As filed with the Securities and Exchange Commission on April 1, 1999August 20, 2002
Registration no.No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Issuer of Senior Notes registered hereby-----------------
AK STEEL CORPORATION
(Exact Name of Registrant as Specified in itsIts Charter)
DELAWAREand the Guarantors named in Footnote (1) below
Delaware 3312 31-1401455
(State or Other (Primary Standard Industrial (I.R.S. Employer Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
Incorporation or
Organization)
Guarantor of Senior Notes registered hereby
AK STEEL HOLDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 3312 31-1401455
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
703 Curtis Street
Middletown, Ohio 45043
(513) 425-5000
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrants' Principal Executive Offices)
James L. Wainscott
Senior Vice President Treasurer and Chief Financial Officer
AK Steel Corporation
703 Curtis Street
Middletown, Ohio 45043
(513) 425-5000
(Name and Address, Including Zip Code,
and Telephone Number, Including Area Code, of Agent For Service)
Copies of communicationsWith copies to:
Stephen H. Cooper, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue New York,
New York 10153-0119
(212) 310-8000
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
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 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 Form is a post-effective amendment filed pursuant to Rule 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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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum Amount of
Amount to be Maximum Offering Aggregate Registration
Title of Each Class of Maximum Aggregate Amount of
Securities to be Amount toRegistered Registered Price Per Unit Offering Price Offering Registration
Registered be Registered Per Unit Price(1) Fee(2)Fee
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7 7/8%3/4% Senior Notes Due 2009.................. $450,000,0002012.................... $550,000,000 100% $450,000,000 $125,100$550,000,000 $50,600(2)
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Guarantee------------------------------------------------------------------------------------------------------------
Guarantees of 7 3/4% Senior Notes.................Notes Due 2012(1)... -- -- -- None(3)
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(1)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 the purposes of calculating the registration fee pursuant
to Rule 457(f)(2) under the Securities Act of 1933, as amended (the
"Securities Act").
(2) Calculated pursuant(3)Pursuant to Rule 457(f)(2).Section 457(n) of the Securities Act, no separate registration
fee for the guarantees is payable.
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The registrantregistrants hereby amendsamend this registration statement on such date or
dates as may be necessary to delay its effective date until the registrantregistrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+TheThe information in this prospectus is not complete and may be changed. These +
+securitiesWe may
not be soldsell or offer these securities until the registration statement filed with
the +
+SecuritiesSecurities and Exchange Commission is effective. This prospectus is not an
+
+offeroffer to sell nor does it seekthese securities and we are not soliciting an offer to buy these
securities in any +
+jurisdictionstate where the offer or sale is not permitted.
+
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SubjectSUBJECT TO COMPLETION, DATED AUGUST 20, 2002
PROSPECTUS
$550,000,000
AK STEEL CORPORATION
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING
$550,000,000 7 3/4% SENIOR NOTES DUE 2012
FOR ITS NEWLY-ISSUED
$550,000,000 7 3/4% SENIOR NOTES DUE 2012
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We are offering to Completion,
Dated April 1, 1999
PROSPECTUS
AK Steel Corporation [LOGO]
Offer to Exchange
7 7/8% Senior Notes Due 2009
which have beenexchange our outstanding notes described above for the
new, registered under the Securities Act
for any and all outstanding
7 7/8% Senior Notes Due 2009
$450,000,000 aggregate principal amount outstanding
Material Termsnotes described above. The terms of the Exchange Offernew 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. In this document
we refer to our outstanding notes as the old notes and our new notes as the
registered notes. Any reference to notes in this prospectus refers to the old
notes and the registered notes, unless the context otherwise requires.
MATERIAL TERMS OF THE EXCHANGE OFFER
. Expires at 5:00 p.m., New . The exchange of notes York City time, on , will2002, unless
extended.
. The only conditions to completing the exchange offer are that the
exchange offer not be a taxable
1999, unless extendedviolate any applicable law or interpretation 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 for U.S. federal
income tax purposesoffer.
. We will exchange yourAll old notes that are validly tendered and not validly withdrawn will be
exchanged.
. Tenders of old notes may be withdrawn at any time prior to the expiration
of the exchange offer.
. We will not receive any unregistered notes for ancash proceeds from the equal principal amount of exchange offeroffer.
Each broker-dealer that receives registered notes with
substantially identical . The terms of the notesfor its own account
pursuant to
terms be issued are
substantially identical
. Not subject to any to those of the
condition other than that outstanding notes, except the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of those registered notes. The letter
of transmittal states that, by so acknowledging and by delivering a prospectus,
a broker-dealer will not for certain transfer
violate applicable law or restrictions and
any applicable registration rights
interpretation ofbe deemed to admit that it is an "underwriter" within
the relating to the
Staffmeaning of the Securities outstandingAct. 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 and Exchange Commission
and certainreceived in exchange for old notes where the
old notes were acquired by that broker-dealer as a result of market-making
activities or other . You may tender
customary conditions outstanding notes only in
denominationstrading activities. We have agreed that, for a period of
$1,000
. You may withdraw your and multiples of $1,000
tender of outstanding
notes at any time prior . Affiliates of our company
to180 days after the expiration date of the may not participate in
exchange offer the exchange offer, Please referwe will make this
prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
-------------
Consider carefully the "Risk Factors" beginning on page 1213 of this
document
for certain important information.prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be issued in this exchange offer, nor has
anyor disapproved of these organizations determined thatsecurities or passed upon the
accuracy or adequacy of this prospectus is truthful or
complete.prospectus. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is , 1999.2002
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TABLE OF CONTENTS
Page
----
Prospectus Summary.........................................................PROSPECTUS SUMMARY.................................................... 1
Risk Factors............................................................... 12
Where You Can Find More Information........................................ 16
Use of Proceeds............................................................ 17
Capitalization.............................................................RISK FACTORS.......................................................... 13
FORWARD-LOOKING STATEMENTS............................................ 18
Description of Outstanding Indebtedness....................................WHERE YOU CAN FIND MORE INFORMATION................................... 18
THE EXCHANGE OFFER.................................................... 19
The Exchange Offer......................................................... 21
Description of Notes.......................................................USE OF PROCEEDS....................................................... 27
CAPITALIZATION........................................................ 28
Federal Income Tax Consequences............................................ 59
Plan of Distribution....................................................... 60
Legal Matters.............................................................. 60
Experts.................................................................... 60
Forward-Looking Statements................................................. 61SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA....................... 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................... 31
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Page
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BUSINESS.............................................................. 40
MANAGEMENT............................................................ 48
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.................. 51
DESCRIPTION OF OTHER INDEBTEDNESS..................................... 52
DESCRIPTION OF THE REGISTERED NOTES................................... 54
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............... 81
PLAN OF DISTRIBUTION.................................................. 82
LEGAL MATTERS......................................................... 82
EXPERT................................................................ 82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................ F-1
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
i
PROSPECTUS SUMMARY
The followingThis summary highlights selected information from this prospectus
and may not contain all of the information that ismay be important to
you. ThisYou should read the entire prospectus, includes the specific terms of theincluding our financial statements
and related notes, we are offering, as well as
information regarding our business. We encourage you to read this prospectus in
its entirety.before making an investment decision. The terms "AK Steel"Steel,"
"our company," "our" and "our company,"we," as used in this prospectus, refer to AK Steel
Corporation, which will be the issuer of the notes that are being offered.notes. AK Steel is a subsidiary of
AK Steel Holding Corporation, which for convenience we refer to in this
prospectus as "Holding." Holding is a New York Stock Exchange-listed company
and will fully and unconditionally guarantee the notes. AK Steel and Holding,
taken together, are referred to in this prospectus as the "Company." Unless
otherwise indicated, steel 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. You should pay special
attention to the "Risk Factors" section beginning on page 13 of this prospectus
to determine whether participating in the exchange offer and investing in the
notes is appropriate for you.
Business Overview
We are one of the largest producers of flat rolled steel in the United
States and have historically been the most profitable of the nation's major
steel producers on an operating profit per ton basis. We produce value-added
carbon steel, principally for the automotive industry, and specialty stainless
and electrical steels for a broad number of end-markets. We are the only
domestic producer of both carbon and, as a result of our 1999 acquisition of
Armco Inc., stainless and electrical steels, and are one of the leading steel
suppliers to the North American automotive industry. In 2001, we shipped 5.6
million tons of steel to our customers, and had revenues of $3.8 billion and
earnings before interest, taxes, depreciation and amortization, or EBITDA, of
$361.1 million, excluding special charges and unusual items.
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, flat rolled specialty stainless and electrical steels and steel
tubing products.
Our value-added flat rolled carbon steel products, which are produced at our
Middletown (Ohio), Ashland (Kentucky) and Rockport (Indiana) facilities, are
sold primarily to automotive manufacturers and to customers in the appliance,
industrial machinery and equipment and construction markets. Our stainless and
electrical steel products are produced at our Butler (Pennsylvania), Mansfield
(Ohio), Rockport (Indiana), Coshocton (Ohio) and Zanesville (Ohio) facilities.
Hot rolling and coating of a portion of our stainless steel products are also
performed at our Middletown Works. 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. Our 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. 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 primarily in the automotive, large truck and construction markets.
In addition to our steel operations, we own and operate Douglas Dynamics,
L.L.C., which is the largest North American manufacturer of snowplows and salt
and sand spreaders for four-wheel drive light trucks. We also own the 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.
1
Steel Industry Conditions
Conditions in the United States steel industry are improving as described
below.
. Reduced Domestic Capacity. Domestic carbon flat rolled steel capacity
has declined since the beginning of 2001. This reduction has primarily
been caused by weak industry conditions, which have led to the shutdown
of numerous domestic steel facilities. Some of these facilities are
expected to be restarted but we cannot predict how many will be restarted
or what their production level will be if they are restarted.
. Reduced Number of Suppliers of Automotive Quality Steel. Recent
bankruptcies and high leverage at a number of the domestic steel
producers resulted in fewer reliable sources of domestic supply for
automotive grade steels. Because foreign sourcing has not proved to be a
reliable strategy for U.S. based automotive producers, we have
experienced increased demand for automotive grade steels from these
customers.
. Increased Capacity Utilization. Domestic capacity utilization increased
to 88% in the first five months of 2002 from 72% in the fourth quarter of
2001, reflecting the reduction in supply resulting from reduced imports
and the shutdown of domestic capacity.
. Rapidly Increasing Steel Prices. Domestic spot market prices have been
increasing for virtually all types and grades of steel. During the first
half of 2002, we announced three spot market price increases, totaling
$100 per ton for hot-rolled steel and $120 per ton for cold-rolled and
coated products, along with a 7% price increase for non-oriented
electrical steel products and a 3% price increase for commodity grade 300
Series stainless steel. In addition, we will be seeking higher prices
from some of our contract customers, although the primary benefits of any
increases we may obtain will not be realized sooner than 2003.
. Section 201 Tariffs. On March 5, 2002, President Bush imposed tariffs of
up to 30% on imports of most flat rolled carbon steel products. The
tariffs, under Section 201 of the Trade Act of 1974, were introduced
following an extensive investigation by the International Trade
Commission of the adverse effects on domestic steel producers of high
levels of imports of foreign-produced steel. Imports of finished steel to
the United States have declined since the initiation of the International
Trade Commission's investigation in June 2001.
Competitive Strengths
For each of the last eight years we have had the highest operating profit
per ton of any integrated steel producer in the United States. Over the last
three years our average operating profit per ton has been $45, compared to an
operating loss for each of the four largest domestic integrated steelmakers. We
believe that the following factors have contributed to our competitive success.
. Experienced, Results-Oriented Management Team. Our senior management
team focuses on increasing productivity, reducing costs and improving
product quality, while striving to improve safety and health in the
workplace. Since arriving in 1992, our management team has rationalized
and optimized our production facilities, increased the operating rates of
our equipment, reduced operating costs throughout our organization and
improved product quality and reliability, enabling us to increase our
sales of value-added coated and cold-rolled products to the high-end
automotive, appliance, construction and manufacturing markets. As a
result, we are now viewed by the markets that we serve as the premier
producer of the highest quality carbon, stainless and electrical flat
rolled steels.
2
. Value-Added Product Mix. In recent years, we have steadily shifted the
mix of our products toward an increased percentage of premium,
value-added steels. Our value-added products accounted for 93% of our
total shipments in 2001 as compared with 61% in 1996. The profit margins
for these value-added products typically exceed those for the commodity
grades and the number of producers that make them is more limited.
Mini-mill producers have historically been limited in their ability to
compete in the markets for these products due to the generally lower
quality of the steel they produce. We are seeking to further increase our
value-added mix primarily through the acquisition of additional coating
capacity as and when appropriate opportunities arise.
. Concentration on High-End Markets. Our marketing efforts are principally
directed toward those customers, such as automotive manufacturers, that
require the highest quality steel, just-in-time delivery and on-going
technical support. Our enhanced product quality and delivery capabilities
and our emphasis on customer technical support and product planning are
critical to our ability to serve this segment of the market. For example,
in 2001 we derived 57% of our steel operations' revenues from the
automotive industry, where our steel is used for the more demanding
exposed applications and commands higher pricing. As a result of our
focus on this market, approximately 75% of our sales are made under
annual and multi-year contracts.
. World-Class Facilities. We actively benchmark our facilities against our
competitors and seek to maximize our productivity and minimize our costs.
Our Rockport Works, which commenced operations in 1998, is a
state-of-the-art steel finishing facility. The cold rolling and hot-dip
galvanizing capabilities of Rockport Works, along with our other
facilities, make us one of the top suppliers to the North American
automotive industry, and significantly enhance our operating results.
. Recognized Quality Leader. We are registered under the ISO 9002
international quality standard and certified under the QS 9000 quality
assurance program used by domestic automotive manufacturers. We have
received numerous quality awards from many of our major customers,
including General Motors, Ford, Honda, Toyota and Subaru-Isuzu.
. Intensive Safety Focus. As a result of our intensive focus on workplace
safety, for the first half of 2002, our OSHA total recordable injury rate
was 0.68 per 200,000 man hours worked, approximately 8 times safer than
the average of other steel companies. We have received awards in
recognition of the safety performance at a number of our facilities,
including the Max Eward Safety Award given, in four of the past five
years, to our Middletown Coke Plant and the "Star" designation under the
OSHA Voluntary Protection Programs to our Butler Works, the first steel
plant in the U.S. to achieve this designation. In addition, in 2000,
Richard M. Wardrop, Jr., our Chairman, President and Chief Executive
Officer, was the inaugural recipient of the Green Cross for Safety Award,
presented by the National Safety Council.
3
Summary of the Terms of the Exchange Offer
On February 10, 1999, AK Steel completed the private placement of
$450,000,000June 11, 2002, we issued $550 million in aggregate principal amount of
our 7 7/8% Senior Notes Due 2009. Theseold notes were notin a private placement. We entered into a registration rights
agreement with the initial purchasers of the old notes in which we agreed to
deliver to you this prospectus. You are entitled to exchange your old notes in
the exchange offer for new notes with identical terms, except that the
registered notes will have been registered under the Securities Act of 1933 and
therefor, theywill not bear legends restricting their transfer. Unless you are subjecta
broker-dealer or unable to significant restrictions on resale. Accordingly, when we sold these notes, we
agreed, among other things, to provide to you and all other holders of these
notes,participate in the opportunity to exchange your unregistered notes for a new series of
substantially identical notes that we have registered under the Securities Act.
This exchange offer, is being made for that purpose. Wewe believe that
the
registered notes to be issued in thisthe exchange offer may be resold by you without
compliance with the registration and prospectus delivery provisionsrequirements of the
Securities Act, subjectAct. 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 Agreement You are entitled under the registration rights
agreement to certain limited conditions. Followingexchange your old notes for
registered notes with substantially identical
terms. The exchange offer is intended to satisfy
these rights. After the exchange offer is
complete, except as set forth in the next
paragraph, you will no longer be entitled to any
unregisteredexchange or registration rights with respect to
your old notes.
The registration rights agreement requires us to
file a registration statement for a continuous
offering (in accordance with Rule 415 under the
Securities Act) on your behalf if either (1) you
would not receive freely tradable registered
notes that you did not exchange in the exchange offer will continueor (2) you are
ineligible to be subjectparticipate in the exchange offer,
and you indicate that you wish to the existing restrictions on
resale and we will have no obligation to you to register thoseyour old
notes registered under the Securities Act. Summary of theSee
"The Exchange Offer
Securities Offered...... $450,000,000 aggregate principal amount of 7 7/8%
Senior Notes Due 2009 that have been registered un-
der the Securities Act.
Issuer.................. AK Steel Corporation.Offer--Procedures for Tendering."
The Exchange Offer......Offer.......... We are offering to exchange $1,000 principal
amount of our 7 7/8% Senior Notes Due 2009 that we3/4% notes due 2012, which have
been registered under the Securities Act, for
each $1,000 principal amount of our outstanding 7 7/8% Senior
Notes Due 20093/4% notes
due 2012 that wewere issued in February 1999 in a
private placementon June 11, 2002 and that
have not been registered
under the Securities Act.so registered.
In order to be exchanged, an old note must be
properly tendered and accepted. All outstanding unregis-
teredold notes
that are validly tendered and not val-
idlyvalidly
withdrawn will be exchanged.
As of this date, there are $450,000,000$550 million aggregate
principal amount of our unregistered 7 3/4% notes
outstanding.
We will issue the registered notes promptly after
the expiration of the exchange offer.
1
AfterResales of the exchange offer is completed, you will no
longer be entitled to any exchange or registration
rights with respect to your unregistered notes. Un-
der certain limited circumstances, certain holders
of outstanding notes who were ineligible to partic-
ipate in this exchange offer may require us to file
a shelf registration statement under the Securities
Act with respect to their unregistered notes.
Resale..................Registered
Notes..................... We believe that the registered notes that you re-
ceiveto be issued in
the exchange offer may be offered for re-
sale,resale,
resold and otherwise transferred by you with-
outwithout
compliance with the registration and prospectus
delivery provisions of the Securities Act provided
that:
.if you
meet the following conditions:
(1)the registered notes are not an "affiliate" of our company;
.acquired by you acquire those notes in
the ordinary course of your business;
and
. (2)you are not participating,engaging in and do not intend to
par-
ticipate andengage in a distribution of the registered
notes;
4
(3)you do not have noan arrangement or
understand-
ingunderstanding with any person to participate
in the dis-
tributiondistribution of those notes.
If ourthe registered notes;
and
(4)you are not an affiliate of ours, as the term
"affiliate" is defined in Rule 405 under the
Securities Act.
Our belief is inaccuratebased on interpretations by the
staff of the SEC, as set forth in no-action
letters of Exxon Capital Holdings Corporation
(available April 13, 1988), Morgan Stanley & Co.
Incorporated (available June 5, 1991) and
Shearman & Sterling (available July 2, 1993). 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
incur liability under the Securities Act if you
transfer any registered note issued to you in the exchange offer without delivering a
prospectus meeting the requirements of
the Securities Act or without an exemption from
registration of your notes from such requirements,
you may incur liability under the
Securities Act. We do not assume, or indemnify
you against, suchthat liability.
Each broker-dealer that receivesis issued registered
notes in the exchange offer for its own account
in ex-
changeexchange for unregisteredold notes that itwere acquired by
that broker-dealer as a result of market-making
activities or other trading activi-
ties,activities must
acknowledge that it will deliver a pro-
spectusprospectus
meeting the requirements of the Securities Act in
connection with any resale of the notes it
receives in the exchange offer.its resales of those
registered notes. A broker-dealer may use this
prospectus for anto offer to resell, resaleresell or
other retransfer of the notes it receives in the
exchange offer.otherwise transfer those registered notes.
Expiration Date......... ThisDate............. The exchange offer will expire at 5:00 p.m., New
York City time, on 1999,, 2002, unless extended, in
which case the term "expiration date" shall mean
the latest date and timewe
decide to which we extend the ex-
changeexchange offer. 2
We do not
intend to extend the exchange offer, although we
reserve the right to do so. We refer to this
date, as it may be extended, as the expiration
date.
Conditions to the Exchange
Offer..........Offer..................... The only conditions to completing the exchange
offer is subject to certain customary
conditions, which may be waived by us. Theare that the exchange offer is not conditioned uponviolate any
minimum principal
amountapplicable law or interpretation of notes being tendered.the staff of
the SEC 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. See "The Exchange
Offer--Conditions."
Procedures for Tendering Notes.........Old
Notes Held in the Form of
Book-Entry Interests...... The old notes were issued as global securities in
fully registered form without coupons. Beneficial
interests in the old 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 old 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 old note held in the
form of a book-entry interest and you wish to
tender your existing notesold note for ex-
changeexchange pursuant to the
exchange offer, you must transmit to Fifth Third
Bank, Cincinnati, Ohio, as
5
exchange agent, on or beforeprior to the expiration date,
eitherof
the exchange offer either:
. a written or facsimile copy of a properly
completed and duly executed letter of
transmittal which accompanies this prospectus,
or a facsimileand all other required
documents to the address set forth on the
cover page of the letter of transmittal, to-
gether with your notes and any other required
documentation;transmittal; or
. a computer generatedcomputer-generated message transmitted by
means of The Depository Trust Company's Auto-
matedDTC's Automated Tender Offer
Program system and forming a part of a
confirmation of book entrybook-entry transfer in
which you acknowledge and agree to be bound
by the terms of the letter of transmittal.
If you cannot comply with eitherThe exchange agent must also receive on or prior
to the expiration of these proce-
dures onthe exchange offer either:
. a timely basis, then you should followconfirmation of book-entry
transfer of your old 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 or agreeing to be bound by the terms
of the letter of
transmittal or delivering a computer-generated
message through DTC's Automated Tender Offer
Program system, you will be deemed to
make certain representationsrepresent to us describedthat,
among other things:
. the registered notes to be acquired by you
in "The Exchange Offer" sectionexchange for your old notes are being
acquired in the ordinary course of your
business;
. you are not engaging in and do not intend
to engage in a distribution of the
registered notes;
. you do not have an arrangement or
understanding with any person to
participate in a distribution of the
registered notes; and
. you are not our affiliate.
Procedures for Tendering
Certificated Old Notes.... If you are a holder of book-entry interests in
the old 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, un-
derother than a single note issued to
and held by DTC. If you acquire certificated old
notes prior to the expiration of the exchange
offer, you must tender your certificated old
notes in accordance with the procedures described
in this prospectus under the heading
"Procedures"The Exchange Offer--Procedures for
Tendering.Tendering--Certificated Old Notes."
6
Special Procedures for
Beneficial Owners.......Owner.......... If you are athe beneficial owner of old notes thatand
the beneficial interests are registered in the
name of a broker, dealer, commer-
cialcommercial bank, trust
company or other nominee, and you wish to tender
thoseyour old notes, for exchange, you should promptly contact the
person in whose name the beneficial interest in
your old notes are registered holder promptly and instruct the registered holderthat
person to tender the notes on your behalf. If you wish to
tender thoseon your own behalf, you must, prior to
completing and executing the letter of
transmittal for your notes yourself,
you mustand delivering your
notes, either make appropriate arrangements to
re-registerregister ownership of the old notes in your own name
or obtain a properly completed bond power from
the registered holder.person in whose name your old notes are
registered. The transfer of registered own-
ership to your own nameownership
may take considerable time
and may not be abletime. See "The Exchange
Offer--Procedures for Tendering--Procedures
Applicable to be completed prior to the
expiration date.All Holders."
Guaranteed Delivery
Procedures..............Procedures................ If you wish to tender your old notes for exchange and
and:
(1)they are not immediately available;
(2)time will not permit theyour old notes or other
required documents required by the
letter of transmittal to
3
reach the exchange
agent prior tobefore the expiration date,of the exchange
offer; or
(3)you cannot complete the procedure for
book-entry transfer on a timely basis,
you may ten-
dertender your old notes according toin accordance with
the guaranteed delivery procedures describedset forth in
the instructions in the ac-
companying transmittal letter."The Exchange Offer--Procedures for
Tendering--Guaranteed Delivery Procedures."
Acceptance of TenderedOld Notes and
Delivery of Registered
Notes........
Subject to the conditions described in "The
Exchange Offer" section of this prospectusNotes..................... Except under the headingcircumstances described above
under "Conditions to the Exchange Offer",Offer," we will
accept for exchange any and all old notes thatwhich
are validlyproperly tendered in the exchange offer and not
withdrawn, 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--Terms of the Exchange
Offer."
Withdrawal.................. You may withdraw the tender of your old notes at
any
Withdrawal Rights....... time prior to 5:00 p.m., New York City time,
on the expiration date, subjectdate. We will return to compliance withyou any
old notes not accepted for exchange for any
reason without expense to you as promptly as we
can after the procedures for withdrawal described in "The Ex-
change Offer" sectionexpiration or termination of this prospectus under the
heading "Withdrawal of Tenders."
Federal Income Tax
Considerations.......... The exchange of notes will not be a taxable ex-
change for U.S. federal income tax purposes.offer.
Exchange Agent..........Agent.............. Fifth Third Bank Cincinnati, Ohio, the trustee un-
der the indenture governing the notes, is serving as the exchange agent. The address, telephone num-
ber and facsimile numberagent
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 agent are
set forth inoffer, the
liquidity of the market for your old notes could
be adversely affected. See "The Exchange
Offer"Offer--Consequences of Failure to Exchange."
Federal Income Tax
Consequences.............. The exchange of old notes for registered notes
should not be a taxable event for federal income
tax purposes. See "Certain United States Federal
Income Tax Considerations."
7
Summary of the Terms of the Registered Notes
Issuer...................... AK Steel Corporation
Securities Offered.......... 7 3/4% Senior Notes Due 2012. The registered
notes are initially being offered in the
principal amount of $550,000,000. We may, without
the consent of the holders, increase the
aggregate principal amount in the future on the
same terms and conditions and with the same CUSIP
numbers as the registered notes being offered
hereby.
Maturity.................... June 15, 2012.
Interest Payment Dates...... June 15 and December 15 of each year, commencing
December 15, 2002.
Optional Redemption......... We cannot redeem the notes before June 15, 2007,
except as described immediately below.
Thereafter, we can redeem some or all of the
notes at the redemption prices listed in the
"Description of the Registered Notes--Optional
Redemption" section of this prospectus under the heading "Exchange Agent."
Consequences of Failure
to Exchange Notes....... If you do not exchange your notes for new regis-
tered notes pursuant to the exchange offer, you
will continue to be subject to significant restric-
tions on the resale of your notes. In general, the
existing notes may not be offered or sold unless
registered under the Securities Act, except pursu-
ant to an exemption from, or in a transaction not
subject to, the Securities Act. We do not currently
plan to register the existing notes under the Secu-
rities Act.
Use of Proceeds......... We will not receive any proceeds from the exchange
offer.
4
Summary of Terms of the Notes
The form and terms of the notes that we will issue in the exchange offer are
the same as the form and terms of the existing notes, for which they will be
exchanged, except that the notes that we will issue will be registered under
the Securities Act, and, therefore, will not be subject to the significant
resale restrictions that are applicable to the existing notes. The notes issued
in the exchange offer will evidence the same debt as the existing notes that
they replace and will be governed by the same indenture.
Maturity Date........... February 15, 2009.
Interest Payment February 15 and August 15 of each year, beginning
Dates................... August 15, 1999. Interest on the notes that we will
issue will accrue from the last interest payment
date on which interest was paid on the outstanding
notes surrendered in exchange, or, if no interest
has been paid on the outstanding notes, from Febru-
ary 10, 1999, which was the date of original issu-
ance of the outstanding notes.plus
accrued interest.
Optional Redemption..... We may redeem the notes, in whole atRedemption after
Public Equity Offerings... At any time or in
part from time(which may be more than once) before
June 15, 2005, we can choose to time, at our option, on or after
February 15, 2004, at the redemption prices set
forth in the "Description of Notes" section of this
prospectus under the heading "Optional Redemption."
In addition, at any time on one or more occasions
before February 15, 2002, we may, at our option, redeem up to
a cumulative$192.5 million aggregate of $157.5
million principal amount of the
notes with money that we raise in certain public or private equity
offerings, soas long as:
. we pay to holders of the notes a redemption
price of 107.875%107.750% of the faceprincipal amount of
the notes we redeem plus accrued interest;
. we complete any such redemptionredeem the notes within 60 days of
completing the related equity offering; and
. at least $292.5$357.5 million aggregate principal
amount of the notes remains outstanding after
the redemption.
Parent Company
Guarantee...............
The notes will be unconditionally guaranteed on a
senior basis by our parent company, AK Steel Hold-
ing Corporation. The guarantee will be equal in
right of payment with all other senior unsecured
indebtedness and guarantees issued by our parent
company.
Ranking................. The notes will be:
. senior unsecured obligations of our company and
will be equal in right of payment with all of our
other existing and future senior unsecured debt;
and
5
. effectively junior to all of our secured obliga-
tions to the extent of the collateral securing
those obligations, including the $250 million of
our currently outstanding Senior Secured Notes Due
2004.Mandatory Redemption........ None.
Change in Control.......Control........... If a change in control of AK Steel occurs, we
must give holders of the notes the opportunity to
sell us their notes at a purchase price of 101%
of their faceprincipal amount plus accrued interest.
See "Description of the Registered Notes--Change
in Control Offer" section of this prospectus.
Guarantees.................. The term "changenotes will be fully and unconditionally
guaranteed by Holding and each guarantor
subsidiary. At the date of issuance of the
registered notes the only guarantor subsidiary
will be Douglas Dynamics, L.L.C. These guarantees
will be equal in control" is definedright of payment with all senior
unsecured indebtedness of Holding and each
guarantor subsidiary. See "Description of the
Registered Notes--Note Guarantees."
8
Ranking..................... The notes will be senior unsecured obligations of
our company and will be equal in right of payment
with all of our outstanding senior unsecured
indebtedness. The notes will be senior in right
of payment to all of our subordinated
obligations. The notes will be effectively junior
to all of our secured obligations to the extent
of the collateral securing those obligations and
junior to creditors of AK Steel's subsidiaries to
the extent described in the "Description of Notes"the
Registered Notes--Note Guarantees" section of
this prospectus underprospectus.
At June 30, 2002, the heading
"Defined Terms."aggregate principal amount
of our outstanding senior indebtedness was
approximately $1.95 billion, including $252.0
million of secured debt. Total indebtedness
includes $550.0 million of our 9 1/8% Senior
Notes due 2006, which were redeemed on July 11,
2002.
Material Covenants......Covenants.......... The indenture governing the notes contains
certain
covenants that among other things, limit our abil-
ityability and the abilitythat of our
subsidiaries to:
. create liens on our assets to service certain
debt;
. incur additional indebtedness;
. make investments;
. issue or sell equity interests of subsidiaries;
. pay dividends or distributions on, or redeem
or repurchase, capital stock;
. redeem certain subordinated obligations;
. transfer or sell assets;
. engage in transactions with affiliates;
. engage in unrelated businesses; and
. consolidate, merge or transfer substantially
all of ourassets.our assets.
These covenants are subject to important
exceptions and qualifications, which are
described in the "De-
scription"Description of Notes"the Registered
Notes--Material Covenants" section of this
prospectus un-
derprospectus.
Registration Rights;
Liquidated Damages........ In connection with the heading "Material Covenants."offering of the old notes,
we granted registration rights to holders of the
old notes. We agreed to consummate an offer to
exchange the old notes for the related series of
registered notes and to take other actions in
connection with the exchange offer by the date
specified in the registration rights agreement.
In addition, under some circumstances, we may be
required to file a shelf registration statement
to cover resales of the old notes held by you.
If we fail to take these actions with respect to
the old notes by the respective dates specified
in the registration rights agreement, we will pay
liquidated damages to each holder of the old
notes until all registration defaults have been
cured.
9
Form of Notes...........Notes............... The registered notes to be issued in the exchange
offer will be represented by one or more perma-
nent global
certificates, in fully registered form,securities deposited with a custodianFifth Third Bank for
and registered in
the namebenefit of a nominee of, The Depository Trust Com-
pany, as depositary.DTC. You will not receive
registered notes in certificated form unless there occurs one
of the events set forth inunder the heading
"Description of the Registered Notes--Form of
Registered Notes" sec-
tion of this prospectus under
6
the heading "Book Entry; Delivery and Form." In-
stead,occurs. Instead, beneficial
interests in the exchangeregistered notes to be issued in
the exchange offer will be shown on, and
transfers of these notes willinterests may be effected only
through, records maintained in book-entry form by
The Depository Trust Company andDTC with respect to its participants.
7
Our Company
WhoUse of Proceeds............. We Are
AK Steel iswill not receive any cash proceeds upon
completion of the most profitable integrated steel producerexchange offer.
Risk Factors
You should consider carefully all of the information set forth in this
prospectus and, in particular, the information set forth under "Risk Factors"
before participating in the United
States onexchange offer and making an operating profit per ton basis, having led the industry in this
measure for each of the last five years. For the fourth quarter of 1998, we
reported operating profit per ton of $61, as well as record tons shipped for
any single quarter, reflecting the increasing benefits of our new Rockport
Works. We concentrate on the production of premium quality coated, cold rolled
and hot rolled carbon steel primarily for sale to the automotive, appliance,
construction and manufacturing markets. We also cold roll and aluminum coat
stainless steel for automotive industry customers. In 1998, AK Steel had net
sales of $2.39 billion, net income of $114.5 million and earnings before
interest, taxes, depreciation and amortization ("EBITDA") of $330.0 million.
At the core of our profitability is an experienced, results-oriented
management team that focuses on continuously increasing productivity, reducing
costs and improving product quality while continually striving to improve
safety and healthinvestment in the
workplace. Since arriving in mid-1992, this management
team has reconfigured AK Steel's production facilities, increased the operating
rates on our equipment and reduced operating costs throughout the organization.
Product quality and reliability have been improved as well, enabling us to
increase our sales of value-added coated and cold rolled products to the high-
end automotive, appliance, construction and manufacturing markets.
The results of these efforts have been significant. Each of our key
production units has achieved substantial percentage increases in average
monthly production since 1992 through a combination of improved operating and
maintenance practices, targeted capital investments and focused production
planning. The tandem cold mill at our Middletown Works has increased average
monthly production by over 103% from 1992 to 1998. Average monthly production
from our Middletown and Ashland coating lines has increased over 94% over the
same period.
We have increased our total annual shipments from 2,989,000 tons in 1992 to
4,601,600 tons in 1998, an increase of nearly 54%. Enhanced productivity rates
on our tandem cold mill and coating lines, together with start-up production at
our new Rockport Works, have allowed us to increase our shipments of value-
added coated and cold rolled products from 1,668,000 tons (representing 56% of
total shipments) in 1992 to 3,131,600 tons (or 68% of total shipments) in 1998.
Increased production of premium quality coated and cold rolled products has
enabled us to focus our commercial efforts on the most demanding requirements
of the automotive, appliance, construction and manufacturing markets. In 1992,
43% of our total shipments, or 1,288,000 tons, served customers in those
markets. In 1998, 67% of our total shipments, or 3,095,000 tons, served those
markets.
Our Rockport Works
In 1996, we decided to build Rockport Works, a new, state-of-the-art
finishing facility on a 1,700-acre site near the Ohio River community of
Rockport, Indiana. Rockport Works, which will be fully operational later this
year, will eliminate the existing bottleneck in our cold rolling and coating
operations, enabling us to better satisfy the growing demand within the
automotive industry for coated products, particularly galvannealed products.
Rockport Works also enables us to significantly expand our presence in the
high-margin stainless steel market and significantly reduce our exposure to the
lower margin and increasingly competitive market for hot rolled products.
8notes.
10
Rockport Works is nearing completion ahead of schedule and we are already
realizing the benefits of an improved product mix. The new facility consists of
a continuous cold rolling mill designed to cold reduce carbon steel hot band in
widths up to 80 inches at an estimated rate in excess of 500 tons per hour and
stainless steel hot band in widths up to 60 inches, a hot dip galvanizing and
galvannealing line with a projected capacity of approximately 800,000 tons per
year, a continuous carbon and stainless steel pickling line, a stainless steel
annealing and pickling line, hydrogen annealing facilities and a temper mill.
The hot-dip galvanizing and galvannealing line began operations on June 16,
1998 and the continuous cold mill started-up on September 12, 1998. In each
case, start-up was three months earlier than originally scheduled. The
remaining components of the facility are expected to begin commercial
production at various times during 1999. The staggered start-up of the various
components enables us to generate revenue from the new facility even before
construction is completed. We anticipate spending approximately $150.0 million
more on the facility this year.
We plan to produce approximately 1,400,000 tons of cold rolled carbon steel
annually at Rockport Works, of which approximately 800,000 tons are expected to
be hot dip galvanized. Galvanized steel, including galvannealed material, is
particularly desired by the automotive industry and is associated with the
highest margins of all flat rolled carbon steel products. Primarily as a result
of the expanding requirements of the U.S.-based production facilities of
foreign automotive manufacturers, demand by automotive manufacturers for
galvanized steel has grown from 4.3 million tons in 1992 to 6.7 million tons in
1997, an increase of nearly 53%. Existing domestic production capacity is
insufficient to fully satisfy this growing demand. Moreover, recently completed
facilities of other producers, as well as those announced and scheduled to come
on line within the next few years, are capable of processing material in widths
of only 60 inches or less and are targeted primarily to the construction
market. Our existing facilities are capable of producing coated carbon steel
products up to 76 inches wide. The hot dip galvanizing line at Rockport Works
can produce coated products in widths up to 80 inches, a width currently not
produced in the United States. These products are being targeted to automotive
customers who will benefit from the manufacturing and design flexibility of
larger width steel.
During 1997, domestic consumption of flat rolled stainless steel totalled
over 1.7 million tons, of which approximately 21% was produced abroad. We
currently cold roll and aluminum coat approximately 70,000 tons per year of
Series 400 stainless steel for sale primarily to manufacturers of automotive
exhaust systems. With Rockport Works, we will be able to substantially increase
our shipments of Series 400 stainless steel and to cold roll and sell Series
300 stainless steel, which is used in restaurant and kitchen equipment and
medical appliances, as well as in the oil refining, chemical production and
food processing industries. Both of these products are associated with
substantially higher margins than coated carbon steel. Stainless steel slabs
and hot rolled stainless steel coils in both series will be purchased from
other producers for finishing. We plan to finish an aggregate of approximately
385,000 tons of stainless steel annually at Rockport Works.
9
Summary Historical Consolidated Financial DataSUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(dollars in millions, except per ton data)
The following summary historical consolidated financial data as of, and for the years
ended, December 31, 1999, 2000 and 2001 have been derived from, and should be
read in conjunction with, the audited consolidated financial statements of AK Steel Holding Corporation and the
selectedCompany included elsewhere in this prospectus. The summary historical
consolidated financial data included in its Annual Report on Form
10-Kas of, and for the yearsix months ended, December 31, 1998.June 30, 2001
and 2002 have been derived from, and should be read in conjunction with, the
unaudited consolidated financial statements of the Company included elsewhere
in this prospectus. The Company sold its Sawhill Tubular division on April 19,
2002. The results of Sawhill Tubular have been reclassified to discontinued
operations. (See Note 13 to Consolidated Financial Statements.)
Six Months Ended
Years Ended December 31, ----------------------------
1996 1997 1998June 30,
--------------------------- ------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(unaudited)
Statement of Operations Data:
Net sales....................................... $2,301.8 $2,440.5 $2,393.6sales............................................. $4,184.8 $4,403.7 $3,833.4 $1,940.0 $2,109.2
Cost of products sold........................... 1,846.5 1,964.5 1,963.4sold................................. 3,334.3 3,577.7 3,225.5 1,651.4 1,854.7
Selling and administrative expenses............. 114.7 114.8 118.8
Depreciation.................................... 76.1 79.8 97.8expenses................... 299.9 257.9 257.6 124.2 129.8
Depreciation.......................................... 206.1 227.3 225.8 116.0 113.0
Special charges and unusual items(1).................. 99.7 -- 142.3 -- (23.9)
Operating profit................................ 264.5 281.4 213.6profit (loss)(2)............................ 244.8 340.8 (17.8) 48.4 35.6
Interest expense................................ 39.8 76.3 56.0expense...................................... 123.7 136.1 133.1 67.5 66.5
Other income.................................... 12.3 36.4 18.6income(3)....................................... 20.8 7.9 6.1 3.7 26.7
Income (loss) from continuing operations before income
taxes ..................... 237.0 241.5 176.2
Provision forand minority interest......................... 141.9 212.6 (144.8) (15.4) (4.2)
Income tax provision (benefit)........................ 63.9 78.6 (53.6) (5.7) (1.6)
Income (loss) from continuing operations.............. 71.3 134.0 (91.2) (9.7) (2.6)
Income (loss) from discontinued operations............ 7.5 (1.6) (1.2) (0.4) (6.8)
Net income taxes...................... 91.1 90.6 61.7
Net income...................................... $ 145.9 $ 150.9 $ 114.5
(loss)..................................... 65.4 132.4 (92.4) (10.1) (9.4)
As of December 31, ----------------------------
1996 1997 1998As of June 30,
--------------------------- ------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(unaudited)
Balance Sheet Data:
Cash and cash equivalents, and short-term
investments....................................equivalents............................. $ 739.354.4 $ 606.186.8 $ 83.0101.0 $ 105.5 $ 843.9
Working capital................................. 1,005.1 658.2 276.1capital....................................... 564.5 631.5 593.4 639.7 822.6
Total assets.................................... 2,650.8 3,084.3 3,306.3
Current portion of long-term debt............... -- -- --
Long-termassets.......................................... 5,227.1 5,239.8 5,225.8 5,160.7 5,768.6
Total debt, (excludingincluding current portion)...... 875.0 997.5 1,145.0
Current portion ofportion(4).............. 1,456.9 1,450.8 1,402.5 1,450.6 1,949.8
Total pension and postretirement benefit obligations............................ 0.1 0.1 0.1
Long-term pension and postretirement benefit
obligations (excluding current portion)........ 564.9 554.1 572.6obligations.. 1,485.1 1,486.8 1,808.4 1,504.9 1,855.7
Stockholders' equity............................ $ 777.0 $ 879.6 $ 929.5
equity.................................. 1,277.8 1,319.3 1,033.3 1,268.9 1,038.3
Six Months Ended
Years Ended December 31, ----------------------------
1996 1997 1998June 30,
--------------------------- ------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(unaudited)
Other Data:
EBITDA(5)............................................. $ 417.8 $ 590.8 $ 233.4 $ 181.0 $ 172.2
Ratio of earnings to combined fixed charges(1).. 4.6x 2.9xcharges(6)................. 1.5x 2.5x -- -- 2.0x
EBITDA(2)....................................... $ 355.4 $ 399.7 $ 330.0
Ratio of EBITDA to interest expense(3).......... 6.7x 3.8x 2.9x
Operating profit per ton .......................ton(7)........................... $ 6055 $ 6155 $ 4622 $ 17 $ 12
Capital investments.............................investments................................... $ 141.6334.1 $ 636.5135.8 $ 772.6
Flat rolled108.0 $ 45.6 $ 53.1
Steel shipments (thousands of tons)....... 4,383 4,647 4,602................... 6,254 6,171 5,618 2,877 2,940
- --------
FootnotesNotes appear on following page.
1011
Notes:
(1)In 1999, we recognized $99.7 in special charges for costs related to the
merger with Armco Inc. In 2001, Anthem Inc., our 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 policy
holders. As a major policyholder, AK Steel received nearly 1.5 million
shares of Anthem common stock, recording a benefit of $49.9. Also in 2001,
we recognized a non-cash pension corridor charge of $192.2 under our method
of accounting for pension and other postretirement benefit plans. In the six
months ended June 30, 2002, we recorded a benefit of $23.9 arising from
insurance settlements entered into with certain of our insurance carriers.
The benefit is net of legal fees and expenses and increases to environmental
liabilities.
(2)We adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets," on January 1, 2002. As a result, we stopped
amortizing goodwill effective January 1, 2002. For the purposeyears ended December
31, 1999, 2000 and 2001 and for the six months ended June 30, 2001,
operating profit included goodwill amortization charges of calculating$3.4, $3.4, $4.0
and $2.0, respectively. As required by the ratioStatement, we reviewed our
goodwill balance as of earnings to combined fixed
charges, (i) earnings consistJanuary 1, 2002 for possible impairment and
determined that no impairment was necessary.
(3)During the six months ended June 30, 2002, we liquidated all of income before income taxes, extraordinary
itemsthe nearly
1.5 million shares of Anthem stock we had received in 2001 and effectsrecorded a
gain of accounting change,$24.1 on the distributed incomesale.
(4)As of less than
50%-owned affiliates, plus fixed chargesJune 30, 2002, total indebtedness includes $550.0 of our 9 1/8% Senior
Notes due 2006, which were redeemed on July 11, 2002, and (ii) combined fixed charges
consist$550.0 of interest, whether expensed or capitalized, and preferred stock
dividends.
(2) our
7 3/4% Senior Notes due 2012.
(5)EBITDA for any period, which is calculated as defined in the covenants
contained in the indentures governing our notes during such period,
represents earnings before interest expense, provision for income taxes,
depreciation and amortization and is presented herein because it is a widely
accepted indicator of a company's ability to service debt. EBITDA does not
represent net income or cash flow from operations as those items are defined
by generally accepted accounting principles, should not be considered by
prospective purchasers of the notes as an alternative to net income and does
not necessarily indicate whether cash flows will be sufficient to fund cash
needs. Under the indenture governing the notes,
subject to certain exceptions, AK SteelThis presentation may not incur additional
indebtedness unless the pro forma consolidated EBITDA coverage ratio would
be greater than 2.5 to 1.0. As defined in the Indenture, EBITDA excludes
non-cash post-employment benefitsdiffer from similarly titled measures used by
other than pensions and certain special
charges. These exclusions reflect the fact that (i) a component of retiree
medical expense is a non-cash item (representing an estimate of future
medical costs) and (ii) certain of AK Steel's special charges are non-cash
items. Under the indenture, to the extent that these special charges become
cash charges they will be included in the calculation of EBITDA. A full
definition of the term "EBITDA" appears under the heading "Defined Terms"
in the "Description of Notes" section of this prospectus. The calculation
of EBITDA for 1996 and 1997 excludes non-cash postretirement benefits of
approximately $2.5 million and $2.1 million, respectively.
(3) companies.
(6)For the purpose of calculating the ratio of EBITDAearnings to fixed charges, (i)
earnings consist of income before income taxes and minority interest,
expense,
interest expense consistsdiscontinued operations and extraordinary items, the distributed income of
less than 50%-owned affiliates, plus fixed charges and (ii) fixed charges
consist of interest, whether expensed or capitalized,
amortizationcapitalized. Fixed charges exceeded
earnings by approximately $148.0 for the year ended December 31, 2001 and
approximately $14.6 for the six months ended June 30, 2001.
(7)The Company views operating profit per ton as an important measure of debt issuance costsits
results and dividends onas a key benchmark by which it compares itself to its
competitors. This presentation may differ from similarly titled measures
used by other companies. The Company believes it had the highest operating
profit per ton of any preferred stock
that may be issued.
11domestic integrated steel producer in each of the
eight years from 1994 through 2001. Operating profit per ton for the year
ended December 31, 1999 excludes charges related to the Armco merger.
Operating profit per ton for the year ended December 31, 2001 excludes
unusual items related to pension corridor charges and the benefit from the
receipt of shares of Anthem.
12
RISK FACTORS
You should carefully consider the risks described below before making a
decisiondeciding to
tender your existing notes for exchange.participate in the exchange offer. The risks described below are not the only
ones facing our company.we face. Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations.
FactorsRisks Relating to our Company
We rely heavilyOur reliance on the automotive industry.industry may negatively affect our results of
operations.
Our shipmentssales of steel directly to the automotive market accounted for
approximately 55%, 56%52% and 60%57% of our steel operations' net sales in 1996, 1997,1999, 2000
and 1998,2001, respectively. Our shipmentssales to General Motors Corporation, our largest
customer in each of the past three years, accounted for approximately 17%15%, 18%15%
and 19%18% of our steel operations' net sales in 1996, 19971999, 2000 and 1998,2001,
respectively. In addition, a substantial amount of our sales to steel
distributors and converters consists of products that are resold in(in original
or modified form,form) to the automotive industry.
Our strategy depends upon continued growth in demand for premium quality
coated and cold rolledcold-rolled carbon and stainless steel flat rolled products,
particularly from the automotive industry. The domestic automotive industry has
historically experienced significant fluctuations in demand, based on such
factors as general economic conditions, interest rates and consumer confidence.
In addition, strikes, lock-outs, work stoppages or other production
interruptions in the automotive industry can adversely affect the demand for
our products.
Since the beginning of 1994, automotive industry demand for flat rolled coated
steel products has been high, with consumption of galvanized and galvannealed
material increasing from approximately 4.3 million tons in 1992 to
approximately 6.7 million tons in 1997. A major factor contributing to this
growth has been the increase in construction and operation of U.S.-based
production facilities by foreign automotive manufacturers. Although several
foreign manufacturers have been expanding their production facilities in the
United States, there can be no assurance that demand for our coated and
stainless products will remain high or continue to grow.
Our high level of debt may adversely affect our financial and operating
flexibility.
We will continue to have substantial debt and debt service requirements. After giving effect
torequirements
after the issuancecompletion of the notes and the redemption on April 1, 1999 of our
outstanding 10 3/4% Senior Notes Due 2004, we would haveexchange offer. We had total debt of approximately
$1.27$1.95 billion as of December 31, 1998,June 30, 2002, including approximately $250.0$252.0 million of
secured debt.debt, including our industrial revenue bonds and capital lease
obligations. Total indebtedness includes $550.0 million of our 9 1/8% Senior
Notes due 2006, which were redeemed on July 11, 2002. In addition, we have
substantial employeepension and other postretirement benefit obligations.
Our highly leveraged financial positionhigh level of debt has important consequences for us, including:
. our ability to borrow additional amounts for working capital, capital
expenditures, debt service requirements or other purposes may be limited;
. a substantial portion of our cash flow from operations will be required
to make debt service payments and retiree benefit payments;
. our leverage could limit our ability to capitalize on significant
business opportunities and our flexibility to react to changes in general
economic conditions, competitive pressures and adverse changes in
government regulation;
12
. our high leverage could place us at a competitive disadvantage with respect to
companies with which we compete; and
. we may be more vulnerable in the event of a downturn or disruption in our
business or in the economy generally.
While we expect to be able to repay the balance of our indebtedness and meet
our other obligations through cash generated from operations, we may need to
obtain new credit arrangements and other sources of financing
13
in order to meet our future obligations and working capital requirements and to
fund our future capital expenditures. You should be aware that our ability to
repay or refinance our currentoutstanding debt and to fund our capital expenditures
and other obligations depends on our successful financial and operating
performance,
including the performance of Rockport Works.performance. We cannot assure you of our future performance, which depends upon
a number of factors, many of which are beyond our control.
These factors include:
. economic and competitive conditions in the steel industry;
. economic conditions in the automotive industry;
. any operating difficulties, increased operating costs or pricing
pressures we may experience; and
. volatility in financial markets, which may affect invested pension plan
assets and the calculation of benefit plan liabilities.
Under aan accounts receivables credit facility, we sell substantially all of
our accounts receivable to a special-purpose, wholly owned subsidiary. This
subsidiary has an agreement with a group of banks that provides up to $200.0$300.0
million for revolving credit loans and letters of credit secured by the
subsidiary's receivables. As of January 15, 1999, there were no borrowings under this
facility, but $35.7 million of letters of credit were outstanding. This subsidiary is a separate and distinct legal
entity and has no obligation to pay any amounts due under the notes or to make
funds available for any such payment. If we default, your right to payment
under the notes will be junior to our secured indebtedness to the extent of the
collateral securing those obligations and will be effectively subordinated to
the claims of creditors under our subsidiary's credit facility to the extent of
that subsidiary's assets.
These and other factors could have an adverse effect on the marketability,
price and future value of the notes and our ability to pay interest on and the
principal amount of the notes.
The forthcoming expirationOur business could be adversely affected by strikes or work stoppages by our
unionized employees.
At June 30, 2002, approximately 7,000 of our union contracts raises uncertainties.
As of December 31, 1998, we had approximately 5,800 active10,300 employees of whom
approximately 54% were
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
Employees Independent
Federation, Inc. (the "AEIF"), 17% byprior to its merger with AK Steel on September 30, 1999. On September 1, 1999,
the contract between Armco and the United Steelworkers of America (the
"USWA")covering
approximately 600 hourly workers, including 100 on layoff status, at the
Mansfield Works expired. Because of production slowdowns, vandalism and 6% bythreats
of violence on the Oil, Chemicalpart of union members, Armco informed the union, and Atomic Workers Union (the "OCAW"). The
AEIF represents all hourlywe
understood, that Armco 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 certain non-exempt salaried employees
at our Middletowntemporary replacement workers
have operated the Mansfield Works.
The USWA represents hourly steelmaking employees and
certain non-exempt salaried employees at our Ashland Works. The OCAW represents
hourly employees at the Ashland Works' coke manufacturing facility. Employees
at our Rockport Works are not represented by a union. The AEIF contract expires
February 29, 2000, the USWA contract expires September 1, 2000Strikes or work stoppages and the OCAW
contract expires April 1, 2001. We cannot assure you that these contracts will
be successfully renegotiated upon expiration or that a union will not seek to
represent the Rockport Works' employees at some future date nor can we predict
theresulting impact on our operations and financial performance ofrelationship with
our failure to
successfully renegotiate these contracts or of the unionization of our Rockport
Works employees.
13
We are vulnerable to the potential failure of computer systems to recognize
the year 2000.
In operating our business, we are dependent on information technology and
process control systems that employ computers as well as embedded
microprocessors. We also depend on the proper functioning of the business
systems of third parties, such as our suppliers and customers. Many computer
systems and microprocessors can only process dates in which the year is
represented by two digits. As a result, some of these systems and processors
may interpret "00" incorrectly as the year 1900 instead of the year 2000. The
failure of any of these systems to appropriately interpret the upcoming
calendar year 2000customers could have a material adverse effect on our business, financial
condition or results of operations. Moreover, at this time we cannot predict
how or when the Mansfield Works labor dispute will be resolved or whether such
a resolution would adversely affect our operations at the Mansfield Works.
Our operations may be adversely affected by business interruptions and
property damage.
Our operations may be adversely affected by unplanned events such as
explosions, fires and other industrial accidents, transportation interruptions
and inclement weather. To the extent one or more of these events occurs that is
not covered by our insurance, our operating results and cash flowflows may be
materially adversely affected.
Our business may be materially adversely affected by increases in our raw
material and business prospects.energy costs.
We purchase carbon steel slabs, energy and raw materials (such as steel
scrap, iron ore, coal, etc.) that are necessary for our operations at
prevailing market prices, which are subject to price fluctuations in accordance
with supply and demand. At the same time, approximately 75% of our shipments of
flat rolled steel products are made to customers under annual and multi-year
contracts that, with limited exceptions for stainless steel, do not permit
price adjustments to reflect changes in prevailing slab, raw material or energy
costs. We hedge a portion of the variable costs of certain raw materials and
natural gas through the use of forward contracts and futures instruments.
However various categories of raw materials cannot be the subject of hedges. If
our variable costs significantly increase, the results of our operations may be
materially adversely affected.
14
For example, our operations consume large amounts of energy, particularly
natural gas. Natural gas prices have assessedbeen volatile in recent years. At normal
consumption levels, a $1 per million BTU change in natural gas prices would
result in an approximately $40 million change in our annual operating results,
excluding the effects of any then existing hedging instruments.
Environmental regulation imposes substantial costs and limitations on our
operations.
We, like all other steel producers, are modifyingsubject 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. While we believe that
our facilities are and will continue to be in material compliance with all
applicable environmental laws and regulations, the risks of substantial costs
and liabilities related to compliance with these laws and regulations are an
inherent part of our business. It is possible that future conditions may create
substantial environmental compliance or upgradingremediation liabilities and costs. For
example, our businesssteelmaking operations produce certain waste products, such as
electric arc furnace dust, which are classified as hazardous waste and process
control systemsmust be
properly disposed of under applicable environmental laws. These laws can impose
clean up liability on generators of hazardous waste and other substances that
are disposed of either on or off-site, regardless of fault or the legality of
the disposal activities. Other laws may require us to achieve year 2000 compliance.investigate and remediate
contamination at our properties, including contamination that was caused in
whole or in part by previous owners of our properties. While we believe that we
can comply with environmental legislation and regulatory requirements and that
the costs of doing so have been included within our budgeted cost estimates, it
is possible that such compliance will prove to be more limiting to our
operations and more costly than anticipated.
In addition to potential clean up liability, we may become subject to
substantial monetary fines and penalties for violation of applicable laws,
regulations or administrative orders. We also have taken steps to
determine whether our principal suppliers and customers are, or expectin the future may become,
involved in proceedings with various regulatory authorities that may require us
to be
year 2000 compliant by the end of this year. Testing of our own systems, as
well as electronic data interchange testingpay fines, comply with these suppliersmore rigorous standards or other requirements or
incur capital and customers,
is expected to be substantially completed by September 30, 1999. We currently
expect our costsoperating expenses for year 2000 compliance to total approximately $5.0 million.
Additional expenditures beyond this amount could be required. We cannot assure
you that our year 2000 program or the programs of third parties who do business
with us will be effective, that our estimates as to the timing and cost of
completing our remediation program will be accurate, or that all remediation
will be complete by the end of the year.
Factorsenvironmental compliance.
Risks Relating to the Notes
to be Issued in the Exchange Offer
The notes will be unsecured.are effectively subordinated to our secured debt.
The notes will be senior obligations of ourthe company and will rank equally
with any old notes that are not exchanged and our 9 1/9% Senior Notes Due 2007, our 8 7/8% Senior Notes Due 2006.
However, similar2008 and our
7 7/8% Senior Notes Due 2009. Similar to all of our 9 1/8%other outstanding senior
notes, the notes will not be secured by any of our assets. Therefore, holders
of our outstanding secured notes, totalling
$250.0 million,debt, as well as holders of additional secured debt
that we may incur in the future, will have claims with respect to certain of
our assets that are prior to the claims of holders of the notes.
There is limited support for our parent company's guarantee.the guarantees.
The notes will be fully and unconditionally guaranteed on a senior basis by
our parent
company. Our parent companyHolding and by Douglas Dynamics, L.L.C., a wholly-owned subsidiary of the
Company.
Holding derives all of its operating income and cash flow from our companyAK Steel and
ourAK Steel's outstanding common stock is itsHolding's only material asset. The indenture
governing the notes contains a covenant restricting our parent
companyHolding from holding any assets
other than securities of our company.AK Steel. Accordingly, itsHolding's ability to perform on
its guarantee will be dependent on our
ownAK Steel's financial condition and net worth.
At June 30, 2002, Douglas Dynamics, L.L.C. had total assets of $90.5 million
(excluding intercompany accounts) and outstanding liabilities of $19.8 million
and for the year ended December 31, 2001 it had total revenues of $138.8
million. Accordingly, its ability to perform on its guarantee is limited by its
financial resources.
15
We may not be able to purchase your notes upon a change in control.
Upon certain change in control events, each holder of notes may require us
to purchase its notes at a price of 101% of the principal amount thereof plus
accrued interest. Holders of the $550.9 million principal amountall of our other outstanding 9 1/8%senior notes have
similar rights. We cannot assure you that we will have the financial resources
necessary to purchase the notes and the 9 1/8%
notes upon a change in control.
14
If you fail to exchange your old notes, they will continue to be restricted
securities and may become less liquid.
Old notes which you do not tender or we do not accept will, following the
exchange offer, continue to be restricted securities. You may not offer or sell
untendered old notes except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. We
will issue registered notes in exchange for the old notes pursuant to the
exchange offer only following the satisfaction of procedures and conditions
described elsewhere in this prospectus. These procedures and conditions include
timely receipt by the exchange agent of the old notes and of a properly
completed and duly executed letter of transmittal.
Because we anticipate that most holders of old notes will elect to exchange
their old notes, we expect that the liquidity of the market for any old notes
remaining after the completion of the exchange offer may be ablesubstantially
limited. Any old note tendered and exchanged in the exchange offer will reduce
the aggregate principal amount of the old notes outstanding. Following the
exchange offer, if you did not tender your old notes you generally will not
have any further registration rights and your old notes will continue to sell yourbe
subject to transfer restrictions. Accordingly, the liquidity of the market for
any old notes easily.could be adversely affected.
There ismay be no establishedactive trading market for the notes. Credit Suisse First
Boston Corporation and PNC Capital Markets, Inc., the initial purchasers of the
outstanding notes, have advised us that they are making a market in the
existing notes and that they intend to make a market in the newregistered notes to be issued
in the exchange offer.
However, theyThe registered notes are not obligated to do so and may
discontinue their market-making activities at any time without notice.a new issue of securities for which there is no
established market. We do
not intend to apply for listing ofcannot assure you with respect to:
. the notes on any securities exchange or
automated quotation system.
The liquidity of any market for the registered notes that may develop,
. your ability to sell registered notes, or
. the price at which you will depend uponbe able to sell the number of
holders ofregistered notes.
If a public market were to exist, the registered notes our performance,could trade at prices
that may be higher or lower than their principal amount or purchase price,
depending on many factors, including prevailing interest rates, the market for
similar securities,notes, and our financial performance. We do not intend to list the
interest of securities dealers in making a marketregistered notes to be issued to you in the notes and other
factors. Accordingly, a liquid tradingexchange offer on any securities
exchange or to seek approval for quotations through any automated quotation
system. No active market may not develop for the notes.registered notes is currently anticipated.
Trading prices for the notes may be volatile.
Historically, the market for non-investment grade debt securities has been
subject to disruptions that have caused substantial volatility in the prices of
such securities.their trading
prices. The market for the notes could be subject to similar volatility. The
trading price of the notes also could fluctuate in response to such factors as
variations in ourAK Steel's operating results, developments in the steel industry
and the automotive industry, general economic conditions and changes in
securities analysts' recommendations regarding our securities.
FactorsRisks Relating to the Steel Industry
We face intense competition.Intense competition may continue to exert downward pressure on our pricing.
Competition within the steel industry is intense. In the sale of flat rolled
carbon
steel we compete primarily on the basis of product quality, responsiveness to
customer needs and price with other integrated steel producers and, to
16
a lesser extent, mini-mills. Mini-mills (relatively
efficient, low-cost producers that produce steel from scrap in electric
furnaces) have increased their ability to produce higher quality products,
which has enabled them to become more competitive with integrated steel
producers and, in periods of weak demand, has increased pressure on prices and
margins. Moreover, U.S. carbon steel producers have historically
faced significant competition from foreign producers, which in recent years
have substantially increased their steel exports into the United States at low
prices. Due primarily to declining market prices and under-utilization of
capacity, over the past few years, more than 30 domestic steel companies have
entered bankruptcy proceedings, although some of these companies have been able
to emerge from bankruptcy reorganization with lower and more competitive cost
structures that may further increase the competitive environment in the steel
industry and contribute to further price declines.
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,
as well as on imports of carbon steel slabs 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.
Our results of operations could be adversely affected by the cyclical nature
of the steel industry and the strengthindustries we serve.
The steel industry is highly cyclical, sensitive to general economic
conditions and dependent on the condition of certain other industries. As a
result, the U.S.
dollar relativeprices of steel and steel products may fluctuate significantly due
to certain foreign currencies has heightened this competitionmany factors beyond our control. The demand for steel products is generally
affected by macroeconomic fluctuations in the United States and global markets
in which steel companies sell their products. Future economic downturns,
stagnant economies or currency fluctuations in the past year.
WeUnited States or globally
could have an adverse impact on our results of operations.
In addition, we are currently cold rolling, aluminum coatingalso particularly sensitive to changing conditions in,
and marketing Series 400
stainless steel, at an annual rate of approximately 70,000 tons,adverse events, including strikes and labor unrest, that may impact, the
automotive, oil and gas, gas transmission, construction, commercial equipment,
rail transportation, appliance, agricultural and durable goods industries.
These industries are significant markets for use in
automotive exhaust systems. The Rockport Works is intended, in part, to enable
us to substantially expand our presenceproducts and are themselves
highly cyclical. A disruption or downturn in the marketbusiness of any of these
industries could have a material adverse effect upon our production, sales,
financial condition and results of operations.
17
FORWARD-LOOKING STATEMENTS
This prospectus contains some "forward-looking statements" based on our
current expectations, assumptions, estimates and projections about our business
and our industry. When used in this prospectus, the words "expect,"
"anticipate," "intend," " plan," " believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
These forward-looking statements involve risks and uncertainties, some of which
are beyond our control.
Specific factors that might cause actual results to differ from our
expectations and that may affect our ability to pay timely amounts due under
the notes or that may affect the value of the notes include, but are not
limited to:
. reduced domestic automotive production;
. risks of a downturn in the general economy and in the cyclical steel
industry;
. changes in demand for flat rolled stainless
steel, which is associated with higher margins than carbon steel,our products, including the premium grades. Total domestic consumption of flat rolled stainless steel was
over 1.7 million tons in 1997. We intendpossible need to cold roll and finish approximately
385,000 tons of stainless steel per year atshift
shipments to the Rockport Works. However,
becausespot market from the high margins associated with stainless steel significantly reduce
the relative impact of shipping costs on the producer, the domestic market for
stainless steel is far more vulnerable to foreign imports and the adverse
effects of a strengthening U.S. dollar than the market for carbon steel.
Imports represented 20%, 20% and 21% of the domestic flat rolled stainless
steel market in 1995, 1996 and 1997, respectively. In addition, there has been
an increase in the capacity of foreign producers in recent years, resulting in
downward pressure on domestic prices. It is difficult to predict the amount of
stainless steel that will be imported into the U.S. in the future.
15
Increasedcontract market;
. unanticipated plant outages, equipment failures or labor difficulties;
. actions by our domestic and foreign production capacitycompetitors, their employees and
growthlabor unions;
. interest rate volatility and declining prices in imports will
likely result in greater competitionthe securities markets,
which may affect our invested pension plan assets and have a negative impact on prices. Our
ability to profitably sell our targeted quantity of flat rolled stainless steel
in this environment will depend on our ability to finish high quality stainless
steel at a cost that is equal to or below thatthe calculation of
our principal competitors.
We are vulnerable to cyclical variationspension and other postretirement benefit obligations and expenses;
. unanticipated increases in the prices for, or disruptions in the supply
of, raw materials and demand.
Historically, the steel industry has been cyclical in nature, reflecting the
cyclicalityenergy, particularly natural gas;
. unexpected outcomes of many of the principal markets it serves, including the
automotive, appliancemajor litigation, environmental matters and construction industries, andother
contingencies;
. changes in total
industry capacity. Although total domestic steel industry capacity was
substantially reduced duringapplication or scope of environmental regulations to which we
may be subject; and
. changes in United States trade policy and governmental actions with
respect to imports, particularly with respect to restrictions or tariffs
on the 1980s through extensive restructuring, and
demand has been particularly strong since 1993, we cannot assure you that
demand will continue at current levels or that recent restartsimportation of previously
idled domestic facilities, the addition of new mini-mills and increases in
foreign imports will not adversely impact pricing and margins.
We must spend substantial sums to meet environmental regulations.
Domestic steel producers, including our company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment. Like other domestic steel producers, we have
expended, and can be expected to expend in the future, substantial amounts for
compliance with these environmental laws and regulations.carbon slabs.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SECSecurities and Exchange Commission 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 the registration
statement, including its exhibits, at the SEC's Public Reading Room located at
450 Fifth Street, N.W., Washington D.C. 20549. You may obtain information on
the operation of the Public Reading 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. The SEC also maintains an Internet site (www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants like us who file electronically with the SEC. Our filings
are also available over the Internet on our website (www.aksteel.com). You can
obtain a copy of any of our filings, at no cost, by contacting us at the
following address:
AK Steel Corporation
703 Curtis Street
Middleton, OH 45043
Attention: Corporate Secretary
(513) 425-5000
To ensure timely delivery, please make your request as soon as practicable
and, in any event, no later than five business days prior to the expiration of
the exchange offer.
18
THE EXCHANGE OFFER
Purpose and Effect
We issued the old notes in a private placement on June 11, 2002. The notes
were resold by their initial purchasers to a limited number of qualified
institutional buyers, as defined under the Securities Act, and to a limited
number of persons outside the United States. In connection with the issuance,
we entered into a registration rights agreement. The registration rights
agreement requires that we file a registration statement under the Securities
Act with respect to the registered notes to be issued in the exchange offer.
This prospectus, which forms a partoffer
and, upon the effectiveness of the registration statement, does not
contain alloffer to you the
opportunity to exchange your old notes for a like principal amount of
registered notes. The registered notes will be issued without a restrictive
legend and, except as set forth below, 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 information set forth inold notes and
the registered notes will terminate. A copy of the registration statement and the
exhibits and schedules thereto, certain parts of which are omitted in
accordance with the SEC's rules and regulations. Any statements made in this
prospectus concerning the provisions of various documents are not necessarily
complete and, in each instance, we refer you to the copy of such documentsrights
agreement has been filed as an exhibit to the registration statement forof which
this prospectus is a part.
Based on an interpretation by the full text of those
provisions. Each such statement is deemed qualified in its entirety by such
reference.
AK Steel Holding Corporation, our parent company and the guarantorstaff of the notes, is listed onSEC set forth in no-action
letters, if you are not our "affiliate" within the New York Stock Exchange. Our parent company files
annual, quarterly and current reports, proxy statements and other documents
with the SECmeaning of Rule 405 under
the Securities Exchange Act or a broker-dealer referred to in the next paragraph, 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 1934. You may readthe Securities Act.
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)you are not engaging in and copydo not intend to engage in a distribution of
the registered notes to be issued to you in the exchange offer; and
(3)you have no arrangement or understanding with any person to participate
in the distribution of the registered notes to be issued to you in the
exchange offer.
If you tender in the exchange offer for the purpose of participating in a
distribution of the registered notes to be issued to you in the exchange offer,
you cannot rely on this interpretation by the staff of the SEC. Under those
circumstances, you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Each broker-dealer that receives registered notes in the exchange
offer for its own account in exchange for old 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
reports, statementsregistered notes. See "Plan of Distribution."
If you will not receive freely tradeable registered notes in the exchange
offer or other documents atare not eligible to participate in the SEC public reference
room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further informationexchange offer, you can elect,
by indicating on the public reference room. These filingsletter of transmittal and providing certain additional
necessary information, to have your old notes registered in a "shelf"
registration statement on an appropriate form pursuant to Rule 415 under the
Securities Act. In the event that we are also availableobligated to file a shelf registration
statement, we will be required to use our best efforts to keep the shelf
registration statement effective for a period of two years following the date
of original issuance of the old notes or such shorter period that will
terminate when all of the old notes covered by the shelf registration statement
have been sold pursuant to the public from
commercial document retrieval services and atshelf registration statement. Other than as set
forth in this paragraph, you will not have the SEC's Web site at
"http://www.sec.gov." In addition, our company maintains a Web site at
"http://www.aksteel.com" that contains additional information, including news
releases about our business and operations.
The SEC allowsright to require us to "incorporate by reference"register
your old notes under the Securities Act. See "--Procedures for Tendering" below.
Consequences of Failure to Exchange
After we complete the exchange offer, if you have not tendered your old
notes you will not have any further registration rights, except as set forth
above. Your old notes will continue to be subject to certain restrictions on
19
transfer. Therefore, the liquidity of the market for your old 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
documentsand in the letter of transmittal, we will accept any and all old 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 old notes accepted in the
exchange offer. You may tender some or all of your old notes pursuant to the
exchange offer. However, old notes may be tendered only in integral multiples
of $1,000 in principal amount.
The form and terms of the registered notes are the same as the form and
terms of the old notes, except that AK Steel Holding Corporation files with them, which means that we can
disclose important information to you by referring you to those documents. The
information so incorporated by reference is consideredthe notes to be a partissued 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 same indenture that also
governs the old notes. The registered notes and the old notes will be deemed
one issue of notes under the indenture.
As of the date of this prospectus, and information that our parent corporation files later$550 million in aggregate principal
amount of the old notes are outstanding. This prospectus, together with the
SEC will automatically updateletter of transmittal, is being sent to all registered holders and supersede this information. We incorporate by
referenceto others
believed to have beneficial interests in the documents
16
listed below andold notes. You do not have any
future filings made by AK Steel Holding Corporationappraisal or dissenters' rights in connection with the SECexchange offer under Sections 12(a), 13(c), 14the
Delaware General Corporation Law or 15(d)the indenture. We intend to conduct the
exchange offer in accordance with the applicable requirements of the Securities
Exchange Act of 1934, untilor the completionExchange Act, and the applicable rules and
regulations of the SEC promulgated under the Exchange Act.
We will be deemed to have accepted validly tendered old 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 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 Taxes," transfer taxes with respect to the
exchange of your old 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 and Expenses" below.
Expiration Date; Amendments
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2002, 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 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)to delay accepting any old notes or, if any of the conditions set forth
below under "--Conditions" have not been satisfied or waived, to
terminate the exchange offer by giving oral or written notice of such
delay or termination to the exchange agent, or
(2)to amend the terms of the exchange offer:
. AK Steel Holding Corporation's Annual Reportoffer in any manner by complying with
Rule 14e-l(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 old 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 old 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, Form 10-K 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 old notes in the form of book-entry interests and you wish
to tender your old 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'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 old notes held in the form of book-entry
interests:
(1)a timely confirmation of book-entry transfer of such notes into the
exchange agent's account at DTC pursuant to the procedure for book-entry
transfers described below under "--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 old 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 old notes to us. You may request your broker,
dealer, commercial bank, trust company, or nominee to effect the above
transactions for you.
Certificated Old Notes
Only registered holders of certificated old notes may tender those notes in
the exchange offer. If your old 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 Agent." In addition, in order to validly tender your certificated
old notes:
(1)the certificates representing your old 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.
21
Procedures Applicable to All Holders
If you tender an old 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 old 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 old notes, either make appropriate arrangements to register
ownership of the old 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 notes tendered in the exchange offer are tendered either
(A)by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery
Instructions" on such holder's letter of transmittal or
(B)for the year
ended December 31, 1998,account of an eligible institution; and
(2)the box entitled "Special Registration 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
(which includes most banks, savings and loan associations and brokerage 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 old
notes must be endorsed or accompanied by a properly completed bond power and
signed by you as amendedyour name appears on those old notes.
If the letter of transmittal or any old notes or bond powers are signed by
Form 10-K/A filedtrustees, 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 SECletter of transmittal proper evidence
satisfactory to us of their authority to act on February 25, 1999;your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
. AK Steel Holding Corporation's Current Reportswithdrawal of tendered old notes. This determination will be final and binding.
We reserve the absolute right to reject any and all old notes not properly
tendered or any old 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 old 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 Form 8-K filedall
parties.
You must cure any defects or irregularities in connection with tenders of
your old 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 old 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 old 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.
22
The exchange agent will return your 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 old
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 by you in the exchange offer are
being acquired in the ordinary course of your business;
(2)you are not engaging in and do not intend to engage in a distribution of
the registered notes to be acquired by you in the exchange offer;
(3)you do not have an arrangement or understanding with any person to
participate in the distribution of the registered notes to be acquired
by you in the exchange offer; and
(4)you are not our "affiliate," as defined under Rule 405 of the Securities
Act.
In all cases, issuance of registered notes for old 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 old notes or a timely book-entry
confirmation of your old notes into the exchange agent'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 old notes are not accepted for any reason
set forth in the terms and conditions of the exchange offer or if old notes are
submitted for a greater principal amount than you desire to exchange, the
unaccepted or non-exchanged old notes, or old notes in substitution therefor,
will be returned without expense to you. In addition, in the case of old notes
tendered by book-entry transfer into the exchange agent's account at DTC
pursuant to the book-entry transfer procedures described below, the
non-exchanged old 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 old notes and your old notes are not
immediately available or one of the situations described in the immediately
preceding paragraph occurs, 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 old 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.
23
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 old 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 old 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. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests
into the exchange agent's account at DTC in accordance with DTC's procedures
for transfer.
If one of the following situations occur:
(1)you cannot deliver a book-entry confirmation of book-entry delivery of
your book-entry interests into the exchange agent'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;
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
Withdrawal Rights
You may withdraw tenders of your old 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" 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 old 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 old notes, including any required
signature guarantees or be accompanied by documents of transfer
sufficient for the exchange agent to register the transfer of the old
notes into your name; and
(4)specify the name in which the old notes are to be registered, if
different from yours.
24
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 old notes withdrawn
will be deemed not to have been validly tendered for exchange for purposes of
the exchange offer. Any old 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 old notes may be retendered by following one
of the procedures described under "--Procedures for 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, we will not be required to
accept for exchange, or to issue registered notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of any old notes for exchange any of the following events occur:
(1)any 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; or
(2)the exchange offer violates any applicable law or any applicable
interpretation of the staff of the SEC.
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 to extend the expiration date of the exchange offer in order to comply
with applicable securities laws. 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 and from time
to time.
In addition, we will not accept for exchange any old notes tendered, and no
registered notes will be issued in exchange for any of those old 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.
The exchange offer is not conditioned on February 3, 1999, February 16, 1999, February 17, 1999any minimum principal amount of old
notes being tendered for exchange.
Exchange Agent
We have appointed Fifth Third Bank as exchange agent for the exchange offer.
Questions, requests for assistance and Marchrequests 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
The exchange agent also acts as trustee under the indenture.
25
1999.
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 old notes for exchange unless you instruct us to register
registered notes in the name of, or request that old 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 amortizing the expense of the
exchange offer over the term of the registered notes under generally accepted
accounting principles.
26
USE OF PROCEEDS
ThisThe exchange offer does not involveis intended to satisfy our obligations under the
sale of securities for cash and,
accordingly, weregistration rights agreement. We will not receive any cash proceeds from the
issuance of the registered notes. In consideration for issuing the registered
notes as contemplated in this prospectus, we will receive, in exchange, an
equal number of outstanding old notes in like principal amount. The form and
terms of the registered notes are identical in all material respects to the
form and terms of the old notes. The outstanding old notes surrendered in
exchange for existing notes. Thethe registered notes will be retired and marked as cancelled and
cannot be reissued.
We used the net proceeds of approximately $538.1 million from the saleissuance
of the existingold notes, (after the discount to the initial purchaserstogether with approximately $40.6 million of those
notes and other offering expenses that were payable by us) were approximately
$439.0 million. We used these moniescash on
hand, to finance the approximately $338.1$578.7 million cost of redeeming all $550
million of our 10 3/4%previously outstanding 9 1/8% Senior Notes Due 2004due 2006 on April 1, 1999
(plusJuly 11,
2002 (inclusive of accrued interest on those notes through that date) and will use the
balance for general corporate purposes.
17.
27
CAPITALIZATION
The following table sets forth theour consolidated capitalization of AK Steel
Holding Corporation (including our company) at December 31, 1998 on an
historical basisJune 30,
2002 and as adjusted to give pro forma effect to the saleredemption on July 11, 2002 of $450.0all
$550 million of notes on February 10, 1999 and the applicationour 9 1/8% Senior Notes due 2006, which is included in current
portion of the net proceeds
therefrom as if the same had occurred on December 31, 1998.long-term debt. The information presented below should be read in
conjunction with theour consolidated financial statements included elsewhere in
AK Steel Holding Corporation's 1998 Annual Report on
Form 10-K.this prospectus.
December 31, 1998
----------------------
Historical As Adjusted
---------- -----------
(amounts in millions)
Cash and short-term investments........................cash equivalents(1)............................ $ 83.0843.9 $ 187.0(1)268.8
======== ========
Current portion of long-term debt....................... $ 627.6 $ 77.6
Long-term debt(2):debt:
Senior Secured Notes Due 2004........................ $ 250.0 $ 250.0
10 3/4%125.0 125.0
9% Senior Notes Due 2004........................ 325.0 --
9 1/2007............................. 117.4 117.4
8 7/8% Senior Notes Due 2006......................... 550.0 550.02008......................... 33.5 33.5
7 7/8% Senior Notes Due 2009......................... -- 450.0 Other(3)............................................. 20.0 20.0450.0
The Notes............................................ 550.0 550.0
Tax Exempt Financing Due 2008 through 2029 and other. 46.3 46.3
-------- --------
Total long-term debt............................... 1,145.0 1,270.0debt............................. 1,322.2 1,322.2
-------- --------
Stockholders' equity:
Common stock--authorized 200,000,000 shares;
63,868,087 shares issued; 59,022,588 shares
outstanding......................................... 0.6 0.6
Additional paid-in capital........................... 722.0 722.0
Treasury stock--at cost--4,845,499 shares............ (87.8) (87.8)
Retained earnings.................................... 294.7 282.7Total debt.............................................. 1,949.8 1,399.8
-------- --------
Total stockholders' equity......................... 929.5 917.5equity(2)........................... 1,038.3 1,018.4
-------- --------
Total capitalization............................. $2,074.5 $2,187.5capitalization.......................... $2,988.1 $2,418.2
======== ========
- --------
(1) Does not reflectAt June 30, 2002, we had $182.9 available for borrowings under a $300.0
accounts receivable credit facility. There were no outstanding borrowings
under this facility and availability was affected primarily by outstanding
letters of credit.
(2)As adjusted reflects the paymentafter-tax loss on the redemption of the 9 1/8%
Senior Notes due 2006.
28
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(dollars in millions, except per ton data)
The selected historical consolidated financial data as of, and for the years
ended, December 31, 1999, 2000 and 2001 have been derived from, and should be
read in conjunction with, our audited consolidated financial statements
included elsewhere in this prospectus. The selected historical consolidated
financial data as of, and for the six months ended, June 30, 2001 and 2002 have
been derived from, and should be read in conjunction with, our unaudited
consolidated financial statements included elsewhere in this prospectus. The
Company sold its Sawhill Tubular division on April 19, 2002. The results of
Sawhill Tubular have been reclassified to discontinued operations. (See Note 13
to Consolidated Financial Statements.)
Six Months Ended
Years Ended December 31, June 30,
--------------------------- ------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(unaudited)
Statement of Operations Data:
Net sales............................................. $4,184.8 $4,403.7 $3,833.4 $1,940.0 $2,109.2
Cost of products sold................................. 3,334.3 3,577.7 3,225.5 1,651.4 1,854.7
Selling and administrative expenses................... 299.9 257.9 257.6 124.2 129.8
Depreciation.......................................... 206.1 227.3 225.8 116.0 113.0
Special charges and unusual items(1).................. 99.7 -- 142.3 -- (23.9)
Operating profit (loss)(2)............................ 244.8 340.8 (17.8) 48.4 35.6
Interest expense...................................... 123.7 136.1 133.1 67.5 66.5
Other income(3)....................................... 20.8 7.9 6.1 3.7 26.7
Income (loss) from continuing operations before income
taxes and minority interest......................... 141.9 212.6 (144.8) (15.4) (4.2)
Income tax provision (benefit)........................ 63.9 78.6 (53.6) (5.7) (1.6)
Income (loss) from continuing operations.............. 71.3 134.0 (91.2) (9.7) (2.6)
Income (loss) from discontinued operations............ 7.5 (1.6) (1.2) (0.4) (6.8)
Net income (loss)..................................... 65.4 132.4 (92.4) (10.1) (9.4)
As of December 31, As of June 30,
--------------------------- ------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(unaudited)
Balance Sheet Data:
Cash and cash equivalents............................. $ 54.4 $ 86.8 $ 101.0 $ 105.5 $ 843.9
Working capital....................................... 564.5 631.5 593.4 639.7 822.6
Total assets.......................................... 5,227.1 5,239.8 5,225.8 5,160.7 5,768.6
Total debt, including current portion(4).............. 1,456.9 1,450.8 1,402.5 1,450.6 1,949.8
Total pension and postretirement benefit obligations.. 1,485.1 1,486.8 1,808.4 1,504.9 1,855.7
Stockholders' equity.................................. 1,277.8 1,319.3 1,033.3 1,268.9 1,038.3
Six Months Ended
Years Ended December 31, June 30,
--------------------------- ------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(unaudited)
Other Data:
EBITDA(5)............................................. $ 417.8 $ 590.8 $ 233.4 $ 181.0 $ 172.2
Ratio of earnings to fixed charges(6)................. 1.5x 2.5x -- -- 2.0x
Operating profit per ton(7)........................... $ 55 $ 55 $ 22 $ 17 $ 12
Capital investments................................... $ 334.1 $ 135.8 $ 108.0 $ 45.6 $ 53.1
Steel shipments (thousands of tons)................... 6,254 6,171 5,618 2,877 2,940
- --------
Notes appear on following page.
29
(1)In 1999, we recognized $99.7 in special charges for costs related to the
merger with Armco Inc. In 2001, Anthem Inc., our 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 policy
holders. As a major policyholder, AK Steel received nearly 1.5 million
shares of Anthem common stock, recording a benefit of $49.9. Also in 2001,
we recognized a non-cash pension corridor charge of $192.2 under our method
of accounting for pension and other postretirement benefit plans. In the six
months ended June 30, 2002, we recorded a benefit of $23.9 arising from
insurance settlements entered into with certain of our insurance carriers.
The benefit is net of legal fees and expenses and increases to environmental
liabilities.
(2)We adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets," on January 1, 2002. As a result, we stopped
amortizing goodwill effective January 1, 2002. For the years ended December
31, 1999, 2000 and 2001 and for the six months ended June 30, 2001,
operating profit included goodwill amortization charges of accrued interest$3.4, $3.4, $4.0
and $2.0, respectively. As required by the Statement, we reviewed our
goodwill balance as of January 1, 2002 for possible impairment and
determined that no impairment was necessary.
(3)During the six months ended June 30, 2002, we liquidated all of the nearly
1.5 million shares of Anthem stock we had received in 2001 and recorded a
gain of $24.1 on the 10sale.
(4)As of June 30, 2002, total indebtedness includes $550.0 of our 9 1/8% Senior
Notes due 2006, which were redeemed on July 11, 2002, and $550.0 of our
7 3/4% notes.
(2)Senior Notes due 2012.
(5)EBITDA for any period, which is calculated as defined in the covenants
contained in the indentures governing our notes during such period,
represents earnings before interest expense, provision for income taxes,
depreciation and amortization and is presented herein because it is a widely
accepted indicator of a company's ability to service debt. EBITDA does not
represent net income or cash flow from operations as those items are defined
by generally accepted accounting principles, should not be considered by
prospective purchasers of the notes as an alternative to net income and does
not necessarily indicate whether cash flows will be sufficient to fund cash
needs. This presentation may differ from similarly titled measures used by
other companies.
(6)For the p
urpose of calculating the ratio of earnings to fixed charges, (i) earnings
consist of income before income taxes and minority interest, discontinued
operations and extraordinary items, the distributed income of less than
50%-owned affiliates, plus fixed charges and (ii) fixed charges consist of
interest, whether expensed or capitalized. Fixed charges exceeded earnings
by approximately $148.0 for the year ended December 31, 2001 and
approximately $14.6 for the six months ended June 30, 2001.
(7)The Company views operating profit per ton as an important measure of its
results and as a key benchmark by which it compares itself to its
competitors. This presentation may differ from similarly titled measures
used by other companies. The Company believes it had the highest operating
profit per ton of any domestic integrated steel producer in each of the
eight years from 1994 through 2001. Operating profit per ton for the year
ended December 31, 1999 excludes charges related to the Armco merger.
Operating profit per ton for the year ended December 31, 2001 excludes
unusual items related to pension corridor charges and the benefit from the
receipt of shares of Anthem.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Our principal business focus is our steel operations, which currently
consist of eight steelmaking and finishing facilities that produce flat rolled
carbon, stainless and electrical steels and steel tubing products. These
products are sold primarily to the automotive, appliance, industrial machinery
and equipment, and construction markets, as well as to distributors, service
centers and converters. We also own a snow and ice control products business,
which manufactures snowplows and salt and sand spreaders for four-wheel drive
light trucks. We also operate an industrial park on the Houston, Texas ship
channel.
On April 19, 2002, we completed the sale of our Sawhill Tubular division.
For all periods presented, the results of Sawhill Tubular are classified as
discontinued operations.
On September 30, 1999, we consummated the merger of Armco Inc. 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.
Results of Operations
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Total steel shipments during the six months ended June 30, 2002, inclusive
of tubular products, increased to 2,940,200 tons from 2,877,400 tons shipped in
the first half of 2001. This increase was due in part to record automotive
shipments and the addition of AK Tube, which was acquired in the third quarter
of 2001. For the six months ended June 30, 2002, value-added steel products
comprised approximately 94% of total shipments, compared to 92% for the
corresponding period of 2001.
Total net sales for the first half of 2002 and 2001 were $2,109.2 million
and $1,940.0 million, respectively, and steel operations sales for the same
periods were $2,055.1 million and $1,885.1 million, respectively. Each of these
period-to-period increases reflects the strong sales volumes and improved
spot-market pricing experienced in the current year, as price increases
announced earlier in the year were achieved.
The operating profit for the six months ended June 30, 2002, totaled $35.6
million compared to $48.4 million for the same period in 2001. The 2002 period
included a pretax benefit of $23.9 million arising from insurance settlements
entered into by us with certain of our insurance carriers. The decline with
respect to the six-month periods was primarily due to higher costs, including
approximately $68.0 million in increased pension and other postretirement
benefit expenses. In addition, the six-month operating profit in 2002 includes
a scheduled maintenance outage at the Middletown Works blast furnace and other
planned and unplanned maintenance work totaling approximately $20.0 million,
which occurred primarily in the first quarter. The higher costs were partially
offset by lower natural gas costs, higher volumes, improved product mix and
higher spot market pricing.
For the six months ended June 30, 2002, snow and ice control products
recorded an operating profit of $10.6 million on sales of $47.5 million. For
the six months ended June 30, 2001, this segment recorded an operating profit
of $11.0 million on sales of $48.8 million. The decline with respect to the
six-month periods reflects lower shipments due to the very mild winter, as
sales by the snow and ice control products business are strongly dependent on
weather conditions in its market area and the level of light truck sales.
In the fourth quarter of 2001, Anthem Inc., our 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 approximately 1.5 million shares of
Anthem common stock as a
31
result of this demutualization. During the six months ended June 30, 2002, we
liquidated all of the shares of Anthem common stock we had received last year
and recorded a gain of $24.1 million. The gain was net of changes to the
liability established for the portion of the proceeds deemed to be healthcare
plan assets.
On April 19, 2002 we completed the sale of our Sawhill Tubular division for
approximately $68.5 million, of which $62.8 million was received at the time of
sale. We retained approximately $20.5 million of Sawhill Tubular's current
operating liabilities, which we are settling in due course. We recorded a
pretax loss on the sale of $10.5 million ($6.3 million after tax or $0.06 per
share) in the second quarter of 2002, reflecting when our Board of Directors
approved the plan of sale. In the six months ended June 30, 2002, this business
generated an after-tax loss of $0.5 million, compared to a loss of $0.4 million
in the six months ended June 31, 2001.
We recorded a net loss for the six months ended June 30, 2002 of $9.4
million, or $0.09 per share, compared to a net loss of $10.1 million, or $0.10
per share, reported for the first half of 2001. On a pro forma basis, excluding
the net-of-tax gain on the sale of the shares of Anthem common stock, the
benefit from the insurance settlement and the loss on the sale of Sawhill, the
six-month 2002 loss would have been $33.3 million, or $0.31 per share. The
decline with respect to the six-month periods was primarily due to the increase
in first quarter maintenance expenditures and substantially higher pension and
healthcare costs.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Total steel shipments during 2001, inclusive of tubular products, declined
9% to 5,618,300 tons from 6,171,100 tons shipped in 2000. Although demand from
automotive and appliance contract customers increased late in 2001, shipments
for virtually all product lines were equal to or lower than in 2000. Due to
severely depressed steel pricing, we chose to forego some spot market sales
during 2001. Value-added steel products represented 93% of 2001 total
shipments, compared to 89% in 2000, while commodity hot-rolled product
shipments declined to 2% of total shipments in 2001, compared to 6% in 2000.
During 2001, net sales decreased 13% to $3,833.4 million from the $4,403.7
million reported for 2000. Steel operations contributed $3,681.7 million to
total net sales in 2001, compared to $4,276.8 million in 2000, a decrease of
14%. These declines were due primarily to lower prices in both the contract and
spot markets, which were partially offset, however, by a richer product and
market mix. Approximately 73% of AK Steel's shipments of flat rolled steel
products during 2001 were made pursuant to annual and multi-year contracts,
with the balance being made in the spot market at prevailing prices at the time
of sale.
Sales by the snow and ice control products business are strongly dependent
on weather conditions in its market area and the level of light trucks sales.
Strong truck sales due to aggressive marketing by automotive companies, as well
as higher snowfalls during the winter of 2000/2001 contributed to sales
increasing to $138.8 million in 2001 from $112.8 million in 2000.
The following presents, on a pro forma basis, operating profit before and
after two unusual items recorded in the fourth quarter of 2001.
2000 2001
------ ------
(in millions)
Operating profit (loss) as reported........ $340.8 $(17.8)
Pension charge............................. -- 192.2
Stock received in insurance demutualization -- (49.9)
------ ------
Pro forma operating profit................. $340.8 $124.5
====== ======
We recorded an operating loss in 2001 of $17.8 million, including an
operating loss of $66.7 million in the steel operations. Both losses included
the effects of two unusual items described below. Snow and ice control products
posted an increase in operating profit to $41.0 million in 2001 from $30.5
million in 2000, primarily due to the higher sales volumes.
32
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.
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. During 2001, the
combination of a 6% loss on pension plan assets, and a decrease in the discount
rate from 8% to 7.25%, caused us to recognize, in the fourth quarter of 2001, a
non-cash pre-tax pension charge of $192.2 million against operating profit
(loss) and an additional $1.8 million in discontinued operations. In addition,
because the decline in asset value also led to the pension plans becoming
underfunded, we recorded a non-cash after-tax reduction in equity of
approximately $163.4 million.
In the fourth quarter of 2001, we recorded an unusual pre-tax benefit of
$49.9 million as a result of receiving approximately 1.5 million shares of
Anthem common stock. The benefit was net of a liability established for the
portion of the proceeds deemed to be healthcare plan assets. At December 31,
1998,2001, the fair value of the stock, net of the fair value of the liability, had
risen to $68.6 million and the increase, net of tax, was recorded in other
comprehensive income.
Excluding the $192.2 million pension charge and the $49.9 million insurance
company demutualization benefit, we would have realized an operating profit of
$124.5 million, or $22 per ton shipped, in 2001 compared to an operating profit
of $340.8 million, or $55 per ton shipped, in 2000. The significant decrease in
2001 was primarily due to lower contract pricing and severely depressed spot
market pricing, which lowered average selling prices by $38 per ton, and the 9%
reduction in shipping volume, partially offset by company-wide cost savings.
Cost savings were derived from lower market prices for purchased slabs and
scrap, which saved over $50.0 million in 2001, as well as overtime cost savings
of approximately $30.0 million, partially offset by approximately $50.0 million
in higher natural gas costs.
During 2001, we recorded an income tax benefit of $53.6 million on a pre-tax
loss from continuing operations of $144.8 million, using a book tax rate of
37%. In 2000, we recorded $78.6 million of income tax expense on pre-tax income
from continuing operations of $212.6 million.
During 2001 and 2000, Sawhill Tubular recorded after-tax losses of $1.2
million and $1.6 million, respectively, which have been classified as
discontinued operations.
We recorded a net loss in 2001 of $92.4 million, or $0.87 per share,
compared to net income of $132.4 million, or $1.20 per share, for 2000.
Excluding the two unusual items, net of tax, and the loss from discontinued
operations discussed above, we would have recorded a loss of $0.4 million in
2001.
During 2001, cash flow from operating activities from continuing operations
generated $149.0 million, primarily attributable to $148.1 million of income
excluding non-cash charges for depreciation and amortization. Other non-cash
items in the 2001 net loss included the $192.2 million pension charge, the
$49.9 million benefit from the receipt of the Anthem shares, $44.2 million of
net pension and other postretirement benefit income and $52.8 million of
deferred tax credits. During 2001, $2.9 million of cash was generated by
working capital as reductions in accounts receivable were offset by inventory
increases. The decrease in accounts receivable reflected the lower sales levels
in the year, while the increase in inventories consisted largely of higher slab
purchases made in anticipation of a blast furnace maintenance outage scheduled
for the first half of 2002. Finally, $41.0 million was used to settle a key
management deferred compensation plan liability.
Cash flows used in investing from continuing operations totaled $75.2
million. Capital investments were $108.0 million and we used $41.3 million to
acquire Alpha Tube and purchase other long-term investments. We liquidated a
key management deferred compensation plan trust, generating $31.6 million, sold
our ownership interest in North American Stainless for $12.5 million and, in
the fourth quarter of 2001, received $30.0 million from AFSG Holdings, Inc.,
the holding company for our discontinued insurance and finance leasing
businesses.
33
Cash flows from financing activities from continuing operations resulted in
a net use of $78.0 million, including $14.2 million for dividends on common and
preferred stock and $63.2 million for scheduled debt repayments.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
During 2000, net sales were $4,403.7 million, an increase of 5% from the
$4,184.8 million reported for 1999. Steel operations contributed $4,276.8
million to total net sales, compared to $4,054.8 million for 1999, an increase
of 5%. These increases were due primarily to continued growth in the percentage
of total shipments attributable to value-added products, consisting primarily
of stainless and electrical steels and coated and cold-rolled carbon steels.
For the year 2000, value-added products comprised approximately 89% of total
shipments, compared to 81% for 1999. Partly offsetting the improved product mix
were significantly lower prices in the spot market and a temporary decline in
the percentage of sales made to the higher priced contract market.
Total steel shipments during 2000 declined slightly to 6,171,100 tons from
the 6,253,700 tons shipped in 1999, reflecting our closure, in January 2000, of
a redundant galvanizing facility in Dover, Ohio, which accounted for shipments
of almost 200,000 tons in 1999. During 2000, an 8% increase in value-added
steel shipments was a result of our move toward a richer product mix.
Operating profit in 2000 totaled $340.8 million, or $55 per ton shipped,
compared to the $244.8 million reported for 1999. Excluding the $99.7 million
merger-related special charges, 1999 operating profit was $344.5 million, or
$55 per ton shipped. Steel operations operating profit was $300.7 million in
2000 and $201.7 million ($301.4 million excluding the special charge) in 1999.
The slight decrease in adjusted operating profit in 2000 was due primarily to
substantially higher costs in comparison to 1999 for steel scrap, purchased
carbon steel slabs and, most particularly, natural gas. To a lesser extent,
operating profit fell due to the significant decline in spot market prices and
the increase in the percentage of our sales to the spot market during the
fourth quarter of 2000. These negative factors were partly offset by increased
shipments of value-added products, which carry higher margins, higher than
expected merger synergies and other cost savings achieved through more
efficient utilization of production facilities.
Operating profit for the snow and ice control products segment declined to
$30.5 million in 2000 from $36.1 million in 1999 on 2000 sales of $112.8
million and 1999 sales of $119.2 million. While light truck sales remained
strong in 2000, plow sales were adversely affected by below average snowfall in
our market area.
Interest expense increased in 2000 by $12.4 million over the prior year, due
primarily to an $18.9 million reduction in the amount of interest that we
capitalized as a result of the completion of construction of our Rockport Works
in the second half of 1999. This was partially offset by the retirement of
certain debt in connection with the Armco merger. Other income, consisting
primarily of interest earned on cash balances, declined 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 funding 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 short-termoutstanding 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, outstandingincluding 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 no current
obligationsour other senior
notes that mature in respectthe years 2007 through 2009 and that are not subject to
amortization prior to maturity. In addition, the principal of our long-termSenior
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 receivables
purchasesubordinated 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 servicing agreementdo 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 groupduration of banks providingup 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 an
aggregate financing commitmentimpairment. 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, 19992002. However, a provision requiring certain gains and losses
from extinguishment of $200.0 million,
inclusivedebt 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 letters of credit. Atthis 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 facilities 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 future 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 in 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, 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
43
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, 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, lettersArmco received an order from the EPA under Section
3013 of credit
aggregating $25.7RCRA 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 outstandingparties 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 the original intent of 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. (3) ConsistsSuch cases
46
typically involve a large number of tax-exempt industrial development bond obligations dueplaintiffs 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 2027the United States District Court for the Southern District of Ohio
against the AK Steel Corporation Retirement Accumulation Pension Plan, or AK
RAPP, and 2028.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 OUTSTANDINGOTHER INDEBTEDNESS
The Secured NotesDebt
We have outstanding a total of $250.0$252.2 million principal amount of our secured notes.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 secured notesSenior Secured Notes bear interest at annual rates ranging from
8.48% to 9.05%, with a weighted average rate of 8.72%. The principal of the secured
notes is payable
in four consecutive annual installments of $62.5 million commencingthat commenced in
December 2001 with the final installment due in December 2004. The secured notesSenior
Secured Notes are secured by a first priority lien on the continuous cold mill
and hot dip galvanizing line at ourthe Rockport Works and a first mortgage on the
approximately three acres of land upon which those two components have been
constructed. The secured notesSenior Secured Notes may be prepaid, in whole or in part, at
any time, at ourAK Steel's option, at 100% of their principal amount plus a
customary "make-
whole""make-whole" premium.
The secured notesSenior Secured Notes are subject to the terms of a note purchase agreementNote Purchase
Agreement containing covenants substantially similar to those contained in the
indenture governing the notes offered hereby with respect to be issued in the exchange offer. Those covenants impose limitations on,
among other things, .liens,
.sale/(i) liens, (ii) sale/leaseback transactions, .the(iii) the
incurrence of debt and the issuance of preferred equity interests by our
subsidiaries, .transactions(iv) transactions with affiliates, .dividends(v) dividends and other
restricted payments, .sales(vi) sales of assets, including stock of subsidiaries,
.lines(vii) lines of business, .restrictions(viii) restrictions on distributions from our
subsidiaries and .mergers(ix) mergers and consolidations. In addition, the note purchase agreementNote
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. We
also must maintain1996 and (ii) a ratio of Consolidated
Debt (as defined) to Consolidated Capitalization (as defined) of not more than
.65..65 to 1.00 through December 31, 2001 and .55 to 1.00 thereafter until
repayment in full of the secured notes.debt. The secured notes are subject toNote 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, 1/2002.
The 9% 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
Our 9 1/The 8 7/8% Senior Notes, Due 2006, of which $550.0$33.5 million aggregate principal amount are
outstanding, are non-callable prior to December 15, 2001.1, 2003. Thereafter, the 9 1/8 7/8%
notesNotes are callable at our option at an initial redemption price of 104.56%104.438% of
their principal amount, declining annually thereafter to 100% on and afterbeginning
December 15, 2004,1, 2006, together with accrued interest to the redemption date. The
9 1/terms of the 8 7/8% Notes, including covenants in the indenture relating to
those notes, include change in control
repurchase provisions that are identicalsubstantially similar to those applicable to the notes thatoffered
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
subject7 7/8% Notes are callable at our option at an initial redemption price of
this exchange offer and have52
103.938% of their principal amount, declining annually thereafter to 100%
beginning February 15, 2007, together with accrued interest to the benefit of a guarantee by
our parent company that is identical to its guaranteeredemption
date. The terms of the notes that are7 7/8% Notes, including covenants in the
subject of this exchange offer. The indenture
relating to those notes, are substantially similar to those applicable to the
9 1/8% notes
contains covenants substantially similar to those contained in the indenture
governingNotes and the notes that are the subject of this exchange offer, including
limitations on, among other things,
.liens,
.sale/leaseback transactions,
19
.the incurrence of additional debt,
.the incurrence of debt and the issuance of equity interests by our
subsidiaries,
.restrictions on distributions from our subsidiaries,
.sales of assets, including subsidiary stock,
.dividends and other restricted payments,
.transactions with affiliates,
.lines of business,
.mergers and consolidations and
.activities and liabilities of our parent company.
The 9 1/8% notes also are subject to events of default that are identical to
those applicable to the notes that are the subject of this exchange offer.offered hereby.
Accounts Receivable Credit Facility
A wholly-owned special purpose subsidiary of our companyAK Steel is party to a
receivables purchaseReceivables Purchase and servicing agreementServicing Agreement with a group of banks, providing
for an aggregate financing commitment fromof up to $300.0 million for revolving
credit loans and after January 15, 1999 of $200.0
million, inclusive of letters of credit outstanding as of January 7, 1999 in
the aggregate amount of $35.7 million.credit. The banks' commitments will expire
December 31, 2003.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 December 31, 1998,June 30, 2002, the participating banksCompany had
$182.9 million available for borrowing under this credit facility due primarily
to outstanding letters of credit. At that date there were no interests in any of our outstanding
accounts
receivable and our special purpose subsidiary held a pool of eligible accounts
receivable that was sufficient to fully utilize the commitments of the banks.
20
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We sold $450.0 million of notes on February 10, 1999 in a private placement.
Those notes were not registeredborrowings under the Securities Act. In this discussion,
and in the section of this prospectus entitled "Description of the Notes," we
sometimes refer to those notes as the "old notes" to more easily distinguish
them from the new registered notes to be issued in this exchange offer, which
we refer to in this discussion as the "new notes."
The initial purchasers of the old notes were Credit Suisse First Boston
Corporation and PNC Capital Markets, Inc. They have advised us that they
promptly resold the old notes to "qualified institutional buyers" in reliance
on Rule 144A under the Securities Act. When we sold the old notes to the
initial purchasers, we entered into the registration rights agreement, which
requires that we file a registration statement under the Securities Act with
respect to the new notes to be issued in the exchange offer and, upon the
effectiveness of the registration statement, offer to you and all other holders
of the old notes the opportunity to exchange your old notes for a like
principal amount of new notes. These new notes will be issued without a
restrictive legend and, except as set forth below, may be reoffered and resold
without restrictions or limitations under the Securities Act. After we complete
the exchange offer, our obligations with respect to the registration of the old
notes will terminate, except as provided in the last paragraph of this section.
As a result of the timely filing and effectiveness of the registration
statement of which this prospectus is a part, assuming we complete the exchange
offer by September 8, 1999, certain prospective increases in the interest rate
on the old notes that were provided for in the registration rights agreement
will not occur.
Under existing interpretations of the staff of the SEC contained in several
no action letters to third parties, we believe that the new notes to be issued
in the exchange offer will be freely transferable by a holder who receives them
in exchange for old notes, without further registration under the Securities
Act, provided that the holder represents to us that:
(1) it is not an "affiliate" of our company (such as a director,
executive officer or controlling stockholder of our company or our parent
company),
(2) it will be acquiring the new notes in the ordinary course of its
business, and
(3) it has not engaged in, does not intend to engage in, and has no
arrangement or understanding with any other person to participate in, a
distribution of the new notes.
However, we have not sought a no-action letter from the SEC with respect to
this exchange offer and we cannot assure you that the SEC's staff would make a
similar determination with respect to this exchange offer. Any holder of old
notes who is an "affiliate" of our company or who intends to participate in the
exchange offer for the purpose of distributing the new notes,
(1) will not be able to validly tender its old notes in the exchange
offer,
(2) will not be able to rely on the interpretations of the staff of the
SEC, and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any offer or sale of
its old notes, unless such offer or sale is made pursuant to an exemption
from those requirements.
21
In addition, each broker-dealer that receives new notes for its own account
in the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of those notes. The letter of transmittal
accompanying this prospectus states that, by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is acting in
the capacity of an "underwriter" within the meaning of Section 2(11) 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 new notes
received in exchange for old notes that had been acquired by that broker-dealer
as a result of market-making or other trading activities. Pursuant to the
registration rights agreement, we have agreed to make this prospectus available
to any broker-dealer for use in connection with any such resale.
If you are not eligible to participate in the exchange offer, you can elect,
by so indicating on the letter of transmittal and providing certain additional
necessary information, to have your old notes included within the coverage of a
shelf registration statement pursuant to Rule 415 under the Securities Act. If
we have to file a shelf registration statement, we will be required to keep it
effective for a period of two years or such shorter period that will terminate
when all of the old notes covered by that shelf registration statement have
been resold. Other than as set forth in this paragraph, holders of old notes
will not have the right to require us to register their old notes under the
Securities Act.
Terms of the Exchange Offer
Upon satisfaction or waiver of the conditions of the exchange offer set forth
in this prospectus and in the accompanying letter of transmittal, we will
accept all old notes that are validly tendered and not withdrawn prior to 5:00
p.m. New York City time, on the expiration date. After authentication of the
new notes by the trustee, we will issue and deliver $1,000 principal amount of
new notes in exchange for each $1,000 principal amount of outstanding old notes
accepted in the exchange offer. You may tender some or all of your old notes
pursuant to the exchange offer in denominations of $1,000 and integral
multiples thereof.
By tendering old notes in exchange for new notes and by executing the letter
of transmittal, you will be required to represent that:
(1) you are not an "affiliate" of our company,
(2) any new notes that you receive in the exchange offer will be acquired
by you in the ordinary course of your business, and
(3) you have no intention to distribute, and have no arrangement or
understanding with any person to participate in the distribution of, the
new notes you acquire.
The form and terms of the new notes will be identical in all material
respects to the form and terms of the old notes, except that:
(1) the offering of the new notes has been registered under the
Securities Act,
(2) the new notes will not be subject to restrictions on resale, and
22
(3) certain provisions in the registration rights agreement relating to
an increase in the stated interest rate on the old notes provided for under
certain circumstances will become ineffective.
The new notes will evidence the same debt as the old notes and will be issued
under and entitled to the benefits of the same indenture as the old notes.
As of the date of this prospectus, $450,000,000 aggregate principal amount of
old notes is outstanding. In connection with the issuance of the old notes, we
arranged for the old notes to be issued and transferable in book-entry form
through the facilities of DTC, acting as a depositary. The new notes will also
be issuable and transferable in book-entry form through DTC.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of the old notes as of the close
of business on , 1999. The exchange offer is not conditioned upon any
minimum aggregate principal amount of old notes being tendered. However, the
exchange offer is subject to certain customary conditions which may be waived
by us, and to the terms and provisions of the registration rights agreement.
See "--Conditions to the Exchange Offer" for a detailed description of those
conditions.
We will be deemed to have accepted validly tendered old notes when, as and if
we have given oral or written notice thereof to the exchange agent. The
exchange agent will receive the new notes from us and deliver them to the
tendering holders.
If we do not accept any tendered old notes for exchange because of an invalid
tender or because the conditions to the exchange offer have not been met,
certificates for any such unaccepted old notes will be returned, at our cost,
to the tendering holder thereof as promptly as practicable after the expiration
date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of their old notes
pursuant to the exchange offer. We will pay all charges and expenses, other
than certain applicable taxes, in connection with the exchange offer.
Expiration Date; Extensions; Amendments
The term "expiration date," as used in this prospectus, means 5:00 p.m., New
York City time, on , 1999, unless we, in our sole discretion, extend the
exchange offer, in which case the term "expiration date" shall mean the latest
date to which the exchange offer is extended. We may extend the exchange offer
at any time and from time to time by giving oral or written notice to the
exchange agent and by timely public announcement.
We reserve the right, in our sole discretion,
(1) to delay accepting any old notes for exchange,
(2) to extend the exchange offer,
(3) to terminate the exchange offer if the conditions set forth below
under "--Conditions to the Exchange Offer" shall not have been satisfied,
or
23
(4) to amend the terms of the exchange offer in any manner.
We will notify the exchange agent of any delay, extension, termination or
amendment by oral or written notice. In addition, we will promptly notify each
registered holder of old notes of any amendment. We will give to the exchange
agent written confirmation of any oral notice.
We acknowledge and undertake to comply with the provisions of Rule 14e-1(c)
under the Exchange Act, which requires us to pay the consideration offered, or
return the old notes surrendered for exchange, promptly after the termination
or withdrawal of the exchange offer.
Interest on the New Notes
Interest on the new notes will accrue from the last interest payment date on
which interest was paid on the old notes surrendered in exchange therefor or,
if no interest has been paid on the old notes, from February 10, 1999 (the date
of original issuance of the old notes).
Procedures for Tendering
If you wish to accept the exchange offer, you must complete, sign and date
the letter of transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein. You must then mail or otherwise
deliver the letter of transmittal, or facsimile, together with the old notes to
be exchanged and any other required documentation, to Fifth Third Bank, as
exchange agent, at the address set forth herein and therein. You may also
effect a tender of old notes pursuant to the procedures for book-entry transfer
as provided for herein and therein.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of its old notes by causing DTC to
transfer those old notes into the exchange agent's account in accordance with
DTC's procedure for such transfer. Although delivery of old notes may be
effected through book-entry transfer into the exchange agent's account at DTC,
the letter of transmittal, or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the exchange agent at its address set forth herein under "--
Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
Only a holder in whose name old notes are registered may tender those old
notes in the exchange offer. To tender in the exchange offer, a holder must:
(1) complete, sign and date the letter of transmittal or a facsimile
thereof,
(2) have the signatures thereof guaranteed if required by the letter of
transmittal, and
(3) unless the tender is being effected pursuant to the procedure for
book-entry transfer, mail or otherwise deliver the letter of transmittal or
facsimile thereof, together with the old notes and other required
documents, to the exchange agent, prior to 5:00 p.m., New York City time,
on the expiration date.
If less than all of the old notes are tendered, a tendering holder should
fill in the amount of old notes being tendered in the appropriate box on the
letter of transmittal. The entire amount of old notes delivered to the exchange
agent will be deemed to have been tendered unless otherwise indicated.
24
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to ensure delivery to the exchange agent prior to the expiration date.
No letter of transmittal or old notes should be sent to us. You may request
that your broker, or a commercial bank, trust company or nominee, effect the
tender on your behalf, as set forth herein and in the letter of transmittal.
If your old notes are registered in the name of a broker, commercial bank,
trust company or other nominee and you wish to tender, 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, prior to completing and
executing the letter of transmittal and delivering your old notes, you must
either make appropriate arrangements to register ownership of the old notes in
your name or obtain a properly completed bond power from the registered holder.
The transfer of record ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the old
notes tendered pursuant thereto are tendered by a registered holder who has not
completed the box entitled "Special Registration Instructions" or "Special
Delivery Instruction" of the letter of transmittal or for the account of an
Eligible Institution. If the letter of transmittal is signed by a person other
than the registered holder listed therein, the old notes that are the subject
of that letter of transmittal must be endorsed or accompanied by appropriate
bond powers that authorize that person to tender the old notes on behalf of the
registered holder. The endorsement or bond powers must be signed in the name of
the registered holder as it appears on the old notes.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered old notes will be determined
by us in our sole discretion, and that determination will be final and binding.
We reserve the absolute right to reject any and all old notes not properly
tendered and to waive any irregularities or conditions of tender as to
particular old 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.
Any old notes received by the exchange agent that we determine are not
properly tendered or as to which the defects or irregularities have not been
cured or waived, will be returned by the exchange agent to the tendering
holder, as soon as practicable following the expiration date.
In addition, we reserve the right, in our sole discretion,
(1) to purchase or make offers for any old notes that remain outstanding
subsequent to the expiration date, and
(2) to the extent permitted by applicable law, to purchase old notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
exchange offer.
25
Conditions to the Exchange Offer
Notwithstanding any other term of the exchange offer, we will not be required
to accept any old notes for exchange, or to exchange new registered notes for
any old notes, and we may terminate or amend the exchange offer before the
acceptance of the old notes if:
(1) the exchange offer, or the making of any exchange by a holder,
violates any applicable law or any applicable interpretation of the staff
of the SEC, or
(2) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or body to enjoin or obtain damages in
respect of the exchange offer, or that can reasonably be expected to impair
our ability to proceed with the exchange offer.
If we determine that either of these events or circumstances has occurred or
exists, we may:
(1) refuse to accept any old notes and return to the holders any old
notes that have been tendered, or
(2) extend the exchange offer and retain all old notes tendered prior to
the original expiration date of the exchange offer, subject to the rights
of the holders of those notes to withdraw them, or
(3) waive the condition and accept all properly tendered old notes that
have not been withdrawn.
The exchange offer is not conditioned on any minimum aggregate principal
amount of old notes being tendered for exchange. Any extension of the exchange
offer shall be for not more than 60 days, and in no event shall the exchange
offer be extended beyond September 9, 1999.
Exchange Agent
Fifth Third Bank, the trustee under the indenture, has been appointed as
exchange agent for the exchange offer. In that capacity, the exchange agent has
no fiduciary duties and will be acting solely on the basis of our directions.
Requests for assistance and requests for additional copies of this prospectus
or of the letter of transmittal should be directed to the exchange agent
addressed as follows:
By registered or certified mail Fifth Third Bank
or by overnight courier: Attention: Geoff Clark
Corporate Trust Operations
ML 10AT66
38 Fountain Square Plaza
Cincinnati, Ohio 45263
By hand delivery: Fifth Third Bank
Attention: Geoff Clark
Corporate Trust Operations
580 Walnut Street - 4th Floor
Cincinnati, Ohio 45202
Facsimile transmission: (513) 744-8909
Information or confirmation by telephone: (513) 579-5320
26
Delivery to an address or facsimile number other than those listed above will
not constitute a valid delivery.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by our
company as a result of the consummation of the exchange offer. The expenses of
the exchange offer will be amortized by us over the remaining term of the notes
issued in the exchange offer.
Consequences of Failure to Exchange
Holders of old notes who do not tender their notes in the exchange offer will
continue to hold those old notes and will be entitled to all the rights, and
subject to the limitations applicable thereto, under the indenture. All old
notes that are not tendered will continue to be subject to the restrictions on
resale set forth in the indenture. Accordingly, prior to the later of February
10, 2001 (two years from the date of original issue of the notes) or two years
after those old notes were last sold by us or one of our affiliates, those old
notes may be offered and resold only
(1) to us,
(2) pursuant to a registration statement that has been declared effective
under the Securities Act,
(3) in the United States to a "qualified institutional buyer" within the
meaning of Rule 144A in reliance upon the exemption from the registration
requirements of the Securities Act provided by Rule 144A,
(4) in the United States to an "Institutional Accredited Investor", as
defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities
Act, in a transaction that is exempt from the registration requirements of
the Securities Act,
(5) outside the United States to a foreign person in a transaction that
complies with the provisions of Regulation S under the Securities Act, or
(6) pursuant to any other available exemption from the registration
requirements of the Securities Act, in each case in accordance with
applicable state securities laws.
To the extent that old notes are tendered and accepted in the exchange
offer, the liquidity of the trading market for untendered old notes will be
adversely affected.
27credit facility.
53
DESCRIPTION OF THE REGISTERED NOTES
The oldAK Steel will issue the registered notes were issued and the new notes will be issued under an indenture dated as of February 10, 1999, among AK Steel, as issuer, AK Steelitself,
Holding, Corporation, as guarantor,any Guarantor Subsidiary and Fifth Third Bank, as trustee. A copy of the
indenture has been filed as an exhibit to the registration statement of which
this prospectus is a part. 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. For convenience, and to more readily distinguish it from
AK Steel, we refer to AK Steel Holding Corporation in this descriptionYou can find the
definitions of the
notes as "Holding." All other capitalizedcertain terms used in this description are
defined under the captionsubheading
"--Defined Terms."
The following description of the notes is only a summary of the material provisions of
the indenture.indenture and the related registration rights agreement. We urge you to
read the indenture and the registration rights agreement because that
document,they, and not
this description, definesdefine your rights as holders of the registered notes. You
may obtain a copyrequest copies of the indenture by following the proceduresthese documents at our address set forth under "Where You
Can Find More Information."
Brief Description of the Registered Notes and the Parent Company GuaranteeNote Guarantees
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 all secured obligations of AK Steel, including the
$250.0 million of its outstanding senior secured notes,Secured Notes, to the extent of the collateral securing those
obligations; and
. fully and unconditionally, and joint and severally, guaranteed by AK Steel's parent company, Holding.Holding
and our Guarantor Subsidiaries.
The Note Guarantees
Each Guarantor's full and unconditional guarantee by Holding is:
. a senior unsecured obligation of Holding;that Guarantor;
. equal in right of payment with all of its existing and future senior unsecured
Debt;Debt of that Guarantor;
. senior in right of payment to all of its existing and future subordinated Debt;Debt
of that Guarantor; and
. effectively junior to all of its secured obligations of that Guarantor, to the
extent of the collateral securing those obligations.
At December 31, 1998, after giving pro forma effect to the issuance and sale
of the old notes and the application of the net proceeds therefrom to redeem
our outstanding 10 3/4% Senior Notes Due 2004,June 30, 2002, the aggregate principal amount of AK Steel's outstanding senior Debt would have beenof AK Steel
was approximately $1.27$1.95 billion, of which $250.0$252.0 million would have beenwas secured. All but $20Total
Debt includes $550.0 million of that debt is guaranteed by Holding.our 9 1/8% Senior Notes due 2006, which were
redeemed on July 11, 2002.
Principal, Maturity and Interest
AK Steel will issue $450 millionThe Company initially issued notes in an aggregate principal amount of
$550.0 million. AK Steel may, subject to the terms and conditions of the
indenture but without the consent of the holders, increase such principal
amount in the future on the same terms and conditions and with the same CUSIP
numbers as the originally issued notes. The notes will mature on June 15, 2012.
The notes will be issued in denominations of $1,000 and any integral multiple
of $1,000. The notes will
mature on February 15, 2009.
Interest on the notes will accrue at the rate of 7 7/8%3/4% per annum and will
be payable semi-annually on FebruaryJune 15 and AugustDecember 15 of each year, commencing on
AugustDecember 15, 1999.2002. AK Steel will make each interest payment to the holders of
record of the notes on the immediately preceding FebruaryJune 1 and AugustDecember 1.
54
Interest on the notes will accrue from February 10, 1999the 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. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
28
Additional interest may accrue on the notes in certain circumstances
pursuant to the registration rights agreement.
Optional Redemption
Except as set forth below, AK Steel will not be entitled to redeem the notes
at its option prior to FebruaryJune 15, 2004.2007.
The notes will be redeemable at AK Steel's option, at any time on or after
FebruaryJune 15, 20042007 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 percentages of principal amount) if redeemed during the
12-month period beginning FebruaryJune 15 of the years indicated below:
Redemption
Year Price
---- ----------
2004.......................................................... 103.938%
2005.......................................................... 102.625%
2006.......................................................... 101.313%
20072007............... 103.875%
2008............... 102.583%
2009............... 101.292%
2010 and thereafter...........................................thereafter 100.000%
together in the case of any such redemption with accrued interest (if any) to
the redemption date. Notwithstanding the foregoing, at any time and on more
than one occasion prior to FebruaryJune 15, 2002,2005, AK Steel may redeem up to $157.5$192.5
million aggregate principal amount of the notes with the proceeds of one or
more Public Equity Offerings, at a redemption price of 107.875%107.750% of the
principal amount thereof plus accrued interest to the redemption date;
provided, that:
(1)at least $292.5$357.5 million aggregate principal amount of the notes remains
outstanding immediately after each such redemption (other than notes
held, directly or indirectly, by AK Steel or its Affiliates); and
(2)each such redemption occurs within 60 days after the completion of the
related Public Equity Offering.
If less than all of the notes are to be redeemed, the notes will be chosen
for redemption by the Trusteetrustee and the Depository on a pro rata basis or by lot
or by a method that complies with applicable legal and securities exchange
requirements.
Change in Control Offer
Under the Indenture,indenture, within 30 days following any Change in Control, AK
Steel must notify the Trustee and each holder in writing of the occurrence of
the Change in Control and must make an offer to repurchase (the "Change in
Control Offer") the notes for cash at a purchase price (the "Change in Control
Payment Price") equal to 101% 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.indenture.
The Change in Control Offer must describe, among other things, the procedures
that holders must follow to accept the Change in Control Offer.
55
If a Change in Control Offer is made, there can be no assurance that AK
Steel will have funds sufficient to pay the Change in Control Payment Price for
all the notes that might be delivered by holders seeking to accept the Change
in Control Offer. See the "Risk Factors" section of this prospectus under the
heading "FactorsFactors--Risks Relating to our Company--Our high
level of debt may adversely affect our financial and operating flexibility."
The failure of AK Steel to repurchase notes in accordance with this provision
constitutes an Event of Default. See "--Events of Default."
29
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.
Parent Company Guarantee
AK SteelNote Guarantees
Holding Corporation will fully and unconditionally guarantee the payment and performance
by AK Steel of the Obligations and will pay all expenses (including, without
limitation, fees and disbursements of counsel) paid or incurred by the trusteeTrustee
or the holders of the notes in enforcing their rights under that guarantee. The
full and unconditional guarantee will be a senior unsecured obligation of
the guarantorHolding and will rank equally with itsHolding's other senior unsecured Debt.
Holding's principalonly asset is the outstanding common stock of AK Steel, and virtually all of
Holding's operations are conducted through AK Steel.Steel and its Subsidiaries. Under
the indenture, Holding has agreedwill 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 of 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."
At present, none of AK Steel's operations is conducted through Subsidiaries.
If in the future any operations of AK Steel are conducted through a Subsidiary
(other than a Non-Recourse Subsidiary), thatEach Guarantor Subsidiary will be required to fully and unconditionally
guarantee the payment and performance 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.
Book-Entry, Delivery and Form
AK Steel will initially issue the notes in the form of one or more global
securities. The global securities will be deposited with, or on behalf of, DTC
and registered in the name of DTC or its nominee. Except as set forth below,
the global securities may be transferred, in whole and not in part, only by the
nominee to DTC or by DTC or the nominee to another nominee of DTC. Investors
may hold their beneficial interests in the global securities directly through
DTC if they have an account with DTC or indirectly through organizations which
have accounts with DTC.
DTC has advised AK Steel as follows: DTC is a limited-purpose trust company
and organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing
30
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of institutions that have accounts with
DTC ("participants") and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers (which may include the
Initial Purchasers), banks, trust companies, clearing corporations and certain
other organizations. Access to DTC's book-entry system is also available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, whether directly or
indirectly.
AK Steel expects that pursuant to procedures established by DTC, upon the
deposit of the global securities with DTC, DTC will credit to the accounts of
participants, on its book-entry registration and transfer system, the principal
amount of the notes represented by those global securities. Ownership of
beneficial interests in the global securities is limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the global securities will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by DTC
(with respect to participants' interests) and by those participants (with
respect to the owners of beneficial interests in the global securities other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Those limits and laws may impair the ability to transfer or
pledge beneficial interests in the global securities.
So long as DTC, or its nominee, is the registered holder and owner of the
global securities, DTC or its nominee, as the case may be, will be considered
the sole legal owner and holder of the related notes for all purposes of those
notes and the Indenture. Except as set forth below, as an owner of a beneficial
interest in the global securities, you will not be entitled to have the notes
represented by the global securities registered in your name, will not receive
or be entitled to receive physical delivery of certificated notes in definitive
form and will not be considered to be the owner or holder of any notes
represented by the global securities. AK Steel understands that under existing
industry practice, if an owner of a beneficial interest in the global
securities desires to take any action that DTC, as the holder of the global
securities, is entitled to take, DTC would authorize the participants to take
that action, and that the participants would authorize beneficial owners owning
through such participants to take that action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal of, premium, if any, and interest on notes represented
by the global securities registered in the name of and held by DTC or its
nominee will be made to DTC or its nominee, as the case may be, as the
registered owner and holder of the global securities in immediately available
funds.
AK Steel expects that DTC or its nominee, upon receipt of any payment of
principal of, premium, if any, or interest on the global securities, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global
securities as shown on the records of DTC or its nominee. AK Steel also expects
that payments by participants to owners of beneficial interests in the global
securities held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. AK Steel does not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the global securities representing any Note or for
maintaining, supervising or reviewing any records relating to such
31
beneficial ownership interests or for any other aspect of the relationship
between DTC and its participants or the relationship between such participants
and the owners of beneficial interests in the global securities owning through
such participants.
Unless and until exchanged in whole or in part for certificated notes in
definitive form, the global securities may not be transferred except as a whole
by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of
DTC.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global securities among participants of DTC, it
is under no obligation to perform or continue to perform those procedures, and
may discontinue those procedures at any time. Neither the trustee nor AK Steel
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Notes
The notes represented by the global securities are exchangeable for
certificated notes in definitive form of like tenor as such notes in
denominations of $1,000 and integral multiples thereof only in the following
limited circumstances:
(1) DTC notifies AK Steel that it is unwilling or unable to continue as
DTC for the global securities or if at any time DTC ceases to be a clearing
agency registered under the Exchange Act;
(2) AK Steel in its discretion at any time determines not to have all of
the notes represented by the global securities; or
(3) a default has occurred that entitles the holders of the notes to
accelerate their maturity and that default is continuing.
Any note that becomes exchangeable for a certificated note will be registered
in such names as DTC shall direct. Subject to the foregoing, the global
securities will not be exchangeable, except for global securities of the same
aggregate denomination that will be registered in the name of DTC or its
nominee.
Material Covenants
The indenture will containcontains 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 shallwill continue to file
with the SEC and provide the trusteeTrustee and holders of the notesHolders with the samesuch annual reports and
such information, documents and other documentsreports 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 lienLien upon any of its property or
assets, now owned or hereafter acquired, securing any obligation unless
concurrently with the creation of such lienLien 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 lienLien securing such obligation shall
32
be subordinated and junior
to the lienLien securing the notes with the same or lesser relative priority as
such Subordinated Obligation shall have with respect to the
56
notes. The preceding restriction shall not require AK Steel or any Subsidiary
to equally and ratably secure the notes if the lienLien consists of the following:
(1) liensLiens created by the indenture, liensLiens existing as of the date on
which the old notes were originally issued and liensLiens to secure Debt in respect
of AK Steel's outstandingthe Secured Notes Due 2004 as described under "Description of Outstanding
Indebtedness--The Secured Notes"Debt";
(2) Permitted Liens;
(3) liensLiens 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,Fair Market Value, as determined in good faith
by the boardBoard of directorsDirectors of Holding, of the assets or property so acquired
or constructed, (b) either (x) the Debt secured by such liensLiens shall have
been permitted to be issued under clause (5) of "--Limitation on Debt" or
(y) additional Debt secured by such liens,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 liensLiens and (c) such
liensLiens 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) liensLiens 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 liensLiens do not extend to or cover any
other property or assets of AK Steel or any of its other Subsidiaries;
(5) liensLiens on the Inventory or accounts receivableAccounts Receivable of AK Steel or any
Significant Subsidiary that is a GuarantorRestricted Subsidiary securing Debt under
any Permitted Credit Facility; provided that any lienLien 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;Lien;
(6) liensLiens securing industrial revenue or pollution control bonds issued
by AK Steel; provided, however, that (a) the aggregate principal amount of
Debt secured by such liensLiens shall not exceed the lesser of cost or fair
market value,Fair
Market Value, as determined in good faith by the boardBoard of directorsDirectors of
Holding, of the assets or property so financed, and (b) such liensLiens do not
encumber any other property or assets of AK Steel or any of its Subsidiaries;
(7) liensLiens securing Debt issued to exchange, extend, refinance, renew,
replace, defease or refund Debt which has been secured by a lienLien permitted
under the indenture and is permitted to be exchanged, extended, refinanced,
renewed, replaced, defeased or refunded under the Indenture;indenture; provided,
however, that such liensLiens 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;
33
(8) liensLiens on the Equity Interests, assets or property of a Non-Recourse
Subsidiary securing Non-Recourse Debt; or
(9) liensLiens securing Debt which, together with all other Debt secured by
Liens (excluding Debt secured by liensLiens 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.
57
For the avoidance of ambiguity, it is understood that liensLiens referred to in
clauses (1) through (9) of this covenant description may secure, in addition to
the principal of and premium, (if any)if any, on Debt referred to in such clauses,
interest and all other obligations on and in respect of such Debt.
Limitation on Sale/Leaseback Transactions. AK Steel shall not, and shall
not permit any Subsidiary to, enter into, Guarantee or otherwise become liable
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 disposition by such
Wholly Owned Guarantor Subsidiary of any such lease to a Person other than
AK Steel or another Wholly Owned Guarantor Subsidiary or (b) the issuance,
sale, lease, transfer or other disposition of Equity Interests (including by
consolidation or merger) of such Wholly Owned Guarantor Subsidiary to a
Person other than AK Steel or another such Wholly Owned 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"--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 equal to the fair market value,Fair Market Value, as
determined in good faith by the boardBoard of directorsDirectors of Holding, of the
property transferred;
(3) AK Steel or such Subsidiary could create a lienLien 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,Fair Market Value, as determined in good faith by the
boardBoard of directorsDirectors 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.
34
Notwithstanding the foregoing limitation, AK Steel may issue the following
Debt:
(1) Debt issued by AK Steel pursuant to Permitted Credit Facilities and
guaranteesGuarantees 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, to
the extent that such taxes or charges are insufficient to make such
payments, payments under such guaranteesGuarantees (provided that the payments under
such bonds or notes or such guaranteesGuarantees are not required to be prefunded by
more than an aggregate amount equal to one year of debt service 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 thatsuch Debt (other than to
another Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the issuance of thatsuch Debt by AK Steel;
(3) The notes;notes offered hereby;
58
(4) Debt (other than Debt described in clausesclause (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,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 1999, 20002002, 2003 and 2001,2004, and $35.0 million for each
calendar year from and including 20022005 to and including 20082012 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 exceed 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 in the ordinary course of its business;
or
(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) any other outstanding Debt issued by AK Steel
pursuant to this clause (8) and (b) Debt issued and Preferred Equity
Interests then outstanding and issued by Subsidiaries pursuant to clause (8)
of "--Limitation on Debt and Preferred Equity Interests of Subsidiaries,"
does not exceed $100.0 million at any one time outstanding.
35
outstanding; or
(9) Permitted Guarantees.
Notwithstanding the foregoing, AK Steel shall not issue any Refinancing Debt
in respect of Subordinated Obligations unless such Refinancing Debt shall be
subordinated to the notes to at least 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 Interests 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 portion 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 maturityStated Maturity later
than the stated maturityStated 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 the exchange 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 36
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 of Holding 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 AK
Steel Holding Corporation
(except dividends or distributions payable solely in its Non-ConvertibleNon- Convertible
Equity Interests or in options, warrants or other rights to acquire its
Non-Convertible Equity Interestsinterests 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 Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date 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 to 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 forth in the
first paragraph of "--Limitation on Debt"; or
60
(c) upon giving effect to such Restricted Payment, the aggregate
amount of such Restricted Payment and all other Restricted Payments
since OctoberApril 1, 19962002 would exceed the sum of:
(A) 50% of the Consolidated Net Income of Holding accrued during
the period (treated as one accounting period) from OctoberApril 1, 19962002
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 October
1, 1996April l,
2002 (other than to a Subsidiary of AK Steel or an employee stock
ownership, plan or similar trust), plus
37
(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 OctoberApril 1, 1996,2002, 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 plan with respect to Debt issued by it to
finance the purchase 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 October 1, 1996,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 that is continuing (or would result
therefrom), the foregoing limitations on Restricted Payments shall not prohibit:
(1) any purchase 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 infrom 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 maturityStated Maturity later
than the stated maturityStated 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 infrom 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 infrom 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;
38
(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 infrom 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 February 28, 2001June 30, 2004 in an aggregate
amount not to exceed $50.0 million; provided, however, that all such dividends
shall be excluded infrom 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 made in accordance with
"--
Limitation"--Limitation on Sales 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) 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 Steel
shall not, and shall not permit any Subsidiary 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) with respect to a Subsidiary pursuant to an agreement relating to any
Debt issued by such Subsidiary on or prior to the date on which such
Subsidiary became a Subsidiary (other than Debt issued as consideration in,
or to provide all or any portion 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;
39
(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 favorable to the holders of
notes than encumbrances 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,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,Fair Market Value, as
determined in good faith by the boardBoard of directorsDirectors 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 boardBoard of directorsDirectors of Holding) will be used
in the business of AK Steel and the Wholly Owned Guarantor Subsidiaries
existing on 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 extent 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 of cash or Cash Equivalents, AK Steel and its
Subsidiaries may make one or more Asset Dispositions 40
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 valueFair
Market Value (as determined in good faith by the boardBoard of directorsDirectors 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 valueFair Market Value (as determined in good faith by
the boardBoard of directorsDirectors 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 resulting 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 Sectionprovision 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 Section,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
63
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 Section,provision, is at least equal to $10.0 million.
Pending application of Net Available Cash pursuant to this Section,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
Section,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 boardBoard of directorsDirectors 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; 41
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 not, and shall not permit any of its
Subsidiariesbe permitted to enter intoengage in any business,
either directly or through any Subsidiary, except for those businesses in whichprovided 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 or
businesses reasonably related thereto.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 guaranteesGuarantees by Holding of any Permitted Credit Facility, any other
Debt of AK Steel or any Debt of any Significant Subsidiary that is guaranteedGuaranteed
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.
64
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 to be 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 Equity Interests
of a Subsidiary (other than directors' qualifying shares), property or other
assets (each referred to for the purposes of this definition as a
"disposition") by AK Steel or any of its Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction, other
than:
(1) a disposition by AK Steel or a Subsidiary to AK Steel or a Wholly
Owned Guarantor Subsidiary;
65
(2) a disposition of property or assets at fair market valueFair Market Value (as
determined in good faith by the boardBoard of directorsDirectors of Holding) in the
ordinary course of business;
(3) a disposition of obsolete assets in the ordinary course of business;
(4) a disposition that constitutes a Restricted Payment or a
Sale/Leaseback Transaction;
(5) a sale of accounts receivableAccounts Receivable under a Permitted Credit Facility; and
(6) a transfer of accounts receivableAccounts Receivable that constitutes a Permitted
Investment under clause (5) or (6) of the definition of Permitted
Investments.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as of
the date of determination, the present value (discounted at the lower of the
interest rate of such Sale/Leaseback Transaction and the interest rate borne by
the notes, compounded annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
42
"Average Life" means, as of the date of determination, with respect to any
Debt, the quotient obtained by dividing (x) the sum of the products of the
numbers of years from the date of determination to the dates of each successive
scheduled principal payment 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 Person
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 maturityStated 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 obligationsGovernment Obligations maturing within 365 days
of the date of acquisition thereof;
(2) Investments in certificates of deposit or Eurodollar deposits
maturing within 365 days of the date of acquisition thereof issued by a bank
or trust company which is organized under the laws of the United States or
any state thereof and which has a combined capital 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 obligationsGovernment Obligations or other Cash Equivalents entered into with any bank,
trust company or investment bank rated at least A- and A-1 by Standard &
Poor's and at least A3 and P-1 by Moody's Investors Service, Inc.;
(4) Investments in commercial paper maturing not more than 90 days from
the date of acquisition thereof and having one of the two highest ratings
obtainable from each of Standard & Poor's and Moody's Investors Service,
Inc. issued by a corporation (except AK Steel or an Affiliate of AK Steel)
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.
66
"Change in Control" means the occurrence of any of the following events:
(1) any "Person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rules 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, of more than 40% of the total
voting power of the Voting Equity Interests of Holding; provided, however,
that the Person shall not be deemed the "beneficial owner" of shares
tendered pursuant to a tender 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, individuals who at the
beginning of such period constituted the boardBoard of directorsDirectors of Holding
(together with any new directors whose election by such boardBoard of directorsDirectors
of Holding, or whose nomination for election by the shareholders of Holding,
as the case may be, was approved by a vote of 66 2/3% of the directors
43
then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the boardBoard of directorsDirectors of Holding
then in office; or
(3) Holding fails to own 100% of the Equity Interests of AK Steel;
provided, however, that it shall not be deemed a Change in Control if
Holding merges into AK Steel except that, in such case, AK Steel shall be
substituted for Holding for purposes of this definition of "Change in
Control" and this clause (3) shall no longer be applicable.
"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (x) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior 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 period 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
67
(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.
44
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 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 (other than a Non-
Recourse 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 45
distributed by such Subsidiary
during such period to AK Steel or another Subsidiary as a dividend or other
distribution (subject,
68
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;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;
and
(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 Person means the total assets of
such Person and its consolidated subsidiariesSubsidiaries 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.Subsidiaries.
"Consolidated Net Worth" of any Person means the total of the amounts shown
on the balance sheet of such Person and its consolidated subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, as of the end of the most recent fiscal quarter of such
Person ending at least 45 days prior 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.
69
"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 46
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 dayBusiness 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;Guarantee; and
(8) all obligations of the type referred to in clauses (1) through (7) of
other Persons secured by any lienLien 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" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulting Subsidiary""domestic" means, any Subsidiary of AK Steel (other than a Non-
Recourse Subsidiary) with respect to which a Default has occurred.any Person, that such Person is organized
and existing under the laws of the United States, any State thereof or the
District of Columbia.
"EBITDA" for any period means 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,expense; (e) the non-cash portion of postretirement benefits other
than pensions and (f) special charges taken after December 31, 1996 in respect
of which Holding has delivered to the trusteeTrustee (x) an officers' certificateOfficers' Certificate'
setting forth estimates, made in good faith by a responsible financial or
accounting officerOfficer of Holding, of the cash costs estimated, at the time such
special charges are recorded, to be paid during any period for such special
charges and containing an undertaking of Holding to deliver to the trustee,Trustee, as
soon as practicable after Holding determines that such estimates are not
appropriate, a supplemental officers'
certificateOfficers' Certificate setting forth appropriate
adjustments to such estimates and (y) together with any officers' certificateOfficers' Certificate
or supplemental officers'
certificateOfficers' 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
47
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 as set forth in the officers' certificateOfficers' Certificate most recently
delivered to the trusteeTrustee in respect of such special charges pursuant to clause
(1)(f) of this definition.
70
"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" means any obligation, contingent or otherwise, of any Person
directly or indirectly fully and unconditionally guaranteeing any Debt or other
obligation of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such Person (l) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or other obligation of
such other Person (whether such obligation to purchase or pay such Debt or
other obligation of such other Person arises by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, 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 obligation 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" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" means Holding and any Guarantor Subsidiary.
"Guarantor Subsidiary" means (1) any domestic Restricted Subsidiary (other thanor (2)
any other Restricted Subsidiary that is a Non-Recourse
Subsidiary) thatSignificant 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 or 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 sale
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""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.
71
"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 prior to such Asset Disposition.
48
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien or encumbrance of any
kind.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to
such properties or assets or received in any other noncash form) therefrom, in
each case 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 as 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 out of the proceeds from such Asset
Disposition, and net of all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of Equity Interests
means the cash proceeds of such issuance 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, AK Steel or any Subsidiary (other than a
Non-Recourse Subsidiary) and (2) no default with respect to which (including
any rights which the holders thereof may have to take enforcement action
against a Non-
RecourseNon-Recourse Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Debt of Holding, 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.Stated
Maturity.
"Non-Recourse Subsidiary" means a Subsidiary of AK Steel in respect of any
obligation of which neither Holding, AK Steel nor any Subsidiary (other than
another Non-Recourse Subsidiary) has issued a Guarantee, and which
(1) hasthat is not acquired any assets directly or indirectly from Holding, AK
Steel or any Subsidiary (other than (a) cash constituting a
Restricted Payment and (b) Accounts Receivable that have been sold or otherwise
transferred to such Subsidiary in an Accounts Receivable financing for AK
Steel or such other Subsidiary),
(2) only owns properties acquired after the date on which the notes were
originally issued and
(3) has no Debt other than Non-Recourse Debt and Debt issued to AK Steel
or a Significant Subsidiary which constitutes a Permitted Investment under
clause (5) of the definition of Permitted Investment.Subsidiary.
"Normal Replacement Assets" means any assets other than Special Assets.
49
"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
trusteeTrustee 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
72
enforceable against AK Steel, and 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 receivableAccounts Receivable of AK Steel or any Significant
Subsidiary under any asset securitization facility or other financing facility
for the financing of accounts receivableAccounts 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
receivableAccounts 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 receivableAccounts Receivable of AK Steel and its Significant Subsidiaries
that are GuarantorRestricted 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 GuarantorRestricted Subsidiaries,
minus (y) the aggregate principal amount of outstanding Debt secured by any
accounts receivableAccounts 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 clauseclauses (5)
and (6) of the definition of "Permitted Investments") under any asset
securitization or similar facility in respect of accounts receivableAccounts 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;
50
(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 receivableAccounts Receivable of AK
Steel or its Significant Subsidiaries that are GuarantorRestricted 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,Accounts Receivable, provided that the
aggregate amount of
73
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 GuarantorRestricted Subsidiaries or Non-
RecourseNon-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 receivableAccounts
Receivable of AK Steel and its Significant Subsidiaries that are GuarantorRestricted
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 GuarantorRestricted Subsidiaries, minus (y) the
aggregate principal amount of outstanding Debt secured by any accounts receivableAccounts
Receivable or Inventoryinventory 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 receivableAccounts Receivable or
Inventory of AK Steel or any of its Subsidiaries;
(7) Permitted Guarantees; and
(7)(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 debt 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
51
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) liensLiens imposed by law, such as carriers', warehousemen's and
mechanics' liens,Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings; or other liensLiens 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) liensLiens for property taxes not yet subject to penalties for non-payment
or which are being contested in good faith by appropriate proceedings;
(4) liensLiens 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) liensLiens securing an Interest Rate Protection Agreement so long as the
related Debt is, and is permitted to be under the Indenture,indenture, secured by a
Lien on the same property securing the Interest Rate Protection Agreement;
and
74
(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.
"Person" means any individual, company, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or subdivision thereof or
any other entity.
"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.
52
"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 maturityStated 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 maturityStated 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 (1)(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 the 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
12-monthl2-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,
75
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.
53
"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.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;
76
(2) default in the payment of the principal of any note when the same
becomes due and payable at its stated maturity,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";Offer."
(5) failure to observe or comply with any of the agreements in the notes
or the Indentureindenture (other than those referred to in clausesclause (1), (2), (3) or
(4) above), which continues for 60 days after there has been given to AK
Steel by the trusteeTrustee or to AK Steel and the trusteeTrustee 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;
54
(7) any guaranteeGuarantee 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 guarantee of the notes;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 anany Event of Default shall occur and be continuing, either the trusteeTrustee 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 trusteeTrustee 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,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.indenture.
Subject to provisions for the indemnification of the trustee,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 trusteeTrustee or exercising any trust or power conferred on the
trustee,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:unless
(1) thatsuch holder shall have previously given to the trusteeTrustee 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 trusteeTrustee to pursue the remedy;
(3) thatsuch holder shall have offered the trusteeTrustee reasonable indemnity
against any liability;
(4) the trusteeTrustee 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 trusteeTrustee during such 60-day period by the holders of at least a
majority in principal amount of the notes.
AK Steel Holding as guarantor and any other guarantor of the notesGuarantors will be required to furnish to the trusteeTrustee
annually a statement as to the performance by AK Steel and such guarantorGuarantor of
certain of the obligations under the indenture and as to any default in such
performance. Upon becoming 55
aware of any default, AK Steel and each guarantor of the notesGuarantor
will be required to deliver an officers' certificateOfficers' Certificate to the trusteeTrustee setting
forth the details of such default and the action which Holding, AK Steel or any
other guarantorGuarantor proposes to take with respect thereto.
Modification and Waiver
Amendments of the indenture or the notes may be made by AK Steel, the
guarantors of the notesGuarantors and the trusteeTrustee 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:
(1)(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 maturityStated 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 of
the notesGuarantors and
the trusteeTrustee 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 guarantorsGuarantors for the benefit
of the holders or to surrender any right or power conferred upon AK Steel or
the guarantorsGuarantors in the indenture;
(6) to reflect the release or addition of a guarantorGuarantor pursuant to the
terms of the indenture;
(7) to comply with any requirements of the SECCommission 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 notes.note.
78
When AK Steel or Any of Its Subsidiaries May Merge or Transfer Assets
AK Steel shall not (1)(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,
56
(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,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,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,Trustee, that its guaranteeGuarantee
shall apply to such Person's obligations under the notes; and
(f) AK Steel shall have delivered to the trusteeTrustee an officers'
certificateOfficers' Certificate
and an opinionOpinion of counsel,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) of all or substantially all of the
properties 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.
57
If after the date on which the old notes were originally issued any Person shall
become a Guarantor Subsidiary, (other than a Non-Recourse Subsidiary), thatsuch Person shall (1) fully and unconditionally
guarantee, by an indenture supplemental to the indenture, executed and
delivered to the trustee,Trustee, all of AK Steel's obligations under the notes on the
terms set forth in the indenture and (2) deliver to the trusteeTrustee an opinionOpinion of
counselCounsel stating that such supplemental indenture has been duly authorized and
constitutes the enforceable obligations of such Person.
Defeasance
AK Steel at any time may terminate all its obligations under the notes and
the indenture ("legal defeasance"), except for certain obligations, including
those relating to the defeasance trust and obligations to register the transfer
or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes
and to maintain
79
a registrar and paying agent in respect of the notes. AK Steel at any time may
terminate its obligations under the covenants described under "--Material
Covenants" and "--Change in Control Offer" above ("covenant defeasance"). AK
Steel may exercise the legal defeasance option notwithstanding the prior
exercise of the covenant defeasance option. If AK Steel exercises the legal
defeasance option, payment of the notes may not be accelerated because 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 trusteeTrustee 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, as the case may be, and must
comply with certain other conditions, including delivery to the trusteeTrustee 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, 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 trusteeTrustee 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.Trustee.
The Indentureindenture provides that in case an Event of Default shall occur and be
continuing, the Trustee will exercise the rights and powers vested in it by the
Indentureindenture and use the same degree of care and skill in their exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
Fifth Third Bank also serves as trusteeTrustee under the indentureindentures governing AK
Steel'sour
9 1/8% Senior Notes Due 2006, and as transfer agent for Holding's
common stock.our 7 7/8% Notes.
Governing Law
The rights and duties of AK Steel, Holding and the trusteeTrustee under the
indenture, the notes, and Holding's guaranteethe Guarantee of the notes areand the registration rights
agreement shall be governed by the laws of the State of New York.
58Form 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'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
(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,
(2)we provide for the exchange pursuant to the terms of the 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 FEDERAL INCOME TAX CONSEQUENCESCONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences generally applicable to the exchange offer. The statements of
United States tax law set forth below are based on the laws, regulations and
administrative and judicial decisions applicable as of the date of this
prospectus, and are subject to any changes in relevant United States
authorities occurring after that date. Any such changes, which could be
retroactive, could affect the continuing validity of this discussion.
The exchange of old notes for new notes in the exchange offer will not be a
taxable exchange for U.S. federal income tax
purposes. As a result, there will
be no federal income tax consequencesconsiderations relating to a holder exchangingthe exchange of an old unregistered note for a new registered note in
the exchange offer. A holder
should haveIt does not contain a complete analysis of all the
same adjusted basis and holding period inpotential tax considerations relating to the newexchange. This summary is limited
to a beneficial owner of an old note as it
had inwho holds the old note immediately beforeas a "capital
asset" (in general, an asset held for investment). Special situations, such as
the exchange.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 preceding paragraph summarizes certaindiscussion below is based upon the provisions of the materialInternal Revenue
Code of 1986, as amended, existing and proposed Treasury regulations
promulgated thereunder, and rulings, judicial decisions and administrative
interpretations thereunder, as of the date hereof. Those authorities may be
changed, perhaps retroactively, so as to result in U.S. federal income tax
consequences associated with thedifferent from those discussed below.
The exchange of theyour old notesnote for a registered notesnote in the exchange offer. This summary applies only to those
persons who are the initial holders of old notes, who acquired old notes for
cash and who hold old notes as capital assets, and assumes that the old notes
were not issued with "original issue discount," as defined in the Internal
Revenue Code of 1986. This summary also does not address the U.S. federal
income tax consequences of the exchange of notes not held as capital assets
within the meaning of Section 1221 of the Code, or theoffer
should have no U.S. federal income tax consequences to investors subject to special treatment under theyou.
The preceding discussion of certain U.S. federal income tax laws, suchconsiderations
of the exchange offer is for general information only and is not tax advice.
Accordingly, each investor should consult its own tax advisor as dealers in securities or foreign currency, tax-exempt
entities, banks, thrifts, insurance companies, persons that holdto particular
tax consequences to it of exchanging an old note for a registered note,
including the notes as
part of a "straddle," a "hedge" against currency risk or a "conversion
transaction," persons that have a "functional currency" other than the U.S.
dollarapplicability and investors in pass-through entities. It also does not address any
consequences arising under U.S. federal gift and estate taxes or under the tax
lawseffect of any state, local or foreign jurisdiction.
Persons considering the exchange of old notes for registered notes in the
exchange offer should consult their own tax advisors concerning the application
of United States federal income tax laws,
as well as the lawsand of any state,
local, or other taxing jurisdictionproposed changes in applicable to their particular situations.
59laws.
81
PLAN OF DISTRIBUTION
Each broker-dealer that receives new registered notes in the exchange offer for
its own account
pursuant to the exchange offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resaleresales of thosesuch
notes. We reserve the right in our sole discretion to purchase or make offers
for, or to offer registered notes for, any old 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 old 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 a broker-
dealerall 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 for
oldoffer, where such notes that had beenwere acquired
as a result of market-making activities or other trading activities.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 afterfrom the expiration
date ofon which the
exchange offer is completed, we will make this prospectus, as it may be 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 salessale of registered notes by
broker-dealers. NotesRegistered notes received by broker-dealers in the exchange
offer for their own account pursuant to the exchange
offer may be sold from time to time in one or more
transactions in the over-
the-counterover-the-counter market, in negotiated transactions,
through the writing of options on thosethe registered notes or a combination of thosesuch
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at 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
selling broker-dealer and/or the purchasers of any such registered notes. Any
broker-dealer that resells registered notes that were received by it receivedin the
exchange offer for its own account pursuant to the exchange offer and any broker or dealer that participates
in a distribution of thosesuch notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of thosesuch notes
and any commissioncommissions or concessions received by any participating broker or dealersuch 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-
dealerbroker-dealer will not be deemed to admit that it is an "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 old 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.
EXPERTSEXPERT
The consolidated financial statements incorporated in this prospectus by reference fromof AK Steel Holding Corporation's Annual Report on Form 10-KCorporation as of
December 31, 2000 and 2001 and for each of the yearthree years in the period ended
December 31, 19982001, included in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which also is incorporatedappearing herein, by
reference,
and have been so incorporatedincluded in reliance upon the report of thatsuch firm given upon
their authority as experts in accounting and auditing.
6082
FORWARD-LOOKINGINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
This prospectus includes "forward-looking statements" within
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 meaningBoard of Section 27ADirectors of
AK Steel Holding Corporation:
We have audited the Securities Act and Section 21E of the Exchange Act. All
statements in this prospectus, including statements in the 1998 Annual Report
on Form 10-Kaccompanying consolidated balance sheets of AK Steel
Holding Corporation and Subsidiaries as of December 31, 2000 and 2001, 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 have incorporated in this
prospectus by reference, other thanplan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of historical fact, including,
without limitation,material misstatement. An audit includes
examining, on a test basis, evidence supporting the statements under "Prospectus Summary--Rockport Works"amounts and the statementsdisclosures in
the 1998 Annual Report on Form 10-K under "Management's
Discussionfinancial statements. An audit also includes assessing the accounting
principles used and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," regarding AK Steel's profitability, financial
position, liquidity and capital requirements,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 product mix,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 which do not exceed 17 years. Amortization expense for
both goodwill and other intangible assets was $6.1 in each of 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 through the remaining
amortization period. If an impairment exists, the amount of such impairment 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 because 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 tonnage capabilities, performance characteristicsare 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 sold 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 of the Company's voting stock or announces a tender
offer that could result 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 stock 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 carryforwards as of the date
of 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 the date of the merger with the Company in September
1999. In addition, at the time of the merger, Armco had loss carryforwards 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 are forward-looking statements. The words
"estimate," "project," "believe," "anticipate," "intend," "expect" and similar
expressions used in this prospectus and the 1998 Annual Reportnotes 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 Form 10-Kthe 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 intendedeligible to
identify forward-looking statements. Although we believeparticipate 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 segments 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 believes that the expectations reflectedultimate disposition of the following proceedings
will not have, individually or in those forward-looking statementsthe 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 reasonable, we
cannot assure you that those expectations will provebelieved to have been correct.
Important factorsconsistent 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, actualor 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 AK Steel Corporation Retirement Accumulation Pension Plan (the "AK
RAPP") and 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 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 (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", which the
Company adopted on January 1, 2002, the results of Sawhill Tubular have been
reclassified to differ materially from
management's expectationsdiscontinued 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 disclosedcalculated 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 this prospectus, including, without
limitation, under "Risk Factors." These factors include, butthe 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 limitedindicative 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 following:
.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 of unplanned outagestransactions 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 our operations;
. the highly cyclical nature of the domestic steel industry and many of the
markets supplied by us and the effect of that cyclicality on prices and volume;
. the potential impact of strikestheir unsold allotments or work stoppages at facilities of our
customers and suppliers;
. the sensitivity of our results to changes in the prices obtained by us for
our products;
. intense competition due to world steel overcapacity, new domestic capacity
over the next several years and imports;
. the high capital requirements associated with integrated steel facilities;
. the significant costs associated with environmental controls and
remediation expenditures and the uncertainty of future environmental control
requirements;
. employment matters, including costs and uncertainties associated with our
collective bargaining agreements, and employee postretirement obligations;
. our highly leveraged capital structure;
. the effect of our customers and suppliers not becoming Year 2000 compliant
in a timely manner;
. the effect of existing and possible future lawsuits filed against us; and
. general economic and business conditions, including changes in the
condition of the capital markets and equity markets.
All subsequent written and oral forward-looking statements by or attributable
to AK Steel or persons acting on our behalf are expressly qualified in their
entirety by these factors.
61
[LOGO]
AK Steel Corporationsubscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
AK Steel Corporation
AK Steel Holding Corporation
AK Steel Corporation ("AK Steel") and AK Steel Holding Corporation
("Holding") are each Delaware corporations. Subsection (b)(7) of Section 102 of
the Delaware General Corporation Law (the "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's fiduciary
duty, except (i) for any breach of the director'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 Steel and Holding 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'
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, 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 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' 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 shall be indemnified against expenses
(including 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 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
II-1
other enterprise against any liability asserted against him or incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities
under Section 145.
II-1
Article Seven of the Certificate of Incorporation of each of AK Steel and
Holding states 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, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the full 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.
Item 21. Exhibits and Financial Statement Schedules.
(a) ExhibitsExhibits.
Exhibit
Number Description ------- -----------of Exhibits
- ------ -----------------------
4.1 --Indenture,3.1 Certificate of Incorporation of AK Steel Holding Corporation, as amended (incorporated herein by
reference to Exhibit 3.1.1 to AK Steel Holding Corporation's Current Report on Form 8-K, as filed
with the Commission on May 27, 1998).
3.2 Certificate of Incorporation of AK Steel Corporation, as amended (incorporated herein by reference to
Exhibit 3.1 to AK Steel Holding Corporation's Registration Statement on Form S-1 (Registration No.
33-74432), as filed with the Commission on January 26, 1994).
3.3 Certificate of Formation of Douglas Dynamics, L.L.C., dated as of December 17, 1996 (the "1996 Indenture")June 29, 1995.
II-2
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.4 By-laws of AK Steel Holding Corporation (incorporated herein by reference to Exhibit 3.2 to
AK Steel Holding Corporation's Registration Statement on Form S-1 (Registration No. 33-74432), as
filed with the Commission on January 26, 1994).
3.5 By-laws of AK Steel Corporation, as amended (incorporated herein by reference to Exhibit 3.3 to
AK Steel Holding Corporation's Registration Statement on Form S-1 (Registration No. 33-74432), as
filed with the Commission on January 26, 1994).
3.6 Operating Agreement of Douglas Dynamics, L.L.C., dated as of June 29, 1995.
3.7 Assignment of Membership Interest and Amendment of Operating Agreement of Douglas Dynamics,
L.L.C., dated as of January 11, 2000.
3.8 Second Amendment to Operating Agreement of Douglas Dynamics, L.L.C., dated as of January 1,
2001.
3.9 Assignment of Membership Interest of Douglas Dynamics, L.L.C., dated as of November 30, 2001.
3.10 Certificate of Ownership and Merger of DDI Holding, Inc. and AK Steel Corporation, dated as of
January 1, 2002.
4.1 Indenture, dated as of June 11, 2002, among AK Steel Corporation, AK Steel Holding Corporation, as
Guarantor, Douglas Dynamics, L.L.C., as Guarantor, and Fifth Third Bank.
4.2 Form of 7 3/4% Senior Note Due 2012 (included in Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of June 11, 2002, among AK Steel Corporation, AK Steel
Holding Corporation, Credit Suisse First Boston Corporation and Goldman Sachs & Co.
4.4 Third Supplemental Indenture, dated as of August 8, 2002, relating to AK Steel's 9 1/Steel Corporation's 7 7/8%
Senior Notes Due 2006 (including form of
notes)due 2009 (incorporated herein by reference to Exhibit 4.1 to AK Steel's
Registration StatementSteel Holding
Corporation's Current Report on Form S-4,8-K dated August 13, 2002).
4.5 Supplemental Indenture No. 333-19781 ("Registration No. 333-
19781")).
4.2 --Indenture,6, dated as of February 10, 1999,August 8, 2002, relating to AK Steel's 7Steel Corporation's 8 7/8%
Senior Notes Due 2009due 2008 (incorporated herein by reference to Exhibit 14.2 to Holding'sAK Steel Holding
Corporation's Current Report on Form 8-K dated February 17, 1999.August 13, 2002).
4.6 Supplemental Indenture No. 6, dated as of August 8, 2002, relating to AK Steel Corporation's 9%
Senior Notes due 2007 (incorporated herein by reference to Exhibit 4.3 --Form of Note Purchaseto AK Steel Holding
Corporation's Current Report on Form 8-K dated August 13, 2002).
4.7 Second Supplemental Agreement, dated as of December 17, 1996, with
respectAugust 8, 2002, relating to AK Steel'sSteel Corporation's
Senior Secured Notes, DueSeries A-E, due 2004 (incorporated herein by reference to Exhibit 4.54.4 to Registration No. 333-19781)AK
Steel Holding Corporation's Current Report on Form 8-K dated August 13, 2002).
5 --Opinion5.1 Opinion of Weil, Gotshal & Manges LLP.*
10.1 --FormForm of Executive Officer (Other Than CEO) Severance Agreement, as amended and restated through
March 2000 (incorporated herein by reference to Exhibit 10.410.1 to Holding'sAK Steel Holding Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997)2000).
10.2 --FormForm of Executive Officer Severance Agreement of RichardAgreement--Richard M. Wardrop, Jr. (incorporated herein by
reference to Exhibit 10.5 to Holding'sAK Steel Holding Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.3 --FormForm of Executive Officer Severance Agreement of JamesAgreement--James L. Wareham (incorporated herein by
reference to Exhibit 10.6 to Holding'sAK Steel Holding Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.4 --AnnualAnnual Management Incentive Plan (incorporated herein by reference to Exhibit 10.7 to Holding'sAK Steel
Holding Corporation's Annual Report on Form 10-K for the year ended December 31, 1998).
II-3
Exhibit
Number Description of Exhibits
- ------ -----------------------
10.5 Stock Incentive Plan ((incorporated herein by reference to Exhibit 10.8 to AK Steel Holding
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998).
10.5 --Stock Incentive1998.
10.6 Executive Minimum and Supplemental Retirement Plan (incorporated herein by reference to Exhibit
10.810.6 to Holding'sAK Steel Holding Corporation's Annual Report on Form 10-K for the year ended December
31, 1998)2000).
10.6 --Executive Minimum10.7 Amended and Supplemental Retirement PlanRestated Receivables Purchase Agreement, dated as of October 1, 1999, between
AK Steel and AK Steel Receivables Ltd. (incorporated herein by reference to Exhibit 10.17 to Holding's Registration Statement on Form
S-1, No. 333-83792 ("Registration No. 33-83792")).
II-2
Exhibit
Number Description
------- -----------
10.7 --Registration Rights Agreement, dated as of April 7, 1994, among
Holding and certain subsidiaries of Kawasaki (incorporated herein
by reference to Exhibit 10.19 to Registration No. 33-83792).
10.8 --Receivables Purchase Agreement, dated as of December 1, 1994 by
and between AK Steel and AK Acquisition Receivables Ltd., as
successor to AK Steel
Receivables, Inc. (incorporated herein by
reference to Exhibit 10.23 to Registration No. 33-86678)Holding Corporation's Annual Report on Form 10-K for the year ended December 31, 2000).
10.9 --Purchase10.8 Amended and Restated Purchase and Servicing Agreement, dated as of DecemberOctober 1, 1994,1999, among AK Acquisition Receivables Ltd., as successor to
AK Steel Receivables Inc.Ltd., AK Steel, the institutions from time to time party thereto and PNC Bank,
Ohio, National Association (incorporated herein by reference to Exhibit 10.2410.8 to Registration
No. 33-86678)AK Steel Holding
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000).
10.10 --Amendment No. 110.9 First Consent and Amendment Agreement, dated as of December 21, 1999, to the Purchase and
Servicing Agreement, dated as of November 17, 1995,October 1, 1999, among AK Steel AK Acquisition Receivables Ltd., as successor to AK Steel, Receivables, Inc., the
purchasersinstitutions from time to time party thereto and PNC Bank, Ohio, National Association (incorporated herein
by reference to Exhibit 10.11(a)10.9 to Registration No. 333-19781).
10.11 --Consent, Amendment and Assumption Agreement toAK Steel Holding Corporation's Annual Report on Form 10-K for the
Receivables
Purchase Agreement and the Purchase and Servicing Agreement, dated
as ofyear ended December 31, 1996, among AK Steel, AK Steel Receivables
Inc., AK Acquisition Receivables Ltd., AKSR Investments, Inc., the
purchasers party thereto and PNC Bank, Ohio, National Association
(incorporated herein by reference to Exhibit 10.11(b) to
Registration No. 333-19781)2000).
10.12 --Letter Agreement dated July 31, 1995, between Holding and
Kawasaki (incorporated herein by reference to Exhibit 10 to Post-
Effective Amendment No. 2 on Form S-3 to Holding's Registration
Statement on Form S-1, Registration No. 33-86678).
10.13 --Deferred10.10 Deferred Compensation Plan for Management (incorporated herein by reference to Exhibit 10.29 to
Holding'sAK Steel Holding Corporation's Annual Report on Form 10-K for the year ended December 31,
1995.
10.14 --Deferred1995).
10.11 Deferred Compensation Plan for Directors (incorporated herein by reference to Exhibit 10.30 to
Holding'sAK Steel Holding Corporation's Annual Report on Form 10-K for the year ended December 31,
1995.
10.15 --Amendment, dated July 10, 1997, to the Receivables Purchase
Agreement and the Purchase and Servicing Agreement (incorporated
herein by reference to Exhibit 10.15 to Holding's Annual Report on
Form 10-K for the year ended December 31, 1997)1995).
10.16 --Rights10.12 Rights Agreement, dated as of January 23, 1996, between AK Steel Holding Corporation and Thethe Bank
of New York as predecessor to Fifth Third Bank, as Rights Agent, with respect to Holding'sAK Steel Holding
Corporation's Stockholder Rights Plan (incorporated herein by reference to Exhibit 1 to Holding'sAK Steel
Holding Corporation's Registration Statement on Form 8-A under the Securities Exchange Act of
1934, as filed with the Commission on February 5, 1996).
10.17 --Substitution10.13 Substitution of The Fifth Third Bank as Successor Rights Agent and Amendment No. 1, dated
September 15,5, 1997, to Rights Agreement dated as of January 23, 1996 (incorporated herein by
reference to Exhibit 4.1 to Holding'sAK Steel Holding Corporation's Current Report on Form 8-K, datedas filed with
the Commission on September 15, 1997).
10.18 --Instrument10.14 Instrument of Resignation, Appointment and Acceptance, dated as of September 15, 1997, with
respect to resignation of The Bank of New York as Trustee and the appointment of Thethe Fifth Third
Bank as Successor Trustee under the 1996 Indenture (incorporated herein by reference to Exhibit 4.3
to Holding's Current Report on Form 8-K,
dated September 15, 1997).
II-3
Exhibit
Number Description
------- -----------
10.19 --LongAK Steel Holding Corporation's Current Report on Form 8-K, dated September 15, 1997).
10.15 Long Term Performance Plan (incorporated herein by reference to Exhibit 10.23 to the Registrant'sAK Steel Holding
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998).
10.20 --First1998.)
10.26 First Amendment, dated July 17, 1997, to Executive Minimum and Supplemental Retirement Plan
(incorporated herein by reference to Exhibit 10.25 to Holding'sAK Steel Holding Corporation's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.21 --Second10.27 Second Amendment, dated September 18, 1997, to Executive Minimum and Supplemental Retirement
Plan (incorporated herein by reference to Exhibit 10.26 to Holding'sAK Steel Holding Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997).
12 --Ratio12.1 Statement of Computation of Ratios of Earnings to Combined Fixed Charges.*
II-4
Exhibit
Number Description of Exhibits
- ------ -----------------------
21.1 List of Subsidiaries (included herein by reference to Exhibit 21 to AK Steel Holding Corporation's
Annual Report on Form 10-K for the year ended December 31, 2001).
23.1 --ConsentConsent of Deloitte & Touche LLP.*
23.2 --ConsentConsent of Weil, Gotshal & Manges LLP (included in Exhibit 5)5.1).*
24 --Power
24.1 Power of Attorney (included on signature pages)page).
25 --Statement25.1 Form T-1 Statement of Eligibility on Form T-1and Qualification under the Trust Indenture Act of 1939, as
amended, of Fifth Third Bank.*Bank, as trustee.
99.1 --FormForm of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.
- --------
* Filed herewith.
(b) Schedules
All schedules are omitted as the required information is presented in
Holding's consolidated financial statements or related notes or such schedules
are not applicable.To be filed by amendment.
Item 22. Undertakings.
(a) InsofarEach of the undersigned Registrants 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 registrantsregistrant pursuant to the foregoing provisions,
or otherwise, the registrants haveregistrant 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 athe registrant of expenses incurred or paid by a director,
officer or controlling person of thatthe 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
registrantsregistrant will, unless in the opinion of theirits 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.
(b) Each of the undersigned registrants hereby undertakes to(2) To respond to requests for information that is incorporated by
reference into the Prospectusprospectus pursuant to ItemItems 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 Statementregistration statement through the date of responding
to the request.
(c) Each of the undersigned registrants hereby undertakes to(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 Statementregistration statement when
it became effective.
II-4(4) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to 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 Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
II-5
(iii) to 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) 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) 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.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, of 1933, as amended, AK
Steel Corporationthe 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.
Date: April 1, 1999Ohio on August 20, 2002.
AK STEEL CORPORATION
/s/By: /S/ JAMES L. WAINSCOTT
----------------------------------
Name: James L. Wainscott
By: _________________________________
James L. WainscottTitle: Senior Vice President Treasurer and
Chief Financial Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that eachPOWER OF ATTORNEY
Each person whose signature appears below hereby constitutesappoints Richard M.
Wardrop, Jr., and James L. Wainscott, and Donald B. Korade, and each of them, such person'sas his or her true and
lawful attorneys-
in-factattorneys-in-fact and agents, with full power of substitution to signand
resubstitution, for such personhim or her and in such person'shis 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 Securities and Exchange Commission,SEC,
granting unto each of said attorneys-in-fact and agents full power and authority to
do and perform each and every act and thing requisiteappropriate or necessary to be done, as
fully toand for all intents and purposes as such personhe or she might or could do personally,in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them,their substitute or their respective substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirementsrequirement of the Securities Act of 1933, as amended, this Registration
Statement and the foregoing Power of Attorney hashave been signed by the following
persons in the capacities and on the dates indicated.
Signature TitleCapacity in which Signed Date
/s/--------- ------------------------ ----
/S/ RICHARD M. WARDROP, JR. Chairman, Chief Executive August 20, 2002
---------------------------- Officer and President
Richard M. Wardrop, Jr.
Chairman/S/ JAMES L. WAINSCOTT Senior Vice President and August 20, 2002
---------------------------- Chief April 1, 1999
- ------------------------------------- ExecutiveFinancial Officer Richard M. Wardrop, Jr. (Principal
Executive Officer)
/s/(and
James L. Wainscott Vice President, April 1, 1999
- ------------------------------------- Treasurer and Chief
James L. Wainscott Financial Officer
(Principal
Financial Officer)
/s/ Donald B. Korade Controller April 1, 1999
- ------------------------------------- (Principal
Donald B. Korade Accounting Officer)principal accounting officer)
/S/ RICHARD A. ABDOO Director - -------------------------------------August 20, 2002
----------------------------
Richard A. Abdoo
/S/ ALLEN BORN Director August 20, 2002
----------------------------
Allen Born
II-5
Signature Title Date
/s/ John A. Georges/S/ DONALD V. FITES Director April 1, 1999
- -------------------------------------
John A. Georges
/s/ BonnieAugust 20, 2002
----------------------------
Donald V. Fites
/S/ DR. BONNIE G. HillHILL Director April 1, 1999
- -------------------------------------August 20, 2002
----------------------------
Dr. Bonnie G. Hill
/s//S/ ROBERT H. JENKINS Director August 20, 2002
----------------------------
Robert H. Jenkins
II-7
Signature Capacity in which Signed Date
--------- ------------------------ ----
/s/ LAWRENCE A. LESER Director April 1, 1999
- -------------------------------------
Robert H. Jenkins
/s/August 20, 2002
-------------------------
Lawrence A. Leser
/S/ DANIEL J. MEYER Director April 1, 1999
- -------------------------------------
LawrenceAugust 20, 2002
-------------------------
Daniel J. Meyer
/S/ EUGENE A. LeserRENNA Director - -------------------------------------
Robert E. Northam
/s/ Cyrus TangAugust 20, 2002
-------------------------
Eugene A. Renna
/S/ DR. JAMES A. THOMSON Director April 1, 1999
- -------------------------------------
Cyrus Tang
/s/August 20, 2002
-------------------------
Dr. James A. Thomson
Director April 1, 1999
- -------------------------------------
James A. Thomson, Ph.D.
II-6II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, of 1933, as amended, AK
Steel Holding Corporationthe 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.
Date: April 1, 1999Ohio on August 20, 2002.
AK STEEL HOLDING CORPORATION
/s/By: /S/ JAMES L. WAINSCOTT
---------------------------------
Name: James L. Wainscott
By: _________________________________
James L. WainscottTitle: Senior Vice President Treasurer andChiefand
Chief Financial Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that eachPOWER OF ATTORNEY
Each person whose signature appears below hereby constituteappoints Richard M.
Wardrop, Jr., and James L. Wainscott, and Donald
B. Korade, and each of them, such person'sas his or her true and
lawful attorneys-in-fact and agents, with full power of substitution to signand
resubstitution, for such personhim or her and in such person'shis 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 Securities and Exchange Commission,SEC,
granting unto each of said attorneys-in-fact and agents full power and authority to
do and perform each and every act and thing requisiteappropriate or necessary to be done, as
fully toand for all intents and purposes as such personhe or she might or could do personally,in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them,their substitute or their respective substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirementsrequirement of the Securities Act of 1933, as amended, this Registration
Statement and the foregoing Power of Attorney hashave been signed by the following
persons in the capacities and on the dates indicated.
Signature TitleCapacity in which Signed Date
/s/--------- ------------------------ ----
/S/ RICHARD M. WARDROP, JR. Chairman, Chief Executive August 20, 2002
---------------------------- Officer and President
Richard M. Wardrop, Jr.
Chairman/S/ JAMES L. WAINSCOTT Senior Vice President and April 1, 1999
- ------------------------------------- ChiefExecutiveAugust 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 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 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. Officer (Principal
Executive Officer)
/s/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 April 1, 1999and August 20, 2002
- ------------------------------------- Treasurer and---------------------------- Chief Financial Officer (and
James L. Wainscott Financial Officer
(Principal
Financial Officer)
/s/ Donald B. Korade Controller April 1, 1999principal accounting officer) of
AK Steel Corporation
/S/ RICHARD A. ABDOO Director of AK Steel Corporation August 20, 2002
- ------------------------------------- (Principal
Donald B. Korade Accounting Officer)----------------------------
Richard A. Abdoo
/S/ ALLEN BORN Director of AK Steel Corporation August 20, 2002
- -----------------------------------------------------------------
Allen Born
/s/ John A. Georges/S/ DONALD V. FITES Director April 1, 1999of AK Steel Corporation August 20, 2002
- -------------------------------------
John A. Georges
/s/ Bonnie----------------------------
Donald V. Fites
/S/ DR. BONNIE G. HillHILL Director April 1, 1999of AK Steel Corporation August 20, 2002
- -----------------------------------------------------------------
Dr. Bonnie G. Hill
II-7
Signature Title Date
/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 April 1, 1999
- -------------------------------------
Robert H. Jenkins
/s/of AK Steel Corporation August 20, 2002
-------------------------
Lawrence A. Leser
/S/ DANIEL J. MEYER Director April 1, 1999
- -------------------------------------
Lawrenceof AK Steel Corporation August 20, 2002
-------------------------
Daniel J. Meyer
/S/ EUGENE A. LeserRENNA Director - -------------------------------------
Robert E. Northan
/s/ Cyrus Tangof AK Steel Corporation August 20, 2002
-------------------------
Eugene A. Renna
/S/ DR. JAMES A. THOMSON Director April 1, 1999
- -------------------------------------
Cyrus Tang
/s/of AK Steel Corporation August 20, 2002
-------------------------
Dr. James A. Thomson
Director AprilII-12
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.1 Certificate of Incorporation of AK Steel Holding Corporation, as amended (incorporated herein by
reference to Exhibit 3.1.1 to AK Steel Holding Corporation's Current Report on Form 8-K, as filed with
the Commission on May 27, 1998).
3.2 Certificate of Incorporation of AK Steel Corporation, as amended (incorporated herein by reference to
Exhibit 3.1 to AK Steel Holding Corporation's Registration Statement on Form S-1 (Registration
No. 33-74432), as filed with the Commission on January 26, 1994).
3.3 Certificate of Formation of Douglas Dynamics, L.L.C., dated as of June 29, 1995.
3.4 By-laws of AK Steel Holding Corporation (incorporated herein by reference to Exhibit 3.2 to AK Steel
Holding Corporation's Registration Statement on Form S-1 (Registration No. 33-74432), as filed with
the Commission on January 26, 1994).
3.5 By-laws of AK Steel Corporation, as amended (incorporated herein by reference to Exhibit 3.3 to
AK Steel Holding Corporation's Registration Statement on Form S-1 (Registration No. 33-74432), as
filed with the Commission on January 26, 1994.
3.6 Operating Agreement of Douglas Dynamics, L.L.C., dated as of June 29, 1995.
3.7 Assignment of Membership Interest and Amendment of Operating Agreement of Douglas Dynamics,
L.L.C., dated as of January 11, 2000.
3.8 Second Amendment to Operating Agreement of Douglas Dynamics, L.L.C., dated as of January 1,
2001.
3.9 Assignment of Membership Interest of Douglas Dynamics, L.L.C., dated as of November 30, 2001.
3.10 Certificate of Ownership and Merger of DDI Holding, Inc. and AK Steel Corporation, dated as of
January 1, 2002.
4.1 Indenture, dated as of June 11, 2002, among AK Steel Corporation, AK Steel Holding Corporation, as
Guarantor, Douglas Dynamics, L.L.C., as Guarantor, and Fifth Third Bank.
4.2 Form of 7 3/4% Senior Note Due 2012 (included in Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of June 11, 2002, among AK Steel Corporation, AK Steel
Holding Corporation, Credit Suisse First Boston Corporation and Goldman Sachs & Co.
4.4 Third Supplemental Indenture, dated as of August 8, 2002, relating to AK Steel Corporation's 7 7/8%
Senior Notes due 2009 (incorporated herein by reference to Exhibit 4.1 to AK Steel Holding
Corporation's Current Report on Form 8-K dated August 13, 2002).
4.5 Supplemental Indenture No. 6, dated as of August 8, 2002, relating to AK Steel Corporation's 8 7/8%
Senior Notes due 2008 (incorporated herein by reference to Exhibit 4.2 to AK Steel Holding
Corporation's Current Report on Form 8-K dated August 13, 2002).
4.6 Supplemental Indenture No. 6, dated as of August 8, 2002, relating to AK Steel Corporation's 9%
Senior Notes due 2007 (incorporated herein by reference to Exhibit 4.3 to AK Steel Holding
Corporation's Current Report on Form 8-K dated August 13, 2002).
4.7 Second Supplemental Agreement, dated as of August 8, 2002, relating to AK Steel Corporation's
Senior Secured Notes, Series A-E, due 2004 (incorporated herein by reference to Exhibit 4.4 to AK
Steel Holding Corporation's Current Report on Form 8-K dated August 13, 2002).
5.1 Opinion of Weil, Gotshal & Manges LLP.*
II-13
Exhibit
Number Description of Exhibits
- ------ -----------------------
10.1 Form of Executive Officer (Other Than CEO) Severance Agreement, as amended and restated through
March 2000 (incorporated herein by reference to Exhibit 10.1 to AK Steel Holding Corporation's
Annual Report on Form 10-K for the year ended December 31, 2000).
10.2 Form of Executive Officer Severance Agreement--Richard M. Wardrop, Jr. (incorporated herein by
reference to Exhibit 10.5 to AK Steel Holding Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.3 Form of Executive Officer Severance Agreement--James L. Wareham (incorporated herein by
reference to Exhibit 10.6 to AK Steel Holding Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.4 Annual Management Incentive Plan (incorporated herein by reference to Exhibit 10.7 to AK Steel
Holding Corporation's Annual Report on Form 10-K for the year ended December 31, 1998).
10.5 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.8 to AK Steel Holding
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998).
10.6 Executive Minimum and Supplemental Retirement Plan (incorporated herein by reference to
Exhibit 10.6 to AK Steel Holding Corporation's Annual Report on Form 10-K for the year ended
December 31, 2000).
10.7 Amended and Restated Receivables Purchase Agreement, dated as of October 1, 1999, between
AK Steel and AK Steel Receivables Ltd. (incorporated herein by reference to Exhibit 10.7 to AK Steel
Holding Corporation's Annual Report on Form 10-K for the year ended December 31, 2000).
10.8 Amended and Restated Purchase and Servicing Agreement, dated as of October 1, 1999, among
AK Steel Receivables Ltd., AK Steel, the institutions from time to time party thereto and PNC Bank,
National Association (incorporated herein by reference to Exhibit 10.8 to AK Steel Holding
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000).
10.9 First Consent and Amendment Agreement, dated as of December 21, 1999, to the Purchase and
Servicing Agreement, dated as of October 1, 1999, among AK Steel Receivables Ltd., AK Steel, the
institutions from time to time party thereto and PNC Bank, National Association (incorporated herein
by reference to Exhibit 10.9 to AK Steel Holding Corporation's Annual Report on Form 10-K for the
year ended December 31, 2000).
10.10 Deferred Compensation Plan for Management (incorporated herein by reference to Exhibit 10.29 to
AK Steel Holding Corporation's Annual Report on Form 10-K for the year ended December 31, 1995).
10.11 Deferred Compensation Plan for Directors (incorporated herein by reference to Exhibit 10.30 to
AK Steel Holding Corporation's Annual Report on Form 10-K for the year ended December 31, 1995).
10.12 Rights Agreement, dated as of January 23, 1996, between AK Steel Holding Corporation and the
Bank of New York as predecessor to Fifth Third Bank, as Rights Agent, with respect to AK Steel
Holding Corporation's Stockholder Rights Plan (incorporated herein by reference to Exhibit 1 to
AK Steel Holding Corporation's Registration Statement on Form 8-A under the Securities Exchange
Act of 1934, as filed with the Commission on February 5, 1996).
10.13 Substitution of The Fifth Third Bank as Successor Rights Agent and Amendment No. 1, dated
September 5, 1997, to Rights Agreement dated as of January 23, 1996 (incorporated herein by reference
to Exhibit 4.1 to AK Steel Holding Corporation's Current Report on Form 8-K, as filed with the
Commission on September 15, 1997).
10.14 Instrument of Resignation, Appointment and Acceptance, dated as of September 15, 1997, with respect
to resignation of The Bank of New York as Trustee and the appointment of the Fifth Third Bank as
Successor Trustee under the 1996 Indenture (incorporated herein by reference to Exhibit 4.3 to
AK Steel Holding Corporation's Current Report on Form 8-K, dated September 15, 1997).
II-14
Exhibit
Number Description of Exhibits
- ------ -----------------------
10.15 Long Term Performance Plan (incorporated herein by reference to Exhibit 10.23 to AK Steel Holding
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998.)
10.26 First Amendment, dated July 17, 1997, to Executive Minimum and Supplemental Retirement Plan
(incorporated herein by reference to Exhibit 10.25 to AK Steel Holding Corporation's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.27 Second Amendment, dated September 18, 1997, to Executive Minimum and Supplemental Retirement
Plan (incorporated herein by reference to Exhibit 10.26 to AK Steel Holding Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997).
12.1 Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1 List of Subsidiaries (included herein by reference to Exhibit 21 to AK Steel Holding Corporation's
Annual Report on Form 10-K for the year ended December 31, 2001).
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended,
of Fifth Third Bank, as trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
- -------------------------------------
James A. Thomson, Ph.D.
II-8--------
* To be filed by amendment.
II-15