UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549


FORM 10-Q

(Mark One)
x TQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010March 31, 2011

OR

o £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 31-1401455
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
9227 Centre Pointe Drive, West Chester, Ohio 45069
(Address of principal executive offices) (Zip Code)

(513) 425-5000
(Registrant’s telephone number, including area code)

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 filing requirements for the past 90 days.  Yes  xT  No  o£

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).months.         Yes  xT  No  o£

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” (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filerT Accelerated filer£
Non-accelerated filer£ Smaller reporting company£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).company.   Yes  £  No  T

Indicate the number ofThere were 110,256,953 shares outstanding of each of the issuer’s classes of common stock outstanding as of the latest practicable date.
109,992,816 shares of common stock
(as of October 27, 2010)May 3, 2011.

 
 


AK STEEL HOLDING CORPORATION

TABLE OF CONTENTS

  Page
 
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
 
   
   
   
   
   
 
   
   


 
 


FINANCIALFINANCIAL INFORMATION
  
FinancialFinancial Statements.

AK STEEL HOLDING CORPORATIONAK STEEL HOLDING CORPORATION AK STEEL HOLDING CORPORATION 
   
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
(dollars in millions, except per share data)(dollars in millions, except per share data) (dollars in millions, except per share data) 
 
 Three Months Ended  Nine Months Ended  Three Months Ended 
 September 30,  September 30,  March 31, 
(unaudited) 2010  2009  2010  2009  2011  2010 
                  
Net sales $1,575.9  $1,041.1  $4,577.7  $2,756.9  $1,581.1  $1,405.7 
        
Cost of products sold (exclusive of items shown below)  1,576.1   929.2   4,247.7   2,618.8   1,459.5   1,243.6 
Selling and administrative expenses  52.0   45.6   158.8   141.3   55.4   54.2 
Depreciation  50.3   51.0   150.5   153.9   46.7   50.3 
                        
Total operating costs  1,678.4   1,025.8   4,557.0   2,914.0   1,561.6   1,348.1 
                        
Operating profit (loss)  (102.5)  15.3   20.7   (157.1)
Operating profit  19.5   57.6 
Interest expense  5.9   9.0   25.9   28.4   8.6   8.9 
Other income (expense)  8.0   2.9   (5.8)  8.6   3.4   (4.6)
                        
Income (loss) before income taxes  (100.4)  9.2   (11.0)  (176.9)
Income before income taxes  14.3   44.1 
                        
Income tax provision due to tax law change        25.3         25.3 
Income tax provision (benefit)  (40.4)  3.5   (4.1)  (61.0)
Income tax provision  5.8   17.4 
Total income tax provision  5.8   42.7 
                        
Total income tax provision (benefit)  (40.4)  3.5   21.2   (61.0)
Net income  8.5   1.4 
Less: Net loss attributable to noncontrolling interests  (0.2)  (0.5)
                        
Net income (loss)  (60.0)  5.7   (32.2)  (115.9)
Less: Net loss attributable to noncontrolling interests  (0.8)  (0.5)  (1.6)  (1.5)
Net income (loss) attributable to AK Steel Holding Corporation $(59.2) $6.2  $(30.6) $(114.4)
Net income attributable to AK Steel Holding Corporation $8.7  $1.9 
                        
Basic and diluted earnings per share:                        
Net income (loss) attributable to AK Steel Holding Corporation common stockholders $(0.54) $0.06  $(0.28) $(1.05)
                
Common shares and common share equivalents outstanding (weighted average in millions):                
Basic  109.5   108.7   109.5   109.1 
Diluted  109.5   109.2   109.5   109.1 
Net income per share attributable to AK Steel Holding Corporation common stockholders $0.08  $0.02 
                        
Dividends declared and paid per share $0.05  $0.05  $0.15  $0.15  $0.05  $0.05 
                        
                        
See notes to condensed consolidated financial statements.See notes to condensed consolidated financial statements. See notes to condensed consolidated financial statements. 
 
 
 
- 1 --1-


AK STEEL HOLDING CORPORATIONAK STEEL HOLDING CORPORATION AK STEEL HOLDING CORPORATION 
   
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
(dollars in millions)(dollars in millions) (dollars in millions) 
 September 30,  December 31,  March 31,  December 31, 
(unaudited) 2010  2009  2011  2010 
ASSETS            
Current Assets:
      
Current assets:
      
Cash and cash equivalents $80.5  $461.7  $54.1  $216.8 
Accounts receivable, net  601.4   463.1   641.7   482.8 
Inventory, net  674.0   416.7   689.7   448.7 
Deferred tax asset, current  242.3   223.9   226.1   225.7 
Other current assets  33.0   64.7   26.3   30.1 
Total Current Assets  1,631.2   1,630.1 
Property, Plant and Equipment  5,575.3   5,385.1 
Total current assets  1,637.9   1,404.1 
Property, plant and equipment  5,765.1   5,668.2 
Accumulated depreciation  (3,559.5)  (3,409.1)  (3,681.7)  (3,635.0)
Property, Plant and Equipment, net  2,015.8   1,976.0 
Other Non-current Assets:
        
Property, plant and equipment, net  2,083.4   2,033.2 
Other non-current assets:
        
Investment in AFSG Holdings, Inc.  55.6   55.6   55.6   55.6 
Other investments  54.6   52.1 
Goodwill  37.1   37.1   37.1   37.1 
Other intangible assets  0.2   0.2 
Deferred tax asset, non-current  498.9   514.7   591.7   581.5 
Other non-current assets
  15.1   8.9   78.8   77.1 
Total Other Non-current Assets  661.5   668.6 
Total other non-current assets  763.2   751.3 
TOTAL ASSETS $4,308.5  $4,274.7  $4,484.5  $4,188.6 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities:
        
Current liabilities:
        
Borrowings under credit facility $75.0  $ 
Accounts payable $766.5  $438.9   762.9   553.1 
Accrued liabilities  165.5   157.0   182.9   145.0 
Current portion of long-term debt  0.7   0.7   0.7   0.7 
Current portion of pension and other postretirement benefit obligations  140.6   144.1  ��104.5   145.7 
Total Current Liabilities  1,073.3   740.7 
Non-current Liabilities:
        
Total current liabilities  1,126.0   844.5 
Non-current liabilities:
        
Long-term debt  501.8   605.8   650.5   650.6 
Pension and other postretirement benefit obligations  1,654.0   1,856.2   1,670.8   1,706.0 
Other non-current liabilities  278.8   191.9   413.3   346.4 
Total Non-current Liabilities  2,434.6   2,653.9 
Total non-current liabilities  2,734.6   2,703.0 
TOTAL LIABILITIES  3,507.9   3,394.6   3,860.6   3,547.5 
Commitments and Contingencies                
Stockholders’ Equity:
        
Stockholders’ equity:
        
Preferred stock, authorized 25,000,000 shares            
Common stock, authorized 200,000,000 shares of $.01 par value each; issued 2010, 122,817,675 shares, 2009, 121,881,816 shares; outstanding 2010, 109,988,581 shares, 2009, 109,394,455 shares  1.2   1.2 
Common stock, authorized 200,000,000 shares of $.01 par value each;
issued 123,193,360 and 122,829,975 shares in 2011 and 2010;
outstanding 110,256,953 and 109,986,790 shares in 2011 and 2010
  1.2   1.2 
Additional paid-in capital  1,929.2   1,911.4   1,914.4   1,909.4 
Treasury stock, common shares at cost, 2010, 12,829,094 shares; 2009, 12,487,361 shares  (169.9)  (162.2)
Treasury stock, common shares at cost, 12,936,407 and 12,843,185 shares in 2011 and 2010  (171.4)  (170.1)
Accumulated deficit  (1,084.5)  (1,037.5)  (1,185.1)  (1,188.4)
Accumulated other comprehensive income  127.8   167.9   68.7   92.6 
Total AK Steel Holding Corporation Stockholders’ Equity  803.8   880.8 
Noncontrolling interest  (3.2)  (0.7)
Total AK Steel Holding Corporation stockholders’ equity  627.8   644.7 
Noncontrolling interests  (3.9)  (3.6)
TOTAL STOCKHOLDERS’ EQUITY  800.6   880.1   623.9   641.1 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $4,308.5  $4,274.7  $4,484.5  $4,188.6 
                


 
- 2 -
-2-


The Condensed Consolidated Balance Sheets for September 30, 2010, include the following amounts related to consolidated variable interest entities: 
  
Property, Plant and Equipment $188.3 
Accumulated depreciation  (8.2)
Accounts payable  19.2 
Accrued liabilities  4.2 
Other non-current liabilities  159.7 
  
See notes to condensed consolidated financial statements. 

 
- 3 -

The Condensed Consolidated Balance Sheets for March 31, 2011 and December 31, 2010, include the following amounts related to consolidated variable interest entities: 
  
  March 31,  December 31, 
  2011  2010 
Property, plant and equipment $320.4  $251.6 
Accumulated depreciation  (8.4)  (8.3)
Accounts payable  16.3   19.5 
Other non-current liabilities  298.5   226.2 
  
See notes to condensed consolidated financial statements. 
AK STEEL HOLDING CORPORATION 
  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(dollars in millions)
 
  Nine Months Ended 
  September 30, 
(unaudited) 2010  2009 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $(32.2) $(115.9)
Depreciation  150.5   153.9 
Amortization  14.1   9.7 
Deferred income taxes  25.5   (40.8)
Contributions to pension trust  (110.0)  (210.0)
Contributions to Middletown retirees VEBA  (65.0)  (65.0)
Pension and other postretirement benefit payments greater than expense  (78.3)  (47.9)
Working capital  (100.1)  176.4 
Working capital – Middletown Coke  0.3   (1.8)
Other operating items, net  18.7   54.0 
Net cash flows from operating activities  (176.5)  (87.4)
         
CASH FLOWS FROM INVESTING ACTIVITIES:
        
Capital investments  (72.3)  (91.2)
Capital investments – Middletown Coke  (86.4)  (22.5)
Other investing items, net  0.8   2.3 
Net cash flows from investing activities  (157.9)  (111.4)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of long-term debt  400.0    
Redemption of long-term debt  (506.1)  (23.3)
Debt issuance costs  (9.0)   
Proceeds from exercise of stock options  1.3    
Purchase of treasury stock  (7.7)  (11.4)
Common stock dividends paid  (16.5)  (16.5)
Advances from noncontrolling interest owner to Middletown Coke  88.4   25.3 
Other financing items, net  2.8   1.5 
Net cash flows from financing activities  (46.8)  (24.4)
         
Net decrease in cash and cash equivalents  (381.2)  (223.2)
         
Cash and cash equivalents, beginning of period  461.7   562.7 
         
Cash and cash equivalents, end of period $80.5  $339.5 
         
Supplemental disclosure of cash flow information:
        
Net cash paid (received) during the period for:        
Interest, net of capitalized interest $14.5  $39.0 
Income taxes  (20.3)  (24.9)
         
Supplemental disclosure of non-cash investing and financing activities –        
Issuance of restricted common stock and restricted stock units $6.8  $4.4 
    Open accounts payable related to Middletown Coke property, plant and equipment purchases  19.2    
         
See notes to condensed consolidated financial statements. 



 
 
- 4 --3-

AK STEEL HOLDING CORPORATION 
  
 
(dollars in millions)
 
  Three Months Ended 
  March 31, 
(unaudited) 2011  2010 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $8.5  $1.4 
Depreciation  46.7   50.3 
Amortization  4.5   5.9 
Deferred income taxes  4.4   44.8 
Contributions to pension trust  (30.0)  (75.0)
Contributions to Middletown retirees VEBA  (65.0)  (65.0)
Pension and other postretirement benefit payments greater than expense  (29.0)  (29.0)
Working capital  (133.3)  (47.6)
Working capital—SunCoke Middletown  (0.4)  0.5 
Other operating items, net  (3.8)  6.5 
Net cash flows from operating activities  (197.4)  (107.2)
         
CASH FLOWS FROM INVESTING ACTIVITIES:
        
Capital investments  (35.6)  (14.9)
Capital investments—SunCoke Middletown  (71.7)  (2.0)
Other investing items, net  0.4    
Net cash flows from investing activities  (106.9)  (16.9)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Net borrowings under credit facility  75.0    
Redemption of long-term debt  (0.2)  (0.2)
Proceeds from exercise of stock options  0.1   1.3 
Purchase of treasury stock  (1.4)  (7.5)
Common stock dividends paid  (5.5)  (5.5)
Advances from noncontrolling interest owner to SunCoke Middletown  72.4   2.3 
Other financing items, net  1.2   2.2 
Net cash flows from financing activities  141.6   (7.4)
         
Net decrease in cash and cash equivalents  (162.7)  (131.5)
         
Cash and cash equivalents, beginning of period  216.8   461.7 
         
Cash and cash equivalents, end of period $54.1  $330.2 
         
See notes to condensed consolidated financial statements. 
-4-


AK STEEL HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data, unless otherwise indicated)

NOTE 1 - Basis of Presentation

In the opinion of the management of AK Steel Holding Corporation (“AK Holding”) and AK Steel Corporation (“AK Steel”, and together with AK Holding, the “Company”), the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments necessary to present fairly the financial position of the Company as of September 30, 2010,March 31, 2011, the results of its operations for the three-three months ended March 31, 2011 and nine-month periods ended September 30, 2010, and 2009, respectively, and its cash flows for the nine-month periodsthree months ended September 30, 2010March 31, 2011 and 2009, respectively.2010.  The results of operations for the ninethree months ended September 30, 2010March 31, 2011, are not necessarily indicative of the results to be expected for the year ending December 31, 2010.2011.  These condensed conso lidatedconsolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2009.2010.

NOTE 2 - Earnings and Dividends Per Share

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2010  2009  2010  2009 
Net income (loss) attributable to AK Holding $(59.2) $6.2  $(30.6) $(114.4)
Less: Distributed earnings to common stockholders and holders of certain stock compensation  awards  5.5   5.5   16.5   16.5 
Undistributed earnings (losses) $(64.7) $0.7  $(47.1) $(130.9)
                 
Common stockholders earnings – basic and diluted:                
    Distributed earnings to common stockholders $5.4  $5.5  $16.4  $16.4 
    Undistributed earnings (losses) to common stockholders  (64.3)  0.7   (46.8)  (130.9)
        Common stockholders earnings (losses) – basic and diluted $(58.9) $6.2  $(30.4) $(114.5)
                 
Common shares outstanding (weighted average in millions):                
    Common shares outstanding for basic earnings per share
  109.5   108.7   109.5   109.1 
    Effect of dilutive stock-based compensation     0.5       
        Common shares outstanding for diluted earnings per share  109.5   109.2   109.5   109.1 
                 
Basic and diluted earnings per share:                
    Distributed earnings $0.05  $0.05  $0.15  $0.15 
    Undistributed earnings (losses)  (0.59)  0.01   (0.43)  (1.20)
        Basic and diluted earnings (losses) per share $(0.54) $0.06  $(0.28) $(1.05)
                 
Potentially issuable common shares (in millions) excluded from earnings per share calculation due to anti-dilutive effect  1.1   0.1   1.1   1.1 
Earnings per share (“EPS”) is calculated utilizing the “two-class” method.  In applying the “two-class” method, by dividing theundistributed earnings (losses) are allocated to both common shares and participating securities.  The sum of distributed earnings to common stockholders and undistributed earnings (losses) allocated to common stockholders is divided by the weighted averageweighted-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 Holding is entitled to dividends and meets the criteria of a participating security.

- 5 -

  Three Months Ended 
  March 31, 
  2011  2010 
Net income attributable to AK Holding $8.7  $1.9 
Less: Distributed earnings to common stockholders and holders of certain stock compensation awards  5.5   5.5 
Undistributed earnings (losses) $3.2  $(3.6)
         
Common stockholders earnings—basic and diluted:        
    Distributed earnings to common stockholders $5.5  $5.5 
    Undistributed earnings (losses) to common stockholders  3.2   (3.6)
Common stockholders earnings—basic and diluted $8.7  $1.9 
         
Weighted-average common shares outstanding (in millions):        
    Common shares outstanding for basic earnings per share  109.7   109.5 
    Effect of dilutive stock-based compensation  0.4   0.5 
        Common shares outstanding for diluted earnings per share  110.1   110.0 
         
Basic and diluted earnings per share:        
    Distributed earnings $0.05  $0.05 
    Undistributed earnings (losses)  0.03   (0.03)
        Basic and diluted earnings per share $0.08  $0.02 
         
Potentially issuable common shares excluded from earnings per share calculation due to anti-dilutive effect (in millions)  0.6   0.3 
 
The following table lists the dates thus far in 2010 on which the Company announced that its Board of Directors declared a quarterly cash dividend of $0.05 per share of common stock, the record dates for determining stockholders of record and the payment dates for the quarterly cash dividend.

2010 COMMON STOCK DIVIDENDS 
  
Announcement Date Record Date Payment Date Per Share 
January 25, 2010 February 12, 2010 March 10, 2010 $0.05 
April 20, 2010 May 14, 2010 June 10, 2010 $0.05 
July 27, 2010 August 13, 2010 September 10, 2010 $0.05 
October 26, 2010 November 12, 2010 December 10, 2010 $0.05 


NOTE 3 - 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 outlast-in, first-out (LIFO) method.  Other inventories are measured principally at average cost.cost and consist mostly of foreign inventories and certain raw materials.
-5-


 September 30,  December 31,  March 31,  December 31, 
 2010  2009  2011  2010 
Finished and semi-finished $823.2  $617.6  $863.3  $702.2 
Raw materials  355.7   204.3   365.2   260.7 
Total cost  1,178.9   821.9   1,228.5   962.9 
Adjustment to state inventories at LIFO value  (504.9)  (405.2)  (538.8)  (514.2)
Net inventories $674.0  $416.7  $689.7  $448.7 

Inventory values include a value attributable to iron ore.   For purposes of its second quarter 2010 financial results, and based upon the facts and circumstances known at that time, the Company used an estimated 65% increase from the 2009 benchmark price.  The Company has now reached agreement on 2010 iron ore pricing with all three of its primary iron ore suppliers at a price above the previously estimated 65% increase.  The above inventory values attributable to iron ore reflect such higher pricing.  To the extent the Company did not recognize the full 2010 price increase in the first and second quarters, it recognized as an expense in the third quarter the incremental amount of the increase that is attributable to its first and sec ond quarter sales and the related LIFO impact.  Accordingly, the Company’s third quarter 2010 financial results reflect the total year-to-date impact of the higher iron ore prices, including the incremental amount related to the first half, which increased the Company’s third quarter 2010 operating loss by approximately $76.0.

NOTE 4 - Pension and Other Postretirement Benefits

The Company provides noncontributory pension and various healthcare and life insurance benefits to most employees and retirees.  The pension plan is not fully funded.  Through the first nine months of 2010funded and the Company has contributed $110.0plans to contribute at least $170.0 to the qualified pension plan trust in 2011, which satisfieswill satisfy the Company’s minimum required contributioncontributions for 2010.  Of this total, $75.0 was contributed in the first quarter of 2010 and $35.0 was contributed in the second quarter of 2010.  During the first nine months of 2009, the Company made $210.0 in aggregatecurrent year.  Actual contributions to the qualified pension plan trust.

are presented below:

- 6 -

  Three Months Ended March 31, 
  2011  2010 
Pension plan contributions $30.0  $75.0 

Net periodic benefit costs (income) for pension and other postretirement benefits were as follows:

 Three Months Ended  Nine Months Ended  Three Months Ended 
 September 30,  September 30,  March 31, 
 2010  2009  2010  2009  2011  2010 
Pension Benefits
                  
Service cost $0.8  $0.9  $2.5  $2.9  $0.8  $0.8 
Interest cost  47.9   50.6   143.7   155.5   45.2   47.9 
Expected return on assets  (48.9)  (46.3)  (146.8)  (135.6)  (52.0)  (48.9)
Amortization of prior service cost  0.9   0.9   2.5   2.5   1.2   1.0 
Amortization of loss  4.4   4.5   13.0   13.5   4.7   4.3 
Net periodic benefit cost $5.1  $10.6  $14.9  $38.8 
Net periodic benefit cost (income) $(0.1) $5.1 
Other Postretirement Benefits              
Service cost $1.0  $1.0  $3.1  $3.0  $1.0  $1.0 
Interest cost  10.8   13.8   32.3   41.4   9.9   10.8 
Settlement gain related to Middletown Retiree Settlement  (14.0)   
Amortization of prior service credit  (19.8)  (19.7)  (59.2)  (59.2)  (19.1)  (19.7)
Reversal of prior amortization related to Butler Retiree Settlement  14.2    
Amortization of gain  (0.6)  (0.8)  (1.9)  (2.5)  (0.3)  (0.7)
Net periodic benefit cost (income) $(8.6) $(5.7) $(25.7) $(17.3) $(8.3) $(8.6)

The decrease in “Net periodic benefit cost” for Pension Benefits forIn October 2007, the three and nine months ended September 30, 2010 was principally caused byCompany announced that it had reached a reduction in interest cost and an increased return on assets becausetentative settlement (the “Middletown Retiree Settlement”) of a higher base.  The reduction in interest cost was principallyclass action filed on behalf of certain retirees from the result of lower discount rates.  The increased return on assets was principally dueCompany’s Middletown Works relating to a higher market value of assets at December 31, 2009 compared to December 31, 2008.

The increase in “Net periodic benefit income” for Other Postretirement Benefits for the three and nine months ended September 30, 2010, was principally caused by a reduction in interest cost as a result of a lower discount rate and lowerCompany’s other postretirement benefit obligations.
(“OPEB”) obligations to such retirees.  That settlement became final in July 2009.  For accounting purposes, a settlement of the Company’s OPEB obligations related to the Middletown Retiree Settlement was deemed to have occurred in the first quarter of 2011 when the Company made the final payment of $65.0 to a Voluntary Employee Benefit Association (“VEBA”) trust created under the terms of that settlement.  In the first quarter of 2011, the Company recognized the settlement accounting at the date of the final payment and recorded a non-cash gain of $14.0 in the income statement.  The amount recognized was prorated based on the portion of the total liability as of March 2008 that was settled pursuant to the Middletown Retiree Settlement.  A further discussion of the Middletown Retiree Settlement can be found in Note 9 in the discussion of the Middletown Works retiree healthcare benefits litigation.

In the third quarter of 2010, the Company reached a tentative settlement agreement (the “Butler Retiree Settlement”) of a class action filed on behalf of certain retirees from the Company’s Butler Works relating to the Company’s OPEB obligations to such retirees.  That settlement became final in January 2011.  The effect of the settlement on the
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Company’s total OPEB liability (prior to any funding of a VEBA Trust created under the terms of the settlement) was an increase in that liability of approximately $29.6 in the first quarter of 2011.  With respect to this increase, a one-time, pre-tax charge of $14.2 was recorded in the first quarter of 2011 to reverse previous amortization of the prior plan amendment.  The remaining portion was recognized in other comprehensive income and will be amortized into earnings over approximately five years.  Included in the “Amortization of gain” for Other Postretirement Benefits was decreased by $0.4 and $1.2, respectively, in the three and nine month periodsthree-month period ended September 30,March 31, 2010 was a charge of $0.4 as a result of a preliminary injunction issued on January 29, 2010 in a case filed by three former hourly workers retired from the Company’s Butler Works.  The preliminary injunction bars the Company from effecting any further benefit reductions or new healthcare charges for Butler Works retirees pending final judgment in the case.related to this issue.  A further discussion of the case and the injunctionButler Works retiree healthcare benefits litigation can be found in Note 9.

The total projected future benefit obligationOPEB liability was remeasured during the first quarter of 2011 for both the CompanyButler Retiree Settlement and the Middletown Retiree Settlement with respect to payments for healthcare benefits to the Company’s retirees is accounted for as “Pension and other postretirement benefit obligations” on the Company’s Condensed Consolidated Balance Sheets.  Thea net amount ofincrease in the liability recognized byof $4.3 resulting from a decrease in the Company, asdiscount rate to 5.18% from the prior year end discount rate of September 30, 2010, for future payment of such benefit obligations5.26%. This loss was approximately $0.8 billion, compared to approximately $0.9 billion at December 31, 2009.recorded in other comprehensive income and will be amortized into earnings.

As a result of the enactment of the Patient Protection and Affordable Care Act and the subsequent enactment of the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Acts”), the Company recorded a non-cash charge of $25.3 in the first quarter of 2010.  The charge was due to a reduction in the value of the Company’s deferred tax asset as a result of a change to the tax treatment associated with Medicare Part D reimbursements.  The Company expects to continue to receive Medicare Part D reimbursements notwithstandingdespite passage of the Health Care Acts.

Under its method of accounting for pension and other postretirement benefit plans, the Company recognizes into income (loss), as a fourth quarter adjustment, any unrecognized actuarial gains and losses that exceed 10% of the larger of projected benefit obligations or plan assets (the “corridor”).  The Company does not anticipate a fourth quarter 2010 corridor charge related to its other postretirement benefit plans.  However, the Company does anticipate such a corridor charge with respect to its pension plans.  Based on current assumptions for prevailing interest rates the Company currently believes that its pension corridor charge in the fourth quarter of 2010 likely will be significant.  However, because factors influencing the determination of plan assets and plan liabilities fluct uate significantly, the Company cannot yet determine with certainty the actual amount of this non-cash fourth quarter corridor charge related to its pension plans.
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NOTE 5 - Share-based Compensation

AK Holding’s Stock Incentive Plan (the “SIP”) permits the granting of nonqualified stock option, restricted stock, performance share and restricted stock unit (“RSUs”) awards to Directors, officers and other employees of the Company.  At AK Holding’s 2010 Annual Meeting of Stockholders (the “Annual Meeting”), the stockholdershave approved among other items, an increase of three million shares in the aggregate maximum number of shares issuable under the SIP to a total of 19 million shares and an extension of the period during which equity grants may be madeissuable under the SIP through December 31, 2019.

The shares that are issued asfollowing table summarizes information about share-based compensation expense, which the result of these grantsCompany has estimated will be newly issued shares.  On August 5, 2010, the Company filed a Registration Statement on Form S-8 with t he Securities and Exchange Commission registering the new shares approved at the Annual Meeting.  At the Annual Meeting, the stockholders also re-approved the material terms of the performance goals under the SIP, thereby enabling AK Holding to maintain the tax deductibility of performance-based equity compensation pursuant to Section 162(m) of the Internal Revenue Code.$15.3 for 2011:

With respect to stock options, 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.  The Company has not had, and does not have, a policy or practice of repricing stock options to lower the price at which such option is exercisable.  
  Three Months Ended March 31, 
Share-based Compensation Expense 2011  2010 
Stock options $1.0  $1.3 
Restricted stock  2.4   3.3 
Restricted stock units issued to Directors  0.2   0.2 
Performance shares  1.6   1.4 
Pre-tax share-based compensation expense $5.2  $6.2 

Stock Options

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 anniversaries of the grant date.  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.  The Company has not had, and does not have, a policy or practice of repricing stock options to lower the price at which such option is exercisable.

Performance shares vestThe Company previously compensated its Directors in part with stock options that vested and became exercisable after one year.  On July 16, 2009, however, the Board of AK Holding, upon the recommendation of its outside compensation consultant, approved a three-year period.  Though a target numberchange to the Director compensation program to replace the grants of performance shares is awardedstock 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”).  This change did not affect the vesting of stock options granted to Directors prior to July 16, 2009.
The Company uses the Black-Scholes option valuation model to value the nonqualified stock options.  Historical data regarding stock option exercise behaviors was used to estimate the expected life of options granted based on the grant date, the total numberperiod of performance shares issuedtime that options granted are expected to the participant upon vestingbe outstanding.  The risk-free interest rate is based on two equally-rated metrics: (i)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.  The expected dividend yield is based on the Company’s share performance compared tohistorical dividend
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payments.  The Company uses a prescribed compounded annual growth rate and (ii)straight-line method for amortizing the value of the share-based payments.  The Company estimates that 5% of the options issued will be forfeited.

The Company’s estimate of fair value of options granted is calculated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

  Three Months Ended March 31, 
  2011  2010 
Expected volatility  59.7% – 70.4%  61.8% – 70.6%
Weighted-average volatility  62.10%  65.18%
Expected term (in years)  2.7 – 6.3   2.8 – 6.3 
Risk-free interest rate  0.87% – 2.58%  1.35% – 2.89%
Dividend yield  1.37%  0.87%
Weighted-average grant-date fair value per share of options granted $6.84  $11.66 

A summary of option activity under the Company’s SIP for the three months ended March 31, 2011, is presented below:
Stock Options 
 
 
 
Shares
  
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
 
 
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2010  1,100,597  $16.86     
Granted  299,093   14.58     
Exercised  (16,718)  8.85     
              
Outstanding at March 31, 2011  1,382,972   16.46 7.2 yrs $3.3 
              
Exercisable at March 31, 2011  813,775   17.22 6.0 yrs  2.2 
              
Unvested at March 31, 2011  569,197   15.38 9.0 yrs  1.1 
              
Unvested at March 31, 2011 expected to vest (a)  540,737   15.38 9.0 yrs  1.1 

(a)The Company estimates that 5% of the options issued and unvested at March 31, 2011 will be forfeited.

As of March 31, 2011, there were $2.2 of total share return comparedunrecognized compensation costs related to Standardnon-vested stock options, which costs are expected to be recognized over a weighted average period of 1.4 years.

The following table summarizes information about stock options exercised for the relevant periods:

  Three Months Ended 
  March 31, 
  2011  2010 
Total intrinsic value of options exercised (a) $0.1  $2.2 

(a)Based upon the actual market price on the date of exercise, as determined by the quoted average of the reported high and low sales prices on such date.

Restricted Stock and Poor’s MidCap 400 index.Restricted Stock Units

Restricted stock awards granted to officers and key managers on or prior to December 31, 2006, were awarded on terms pursuant to which 25% of the shares covered by the award vest two years after the date of the award and an additional 25% vest on each of 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, ordinarily are awarded on terms pursuant to which the shares covered by the award vest ratably on the first, second and third anniversaries of the grant.  However, in connection with the promotion of three existing Named Executive Officers on May 26, 2010, the Company granted restricted stock to each of them that will fullynot vest onat all until the third anniversary of the grant date.  The reason fordate, at which time it will
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vest in full if the change fromgrantee is still in the nor mal three-year step vesting of one thirdemploy of the shares each yearCompany.  This “cliff vesting” was used to “cliff” vesting of all of the shares at the end of a three-year period was to encourage the long term employment with the Company ofprovide an additional incentive for each of these Named Executive Officers.Officers to continue his employment with the Company during the three-year vesting period.

Since October 2008, the equity-based compensation granted to Directors has changed from a combination of stock options and restricted stock to being comprised entirely of RSUs.  Before October 16, 2008, Directors were granted restricted stock as the primary equity component of their compensation. On October 16, 2008, the Board amended the SIP to allow RSUs to be granted to non-employee Directors in lieu of restricted stock as the equity component of a Director’s compensation.stock.  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, vested at the end of the Director’s full tenure on the Board.  New grants of RSUs v estvest 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.  Directors also formerly were granted stock options that vested and became exercisable after one year.  On July 16, 2009, the Board, upon its outside compensation consultant’s recommendation, revised the Director compensation program to replace 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 RSUs.  This change did not affect the vesting of stock options granted to Directors prior to July 16, 2009.  On July 22, 2010, the Board revised the equity component of its annual Board retainer fee such that the annual value of RSUs received by each director increased from eighty thousand dollars to ninety thousand dollars.

RSUs resulting from restricted stock converted by Directors vested and were settled as of the date of the AK Holding 2009 Annual Meeting of Stockholders, subject also to a deferred settlement election.elected.  Directors have the option to defer settlement of their RSUs until six months following termination of their service on the Board.  If a Director
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elects this deferral option, he or sheBoard and 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’s estimate of fair value of options granted under the Company’s SIP is calculated as of the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2010 2009 (a) 2010 2009
Expected volatility65.8% – 72.6%  61.8% – 77.7% 81.1% – 90.8%
Weighted-average volatility68.79%  66.00% 82.56%
Expected term (in years)2.8 – 4.8  2.8 – 6.3 2.8 – 6.3
Risk-free interest rate1.02% – 1.38%  1.02% – 2.89% 1.05% – 1.84%
Dividend yield1.34%  0.93% 2.19%
        
(a)  No grants in the period       

The Company uses a straight-line method for amortizing the value of the share-based payments.  The Company uses historical data regarding stock option exercise behaviors 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 U.S. Treasury yield curve in effect at the time of grant.  The expected volatility is based on historical volatility for a period equal to the stock option’s expected life.  The expected dividend yield is based on the Company’s historical dividend payments.  The Company’s estimate assumes that 5% of the options issued will be forfeited.

A summary of option activity under the Company’s SIP for the nine months ended September 30, 2010, is presented below:

Stock Options  
 
Shares
  
Weighted
Average
Exercise
Price
 
Weighted
Average Remaining Contractual
Life
 
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2009   1,044,171  $14.54     
Granted   218,458   21.99     
Exercised   (154,157)  8.29     
Cancelled   (9,375)  19.45     
Outstanding at September 30, 2010   1,099,097  $16.85 7.1 yrs $4.3 
               
Expected to vest at September 30, 2010   453,787  $17.02 8.5 yrs $1.9 
               
Exercisable at September 30, 2010   621,427  $16.72 6.1 yrs $2.3 

The following table summarizes information about stock option value for the relevant periods:

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2010  2009  2010  2009 
Weighted-average grant-date fair value per share of options granted $7.00  (a)  $11.14  $5.08 
Total intrinsic value of options exercised (c) (b)  $0.1  $1.4  $0.2 
                 
(a) No options granted                
(b) No options exercised                
(c) Based upon the average market price during the period                

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The following table summarizes information about stock options outstanding and exercisable at September 30, 2010:

   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   104,333 5.2 yrs. $7.38   96,833  $7.36 
$9.20 to $13.64   325,445 7.9 yrs.  9.28   106,615   9.41 
$13.65 to $16.65   135,501 5.5 yrs.  14.80   109,401   14.80 
$16.66 to $18.07   214,335 6.1 yrs.  16.76   214,335   16.76 
$18.08 to $68.47   319,483 8.3 yrs.  28.59   94,243   36.75 

The following table lists performance shares granted by the Company in the relevant periods:

  Nine Months Ended
  September 30,
  2010 2009
Performance shares granted 290,720 543,089
Three-year performance period end date December 31, 2012 December 31, 2011
     

Share-based compensation expense includes expense for both nonqualified stock options and performance shares granted from the SIP.  The following table summarizes information about share-based compensation expense, which the Company has estimated will be $8.7 for 2010:

  Three Months Ended  Nine Months Ended 
  September 30, 2010  September 30, 2010 
Pre-tax share-based compensation expense $2.0  $6.7 
After-tax share-based compensation expense  1.2   4.1 
         

A summary of the activity for non-vested restricted stock awards as of September 30, 2010, and changes duringfor the nine-month periodthree months ended March 31, 2011, is presented below:

Restricted Stock Awards  Shares  
Weighted
Average
Grant Date
Fair Value
 
Outstanding at December 31, 2009   682,526  $13.40 
Granted   308,153   20.70 
Vested   (520,734)  15.16 
Cancelled   (10,130)  15.64 
Outstanding at September 30, 2010   459,815  $16.24 
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Restricted Stock Awards  Restricted Shares  Weighted Average Grant Date Fair Value 
Outstanding at December 31, 2010   427,201  $16.26 
Granted   340,493   14.58 
Vested/restrictions lapsed   (279,368)  15.73 
Outstanding at March 31, 2011   488,326   15.39 

The following table summarizes information on common stock compensation expense related to restricted stock awards granted under the Company’s SIP and stock compensation expense related to RSUs awarded to Directorsvested for the relevant periods:

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2010  2009  2010  2009 
Common stock compensation expense related to restricted stock awards granted under the Company’s SIP $1.1  $1.1  $5.5  $3.5 
Common stock compensation expense related to restricted stock awards granted under the Company’s SIP after tax  0.7   0.7   3.4   2.2 
Stock compensation expense related to RSUs awarded to Directors  0.2   0.3   0.6   0.6 
Stock compensation expense related to RSUs awarded to Directors after tax  0.2   0.2   0.4   0.4 
                 
  Three Months Ended 
  March 31, 
  2011  2010 
Fair value of restricted shares vested/restrictions lapsed $4.1  $10.9 

As of September 30, 2010,March 31, 2011, there were $5.0$6.5 of total unrecognized compensation costs related to non-vested share-based compensationrestricted stock awards granted under the SIP, which costs are expected to be recognized over a weighted average period of 1.82.2 years.

Performance Shares

Performance shares are granted to officers and key managers.  The awards are earned based upon meeting performance measures over a three-year period.  Though a target number of performance shares are awarded on the grant date, the total number of performance shares issued to the participant upon vesting is based on two equally-rated metrics: (i) the Company’s share performance compared to a prescribed compounded annual growth rate and (ii) the Company’s total share return compared to Standard and Poor’s MidCap 400 index.

A summary of the activity for non-vested performance share awards for the three months ended March 31, 2011, is presented below:

Performance Share Awards  Performance Shares  Weighted Average Grant Date Fair Value 
Outstanding at December 31, 2010   927,011  $18.85 
Granted   384,352   15.78 
Earned       
Forfeited   (158,123)  33.18 
Outstanding at March 31, 2011   1,153,240   15.86 

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As of March 31, 2011, there were $11.0 of total unrecognized compensation costs related to non-vested performance share awards granted under the SIP, which costs are expected to be recognized over a weighted average period of 1.7 years.

NOTE 6 - Long-term Debt and Other Financing

On May 11, 2010,In April 2011, AK Steel issued $400.0 of 7 5/8% Senior Notes due 2020 (the “2020 Notes”).  The issuance generated net proceeds of $392.0 after underwriting fees.  AK Holding, of which AK Steel is a wholly-owned subsidiary, fully and unconditionally, jointly and severally, guarantees the payment of interest, principal and premium, if any, on the 2020 Notes.  In April 2010, AK Steel commenced a cash tender offer and consent solicitation (the “Tender Offer”) for all of the approximately $504.0 in aggregate principal amount of outstanding 7 3/4% Senior Notes due 2012 (the “Old Notes”).  At the expiration of the Tender Offer on May 21, 2010, AK Steel accepted $321.2 in aggregate principal amount of Old Notes tendered by holders.  The aggregate amount pai d by the Company to consummate the Tender Offer for the Old Notes was approximately $332.8, an amount equal to 100% of the principal amount of the tendered Old Notes, plus interest accrued to the Tender Offer’s expiration and a redemption premium of approximately $1.5 associated with the tendering noteholders’ acceptance of the accompanying consent solicitation.  The redemption premium was recorded in other income (expense) on the Company’s Condensed Consolidated Statements of Operations.

In addition, on May 12, 2010, pursuant to the terms of the indenture governing the Old Notes, AK Steel called for the redemption of all the approximately $182.8 in aggregate principal amount of Old Notes that remained outstanding after the expiration of the Tender Offer.  The aggregate redemption price for the Old Notes was approximately $189.9, an amount equal to 100% of the principal amount of the outstanding Old Notes, plus interest accrued to the redemption date, June 15, 2010.  The proceeds from the issuance of the 2020 Notes along with cash on hand were used to retire the Old Notes.

The respective aggregate amounts utilized for retiring the Old Notes through the Tender Offer and redemption, as paid towards the Old Notes’ principal and accrued but unpaid interest, as well as the redemption premium paid to holders for acceptance of the consent solicitation, were as follows:

  Principal  Interest  Premium  Total 
Tender Offer $321.2  $10.1  $1.5  $332.8 
Redemption  182.8   7.1      189.9 
Total Old Notes $504.0  $17.2  $1.5  $522.7 

As a result of the Tender Offer and redemption transactions, on June 15, 2010, AK Steel and the guarantors (which are discussed in the immediately following paragraph) of the Old Notes retired all of the approximately $504.0 in aggregate principal amount of Old Notes outstanding and satisfied and discharged their obligations under the indentures that governed the Old Notes.

In connection with the issuance of the 2020 Notes, AK Steel and AK Holding entered into a new indentures governing the 2020 Notes.  Under the terms of the prior indentures governing the Old Notes, AK Steel’s parent company, AK
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Holding, as well as AKS Investments, Inc. and AK Tube LLC, which are direct and indirect wholly-owned subsidiaries, respectively, of AK Steel, had fully and unconditionally, jointly and severally, guaranteed the payment of interest, principal and premium, if any, on the Old Notes.  Under the terms of the new indentures, AK Holding currently is the sole guarantor of the 2020 Notes.

At any time prior to May 15, 2015, AK Steel may redeem the 2020 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a “make-whole” premium calculated in accordance with the indentures governing the 2020 Notes and accrued and unpaid interest.  In addition, AK Steel may redeem the 2020 Notes, in whole or in part, at any time on or after May 15, 2015, at the redemption price for such notes set forth below as a percentage of the face amount, plus accrued and unpaid interest to the redemption date, if redeemed during the twelve-month period commencing on May 15 of the years indicated below:

Year 
 
Redemption Price
2015 103.813%
2016 102.542%
2017 101.271%
2018 or thereafter 100.000%

During 2009, and prior to the Tender Offer and redemption transactions described above, the Company repurchased $26.4 in aggregate principal amount of the Old Notes with cash payments totaling $22.8.  In connection with these repurchases, the Company recorded non-cash, pre-tax gains of approximately $3.6.  The repurchases were funded from the Company’s existing cash balances.

The following table summarizes the fair value of the Company’s long-term debt, including current maturities for the relevant periods:

  September 30, 2010  December 31, 2009 
Fair value of long-term debt, including current maturities $512.5  $609.6 

The fair value estimate was based on financial market information available to management at the measurement date.  Management is not aware of any significant factors that would materially alter this estimate since that date.  The carrying value of the Company’s financial instruments does not differ materially from their estimated fair value at September 30, 2010, and the end of 2009.

The 2020 Notes’ indentures include restrictive covenants, but these covenants are significantly less restrictive than the covenants contained in the indentures for the Old Notes.  The covenants relating to the 2020 Notes include customary restrictions on (a) the incurrence of additional debt by certain AK Steel subsidiaries, (b) the incurrence of liens by AK Steel and AK Holding’s other subsidiaries, (c) the amount of sale/leaseback transactions, and (d) the ability of AK Steel and AK Holding to merge or consolidate with other entities or to sell, lease or transfer all or substantially all of the assets of the AK Steel and AK Holding to another entity.  The 2020 Notes also contain customary events of default.

The Company’s $850.0 five-year$1.0 billion asset-backed revolving credit facility (“New Credit Facility”) with a group of lenders.  The New Credit Facility, which is secured by most of the Company’s product inventory and accounts receivable, replaced AK Steel’s prior $850.0 asset-backed credit facility (“Replaced Credit Facility”), which was set to expire in February 2012 and was secured by the same classes of assets as the New Credit Facility.  The New Credit Facility contains restrictions similar to the Replaced Credit Facility, including limitations on, among other things, distributions and dividends, acquisitions and investments, indebtedness, liens and affiliate transactions.  TheIn the aggregate, however, the restrictions in the New Credit Facility expiresprovide the Company with more flexibility than those under the Replaced Credit Facility, and only apply in February 2012.the event that the Company’s availability under the New Credit Facility falls below certain specific thresholds, none of which exceed $225.0.  Availability is calculated as the lesser of the credit facility commitment or the Company's eligible collateral after advance rates, less outstanding revolver borrowings and letters of credit.  The Company does not expect any of these restrictions to affect or limit its ability to conduct its business in the ordinary course.  In addition, the facilityNew Credit Facility requires maintenance of a minimum fixed charge coverage ratio of one to one if availability under the facilityNew Credit Facility is less than $125.0.  As of March 31, 2011, there were outstanding borrowings of $75.0 under the Replaced Credit Facility and availability was reduced by $152.8 due to outstanding letters of credit, resulting in remaining availability of $621.2.  AK Holding currently is the sole guarantor of the New Credit Facility.

As ofDuring the filing date of this Quarterly Report,period, the Company iswas in compliance with all the terms and conditions of the 2020 Notes’ covenants and the Credit Facility covenants.its debt agreements.

NOTE 7 - Income Taxes

Income taxes recorded through September 30, 2010,March 31, 2011, have been estimated based on year-to-date income and projected results for the full year.  The amounts recorded reflect the provisions of ASC Topic 740, “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial
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statements and prescribes standards for the recognition and measurement of tax positions taken or expected to be taken on a tax return.

As a result of the enactment of the Patient Protection and Affordable Care Act and the subsequent enactment of the Health Care and Education Reconciliation Act of 2010, the Company recorded a non-cash charge of $25.3 in the first quarter of 2010.  The charge was due to a reduction in the value of the Company’s deferred tax asset as a result of a change to the tax treatment associated with Medicare Part D reimbursements.

NOTE 8 - Comprehensive Income (Loss)

Comprehensive income (loss), net of tax, is as follows:

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2010  2009  2010  2009 
Net income (loss) attributable to AK Holding $(59.2) $6.2  $(30.6) $(114.4)
Other comprehensive income (loss), net of tax:                
    Foreign currency translation gain (loss)  1.7   0.4   (0.4)  1.3 
    Derivative instrument hedges, mark to market:                
        Gain (loss) arising in period  (4.7)  2.7   (19.6)  (19.2)
        Less: Reclassification of (gain) loss included in net income  6.4   13.3   9.3   27.0 
    Unrealized holding gains (losses) on securities                
Unrealized holding gains (losses) arising during period  1.1   1.7   0.4   1.9 
Less: Reclassification of losses included in net income        0.1    
    Pension and OPEB adjustment  (10.4)  (9.0)  (29.9)  (27.1)
Comprehensive income (loss) $(65.1) $15.3  $(70.7) $(130.5)

  Three Months Ended 
  March 31, 
  2011  2010 
Net income attributable to AK Holding $8.7  $1.9 
Other comprehensive income (loss), net of tax:        
    Foreign currency translation gain (loss)  1.2   (2.1)
    Cash flow hedges:        
Gains (losses) arising in period  0.2   (22.6)
Less: Reclassification of losses (gains) included in net income  4.0   4.8 
    Unrealized holding gains (losses) on securities:        
Unrealized holding gains (losses) arising during period  0.1   0.5 
Less: Reclassification of losses (gains) included in net income     0.1 
    Pension and OPEB adjustment  (29.4)  (9.2)
Comprehensive income (loss) $(15.2) $(26.6)
A deferred tax rate
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Accumulated other comprehensive income, net of tax, is as follows:

 September 30,  December 31,  March 31,  December 31, 
 2010  2009  2011  2010 
Foreign currency translation $3.9  $4.3  $4.7  $3.5 
Derivative instrument hedges  (11.6)  (1.3)
Unrealized loss on investments  (1.1)  (1.6)
Cash flow hedges  3.8   (0.4)
Unrealized gain (loss) on investments  (0.2)  (0.3)
Employee benefit liability  136.6   166.5   60.4   89.8 
Accumulated other comprehensive income $127.8  $167.9  $68.7  $92.6 

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 fiscal 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.  TheTo the extent reasonably estimable, 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.  The table below summarizes
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liabilities recorded on the Company’s Condensed Consolidated Balance Sheets for estimated probable costs relating to environmental matters:

  September 30,  December 31, 
  2010  2009 
Accrued liabilities $16.1  $17.0 
Other non-current liabilities  39.8   40.6 

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.  Liabilities recorded on the Company’s Condensed Consolidated Balance Sheets for such estimated probable costs relating to environmental matters are presented below:

  March 31,  December 31, 
  2011  2010 
Accrued liabilities $21.8  $20.4 
Other non-current liabilities  37.3   38.7 

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 whichthat will be necessary to investigate and remediate a particular site and the cost of that work.  Other significant assumptions include the cleanup technology whichthat 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 by governmental agencies, and the reaction of the governing environmental agencies to the proposed work plans. 60;  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 potential losses 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 condensed consolidated financial statements.

Except as expressly noted below, managementthe Company does not currently anticipate any material impacteffect 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 does not believe that it is not disadvantaged relative to its domestic competitors by itsthe need to comply with these regulations.  However, someSome 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.

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 RCRA-
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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
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Plant site.  The site-wide investigation portion of the RI/FS has been submitted.  The study portion is projected to be completed in 2011 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.

OnAs previously reported, 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$1.1 for the projected cost of the study and remediation 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 has worked with Ohio EPA in an attempt to resolve this NOV.  In that regard, Ohio EPA has issued to the Mansfield Works a new air permit that addresses the issues identified in the NOV. The Company cannot be certain, however, that Ohio EPA will not seek further remedies.  If further remedies are sought, the Company will evaluate the underlying claims at that time and will either seek to resolve them through settlement or will contest them.  The Company cannot reliably estimate at this time whether any such additional remedies will be sought or, if they are sought, whether it will seek to se ttle them or contest them.

OnAs previously reported, on July 23, 2007, and on December 9, 2008, the EPA issued NOVsNotices of Violation (“NOVs”) with respect to the Coke Plantcoke plant at AK Steel’s Ashland Works alleging violations of pushing and combustion stack limits.  The Company ishas been investigating these claims and is working with the EPA to attempt to resolve them through the negotiation of a Consent Decree.Decree that assumed the coke plant would continue to operate.  On December 28, 2010, however, the Company announced plans to permanently close the Ashland coke plant in 2011. The Company will continue to negotiate a Consent Decree with the EPA to resolve the NOVs, but as a consequence of the shutdown decision, the nature of the negotiations with the EPA has changed.  The Company anticipates that the focus now will be on the civil penalty associated with the alleged violations.  AK Steel believes it will reach a settlement in this matter, but it cannot be certain that a settlement will be reached and cannot reliably estimate at this time how long it will take to reach a settlement or what all of its terms might be.  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.  Depending upon the final terms of the Consent Decree and the nature and scope of operations, however, those costs could be in excess of $50.0 over several years.  AK Steel will vigorously contest any claims which cannot be resolved through a settlement.

AK SteelAs previously reported, that itAK Steel 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 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 willagreed to 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
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Steel paid a civil penalty of five hundred twenty-five thousand dollars.  AK Steel anticipates that the remaining cost associated with this matter will be approximately $2.9$4.5 in capital costs and $0.9$2.2 in expenses.  The Company has accrued the $0.9$2.2 for anticipated expenses associated with this matter.
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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.  ManagementThe Company believes that the ultimate disposition of the foregoing proceedings will not have, individually or in the aggregate, a material adverse effect on the Company’sits consolidated financial condition, results of operations or cash flows.

Legal Contingencies: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’sthe Company’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,May 15, 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.Court.  In accordance with the Consent Decree, the Company is in the process of implementing 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 in 2006 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 also has completed a significant portion of the remedial activity at Dicks Creek whichthat was planned for 2010.2010, but additional work remains to be performed.  The Company anticipates thathas accrued $11.7 for the cost of the remaining remedial work required under the Consent Decree will be approxi mately $15.8, consistingfor this phase of approximately $2.2 in capital investments and $13.6 in expenses.  The Company has accrued the $13.6 for anticipated expenses associated with this project.  Additional work will be performed to more definitively delineate the remaining soils and sediments which will need to be removed underperformed after this phase, but the Consent Decree.design plan for that work has not yet been approved.  Until that processdesign plan is complete,approved, the Company cannot reliably determine whether the actual cost of the remaining 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.Decree.  The Company currently estimates that the remaining work will be completed in 2012, but that estimated timeframe is subject to the potential for delays, such as due to work plan approval delays, adverse weather conditions, and/or unanticipated soil or sediment conditions.

As previously reported, 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 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 anThe majority of asbestos lawsuit initiallycases pending in which AK Steel is filed, the complaint typically doesa defendant do not include a specific dollar claim for damages.  Only 130 ofIn the 426 cases pending at December 31, 2009, in which AK Steel is a defendant,that do 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
Information on asbestos cases pending at December 31, 2010 is presented below:

Asbestos Cases Pending at
December 31, 2010
Claims with specific dollar claims for damages (a):
Claims of less than $0.2111
Claims of $0.2 to $5.05
Claims of $5.0 to $15.03
Claims of $15.0 to $20.02
Total claims with specific dollar claims for damages121
Claims without a specific dollar claim for damages292
Total asbestos lawsuits pending413
(a)Involve a total of 2,480 plaintiffs and 16,543 defendants
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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 n otnot 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
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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 appr oximateapproximate net amount of dollars paid on behalf of AK Steel in settlement of asbestos-related claims in 20092010 and 2008.2009.

 Year Ended December 31, 
 2009  2008  2010  2009 
New Claims Filed  252   41   122   252 
Pending Claims Disposed Of  179   39   179   179 
Total Amount Paid in Settlements $0.7  $0.7  $0.8  $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 ofto vigorously defendingdefend the asbestos claims asserted against it.  Based upon its present knowledge, and the factors set forth above, AK Steelthe Company 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 impacteffect 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 “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 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 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.  On June 22, 2010, the Court i ssued an order directing certain funds be returned to the Trust because such funds had not been claimed by class members.  Pursuant to the order, on July 9, 2010, $0.2 was returned to the Trust.  On August 25, 2010, plaintiffs filed an unopposed motion to return an additional amount of approximately $0.1 to the Trust consisting of interest earned by, and taxes refunded to, the fund and not designated for disbursement to class members.  The Court granted the motion and on September 8, 2010 approximately $0.1 was returned to the Trust, leaving the Fund Administrator holding no funds with respect to this action.  On August 25, 2010, plaintiffs filed a motion seeking, and the Court granted an additional award of attorneys’ fees to plaintiffs’ counsel in the amount of $0.1.  This amount represented work done by plaintiffs’ counsel in connection with administration of the Fund and disbursements to class members.  This amount was paid to plaintiffs’ counsel on September 1, 2010.  Such payments should conclude the
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activity in this litigation and resolve completely defendants’ liability in connection with 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.

As previously reported, 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.  PlaintiffThe plaintiff and the other purportedly similarly situated individuals on whose behalf the plaintiff filed suit were excluded by the Court in 2005 from the Westsimilar litigation (discussed in the paragraph immediately above)previously reported and now resolved (the class action litigation filed January 2, 2002 by John D. West) based on previous releases of claims they had executed in favor of the Company.  On January 11, 2010,There were a total of 92 individuals who were excluded from the prior litigation and the potential additional distributions to them at issue in the litigation total approximately $3.2, plus potential interest.  The defendants filed a motion to dismiss the Complaint based upon a statute of limitations ground.  That motion was denied on March 8, 2010, and defendants filed their answer to the complaint on March 22, 2010.  On August 11, 2010, the plaintiff filed his motion for class certification.  DefendantOn January 24, 2011, that motion was granted.  On March 15, 2011, the plaintiff filed its response in opposition to thea motion for class certification on September 17, 2010.  That motion remains pending.partial summary judgment.  No trial date has yet been set. The defendants intend to contest this matter vigorously.

As previously reported, on October 20, 2005, Judith A. Patrick and another plaintiff 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 “Patrick Litigation”).  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 issue dissued 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
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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.  On May 27, 2009, a case asserting a similar claim was filed against AK Steel by Margaret Lipker in the United States District Court for the Eastern District of Kentucky, Case No. 09-00050 (the “Lipker Litigation”).  The Complaint in the Lipker Litigation alleged that AK Steel inc orrectlyincorrectly calculated the amount of Ms. Lipker’s surviving spouse benefits due to be paid under the applicable pension plan (which was a different plan from that at issue in the Patrick Litigation).  The parties filed cross-motions for summary judgment.  On February 23, 2010, the Court in the Lipker Litigation granted plaintiffsplaintiffs’ motion for summary judgment and found that Ms. Lipker is entitled to a surviving spouse benefit of approximately four hundred sixty three dollars per month.  AK Steel appealed that February 23, 2010, decision to the United States Court of Appeals for the Sixth Circuit on March 11, 2010, Case No. 10-5298.  The issues in the appeal have been fully briefed by the parties.  In addition, counsel representing the plaintiffs in the Patrick Litigation filed an amicus curiae brief on July 20, 2010, on the ground that the decision in the Lipker Litigation could impact the merits of the issues in the Patrick Litigation.  The amicus curiae brief requested the Court of Appeals to affirm the district court’s decision in the Lipker Litigation on the issue of plan interpretation and liability.  The defendants intend to contest both of these matters 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.  An additional action, case number 10CV04236, was filed in the same federal district court on July 8, 2010.  On December 28, 2010 another action, case number 32,321, was filed in state court in the Circuit Court for Cocke County, Tennessee.  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 de fendantsdefendants 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 commenced.  No trial date has been set.  AK Holding intends to contest this matter vigorously.
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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 12.  The Complaint alleged that the new facility will be a stationary so urcesource 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 (the “First ERAC Appeal”) 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 (“OEPA”), Case Nos. 096256, 096265 and 096268-096285, consolidated.  In March 2009, AK Steel became a party to both the pending federal action and the First ERAC Appeal 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.  On April 20, 2010, the Sixth Circuit dismissed the appeal as moot, vacated the District Court’s order, and remanded the case to the District Court for further proceedings, including dismissal of the litigation as moot.  On February 9, 2010, the OEPA 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 (the “NSR Permit”).  In February and March 2010, Monroe and other interested parties filed Notices of Appeal to the ERAC of the permit-to-install issued under the New Source Review program (the “Second ERAC Appeal”), Case Nos. 096432-096438.  The CompanyAK Steel intervened in the Second ERAC Appeal.  On Ju lyJuly 8, 2010, Monroe filed a motion for partial summary judgment in the Second ERAC Appeal.  The CompanyAK Steel filed a response opposing the motion for partial summary judgment on August 26, 2010.  ERAC has scheduled oral arguments on this motion for November 16, 2010.  On August 12, 2010, Monroe filed a motion for a stay of the NSR Permit.  Defendants’ response to that motion was filed on October 22, 2010.  No hearingOral arguments on this motion has been scheduled to date.were held before ERAC on November 16, 2010.  On November 17, 2010, ERAC issued a ruling denying both Monroe’s motion for partial summary judgment and its motion for a stay.  Unless resolved earlier by summary judgment, the final hearing in the Second ERAC Appeal will commence on January 17, 2012.  On June 30, 2010, the
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First ERAC Appeal was dismissed as moot.  On July 9, 2010, Monroe filed a motion for expedited clarification in the First ERAC Appeal asking the ERAC to specify that the initial permit to install issued by OEPA would not be reinstated if the NSR Permit is vacated.  On July 28, 2010, ERAC denied Monroe’s moti onmotion for expedited clarification.  On July 29 and 30, 2010, Monroe and other interested parties filed Notices of Appeal in the State of Ohio Tenth District Court of Appeals, Case Nos. 10-AP-000721-24 (“Tenth District Appeal”) from the ERAC decision denying Monroe’s motion for expedited clarification.  BriefingOn April 7, 2011, the Court of Appeals issued a decision in which it dismissed the Tenth District Appeal has not yet been completed.  AK Steel intends to continue to contest this matter vigorously.Appeal.

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 preliminary determination that GOES producers in the United States and Russia had been dumping in the China market and that GOES producers in the United State sStates 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.  On or about April 10, 2010, MOFCOM issued a final determination of dumping and subsidizing against GOES producers in the United States and Russia.  On September 16, 2010, the United States Trade Representative (the “USTR”) filed a complaint with the World Trade Organization (the “WTO”) against China for violating the WTO’s rules in imposing antidumping and countervailing duties against imports of GOES from the United States.  On February 11, 2011, the USTR announced that the United States has requested the WTO to establish a dispute settlement panel in this case.  On March 25, 2011, the WTO referred the United States complaint against China to its court system.  AK Steel intends to fully support the USTR in this matter.

As previously reported, on August 26, 2009, Consolidation Coal Company (“Consolidation”) 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 Consolidation and Neville entered into a contract whereby Consolidation would supply approximately 80,000 tons of metallurgical coal for use by Neville in its coke making operations.  Consolidation asserts that Neville breached the alleged contract when it refused to purchase coal from Consolidation.  The complaint also alleges that AK Steel tortiously interfered with the purported contractual and
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business relationship between Consolidation and Neville.  Consolidation 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 preliminary objections to plaintiff’s amended complaint, again seeking to dismiss the action.  The court overruled the preliminary objections, and on March 18, 2010, AK Steel and Neville filed their answers to the complaint.  Discovery has commenced, but no trial date has yet been set.  AK Steel intends to contest this matter vigorously.

As previously reported, 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 watergroundwater 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 Agreemen tAgreement 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.  On March 28, 2010, AK Steel entered into a tentative settlement agreement with the plaintiffs and Heritage Coal, the specific terms of which are confidential, but whichCoal.  The payments made by AK Steel pursuant to this settlement will not be material to the Company’s future financial results.  The parties are in the process of documenting and obtaining formal approval of the settlement by all parties.  Upon execution of the settlement documents by all parties, an application will need to be filed with the court to approve the
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terms of the settlement agreement.  Subject to approval by the court, the settlement will resolve all of the claims raised by Heritage Coal in the third-party complai nt.complaint.

On April 7, 2011, Ruth Abrams filed a shareholder derivative action against AK Holding, each of the current members of its Board of Directors, and the five officers identified in the AK Holding 2010 Proxy Statement (the “2010 Proxy”) as Named Executive Officers.  The action was filed in the United States District Court for the District of Delaware, Case No. 1:11-cv-00297-LPS. The complaint alleges that the director defendants and executive defendants breached fiduciary duties of loyalty and care, that the director defendants committed waste, and that the executive defendants were unjustly enriched.  More specifically, it alleges that the 2010 Proxy contained false or misleading statements concerning compliance by AK Holding with Section 162(m) of the Internal Revenue Code and the tax deductibility of certain executive compensation paid to the Named Executive Officers.  The Complaint seeks an injunction requiring correction of the allegedly false statements and preventing future awards under certain benefit plans to the five Named Executive Officers.  It also seeks an equitable accounting, disgorgement in favor of AK Holding for certain alleged losses, and an award of attorneys’ fees and expenses.  No response to the Complaint is yet due, but the defendants intend to contest this matter vigorously.  Discovery has not commenced and no trial date has been set.

Butler Works Retiree Healthcare Benefits Litigation

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,sought, 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 union.  The proposed class the plaintiffs sought to represent would consistconsisted originally of all union-represented r etireesretirees of AK Steel other than those retirees who were included in the class covered by the Middletown Works Retiree Healthcare Benefits Litigation described below.  On August 21, 2009, AK Steel 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, plaintiffsR 17; 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 CompanyAK Steel from effecting any further benefit reductions or new healthcare charges for Butler Works hourly 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.   If AK Steel were unable to obtain  Absent 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 (“OPEB”)OPEB obligations would increase by approximately $145.0 as of December 31, 2010, based upon currentthen-current valuation assumptions.  This amount reflects the value of the
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estimated additional healthcare and welfare benefits the CompanyAK Steel would pay out with respect to the Butler hourly retirees.

In the third quarter of 2010, the Company reached a tentative settlement agreement (the “Hourly Class Settlement”) with the Butler Works hourly retirees who initiated the litigation.  The appeal pending in the Sixth Circuit Court of Appeals has been stayed pending finalization of the Hourly Class Settlement.  The participants in the Hourly Class Settlement consist generally of all retirees and their surviving spouses who worked for AK Steel at Butler Works and retired from AK Steel on or before December 31, 2006 (the “Hourly Class Members”).  Pursuant to the Hourly Class Settlement, AK Steel willagreed to continue to provide company-paid health and life insurance to Hourly Class Members through December 31, 2014, and willto make combined lump sum payments totaling $86.0 to a Voluntary Employee sEmployees Beneficiary Association trust (the “VEBA Trust”) and to plaintiffs’ counsel.  More specifically, AK Steel will make three cash contributions to the VEBA Trust as follows:  $21.4 on August 1, 2011; $30.0 on July 31, 2012; and $26.0 on July 31, 2013.  The balance of the $86.0 in lump sum payments will be paid to plaintiffs’ attorneys on August 1, 2011, to cover plaintiffs’ obligations with respect to attorneys’ fees.  Effective January 1, 2015, AK Steel will transfer to the VEBA Trust all OPEB obligations owed to the Hourly Class Members under the Company’sAK Steel’s applicable health and welfare plans and will have no further liability for any claims incurred by the Hourly Class Members after December, 31, 2014, relating to their OPEB obligations.  The VEBA Trust will be utilized to fund all such future OPEB obligations to the Hourly Class Members.  Trustees of the VEBA Trust will determine the scope of the benefits to be provided to the Hou rlyHourly Class Members.

After reaching the Hourly Class Settlement, the Company was notified that a separate group of retirees from the Butler Works who were previously salaried employees and who had been members of the Butler Armco Independent Salaried Union also were asserting similar claims and desired to settle those claims on a basis similar to the settlement with the hourly employees. The participants in this group consist generally of all retirees and their surviving spouses who worked for AK Steel at Butler Works and retired from AK Steel betweenanytime from January 1, 1985, and on or beforethrough September 30, 2006 (the “Salaried Class Members”).  If the Salaried Class Members were to prevail on their claims, the Company’s other postretirement benefit obligation
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OPEB would increasehave increased by approximately $8.5 as of December 31, 2010, based upon curren tthen-current valuation assumptions.  This amount reflects the value of the estimated additional healthcare and welfare benefits the CompanyAK Steel would pay out with respect to the Salaried Class Members.  After negotiation with counsel representing the Salaried Class Members, the Company also reached a tentative settlement agreement with the Salaried Class Members (the “Salaried Class Settlement”).  The stay referenced above of the appeal pending in the Sixth Circuit Court of Appeals pending finalization of the Hourly Class Settlement also applies to the Salaried Class Settlement.

Pursuant to the Salaried Class Settlement, AK Steel willagreed to continue to provide company-paid health and life insurance to Salaried Class Members through December 31, 2014, and willto make combined lump sum payments totaling $5.0 to a VEBA Trust and to plaintiffs’ counsel.  AK Steel will make three cash contributions to the VEBA Trust as follows: approximately $1.1$1.2 on August 1, 2011; approximately $1.7 on July 31, 2012; and approximately $1.7$1.6 on July 31, 2013.  The balance of the $5.0 in lump sum payments will be paid to plaintiffs’ attorneys on August 1, 2011, to cover plaintiffs’ obligations with respect to attorneys’ fees.  Effective January 1, 2015, AK Steel will transfer to the VEBA Trust all OPEB obligations owed to the Salaried Class Members under the Company’s applicable health and welfare pla nsplans and will have no further liability for any claims incurred by the Salaried Class Members after December 31, 2014, relating to their OPEB obligations.  The VEBA Trust will be utilized to fund all such future OPEB obligations to the Salaried Class Members.  Trustees of the VEBA Trust will determine the scope of the benefits to be provided to the Salaried Class Members.

The tentative settlements (hereinafter collectively referred to as the “Butler Retiree Settlement”) with both the Hourly Class Members and the Salaried Class Members are(hereinafter collectively referred to as the “Class Members”) were subject to approval by the Court.  In connection with those settlements, onOn September 17, 2010, the plaintiffs filed an Unopposed Motion to File a Second Amended Complaint and an Unopposed Amended Motion for an Order Conditionally Certifying Classes, and the parties jointly filed a Joint Motion for Preliminary Approval of Class Action Settlement Agreements and Proposed Class Notice.  On September 24, 2010, the Court held a hearing on these motions and issued orders granting the joint motion for preliminary approval of class action settlement,the Butler Retiree Settlement, conditionally certifying the two classes, and allowing the filing of a second amended complaint.&# 160;  The second amended complaint was deemed filed as of September 24, 2010 and defined the class represented by the plaintiffs to consist of the Class Members.  Notice of the settlementssettlement was sent to all Hourly Class Members and Salaried Class Members (hereinafter collectively referred to as the “Class Members”) on October 1, 2010.  The Class Members will be givenOn December 20, 2010, the opportunity to object toparties filed their respective settlement in writingmotions for approval of the Butler Retiree Settlement.  Plaintiffs further filed a motion for approval of attorney fees and at a hearing conducted by the Court to determine whether to approve the settlements.  The deadline for filing objections to the settlements is November 15, 2010.expenses.  A fairness hearingFairness Hearing with respect to the settlements has been scheduled forsettlement occurred on January 10, 2011.  On January 10, 2011, the Court issued written orders granting final approval to the Butler Retiree Settlement, as well as the proposed attorney fee award.  The final judgment (the “Judgment”) formally approving the Butler Retiree Settlement and the attorney fee award also was entered on January 10, 2011.  The Court will decide afterButler Retiree Settlement became effective on that hearing whether or not to grant final approval of each settlement.
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Ifdate.  No appeal from that Judgment has been taken and the Court does grant final approval of a particular settlement, a judgment (the “Judgment”) approving that settlement will be entered.  A Judgment approving a settlement may be appealed to the United States Court of Appealstime for the Sixth Circuit.  Iffiling such an appeal is still pending at the time a payment is due from AK Steel to the VEBA Trust under the terms of a settlement, the payment will not occur until the Judgment approving the settlement is final and not subject to further appeals or judicial review.has expired.

AsThe effect of September 30, 2010, the Company’s total OPEB liability for all of its retirees was approximately $785.0.  Assuming a Judgment approving both settlements is entered, if and when that occursButler Retiree Settlement on the Company’s total OPEB liability (prior to any funding of the VEBA Trust) is projectedwas to increase the amount of that liability by approximately $36.0, and there would be$29.6 in the first quarter of 2011.  A one-time, pre-tax charge of $14.2 was recorded in the first quarter of 2011 to reverse previous amortization of the prior plan amendment.  In addition, the Company recorded a one-time charge of approximately $14.0, based upon current valuation assumptions.$9.1 in the fourth quarter of 2010 related to the Butler Retiree Settlement.  The remaining portion ofincrease in the plan amendment wouldbenefit obligation was recognized in other comprehensive income and will be amortized into earnings over approximately five years.  Once a settlement is final and no longer subject to appeal, theThe Company’s only remaining liability with respect to the OPEB obligations to the Class Members will be to provide existing company-paid health and life insurance to Class Members through December 31, 2014, and to contr ibutecontribute the payments due to the VEBA Trust under the settlements. The Company’s OPEB liability will be reduced after each of the annual contributions to the VEBA Trust under the terms of the settlements.  In addition, its OPEB liability will be reduced by the amounts of the continued payments of uncapped benefits through December 31, 2014.  After December 31, 2014, the Company will have no other liability or responsibility with respect to OPEB obligations to the Class Members.  After payment of each of the annual contributions due to the VEBA Trust under the terms of the settlements, the Company’s total OPEB liability will be further reduced by the amount of each payment.

If the Judgment is not affirmed on appeal, the Company resumes responsibility, in whole or in part (depending upon the terms of the judicial decision reversing, vacating or modifying the Judgment) for the OPEB obligations to some or all of the Class Members.  Under such circumstances, the Company’s total OPEB liability would increase accordingly, but the Company cannot reliably project at this time the amount of that increase because it is dependent upon the specific terms of the judicial decision.  At that point, as to any such OPEB obligations for which the Company has resumed responsibility as a result of the judicial decision, AK Steel would restart the retiree litigation and seek to judicially enforce what it continues to believe is its contractual right to reduce OPEB benefits provided to any Class Membe rs as to whom the settlement no longer applies.

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 payment called for under the Settlement.
at that time.

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 whichthat 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“Middletown 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 change schanges to
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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”“Middletown Retiree Settlement”) of the claims of the retirees in the Middletown Retiree Action.  The settlementMiddletown Retiree 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 Sett lementMiddletown Retiree Settlement became final on July 6, 2009.

Under terms of the Middletown Retiree Settlement, AK Steel has transferred to a Voluntary Employees Beneficiary Association trust (the “VEBA Trust”) all OPEB obligations owed to the Class Memberscovered retirees under the Company’sAK Steel’s applicable health and welfare plans and will have no further liability for any claims incurred by the Class Membersthose retirees after the effective date of the Middletown Retiree Settlement relating to their OPEB obligations.  The VEBA Trust will be utilized to fund the future OPEB obligations to the Class Members.covered retirees.  Under the terms of the Middletown Retiree 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 contributio n onin March 4, 2008.  AK Steel further committed under the Middletown Retiree 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 twoall of
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these three annual cash contributions, with the final contribution of $65.0 leaving AK Steel obligatedmade on March 1, 2011.  The Company has no further obligation to make one more cash contribution in March of 2011.the VEBA Trust and no further liability to the retirees covered by the VEBA Trust with respect to their OPEB claims.

Prior to the Middletown Retiree 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.retirees covered by the Middletown Retiree Settlement.  Immediately following the Judgmentjudgment approving thethat 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 resulthas resulted 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 contributio ncontribution by AK Steel to the VEBA Trust in accordance with the terms of the Middletown Retiree 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 twothree $65.0 payments referred to above.  The Company’s total OPEB liability will be reduced further after the remaining $65.0 payment due in March 2011 is made.  In total, it is expected that the $663.0 Middletown Retiree Settlement with the Class Members ultimately will reducereduced 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 bewas deemed to have occurred when AK Steel makesmade the last $65.0 payment called for under the Middletown Retiree Settlement.  In the first quarter of 2011, the Company recognized the settlement accounting at the date of the final payment, which resulted in a non-cash gain of $14.0 for a portion of the accumulated gains measured at that date.  The amount recognized was prorated based on the portion of the total liability settled as of March 2008.

NOTE 10 - Fair Value Measurements

The Company adopteduses provisions within ASC Topic 820, “FairFair Value Measurements”Measurements, effective January 1, 2008.for measuring certain assets and liabilities at fair value.  Under this standard,Topic, 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 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
●  
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 model-generated values that rely on inputs either directly observed or readily-derived from available market data sources, such as Bloomberg or other news and data vendors.  Level 2 prices include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (i.e., 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 factors.  Market values of the Company’s natural gas, electric, and nickel derivative values and foreign currency forward contracts values are generated using
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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 model-generated values that rely on inputs either directly observed or readily derived from available market data sources, such as Bloomberg or other news and data vendors.  Level 2 prices include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (i.e., 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 factors.  Market values of the Company 217;s natural gas, electric, and nickel derivative values and foreign currency forward contracts values are generated using forward prices that are derived from observable futures prices relating to the respective commodity or currency from sources such as the New York Mercantile Exchange (NYMEX) or the London Metal Exchange (LME).  In cases where the derivative is an option contract (including caps, floors and collars), the Company relies on the counterparty in connection with the determination of expected volatility and the associated time or volatility values.  The discount rate used in these fair value calculations reflects the credit quality of the party obligated to pay under the derivative contract.  While differing discount rates applied to different contracts as a function of differing maturities and different counterparties, for the period ended September 30, 2010, a spread over benchmark interest rates of less than three percent was used for contracts valued as liabil ities, while the spread over benchmark rates of less than one-half percent was used for derivatives valued as assets.

forward prices that are derived from observable futures prices relating to the respective commodity or currency from sources such as the New York Mercantile Exchange (NYMEX) or the London Metal Exchange (LME).  In cases where the derivative is an option contract (including caps, floors and collars), the Company’s valuations reflect adjustments made to valuations generated by the derivatives’ counterparty.  After validating that the counterparty’s assumptions relating to implied volatilities are in line with an independent source for these implied volatilities, the Company discounts these model-generated future values with discount factors designed to reflect the credit quality of the party obligated to pay under the derivative contract.  While differing discount rates applied to different contracts as a function of differing maturities and different counterparties, for the period ended March 31, 2011, a spread over benchmark interest rates of less than three percent was used for contracts valued as liabilities, while the spread over benchmark rates of less than one and one-half percent was used for derivatives valued as assets.
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.  This level of categorization is not applicable to any of the Company’s valuations.
●  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.  This level of categorization is not applicable to the Company’s valuations on a normal recurring basis other than its pension assets.

The following fair value table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of the dates indicated.
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 September 30, 2010  December 31, 2009  March 31, 2011  December 31, 2010 
 Level 1  Level 2  Total  Level 1  Level 2  Total  Level 1  Level 2  Total  Level 1  Level 2  Total 
Assets:                  
Available for sale investments–                  
Assets                  
Available for sale investments—                  
Marketable equity securities (a) $28.6  $  $28.6  $27.3  $  $27.3  $30.2  $  $30.2  $29.9  $  $29.9 
Foreign exchange contracts (b)              0.9   0.9               0.2   0.2 
Commodity hedge contracts (c)(b)     1.5   1.5      2.0   2.0      1.5   1.5      0.8   0.8 
Assets measured at fair value $28.6  $1.5  $30.1  $27.3  $2.9  $30.2  $30.2  $1.5  $31.7  $29.9  $1.0  $30.9 
                                                
Liabilities (d):                        
Liabilities                        
Foreign exchange contracts(c)    $2.1  $2.1           $  $(0.6) $(0.6) $  $  $ 
Commodity hedge contracts(c)     15.6   15.6      5.8   5.8               (0.1)  (0.1)
Liabilities measured at fair value $  $17.7  $17.7  $  $5.8  $5.8  $  $(0.6) $(0.6) $  $(0.1) $(0.1)

(a) Held in a trust and includedIncluded in Other investmentsnon-current assets on the Condensed Consolidated Balance Sheets.
(b)Included in Other current assets on the Condensed Consolidated Balance Sheets.
(c) Included in Other current assets or Other non-current assets on the Condensed Consolidated Balance Sheets.
(d) Included in Accrued liabilities or Other non-current liabilities on the Condensed Consolidated Balance Sheets.
The Company has estimated the fair value of long-term debt based upon quoted market prices for the same or similar issues or on the current interest rates available to the Company for debt of similar terms and maturities.  The following table summarizes the fair value of the Company’s long-term debt for the relevant periods:

  March 31, 2011  December 31, 2010 
Fair value of long-term debt, including current maturities $663.8  $664.7 
Carrying amount of long-term debt, including current maturities  651.2   651.3 

The carrying amounts of the Company’s other financial instruments do not differ materially from their estimated fair values at March 31, 2011 and December 31, 2010.  The Company has not adopted the fair value option for any assets or liabilities under ASC Section 825-10-15.

NOTE 11 - Investments in an Unrealized Loss Position

The Company has investments forrelated to a nonqualified pension plan with fair values less than cost at September 30, 2010.March 31, 2011.  The investments are in threetwo mutual funds representing the Standard and Poor’s 500 index, the Russell 1000 Value index and the Europe, Australasia and Far East (EAFE) index.  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 investments will recover to levels higher than cost in a reasonable period of
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time.  The Company has no short termshort-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 suf ficientsufficient 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 September 30, 2010.March 31, 2011.
INVESTMENTS IN AN UNREALIZED LOSS POSITION
At September 30, 2010
         
  Loss Position  Loss Position  Loss Position
  Less Than 12 Months  Greater Than 12 Months  Total
 
Investment
 
Fair
Value
 
Unrealized
Loss
  
Fair
Value
 
Unrealized
Loss
  
Fair
Value
 
Unrealized
Loss
               
Marketable Equity Securities    $16.9 $2.3  $16.9 $2.3

The following table reflects information on investments in an unrealized loss position as of March 31, 2011:

Marketable Equity Securities  Fair Value  Unrealized Loss 
Loss position less than 12 months  $  $ 
Loss position greater than 12 months   6.7   0.3 
Total  $6.7  $0.3 

NOTE 12 - Variable Interest EntityEntities

SunCoke Middletown

In the first quarter of 2008, the Company’s Board of Directors approved a 20-year supply contract with Middletown Coke Company, Inc.LLC (“Middletown Coke”SunCoke Middletown”), 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 aA new facility tocosting approximately $410.0 will be constructed, owned and operated by SunCoke Middletown Coke adjacent to the Company’s Middletown Works.  The proposed new facility is expected to produce about 550,000 tons of coke and approximately 5045 megawatts of electrical power annually.  The current anticipated cost to build the facility is approximately $380.0.  Under the agreement, the Company will purchase all of the coke and electrical power generated from the new plant for at least 20 years,annually, 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.  TheUnder the agreement, was contingent upon, among other conditions, Middletown Coke receivingthe Company will purchase all necessary local, stateof the coke and federal approvals and permits, as well as available economic incentives, to build and operateelectrical power generated from the proposed new facility.  Those contingencies have been satisfied or waived.  However, the issuance by the Ohio EPA of a Permit to Installplant for the facility is the subject of a legal challenge by the City of Monroe and others which is discussed in Note 9 above.  at least 20 years.

Even though the Company has no ownership interest in SunCoke Middletown, Coke,the Company has committed to take all of the expected production from the facility is completely committed to the Company.facility.  As such,a result, SunCoke Middletown Coke
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is deemed to be a variable interest entity and the financial results of SunCoke Middletown Coke are required to be consolidated with the results of the Company as directed by ASC Topic 810.  At September 30, 2010, Middletown Coke had approximately $177.9 in assetsCompany.  Included on the Company’s Condensed Consolidated Balance Sheets at March 31, 2011 and December 31, 2010 were assets of $309.4 and $242.4 related to SunCoke Middletown, comprised mainly of construction in progress which is reflected in Property, Plantproperty, plant and Equipment,equipment, net, on the Company’s Condensed Consolidated Balance Sheets.  Additionally, Middletown Coke had approximately $183.1and $315.3 and $248.0 in liabilities, comprised mainly of advances from its parent company, SunCoke, which are reflected in Otherother non-current liabilities on the Company’s Condensed Consolidated Balance Sheets.liabilities.

Through a subsidiary, AK SteelVicksmetal/Armco Associates

The Company indirectly 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 financialsfinancial results of VAA are consolidated with the results of the Company.

NOTE 13 - Disclosures About Derivative Instruments and Hedging Activities

The Company is subject to risksfluctuations of exchange rate fluctuationsrates on a portion of inter-companyintercompany receivables that are denominated in foreign currencies.  The Company occasionallycurrencies and uses forward currency contracts to manage exposures to certain of these currency price fluctuations.  As of September 30, 2010, the Company had entered into forward currency contracts in the amount of 21,975,000 euros.  These contracts have not been designated as hedges for accounting purposes.purposes and gains or losses are reported in earnings on a current basis in other income, net.

In the ordinary course of business, theThe Company is exposed to fluctuations in market risk for price fluctuationsprices of raw materials and energy sources.  The Company uses cash settledcash-settled commodity price swaps and options (including collars) to hedge the market risk associated with the purchase of certain of its raw materials and energy requirements.  Such hedgesThese derivatives are 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, zinc and electricity requirements.  The Company’s hedging strategy is designed to mitigate the effect on earnings effects that derive from the price volatility of these various commodity exposures.  Independent of any hedging activities, price increases in any of these commodity markets could negatively impactaffect operating costs.

All commodity derivatives are marked to market and recognized as other current assets, other non-current assetsan asset or other accrued liabilities.liability at fair value.  The effective gains and losses for designated commodity derivatives indesignated as cash flow hedge relationshipshedges of forecasted purchases of raw materials
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and energy sources are deferredrecognized in accumulated other comprehensive income on the Condensed Consolidated Balance Sheets and recognizedreclassified into cost of products sold in the same period as the resulting earnings impacts associated with the underlyinghedged transaction.  Gains and losses on these designated derivatives arising from either hedge ineffectiveness or related to components excluded from the assessment of effectiveness are recognized in current earnings under cost of products sold.  All gains or losses from non-designated derivatives (i.e., t hose for which special hedge accounting treatment ishas not applied)been elected are also reported in earnings on a current basis in cost of products sold.

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.

The following table summarizes information on the Company’s existing commodity hedges at September 30, 2010:
Commodity Hedge Settlement Dates 
Amount of existing gains (losses)
expected to be reclassified into earnings
within the next twelve months
 
Natural Gas October 2010 to December 2011 $(11.7)
Electricity October 2010 to December 2010  0.0 
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As of September 30, 2010March 31, 2011, the Company had the following outstanding commodity price swaps and/orand options that were entered into in order to hedge forecasted purchases:and forward foreign exchange contracts:

Commodity Amount Unit
Nickel (in lbs)  468,986158,730 lbs
Natural Gasgas (in MMBTUs)  25,850,00021,050,000 MMBTUs
Electricity    Zinc (in lbs)  78,0003,000,000
    Foreign exchange contracts (in euros) MWHs15,000,000

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets 
               
    as of September 30, 2010  as of December 31, 2009 
  Balance Sheet Location 
Asset Fair
Value
  Liability Fair Value  
Asset Fair
Value
  
Liability Fair
Value
 
Derivatives designated as hedging instruments:              
Commodity contracts Accrued liabilities $  $15.2  $  $5.8 
Commodity contracts Other non-current liabilities     0.2       
Total derivatives designated as hedging instruments   $  $15.4  $  $5.8 
                   
Derivatives not designated as hedging instruments:                  
Foreign exchange contracts Accrued liabilities $  $2.1  $0.9    
Commodity contracts Other current assets  1.5      1.9    
Commodity contracts Other non-current assets        0.1    
Commodity contracts Accrued liabilities     0.2       
Total derivatives not designated as hedging instruments   $1.5  $2.3  $2.9  $ 
Total derivatives   $1.5  $17.7  $2.9  $5.8 
  
Table reflects derivative classification under ASC Topic 815. 
The following table presents the fair value of derivative instruments in the Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010:

Asset (liability)  March 31, 2011  December 31, 2010 
Derivatives designated as hedging instruments:       
Other current assets—commodity contracts  $0.8  $ 
          
Derivatives not designated as hedging instruments:         
Other current assets:         
Foreign exchange contracts      0.2 
Commodity contracts   0.7   0.8 
Accrued liabilities:         
Foreign exchange contracts   (0.6)   
Commodity contracts      (0.1)
The following table presents gains (losses) on derivative instruments included in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010:
  
Three Months Ended
March 31,
 
Gain (loss) 2011  2010 
Derivatives in cash flow hedging relationships:      
Commodity contracts:      
Reclassified from accumulated other comprehensive income (loss) into earnings (effective portion) $(4.0) $(4.8)
Recognized in cost of products sold (ineffective portion and amount excluded from effectiveness testing)  (0.5)  1.9 
         
Derivatives not designated as hedging instruments:        
Foreign exchange contracts—recognized in other income, net  (0.8)  (0.1)
Commodity contracts—recognized in cost of products sold  0.3   1.9 
The following table lists the amount of gains (losses) expected to be reclassified into earnings within the next twelve months for the Company’s existing commodity contracts that qualify for hedge accounting at March 31, 2011:

Commodity HedgeSettlement Dates Gains (losses) 
Natural gasApril 2011 to December 2011 $3.8 
 
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Table of Contents
 
NOTE 14 - Supplemental Cash Flow Information
The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations 
             
  Gain (Loss) 
  Three months ended September 30,  Nine months ended September 30, 
  2010  2009  2010  2009 
Derivatives in cash flow hedging relationships:            
Commodity Contracts            
Amount recognized in Other Comprehensive Income (“OCI”) $(4.7) $2.7  $(19.6) $(19.2)
Amount reclassified from accumulated OCI into cost of products sold (effective portion)  (6.4)  (13.3)  (9.3)  (27.0)
Amount recognized in cost of products sold (ineffective portion and amount excluded from effectiveness testing)  5.1   (1.4)  6.3   (2.9)
                 
Derivatives not designated as hedging instruments:                
Foreign Exchange Contracts                
Amount recognized in other income, net  (4.3)  0.2   (3.0)  0.4 
                 
Commodity Contracts                
Amount recognized in cost of products sold  0.5   0.8   (0.3)  3.4 
  Three Months Ended 
  March 31, 
  2011  2010 
Net cash paid during the period for:      
  Interest, net of capitalized interest $0.7  $1.2 
  Income taxes     4.4 
The Company had non-cash capital investments during the three months ended March 31, 2011 and 2010, that had not been paid as of the end of the respective period.  These amounts are included in accounts payable and accrued liabilities and have been excluded from the Condensed Consolidated Statements of Cash Flows.  The Company also granted restricted stock to certain employees and restricted stock units to directors under the SIP.
The amounts of non-cash investing and financing activities for the three months ended March 31, 2011 and 2010, were as follows:
  Three Months Ended 
  March 31, 
  2011  2010 
Capital investments $24.1  $16.7 
Capital investments—SunCoke Middletown  16.7    
Issuance of restricted stock and restricted stock units  5.2   5.1 
 
NOTE 1415 - New Accounting PronouncementsUnion Contracts

ASC Topic 810, “Consolidation”, as amended, requires an enterprise to perform an analysis to determine whetherOn April 19, 2011, members of the enterprise’s variable interest or interests give itInternational Association of Machinists and Aerospace Workers, Local 1943, ratified a controlling financial interest in a variable interest entity.new labor agreement covering approximately 1,700 hourly production and maintenance employees at the Company’s Middletown Works.  The amendment to ASC Topic 810new agreement was effective for fiscal years beginning on or after Novemberas of April 19, 2011 and is scheduled to expire September 15, 2009.2014.  The Company has completed the analysis required by ASC Topic 810 and has concluded that this guidance does not alter the accounting treatment previously accordedexisting contract was scheduled to the Company’s variable interest entities.expire September 15, 2011.

NOTE 1516 - Supplemental Guarantor Information

On May 11, 2010, AK Steel issued $400.0has outstanding $550.0 of 7 5/8%7.625% Senior Notes due 2020 (the “2020 Notes”).  In connection with the issuance of theThe 2020 Notes are governed by indentures entered into by AK Holding and its wholly-owned subsidiary, AK Steel, entered into new indentures governing the 2020 Notes.Steel.  Under the terms of the new indentures, AK Holding fully and unconditionally, jointly and severally, guarantees the payment of interest, principal and premium, if any, on the 2020 Notes.  AK Holding currently is the sole guarantor of the 2020 Notes.

The presentation of the supplemental guarantor information reflects all investments in subsidiaries under the equity method.method of accounting.  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 and the other subsidiaries.
 
 
 
- 27 --23-


Condensed Statements of Operations 
Three Months Ended March 31, 2011 
  
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net sales $  $1,516.2  $165.3  $(100.4) $1,581.1 
Cost of products sold  (exclusive of items shown below)     1,414.0   136.7   (91.2)  1,459.5 
Selling and administrative expenses  1.4   58.5   7.4   (11.9)  55.4 
Depreciation     45.1   1.6      46.7 
Total operating costs  1.4   1,517.6   145.7   (103.1)  1,561.6 
Operating profit (loss)  (1.4)  (1.4)  19.6   2.7   19.5 
Interest expense     8.6         8.6 
Other income (expense)     (2.1)  5.4   0.1   3.4 
                     
Income (loss) before income taxes  (1.4)  (12.1)  25.0   2.8   14.3 
Income tax provision (benefit)  (0.5)  (4.5)  9.8   1.0   5.8 
Net income (loss)  (0.9)  (7.6)  15.2   1.8   8.5 
Less: net income (loss) attributable to noncontrolling interests        (0.2)     (0.2)
Equity in net income (loss) of subsidiaries  9.6   17.2      (26.8)   
Net income (loss) attributable to AK Holding $8.7  $9.6  $15.4  $(25.0) $8.7 
                     
Condensed Statements of Operations 
Three Months Ended March 31, 2010 
  
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net sales $  $1,370.2  $130.7  $(95.2) $1,405.7 
Cost of products sold  (exclusive of items shown below)     1,218.4   119.3   (94.1)  1,243.6 
Selling and administrative expenses  1.3   55.8   (2.9)     54.2 
Depreciation     48.5   1.8      50.3 
Total operating costs  1.3   1,322.7   118.2   (94.1)  1,348.1 
Operating profit (loss)  (1.3)  47.5   12.5   (1.1)  57.6 
Interest expense     8.9         8.9 
Other income (expense)     (2.9)  (1.9)  0.2   (4.6)
                     
Income (loss) before income taxes  (1.3)  35.7   10.6   (0.9)  44.1 
Income tax provision due to tax law change     25.3         25.3 
Income tax provision (benefit)  (0.5)  15.2   3.0   (0.3)  17.4 
Net income (loss)  (0.8)  (4.8)  7.6   (0.6)  1.4 
Less: net income (loss) attributable to noncontrolling interests        (0.5)     (0.5)
Equity in net income (loss) of subsidiaries  2.7   7.5      (10.2)   
Net income (loss) attributable to AK Holding $1.9  $2.7  $8.1  $(10.8) $1.9 
                     

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Condensed Balance Sheets 
March 31, 2011 
                
  
AK 
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
ASSETS               
Current assets:               
Cash and cash equivalents $  $37.7  $16.4  $  $54.1 
Accounts receivable, net     658.1   77.7   (94.1)  641.7 
Inventories, net     596.2   102.4   (8.9)  689.7 
Deferred tax asset     226.0   0.1      226.1 
Other current assets  0.2   25.0   1.1      26.3 
Total current assets  0.2   1,543.0   197.7   (103.0)  1,637.9 
                     
Property, plant and equipment     5,351.9   413.2      5,765.1 
Accumulated depreciation     (3,616.9)  (64.8)     (3,681.7)
                     
Property, plant and equipment, net     1,735.0   348.4      2,083.4 
Other non-current assets:                    
Investment in AFSG Holdings, Inc.        55.6      55.6 
Investment in affiliates  (1,388.6)  1,388.6   1,163.3   (1,163.3)   
Inter-company accounts  2,016.2   (3,189.8)  (222.1)  1,395.7    
Goodwill        37.1      37.1 
Deferred tax asset     591.3   0.4      591.7 
Other non-current assets     53.8   25.0      78.8 
TOTAL ASSETS $627.8  $2,121.9  $1,605.4  $129.4  $4,484.5 
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                    
Current liabilities:                    
Borrowings under credit facility $  $75.0  $  $  $75.0 
Accounts payable     727.0   36.1   (0.2)  762.9 
Accrued liabilities     173.3   9.6      182.9 
Current portion of long-term debt     0.7         0.7 
Current portion of pension and other postretirement benefit obligations     104.0   0.5      104.5 
Total current liabilities     1,080.0   46.2   (0.2)  1,126.0 
Non-current liabilities:                    
Long-term debt     650.5         650.5 
Pension and other postretirement benefit obligations     1,665.7   5.1      1,670.8 
Other non-current liabilities     114.3   297.0   2.0   413.3 
Total non-current liabilities     2,430.5   302.1   2.0   2,734.6 
TOTAL LIABILITIES     3,510.5   348.3   1.8   3,860.6 
TOTAL AK HOLDING STOCKHOLDERS’ EQUITY (DEFICIT)  627.8   (1,388.6)  1,261.0   127.6   627.8 
Noncontrolling interests        (3.9)     (3.9)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)  627.8   (1,388.6)  1,257.1   127.6   623.9 
TOTAL LIABILITIES AND EQUITY $627.8  $2,121.9  $1,605.4  $129.4  $4,484.5 

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Condensed Statements of Operations 
For the Three Months Ended September 30, 2010 
  
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net sales $  $1,515.2  $150.3  $(89.6) $1,575.9 
Cost of products sold  (exclusive of items shown below)     1,535.4   136.6   (95.9)  1,576.1 
Selling and administrative expenses  0.9   55.1   (4.0)     52.0 
Depreciation     48.6   1.7      50.3 
Total operating costs  0.9   1,639.1   134.3   (95.9)  1,678.4 
Operating profit (loss)  (0.9)  (123.9)  16.0   6.3   (102.5)
Interest expense     5.9         5.9 
Other income (expense)     (2.0)  10.0      8.0 
Income (loss) before income taxes  (0.9)  (131.8)  26.0   6.3   (100.4)
Income tax provision (benefit)  (0.3)  (53.6)  11.3   2.2   (40.4)
Net income (loss)  (0.6)  (78.2)  14.7   4.1   (60.0)
Less: net loss attributable to noncontrolling interests        (0.8)     (0.8)
Net income (loss) attributable to AK Holding Corporation  (0.6)  (78.2)  15.5   4.1   (59.2)
Equity in net income (loss) of subsidiaries  (58.6)  19.6      39.0    
Net income (loss) attributable to AK Holding Corporation $(59.2) $(58.6) $15.5  $43.1  $(59.2)
                     

Condensed Statements of Operations 
For the Three Months Ended September 30, 2009 
  
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net sales $  $921.4  $145.1  $(25.4) $1,041.1 
Cost of products sold  (exclusive of items shown below)  0.1   816.0   131.0   (17.9)  929.2 
Selling and administrative expenses  0.7   46.5   6.0   (7.6)  45.6 
Depreciation     49.2   1.8      51.0 
Total operating costs  0.8   911.7   138.8   (25.5)  1,025.8 
Operating profit (loss)  (0.8)  9.7   6.3   0.1   15.3 
Interest expense     9.0         9.0 
Other income (expense)     (1.2)  9.1   (5.0)  2.9 
Income (loss) before income taxes  (0.8)  (0.5)  15.4   (4.9)  9.2 
Income tax provision (benefit)  (0.3)  (0.9)  5.6   (0.9)  3.5 
Net income (loss)  (0.5)  0.4   9.8   (4.0)  5.7 
Less: net loss attributable to noncontrolling interests        (0.5)     (0.5)
Net income (loss) attributable to AK Holding Corporation  (0.5)  0.4   10.3   (4.0)  6.2 
Equity in net income of subsidiaries  6.7   6.3      (13.0)   
Net income (loss) attributable to AK Holding Corporation $6.2  $6.7  $10.3  $(17.0) $6.2 
                     
Condensed Balance Sheets 
December 31, 2010 
                
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
ASSETS               
Current assets:               
Cash and cash equivalents $  $201.4  $15.4  $  $216.8 
Accounts receivable, net     516.6   57.8   (91.6)  482.8 
Inventories, net     359.7   100.4   (11.4)  448.7 
Deferred tax asset     225.6   0.1      225.7 
Other current assets  0.2   29.1   0.8      30.1 
Total current assets  0.2   1,332.4   174.5   (103.0)  1,404.1 
Property, plant and equipment     5,324.1   344.1      5,668.2 
Less accumulated depreciation     (3,571.8)  (63.2)     (3,635.0)
Property, plant and equipment, net     1,752.3   280.9      2,033.2 
Other non-current assets:                    
Investment in AFSG Holdings, Inc.        55.6      55.6 
Investment in affiliates  (1,341.0)  1,341.0   1,149.7   (1,149.7)   
Inter-company accounts  1,985.5   (3,127.1)  (275.7)  1,417.3    
Goodwill        37.1      37.1 
Deferred tax asset     581.2   0.3      581.5 
Other non-current assets     52.0   25.1      77.1 
TOTAL ASSETS $644.7  $1,931.8  $1,447.5  $164.6  $4,188.6 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                    
Current liabilities:                    
Accounts payable $  $518.6  $34.8  $(0.3) $553.1 
Accrued liabilities     136.7   8.3      145.0 
Current portion of long-term debt     0.7         0.7 
Pension and other postretirement benefit obligations     145.2   0.5      145.7 
Total current liabilities     801.2   43.6   (0.3)  844.5 
Non-current liabilities:                    
Long-term debt     650.6         650.6 
Pension and other postretirement benefit obligations     1,701.2   4.8      1,706.0 
Other non-current liabilities     119.8   224.5   2.1   346.4 
Total non-current liabilities     2,471.6   229.3   2.1   2,703.0 
TOTAL LIABILITIES     3,272.8   272.9   1.8   3,547.5 
TOTAL AK HOLDING STOCKHOLDERS’ EQUITY (DEFICIT)  644.7   (1,341.0)  1,178.2   162.8   644.7 
Noncontrolling interests        (3.6)     (3.6)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)  644.7   (1,341.0)  1,174.6   162.8   641.1 
TOTAL LIABILITIES AND EQUITY $644.7  $1,931.8  $1,447.5  $164.6  $4,188.6 

 
 
- 28 --26-


Condensed Statements of Operations 
For the Nine Months Ended September 30, 2010 
  
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net sales $  $4,443.9  $428.2  $(294.4) $4,577.7 
Cost of products sold  (exclusive of items shown below)     4,163.2   387.1   (302.6)  4,247.7 
Selling and administrative expenses  3.3   167.7   (12.2)     158.8 
Depreciation     145.2   5.3      150.5 
Total operating costs  3.3   4,476.1   380.2   (302.6)  4,557.0 
Operating profit (loss)  (3.3)  (32.2)  48.0   8.2   20.7 
Interest expense     25.9         25.9 
Other income (expense)     (9.5)  3.5   0.2   (5.8)
Income (loss) before income taxes  (3.3)  (67.6)  51.5   8.4   (11.0)
Income tax provision due to tax law change     25.3         25.3 
Income tax provision (benefit)  (1.2)  (25.1)  19.3   2.9   (4.1)
Net income (loss)  (2.1)  (67.8)  32.2   5.5   (32.2)
Less: net loss attributable to noncontrolling interests        (1.6)     (1.6)
Net income (loss) attributable to AK Holding Corporation  (2.1)  (67.8)  33.8   5.5   (30.6)
Equity in net income (loss) of subsidiaries  (28.5)  39.3      (10.8)   
Net income (loss) attributable to AK Holding Corporation $(30.6) $(28.5) $33.8  $(5.3) $(30.6)
                     
Condensed Statements of Cash Flows 
Three Months Ended March 31, 2011 
                
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net cash flows from operating activities $(0.7) $(197.1) $(1.4) $1.8  $(197.4)
Cash flows from investing activities:                    
Capital investments     (35.5)  (71.8)     (107.3)
Other investing items, net     0.7   (0.3)      0.4 
Net cash flows from investing activities     (34.8)  (72.1)     (106.9)
Cash flows from financing activities:                    
Net borrowings under credit facility     75.0         75.0 
Redemption of long-term debt     (0.2)        (0.2)
Proceeds from stock options  0.1            0.1 
Purchase of treasury stock  (1.4)           (1.4)
Common stock dividends paid  (5.5)           (5.5)
Inter-company activity  7.4   (6.4)  0.8   (1.8)   
Advances from noncontrolling interest owner        72.4      72.4 
Other financing items, net  0.1   (0.2)  1.3      1.2 
Net cash flows from financing activities  0.7   68.2   74.5   (1.8)  141.6 
Net decrease in cash and cash equivalents     (163.7)  1.0      (162.7)
Cash and equivalents, beginning of period     201.4   15.4      216.8 
Cash and equivalents, end of period $  $37.7  $16.4  $  $54.1 

Condensed Statements of Operations 
For the Nine Months Ended September 30, 2009 
  
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net sales $  $2,403.6  $422.1  $(68.8) $2,756.9 
Cost of products sold  (exclusive of items shown below)  0.1   2,273.0   390.8   (45.1)  2,618.8 
Selling and administrative expenses  2.7   140.0   19.4   (20.8)  141.3 
Depreciation     148.5   5.4      153.9 
Total operating costs  2.8   2,561.5   415.6   (65.9)  2,914.0 
Operating profit (loss)  (2.8)  (157.9)  6.5   (2.9)  (157.1)
Interest expense     28.3   0.1      28.4 
Other income (expense)     (1.2)  40.2   (30.4)  8.6 
Income (loss) before income taxes  (2.8)  (187.4)  46.6   (33.3)  (176.9)
Income tax provision (benefit)  (1.0)  (72.0)  17.3   (5.3)  (61.0)
Net income (loss)  (1.8)  (115.4)  29.3   (28.0)  (115.9)
Less: net loss attributable to noncontrolling interests        (1.5)     (1.5)
Net income (loss) attributable to AK Holding Corporation  (1.8)  (115.4)  30.8   (28.0)  (114.4)
Equity in net income (loss) of subsidiaries  (112.6)  2.8      109.8    
Net income (loss) attributable to AK Holding Corporation $(114.4) $(112.6) $30.8  $81.8  $(114.4)
                     
Condensed Statements of Cash Flows 
Three Months Ended March 31, 2010 
                
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net cash flows from operating activities $(0.7) $(108.7) $(8.0) $10.2  $(107.2)
Cash flows from investing activities:                    
Capital investments     (14.6)  (2.3)     (16.9)
Net cash flows from investing activities     (14.6)  (2.3)     (16.9)
Cash flows from financing activities:                    
Redemption of long-term debt     (0.2)        (0.2)
Proceeds from stock options  1.3            1.3 
Purchase of treasury stock  (7.5)           (7.5)
Common stock dividends paid  (5.5)           (5.5)
Inter-company activity  8.6   (7.5)  9.1   (10.2)   
Advances from noncontrolling interest owner        2.3      2.3 
Other financing items, net  3.8   0.5   (2.1)     2.2 
Net cash flows from financing activities  0.7   (7.2)  9.3   (10.2)  (7.4)
Net decrease in cash and cash equivalents     (130.5)  (1.0)     (131.5)
Cash and equivalents, beginning of period     444.3   17.4      461.7 
Cash and equivalents, end of period $  $313.8  $16.4  $  $330.2 
 
 
- 29 -


Condensed Balance Sheets 
As of September 30, 2010 
                
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
ASSETS               
Current Assets:               
Cash and cash equivalents $  $63.3  $17.2  $  $80.5 
Accounts receivable, net     644.0   75.7   (118.3)  601.4 
Inventories, net     566.7   123.4   (16.1)  674.0 
Deferred tax asset     242.3         242.3 
Other current assets  0.2   31.8   1.0      33.0 
Total Current Assets  0.2   1,548.1   217.3   (134.4)  1,631.2 
Property, Plant and Equipment     5,294.1   281.2      5,575.3 
Accumulated depreciation     (3,497.0)  (62.5)     (3,559.5)
Property, plant and equipment, net     1,797.1   218.7      2,015.8 
Other Non-current Assets:                    
Investment in AFSG Holdings, Inc.        55.6      55.6 
Investment in affiliates  (1,248.2)  1,248.2   1,137.8   (1,137.8)   
Inter-company accounts  2,051.8   (3,096.0)  (313.5)  1,357.7    
Other investments     31.6   23.0      54.6 
Goodwill        37.1      37.1 
Other intangible assets        0.2      0.2 
Deferred tax asset     498.6   0.3      498.9 
Other non-current assets     14.4   0.7      15.1 
TOTAL ASSETS $803.8  $2,042.0  $1,377.2  $85.5  $4,308.5 
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                    
Current Liabilities:                    
Accounts payable $  $728.6  $38.2  $(0.3) $766.5 
Accrued liabilities     154.5   11.0      165.5 
Current portion of long-term debt     0.7         0.7 
Current portion of pension and other postretirement benefit obligations     140.1   0.5      140.6 
Total Current Liabilities     1,023.9   49.7   (0.3)  1,073.3 
Non-current Liabilities:                    
Long-term debt     501.8         501.8 
Pension and other postretirement benefit obligations     1,649.0   5.0      1,654.0 
Other non-current liabilities     115.5   161.3   2.0   278.8 
Total Non-current Liabilities     2,266.3   166.3   2.0   2,434.6 
TOTAL LIABILITIES     3,290.2   216.0   1.7   3,507.9 
TOTAL AK STEEL HOLDING CORPORATION STOCKHOLDERS’ EQUITY (DEFICIT)  803.8   (1,248.2)  1,164.4   83.8   803.8 
Noncontrolling interest        (3.2)     (3.2)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)  803.8   (1,248.2)  1,161.2   83.8   800.6 
TOTAL LIABILITIES AND EQUITY $803.8  $2,042.0  $1,377.2  $85.5  $4,308.5 
- 30 -

Condensed Balance Sheets 
As of December 31, 2009 
                
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
ASSETS               
Current Assets:               
Cash and cash equivalents $  $444.3  $17.4  $  $461.7 
Accounts receivable, net     501.8   67.9   (106.6)  463.1 
Inventories, net     349.5   90.8   (23.6)  416.7 
Deferred tax asset     223.9         223.9 
Other current assets  0.1   63.8   0.8      64.7 
Total Current Assets  0.1   1,583.3   176.9   (130.2)  1,630.1 
Property, Plant and Equipment     5,210.4   174.7      5,385.1 
Less accumulated depreciation     (3,351.8)  (57.3)     (3,409.1)
Property, plant and equipment, net     1,858.6   117.4      1,976.0 
Other Non-current Assets:                    
Investment in AFSG Holdings, Inc.        55.6      55.6 
Investment in affiliates  (1,180.8)  1,180.8   1,038.7   (1,038.7)   
Inter-company accounts  2,061.5   (3,066.3)  (321.6)  1,326.4    
Other investments     31.6   20.5      52.1 
Goodwill        37.1      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  $1,125.5  $157.5  $4,274.7 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                    
Current Liabilities:                    
Accounts payable $  $423.8  $15.2  $(0.1) $438.9 
Accrued liabilities     149.8   8.7   (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   24.4   (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   105.2   (2.3)  3,394.6 
TOTAL AK HOLDING STOCKHOLDERS’ EQUITY (DEFICIT)  880.8   (1,180.8)  1,021.0   159.8   880.8 
Noncontrolling interest        (0.7)     (0.7)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)  880.8   (1,180.8)  1,020.3   159.8   880.1 
TOTAL LIABILITIES AND EQUITY $880.8  $2,110.9  $1,125.5  $157.5  $4,274.7 

- 31 -


Condensed Statements of Cash Flows 
For the Nine Months Ended September 30, 2010 
                
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net cash flows from operating activities $(1.6) $(187.0) $(1.6) $13.7  $(176.5)
Cash flows from investing activities:                    
Capital investments     (72.2)  (86.5)     (158.7)
Other investing items, net     1.6   (0.8)      0.8 
Net cash flows from investing activities     (70.6)  (87.3)     (157.9)
Cash flows from financing activities:                    
Proceeds from issuance of long-term debt     400.0         400.0 
Redemption of long-term debt     (506.1)        (506.1)
Debt issuance costs     (9.0)        (9.0)
Proceeds from stock options  1.3            1.3 
Purchase of treasury stock  (7.7)           (7.7)
Common stock dividends paid  (16.5)           (16.5)
Inter-company activity  21.3   (8.3)  0.7   (13.7)   
Advances from minority interest owner        88.4      88.4 
Other financing items, net  3.2      (0.4)     2.8 
Net cash flows from financing activities  1.6   (123.4)  88.7   (13.7)  (46.8)
Net decrease in cash and cash equivalents     (381.0)  (0.2)     (381.2)
Cash and equivalents, beginning of period     444.3   17.4      461.7 
Cash and equivalents, end of period $  $63.3  $17.2  $  $80.5 

Condensed Statements of Cash Flows 
For the Nine Months Ended September 30, 2009 
                
  
AK
Holding
  
AK
Steel
  Other  Eliminations  Consolidated Company 
Net cash flows from operating activities $(1.5) $(111.9) $43.8  $(17.8) $(87.4)
Cash flows from investing activities:                    
Capital investments     (90.6)  (23.1)     (113.7)
Other investing items, net     0.6   1.7      2.3 
Net cash flows from investing activities     (90.0)  (21.4)     (111.4)
Cash flows from financing activities:                    
Redemption of long-term debt     (23.3)        (23.3)
Purchase of treasury stock  (11.4)           (11.4)
Common stock dividends paid  (16.5)           (16.5)
Inter-company activity  29.3   2.6   (49.7)  17.8    
Advances from minority interest owner        25.3      25.3 
Other financing items, net  0.1   0.1   1.3      1.5 
Net cash flows from financing activities  1.5   (20.6)  (23.1)  17.8   (24.4)
Net decrease in cash and cash equivalents     (222.5)  (0.7)     (223.2)
Cash and equivalents, beginning of period     548.6   14.1      562.7 
Cash and equivalents, end of period $  $326.1  $13.4  $  $339.5 
- 32 --27-

 
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 (dollars in millions, except per share and per ton data)

Results of Operations

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, 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 customers in the United States.  The Company’s electrical and stainless steel products are sold both domestically and internationally.  The Company’s operations also include two plants operated by AK Tube LLC, wherea wholly-owned subsidiary of the Company, which further finishes flat-rolled carbon and stainless steel is further finished int oat two tube plants in Indiana and Ohio into welded steel tubing used in the automotive, large truck and construction markets.  In addition, the Company operates European trading companies that buy and sell steel and steel products and other materials.materials in Europe.

Overview

In the thirdfirst quarter of 2010,2011, the Company returned to profitability, both at the operating income and net income levels.  The Company continued to see modestan improvement in its shipping rate with shipments increasing quarter-over-quarter for the fifth consecutive quarter.and product mix.  The average selling price for the Company’s products though down slightlyimproved from the prior quarter by approximately 9%, which was better than had beenexpected.  Revenue was up by approximately 14% quarter over quarter, which also was better than projected.  The benefitsCost performance likewise was better than expected, but was still a challenge, with the Company continuing to experience increasing steelmaking input costs for scrap, iron ore pellets, coal and coke.  As part of its continuing effort to reduce costs, the increased shipmentsCompany completed the installation and relatively stable pricing, however, were more than offset bybegan the testing of a significant increasenew electric arc furnace at its Butler Works in the costfirst quarter.  The new state-of-the-art, highly-efficient electric arc furnace has the capacity to produce approximately 400,000 more tons of raw materials, principally iron ore,steel annually than the three furnaces it will replace and is expected to operate at a lesser extent by other cost increases.  Thus, thoughlower cost.  This new furnace also will provide greater flexibility with respect to the Company’s business has improved fromproduct mix and, after ramping up to full operation by mid-year 2011, is expected to minimize the dramatic decline in steel consumption that resulted fromneed for the severe recession which startedCompany to purchase merchant slabs.  In summary, in the fallfirst quarter of 2008,2011 the Company faced challenging economic conditionsexperienced significant improvement in its financial performance and laid the third quarter of 2010.foundation for continued strengthening.

Steel Shipments

Total shipments for the three months ended September 30,March 31, 2011 and 2010, and 2009, were 1,465,8001,423,100 tons and 1,047,800 tons, respectively.1,385,800 tons.  Total shipments for the three months ended March 31, 2011, were higher than during the same period in 2010 due to increased demand.  That increased demand was attributable principally to slow but steady recovery in the economy generally and the automotive market in particular.  For the three-month periodthree months ended September 30, 2010,March 31, 2011, value-added products comprised 82.4%86.1% of total shipments compared to 85.3%83.5% for the three-month period ended September 30, 2009.  Total shipments for the ninethree months ended September 30, 2010 and 2009 were 4,301,000 tons and 2,567,200 tons, respectively.  For the nine-month period ended September 30, 2010, value-added products comprised 83.4% of total shipments compared to 85.8% for the nine-month period ended September 30, 2009.  Total shipments for the three- and nine-month periods ended September 30, 2010, were substantially higher than during the same periods in 2009 due to increased steel demand, particularly in the s pot and automotive markets.  The higher market demand in the spot and automotive markets resulted in increases in coated and cold-rolled shipments.  The improved demand in the automotive market also resulted in an increase in stainless shipments.March 31, 2010.  The value-added shipments were slightly lowerhigher as a percentage of total shipments for eachthe three-month period in 2011 versus 2010 primarily because of increased cold-rolled shipments.  The largest part of the three- and nine-month periodsincrease in 2010 versus 2009 primarily because hot-rolled carbon steelcold-rolled shipments was to the spot market increased as a percentage of total sales to a slightly greater extent than did coated, cold-rolledinfrastructure and specialty steel shipments.  The increase in hot-rolled steel shipments was due chiefly to improved economic conditions which spurred increased service center shipments to end users.  Ongoing weakness in the domestic housing marketmanufacturing and the globaldistributor markets, as the general economy generally, however, continued to limit electrical shipments.improve and the Company continued to expand its customer mix.

The Company continued to focus on maximizing profitability through product mix adjustments based on current and projected market demands – demands—both domestically and internationally.  The following table presents net shipments by product line:

 
 
- 33 --28-



 For the Three Months Ended September 30,  For the Nine Months Ended September 30,   Three Months Ended March 31, 
(tons in thousands) 2010  2009  2010  2009   2011  2010 
VALUE-ADDED SHIPMENTS                        
Value-added Shipments             
Stainless/electrical  226.9   15.5%  178.0   17.0%  657.9   15.3%  485.6   18.9%   224.4   15.8%  212.1   15.3%
Coated  624.4   42.6%  497.3   47.5%  1,944.8   45.2%  1,170.1   45.6%   621.8   43.7%  635.2   45.8%
Cold-rolled  322.5   22.0%  194.4   18.6%  889.0   20.7%  487.4   19.0%   344.8   24.2%  281.8   20.3%
Tubular  33.2   2.3%  23.5   2.2%  94.5   2.2%  58.3   2.3%   34.2   2.4%  28.7   2.1%
Subtotal value-added shipments  1,207.0   82.4%  893.2   85.3%  3,586.2   83.4%  2,201.4   85.8%   1,225.2   86.1%  1,157.8   83.5%
NON VALUE-ADDED SHIPMENTS                                
Non Value-added Shipments
                 
Hot-rolled  213.6   14.6%  118.5   11.3%  591.4   13.8%  258.9   10.1%   161.1   11.3%  193.7   14.0%
Secondary  45.2   3.0%  36.1   3.4%  123.4   2.8%  106.9   4.1%   36.8   2.6%  34.3   2.5%
Subtotal non value-added shipments  258.8   17.6%  154.6   14.7%  714.8   16.6%  365.8   14.2%   197.9   13.9%  228.0   16.5%
TOTAL SHIPMENTS  1,465.8   100.0%  1,047.8   100.0%  4,301.0   100.0%  2,567.2   100.0%
Total Shipments   1,423.1   100.0%  1,385.8   100.0%

Sales

For the three months ended September 30, 2010,March 31, 2011, net sales were $1,575.9,$1,581.1, an approximate 51%12% improvement over third quarter 2009 net sales of $1,041.1 and slightly lower than secondfirst quarter 2010 net sales of $1,596.1.$1,405.7.  The increase in net sales over 2010 reflects higher shipments, increased selling prices and a richer product mix.  The Company’s average selling price for the first quarter of 2011 was $1,109 per ton, an increase of 9% from the Company’s first quarter 2010 average selling price of $1,014 per ton.  The increase in the average selling price for 2011 over 2010 was primarily the result of higher selling prices in 2011 for virtually all product categories, as well as an increase in the percentage of shipments represented by value-added products.  Net sales to customers outside the United States fortotaled $218.0 and $199.3 during the three-first three months of 2011 and nine-month periods ended September 30, 2010 totaled $203.0 and $629.5, respectively, compared to net sales for the three- and nine-month periods ended September 30, 20092010.
Cost of $194.0 and $564.9, respectively.  A substantial portion of the revenue outside of the United States is associated with electrical steel and, to a lesser extent, stainless steel products.  The Company’s average selling price for the third quarter of 2010 was $1,075 per ton, an approximate 8% increase from the Company’s third quarter 2009 average selling price of $994 per ton and an approximate 2% decrease from the second quarter 2010 average selling price of $1,101 per ton.  The increase in net sales over 2009 reflects increased demand for most steel products, particularly in the spot and automotive markets, as global economic conditions continued to improve from dramatically depressed levels.  The increase in average selling prices over 2009 was primarily the result of generally increased demand versus the comparative prior periods.

Costs of GoodsProducts Sold

The Company has facedexperienced higher raw material costs in 2010. This is due, in large part, to raw materials price increases, in particular with respect to iron ore.  For further details concerning2011, principally for scrap, iron ore costs, see the discussion below under “Operating Profit (Loss)”pellets, coal and “Iron Ore Pricing”.  The Company has also purchased greater amounts of raw materials and energy consistent with its significantly higher operating levels compared to 2009.coke. Associated with the higher costs, the Company recorded a LIFO chargescharge of $50.5 and $99.7, respectively,$24.6 for the three and nine months ended September 30, 2010,March 31, 2011 as compared to LIFO credits of $106.3 and $266.4, respectively,$8.4 for the three and nine months ended September 30, 2009.March, 31, 2010.  The increase in raw material costs in the first quarter of 2011 versus the first quarter of 2010 was exacerbated by the fact that the 2010 annual benchmark price for iron ore was not established until late in 2010.  Until that price was established, the Company had to use an assumed price based upon the best estimates at the time of what the actual price ultimately would be.  The estimates for the 2010 annual benchmark price in the first quarter of 2010, as well as the Company’s assumed price for that quarter, were significantly lower than the actual 2010 benchmark price ultimately established late in 2010.

The Company’s maintenance outage costs increased in the first three and nine months ended September 30, 2010,of 2011 were approximately $2.2, which was comparable to $23.5 and $38.9, respectively, compared tothe corresponding period in 2010.  The maintenance outage costs of $11.2 and $31.5 in the corresponding periodsfirst three months of 20092011 were primarily duerelated to maintenance at the Company’s Rockport Works.  First quarter 2011 cost of products sold included $1.3 in costs related to the maintenance outage onannounced shutdown of the Ashland Works blast furnace in the third quarter of 2010.coke plant.

Selling and Administrative Expenses

Selling and administrative expenses for the three and nine months ended September 30, 2010first quarter of 2011 were $52.0 and $158.8, respectively,$55.4 compared to $45.6 and $141.3, respectively,$54.2 for the corresponding periodssame period in 2009.2010.  The increases for these periods wereslight increase was due primarily to a generally higher level of spending associated with the overall improvement in business conditions, including higher compensation costs.conditions.

Depreciation

Depreciation expense declined to $46.7 for the three and nine months ended September 30, 2010 wasfirst quarter of 2011 from $50.3 and $150.5, respectively, compared to $51.0 and $153.9, respectively, for the corresponding periods in 2009.first quarter of 2010 due primarily to existing older assets becoming fully depreciated.

 
 
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Operating Profit (Loss)

TheOperating Profit

For the first quarter of 2011, the Company reported an operating lossprofit of $102.5,$19.5, or $70$14 per ton, compared to operating profit of $57.6, or $42 per ton, in the three-month period ended September 30, 2010, comparedfirst quarter of 2010.  The principal cause of this decrease in operating performance was due to an operating profit of $15.3 or $15 per ton in the corresponding period in 2009 due, ina substantial part, to the increase in the iron ore costs year over year.  Operating results for the third quarter of 2010 also reflect the costs associated with an 11-day blast furnace maintenance outage at the Company’s Ashland Works that had been planned for the first half of 2011.

The Company previously disclosed that it had reached agreement with two of its three primaryThat difference in iron ore suppliers on acosts was exacerbated by the fact that the 2010 annual benchmark price for iron ore was not established until late in 2010.  Until that price was established, the Company had to use an assumed price based upon the best estimates at the time of what the actual price ultimately would be.  The estimates for 2010, but had not yet reached an agreement on 2010 pricing with its third primary supplier.  The Company recently reached an agreement with that third supplier on pricing for 2010.  The impact of all three agreements is reflectedthe annual benchmark price in the financial results for the thirdfirst quarter of 2010, set forth in this Quarterly Report. 
For purposes of its second quarter 2010 financial results, and based upon the facts and circumstances known at that time, the Company used an estimated 65% increase from the 2009 benchmark price.  To the extent the Company did not recognize the full 2010 price increase in the first and second quarters, it recognized as an expense in the third quarter the incremental amount of the increase that is attributable to its first and second quarter sales and the related LIFO impact.  Accordingly,well as the Company’s thirdassumed price for that quarter, were significantly lower than the actual 2010 financial results reflect the total year-to-date impact of the higher iron ore prices, including the incremental amount related to the first half, which increased the Company’s third quarter 2010 operating loss by approximately $76.0, or $52 per ton.  Thus, exclu ding the impact of the changebenchmark price ultimately established late in iron ore costs in the third quarter, the Company’s operating loss would have been approximately $26.5, or $18 per ton.  For further details concerning iron ore costs, see the discussion below under “Iron Ore Pricing”.

  Three Months Ended 
  September 30, 2010 
    
Reconciliation to operating loss   
Adjusted operating loss (excluding item below) $(26.5)
Effect of higher iron ore prices  (76.0)
Operating loss $(102.5)
     
Reconciliation to operating loss per ton    
Adjusted operating loss per ton (excluding item below) $(18)
Effect of higher iron ore prices  (52)
Operating loss per ton $(70)
     

The Company reported an operating profit of $20.7, or $5 per ton in the nine-month period ended September 30, 2010, compared to an operating loss of $157.1 or $61 per ton in the corresponding period in 2009.  The principal cause of this improvement in operating performance was significantly higher steel shipments driven by increased customer demand.  In addition to providing increased revenue, the higher shipments enabled the Company to spread its operating costs over more tons, thereby improving its per ton operating profit.2010.

Interest Expense

InterestFor the first quarter of 2011, the Company’s interest expense for the three and nine months ended September 30, 2010 was $5.9 and $25.9, respectively,$8.6, compared to $9.0 and $28.4, respectively,$8.9 for the same periodsperiod in 2009.2010. The decrease was due primarily to the replacement of $504.0 of 7 3/4% Senior Notes due 2012 (“Old Notes”) with $400.0 of 7 5/8% Senior Notes due 2020 (“2020 Notes”), which resulted in the Company carrying a reduced amount of debt at a lower interest rate.  In addition, thelarger capitalized interest credit was largerfor construction in the 2010 periods dueprogress in 2011, primarily related to the openmajor capital projects at the Butler plant.  For further detailsplant which are nearing completion.  The decrease was partially offset by an increase in interest expense on the serieshigher levels of related transactions that resultedoutstanding debt in the issuancefirst quarter of 2011 compared to the 2020 Notes and the retirementfirst quarter of the Old Notes, please see the “Senior Notes” discussion in the “ Liquidity and Capital Resources” section below.2010.

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Other Income (Expense)

Other income of $8.0 and $2.9 was recorded$3.4 for the three months ended September 30, 2010, and 2009, respectively.   Other expense of $5.8 was recorded for the nine months ended September 30, 2010,March 31, 2011, compared to other incomeexpense of $8.6$4.6 for the corresponding period in 2009.three months ended March 31, 2010.  The change for the three- and nine-month periodsfirst quarter of 2011 income was due primarily to foreign exchange gains/gains, whereas the first quarter of 2010 expense was due primarily to foreign exchange losses.

Income Taxes

Income taxes recorded for the year 2010three months ended March 31, 2011, have been estimated based on year-to-date income and projected financial results for the full year.  The final effective tax rate to be applied to 2010 will depend, among other things, on the actual amount of taxable income generated by the Company for the full year.  

As a result of the first quarter 2010 enactment of the Patient Protection and Affordable Care Act and the subsequent enactment of the Health Care and Education Reconciliation Act of 2010, the Company recorded a non-cash tax charge of $25.3 in the first quarter of 2010.  The charge is due to a reduction in the value of the Company’s deferred tax asset as a result of a change to the tax treatment associated with Medicare Part D reimbursements.

Net Income (Loss)

As a result of the various factors and conditions described above, the Company reported a net lossincome attributable to AK Steel Holding Corporation in the three months ended September 30, 2010,March 31, 2011, of $59.2,$8.7, or $0.54$0.08 per diluted share, compared to net income of $6.2,$1.9, or $0.06$0.02 per diluted share, in the three months ended September 30, 2009.March 31, 2010.

For the nine months ended September 30, 2010, and 2009, the Company reported net losses of $30.6, or $0.28 per diluted share and $114.4, or $1.05 per diluted share, respectively.  Results for the first nine months of 2010 include a non-cash charge in the first quarter of $25.3, or $0.23 per diluted share, related to federal healthcare legislation signed into law in March of 2010.  Excluding the special charge related to healthcare legislation, the net loss for the first nine months of 2010 was $5.3, or $0.05 per diluted share.

  Nine Months Ended 
  September 30, 2010 
Reconciliation to net loss attributable to AK Steel Holding Corporation   
Adjusted net loss (excluding item below) $(5.3)
Income tax provision due to tax law change  (25.3)
Net loss attributable to AK Steel Holding Corporation $(30.6)
     
Reconciliation to basic and diluted earnings per share    
Adjusted basic and diluted earnings per share (excluding item below) $(0.05)
Income tax provision due to tax law change  (0.23)
Basic and diluted earnings per share $(0.28)
     

Use of Non-GAAP Financial Measures

The reconciliation charts provided above in the “Operating Profit (Loss)” and “Net Income (Loss)” sections include certain non-GAAP financial measures that the Company believes could be useful to investors in understanding and evaluating its operating performance across comparable periods.  The presentation of these additional financial measures is not meant to be considered in isolation or as a substitute for measures of financial performance prepared in accordance with GAAP.

Outlook

All of the statements in this “Outlook” section are subject to, and qualified by, the cautionary information set forth under the heading “Forward-Looking Statements.”

The Company expects shipments of approximately 1,300,0001,500,000 to 1,350,0001,550,000 tons for the fourthsecond quarter of 2010, with an2011.  In addition, average selling price per ton decreaseis expected to increase by approximately 7% from the first quarter, primarily due to higher contract and spot market selling prices.  The Company expects higher costs for raw materials, including scrap, iron ore and purchased slabs, of approximately 4% from the third quarter.$50 per ton.  The Company also expects its planned maintenance costs to decreaseincrease by approximately $20.0$8.0 in the fourthsecond quarter of 20102011 compared to the thirdfirst quarter.  The Company expects to incur approximately $4.0 in pre-tax costs associated with the shutdown of the Ashland coke plant in the second quarter of 2011, compared to approximately $1.3 in the first quarter of 2011.  The Company expects to generate an operating profit of approximately $65 per ton for the second quarter of 2011, an increase of more than $50 per ton compared to the first quarter of 2011.

 
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quarter.  The Company expects to generate an operating loss of approximately $80 per ton for the fourth quarter of 2010.  The Company estimates capital investments of approximately $135.0 in 2010.

The Company previously disclosed that it had reached agreement with two of its three primary iron ore suppliers on the price of iron ore for 2010, but had not yet reached agreement with the third primary supplier. The Company recently reached an agreement with that third supplier on iron ore pricing for 2010. The fourth quarter operating loss projection provided in the preceding paragraph, which is consistent with the Company’s previous guidance, reflects the impact of all three of the agreements for 2010 iron ore pricing with the Company’s primary iron ore suppliers.
 
Under its method of accounting for pension and other postretirement benefit plans, the Company recognizes into income (loss), as a fourth quarter adjustment, any unrecognized actuarial gains and losses that exceed 10% of the larger of projected benefit obligations or plan assets (the “corridor”).  These corridor charges 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.  It thus is impossible to reliably forecast or predict whether they will occur in any given year or, if they do, what the magnitude will be.   The Company does not anticipate a fourth quarter 2010 corridor charge related to its other postretirement benefit plans.  However, the Company does anticipate such a corridor charge with respect to its pension plans.  Based on current assumptions for prevailing interest rates the Company currently believes that its pension corridor charge in the fourth quarter of 2010 likely will be significant.  However, because factors influencing the determination of plan assets and plan liabilities fluctuate significantly, the Company cannot yet determine with certainty the actual amount of this non-cash fourth quarter corridor charge related to its pension plans.

Iron Ore Pricing

Iron ore is one of the principal raw materials required for the Company’s steel manufacturing operations.  For example, the Company expects to purchase approximately six million tons of iron ore pellets in 2010.2011.  The Company makes most of its purchases of iron ore at negotiated prices under annual and multi-year agreements.  The multi-yearUntil this year, these agreements typically havehad a variable pricevariable-price mechanism by which the annual price of iron ore iswas adjusted annually, based in whole or in part upon a benchmark price for iron ore established by contract negotiations between the principal iron ore producers and certain of their largest customers.  ThatIn 2010, the benchmark price typically is setwas not established until late in the first quarter of each year, and forbut the Company isincrease was retroactive to January 1, of that year.  For 2010, however, the bench mark price was not established 2010.  This delay in the typical timeframe and the Company only recently reached agreement with all of its three major iron ore suppliers on final pricing for all of 2010.  As a result of these agreements, the final pricing for 2010 will exceed the estimated 65% increase inestablishing the benchmark price which the Company had usedcaused substantial uncertainty with respect to its second quarter results.
In the second quarter of 2010, no benchmark price had yet been established.  In the absence of such a benchmark, the Company began provisionally paying each of its three principal iron ore suppliers as if the benchmark price had increased by 65% compared to 2009.  Since an increase in the benchmark price of at least 65% appeared probable for 2010, and the Company was in fact then paying its suppliers as if the benchmark price for iron ore pellets had increased by 65%, that actual experience formed the basis for the first half 2010 financial results provided in the Company’s Quarterly Report for the second quarter of 2010.  The subsequent increase in the 2010 price of iron ore beyond the 65% assumed with respect to the first and second quarters has had a negative impact on the Company’s financia l results in the third quarter and will negatively impact the results for the fourth quarter of 2010.  This impact has occurred principally in three ways, which are described below.

First, the Company has recognized in the third quarter the full impact of the higher increase in the benchmark price in its cost of goods sold.  Because the increase is retroactive, and because market conditions in the third quarter did not permit the Company to fully pass on the cost of this price increase to its customers, the Company has not been able to recover through increases in its selling price all of the additional costs resulting from that iron ore price increase.

Second, to the extent the Company did not recognize the full price increase in the first and second quarters before the benchmark price was finally determined, that cumulative incremental amount has been recognized as an expense in the third quarter.  More specifically, the Company has recognized as an expense in the third quarter the incremental amount of the higher increase that is attributable to its first and second quarter sales.

Third, because the incremental increase in price is beyond the 65% which previously had been assumed by the Company for 2010, the price increase has had a negative impact on the Company’s LIFO calculation.   That
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incremental increase resulted in a higher value for the Company’s iron ore costs in inventorythe first three quarters of 2010 and thus increasedprevented the Company’s estimated LIFO chargeCompany from being able to recover very much of the significant retroactive increase in 2010.those ore costs through higher selling prices to its customers.  In order to avoid that uncertainty and reduced ability to recover its costs in 2011, the Company has negotiated new pricing terms with its principal iron ore suppliers pursuant to which prices are adjusted quarterly.  Two of those pricing agreements have been finalized and executed; the third is an agreement in principle that still must be memorialized in writing and executed.

The Company attempts to mitigate the impacteffect of its increased raw material costs in the normal course of pricing its own products through increased prices in the spot market and the use of variable pricing 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, including iron ore.  It typically is unable, however, to recover 100% of its increased iron ore costs in this manner.  As noted above, the iron ore price increases under the Company’s multi-year supply contracts are retroactive to January 1.  Because the Company already has sold its products for all of the first three quarters of 2010 and a significant portion of the fourth quarter of 2010 at prices which may not fully reflect the iron ore price increas es it will pay in 2010, it will be unable to recover the retroactive portion of the price increases, either through spot market price increases or through certain of its variable pricing mechanisms with its contract customers.  For further details on this point, see the discussion of Risk Factors below.  In addition, competitive market conditions have prevented the Company from being able to negotiate terms which enable it to recover 100% of its iron ore price increases from all of its customers, even on a prospective basis.  There are a variety of factors which ultimately will impactaffect how much of any increase in iron ore prices the Company is able to recover through its own steel price increases, including the amount of the price increase in the benchmark price for iron ore, the timing of when the benchmark price is set and whether it is an annual or quarterly benchmark, the final terms of the Company’s agreements with its contract customers, and the extent to which competitive pressures may prevent the Company from increasing the price of the steel it sells into the spot market sufficiently to cover the full amount of the iron ore price increase.

Electrical Steel Market

The Company sells its electrical steel products, 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 electrical steel products both domestically and internationally.

In 2009, the Company experienced a significant decrease in both its domestic and international sales of grain-oriented electrical steel (“GOES”) products.  Internationally, this reduction was caused principally by the deterioration in the global economy and the related decline in spending for new electric power transmission and distribution transformers in developing countries. To a lesser extent, the Company’s international electrical steel sales also were negatively impacted by the determination in the China trade case to impose duties on GOES imported from the United States.  Although the Company has been able to substantially replace the GOES sales it lost in China as a result of those duties, the continued weakness in the global economy has hampered the Company’s efforts to replace those sales entirely.  The domestic GOES market likewise was negatively impacted by reduced maintenance and capital spending by utilities and the decline in the United States housing and construction markets, which drive the domestic need for new electrical transformers.

While current electrical steel shipments and pricing continue to be significantly below their 2008 levels, shipments have increased as power generation and distribution activities around the world have picked up. The Company’s GOES shipments increased in the first quarter of 2010 by approximately 8% versus the fourth quarter of 2009 and increased by another 13% in the second quarter.  Shipments in the third quarter of 2010 were relatively flat versus the second quarter of 2010.

Coal Supply

The Company’s steel-making operations utilize several types of coals, including metallurgical coal in connection with its blast furnaces. Approximately 25% of the metallurgical coal which the Company anticipates consuming in 2010 was expected to be produced at the Upper Big Branch Mine of Massey Metallurgical Coal, Inc. (“Massey”) in West Virginia, which in April 2010 was the site of a tragic explosion with multiple fatalities.  Following the explosion, Massey sent a letter to the Company in which it asserted an incident of force majeure under the terms of the parties’ contract for the purchase of such coal.  Massey has increased production at other mines and has acquired other resources, and now expects to be able to provide more than half of the metallurgical coal which it had expected to p rovide to the Company in 2010 from the Upper Big Branch Mine.  The Company purchases coal from a diverse group of suppliers and continues to believe that it can secure all of its metallurgical coal requirements for 2010.  The cost of acquiring a portion of that coal from alternative sources will be higher than the contract price which the Company would have paid to Massey.  This additional coal cost was approximately $2.0 and $1.0 in the second and
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third quarters, respectively, and is expected to be approximately $0.5 in the fourth quarter.  The Company continues to discuss this situation with Massey and is taking other steps (e.g., changing its blend of metallurgical coals) to attempt to mitigate its increased costs arising from the potential inability of Massey to meet its contractual commitment to the Company.

Impact of Recent Healthcare Legislation

On March 23, 2010, the Company announced that it would record a non-cash charge of approximately $31.0 in the first quarter of 2010 resulting from the Patient Protection and Affordable Care Act (the “Act”).  As a result principally of the subsequent enactment of the Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act”), and certain delays in effective dates set forth in that legislation, this charge was reduced to $25.3.  The charge is due to a reduction in the value of the Company’s deferred tax asset as a result of a change to the tax treatment associated with Medicare Part D reimbursements (which were established by Congress in 2003 as an incentive for companies to continue to provide retiree prescription drug benefits).

The Act was signed into law on March 23, 2010.  The Reconciliation Act was signed into law on March 30, 2010.  The Act, as modified by the Reconciliation Act, includes a large number of health-related provisions to take effect over the next four years, including expanded dependent coverage, subsidized insurance premiums, incentives for businesses to provide health care benefits, a prohibition on the denial of coverage and denial of claims based on pre-existing conditions, the creation of health insurance exchanges intended to help insure a large number of uninsured Americans through enhanced competition, and other expansions of healthcare benefits and coverage.  The costs of these provisions are expected to be funded by a variety of taxes and fees.  Some of these taxes and fees, as well as certai n of the healthcare changes brought about by these acts, will directly or indirectly result in increased healthcare costs for the Company.  The Company cannot reliably predict at this time what the total amount of those increased costs will be.

Liquidity and Capital Resources

At September 30, 2010,March 31, 2011, the Company had total liquidity of $781.3,$675.3, consisting of $80.5$54.1 of cash and cash equivalents and $700.8$621.2 of availability under the Company’s prior $850.0 five-year revolving credit facility (the “Credit“Replaced Credit Facility”).  At September 30, 2010,March 31, 2011, there were no outstanding borrowings of $75.0 under the Replaced Credit Facility; however,Facility and availability was reduced by $149.2$153.8 due to outstanding letters of credit.  The Company’sDuring the quarter ended March 31, 2011, utilization of the Replaced Credit Facility ranged from zero to $150.0, with outstanding borrowings averaging $55.8 per day.

In April 2011, AK Steel entered into a new $1.0 billion asset-backed revolving credit facility (“New Credit Facility”) with a group of lenders.  The New Credit Facility, which is secured by itsmost of the Company’s product inventory and accounts receivable.  Availabilityreceivable, replaces the Replaced Credit Facility, which was set to expire in February 2012 and was secured by the same classes of assets as the New Credit Facility.  As was the case with the Replaced Credit Facility, availability under the New Credit Facility can fluctuate monthly based on the varying levels of eligible collateral.  The Company’s eligible collateral, after applicationAK Holding currently is the sole guarantor of applicable advance rates, exceeded $850.0 as of September 30, 2010.the New Credit Facility.

The Company has stated that it intends to utilize itsanticipates periodically utilizing the New Credit Facility from time to time throughout 2011, as it deems advisable,necessary, to fund requirements for working capital, capital investments and other general corporate purposes.  During the thirdfirst quarter of 2011, the Company drew approximately $85.0borrowed amounts from the Replaced Credit Facility on a short-term basis, for uses consistent with these general purposes.  As mentioned above, as of the end of the third quarter the Company had repaid the amounts in full and there were no outstanding borrowings from the Credit Facility.

Cash used by operations totaled $176.5$197.4 for the ninethree months ended September 30, 2010.March 31, 2011.  Primary uses of cash were for a $110.0$30.0 pension contribution, athe final $65.0 contribution to athe VEBA Trust established foras part of the Middletown Works retirees,Retiree Settlement and an increase in working capital of $100.1.$133.7.  The increase in working capital resulted primarily from higher accounts receivable attributable to the increased level of sales revenue.  Also contributing to the increase in working capital was an increase in inventories, as a result ofcaused by both higher raw material costs and a higher level of inventories.inventory quantities on hand.  In addition, accounts receivable were higher as a result of an increased level of sales.  An increase in accounts payable due to a higher level of business activity partially offset the usethese uses of cash.
Pension- and Retiree Healthcare Benefit-related Matters

In April 2010, AK Steel commenced a cash tender offerThe Company made pension contributions of $30.0 during the first quarter of 2011 and consent solicitation (the “Tender Offer”) for all$140.0 during the second quarter of 2011.  These pension contributions totaling $170.0 satisfy the approximately $504.0 in aggregate principal amount of outstanding 7 3/4% Senior Notes due 2012 (the “Old Notes”).  At the expiration of the Tender Offer on May 21, 2010, AK Steel accepted $321.2 in aggregate principal amount of Old Notes tendered by holders.  The aggregate amount paid by the Company to consummate the Tender Offer for the Old Notes was approximately $332.8, an amount equal to 100% of the principal amount of the tendered Old Notes, plus interest accrued to the Tender Offer’s expiration and a redemption premium of approximately $1.5 associated with the tendering noteholders’ acceptance of the accompanying consent solicitation.  In May 2010, AK Steel called for the redemption of all the approximately $182.8 in aggregate principal amount of Old Notes that remained outstanding after the expiration of the Tender Offer.  The aggregate redemption price for the Old Notes was approximately $189.9, an amount equal to 100% of the principal amount of the outstanding Old Notes, plus interest accruedCompany’s required annual pension

 
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Table of Contents
 

to the redemption date, June 15, 2010.  Of this $189.9 usedcontributions for the redemption, approximately $130.7 was cash on hand, while the remainder of the funds resulted from the $392.0 of net proceeds from the Company’s issuance of $400.0 of new 7 5/8% Senior Notes due 2020.  The use of existing cash for such redemption as opposed to using cash which could have been generated by issuing a greater amount of the new Senior Notes due 2020 was a strategic decision by the Company driven by the historically low interest rates currently being earned on cash deposits. By using existing cash to reduce the Company’s senior debt, the Company strengthened its balance sheet for the longer-term2011 and reduced its ongoing annual interest expense by more than $8.5 per year.  As a consequence, however, the Company wi ll be operating with a cash position which is lower than it has been for several years.  As mentioned above, the Company may, from time to time, access its Credit Facility to fund requirements for working capital, capital investments and other general purposes, and also believes it has the ability to access the capital markets opportunistically if and when it perceives conditions as favorable.  For further details on the related tender offer and consent solicitation and redemption transactions, please see the “Senior Notes” discussion below.

Pension- and Retiree Healthcare Benefit-related Matters

During the first nine months of 2010, the Company made pension contributions totaling $110.0, which satisfied its required funding for 2010 and increasedincrease the Company’s total pension fund contributions since 2005 to approximately $1.2over $1.3 billion.  The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act, which was signed into law earlier this year, provides options to pension plan sponsors to delay their required pension funding.  Based uponon current actuarial valuations, and utilizing an option available under that legislation, the Company estimates that its average required annual pension contributions for 2011 and 2012 will be approximately $190.0.$180.0 for 2012 and $260.0 for 2013.  The calculation of estimated future pension contributions requires the use of assumptions concerning future events.  T heThe 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 future pension legislation, the reliability of estimated future pension contributions decreases as the length of time until the contributions must be made increases.

InDuring the first quarter of 2008,2011, the Company received court approval regardingmade the October 2007 settlement withfinal $65.0 payment to the VEBA Trust for the Middletown Works retirees that required the Company to make a total of $663.0 in cash payments to a VEBA Trust.  The Company made an initial contribution of $468.0 in 2008.  It made the first of three subsequent annual payments of $65.0 in March 2009, and the second $65.0 payment in March 2010.  The final $65.0 payment will be due in March 2011.retirees.  See discussion of Middletown Works Retiree Healthcare Benefits Litigation in Note 9 of Part I, Item 1.to the consolidated financial statements for further information.

Investing and Financing Activity

During the ninethree months ended September 30, 2010,March 31, 2011, net cash used by investing activities totaled $157.9, which includes $72.3$106.9.  This total included $35.6 of routine capital investments, mostly related to projects at the Company's Butler Works, and $86.4$71.7 in capital investments related to the investment by SunCoke Middletown Coke Company, Inc. (“Middletown Coke”) in capital equipment for the coke plant being constructed in Middletown, Ohio.  The SunCoke Middletown Coke capital investment is funded by its parent company, SunCoke, Energy, Inc. (“SunCoke”), and is reflected as a payable from SunCoke Middletown Coke to SunCoke whichSunCoke.  That payment is reflected in other non-current liabilities on the Company’s Condensed Consolidated Balance Sheets.  Because the SunCoke Middletown Coke capital investment is funded by Middletown Coke’s paren t company, SunCoke, it has no impacteffect on the net cash flows of AK Steel.

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 September 30, 2010, Middletown Coke had approximately $177.9 in assets comprised mainly of constructi on in progress which is reflected in Property, Plant and Equipment, net on the Company’s Condensed Consolidated Balance Sheets.  Additionally, Middletown Coke had approximately $183.1 in liabilities, comprised mainly of advances from its parent company, SunCoke, which are reflected in other non-current liabilities on the Company’s Condensed Consolidated Balance Sheets.

In August 2009, the Company also entered into an agreement with Haverhill North Coke Company, an affiliate of SunCoke, to provide the Company with 550,000 tons of coke annually from SunCoke’s Haverhill facility (“SunCoke Haverhill”) located in southern Ohio.  The agreement has a 12-year term with two five-year renewal options.  Under
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the agreement, the Company also will purchase a portion of the electricity co-generated from the heat recovery coke battery.  Like the Middletown Coke agreement, this agreement enhances the Company’s long-term supply of cost-competitive coke and energy in an environmentally responsible fashion.  It also furthers the Company’s strategic goals to assure an adequate supply of a key raw material and to better insulate itself from volatile coke and energy prices.  The SunCoke Haverhill agreement does not replace or diminish the Company’s need for the coke and electricity from the Middletown Coke facility.  The Company continues to need the coke from that facility on a long-term basis and has no immediate plans to idle any of its existing cokemaking capacity. However, the age and rapi dly escalating environmental compliance costs associated with the Company’s Ashland coke batteries are continuing concerns.

During the past five years, the Company announced $267.5 in capital investments to expand and improve the Company’s production capabilities for high value-added stainless and electrical steels.  The projects include replacing two of the existing electric arc furnaces (“EAF”) at the Company’s Butler Works with a single EAF capable of melting about 40% more steel than is produced in the current operation, as well as upgrading an existing processing line at Butler Works.  The new EAF will lower the Company’s operating costs and enable it to produce approximately 400,000 tons of additional carbon slabs at Butler Works, thus improving the Company’s self-sufficiency by reducing its need to purchase merchant slabs.  All but approximately $25.0 of the total planned investment of $267.5 will be invested by the end of 2010, with the new EAF melting facility scheduled to begin testing late in the fourth quarter of 2010 and start up in early 2011.

During the ninethree months ended September 30, 2010,March 31, 2011, cash usedgenerated by financing activities totaled $46.8.$141.6.  This includes $75.0 in proceeds on borrowings from the purchase of $7.7 of the Company’s common stock primarilyReplaced Credit Facility and $72.4 in advances from SunCoke to satisfy federal, state and local taxes due upon the vesting of restricted stock,SunCoke Middletown, partially offset by the payment of common stock dividends in the amount of $16.5, and an offset of $88.4 in advances from noncontrolling interest owner SunCoke to Middletown Coke.  It also includes a use of cash of $506.1, primarily for the tender offer repurchase and redemption of the Company’s 7 3/4% Senior Notes due 2012, debt issuance costs of $9.0 and proceeds from the issuance of $400.0 of new 7 5/8% Senior Notes due 2020.  The details of this refinancing transaction are discussed below under “Senior Notes”.$5.5.

The Company believes that its current sources of liquidity will be adequate to meet its obligations for the foreseeable future.  Future liquidity requirements for employee benefit plan contributions, scheduled debt maturities, planned debt redemptions and capital investments are expected to be funded by internally generatedinternally-generated cash and/orand other financing sources.  To the extent, if at all, that the Company would need to fund any of its working capital or planned capital investments other than through internally generatedinternally-generated cash, the Company has available its New Credit Facility and believes it has the ability to access the capital markets opportunistically if and when it perceives conditions as favorableare favorable.  The Company has no significant scheduled debt maturities until May 2020, when its $550.0 in aggregate principal amount of 2020 Notes is due.  At September 30, 2010, there were no outstanding borrowingsMarch 31, 2011, availability under the Replaced Credit Facility was $621.2, with availability reduced by $149.2 due to$75.0 for outstanding borrowings and $153.8 for outstanding letters of credit.  However, it is extremely difficult to provide reliable financial forecasts, even on a quarterly basis, under the current business conditions.  The Company’s forward-looking statements on liquidity are based on currently available information and expectations and, to the extent the information isor expectations are inaccurate or conditions change,deteriorate, there could be a material adverse impact toeffect on the Company’s liquidity.

Dividends

The following table lists the dates thus far in 2010 on which the Company announced that its Board of Directors declared a quarterly cash dividend of $0.05 per share of common stock, the record dates for determining stockholders of record and the payment dates forinformation related to the quarterly cash dividend.dividend:

2010 COMMON STOCK DIVIDENDS 
  
Announcement Date Record Date Payment Date Per Share 
January 25, 2010 February 12, 2010 March 10, 2010 $0.05 
April 20, 2010 May 14, 2010 June 10, 2010 $0.05 
July 27, 2010 August 13, 2010 September 10, 2010 $0.05 
October 26, 2010 November 12, 2010 December 10, 2010 $0.05 
2011 COMMON STOCK DIVIDENDS 
  
Record Date Payment Date Per Share 
February 11, 2011 March 10, 2011 $0.05 
May 13, 2011 June 10, 2011 $0.05 

The Company’s New Credit Facility contains certain restrictive covenants with respect to the Company’s payment of cash dividends is subject to a restrictive covenant contained in the instruments governing the Company’s Credit Facility.dividends.  Under these covenants, dividends and share repurchases are not restricted unlessonly when (i) availability falls below $150.0,$225.0 or (ii) availability falls below $175.0 and the Company cannot meet a fixed charge coverage ratio of one to one as of the most recently ended fiscal quarter, at which point dividends would be limited to $12.0 annually and share repurchases would be prohibited.  As of September 30, 2010,annually.  Currently, the availability under the New Credit Facility was $700.8.significantly exceeds $225.0.  Accordingly, none ofthere currently are no covenant restrictions on the covenants currently prevent the Company from declaringCompany’s ability to declare and payingpay a dividend to its stockholders.
 
 
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Although the prior indentures governing the Company’s retired 7 3/4% Senior Notes due 2012 included certain restrictions that could limit the Company’s ability to declare dividends, the new indentures governing the Company’s recently-issued 7 5/8% Senior Notes due 2020 do not restrict the Company’s payment of dividends to stockholders.
Senior Notes

On May 11, 2010, AK Steel issued $400.0 of 7 5/8% Senior Notes due 2020 (the “2020 Notes”).  The issuance generated net proceeds of $392.0 after underwriting fees.  AK Holding, of which AK Steel is a wholly-owned subsidiary, fully and unconditionally, jointly and severally, guarantees the payment of interest, principal and premium, if any, on the 2020 Notes.  In April 2010, AK Steel commenced a cash tender offer and consent solicitation (the “Tender Offer”) for all of the approximately $504.0 in aggregate principal amount of outstanding 7 3/4% Senior Notes due 2012 (the “Old Notes”).  At the expiration of the Tender Offer on May 21, 2010, AK Steel accepted $321.2 in aggregate principal amount of Old Notes tendered by holders.  The aggregate amount pai d by the Company to consummate the Tender Offer for the Old Notes was approximately $332.8, an amount equal to 100% of the principal amount of the tendered Old Notes, plus interest accrued to the Tender Offer’s expiration and a redemption premium of approximately $1.5 associated with the tendering noteholders’ acceptance of the accompanying consent solicitation.  The redemption premium was recorded in other income (expense) on the Company’s Condensed Consolidated Statements of Operations.

In addition, on May 12, 2010, pursuant to the terms of the indenture governing the Old Notes, AK Steel called for the redemption of all the approximately $182.8 in aggregate principal amount of Old Notes that remained outstanding after the expiration of the Tender Offer.  The aggregate redemption price for the Old Notes was approximately $189.9, an amount equal to 100% of the principal amount of the outstanding Old Notes, plus interest accrued to the redemption date, June 15, 2010.  The proceeds from the issuance of the 2020 Notes along with cash on hand were used to retire the Old Notes.

The respective aggregate amounts utilized for retiring the Old Notes through the Tender Offer and redemption, as paid towards the Old Notes’ principal and accrued but unpaid interest, as well as the redemption premium paid to holders for acceptance of the consent solicitation, were as follows:

  Principal  Interest  Premium  Total 
Tender Offer $321.2  $10.1  $1.5  $332.8 
Redemption  182.8   7.1      189.9 
Total Old Notes $504.0  $17.2  $1.5  $522.7 

As a result of the Tender Offer and redemption transactions, on June 15, 2010, AK Steel and the guarantors (which are discussed in the immediately following paragraph) of the Old Notes retired the approximately $504.0 in aggregate principal amount of Old Notes outstanding and satisfied and discharged their obligationsRestrictions under the indentures that governed the Old Notes.
In connection with the issuance of the 2020 Notes, AK Steel and AK Holding entered into new indentures governing the 2020 Notes.  Under the terms of the prior indentures governing the Old Notes, AK Steel’s parent company, AK Holding, as well as AKS Investments, Inc. and AK Tube LLC, which are direct and indirect wholly-owned subsidiaries, respectively, of AK Steel, had fully and unconditionally, jointly and severally, guaranteed the payment of interest, principal and premium, if any, on the Old Notes.  Under the terms of the new indentures, AK Holding currently is the sole guarantor of the 2020 Notes.

At any time prior to May 15, 2015, AK Steel may redeem the 2020 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a “make-whole” premium calculated in accordance with the indentures governing the 2020 Notes and accrued and unpaid interest.  In addition, AK Steel may redeem the 2020 Notes, in whole or in part, at any time on or after May 15, 2015, at the redemption price for such notes, set forth below as a percentage of the face amount, plus accrued and unpaid interest to the redemption date, if redeemed during the twelve-month period commencing on May 15 of the years indicated below:
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Year Redemption Price 
2015  103.813%
2016  102.542%
2017  101.271%
2018 or thereafter  100.000%
During 2009, and prior to the Tender Offer and redemption transactions described above, the Company repurchased $26.4 in aggregate principal amount of the Old Notes with cash payments totaling $22.8.  In connection with these repurchases, the Company recorded non-cash, pre-tax gains of approximately $3.6.  The repurchases were funded from the Company’s existing cash balances.

Restrictions Under theNew Credit Facility and Senior Notes

The indentures governing the Company’s 2020 Notes and its New Credit Facility contain restrictions and covenants that may limit the Company’s operating flexibility.

The 2020 Notes’ indentures include restrictive covenants but these covenants are significantly less restrictive than the covenants contained in the indentures for the Old Notes.  The covenants relating to the 2020 Notes include customary restrictions on (a) the incurrence of additional debt by certain AK Steel subsidiaries, (b) the incurrence of liens by AK Steel and AK Holding’s other subsidiaries, (c) the amount of sale/leaseback transactions, and (d) the ability of AK Steel and AK Holding to merge or consolidate with other entities or to sell, lease or transfer all or substantially all of the assets of the AK Steel and AK Holding to another entity.  The 2020 NotesThey also contain customary events of default.

In April 2011, the Company entered into a new $1.0 billion asset-backed revolving credit facility (“New Credit Facility”) with a group of lenders.  The New Credit Facility, which is secured by most of the Company’s product inventory and accounts receivable, replaces the Company’s prior $850.0 asset-backed credit facility (“Replaced Credit Facility”), which was set to expire in February 2012 and was secured by the same classes of assets as the New Credit Facility.  The New Credit Facility contains restrictions similar to the Replaced Credit Facility, including limitations on, among other things, distributions and dividends, acquisitions and investments, indebtedness, liens and affiliate transactions.  In the aggregate, however, the restrictions in the New Credit Facility provide the Company with more flexibility than those under the Replaced Credit Facility, and only apply in the event that the Company’s availability under the New Credit Facility falls below certain specific thresholds, none of which exceed $225.0.  The Company does not expect any of these restrictions to affect or limit its ability to conduct its business in the ordinary course.  In addition, the New Credit Facility requires maintenance of a minimum fixed charge coverage ratio of one to one if availability under the facilityNew Credit Facility is less than $125.0.

As ofDuring the filing date of this Quarterly Reportperiod, the Company iswas in compliance with all the terms and conditions of the 2020 Notes’ covenants and the Credit Facility covenants.its debt agreements.

AshlandMiddletown Works Labor Agreement

On July 9, 2010,April 19, 2011, members of the United SteelworkersInternational Association of Machinists and Aerospace Workers, Local 1865 union1943, ratified a three-year extension to anew labor agreement covering about 750approximately 1,700 hourly production and maintenance steel operations employees at the Company’s Ashland (KY)Middletown Works.  The new agreement extends the existing contract to September 1, 2013 and the terms werewas effective as of July 1, 2010.April 19, 2011 and is scheduled to expire September 15, 2014.  The existing contract was scheduled to expire September 1, 2010.  Among other items, the contract extension contains new language which allows the Company flexibility in operating the Ashland Works to meet market conditions, while committing to significant capital investments of approximately $30.0 over the life of the contract in the steelmaking plant, in particular the blast furnace. The contract extension also provides for lump sum payments to each represented employee covered by the contract in 2010, 2011 and 2012 and a standard hourly wage rate increase in September of 2010.15, 2011.

Forward-Looking Statements

Certain statements made or incorporated by reference in this Form 10-Q, or made in press releases or in oral presentations made by Company employees, reflect management’sManagement’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.  These include, but are not limited to, certain paragraphs in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, such as “Outlook,” “Iron Ore Pricing,” “Electrical Steel Market,” “Coal Supply,” “Impact of Recent Healthcare Legislation,” “Liquidity and Capital Resources” and “Risk Factors.”  Wor dsWords such as “expects,” “anticipates,” “believes,” “intends,” “plans,” “estimates” and other similar references to future periods typically identify such forward-looking statements.  These forward-looking statements reflect the current belief and judgment of the Company’s management,Management, but are not
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guarantees of future performance or outcomes. They are based on a number of assumptions and estimates that are inherently subject to economic, competitive, regulatory, and operational risks, uncertainties and contingencies that are beyond the Company’s control, and upon assumptions with respect to future business decisions and conditions that are subject to change.  Such risks, uncertainties, contingencies and changes to assumptions could cause actual results to differ materially from those currently expected by management and include, among others: risks related to or in connection with reducedlower than expected selling prices and/or shipments as a result of a slow recovery in the domestic and shipments associated with a cyclical industry;global economies; severe financial hardship or bankruptcy of one of more of ourthe Company’s major customers; decreased demand in key product markets; depressed electrical steel sales as a resu ltmarkets and geographies below the Company’s forecasts; risks related to the earthquake, tsunami and nuclear energy facility issues in Japan; changes in tax laws or rates which would impact the value of continued low volume of U.S. housing starts, decreased utility company spending and low demand as a result of general economic conditions;the Company’s net deferred tax assets competitive pressure from increased global steel production and imports; changes in the cost of raw materials and energy, particularly scrap, iron ore and coal; disruptions with respect to our supply of raw materials; costs associated with environmental compliance, including those in connection with the Company’s Coke Plant in Ashland, Kentucky; adverse effects from a failure to timely reach new labor agreements with employees; disruptions with respect to production; changes in the law or circumstances impactingaffecting our healthcare and pension obligations, which could include the recognition of a corridor charge with respect to its pension plans; increased employee healthcare costs and related taxes and fees incurred by the Company as a result of the Health Care and Education Reconciliation Act of 2010; unexpected adverse outcomes in major litigation, arbitrations, environmental issues and other contingencies; climate change and greenhouse gas emission limitations and regulations; and conditions in the financial, credit, capital and/or banking markets.  In addition, these include, but are
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not limited to, statements in the Outlook and Liquidity and Capital Resources sections and Item 3, Quantitative and Qualitative Disclosure about Market Risk.

As discussed in its Annual Report on Form 10-K for the year ended December 31, 2009,2010, 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 “Risk Factors”Item 1A, Risk Factors, in Part II Item 1A of this report and in Part I, Item 1A of the Company’s Form 10-K for the year ended December 31, 2009.2010.

Any forward-looking statement made by the Company in this document speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Quantitative and Qualitative Disclosures about Market Risk.

In the ordinary course of business, theThe 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 $400.0 in principal amounthad total debt of $652.1 outstanding at March 31, 2011, consisting of $552.8 of fixed-rate debt and $102.5$99.3 of variable-rate debtdebt.  In addition, at March 31, 2011, the Company had $75.0 of short-term borrowings outstanding totaling $502.5.  The fair value of this debt as of September 30, 2010, was $512.5.  A reductionunder its Replaced Credit Facility that bears interest at variable interest rates.  An increase in prevailing interest rates or improvement in the Company’s credit rating couldwould increase the fair value of this debt.  A 1% reduction in the rate used to discount total future principalinterest expense and interest paymentspaid for the variable-rate debt.  For example, a 1% increase in interest rates would resulthave resulted in an increase in the total fair value of the Company’s long-t erm debtannual interest expense of approximately $49.1.  An unfavorable effect$1.8 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.March 31, 2011.

With regard to raw materials and energy sources, natural gas prices, in particular, have been highly volatile.  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, in particular, and the cost of scrap both have been volatile over the course of the last several years.  Collectively, these and other raw material and energy cost fluctuationsIn addition, natural gas prices 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.been highly volatile at times.  To address such cost volatility, where competitively possible, the Company attempts to add a surcharge toincrease the price of steel it sells to the spot market and to ne gotiatenegotiate a variable pricingvariable-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.  While the Company still does not recover all of its raw material cost increases through these mechanisms, it has made significant progress in that respect through 2011, particularly with respect to variable-pricing terms with its contract customers.  In addition, in the case of stainless steel, increased costs for nickel, chrome and molybdenum can usually be recovered through established price surcharges.  Therefore, fluctuations in the price of energy (particularly natural gas and electricity), raw materials (such as scrap, purchased slabs, coal, iron ore, scrap, coal,zinc and zinc)nickel) 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 pricevariable-price mechanism.  While enabling the Company to reduce its exposure to fluctuations in raw material costs, these practicesthis also exposeexposes the Company to an element of market risk
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relative to its sales contracts.  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 pricefixed-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 impactingaffecting the legal enforceability of the contracts, such minimum pu rchasepurchase 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 decreased 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 needbe required to purchase more of a particular raw material in a particular year than it needs, negatively impactingaffecting its financial results and cash flows.

The Company uses cash settledcash-settled commodity price swaps and options (including collars) 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, zinc and electricity requirements.  The Company’s hedging strategy is designed to protect it against excessive pricing volatility.  However, abnormal price increases in any of these commodity markets might still negatively impactaffect operating costs, as the Company does not typically hedge 100% of its exposure.

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For derivatives designated in cash flow hedgehedging relationships, the effective portion of the gains and losses from the use of these instruments for natural gas and electricity are deferredrecorded in accumulated other comprehensive income on the Condensed Consolidated Balance Sheets and recognized into cost of products sold in the same period as the earnings recognition of the associated underlying transaction.  At September 30, 2010,March 31, 2011, accumulated other comprehensive income included $11.6$3.8 in unrealized net-of-tax lossesafter-tax gains 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 September 30, 2010,March 31, 2011, other current assets of $1.5,  60;accrued liabilities of $15.4 and other non-current liabilities of $0.2$0.7 were included on the Condensed 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 September 30, 2010,March 31, 2011, due to an assumed 10% and 25% decrease in the market price of each of the indicated commodities.

  Negative Effect on Pre-tax Income 
Commodity Derivative 10% Decrease  25% Decrease   10% Decrease  25% Decrease 
Natural Gas $7.8  $23.3   $3.8  $14.8 
Nickel  0.5   1.2    0.2   0.5 
Electricity  0.1   0.3 
Zinc   0.3   0.8 

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 also 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 September 30, 2010,March 31, 2011, the Company had outstanding forward currency contracts with a total notionalcontract value of $30.0$21.2 for the sale of euros.  The Company marks to market the value of these contracts.  At September 30, 2010,March 31, 2011, accrued liabilities of $2.1$0.6 were included on the Condensed Consolidated Balance Sheets for the fair value of these contracts.  Based on the contracts outstanding at September 30, 2010,March 31, 2011, a 10% change in the dollar to euro exchange rate would result in an approximate $3.0$2.1 pretax impact on the value of these contracts on a mark to marketmark-to-market basis, which would offset the income benefiteffect of a more favorablechange in the exchange rate.rate on the underlying receivable.

Controls and Procedures.

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information is disclosed and accumulated and communicated to management in a timely fashion.  An evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed as of the end of the period covered by this report.  This evaluation was performed under the supervision and with the participation of
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management, including the Chief Executive Officer and Chief Financial Officer.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

There has been no change in the Company’s internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

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OTHER INFORMATION
  (dollars in millions, except per share and per ton data)
  
Legal Proceedings.

The information called for by this item is incorporated herein by reference to Note 9 of the consolidated financial statements included in Part I, Item 1.

Risk Factors.

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 Company described the principal risk factors whichthat could impactaffect its results in its Annual Report on Form 10-K for the year ended December 31, 2009, and in its subsequent Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, and June 30, 2010.  Set forth below is an update to those prior risk factor descriptions.

●   
Risk of changesRisks related to the earthquake, tsunami and nuclear energy facility issues in the cost of raw materials and energyJapan..  Approximately 45% of the Company’s shipments are in the spot market, and pricing for these products fluctuates regularly based on prevailing market conditions.  The remainder of the Company’s shipments is pursuant to contracts having durations of six monthsCompany may be affected directly 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.  A portion of the Company’s contracts contain fixed prices that do not allow a pass through of all of th e raw material and energy cost increases or decreases.  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 risk was particularly significant with respect to iron ore costs in 2010.  Beyond 2010, it could be significant again with respect to iron ore, as well as certain other raw materials, such as coal.  The impact of significant fluctuations in the price the Company pays for its raw materials can be exacerbatedindirectly by the Company’s “lasttragic and catastrophic March 2011 earthquake and tsunami 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 levelsJapan, as well as the Company’s finishedresultant problems incurred by Japanese nuclear power facilities.  The scope and semi-finished inventory levels.  The impactcharacter of LIFO accounting may bethe catastrophe continues to evolve and the Company is unable at this time to provide any reliable forecast of its effect on the Company. There is the potential for both negative and positive effects. Potential negative effects, particularly significant with respect to period-to-period comparisons.
●  
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 beganshort term, include disruptions in the fallglobal supply chain which could cause a decrease in the total number of 2008 adversely affectedautomobiles produced in North America.  This would reduce the demand for the Company’s products,products.  Other risks include potential disruptions to other industries which has resulted in lower prices and shipments for such products.  Such lower prices and shipments improved significantly in 2009, but sales have not yet returned to pre-2009 levels. This continued weakness in market conditions may adversely impactare customers or suppliers of the Company, negative macroeconomic effects on international trade and/or the Company’s efforts to negotiate higher pricescustomers, and unforeseen challenges which could develop as the situation in 2011 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 leve ls.  There thus is a risk of continued adverse impact on demand for the Company’s products, the prices for those products,Japan evolves and the Company’sfull scope of the damage and its effects is comprehended.  In the medium and long term, the potential exists that the circumstances in Japan could provide an economic benefit to the Company.  There is the potential for increased electrical steel sales and shipments of those productsin Japan as a result of increased demand arising from the ongoing weaknessrebuilding of Japanese buildings and infrastructure.  There also is an opportunity for increased sales elsewhere as a result of an inability of Japanese steel companies to meet customer demand due to production difficulties related to the natural disaster.  Beyond that, the rebuilding of Japanese buildings and infrastructure will increase steel demand globally and that increased demand could inure indirectly to the benefit of the Company by causing steel prices to increase generally.  The situation is dynamic and, while there exists a risk that the effects of the disaster could have a significant adverse effect on the Company, the Company is not able at this time to reliably evaluate the scope or probability of those risks.  Individually or in the economy.  In addition, global economic conditions
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remain fragile and the possibility remains that the domestic or global economies, or certain industry sectors of those economies that are key to the Company’s sales, may not recover as quickly as we have anticipated, oraggregate, however, they 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.
●  
Risks associated with environmental compliance.  As discussed in Note 9 to the Financial Statements in Item 1 of Part I, the United States Environmental Protection Agency (“EPA”) has issued NOVs with respect to the Company’s Coke Plant in Ashland, Kentucky alleging violations of pushing and combustion stack limits.  The Company is investigating these claims and is working with the EPA to attempt to resolve them through the negotiation of a Consent Decree.  Depending upon the final terms of the Consent Decree and the nature and scope of operations, those costs could be in excess of $50.0 over several years.  It is possible that the impact of the cost increases resulting from compliance with the final Consent Decree could make it no longer c ost effective to make coke at the Ashland facility.  If so, the Company believes that it can secure adequate sources of coke for all of its anticipated steelmaking needs through its existing and other available sources.


●  
Risk of not timely reaching new labor agreements.  The Company’s operations include three facilities in which the employees are represented by labor unions under a contract that will expire in the year 2011. The labor agreement with the United Steelworkers, which represents approximately 280 hourly employees at the Company’s Mansfield Works located in Mansfield, Ohio, expires on March 31, 2011.  The labor agreement with the International Association of Machinists, which represents approximately 1,745 hourly employees at the Company’s Middletown Works located in Middletown, Ohio, expires on September 15, 2011. The labor agreement with the United Steelworkers, which represents approximately 250 hourly employees at the Company’s Coke Plant located in Ashla nd, Kentucky, expires on October 31, 2011. The Company intends to negotiate with each of these respective unions to reach a new, competitive labor agreement in advance of the current contract expiration date.  The Company cannot predict at this time, however, when a new, competitive labor agreement with each union will be reached or the likely impact of such an agreement on the Company’s operating costs, operating income and cash flow. There is the potential of a work stoppage at one or more of these locations if the Company and the union cannot reach a timely agreement in contract negotiations.  If there were to be such a work stoppage, it could have a material impact on the Company’s operations and financial results.
 
●  
Risks of excess inventory of raw materials.
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Table of Contents  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.  If the Company’s need for a particular raw material is reduced for an extended period significantly below what was projected at the time the applicable contract was entered into, or what was projected at the time an annual nomination was made under that contract, the Company could be required to purchase quantities of raw materials, particularly iron ore, which exceed its anticipated annual needs for 2010.  If that circumstance were to occur, and if the Company were not successful in reaching agreement with the raw material supplier in question to reduce the quantity of raw materials it purchases in 2010 from that supplier, then the Company would likely need to purchase more of a particular raw material in 2010 than it needs, negatively impacting its cash flow and financial results. The impact on financial results could be exacerbated by the Company’s “last in, first out” (“LIFO”) method for valuing inventories, which could be affected by changes in the Company’s raw material inventory levels, as well as the Company's finished and semi-finished inventory levels.  The impact of LIFO accounting may be particularly significant with respect to period-to-period comparisons.
 


Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of equity securities in the quarter ended September 30, 2010.
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March 31, 2011.

ISSUER PURCHASES OF EQUITY SECURITIES
                  
Period Total Number of Shares Purchased (1)  Average Price Paid Per Share (1)  Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (2) 
Total Number
of Shares
Purchased (a)
 
Average
Price Paid
Per Share (a)
 
Total Number
of Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs (b)
 
Approximate
Dollar Value of
Shares that
May Yet be
Purchased
Under the
Plans or
Programs (b)
July 1 through 31, 2010  741  $14.33     
August 1 through 31, 2010  8,766  $14.86     
September 1 through 30, 2010          
January 2011 90,681 $14.52   
February 2011     
March 2011 2,541 15.39   
Total  9,507  $14.82    $125.6 93,222 14.55  $125.6
        

(1)  (a)During the quarter, the Company repurchased 9,50793,222 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 quoted average of the reported high and low sales prices on the day the shares are withheld.

(2)  (b)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.  There is no expiration date specified in the Board of Directors’ authorization.


Other Information.

On May 4, 2011, AK Holding filed with the Delaware Secretary of State (i) a Certificate of Elimination of Series A Junior Preferred Stock (“Junior Preferred Stock”) and (ii) a Certificate of Elimination of Series B $3.625 Cumulative Convertible Preferred Stock (“Cumulative Convertible Preferred Stock”).  The effect of these two Certificates of Elimination, each of which was effective upon its filing, was to remove from the Company’s Certificate of Incorporation, as amended, the Certificates of Designation that created the Junior Preferred Stock and the Cumulative Convertible Preferred Stock, as previously filed with the Delaware Secretary of State on February 5, 1996 and September 30, 1999, respectively.  No shares of either Junior Preferred Stock or Cumulative Convertible Preferred Stock were issued or outstanding as of the filing of the Certificates of Elimination.  Copies of the Certificate of Elimination of Junior Preferred Stock and the Certificate of Elimination of Cumulative Convertible Preferred Stock are attached to this Form 10-Q as Exhibits 3.1 and 3.2, respectively, and are incorporated by reference herein.

Also on May 4, 2011, AK Holding filed with the Delaware Secretary of State a Restated Certificate of Incorporation of AK Holding (“Restated Certificate”) pursuant to Section 245 of the Delaware General Corporation Law.  The Restated Certificate, which was effective upon its filing, merely restates and integrates into a single document AK Holding’s original Certificate of Incorporation and all of the outstanding separate amendments subsequently made thereto that were in effect at the time of filing of the Restated Certificate.  The purpose of restating the existing Certificate of Incorporation is simply to integrate all of the provisions of AK Holding’s Certificate of Incorporation into a single document to enable interested parties to more easily locate and reference all of the provisions of this governing document of AK Holding.  A copy of the Restated Certificate is attached to this Form 10-Q as Exhibit 3.3 and is incorporated by reference herein.

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Exhibits.

Exhibit
Number
 Description
3.1Exhibit 10.1*Certificate of Elimination of Series A Junior Preferred Stock
3.2Certificate of Elimination of Series B $3.625 Cumulative Convertible Preferred Stock
3.3Restated Certificate of Incorporation of AK Steel Holding Corporation
10.1Loan and Security Agreement dated as of February 20, 2007,April, 28, 2011, 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 Wells Fargo Capital Finance, LLC, as Co-Syndication Agents, Citibank, N.A. and Deutsche Bank Securities Inc., andas Co-Documentation Agents, Fifth Third Bank and PNC Bank, National Association, as Co-DocumentationManaging Agents, and Banc of AmericaMerrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Wells Fargo Capital Finance, LLC, as SoleJoint Lead ArrangerArrangers and Sole Book Manager.Co-Book Managers (incorporated herein by reference to Exhibit 10.1 to AK Steel Holding Corporation’s Current Report on Form 8-K, as filed with the Commission on April 29, 2011).
31.1Exhibit 31.1Section 302 Certification of Chief Executive Officer
31.2Exhibit 31.2Section 302 Certification of Chief Financial Officer
32.1Exhibit 32.1Section 906 Certification of Chief Executive Officer
32.2Exhibit 32.2Section 906 Certification of Chief Financial Officer
101Exhibit 101Financial statements from the Quarterly Report on Form 10-Q of AK Steel Holding Corporation for the quarter ended September 30, 2010,March 31, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statementscondensed consolidated financial statements tagged as blocks of text.

*The Company is filing this additional copy of its existing Loan and Security Agreement dated February 20, 2007 in order to include attachments previously omitted from the version originally filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 23, 2007.  Other than such additional attachments, the Loan and Security Agreement is unchanged from the previously filed version, which the Company also filed as an exhibit and incorporated by reference into its Quarterly Report on Form 10-Q for the period ended March 31, 2007, and its Annual Reports on Form 10-K for the years ended December 31, 2007, 2008 and 2009.

 
 
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SIGNATURES

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


   AK STEEL HOLDING CORPORATION 
   (Registrant) 
     
     
     
     
     
     
Dated:November 1, 2010May 5, 2011 
/s/ Albert E. Ferrara, Jr.
 
   Albert E. Ferrara, Jr. 
   Senior Vice President, Finance and Chief Financial Officer 
     
     
     
     
Dated:November 1, 2010May 5, 2011 
/s/ Richard S. Williams
 
   Richard S. Williams 
   Controller and Chief Accounting Officer 
     


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