Variable Interest Entities

9 Months Ended

Sep. 30, 2012

Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract]

Variable Interest Entities

Variable Interest Entities

SunCoke Middletown

The Company is a party to supply contracts with Middletown Coke Company, LLC (“SunCoke Middletown”), an affiliate of SunCoke Energy, Inc., to provide the Company with about 550,000 tons of metallurgical-grade lump coke and approximately 45 megawatts of electrical power annually. Under those agreements, the Company will purchase all of the coke and electrical power generated from a new plant, which began operations in the fourth quarter of 2011, through at least 2031. Even though the Company has no ownership interest in SunCoke Middletown, because the Company has committed to purchase all of the expected production from the facility, SunCoke Middletown is deemed to be a variable interest entity and the Company has been determined to be the primary beneficiary. Thus, the financial results of SunCoke Middletown are required to be consolidated with the results of the Company. Included in the Company’s Condensed Consolidated Statements of Operations were operating profit (loss) and income (loss) before taxes related to SunCoke Middletown of $13.2 and $(4.4) for the three months ended September 30, 2012 and 2011, respectively, and $31.7 and $(5.9) for the nine months ended September 30, 2012 and 2011, respectively.

Magnetation LLC

In October 2011, AK Steel entered into its Magnetation LLC joint venture (“Magnetation”) with Magnetation, Inc. (“the JV Partner”) whereby AK Steel acquired a 49.9% interest in Magnetation. Magnetation utilizes advanced magnetic separation technology to recover iron ore from existing stockpiles of previously-mined material. The Company has determined that Magnetation is a variable interest entity and that the JV Partner is the primary beneficiary. For purposes of determining the primary beneficiary of the variable interest entity, the Company concluded that the JV Partner has the power to direct the activities that most significantly affect Magnetation’s economic performance. These activities are primarily related to the operating contracts between Magnetation and the JV Partner, including acquisition of iron ore resources, management administrative services (including management supervision, accounting, human resources, tax and information technology services), sales and marketing activities, licensing of significant technology to Magnetation and construction services. Further, the JV Partner would receive a majority of the expected returns and absorb a majority of the expected losses of Magnetation. Thus, because AK Steel is not the primary beneficiary of Magnetation, the Company accounts for its investment under the equity method of accounting. Included in other income (expense) was the Company’s share of income related to Magnetation of $4.6 and $4.2 for the three and nine months ended September 30, 2012, respectively. As of September 30, 2012, the Company’s carrying cost of the investment exceeded its share of the underlying equity in net assets of Magnetation, recorded using historical carrying amounts, by $75.7. This difference is being amortized through equity in earnings and is included in the above amounts.

The terms of the agreements governing the joint venture provide that once Magnetation had achieved certain benchmarks with respect to production output and per ton cost of concentrate, AK Steel would be obligated to make a final Phase I capital contribution to Magnetation. However, in the third quarter of 2012 AK Steel elected to accelerate a portion of this $47.5 contribution and contributed $25.0 to Magnetation. These funds were used by Magnetation almost entirely to make downpayments on long lead-time items for Magnetation’s iron ore pelletizing plant to be constructed in Phase II of the joint venture. The rationale for these accelerated contributions is the Company’s belief that Magnetation has the opportunity to achieve an accelerated schedule for completing the pellet plant and realizing the financial benefits sooner than previously anticipated. Securing orders for the necessary long lead-time items was the first critical step toward that goal. In early October 2012, Magnetation notified AK Steel that it had accomplished the Phase I benchmarks and the Company expects to make its final Phase I contribution of $22.5 to Magnetation in the fourth quarter of 2012.

Vicksmetal/Armco Associates

The Company indirectly owns a 50% interest in Vicksmetal/Armco Associates (“VAA”), a joint venture with Vicksmetal Company, which is owned by Sumitomo Corporation. VAA slits electrical steel primarily for AK Steel, though also for third parties. AK Steel has determined that VAA meets the definition of a variable interest entity and the financial results of VAA are consolidated with the results of the Company, as the primary beneficiary.