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—
We generate our revenue through product sales, and shipping terms generally indicate when we have fulfilled our performance obligations and passed control of products to our customer. Our revenue transactions consist of a single performance obligation to transfer promised goods. We have contracts with a substantial portion of our customers. These contracts usually define the mechanism for determining the sales price, but the contracts do not impose a specific quantity on either party. Quantities to be delivered to the customer are determined at a point near the date of delivery through purchase orders or other written instructions we receive from the customer. Spot market sales are made through purchase orders or other written instructions. We recognize revenue when we have fulfilled a performance obligation, which is typically when we have shipped products at the customer’s instructions. For sales with shipping terms that transfer title and control at the destination point, we recognize revenue when the customer receives the goods and our performance obligation is complete. For sales with shipping terms that transfer title and control at the shipping point with us bearing responsibility for freight costs to the destination, we determine that we have fulfilled a single performance obligation and recognize revenue when we ship the goods. For our tooling solutions, we record progress payments that we receive from a customer as accrued liabilities until we recognize the revenue when the customer provides written acceptance that our performance obligation has been fulfilled.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring product. We reduce the amount of revenue recognized for estimated returns and other customer credits, such as discounts and volume rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets we serve. We maintain an allowance for doubtful accounts for the loss that would be incurred if a customer is unable to pay amounts due. We initially estimate the allowance required at the time of revenue recognition based on historical experience and make changes to the allowance based on various factors, including changes in the customer’s financial condition or payment patterns. Sales taxes collected from customers are excluded from revenues.
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.
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. We estimate stock award forfeitures expected to occur to determine the compensation cost we recognize each period.
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.
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 non-forfeitable 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.
Inventory—
Inventories are valued at the lower of cost or net realizable value. We measure the cost of inventories using the average cost method. See Note
2
for information on the change to the average cost method effective January 1, 2018.
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
13 years
at the end of
2018
. 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 and Intangible Assets—
Goodwill relates to our tubular and Precision Partners’ businesses. Intangible assets are recorded at cost, and those with finite lives are amortized over their estimated useful lives. 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 businesses, the most recent annual goodwill impairment tests indicated that the fair value of each of our business reporting units 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, infrastructure and manufacturing, and distributors and converters. We had
two
customers that accounted for
11%
and
10%
of net sales in
2018
,
one
customer that accounted for
12%
of net sales in
2017
, and
two
customers that accounted for
12%
and
11%
of net sales in
2016
. Approximately
52%
and
55%
of accounts receivable outstanding at December 31,
2018
and
2017
, are due from businesses associated with the U.S. automotive industry, including
13%
of receivables due from
one
automotive customer as of
December 31, 2018
, and
18%
due from
one
automotive customer as of
December 31, 2017
.
Labor Agreements—
At December 31,
2018
, we employed approximately
9,500
people, of which approximately
5,700
are represented by labor unions under various agreements that expire between
2019 and 2021
. In March 2018, members of the International Association of Machinists and Aerospace Workers,
Local 1943
, ratified a labor agreement covering approximately
1,760
production employees at Middletown Works. The new agreement expires
March 15, 2020
. With our January 28, 2019, announcement of plans to permanently close the Ashland Works facility by the end of 2019, over the coming months we expect to engage in negotiations with the United Steelworkers,
Local 1865
, regarding the plant closure in accordance with applicable law and the terms and conditions of the labor agreement. The labor agreement, with an original expiration date of
September 1, 2018
, is by mutual agreement being extended on a rolling 60-day basis, subject to further notification of termination by either party. Other agreements that expire within the next twelve months include an agreement with the United Steelworkers,
Local 1190
, which governs approximately
230
production
employees at Mountain State Carbon LLC, is scheduled to expire on
March 1, 2019
. An agreement with the United Auto Workers,
Local 3303
, which governs approximately
1,170
production employees at Butler Works, was originally scheduled to expire on
April 1, 2019
. By mutual agreement, the labor agreement has been extended and is now scheduled to expire on
April 16, 2019
. An agreement with the United Auto Workers,
Local 4104
, which governs approximately
100
production employees at Zanesville Works, is scheduled to expire on
May 31, 2019
. An agreement with the United Auto Workers,
Local 3462
, which governs approximately
300
production employees at Coshocton Works, is scheduled to expire on
September 30, 2019
.
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
two years
, to hedge the price of a portion of our natural gas, iron ore, electricity, zinc and nickel requirements. We may designate some of these instruments as cash flow hedges and 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. The change in fair value for other instruments is immediately recorded in cost of products sold with the offset recorded as assets or liabilities.
Exchange rate fluctuations affect a portion of revenues and operating costs that are denominated in foreign currencies, and we use currency forwards and options to reduce our exposure to these currency price fluctuations. These derivative contracts are entered into with durations up to
three years
. Contracts that sell euros have not been designated as hedges for accounting purposes and gains or losses are reported in earnings immediately in other income (expense). Contracts that purchase Canadian dollars are designated as hedges for accounting purposes, which requires us to record the gains and losses for the derivatives in accumulated other comprehensive income and reclassify them into cost of products sold in the same period we recognize costs for the associated underlying operations.
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. Cash flows associated with purchasing and settling derivative contracts are classified as operating cash flows.
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.
Adoption of New Accounting Principles—
On January 1, 2018, we adopted the following new accounting principles, both of which have been applied retrospectively to all periods presented.
On January 1, 2018, we adopted Accounting Standards Update No. 2017-07,
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
. Under this standard, the service cost component of periodic pension and other postretirement benefit expense is included in cost of products sold and selling and administrative expenses, consistent with our treatment of other employee compensation costs. The remainder of periodic pension and other postretirement benefit (income) expense of
$(19.2)
,
$(71.9)
and
$16.5
for the years ended December 31, 2018, 2017 and 2016, is recorded separately in the consolidated statements of operations below operating profit. We have retrospectively applied the change in accounting principle to all periods presented. The adoption of this standard update had no other effect on our consolidated financial statements.
On January 1, 2018, we changed our accounting method for valuing inventories to the average cost method for inventories previously valued using the last-in, first-out (LIFO) method. The effects of this change in accounting principle from LIFO to average cost have been retrospectively applied to all periods presented. See Note
2
for additional information.
Other New Accounting Pronouncements Adopted—
We adopted Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, as of January 1, 2018, through the modified retrospective method applied to those contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605. There was no adjustment required to adopt Topic 606 since our revenue recognition under Topic 606 is substantially the same as under Topic 605.
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
, to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Among other amendments, the update allows entities to designate the variability in cash flows attributable to changes in a contractually specified component stated in the contract as the hedged risk in a cash flow hedge of a forecasted purchase or sale of a nonfinancial asset. We adopted the standard update effective as of January 1, 2018, and have applied the new hedge guidance for certain hedges entered since adoption. The effect of adoption of the new guidance was not significant.
In February 2018, FASB issued Accounting Standards Update 2018-02,
Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted in December 2017. We early adopted this standard update as of December 31, 2018. We elected to not reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.
Recent Accounting Pronouncements Not Yet Adopted—
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 for substantially all leases, with the exception of short-term leases, and disclose key information about leasing arrangements for certain leases. We intend to recognize and measure leases beginning at the adoption date using a modified retrospective approach. Under the modified retrospective approach, we will not adjust our comparative period financial information or make the new lease disclosures for periods before the effective date. Topic 842 is effective for us beginning January 1, 2019. The new guidance provides a number of optional practical expedients in transition and we have determined to use certain of these practical expedients. We have designed new processes and controls, cataloged and entered our leases into a recently implemented software solution and evaluated our population of leased assets to assess the effect of the new guidance on our consolidated financial statements. We currently expect that the adoption of the standard will result in a material increase to the assets and liabilities on our consolidated balance sheets, but will not have a material effect on our results of operations or cash flows. We expect adoption of the standard will result in the recognition of additional lease assets and lease liabilities between
$250.0
and
$350.0
as of January 1, 2019. The range reflects our current best estimates as we are still evaluating whether to separate lease and non-lease components for certain asset types, particularly for leases embedded within service contracts.
In June 2016, FASB issued Accounting Standards Update 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, 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 consolidated 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
Revenue
Net sales by market are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Automotive
|
$
|
4,284.7
|
|
|
$
|
3,951.5
|
|
|
$
|
3,906.8
|
|
Infrastructure and Manufacturing
|
1,049.1
|
|
|
948.0
|
|
|
936.7
|
|
Distributors and Converters
|
1,484.4
|
|
|
1,181.0
|
|
|
1,039.0
|
|
Total
|
$
|
6,818.2
|
|
|
$
|
6,080.5
|
|
|
$
|
5,882.5
|
|
Net sales by product line are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Carbon steel
|
$
|
4,409.1
|
|
|
$
|
4,034.5
|
|
|
$
|
4,014.5
|
|
Stainless and electrical steel
|
1,793.8
|
|
|
1,687.6
|
|
|
1,654.1
|
|
Tubular products, components and other
|
615.3
|
|
|
358.4
|
|
|
213.9
|
|
Total
|
$
|
6,818.2
|
|
|
$
|
6,080.5
|
|
|
$
|
5,882.5
|
|
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
$634.8
,
$627.1
and
$655.6
for
2018
,
2017
and
2016
.
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
$29.4
,
$28.1
and
$28.3
in
2018
,
2017
and
2016
.
Allowance for Doubtful Accounts
Changes in the allowance for doubtful accounts for the years ended December 31,
2018
,
2017
and
2016
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
$
|
6.8
|
|
|
$
|
7.8
|
|
|
$
|
6.0
|
|
Increase (decrease) in allowance
|
0.3
|
|
|
(1.0
|
)
|
|
2.4
|
|
Receivables written off
|
(0.5
|
)
|
|
—
|
|
|
(0.6
|
)
|
Balance at end of year
|
$
|
6.6
|
|
|
$
|
6.8
|
|
|
$
|
7.8
|
|
Inventory
Inventories as of December 31,
2018
and
2017
, consist of:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Finished and semi-finished
|
$
|
1,054.4
|
|
|
$
|
996.8
|
|
Raw materials
|
365.5
|
|
|
388.2
|
|
Inventory
|
$
|
1,419.9
|
|
|
$
|
1,385.0
|
|
Adoption of New Accounting Principle
In the first quarter of 2018, we changed our accounting method for valuing certain inventories from the LIFO method to the average cost method. This method values inventory using average costs for materials and most recent production costs for labor and overhead. We believe that using the average cost method is preferable since it improves comparability with our peers, more closely tracks the physical flow of our inventory, better matches revenue with expenses and aligns with how we internally manage our business.
The effects of the change in accounting principle from LIFO to average cost have been retrospectively applied to all periods presented. As a result of the retrospective application of the change in accounting principle, certain financial statement line items in our consolidated balance sheet as of
December 31, 2017
and our consolidated statements of operations, comprehensive income and cash flows for years ended
December 31, 2017
and
2016
were adjusted as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally Reported
|
|
Effect of Change
|
|
As Adjusted
|
Consolidated statement of operations for the year ended December 31, 2017:
|
|
|
|
|
|
Cost of products sold (a)
|
$
|
5,365.2
|
|
|
$
|
(112.1
|
)
|
|
$
|
5,253.1
|
|
Income tax expense (benefit)
|
(17.0
|
)
|
|
14.8
|
|
|
(2.2
|
)
|
Net income
|
67.6
|
|
|
97.3
|
|
|
164.9
|
|
Net income attributable to AK Steel Holding Corporation
|
6.2
|
|
|
97.3
|
|
|
103.5
|
|
Net income per share attributable to AK Steel Holding Corporation common stockholders:
|
|
|
|
|
|
Basic
|
$
|
0.02
|
|
|
$
|
0.31
|
|
|
$
|
0.33
|
|
Diluted
|
0.02
|
|
|
0.30
|
|
|
0.32
|
|
|
|
|
|
|
|
Consolidated statement of comprehensive income for the year ended December 31, 2017:
|
|
|
|
|
|
Cash flow hedges—Reclassification of losses (gains) to net income
|
$
|
(12.5
|
)
|
|
$
|
6.4
|
|
|
$
|
(6.1
|
)
|
Comprehensive income
|
91.1
|
|
|
112.3
|
|
|
203.4
|
|
Comprehensive income attributable to AK Steel Holding Corporation
|
29.7
|
|
|
112.3
|
|
|
142.0
|
|
|
|
|
|
|
|
Consolidated balance sheet as of December 31, 2017:
|
|
|
|
|
|
Inventory
|
$
|
1,147.8
|
|
|
$
|
237.2
|
|
|
$
|
1,385.0
|
|
Other non-current assets
|
169.3
|
|
|
(58.5
|
)
|
|
110.8
|
|
Other non-current liabilities
|
161.6
|
|
|
7.3
|
|
|
168.9
|
|
Accumulated deficit
|
(3,058.6
|
)
|
|
181.6
|
|
|
(2,877.0
|
)
|
Accumulated other comprehensive loss
|
(40.0
|
)
|
|
(10.2
|
)
|
|
(50.2
|
)
|
|
|
|
|
|
|
Consolidated statement of cash flows for the year ended December 31, 2017:
|
|
|
|
|
|
Net income
|
$
|
67.6
|
|
|
$
|
97.3
|
|
|
$
|
164.9
|
|
Deferred income taxes
|
(15.2
|
)
|
|
6.2
|
|
|
(9.0
|
)
|
Changes in working capital
|
1.8
|
|
|
(118.5
|
)
|
|
(116.7
|
)
|
Other operating items, net
|
5.1
|
|
|
15.0
|
|
|
20.1
|
|
|
|
|
|
|
|
Consolidated statement of operations for the year ended December 31, 2016:
|
|
|
|
|
|
Cost of products sold (a)
|
$
|
5,070.6
|
|
|
$
|
29.1
|
|
|
$
|
5,099.7
|
|
Income tax expense (benefit)
|
3.2
|
|
|
(20.1
|
)
|
|
(16.9
|
)
|
Net income
|
58.2
|
|
|
(9.0
|
)
|
|
49.2
|
|
Net income attributable to AK Steel Holding Corporation
|
(7.8
|
)
|
|
(9.0
|
)
|
|
(16.8
|
)
|
Net income per share attributable to AK Steel Holding Corporation common stockholders:
|
|
|
|
|
|
Basic
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
Diluted
|
(0.03
|
)
|
|
(0.04
|
)
|
|
(0.07
|
)
|
|
|
|
|
|
|
Consolidated statement of comprehensive income for the year ended December 31, 2016:
|
|
|
|
|
|
Cash flow hedges—Reclassification of losses (gains) to net income
|
$
|
27.2
|
|
|
$
|
11.9
|
|
|
$
|
39.1
|
|
Comprehensive income
|
181.9
|
|
|
(8.1
|
)
|
|
173.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Originally Reported
|
|
Effect of Change
|
|
As Adjusted
|
Comprehensive income attributable to AK Steel Holding Corporation
|
115.9
|
|
|
(8.1
|
)
|
|
107.8
|
|
|
|
|
|
|
|
Consolidated statement of cash flows for the year ended December 31, 2016:
|
|
|
|
|
|
Net income
|
$
|
58.2
|
|
|
$
|
(9.0
|
)
|
|
$
|
49.2
|
|
Deferred income taxes
|
5.0
|
|
|
(9.1
|
)
|
|
(4.1
|
)
|
Changes in working capital
|
112.4
|
|
|
17.2
|
|
|
129.6
|
|
Other operating items, net
|
2.1
|
|
|
0.9
|
|
|
3.0
|
|
|
|
(a)
|
Cost of products sold as originally reported reflects the change in presentation of pension and OPEB (income) expense further described in Note
1
.
|
The following table shows the effects of the change in accounting principle from LIFO to average cost as of
December 31, 2018
and for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Computed under LIFO
|
|
As Reported under Average Cost
|
|
Effect of Change
|
Consolidated statement of operations for the year ended December 31, 2018:
|
|
|
|
|
|
Cost of products sold
|
$
|
5,966.7
|
|
|
$
|
5,911.0
|
|
|
$
|
(55.7
|
)
|
Income tax expense (benefit)
|
(19.4
|
)
|
|
(6.2
|
)
|
|
13.2
|
|
Net income
|
201.6
|
|
|
244.1
|
|
|
42.5
|
|
Net income attributable to AK Steel Holding Corporation
|
143.5
|
|
|
186.0
|
|
|
42.5
|
|
Net income per share attributable to AK Steel Holding Corporation common stockholders:
|
|
|
|
|
|
Basic
|
$
|
0.46
|
|
|
$
|
0.59
|
|
|
$
|
0.13
|
|
Diluted
|
0.45
|
|
|
0.59
|
|
|
0.14
|
|
|
|
|
|
|
|
Consolidated statement of comprehensive income for the year ended December 31, 2018:
|
|
|
|
|
|
Comprehensive income
|
$
|
151.0
|
|
|
$
|
193.5
|
|
|
$
|
42.5
|
|
Comprehensive income attributable to AK Steel Holding Corporation
|
92.9
|
|
|
135.4
|
|
|
42.5
|
|
|
|
|
|
|
|
Consolidated balance sheet as of December 31, 2018:
|
|
|
|
|
|
Inventory
|
$
|
1,128.7
|
|
|
$
|
1,419.9
|
|
|
$
|
291.2
|
|
Other non-current assets
|
180.9
|
|
|
103.9
|
|
|
(77.0
|
)
|
Other non-current liabilities
|
132.0
|
|
|
134.0
|
|
|
2.0
|
|
Accumulated deficit
|
(2,915.9
|
)
|
|
(2,691.8
|
)
|
|
224.1
|
|
|
|
|
|
|
|
Consolidated statement of cash flows for the year ended December 31, 2018:
|
|
|
|
|
|
Net income
|
$
|
201.6
|
|
|
$
|
244.1
|
|
|
$
|
42.5
|
|
Deferred income taxes
|
(21.2
|
)
|
|
(8.0
|
)
|
|
13.2
|
|
Changes in working capital
|
66.7
|
|
|
12.7
|
|
|
(54.0
|
)
|
Other operating items, net
|
4.1
|
|
|
2.4
|
|
|
(1.7
|
)
|
Property, Plant and Equipment
Property, plant and equipment as of December 31,
2018
and
2017
, consist of:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Land, land improvements and leaseholds
|
$
|
272.1
|
|
|
$
|
275.3
|
|
Buildings
|
509.7
|
|
|
509.0
|
|
Machinery and equipment
|
6,061.6
|
|
|
5,958.2
|
|
Construction in progress
|
125.8
|
|
|
89.3
|
|
Total
|
6,969.2
|
|
|
6,831.8
|
|
Less accumulated depreciation
|
(5,057.6
|
)
|
|
(4,845.6
|
)
|
Property, plant and equipment, net
|
$
|
1,911.6
|
|
|
$
|
1,986.2
|
|
Interest on capital projects capitalized in
2018
,
2017
and
2016
was
$1.6
,
$1.9
and
$3.1
. Asset retirement obligations were
$8.5
and
$7.8
at December 31,
2018
and
2017
.
Goodwill and Intangible Assets
Changes in goodwill for the years ended December 31,
2018
,
2017
and
2016
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
$
|
253.8
|
|
|
$
|
32.8
|
|
|
$
|
32.8
|
|
Acquisition
|
1.2
|
|
|
221.0
|
|
|
—
|
|
Balance at end of year
|
$
|
255.0
|
|
|
$
|
253.8
|
|
|
$
|
32.8
|
|
Intangible assets at December 31,
2018
and
2017
, consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Net Amount
|
As of December 31, 2018
|
|
|
|
|
|
Customer relationships
|
$
|
36.6
|
|
|
$
|
(7.4
|
)
|
|
$
|
29.2
|
|
Technology
|
19.3
|
|
|
(4.6
|
)
|
|
14.7
|
|
Other
|
1.0
|
|
|
(1.0
|
)
|
|
—
|
|
Intangible assets
|
$
|
56.9
|
|
|
$
|
(13.0
|
)
|
|
$
|
43.9
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
Customer relationships
|
$
|
36.6
|
|
|
$
|
(2.2
|
)
|
|
$
|
34.4
|
|
Technology
|
19.3
|
|
|
(1.4
|
)
|
|
17.9
|
|
Other
|
1.0
|
|
|
(0.4
|
)
|
|
0.6
|
|
Intangible assets
|
$
|
56.9
|
|
|
$
|
(4.0
|
)
|
|
$
|
52.9
|
|
Amortization expense related to intangible assets was
$9.0
and
$4.0
in
2018
and
2017
. Amortization expense is included in costs of products sold. The remaining average life of our intangible assets is
5.6
years for customer relationships and
4.6
years for technology. Estimated annual amortization expense for intangible assets over the next five years is
$8.4
each year from
2019
through
2022
and
$7.1
in
2023
.
Other Non-current Assets
Other non-current assets as of December 31,
2018
and
2017
, consist of:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Investments in affiliates
|
$
|
80.5
|
|
|
$
|
77.5
|
|
Other
|
23.4
|
|
|
33.3
|
|
Other non-current assets
|
$
|
103.9
|
|
|
$
|
110.8
|
|
Accrued Liabilities
Accrued liabilities as of December 31,
2018
and
2017
, consist of:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Salaries, wages and benefits
|
$
|
127.8
|
|
|
$
|
101.3
|
|
Interest
|
34.8
|
|
|
35.0
|
|
Other
|
126.3
|
|
|
134.2
|
|
Accrued liabilities
|
$
|
288.9
|
|
|
$
|
270.5
|
|
Ashland Works Closure
In January 2019, our Board of Directors approved and we announced that we intend to close our Ashland Works, including the previously idled blast furnace and steelmaking operations (“Ashland Works Hot End”) and a single hot dip galvanizing coating line that had remained operational, subject to negotiations with the labor union at that facility. Factors that influenced our decision to close Ashland Works included an uncertain global trade landscape influenced by shifting domestic and international political priorities, Ashland Works’ high cost of production, and continued intense competition from domestic and foreign steel competitors. These conditions directly impact our pricing, which in turn directly impacts our assessment of the demand forecasts for the markets we serve. Despite several successful trade actions, we continue to see a high level of carbon steel imports driven by global overcapacity, particularly in China. We also have seen significant capacity restarted or new capacity additions announced in the United States. In addition, we have recently concluded that we have sufficient coating capacity to meet our customers’ needs without using our coating operations at Ashland Works. We will continue to operate the Ashland Works coating line until the end of 2019 to allow us time to complete the transition of products to our other coating lines in the U.S.
We expect to record a charge of approximately
$80.0
during the first quarter of 2019, which includes approximately
$20.0
for termination of certain take-or-pay supply agreements, approximately
$30.0
for supplemental unemployment and other employee benefit costs, an estimated multiemployer plan withdrawal liability of
$25.0
, and approximately
$5.0
for other costs. The supplemental unemployment and other employee benefit costs are expected to be paid primarily in 2020 and 2021. With respect to the
$80.0
charge, we expect to make cash payments of approximately
$15.0
in 2019,
$30.0
in 2020 and the remaining amount over several years thereafter. The actual multiemployer plan withdrawal liability will not be known until 2020 and is expected to be paid over a number of years. In addition to the
$80.0
charge recorded in the first quarter of 2019, we expect to record expenses of approximately
$14.0
over the full-year 2019, consisting of cash costs of approximately
$10.0
related to closing the facility and
$4.0
of accelerated depreciation related to the coating line fixed assets. These cash costs related to closing the facility will decline in future years and the accelerated depreciation expense will not be incurred beyond 2019. On-going costs for maintenance of the equipment, utilities and supplier obligations related to the idled Ashland Works Hot End were
$20.0
,
$21.2
, and
$22.1
for the years ended December 31,
2018
,
2017
, and
2016
.
In the fourth quarter of 2015, we temporarily idled the Ashland Works Hot End. We incurred charges of
$28.1
in the fourth quarter of 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, and the activity for the years ended December 31,
2018
,
2017
, and
2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
|
$
|
1.5
|
|
|
$
|
6.2
|
|
|
$
|
22.2
|
|
Payments
|
|
(1.5
|
)
|
|
(5.3
|
)
|
|
(20.1
|
)
|
Additions to the reserve
|
|
—
|
|
|
0.6
|
|
|
4.1
|
|
Balance at end of year
|
|
$
|
—
|
|
|
$
|
1.5
|
|
|
$
|
6.2
|
|
During 2017, we recognized a non-cash asset impairment charge of
$75.6
, primarily related to the long-lived assets associated with the Ashland Works Hot End.
NOTE
3
- Acquisition of Precision Partners
On
August 4, 2017
, we acquired PPHC Holdings, LLC (“Precision Partners”), which provides advanced-engineered solutions, tool design and build, hot- and cold-stamped steel components and complex assemblies for the automotive market. Precision Partners is headquartered in Ontario, Canada and operates
eight
plants in Ontario, Alabama and Kentucky. We acquired Precision Partners to advance our core focus on the high-growth automotive lightweighting market and our prominent position in advanced high strength
steels, further strengthen our close collaboration with automotive market customers, and leverage both companies’ research and innovation in metals forming. The consolidated financial statements reflect the effects of the acquisition and Precision Partner’s financial results beginning
August 4, 2017
. We finalized the purchase price allocation as of March 31, 2018, with an insignificant adjustment to goodwill. For the year ended
December 31, 2017
, we incurred acquisition costs of
$6.2
, primarily for transaction fees and direct costs, including legal, finance, consulting and other professional fees. These costs are included in selling and administrative expenses in the consolidated statements of operations.
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
$6.6
,
$7.0
and
$12.3
in
2018
,
2017
and
2016
for our share of income of equity investees. As of
December 31, 2018
, our carrying cost of our investment in Spartan Steel exceeded our share of the underlying equity in net assets by
$9.2
. This difference is being amortized and the amortization expense is included in cost of products sold.
Summarized financial statement data for all investees is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Revenue
|
|
$
|
329.8
|
|
|
$
|
292.7
|
|
|
$
|
286.4
|
|
Gross profit
|
|
91.0
|
|
|
88.9
|
|
|
96.3
|
|
Net income (loss)
|
|
19.4
|
|
|
20.7
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Current assets
|
|
$
|
123.6
|
|
|
$
|
115.2
|
|
Noncurrent assets
|
|
74.4
|
|
|
73.5
|
|
Current liabilities
|
|
16.9
|
|
|
16.2
|
|
Noncurrent liabilities
|
|
54.2
|
|
|
58.9
|
|
We regularly transact business with these equity investees. Transactions with all equity investees for the years indicated are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Sales to equity investees
|
$
|
104.4
|
|
|
$
|
80.6
|
|
|
$
|
69.2
|
|
Purchases from equity investees
|
31.2
|
|
|
33.0
|
|
|
213.5
|
|
Outstanding receivables and payables with all equity investees as of the end of the year indicated are presented below:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Accounts receivable from equity investees
|
$
|
1.9
|
|
|
$
|
0.7
|
|
Accounts payable to equity investees
|
6.4
|
|
|
4.1
|
|
Magnetation
In 2016, we made a cash payment (“Termination Payment”) of
$36.6
to the Chapter 11 estate of Magnetation LLC (“Magnetation”), our former joint venture, in order to terminate our iron ore pellet offtake agreement with Magnetation and cease purchasing iron ore pellets from Magnetation. In connection with the payment of the Termination Payment to the bankruptcy estate, we recognized a charge in 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. In the fourth quarter of 2017, we reached an agreement for transportation
services that provides a timeframe to begin using the rail cars that were idled after the termination of the pellet supply agreement. As a result, we recorded a credit of
$19.3
during the fourth quarter of 2017 to reduce the unpaid liability.
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,
2018
,
2017
and
2016
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
United States
|
$
|
168.3
|
|
|
$
|
91.6
|
|
|
$
|
(40.4
|
)
|
Foreign
|
11.5
|
|
|
9.7
|
|
|
6.7
|
|
Noncontrolling interests
|
58.1
|
|
|
61.4
|
|
|
66.0
|
|
Income before income taxes
|
$
|
237.9
|
|
|
$
|
162.7
|
|
|
$
|
32.3
|
|
Significant components of deferred tax assets and liabilities at December 31,
2018
and
2017
are presented below:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
Net operating and capital loss and tax credit carryforwards
|
$
|
516.7
|
|
|
$
|
619.5
|
|
Postretirement benefits
|
81.8
|
|
|
92.5
|
|
Pension benefits
|
114.1
|
|
|
117.5
|
|
Inventories
|
38.5
|
|
|
47.9
|
|
Other assets
|
65.1
|
|
|
71.6
|
|
Valuation allowance
|
(693.5
|
)
|
|
(735.7
|
)
|
Total deferred tax assets
|
122.7
|
|
|
213.3
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Depreciable assets
|
(108.3
|
)
|
|
(121.9
|
)
|
Other liabilities
|
(33.4
|
)
|
|
(118.3
|
)
|
Total deferred tax liabilities
|
(141.7
|
)
|
|
(240.2
|
)
|
Net deferred tax liabilities
|
$
|
(19.0
|
)
|
|
$
|
(26.9
|
)
|
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. At December 31, 2018, we considered the existence of recent cumulative income from U.S. operations as a source of positive evidence. We have generated losses from U.S. operations for several of our recent periods through 2016 and accordingly have generated significant cumulative losses in those periods, which is a significant source of objective negative evidence. Despite the recent income reported in 2017 and 2018 from U.S. operations, the following forms of negative evidence concerning our ability to realize our domestic deferred tax assets were considered:
|
|
•
|
we have historical evidence that the steel industry we operate within has business cycles of longer than a few years and therefore attribute significant weight to our cumulative losses over longer business cycles in evaluating our ability to generate future taxable income;
|
|
|
•
|
the global steel industry has been experiencing global overcapacity and periods of increased foreign steel imports into the U.S., which have created volatile economic conditions and uncertainty relative to predictions of future income;
|
|
|
•
|
while we have changed our business model to de-emphasize sales of commodity products and believe that this model will generate improved financial results throughout an industry cycle, we have not experienced all parts of the cycle since we made these changes and therefore we do not know what results our business model will produce in all circumstances;
|
|
|
•
|
our U.S. operations have generated significant losses in prior years and the competitive landscape in the steel industry reflects shifting domestic and international political priorities, an uncertain global trade landscape, and continued intense competition from domestic and foreign steel competitors, all of which present significant uncertainty regarding our ability to routinely generate U.S. income in the near term;
|
|
|
•
|
there has been significant recent volatility in spot market selling prices for carbon steel; and
|
|
|
•
|
a substantial portion of our U.S. deferred tax assets consists of tax carryforwards with expiration dates that may prevent us from using them prior to expiration.
|
As of December 31,
2018
and
2017
, we concluded that the negative evidence outweighed the positive evidence and we maintained a valuation allowance for our net deferred tax assets in the U.S. To determine the appropriate valuation allowance, we considered the timing of future reversal of our taxable temporary differences 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,
2018
,
2017
and
2016
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
$
|
735.7
|
|
|
$
|
1,189.7
|
|
|
$
|
1,232.3
|
|
Change in valuation allowance:
|
|
|
|
|
|
Included in income tax expense (benefit)
|
(52.8
|
)
|
|
(62.3
|
)
|
|
11.0
|
|
Change in deferred assets in other comprehensive income
|
10.6
|
|
|
8.5
|
|
|
(53.6
|
)
|
Effect of tax rate changes
|
—
|
|
|
(400.2
|
)
|
|
—
|
|
Balance at end of year
|
$
|
693.5
|
|
|
$
|
735.7
|
|
|
$
|
1,189.7
|
|
At
December 31, 2018
, we had
$2,174.0
in federal regular net operating loss carryforwards, which will expire between
2030
and
2037
. Our net operating loss carryovers generated through 2017 retain the original 20-year carryover periods and can be used to offset future taxable income without limitation. At December 31,
2018
, we had research and development (“R&D”) credit carryforwards of
$1.2
that we may use to offset future income tax liabilities. The R&D credits expire between
2027
and
2028
. At
December 31, 2018
, we had
$89.2
in deferred tax assets for state net operating loss carryforwards and tax credit carryforwards, before considering valuation allowances, which will expire between
2018
and
2038
.
Significant components of income tax expense (benefit) are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(0.5
|
)
|
|
$
|
(4.5
|
)
|
|
$
|
(3.7
|
)
|
State
|
(0.3
|
)
|
|
0.3
|
|
|
0.2
|
|
Foreign
|
2.1
|
|
|
2.4
|
|
|
1.7
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
(5.3
|
)
|
|
0.7
|
|
|
15.1
|
|
State
|
—
|
|
|
0.1
|
|
|
1.4
|
|
Foreign
|
(2.2
|
)
|
|
(0.4
|
)
|
|
—
|
|
Benefits of operating loss carryforwards
|
—
|
|
|
—
|
|
|
(16.1
|
)
|
Amount allocated to other comprehensive income
|
—
|
|
|
—
|
|
|
(15.5
|
)
|
Change in valuation allowance on beginning-of-the-year deferred tax assets
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
Income tax expense (benefit)
|
$
|
(6.2
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(16.9
|
)
|
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”), signed into law on December 22, 2017, reduced the corporate income tax rate to
21%
beginning in 2018, among other provisions. We recognized the effects of changes in tax rates and laws on deferred tax balances in 2017, the period in which the legislation was enacted. At December 31, 2017, we remeasured our deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, which is generally
21%
at the U.S. federal level. As a result, our income tax expense for the fourth quarter of 2017 included a non-cash credit of
$4.3
for the decrease in the value of our net deferred tax liabilities.
The Tax Act also introduced a one-time transition tax on the cumulative undistributed earnings of our foreign subsidiaries as of December 31, 2017. As a result, our taxable income for 2017 included
$24.3
as our gross transition tax obligation. We did not incur a cash tax liability for the transition tax due to the availability of existing net operating loss carryforwards. At December 31, 2018 we had
$7.3
of accumulated undistributed earnings of our foreign subsidiaries that has not been subject to U.S. income tax as they are considered indefinitely reinvested. Substantially all of the earnings as of December 31, 2017 were subject to U.S. taxation as a result of the transition tax inclusion provided for by the Tax Act. The Tax Act also establishes a broad exemption from U.S. taxation for dividends paid from our foreign affiliates after 2017. Consequently, there will generally be no incremental U.S. taxable income generated if we repatriate these foreign earnings in the future. However, foreign withholding taxes on dividend distributions could
apply, unless they are eliminated by a treaty between the United States and the country where our foreign affiliate is located. Since we consider these earnings to be permanently invested in our foreign subsidiaries, we did not record any withholding taxes that would be assessed if the earnings were repatriated by payment of a dividend. If we repatriated the earnings, we estimate that the withholding tax liability would not be material at December 31, 2018.
Staff Accounting Bulletin No. 118 established a one-year period from the date of enactment in which to account for the impact of the Tax Act. During the quarter ended March 31, 2018, we reduced our valuation allowance and recorded an income tax benefit of
$5.3
as a result of changes to the tax net operating carryover rules included in the Tax Act that allow us to use certain indefinite-lived deferred tax liabilities as a source of future income to realize deferred tax assets. As of December 31, 2018, we have accounted for the material aspects of the Tax Act.
The reconciliation of income tax on income before income taxes computed at the U.S. federal statutory tax rates to actual income tax expense is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Income tax expense at U.S. federal statutory rate
|
$
|
50.0
|
|
|
$
|
57.2
|
|
|
$
|
11.3
|
|
Income tax expense calculated on noncontrolling interests
|
(12.2
|
)
|
|
(21.5
|
)
|
|
(23.1
|
)
|
State and foreign tax expense, net of federal tax
|
(2.3
|
)
|
|
6.3
|
|
|
0.2
|
|
Increase (decrease) in deferred tax asset valuation allowance
|
(52.8
|
)
|
|
(51.8
|
)
|
|
11.0
|
|
Amount allocated to other comprehensive income
|
—
|
|
|
—
|
|
|
(15.5
|
)
|
Remeasurement of deferred taxes for U.S. tax legislation
|
—
|
|
|
(4.3
|
)
|
|
—
|
|
Transition tax on foreign earnings
|
—
|
|
|
7.9
|
|
|
—
|
|
Non-deductible compensation
|
8.1
|
|
|
—
|
|
|
—
|
|
Other differences
|
3.0
|
|
|
4.0
|
|
|
(0.8
|
)
|
Income tax expense (benefit)
|
$
|
(6.2
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(16.9
|
)
|
Our federal, state and local tax returns are subject to examination by various taxing authorities. Federal returns for periods beginning in
2015
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,
2018
.
A reconciliation of the change in unrecognized tax benefits for
2018
,
2017
and
2016
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
$
|
89.4
|
|
|
$
|
124.2
|
|
|
$
|
130.3
|
|
Decreases for prior year tax positions
|
(2.2
|
)
|
|
(0.5
|
)
|
|
(4.5
|
)
|
Increases (decreases) for current year tax positions
|
—
|
|
|
0.3
|
|
|
(1.6
|
)
|
Increases (decreases) related to tax rate changes (a)
|
—
|
|
|
(34.6
|
)
|
|
—
|
|
Balance at end of year
|
$
|
87.2
|
|
|
$
|
89.4
|
|
|
$
|
124.2
|
|
|
|
(a)
|
As a result of the Tax Act, the value of unrecognized tax benefits associated with NOL carryforwards and other temporary differences was reduced to reflect the lower tax rates that will apply if the uncertainties related to these deferred tax assets materialize in the future.
|
Included in the balance of unrecognized tax benefits at December 31,
2018
and
2017
, are
$72.8
and
$75.0
of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits at December 31,
2018
and
2017
, are
$14.5
and
$14.4
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,
2018
and
2017
, are presented below:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Credit Facility
|
$
|
335.0
|
|
|
$
|
450.0
|
|
7.50% Senior Secured Notes due July 2023 (effective rate of 8.3%)
|
380.0
|
|
|
380.0
|
|
5.00% Exchangeable Senior Notes due November 2019 (effective rate of 10.8%)
|
148.5
|
|
|
150.0
|
|
7.625% Senior Notes due October 2021
|
406.2
|
|
|
406.2
|
|
6.375% Senior Notes due October 2025 (effective rate of 7.1%)
|
274.8
|
|
|
280.0
|
|
7.00% Senior Notes due March 2027
|
391.6
|
|
|
400.0
|
|
Industrial Revenue Bonds due 2020 through 2028
|
99.3
|
|
|
99.3
|
|
Unamortized debt discount and issuance costs
|
(41.7
|
)
|
|
(55.4
|
)
|
Total long-term debt
|
$
|
1,993.7
|
|
|
$
|
2,110.1
|
|
During
2018
, we were in compliance with all the terms and conditions of our debt agreements.
Maturities of long-term debt for the next five years, at December 31,
2018
, are presented below:
|
|
|
|
|
|
|
Year
|
|
|
Debt Maturities
|
2019
|
(a)
|
|
$
|
148.5
|
|
2020
|
|
|
7.3
|
|
2021
|
|
|
406.2
|
|
2022
|
|
|
335.0
|
|
2023
|
|
|
380.0
|
|
|
|
(a)
|
Amounts maturing in
2019
are classified as long-term based on our ability and intent to refinance on a long-term basis.
|
Credit Facility
We have a
$1,350.0
revolving credit facility (the “Credit Facility”) that expires in
September 2022
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 LLC (“Mountain State Carbon”), three 100%-owned subsidiaries of AK Steel (referred to together as the “Subsidiary Guarantors”). The Credit Facility contains customary restrictions, including limitations on, among other things, distributions and dividends, acquisitions and investments, dispositions, 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
$135.0
. The Credit Facility’s current availability significantly exceeds
$135.0
. Availability is calculated as the lesser of the Credit Facility commitments 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 “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,
2018
, our aggregate borrowing base, after application of applicable advance rates, was
$1,350.0
. As of December 31,
2018
, we had
$335.0
in outstanding borrowings. Availability as of December 31,
2018
was further reduced by
$73.2
for outstanding letters of credit, resulting in remaining availability of
$941.8
. The weighted-average interest rate on the outstanding borrowings at December 31,
2018
was
4.10%
.
Senior Secured Notes
AK Steel has outstanding
7.50%
Senior Secured Notes due
July 2023
(the “Secured Notes”). 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 from them. The book value of the collateral as of December 31,
2018
was approximately
$1.4 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 we issued the Secured Notes in 2016, we repurchased then outstanding senior secured notes and recognized other expense of
$12.4
for expenses related to the debt retirement in 2016.
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. The triggering condition was not met as of January 1, 2019 nor January 1, 2018. The triggering condition is 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. 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.
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
27.5 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. 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
37.1 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,
2018
and
2017
, the net carrying amount of the Exchangeable Notes was
$141.4
and
$135.3
. During 2018, we repurchased an aggregate principal amount of
$1.5
of the Exchangeable Notes in private, open market transactions.
Senior Unsecured Notes
AK Steel has outstanding
7.625%
Senior Notes due
October 2021
(the “2021 Notes”). We may redeem the 2021 Notes at
101.906%
until October 1, 2019 and
100.0%
thereafter, together with all accrued and unpaid interest to the date of redemption.
AK Steel has outstanding
6.375%
Senior Unsecured Notes due
October 2025
(the “2025 Notes”). Before October 15, 2020, we may redeem the 2025 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, we may redeem them at
103.188%
until October 15, 2021,
101.594%
thereafter until October 15, 2022, and
100.000%
thereafter, together with all accrued and unpaid interest to the date of redemption. In 2017, we recognized other expense of
$8.4
related to the issuance of the 2025 Notes. During 2018, we repurchased an aggregate principal amount of
$5.2
of the 2025 Notes in private, open market transactions. We recognized a net gain on the repurchases totaling
$0.7
for the year ended December 31, 2018, which is included in other (income) expense.
AK Steel has outstanding
7.00%
Senior Unsecured Notes due
March 2027
(the “2027 Notes”). Before March 15, 2022, we may redeem the 2027 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, we may redeem them at
103.500%
until March 15, 2023,
102.333%
thereafter until March 15, 2024,
101.167%
thereafter until March 15, 2025, and
100.000%
thereafter, together with all accrued and unpaid interest to the date of redemption. In 2017, we recognized other expense of
$13.1
related to the issuance of the 2027 Notes. During 2018, we repurchased an aggregate principal amount of
$8.4
of the 2027 Notes in private, open market transactions. We recognized a net gain on the repurchases totaling
$1.3
for the year ended December 31, 2018, which is included in other (income) expense.
The Exchangeable Notes, the 2021 Notes, the 2025 Notes, the 2027 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 2021 Notes, the 2025 Notes, the 2027 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.
Industrial Revenue Bonds
AK Steel has outstanding
$73.3
aggregate principal amount of fixed-rate, tax-exempt IRBs (the “unsecured IRBs”) at December 31,
2018
. 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,
2018
, that are backed by letters of credit.
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 sponsor, as well as multiemployer plans for certain union members. Our defined benefit pension plans are not fully funded. We will be required to make pension contributions of approximately
$45.0
for
2019
. Based on current actuarial assumptions, we expect to make required pension contributions of approximately
$50.0
for
2020
and
$50.0
for
2021
. 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
$37.5
in
2019
.
Defined Benefit Plans
Plan Obligations
Amounts presented below are calculated based on benefit obligation and asset valuation measurement dates of December 31,
2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year
|
$
|
2,808.0
|
|
|
$
|
2,874.8
|
|
|
$
|
448.5
|
|
|
$
|
443.7
|
|
Service cost
|
3.2
|
|
|
2.8
|
|
|
4.5
|
|
|
4.7
|
|
Interest cost
|
94.5
|
|
|
108.2
|
|
|
15.6
|
|
|
17.3
|
|
Plan participants’ contributions
|
—
|
|
|
—
|
|
|
24.7
|
|
|
23.3
|
|
Actuarial loss (gain)
|
(148.8
|
)
|
|
91.0
|
|
|
(23.7
|
)
|
|
27.1
|
|
Amendments
|
—
|
|
|
—
|
|
|
(11.1
|
)
|
|
(4.7
|
)
|
Benefits paid
|
(268.1
|
)
|
|
(269.0
|
)
|
|
(62.6
|
)
|
|
(65.5
|
)
|
Annuity settlement
|
(278.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Medicare subsidy reimbursement received
|
—
|
|
|
—
|
|
|
2.3
|
|
|
2.6
|
|
Foreign currency exchange rate changes
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
Benefit obligations at end of year
|
$
|
2,210.0
|
|
|
$
|
2,808.0
|
|
|
$
|
398.2
|
|
|
$
|
448.5
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
2,322.2
|
|
|
$
|
2,183.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual gain (loss) on plan assets
|
(87.0
|
)
|
|
362.4
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
51.3
|
|
|
45.3
|
|
|
35.6
|
|
|
39.6
|
|
Plan participants’ contributions
|
—
|
|
|
—
|
|
|
24.7
|
|
|
23.3
|
|
Benefits paid
|
(268.1
|
)
|
|
(269.0
|
)
|
|
(62.6
|
)
|
|
(65.5
|
)
|
Annuity settlement
|
(278.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Medicare subsidy reimbursement received
|
—
|
|
|
—
|
|
|
2.3
|
|
|
2.6
|
|
Fair value of plan assets at end of year
|
$
|
1,739.6
|
|
|
$
|
2,322.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status
|
$
|
(470.4
|
)
|
|
$
|
(485.8
|
)
|
|
$
|
(398.2
|
)
|
|
$
|
(448.5
|
)
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
(1.2
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
(37.5
|
)
|
|
$
|
(38.8
|
)
|
Noncurrent liabilities
|
(469.2
|
)
|
|
(484.5
|
)
|
|
(360.7
|
)
|
|
(409.7
|
)
|
Total
|
$
|
(470.4
|
)
|
|
$
|
(485.8
|
)
|
|
$
|
(398.2
|
)
|
|
$
|
(448.5
|
)
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss, before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
$
|
134.1
|
|
|
$
|
77.6
|
|
|
$
|
(35.4
|
)
|
|
$
|
(13.0
|
)
|
Prior service cost (credit)
|
19.4
|
|
|
23.2
|
|
|
(82.4
|
)
|
|
(84.9
|
)
|
Total
|
$
|
153.5
|
|
|
$
|
100.8
|
|
|
$
|
(117.8
|
)
|
|
$
|
(97.9
|
)
|
The accumulated benefit obligation for all defined benefit pension plans was
$2,188.6
and
$2,767.1
at December 31,
2018
and
2017
. All our defined benefit 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 fourth quarter of 2018, we transferred to a highly rated insurance company
$278.8
of pension obligations for approximately
5,400
retirees or their beneficiaries. As part of this transaction, we transferred a similar amount of pension trust assets to purchase a non-participating annuity contract that requires the insurance company to pay the transferred pension obligations to the
pension participants. As a result of the transfer of pension assets in October 2018, we recorded a settlement loss of
$14.5
in the fourth quarter of 2018 to recognize a portion of the unrealized actuarial loss associated with the transferred obligations.
The
2018
change in the actuarial loss (gain) for the pension plans in the table above primarily consisted of a loss of
$235.8
for actual pension asset return less than expected, partially offset by a gain of
$154.6
for the increase in discount rate used to value the benefit obligations. The
2018
change in the actuarial loss (gain) for the OPEB plan in the table above primarily consisted of a gain of
$27.7
for the increase in discount rate used to value the benefit obligations.
Assumptions used to value benefit obligations and determine pension and OPEB (income) expense are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Assumptions used to determine benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.22
|
%
|
|
3.54
|
%
|
|
3.93
|
%
|
|
4.27
|
%
|
|
3.59
|
%
|
|
4.04
|
%
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
|
|
|
|
|
Interest crediting rate
|
3.80
|
%
|
|
3.80
|
%
|
|
3.80
|
%
|
|
|
|
|
|
|
Subsequent year healthcare cost trend rate
|
|
|
|
|
|
|
6.50
|
%
|
|
6.65
|
%
|
|
7.00
|
%
|
Ultimate healthcare cost trend rate
|
|
|
|
|
|
|
4.50
|
%
|
|
4.50
|
%
|
|
4.50
|
%
|
Year ultimate healthcare cost trend rate begins
|
|
|
|
|
|
|
2025
|
|
|
2025
|
|
|
2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine pension and OPEB (income) expense for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.69
|
%
|
|
3.93
|
%
|
|
3.95
|
%
|
|
3.59
|
%
|
|
4.04
|
%
|
|
4.22
|
%
|
Expected return on plan assets
|
7.00
|
%
|
|
7.25
|
%
|
|
7.25
|
%
|
|
|
|
|
|
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
|
|
|
|
|
Interest crediting rate
|
3.80
|
%
|
|
3.80
|
%
|
|
4.30
|
%
|
|
|
|
|
|
|
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. We changed our assumption for future expected returns on pension plan assets to
6.75%
from
7.00%
, effective January 1, 2019.
Estimated future benefit payments to beneficiaries are presented below:
|
|
|
|
|
|
|
|
|
|
Pension
Plans
|
|
Other
Benefits
|
2019
|
$
|
216.5
|
|
|
$
|
37.5
|
|
2020
|
211.2
|
|
|
35.6
|
|
2021
|
198.9
|
|
|
33.8
|
|
2022
|
196.0
|
|
|
32.2
|
|
2023
|
180.6
|
|
|
30.6
|
|
2024 through 2028
|
835.3
|
|
|
133.4
|
|
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 that considers liquidity requirements, expected investment return, funded status and expected asset risk, as well as standard industry practices. The target asset allocation for the master pension trust at December 31,
2018
was
40%
equity and
60%
fixed income. Equity investments consist of individual securities, equity mutual funds and common/collective
trusts with equity investment strategies, which are diversified across multiple industry sectors, company market capitalizations and geographical investment strategies. The equity mutual funds and common/collective trusts have no unfunded commitments or significant 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 master pension trust has no direct investments in our common stock or fixed-income securities.
Master pension trust investments measured at fair value on a recurring basis at December 31,
2018
and
2017
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 and equity mutual funds 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. 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
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Investments in fair value hierarchy
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. securities
|
|
$
|
35.4
|
|
|
$
|
46.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35.4
|
|
|
$
|
46.6
|
|
Global securities
|
|
—
|
|
|
—
|
|
|
131.4
|
|
|
327.9
|
|
|
131.4
|
|
|
327.9
|
|
Fixed-income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High-yield U.S. securities
|
|
—
|
|
|
—
|
|
|
84.5
|
|
|
111.8
|
|
|
84.5
|
|
|
111.8
|
|
Other U.S. securities
|
|
—
|
|
|
—
|
|
|
700.8
|
|
|
524.6
|
|
|
700.8
|
|
|
524.6
|
|
Global securities
|
|
—
|
|
|
—
|
|
|
82.8
|
|
|
—
|
|
|
82.8
|
|
|
—
|
|
Other investments
|
|
—
|
|
|
—
|
|
|
78.0
|
|
|
30.6
|
|
|
78.0
|
|
|
30.6
|
|
Total pension investments in fair value hierarchy
|
|
$
|
35.4
|
|
|
$
|
46.6
|
|
|
$
|
1,077.5
|
|
|
$
|
994.9
|
|
|
$
|
1,112.9
|
|
|
$
|
1,041.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments with fair values measured at net asset value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common/collective trusts:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. equity securities (a)
|
|
|
|
|
|
|
|
|
|
355.8
|
|
|
194.6
|
|
Global equity securities (a)
|
|
|
|
|
|
|
|
|
|
178.2
|
|
|
707.0
|
|
U.S. corporate fixed-income securities (b)
|
|
|
|
|
|
|
|
|
|
—
|
|
|
379.1
|
|
Global fixed-income securities (b)
|
|
|
|
|
|
|
|
|
|
92.7
|
|
|
—
|
|
Total pension assets at fair value
|
|
|
|
|
|
|
|
|
|
$
|
1,739.6
|
|
|
$
|
2,322.2
|
|
|
|
(a)
|
Investments may include common stocks, options and futures.
|
|
|
(b)
|
Investments may include investment-grade and high-yield corporate bonds, interest rate swaps, options and futures.
|
Periodic Benefit Costs
Components of pension and OPEB (income) expense for the years
2018
,
2017
and
2016
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Components of pension and OPEB (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
3.2
|
|
|
$
|
2.8
|
|
|
$
|
3.0
|
|
|
$
|
4.5
|
|
|
$
|
4.7
|
|
|
$
|
4.9
|
|
Interest cost
|
94.5
|
|
|
108.2
|
|
|
120.4
|
|
|
15.6
|
|
|
17.3
|
|
|
19.9
|
|
Expected return on plan assets
|
(148.8
|
)
|
|
(149.9
|
)
|
|
(167.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost (credit)
|
3.8
|
|
|
4.7
|
|
|
5.6
|
|
|
(13.6
|
)
|
|
(58.5
|
)
|
|
(60.4
|
)
|
Recognized net actuarial loss (gain):
|
|
|
|
|
|
|
|
|
|
|
|
Annual amortization
|
16.1
|
|
|
10.5
|
|
|
29.2
|
|
|
(1.3
|
)
|
|
(4.2
|
)
|
|
(4.3
|
)
|
Corridor charge (credit)
|
—
|
|
|
—
|
|
|
78.4
|
|
|
—
|
|
|
—
|
|
|
(35.3
|
)
|
Settlement loss
|
14.5
|
|
|
—
|
|
|
29.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Pension and OPEB (income) expense
|
$
|
(16.7
|
)
|
|
$
|
(23.7
|
)
|
|
$
|
99.4
|
|
|
$
|
5.2
|
|
|
$
|
(40.7
|
)
|
|
$
|
(75.2
|
)
|
In 2016, we recognized settlement losses of
$25.0
as a result of two transactions to purchase non-participating annuities from an insurance company. Also during 2016, we recognized a settlement loss as a result of lump sum benefit payments made to retired participants under an unfunded supplemental retirement plan.
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
$31.1
,
$24.9
and
$23.1
in
2018
,
2017
and
2016
.
Multiemployer Pension 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 pension 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 multiemployer 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.
|
We are a party to a collective bargaining agreement at Ashland Works that requires contributions to the Steelworkers Pension Trust multiemployer pension plan. We expect to incur an estimated withdrawal liability of
$25.0
in the first quarter of 2019 as a result of the closure of that facility. The actual withdrawal liability will not be known until 2020. See Note
2
for further information.
Our participation in these multiemployer plans for the years ended December 31,
2018
,
2017
and
2016
, 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
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
2018
|
|
2017
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
Steelworkers Pension Trust
|
|
23-6648508/499
|
|
Green
|
|
Green
|
|
No
|
|
$
|
4.2
|
|
|
$
|
6.3
|
|
|
$
|
6.8
|
|
|
No
|
|
3/1/2019 to 3/31/2021 (d)
|
IAM National Pension Fund’s National Pension Plan
|
|
51-6031295/002
|
|
Green
|
|
Green
|
|
No
|
|
17.7
|
|
|
18.4
|
|
|
18.0
|
|
|
No
|
|
4/1/2019 to 3/15/2020 (e)
|
|
|
|
|
|
|
|
|
|
|
$
|
21.9
|
|
|
$
|
24.7
|
|
|
$
|
24.8
|
|
|
|
|
|
|
|
(a)
|
The most recent Pension Protection Act zone status available in
2018
and
2017
is for each plan’s year-end at December 31,
2017
and
2016
. 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
230
hourly employees at the Ashland Works is currently under a rolling 60-day extension. The labor contract for approximately
110
hourly employees at the AK Tube Walbridge plant expires
January 22, 2021
. The labor contract for approximately
300
hourly employees at Mansfield Works expires on
March 31, 2021
.
|
|
|
(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
1,170
hourly employees at Butler Works expires on
April 16, 2019
. The labor contract for approximately
100
hourly employees at Zanesville Works expires on
May 31, 2019
. The labor contract for approximately
1,760
hourly employees at Middletown Works expires on
March 15, 2020
.
|
NOTE
8
- Operating Leases
Rental expense was
$48.1
,
$43.1
and
$46.7
for
2018
,
2017
and
2016
. Obligations to make future minimum lease payments at December 31,
2018
, are presented below:
|
|
|
|
|
2019
|
$
|
23.3
|
|
2020
|
20.8
|
|
2021
|
20.6
|
|
2022
|
18.7
|
|
2023
|
17.3
|
|
2024 and thereafter
|
83.6
|
|
Total minimum lease payments
|
$
|
184.3
|
|
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 chrome, coke, industrial gases, iron ore 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,
2018
, totaled approximately
$51.6
, all of which we expect to incur in
2019
.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Environmental-related capital investments
|
$
|
7.1
|
|
|
$
|
6.8
|
|
|
$
|
4.9
|
|
Environmental compliance costs
|
126.3
|
|
|
129.5
|
|
|
123.9
|
|
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:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Accrued liabilities
|
$
|
8.0
|
|
|
$
|
8.5
|
|
Other non-current liabilities
|
31.2
|
|
|
35.4
|
|
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. To the extent that 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 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 noted, on April 29, 2002, we entered a mutually agreed-upon administrative order on consent with the EPA pursuant to Section 122 of CERCLA to perform a Remedial Investigation/Feasibility Study (“RI/FS”) of the Hamilton Plant site located in New Miami, Ohio. The plant ceased operations in 1990 and all of its former structures have been demolished. 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 how long it will take to complete this site investigation. We currently have accrued
$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. The Ashland Works coke plant ceased operations in 2011 and all of its former structures have been demolished and removed. In 1981, we acquired the plant from Honeywell International Corporation (as successor to Allied Corporation), who had managed the coking operations there for approximately 60 years. In connection with the sale of the coke plant, Honeywell agreed to indemnify us from certain claims and obligations that could arise from the investigation and we intend to pursue such indemnification from Honeywell, if necessary. 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
$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
$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 2020, 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 also required us to implement certain RCRA corrective action interim measures. 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
$13.1
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 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 Severstal Dearborn, LLC (“Dearborn”) (now owned by us) in this action as an additional appellee. The appellants allege multiple deficiencies
with the PTI and the permitting process. 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 we incur, if any, or when we may 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 are ongoing. We cannot reliably estimate 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, we received an order in October 2002 from the EPA under Section 3013 of RCRA requiring us 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. We subsequently agreed to proceed with a voluntary corrective measures study and have accrued
$0.1
for the study. 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.
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,
2018
, is presented below:
|
|
|
|
|
Asbestos Cases Pending at
|
|
December 31, 2018
|
Cases with specific dollar claims for damages:
|
|
Claims up to $0.2
|
160
|
Claims above $0.2 to $5.0
|
4
|
Claims above $5.0 to $20.0
|
3
|
Total claims with specific dollar claims for damages (a)
|
167
|
Cases without a specific dollar claim for damages
|
176
|
Total asbestos cases pending
|
343
|
|
|
(a)
|
Involve a total of
2,242
plaintiffs and
19,356
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
2018
,
2017
and
2016
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
New Claims Filed
|
|
68
|
|
|
58
|
|
|
40
|
|
Pending Claims Disposed Of
|
|
61
|
|
|
61
|
|
|
84
|
|
Total Amount Paid in Settlements
|
|
$
|
1.4
|
|
|
$
|
1.2
|
|
|
$
|
0.9
|
|
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. On March 3, 2017, the Court granted the defendants’ motion to dismiss the indirect plaintiffs’ amended complaint on the grounds that the plaintiffs lacked antitrust standing. On April 4, 2017, the indirect plaintiffs filed a motion for reconsideration and the defendants filed an opposition to that motion. On July 13, 2017, the Court denied the indirect plaintiffs’ motion for reconsideration. On September 15, 2017 the indirect plaintiffs filed a notice of appeal with the Seventh Circuit Court of Appeals. On September 6, 2018, the Seventh Circuit affirmed the judgment of the District Court. The time period for the indirect plaintiffs to petition for a writ of certiorari with the United States Supreme Court has expired and the matter is now closed.
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. 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. On May 16, 2017, the Federal Circuit Court of Appeals affirmed the district court’s judgment of invalidity and non-infringement of the reissued Patent. On June 14, 2017, ArcelorMittal filed a petition to the Federal Circuit for rehearing en banc of the May 16, 2017 decision. On August 14, 2017, the Federal Court of Appeals denied ArcelorMittal’s petition for rehearing en banc. 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 our favor 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. On November 5, 2018, the Federal Court of Appeals issued a decision vacating the judgment of non-infringement entered by the district court. The decision remands the case back to the district court for further proceedings. 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 a potential loss if ArcelorMittal prevails on remand. 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.
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
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.
In May 2016, AK Holding issued
59.8 million
shares of common stock at
$4.40
per share for net proceeds of
$249.5
after underwriting discounts and other fees. In November 2016, AK Holding issued an additional
74.8 million
shares of common stock at
$4.90
per share for net proceeds of
$351.0
after underwriting discounts and other fees. We used the net proceeds from the sales of common stock to reduce our debt by repaying outstanding borrowings under our Credit Facility and for general corporate purposes.
Preferred Stock
There are
25,000,000
shares of preferred stock authorized; no shares are issued or outstanding.
Dividends
The instruments governing our outstanding senior debt allow dividend payments. However, our Credit Facility restricts dividend payments under certain conditions. Dividends are permitted if no default or event of default exists under the terms of the Credit Facility and (i) availability under the Credit Facility exceeds
20%
of the lesser of the Credit Facility commitment or eligible collateral after advance rates or (ii) availability exceeds
15%
of the lesser of the Credit Facility commitment or eligible collateral after advance rates and we meet a fixed charge coverage ratio of
one to one
as of the most recently ended fiscal quarter. At
December 31, 2018
, availability under the Credit Facility significantly exceeds these amounts. If we cannot meet either of these thresholds, annual dividends would be limited to the greater of
$18.0
or
0.5%
of consolidated total assets, with additional dividends permitted equal to the greater of
$25.0
or
0.7%
of consolidated total assets in aggregate over the life of the Credit Facility.
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,
2018
, 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 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
6 million
shares were available for future grant as of December 31,
2018
.
Share-based compensation expense for the years ended December 31,
2018
,
2017
and
2016
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based Compensation Expense
|
|
2018
|
|
2017
|
|
2016
|
Stock options
|
|
$
|
2.5
|
|
|
$
|
2.1
|
|
|
$
|
1.0
|
|
Restricted stock
|
|
3.1
|
|
|
2.9
|
|
|
1.6
|
|
Restricted stock units issued to Directors
|
|
1.2
|
|
|
1.2
|
|
|
1.3
|
|
Performance shares
|
|
2.0
|
|
|
1.5
|
|
|
1.5
|
|
Equity-based long-term performance plan
|
|
0.4
|
|
|
—
|
|
|
—
|
|
Pre-tax share-based compensation expense
|
|
$
|
9.2
|
|
|
$
|
7.7
|
|
|
$
|
5.4
|
|
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, pursuant to the terms of our Stock Incentive Plan may 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. We do not expect to pay dividends over the term of the options based on our current dividend policy. 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:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Expected volatility
|
|
58.8% – 61.6%
|
|
61.5% – 64.0%
|
|
90.3% – 91.5%
|
Weighted-average volatility
|
|
59.5%
|
|
62.5%
|
|
90.7%
|
Expected term (in years)
|
|
3.4 – 6.6
|
|
3.3 – 6.5
|
|
3.3 – 6.7
|
Risk-free interest rate
|
|
2.3% – 2.6%
|
|
1.6% – 2.2%
|
|
1.2% – 1.8%
|
Weighted-average grant-date fair value per share of granted options
|
|
$3.51
|
|
$5.33
|
|
$1.29
|
Option activity for the year ended December 31,
2018
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares
|
|
Weighted- Average Exercise Price
|
|
Weighted- Average Remaining Contractual Life (in years)
|
|
Aggregate Intrinsic Value
|
Outstanding at December 31, 2017
|
|
2,994,206
|
|
|
$
|
7.69
|
|
|
|
|
|
Granted
|
|
842,000
|
|
|
6.56
|
|
|
|
|
|
Exercised
|
|
(201,700
|
)
|
|
3.82
|
|
|
|
|
|
Forfeited and expired
|
|
(230,644
|
)
|
|
18.56
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
3,403,862
|
|
|
6.90
|
|
|
6.1
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
2,046,546
|
|
|
7.07
|
|
|
4.7
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2018
|
|
1,357,316
|
|
|
6.66
|
|
|
8.5
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2018 expected to vest
|
|
1,289,450
|
|
|
6.66
|
|
|
8.5
|
|
0.1
|
|
The total intrinsic value of stock option awards that holders exercised during the years ended December 31,
2018
,
2017
, and
2016
was
$0.3
,
$0.2
and
$1.4
.
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,
2018
, total unrecognized compensation costs for non-vested stock options were
$1.5
, which we expect to recognize over a weighted-average period of
1.7
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,
2018
, is presented below:
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
Restricted Shares
|
|
Weighted- Average Grant Date Fair Value
|
Outstanding at December 31, 2017
|
518,184
|
|
|
$
|
5.38
|
|
Granted
|
521,100
|
|
|
6.56
|
|
Vested/restrictions lapsed
|
(513,848
|
)
|
|
5.48
|
|
Canceled
|
(18,733
|
)
|
|
6.16
|
|
Outstanding at December 31, 2018
|
506,703
|
|
|
6.45
|
|
The weighted-average grant date fair value of restricted stock awards granted during the years ended December 31,
2018
,
2017
and
2016
, was
$6.56
,
$9.78
and
$1.80
per share. The total intrinsic value of restricted stock awards that vested (i.e., restrictions lapsed) during the years ended December 31,
2018
,
2017
and
2016
, was
$3.2
,
$4.1
and
$1.4
. As of December 31,
2018
, total unrecognized compensation costs for non-vested restricted stock awards granted under the SIP were
$1.6
, which we expect to recognize over a weighted-average period of
1.4 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., issue the underlying shares of stock) until
one year
after the grant date, unless a Director elects to defer the settlement to
six months
after his or her Board service is terminated. They may elect to take settlement in a single distribution or in annual installments up to
fifteen years
.
Performance Shares
Performance shares are granted to executive 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, for 2018 grants the total number of performance shares that will actually be issued to the participant, if any, at the expiration of the performance period will be based on our total share return compared to the VanEck Vectors Steel ETF. For 2017 and 2016 grants, the total number of performance shares that will be issued to the participant, if any, at the expiration of the performance periods for each of those grants will be 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 the VanEck Vectors Steel ETF for the 2017 grants and the Standard & Poor’s MidCap 400 index for 2016 grants.
The following weighted-average assumptions are used in a Monte Carlo simulation model to estimate the fair value of performance shares granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Company expected volatility
|
|
67.3
|
%
|
|
68.0
|
%
|
|
60.8
|
%
|
VanEck Vectors Steel ETF expected volatility
|
|
52.2
|
%
|
|
48.9
|
%
|
|
NA
|
|
S&P’s MidCap 400 index expected volatility
|
|
NA
|
|
|
NA
|
|
|
27.6
|
%
|
Risk-free interest rate
|
|
2.2
|
%
|
|
1.5
|
%
|
|
1.1
|
%
|
Weighted-average grant-date fair value per performance share granted
|
|
$
|
8.05
|
|
|
$
|
10.78
|
|
|
$
|
1.74
|
|
Non-vested performance share awards activity for the year ended December 31,
2018
, is presented below:
|
|
|
|
|
|
|
|
Performance Share Awards
|
Performance Shares
|
|
Weighted- Average Grant Date Fair Value
|
Outstanding at December 31, 2017
|
718,668
|
|
|
$
|
5.04
|
|
Granted
|
366,500
|
|
|
8.05
|
|
Earned
|
(277,971
|
)
|
|
1.74
|
|
Expired or forfeited
|
(192,397
|
)
|
|
5.55
|
|
Outstanding at December 31, 2018
|
614,800
|
|
|
9.19
|
|
The total intrinsic value of performance share awards that were earned during the year ended December 31,
2018
, was
$0.7
. As of December 31,
2018
, total unrecognized compensation costs for non-vested performance share awards granted under the SIP were
$2.6
, which we expect to recognize over a weighted-average period of
1.7 years
.
Equity-based Long-term Performance Plan
During 2018, in order to further align our management with stockholder interest in maximizing long-term value, the Board of Directors changed the structure of long-term incentive compensation for executive officers, such that awards will be
30%
denominated in stock with the balance paid in cash. As a result, starting with the three-year performance period beginning in 2018, the equity-based portion of the long-term performance plan is treated as share-based compensation with a performance condition.
NOTE
13
- Comprehensive Income (Loss)
Other comprehensive income (loss), net of tax, information is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Foreign currency translation
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1.1
|
|
|
$
|
(3.6
|
)
|
|
$
|
(2.1
|
)
|
Other comprehensive income (loss)—foreign currency translation gain (loss)
|
|
(1.7
|
)
|
|
4.7
|
|
|
(1.5
|
)
|
Balance at end of period
|
|
$
|
(0.6
|
)
|
|
$
|
1.1
|
|
|
$
|
(3.6
|
)
|
Cash flow hedges
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
22.3
|
|
|
$
|
39.9
|
|
|
$
|
(44.8
|
)
|
Cumulative effect of adopting new hedging standard
|
|
0.8
|
|
|
—
|
|
|
—
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Gains (losses) arising in period
|
|
(5.6
|
)
|
|
(11.5
|
)
|
|
56.1
|
|
Income tax expense (benefit)
|
|
—
|
|
|
—
|
|
|
6.2
|
|
Gains (losses) arising in period, net of tax
|
|
(5.6
|
)
|
|
(11.5
|
)
|
|
49.9
|
|
Reclassification of losses (gains) to net income (loss):
|
|
|
|
|
|
|
Recorded in cost of products sold
|
|
(10.3
|
)
|
|
(6.1
|
)
|
|
39.1
|
|
Income tax (expense) benefit (b)
|
|
—
|
|
|
—
|
|
|
4.3
|
|
Net amount of reclassification of losses (gains) to net income (loss), net of tax
|
|
(10.3
|
)
|
|
(6.1
|
)
|
|
34.8
|
|
Total other comprehensive income (loss), net of tax
|
|
(15.9
|
)
|
|
(17.6
|
)
|
|
84.7
|
|
Balance at end of period
|
|
$
|
7.2
|
|
|
$
|
22.3
|
|
|
$
|
39.9
|
|
Pension and OPEB plans
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(73.6
|
)
|
|
$
|
(125.0
|
)
|
|
$
|
(166.4
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Prior service credit (cost) arising in period
|
|
11.1
|
|
|
4.7
|
|
|
(8.3
|
)
|
Gains (losses) arising in period
|
|
(63.6
|
)
|
|
94.2
|
|
|
11.6
|
|
Subtotal
|
|
(52.5
|
)
|
|
98.9
|
|
|
3.3
|
|
Income tax expense (benefit)
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Gains (losses) arising in period, net of tax
|
|
(52.5
|
)
|
|
98.9
|
|
|
2.9
|
|
Reclassification to net income (loss):
|
|
|
|
|
|
|
Prior service costs (credits) (a)
|
|
(9.8
|
)
|
|
(53.8
|
)
|
|
(54.8
|
)
|
Actuarial (gains) losses (a)
|
|
29.3
|
|
|
6.3
|
|
|
97.9
|
|
Subtotal
|
|
19.5
|
|
|
(47.5
|
)
|
|
43.1
|
|
Income tax (expense) benefit (b)
|
|
—
|
|
|
—
|
|
|
4.6
|
|
Amount of reclassification to net income (loss), net of tax
|
|
19.5
|
|
|
(47.5
|
)
|
|
38.5
|
|
Total other comprehensive income (loss), net of tax
|
|
(33.0
|
)
|
|
51.4
|
|
|
41.4
|
|
Balance at end of period
|
|
$
|
(106.6
|
)
|
|
$
|
(73.6
|
)
|
|
$
|
(125.0
|
)
|
|
|
(a)
|
Included in pension and OPEB (income) expense
|
|
|
(b)
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net income (loss) attributable to AK Steel Holding Corporation
|
|
$
|
186.0
|
|
|
$
|
103.5
|
|
|
$
|
(16.8
|
)
|
Less: distributed earnings to common stockholders and holders of certain stock compensation awards
|
|
—
|
|
|
—
|
|
|
—
|
|
Undistributed earnings (loss)
|
|
$
|
186.0
|
|
|
$
|
103.5
|
|
|
$
|
(16.8
|
)
|
|
|
|
|
|
|
|
Common stockholders earnings—basic and diluted:
|
|
|
|
|
|
|
Distributed earnings to common stockholders
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Undistributed earnings (loss) to common stockholders
|
|
185.7
|
|
|
103.5
|
|
|
(16.7
|
)
|
Common stockholders earnings (loss)—basic and diluted
|
|
$
|
185.7
|
|
|
$
|
103.5
|
|
|
$
|
(16.7
|
)
|
|
|
|
|
|
|
|
Common shares outstanding (weighted-average shares in millions):
|
|
|
|
|
|
|
Common shares outstanding for basic earnings per share
|
|
314.8
|
|
|
314.3
|
|
|
230.0
|
|
Effect of Exchangeable Notes
|
|
—
|
|
|
4.5
|
|
|
—
|
|
Effect of dilutive stock-based compensation
|
|
0.8
|
|
|
0.9
|
|
|
—
|
|
Common shares outstanding for diluted earnings per share
|
|
315.6
|
|
|
319.7
|
|
|
230.0
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
Distributed earnings
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Undistributed earnings (loss)
|
|
0.59
|
|
|
0.33
|
|
|
(0.07
|
)
|
Basic earnings (loss) per share
|
|
$
|
0.59
|
|
|
$
|
0.33
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
Distributed earnings
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Undistributed earnings (loss)
|
|
0.59
|
|
|
0.32
|
|
|
(0.07
|
)
|
Diluted earnings (loss) per share
|
|
$
|
0.59
|
|
|
$
|
0.32
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
Potentially issuable common shares (in millions) excluded from earnings per share calculation due to anti-dilutive effect
|
|
2.4
|
|
|
1.4
|
|
|
3.0
|
|
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
$58.4
,
$61.7
and
$66.0
for the years ended December 31,
2018
,
2017
and
2016
that was included in our consolidated income before income taxes.
Vicksmetal/Armco Associates
We own a
50%
interest in Vicksmetal/Armco Associates (“VAA”), a joint venture with Vicksmetal Company. 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,
2018
, a spread over benchmark rates of less than
1.5%
was used for derivatives valued as assets and less than
2.4%
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
Assets measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
48.6
|
|
|
$
|
—
|
|
|
$
|
48.6
|
|
|
$
|
38.0
|
|
|
$
|
—
|
|
|
$
|
38.0
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
0.2
|
|
|
0.2
|
|
Commodity hedge contracts
|
—
|
|
|
13.0
|
|
|
13.0
|
|
|
—
|
|
|
35.2
|
|
|
35.2
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
|
0.4
|
|
|
0.4
|
|
|
—
|
|
|
1.7
|
|
|
1.7
|
|
Commodity hedge contracts
|
—
|
|
|
2.9
|
|
|
2.9
|
|
|
—
|
|
|
10.6
|
|
|
10.6
|
|
Assets measured at fair value
|
$
|
48.6
|
|
|
$
|
16.4
|
|
|
$
|
65.0
|
|
|
$
|
38.0
|
|
|
$
|
47.7
|
|
|
$
|
85.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
$
|
(1.2
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
Commodity hedge contracts
|
—
|
|
|
(5.9
|
)
|
|
(5.9
|
)
|
|
—
|
|
|
(4.9
|
)
|
|
(4.9
|
)
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
|
(1.5
|
)
|
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Commodity hedge contracts
|
—
|
|
|
(1.6
|
)
|
|
(1.6
|
)
|
|
—
|
|
|
(0.5
|
)
|
|
(0.5
|
)
|
Liabilities measured at fair value
|
$
|
—
|
|
|
$
|
(10.2
|
)
|
|
$
|
(10.2
|
)
|
|
$
|
—
|
|
|
$
|
(5.7
|
)
|
|
$
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities measured at other than fair value
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portions:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
$
|
—
|
|
|
$
|
(1,852.4
|
)
|
|
$
|
(1,852.4
|
)
|
|
$
|
—
|
|
|
$
|
(2,273.4
|
)
|
|
$
|
(2,273.4
|
)
|
Carrying amount
|
—
|
|
|
(1,993.7
|
)
|
|
(1,993.7
|
)
|
|
—
|
|
|
(2,110.1
|
)
|
|
(2,110.1
|
)
|
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,
2018
and
2017
.
NOTE
17
- Derivative Instruments and Hedging Activities
Exchange rate fluctuations affect a portion of revenues and operating costs that are denominated in foreign currencies, and we use forward currency and currency option contracts to reduce our exposure to certain of these currency price fluctuations. Contracts to sell euros have not been designated as cash flow hedges for accounting purposes, and gains or losses are reported in earnings immediately in other (income) expense. Contracts to purchase Canadian dollars are designated as cash flow hedges for accounting purposes, and we record the gains and losses for the derivatives and premiums paid for option contracts in accumulated other comprehensive income (loss) until we reclassify them into cost of products sold when we recognize the associated underlying operating costs.
We are exposed to fluctuations in market prices of raw materials and energy sources. We may use cash-settled commodity price swaps and options to hedge the market risk associated with the purchase of certain of our raw materials and energy requirements. For input commodities, these derivatives are typically used for a portion of our electricity, iron ore, natural gas, nickel and zinc requirements. Our hedging strategy is to reduce the effect on earnings from the price volatility of these various commodity exposures, including timing differences between when we incur raw material commodity costs and when we receive sales surcharges from our customers based on those raw materials. Independent of any hedging activities, price changes in any of these commodity markets could negatively affect operating costs.
All commodity derivatives are recognized as an asset or liability at fair value. We record the gains and losses and premiums paid for option contracts 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 when we recognize earnings for the associated underlying transaction. We record all gains or losses from commodity derivatives for which hedge accounting treatment has not been elected to earnings immediately in cost of products sold. We routinely use iron ore derivatives to reduce the volatility of the cost of our iron ore purchases. These derivatives do not qualify for hedge accounting treatment. We have
no
collateral deposited with counterparties under collateral funding arrangements as of December 31,
2018
.
Outstanding derivative contracts and the period over which we are hedging our exposure to the volatility in future cash flows are presented below:
|
|
|
|
|
|
|
|
|
|
|
Hedge Contracts
|
Settlement Dates
|
|
2018
|
|
2017
|
Commodity contracts:
|
|
|
|
|
|
Nickel (in lbs)
|
|
|
—
|
|
|
500,000
|
|
Natural gas (in MMBTUs)
|
January 2019 to December 2020
|
|
39,868,000
|
|
|
41,338,000
|
|
Zinc (in lbs)
|
January 2019 to December 2020
|
|
52,150,000
|
|
|
50,350,000
|
|
Iron ore (in metric tons)
|
January 2019 to December 2020
|
|
2,125,000
|
|
|
2,340,000
|
|
Electricity (in MWHs)
|
January 2019 to September 2020
|
|
1,461,000
|
|
|
1,553,000
|
|
Foreign exchange contracts:
|
|
|
|
|
|
Euros
|
January 2019 to June 2019
|
|
€
|
4,000,000
|
|
|
€
|
26,000,000
|
|
Canadian dollars
|
January 2019 to December 2021
|
|
C$
|
118,560,000
|
|
|
C$
|
148,080,000
|
|
The fair value of derivative instruments as of December 31,
2018
and
2017
, is presented below:
|
|
|
|
|
|
|
|
|
|
Asset (liability)
|
|
2018
|
|
2017
|
Derivatives designated as hedging instruments:
|
|
|
|
|
Other current assets:
|
|
|
|
|
Commodity contracts
|
|
$
|
3.4
|
|
|
$
|
9.0
|
|
Foreign exchange contracts
|
|
—
|
|
|
0.2
|
|
Other non-current assets:
|
|
|
|
|
Commodity contracts
|
|
1.0
|
|
|
2.3
|
|
Foreign exchange contracts
|
|
0.4
|
|
|
1.7
|
|
Accrued liabilities:
|
|
|
|
|
Commodity contracts
|
|
(4.7
|
)
|
|
(4.6
|
)
|
Foreign exchange contracts
|
|
(1.2
|
)
|
|
(0.2
|
)
|
Other non-current liabilities:
|
|
|
|
|
Commodity contracts
|
|
(1.2
|
)
|
|
(0.5
|
)
|
Foreign exchange contracts
|
|
(1.5
|
)
|
|
—
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Other current assets:
|
|
|
|
|
Commodity contracts
|
|
9.6
|
|
|
26.2
|
|
Foreign exchange contracts
|
|
0.1
|
|
|
—
|
|
Other non-current assets—commodity contracts
|
|
1.9
|
|
|
8.3
|
|
Accrued liabilities:
|
|
|
|
|
Commodity contracts
|
|
(1.2
|
)
|
|
(0.3
|
)
|
Foreign exchange contracts
|
|
—
|
|
|
(0.1
|
)
|
Other non-current liabilities—commodity contracts
|
|
(0.4
|
)
|
|
—
|
|
Gains (losses) on derivative instruments for the years ended December 31,
2018
,
2017
and
2016
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss)
|
|
2018
|
|
2017
|
|
2016
|
Derivatives designated as cash flow hedges—
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
Recognized in accumulated other comprehensive income that were included in the assessment of effectiveness
|
|
$
|
(0.2
|
)
|
|
$
|
(11.5
|
)
|
|
$
|
56.1
|
|
Reclassified from accumulated other comprehensive income into cost of products sold
|
|
11.2
|
|
|
6.1
|
|
|
(39.1
|
)
|
Foreign exchange contract:
|
|
|
|
|
|
|
Recognized in accumulated other comprehensive income that were included in the assessment of effectiveness
|
|
(5.4
|
)
|
|
—
|
|
|
—
|
|
Reclassified from accumulated other comprehensive income into cost of products sold
|
|
(0.9
|
)
|
|
—
|
|
|
—
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Commodity contracts—recognized in cost of products sold
|
|
(2.4
|
)
|
|
31.6
|
|
|
38.6
|
|
Foreign exchange contracts—recognized in other (income) expense
|
|
0.1
|
|
|
(1.6
|
)
|
|
(0.9
|
)
|
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 are presented below:
|
|
|
|
|
|
|
Hedge
|
|
|
Gains (losses)
|
Natural gas
|
|
|
$
|
5.1
|
|
Electricity
|
|
|
2.7
|
|
Zinc
|
|
|
(4.8
|
)
|
Canadian dollars
|
|
|
(1.5
|
)
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net cash paid (received) during the period for:
|
|
|
|
|
|
|
Interest, net of capitalized interest
|
|
$
|
136.3
|
|
|
$
|
130.5
|
|
|
$
|
137.1
|
|
Income taxes
|
|
(5.5
|
)
|
|
0.1
|
|
|
(2.6
|
)
|
Included in net cash flows from operations was cash provided by SunCoke Middletown of
$76.6
,
$77.1
and
$83.3
for the years ended December 31,
2018
,
2017
and
2016
. Consolidated cash and cash equivalents at December 31,
2018
, and
2017
, include SunCoke Middletown’s cash and cash equivalents of
$1.1
and
$0.1
. SunCoke Middletown’s cash and cash equivalents have no compensating balance arrangements or legal restrictions, but are not available for our use.
We had capital investments during the years ended December 31,
2018
,
2017
and
2016
, 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 included our leased Research and Innovation Center in property, plant and equipment and as a capital lease obligation in the consolidated balance sheets during its construction, which was completed in early 2017 and represented a non-cash transaction for us. In October 2017, we acquired the Research and Innovation Center capital lease with cash, effectively settling the obligation. 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,
2018
,
2017
and
2016
, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Capital investments
|
|
$
|
33.4
|
|
|
$
|
37.3
|
|
|
$
|
33.2
|
|
Research and Innovation Center capital lease
|
|
—
|
|
|
1.1
|
|
|
25.2
|
|
Issuance of restricted stock and restricted stock units
|
|
4.5
|
|
|
4.6
|
|
|
2.3
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
Net sales
|
$
|
1,658.9
|
|
|
$
|
1,746.6
|
|
|
$
|
1,735.6
|
|
|
$
|
1,677.1
|
|
|
$
|
6,818.2
|
|
Operating profit (loss)
|
63.6
|
|
|
99.5
|
|
|
114.8
|
|
|
86.5
|
|
|
364.4
|
|
Net income (loss) attributable to AK Holding
|
28.7
|
|
|
56.6
|
|
|
67.2
|
|
|
33.5
|
|
|
186.0
|
|
Basic and diluted earnings (loss) per share
|
$
|
0.09
|
|
|
$
|
0.18
|
|
|
$
|
0.21
|
|
|
$
|
0.11
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Year
|
Net sales
|
$
|
1,533.4
|
|
|
$
|
1,557.2
|
|
|
$
|
1,494.3
|
|
|
$
|
1,495.6
|
|
|
$
|
6,080.5
|
|
Operating profit (loss)
|
129.7
|
|
|
116.5
|
|
|
66.3
|
|
|
(52.3
|
)
|
|
260.2
|
|
Net income (loss) attributable to AK Holding
|
84.4
|
|
|
77.2
|
|
|
22.3
|
|
|
(80.4
|
)
|
|
103.5
|
|
Basic earnings (loss) per share
|
$
|
0.27
|
|
|
$
|
0.25
|
|
|
$
|
0.07
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.33
|
|
Diluted earnings (loss) per share
|
0.26
|
|
|
0.24
|
|
|
0.07
|
|
|
(0.26
|
)
|
|
0.32
|
|
Included in net income attributable to AK Holding in the fourth quarter and full year of 2018 was a pension settlement charge of
$14.5
. Included in net income attributable to AK Holding in the fourth quarter and full year of 2017 were a credit of
$19.3
to reduce a transportation liability and a non-cash charge of
$75.6
to impair Ashland Works Hot End property, plant and equipment.
NOTE
20
- Supplementary Guarantor Information
AK Steel’s Secured Notes, 2021 Notes, 2025 Notes and 2027 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 is 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, 2018
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net sales
|
$
|
—
|
|
|
$
|
6,244.7
|
|
|
$
|
320.8
|
|
|
$
|
752.8
|
|
|
$
|
(500.1
|
)
|
|
$
|
6,818.2
|
|
Cost of products sold (exclusive of items shown separately below)
|
—
|
|
|
5,519.8
|
|
|
221.4
|
|
|
620.9
|
|
|
(451.1
|
)
|
|
5,911.0
|
|
Selling and administrative expenses
|
3.5
|
|
|
320.0
|
|
|
14.5
|
|
|
34.2
|
|
|
(49.6
|
)
|
|
322.6
|
|
Depreciation
|
—
|
|
|
171.5
|
|
|
8.0
|
|
|
40.7
|
|
|
—
|
|
|
220.2
|
|
Total operating costs
|
3.5
|
|
|
6,011.3
|
|
|
243.9
|
|
|
695.8
|
|
|
(500.7
|
)
|
|
6,453.8
|
|
Operating profit (loss)
|
(3.5
|
)
|
|
233.4
|
|
|
76.9
|
|
|
57.0
|
|
|
0.6
|
|
|
364.4
|
|
Interest expense
|
—
|
|
|
145.9
|
|
|
—
|
|
|
5.7
|
|
|
—
|
|
|
151.6
|
|
Pension and OPEB (income) expense
|
—
|
|
|
(19.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(19.2
|
)
|
Other (income) expense
|
—
|
|
|
8.7
|
|
|
(16.4
|
)
|
|
(2.9
|
)
|
|
4.7
|
|
|
(5.9
|
)
|
Income (loss) before income taxes
|
(3.5
|
)
|
|
98.0
|
|
|
93.3
|
|
|
54.2
|
|
|
(4.1
|
)
|
|
237.9
|
|
Income tax expense (benefit)
|
—
|
|
|
(26.5
|
)
|
|
23.3
|
|
|
(2.0
|
)
|
|
(1.0
|
)
|
|
(6.2
|
)
|
Equity in net income (loss) of subsidiaries
|
189.5
|
|
|
65.0
|
|
|
—
|
|
|
0.7
|
|
|
(255.2
|
)
|
|
—
|
|
Net income (loss)
|
186.0
|
|
|
189.5
|
|
|
70.0
|
|
|
56.9
|
|
|
(258.3
|
)
|
|
244.1
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
58.1
|
|
|
—
|
|
|
58.1
|
|
Net income (loss) attributable to AK Steel Holding Corporation
|
186.0
|
|
|
189.5
|
|
|
70.0
|
|
|
(1.2
|
)
|
|
(258.3
|
)
|
|
186.0
|
|
Other comprehensive income (loss)
|
(50.6
|
)
|
|
(50.6
|
)
|
|
—
|
|
|
(1.7
|
)
|
|
52.3
|
|
|
(50.6
|
)
|
Comprehensive income (loss) attributable to AK Steel Holding Corporation
|
$
|
135.4
|
|
|
$
|
138.9
|
|
|
$
|
70.0
|
|
|
$
|
(2.9
|
)
|
|
$
|
(206.0
|
)
|
|
$
|
135.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Comprehensive Income (Loss)
|
Year Ended December 31, 2017
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net sales
|
$
|
—
|
|
|
$
|
5,755.1
|
|
|
$
|
285.9
|
|
|
$
|
496.3
|
|
|
$
|
(456.8
|
)
|
|
$
|
6,080.5
|
|
Cost of products sold (exclusive of items shown separately below)
|
—
|
|
|
5,082.0
|
|
|
197.7
|
|
|
387.2
|
|
|
(413.8
|
)
|
|
5,253.1
|
|
Selling and administrative expenses
|
3.7
|
|
|
285.5
|
|
|
13.5
|
|
|
26.9
|
|
|
(44.7
|
)
|
|
284.9
|
|
Depreciation
|
—
|
|
|
189.3
|
|
|
7.5
|
|
|
29.2
|
|
|
—
|
|
|
226.0
|
|
Charge (credit) for termination of pellet agreement and related transportation costs
|
—
|
|
|
(19.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19.3
|
)
|
Asset impairment charge
|
—
|
|
|
75.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75.6
|
|
Total operating costs
|
3.7
|
|
|
5,613.1
|
|
|
218.7
|
|
|
443.3
|
|
|
(458.5
|
)
|
|
5,820.3
|
|
Operating profit (loss)
|
(3.7
|
)
|
|
142.0
|
|
|
67.2
|
|
|
53.0
|
|
|
1.7
|
|
|
260.2
|
|
Interest expense
|
—
|
|
|
150.3
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
152.3
|
|
Pension and OPEB (income) expense
|
—
|
|
|
(71.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71.9
|
)
|
Other (income) expense
|
—
|
|
|
30.1
|
|
|
(11.4
|
)
|
|
(5.4
|
)
|
|
3.8
|
|
|
17.1
|
|
Income (loss) before income taxes
|
(3.7
|
)
|
|
33.5
|
|
|
78.6
|
|
|
56.4
|
|
|
(2.1
|
)
|
|
162.7
|
|
Income tax expense (benefit)
|
—
|
|
|
(29.4
|
)
|
|
29.9
|
|
|
(1.8
|
)
|
|
(0.9
|
)
|
|
(2.2
|
)
|
Equity in net income (loss) of subsidiaries
|
107.2
|
|
|
44.3
|
|
|
—
|
|
|
—
|
|
|
(151.5
|
)
|
|
—
|
|
Net income (loss)
|
103.5
|
|
|
107.2
|
|
|
48.7
|
|
|
58.2
|
|
|
(152.7
|
)
|
|
164.9
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
61.4
|
|
|
—
|
|
|
61.4
|
|
Net income (loss) attributable to AK Steel Holding Corporation
|
103.5
|
|
|
107.2
|
|
|
48.7
|
|
|
(3.2
|
)
|
|
(152.7
|
)
|
|
103.5
|
|
Other comprehensive income (loss)
|
38.5
|
|
|
38.5
|
|
|
—
|
|
|
4.7
|
|
|
(43.2
|
)
|
|
38.5
|
|
Comprehensive income (loss) attributable to AK Steel Holding Corporation
|
$
|
142.0
|
|
|
$
|
145.7
|
|
|
$
|
48.7
|
|
|
$
|
1.5
|
|
|
$
|
(195.9
|
)
|
|
$
|
142.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
—
|
|
|
5,044.8
|
|
|
171.7
|
|
|
299.4
|
|
|
(416.2
|
)
|
|
5,099.7
|
|
Selling and administrative expenses
|
4.4
|
|
|
282.7
|
|
|
12.7
|
|
|
22.6
|
|
|
(43.3
|
)
|
|
279.1
|
|
Depreciation
|
—
|
|
|
187.8
|
|
|
7.0
|
|
|
21.8
|
|
|
—
|
|
|
216.6
|
|
Charge (credit) for termination of pellet agreement and related transportation costs
|
—
|
|
|
69.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
69.5
|
|
Total operating costs
|
4.4
|
|
|
5,584.8
|
|
|
191.4
|
|
|
343.8
|
|
|
(459.5
|
)
|
|
5,664.9
|
|
Operating profit (loss)
|
(4.4
|
)
|
|
96.2
|
|
|
59.5
|
|
|
67.7
|
|
|
(1.4
|
)
|
|
217.6
|
|
Interest expense
|
—
|
|
|
162.3
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
163.9
|
|
Pension and OPEB (income) expense
|
—
|
|
|
16.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16.5
|
|
Other (income) expense
|
—
|
|
|
16.4
|
|
|
(8.1
|
)
|
|
(8.6
|
)
|
|
5.2
|
|
|
4.9
|
|
Income (loss) before income taxes
|
(4.4
|
)
|
|
(99.0
|
)
|
|
67.6
|
|
|
74.7
|
|
|
(6.6
|
)
|
|
32.3
|
|
Income tax expense (benefit)
|
—
|
|
|
(43.7
|
)
|
|
25.7
|
|
|
3.6
|
|
|
(2.5
|
)
|
|
(16.9
|
)
|
Equity in net income (loss) of subsidiaries
|
(12.4
|
)
|
|
42.9
|
|
|
—
|
|
|
(0.7
|
)
|
|
(29.8
|
)
|
|
—
|
|
Net income (loss)
|
(16.8
|
)
|
|
(12.4
|
)
|
|
41.9
|
|
|
70.4
|
|
|
(33.9
|
)
|
|
49.2
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
66.0
|
|
|
—
|
|
|
66.0
|
|
Net income (loss) attributable to AK Steel Holding Corporation
|
(16.8
|
)
|
|
(12.4
|
)
|
|
41.9
|
|
|
4.4
|
|
|
(33.9
|
)
|
|
(16.8
|
)
|
Other comprehensive income (loss)
|
124.6
|
|
|
124.6
|
|
|
—
|
|
|
(1.5
|
)
|
|
(123.1
|
)
|
|
124.6
|
|
Comprehensive income (loss) attributable to AK Steel Holding Corporation
|
$
|
107.8
|
|
|
$
|
112.2
|
|
|
$
|
41.9
|
|
|
$
|
2.9
|
|
|
$
|
(157.0
|
)
|
|
$
|
107.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Balance Sheets
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
22.1
|
|
|
$
|
8.2
|
|
|
$
|
18.3
|
|
|
$
|
—
|
|
|
$
|
48.6
|
|
Accounts receivable, net
|
—
|
|
|
515.4
|
|
|
34.0
|
|
|
95.3
|
|
|
(8.9
|
)
|
|
635.8
|
|
Inventory
|
—
|
|
|
1,299.6
|
|
|
53.9
|
|
|
75.6
|
|
|
(9.2
|
)
|
|
1,419.9
|
|
Other current assets
|
—
|
|
|
85.5
|
|
|
0.1
|
|
|
11.4
|
|
|
—
|
|
|
97.0
|
|
Total current assets
|
—
|
|
|
1,922.6
|
|
|
96.2
|
|
|
200.6
|
|
|
(18.1
|
)
|
|
2,201.3
|
|
Property, plant and equipment
|
—
|
|
|
6,111.1
|
|
|
189.7
|
|
|
668.4
|
|
|
—
|
|
|
6,969.2
|
|
Accumulated depreciation
|
—
|
|
|
(4,785.5
|
)
|
|
(102.8
|
)
|
|
(169.3
|
)
|
|
—
|
|
|
(5,057.6
|
)
|
Property, plant and equipment, net
|
—
|
|
|
1,325.6
|
|
|
86.9
|
|
|
499.1
|
|
|
—
|
|
|
1,911.6
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
(3,017.4
|
)
|
|
1,931.1
|
|
|
—
|
|
|
68.2
|
|
|
1,018.1
|
|
|
—
|
|
Inter-company accounts
|
3,117.3
|
|
|
—
|
|
|
1,630.7
|
|
|
—
|
|
|
(4,748.0
|
)
|
|
—
|
|
Goodwill and intangible assets
|
—
|
|
|
—
|
|
|
32.9
|
|
|
266.0
|
|
|
—
|
|
|
298.9
|
|
Other non-current assets
|
—
|
|
|
54.3
|
|
|
—
|
|
|
49.6
|
|
|
—
|
|
|
103.9
|
|
TOTAL ASSETS
|
$
|
99.9
|
|
|
$
|
5,233.6
|
|
|
$
|
1,846.7
|
|
|
$
|
1,083.5
|
|
|
$
|
(3,748.0
|
)
|
|
$
|
4,515.7
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
722.5
|
|
|
$
|
26.2
|
|
|
$
|
55.5
|
|
|
$
|
(3.2
|
)
|
|
$
|
801.0
|
|
Accrued liabilities
|
—
|
|
|
251.5
|
|
|
8.7
|
|
|
28.7
|
|
|
—
|
|
|
288.9
|
|
Current portion of pension and other postretirement benefit obligations
|
—
|
|
|
38.4
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
38.7
|
|
Total current liabilities
|
—
|
|
|
1,012.4
|
|
|
34.9
|
|
|
84.5
|
|
|
(3.2
|
)
|
|
1,128.6
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
—
|
|
|
1,993.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,993.7
|
|
Pension and other postretirement benefit obligations
|
—
|
|
|
827.0
|
|
|
—
|
|
|
2.9
|
|
|
—
|
|
|
829.9
|
|
Inter-company accounts
|
—
|
|
|
4,312.3
|
|
|
—
|
|
|
511.2
|
|
|
(4,823.5
|
)
|
|
—
|
|
Other non-current liabilities
|
—
|
|
|
105.6
|
|
|
0.2
|
|
|
28.2
|
|
|
—
|
|
|
134.0
|
|
TOTAL LIABILITIES
|
—
|
|
|
8,251.0
|
|
|
35.1
|
|
|
626.8
|
|
|
(4,826.7
|
)
|
|
4,086.2
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
99.9
|
|
|
(3,017.4
|
)
|
|
1,811.6
|
|
|
127.1
|
|
|
1,078.7
|
|
|
99.9
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
329.6
|
|
|
—
|
|
|
329.6
|
|
TOTAL EQUITY (DEFICIT)
|
99.9
|
|
|
(3,017.4
|
)
|
|
1,811.6
|
|
|
456.7
|
|
|
1,078.7
|
|
|
429.5
|
|
TOTAL LIABILITIES AND EQUITY (DEFICIT)
|
$
|
99.9
|
|
|
$
|
5,233.6
|
|
|
$
|
1,846.7
|
|
|
$
|
1,083.5
|
|
|
$
|
(3,748.0
|
)
|
|
$
|
4,515.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Balance Sheets
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
14.5
|
|
|
$
|
7.2
|
|
|
$
|
16.3
|
|
|
$
|
—
|
|
|
$
|
38.0
|
|
Accounts receivable, net
|
—
|
|
|
432.4
|
|
|
33.2
|
|
|
65.4
|
|
|
(13.2
|
)
|
|
517.8
|
|
Inventory
|
—
|
|
|
1,231.5
|
|
|
55.1
|
|
|
108.3
|
|
|
(9.9
|
)
|
|
1,385.0
|
|
Other current assets
|
—
|
|
|
124.7
|
|
|
0.2
|
|
|
5.4
|
|
|
—
|
|
|
130.3
|
|
Total current assets
|
—
|
|
|
1,803.1
|
|
|
95.7
|
|
|
195.4
|
|
|
(23.1
|
)
|
|
2,071.1
|
|
Property, plant and equipment
|
—
|
|
|
6,004.0
|
|
|
181.5
|
|
|
646.3
|
|
|
—
|
|
|
6,831.8
|
|
Accumulated depreciation
|
—
|
|
|
(4,620.8
|
)
|
|
(94.8
|
)
|
|
(130.0
|
)
|
|
—
|
|
|
(4,845.6
|
)
|
Property, plant and equipment, net
|
—
|
|
|
1,383.2
|
|
|
86.7
|
|
|
516.3
|
|
|
—
|
|
|
1,986.2
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
(3,127.4
|
)
|
|
1,844.9
|
|
|
—
|
|
|
67.5
|
|
|
1,215.0
|
|
|
—
|
|
Inter-company accounts
|
3,082.8
|
|
|
—
|
|
|
1,523.1
|
|
|
—
|
|
|
(4,605.9
|
)
|
|
—
|
|
Goodwill and intangible assets
|
—
|
|
|
—
|
|
|
32.8
|
|
|
273.9
|
|
|
—
|
|
|
306.7
|
|
Other non-current assets
|
—
|
|
|
66.3
|
|
|
0.2
|
|
|
44.3
|
|
|
—
|
|
|
110.8
|
|
TOTAL ASSETS
|
$
|
(44.6
|
)
|
|
$
|
5,097.5
|
|
|
$
|
1,738.5
|
|
|
$
|
1,097.4
|
|
|
$
|
(3,414.0
|
)
|
|
$
|
4,474.8
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
623.3
|
|
|
$
|
17.9
|
|
|
$
|
50.9
|
|
|
$
|
(1.7
|
)
|
|
$
|
690.4
|
|
Accrued liabilities
|
—
|
|
|
228.2
|
|
|
7.8
|
|
|
34.5
|
|
|
—
|
|
|
270.5
|
|
Current portion of pension and other postretirement benefit obligations
|
—
|
|
|
39.7
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
40.1
|
|
Total current liabilities
|
—
|
|
|
891.2
|
|
|
25.7
|
|
|
85.8
|
|
|
(1.7
|
)
|
|
1,001.0
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
—
|
|
|
2,110.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,110.1
|
|
Pension and other postretirement benefit obligations
|
—
|
|
|
890.8
|
|
|
—
|
|
|
3.4
|
|
|
—
|
|
|
894.2
|
|
Inter-company accounts
|
—
|
|
|
4,199.6
|
|
|
—
|
|
|
489.1
|
|
|
(4,688.7
|
)
|
|
—
|
|
Other non-current liabilities
|
—
|
|
|
133.2
|
|
|
1.0
|
|
|
34.7
|
|
|
—
|
|
|
168.9
|
|
TOTAL LIABILITIES
|
—
|
|
|
8,224.9
|
|
|
26.7
|
|
|
613.0
|
|
|
(4,690.4
|
)
|
|
4,174.2
|
|
Equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
(44.6
|
)
|
|
(3,127.4
|
)
|
|
1,711.8
|
|
|
139.2
|
|
|
1,276.4
|
|
|
(44.6
|
)
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
345.2
|
|
|
—
|
|
|
345.2
|
|
TOTAL EQUITY (DEFICIT)
|
(44.6
|
)
|
|
(3,127.4
|
)
|
|
1,711.8
|
|
|
484.4
|
|
|
1,276.4
|
|
|
300.6
|
|
TOTAL LIABILITIES AND EQUITY (DEFICIT)
|
$
|
(44.6
|
)
|
|
$
|
5,097.5
|
|
|
$
|
1,738.5
|
|
|
$
|
1,097.4
|
|
|
$
|
(3,414.0
|
)
|
|
$
|
4,474.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net cash flows from operating activities
|
$
|
(2.3
|
)
|
|
$
|
209.7
|
|
|
$
|
83.1
|
|
|
$
|
83.8
|
|
|
$
|
(9.6
|
)
|
|
$
|
364.7
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital investments
|
—
|
|
|
(122.9
|
)
|
|
(8.1
|
)
|
|
(21.0
|
)
|
|
—
|
|
|
(152.0
|
)
|
Other investing items, net
|
—
|
|
|
0.8
|
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
0.1
|
|
Net cash flows from investing activities
|
—
|
|
|
(122.1
|
)
|
|
(8.1
|
)
|
|
(21.7
|
)
|
|
—
|
|
|
(151.9
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under credit facility
|
—
|
|
|
(115.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(115.0
|
)
|
Redemption of long-term debt
|
—
|
|
|
(12.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12.6
|
)
|
Inter-company activity
|
2.5
|
|
|
48.3
|
|
|
(74.0
|
)
|
|
13.6
|
|
|
9.6
|
|
|
—
|
|
SunCoke Middletown distributions to noncontrolling interest owners
|
—
|
|
|
—
|
|
|
—
|
|
|
(73.7
|
)
|
|
—
|
|
|
(73.7
|
)
|
Other financing items, net
|
(0.2
|
)
|
|
(0.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
Net cash flows from financing activities
|
2.3
|
|
|
(80.0
|
)
|
|
(74.0
|
)
|
|
(60.1
|
)
|
|
9.6
|
|
|
(202.2
|
)
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
7.6
|
|
|
1.0
|
|
|
2.0
|
|
|
—
|
|
|
10.6
|
|
Cash and equivalents, beginning of year
|
—
|
|
|
14.5
|
|
|
7.2
|
|
|
16.3
|
|
|
—
|
|
|
38.0
|
|
Cash and equivalents, end of year
|
$
|
—
|
|
|
$
|
22.1
|
|
|
$
|
8.2
|
|
|
$
|
18.3
|
|
|
$
|
—
|
|
|
$
|
48.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AK
Holding
|
|
AK
Steel
|
|
Guarantor Subsidiaries of the Senior Notes
|
|
Other Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated Company
|
Net cash flows from operating activities
|
$
|
(2.5
|
)
|
|
$
|
67.3
|
|
|
$
|
73.3
|
|
|
$
|
61.7
|
|
|
$
|
(1.0
|
)
|
|
$
|
198.8
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Capital investments
|
—
|
|
|
(131.8
|
)
|
|
(5.6
|
)
|
|
(15.1
|
)
|
|
—
|
|
|
(152.5
|
)
|
Investment in acquired business, net of cash acquired
|
—
|
|
|
(360.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(360.4
|
)
|
Other investing items, net
|
—
|
|
|
4.0
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
4.2
|
|
Net cash flows from investing activities
|
—
|
|
|
(488.2
|
)
|
|
(5.6
|
)
|
|
(14.9
|
)
|
|
—
|
|
|
(508.7
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under credit facility
|
—
|
|
|
450.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
450.0
|
|
Proceeds from issuance of long-term debt
|
—
|
|
|
680.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
680.0
|
|
Redemption of long-term debt
|
—
|
|
|
(848.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(848.4
|
)
|
Debt issuance costs
|
—
|
|
|
(25.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25.3
|
)
|
Inter-company activity
|
5.0
|
|
|
31.2
|
|
|
(64.9
|
)
|
|
27.7
|
|
|
1.0
|
|
|
—
|
|
SunCoke Middletown distributions to noncontrolling interest owners
|
—
|
|
|
—
|
|
|
—
|
|
|
(79.1
|
)
|
|
—
|
|
|
(79.1
|
)
|
Other financing items, net
|
(2.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
Net cash flows from financing activities
|
2.5
|
|
|
287.5
|
|
|
(64.9
|
)
|
|
(51.4
|
)
|
|
1.0
|
|
|
174.7
|
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
(133.4
|
)
|
|
2.8
|
|
|
(4.6
|
)
|
|
—
|
|
|
(135.2
|
)
|
Cash and equivalents, beginning of year
|
—
|
|
|
147.9
|
|
|
4.4
|
|
|
20.9
|
|
|
—
|
|
|
173.2
|
|
Cash and equivalents, end of year
|
$
|
—
|
|
|
$
|
14.5
|
|
|
$
|
7.2
|
|
|
$
|
16.3
|
|
|
$
|
—
|
|
|
$
|
38.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|