Acquisition of Dearborn (Notes)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Acquisition of Dearborn

On September 16, 2014, the Company acquired Severstal Dearborn, LLC (“Dearborn”) from Severstal Columbus Holdings, LLC (“Severstal”). The assets acquired from Severstal included the integrated steelmaking assets located in Dearborn, Michigan (“Dearborn Works”), the Mountain State Carbon, LLC (“Mountain State Carbon”) cokemaking facility located in Follansbee, West Virginia, and interests in joint ventures that process flat-rolled steel products. The Company acquired Dearborn to increase scale and enhance its ability to better serve customers, further its automotive strategy, strengthen its carbon steelmaking footprint and achieve additional operational flexibility. In addition, the Company acquired highly modernized and upgraded steelmaking equipment and facilities and the opportunity to earn significant cost-based synergies. Immediately after the acquisition, Dearborn was merged with and into AK Steel.

The initial purchase price was $706.5 and was paid in cash, but that amount is subject to a customary working capital adjustment based on the final closing date net working capital. As of September 30, 2014, the Company has recorded a liability to Severstal of $14.5 for its current estimate of the final working capital adjustment, although this estimate is subject to revision. In conjunction with the acquisition, AK Steel issued $430.0 of 7.625% Senior Notes due October 2021 at a price of 99.325% of par to pay part of the purchase price and used a portion of the net proceeds from the issuance of 40.25 million shares of AK Holding common stock at a price of $9.00 per share to pay the balance of the purchase price. The Company used the additional proceeds from the issuance of AK Holding common stock to repay a portion of outstanding borrowings under its asset-backed revolving credit facility (“Credit Facility”) and for general corporate purposes. For the three and nine months ended September 30, 2014, the Company incurred acquisition costs of $6.3 and $7.3, respectively. Acquisition costs are primarily comprised of transaction fees and direct costs, including legal, finance, consulting and other professional fees. These costs are included in selling and administrative expenses in the Condensed Consolidated Statements of Operations. In addition, the Company incurred $12.6 of costs in the three and nine months ended September 30, 2014 for committed bridge financing that the Company arranged in connection with the acquisition of Dearborn, but which was unused because of the Company’s successful financing of the acquisition through the debt and common stock offerings discussed above. As a result, these costs were expensed in the third quarter and are included in other income (expense) in the Condensed Consolidated Statements of Operations. Subsequent to the acquisition, the Company incurred severance costs of $2.6 for certain employees of Dearborn, which are included in selling and administrative expenses in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014, and an income tax charge of $2.1 related to changes in the value of deferred tax assets resulting from the acquisition.

A summary of the preliminary purchase price allocation for the fair value of the assets acquired and the obligations assumed at the date of the acquisition is presented below. The purchase price allocation is preliminary and is subject to the completion of several items, including consideration of final valuations and the final determination of post-closing purchase price adjustments relating to working capital.

Cash and cash equivalents	$	29.3
Accounts receivable	152.2
Inventory	362.2
Other current assets	3.6
Property, plant and equipment	446.3
Investment in affiliates	97.5
Total assets acquired	1,091.1
Accounts payable	(204.3		)
Accrued liabilities	(36.9		)
Other postretirement benefit obligations	(121.8		)
Other non-current liabilities	(7.1		)
Total liabilities assumed	(370.1		)
Preliminary purchase price (including estimate for working capital adjustment)	$	721.0

The condensed consolidated financial statements reflect the effects of the acquisition and Dearborn’s financial results beginning September 16, 2014. The following table summarizes selected unaudited pro forma consolidated statements of operations data for the nine months ended September 30, 2014 and 2013 as if the acquisition had been completed at the beginning of each year.

	Nine Months Ended September 30,
	2014			2013
Net sales	$	5,945.1		$	5,612.4
Operating profit (loss)	(889.3		)	131.1

This selected unaudited pro forma consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisition had been completed on that date. Moreover, this information does not indicate what the Company’s future operating results will be. This information includes actual data in 2014 for the period subsequent to the date of the acquisition. The Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2014 include net sales and operating profit of $90.0 and $2.1, respectively, attributable to Dearborn since the acquisition. The estimated weighted-average life of Dearborn’s machinery and equipment is approximately 20 years. Pro forma operating profit (loss) for the nine months ended September 30, 2014, includes charges for fixed asset impairments of $1,005.1 recorded by Severstal prior to the acquisition.