As filed with the Securities and Exchange Commission on August 20, 2002
July 12, 2013
Registration No. 333- ================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
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FORM
Form S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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AK STEEL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
and the Guarantors named in Footnote (1) below
Delaware 3312 31-1401455
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
703 Curtis Street
Middletown, Ohio 45043
(513) 425-5000
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrants' Principal
| AK STEEL HOLDING CORPORATION | AK STEEL CORPORATION | |
| (Exact name of registrant as specified in its charter) | (Exact name of registrant as specified in its charter) | |
| Delaware | Delaware | |
(State or other jurisdiction of incorporation or organization) | (State or other jurisdiction of incorporation or organization) | |
| 3312 | 3312 | |
| (Primary Standard Industrial Classification Code Number) | (Primary Standard Industrial Classification Code Number) | |
| 31-1401455 | 31-1267098 | |
(I.R.S. Employer Identification Number) | (I.R.S. Employer Identification Number) | |
9227 Centre Pointe Drive West Chester, Ohio 45069 (513) 425-5000 | 9227 Centre Pointe Drive West Chester, Ohio 45069 (513) 425-5000 | |
| (Address, including zip code, and telephone number, including area code, of registrants’ principal executive offices) | (Address, including zip code, and telephone number, including area code, of registrants’ principal executive offices) | |
David C. Horn
Executive Offices)
James L. Wainscott
Senior Vice President, General Counsel and Secretary
AK Steel Holding Corporation
9227 Centre Pointe Drive
West Chester, Ohio 45069
(513) 425-5000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Joseph C. Alter
Assistant General Counsel—Corporate and Chief FinancialCompliance Officer
AK Steel Holding Corporation
703 Curtis Street
Middletown,
9227 Centre Pointe Drive
West Chester, Ohio 45043
(513) 425-5000
(Name and Address, Including Zip Code,
and Telephone Number, Including Area Code, of Agent For Service)
With copies
Copies to:
David C. Horn, Esq. Stephen H. Cooper, Esq.
Vice President and General Counsel Weil, Gotshal & Manges LLP
AK Steel Corporation 767 Fifth Avenue
703 Curtis Street New York, New York 10153-0119
Middletown, Ohio 45043 (212) 310-8202
(513) 425-5000
Todd R. Chandler
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
Approximate date of commencement of proposed sale of the securities to the public:As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Formform are to bebeing offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_]
¨
If this Formform is filed to register additional securities for an offering pursuant to Rule 462 (b)462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
¨
If this Formform is a post-effective amendment filed pursuant to Rule 462 (d)462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
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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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Unit(1) | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee | ||||
8.750% Senior Secured Notes due 2018 | $380,000,000 | 100% | $380,000,000 | $51,832 | ||||
Guarantees of 8.750% Senior Secured Notes due 2018 | — | — | — | —(2) | ||||
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| (1) | Estimated solely for the purposes of |
| (2) | Pursuant to Rule 457(n) under the Securities |
The issuers of the Guarantees are: AK Steel Holding Corporation, a Delaware
corporation (I.R.S. Employer Identification No 31-1401455 and Primary
Standard Industrial Classified Code No. 3312) and Douglas Dynamics, L.L.C.,
a Delaware limited liability company (I.R.S. Employer Identification No.
39-1824288 and Primary Standard Industrial Classified Code No. 3537).
(2)Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(2) under the Securities Act of 1933, as amended (the
"Securities Act").
(3)Pursuant to Section 457(n) of the Securities Act, no separate registration
fee for the guarantees is payable.
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The registrantsRegistrants hereby amend this registration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until the registrantsRegistrants shall file a further amendment which specifically states that this registration
statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statementRegistration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section(a)Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may not sell or offer these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we areit is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 20, 2002
JULY 12, 2013
PROSPECTUS
$550,000,000
AK STEEL CORPORATION
Steel Corporation
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING $550,000,000 7 3/4% SENIOR NOTES DUE 2012
AND UNREGISTERED
$380,000,000 8.750% Senior Secured Notes due 2018
FOR ITS NEWLY-ISSUED, $550,000,000 7 3/4% SENIOR NOTES DUE 2012
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REGISTERED
$380,000,000 8.750% Senior Secured Notes due 2018
We are offering, upon the terms and subject to the conditions set forth in this prospectus, to exchange all of our outstanding notes described above8.750% Senior Secured Notes due 2018, of which $350,000,000 in aggregate principal amount were issued on November 20, 2012 (the “Original Issue Date”) in a private offering and $30,000,000 in aggregate principal amount were issued on June 24, 2013 (the “Add-On Issue Date”) in an add-on private offering, for theour new, registered notes described above. The terms of the new notes are identical
in all material respects to the terms of the outstanding notes to be exchanged,
except for certain transfer restrictions, registration rights and additional
interest payment provisions relating to the outstanding notes.8.750% Senior Secured Notes due 2018. In this document, we refer to our outstanding notes8.750% Senior Secured Notes due 2018 as the old notes“original notes” and our new notesregistered 8.750% Senior Secured Notes due 2018 as the registered“registered notes.” Any reference to notes“notes” in this prospectus refers to the oldoriginal notes and the registered notes, unless the context otherwise requires.
requires a different interpretation. The CUSIP numbers for the original notes issued on November 20, 2012 are U00974 AB8 and 001546 AQ3, and the CUSIP numbers for the original notes issued on June 24, 2013 are U00974 AC6 and 001546 AQ3. The notes will be fully and unconditionally guaranteed by AK Steel Holding Corporation (“AK Holding”), the parent of AK Steel Corporation (“AK Steel”), on a senior unsecured basis and are secured by first priority liens on AK Steel’s plant, property and equipment (other than certain excluded property).
MATERIAL TERMS OF THE EXCHANGE OFFER
. Expires
The exchange offer expires at 5:00 p.m., New York City time, on , 2002,2013, unless extended.
. The only conditions to completing the exchange offer are that the
exchange offer not violate any applicable law or interpretation
You will receive an equal principal amount of the
staff of the Securities and Exchange Commission and that no injunction,
order or decree have been issued that would prohibit, prevent or
materially impair our ability to proceed with the exchange offer.
. All oldregistered notes for all original notes that areyou validly tenderedtender and do not validly withdrawn will be
exchanged.
. withdraw.
Tenders of oldoriginal notes may be withdrawn at any time prior to the expiration of the exchange offer.
.
There has been no public market for the original notes and we cannot assure you that any public market for the registered notes will develop.
The terms of the registered notes are substantially identical to the original notes, except for transfer restrictions, registration rights and additional interest payment provisions relating to the original notes.
If you fail to tender your original notes for the registered notes, you will continue to hold unregistered securities and it may be difficult for you to transfer them.
The only conditions to completing the exchange offer are that the exchange offer does not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission (the “SEC”); no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offer; all governmental approvals shall have been obtained, which approvals we deem necessary for the consummation of the exchange offer; there shall not have been any material change, or development involving a prospective material change, in our business or financial affairs which, in our reasonable judgment, would materially impair our ability to consummate the exchange offer; and that there shall not have been proposed, adopted or enacted any law, statute, rule or regulation which, in our reasonable judgment, would materially impair our ability to consummate the exchange offer or have a material adverse effect on us if the exchange offer was consummated.
We will not receive any cash proceeds from the exchange offer.
RESULTS OF THE EXCHANGE OFFER
The registered notes may be sold in the over-the-counter market, in negotiated transactions or through a combination of such methods. We do not plan to list the original notes or registered notes on a national market.
All outstanding original notes not tendered will continue to be subject to the restrictions on transfer set forth in the indenture governing the original notes. In general, outstanding original notes may not be offered or sold, unless registered under the Securities Act of 1933, as amended (the “Securities Act”), except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws.
Other than in connection with the exchange offer, we do not plan to register the outstanding original notes under the Securities Act.
Each broker-dealer that receives registered notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of thosethe registered notes. The letter of transmittal states that, by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter"“underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of registered notes received in exchange for oldoriginal notes where the oldoriginal notes were acquired by that broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the expiration date of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See "Plan“Plan of Distribution."
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Consider carefully the "Risk Factors" beginning on page 13 of this
prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
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CONSIDER CAREFULLY THE “RISK FACTORS” BEGINNING ON PAGE 16 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is, 2002
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2013
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WHERE YOU CAN FIND MORE | S-i | |||
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THE EXCHANGE | S-31 | |||
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DESCRIPTION OF OTHER | S-41 | |||
DESCRIPTION OF THE REGISTERED | S-44 | |||
U.S. FEDERAL INCOME TAX | S-71 | |||
PLAN OF | S-72 | |||
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| S-73 |
WHERE YOU CAN FIND MORE INFORMATION
AK Holding is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and, in accordance with these requirements, AK Holding files reports and other information relating to its business, financial condition and other matters with the SEC. AK Holding is required to disclose in such reports certain information, as of particular dates, concerning its operating results and financial condition, officers and directors, principal holders of shares, any material interests of such persons in transactions with us and other matters. We also have filed with the Securities and Exchange CommissionSEC a registration statement on Form S-4 under the Securities Act with respect to the registered notes. This prospectus, which is a part of the registration statement, omits certain information included in the registration statement and in its exhibits. For further information relating to us and the notes, we refer you to the registration statement and its exhibits. The descriptions of each contract and document contained in this prospectus are summaries and qualified in their entirety by reference to the copy of that contract or document filed as an exhibit to the registration statement. You may read and copy theOur registration statement, including its exhibits, and AK Holding’s filed reports, proxy statements and other information can be inspected and copied at the SEC's Public Reading Room locatedpublic reference room maintained by the SEC at 450 Fifth100 F Street, N.W.N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reading Roompublic reference room by calling the SEC at 1-800-SEC-0300.
We also file annual, quarterly, special reports and other information with the
SEC. You may read and copy any document we file with the SEC at the address set
forth above. 1-800-SEC-0330.
The SEC also maintains an Internet site (www.sec.gov)a website that contains reports proxy and information statements and other information regarding registrants like us whothat file electronically with the SEC. The address of such site is: www.sec.gov. Reports, proxy statements and other information concerning AK Holding’s business may also be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, NY 10005.
Our filings
are alsoInternet website is www.aksteel.com. We make available over the Internetfree of charge on our website (www.aksteel.com). YouAK Holding’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 and amendments to those reports as soon as reasonably practicable after such materials are electronically filed or furnished to the SEC. Other than any documents expressly incorporated by reference, the information on our website and any other website that is referred to in this prospectus is not part of this prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to “incorporate by reference” information into this prospectus, which means that we can obtaindisclose important information to you by referring to that information. We hereby “incorporate by reference” the documents listed below. The information that we file later with the SEC will automatically update and in some cases supersede the information in this prospectus and the documents listed below.
AK Holding’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, including portions of AK Holding’s Schedule 14A filed on April 12, 2013, incorporated by reference therein;
AK Holding’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013;
AK Holding’s Current Reports on Form 8-K filed on January 8, 2013, January 25, 2013, January 30, 2013, February 19, 2013, February 28, 2013, as amended by an amendment on Form 8-K/A filed on February 28, 2013, May 20, 2013 (only with respect to Item 8.01), May 31, 2013, June 19, 2013 (only with respect to Item 8.01 and the related exhibit 99.1) and June 24, 2013; and
future filings made by AK Holding and AK Steel with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and before the termination of this offering; provided that this prospectus will not incorporate any information that we may furnish to the SEC under Item 2.02 or Item 7.01 unless specifically provided in such Form 8-K.
Any statement contained in this prospectus or in a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the
S-i
extent that a statement contained in this prospectus or any other subsequently filed document that is deemed to be incorporated by reference into this prospectus modifies or supersedes the statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
Upon your oral or written request, we will provide you with a copy of any of ourthese filings at no cost, by contacting us at the
following address:cost. Requests should be directed to Secretary, AK Steel Holding Corporation, 703 Curtis Street
Middleton, OH 45043
Attention: Corporate Secretary9227 Centre Pointe Drive, West Chester, Ohio 45069, Telephone No. (513) 425-5000
425-5000.
To ensureobtain timely delivery, please make youryou must request as soon as practicable
and, in any event,the information no later than five (5) business days prior tobefore the expiration date of the exchange offer.
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NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE EXCHANGE OFFER
PurposeFACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
We have made forward-looking statements in this prospectus and Effectthe documents that are incorporated by reference therein that are based on our management’s beliefs and assumptions and on information available to our management at the time such statements were made. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “should” or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in our forward-looking statements. You should not put undue reliance on any forward-looking statements. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
reduced selling prices and shipments associated with a highly competitive, cyclical steel industry and weakened economies;
changes in the cost of raw materials and energy;
our significant amount of debt and other obligations;
severe financial hardship or bankruptcy of one or more of our major customers;
reduced demand in key product markets;
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competitive pressure from increased global steel production and imports;
excess inventory of raw materials;
issues with respect to our supply of raw materials, including disruptions or quality issues;
disruptions to production or reduced production levels;
our healthcare and pension obligations and related laws and regulations, which could include the recognition of a corridor charge with respect to our pension and other postretirement benefit plans;
not timely reaching new labor agreements;
major litigation, arbitrations, environmental issues and other contingencies;
costs associated with environmental compliance;
regulatory compliance and changes;
climate change and greenhouse gas emission limitations and regulations;
financial, credit, capital or banking markets;
our use of derivative contracts to hedge commodity pricing volatility;
the value of our net deferred tax assets;
inability to fully realize benefits of long-term cost savings and margin enhancement initiatives;
lower quantities or quality of estimated coal reserves of AK Coal Resources, Inc. (“AK Coal”);
increased governmental regulation of mining activities;
inability to hire or retain skilled labor and experienced manufacturing and mining managers; and
IT security threats and sophisticated computer crime.
The risk factors discussed under “Risk Factors” in this prospectus, under “Item 1A—Risk Factors” in AK Holding’s Annual Report on Form 10-K for the year ended December 31, 2012, as well as the other risks and uncertainties described in the other documents incorporated by reference into this prospectus, could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. We expressly disclaim any obligation to update our forward-looking statements other than as required by law.
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This summary does not include all information you should consider before investing in the notes. For a more complete understanding of the Company and the notes, we urge you to carefully read this prospectus and the information incorporated by reference herein and therein in its entirety, including the sections entitled “Risk Factors,” “Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes. Unless otherwise stated, or the context otherwise requires, references in this prospectus to “we,” “us,” “our” and “the Company” are to AK Holding and its consolidated subsidiaries, including AK Steel. Unless otherwise indicated, industry data contained in this prospectus are derived from publicly available sources, including industry trade journals and SEC filings, which we have not independently verified.
Business Overview
We are an integrated producer of flat-rolled carbon, stainless and electrical steels and tubular products, with nine steelmaking and finishing plants and tubular production facilities located in Indiana, Kentucky, Ohio and Pennsylvania. We produce flat-rolled value-added carbon steels, including premium-quality coated, cold-rolled and hot-rolled carbon steel products, and specialty stainless and electrical steels that are sold in sheet and strip form, as well as carbon and stainless steel that is finished into welded steel tubing. We sell these products to the automotive, infrastructure and manufacturing, and distributors and converters markets. Our carbon steel products are sold primarily to the automotive industry, to manufacturers of electrical transmission, heating, ventilation and air conditioning equipment and appliances, and to distributors, service centers and converters who may further process our products prior to reselling them. Our stainless steel products are sold primarily to customers in the automotive industry, as well as to manufacturers of food handling, chemical processing, pollution control and medical and health equipment, and to distributors and service centers. Our electrical steels, which are iron-silicon alloys with unique magnetic properties, are sold primarily to manufacturers of power transmission and distribution transformers. Our tubular products business line, known as AK Tube, consists of finished flat-rolled carbon and stainless steel that is welded into tubing, which is used primarily in the automotive, large truck, industrial and construction markets. In addition, our operations include European trading companies which buy and sell steel and steel products and other materials.
We have the capacity to ship approximately 6.5 million tons of steel products annually, and for the year ended December 31, 2012, we shipped approximately 5.4 million tons of steel products. In each of the three months ended March 31, 2013 and 2012, we shipped approximately 1.3 million tons of steel products. For the year ended December 31, 2012, we generated revenue and net income (loss) attributable to AK Holding of $5.9 billion and $(1,027.3) million, respectively. For the three months ended March 31, 2013, we generated revenue and net income (loss) attributable to AK Holding of $1.4 billion and $(9.9) million, respectively.
During 2011, we entered into a joint venture (“Magnetation”) whereby we acquired a 49.9% equity interest in Magnetation LLC, a company headquartered in Minnesota that produces iron ore concentrate from previously-mined ore reserves. In addition, we purchased a private company headquartered in Pennsylvania that we renamed AK Coal, which controls and is developing metallurgical coal reserves. These investments will supply approximately 50% of our annual iron ore and coal needs and are intended to provide a financial hedge against global market price increases and to enable us to acquire key raw materials at a substantial discount to the market price. Although the full benefit of these investments will likely not be realized until 2015 or later, we have made significant progress at Magnetation and AK Coal in 2013.
For additional information regarding our customers, markets, properties, and raw material needs, please refer to AK Holding’s Annual Report on Form 10-K for the year ended December 31, 2012 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, which are incorporated by reference herein.
Additional Information
AK Holding and AK Steel are incorporated under the laws of the State of Delaware. Our principal executive offices are located at 9227 Centre Pointe Drive, West Chester, Ohio 45069, and our telephone number at that address is (513) 425-5000. Our internet address is www.aksteel.com. Other than any documents expressly incorporated by reference, the information on our website and any other website that is referred to in this prospectus is not part of this prospectus.
Summary of the Terms of the Exchange Offer
On November 20, 2012, we issued the old notes$350.0 million in aggregate principal amount of our 8.750% Senior Secured Notes due 2018 in a private placement and on June 11, 2002. The notes
were resold by their24, 2013, we issued an additional $30.0 million in aggregate principal amount of our 8.750% Senior Secured Notes due 2018 in an add-on private placement. We entered into registration rights agreements with the initial purchasers of the original notes for the benefit of the holders of the original notes, pursuant to a limited number of qualified
institutional buyers,which you are entitled to exchange original notes for registered notes as defineddescribed in this prospectus. You are entitled to exchange your original notes in the exchange offer for registered notes with identical terms, except that the registered notes will have been registered under the Securities Act and will not bear legends restricting their transfer. Unless you are a broker-dealer or unable to participate in the exchange offer, we believe that the registered notes to be issued in the exchange offer may be resold by you without compliance with the registration and prospectus delivery requirements of the Securities Act. You should read the discussions under the headings “The Exchange Offer” and “Description of the Registered Notes” for further information regarding the registered notes.
| Registration Rights Agreements | You are entitled under the applicable registration rights agreement governing your original notes to exchange your original notes for registered notes with substantially identical terms. The exchange offer is intended to satisfy these rights. After the exchange offer is completed, except as set forth in the next paragraph, you will no longer be entitled to any exchange or registration rights with respect to your original notes. | |||
| If you are ineligible to participate in the exchange offer and indicate that you wish to have your original notes registered under the Securities Act, the applicable registration rights agreement governing your original notes requires us to file a registration statement for a continuous offering in accordance with Rule 415 under the Securities Act for your benefit. See “The Exchange Offer—Procedures for Tendering.” | ||||
| The Exchange Offer | We are offering to exchange $1,000 principal amount of our 8.750% Senior Secured Notes due 2018, which have been registered under the Securities Act, for each $1,000 principal amount of their 8.750% Senior Secured Notes due 2018 that were issued on either November 20, 2012 or June 24, 2013, and have not been so registered. | |||
| In order to be exchanged, original notes must be properly tendered and accepted. All original notes that are validly tendered and not validly withdrawn will be exchanged. | ||||
| As of this date, there are $380.0 million aggregate principal amount of our unregistered 8.750% Senior Secured Notes due 2018 outstanding. | ||||
| We will issue the registered notes promptly after the expiration of the exchange offer. | ||||
| Resales of the Registered Notes | We believe that the registered notes to be issued in the exchange offer may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act if, but only if, you meet the following conditions: | |||
(1) the registered notes to be issued to you in the exchange offer are acquired in the ordinary course of your business; | ||||
(2) at the time of the commencement of the exchange offer you have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the registered notes to be issued to you in the exchange offer in violation of the Securities Act; | ||||
(3) you are not an affiliate (as defined in Rule 405 promulgated under the Securities Act) of us; | ||||
(4) if you are a broker-dealer, you are not engaging in, and do not intend to engage in, a distribution of the registered notes to be issued to you in the exchange offer; | ||||
(5) if you are a participating broker-dealer that will receive registered notes for its own account in exchange for the original notes that were acquired as a result of market-making or other trading activities, that you will deliver a prospectus in connection with any resale of the registered notes; and | ||||
(6) you are not acting on behalf of any persons or entities who could not truthfully make the foregoing representations. | ||||
| Our belief is based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties unrelated to us. The staff has not considered this exchange offer in the context of a no-action letter, and we cannot assure you that the staff would make a similar determination with respect to this exchange offer. | ||||
| If you do not meet the above conditions, you may not participate in the exchange offer or sell, transfer or otherwise dispose of any original notes unless (i) they have been registered for resale by you under the Securities Act and you deliver a “resale” prospectus meeting the requirements of the Securities Act or (ii) you sell, transfer or otherwise dispose of the registered notes in accordance with an applicable exemption from the registration requirements of the Securities Act. | ||||
| Each broker-dealer that is issued registered notes in the exchange offer for its own account in exchange for original notes that were acquired by that broker-dealer as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any of its resales of those registered notes. A broker-dealer may use this prospectus to offer to resell, resell or otherwise transfer those registered notes. | ||||
Expiration Date | The exchange offer will expire at 5:00 p.m., New York City time, on , 2013, unless we decide to extend the exchange offer. We refer to this date, as it may be extended, as the expiration date. We do not intend to extend the exchange offer, although we reserve the right to do so. If we determine to extend the exchange offer, we do not intend to extend it beyond , 2013. | |||
Conditions to the Exchange Offer | The only conditions to completing the exchange offer are that: | |||
(1) the exchange offer does not violate applicable law or any applicable interpretation of the staff of the SEC; | ||||
(2) no injunction, order or decree shall have been issued that would prohibit, prevent or otherwise materially impair our ability to proceed with the exchange offer; | ||||
(3) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offer; | ||||
(4) all governmental approvals shall have been obtained, which approvals we deem necessary for the consummation of the exchange offer; | ||||
(5) there shall not have been any material change, or development involving a prospective material change, in our business or financial affairs which, in our reasonable judgment, would materially impair our ability to consummate the exchange offer; and | ||||
(6) that there shall not have been proposed, adopted or enacted any law, statute, rule or regulation which, in our reasonable judgment, would materially impair our ability to consummate the exchange offer or have a material adverse effect on us if the exchange offer was consummated. | ||||
| See “The Exchange Offer—Conditions.” | ||||
Procedures for Tendering Original Notes Held in the Form of Book-Entry Interests | The original notes were issued as global securities in fully registered form without interest coupons. Beneficial interests in the original notes which are held by direct or indirect participants in The Depository Trust Company, or DTC, through certificateless depositary interests are shown on, and transfers of the original notes can be made only through, records maintained in book-entry form by DTC with respect to its participants. | |||
| If you are a holder of an original note held in the form of a book-entry interest and you wish to tender your original note for exchange pursuant to the exchange offer, you must transmit to U.S. Bank National Association, as exchange agent, on or prior to the expiration date of the exchange offer either: | ||||
• a written or facsimile copy of a properly completed and executed letter of transmittal and all other required documents to the address set forth on the cover page of the letter of transmittal; or | ||||
• a computer-generated message transmitted by means of DTC’s Automated Tender Offer Program system and forming a part of a confirmation of book-entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal. | ||||
| The exchange agent must also receive on or prior to the expiration of the exchange offer either: | ||||
• a timely confirmation of book-entry transfer of your original notes into the exchange agent’s account at DTC, in accordance with the procedure for book-entry transfers described in this prospectus under the heading “The Exchange Offer—Book-Entry Transfer;” or | ||||
• the documents necessary for compliance with the guaranteed delivery procedures described below. | ||||
| A form of letter of transmittal accompanies this prospectus. By executing the letter of transmittal or delivering a computer-generated message through DTC’s Automated Tender Offer Program system, you will represent to us that, among other things: | ||||
• the registered notes to be issued to you in the exchange offer are acquired in the ordinary course of your business; | ||||
• at the time of the commencement of the exchange offer you have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the registered notes to be issued to you in the exchange offer in violation of the Securities Act; | ||||
• you are not an affiliate (as defined in Rule 405 promulgated under the Securities Act) of us; | ||||
• if you are a broker-dealer, you are not engaging in, and do not intend to engage in, a distribution of the registered notes to be issued to you in the exchange offer; | ||||
• if you are a participating broker-dealer that will receive registered notes for its own account in exchange for the original notes that were acquired as a result of market-making or other trading activities, that you will deliver a prospectus in connection with any resale of the registered notes; and | ||||
• you are not acting on behalf of any persons or entities who could not truthfully make the foregoing representations. | ||||
Procedures for Tendering Certificated Original Notes | If you are a holder of book-entry interests in the original notes, you are entitled to receive, in limited circumstances, in exchange for your book-entry interests, certificated notes in equal principal amount to your book-entry interests. See “Description of the Registered Notes—Form of Registered Notes.” No certificated notes are issued and outstanding as of the date of this prospectus, other than a single note issued to and held by DTC. If you acquire | |||
| certificated original notes prior to the expiration of the exchange offer, you must tender your certificated original notes in accordance with the procedures described in this prospectus under the heading “The Exchange Offer—Procedures for Tendering—Certificated Original Notes.” | ||||
Special Procedures for Beneficial Owner | If you are a holder of book-entry interests in the original notes, you are entitled to receive, in limited circumstances, in exchange for your book-entry interests, certificated notes in equal principal amount to your book-entry interests. See “Description of the Registered Notes—Form of Registered Notes.” No certificated notes are issued and outstanding as of the date of this prospectus, other than a single note issued to and held by DTC. If you acquire certificated original notes prior to the expiration of the exchange offer, you must tender your certificated original notes in accordance with the procedures described in this prospectus under the heading “The Exchange Offer—Procedures for Tendering—Certificated Original Notes.” | |||
Guaranteed Delivery Procedures | If you wish to tender your original notes and: | |||
(1) they are not immediately available; | ||||
(2) time will not permit your original notes or other required documents to reach the exchange agent before the expiration of the exchange offer; or | ||||
(3) you cannot complete the procedure for book-entry transfer on a timely basis, | ||||
| you may tender your original notes in accordance with the guaranteed delivery procedures set forth in “The Exchange Offer—Procedures for Tendering—Guaranteed Delivery Procedures.” | ||||
| Acceptance of Original Notes and Delivery of Registered Notes | Except under the circumstances described above under “Conditions to the Exchange Offer,” we will accept for exchange any and all original notes which are properly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the expiration date. The registered notes to be issued to you in the exchange offer will be delivered promptly following the expiration date. See “The Exchange Offer— Procedures for Tendering.” | |||
Withdrawal | You may withdraw the tender of your original notes at any time prior to 5:00 p.m., New York City time, on the expiration date. We will return to you any original notes not accepted for exchange for any reason without expense to you as promptly as we can after the expiration or termination of the exchange offer. | |||
Exchange Agent | U.S. Bank National Association is serving as the exchange agent in connection with the exchange offer. | |||
Consequences of Failure to Exchange | If you do not participate in the exchange offer, upon completion of the exchange offer, the liquidity of the market for your original notes could be adversely affected. See “The Exchange Offer—Consequences of Failure to Exchange.” | |||
Federal Income Tax Consequences | The exchange of original notes for registered notes should not be a taxable event for federal income tax purposes. See “U.S. Federal Income Tax Consequences.” | |||
Summary of the Terms of the Registered Notes
The following summary contains basic information about the registered notes and is not intended to be complete. It does not contain all the information that is important to you. For a limited
numbermore complete understanding of persons outsidethe notes, please refer to the section of this prospectus entitled “Description of the Registered Notes.”
Issuer | AK Steel Corporation. | |||
Securities offered | $380.0 million aggregate principal amount of 8.750% Senior Secured Notes due 2018. | |||
Maturity date | December 1, 2018. | |||
Interest payment dates | Interest will be payable in cash on June 1 and December 1 of each year, beginning December 1, 2013. | |||
Guarantees | AK Holding, our parent, will guarantee the notes on a senior unsecured basis. If we do not make any payment on the notes, then AK Holding must make the payment instead. | |||
Notes Collateral | The notes are secured by first priority liens on the plant, property and equipment of AK Steel (other than certain excluded property) and proceeds thereof. | |||
| See “Description of the Registered Notes—Security.” | ||||
| Under certain circumstances, the indenture and the security documents governing the notes will permit us and the guarantors to incur additional debt that also may be secured by liens on the notes collateral that are equal to the liens securing the notes. See “Description of the Registered Notes—Security—Collateral Trust Agreement.” | ||||
Mandatory Offer to Repurchase Following Certain Asset Sales | If we sell certain notes collateral and do not reinvest the net proceeds in notes collateral in compliance with the indenture that will govern the notes, we must offer to repurchase the notes at 100% of their aggregate principal amount, plus accrued and unpaid interest. | |||
Ranking | The notes will be our senior secured obligations and rank: | |||
• equal in right of payment with all of our existing and future senior debt but effectively senior to all unsecured debt to the extent of the value of the notes collateral; | ||||
• senior in right of payment to any of our future subordinated debt; | ||||
• effectively junior to any obligations that are secured by assets that are not part of the notes collateral, including the inventory, receivables, intellectual property and related assets and any proceeds of the foregoing (collectively, the “ABL Collateral”), which secure the obligations under our $1.1 billion five-year asset-backed revolving credit facility (the “Credit Facility”); and | ||||
• effectively junior in right of payment to the obligations of the subsidiaries of AK Steel that do not guarantee the notes; in this regard, none of AK Steel’s subsidiaries will initially guarantee the notes. | ||||
| As of March 31, 2013: | ||||
• we had no other debt secured ratably with the $350.0 million in aggregate principal amount of notes then outstanding by liens on the notes collateral but had $78.2 million of outstanding letters of credit under our Credit Facility secured by the ABL Collateral; | ||||
• we had $1,100.6 million of unsecured senior debt; and | ||||
• our non-guarantor subsidiaries had $46.7 million of indebtedness and other liabilities (including trade payables, but excluding intercompany obligations and liabilities of a type not required to be reflected on a balance sheet of such subsidiaries in accordance with accounting principles generally accepted in the United States of America (“GAAP”)) to which the notes would have been structurally subordinated. | ||||
Optional redemption | We may redeem any of the notes prior to December 1, 2015 at a redemption price equal to 100% of the principal amount of the notes plus a “make-whole” premium. We may redeem any of the notes beginning on December 1, 2015 at the redemption prices set forth in “Description of the Registered Notes—Optional Redemption.” | |||
| In addition, before December 1, 2015, we may redeem up to 35% of the aggregate principal amount of notes originally issued (calculated after giving effect to any Additional Notes, as defined under “Description of the Registered Notes—General”) with the proceeds of certain public offerings of our common stock at 108.750% of their principal amount plus accrued interest. We may make such redemption only if, after any such redemption, at least 65% of the aggregate principal amount of notes originally issued remains outstanding. | ||||
Change of control | Upon a change of control (as defined under “Description of the Registered Notes—Definitions”), we will be required to make an offer to purchase the notes. The purchase price will equal 101% of the principal amount of the notes on the date of purchase plus accrued and unpaid interest. We may not have sufficient funds available at the time of any change of control to make any required debt repayment (including repurchases of the notes). See “Risk Factors—Risks Relating to the Notes—Risks associated with change of control provisions in the indentures governing our debt and our Credit Facility.” | |||
Certain covenants | The terms of the notes restrict our ability and the ability of our restricted subsidiaries (as described in “Description of the Registered Notes”) to: | |||
• create liens on its and their assets; | ||||
• incur subsidiary debt; | ||||
• engage in sale/leaseback transactions; | ||||
• sell notes collateral; and | ||||
• engage in a consolidation, merger or sale of assets. | ||||
| However, these limitations are subject to a number of important qualifications and exceptions described under the heading “Description of the Registered Notes.” | ||||
Form of registered notes | The registered notes to be issued in the exchange offer will be represented by one or more global securities deposited with U.S. Bank National Association for the benefit of DTC. You will not receive registered notes in certificated form unless one of the events set forth under the heading “Description of the Registered Notes—Form of Registered Notes” occurs. Instead, beneficial interests in the registered notes to be issued in the exchange offer will be shown on, and transfer of these interests will be effected only through, records maintained in book-entry form by DTC with respect to its participants. | |||
Use of Proceeds | We will not receive any cash proceeds upon completion of the exchange offer. | |||
Risk Factors | See “Risk Factors” for a discussion of certain factors that you should carefully consider before investing in the notes and participation in the exchange offer. | |||
Ratio of Earnings to Fixed Charges
The following table sets forth information regarding our ratio of earnings to fixed charges for the historical periods shown. For purposes of determining the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes with applicable adjustments. Fixed charges consist of capitalized interest credit, interest factor in rent expense and other interest and fixed charges.
Three months ended March 31, 2013 | Year Ended December 31, | |||||||||
| 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
| NM* | NM* | NM* | NM* | NM* | NM* | |||||
| * | For the three months ended March 31, 2013 and the years ended December 31, 2012, 2011, 2010 2009 and 2008, earnings were less than fixed charges by $7.2 million, $252.1 million, $243.6 million, $172.3 million, $95.9 million and $1.3 million, respectively. |
Summary Historical Financial and Operating Data
The following summary historical consolidated financial data as of and for the three months ended March 31, 2013 and 2012 has been derived from our unaudited condensed consolidated financial statements, and the summary historical consolidated financial data as of December 31, 2012 and 2011 and for each of the years in the three-year period ended December 31, 2012 has been derived from our audited consolidated financial statements, which are incorporated by reference in this prospectus. The historical consolidated financial data as of December 31, 2010, 2009, and 2008 and for the years ended December 31, 2009 and 2008 has been derived from our audited consolidated financial statements, which are not included or incorporated by reference in this prospectus.
This information is only a summary. You should read the data set forth in the table below in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes as of and for the three months ended March 31, 2013 and 2012 and our audited consolidated financial statements and the accompanying notes as of December 31, 2012 and 2011 and for each of the years in the three-year period ended December 31, 2012, which are included in AK Holding’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and AK Holding’s Annual Report on Form 10-K for the year ended December 31, 2012, each of which is incorporated by reference in this prospectus.
| Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||
| 2008 | 2009 | 2010 | 2011 | 2012 | 2012 | 2013 | ||||||||||||||||||||||
| (Dollars in millions, except per share and per ton data) | ||||||||||||||||||||||||||||
Net sales | $ | 7,644.3 | $ | 4,076.8 | $ | 5,968.3 | $ | 6,468.0 | $ | 5,933.7 | $ | 1,508.7 | $ | 1,369.8 | ||||||||||||||
Costs of products sold (exclusive of items below) | 6,489.1 | 3,725.6 | 5,643.2 | 6,036.8 | 5,539.1 | 1,409.0 | 1,252.3 | |||||||||||||||||||||
Selling and administrative expenses (exclusive of items shown below) | 218.9 | 188.3 | 204.0 | 215.4 | 208.7 | 55.8 | 51.6 | |||||||||||||||||||||
Depreciation | 202.1 | 204.6 | 197.1 | 185.0 | 192.0 | 48.3 | 48.6 | |||||||||||||||||||||
Pension and other postretirement benefits expense (income) (exclusive of corridor charge shown below) | 6.7 | 28.4 | (14.9 | ) | (36.0 | ) | (35.3 | ) | (8.5 | ) | (15.9 | ) | ||||||||||||||||
Pension corridor charge | 660.1 | — | — | 268.1 | 157.3 | — | — | |||||||||||||||||||||
Other operating items: | ||||||||||||||||||||||||||||
Ashland coke plant shutdown charges | — | — | 63.7 | — | — | — | — | |||||||||||||||||||||
Butler retiree benefit settlement costs | — | — | 9.1 | — | — | — | — | |||||||||||||||||||||
Curtailment charge | 39.4 | — | — | — | — | — | — | |||||||||||||||||||||
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Total operating costs | 7,616.3 | 4,146.9 | 6,102.2 | 6,669.3 | 6,061.8 | 1,504.6 | 1,336.6 | |||||||||||||||||||||
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Operating profit (loss) | 28.0 | (70.1 | ) | (133.9 | ) | (201.3 | ) | (128.1 | ) | 4.1 | 33.2 | |||||||||||||||||
Interest expense | 46.5 | 37.0 | 33.0 | 47.5 | 86.7 | 16.2 | 31.0 | |||||||||||||||||||||
Other income (expense) | 12.1 | 9.1 | (7.6 | ) | (5.3 | ) | 6.2 | 0.9 | 1.8 | |||||||||||||||||||
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Income (loss) before income taxes | (6.4 | ) | (98.0 | ) | (174.5 | ) | (254.1 | ) | (208.6 | ) | (11.2 | ) | 4.0 | |||||||||||||||
Income tax provision due to tax law changes | — | 5.1 | 25.3 | 2.0 | — | — | — | |||||||||||||||||||||
Income tax provision (benefit)(1) | (10.9 | ) | (25.1 | ) | (69.1 | ) | (96.0 | ) | 790.0 | (4.3 | ) | (2.8 | ) | |||||||||||||||
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Total income tax provision (benefit) | (10.9 | ) | (20.0 | ) | (43.8 | ) | (94.0 | ) | 790.0 | (4.3 | ) | (2.8 | ) | |||||||||||||||
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Net income (loss) | 4.5 | (78.0 | ) | (130.7 | ) | (160.1 | ) | (998.6 | ) | (6.9 | ) | 6.8 | ||||||||||||||||
Less: Net income (loss) attributable to noncontrolling interests(1) | 0.5 | (3.4 | ) | (1.8 | ) | (4.5 | ) | 28.7 | 4.9 | 16.7 | ||||||||||||||||||
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Net income (loss) attributable to AK Holding | $ | 4.0 | $ | (74.6 | ) | $ | (128.9 | ) | $ | (155.6 | ) | $ | (1,027.3 | ) | $ | (11.8 | ) | $ | (9.9 | ) | ||||||||
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Basic and diluted earnings per share: | ||||||||||||||||||||||||||||
Net income (loss) per share attributable to AK Holding common stockholders | $ | 0.04 | $ | (0.68 | ) | $ | (1.17 | ) | $ | (1.41 | ) | $ | (9.06 | ) | $ | (0.11 | ) | $ | (0.07 | ) | ||||||||
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| 2008 | 2009 | 2010 | 2011 | 2012 | 2012 | 2013 | ||||||||||||||||||||||
| (Dollars in millions, except per share and per ton data) | ||||||||||||||||||||||||||||
Other financial data: | ||||||||||||||||||||||||||||
Capital investments(2) | $ | (166.8 | ) | $ | (109.5 | ) | $ | (117.1 | ) | $ | (101.1 | ) | $ | (45.5 | ) | $ | (10.5 | ) | $ | (15.5 | ) | |||||||
Net cash flows from operating activities | 83.1 | 58.8 | (132.4 | ) | (180.5 | ) | (270.8 | ) | (150.0 | ) | (7.0 | ) | ||||||||||||||||
Net cash flows from investing activities | (217.8 | ) | (133.4 | ) | (266.3 | ) | (420.2 | ) | (118.6 | ) | (29.9 | ) | (15.7 | ) | ||||||||||||||
Net cash flows from financing activities | (16.2 | ) | (26.4 | ) | 153.8 | 425.9 | 574.4 | 180.2 | (12.5 | ) | ||||||||||||||||||
Balance sheet data (as of period end): | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 562.7 | $ | 461.7 | $ | 216.8 | $ | 42.0 | $ | 227.0 | $ | 42.3 | $ | 191.8 | ||||||||||||||
Working capital | 1,268.6 | 889.4 | 559.6 | 137.3 | 630.3 | 397.1 | 604.0 | |||||||||||||||||||||
Total assets(3) | 4,682.0 | 4,274.7 | 4,188.6 | 4,449.9 | 3,903.1 | 4,691.3 | 3,906.1 | |||||||||||||||||||||
Current portion of long-term debt (including borrowings under the Credit Facility classified as short-term) | 0.7 | 0.7 | 0.7 | 250.7 | 0.7 | 145.7 | 0.7 | |||||||||||||||||||||
Long-term debt (excluding current portion) | 632.6 | 605.8 | 650.6 | 650.0 | 1,411.2 | 949.9 | 1,411.9 | |||||||||||||||||||||
Current portion of pension and postretirement benefit obligations | 152.4 | 144.1 | 145.7 | 130.0 | 108.6 | 127.2 | 109.8 | |||||||||||||||||||||
Pension and other postretirement benefit obligations (excluding current portion) | 2,144.2 | 1,856.2 | 1,706.0 | 1,744.8 | 1,661.7 | 1,705.8 | 1,607.7 | |||||||||||||||||||||
Total equity (deficit)(1) | 970.7 | 880.1 | 641.1 | 377.2 | (91.0 | ) | 360.6 | (109.7 | ) | |||||||||||||||||||
Other data: | ||||||||||||||||||||||||||||
Cash dividend declared per common share | $ | 0.20 | $ | 0.20 | $ | 0.20 | $ | 0.20 | $ | 0.10 | $ | 0.05 | $ | — | ||||||||||||||
Amortization(4) | $ | 11.2 | $ | 12.3 | $ | 15.0 | $ | 14.1 | $ | 14.2 | $ | 6.9 | $ | 4.1 | ||||||||||||||
Adjusted EBITDA(5) | $ | 941.6 | $ | 156.4 | $ | 144.3 | $ | 265.7 | $ | 181.2 | $ | 48.9 | $ | 66.8 | ||||||||||||||
Steel shipments (net thousand tons) | 5,866.0 | 3,935.5 | 5,660.9 | 5,698.8 | 5,431.3 | 1,325.9 | 1,289.8 | |||||||||||||||||||||
Average selling price per ton | $ | 1,303 | $ | 1,036 | $ | 1,054 | $ | 1,131 | $ | 1,092 | $ | 1,138 | $ | 1,062 | ||||||||||||||
Adjusted EBITDA per ton | $ | 161 | $ | 40 | $ | 25 | $ | 47 | $ | 33 | $ | 37 | $ | 52 | ||||||||||||||
| (1) | In the first quarter of 2013, SunCoke Energy, Inc. (“SunCoke”) completed an initial public offering of an affiliate, SunCoke Energy Partners, L.P., a master limited partnership. As a result of a change in the legal structure of the SunCoke entities that own Middletown Coke Company, LLC (“SunCoke Middletown”) made in connection with the offering, income taxes are no longer allocated to net income attributable to SunCoke Middletown beginning in the first quarter of 2013. Thus, effective January 1, 2013, our income tax provision (benefit) no longer includes the effect of that allocation. However, for the years ended December 31, 2010, 2011 and 2012 and the three months ended March 31, 2012, the consolidated income tax provision (benefit) included $(1.1) million, $(2.8) million, $17.6 million and $3.0 million, respectively, associated with SunCoke Middletown. For the years ended December 31, 2008 and 2009, the consolidated income tax provision (benefit) included |
| no amounts associated with SunCoke Middletown. Neither the former tax allocation nor the January 1, 2013 change eliminating that allocation had any effect on the net income (loss) attributable to AK Holding in any period. As of December 31, 2012, the advances in SunCoke Middletown were classified as noncontrolling interests as a result of SunCoke’s conclusion that the advances should now be treated as an equity investment. These advances totaled $45.5 million, $74.5 million, $226.2 million, $436.8 million and $416.2 million at December 31, 2008, 2009, 2010 and 2011 and March 31, 2012, respectively, and were included in other non-current liabilities based on SunCoke’s treatment of the advances as intercompany payables. |
| (2) | Excludes operations of SunCoke Middletown, which are consolidated in our results although we do not own an equity interest in SunCoke Middletown. |
| (3) | Included in consolidated total assets are assets of consolidated variable interest entities totaling $439.2 million at March 31, 2013. These assets are primarily related to SunCoke Middletown, although AK Steel has no ownership interest in SunCoke Middletown’s equity or its assets. As such, the assets do not and will not serve as collateral for the notes or any of our other indebtedness, nor are the assets available to our creditors or shareholders in settlement of any claims. |
| (4) | Amortization excludes amounts that are included in interest expense. |
| (5) | EBITDA is defined as net income (loss) attributable to AK Holding, plus noncontrolling interests, income tax provision (benefit), net interest expense, depreciation and amortization. Adjusted EBITDA is defined as net income (loss) attributable to AK Holding, plus income tax provision (benefit), net interest expense, depreciation, amortization and special charges. These are metrics that are sometimes used to compare the results of different companies by removing the effects of different factors that might otherwise make comparisons inaccurate or inappropriate. The adjusted results, although not financial measures under GAAP and not identically applied by other companies, facilitate the ability to analyze our financial results in relation to those of our competitors and to our prior financial performance by excluding items that otherwise would distort the comparison. Adjusted EBITDA is not necessarily comparable to similarly titled measures used by other companies. Adjusted EBITDA is presented because we believe it enhances investors’ understanding of our financial results and is a useful indicator of our performance and our ability to meet debt service and capital expenditure requirements. It is not, however, intended as an alternative measure of operating results or cash flow from operations as determined in accordance with GAAP. |
We have adjusted EBITDA to exclude the effects of noncontrolling interests, pension corridor accounting charges, Ashland coke plant shutdown charges and Butler Retiree Settlement costs. We have made these adjustments because we believe that reporting adjusted net income (loss) attributable to AK Holding (as a total and on a per share basis) with these items excluded more clearly reflects our current operating results and provides investors with a better understanding of our overall financial performance.
We recognize in our results of operations, as a corridor adjustment, any unrecognized actuarial net gains or losses that exceed 10% of the larger of projected benefit obligations or plan assets. Amounts inside this 10% corridor are amortized over the plan participants’ life expectancy. The need for a corridor charge is considered at any remeasurement date, but has historically only been recorded in the fourth quarter at the time of the annual remeasurement. After excluding the corridor charge, the remaining pension expense included in the non-GAAP measure is comparable to the accounting for pension expense on a GAAP basis in the first three quarters of the year and we believe this is useful in analyzing our results on a quarter-to-quarter basis, as well as analyzing our results on a year-to-year basis. As a result of our corridor method of accounting, our subsequent financial results on both a GAAP and a non-GAAP basis do not contain any amortization of prior period actuarial gains or losses that exceeded the corridor threshold because those amounts were immediately recognized as a corridor adjustment in the period incurred. Actuarial net gains and losses occur when actual experience differs from any of the many assumptions used to value the benefit plans, or when the
assumptions change, as they may each year when a valuation is performed. The two most significant of those assumptions are the discount rate used to value projected plan obligations and the rate of return on plan assets. In addition, changes in other actuarial assumptions and the degree by which the unrealized gains or losses are within the corridor threshold prior to remeasurement will affect the calculation of the corridor adjustment. The effect of prevailing interest rates on the discount rate as of the December 31 measurement date and actual return on plan assets compared to the expected return will have a significant impact on the determination of our year-end liability, corridor adjustment and subsequent year’s expense for these benefit plans. For example, the corridor charge for the year ended December 31, 2012 was driven by actuarial losses caused primarily by (i) a decrease in the discount rate assumption used to determine the current year pension liabilities from 4.74% at December 31, 2011 to 3.85% at December 31, 2012 (an actuarial loss of approximately $280.0 million) and (ii) changes in mortality assumptions partially offset by (iii) the net effect of the difference between the expected return on assets of 8.0% ($188.3 million) and the actual return on assets of 14.8% ($347.8 million) (netting to an actuarial gain of $159.5 million). We believe that the corridor method of accounting for pension and other postretirement obligations is rarely used by other publicly traded companies. However, because different approaches are used in recognizing actuarial gains and losses, our resulting pension expense on a GAAP basis or a non-GAAP basis may not be comparable to other companies’ pension expense on a GAAP basis. Although the corridor charge reduces reported operating and net income, it does not affect our cash flows in the current period. However, the pension obligation will be ultimately settled in cash.
The following table presents a reconciliation of adjusted EBITDA to Net income (loss) attributable to AK Holding:
| Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||
| 2008 | 2009 | 2010 | 2011 | 2012 | 2012 | 2013 | ||||||||||||||||||||||
| (Dollars in millions, except per ton data) | ||||||||||||||||||||||||||||
Net income (loss) attributable to AK Holding | $ | 4.0 | $ | (74.6 | ) | $ | (128.9 | ) | $ | (155.6 | ) | $ | (1,027.3 | ) | $ | (11.8 | ) | $ | (9.9 | ) | ||||||||
Noncontrolling interests | 0.5 | (3.4 | ) | (1.8 | ) | (4.5 | ) | 28.7 | 4.9 | 16.7 | ||||||||||||||||||
Income tax provision (benefit) | (10.9 | ) | (20.0 | ) | (43.8 | ) | (94.0 | ) | 790.0 | (4.3 | ) | (2.8 | ) | |||||||||||||||
Interest expense | 46.5 | 37.0 | 33.0 | 47.5 | 86.7 | 16.2 | 31.0 | |||||||||||||||||||||
Interest income | (10.6 | ) | (2.7 | ) | (1.6 | ) | (0.5 | ) | (0.4 | ) | (0.1 | ) | (0.7 | ) | ||||||||||||||
Depreciation | 202.1 | 204.6 | 197.1 | 185.0 | 192.0 | 48.3 | 48.6 | |||||||||||||||||||||
Amortization | 11.2 | 12.3 | 15.0 | 14.1 | 14.2 | 6.9 | 4.1 | |||||||||||||||||||||
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EBITDA | 242.8 | 153.2 | 69.0 | (8.0 | ) | 83.9 | 60.1 | 87.0 | ||||||||||||||||||||
Special charges(a) | 699.5 | — | 72.8 | 268.1 | 157.3 | — | — | |||||||||||||||||||||
Less: EBITDA of noncontrolling interests(b) | 0.7 | (3.2 | ) | (2.5 | ) | (5.6 | ) | 60.0 | 11.2 | 20.2 | ||||||||||||||||||
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Adjusted EBITDA | $ | 941.6 | $ | 156.4 | $ | 144.3 | $ | 265.7 | $ | 181.2 | $ | 48.9 | $ | 66.8 | ||||||||||||||
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Adjusted EBITDA per ton | $ | 161 | $ | 40 | $ | 25 | $ | 47 | $ | 33 | $ | 37 | $ | 52 | ||||||||||||||
| (a) | Special charges include (i) a pension corridor charge of $660.1 million in 2008, $268.1 million in 2011 and $157.3 million in 2012, (ii) $63.7 million for the shutdown of the Ashland coke plant and a $9.1 million charge taken in connection with the Butler retiree benefit settlement costs in 2010 and (iii) a pension curtailment charge of $39.4 million in 2008. |
| (b) | The reconciliation of EBITDA of noncontrolling interests to net income (loss) attributable to noncontrolling interests is as follows: |
| Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||
| 2008 | 2009 | 2010 | 2011 | 2012 | 2012 | 2013 | ||||||||||||||||||||||
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Net income (loss) attributable to noncontrolling interests | $ | 0.5 | $ | (3.4 | ) | $ | (1.8 | ) | $ | (4.5 | ) | $ | 28.7 | $ | 4.9 | $ | 16.7 | |||||||||||
Income tax provision (benefit) | — | — | (1.1 | ) | (2.8 | ) | 17.6 | 3.0 | — | |||||||||||||||||||
Depreciation | 0.2 | 0.2 | 0.4 | 1.7 | 13.7 | 3.3 | 3.5 | |||||||||||||||||||||
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EBITDA of noncontrolling interests | $ | 0.7 | $ | (3.2 | ) | $ | (2.5 | ) | $ | (5.6 | ) | $ | 60.0 | $ | 11.2 | $ | 20.2 | |||||||||||
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You should carefully consider the risks described below in addition to the risks described in “Item 1A—Risk Factors” in AK Holding’s Annual Report on Form 10-K for the year ended December 31, 2012, as well as the other risks and uncertainties described in the other documents incorporated by reference in this prospectus, before investing in the notes. We cannot assure you that you will not lose part or all of your investment.
Risks Relating to our Business
We caution readers that our business activities involve risks and uncertainties that could cause actual results to differ materially from those we currently expect. The most significant of those risks are:
| • | Risk of reduced selling prices and shipments associated with a highly competitive, cyclical industry and weakened economies. Historically, the steel industry has been a cyclical industry. The recovery from the dramatic downturn in the domestic and global economies that began in the fall of 2008 has been slow and uneven across various industries and sectors. The lingering effects of the recession continue to adversely affect demand for our products. Although pricing and shipments have improved compared to the severe recessionary conditions of 2009, net sales have not yet returned to pre-2009 levels. This failure to return to pre-recession conditions is the result of a variety of factors, including: |
the slow pace of the U.S. economic recovery and heightened uncertainty with respect to the direction of the economy in the United States;
greater widespread uncertainty and deterioration in the economies of Western Europe, caused chiefly by currency devaluations, high debt levels and reduced government and private sector spending;
the effects of a slowdown in the Chinese economy, including increases in exports of some categories of Chinese steel to the United States;
increased competition in the United States from both foreign and domestic steel competitors, particularly those in bankruptcy or with new or expanded production capacity in the United States; and
decreases in scrap steel exports from the United States to Europe as a result of lower foreign demand and currency devaluations, which results in greater scrap supply and lower scrap pricing in the United States and provides a competitive advantage to mini-mill producers who utilize more scrap in their steel production than integrated mills like us.
These conditions directly impact spot market pricing for our products, and in particular our carbon steel products. They also may adversely impact our efforts to negotiate higher prices with our contract customers. At this time, it is impossible to determine when or if the domestic and/or global economies will return to pre-recession levels. Thus there is a risk of continued adverse impact on demand for our products, the prices for those products, and our sales and shipments of those products as a result of the ongoing weakness in the economy. In addition, global economic conditions remain fragile and the possibility remains that the domestic or global economies, or certain industry sectors of those economies that are key to our sales, may not recover as quickly as anticipated, or could deteriorate, which likely would result in a corresponding fall in demand for our products and negatively impact our business, financial results and cash flows.
| • | Risk of changes in the cost of raw materials and energy. The price which we pay for energy and key raw materials, such as iron ore, coal, natural gas and scrap, can fluctuate significantly based on market factors. The prices at which we sell steel will not necessarily change in tandem with changes in our raw material and energy costs. A portion of our shipments are in the spot market, and pricing for these products fluctuates based on prevailing market conditions. The remainder of our shipments are pursuant to contracts typically having durations of six months or more. A portion of those contracts |
contain fixed prices that do not allow us to pass through changes in the event of increases or decreases in raw material and energy costs. However, a significant majority of our shipments to contract customers are pursuant to contracts with variable-pricing mechanisms that allow AK Steel to adjust the price or to impose a surcharge based upon changes in certain raw material and energy costs. Those adjustments, however, do not always reflect all of our underlying raw material and energy cost changes. The scope of the adjustment may be limited by the terms of the negotiated language or by the timing of when the adjustment is effective relative to a cost increase. For shipments made to the spot market, market conditions or timing of sales may not allow us to recover the full amount of an increase in raw material or energy costs. As a result of the factors set forth above with respect to spot market sales and contract sales, we are not always able to recover through the price of our steel the full amount of cost increases associated with our purchase of energy or key raw materials. In such circumstances a significant increase in raw material or energy costs likely would adversely impact our financial results and cash flows. Conversely, in certain circumstances, our financial results and cash flows also can be adversely affected when raw material prices decline. This can occur when we lock in the price of a raw material over a period of time and the spot market price for the material declines during that period. Because there often is a correlation between the price of finished steel and the raw materials of which it is comprised, a decline in raw material prices may coincide with lower steel prices, compressing our margins. The impact of a change in raw materials prices also may be delayed by the need to consume existing inventories. New inventory may not be purchased until some portion of the existing inventory purchased earlier is consumed. The impact of this risk is particularly significant with respect to iron ore because of the volume used by operations and the associated costs. Our exposure to the risk of price increases with respect to iron ore and coal has been reduced by virtue of our investments in an iron ore joint venture and in the acquisition of coal reserves. These investments are expected over time to enable us to acquire approximately one half of our annual iron ore and coal needs at prices that are less exposed to market fluctuations and are below current market prices, but there is a risk that the volume of iron ore and coal acquired by us through these investments will be less than that in the event of delays in development or otherwise, or that the cost of raw materials from these operations will be higher than expected. To the extent that we must acquire our iron ore and coal at market prices, the overall trend of these prices remains high in comparison to historical prices. Going forward, cost increases could be significant again with respect to iron ore and coal, as well as certain other raw materials, such as scrap. The impact of significant fluctuations in the price we pay for our raw materials can be exacerbated by our “last in, first out” (“LIFO”) method for valuing inventories when there are changes in the cost of raw materials or energy or in our raw material inventory levels as well as our finished and semi-finished inventory levels. The impact of LIFO accounting may be particularly significant with respect to period-to-period comparisons. |
| • | Risk of severe financial hardship or bankruptcy of one or more of our major customers. Many, if not most, of our customers have shared the financial and operational challenges faced by us during the severe recession that began in late 2008 and the slow and uneven domestic and global economic recovery that has followed. In the event of a significant weakening of current economic conditions, whether as a result of secular or cyclical issues, it could lead to financial difficulties or even bankruptcy filings by our customers. We could be adversely impacted by such financial hardships or bankruptcies. The nature of that impact most likely would be lost sales or losses associated with the potential inability to collect all outstanding accounts receivables. Such an event could negatively impact our financial results and cash flows. |
| • | Risk of reduced demand in key product markets. The automotive and housing markets are important elements of our business. Though conditions have improved since the severe economic downturn that started in the fall of 2008, particularly with respect to the automotive market, both markets continue to be depressed compared to pre-recession levels. If demand from one or more of our major automotive customers were to be reduced significantly as a result of a renewed severe economic downturn, increased use of competing materials in substitution for steel, or other causes, it likely would negatively affect our sales, financial results and cash flows. Similarly, if demand for our products sold to the housing market were to be further reduced significantly, it could negatively affect AK Steel’s sales, financial results and cash flows. |
| • | Risk of increased global steel production and imports. Actions by our domestic or foreign competitors to increase production in and/or exports to the United States could result in an increased supply of steel in the United States, which could result in lower prices for and shipments of our products. In fact, significant increases in production capacity in the United States by competitors of AK Steel already has occurred in recent years as new carbon and stainless steelmaking and finishing facilities have begun production. In addition, foreign competitors, especially those in China, have substantially increased their production capacity in the last few years, and in some instances have seemingly targeted the U.S. market for imports of certain higher value products, including electrical steels. These and other factors have contributed to a high level of imports of foreign steel into the United States in recent years and create a risk of even greater levels of imports, depending upon foreign market and economic conditions, the value of the U.S. dollar relative to other currencies, and other variables beyond our control. A significant further increase in domestic capacity or foreign imports could adversely affect our sales, financial results and cash flows. |
| • | Risks of excess inventory of raw materials. We have certain raw material supply contracts, particularly with respect to iron ore and coke, which have terms providing for minimum annual purchases, subject to exceptions for force majeure and other circumstances. If our 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, we could be required to purchase quantities of raw materials, particularly iron ore and coke, which exceed our anticipated annual needs. If that circumstance was to occur, and if we were not successful in reaching agreement with a particular raw material supplier to reduce the quantity of raw materials it purchases from that supplier, then we would likely be required to purchase more of a particular raw material in a given year than it needs, negatively affecting our financial results and cash flows. The impact on financial results could be exacerbated by our LIFO method for valuing inventories, which could be affected by changes in our raw material inventory levels, as well as our finished and semi-finished inventory levels. The impact of LIFO accounting may be particularly significant with respect to period-to-period comparisons. |
| • | Risk of supply chain disruptions or poor quality of raw materials. Our sales, financial results and cash flows could be adversely affected by transportation, raw material or energy supply disruptions, or poor quality of raw materials, particularly scrap, coal, coke, iron ore, alloys and purchased carbon slabs. Such disruptions or quality issues, whether the result of severe financial hardships or bankruptcies of suppliers, natural or man-made disasters or other adverse weather events, or other unforeseen circumstances or events, could reduce production or increase costs at one or more of our plants. |
| • | Risk of production disruption or reduced production levels. When business conditions permit, we operate our facilities at production levels at or near capacity. High levels of production are important to our financial results because they enable us to spread our fixed costs over a greater number of tons. Production disruptions could be caused by the idling of facilities due to reduced demand, such as resulting from the recent economic downturn. Such production disruptions also could be caused by unanticipated plant outages or equipment failures, particularly under circumstances where we lack adequate redundant facilities, such as with respect to our hot mill. In addition, the occurrence of natural or man-made disasters, adverse weather conditions, or similar events or circumstances could significantly disrupt our operations, negatively impact the operations of other companies or contractors we depend upon in our operations, or adversely affect customers or markets to which we sell our products. Any such significant disruptions or reduced levels of production would adversely affect our sales, financial results and cash flows. |
| • | Risks associated with our healthcare obligations. We provide healthcare coverage to our active employees and to a significant portion of our retirees, as well as to certain members of their families. We are self-insured with respect to substantially all of our healthcare coverage. While we have substantially mitigated our exposure to rising healthcare costs through cost sharing, healthcare cost caps and the establishment of Voluntary Employee Benefit Associations trusts, the cost of providing |
such healthcare coverage may be greater on a relative basis for us than for other steel companies against whom we compete because such competitors either provide a lesser level of benefits, require that their participants pay more for the benefits they receive, or do not provide coverage to as broad a group of participants (e.g., they do not provide retiree healthcare benefits). In addition, existing or new federal healthcare legislation could adversely affect our financial condition through increased costs in the future. |
| • | Risks associated with our pension obligations. Our pension trust is currently underfunded to meet our long-term obligations. The extent of underfunding is directly affected by changes in interest rates and asset returns in the securities markets. It also is affected by the rate and age of employee retirements, along with actual experience compared to actuarial projections. These items affect pension plan assets and the calculation of pension obligations and expenses. Such changes could increase the cost to us of those obligations, which could have a material adverse effect on our results and our ability to meet those obligations. In addition, changes in the law, rules, or governmental regulations with respect to pension funding could also materially and adversely affect the cash flow of us and our ability to meet our pension obligations. Also, under the method of accounting used by us with respect to our pension obligations, we recognize into our results of operations, as a “corridor” adjustment, any unrecognized actuarial net gains or losses that exceed 10% of the larger of projected benefit obligations or plan assets. These corridor adjustments are driven mainly by changes in assumptions and by events and circumstances beyond our control, primarily changes in interest rates, performance of the financial markets, and mortality and retirement projections. A corridor adjustment, if required after a re-measurement of our pension obligations, historically has been recorded in the fourth quarter of the fiscal year. In past years, corridor adjustments have had a significant negative impact on our financial statements in the year in which a charge was recorded, although the immediate recognition of the charge in that year has the beneficial effect of reducing its impact on future years and the recognition of the corridor charge does not have any immediate impact on our cash flows. |
| • | Risk of not reaching new labor agreements on a timely basis. Most of our hourly employees are represented by various labor unions and are covered by collective bargaining agreements with expiration dates between September 2013 and October 2016. Two of those contracts are scheduled to expire in the remainder of 2013. The labor agreement with the United Steel Workers, Local 1865, which represents approximately 820 hourly employees at our Ashland Works located in Ashland, Kentucky, expires on September 1, 2013. The labor contract with the United Auto Workers, Local 3044, which represents approximately 190 hourly employees at our Rockport Works located in Rockport, Indiana, expires on September 30, 2013. We intend to negotiate with these unions to reach new, competitive labor agreements in advance of the current respective expiration dates. We cannot predict at this time, however, when new, competitive labor agreements with the unions at the Ashland Works and Rockport Works will be reached or what the impact of such agreements will be on our operating costs, operating income and cash flow. There is the potential of a work stoppage at these locations in 2013 as their respective collective bargaining agreements expire if we and the unions cannot reach a timely agreement in contract negotiations. If there were to be a work stoppage, it could have a material impact on our operations, financial results and cash flows. To the extent that we have labor contracts with unions at other locations which expire after 2013, a similar risk applies. |
| • | Risks associated with major litigation, arbitrations, environmental issues and other contingencies. We have described several significant legal and environmental proceedings in our Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, each of which is incorporated by reference herein. An adverse development or result in one or more of those contingencies or proceedings could negatively impact our financial results and cash flows. |
| • | Risks associated with environmental compliance. Due to the nature and extent of environmental issues affecting our operations and obligations, changes in application or scope of environmental regulations applicable to AK Steel could have a significant adverse impact. For example, in 2010 the United States |
Environmental Protection Agency (“EPA”) revised the National Ambient Air Quality Standards (“NAAQS”) for nitrogen oxide, sulfur dioxide and lead and in late 2012 promulgated a regulation lowering the NAAQS threshold for fine particulate matter. Although a variety of parties are seeking changes to, and the EPA is reevaluating certain aspects of, these new standards, if they remain in place they could require us to make significant capital expenditures to ensure compliance and could make it more difficult for us to obtain, or comply with, required permits in the future. Other adverse impacts could include, among others, costs for emission allowances, restriction of production, and higher prices for certain raw materials. These and other changes in the application or scope of environmental regulations applicable to us may adversely affect in a significant manner our operations, financial results and cash flows. |
| • | Risk associated with regulatory compliance and changes. Our business and the businesses of our customers and suppliers are subject to a wide variety of government oversight and regulation. The regulations promulgated or adopted by various government agencies, and the interpretations and application of such regulations, are dynamic and constantly evolving. To the extent new regulations arise, the application of existing regulations expands, or the interpretation of applicable regulations changes, we may incur additional costs for compliance, including capital expenditures. We may also be indirectly affected through regulatory changes impacting our customers or suppliers. Such changes could reduce the competitiveness or even the viability of our products to our customers or cause our suppliers to pass their increased costs of compliance through to us in the form of higher prices for their goods or services, which could adversely affect our operations, financial results and cash flows. |
| • | Risks associated with climate change and greenhouse gas emission limitations. The United States has not ratified the 1997 Kyoto Protocol Treaty (the “Kyoto Protocol”), and AK Steel does not produce steel in a country that has ratified that treaty. Negotiations for a treaty that would succeed the Kyoto Protocol are ongoing and it is not known yet what the terms of that successor treaty ultimately will be or if the United States will ratify it. It is possible, however, that limitations on greenhouse gas emissions may be imposed in the United States at some point in the future through federally-enacted legislation or regulation. The EPA already has issued and/or proposed regulations addressing greenhouse gas emissions, including regulations that will require reporting of greenhouse gas emissions from large sources and suppliers in the United States. Legislation previously has been introduced in the United States Congress aimed at limiting carbon emissions from companies that conduct business that is carbon-intensive. Among other potential material items, such bills could include a proposed system of carbon emission credits issued to certain companies, similar to the European Union’s existing “cap and trade” system. It is impossible at this time, however, to forecast what the final regulations and legislation, if any, will look like and the resulting effects on us. Depending upon the terms of any such regulations or legislation, however, we could suffer negative financial impact as a result of increased energy, environmental and other costs in order to comply with the limitations that would be imposed on greenhouse gas emissions. In addition, depending upon whether similar limitations are imposed globally, the regulations and/or legislation could negatively impact our ability to compete with foreign steel companies situated in areas not subject to such limitations. Unless and until all of the terms of such regulation and legislation are known, however, we cannot reasonably or reliably estimate their impact on our financial condition, operating performance or ability to compete. |
| • | Risks associated with financial, credit, capital and banking markets. In the ordinary course of business, we seek to access competitive financial, credit, capital and/or banking markets. Currently, we believe we have adequate access to these markets to meet our reasonably anticipated business needs. We both provide and receive normal trade financing to and from our customers and suppliers. To the extent, if at all, access to competitive financial, credit, capital and/or banking markets by us, or our customers or suppliers, was to be impaired, our operations, financial results and cash flows could be adversely impacted. |
| • | Risk associated with our use of derivative contracts to hedge commodity pricing volatility. We use cash-settled commodity price swaps and options to hedge the market risk for a portion of our raw material and energy purchases to mitigate the risk of pricing volatility with respect to such inputs. In the event the price of an underlying commodity falls below the price at which we have hedged such |
commodity, we will benefit from the lower market price for the commodity purchased, but will not realize the full benefit of the lower commodity price because of the amount that we have hedged. In certain circumstances we also could be required to provide collateral for our potential derivative liability or close our hedging transaction for the commodity. Additionally, there may be a lag in timing (particularly with respect to iron ore) between a decline in the price of a commodity underlying a derivative contract, which could cause us to make payments in the short-term to provide collateral or settle our relevant hedging transaction, and the period in which we experience the benefits of the lower cost input through our direct purchases of the commodity. Each of these risks related to our hedging transactions could adversely affect our financial results and cash flows. |
| • | Risk associated with the value of our net deferred tax assets.U.S. internal revenue laws and regulations and similar state laws applicable to us and the rates at which we are taxed have a significant effect on our financial results. For instance, we have recorded deferred tax assets, including loss carryforwards and tax credit carryforwards, on our Consolidated Balance Sheets to reflect the economic benefit of tax positions that become deductible in future tax periods at the tax rate that is expected when they will be taken. Changes in tax laws or rates can materially affect the future deductible amounts related to deferred tax assets. For example, a reduction in the tax rate would decrease the amount of tax benefit to be realized in the future and result in a charge to the income statement, which would have the effect of reducing our income at the time the tax rate change was enacted. As a result of developments during the second quarter of 2012, we concluded that, from an accounting perspective we were unable to support that we would be able to realize all of the benefits of the deferred tax assets and established a valuation allowance for our deferred tax assets. In addition, in determining the appropriate amount of the valuation allowance, the accounting standards allow us to consider the timing of future reversal of our taxable temporary differences and available tax strategies that, if implemented, would result in the realization of deferred tax assets. The use of a tax planning strategy involving LIFO inventory accounting will result in changes in the valuation allowance on the deferred tax assets in relation to the amount of LIFO income or expense we record and could materially affect our financial results. Thus, changes in certain tax laws, a reduction in tax rates or a reduction in the realizable value of the deferred tax assets could have a material adverse effect on our financial results and financial condition. For more detail concerning our net deferred tax assets, see our Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, each of which is incorporated by reference herein. |
| • | Risk of inability to fully realize benefits of long-term cost savings and margin enhancement initiatives.In recent years we have undertaken several significant projects in an effort to lower our costs and enhance our margins. These include efforts to lower our costs and increase our control over certain key raw materials through a strategy of vertically integrating into approximately one half of our annual supply of such key raw materials. We intend to implement this strategy with respect to coke through our long-term contractual arrangements with SunCoke, with respect to iron ore through our investment in Magnetation, and with respect to coal through our acquisition and development of AK Coal. Other strategic initiatives to lower our costs include efforts to realize a higher utilization of our production facilities and the implementation of a strategic purchasing procurement system. We also have targeted several other areas for enhancing our profitability, including increasing our percentage of contract sales (and lowering spot market sales), producing and selling a higher-value mix of products and developing new products that can command higher prices from customers. To the extent that one or more of our significant cost-savings or margin enhancement projects is unsuccessful, or that several projects are significantly less effective in achieving the level of combined cost-savings or margin enhancement than we are anticipating, or that we do not achieve such results as quickly as anticipated, our financial results and cash flows could be adversely impacted. |
| • | Risk of lower quantities or quality of estimated coal reserves of AK Coal. We have based estimated reserve information of our wholly-owned subsidiary, AK Coal, on engineering, economic and geological data assembled and analyzed by third-party engineers and geologists, with review by and |
involvement of our employees. There are numerous uncertainties inherent in estimating quantities and qualities of, and costs to mine, recoverable reserves, including many factors beyond our control. Estimates of economically-recoverable coal reserves necessarily depend upon a number of variables and assumptions, such as geological and mining conditions that may not be fully identified by available exploration data or that may differ from experience in current operations, historical production from the area compared with production from other similar producing areas, the assumed effects of regulation and taxes by governmental agencies and assumptions concerning coal prices, operating costs, development costs and reclamation costs, all of which may vary considerably from actual results. As a result, actual coal tonnage recovered from AK Coal’s properties and the related costs may vary materially from our estimates. In addition, actual or alleged defects in title in or the boundaries of the property that AK Coal owns or its loss of any material leasehold interests could limit or eliminate its ability to mine these properties, which may reduce the estimated reserves controlled by AK Coal or result in significant unanticipated costs to obtain the property rights to mine such reserves. |
| • | Risk of increased governmental regulation of mining activities. Our ability to realize fully the expected benefits from AK Coal and Magnetation could be materially adversely affected by increased governmental regulation of mining and related activities, including difficulties or delays in or their failure to receive, maintain, modify or comply with environmental permits required for their operations. With respect to AK Coal, the coal mining industry is subject to numerous and extensive federal, state and local environmental laws and regulations, including laws and regulations pertaining to permitting and licensing requirements, air quality standards, plant and wildlife protection, reclamation and restoration of mining properties, the discharge of materials into the environment, the storage, treatment and disposal of wastes, surface subsidence from underground mining and the effects of mining on groundwater quality and availability. With respect to Magnetation, although the construction and operation of its iron ore concentrate plants require fewer environmental permits, its construction and operation of a proposed iron ore pelletizing plant will be subject to most, if not all, of the federal, state and local environmental laws and regulations previously mentioned in regards to AK Coal. The costs, liabilities and requirements associated with these laws and regulations are significant and may increase the costs of, delay or even preclude the commencement or continuation of, AK Coal’s mining activities and Magnetation’s proposed pellet plant operations. |
| • | Risk of inability to hire or retain skilled labor and experienced manufacturing and mining managers. Modern steel-making and mining uses specialized techniques and advanced equipment and requires experienced managers and skilled laborers. The manufacturing and mining industries in the United States are in the midst of a shortage of experienced managers and skilled labor. This shortage is due in large part to demographic changes, as such laborers and managers are retiring at a faster rate than replacements are entering the workforce or achieving a comparable level of experience. If we or AK Coal are unable to hire or contract sufficient experienced managers and skilled laborers, there could be an adverse impact on the productivity of these operations and the ultimate benefits to us. For example, although AK Coal has hired a senior executive and other senior managers with substantial coal mining experience to oversee its operations, additional experienced managers and labor will be necessary, whether through hiring employees or through third party contractors. |
| • | Risk of IT security threats and sophisticated computer crime.We rely upon IT systems and networks in connection with a variety of business activities. In addition, we collect and store sensitive data. We have taken, and intend to continue to take, what we believe are appropriate and reasonable steps to prevent security breaches in our systems and networks. In recent years, however, there appears to have been an increase in both the number and sophistication of IT security threats and computer crimes. These IT security threats and increasingly sophisticated computer crimes, including advanced persistent threats, pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. A failure of or breach in security could expose us to risks of production downtimes and operations disruptions, misuse of information or systems, or the compromising of confidential information, which in turn could adversely affect our reputation, competitive position, business and financial results. |
Risks Relating to the Notes
| • | Risks associated with our outstanding debt and other obligations. As of March 31, 2013, after giving effect to the issuance of the $30.0 million in aggregate principal amount of original notes on June 24, 2013, and the use of the net proceeds therefrom, we had outstanding $1,480.6 million of indebtedness (excluding net unamortized discount), which includes $380.0 million of indebtedness from the original notes and $1,100.6 million of other indebtedness, comprised of the 5.00% Exchangeable Notes due 2019 (the “Exchangeable Notes”), the 7.625% Senior Notes due May 2020 (the “2020 Notes”), the 8.375% Senior Notes due April 2022 (the “2022 Notes”) and $100.6 million of tax exempt and other financing obligations, all of which is indebtedness of AK Steel. As of March 31, 2013, our non-guarantor subsidiaries had $46.7 million of indebtedness and other liabilities (including trade payables, but excluding intercompany obligations and liabilities of a type not required to be reflected on a balance sheet of such subsidiaries in accordance with GAAP) to which the notes would have been structurally subordinated. |
Further, as of March 31, 2013, our additional obligations include $1.7 billion of pension and other postretirement benefit obligations. We expect to contribute $110.2 million to the master pension trust (having already contributed $71.3 million as of March 31, 2013) and $30.8 million to fund certain VEBA trusts in the remainder of 2013. We also expect to contribute approximately $210.0 million and $125.0 million to our pension plans in 2014 and 2015, respectively. We also have additional contractual commitments, including the commitment as of May 31, 2013 to contribute an additional $100.0 million (in the aggregate over the next one to two years) for the second phase of our joint venture with Magnetation. At March 31, 2013, we had no outstanding borrowings and $78.2 million of outstanding letters of credit under our Credit Facility, resulting in remaining availability of $874.4 million (subject to customary borrowing conditions, including a borrowing base). To the extent eligible collateral levels rise, our total availability under the Credit Facility will also rise, allowing us the potential to increase the amount borrowed under the Credit Facility.
The amount of our indebtedness and other financial obligations could have important consequences to you as a holder of the notes. For example, it could:
increase our vulnerability to general adverse economic and industry conditions;
require a substantial portion of our cash flows to be dedicated to debt service payments, reducing the amount of cash flows available for other purposes, such as working capital, capital expenditures, acquisitions, joint ventures or general corporate purposes,
limit our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, joint ventures, general corporate purposes or other purposes;
limit our planning flexibility for, or ability to react to, changes in our business and the industry; and
place us at a competitive disadvantage with competitors who may have less indebtedness and other obligations or greater access to financing.
Our Credit Facility and other indebtedness includes certain covenants that restrict us. In addition, our Credit Facility requires us to maintain compliance with a fixed charge coverage ratio if our level of availability under the Credit Facility falls below a specified threshold level. If we fail to make any required payment under our Credit Facility or other indebtedness or to comply with any of the financial or operating covenants included in such indebtedness, we would be in default. Holders of such indebtedness could then vote to accelerate the maturity of the indebtedness. Other creditors might then accelerate other indebtedness. If holders of indebtedness accelerate the maturity of that indebtedness, we cannot assure you that we will have sufficient assets to satisfy our obligations under that indebtedness and our other indebtedness, including the notes.
Our indebtedness under our Credit Facility bears interest at rates that fluctuate with changes in certain prevailing interest rates (although, subject to certain conditions, such rates may be fixed for certain periods). If interest rates increase, we may be unable to meet our debt service obligations under our Credit Facility and other indebtedness.
| • | Risks associated with our and our subsidiaries’ ability to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage. |
The terms of our Credit Facility and other indebtedness, including the notes, will not fully prohibit us or our subsidiaries from incurring substantial additional indebtedness in the future. Moreover, our subsidiaries may incur indebtedness or other liabilities, all of which would effectively be senior to the notes. If new debt or other liabilities are added to our and our subsidiaries’ current levels of indebtedness, the related risks that we and they now face could intensify.
| • | Our subsidiaries do not guarantee the notes, which may adversely affect our ability to repay the notes and result in the notes’ structural subordination to our subsidiaries’ liabilities. The notes are not guaranteed by any of our subsidiaries. A portion of our consolidated assets is held by our subsidiaries and consolidated variable interest entities. Accordingly, our ability to service our debt, including the notes, depends in part on the results of operations of our subsidiaries and upon the ability of such subsidiaries to provide us with cash, whether in the form of dividends, loans or otherwise, to pay amounts due on our obligations, including the notes. Our subsidiaries and consolidated variable interest entities are separate and distinct legal entities and have no obligation, contingent or otherwise, to make payments on the notes or to make any funds available for that purpose. In addition, dividends, loans or other distributions to us from such subsidiaries may be subject to contractual and other restrictions and are subject to other business considerations. |
In the event of a bankruptcy, liquidation or reorganization of our subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. In the event of bankruptcy or liquidation, none of the assets of our consolidated variable interest entities would be available for distributions to us. AK Steel’s subsidiaries and consolidated variable interest entities, none of whom will guarantee the notes, generated approximately 15.8% and 15.3% of our consolidated revenues for the three months ended March 31, 2013 and year ended December 31, 2012, respectively. As of March 31, 2013, our non-guarantor subsidiaries had $46.7 million of indebtedness and other liabilities (including trade payables, but excluding intercompany obligations and liabilities of a type not required to be reflected on a balance sheet of such subsidiaries in accordance with GAAP) to which the notes would have been structurally subordinated.
| • | The instruments governing our debt contain cross default provisions that may cause all of the debt issued under such instruments to become immediately due and payable as a result of a default under an unrelated debt instrument. The indentures governing these notes and our Exchangeable Notes, 2020 Notes and 2022 Notes and our Credit Facility contain numerous covenants, and our Credit Facility requires the maintenance of a certain minimum fixed charge coverage ratio. Our failure to comply with the obligations contained in the instruments governing our indebtedness could result in an event of default under the applicable instrument, which could result in the related debt becoming immediately due and payable and could further result in a cross default and thereby cross acceleration of our debt issued under other instruments, including the indenture governing the notes. In such event, we would need to raise funds from alternative sources, which funds may not be available to us on favorable terms, on a timely basis or at all. Alternatively, such a default could require us to sell our assets and otherwise curtail our operations in order to pay our creditors. Such alternative measures could have a material adverse effect on our business, financial condition and results of operations. |
| • | Risk of our cash flows proving inadequate to service our debt and provide for our other obligations, which may require us to refinance all or a portion of our existing debt or future debt at terms unfavorable to us. Our ability to make payments on and refinance our indebtedness, including our Credit Facility and the notes, |
and other financial obligations, and to fund our capital expenditures, joint ventures and acquisitions will depend on our ability to generate substantial operating cash flow. This will depend on our future performance, which will be subject to prevailing economic conditions and to financial, business and other factors beyond our control. Our Credit Facility and $1.3 million of tax-exempt and other financing obligations have earlier maturity dates than that of the notes, and we will be required to repay or refinance such indebtedness prior to when the notes come due. In addition, upon conversion of the Exchangeable Notes (which may occur prior to maturity of the notes if certain conditions are satisfied), we will repay the principal amount of such notes in cash. If our cash flows were to prove inadequate to meet our debt service and other obligations in the future, we may be required to refinance all or a portion of our existing or future debt, including the notes, on or before maturity, to sell assets or to obtain additional financing. We cannot assure you that we will be able to refinance any of our indebtedness, including our Credit Facility, the Exchangeable Notes, the 2020 Notes, the 2022 Notes, our tax-exempt and other financing obligations or the notes, sell any such assets or obtain additional financing on commercially reasonable terms or at all. |
| • | Risks associated with the limited covenants in the indenture governing the notes. The indenture governing the notes contains limited covenants, including those restricting our ability and our subsidiaries’ ability to create certain liens, incur certain debt, pledge or sell Notes Collateral and enter into certain sale and leaseback transactions. The limitation on liens, limitation on subsidiary debt and limitation on sale and leaseback covenants contain exceptions that will allow us and our subsidiaries to incur liens with respect to material assets. See “Description of the Registered Notes—Certain Covenants.” In light of these exceptions, holders of the notes may be structurally or contractually subordinated to new lenders. |
| • | Risks associated with change of control provisions in the indentures governing our debt and our Credit Facility.The indenture governing the notes, as well as the indenture governing the 2022 Notes and the 2022 Notes, require that, upon the occurrence of a “change of control repurchase event,” as such term is defined in the indenture, we must make an offer to repurchase the notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. Further, upon the occurrence of a fundamental change, as defined in the indenture governing the Exchangeable Notes (which, for example, would include various transactions pursuant to which AK Holding would undergo a change of control), holders may require AK Steel to repurchase the Exchangeable Notes in whole or in part for cash at a price equal to par plus any accrued and unpaid interest. In addition, upon the occurrence of a “make-whole fundamental change,” as defined in the indenture governing the Exchangeable Notes, prior to the maturity date, in addition to requiring AK Steel to repurchase the Exchangeable Notes in whole or in part for cash at a price equal to par plus any accrued and unpaid interest, the exchange rate will be increased in certain circumstances for a holder who elects to exchange its Exchangeable Notes in connection with such event. Certain events involving a change of control will result in an event of default under our Credit Facility and may result in an event of default under other indebtedness that we may incur in the future. An event of default under our Credit Facility or other indebtedness could result in an acceleration of such indebtedness. See “Description of the Registered Notes—Change of Control.” The acceleration of indebtedness and our inability to repurchase all the tendered notes could constitute events of default under the indenture governing the notes. No assurance can be given that we will have sufficient funds to repay any debt which is accelerated or any notes which are tendered as a result of a change of control. |
| • | You may not be able to determine when a change of control has occurred and may not be able to require us to purchase notes as a result thereof. The definition of change of control includes a phrase relating to the sale, lease or transfer of “all or substantially all” of our assets. There is no precisely established definition of the phrase “substantially all” under applicable law. Accordingly, your ability to require us to repurchase your notes as a result of a sale, lease or transfer of less than all of our assets to another individual, group or entity may be uncertain. |
In addition, a Delaware Chancery Court decision found that incumbent directors are permitted to approve as a continuing director any person, including one nominated by a dissident stockholder and
not recommended by the board, as long as the approval is granted in good faith and in accordance with the board’s fiduciary duties. Accordingly, you may not be able to require us to purchase your notes as a result of a change in the composition of the directors on our board unless a court were to find that such approval was not granted in good faith or violated the board’s fiduciary duties. The court also observed that certain provisions in indentures, such as continuing director provisions, could function to entrench an incumbent board of directors and could raise enforcement concerns if adopted in violation of a board’s fiduciary duties. If such a provision were found unenforceable, you would not be able to require us to purchase your notes upon a change of control resulting from a change in the composition of our board. See “Description of the Registered Notes—Change of Control.”
| • | Lenders under our Credit Facility, which is secured by a first priority lien on our inventory and accounts receivable have rights senior to the rights of the holders of the notes with respect to the ABL Collateral. Obligations under our Credit Facility are, subject to certain exceptions and permitted liens, secured by a first-priority lien on certain of our accounts receivables and inventory. The notes and AK Holding’s guarantee will not be secured by a lien on the ABL Collateral. Any rights to payment and claims by the holders of the notes will, therefore, be effectively junior to any rights to payment or claims by our creditors under our Credit Facility with respect to distributions of the ABL Collateral. Only when our obligations under the ABL Facility are satisfied in full will the proceeds of these assets be available, subject to other permitted liens, to satisfy obligations under the notes and AK Holding’s guarantee. The notes will also be effectively junior in right of payment to any other indebtedness collateralized by a higher-priority lien on our assets, to the extent of the realizable value of such collateral. |
| • | The proceeds from the sale of the collateral securing the notes may not be sufficient to satisfy all our obligations under the notes.No appraisal of the fair market value of the collateral has been made in connection with this offering and the value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. By its nature, some or all of the collateral may be illiquid and may have no readily ascertainable market value. The value of the assets pledged as collateral for the notes could be impaired in the future as a result of changing economic conditions, competition or other future trends. In the event of a foreclosure, liquidation, bankruptcy or similar proceeding, no assurance can be given that the proceeds from any sale or liquidation of the collateral will be sufficient to pay our obligations under the notes, in full or at all. There also can be no assurance that the collateral will be saleable and, even if saleable, the timing of its liquidation would be uncertain. To the extent that liens, rights or easements granted to third parties encumber our assets, such third parties have or may exercise rights and remedies with respect to the property subject to such liens that could adversely affect the value of the collateral and the ability of the collateral agent to foreclose on the collateral. In addition, we may not have liens perfected on all of the collateral securing the notes prior to the closing of this offering. There may not be sufficient collateral to pay all or any of the amounts due on the notes. Any claim for the difference between the amount, if any, realized by holders of the notes from the sale of the collateral securing the notes and the obligations under the notes will rank equally in right of payment with all of our other unsecured unsubordinated indebtedness and other obligations, including the 2020 Notes, the 2022 Notes, the Exchangeable Notes and trade payables. The indenture permits us to incur additional indebtedness secured by a lien that ranks equally with the notes. Any such indebtedness may further limit the recovery from the realization of the value of such collateral available to satisfy holders of the notes. |
| • | State law may limit the ability of the collateral agent, on behalf of the trustee and the holders of the notes, to foreclose on the real property and improvements included in the collateral.The notes are secured by, among other things, liens on owned real property and improvements located in the States of Ohio and Indiana and the Commonwealths of Kentucky and Pennsylvania. The laws of those states may limit the ability of the collateral agent, on behalf of the trustee and the holders of the notes, to foreclose on the improved real property collateral located in those states. Laws of those states govern |
the perfection, enforceability and foreclosure of mortgage liens against real property interests which secure debt obligations such as the notes. These laws may impose procedural requirements for foreclosure different from and necessitating a longer time period for completion than the requirements for foreclosure of security interests in personal property. Debtors may have the right to reinstate defaulted debt (even it is has been accelerated) before the foreclosure date by paying the past due amounts and a right of redemption after foreclosure. Governing laws may also impose security first and one form of action rules which can affect the ability to foreclose or the timing of foreclosure on real and personal property collateral regardless of the location of the collateral and may limit the right to recover a deficiency following a foreclosure. The holders of the notes, the trustee and the collateral agent also may be limited in their ability to enforce a breach of the “no liens” covenant. Some decisions of state courts have placed limits on a lender’s ability to accelerate debt secured by real property upon breach of covenants prohibiting the creation of certain junior liens or leasehold estates may need to demonstrate that enforcement is reasonably necessary to protect against impairment of the lender’s security or to protect against an increased risk of default. Although the foregoing court decisions may have been preempted, at least in part, by certain federal laws, the scope of such preemption, if any, is uncertain. Accordingly, a court could prevent the trustee and the holders of the notes from declaring a default and accelerating the notes by reason of a breach of this covenant, which could have a material adverse effect on the ability of holders to enforce the covenant. |
| • | Certain laws and regulations may impose restrictions or limitations on foreclosure.Our obligations under the notes are secured only by the collateral described in this prospectus. The trustee’s ability to foreclose on the collateral on your behalf may be subject to perfection, priority issues, state law requirements and practical problems associated with the realization of the trustee’s security interest or lien in the collateral, including cure rights, foreclosing on the collateral within the time periods permitted by third parties or prescribed by laws, obtaining third party consents, making additional filings, statutory rights of redemption and the effect of the order of foreclosure. We cannot assure you that the consents of any third parties and approvals by governmental entities will be given when required to facilitate a foreclosure on such assets. Therefore, we cannot assure you that foreclosure on the collateral will be sufficient to make all payments on the notes. In addition, our business requires numerous registrations, licenses and permits. Continued operation of our steelmaking and finishing plants that are significant to the value of the collateral for the notes depends on the maintenance of such registrations, licenses and permits. Our business is subject to substantial regulation and registration, license and permit requirements and may be adversely affected if we are unable to comply with existing regulations or requirements or changes in applicable regulations or requirements. In the event of foreclosure, the transfer of such registrations, licenses and permits may be prohibited and may require us to incur significant cost and expense. Further, we cannot assure you that the applicable governmental authorities will consent to the transfer of such registrations, licenses and permits. If the regulatory approvals required for such transfers are not obtained or are delayed, the foreclosure may be delayed, a temporary shutdown of operations may result and the value of the collateral may be significantly decreased. |
| • | Federal, state and local environmental laws may decrease the value of the collateral securing the notes and may result in you being liable for environmental cleanup costs at our facilities. The notes are secured by liens on real property that may be subject to both known and unknown environmental risks, and these risks may reduce or eliminate the value of the real property pledged as collateral for the notes and the guarantees. Moreover, under some federal and state environmental laws, a secured lender may in some situations become subject to its debtor’s environmental liabilities, including liabilities arising out of contamination at or from the debtor’s properties. Such liability can arise before foreclosure, if the secured lender becomes sufficiently involved in the management of the affected facility. Similarly, when a secured lender forecloses and takes title to a contaminated facility or property, the lender could become subject to such liabilities. Before taking some actions, the collateral agent for the notes may request that you provide for its reimbursement for any of its costs, expenses and liabilities. Cleanup costs could become a liability of the collateral agent for the notes, and, if you |
agree to provide for the collateral agent’s costs, expenses and liabilities, you could be required to help repay those costs. You may agree to indemnify the collateral agent for the notes for its costs, expenses and liabilities before you or the collateral agent knows what those amounts ultimately will be. If you agree to this indemnification without sufficient limitations, you could be required to pay the collateral agent an amount that is greater than the amount you paid for the notes. In addition, rather than acting through the collateral agent, you may in some circumstances act directly to pursue a remedy under the indenture. If you exercise that right, you could be considered to be a lender and be subject to the risks discussed above. |
| • | Rights of holders of the notes in the collateral may be adversely affected by bankruptcy proceedings.The right of the collateral agent for the notes to repossess and dispose of the collateral securing the notes upon the occurrence of an event of default is likely to be significantly impaired by federal bankruptcy law if bankruptcy proceedings are commenced by or against AK Steel prior to, or possibly even after, the collateral agent has repossessed and disposed of the collateral. Upon the commencement of a case for relief under Title 11 of the U.S. Bankruptcy Code, a secured creditor, such as the collateral agent for the notes, is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of its security repossessed from a debtor, without bankruptcy court approval. Moreover, the U.S. Bankruptcy Code permits the debtor to continue to retain and to use collateral and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is intended in general to protect the value of the secured creditor’s interest in the collateral and may include cash payments or the granting of additional security, if and at such time as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the collateral agent would repossess or dispose of the collateral, or whether or to what extent holders of the notes would be compensated for any delay in payment of loss of value of the collateral through the requirements of “adequate protection.” Furthermore, in the event the bankruptcy court determines that the value of the collateral is not sufficient to repay all amounts due on the notes, the indebtedness under the notes would be “undersecured” and the holders of the notes would have unsecured claims as to the difference. Federal bankruptcy laws do not permit the payment or accrual of interest, costs and attorneys’ fees on undersecured indebtedness during the debtor’s bankruptcy case. |
| • | The collateral is subject to casualty risks. We intend to maintain insurance or otherwise insure against hazards in a manner appropriate and customary for our business. There are, however, certain losses that may be either uninsurable or not economically insurable, in whole or in part. Insurance proceeds may not compensate us fully for our losses. If there is a complete or partial loss of any of the pledged collateral, the insurance proceeds may not be sufficient to satisfy all of the secured obligations, including the notes and the guarantees. |
| • | Absent the occurrence and continuance of an event of default under the indenture governing the notes, we have control over the collateral, and the sale of particular assets by us could reduce the pool of assets securing the notes. Absent the occurrence and continuance of any event of default under the indenture governing the notes, the indenture and the security documents relating to the collateral allow us to remain in possession of, retain exclusive control over, freely operate, and collect, invest and dispose of any income from, the collateral securing the notes. In addition, subject to the terms of the indenture governing the notes, the sale of particular assets by us could reduce the pool of assets securing the notes. |
| • | There are circumstances other than repayment, defeasance or discharge of the notes under which the collateral securing the notes will be released automatically without your consent or the consentof thetrusteeor collateral agent.Under various circumstances, collateral securing the notes will be released automatically, including a sale, transfer or other disposal of such collateral in a transaction not prohibited under the indenture governing the notes. |
| • | Any future pledge of collateral might be avoidable in bankruptcy.Any future pledge of collateral in favor of the collateral agent for its benefit and for the benefit of the trustee and the holders of the notes, including pursuant to mortgages and other security documents delivered after the date of the indenture governing the notes, might be avoidable by the pledgor (as debtor in possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including if the pledgor is insolvent at the time of the pledge, the pledge permits the holders of the notes to receive a greater recovery than they would have received in a hypothetical liquidation under Chapter 7 of the U.S. Bankruptcy Code if the pledge had not been given and a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period. To the extent that the grant of any such mortgage or other security interest is avoided as a preference, you would lose the benefit of the collateral pledged pursuant to such mortgage or security document. |
| • | There is no public trading market for the notes. The notes are a new issue of securities for which there is currently no established trading market. The initial offering price depends on many factors, including prevailing interest rates, our results of operations and financial condition, political and economic developments and the market for similar securities. |
Risks Relating to the Exchange Offer
| • | Your original notes will not be accepted for exchange if you fail to follow the exchange offer procedures.We will not accept your original notes for exchange if you do not follow the exchange offer procedures. We will issue registered notes as part of this exchange offer only after a timely receipt of your original notes, a properly completed and duly executed letter of transmittal and all other required documents. Therefore, if you wish to tender your original notes, please allow sufficient time to ensure timely delivery. If we do not receive your original notes, letter of transmittal and other required documents by the time of expiration of the exchange offer, we will not accept your original notes for exchange. We are under no duty to give notification of defects or irregularities with respect to the tenders of original notes for exchange. If there are defects or irregularities with respect to your tender of original notes, we will not accept your original notes for exchange. |
| • | If you do not exchange your original notes, there will be restrictions on your ability to resell your original notes.Following the exchange offer, original notes that you do not tender or that we do not accept will be subject to transfer restrictions. Absent registration, any untendered original notes may therefore be offered or sold only in transactions that are not subject to, or that are exempt from, the registration requirements of the Securities Act and applicable state securities laws. |
| • | An active trading market may not develop for these notes.The registered notes are a new issue of securities, and there is no established trading market for the registered notes. We do not intend to apply to list the notes for trading on any securities exchange or to arrange for quotation on any automated dealer quotation system. As a result of this and the other factors listed below, an active trading market for the registered notes may not develop, in which case the market price and liquidity of the registered notes may be adversely affected. In addition, you may not be able to sell your registered notes at a particular time or at a price favorable to you. Future trading prices of the registered notes will depend on many factors, including prevailing interest rates, our results of operations and financial condition, political and economic developments, the market for similar securities, the other factors described in this prospectus under “Risk Factors.” It is possible that the market for the registered notes will be subject to disruptions. A disruption may have a negative effect on you as a holder of the registered notes, regardless of our prospects or performance. |
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth information regarding our ratio of earnings to fixed charges for the historical periods shown. For purposes of determining the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes with applicable adjustments. Fixed charges consist of capitalized interest credit, interest factor in rent expense and other interest and fixed charges.
Three months ended March 31, 2013 | Year Ended December 31, | |||||||||
| 2012 | 2011 | 2010 | 2009 | 2008 | ||||||
NM* | NM* | NM* | NM* | NM* | NM* | |||||
| * | For the three months ended March 31, 2013 and the years ended December 31, 2012, 2011, 2010, 2009 and 2008, earnings were less than fixed charges by $7.2 million, $252.1 million, $243.6 million, $172.3 million, $95.9 million and $1.3 million, respectively. |
Purpose and Effect
AK Steel issued $350.0 million in aggregate principal amount of original notes on the Original Issue Date and an additional $30.0 million in aggregate principal amount of original notes on the Add-On Issue Date, in transactions exempt from registration under the Securities Act. In connection with each of the issuance,
weissuances, AK Steel and AK Holding entered into a registration rights agreement. The registration rights agreement requiresagreements require that we file a registration statement under the Securities Act with respect to the registered notes to be issued in the exchange offer and, upon the effectiveness of the registration statement, offer to you the opportunity to exchange your oldoriginal notes for a like principal amount of registered notes. TheExcept as set forth below, these registered notes will be issued without a restrictive legend and, except as set forth below,we believe, may be reoffered and resold by you without registration under the Securities Act. After we complete the exchange offer, our obligations with respect to the registration of the oldoriginal notes and the registered notes will terminate. A copyterminate, except as provided in the last paragraph of this section. Copies of each of the registration rights agreement hasagreements have been filed as an exhibitexhibits to the registration statement of which this prospectus isforms a part. Notwithstanding anything to the contrary set forth in this prospectus, this exchange offer is not being made to you, and you may not participate in the exchange offer, if (a) you are our “affiliate” within the meaning of Rule 405 of the Securities Act or (b) you are a broker- dealer that acquired original notes directly from us. We will not be required to pay any liquidated damages, assuming:
we have exchanged the registered notes for the original notes within 400 days of the Original Issue Date; and
if we are required to file a shelf registration statement, such shelf registration statement is declared effective by the SEC within 120 days of the date such filing obligation arises.
Based on an interpretationinterpretations by the staff of the SEC set forth in no-action letters if you are not our "affiliate" within the meaning of Rule 405 under
the Securities Act or a broker-dealer referredissued to in the next paragraph,third parties unrelated to us, we believe that registered notes to be issued to you in the exchange offer may be offered for resale, resold and otherwise transferred by you, without compliance with the registration and prospectus delivery provisions of the Securities Act.Act, unless you are a broker-dealer that receives registered notes in exchange for original notes acquired by you as a result of market-making activities or other trading activities. This interpretation, however, is based on your representation to us that:
(1)the registered notes to be issued to you in the exchange offer are acquired in the ordinary course of your business;
(2) at the time of the commencement of the exchange offer you have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the registered notes to be issued to you in the exchange offer in violation of the Securities Act;
(3) you are not an affiliate (as defined in Rule 405 promulgated under the Securities Act) of us;
(4) if you are a broker-dealer, you are not engaging in, and do not intend to engage in, a distribution of the registered notes to be issued to you in the exchange offer; and
(3)
(5) if you have no arrangementare a participating broker-dealer that will receive registered notes for its own account in exchange for the original notes that were acquired as a result of market-making or understandingother trading activities, that you will deliver a prospectus in connection with any person to participate
in the distributionresale of the registered notes to be issued tonotes; and
(6) you inare not acting on behalf of any persons or entities who could not truthfully make the exchange offer.
foregoing representations.
If you tender in the exchange offer for the purpose of participating in a
distributionhave any of the registered notes to be issued todisqualifications described above or cannot make each of the representations set forth above, you in the exchange offer,
you cannotmay not rely on this interpretationthe interpretations by the staff of the SEC.SEC referred to above. Under those circumstances, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale
transaction. Eachsale, transfer or other disposition of any notes unless you are able to utilize an applicable
exemption from all of those requirements. In addition, each broker-dealer that receives registered notes in the exchange offer for its own account in exchange for oldoriginal notes that were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of those registered notes. See "Plan“Plan of Distribution."
”
If you will not receive freely tradeabletradable registered notes in the exchange offer or are not eligible to participate in the exchange offer, you can elect, by indicating on the letter of transmittal and providing certain additional necessary information, to have your oldoriginal notes registered in a "shelf"“shelf” registration statement on an appropriate form pursuant to Rule 415 under the Securities Act. In the event thatIf we are obligated to file a shelf registration statement, we will be required to use our bestcommercially reasonable efforts to keep the shelf registration statement effective for a period of two years following the date of original issuance of the oldoriginal notes or such shorter period that will terminate whenwhen:
(1) all of the oldoriginal notes covered by the shelf registration statement have been sold pursuant to the shelf registration statement. statement;
(2) all of the original notes have been exchanged pursuant to the exchange offer;
(3) all of the original notes covered by the shelf registration statement cease to be outstanding for purposes of the indenture governing the notes; or
(4) a subsequent shelf registration statement covering all of the original notes covered by and not sold under the initial shelf registration statement or earlier subsequent registration statement has been declared effective under the Securities Act.
Other than as set forth in this paragraph, you will not have the right to require us to register your oldoriginal notes under the Securities Act. See "--Procedures“—Procedures for Tendering"Tendering” below.
In certain circumstances set forth in the registration rights agreements, including if the exchange offer is not consummated (or, if required, the shelf registration statement is not declared effective) within the requisite time periods as specified in the registration rights agreements (each, a “Target Registration Date”), the annual interest rate borne by the notes will be increased by 0.25% per annum, with respect to the first 90 days after the applicable Target Registration Date, and, if the exchange offer is not completed (or, if required, the shelf registration statement is not declared effective) prior to the end of each 90-day period thereafter, the interest rate borne by the notes will increase by an additional 0.25% per annum up to a maximum increase for all such registration defaults of 1.00% per annum, in each case until the exchange offer is completed or the shelf registration statement is declared effective.
Consequences of Failure to Exchange
After we complete the exchange offer, if you have not tendered your oldoriginal notes, you will not have any further registration rights, except as set forth above. Your oldoriginal notes will continue to be subject to certain restrictions on
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oldoriginal notes could be adversely affected upon completion of the exchange offer if you do not participate in the exchange offer.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all oldoriginal notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date. We will issue $1,000 principal amount of the registered notes in exchange for each $1,000 principal amount of the oldoriginal notes accepted in the exchange offer. However, no note of $2,000 in principal amount or less shall be exchanged in part. You may tender some or all of your oldoriginal notes pursuant to the exchange offer. However, oldoriginal notes may be tendered only in integral multiples of $1,000 in principal amount.
The form and terms of the registered notes are substantially the same as the form and terms of the oldoriginal notes, except that the registered notes to be issued in the exchange offer will have been registered under the Securities
Act and will not bear legends restricting their transfer. The registered notes will be issued pursuant to, and entitled to the benefits of, the sameindenture. The indenture that also governs the oldoriginal notes. The registered notes and the oldoriginal notes will be deemed onea single issue of notes under the indenture.
As of the date of this prospectus, $550$380.0 million in aggregate principal amount of the oldoriginal notes arewere outstanding. This prospectus, together with the letter of transmittal, is being sent to all registered holders and to others believed to have beneficial interests in the oldoriginal notes. You do not have any appraisal or dissenters'dissenters’ rights in connection with the exchange offer under the Delaware General Corporation Law (the “DGCL”) or the indenture. We intend to conduct the exchange offer in accordance with the applicable requirements of the Securities
Exchange Act of 1934, or the Exchange Act and the applicable rules and regulations of the SEC promulgated under the Exchange Act.
We will be deemed to have accepted validly tendered oldoriginal notes for exchange when, as, and if we have given oral or written notice of our acceptance to the exchange agent. The exchange agent will act as our agent for the tendering holders for the purpose of receiving the registered notes from us. If we do not accept any tendered notes because of an invalid tender, the occurrence of certain other events set forth in this prospectus or otherwise, we will return certificates for any unaccepted original notes, without expense, to the tendering holder as promptly as practicable after the expiration date.
You will not be required to pay brokerage commissions or fees or, except as set forth below under "--Transfer“—Transfer Taxes,"” transfer taxes with respect to the exchange of your oldoriginal notes in the exchange offer. We will pay all charges and expenses, other than certain applicable taxes, in connection with the exchange offer. See "--Fees“—Fees and Expenses"Expenses” below.
Expiration Date; Amendments
The exchange offer will expire at 5:00 p.m., New York City time, on , 2002,2013, unless we determine, in our sole discretion, to extend the exchange offer, in which case, it will expire at the later date and time to which it is extended. We do not intend to extend the exchange offer, although we reserve the right to do so. If we determine to extend the exchange offer, we do not intend to extend it beyond , 2013. If we extend the exchange offer, we will give oral or written notice of the extension to the exchange agent and give each registered holder notice by means of a press release or other public announcement of any extension prior to 9:00 a.m., New York City time, on the next business day after the scheduled expiration date.
We also reserve the right, in our sole discretion,
(1) subject to applicable law, to extend the exchange offer and delay accepting any oldoriginal notes or, if any of the conditions set forth below under "--Conditions"“—Conditions” have not been satisfied or waived, to terminate the exchange offer by giving oral or written notice of suchthe delay or termination to the exchange agent, or
(2)to amend the terms of the exchange offer in any manner, by complying with Rule 14e-l(d)14e-1(d) under the Exchange Act to the extent that rule applies. 20
We acknowledge and undertake to comply with the provisions of Rule 14e-l(c) under the Exchange Act, which requires us to pay the consideration offered, or
return the oldoriginal notes surrendered for exchange promptly after the termination or withdrawal of the exchange offer. We will notify you as promptly as we can of any extension, termination or amendment.
Procedures for Tendering
Book-Entry Interests
The oldoriginal notes were issued as global securities in fully registered form without interest coupons. Beneficial interests in the global securities, held by direct or indirect participants in DTC, are shown on, and transfers of these interests are effected only through, records maintained in book-entry form by DTC with respect to its participants.
If you hold your oldoriginal notes in the form of book-entry interests and you wish to tender your oldoriginal notes for exchange pursuant to the exchange offer, you must transmit to the exchange agent on or prior to the expiration date either:
(1)a written or facsimile copy of a properly completed and duly executed letter of transmittal, including all other documents required by the letter of transmittal, to the exchange agent at the address set forth on the cover page of the letter of transmittal; or
(2)a computer-generated message transmitted by means of DTC'sDTC’s Automated Tender Offer Program system and received by the exchange agent and forming a part of a confirmation of book-entry transfer, in which you acknowledge and agree to be bound by the terms of the letter of transmittal.
In addition, in order to deliver oldoriginal notes held in the form of book-entry interests:
(1)a timely confirmation of book-entry transfer of such original notes into the exchange agent'sagent’s account at DTC pursuant to the procedure for book-entry transfers described below under "--Book-Entry Transfer"“—Book-Entry Transfer” must be received by the exchange agent prior to the expiration date; or
(2)you must comply with the guaranteed delivery procedures described below.
The method of delivery of oldoriginal notes and the letter of transmittal and all other required documents to the exchange agent is at your election and risk. Instead of delivery by mail, we recommend that you use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. You should not send the letter of transmittal or oldoriginal notes to us. You may request your broker, dealer, commercial bank, trust company, or nominee to effect the above transactions for you.
Certificated OldOriginal Notes
Only registered holders of certificated oldoriginal notes may tender those notes in the exchange offer. If your oldoriginal notes are certificated notes and you wish to tender those notes for exchange pursuant to the exchange offer, you must transmit to the exchange agent, on or prior to the expiration date, a written or facsimile copy of a properly completed and duly executed letter of transmittal, including all other required documents, to the address set forth below under "--Exchange“—Exchange Agent."” In addition, in order to validly tender your certificated oldoriginal notes:
(1)the certificates representing your oldoriginal notes must be received by the exchange agent prior to the expiration date; or
(2)you must comply with the guaranteed delivery procedures described below.
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Procedures Applicable to All Holders
If you tender an oldoriginal note and you do not withdraw the tender prior to the expiration date, you will have made an agreement with us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.
If your oldoriginal notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your old notes, you should contact the registered holder promptly and instruct the registered holder to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your oldoriginal notes, either make appropriate arrangements to register ownership of the oldoriginal notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by an eligible institution unless:
(1)old original notes tendered in the exchange offer are tendered either
either:
(A)by a registered holder who has not completed the box entitled "Special“Special Registration Instructions"Instructions” or "Special“Special Delivery Instructions"Instructions” on such holder'sthe letter of transmittal, or
(B)for the account of an eligible institution; and
(2)the box entitled "Special“Special Registration Instructions"Instructions” on the letter of transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantee must be by a financial institution, (whichwhich includes most banks, savings and loan associations and brokerage houses)houses, that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program or the Stock Exchanges Medallion Program.
If the letter of transmittal is signed by a person other than you, your oldoriginal notes must be endorsed or accompanied by a properly completed bond power and signed by you as your name appears on those oldoriginal notes.
If the letter of transmittal or any oldoriginal notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, those persons should so indicate when signing. Unless we waive this requirement, in this instance you must submit with the letter of transmittal proper evidence satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tendered oldoriginal notes. This determination will be final and binding. We reserve the absolute right to reject any and all oldoriginal notes not properly tendered or any oldoriginal notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular oldoriginal notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. You must cure any defects or irregularities in connection with tenders of your oldoriginal notes within the time period we will determine unless we waive that defect or irregularity. Although we intend to notify you of defects or irregularities with respect to your tender of oldoriginal notes, neither we, the exchange agent nor any other person will incur any liability for failure to give this notification. Your tender will not be deemed to have been made and your notes will be returned to you if:
(1)you improperly tender your oldoriginal notes;
(2)you have not cured any defects or irregularities in your tender; and
(3)we have not waived those defects, irregularities or improper tender.
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The exchange agent will return your original notes, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration of the exchange offer.
In addition, we reserve the right in our sole discretion to:
(1)purchase or make offers for, or offer registered notes for, any oldoriginal notes that remain outstanding subsequent to the expiration of the exchange offer;
(2)terminate the exchange offer; and
(3)to the extent permitted by applicable law, purchase notes in the open market, in privately negotiated transactions or otherwise.
The terms of any of these purchases or offers could differ from the terms of the exchange offer.
By tendering, you will represent to us that, among other things:
(1)the registered notes to be acquired byissued to you in the exchange offer are
being acquired in the ordinary course of your business;
(2) at the time of the commencement of the exchange offer you have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the registered notes to be issued to you in the exchange offer in violation of the Securities Act;
(3) you are not an affiliate (as defined in Rule 405 promulgated under the Securities Act) of us;
(4) if you are a broker-dealer, you are not engaging in, and do not intend to engage in, a distribution of the registered notes to be acquired byissued to you in the exchange offer;
(3)
(5) if you do not have an arrangementare a participating broker-dealer that will receive registered notes for its own account in exchange for the original notes that were acquired as a result of market-making or understandingother trading activities, that you will deliver a prospectus in connection with any person to
participate in the distributionresale of the registered notes to be acquired
by you in the exchange offer;notes; and
(4)
(6) you are not our "affiliate," as defined under Rule 405acting on behalf of any persons or entities who could not truthfully make the Securities
Act.
foregoing representations.
In all cases, issuance of registered notes for oldoriginal notes that are accepted for exchange in the exchange offer will be made only after timely receipt by the exchange agent of certificates for your oldoriginal notes or a timely book-entry confirmation of your oldoriginal notes into the exchange agent'sagent’s account at DTC, a properly completed and duly executed letter of transmittal, or a computer-generated message instead of the letter of transmittal, and all other required documents. If any tendered oldoriginal notes are not accepted for any reason set forth in the terms and conditions of the exchange offer or if oldoriginal notes are submitted for a greater principal amount than you desire to exchange, the unaccepted or non-exchanged oldoriginal notes, or oldoriginal notes in substitution therefor, will be returned without expense to you. In addition, in the case of oldoriginal notes, tendered by book-entry transfer into the exchange agent'sagent’s account at DTC pursuant to the book-entry transfer procedures described below, the non-exchanged oldoriginal notes will be credited to your account maintained with DTC as promptly as practicable after the expiration or termination of the exchange offer.
Guaranteed Delivery Procedures
If you desire to tender your oldoriginal notes and your oldoriginal notes are not immediately available, time will not permit your original notes or oneother required documents to reach the exchange agent before the time of expiration or you cannot complete the situations described in the immediately
preceding paragraph occurs,procedure for book-entry on a timely basis, you may tender if:
(1)you tender through an eligible financial institution;
(2)on or prior to 5:00 p.m., New York City time, on the expiration date, the exchange agent receives from an eligible institution, a written or facsimile copy of a properly completed and duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by us; and
(3)the certificates for all certificated oldoriginal notes, in proper form for transfer, or a book-entry confirmation, and all other documents required by the letter of transmittal, are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery.
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The notice of guaranteed delivery may be sent by facsimile transmission, mail or hand delivery.
The notice of guaranteed delivery must set forth:
(1)your name and address;
(2)the amount of oldoriginal notes you are tendering; and
(3)a statement that your tender is being made by the notice of guaranteed delivery and that you guarantee that within three New York Stock Exchange trading days after the execution of the notice of guaranteed delivery, the eligible institution will deliver the following documents to the exchange agent: (A)the certificates for all certificated oldoriginal notes being tendered, in proper form for transfer or a book-entry confirmation of tender; (B)a written or facsimile copy of the letter of transmittal, or a book-entry confirmation instead of the letter of transmittal; and (C)any other documents required by the letter of transmittal.
Book-Entry Transfer
The exchange agent will establish an account with respect to the book-entry interests at DTC for purposes of the exchange offer promptly after the date of this prospectus. You must deliver your book-entry interest by book-entry transfer to the account maintained by the exchange agent at DTC.DTC for the exchange offer. Any financial institution that is a participant in DTC'sDTC’s systems may make book-entry delivery of book-entry interests by causing DTC to transfer the book-entry interests into the exchange agent'sagent’s account at DTC in accordance with DTC'sDTC’s procedures for transfer.
If one of the following situations occur:
occurs:
(1)you cannot deliver a book-entry confirmation of book-entry delivery of your book-entry interests into the exchange agent'sagent’s account at DTC; or
(2)you cannot deliver all other documents required by the letter of transmittal to the exchange agent prior to the expiration date;
date,
then you must tender your book-entry interests according to the guaranteed delivery procedures discussed above.
Withdrawal Rights
You may withdraw tenders of your oldoriginal notes at any time prior to 5:00 p.m., New York City time, on the expiration date.
For your withdrawal to be effective, the exchange agent must receive a written or facsimile transmission notice of withdrawal at its address set forth below under "--Exchange Agent"“—Exchange Agent” prior to 5:00 p.m., New York City time, on the expiration date.
The notice of withdrawal must:
(1)state your name;
(2)identify the specific oldoriginal notes to be withdrawn, including the certificate number or numbers and the principal amount of withdrawn notes;
(3)be signed by you in the same manner as you signed the letter of transmittal when you tendered your oldoriginal notes, including any required signature guarantees or be accompanied by documents of transfer sufficient for the exchange agent to register the transfer of the oldoriginal notes into your name; and
(4)specify the name in which the oldoriginal notes are to be registered, if different from yours.
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We will determine all questions regarding the validity, form and eligibility, including time of receipt, of withdrawal notices. Our determination will be final and binding on all parties. Any oldoriginal notes withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any oldoriginal notes which have been tendered for exchange but which are not exchanged for any reason will be returned to you without cost as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn oldoriginal notes may be retendered by following one of the procedures described under "--Procedures“—Procedures for Tendering"Tendering” above at any time on or prior to 5:00 p.m., New York City time, on the expiration date.
Conditions
Notwithstanding any other provision of the exchange offer and subject to our obligations under the registration rights agreement,agreements, we will not be required to accept for exchange, or to issue registered notes in exchange for, any oldoriginal notes and may terminate or amend the exchange offer, if at any time before the acceptance of any oldoriginal notes for exchange any of the following events occur:
(1) the exchange offer violates applicable law or any applicable interpretation of the staff of the SEC;
(2) an injunction, order or decree has been issued by any court or any
governmental agency that would prohibit, prevent or otherwise materially impair our ability to proceed with the exchange offer;
(3) an action or (2)proceeding has been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offer;
(4) all governmental approvals have not been obtained, which approvals we deem necessary for the consummation of the exchange offer;
(5) there has been any material change, or development involving a prospective material change, in our business or financial affairs which, in our reasonable judgment, would materially impair our ability to consummate the exchange offer; or
(6) there has been proposed, adopted or enacted any law, statute, rule or regulation which, in our reasonable judgment, would materially impair our ability to consummate the exchange offer violates any applicable law or any applicable
interpretation ofhave a material adverse effect on us if the staff of the SEC.
exchange offer was consummated.
These conditions are for our sole benefit and we may assert them regardless of the circumstances giving rise to them, subject to applicable law. We also may waive in whole or in part at any time and from time to time any particular condition in our sole discretion. If we waive a condition, we may be required, in order to comply with applicable securities laws, to extend the expiration date of the exchange offer in order to comply
with applicable securities laws.offer. Our failure at any time to exercise any of the foregoing rights will not be deemed a waiver of these rights and these rights will be deemed ongoing rights which may be asserted at any time (in the case of any condition involving governmental approvals necessary to the consummation of the exchange offer) and from time to time.
time prior to the time of expiration (in the case of all other conditions).
In addition, we will not accept for exchange any oldoriginal notes tendered, and no registered notes will be issued in exchange for any of those oldoriginal notes, if at the time the old notes are tendered any stop order is threatened by the SEC or in effect with respect to the registration statement of which this prospectus is a part or the qualification of the indenture under the Trust Indenture Act of 1939.
In addition, we will not accept for exchange any original notes tendered, and no registered notes will be issued in exchange for any of those original notes, if at the time the notes are tendered any stop order is threatened by the SEC or in effect with respect to the registration statement of which this prospectus is a part or the qualification of the indenture under the Trust Indenture Act of 1939, as amended.
The exchange offer is not conditioned on any minimum principal amount of oldoriginal notes being tendered for exchange.
Exchange Agent
We have appointed Fifth ThirdU.S. Bank National Association as exchange agent for the exchange offer. Questions, requests for assistance and requests for additional copies of the prospectus, the letter of transmittal for your notes and other related documents should be directed to the exchange agent addressed as follows:
By Registered or Certified Mail, by Hand
or by Overnight Courier:
Fifth Third Bank
Corporate Trust Administration
38 Fountain Square Plaza
Cincinnati, Ohio 45202
By Facsimile: (513) 534-6785 By Telephone: (513) 534-8640
By Mail, Hand Delivery or Overnight Courier: | By Facsimile Transmission: | |
U.S. Bank National Association U.S. Bank West Side Flats Operations Center 60 Livingston Ave. St. Paul, MN 55107 Attention: Specialized Finance Reference: AK Steel | (651) 466-7372 Attention: Specialized Finance Reference: AK Steel Confirm by Telephone: (800) 934-6802 |
The exchange agent also acts as trustee under the indenture.
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Fees and Expenses
We will not pay brokers, dealers, or others soliciting acceptances of the exchange offer. This solicitation is being made primarily by mail. Additional solicitations, however, may be made in person or by telephone by our officers and employees.
We will pay the estimated cash expenses to be incurred in connection with the exchange offer.
Transfer Taxes
You will not be obligated to pay any transfer taxes in connection with a tender of your oldoriginal notes for exchange unless you instruct us to register registered notes in the name of, or request that oldoriginal notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder, in which event the registered tendering holder will be responsible for the payment of any applicable transfer tax.
Accounting Treatment
We will not recognize any gain or loss for accounting purposes upon the consummation of the exchange offer. We are amortizingwill amortize the expense of the exchange offer over the term of the registered notes under generally accepted
accounting principles.
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The exchange offer is intended to satisfy our obligations under the registration rights agreement.agreements. We will not receive any cash proceeds from the issuance of the registered notes.exchange offer. In considerationexchange for issuing the registered notes, as contemplated in this prospectus, we will receive in exchange, an
equal number of outstanding oldoriginal notes in like principal amount. The form and
termsWe will retire or cancel all of the outstanding original notes tendered in the exchange offer. Accordingly, issuance of the registered notes are identicalwill not result in allany change in our capitalization.
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a summary, believed to be accurate, of the terms we consider material respectsof the documents governing our material indebtedness, but reference is made to the formactual documents governing such indebtedness, which have been filed with the SEC. All such summaries are qualified in their entirety by this reference. See “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.”
AK Steel’s Credit Facility
In April 2011, AK Steel entered into a $1.0 billion five-year asset-backed revolving credit facility (the “Credit Facility”) and, subsequently, in October 2011, pursuant to the terms of the old notes.Credit Facility, obtained an increase in the commitments thereunder in the amount of $100.0 million, bringing the total commitments under the Credit Facility to $1.1 billion. AK Steel’s obligations under the Credit Facility are secured by the Company’s inventory and accounts receivable. Availability of borrowings under the Credit Facility from time to time is subject to a borrowing base calculation based upon a valuation of the Company’s eligible inventories (including raw materials, finished and semi-finished goods, work-in-process inventory, and in-transit inventory) and eligible accounts receivable, each multiplied by an applicable advance rate. Borrowings under the Credit Facility bear interest at a base rate or, at AK Steel’s option, LIBOR, plus an applicable margin ranging from 0.75% to 1.50% per annum in the case of base rate borrowings, and 1.75% to 2.50% per annum in the case of LIBOR borrowings. The applicable interest rate margin percentage is determined by the average daily availability of borrowings under the Credit Facility. In addition, AK Steel is required to pay an unused line fee of (a) 0.50% per annum if the average daily balance of borrowings and the stated amount of letters of credit under the Credit Facility was 50.0% or less of the revolver commitments during the preceding month or (b) 0.375%, if such average daily balance was more than 50.0% of the revolver commitments during the preceding month.
The Credit Facility contains restrictions on, among other things, distributions and dividends, acquisitions and investments, indebtedness, liens and affiliate transactions. In addition, the Credit Facility requires maintenance of a minimum fixed charge coverage ratio of 1:1 if availability under the Credit Facility is less than the greater of (x) 12.5% of the aggregate amount of revolver commitments under the Credit Facility or (y) $137.5 million. As of March 31, 2013, the Company was in compliance with its Credit Facility covenants. AK Steel’s obligations under the Credit Facility are guaranteed by AK Holding.
As of March 31, 2013, the Company had $874.4 million of availability under the Credit Facility (subject to customary borrowing conditions, including a borrowing base). As of March 31, 2013, there were no borrowings outstanding old notes surrenderedunder the Credit Facility and $78.2 million of outstanding letters of credit. Because the Company’s obligation under its Credit Facility is secured by its eligible collateral, availability also may be reduced by a decline in the level of eligible collateral, such as the Company’s inventory and accounts receivable, which can fluctuate monthly under the terms of the Credit Facility. The Company’s eligible collateral, after application of applicable advance rates, was $952.6 million as of March 31, 2013.
Debt Securities
In May 2010 and December 2010, AK Steel issued $400.0 million and $150.0 million, respectively, of 7.625% Notes due 2020 (the “2020 Notes”). In March 2012, AK Steel issued $300.0 million of 8.375% Notes due 2022 (the “2022 Notes” and together with the 2020 Notes, the “AK Steel Senior Notes”). The AK Steel Senior Notes are AK Steel’s senior unsecured obligations, ranking equal with all of AK Steel’s existing and future unsubordinated unsecured indebtedness, senior in right of payment to any subordinated indebtedness AK Steel may incur and effectively subordinated to AK Steel’s secured indebtedness to the extent of the value of the collateral securing that debt and to all of the liabilities of the subsidiaries of AK Steel. The AK Steel Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by AK Holding. The AK Steel Senior Notes contain certain restrictive covenants which limit, subject to certain exceptions, the ability of AK Steel and its subsidiaries to, among other things:
create liens on its and their assets;
incur subsidiary debt;
engage in sale/leaseback transactions; and
engage in a consolidation, merger or sale of assets.
The AK Steel Senior Notes also contain certain customary events of default and optional redemption provisions.
Exchangeable Notes
In November 2012, AK Steel issued $150.0 million of 5.0% Exchangeable Senior Notes due November 2019 (the “Exchangeable Notes”). The Exchangeable Notes are AK Steel’s senior unsecured and unsubordinated obligations. The Exchangeable Notes are fully and unconditionally guaranteed on a senior unsecured basis by AK Holding. AK Steel may not redeem the Exchangeable Notes prior to their maturity date. Holders may exchange their Exchangeable Notes into cash and, if applicable, shares of AK Holding common stock at their option at an initial exchange rate of 185.1852 shares of AK Holding common stock per $1,000 principal amount of Exchangeable Notes, equivalent to an initial conversion price of approximately $5.40 per share of common stock, subject to adjustment for certain dilutive effects from potential future events. The indenture governing the Exchangeable Notes (the “Exchangeable Notes Indenture”) does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by AK Holding or its subsidiaries. Holders may exchange their Exchangeable Notes prior to August 15, 2019 only under certain circumstances. After August 15, 2019, holders may exchange their Exchangeable Notes at any time. Upon exchange, AK Steel will be obligated to (i) pay an amount in cash equal to the aggregate principal amount of the Exchangeable Notes to be exchanged and (ii) pay cash, deliver shares of AK Holding common stock or a combination thereof, at AK Steel’s election, for the registered notesremainder, if any, of the exchange obligation in excess of the aggregate principal amount of the Exchangeable Notes being exchanged. If AK Holding undergoes a fundamental change, as defined in the Exchangeable Notes Indenture (which, for example, would include various transactions pursuant to which AK Holding would undergo a change of control), holders may require AK Steel to repurchase the Exchangeable Notes in whole or in part for cash at a price equal to par plus any accrued and unpaid interest. In addition, in the event AK Holding undergoes a “make-whole fundamental change,” as defined in the Exchangeable Notes Indenture, prior to the maturity date, in addition to requiring AK Steel to repurchase the Exchangeable Notes in whole or in part for cash at a price equal to par plus any accrued and unpaid interest, the exchange rate will be retiredincreased in certain circumstances for a holder who elects to exchange its Exchangeable Notes in connection with such event. Based on the initial exchange rate, the Exchangeable Notes are exchangeable into a maximum of 37.5 million shares of AK Holding common stock. However, such maximum amount of shares would be exchanged only if, as a result of the occurrence of a “make-whole fundamental change” described above, AK Holding elects to satisfy the higher exchange rate by delivering to the holders shares of AK Holding common stock in consideration therefor.
Taxable Tax Increment Revenue Bonds
In 1997, in conjunction with construction of our Rockport Works facility, the Spencer County (IN) Redevelopment District (the “District”) issued $23.0 million in taxable tax increment revenue bonds. Proceeds from the bond issue were used by the Company for the acquisition of land and marked as cancelledsite improvements at the facility. The source of the District’s scheduled principal and cannot be reissued.interest payments through maturity in 2017 is a designated portion of the Company’s real and personal property tax payments. The Company is obligated to pay any deficiency in the event its annual tax payments are insufficient to enable the District to make principal and interest payments when due. For the twelve months ended December 31, 2012, the Company made deficiency payments totaling $2.6 million. At December 31, 2012, the remaining semiannual payments of principal and interest due through the year 2017 total $31.2 million. The Company includes potential payments due in the coming year under this agreement in its annual property tax accrual.
Tax-Exempt Industrial Revenue Bonds
In February 2012, we completed an offering (the “2012 IRB Offering”) of $73.3 million of tax-exempt industrial revenue bonds (“IRBs”). The 2012 IRB Offering was effected through offerings of newly issued tax-exempt IRBs in an aggregate principal amount equal to the aggregate outstanding principal amount of the IRBs being replaced. We used the net proceeds of approximately $538.1 million from the newly issued fixed-rate tax-exempt IRBs to redeem our prior variable-rate tax exempt IRBs (“Redeemed IRBs”) in March 2012.
More specifically, the 2012 IRB Offering resulted in the issuance of the old notes, togetherfollowing new fixed-rate tax-exempt IRBs (the “New IRBs”): (i) $36.0 million aggregate principal amount of 6.75% tax-exempt IRBs due June 1, 2024 issued by the Ohio Air Quality Development Authority (the “OAQDA”), (ii) $30.0 million aggregate principal amount of 7.0% tax-exempt IRBs due June 1, 2028 issued by the City of Rockport, Indiana (the “City of Rockport”), and (iii) $7.3 million aggregate principal amount of 6.25% tax-exempt IRBs due June 1, 2020 issued by the Butler County Industrial Development Authority in Butler County, Pennsylvania (the “BCIDA”, and collectively with approximately $40.6 millionthe OAQDA and the City of other cash on
hand,Rockport, the “Tax-Exempt Issuers”). The New IRBs were issued by the Tax-Exempt Issuers, who loaned the net proceeds of the respective issuances to financeus pursuant to the approximately $578.7 million costterms of loan agreements between us and each of the OAQDA, City of Rockport and BCIDA (the “Loan Agreements”). The Loan Agreements provide that the net proceeds of the New IRBs be held by the trustee, Wells Fargo Bank National Association (the “Trustee”), for the purpose of redeeming all $550
million of our previously outstanding 9 1/8% Senior Notes due 2006 on July 11,
2002 (inclusive ofthe principal amount and accrued interest on those notes through that date).
27
CAPITALIZATION
the Redeemed IRBs.
The following table sets forth our consolidated capitalization at June 30,
2002Loan Agreements contain certain customary events of default after which the New IRBs may be declared due and as adjustedpayable if not cured within an applicable grace period or, in certain circumstances, may be declared due and payable immediately. Such events of default include, among others, failure to give effect to the redemption on July 11, 2002 of all
$550 million of our 9 1/8% Senior Notes due 2006, which is included in current
portion of long-term debt. The information presented below should be read in
conjunction with our consolidated financial statements included elsewhere in
this prospectus.
DESCRIPTION OF THE REGISTERED NOTES
The original notes were issued under an indenture (the “Indenture”), dated as of interest earned on cash balances, declinedNovember 20, 2012 (the “Original Issue Date”), among AK Steel, as issuer, AK Holding, as guarantor, and U.S. Bank National Association, as trustee (the “Trustee”). The registered notes will also be issued under the Indenture. The original notes and the registered notes offered hereby will be treated as a single class of debt securities under the Indenture, including for purposes of redemptions, offers to purchase, and determining whether the required percentage of holders have given their approval or consent to an amendment or waiver or joined in 2000 due to lower
average cash balances compared to 1999.
During 2000, we incurred $78.6 million in income tax expense, a book tax
rate of 37%. This amount included a non-cash deferred tax provision of $92.3
million, primarily attributable to accelerated tax depreciation in excess of
book, book pension credits in excess of actual fundingthe directing of the pension plans,
utilization or expiration of tax loss carryovers and related changes in the
deferred tax asset valuation reserve. Partially offsetting the deferred tax
provision was a credit for current taxes of $13.7 million, which included a
$15.0 million federal tax refund that resulted from the carryback of a tax net
operating loss generated in 1999. The income tax provision for 1999 is net of
an $11.6 million recycling tax credit received from the Commonwealth of
Kentucky in that year, but which related to prior years.
Income from continuing operations for 2000 was $134.0 million, or $1.21 per
share, compared to $71.3 million, or $0.62 per share, reported for 1999.
Excluding the special charge, minority interest, and certain other
merger-related adjustments, net of tax, 1999 income from continuing operations
was $157.6 million, or $1.46 per share. From this amount, income from
continuing operations decreased 15% in 2000, reflecting the lower adjusted
operating income, higher interest expense and the decline in other income.
34
Certain of Armco's former businesses included operations in foreign
countries. At the time of their sale or closure, some of these operations had
outstanding tax issues. Following consultation with advisors in those countries
in 1999, Armco determined that it had resolved most of these issues and
reversed a majority of the related reserves, recognizing income from
discontinued operations of $7.5 million, or $0.07 per share.
During 1999, we recorded a combined after-tax extraordinary loss of $13.4
million, or $0.13 per share, due to the early redemption of AK Steel's 10 3/4%
Senior Notes Due 2004 and Armco's 9 3/8% Senior Notes Due 2000.
Net income in 2000 was $132.4 million, or $1.20 per share, compared to the
$65.4 million, or $0.56 per share, reported for 1999. Excluding the special
charge, minority interest, and certain other merger-related adjustments, as
well as the income from discontinued operations and extraordinary loss, net of
tax, 1999 income was $157.6 million, or $1.46 per share. From this amount,
income decreased 15% in 2000, reflecting the lower adjusted operating income,
higher interest expense and the decline in other income.
Outlook
We anticipate that total third quarter 2002 shipments will decline
approximately 5% from second quarter 2002 levels due to new model year
retooling and seasonal maintenance at the major automotive companies, partially
offset by increased sales to the spot market. However, pricing is expected to
continue to rise in the spot market, with some increase expected in contract
sales as negotiations continue regarding supply agreements with many of our
major customers. Value-added shipments should remain near 94% during the next
quarter, with strong volumes shipped to appliance and construction customers.
Snow and ice control product sales and income for the next quarter are expected
to be lower compared to the second quarter of this year due to the stronger
than expected second quarter sales and some softening of orders caused by the
very mild winter and slow economy.
We expect higher costs in the third quarter in a similar magnitude to the
increase in pricing, primarily related to the strong product mix, increasing
scrap prices and slightly lower volumes.
Under our method of accounting for pension and other postretirement benefit
plans, we recognize into income, as a fourth quarter adjustment, any
unrecognized actuarial net gains and losses that exceed 10% of the larger of
benefit obligations or plan assets. Poor year-to-date performance by the
financial markets, if not reversed during the remainder of the year, is likely
to cause actuarial net losses for our pension plans in the current year. In
addition, other postretirement benefit plans could incur actuarial net losses
resulting from rising healthcare costs. We expect that most of the actuarial
net losses generated in the current year would be recognized in a fourth
quarter 2002 charge against operating profit (loss). The amount of this
non-cash charge could be substantial.
Liquidity and Capital Resources
Our liquidity needs are primarily for capital investments, working capital,
employee benefit obligations and debt service. At June 30, 2002, we had $843.9
million of cash and cash equivalents, which included $538.1 million of net
proceeds from the sale of the notes. In addition, we had $182.9 million
available for borrowings under our $300.0 million accounts receivable purchase
credit facility. At that date, there were no outstanding borrowings under the
credit facility and availability was reduced primarily by outstanding letters
of credit.
On March 9, 2002, President Bush signed into law the Job Creation and Worker
Assistance Act. One of the provisions of the Act increases the net operating
loss, or NOL, carryback period to five years from two years for losses
generated in tax years 2001 and 2002 and allows an NOL deduction arising in
these tax years to offset 100% of alternative minimum taxable income during the
carryback period. As a result, we received a refund of $46.7 million in the
second quarter of this year. This refund reduced our deferred tax asset but
does not affect current or future reported net income or loss.
35
Anticipated Debt Service
At June 30, 2002, our long-term debt, including the current portion, totaled
$1,949.8 million, consisting primarily of the $550.0 million of 9 1/8% Senior
Notes due 2006, which were redeemed on July 11, 2002, and our other senior
notes that mature in the years 2007 through 2009 and that are not subject to
amortization prior to maturity. In addition, the principal of our Senior
Secured Notes Due 2004 is repayable in four successive annual installments of
$62.5 million, which commenced in December 2001. Our obligation to make
principal payments in each of the next five years, excluding the 9 1/8% Senior
Notes that were redeemed on July 11, 2002, is as follows: $77.6 million in the
second half of 2002, $62.5 million in 2003, $62.5 million in 2004, zero in 2005
and zero in 2006. Interest expense for 2001, net of capitalized interest of
$2.8 million, totaled $133.1 million.
Capital Investments
We anticipate 2002 capital investments of approximately $125.0 million, all
of which are expected to be funded from available cash and cash generated from
operations. During the first half of 2002, we expended approximately $53.1
million for capital investments.
Employee Benefit Obligations
As of December 31, 2001, our pension plans were 88% funded in accordance
with accounting principles generally accepted in the United States. However, no
cash contributions to the pension plans are required until at least 2003.
At December 31, 2001, our liability for postretirement benefits other than
pensions totaled $1,474.0 million. We have established a healthcare trust as a
means of prefunding a portion of this liability. The balance in the trust,
including the earnings on trust investments, as of December 31, 2001, was $87.0
million.
Dividends
Prior to 2001, AK Holding had paid quarterly dividends on its common stock
since November 15, 1995 and had paid dividends on its $3.625 cumulative
convertible preferred stock since it was issued in the fourth quarter of 1999.
The declaration and payment of cash dividends are subject to a restrictive
covenant contained in the instruments governing our senior debt. Primarily due
to dividend payments and substantial share repurchases made in 2000 and prior
years, and the impact of net losses recorded in 2001, the amount available
under this covenant was insufficient to permit the payment of dividends on
either the common or preferred stock for a portion of 2001. In that year,
quarterly common stock dividends were reduced to $0.0625 per share in the first
two quarters and suspended in the last two quarters. Preferred stock dividends
were paid in the first three quarters and suspended in the fourth quarter. No
dividends on either the common or preferred stock have been paid in 2002. As of
June 30, 2002, the restrictive covenant precluded the payment of any dividends
on either class of stock. However, effective as of August 8, 2002, we received
the consents of holders of all of our outstanding notes and amended the
restrictive covenant to allow us to pay one or more dividends on either the
common or preferred stock, in the event that such dividends are declared by our
Board of Directors. The preferred stock dividends are cumulative and, as such,
holders of the preferred stock are entitled to payment of all accrued, but
unpaid dividends, before payment of dividends to the holders of common stock
may resume.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with accounting principles
generally accepted in the United States. These principles permit choices among
alternatives and require numerous estimates of financial matters. We believe
the accounting principles chosen are appropriate under the circumstances, and
that the estimates, judgments and assumptions involved in our financial
reporting are reasonable.
36
Revenue from sales of products is recognized at the time title and the risks
and rewards of ownership passes. This normally is when the products are shipped
to the customer, the sales price is fixed and determinable, and collection is
reasonably assured.
Accounting estimates are based on historical experience and information that
is available to management about current events and actions we may take in the
future. Significant items subject to estimates and assumptions include the
carrying value of long-lived assets; valuation allowances for receivables,
inventories and deferred income tax assets; legal and environmental
liabilities; and assets and obligations related to employee benefit plans.
There can be no assurance that actual results will not differ from these
estimates.
We maintain an allowance for doubtful accounts for losses resulting from the
potential that some customers may be unable to make payments. While, based on
our experience, losses due to credit failures have been low, if in the future
the financial condition of some customers deteriorates affecting their ability
to pay, additional allowances may be needed. Approximately 35% of trade
receivables outstanding at December 31, 2001 are due from businesses associated
with the U.S. automotive industry. Except in a few situations where the risk
warrants it, collateral is not required on trade receivables; and while we
believe our trade receivables will be collected, we anticipate that in the
event of default we would follow normal collection procedures.
We record a valuation allowance to reduce our deferred tax assets to an
amount that is more likely than not to be realized. In estimating levels of
future taxable income, we have considered historical results of operations in
recent years and would, if necessary, consider the implementation of prudent
and feasible tax planning strategies to generate future taxable income. If
future taxable income is less than the amount that has been assumed in
determining the deferred tax asset, then an increase in the valuation reserve
will be required, with a corresponding charge against income. On the other
hand, if future taxable income exceeds the level that has been assumed in
calculating the deferred tax asset, the valuation reserve could be reduced,
with a corresponding credit to income. Our ability to utilize Armco's net
operating loss, capital loss, and tax credit carryforwards as of the date of
the merger will be limited by Section 382 of the Internal Revenue Code. We have
recorded a valuation reserve for those carryforward amounts that are expected
to expire prior to being used as a result of the limits imposed by Section 382.
We are involved in a number of environmental and legal proceedings. Accruals
of probable costs have been made based on a combination of litigation and
settlement strategies. It is possible that results of operations in any future
period could be materially affected by changes in assumptions or by the
effectiveness of these strategies.
As discussed earlier in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, our method of accounting for
pensions and other postretirement benefit plans required the recognition of a
pre-tax charge of $192.2 million in the fourth quarter of 2001. Under our
method of accounting for pension and other postretirement benefit plans, we
recognize into income, as a fourth quarter adjustment, any unrecognized
actuarial net gains or losses that exceed 10% of the larger of benefit
obligations or plan assets. Amounts inside this 10% corridor are amortized over
the average remaining service life of active plan participants. We believe this
method results in faster recognition of actuarial net gains and losses than the
minimum amortization method permitted by prevailing accounting standards and
used by the vast majority of companies in the United States. Faster recognition
limits the amounts by which balance sheet assets and liabilities differ from
economic net assets or obligations related to the plans. However, faster
recognition under this method also results in the potential for highly volatile
and hard to forecast fourth quarter adjustments, similar to the one recognized
in 2001.
Under the applicable accounting standards, actuarial net gains and losses
occur when actual experience differs from any of the many assumptions used to
value the benefit plans or when the assumptions change, as they may each year
when a valuation is performed. The usual major sources of actuarial gains and
losses for pension plans are the differences between expected and actual
returns on plan assets and changes in the discount rate used to value pension
liabilities as of the measurement date. For other postretirement benefit plans,
37
differences in estimated versus actual healthcare costs, changes in assumed
healthcare cost trend rates or a change in the difference between the discount
rate and the healthcare trend rate are major sources of actuarial gains and
losses. In addition to the potential for fourth quarter adjustments, these
changes affect future quarterly net periodic benefit expense.
Our financial statements consolidate the operations and accounts of us and
all subsidiaries in which we have a controlling interest. We also have
investments in associated companies that are accounted for under the equity
method and, because the operations of these companies are integrated with our
basic steelmaking operations, our proportionate share of their income (loss) is
reflected in our cost of products sold in the consolidated statements of
income. We have a subordinated note receivable of $35.0 million due from one of
these associated companies, which is recorded in other investments on the
consolidated balance sheets. In the first half of 2002, we provided a $4.0
million letter of credit to support a portion of that company's bank
indebtedness proportionate to our investment in that company. We do not
guarantee the debt of any other unconsolidated companies, have any "off balance
sheet debt" and do not have any so called "special purpose entities" that are
not included in our consolidated financial statements.
Our investment in AFSG Holdings, Inc. represents the carrying value of our
discontinued insurance and finance leasing businesses, which have been largely
liquidated. The activities of the remaining operating companies are in "runoff"
mode and the group is accounted for as a discontinued operation under the
liquidation basis of accounting, whereby future cash inflows and outflows are
considered. We are under no obligation to support the operations or liabilities
of this group.
We are a party to derivative instruments that are designated and qualify as
hedges under Statement of Financial Accounting Standards ("Statement") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and related
pronouncements. Our objective in using such instruments is to protect our
earnings and cash flows from fluctuations in the fair value of selected
commodities and currencies. For example, in the ordinary course of business, we
use cash settled commodity price swaps, with a duration of up to three years,
to hedge the price of a portion of our natural gas, nickel, aluminum and zinc
requirements. We designate these swaps as cash flow hedges and the resulting
changes in their fair value are recorded in other comprehensive income.
Subsequent gains and losses are recognized into income in the same period as
the underlying physical transaction. As of June 30, 2002, currently valued
outstanding commodity hedges would result in the reclassification into earnings
of $1.4 million in net-of-tax losses within the next twelve months. At June 30,
2002, we were not party to any derivative instruments that do not qualify as
hedges. Based on such reviews as we deem reasonable and appropriate, we believe
that all counterparties to our outstanding derivative instruments are entities
with substantial credit worthiness.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, "Goodwill and Other Intangible Assets." Statement No. 142
requires that goodwill no longer be amortized to earnings, but instead be
reviewed annually for impairment. We adopted Statement No. 142 as of January 1,
2002. In the second quarter of 2002 we completed the required review, with the
assistance of a third party consultant, and determined that, as of January 1,
2002, no impairment was necessary.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations," which requires entities to establish liabilities for
legal obligations associated with the retirement of tangible long-lived assets.
We will adopt the Statement in 2003, but have yet to determine what effect, if
any, adoption will have on our financial statements.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for impairment of long-lived assets to be held and
used, and of long-lived assets and components of an entity to be disposed of.
We adopted the Statement as of January 1, 2002, as required, but, except for
the requirement to reclassify the results of Sawhill Tubular division as a
discontinued operation, the Statement did not have a material effect on our
financial statements.
38
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The Statement rescinds or amends previous pronouncements related
to extinguishment of debt, intangible assets of motor carriers and accounting
for leases. The Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify their meanings
and describe their applicability under changed conditions. Generally, the
Statement applies to transactions occurring and financial statements issued
after May 15, 2002. However, a provision requiring certain gains and losses
from extinguishment of debt to be reclassified from extraordinary items is
effective January 1, 2003. We have yet to determine what effect, if any,
adoption will have on our financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities,
and supersedes Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. We have yet to determine what effect, if
any, adoption will have on our financial statements.
39
BUSINESS
Operations
We are a fully-integrated producer of flat-rolled carbon, stainless and
electrical steels. Our operations include those previously conducted by Armco
Inc., which merged with and into AK Steel on September 30, 1999. The merger
enhanced our steel producing capability and market position by allowing us to
combine the distinct strengths of each company's individual plants into a
unified steelmaking operation.
In addition to our steel operations, we own and operate a snow and ice
control products company and an industrial park.
Our steel operations consist of eight 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 slab,
hot band, and sheet and strip form. The steel operations also include European
trading companies that buy and sell steel and steel products and AK Tube
L.L.C., which is a manufacturer and distributor that further finishes flat
rolled steel into welded steel tubing used in the automotive, large truck and
construction markets. We are registered under the ISO 9002 international
quality standard and certified under the QS 9000 quality assurance program used
by domestic automotive manufacturers and has received numerous quality awards
from many of our major customers. In addition, we have received a number of
awards for safety and, in 2001, our Ashland Works became the first steel plant
in the United States to receive ISO 14001 environmental certification.
Our snow and ice control products segment consists of Douglas Dynamics,
L.L.C., the largest North American manufacturer of snowplows, and salt and sand
spreaders for four-wheel drive light trucks. From three plants, its products
are sold under the brand names Western and Fisher through independent
distributors in the United States and Canada.
Our other operations consist of Greens Port Industrial Park on the Houston,
Texas ship channel, which leases land, buildings and rail car storage
facilities to third parties and operates a deep water loading dock on the
channel.
Customers
Our flat-rolled carbon steel products are sold primarily to automotive
manufacturers and to customers in the appliance, industrial machinery and
equipment, and construction markets, consisting principally of manufacturers of
home appliances, heating, ventilation and air conditioning equipment and
lighting products. Hot-rolled, cold-rolled, and coated carbon steel products
are also sold to distributors, service centers and convertors who may further
process these products or resell them without further processing.
We sell our stainless steel products primarily to customers in the
automotive industry, as well as to manufacturers of food handling, chemical
processing, pollution control and medical and health equipment. Electrical
steels, which are iron-silicon alloys with unique magnetic properties, are sold
primarily to manufacturers of power transmission and distribution transformers,
electrical motors and generators, and lighting ballasts.
In conducting our steel operations, our marketing efforts are principally
directed toward those customers, such as automotive manufacturers, who require
precise just-in-time delivery, technical support and the highest quality
flat-rolled steel. Management believes that our enhanced product quality and
delivery capabilities, and
40
our emphasis on customer technical support and product planning, are critical
factors in our ability to serve this segment of the market. The following table
sets forth the percentage of the steel operations net sales attributable to
various markets:
Years Ended
December 31,
-------------
1999 2000 2001
---- ---- ----
Automotive..................................................... 55% 52% 57%
Appliance, Industrial Machinery and Equipment, and Construction 25% 24% 25%
Distributors, Service Centers and Convertors................... 20% 24% 18%
Our steel operations segment is a major supplier to the domestic automotive
industry, including those foreign manufacturers with plants in the United
States. Shipments to General Motors Corporation, our largest customer,
accounted for approximately 15%, 15% and 18% of steel operations net sales in
1999, 2000 and 2001, respectively. No other customer accounted for more than
10% of net sales for any of these years.
We are a party to contracts with most of our major automotive and appliance
industry customers with terms that range from one to three years. These
contracts, which are typically finalized late in the year, set forth prices to
be paid for each product category during each year of their term. Except for
certain stainless steel agreements, which permit increased costs for nickel and
chrome to be passed on to the customer, these contracts do not permit price
adjustments to reflect changes in prevailing market conditions or energy and
raw material costs. Approximately 73% of our shipments of flat rolled steel
products in 2001 were made to contract customers with the balance being made in
the spot market at prevailing prices at the time of sale.
Raw Materials
The principal raw materials required for our steel manufacturing operations
are carbon and stainless steel scrap, iron ore, coal, electricity, natural gas,
oxygen, chrome, nickel, silicon, molybdenum, zinc, limestone and other
commodity materials. In addition, we routinely purchase between 10% and 15% of
our carbon steel slab requirements from other steel producers, located
primarily outside the United States, to supplement the production from our own
steelmaking facilities. Most purchases of coal, iron ore and limestone, as well
as transportation services, are made at negotiated prices under annual and
multi-year agreements. Purchases of carbon steel slabs, stainless steel scrap,
natural gas and other raw materials are made at prevailing market prices, which
are subject to price fluctuations in accordance with supply and demand. We
believe that adequate sources of supply exist for all of our raw material and
energy requirements.
Employees
As of June 30, 2002, we had approximately 10,300 employees. Approximately
7,000 employees at six of our eleven plants are represented by international or
independent labor unions, under contracts with expiration dates extending
through 2006. Two labor contracts covering approximately 100 employees at our
Butler Works expire in 2002.
Our Mansfield Works was one of the facilities owned and operated by Armco
prior to its merger with AK Steel on September 30, 1999. On September 1, 1999,
the contract between Armco and the United Steelworkers of America covering
approximately 600 hourly workers, including 100 on layoff status, at the
Mansfield Works expired. Because of production slowdowns, vandalism and threats
of violence on the part of union members, Armco informed the union, and we
understood, that it would lock out represented employees while it continued to
bargain with the union. Since September 1999, bargaining between us and the
union has continued while salaried employees and temporary replacement workers
have operated the Mansfield Works.
41
Competition
We compete with domestic and foreign flat-rolled carbon, stainless and
electrical steel producers and producers of plastics, aluminum and other
materials that can be used in lieu of flat-rolled steels in manufactured
products. Price, quality, delivery and service are the primary competitive
factors and vary in relative importance according to the category of product
and customer requirements.
Domestic steel producers face significant competition from foreign producers
who typically have lower labor costs. In addition, many foreign steel producers
are owned, controlled or subsidized by their governments and their decisions
with respect to production and sales may be influenced more by political and
economic policy considerations than by prevailing market conditions.
In October 2001, the International Trade Commission, following a nearly
four-month investigation, found "serious injury" to the U.S. steel industry due
to increased imports of steel products. In March 2002, President Bush imposed
tariffs of 30%, 24% and 18% for each of the three respective years beginning
March 2002 on imports of hot-rolled, cold-rolled and coated sheet carbon steel,
some of which are sold in competition with products manufactured and sold by
us, as well as on imports of carbon steel slabs (which we purchase to
supplement our own production) in excess of a specified annual quota. These
tariffs have not had, and, at present, we do not believe they will have, a
material adverse effect on our results of operations.
Environmental Matters
We, like all other steel producers, are subject to various federal, state
and local environmental, health and safety laws and regulations concerning such
issues as air emissions, wastewater discharges, solid and hazardous waste
handling and disposal, and the investigation and remediation of contamination.
These laws and regulations are increasingly stringent. Over the past three
years, we have expended the following for environmental related capital
investments and environmental compliance costs:
Years Ended
December 31,
-----------------
1999 2000 2001
----- ----- -----
(in millions)
Environmental related capital investments $ 7.2 $10.1 $18.8
Environmental compliance costs........... 85.9 93.5 99.5
Except as expressly noted below, management does not anticipate any material
impact on our recurring operating costs or future profitability as a result of
our compliance with current environmental regulations. Moreover, because all
domestic steel producers operate under the same set of federal environmental
regulations, management believes that we are not competitively disadvantaged by
its need to comply with these regulations.
Environmental Remediation
We and our predecessors have been conducting steel manufacturing and related
operations for more than 100 years. Although our operating practices are
believed to 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, including sites that are no longer owned by us. Potential
remediation expenditures have been estimated 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.
Pursuant to the Resource Conservation and Recovery Act, or RCRA, which
governs the treatment, handling and disposal of hazardous waste, the United
States Environmental Protection Agency, or EPA, and authorized state
environmental agencies may conduct inspections of RCRA regulated facilities to
identify areas where there have been releases of hazardous waste or hazardous
constituents into the environment and may order the facilitiesTrustee to take corrective action to remediate such releases. Our major steelmaking facilities
are subject to RCRA inspections by environmental regulators. While we cannot
predict the futurecertain actions of these regulators, the potential exists for
required corrective action at these facilities.
42
Under authority conferred by the Comprehensive Environmental Response,
Compensation and Liability Act, or CERCLA, the EPA and state environmental
authorities have conducted site investigations at certain of our facilities,
portions of which previously had been used for disposal of materials that are
currently subject to regulation. While the results of these investigations are
still pending, we could be directed to expend funds for remedial activities at
the former disposal areas. Because of the uncertain status of these
investigations, however, management cannot predict whether or when such
expenditures might be required or their magnitude.
As previously reported in Holding's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, on July 27, 2001, we received a Special
Notice Letter from the EPA requesting that we agree to conduct a Remedial
Investigation/Feasibility Study, or RI/FS, and enter into an administrative
order on consent pursuant to Section 122 of CERCLA regarding the former
Hamilton Plant of Armco located in New Miami, Ohio. The Hamilton Plant is no
longer an operating steel mill, having ceased operations in 1990, and all of
its former structures have been demolished and removed. While we do not believe
that a site-wide RI/FS is necessary or appropriate at this time, in April 2002
we entered into a mutually agreed-upon administrative order on consent to
perform such an investigation and study of the Hamilton Works site.
Environmental Proceedings
Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various constituents
in coke plant wastewater prior to discharge into publicly owned treatment
works, or POTW. Due to concentrations of ammonia and phenol in excess of these
limits in wastewater from the Middletown Works, we, through the Middletown
POTW, petitioned the EPA for "removal credits," a type of compliance exemption,
based on the Middletown POTW's satisfactory treatment of the wastewater for
ammonia and phenol. The EPA declined to review the petition on the grounds that
it had not yet promulgated new sludge management rules. We thereupon sought and
obtained from the United States District Court for the Southern District of
Ohio an injunction prohibiting the EPA from instituting enforcement action
against us for noncompliance with the pretreatment limitations, pending the
EPA's promulgation of the applicable sludge management regulations. Management
is unable to predict the outcome of this matter. However, if the EPA eventually
refuses to grant the petition for removal credits, we could incur additional
costs to construct pretreatment facilities at the Middletown Works.
On February 27, 1995, the Ohio Environmental Protection Agency, or OEPA,
issued a Notice of Violation with respect to the Zanesville Works alleging
noncompliance with both a 1993 order and various state regulations regarding
hazardous waste management. We are continuing to work with the OEPA and the
Ohio Attorney General's Office to achieve final resolution of this matter. In
addition, AK Steel is negotiating with the U.S. EPA for an order concerning
these same waste management issues.
On June 29, 2000, the United States filed a complaint on behalf of the EPA
against AK Steel inholders. For purposes of this description, unless the U. S. District Court for the Southern District of Ohio,
which we refer to as the "federal action," for alleged violations of the Clean
Air Act, the Clean Water Act and the RCRA. On the same date, AK Steel filed a
Verified Complaint for Declaratory and Injunctive Relief in the Court of Common
Pleas for Butler County, Ohio, which we refer to as the "state action", against
the State of Ohio and the OEPA seeking a declaration that, among other things,
(a) AK Steel is in compliance with its operating permits for the blast furnace
and basic oxygen furnaces at its Middletown Works, which would preclude the
State of Ohio and the OEPA from taking any action to order or enforce
obligations on AK Steel with respect to those facilities, and (b) that any
emissions from the Middletown Works do not cause, orcontext otherwise contribute to, a
public nuisance. On June 30, 2000, the State of Ohio moved to intervene in the
Federal Action. On March 29, 2001, the U.S. District Court ruled that the State
of Ohio could conditionally intervene in the Federal Action. Subsequently, Ohio
filed a conditional complaint, which included various environmental claims,
including seven air pollution claims. On May 9, 2001, AK Steel moved to dismiss
all of Ohio's claims in the Federal Action. On July 27, 2001, the Court of
Common Pleas in the State Action declared null and void two Notices of
Violation issued by the OEPA upon which certain of the air pollution claims of
the EPA and Ohio in the Federal Action were predicated. Subsequently, the court
held that that
43
effectively concludes the State Action. AK Steel has appealed that holdingrequires, references to the 12/th/ District Court of Appeals in Butler County, Ohio. On October 17,
2001, the OEPA issued a similar new Notice of Violation, but moved to amend its
conditional complaint in the Federal Action to withdraw four of its air
pollution claims, which were predicated on the two original Notices of
Violation that were declared null and void. On September 27, 2001, the U.S.
District Court dismissed with prejudice the EPA's air pollution claim, which
had been predicated on the two voided Notices of Violation letters. In
addition, on December 19, 2001, the U.S. District Court stayed the remaining
three air pollution claims of the OEPA in the Federal Action pending resolution
of a related administrative appeal to the Ohio Environmental Review Appeals
Commission addressing the newly issued OEPA Notice of Violation. AK Steel's
motion to dismiss the OEPA claims not yet dismissed in the Federal Action
remains pending. No trial date has yet been set in the Federal Action. AK Steel
is vigorously contesting all of the remaining claims. If OEPA and/or the EPA
are completely successful in obtaining the relief they seek in the Federal
Action with respect to their air pollution claims, it could result in
significant penalties and require a substantial capital investment to install
interim pollution control equipment on the blast furnace and basic oxygen
furnaces at the Middletown Works under current federal pollution control
regulations before certain proposed new federal regulations are made final.
Once those proposed new federal regulations become final, AK Steel could be
required to make another substantial capital investment to replace the interim
pollution control equipment. Under those circumstances, the Company may
conclude that it is more cost-effective to purchase slabs than to make them at
the Middletown Works and may elect to shut down the hot end facilities of the
Middletown Works. If the EPA and OEPA are completely successful in obtaining
the relief they seek in the Federal Action with respect to their water and/or
RCRA claims, it could result in substantial penalties and an order requiring AK
Steel to investigate and remediate alleged polychlorinated biphenyl and
polycyclic aromatic hydrocarbon contamination in Monroe Ditch and Dick's Creek,
which are located on and adjacent to the Middletown Works. At this time, we are
unable to estimate the cost of an adverse outcome related to the air pollution,
water pollution or RCRA claims or the potential cost of a shutdown of the hot
end of the Middletown Works.
On September 30, 1998, Armco received an order from the EPA under Section
3013 of RCRA requiring it to develop a plan for investigation of eight areas of
the Mansfield Works that allegedly could be sources of contamination. A site
investigation began in November 2000 and is continuing.
On June 27, 2000, the EPA issued an Emergency Order pursuant to the Safe
Drinking Water Act to AK Steel's Butler Works located in Butler, Pennsylvania
concerning discharge of nitrate/nitrite compounds to the Connoquenessing Creek,
an occasional water source for the Borough of Zelienople. On March 2, 2001, AK
Steel entered in an agreed administrative order with the EPA calling for, among
other things, a decrease in the levels of nitrates and nitrites in the treated
water discharged to waters of the Commonwealth of Pennsylvania by AK Steel's
Butler Works and for the provision of emergency drinking water for Zelienople
during certain times when it must draw drinking water from the Connoquenessing
Creek. AK Steel has taken and is continuing to take the measures necessary to
comply with that order.
In addition to the foregoing matters, we are or may be involved in
proceedings with various regulatory authorities that may require us to pay
fines, comply with more rigorous standards or other requirements or incur
capital and operating expenses for environmental compliance. Except to the
limited extent noted above with respect to the claims in the federal action,
management believes that the ultimate disposition of the foregoing proceedings
will not have, individually or in the aggregate, a material adverse effect on
our consolidated financial condition, results of operations or cash flows.
Properties
Our corporate headquarters are located in Middletown, Ohio. Steelmaking and
finishing operations are conducted at eight facilities located in Indiana,
Kentucky, Ohio and Pennsylvania. Three fabricating plants are located in
Wisconsin, Maine and Tennessee, and an industrial park is located in Texas. All
of these facilities, except for a leased tubing facility, are owned by us.
44
Coke manufacturing plants, blast furnaces, basic oxygen furnaces and
continuous casters for the production of carbon steel are located at the
Ashland Works in Kentucky and the Middletown Works in Ohio. A hot rolling mill,
cold rolling mill, pickling lines, annealing facilities and temper mills as
well as four coating lines are located at the Middletown Works, and one
additional coating line is located at the Ashland Works. Together, these
facilities are located on approximately 5,400 acres of land.
The Rockport Works in Indiana consists of a state-of-the-art continuous cold
rolling mill, a continuous hot-dip galvanizing and galvannealing line, a
continuous carbon and stainless steel pickling line, a continuous stainless
steel annealing and pickling line, hydrogen annealing facilities and a temper
mill. The 1.7 million square-foot plant is located on a 1,700-acre site.
The Butler Works in Pennsylvania, which is situated on 1,300 acres with 3.5
million square feet of buildings, produces stainless and electrical steel.
Melting takes place in three electric arc furnaces that feed an argon-oxygen
decarburization unit and a vacuum degassing unit for refining molten metal.
These units feed two double strand continuous casters. The Butler Works also
includes a hot rolling mill, annealing and pickling units and two fully
automated tandem cold rolling mills. It also has various intermediate and
finishing operations for both stainless and electrical steels.
The Coshocton Works in Ohio, located on 650 acres, consists of a 570,000
square-foot stainless steel finishing plant, containing three Sendzimer mills
and two Z-high mills for cold reduction, four annealing and pickling lines, ten
bell annealing furnaces, three bright annealing lines and other processing
equipment, including temper rolling, slitting and packaging facilities.
The Mansfield Works in Ohio, which produces stainless steel, consists of a
1.6 million square-foot facility on a 548-acre site and includes a melt shop
with two electric arc furnaces, an argon-oxygen decarburization unit, a
thin-slab continuous caster, a six-stand hot rolling mill, a four-stand tandem
cold rolling mill and a pickling line.
The Zanesville Works in Ohio, with 508,000 square feet of buildings on 88
acres, is a finishing plant for some of the stainless and electrical steel
produced at the Butler Works and Mansfield Works and has a Sendzimer cold
rolling mill, annealing and pickling lines, high temperature box anneal and
other decarburization and coating units.
Douglas Dynamics manufactures snow and ice control products at three plants
located in Maine, Tennessee and Wisconsin. The plants are equipped to machine,
fabricate, weld, finish and assemble components for snowplows, and salt and
sand spreaders.
AK Tube, located in Ohio, operates five electric resistance weld tube mills,
two slitters, two cut-to-length machines and various other processing equipment
housed in a 330,000 square foot leased facility.
Greens Port Industrial Park, located on approximately 650 acres on the
Houston, Texas ship channel, consists of land, buildings, rail car storage
facilities and a deep water loading dock.
Legal Proceedings
In addition to the environmental matters discussed above and the items
discussed below, there are various claims pending against us and our
subsidiaries involving product liability, reinsurance and insurance
arrangements, antitrust, patent, employee benefits and other matters arising in
the ordinary course of business. Except to the limited extent noted above with
respect to the claims in the federal action, in management's opinion, the
ultimate liability resulting from all of these claims, individually and in the
aggregate, should not have a material adverse effect on our consolidated
financial position, results of operations or cash flows.
45
On July 13, 2001, Orinoco Iron, C.A. filed an action against AK Steel in the
United States District Court for the Southern District of Ohio, Case No.
C-1-01-461. Orinoco and us were parties to a multi-year contract whereby
Orinoco supplied us with a form of iron ore referred to as hot briquetted iron,
or HBI. The action arose out of a dispute between Orinoco and us with respect
to the pricing formula under the supply contract. Orinoco alleged that the
pricing formula in the supply contract was appropriate as stated in the
contract and sought damages for the failure of us to pay for HBI in accordance
with that pricing formula. We alleged that the pricing formula no longer
reflected“notes” include the original intent ofnotes, the parties and sought an order from the court
reforming the contract to include a different pricing formula. In June 2002, we
and Orinoco mutually agreed to terminate our existing supply contract, enter
into a new five-year supply contract with a revised pricing formula, and to
settle our claims against each other. Pursuant to our settlement agreement, the
pending litigation between us and Orinoco was dismissed on or about July 15,
2002.
On June 26, 2002, seventeen individuals filed a purported class action
against us in the United States District Court for the Southern District of
Ohio, Case No. C-1-02-467. The complaint alleges that the company discriminates
against African-Americans in our hiring practices and that the company
discriminates against all of its employees by preventing our employees from
working in a racially integrated environment free from racial discrimination.
The complaint seeks various forms of declaratory, injunctive and monetary
relief (including back pay, front pay, lost benefits, lost seniority and
punitive damages) for the complaintants and the other members of their alleged
class. We intend to contest this matter vigorously.
On June 13, 2002, oral arguments were presented on the Objections to the
Special Master's Recommendations in the case of AK Steel Corporation v. Sollac,
S.A., et al., Case No. C-1-98-690,-804, United States District Court for the
Southern District of Ohio, or the Patent Case. The Patent Case involves issues
of infringement, validity and enforceability of six U.S. patents owned by us
that relate to aluminized stainless steel. We are seeking injunctive relief and
monetary damages for infringement of the aluminized stainless steel patents.
The Special Master recommended that the Court find certain claims of the
patents were valid and that the Defendants did not infringe upon these valid
claims. The Special Master also recommended that certain claims of the patents
were not valid for lack of enablement. On July 30, 2002, the Trial Court
adopted the Special Master's Recommendation in the Patent Case. We plan to seek
appellate review of the Trial Court's ruling in the Court of Appeals for the
Federal Circuit. There are two additional cases in which the defendants in the
Patent Case are asserting antitrust claims against us. Those cases are Sollac,
S.A., et al., v. AK Steel Corporation, Case No. C-1-00-619, United States
District Court for the Southern District of Ohio, or the U.S. Case, and Ugine,
S.A., et al. v. AK Steel Corporation, Case No. T-1385-01, Federal Court of
Canada, or the Canadian Case. The Canadian case presents issues of
infringement, validity and disparagement related to three Canadian patents
owned by us. The plaintiffs in the U.S. Case allege that we have unlawfully
monopolized the aluminized stainless steel market. Discovery is underway and
trial is currently scheduled to begin on July 7, 2003 in the U.S. Case. No
trial date yet has been set in the other cases. We continue to vigorously
contest all of these claims.
During the quarter ended June 30, 2002, we entered into settlement
agreements with certain of our insurance carriers covering certain past and
future environmental and asbestos claims and/or liabilities in an amount, net
of legal fees and expenses and increases to environmental liabilities, of
approximately $23.9 million. Several insurance policies have been commuted as a
result of these settlement agreements. One of the settlements with a former
insurer, however, provides us with continued partial coverage for defense and
indemnity costs arising from non-employee asbestos claims.
In April 2000, a class action was filed in the United States District Court
for the Southern District of Ohio by Bernard Fidel and others against AK Steel
Holding Corporation and certain of its directors and officers, alleging
material misstatements and omissions in our public disclosure about our
business and operations. The defendants are vigorously defending this action.
We have filed a motion to dismiss the action, which currently is pending.
Discovery is stayed pending resolution of the motion to dismiss. No trial date
has been scheduled.
A number of lawsuits alleging asbestos exposure are pending and continue to
be filed against us. The majority of these lawsuits have been filed in Texas
and relate to the former Houston Works facility. Such cases
46
typically involve a large number of plaintiffs claiming against a large number
of defendants. We are normally named as a defendant by a small percentage of
the plaintiffs who typically were frequenters (independent contractors,
delivery personnel, etc.) claiming that they were exposed to asbestos while
they were on the premises. We are actively and vigorously defending these cases.
On January 2, 2002, John D. West, a former employee, filed a purported 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, or
AK BPAC, claiming that the method used under the AK RAPP to determine lump sum
distributions is improper and that, as a result, the benefits previously paid
to plaintiff and putative class members from the AK RAPP were understated in
violation of the Employment Retirement Income Security Act of 1974 and the
Internal Revenue Code of 1986. The AK RAPP is the cash balance plan component
of the AK Steel Noncontributory Pension Plan, or AK NCPP. The AK NCPP provides
that we will indemnify members of AK BPAC from any liability and expense
incurred by reason of serving as a member of AK BPAC. On May 1, 2002, plaintiff
moved for certification of the class. On July 22, 2002, defendants opposed that
motion and also moved for entry of judgment that plaintiff's claim is time
barred. The parties have commenced discovery. No trial date has been set, but
the parties have been instructed by the Court to be prepared for trial
beginning on or after July 2003. The defendants intend to contest this matter
vigorously.
47
MANAGEMENT
The following table sets forth the name, age and principal position with us
of each of our directors and executive officers as of August 15, 2002:
Name Age Positions with the Company
---- --- --------------------------
Richard M. Wardrop, Jr. 56 Chairman, Chief Executive Officer and President
Richard A. Abdoo....... 58 Director
Allen Born............. 69 Director
Donald V. Fites........ 68 Director
Bonnie G. Hill......... 60 Director
Robert H. Jenkins...... 59 Director
Lawrence A. Leser...... 67 Director
Daniel J. Meyer........ 66 Director
Eugene A. Renna........ 57 Director
James A. Thomson....... 57 Director
John G. Hritz.......... 48 Executive Vice President
James L. Wainscott..... 45 Senior Vice President and Chief Financial Officer
Michael T. Adams....... 44 Vice President, Sales and Marketing
James M. Banker........ 45 Vice President, Operations
Michael P. Christy..... 46 Vice President, Purchasing and Transportation
Thomas C. Graham, Jr... 48 Vice President, Research and Engineering
Brenda S. Harmon....... 50 Vice President, Human Resources and Secretary
J. Theodore Holmes..... 57 Vice President, Customer Service
David C. Horn.......... 50 Vice President and General Counsel
Alan H. McCoy.......... 50 Vice President, Public Affairs
Ernest E. Rummler...... 51 Vice President, Manufacturing Planning & Steel Sourcing
James W. Stanley....... 57 Vice President, Safety and Health
Richard M. Wardrop, Jr. has been Chairman of the Board since January 1997.
He has been a director since March 1995 and Chief Executive Officer since May
1995. Mr. Wardrop also served as President of the Company from April 1994 until
March 1997. On February 8, 2002, he was again elected to also serve as
President of the Company effective March 2, 2002.
Richard Abdoo was elected a director of the Company effective April 19,
2001. Mr. Abdoo has been the Chairman, President and Chief Executive Officer of
Wisconsin Energy Corporation since May 1991. He is a director of Marshall &
Ilsey Corporation, Cobalt Corporation and Sensient Technologies Corporation. He
is a member of the American Economic Association and is a registered
professional engineer in various states.
Allen Born, a director of the Company since March 2, 1995, is Chairman of
Born Investments, LLC, a private investment firm involved in venture capital
and directional drilling for natural gas production. From November 1993 until
July 1998, he served as Chairman and Chief Executive Officer of Alumax Inc.,
and for more than five years prior thereto he served as Chairman and Chief
Executive Officer of Amax Inc. Mr. Born also is a director of Cyra
Technologies, Inc. and Inmet Mining.
Donald Fites, a director of the Company since January 1, 2000, was the
Chairman and Chief Executive Officer of Caterpillar Inc. from June 1990 until
his retirement in February 1999. He currently serves as a director of AT&T
Wireless Services, Inc., Georgia-Pacific Corporation, Exxon-Mobil Corporation,
Oshkosh Truck Corporation and Wolverine World Wide Inc. Mr. Fites also is past
chairman of the National Advisory Board of The Salvation Army, a director of
The World Methodist Council, a trustee of The Carnegie Endowment for
International Peace, a director of Valparaiso University, a member of the board
of advisors of Thayer Capital Partners and a member of The Business Council.
48
Dr. Bonnie G. Hill, a director of the Company since April 7, 1994, is
President of B. Hill Enterprises, LLC, a consulting firm specializing in
corporate governance and board organizational and public policy issues. From
February 1997 to July 2001 she was President and Chief Executive Officer of The
Times Mirror Foundation, Vice President of The Times Mirror Company, and, from
August 1998 to July 2001, Senior Vice President Communications and Public
Affairs for the Los Angeles Times. Prior thereto, she served as Dean of the
McIntire School of Commerce at the University of Virginia. She also is a
director of National Grid Group plc, Hershey Foods Corporation, The Home Depot,
Inc., ChoicePoint, Inc., and Albertson's, Inc.
Robert H. Jenkins, a director of the Company since January 24, 1996, served
as Chairman of the Board of Sundstrand Corporation from April 1997 and as
President and Chief Executive Officer of that company from September 1995, in
each case until his retirement in August 1999 following the merger of
Sundstrand Corporation with and into United Technologies Corporation in June
1999. For more than five years prior thereto, Mr. Jenkins was employed by
Illinois Tool Works as its Executive Vice President and in other senior
management positions. Mr. Jenkins also is a director of Clarcor Inc., Pella
Corporation, Sentry Insurance, Solutia, Inc. and Visteon Corporation.
Lawrence A. Leser, a director of the Company since May 17, 1995, retired as
Chairman of The E.W. Scripps Company in May 1999, having also served as its
Chief Executive Officer from July 1985 until May 1996. Mr. Leser also serves as
a director of Union Central Life Insurance Company and is a Trustee of Xavier
University.
Daniel J. Meyer, a director of the Company since January 1, 2000, retired
as Chairman and Chief Executive Officer of Milacron Inc., a Cincinnati-based
plastics processing and metalworking technologies company, in June 2001. He
currently serves as a director of The E.W. Scripps Company, Hubbell Inc.,
Broadwing Inc. and Milacron Inc.
Eugene A. Renna was elected to our board of directors effective July 22,
2002. Mr. Renna is a retired executive vice president and director of Exxon
Mobil Corporation. Prior to the merger of Exxon and Mobil, Mr. Renna was
president and chief operating officer of Mobil Corporation, and a member of
Mobil's board of directors. Mr. Renna joined Mobil in 1968 and held various
positions in financial analysis, marketing and planning. He subsequently was
named to executive positions in domestic and international marketing and
refining before being named executive vice president of Exxon Mobil Corporation
in 2001. Mr. Renna is a member of the board of the American Petroleum Institute
and of the Advisory Council of the Samuel Curtis Johnson Graduate School of
Management at Cornell University. He is also a member of the board of directors
of Fortune Brands, Inc. and Ryder System, Inc.
Dr. James A. Thomson, a director of the Company since March 18, 1996, is the
President and Chief Executive Officer of The RAND Corporation, having served in
that capacity since August 1989. He also serves as a director of Entrust
Technologies Inc. and Texas Biotechnology Corporation.
John G. Hritz was elected Executive Vice President in January 1999. He also
served as General Counsel from August 1996 until April 2001, a Senior Vice
President from May 1998, and as a Vice President from August 1996 and as
Corporate Secretary from that date until January 1999.
James L. Wainscott has been the Company's Chief Financial Officer since July
1998 and served as its Treasurer from April 1995 until April 2001. Mr.
Wainscott was elected Senior Vice President in January 2000, having previously
served as a Vice President from April 1995.
Michael T. Adams was elected Vice President, Sales and Marketing in December
2000. Mr. Adams had been Vice President, Manufacturing from July 1998 until
that date. From October 1995 until July 1998, he served as General Manager,
Manufacturing of the Company's Middletown Works.
49
James M. Banker was elected Vice President, Operations in December 2000.
From May 1999 until that date he served as Vice President, Sales and Marketing.
From April 1992 to May 1999, Mr. Banker was General Manager, Sales for the
Company.
Michael P. Christy has been Vice President, Purchasing and Transportation
since November 1998. From January 1998 until that date, Mr. Christy had been
Vice President, Purchasing and Financial Analysis. Mr. Christy was named
Director, Purchasing and Financial Analysis in May 1997 after having served as
Director, Financial Planning and Analysis since June 1996.
Thomas C. Graham, Jr. has been Vice President, Research and Engineering
since June 1996.
Brenda S. Harmon has been Vice President, Human Resources since January
1998. She assumed the additional responsibilities of Corporate Secretary in
March 1999. Mrs. Harmon had been General Manager, Human Resources since
September 1996.
J. Theodore Holmes was elected Vice President, Customer Service in January
2000. From May 1999 until that date, Mr. Holmes was Director, Customer Service.
Mr. Holmes was Director, Customer Service & Product Administration from August
1998 to May 1999; General Manager, Manufacturing Planning from July 1997 to
August 1998; and General Manager, Customer Service from November 1992 to July
1997.
David C. Horn was elected Vice President and General Counsel in April 2001.
Before joining AK Steel as Assistant General Counsel in December 2000, Mr. Horn
was a partner in the Cincinnati-based law firm now known as Frost Brown Todd
LLC.
Alan H. McCoy has been Vice President, Public Affairs since January 1997.
From March 1994 until that date, Mr. McCoy served as General Manager, Public
Relations.
Ernest E. Rummler was elected Vice President, Manufacturing Planning & Steel
Sourcing in January 2000. From August 1998 until that date, Mr. Rummler served
as Director, Manufacturing Planning & Steel Sourcing. From July 1997 until
August 1998, Mr. Rummler was General Manager, Customer Service, and from June
1992 until July 1997, he was General Manager, Manufacturing Planning.
James W. Stanley has been Vice President, Safety and Health since January
1996.
50
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since the beginning of 2001 there has not been any transaction (or series of
similar transactions), and there is not currently any proposed transaction (or
series of similar transactions), to which either we or any of our subsidiaries
was or is to be a party in which (1) the amount involved exceeds $60,000 and
(2) any of our directors, executive officers or holders of more than five
percent (5%) of our common stock (or, to our knowledge, any member of their
immediate families) had or will have a direct or indirect material interest.
51
DESCRIPTION OF OTHER INDEBTEDNESS
The Secured Debt
We have a total of $252.2 million principal amount of secured debt
outstanding consisting of $187.5 million of Senior Secured Notes, $50.0 million
of variable rate, tax-exempt bonds and a $14.7 million capitalized lease
obligation. The Senior Secured Notes bear interest at annual rates ranging from
8.48% to 9.05%, with a weighted average rate of 8.72%. The principal is payable
in four consecutive annual installments of $62.5 million that commenced in
December 2001 with the final installment due in December 2004. The Senior
Secured Notes are secured by a first priority lien on the continuous cold mill
and hot dip galvanizing line at the Rockport Works and a first mortgage on the
approximately three acres of land upon which those two components have been
constructed. The Senior Secured Notes may be prepaid, in whole or in part, at
any time, at AK Steel's option, at 100% of their principal amount plus a
customary "make-whole" premium.
The Senior Secured Notes are subject to the terms of a Note Purchase
Agreement containing covenants substantially similar to those contained in the
indenture governing the notes offered hereby, with respect to limitations on,
among other things, (i) liens, (ii) sale/leaseback transactions, (iii) the
incurrence of debt and the issuance of preferred equity interests by our
subsidiaries, (iv) transactions with affiliates, (v) dividends and other
restricted payments, (vi) sales of assets, including stock of subsidiaries,
(vii) lines of business, (viii) restrictions on distributions from our
subsidiaries and (ix) mergers and consolidations. In addition, the Note
Purchase Agreement requires that we maintain (i) Consolidated Net Worth (as
defined therein) of not less than the sum of $500.0 million plus an aggregate
amount equal to 25% of Consolidated Net Income (as defined) for each completed
fiscal year beginning after December 31, 1996 and (ii) a ratio of Consolidated
Debt (as defined) to Consolidated Capitalization (as defined) of not more than
..65 to 1.00 through December 31, 2001 and .55 to 1.00 thereafter until
repayment in full of the secured debt. The Note Purchase Agreement contains
events of default that are substantially similar to those applicable to the
notes.
The variable rate, tax-exempt bonds of $50.0 million bear interest at
variable rates ranging between 1.35% and 1.55% at June 30, 2002. The tax-exempt
obligations mature at various dates between 2008 and 2029.
The capital lease obligation consists of a $14.7 million lease assumed with
the July 2001 acquisition of Alpha Tube Corporation, now known as AK Tube. The
lease bears interest at LIBOR (London Interbank Offered Rate) plus 2%, and has
a final maturity date of October 9, 2002.
The 9%any Additional Notes The 9% Notes, of which $117.4 million aggregate principal amount are
outstanding, are non-callable prior to September 15, 2002. Thereafter, the 9%
Notes are callable at our option at an initial redemption price of 104.5% of
their principal amount, declining annually thereafter to 100% beginning
September 15, 2005, together with accrued interest to the redemption date. The
terms of the 9% Notes, including covenants in the indenture relating to those
notes, are substantially similar to those applicable to the notes offered
hereby.
The 8 7/8% Notes
The 8 7/8% Notes, of which $33.5 million aggregate principal amount are
outstanding, are non-callable prior to December 1, 2003. Thereafter, the 8 7/8%
Notes are callable at our option at an initial redemption price of 104.438% of
their principal amount, declining annually thereafter to 100% beginning
December 1, 2006, together with accrued interest to the redemption date. The
terms of the 8 7/8% Notes, including covenants in the indenture relating to
those notes, are substantially similar to those applicable to the notes offered
hereby.
The 7 7/8% Notes
The 7 7/8% Notes, of which $450.0 million aggregate principal amount are
outstanding, are non-callable prior to February 15, 2004. Thereafter, the
7 7/8% Notes are callable at our option at an initial redemption price of
52
103.938% of their principal amount, declining annually thereafter to 100%
beginning February 15, 2007, together with accrued interest to the redemption
date. The terms of the 7 7/8% Notes, including covenants in the indenture
relating to those notes, are substantially similar to those applicable to the
9 1/8% Notes and the notes offered hereby.
Accounts Receivable Credit Facility
A wholly-owned special purpose subsidiary of AK Steel is party to a
Receivables Purchase and Servicing Agreement with a group of banks, providing
for an aggregate financing commitment of up to $300.0 million for revolving
credit loans and letters of credit. The banks' commitments will expire
September 30, 2004. This subsidiary purchases our accounts receivable from us.
It funds those purchases with cash collections on the purchased accounts
receivable and the proceeds realized from selling interests in those accounts
receivable to the participating banks. We act as servicer of the accounts
receivable, including processing collections. At June 30, 2002, the Company had
$182.9 million available for borrowing under this credit facility due primarily
to outstanding letters of credit. At that date there were no outstanding
borrowings under the credit facility.
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DESCRIPTION OF THE REGISTERED NOTES
AK Steel will issue the registered notes under an indenture among itself,
Holding, any Guarantor Subsidiary and Fifth Third Bank, as trustee. The terms
of the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939. You can find the
definitions of certain terms used in this description under the subheading
"--Defined Terms."
Indenture.
The following description is only a summary of the material provisions of the indentureIndenture and the related registration rights agreement.notes and does not purport to be complete. This summary is subject to and is qualified by reference to all the provisions of the Indenture, the notes and the Registration Rights Agreements, including the definitions of certain terms used in the Indenture. We urge you to read the indenture and the registration rights agreementthese documents because they, and not this description, define your rights as holders of the registered notes. You
mayA copy of the Indenture is available upon request copies of these documents at our address set forthas described under "Where“Where You Can Find More Information."
Brief Description”
For purposes of this “Description of the Registered Notes,” the terms “AK Steel,” “we,” “us” and “our” mean AK Steel Corporation and its successors under the Indenture, excluding its subsidiaries and parent, and the Note Guarantees
term “AK Holding” means AK Steel Holding Corporation and its successors under the Indenture, excluding its subsidiaries.
General
The Notes
The registered notes are:
. senior unsecured obligations of AK Steel;
. equal in right of payment with all existing and future senior unsecured
Debt of AK Steel;
. senior in right of payment to all Subordinated Obligations;
. effectively junior to allare secured unsubordinated obligations of AK Steel, including the
Secured Notes, to the extent of the collateral securing those
obligations; and . fully and unconditionally, and joint and severally, guaranteed by Holding
and our Guarantor Subsidiaries.
The Note Guarantees
Each Guarantor's full and unconditional guarantee is:
. a senior unsecured obligation of that Guarantor;
. equalwill mature on December 1, 2018. AK Steel initially issued $350.0 million in right of payment with all existing and future senior unsecured
Debt of that Guarantor;
. senior in right of payment to all existing and future subordinated Debt
of that Guarantor; and
. effectively junior to all secured obligations of that Guarantor, to the
extent of the collateral securing those obligations.
At June 30, 2002, the aggregate principal amount of senior Debtoriginal notes on November 20, 2012 (the “initial notes”) and subsequently issued an additional $30.0 million in aggregate principal amount of original notes on June 24, 2013 (the “add-on notes”). AK Steel was approximately $1.95 billion, of which $252.0 million was secured. Total
Debt includes $550.0 million of our 9 1/8% Senior Notes due 2006, which were
redeemed on July 11, 2002.
Principal, Maturity and Interest
The Company initially issuedwill issue the registered notes in exchange for original notes in an aggregate principal amount of $550.0up to $380.0 million. AK Steel may, subject to the terms and conditions of the
indenture but without the consent of the holders, increase such principal
amount inHolders of the future on the same terms and conditions andnotes, issue additional notes (the “Additional Notes”) subject to compliance with the sameprovision described under “—Certain Covenants—Limitation on Liens”,provided that if the Additional Notes are not fungible with the notes for U.S. federal income tax purposes, the Additional Notes will have a separate CUSIP numbers asnumber. None of these Additional Notes may be issued if an Event of Default (as defined under the originally issuedsubheading “—Events of Default”) has occurred and is continuing with respect to the notes. The notes will mature on June 15, 2012.
The notes will be issued in denominations of $1,000 and any integral multipleAdditional Notes subsequently issued would be treated as a single class for all purposes under the Indenture.
Each note will bear interest at the rate of $1,000.8.750% per annum from the most recent interest payment date to which interest has been paid on the notes. Interest on the notes will accrue at the rate of 7 3/4% per annum and will
be payable semi-annually on June 15 and December 15 of each year, commencing on
December 15, 2002. AK Steel will make each interest payment to the holders of
record of the notes on the immediately preceding June 1 and December 1.
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notes will accrue from the date of original issuance, which
we refer to as the "issue date" or, if interest has already been paid, from the
date it was most recently paid.payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Additionalmonths on a U.S. corporate bond basis. Unless the context requires otherwise, all references herein to “interest” include any additional interest may accrue on the notes in certain circumstancespayable pursuant to the registration rights agreement.
Optional Redemption
ExceptRegistration Rights Agreements referred to under “The Exchange Offer.”
The notes will be payable both as set forth below, to principal and interest at the office or agency of AK Steel. Initially, the paying agent office of the Trustee will serve as such office.
The notes will not be entitled to the benefit of any sinking fund.
Change of Control
AK Steel must commence, within 30 days of the occurrence of a Change of Control Repurchase Event, and consummate an Offer to Purchase for all notes then outstanding, at a purchase price equal to 101% of their principal amount, plus accrued interest, if any, to the Payment Date.
There can be no assurance that AK Steel will have sufficient funds available at the time of any Change of Control Repurchase Event to make any debt payment (including repurchases of notes) required by the foregoing covenant, as well as any other repayments pursuant to covenants that may be contained in loan facilities or other securities of AK Steel that might be outstanding at the time.
AK Steel will not be entitledrequired to make an Offer to Purchase upon the occurrence of a Change of Control Repurchase Event if a third party makes an offer to purchase the notes in the manner, at the times and price, and otherwise in compliance with the requirements of the Indenture applicable to an Offer to Purchase for a Change of Control Repurchase Event, and purchases all notes validly tendered and not withdrawn in such offer to purchase.
Notwithstanding anything to the contrary herein, an Offer to Purchase upon the occurrence of a Change of Control Repurchase Event may be made in advance of a Change of Control, conditional upon such Change of Control Repurchase Event, if a definitive agreement is in place for the Change of Control at the time of making the Offer to Purchase pursuant to the Change of Control Repurchase Event.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of AK Steel and its Subsidiaries, taken as a whole. There is no precise, established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a Holder of the notes to require AK Steel to purchase its notes as a result of the sale, transfer, conveyance or other disposition of less than all of the assets of AK Steel and its Subsidiaries may be uncertain.
Holders may not be able to require us to purchase their notes in certain circumstances involving a significant change in the composition of the Board of Directors, including a proxy contest where the Board of Directors does not endorse the dissident slate of directors but approves them as “continuing directors.” In this regard, a decision of the Delaware Chancery Court (not involving our company or our securities) considered a change of control redemption provision of an indenture governing publicly traded debt securities substantially similar to the change of control described in clause (4) of the definition of Change of Control. In its decision, the court noted that a board of directors may “approve” a dissident shareholder’s nominees solely for purposes of such an indenture,provided the board of directors determines in good faith that the election of the dissident nominees would not be materially adverse to the interests of the corporation or its stockholders (without taking into consideration the interests of the holders of debt securities in making this determination).
Optional Redemption
At any time prior to December 1, 2015, we may redeem the notes, in whole or in part, at its optiona redemption price equal to 100% of the principal amount of the notes redeemed plus the Applicable Premium, plus accrued and unpaid interest to the redemption date.
“Applicable Premium” means, with respect to any note on any redemption date, the greater of (1) 1.0% of the principal amount of such note and (2) the excess, if any of (a) the present value at such redemption date of (i) the redemption price of such note at December 1, 2015 (such redemption price set forth in the table below), plus (ii) all required interest payments due on such note through December 1, 2015 (excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over (b) the then outstanding principal amount of such note.
“Treasury Rate” means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two business days prior to June 15, 2007.
The notesthe redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to December 1, 2015;provided,however, that if the period from the redemption date to December 1, 2015, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be redeemable at AK Steel's option,used.
We may redeem the notes, in whole or in part, at any time on or after June 15, 2007December 1, 2015, at the redemption price for the notes (expressed as a whole or from time to time in part, upon not less than 30
nor more than 60 days' notice mailed to each holder of notes to be redeemed at
the holder's address appearing in the register, at the following redemption
prices (expressed as percentagespercentage of principal amount) set forth below, plus accrued and unpaid interest to the redemption date, if redeemed during the 12-monthtwelve-month period beginning June 15commencing on December 1 of the years indicated below:
Year | Redemption Price | |||
2015 | 104.375 | % | ||
2016 | 102.188 | % | ||
2017 and thereafter | 100.000 | % | ||
In addition, at any time and on more
than one occasion prior to June 15, 2005, AK SteelDecember 1, 2015, we may redeem up to $192.5
million aggregate35% of the principal amount of the notes (including any Additional Notes) with the net cash proceeds of one or more Public Equity Offerings,sales of AK Holding’s common stock (to the extent proceeds are contributed to us as equity) at a redemption price (expressed as a percentage of 107.750%principal amount) of the
principal amount thereof108.750%, plus accrued and unpaid interest to the redemption date;provided that:
(1) that at least $357.5 million65% of the aggregate principal amount of notes originally issued on the notesClosing Date remains outstanding immediately after each such redemption (other than notes
held, directly or indirectly, by AK Steel or its Affiliates); and (2)eachnotice of any such redemption occursis mailed within 60 days afterof each such sale of common stock.
We will give not less than 30 days’ nor (except in connection with the completionsatisfaction and discharge or defeasance of the related Public Equity Offering.Indenture) more than 60 days’ notice of any redemption. If less than all of the notes are to be redeemed, subject to DTC procedures, selection of the notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the notes are listed, or, if the notes are not listed on a national securities exchange, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. However, no note of $2,000 in principal amount or less shall be redeemed in part. If any note is to be redeemed in part only, the notice of redemption relating to such note will state the portion of the principal amount to be redeemed. A new note in principal amount equal to the unredeemed portion will be issued upon cancellation of the original note.
We may at any time and from time to time purchase notes in the open market, by tender offer, through privately negotiated transactions or otherwise.
Guarantees
Payment of the principal of, premium, if any, and interest on the notes will be chosen
for redemptionfully and unconditionally guaranteed on an unsecured unsubordinated basis by AK Holding, our direct parent.
In addition, we may be required to cause certain Subsidiaries to Guarantee the notes pursuant to the provision described under “—Certain Covenants—Limitation on Subsidiary Debt.” Any such Guarantee will be released upon the release or discharge (other than a discharge through payment thereon) of the Indebtedness of such Subsidiary which resulted in the obligation to Guarantee the notes, the disposition of capital stock in compliance with the Indenture of such Subsidiary such that it no longer is a Subsidiary of AK Holding or upon defeasance or satisfaction and discharge of the notes. Finally, we may choose to cause any Subsidiary to Guarantee the notes and may cause such Note Guarantee to be released at any time,provided that after giving effect to such release, we would be in compliance with the provision described under “—Certain Covenants—Limitation on Subsidiary Debt.”
Security
General
The notes are and any future Subsidiary Guarantees will be, secured by a first priority Lien (subject to certain exceptions and permitted liens specified in the applicable Security Documents) on real property, plant and equipment (other than Excluded Property) that are owned or hereafter acquired by AK Steel and by any future Subsidiary Guarantors (the “Notes Collateral”).
If (1) any real property, plant or equipment (other than Excluded Property) is acquired by AK Steel or a Subsidiary Guarantor that is not automatically subject to a perfected security interest under the Security Documents, (2) any real property, plant or equipment which was Excluded Property ceases to be Excluded Property or (3) any Subsidiary becomes a Subsidiary Guarantor, then AK Steel or such Subsidiary Guarantor will, as soon as reasonably practicable after such property’s acquisition or it no longer being Excluded Property or such Subsidiary becoming a Subsidiary Guarantor, provide security over such property (or, in the case of a new Subsidiary Guarantor, provide security over all of its assets constituting Notes Collateral except Excluded Property) in favor of the Collateral Agent and deliver certain applicable documents to the Collateral Agent, including, in the case of real property, title insurance, surveys and opinions in respect thereof to the extent required in the Indenture and the Security Documents.
The notes and the Note Guarantees will not be secured by the trusteeABL Collateral and will effectively rank junior to all Indebtedness under the Credit Agreement to the extent of the value of such assets and may be effectively junior to other permitted liens on the Notes Collateral.
The Notes Collateral does not include any of the following (collectively, “Excluded Property”):
(i) all of AK Steel’s and the DepositorySubsidiary Guarantors’ right, title and interest in any leasehold interest in any real property (whether held on the date of the indenture or acquired hereafter);
(ii) any lease, permit, license, contract, property rights or agreement to which AK Steel or any Subsidiary Guarantor is a pro rataparty or any of its rights or interests thereunder, or any assets owned by AK Steel or any Subsidiary Guarantor subject to any such lease, permit, license, contract, property rights or agreement, if and for so long as the grant of such security interest shall constitute or result in (a) the abandonment, invalidation or unenforceability of any right, title or interest of AK Steel or any Subsidiary Guarantor therein or (b) in a breach or termination pursuant to the terms of, or a default under, any such lease, permit, license, contract, property rights or agreement that is not rendered unenforceable or otherwise deemed ineffective by the UCC or any other applicable law;
(iii) fixed or capital assets owned by AK Steel or any Subsidiary Guarantor that are subject to a Lien described in clause (5) under “—Certain Covenants—Limitation on Liens”) if the contractual obligation pursuant to which such Lien is granted (or in the document providing for such capital lease) prohibits the creation of any other Lien on such fixed or capital assets;
(iv) any property or assets, the pledge of which would require governmental consent, approval, license or authorization (in each case, only to the extent such requirement is not rendered ineffective by any applicable law, including the UCC); and
(v) certain other exceptions described in the Security Documents.
In addition, pursuant to the Security Documents, AK Steel is not required to take steps to perfect security interests in certain assets, including entering into and recording mortgages of any owned real property (together with any improvements thereon) with a greater of book or fair market value below $10.0 million and vehicles.
It is understood and agreed that the Notes Collateral does not include any ABL Collateral.
AK Steel, AK Holding and the Subsidiary Guarantors will be able to incur additional indebtedness in the future that could share in the Notes Collateral on apari passu basis (such obligations, “Parity Lien Obligations”). The amount of such indebtedness will be limited by the covenant disclosed under “—Certain Covenants—Limitation on Liens.” Under certain circumstances, the amount of such additional indebtedness could be significant.
Security Documents
On or after the Original Issue Date, AK Steel and the Collateral Agent entered into one or more Security Documents defining the terms of the security interests that secure the notes and the Note Guarantees and other future Parity Lien Obligations. These security interests secure the payment and performance when due of all of the Obligations of AK Steel and the Subsidiary Guarantors under the Parity Lien Obligations, including the notes, the Indenture, the Note Guarantees and the Security Documents, as provided in the Security Documents.
Subject to the terms of the Security Documents, AK Steel and the Subsidiary Guarantors have the right to remain in possession and retain exclusive control of the Notes Collateral (other than certain cash proceeds of the Notes Collateral that may be required to be deposited with the Collateral Agent in accordance with the provisions of the Security Documents and other than as set forth in the Security Documents), to freely operate the Notes Collateral and to collect, invest and dispose of any income therefrom.
The administrative agent under the Credit Agreement and the Collateral Agent entered into a customary collateral access agreement giving the secured parties under the Credit Agreement the ability to enter and use the Notes Collateral under certain circumstances.
Collateral Trust Agreement
General
On the Original Issue Date, AK Steel, the Trustee, and the Collateral Agent entered into the Collateral Trust Agreement. The Collateral Trust Agreement sets forth the terms on which the Collateral Agent (directly or through co-trustees or agents) will accept, hold, administer, enforce and distribute the proceeds of all Liens on the Notes Collateral held by lotit in trust for the benefit of Holders of the notes and all other future Parity Lien Obligations. The agent or other representative of the holders of any series of future Debt (together with the Trustee, the “Authorized Representatives”) intended to constitute Parity Lien Obligations will be required to execute a joinder to the Collateral Trust Agreement in order to confirm the agreement of the applicable secured parties to be bound by the terms thereof.
Equal and Ratable Sharing of Collateral
Pursuant to the Collateral Trust Agreement, each Authorized Representative (on behalf of itself and each holder of Obligations that it represents) acknowledged and agreed that, pursuant to the Security Documents, the security interest granted to the Collateral Agent under the Security Documents, shall for all purposes and at all times secure the Obligations in respect of the notes, the Note Guarantee, and any other Parity Lien Obligations on an equal and ratable basis.
Enforcement of Liens; Voting
The Collateral Trust Agreement provides that if an event of default shall have occurred and be continuing under the Indenture or any Parity Lien Obligation, and if the Collateral Agent shall have received a method that complieswritten direction from the Applicable Authorized Representative, unless inconsistent with applicable legallaw, (a) the Collateral Agent shall have the right and securities exchange
requirements.
Changepower to institute and maintain such suits and proceedings as it may deem appropriate to protect and enforce the rights vested in Control Offer
Underit by the indenture, within 30 days followingCollateral Trust Agreement and each Security Document and (b) the Applicable Authorized Representative shall have the right, by an instrument in
writing executed and delivered to the Collateral Agent, to direct the time, method and place of conducting any Changesuch proceeding, or of exercising any trust or power conferred on the Collateral Agent, or for the appointment of a receiver, or for the taking of any action or remedial action authorized by the Collateral Trust Agreement. The Trustee is the Applicable Authorized Representative, and the Trustee thereby will instruct the Collateral Agent to take such action against the Notes Collateral as the Trustee may determine (or will follow the direction of the holders of a majority in Control,principal amount of the outstanding notes in establishing such action).
The right of the Collateral Agent to repossess and dispose of the Notes Collateral upon the occurrence of an Event of Default under the Indenture:
in the case of Notes Collateral securing Liens permitted under the covenant described under “—Certain Covenants—Limitation on Liens”, is subject to applicable law and the terms of agreements governing such Liens;
with respect to any Notes Collateral, is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy case were to be commenced by or against AK Steel must notifyor any Subsidiary Guarantor prior to the Collateral Agent having repossessed and disposed of the Notes Collateral; and
in the case of real property Notes Collateral, could also be significantly impaired by restrictions under state law.
Order of Application of Proceeds of Collateral
Any proceeds of any Notes Collateral foreclosed upon or otherwise realized upon pursuant to the Security Documents following and during the continuance of an Event of Default will be applied in the following order:
first, to the Collateral Agent to pay unpaid fees of the Collateral Agent and any costs and expenses due to the Collateral Agent in connection with the foreclosure or realization of such Notes Collateral;
second, to the Trustee and each holder in writingother Authorized Representative (if any), equally and ratably (in the same proportion that such unpaid Parity Lien Obligations of the occurrenceTrustee or such other Authorized Representative, as applicable, bears to all unpaid Parity Lien Obligations on the relevant distribution date) for application to the payment in full of all outstanding Parity Lien Obligations and other obligations secured by the Notes Collateral (other than obligations secured by the Notes Collateral paid pursuant to the immediately preceding clause and contingent obligations secured by the Notes Collateral) that are then due and payable to the secured parties (which shall then be applied or held by the Trustee and each such other Authorized Representative in such order as may be provided in the applicable indenture or other instrument governing such Debt); and
finally, in the case of any surplus, to AK Steel or the Subsidiary Guarantors that pledged such Notes Collateral, or its successors or assigns.
The application of proceeds provisions set forth immediately above are intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future holder of Parity Lien Obligations, the Trustee, each other present and future Authorized Representative and the Collateral Agent.
AK Steel did not conduct appraisals of the ChangeNotes Collateral in Controlconnection with the offering of the notes. The book value of the Notes Collateral as of March 31, 2013 was approximately $1,475.1 million. Book value should not be considered a proxy for fair market value, and must make an offerthe amount realized in respect of the Notes Collateral in the event of a liquidation will depend upon market and economic conditions, the availability of buyers and similar factors. In addition, the fact that other Persons may have Liens senior to repurchase (the "Change in
Control Offer")the Liens securing the notes for cash atin respect of Notes Collateral could have a purchase price (the "Change in Control
Payment Price") equal to 101%material adverse effect on the amount that would be realized upon a liquidation of the principal amount thereof plus accrued and
unpaid interest thereon to and including the Change in Control Payment Date.
The "Change in Control Payment Date" may not be earlier than 45 days nor later
than 60 days from the date the Change in Control Offer is mailed. AK Steel must
purchase all notes that are properly tendered in the Change in Control Offer
and not withdrawn in accordance with the procedures set forth in the indenture.
The Change in Control Offer must describe, among other things, the procedures
that holders must follow to accept the Change in Control Offer.
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If a Change in Control Offer is made,Notes Collateral. Accordingly, there can be no assurance that AK
Steel will have fundsproceeds of any sale of the Notes Collateral pursuant to the Indenture and the related Security Documents following an Event of Default would be sufficient to paysatisfy, or would not be substantially less than, amounts due under the Change in Control Payment Price for
allnotes. See “Risk Factors—Risks Relating to the
Notes—The liens securing the notes will provide holders of the notes with a secured claim only to the extent of the value of the assets that mighthave been granted as security for the notes and we may be delivered by holders seekingable to acceptincur additional secured indebtedness.” If the Change
in Control Offer. See "Risk Factors--Risks Relatingproceeds of any of the Notes Collateral were not sufficient to our Company--Our high
levelrepay all amounts due on the notes, the Holders of debt may adversely affect our financial and operating flexibility."
The failurethe notes (to the extent not repaid from the proceeds of the sale of the Notes Collateral) would have only an unsecured claim against the remaining assets of AK Steel and the Subsidiary Guarantor. By its nature, some or all of the Notes Collateral will be illiquid and may have no readily ascertainable market value. Likewise, there can be no assurance that the Notes Collateral will be saleable, or, if saleable, that there will not be substantial delays in its liquidation. To the extent that Liens, rights or easements granted to repurchase notes in accordance with this provision
constitutes an Event of Default. See "--Events of Default."
AK Steel will comply with the applicable tender offer rules, including Rule
14e-1 under the Securities Exchange Act of 1934 (the "Exchange Act"), and any
other applicable securities laws or regulations in connection with a Change in
Control Offer. The existence of a holder's right to require AK Steel to
repurchase such holder's notes upon a Change in Control may deter a third party
from acquiring AK Steel in a transaction that constitutes a Change in Control.
Note Guarantees
Holding will fully and unconditionally guarantee the payment and performanceparties encumber assets located on property owned by AK Steel or the Subsidiary Guarantor, including the Notes Collateral, such third parties have or may exercise rights and remedies with respect to the property subject to such Liens that could adversely affect the value of the ObligationsNotes Collateral and will pay all expenses (including, without
limitation, fees and disbursementsthe ability of counsel) paid or incurred by the Trustee or the holdersHolders of the notes in enforcing their rights under that guarantee. to realize or foreclose on Notes Collateral.
Release of Liens
The full and unconditional guarantee will be a senior unsecured obligation of
Holding and will rank equally with Holding's other senior unsecured Debt.
Holding's only asset isLiens on the outstanding common stock of AK Steel, and all of
Holding's operations are conducted through AK Steel and its Subsidiaries. Under
the indenture, Holding will agree not to engage in any activities other than
owning outstanding securities of AK Steel as well as those activities
incidental to its status as a public company, and not to incur any liabilities
other than those relating to its full and unconditional guarantee ofNotes Collateral securing the notes and certain other indebtedness of AK Steel as well as those liabilities
incidental to its status as a public company. See "--Material
Covenants--Restrictions on Activities of Holding."
Each Guarantor Subsidiarythe Note Guarantees will be required to fully and unconditionally
guarantee theautomatically released:
(1) upon payment and performancein full of the Obligations on the same terms as,
and on a basis that is joint and several with, Holding's full and unconditional
guarantee. Douglas Dynamics was and is the only Guarantor Subsidiary.
Claims of creditors of AK Steel's Subsidiaries, including trade creditors,
will have priority over creditors and equity holders of AK Steel, including
holders of the notes. Although holders of the notes will be direct creditors of
any Subsidiary that guarantees the notes by virtue of that guarantee, existing
or future creditors of that Subsidiary could attempt to avoid or subordinate
guarantees of the notes, in whole or in part, under fraudulent conveyance laws.
To the extent any Subsidiary's guarantee is avoided as a fraudulent conveyance
or held unenforceable for any other reason, the holders of the notes would
cease to be creditors of that Subsidiary and would be solely creditors of AK
Steel and of any other Guarantor Subsidiary whose guarantee was not voided or
held unenforceable. Similarly, the notes will be effectively subordinated to
the creditors of AK Steel's subsidiaries to the extent those subsidiaries are
not Guarantor Subsidiaries.
Material Covenants
The indenture contains the following material covenants on the part of AK
Steel and Holding:
Commission Reports. Even if Holding ceases to be subject to the reporting
requirements of Section 13 of the Exchange Act, Holding will continue to file
with the SEC and provide the Trustee and Holders with such annual reports and
such information, documents and other reports as are specified in Section 13 of
the Exchange Act.
Limitation on Liens. AK Steel shall not, and shall not permit any
Subsidiary to, create or permit to exist any Lien upon any of its property or
assets, now owned or hereafter acquired, securing any obligation unless
concurrently with the creation of such Lien effective provision is made to
secure the notes equally and ratably with such obligation for so long as such
obligation is so secured; provided that if such obligation is a Subordinated
Obligation, the Lien securing such obligation shall be subordinated and junior
to the Lien securing the notes with the same or lesser relative priority as
such Subordinated Obligation shall have with respect to the
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notes. The preceding restriction shall not require AK Steel or any Subsidiary
to equally and ratably secure the notes if the Lien consists of the following:
(1) Liens created by the indenture, Liens existing as of the date on
which the notes were originally issued and Liens to secure Debt in respect
of the Secured Notes as described under "Description of Outstanding
Indebtedness--The Secured Debt";
(2) Permitted Liens;
(3) Liens to secure Debt issued by AK Steel for the purpose of financing
all or a part of the purchase price of assets or property acquired or
constructed after the date on which the notes were originally issued;
provided, however, that (a) the aggregate principal, amount (or accreted
value in the case of Debt issued at a discount) of Debt so issued shall not
exceed the lesser of cost or Fair Market Value, as determined in good faith
by the Board of Directors of Holding, of the assets or property so acquired
or constructed, (b) either (x) the Debt secured by such Liens shall have
been permitted to be issued under clause (5) of "--Limitation on Debt" or
(y) additional Debt secured by such Liens, at the time of determination on a
pro forma basis, would not exceed, in the case of Normal Replacement Assets,
50%, or in the case of Special Assets, 100%, of the aggregate principal
amount of Debt which AK Steel would have been permitted to issue at such
time under the Consolidated EBITDA Coverage Ratio as set forth in the first
paragraph of "--Limitation on Debt" at an interest rate equal to the rate of
interest on the additional Debt to be secured by such Liens and (c) such
Liens shall not encumber any other assets or property of AK Steel or any of
its Subsidiaries other than such assets or property or any improvement on
such assets or property and shall attach to such assets or property within
90 days of the construction or acquisition of such assets or property;
(4) Liens on the assets or property of a Subsidiary existing at the time
such Subsidiary became a Subsidiary and not issued as a result of (or in
connection with or in anticipation of) such Subsidiary becoming a
Subsidiary; provided, however, that such Liens do not extend to or cover any
other property or assets of AK Steel or any of its other Subsidiaries;
(5) Liens on the Inventory or Accounts Receivable of AK Steel or any
Significant Subsidiary that is a Restricted Subsidiary securing Debt under
any Permitted Credit Facility; provided that any Lien on Intangible Property
shall limit the rights of the holder of such Lien to the use of such
Intangible Property to manufacture, process and sell the Inventory with
respect to which such holder has a Lien;
(6) Liens securing industrial revenue or pollution control bonds issued
by AK Steel; provided, however, that (a) the aggregate principal amount of
Debt secured by such Liens shall not exceed the lesser of cost or Fair
Market Value, as determined in good faith by the Board of Directors of
Holding, of the assets or property so financed, and (b) such Liens do not
encumber any other property or assets of AK Steel or any of its Subsidiaries;
(7) Liens securing Debt issued to exchange, extend, refinance, renew,
replace, defease or refund Debt which has been secured by a Lien permitted
under the indenture and is permitted to be exchanged, extended, refinanced,
renewed, replaced, defeased or refunded under the indenture; provided,
however, that such Liens do not extend to or cover any property or assets of
AK Steel or any of its Subsidiaries not securing the Debt so exchanged,
extended, refinanced, renewed, replaced, defeased or refunded, and the
principal amount (or accreted value) of the Debt so secured is not increased
except as otherwise permitted pursuant to the indenture;
(8) Liens on the Equity Interests, assets or property of a Non-Recourse
Subsidiary securing Non-Recourse Debt; or
(9) Liens securing Debt which, together with all other Debt secured by
Liens (excluding Debt secured by Liens permitted by clauses (1) through (8)
above) at the time of determination do not exceed the greater of (x) $100.0
million and (y) 5% of Consolidated Net Tangible Assets of Holding, in each
case, at any one time outstanding; provided, however, that the Attributable
Debt in connection with Sale/Leaseback Transactions permitted under clause
(3) of "--Limitation on Sale/Leaseback Transactions" will be included in the
determination and treated as Debt secured by a Lien not otherwise permitted
by clauses (1) through (8) above.
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For the avoidance of ambiguity, it is understood that Liens referred to in
clauses (1) through (9) of this covenant description may secure, in addition to
the principal of and premium, if any, on Debt referred to in such clauses, interest and all other obligationsObligations on the notes or satisfaction and indischarge of the Indenture or defeasance thereof (including covenant defeasance);
(2) solely with respect of such Debt.
Limitation on Sale/Leaseback Transactions. AK Steel shall not, and shall
not permit any Subsidiary to, enter into,class of Parity Lien Obligations in accordance with the terms thereof;
(3) upon release of a Note Guarantee or otherwise become liable
with(with respect to any Sale/Leaseback Transaction unless at least one of the following conditions is satisfied:
(1) the lease is between AK Steel and a Wholly Owned Guarantor
Subsidiary, or between Wholly Owned Guarantor Subsidiaries; provided,
however, that upon either (a) the transfer or other dispositionLiens securing such Note Guarantee granted by such Wholly Owned Guarantor Subsidiary Guarantor);
(4) in connection with any disposition of any such leaseNotes Collateral to aany Person other than AK Steel or another Wholly Ownedany Subsidiary Guarantor Subsidiary(but excluding any transaction subject to the covenant described under “—Certain Covenants—Consolidation, Merger and Sale of Assets” where the recipient becomes an obligor) that is permitted by the Indenture (with respect to the Lien on such Notes Collateral);
(5) in whole or (b)in part, with the issuance,
sale, lease, transferconsent of the Holders of the requisite percentage of notes in accordance with the provisions described under the caption “—Modification and Waiver”; and
(6) with respect to any portion of the Notes Collateral, if such portion becomes Excluded Property.
Each of the releases described in clauses (1), (2) and (3) shall be effected automatically without the consent of the Holders or other dispositionany action on the part of Equity Interests (includingthe Trustee or the Collateral Agent. Upon compliance by consolidationAK Steel with the conditions precedent required by the Indenture, the Trustee or merger)the Collateral Agent shall promptly cause the applicable Notes Collateral to be released and re-conveyed to AK Steel.
The Trustee and the Collateral Agent will, promptly upon the request of AK Steel, do all reasonable things, presently or in the future, to effect and evidence the release of the security interests and liens upon the satisfaction of the conditions for such Wholly Owned Guarantor Subsidiary to a
Person other thanrelease described herein.
In addition, at the request of AK Steel or another such Wholly Ownedthe applicable Subsidiary Guarantor,
Subsidiary, the provisions of this clause (1) shall no longer be applicable
to such lease and such lease shall be deemed for purposes of this paragraph
to constitute the entering into of such Sale/Leaseback Transaction by the
parties thereto;
(2) AK Steel or such Subsidiary under clauses (2) through (8) of
"--Limitation on Liens" could create a Lien on the property to secure Debt
in an amount at least equal to the Attributable Debt in respect of such
Sale/Leaseback Transaction and AK Steel or such Subsidiary, as the case may be, receives consideration at least equalbe:
if any part of the Notes Collateral is subject to any Lien permitted under the covenant described under “—Certain Covenants—Limitation on Liens” that is senior to the Fair Market Value,Liens securing the Notes Collateral as determineda matter of law, the Collateral Agent will be authorized to execute any document evidencing such subordination; and
if any part of the Notes Collateral is secured by a Lien of the type described in clause (5) under “—Certain Covenants—Limitation on Liens”, and the terms of the Lien prohibit the existence of a junior Lien on the applicable property, the Collateral Agent will be authorized to release the Lien on such
Notes Collateral and execute any document evidencing such release;provided, that immediately upon the ineffectiveness, lapse or termination of any such restriction, AK Steel or the applicable Subsidiary Guarantor, as the case may be, will take all necessary actions in order to secure the Notes Collateral subject to such Permitted Lien in the same manner upon which it was secured prior to the imposition of the Permitted Lien. |
To the extent applicable, AK Steel will comply with Section 314(d) of the Trust Indenture Act, relating to the release of property and to the substitution therefor of any property to be pledged as collateral for the notes. Any certificate or opinion required by Section 314(d) of the Trust Indenture Act may be made by an officer of AK Steel except in cases where Section 314(d) requires that such certificate or opinion be made by an independent engineer, appraiser or other expert. Notwithstanding anything to the contrary herein, AK Steel and the Subsidiary Guarantors will not be required to comply with all or any portion of Section 314(d) of the Trust Indenture Act if they determine, in good faith based on advice of outside counsel, that under the terms of that section and/or any interpretation or guidance as to the meaning thereof of the SEC and its staff, including “no action” letters or exemptive orders, all or any portion of Section 314(d) of the Trust Indenture Act is inapplicable to the released Notes Collateral. Without limiting the generality of the foregoing, certain no-action letters issued by the BoardSEC have permitted an indenture qualified under the Trust Indenture Act to contain provisions permitting the release of Directorscollateral from Liens under such indenture in the ordinary course of Holding,an issuer’s business without requiring the issuer to provide certificates and other documents under Section 314(d) of the property transferred;
(3) AK Steel or such Subsidiary could create a LienTrust Indenture Act. In addition, under clause (9) of
"--Limitation on Liens" above on the property to secure Debt at least equal
to the Attributable Debt in respect of such Sale/Leaseback Transaction and
AK Steel or such Subsidiary, as the case may be, receives consideration at
least equal to the Fair Market Value, as determined in good faithinterpretations provided by the Board of Directors of Holding, of the property transferred; or
(4) the Sale/Leaseback Transaction is treated as an Asset Disposition and
all the conditions of "--Limitation on Sales of Assets and Equity Interests
of Subsidiaries" are satisfied with respect to such Sale/ Leaseback
Transaction (without giving effect to the exceptions for Net Available Cash
in amounts less than $25.0 million or $10.0 million, as set forth in the
last paragraph of "--Limitation on Sales of Assets and Equity Interests of
Subsidiaries").
Limitation on Debt. AK Steel shall not issue, directly or indirectly, any
Debt unless, immediately after giving effect to the issuance of such Debt and
the receipt and application of the proceeds thereof, the pro forma Consolidated
EBITDA Coverage Ratio would be greater than 2.5 to 1.0.
Notwithstanding the foregoing limitation, AK Steel may issue the following
Debt:
(1) Debt issued by AK Steel pursuant to Permitted Credit Facilities and
Guarantees by AK Steel of obligations in respect of bonds or notes (in an
aggregate principal amount not exceeding $60.0 million) payable solely from
the proceeds of (a) taxes payable by AK Steel on real or depreciable
personal property relating to the Rockport Works or (b) charges payable by
AK Steel for sewer and water services relating to the Rockport Works and,SEC, to the extent that such taxes or charges are insufficient to make such
payments, payments under such Guarantees (provided thata release of a Lien is made without the payments under
such bonds orneed for consent by the noteholders of the notes or such Guarantees are not requiredthe Trustee, the provisions of Section 314(d) may be inapplicable to be prefundedthe release. The Indenture generally permits the disposition of assets in the ordinary course of business as set forth under the definition of “Notes Collateral Asset Sale.”
As used above:
“Applicable Authorized Representative” means, until the occurrence of the Non-Controlling Authorized Representative Enforcement Date, the Authorized Representative of a class of Parity Lien Obligations secured by more than an aggregate amount equal to one year of debt servicevalid and perfected Liens on such bonds or notes and are not subject to acceleration by the express terms
thereof or otherwise);
(2) Debt issued by AK Steel owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of
any Equity Interests that results in such Wholly Owned Subsidiary ceasing to
be a Wholly Owned Subsidiary or any transfer of such Debt (other than to
another Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the issuance of such Debt by AK Steel;
(3) The notes offered hereby;
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(4) Debt (other than Debt described in clause (1) or (2) of this covenant
description) outstanding on the first date on which the notes were
originally issued;
(5) Debt issued by AK Steel, whether or not secured by a Lien,
constituting all or a part of the purchase price of assets or property
acquired or constructed after the date on which the notes were originally
issued; provided, however, that Debt issued under this clause (5) in any
calendar year shall not exceed in aggregate principal amount the sum of (a)
$50.0 million for each of 2002, 2003 and 2004, and $35.0 million for each
calendar year from and including 2005 to and including 2012 plus (b) the
excess of the aggregate principal amount otherwise permitted to be issued
under this clause (5) in all previous calendar years to and including the
calendar year in which the notes were originally issued over the aggregate
principal amount actually issued by AK Steel during such period under this
clause (5);
(6) Refinancing Debt in respect of any Debt permitted pursuant to the
first paragraph of this covenant description or any Debt permitted pursuant
to clause (3), (4) or (5) of this covenant description or this clause (6);
(7) Obligations of AK Steel pursuant to (a) interest rate swap or similar
agreements designed to protect AK Steel against fluctuations in interest
rates in respect of Debt of AK Steel to the extent the notional principal
amount of such obligation does not exceedNotes Collateral, the aggregate principal amount of the Debt to which such interest rate contracts relate, and (b) foreign
exchange or commodity hedge, exchange or similar agreements designed to
protect AK Steel against fluctuations in foreign currency exchange rates or
commodity prices in respect of foreign exchange or commodity exposures
incurred by AK Steel inexceeds the ordinary course of its business;
(8) Debt (not otherwise permitted to be issued pursuant to clauses (1)
through (7) of this covenant description) in an aggregate principal amount which, together with (a)of secured obligations of any other outstanding Debt issuedclass of Parity Lien Obligations secured by AK Steel
pursuant to this clause (8)valid and (b) Debt issued and Preferred Equity
Interests then outstanding and issued by Subsidiaries pursuant to clause (8)
of "--Limitationperfected Liens on Debt and Preferred Equity Interests of Subsidiaries,"
does not exceed $100.0 million at any one time outstanding; or
(9) Permitted Guarantees.
Notwithstandingsuch Notes Collateral. Following the foregoing, AK Steel shall not issue any Refinancing Debt
in respect of Subordinated Obligations unless such Refinancing DebtNon-Controlling Authorized Representative Date, the Applicable Authorized Representative shall be subordinated to the notes to at least“Major Non-Controlling Authorized Representative”.
“Major Non-Controlling Authorized Representative” means the same extent as such Subordinated
Obligations.
Limitation on Debt and Preferred Equity Interests of Subsidiaries. AK Steel
shall not permit any Subsidiary to issue, directly or indirectly, any Debt or
Preferred Equity Interests except:
(1) Debt or Preferred Equity Interests issued to and held by AK Steel or
a Wholly Owned Subsidiary; provided, however, that (a) any subsequent
issuance or transfer of any Equity Interests that results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or (b) any
subsequent transfer of such Debt or Preferred Equity Interests (other than
to AK Steel or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the issuance of such Debt or Preferred Equity Interests by the
issuer thereof;
(2) Debt or Preferred Equity Interests, other than any described in
clause (1) above, outstanding on the first date on which the notes were
originally issued;
(3) Debt or Preferred Equity InterestsAuthorized Representative of a Subsidiary issued and
outstanding on or prior to the date on which such Subsidiary became a
Subsidiary (other than Debt or Preferred Equity Interests issued as
consideration in, or to provide all or any portionclass of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary);
(4) Debt or Preferred Equity Interests issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, Debt or Preferred Equity Interests referred to in clause (2) or (3)
of this covenant description; provided, however, (a) the principal amount or
liquidation value of such Debt or Preferred Equity Interests so issued shall
not exceed the principal amount of, and premiums, if any, and accrued
interest, or the liquidation value and premiums, if any, and accumulated
dividends, with
59
respect to, the Debt or Preferred Equity Interests so exchanged, extended,
refinanced, renewed, replaced, defeased or refunded by application of the
net proceeds of the Debt or Preferred Equity Interests so issued and
reasonable fees, expenses, commissions and costs incurred in connection with
the issuance of such Debt or Preferred Equity Interests and (b) the Debt or
Preferred Equity Interests so issued (x) shall have a Stated Maturity later
than the Stated Maturity of the Debt or Preferred Equity Interests being
exchanged, extended, refinanced, renewed, replaced, defeased or refunded and
(y) shall have an Average Life equal to or greater than the remaining
Average Life of the Debt or Preferred Equity Interests being exchanged,
extended, refinanced, renewed, replaced, defeased or refunded;
(5) Non-Recourse Debt or Preferred Equity Interests of a Non-Recourse
Subsidiary issued after the date on which the notes were originally issued;
provided, however, that if any such Debt or Preferred Equity Interests
thereafter ceases to be Non-Recourse Debt or Preferred Equity Interests of a
Non-Recourse Subsidiary, then such event will be deemed to constitute the
issuance of such Debt or Preferred Equity Interests by the issuer thereof;
(6) Guarantees of the notes or Refinancing Debt in respect of Debt
permitted as described in clause (3) of "--Limitation on Debt" above;
(7) Guarantees issued by any Guarantor Subsidiary of any Debt issued by
AK Steel as permitted under "--Limitation on Debt" above; or
(8) Debt or Preferred Equity Interests not otherwise permitted to be
issued pursuant to clauses (1) through (7) above, which, together with (a)
any other outstanding Debt or Preferred Equity Interests issued pursuant to
this clause (8) and (b) Debt issued by AK Steel pursuant to clause (8) under
"--Limitation on Debt," does not exceed $60.0 million at any one time
outstanding.
Limitation on Restricted Payments. Holding shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on or in respect
of, or make any distribution to the holders of, Equity Interests of Holding
(except dividends or distributions payable solely in its Non- Convertible
Equity Interests or in options, warrants or other rights to acquire its
Non-Convertible Equity interests and except dividends or distributions
payable to a Wholly Owned Guarantor Subsidiary);
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of Holding;
(3) declare or pay any dividend or make any distribution on or in respect
of, or make any distribution to holders of, Equity Interests of any
Subsidiary of Holding (other than with respect to any such Equity Interests
held by Holding, AK Steel, any Wholly Owned Guarantor Subsidiary or any
Wholly Owned Non-Recourse Subsidiary) or purchase, redeem or otherwise
acquire or retire for value any Equity Interests of any Subsidiary of
Holding (other than such Equity Interests held by Holding, AK Steel, any
Wholly Owned Guarantor Subsidiary or any Wholly Owned Non-Recourse
Subsidiary);
(4) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any SubordinatedParity Lien Obligations (other than the purchase,
repurchase orclass of Parity Lien Obligations the Authorized Representative of which is the Applicable Authorized Representative), the aggregate principal amount of which exceeds the aggregate principal amount of secured obligations of any other acquisitionclass of SubordinatedParity Lien Obligations purchased in
anticipation(other than the class of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one yearParity Lien Obligations the Authorized Representative of which is the Applicable Authorized Representative).
“Non-Controlling Authorized Representative Enforcement Date” shall mean the date that is 180 days (throughout which 180-day period such Authorized Representative was the Major Non-Controlling Authorized Representative) after the occurrence of acquisition); or
(5) make any Investment other than Permitted Investments (any such
dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred toboth (a) an Event of Default (under and as a
"Restricted Payment") if:
(a) a Default shall have occurred and be continuing (or would result
therefrom);
(b) upon giving effect to such Restricted Payment, on a pro forma
basis, AK Steel is not able to issue an additional $1.00 of Debt
pursuant to the Consolidated EBITDA Coverage Ratio as set forthdefined in the first paragraphapplicable secured debt document) and (b) the Collateral Agent’s and each other Authorized Representative’s receipt of "--Limitation on Debt"; or
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(c) upon giving effect towritten notice from such Restricted Payment,Authorized Representative certifying that (i) such Authorized Representative is the aggregate
amount of such Restricted Payment and all other Restricted Payments
since April 1, 2002 would exceed the sum of:
(A) 50% of the Consolidated Net Income of Holding accrued during
the period (treated as one accounting period) from April 1, 2002
through the last full fiscal quarter for which quarterly or annual
financial statements are available prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be
a deficit, minus 100% of such deficit), plus
(B) the aggregate Net Cash Proceeds received by AK Steel from the
issue or sale of its Equity Interests (other than Redeemable Equity
Interests or Exchangeable Equity Interests) subsequent to April l,
2002 (other than to a Subsidiary of AK Steel or an employee stock
ownership, plan or similar trust), plus
(C) the aggregate Net Cash Proceeds received by AK Steel from the
issue or sale of its Equity Interests (other than Redeemable Equity
Interests or Exchangeable Equity Interests) to an employee stock
ownership plan subsequent to April 1, 2002, provided, that, if such
employee stock ownership plan issues any Debt only to the extent that
any such proceeds are equal to any increase in the Consolidated Net
Worth of Holding resulting from principal repayments made by such
employee stock ownership planMajor Non-Controlling Authorized Representative with respect to Debt issued by it to
finance the purchaseNotes Collateral and that an Event of such Equity Interests, plus
(D) the amount by which consolidated Debt of AK Steel is reduced
on Holding's balance sheet upon the conversion or exchange (other
than by a Subsidiary), subsequent to April l, 2002, of any Debt of AK
Steel or any of its Subsidiaries convertible or exchangeable for
Equity Interests (other than Redeemable Equity Interests or
Exchangeable Equity Interests) of AK Steel (less the amount of any
cash, or other property, distributed by AK Steel or any of its
Subsidiaries upon such conversion or exchange), plus
(E) $25.0 million.
So long as no Default has occurred thatand is continuing (or wouldand (ii) the secured obligations with respect to which such Authorized Representative is the Authorized Representative are currently due and payable in full (whether as a result therefrom), the foregoing limitations on Restricted Payments shall not prohibit:
(1) any purchaseof acceleration thereof or redemption of Equity Interests of Holding or
Subordinated Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Equity Interests of Holding (other than
Redeemable Equity Interests or Exchangeable Equity Interests and other than
Equity Interests issued or sold to a Subsidiary or an employee stock
ownership plan); provided, however, that (a) such purchase or redemption
shall be excluded from the calculation of the amount of Restricted Payments
and (b) the Net Cash Proceeds from such sale shall be excluded from clauses
(5)(c)(B) and (5)(c)(C) of the preceding paragraph;
(2) any purchase or redemption of Subordinated Obligations (other than
Redeemable Equity Interests) made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Debt of AK Steel other than to a
Subsidiary; provided, however, that such Debt (a) shall be subordinated to
the notes to at least the same extent as the Subordinated Obligations so
exchanged, purchased or redeemed, (b) shall have a Stated Maturity later
than the Stated Maturity of the notes and (c) shall have an Average Life
greater than the remaining Average Life of the notes; provided further,
however, that such purchase or redemption shall be excluded from the
calculation of the amount of Restricted Payments;
(3) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under "--Limitation on Sales of
Assets and Equity Interests of Subsidiaries"; provided, however, that such
purchase or redemption shall be excluded from the calculation of the amount
of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration if at
such date of declaration such dividend would have complied with this
provision; provided, however, that at the time of payment of such
61
dividend, no Default shall have occurred and be continuing (or would result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(5) any repurchase by Holding of employee stock granted under an employee
stock option plan; provided, however, that the aggregate amount of such
repurchase in any calendar year shall not exceed $1.0 million per employee
and the aggregate amount of all repurchases in any calendar year shall not
exceed $5.0 million (it being understood that the excess of any such amounts
permitted to be expended under this clause (5) during any calendar year over
the amount actually expended during such period shall not be carried
forward); provided further, however, that such repurchase shall be included
in the calculation of the amount of Restricted Payments; or
(6) any purchase, repurchase, redemption, defeasance or other acquisition
by any Non-Recourse Subsidiary of Non-Recourse Debt of such Non-Recourse
Subsidiary; provided, however, that the amount of such purchase, repurchase,
redemption, defeasance or other acquisition shall be excluded from the
calculation of the amount of Restricted Payments.
So long as none of the conditions described above in clauses (a) and (b) of
the first sentence of this covenant description exist, the foregoing
limitations on Restricted Payments shall not prohibit the declaration and
payment of one or more dividends on or before June 30, 2004 in an aggregate
amount not to exceed $50.0 million; provided, however, that all such dividends
shall be excluded from the calculation of the amount of Restricted Payments.
Limitation on Issuance and Sale of Equity Interests of Subsidiaries. AK
Steel shall not permit any Subsidiary to issue or sell any Equity Interests to
any Person, or permit any Person, in either case, other than AK Steel and its
Subsidiaries, to own or hold an interest, other than any interest owned or held
on the first date on which the notes were originally issued by a Person other
than AK Steel and its Subsidiaries, in any Equity Interests, of any Subsidiary
(other than a Non-Recourse Subsidiary or a JV Subsidiary); provided, however,
that the foregoing limitation shall not apply to (1) the sale of all but not
less than all of the Equity Interests of any Subsidiary madeotherwise) in accordance with "--Limitation on Salesthe terms of Assets and Equity Interests of Subsidiaries," (2)
issuances of Preferred Equity Interests permitted pursuant to clauses (3), (5)
and (7) under the heading "--Limitation on Debt and Preferred Equity Interests
of Subsidiaries," and (3)applicable documents;provided that the ownership or holding of an interest by any
Person, other than AK Steel and its Subsidiaries, in any Equity Interests of
any Subsidiary issued pursuant to clause (2) above.
Limitation on Restrictions on Distributions from Subsidiaries. AK SteelNon-Controlling Authorized Representative Enforcement Date shall not,be stayed and shall not permit any Subsidiaryoccur (and shall be deemed not to create or permit to exist or
become effective any consensual encumbrance or restriction on the ability of
any Subsidiary to (1) pay dividends or make any other distributions on its
Equity Interests or pay any Debt or other obligation owed to AK Steel or any
Subsidiary, (2) make any Investment in AK Steel or any Subsidiary or (3)
transfer any of its property or assets to AK Steel or any Subsidiary.
Notwithstanding the foregoing, AK Steel may, and may permit any Subsidiary
of AK Steel to, suffer to exist any such encumbrance or restriction:
(1) pursuant to an agreement in effect at or entered into on the first
date on which the notes were originally issued;
(2)have occurred for all purposes) with respect to a Subsidiary pursuant to an agreement relating tothe Notes Collateral (A) at any Debt issued by such Subsidiary on or priortime the Collateral Agent has commenced and is diligently pursuing any enforcement action with respect to the date on whichNotes Collateral (or the Applicable Authorized Representative shall have instructed the Collateral Agent to do the same) or (B) at any time the grantor that has granted a security interest in such Subsidiary becameNotes Collateral is then a Subsidiary (other than Debt issued as consideration in,debtor under or with respect to provide all or(or otherwise subject to) any portionbankruptcy proceeding.
Disposition of the funds utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary) and outstanding on such date;
(3) pursuant to an agreement effecting a refinancing of Debt issued
pursuant to an agreement referred to in clause (1) or (2) or contained in
any amendment to an agreement referred to in clause (1) or (2), provided,
however, that the encumbrances and restrictions contained in any such
refinancing agreement or amendment are no less favorableCollateral; Collateral Proceeds Account
Pursuant to the holders of
notes than encumbrancesIndenture and restrictions contained in such agreements;
62
(4) consisting of customary nonassignment provisions in leases governing
leasehold interests to the extent such provisions restrict the transfer of
the lease;
(5) in the case of clause (3) of the preceding paragraph, restrictions
contained in security agreements securing Debt of a Subsidiary otherwise
permitted under the indenture, to the extent such restrictions restrict the
transfer of the property subject to such security agreements; or
(6) relating to a Non-Recourse Subsidiary.
Limitation on Sales of Assets and Equity Interests of Subsidiaries. AK
Steel shall not, and shall not permit any Subsidiary (other than Non-Recourse
Subsidiaries) to, make any Asset Disposition unless:
(1) AK Steel or such Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the Fair Market Value, as
determined in good faith by the Board of Directors of Holding (including as
to the value of all non-cash consideration), of the shares and assets
subject to such Asset Disposition and at least 75% of such consideration is
in the form of cash or Cash Equivalents; and
(2) An amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by AK Steel or such Subsidiary, as the case may be,
(a) first, to the extent AK Steel elects (or is required by the terms of any
Debt), to prepay, repay or purchase Debt (other than any Redeemable Equity
Interests or Non-Recourse Debt) of AK Steel, such Subsidiary or a Wholly
Owned Guarantor Subsidiary (in each case other than Debt owed to AK Steel or
an Affiliate of AK Steel) within 60 days from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (b) second, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (a), at AK Steel's election, to the investment by AK
Steel or such Subsidiary or any Wholly Owned Guarantor Subsidiary in assets
to replace the assets that were the subject of such Asset Disposition or an
asset that (as determined by the Board of Directors of Holding) will be used
in the business ofSecurity Documents, AK Steel and the Wholly Owned Guarantor Subsidiaries
existing onSubsidiary Guarantors will deposit in a segregated cash collateral account under the first date on which the notes were originally issued or in
businesses reasonably related thereto, in each case within the later of one
year from the date of such Asset Disposition or the receipt of such Net
Available Cash; and (c) third, to the extentcontrol of the balance of such Net
Available Cash after application in accordance with clauses (a) and (b), to
make an offer to purchase notes at par; provided, however, that in
connection with any prepayment, repayment or purchase of Debt pursuant to
clause (a) above, AK Steel shall cause the related loan commitment (if any)
to be permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased.
Notwithstanding the requirement in clause (1) above that at least 75% of
consideration consist ofCollateral Agent (an “Asset Sales Proceeds Account”): (l) cash or Cash Equivalents, AK Steel and its
Subsidiaries may make one or more Asset Dispositions for which the
consideration, in addition to the non-cash consideration permitted by such
clause, consists of or includes (A) non-cash consideration, the aggregate Fair
Market Value (as determined in good faith by the Board of Directors of Holding)
of which, for all Asset Dispositions made after the date on which the notes
were originally issued, does not exceed $10.0 million, and (B) non-cash
consideration, the aggregate Fair Market Value (as determined in good faith by
the Board of Directors of Holding) of which, for all Asset Dispositions made
after the first date on which the notes were originally issued, does not exceed
$50.0 million, consisting of the cancellation of Debt of AK Steel or any
Subsidiary existing on the first date on which the notes were originally
issued; provided, however, that in connection with any such cancellation of
Debt, AK Steel or such Subsidiary shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal so canceled.
Notwithstanding the provisions of clause (2) above, in the event that the
Net Available Cash resultingproceeds from any Asset Disposition is less than $25.0
million, the application of an amount equal to such Net Available Cash in
accordance with this provision may be deferred until such time as such Net
Available Cash from any prior or subsequent Asset Dispositions not otherwise
applied in accordance with this provision, is at least equal to $25.0 million.
In the event that the Net Available Cash resulting from any Asset Disposition,
after giving effect to clauses (a) and (b) above, is less than $10.0 million,
the application of such amount equal to such Net Available
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Cash to make an offer to purchase notes in accordance with clause (c) may be
deferred until such time as such Net Available Cash, together with Net
Available Cash from any prior or subsequent Asset Dispositions not otherwise
applied in accordance with this provision, is at least equal to $10.0 million.
Pending application of Net Available Cash pursuant to this provision, such Net
Available Cash shall be invested in Cash Equivalents. To the extent any portion
of the amount of Net Available Cash remains after compliance with this
provision, and provided that all holders of notes have been given the
opportunity to tender their notes for repurchase as provided in clause (c)
above, AK Steel may use such remaining amount for general corporate purposes.
Limitation on Transactions with Affiliates. AK Steel shall not, and shall
not permit any Restricted Subsidiary to, conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of AK Steel or any legal or beneficial owner of 5% or more of any
class of Equity Interests of Holding or with an Affiliate of any such owner
(other than a Wholly Owned Subsidiary or any employee stock ownership plan for
the benefit of AK Steel or a Subsidiary's employees) unless the terms of such
business, transaction or series of transactions are (1) set forth in writing,
(2) not less favorable to AK Steel or such Subsidiary, as the case may be, than
terms that would be obtainable at the time for a comparable transaction or
series of similar transactions in arms-length dealings with an unrelated third
Person, (3) if such business or transaction or series of transactions involves
in excess of (a) $5.0 million, the Board of Directors of Holding has, by
resolution, determined in good faith that such business or transaction or
series of transactions meets the criteria set forth in clause (2) above, and
(b) $25.0 million and as to which there are no disinterested directors, AK
Steel has obtained an opinion of a nationally recognized expert with experience
in appraising the terms and conditions of the type of business or transaction
or series of transactions stating that such business or transaction or series
of transactions is fair (from a financial point of view) to AK Steel or such
Subsidiary, as the case may be; provided, however, that the provisions of this
paragraph do not apply to performance of contractual obligations with respect
to Eveleth Mines existing as of the date of the indenture under which the notes
were originally issued.
Lines of Business. AK Steel shall be permitted to engage in any business,
either directly or through any Subsidiary, provided that AK Steel and its
Subsidiaries, taken as a whole, remain principally engaged in the same
business, or any business reasonably related thereto, in which they were
engaged on the first date on which the notes were originally issued.
Restrictions on Activities of Holding. Holding (1) shall not engage in any
activities or hold any assets other than (a) holding 100% of the Equity
Interests of AK Steel and debt securities of AK Steel that were held by Holding
at the date of the indenture and (b) those activities incidental to maintaining
its status as a public company, and (2) it will not incur any liabilities other
than liabilities relating to Holding's full and unconditional guarantee of the
notes or any Guarantees by Holding of any Permitted Credit Facility, any other
Debt of AK Steel or any Debt of any Significant Subsidiary that is Guaranteed
by AK Steel and any other obligations or liabilities incidental to holding 100%
of the Equity Interests of AK Steel and those liabilities incidental to its
status as a public company; provided, however, that, for purposes of this
covenant, the term "liabilities" shall not include any liability for the
declaration and payment of dividends on any Equity Interests of Holding; and
provided further, however, that if Holding merges into AK Steel, this covenant
shall no longer be applicable.
Designation of Non-Recourse Subsidiaries and Restricted Subsidiaries. AK
Steel may designate any of its Subsidiaries (including an existing or newly
formed or acquired Subsidiary) as a Non-Recourse Subsidiary if (1) such
Subsidiary has total assets of $1,000 or less or (2) such designation is
effective immediately upon such Person becoming a Subsidiary of either AK Steel
or any of its Restricted Subsidiaries. Unless so designated as a Non-Recourse
Subsidiary, any Person that becomes a Subsidiary of AK Steel shall be
classified as a Restricted Subsidiary. Subject to the following paragraph, the
designation as a Non-Recourse Subsidiary may be removed. The designation of a
Non-Recourse Subsidiary or the removal of such designation in compliance with
the following paragraph shall be made by the Board of Directors pursuant to a
resolution delivered to the Trustee and shall be effective as of the date
specified in the applicable resolution, which shall not be prior to the date
such resolution is delivered to the Trustee.
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AK Steel shall not, and shall not permit any of its Restricted Subsidiaries
to, take any action or enter into any transaction or series of transactions
that would result in a Person becoming a Restricted Subsidiary (whether through
an acquisition, the removal of the designation as a Non-Recourse Subsidiary or
otherwise) unless, after giving effect to such action, transaction or series of
transactions:
(1) on a pro forma basis, AK Steel could issue at least $1.00 of
additional Debt pursuant to the Consolidated EBITDA Coverage Ratio as set
forth in the first paragraph of "--Limitation on Debt";
(2) such Restricted Subsidiary could then issue, pursuant to
"--Limitation on Debt and Preferred Equity Interests of Subsidiaries," all
Debt as to which it is obligated at such time;
(3) no Default or Event of Default would occur or be continuing; and
(4) there exist no Liens with respect to the property or assets of such
Restricted Subsidiary other than Liens permitted to be incurred under
"--Limitation on Liens."
AK Steel shall not, and shall not permit any of its Restricted Subsidiaries
to, take any action or enter into any transaction or series of transactions
that would result in any such Restricted Subsidiary ceasing to be a Subsidiary
(other than a merger or consolidation with AK Steel or another Restricted
Subsidiary) unless, after giving effect to such action, transaction or series
of transactions, either:
(1) (A) neither AK Steel nor any of its Affiliates (other than a Person
that is an Affiliate by virtue of its ownership of Equity Interests or
control of AK Steel) shall own any Equity Interests of such former
Restricted Subsidiary or any successor in interest to the business thereof,
and (B) there shall not exist any Debt of such former Restricted Subsidiary
or any successor in interest to the business thereof in favor of AK Steel or
any of its Restricted Subsidiaries; or
(2) AK Steel and its Restricted Subsidiaries would be permitted to make a
Restricted Payment in the amount of the aggregate Investment (excluding (A)
any Investment to the extent of cash or the Fair Market Value of property or
assets other than cash received by AK Steel or its Restricted Subsidiary, as
the case may be, in respect of or as a repayment of such Investment, and (B)
the amount of Debt of such former Restricted Subsidiary received by AK Steel
or its Restricted Subsidiaries as part of the consideration for the
acquisition of the Equity Interests or assets of such former Restricted
Subsidiary), if any, made in such former Restricted Subsidiary after April
1, 2002.
Defined Terms
Certain terms defined in the indenture are summarized below. Reference is
made to the indenture for the formal definition of these terms, as well as
other terms used herein for which no definition is provided.
"Accounts Receivable" of any Person means any and all accounts, contract
rights, chattel paper, instruments, documents, general intangibles and other
obligations of any kind relating to the sale or lease of goods and the
rendering of services by such Person, all rights relating thereto, all deposit
accounts containing the proceeds thereof, all books and records relating
thereto and the proceeds thereof.
"Affiliate" of any specified Person means (1) any other Person that,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (2) any other Person who is a director or
officer (a) of such specified Person, (b) of any Subsidiary of such specified
Person or (c) of any Person described in clause (1) above. For purposes of this
definition, control of a Person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such Person whether by
contract or otherwise and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) of EquityNotes Collateral having an aggregate fair market value of more than $5.0 million, (2) any cash proceeds in excess of $5.0 million of any Notes Collateral taken by eminent domain, expropriation or other similar governmental taking and (3) cash proceeds in excess of $5.0 million of insurance upon any part of the Notes Collateral. The Collateral Agent will have a perfected security interest in and control of the account for the benefit of the Trustee and the noteholders and the holders of other Parity Lien Obligations. Proceeds of the account may only be released to AK Steel or the applicable Subsidiary Guarantor for use as permitted by clause (3) or (4) described under “—Certain Covenants—Limitation on Notes Collateral Asset Sales.” AK Steel and the Subsidiary Guarantors will be required to comply with the requirements described above with respect to dispositions of Notes Collateral before they may use the moneys in the Asset Sales Proceeds Account.
No Impairment of the Security Interests
Neither AK Steel nor any of its Restricted Subsidiaries is permitted to take any action, or knowingly omit to take any action, which action or omission could reasonably be expected to have the result of materially impairing the security interest with respect to the Notes Collateral for the benefit of the Trustee and the noteholders.
The Indenture provides that any release of Notes Collateral in accordance with the provisions of the Indenture and the Security Documents will not be deemed to impair the security under the Indenture, and that any engineer or appraiser may rely on such provision in delivering a certificate requesting release so long as all other provisions of the Indenture with respect to such release have been complied with.
Certain Covenants
Limitation on Liens
The Indenture provides that AK Holding will not, and will not permit any of its Subsidiaries to, create, incur, issue, assume or Guarantee any Indebtedness secured by a Lien upon (a) any Notes Collateral, (b) any Principal Property of AK Steel or any Principal Property of a Subsidiary (other than directors' qualifying shares),of AK Steel or (c) any shares of stock or other equity interests or Indebtedness of any Subsidiary of AK Steel that owns a Principal Property (whether such Principal Property, shares of stock or other equity interests or Indebtedness is now existing or owned or hereafter created or acquired) or any shares of stock or other equity interests or Indebtedness of AK Steel, except, in the case of any assets not constituting Notes Collateral, if the notes are secured equally and ratably with, or at AK Holding’s option, prior to such Indebtedness, so long as such Indebtedness shall be so secured.
The foregoing restriction shall not apply to, and there shall be excluded from Indebtedness in any computation under such restriction, Indebtedness secured by:
(1) Liens on any property or other
assets (each referred to forexisting at the purposestime of this definition as a
"disposition")the acquisition thereof by AK Steel or any of its Subsidiaries including any
disposition by meansand not incurred in contemplation of such acquisition;
(2) Liens on property or assets of a merger, consolidationPerson existing at the time such Person is merged into or similar transaction,consolidated with AK Steel or any of its Subsidiaries or at the time of a sale, lease or other than:
(1)disposition of the properties and assets of such Person (or a dispositiondivision thereof) as an entirety or substantially as an entirety to AK Steel or any of its Subsidiaries;provided that any such Lien does not extend to any Principal Property owned by AK Steel or any of its Subsidiaries immediately prior to such merger, consolidation, sale, lease or disposition and not incurred in contemplation of such acquisition;
(3) Liens on property or assets of a Person existing at the time such Person becomes a Subsidiary of AK Steel and not incurred in contemplation of such acquisition;
(4) Liens in favor of AK Steel or any Subsidiary Guarantor;
(5) Liens on property or assets (including shares of Capital Stock or Indebtedness of any Subsidiary formed to acquire, construct, develop or improve such property) to secure all or part of the cost of acquisition, construction, development or improvement of such property, or to secure Indebtedness incurred to provide funds for any such purpose;provided that the commitment of the creditor to extend the credit secured by any such Lien shall have been obtained no later than 360 days after the later of (a) the completion of the acquisition, construction, development or improvement of such property or assets or (b) the placing in operation of such property or assets;
(6) Liens in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision thereof, to secure partial, progress, advance or other payments;
(7) Liens in favor of the notes (other than Additional Notes) and the Note Guarantees; and
(8) Liens existing on the date of the Indenture or any extension, renewal, replacement or refunding of any Indebtedness secured by a Lien existing on the date of the Indenture or referred to in clauses (1), (2), (3), (5) or (7);provided that any such extension, renewal, replacement or refunding of such Indebtedness shall be created within 360 days of repaying the Indebtedness secured by the Lien referred to in clauses (1), (2), (3), (5) or (7) and the principal amount of the Indebtedness secured thereby and not otherwise authorized by clauses (1), (2), (3), (5) or (7) shall not exceed the principal amount of Indebtedness plus any premium or fee or accrued and unpaid interest payable in connection with any such extension, renewal, replacement or refunding, so secured at the time of such extension, renewal, replacement or refunding.
Notwithstanding the restrictions described above, AK Holding and any of its Subsidiaries may create, incur, issue, assume or Guarantee Indebtedness secured by Liens if at the time of such creation, incurrence, issuance, assumption or Guarantee, after giving effect thereto and to the retirement of any Indebtedness which is concurrently being retired, the aggregate amount of all such Indebtedness secured by Liens which would otherwise be subject to such restrictions (other than any Indebtedness secured by Liens permitted as described in clauses (1) through (8) of the immediately preceding paragraph) plus the aggregate amount (without duplication) of (x) all Non-Guarantor Subsidiary Debt (other than Non-Guarantor Subsidiary Debt described in clauses (1) through (5) of the first sentence of the second paragraph under “—Limitation on Subsidiary Debt” below) and (y) all Attributable Debt of AK Steel and any of its Subsidiaries in respect of Sale and Leaseback Transactions (with the exception of such transactions which are permitted under clauses (1) through (4) of the first sentence of the first paragraph under “—Limitation on Sale and Leaseback Transactions” below) does not exceed an amount equal to (x) 15% of Consolidated Net Tangible Assets less (y) the aggregate principal amount of the initial notes outstanding at such time and the amount of any Indebtedness incurred to extend, renew, replace or refund the initial notes secured by Liens pursuant to clause (8) above.
In addition, AK Holding will not, and will not permit any of its Subsidiaries to create, incur, issue, assume or Guarantee any Indebtedness secured by a Lien on the ABL Collateral that is subordinated or junior to the Liens on the ABL Collateral securing the Bank Obligations, unless the notes are secured by such ABL Collateral equally and ratably with, or at AK Steel’s option, prior to such Indebtedness.
Limitation on Subsidiary Debt
The Indenture provides that AK Steel will not permit any of its Restricted Subsidiaries that is not a Guarantor to create, assume, incur, Guarantee or otherwise become liable for or suffer to exist any Indebtedness (any Indebtedness of a non-Guarantor Subsidiary of AK Steel, “Non-Guarantor Subsidiary Debt”), without Guaranteeing the payment of the principal of, premium, if any, and interest on the notes on an unsubordinated basis.
The foregoing restriction shall not apply to, and there shall be excluded from Indebtedness in any computation under such restriction, Non-Guarantor Subsidiary Debt constituting:
(1) Indebtedness of a Person existing at the time such Person is merged into or consolidated with any Restricted Subsidiary of AK Steel or at the time of a sale, lease or other disposition of the properties and assets of such Person (or a division thereof) as an entirety or substantially as an entirety to any Restricted Subsidiary of AK Steel and is assumed by such Restricted Subsidiary;provided that any Indebtedness was not incurred in contemplation thereof and is not Guaranteed by any other Subsidiary of AK Steel;
(2) Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary of AK Steel;provided that any Indebtedness was not incurred in contemplation thereof;
(3) Indebtedness owed to AK Steel or any Guarantor;
(4) Indebtedness outstanding on the date of the Indenture or any extension, renewal, replacement or refunding of any Indebtedness existing on the date of the Indenture or referred to in clauses (1), (2) or (3);provided that any such extension, renewal, replacement or refunding of such Indebtedness shall be created within 360 days of repaying the Indebtedness referred to in this clause or clauses (1), (2) or (3) above and the principal amount of the Indebtedness shall not exceed the principal amount of Indebtedness plus any premium or fee payable in connection with any such extension, renewal, replacement or refunding, so secured at the time of such extension, renewal, replacement or refunding; and
(5) Indebtedness in respect of a Wholly
Owned Guarantor Subsidiary;
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Notwithstanding the restrictions described above, AK Steel and any of its Restricted Subsidiaries may create, incur, issue, assume or Guarantee Non-Guarantor Subsidiary Debt, without Guaranteeing the notes, if at the time of such creation, incurrence, issuance, assumption or Guarantee, after giving effect thereto and to the retirement of any Indebtedness which is concurrently being retired, the aggregate amount of all such Non-Guarantor Subsidiary Debt which would otherwise be subject to such restrictions (other than Non-Guarantor Subsidiary Debt which is described in clauses (1) through (5) of the immediately preceding paragraph) plus the aggregate amount (without duplication) of (x) all Indebtedness secured by Liens (not including any such Indebtedness secured by Liens described in clauses (1) through (8) of the second paragraph under the heading “—Limitation on Liens”) and (y) all Attributable Debt of AK Steel and any of its Subsidiaries in respect of Sale and Leaseback Transactions (with the exception of such transactions which are permitted under clauses (1) through (4) of the first sentence of the first paragraph under “—Limitation on Sale and Leaseback Transactions” below) does not exceed an amount equal to (x) 15% of Consolidated Net Tangible Assets less (y) the aggregate principal amount of the initial notes outstanding at such time and the amount of any Indebtedness incurred to extend, renew, replace or refund the initial notes secured by Liens pursuant to clause (8) of the second paragraph of the provision “—Limitation on Liens.”
Limitation on Sale and Leaseback Transactions
The Indenture provides that AK Steel will not, and will not permit any of its Subsidiaries to, enter into any Sale and Leaseback Transaction unless:
(1) the Sale and Leaseback Transaction is solely with AK Steel or any of its Subsidiaries;
(2) the lease is for a dispositionperiod not in excess of 24 months, including renewals;
(3) AK Steel or such Subsidiary would (at the time of entering into such arrangement) be entitled as described in clauses (1) through (8) of the second paragraph under the heading “—Limitation on Liens,” to create, incur, issue, assume or guarantee Indebtedness secured by a Lien on such property or assets in the amount of the Attributable Debt arising from such Sale and Leaseback Transaction;
(4) AK Steel or such Subsidiary, within 360 days after the sale of property or assets in connection with such Sale and Leaseback Transaction is completed, applies an amount equal to the greater of (A) the net proceeds of the sale of such Principal Property or (B) the fair market value of such Principal Property to (i) the retirement of notes, other Funded Debt of AK Steel ranking on a parity with the notes or Funded Debt of a Subsidiary of AK Steel or (ii) the purchase of property or assets used or useful in its business or to the retirement of long-term indebtedness; or
(5) the Attributable Debt of AK Steel and its Subsidiary in respect of such Sale and Leaseback Transaction and all other Sale and Leaseback Transactions entered into after the Closing Date (other than any such Sale and Leaseback Transaction as would be permitted as described in clauses (1) through (4) of this sentence), plus the aggregate principal amount (without duplication) of (x) Indebtedness secured by Liens then outstanding (not including any such Indebtedness secured by Liens described in clauses (1) through (7) of the second paragraph under the heading “—Limitation on Liens”) which do not equally and ratably secure the notes (or secure notes on a basis that is prior to other Indebtedness secured thereby) and (y) Non-Guarantor Subsidiary Debt (with the exception of Non-Guarantor Subsidiary Debt which is described in clauses (1) through (5) of the second paragraph under the heading “—Limitation on Subsidiary Debt”), would not exceed an amount equal to (x) 15% of Consolidated Net Tangible Assets less (y) the aggregate principal amount of the initial notes outstanding at Fair Market Value (assuch time and the amount of any Indebtedness incurred to extend, renew, replace or refund the initial notes secured by Liens pursuant to clause (8) of the second paragraph of the provision “—Limitation on Liens.”
Limitation on Notes Collateral Asset Sales
The Indenture provides that AK Holding will not, and will not permit any Restricted Subsidiary to, make any Notes Collateral Asset Sale unless the following conditions are met:
(1) The Notes Collateral Asset Sale is for at least fair market value (such fair market value to be determined on the date of contractually agreeing to such asset sale), as determined in good faith by the Board of DirectorsDirectors.
(2) At least 75% of Holding)the consideration consists of cash or Cash Equivalents or assets described in clause (3) below of the type constituting Notes Collateral received at closing;provided,however, the non-cash consideration received is pledged as Notes Collateral under the Security Documents substantially simultaneously with such sale, in accordance with the requirements set forth in the ordinary courseIndenture. For purposes of business;
this clause (2), (a) the assumption by the purchaser of Indebtedness or other obligations (other than Subordinated Indebtedness) of AK Steel or a Guarantor pursuant to a customary novation agreement and (b) instruments or securities received from the purchaser that are promptly, but in any event within 30 days of the closing, converted by AK Steel or a Guarantor to cash, to the extent of the cash actually so received, shall be considered cash received at closing).
(3) Within 365 days after the receipt of any Net Cash Proceeds from a dispositionNotes Collateral Asset Sale, the Net Cash Proceeds may be used (x) to acquire all or substantially all of obsoletethe assets of a Permitted Business or a majority of the Voting Stock of another Person that thereupon becomes a Restricted Subsidiary engaged in a Permitted Business, (y) to make capital expenditures or otherwise acquire long-term assets that are to be used in a Permitted Business;provided that any assets acquired pursuant to subclauses (x) or (y) of a type constituting Notes Collateral are pledged as Notes Collateral under the Security Documents substantially simultaneously with such acquisition in accordance with the requirements of the Indenture, or (z) to repay Indebtedness secured by parity Liens on the Notes Collateral;provided that if AK Steel shall so reduce Obligations under Indebtedness secured by parity Liens on the Notes Collateral pursuant to this clause (3), AK Steel will equally and ratably reduce Obligations under the notes as provided under “Optional Redemption,” through open market purchases (provided that such purchases are at or above 100% of the principal amount thereof) and/or by making an Offer to Purchase to all Holders of notes at a purchase price equal to 100% of the principal amount thereof, plus accrued interest to but excluding the date of purchase.
(4) The Net Cash Proceeds of a Notes Collateral Asset Sale not applied pursuant to clause (3) within 365 days of the Notes Collateral Asset Sale constitute “Excess Proceeds.” Excess Proceeds of less than $15.0 million will be carried forward and accumulated. When accumulated Excess Proceeds equals or exceeds such amount, AK Holding must, within 30 days, make an Offer to Purchase notes having a principal amount equal to
(A) accumulated Excess Proceeds, multiplied by
(B) a fraction (x) the numerator of which is equal to the outstanding principal amount of the notes and (y) the denominator of which is equal to the outstanding principal amount of the notes and allpari passu Indebtedness secured by parity Liens on the Notes Collateral similarly required to be repaid, redeemed or tendered for in connection with the Notes Collateral Asset Sale, rounded down to the nearest $1,000. The purchase price for the notes will be 100% of the principal amount plus accrued interest to but excluding the date of purchase. If the Offer to Purchase is for less than all of the aggregate principal amount of the outstanding notes and notes in an aggregate principal amount in excess of the purchase amount are tendered and not withdrawn pursuant to the offer, AK Holding will purchase notes having an aggregate principal amount equal to the purchase amount on a pro rata basis, with adjustments so that only notes in multiples of $1,000 principal amount will be purchased;provided, that no notes of $2,000 or less may be purchased in part. Upon completion of the Offer to Purchase, Excess Proceeds will be reset at zero, and any Excess Proceeds remaining after consummation of the Offer to Purchase may be used for any purpose not otherwise prohibited by the Indenture.
Consolidation, Merger and Sale of Assets
The Indenture provides that neither AK Steel nor AK Holding will consolidate with, merge with or into, directly or indirectly, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person, or permit any Person to merge with or into it, unless:
| (1) | it shall be the continuing Person, or the Person (if other than it) formed by such consolidation or into which it is merged or that acquired or leased such property and assets (the “Surviving Person”), shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof, and shall expressly assume, by a supplemental indenture or other instrument, executed and delivered to the Trustee, all of its obligations under the Indenture, the notes, the Registration Rights Agreements and the Security Documents; |
| (2) | immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and |
| (3) | it delivers to the Trustee an Officers’ Certificate and Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture or other instrument complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with. |
It is understood that AK Holding may merge with or into AK Steel pursuant to the provisions described above. In addition, notwithstanding the foregoing, AK Steel or AK Holding may transfer its property or assets to a Guarantor.
The Surviving Person will succeed to, and except in the ordinary coursecase of business;
(4) a dispositionlease be substituted for, AK Steel or AK Holding, as applicable, under the Indenture and the notes.
Restrictions on Activities of AK Holding
The Indenture provides that constitutes a Restricted PaymentAK Holding (a) shall not engage in any activities or a
Sale/Leaseback Transaction;
(5) a salehold any assets other than (i) the issuance of Accounts Receivable under a Permitted Credit Facility; and
(6) a transfer of Accounts Receivable that constitutes a Permitted
Investment under clause (5) or (6)Capital Stock, (ii) holding 100% of the definitionCapital Stock of Permitted
Investments.
"Attributable Debt"AK Steel and debt securities of AK Steel that were held by AK Holding at the date of the Indenture and (iii) those activities incidental to maintaining its status as a public company, and (b) will not incur any liabilities other than liabilities relating to its Guarantee of the notes, its Guarantee of any other debt of AK Steel, any other Indebtedness it may incur and any other obligations or liabilities incidental to holding 100% of the Capital Stock of AK Steel and its liabilities incidental to its status as a public company;provided, however, that for purposes of this covenant only, the term “liabilities” shall not include any liability for the declaration and payment of dividends on any Capital Stock of AK Holding; andprovided further that if AK Holding merges with or into AK Steel, this covenant shall no longer be applicable.
SEC Reports and Reports to Holders
Whether or not AK Steel is then required to file reports with the SEC, AK Steel shall file with the SEC all such reports and other information as it would be required to file with the SEC by Section 13(a) or 15(d) under the Exchange Act if it were subject thereto within the time periods specified by the SEC’s rules and regulations. AK Steel shall supply the Trustee and each Holder who so requests or shall supply to the Trustee for forwarding to each such Holder, without cost to such Holder, copies of such reports and other information. AK Steel shall be deemed to have complied with this covenant to the extent that AK Holding files all reports and other information required to be filed with the SEC by Section 13(a) or 15(d) under the Exchange Act relating to AK Holding and its consolidated subsidiaries, including AK Steel.
Events of Default
The Indenture provides that each of the following constitutes an Event of Default with respect to the notes:
(a) default in the payment of principal of (or premium, if any, on) any note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise;
(b) default in the payment of interest (including additional interest) on any note when the same becomes due and payable, and such default continues for a period of 30 days;
(c) AK Steel defaults in the performance of or breaches any other covenant or agreement in the Indenture applicable to the notes or under the notes (other than a default specified in clause (a) or (b) above) and such default or breach continues for a period of 90 consecutive days (or, in the case of a default in the performance of or breach of the covenant described under “—Certain Covenants—SEC Reports and Reports to Holders,” such default or breach continues for a period of 120 consecutive days) after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the notes;
(d) there occurs with respect to any issue or issues of Indebtedness of AK Holding, AK Steel or any Significant Subsidiary having an outstanding principal amount of $75 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its stated maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration and/or (II) the failure to make a principal payment at the final (but not any interim) fixed maturity and such defaulted payment shall not have been made, waived or extended within 30 days of such payment default;
(e) any final judgment or order (not covered by insurance) for the payment of money in excess of $75 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against AK Holding, AK Steel or any Significant Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $75 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;
(f) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of AK Holding, AK Steel or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a Sale/receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of AK Holding, AK Steel or any Significant Subsidiary or for all or substantially all of the property and assets of AK Holding, AK Steel or any Significant Subsidiary or (C) the winding-up or liquidation of the affairs of AK Holding, AK Steel or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days;
(g) AK Holding, AK Steel or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of AK Holding, AK Steel or any Significant Subsidiary or for all or substantially all of the property and assets of AK Holding, AK Steel or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors;
(h) any Guarantor repudiates its obligations under its Note Guarantee or, except as permitted by the Indenture, any Note Guarantee is determined to be unenforceable or invalid or shall for any reason cease to be in full force and effect; or
(i) with respect to Notes Collateral having a fair market value of $75 million, the Liens created by the Security Documents shall at any time not constitute a valid and perfected Lien on such Notes Collateral (to the extent perfection by filing, registration, recordation or possession is required by the Indenture or the Security Documents), or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of the Indenture, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, if in either case, such default continues for a period of 30 consecutive days after notice, or the enforceability thereof shall be contested by AK Steel or any Subsidiary Guarantor.
If an Event of Default (other than an Event of Default specified in clause (f) or (g) above that occurs with respect to AK Steel) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the notes then outstanding, by written notice to AK Steel (and to the Trustee if such notice is given by the Holders), may declare the principal of, premium, if any, and accrued interest on the notes to be immediately due and payable. Upon a declaration of acceleration, such principal of, premium, if any, and accrued interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (d) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (d) shall be remedied or cured by AK Holding, AK Steel or the relevant Significant Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (f) or (g) above occurs with respect to AK Steel, the principal of, premium, if any, and accrued interest on the notes then outstanding shall automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of at least a majority in principal amount of the outstanding notes by written notice to AK Steel and to the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if (x) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the notes that have become due solely by such declaration of acceleration, have been cured or waived and (y) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. For information as to the waiver of defaults, see “—Modification and Waiver.”
The Holders of at least a majority in aggregate principal amount of the outstanding notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of notes. A Holder may not pursue any remedy with respect to the Indenture or the notes unless:
(1) the Holder gives the Trustee written notice of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of outstanding notes make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding notes do not give the Trustee a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any Holder of a note to receive payment of the principal of, premium, if any, or interest on, such note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the notes, which right shall not be impaired or affected without the consent of the Holder.
An officer of AK Steel must certify, on or before a date not more than 90 days after the end of each fiscal year, that a review has been conducted of the activities of AK Steel and its Subsidiaries and AK Steel’s and its Subsidiaries’ performance under the Indenture and that AK Steel has fulfilled all obligations thereunder, or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. AK Steel will also be obligated to notify the Trustee of any default or defaults in the performance of any covenants or agreements under the Indenture.
Satisfaction and Discharge; Defeasance
The Indenture shall be satisfied and discharged if (i) AK Steel shall deliver to the Trustee all notes then outstanding for cancellation or (ii) all notes not delivered to the Trustee for cancellation shall have become due and payable, are to become due and payable within one year or are to be called for redemption within one year and AK Steel shall deposit an amount sufficient to pay the principal, premium, if any, and interest to the date of maturity, redemption or deposit (in the case of notes that have become due and payable), providedthat in either case AK Steel shall have paid all other sums payable under the Indenture.
Defeasance and Discharge
The Indenture provides that AK Steel will be deemed to have paid and will be discharged from any and all obligations in respect of the notes after the deposit referred to below, and the provisions of the Indenture will no longer be in effect with respect to the notes (except for, among other matters, certain obligations to register the transfer or exchange of the notes, to replace stolen, lost or mutilated notes, to maintain paying agencies and to hold monies for payment in trust) if, among other things:
(A) AK Steel has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient without consideration of any reinvestment of such principal and interest, as certified by the chief financial officer of AK Steel in a written certification delivered to the Trustee, to pay the principal of, premium, if any, and accrued interest on the notes (i) on the stated maturity of such
payments in accordance with the terms of the Indenture and the notes or (ii) on any earlier Redemption Date pursuant to the terms of the Indenture and the notes;provided that AK Steel has provided the Trustee with irrevocable instructions to redeem all of the outstanding notes on such Redemption Date;
(B) AK Steel has delivered to the Trustee (1) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of AK Steel’s exercise of its option under this “Defeasance” provision and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after the Closing Date such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (2) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940; and
(C) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, and such deposit shall not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which AK Steel or any of its Subsidiaries is a party or by which AK Steel or any of its Subsidiaries is bound.
Defeasance of Certain Covenants and Certain Events of Default
The Indenture further provides that the provisions of the Indenture will no longer be in effect with respect to the provisions of the Indenture described herein under “Change of Control,” and all the covenants described herein under “—Certain Covenants,” clauses (c), (d), (e), (h) and (i) under “—Events of Default,” shall be deemed not to be Events of Default, in each case with respect to the notes, upon, among other things, the deposit with the Trustee, in trust, of money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient without consideration of any reinvestment of such principal and interest, as certified by the chief financial officer of AK Steel in a written certification delivered to the Trustee, to pay the principal of, premium, if any, and accrued interest on the notes (i) on the Stated Maturity of such payments in accordance with the terms of the Indenture and the notes or (ii) on any earlier Redemption Date pursuant to the terms of the Indenture and the notes;provided that AK Steel has provided the Trustee with irrevocable instructions to redeem all of the outstanding notes on such Redemption Date, the satisfaction of the provisions described in clauses (B)(2) and (C) of the preceding paragraph and the delivery by AK Steel to the Trustee of an Opinion of Counsel to the effect that, among other things, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred.
In the event AK Steel exercises its option to omit compliance with certain covenants and provisions of the Indenture with respect to the notes as described in the immediately preceding paragraph and the notes are declared due and payable because of the occurrence of an Event of Default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on the notes at the time of their Stated Maturity but may not be sufficient to pay amounts due on the notes at the time of the acceleration resulting from such Event of Default. However, AK Steel will remain liable for such payments and AK Holding’s Note Guarantee with respect to such payments will remain in effect.
Modification and Waiver
The Indenture or the Security Documents may be amended, with respect to the notes, without the consent of any Holder, to:
(1) cure any ambiguity, defect or inconsistency in the Indenture,provided that such amendments shall not adversely affect the interests of Holders in any material respect;
(2) comply with the provisions described under “—Certain Covenants—Consolidation, Merger and Sale of Assets”;
(3) comply with any requirements of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act or in order to maintain such qualification;
(4) evidence and provide for the acceptance of appointment by a successor Trustee;
(5) provide for the issuance of Additional Notes;
(6) make any change that, in the good faith opinion of the board of directors of AK Steel, does not materially and adversely affect the rights of any Holder under the Indenture or the Security Documents;
(7) to conform any provision to the “Description of the Notes” in the offering memorandum for the original offering of initial notes; or
(8) to provide for any Guarantee of the notes, to secure the notes or any Guarantee of the notes or to confirm and evidence the release, termination or discharge of any Guarantee of or Lien securing the notes when such release, termination or discharge is permitted by the Indenture.
In addition, the Security Documents may be amended without any Holder’s consent to add additional secured creditors holding other Parity Lien Obligations so long as such obligations (and the Liens securing them) are not prohibited by the Indenture.
Modifications and amendments of the Indenture affecting the notes or the Security Documents may be made with the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding notes;provided,however, that no such modification or amendment may, without the consent of each Holder affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of interest on, any note;
(2) reduce the principal amount of, or premium, if any, or interest on, any note;
(3) change the optional redemption dates or optional redemption prices of the notes from that stated under the caption “—Optional Redemption;”
(4) change the place or currency of payment of principal of, or premium, if any, or interest on, any note;
(5) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the Redemption Date) of any note;
(6) waive a default in the payment of principal of, premium, if any, or interest on the notes;
(7) modify any of the provisions of this “Modification and Waiver” requiring the consent of a requisite number of Holders, except to increase any percentage requiring consent or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each outstanding note;
(8) release any Guarantor from its Note Guarantee, except as provided in the Indenture;
(9) amend, change or modify the obligation of AK Steel to make and consummate an Offer to Purchase under the “Change of Control” covenant after a Change of Control Repurchase Event has occurred, including, in each case, amending, changing or modifying any definition relating thereto;
(10) reduce the percentage or aggregate principal amount of outstanding notes the consent of whose Holders is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults;
(11) modify or change any provision of the Indenture affecting the ranking of the notes or any Note Guarantee in a manner adverse to any Holder; or
(12) make any change in the provisions of the Security Documents dealing with the application of the proceeds of Notes Collateral from the Lien under the Indenture and the Security Documents with respect to the notes that would adversely affect the Holders.
Without the consent of the Holders of at least two-thirds in aggregate principal amount of the notes then outstanding, no amendment or waiver may release from the Lien of the Indenture and the Security Documents all or substantially all of the Notes Collateral.
Definitions
Set forth below are defined terms used in the covenants and other provisions of the Indenture insofar as relevant to the notes. Reference is made to the Indenture for other capitalized terms used in this “Description of the Registered Notes” for which no definition is provided.
“ABL Collateral” means (a) all inventory (as defined in the New York UCC), (b) all receivables (meaning, all accounts (as defined in the New York UCC) owned by AK Steel and all other rights, titles or interests that, in accordance with GAAP, would be included in receivables on its balance sheet (including any such account and/or rights, titles or interests that might be characterized as chattel paper, documents, instruments or general intangibles under the UCC in any jurisdiction), in each case arising from the sale, lease, exchange or other disposition of inventory, and all of AK Steel’s rights to any goods, services or other property related to any of the foregoing and all collateral security and supporting obligations of any kind given by any Person with respect to any of the foregoing), (c) all contracts for sale, lease, exchange or other disposition of inventory, whether or not performed and whether or not subject to termination upon a contingency or at the option of any party thereto, (d) all documents (as defined in the UCC) covering inventory, (e) each deposit account (as defined in the Credit Agreement)(excluding the Concentration Account, as defined in the Credit Agreement) in which proceeds of inventory or receivables or ABL Collateral are deposited, (f) all trademarks, servicemarks, trade names and similar intangible property owned or used by AK Steel in its business, together with the goodwill of the business symbolized thereby and all rights relating thereto,provided that the rights of the agent under the Credit Agreement, on behalf of the lenders under the Credit Agreement, shall be limited to the use of such collateral to manufacture process and sell the inventory, (g) all books and records (including customer lists, credit files, computer programs, printouts and other computer materials and records) of AK Steel pertaining to any of the collateral, and (h) all other proceeds of the collateral described in the foregoing clauses (a) through (g).
“Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
“Attributable Debt,” in respect of any Sale and Leaseback Transaction, means, as of the datetime of determination, the total obligation (discounted to present value (discounted at the lower ofrate per annum equal to the interestdiscount rate of such Sale/Leaseback Transaction and the interest rate borne by
the notes, compounded annually) of the total obligationswhich would be applicable to a capital lease obligation with like term in accordance with GAAP) of the lessee for rental payments (other than amounts required to be paid on account of property taxes, maintenance, repairs, insurance, water rates and other items which do not constitute payments for property rights) during the remaining portion of the initial term of the lease included in such Sale/Sale and Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life"Transaction.
“Bank Obligations” means asall Indebtedness under the Credit Agreement, and all Obligations in respect thereof.
“Board of Directors” means the dateboard of determination,directors of AK Holding.
“Capital Stock” means, with respect to any Debt,Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether outstanding on the quotient obtained by dividing (x)Closing Date or issued thereafter, including, without limitation, all common stock and preferred stock but excluding any convertible or exchangeable debt securities.
“Cash Equivalents” means
(1) U.S. dollars, or money in other currencies received in the sumordinary course of the products of the
numbers of yearsAK Steel’s business,
(2) U.S. Government Obligations or certificates representing an ownership interest in U.S. Government Obligations with maturities not exceeding one year from the date of determination to the datesacquisition,
(3) (i) demand deposits, (ii) time deposits and certificates of each successive
scheduled principal paymentdeposit with maturities of such Debt multiplied by the amount of such
principal payment by (y) the sum of all such principal payments.
"Board of Directors" of a Person means the Board of Directors of that Personone year or any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which banking institution are required to close in the State of New York.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Cash Equivalents" means:
(1) Investments in U.S. Government Obligations maturing within 365 days
ofless from the date of acquisition, thereof;
(2) Investments in certificates of deposit or Eurodollar deposits
maturing within 365 days of(iii) bankers’ acceptances with maturities not exceeding one year from the date of acquisition, thereof issued by aand (iv) overnight bank deposits, in each case with any bank or trust company which is organized or licensed under the laws of the United States or any state thereof having capital, surplus and which hasundivided profits in excess of $500 million whose short-term debt is rated “A-2” or higher by S&P or “P-2” or higher by Moody’s,
(4) repurchase obligations with a combined capitalterm of not more than seven days for underlying securities of the type described in clauses (2) and surplus of at least
$1.0 billion and rated at least A3 by Moody's Investors Service, Inc.;
(3) Investments in repurchase agreements, involving Investments in U.S.
Government Obligations or other Cash Equivalentsabove entered into with any bank,
trust company or investment bankfinancial institution meeting the qualifications specified in clause (3) above,
(5) commercial paper rated at least A- andP-1 by Moody’s or A-1 by Standard &
Poor'sS&P and at least A3 and P-1 by Moody's Investors Service, Inc.;
(4) Investments in commercial paper maturing not more than 90 days fromwithin one year after the date of acquisition, thereof and having one
(6) money market funds at least 95% of the two highest ratings
obtainable from eachassets of Standard & Poor's and Moody's Investors Service,
Inc. issuedwhich consist of investments of the type described in clauses (1) through (5).
“Change of Control” means such time as:
(1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a corporation (exceptseries of related transactions, of all or substantially all of the properties or assets of AK Steel or an Affiliate of AK Steel)and its Subsidiaries, taken as a whole, to any “person” (as that is organized under the laws of any state of the United States or the
District of Columbia; and
(5) Investments in money market accounts or funds whose assets consist
solely of cash or Cash Equivalents.
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"Change in Control" means the occurrence of any of the following events:
(1) any "Person" (as such term is used in Section 13(d)(3) of the Exchange Act);
(2) a “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial ownerultimate “beneficial owner” (as defined in RulesRule 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have "beneficial ownership" of all shares that any such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly,Act) of more than 40%50% of the total voting power of the Voting Equity InterestsStock of Holding; provided, however,
thatAK Holding on a fully diluted basis;
(3) the Person shall not be deemedadoption of a plan relating to the "beneficial owner"liquidation or dissolution of shares
tendered pursuant to a tenderAK Holding or exchange offer made by that Person or any
Affiliate of that Person until the tendered shares are accepted for purchase
or exchange;
(2) during any period of two consecutive years,AK Steel;
(4) individuals who aton the beginning of such period constitutedClosing Date constitute the Board of Directors of Holding (together with any new directors whose election by suchthe Board of Directors of Holding, or whose nomination by the Board of Directors for election by the shareholders of Holding,
as the case may be,AK Holding’s stockholders was approved by a vote of 66 2/3%a majority of the directorsmembers of the Board of Directors then
still in office who either were either directors atmembers of the beginningBoard of such periodDirectors on the Closing Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors of Holding
then in office;
(5) AK Holding or (3)AK Steel consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into AK Holding or AK Steel, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of AK Holding or AK Steel, as the case may be, or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where (A) the Voting Stock of AK Holding or AK Steel outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance) and (B) immediately after such transaction, no “person”
or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes, directly or indirectly, the Beneficial Owner of 50% or more of the voting power of the Voting Stock of the surviving or transferee Person; or
(6) AK Holding fails to own 100% of the Equity InterestsCapital Stock of AK Steel;provided, however, that it shall not be deemed a Change inof Control if AK Holding merges into AK Steel, except that in such case, AK Steel shall be substituted for AK Holding for purposes of this definition of "Change in
Control"“Change of Control,” and this clause (3)(6) shall no longer be applicable.
"Consolidated EBITDA Coverage Ratio" as
“Change of any date of determinationControl Repurchase Event” means the ratiooccurrence of (x)both a Change of Control and a Ratings Event.
“Closing Date” means the aggregate amount of EBITDA fordate on which the period ofinitial notes were issued under the most
recent four consecutive fiscal quarters ending at least 45 days priorIndenture.
“Collateral Agent” means the Trustee in its capacity as the Collateral Agent or any collateral agent appointed by the Trustee pursuant to the date of such determination to (y) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that:
(1) if AK Steel or any Subsidiary has issued any Debt since the beginning
of such period that remains outstanding or if the transaction giving rise to
the need to calculate the Consolidated EBITDA Coverage Ratio is an issuance
of Debt, or both, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such Debt as
if such Debt had been issued on the first day of such periodIndenture and the discharge of any other Debt repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Debt as if such discharge had
occurred on the first day of such period;
(2) if since the beginning of such period AK Steel or any Subsidiary
shall have made any Asset Disposition, the EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive) directly attributable
to the assets that are the subject of such Asset Disposition for such
period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period, and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Debt of AK Steel
or any Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to AK Steel and its continuing Subsidiaries in connection with such
Asset Dispositions for such period (or, if the Equity Interests of any
Subsidiary are sold, the Consolidated Interest Expense for such period
directly attributable to the Debt of such Subsidiary to the extent AK Steel
and its continuing Subsidiaries are no longer liable for such Debt after
such sale);
(3) if since the beginning of such period AK Steel or any Subsidiary (by
merger or otherwise) shall have made an Investment in any Subsidiary (or any
Person that becomes a Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, that constitutes all or substantially all
of an operating unit of a business, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the issuance of any Debt) as if such Investment or acquisition
occurred on the first day of such period; and
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(4) if since the beginning of such period any Person (that subsequently
became a Subsidiary or was merged with or into AK Steel or any Subsidiary
since the beginning of such period) shall have made any Asset Disposition or
any Investment that would have required an adjustment pursuant to clause (2)
or (3) above if made by AK Steel or a Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition or Investment
occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto,
and the amount of Consolidated Interest Expense associated with any Debt issued
in connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of AK Steel. If any Debt
bears a floating rate of interest and is being given pro forma effect, the
interest on such Debt shall be calculated as if the rate in effect on the date
of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Protection Agreement applicable to such Debt if
such Interest Rate Protection Agreement has a remaining term in excess of 12
months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holding and its consolidated Subsidiaries (other than Non-Recourse
Subsidiaries), including:
(1) interest expense attributable to capital leases;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest payments;
(5) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing;
(6) net costs under Interest Rate Protection Agreements (including
amortization of fees);
(7) Preferred Equity Interests dividends or distributions in respect of
all Preferred Equity Interests held by Persons other than AK Steel or a
Wholly Owned Subsidiary;
(8) interest allocated in connection with investments in discontinued
operations; and
(9) interest actually paid by Holding or any of its consolidated
Subsidiaries (other than Non-Recourse Subsidiaries) under any guarantee of
Debt or other obligation of any other Person.
"Consolidated Net Income" means, for any period, the net income (or loss) of
Holding and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Security Documents.
“Consolidated Net Income:
(1) any net income (or loss) of any Person if such Person is not a
Subsidiary of AK Steel, except that AK Steel's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to AK Steel or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Subsidiary, to the limitations contained in clause (3)
below);
(2) any net income (or loss) of any Person acquired by AK Steel or a
Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition;
(3) any net income of any Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Subsidiary, directly or indirectly, to AK
Steel, except that (a) AK Steel's equity in the net income of any such
Subsidiary for such period shall be included in such Consolidated Net Income
up to the aggregate amount of cash actually distributed by such Subsidiary
during such period to AK Steel or another Subsidiary as a dividend or other
distribution (subject,
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in the case of a dividend or other distribution to another Subsidiary, to
the limitation contained in this clause) and (b) AK Steel's equity in a net
loss of any such Subsidiary for such period shall be included in determining
such Consolidated Net Income.
(4) any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of AK Steel or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Equity Interests of
any Person;
(5) any net income (or loss) of any Non-Recourse Subsidiary, except that
AK Steel's equity in the net income of any such Non-Recourse Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Non-Recourse
Subsidiary during such period to AK Steel as a dividend or other
distribution;
(6) the cumulative effect of a change in accounting principles; and
(7) solely for purposes of "--Limitation on Restricted Payments," (a)
special charges, costs and other expenses (including restructuring charges
and associated investment banking, legal, accounting, printing and related
fees and expenses) (and related tax effects) recorded by Holding, AK Steel
or any Restricted Subsidiary in connection with the merger of Armco Inc.
with and into AK Steel pursuant to an Agreement and Plan of Merger dated as
of May 20, 1999, as it may be amended, among Holding, AK Steel and Armco
Inc. and any other merger or other business combination transaction
involving Holding, AK Steel or any Restricted Subsidiary, to the extent that
such charges, costs and other expenses are not permitted under generally
accepted accounting principles to be capitalized and amortized over future
periods, in each case in respect of which Holding has delivered to the
Trustee an Officer's Certificate, made in good faith by a responsible
financial or accounting Officer of Holding, at the time such special
charges, costs and other expenses are recorded, setting forth in reasonable
detail such special charges, costs and other expenses, (b) net gains or
losses from a fourth quarter (corridor) adjustment (and related tax effects)
recognized by Holding, AK Steel or any Subsidiary in accordance with its
method of recording unrecognized net actuarial gains and losses in
accounting for pensions and other postretirement benefits, provided,
however, that if any such fourth quarter adjustment shall occur, it shall be
included prospectively in Consolidated Net Income for purposes of
"--Limitation on Restricted Payments" to the following extent: its effect
(and related tax effects) shall be deferred and amortized equally over a
period of 120 months beginning January 1 of the year subsequent to the
fourth quarter adjustment and (c) any charges (and related tax effects)
recorded by Holding, AK Steel or any Subsidiary as a result of the
impairment of goodwill under generally accepted accounting principles.
"Consolidated Net Tangible Assets" of any PersonAssets” means the total assets of such PersonAK Holding and its consolidated Subsidiaries after deducting therefrom all intangible assets, current liabilities (excluding any thereof which are by their terms extendible or renewable at the option of the obligor thereon to a time more than 12 months after the time as of which the amount thereof is being computed) and minority interests, if any, in any assets of such Person's
Subsidiaries.
"Consolidated Net Worth" of any Person means the total of the amounts shownSubsidiaries, all as would be set forth on the most recently available quarterly or annual consolidated balance sheet of such PersonAK Holding and its consolidated subsidiaries,
determined on a consolidated basisSubsidiaries, prepared in accordanceconformity with generally accepted
accounting principles,GAAP.
“Credit Agreement” means the loan and security agreement dated as of April 28, 2011, among AK Steel, the endlenders party thereto and Bank of the most recent fiscal quarter ofAmerica, N.A., as agent, together with any related documents, as such Person ending at least 45 days prioragreement may be amended, modified, supplemented, extended, renewed, refinanced or replaced or substituted from time to the taking of any action for the
purpose of which the determination is being made, as:
(1) the par or stated value of all outstanding Equity Interests of such
Person; plus
(2) paid-in capital or capital surplus relating to such Equity Interests;
plus
(3) any retained earnings or earned surplus; less (x) any accumulated
deficit, (y) any amounts attributable to Redeemable Equity Interests and (z)
any amounts attributable to Exchangeable Equity Interests.
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"Debt" of any Person means, without duplication,
(1) the principal of and premium (if any) in respect of (a) indebtedness
of such Person for money borrowed and (b) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable;
(2) all Capital Lease Obligations of such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business);
(4) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement following
payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Redeemable Equity Interests
(but excluding any accrued dividends);
(6) all obligations of such Person under interest rate swap or similar
agreements, or foreign currency or commodity hedge, exchange or similar
agreements of such Person;
(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons and all dividends of other Persons for the payment of which,
in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; and
(8) all obligations of the type referred to in clauses (1) through (7) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such property
or assets or the amount of the obligation so secured.
"Default"time.
“Default” means any event whichthat is, or after notice or passage of time or both would be, an Event of Default.
"domestic"
“Equity Interests” means all Capital Stock and all warrants or options with respect to, or other rights to purchase, Capital Stock, but excluding Indebtedness convertible into equity.
“Foreign Subsidiary” means any Person,Subsidiary that such Person is not organized andor existing under the laws of the United States, any Statestate thereof, or the District of Columbia.
"EBITDA" forColumbia, or any periodterritory thereof.
“Funded Debt” means all Indebtedness having a maturity of more than 12 months from the Consolidated Net Income of Holding for
such period (but without giving effect to adjustments, accruals, deductions or
entries resulting from purchase accounting, extraordinary losses or gains and
any gains or losses from any Asset Dispositions), plus (1) the following to the
extent deducted in calculating such Consolidated Net Income: (a) income tax
expense, (b) Consolidated Interest Expense, (c) depreciation expense, (d)
amortization expense; (e) the non-cash portion of postretirement benefits other
than pensions and (f) special charges taken after December 31, 1996 in respectdate as of which Holding has delivered to the Trustee (x) an Officers' Certificate'
setting forth estimates,determination is made in good faithor having a maturity of 12 months or less but by a responsible financialits terms being renewable or accounting Officer of Holding,extendable beyond 12 months from such date at the option of the cash costs estimated, at the timeborrower, but excluding any such special charges are recorded,Indebtedness owed to be paid during any period for such special
charges and containing an undertakingAK Holding or a Subsidiary of Holding to deliver to the Trustee, as
soon as practicable after Holding determines that such estimates are not
appropriate, a supplemental Officers' Certificate setting forth appropriate
adjustments to such estimates and (y) together with any Officers' Certificate
or supplemental Officers' Certificate referred to in clause (x), a report
prepared by Holding's independent auditors setting forth the procedures
performed by such auditors in connection with such special charges and the
related cash costs estimated to be paid during any period for such charges
minus (2) to the extent not deducted in calculating such Consolidated Net
Income, cash costs estimated to be paid during such period for special charges
taken during any period asAK Holding.
“GAAP” means generally accepted accounting principles set forth in the Officers' Certificate most recently
delivered toopinions and pronouncements of the TrusteeAccounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in respectsuch other statements by such other entity as have been approved by a significant segment of such special charges pursuant to clause
(1)(f)the accounting profession which are in effect on the date of this definition.
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"Equity Interests" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock or other equity participations, including
partnership interests, whether general or limited, including any Preferred
Equity Interests.
"Exchangeable Equity Interests" of any Person means any Equity Interest
which is exchangeable for or convertible into another security (other than any
Equity Interest of such Person which is neither an Exchangeable Equity Interest
nor a Redeemable Equity Interest).
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.
"Guarantee"Indenture.
“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly fully and unconditionally guaranteeing any Debt or other
obligationIndebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (l)(1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligationIndebtedness of such other Person (whether such obligation to purchase or pay such Debt or
other obligation of such other Person arisesarising by virtue of partnership arrangements, or by agreementagreements to keep-well, to purchase assets, goods, securities or services (unless
such purchase arrangements are on arm’s-length terms and are entered into in the ordinary course of business), to take-or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for purposes of assuring in any other manner the obligee of such Debt or other obligationIndebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);provided however, that the term "Guarantee"“Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee"“Guarantee” used as a verb has a corresponding meaning.
"Guarantor"
“Guarantor” means AK Steel Holding Corporation and any Guarantor Subsidiary.
"Guarantor Subsidiary"Subsidiary that Guarantees the notes.
“Holder” means (1)each holder of the notes.
“Indebtedness” means indebtedness for borrowed money.
“Investment Grade” means a rating of Baa3 or better by Moody’s (or its equivalent under any domestic Restricted Subsidiarysuccessor Rating Categories of Moody’s), a rating of BBB- or (2)better by S&P (or its equivalent under any successor Rating Categories of S&P) and the equivalent Investment Grade credit rating from any additional Rating Agency or Rating Agencies selected by AK Steel.
“Lien” means, with respect to any property or assets, any mortgage or deed of trust, pledge, hypothecation, assignment, security interest, lien, encumbrance, or any other Restricted Subsidiary that is a Significant Subsidiary of which 80%
or more of the total voting power of Equity Interests or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, through one
or more intermediaries, or both, by AK Steel, which in each case is a party to
the indenture or executes a supplement to the indenture pursuant to which such
Restricted Subsidiary jointly and severally fully and unconditionally
guarantees the due and punctual payment and performance of the Obligations and
assumes the other obligations of a Guarantor Subsidiary pursuant to the
indenture, in the manner provided by the indenture.
"Interest Rate Protection Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement orsecurity arrangement
designed to protect AK Steel or any Subsidiary against fluctuations in interest
rates.
"Inventory" of any Person means any and all inventory of any kind of such
Person, including without limitation any or all of the following: inventory,
merchandise, goods and other tangible personal property that are held for salenature whatsoever on or lease by such Person; all materials used or consumed in the business of such
Person, but excluding from the foregoing equipment of such Person; all
trademarks, servicemarks, trade names and similar intangible property owned or
used by such Person in its business, together with the goodwill of the business
symbolized thereby and all rights relating thereto ("Intangible Property"); and
all books and records relating to the foregoing and the proceeds thereof.
"Investment" in any Person means any loan or advance to, any acquisition of
Equity Interests, equity interest, obligation or other security of, or capital
contribution or other investment in, such Person.
"issue" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Equity Interests of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be issued by such Subsidiary at
the time it becomes a Subsidiary.
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"JV Subsidiary" means a Guarantor Subsidiary which (1) was created or became
a Subsidiary after the date on which the notes were originally issued and (2)
has not acquired any assets directly or indirectly from AK Steel or any
Subsidiary, other than (a) cash constituting a Restricted Payment or (b)
assets, in an Asset Disposition, which were acquired by AK Steel and its
Subsidiaries within one year priorrespect to such Asset Disposition.
"Lien" meansproperty or assets (including any mortgage, pledge, security interest, conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing).
“Moody’s” means Moody’s Investors Service Inc. or other similar lien or encumbranceits successor.
“Net Cash Proceeds” means, with respect to any Notes Collateral Asset Sale, the proceeds of any
kind.
"Net Available Cash" from ansuch Notes Collateral Asset Disposition meansSale in the form of cash (including (i) payments received
(including any cash payments received by wayin respect of deferred payment ofobligations to the extent corresponding to, principal, pursuant to a note or installment receivable or otherwise, but only as andnot interest, when
received, but excluding any other consideration received in the form of assumption bycash, and (ii) proceeds from the acquiring Personconversion of Debt or other obligations relatingconsideration received when converted to such properties or assets or received in any other noncash form) therefrom, in
each casecash), net of all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, provincial, foreign
and local taxes required to be accrued
| (1) | brokerage commissions and other fees and expenses related to such Notes Collateral Asset Sale, including fees and expenses of counsel, accountants and investment bankers; |
| (2) | provisions for taxes payable by AK Steel, AK Holding or their Restricted Subsidiaries as a result of such Notes Collateral Asset Sale taking into account the consolidated results of operations of AK Steel, AK Holding and their Restricted Subsidiaries; and |
| (3) | appropriate amounts to be provided as a reserve against liabilities associated with such Notes Collateral Asset Sale, including pension and other post-employment benefit liabilities, liabilities related to environmental matters and indemnification obligations associated with such Notes Collateral Asset Sale, with any subsequent reduction of the reserve other than by payments made and charged against the reserved amount to be deemed a receipt of cash. |
“Note Guarantee” means a liability under generally accepted
accounting principles, as a consequence of such Asset Disposition, and in each
case net of all payments made on any Debt that is secured by any assets subject
to such Asset Disposition, in accordance with the terms of any lien upon or
other security agreement of any kind with respect to such assets, or which must
by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid outGuarantee of the proceeds from such Asset
Disposition,obligations of AK Steel under the Indenture and net of all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures asthe notes by a result
of such Asset Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of Equity InterestsGuarantor.
“Notes Collateral” means the cash proceeds of such issuancereal property, plant and equipment that are owned or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Convertible Equity Interests" means, with respect to any Person, any
non-convertible Equity Interests of such Person and any Equity Interests of
such Person convertible solely into non-convertible Equity Interests of such
Person; provided, however, that Non-Convertible Equity Interests shall not
include any Redeemable Equity Interests or Exchangeable Equity Interests.
"Non-Recourse Debt" means Debt or that portion of Debt (1) issued to a
Person other than Holding,hereafter acquired by AK Steel or any Subsidiary (otherGuarantor, and all proceeds thereof, other than a
Non-Recourse Subsidiary) and (2) no default with respect to which (includingExcluded Property.
“Notes Collateral Asset Sale” means any rights which the holders thereof may have to take enforcement action
against a Non-Recourse Subsidiary) would permit (upon notice, lapse of timesale, lease, transfer or both) any holderother disposition of any other DebtNotes Collateral outside the ordinary course of Holding,business by AK Steel or any Subsidiary (other than a Non-Recourse Subsidiary) to declare a default on such other Debt
or cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"Non-Recourse Subsidiary" means a Subsidiary of AK Steel that is not a
Restricted Subsidiary.
"Normal Replacement Assets" means any assets other than Special Assets.
"Obligations" means the principal of, premium, if any, and interest on the
notes and all other amounts due and payable under the indenture and the notes
and all other obligations and liabilities of AK Steel whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter issued, which may arise under, out of or in connection with the
indenture and the notes or any other documents made, delivered or given in
connection therewith, whether on account of principal, premium, if any,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including without limitation all fees and disbursements of counsel to the
Trustee or the holders for which AK Steel has become obligated pursuant to the
terms of the indenture) or otherwise whether or not an allowable claim against
AK Steel under the Bankruptcy Law or otherwise
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enforceable against AK Steel, andGuarantor, including in any event, interest and other
liabilities accruing or arising after the filing by or against AK Steel of a
petition under the Bankruptcy Law or that would have so accrued or arisen but
for the filing of such a petition.
"Permitted Credit Facility" or "Facilities" means any agreement or
agreements providing for (1) the making of a loan or loans or the advancing of
credit, (2) the sale of Accounts Receivable of AK Steel or any Significant
Subsidiary under any asset securitization facility or other financing facility
for the financing of Accounts Receivable of AK Steel or any Significant
Subsidiary or (3) the issuance of letters of credit and/or the creation of
bankers' acceptances, under which the aggregate amount that may be issued or
otherwise obtained, in the case of clauses (1), (2) and (3), is based upon
eligible Accounts Receivable and eligible Inventory and the aggregate principal
amount of Debt, or (in the case of clause (2)) aggregate Investments
outstanding, excluding Permitted Investments under clause (5) or (6) of the
definition of "Permitted Investments" in respect of any such asset
securitization facility, shall not at any time exceed the greater of (a) $75.0
million and (b) an amount equal to (w) 100% of the book value of the
consolidated Accounts Receivable of AK Steel and its Significant Subsidiaries
that are Restricted Subsidiaries or Non-Recourse Subsidiaries plus (x) 100% of
the book value (excluding last-in-first-out reserves) of the consolidated
Inventory of AK Steel and its Subsidiaries that are Restricted Subsidiaries,
minus (y) the aggregate principal amount of outstanding Debt secured by any
Accounts Receivable or Inventory of AK Steel or any of its Subsidiaries, other
than Debt outstanding under any Permitted Credit Facility, minus (z) other
outstanding Investments (other than Debt under a Permitted Credit Facility or
Debt described in clause (y) above or Permitted Investments under clauses (5)
and (6) of the definition of "Permitted Investments") under any asset
securitization or similar facility in respect of Accounts Receivable or
Inventory of AK Steel or any of its Subsidiaries.
"Permitted Guarantees" means Guarantees issued by AK Steel of up to $50.0
million aggregate principal amount of Debt at any one time outstanding issued
by another Person structured as an unincorporated joint venture, partnership,
association or limited liability company (1) in which AK Steel or any Wholly
Owned Guarantor Subsidiary owns at least 50% of the outstanding total voting
power of Equity Interests thereof and (2) that engages only in a business of
the type conducted by AK Steel on the date of the indenture or in a business
ancillary thereto.
"Permitted Investments" means:
(1) Cash Equivalents;
(2) Investments in AK Steel or a Wholly Owned Guarantor Subsidiary (or
any Person which will become a Wholly Owned Guarantor Subsidiary as a result
of such Investment);
(3) loans and reasonable advances to employees of AK Steel or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business;
(4) Investments in obligations the interest on which is excluded from
income for Federal or state income tax purposes and that have been issued or
guaranteed by any state of the United States of America, the District of
Columbia or the Commonwealth of Puerto Rico or any political subdivision,
agency, authority or instrumentality of any of the foregoing, provided, that
at the date of acquisition of any such obligation (a) its remaining life to
maturity shall be less than one year and (b) the issuer or guarantor thereof
shall have one of the two highest short-term debt ratings obtainable from
each of Standard & Poor's and Moody's Investors Service, Inc.;
(5) Investments resulting from the transfer of Accounts Receivable of AK
Steel or its Significant Subsidiaries that are Restricted Subsidiaries to a
Non-Recourse Subsidiary, the only business of which is the acquisition and
financing of such Accounts Receivable under a Permitted Credit Facility;
(6) Investments resulting from the transfer of Accounts Receivable of AK
Steel or its Significant Subsidiaries that are Guarantor Subsidiaries (or
Non-Recourse Subsidiaries) to a trust, the only purpose of which is the
acquisition and financing of such Accounts Receivable, provided that the
aggregate amount of
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outstanding Debt issued by such trust to, and outstanding Investments in
such trust made by, Persons other than AK Steel and its Significant
Subsidiaries that are Restricted Subsidiaries or Non-Recourse Subsidiaries
shall not at any time exceed the greater of (a) $75.0 million and (b) an
amount equal to (w) 85% of the book value of the consolidated Accounts
Receivable of AK Steel and its Significant Subsidiaries that are Restricted
Subsidiaries or Non-Recourse Subsidiaries plus (x) 100% of the book value
(excluding last-in-first-out reserves) of the consolidated Inventory of AK
Steel and its Subsidiaries that are Restricted Subsidiaries, minus (y) the
aggregate principal amount of outstanding Debt secured by any Accounts
Receivable or inventory of AK Steel or any of its Subsidiaries, other than
to the extent included in clause (z) below, minus (z) other outstanding
Investments (other than Investments in such trust) under any asset
securitization or similar facility in respect of Accounts Receivable or
Inventory of AK Steel or any of its Subsidiaries;
(7) Permitted Guarantees; and
(8) until December 31, 1999, Investments, not to exceed $200.0 million at
any time, in publicly traded debt obligations issued or guaranteed by a
corporation (other than AK Steel) organized under the laws of any state of
the United States of America and subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, provided that (a) such debt
obligations are acquired by AK Steel in the open market and not directly
from the issuer thereof or an affiliate of such issuer or from an
underwriter thereof, (b) such obligations, at the date of acquisition
thereof by AK Steel, shall have a remaining life to maturity of not more
than five years, shall provide for payments of principal and interest solely
in cash and shall be rated at least BB by Standard & Poor's and Ba2 by
Moody's Investors Service, Inc. and (c) not more than $15.0 million of such
Investments at any time shall consist of debt obligations issued or
guaranteed by the same corporation and not more than 20% of such Investments
at any time shall consist of debt obligations issued or guaranteed by
corporations within the same industry (as determined by Primary Standard
Industrial Classification Code).
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under workers' compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Debt) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits or cash or United
States government bonds to secure surety or appeal bonds to which such
Person is a party, or deposits as security for contested taxes or import
duties or for the payment of rent, in each case incurred in the ordinary
course of business;
(2) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings; or other Liens arising out of
judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review or
time for appeal has not yet expired;
(3) Liens for property taxes not yet subject to penalties for non-payment
or which are being contested in good faith by appropriate proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of
credit do not constitute Debt;
(5) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not incurred in connection with Debt and which do not in the
aggregate materially adversely affect the value of said properties or
materially impair their use in the operation of the business of such Person;
(6) Liens securing an Interest Rate Protection Agreement so long as the
related Debt is, and is permitted to be under the indenture, secured by a
Lien on the same property securing the Interest Rate Protection Agreement;
and
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(7) leases and subleases of real property which do not interfere with the
ordinary conduct of the business of AK Steel or any of its Subsidiaries, and
which are made on customary and usual terms applicable to similar properties.
"Preferred Equity Interests" as applied to the Equity Interests of any
Person means Equity Interests of any class or classes (however designated)
which is preferred as to the payment of dividends or distributions, or as to
the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over Equity Interests of any other class of such
Person.
"Public Equity Offering" means an underwritten primary public offering of
common stock of Holding pursuant to an effective registration statement under
the Securities Act.
"Redeemable Equity Interests" means any Equity Interest that by its terms or
otherwise is required to be redeemed on or prior to the first anniversary of
the Stated Maturity of the notes or is redeemable at the option of the holder
thereof at any time on or prior to the first anniversary of the Stated Maturity
of the notes.
"Refinancing Debt" means Debt issued by AK Steel issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, any Debt of AK Steel, including Debt that is issued by AK
Steel in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, Refinancing Debt; provided,
however, that (l) the principal amount of the Debt so issued shall not exceed
the principal amount of, and premiums, if any, and accrued interest with
respect to, the Debt so exchanged, extended, refinanced, renewed, replaced,
defeased or refunded by application of the net proceeds of the Debt so issued,
and reasonable fees, expenses, commissions and costs incurred in connection
with the issuance of such Debt and (2) the Debt so issued (a) shall not mature
prior to the Stated Maturity of the Debt so exchanged, extended, refinanced,
renewed, replaced, defeased or refunded and (b) shall have an Average Life
equal to or greater than the remaining Average Life of the Debt so exchanged,
extended, refinanced, renewed, replaced, defeased or refunded.
"Restricted Subsidiary" means any Subsidiary of AK Steel that AK Steel has
not designated as a Non-Recourse Subsidiary (or, if AK Steel has so designated
such Subsidiary, has thereafter removed such designation) pursuant to the first
paragraph of "--Material Covenants--Designation of Non-Recourse Subsidiaries
and Restricted Subsidiaries." For the avoidance of ambiguity, a Restricted
Subsidiary is any Subsidiary other than a Non-Recourse Subsidiary.
"Rockport Works" means AK Steel's flat rolled steel finishing facilities
located at Spencer County, Indiana.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby AK Steel or a Subsidiary transfers such
property to a Person and AK Steel or a Subsidiary leases it from such Person.
"Significant Subsidiary" means (1) any domestic Subsidiary of AK Steel
(other than a Non-Recourse Subsidiary) that, at the time of determination,
either (a) had assets that, as of the date of Holding's most recent quarterly
consolidated balance sheet, constituted at least 5% of Holding's total assets
on a consolidated basis as of such date, or (b) had revenues for the 12-month
period ending on the date of Holding's most recent quarterly consolidated
statement of income which constituted at least 5% of Holding's total revenues
on a consolidated basis for such period, (2) any foreign Subsidiary (other than
a Non-Recourse Subsidiary) of AK Steel that at the time of determination either
(a) had assets which, as of the date of Holding's most recent quarterly
consolidated balance sheet, constituted at least 5% of Holding's total assets
on a consolidated basis as of such date, in each case determined in accordance
with generally accepted accounting principles or (b) had revenues for the
l2-month period ending on the date of Holding's most recent quarterly
consolidated statement of income which constituted at least 5% of Holding's
total revenues on a consolidated basis for such period, or (3) any Subsidiary
(other than a Non-Recourse Subsidiary) of AK Steel that, if merged with all
Defaulting Subsidiaries of AK Steel,
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would at the time of determination either (a) have had assets which, as of the
date of Holding's most recent quarterly consolidated balance sheet, would have
constituted at least 10% of Holding's total assets on a consolidated basis as
of such date or (b) have had revenues for the 12-month period ending on the
date of Holding's most recent quarterly consolidated statement of income which
would have constituted at least 10% of Holding's total revenues on a
consolidated basis for such period (each such determination being made in
accordance with generally accepted accounting principles). "Defaulting
Subsidiary" means any Subsidiary of AK Steel (other than a Non-Recourse
Subsidiary) with respect to which a Default has occurred.
"Special Assets" means a capital asset, or series of related capital assets,
with an aggregate purchase price in excess of $20.0 million that enhances the
competitiveness or productivity of the business of AK Steel and its
Subsidiaries or is required so that AK Steel and its Subsidiaries will be able
to remain in compliance with all material requirements of applicable law.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Debt of AK Steel (whether outstanding on
the date on which the notes were originally issued or thereafter issued) which
is subordinate or junior in right of payment to the notes.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
Equity Interests or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, through one or more intermediaries, or both, by such
Person. Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" shall refer to a Subsidiary or Subsidiaries of AK Steel.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Equity Interests" of a corporation or other entity means all classes
of Equity Interests of a corporation or other entity then outstanding and
normally entitled to vote in the election of directors or other governing body
of such corporation or other entity.
"Wholly Owned Guarantor Subsidiary" means any Wholly Owned Subsidiary that
is a Restricted Subsidiary (whether or not a Guarantor Subsidiary). For the
avoidance of doubt, not all Wholly Owned Guarantor Subsidiaries are required to
be Guarantor Subsidiaries.
"Wholly Owned Subsidiary" of a Person means a Subsidiary of such Person
(other than a Non-Recourse Subsidiary) all the Equity Interests (other than
non-voting, money market preferred shares) of which (other than directors'
qualifying shares) are owned by such Person or another Wholly Owned Subsidiary
of such Person. Unless otherwise qualified, all references to a "Wholly Owned
Subsidiary" or to "Wholly Owned Subsidiaries" shall refer to a Wholly Owned
Subsidiary or Wholly Owned Subsidiaries of AK Steel.
Events of Default
The following will be Events of Default under the indenture:
(1) default in any payment of interest on any note when the same becomes
due and payable, and such default continues for a period of 30 days;
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(2) default in the payment of the principal of any note when the same
becomes due and payable at its Stated Maturity, upon redemption, upon
declaration or otherwise;
(3) failure to redeem or purchase notes when required pursuant to the
indenture and the notes;
(4) failure to (a) comply with the covenant described under "--When AK
Steel or Any of Its Subsidiaries May Merge or Transfer Assets," (b) make or
consummate an Offer in accordance with the provisions of "--Material
Covenants--Limitation on Sales of Assets and Equity Interests of
Subsidiaries" or (c) make or consummate a Change in Control Offer in
accordance with the provisions of "--Change in Control Offer."
(5) failure to observe or comply with any of the agreements in the notes
or the indenture (other than those referred to in clause (1), (2), (3) or
(4) above), which continues for 60 days after there has been given to AK
Steel by the Trustee or to AK Steel and the Trustee by the holders of at
least 25% in principal amount of notes then outstanding a written notice
specifying such failure;
(6) Debt of AK Steel or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the
holders thereof because of a default, and the total amount of such Debt
unpaid or accelerated exceeds $10.0 million or its foreign currency
equivalent;
(7) any Guarantee of the notes issued by Holding or any Significant
Subsidiary ceases to be in full force and effect other than in accordance
with its terms, or Holding or any Significant Subsidiary or any Person
acting on behalf of Holding or such Significant Subsidiary shall deny or
disaffirm its obligations under its Note Guarantee;
(8) certain events in bankruptcy, insolvency or reorganization with
respect to Holding, AK Steel or any Significant Subsidiary; and
(9) any judgment or decree for the payment of money in excess of $10.0
million is rendered against Holding, AK Steel or any Significant Subsidiary
and is not discharged and either (a) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (b) there is a
period of 60 days following such judgment during which such judgment or
decree is not discharged, waived or the execution thereof stayed.
If any Event of Default shall occur and be continuing, either the Trustee or
the holders of at least 25% in principal amount of the notes then outstanding
may accelerate the maturity of all notes and thereupon the principal of and
premium, if any, and any accrued and unpaid interest on the notes shall become
due and payable immediately; provided, that in the case of any bankruptcy,
insolvency or reorganization Event of Default, such amount shall become
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder. The holders of at least a majority in principal
amount of the then outstanding notes may, under certain circumstances, rescind
such acceleration and its consequences if the rescission would not conflict
with any judgment or decree and if all Events of Default, other than the
nonpayment of accelerated principal of and premium, if any, and interest on
notes, have been cured or waived as provided in the indenture. The holders of
at least a majority in principal amount of the then outstanding notes may waive
any past default under the indenture, except a default in the payment of
principal, premium or interest on a note or default with respect to certain
covenants under the indenture.
Subject to provisions for the indemnification of the Trustee, the holders of
at least a majority in principal amount of the notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee, subject to certain limitations contained in the indenture.
No holder of any note will have any right to pursue any remedy with respect
to the indenture or the notes unless
(1) such holder shall have previously given to the Trustee written notice
of a continuing Event of Default;
77
(2) the holders of at least 25% in principal amount of the notes shall
have made written request to the Trustee to pursue the remedy;
(3) such holder shall have offered the Trustee reasonable indemnity
against any liability;
(4) the Trustee shall have failed to comply with the request within 60
days after the receipt of such request and the offer of indemnity; and
(5) no written direction inconsistent with such request shall have been
given to the Trustee during such 60-day period by the holders of at least a
majority in principal amount of the notes.
AK Steel and the Guarantors will be required to furnish to the Trustee
annually a statement as to the performance by AK Steel and such Guarantor of
certain of the obligations under the indenture and as to any default in such
performance. Upon becoming aware of any default, AK Steel and each Guarantor
will be required to deliver an Officers' Certificate to the Trustee setting
forth the details of such default and the action which Holding, AK Steel or any
Guarantor proposes to take with respect thereto.
Modification and Waiver
Amendments of the indenture or the notes may be made by AK Steel, the
Guarantors and the Trustee with the consent of the holders of at least a
majority in principal amount of the notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each note
affected thereby:
(l) reduce the amount of notes whose holders must consent to an amendment;
(2) reduce the rate or extend the interest payment time of any note;
(3) reduce the principal amount of or extend the Stated Maturity of any
note;
(4) reduce the premium payable upon redemption or change the time at
which any note may be redeemed;
(5) change the currency of payment of any note;
(6) make any change in the provisions concerning waiver of Defaults by
holders of the notes or the rights of holders to receive payments of
principal or interest;
(7) make any change in provisions regarding Change in Control; or
(8) make any change in this provision.
Without the consent of any holder of the notes, AK Steel, the Guarantors and
the Trustee may amend the indenture or the notes:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with, among other things, the provisions discussed under
"--When AK Steel or Any of Its Subsidiaries May Merge or Transfer Assets";
(3) to provide for uncertificated notes in addition to or in place of
certificated notes as provided in the indenture;
(4) to add guarantees with respect to the Securities;
(5) to add to the covenants of AK Steel or the Guarantors for the benefit
of the holders or to surrender any right or power conferred upon AK Steel or
the Guarantors in the indenture;
(6) to reflect the release or addition of a Guarantor pursuant to the
terms of the indenture;
(7) to comply with any requirements of the Commission in connection with
qualifying the indenture under the Trust Indenture Act; or
(8) to make any change that does not adversely affect the rights of any
holder of the note.
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When AK Steel or Any of Its Subsidiaries May Merge or Transfer Assets
AK Steel shall not (l) consolidate with or merge with or into any other
Person, (2) permit any other Person to consolidate with or merge into (a) AK
Steel or (b) any of its Subsidiaries in a transaction in which such Subsidiary
(or successor Person) remains (or becomes) a Subsidiary, (3) directly or
indirectly, transfer, convey, sell, lease, or otherwise dispose of all or
substantially all of its properties and assets, (4) directly or indirectly, (a)
acquire Equity Interests or other ownership interests of any other Person,
other than as a Permitted Investment as defined in clause (5) of the definition
of Permitted Investments, such that such Person becomes a Subsidiary or (b)
purchase, lease or otherwise acquire all or substantially all of the property
and assets of any Person or any existing business (whether existing as a
separate entity, subsidiary, division, unit or otherwise) of any Person, or (5)
permit any of its Subsidiaries to enter into any such transaction unless:
(a) AK Steel or such Subsidiary shall be the continuing entity or the
resulting, surviving or transferee Person (if not AK Steel or such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
such Person shall expressly assume, by an indenture supplemental to the
indenture, executed and delivered to the Trustee, all the obligations of AK
Steel or such Subsidiary, as the case may be, under the notes and the
indenture;
(b) Immediately after giving effect to such transaction (and treating any
Debt which becomes an obligation of the resulting, surviving or transferee
Person or any Subsidiary as a result of such transaction as having been
issued by such Person or such Subsidiary at the time of such transaction),
no Default shall have occurred and be continuing;
(c) Immediately after giving effect to such transaction, on a pro forma
basis, AK Steel (or the resulting, surviving or transferee Person (if not AK
Steel)) would be able to issue at least $1.00 of Debt pursuant to the
Consolidated EBITDA Coverage Ratio set forth in the first paragraph of
"--Material Covenants--Limitation on Debt";
(d) Immediately after giving effect to such transaction, Holding shall
have Consolidated Net Worth which is not less than the Consolidated Net
Worth of Holding immediately prior to such transaction;
(e) Each Guarantor, unless it is the other party to the transactions
described above, shall expressly confirm, by an indenture supplemental to
the indenture, executed and delivered to the Trustee, that its Guarantee
shall apply to such Person's obligations under the notes; and
(f) AK Steel shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indentures (if any) comply with the indenture;
provided, however, that clauses (c) and (d) shall not apply to (x) the
consolidation or merger of any Wholly Owned Subsidiary with or into any other
Wholly Owned Subsidiary or AK Steel, (y) the transfer, conveyance, sale, lease
or other disposal (including any disposition by means of a merger, consolidation or similar transaction)transaction (each of the above referred to as a “disposition”),provided that the following are not included in the definition of “Notes Collateral Asset Sale”:
(1) a disposition to AK Steel or any Subsidiary Guarantor;
(2) the disposition by AK Steel or any Subsidiary Guarantor of damaged, worn out or obsolete assets;
(3) a transaction covered by “—Certain Covenants—Consolidation, Merger and Sale of Assets” or that constitutes a Change of Control;
(4) the granting of a Lien, other than in connection with a Sale and Leaseback Transaction, if the Lien is granted in compliance with the covenant described under “—Certain Covenants—Limitation on Liens”;
(5) the surrender or waiver of contract rights in connection with a settlement of claims by AK Steel, AK Holding or any Restricted Subsidiary;
(6) the transfer of property subject to casualty or condemnation proceedings (including in lieu thereof) upon the receipt of the net cash proceeds thereof;provided that such net cash proceeds are deemed to be Net Cash Proceeds and are applied in accordance with the provision described under “—Certain Covenants—Limitation on Notes Collateral Asset Sales”;
(7) the sale and leaseback of any assets within 90 days of the acquisition thereof;provided that any Lien incurred in connection therewith is permitted pursuant clause (5) to the provision described under “Certain Covenants — Limitation on Liens” and the provision described under “Certain Covenants — Limitation on Sale and Leaseback Transactions”;
(8) the sale of assets by AK Steel or any Subsidiary Guarantor upon the foreclosure of a Lien; and
(9) any disposition in a transaction or series of related transactions of assets with a fair market value of less than $5.0 million.
“Obligations” means, with respect to any Indebtedness, all obligations (whether in existence on the date of the Indenture or arising afterwards, absolute or contingent, direct or indirect) for or in respect of principal (when due upon acceleration, upon redemption, upon mandatory repayment or repurchase pursuant to a mandatory offer to purchase, or otherwise), premium, interest, penalties, fees, indemnification, reimbursement and other amounts payable and liabilities with respect to such Indebtedness, including all interest accrued or accruing after the commencement of any bankruptcy, insolvency or reorganization or similar case or proceeding at the contract rate (including, without limitation, any contract rate applicable upon default) specified in the relevant documentation whether or not the claim for such interest is allowed as a claim in such case or proceeding.
“Offer to Purchase” means an offer to purchase notes by AK Steel from the Holders commenced by mailing a notice to the Trustee and each Holder stating:
(1) that all notes validly tendered will be accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the “Payment Date”);
(3) that any note not tendered will continue to accrue interest pursuant to its terms;
(4) that, unless AK Steel defaults in the payment of the purchase price, any note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(5) that Holders electing to have a note purchased pursuant to the Offer to Purchase will be required to surrender the note, together with the form entitled “Option of the Holder to Elect Purchase” on the reverse side of the note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of notes delivered for purchase and a statement that such Holder is withdrawing his election to have such notes purchased; and
(7) that Holders whose notes are being purchased only in part will be issued new notes equal in principal amount to the unpurchased portion of the notes surrendered;provided that each note purchased and each new note issued shall be in a principal amount of $2,000 or integral multiples of $1,000 in excess thereof.
On the Payment Date, AK Steel shall (a) accept for payment on a pro rata basis notes or portions thereof tendered pursuant to an Offer to Purchase; (b) deposit with the Paying Agent money sufficient to pay the purchase price of all notes or substantially all of the
propertiesportions thereof so accepted; and (c) deliver, or assets of a Non-Recourse Subsidiary or a Subsidiary which is not
a Significant Subsidiary or (z) the merger of Holding into AK Steel.
If after the date on which the notes were originally issued any Person shall
become a Guarantor Subsidiary, such Person shall (1) fully and unconditionally
guarantee, by an indenture supplementalcause to the indenture, executed andbe delivered, to the Trustee all notes or portions thereof so accepted together with an Officers’ Certificate specifying the notes or portions thereof accepted for payment by AK Steel. The Paying Agent shall promptly mail to the Holders of notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new note equal in principal amount to any unpurchased portion of the note surrendered;provided that each note purchased and each new note issued shall be in a principal amount of $2,000 or integral multiples of $1,000 in excess thereof. AK Steel will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. AK Steel will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable. in the event that AK Steel is required to repurchase notes pursuant to an Offer to Purchase.
“Permitted Business” means any of the businesses in which AK Steel, AK Holding and the Restricted Subsidiaries are engaged on the date of the Indenture and any business reasonably related, incidental, complementary or ancillary thereto or that is a reasonable extension, development or expansion thereof.
“Person” means any individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof .
“Principal Property” means any domestic blast furnace or steel producing facility, or casters that are part of a plant that includes such a facility, in each case located in the United States, having a net book value in excess of 1% of Consolidated Net Tangible Assets at the time of determination.
“Rating Agency” means (1) each of Moody’s and S&P and (2) if either of Moody’s or S&P ceases to rate the notes or fails to make a rating of the notes publicly available for reasons outside of the control of AK Steel's obligationsSteel, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-l(e)(2)(vi)(F) under the Exchange Act, selected by AK Steel (as certified by a resolution of the board of directors of AK Steel) as a replacement agency for Moody’s or S&P, or both, as the case may be.
“Rating Category” means (i) with respect to S&P, any of the following categories: BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody’s, any of the following categories: Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of S&P or Moody’s used by another Rating Agency. In determining whether the rating of the notes has decreased by one or more gradations, gradations within Rating Categories (+ and – for S&P; 1, 2 and 3 for Moody’s; or the equivalent gradations for another Rating Agency) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one gradation).
“Rating Date” means the date that is 60 days prior to the earlier of (i) a Change of Control or (ii) public notice of the occurrence of a Change of Control or of the intention by AK Steel or AK Holding, as applicable, to effect a Change of Control.
“Ratings Event” means the occurrence of the events described in (a) or (b) of this definition on, or within 60 days after the earlier of, (i) the occurrence of a Change of Control or (ii) public notice of the occurrence of a Change of Control or the intention by AK Steel or AK Holding, as applicable, to effect a Change of Control (which period shall be extended so long as the rating of the notes is under publicly announced consideration for a
possible downgrade by any of the Rating Agencies): (a) if the notes are rated by both Rating Agencies on the terms set forthRating Date as Investment Grade, the rating of the notes shall be reduced so that the notes are rated below Investment Grade by both Rating Agencies, or (b) if the notes are rated below Investment Grade by at least one Rating Agency, the ratings of the notes by both Rating Agencies shall be decreased by one or more gradations (including gradations within Rating Categories, as well as between Rating Categories) and the notes are then rated below Investment Grade by both Rating Agencies.
Notwithstanding the foregoing, a Ratings Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a particular Change of Control (and thus shall not be deemed a Ratings Event for purposes of the indenture and (2) deliverdefinition of Change of Control Repurchase Event hereunder) if the Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Ratings Event).
“Receivables Facility” means one or more receivables financing facilities, as amended, supplemented, modified, extended, renewed, restated or refunded from time to time, the obligations of which are non-recourse (except for customary representations, warranties, covenants and indemnities made in connection with such facilities) to AK Steel or any of its Restricted Subsidiaries (other than a Receivables Subsidiary) pursuant to which AK Steel or any of its Restricted Subsidiaries sells their accounts receivable to either (a) a Person that is not a Restricted Subsidiary or (b) a Receivables Subsidiary that in turn sells its accounts receivable to a Person that is not a Restricted Subsidiary.
“Receivables Subsidiary” means any Subsidiary formed for the purpose of, and that solely engages only in one or more Receivables Facilities or other activities reasonably related thereto.
“Registration Rights Agreements” means, collectively, (i) that certain registration rights agreement entered into on the Original Issue Date among AK Steel, AK Holding and the initial purchasers of the initial notes and (ii) that certain registration rights agreement entered into on June 24, 2012 among AK Steel, AK Holding and the initial purchaser of the add-on notes.
“Restricted Subsidiary” means any Subsidiary other than an OpinionUnrestricted Subsidiary.
“S&P” means Standard & Poor Financial Services LLC, a subsidiary of Counsel stating that such supplemental indentureThe McGraw-Hill Companies, Inc. or its successor.
“Sale and Leaseback Transaction” means any arrangement with any Person providing for the leasing to AK Steel or any Subsidiary of AK Steel of any Principal Property, which Principal Property has been duly authorized and
constitutes the enforceable obligations of such Person.
Defeasanceor is to be sold or transferred by AK Steel ator any time may terminate all its obligationsSubsidiary of AK Steel to such Person.
“Security Documents” means (i) the Collateral Trust Agreement and (ii) the security documents granting a security interest in any assets of any Person to secure the Obligations under the notes and the indenture ("legal defeasance"), exceptNote Guarantee as each may be amended, restated, supplemented or otherwise modified from time to time.
“Significant Subsidiary” means (a) any Restricted Subsidiary of AK Holding that, at the time of determination would be a significant subsidiary of AK Holding pursuant to Rule 1-02 of Regulation S-X as in effect on the Closing Date or (b) any group of Restricted Subsidiaries that, taken together, would be a “Significant Subsidiary” under clause (a) above.
“Subsidiary” means with respect to any specified Person, any corporation of which at least a majority of the outstanding stock having by the terms thereof ordinary voting power for certain obligations, including
those relatingthe election of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency) is, or other entity of which at least a majority of the common equity interests are, at the time directly or indirectly owned by that Person, or by one or more other Subsidiaries of that Person, or by that Person and one or more other Subsidiaries of that Person.
“Subsidiary Guarantor” means each Subsidiary that Guarantees the notes under the Indenture.
“Subordinated Indebtedness” means any Indebtedness of AK Steel, AK Holding or any Guarantor that is subordinated in right of payment to the defeasance trustnotes or the Note Guarantee, as applicable, pursuant to a written agreement to that effect.
“U.S. Government Obligations” means securities that are (1) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the full and timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to register the transfer
or exchangestated maturity of the notes, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to replace mutilated, destroyed, lostany such U.S. Government Obligation or stolen notes
anda specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt;provided that (except as required by law) such custodian is not authorized to maintain
79
a registrar and paying agentmake any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the notes.U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt.
“Unrestricted Subsidiary” means (i) any Foreign Subsidiary, (ii) any Receivables Subsidiary and (iii) any Subsidiary of AK Holding created after the Closing Date, at least 10% of the Voting Stock of which is owned by Persons other than AK Holding or a Subsidiary thereof;provided that (a) such Subsidiary does not engage in the business of AK Steel atas conducted on the Closing Date (but shall engage in any time may
terminate its obligations underextension thereof or activities incidental or related thereto) and (b) in the covenants described under "--Material
Covenants" and "--Change in Control Offer" above ("covenant defeasance").event (1) any such Subsidiary Guarantees Indebtedness of AK Steel may exercisein an aggregate amount in excess of $50 million or (2) AK Steel or any of its Subsidiaries (other than an Unrestricted Subsidiary) contributes or otherwise transfers (other than a sale for fair market value) any Principal Property (including shares of stock of a Subsidiary that owns the legal defeasance option notwithstandingPrincipal Property) or the prior
exerciseproceeds of any sale of Principal Property to such Subsidiary, in either case such Subsidiary shall cease to be an Unrestricted Subsidiary.
“Voting Stock” means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the covenant defeasance option. If AK Steel exercisesgoverning body of such Person.
No Personal Liability of Incorporators, Stockholders, Officers, Directors, or Employees
No recourse for the legal
defeasance option, payment of the principal of, premium, if any, or interest on any of the notes or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of AK Steel in the Indenture, or in any of the notes or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator, stockholder, officer, director, employee or controlling person of AK Steel or of any successor Person thereof. Each Holder, by accepting the notes, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the notes. Such waiver may not be accelerated becauseeffective to waive liabilities under the federal securities laws.
Concerning the Trustee
Except during the continuance of an Event of Default. If AK Steel exercises the covenant defeasance option, payment
of the notes may not be accelerated because of certain Events of Default, by AK
Steel specified in clause (4) or (5) of the first paragraph of "--Events of
Default" above.
In order to exercise its defeasance options, AK Steel must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and premium, if any, and
interest on the notes to maturity or redemption,need perform only such duties as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
opinion of counsel to the effect that holders of the notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts,are specifically set forth in the same manner and at the same times as would have been the case if such
defeasance had not occurred (and, in the case of legal defeasance only, such
opinion of counsel must be based on a ruling of the Internal Revenue Service or
other change in applicable federal income tax law).
Concerning the Trustee
The Trustee may become owner or pledgee of notes and may otherwise deal with
either Holding or Affiliates of Holding with the same rights it would have if
it were not Trustee.
The indenture provides that in caseIndenture. If an Event of Default shall occurhas occurred and beis continuing, the Trustee will exercise the rights and powers vested in it by the
indenture and use
the same degree of care and skill in theirits exercise of the rights and powers vested in it under the Indenture as a prudent Personperson would exercise or use under the circumstances in the conduct of such Person'sperson’s own affairs. Fifth Third Bank also servesThe Indenture and provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein contain limitations on the rights of the Trustee, under the indentures governing our
9 1/8% Notes and our 7 7/8% Notes.
Governing Law
The rights and dutiesshould it become a creditor of AK Steel, Holding and theto obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee under the
indenture, the notes, the Guarantee of the notes and the registration rights
agreement shall be governedis permitted to engage in other transactions;provided,however, that if it acquires any conflicting interest as defined by the lawsTrust Indenture Act of the State of New York.
1939, as amended, it must eliminate such conflict or resign as provided therein.
Form of Registered Notes
The certificates representing the registered notes will be issued in fully registered form, without coupons. Except as described in the next paragraph, the registered notes will be deposited with, or on behalf of, DTC, and registered in the name of Cede & Co., as DTC'sDTC’s nominee, in the form of a global note. Holders of the registered notes will own book-entry interests in the global note evidenced by records maintained by DTC.
Book-entry interests may be exchanged for certificated notes of like tenor and equal aggregate principal amount, if
if:
(1)DTC notifies us that it is unwilling or unable to continue as depositary or we determine that DTC is unable to continue as depositary and we fail to appoint a successor depositary within 90 days,
(2)we provide for the exchange pursuant to the terms of the indenture,Indenture, or
(3)we determine that the book-entry interests will no longer be represented by global notes and we execute and deliver to the trustee instructions to that effect.
As of the date of this prospectus, no certificated notes are issued and outstanding.
80
CERTAIN UNITED STATES
U.S. FEDERAL INCOME TAX CONSIDERATIONS
CONSEQUENCES
The following is a summary of the material U.S. federal income tax considerationsconsequences relating to the exchange of an old noteoriginal notes for a registered notenotes in the exchange offer. It does not contain a complete analysis of all the
potentialaddress any state, local or foreign tax considerations relating to the exchange. This summary is limited
to a beneficial owner of an old note who holds the old note as a "capital
asset" (in general, an asset held for investment). Special situations, such as
the following, are not addressed:
. tax consequences to a person who may be subject to special tax treatment,
such as a partnership, tax-exempt entity, dealer in securities or
currencies, bank or other financial institution, insurance company,
regulated investment company, trader in securities that elects to use a
mark-to-market method of accounting for its securities holdings or
corporation that accumulates earnings to avoid U.S. federal income tax;
. tax consequences to a person holding a note as part of a hedge,
conversion, straddle or other risk reduction transaction;
. tax consequences to a person who holds a note through a partnership or
similar pass-through entity;
. U.S. federal gift tax, estate tax or alternative minimum tax
consequences, if any; or
. any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, existing and proposed Treasury regulations promulgated thereunder, and rulings, judicial decisions and administrative interpretations thereunder, in effect as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed below.
Consequences of Tendering Notes
The exchange of your old noteoriginal notes for a registered notenotes in the exchange offer should not constitute a material modification of the terms of the notes and therefore would not constitute a taxable event for federal income tax purposes. Accordingly, the exchange of your original notes for registered notes would have no U.S. federal income tax consequences to you. For example, there would be no change in your tax basis and your holding period would carry over to the registered notes. In addition, the federal income tax consequences of holding and disposing of your registered notes would be the same as those applicable to your original notes.
The preceding discussion of certainthe material U.S. federal income tax considerations
of the exchange offerconsequences is for general information only and is not tax advice. Accordingly, each investor shouldis urged to consult its own tax advisor as to the particular tax consequences to it of exchanging an old noteoriginal notes for a registered note,notes, including the applicability and effect of any state, local or foreign tax laws, and of any proposed changes in applicable laws.
81
Each broker-dealer that receives registered notes in the exchange offer for its own account must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such notes. We reserve the right in our sole discretion to purchase or make offers for, or to offer registered notes for, any oldoriginal notes that remain outstanding subsequent to the expiration of the exchange offer pursuant to this prospectus or otherwise and, to the extent permitted by applicable law, purchase oldoriginal notes in the open market, in privately negotiated transactions or otherwise. This prospectus, as it may be amended or supplemented from time to time, may be used by all persons subject to the prospectus delivery requirements of the Securities Act, including broker-dealers in connection with resales of registered notes received in the exchange offer, where such notes were acquired as a result of market-making activities or other trading activities and may be used by us to purchase any notes outstanding after expiration of the exchange offer. We have agreed that, for a period of 180 days from the date on which the exchange offer is completed, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 2002, all dealers effecting
transactions in the registered notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of registered notes by broker-dealers.broker- dealers. Registered notes received by broker-dealers in the exchange offer for their own account may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the registered notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealerbroker- dealer and/or the purchasers of any such registered notes. Any broker-dealer that resells registered notes that were received by it in the exchange offer for its own account and any broker or dealer that participates in a distribution of such notes may be deemed to be an "underwriter"“underwriter” within the meaning of the Securities Act and any profit on any such resale of such notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act, a broker-dealer will not be deemed to admit that it is an "underwriter"“underwriter” within the meaning of the Securities Act.
For a period of 180 days from the date on which the exchange offer is completed, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, including the reasonable fees and expenses of counsel to the initial purchaser of the oldoriginal notes, other than commissions or concessions of any brokers or dealers and will indemnify holders of the notes, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for us by
Weil, Gotshal & Manges LLP, New York, New York.
EXPERT
York has passed upon the validity of the notes and guarantees on behalf of AK Steel and AK Holding.
The consolidated financial statements of AK Steel Holding Corporation as of December 31, 20002012 and 20012011 and for each of the three years in the period ended December 31, 2001, included2012, incorporated in this prospectus by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, and the effectiveness of internal control over financial reporting as of December 31, 2012 have been audited by Deloitte & Touche LLP, an independent auditors,registered public accounting firm, as stated in their report appearingreports which are incorporated herein andby reference. Such consolidated financial statements have been so includedincorporated in reliance upon the reportreports of such firm given upon their authority as experts in accounting and auditing.
82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................................................. F-2
Consolidated Statements of Income for the Years Ended December 31, 1999, 2000 and 2001....... F-3
Consolidated Balance Sheets as of December 31, 2000 and 2001................................. F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 2000
and 2001................................................................................... F-6
Notes to Consolidated Financial Statements................................................... F-7
Consolidated Statements of Income for the Three and Six-Month Periods Ended June 30, 2001 and
2002 (Unaudited)........................................................................... F-37
Consolidated Balance Sheets--December 31, 2001 and June 30, 2002 (Unaudited)................. F-38
Condensed Consolidated Statements of Cash Flows--Six-Month Periods Ended June 30, 2001 and
2002 (Unaudited)........................................................................... F-39
Notes to Condensed Consolidated Financial Statements (Unaudited)............................. F-40
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AK Steel Holding Corporation:
We have auditednot authorized any dealer, salesperson, or other person to give any information or represent anything to you other than the accompanying consolidated balance sheetsinformation contained in this prospectus or the letter of AK Steel
Holding Corporation and Subsidiaries as of December 31, 2000 and 2001,transmittal. You must not rely on unauthorized information or representations.
This prospectus and the related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
2000 and 2001, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 30, 2002
(August 2, 2002 as to the sale of
Sawhill Tubular as described in
Note 13)
F-2
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1999, 2000 and 2001
(dollars in millions, except per share data)
1999 2000 2001
-------- -------- --------
Net sales................................................................ $4,184.8 $4,403.7 $3,833.4
Cost of products sold (exclusive of items shown separately below)........ 3,334.3 3,577.7 3,225.5
Selling and administrative expenses...................................... 299.9 257.9 257.6
Depreciation (Note 1).................................................... 206.1 227.3 225.8
Special charges and unusual items:
Costs related to the merger with Armco Inc. (Note 10)................. 99.7 -- --
Pension charge (Note 1)............................................... -- -- 192.2
Stock received in insurance demutualization (Note 10)................. -- -- (49.9)
-------- -------- --------
Total operating costs............................................. 3,940.0 4,062.9 3,851.2
-------- -------- --------
Operating profit (loss).................................................. 244.8 340.8 (17.8)
Interest expense......................................................... 123.7 136.1 133.1
Other income............................................................. 20.8 7.9 6.1
-------- -------- --------
Income (loss) from continuing operations before income taxes and minority
interest............................................................... 141.9 212.6 (144.8)
Income tax provision (benefit) (Note 5).................................. 63.9 78.6 (53.6)
Minority interest (Note 2)............................................... 6.7 -- --
-------- -------- --------
Income (loss) from continuing operations................................. 71.3 134.0 (91.2)
Loss from discontinued operations--Sawhill (Notes 1 and 13).............. -- 1.6 1.2
Income from discontinued operations--(Note 13)........................... 7.5 -- --
-------- -------- --------
Income (loss) before extraordinary item.................................. 78.8 132.4 (92.4)
Extraordinary loss on retirement of debt, net of tax (Note 6)............ 13.4 -- --
-------- -------- --------
Net income (loss)........................................................ 65.4 132.4 (92.4)
Other comprehensive income (loss), net of tax (Note 1):
Foreign currency translation adjustment............................... (1.4) (2.1) 0.6
Derivative instrument hedges, mark to market:
Cumulative effect adjustment...................................... -- -- 27.5
Losses arising in period.......................................... -- -- (67.6)
Reclass gains included in net income.............................. -- -- 11.2
Unrealized gains on securities:
Unrealized holding gains arising during period.................... 0.7 0.1 10.2
Reclass gains included in net income.............................. (1.9) (1.4) (0.9)
Minimum pension liability adjustment.................................. 1.2 0.2 (163.4)
-------- -------- --------
Comprehensive income (loss).............................................. $ 64.0 $ 129.2 $ (274.8)
======== ======== ========
Earnings per share: (Note 1)
Basic earnings per share:
Income (loss) from continuing operations.............................. $ 0.62 $ 1.21 $ (0.86)
Income (loss) from discontinued operations............................ 0.07 (0.01) (0.01)
Extraordinary loss on retirement of debt.............................. 0.13 -- --
-------- -------- --------
Net income (loss)................................................. $ 0.56 $ 1.20 $ (0.87)
======== ======== ========
Diluted earnings per share:
Income (loss) from continuing operations.............................. $ 0.62 $ 1.21 $ (0.86)
Income (loss) from discontinued operations............................ 0.07 (0.01) (0.01)
Extraordinary loss on retirement of debt.............................. 0.13 -- --
-------- -------- --------
Net income (loss)................................................. $ 0.56 $ 1.20 $ (0.87)
======== ======== ========
See notes to consolidated financial statements.
F-3
AK STEEL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 2001
(dollars in millions, except per share amounts)
2000 2001
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents............................................................................. $ 86.8 $ 101.0
Accounts receivable, net (Note 1)..................................................................... 489.5 388.0
Inventories, net (Note 1)............................................................................. 801.8 904.6
Deferred tax asset (Note 5)........................................................................... 54.7 76.6
Current assets held for sale (Note 1)................................................................. 74.9 60.6
Other current assets.................................................................................. 14.1 17.0
--------- ---------
Total Current Assets............................................................................... 1,521.8 1,547.8
--------- ---------
Property, Plant and Equipment (Note 1)................................................................... 4,620.3 4,742.9
Less accumulated depreciation......................................................................... (1,763.2) (1,974.6)
--------- ---------
Property, plant and equipment, net.................................................................... 2,857.1 2,768.3
--------- ---------
Other Assets:
Investment in AFSG (Note 1)........................................................................... 85.6 55.6
Other investments..................................................................................... 114.0 154.3
Goodwill (Note 1)..................................................................................... 111.7 109.7
Other intangible assets (Note 8)...................................................................... 7.4 111.9
Prepaid pension (Note 8).............................................................................. 206.5 1.4
Deferred tax asset (Note 5)........................................................................... 242.2 393.5
Noncurrent assets held for sale (Note 1).............................................................. 28.6 24.4
Other................................................................................................. 64.9 58.9
--------- ---------
Total Assets....................................................................................... $ 5,239.8 $ 5,225.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................................................................... $ 498.3 $ 537.6
Accrued liabilities................................................................................... 262.2 270.5
Current portion of long-term debt (Note 6)............................................................ 63.2 78.0
Current portion of pension and other postretirement benefit obligations (Note 8)...................... 66.6 68.3
--------- ---------
Total Current Liabilities.......................................................................... 890.3 954.4
--------- ---------
Noncurrent Liabilities:
Long-term debt (Note 6)............................................................................... 1,387.6 1,324.5
Pension and other postretirement benefit obligations (Note 8)......................................... 1,420.2 1,740.1
Other liabilities..................................................................................... 222.4 173.5
--------- ---------
Total Noncurrent Liabilities....................................................................... 3,030.2 3,238.1
--------- ---------
Total Liabilities.................................................................................. 3,920.5 4,192.5
--------- ---------
Stockholders' Equity: (Note 3)
Preferred stock, aggregate liquidation preference over par $12.7...................................... 12.5 12.5
Common stock, authorized 200,000,000 shares of $.01 par value each; issued 2000, 115,832,859 shares,
2001, 115,987,777 shares; outstanding 2000, 107,650,372 shares; 2001, 107,713,329 shares............. 1.2 1.2
Additional paid-in capital............................................................................ 1,803.2 1,807.2
Treasury stock, common shares at cost, 2000, 8,182,487; 2001, 8,274,448 shares........................ (119.4) (120.4)
Accumulated deficit................................................................................... (373.3) (479.9)
Accumulated other comprehensive income (loss) (Note 1)................................................ (4.9) (187.3)
--------- ---------
Total Stockholders' Equity............................................................................... 1,319.3 1,033.3
--------- ---------
Total Liabilities And Stockholders' Equity............................................................... $ 5,239.8 $ 5,225.8
========= =========
See notes to consolidated financial statements.
F-4
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 2000 and 2001
(dollars in millions)
1999 2000 2001
------- ------- -------
Cash flows from operating activities:
Net income (loss).............................................................. $ 65.4 $ 132.4 $ (92.4)
------- ------- -------
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation................................................................ 206.1 227.3 225.8
Amortization................................................................ 16.4 16.0 14.7
Deferred income taxes....................................................... 57.7 92.3 (52.8)
Costs related to the merger with Armco Inc.................................. 99.7 -- --
Pension charge.............................................................. -- -- 192.2
Stock received in insurance demutualization................................. -- -- (49.9)
(Income) loss from discontinued operations.................................. (7.5) 1.6 1.2
Extraordinary loss on retirement of debt.................................... 13.4 -- --
Other items, net............................................................ (2.4) 1.2 5.9
Changes in assets and liabilities:
Accounts and notes receivable............................................ (73.9) (6.1) 101.3
Inventories.............................................................. (141.0) (38.2) (101.3)
Current liabilities...................................................... 19.4 (31.6) 2.9
Other assets............................................................. (1.5) (2.8) 0.6
Pension asset and obligation............................................. (19.0) (55.6) (63.9)
Postretirement benefit obligation........................................ 0.5 (0.3) 19.7
Other liabilities........................................................ (1.9) 9.0 (55.0)
------- ------- -------
Total adjustments..................................................... 166.0 212.8 241.4
------- ------- -------
Net cash flows from operating activities of continuing operations........ 231.4 345.2 149.0
------- ------- -------
Cash flows from investing activities:
Capital investments............................................................ (334.1) (135.8) (108.0)
Net sale of short-term investments............................................. 6.8 -- --
Purchase of long-term investments.............................................. (0.2) (66.4) (12.0)
Purchase of a business......................................................... -- -- (29.3)
Distribution from investees.................................................... -- -- 30.2
Proceeds from the sale of investments.......................................... 4.6 3.2 44.1
Proceeds from sale of property, plant and equipment............................ 2.1 6.2 0.1
Other items, net............................................................... 0.8 0.9 (0.3)
------- ------- -------
Net cash flows from investing activities of continuing operations........ (320.0) (191.9) (75.2)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock......................................... 24.7 1.6 --
Proceeds from issuance of long-term debt....................................... 460.0 -- --
Principal payments on long-term debt........................................... (530.8) (6.0) (63.2)
Purchase of treasury stock..................................................... (1.5) (39.2) (1.0)
Purchase of preferred stock.................................................... (115.8) (2.2) --
Preferred stock dividends paid................................................. (7.6) (1.0) (0.7)
Common stock dividends paid.................................................... (35.1) (54.9) (13.5)
Underwriting discount and stock issuance expense............................... (10.8) -- --
Other items, net............................................................... (1.6) (2.0) 0.4
------- ------- -------
Net cash flows from financing activities of continuing operations........ (218.5) (103.7) (78.0)
------- ------- -------
Cash flows from discontinued operations........................................... 14.8 (17.2) 18.4
------- ------- -------
Net increase (decrease) in cash and cash equivalents.............................. (292.3) 32.4 14.2
Cash and cash equivalents, beginning of year................................... 346.7 54.4 86.8
------- ------- -------
Cash and cash equivalents, end of year......................................... $ 54.4 $ 86.8 $ 101.0
======= ======= =======
See notes to consolidated financial statements.
F-5
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in millions)
Other
Compre-
Additional hensive
Preferred Common Paid-In- Treasury Accumulated Income/
Stock Stock Capital Stock Deficit (Loss) Total
--------- ------ ---------- -------- ----------- ------- --------
Balance, December 31, 1998....................... $ 130.4 $1.1 $1,692.0 $ (87.8) $(472.7) $ (0.3) $1,262.7
Net income....................................... 65.4 65.4
Unrealized gain on marketable securities......... (1.2) (1.2)
Stock options exercised.......................... 31.7 31.7
Tax benefit from common stock compensation....... 5.5 5.5
Purchase of treasury stock....................... (1.5) (1.5)
Sale of treasury stock........................... (1.1) 9.1 8.0
Conversion of preferred stock to common stock.... (115.5) 0.1 115.4 --
Conversion of minority interest preferred stock.. (62.3) (62.3)
Conversion of minority interest to common stock.. 2.1 2.1
Preferred stock $.90625 cash dividend per quarter (7.6) (7.6)
Common stock $.125 cash dividend per quarter..... (35.1) (35.1)
Foreign currency translation adjustment.......... (1.4) (1.4)
Minimum pension liability........................ 1.2 1.2
Issuance of restricted stock, net................ 10.8 10.8
Unamortized restricted stock..................... (0.5) (0.5)
------- ---- -------- ------- ------- ------- --------
Balance, December 31, 1999....................... 14.9 1.2 1,793.6 (80.2) (450.0) (1.7) 1,277.8
Net income....................................... 132.4 132.4
Unrealized gain on marketable securities......... (1.3) (1.3)
Stock options exercised.......................... 4.2 4.2
Tax benefit from common stock compensation....... (0.6) (0.6)
Purchase of treasury stock....................... (39.2) (39.2)
Purchase of preferred stock...................... (2.4) 0.2 (2.2)
Preferred stock $.90625 cash dividend per quarter (1.0) (1.0)
Common stock $.125 cash dividend per quarter..... (54.9) (54.9)
Foreign currency translation adjustment.......... (2.1) (2.1)
Minimum pension liability........................ 0.2 0.2
Issuance of restricted stock, net................ 7.6 7.6
Unamortized restricted stock..................... (1.6) (1.6)
------- ---- -------- ------- ------- ------- --------
Balance, December 31, 2000....................... 12.5 1.2 1,803.2 (119.4) (373.3) (4.9) 1,319.3
Net loss......................................... (92.4) (92.4)
Unrealized gain on marketable securities......... 9.3 9.3
Tax benefit from common stock compensation....... (0.9) (0.9)
Purchase of treasury stock....................... (1.0) (1.0)
Preferred stock $.90625 cash dividend per quarter
(first, second and third quarters only)......... (0.7) (0.7)
Common stock $.0625 cash dividend per quarter
(first and second quarters only)................ (13.5) (13.5)
Derivative instrument hedges..................... (28.9) (28.9)
Foreign currency translation adjustment.......... 0.6 0.6
Minimum pension liability........................ (163.4) (163.4)
Issuance of restricted stock, net................ 0.1 0.1
Unamortized restricted stock..................... 4.8 4.8
------- ---- -------- ------- ------- ------- --------
Balance, December 31, 2001....................... $ 12.5 $1.2 $1,807.2 $(120.4) $(479.9) $(187.3) $1,033.3
======= ==== ======== ======= ======= ======= ========
See notes to consolidated financial statements.
F-6
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
1. Summary of Significant Accounting Policies
Basis of Presentation: AK Steel Holding Corporation ("AK Holding") and its
wholly-owned subsidiary AK Steel Corporation ("AK Steel," and together with AK
Holding, the "Company") were formed effective March 29, 1994 as a result of the
recapitalization of Armco Steel Company, L.P.
On April 19, 2002, the Company completed the sale of Sawhill Tubular. In
accordance with Statement of Financial Accounting Standards ("Statement") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," issued
by the Financial Accounting Standards Board ("FASB") and as discussed below,
the results of Sawhill Tubular have been reclassified to discontinued
operations on the consolidated statements of income. The assets disposed of in
the sale have been reclassified to current and noncurrent assets held for sale
on the consolidated balance sheets. There were no material liabilities
transferred in the sale.
There is no summarized financial information included for AK Steel because
there is no substantial difference in the operations of AK Steel and AK Holding
and because AK Steel's indebtedness for borrowed money is fully and
unconditionally guaranteed by AK Holding. AK Holding has no independent
operations.
As described more fully in Note 2, the Company completed a transaction on
September 30, 1999, whereby Armco Inc. ("Armco") merged with and into AK Steel,
and AK Steel became the surviving company. The transaction was accounted for as
a pooling of interests and, therefore, the consolidated financial statements
presented herein reflect the combined financial position, results of operations
and cash flows of Armco and the Company as if they had been combined for all
periods presented. Prior to September 30, 1999, AK Steel and Armco, in the
normal course of business, entered into certain transactions for the purchase
and conversion of material. These intercompany transactions have been
eliminated in the accompanying financial statements. All references to the
number of common shares outstanding and per share amounts, except dividends per
share, have given effect to the Armco merger.
These financial statements consolidate the operations and accounts of the
Company and all subsidiaries in which the Company has a controlling interest.
Further information about operating segments is included in Note 9.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires the
use of management estimates and assumptions that affect the amounts reported.
These estimates are based on historical experience and information that is
available to management about current events and actions the Company may take
in the future. Significant items subject to estimates and assumptions include
the carrying value of long-lived assets; valuation allowances for receivables,
inventories and deferred income tax assets; legal and environmental
liabilities; and assets and obligations related to employee benefit plans.
There can be no assurance that actual results will not differ from these
estimates.
Revenue Recognition: Revenue from sales of products is recognized at the
time title and the risks and rewards of ownership passes. This normally is when
the products are shipped to the customer, the sales price is fixed and
determinable, and collection is reasonably assured.
Cash Equivalents: Cash equivalents include short-term, highly liquid
investments that are readily convertible to known amounts of cash and are of an
original maturity of three months or less.
Supplemental Disclosure of Cash Flow Information:
1999 2000 2001
------ ------ ------
Cash paid (received) during the period for:
Interest (net of interest capitalized)......... $114.3 $127.1 $139.7
Income taxes................................... 6.2 (9.0) (1.1)
Supplemental Cash Flow Information Regarding Non-Cash Investing and
Financing Activities: The Company granted to certain employees shares of its
common stock with values, net of cancellations, of $10.8,
F-7
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
$7.6 and $0.1 in 1999, 2000 and 2001, respectively, under its restricted stock
award programs (Note 4). During 1999, holders of the Company's $3.625
cumulative convertible preferred stock converted their shares with a total
redemption value of $115.5 into common stock and holders of Armco's other
preferred stock issues converted their shares with a redemption value of $2.1
into common stock (Note 2).
In the fourth quarter of 2001, the Company received a distribution of shares
from Anthem Inc., its primary health insurance provider upon the
demutualization of that company. The shares had a fair value at the date of
receipt of $49.9, net of a liability established for the portion of the
proceeds deemed to be healthcare plan assets.
Accounts Receivable: The allowance for doubtful accounts was $4.7 and $7.7
at December 31, 2000 and 2001.
Inventories: Inventories are valued at the lower of cost or market. The
cost of the majority of inventories is measured on the last in, first out
("LIFO") method. Other inventories are measured principally at average cost and
consist mostly of foreign inventories and certain raw materials.
2000 2001
------ ------
Inventories on LIFO:
Finished and semifinished..................... $665.2 $719.3
Raw materials and supplies.................... 161.2 162.1
Adjustment to state inventories at LIFO value. (47.1) (9.7)
------ ------
Total..................................... 779.3 871.7
Other inventories................................ 22.5 32.9
------ ------
Total inventories......................... $801.8 $904.6
====== ======
During 2001, liquidation of LIFO layers generated income of $5.7 in
operating profit.
Property, Plant and Equipment: Plant and equipment are depreciated under
the straight line method over their estimated lives ranging from 2 to 39 years.
The Company's property, plant and equipment balances as of December 31, 2000
and 2001 are as follows:
2000 2001
--------- ---------
Land, land improvements and leaseholds $ 132.9 $ 135.8
Buildings............................. 324.6 344.8
Machinery and equipment............... 4,054.3 4,154.1
Construction in progress.............. 108.5 108.2
--------- ---------
Total.............................. 4,620.3 4,742.9
Less accumulated depreciation......... (1,763.2) (1,974.6)
--------- ---------
Property, plant and equipment, net.... $ 2,857.1 $ 2,768.3
========= =========
The Company periodically reviews the carrying value of long-lived assets to
be held and used and long-lived assets to be disposed of when events and
circumstances warrant such a review. If the carrying value of a long-lived
asset is considered impaired, a loss is recognized based on the amount by which
the carrying value
F-8
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
exceeds the fair market value less cost to dispose for assets to be sold or
abandoned. Fair market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations," which requires entities to establish liabilities for
legal obligations associated with the retirement of tangible long-lived assets.
The Company will adopt the Statement in 2003, but has yet to determine what
effect, if any, adoption will have on its financial statements.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for impairment of long-lived assets to be held and
used, and of long-lived assets and components of an entity to be disposed of.
The Company adopted the Statement as of January 1, 2002. Except for
reclassifying these financial statements to reflect Sawhill Tubular as a
discontinued operation, the Company does not expect the Statement will have a
material effect on its financial statements.
Investments: The Company has investments in associated companies that are
accounted for under the equity method. Because the operations of these
companies are integrated with its basic steelmaking operations, the Company
includes its proportionate share of the income (loss) of these associated
companies in cost of products sold in its consolidated statements of income.
The Company has a note receivable of $35.0 due from an entity in which it
holds an indirect equity interest, Combined Metals of Chicago LLC. The note is
subordinate to outstanding bank indebtedness of the entity. In the first
quarter of 2002, the Company provided a $4.0 letter of credit to support a
portion of the entity's bank indebtedness proportionate to the company's
indirect equity investment.
The Company's investment in AFSG Holdings, Inc. represents the carrying
value of its discontinued insurance and finance leasing businesses, which have
been largely liquidated. The activities of the remaining operating companies
are being "runoff" and the group is accounted for as a discontinued operation
under the liquidation basis of accounting, whereby future cash inflows and
outflows are considered. In the fourth quarter of 2001, AFSG Holdings
distributed $30.0 of excess funds to the Company, which reduced the Company's
carrying value of its AFSG investment. The Company is under no obligation to
support the operations or liabilities of this group.
Goodwill and Other Intangible Assets: Goodwill and other intangible assets
primarily consist of goodwill recorded in connection with Armco's acquisition
of Cyclops Industries, Inc. on April 24, 1992. This goodwill is being amortized
using the straight-line method over 40 years. Goodwill and other intangible
assets were also acquired in Armco's purchase of Douglas Dynamics, L.L.C. on
July 2, 1991. These assets are being amortized over their estimated useful
lives, the majority of whichtransmittal do not exceed 17 years. Amortization expense for
both goodwill and other intangible assets was $6.1offer to sell or ask you to buy any securities in each ofany jurisdiction where it is unlawful, where the years 1999
and 2000, and $5.5 in 2001. At December 31, 2000 and 2001, accumulated
amortization of goodwill and other intangible assets was $54.8 and $39.5,
respectively.
The Company assesses whether its goodwill and other intangible assets are
impaired as required by Statement No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," based on an
evaluation of undiscounted projected cash flows throughperson making the remaining
amortization period. If an impairment exists, the amount of such impairmentoffer is determined based on the estimated fair value of the asset. Statement No. 144
supercedes Statement No. 121 effective January 1, 2002.
F-9
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 142 requires that goodwill no longer be
amortized to earnings, but instead be reviewed annually for impairment. The
Company adopted Statement No. 142 as of January 1, 2002 and has begun the
transition process of identifying its reporting units, allocating goodwill and
determining fair values. The Statement allows the Company until June 30, 2002
to complete this initial stage, which determines whether impairment exists, and
until the end of the year to determine the final effect adoption will have on
its financial statements. The Company currently does not know if an impairment
will be necessary. In 2001, $4.0 of the above amortization expense was related
to goodwill.
Had the Company adopted Statement No. 142 at the beginning of 1999, income
(loss) before extraordinary item and net income (loss) would have been adjusted
as follows.
1999 2000 2001
----- ------ ------
Reported income (loss) before extraordinary item........ $78.8 $132.4 $(92.4)
Goodwill amortization, net of tax....................... 2.2 2.2 2.5
----- ------ ------
Adjusted income (loss) before extraordinary item........ 81.0 134.6 (89.9)
Extraordinary loss on retirement of debt, net of tax.... 13.4 -- --
----- ------ ------
Adjusted net income (loss).............................. $67.6 $134.6 $(89.9)
===== ====== ======
Basic and diluted earnings per share:
Reported income (loss) before extraordinary item..... $0.69 $ 1.20 $(0.87)
Goodwill amortization................................ 0.02 0.02 0.03
----- ------ ------
Adjusted income (loss) before extraordinary item..... 0.71 1.22 (0.84)
Extraordinary loss on retirement of debt, net of tax. 0.13 -- --
----- ------ ------
Adjusted net income (loss)........................... $0.58 $ 1.22 $(0.84)
===== ====== ======
Pension and Other Postretirement Benefits Accounting: Under its method of
accounting for pension and other postretirement benefit plans, the Company
recognizes into income, as a fourth quarter adjustment, any unrecognized
actuarial net gains or losses that exceed 10% of the larger of benefit
obligations or plan assets. Amounts inside this 10% corridor are amortized over
the average remaining service life of active plan participants. Actuarial net
gains and losses occur when actual experience differs from any of the many
assumptions used to value the plans. Differences between the expected and
actual returns on plan assets and changes in interest rates, which affect the
discount rates used, can have a significant impact on the calculation of
pension net gains and losses from year to year. For other postretirement
benefit plans, increases in healthcare trend rates that outpace discount rates
could cause unrecognized net losses to increase to the point that an
outside-the-corridor charge would be necessary. By immediately recognizing net
gains and losses outside the corridor, the Company's accounting method limits
the amounts by which balance sheet assets and liabilities differ from economic
net assets or obligations related to the plans. During 2001, the combination of
a 6% loss on its pension plan assets, and a decrease in discount rates from 8%
to 7.25%, caused the Company to recognize, in the fourth quarter of 2001, a
non-cash pre-tax pension charge of $192.2 in operating loss and $1.8 in
discontinued operations. In addition, because the decline in asset value also
led to the pension plans becoming underfunded, the Company recorded a non-cash
after-tax reduction in equity of approximately $163.4.
F-10
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
Earnings Per Share: Reconciliation of numerators and denominators for basic
and diluted EPS computations is as follows:
1999 2000 2001
------ ------ ------
Income (loss) for calculation of basic earnings per share:
Income (loss) from continuing operations..................................... $ 71.3 $134.0 $(91.2)
Less: Preferred stock dividends.......................................... 7.6 1.0 0.9
------ ------ ------
Income (loss) from continuing operations available to common stockholders.... 63.7 133.0 (92.1)
Income (loss) from discontinued operations................................... 7.5 (1.6) (1.2)
Extraordinary loss on retirement of debt..................................... 13.4 -- --
------ ------ ------
Net income (loss) available to common stockholders........................... $ 57.8 $131.4 $(93.3)
====== ====== ======
Common shares outstanding (weighted average in millions)..................... 102.4 109.5 107.7
====== ====== ======
Basic earnings per share:
Income (loss) from continuing operations..................................... $ 0.62 $ 1.21 $(0.86)
Income (loss) from discontinued operations................................... 0.07 (0.01) (0.01)
Extraordinary loss on retirement of debt..................................... 0.13 -- --
------ ------ ------
Net income (loss)............................................................ $ 0.56 $ 1.20 $(0.87)
====== ====== ======
Income (loss) for calculation of diluted earnings per share:
Income (loss) from continuing operations..................................... $ 71.3 $134.0 $(91.2)
Less: Preferred stock dividends.......................................... 7.6 1.0 0.9
------ ------ ------
Income (loss) from continuing operations available to common stockholders.... 63.7 133.0 (92.1)
Income (loss) from discontinued operations................................... 7.5 (1.6) (1.2)
Extraordinary loss on retirement of debt..................................... 13.4 -- --
------ ------ ------
Net income (loss) available to common stockholders........................... $ 57.8 $131.4 $(93.3)
====== ====== ======
Shares (weighted average in millions):
Common shares outstanding.................................................... 102.4 109.5 107.7
Common stock options outstanding............................................. 0.5 0.1 --
------ ------ ------
Common shares outstanding as adjusted........................................ 102.9 109.6 107.7
====== ====== ======
Diluted earnings per share:
Income (loss) from continuing operations..................................... $ 0.62 $ 1.21 $(0.86)
Income (loss) from discontinued operations................................... 0.07 (0.01) (0.01)
Extraordinary loss on retirement of debt..................................... 0.13 -- --
------ ------ ------
Net income (loss)............................................................ $ 0.56 $ 1.20 $(0.87)
====== ====== ======
At the end of each year, the Company had outstanding stock options and/or
convertible preferred stock whose exercise or conversion could, under certain
circumstances, further dilute earnings per share. The following shares of
potentially issuable common stock were not included in the above weighted
average shares outstanding becausequalified to do so, would have had an antidilutive
effect on earnings per share for the years presented.
1999 2000 2001
(Common shares in millions) ---- ---- ----
Stock options........................... 0.6 3.3 3.3
$3.625 convertible preferred stock...... 0.8 0.7 0.7
F-11
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
Research and Development Costs: The Company conducts a broad range of
research and development activities aimed at improving existing products and
manufacturing processes and developing new products and processes. Research and
development costs are recorded as expense when incurred. Research and
development costs incurred in 1999, 2000 and 2001 were $16.8, $15.3 and $13.9,
respectively.
Concentrations of Credit Risk: The Company is primarily a producer of
flat-rolled carbon, stainless and electrical steels and steel products, which
are soldor to a number of markets, including automotive, industrial machinery and
equipment, construction, power distribution and appliances. During 2001, 18% of
the Steel Operations' net sales were to General Motors Corporation. The Company
sells domestically to customers primarily in the Midwestern and Eastern United
States, while approximately 11% of sales are to foreign customers, primarily in
Canada, Mexico and Western Europe. Approximately 35% of trade receivables
outstanding at December 31, 2001 are due from businesses associated with the
U.S. automotive industry. Except in a few situations where the risk warrants
it, collateral is not required on trade receivables; and while it believes its
trade receivables will be collected, the Company anticipates that in the event
of default it would follow normal collection procedures.
Financial Instruments: Investments in debt securities are classified as
held-to-maturity because the Company has the positive intent and ability to
hold the securities to maturity. Held-to-maturity securities are stated at
amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Investments in equity securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with unrealized gains and losses, net of tax, reported in other comprehensive
income. Realized gains and losses on sales of available-for-sale securities are
computed based upon initial cost adjusted for any other than temporary declines
in fair value. The Company has no investments that are considered to be trading
securities.
The carrying value of the Company's financial instruments does not differ
materially from their estimated fair value (primarily based on quoted market
prices) at the end of 2000 and 2001 with the exception of the Company's
long-term debt. At December 31, 2001, the fair value of the Company's long-term
debt, including current maturities, was approximately $1,409.7. This amount was
determined primarily from quoted market prices. The fair value estimate was
based on pertinent information available to management as of December 31, 2001.
Management is not aware of any significant factors that would materially alter
this estimate since that date. The fair value of the Company's long-term debt,
including current maturities, at December 31, 2000 was approximately $1,358.3.
The Company is a party to derivative instruments that are designated and
qualify as hedges under Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and related pronouncements. The Company's
objective in using such instruments is to protect its earnings and cash flows
from fluctuations in the fair value of selected commodities and currencies. As
of December 31, 2001 the Company had not entered into derivative instruments
that do not qualify as hedges.
In the ordinary course of business, the Company's income and cash flows may
be affected by fluctuations in the price of certain commodities used in its
production processes. The Company generally cannot recover higher energy and
raw material costs in its selling prices. For certain commodities where such
exposure exists, the Company uses cash settled commodity price swaps, with a
duration of up to three years, to hedge the price of a portion of its natural
gas, nickel, aluminum and zinc requirements. The Company designates these swaps
as cash flow hedges and the resulting changes in their fair value are recorded
in other comprehensive income. Subsequent gains and losses are recognized into
income in the same period as the underlying physical
F-12
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
transaction. As of December 31, 2001, currently valued outstanding commodity
hedges would result in the reclassification into earnings of $20.0 in
net-of-tax losses within the next twelve months.
In addition, in the ordinary course of business, the Company is subject to
risks associated with exchange rate fluctuations on monies received from its
European subsidiaries and other customers invoiced in European currencies. In
order to mitigate this risk, the Company has entered into a series of
agreements for the forward sale of euros at fixed dollar rates. The forward
contracts are entered into with durations of up to a year. A typical contract
is used as a cash flow hedge for the period from when an order is taken to when
a sale is recognized, at which time it converts into a fair value hedge of a
euro-denominated receivable. As a fair value hedge, the changes in the fair
value of the derivative and the gains or losses on the foreign-denominated
receivables are recorded currently in other income and provide an offset to one
another.
The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk management objectives and strategies for
undertaking various hedge transactions. In this documentation, the Company
specifically identifies the asset, liability, firm commitment or forecasted
transaction that has been designated as a hedged item and states how the
hedging instrument is expected to hedge the risks related to that item. The
Company formally measures effectiveness of its hedging relationships both at
the hedge inception and on an ongoing basis. The Company discontinues hedge
accounting prospectively when it determines that the derivative is no longer
effective in offsetting changes in the fair value or cash flows of a hedged
item; when the derivative expires or is sold, terminated or exercised; when it
is probable that the forecasted transaction will not occur; when a hedged firm
commitment no longer meets the definition of a firm commitment; or when
management determines that designation of the derivative as a hedge instrument
is no longer appropriate.
Accumulated Other Comprehensive Income: The components of accumulated other
comprehensive income (loss) at December 31 are as follows:
1999 2000 2001
----- ----- -------
Foreign currency translation............ $(0.6) $(2.7) $ (2.1)
Derivative instrument hedges............ -- -- (28.9)
Unrealized gain/(loss) on investments... 0.3 (1.0) 8.3
Minimum pension liability............... (1.4) (1.2) (164.6)
----- ----- -------
Total................................... $(1.7) $(4.9) $(187.3)
===== ===== =======
2. Merger with Armco Inc.
On September 30, 1999, the Company consummated the merger of Armco with and
into AK Steel. Armco was a leading producer of stainless and electrical steels
and, in addition, owned and operated a manufacturer of steel pipe and tubing
products, a manufacturer of snowplows and ice control products for four-wheel
drive light trucks, and an industrial park on the Houston, Texas ship channel.
Effective with the merger, the Company paid cash and issued shares of its
common stock to convert the outstanding shares of two series of Armco's
convertible preferred stock. In 1999, accrued dividends of $6.7 on these two
series of preferred stock are reported as minority interest on the consolidated
statements of income.
F-13
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
Historically, Armco did not provide for federal income taxes at full
statutory rates. However, to reflect its book tax rate in income from
continuing operations on a combined basis, the Company accrued additional
income tax expense of $17.5 for the first six months of 1999.
The following presents a reconciliation of previously reported results of AK
Holding and Armco to the results of the merged Company for the six months ended
June 30, 1999. Eliminations/other primarily reflects the elimination of
intercompany transactions, the additional accrual of income taxes, including
taxes on extraordinary losses and cumulative effect of the accounting change.
The adjustment in eliminations/other for stockholders' equity also includes
$210.0 of cumulative credits for revaluation of the deferred tax asset.
AK
Holding Armco Eliminations/Other Total
-------- ------ ------------------ --------
Revenues..................................... $1,348.1 $794.5 $(53.1) $2,089.5
Extraordinary loss on retirement of debt..... 12.0 2.8 (1.4) 13.4
Net income................................... 35.5 63.7 (29.9) 69.3
Stockholders' equity......................... 957.4 235.5 132.0 1,324.9
3. Stockholders' Equity
Preferred Stock: The Company's $3.625 cumulative convertible preferred
stock ranks senior to its common stock with respect to dividends and upon
liquidation. The holders of this preferred stock are entitled to one vote per
share with respect to all matters to be voted upon by the stockholders of the
Company. Each share may be converted, at the holder's option, into 2.6 shares
of the Company's common stock. At the Company's option, each share of preferred
stock may be redeemed at a price of $50.3625 per share until October 15, 2002,
after which, the redemption price is reduced to $50 per share. Upon
dissolution, liquidation or winding up of the Company, whether voluntary or
involuntary, holders of the $3.625 preferred stock are entitled to a payment of
$50 per share plus accrued but unpaid dividends before payments can be made to
the holders of common stock. At December 31, 2000 and 2001, there were
authorized, issuable and outstanding 259,481 shares of $3.625 preferred stock
with a $1 per share par value.
Common Stock: The holders of common stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available
for distribution. The holders have one vote per share in respect of all matters
and are not entitled to preemptive rights.
Dividends: A common stock dividend of $0.125 per share was paid in each
quarter of 2000. In each of the first two quarters of 2001, the Company paid a
common stock dividend of $0.0625 per share before suspending common stock
dividends for the final two quarters. In addition, from the fourth quarter of
1999 through the third quarter of 2001, the Company paid regular quarterly
dividends of $0.90625 per share on its $3.625 preferred stock. In the fourth
quarter of 2001, the Company suspended the regular preferred stock dividend.
The declaration and payment of cash dividends on common and preferred stock is
subject to restrictions imposed by a covenant contained in the instruments
governing its outstanding senior debt. Common and preferred dividends were
reduced and ultimately suspended in 2001 because of the restrictions imposed by
this covenant. As of December 31, 2001, this covenant continues to preclude the
payment of any dividends.
The preferred stock dividends are cumulative and, as such, holders of the
$3.625 preferred stock are entitled to payment of all accrued, but unpaid
dividends, before payment of dividends to the holders of common stock. At
December 31, 2001, preferred stock dividends are in arrears $0.2 in the
aggregate or $0.90625 per share.
At its January 17, 2002 meeting, the Board of Directors did not declare a
quarterly dividend on either of its common or preferred stock because of the
covenant restriction described above.
F-14
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
Stockholder Rights Plan: On January 23, 1996, the Board of Directors
adopted a Stockholder Rights Plan pursuant to which it has issued one Preferred
Share Purchase Right (collectively, the "Rights") for each share of common
stock outstanding. The Rights are generally not exercisable unless, and no
sooner than 10 business days after, any person or group acquires beneficial
ownership of 20% or more ofwho cannot legally be offered the Company's voting stock or announces a tender
offer that could resultsecurities.
The information in the acquisition of 30% or more of such voting stock.
In addition, each Right entitles the holder, upon occurrence of certain
specified events, to purchase 1/200th of a share of Series A Junior Preferred
Stock ("Junior Preferred Stock") at an exercise price of $65 per share. Each
share of Junior Preferred Stock, if and when issued, will entitle the holder to
200 votes in respect of all matters submitted to a vote of the holders of
common stock. Upon the occurrence of certain events, holders of the Rights
would be entitled to purchase either shares of the Company or an acquiring
entity at half of market value. The Rights are redeemable, under certain
circumstances, at any time prior to their expiration on January 23, 2006.
4. Common Stock Compensation
AK Steel Holding Corporation's Stock Incentive Plan (the "SIP") permits the
granting of nonqualified stock options and restricted stock awards to
directors, officers and key management employees of the Company. These
nonqualified option and restricted stock awards may be granted with respect to
an aggregate maximum of 11 million shares through the period ending December
31, 2007. The exercise price of each option may not be less than the market
price of the Company's common stock on the date of the grant. Stock options
have a maximum term of 10 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). The nonqualified stock options vest at the rate of 33%
per year over three years. Generally, 25% of the shares covered by a restricted
stock award vest two years after the date of the award and an additional 25%
vest on the third, fourth and fifth anniversaries of the date of the award.
Prior to the merger, Armco maintained plans under which stock options and
restricted stock awards were granted. Effective with the merger, Armco's stock
options were converted into options to purchase the Company's common stock,
adjusting the option price and number of shares by the same .3829 ratio used to
convert outstanding shares of Armco common stock at the time of the merger. In
addition, all unvested options vested. Other provisions of these options were
similar to those of the Company and did not change. All outstanding restricted
stock awards of Armco vested upon the effectiveness of the merger and the
shares were converted into the Company's common stock.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
the SIP and Armco's award program. The compensation cost that has been charged
against income for the restricted stock awards issued under the SIP was $8.1,
$5.9 and $5.0 for 1999, 2000 and 2001, respectively. The Company adopted the
pro forma disclosure requirements of Statement No. 123, "Accounting for
Stock-Based Compensation." Had compensation cost for the Company's stock
compensation plans been determined based on fair value at the grant dates for
awards under these plans consistent with the methodology of Statement No. 123,
the Company's net income (loss) and earnings per share for each year would have
been reduced to the pro forma amounts indicated below:
1999 2000 2001
----- ------ ------
Net income (loss)....................... As reported $65.4 $132.4 $(92.4)
Pro forma 62.6 129.8 (94.2)
Basic earnings (loss) per share......... As reported 0.56 1.20 (0.87)
Pro forma 0.54 1.18 (0.88)
Diluted earnings (loss) per share....... As reported 0.56 1.20 (0.87)
Pro forma 0.53 1.18 (0.88)
F-15
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
The fair value of options to purchase shares of AK Holding common stockthis prospectus is estimated on the grant date using a Black-Scholes option pricing model
considering the appropriate dividend rates along with the following weighted
average assumptions:
1999 2000 2001
-------- -------- ---------
Expected volatility..................... 25.2% 30.2% 33.9%
Risk free interest rates................ 5.61% 6.64% 4.87%
Expected lives.......................... 5.0 yrs. 5.0 yrs. 8.25 yrs.
Assumptions used for the calculation of the fair value of the options to
purchase Armco stock issued in 1999 included an expected volatility of 40%, a
risk free interest rate of 4.7%, an expected life of five years and the
expectation that no dividends would be paid.
A summary of the status of stock options under the SIP and Armco's plan as
of December 31, 1999, 2000 and 2001 and changes during each of those years is
presented below:
1999 2000 2001
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Stock Options Shares Price Shares Price Shares Price
- ------------- --------- -------- --------- -------- --------- --------
Outstanding at beginning of year........ 4,067,517 $16.27 2,883,471 $17.90 3,405,519 $17.88
Granted................................. 943,254 18.58 789,000 16.15 580,500 9.37
Exercised............................... 1,702,851 14.34 252,952 13.02 -- --
Forfeited............................... 391,658 16.97 14,000 19.27 558,000 17.51
Expired................................. 32,791 31.60 -- -- -- --
--------- --------- ---------
Outstanding at end of year.............. 2,883,471 17.90 3,405,519 17.88 3,428,019 16.50
========= ========= =========
Options exercisable at year end......... 1,956,169 15.68 2,156,047 17.60 2,215,881 18.01
The weighted average fair value per share of options granted during 1999,
2000 and 2001 were $5.68, $4.59 and $3.27, respectively.
The following table summarizes information about stock options outstanding
at December 31, 2001:
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
$ 8.23 to $10.98 747,000 8.9 yrs. $ 9.48 68,010 $10.23
$10.99 to $13.72 392,724 3.2 yrs. 11.94 355,224 11.94
$13.73 to $16.46 167,332 3.4 yrs. 13.84 167,332 13.84
$16.47 to $19.21 1,164,307 6.9 yrs. 18.49 814,646 18.60
$19.22 to $21.95 513,656 4.8 yrs. 20.39 511,990 20.39
$21.96 to $24.69 418,000 7.3 yrs. 23.51 282,010 23.50
$24.70 to $27.44 25,000 7.3 yrs. 26.64 16,669 26.64
During 1999, 2000 and 2001, the Company issued to certain employees 650,973,
476,641 and 285,994 shares of common stock, subject to restrictions, with
weighted average grant-date fair values of $18.39, $12.68 and $9.26 per share,
respectively.
F-16
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
5. Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. This return includes all domestic companies 80% or more owned by the
Company and the proportionate share of the Company's interest in partnership
investments. State tax returns are filed on a consolidated, combined or
separate basis depending on the applicable laws relating to the Company and its
domestic subsidiaries.
The United States and foreign components of income (loss) before income
taxes consist of the following:
1999 2000 2001
------ ------ -------
United States........................... $140.0 $210.7 $(148.5)
Foreign................................. 1.9 1.9 3.7
------ ------ -------
Total................................ $141.9 $212.6 $(144.8)
====== ====== =======
Significant components of the Company's deferred tax assets and liabilities
at December 31, 2000 and 2001 are as follows:
2000 2001
------- --------
Deferred tax assets:
Net operating loss and tax credit carryforwards.......... $ 420.4 $ 514.1
Postretirement reserves.................................. 571.6 588.0
Pension reserves......................................... -- 78.5
Other reserves........................................... 124.0 104.4
Valuation reserve........................................ (139.5) (157.7)
------- --------
Total deferred assets................................ 976.5 1,127.3
------- --------
Deferred tax liabilities:
Depreciable assets....................................... (573.3) (613.9)
Inventories.............................................. (27.8) (43.3)
Pension assets........................................... (78.5) --
------- --------
Total deferred liabilities........................... (679.6) (657.2)
------- --------
Net asset............................................ $ 296.9 $ 470.1
======= ========
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the consolidated financial statements in different years than
recognized in the tax returns. The postretirement benefit difference includes
amounts expensed in the consolidated financial statements for healthcare, life
insurance and other postretirement benefits, which become deductible in the tax
return upon payment or funding in qualified trusts. Other temporary differences
represent principally various expenses accrued for financial reporting purposes
which are not deductible for tax reporting purposes until paid. The depreciable
assets temporary difference represents generally tax depreciation in excess of
financial statement depreciation. The inventory difference relates primarily to
differences in the LIFO reserve, reduced by tax overhead capitalized in excess
of book amounts.
F-17
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
At December 31, 2001, the Company had regular tax net operating loss
carryforwards for federal tax purposes expiring as follows:
Net
Operating Loss
Year Expiring Carryforward
------------- --------------
2003.................................... $ 9.1
2004.................................... 129.4
2005.................................... 244.6
2006.................................... 199.2
2007.................................... 139.8
2008.................................... 33.3
2009.................................... 44.4
2010.................................... 35.1
2019.................................... 57.6
2020.................................... 38.1
2021.................................... 219.1
--------
Total................................ $1,149.7
========
At December 31, 2001 the Company had Alternative Minimum Tax ("AMT") net
operating loss carryforwards of $717.7 which, unless utilized, will expire in
the years 2002 through 2021. In addition, at December 31, 2001, the Company had
unused AMT credit carryforwards of $70.5, which may be used to offset future
regular income tax liabilities. These credits can be carried forward
indefinitely.
The Company records a valuation allowance to reduce its deferred tax assets
to an amount that is more likely than not to be realized. In estimating levels
of future taxable income, the Company has considered historical results of
operations in recent years and would, if necessary, consider the implementation
of prudent and feasible tax planning strategies to generate future taxable
income. If future taxable income is less than the amount that has been assumed
in determining the deferred tax asset, then an increase in the valuation
reserve will be required, with a corresponding charge against income. On the
other hand, if future taxable income exceeds the level that has been assumed in
calculating the deferred tax asset, the valuation reserve could be reduced,
with a corresponding credit to income. The Company's ability to utilize Armco's
net operating loss, capital loss, and tax credit carryforwardscurrent only as of the date ofon its cover, and may change after that date. For any time after the merger will be limited by Section 382 of the Internal Revenue Code. The
Company has recorded a valuation reserve for those carryforward amounts that
are expected to expire prior to being used as a result of the limits imposed by
Section 382.
Significant components of the provision (benefit) for income taxes are as
follows:
1999 2000 2001
----- ----- ------
Continuing operations:
Current:
Federal................................................ $ 2.3 $(9.7) $ (2.7)
State.................................................. 3.5 (4.9) 0.4
Foreign................................................ 0.7 0.9 1.5
Deferred:
Federal................................................ 60.8 72.1 (51.7)
State.................................................. (3.4) 20.2 (0.9)
Foreign................................................ -- -- (0.2)
----- ----- ------
Total tax provision on continuing operations........ 63.9 78.6 (53.6)
Discontinued operations....................................... -- (0.9) (0.7)
Extraordinary loss on early retirement of debt................ (8.7) -- --
----- ----- ------
Total tax provision (benefit)....................... $55.2 $77.7 $(54.3)
===== ===== ======
F-18
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
The reconciliation of income tax on continuing operations computed at the
U.S. federal statutory tax rates to actual income tax expense (benefit) is as
follows:
1999 2000 2001
----- ------ ------
Income (loss) at statutory rate............................. $49.0 $ 73.8 $(51.9)
State and foreign tax provisions............................ 0.8 16.2 0.8
Reduction in deferred tax asset valuation reserve........... (0.2) (84.7) 2.2
Expired net operating and capital loss carryovers........... -- 73.9 --
Non-deductible severance and merger expenses................ 14.5 -- --
Other permanent differences................................. (0.2) (0.6) (4.7)
----- ------ ------
Total tax provision (benefit) on continuing operations... $63.9 $ 78.6 $(53.6)
===== ====== ======
The Company and the Internal Revenue Service have concluded the examinations
of federal income tax returns filed for the years 1994 through 1998. The
Company's 1999 and 2000 returns are currently under examination. In addition,
in the normal course of business, the state and local tax returns of the
Company and its subsidiaries are routinely subjected to examination by various
taxing jurisdictions. However, the Company believes that the outcomes of these
examinations will not have any material adverse impact on the Company's
financial position, results of operations or cash flows.
The statute of limitations has lapsed with respect to Armco's federal income
tax returns for 1997 and prior years, and as a result these returns are closed
to assessments of additional tax. However, the NOL carryforwards from these
years remain open to adjustment. Armco was in a cumulative NOL carryforward
position from 1983 through thecover date of the merger with the Company in September
1999. In addition, at the time of the merger, Armco had loss carryforwardsthis prospectus, we do not represent that were substantially in excess of the amounts that are expected to be used each
year after the merger, because of the limits on the loss utilization imposed by
Section 382. Consequently, the Company believes that any IRS audit adjustments
to the loss carryforwards would not be sufficient to reduce the carryovers
below the amounts for which a deferred tax benefit has been provided.
6. Long-Term Debt and Other Financing
At December 31, 2000 and 2001, the Company's long-term debt balances were as
follows:
2000 2001
-------- --------
Senior Secured Notes Due 2004 (interest rates of 8.48% to 9.05%)..... $ 250.0 $ 187.5
9 1/8% Senior Notes Due 2006......................................... 550.0 550.0
9% Senior Notes Due 2007............................................. 117.4 117.4
8 7/8% Senior Notes Due 2008......................................... 33.5 33.5
7 7/8% Senior Notes Due 2009......................................... 450.0 450.0
Tax Exempt Financing Due 2008 through 2029 (variable rates of 1.3% to
5.1% in 2001)...................................................... 50.9 50.2
Other, including unamortized discount................................ (1.0) 13.9
-------- --------
Total debt........................................................ 1,450.8 1,402.5
Less: current maturities............................................. 63.2 78.0
-------- --------
Total long-term debt.............................................. $1,387.6 $1,324.5
======== ========
F-19
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
At December 31, 2001, the maturities of long-term debt are as follows:
2002.................................... $ 78.0
2003.................................... 62.5
2004.................................... 62.5
2005.................................... --
2006.................................... 550.0
2007 and thereafter..................... 649.5
--------
Total................................ $1,402.5
========
The proceeds of the Senior Secured Notes Due 2004 were used for the
construction of the Rockport Works and the notes are collateralized by
Rockport's hot-dip galvanizing and galvannealing line and its continuous cold
mill. In addition, at December 31, 2000 and 2001, $1.5 and $15.5, respectively,
of long-term debt, including current maturities, represents financing used to
construct certain other fixed assets, which are pledged as collateral.
On January 14, 1999, Armco redeemed the entire $111.0 outstanding principal
amount of its 9 3/8% Senior Notes Due 2000 at a price of 101.75% of their
principal amount. The redemption resulted in an extraordinary loss of $2.8
($1.7 after taxes, or $0.02 per share).
On February 10, 1999, AK Steel issued $450.0 principal amount of 7 7/8%
Senior Notes Due 2009 at 99.623% of their principal amount. On April 1, 1999,
AK Steel used $338.1 of the net proceeds from the sale of these notes to
finance the redemption of its 10 3/4% Senior Notes Due 2004 at a price of
104.031% of their principal amount. The redemption resulted in an extraordinary
loss of $19.3 ($11.7 after taxes, or $0.11 per share).
At December 31, 2001, the Company had $198.4 of availability under its
$300.0 accounts receivable purchase credit facility, which expires September
30, 2004, net of $101.6 used for letters of credit.
7. Operating Leases
Rental expense in income (loss) from continuing operations was $24.4, $25.0
and $19.2 for 1999, 2000 and 2001, respectively.
At December 31, 2002, obligations to make future minimum lease payments were
as follows:
2002 $1.7
2003 1.4
2004 1.0
2005 0.6
2006 0.5
8. Pension and Other Postretirement Benefit Plans
The Company provides noncontributory pension benefits to most employees and
provides various healthcare and life insurance benefits to most retirees. While
the major pension plans are not fully funded, the Company would not be
obligated to make minimum funding contributions until at least 2003. Although
most
F-20
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
retiree health and life insurance benefits are funded as claims are paid, the
Company has established a healthcare trust as a means of prefunding a portion
of these benefits.
Pension Benefits Other Benefits
------------------ --------------------
2000 2001 2000 2001
-------- -------- --------- ---------
Change in benefit obligations:
Benefit obligations at beginning of year................. $3,229.8 $3,136.7 $ 1,412.0 $ 1,476.5
Service cost............................................. 33.9 33.3 8.3 8.7
Interest cost............................................ 239.7 239.2 105.2 113.6
Plan participants' contributions......................... -- -- 13.4 15.4
Actuarial loss/(gain).................................... (72.0) 244.1 58.7 192.4
Amendments............................................... 22.8 11.9 0.4 --
Benefits paid............................................ (317.5) (323.8) (121.5) (134.2)
-------- -------- --------- ---------
Benefit obligations at end of year....................... $3,136.7 $3,341.4 $ 1,476.5 $ 1,672.4
======== ======== ========= =========
Change in plan assets:
Fair value of plan assets at beginning of year........... $3,521.5 $3,472.4 $ 167.9 $ 161.6
Actual return on plan assets............................. 261.1 (212.8) 11.8 (8.3)
Employer contributions................................... 7.3 5.9 90.0 70.1
Plan participants' contributions......................... -- -- 13.4 15.4
Benefits paid............................................ (317.5) (323.8) (121.5) (134.2)
-------- -------- --------- ---------
Fair value of plan assets at end of year................. $3,472.4 $2,941.7 $ 161.6 $ 104.6
======== ======== ========= =========
Funded status............................................... $ 335.7 $ (399.7) $(1,314.9) $(1,567.8)
Unrecognized net actuarial loss/(gain)...................... (280.9) 331.5 (52.4) 166.5
Unrecognized prior service cost............................. 114.4 113.7 (87.0) (72.7)
Unrecognized initial net benefit obligation................. 8.2 1.9 -- --
-------- -------- --------- ---------
Net amount recognized....................................... $ 177.4 $ 47.4 $(1,454.3) $(1,474.0)
======== ======== ========= =========
Amounts recognized in the consolidated balance sheets
consist of:
Prepaid benefit cost..................................... $ 206.5 $ 1.4 $ -- $ --
Accrued benefit liability................................ (32.5) (334.4) (1,454.3) (1,474.0)
Intangible asset......................................... 2.2 108.2 -- --
Accumulated other comprehensive income................... 1.2 272.2 -- --
-------- -------- --------- ---------
Net amount recognized.................................... $ 177.4 $ 47.4 $(1,454.3) $(1,474.0)
======== ======== ========= =========
Weighted average assumptions at year end for the consolidated Company are as
follows:
Pension Benefits Other Benefits
----------------- -----------------
1999 2000 2001 1999 2000 2001
---- ----- ---- ---- ----- ----
Discount rate..................................... 7.75% 8.00% 7.25% 7.75% 8.00% 7.25%
Expected return on plan assets.................... 9.50% 10.00% 9.25% 9.50% 10.00% 9.25%
Rate of compensation increase..................... 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
For measurement purposes, healthcare costs are assumed to increase 8% during
2002, and thereafter this rate decreases 1% per year until reaching the
ultimate trend rate of 4.25% in 2006.
F-21
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with an accumulated benefit obligation
in excess of plan assets were $42.1, $28.4 and $1.6, respectively, for 2000,
and $3,331.4, $3,262.8 and $2,931.5, respectively for 2001.
The components of net periodic benefit costs for the years 1999, 2000 and
2001 are as follows:
Pension Benefits Other Benefits
------------------------- ----------------------
1999 2000 2001 1999 2000 2001
------- ------- ------- ------ ------ ------
Components of net periodic benefit cost:
Service cost............................................. $ 35.9 $ 33.9 $ 33.3 $ 9.5 $ 8.3 $ 8.7
Interest cost............................................ 228.8 239.7 239.2 96.7 105.2 113.6
Expected return on plan assets........................... (299.0) (321.2) (332.8) (14.3) (14.0) (12.7)
Amortization of prior service cost....................... 8.8 12.9 14.3 (14.4) (14.3) (14.4)
Recognized net actuarial loss/(gain)
Annual amortization.................................. 3.2 (20.4) (18.3) (3.4) (7.7) (3.7)
Pension charge....................................... -- -- 194.0 -- -- --
Settlement curtailment loss/(gain).......................... 13.8 1.1 -- (0.7) -- --
Amortization of unrecognized initial net obligation......... 6.4 6.3 6.3 -- -- --
------- ------- ------- ------ ------ ------
Net periodic benefit cost (income).......................... $ (2.1) $ (47.7) $ 136.0 $ 73.4 $ 77.5 $ 91.5
======= ======= ======= ====== ====== ======
The fourth quarter pension charge was recorded to recognize a net actuarial
loss outside the 10% corridor under the Company's accounting for pensions and
other postretirement benefits as described in Note 1.
Assumed healthcare cost trend rates have a significant effect on the amounts
reported for healthcare plans. A one-percentage-point change in the assumed
healthcare cost trend rates would have the following effects:
One-Percentage-Point
-------------------
Increase Decrease
-------- --------
Effect on total service cost and interest cost components... $ 12.2 $ (10.9)
Effect on postretirement benefit obligation................. 139.7 (124.9)
In addition to defined benefit pension plans, most employees are eligible to
participate in various defined contribution plans. Total expense related to
these plans was $11.5 in 1999, $12.6 in 2000 and $2.2 in 2001. The 2001 expense
was significantly lower because no variable matching contribution was payable
to non-represented employees for the year.
9. Segment Information
The Company's Steel Operations currently consist of steel production and
finishing plants in Butler, Pennsylvania; Ashland, Kentucky; Coshocton,
Mansfield, Middletown, and Zanesville, Ohio; and Rockport, Indiana that produce
flat-rolled steels, including premium quality coated, cold-rolled and
hot-rolled carbon steel, and specialty stainless and electrical steels produced
in slab, hot band, sheet and strip form. Steel products are primarily for sale
to the domestic automotive, appliance, industrial machinery and equipment, and
construction markets. Steel Operations also include European trading companies
that buy and sell steel and manufactured steel products and a Walbridge, Ohio
manufacturer and distributor that further finishes flat rolled steel into
welded steel tubing used primarily in the automotive, large truck and
construction markets. At the beginning of 2000, a redundant galvanizing line in
Dover, Ohio was shut down (Note 10).
F-22
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
The Company's Snow and Ice Control Products segment consists of Douglas
Dynamics, L.L.C., the largest North American manufacturer of snowplows, and
salt and sand spreaders for four-wheel drive light trucks.
In addition, the Company owns and operates an industrial park on the
Houston, Texas ship channel, which is reported in Other Operations, below.
On December 18, 2001, the Company announced that it had signed a letter of
intent to sell the assets of the Sawhill Tubular Division to John Maneely
Company. The sale was completed on April 19, 2002. In accordance with Statement
No. 144, which the Company adopted on January 1, 2002, Sawhill Tubular's
results were reclassified to discontinued operations, and its assets subject to
the sale were grouped into assets held for sale in the financial presentation
below.
Accounting policies for the segmentsour affairs are the same as those described in the
summary of significant accounting policies in Note 1. Management evaluates the
performance of these segments based on their operating profit. All corporate
expenses and assets are included in the Steel Operations segment. Information
regarding the Company's operating segments is as follows:
1999 2000 2001
-------- -------- --------
Net Sales:
Steel Operations.............. $4,054.8 $4,276.8 $3,681.7
Snow and Ice Control Products. 119.2 112.8 138.8
Other Operations.............. 10.8 14.1 12.9
-------- -------- --------
Total..................... $4,184.8 $4,403.7 $3,833.4
======== ======== ========
Operating Profit (Loss):
Steel Operations.............. $ 201.7 $ 300.7 $ (66.7)
Snow and Ice Control Products. 36.1 30.5 41.0
Other Operations.............. 7.0 9.6 7.9
-------- -------- --------
Total..................... $ 244.8 $ 340.8 $ (17.8)
======== ======== ========
Depreciation:
Steel Operations.............. $ 202.7 $ 223.8 $ 222.1
Snow and Ice Control Products. 2.9 2.7 2.9
Other Operations.............. 0.5 0.8 0.8
-------- -------- --------
Total..................... $ 206.1 $ 227.3 $ 225.8
======== ======== ========
Capital Investments:
Steel Operations.............. $ 314.5 $ 127.2 $ 101.8
Snow and Ice Control Products. 7.5 5.0 3.0
Other Operations.............. 12.1 3.6 3.2
-------- -------- --------
Total..................... $ 334.1 $ 135.8 $ 108.0
======== ======== ========
Total Assets:
Steel Operations.............. $5,042.1 $5,044.0 $5,039.5
Snow and Ice Control Products. 72.6 71.0 74.5
Assets held for sale.......... 88.9 103.5 85.0
Other Operations.............. 23.5 21.3 26.8
-------- -------- --------
Total..................... $5,227.1 $5,239.8 $5,225.8
======== ======== ========
F-23
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
As a result of continued growth in the Snow and Ice Control Products
business, its operations were reclassified from Other Operations in 2001. AK
Tube L.L.C., acquired in 2001, was reclassified from Other Operations to Steel
Operations to recognize its role as a vertically integrated steel processor.
All prior periods were restated to reflect these changes.
Steel Operations net sales to General Motors Corporation, the Company's
largest customer, accounted for approximately 15%, 15% and 18% of the segment's
net sales in 1999, 2000 and 2001, respectively. No other customer accounted for
more than 10% of segment net sales for any of these years.
Steel Operations net sales to customers located outside the United States
totaled $263.1, $332.0 and $407.1 for 1999, 2000 and 2001, respectively.
Steel Operations operating profit (loss) in 1999 includes $99.7 of special
charges and in 2001 includes $49.9 in an unusual gain and $192.2 of the fourth
quarter pension charge (Note 10). Steel Operations operating profit (loss) also
includes income (loss) from equity companies of $2.1, $(1.4) and $0.8 for 1999,
2000 and 2001, respectively.
10. Special Charges and Unusual Items
In 1999, the Company recognized $99.7 in special charges for costs related
to the merger with Armco, including $28.5 of expenses incurred for banking,
legal, accounting and other transaction fees, $51.1 for employee severance and
certain required payments under the change-of-control provisions contained in
Armco's employee benefit plans and $20.1 for the closure of a redundant
facility. Approximately $54.0 of the $99.7 required the outlay of cash in 1999,
with additional cash payments of approximately $7.0 made in 2000 and $0.5 made
in 2001. With the exception of certain employee benefits and environmental
expenditures that will be funded over a long period of time, the remainder of
the special charges do not require the outlay of cash.
The charge for closure of the redundant facility relates to the shutdown of
the carbon steel galvanizing plant in Dover, Ohio. The plant ceased production
on December 17, 1999. The announced closure, effective January 29, 2000,
resulted in the termination of 120 employees, the majority of which were
represented hourly production workers. The following provides details of that
portion of the special charge relating to the closure:
Asset impairments.............. $ 7.7
Benefit plan curtailment losses 9.7
Termination benefits........... 1.0
Environmental liabilities...... 1.0
Other expenditures............. 0.7
-----
Total....................... $20.1
=====
In the fourth quarter of 2001, the Company's primary health insurance
provider converted from a mutual insurance company to a corporation, issuing
shares of its common stock to certain of its long-time policyholders. As a
major policyholder, AK Steel received shares of common stock, recording a
benefit of $49.9. This benefit is net of a liability established for the
portion of the proceeds deemed to be healthcare plan assets.
As more fully explained in Note 1 in the paragraph entitled Pension and
Other Postretirement Benefits Accounting, under its method of accounting for
pension and other postretirement benefit plans, the Company recognized, as a
fourth quarter 2001 unusual item, a non-cash pension charge of $192.2. An
additional $1.8 pension charge related to Sawhill Tubular, a discontinued
operation.
F-24
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
11. Commitments
The principal raw materials required for AK Steel's steel manufacturing
operations are carbon and stainless steel scrap, iron ore, coal, electricity,
natural gas, oxygen, chrome, nickel, silicon, molybdenum, zinc, limestone and
other commodity materials. In addition, AK Steel purchases carbon steel slabs
from other steel producers to supplement the production from its own
steelmaking facilities. Purchases of coal, iron ore and limestone, as well as
transportation services, are made at negotiated prices under annual and
multi-year agreements. Most purchases of carbon steel slabs, carbon and
stainless steel scrap, natural gas and other raw materials are made at
prevailing market prices, which are subject to fluctuation in accordance with
supply and demand. AK Steel believes that adequate sources of supply exist for
all of its energy and raw material requirements.
The Company has entered into derivative transactions to hedge the price of
natural gas and certain raw materials. As of December 31, 2001, current and
noncurrent liabilities on the consolidated balance sheets include $33.8 and
$6.0, respectively, for the fair value of these derivatives. The effect on cash
of settling these liabilities is expected to be offset by lower prices paid for
the related commodities.
At December 31, 2001, commitments for future capital investments totaled
approximately $46.7, all of which will be funded in 2002.
12. Legal, Environmental Matters and Contingencies
Domestic steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment.
The Company has expended the following for environmental-related capital
investments and environmental compliance:
1999 2000 2001
----- ----- -----
Environmental related capital investments......... $ 7.1 $10.1 $18.8
Environmental compliance costs.................... 85.9 93.5 99.5
In addition to the items discussed below, the Company is involved in routine
litigation, environmental proceedings, and claims pending with respect to
matters arising out of the normal conduct of the business. Except to the
limited extent noted below with respect to the claims in the Federal Action,
management believesor that the ultimate disposition of the following proceedings
will not have, individuallyinformation in this prospectus is correct—nor do we imply those things by delivering this prospectus or in the aggregate, a material adverse effect on
the Company's consolidated financial condition, results of operations or cash
flows.
AK Steel and its predecessors have been conducting steel manufacturing and
related operations for more than 100 years. Although their operating practices
are believedselling securities to 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, including sites that are no longer owned by AK Steel.
Potential remediation expenditures have been estimated 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.
Pursuant to the Resource Conservation and Recovery Act ("RCRA"), which
governs the treatment, handling and disposal of hazardous waste, the United
States Environmental Protection Agency ("EPA") and authorized state
environmental agencies may conduct inspections of RCRA regulated facilities to
identify areas where there
F-25
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
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. The Company's major steelmaking facilities are subject to RCRA
inspections by environmental regulators. While the Company cannot predict the
future actions of these regulators, the potential exists for required
corrective action at these facilities.
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, portions of which previously had been used for disposal of
materials that are currently subject to regulation. While the results of these
investigations are still pending, 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, management cannot predict whether or
when such expenditures might be required or their magnitude.
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 of Armco located in
New Miami, Ohio. The Hamilton Plant is no longer an operating steel mill,
having ceased operations in 1990, and all of its former structures have been
demolished and removed. While AK Steel does not believe that a site-wide RI/FS
is necessary or appropriate at this time, AK Steel has offered to negotiate
with the EPA concerning the specific terms and conditions under which it would
conduct such a study. If an agreement with the EPA cannot be reached on the
specific terms and conditions of the proposed RI/FS, AK Steel intends to
contest this matter vigorously.
Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various constituents
in coke plant wastewater prior to discharge into publicly owned treatment works
("POTW"). Due to concentrations of ammonia and phenol in excess of these limits
in wastewater from the Middletown Works, AK Steel, through the Middletown POTW,
petitioned the EPA for "removal credits," a type of compliance exemption, based
on the Middletown POTW's satisfactory treatment of the wastewater for ammonia
and phenol. The EPA declined to review the petition on the grounds that it had
not yet promulgated new sludge management rules. AK Steel thereupon sought and
obtained from the United States District Court for the Southern District of
Ohio an injunction prohibiting the EPA from instituting enforcement action
against AK Steel for noncompliance with the pretreatment limitations, pending
the EPA's promulgation of the applicable sludge management regulations.
Management is unable to predict the outcome of this matter. However, if the EPA
eventually refuses to grant the petition for removal credits, AK Steel could
incur additional costs to construct pretreatment facilities at the Middletown
Works.
On February 27, 1995, the Ohio Environmental Protection Agency ("OEPA")
issued a Notice of Violation with respect to the Zanesville Works alleging
noncompliance with both a 1993 order and various state regulations regarding
hazardous waste management. AK Steel is continuing to work with the OEPA and
the Ohio Attorney General's Office to achieve final resolution of this matter.
In addition, AK Steel is negotiating with the EPA for an order concerning these
same waste management issues.
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 "Federal Action") for alleged violations of the Clean Air Act, the Clean
Water Act and the RCRA. On the same date, AK Steel filed a Verified Complaint
for Declaratory and Injunctive Relief in the Court of Common Pleas for Butler
County, Ohio (the "State Action") against the State of Ohio and the OEPA
seeking a declaration that, among other things, (a) AK Steel is in compliance
with its operating permits for the blast furnace and basic oxygen furnaces at
its Middletown Works, which would
F-26
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
preclude the State of Ohio and the OEPA from taking any action to order or
enforce obligations on AK Steel with respect to those facilities, and (b) that
any emissions from the Middletown Works do not cause, or otherwise contribute
to, a public nuisance. On June 30, 2000, the State of Ohio moved to intervene
in the Federal Action. On March 29, 2001, the U.S. District Court ruled that
the State of Ohio could conditionally intervene in the Federal Action.
Subsequently, Ohio filed a conditional complaint, which included various
environmental claims, including seven air pollution claims. On May 9, 2001, AK
Steel moved to dismiss all of Ohio's claims in the Federal Action. On July 27,
2001, the Court of Common Pleas in the State Action declared null and void two
Notices of Violation issued by the OEPA upon which certain of the air pollution
claims of the EPA and Ohio in the Federal Action were predicated. Subsequently,
the court held that that effectively concludes the State Action. AK Steel has
appealed that holding to the 12/th/ District Court of Appeals in Butler County,
Ohio. On October 17, 2001, the OEPA issued a similar new Notice of Violation,
but moved to amend its conditional complaint in the Federal Action to withdraw
four of its air pollution claims, which were predicated on the two original
Notices of Violation that were declared null and void. On September 27, 2001,
the U.S. District Court dismissed with prejudice the EPA's air pollution claim,
which had been predicated on the two voided Notices of Violation letters. In
addition, on December 19, 2001, the U.S. District Court stayed the remaining
three air pollution claims of the OEPA in the Federal Action pending resolution
of a related administrative appeal to the Ohio Environmental Review Appeals
Commission addressing the newly issued OEPA Notice of Violation. AK Steel's
motion to dismiss the OEPA claims not yet dismissed in the Federal Action
remains pending. No trial date has yet been set in the Federal Action. AK Steel
is vigorously contesting all of the remaining claims. If OEPA and/or the EPA
are completely successful in obtaining the relief they seek in the Federal
Action with respect to their air pollution claims, it could result in
significant penalties and require a substantial capital investment to install
interim pollution control equipment on the blast furnace and basic oxygen
furnaces at the Middletown Works under current federal pollution control
regulations before certain proposed new federal regulations are made final.
Once those proposed new federal regulations become final, AK Steel could be
required to make another substantial capital investment to replace the interim
pollution control equipment. Under those circumstances, the Company may
conclude that it is more cost-effective to purchase slabs than to make them at
the Middletown Works and may elect to shut down the hot end facilities of the
Middletown Works. If the EPA and OEPA are completely successful in obtaining
the relief they seek in the Federal Action with respect to their water and/or
RCRA claims, it could result in substantial penalties and an order requiring AK
Steel to investigate and remediate alleged polychlorinated biphenyl and
polycyclic aromatic hydrocarbon contamination in Monroe Ditch and Dick's Creek,
which are located on and adjacent to the Middletown Works. At this time, the
Company is unable to estimate the cost of an adverse outcome related to the air
pollution, water pollution or RCRA claims or the potential cost of a shutdown
of the hot end of the Middletown Works.
On September 30, 1998, Armco received an order from the EPA under Section
3013 of RCRA requiring it to develop a plan for investigation of eight areas of
the Mansfield Works that allegedly could be sources of contamination. A site
investigation began in November 2000 and is continuing.
On June 27, 2000, the EPA issued an Emergency Order pursuant to the Safe
Drinking Water Act to AK Steel's Butler Works located in Butler, Pennsylvania
concerning discharge of nitrate/nitrite compounds to the Connoquenessing Creek,
an occasional water source for the Borough of Zelienople. On March 2, 2001, AK
Steel entered in an agreed administrative order with the EPA calling for, among
other things, a decrease in the levels of nitrates and nitrites in the treated
water discharged to waters of the Commonwealth of Pennsylvania by AK Steel's
Butler Works and for the provision of emergency drinking water for Zelienople
during certain times when it must draw drinking water from the Connoquenessing
Creek. AK Steel has taken and is continuing to take the measures necessary to
comply with that order.
F-27
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
On July 13, 2001, Orinoco Iron, C.A. ("Orinoco") filed an action against AK
Steel in the United States District Court for the Southern District of Ohio,
Case No. C-1-01-461. Orinoco and AK Steel are parties to a contract whereby
Orinoco supplies AK Steel with a form of iron ore referred to as hot briquetted
iron ("HBI"). Orinoco asserts claims for breach of contract, repudiation of
contract and breach of a covenant of good faith and fair dealing with respect
to that HBI supply contract and is seeking damages in excess of $60.0. AK Steel
has filed a response to the Complaint in which it denies Orinoco's claims and
asks the court to reform the HBI supply contract to reflect the original intent
of the parties that the price paid by AK Steel under that contract would more
closely track the world price for HBI. Discovery is underway. Trial is
tentatively scheduled for April 2003. AK Steel intends to contest Orinoco's
claims vigorously.
In April 2000, a class action was filed in the United States District Court
for the Southern District of Ohio by Bernard Fidel and others against AK Steel
Holding Corporation and certain of its directors and officers, alleging
material misstatements and omissions in the Company's public disclosure about
its business and operations. The defendants are vigorously defending this
action. AK Steel has filed a motion to dismiss the action, which currently is
pending. Discovery is stayed pending resolution of the motion to dismiss. No
trial date has been scheduled.
A number of lawsuits alleging asbestos exposure are pending and continue to
be filed against AK Steel. The majority of these lawsuits have been filed in
Texas and relate to the former Houston Works facility. Such cases typically
involve a large number of plaintiffs claiming against a large number of
defendants. AK Steel is normally named as a defendant by a small percentage of
the plaintiffs who typically were frequenters (independent contractors,
delivery personnel, etc.) claiming that they were exposed to asbestos while
they were on the premises. AK Steel is actively and vigorously defending these
cases.
On January 2, 2002, John D. West, a former employee, filed a purported class
action in the United States District Court for the Southern District of Ohio
against the you.
$380,000,000
AK Steel Corporation Retirement Accumulation Pension Plan (the "AK
RAPP") and
OFFER TO EXCHANGE ALL OUTSTANDING AND UNREGISTERED
$380,000,000 8.750% Senior Secured Notes due 2018
FOR NEWLY-ISSUED, REGISTERED
$380,000,000 8.750% Senior Secured Notes due 2018
That Have Been Registered Under the AK Steel Corporation Benefit Plans Administrative Committee (the
"AK BPAC") claiming that the method used under the AK RAPP to determine lump
sum distributions is improper and that, as a result, the benefits previously
paid to plaintiff and putative class members from the AK RAPP were understated
in violation of the Employment Retirement Income SecuritySecurities Act of 1974 and the
Internal Revenue Code of 1986. The AK RAPP is the cash balance plan component
of the AK Steel Noncontributory Pension Plan (the "AK NCPP"). The AK NCPP
provides that the Company will indemnify members of AK BPAC from any liability
and expense incurred by reason of serving as a member of AK BPAC. Because the
action was only recently filed, the defendants have not yet responded to the
Complaint and no discovery has yet commenced. The defendants intend to contest
this matter vigorously.
At December 31, 2001, the Company had recorded $12.3 in current accrued
liabilities and $36.7 in noncurrent other liabilities on its consolidated
balance sheets for estimated probable costs relating to environmental matters.
13. Discontinued Operations
On December 18, 2001, the Company announced that it had signed a letter of
intent to sell the assets of Sawhill Tubular, a division formerly reported in
Other Operations in the segment presentation. On April 19, 2002, the Company
completed the sale of Sawhill Tubular. In accordance with Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets"1933
PROSPECTUS
, which the
Company adopted on January 1, 2002, the results of Sawhill Tubular have been
reclassified to discontinued operations on the consolidated statements of
F-28
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
income. The assets disposed of in the sale transaction have been reclassified
to current and noncurrent assets held for sale on the consolidated balance
sheets. There were no material liabilities transferred in the sale transaction.
Sawhill Tubular's net sales for 1999, 2000 and 2001, were $183.5, $207.8 and
$160.7, respectively. Its pretax income (loss) for the same years were zero,
$(2.5) and $1.9, respectively.
Certain of Armco's former businesses included operations in foreign
countries. At the time of their sale or closure, some of these operations had
unresolved tax issues in those countries. Following consultation with local
country advisors in 1999, Armco determined that it had resolved most of these
issues and reversed a majority of the related reserves, recognizing income of
$7.5, or $0.07 per share, in discontinued operations.
14. Consolidated Quarterly Sales and Earnings (Unaudited)
Earnings per share for each quarter and the year are calculated individually
and may not add to the total for the year.
2000
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
Net sales..................... $1,105.7 $1,194.6 $1,091.2 $1,012.2 $4,403.7
Operating profit.............. 76.9 115.5 99.1 49.3 340.8
Net income.................... 26.5 49.1 41.3 15.5 132.4
Basic earnings per share... 0.24 0.44 0.38 0.14 1.20
Diluted earnings per share. 0.24 0.44 0.38 0.14 1.20
2001
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
Net sales..................... $ 955.8 $ 984.2 $ 960.7 $ 932.7 $3,833.4
Operating profit (loss)....... 12.0 36.4 23.4 (89.6) (17.8)
Net income (loss)............. (12.8) 2.7 (5.9) (76.4) (92.4)
Basic earnings per share... (0.12) 0.02 (0.06) (0.71) (0.87)
Diluted earnings per share. (0.12) 0.02 (0.06) (0.71) (0.87)
Included in the net loss for the fourth quarter and full year of 2001 was a
pension charge of $194.0 ($122.2 net of tax) and a benefit of $49.9 ($31.4 net
of tax) for the shares received in the insurance provider's demutualization
(Note 10).
15. Supplemental Guarantor Information
AK Holding and Douglas Dynamics, L.L.C. (the "Guarantor Subsidiary") fully
and unconditionally, joint and severally guarantee the interest, principal and
premium, if any, payments of AK Steel's 9% Senior Notes Due 2007, 8 7/8% Senior
Notes Due 2008, 7 7/8% Senior Notes Due 2009 and 7 3/4% Senior Notes Due 2012.
The Company has determined that full financial statements and other disclosures
concerning AK Holding and the Guarantor Subsidiary would not be material to
investors and such financial statements are not presented. Because AK Holding
has no operations that are independent of AK Steel, AK Holding's results are
combined with AK Steel. The following supplemental condensed consolidating
financial statements present information about AK Steel, the Guarantor
Subsidiary and the Other Subsidiaries. The Other Subsidiaries do not guarantee
the above notes.
F-29
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
STATEMENTS OF INCOME
For the Year Ended December 31, 1999
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Net sales............................... $4,033.9 $119.2 $90.3 $(58.6) $4,184.8
Cost of products sold................... 3,254.5 58.0 34.2 (12.4) 3,334.3
Selling and administrative expenses..... 281.0 22.2 7.3 (10.6) 299.9
Depreciation............................ 203.2 2.9 -- -- 206.1
Special charges......................... 99.7 -- -- -- 99.7
-------- ------ ----- ------ --------
Total operating costs................ 3,838.4 83.1 41.5 (23.0) 3,940.0
Operating profit (loss)................. 195.5 36.1 48.8 (35.6) 244.8
Interest expense........................ 123.3 -- 26.7 (26.3) 123.7
Other income............................ 12.7 -- (0.6) 8.7 20.8
-------- ------ ----- ------ --------
Income (loss) before income taxes....... 84.9 36.1 21.5 (0.6) 141.9
Income tax provision (benefit).......... 62.9 0.4 0.6 -- 63.9
Minority interest....................... 6.7 -- -- -- 6.7
-------- ------ ----- ------ --------
Income (loss) from continuing operations 15.3 35.7 20.9 (0.6) 71.3
Income from discontinued operations..... 7.5 -- -- -- 7.5
Extraordinary loss on retirement of debt 13.4 -- -- -- 13.4
-------- ------ ----- ------ --------
Net income (loss)....................... $ 9.4 $ 35.7 $20.9 $ (0.6) $ 65.4
======== ====== ===== ====== ========
For the Year Ended December 31, 2000
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Net sales............................... $4,269.0 $112.8 $232.8 $(210.9) $4,403.7
Cost of products sold................... 3,503.6 59.0 40.1 (25.0) 3,577.7
Selling and administrative expenses..... 359.3 20.6 7.5 (129.5) 257.9
Depreciation............................ 224.5 2.7 0.1 -- 227.3
-------- ------ ------ ------- --------
Total operating costs................ 4,087.4 82.3 47.7 (154.5) 4,062.9
Operating profit (loss)................. 181.6 30.5 185.1 (56.4) 340.8
Interest expense........................ 135.0 -- 43.7 (42.6) 136.1
Other income............................ (11.3) -- 5.8 13.4 7.9
-------- ------ ------ ------- --------
Income (loss) before income taxes....... 35.3 30.5 147.2 (0.4) 212.6
Income tax provision (benefit).......... 77.6 0.1 0.9 -- 78.6
-------- ------ ------ ------- --------
Income (loss) from continuing operations (42.3) 30.4 146.3 (0.4) 134.0
Loss from discontinued operations....... 1.6 -- -- -- 1.6
-------- ------ ------ ------- --------
Net income (loss)....................... $ (43.9) $ 30.4 $146.3 $ (0.4) $ 132.4
======== ====== ====== ======= ========
F-30
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
STATEMENTS OF INCOME
For the Year Ended December 31, 2001
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Net sales............................... $3,651.4 $138.8 $333.2 $(290.0) $3,833.4
Cost of products sold................... 3,131.2 72.4 80.6 (58.7) 3,225.5
Selling and administrative expenses..... 414.6 22.5 12.7 (192.2) 257.6
Depreciation............................ 221.8 2.9 1.1 -- 225.8
Special charges--net.................... 142.3 -- -- -- 142.3
-------- ------ ------ ------- --------
Total operating costs................ 3,909.9 97.8 94.4 (250.9) 3,851.2
Operating profit (loss)................. (258.5) 41.0 238.8 (39.1) (17.8)
Interest expense........................ 132.1 -- 32.1 (31.1) 133.1
Other income............................ (20.3) 0.1 16.3 10.0 6.1
-------- ------ ------ ------- --------
Income (loss) before income taxes....... (410.9) 41.1 223.0 2.0 (144.8)
Income tax provision (benefit).......... (56.0) 0.4 2.0 -- (53.6)
-------- ------ ------ ------- --------
Income (loss) from continuing operations (354.9) 40.7 221.0 2.0 (91.2)
Loss from discontinued operations....... 1.2 -- -- -- 1.2
-------- ------ ------ ------- --------
Net income (loss)....................... $ (356.1) $ 40.7 $221.0 $ 2.0 $ (92.4)
======== ====== ====== ======= ========
F-31
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
BALANCE SHEETS
December 31, 2000
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
--------- ---------- ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 80.1 $ 1.4 $ 5.3 $ -- $ 86.8
Accounts receivable.................. 10.0 18.0 461.5 -- 489.5
Inventories (Note 3)................. 768.7 15.8 14.8 2.5 801.8
Deferred tax asset................... 54.7 -- -- -- 54.7
Current assets held for sale......... 74.9 -- -- -- 74.9
Other current assets................. 13.4 0.6 0.1 -- 14.1
--------- ------ ------- ------- ---------
Total Current Assets............. 1,001.8 35.8 481.7 2.5 1,521.8
--------- ------ ------- ------- ---------
Property, Plant and Equipment........... 4,575.8 43.7 0.8 -- 4,620.3
Less accumulated depreciation........ (1,745.4) (17.2) (0.6) -- (1,763.2)
--------- ------ ------- ------- ---------
Property, plant and equipment, net... 2,830.4 26.5 0.2 -- 2,857.1
--------- ------ ------- ------- ---------
Other Assets:
Investment in AFSG Holdings, Inc..... -- -- 85.6 -- 85.6
Intercompany accounts................ 648.2 104.3 (468.5) (284.0) --
Other investments.................... 49.7 -- 64.3 -- 114.0
Goodwill............................. 104.6 2.4 4.7 -- 111.7
Other intangible assets (Note 4)..... 1.8 5.6 -- -- 7.4
Prepaid pension...................... 206.5 -- -- -- 206.5
Deferred tax asset................... 246.7 -- (4.5) -- 242.2
Noncurrent assets held for sale...... 28.6 -- -- -- 28.6
Other assets......................... 64.0 0.7 0.2 -- 64.9
--------- ------ ------- ------- ---------
Total Assets..................... $ 5,182.3 $175.3 $ 163.7 $(281.5) $ 5,239.8
========= ====== ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................... $ 488.5 $ 3.8 $ 6.0 $ -- $ 498.3
Accrued liabilities.................. 254.7 6.0 1.5 -- 262.2
Current portion of long-term debt.... 63.2 -- -- -- 63.2
Current portion of pension and OPEBs. 66.5 0.1 -- -- 66.6
--------- ------ ------- ------- ---------
Total Current Liabilities........ 872.9 9.9 7.5 -- 890.3
--------- ------ ------- ------- ---------
Noncurrent Liabilities:
Long-term debt....................... 1,387.6 -- -- -- 1,387.6
Pension and OPEBs.................... 1,416.2 4.0 -- -- 1,420.2
Other liabilities.................... 217.4 3.3 1.7 -- 222.4
--------- ------ ------- ------- ---------
Total Noncurrent Liabilities..... 3,021.2 7.3 1.7 -- 3,030.2
--------- ------ ------- ------- ---------
Total Liabilities....................... 3,894.1 17.2 9.2 -- 3,920.5
--------- ------ ------- ------- ---------
Total Stockholders' Equity.............. 1,288.2 158.1 154.5 (281.5) 1,319.3
--------- ------ ------- ------- ---------
Total Liabilities and Equity............ $ 5,182.3 $175.3 $ 163.7 $(281.5) $ 5,239.8
========= ====== ======= ======= =========
F-32
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
BALANCE SHEETS
December 31, 2001
Guarantor Other Elim- Consolidated
AK Steel Subsidiary Subsidiaries inations Company
--------- ---------- ------------ -------- ------------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 97.2 $ 0.1 $ 3.7 $ -- $ 101.0
Accounts receivable.................. 11.8 23.8 352.4 -- 388.0
Inventories (Note 3)................. 844.4 15.9 41.4 2.9 904.6
Deferred tax asset................... 76.6 -- -- -- 76.6
Current assets held for sale......... 60.6 -- -- -- 60.6
Other current assets................. 16.2 0.5 0.3 -- 17.0
--------- ------ ------- ------- ---------
Total Current Assets............. 1,106.8 40.3 397.8 2.9 1,547.8
--------- ------ ------- ------- ---------
Property, Plant and Equipment........... 4,665.3 46.3 31.3 -- 4,742.9
Less accumulated depreciation........ (1,953.3) (19.7) (1.6) -- (1,974.6)
--------- ------ ------- ------- ---------
Property, plant and equipment, net... 2,712.0 26.6 29.7 -- 2,768.3
--------- ------ ------- ------- ---------
Other Assets:
Investment in AFSG Holdings, Inc..... -- -- 55.6 -- 55.6
Intercompany accounts................ 303.6 146.3 (167.0) (282.9) --
Other investments.................... 100.9 -- 53.4 -- 154.3
Goodwill............................. 101.2 2.4 6.1 -- 109.7
Other intangible assets (Note 4)..... 108.2 3.7 -- -- 111.9
Deferred tax asset................... 393.5 -- -- -- 393.5
Noncurrent assets held for sale...... 24.4 -- -- -- 24.4
Other assets......................... 58.8 1.4 0.1 -- 60.3
--------- ------ ------- ------- ---------
Total Assets..................... $ 4,909.4 $220.7 $ 375.7 $(280.0) $ 5,225.8
========= ====== ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................... $ 522.0 $ 6.3 $ 9.3 $ -- $ 537.6
Accrued liabilities.................. 258.6 7.6 4.3 -- 270.5
Current portion of long-term debt.... 63.3 -- 14.7 -- 78.0
Current portion of pension and OPEBs. 68.2 0.1 -- -- 68.3
--------- ------ ------- ------- ---------
Total Current Liabilities........ 912.1 14.0 28.3 -- 954.4
--------- ------ ------- ------- ---------
Noncurrent Liabilities:
Long-term debt....................... 1,324.5 -- -- -- 1,324.5
Pension and OPEBs.................... 1,736.1 4.0 -- -- 1,740.1
Other liabilities.................... 167.8 3.8 1.9 -- 173.5
--------- ------ ------- ------- ---------
Total Noncurrent Liabilities..... 3,228.4 7.8 1.9 -- 3,238.1
--------- ------ ------- ------- ---------
Total Liabilities....................... 4,140.5 21.8 30.2 -- 4,192.5
--------- ------ ------- ------- ---------
Total Stockholders' Equity.............. 768.9 198.9 345.5 (280.0) 1,033.3
--------- ------ ------- ------- ---------
Total Liabilities and Equity............ $ 4,909.4 $220.7 $ 375.7 $(280.0) $ 5,225.8
========= ====== ======= ======= =========
F-33
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1999
Guarantor Other Elim- Consolidated
AK Steel Subsidiary Subsidiaries inations Company
-------- ---------- ------------ -------- ------------
Cash flows from operating activities:
Net income (loss).................................. $ 9.4 $ 35.7 $ 20.9 $(0.6) $ 65.4
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation..................................... 203.2 2.9 -- -- 206.1
Amortization..................................... 13.6 2.8 -- -- 16.4
Deferred income taxes............................ 57.7 -- -- -- 57.7
Costs related to the merger with Armco Inc....... 99.7 -- -- -- 99.7
(Income) loss from discontinued operations....... (7.5) -- -- -- (7.5)
Extraordinary loss on retirement of debt......... 13.4 -- -- -- 13.4
Other items, net................................. (1.0) -- (1.4) -- (2.4)
Changes in assets and liabilities:
Accounts and notes receivable.................. 71.0 (4.4) (140.5) -- (73.9)
Inventories.................................... (141.5) (1.6) 4.7 (2.6) (141.0)
Current liabilities............................ 14.7 6.5 (1.8) -- 19.4
Other assets................................... (2.3) 0.3 0.5 -- (1.5)
Pension asset and obligation................... (18.7) (0.3) -- -- (19.0)
Postretirement benefit obligation.............. 0.3 0.2 -- -- 0.5
Other liabilities.............................. (2.4) 0.4 0.1 -- (1.9)
------- ------ ------- ----- -------
Total adjustments............................ 300.2 6.8 (138.4) (2.6) 166.0
------- ------ ------- ----- -------
Net cash flows from operating activities....... 309.6 42.5 (117.5) (3.2) 231.4
------- ------ ------- ----- -------
Cash flows from investing activities:
Capital investments................................ (326.7) (7.4) -- -- (334.1)
Net sale of short-term investments................. 6.8 -- -- -- 6.8
Purchase of long-term investments.................. (0.2) -- -- -- (0.2)
Proceeds from the sale of investments.............. 4.6 -- -- -- 4.6
Proceeds from sale of property, plant and equipment 2.1 -- -- -- 2.1
Other items, net................................... 0.9 -- (0.1) -- 0.8
------- ------ ------- ----- -------
Net cash flows from investing activities....... (312.5) (7.4) (0.1) -- (320.0)
------- ------ ------- ----- -------
Cash flows from financing activities:
Proceeds from issuance of common stock............. 24.7 -- -- -- 24.7
Proceeds from issuance of long-term debt........... 449.2 -- -- -- 449.2
Principal payments on long-term debt............... (530.8) -- -- -- (530.8)
Purchase of treasury stock......................... (1.5) -- -- -- (1.5)
Purchase of preferred stock........................ (115.8) -- -- -- (115.8)
Preferred stock dividends paid..................... (7.6) -- -- -- (7.6)
Common stock dividends paid........................ (35.1) -- -- -- (35.1)
Intercompany activity.............................. (92.4) (35.0) 124.2 3.2 --
Other items, net................................... (0.1) -- (1.5) -- (1.6)
------- ------ ------- ----- -------
Net cash flows from financing activities....... (309.4) (35.0) 122.7 3.2 (218.5)
------- ------ ------- ----- -------
Cash flows from discontinued operations............. 14.8 -- -- -- 14.8
------- ------ ------- ----- -------
Net increase (decrease) in cash and cash equivalents (297.5) 0.1 5.1 -- (292.3)
Cash and cash equivalents, beginning of year....... 337.5 -- 9.2 -- 346.7
------- ------ ------- ----- -------
Cash and cash equivalents, end of year............. $ 40.0 $ 0.1 $ 14.3 $ -- $ 54.4
======= ====== ======= ===== =======
F-34
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2000
Guarantor Other Elim- Consolidated
AK Steel Subsidiary Subsidiaries inations Company
-------- ---------- ------------ -------- ------------
Cash flows from operating activities:
Net income (loss).................................. $ (43.9) $ 30.4 $ 146.3 $(0.4) $ 132.4
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation..................................... 224.5 2.7 0.1 -- 227.3
Amortization..................................... 13.3 2.7 -- -- 16.0
Deferred income taxes............................ 92.3 -- -- -- 92.3
Loss from discontinued operations................ 1.6 -- -- -- 1.6
Other items, net................................. (0.3) (0.5) 2.0 -- 1.2
Changes in assets and liabilities:
Accounts and notes receivable.................. (77.9) (2.1) 73.9 -- (6.1)
Inventories.................................... (36.8) 1.5 (2.5) (0.4) (38.2)
Current liabilities............................ (33.3) 0.4 1.3 -- (31.6)
Other assets................................... 1.0 (3.7) (0.1) -- (2.8)
Pension asset and obligation................... (55.6) -- -- -- (55.6)
Postretirement benefit obligation.............. (0.6) 0.3 -- -- (0.3)
Other liabilities.............................. 9.3 0.3 (0.6) -- 9.0
------- ------ ------- ----- -------
Total adjustments............................ 137.5 1.6 74.1 (0.4) 212.8
------- ------ ------- ----- -------
Net cash flows from operating activities....... 93.6 32.0 220.4 (0.8) 345.2
------- ------ ------- ----- -------
Cash flows from investing activities:
Capital investments................................ (130.8) (5.0) -- -- (135.8)
Purchase of long-term investments.................. (30.2) -- (36.2) -- (66.4)
Proceeds from the sale of investments.............. 2.1 1.1 -- -- 3.2
Proceeds from sale of property, plant and equipment 4.0 2.2 -- -- 6.2
Other items, net................................... 0.4 -- 0.5 -- 0.9
------- ------ ------- ----- -------
Net cash flows from investing activities....... (154.5) (1.7) (35.7) -- (191.9)
------- ------ ------- ----- -------
Cash flows from financing activities:
Proceeds from issuance of common stock............. 1.6 -- -- -- 1.6
Principal payments on long-term debt............... (6.0) -- -- -- (6.0)
Purchase of treasury stock......................... (39.2) -- -- -- (39.2)
Purchase of preferred stock........................ (2.2) -- -- -- (2.2)
Preferred stock dividends paid..................... (1.0) -- -- -- (1.0)
Common stock dividends paid........................ (54.9) -- -- -- (54.9)
Intercompany activity.............................. 219.9 (29.0) (191.7) 0.8 --
Other items, net................................... -- -- (2.0) -- (2.0)
------- ------ ------- ----- -------
Net cash flows from financing activities....... 118.2 (29.0) (193.7) 0.8 (103.7)
------- ------ ------- ----- -------
Cash flows from discontinued operations............. (17.2) -- -- -- (17.2)
------- ------ ------- ----- -------
Net increase (decrease) in cash and cash equivalents 40.1 1.3 (9.0) -- 32.4
Cash and cash equivalents, beginning of year....... 40.0 0.1 14.3 -- 54.4
------- ------ ------- ----- -------
Cash and cash equivalents, end of year............. $ 80.1 $ 1.4 $ 5.3 $ -- $ 86.8
======= ====== ======= ===== =======
F-35
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2001
Guarantor Other Elim- Consolidated
AK Steel Subsidiary Subsidiaries inations Company
-------- ---------- ------------ -------- ------------
Cash flows from operating activities:
Net income (loss).................................. $(356.1) $ 40.7 $ 221.0 $ 2.0 $ (92.4)
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation..................................... 221.8 2.9 1.1 -- 225.8
Amortization..................................... 12.8 1.7 0.2 -- 14.7
Deferred income taxes............................ (52.8) -- -- -- (52.8)
Pension charge................................... 192.2 -- -- -- 192.2
Stock received in insurance demutualization...... (49.9) -- -- -- (49.9)
(Income) loss from discontinued operations....... 1.2 -- -- -- 1.2
Other items, net................................. 7.2 0.3 (1.6) -- 5.9
Changes in assets and liabilities:
Accounts and notes receivable.................. (8.7) (6.1) 116.1 -- 101.3
Inventories.................................... (84.3) (0.2) (16.4) (0.4) (101.3)
Current liabilities............................ (2.2) 4.1 1.0 -- 2.9
Other assets................................... (0.4) 1.0 -- -- 0.6
Pension asset and obligation................... (62.3) (1.6) -- -- (63.9)
Postretirement benefit obligation.............. 19.4 0.3 -- -- 19.7
Other liabilities.............................. (55.7) 0.5 0.2 -- (55.0)
------- ------ ------- ----- -------
Total adjustments............................ 138.3 2.9 100.6 (0.4) 241.4
------- ------ ------- ----- -------
Net cash flows from operating activities....... (217.8) 43.6 321.6 1.6 149.0
------- ------ ------- ----- -------
Cash flows from investing activities:
Capital investments................................ (104.6) (3.0) (0.4) -- (108.0)
Purchase of long-term investments.................. (12.0) -- -- -- (12.0)
Purchase of a business............................. -- -- (29.3) -- (29.3)
Distribution from investees........................ 0.2 -- 30.0 -- 30.2
Proceeds from the sale of investments.............. 31.6 -- 12.5 -- 44.1
Proceeds from sale of property, plant and
equipment........................................ 0.1 -- -- -- 0.1
Other items, net................................... (0.1) -- (0.2) -- (0.3)
------- ------ ------- ----- -------
Net cash flows from investing activities....... (84.8) (3.0) 12.6 -- (75.2)
------- ------ ------- ----- -------
Cash flows from financing activities:
Principal payments on long-term debt............... (63.2) -- -- -- (63.2)
Purchase of treasury stock......................... (1.0) -- -- -- (1.0)
Preferred stock dividends paid..................... (0.7) -- -- -- (0.7)
Common stock dividends paid........................ (13.5) -- -- -- (13.5)
Intercompany activity.............................. 379.8 (41.9) (336.3) (1.6) --
Other items, net................................... (0.1) -- 0.5 -- 0.4
------- ------ ------- ----- -------
Net cash flows from financing activities....... 301.3 (41.9) (335.8) (1.6) (78.0)
------- ------ ------- ----- -------
Cash flows from discontinued operations............. 18.4 -- -- -- 18.4
------- ------ ------- ----- -------
Net increase (decrease) in cash and cash equivalents 17.1 (1.3) (1.6) -- 14.2
Cash and cash equivalents, beginning of year....... 80.1 1.4 5.3 -- 86.8
------- ------ ------- ----- -------
Cash and cash equivalents, end of year............. $ 97.2 $ 0.1 $ 3.7 $ -- $ 101.0
======= ====== ======= ===== =======
F-36
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ------------------
2001 2002 2001 2002
------- -------- -------- --------
(unaudited)
Net sales.............................................. $ 984.2 $1,141.5 $1,940.0 $2,109.2
Cost of products sold (exclusive of items shown below). 827.1 975.6 1,651.4 1,854.7
Selling and administrative expenses.................... 62.7 64.3 124.2 129.8
Depreciation........................................... 58.0 55.6 116.0 113.0
Insurance settlement (Note 5).......................... -- (23.9) -- (23.9)
------- -------- -------- --------
Total operating costs.................................. 947.8 1,071.6 1,891.6 2,073.6
Operating profit....................................... 36.4 69.9 48.4 35.6
Interest expense....................................... 33.1 34.7 67.5 66.5
Gain on sale of Anthem stock (Note 6).................. -- -- -- 24.1
Other income........................................... 1.9 2.1 3.7 2.6
------- -------- -------- --------
Income (loss) before income taxes...................... 5.2 37.3 (15.4) (4.2)
Income tax provision (benefit)......................... 1.9 13.8 (5.7) (1.6)
------- -------- -------- --------
Income (loss) from continuing operations............... 3.3 23.5 (9.7) (2.6)
Loss from discontinued operations, net of tax (Note 11) 0.6 1.0 0.4 0.5
Loss on sale of Sawhill Tubular, net of tax (Note 11).. -- 6.3 -- 6.3
------- -------- -------- --------
Net income (loss)...................................... $ 2.7 $ 16.2 $ (10.1) $ (9.4)
======= ======== ======== ========
Earnings per share: (Note 2)
Basic earnings (loss) per share:
Income (loss) from continuing operations............ $ 0.03 $ 0.22 $ (0.10) $ (0.03)
Loss from discontinued operations................... 0.01 0.01 -- --
Loss on sale of Sawhill Tubular..................... -- 0.06 -- 0.06
------- -------- -------- --------
Net income (loss)................................... $ 0.02 $ 0.15 $ (0.10) $ (0.09)
======= ======== ======== ========
Diluted earnings (loss) per share:
Income (loss) from continuing operations............ $ 0.03 $ 0.22 $ (0.10) $ (0.03)
Loss from discontinued operations................... 0.01 0.01 -- --
Loss on sale of Sawhill Tubular..................... -- 0.06 -- 0.06
------- -------- -------- --------
Net income (loss)................................... $ 0.02 $ 0.15 $ (0.10) $ (0.09)
======= ======== ======== ========
Cash dividends per common share........................ $0.0625 $ -- $ 0.125 $ --
Common shares and common share equivalents outstanding
(weighted average in millions):
For basic earnings per share........................ 107.8 107.9 107.8 107.9
For diluted earnings per share...................... 108.0 108.2 107.8 107.9
See notes to condensed consolidated financial statements
F-37
AK STEEL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
December 31, June 30,
2001 2002
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents (Note 12)..................................................... $ 101.0 $ 843.9
Accounts receivable..................................................................... 388.0 514.2
Inventories (Note 3).................................................................... 904.6 824.7
Deferred tax asset (Note 7)............................................................. 76.6 62.5
Current assets held for sale (Note 11).................................................. 60.6 --
Other current assets.................................................................... 17.0 26.6
--------- ------------
Total Current Assets................................................................. 1,547.8 2,271.9
--------- ------------
Property, Plant and Equipment............................................................... 4,742.9 4,796.0
Less accumulated depreciation........................................................... (1,974.6) (2,087.5)
--------- ------------
Property, plant and equipment, net...................................................... 2,768.3 2,708.5
--------- ------------
Other Assets:
Investment in AFSG Holdings, Inc........................................................ 55.6 55.6
Other investments (Note 6).............................................................. 154.3 86.4
Goodwill (Note 4)....................................................................... 109.7 109.7
Other intangible assets (Note 4)........................................................ 111.9 111.6
Deferred tax asset (Note 7)............................................................. 393.5 358.1
Noncurrent assets held for sale (Note 11)............................................... 24.4 --
Other assets............................................................................ 60.3 66.8
--------- ------------
TOTAL ASSETS................................................................................ $ 5,225.8 $ 5,768.6
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................................................ $ 537.6 $ 492.6
Accrued liabilities..................................................................... 270.5 261.9
Current portion of long-term debt (Note 12)............................................. 78.0 627.6
Current portion of pension and other postretirement benefit obligations................. 68.3 67.2
--------- ------------
Total Current Liabilities............................................................ 954.4 1,449.3
--------- ------------
Noncurrent Liabilities:
Long-term debt (Note 12)................................................................ 1,324.5 1,322.2
Pension and other postretirement benefit obligations.................................... 1,740.1 1,788.5
Other liabilities....................................................................... 173.5 170.3
--------- ------------
Total Noncurrent Liabilities......................................................... 3,238.1 3,281.0
--------- ------------
TOTAL LIABILITIES........................................................................... 4,192.5 4,730.3
--------- ------------
Stockholders' Equity:
Preferred stock......................................................................... 12.5 12.5
Common stock, authorized 200,000,000 shares of $.01 par value each; issued 2001,
115,987,777 shares, 2002, 116,285,376 shares; outstanding 2001, 107,713,329 shares,
2002, 107,891,942 shares............................................................... 1.2 1.2
Additional paid-in capital.............................................................. 1,807.2 1,809.7
Treasury stock, common shares at cost, 2001, 8,274,448 shares; 2002, 8,393,434 shares... (120.4) (122.0)
Accumulated deficit..................................................................... (479.9) (489.3)
Accumulated other comprehensive loss (Note 8)........................................... (187.3) (173.8)
--------- ------------
TOTAL STOCKHOLDERS' EQUITY.................................................................. 1,033.3 1,038.3
--------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................................. $ 5,225.8 $ 5,768.6
========= ============
See notes to condensed consolidated financial statements.
F-38
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Six Months Ended
June 30,
--------------
2001 2002
------ ------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $(10.1) $ (9.4)
Depreciation....................................................... 116.0 113.0
Amortization....................................................... 8.1 5.0
Deferred income taxes.............................................. (5.4) 44.9
Working capital.................................................... (28.6) (70.8)
Other.............................................................. (42.5) 38.7
------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING
OPERATIONS....................................................... 37.5 121.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments................................................ (45.6) (53.1)
Proceeds from sale of investments.................................. 31.6 82.0
Proceeds from sale of business..................................... -- 62.8
Other.............................................................. (5.4) (10.2)
------ ------
NET CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING
OPERATION........................................................ (19.4) 81.5
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuing long-term debt............................... -- 538.1
Principal payments on long-term debt............................... (0.3) (0.4)
Common stock dividends paid........................................ (13.5) --
Preferred stock dividends paid..................................... (0.5) --
Other.............................................................. (0.9) (0.8)
------ ------
NET CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING
OPERATIONS....................................................... (15.2) 536.9
Cash flows from discontinued operations............................... 15.8 3.1
------ ------
Net increase in cash and cash equivalents............................. 18.7 742.9
Cash and cash equivalents, beginning of period........................ 86.8 101.0
------ ------
Cash and cash equivalents, end of period.............................. $105.5 $843.9
====== ======
Supplemental disclosure of cash flow information:
Net cash paid (received) during the period for:
Interest, net of capitalized interest.............................. $ 76.0 $ 61.9
Income taxes....................................................... 0.1 (45.4)
Supplemental disclosure of non-cash investing and financing activities
Issuance of restricted stock....................................... $ 0.3 $ 3.3
See notes to condensed consolidated financial statements.
F-39
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data)
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 June 30, 2002,
the results of its operations for the three and six-month periods ended June
30, 2001 and 2002, and cash flows for the six-month periods ended June 30, 2001
and 2002. The results of operations for the six months ended June 30, 2002 are
not necessarily indicative of the results to be expected for the year ending
December 31, 2002. These condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements of AK
Holding for the year ended December 31, 2001.
As more fully described in Note 11, the Company sold the assets of Sawhill
Tubular division on April 19, 2002. In accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which the Company adopted on January 1, 2002, the results
of this business and the assets sold have been reclassified in these condensed
consolidated financial statements to discontinued operations and assets held
for sale for all periods presented.
F-40
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data)
2. Earnings Per Share
Preferred stock dividends are cumulative and, while not declared in the
three and six months ended June 30, 2002, are included in the following
calculation.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------
2001 2002 2001 2002
------ ------ ------ ------
Income (loss) for calculation of basic earnings per share:
Income (loss) from continuing operations................. $ 3.3 $ 23.5 $ (9.7) $ (2.6)
Less: Preferred stock dividends.......................... 0.3 0.3 0.5 0.5
------ ------ ------ ------
Income (loss) from continuing operations available to
common stockholders.................................... 3.0 23.2 (10.2) (3.1)
Loss from discontinued operations........................ 0.6 1.0 0.4 0.5
Loss on sale of Sawhill Tubular.......................... -- 6.3 -- 6.3
------ ------ ------ ------
Net income (loss) available to common stockholders....... $ 2.4 $ 15.9 $(10.6) $ (9.9)
====== ====== ====== ======
Weighted average common shares (in millions)................ 107.8 107.9 107.8 107.9
====== ====== ====== ======
Basic earnings (loss) per share:
Income (loss) from continuing operations................. $ 0.03 $ 0.22 (0.10) (0.03)
Loss from discontinued operations........................ 0.01 0.01 -- --
Loss on sale of Sawhill Tubular.......................... -- 0.06 -- 0.06
------ ------ ------ ------
Net income (loss)........................................ $ 0.02 $ 0.15 $(0.10) $(0.09)
====== ====== ====== ======
Income (loss) for calculation of diluted earnings per share:
Income (loss) from continuing operations................. $ 3.3 $ 23.5 $ (9.7) $ (2.6)
Less: Preferred stock dividends.......................... 0.3 0.3 0.5 0.5
------ ------ ------ ------
Income (loss) from continuing operations available to
common stockholders.................................... 3.0 23.2 (10.2) (3.1)
Loss from discontinued operations........................ 0.6 1.0 0.4 0.5
Loss on sale of Sawhill Tubular.......................... -- 6.3 -- 6.3
------ ------ ------ ------
Net income (loss) available to common stockholders....... $ 2.4 $ 15.9 $(10.6) $ (9.9)
====== ====== ====== ======
Weighted average common shares (in millions)................ 107.8 107.9 107.8 107.9
Common stock options outstanding......................... 0.2 0.3 -- --
------ ------ ------ ------
Common shares outstanding as adjusted.................... 108.0 108.2 107.8 107.9
====== ====== ====== ======
Diluted earnings (loss) per share:
Income (loss) from continuing operations................. $ 0.03 $ 0.22 $(0.10) $(0.03)
Loss from discontinued operations........................ 0.01 0.01 -- --
Loss on sale of Sawhill Tubular.......................... -- 0.06 -- 0.06
------ ------ ------ ------
Net income (loss)........................................ $ 0.02 $ 0.15 $(0.10) $(0.09)
====== ====== ====== ======
F-41
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data)
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 out (LIFO) method.
Other inventories are measured principally at average cost.
December 31, June 30,
2001 2002
------------ --------
Finished and semi-finished................... $734.9 $677.7
Raw materials................................ 179.4 152.9
------ ------
Total cost................................... 914.3 830.6
Adjustment to state inventories at LIFO value (9.7) (5.9)
------ ------
Net inventories.............................. $904.6 $824.7
====== ======
4. Accounting for Goodwill and Other Intangible Assets
The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," as of January 1, 2002. Statement No.
142 requires that goodwill no longer be amortized to earnings, but instead be
reviewed annually for impairment. In the second quarter of 2002 the Company
completed the required review with the assistance of a third party consultant
and determined that, as of January 1, 2002, no impairment was necessary.
As of December 31, 2001 and June 30, 2002, goodwill on the consolidated
balance sheets was $109.7, of which $107.3 related to Steel Operations and $2.4
related to Snow and Ice Control Products. On the December 31, 2001 and June 30,
2002 consolidated balance sheets were other intangible assets of $111.9 and
$111.6, respectively. As of both dates, a $108.2 intangible asset was necessary
to record a minimum pension liability, of which $105.2 related to the Steel
Operations and $3.0 related Snow and Ice Control Products. The remaining
intangible assets as of these dates related to Snow and Ice Control Product
assets with an original value of $9.7, which are subject to amortization over a
period of up to seventeen years. Had the Company adopted Statement No. 142 at
the beginning of 2001, net income (loss) in the indicated periods of that year
would have been adjusted as follows.
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
------------------ ----------------
Net income (loss), as reported....... $ 2.7 $(10.1)
Goodwill amortization, net of tax.... 0.7 1.3
----- ------
Adjusted net income (loss)........... $ 3.4 $ (8.8)
===== ======
Basic and diluted earnings per share:
Net income (loss), as reported.... $0.02 $(0.10)
Goodwill amortization............. 0.01 0.01
----- ------
Adjusted net income (loss)........ $0.03 $(0.09)
===== ======
5. Insurance Settlement
In the second quarter of 2002, the Company recorded a pretax benefit of
$23.9 arising from insurance settlements entered into by the Company with
certain of its insurance carriers. The benefit is net of legal fees and
increases to environmental liabilities. The agreements cover certain past and
future environmental and asbestos claims and/or liabilities. Of the total
settlement amount, $8.0 was received in the second quarter with the net balance
due to be received in the second half of 2002. Several insurance policies have
been commuted as a result of these settlement agreements.
F-42
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
6. Sale of Anthem Inc. Stock
During the six months ended June 30, 2002, the Company liquidated all of the
nearly 1.5 million shares of Anthem Inc. stock it had received in 2001 upon the
demutualization of its primary healthcare insurance provider. In the first
quarter of 2002, the Company recorded a gain on the sale of Anthem shares of
$24.1. The stock was sold for a total of $80.2. At June 30, 2002, accrued
liabilities on the Company's balance sheet included $6.3 for the portion of the
proceeds deemed to be healthcare plan assets.
7. Income Tax Refund
On March 9, 2002, President Bush signed into law the Job Creation and Worker
Assistance Act. One of the provisions of the Act increases the net operating
loss (NOL) carryback period to five years from two years for losses generated
in tax years 2001 and 2002 and allows an NOL deduction arising in these tax
years to offset 100% of alternative minimum taxable income during the carryback
period. Application of this provision allowed the Company to claim a $46.7
refund of previously paid income taxes. The refund, received in the second
quarter of 2002, reduced the Company's deferred tax asset but will not affect
current or future reported net income or loss.
8. Comprehensive Income (Loss)
Comprehensive income (loss), net of tax, is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------- --------------
2001 2002 2001 2002
------ ----- ------ ------
Net income (loss)......................................... $ 2.7 $16.2 $(10.1) $ (9.4)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment................ (0.7) 0.9 0.1 0.6
Derivative instrument hedges, mark to market:
Cumulative effect adjustment....................... -- -- 27.5 --
Gains (losses) arising in period................... (28.1) (2.7) (42.8) 5.8
Reclass of losses (gains) included in net loss..... (0.7) 5.5 (10.3) 19.2
Unrealized gains/losses on securities:
Unrealized holding losses arising in period........ (0.4) (0.4) (0.5) (0.8)
Reclass of gains included in net income/loss....... (0.1) -- (1.0) (11.3)
------ ----- ------ ------
Comprehensive income (loss)............................... $(27.3) $19.5 $(37.1) $ 4.1
====== ===== ====== ======
A 40% deferred tax rate is applied to derivative instrument hedges and
unrealized gains and losses.
Accumulated other comprehensive loss is as follows:
December 31, June 30,
2001 2002
------------ --------
Foreign currency translation........... $ (2.1) $ (1.5)
Derivative instrument hedges........... (28.9) (3.9)
Unrealized gains (losses) on securities 8.3 (3.8)
Minimum pension liability.............. (164.6) (164.6)
------- -------
Accumulated other comprehensive loss... $(187.3) $(173.8)
======= =======
F-43
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
9. Segment Information
The Company's Steel Operations primarily consist of the production,
finishing and sale of flat-rolled carbon, stainless and electrical steels and
steel tubing products. AK Tube L.L.C., a plant that further finishes
flat-rolled carbon steels into tubular products, has been reclassified to Steel
Operations from Other Operations. AK Tube was acquired in the third quarter of
2001. The Company also owns a Snow and Ice Control Products business, which
manufactures snowplows and salt and sand spreaders for four-wheel drive light
trucks. The Company's Other Operations consist of an industrial park. The
following presents the results of the Company's segments.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2001 2002 2001 2002
------ -------- -------- --------
Net sales:
Steel Operations.............. $948.1 $1,102.3 $1,885.1 $2,055.1
Snow and Ice Control Products. 32.9 36.0 48.8 47.5
Other Operations.............. 3.2 3.2 6.1 6.6
------ -------- -------- --------
Total net sales............... $984.2 $1,141.5 $1,940.0 $2,109.2
====== ======== ======== ========
Operating profit:
Steel Operations.............. $ 25.2 $ 56.7 $ 33.7 $ 20.9
Snow and Ice Control Products. 9.3 11.2 11.0 10.6
Other Operations.............. 1.9 2.0 3.7 4.1
------ -------- -------- --------
Total operating profit........ $ 36.4 $ 69.9 $ 48.4 $ 35.6
====== ======== ======== ========
10. Dividends
As of June 30, 2002, the Company could not declare or pay dividends to
holders of its common or preferred stock because of a restrictive covenant
contained in the instruments governing its outstanding debt. The preferred
stock dividends are cumulative and, as such, holders of the preferred stock are
entitled to payment of all accrued, but unpaid dividends, before payment of
dividends to the holders of common stock. As of June 30, 2002, dividends on the
preferred stock are in arrears for a period of three quarters for an aggregate
amount of $0.7, or $2.71875 per share.
11. Sale of Sawhill Tubular Division
On April 19, 2002, the Company completed the sale of its Sawhill Tubular
division for $68.5 in cash, of which $62.8 was received at the time of sale.
The Company retained approximately $20.5 in current liabilities of Sawhill
Tubular. The Company recorded a pretax loss of $10.5 ($6.3 after tax or $0.06
per share) in the second quarter of 2002, reflecting when the Company's Board
of Directors approved the plan of sale. Sawhill Tubular was previously included
in Other Operations in the Company's segment report.
The results of Sawhill Tubular have been classified as discontinued
operations in the statements of income. The assets disposed of in the sale
transaction, consisting primarily of trade receivables, inventories and
property, plant and equipment with book values of $21.3, $36.5 and $23.1,
respectively, have been classified as current and noncurrent assets held for
sale in the December 31, 2001 consolidated balance sheet. There were no material
F-44
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
liabilities transferred in the transaction. Results of discontinued operations,
prior to the date of sale included the following for Sawhill Tubular:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2001 2002 2001 2002
----- ---- ----- -----
Net sales.. $38.1 $8.6 $81.0 $42.4
Pretax loss 0.8 1.7 0.5 0.8
Net loss... 0.6 1.0 0.4 0.5
12. Long-Term Debt
On June 11, 2002, the Company issued and sold $550.0 of 7 3/4% Senior Notes
Due 2012. Net of a discount and fees, the sale generated $538.1 of cash. On
July 11, 2002, these proceeds, along with cash on hand, were used to retire the
Company's $550.0 9 1/8% Senior Notes due 2006 at a total cost of $578.7, which
included a redemption premium of $25.1 and accrued interest.
13. Supplemental Guarantor Information
AK Holding and Douglas Dynamics, L.L.C. (the "Guarantor Subsidiary") fully
and unconditionally, joint and severally guarantee the interest, principal and
premium, if any, payments of AK Steel's 9% Senior Notes Due 2007, 8 7/8% Senior
Notes Due 2008, 7 7/8% Senior Notes Due 2009 and 7 3/4% Senior Notes Due 2012.
The Company has determined that full financial statements and other disclosures
concerning AK Holding and the Guarantor Subsidiary would not be material to
investors and such financial statements are not presented. Because AK Holding
has no operations that are independent of AK Steel, AK Holding's results are
combined with AK Steel. The following supplemental condensed consolidating
financial statements present information about AK Steel, the Guarantor
Subsidiary and the Other Subsidiaries. The Other Subsidiaries do not guarantee
the above notes.
F-45
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
STATEMENTS OF INCOME
For the Three Months Ended June 30, 2001
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Net sales............................... $ 946.9 $32.9 $81.2 $(76.8) $ 984.2
Cost of products sold................... 807.8 17.6 18.8 (17.1) 827.1
Selling and administrative expenses..... 103.8 5.3 2.7 (49.1) 62.7
Depreciation............................ 57.3 0.7 -- -- 58.0
-------- ----- ----- ------ --------
Total operating costs................ 968.9 23.6 21.5 (66.2) 947.8
Operating profit (loss)................. (22.0) 9.3 59.7 (10.6) 36.4
Interest expense........................ 32.9 -- 8.5 (8.3) 33.1
Other income............................ (4.5) 0.1 4.0 2.3 1.9
-------- ----- ----- ------ --------
Income (loss) before income taxes....... (59.4) 9.4 55.2 -- 5.2
Income tax provision (benefit).......... 1.3 0.1 0.5 -- 1.9
-------- ----- ----- ------ --------
Income (loss) from continuing operations (60.7) 9.3 54.7 -- 3.3
Loss from discontinued operations....... 0.6 -- -- -- 0.6
-------- ----- ----- ------ --------
Net income (loss)....................... $ (61.3) $ 9.3 $54.7 $ -- $ 2.7
======== ===== ===== ====== ========
For the Three Months Ended June 30, 2002
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Net sales............................... $1,091.4 $36.0 $84.1 $(70.0) $1,141.5
Cost of products sold................... 947.7 18.4 33.1 (23.6) 975.6
Selling and administrative expenses..... 89.8 5.5 4.7 (35.7) 64.3
Depreciation............................ 54.0 0.9 0.7 -- 55.6
Insurance settlement.................... (23.9) -- -- -- (23.9)
-------- ----- ----- ------ --------
Total operating costs................ 1,067.6 24.8 38.5 (59.3) 1,071.6
Operating profit (loss)................. 23.8 11.2 45.6 (10.7) 69.9
Interest expense........................ 34.5 -- 5.3 (5.1) 34.7
Other income............................ (4.8) -- 2.3 4.6 2.1
-------- ----- ----- ------ --------
Income (loss) before income taxes....... (15.5) 11.2 42.6 (1.0) 37.3
Income tax provision (benefit).......... 13.1 -- 0.7 -- 13.8
-------- ----- ----- ------ --------
Income (loss) from continuing operations (28.6) 11.2 41.9 (1.0) 23.5
Loss from discontinued operations....... 1.0 -- -- -- 1.0
Loss on sale of Sawhill Tubular......... 6.3 -- -- -- 6.3
-------- ----- ----- ------ --------
Net income (loss)....................... $ (35.9) $11.2 $41.9 $ (1.0) $ 16.2
======== ===== ===== ====== ========
F-46
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
STATEMENTS OF INCOME
For the Six Months Ended June 30, 2001
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Net sales............................... $1,905.5 $48.8 $155.4 $(169.7) $1,940.0
Cost of products sold................... 1,643.2 25.8 31.1 (48.7) 1,651.4
Selling and administrative expenses..... 206.0 10.5 5.1 (97.4) 124.2
Depreciation............................ 114.5 1.5 -- -- 116.0
-------- ----- ------ ------- --------
Total operating costs................ 1,963.7 37.8 36.2 (146.1) 1,891.6
Operating profit (loss)................. (58.2) 11.0 119.2 (23.6) 48.4
Interest expense........................ 67.0 -- 18.4 (17.9) 67.5
Other income............................ (9.8) 0.1 8.1 5.3 3.7
-------- ----- ------ ------- --------
Income (loss) before income taxes....... (135.0) 11.1 108.9 (0.4) (15.4)
Income tax provision (benefit).......... (6.7) 0.2 0.8 -- (5.7)
-------- ----- ------ ------- --------
Income (loss) from continuing operations (128.3) 10.9 108.1 (0.4) (9.7)
Loss from discontinued operations....... 0.4 -- -- -- 0.4
-------- ----- ------ ------- --------
Net income (loss)....................... $ (128.7) $10.9 $108.1 $ (0.4) $ (10.1)
======== ===== ====== ======= ========
For the Six Months Ended June 30, 2002
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Net sales............................... $2,035.2 $47.5 $142.0 $(115.5) $2,109.2
Cost of products sold................... 1,814.6 24.0 60.6 (44.5) 1,854.7
Selling and administrative expenses..... 161.7 11.1 8.6 (51.6) 129.8
Depreciation............................ 109.8 1.8 1.4 -- 113.0
Insurance settlement.................... (23.9) -- -- -- (23.9)
-------- ----- ------ ------- --------
Total operating costs................ 2,062.2 36.9 70.6 (96.1) 2,073.6
Operating profit (loss)................. (27.0) 10.6 71.4 (19.4) 35.6
Interest expense........................ 65.9 -- 10.2 (9.6) 66.5
Gain on sale of Anthem stock............ 24.1 -- -- -- 24.1
Other income............................ (10.3) 0.1 4.5 8.3 2.6
-------- ----- ------ ------- --------
Income (loss) before income taxes....... (79.1) 10.7 65.7 (1.5) (4.2)
Income tax provision (benefit).......... (3.1) -- 1.5 -- (1.6)
-------- ----- ------ ------- --------
Income (loss) from continuing operations (76.0) 10.7 64.2 (1.5) (2.6)
Loss from discontinued operations....... 0.5 -- -- -- 0.5
Loss on sale of Sawhill Tubular......... 6.3 -- -- -- 6.3
-------- ----- ------ ------- --------
Net income (loss)....................... $ (82.8) $10.7 $ 64.2 $ (1.5) $ (9.4)
======== ===== ====== ======= ========
F-47
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
BALANCE SHEETS
December 31, 2001
Guarantor Other Elim- Consolidated
AK Steel Subsidiary Subsidiaries inations Company
--------- ---------- ------------ -------- ------------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 97.2 $ 0.1 $ 3.7 $ -- $ 101.0
Accounts receivable.................. 11.8 23.8 352.4 -- 388.0
Inventories (Note 3)................. 844.4 15.9 41.4 2.9 904.6
Deferred tax asset................... 76.6 -- -- -- 76.6
Current assets held for sale......... 60.6 -- -- -- 60.6
Other current assets................. 16.2 0.5 0.3 -- 17.0
--------- ------ ------- ------- ---------
Total Current Assets............. 1,106.8 40.3 397.8 2.9 1,547.8
--------- ------ ------- ------- ---------
Property, Plant and Equipment........... 4,665.3 46.3 31.3 -- 4,742.9
Less accumulated depreciation........ (1,953.3) (19.7) (1.6) -- (1,974.6)
--------- ------ ------- ------- ---------
Property, plant and equipment, net... 2,712.0 26.6 29.7 -- 2,768.3
--------- ------ ------- ------- ---------
Other Assets:
Investment in AFSG Holdings, Inc..... -- -- 55.6 -- 55.6
Intercompany accounts................ 303.6 146.3 (167.0) (282.9) --
Other investments.................... 100.9 -- 53.4 -- 154.3
Goodwill............................. 101.2 2.4 6.1 -- 109.7
Other intangible assets (Note 4)..... 108.2 3.7 -- -- 111.9
Deferred tax asset................... 393.5 -- -- -- 393.5
Noncurrent assets held for sale...... 24.4 -- -- -- 24.4
Other assets......................... 58.8 1.4 0.1 -- 60.3
--------- ------ ------- ------- ---------
Total Assets..................... $ 4,909.4 $220.7 $ 375.7 $(280.0) $ 5,225.8
========= ====== ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................... $ 522.0 $ 6.3 $ 9.3 $ -- $ 537.6
Accrued liabilities.................. 258.6 7.6 4.3 -- 270.5
Current portion of long-term debt.... 63.3 -- 14.7 -- 78.0
Current portion of pension and OPEBs. 68.2 0.1 -- -- 68.3
--------- ------ ------- ------- ---------
Total Current Liabilities........ 912.1 14.0 28.3 -- 954.4
--------- ------ ------- ------- ---------
Noncurrent Liabilities:
Long-term debt....................... 1,324.5 -- -- -- 1,324.5
Pension and OPEBs.................... 1,736.1 4.0 -- -- 1,740.1
Other liabilities.................... 167.8 3.8 1.9 -- 173.5
--------- ------ ------- ------- ---------
Total Noncurrent Liabilities..... 3,228.4 7.8 1.9 -- 3,238.1
--------- ------ ------- ------- ---------
Total Liabilities....................... 4,140.5 21.8 30.2 -- 4,192.5
--------- ------ ------- ------- ---------
Total Stockholders' Equity.............. 768.9 198.9 345.5 (280.0) 1,033.3
--------- ------ ------- ------- ---------
Total Liabilities and Equity............ $ 4,909.4 $220.7 $ 375.7 $(280.0) $ 5,225.8
========= ====== ======= ======= =========
F-48
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
BALANCE SHEETS
June 30, 2002
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
--------- ---------- ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents............ $ 836.7 $ -- $ 7.2 $ -- $ 843.9
Accounts receivable.................. 39.4 29.4 445.4 -- 514.2
Inventories (Note 3)................. 760.1 24.5 44.0 (3.9) 824.7
Deferred tax asset................... 62.2 -- 0.3 -- 62.5
Other current assets................. 25.0 0.9 0.7 -- 26.6
--------- ------ ------- ------- --------
Total Current Assets............. 1,723.4 54.8 497.6 (3.9) 2,271.9
--------- ------ ------- ------- --------
Property, Plant and Equipment........... 4,713.9 50.0 32.1 -- 4,796.0
Less accumulated depreciation........ (2,063.0) (21.5) (3.0) -- (2087.5)
--------- ------ ------- ------- --------
Property, plant and equipment, net... 2,650.9 28.5 29.1 -- 2,708.5
--------- ------ ------- ------- --------
Other Assets:
Investment in AFSG Holdings, Inc..... -- -- 55.6 -- 55.6
Intercompany accounts................ 350.3 139.0 (296.8) (192.5) --
Other investments.................... 33.8 -- 52.6 -- 86.4
Goodwill............................. 101.2 2.4 6.1 -- 109.7
Other intangible assets (Note 4)..... 108.2 3.4 -- -- 111.6
Deferred tax asset................... 358.1 -- -- -- 358.1
Other assets......................... 59.0 1.4 6.4 -- 66.8
--------- ------ ------- ------- --------
Total Assets..................... $ 5,384.9 $229.5 $ 350.6 $(196.4) $5,768.6
========= ====== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................... $ 475.7 $ 5.7 $ 11.2 $ -- $ 492.6
Accrued liabilities.................. 251.8 6.4 3.7 -- 261.9
Current portion of long-term debt.... 612.9 -- 14.7 -- 627.6
Current portion of pension and OPEBs. 67.2 -- -- -- 67.2
--------- ------ ------- ------- --------
Total Current Liabilities........ 1,407.6 12.1 29.6 -- 1,449.3
--------- ------ ------- ------- --------
Noncurrent Liabilities:
Long-term debt....................... 1,322.2 -- -- -- 1,322.2
Pension and OPEBs.................... 1,784.4 4.1 -- -- 1,788.5
Other liabilities.................... 164.6 3.6 2.1 -- 170.3
--------- ------ ------- ------- --------
Total Noncurrent Liabilities..... 3,271.2 7.7 2.1 -- 3,281.0
--------- ------ ------- ------- --------
Total Liabilities....................... 4,678.8 19.8 31.7 -- 4,730.3
--------- ------ ------- ------- --------
Total Stockholders' Equity.............. 706.1 209.7 318.9 (196.4) 1,038.3
--------- ------ ------- ------- --------
Total Liabilities and Equity............ $ 5,384.9 $229.5 $ 350.6 $(196.4) $5,768.6
========= ====== ======= ======= ========
F-49
AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2001
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Total from operating activities of continuing
operations.................................. $(63.4) $(1.9) $ 105.6 $(2.8) $ 37.5
Cash Flows From Investing Activities:
Capital investments........................ (44.5) (1.1) -- -- (45.6)
Proceeds from sale of investments.......... 31.6 -- -- -- 31.6
Other...................................... (4.9) -- (0.5) -- (5.4)
------ ----- ------- ----- ------
Total from investing activities of
continuing operations................ (17.8) (1.1) (0.5) -- (19.4)
------ ----- ------- ----- ------
Cash Flows From Financing Activities:
Principal payments on long-term debt....... (0.3) -- -- -- (0.3)
Common stock dividends paid................ (13.5) -- -- -- (13.5)
Preferred stock dividends paid............. (0.5) -- -- -- (0.5)
Intercompany activity...................... 101.1 1.6 (105.5) 2.8 --
Other...................................... (0.9) -- -- -- (0.9)
------ ----- ------- ----- ------
Total from financing activities of
continuing operations................ 85.9 1.6 (105.5) 2.8 (15.2)
Cash flow from discontinued operations........ 15.8 -- -- -- 15.8
------ ----- ------- ----- ------
Net increase (decrease)....................... 20.5 (1.4) (0.4) -- 18.7
Cash and equivalents, beginning of period..... 80.1 1.4 5.3 -- 86.8
------ ----- ------- ----- ------
Cash and equivalents, end of period........... $100.6 $ -- $ 4.9 $ -- $105.5
====== ===== ======= ===== ======
For the Six Months Ended June 30, 2002
Guarantor Other Consolidated
AK Steel Subsidiary Subsidiaries Eliminations Company
-------- ---------- ------------ ------------ ------------
Total from operating activities of continuing
operations.................................. $154.2 $(3.6) $(34.5) $ 5.3 $121.4
Cash Flows From Investing Activities:
Capital investments........................ (48.6) (3.8) (0.7) -- (53.1)
Proceeds from sale of investments.......... 82.0 -- -- -- 82.0
Proceeds from sale of business............. 62.8 -- -- -- 62.8
Other...................................... (10.0) -- (0.2) -- (10.2)
------ ----- ------ ----- ------
Total from investing activities of
continuing operations................ 86.2 (3.8) (0.9) -- 81.5
------ ----- ------ ----- ------
Cash Flows From Financing Activities:
Proceeds from issuing long-term debt....... 538.1 -- -- -- 538.1
Principal payments on long-term debt....... (0.4) -- -- -- (0.4)
Intercompany activity...................... (40.3) 7.3 38.3 (5.3) --
Other...................................... (1.4) -- 0.6 -- (0.8)
------ ----- ------ ----- ------
Total from financing activities of
continuing operations................ 496.0 7.3 38.9 (5.3) 536.9
Cash flow from discontinued operations........ 3.1 -- -- -- 3.1
------ ----- ------ ----- ------
Net increase (decrease)....................... 739.5 (0.1) 3.5 -- 742.9
Cash and equivalents, beginning of period..... 97.2 0.1 3.7 -- 101.0
------ ----- ------ ----- ------
Cash and equivalents, end of period........... $836.7 $ -- $ 7.2 $ -- $843.9
====== ===== ====== ===== ======
F-50
[LOGO]
AK
Dealer Prospectus Delivery Obligation. Until , 200 , all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Officers.
AK Steel Corporation
AK Steel Holding Corporation
AK Steel Corporation ("AK Steel")Holding and AK Steel Holding Corporation
("Holding") are each Delaware corporations. Subsection (b)(7) of Section 102 of the Delaware General Corporation Law (the "DGCL"),DGCL enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for violations of the director'sdirector’s fiduciary duty, except (i) for any breach of the director'sdirector’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. The Certificate of Incorporation of each of AK SteelHolding and HoldingAK Steel has eliminated the personal liability of its directors to the fullest extent permitted by law.
Subsection (a) of Section 145 of the DGCL empowers a corporation to indemnify any director or officer, or former director or officer, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys'attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding provided that such director or officer acted in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, provided further that such director or officer had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any director or officer,current or former director, officer, employee or officer,agent of the corporation, who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys'attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit provided that such director or officer acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) or (b) or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys'attorneys’ fees) actually and reasonably incurred by him in connection therewith; that indemnification and advancement of expenses provided
for, by, or granted pursuant to, Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and empowers the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or officeragent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint
II-1
venture, trust or
II-1
Article Seventh of the Certificate of Incorporation of AK Holding and Article Seven of the Certificate of Incorporation of each of AK Steel and
Holding stateseach state that the corporation shall indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature, by reason of the fact that such person is or was a director, officer or employee of the corporation, or is or was serving at the request of the corporation as a director, officer or employee of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, against expenses (including attorneys'attorneys’ fees), judgments, fines, andpenalties, amounts paid in settlement and other liabilities actually and reasonably incurred by himsuch person in connection with such action, suit or proceeding to the fullfullest extent permitted by law, and the corporation may adopt by-laws or enter into agreements with any such person for the purpose of providing such indemnification.
Douglas Dynamics, L.L.C.
Douglas Dynamics, L.L.C. ("Douglas Dynamics") is a Delaware limited
liability company. Section 18-108 of the Delaware Limited Liability Company Act
(the "Delaware Act") grants a Delaware limited liability company the power,
subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, to indemnify and hold harmless any member
or manager or other person from and against any and all claims and demands
whatsoever. Douglas Dynamics' Operating Agreement, as amended, provides that
Douglas Dynamics will indemnify each member, and its officers and directors,
and each officer of Douglas Dynamics, for all liabilities, actions, damages,
costs and expenses (including without limitation reasonable attorneys' fees)
incurred by the indemnified party as a result of, arising out of or incidental
to any act or omission of the indemnified party with respect to Douglas
Dynamics or its business, as and to the full extent permitted by the Delaware
Act, but in no event for fraud, negligence or an intentional breach of the
Operating Agreement. Douglas Dynamics may in its discretion advance expenses to
the indemnified party, subject to an agreement that the indemnified party repay
such amounts if the indemnified party is determined to be not entitled to
indemnification under the Operating Agreement. Whenever any indemnification has
been paid or expenses advanced to any indemnified party, such occurrence shall
be reported to the members prior to or with the next notice of a meeting of
members.
The Operating Agreement also provides that no member (or any officer or
director thereof), and no officer of Douglas Dynamics, shall be liable,
responsible, or accountable, in damages or otherwise, to any member or to
Douglas Dynamics for any act performed by such individual within the scope of
the authority conferred on the individual by the Operating Agreement, except
for fraud, negligence or an intentional breach of the Operating Agreement.
II-2
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
| (a) | Exhibits (Including Those Incorporated By Reference) |
Exhibit | Description of | |
| 3.1 | Restated Certificate of Incorporation |
| 3.2 | By-laws of AK Steel Holding Corporation, as amended and restated as of May 27, 2010 (incorporated herein by reference to Exhibit 3.2 to AK Steel Holding | |
| *3.3 | Certificate of Incorporation of AK Steel Corporation, as amended. | |
| *3.4 | By-laws of AK Steel Corporation, as amended | |
| 4.1 | Indenture, dated as of November | |
| 4.2 | Form of 8.750% Senior Secured Note due 2018 (included in Exhibit 4.1). | |
| 4.3 | Registration Rights Agreement, dated as of | |
| 4.4 | Registration Rights Agreement, dated as of | |
| *5.1 | Opinion of Weil, Gotshal & Manges LLP. | |
| 10.1 | Security Agreement, dated as of | |
| 10.2 | Collateral Trust Agreement, dated as of November 20, 2012, among AK Steel Corporation and U.S. Bank National Association, as trustee and collateral agent (incorporated herein by reference to Exhibit 10.4 to AK Steel Holding Corporation’s Form 8-K, as filed with the SEC on November 20, 2012). | |
| *12.1 | Statement Regarding Computation of Ratio of Earnings to Fixed Charges. | |
| 16.1 | Letter of Deloitte & Touche LLP, dated February 28, 2013 (incorporated herein by reference to Exhibit 16.1 to AK Steel Holding Corporation’s Form 8-K, as filed with the SEC on February 28, 2013). | |
| 21.1 | Subsidiaries of AK Steel Holding Corporation (incorporated herein by reference to Exhibit 21.1 to AK Steel Holding Corporation’s Annual Report on Form 10-K for the year ended December 31, | |
| *23.1 | Consent of Deloitte & Touche LLP. | |
| *23.2 | Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1). | |
| *24.1 | Powers of | |
| *25.1 | Form T-1 Statement of Eligibility and Qualification | |
| *99.1 | Form of Letter of Transmittal. | |
| *99.2 | Form of Notice of Guaranteed Delivery. | |
| * | Filed herewith. |
II-3
Item 22. Undertakings.
Each of the
(a) The undersigned Registrantsregistrants hereby undertake:
(1) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(3) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(4) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) toTo include any prospectus required by Sectionsection 10(a)(3) of the Securities Act;
(ii) toTo reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percenta 20% change in the maximum aggregate offering price set forth in the "Calculation“Calculation of Registration Fee"Fee” table in the effective registration statement; and
II-5
(iii) toTo include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(5)statement
(2) That, for the purpose of determining any liability under the Securities Act, of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(6)
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
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(4) That, for purposes of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.Provided,however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§ 230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
II-4
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, such registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Citytownship of Middletown,West Chester, State of Ohio, on August 20, 2002.
AK STEEL CORPORATION
By: /S/ JAMES L. WAINSCOTT
----------------------------------
Name: James L. Wainscott
Title: Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard M.
Wardrop, Jr. and James L. Wainscott, and eachthe 12th day of them, as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the SEC,
granting unto said attorneys-in-fact and agents full power and authority to
perform each and every act and thing appropriate or necessary to be done, as
fully and for all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
July, 2013.
| AK STEEL HOLDING CORPORATION | ||
| By: | /s/ Roger K. Newport | |
Roger K. Newport Vice President, Finance and Chief Financial Officer | ||
Pursuant to the requirementrequirements of the Securities Act, of 1933, this Registration Statement and the foregoing Power of Attorney havehas been signed by the following persons in the capacities and on the dates indicated.
Signature Capacity in which Signed Date
--------- ------------------------ ----
/S/ RICHARD M. WARDROP, JR. Chairman, Chief Executive August 20, 2002
---------------------------- Officer and President
Richard M. Wardrop, Jr.
/S/ JAMES L. WAINSCOTT Senior Vice President and August 20, 2002
---------------------------- Chief Financial Officer (and
James L. Wainscott principal accounting officer)
/S/ RICHARD A. ABDOO Director August 20, 2002
----------------------------
Richard A. Abdoo
/S/ ALLEN BORN Director August 20, 2002
----------------------------
Allen Born
/S/ DONALD V. FITES Director August 20, 2002
----------------------------
Donald V. Fites
/S/ DR. BONNIE G. HILL Director August 20, 2002
----------------------------
Dr. Bonnie G. Hill
/S/ ROBERT H. JENKINS Director August 20, 2002
----------------------------
Robert H. Jenkins
II-7
Signature Capacity in which Signed Date
--------- ------------------------ ----
/s/ LAWRENCE A. LESER Director August 20, 2002
-------------------------
Lawrence A. Leser
/S/ DANIEL J. MEYER Director August 20, 2002
-------------------------
Daniel J. Meyer
/S/ EUGENE A. RENNA Director August 20, 2002
-------------------------
Eugene A. Renna
/S/ DR. JAMES A. THOMSON Director August 20, 2002
-------------------------
Dr. James A. Thomson
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Signature | Title | |
/s/ James L. Wainscott | Chairman of the Board, President, and Chief Executive Officer (Principal Executive Officer) | |
| James L. Wainscott | ||
/s/ Roger K. Newport Roger K. Newport | Vice President, Finance and Chief Financial Officer (Principal Financial Officer) | |
/s/ Gregory A. Hoffbauer Gregory A. Hoffbauer | Controller and Chief Accounting Officer (Principal Accounting Officer) | |
* Robert H. Jenkins | Lead Director | |
* Richard A. Abdoo | Director | |
* John S. Brinzo | Director | |
* Dennis C. Cuneo | Director | |
* William K. Gerber | Director | |
* Dr. Bonnie G. Hill | Director | |
* Ralph S. Michael III | Director | |
* Shirley D. Peterson | Director | |
* Dr. James A. Thomson | Director | |
| * By: | /s/ David C. Horn | |
| Name: David C. Horn | ||
| Title: Attorney-in-fact |
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Citytownship of Middletown,West Chester, State of Ohio, on August 20, 2002.
AK STEEL HOLDING CORPORATION
By: /S/ JAMES L. WAINSCOTT
---------------------------------
Name: James L. Wainscott
Title: Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard M.
Wardrop, Jr. and James L. Wainscott, and eachthe 12th day of them, as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the SEC,
granting unto said attorneys-in-fact and agents full power and authority to
perform each and every act and thing appropriate or necessary to be done, as
fully and for all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
July, 2013.
| AK STEEL CORPORATION | ||
| By: | /s/ Roger K. Newport | |
Roger K. Newport Vice President, Finance and Chief Financial Officer | ||
Pursuant to the requirementrequirements of the Securities Act, of 1933, this Registration
Statement and the foregoing Power of Attorney haveregistration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Capacity in which Signed Date
--------- ------------------------ ----
/S/ RICHARD M. WARDROP, JR. Chairman, Chief Executive August 20, 2002
---------------------------- Officer and President
Richard M. Wardrop, Jr.
/S/ JAMES L. WAINSCOTT Senior Vice President and August 20, 2002
---------------------------- Chief Financial Officer (and
James L. Wainscott principal accounting officer)
/S/ RICHARD A. ABDOO Director August 20, 2002
----------------------------
Richard A. Abdoo
/S/ ALLEN BORN Director August 20, 2002
----------------------------
Allen Born
/S/ DONALD V. FITES Director August 20, 2002
----------------------------
Donald V. Fites
/S/ DR. BONNIE G. HILL Director August 20, 2002
----------------------------
Dr. Bonnie G. Hill
/S/ ROBERT H. JENKINS Director August 20, 2002
----------------------------
Robert H. Jenkins
II-9
Signature Capacity in which Signed Date
--------- ------------------------ ----
/S/ LAWRENCE A. LESER Director August 20, 2002
-------------------------
Lawrence A. Leser
/S/ DANIEL J. MEYER Director August 20, 2002
-------------------------
Daniel J. Meyer
/S/ EUGENE A. RENNA Director August 20, 2002
-------------------------
Eugene A. Renna
/S/ DR. JAMES A. THOMSON Director August 20, 2002
-------------------------
Dr. James A. Thomson
II-10
SIGNATURES
Pursuant to the requirementsindicated as of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middletown, State of
Ohio on August 20, 2002.
DOUGLAS DYNAMICS, L.L.C.
By: AK Steel Corporation, its
sole member
By: /S/ JAMES L. WAINSCOTT
-----------------------------
Name: James L. Wainscott
Title: Senior Vice President
and Chief Financial
Officer of AK Steel
Corporation
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard M.
Wardrop, Jr. and James L. Wainscott, and each of them, as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the SEC,
granting unto said attorneys-in-fact and agents full power and authority to
perform each and every act and thing appropriate or necessary to be done, as
fully and for all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this Registration
Statement and the foregoing Power of Attorney have been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE Capacity in which Signed Date
--------- ------------------------ ----
/S/ RICHARD M. WARDROP, JR. Chairman, Chief Executive August 20, 2002
- ---------------------------- Officer and President of AK
Richard M. Wardrop, Jr. Steel Corporation
/S/ JAMES L. WAINSCOTT Senior Vice President and August 20, 2002
- ---------------------------- Chief Financial Officer (and
James L. Wainscott principal accounting officer) of
AK Steel Corporation
/S/ RICHARD A. ABDOO Director of AK Steel Corporation August 20, 2002
- ----------------------------
Richard A. Abdoo
/S/ ALLEN BORN Director of AK Steel Corporation August 20, 2002
- ----------------------------
Allen Born
/S/ DONALD V. FITES Director of AK Steel Corporation August 20, 2002
- ----------------------------
Donald V. Fites
/S/ DR. BONNIE G. HILL Director of AK Steel Corporation August 20, 2002
- ----------------------------
Dr. Bonnie G. Hill
/s/ ROBERT H. JENKINS Director of AK Steel Corporation August 20, 2002
- ----------------------------
Robert H. Jenkins
II-11
Signature Capacity in which Signed Date
--------- ------------------------ ----
/S/ LAWRENCE A. LESER Director of AK Steel Corporation August 20, 2002
-------------------------
Lawrence A. Leser
/S/ DANIEL J. MEYER Director of AK Steel Corporation August 20, 2002
-------------------------
Daniel J. Meyer
/S/ EUGENE A. RENNA Director of AK Steel Corporation August 20, 2002
-------------------------
Eugene A. Renna
/S/ DR. JAMES A. THOMSON Director of AK Steel Corporation August 20, 2002
-------------------------
Dr. James A. Thomson
II-12
EXHIBIT INDEX
July 12, 2013.
Signature | Title | |
/s/ James L. Wainscott | Chairman of the Board, President, and Chief Executive Officer (Principal Executive Officer) | |
| James L. Wainscott | ||
/s/ Roger K. Newport Roger K. Newport | Vice President, Finance and Chief Financial Officer (Principal Financial Officer) | |
/s/ Gregory A. Hoffbauer Gregory A. Hoffbauer | Controller and Chief Accounting Officer (Principal Accounting Officer) | |
* Robert H. Jenkins | Lead Director | |
* Richard A. Abdoo | Director | |
* John S. Brinzo | Director | |
* Dennis C. Cuneo | Director | |
* William K. Gerber | Director | |
* Dr. Bonnie G. Hill | Director | |
* Ralph S. Michael III | Director | |
* Shirley D. Peterson | Director | |
* Dr. James A. Thomson | Director | |
| * By: | /s/ David C. Horn | |
| Name: David C. Horn | ||
| Title: Attorney-in-fact |
Exhibit Index
Exhibit | Description of | |
| 3.1 | Restated Certificate of Incorporation | |
| 3.2 | By-laws of AK Steel Holding Corporation, as amended and restated as of May 27, 2010 (incorporated herein by reference to Exhibit 3.2 to AK Steel Holding | |
| *3.3 | Certificate of Incorporation of AK Steel Corporation, as amended. | |
| *3.4 | By-laws of AK Steel Corporation, as amended | |
| 4.1 | Indenture, dated as of November | |
| 4.2 | Form of 8.750% Senior Secured Note due 2018 (included in Exhibit 4.1). | |
| 4.3 | Registration Rights Agreement, dated as of | |
| 4.4 | Registration Rights Agreement, dated as of | |
| *5.1 | Opinion of Weil, Gotshal & Manges LLP. | |
| 10.1 | Security Agreement, dated as of | |
| 10.2 | Collateral Trust Agreement, dated as of November 20, 2012, among AK Steel Corporation and U.S. Bank National Association, as trustee and collateral agent (incorporated herein by reference to Exhibit 10.4 to AK Steel Holding Corporation’s Form 8-K, as filed with the SEC on November 20, 2012). | |
| *12.1 | Statement Regarding Computation of Ratio of Earnings to Fixed Charges. | |
| 16.1 | Letter of Deloitte & Touche LLP, dated February 28, 2013 (incorporated herein by reference to Exhibit 16.1 to AK Steel Holding Corporation’s Form 8-K, as filed with the SEC on February 28, 2013). | |
| 21.1 | Subsidiaries of AK Steel Holding Corporation (incorporated herein by reference to Exhibit 21.1 to AK Steel Holding Corporation’s Annual Report on Form 10-K for the year ended December 31, | |
| *23.1 | Consent of Deloitte & Touche LLP. | |
| *23.2 | Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1). | |
| *24.1 | Powers of | |
| *25.1 | Form T-1 Statement of Eligibility and Qualification | |
| *99.1 | Form of Letter of Transmittal. | |
| *99.2 | Form of Notice of Guaranteed Delivery. | |