
The
plan assets contain no significant concentrations of risk related to the
individual securities or industry sectors.
The
components of net periodic benefit costs for the years 2009, 2008 and 2007 are
as follows:
|
|
Pension
Benefits
|
|
|
Other
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
3.7 |
|
|
$ |
8.1 |
|
|
$ |
10.2 |
|
|
$ |
4.0 |
|
|
$ |
4.4 |
|
|
$ |
4.9 |
|
Interest
cost
|
|
|
207.7 |
|
|
|
212.9 |
|
|
|
207.9 |
|
|
|
55.2 |
|
|
|
72.5 |
|
|
|
116.8 |
|
Expected
return on plan assets
|
|
|
(180.8 |
) |
|
|
(241.7 |
) |
|
|
(232.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization
of prior service cost (credit)
|
|
|
3.0 |
|
|
|
3.8 |
|
|
|
4.1 |
|
|
|
(78.9 |
) |
|
|
(72.9 |
) |
|
|
(51.6 |
) |
Recognized
net actuarial loss (gain):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
amortization
|
|
|
17.9 |
|
|
|
17.0 |
|
|
|
15.1 |
|
|
|
(3.4 |
) |
|
|
2.6 |
|
|
|
12.8 |
|
Corridor
charge
|
|
|
— |
|
|
|
660.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Settlement/curtailment
losses
|
|
|
— |
|
|
|
39.4 |
|
|
|
39.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net
periodic benefit cost
|
|
$ |
51.5 |
|
|
$ |
699.6 |
|
|
$ |
44.7 |
|
|
$ |
(23.1 |
) |
|
$ |
6.6 |
|
|
$ |
82.9 |
|
The
estimated net loss and prior service cost for the defined benefit pension plans
that will be amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year are $17.3 and $2.9,
respectively. The estimated net gain and prior service credit for the
other postretirement benefit plans that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next fiscal year
are $4.2 and $78.9, respectively.
The
corridor charge was recorded to recognize net actuarial losses outside the 10%
corridor under the Company’s method of accounting for pensions and other
postretirement benefits as described in Note 1.
Assumed
healthcare cost trend rates have a significant effect on the amounts reported
for healthcare plans. As of December 31, 2009, a one-percentage-point
change in the assumed healthcare cost trend rates would have the following
effects:
|
|
One
Percentage Point:
|
|
|
|
Increase
|
|
|
Decrease
|
|
Effect
on total service cost and interest cost components
|
|
$ |
0.6 |
|
|
$ |
(0.5 |
) |
Effect
on postretirement benefit obligation
|
|
|
8.0 |
|
|
|
(7.2 |
) |
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
The
Company also contributes to several multiemployer pension plans. The
expense for these plans was $14.5 in 2009, $10.3 in 2008 and $7.7 in
2007. Actual contributions to these plans for the same periods were
$13.1, $11.0 and $7.2, respectively. In addition to defined benefit
pension plans, most employees are eligible to participate in various defined
contribution plans. Total expense related to these plans was $10.9 in
2009, $21.1 in 2008 and $23.2 in 2007.
In
December 2003, the United States government enacted the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (the “Medicare
Act”). Among other provisions, the Medicare Act provides a federal
subsidy to sponsors of retiree healthcare benefit plans that include a qualified
prescription drug benefit. The Company sponsors such a
plan. The Company recognized an increase in net periodic benefit
credit of $1.0 in 2009 and a reduction in net periodic benefit costs related to
these savings of approximately $37.2 and $15.7 in 2008 and 2007,
respectively.
On
December 3, 2008, the Company announced its decision to “lock and freeze”, as of
January 31, 2009, the accruals for a defined benefit pension plan covering all
salaried employees. The accruals to the defined benefit plan have
been replaced by a fixed percent contribution to a defined contribution pension
plan. This action required the Company to recognize the past service
pension expense that previously would have been amortized as a curtailment
charge in 2008 of $39.4.
On
November 20, 2006, members of the United Steelworkers (“USW”) ratified a new
51-month labor agreement covering approximately 300 hourly production and
maintenance employees at the Company’s Mansfield Works. Under the
agreement, the existing defined benefit pension plan was “locked and frozen” as
of February 28, 2007 with subsequent contributions to the Steelworker’s Pension
Trust fund. As a result, the Company was required to recognize the
past service pension expense that previously would have been
amortized. The new contract expires on March 31, 2011.
On
March 14, 2007, members of the International Association of Machinists and
Aerospace Workers (“IAM”) ratified a new 54-month labor agreement covering about
1,700 hourly production and maintenance employees at the Company’s Middletown
Works. Under the agreement, the existing defined benefit pension plan
was “locked and frozen” as of May 26, 2007 with subsequent contributions to the
IAM National Pension Fund. As a result, the Company was required to
recognize the past service pension expense that previously would have been
amortized. In addition to the pension changes above, the contract
negotiated cost sharing for active and retiree healthcare, a reduction in job
classes from approximately 1,000 to seven, complete workforce restructuring,
elimination of minimum base workforce guarantees, and competitive wage
increases. The new contract expires on September 15,
2011.
As
a result of the ratification of the new labor contracts at Mansfield Works and
Middletown Works, the Company recognized curtailment charges in the first and
second quarters of 2007 of $15.1 and $24.7, respectively. Under these
agreements, the existing defined benefit pension plan at each facility was
“locked and frozen” with subsequent Company contributions being made to
multiemployer pension trusts.
NOTE
3 - Share-based Compensation
|
The
AK Steel Holding Corporation Stock Incentive Plan (the “SIP”) permits the
granting of nonqualified stock option, restricted stock, performance share and
restricted stock unit awards to directors, officers and key management employees
of the Company. These nonqualified option, restricted stock,
performance share and restricted stock unit awards may be granted with respect
to an aggregate maximum of 16 million shares through the period ending
December 31, 2014. The shares that are issued as the result of these
grants are newly issued shares. The exercise price of each option may not be
less than the market price of the Company’s common stock on the date of the
grant. Stock options have a maximum term of ten years and may not be
exercised earlier than six months following the date of grant or such other term
as may be specified in the award agreement. Stock options granted to
officers and key managers vest and become exercisable in three equal
installments on the first, second and third anniversary of the grant
date. Stock options granted to directors vest and become exercisable
after one year. On July 16, 2009, however, the Board of AK Holding,
upon the recommendation of its outside compensation consultant, approved a
change to the Director compensation program which replaces the grants of stock
options, which non-employee Directors previously received upon election to the
Board and at five-year intervals thereafter, with ongoing quarterly awards of
restricted stock units (“RSUs”) in the total annualized amount of thirty five
thousand dollars. This change is prospective and will not affect the
vesting of stock options granted prior to July 16, 2009. Performance
shares vest after a three-year period. The total number of
performance shares issued will be based on the Company’s share performance
compared to a prescribed compounded annual growth rate and the total share
return compared to Standard and Poor’s MidCap 400 index. Restricted
stock awards granted to officers and key managers on or prior to December 31,
2006, that are
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
not
yet fully vested were awarded on terms pursuant to which 25% of the shares
covered by a restricted stock award vest two years after the date of the award
and an additional 25% vest on the third, fourth and fifth anniversaries of the
date of the award. Restricted stock awards granted to officers and
key managers after December 31, 2006 will vest ratably on the first, second and
third anniversaries of the grant. Until October 16, 2008, directors
were granted restricted stock as the equity component of their
compensation. On October 16, 2008, the Board of Directors amended the
SIP to allow RSUs to be granted to non-employee Directors in lieu of restricted
shares of common stock as the equity component of a Director’s
compensation. In addition, the Board of Directors permitted each
Director a one-time election to convert all of his or her existing restricted
stock to RSUs. To the extent not so converted, restricted stock
issued to a Director prior to October 16, 2008 vests at the end of the
Director’s full tenure on the Board. New grants of RSUs vest
immediately upon grant, but are not settled (i.e., paid out) until one
year after the date of the grant, unless deferred settlement is elected as
described below. RSUs resulting from converted restricted stock
vested and were settled as of the date of the 2009 Annual Meeting of AK
Holding’s stockholders, subject also to a deferred settlement
election. Directors have the option to defer settlement of their RSUs
until six months following the date they complete their full tenure on the Board
due to attainment of mandatory retirement age, the election by the stockholders
of a replacement Director, or the Director’s death or disability. If
a Director elects this deferral option, he or she also may elect to take
distribution of the shares upon settlement in a single distribution or in annual
installments not to exceed fifteen years.
The
Company uses the Black-Scholes option valuation model to value the nonqualified
stock options which is consistent with the provisions of ASC Topic 718,
“Compensation-Stock Compensation”. Historical data regarding stock option
exercise behaviors was used to estimate the expected life of options granted
based on the period of time that options granted are expected to be
outstanding. The risk-free interest rate is based on the Daily
Treasury Yield Curve published by the U.S. Treasury on the date of
grant. The expected volatility is determined by using a blend of
historical and implied volatility. For grants in 2007, there was no
assumption regarding the expected dividend yield since the Company did not
distribute dividends in the five years prior due to restrictions under the
Company’s senior debt financial covenants. The Company began paying
dividends in 2008 and the assumptions for grants in 2008 and 2009 included an
expected dividend yield. On January 25, 2010, the Company announced
that its Board of Directors declared a quarterly cash dividend of $0.05 per
share of common stock payable on March 10, 2010, to shareholders of record on
February 12, 2010. Assumptions for grants in 2010 will include the
dividend declared in 2010.
The
Company’s calculation of fair value of the options is estimated on the grant
date using a Black-Scholes option pricing model with the following weighted
average assumptions:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Expected
volatility
|
|
|
81.1%
– 90.8 |
% |
|
|
52.4%
– 70.7 |
% |
|
|
45.0%
– 48.8 |
% |
Weighted-average
volatility
|
|
|
82.6 |
% |
|
|
55.6 |
% |
|
|
46.8 |
% |
Expected
term (in years)
|
|
|
2.80
– 6.33 |
|
|
|
2.90
– 7.30 |
|
|
|
2.90
– 7.30 |
|
Risk-free
interest rate
|
|
|
1.05%
– 1.84 |
% |
|
|
1.86%
– 3.31 |
% |
|
|
4.50%
– 4.91 |
% |
Dividend
yield
|
|
|
2.19 |
% |
|
|
0.56 |
% |
|
|
n/a |
|
The
performance shares were valued using the Monte Carlo simulation
method. This method is consistent with the provisions of ASC Topic
718. The weighted-average risk-free rate of return for performance
shares used is presented below:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
1.10 |
% |
|
|
2.45 |
% |
|
|
4.80 |
% |
S&P
400 Midcap Index
|
|
|
1.10 |
% |
|
|
2.87 |
% |
|
|
4.71 |
% |
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
A
summary of option activity under the SIP as of December 31, 2009, and changes
during the year ended is presented below:
Stock
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at December 31, 2008
|
|
|
751,313 |
|
|
$ |
17.12 |
|
|
|
|
|
Granted
|
|
|
366,366 |
|
|
|
9.16 |
|
|
|
|
|
Exercised
|
|
|
(41,715 |
) |
|
|
12.15 |
|
|
|
|
|
Forfeited
or expired
|
|
|
(31,793 |
) |
|
|
16.71 |
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
1,044,171 |
|
|
$ |
14.54 |
|
7.2
yrs
|
|
$ |
4.2 |
|
Options
expected to vest at December 31, 2009
|
|
|
480,306 |
|
|
$ |
14.35 |
|
8.4
yrs
|
|
$ |
2.1 |
|
Options
exercisable at December 31, 2009
|
|
|
538,586 |
|
|
$ |
14.72 |
|
6.0
yrs
|
|
$ |
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted average fair value per share of options granted during 2009, 2008 and
2007 were $5.08, $17.43 and $8.32, respectively. The total intrinsic
value of options exercised during the 2009, 2008 and 2007 were $0.3, $26.1 and
$17.3, respectively.
Stock-based
compensation expense recognized under ASC Topic 718 in the consolidated
statement of operations for stock options for fiscal years 2009, 2008 and 2007
was $2.0, $1.9 and $1.9, respectively. The expense for performance
shares for fiscal years 2009, 2008 and 2007 was $5.7, $5.1 and $3.2,
respectively.
The
following table summarizes information about stock options outstanding at
December 31, 2009:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
|
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
|
Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
$ |
3.05 |
|
to
|
|
$ |
9.19 |
|
|
|
234,083 |
|
5.5
yrs.
|
|
$ |
7.49 |
|
|
|
212,833 |
|
|
$ |
7.41 |
|
$ |
9.20 |
|
to
|
|
$ |
13.64 |
|
|
|
344,184 |
|
8.7
yrs.
|
|
|
9.28 |
|
|
|
9,943 |
|
|
|
11.61 |
|
$ |
13.65 |
|
to
|
|
$ |
16.65 |
|
|
|
112,235 |
|
5.7
yrs.
|
|
|
14.77 |
|
|
|
112,235 |
|
|
|
14.77 |
|
$ |
16.66 |
|
to
|
|
$ |
18.07 |
|
|
|
221,419 |
|
6.9
yrs.
|
|
|
16.76 |
|
|
|
145,666 |
|
|
|
16.77 |
|
$ |
18.08 |
|
to
|
|
$ |
68.47 |
|
|
|
132,250 |
|
7.8
yrs.
|
|
|
36.76 |
|
|
|
57,909 |
|
|
|
36.84 |
|
During
2009, 2008 and 2007, the Company issued to certain employees 418,659, 149,819
and 265,823 shares of common stock, subject to restrictions, with weighted
average grant-date fair values of $9.17, $36.84 and $17.69 per share,
respectively. During 2009, 2008 and 2007, 543,089, 178,500 and
371,500 performance shares were issued, respectively.
The
pre-tax expense associated with share-based compensation for options and
performance shares for 2009, 2008 and 2007 is $7.7, $7.0 and $5.1,
respectively. The share-based compensation expense resulted in a
decrease in net income in 2009, 2008 and 2007 of $4.8, $4.5 and $3.3,
respectively, and a reduction in basic and diluted earnings per share in 2009,
2008 and 2007 of $0.04, $0.04 and $0.03 per share, respectively. The
share-based compensation expense taken includes expense for both nonqualified
stock options and performance shares granted from the SIP.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
A
summary of the activity associated with non-vested restricted stock awards under
the SIP during the year ended December 31, 2009 is presented
below:
Restricted
Stock Awards
|
|
|
Shares
|
|
|
Weighted
Average Grant Date Fair Value
|
|
Outstanding
at December 31, 2008
|
|
|
|
598,508 |
|
|
$ |
17.64 |
|
Granted
|
|
|
|
418,659 |
|
|
|
9.17 |
|
Vested
|
|
|
|
(281,120 |
) |
|
|
15.85 |
|
Converted
to restricted stock units
|
|
|
|
(53,521 |
) |
|
|
14.85 |
|
Outstanding
at December 31, 2009
|
|
|
|
682,526 |
|
|
$ |
13.40 |
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense related to restricted stock awards granted under the
Company’s SIP for 2009, 2008 and 2007 was $4.6 ($2.9 after tax), $4.7 ($3.0
after tax) and $4.2 ($2.7 after tax), respectively. Stock
compensation expense related to restricted stock units awarded to directors was
$0.8 during 2009, the first year that restricted stock units were
granted.
As
of December 31, 2009, there were $4.3 of total unrecognized compensation costs
related to non-vested share-based compensation awards granted under the SIP,
which costs are expected to be recognized over a weighted average period of 1.5
years. The total fair value of shares vested during the years ended
December 31, 2009, 2008 and 2007 was $4.5, $3.9 and $2.9,
respectively.
The
Company and its subsidiaries file a consolidated federal income tax
return. This return includes all domestic companies 80% or more owned
by the Company and the proportionate share of the Company’s interest in
partnership investments. State tax returns are filed on a
consolidated, combined or separate basis depending on the applicable laws
relating to the Company and its domestic subsidiaries.
The
United States and foreign components of income (loss) before income taxes
consist of the following:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
United
States
|
|
$ |
(94.7 |
) |
|
$ |
(28.2 |
) |
|
$ |
572.2 |
|
Foreign
|
|
|
(3.3 |
) |
|
|
21.8 |
|
|
|
19.8 |
|
Total
|
|
$ |
(98.0 |
) |
|
$ |
(6.4 |
) |
|
$ |
592.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
components of the Company’s deferred tax assets and liabilities at December 31,
2009 and 2008 are as follows:
|
|
2009
|
|
|
2008
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss and tax credit carryforwards
|
|
$ |
192.5 |
|
|
$ |
102.8 |
|
Postretirement
benefit reserves
|
|
|
365.0 |
|
|
|
410.5 |
|
Pension
reserves
|
|
|
422.8 |
|
|
|
423.9 |
|
Other
reserves
|
|
|
89.1 |
|
|
|
140.5 |
|
Inventories
|
|
|
128.7 |
|
|
|
208.4 |
|
Valuation
allowance
|
|
|
(18.4 |
) |
|
|
(16.9 |
) |
Total
deferred assets
|
|
|
1,179.7 |
|
|
|
1,269.2 |
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciable
assets
|
|
|
(441.1 |
) |
|
|
(477.1 |
) |
Total
deferred liabilities
|
|
|
(441.1 |
) |
|
|
(477.1 |
) |
Net
asset
|
|
$ |
738.6 |
|
|
$ |
792.1 |
|
|
|
|
|
|
|
|
|
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
The
deferred taxes outlined above include the income tax impact of temporary
differences. Temporary differences represent the cumulative taxable
or deductible amounts recorded in the consolidated financial statements in
different years than recognized in the tax returns. The
postretirement benefit difference includes amounts expensed in the consolidated
financial statements for healthcare, life insurance and other postretirement
benefits, which become deductible in the tax return upon payment or funding in
qualified trusts. Other temporary differences represent principally
various expenses accrued for financial reporting purposes which are not
deductible for tax reporting purposes until paid. The inventory
difference relates primarily to differences in the LIFO reserve and tax overhead
capitalized in excess of book amounts. The depreciable assets
temporary difference represents generally tax depreciation in excess of
financial statement depreciation.
At
December 31, 2009, the Company had $406.6 in federal regular net operating loss
carryforwards, and $464.1 in federal Alternative Minimum Tax (“AMT”) net
operating loss carryforwards which will expire beginning in 2028. At
December 31, 2009, the Company had unused AMT credit carryforwards of $16.7 and
research and development (“R&D”) credit carryforwards of $1.5, which may be
used to offset future regular income tax liabilities. These unused
AMT credits can be carried forward indefinitely and the R&D credits can be
carried forward 20 years.
At
December 31, 2009, the Company had $32.0 in deferred tax assets for state net
operating loss carryforwards and tax credit carryforwards, which will expire
between 2015 and 2029 and are subject to a valuation allowance of
$18.4.
In
2009, Pennsylvania enacted new tax legislation. As a result, in
accordance with ASC Topic 740, the Company was required to recognize a non-cash
tax charge of $5.1 as part of its income tax provision. This non-cash
tax charge represents the net decrease in the value of the Company’s state
deferred tax assets attributable to lower future effective state income tax
rates resulting from the law change. There were no state tax law
changes in 2008. In 2007, Michigan, New York, Maryland and Texas
enacted new tax legislation. As a result, in accordance with ASC
Topic 740, the Company was required to recognize a non-cash tax credit of $11.4
as part of its income tax provision.
Significant
components of the provision (benefit) for income taxes are as
follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(44.1 |
) |
|
$ |
(3.4 |
) |
|
$ |
51.8 |
|
State
|
|
|
0.9 |
|
|
|
(5.5 |
) |
|
|
12.4 |
|
Foreign
|
|
|
0.3 |
|
|
|
6.1 |
|
|
|
6.3 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
14.6 |
|
|
|
(13.9 |
) |
|
|
135.4 |
|
State
|
|
|
8.3 |
|
|
|
5.8 |
|
|
|
(2.3 |
) |
Total
tax provision (benefit)
|
|
$ |
(20.0 |
) |
|
$ |
(10.9 |
) |
|
$ |
203.6 |
|
The
reconciliation of income tax on continuing operations computed at the U.S.
federal statutory tax rates to actual income tax expense (benefit) is as
follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Income
(loss) at statutory rate
|
|
$ |
(34.3 |
) |
|
$ |
(2.2 |
) |
|
$ |
207.2 |
|
State
and foreign tax expense, net of federal tax
|
|
|
6.0 |
|
|
|
0.9 |
|
|
|
19.3 |
|
Effect
of state law changes on deferred tax assets, net of federal
tax
|
|
|
5.1 |
|
|
|
— |
|
|
|
(11.4 |
) |
Decrease
in federal deferred tax asset valuation allowance
|
|
|
— |
|
|
|
— |
|
|
|
(5.2 |
) |
Expired
net operating loss carryovers
|
|
|
— |
|
|
|
— |
|
|
|
5.2 |
|
Medicare
Part D Drug Reimbursement
|
|
|
(0.4 |
) |
|
|
(13.0 |
) |
|
|
(5.5 |
) |
Other
permanent differences
|
|
|
3.6 |
|
|
|
3.4 |
|
|
|
(6.0 |
) |
Total
tax expense (benefit)
|
|
$ |
(20.0 |
) |
|
$ |
(10.9 |
) |
|
$ |
203.6 |
|
The
Internal Revenue Service (“IRS”) has concluded its examination of federal income
tax returns filed for the years through 2006. In addition, in the
normal course of business, the state and local tax returns of the Company and
its subsidiaries are routinely subjected to examination by various taxing
jurisdictions. The Company has established appropriate income tax
reserves, as mentioned below, and believes that the outcomes of future federal
examinations as well as ongoing and future state and local examinations will not
have a material adverse impact on the Company’s financial position, results of
operations or cash flows.
The
Company has undistributed earnings of foreign subsidiaries of approximately
$14.1 at December 31, 2009. Deferred taxes have not been provided on these
earnings since the balance is considered to be permanently invested in
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
the
Company’s foreign subsidiaries. If such undistributed earnings were
repatriated, it is estimated that the additional tax expense to be provided
would be approximately $4.9.
Amounts
recorded as income taxes reflect the provisions of ASC Topic 740 which clarifies
the accounting for uncertainty in income taxes recognized in an entity’s
financial statements and prescribes standards for the recognition and
measurement of tax positions taken or expected to be taken on a tax
return.
The
Company adopted the provisions of ASC Topic 740 on January 1,
2007. The total amount of unrecognized tax benefits as of the date of
adoption was $34.6. As a result of the adoption of ASC Topic 740 the
Company recorded $30.8 of unrecognized tax benefits. The
implementation of ASC Topic 740 resulted in an unfavorable impact to retained
earnings of $6.7. As of the date of adoption, the balance of
unrecognized tax benefits that, if recognized, would affect the effective tax
rate was $6.2, of which $3.0 was added as a result of the implementation of ASC
Topic 740.
A
reconciliation of the change in unrecognized tax benefits for 2009 and 2008 is
presented below:
|
|
2009
|
|
|
2008
|
|
Balance
at January 1
|
|
$ |
49.1 |
|
|
$ |
50.9 |
|
Increases/(decreases)
for prior year tax positions
|
|
|
(0.2 |
) |
|
|
(1.7 |
) |
Increases/(decreases)
for current year tax positions
|
|
|
— |
|
|
|
(0.1 |
) |
Increases/(decreases)
related to settlements
|
|
|
(1.3 |
) |
|
|
— |
|
Increases/(decreases)
related to statute lapse
|
|
|
(1.6 |
) |
|
|
— |
|
Balance
at December 31
|
|
$ |
46.0 |
|
|
$ |
49.1 |
|
The
balance of unrecognized tax benefits at December 31, 2009 and December 31, 2008
was $46.0 and $49.1, respectively. Included in the balance of
unrecognized tax benefits at December 31, 2009, are $37.0 of tax benefits that,
if recognized, would affect the effective tax rate. Also included in the balance
of unrecognized tax benefits at December 31, 2009, are $9.0 of tax benefits
that, if recognized, would result in adjustments to other tax accounts,
primarily deferred taxes. For the year ended December 31, 2009, the
unrecognized tax benefits related to tax positions taken in prior years
decreased by $0.2 related to the filing of the 2008 income tax
returns. Within the $0.2 decrease are certain items that would impact
the effective tax rate by $1.9. The Company recorded a decrease of
$1.3 to unrecognized tax benefits related to tax issues that were resolved in
2009 with a $1.0 benefit to the effective tax rate. Also in 2009, the Company
recorded a decrease of $1.6 to unrecognized tax benefits with a $1.0 benefit to
the effective tax rate related to the lapse of state statutes of limitation for
prior year tax issues. Included in the balance of unrecognized tax
benefits at December 31, 2008, were $35.4 of tax benefits that, if recognized,
would affect the effective tax rate. Also included in the balance of
unrecognized tax benefits at December 31, 2008, were $13.7 of tax benefits that,
if recognized, would result in adjustments to other tax accounts, primarily
deferred taxes.
The
Company recognizes interest and penalties accrued related to uncertain tax
positions as a component of the income tax expense. Accrued interest
and penalties are included in the related tax liability line in the consolidated
balance sheet. The balance of interest and penalties at December 31,
2008 was $7.3. The Company had a net release of interest and
penalties of $3.0 during 2009, and in total, as of December 31, 2009, had
recognized a liability for interest of $4.1 and penalties of
$0.2. The Company accrued additional interest of $2.4 during 2008,
and in total as of December 31, 2008, had recognized a liability for interest of
$5.2 and penalties of $2.1. Upon adoption of ASC Topic 740 in January
2007, the Company had total accrued interest and penalties of $5.5 and at
December 31, 2007 the balance of interest and penalties was $4.9. The
Company accrued additional interest of $0.1 and reduced its penalty accrual by
$0.7 during 2007, and in total as of December 31, 2007, had recognized a
liability for interest of $2.8 and penalties of $2.1.
Certain
tax positions exist for which it is reasonably possible that the total amounts
of unrecognized tax benefits will significantly change within twelve months of
December 31, 2009. The Company estimates that the lapse of state
statutes of limitation for prior year tax issues will reduce related
unrecognized tax benefits within the next twelve months by approximately
$1.3.
The
Company is subject to taxation by the United States and by various state and
foreign jurisdictions. In 2009, the Internal Revenue Service
completed its examination of the Company’s 2006 tax year. With a few
exceptions, the Company is no longer subject to federal, state, local or foreign
examinations by tax authorities for years before 2006. Net operating
losses carried forward from prior years are subject to examination by tax
authorities.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
NOTE
5 - Long-Term Debt and Other
Financing
|
At
December 31, 2009 and 2008, the Company’s long-term debt balances were as
follows:
|
|
2009
|
|
|
2008
|
|
7
3/4% Senior Notes Due June 2012
|
|
|
504.0 |
|
|
|
530.4 |
|
Tax
Exempt Financing Due 2010 through 2029 (variable rates of 0.25% to 4.0% in
2009)
|
|
|
103.0 |
|
|
|
103.7 |
|
Unamortized
discount
|
|
|
(0.5 |
) |
|
|
(0.8 |
) |
Total
debt
|
|
$ |
606.5 |
|
|
$ |
633.3 |
|
|
|
|
|
|
|
|
|
|
During
the fourth quarter of 2008, the Company repurchased $19.6 of the $550.0 original
par value of the Company’s 7 3/4% senior notes due in 2012 with cash payments
totaling $14.2. In connection with the 2008 repurchases, the Company
incurred non-cash, pre-tax gains of approximately $5.4 in
2008. During 2009, the Company repurchased an additional $26.4 of
those senior notes, with cash payments totaling $22.8. In connection
with the 2009 repurchases, the Company incurred non-cash, pre-tax gains of
approximately $3.6 in 2009. The repurchases were funded from the
Company’s existing cash balances.
At
December 31, 2009, the maturities of long-term debt (excluding unamortized
discount) are as follows:
2010
|
|
|
0.7 |
|
2011
|
|
|
0.7 |
|
2012
|
|
|
504.8 |
|
2013
|
|
|
0.7 |
|
2014
|
|
|
0.7 |
|
2015
and thereafter
|
|
|
99.4 |
|
Total
maturities
|
|
$ |
607.0 |
|
At
December 31, 2009, the Company had $600.4 of availability under the Company’s
$850.0 five-year revolving credit facility. At December 31, 2009,
there were no outstanding borrowings under the credit facility; however,
availability was reduced by $136.9 due to outstanding letters of
credit. The Company’s obligation under its credit facility is secured
by its inventory and accounts receivable. Thus, availability also may
be reduced by a decline in the level of eligible collateral, which can fluctuate
monthly under the terms of the credit facility. The Company’s
eligible collateral, after application of applicable advance rates, totaled
$737.3 as of December 31, 2009. The Company has no significant
scheduled debt payments due until June 2012 when its 7 3/4% senior notes are
due. In addition, the Company’s credit facility expires in February
2012.
At
December 31, 2008, the Company had $682.3 of availability under the Company’s
$850.0 five-year revolving credit facility. At December 31, 2008,
there were no outstanding borrowings under the credit facility; however,
availability was reduced by $167.7 due to outstanding letters of
credit. Availability under the credit facility fluctuates monthly
with the varying levels of eligible collateral. The Company used cash
to redeem $12.1 of outstanding industrial revenue bonds in the fourth quarter of
2008 which were previously classified on the balance sheet in the Current
portion of long-term debt. As a result of this redemption a
supporting letter of credit was also eliminated. The redemption did
not have an impact on the Company’s overall liquidity position.
The
indentures governing the Company’s 7 3/4% senior notes due in 2012, as well as
the agreement governing its revolving credit facility, contain restrictions and
covenants that can limit the Company’s financial flexibility. The
senior note indentures include restrictive covenants regarding sale/leaseback
transactions, transactions by subsidiaries and with affiliates, the use of
proceeds from asset sales and some investments, and the maintenance of a minimum
interest coverage ratio of 2.5 to 1. At December 31, 2009, the ratio
fell below the 2.5 to 1 incurrence test. Because of the Company’s
current cash and liquidity position, however, it does not expect the restriction
imposed by its noncompliance with this covenant to have a materially adverse
effect on the Company or its operations. This number is calculated by
dividing the interest expense, including capitalized interest and fees on
letters of credit, into EBITDA which is defined as (i) income before interest,
income taxes, depreciation, amortization of intangible assets and restricted
stock, extraordinary items and purchase accounting and asset distributions, (ii)
adjusted for income before income taxes for discontinued operations, and (iii)
reduced for the charges related to impairment of goodwill and OPEB corridor
charges. These corridor charges are then amortized over a 10-year
period for this calculation. In addition, there is a limitation on
restricted payments, which consist primarily of dividends and share repurchases,
to $25.0 plus 50% of cumulative net income (or minus 100% of cumulative net
loss) from April 1, 2002. The
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Company’s
$850.0 five-year revolving credit facility secured by the Company’s product
inventory and accounts receivable contains restrictions on, among other things,
distributions and dividends, acquisitions and investments, indebtedness, liens
and affiliate transactions. In addition, the facility requires
maintenance of a minimum fixed charge coverage ratio of 1 to 1 if availability
is less than $125.0.
In
1997, in conjunction with construction of Rockport Works, the Spencer County
(IN) Redevelopment District (the “District”) issued $23.0 in taxable tax
increment revenue bonds. Proceeds from the bond issue were used by
the Company for the acquisition of land and site improvements at the
facility. The source of the District’s scheduled principal and
interest payments through maturity in 2017 is a designated portion of the
Company’s real and personal property tax payments. The Company is
obligated to pay any deficiency in the event its annual tax payments are
insufficient to enable the District to make principal and interest payments when
due. In 2009, the Company made deficiency payments totaling
$3.6. At December 31, 2009, the remaining semiannual payments of
principal and interest due through the year 2017 total $50.7. The
Company includes potential payments due in the coming year under this agreement
in its annual property tax accrual.
NOTE
6 - Operating Leases
|
Rental
expense in net income was $23.1, $27.5 and $31.2 for 2009, 2008 and 2007,
respectively.
At
December 31, 2009, obligations to make future minimum lease payments were as
follows:
2010
|
|
$ |
5.1 |
|
2011
|
|
|
4.6 |
|
2012
|
|
|
3.8 |
|
2013
|
|
|
3.6 |
|
2014
|
|
|
3.6 |
|
2015
and thereafter
|
|
|
14.8 |
|
The
Company is leasing its corporate headquarters building in West Chester, Ohio,
having moved into the building in August 2007. The initial term of
the lease for the building is twelve years, with two five-year options to extend
the lease.
In
late 2008, the Company entered into a ten-year operating lease with Infinity
Rail for a fleet of privately-owned slab carrier railcars to enable the
transportation of slabs directly from Butler Works to Middletown
Works.
NOTE
7 - Stockholders’ Equity
|
Preferred
Stock: There are 25,000,000 shares authorized; no shares are
issued or outstanding.
Common Stock: The
holders of common stock are entitled to receive dividends when and as declared
by the Board of Directors out of funds legally available for
distribution. The holders have one vote per share in respect of all
matters and are not entitled to preemptive rights.
Dividends: The
payment of cash dividends is subject to a restrictive covenant contained in the
instruments governing the Company’s outstanding senior debt. The
covenant allows the payment of dividends, if declared by the Board of Directors,
and the redemption or purchase of shares of its outstanding capital stock,
subject to a formula that reflects cumulative net earnings. During
the period from 2001 to the third quarter of 2007, the Company was not permitted
under the formula to pay a cash dividend on its common stock as a result of
cumulative losses recorded before and during that period. During the
third quarter 2007, the cumulative losses calculated under the formula were
eliminated due to the improved financial performance of the
Company. Accordingly, since that time, a cash dividend has been
permissible under the senior debt covenants. Restrictive covenants
also are contained in the instruments governing the Company’s $850.0 asset-based
revolving credit facility. Under the credit facility covenants,
dividends are not restricted unless availability falls below $150.0, at which
point dividends would be limited to $12.0 annually. Currently, the
availability under the credit facility significantly exceeds
$150.0. Accordingly, there currently are no covenant restrictions on
the Company’s ability to declare and pay a dividend to its
shareholders. In the first quarter of 2008, the Company declared and
paid a quarterly common stock dividend of $0.05 per share. Common
stock dividends of $0.05 per share were declared and paid quarterly
thereafter. On January 25, 2010, the Company announced that its Board
of Directors declared a quarterly cash dividend of $0.05 per share of common
stock, payable on March 10, 2010, to shareholders of record on February 12,
2010.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Stockholder Repurchase
Plan: On October 21, 2008, the Company announced that its
Board of Directors had authorized the Company to repurchase, from time to time,
up to $150.0 of its outstanding common stock shares. During the first
quarter of 2009, the Company expended $10.0 to purchase 1,624,700 shares of its
common stock. During the fourth quarter of 2008, the Company expended $14.4 to
purchase 1,650,801 shares of its common stock pursuant to this
authorization.
The
principal raw materials required for the Company’s steel manufacturing
operations are iron ore, coal, coke, chrome, nickel, silicon, manganese, zinc,
limestone, and carbon and stainless steel scrap. The Company also
uses large volumes of natural gas, electricity and oxygen in its steel
manufacturing operations. In addition, the Company historically has
purchased approximately 500,000 to 700,000 tons annually of carbon steel slabs
from other steel producers to supplement the production from its own steelmaking
facilities, though it did not do so in 2009 because of substantially reduced
demand for the Company’s products. The Company makes most of its
purchases of coal, iron ore, coke and oxygen at negotiated prices under annual
and multi-year agreements. The Company typically makes purchases of
carbon steel slabs, carbon and stainless steel scrap, natural gas, a majority of
its electricity, and other raw materials at prevailing market prices, which are
subject to price fluctuations in accordance with supply and
demand. The Company enters into financial instruments designated as
hedges with respect to some purchases of natural gas and certain raw materials,
the prices of which may be subject to volatile fluctuations. In 2009,
the Company experienced a significant decline in raw material and energy costs,
primarily carbon scrap, nickel and natural gas.
To
the extent that multi-year contracts are available in the marketplace, the
Company has used such contracts to secure adequate sources of supply to satisfy
other key raw materials needs for the next three to five years. Where
multi-year contracts are not available, the Company continues to seek to secure
the remainder of its raw materials needs through annual contracts or spot
purchases. The Company also continues to attempt to reduce the risk
of future supply shortages by considering equity investments with respect to
certain raw materials and by evaluating alternative sources and substitute
materials.
The
Company currently believes that it either has or will be able to secure adequate
sources of supply for its raw material and energy requirements for
2010. As a result, however, of lower than normal year-end inventories
in 2009, and increased demand beyond the Company’s initial projections for 2010,
the Company still needs to secure additional volumes of some raw materials,
principally iron ore, for 2010. Based on current reduced demand for
most raw materials, the Company does not anticipate major shortages in the
market unless substantial supply capacity is taken out of the
market. The potential exists, however, for production disruptions due
to shortages of raw materials in the future. If such a disruption
were to occur, it could have a material impact on the Company’s financial
condition, operations and cash flows.
The
Company produces most of the coke it consumes in its blast furnaces, but has
been purchasing approximately 350,000 net tons annually from a third party
pursuant to a ten-year supply contract (the “Shenango Coke Contract”) which
expired on December 31, 2009. In anticipation of the expiration of
the Shenango Coke Contract, the Company entered into a long-term agreement with
Haverhill North Coke Company (“SunCoke Haverhill”), an affiliate of SunCoke
Energy, Inc. (“SunCoke”), to provide the Company with metallurgical-grade coke
from the SunCoke Haverhill facility in southern Ohio. Under the
agreement, SunCoke Haverhill provides AK Steel with up to 550,000 tons of coke
annually. The Company will also benefit under the agreement from
electricity co-generated from the heat recovery coke battery. This is
in addition to the previously announced project with Middletown Coke Company,
Inc., another SunCoke affiliate (“Middletown Coke”), to construct a
new state-of-the-art, environmentally friendly heat-recovery coke battery
contiguous to the Company’s Middletown Works which will be capable of producing
550,000 net tons of metallurgical grade coke annually. Under the
terms of the agreements with Middletown Coke, in the event specific
contingencies fail to be satisfied, including the issuance of certain material
permits and approvals related to the project, the Company would be required to
incur costs of up to approximately $73.3. This amount includes costs
related to real property acquisition and development and the purchase of certain
long lead-time equipment and related items made to expedite the facility’s
construction timeline. If such contingencies fail to be satisfied,
Middletown Coke and the Company would either attempt to re-sell such equipment
and related items to decrease the total costs incurred by the Company, or the
Company would use all or a portion of the equipment and related items at a
future date in connection with a different project. It is likely that
the Company will need the production from both SunCoke facilities due to reduced
production available from, and uncertainties with respect to, the Company’s
Ashland, Kentucky coke batteries as a result of environmental
issues. To the extent the two SunCoke facilities, combined with the
Company’s existing coke batteries in Ashland, Kentucky and Middletown, Ohio,
provide more coke than the Company needs for its steel production, the Company
anticipates that it will be able to sell any excess coke in the merchant coke
market.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
The
Company enters into derivative transactions in the ordinary course of business
to hedge the price of natural gas and certain raw materials. As of
December 31, 2009, the consolidated balance sheets included other current assets
of $1.9, other non-current assets of $0.1 and accrued liabilities of $5.8 for
the fair value of these derivatives. Changes in the prices paid for
the related commodities are expected to offset the effect on cash of settling
these amounts.
At
December 31, 2009, commitments for future capital investments totaled
approximately $7.3, all of which will be funded in 2010.
NOTE
9 - Environmental and Legal
Contingencies
|
Environmental
Contingencies: Domestic steel producers, including AK Steel,
are subject to stringent federal, state and local laws and regulations relating
to the protection of human health and the environment. Over the past
three years, the Company has expended the following for environmental-related
capital investments and environmental compliance:
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Environmental-related
capital investments
|
|
$ |
1.0 |
|
|
$ |
1.8 |
|
|
$ |
2.4 |
|
Environmental
compliance costs
|
|
|
106.6 |
|
|
|
126.5 |
|
|
|
122.8 |
|
AK
Steel and its predecessors have been conducting steel manufacturing and related
operations since the year 1900. Although the Company believes its
operating practices have been consistent with prevailing industry standards
during this time, hazardous materials may have been released in the past at one
or more operating sites or third party sites, including operating sites that the
Company no longer owns. The Company has estimated 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. At
December 31, 2009, the Company had recorded $17.0 in accrued liabilities and
$40.6 in other non-current liabilities on its consolidated balance sheets for
estimated probable costs relating to environmental matters. The
comparable balances recorded by the Company at December 31, 2008 were $16.5 in
accrued liabilities and $40.8 in other non-current liabilities. In
general, the material components of these accruals include the costs associated
with investigations, delineations, risk assessments, remedial work, governmental
response and oversight costs, site monitoring, and preparation of reports to the
appropriate environmental agencies. The ultimate costs to the Company
with respect to each site cannot be predicted with certainty because of the
evolving nature of the investigation and remediation process. Rather,
to develop the estimates of the probable costs, the Company must make certain
assumptions.
The
most significant of these assumptions relate to the nature and scope of the work
which will be necessary to investigate and remediate a particular site and the
cost of that work. Other significant assumptions include the cleanup
technology which will be used, whether and to what extent any other parties will
participate in paying the investigation and remediation costs, reimbursement of
governmental agency past response and future oversight costs, and the reaction
of the governing environmental agencies to the proposed work
plans. Costs of future expenditures are not discounted to their
present value. The Company does not believe that there is a
reasonable possibility that a loss or losses exceeding the amounts accrued will
be incurred in connection with the environmental matters discussed below that
would, either individually or in the aggregate, have a material adverse effect
on the Company’s consolidated financial condition, results of operations or cash
flows. However, since amounts recognized in the financial statements
in accordance with accounting principles generally accepted in the United States
exclude costs that are not probable or that may not be currently estimable, the
ultimate costs of these environmental proceedings may be higher than those
currently recorded in the Company’s consolidated financial
statements.
Environmental
compliance costs decreased in 2009 from 2008 due primarily to the three-month
outage at the Middletown Works blast furnace and reduction in steam costs
because of lower natural gas costs at all plants. Except as expressly
noted below, management does not currently anticipate any material impact on the
Company’s recurring operating costs or future profitability as a result of its
compliance with current environmental regulations. Moreover, because
all domestic steel producers operate under the same set of federal environmental
regulations, management believes that the Company is not disadvantaged relative
to its domestic competitors by its need to comply with these
regulations. As noted above, some foreign competitors may benefit
from less stringent environmental requirements in the countries in which they
produce, resulting in lower compliance costs and providing those foreign
competitors with a cost advantage on their products.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Pursuant
to the Resource Conservation and Recovery Act (“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. AK Steel’s major
steelmaking facilities are subject to RCRA inspections by environmental
regulators. While the Company 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 conferred by the Comprehensive Environmental Response, Compensation
and Liability Act (“CERCLA”), the EPA and state environmental authorities have
conducted site investigations at certain of AK Steel’s facilities and other
third-party facilities, portions of which previously may have been used for
disposal of materials that are currently subject to regulation. The
results of these investigations are still pending, and AK Steel could be
directed to expend funds for remedial activities at the former disposal
areas. Because of the uncertain status of these investigations,
however, the Company cannot reliably predict whether or when such expenditures
might be required, their magnitude or the timeframe during which these potential
costs would be incurred.
As
previously reported, on July 27, 2001, AK Steel received a Special Notice Letter
from the EPA requesting that AK Steel agree to conduct a Remedial
Investigation/Feasibility Study (“RI/FS”) and enter into an administrative order
on consent pursuant to Section 122 of CERCLA regarding the former Hamilton Plant
located in New Miami, Ohio. The Hamilton Plant ceased operations in
1990, and all of its former structures have been demolished and
removed. Although AK Steel did not believe that a site-wide RI/FS was
necessary or appropriate, in April 2002, it entered into a mutually agreed-upon
administrative order on consent to perform such an investigation and study of
the Hamilton Plant site. The site-wide investigation portion of the
RI/FS has been submitted. The study portion is projected to be
completed in 2010 pending approval of the investigation results. AK
Steel currently has accrued $0.7 for the remaining cost of the
RI/FS. Until the RI/FS is completed, AK Steel cannot reliably
estimate the additional costs, if any, associated with any potentially required
remediation of the site or the timeframe during which these potential costs
would be incurred.
On
September 30, 1998, AK Steel’s predecessor, Armco, Inc., received an order from
the EPA under Section 3013 of RCRA requiring it to develop a plan for
investigation of eight areas of Mansfield Works that allegedly could be sources
of contamination. A site investigation began in November 2000 and is
continuing. AK Steel cannot reliably estimate at this time how long
it will take to complete this site investigation. AK Steel currently
has accrued approximately $2.1 for the projected cost of the study at Mansfield
Works. Until the site investigation is completed, AK Steel cannot
reliably estimate the additional costs, if any, associated with any potentially
required remediation of the site or the timeframe during which these potential
costs would be incurred.
On
October 9, 2002, AK Steel received an order from the EPA under Section 3013 of
RCRA requiring it to develop a plan for investigation of several areas of
Zanesville Works that allegedly could be sources of contamination. A
site investigation began in early 2003 and is continuing. AK Steel
estimates that it will take approximately one more year to complete this site
investigation. AK Steel currently has accrued approximately $1.0 for
the projected cost of the study and remediation at Zanesville
Works. Until the site investigation is completed, AK Steel cannot
reliably estimate the additional costs, if any, associated with any potentially
required remediation of the site or the timeframe during which these potential
costs would be incurred.
On
November 26, 2004, Ohio EPA issued a Notice of Violation (“NOV”) for alleged
waste violations associated with an acid leak at AK Steel’s Coshocton
Works. In November 2007, Ohio EPA and AK Steel reached an agreement
to resolve this NOV. Pursuant to that agreement, AK Steel implemented
an inspection program, initiated an investigation of the area where the acid
leak occurred, submitted a closure plan and upon approval from Ohio EPA, will
implement that closure plan. Also, as part of the agreement, AK Steel
paid a civil penalty of twenty-eight thousand dollars and funded a supplemental
environmental project in the amount of seven thousand dollars. Until
the investigation is completed and a closure plan is approved, AK Steel cannot
reliably estimate the costs associated with closure or the timeframe during
which the closure costs will be incurred.
On
December 20, 2006, Ohio EPA issued an NOV with respect to two electric arc
furnaces at AK Steel’s Mansfield Works alleging failure of the Title V stack
tests with respect to several air pollutants. The Company is investigating this
claim and is working with Ohio EPA to attempt to resolve it. AK Steel
believes it will reach a settlement in this matter that will not have a material
financial impact on AK Steel, but cannot be certain that a settlement will be
reached. If a settlement is reached, the Company cannot reliably
estimate at this time how long it will take to reach such a settlement or what
its terms might be. AK Steel will vigorously contest any claims which
cannot be resolved through a settlement. Until it has reached a
settlement with Ohio EPA or the claims that are the subject of the
NOV
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
are
otherwise resolved, AK Steel cannot reliably estimate the costs, if any,
associated with any potentially required operational changes at the furnaces or
the timeframe over which any potential costs would be incurred.
On
July 23, 2007 and on December 9, 2008, the EPA issued NOVs with respect to the
Coke Plant at AK Steel’s Ashland Works alleging violations of pushing and
combustion stack limits. The Company is investigating this claim and
is working with the EPA to attempt to resolve it. AK Steel believes
it will reach a settlement in this matter that will not have a material
financial impact on AK Steel, but cannot be certain that a settlement will be
reached. If a settlement is reached, the Company cannot reliably
estimate at this time how long it will take to reach such a settlement or what
its terms might be. AK Steel will vigorously contest any claims which
cannot be resolved through a settlement. Until it has reached a
settlement with the EPA or the claims that are the subject of the NOV are
otherwise resolved, AK Steel cannot reliably estimate the costs, if any,
associated with any potentially required operational changes at the batteries or
the timeframe over which any potential costs would be incurred.
AK
Steel previously reported that it has been negotiating with the Pennsylvania
Department of Environmental Protection (“PADEP”) to resolve an alleged
unpermitted discharge of wastewater from the closed Hillside Landfill at the
former Ambridge Works. AK Steel now has reached a settlement in this
matter and on July 15, 2009 the parties entered into a Consent Order and
Agreement (the “Consent Order”) to memorialize that settlement. Under
the terms of the Consent Order, AK Steel will implement various corrective
actions, including an investigation of the area where activities were conducted
regarding the landfill, submission of a plan to collect and treat surface waters
and seep discharges, and upon approval from PADEP, implementation of that
plan. Also, as part of the Consent Order, AK Steel paid a civil
penalty of five hundred twenty-five thousand dollars. AK Steel
anticipates that the cost associated with this matter will be approximately $2.9
in capital costs and $0.9 in expenses. The Company has accrued the
$0.9 for anticipated expenses associated with this matter.
In
addition to the foregoing matters, AK Steel is or may be involved in proceedings
with various regulatory authorities that may require AK Steel to pay fines,
comply with more rigorous standards or other requirements or incur capital and
operating expenses for environmental compliance. Management believes
that the ultimate disposition of the foregoing proceedings will not have,
individually or in the aggregate, a material adverse effect on the Company’s
consolidated financial condition, results of operations or cash
flows.
Legal
Contingencies: In addition to the environmental matters
discussed above and the items addressed below, there are various claims pending
against AK Steel and its subsidiaries involving product liability, commercial,
employee benefits and other matters arising in the ordinary course of
business. Unless otherwise noted, in management’s opinion, the
ultimate liability resulting from all of these claims, individually and in the
aggregate, should not have a material adverse effect on the Company’s
consolidated financial position, results of operations or cash
flows.
As
previously reported, on June 29, 2000, the United States filed a complaint on
behalf of the EPA against AK Steel in the U.S. District Court for the Southern
District of Ohio (the “Court”), Case No. C-1-00530, for alleged violations of
the Clean Air Act, the Clean Water Act and the RCRA at the Middletown
Works. Subsequently, the State of Ohio, the Sierra Club and the
National Resources Defense Council intervened. On April 3, 2006, a
proposed Consent Decree in Partial Resolution of Pending Claims (the “Consent
Decree”), executed by all parties, was lodged with the Court. After a
30-day notice period, the Consent Decree was entered by the Court on May 15,
2006. Under the Consent Decree, the Company will implement certain
RCRA corrective action interim measures to address polychlorinated biphenyls
(“PCBs”) in sediments and soils relating to Dicks Creek and certain other
specified surface waters, adjacent floodplain areas, and other previously
identified geographic areas. The Company also will undertake a comprehensive
RCRA facility investigation at its Middletown Works and, as appropriate,
complete a corrective measures study. Under the Consent Decree, the Company paid
a civil penalty of $0.46 and agreed to perform a supplemental environmental
project to remove ozone-depleting refrigerants from certain equipment at an
estimated cost of $0.85. The Company has completed performance of the
supplemental environmental project, and the project has been approved by the
EPA. The Company anticipates that the cost of the remaining remedial
work required under the Consent Decree will be approximately $18.0, consisting
of approximately $3.2 in capital investments and $14.8 in
expenses. The Company has accrued the $14.8 for anticipated expenses
associated with this project. Additional work will be performed to more
definitively delineate the soils and sediments which will need to be removed
under the Consent Decree. Until that process is complete, the Company
cannot reliably determine whether the actual cost of the work required under the
Consent Decree will exceed the amount presently accrued. If there are
additional costs, the Company does not anticipate at this time that they will
have a material financial impact on the Company. The Company cannot
reliably estimate at this time the timeframe during which the accrued or
potential additional costs would be incurred.
Since
1990, AK Steel (or its predecessor, Armco Inc.) has been named as a defendant in
numerous lawsuits alleging personal injury as a result of exposure to
asbestos. As of December 31, 2009, there were approximately 426 such
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
lawsuits
pending against AK Steel. The great majority of these lawsuits have
been filed on behalf of people who claim to have been exposed to asbestos while
visiting the premises of a current or former AK Steel
facility. Approximately 40% of these premises suits arise out of
claims of exposure at a facility in Houston, Texas that has been closed since
1984. When such an asbestos lawsuit initially is filed, the complaint
typically does not include a specific dollar claim for damages. Only
130 of the 426 cases pending at December 31, 2009 in which AK Steel is a
defendant include specific dollar claims for damages in the filed
complaints. Those 130 cases involve a total of 2,489 plaintiffs and
17,089 defendants. In these cases, the complaint typically includes a
monetary claim for compensatory damages and a separate monetary claim in an
equal amount for punitive damages, and does not attempt to allocate the total
monetary claim among the various defendants. For example, 119 of the
130 cases involve claims of $0.2 or less, six involve claims of between $0.2 and
$5.0, two involve claims of between $5.0 and $15.0, and three involve claims of
$20.0. In each case, the amount described is per plaintiff against
all of the defendants, collectively. Thus, it usually is not possible
at the outset of a case to determine the specific dollar amount of a claim
against AK Steel. In fact, it usually is not even possible at the
outset to determine which of the plaintiffs actually will pursue a claim against
AK Steel. Typically, that can only be determined through written
interrogatories or other discovery after a case has been filed. Thus,
in a case involving multiple plaintiffs and multiple defendants, AK Steel
initially only accounts for the lawsuit as one claim against
it. After AK Steel has determined through discovery whether a
particular plaintiff will pursue a claim against it, it makes an appropriate
adjustment to statistically account for that specific claim. It has
been AK Steel’s experience to date that only a small percentage of asbestos
plaintiffs ultimately identify AK Steel as a target defendant from whom they
actually seek damages and most of these claims ultimately are either dismissed
or settled for a small fraction of the damages initially claimed. Set
forth below is a chart showing the number of new claims filed (accounted for as
described above), the number of pending claims disposed of (i.e., settled or otherwise
dismissed), and the approximate net amount of dollars paid on behalf of AK Steel
in settlement of asbestos-related claims in 2009 and 2008.
|
|
2009
|
|
|
2008
|
|
New
Claims Filed
|
|
|
252 |
|
|
|
41 |
|
Pending
Claims Disposed Of
|
|
|
179 |
|
|
|
39 |
|
Total
Amount Paid in Settlements
|
|
$ |
0.7 |
|
|
$ |
0.7 |
|
Since
the onset of asbestos claims against AK Steel in 1990, five asbestos claims
against it have proceeded to trial in four separate cases. All five
concluded with a verdict in favor of AK Steel. AK Steel intends to
continue its practice of vigorously defending the asbestos claims asserted
against it. Based upon its present knowledge, and the factors set
forth above, AK Steel believes it is unlikely that the resolution in the
aggregate of the asbestos claims against AK Steel will have a materially adverse
effect on the Company’s consolidated results of operations, cash flows or
financial condition. However, predictions as to the outcome of
pending litigation, particularly claims alleging asbestos exposure, are subject
to substantial uncertainties. These uncertainties include (1) the
significantly variable rate at which new claims may be filed, (2) the impact of
bankruptcies of other companies currently or historically defending asbestos
claims, (3) the uncertainties surrounding the litigation process from
jurisdiction to jurisdiction and from case to case, (4) the type and severity of
the disease alleged to be suffered by each claimant, and (5) the potential for
enactment of legislation affecting asbestos litigation.
As
previously reported, on January 2, 2002, John D. West, a former employee, filed
a class action in the United States District Court for the Southern District of
Ohio against the AK Steel Corporation Retirement Accumulation Pension Plan, or
AK RAPP, and the AK Steel Corporation Benefit Plans Administrative
Committee. Mr. West claimed that the method used under the AK RAPP to
determine lump sum distributions does not comply with the Employment Retirement
Income Security Act of 1974 (“ERISA”) and resulted in underpayment of benefits
to him and the other class members. The District Court ruled in favor
of the plaintiff class and on March 29, 2006 entered an amended final judgment
against the defendants in the amount of $37.6 in damages and $7.3 in prejudgment
interest, for a total of approximately $44.9, with post judgment interest
accruing at the rate of 4.7% per annum until paid. The defendants
appealed, but their appeals ultimately were unsuccessful. Pursuant to
an agreed order, on April 1, 2009 defendants paid the sum of approximately $51.5
into a court-approved interest bearing account. The funds used to make this
payment were from the AK Steel Master Pension Trust. The payment ended
defendants’ liability to the class members pursuant to the judgment in this
matter, including with respect to interest which accrues on the judgment. It did
not, however, resolve defendants’ liability with respect to a claim for
attorneys’ fees by plaintiffs’ counsel. On August 31, 2009, the court
granted a motion filed by plaintiffs’ counsel for a statutory award of fees,
awarding fees in the approximate amount of $1.4. The court denied a
motion that sought a separate award of fees in the amount of 28% of the funds
already paid into the court. On September 15, 2009, plaintiffs’
counsel filed a motion to amend the order granting an award of attorneys’
fees. On November 18, 2009, the Court issued an order directing
distribution to the class members in the amount of approximately
$51.3. This amount is part of the approximately $51.5 previously paid
from the AK Steel Master Pension Trust to a court-approved interest bearing
account (the difference between the amounts representing Court-approved payments
to the Fund Administrator). On December 16, 2009, the Court
denied
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
plaintiffs’
motion to amend the order granting an award of attorneys’ fees, leaving intact
the August 31, 2009 award of approximately $1.4. No appeal of the
December 16 order was filed and in January 2010 the approximately $1.4 in
attorneys’ fees were paid to class counsel, concluding the Company’s obligations
with respect to this litigation. Additional litigation has been
filed, however, on behalf of other retirees who were excluded from the class
based upon prior releases provided to the Company. See discussion of
Schumacher litigation filed on October 20, 2009 in the next paragraph,
below.
On
October 20, 2009, William Schumacher filed a purported class action against the
AK Steel Corporation Retirement Accumulation Pension Plan, or AK RAPP, and the
AK Steel Corporation Benefit Plans Administrative Committee in the United States
District Court for the Southern District of Ohio, Case No. 1:09cv794. The
complaint alleges that the method used under the AK RAPP to determine lump sum
distributions does not comply with ERISA and the Internal Revenue Code and
resulted in underpayment of benefits to him and the other class
members. Plaintiff and the other purportedly similarly situated
individuals on whose behalf plaintiff filed suit were excluded by the Court in
2005 from the West litigation (discussed in the paragraph immediately above)
based on previous releases of claims they had executed in favor of the
Company. On January 11, 2010, the defendants filed a motion to
dismiss the Complaint based upon a statute of limitations
ground. That motion remains pending. Discovery has not yet
commenced and no trial date has yet been set. The defendants intend to contest
this matter vigorously.
As
previously reported, on October 20, 2005, two individuals filed a purported
class action against AK Steel and the AK Steel Corporation Benefit Plans
Administrative Committee in the United States District Court for the Southern
District of Ohio, Case No. 1:05-cv-681. The complaint alleges that the
defendants incorrectly calculated the amount of surviving spouse benefits due to
be paid to the plaintiffs under the applicable pension plan. On
December 19, 2005, the defendants filed their answer to the complaint. The
parties subsequently filed cross-motions for summary judgment on the issue of
whether the applicable plan language had been properly
interpreted. On September 28, 2007, the United States Magistrate
Judge assigned to the case issued a Report and Recommendation in which he
recommended that the plaintiffs’ motion for partial summary judgment be granted
and that the defendants’ motion be denied. The defendants filed
timely objections to the Magistrate’s Report and
Recommendation. On March 31, 2008, the court issued an order
adopting the Magistrate’s recommendation and granting partial summary judgment
to the plaintiffs on the issue of plan interpretation. The
plaintiffs’ motion for class certification was granted by the Court on October
27, 2008. The case is proceeding with respect to discovery on the
issue of damages. No trial date has been set. The
defendants intend to contest this matter vigorously.
As
previously reported, in September and October, 2008, several companies filed
purported class actions in the United States District Court for the Northern
District of Illinois, against nine steel manufacturers, including AK
Holding. The case numbers for these actions are 08CV5214, 08CV5371,
08CV5468, 08CV5633, 08CV5700, 08CV5942 and 08CV6197. The plaintiffs
are companies which claim to have purchased steel products, directly or
indirectly, from one or more of the defendants and they purport to file the
actions on behalf of all persons and entities who purchased steel products for
delivery or pickup in the United States from any of the named defendants at any
time from at least as early as January 2005 to the present. The complaints
allege that the defendant steel producers have conspired to restrict output and
to fix, raise, stabilize and maintain artificially high prices with respect to
steel products in the United States. On January 2, 2009, the
defendants filed motions to dismiss all of the claims set forth in the
Complaints. On June 12, 2009, the court issued an Order denying the
defendants’ motions to dismiss. Discovery has recently
commenced. No trial date has been set. AK Holding intends
to contest this matter vigorously.
As
previously reported, on January 28, 2009, the City of Monroe, Ohio (“Monroe”)
filed an action in the United States District Court for the Southern District of
Ohio against Middletown Coke Company, Inc. and SunCoke Energy, Inc., Case No.
1-09-CV-63. The complaint purported to be filed pursuant to
Section 304(a)(3) of the Clean Air Act (“CAA”), 42 U.S.C. § 7604(a)(3), and
sought injunctive relief, civil penalties, attorney fees, and other relief to
prevent the construction of a new cokemaking facility on property adjacent to
the Company’s Middletown Works. The coke produced by the
facility would be used by the Middletown Works. See discussion of
SunCoke contract in Note 13. The Complaint alleged that the new
facility will be a stationary source of air pollution without a permit issued
under the New Source Review program of the CAA, including its Prevention of
Significant Deterioration and Nonattainment New Source Review
requirements. On February 27, 2009, the defendants filed a motion to
dismiss, or in the alternative to stay, the action pending final resolution of
appeals to the Ohio Environmental Review Appeals Commission (“ERAC”) by Monroe
and others of a Permit to Install the cokemaking facility issued by the Ohio
Environmental Protection Agency, Case Nos. 096256, 096265 and 096268-096285,
consolidated. In March 2009, AK Steel became a party to both the
pending federal action and the pending appeals to the Ohio ERAC for the purpose
of supporting the issuance of the permit to install and opposing the efforts by
Monroe and others to prevent construction of the facility. On August
20, 2009, the Court in the federal action granted defendants’ motion to
dismiss. On September 16, 2009, Monroe filed a Notice of Appeal to
the United States Court of Appeals for the Sixth Circuit from the order
dismissing the federal action. The ERAC appeals also remain
pending. A final hearing had been scheduled
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
for
May 24, 2010 in the ERAC appeals. On February 9, 2010, the Ohio
Environmental Protection Agency issued a final air permit-to-install for the new
facility under the New Source Review program of the CAA, including its
Prevention of Significant Deterioration and Nonattainment New Source Review
requirements. Issuance of this permit also can be appealed to the
ERAC. Any such appeal must be filed within thirty days of the
issuance of the permit. AK Steel intends to continue to contest this
matter vigorously.
As
previously reported, on June 1, 2009 the Chinese Ministry of Commerce (“MOFCOM”)
initiated antidumping and countervailing duty investigations of imports of grain
oriented electrical steel (“GOES”) from Russia and the United
States. China initiated the investigations based on a petition filed
by two Chinese steelmakers. These two steelmakers allege that AK
Steel and Allegheny Technologies Inc. of the United States and Novolipetsk Steel
of Russia exported GOES to China at less than fair value, and that the
production of GOES in the United States has been subsidized by the
government. On December 9, 2009, MOFCOM issued its preliminarily
determination that GOES producers in the United States and Russia had been
dumping in the China market and that GOES producers in the United States had
received subsidies from the United States government. The Chinese
authorities imposed provisional additional duties on future imports of GOES from
Russia and/or the United States to China. The duties do not apply to
past imports. AK Steel intends to continue to fully cooperate with
MOFCOM in the ongoing investigations and will urge MOFCOM to find that no such
duties are appropriate, but plans to vigorously contest any adverse final
decisions.
As
previously reported, on June 18, 2009, three former hourly members of the Butler
Armco Independent Union filed a purported class action against AK Steel in the
United States District Court for the Southern District of Ohio, Case No.
1-09CV00423 (the “2009 Retiree Action”), alleging that AK Steel did not have a
right to make changes to their healthcare benefits. On June 29, 2009,
the plaintiffs filed an amended complaint. The named plaintiffs in
the 2009 Retiree Action seek, among other things, injunctive relief for
themselves and the other members of a proposed class, including an order
retroactively rescinding certain changes to retiree healthcare benefits
negotiated by AK Steel with its unions. The proposed class the
plaintiffs seek to represent would consist of all union-represented retirees of
AK Steel other than those retirees who were included in the class covered by the
Middletown Works Retiree Healthcare Benefits Litigation described immediately
below. On August 21, 2009, the Company filed an answer to the amended
complaint and filed a motion for summary judgment which, if granted in full,
would end the litigation. On September 14, 2009, plaintiffs filed a
motion for partial summary judgment and responded to defendant’s
motion. On October 14, 2009, plaintiffs filed a motion for
preliminary injunction, seeking to prevent certain scheduled January 2010
changes to retiree healthcare from taking effect. On November 25,
2009, AK Steel filed its opposition to the motion for a preliminary injunction,
opposition to plaintiffs’ motion for partial summary judgment, and reply in
support of its motion for summary judgment. A hearing on the pending
motions was held on December 8, 2009. During the course of the
hearing, plaintiffs’ counsel notified the court that the pending motion for a
preliminary injunction was limited to retirees from the Company’s Butler Works
in Butler, Pennsylvania. On January 29, 2010, the trial court issued
an opinion and order granting plaintiffs’ motion for a preliminary injunction
and barring the Company from effecting any further benefit reductions or new
healthcare charges for Butler Works retirees until final judgment in the
case. On February 2, 2010, AK Steel filed a notice of appeal to
the United States Court of Appeals for the Sixth Circuit seeking a reversal of
the decision to grant the preliminary injunction. That appeal remains
pending. Discovery in the underlying case has commenced, but no trial
date has yet been set. If AK Steel is unable to obtain a reversal of
the decision to impose the preliminary injunction, either in connection with the
final judgment by the trial court or through appeal, then the negotiated changes
to retiree healthcare for the Company’s Butler Works retirees would be rescinded
and the Company’s other postretirement benefit obligation would increase by
approximately $125.0 based upon current valuation assumptions. This
amount reflects the current value of the estimated amount of the additional
healthcare costs the Company will amortize and pay out with respect to the
Butler retirees over the course of their remaining lives. AK Steel intends to
contest this matter vigorously.
As
previously reported, on August 26, 2009, Consolidated Coal Company
(“Consolidated”) filed an action against AK Steel and Neville Coke LLC
(“Neville”) in the Court of Common Pleas of Allegheny County, Pennsylvania, Case
No. GD-09-14830. The complaint alleges that Consolidated and Neville
entered into a contract whereby Consolidated would supply approximately 80,000
tons of metallurgical coal for use by Neville in its coke making
operations. Consolidated asserts that Neville breached the alleged
contract when it refused to purchase coal from Consolidated. The
complaint also alleges that AK Steel tortiously interfered with the purported
contractual and business relationship between Consolidated and
Neville. Consolidated seeks monetary damages from AK Steel in an
amount in excess of $30.0 and monetary damages from Neville in an amount in
excess of $20.0. AK Steel tentatively has agreed to indemnify and
defend Neville in this action pursuant to the terms of a contractual agreement
between AK Steel and Neville. AK Steel is still investigating the
facts underlying this matter, however, and has reserved its right to change its
position should facts establish that it does not have an obligation to indemnify
or defend Neville. On October 20, 2009, AK Steel filed preliminary
objections to plaintiff’s complaint on behalf of itself and Neville, seeking to
dismiss the action. In response to the preliminary objections,
plaintiff filed an amended complaint on November 12, 2009, adding an additional
count under the theory of promissory estoppel. On December 2, 2009,
AK Steel and Neville filed
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
preliminary
objections to plaintiff’s amended complaint, again seeking to dismiss the
action. Discovery
has not yet commenced and no trial date has yet been set. AK
Steel intends to contest this matter vigorously.
On
December 31, 2009, Heritage Coal Company LLC, Patriot Coal Corporation, and Pine
Ridge Coal Company (collectively, “Heritage Coal”) filed a third-party complaint
against AK Steel in the Circuit Court of Boone County, West Virginia, naming AK
Steel as a third-party defendant in 108 separate personal injury
actions. Those actions have been consolidated for discovery and
pretrial proceedings under Civil Action No. 09-C-212. The various
plaintiffs in the underlying actions seek damages allegedly caused by ground
water contamination arising out of certain coal mining operations in West
Virginia. In its third-party complaint, Heritage Coal seeks a
determination of its potential rights of contribution against AK Steel pursuant
to a January 20, 1984 Asset Purchase Agreement between Heritage Coal’s
predecessor-in-interest, Peabody Coal Company, as buyer, and AK Steel’s
predecessor-in-interest, Armco Inc., as seller, for the sale of certain coal
real estate and leasehold interests located in West Virginia, which Heritage
alleges included property now the subject of the underlying civil
actions. AK Steel intends to contest this matter
vigorously.
Middletown Works Retiree
Healthcare Benefits Litigation
As
previously reported, on June 1, 2006, AK Steel notified approximately 4,600 of
its current retirees (or their surviving spouses) who formerly were hourly and
salaried members of the Armco Employees Independent Federation (“AEIF”) that AK
Steel was terminating their existing healthcare insurance benefits plan and
implementing a new plan more consistent with current steel industry practices
which would require the retirees to contribute to the cost of their healthcare
benefits, effective October 1, 2006. On July 18, 2006, a group of
nine former hourly and salaried members of the AEIF filed a class action (the
“Retiree Action”) in the United States District Court for the Southern District
of Ohio (the “Court”), Case No. 1-06CV0468, alleging that AK Steel did not have
a right to make changes to their healthcare benefits. The named plaintiffs in
the Retiree Action sought, among other things, injunctive relief (including an
order retroactively rescinding the changes) for themselves and the other members
of the class. On August 4, 2006, the plaintiffs in the Retiree Action
filed a motion for a preliminary injunction seeking to prevent AK Steel from
implementing the previously announced changes to healthcare benefits with
respect to the AEIF-represented hourly employees. AK Steel opposed
that motion, but on September 22, 2006 the trial court issued an order granting
the motion. On October 8, 2007, the Company announced that it had
reached a tentative settlement (the “Settlement”) of the claims of the retirees
in the Retiree Action. The settlement was opposed by certain
objecting class members, but their objections were rejected by the trial court
and on appeal. After the appeal of the objecting participants was
dismissed, the Settlement became final on July 6, 2009.
Under
terms of the Settlement, AK Steel has transferred to a Voluntary Employees
Beneficiary Association trust (the “VEBA Trust”) all postretirement benefit
obligations (the “OPEB Obligations”) owed to the Class Members under the
Company’s applicable health and welfare plans and will have no further liability
for any claims incurred by the Class Members after the effective date of the
Settlement relating to their OPEB Obligations. The VEBA Trust will be
utilized to fund the future OPEB Obligations to the Class
Members. Under the terms of the Settlement, AK Steel was obligated to
initially fund the VEBA Trust with a contribution of $468.0 in cash within two
business days of the effective date of the Settlement. AK Steel made
this contribution on March 4, 2008. AK Steel further committed under
the Settlement to make three subsequent annual cash contributions of $65.0 each,
for a total contribution of $663.0. AK Steel has timely made the
first of these three annual cash contributions of $65.0, leaving AK Steel
obligated to make two more cash contributions of $65.0 in March of 2010 and
2011.
Prior
to the Settlement, the Company’s total OPEB liability for all of its retirees
was approximately $2.0 billion. Of that amount, approximately $1.0
billion was attributable to the Class Members. Immediately following
the Judgment approving the Settlement, the Company’s total OPEB liability was
reduced by approximately $339.1. This reduction in the Company’s OPEB
liability is being treated as a negative plan amendment and amortized as a
reduction to net periodic benefit cost over approximately eleven
years. This negative plan amendment will result in an annual net
periodic benefit cost reduction of approximately $30.0 in addition to the lower
interest costs associated with the lower OPEB liability. Upon payment
on March 4, 2008 of the initial $468.0 contribution by AK Steel to the VEBA
Trust in accordance with the terms of the Settlement, the Company’s total OPEB
liability was reduced further to approximately $1.1 billion. The
Company’s total OPEB liability was further reduced by the $65.0 payment made by
the Company in March 2009. The Company’s total OPEB liability will be
reduced further by the amount of the remaining two $65.0 payments due in March
of 2010 and 2011, respectively, after each payment is made. In total,
it is expected that the $663.0 Settlement with the Class Members ultimately will
reduce the Company’s total OPEB liability by approximately $1.0
billion.
For
accounting purposes, a settlement of the Company’s OPEB Obligations related to
the Class Members will be deemed to have occurred when AK Steel makes the last
$65.0 payment called for under the Settlement.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
NOTE
10 - Fair Value Measurements
|
The
Company adopted provisions within ASC Topic 820, “Fair Value Measurements”,
effective January 1, 2008. Under this standard, fair value is defined
as the price that would be received to sell an asset or paid to transfer a
liability (i.e., the
“exit price”) in an orderly transaction between market participants at the
measurement date.
In
determining fair value, the Company uses various valuation
approaches. The hierarchy of those valuation approaches is broken
down into three levels based on the reliability of inputs as
follows:
Level
1 inputs are quoted prices in active markets for identical assets or liabilities
that the reporting entity has the ability to access at the measurement
date. An active market for the asset or liability is a market in
which transactions for the asset or liability occur with sufficient frequency
and volume to provide pricing information on an ongoing basis. The
valuation under this approach does not entail a significant degree of
judgment.
Level
2 inputs are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly. Level 2 inputs include: quoted prices for similar assets
or liabilities in active markets, inputs other than quoted prices that are
observable for the asset or liability, (e.g., interest rates and
yield curves observable at commonly quoted intervals or current market) and
contractual prices for the underlying financial instrument, as well as other
relevant economic measures.
Level
3 inputs are unobservable inputs for the asset or
liability. Unobservable inputs shall be used to measure fair value to
the extent that observable inputs are not available, thereby allowing for
situations in which there is little, if any, market activity for the asset or
liability at the measurement date.
The
following fair value table presents information about the Company’s assets and
liabilities measured at fair value on a recurring basis as of December 31, 2009
and 2008, respectively. There were no valuations using Level 3
inputs.
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale investments–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
equity securities (a)
|
|
$ |
27.3 |
|
|
$ |
— |
|
|
$ |
27.3 |
|
|
$ |
23.0 |
|
|
$ |
— |
|
|
$ |
23.0 |
|
Foreign
exchange contracts (b)
|
|
|
— |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commodity
hedge contracts (c)
|
|
|
— |
|
|
|
2.0 |
|
|
|
2.0 |
|
|
|
— |
|
|
|
0.6 |
|
|
|
0.6 |
|
Assets
measured at fair value
|
|
$ |
27.3 |
|
|
$ |
2.9 |
|
|
$ |
30.2 |
|
|
$ |
23.0 |
|
|
$ |
0.6 |
|
|
$ |
23.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
(d):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1.3 |
|
|
$ |
1.3 |
|
Commodity
hedge contracts
|
|
|
— |
|
|
|
5.8 |
|
|
|
5.8 |
|
|
|
— |
|
|
|
52.2 |
|
|
|
52.2 |
|
Liabilities
measured at fair value
|
|
$ |
— |
|
|
$ |
5.8 |
|
|
$ |
5.8 |
|
|
$ |
— |
|
|
$ |
53.5 |
|
|
$ |
53.5 |
|
(a)
Held in a trust and included in Other investments on the Consolidated
Balance Sheets.
|
(b)
Included in Other current assets on the Consolidated Balance
Sheets.
|
(c)
Included in Other current assets or Other non-current assets on the
Consolidated Balance Sheets.
|
(d)
Included in Accrued liabilities on the Consolidated Balance
Sheets.
|
The
Company has not adopted the fair value option for any assets or liabilities
under ASC Section 825-10-15.
NOTE
11 - Asset Retirement Obligations
|
The
following table reflects changes in the carrying values of asset retirement
obligations in accordance with ASC Subtopic 410-20, “Asset Retirement
Obligations”, for the years ended December 31, 2009, 2008 and 2007.
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance
at beginning of year
|
|
$ |
4.4 |
|
|
$ |
4.1 |
|
|
$ |
3.7 |
|
Accretion
expense
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
0.4 |
|
Balance
at end of year
|
|
$ |
4.9 |
|
|
$ |
4.4 |
|
|
$ |
4.1 |
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
NOTE
12 - Investments in an Unrealized Loss
Position
|
The
Company has investments for a nonqualified pension plan with fair values at
December 31, 2009 less than cost. The investments are in four mutual
funds representing the S&P 500 index, the Russell 1000 Value index, the
Russell 1000 Growth index, and the EAFE index. The funds suffered
significant declines in the second half of 2008 through the first quarter of
2009 consistent with the global economic downturn. The investments in index
funds represent broad asset categories designed to track macroeconomic
conditions. The Company evaluated past periods of market declines and
the related periods of recovery. The Company believes that the
current economic environment is temporary and the investments will recover to
levels higher than cost in a reasonable period of time. The Company
has no short term cash requirements for these investments and currently does not
intend to liquidate them resulting in the realization of a loss before a period
of time sufficient for the markets to recover. Based on the market
evaluation and the Company’s ability and intent to hold these investments for a
reasonable period of time sufficient for a recovery of fair value,
the Company does not consider those investments to be other than temporarily
impaired at December 31, 2009.
INVESTMENTS
IN AN UNREALIZED LOSS POSITION
|
|
At
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Position
|
|
|
Loss
Position
|
|
|
Loss
Position
|
|
|
|
Less
Than 12 Months
|
|
|
Greater
Than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Investment |
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
Equity Securities
|
|
|
— |
|
|
|
— |
|
|
$ |
19.6 |
|
|
$ |
2.7 |
|
|
$ |
19.6 |
|
|
$ |
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
13 - Variable Interest Entity
|
In
the first quarter of 2008, the Company’s Board of Directors approved a 20-year
supply contract with Middletown Coke, an affiliate of SunCoke Energy, Inc.
(“SunCoke”), to provide the Company with metallurgical-grade coke and electrical
power. The coke and power will come from a new facility to be
constructed, owned and operated by Middletown Coke adjacent to the Company’s
Middletown Works. The proposed new facility is expected to produce
about 550,000 tons of coke and 50 megawatts of electrical power
annually. The anticipated cost to build the facility is approximately
$360.0. Under the agreement, the Company will purchase all of the
coke and electrical power generated from the new plant for at least 20 years,
helping the Company achieve its goal of more fully integrating its raw material
supply and providing about 25% of the power requirements of Middletown
Works. The agreement is contingent upon, among other conditions,
Middletown Coke receiving all necessary local, state and federal approvals and
permits, as well as available economic incentives, to build and operate the
proposed new facility. There are no plans to idle any existing
cokemaking capacity if the proposed SunCoke project is
consummated. Even though the Company has no ownership interest in
Middletown Coke, the expected production from the facility is completely
committed to the Company. As such, Middletown Coke is deemed to be a
variable interest entity and the financial results of Middletown Coke are
required to be consolidated with the results of the Company as directed by ASC
Topic 810. At December 31, 2009, Middletown Coke had approximately
$71.9 in assets to the Company’s consolidated balance sheets, comprised mainly
of construction in progress. Additionally, Middletown Coke had
approximately $74.8 million in liabilities, comprised mainly of payables to its
parent, SunCoke.
Through
a subsidiary, AK Steel owns a 50% interest in Vicksmetal/Armco Associates
(“VAA”), a joint venture with Vicksmetal Corporation, which is owned by Sumitomo
Corporation. VAA slits electrical steel primarily for AK Steel,
though also for third parties. AK Steel has determined that VAA meets
the definition of a variable interest entity under ASC Topic 810,
“Consolidation”, and as a result, the financials of VAA are consolidated with
the results of the Company.
NOTE
14 - Disclosures About Derivative Instruments and Hedging
Activities
|
In
the ordinary course of business, the Company is exposed to market risk for price
fluctuations of raw materials and energy sources. The Company is also
subject to risks of exchange rate fluctuations on a portion of inter-company
receivables that are denominated in foreign currencies. The Company
occasionally uses forward currency contracts to manage exposures to certain of
these currency price fluctuations. As of December 31, 2009, the
Company had entered into forward currency contracts in the amount of 16,300,000
euros.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
The
Company uses cash settled commodity price swaps and/or options to hedge the
market risk associated with the purchase of certain of its raw materials and
energy requirements. Such hedges routinely are used with respect to a
portion of the Company’s natural gas and nickel requirements and are sometimes
used with respect to its aluminum and zinc requirements. The
Company’s hedging strategy is designed to protect it against normal
volatility. However, abnormal price increases in any of these
commodity markets could negatively impact operating costs. The
effective portion of the gains and losses from the use of these instruments for
natural gas are deferred in accumulated other comprehensive income on the
consolidated balance sheets and recognized into cost of products sold in the
same period as the underlying transaction. Gains and losses on the
derivative representing either hedge ineffectiveness or hedge components
excluded from the assessment of effectiveness are recognized in current
earnings. All other commodity price swaps and options are marked to
market and recognized into cost of products sold with the offset recognized as
other current assets or other accrued liabilities.
Accounting
guidance requires companies to recognize all derivative instruments as either
assets or liabilities at fair value in the statement of financial
position. In accordance with ASC Topic 815, “Derivatives and
Hedging”, the Company designates commodity price swaps and options as cash flow
hedges of forecasted purchases of raw materials and energy sources.
Existing
natural gas commodity hedges at December 31, 2009 have settlement dates ranging
from January 2010 to December 2010. The amount of the existing losses
expected to be reclassified into earnings with the next twelve months is
$1.3.
As
of December 31, 2009 the Company had the following outstanding commodity price
swaps and/or options that were entered into to hedge forecasted
purchases.
Commodity
|
|
Amount
|
|
Unit
|
Nickel
|
|
|
979,230 |
|
lbs
|
Natural
Gas
|
|
|
12,170,000 |
|
MMBTUs
|
Fair Value
of Derivative Instruments in the Consolidated Balance
Sheets
|
|
as
of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Asset
Fair
Value
|
|
|
Liability
Fair
Value
|
|
Derivatives
designated as hedging instruments:
|
|
|
|
|
|
|
Commodity
contracts
|
Accrued
liabilities
|
|
|
— |
|
|
$ |
5.8 |
|
Total
derivatives designated as hedging instruments
|
|
|
— |
|
|
$ |
5.8 |
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
Other
current assets
|
|
$ |
0.9 |
|
|
|
— |
|
Commodity
contracts
|
Other
current assets
|
|
|
1.9 |
|
|
|
— |
|
Commodity
contracts
|
Other
non-current assets
|
|
|
0.1 |
|
|
|
— |
|
Total
derivatives not designated as hedging instruments
|
|
$ |
2.9 |
|
|
|
— |
|
Total
derivatives
|
|
|
$ |
2.9 |
|
|
$ |
5.8 |
|
|
|
|
|
|
|
|
|
|
|
Table
reflects derivative classification under ASC Topic 815.
|
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
The
Effect of Derivative Instruments on the Consolidated Statement of
Operations
|
|
for
the year ended December 31, 2009
|
|
|
|
|
|
|
|
Gain
(Loss)
|
|
Derivatives
in cash flow hedging relationships:
|
|
|
|
Commodity
Contracts
|
|
|
|
Amount
recognized in Other Comprehensive Income (“OCI”)
|
|
$ |
(12.4 |
) |
Amount
reclassified from accumulated OCI into cost of products sold (effective
portion)
|
|
|
(40.1 |
) |
Amount
recognized in cost of products sold (ineffective portion and amount
excluded from effectiveness testing)
|
|
|
(9.4 |
) |
|
|
|
|
|
Derivatives
not designated as hedging instruments:
|
|
|
|
|
Foreign
Exchange Contracts
|
|
|
|
|
Amount
recognized in other income, net
|
|
|
2.3 |
|
|
|
|
|
|
Commodity
Contracts
|
|
|
|
|
Amount
recognized in cost of products sold
|
|
|
2.8 |
|
NOTE
15 – Subsequent Events
|
There
were no reportable subsequent events or transactions that occurred in the time
period after the December 31, 2009 balance sheet date and prior to February 23,
2010, which is the date of this Form 10-K filing with the Securities and
Exchange Commission.
NOTE
16 - Consolidated Quarterly Sales and Earnings (Losses)
(Unaudited)
|
Earnings
per share for each quarter and the year are calculated individually and may not
add to the total for the year.
|
|
2009
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
Net
sales
|
|
$ |
922.2 |
|
|
$ |
793.6 |
|
|
$ |
1,041.1 |
|
|
$ |
1,319.9 |
|
|
$ |
4,076.8 |
|
Operating
profit (loss)
|
|
|
(99.9 |
) |
|
|
(72.5 |
) |
|
|
15.3 |
|
|
|
87.0 |
|
|
|
(70.1 |
) |
Net
income (loss) attributable to AK Steel Holding
|
|
|
(73.4 |
) |
|
|
(47.2 |
) |
|
|
6.2 |
|
|
|
39.8 |
|
|
|
(74.6 |
) |
Basic
and diluted earnings (loss) per share
|
|
|
(0.67 |
) |
|
|
(0.43 |
) |
|
|
0.06 |
|
|
|
0.36 |
|
|
|
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter(a)
|
|
|
Year
|
|
Net
sales
|
|
$ |
1,791.4 |
|
|
$ |
2,236.6 |
|
|
$ |
2,157.6 |
|
|
$ |
1,458.7 |
|
|
$ |
7,644.3 |
|
Operating
profit (loss)
|
|
|
169.7 |
|
|
|
237.9 |
|
|
|
309.6 |
|
|
|
(689.2 |
) |
|
|
28.0 |
|
Net
income (loss) attributable to AK Steel Holding
|
|
|
101.1 |
|
|
|
145.2 |
|
|
|
188.3 |
|
|
|
(430.6 |
) |
|
|
4.0 |
|
Basic
earnings (loss) per share
|
|
|
0.90 |
|
|
|
1.30 |
|
|
|
1.68 |
|
|
|
(3.87 |
) |
|
|
0.04 |
|
Diluted
earnings (loss) per share
|
|
|
0.90 |
|
|
|
1.29 |
|
|
|
1.67 |
|
|
|
(3.87 |
) |
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Fourth
quarter 2008 operating profit (loss) includes a pre-tax pension corridor charge
of $660.1.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
NOTE
17 - Supplemental Guarantor
Information
|
AK
Holding, along with AK Tube, LLC and AKS Investments Inc. (the “Guarantor
Subsidiaries”) fully and unconditionally, jointly and severally, guarantee the
payment of interest, principal and premium, if any, on AK Steel’s 7 3/4% Senior
Notes Due 2012. AK Tube, LLC is owned 100% by AKS Investments Inc.
and AKS Investments Inc. is 100% owned by AK Steel. AK Steel is 100%
owned by AK Holding. The Company has determined that full financial
statements and other disclosures concerning AK Holding and the Guarantor
Subsidiaries are not required to be presented. The presentation of
the supplemental guarantor information reflects all investments in subsidiaries
under the equity method. Net income (loss) of the subsidiaries
accounted for under the equity method is therefore reflected in their parents’
investment accounts. The principal elimination entries eliminate
investments in subsidiaries and inter-company balances and
transactions. The following supplemental condensed consolidating
financial statements present information about AK Holding, AK Steel, the
Guarantor Subsidiaries and the other subsidiaries. The other
subsidiaries are not guarantors of the senior notes.
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Condensed
Statements of Operations
|
|
For
the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
|
AK
Steel
|
|
|
Guarantor
Subsidiaries
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Company
|
|
Net
sales
|
|
$ |
— |
|
|
$ |
3,606.4 |
|
|
$ |
131.7 |
|
|
$ |
435.9 |
|
|
$ |
(97.2 |
) |
|
$ |
4,076.8 |
|
Cost
of products sold (exclusive of items shown below)
|
|
|
0.2 |
|
|
|
3,295.0 |
|
|
|
114.9 |
|
|
|
398.4 |
|
|
|
(58.9 |
) |
|
|
3,749.6 |
|
Selling
and administrative expenses
|
|
|
3.5 |
|
|
|
191.4 |
|
|
|
9.4 |
|
|
|
19.1 |
|
|
|
(30.7 |
) |
|
|
192.7 |
|
Depreciation
|
|
|
— |
|
|
|
197.4 |
|
|
|
6.6 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
204.6 |
|
Total
operating costs
|
|
|
3.7 |
|
|
|
3,683.8 |
|
|
|
130.9 |
|
|
|
418.1 |
|
|
|
(89.6 |
) |
|
|
4,146.9 |
|
Operating
profit (loss)
|
|
|
(3.7 |
) |
|
|
(77.4 |
) |
|
|
0.8 |
|
|
|
17.8 |
|
|
|
(7.6 |
) |
|
|
(70.1 |
) |
Interest
expense
|
|
|
— |
|
|
|
36.9 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
37.0 |
|
Other
income (expense)
|
|
|
— |
|
|
|
(1.6 |
) |
|
|
— |
|
|
|
45.2 |
|
|
|
(34.5 |
) |
|
|
9.1 |
|
Income
(loss) before income taxes
|
|
|
(3.7 |
) |
|
|
(115.9 |
) |
|
|
0.8 |
|
|
|
62.9 |
|
|
|
(42.1 |
) |
|
|
(98.0 |
) |
Income
tax provision (benefit)
|
|
|
(1.3 |
) |
|
|
(36.2 |
) |
|
|
0.3 |
|
|
|
24.2 |
|
|
|
(7.0 |
) |
|
|
(20.0 |
) |
Net
income (loss)
|
|
|
(2.4 |
) |
|
|
(79.7 |
) |
|
|
0.5 |
|
|
|
38.7 |
|
|
|
(35.1 |
) |
|
|
(78.0 |
) |
Less:
income (loss) attributable to noncontrolling interests
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.4 |
) |
|
|
— |
|
|
|
(3.4 |
) |
Net
income (loss) attributable to AK Holding
|
|
|
(2.4 |
) |
|
|
(79.7 |
) |
|
|
0.5 |
|
|
|
42.1 |
|
|
|
(35.1 |
) |
|
|
(74.6 |
) |
Equity
in net income of subsidiaries
|
|
|
(72.2 |
) |
|
|
7.5 |
|
|
|
— |
|
|
|
— |
|
|
|
64.7 |
|
|
|
— |
|
Net
income (loss) attributable to AK Holding
|
|
$ |
(74.6 |
) |
|
$ |
(72.2 |
) |
|
$ |
0.5 |
|
|
$ |
42.1 |
|
|
$ |
29.6 |
|
|
$ |
(74.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Operations
|
|
For
the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
|
AK
Steel
|
|
|
Guarantor
Subsidiaries
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Company
|
|
Net
sales
|
|
$ |
— |
|
|
$ |
6,990.0 |
|
|
$ |
221.4 |
|
|
$ |
631.9 |
|
|
$ |
(199.0 |
) |
|
$ |
7,644.3 |
|
Cost
of products sold (exclusive of items shown below)
|
|
|
0.1 |
|
|
|
5,892.1 |
|
|
|
187.3 |
|
|
|
530.4 |
|
|
|
(118.8 |
) |
|
|
6,491.1 |
|
Selling
and administrative expenses
|
|
|
3.7 |
|
|
|
246.7 |
|
|
|
12.1 |
|
|
|
18.6 |
|
|
|
(57.5 |
) |
|
|
223.6 |
|
Depreciation
|
|
|
— |
|
|
|
194.9 |
|
|
|
6.6 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
202.1 |
|
Other
operating items
|
|
|
— |
|
|
|
699.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
699.5 |
|
Total
operating costs
|
|
|
3.8 |
|
|
|
7,033.2 |
|
|
|
206.0 |
|
|
|
549.6 |
|
|
|
(176.3 |
) |
|
|
7,616.3 |
|
Operating
profit (loss)
|
|
|
(3.8 |
) |
|
|
(43.2 |
) |
|
|
15.4 |
|
|
|
82.3 |
|
|
|
(22.7 |
) |
|
|
28.0 |
|
Interest
expense
|
|
|
— |
|
|
|
46.2 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
46.5 |
|
Other
income (expense)
|
|
|
— |
|
|
|
(12.9 |
) |
|
|
13.7 |
|
|
|
38.6 |
|
|
|
(27.3 |
) |
|
|
12.1 |
|
Income
(loss) before income taxes
|
|
|
(3.8 |
) |
|
|
(102.3 |
) |
|
|
29.1 |
|
|
|
120.6 |
|
|
|
(50.0 |
) |
|
|
(6.4 |
) |
Income
tax provision (benefit)
|
|
|
(1.3 |
) |
|
|
(51.4 |
) |
|
|
10.2 |
|
|
|
40.3 |
|
|
|
(8.7 |
) |
|
|
(10.9 |
) |
Net
income (loss)
|
|
|
(2.5 |
) |
|
|
(50.9 |
) |
|
|
18.9 |
|
|
|
80.3 |
|
|
|
(41.3 |
) |
|
|
4.5 |
|
Less:
income (loss) attributable to noncontrolling interests
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
0.5 |
|
Net
income (loss) attributable to AK Holding
|
|
|
(2.5 |
) |
|
|
(50.9 |
) |
|
|
18.9 |
|
|
|
79.8 |
|
|
|
(41.3 |
) |
|
|
4.0 |
|
Equity
in net income of subsidiaries
|
|
|
6.5 |
|
|
|
57.4 |
|
|
|
— |
|
|
|
— |
|
|
|
(63.9 |
) |
|
|
— |
|
Net
income (loss) attributable to AK Holding
|
|
$ |
4.0 |
|
|
$ |
6.5 |
|
|
$ |
18.9 |
|
|
$ |
79.8 |
|
|
$ |
(105.2 |
) |
|
$ |
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Condensed
Statements of Operations
|
|
For
the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
|
AK
Steel
|
|
|
Guarantor
Subsidiaries
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Company
|
|
Net
sales
|
|
$ |
— |
|
|
$ |
6,536.6 |
|
|
$ |
243.5 |
|
|
$ |
424.6 |
|
|
$ |
(201.7 |
) |
|
$ |
7,003.0 |
|
Cost
of products sold (exclusive of items shown below)
|
|
|
0.1 |
|
|
|
5,515.6 |
|
|
|
210.7 |
|
|
|
321.8 |
|
|
|
(129.2 |
) |
|
|
5,919.0 |
|
Selling
and administrative expenses
|
|
|
2.5 |
|
|
|
245.5 |
|
|
|
11.7 |
|
|
|
16.7 |
|
|
|
(52.9 |
) |
|
|
223.5 |
|
Depreciation
|
|
|
— |
|
|
|
189.4 |
|
|
|
6.4 |
|
|
|
0.5 |
|
|
|
— |
|
|
|
196.3 |
|
Other
operating items
|
|
|
— |
|
|
|
39.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39.8 |
|
Total
operating costs
|
|
|
2.6 |
|
|
|
5,990.3 |
|
|
|
228.8 |
|
|
|
339.0 |
|
|
|
(182.1 |
) |
|
|
6,378.6 |
|
Operating
profit (loss)
|
|
|
(2.6 |
) |
|
|
546.3 |
|
|
|
14.7 |
|
|
|
85.6 |
|
|
|
(19.6 |
) |
|
|
624.4 |
|
Interest
expense
|
|
|
— |
|
|
|
67.7 |
|
|
|
— |
|
|
|
1.4 |
|
|
|
(0.8 |
) |
|
|
68.3 |
|
Other
income (expense)
|
|
|
— |
|
|
|
18.5 |
|
|
|
21.3 |
|
|
|
41.7 |
|
|
|
(45.6 |
) |
|
|
35.9 |
|
Income
(loss) before income taxes
|
|
|
(2.6 |
) |
|
|
497.1 |
|
|
|
36.0 |
|
|
|
125.9 |
|
|
|
(64.4 |
) |
|
|
592.0 |
|
Income
tax provision (benefit)
|
|
|
(0.9 |
) |
|
|
174.5 |
|
|
|
12.6 |
|
|
|
42.9 |
|
|
|
(25.5 |
) |
|
|
203.6 |
|
Net
income (loss)
|
|
|
(1.7 |
) |
|
|
322.6 |
|
|
|
23.4 |
|
|
|
83.0 |
|
|
|
(38.9 |
) |
|
|
388.4 |
|
Less:
income (loss) attributable to noncontrolling interests
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
0.7 |
|
Net
income (loss) attributable to AK Holding
|
|
|
(1.7 |
) |
|
|
322.6 |
|
|
|
23.4 |
|
|
|
82.3 |
|
|
|
(38.9 |
) |
|
|
387.7 |
|
Equity
in net income of subsidiaries
|
|
|
389.4 |
|
|
|
66.8 |
|
|
|
— |
|
|
|
— |
|
|
|
(456.2 |
) |
|
|
— |
|
Net
income (loss) attributable to AK Holding
|
|
$ |
387.7 |
|
|
$ |
389.4 |
|
|
$ |
23.4 |
|
|
$ |
82.3 |
|
|
$ |
(495.1 |
) |
|
$ |
387.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Condensed
Balance Sheets
|
|
As
of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
|
AK
Steel
|
|
|
Guarantor
Subsidiaries
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Company
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
— |
|
|
$ |
444.3 |
|
|
$ |
— |
|
|
$ |
17.4 |
|
|
$ |
— |
|
|
$ |
461.7 |
|
Accounts
receivable, net
|
|
|
— |
|
|
|
501.8 |
|
|
|
17.3 |
|
|
|
50.6 |
|
|
|
(106.6 |
) |
|
|
463.1 |
|
Inventories,
net
|
|
|
— |
|
|
|
349.5 |
|
|
|
18.5 |
|
|
|
72.3 |
|
|
|
(23.6 |
) |
|
|
416.7 |
|
Deferred
tax asset
|
|
|
— |
|
|
|
223.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
223.9 |
|
Other
current assets
|
|
|
0.1 |
|
|
|
63.8 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
— |
|
|
|
64.7 |
|
Total
Current Assets
|
|
|
0.1 |
|
|
|
1,583.3 |
|
|
|
36.1 |
|
|
|
140.8 |
|
|
|
(130.2 |
) |
|
|
1,630.1 |
|
Property,
Plant and Equipment
|
|
|
— |
|
|
|
5,210.4 |
|
|
|
90.0 |
|
|
|
84.7 |
|
|
|
— |
|
|
|
5,385.1 |
|
Less
accumulated depreciation
|
|
|
— |
|
|
|
(3,351.8 |
) |
|
|
(47.7 |
) |
|
|
(9.6 |
) |
|
|
— |
|
|
|
(3,409.1 |
) |
Property,
plant and equipment, net
|
|
|
— |
|
|
|
1,858.6 |
|
|
|
42.3 |
|
|
|
75.1 |
|
|
|
— |
|
|
|
1,976.0 |
|
Other
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in AFSG Holdings, Inc.
|
|
|
— |
|
|
|
— |
|
|
|
55.6 |
|
|
|
— |
|
|
|
— |
|
|
|
55.6 |
|
Investment
in affiliates
|
|
|
(1,180.8 |
) |
|
|
1,180.8 |
|
|
|
40.1 |
|
|
|
998.6 |
|
|
|
(1,038.7 |
) |
|
|
— |
|
Inter-company
accounts
|
|
|
2,061.5 |
|
|
|
(3,066.3 |
) |
|
|
(20.8 |
) |
|
|
(300.8 |
) |
|
|
1,326.4 |
|
|
|
— |
|
Other
investments
|
|
|
— |
|
|
|
31.6 |
|
|
|
— |
|
|
|
20.5 |
|
|
|
— |
|
|
|
52.1 |
|
Goodwill
|
|
|
— |
|
|
|
— |
|
|
|
32.8 |
|
|
|
4.3 |
|
|
|
— |
|
|
|
37.1 |
|
Other
intangible assets
|
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
Deferred
tax asset
|
|
|
— |
|
|
|
514.4 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
514.7 |
|
Other
non-current assets
|
|
|
— |
|
|
|
8.5 |
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
8.9 |
|
TOTAL
ASSETS
|
|
$ |
880.8 |
|
|
$ |
2,110.9 |
|
|
$ |
186.3 |
|
|
$ |
939.2 |
|
|
$ |
157.5 |
|
|
$ |
4,274.7 |
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
— |
|
|
$ |
423.8 |
|
|
$ |
6.1 |
|
|
$ |
9.1 |
|
|
$ |
(0.1 |
) |
|
$ |
438.9 |
|
Accrued
liabilities
|
|
|
— |
|
|
|
149.8 |
|
|
|
2.5 |
|
|
|
6.2 |
|
|
|
(1.5 |
) |
|
|
157.0 |
|
Current
portion of long-term debt
|
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.7 |
|
Pension
and other postretirement benefit obligations
|
|
|
— |
|
|
|
143.6 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
144.1 |
|
Total
Current Liabilities
|
|
|
— |
|
|
|
717.9 |
|
|
|
8.6 |
|
|
|
15.8 |
|
|
|
(1.6 |
) |
|
|
740.7 |
|
Non-current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
— |
|
|
|
605.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
605.8 |
|
Pension
and other postretirement benefit obligations
|
|
|
— |
|
|
|
1,851.2 |
|
|
|
— |
|
|
|
5.0 |
|
|
|
— |
|
|
|
1,856.2 |
|
Other
non-current liabilities
|
|
|
— |
|
|
|
116.8 |
|
|
|
— |
|
|
|
75.8 |
|
|
|
(0.7 |
) |
|
|
191.9 |
|
Total
Non-current Liabilities
|
|
|
— |
|
|
|
2,573.8 |
|
|
|
— |
|
|
|
80.8 |
|
|
|
(0.7 |
) |
|
|
2,653.9 |
|
TOTAL
LIABILITIES
|
|
|
— |
|
|
|
3,291.7 |
|
|
|
8.6 |
|
|
|
96.6 |
|
|
|
(2.3 |
) |
|
|
3,394.6 |
|
TOTAL
AK HOLDING STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
880.8 |
|
|
|
(1,180.8 |
) |
|
|
177.7 |
|
|
|
843.3 |
|
|
|
159.8 |
|
|
|
880.8 |
|
Noncontrolling
interest
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.7 |
) |
|
|
— |
|
|
|
(0.7 |
) |
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
880.8 |
|
|
|
(1,180.8 |
) |
|
|
177.7 |
|
|
|
842.6 |
|
|
|
159.8 |
|
|
|
880.1 |
|
TOTAL
LIABILITIES AND EQUITY
|
|
$ |
880.8 |
|
|
$ |
2,110.9 |
|
|
$ |
186.3 |
|
|
$ |
939.2 |
|
|
$ |
157.5 |
|
|
$ |
4,274.7 |
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Condensed
Balance Sheets
|
|
As
of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
|
AK
Steel
|
|
|
Guarantor
Subsidiaries
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Company
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
— |
|
|
$ |
548.6 |
|
|
$ |
— |
|
|
$ |
14.1 |
|
|
$ |
— |
|
|
$ |
562.7 |
|
Accounts
receivable, net
|
|
|
— |
|
|
|
394.7 |
|
|
|
19.5 |
|
|
|
57.2 |
|
|
|
(1.5 |
) |
|
|
469.9 |
|
Inventories,
net
|
|
|
— |
|
|
|
481.1 |
|
|
|
18.6 |
|
|
|
71.8 |
|
|
|
(4.7 |
) |
|
|
566.8 |
|
Deferred
tax asset
|
|
|
— |
|
|
|
333.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
333.0 |
|
Other
current assets
|
|
|
0.1 |
|
|
|
69.4 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
70.4 |
|
Total
Current Assets
|
|
|
0.1 |
|
|
|
1,826.8 |
|
|
|
38.4 |
|
|
|
143.7 |
|
|
|
(6.2 |
) |
|
|
2,002.8 |
|
Property,
Plant and Equipment
|
|
|
— |
|
|
|
5,179.8 |
|
|
|
89.5 |
|
|
|
12.8 |
|
|
|
— |
|
|
|
5,282.1 |
|
Less
accumulated depreciation
|
|
|
— |
|
|
|
(3,170.6 |
) |
|
|
(41.0 |
) |
|
|
(9.2 |
) |
|
|
— |
|
|
|
(3,220.8 |
) |
Property,
plant and equipment, net
|
|
|
— |
|
|
|
2,009.2 |
|
|
|
48.5 |
|
|
|
3.6 |
|
|
|
— |
|
|
|
2,061.3 |
|
Other
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in AFSG Holdings, Inc.
|
|
|
— |
|
|
|
— |
|
|
|
55.6 |
|
|
|
— |
|
|
|
— |
|
|
|
55.6 |
|
Investment
in affiliates
|
|
|
(1,074.2 |
) |
|
|
1,074.2 |
|
|
|
40.1 |
|
|
|
960.9 |
|
|
|
(1,001.0 |
) |
|
|
— |
|
Inter-company
accounts
|
|
|
2,042.1 |
|
|
|
(2,800.2 |
) |
|
|
(33.5 |
) |
|
|
(281.9 |
) |
|
|
1,073.5 |
|
|
|
— |
|
Other
investments
|
|
|
— |
|
|
|
27.3 |
|
|
|
— |
|
|
|
23.1 |
|
|
|
— |
|
|
|
50.4 |
|
Goodwill
|
|
|
— |
|
|
|
— |
|
|
|
32.8 |
|
|
|
4.3 |
|
|
|
— |
|
|
|
37.1 |
|
Other
intangible assets
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
Deferred
tax asset
|
|
|
— |
|
|
|
459.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
459.1 |
|
Other
assets
|
|
|
— |
|
|
|
15.2 |
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
15.4 |
|
TOTAL
ASSETS
|
|
$ |
968.0 |
|
|
$ |
2,611.6 |
|
|
$ |
182.2 |
|
|
$ |
853.9 |
|
|
$ |
66.3 |
|
|
$ |
4,682.0 |
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
— |
|
|
$ |
337.7 |
|
|
$ |
2.1 |
|
|
$ |
9.8 |
|
|
$ |
(1.5 |
) |
|
$ |
348.1 |
|
Accrued
liabilities
|
|
|
— |
|
|
|
221.3 |
|
|
|
2.8 |
|
|
|
8.9 |
|
|
|
— |
|
|
|
233.0 |
|
Current
portion of long-term debt
|
|
|
— |
|
|
|
0.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.7 |
|
Pension
and other postretirement benefit obligations
|
|
|
— |
|
|
|
152.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
152.4 |
|
Total
Current Liabilities
|
|
|
— |
|
|
|
712.1 |
|
|
|
4.9 |
|
|
|
18.7 |
|
|
|
(1.5 |
) |
|
|
734.2 |
|
Non-current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
— |
|
|
|
632.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
632.6 |
|
Pension
and other postretirement benefit obligations
|
|
|
— |
|
|
|
2,143.7 |
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
2,144.2 |
|
Other
liabilities
|
|
|
— |
|
|
|
197.4 |
|
|
|
— |
|
|
|
0.3 |
|
|
|
2.6 |
|
|
|
200.3 |
|
Total
Non-current Liabilities
|
|
|
— |
|
|
|
2,973.7 |
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
2.6 |
|
|
|
2,977.1 |
|
TOTAL
LIABILITIES
|
|
|
— |
|
|
|
3,685.8 |
|
|
|
5.4 |
|
|
|
19.0 |
|
|
|
1.1 |
|
|
|
3,711.3 |
|
TOTAL
AK HOLDING STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
968.0 |
|
|
|
(1,074.2 |
) |
|
|
176.8 |
|
|
|
832.2 |
|
|
|
65.2 |
|
|
|
968.0 |
|
Noncontrolling
interest
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.7 |
|
|
|
— |
|
|
|
2.7 |
|
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
968.0 |
|
|
|
(1,074.2 |
) |
|
|
176.8 |
|
|
|
834.9 |
|
|
|
65.2 |
|
|
|
970.7 |
|
TOTAL
LIABILITIES AND EQUITY
|
|
$ |
968.0 |
|
|
$ |
2,611.6 |
|
|
$ |
182.2 |
|
|
$ |
853.9 |
|
|
$ |
66.3 |
|
|
$ |
4,682.0 |
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Consolidated
Statements of Cash Flows
|
|
For
the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
|
AK
Steel
|
|
|
Guarantor
Subsidiaries
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Company
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities
|
|
$ |
(1.7 |
) |
|
$ |
(95.7 |
) |
|
$ |
11.3 |
|
|
$ |
57.0 |
|
|
$ |
87.9 |
|
|
$ |
58.8 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
investments
|
|
|
— |
|
|
|
(108.5 |
) |
|
|
(0.6 |
) |
|
|
(24.4 |
) |
|
|
— |
|
|
|
(133.5 |
) |
Proceeds
from the sale of investments and property, plant and
equipment
|
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
Other
items, net
|
|
|
— |
|
|
|
5.4 |
|
|
|
— |
|
|
|
(5.8 |
) |
|
|
— |
|
|
|
(0.4 |
) |
Net
cash flows from investing activities
|
|
|
— |
|
|
|
(102.6 |
) |
|
|
(0.6 |
) |
|
|
(30.2 |
) |
|
|
— |
|
|
|
(133.4 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments on long-term debt
|
|
|
— |
|
|
|
(23.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(23.5 |
) |
Purchase
of treasury stock
|
|
|
(11.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11.4 |
) |
Common
stock dividends paid
|
|
|
(22.0 |
) |
|
|
— |
|
|
|
(15.8 |
) |
|
|
— |
|
|
|
15.8 |
|
|
|
(22.0 |
) |
Intercompany
activity
|
|
|
34.6 |
|
|
|
114.8 |
|
|
|
5.0 |
|
|
|
(50.7 |
) |
|
|
(103.7 |
) |
|
|
— |
|
Advances
from noncontrolling interest owner
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
29.0 |
|
|
|
|
|
|
|
29.0 |
|
Other
items, net
|
|
|
0.5 |
|
|
|
2.7 |
|
|
|
0.1 |
|
|
|
(1.8 |
) |
|
|
— |
|
|
|
1.5 |
|
Net
cash flows from financing activities
|
|
|
1.7 |
|
|
|
94.0 |
|
|
|
(10.7 |
) |
|
|
(23.5 |
) |
|
|
(87.9 |
) |
|
|
(26.4 |
) |
Net
increase in cash and cash equivalents
|
|
|
— |
|
|
|
(104.3 |
) |
|
|
— |
|
|
|
3.3 |
|
|
|
— |
|
|
|
(101.0 |
) |
Cash
and cash equivalents, beginning of year
|
|
|
— |
|
|
|
548.6 |
|
|
|
— |
|
|
|
14.1 |
|
|
|
— |
|
|
|
562.7 |
|
Cash
and cash equivalents, end of year
|
|
$ |
— |
|
|
$ |
444.3 |
|
|
$ |
— |
|
|
$ |
17.4 |
|
|
$ |
— |
|
|
$ |
461.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Consolidated
Statements of Cash Flows
|
|
For
the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
|
AK
Steel
|
|
|
Guarantor
Subsidiaries
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Company
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities
|
|
$ |
(1.7 |
) |
|
$ |
51.9 |
|
|
$ |
27.6 |
|
|
$ |
80.6 |
|
|
$ |
(75.3 |
) |
|
$ |
83.1 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
investments
|
|
|
— |
|
|
|
(211.5 |
) |
|
|
(2.5 |
) |
|
|
(0.5 |
) |
|
|
— |
|
|
|
(214.5 |
) |
Purchase
of investments
|
|
|
— |
|
|
|
(12.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12.1 |
) |
Proceeds
from the sale of investments and property, plant and
equipment
|
|
|
— |
|
|
|
8.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.4 |
|
Other
items, net
|
|
|
— |
|
|
|
0.8 |
|
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
— |
|
|
|
0.4 |
|
Net
cash flows from investing activities
|
|
|
— |
|
|
|
(214.4 |
) |
|
|
(2.6 |
) |
|
|
(0.8 |
) |
|
|
— |
|
|
|
(217.8 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments on long-term debt
|
|
|
— |
|
|
|
(26.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(26.9 |
) |
Proceeds
from stock options
|
|
|
3.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.4 |
|
Purchase
of treasury stock
|
|
|
(24.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24.0 |
) |
Common
stock dividends paid
|
|
|
(22.4 |
) |
|
|
— |
|
|
|
(13.7 |
) |
|
|
(14.4 |
) |
|
|
28.1 |
|
|
|
(22.4 |
) |
Intercompany
activity
|
|
|
44.8 |
|
|
|
(18.9 |
) |
|
|
(11.2 |
) |
|
|
(61.9 |
) |
|
|
47.2 |
|
|
|
— |
|
Tax
benefits from stock-based transactions
|
|
|
— |
|
|
|
12.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12.2 |
|
Advances
from noncontrolling interest owner
|
|
|
|
|
|
|
45.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45.5 |
|
Other
items, net
|
|
|
(0.1 |
) |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
(4.0 |
) |
|
|
— |
|
|
|
(4.0 |
) |
Net
cash flows from financing activities
|
|
|
1.7 |
|
|
|
12.1 |
|
|
|
(25.0 |
) |
|
|
(80.3 |
) |
|
|
75.3 |
|
|
|
(16.2 |
) |
Net
increase in cash and cash equivalents
|
|
|
— |
|
|
|
(150.4 |
) |
|
|
— |
|
|
|
(0.5 |
) |
|
|
— |
|
|
|
(150.9 |
) |
Cash
and cash equivalents, beginning of year
|
|
|
— |
|
|
|
699.0 |
|
|
|
— |
|
|
|
14.6 |
|
|
|
— |
|
|
|
713.6 |
|
Cash
and cash equivalents, end of year
|
|
$ |
— |
|
|
$ |
548.6 |
|
|
$ |
— |
|
|
$ |
14.1 |
|
|
$ |
— |
|
|
$ |
562.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Consolidated
Statements of Cash Flows
|
|
For
the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
|
AK
Steel
|
|
|
Guarantor
Subsidiaries
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Company
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities
|
|
$ |
(1.3 |
) |
|
$ |
51.7 |
|
|
$ |
29.3 |
|
|
$ |
636.0 |
|
|
$ |
(12.8 |
) |
|
$ |
702.9 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
investments
|
|
|
— |
|
|
|
(101.7 |
) |
|
|
(2.3 |
) |
|
|
(0.4 |
) |
|
|
— |
|
|
|
(104.4 |
) |
Purchase
of investment
|
|
|
— |
|
|
|
(12.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12.3 |
) |
Proceeds
from the sale of investments and property, plant and
equipment
|
|
|
— |
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
Proceeds
for draw on restricted funds for emission control
expenditures
|
|
|
— |
|
|
|
2.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.5 |
|
Proceeds
from equity investment
|
|
|
— |
|
|
|
— |
|
|
|
27.4 |
|
|
|
27.4 |
|
|
|
(27.4 |
) |
|
|
27.4 |
|
Restricted
cash to collateralize LOC
|
|
|
— |
|
|
|
12.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12.6 |
|
Other
items, net
|
|
|
— |
|
|
|
1.4 |
|
|
|
— |
|
|
|
(0.5 |
) |
|
|
— |
|
|
|
0.9 |
|
Net
cash flows from investing activities
|
|
|
— |
|
|
|
(97.2 |
) |
|
|
25.1 |
|
|
|
26.5 |
|
|
|
(27.4 |
) |
|
|
(73.0 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments on long-term debt
|
|
|
— |
|
|
|
(450.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(450.0 |
) |
Proceeds
from stock options
|
|
|
9.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9.2 |
|
Purchase
of treasury stock
|
|
|
(2.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.4 |
) |
Common
stock dividends paid
|
|
|
— |
|
|
|
— |
|
|
|
(48.7 |
) |
|
|
(50.1 |
) |
|
|
98.8 |
|
|
|
— |
|
Intercompany
activity
|
|
|
(5.5 |
) |
|
|
676.5 |
|
|
|
(5.7 |
) |
|
|
(606.7 |
) |
|
|
(58.6 |
) |
|
|
— |
|
Tax
benefits from stock-based transactions
|
|
|
— |
|
|
|
6.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.5 |
|
Fees
related to new credit facility
|
|
|
— |
|
|
|
(2.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.6 |
) |
Other
items, net
|
|
|
— |
|
|
|
3.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.6 |
|
Net
cash flows from financing activities
|
|
|
1.3 |
|
|
|
234.0 |
|
|
|
(54.4 |
) |
|
|
(656.8 |
) |
|
|
40.2 |
|
|
|
(435.7 |
) |
Net
increase in cash and cash equivalents
|
|
|
— |
|
|
|
188.5 |
|
|
|
— |
|
|
|
5.7 |
|
|
|
— |
|
|
|
194.2 |
|
Cash
and cash equivalents, beginning of year
|
|
|
— |
|
|
|
510.5 |
|
|
|
— |
|
|
|
8.9 |
|
|
|
— |
|
|
|
519.4 |
|
Cash
and cash equivalents, end of year
|
|
$ |
— |
|
|
$ |
699.0 |
|
|
$ |
— |
|
|
$ |
14.6 |
|
|
$ |
— |
|
|
$ |
713.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
STEEL HOLDING CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars
in millions, except per share amounts)
Item
8.
|
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures.
|
|
|
None.
With
the participation of management, the Company’s chief executive officer and its
chief financial officer evaluated the effectiveness of the Company’s disclosure
controls and procedures as of December 31, 2009. Based upon this
evaluation, the chief executive officer and chief financial officer concluded
that the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) were effective as of December 31, 2009.
There
has been no change in the Company’s internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
Company’s fourth quarter ended December 31, 2009, that has materially affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Management’s
Report on Internal Control over Financial Reporting and the Report of
Independent Registered Public Accounting Firm are presented on the following
pages.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Securities Exchange Act of 1934. Those rules
define internal control over financial reporting as a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and include those policies and
procedures that:
a)
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
b)
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and
|
c)
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009. In making
this assessment, the Company’s management used the criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Based
on our assessment and those criteria, management has determined that, as of
December 31, 2009, the Company’s internal control over financial reporting was
effective.
The
Company’s independent registered public accounting firm has issued an
attestation report on the effectiveness of the Company’s internal control over
financial reporting, which appears on the following page.
Dated:
|
February
23, 2010
|
|
/s/
|
JAMES
L. WAINSCOTT
|
|
|
|
|
James
L. Wainscott
|
|
|
|
|
Chairman
of the Board, President
|
|
|
|
|
and
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
Dated:
|
February
23, 2010
|
|
/s/
|
ALBERT
E. FERRARA, Jr.
|
|
|
|
|
Albert
E. Ferrara, Jr.
|
|
|
|
|
Vice
President, Finance and
|
|
|
|
|
Chief
Financial Officer
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
AK
Steel Holding Corporation
West
Chester, Ohio
We
have audited the internal control over financial reporting of AK Steel Holding
Corporation and subsidiaries (the “Company”) as of December 31, 2009, based on
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year ended
December 31, 2009 of the Company and our report dated February 23, 2010
expressed an unqualified opinion on those financial statements and financial
statement schedule.
/s/
DELOITTE & TOUCHE LLP
Cincinnati,
Ohio
February
23, 2010
None.
Item
9.
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Directors, Executive Officers and Corporate
Governance.
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Information
with respect to the Company’s Executive Officers is set forth in Part I of this
Annual Report pursuant to General Instruction G of Form 10-K. The
information required to be furnished pursuant to this item with respect to
Directors of the Company will be set forth under the caption “Election of
Directors” in the Company’s proxy statement (the “2010 Proxy Statement”) to be
furnished to stockholders in connection with the solicitation of proxies by the
Company’s Board of Directors for use at the 2010 Annual Meeting of Stockholders,
and is incorporated herein by reference.
The
information required to be furnished pursuant to this item with respect to
compliance with Section 16(a) of the Exchange Act will be set forth under the
caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2010
Proxy Statement, and is incorporated herein by reference.
The
information required to be furnished pursuant to this item with respect to the
Audit Committee and the Audit Committee financial expert will be set forth under
the caption “Committees of the Board of Directors” in the 2010 Proxy Statement,
and is incorporated herein by reference.
Information
required to be furnished pursuant to this item with respect to and any material
changes to the process by which security holders may recommend nominees to the
Board of Directors will be set forth under the caption “Stockholder
Proposals for the 2011 Annual Meeting and Nominations of Directors” in the 2010
Proxy Statement, and is incorporated herein by reference.
The
Company has adopted: a Code of Ethics covering its Chief Executive Officer,
Chief Financial Officer, Principal Accounting Officer and other persons
performing a similar function; a Code of Business Conduct and Ethics for
Directors, Officers and Employees; and Corporate Governance
Guidelines. These documents, along with charters of its Audit,
Management Development and Compensation, and Nominating and Governance
Committees, are posted on the Company’s website at
www.aksteel.com. Disclosures of amendments to or waivers with regard
to the provisions of the Code of Ethics also will be posted on the Company’s
website.
The
information required to be furnished pursuant to this item will be set forth
under the caption “Executive Compensation” and in the Director Compensation
Table and its accompanying narrative in the 2010 Proxy Statement, and is
incorporated herein by reference.
Item
11.
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Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.
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The
information required to be furnished pursuant to this item with respect to
compensation plans under which equity securities of the Company are authorized
for issuance will be set forth under the caption “Equity Compensation Plan
Information” in the 2010 Proxy Statement, and is incorporated herein by
reference.
Other
information required to be furnished pursuant to this item will be set forth
under the caption “Stock Ownership” in the 2010 Proxy Statement, and is
incorporated herein by reference.
Item
12.
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Certain Relationships and Related
Transactions, and Director Independence.
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The
information required to be furnished pursuant to this will be set forth under
the captions “Related Person Transaction Policy” and “Board Independence” in the
2010 Proxy Statement, and is incorporated herein by reference.
The
information required to be furnished pursuant to this item will be set forth
under the caption “Principal Accounting Firm Fees” in the 2010 Proxy Statement,
and is incorporated herein by reference.
Item
14.
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Exhibits and Financial Statement
Schedules.
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(a)
The list of exhibits and financial statements filed as part of this report is
submitted as a separate section, the index to which is located on the following
page. One financial statement schedule (Exhibit 99.1) is
included.
(b)
Exhibits:
List
of exhibits begins on next page.
INDEX
TO EXHIBITS
Exhibit
Number
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Description
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3.1
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Certificate
of Incorporation of AK Steel Holding Corporation, filed with the Secretary
of State of the State of Delaware on December 20, 1993, as amended
(incorporated herein by reference to Exhibit 3.1.1 to AK Steel Holding
Corporation’s Current Report on Form 8-K, as filed with the Commission on
May 28, 1998).
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*3.2
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By-laws
of AK Steel Holding Corporation, including form of amendment approved
January 21, 2010 and effective immediately following the conclusion of the
2010 annual meeting of stockholders of AK Steel Holding
Corporation.
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4.8
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Indenture,
dated as of June 11, 2002, among AK Steel Corporation, AK Steel Holding
Corporation, as Guarantor, Douglas Dynamics, LLC, as Guarantor, and Fifth
Third Bank (“2002 Indenture”) (incorporated herein by reference to Exhibit
4.1 to AK Steel Holding Corporation’s Current Report on Form 8-K, as filed
with the Commission on July 12, 2002).
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4.9
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First
Supplemental Indenture, dated as of August 8, 2003, to the 2002 Indenture
(incorporated herein by reference to Exhibit 4.3 to AK Steel Holding
Corporation’s Current Report on Form 8-K, as filed with the Commission on
August 18, 2003).
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10.1
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Executive
Deferred Compensation Plan (as amended and restated as of October 18,
2007), (incorporated herein by reference to Exhibit 10.2 to AK Steel
Holding Corporation’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007, as filed with the Commission on November 6,
2007).
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10.2
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Directors’
Deferred Compensation Plan (as amended and restated as of October 18,
2007), (incorporated herein by reference to Exhibit 10.3 to AK Steel
Holding Corporation’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007, as filed with the Commission on November 6,
2007).
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10.3
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Policy
Concerning Severance Agreements with Senior Executives (incorporated
herein by reference to Exhibit 99.3 to AK Steel Holding Corporation’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, as
filed with the Commission on November 14, 2003).
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10.4
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Annual
Management Incentive Plan (as amended and restated as of January 16,
2003), (incorporated herein by reference to Exhibit 10.3 to AK Steel
Holding Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2003, as filed with the Commission on March 4,
2004).
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10.4(a)
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First
Amendment to the Annual Management Incentive Plan (as amended and restated
as of January 16, 2003) (incorporated herein by reference to Exhibit
10.7(a) to AK Steel Holding Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2007, as filed with the Commission on February
26, 2008).
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10.5
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Supplemental
Thrift Plan (as amended and restated as of October 18, 2007),
(incorporated herein by reference to Exhibit 10.5 to AK Steel Holding
Corporation’s Quarterly Report of Form 10-Q for the quarter ended
September 30, 2007, as filed with the Commission on November 6,
2007).
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10.6
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Executive
Minimum and Supplemental Retirement Plan (as amended and restated as of
October 18, 2007), (incorporated herein by reference to Exhibit 10.1 to AK
Steel Holding Corporation’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007, as filed with the Commission on November 6,
2007).
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10.6(a)
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First
Amendment to the Executive Minimum and Supplemental Retirement Plan (as
amended and restated as of October 18, 2007), (incorporated herein by
reference to Exhibit 10.1 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2008, as filed
with the Commission on November 4,
2008).
|
Exhibit
Number
|
Description
|
10.6(b)
|
Second
Amendment to the Executive Minimum and Supplemental Retirement Plan (as
amended and restated as of October 18, 2007), (incorporated herein by
reference to Exhibit 10.4 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009, as filed
with the Commission on November 3, 2009).
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10.7
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Form
of Executive Officer Severance Agreement as approved by the Board of
Directors on July 14, 2004 – Version 1 (incorporated herein by reference
to Exhibit 10.1 to AK Steel Holding Corporation’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2004, as filed with the
Commission on November 4, 2004).
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10.8
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Form
of Executive Officer Severance Agreement as approved by the Board of
Directors on July 14, 2004 – Version 2 (incorporated herein by reference
to Exhibit 10.2 to AK Steel Holding Corporation’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2004, as filed with the
Commission on November 4, 2004).
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10.9
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Form
of First Amendment to the AK Steel Holding Corporation Executive Officer
Severance Agreement (incorporated herein by reference to Exhibit 10.7 to
AK Steel Holding Corporation’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007, as filed with the Commission on November
6, 2007).
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10.9(a)
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Form
of Second Amendment to the AK Steel Holding Corporation Executive Officer
Severance Agreement (incorporated herein by reference to Exhibit 10.3 to
AK Steel Holding Corporation’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009, as filed with the Commission on November
3, 2009).
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10.10
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Form
of Executive Officer Change of Control Agreement as approved by the Board
of Directors on July 14, 2004 – Version 1 (incorporated herein by
reference to Exhibit 10.3 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004, as filed
with the Commission on November 4, 2004).
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10.11
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Form
of Executive Officer Change of Control Agreement as approved by the Board
of Directors on July 14, 2004 – Version 2 (incorporated herein by
reference to Exhibit 10.4 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004, as filed
with the Commission on November 4, 2004).
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10.12
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Form
of Executive Officer Change of Control Agreement as approved by the Board
of Directors on July 14, 2004 – Version 3 (incorporated herein by
reference to Exhibit 10.5 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004, as filed
with the Commission on November 4, 2004).
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10.13
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Form
of Executive Officer Change of Control Agreement as approved by the Board
of Directors on July 14, 2004 – Version 4 (incorporated herein by
reference to Exhibit 10.6 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004, as filed
with the Commission on November 4, 2004).
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10.14
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Form
of First Amendment to the AK Steel Holding Corporation Executive Officer
Change of Control Agreement (incorporated herein by reference to Exhibit
10.8 to AK Steel Holding Corporation’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2007, as filed with the Commission on
November 6, 2007).
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10.15
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Form
of Restricted Stock Award for special bonus grants approved by the Board
of Directors on January 20, 2005 to executive officers and selected
key managers of the Company (incorporated herein by reference to Exhibit
10.25 to AK Steel Holding Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2004, as filed with the Commission on March 8,
2005).
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Exhibit
Number
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Description
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10.16
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Form
of the Performance Share Award Agreement for performance-based equity
awards approved by the Board of Directors on January 20, 2005, subject to
shareholder approval, to executive officers and key managers of the
Company pursuant to the Company Stock Incentive Plan, as proposed to be
amended and restated (incorporated herein by reference to Exhibit 10.26 to
AK Steel Holding Corporation’s Annual Report on Form 10-K for the year
ended December 31, 2004, as filed with the Commission on March 8,
2005).
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10.17
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Stock
Incentive Plan (as amended and restated as of October 16, 2008),
(incorporated herein by reference to Exhibit 10.2 to AK Steel Holding
Corporation’s Current Report on Form 8-K, as filed with the Commission on
October 21, 2008).
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10.17(a)
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First
Amendment to the AK Steel Holding Corporation Stock Incentive Plan (as
amended and restated as of October 16, 2008), (incorporated herein by
reference to Exhibit 10.1 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009, as filed
with the Commission on November 3, 2009).
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10.17(b)
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Second
Amendment to the AK Steel Holding Corporation Stock Incentive Plan (as
amended and restated as of October 16, 2008), (incorporated herein by
reference to Exhibit 10.2 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009, as filed
with the Commission on November 3, 2009).
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10.18
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Long-Term
Performance Plan (as amended and restated as of March 17, 2005),
(incorporated herein by reference to Exhibit 10.23 to AK Steel Holding
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2005, as filed with the Commission on March 2, 2006).
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10.18(a)
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First
Amendment to the AK Steel Corporation Long-Term Performance Plan (as
amended and restated as of March 17, 2005), (incorporated herein by
reference to Exhibit 10.6 to AK Steel Holding Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2007, as filed
with the Commission on November 6, 2007).
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10.19
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Loan
and Security Agreement dated as of February 20, 2007, among AK Steel
Corporation, as Borrower, Certain Financial Institutions, as Lenders, Bank
of America, N.A., as Administrative and Collateral Agent, Wachovia Capital
Finance Corporation (Central), as Syndication Agent, General Electric
Capital Corporation, JPMorgan Chase Bank, N.A., and Fifth Third Bank, as
Co-Documentation Agents, and Banc of America Securities LLC, as Sole Lead
Arranger and Sole Book (incorporated herein by reference to Exhibit 99.1
to AK Steel Holding Corporation’s Current Report on Form 8-K for the
quarter ended March 31, 2007, as filed with the Commission on February 23,
2007).
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*11.1
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Statement
re: Computation of Per Share Earnings.
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*12.1
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Statement
re: Computation of Ratio of Earnings to Combined Fixed
Charges.
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*12.2
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Statement
re: Computation of Ratio of Earnings to Fixed Charges.
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*21.1
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Subsidiaries
of AK Steel Holding Corporation.
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*23.1
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Consent
of Independent Registered Public Accounting Firm.
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*23.2
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Independent
Auditor’s Consent.
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*31.1
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Section
302 Certification of Chief Executive Officer.
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*31.2
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Section
302 Certification of Chief Financial Officer.
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*32.1
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Section
906 Certification of Chief Executive Officer.
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*32.2
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Section
906 Certification of Chief Financial Officer.
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Exhibit
Number
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Description
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*99.1
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Valuation
and qualifying accounts for the years ended December 31, 2009, 2008 and
2007.
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99.2
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Financial
Statements of Combined Metals of Chicago, LLC for the years ended December
31, 2008, 2007 and 2006 (incorporated herein by reference to Exhibit 99.2
to AK Steel Holding Corporation's Annual Report on Form 10-K for the year
ended December 31, 2008, as filed with the Commission on February 24,
2009).
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*99.3
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Financial
Statements of Combined Metals of Chicago, LLC for the year ended December
31, 2009.
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*101.
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The
following financial statements from the Annual Report on Form 10-K of AK
Steel Holding Corporation for the year ended December 31, 2009, formatted
in Extensible Business Reporting Language (XBRL): (i) the Consolidated
Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the
Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of
Stockholders’ Equity, (v) the Consolidated Statements of Comprehensive
Income, and (vi) the Notes to Consolidated Financial Statements and (vii)
Exhibit 99.1-Valuation and Qualifying Accounts tagged as blocks of
text.
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*
Filed or furnished herewith, as
applicable
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SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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 in West Chester, Ohio, on February
23, 2010.
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AK
Steel Holding Corporation
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(Registrant)
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Dated:
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February
23, 2010
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/s/
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ALBERT
E. FERRARA, Jr.
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Albert
E. Ferrara, Jr.
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Vice
President, Finance and Chief Financial Officer
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Dated:
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February
23, 2010
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/s/
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ROGER
K. NEWPORT
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Roger
K. Newport
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Controller
and Chief Accounting Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the registrant and in the
capacities and as of the dates indicated.
Signature
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Title
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Date
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/s/
James L.
Wainscott
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Chairman
of the Board, President
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February
22, 2010
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James
L. Wainscott
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and
Chief Executive Officer
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/s/
Robert H.
Jenkins
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Lead
Director
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February
22, 2010
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Robert
H. Jenkins
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/s/
Richard A.
Abdoo
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Director
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February
22, 2010
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Richard
A. Abdoo
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/s/
John S.
Brinzo
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Director
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February
22, 2010
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John
S. Brinzo
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/s/
Dennis C.
Cuneo
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Director
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February
22, 2010
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Dennis
C. Cuneo
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/s/
William K.
Gerber
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Director
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February
22, 2010
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William
K. Gerber
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/s/
Dr. Bonnie G.
Hill
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Director
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February
22, 2010
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Dr.
Bonnie G. Hill
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/s/
Ralph S. Michael
III
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Director
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February
22, 2010
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Ralph
S. Michael III
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/s/
Shirley D.
Peterson
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Director
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February
22, 2010
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Shirley
D. Peterson
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/s/
Dr. James A.
Thomson
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Director
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February
22, 2010
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Dr.
James A. Thomson
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97