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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File No. 1-13696

AK STEEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
31-1401455
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
9227 Centre Pointe Drive, West Chester, Ohio
 
45069
(Address of principal executive offices)
 
(Zip Code)

(513) 425-5000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
Smaller reporting company
 
Emerging growth company
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. Yes No

Indicate by check mark whether the registrant is a shell company. Yes No

There were 315,305,290 shares of common stock outstanding as of April 25, 2018.
 
 
 
 
 


        

AK STEEL HOLDING CORPORATION
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Table of Contents     

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
 
 
 
 
 
 
 
Three Months Ended March 31,
(unaudited)
 
2018
 
2017
 
 
 
 
As Adjusted
Net sales
 
$
1,658.9

 
$
1,533.4

 
 
 
 
 
Cost of products sold (exclusive of item shown separately below)
 
1,463.7

 
1,276.9

Selling and administrative expenses (exclusive of item shown separately below)
 
76.7

 
71.7

Depreciation
 
54.9

 
55.1

Total operating costs
 
1,595.3

 
1,403.7

Operating profit
 
63.6

 
129.7

Interest expense
 
37.6

 
39.4

Pension and OPEB (income) expense
 
(10.0
)
 
(18.1
)
Other (income) expense
 
(3.9
)
 
7.8

Income before income taxes
 
39.9

 
100.6

Income tax expense (benefit)
 
(4.9
)
 

Net income
 
44.8

 
100.6

Less: Net income attributable to noncontrolling interests
 
16.1

 
16.2

Net income attributable to AK Steel Holding Corporation
 
$
28.7

 
$
84.4

Net income per share attributable to AK Steel Holding Corporation common stockholders:
 
 
 
 
Basic
 
$
0.09

 
$
0.27

Diluted
 
$
0.09

 
$
0.26


See notes to condensed consolidated financial statements.

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Table of Contents     

AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
 
 
 
 
 
 
 
Three Months Ended March 31,
(unaudited)
 
2018
 
2017
 
 
 
 
As Adjusted
Net income
 
$
44.8

 
$
100.6

Other comprehensive income (loss), before tax:
 
 
 
 
Foreign currency translation gain (loss)
 
1.1

 
0.3

Cash flow hedges:
 
 
 
 
Gains (losses) arising in period
 
(1.4
)
 
(8.0
)
Reclassification of losses (gains) to net income (loss)
 
(7.6
)
 
(0.6
)
Pension and OPEB plans:
 
 
 
 
Reclassification of prior service cost (credits) to net income (loss)
 
(2.4
)
 
(13.4
)
Reclassification of losses (gains) to net income (loss)
 
3.6

 
1.6

Other comprehensive income (loss), before tax
 
(6.7
)
 
(20.1
)
Income tax benefit related to items of comprehensive income (loss)
 

 

Other comprehensive income (loss)
 
(6.7
)
 
(20.1
)
Comprehensive income
 
38.1

 
80.5

Less: Comprehensive income attributable to noncontrolling interests
 
16.1

 
16.2

Comprehensive income attributable to AK Steel Holding Corporation
 
$
22.0

 
$
64.3


See notes to condensed consolidated financial statements.

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Table of Contents     

AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share data)
 
 
 
 
 
(unaudited)
 
March 31,
2018
 
December 31,
2017
 
 
 
 
As Adjusted
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
44.5

 
$
38.0

Accounts receivable, net
 
619.8

 
517.8

Inventory
 
1,334.0

 
1,385.0

Other current assets
 
96.4

 
130.3

Total current assets
 
2,094.7

 
2,071.1

Property, plant and equipment
 
6,850.7

 
6,831.8

Accumulated depreciation
 
(4,899.7
)
 
(4,845.6
)
Property, plant and equipment, net
 
1,951.0

 
1,986.2

Other non-current assets
 
412.0

 
417.5

TOTAL ASSETS
 
$
4,457.7

 
$
4,474.8

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
728.6

 
$
690.4

Accrued liabilities
 
234.1

 
270.5

Current portion of pension and other postretirement benefit obligations
 
39.7

 
40.1

Total current liabilities
 
1,002.4

 
1,001.0

Non-current liabilities:
 
 
 
 
Long-term debt
 
2,103.3

 
2,110.1

Pension and other postretirement benefit obligations
 
869.2

 
894.2

Other non-current liabilities
 
150.9

 
168.9

TOTAL LIABILITIES
 
4,125.8

 
4,174.2

Equity:
 
 
 
 
Common stock, authorized 450,000,000 shares of $0.01 par value each; issued 316,330,695 and 315,782,764 shares in 2018 and 2017; outstanding 315,279,677 and 314,884,569 shares in 2018 and 2017
 
3.2

 
3.2

Additional paid-in capital
 
2,889.3

 
2,884.8

Treasury stock, common shares at cost, 1,051,018 and 898,195 shares in 2018 and 2017
 
(6.4
)
 
(5.4
)
Accumulated deficit
 
(2,849.1
)
 
(2,877.0
)
Accumulated other comprehensive loss
 
(56.1
)
 
(50.2
)
Total stockholders’ equity (deficit)
 
(19.1
)
 
(44.6
)
Noncontrolling interests
 
351.0

 
345.2

TOTAL EQUITY
 
331.9

 
300.6

TOTAL LIABILITIES AND EQUITY
 
$
4,457.7

 
$
4,474.8


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Table of Contents     

The condensed consolidated balance sheets as of March 31, 2018 and December 31, 2017, include the following amounts related to consolidated variable interest entities, prior to intercompany eliminations. See Note 11 for more information concerning variable interest entities.
(unaudited)
 
March 31,
2018
 
December 31,
2017
Middletown Coke Company, LLC (“SunCoke Middletown”)
 
 
 
 
Cash and cash equivalents
 
$
10.6

 
$
0.1

Inventory
 
16.4

 
18.4

Property, plant and equipment
 
426.0

 
425.9

Accumulated depreciation
 
(92.4
)
 
(88.6
)
Accounts payable
 
12.8

 
11.3

Other assets (liabilities), net
 
1.7

 
(1.0
)
Noncontrolling interests
 
349.5

 
343.5

 
 
 
 
 
Other variable interest entities
 
 
 
 
Cash and cash equivalents
 
$
0.4

 
$
0.7

Property, plant and equipment
 
11.7

 
11.7

Accumulated depreciation
 
(9.7
)
 
(9.6
)
Other assets (liabilities), net
 
0.8

 
0.8

Noncontrolling interests
 
1.5

 
1.7



See notes to condensed consolidated financial statements.

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Table of Contents     

AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
 
Three Months Ended March 31,
(unaudited)
 
2018
 
2017
 
 
 
 
As Adjusted
Cash flows from operating activities:
 
 
 
 
Net income
 
$
44.8

 
$
100.6

Depreciation
 
51.1

 
51.0

Depreciation—SunCoke Middletown
 
3.8

 
4.1

Amortization
 
10.0

 
7.2

Deferred income taxes
 
(6.8
)
 
1.5

Pension and OPEB expense (income)
 
(8.1
)
 
(16.2
)
Contributions to pension trust
 
(6.0
)
 

Other postretirement benefit payments
 
(10.1
)
 
(11.4
)
Changes in working capital
 
0.2

 
(92.5
)
Other operating items, net
 
(13.3
)
 
(8.0
)
Net cash flows from operating activities
 
65.6

 
36.3

Cash flows from investing activities:
 
 
 
 
Capital investments
 
(37.9
)
 
(32.5
)
Other investing items, net
 

 
1.5

Net cash flows from investing activities
 
(37.9
)
 
(31.0
)
Cash flows from financing activities:
 
 
 
 
Net borrowings (payments) under credit facility
 
(10.0
)
 

Proceeds from issuance of long-term debt
 

 
400.0

Redemption of long-term debt
 

 
(367.5
)
Debt issuance costs
 

 
(7.8
)
SunCoke Middletown distributions to noncontrolling interest owners
 
(10.3
)
 
(15.1
)
Other financing items, net
 
(0.9
)
 
(2.4
)
Net cash flows from financing activities
 
(21.2
)
 
7.2

Net increase (decrease) in cash and cash equivalents
 
6.5

 
12.5

Cash and cash equivalents, beginning of period
 
38.0

 
173.2

Cash and cash equivalents, end of period
 
$
44.5

 
$
185.7


See notes to condensed consolidated financial statements.

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Table of Contents     

AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(unaudited)
 
Common
Stock
 
Addi-
tional
Paid-In
Capital
 
Treasury
Stock
 
Accum-
ulated
Deficit
 
Accum-
ulated
Other
Compre-
hensive
Income (Loss)
 
Noncon-
trolling
Interests
 
Total
December 31, 2016 (as adjusted)
 
$
3.1

 
$
2,855.4

 
$
(2.4
)
 
$
(2,980.5
)
 
$
(88.7
)
 
$
362.9

 
$
149.8

Net income
 
 

 
 

 
 

 
84.4

 
 

 
16.2

 
100.6

Share-based compensation
 
0.1

 
4.1

 
 

 
 

 
 

 
 

 
4.2

Stock options exercised
 
 

 
0.3

 
 

 
 

 
 

 
 

 
0.3

Exchangeable notes exchange feature
 
 
 
1.6

 
 
 
 
 
 
 
 
 
1.6

Purchase of treasury stock
 
 

 
 

 
(2.9
)
 
 

 
 

 
 

 
(2.9
)
Change in accumulated other comprehensive income (loss)
 
 

 
 

 
 

 
 

 
(20.1
)
 
 

 
(20.1
)
Net distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
(15.1
)
 
(15.1
)
March 31, 2017 (as adjusted)
 
$
3.2

 
$
2,861.4

 
$
(5.3
)
 
$
(2,896.1
)
 
$
(108.8
)
 
$
364.0

 
$
218.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017 (as adjusted)
 
$
3.2

 
$
2,884.8

 
$
(5.4
)
 
$
(2,877.0
)
 
$
(50.2
)
 
$
345.2

 
$
300.6

Cumulative effect of adopting new hedging standard
 
 
 
 
 
 
 
(0.8
)
 
0.8

 
 
 

Net income
 
 

 
 

 
 

 
28.7

 
 

 
16.1

 
44.8

Share-based compensation
 
 
 
4.5

 
 

 
 

 
 

 
 

 
4.5

Purchase of treasury stock
 
 

 
 

 
(1.0
)
 
 

 
 

 
 

 
(1.0
)
Change in accumulated other comprehensive income (loss)
 
 

 
 

 
 

 
 

 
(6.7
)
 
 

 
(6.7
)
Net distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
(10.3
)
 
(10.3
)
March 31, 2018
 
$
3.2

 
$
2,889.3

 
$
(6.4
)
 
$
(2,849.1
)
 
$
(56.1
)
 
$
351.0

 
$
331.9


See notes to condensed consolidated financial statements.

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Table of Contents     

AK STEEL HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in millions, except per share data, unless otherwise indicated)

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 provides otherwise, references to “we,” “us” and “our” refer to AK Holding and its subsidiaries. In our opinion, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position as of March 31, 2018 and December 31, 2017, our results of operations for the three months ended March 31, 2018 and 2017, and our cash flows for the three months ended March 31, 2018 and 2017. Our results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results we expect for the full year ending December 31, 2018. These condensed consolidated financial statements should be read along with our audited consolidated financial statements for the year ended December 31, 2017, included in our Annual Report on Form 10-K for the year ended December 31, 2017.

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 contacts 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 risk of loss 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 risk of loss 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.

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 3 for information on the change to the average cost method effective January 1, 2018.

Pension and Other Postretirement Benefits: 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 of $10.0 and $18.1 for the three months ended March 31, 2018 and 2017, is recorded in a separate line in the condensed 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 financial statements.



- 7-

Table of Contents     

NOTE 2 - Acquisition of Precision Partners
 

On August 4, 2017, we acquired 100% of the equity of 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 has approximately 1,000 employees, including approximately 300 engineers and skilled tool makers, across eight plants in Ontario, Alabama and Kentucky. We acquired Precision Partners to reinforce our core focus on the high-growth automotive lightweighting market, enhance our prominent position in advanced high strength steels, further strengthen close collaboration with automotive market customers, and leverage both companies’ research and innovation in materials and metals-forming. We finalized the purchase price allocation as of March 31, 2018, with an immaterial adjustment to goodwill.

NOTE 3 - Supplementary Financial Statement Information
 

Revenue

Net sales by market are presented below:
 
Three Months Ended March 31,
 
2018
 
2017
Automotive
$
1,119.1

 
$
1,029.5

Infrastructure and Manufacturing
241.3

 
229.6

Distributors and Converters
298.5

 
274.3

Total
$
1,658.9

 
$
1,533.4


Net sales by product line are presented below:
 
Three Months Ended March 31,
 
2018
 
2017
Carbon steel
$
1,068.6

 
$
1,029.2

Stainless and electrical steel
426.1

 
433.9

Tubular products, components and other
164.2

 
70.3

Total
$
1,658.9

 
$
1,533.4



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 $167.8 and $155.1 for the three months ended March 31, 2018 and 2017.

Inventory

Inventories as of March 31, 2018 and December 31, 2017, are presented below:
 
March 31,
2018
 
December 31,
2017
Finished and semi-finished
$
972.5

 
$
996.8

Raw materials
361.5

 
388.2

Inventory
$
1,334.0

 
$
1,385.0



In the first quarter of 2018, we changed our accounting method for valuing certain inventories from the last-in, first-out (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.

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Table of Contents     


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 condensed consolidated balance sheet as of December 31, 2017 and our condensed consolidated statements of operations and comprehensive income (loss) and cash flows for the three months ended March 31, 2017 were adjusted as follows:
 
As Originally Reported
 
Effect of Change
 
As Adjusted
Condensed consolidated statement of operations for the three months ended March 31, 2017:
 
 
 
 
 
Cost of products sold (a)
$
1,312.2

 
$
(35.3
)
 
$
1,276.9

Income tax expense (benefit)
(13.4
)
 
13.4

 

Net income
78.7

 
21.9

 
100.6

Net income attributable to AK Steel Holding Corporation
62.5

 
21.9

 
84.4

Net income per share attributable to AK Steel Holding Corporation common stockholders:
 
 

 
 
Basic
$
0.20

 
$
0.07

 
$
0.27

Diluted
0.19

 
0.07

 
0.26

 
 
 
 
 
 
Condensed consolidated statement of comprehensive income for the three months ended March 31, 2017:
 
 
 
 
 
Cash flow hedges—Reclassification of losses (gains) to net income (loss)
$
(3.2
)
 
$
2.6

 
$
(0.6
)
Comprehensive income
56.0

 
24.5

 
80.5

Comprehensive income attributable to AK Steel Holding Corporation
39.8

 
24.5

 
64.3

 
 
 
 
 
 
Condensed consolidated balance sheet as of December 31, 2017:
 
 
 
 
 
Inventory
$
1,147.8

 
$
237.2

 
$
1,385.0

Other non-current assets
476.0

 
(58.5
)
 
417.5

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
)
 
 
 
 
 
 
Condensed consolidated statement of cash flows for the three months ended March 31, 2017:
 
 
 
 
 
Net income
$
78.7

 
$
21.9

 
$
100.6

Deferred income taxes
(11.9
)
 
13.4

 
1.5

Changes in working capital
(54.6
)
 
(37.9
)
 
(92.5
)
Other operating items, net
(10.6
)
 
2.6

 
(8.0
)
(a)
Cost of products sold as originally reported reflects the change in presentation of pension and OPEB (income) expense further described in Note 1.


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Table of Contents     

The following table shows the effects of the change in accounting principle from LIFO to average cost as of March 31, 2018 and for the three months ended March 31, 2018:
 
As Computed under LIFO
 
As Reported under Average Cost
 
Effect of Change
Condensed consolidated statement of operations for the three months ended March 31, 2018:
 
 
 
 
 
Cost of products sold
$
1,478.9

 
$
1,463.7

 
$
(15.2
)
Income tax expense (benefit)
(8.2
)
 
(4.9
)
 
3.3

Net income
32.9

 
44.8

 
11.9

Net income attributable to AK Steel Holding Corporation
16.8

 
28.7

 
11.9

Net income per share attributable to AK Steel Holding Corporation common stockholders:
 
 
 
 
 
Basic
$
0.05

 
$
0.09

 
$
0.04

Diluted
0.05

 
0.09

 
0.04

 
 
 
 
 
 
Condensed consolidated statement of comprehensive income for the three months ended March 31, 2018:
 
 
 
 
 
Cash flow hedges—Reclassification of losses (gains) to net income (loss)
$
(5.9
)
 
$
(7.6
)
 
$
(1.7
)
Comprehensive income
27.9

 
38.1

 
10.2

Comprehensive income attributable to AK Steel Holding Corporation
11.8

 
22.0

 
10.2

 
 
 
 
 
 
Condensed consolidated balance sheet as of March 31, 2018:
 
 
 
 
 
Inventory
$
1,083.3

 
$
1,334.0

 
$
250.7

Other non-current assets
479.1

 
412.0

 
(67.1
)
Other non-current liabilities
148.9

 
150.9

 
2.0

Accumulated deficit
(3,042.6
)
 
(2,849.1
)
 
193.5

Accumulated other comprehensive loss
(44.2
)
 
(56.1
)
 
(11.9
)
 
 
 
 
 
 
Condensed consolidated statement of cash flows for the three months ended March 31, 2018:
 
 
 
 
 
Net income
$
32.9

 
$
44.8

 
$
11.9

Deferred income taxes
(10.1
)
 
(6.8
)
 
3.3

Changes in working capital
13.7

 
0.2

 
(13.5
)
Other operating items, net
(11.6
)
 
(13.3
)
 
(1.7
)


- 10-

Table of Contents     


Other Non-Current Assets

The change in goodwill for the three months ended March 31, 2018, was as follows.
 
2018
Balance at December 31, 2017
$
253.8

Adjustment to acquisition purchase price
1.2

Balance at March 31, 2018
$
255.0


Intangible assets at March 31, 2018, consist of:
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Customer relationships
$
36.6

 
$
(3.5
)
 
$
33.1

Technology
19.3

 
(2.1
)
 
17.2

Other
1.0

 
(0.6
)
 
0.4

Intangible assets
$
56.9

 
$
(6.2
)
 
$
50.7


Intangible assets at December 31, 2017, consist of:
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
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 $2.4 for the three months ended March 31, 2018.

Investments in Affiliates

We have investments in several businesses accounted for using the equity method of accounting. Cost of products sold includes $1.3 and $3.4 for the three months ended March 31, 2018 and 2017, for our share of income of equity investees.

Summarized financial statement data for all investees is presented below.
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Revenue
 
$
74.8

 
$
72.5

Gross profit
 
21.1

 
25.5

Net income
 
4.2

 
8.9



Facility Idling

In the fourth quarter of 2015, we temporarily idled the Ashland Works blast furnace and steelmaking operations (“Ashland Works Hot End”). We incurred on-going costs of $5.4 and $5.6 for the three months ended March 31, 2018 and 2017, for maintenance of the equipment, utilities and supplier obligations related to the Ashland Works Hot End.

We continue to engage in regular reviews of the potential viability of the Ashland Works Hot End, including an assessment of the most significant risks and benefits of a permanent idling of those idled operations. As part of these reviews, we take into consideration, among other items, our strategic focus on reducing participation in commodity markets to position the company for sustainable profitability and whether we anticipate that future market conditions will enable production from the Ashland Works Hot End to generate sustainable economic returns through steel market cycles. The Ashland Works Hot End remains on temporary idle based on our assessment of forecasted supply and demand characteristics of the markets that we

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serve. No final determination has been made at this time regarding the long-term status of the operations. Factors that we continue to assess in relation to our decision on the long-term status of the Ashland Works Hot End include, among other items, an uncertain global trade landscape influenced by shifting domestic and international political priorities, continued intense competition from both domestic and foreign steel competitors, excess global steel capacity, volatile raw material costs and steel prices, and our cost structure relative to other sources of steel production. If we decide to permanently idle the Ashland Works Hot End, we would incur certain cash expenses, including those relating to labor benefit obligations, certain take-or-pay supply agreements and potentially accelerated environmental remediation costs.

NOTE 4 - Income Taxes
 

Income taxes recorded for the periods ended March 31, 2018 and 2017, were estimated using the discrete method. Income taxes are based on our financial results through the end of the period, as well as the related change in the valuation allowance on deferred tax assets. We are unable to estimate the annual effective tax rate with sufficient precision for purposes of the effective tax rate method, which requires us to consider a projection of full-year income and the expected change in the valuation allowance. The estimated annual effective tax rate method was not reliable due to its sensitivity to small changes to forecasted annual pre-tax earnings and the effect of our valuation allowance, which create results with significant variations in the customary relationship between income tax expense and pre-tax income for the interim periods. As a result, we determined that using the discrete method is more appropriate than using the annual effective tax rate method.

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 Cuts and Jobs Act of 2017 that allow us to use certain indefinite-lived deferred tax liabilities as a source of future income to realize deferred tax assets. We have not completed our determination of the accounting implications of the Tax Cuts and Jobs Act of 2017 on our tax balances. However, we have reasonably estimated the provisional effects of the act in these condensed consolidated financial statements.

NOTE 5 - Long-term Debt and Other Financing
 

Debt balances at March 31, 2018 and December 31, 2017, are presented below:
 
March 31,
2018
 
December 31,
2017
Credit Facility
$
440.0

 
$
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%)
150.0

 
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%)
280.0

 
280.0

7.00% Senior Notes due March 2027
400.0

 
400.0

Industrial Revenue Bonds due 2020 through 2028
99.3

 
99.3

Unamortized debt discount and issuance costs
(52.2
)
 
(55.4
)
Total long-term debt
$
2,103.3

 
$
2,110.1



During the three months ended March 31, 2018, we were in compliance with all the terms and conditions of our debt agreements. In the three months ended March 31, 2017, we recognized other expense of $9.7 for expenses related to the repurchase of senior unsecured notes.

Credit Facility

We have a $1,350.0 revolving credit facility (the “Credit Facility”), which expires in September 2022 and is guaranteed by AK Holding and by AK Tube LLC (“AK Tube”), AK Steel Properties, Inc. and Mountain State Carbon LLC, 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

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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 do not expect any of these restrictions to affect or limit our ability to conduct business in the ordinary course. 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.

As of March 31, 2018, we had outstanding borrowings of $440.0 under the Credit Facility. At March 31, 2018, our eligible collateral, after application of applicable advance rates, was $1,331.3. Availability as of March 31, 2018, was $819.8 after reductions of $71.5 for outstanding letters of credit.

NOTE 6 - Pension and Other Postretirement Benefits
 

Net periodic benefit (income) expense for pension and other postretirement benefits was as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Pension Benefits
 
 
 
Service cost
$
0.8

 
$
0.7

Interest cost
23.7

 
27.0

Expected return on assets
(38.8
)
 
(37.6
)
Amortization of prior service cost
1.0

 
1.2

Amortization of loss
3.9

 
2.7

Net periodic benefit (income) expense
$
(9.4
)
 
$
(6.0
)
 
 
 
 
Other Postretirement Benefits
 
 
 
Service cost
$
1.1

 
$
1.2

Interest cost
3.9

 
4.3

Amortization of prior service cost (credit)
(3.4
)
 
(14.6
)
Amortization of (gain) loss
(0.3
)
 
(1.1
)
Net periodic benefit (income) expense
$
1.3

 
$
(10.2
)


We are required to contribute $49.9 to the master pension trust during 2018, of which $6.0 was contributed in the first quarter of 2018 and another $9.2 was contributed in April 2018. Based on current actuarial assumptions, we estimate that our required pension contributions will be approximately $35.0 and $10.0 in 2019 and 2020. Factors that affect our estimates of future funding projections include return 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.

NOTE 7 - Environmental and Legal Contingencies
 

Environmental Contingencies

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 condensed consolidated balance sheets:

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March 31,
2018
 
December 31,
2017
Accrued liabilities
$
8.2

 
$
8.5

Other non-current liabilities
31.0

 
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 United States Environmental Protection Agency (“EPA”) and authorized state environmental agencies may conduct inspections of RCRA-regulated facilities to identify areas where there have been releases of hazardous waste or hazardous constituents into the environment and may order the facilities to take corrective action to remediate such releases. Environmental regulators may inspect our major steelmaking facilities. While we cannot predict the future actions of these regulators, it is possible that they may identify conditions in future inspections of these facilities which they believe require corrective action.

Under authority from the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the EPA and state environmental authorities have conducted site investigations at certain of our facilities and other third-party facilities, portions of which previously may have been used for disposal of materials that are currently regulated. The results of these investigations are still pending, and we could be directed to spend funds for remedial activities at the former disposal areas. Because of the uncertain status of these investigations, however, we cannot reliably predict whether or when such spending might be required or their magnitude.

As previously 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.


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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. 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 2019, though it may be delayed.

As previously reported, on June 29, 2000, the United States filed a complaint on behalf of the EPA against us in the U.S. District Court for the Southern District of Ohio, Case No. C-1-00530, alleging violations of the Clean Air Act, the Clean Water Act and RCRA at our Middletown Works. Subsequently, the State of Ohio, the Sierra Club and the National Resources Defense Council intervened. On May 15, 2006, the court entered a Consent Decree in Partial Resolution of Pending Claims (the “Consent Decree”). Under the Consent Decree, we agreed to undertake a comprehensive RCRA facility investigation at Middletown Works and, as appropriate, complete a corrective measures study. The Consent Decree required us to implement certain RCRA corrective action interim measures to address polychlorinated biphenyls (“PCBs”) in sediments and soils at Dicks Creek and certain other specified surface waters, adjacent floodplain areas and other previously identified geographic areas. We have completed the remedial activity at Dicks Creek, but continue to work on the RCRA facility investigation and certain interim measures. We have accrued $13.6 for the cost of known work required under the Consent Decree for the RCRA facility investigation and remaining interim measures.

As previously reported, on May 12, 2014, the Michigan Department of Environmental Quality (“MDEQ”) issued to our Dearborn Works 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. On October 9, 2014, the appellants filed a Motion for Peremptory Reversal of the MDEQ’s decision to issue the PTI. We believe that the MDEQ issued the PTI properly in compliance with applicable law and will vigorously contest this appeal. On October 17, 2014, we filed a motion to dismiss the appeal. Additionally, on December 15, 2014, we filed a motion to dismiss the appeal for lack of jurisdiction. At the conclusion of a hearing on all three motions on February 12, 2015, all three motions were denied. On July 12, 2016, the Michigan Court of Appeals denied our motion seeking to overturn the decision of the Circuit Court denying our motion to dismiss for lack of jurisdiction. On October 5, 2016, we filed an application with the Michigan Supreme Court for leave to appeal, seeking to overturn the decision of the Michigan Court of Appeals. Until the appeal is resolved, we cannot determine what the ultimate permit limits will be. Until the permit limits are determined and final, we cannot reliably estimate the costs we may 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.

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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, AK Steel received an order in October 2002 from the EPA under Section 3013 of RCRA requiring it to investigate several areas of Zanesville Works that allegedly could be sources of contamination. A site investigation began in 2003 and was approved by EPA in November 2012. On October 28, 2016, the EPA requested that we conduct a corrective measures study and implement these measures as necessary. We subsequently agreed to proceed with a voluntary corrective measures study and have accrued $0.1 for the study. Until it 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 March 31, 2018, is presented below:
 
 
Asbestos Cases Pending at
 
 
March 31, 2018
Cases with specific dollar claims for damages:
 
 
Claims up to $0.2
 
137

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)
 
144

Cases without a specific dollar claim for damages
 
193

Total asbestos cases pending
 
337

(a)
Involve a total of 2,246 plaintiffs and 17,826 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

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small fraction of the damages initially claimed. Asbestos-related claims information for the three months ended March 31, 2018 and 2017 is presented below:
 
Three Months Ended March 31,
 
2018
 
2017
New Claims Filed
12

 
18

Pending Claims Disposed Of
11

 
11

Total Amount Paid in Settlements
$
0.3

 
$
0.1



Since the onset of asbestos claims against us in 1990, five asbestos claims against us have proceeded to trial in four separate cases. All five concluded with a verdict in our favor. We continue to vigorously defend the asbestos claims. Based upon present knowledge, and the factors above, we believe it is unlikely that the resolution in the aggregate of the asbestos claims against us will have a materially adverse effect on our consolidated results of operations, cash flows or financial condition. However, predictions about the outcome of pending litigation, particularly claims alleging asbestos exposure, are subject to substantial uncertainties. These uncertainties include (1) the significantly variable rate at which new claims may be filed, (2) the effect of bankruptcies of other companies currently or historically defending asbestos claims, (3) the litigation process from jurisdiction to jurisdiction and from case to case, (4) the type and severity of the disease each claimant alleged to suffer, and (5) the potential for enactment of legislation affecting asbestos litigation.

As previously reported, in September and October 2008 and again in July 2010, several companies filed purported class actions in the United States District Court for the Northern District of Illinois against nine steel manufacturers, including us. The case numbers for these actions are 08CV5214, 08CV5371, 08CV5468, 08CV5633, 08CV5700, 08CV5942, 08CV6197 and 10CV04236. On December 28, 2010, another action, case number 32,321, was filed in state court in the Circuit Court for Cocke County, Tennessee. The defendants removed the Tennessee case to federal court and in March 2012 it was transferred to the Northern District of Illinois. The plaintiffs in the various pending actions are companies that purport to have purchased steel products, directly or indirectly, from one or more of the defendants and they claim to file the actions on behalf of all persons and entities who purchased steel products for delivery or pickup in the United States from any of the named defendants at any time from at least as early as January 2005. The complaints allege that the defendant steel producers have conspired in violation of antitrust laws to restrict output and to fix, raise, stabilize and maintain artificially high prices for steel products in the United States. In March 2014, we reached an agreement with the direct purchaser plaintiffs to tentatively settle the claims asserted against us, subject to certain court approvals below. According to that settlement, we agreed to pay $5.8 to the plaintiff class of direct purchasers in exchange for the members of that class to completely release all claims. We continue to believe that the claims made against us lack any merit, but we elected to enter the settlement to avoid the ongoing expense of defending ourselves in this protracted and expensive antitrust litigation. We provided notice of the proposed settlement to members of the settlement class. After several class members received the notice, they elected to opt out of the class settlement. Following a fairness hearing, on October 21, 2014 the Court entered an order and judgment approving the settlement and dismissing all of the direct plaintiffs’ claims against us with prejudice as to the settlement class. In 2014, we recorded a charge for the amount of the tentative settlement with the direct purchaser plaintiff class and paid that amount into an escrow account, which has now been disbursed in accordance with the order that approved the settlement. 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. Because we have been unable to determine that a potential loss in this case for the indirect plaintiffs is probable or estimable, we have not recorded an accrual for this matter. If our assumptions used to evaluate a probable or estimable loss for the indirect plaintiffs prove to be incorrect or change, we may be required to record a charge for their claims.

As previously reported, on January 20, 2010, ArcelorMittal France and ArcelorMittal Atlantique et Lorraine (collectively “ArcelorMittal”) filed an action in the United States District Court for the District of Delaware, Case No. 10-050-SLR against us, Dearborn, and Wheeling-Nisshin Inc., whom Dearborn indemnified in this action. By virtue of our responsibility as a successor-in-interest to Dearborn and an indemnitor of Wheeling-Nisshin Inc., we now have complete responsibility for the defense of this action. The three named defendants are collectively referred to hereafter as “we” or “us”, though the precise claims against each separate defendant may vary. The complaint alleges that we are infringing the claims of U.S. Patent No. 6,296,805 (the “Patent”) in making pre-coated cold-rolled boron steel sheet and seeks injunctive relief and unspecified compensatory damages. We filed an answer denying ArcelorMittal’s claims and raised various affirmative defenses. We also filed counterclaims against ArcelorMittal for a declaratory judgment that we are not infringing the Patent and that the Patent is invalid. Subsequently, the trial court separated the issues of liability and damages. The case proceeded with a trial to a jury

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on the issue of liability during the week of January 15, 2011. The jury returned a verdict that we did not infringe the Patent and that the Patent was invalid. Judgment then was entered in our favor. ArcelorMittal filed an appeal with the United States Court of Appeals for the Federal Circuit. On November 30, 2012, the court of appeals issued a decision reversing certain findings related to claim construction and the validity of the Patent and remanded the case to the trial court for further proceedings. On January 30, 2013, ArcelorMittal filed a motion for rehearing with the court of appeals. On March 20, 2013, the court of appeals denied ArcelorMittal’s motion for rehearing. The case then was remanded to the trial court for further proceedings. On April 16, 2013, according to a petition previously filed by ArcelorMittal and ArcelorMittal USA LLC, the U.S. Patent and Trademark Office (“PTO”) reissued the Patent as U.S. Reissue Patent RE44,153 (the “Reissued Patent”). Also on April 16, 2013, ArcelorMittal filed a second action against us in the United States District Court for the District of Delaware, Case Nos. 1:13-cv-00685 and 1:13-cv-00686 (collectively the “Second Action”). The complaint filed in the Second Action alleges that we are infringing the claims of the Reissued Patent and seeks injunctive relief and unspecified compensatory damages. On April 23, 2013, we filed a motion to dismiss key elements of the complaint filed in the Second Action. In addition, the parties briefed related non-infringement and claims construction issues in the original action. On October 25, 2013, the district court granted summary judgment in our favor, confirming that our product does not infringe the original Patent or the Reissued Patent. The court further ruled that ArcelorMittal’s Reissued Patent was invalid due to ArcelorMittal’s deliberate violation of a statutory prohibition on broadening a patent through reissue more than two years after the original Patent was granted and that the original Patent had been surrendered when the Reissued Patent was issued and thus is no longer in effect. Final Judgment was entered on October 31, 2013. On November 6, 2013, ArcelorMittal filed a motion to clarify or, in the alternative, to alter or amend the October 31, 2013 judgment. We opposed the motion. On December 5, 2013, the court issued a memorandum and order denying the motion and entered final judgment in our favor, and against ArcelorMittal, specifically ruling that all claims of ArcelorMittal’s Reissued Patent are invalid as violative of 35 U.S.C. §251(d). On December 30, 2013, ArcelorMittal filed notices of appeal to the Federal Circuit Court of Appeals. The appeal has been fully briefed and the court of appeals held a hearing on November 4, 2014. On May 12, 2015, the Federal Circuit issued its decision affirming in part and reversing in part the trial court’s decision and remanding the case for further proceedings. The Federal Circuit ruled that 23 of the 25 claims of the Reissued Patent were improperly broadened and therefore invalid. However, the Federal Court found that the district court erred in invalidating the remaining two claims and remanded the case for further proceedings before the district court. Following the remand, ArcelorMittal filed a motion in the trial court for leave to amend the Second Action to assert additional patent infringement claims based on another, related patent that the PTO issued on June 10, 2014, No. RE044940 (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. The briefing of that appeal is completed and the parties are awaiting a decision from the court. 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 the potential loss if ArcelorMittal prevails in its appeal in this dispute. Because we have been unable to determine that the potential loss in this case is probable or estimable, we have not recorded an accrual for this matter. If our assumptions used to evaluate whether a loss in this matter is either probable or estimable prove to be incorrect or change, we may be required to record a liability for an adverse outcome.

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.

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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 8 - Share-based Compensation
 

AK Holding’s Stock Incentive Plan (“SIP”) permits the granting of nonqualified stock option, restricted stock, performance share and restricted stock unit awards to our Directors, officers and other employees. We have estimated share-based compensation expense to be $9.4 for 2018. The first quarter information is presented below:
 
Three Months Ended March 31,
Share-based Compensation Expense
2018
 
2017
Stock options
$
1.7

 
$
1.5

Restricted stock
1.9

 
1.9

Restricted stock units issued to Directors
0.3

 
0.4

Performance shares
0.5

 
0.4

Equity-based long-term performance plan
0.1

 

Total share-based compensation expense
$