Acquisition of Dearborn

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Acquisition of Dearborn

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 achieve significant cost-based synergies. Immediately after the acquisition, Dearborn was merged with and into AK Steel.

The final cash purchase price was $690.3, net of cash acquired, after payment of the final working capital adjustment to Severstal of $13.1 in the fourth quarter of 2014. 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 year ended December 31, 2014, the Company incurred acquisition costs of $8.1. Acquisition costs are primarily comprised of transaction fees and direct costs, including legal, finance, consulting and other professional fees, and are included in selling and administrative expenses. In addition, the Company incurred $12.6 of costs in the year ended December 31, 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 2014 and are included in other income (expense). 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 for the year ended December 31, 2014, and an income tax charge of $8.4 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 for property, plant and equipment and the investments in affiliates. The discount rate used to measure the initial other postretirement benefit obligation was 4.49%.

Accounts receivable	$	154.4
Inventory	362.2
Other current assets	3.6
Property, plant and equipment	459.3
Investment in affiliates	88.2
Total assets acquired	1,067.7
Accounts payable	(201.2		)
Accrued liabilities	(36.1		)
Other postretirement benefit obligations	(128.2		)
Other non-current liabilities	(11.9		)
Total liabilities assumed	(377.4		)
Purchase price, net of cash acquired	$	690.3

The 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 years ended December 31, 2014 and 2013 as if the acquisition had been completed at the beginning of each year.

	2014			2013
Net sales	$	7,942.7		$	7,601.6
Operating profit (loss)	(816.2		)	170.5

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 Consolidated Statement of Operations for the year ended December 31, 2014 includes net sales and operating profit of $567.0 and $12.2, 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 years ended December 31, 2014 and 2013, includes charges for fixed asset impairments of $1,005.1 and $43.0, respectively, recorded by Severstal prior to the acquisition.