NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts or as otherwise specifically noted)
NOTE
1
- Summary of Significant Accounting Policies
Basis of Presentation:
These financial statements consolidate the operations and accounts of AK Steel Holding Corporation (“AK Holding”), its wholly-owned subsidiary AK Steel Corporation (“AK Steel”), all subsidiaries in which AK Holding has a controlling interest, and two variable interest entities for which AK Steel is the primary beneficiary. Unless the context indicates otherwise, references to “we,” “us” and “our” refer to AK Holding and its subsidiaries. We also operate Mexican and European trading companies that buy and sell steel and steel products and other materials. We manage operations on a consolidated, integrated basis so that we can use the most appropriate equipment and facilities for the production of a product, regardless of product line. Therefore, we conclude that we operate in a single business segment. All intercompany transactions and balances have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the amounts reported. We base these estimates on historical experience and information available to us about current events and actions we may take in the future. Estimates and assumptions affect significant items that include the carrying value of long-lived assets, including investments and goodwill; valuation allowances for receivables, inventories and deferred income tax assets; legal and environmental liabilities; workers compensation and asbestos liabilities; share-based compensation; and assets and obligations of 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 that title and the risks and rewards of ownership pass, which can be on the date of shipment or the date of receipt by the customer depending on when the terms of customers’ arrangements are met, the sales price is fixed or determinable, and collection is reasonably assured. Sales taxes collected from customers are recorded on a net basis with no revenue recognized.
Cost of Products Sold:
Cost of products sold consists primarily of raw materials, energy costs, supplies consumed in the manufacturing process, manufacturing labor, contract labor and direct overhead expense necessary to manufacture the finished steel product, as well as distribution and warehousing costs. Our share of the income (loss) of investments in associated companies accounted for under the equity method is included in costs of products sold since these operations are integrated with our overall steelmaking operations, except for our share of the income (loss) of Magnetation LLC (“Magnetation”), which was included in other income (expense) in 2015 and 2014.
Share-Based Compensation:
Compensation costs for stock awards granted under our Stock Incentive Plan are recognized over their vesting period using the straight-line method.
Legal Fees:
Legal fees associated with litigation and similar proceedings that are not expected to provide a benefit in future periods are expensed as incurred. Legal fees associated with activities that are expected to provide a benefit in future periods, such as costs associated with the issuance of debt, are capitalized as incurred.
Income Taxes:
Interest and penalties from uncertain tax positions are included in income tax expense. Deferred tax assets do not include certain amounts that arise from tax deductions from share-based compensation in excess of compensation recognized for financial reporting when net operating loss carryforwards are created. We use tax law ordering to determine when excess tax benefits have been realized.
Earnings per Share:
Earnings per share is calculated using the “two-class” method. Under the “two-class” method, undistributed earnings are allocated to both common shares and participating securities. We divide the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted-average number of common shares outstanding during the period. The restricted stock granted by AK Holding is entitled to dividends before vesting and meets the criteria of a participating security.
Cash Equivalents:
Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and have an original maturity of three months or less.
Inventories:
Inventories are valued at the lower of cost or market. We measure the cost of the majority of inventories on the last-in, first-out (“LIFO”) accounting method. Other inventories are measured principally at average cost and consist mostly of foreign inventories, certain raw materials and spare parts and supplies.
Property, Plant and Equipment:
Plant and equipment are depreciated under the straight-line method over their estimated lives. Estimated lives are as follows: land improvements over
20 years
, leaseholds over the life of the related operating lease term, buildings over
40 years
and machinery and equipment over
two
to
20 years
. The estimated weighted-average life of our machinery and equipment is
12 years
at the end of the current year. Amortization expense for assets recorded under capital leases is included in depreciation expense. Costs incurred to develop coal mines are capitalized when incurred. We use the units-of-production method utilizing only proven and probable reserves in the depletion base to compute the depletion of coal reserves and mine development costs. We expense costs for major maintenance activities at our operating facilities when the activities occur.
We review 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 exceeds its fair value, an impairment has occurred and a loss is recognized based on the amount by which the carrying value exceeds the fair value, less cost to dispose, for assets to be sold or abandoned. We determine fair value by using quoted market prices, estimates based on prices of similar assets or anticipated cash flows discounted at a rate commensurate with risk.
Investments:
Investments in associated companies are accounted for under the equity method. We review investments for impairment when circumstances indicate that a loss in value below its carrying amount is other than temporary.
Goodwill:
Goodwill relates to our tubular business. We review goodwill for potential impairment at least annually on October 1 each year and whenever events or circumstances make it more likely than not that impairment may have occurred. Considering operating results and the estimated fair value of the business, the most recent annual goodwill impairment test indicated that the fair value of our tubular business reporting unit was in excess of its carrying value. No goodwill impairment was recorded as a result of the annual impairment tests in the past three years.
Debt Issuance Costs:
Debt issuance costs for the revolving credit facility are included in other non-current assets and all other debt issuance costs reduce the carrying amount of long-term debt.
Pension and Other Postretirement Benefits:
We recognize, as of a measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets, defined as the “corridor”. Amounts inside the corridor are amortized over the plan participants’ life expectancy. We determine the expected return on assets using the fair value of plan assets.
Concentrations of Credit Risk:
We are primarily a producer of carbon, stainless and electrical steels and steel products, which are sold to a number of markets, including automotive, industrial machinery and equipment, power distribution and appliances. Net sales by product line are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Carbon
|
$
|
4,014.5
|
|
|
$
|
4,746.8
|
|
|
$
|
4,423.3
|
|
Stainless and electrical
|
1,654.1
|
|
|
1,733.0
|
|
|
1,836.5
|
|
Tubular
|
193.7
|
|
|
201.3
|
|
|
231.4
|
|
Other
|
20.2
|
|
|
11.8
|
|
|
14.5
|
|
Total
|
$
|
5,882.5
|
|
|
$
|
6,692.9
|
|
|
$
|
6,505.7
|
|
Percentages of our net sales to various markets are presented below:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Automotive
|
66
|
%
|
|
60
|
%
|
|
53
|
%
|
Infrastructure and Manufacturing
|
16
|
%
|
|
16
|
%
|
|
18
|
%
|
Distributors and Converters
|
18
|
%
|
|
24
|
%
|
|
29
|
%
|
We sell domestically to customers located primarily in the Midwestern and Eastern United States and to foreign customers, primarily in Canada, Mexico and Western Europe. Net sales to customers located outside the United States totaled
$655.6
,
$855.7
and
$755.4
for
2016
,
2015
and
2014
. We had
two
customers that accounted for
12%
and
11%
of net sales in
2016
and
12%
and
11%
in
2015
.
No
customer accounted for more than 10% of our net sales during
2014
.
Approximately
57%
and
65%
of accounts receivable outstanding at December 31,
2016
and
2015
, are due from businesses associated with the U.S. automotive industry, including
16%
and
12%
of receivables due from two automotive customers as of
December 31, 2016
and
20%
from one automotive customer as of
December 31, 2015
. Except in a few situations where the risk warrants it, we do not require collateral on accounts receivable. While we believe our recorded accounts receivable will be collected, in the event of
default we follow normal collection procedures. We maintain an allowance for doubtful accounts for the loss that would be incurred if a customer is unable to pay amounts due. We determine this allowance based on various factors, including the customer’s financial condition and changes in customer payment patterns. We write off accounts receivable against the allowance for doubtful accounts when it is remote that collection will occur.
Union Contracts:
At December 31,
2016
, we employed approximately
8,500
people, of which approximately
6,100
are represented by labor unions under various contracts that expire between
2017 and 2019
. In the third quarter of 2016, members of the United Auto Workers,
Local 3303
, ratified a labor agreement covering approximately
1,200
employees at Butler Works. The new agreement is scheduled to expire on
April 1, 2019
. An agreement with the United Steel Workers,
Local 169
, which represents approximately
310
hourly employees at our Mansfield Works located in Mansfield, Ohio, is scheduled to expire on
March 31, 2017
. An agreement with the United Auto Workers,
Local 600
, which represents approximately
1,160
hourly employees at our Dearborn Works located in Dearborn, Michigan, is also scheduled to expire on
March 31, 2017
. An agreement with the United Auto Workers,
Local 3044
, which represents approximately
190
production employees at our Rockport Works located in Rockport, Indiana, is scheduled to expire on
September 30, 2017
. As of January 1, 2016, approximately
140
hourly Rockport Works maintenance employees transferred to our employment from an independent contractor. We have been negotiating with the United Auto Workers for the contractual terms for these employees to be added to the union.
Financial Instruments:
We are a party to derivative instruments that are designated and qualify as hedges for accounting purposes. We may also use derivative instruments to which we do not apply hedge accounting treatment. Our objective in using these instruments is to limit operating cash flow exposure to fluctuations in the fair value of selected commodities and currencies.
Fluctuations in the price of certain commodities we use in production processes may affect our income and cash flows. We have implemented raw material and energy surcharges for some contract customers. For certain commodities where such exposure exists, we may use cash-settled commodity price swaps, collars and purchase options, with a duration of up to
three years
, to hedge the price of a portion of our natural gas, iron ore, electricity, aluminum, zinc and nickel requirements. We may designate some of these instruments as cash flow hedges and the effective portion of the changes in their fair value and settlements are recorded in accumulated other comprehensive income. We subsequently reclassify gains and losses from accumulated other comprehensive income to cost of products sold in the same period we recognize the earnings associated with the underlying transaction. Other instruments are marked to market and recorded in cost of products sold with the offset recorded as assets or liabilities.
In addition, exchange rate fluctuations on monies we receive from European subsidiaries and other customers invoiced in European currencies create cash flow and income statement risks. To reduce these risks, we have entered a series of agreements to sell euros in the future at fixed dollar rates. These forward contracts are entered with durations up to
twenty-four months
. A typical contract is used as a cash flow hedge for the period that begins when we take an order and ends when we recognize a sale, at which time it converts into a fair value hedge of a receivable we collect in euros. We do not designate these derivatives as hedges for accounting purposes and we recognize the change in fair value as expense or income in other income (expense).
We formally document all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions. In this documentation, we specifically identify the asset, liability, firm commitment or forecasted transaction that has been designated as a hedged item, and state how the hedging instrument is expected to hedge the risks from that item. We formally measure effectiveness of hedging relationships both at the hedge inception and on an ongoing basis. We discontinue hedge accounting prospectively when we determine 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 we determine that designation of the derivative as a hedge instrument is no longer appropriate. Our derivative contracts may contain collateral funding requirements. We have master netting arrangements with counterparties, giving us the right to offset amounts owed under the derivative instruments and the collateral. We do not offset derivative assets and liabilities or collateral on our consolidated balance sheets.
Asbestos and Environmental Accruals:
For a number of years, we have been remediating sites where hazardous materials may have been released, including sites no longer owned by us. In addition, a number of lawsuits alleging asbestos exposure have been filed and continue to be filed against us. We have established accruals for estimated probable costs from asbestos claim settlements and environmental investigation, monitoring and remediation. If the accruals are not adequate to meet future claims, operating results and cash flows may be negatively affected. Our accruals do not consider the potential for insurance recoveries, for which we have partial insurance coverage for some future asbestos claims. In addition, some existing insurance policies covering asbestos and environmental contingencies may serve to partially reduce future covered expenditures.
New Accounting Pronouncements:
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, during the second quarter of 2014. Topic 606, as further amended by subsequent Accounting Standard Updates, affects virtually all aspects of an entity’s revenue recognition, including determining the
measurement of revenue and the timing of when it is recognized for the transfer of goods or services to customers. Topic 606 is effective for us beginning January 1, 2018. The guidance permits two methods of adoption—retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). We currently anticipate adopting the standard using the modified retrospective method as of January 1, 2018. We are evaluating the effect of the adoption of Topic 606 on our financial position and results of operations.
FASB issued Accounting Standards Update No. 2016-02,
Leases (Topic 842)
, during the first quarter of 2016. Topic 842 requires entities to recognize lease assets and lease liabilities and disclose key information about leasing arrangements for certain leases. We will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Topic 842 is effective for us beginning January 1, 2019. We are currently evaluating the effect of the adoption of Topic 842 on our financial position and results of operations.
FASB issued a standard update during the first quarter of 2016 to simplify several aspects of the accounting for employee share-based payments. The new guidance requires companies to record excess tax benefits and tax deficiencies in the income statement when stock awards vest or are settled. In addition, companies will no longer separately classify cash flows related to excess tax benefits as a financing activity apart from other income tax cash flows. The standard also allows companies to repurchase more of each employee’s vesting shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made to tax authorities on each employee’s behalf for withheld shares should be presented as a financing activity on companies’ cash flows statements, and provides an accounting policy election to account for forfeitures as they occur. This update is effective for us beginning January 1, 2017. We are currently evaluating the effect of the adoption of this update on our financial position and results of operations, but expect the adoption to have a minimal effect on us. We do not expect that recognizing previously unrecorded excess tax benefits will have a material effect on our results of operations since we expect to record a valuation allowance that offsets deferred tax assets generated from recognizing those benefits. We intend to elect to continue to estimate forfeitures expected to occur to determine the compensation cost we recognize each period. The presentation requirements for cash flows related to employee taxes paid for withheld shares will have no effect on us since we have historically presented these as a financing activity.
In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In connection with recognizing credit losses on receivables and other financial instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model. The new standard will be effective for us beginning January 1, 2020, with early adoption permitted beginning January 1, 2019. Adoption of this standard is through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the effect of this standard on our financial position and results of operations.
Reclassifications:
We reclassified certain prior-year amounts to conform to the current-year presentation.
NOTE
2
- Supplementary Financial Statement Information
Research and Development Costs
We conduct a broad range of research and development activities aimed at improving existing products and manufacturing processes and developing new products and processes. Research and development costs, which are recorded as cost of products sold when incurred, totaled
$28.3
,
$27.6
and
$17.5
in
2016
,
2015
and
2014
.
Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts for the years ended December 31,
2016
,
2015
and
2014
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of year
|
$
|
6.0
|
|
|
$
|
9.0
|
|
|
$
|
8.1
|
|
Increase (decrease) in allowance
|
2.4
|
|
|
(3.0
|
)
|
|
0.9
|
|
Receivables written off
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
Balance at end of year
|
$
|
7.8
|
|
|
$
|
6.0
|
|
|
$
|
9.0
|
|
Inventory, net
Inventories as of December 31,
2016
and
2015
, consist of:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Finished and semi-finished
|
$
|
855.0
|
|
|
$
|
996.5
|
|
Raw materials
|
415.8
|
|
|
410.0
|
|
Total cost
|
1,270.8
|
|
|
1,406.5
|
|
Adjustment to state inventories at LIFO value
|
(156.9
|
)
|
|
(180.2
|
)
|
Inventory, net
|
$
|
1,113.9
|
|
|
$
|
1,226.3
|
|
During
2016
, liquidation of LIFO layers generated a
loss
of
$6.0
. There was no liquidation of LIFO layers in
2015
or
2014
. Changes in the LIFO reserve for the years ended December 31,
2016
,
2015
and
2014
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of year
|
$
|
180.2
|
|
|
$
|
375.5
|
|
|
$
|
396.5
|
|
Change in reserve
|
(23.3
|
)
|
|
(195.3
|
)
|
|
(21.0
|
)
|
Balance at end of year
|
$
|
156.9
|
|
|
$
|
180.2
|
|
|
$
|
375.5
|
|
Property, Plant and Equipment
Property, plant and equipment as of December 31,
2016
and
2015
, consist of:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Land, land improvements and leaseholds
|
$
|
272.6
|
|
|
$
|
263.0
|
|
Buildings
|
489.6
|
|
|
465.9
|
|
Machinery and equipment
|
5,714.0
|
|
|
5,628.2
|
|
Construction in progress
|
92.8
|
|
|
108.9
|
|
Total
|
6,569.0
|
|
|
6,466.0
|
|
Less accumulated depreciation
|
(4,554.6
|
)
|
|
(4,379.5
|
)
|
Property, plant and equipment, net
|
$
|
2,014.4
|
|
|
$
|
2,086.5
|
|
Interest on capital projects capitalized in
2016
,
2015
and
2014
was
$3.1
,
$2.1
and
$2.7
. Asset retirement obligations were
$7.2
and
$6.6
at December 31,
2016
and
2015
.
Other Non-current Assets
Other non-current assets as of December 31,
2016
and
2015
, consist of:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Investments in affiliates
|
$
|
76.7
|
|
|
$
|
70.7
|
|
Goodwill
|
32.8
|
|
|
32.8
|
|
Deferred tax assets
|
53.2
|
|
|
62.7
|
|
Other
|
35.2
|
|
|
25.5
|
|
Other non-current assets
|
$
|
197.9
|
|
|
$
|
191.7
|
|
Our investment in AFSG Holdings, Inc. (“AFSG”) represented the carrying value of our former insurance and finance leasing businesses, which have been largely liquidated. The activities of the remaining operating companies are being “run off”. We have no obligation to support the operations or liabilities of these companies. As part of our ongoing strategic review of our business and operations, we re-evaluated our investment in AFSG. During 2015, we received a distribution of
$14.0
from AFSG. Since the distribution reduced our ability to recover our remaining investment in AFSG after the distribution, we determined our remaining investment in AFSG was impaired and recognized a non-cash charge of
$41.6
, or
$0.23
per diluted share. In 2016, we sold the remaining non-captive insurance operations.
Accrued Liabilities
Accrued liabilities as of December 31,
2016
and
2015
, consist of:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Salaries, wages and benefits
|
$
|
105.6
|
|
|
$
|
69.4
|
|
Interest
|
35.2
|
|
|
24.2
|
|
Facility idling
|
6.1
|
|
|
22.1
|
|
Derivatives
|
1.8
|
|
|
41.2
|
|
Other
|
85.4
|
|
|
104.6
|
|
Accrued liabilities
|
$
|
234.1
|
|
|
$
|
261.5
|
|
In the fourth quarter of 2015, we temporarily idled the Ashland Works blast furnace and steelmaking operations (“Hot End”). We incurred a
$28.1
charge in 2015, which included
$22.2
for supplemental unemployment and other employee benefit costs and
$5.9
for equipment idling, asset preservation and other costs. The supplemental unemployment and other employee benefit costs were recorded as accrued liabilities in the consolidated balance sheet, and the activity for the year ended December 31,
2016
was as follows:
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
22.1
|
|
Payments
|
|
(20.1
|
)
|
Additions to the reserve
|
|
4.1
|
|
Balance at end of year
|
|
$
|
6.1
|
|
We estimate we will incur on-going costs of less than
$2.0
per month for maintenance of the equipment, utilities and supplier obligations related to the temporarily idled Ashland Works Hot End. These costs were
$22.1
for the year ended December 31, 2016. The carrying value of the long-lived assets associated with the temporarily idled operations totaled approximately
$70.0
as of December 31, 2016.
NOTE
3
- Acquisition of Dearborn
On
September 16, 2014
, we acquired Severstal Dearborn, LLC (“Dearborn”) from Severstal Columbus Holdings, LLC (“Severstal”). The assets acquired from Severstal included the integrated steelmaking assets located in Dearborn, Michigan (“Dearborn Works”), the Mountain State Carbon, LLC (“Mountain State Carbon”) cokemaking facility located in Follansbee, West Virginia, and interests in joint ventures that process flat-rolled steel products. The acquisition of Dearborn enhanced and complemented our business and operational strategies by positioning our carbon steelmaking operations close to our major automotive and other customers in the northern U.S., expanding our platform to meet the increasing light-weighting demands of our automotive customers, and enhancing our operational flexibility. In addition, we acquired highly modernized and upgraded steelmaking equipment and facilities and achieved significant cost-based synergies. The final cash purchase price was
$690.3
, net of cash acquired. Immediately after the acquisition, Dearborn was merged with and into AK Steel.
For the year ended December 31, 2014, we incurred acquisition costs of
$8.1
in selling and administrative expenses, primarily for transaction fees and direct costs, including legal, finance, consulting and other professional fees, and we incurred
$12.6
of costs in other income (expense) for committed bridge financing that we arranged but did not use for the Dearborn acquisition. For the year ended December 31, 2014, we incurred severance costs of
$2.6
in selling and administrative expenses for certain employees of Dearborn and an income tax charge of
$8.4
for changes in the value of deferred tax assets resulting from the acquisition. The consolidated financial statements reflect the effects of the acquisition and Dearborn’s financial results beginning
September 16, 2014
.
During 2015, we sold our
50.0%
equity interest in Double Eagle Steel Coating Company, which we acquired as part of the acquisition of Dearborn, for
$25.0
in cash.
NOTE
4
- Investments in Affiliates
We have investments in several businesses accounted for using the equity method of accounting. Investees and equity ownership percentages are presented below:
|
|
|
|
|
|
Equity Ownership %
|
Combined Metals of Chicago, LLC
|
|
40.0%
|
Delaco Processing, LLC
|
|
49.0%
|
Rockport Roll Shop LLC
|
|
50.0%
|
Spartan Steel Coating, LLC
|
|
48.0%
|
Cost of products sold includes
$12.3
,
$6.7
and
$11.7
in
2016
,
2015
and
2014
for our share of income of equity investees other than Magnetation. Our share of loss from Magnetation through the first quarter of 2015 is included in other income (expense) and totaled
$16.3
and
$15.2
for
2015
and
2014
. No amounts for Magnetation are included in our results after March 31, 2015, when the investment was written off. As of
December 31, 2016
, our carrying cost of our investment in Spartan Steel exceeded our share of the underlying equity in net assets by
$12.3
. This difference is being amortized and is included in cost of products sold.
Summarized financial statement data for all investees is presented below. The financial results for the joint ventures acquired with Dearborn—Spartan Steel and Delaco Processing—are only included for the period since the acquisition and the financial results for Magnetation are only included through March 31, 2015, since it was unlikely after that date that we would retain our equity interest as a result of Magnetation’s bankruptcy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Revenue
|
|
$
|
286.4
|
|
|
$
|
356.4
|
|
|
$
|
386.1
|
|
Gross profit
|
|
96.3
|
|
|
68.3
|
|
|
93.2
|
|
Net income (loss)
|
|
31.8
|
|
|
(9.8
|
)
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Current assets
|
|
$
|
94.1
|
|
|
$
|
89.3
|
|
Noncurrent assets
|
|
66.0
|
|
|
66.9
|
|
Current liabilities
|
|
14.4
|
|
|
14.5
|
|
Noncurrent liabilities
|
|
44.8
|
|
|
33.8
|
|
We regularly transact business with these equity investees. Transactions with all equity investees, including Magnetation, for the years indicated are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Sales to equity investees
|
$
|
69.2
|
|
|
$
|
61.4
|
|
|
$
|
93.4
|
|
Purchases from equity investees
|
213.5
|
|
|
251.0
|
|
|
67.7
|
|
Outstanding receivables and payables with all equity investees as of the end of the year indicated are presented below:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Accounts receivable from equity investees
|
$
|
2.6
|
|
|
$
|
0.4
|
|
Accounts payable to equity investees
|
4.1
|
|
|
33.1
|
|
Magnetation
As of March 31, 2015, we concluded that our
49.9%
equity interest in Magnetation was fully impaired and recorded a non-cash impairment charge of
$256.3
for the quarter ended March 31, 2015. Key factors that affected our conclusion that an other-than-temporary impairment had occurred as of March 31, 2015, included (i) the significant market decline in global iron ore pellet pricing during the first quarter of 2015 and resulting negative cash flow effects on Magnetation’s results; (ii) a less favorable longer-term forecast of iron ore prices and resulting cash flow outlook for Magnetation; (iii) the likely loss of our equity interest in Magnetation if it filed for bankruptcy; and (iv) Magnetation’s existing capital structure and its inability to raise additional capital from third parties or the equity holders. Before March 31, 2015, we believed that the fair value of our interest in Magnetation exceeded its carrying amount
and that despite near-term temporary pressures on liquidity, long-term cash flow projections of Magnetation were sufficient to allow us to recover our investment in Magnetation. During the quarter ended March 31, 2015, the near-term liquidity issues faced by Magnetation intensified due to a combination of an approximately
20.0%
decline in the daily IODEX index and substantially lower IODEX futures pricing toward the end of the quarter, a slower-than-expected ramp-up of its pellet plant operations and resulting lower sales levels, payments due for construction overruns on the pellet and third concentrate plants, and higher-than-expected start-up and operating costs. Although Magnetation accomplished several actions in late 2014 and early 2015 to increase its liquidity, such liquidity enhancements and other cost reduction initiatives did not increase liquidity enough for it to withstand the significant market decline in iron ore pricing during the first quarter of 2015. Based on the outlook for iron ore prices at March 31, 2015, we concluded that prices could remain suppressed for the near future and it raised questions about the ability of Magnetation to operate profitably. In March 2015, Magnetation began discussions with certain debtholders to seek a solution to its liquidity issues. We also participated in those discussions but no acceptable restructuring was agreed upon. On
May 5, 2015
, Magnetation and its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Minnesota. Magnetation’s outstanding indebtedness is non-recourse to us. We are not required to make any additional capital contributions or other future investments in Magnetation and have not guaranteed any obligations of Magnetation.
On October 6, 2016, the Bankruptcy Court approved a Global Settlement Agreement (“Settlement Agreement”) among us, Magnetation, Magnetation Inc., and Magnetation’s revolving credit facility lenders, senior secured noteholders and debtor-in-possession facility lenders to terminate the iron ore pellet offtake agreement with Magnetation and to wind down Magnetation’s business. Among other terms of the Settlement Agreement, we agreed to make a cash payment (“Termination Payment”) to Magnetation’s Chapter 11 estate in order to terminate our offtake agreement with Magnetation and cease purchasing iron ore pellets from Magnetation. The next day, the transactions contemplated by the Settlement Agreement were completed and we made a Termination Payment of
$36.6
, thereby terminating the pellet offtake agreement.
Also in connection with the approval of the Settlement Agreement and the payment of the Termination Payment to the bankruptcy estate, we recognized a charge in the fourth quarter of 2016 for the Termination Payment and a charge of
$32.9
for the present value of remaining obligations under contracts with other third parties to transport pellets to our facilities. The actual payments for these contracts will be made over the next
12 years
. We are working on actions to mitigate our expense for these contracts, but can give no assurance that we will be successful. We expect to purchase replacement iron ore pellets from third-party producers who can meet our future needs by offering superior reliability, consistent quality and more competitive pricing. In addition, we expect to benefit from enhanced flexibility with iron ore pellets as a result of terminating our offtake agreement with Magnetation.
NOTE
5
- Income Taxes
We and our subsidiaries file a consolidated federal income tax return that includes all domestic companies owned 80% or more by us and the proportionate share of our interest in equity method investments. State tax returns are filed on a consolidated, combined or separate basis depending on the applicable laws relating to us and our domestic subsidiaries.
Components of income (loss) before income taxes for the years ended December 31,
2016
,
2015
and
2014
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
United States
|
$
|
(11.3
|
)
|
|
$
|
(452.1
|
)
|
|
$
|
(94.3
|
)
|
Foreign
|
6.7
|
|
|
6.5
|
|
|
5.1
|
|
Noncontrolling interests
|
66.0
|
|
|
62.8
|
|
|
62.8
|
|
Income (loss) before income taxes
|
$
|
61.4
|
|
|
$
|
(382.8
|
)
|
|
$
|
(26.4
|
)
|
Significant components of deferred tax assets and liabilities at December 31,
2016
and
2015
are presented below:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
Net operating and capital loss and tax credit carryforwards
|
$
|
835.2
|
|
|
$
|
847.3
|
|
Postretirement benefits
|
142.6
|
|
|
158.9
|
|
Pension benefits
|
260.3
|
|
|
278.6
|
|
Inventories
|
127.2
|
|
|
139.2
|
|
Other assets
|
125.1
|
|
|
132.8
|
|
Valuation allowance
|
(1,175.2
|
)
|
|
(1,215.5
|
)
|
Total deferred tax assets
|
315.2
|
|
|
341.3
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Depreciable assets
|
(213.3
|
)
|
|
(248.0
|
)
|
Other liabilities
|
(48.7
|
)
|
|
(30.6
|
)
|
Total deferred tax liabilities
|
(262.0
|
)
|
|
(278.6
|
)
|
Net deferred tax assets
|
$
|
53.2
|
|
|
$
|
62.7
|
|
We regularly evaluate the need for a valuation allowance for deferred tax assets by assessing whether it is more likely than not that we will realize future deferred tax assets. We assess the valuation allowance each reporting period and reflect any additions or adjustments in earnings in the same period. When we assess the need for a valuation allowance, we consider both positive and negative evidence of the likelihood that we will realize deferred tax assets in each jurisdiction. In general, cumulative losses in recent periods provide significant objective negative evidence on our ability to generate future taxable income. As of December 31,
2016
and
2015
, we concluded that the negative evidence outweighed the positive evidence and we recorded a valuation allowance for a significant portion of our deferred tax assets. To determine the appropriate valuation allowance, we considered the timing of future reversal of our taxable temporary differences and available tax strategies that, if implemented, would result in realizing deferred tax assets. We identified the potential change from the LIFO inventory accounting method as such a tax-planning strategy. We believe that this strategy is prudent and feasible to use certain federal and state tax loss carryforwards before their expirations. In addition, we believe that the future reversal of our deferred tax liabilities serves as a source of taxable income that supports realizing a portion of our federal and state deferred tax assets. This accounting treatment has no effect on our ability to use the loss carryforwards and tax credits to reduce future cash tax payments.
Changes in the valuation allowance for the years ended December 31,
2016
,
2015
and
2014
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of year
|
$
|
1,215.5
|
|
|
$
|
1,000.4
|
|
|
$
|
764.1
|
|
Change in valuation allowance:
|
|
|
|
|
|
Included in income tax expense (benefit)
|
8.8
|
|
|
228.6
|
|
|
36.7
|
|
Change in deferred assets in other comprehensive income
|
(49.1
|
)
|
|
(13.5
|
)
|
|
199.6
|
|
Balance at end of year
|
$
|
1,175.2
|
|
|
$
|
1,215.5
|
|
|
$
|
1,000.4
|
|
At
December 31, 2016
, we had
$2,309.3
in federal regular net operating loss carryforwards and
$2,570.5
in federal alternative minimum tax (“AMT”) net operating loss carryforwards, which will expire between
2023
and
2035
. In 2016 we generated taxable income and used approximately
$42.6
of federal regular net operating loss carryforwards. At December 31,
2016
, we had unused AMT credit carryforwards of
$8.9
and research and development (“R&D”) credit carryforwards of
$1.2
. We may use the loss and credit carryforwards to offset future regular and AMT income tax liabilities. We may carry unused AMT credits forward indefinitely and the R&D credits don’t begin to expire until
2027
. At
December 31, 2016
, we had
$75.9
in deferred tax assets before considering valuation allowances for state net operating loss carryforwards and tax credit carryforwards, which will expire between
2017
and
2036
.
As of
December 31, 2016
, there were
$21.3
of unrecognized deferred tax assets from tax deductions for share-based compensation in excess of compensation recognized for financial reporting when net operating loss carryforwards were created.
In the fourth quarter of 2016, we sold our non-captive insurance companies that were part of AFSG. Federal income tax regulations require that we reduce our available net operating loss carryovers by the amounts attributable to these companies. Accordingly, we reduced both our regular tax and our AMT net operating loss carryovers at
December 31, 2016
by
$18.5
. We will no longer be able to use these loss carryforwards in the future. The sale of these companies generated a capital loss carryover for tax purposes of approximately
$31.2
which will expire in
2021
. The deferred tax asset related to this loss is included in the components of deferred tax
assets and liabilities in the table above. After consideration of the need for valuation allowances on these changes in our deferred tax assets, there was no effect on our net income (loss) in 2016 as a result of the sale.
We had undistributed earnings of foreign subsidiaries of approximately
$25.9
at
December 31, 2016
. Since we consider these earnings to be permanently invested in our foreign subsidiaries, we did not record deferred taxes for them. If we repatriated the earnings, we estimate that the additional tax expense would be approximately
$7.9
before considering the effects on the valuation allowance.
Significant components of income tax expense are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(3.7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
0.2
|
|
|
0.2
|
|
|
(1.1
|
)
|
Foreign
|
1.7
|
|
|
1.8
|
|
|
2.1
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
23.3
|
|
|
68.8
|
|
|
7.7
|
|
State
|
2.3
|
|
|
6.5
|
|
|
0.2
|
|
Benefits of operating loss carryforwards
|
(16.1
|
)
|
|
—
|
|
|
—
|
|
Amount allocated to other comprehensive income
|
(4.5
|
)
|
|
(13.2
|
)
|
|
—
|
|
Change in valuation allowance on beginning-of-the-year deferred tax assets
|
—
|
|
|
(0.7
|
)
|
|
(1.2
|
)
|
Income tax expense
|
$
|
3.2
|
|
|
$
|
63.4
|
|
|
$
|
7.7
|
|
The reconciliation of income tax on income (loss) before income taxes computed at the U.S. federal statutory tax rates to actual income tax expense is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Income tax expense (benefit) at U.S. federal statutory rate
|
$
|
21.5
|
|
|
$
|
(134.0
|
)
|
|
$
|
(9.2
|
)
|
Income tax expense calculated on noncontrolling interests
|
(23.1
|
)
|
|
(22.0
|
)
|
|
(22.0
|
)
|
State and foreign tax expense, net of federal tax
|
1.3
|
|
|
(0.9
|
)
|
|
(3.1
|
)
|
Increase in deferred tax asset valuation allowance
|
8.8
|
|
|
228.6
|
|
|
36.7
|
|
Amount allocated to other comprehensive income
|
(4.5
|
)
|
|
(13.2
|
)
|
|
—
|
|
Stock compensation in excess of tax deduction
|
—
|
|
|
—
|
|
|
2.0
|
|
Other differences
|
(0.8
|
)
|
|
4.9
|
|
|
3.3
|
|
Income tax expense
|
$
|
3.2
|
|
|
$
|
63.4
|
|
|
$
|
7.7
|
|
Our federal, state and local tax returns are subject to examination by various taxing authorities. Federal returns for periods beginning in
2013
are open for examination, while certain state and local returns are open for examination for periods beginning in
2007
. However, taxing authorities have the ability to adjust net operating loss carryforwards generated in years before these periods. We have not recognized certain tax benefits because of the uncertainty of realizing the entire value of the tax position taken on income tax returns until taxing authorities review them. We have established appropriate income tax accruals, and believe that the outcomes of future federal examinations as well as ongoing and future state and local examinations will not have a material adverse impact on our financial position, results of operations or cash flows. When statutes of limitations expire or taxing authorities resolve uncertain tax positions, we will adjust income tax expense for the unrecognized tax benefits. We have
no
tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change within twelve months of December 31,
2016
.
A reconciliation of the change in unrecognized tax benefits for
2016
,
2015
and
2014
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of year
|
$
|
130.3
|
|
|
$
|
59.9
|
|
|
$
|
53.8
|
|
Decreases for prior year tax positions
|
(4.5
|
)
|
|
(0.3
|
)
|
|
(0.2
|
)
|
Increases (decreases) for current year tax positions
|
(1.6
|
)
|
|
70.7
|
|
|
7.7
|
|
Decreases from statute lapses
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
Balance at end of year
|
$
|
124.2
|
|
|
$
|
130.3
|
|
|
$
|
59.9
|
|
Included in the balance of unrecognized tax benefits at December 31,
2016
and
2015
, are
$107.4
and
$111.6
of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits at December 31,
2016
and
2015
, are
$16.8
and
$18.7
of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.
NOTE
6
- Long-term Debt and Other Financing
Debt balances at December 31,
2016
and
2015
, are presented below:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Credit Facility
|
$
|
—
|
|
|
$
|
550.0
|
|
7.50% Senior Secured Notes due July 2023 (effective rate of 8.3%)
|
380.0
|
|
|
—
|
|
8.75% Senior Secured Notes due December 2018
|
—
|
|
|
380.0
|
|
5.00% Exchangeable Senior Notes due November 2019 (effective rate of 10.8%)
|
150.0
|
|
|
150.0
|
|
7.625% Senior Notes due May 2020
|
529.8
|
|
|
529.8
|
|
7.625% Senior Notes due October 2021
|
406.2
|
|
|
406.2
|
|
8.375% Senior Notes due April 2022
|
279.8
|
|
|
290.2
|
|
Industrial Revenue Bonds due 2020 through 2028
|
99.3
|
|
|
99.3
|
|
Capital lease for Research and Innovation Center
|
25.2
|
|
|
—
|
|
Unamortized debt discount/premium and debt issuance costs
|
(53.7
|
)
|
|
(51.4
|
)
|
Total long-term debt
|
$
|
1,816.6
|
|
|
$
|
2,354.1
|
|
During 2016, we were in compliance with all the terms and conditions of our debt agreements.
Maturities of long-term debt, excluding the capital lease, for the next five years, at December 31,
2016
, are presented below:
|
|
|
|
|
|
|
Year
|
|
|
Debt Maturities
|
2017
|
|
|
$
|
—
|
|
2018
|
|
|
—
|
|
2019
|
|
|
150.0
|
|
2020
|
|
|
537.1
|
|
2021
|
|
|
406.2
|
|
Credit Facility
We have a
$1,500.0
revolving credit facility (the “Credit Facility”), which expires in
March 2019
and is guaranteed by AK Steel’s parent company, AK Holding, and by AK Tube LLC (“AK Tube”), AK Steel Properties, Inc. (“AK Properties”) and Mountain State Carbon, three 100%-owned subsidiaries of AK Steel (AK Tube, AK Properties, and Mountain State Carbon being hereinafter referred to together as the “Subsidiary Guarantors”). The Credit Facility contains common restrictions, including limitations on, among other things, distributions and dividends, acquisitions and investments, indebtedness, liens and affiliate transactions. The Credit Facility requires that we maintain a minimum fixed charge coverage ratio of
one to one
if availability under the Credit Facility is less than
$150.0
. The Credit Facility’s current availability significantly exceeds
$150.0
. Availability is calculated as the lesser of the total commitments under the Credit Facility or eligible collateral after advance rates, less outstanding revolver borrowings and letters of credit. We secure our Credit Facility obligations with our inventory and accounts receivable, and the Credit Facility’s availability fluctuates monthly based on the varying levels of eligible collateral. We do not expect any of these restrictions to affect or limit our ability to conduct business in the ordinary course. The Credit Facility includes a separate “first-in, last-out”, or “FILO” tranche, which allows us to use a portion of our eligible collateral at higher advance rates.
At December 31,
2016
, our eligible collateral, after application of applicable advance rates, was
$1,257.1
. As of December 31,
2016
, there were
no
outstanding borrowings. Availability as of December 31,
2016
was reduced by
$70.7
for outstanding letters of credit, resulting in remaining availability of
$1,186.4
. The weighted-average interest rate on the outstanding borrowings at December 31,
2015
was
2.4%
.
Senior Secured Notes
In June 2016, as part of a transaction to refinance our
8.75%
Senior Secured Notes due 2018 (the “Old Notes”), we issued
$380.0
aggregate principal amount of
7.50%
Senior Secured Notes due
July 2023
(the “Secured Notes”) and generated net proceeds of
$373.4
after underwriting discount. The Secured Notes are fully and unconditionally guaranteed by AK Holding and the Subsidiary Guarantors. The Secured Notes are secured by first priority liens on the plant, property and equipment (other than certain excluded property, and subject to permitted liens) of AK Steel and the Subsidiary Guarantors and any proceeds of the foregoing. The book value of the collateral as of December 31,
2016
was approximately
$1.6 billion
. The indenture governing the Secured Notes includes covenants with customary restrictions on (a) the incurrence of additional debt by certain subsidiaries, (b) the incurrence of certain liens, (c) the incurrence of sale/leaseback transactions, (d) the use of proceeds from the sale of collateral, and (e) our ability to merge or consolidate with other entities or to sell, lease or transfer all or substantially all of our assets to another entity. The Secured Notes also contain customary events of default.
Before July 15, 2019, we may redeem the Secured Notes at a price equal to 100.000% of par plus a make-whole premium and all accrued and unpaid interest to the date of redemption.
After July 15, 2019, we may redeem them at
103.750%
until July 15, 2020,
101.875%
until July 15, 2021, and
100.000%
thereafter, together with all accrued and unpaid interest to the date of redemption.
After the issuance of the Secured Notes, we repurchased
$251.7
of Old Notes through a cash tender offer (the “Tender Offer”) at a tender price equal to
104.750%
of principal plus accrued and unpaid interest. The remaining outstanding Old Notes were redeemed at a redemption price of
104.375%
plus accrued and unpaid interest. In 2016, we recognized other expense of
$12.4
for expenses related to the Tender Offer, the call premium paid on the remaining Old Notes that were redeemed and the write-off of unamortized debt discount and issue costs related to the Old Notes. Fees of
$14.8
paid to the holders of the Old Notes to tender their notes and expenses paid to third parties related to the issuance of the Secured Notes were recognized as an adjustment to the carrying amount of the Secured Notes and will be recognized over their term as an adjustment to interest expense.
Exchangeable Notes
AK Steel has outstanding
5.0%
Exchangeable Senior Notes due
November 2019
(the “Exchangeable Notes”). We may not redeem the Exchangeable Notes before their maturity date. The indenture governing the Exchangeable Notes (the “Exchangeable Notes Indenture”) provides holders with an exchange right at their option before August 15, 2019, if the closing price of our common stock is greater than or equal to
$7.02
per share (
130%
of the exchange price of the Exchangeable Notes) for at least
20
trading days during the last
30
consecutive trading days of a calendar quarter. As of January 1, 2017, this exchange right was triggered for the quarter ended December 31, 2016, and will remain available until March 31, 2017. Thereafter, the triggering condition will be reassessed at the beginning of each quarter while any Exchangeable Notes remain outstanding. We would be required to pay cash to holders for the principal amount of the Exchangeable Notes and to pay cash or issue common stock (at our option) for the premium if the holders elect to exchange their Exchangeable Notes during the first quarter of 2017. As a result, a portion of the equity component of the Exchangeable Notes, calculated as the difference between the principal amount of the Exchangeable Notes and the carrying amount of the liability component of the Exchangeable Notes, was considered redeemable and classified as temporary equity of
$21.3
on the consolidated balance sheets at December 31, 2016. If holders of Exchangeable Notes elect to exchange, we expect to fund any cash settlement from cash or borrowings under our Credit Facility or both. There have been no exchanges as of the date of this filing.
On or after August 15, 2019, holders may exchange their Exchangeable Notes at any time, and we would be obligated to (i) pay an amount in cash equal to the aggregate principal amount of the Exchangeable Notes to be exchanged and (ii) at our election, pay cash, deliver shares of AK Holding common stock or a combination for any remaining exchange obligation in excess of the aggregate principal amount of the Exchangeable Notes being exchanged. Holders may exchange their Exchangeable Notes into shares of AK Holding common stock at their option at an initial exchange rate of
185.1852
shares of AK Holding common stock per $1,000 principal amount of Exchangeable Notes. The initial exchange rate is equivalent to a conversion price of approximately
$5.40
per share of common stock, which equates to
27.8 million
shares to be used to determine the aggregate equity consideration to be delivered upon exchange, which could be adjusted for certain dilutive effects from potential future events. Holders may exchange their Exchangeable Notes before August 15, 2019 only under certain circumstances. The Exchangeable Notes Indenture does not contain any financial or operating covenants or restrict us or our subsidiaries from paying dividends, incurring debt or issuing or repurchasing securities. If we undergo a fundamental change, as defined in Exchangeable Notes Indenture (which, for example, would include various transactions in which we would undergo a change of control), holders may require us to repurchase the Exchangeable Notes in whole or in part for cash at a price equal to par plus any accrued and unpaid interest. In addition, if we undergo a “make-whole fundamental change,” as defined in the Exchangeable Notes Indenture, before the maturity date, in addition to requiring us to repurchase the Exchangeable Notes in whole or in part for cash at a price equal to par plus any accrued and unpaid interest, the exchange rate will be increased in certain circumstances for holders who elect to exchange their notes in connection with the event.
Based on the initial exchange rate, the Exchangeable Notes are exchangeable into a maximum of
37.5 million
shares of AK Holding common stock. However, we would only deliver the maximum amount of shares if, following a “make-whole fundamental change” described above, we elect to deliver the shares to satisfy the higher exchange rate. Although the Exchangeable Notes were issued at par, for accounting purposes the proceeds received from the issuance of the notes are allocated between debt and equity to reflect the fair value of the exchange option embedded in the notes and the fair value of similar debt without the exchange option. Therefore, we recorded
$38.7
of the gross proceeds of the Exchangeable Notes as an increase in additional paid-in capital with the offsetting amount recorded as a debt discount. We are amortizing the debt discount and issuance costs over the term of the Exchangeable Notes using the
effective interest method. As of December 31,
2016
and
2015
, the net carrying amount of the Exchangeable Notes was
$128.7
and
$122.7
. The value of the Exchangeable Notes if exchanged as of December 31,
2016
, would have exceeded the principal amount by
$140.7
.
Senior Unsecured Notes
AK Steel has outstanding
7.625%
Senior Notes due
May 2020
(the “2020 Notes”). We may redeem the 2020 Notes at a price equal to
102.542%
of par until May 15, 2017,
101.271%
thereafter until May 15, 2018, and
100.0%
thereafter, together with all accrued and unpaid interest to the date of redemption.
AK Steel has outstanding
7.625%
Senior Notes due
October 2021
(the “2021 Notes”). The 2021 Notes were issued under a supplemental indenture, which includes covenants and restrictions substantially similar to the existing indentures governing the
7.625%
Senior Notes due 2020 and the
8.375%
Senior Notes due 2022 and are equal in right of payment to those notes.
Before October 1, 2017, we may redeem the 2021 Notes at a price equal to par plus a make-whole premium and all accrued and unpaid interest to the date of redemption.
After that date, they are redeemable at
103.813%
until October 1, 2018,
101.906%
thereafter until October 1, 2019, and
100.0%
thereafter, together with all accrued and unpaid interest to the date of redemption.
AK Steel’s outstanding
8.375%
Senior Notes are due
April 2022
(the “2022 Notes”).
Before April 1, 2017, we may redeem the 2022 Notes at a price equal to par plus a make-whole premium and all accrued and unpaid interest to the date of redemption.
After that date, they are redeemable at
104.188%
until April 1, 2018,
102.792%
thereafter until April 1, 2019,
101.396%
thereafter until April 1, 2020, and
100.0%
thereafter, together with all accrued and unpaid interest to the date of redemption.
The Exchangeable Notes, the 2020 Notes, the 2021 Notes, the 2022 Notes and the unsecured industrial revenue bonds (“ IRBs”) discussed below (collectively, the “Senior Unsecured Notes”) are equal in right of payment. AK Holding and the Subsidiary Guarantors each fully and unconditionally, jointly and severally, guarantees the payment of interest, principal and premium, if any, on the Senior Unsecured Notes other than the Exchangeable Notes, which are guaranteed only by AK Holding. The indentures governing the 2020 Notes, the 2021 Notes, the 2022 Notes and the unsecured IRBs include covenants with customary restrictions on (a) the incurrence of additional debt by certain subsidiaries, (b) the incurrence of certain liens, (c) the amount of sale/leaseback transactions, and (d) our ability to merge or consolidate with other entities or to sell, lease or transfer all or substantially all of our assets to another entity. The indentures governing the Senior Unsecured Notes also contain customary events of default. The Senior Unsecured Notes rank junior in priority to the Secured Notes to the extent of the value of the assets securing the Secured Notes.
During 2016, we repurchased an aggregate principal amount of
$10.4
of the 2022 Notes in private, open market transactions. We completed these repurchases at a discount to the notes’ par value and recognized a net gain on the repurchases totaling
$3.0
for the year ended
December 31, 2016
, which is included in other income (expense). During 2015, we repurchased an aggregate principal amount of
$23.8
of the 2021 Notes in private, open market transactions. These repurchases were unsolicited and completed at a discount to the notes’ par values. We recognized gains on the repurchases of
$9.4
for the year ended December 31, 2015, which is included in other income (expense). We may, from time to time, repurchase additional outstanding notes in the open market on an unsolicited basis, by tender offer, through privately negotiated transactions or otherwise.
Industrial Revenue Bonds
AK Steel has outstanding
$73.3
aggregate principal amount of fixed-rate tax-exempt IRBs (the “unsecured IRBs”) at December 31,
2016
. The weighted-average fixed interest rate of the unsecured IRBs is
6.8%
. The unsecured IRBs are unsecured senior debt obligations of AK Steel that are equal in ranking with the other Senior Unsecured Notes. In addition, AK Steel has outstanding
$26.0
aggregate principal amount of variable-rate taxable IRBs at December 31,
2016
, that are backed by letters of credit.
Research and Innovation Center Lease
In the fourth quarter of 2016, we moved into a new Research and Innovation Center in the Cincinnati/Dayton growth corridor. The new facility replaces our former research facility in Middletown, Ohio. The
$36.0
project was primarily financed through a
$25.2
long-term capital lease, which is included in long-term debt in the consolidated balance sheets. Lease payments will escalate
2.0%
per year from
$2.1
in
2017
to
$3.0
in the last year of the initial term ending in
2034
, when we have the option to purchase the facility and land for
$15.0
or to renew the lease. The lease has customary restrictions on our use of the facility. We have included the leased property in property, plant and equipment in the consolidated balance sheets.
NOTE
7
- Pension and Other Postretirement Benefits
Summary
We provide noncontributory pension and various healthcare and life insurance benefits to a significant portion of our employees and retirees. Benefits are provided through defined benefit and defined contribution plans that we administer, as well as multiemployer plans for certain union members. The pension plan is not fully funded. We estimate that we will be required to make pension contributions of approximately
$45.0
for
2017
. Based on current actuarial assumptions, we expect to make required pension contributions of approximately
$60.0
for
2018
and
$75.0
for
2019
. Factors that affect future funding projections include differences between expected and actual returns on plan assets, actuarial data and assumptions relating to plan participants, the discount rate used to measure the pension obligations and changes to regulatory funding requirements. We expect to make other postretirement benefit (“OPEB”) payments, after receipt of Medicare subsidy reimbursements, of approximately
$40.0
in
2017
.
Plan Obligations
Amounts presented below are calculated based on benefit obligation and asset valuation measurement dates of December 31,
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year
|
$
|
3,247.4
|
|
|
$
|
3,545.2
|
|
|
$
|
488.6
|
|
|
$
|
599.3
|
|
Service cost
|
3.0
|
|
|
2.2
|
|
|
4.9
|
|
|
7.1
|
|
Interest cost
|
120.4
|
|
|
130.0
|
|
|
19.9
|
|
|
22.5
|
|
Plan participants’ contributions
|
—
|
|
|
—
|
|
|
25.6
|
|
|
24.9
|
|
Actuarial loss (gain)
|
45.1
|
|
|
(147.8
|
)
|
|
(35.1
|
)
|
|
(83.3
|
)
|
Amendments
|
8.4
|
|
|
13.3
|
|
|
—
|
|
|
(5.6
|
)
|
Contributions to Zanesville retirees’ VEBA trust
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.1
|
)
|
Benefits paid
|
(339.1
|
)
|
|
(295.1
|
)
|
|
(65.6
|
)
|
|
(76.5
|
)
|
Annuity settlement
|
(210.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Medicare subsidy reimbursement received
|
—
|
|
|
—
|
|
|
5.4
|
|
|
3.3
|
|
Foreign currency exchange rate changes
|
(0.1
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
—
|
|
Benefit obligations at end of year
|
$
|
2,874.8
|
|
|
$
|
3,247.4
|
|
|
$
|
443.7
|
|
|
$
|
488.6
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
2,511.4
|
|
|
$
|
2,863.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual gain (loss) on plan assets
|
193.3
|
|
|
(93.6
|
)
|
|
—
|
|
|
—
|
|
Employer contributions
|
33.1
|
|
|
36.5
|
|
|
34.6
|
|
|
48.3
|
|
Plan participants’ contributions
|
—
|
|
|
—
|
|
|
25.6
|
|
|
24.9
|
|
Benefits paid
|
(339.1
|
)
|
|
(295.1
|
)
|
|
(65.6
|
)
|
|
(76.5
|
)
|
Annuity settlement
|
(215.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Medicare subsidy reimbursement received
|
—
|
|
|
—
|
|
|
5.4
|
|
|
3.3
|
|
Fair value of plan assets at end of year
|
$
|
2,183.5
|
|
|
$
|
2,511.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status
|
$
|
(691.3
|
)
|
|
$
|
(736.0
|
)
|
|
$
|
(443.7
|
)
|
|
$
|
(488.6
|
)
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
(1.3
|
)
|
|
$
|
(31.2
|
)
|
|
$
|
(40.0
|
)
|
|
$
|
(46.5
|
)
|
Noncurrent liabilities
|
(690.0
|
)
|
|
(704.8
|
)
|
|
(403.7
|
)
|
|
(442.1
|
)
|
Total
|
$
|
(691.3
|
)
|
|
$
|
(736.0
|
)
|
|
$
|
(443.7
|
)
|
|
$
|
(488.6
|
)
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss, before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
$
|
209.7
|
|
|
$
|
323.5
|
|
|
$
|
(44.4
|
)
|
|
$
|
(48.8
|
)
|
Prior service cost (credit)
|
27.9
|
|
|
25.1
|
|
|
(138.7
|
)
|
|
(199.0
|
)
|
Total
|
$
|
237.6
|
|
|
$
|
348.6
|
|
|
$
|
(183.1
|
)
|
|
$
|
(247.8
|
)
|
The accumulated benefit obligation for all defined benefit pension plans was
$2,826.6
and
$3,222.0
at December 31,
2016
and
2015
. All our pension plans have an accumulated benefit obligation in excess of plan assets. The amounts included in current liabilities represent only the amounts of our unfunded pension and OPEB benefit plans that we expect to pay in the next year.
During the third quarter of 2016, we purchased a non-participating annuity contract with an insurance company and transferred to it pension obligations of
$87.0
for certain retirees or their beneficiaries receiving pension payments. Late in the third quarter of 2016, we entered another agreement with the same insurance company to purchase a second non-participating annuity contract to transfer obligations of
$123.3
for additional retirees or their beneficiaries. In total, we irrevocably transferred the obligations for approximately
10,000
retirees or their beneficiaries to the insurance company in exchange for a similar amount of pension trust assets, eliminating any future investment or mortality risk associated with those participants. As a result of the second transfer of pension assets in October 2016, we recorded settlement losses of
$25.0
in the fourth quarter of 2016 to recognize a portion of the unrealized actuarial loss associated with the transferred obligations. We also recorded a pension corridor charge of
$78.4
in the fourth quarter of 2016 in connection with the October plan remeasurement. The corridor charge is primarily a result of a decline in discount rates since the beginning of the year, partially offset by better than expected returns on plan assets.
As a result of new mortality tables issued in October 2016 by the Society of Actuaries, we revised our mortality assumptions, which decreased our pension and OPEB obligations. The new mortality assumptions decreased the assumed life expectancy of participants in our benefit plans, thereby decreasing the total expected benefit payments. Included in the 2016 actuarial loss (gain) in the table above were actuarial gains of
$33.8
and
$4.5
related to the change in the mortality tables on pension benefits and OPEB, respectively. During 2015, we updated the major demographic assumptions we use to determine our pension and OPEB obligations after examining the recent experience among the plans’ participants. Included in the 2015 actuarial loss (gain) in the table above were actuarial gains of approximately
$7.0
and
$58.0
for the changes in demographic assumptions on pension benefits and other postretirement benefits, respectively.
Assumptions used to value benefit obligations and determine pension and OPEB expense (income) are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Assumptions used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.93
|
%
|
|
4.15
|
%
|
|
3.82
|
%
|
|
4.04
|
%
|
|
4.22
|
%
|
|
3.90
|
%
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
Subsequent year healthcare cost trend rate
|
|
|
|
|
|
|
7.00
|
%
|
|
7.00
|
%
|
|
7.00
|
%
|
Ultimate healthcare cost trend rate
|
|
|
|
|
|
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
Year ultimate healthcare cost trend rate begins
|
|
|
|
|
|
|
2025
|
|
|
2024
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine pension and OPEB expense (income) for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.95
|
%
|
|
3.82
|
%
|
|
4.53
|
%
|
|
4.22
|
%
|
|
3.90
|
%
|
|
4.48
|
%
|
Expected return on plan assets
|
7.25
|
%
|
|
7.25
|
%
|
|
7.25
|
%
|
|
|
|
|
|
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
We determine the discount rate at each remeasurement by finding a hypothetical portfolio of individual high-quality corporate bonds available at the measurement date with coupon and principal payments that could satisfy the plans’ expected future benefit payments that we use to calculate the projected benefit obligation. The discount rate is the single rate that is equivalent to the average yield on that hypothetical portfolio of bonds.
Assumed healthcare cost trend rates generally have a significant effect on the amounts reported for healthcare plans. However, caps on the share of OPEB obligations that we pay limit the effect of changes in OPEB assumptions. As of December 31,
2016
, a one-percentage-point change in the assumed healthcare cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
One Percentage Point
|
|
Increase
|
|
Decrease
|
Effect on total service cost and interest cost components
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
Effect on postretirement benefit obligation
|
1.7
|
|
|
(1.6
|
)
|
Estimated future benefit payments to beneficiaries are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Plans
|
|
Other
Benefits
|
|
Medicare
Subsidy
|
2017
|
$
|
271.4
|
|
|
$
|
41.3
|
|
|
$
|
(1.3
|
)
|
2018
|
259.8
|
|
|
39.3
|
|
|
(1.3
|
)
|
2019
|
251.0
|
|
|
37.8
|
|
|
(1.4
|
)
|
2020
|
239.4
|
|
|
36.2
|
|
|
(1.4
|
)
|
2021
|
229.1
|
|
|
34.7
|
|
|
(1.5
|
)
|
2022 through 2026
|
1,037.1
|
|
|
154.3
|
|
|
(9.0
|
)
|
Plan Assets
Our investments in the master pension trust primarily include indexed and actively-managed funds. A fiduciary committee sets the target asset mix and monitors asset performance. We determine the master pension trust’s projected long-term rate of return based on the asset allocation, the trust’s investment policy statement and our long-term capital market return assumptions for the master trust.
We have developed an investment policy which considers liquidity requirements, expected investment return and expected asset risk, as well as standard industry practices. The target asset allocation for the plan assets is
60%
equity,
38%
fixed income, and
2%
cash. Equity investments consist of individual securities, equity mutual funds and common/collective trusts with equity investment strategies diversified across multiple industry sectors and company market capitalization within specific geographical investment strategies. The equity mutual funds and common/collective trusts have no unfunded commitments or redemption restrictions. Fixed-income investments consist of individual securities and common/collective trusts, which invest primarily in investment-grade and high-yield corporate bonds and U.S. Treasury securities. The fixed-income investments are diversified by ratings, maturities, industries and other factors. Plan assets contain no significant concentrations of risk from individual securities or industry sectors. The plan has no direct investments in our common stock or fixed-income securities.
Plan investments measured at fair value on a recurring basis at December 31,
2016
and
2015
are presented below, with certain assets presented by level within the fair value hierarchy. As a practical expedient, we estimate the value of common/collective trusts, equity mutual funds and certain other assets by using the net asset value (“NAV”) per share multiplied by the number of shares of the trust investment held as of the measurement date. If we have the ability to redeem our investment in the respective alternative investment at the NAV with no significant restrictions on the redemption at the consolidated balance sheet date, excluding equity mutual funds, we categorized the alternative investment as a reconciliation of pension investments reported in the fair value hierarchy to the master pension trust’s balance. The presentation of pension investments in 2015 has been conformed to the 2016 presentation. See Note
16
for more information on the determination of fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
Total
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Investments in fair value hierarchy
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. securities
|
|
$
|
169.4
|
|
|
$
|
138.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
169.4
|
|
|
$
|
138.4
|
|
Global investments
|
|
—
|
|
|
—
|
|
|
191.0
|
|
|
179.6
|
|
|
191.0
|
|
|
179.6
|
|
Fixed-income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global investments
|
|
—
|
|
|
—
|
|
|
395.4
|
|
|
389.7
|
|
|
395.4
|
|
|
389.7
|
|
U.S. high-yield corporate securities
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
85.0
|
|
|
0.4
|
|
|
85.0
|
|
Other investments
|
|
—
|
|
|
—
|
|
|
28.9
|
|
|
37.2
|
|
|
28.9
|
|
|
37.2
|
|
Total pension investments in fair value hierarchy
|
|
$
|
169.4
|
|
|
$
|
138.4
|
|
|
$
|
615.7
|
|
|
$
|
691.5
|
|
|
$
|
785.1
|
|
|
$
|
829.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments with fair values measured at net asset value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common/collective trusts:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equity securities (a)
|
|
|
|
|
|
|
|
|
|
728.8
|
|
|
814.5
|
|
Global equity securities (b)
|
|
|
|
|
|
|
|
|
|
253.6
|
|
|
261.5
|
|
Emerging market equity securities (c)
|
|
|
|
|
|
|
|
|
|
127.8
|
|
|
103.9
|
|
U.S. corporate fixed-income securities (d)
|
|
|
|
|
|
|
|
|
|
207.4
|
|
|
415.8
|
|
U.S. Treasury securities and bonds (e)
|
|
|
|
|
|
|
|
|
|
80.4
|
|
|
85.3
|
|
Other
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
0.5
|
|
Total pension assets at fair value
|
|
|
|
|
|
|
|
|
|
$
|
2,183.5
|
|
|
$
|
2,511.4
|
|
|
|
(a)
|
Investments primarily in domestic equity securities, which may include common stocks, options and futures.
|
|
|
(b)
|
Investments primarily in global equity securities, which may include common stocks, options and futures.
|
|
|
(c)
|
Investments primarily in emerging market equity securities.
|
|
|
(d)
|
Investments primarily in domestic fixed income investments, which may include investment-grade and high-yield corporate bonds, interest rate swaps, options and futures.
|
|
|
(e)
|
Investments primarily in U.S. Treasury securities and bonds.
|
Periodic Benefit Costs
Components of pension and OPEB expense (income) for the years
2016
,
2015
and
2014
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Components of pension and OPEB expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
3.0
|
|
|
$
|
2.2
|
|
|
$
|
1.7
|
|
|
$
|
4.9
|
|
|
$
|
7.1
|
|
|
$
|
4.9
|
|
Interest cost
|
120.4
|
|
|
130.0
|
|
|
146.0
|
|
|
19.9
|
|
|
22.5
|
|
|
21.7
|
|
Expected return on plan assets
|
(167.1
|
)
|
|
(198.4
|
)
|
|
(202.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost (credit)
|
5.6
|
|
|
4.4
|
|
|
4.3
|
|
|
(60.4
|
)
|
|
(64.6
|
)
|
|
(73.2
|
)
|
Recognized net actuarial loss (gain):
|
|
|
|
|
|
|
|
|
|
|
|
Annual amortization
|
29.2
|
|
|
31.2
|
|
|
2.5
|
|
|
(4.3
|
)
|
|
1.6
|
|
|
(1.3
|
)
|
Corridor charge (credit)
|
78.4
|
|
|
144.3
|
|
|
2.0
|
|
|
(35.3
|
)
|
|
(13.1
|
)
|
|
—
|
|
Settlement loss
|
29.9
|
|
|
1.0
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
Pension and OPEB expense (income)
|
$
|
99.4
|
|
|
$
|
114.7
|
|
|
$
|
(46.1
|
)
|
|
$
|
(75.2
|
)
|
|
$
|
(46.5
|
)
|
|
$
|
(44.4
|
)
|
In December 2012, we reached a final settlement agreement (the “Zanesville Retiree Settlement”) of a class action filed on behalf of certain retirees from our Zanesville Works for our OPEB obligations to such retirees. We made the final payment to the Zanesville
VEBA trust of
$3.1
in 2015. Effective January 1, 2016, we transferred to the VEBA trust all OPEB obligations owed to the class members under our applicable health and welfare plans and have no further liability for OPEB benefits after December 31, 2015.
During 2016, 2015 and 2014, we performed remeasurements of an unfunded supplemental retirement plan and recognized settlement losses as a result of lump sum benefit payments made to retired participants.
Pension and OPEB expense (income) for the defined benefit pension plans over the next year is expected to include amortization of
$10.8
of the unrealized net loss and
$4.7
from the prior service cost in accumulated other comprehensive loss. Pension and OPEB expense (income) for the other postretirement benefit plans over the next fiscal year is expected to include amortization of
$4.2
of the unrealized net gain and
$58.5
from the prior service credit in accumulated other comprehensive loss.
Defined Contribution Plans
All employees are eligible to participate in various defined contribution plans. Certain of these plans have features with matching contributions or other company contributions based on our financial results. Total expense from these plans was
$16.1
,
$14.5
and
$12.1
in
2016
,
2015
and
2014
.
Multiemployer Plans
We contribute to multiemployer pension plans according to collective bargaining agreements that cover certain union-represented employees. The following risks of participating in these multiemployer plans differ from single employer plans:
|
|
•
|
Employer contributions to a multiemployer plan may be used to provide benefits to employees of other participating employers.
|
|
|
•
|
If a participating employer stops contributing to a multiemployer plan, the remaining participating employers may need to assume the unfunded obligations of the plan.
|
|
|
•
|
If the plan becomes significantly underfunded or is unable to pay its benefits, we may be required to contribute additional amounts in excess of the rate required by the collective bargaining agreements.
|
|
|
•
|
If we choose to stop participating in a multiemployer plan, we may be required to pay that plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
|
Our participation in these plans for the years ended December 31,
2016
,
2015
and
2014
, is presented below. We do not provide more than five percent of the total contributions to any multiemployer plan. Forms 5500 are not yet available for plan years ending in
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund
|
|
EIN/Pension Plan Number
|
|
Pension Protection Act Zone Status (a)
|
|
FIP/RP Status Pending/Implemented (b)
|
|
Contributions
|
|
Surcharge Imposed (c)
|
|
Expiration Date of Collective Bargaining Agreement
|
|
|
|
|
2016
|
|
2015
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
Steelworkers Pension Trust
|
|
23-6648508/499
|
|
Green
|
|
Green
|
|
No
|
|
$
|
6.8
|
|
|
$
|
7.3
|
|
|
$
|
8.1
|
|
|
No
|
|
3/31/2017 to 9/1/2018 (d)
|
IAM National Pension Fund’s National Pension Plan
|
|
51-6031295/002
|
|
Green
|
|
Green
|
|
No
|
|
18.0
|
|
|
16.0
|
|
|
16.5
|
|
|
No
|
|
3/15/2018 to 5/31/2019 (e)
|
|
|
|
|
|
|
|
|
|
|
$
|
24.8
|
|
|
$
|
23.3
|
|
|
$
|
24.6
|
|
|
|
|
|
|
|
(a)
|
The most recent Pension Protection Act zone status available in
2016
and
2015
is for each plan’s year-end at December 31,
2015
and
2014
. The plan’s actuary certifies the zone status. Generally, plans in the red zone are less than 65% funded, plans in the yellow zone are between 65% and 80% funded, and plans in the green zone are at least 80% funded. The Steelworkers Pension Trust and IAM National Pension Fund’s National Pension Plan elected funding relief under section 431(b)(8) of the Internal Revenue Code and section 304(b)(8) of the Employment Retirement Income Security Act of 1974 (ERISA). This election allows those plans’ investment losses for the plan year ended December 31, 2008, to be amortized over 29 years for funding purposes.
|
|
|
(b)
|
The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented, as defined by ERISA.
|
|
|
(c)
|
The surcharge represents an additional required contribution due as a result of the critical funding status of the plan.
|
|
|
(d)
|
We are a party to three collective bargaining agreements (at our Ashland Works, Mansfield Works and at the AK Tube Walbridge plant) that require contributions to the Steelworkers Pension Trust. The labor contract for approximately
310
hourly employees at Mansfield Works expires on
March 31, 2017
. The labor contract for approximately
90
hourly employees at the AK Tube Walbridge plant expires
January 22, 2018
. The labor contract for approximately
725
hourly employees at the Ashland Works expires on
September 1, 2018
.
|
|
|
(e)
|
We are a party to three collective bargaining agreements (at our Butler Works, Middletown Works and Zanesville Works) that require contributions to the IAM National Pension Fund’s National Pension Plan. The labor contract for approximately
1,200
hourly employees at
|
Butler Works expires on
April 1, 2019
. The labor contract for approximately
1,715
hourly employees at Middletown Works expires on
March 15, 2018
. The labor contract for approximately
130
hourly employees at Zanesville Works expires on
May 31, 2019
.
NOTE
8
- Operating Leases
Rental expense was
$46.7
,
$44.0
and
$35.7
for
2016
,
2015
and
2014
. Obligations to make future minimum lease payments at December 31,
2016
, are presented below:
|
|
|
|
|
2017
|
$
|
13.9
|
|
2018
|
12.8
|
|
2019
|
9.5
|
|
2020
|
7.5
|
|
2021
|
7.0
|
|
2022 and thereafter
|
14.2
|
|
Total minimum lease payments
|
$
|
64.9
|
|
As a result of the termination of our pellet offtake agreement with Magnetation, we no longer need the rail cars that we leased for transporting iron ore pellets. We recorded a liability of
$30.5
for these unused rail cars primarily in other long-term liabilities in the consolidated balance sheets as of
December 31, 2016
. The liability represents the present value of the remaining lease payments that we expect to pay over the remaining
12 years
of the lease. We have excluded these payments from the table above.
We purchase substantial portions of the principal raw materials required for our steel manufacturing operations under annual and multi-year agreements, some of which have minimum quantity requirements. We also use large volumes of natural gas, electricity and industrial gases in our steel manufacturing operations. We negotiate most of our purchases of iron ore, coke, chrome, industrial gases and a portion of our electricity under multi-year agreements. The iron ore agreements typically have a variable-price mechanism that adjusts the price of iron ore periodically, based on reference to an iron ore index and other market-based factors. We typically purchase coal under annual fixed-price agreements. We also purchase certain transportation services under multi-year contracts with minimum quantity requirements.
Commitments for future capital investments at December 31,
2016
, totaled approximately
$42.5
, all of which we expect to incur in
2017
.
NOTE
10
- Environmental and Legal Contingencies
Environmental Contingencies
Domestic steel producers, including us, must follow stringent federal, state and local laws and regulations designed to protect human health and the environment. We have spent the following amounts over the past three years for environmental-related capital investments and environmental compliance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Environmental-related capital investments
|
$
|
4.9
|
|
|
$
|
7.1
|
|
|
$
|
7.2
|
|
Environmental compliance costs
|
123.9
|
|
|
133.2
|
|
|
112.4
|
|
We and our predecessors have been involved in steel manufacturing and related operations since 1900. Although we believe our operating practices have been consistent with prevailing industry standards, hazardous materials may have been released at operating sites or third-party sites in the past, including operating sites that we no longer own. If we reasonably can, we have estimated potential remediation expenditures for those sites where future remediation efforts are probable based on identified conditions, regulatory requirements or contractual obligations arising from the sale of a business or facility. For sites involving government-required investigations, we typically make an estimate of potential remediation expenditures only after the investigation is complete and when we better understand the nature and scope of the remediation. In general, the material factors in these estimates include the costs associated with investigations, delineations, risk assessments, remedial work, governmental response and oversight, site monitoring,
and preparation of reports to the appropriate environmental agencies. We have recorded the following liabilities for environmental matters on our consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Accrued liabilities
|
$
|
7.3
|
|
|
$
|
5.6
|
|
Other non-current liabilities
|
39.9
|
|
|
41.1
|
|
We cannot predict the ultimate costs for each site with certainty because of the evolving nature of the investigation and remediation process. Rather, to estimate the probable costs, we must make certain assumptions. The most significant of these assumptions is for the nature and scope of the work that will be necessary to investigate and remediate a particular site and the cost of that work. Other significant assumptions include the cleanup technology that will be used, whether and to what extent any other parties will participate in paying the investigation and remediation costs, reimbursement of past response and future oversight costs by governmental agencies, and the reaction of the governing environmental agencies to the proposed work plans. Costs for future investigation and remediation are not discounted to their present value. If we have been able to reasonably estimate future liabilities, we do not believe that there is a reasonable possibility that we will incur a loss or losses that exceed the amounts we accrued for the environmental matters discussed below that would, either individually or in the aggregate, have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, since we recognize amounts in the consolidated financial statements in accordance with accounting principles generally accepted in the United States that exclude potential losses that are not probable or that may not be currently estimable, the ultimate costs of these environmental proceedings may be higher than the liabilities we currently have recorded in our consolidated financial statements.
Except as we expressly note below, we do not currently anticipate any material effect on our consolidated financial position, results of operations or cash flows as a result of compliance with current environmental regulations. Moreover, because all domestic steel producers operate under the same federal environmental regulations, we do not believe that we are more disadvantaged than our domestic competitors by our need to comply with these regulations. Some foreign competitors may benefit from less stringent environmental requirements in the countries where they produce, resulting in lower compliance costs for them and providing those foreign competitors with a cost advantage on their products.
According 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 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. Environmental regulators may inspect our major steelmaking facilities. While we cannot predict the future actions of these regulators, it is possible that they may identify conditions in future inspections of these facilities which they believe require corrective action.
Under authority from the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the EPA and state environmental authorities have conducted site investigations at certain of our facilities and other third-party facilities, portions of which previously may have been used for disposal of materials that are currently regulated. The results of these investigations are still pending, and we could be directed to spend funds for remedial activities at the former disposal areas. Because of the uncertain status of these investigations, however, we cannot reliably predict whether or when such spending might be required or their magnitude.
As previously reported, on July 27, 2001, we received a Special Notice Letter from the EPA requesting that we agree to conduct a Remedial Investigation/Feasibility Study (“RI/FS”) and enter an administrative order on consent pursuant to Section 122 of CERCLA regarding our former Hamilton Plant located in New Miami, Ohio. The Hamilton Plant ceased operations in 1990, and all of its former structures have been demolished and removed. Although we did not believe that a site-wide RI/FS was necessary or appropriate, in April 2002 we entered a mutually agreed-upon administrative order on consent to perform a RI/FS of the Hamilton Plant site. We submitted the investigation portion of the RI/FS, and we completed a supplemental study in 2014. We currently have accrued
$0.7
for the remaining cost of the RI/FS. Until the RI/FS is complete, we cannot reliably estimate the additional costs, if any, we may incur for potentially required remediation of the site or when we may incur them.
As previously reported, on September 30, 1998, our predecessor, Armco Inc., received an order from the EPA under Section 3013 of RCRA requiring it to develop a plan for investigation of eight areas of our Mansfield Works that allegedly could be sources of contamination. A site investigation began in November 2000 and is continuing. We cannot reliably estimate at this time how long it will take to complete this site investigation. We currently have accrued approximately
$1.1
for the projected cost of the study. Until the site investigation is complete, we cannot reliably estimate the additional costs, if any, we may incur for potentially required remediation of the site or when we may incur them.
As previously noted, on September 26, 2012, the EPA issued an order under Section 3013 of RCRA requiring us to develop a plan for investigation of four areas at our Ashland Works coke plant. We submitted a Sampling and Analysis Plan (“SAP”) to the EPA on
October 25, 2012, and the EPA ultimately approved it on June 27, 2014. We completed Phase I of the SAP and submitted a report to the EPA on December 23, 2014. We cannot reliably estimate how long it will take to complete the site investigation. On March 10, 2016, the EPA invited us to participate in settlement discussions regarding an enforcement action. Settlement discussions between the parties are ongoing, though whether the parties will reach agreement and any such agreement’s terms are uncertain. We currently have accrued approximately
$1.4
for the projected cost of the investigation and known remediation. Until the site investigation is complete, we cannot reliably estimate the costs, if any, we may incur for potential additional required remediation of the site or when we may incur them.
As previously reported, on July 15, 2009, we and the Pennsylvania Department of Environmental Protection (“PADEP”) entered a Consent Order and Agreement (the “Consent Order”) to resolve an alleged unpermitted discharge of wastewater from the closed Hillside Landfill at our former Ambridge Works. Under the terms of the Consent Order, we paid a penalty and also agreed to implement various corrective actions, including an investigation of the area where landfill activities occurred, submission of a plan to collect and treat surface waters and seep discharges, and upon approval from PADEP, implementation of that plan. We have accrued approximately
$5.6
for the remedial work required under the approved plan and Consent Order. We submitted a National Pollution Discharge Elimination System (“NPDES”) permit application to move to the next work phase. We currently estimate that the remaining work will be completed in 2018, though it may be delayed.
As previously reported, on June 29, 2000, the United States filed a complaint on behalf of the EPA against us in the U.S. District Court for the Southern District of Ohio, Case No. C-1-00530, alleging violations of the Clean Air Act, the Clean Water Act and RCRA at our Middletown Works. Subsequently, the State of Ohio, the Sierra Club and the National Resources Defense Council intervened. On May 15, 2006, the court entered a Consent Decree in Partial Resolution of Pending Claims (the “Consent Decree”). Under the Consent Decree, we agreed to undertake a comprehensive RCRA facility investigation at Middletown Works and, as appropriate, complete a corrective measures study. The Consent Decree required us to implement certain RCRA corrective action interim measures to address polychlorinated biphenyls (“PCBs”) in sediments and soils at Dicks Creek and certain other specified surface waters, adjacent floodplain areas and other previously identified geographic areas. We have completed the remedial activity at Dicks Creek, but continue to work on the RCRA facility investigation and certain interim measures. We have accrued approximately
$14.6
for the cost of known work required under the Consent Decree for the RCRA facility investigation and remaining interim measures.
As previously reported, on May 12, 2014, the Michigan Department of Environmental Quality (“MDEQ”) issued to our Dearborn Works (then a part of Dearborn) an Air Permit to Install No. 182-05C (the “PTI”) to increase the emission limits for the blast furnace and other emission sources. The PTI was issued as a correction to a prior permit to install that did not include certain information during the prior permitting process. On July 10, 2014, the South Dearborn Environmental Improvement Association (“SDEIA”), Detroiters Working for Environmental Justice, Original United Citizens of Southwest Detroit and the Sierra Club filed a Claim of Appeal of the PTI in the State of Michigan, Wayne County Circuit, Case No. 14-008887-AA. Appellants and the MDEQ required the intervention of Dearborn (now owned by us) in this action as an additional appellee. The appellants allege multiple deficiencies with the PTI and the permitting process. On October 9, 2014, the appellants filed a Motion for Peremptory Reversal of the MDEQ’s decision to issue the PTI. We believe that the MDEQ issued the PTI properly in compliance with applicable law and will vigorously contest this appeal. On October 17, 2014, we filed a motion to dismiss the appeal. Additionally, on December 15, 2014, we filed a motion to dismiss the appeal for lack of jurisdiction. At the conclusion of a hearing on all three motions on February 12, 2015, all three motions were denied. On July 12, 2016, the Michigan Court of Appeals denied our motion seeking to overturn the decision of the Circuit Court denying our motion to dismiss for lack of jurisdiction. On October 5, 2016, we filed an application with the Michigan Supreme Court for leave to appeal, seeking to overturn the decision of the Michigan Court of Appeals.
Until the appeal is resolved, we cannot determine what the ultimate permit limits will be. Until the permit limits are determined and final, we cannot reliably estimate the costs, if any, that we may incur if the appeal causes the permit limits to change, nor can we determine if the costs will be material or when we would incur them.
As previously reported, on August 21, 2014, the SDEIA filed a Complaint under the Michigan Environmental Protection Act (“MEPA”) in the State of Michigan, Wayne County Circuit Case No. 14-010875-CE. The plaintiffs allege that the air emissions from our Dearborn Works are impacting the air, water and other natural resources, as well as the public trust in such resources. The plaintiffs are requesting, among other requested relief, that the court assess and determine the sufficiency of the PTI’s limitations. On October 15, 2014, the court ordered a stay of the proceedings until a final order is issued in Wayne County Circuit Court Case No. 14-008887-AA (discussed above). When the proceedings resume, we will vigorously contest these claims. Until the claims in this Complaint are resolved, we cannot reliably estimate the costs we may incur, if any, or when we may incur them.
As previously reported, on April 27, 2000, MDEQ issued a RCRA Corrective Action Order No. 111-04-00-07E to Rouge Steel Company and Ford Motor Company for the property that includes our Dearborn Works. The Corrective Action Order has been amended five times. We are a party to the Corrective Action Order as the successor-in-interest to Dearborn, which was the successor-in-interest to Rouge Steel Company. The Corrective Action Order requires the site-wide investigation, and where appropriate, remediation of the facility. The site investigation and remediation is ongoing. We cannot reliably estimate at this time how long it will take to complete this site investigation and remediation. To date, Ford Motor Company has incurred most of the costs of the
investigation and remediation due to its prior ownership of the steelmaking operations at Dearborn Works. Until the site investigation is complete, we cannot reliably estimate the additional costs we may incur, if any, for any potentially required remediation of the site or when we may incur them.
As previously reported, on August 29, 2013, the West Virginia Department of Environmental Protection (“WVDEP”) issued to Mountain State Carbon a renewal NPDES permit for wastewater discharge from the facility to the Ohio River. The new NPDES permit included numerous new, and more stringent, effluent limitations. On October 7, 2013, Mountain State Carbon appealed the permit to the Environmental Quality Board (“EQB”), Appeal No. 13-25-EQB. On February 10, 2016, we reached a partial settlement with WVDEP. On June 3, 2016, we received a favorable ruling from the EQB that required WVDEP to remove the new fecal coliform limits from the discharge permit. In addition, the EQB issued favorable rulings for the two other principal issues, pertaining to selenium and temperature. WVDEP elected not to appeal the EQB’s favorable rulings. Until the permit limits are determined and final, we cannot reliably estimate the costs we may incur, if any, or when we may incur them.
As previously reported, AK Steel received an order in October 2002 from the EPA under Section 3013 of RCRA requiring it to investigate several areas of Zanesville Works that allegedly could be sources of contamination. A site investigation began in 2003 and was approved by EPA in November 2012. On October 28, 2016, the EPA requested that we conduct a corrective measures study and implement these measures as necessary. Settlement discussions between the parties are ongoing, though whether the parties will reach agreement and any such agreement’s terms are uncertain. We currently have accrued
$0.7
for the projected cost of the corrective measures study as well as a supplemental investigation. Until the study is complete, we cannot reliably estimate the costs, if any, we may incur for potential required remediation of the site or when we may incur them.
On December 22, 2016 and February 7, 2017, we received Notices of Violations from the Southwest Ohio Air Quality Agency on a pickling line at our Middletown Works, alleging violations of hydrochloric acid emission rates based on source testing events conducted between October 2016 and January 2017. We investigated these claims and implemented several corrective measures. Based on additional testing conducted in January 2017, we believe that the pickling line is currently in compliance with emission limitations. Until the claims under the Notices of Violations are resolved, we cannot reliably estimate the costs we may incur, if any, or when we may incur them.
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. We believe that the ultimate disposition of the proceedings will not have, individually or in the aggregate, a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Legal Contingencies
As previously reported, since 1990 we have been named as a defendant in numerous lawsuits alleging personal injury as a result of exposure to asbestos. The great majority of these lawsuits have been filed on behalf of people who claim to have been exposed to asbestos while visiting the premises of one of our current or former facilities. The majority of asbestos cases pending in which we are a defendant do not include a specific dollar claim for damages. In the cases that do include specific dollar claims for damages, the complaint typically includes a monetary claim for compensatory damages and a separate monetary claim in an equal amount for punitive damages, and does not attempt to allocate the total monetary claim among the various defendants.
The number of asbestos cases pending at December 31,
2016
, is presented below:
|
|
|
|
|
Asbestos Cases Pending at
|
|
December 31, 2016
|
Cases with specific dollar claims for damages:
|
|
Claims up to $0.2
|
121
|
Claims above $0.2 to $5.0
|
6
|
Claims above $5.0 to $15.0
|
2
|
Claims above $15.0 to $20.0
|
2
|
Total claims with specific dollar claims for damages (a)
|
131
|
Cases without a specific dollar claim for damages
|
208
|
Total asbestos cases pending
|
339
|
|
|
(a)
|
Involve a total of
2,331
plaintiffs and
17,227
defendants
|
In each case, the amount described is per plaintiff against all of the defendants, collectively. Thus, it usually is not possible at the outset of a case to determine the specific dollar amount of a claim against us. In fact, it usually is not even possible at the outset to
determine which of the plaintiffs actually will pursue a claim against us. Typically, that can only be determined through written interrogatories or other discovery after a case has been filed. Therefore, in a case involving multiple plaintiffs and multiple defendants, we initially only account for the lawsuit as one claim. After we have determined through discovery whether a particular plaintiff will pursue a claim, we make an appropriate adjustment to statistically account for that specific claim. It has been our experience that only a small percentage of asbestos plaintiffs ultimately identify us as a target defendant from whom they actually seek damages and most of these claims ultimately are either dismissed or settled for a small fraction of the damages initially claimed. Asbestos-related claims information in
2016
,
2015
and
2014
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
New Claims Filed
|
|
40
|
|
|
52
|
|
|
50
|
|
Pending Claims Disposed Of
|
|
84
|
|
|
68
|
|
|
90
|
|
Total Amount Paid in Settlements
|
|
$
|
0.9
|
|
|
$
|
1.9
|
|
|
$
|
0.7
|
|
Since the onset of asbestos claims against us in 1990, five asbestos claims against us have proceeded to trial in four separate cases. All five concluded with a verdict in our favor. We continue to vigorously defend the asbestos claims. Based upon present knowledge, and the factors above, we believe it is unlikely that the resolution in the aggregate of the asbestos claims against us will have a materially adverse effect on our consolidated results of operations, cash flows or financial condition. However, predictions about the outcome of pending litigation, particularly claims alleging asbestos exposure, are subject to substantial uncertainties. These uncertainties include (1) the significantly variable rate at which new claims may be filed, (2) the effect of bankruptcies of other companies currently or historically defending asbestos claims, (3) the litigation process from jurisdiction to jurisdiction and from case to case, (4) the type and severity of the disease each claimant alleged to suffer, and (5) the potential for enactment of legislation affecting asbestos litigation.
As previously reported, in September and October 2008 and again in July 2010, several companies filed purported class actions in the United States District Court for the Northern District of Illinois against nine steel manufacturers, including us. The case numbers for these actions are 08CV5214, 08CV5371, 08CV5468, 08CV5633, 08CV5700, 08CV5942, 08CV6197 and 10CV04236. On December 28, 2010, another action, case number 32,321, was filed in state court in the Circuit Court for Cocke County, Tennessee. The defendants removed the Tennessee case to federal court and in March 2012 it was transferred to the Northern District of Illinois. The plaintiffs in the various pending actions are companies that purport to have purchased steel products, directly or indirectly, from one or more of the defendants and they claim to file the actions on behalf of all persons and entities who purchased steel products for delivery or pickup in the United States from any of the named defendants at any time from at least as early as January 2005. The complaints allege that the defendant steel producers have conspired in violation of antitrust laws to restrict output and to fix, raise, stabilize and maintain artificially high prices for steel products in the United States. In March 2014, we reached an agreement with the direct purchaser plaintiffs to tentatively settle the claims asserted against us, subject to certain court approvals below. According to that settlement, we agreed to pay
$5.8
to the plaintiff class of direct purchasers in exchange for the members of that class to completely release all claims. We continue to believe that the claims made against us lack any merit, but we elected to enter the settlement to avoid the ongoing expense of defending ourselves in this protracted and expensive antitrust litigation. We provided notice of the proposed settlement to members of the settlement class. After several class members received the notice, they elected to opt out of the class settlement. Following a fairness hearing, on October 21, 2014 the Court entered an order and judgment approving the settlement and dismissing all of the direct plaintiffs’ claims against us with prejudice as to the settlement class. In 2014, we recorded a charge for the amount of the tentative settlement with the direct purchaser plaintiff class and paid that amount into an escrow account, which has now been disbursed in accordance with the order that approved the settlement. At this time, we do not have adequate information available to determine that a loss is probable or to reliably or accurately estimate the potential loss, if any, for the remaining indirect purchaser plaintiff class members and any direct purchaser class members that have opted out of the class (hereinafter collectively referred to as the “Remaining Plaintiffs”). Because we have been unable to determine that a potential loss in this case for the Remaining Plaintiffs is probable or estimable, we have not recorded an accrual for this matter. If our assumptions used to evaluate a probable or estimable loss for the Remaining Plaintiffs prove to be incorrect or change, we may be required to record a charge for their claims.
As previously reported, on January 20, 2010, ArcelorMittal France and ArcelorMittal Atlantique et Lorraine (collectively “ArcelorMittal”) filed an action in the United States District Court for the District of Delaware, Case No. 10-050-SLR against us, Dearborn, and Wheeling-Nisshin Inc., whom Dearborn indemnified in this action. By virtue of our responsibility as a successor-in-interest to Dearborn and an indemnitor of Wheeling-Nisshin Inc, we now have complete responsibility for the defense of this action. The three named defendants are collectively referred to hereafter as “we” or “us”, though the precise claims against each separate defendant may vary. The complaint alleges that we are infringing the claims of U.S. Patent No. 6,296,805 (the “Patent”) in making pre-coated cold-rolled boron steel sheet and seeks injunctive relief and unspecified compensatory damages. We filed an answer denying ArcelorMittal’s claims and raised various affirmative defenses. We also filed counterclaims against ArcelorMittal for a declaratory judgment that we are not infringing the Patent and that the Patent is invalid. Subsequently, the trial court separated the issues of liability and damages. The case proceeded with a trial to a jury on the issue of liability during the week of January 15, 2011. The jury returned a verdict that we did not infringe the Patent and that the Patent was invalid. Judgment then was entered in our favor.
ArcelorMittal filed an appeal with the United States Court of Appeals for the Federal Circuit. On November 30, 2012, the court of appeals issued a decision reversing certain findings related to claim construction and the validity of the Patent and remanded the case to the trial court for further proceedings. On January 30, 2013, ArcelorMittal filed a motion for rehearing with the court of appeals. On March 20, 2013, the court of appeals denied ArcelorMittal’s motion for rehearing. The case then was remanded to the trial court for further proceedings. On April 16, 2013, according to a petition previously filed by ArcelorMittal and ArcelorMittal USA LLC, the U.S. Patent and Trademark Office (“PTO”) reissued the Patent as U.S. Reissue Patent RE44,153 (the “Reissued Patent”). Also on April 16, 2013, ArcelorMittal filed a second action against us in the United States District Court for the District of Delaware, Case Nos. 1:13-cv-00685 and 1:13-cv-00686 (collectively the “Second Action”). The complaint filed in the Second Action alleges that we are infringing the claims of the Reissued Patent and seeks injunctive relief and unspecified compensatory damages. On April 23, 2013, we filed a motion to dismiss key elements of the complaint filed in the Second Action. In addition, the parties briefed related non-infringement and claims construction issues in the original action. On October 25, 2013, the district court granted summary judgment in our favor, confirming that our product does not infringe the original Patent or the Reissued Patent. The court further ruled that ArcelorMittal’s Reissued Patent was invalid due to ArcelorMittal’s deliberate violation of a statutory prohibition on broadening a patent through reissue more than two years after the original Patent was granted and that the original Patent had been surrendered when the Reissued Patent was issued and thus is no longer in effect. Final Judgment was entered on October 31, 2013. On November 6, 2013, ArcelorMittal filed a motion to clarify or, in the alternative, to alter or amend the October 31, 2013 judgment. We opposed the motion. On December 5, 2013, the court issued a memorandum and order denying the motion and entered final judgment in our favor, and against ArcelorMittal, specifically ruling that all claims of ArcelorMittal’s Reissued Patent are invalid as violative of 35 U.S.C. §251(d). On December 30, 2013, ArcelorMittal filed notices of appeal to the Federal Circuit Court of Appeals. The appeal has been fully briefed and the court of appeals held a hearing on November 4, 2014. On May 12, 2015, the Federal Circuit issued its decision affirming in part and reversing in part the trial court’s decision and remanding the case for further proceedings. The Federal Circuit ruled that 23 of the 25 claims of the Reissued Patent were improperly broadened and therefore invalid. However, the Federal Court found that the district court erred in invalidating the remaining two claims and remanded the case for further proceedings before the district court. Following the remand, ArcelorMittal filed a motion in the trial court for leave to amend the Second Action to assert additional patent infringement claims based on another, related patent that the PTO issued on June 10, 2014, No. RE44,940 (Second Reissue Patent). It also filed a motion to dismiss the original action on the grounds that it is now moot in light of the Court of Appeals’ last ruling. We opposed both of those motions. In addition, we filed separate motions for summary judgment in the original action on the grounds of non-infringement and invalidity. A hearing on all motions was held on October 27, 2015. On December 4, 2015, the district court issued an order granting our motion for summary judgment that neither of the remaining claims of the Reissued Patent are infringed and both are invalid as obvious. The court therefore entered final judgment in favor of the defendants in the original case. In the court’s order, the judge also granted ArcelorMittal’s motion to file a first amended complaint and ArcelorMittal did file an amended complaint in Case No. 1:13-cv-00685 (“685 Action”) alleging we are infringing the claims of the Second Reissue Patent, which we deny. On December 21, 2015, ArcelorMittal filed a notice of appeal from the district court’s December 4, 2015 final judgment. That appeal is fully briefed and oral argument was held on November 1, 2016. On January 20, 2016, we filed a motion to dismiss the amended complaint in the 685 Action, or in the alternative, a motion to stay pending a resolution of the appeal in the original case. On April 19, 2016, the district court issued an order denying our motion and ordering limited discovery. Following discovery, on August 17, 2016, we filed a motion for summary judgment on the basis that the claims in the 685 Action are precluded by the judgment in the original case. On January 19, 2017, the district court issued an opinion granting summary judgment in favor of the Company in the 685 Action on the grounds of non-infringement and also entered a final judgment on that basis. On February 14, 2017, ArcelorMittal filed a notice of appeal of the district court's order in the Federal Circuit Court of Appeals. We intend to continue to contest this matter vigorously. We have not made a determination that a loss is probable and we do not have adequate information to reliably or accurately estimate potential loss if ArcelorMittal prevails in its appeal in this dispute. Because we have been unable to determine that the potential loss in this case is probable or estimable, we have not recorded an accrual for this matter. If our assumptions used to evaluate whether a loss in this matter is either probable or estimable prove to be incorrect or change, we may be required to record a liability for an adverse outcome.
As previously reported, on June 13, 2013, Cliffs Sales Company (“Cliffs”) filed an action in the United States District Court for the Northern District of Ohio, Civil Action No. 1:13 cv 1308, against us pertaining to Dearborn Works. Cliffs claims that we breached a May 21, 2008, Agreement for Sale of Reclaimed Iron Units, as amended (the “Iron Unit Agreement”). Cliffs claims that we breached the Iron Unit Agreement by failing to purchase the required amount of pellets, chips and fines as allegedly required. We filed an answer denying the material allegations of the complaint and asserting several affirmative defenses. In January of 2014, the presiding judge ordered a stay of the proceedings. We intend to contest this matter vigorously. At this time, we have not made a determination that a loss is probable and do not have adequate information to reliably or accurately estimate our potential loss if Cliffs prevails in this lawsuit. Because we have been unable to determine that a loss is probable or estimable, we have not recorded an accrual. If our assumptions used to evaluate whether a loss in this matter is either probable or estimable prove to be incorrect or change, we may be required to record a liability for an adverse outcome.
Trade Cases
Corrosion-Resistant Steel
On June 3, 2015, we, along with five other domestic producers, filed anti-dumping (“AD”) and countervailing duty (“CVD”) petitions against imports of corrosion-resistant steel (“CORE”) from China, India, Italy, South Korea and Taiwan. The petitions alleged that unfairly traded imports of CORE from those five countries are causing material injury to the domestic industry. The United States Department of Commerce (“DOC”) initiated its investigations on June 24, 2015. On May 25, 2016, the Commerce Department announced its final affirmative determinations that (a) imports of CORE from China, India, Italy, South Korea and Taiwan are being sold at less-than-fair-value and should be subject to final AD duties, and that (b) imports of CORE from China, India, Italy and South Korea are benefiting from government subsidies and should be subject to CVD duties. After correcting certain ministerial errors, the Commerce Department calculated final dumping and subsidy margins as follows:
|
|
|
|
|
|
|
|
Final
|
|
Final
|
Country
|
|
Corrosion-Resistant CVD Margins
|
|
Corrosion-Resistant AD Margins
|
China
|
|
241.07% – 39.05%
|
|
209.97%
|
India
|
|
29.49% – 8.00%
|
|
4.43% – 3.05%
|
Italy
|
|
38.51% – 0.00%
|
|
92.12% – 12.63%
|
South Korea
|
|
1.19% – 0.00%
|
|
47.80% – 8.75%
|
Taiwan
|
|
0.00%
|
|
10.34%
|
On June 24, 2016, the International Trade Commission (“ITC”) determined that the domestic steel industry is materially injured by reason of imports of CORE from China, India, Italy, South Korea and Taiwan that are sold in the United States at less than fair value and that such products are subsidized by the governments of China, India, Italy and South Korea. As a result of the Commerce Department’s and the ITC’s final determinations, importers are required to post cash deposits with the U.S. government on imports of CORE from China, India, Italy, South Korea and Taiwan at the above CVD margins and AD margins. AD and CVD measures remain in effect for a minimum of five years.
Several of the named countries have filed appeals of the final determinations on CORE with the Court of International Trade (“CIT”). We and the other domestic producers intend to oppose all appeals vigorously.
On September 23, 2016, we and other domestic producers made a filing with the Commerce Department asserting that Chinese steel producers are attempting to circumvent the AD and CVD duties discussed above by transshipping Chinese steel through Vietnam for minor processing before importing CORE into the U.S. market. Our filing requests that the Commerce Department find that imports of Vietnamese CORE that originated in China be subjected to the same AD and CVD duties of shipments of CORE imported directly from China. On November 7, 2016, the Commerce Department made a favorable determination and announced that it would initiate an investigation into imports of Vietnamese CORE. We expect the Commerce Department to complete its investigation in the second or third quarter of 2017
.
Cold-Rolled Steel
On July 28, 2015, we, along with four other domestic producers, filed AD petitions against imports of cold-rolled steel from Brazil, China, India, Japan, the Netherlands, Russia, South Korea and the United Kingdom, as well as CVD petitions against imports of cold-rolled steel from Brazil, China, India, Russia and South Korea. The petitions alleged that unfairly traded imports of cold-rolled steel from those eight countries are causing material injury to the domestic industry. On May 17, 2016, the Commerce Department announced its final affirmative determinations that (a) imports of cold-rolled steel from China and Japan are being sold at less-than-fair-value and should be subject to final AD duties and that (b) imports of cold-rolled steel from China are benefiting from government subsidies and should be subject to CVD duties. On July 21, 2016, the Commerce Department announced its final affirmative determinations that (a) imports of cold-rolled steel from Brazil, India, Russia, South Korea and the United Kingdom are being sold at less-than-fair-value and should be subject to final AD duties and that (b) imports of cold-rolled steel from Brazil, India, Russia and South Korea are benefiting from government subsidies and should be subject to CVD duties. After correcting certain ministerial errors, the Commerce Department calculated final dumping and subsidy margins as follows (the below chart does not include the margins determined for Russia because the ITC determined that the imports of cold-rolled steel are negligible, as further discussed below):
|
|
|
|
|
|
|
|
Final
|
|
Final
|
Country
|
|
Cold-Rolled CVD Margins
|
|
Cold-Rolled AD Margins
|
Brazil
|
|
11.31% – 11.09%
|
|
35.43% – 19.58%
|
China
|
|
256.44%
|
|
265.79%
|
India
|
|
10.00%
|
|
7.60%
|
Japan
|
|
NA
|
|
71.35%
|
South Korea
|
|
59.72% – 3.89%
|
|
34.33% – 6.32%
|
United Kingdom
|
|
NA
|
|
25.17% – 5.40%
|
On June 22, 2016 and September 2, 2016, the ITC announced its final determinations that the domestic steel industry is materially injured by reason of imports of cold-rolled steel from Brazil, China, India, Japan, South Korea and the United Kingdom. The ITC determined that imports of cold-rolled steel from Russia that are sold in the United States at less-than-fair-value and subsidized by the government of Russia are negligible and terminated the investigations as to Russia.
However, in October 2016, we and other domestic steel producers filed an appeal with the CIT appealing the ITC’s determination on Russian
cold-rolled steel
.
As a result of the Commerce Department’s and the ITC’s final determinations, importers are required to post cash deposits with the U.S. government on imports of cold-rolled steel from Brazil, China, India, Japan, South Korea and the United Kingdom at the above CVD margins and AD margins. AD and CVD measures remain in effect for a minimum of five years.
Several of the named countries have filed appeals of the final determinations on cold-rolled steel with the CIT. We and the other domestic producers intend to oppose all appeals vigorously.
On September 27, 2016, we and other domestic producers made a filing with the Commerce Department asserting that Chinese steel producers are attempting to circumvent the AD and CVD duties discussed above by transshipping Chinese steel through Vietnam for minor processing before importing cold-rolled steel into the U.S. market. Our filing requests that the Commerce Department find that imports of Vietnamese cold-rolled steel that originated in China be subjected to the same AD and CVD duties of shipments of cold-rolled steel imported directly from China. On November 7, 2016, the Commerce Department made a favorable determination and announced that it would initiate an investigation into Vietnamese cold-rolled steel. We expect the Commerce Department to complete its investigation in the second or third quarter of 2017.
Hot-Rolled Steel
On August 11, 2015, we, along with five other domestic producers, filed AD petitions against imports of hot-rolled steel from Australia, Brazil, Japan, the Netherlands, South Korea, Turkey and the United Kingdom, as well as CVD petitions against imports of hot-rolled steel from Brazil, South Korea and Turkey. The petitions alleged that unfairly traded imports of hot-rolled steel from those seven countries are causing material injury to the domestic industry. The Commerce Department initiated its investigations on September 1, 2015. On August 5, 2016, the Commerce Department announced its final affirmative determinations that (a) imports of hot-rolled steel from Australia, Brazil, Japan, the Netherlands, South Korea, Turkey and the United Kingdom are being sold at less-than-fair-value and should be subject to final AD duties and that (b) imports of hot-rolled steel from Brazil and South Korea are benefiting from government subsidies and should be subject to CVD duties. After correcting certain ministerial errors, the Commerce Department calculated final dumping and subsidy margins as follows:
|
|
|
|
|
|
|
|
Final
|
|
Final
|
Country
|
|
Hot-Rolled CVD Margins
|
|
Hot-Rolled AD Margins
|
Australia
|
|
NA
|
|
29.58%
|
Brazil
|
|
11.30% – 11.09%
|
|
34.28% – 33.14%
|
Japan
|
|
NA
|
|
7.51% – 4.99%
|
Netherlands
|
|
NA
|
|
3.73%
|
South Korea
|
|
58.68% – 3.89%
|
|
9.49% – 4.61%
|
Turkey
|
|
NA
|
|
6.77% – 4.15%
|
United Kingdom
|
|
NA
|
|
33.06%
|
On September 12, 2016 the ITC announced its final determinations that the domestic steel industry is materially injured by reason of imports of hot-rolled steel from
Australia, Brazil, Japan, the Netherlands, South Korea, Turkey and the United Kingdom
.
As a result of the DOC’s and the ITC’s final determinations, importers are required to post cash deposits with the U.S. government on imports of
hot-rolled steel
from Australia, Brazil, Japan, the Netherlands, South Korea, Turkey and the United Kingdom at the above CVD margins and AD margins. AD and CVD measures remain in effect for a minimum of five years.
The final determinations on hot-rolled steel have been appealed to the CIT. We and the other domestic producers intend to oppose all appeals vigorously.
Stainless Steel
On February 12, 2016, we, along with three other domestic producers, filed AD and CVD petitions against imports of stainless steel from China. The petitions allege that unfairly traded imports of stainless steel from China are causing material injury to the domestic industry. The Commerce Department initiated its investigations on March 4, 2016. On March 25, 2016, the ITC made a unanimous preliminary determination of injury to the domestic industry caused by imports of stainless steel from China. On June 23, 2016, the Commerce Department preliminarily determined that Chinese producers significantly increased their shipments of products into the U.S. market before the Commerce Department’s preliminary determination of AD and CVD duties and, as such, that
critical circumstances exist for imports of certain stainless steel from China.
On July 12, 2016, the Commerce Department preliminarily determined that imports of stainless steel from China are benefiting from unfair government subsidies and should be subject to CVD duties. On September 12, 2016, the Commerce Department also preliminarily determined that imports of stainless steel from China are being sold at less-than-fair-value and should be subject to AD duties. The Commerce Department’s critical circumstances preliminary determination also allows the Commerce Department to impose CVD duties on certain stainless steel imports from China retroactively from April 19, 2016 and AD duties retroactively from 90 days prior to the publication of the Commerce Department’s preliminary determination in the Federal Register. On February 2, 2017, the Commerce Department announced its final affirmative determinations that (a) imports of stainless steel from China (a) are being sold at less-than-fair-value and should be subject to final AD duties, and (b) are benefiting from government subsidies and should be subject to CVD duties. The Commerce Department calculated final dumping and subsidy margins as follows:
|
|
|
|
|
|
|
|
Final
|
|
Final
|
Country
|
|
Stainless CVD Margins
|
|
Stainless AD Margins
|
China
|
|
190.71% – 75.60%
|
|
76.64% – 63.86%
|
As a result of the Commerce Department’s final determinations and the ITC’s preliminary determinations, importers of stainless steel from China are required to post cash deposits with the U.S. government on imports of stainless steel from at the above CVD margins and AD margins. We expect the ITC to issue its final determination of injury by the end of the first quarter of 2017.
Grain-Oriented Electrical Steel
On September 18, 2013, we, along with another domestic producer and the United Steelworkers (collectively, the “Petitioners”), filed trade cases against imports of grain-oriented electrical steel (“GOES”) from seven countries. We filed AD petitions against China, the Czech Republic, Germany, Japan, Poland, Russia and South Korea and a CVD petition against China charging that unfairly traded imports of GOES from those seven countries are causing material injury to the domestic industry. The Commerce Department initiated the cases in October 2013. During May and July of 2014, the Commerce Department issued preliminary or final dumping determinations for imports of GOES from China, the Czech Republic, Germany, Japan, Poland, Russia and South Korea. However, in separate decisions announced in August and October of 2014, the ITC issued its final determination for imports of GOES from China, the Czech Republic, Germany, Japan, Poland, Russia and South Korea. In each of these decisions, the ITC determined in a 5-1 vote that the United States steel industry is neither materially injured nor threatened with material injury by those imports. These two ITC decisions nullified the Commerce Department’s assessment of dumping duties on GOES imports from each of the seven named countries, as well as a CVD determination for China. The Petitioners promptly filed appeals of the ITC’s decisions to the CIT. On November 23, 2016, the CIT rendered a decision denying the Petitioners’ appeal. We are continuing to assess various alternatives to ensure that foreign producers of GOES are required to comply with U.S. trade laws, including encouraging the vigorous enforcement of existing laws and regulations.
Other Contingencies
In addition to the matters discussed above, there are various pending and potential claims against us and our subsidiaries involving product liability, commercial, employee benefits and other matters arising in the ordinary course of business. Because of the considerable uncertainties which exist for any claim, it is difficult to reliably or accurately estimate what would be the amount of a loss if a claimant prevails. If material assumptions or factual understandings we rely on to evaluate exposure for these contingencies prove to be inaccurate or otherwise change, we may be required to record a liability for an adverse outcome. If, however, we have reasonably evaluated potential future liabilities for all of these contingencies, including those described more specifically above, it is
our opinion, unless we otherwise noted, that the ultimate liability from these contingencies, individually and in the aggregate, should not have a material effect on our consolidated financial position, results of operations or cash flows.
NOTE
11
- Stockholders’ Equity
Preferred Stock:
There are
25,000,000
shares of preferred stock authorized;
no
shares are issued or outstanding.
Common Stock:
Our common stockholders may 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. On September 7, 2016, our stockholders approved an amendment of our Restated Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from
300 million
to
450 million
shares.
In May 2016, AK Holding issued
59.8 million
shares of common stock at
$4.40
per share. We received net proceeds of
$249.5
after underwriting discounts and other fees. We used the net proceeds from the sale of the common stock to reduce our debt by repaying outstanding borrowings under our Credit Facility.
In November 2016, AK Holding issued
74.8 million
shares of common stock at
$4.90
per share. We received net proceeds of
$351.0
after underwriting discounts and other fees. We used the net proceeds from the sale of the common stock to reduce our debt by repaying outstanding borrowings under our Credit Facility and for general corporate purposes.
In 2014, AK Holding issued
40.3 million
shares of common stock at
$9.00
per share. Net proceeds were
$345.3
after underwriting discounts and other fees. AK Holding used the net proceeds to pay a portion of the purchase price for the acquisition of Dearborn, to repay a portion of outstanding borrowings under the Credit Facility and for general corporate purposes.
Dividends:
The instruments governing our outstanding senior debt allow dividend payments. However, our Credit Facility restricts dividend payments. Dividends are permitted if (i) availability under the Credit Facility exceeds
$337.5
or (ii) availability exceeds
$262.5
and we meet a fixed charge coverage ratio of
one to one
as of the most recently ended fiscal quarter. If we cannot meet either of these thresholds, dividends would be limited to
$12.0
annually. Currently, the availability under the Credit Facility significantly exceeds
$337.5
. Although we have elected to suspend our dividend program, there currently are no covenants that would restrict our ability to declare and pay a dividend to our stockholders.
Share Repurchase Program:
In October 2008, the Board of Directors authorized us to repurchase, from time to time, up to
$150.0
of our outstanding common stock. We have not made any common stock repurchases under this program in the last three years. As of December 31,
2016
, we had remaining
$125.6
for repurchase under the Board of Directors’ authorization.
NOTE
12
- Share-based Compensation
AK Holding’s Stock Incentive Plan (the “SIP”) permits us to grant nonqualified stock option, restricted stock, performance share and/or restricted stock unit (“RSUs”) awards to our Directors, officers and other employees. Stockholders have approved an aggregate maximum of
28 million
shares issuable under the SIP through December 31, 2019, of which approximately
8 million
shares are available for future grant as of December 31,
2016
.
Share-based compensation expense for the years ended December 31,
2016
,
2015
and
2014
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based Compensation Expense
|
|
2016
|
|
2015
|
|
2014
|
Stock options
|
|
$
|
1.0
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
Restricted stock
|
|
1.6
|
|
|
3.2
|
|
|
3.2
|
|
Restricted stock units issued to Directors
|
|
1.3
|
|
|
0.9
|
|
|
1.1
|
|
Performance shares
|
|
1.5
|
|
|
1.9
|
|
|
2.9
|
|
Pre-tax share-based compensation expense
|
|
$
|
5.4
|
|
|
$
|
7.7
|
|
|
$
|
8.9
|
|
Stock Options
Stock options have a maximum term of
ten years
and holders may not exercise them earlier than
six months
after the grant date or another term the award agreement may specify. Stock options granted to officers and other employees vest and become exercisable in three equal installments on the first, second and third anniversaries of the grant date. The exercise price of each option must equal or
exceed the market price of our common stock on the grant date. We have not and do not reprice stock options to lower the exercise price.
We use the Black-Scholes option valuation model to value the nonqualified stock options. We use historical data of stock option exercise behaviors to estimate the expected life that granted options will be outstanding. The risk-free interest rate is based on the Daily Treasury Yield Curve published by the U.S. Treasury on the grant date. The expected volatility is determined by using a blend of historical and implied volatility. The expected dividend yield is based on our historical dividend payments. We also estimate that option holders will forfeit
5%
of the options.
The following weighted-average assumptions are used in the Black-Scholes option pricing model to estimate the fair value of granted options as of the grant date:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Expected volatility
|
|
90.3% – 91.5%
|
|
67.6% – 75.9%
|
|
58.3% – 68.2%
|
Weighted-average volatility
|
|
90.7%
|
|
69.4%
|
|
62.6%
|
Expected term (in years)
|
|
3.3 – 6.7
|
|
3.1 – 6.6
|
|
3.0 – 6.5
|
Risk-free interest rate
|
|
1.2% – 1.8%
|
|
1.0% – 1.7%
|
|
0.9% – 2.3%
|
Dividend yield
|
|
—%
|
|
—%
|
|
—%
|
Weighted-average grant-date fair value per share of granted options
|
|
$1.29
|
|
$2.36
|
|
$3.50
|
Option activity for the year ended December 31,
2016
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares
|
|
Weighted- Average Exercise Price
|
|
Weighted- Average Remaining Contractual Life (in years)
|
|
Aggregate Intrinsic Value
|
Outstanding at December 31, 2015
|
|
3,303,992
|
|
|
$
|
9.26
|
|
|
|
|
|
Granted
|
|
630,040
|
|
|
1.83
|
|
|
|
|
|
Exercised
|
|
(827,688
|
)
|
|
6.68
|
|
|
|
|
|
Forfeited and expired
|
|
(330,779
|
)
|
|
11.04
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
2,775,565
|
|
|
8.12
|
|
|
5.3
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
1,430,960
|
|
|
12.61
|
|
|
3.7
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016
|
|
1,344,605
|
|
|
3.35
|
|
|
7.0
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016 expected to vest
|
|
1,277,375
|
|
|
3.35
|
|
|
7.0
|
|
—
|
|
The total intrinsic value of stock option awards that holders exercised during the year ended December 31,
2016
was
$1.4
and was not material in
2015
or
2014
. Each exercised option’s intrinsic value is the quoted average of the reported high and low sales price on the exercise date. As of December 31,
2016
, total unrecognized compensation costs for non-vested stock options were
$0.6
, which we expect to recognize over a weighted-average period of
1.5
years.
Restricted Stock
Restricted stock awards granted to officers and other employees ordinarily vest ratably on the first, second and third anniversaries of the grant. Non-vested restricted stock awards activity for the year ended December 31,
2016
, is presented below:
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
Restricted Shares
|
|
Weighted- Average Grant Date Fair Value
|
Outstanding at December 31, 2015
|
599,315
|
|
|
$
|
4.54
|
|
Granted
|
617,460
|
|
|
1.80
|
|
Vested/restrictions lapsed
|
(560,343
|
)
|
|
3.21
|
|
Canceled
|
(31,407
|
)
|
|
2.89
|
|
Outstanding at December 31, 2016
|
625,025
|
|
|
3.11
|
|
The weighted-average grant date fair value of restricted stock awards granted during the years ended December 31,
2016
,
2015
and
2014
, was
$1.80
,
$4.06
and
$6.66
per share. The total intrinsic value of restricted stock awards that vested (i.e., restrictions lapsed) during the years ended December 31,
2016
,
2015
and
2014
, was
$1.4
,
$2.9
and
$2.9
. As of December 31,
2016
, total unrecognized compensation costs for non-vested restricted stock awards granted under the SIP were
$1.0
, which we expect to recognize over a weighted-average period of
1.5 years
.
Restricted Stock Units
Restricted stock units (“RSUs”) represent equity-based compensation granted to Directors. RSU grants vest immediately, but we do not settle them (i.e., pay them) until
one year
after the grant date, unless a Director elects to defer the settlement. Directors have the option to defer their RSU settlement
six months
after their Board service is terminated and also may elect to take settlement in a single distribution or in annual installments up to
fifteen years
.
Performance Shares
Performance shares are granted to officers and other employees. They earn the awards by meeting performance measures over a
three
-year period. Though a target number of performance shares are awarded on the grant date, the total number of performance shares issued to the participant when they vest is based on two equally-rated metrics: (i) our share performance compared to a prescribed compounded annual growth rate and (ii) our total share return compared to Standard & Poor’s MidCap 400 index.
The following weighted-average assumptions are used in a Monte Carlo simulation model to estimate the fair value of performance shares granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Company expected volatility
|
|
60.8
|
%
|
|
56.4
|
%
|
|
59.1
|
%
|
S&P’s MidCap 400 index expected volatility
|
|
27.6
|
%
|
|
27.0
|
%
|
|
32.4
|
%
|
Risk-free interest rate
|
|
1.1
|
%
|
|
0.9
|
%
|
|
0.9
|
%
|
Dividend yield
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Weighted-average grant-date fair value per performance share granted
|
|
$
|
1.74
|
|
|
$
|
3.09
|
|
|
$
|
6.40
|
|
Non-vested performance share awards activity for the year ended December 31,
2016
, is presented below:
|
|
|
|
|
|
|
|
Performance Share Awards
|
Performance Shares
|
|
Weighted- Average Grant Date Fair Value
|
Outstanding at December 31, 2015
|
1,004,294
|
|
|
$
|
4.40
|
|
Granted
|
484,500
|
|
|
1.74
|
|
Earned
|
(381,701
|
)
|
|
6.40
|
|
Expired or forfeited
|
(89,237
|
)
|
|
3.35
|
|
Outstanding at December 31, 2016
|
1,017,856
|
|
|
2.48
|
|
As of December 31,
2016
, total unrecognized compensation costs for non-vested performance share awards granted under the SIP were
$1.1
, which we expect to recognize over a weighted-average period of
1.5 years
.
NOTE
13
- Comprehensive Income (Loss)
Other comprehensive income (loss), net of tax, information is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Foreign currency translation
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(2.1
|
)
|
|
$
|
1.0
|
|
|
$
|
4.7
|
|
Other comprehensive income (loss)—foreign currency translation gain (loss)
|
|
(1.5
|
)
|
|
(3.1
|
)
|
|
(3.7
|
)
|
Balance at end of period
|
|
$
|
(3.6
|
)
|
|
$
|
(2.1
|
)
|
|
$
|
1.0
|
|
Cash flow hedges
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(34.0
|
)
|
|
$
|
(32.2
|
)
|
|
$
|
18.3
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Gains (losses) arising in period
|
|
56.1
|
|
|
(64.2
|
)
|
|
(51.6
|
)
|
Income tax expense (benefit)
|
|
2.0
|
|
|
(25.2
|
)
|
|
—
|
|
Gains (losses) arising in period, net of tax
|
|
54.1
|
|
|
(39.0
|
)
|
|
(51.6
|
)
|
Reclassification of losses (gains) to net income (loss) (a)
|
|
27.2
|
|
|
61.4
|
|
|
1.1
|
|
Income tax expense (c)
|
|
0.9
|
|
|
24.2
|
|
|
—
|
|
Net amount of reclassification of losses (gains) to net income (loss)
|
|
26.3
|
|
|
37.2
|
|
|
1.1
|
|
Total other comprehensive income (loss), net of tax
|
|
80.4
|
|
|
(1.8
|
)
|
|
(50.5
|
)
|
Balance at end of period
|
|
$
|
46.4
|
|
|
$
|
(34.0
|
)
|
|
$
|
(32.2
|
)
|
Unrealized holding gains on securities
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
Reclassification of gains (losses) to net income (loss)—income tax benefit (c)
|
|
—
|
|
|
0.4
|
|
|
—
|
|
Total other comprehensive income (loss), net of tax
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
Balance at end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
Pension and OPEB plans
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(151.1
|
)
|
|
$
|
(173.6
|
)
|
|
$
|
300.0
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Prior service credit (cost) arising in period
|
|
(8.3
|
)
|
|
(7.7
|
)
|
|
10.9
|
|
Gains (losses) arising in period
|
|
11.6
|
|
|
(60.8
|
)
|
|
(422.5
|
)
|
Subtotal
|
|
3.3
|
|
|
(68.5
|
)
|
|
(411.6
|
)
|
Income tax expense (benefit) (c)
|
|
0.1
|
|
|
(26.0
|
)
|
|
—
|
|
Gains (losses) arising in period, net of tax
|
|
3.2
|
|
|
(42.5
|
)
|
|
(411.6
|
)
|
Reclassification to net income (loss):
|
|
|
|
|
|
|
Prior service costs (credits) (b)
|
|
(54.8
|
)
|
|
(60.2
|
)
|
|
(68.9
|
)
|
Actuarial (gains) losses (b)
|
|
97.9
|
|
|
165.0
|
|
|
6.9
|
|
Subtotal
|
|
43.1
|
|
|
104.8
|
|
|
(62.0
|
)
|
Income tax (expense) benefit (c)
|
|
1.5
|
|
|
39.8
|
|
|
—
|
|
Amount of reclassification to net income (loss), net of tax
|
|
41.6
|
|
|
65.0
|
|
|
(62.0
|
)
|
Total other comprehensive income (loss), net of tax
|
|
44.8
|
|
|
22.5
|
|
|
(473.6
|
)
|
Balance at end of period
|
|
$
|
(106.3
|
)
|
|
$
|
(151.1
|
)
|
|
$
|
(173.6
|
)
|
|
|
(a)
|
Included in cost of products sold
|
|
|
(b)
|
Included in pension and OPEB expense (income)
|
|
|
(c)
|
Included in income tax expense (benefit)
|
NOTE
14
- Earnings per Share
Reconciliation of the numerators and denominators for basic and diluted EPS computations is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net income (loss) attributable to AK Steel Holding Corporation
|
|
$
|
(7.8
|
)
|
|
$
|
(509.0
|
)
|
|
$
|
(96.9
|
)
|
Less: distributed earnings to common stockholders and holders of certain stock compensation awards
|
|
—
|
|
|
—
|
|
|
—
|
|
Undistributed earnings (loss)
|
|
$
|
(7.8
|
)
|
|
$
|
(509.0
|
)
|
|
$
|
(96.9
|
)
|
|
|
|
|
|
|
|
Common stockholders earnings—basic and diluted:
|
|
|
|
|
|
|
Distributed earnings to common stockholders
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Undistributed earnings (loss) to common stockholders
|
|
(7.7
|
)
|
|
(507.3
|
)
|
|
(96.6
|
)
|
Common stockholders earnings (loss)—basic and diluted
|
|
$
|
(7.7
|
)
|
|
$
|
(507.3
|
)
|
|
$
|
(96.6
|
)
|
|
|
|
|
|
|
|
Common shares outstanding (weighted-average shares in millions):
|
|
|
|
|
|
|
Common shares outstanding for basic earnings per share
|
|
230.0
|
|
|
177.2
|
|
|
148.1
|
|
Effect of exchangeable debt
|
|
—
|
|
|
—
|
|
|
—
|
|
Effect of dilutive stock-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
Common shares outstanding for diluted earnings per share
|
|
230.0
|
|
|
177.2
|
|
|
148.1
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share:
|
|
|
|
|
|
|
Distributed earnings
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Undistributed earnings (loss)
|
|
(0.03
|
)
|
|
(2.86
|
)
|
|
(0.65
|
)
|
Basic and diluted earnings (loss) per share
|
|
$
|
(0.03
|
)
|
|
$
|
(2.86
|
)
|
|
$
|
(0.65
|
)
|
|
|
|
|
|
|
|
Potentially issuable common shares (in millions) excluded from earnings per share calculation due to anti-dilutive effect
|
|
3.0
|
|
|
3.6
|
|
|
9.7
|
|
NOTE
15
- Variable Interest Entities
SunCoke Middletown
We purchase all the coke and electrical power generated from SunCoke Middletown’s plant under long-term supply agreements. SunCoke Middletown is a variable interest entity because we have committed to purchase all the expected production from the facility through at least 2031 and we are the primary beneficiary. Therefore, we consolidate SunCoke Middletown’s financial results with our financial results, even though we have
no
ownership interest in SunCoke Middletown. SunCoke Middletown had income before income taxes of
$66.0
,
$62.6
and
$63.0
for the years ended December 31,
2016
,
2015
and
2014
that was included in our consolidated income (loss) before income taxes.
Vicksmetal/Armco Associates
We own a
50%
interest in Vicksmetal/Armco Associates (“VAA”), a joint venture with Vicksmetal Company, which is owned by Sumitomo Corporation. VAA slits electrical steel primarily for AK Steel, though also for third parties. VAA is a variable interest entity and we are the primary beneficiary. Therefore, we consolidate VAA’s financial results with our financial results.
NOTE
16
- Fair Value Measurements
We measure certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, we use various valuation approaches. The hierarchy of those valuation approaches is in three levels based on
the reliability of inputs. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Below is a summary of the hierarchy levels:
|
|
•
|
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
|
|
|
•
|
Level 2 inputs are inputs, other than quoted prices, that are directly or indirectly observable for the asset or liability. Level 2 inputs include model-generated values that rely on inputs either directly observed or readily-derived from available market data sources, such as Bloomberg or other news and data vendors. They include quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic factors. As a practical expedient, we estimate the value of money market mutual funds by using a $1.00 per share multiplied by the number of shares in the fund as of the measurement date. We generate fair values for our commodity derivative contracts and foreign currency forward contracts from observable futures prices for the respective commodity or currency, from sources such as the New York Mercantile Exchange (NYMEX) or the London Metal Exchange (LME). In cases where the derivative is an option contract (including caps, floors and collars), we adjust our valuations to reflect the counterparty’s valuation assumptions. After validating that the counterparty’s assumptions for implied volatilities reflect independent source’s assumptions, we discount these model-generated future values with discount factors that reflect the counterparty’s credit quality. We apply different discount rates to different contracts since the maturities and counterparties differ. As of December 31,
2016
, a spread over benchmark rates of less than
0.8%
was used for derivatives valued as assets and less than
4.0%
for derivatives valued as liabilities. We have estimated the fair value of long-term debt based upon quoted market prices for the same or similar issues or on the current interest rates available to us for debt on similar terms and with similar maturities.
|
|
|
•
|
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. This level of categorization is not applicable to our valuations on a normal recurring basis.
|
Assets and liabilities measured at fair value on a recurring basis are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
Assets measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (a)
|
$
|
48.2
|
|
|
$
|
125.0
|
|
|
$
|
173.2
|
|
|
$
|
56.6
|
|
|
$
|
—
|
|
|
$
|
56.6
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
1.1
|
|
|
1.1
|
|
Commodity hedge contracts
|
—
|
|
|
47.0
|
|
|
47.0
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
Other non-current assets—commodity hedge contracts
|
—
|
|
|
15.3
|
|
|
15.3
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
Assets measured at fair value
|
$
|
48.2
|
|
|
$
|
187.4
|
|
|
$
|
235.6
|
|
|
$
|
56.6
|
|
|
$
|
1.9
|
|
|
$
|
58.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities—commodity hedge contracts
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
—
|
|
|
$
|
(41.2
|
)
|
|
$
|
(41.2
|
)
|
Other non-current liabilities—commodity hedge contracts
|
—
|
|
|
(0.6
|
)
|
|
(0.6
|
)
|
|
—
|
|
|
(9.5
|
)
|
|
(9.5
|
)
|
Liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(2.4
|
)
|
|
$
|
(2.4
|
)
|
|
$
|
—
|
|
|
$
|
(50.7
|
)
|
|
$
|
(50.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities measured at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portions:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
$
|
—
|
|
|
$
|
(2,123.2
|
)
|
|
$
|
(2,123.2
|
)
|
|
$
|
—
|
|
|
$
|
(1,573.3
|
)
|
|
$
|
(1,573.3
|
)
|
Carrying amount
|
—
|
|
|
(1,816.6
|
)
|
|
(1,816.6
|
)
|
|
—
|
|
|
(2,354.1
|
)
|
|
(2,354.1
|
)
|
|
|
(a)
|
Level 2 assets include money market mutual funds invested in U.S. Treasury obligations.
|
See Note
7
for information on the fair value of pension plan assets. The carrying amounts of our other financial instruments do not differ materially from their estimated fair values at December 31,
2016
and
2015
.
NOTE
17
- Derivative Instruments and Hedging Activities
Exchange rate fluctuations affect a portion of intercompany receivables that are denominated in foreign currencies, and we use forward currency contracts to reduce our exposure to certain of these currency price fluctuations. These contracts have not been designated as hedges for accounting purposes and gains or losses are reported in earnings on a current basis in other income (expense).
We are exposed to fluctuations in market prices of raw materials and energy sources, as well as from the effect of market prices on the sale of certain commodity steel (hot roll carbon steel coils). We may use cash-settled commodity price swaps and options (including collars) to hedge the market risk associated with the purchase of certain of our raw materials and energy requirements and the sale of hot roll carbon steel coils. For input commodities, these derivatives are typically used for a portion of our natural gas, nickel, iron ore, aluminum, zinc and electricity requirements. Our hedging strategy is to reduce the effect on earnings from the price volatility of these various commodity exposures. Independent of any hedging activities, price changes in any of these commodity markets could negatively affect operating costs or selling prices.
All commodity derivatives are recognized as an asset or liability at fair value. We record the effective gains and losses for commodity derivatives designated as cash flow hedges of forecasted purchases of raw materials and energy sources in accumulated other comprehensive income (loss) and reclassify them into cost of products sold in the same period we recognize earnings for the associated underlying transaction. We recognize gains and losses on these designated derivatives arising from either hedge ineffectiveness or from components excluded from the assessment of effectiveness in current earnings under cost of products sold. We record all gains or losses from derivatives for which hedge accounting treatment has not been elected to earnings on a current basis in net sales or cost of products sold. We have
no
collateral to counterparties under collateral funding arrangements as of December 31,
2016
.
Outstanding commodity price swaps and options and forward foreign exchange contracts as of December 31,
2016
and
2015
, are presented below:
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
2016
|
|
2015
|
Nickel (in lbs)
|
|
—
|
|
|
164,800
|
|
Natural gas (in MMBTUs)
|
|
43,865,000
|
|
|
36,972,500
|
|
Zinc (in lbs)
|
|
58,750,000
|
|
|
54,173,800
|
|
Iron ore (in metric tons)
|
|
2,555,000
|
|
|
2,795,000
|
|
Electricity (in MWHs)
|
|
1,578,821
|
|
|
1,386,400
|
|
Foreign exchange contracts (in euros)
|
|
€
|
5,000,000
|
|
|
€
|
55,500,000
|
|
The fair value of derivative instruments as of December 31,
2016
and
2015
, is presented below:
|
|
|
|
|
|
|
|
|
|
Asset (liability)
|
|
2016
|
|
2015
|
Derivatives designated as hedging instruments:
|
|
|
|
|
Other current assets—commodity contracts
|
|
$
|
18.5
|
|
|
$
|
0.3
|
|
Other non-current assets—commodity contracts
|
|
5.2
|
|
|
0.3
|
|
Accrued liabilities—commodity contracts
|
|
(1.8
|
)
|
|
(40.9
|
)
|
Other non-current liabilities—commodity contracts
|
|
(0.1
|
)
|
|
(9.5
|
)
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Other current assets:
|
|
|
|
|
Foreign exchange contracts
|
|
0.1
|
|
|
1.1
|
|
Commodity contracts
|
|
28.5
|
|
|
0.2
|
|
Other noncurrent assets—commodity contracts
|
|
10.1
|
|
|
—
|
|
Accrued liabilities—commodity contracts
|
|
—
|
|
|
(0.3
|
)
|
Other noncurrent liabilities—commodity contracts
|
|
(0.5
|
)
|
|
—
|
|
Gains (losses) on derivative instruments for the years ended December 31,
2016
,
2015
and
2014
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss)
|
|
2016
|
|
2015
|
|
2014
|
Derivatives in cash flow hedging relationships—
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
Reclassified from accumulated other comprehensive income into cost of products sold (effective portion)
|
|
$
|
(27.2
|
)
|
|
$
|
(61.4
|
)
|
|
$
|
(1.1
|
)
|
Recorded in cost of products sold (ineffective portion and amount excluded from effectiveness testing)
|
|
(13.3
|
)
|
|
(23.6
|
)
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Foreign exchange contracts—recognized in other income (expense)
|
|
(0.9
|
)
|
|
(0.1
|
)
|
|
1.9
|
|
Commodity contracts:
|
|
|
|
|
|
|
Recognized in net sales
|
|
—
|
|
|
2.2
|
|
|
(5.1
|
)
|
Recognized in cost of products sold
|
|
38.6
|
|
|
(2.0
|
)
|
|
(35.0
|
)
|
The termination of the pellet offtake agreement with Magnetation and entry into the Settlement Agreement will affect the future accounting treatment of certain iron ore derivatives contracts that we entered before the termination of the pellet offtake agreement and entry into the Settlement Agreement. We previously designated certain derivative contracts as cash flow hedges on a portion of the Magnetation iron ore purchases. As a result of the entry into the Settlement Agreement, we discontinued designating those derivatives contracts as hedging instruments, which potentially increases the volatility of our results of operations. This volatility does not affect the ultimate gains or losses on the derivative contracts we will recognize in the financial statements, but only the timing of recognition. Discontinuing contracts as hedging instruments requires us to immediately recognize changes in the fair value of the derivative contracts in cost of products sold when the change in fair value occurs, instead of when we recognize costs for the underlying purchases of iron ore. Therefore, we reclassified
$1.7
of gains on unsettled iron ore derivatives from accumulated other comprehensive income into cost of products sold in the third quarter of 2016 when we entered the Settlement Agreement, and we recorded
$45.6
of mark-to-market gains in 2016 for unsettled iron ore derivatives.
Gains (losses) before tax expected to be reclassified into cost of products sold within the next twelve months for our existing commodity contracts that qualify for hedge accounting, as well as the period over which we are hedging our exposure to the volatility in future cash flows, are presented below:
|
|
|
|
|
|
|
Commodity Hedge
|
Settlement Dates
|
|
Gains (losses)
|
Natural gas
|
January 2017 to December 2018
|
|
$
|
19.9
|
|
Electricity
|
January 2017 to December 2018
|
|
(0.3
|
)
|
Zinc
|
January 2017 to December 2018
|
|
4.8
|
|
NOTE
18
- Supplementary Cash Flow Information
Net cash paid (received) during the period for interest, net of capitalized interest, and income taxes are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net cash paid (received) during the period for:
|
|
|
|
|
|
|
Interest, net of capitalized interest
|
|
$
|
137.1
|
|
|
$
|
161.3
|
|
|
$
|
121.9
|
|
Income taxes
|
|
(2.6
|
)
|
|
0.7
|
|
|
(0.3
|
)
|
Included in net cash flows from operations was cash provided by SunCoke Middletown of
$83.3
,
$87.4
and
$66.4
for the years ended December 31,
2016
,
2015
and
2014
. Consolidated cash and cash equivalents at December 31,
2016
, and
2015
, include SunCoke Middletown’s cash and cash equivalents of
$5.0
and
$7.6
. SunCoke Middletown’s cash and cash equivalents have no compensating balance arrangements or legal restrictions, but is not available for our use.
We had capital investments during the years ended December 31,
2016
,
2015
and
2014
, that had not been paid as of the end of the respective period. These amounts are included in accounts payable and accrued liabilities and have been excluded from the consolidated statements of cash flows until paid. We have included our new leased Research and Innovation Center in property, plant and equipment and as a capital lease obligation in the consolidated balance sheets as of December 31, 2016, which represents a non-
cash transaction for us. We also granted restricted stock to certain employees and restricted stock units to directors under the SIP. Non-cash investing and financing activities for the years ended December 31,
2016
,
2015
and
2014
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Capital investments
|
|
$
|
33.2
|
|
|
$
|
34.4
|
|
|
$
|
29.5
|
|
Research and Innovation Center capital lease
|
|
25.2
|
|
|
—
|
|
|
—
|
|
Issuance of restricted stock and restricted stock units
|
|
2.3
|
|
|
4.1
|
|
|
4.5
|
|
NOTE
19
- Quarterly Information (Unaudited)
Earnings per share for each quarter and the year are calculated individually and may not sum to the total for the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
Net sales
|
$
|
1,518.8
|
|
|
$
|
1,492.2
|
|
|
$
|
1,452.9
|
|
|
$
|
1,418.6
|
|
|
$
|
5,882.5
|
|
Operating profit (loss)
|
48.0
|
|
|
62.6
|
|
|
130.8
|
|
|
(11.2
|
)
|
|
230.2
|
|
Net income (loss) attributable to AK Holding
|
(13.6
|
)
|
|
17.3
|
|
|
50.9
|
|
|
(62.4
|
)
|
|
(7.8
|
)
|
Basic and diluted earnings (loss) per share
|
$
|
(0.08
|
)
|
|
$
|
0.08
|
|
|
$
|
0.21
|
|
|
$
|
(0.22
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
Net sales
|
$
|
1,750.9
|
|
|
$
|
1,689.4
|
|
|
$
|
1,709.9
|
|
|
$
|
1,542.7
|
|
|
$
|
6,692.9
|
|
Operating profit (loss)
|
33.8
|
|
|
7.1
|
|
|
80.2
|
|
|
(34.4
|
)
|
|
86.7
|
|
Net income (loss) attributable to AK Holding
|
(306.3
|
)
|
|
(64.0
|
)
|
|
6.7
|
|
|
(145.4
|
)
|
|
(509.0
|
)
|
Basic and diluted earnings (loss) per share
|
$
|
(1.72
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.82
|
)
|
|
$
|
(2.86
|
)
|
Included in net income attributable to AK Holding in the fourth quarter and full year of 2016 were charges for the termination of a pellet offtake agreement with Magnetation and related transportation costs of
$69.5
, a pension corridor charge of
$78.4
, an OPEB corridor credit of
$35.3
and a pension settlement charges of
$25.0
.
Included in net income attributable to AK Holding in the first quarter and full year of 2015 was an impairment charge of
$256.3
for our investment in Magnetation. Included in the fourth quarter and full year of 2015 was an impairment charge of
$41.6
for our investment in AFSG, costs of
$28.1
for the temporary idling of the Ashland Works blast furnace and steelmaking operations, a pension corridor charge of
$144.3
and an OPEB corridor credit of
$13.1
.
NOTE
20
- Supplementary Guarantor Information
AK Steel’s Secured Notes, 2020 Notes, 2021 Notes, 2022 Notes (collectively, the “Senior Notes”) and the Exchangeable Notes are governed by indentures entered into by AK Holding and its 100%-owned subsidiary, AK Steel. Under the terms of the indentures, AK Holding and the Subsidiary Guarantors each fully and unconditionally, jointly and severally, guarantee the payment of interest, principal and premium, if any, on each of the notes included in the Senior Notes. Under the terms of the indenture for the Exchangeable Notes, AK Holding fully and unconditionally, jointly and severally, guarantees the payment of interest, principal and premium, if any, on the notes. AK Holding remains the sole guarantor of the Exchangeable Notes.
We present all investments in subsidiaries in the supplementary guarantor information using the equity method of accounting. Therefore, the net income (loss) of the subsidiaries accounted for using the equity method is in their parents’ investment accounts. The principal elimination entries eliminate investments in subsidiaries and inter-company balances and transactions. The following supplementary condensed consolidating financial statements present information about AK Holding, AK Steel, the Subsidiary Guarantors and the other non-guarantor subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Comprehensive Income (Loss)
|
Year Ended December 31, 2016
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net sales
|
$
|
—
|
|
|
$
|
5,681.0
|
|
|
$
|
250.9
|
|
|
$
|
411.5
|
|
|
$
|
(460.9
|
)
|
|
$
|
5,882.5
|
|
Cost of products sold (exclusive of items shown separately below)
|
—
|
|
|
5,005.4
|
|
|
176.1
|
|
|
299.4
|
|
|
(416.2
|
)
|
|
5,064.7
|
|
Selling and administrative expenses (exclusive of items shown separately below)
|
4.4
|
|
|
280.8
|
|
|
12.7
|
|
|
22.6
|
|
|
(43.3
|
)
|
|
277.2
|
|
Depreciation
|
—
|
|
|
187.8
|
|
|
7.0
|
|
|
21.8
|
|
|
—
|
|
|
216.6
|
|
Pension and OPEB expense (income) (exclusive of corridor charges shown below)
|
—
|
|
|
(43.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(43.8
|
)
|
Pension and OPEB net corridor charge
|
—
|
|
|
43.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43.1
|
|
Pension settlement charges
|
—
|
|
|
25.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.0
|
|
Charges for termination of pellet agreement and related transportation costs
|
—
|
|
|
69.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
69.5
|
|
Total operating costs
|
4.4
|
|
|
5,567.8
|
|
|
195.8
|
|
|
343.8
|
|
|
(459.5
|
)
|
|
5,652.3
|
|
Operating profit (loss)
|
(4.4
|
)
|
|
113.2
|
|
|
55.1
|
|
|
67.7
|
|
|
(1.4
|
)
|
|
230.2
|
|
Interest expense
|
—
|
|
|
162.3
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
163.9
|
|
Other income (expense)
|
—
|
|
|
(16.4
|
)
|
|
8.1
|
|
|
8.6
|
|
|
(5.2
|
)
|
|
(4.9
|
)
|
Income (loss) before income taxes
|
(4.4
|
)
|
|
(65.5
|
)
|
|
63.2
|
|
|
74.7
|
|
|
(6.6
|
)
|
|
61.4
|
|
Income tax expense (benefit)
|
—
|
|
|
(21.9
|
)
|
|
24.0
|
|
|
3.6
|
|
|
(2.5
|
)
|
|
3.2
|
|
Equity in net income (loss) of subsidiaries
|
(3.4
|
)
|
|
40.2
|
|
|
—
|
|
|
(0.7
|
)
|
|
(36.1
|
)
|
|
—
|
|
Net income (loss)
|
(7.8
|
)
|
|
(3.4
|
)
|
|
39.2
|
|
|
70.4
|
|
|
(40.2
|
)
|
|
58.2
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
66.0
|
|
|
—
|
|
|
66.0
|
|
Net income (loss) attributable to AK Steel Holding Corporation
|
(7.8
|
)
|
|
(3.4
|
)
|
|
39.2
|
|
|
4.4
|
|
|
(40.2
|
)
|
|
(7.8
|
)
|
Other comprehensive income (loss)
|
123.7
|
|
|
123.7
|
|
|
—
|
|
|
(1.5
|
)
|
|
(122.2
|
)
|
|
123.7
|
|
Comprehensive income (loss) attributable to AK Steel Holding Corporation
|
$
|
115.9
|
|
|
$
|
120.3
|
|
|
$
|
39.2
|
|
|
$
|
2.9
|
|
|
$
|
(162.4
|
)
|
|
$
|
115.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Comprehensive Income (Loss)
|
Year Ended December 31, 2015
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net sales
|
$
|
—
|
|
|
$
|
6,498.2
|
|
|
$
|
256.2
|
|
|
$
|
533.0
|
|
|
$
|
(594.5
|
)
|
|
$
|
6,692.9
|
|
Cost of products sold (exclusive of items shown separately below)
|
—
|
|
|
5,984.9
|
|
|
165.7
|
|
|
425.1
|
|
|
(543.7
|
)
|
|
6,032.0
|
|
Selling and administrative expenses (exclusive of items shown separately below)
|
4.9
|
|
|
270.4
|
|
|
13.1
|
|
|
22.6
|
|
|
(49.1
|
)
|
|
261.9
|
|
Depreciation
|
—
|
|
|
187.7
|
|
|
7.4
|
|
|
20.9
|
|
|
—
|
|
|
216.0
|
|
Pension and OPEB expense (income) (exclusive of corridor charges shown below)
|
—
|
|
|
(63.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63.0
|
)
|
Pension and OPEB net corridor charge
|
—
|
|
|
131.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
131.2
|
|
Charge for facility idling
|
—
|
|
|
28.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28.1
|
|
Total operating costs
|
4.9
|
|
|
6,539.3
|
|
|
186.2
|
|
|
468.6
|
|
|
(592.8
|
)
|
|
6,606.2
|
|
Operating profit (loss)
|
(4.9
|
)
|
|
(41.1
|
)
|
|
70.0
|
|
|
64.4
|
|
|
(1.7
|
)
|
|
86.7
|
|
Interest expense
|
—
|
|
|
171.0
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
173.0
|
|
Impairment of Magnetation investment
|
—
|
|
|
—
|
|
|
—
|
|
|
(256.3
|
)
|
|
—
|
|
|
(256.3
|
)
|
Impairment of AFSG investment
|
—
|
|
|
—
|
|
|
—
|
|
|
(41.6
|
)
|
|
—
|
|
|
(41.6
|
)
|
Other income (expense)
|
—
|
|
|
6.4
|
|
|
6.6
|
|
|
(11.6
|
)
|
|
—
|
|
|
1.4
|
|
Income (loss) before income taxes
|
(4.9
|
)
|
|
(205.7
|
)
|
|
76.6
|
|
|
(247.1
|
)
|
|
(1.7
|
)
|
|
(382.8
|
)
|
Income tax expense (benefit)
|
—
|
|
|
39.6
|
|
|
29.1
|
|
|
(4.6
|
)
|
|
(0.7
|
)
|
|
63.4
|
|
Equity in net income (loss) of subsidiaries
|
(504.1
|
)
|
|
(258.8
|
)
|
|
—
|
|
|
0.6
|
|
|
762.3
|
|
|
—
|
|
Net income (loss)
|
(509.0
|
)
|
|
(504.1
|
)
|
|
47.5
|
|
|
(241.9
|
)
|
|
761.3
|
|
|
(446.2
|
)
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
62.8
|
|
|
—
|
|
|
62.8
|
|
Net income (loss) attributable to AK Steel Holding Corporation
|
(509.0
|
)
|
|
(504.1
|
)
|
|
47.5
|
|
|
(304.7
|
)
|
|
761.3
|
|
|
(509.0
|
)
|
Other comprehensive income (loss)
|
17.2
|
|
|
17.2
|
|
|
—
|
|
|
(3.1
|
)
|
|
(14.1
|
)
|
|
17.2
|
|
Comprehensive income (loss) attributable to AK Steel Holding Corporation
|
$
|
(491.8
|
)
|
|
$
|
(486.9
|
)
|
|
$
|
47.5
|
|
|
$
|
(307.8
|
)
|
|
$
|
747.2
|
|
|
$
|
(491.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Comprehensive Income (Loss)
|
Year Ended December 31, 2014
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net sales
|
$
|
—
|
|
|
$
|
6,284.2
|
|
|
$
|
326.4
|
|
|
$
|
553.9
|
|
|
$
|
(658.8
|
)
|
|
$
|
6,505.7
|
|
Cost of products sold (exclusive of items shown separately below)
|
—
|
|
|
5,937.6
|
|
|
244.4
|
|
|
439.6
|
|
|
(613.9
|
)
|
|
6,007.7
|
|
Selling and administrative expenses (exclusive of items shown separately below)
|
4.6
|
|
|
251.0
|
|
|
11.9
|
|
|
27.7
|
|
|
(48.0
|
)
|
|
247.2
|
|
Depreciation
|
—
|
|
|
176.1
|
|
|
5.0
|
|
|
20.8
|
|
|
—
|
|
|
201.9
|
|
Pension and OPEB expense (income)
|
—
|
|
|
(92.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(92.5
|
)
|
Pension corridor charge
|
—
|
|
|
2.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
Total operating costs
|
4.6
|
|
|
6,274.2
|
|
|
261.3
|
|
|
488.1
|
|
|
(661.9
|
)
|
|
6,366.3
|
|
Operating profit (loss)
|
(4.6
|
)
|
|
10.0
|
|
|
65.1
|
|
|
65.8
|
|
|
3.1
|
|
|
139.4
|
|
Interest expense
|
—
|
|
|
142.1
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
144.7
|
|
Other income (expense)
|
—
|
|
|
(17.7
|
)
|
|
6.5
|
|
|
(9.9
|
)
|
|
—
|
|
|
(21.1
|
)
|
Income (loss) before income taxes
|
(4.6
|
)
|
|
(149.8
|
)
|
|
71.6
|
|
|
53.3
|
|
|
3.1
|
|
|
(26.4
|
)
|
Income tax expense (benefit)
|
—
|
|
|
(19.2
|
)
|
|
28.6
|
|
|
(2.9
|
)
|
|
1.2
|
|
|
7.7
|
|
Equity in net income (loss) of subsidiaries
|
(92.3
|
)
|
|
38.3
|
|
|
—
|
|
|
(0.7
|
)
|
|
54.7
|
|
|
—
|
|
Net income (loss)
|
(96.9
|
)
|
|
(92.3
|
)
|
|
43.0
|
|
|
55.5
|
|
|
56.6
|
|
|
(34.1
|
)
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
62.8
|
|
|
—
|
|
|
62.8
|
|
Net income (loss) attributable to AK Steel Holding Corporation
|
(96.9
|
)
|
|
(92.3
|
)
|
|
43.0
|
|
|
(7.3
|
)
|
|
56.6
|
|
|
(96.9
|
)
|
Other comprehensive income (loss)
|
(527.8
|
)
|
|
(527.8
|
)
|
|
—
|
|
|
(3.7
|
)
|
|
531.5
|
|
|
(527.8
|
)
|
Comprehensive income (loss) attributable to AK Steel Holding Corporation
|
$
|
(624.7
|
)
|
|
$
|
(620.1
|
)
|
|
$
|
43.0
|
|
|
$
|
(11.0
|
)
|
|
$
|
588.1
|
|
|
$
|
(624.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Balance Sheets
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
147.9
|
|
|
$
|
4.4
|
|
|
$
|
20.9
|
|
|
$
|
—
|
|
|
$
|
173.2
|
|
Accounts receivable, net
|
—
|
|
|
400.4
|
|
|
30.3
|
|
|
19.6
|
|
|
(8.3
|
)
|
|
442.0
|
|
Inventory, net
|
—
|
|
|
1,038.1
|
|
|
45.3
|
|
|
42.0
|
|
|
(11.5
|
)
|
|
1,113.9
|
|
Other current assets
|
—
|
|
|
91.5
|
|
|
0.2
|
|
|
2.9
|
|
|
—
|
|
|
94.6
|
|
Total current assets
|
—
|
|
|
1,677.9
|
|
|
80.2
|
|
|
85.4
|
|
|
(19.8
|
)
|
|
1,823.7
|
|
Property, plant and equipment
|
—
|
|
|
5,857.9
|
|
|
175.9
|
|
|
535.2
|
|
|
—
|
|
|
6,569.0
|
|
Accumulated depreciation
|
—
|
|
|
(4,365.8
|
)
|
|
(87.2
|
)
|
|
(101.6
|
)
|
|
—
|
|
|
(4,554.6
|
)
|
Property, plant and equipment, net
|
—
|
|
|
1,492.1
|
|
|
88.7
|
|
|
433.6
|
|
|
—
|
|
|
2,014.4
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
(3,227.1
|
)
|
|
1,406.2
|
|
|
—
|
|
|
67.5
|
|
|
1,753.4
|
|
|
—
|
|
Inter-company accounts
|
2,954.9
|
|
|
(4,041.9
|
)
|
|
1,464.0
|
|
|
(458.4
|
)
|
|
81.4
|
|
|
—
|
|
Other non-current assets
|
—
|
|
|
126.0
|
|
|
33.0
|
|
|
38.9
|
|
|
—
|
|
|
197.9
|
|
TOTAL ASSETS
|
$
|
(272.2
|
)
|
|
$
|
660.3
|
|
|
$
|
1,665.9
|
|
|
$
|
167.0
|
|
|
$
|
1,815.0
|
|
|
$
|
4,036.0
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
557.7
|
|
|
$
|
16.7
|
|
|
$
|
15.0
|
|
|
$
|
0.5
|
|
|
$
|
589.9
|
|
Accrued liabilities
|
—
|
|
|
213.7
|
|
|
7.0
|
|
|
13.4
|
|
|
—
|
|
|
234.1
|
|
Current portion of pension and other postretirement benefit obligations
|
—
|
|
|
41.0
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
41.3
|
|
Total current liabilities
|
—
|
|
|
812.4
|
|
|
23.7
|
|
|
28.7
|
|
|
0.5
|
|
|
865.3
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
—
|
|
|
1,816.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,816.6
|
|
Pension and other postretirement benefit obligations
|
—
|
|
|
1,090.4
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
|
1,093.7
|
|
Other non-current liabilities
|
—
|
|
|
146.7
|
|
|
1.6
|
|
|
0.1
|
|
|
—
|
|
|
148.4
|
|
TOTAL LIABILITIES
|
—
|
|
|
3,866.1
|
|
|
25.3
|
|
|
32.1
|
|
|
0.5
|
|
|
3,924.0
|
|
EXCHANGEABLE NOTES EXCHANGE FEATURE
|
—
|
|
|
21.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21.3
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
(272.2
|
)
|
|
(3,227.1
|
)
|
|
1,640.6
|
|
|
(228.0
|
)
|
|
1,814.5
|
|
|
(272.2
|
)
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
362.9
|
|
|
—
|
|
|
362.9
|
|
TOTAL EQUITY (DEFICIT)
|
(272.2
|
)
|
|
(3,227.1
|
)
|
|
1,640.6
|
|
|
134.9
|
|
|
1,814.5
|
|
|
90.7
|
|
TOTAL LIABILITIES AND EQUITY (DEFICIT)
|
$
|
(272.2
|
)
|
|
$
|
660.3
|
|
|
$
|
1,665.9
|
|
|
$
|
167.0
|
|
|
$
|
1,815.0
|
|
|
$
|
4,036.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Balance Sheets
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
27.0
|
|
|
$
|
5.7
|
|
|
$
|
23.9
|
|
|
$
|
—
|
|
|
$
|
56.6
|
|
Accounts receivable, net
|
—
|
|
|
411.9
|
|
|
26.3
|
|
|
29.2
|
|
|
(22.5
|
)
|
|
444.9
|
|
Inventory, net
|
—
|
|
|
1,149.6
|
|
|
39.7
|
|
|
47.0
|
|
|
(10.0
|
)
|
|
1,226.3
|
|
Other current assets
|
—
|
|
|
75.6
|
|
|
0.3
|
|
|
2.5
|
|
|
—
|
|
|
78.4
|
|
Total current assets
|
—
|
|
|
1,664.1
|
|
|
72.0
|
|
|
102.6
|
|
|
(32.5
|
)
|
|
1,806.2
|
|
Property, plant and equipment
|
—
|
|
|
5,763.8
|
|
|
168.6
|
|
|
533.6
|
|
|
—
|
|
|
6,466.0
|
|
Accumulated depreciation
|
—
|
|
|
(4,218.0
|
)
|
|
(80.3
|
)
|
|
(81.2
|
)
|
|
—
|
|
|
(4,379.5
|
)
|
Property, plant and equipment, net
|
—
|
|
|
1,545.8
|
|
|
88.3
|
|
|
452.4
|
|
|
—
|
|
|
2,086.5
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
(3,541.0
|
)
|
|
1,346.0
|
|
|
—
|
|
|
68.2
|
|
|
2,126.8
|
|
|
—
|
|
Inter-company accounts
|
2,563.4
|
|
|
(3,600.9
|
)
|
|
1,398.1
|
|
|
(453.5
|
)
|
|
92.9
|
|
|
—
|
|
Other non-current assets
|
—
|
|
|
125.6
|
|
|
33.0
|
|
|
33.1
|
|
|
—
|
|
|
191.7
|
|
TOTAL ASSETS
|
$
|
(977.6
|
)
|
|
$
|
1,080.6
|
|
|
$
|
1,591.4
|
|
|
$
|
202.8
|
|
|
$
|
2,187.2
|
|
|
$
|
4,084.4
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
669.0
|
|
|
$
|
11.7
|
|
|
$
|
23.7
|
|
|
$
|
(1.0
|
)
|
|
$
|
703.4
|
|
Accrued liabilities
|
—
|
|
|
242.3
|
|
|
6.5
|
|
|
12.7
|
|
|
—
|
|
|
261.5
|
|
Current portion of pension and other postretirement benefit obligations
|
—
|
|
|
77.3
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
77.7
|
|
Total current liabilities
|
—
|
|
|
988.6
|
|
|
18.2
|
|
|
36.8
|
|
|
(1.0
|
)
|
|
1,042.6
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
—
|
|
|
2,354.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,354.1
|
|
Pension and other postretirement benefit obligations
|
—
|
|
|
1,143.6
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
|
1,146.9
|
|
Other non-current liabilities
|
—
|
|
|
135.3
|
|
|
0.9
|
|
|
0.2
|
|
|
—
|
|
|
136.4
|
|
TOTAL LIABILITIES
|
—
|
|
|
4,621.6
|
|
|
19.1
|
|
|
40.3
|
|
|
(1.0
|
)
|
|
4,680.0
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
(977.6
|
)
|
|
(3,541.0
|
)
|
|
1,572.3
|
|
|
(219.5
|
)
|
|
2,188.2
|
|
|
(977.6
|
)
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
382.0
|
|
|
—
|
|
|
382.0
|
|
TOTAL EQUITY (DEFICIT)
|
(977.6
|
)
|
|
(3,541.0
|
)
|
|
1,572.3
|
|
|
162.5
|
|
|
2,188.2
|
|
|
(595.6
|
)
|
TOTAL LIABILITIES AND EQUITY (DEFICIT)
|
$
|
(977.6
|
)
|
|
$
|
1,080.6
|
|
|
$
|
1,591.4
|
|
|
$
|
202.8
|
|
|
$
|
2,187.2
|
|
|
$
|
4,084.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net cash flows from operating activities
|
$
|
(3.1
|
)
|
|
$
|
186.5
|
|
|
$
|
44.3
|
|
|
$
|
92.2
|
|
|
$
|
(15.3
|
)
|
|
$
|
304.6
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital investments
|
—
|
|
|
(116.0
|
)
|
|
(8.8
|
)
|
|
(2.8
|
)
|
|
—
|
|
|
(127.6
|
)
|
Other investing items, net
|
—
|
|
|
3.0
|
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
2.3
|
|
Net cash flows from investing activities
|
—
|
|
|
(113.0
|
)
|
|
(8.8
|
)
|
|
(3.5
|
)
|
|
—
|
|
|
(125.3
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under credit facility
|
—
|
|
|
(550.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(550.0
|
)
|
Proceeds from issuance of long-term debt
|
—
|
|
|
380.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
380.0
|
|
Redemption of long-term debt
|
—
|
|
|
(392.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(392.8
|
)
|
Proceeds from issuance of common stock
|
600.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
600.4
|
|
Debt issuance costs
|
—
|
|
|
(20.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20.4
|
)
|
Inter-company activity
|
(602.4
|
)
|
|
630.5
|
|
|
(36.8
|
)
|
|
(6.6
|
)
|
|
15.3
|
|
|
—
|
|
SunCoke Middletown distributions to noncontrolling interest owners
|
—
|
|
|
—
|
|
|
—
|
|
|
(85.1
|
)
|
|
—
|
|
|
(85.1
|
)
|
Other financing items, net
|
5.1
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.2
|
|
Net cash flows from financing activities
|
3.1
|
|
|
47.4
|
|
|
(36.8
|
)
|
|
(91.7
|
)
|
|
15.3
|
|
|
(62.7
|
)
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
120.9
|
|
|
(1.3
|
)
|
|
(3.0
|
)
|
|
—
|
|
|
116.6
|
|
Cash and equivalents, beginning of year
|
—
|
|
|
27.0
|
|
|
5.7
|
|
|
23.9
|
|
|
—
|
|
|
56.6
|
|
Cash and equivalents, end of year
|
$
|
—
|
|
|
$
|
147.9
|
|
|
$
|
4.4
|
|
|
$
|
20.9
|
|
|
$
|
—
|
|
|
$
|
173.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net cash flows from operating activities
|
$
|
(3.7
|
)
|
|
$
|
49.0
|
|
|
$
|
50.6
|
|
|
$
|
108.1
|
|
|
$
|
(3.7
|
)
|
|
$
|
200.3
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital investments
|
—
|
|
|
(85.0
|
)
|
|
(9.0
|
)
|
|
(5.0
|
)
|
|
—
|
|
|
(99.0
|
)
|
Proceeds from sale of equity investee
|
—
|
|
|
25.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.0
|
|
Proceeds from AFSG Holdings, Inc. distribution
|
—
|
|
|
—
|
|
|
—
|
|
|
14.0
|
|
|
—
|
|
|
14.0
|
|
Other investing items, net
|
—
|
|
|
12.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.5
|
|
Net cash flows from investing activities
|
—
|
|
|
(47.5
|
)
|
|
(9.0
|
)
|
|
9.0
|
|
|
—
|
|
|
(47.5
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under credit facility
|
—
|
|
|
(55.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55.0
|
)
|
Redemption of long-term debt
|
—
|
|
|
(14.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14.1
|
)
|
Inter-company activity
|
4.7
|
|
|
66.1
|
|
|
(40.4
|
)
|
|
(34.1
|
)
|
|
3.7
|
|
|
—
|
|
SunCoke Middletown distributions to noncontrolling interest owners
|
—
|
|
|
—
|
|
|
—
|
|
|
(96.3
|
)
|
|
—
|
|
|
(96.3
|
)
|
Other financing items, net
|
(1.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
Net cash flows from financing activities
|
3.7
|
|
|
(3.0
|
)
|
|
(40.4
|
)
|
|
(130.4
|
)
|
|
3.7
|
|
|
(166.4
|
)
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
(1.5
|
)
|
|
1.2
|
|
|
(13.3
|
)
|
|
—
|
|
|
(13.6
|
)
|
Cash and equivalents, beginning of year
|
—
|
|
|
28.5
|
|
|
4.5
|
|
|
37.2
|
|
|
—
|
|
|
70.2
|
|
Cash and equivalents, end of year
|
$
|
—
|
|
|
$
|
27.0
|
|
|
$
|
5.7
|
|
|
$
|
23.9
|
|
|
$
|
—
|
|
|
$
|
56.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net cash flows from operating activities
|
$
|
(3.4
|
)
|
|
$
|
(447.2
|
)
|
|
$
|
38.1
|
|
|
$
|
92.4
|
|
|
$
|
(2.7
|
)
|
|
$
|
(322.8
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital investments
|
—
|
|
|
(63.1
|
)
|
|
(5.3
|
)
|
|
(12.7
|
)
|
|
—
|
|
|
(81.1
|
)
|
Investments in Magnetation joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
(100.0
|
)
|
|
—
|
|
|
(100.0
|
)
|
Investments in acquired business, net of cash acquired
|
—
|
|
|
(690.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(690.3
|
)
|
Other investing items, net
|
—
|
|
|
13.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.6
|
|
Net cash flows from investing activities
|
—
|
|
|
(739.8
|
)
|
|
(5.3
|
)
|
|
(112.7
|
)
|
|
—
|
|
|
(857.8
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under credit facility
|
—
|
|
|
515.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
515.0
|
|
Proceeds from issuance of long-term debt
|
—
|
|
|
427.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
427.1
|
|
Redemption of long-term debt
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
Proceeds from issuance of common stock
|
345.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
345.3
|
|
Debt issuance costs
|
—
|
|
|
(15.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15.5
|
)
|
Inter-company activity
|
(341.0
|
)
|
|
272.9
|
|
|
(28.3
|
)
|
|
93.7
|
|
|
2.7
|
|
|
—
|
|
SunCoke Middletown distributions to noncontrolling interest owners
|
—
|
|
|
—
|
|
|
—
|
|
|
(61.0
|
)
|
|
—
|
|
|
(61.0
|
)
|
Other financing items, net
|
(0.9
|
)
|
|
—
|
|
|
—
|
|
|
(3.7
|
)
|
|
—
|
|
|
(4.6
|
)
|
Net cash flows from financing activities
|
3.4
|
|
|
1,198.7
|
|
|
(28.3
|
)
|
|
29.0
|
|
|
2.7
|
|
|
1,205.5
|
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
11.7
|
|
|
4.5
|
|
|
8.7
|
|
|
—
|
|
|
24.9
|
|
Cash and equivalents, beginning of year
|
—
|
|
|
16.8
|
|
|
—
|
|
|
28.5
|
|
|
—
|
|
|
45.3
|
|
Cash and equivalents, end of year
|
$
|
—
|
|
|
$
|
28.5
|
|
|
$
|
4.5
|
|
|
$
|
37.2
|
|
|
$
|
—
|
|
|
$
|
70.2
|
|