-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DNtMDUWkW7AbeBHdYpSNH4qwjAdslHIyzD3XoXuNYL6E3fXGYV69tYNZttswqUyA 1LkjkUaUL9YG54cQ0lkz9w== 0000950130-98-000295.txt : 19980128 0000950130-98-000295.hdr.sgml : 19980128 ACCESSION NUMBER: 0000950130-98-000295 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980126 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AK STEEL HOLDING CORP CENTRAL INDEX KEY: 0000918160 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 311401455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13696 FILM NUMBER: 98512920 BUSINESS ADDRESS: STREET 1: 703 CURTIS ST CITY: MIDDLETOWN STATE: OH ZIP: 45043 BUSINESS PHONE: 5134255000 MAIL ADDRESS: STREET 1: 703 CURTIS ST CITY: MIDDLETOWN STATE: OH ZIP: 45043 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997. 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) 31-1401455 DELAWARE (I.R.S. EMPLOYER IDENTIFICATION NO.) (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 703 CURTIS STREET, MIDDLETOWN, OHIO 45043 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) Registrant's telephone number, including area code: (513) 425-5000. Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH TITLE OF EACH CLASS REGISTERED ------------------- ------------------------------ COMMON STOCK $.01 PAR VALUE NEW YORK STOCK EXCHANGE 10 3/4% SENIOR NOTES DUE 2004 NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Aggregate market value of the registrant's voting stock held by non- affiliates at January 22, 1998: $894,263,776. At January 22, 1998 there were 60,762,130 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information required to be furnished pursuant to Part III of this Form 10-K will be set forth in, and incorporated by reference from, the registrant's definitive proxy statement for the annual meeting of stockholders to be held May 21, 1998, (the "1997 Proxy Statement"), which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year ended December 31, 1997. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- AK STEEL HOLDING CORPORATION TABLE OF CONTENTS
PAGE ---- Item 1. Business.......................................................... 1 Item 2. Properties........................................................ 4 Item 3. Legal Proceedings................................................. 4 Item 4. Submission of Matters to a Vote of Security Holders............... 5 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................................... 6 Item 6. Selected Financial Data........................................... 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 9 Item 8. Financial Statements and Supplementary Data....................... 13 Item 9. Changes in and Disagreements with Accountants..................... 31 Item 10. Directors and Executive Officers of the Registrant................ 31 Item 11. Executive Compensation............................................ 31 Item 12. Security Ownership of Certain Beneficial Owners and Management.... 31 Item 13. Certain Relationships and Related Transactions.................... 31 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K.. 32
i PART I ITEM 1. BUSINESS. GENERAL AK Steel Holding Corporation, through its wholly-owned subsidiary, AK Steel Corporation (collectively, the "Company"), is a fully-integrated producer of flat rolled steel. The Company concentrates on the production of premium quality coated, cold rolled and hot rolled carbon steel primarily for sale to the automotive, appliance, construction and manufacturing markets. The Company also cold rolls and aluminum coats stainless steel for automotive industry customers. During 1997, the Company's shipments totalled 4,646,800 tons, of which 2,874,800 tons, or approximately 62%, consisted of value-added coated and cold rolled carbon steel products, as well as approximately 70,000 tons of aluminum coated stainless steel. The Company has earned a reputation, particularly among high-end customers, for consistent product quality and superior service, receiving numerous customer quality awards. The Company is registered under the ISO 9002 international quality standard and certified under the QS 9000 quality assurance program used by domestic automotive manufacturers. OPERATIONS The Company currently conducts operations at its Middletown Works in Middletown, Ohio, and its Ashland Works in Ashland, Kentucky. In November 1996, the Company announced plans to construct its Rockport Works, a state-of- the-art finishing facility currently being constructed on a 1,700 acre site in Spencer County, Indiana, near the Ohio River community of Rockport. For further information with respect to these facilities, see Item 2. Properties. CUSTOMERS The Company's principal customers are in the automotive, appliance, construction and manufacturing markets. The Company also sells its products to distributors and convertors. The Company's marketing efforts are principally directed toward those customers who require on-time delivery, technical support and the highest quality coated and cold rolled products. The Company believes that its enhanced product quality and delivery capabilities, and its emphasis on customer technical support and product planning, are critical factors in its ability to serve this segment of the market. The following table sets forth the percentage of the Company's net sales attributable to various markets:
YEARS ENDED DECEMBER 31, -------------- 1995 1996 1997 ---- ---- ---- Automotive.................................................... 50% 55% 56% Appliance, Construction and Manufacturing..................... 16% 15% 16% Distributors and Convertors................................... 34% 30% 28%
Consistent with management's strategy of concentrating on the high-end of the flat rolled carbon steel market, shipments to the automotive market have increased steadily in recent years. A major factor contributing to this increase has been the growth in the number of U.S.-based plants of foreign automotive manufacturers. The Company supplies coated, cold rolled and hot rolled steel to nearly all of these producers and is a major supplier to General Motors, Ford and Chrysler. Shipments to General Motors, the Company's largest customer, accounted for approximately 20%, 17% and 18% of net sales in 1995, 1996 and 1997, respectively. No other customer accounted for more than 10% of net sales for any of these years. 1 The appliance, construction and manufacturing markets consist principally of the home appliance market, heating, ventilation and air conditioning market and the lighting industry. Distributors and convertors, the third category of the Company's primary markets, purchase primarily hot rolled and cold rolled products and may process these further or sell them directly to third parties. Sales generally are made on a spot market basis. RAW MATERIALS The principal raw materials and commodities required in the Company's manufacturing operations are coal, iron ore, electricity, natural gas, oxygen, scrap metal, limestone and other commodity materials, all of which are purchased at competitive or prevailing market prices. Adequate sources of supply exist for all of the Company's raw material requirements. EMPLOYEES As of December 31, 1997, the Company had approximately 5,800 active employees, of whom approximately 55% were represented by the Armco Employees Independent Federation, Inc. (the "AEIF"), 19% by the United Steelworkers of America (the "USWA") and 6% by the Oil, Chemical and Atomic Workers Union (the "OCAW"). The AEIF represents all hourly employees and certain nonexempt salaried employees at the Middletown Works. The USWA represents hourly steelmaking employees and certain nonexempt salaried employees at the Ashland Works. The OCAW represents hourly employees at the Ashland Works coke manufacturing facility. The Company's existing labor contracts are scheduled to expire as follows: AEIF--February 29, 2000, USWA--September 1, 2000, and OCAW--April 1, 2001. COMPETITION The Company competes with domestic and foreign flat-rolled carbon steel producers and producers of plastics, aluminum and other materials that can be used in place of flat-rolled carbon steel in manufactured products. Price, service, delivery and quality are the primary competitive factors faced by the Company, and vary in importance according to the category of product and customer requirements. Domestic steel producers face significant competition from foreign producers who typically have lower labor costs. In addition, many foreign steel producers are owned, controlled or subsidized by their governments and their decisions with respect to production and sales may be influenced more by political and economic policy considerations than by prevailing market conditions. ENVIRONMENTAL MATTERS Domestic steel producers, including the Company, are subject to stringent federal, state and local laws and regulations relating to the protection of human health and the environment. The Company has expended the following for environmental related capital investments and environmental compliance:
YEARS ENDED DECEMBER 31, ------------ 1995 1996 1997 ----- ----- ----- (IN MILLIONS) Environmental related capital investments................. $19.1 $ 6.1 $ 4.3 Environmental compliance costs............................ 51.7 53.6 52.9
2 The Clean Air Act Amendments of 1990 (the "Amendments") imposed new standards designed to reduce air emissions. The Amendments have directly affected many of the Company's operations, particularly its coke oven batteries. As of December 31, 1997, the Company has incurred $67.3 million in capital investments to bring its coke operations into compliance with the Amendments' requirements. The Company does not anticipate any material impact on its future recurring operating costs or profitability as a result of its compliance with current environmental regulations. Moreover, the Company believes that since all domestic steel producers operate under the same set of environmental regulations, the Company is under no competitive disadvantage resulting from compliance with such regulations. Environmental Remediation The Company and its predecessors have been conducting steel manufacturing and related operations for over 90 years. Although the Company believes that its predecessors utilized operating practices that were standard in the industry at the time, hazardous materials may have been released in or under currently or previously operated sites. Although the Company does not have sufficient information to estimate its potential liability in connection with any potential future remediation, it believes that if any such remediation is required, it will occur over an extended period of time. Pursuant 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 order the facilities to take corrective action to remediate such releases. The Middletown Works and the Ashland Works are subject to RCRA inspections by environmental regulators. While the Company cannot predict the future actions of these regulators, the potential exists for required corrective action at these facilities. Under the authority of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), EPA and state environmental authorities have conducted site investigations at certain of the Company's facilities, portions of which previously had been used for disposal of currently regulated materials. While the results of these investigations are still pending, the Company could, in the future, be directed to incur costs for remedial activities at the former disposal areas. Given the uncertain status of these investigations, however, the Company currently is unable to predict if and when such costs might arise or, if they should arise, their magnitude. Environmental Proceedings Under the authority of CERCLA, the Kentucky Department of Environmental Protection conducted a comprehensive review of the waste management control systems and handling practices at the Ashland Works coke department and steelmaking facility in July, August and September 1991. As a result of this inspection, the Kentucky Natural Resources and Environmental Protection Cabinet instituted an administrative proceeding against the Company in November 1993, alleging certain regulatory violations. The Company is vigorously contesting these allegations. To date, the EPA has not indicated whether it will seek additional penalties for these or other alleged violations as a result of the above inspection. In March 1991, the Ohio Environmental Protection Agency notified the Company that it had referred to the Ohio Attorney General for potential enforcement action certain alleged violations of Ohio's hazardous waste regulations at the Middletown Works. Although the Company believes it has a strong basis for contesting the alleged violations, it is in the process of negotiating a consent order with the Ohio Attorney General that will address the State's concerns. In addition to the foregoing matters, the Company is or may be involved in legal proceedings with various regulatory authorities that may require the Company to pay fines relating to violations of environmental laws 3 and regulations, comply with more rigorous standards or other requirements, and incur capital and operating expenses to meet such obligations. The Company does not believe that the ultimate disposition of the foregoing proceedings, individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations or cash flows. ITEM 2. PROPERTIES. The Company's corporate headquarters is located in Middletown, Ohio. The Company currently conducts operations at its Middletown Works in Middletown, Ohio, and its Ashland Works in Ashland, Kentucky. Coke manufacturing plants, blast furnaces, basic oxygen furnaces and continuous casters are located at both of these facilities. The Company's hot rolling mill, cold rolling mill, pickling lines, annealing facilities and temper mills as well as four of its coating lines are located at the Middletown Works, and one additional coating line is located at the Ashland Works. All of these facilities are owned and together comprise approximately 3,700 acres of land. The Rockport Works, currently under construction, is located on a 1,700 acre site in Spencer County, Indiana near the Ohio river community of Rockport. The facility will consist of a state-of-the-art continuous cold rolling mill, a hot dip galvanizing and galvannealing line, a continuous carbon and stainless steel pickling line, a stainless steel annealing and pickling line, hydrogen annealing facilities and a temper mill. The first production component to begin commercial operation will be the hot dip galvanizing and galvannealing line, which is projected to start-up during the third quarter of 1998. The continuous cold mill is scheduled to start-up during the first quarter of 1999 with the remaining facilities coming on line in a staggered fashion during the balance of 1999. ITEM 3. LEGAL PROCEEDINGS. In addition to the items discussed below, the Company is also involved in routine litigation, environmental proceedings, and claims pending with respect to matters arising out of the normal conduct of the business. In management's opinion, the ultimate liability resulting from all claims, individually or in the aggregate, will not materially affect the Company's consolidated financial position, results of operations or cash flows. As a result of a 1991 inspection of the Ashland Works' cokemaking operations by the EPA and the Kentucky Department of Environmental Protection alleging mishandling of certain regulated materials, the Company has entered into non- binding mediation with the Kentucky Cabinet for Natural Resources. Federal regulations promulgated pursuant to the Clean Water Act impose categorical pretreatment limits on the concentrations of various constituents in coke plant wastewaters prior to discharge into publicly owned treatment works ("POTW"). Due to concentrations of ammonia and phenol in excess of these limits at the Middletown Works, the Company, through the Middletown POTW, petitioned the EPA for "removal credits," a type of compliance exemption, based on the Middletown POTW's satisfactory treatment of the Company's wastewater for ammonia and phenol. The EPA declined to review the Company's application on the grounds that it had not yet promulgated new sludge management rules. The Company thereupon sought and obtained from the Federal District Court for the Southern District of Ohio an injunction prohibiting the EPA from instituting enforcement action against the Company for noncompliance with the pretreatment limitations, pending the EPA's promulgation of the applicable sludge management regulations. Although the Company is unable to predict the outcome of this matter, if the EPA eventually refuses to grant the Company's request for removal credits, the Company could incur additional costs to construct pretreatment facilities at the Middletown Works. In January 1996, an action was filed in the Court of Common Pleas of Butler County, Ohio on behalf of four named plaintiffs who purport to represent a class of plaintiffs consisting of all hourly employees at the Company's Middletown Works and all hourly employees of independent contractors working at the facility since June 1992. The complaint has twice been amended to add additional named plaintiffs. The plaintiffs allege 4 negligence and intentional tort and seek compensatory and punitive damages in an unspecified amount for alleged dangerous working conditions at the Company's Middletown Works. The Company has filed motions to dismiss the suit in whole and in part. No rulings have been rendered to date on these motions. In March 1997, the Court granted plaintiffs' motion to certify a class. The Company's appeal of this decision was denied by the appellate court in June 1997. The Company has further appealed this decision to the Ohio Supreme Court and a decision is pending. In April 1997, the Company commenced a separate lawsuit in the United States District Court, Southern District of Ohio, seeking a permanent injunction staying the state court case and seeking a declaration that the state court case is preempted by federal law. On August 21, 1997, the federal court denied the motion for an injunction and ordered the parties to brief the question of its jurisdiction to hear the case. In April 1996, an action was filed in the United States District Court, Southern District of Ohio, by a number of former employees of the Company seeking certain pension and postretirement benefits which they allege were wrongly denied them when the Company outsourced their positions. On May 30, 1997, the Company filed a motion for summary judgment seeking dismissal of the case and a decision is pending. In May 1996, an action was commenced against the Company in the United States District Court, Southern District of Ohio, on behalf of eleven named plaintiffs seeking declaratory and injunctive relief and both compensatory and punitive damages as a consequence of an underground coke oven gas line leak at the Middletown Works. In March 1997, the court granted the Company's motion to dismiss all federal law claims. Subsequently, the Company entered into a settlement agreement with all plaintiffs on their pending state law claims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the name, age and principal position with the Company of each of its executive officers as of January 23, 1997:
NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- Richard M. Wardrop, Jr..................... 52 Chairman of the Board and Chief Executive Officer James L. Wareham........ 58 President Richard E. Newsted...... 40 Executive Vice President, Chief Financial Officer Michael P. Christy...... 41 Vice President, Purchasing and Financial Analysis Thomas C. Graham, Jr.... 43 Vice President, Research and Design Engineering Brenda S. Harmon........ 46 Vice President, Human Resources John G. Hritz........... 43 Vice President, General Counsel and Secretary Alan H. McCoy........... 46 Vice President, Public Affairs James W. Stanley........ 53 Vice President, Safety and Health James L. Wainscott...... 40 Vice President and Treasurer James F. Walsh.......... 44 Vice President, Manufacturing Donald B. Korade........ 55 Controller
Richard M. Wardrop, Jr. was elected Chairman of the Board effective January 27, 1997. Mr. Wardrop was elected a director of the Company on March 2, 1995 and on May 17, 1995 he was elected Chief Executive Officer in addition to his role as President. He had been President and Chief Operating Officer of the Company since April 7, 1994, having previously served from June 1992 as Vice President, Manufacturing. James L. Wareham was named President in March 1997. Since 1992 Mr. Wareham was Chairman, President and Chief Executive Officer of Wheeling Pittsburgh Steel Corporation as well as President of WHX Corporation, the parent company of Wheeling Pittsburgh Steel Corporation. 5 Richard E. Newsted was named Executive Vice President, Chief Financial Officer in May 1997. Prior to that he had been Senior Vice President, Chief Financial Officer of the Company since August 1994. In addition, he was Treasurer from August 1994 through March 1995. From January 1993 until June 1994, Mr. Newsted was Vice President, Chief Financial Officer and Secretary of National Steel Corporation. Michael P. Christy was elected Vice President, Purchasing and Financial Analysis in January 1998. Mr. Christy was named Director, Purchasing and Financial Analysis in May 1997 after having served as Director, Financial Planning and Analysis since June 1996. Prior to that Mr. Christy held various positions in finance, planning and operations at National Steel Corporation. Thomas C. Graham, Jr. has been Vice President, Research and Design Engineering since June 1996. From early 1994 until that date, he was General Manager Sales, Construction for National Steel Corporation, having previously held various positions in Project Engineering, Process and Technology, and Operations Management at that company. Brenda S. Harmon was elected Vice President, Human Resources in January of 1998. Mrs. Harmon has been General Manager, Human Resources since September 1996, after having been named Corporate Manager, Human Resources in March 1995. Prior to that Mrs. Harmon held various positions within the Company's Human Resources Department. John G. Hritz has been Vice President, General Counsel and Secretary since August 1996. Mr. Hritz joined the Company in 1989 as Counsel in the Law Department, and was named Assistant General Counsel in 1993 and Assistant Secretary in 1994. Since June 1996, Mr. Hritz also has had responsibility for the Company's employee and labor relations. Alan H. McCoy has been Vice President, Public Affairs since January 1997. From March 1994 until that date Mr. McCoy served as General Manager, Public Relations. Prior to that Mr. McCoy held various positions within the Company's Public Relations Department. James W. Stanley has been Vice President, Safety and Health since January 1996. Prior to joining the Company, Mr. Stanley held various management positions with the U.S. Department of Labor's Occupational Safety and Health Administration since its inception in 1971. James L. Wainscott has been Vice President and Treasurer since April 1995. For more than ten years prior to joining the Company, Mr. Wainscott held various financial positions with National Steel Corporation. James F. Walsh has been Vice President, Manufacturing since January 1996. Mr. Walsh joined the Partnership in January 1993 as Manager, Maintenance Technology, and in April 1994 was named General Manager, Middletown Works. He was elected Vice President, Research and Design Engineering in August 1995. From 1987 to 1993 Mr. Walsh held various management positions at Qualimatrix, Inc. Donald B. Korade has been Controller since September 1995. Mr. Korade was Assistant Controller, Financial Accounting from June 1989 until September 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock has been listed on the New York Stock Exchange since April 5, 1995 (symbol: AKS). In October 1997, the Company's Board of Directors authorized a two-for-one stock split of its outstanding Common Stock effective November 17, 1997 and a 25% increase in the Company's Common Stock dividend to an annual indicated rate of $.50 per share on a post-split basis. The table below sets forth, for 6 the calendar quarters indicated, the reported high and low sale prices of the Common Stock, as adjusted for the two-for-one stock split:
1996 HIGH LOW ---- --------- --------- First Quarter.......................................... $20 1/2 $16 1/2 Second Quarter......................................... $22 1/16 $18 15/16 Third Quarter.......................................... $21 7/16 $17 7/8 Fourth Quarter......................................... $21 1/4 $17 3/8 1997 HIGH LOW ---- --------- --------- First Quarter.......................................... $20 11/16 $17 1/2 Second Quarter......................................... $22 3/16 $17 3/4 Third Quarter.......................................... $24 1/32 $20 9/16 Fourth Quarter......................................... $22 5/8 $16 1/8
As of January 22, 1998, there were 60,762,130 shares of Common Stock outstanding and held of record by 219 stockholders. Because many of these shares were held by depositories, brokers and other nominees, the number of record holders is not representative of the number of beneficial holders. On October 9, 1995, the Board of Directors approved a plan to repurchase, from time to time, up to $100.0 million of its outstanding equity securities. Pursuant to this plan, in 1995 the Company repurchased and is holding in its treasury 1,274,870 shares (on a post-split basis) of Common Stock for $21.5 million, an average of $16.81 per share. In addition, the Company repurchased and retired 1,563,700 shares of its Convertible Preferred Stock, Stock Appreciation Income Linked Securities ("SAILS") (2,696,132 post-split Common Stock equivalents) for $52.3 million, an average of $33.43 per SAILS, and in 1996 an additional 707,600 SAILS (1,220,044 post-split Common Stock equivalents) were purchased and retired for $26.2 million, an average of $37.16 per SAILS. The last purchases under this plan were completed in April 1996. On May 15, 1996, the Board of Directors approved a second plan to repurchase, from time-to-time, up to an additional $100.0 million of its outstanding equity securities. Pursuant to this plan, in 1997 the Company repurchased and is holding in its treasury 1,409,050 shares (on a post split basis) of its Common Stock for $26.7 million, an average of $18.96 per share. In addition, in 1996, the Company repurchased and retired 362,600 SAILS (625,195 post-split Common Stock equivalents) for $12.8 million, an average of $35.36 per SAILS and in 1997 the Company repurchased and retired an additional 95,000 SAILS (163,799 post-split Common Stock equivalents) for $3.1 million, an average of $32.92 per SAILS. On October 16, 1997, the Company redeemed its remaining outstanding 4,750,774 SAILS, in exchange for the issuance of 8,191,284 shares (on a post- split basis) of Common Stock. The Company has paid quarterly dividends on its Common Stock since November 15, 1995. Dividends at the post-split rate of $0.075 per share were paid on February 15, May 15, and August 15, 1996 and a dividend of $0.10 per post- split share was paid on November 15, 1996. In 1997, dividends at the post- split rate of $0.10 were paid on February 15, May 15, August 15 and a dividend of $0.125 was paid on November 15. The declaration and payment of cash dividends is subject to restrictions imposed by the instruments governing its senior debt. At December 31, 1997, the Company had adequate amounts available for the payment of cash dividends. 7 ITEM 6. SELECTED FINANCIAL DATA. The following selected historical consolidated financial data for each of the five years in the period ended December 31, 1997 have been derived from the Company's audited consolidated financial statements. The selected historical consolidated financial data presented herein are qualified in their entirety by, and should be read in conjunction with, the consolidated financial statements of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
YEARS ENDED DECEMBER 31, ---------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: (1) Net sales...................... $1,594.5 $2,016.6 $2,257.3 $2,301.8 $2,440.5 -------- -------- -------- -------- -------- Cost of products sold.......... 1,380.3 1,655.2 1,768.1 1,846.5 1,964.5 Selling and administrative expenses...................... 111.2 113.7 116.5 114.7 114.8 Depreciation................... 73.5 70.7 74.6 76.1 79.8 Special charges and unusual items (2)..................... 17.6 (15.9) -- -- -- -------- -------- -------- -------- -------- Total operating costs.......... 1,582.6 1,823.7 1,959.2 2,037.3 2,159.1 -------- -------- -------- -------- -------- Operating profit (2)........... 11.9 192.9 298.1 264.5 281.4 Interest expense............... 58.1 48.2 35.6 39.8 76.3 Other income................... 3.5 7.3 19.0 12.3 36.4 -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary items......................... (42.7) 152.0 281.5 237.0 241.5 Provision (benefit) for income taxes (3)..................... -- (120.5) 12.9 91.1 90.6 -------- -------- -------- -------- -------- Income (loss) before extraordinary items........... (42.7) 272.5 268.6 145.9 150.9 Extraordinary items (4)........ -- (14.9) -- -- -- -------- -------- -------- -------- -------- Net income (loss).............. $ (42.7) $ 257.6 $ 268.6 $ 145.9 $ 150.9 ======== ======== ======== ======== ======== Basic earnings per share: (5) Income before extraordinary items....................... n/a $ 5.13 $ 4.82 $ 2.57 $ 2.59 Extraordinary items.......... n/a (0.28) -- -- -- Net income................... n/a 4.85 4.82 2.57 2.59 Diluted earnings per share: (5) Income before extraordinary items....................... n/a 4.17 4.09 2.35 2.43 Extraordinary items.......... n/a (0.23) -- -- -- Net income................... n/a 3.94 4.09 2.35 2.43 Cash dividend per common share (5)........................... n/a n/a .075 .325 .425 AS OF DECEMBER 31, ---------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- BALANCE SHEET DATA: (1) Cash, cash equivalents and short-term investments........ $ 144.2 $ 261.8 $ 312.8 $ 739.3 $ 606.1 Working capital................ 55.9 443.5 489.8 1,005.1 658.2 Total assets................... 1,518.7 1,933.2 2,115.5 2,650.8 3,084.3 Current portion of long-term debt.......................... 130.8 -- -- -- -- Long-term debt (excluding current portion).............. 598.6 330.0 325.0 875.0 997.5 Current portion of pension and postretirement benefit obligations................... 93.8 110.3 0.1 0.1 0.1 Long-term pension and postretirement benefit obligations (excluding current portion)...................... 922.8 638.3 655.7 564.9 554.1 Stockholders' equity (6)....... (586.2) 449.0 674.2 777.0 879.6
8 - -------- (1) AK Steel Holding and AK Steel were formed effective March 29, 1994, as a result of a recapitalization of Armco Steel Company, L.P. (the "Partnership"), which was a joint venture of Armco Inc. and Kawasaki Steel Corporation. Accordingly, data for 1993 is derived from the financial statements of the Partnership. (2) The operating profit for 1993 includes special charges and unusual items of $17.6 million relating to fixed asset write offs and related disposal costs as well as other miscellaneous charges. The operating profit for 1994 includes gain of $15.9 million from the sale of the Company's equity interests in Southwestern Ohio Steel, L.P. and Nova Steel Processing. (3) Includes a tax benefit of $120.3 million in 1994 associated with recognition of the deferred tax asset related to postretirement benefits. (4) The extraordinary item of $14.9 million in 1994 consists of charges associated with the prepayment of certain outstanding debt. (5) The historical per share amounts have been restated for a two-for-one Common Stock split effective November 17, 1997. The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS"). The effect of this standard on the EPS calculation was not material. (6) Stockholders' equity at December 31, 1993 and at December 31, 1994, reflect reductions to equity of $113.2 million and $39.3 million (net of tax), respectively, related to the establishment of an additional pension plan liability. As of December 31, 1995, the Company had fully funded its pension plan liability on an accumulated benefit obligation basis and eliminated the reduction to stockholders' equity. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company concentrates on the production of premium quality coated, cold rolled and hot rolled carbon steel primarily for sale to the automotive, appliance, construction and manufacturing markets. The Company also cold rolls and aluminum coats stainless steel for automotive industry customers. 1997 COMPARED TO 1996 Net sales increased 6% in 1997 over 1996 with coated and cold rolled shipments accounting for 75% of total product sales. The Company continues to focus on the automotive market with record shipments and sales during 1997. The following table sets forth the percentage of the Company's net sales attributable to various markets for the years indicated:
YEARS ENDED DECEMBER 31, ------------------------------ 1995 1996 1997 -------- -------- -------- Automotive.............. 50% 55% 56% Appliance, Construction and Manufacturing...... 16% 15% 16% Distributors and Convertors............. 34% 30% 28%
Operating profit in 1997 totalled $281.4 million, or $61 per ton shipped, compared to $264.5 million or $60 per ton shipped in 1996. Reductions in selling prices and increases in raw materials and energy costs were offset as the Company continues to emphasize productivity gains and quality enhancements as the primary components of its cost reduction efforts. Manhours per net ton shipped continued to improve, declining to 2.83 for the year of 1997 from 3.02 for 1996. Interest expense, net of capitalized interest of $20.9 million, totalled $76.3 million in 1997 compared to $39.8 million in 1996. The increase in interest expense is attributable primarily to the issuance in December 1996 of $550.0 million of 9 1/8% Senior Notes Due 2006 (the "9 1/8% Notes") as well as the issuance in June and September 1997 of $92.5 million and $20.0 million, respectively, of Senior Secured Notes Due 2004 (the "Secured Notes"). Other income, consisting primarily of interest income, increased to $36.4 million in 1997 from $12.3 million in 1996. 9 The total income tax provision was $90.6 million, the components of which are described in Note 3 to the Consolidated Financial Statements herein. The tax rate was 38.4% and 37.5% for 1996 and 1997, respectively. Net income for 1997 totalled $150.9 million compared to $145.9 million for 1996. Diluted earnings per share have been calculated in compliance with the adoption of SFAS No. 128 and adjusted for the two-for-one Common Stock split. Diluted earnings per share for 1997 totalled $2.43 compared to $2.35 for 1996. Many business and process control systems used in the current business environment were designed to use only two digits in the date field and thus may not function properly in the year 2000. Over the past several years, the Company has been assessing and modifying its own business systems to be year 2000 compliant. The Company has a plan to achieve year 2000 compliance with respect to its own business systems, including systems and user testing, and does not expect the costs associated with that plan to be material. The Company is continuing to assess its process control systems for year 2000 compliance and intends to make the necessary modifications to prevent disruption to its operations. The Company is unable at this time to estimate the costs of such modifications. 1996 COMPARED TO 1995 Net sales increased 2% in 1996 over 1995. Flat rolled product sales increased 5% or $108.2 million. However, due to the shutdown of two of the coke oven batteries at the Company's Middletown Works in December of 1995, sales of merchant coke decreased $58.8 million. A decline in flat rolled steel prices during 1996 for sales made on a contract basis, which account for approximately 70% of sales, was more than offset by an increase in flat rolled tonnage shipped coupled with an improving product mix and series of price increases on non-contract sales. The following table sets forth the percentage of the Company's net sales attributable to various markets for the years indicated:
YEARS ENDED DECEMBER 31, ------------------------------ 1994 1995 1996 -------- -------- -------- Automotive.............. 47% 50% 55% Appliance, Construction and Manufacturing...... 16% 16% 15% Distributors and Convertors............. 37% 34% 30%
Sales of higher margin coated products in 1996 were 15% higher than in 1995. This increase was largely attributable to improved productivity of the Company's coating facilities as a result of significant capital investments during 1995. The emphasis on production of coated products resulted in a decrease in sales of cold rolled products, as an increased percentage of the output from the Company's Middletown Works cold rolling mill was allocated to its coating facilities in order to maximize shipments of coated products. Operating profit in 1996 totalled $264.5 million, or $60 per ton shipped, compared to $298.1 million or $74 per ton shipped in 1995. The reduction was primarily due to reduced selling prices, increased raw material costs and an unplanned blast furnace outage at the Middletown Works in December 1996. The Company continues to emphasize productivity gains and quality enhancements as the primary components of its cost reduction efforts. Manhours per net ton shipped continued to improve, declining to 3.02 for the year of 1996 from 3.26 for 1995. Interest expense in 1996 increased 11%, or $4.2 million, over 1995, reflecting a reduction of $3.0 million in capitalized interest and the issuance in December 1996 of $550.0 million of 9 1/8% Notes. The total income tax provision in 1996 was $91.1 million, the components of which are described in Note 3 to the Consolidated Financial Statements herein. Net income for 1996 totalled $145.9 million compared to $268.6 million for the same period of 1995. Because the Company attained full book taxpayer status in 1996, its book tax rate was 38.4% compared to 4.7% 10 for 1995. On a comparably taxed basis, net income for 1995 would have been $173.5 million. Diluted earnings per share for 1996, as adjusted for the adoption of SFAS 128 and the two-for-one Common Stock split, were $2.35, compared to a reported $4.09 ($2.64 on a comparably taxed basis) for 1995. LIQUIDITY AND CAPITAL RESOURCES YEAR ENDED DECEMBER 31, 1997 At December 31, 1997, the Company had $606.1 million in cash, cash equivalents and short term investments and $109.4 million of financing available under its $125.0 million accounts receivable purchase credit facility. During 1997, cash flow from operations generated $472.0 million. Operating cash flows were attributed primarily to net income, the impact of working capital items and noncash charges for depreciation and taxes. Cash flows used in investing activities totalled $706.3 million of which $508.4 million was associated with the Rockport Works. Remaining capital investments totalled $128.1 million and purchases of short-term investments were $41.7 million. Cash flows from financing activities generated $59.4 million. In 1997 the Company issued an aggregate of $112.5 million of its Secured Notes with a weighted average interest rate of 8.99%, an additional $137.5 million of the Secured Notes were issued in January 1998 with a weighted average interest rate of 8.51%. The Company paid $34.1 million in dividends and utilized $29.8 million for open market purchases of its equity securities during 1997. Anticipated Debt Service The Company's long-term debt at December 31, 1997, totalled $997.5 million, and consisted of $325.0 million principal amount of its 10 3/4% Senior Notes Due 2004 and $550.0 million principal amount of its 9 1/8% Notes, none of which is subject to amortization prior to maturity, $112.5 million aggregate principal amount of its Secured Notes, which, together with an additional $137.5 million of Secured Notes issued in January 1998, will be repayable in four successive annual installments of $62.5 million commencing in December 2001, and $10.0 million in tax exempt revenue bonds due on December 1, 2027. Interest expense for 1997, net of capitalized interest of $20.9 million, totalled $76.3 million. Capital Investments In addition to the projected $1.1 billion cost of constructing and equipping Rockport Works, the Company anticipates annual capital investments of approximately $125.0 million to maintain the competitiveness and efficiency of its existing facilities and to assure its compliance with applicable safety and environmental standards. Capital investments excluding Rockport Works totalled $128.1 million during 1997. At December 31, 1997, commitments for future capital investments, excluding Rockport Works but including those made to assure environmental compliance, totalled approximately $61.4 million, all of which will be funded in 1998. In addition, at December 31, 1997, the Company had outstanding commitments for the constructing and equipping of Rockport Works under contracts aggregating $348.5 million; however, the Company's maximum aggregate liability in the event of cancellation of these contracts is limited to $130.7 million. Peak capital investment is expected to occur in the first half of 1998, declining steadily thereafter until final completion of the facility in December of 1999. In addition to the proceeds from issuance of its 9 1/8% Notes and Secured Notes, the Company will use approximately $300.0 million of cash from operations to finance construction of Rockport Works. Employee Benefit Obligations The Company's pension plans are fully funded on an accumulated benefit obligation basis in accordance with generally accepted accounting principles as of December 31, 1997. Funding levels in the near term (three to five years) are expected to be minimal. The Company also has available a pension funding credit balance of $317.2 million that can be used to meet future pension funding requirements, if any, although there are no present plans to do so. 11 At December 31, 1997, the Company's liability for postretirement benefits other than pensions totalled $554.1 million. The Company has prefunded a portion of this liability through the establishment of a health care trust. At December 31, 1997, the balance of the trust including the earnings on the trust investments was $219.3 million which is equivalent to approximately three years of active and retiree health care benefit payments. Other On October 8, 1997, the Company's Board of Directors authorized a two-for- one Common Stock split that became effective November 17, 1997. Following the stock split, approximately 62 million common shares were outstanding. On October 16, 1997, the Company redeemed its then outstanding 4,750,774 SAILS in exchange for the issuance of 8,191,284 shares (on a post-split basis) of Common Stock. The redemption did not dilute the interests of common shareholders because per share earnings from the date of issuance of the SAILS had been calculated on a diluted basis that gave effect to the mandatory conversion feature of the SAILS. Cash requirements for the redemption were minimal, relating only to payment for fractional shares. Redemption of the SAILS resulted in net annual dividend cash flow savings of $6.1 million. In October 1997, the Board of Directors also approved a 25% increase in the Company's Common Stock dividend to an annual indicated rate of $.50 per share on a post-split basis. A post-split quarterly dividend of $.125 per share was paid on November 17, 1997 to shareholders of record on October 21, 1997. YEAR ENDED DECEMBER 31, 1996 On December 17, 1996, the Company completed arrangements for $800.0 million of debt financing for the construction of Rockport Works. On that date the Company issued $550.0 million of 9 1/8% Notes and entered into definitive agreements for the private sale beginning in June of 1997 of an aggregate of $250.0 million of Secured Notes, which will be collateralized by the hot-dip galvanizing and galvannealing line and the continuous cold mill at the Rockport Works. Pending completion of these facilities, the Company is prohibited from granting liens on its inventories. At December 31, 1996, the Company had $739.3 million in cash, cash equivalents and short term investments and $119.4 million of financing available under its $125.0 million accounts receivable purchase credit facility. During 1996 cash flow from operations generated $86.3 million. Cash flows from net income were partially offset as the Company contributed a total of $100.0 million to a trust established to prefund health care benefits for both active and retired employees, contributed $25.0 million to its pension trust and paid profit sharing bonuses of $34.6 million. Cash flows used in investing activities totalled $185.1 million of which $53.6 million was associated with the Rockport Works. Cash flows from financing activities generated $484.9 million as the net proceeds from the issuance of $550.0 million of the 9 1/8% Notes were partially offset as the Company paid cash dividends of $28.7 million and utilized $39.2 million for open market purchases of its equity securities during 1996. YEAR ENDED DECEMBER 31, 1995 The Company's cash, cash equivalents and short-term investment position increased by $51.0 million during 1995. Cash flow from operations generated $300.1 million. The Company contributed $93.0 million to its pension trust and $70.0 million to the health care benefits trust, made capital investments of $175.7 million and used $73.8 million for open market purchases of its equity securities. 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. AK STEEL HOLDING CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report............................................. 14 Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997........................................................... 15 Consolidated Balance Sheets as of December 31, 1996 and 1997............. 16 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997..................................................... 17 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1996 and 1997........................................ 18 Notes to Consolidated Financial Statements............................... 19
13 INDEPENDENT AUDITORS' REPORT To the Board of Directors of AK Steel Holding Corporation: We have audited the accompanying consolidated balance sheets of AK Steel Holding Corporation and Subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Cincinnati, Ohio January 20, 1998 14 AK STEEL HOLDING CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1995 1996 1997 -------- -------- -------- Net Sales (Note 7).................................. $2,257.3 $2,301.8 $2,440.5 Operating Costs: Cost of products sold (Notes 1 and 7)............. 1,768.1 1,846.5 1,964.5 Selling and administrative expenses............... 116.5 114.7 114.8 Depreciation (Note 1)............................. 74.6 76.1 79.8 -------- -------- -------- Total Operating Costs........................... 1,959.2 2,037.3 2,159.1 -------- -------- -------- Operating Profit.................................... 298.1 264.5 281.4 Interest Expense (Note 4)........................... 35.6 39.8 76.3 Other Income........................................ 19.0 12.3 36.4 -------- -------- -------- Income Before Income Taxes.......................... 281.5 237.0 241.5 Current Income Tax Provision (Note 3)............... 6.2 3.8 46.3 Deferred Income Tax Provision (Note 3).............. 6.7 87.3 44.3 -------- -------- -------- Net Income.......................................... 268.6 145.9 150.9 Preferred Stock Dividends (Note 2).................. 15.3 11.1 7.7 -------- -------- -------- Net Income Applicable to Common Shareholders........ $ 253.3 $ 134.8 $ 143.2 ======== ======== ======== Earnings per share: (Note 2)* Basic earnings per share:......................... $ 4.82 $ 2.57 $ 2.59 Diluted earnings per share........................ 4.09 2.35 2.43 Cash dividends per common share................... .075 .325 .425
*Restated for two-for-one Common Stock split effective November 17, 1997. See notes to consolidated financial statements. 15 AK STEEL HOLDING CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1997 (DOLLARS IN MILLIONS)
1996 1997 -------- -------- ASSETS Current Assets: Cash and cash equivalents (Note 1)....................... $ 523.1 $ 348.2 Short-term investments................................... 216.2 257.9 Accounts receivable, net (Notes 1 and 4)................. 260.3 241.5 Inventories, net (Note 1)................................ 360.9 365.2 Other.................................................... 5.2 8.8 -------- -------- Total Current Assets................................... 1,365.7 1,221.6 -------- -------- Property, plant and equipment (Note 1): Land, land improvements and leaseholds................... 46.2 47.8 Buildings................................................ 82.3 81.8 Machinery and equipment.................................. 1,350.6 1,396.4 Construction in progress................................. 112.2 693.2 -------- -------- Total.................................................. 1,591.3 2,219.2 Less accumulated depreciation............................ (552.7) (626.5) -------- -------- Property, plant and equipment, net....................... 1,038.6 1,592.7 Prepaid pension (Note 6)................................... 153.3 159.2 Other (Note 6)............................................. 93.2 110.8 -------- -------- Total Assets........................................... $2,650.8 $3,084.3 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable......................................... $ 239.8 $ 375.6 Accrued salary and wages................................. 68.4 66.1 Other accruals (Notes 2 and 3)........................... 50.0 91.9 Current portion of deferred taxes (Note 3)............... 2.3 29.7 Current portion of long-term debt (Note 4)............... -- -- Current portion of pension obligation (Note 6)........... 0.1 0.1 Current portion of postretirement benefit obligation (Note 6)................................................ -- -- -------- -------- Total Current Liabilities.............................. 360.6 563.4 -------- -------- Noncurrent Liabilities: Long-term debt (Note 4).................................. 875.0 997.5 Pension obligation (Note 6).............................. -- -- Postretirement benefit obligation (Note 6)............... 564.9 554.1 Deferred taxes (Note 3).................................. 13.4 30.3 Other liabilities........................................ 59.9 59.4 Commitments and contingencies (Notes 4, 8 and 9)......... -- -- -------- -------- Total Noncurrent Liabilities........................... 1,513.2 1,641.3 -------- -------- Total Liabilities...................................... 1,873.8 2,204.7 -------- -------- Stockholders' Equity:* Preferred stock, Authorized 25,000,000 shares of $.01 par value each; issued and outstanding, 1996, 4,845,774 shares (Note 2)......................................... 0.1 -- Common stock, Authorized 75,000,000 shares of $.01 par value each; issued, 1996, 54,517,668 shares; 1997, 63,503,718 shares; outstanding, 1996, 53,239,900 shares; 1997, 60,808,922 shares (Note 2)........................ 0.3 0.6 Additional paid-in capital............................... 708.9 716.8 Treasury stock, common shares at cost, 1996, 1,277,768; 1997, 2,694,796 shares (Note 2)......................... (21.5) (48.2) Retained earnings........................................ 89.2 210.4 -------- -------- Total Stockholders' Equity................................. 777.0 879.6 -------- -------- Total Liabilities and Stockholders' Equity................. $2,650.8 $3,084.3 ======== ========
*Restated for two-for-one Common Stock split effective November 17, 1997 See notes to consolidated financial statements. 16 AK STEEL HOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (DOLLARS IN MILLIONS)
1995 1996 1997 ------ ------ ------ Cash flows from operating activities: Net income........................................... $268.6 $145.9 $150.9 ------ ------ ------ Adjustments to reconcile net income to cash flows from operating activities: Depreciation....................................... 74.6 76.1 79.8 Deferred income taxes.............................. 6.7 87.3 44.3 Other, net......................................... 2.3 3.5 12.8 Changes in Assets and Liabilities: Accounts and notes receivable.................... 32.4 (42.4) 19.0 Inventories...................................... (17.6) (20.2) (4.3) Current liabilities.............................. 67.5 (36.2) 179.0 Other assets..................................... (30.5) (19.1) 7.7 Pension obligation............................... (75.6) (14.4) (5.9) Postretirement benefit obligation................ (19.8) (90.8) (10.8) Other liabilities................................ (8.5) (3.4) (0.5) ------ ------ ------ Total Adjustments.............................. 31.5 (59.6) 321.1 ------ ------ ------ Net cash flows from operating activities......... 300.1 86.3 472.0 ------ ------ ------ Cash flows from investing activities: Capital investments.................................. (175.7) (141.6) (636.5) Net purchase of short-term investments............... (175.8) (40.4) (41.7) Purchase of long-term investments.................... (3.9) -- (26.4) Proceeds from the sale of investments................ 2.7 -- 0.4 Proceeds from sale of property, plant and equipment.. 5.8 0.3 0.9 Proceeds from sale of Eveleth Notes.................. 7.7 -- -- Advances to investees................................ (5.5) (5.4) (3.0) Proceeds, asset sales................................ 10.5 2.0 -- ------ ------ ------ Net cash flows from investing activities......... (334.2) (185.1) (706.3) ------ ------ ------ Cash flows from financing activities: Proceeds from issuance of common stock............... 8.1 16.6 7.0 Principal payments on long-term debt................. (5.0) -- -- Proceeds from issuance of long-term debt............. -- 550.0 122.5 Purchase of treasury stock........................... (21.5) -- (26.7) Purchase of preferred stock.......................... (52.3) (39.2) (3.1) Preferred stock dividends paid....................... (16.1) (11.7) (10.3) Common stock dividends paid.......................... (3.9) (17.0) (23.8) Underwriting discount and stock issuance expense..... -- (13.8) (6.1) Other, net........................................... -- -- (0.1) ------ ------ ------ Net cash flows from financing activities......... (90.7) 484.9 59.4 ------ ------ ------ Net increase (decrease) in cash and cash equivalents... (124.8) 386.1 (174.9) Cash and cash equivalents, beginning of period....... 261.8 137.0 523.1 ------ ------ ------ Cash and cash equivalents, end of period............. $137.0 $523.1 $348.2 ====== ====== ====== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest (net of amount capitalized)............... $ 33.7 $ 36.3 $ 72.1 Income taxes....................................... 4.2 5.8 42.6
See notes to consolidated financial statements. 17 AK STEEL HOLDING CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN MILLIONS)
ADDITIONAL PREFERRED COMMON PAID-IN- TREASURY RETAINED STOCK STOCK CAPITAL STOCK EARNINGS TOTAL --------- ------ ---------- -------- -------- ------ BALANCE, DECEMBER 31, 1994 $0.1 $0.3 $752.7 $(304.1) $449.0 Minimum accumulated benefit obligation, net of tax (Notes 3 and 6)...... 39.3 39.3 Net income.................. 268.6 268.6 Stock options exercised..... 8.1 8.1 Tax benefit from exercise of stock options (Note 3)... 1.1 1.1 Purchase of stock........... (48.0) $(21.5) (4.3) (73.8) Cash dividend: Preferred stock $.538 cash dividend per quarter................... (15.3) (15.3) Common stock $.075 cash dividend in fourth quarter*. (3.9) (3.9) Issuance of restricted stock, net 2.1 2.1 Unamortized restricted stock (Note 2)......... (1.0) (1.0) ---- ---- ------ ------ ------- ------ BALANCE, DECEMBER 31, 1995................... 0.1 0.3 715.0 (21.5) (19.7) 674.2 Net income.............. 145.9 145.9 Stock options exercised 16.6 16.6 Tax benefit from exer- cise of stock options (Note 3)............... 4.1 4.1 Tax benefit from vesting of restricted stock.... 0.3 0.3 Purchase of stock....... (30.3) (8.9) (39.2) Cash dividend: Preferred stock $.538 cash dividend per quarter............... (11.1) (11.1) Common stock $.075 cash dividend per quarter, $.10 in fourth quar- ter*.................. (17.0) (17.0) Issuance of restricted stock, net............. 4.3 4.3 Unamortized restricted stock (Note 2)......... (1.1) (1.1) ---- ---- ------ ------ ------- ------ BALANCE, DECEMBER 31, 1996................... 0.1 0.3 708.9 (21.5) 89.2 777.0 Net income.............. 150.9 150.9 Unrealized gain on mar- ketable securities..... 2.1 2.1 Stock options exer- cised.................. 7.0 7.0 Two-for-one Common Stock split.................. 0.3 (0.3) Tax benefit from exer- cise of stock options (Note 3)............... 1.2 1.2 Tax benefit from vesting of restricted stock.... 0.1 0.1 Purchase of stock....... (2.8) (26.7) (0.3) (29.8) Redemption of preferred stock.................. (0.1) (0.1) (0.2) Cash dividend: Preferred stock $.538 cash dividend per quarter............... (7.7) (7.7) Common stock $.10 cash dividend per quarter, $.125 in fourth quarter* (23.8) (23.8) Issuance of restricted stock, net............. 6.2 6.2 Unamortized restricted stock (Note 2)......... (3.4) (3.4) ---- ---- ------ ------ ------- ------ BALANCE, DECEMBER 31, 1997................... $ -- $0.6 $716.8 $(48.2) $ 210.4 $879.6 ==== ==== ====== ====== ======= ======
*Restated for two-for-one Common Stock split effective November 17, 1997 See notes to consolidated financial statements. 18 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: AK Steel Holding Corporation ("AK Holding") and its wholly-owned subsidiary AK Steel Corporation ("AK Steel," collectively the "Company") were formed effective March 29, 1994 as a result of the recapitalization of Armco Steel Company, L.P. ("the Partnership"). The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management estimates. Actual results could differ from those estimates. The results of operations and financial position of AK Steel approximates the results of operations and financial position of AK Holding. For comparison purposes certain 1995 and 1996 items have been reclassified to conform with 1997 classifications. All references to the number of common shares and per share amounts have given effect to the two-for-one Common Stock split effective November 17, 1997. The Company consists of the operations and accounts of the Middletown Works, Ashland Works, Rockport Works, Headquarters, AKSR Investments Inc. ("AKR") and AKS Investments, Inc. and its group of wholly-owned subsidiaries, (the "AKSII Group"). The Company is an integrated steel producer of carbon flat rolled steel for the automotive, appliance, manufacturing and other markets. The Company has one major customer that accounted for 20%, 17% and 18% of its net sales in 1995, 1996 and 1997, respectively. Employees: As of December 31, 1997, the Company had approximately 5,800 active employees, of whom approximately 55% were represented by the Armco Employees Independent Federation, Inc. (the "AEIF"), 19% by the United Steelworkers of America (the "USWA") and 6% by the Oil, Chemical and Atomic Workers Union (the "OCAW"). The AEIF represents all hourly employees and certain nonexempt salaried employees at the Middletown Works. The USWA represents hourly steelmaking employees and certain nonexempt salaried employees at the Ashland Works. The OCAW represents hourly employees at the Ashland Works coke manufacturing facility. The Company's existing labor contracts are scheduled to expire as follows: AEIF--February 29, 2000, USWA--September 1, 2000, and OCAW--April 1, 2001. Cash Equivalents: Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and are of an original maturity of three months or less. Fair Value of Financial Instruments: The carrying value of the Company's financial instruments does not differ materially from their estimated fair value (quoted market prices) in 1996 and 1997 with the exception of the 10 3/4% Senior Notes Due 2004 whose fair value approximates $354.2 and $347.3 at December 31, 1996 and 1997, respectively, and the 9 1/8% Senior Notes Due 2006 ("9 1/8% Notes") whose fair market value approximates $569.5 at December 31, 1997. Accounts Receivable: The allowance for doubtful accounts was $1.5 at December 31, 1996 and 1997. Inventories: Inventories are valued at the lower of cost or market. The cost of the majority of inventories is measured on the last in, first out ("LIFO") method. Other inventories are measured principally at average cost. 19 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1996 1997 ------ ------ Inventories on LIFO: Finished and semifinished.................................. $220.4 $235.5 Raw materials and supplies................................. 160.4 154.2 Adjustment to state inventories at LIFO value.............. (27.3) (31.6) ------ ------ Total.................................................... 353.5 358.1 Other inventories............................................ 7.4 7.1 ------ ------ Total inventories........................................ $360.9 $365.2 ====== ======
There was no liquidation of LIFO inventory layers in 1995, 1996 or 1997. Investments: The Company has investments in associated companies (joint ventures and an entity that the Company does not control). These investments are accounted for under the equity method. Because these companies are directly integrated in the basic steelmaking facilities, the Company includes its proportionate share of the income (loss) of these associated companies in cost of products sold. Through November 1996, Virginia Horn Taconite Company ("Virginia Horn"), a member of the AKSII Group, owned a 56% equity interest in Eveleth Expansion Company ("Eveleth"), a partnership that produced iron ore pellets, which equated to a 35% interest in Eveleth Mines. In December 1996, under a restructuring of Eveleth Mines, Virginia Horn increased its ownership interest in Eveleth Mines LLC ("EVTAC"), a newly formed Minnesota limited liability company, to 40%. In connection with such investment, Virginia Horn has certain commitments to EVTAC. The Company's proportionate share of the gains/(losses) of Eveleth was ($0.2) and $5.4 in 1995 and 1996 and of EVTAC was ($1.9) in 1997. Property, Plant and Equipment: Plant and equipment are depreciated under the straight line method over their estimated lives ranging from 3 to 31 years. Accounting Policies: The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS"). The effect of this standard on the EPS calculation was not material and prior periods have been restated. In 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." These statements which are effective for periods after December 15, 1997, expand or modify disclosures and, accordingly, will have no impact on the Company's financial position, results of operations or cash flows. 2.STOCKHOLDERS' EQUITY Preferred Stock: In October 1994, the Company issued 7,479,674 shares of Convertible Preferred Stock, Shared Appreciation Income Linked Securities (the "SAILS") which constituted a series of the Company's Preferred Stock and ranked prior to the Common Stock as to payment of dividends and distribution of assets upon liquidation. The SAILS were entitled to cumulative dividends, payable quarterly in arrears, at a rate of 7% per annum of their stated value of $30.75 per share. Between October, 1995 and May, 1997, 2,728,900 SAILS were repurchased and retired under the Company's share repurchase programs. On October 16, 1997, the Company redeemed the 4,750,774 SAILS then remaining outstanding in exchange for 8,191,284 shares (on a post-split basis) of Common Stock. 20 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Common Stock: On November 17, the Company implemented a two-for-one stock split of its outstanding Common Stock in the form of a 100% stock dividend, issuing approximately 30.6 million shares pursuant thereto. The holders of Common Stock are entitled to receive dividends when and as declared by the Board of Directors out of funds legally available and therefore, have one vote per share in respect of all matters and are not entitled to preemptive rights. Dividends: The Company has paid quarterly dividends on its Common Stock since November 15, 1995. Dividends at the post-split rate of $0.075 per share were paid on February 15, May 15, and August 15, 1996 and a dividend of $0.10 per post-split share was paid on November 15, 1996. In 1997, dividends at the post-split rate of $0.10 were paid on February 15, May 15, August 15 and a dividend of $0.125 was paid on November 15. The declaration and payment of cash dividends is subject to restrictions imposed by the instruments governing its senior debt. At December 31, 1997, the Company had adequate amounts available for the payment of cash dividends. Stock Repurchase Plans: On October 9, 1995, the Board of Directors approved a plan to repurchase, from time to time, up to $100.0 of its outstanding equity securities. Pursuant to this plan, in 1995 the Company repurchased and is holding in its treasury 1,274,870 shares (on a post-split basis) of Common Stock for $21.5, an average of $16.81 per share. In addition, the Company repurchased and retired 1,563,700 SAILS (2,696,132 post-split Common Stock equivalents) for $52.3, an average of $33.43 per SAILS, and in 1996 an additional 707,600 SAILS (1,220,044 post-split Common Stock equivalents) were purchased and retired for $26.2, an average of $37.16 per SAILS. The last purchases under this plan were completed in April 1996. On May 15, 1996, the Board of Directors approved a second plan to repurchase, from time to time, up to an additional $100.0 of its outstanding equity securities. Pursuant to this plan, in 1997 the Company repurchased and is holding in its treasury 1,409,050 shares (on a post-split basis) of its Common Stock for $26.7, an average of $18.96 per Share. In addition, in 1996 the Company repurchased and retired 362,600 SAILS (625,195 post-split Common Stock equivalents) for $12.8, an average of $35.36 per SAILS and in 1997 the Company repurchased and retired an additional 95,000 SAILS (163,799 post-split Common Stock equivalents) for $3.1, an average of $32.92 per SAILS. Stockholder Rights Plan: On January 23, 1996, the Board of Directors adopted a Stockholder Rights Plan pursuant to which it has issued one Preferred Share Purchase Right (collectively, the "Rights") for each share of Common Stock outstanding. The Rights are generally not exercisable unless, and no sooner than 10 business days after, any person or group acquires beneficial ownership of 20% or more of the Company's voting stock or announces a tender offer that could result in the acquisition of 30% or more of such voting stock. In addition, as adjusted to reflect the two-for-one Common Stock split, each Right entitles the holder, upon occurrence of certain specified events, to purchase 1/200th of a share of Series A Junior Preferred Stock ("Junior Preferred Stock") at an exercise price of $65 per share. Each share of Junior Preferred Stock, if and when issued, will entitle the holder to 200 votes in respect of all matters submitted to a vote of the holders of Common Stock. Upon the occurrence of certain events, holders of the Rights would be entitled to purchase either shares of the Company or an acquiring entity at half of market value. The Rights are redeemable, under certain circumstances, at any time prior to their expiration on January 23, 2006. Common Stock Options and Restricted Stock Awards: On January 13, 1994, the stockholders of the Company approved the AK Steel Holding Corporation 1994 Stock Incentive Plan (the "SIP"). The SIP, which is administered by the Compensation Committee of the Board of Directors, permits the granting of nonqualified stock options and restricted stock awards to directors, officers and key management employees of the Company. 21 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Under the original SIP, 4,600,000 shares were reserved for issuance of which 3,833,334 shares were reserved for stock options and 766,666 were reserved for restricted stock awards. In May 1996, the plan was amended to increase the maximum number of shares covered thereby to 7,800,000 and to eliminate the separate maximum limitations on the number of shares available for grant of stock options and restricted stock awards. The exercise price of each option may not be less than the market price of the Company's Common Stock on the date of the grant. Stock options have a maximum term of 10 years and may not be exercised earlier than six months following the date of grant (or such other term as may be specified in the award agreement). Generally, 25% of the shares covered by a restricted stock award vest two years after the date of the award and an additional 25% vest on the third, fourth and fifth anniversaries of the date of the award. The nonqualified stock options vest at the rate of 33% per year over three years. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for the SIP. The compensation cost that has been charged against income for the restricted stock awards issued under the SIP was $0.9, $3.2 and $2.7 for 1995, 1996 and 1997, respectively. The Company adopted the pro forma disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", in the fourth quarter of 1996. Had compensation cost for the Company's SIP been determined based on the fair value at the grant dates for awards under the plan consistent with the method of SFAS No. 123 and earnings per share been reported consistent with the requirements of SFAS No. 128, the Company's net income and earnings per share for 1995, 1996 and 1997 would have been reduced to the pro forma amounts indicated below:
1995 1996 1997 ------ ------ ------ Net income.................. As reported $268.6 $145.9 $150.9 Pro forma $268.2 $144.1 $149.5 Basic earnings per share.... As reported $ 4.82 $ 2.57 $ 2.59 Pro forma $ 4.81 $ 2.54 $ 2.57 Diluted earnings per share.. As reported $ 4.09 $ 2.35 $ 2.43 Pro forma $ 4.08 $ 2.32 $ 2.41
22 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) The reconciliation of the numerators and denominators of the basic and diluted EPS computations per SFAS 128 is as follows:
1995 1996 1997 ------ ------ ------ Net Income for Diluted EPS............................. $268.6 $145.9 $150.9 Preferred Dividends.................................. 15.3 11.1 7.7 ------ ------ ------ Net Income for Basic EPS............................... $253.3 $134.8 $143.2 Shares for Basic EPS................................... 52.6 52.4 55.2 Dilutive Effect of Stock Options..................... 0.4 0.8 0.4 Dilutive Effect of Preferred Stock................... 12.6 8.9 6.4 ------ ------ ------ Shares for Diluted EPS................................. 65.6 62.1 62.0 Basic EPS.............................................. $ 4.82 $ 2.57 $ 2.59 Diluted EPS............................................ $ 4.09 $ 2.35 $ 2.43
The fair value of the options is estimated on the grant date using a Black- Scholes option pricing model considering the appropriate dividend rates along with the following weighted average assumptions:
1996 1997 -------- -------- Expected volatility........................................ 20.5% 21.0% Risk free interest rates................................... 6.40% 6.40% Expected lives............................................. 5.0 yrs. 5.0 yrs.
A summary of the status of stock options and restricted stock awards under the SIP as of December 31, 1996 and 1997 and changes during each of those years is presented below:
1996 1997 ------------------ ------------------ WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE STOCK OPTIONS SHARES PRICE SHARES PRICE ------------- --------- -------- --------- -------- Outstanding at beginning of year..... 2,877,984 $12.58 2,210,654 $15.34 Granted.............................. 718,000 $19.86 554,000 $19.70 Exercised............................ 1,385,330 $11.96 490,334 $14.21 Forfeited............................ -- -- 60,000 $11.75 Outstanding at end of year........... 2,210,654 $15.34 2,214,320 $16.78 Options exercisable at year end...... 796,012 $13.97 1,187,024 $14.98 Weighted average fair value of op- tions granted during the year....... 718,000 $ 5.37 554,000 $ 5.01
WEIGHTED WEIGHTED AVERAGE AVERAGE GRANT DATE GRANT DATE RESTRICTED STOCK AWARDS SHARES FAIR VALUE SHARES FAIR VALUE ----------------------- ------- ---------- ------- ---------- Granted during year................... 323,244 $19.95 332,884 $19.55
The following table summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------- -------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE -------- ----------- ----------- -------- ----------- -------- $11.75 to $17.24...... 1,057,320 6.95 yrs. $13.38 881,334 $13.20 $17.25 to $22.90...... 1,157,000 8.82 yrs. $19.88 305,690 $20.11
23 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 3.INCOME TAXES The Company and its subsidiaries file a consolidated federal tax return. Significant components of the Company's deferred tax assets and liabilities at December 31, 1996 and 1997 are as follows:
1996 1997 ------- ------- Deferred tax assets: Net operating loss and tax credit carryovers............. $ 49.7 $ 30.0 Postretirement reserves.................................. 210.5 206.0 Other reserves........................................... 42.0 39.4 Valuation reserve........................................ (13.2) (13.2) ------- ------- Total deferred assets.................................. 289.0 262.2 ------- ------- Deferred tax liabilities: Depreciable assets....................................... (208.3) (223.1) Inventories.............................................. (33.1) (33.2) Pension assets........................................... (63.3) (65.9) ------- ------- Total deferred liabilities............................. (304.7) (322.2) ------- ------- Net liability.......................................... $ (15.7) $ (60.0) ======= =======
Temporary differences represent the cumulative taxable or deductible amounts recorded in the consolidated financial statements in different years than recognized in the tax returns. The postretirement benefit difference includes amounts expensed in the consolidated financial statements for health care, life insurance and other postretirement benefits which become deductible in the tax return upon payment or funding in qualified trusts. Other temporary differences represent principally various expenses accrued for financial reporting purposes which are not deductible for tax reporting purposes until paid. The depreciable assets temporary difference represents generally tax depreciation in excess of financial statement depreciation. The inventory difference relates primarily to differences in the LIFO reserve, reduced by tax overhead capitalized in excess of book amounts. At December 31, 1996, the Company had a regular tax net operating loss carryforward of $114.6. At December 31, 1997 the Company had a regular tax net operating loss carryover of $37.4 which will expire in the years 2006 through 2008 unless previously utilized. In addition, at December 31, 1997, the Company had unused Alternative Minimum Tax ("AMT") credit carryovers of $16.5, which may be used to offset future regular income tax liabilities. At December 31, 1996, the AMT credit carryovers were $4.7. These credits can be carried forward indefinitely. Significant components of the provision for income taxes are as follows:
1995 1996 1997 ----- ----- ----- Current: Federal.................................................. $ 5.9 $ 3.8 $45.1 State.................................................... 0.3 -- 1.2 Deferred: Federal.................................................. 4.8 77.9 35.7 State.................................................... 1.9 9.4 8.6 ----- ----- ----- Total tax provision.................................... $12.9 $91.1 $90.6 ===== ===== =====
24 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is as follows:
1995 1996 1997 ------- ------ ----- Income at statutory rate............................ $ 98.5 $ 83.0 $84.5 State tax provision................................. 17.4 9.4 9.8 Reduction in deferred tax asset valuation reserve... (106.1) (2.2) -- Tax exempt state/local interest income.............. -- (0.7) (4.6) Losses limited by Internal Revenue Code Section 382 and other permanent differences.............................. 3.1 1.6 0.9 ------- ------ ----- Tax provision..................................... $ 12.9 $ 91.1 $90.6 ======= ====== =====
4.LONG-TERM DEBT AND OTHER FINANCING On December 17, 1996, the Company completed arrangements for $800.0 of debt financing for the construction of its Rockport Works. The Company issued $550.0 of 9 1/8% Notes and entered into definitive agreements for the issuance beginning in June of 1997 of an aggregate of $250.0 of Senior Secured Notes Due 2004 ("Secured Notes"), which will be collateralized by the hot dip galvanizing and galvannealing line and the continuous cold mill at the Rockport Works when completed. Pending completion of these facilities, the Company is prohibited from granting liens on its inventories. On June 17, 1997, the Company made its initial issuance of an aggregate of $92.5 of the Secured Notes, of which $80.0 bear interest at 8.98% per annum and $12.5 bear interest at 9.05% per annum. On September 16, 1997, the Company made its second issuance of $20.0 which bear interest at 8.98% per annum. The remaining $137.5 of Secured Notes were issued on January 7, 1998, of which $130.0 bear interest at 8.48% per annum and $7.5 bear interest at 8.98% per annum. On December 1, 1994, the Company entered into a Receivables Purchase Agreement with AK Steel Receivables Ltd. ("AKR Ltd."). On the same date, AKR Ltd. entered into a Receivables Purchase and Servicing Agreement (the "Purchase Agreement") with a group of six banks. Under the Purchase Agreement, the total commitment of the banks is $125.0, including up to $40.0 in letters of credit. The Company sold substantially all of its accounts receivable to AKR Ltd. and will sell additional receivables to AKR Ltd. as they are generated. AKR Ltd. will fund its purchase of receivables from cash collections on the purchased receivables and proceeds from selling interests in the receivables to the participating banks. The banks' commitments expire on July 1, 2002. The Company acts as servicer of the receivables sold and will make billings and collections in the ordinary course of business. As of December 31, 1997, no amounts were outstanding under the Purchase Agreement, although $15.6 in letters of credit had been issued. At December 31, 1997, AKR Ltd. had a sufficient pool of eligible receivables that could be sold to utilize the available capacity of the participating banks' commitments. At December 31, 1996 and 1997, the Company's long-term debt, less current maturities, was as follows:
1996 1997 ------ ------ Senior Notes Due 2004......................................... $325.0 $325.0 Senior Notes Due 2006......................................... 550.0 550.0 Senior Secured Notes Due 2004................................. -- 112.5 Tax Exempt Financing Due 2027................................. -- 10.0 ------ ------ Total....................................................... $875.0 $997.5 ====== ======
25 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) At December 31, 1997, the maturities of long-term debt are as follows: 1998.................................................................. -- 1999.................................................................. -- 2000.................................................................. -- 2001.................................................................. -- 2002.................................................................. -- 2003 and thereafter................................................... $997.5 ------ Total............................................................... $997.5 ======
The Company has not purchased and is not holding any derivative financial instruments. The Company capitalized interest on projects under construction of $4.7, $1.7 and $20.9 during 1995, 1996 and 1997, respectively. 5. OPERATING LEASES Rental expense was $14.1, $12.6 and $13.3 for 1995, 1996 and 1997, respectively. At December 31, 1997, obligations to make future minimum lease payments were as follows: 1998................................................................... $0.8 1999................................................................... 0.3 2000................................................................... 0.1 2001................................................................... 0.1 2002................................................................... 0.1 ---- Total lease obligations.............................................. $1.4 ====
6. EMPLOYEE AND RETIREE BENEFIT PLANS Pension Plans: The Company provides noncontributory pension benefits to all employees. Benefits are based on the higher of several calculations including years of service and earnings in the highest 60 consecutive months in the last 120 months prior to retirement, a minimum amount per year of service, or a combination of both. The qualified plans are funded in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended, with additional amounts contributed at the Company's discretion. The Company's pension contributions for 1995 and 1996 were $93.0 and $25.0, respectively. There was no pension contribution during 1997. The details of the net periodic pension expense for 1995, 1996 and 1997 are as follows:
1995 1996 1997 ------ ------ ------- Economic assumptions: Discount rate................................... 8.75% 7.25% 8.00% Expected long-term rate of return on assets..... 9.50% 9.00% 9.75% Rate of future compensation increases........... 4.00% 4.00% 4.00% Pension cost: Cost of benefits earned during the period....... $ 12.9 $ 16.2 $ 13.6 Interest cost on the projected benefit obligation..................................... 88.3 90.1 93.1 Less actual return on plan assets............... (263.6) (85.0) (262.7) Net amortization and deferral................... 181.5 (8.2) 152.4 ------ ------ ------- Net periodic pension (income) expense......... $ 19.1 $ 13.1 $ (3.6) ====== ====== =======
26 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) The assumptions used to determine the plans' funded status are as follows:
1996 1997 ---- ---- Economic assumptions: Discount rate.................................................. 8.00% 7.50% Rate of future compensation increases.......................... 4.00% 4.00%
The funded status of the plans reconciled with amounts recognized in the Company's consolidated balance sheets at December 31, 1996 and 1997 are as follows:
1996 1997 -------- -------- Actuarial present value of benefit obligations: Vested benefits....................................... $1,115.2 $1,168.5 Nonvested benefits.................................... 44.7 46.5 -------- -------- Accumulated benefit obligation........................ $1,159.9 $1,215.0 ======== ======== Projected benefit obligation.......................... $1,210.9 $1,271.9 Less plan assets at fair value........................ 1,255.7 1,422.4 -------- -------- Reconciliation of funded status to recorded amounts: Unfunded (over funded) projected benefit obligation... (44.8) (150.5) Unrecognized prior service............................ (61.5) (56.7) Unrecognized net (loss) or gain....................... (46.9) 48.1 -------- -------- Prepaid pension cost.................................. $ (153.2) $ (159.1) ======== ========
The mix of pension assets held in the pension trust is as follows: Equities................................................................. 61% Fixed income securities.................................................. 38% Cash and cash equivalents................................................ 1%
Retiree Health Care and Life Insurance Benefits: In addition to providing pension benefits, the Company provides certain health and life insurance benefits for retirees. Most employees become eligible for these benefits at retirement. For 1995, 1996 and 1997, claims paid for retiree health and life insurance benefits amounted to $36.2, $37.4 and $40.6, respectively. The Company records health care costs per SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires accrual of retiree medical and life insurance benefits as these benefits are earned rather than recognition of these costs as claims are paid. In 1995 and 1996, the excess of total postretirement benefit expense recorded under SFAS No. 106 over the Company's former method of accounting for these benefits was $21.2 and $2.1, respectively. In 1997, the cost of claims paid exceeded the SFAS No. 106 expense by $1.9. Payments of medical and life insurance benefits to employees of the Company, retired former employees and their eligible dependents continue to be made from the Welfare Benefit Master Trust ("Trust"). The Company has continued to reimburse the Trust for these payments although no funding obligation exists. 27 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) The following sets forth the plans' funded status, reconciled with amounts recognized in the Company's consolidated balance sheets at December 31, 1996 and 1997:
1996 1997 ------ ------ Accumulated postretirement benefit obligation: Retirees....................................................... $450.6 $467.1 Fully eligible active plan participants........................ 75.8 81.4 Other active plan participants................................. 103.4 115.6 ------ ------ Total accumulated postretirement benefit obligation.......... 629.8 664.1 Less fair value of plan assets................................... 136.9 187.0 ------ ------ Accumulated postretirement benefit obligation in excess of plan assets.......................................................... 492.9 477.1 Prior service credit not yet recognized in net periodic postretirement benefit cost..................................... 28.9 25.1 Unrecognized net gain............................................ 43.1 51.9 ------ ------ Accrued postretirement benefit cost.............................. $564.9 $554.1 ====== ======
The components of postretirement benefit costs are as follows:
1995 1996 1997 ----- ----- ----- Service cost--benefits attributed to service during the period................................................. $ 5.6 $ 5.1 $ 4.8 Interest cost on accumulated postretirement benefit ob- ligations.............................................. 52.6 44.8 48.8 Less actual return on plan assets....................... (4.5) (4.7) (26.8) Net of other components................................. 3.7 (5.7) 11.9 ----- ----- ----- Net periodic postretirement benefit cost................ $57.4 $39.5 $38.7 ===== ===== =====
For measurement purposes, health care costs are assumed to increase 7.50% in 1998 grading down by 1.00% yearly to a constant level of 4.50% annual increase for pre-65 benefits and 4.50% in 1998 with a constant rate of 4.50% for post- 65 benefits. In concluding that health care trend rates will decrease at a rate of 1.00% per year, the Company has considered future rates of inflation, recent movements toward managed health care programs in negotiated contracts and the trend among larger companies toward the formation of coalitions in an effort to reduce health care costs. The Company has implemented a managed care program for the Ashland location. The Company is also evaluating Medicare risk contracts for its retired employees. A one (1) percentage point increase in the assumed health care cost trend rate for each year would increase the 1997 accumulated postretirement benefit obligation by $67.0 and the aggregate of the service cost and interest cost components of net period benefit cost for the year then ended by $5.8. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.00% and 7.50% for 1996 and 1997, respectively. 7. RELATED PARTY TRANSACTIONS The Company, in the ordinary course of business, sells steel to and purchases scrap from National Material Limited Partnership, of which a director of the Company is President and Chief Executive Officer. During 1995, 1996 and 1997 sales amounted to $20.3, $21.8 and $21.5 and purchases amounted to $0.4, $0.6 and $1.1, respectively. 8. COMMITMENTS The principal raw materials and commodities required in the Company's manufacturing operations are coal, iron ore, electricity, natural gas, oxygen, scrap metal, limestone and other commodity materials, all of which are 28 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) purchased at competitive or prevailing market prices. Adequate sources of supply exist for all of the Company's raw material requirements. At December 31, 1997, commitments for future capital investments, excluding Rockport Works but including those made to assure environmental compliance, totalled approximately $61.4, all of which will be funded in 1998. In addition, at December 31, 1997, the Company had outstanding commitments for the constructing and equipping of Rockport Works under contracts aggregating $348.5. 9. LEGAL, ENVIRONMENTAL MATTERS AND CONTINGENCIES Domestic steel producers, including the Company, are subject to stringent federal, state and local laws and regulations relating to the protection of human health and the environment. The Company has expended the following for environmental related capital investments and environmental compliance:
1995 1996 1997 ----- ---- ---- Environmental related capital investments.................. $19.1 $6.1 $4.3 Environmental compliance costs............................. 51.7 53.6 52.9
The Clean Air Act Amendments of 1990 (the "Amendments") imposed new standards designed to reduce air emissions. The Amendments have directly affected many of the Company's operations, particularly its coke oven batteries. As of December 31, 1997, the Company has incurred $67.3 in capital investments to bring its coke operations into compliance with the Amendments' requirements. In addition to the items discussed below, the Company is also involved in routine litigation, environmental proceedings, and claims pending with respect to matters arising out of the normal conduct of the business. In management's opinion, the ultimate liability resulting from all claims, individually or in the aggregate, will not materially affect the Company's consolidated financial position, results of operations or cash flows. As a result of a 1991 inspection of the Ashland Works' cokemaking operations by the United States Environmental Protection Agency ("EPA") and the Kentucky Department of Environmental Protection alleging mishandling of certain regulated materials, the Company has entered into non-binding mediation with the Kentucky Cabinet for Natural Resources. Federal regulations promulgated pursuant to the Clean Water Act impose categorical pretreatment limits on the concentrations of various constituents in coke plant wastewaters prior to discharge into publicly owned treatment works ("POTW"). Due to concentrations of ammonia and phenol in excess of these limits at the Middletown Works, the Company, through the Middletown POTW, petitioned the EPA for "removal credits," a type of compliance exemption, based on the Middletown POTW's satisfactory treatment of the Company's wastewater for ammonia and phenol. The EPA declined to review the Company's application on the grounds that it had not yet promulgated new sludge management rules. The Company thereupon sought and obtained from the Federal District Court for the Southern District of Ohio an injunction prohibiting the EPA from instituting enforcement action against the Company for noncompliance with the pretreatment limitations, pending the EPA's promulgation of the applicable sludge management regulations. Although the Company is unable to predict the outcome of this matter, if the EPA eventually refuses to grant the Company's request for removal credits, the Company could incur additional costs to construct pretreatment facilities at the Middletown Works. 29 AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) In January 1996, an action was filed in the Court of Common Pleas of Butler County, Ohio on behalf of four named plaintiffs who purport to represent a class of plaintiffs consisting of all hourly employees at the Company's Middletown Works and all hourly employees of independent contractors working at the facility since June 1992. The complaint has twice been amended to add additional named plaintiffs. The plaintiffs allege negligence and intentional tort and seek compensatory and punitive damages in an unspecified amount for alleged dangerous working conditions at the Company's Middletown Works. The Company has filed motions to dismiss the suit in whole and in part. No rulings have been rendered to date on these motions. In March 1997, the Court granted plaintiffs' motion to certify a class. The Company's appeal of this decision was denied by the appellate court in June 1997. The Company has further appealed this decision to the Ohio Supreme Court and a decision is pending. In April 1997, the Company commenced a separate lawsuit in the United States District Court, Southern District of Ohio, seeking a permanent injunction staying the state court case and seeking a declaration that the state court case is preempted by federal law. On August 21, 1997, the federal court denied the motion for an injunction and ordered the parties to brief the question of its jurisdiction to hear the case. In April 1996, an action was filed in the United States District Court, Southern District of Ohio, by a number of former employees of the Company seeking certain pension and postretirement benefits which they allege were wrongly denied them when the Company outsourced their positions. On May 30, 1997, the Company filed a motion for summary judgment seeking dismissal of the case and a decision is pending. In May 1996, an action was commenced against the Company in the United States District Court, Southern District of Ohio, on behalf of eleven named plaintiffs seeking declaratory and injunctive relief and both compensatory and punitive damages as a consequence of an underground coke oven gas line leak at the Middletown Works. In March 1997, the court granted the Company's motion to dismiss all federal law claims. Subsequently, the Company entered into a settlement agreement with all plaintiffs on their pending state law claims. 10. CONSOLIDATED QUARTERLY SALES AND EARNINGS (UNAUDITED) Each quarter and the year are calculated individually and may not add to the total for the year. The historical per share amounts have been restated for a two-for-one Common Stock split effective November 17, 1997.
1996 ---------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- -------- Net sales.......................... $558.9 $575.4 $559.3 $608.2 $2,301.8 Gross profit....................... 114.4 119.0 119.0 102.9 455.3 Net income......................... 37.0 38.5 39.7 30.7 145.9 Basic earnings per share........... .67 .69 .71 .53 2.57 Diluted earnings per share......... .60 .62 .64 .50 2.35 1997 ---------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- -------- Net sales.......................... $598.8 $622.6 $598.6 $620.5 $2,440.5 Gross profit....................... 117.9 121.9 116.3 119.9 476.0 Net income......................... 34.5 39.0 37.0 40.4 150.9 Basic earnings per share........... .60 .68 .64 .67 2.59 Diluted earnings per share......... .56 .63 .59 .66 2.43
30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information with respect to the Company's Executive Officers is set forth in Part I of this Annual Report pursuant to General Instruction G of Form 10-K. The information required to be furnished pursuant to this item with respect to Directors of the Company will be set forth under the caption "Election of Directors" in the Company's proxy statement (the "1998 Proxy Statement") to be furnished to stockholders in connection with the solicitation of proxies by the Company's Board of Directors for use at the Annual Meeting of Stockholders to be held on May 21, 1998, and is incorporated herein by reference. The information required to be furnished pursuant to this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required to be furnished pursuant to this item will be set forth under the caption "Executive Compensation" in the 1998 Proxy Statement, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required to be furnished pursuant to this item will be set forth under the caption "Stock Ownership," in the 1998 Proxy Statement, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required to be furnished pursuant to this item will be set forth under the captions "Certain Relationships and Transactions" in the 1998 Proxy Statement, and is incorporated herein by reference. See also Note 7 of the Notes to Consolidated Financial Statements included in Item 8 hereof. 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K. (a) The list of financial statements filed as part of this report is submitted as a separate section, the index to which is located on page 13. (b) Reports on Form 8-K filed during the fourth quarter of 1997 were: Earnings Release.......................................... October 14, 1997 Two-for-One Common Stock Split............................ October 14, 1997
(c) Exhibits: List of exhibits begins on next page. 32 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on December 20, 1993, as amended (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No. 33-74432) ("Registration No. 33-74432")). 3.2 By-laws of the Company (incorporated herein by reference to Exhibit 3.2 to Registration No. 33-74432). 3.3 Certificate of Designations, Preferences, Rights and Limitations of Series A Junior Preferred Stock (included in Exhibit 10.19). 4.1 Indenture, dated as of December 17, 1996, relating to the Company's 9 1/8% Senior Notes Due 2006 (the "1996 Indenture") (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (No. 333-19781) ("Registration No. 333-19781"). 4.2 Indenture, dated as of April 1, 1994, relating to the Company's 10 3/4% Senior Notes Due 2004 (the "1994 Indenture") (incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1, No. 33-83792 ("Registration No. 33-83792")). 4.3 Supplemental Indenture, dated as of September 21, 1994, to the 1994 Indenture (incorporated herein by reference to Exhibit 4.4 to Registration No. 33-83792). 4.4 Supplemental Indenture, dated as of December 11, 1996, to the 1994 Indenture (incorporated herein by reference to Exhibit 4.4 to Registration No. 333-19781). 4.5 Form of Note Purchase Agreement, dated as of December 17, 1996, with respect to the Company's Senior Secured Notes Due 2004 (incorporated herein by reference to Exhibit 4.5 to Registration No. 333-19781). 10.4 Form of Executive Officer Severance Agreement (filed herewith). 10.5 Form of Executive Officer Severance Agreement--Richard M. Wardrop, Jr. (filed herewith). 10.6 Form of Executive Officer Severance Agreement--James L. Wareham (filed herewith). 10.7 Annual Management Incentive Plan (incorporated herein by reference to Exhibit 10.15 to Registration No. 33-83792). 10.8 1994 Stock Incentive Plan, as amended May 15, 1996 and November 21, 1996 (incorporated herein by reference to Exhibit 10.6 to Registration No. 333-19781). 10.9 Executive Minimum and Supplemental Retirement Plan (incorporated herein by reference to Exhibit 10.17 to Registration No. 33-83792). 10.10 Registration Rights Agreement, dated as of April 7, 1994, among the Company and certain subsidiaries of Kawasaki (incorporated herein by reference to Exhibit 10.19 to Registration No. 33-83792). 10.11 Receivables Purchase Agreement, dated as of December 1, 1994, by and between AK Steel and AK Acquisition Receivables Ltd., as successor to AK Steel Receivables, Inc. (incorporated herein by reference to Exhibit 10.23 to Registration No. 33-86678). 10.12 Purchase and Servicing Agreement, dated as of December 1, 1994, among AK Acquisition Receivables Ltd., as successor to AK Steel Receivables Inc., AK Steel, the institutions from time to time party thereto and PNC Bank, Ohio, National Association (incorporated herein by reference to Exhibit 10.24 to Registration No. 33-86678). 10.13 Amendment No. 1 to the Purchase and Servicing Agreement, dated as of November 17, 1995, among AK Steel, AK Acquisition Receivables Ltd., as successor to AK Steel Receivables, Inc., the purchasers party thereto and PNC Bank, Ohio, National Association (incorporated herein by reference to Exhibit 10.11(a) to Registration No. 333-19781).
33
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.14 Consent, Amendment and Assumption Agreement, dated as of December 31, 1996, to the Receivables Purchase Agreement and the Purchase and Servicing Agreement, among the Company, AK Steel Receivables Inc., AK Acquisition Receivables Ltd., AKSR Investments, Inc., the purchasers party thereto and PNC Bank, Ohio, National Association (incorporated herein by reference to Exhibit 10.11(b) to Registration No. 333- 19781). 10.15 Amendment, dated July 10, 1997, to the Receivables Purchase Agreement and the Purchase and Servicing Agreement. 10.16 Letter Agreement dated July 31, 1995, between the Company and Kawasaki (incorporated herein by reference to Exhibit 10 to Post-Effective Amendment No. 2 on Form S-3 to the Company's Registration Statement on Form S-1, Registration No. 33-86678). 10.17 Deferred Compensation Plan for Management (incorporated herein by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.18 Deferred Compensation Plan for Directors (incorporated herein by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.19 Rights Agreement, dated as of January 23, 1996, between the Company and the Bank of New York as predecessor to Fifth Third Bank, as Rights Agent, with respect to the Company's Stockholder Rights Plan (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A under the Securities Exchange Act of 1934, as filed with the Commission on February 5, 1996). 10.20 Substitution of The Fifth Third Bank as Successor Rights Agent and Amendment No. 1, dated September 15, 1997, to Rights Agreement dated as of January 23, 1996 (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, dated September 15, 1997). 10.21 Instrument of Resignation, Appointment and Acceptance, dated as of September 15, 1997, with respect to resignation of The Bank of New York as Trustee and appointment of The Fifth Third Bank as Successor Trustee under the 1994 Indenture (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated September 15, 1997). 10.22 Instrument of Resignation, Appointment and Acceptance, dated as of September 15, 1997, with respect to resignation of The Bank of New York as Trustee and the appointment of The Fifth Third Bank as Successor Trustee under the 1996 Indenture (incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K, dated September 15, 1997). 10.23 Long Term Performance Plan, as amended and restated effective November 21, 1996 (incorporated herein by reference to Exhibit 10.15 to Registration No. 333-19781). 10.24 First Amendment, dated September 18, 1997, to Deferred Compensation Plan for Management (filed herewith). 10.25 First Amendment, dated July 17, 1997, to Executive Minimum and Supplemental Retirement Plan (filed herewith). 10.26 Second Amendment, dated September 18, 1997, to Executive Minimum and Supplemental Retirement Plan (filed herewith). 11.0 Statement re Computation of Per Share Earnings. 23.1 Independent Auditors' consent. 27. Financial Data Schedule.
34 EXHIBIT 11.0 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS See Notes 2 and 10 of the accompanying Notes to Consolidated Financial Statements. 35 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 333-04505 and Post-Effective Amendment No. 4 to Registration Statement No. 33-84578 of AK Steel Holding Corporation on Form S-8 of our report dated January 20, 1998, appearing in this Annual Report on Form 10-K of AK Steel Holding Corporation for the year ended December 31, 1997. DELOITTE & TOUCHE LLP Cincinnati, Ohio January 22, 1998 36 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF MIDDLETOWN, STATE OF OHIO, ON JANUARY 22, 1998. AK STEEL HOLDING CORPORATION /s/ Richard E. Newsted By: _________________________________ RICHARD E. NEWSTED EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Richard M. Wardrop, Jr. Chairman of the January 22, - ------------------------------------- Board and Chief 1998 RICHARD M. WARDROP, JR. Executive Officer /s/ James L. Wareham President January 22, - ------------------------------------- 1998 JAMES L. WAREHAM /s/ Richard E. Newsted Executive Vice January 22, - ------------------------------------- President, Chief 1998 RICHARD E. NEWSTED Financial Officer /s/ Donald B. Korade Controller January 22, - ------------------------------------- 1998 DONALD B. KORADE /s/ Allen Born Director January 22, - ------------------------------------- 1998 ALLEN BORN /s/ John A. Georges Director January 22, - ------------------------------------- 1998 JOHN A. GEORGES Director January 22, - ------------------------------------- 1998 DR. BONNIE GUITON HILL Director January 22, - ------------------------------------- 1998 ROBERT H. JENKINS /s/ Lawrence A. Leser Director January 22, - ------------------------------------- 1998 LAWRENCE A. LESER /s/ Robert E. Northam Director January 22, - ------------------------------------- 1998 ROBERT E. NORTHAM /s/ Cyrus Tang Director January 22, - ------------------------------------- 1998 CYRUS TANG /s/ James A. Thomson Director January 22, - ------------------------------------- 1998 DR. JAMES A. THOMSON 37 EX-10.4 2 FORM OF EXECUTIVE OFFICER SEVERANCE AGREEMENT Exhibit 10.4 EXECUTIVE OFFICER SEVERANCE AGREEMENT (as amended and restated to reflect changes adopted by the Board on September 18, 1997) ------------------------------------------- CONFIDENTIAL ------------ _____________, 19____ __________________ __________________ __________________ Dear _____________: Reference is made to the agreement between us, ________________, 19___ (the "Agreement"), setting forth the benefits to be provided to you in the event of the termination of your employment upon the circumstances therein specified. Upon your execution of a counterpart of this letter, the Agreement shall be deemed amended and, as so amended, is restated in its entirety to read as hereinafter set forth. AK Steel Corporation ("AKS"), since its formation, has established itself as a strong competitor in the carbon flat rolled steel industry. Continuity of the management of AKS is a critical factor to the continued growth and success of AKS. The Board of Directors ("Board") of AK Steel Holding Corporation ("Holding"), of which AKS is a wholly-owned subsidiary, believes it is in the best interest of Holding and AKS to reinforce and encourage the continued attention and dedication of key members of management to their assigned duties. In consideration of the mutual promises contained herein, it is hereby agreed that Holding shall cause AKS to provide and AKS shall provide to you, and you shall receive from AKS, the benefits set forth in this Agreement if your employment by AKS (including, for the purposes hereof, its subsidiaries and Affiliates, as hereinafter defined) is terminated during the term of this Agreement as provided herein. 1 . Purpose ------- This Agreement establishes certain basic terms and conditions relating to your employment with AKS, and special arrangements relating to the termination of your employment with AKS for any reason other than: (i) your voluntary retirement; (ii) your becoming totally and permanently disabled under the AKS long-term disability plan or policy; or (iii) your death. This Agreement supersedes all prior agreements with AKS or any predecessor business, as well as all other AKS severance policies and practices, except to the extent incorporated or restated herein. Notwithstanding the foregoing, neither the termination of your employment nor anything contained in this Agreement shall have any affect upon your rights under (i) any tax-qualified "pension benefit plan", as such term is defined in the Employee Retirement Income Security Act of 1974, as amended (ERISA), (ii) any "welfare benefit plan" as defined in ERISA, including by way of illustration and not limitation, any medical, surgical or hospitalization benefit coverage or long-term disability benefit coverage, or (iii) any non-qualified deferred compensation arrangement, including by way of illustration and not limitation, any non-qualified pension plan or deferred compensation plan. 2. Employment ---------- During the term of this Agreement: (a) you will be employed by AKS (including for this purpose any direct or indirect subsidiary or Affiliate of AKS to which you may be transferred) in your present position or in a position that is at least comparable to your present position in compensation, responsibility and stature and for which you are suited by education and background; (b) you will continue to be eligible to participate in any employee benefit plan of AKS in accordance with its terms; and (c) you will be entitled to the same treatment under any generally applicable employment policy or practice as any other key member of management of AKS whose position in the AKS organization is at a level of responsibility comparable to yours. Those plans, policies and practices that generally apply to other key members of management of AKS will be referred to in this Agreement as your "Employment Benefits." Your Employment Benefits may be modified from time to time after the date hereof without violation of this Agreement if the changes apply generally to other key members of management of AKS. 3. Term of Agreement ----------------- This Agreement shall be deemed effective as of ____________, 19___ (the "Effective Date") and shall continue in effect through the later of: (i) the fifth anniversary of the Effective Date or (ii) the completion of full payment of all benefits promised hereunder. This Agreement shall be automatically renewed annually from and after the fifth anniversary of the Effective Date unless written notice of non-renewal is given by you or by AKS at least ninety (90) days prior to the expiration of the term, including any extension thereof. 2 4. Termination of Employment ------------------------- Your employment may be terminated in accordance with any of the following paragraphs. The date upon which the termination of your employment becomes effective is hereinafter referred to as the "Date of Termination". The period between the date of notice of termination and the Date of Termination is referred to as the "Notice Period". (a) Involuntary Termination Without Cause ------------------------------------- AKS may terminate your employment without Cause (as defined in Section 4(b) below), but only upon written notice given to you by AKS not less than thirty (30) days prior to the Date of Termination. During the Notice Period, you shall continue to receive your full salary and Employment Benefits. From and after the Date of Termination, pursuant to this Section 4(a), you shall be entitled to those benefits provided under Section 5. (b) Involuntary Termination for Cause --------------------------------- AKS may terminate your employment for Cause, but only upon written notice, specifying the facts or circumstances constituting such Cause, which notice may be given on or at any time prior to the Date of Termination. For the purposes of this Section 4(b), "Cause" means a willful engaging in gross misconduct materially and demonstrably injurious to AKS. "Willful" means an act or omission in bad faith and without reasonable belief that such act or omission was in or not opposed to the best interests of AKS. From and after your Date of Termination, pursuant to this Section 4 (b), you shall only be entitled to those benefits provided under Section 8. (c) Voluntary Termination Without Good Reason ----------------------------------------- You may voluntarily terminate your employment without Good Reason (as defined in Section 4 (d) below), but only upon written notice given to AKS by you not less than thirty (30) days prior to the Date of Termination. During the Notice Period, you shall continue to receive your full salary and Employment Benefits, provided you satisfactorily perform your duties during the Notice Period (unless relieved of those duties by AKS). From and after the Date of Termination, pursuant to this Section 4 (c), you shall only be entitled to those benefits provided under Section 8. (d) Voluntary Termination for Good Reason ------------------------------------- You may voluntarily terminate your employment for Good Reason (as herein defined), but only upon written notice, specifying the facts or circumstances constituting such Good Reason, given to AKS by you at least thirty (30) days 3 prior to the Date of Termination and not more than sixty (60) days following the occurrence of the circumstances constituting such Good Reason. For the purposes of this Section 4(d), "Good Reason" shall mean the occurrence, without your express written consent, of any of the following circumstances (unless, in the case of clauses (i), (v), (vi), (vii) or (viii) below, such circumstances are fully corrected prior to the Date of Termination specified in the notice of termination): (i) the assignment to you of any duties inconsistent with your position within AKS or a significant adverse alteration in the nature or status of your responsibilities or the conditions of your employment; (ii) a reduction by AKS in your annual base salary provided, however, that no such reduction shall reduce your benefits under Section 5 if you have given timely notice pursuant to this Section 4(d); (iii) a requirement by AKS that you be based anywhere other than the principal executive offices of AKS except for required travel on AKS business to an extent substantially consistent with your customary business travel obligations; (iv) the failure of AKS to pay to you any portion of your compensation within seven (7) days of the date such compensation is due; (v) the failure of AKS, at any time within 24 months following the occurrence of a Change In Control (as defined in Section 7(b) hereof), to continue in effect any compensation plan in which you participated immediately prior to such Change In Control, which plan is material to your total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure of AKS to continue your participation in such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable to you, both in terms of the amount of benefits provided and the level of your participation relative to other participants, than that existing immediately prior to such Change In Control; (vi) any material reduction, except to the extent permitted by Section 2 hereof, in your Employment Benefits; (vii) the failure of AKS to obtain a satisfactory agreement from any successor corporation to assume and agree to perform this Agreement, as contemplated in Section 15 hereof; (viii) any purported termination of your employment by AKS that is not 4 effected in compliance with the provisions of Section 4(a) or 4(b) hereof, as the case may be; (ix) notice of non-renewal is given by AKS pursuant to Section 3 of this Agreement. If you give notice of termination for Good Reason, then, during the Notice Period (which shall not exceed 60 days), you shall continue to receive your full base salary and Employment Benefits as in effect prior to the occurrence of the circumstances constituting such Good Reason, subject to the right of AKS to make changes to your Employment Benefits to the extent permitted by Section 2. From and after the Date of Termination, pursuant to this Section 4 (d), you shall be entitled to those benefits provided under Section 5. 5. Special Severance Benefits -------------------------- (a) If your employment with AKS is involuntarily terminated by AKS without Cause in accordance with Section 4(a) or you voluntarily terminate your employment for Good Reason in accordance with Section 4(d), then you shall receive the following benefits: (i) Your base salary shall be continued in effect for a period (hereafter, the "Severance Pay Period") of (1) 36 months from the Date of Termination, if the notice of your termination is given within 24 months after the occurrence of a Change In Control (as defined in Section 7(b) below) or (2) 24 months from your Date of Termination, if the notice of your termination is given at any time other than within 24 months after the occurrence of a Change In Control. The aggregate base salary payable in accordance with this Section 5(a)(i) shall be paid to you in a single, undiscounted, lump sum payment within ten (10) days following the Date of Termination unless you have requested, in writing, at any time prior to your Date of Termination to receive payments of your base salary in regular monthly payments throughout the Severance Pay Period. (ii) (1) Within ten (10) days following the Date of Termination, you will receive a lump-sum payment equal in amount to the result obtained by application of the following formula: P = (x) times (y) times (z), where: P = the lump-sum payment; (x) = twelve times your monthly base salary; 5 (y) = the fraction obtained by dividing your annual incentive compensation which was paid or is payable to you for the immediately preceding calendar year by your actual base salary for such year; and (z) = 3.0 (if the notice of your termination is given within 24 months after the occurrence of a Change In Control, as defined in Section 7(b) hereof) or 2.0 (if the notice of your termination is given at any time other than within 24 months after the occurrence of a Change In Control). (2) Within ten (10) days following the date that payment is made to active employees of AKS, you shall receive a pro-rata payment of the annual incentive payment you would have received for the year in which your Date of Termination occurs. Such payment shall be (A) pro-rated based upon your Date of Termination and (B) otherwise calculated as an employee in good standing at your level of participation in effect prior to the Date of Termination and assuming 100 percent completion of any individual performance factors. (iii) Notwithstanding any provision to the contrary in the AK Steel Holding Corporation 1994 Stock Incentive Plan as amended or any other similar plan of AKS or Holding (each, a "Plan"), or under the terms of any grant, award agreement or form for exercising any right under the Plan, you shall have the right: (1) to exercise any stock option awarded to you under the Plan without regard to any waiting period required by the Plan or award agreement (but subject to a minimum six month holding period from the date of award and any restrictions imposed by law) from the first day of your Notice Period until the first to occur of the third anniversary of your Date of Termination or the date the award expires by its terms, and (2) to the absolute ownership of any shares of stock granted to you under the Plan, free of any restriction on your right to transfer or otherwise dispose of the shares (but subject to a minimum six month holding period from the date of grant and any restrictions imposed by law), regardless of whether entitlement to the shares is contingent or absolute by the terms of the grant; and the Board shall take such action within 6 the Notice Period as is necessary or appropriate to eliminate any restriction on your ownership of, or your right to sell or assign, any such shares; and further provided that if the Board should fail or refuse to take such action, AKS shall pay you, in exchange for such shares, no later than ten (10) days after the Date of Termination, an amount in cash equal to the greatest aggregate market value of the shares during the Notice Period. You agree, for a period of six (6) months after your Termination Date, to continue to comply with all AKS and Holding policies and directives related to trading in Holding stock which were in effect prior to your notice of termination. If your compliance with such policies and directives precludes you from exercising any stock options or selling any shares of stock described in paragraphs (1) and (2) above for a period of more than sixty (60) days from the first day of your Notice Period, then AKS will pay you in cash the difference between the average share price during the Notice Period and, if less, the actual share price received by you at the time of sale provided you have completed such sale within sixty (60) days from your first opportunity to do so. The average sale price during the Notice Period will be determined by averaging the highest share price and the lowest share price during the Notice Period. Any such differential payment will be paid to you within thirty (30) days after you provide written notice to AKS requesting such payment. Such notice is to be directed to the attention of the Secretary of AKS and contain the relevant stock transaction dates and actual share price information. (iv) During the Severance Pay Period your Employment Benefits shall be continued, subject to the right of AKS to make any changes to your Employment Benefits permitted in accordance with Section 2; provided, however, that you shall not: (1) accumulate vacation pay for periods after the Date of Termination; (2) first qualify for sickness and accident plan benefits by reason of an accident occurring or a sickness first manifesting itself after the Date of Termination; (3) be eligible to continue to make contributions to any Internal Revenue Code Section 401(k) plan maintained by AKS or qualify for a share of any employer contribution made to any tax-qualified defined contribution plan; or 7 (4) be eligible to accumulate service for pension plan purposes; and provided, further, that if, during the Severance Pay Period, you are (and for so long as you remain) employed by any other employer, the obligations of AKS to continue to provide you with life, disability and medical, hospital and other health insurance benefits shall be limited solely to those benefits necessary to assure that, together with the corresponding benefits provided to you by your new employer, you receive total benefits comparable to those to which you were entitled at the Date of Termination. (v) You shall qualify for full COBRA health benefit continuation coverage upon the expiration of the Severance Pay Period. (vi) You shall be entitled, at no cost to you, to full executive outplacement assistance with an agency selected by AKS. (b) If your employment with AKS is involuntarily terminated by AKS without Cause in accordance with Section 4(a), or if at any time after a Change in Control you voluntarily terminate your employment with AKS (or any Affiliate, any successor of AKS, or any entity which as a result of the completion of the transactions causing a Change in Control becomes affiliated with AKS) for Good Reason (as defined in Section 4(d)), within ten (10) days following the Date of Termination you will receive, in addition to any benefits you may be entitled to under Section 5(a) above, a lump sum payment in an amount equal to the benefit you would be entitled to under the AK Steel Corporation Executive Minimum and Supplemental Retirement Plan as amended (the "EMSRP") determined as if (i) your Vesting Date (as defined under the EMSRP) had occurred prior to the Date of Termination (if it has not already occurred as of the Date of Termination) and (ii) you had attained age 60 prior to the Date of Termination (if you have not already attained age 60 as of the Date of Termination). The amount of any such additional benefit shall be calculated as of the Date of Termination in accordance with the benefit formula under the EMSRP (as if you had attained age 60, or your actual age if greater), and the payment of such benefit shall be in lieu of any payment under the EMSRP. (c) Voluntary termination of your employment with AKS for Good Reason under Section 4(d) shall not be considered a voluntary termination under the AK Steel Deferred Compensation Plan (the "DCP"). Accordingly, if you terminate your employment with AKS for Good Reason under Section 4(d), you will be fully vested in the interest credited to your account under the DCP and will be paid your entire account at such time as provided under the DCP. 8 (d) You shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefits provided for in this Section 5 be reduced by any compensation or benefits earned by you as the result of employment by another employer (except as expressly provided in Section 5(a)(iv) above) or by retirement benefits, or be offset against any amount claimed to be owed by you to AKS or any of its Affiliates or successors. (e) For purposes of calculating any amount due under this Agreement the effect of any deferral of income shall be disregarded and all sums due shall be calculated as if no such deferral had been made. 6. Certain Tax Matters ------------------- (a) If any of the payments provided to you pursuant to Section 5 hereof (the "Contract Payments") or any other portion of the Total Payments (as defined below) becomes subject at any time to the tax (the "Excise Tax") imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), AKS shall pay to you at the time specified in section 6(b) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of the Excise Tax on any Contract Payments and/or other Total Payments, any federal and state and local income tax and Excise Tax upon the payment(s) provided for by this paragraph, and any interest, penalties or additions to tax payable by you with respect thereto, shall be equal to the present value of the Contract Payments and such other Total Payments. For purposes of determining whether any of the foregoing payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a Change In Control or the termination of your employment (whether such payments are Contract Payments or are payable pursuant to the terms of any other plan, arrangement or agreement with AKS, Holding or any of their respective Affiliates or successors, any person whose actions result in a Change In Control or any corporation which, as a result of the completion of the transactions causing a Change In Control, will become affiliated with AKS or Holding within the meaning of section 1504 of the Code (such other payments, together with the Contract Payments, the "Total Payments")) shall be treated as "parachute payments" within the meaning of section 28OG(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 28OG(b)(1) shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel selected by AKS' independent auditors and acceptable to you ("Tax Counsel"), the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise 9 Tax shall be equal to the lesser of (1) the total amount of the Total Payments or (2) the amount of excess parachute payments within the meaning of sections 28OG(b)(1) (after applying clause (i) hereof), and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by AKS' independent auditors in accordance with the principles of sections 28OG(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment(s), you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment(s) is (are) to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of your residence in the calendar year in which the Gross-Up Payment(s) is (are) to be made, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, you shall repay to AKS at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a federal and state and local income tax deduction), plus interest on the amount of such repayment at the applicable federal rate (as defined in section 1274(d) of the Code). In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), AKS shall make an additional Gross-Up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (b) The Gross-up Payment(s) provided for in section 6(a) above shall be made not later than the tenth day following the Date of Termination or, with respect to any portion of the Excise Tax not determined on or before such date to be due, upon the imposition of such portion of the Excise Tax; provided, however, that if the amounts of such payments cannot be finally determined on or before such date, AKS shall pay to you on such day an estimate, as determined in good faith by AKS, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently finally determined to have been due, such excess shall constitute a loan by the Corporation to you, payable on the tenth day after demand by the Corporation (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). 10 (c) In the event of any change in, or further interpretation of, sections 28OG or 4999 of the Code and the regulations promulgated thereunder, you shall be entitled, by written notice to AKS, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and AKS shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of Tax Counsel incurred in connection with this Agreement shall be borne by AKS. 7. Definitions ----------- For purposes of this Agreement the following terms shall have the following meanings: (a) "Affiliate" of any specified person means (i) any other person which, --------- directly or indirectly, is in control of, is controlled by or is under common control with such specified person or (ii) any other person who is a director of officer (1) of such specified person, (2) of any subsidiary of such specified person or (3) of any person described in clause (i) above. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (b) "Change In Control" means the occurrence of any of the following ----------------- events: (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total voting power of the Voting Equity Interests of Holding; provided, -------- however, that a Person shall not be deemed the "beneficial owner" ------- of shares tendered pursuant to a tender or exchange offer made by that Person or any Affiliate of that Person until the tendered shares are accepted for purchase or exchange; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board, or whose nomination for election by the shareholders of Holding, as the case may be, was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease 11 for any reason to constitute a majority of the Board then in office; or (iii) Holding fails to own 100% of the outstanding stock of AKS; provided, however, that it shall not be deemed a Change in -------- ------- Control if Holding merges into AKS except that, in such case, AKS shall be substituted for Holding for purposes of this definition of "Change in Control" and this clause (iii) shall not longer be applicable. (c) "Voting Equity Interests" of a corporation means all classes of stock ----------------------- then outstanding and normally entitled to vote in the election of directors or other governing body of such corporation. 8. Benefits Upon Voluntary Termination or Termination for Cause ------------------------------------------------------------ Upon your Date of Termination for Cause in accordance with Section 4(b) or your Date of Termination without Good Reason in accordance with Section 4(c), all benefits under this Agreement will be void, but, you nevertheless shall be eligible for any benefits provided in accordance with the plans and practices of AKS which are applicable to employees generally. 9. Arbitration ----------- Any dispute under this Agreement (except for disputes arising under Sections 10 and 12 below) shall be submitted to binding arbitration subject to the rules of the American Arbitration Association. Except as hereinafter provided, AKS and you shall each bear your own attorney's fees and shall share equally the cost of arbitration. However, if you prevail in a challenge by you to AKS' assertion of the existence of Cause for termination or in a challenge by AKS to your assertion of the existence of Good Reason for termination, you shall be reimbursed by AKS for all reasonable costs or expenses incurred by you in such challenge, including reasonable attorney's fees. 10. Confidentiality --------------- You will not disclose to any person or use for the benefit of yourself or any other person any confidential or proprietary information of AKS without the prior written consent of an elected officer of AKS. Upon your termination of employment, you will return to AKS all written or electronically stored memoranda, notes, plans, records, reports or other documents of any kind or description (including all copies in any form whatsoever) relating to the business of AKS. 11. Conflicts of Interest --------------------- You agree for so long as you are employed by AKS to avoid dealings and situations which would create the potential for a conflict of interest with AKS. In this regard, 12 you agree to comply with the AKS policy regarding conflicts of interest. 12. Covenant Not to Compete ----------------------- During the term of this Agreement, and for a period of one year following your Date of Termination for any reason other than for Cause pursuant to Section 4 (b) you agree not to be employed by, or serve as director of or consultant or advisor to, any business engaged directly or indirectly in the melting, hot rolling, cold rolling, or coating of carbon or stainless, flat rolled steel, or that is reasonably likely to engage in such business during the one-year period following your termination of employment; provided however, if a Change in Control occurs, the foregoing restriction ---------------- applicable to the one year period following your Date of Termination shall lapse and be null and void. 13. Notice ------ Notices required or permitted under this Agreement shall be in writing and shall be deemed to have been given when personally delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to the intended recipient at its or his address first above written. Notices to AKS shall be marked for the attention of the Chief Executive Officer of AKS. 14. Modification; Waiver -------------------- No provision of this Agreement may be waived, modified or discharged except pursuant to a written instrument signed by you and the Chairman of the Board or the Chief Executive Officer of AKS. 15. Successors; Binding Agreement ----------------------------- (a) AKS and Holding will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of AKS to expressly assume and agree to perform this Agreement in the same manner and to the same extent that AKS would be required to perform it if no such succession had taken place. Failure of AKS or Holding to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder had you continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee, or, if there is no such devisee, legatee or designee, to your estate. 13 16. Validity; Counterparts ---------------------- This Agreement shall be governed by and construed under the law of the State of Delaware. The validity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision hereof. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Sincerely, AK STEEL HOLDING CORPORATION By: ---------------------------------- Accepted and agreed to this _____ day __________________, 19___. ___________________________________ AK STEEL CORPORATION By: ---------------------------------- 14 EX-10.5 3 FORM OF CHIEF EXECUTIVE OFFICER SEVERANCE AGREEMENT Exhibit 10.5 CHIEF EXECUTIVE OFFICER SEVERANCE AGREEMENT (as amended and restated to reflect changes adopted by the Board on September 18, 1997) ------------------------------------------- ______________, 19___ ____________________ ____________________ ____________________ Dear _____________: Reference is made to your Executive Officer Severance Agreement, dated ___________, 19___ (the "Agreement"), setting forth the benefits to be provided to you in the event of the termination of your employment upon the circumstances therein specified. Upon your execution of a counterpart of this letter, the Agreement shall be deemed amended and, as so amended, is restated in its entirety to read as hereinafter set forth. AK Steel Corporation ("AKS"), since its formation, has established itself as a strong competitor in the carbon flat rolled steel industry. Continuity of the management of AKS is a critical factor to the continued growth and success of AKS. The Board of Directors ("Board") of AK Steel Holding Corporation ("Holding"), of which AKS is a wholly-owned subsidiary, believes it is in the best interest of Holding and AKS to reinforce and encourage the continued attention and dedication of key members of management to their assigned duties. In consideration of the mutual promises contained herein, it is hereby agreed that Holding shall cause AKS to provide and AKS shall provide to you, and you shall receive from AKS, the benefits set forth in this Agreement if your employment by AKS (including, for the purposes hereof, its subsidiaries and Affiliates, as hereinafter defined) is terminated during the term of this Agreement as provided herein. 1 . Purpose ------- This Agreement establishes certain basic terms and conditions relating to your employment with AKS, and special arrangements relating to the termination of your employment with AKS for any reason other than: (i) your voluntary retirement; (ii) your becoming totally and permanently disabled under the AKS long-term disability plan or policy; or (iii) your death. This Agreement supersedes all prior agreements with AKS or any predecessor business, as well as all other AKS severance policies and practices, except to the extent incorporated or restated herein. Notwithstanding the foregoing, neither the termination of your employment nor anything contained in this Agreement shall have any affect upon your rights under (i) any tax- qualified "pension benefit plan", as such term is defined in the Employee Retirement Income Security Act of 1974, as amended (ERISA), (ii) any "welfare benefit plan" as defined in ERISA, including by way of illustration and not limitation, any medical, surgical or hospitalization benefit coverage or long-term disability benefit coverage, or (iii) any non-qualified deferred compensation arrangement, including by way of illustration and not limitation, any non-qualified pension plan or deferred compensation plan. 2. Employment ---------- During the term of this Agreement: (a) you will be employed by AKS (including for this purpose any direct or indirect subsidiary or Affiliate of AKS to which you may be transferred) in your present position or in a position that is at least comparable to your present position in compensation, responsibility and stature and for which you are suited by education and background; (b) you will continue to be eligible to participate in any employee benefit plan of AKS in accordance with its terms; and (c) you will be entitled to the same treatment under any generally applicable employment policy or practice as any other key member of management of AKS whose position in the AKS organization is at a level of responsibility comparable to yours. Those plans, policies and practices that generally apply to other key members of management of AKS will be referred to in this Agreement as your "Employment Benefits." Your Employment Benefits may be modified from time to time after the date hereof without violation of this Agreement if the changes apply generally to other key members of management of AKS. 3. Term of Agreement ----------------- This Agreement shall be deemed effective as of ____________, 19___ (the "Effective Date") and shall continue in effect through the later of: (i) the fifth anniversary of the Effective Date or (ii) the completion of full payment of all benefits promised hereunder. This Agreement shall be automatically renewed annually from and after the fifth anniversary of the Effective Date unless written notice of non-renewal is given by you or by AKS at least ninety (90) days prior to the expiration of the term, including any extension thereof. 2 4. Termination of Employment ------------------------- Your employment may be terminated in accordance with any of the following paragraphs. The date upon which the termination of your employment becomes effective is hereinafter referred to as the "Date of Termination". The period between the date of notice of termination and the Date of Termination is referred to as the "Notice Period". (a) Involuntary Termination Without Cause ------------------------------------- AKS may terminate your employment without Cause (as defined in Section 4(b) below), but only upon written notice given to you by AKS not less than thirty (30) days prior to the Date of Termination. During the Notice Period, you shall continue to receive your full salary and Employment Benefits. From and after the Date of Termination, pursuant to this Section 4(a), you shall be entitled to those benefits provided under Section 5. (b) Involuntary Termination For Cause --------------------------------- AKS may terminate your employment for Cause, but only upon written notice, specifying the facts or circumstances constituting such Cause, which notice may be given on or at any time prior to the Date of Termination. For the purposes of this Section 4(b), "Cause" means a willful engaging in gross misconduct materially and demonstrably injurious to AKS. "Willful" means an act or omission in bad faith and without reasonable belief that such act or omission was in or not opposed to the best interests of AKS. From and after your Date of Termination, pursuant to this Section 4(b), you shall only be entitled to those benefits provided under Section 8. (c) Voluntary Termination Without Good Reason ----------------------------------------- You may voluntarily terminate your employment without Good Reason (as defined in Section 4(d) below), but only upon written notice given to AKS by you not less than thirty (30) days prior to the Date of Termination. During the Notice Period, you shall continue to receive your full salary and Employment Benefits, provided you satisfactorily perform your duties during the Notice Period (unless relieved of those duties by AKS). From and after the Date of Termination, pursuant to this Section 4(c), you shall only be entitled to those benefits provided under Section 8. (d) Voluntary Termination For Good Reason ------------------------------------- You may voluntarily terminate your employment for Good Reason (as herein defined), but only upon written notice, specifying the facts or circumstances constituting such Good Reason, given to AKS by you at least thirty (30) days prior to the Date of Termination and not more than sixty (60) days following 3 the occurrence of the circumstances constituting such Good Reason. For the purposes of this Section 4(d), "Good Reason" shall mean the occurrence, without your express written consent, of any of the following circumstances (unless, in the case of clauses (i), (v), (vi), (vii) or (viii) below, such circumstances are fully corrected prior to the Date of Termination specified in the notice of termination): (i) the assignment to you of any duties inconsistent with your position within AKS or a significant adverse alteration in the nature or status of your responsibilities or the conditions of your employment; (ii) a reduction by AKS in your annual base salary provided, however, that no such reduction shall reduce your benefits under Section 5 if you have given timely notice pursuant to this Section 4(d); (iii) a requirement by AKS that you be based anywhere other than the principal executive offices of AKS except for required travel on AKS business to an extent substantially consistent with your customary business travel obligations; (iv) the failure of AKS to pay to you any portion of your compensation within seven (7) days of the date such compensation is due; (v) the failure of AKS, at any time within 24 months following the occurrence of a Change In Control (as defined in Section 7(b) hereof), to continue in effect any compensation plan in which you participated immediately prior to such Change In Control, which plan is material to your total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure of AKS to continue your participation in such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable to you, both in terms of the amount of benefits provided and the level of your participation relative to other participants, than that existing immediately prior to such Change In Control; (vi) any material reduction, except to the extent permitted by Section 2 hereof, in your Employment Benefits; (vii) the failure of AKS to obtain a satisfactory agreement from any successor corporation to assume and agree to perform this Agreement, as contemplated in Section 15 hereof; (viii) any purported termination of your employment by AKS that is not effected in compliance with the provisions of Section 4(a) or 4(b) hereof, as the case may be; 4 (ix) notice of non-renewal is given by AKS pursuant to Section 3 of this Agreement. If you give notice of termination for Good Reason, then, during the Notice Period (which shall not exceed 60 days), you shall continue to receive your full base salary and Employment Benefits as in effect prior to the occurrence of the circumstances constituting such Good Reason, subject to the right of AKS to make changes to your Employment Benefits to the extent permitted by Section 2. From and after the Date of Termination, pursuant to this Section 4(d), you shall be entitled to those benefits provided under Section 5. (e) Voluntary Termination After A Change In Control ----------------------------------------------- You may voluntarily terminate your employment, with or without Good Reason, during the thirty (30)-day period immediately following the date on which a Change In Control occurs, but only upon written notice given to AKS by you during such 30-day period specifying the Date of Termination which, unless otherwise agreed by you and AKS, shall not be less than thirty (30) days nor more than sixty (60) days following such Change In Control. During the Notice Period, you shall continue to receive your full salary and Employment Benefits, provided you satisfactorily perform your duties during the Notice Period (unless relieved of those duties by AKS). From and after the Date of Termination, pursuant to this Section 4(e), you shall be entitled to those benefits provided under Section 5. 5. Special Severance Benefits -------------------------- (a) If your employment with AKS is involuntarily terminated by AKS without Cause in accordance with Section 4(a), you voluntarily terminate your employment for Good Reason in accordance with Section 4(d), or you voluntarily terminate your employment after a Change In Control in accordance with Section 4(e), then you shall receive the following benefits: (i) Your base salary shall be continued in effect for a period (hereafter, the "Severance Pay Period") of (1) 36 months from the Date of Termination, if the notice of your termination is given within 24 months after the occurrence of a Change In Control or (2) 24 months from your Date of Termination, if the notice of your termination is given at any time other than within 24 months after the occurrence of a Change In Control. The aggregate base salary payable in accordance with this Section 5(a)(i) shall be paid to you in a single, undiscounted, lump sum payment within ten (10) days following the Date of Termination unless you have requested, in writing, at any time prior to your Date of Termination to receive payments of your 5 base salary in regular monthly payments throughout the Severance Pay Period. (ii) (1) Within ten (10) days following the Date of Termination, you will receive a lump-sum payment equal in amount to the result obtained by application of the following formula: P = (x) times (y) times (z), where: P = the lump-sum payment; (x) = twelve times your monthly base salary; (y) = the fraction obtained by dividing your annual incentive compensation which was paid or is payable to you for the immediately preceding calendar year by your actual base salary for such year; and (z) = 3.0 (if the notice of your termination is given within 24 months after the occurrence of a Change In Control) or 2.0 (if the notice of your termination is given at any time other than within 24 months after the occurrence of a Change in Control). (2) Within ten (10) days following the date that payment is made to active employees of AKS, you shall receive a pro-rata payment of the annual incentive payment you would have received for the year in which your Date of Termination occurs. Such payment shall be (A) pro-rated based upon your Date of Termination and (B) otherwise calculated as an employee in good standing at your level of participation in effect prior to the Date of Termination and assuming 100 percent completion of any individual performance factors. (iii) Notwithstanding any provision to the contrary in the AK Steel Holding Corporation 1994 Stock Incentive Plan as amended or any other similar plan of AKS or Holding (each, a "Plan"), or under the terms of any grant, award agreement or form for exercising any right under the Plan, you shall have the right: (1) to exercise any stock option awarded to you under the Plan without regard to any waiting period required by the Plan or award agreement (but subject to a minimum six month holding period from the date of award and any restrictions imposed by law) from the first day of your Notice Period until 6 the first to occur of the third anniversary of your Date of Termination or the date the award expires by its terms, and (2) to the absolute ownership of any shares of stock granted to you under the Plan, free of any restriction on your right to transfer or otherwise dispose of the shares (but subject to a minimum six month holding period from the date of grant and any restrictions imposed by law), regardless of whether entitlement to the shares is contingent or absolute by the terms of the grant; and the Board shall take such action within the Notice Period as is necessary or appropriate to eliminate any restriction on your ownership of, or your right to sell or assign, any such shares; and further provided that if the Board should fail or refuse to take such action, AKS shall pay you, in exchange for such shares, no later than ten (10) days after the Date of Termination, an amount in cash equal to the greatest aggregate market value of the shares during the Notice Period. You agree, for a period of six (6) months after your Termination Date, to continue to comply with all AKS and Holding policies and directives related to trading in Holding stock which were in effect prior to your notice of termination. If your compliance with such policies and directives precludes you from exercising any stock options or selling any shares of stock described in paragraphs (1) and (2) above for a period of more than sixty (60) days from the first day of your Notice Period, then AKS will pay you in cash the difference between the average share price during the Notice Period and, if less, the actual share price received by you at the time of sale provided you have completed such sale within sixty (60) days from your first opportunity to do so. The average sale price during the Notice Period will be determined by averaging the highest share price and the lowest share price during the Notice Period. Any such differential payment will be paid to you within thirty (30) days after you provide written notice to AKS requesting such payment. Such notice is to be directed to the attention of the Secretary of AKS and contain the relevant stock transaction dates and actual share price information. (iv) During the Severance Pay Period your Employment Benefits shall be continued, subject to the right of AKS to make any changes to your Employment Benefits permitted in accordance with Section 2; provided, however, that you shall not: (1) accumulate vacation pay for periods after the Date of Termination; 7 (2) first qualify for sickness and accident plan benefits by reason of an accident occurring or a sickness first manifesting itself after the Date of Termination; (3) be eligible to continue to make contributions to any Internal Revenue Code Section 401(k) plan maintained by AKS or qualify for a share of any employer contribution made to any tax-qualified defined contribution plan; or (4) be eligible to accumulate service for pension plan purposes; and provided, further, that if, during the Severance Pay Period, you are (and for so long as you remain) employed by any other employer, the obligations of AKS to continue to provide you with life, disability and medical, hospital and other health insurance benefits shall be limited solely to those benefits necessary to assure that, together with the corresponding benefits provided to you by your new employer, you receive total benefits comparable to those to which you were entitled at the Date of Termination. (v) You shall qualify for full COBRA health benefit continuation coverage upon the expiration of the Severance Pay Period. (vi) You shall be entitled, at no cost to you, to full executive outplacement assistance with an agency selected by AKS. (b) If your employment with AKS is involuntarily terminated by AKS without Cause in accordance with Section 4(a), or if at any time after a Change In Control you voluntarily terminate your employment with AKS (or any Affiliate, any successor of AKS, or any entity which as a result of the completion of the transactions causing a Change In Control becomes affiliated with AKS) for Good Reason (as defined in Section 4(d)) or after a Change In Control in accordance with Section 4(e), within ten (10) days following the Date of Termination you will receive, in addition to any benefits you may be entitled to under Section 5(a) above, a lump sum payment in an amount equal to the benefit you would be entitled to under the AK Steel Corporation Executive Minimum and Supplemental Retirement Plan as amended (the "EMSRP") determined as if (i) your Vesting Date (as defined under the EMSRP) had occurred prior to the Date of Termination (if it has not already occurred as of the Date of Termination) and (ii) you had attained age 60 prior to the Date of Termination (if you have not already attained age 60 as of the Date of Termination). The amount of any such additional benefit shall be calculated as of the Date of Termination in accordance with the benefit formula under the EMSRP (as if you had attained 8 age 60, or your actual age if greater), and the payment of such benefit shall be in lieu of any payment under the EMSRP. (c) Voluntary termination of your employment with AKS for Good Reason under Section 4(d) or Section 4(e) shall not be considered a voluntary termination under the AK Steel Deferred Compensation Plan (the "DCP"). Accordingly, if you terminate your employment with AKS for Good Reason under Section 4(d) or after a Change In Control under Section 4(e), you will be fully vested in the interest credited to your account under the DCP and will be paid your entire account at such time as provided under the DCP. (d) You shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefits provided for in this Section 5 be reduced by any compensation or benefits earned by you as the result of employment by another employer (except as expressly provided in Section 5(a)(iv) above) or by retirement benefits, or be offset against any amount claimed to be owed by you to AKS or any of its Affiliates or successors. (e) For purposes of calculating any amount due under this Agreement the effect of any deferral of income shall be disregarded and all sums due shall be calculated as if no such deferral had been made. 6. Certain Tax Matters ------------------- (a) If any of the payments provided to you pursuant to Section 5 hereof (the "Contract Payments") or any other portion of the Total Payments (as defined below) becomes subject at any time to the tax (the "Excise Tax") imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), AKS shall pay to you at the time specified in section 6(b) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of the Excise Tax on any Contract Payments and/or other Total Payments, any federal and state and local income tax and Excise Tax upon the payment(s) provided for by this paragraph, and any interest, penalties or additions to tax payable by you with respect thereto, shall be equal to the present value of the Contract Payments and such other Total Payments. For purposes of determining whether any of the foregoing payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a Change In Control or the termination of your employment (whether such payments are Contract Payments or are payable pursuant to the terms of any other plan, arrangement or agreement with AKS, Holding or any of their respective Affiliates or successors, any person whose actions result in a Change In Control or any corporation which, as a result of the completion of the transactions causing a Change In Control, will become affiliated with AKS or Holding within the meaning of section 1504 of the 9 Code (such other payments, together with the Contract Payments, the "Total Payments")) shall be treated as "parachute payments" within the meaning of section 28OG(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 28OG(b)(1) shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel selected by AKS' independent auditors and acceptable to you ("Tax Counsel"), the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Total Payments or (2) the amount of excess parachute payments within the meaning of sections 28OG(b)(1) (after applying clause (i) hereof), and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by AKS' independent auditors in accordance with the principles of sections 28OG(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment(s), you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment(s) is (are) to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of your residence in the calendar year in which the Gross-Up Payment(s) is (are) to be made, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, you shall repay to AKS at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a federal and state and local income tax deduction), plus interest on the amount of such repayment at the applicable federal rate (as defined in section 1274(d) of the Code). In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), AKS shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (b) The Gross-up Payment(s) provided for in section 6(a) above shall be made not later than the tenth day following the Date of Termination or, with respect to any portion of the Excise Tax not determined on or before such date to be due, upon the imposition of such portion of the Excise Tax; provided, however, that if the amounts of such payments cannot be finally determined on or before such date, AKS shall pay to you on such day an estimate, as determined in good faith by AKS, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the 10 rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently finally determined to have been due, such excess shall constitute a loan by the Corporation to you, payable on the tenth day after demand by the Corporation (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (c) In the event of any change in, or further interpretation of, sections 28OG or 4999 of the Code and the regulations promulgated thereunder, you shall be entitled, by written notice to AKS, to request an opinion of Tax Counsel regarding the application of such change to any of the foregoing, and AKS shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of Tax Counsel incurred in connection with this Agreement shall be borne by AKS. 7. Definitions ----------- For purposes of this Agreement the following terms shall have the following meanings: (a) "Affiliate" of any specified person means (i) any other person which, directly or indirectly, is in control of, is controlled by or is under common control with such specified person or (ii) any other person who is a director or officer (1) of such specified person, (2) of any subsidiary of such specified person or (3) of any person described in clause (i) above. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (b) "Change In Control" means the occurrence of any of the following events: (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total voting power of the Voting Equity Interests of Holding; provided, however, that a Person shall not be deemed the "beneficial owner" of shares tendered pursuant to a tender or exchange offer made by that Person or any Affiliate of that Person until the tendered shares are accepted for purchase or exchange; 11 (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board, or whose nomination for election by the shareholders of Holding, as the case may be, was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office; or (iii) Holding fails to own 100% of the outstanding stock of AKS; provided, however, that it shall not be deemed a Change in -------- ------- Control if Holding merges into AKS except that, in such case, AKS shall be substituted for Holding for purposes of this definition of "Change in Control" and this clause (iii) shall not longer be applicable. (c) "Voting Equity Interests" of a corporation means all classes of stock then outstanding and normally entitled to vote in the election of directors or other governing body of such corporation. 8. Benefits Upon Voluntary Termination or Termination for Cause ------------------------------------------------------------ Upon your Date of Termination for Cause in accordance with Section 4(b) or your Date of Termination without Good Reason in accordance with Section 4(c), all benefits under this Agreement will be void, but, you nevertheless shall be eligible for any benefits provided in accordance with the plans and practices of AKS which are applicable to employees generally. 9. Arbitration ----------- Any dispute under this Agreement (except for disputes arising under Sections 10 and 12 below) shall be submitted to binding arbitration subject to the rules of the American Arbitration Association. Except as hereinafter provided, AKS and you shall each bear your own attorney's fees and shall share equally the cost of arbitration. However, if you prevail in a challenge by you to AKS' assertion of the existence of Cause for termination or in a challenge by AKS to your assertion of the existence of Good Reason for termination, you shall be reimbursed by AKS for all reasonable costs or expenses incurred by you in such challenge, including reasonable attorney's fees. 10. Confidentiality --------------- You will not disclose to any person or use for the benefit of yourself or any other person any confidential or proprietary information of AKS without the prior written consent of an elected officer of AKS. Upon your termination of employment, you will return to AKS all written or electronically stored memoranda, notes, plans, 12 records, reports or other documents of any kind or description (including all copies in any form whatsoever) relating to the business of AKS. 11. Conflicts of Interest --------------------- You agree for so long as you are employed by AKS to avoid dealings and situations which would create the potential for a conflict of interest with AKS. In this regard, you agree to comply with the AKS policy regarding conflicts of interest. 12. Covenant Not to Compete ----------------------- During the term of this Agreement, and for a period of one year following your Date of Termination for any reason other than for Cause pursuant to Section 4(b) you agree not to be employed by, or serve as director of or consultant or advisor to, any business engaged directly or indirectly in the melting, hot rolling, cold rolling, or coating of carbon or stainless, flat rolled steel, or that is reasonably likely to engage in such business during the one-year period following your termination of employment; provided however, if a Change In Control occurs, the foregoing restriction -------- ------- applicable to the one year period following your Date of Termination shall lapse and be null and void. 13. Notice ------ Notices required or permitted under this Agreement shall be in writing and shall be deemed to have been given when personally delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to the intended recipient at its or his address first above written. Notices to AKS shall be marked for the attention of the Chief Executive Officer of AKS. 14. Modification; Waiver -------------------- No provision of this Agreement may be waived, modified or discharged except pursuant to a written instrument signed by you and approved by the Board. 15. Successors; Binding Agreement ----------------------------- (a) AKS and Holding will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of AKS to expressly assume and agree to perform this Agreement in the same manner and to the same extent that AKS would be required to perform it if no such succession had taken place. Failure of AKS or Holding to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, 13 heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder had you continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee, or, if there is no such devisee, legatee or designee, to your estate. 16. Validity; Counterparts ---------------------- This Agreement shall be governed by and construed under the law of the State of Delaware. The validity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision hereof. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Sincerely, AK STEEL HOLDING CORPORATION By: --------------------------------- Accepted and agreed to this _____ day ______________, 19___. By: ---------------------------------- AK STEEL CORPORATION By: -------------------------------- 14 EX-10.6 4 FORM OF EXECUTIVE OFFICER SEVERANCE AGREEMENT Exhibit 10.6 EXECUTIVE OFFICER SEVERANCE AGREEMENT (as amended and restated to reflect changes adopted by the Board on September 18, 1997) ------------------------------------------- CONFIDENTIAL ------------ _____________, 19____ __________________ __________________ __________________ Dear _____________: Reference is made to the agreement between us, ________________, 19___ (the "Agreement"), setting forth the benefits to be provided to you in the event of the termination of your employment upon the circumstances therein specified. Upon your execution of a counterpart of this letter, the Agreement shall be deemed amended and, as so amended, is restated in its entirety to read as hereinafter set forth. AK Steel Corporation ("AKS"), since its formation, has established itself as a strong competitor in the carbon flat rolled steel industry. Continuity of the management of AKS is a critical factor to the continued growth and success of AKS. The Board of Directors ("Board") of AK Steel Holding Corporation ("Holding"), of which AKS is a wholly-owned subsidiary, believes it is in the best interest of Holding and AKS to reinforce and encourage the continued attention and dedication of key members of management to their assigned duties. In consideration of the mutual promises contained herein, it is hereby agreed that Holding shall cause AKS to provide and AKS shall provide to you, and you shall receive from AKS, the benefits set forth in this Agreement if your employment by AKS (including, for the purposes hereof, its subsidiaries and Affiliates, as hereinafter defined) is terminated during the term of this Agreement as provided herein. 1 . Purpose ------- This Agreement establishes certain basic terms and conditions relating to your employment with AKS, and special arrangements relating to the termination of your employment with AKS for any reason other than: (i) your voluntary retirement; (ii) your becoming totally and permanently disabled under the AKS long-term disability plan or policy; or (iii) your death. This Agreement supersedes all prior agreements with AKS or any predecessor business, as well as all other AKS severance policies and practices, except to the extent incorporated or restated herein. Notwithstanding the foregoing, neither the termination of your employment nor anything contained in this Agreement shall have any affect upon your rights under (i) any tax-qualified "pension benefit plan", as such term is defined in the Employee Retirement Income Security Act of 1974, as amended (ERISA), (ii) any "welfare benefit plan" as defined in ERISA, including by way of illustration and not limitation, any medical, surgical or hospitalization benefit coverage or long-term disability benefit coverage, or (iii) any non-qualified deferred compensation arrangement, including by way of illustration and not limitation, any non-qualified pension plan or deferred compensation plan. 2. Employment ---------- During the term of this Agreement: (a) you will be employed by AKS (including for this purpose any direct or indirect subsidiary or Affiliate of AKS to which you may be transferred) in your present position or in a position that is at least comparable to your present position in compensation, responsibility and stature and for which you are suited by education and background; (b) you will continue to be eligible to participate in any employee benefit plan of AKS in accordance with its terms; and (c) you will be entitled to the same treatment under any generally applicable employment policy or practice as any other key member of management of AKS whose position in the AKS organization is at a level of responsibility comparable to yours. Those plans, policies and practices that generally apply to other key members of management of AKS will be referred to in this Agreement as your "Employment Benefits." Your Employment Benefits may be modified from time to time after the date hereof without violation of this Agreement if the changes apply generally to other key members of management of AKS. 3. Term of Agreement ----------------- This Agreement shall be deemed effective as of ____________, 19___ (the "Effective Date") and shall continue in effect through the later of: (i) the fifth anniversary of the Effective Date or (ii) the completion of full payment of all benefits promised hereunder. This Agreement shall be automatically renewed annually from and after the fifth anniversary of the Effective Date unless written notice of non-renewal is given by you or by AKS at least ninety (90) days prior to the expiration of the term, including any extension thereof. 2 4. Termination of Employment ------------------------- Your employment may be terminated in accordance with any of the following paragraphs. The date upon which the termination of your employment becomes effective is hereinafter referred to as the "Date of Termination". The period between the date of notice of termination and the Date of Termination is referred to as the "Notice Period". (a) Involuntary Termination Without Cause ------------------------------------- AKS may terminate your employment without Cause (as defined in Section 4(b) below), but only upon written notice given to you by AKS not less than thirty (30) days prior to the Date of Termination. During the Notice Period, you shall continue to receive your full salary and Employment Benefits. From and after the Date of Termination, pursuant to this Section 4(a), you shall be entitled to those benefits provided under Section 5. (b) Involuntary Termination for Cause --------------------------------- AKS may terminate your employment for Cause, but only upon written notice, specifying the facts or circumstances constituting such Cause, which notice may be given on or at any time prior to the Date of Termination. For the purposes of this Section 4(b), "Cause" means a willful engaging in gross misconduct materially and demonstrably injurious to AKS. "Willful" means an act or omission in bad faith and without reasonable belief that such act or omission was in or not opposed to the best interests of AKS. From and after your Date of Termination, pursuant to this Section 4 (b), you shall only be entitled to those benefits provided under Section 8. (c) Voluntary Termination Without Good Reason ----------------------------------------- You may voluntarily terminate your employment without Good Reason (as defined in Section 4 (d) below), but only upon written notice given to AKS by you not less than thirty (30) days prior to the Date of Termination. During the Notice Period, you shall continue to receive your full salary and Employment Benefits, provided you satisfactorily perform your duties during the Notice Period (unless relieved of those duties by AKS). From and after the Date of Termination, pursuant to this Section 4 (c), you shall only be entitled to those benefits provided under Section 8. (d) Voluntary Termination for Good Reason ------------------------------------- You may voluntarily terminate your employment for Good Reason (as herein defined), but only upon written notice, specifying the facts or circumstances constituting such Good Reason, given to AKS by you at least thirty (30) days 3 prior to the Date of Termination and not more than sixty (60) days following the occurrence of the circumstances constituting such Good Reason. For the purposes of this Section 4(d), "Good Reason" shall mean the occurrence, without your express written consent, of any of the following circumstances (unless, in the case of clauses (i), (v), (vi), (vii) or (viii) below, such circumstances are fully corrected prior to the Date of Termination specified in the notice of termination): (i) the assignment to you of any duties inconsistent with your position within AKS or a significant adverse alteration in the nature or status of your responsibilities or the conditions of your employment; (ii) a reduction by AKS in your annual base salary provided, however, that no such reduction shall reduce your benefits under Section 5 if you have given timely notice pursuant to this Section 4(d); (iii) a requirement by AKS that you be based anywhere other than the principal executive offices of AKS except for required travel on AKS business to an extent substantially consistent with your customary business travel obligations; (iv) the failure of AKS to pay to you any portion of your compensation within seven (7) days of the date such compensation is due; (v) the failure of AKS, at any time within 24 months following the occurrence of a Change In Control (as defined in Section 7(b) hereof), to continue in effect any compensation plan in which you participated immediately prior to such Change In Control, which plan is material to your total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure of AKS to continue your participation in such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable to you, both in terms of the amount of benefits provided and the level of your participation relative to other participants, than that existing immediately prior to such Change In Control; (vi) any material reduction, except to the extent permitted by Section 2 hereof, in your Employment Benefits; (vii) the failure of AKS to obtain a satisfactory agreement from any successor corporation to assume and agree to perform this Agreement, as contemplated in Section 15 hereof; (viii) any purported termination of your employment by AKS that is not 4 effected in compliance with the provisions of Section 4(a) or 4(b) hereof, as the case may be; If you give notice of termination for Good Reason, then, during the Notice Period (which shall not exceed 60 days), you shall continue to receive your full base salary and Employment Benefits as in effect prior to the occurrence of the circumstances constituting such Good Reason, subject to the right of AKS to make changes to your Employment Benefits to the extent permitted by Section 2. From and after the Date of Termination, pursuant to this Section 4 (d), you shall be entitled to those benefits provided under Section 5. 5. Special Severance Benefits -------------------------- (a) If your employment with AKS is involuntarily terminated by AKS without Cause in accordance with Section 4(a) or you voluntarily terminate your employment for Good Reason in accordance with Section 4(d), then you shall receive the following benefits: (i) Your base salary shall be continued in effect for a period (hereafter, the "Severance Pay Period") of (1) 36 months from the Date of Termination, if the notice of your termination is given within 24 months after the occurrence of a Change In Control (as defined in Section 7(b) below) or (2) 24 months from your Date of Termination, if the notice of your termination is given at any time other than within 24 months after the occurrence of a Change In Control. The aggregate base salary payable in accordance with this Section 5(a)(i) shall be paid to you in a single, undiscounted, lump-sum payment within ten (10) days following the Date of Termination unless you have requested, in writing, at any time prior to your Date of Termination to receive payments of your base salary in regular monthly payments throughout the Severance Pay Period. (ii) (1) Within ten (10) days following the Date of Termination, you will receive a lump-sum payment equal in amount to the result obtained by application of the following formula: P = (x) times (y) times (z), where: P = the lump-sum payment; (x) = twelve times your monthly base salary; (y) = the fraction obtained by dividing your annual incentive compensation which was paid or is payable to you for the immediately preceding 5 calendar year by your actual base salary for such year; and (z) = 3.0 (if the notice of your termination is given within 24 months after the occurrence of a Change In Control, as defined in Section 7(b) hereof) or 2.0 (if the notice of your termination is given at any time other than within 24 months after the occurrence of a Change in Control). (2) Within ten (10) days following the date that payment is made to active employees of AKS, you shall receive a pro-rata payment of the annual incentive payment you would have received for the year in which your Date of Termination occurs. Such payment shall be (A) pro-rated based upon your Date of Termination and (B) otherwise calculated as an employee in good standing at your level of participation in effect prior to the Date of Termination and assuming 100 percent completion of any individual performance factors. (iii) Notwithstanding any provision to the contrary in the AK Steel Holding Corporation 1994 Stock Incentive Plan as amended or any other similar plan of AKS or Holding (each, a "Plan"), or under the terms of any grant, award agreement or form for exercising any right under the Plan, you shall have the right: (1) to exercise any stock option awarded to you under the Plan without regard to any waiting period required by the Plan or award agreement (but subject to a minimum six month holding period from the date of award and any restrictions imposed by law) from the first day of your Notice Period until the first to occur of the third anniversary of your Date of Termination or the date the award expires by its terms, and (2) to the absolute ownership of any shares of stock granted to you under the Plan, free of any restriction on your right to transfer or otherwise dispose of the shares (but subject to a minimum six month holding period from the date of grant and any restrictions imposed by law), regardless of whether entitlement to the shares is contingent or absolute by the terms of the grant; and the Board shall take such action within the Notice Period as is necessary or appropriate to eliminate any restriction on your ownership of, or your right to sell or assign, any such shares; and further provided that if the Board 6 should fail or refuse to take such action, AKS shall pay you, in exchange for such shares, no later than ten (10) days after the Date of Termination, an amount in cash equal to the greatest aggregate market value of the shares during the Notice Period. You agree, for a period of six (6) months after your Termination Date, to continue to comply with all AKS and Holding policies and directives related to trading in Holding stock which were in effect prior to your notice of termination. If your compliance with such policies and directives precludes you from exercising any stock options or selling any shares of stock described in paragraphs (1) and (2) above for a period of more than sixty (60) days from the first day of your Notice Period, then AKS will pay you in cash the difference between the average share price during the Notice Period and, if less, the actual share price received by you at the time of sale provided you have completed such sale within sixty (60) days from your first opportunity to do so. The average sale price during the Notice Period will be determined by averaging the highest share price and the lowest share price during the Notice Period. Any such differential payment will be paid to you within thirty (30) days after you provide written notice to AKS requesting such payment. Such notice is to be directed to the attention of the Secretary of AKS and contain the relevant stock transaction dates and actual share price information. (iv) During the Severance Pay Period your Employment Benefits shall be continued, subject to the right of AKS to make any changes to your Employment Benefits permitted in accordance with Section 2; provided, however, that you shall not: (1) accumulate vacation pay for periods after the Date of Termination; (2) first qualify for sickness and accident plan benefits by reason of an accident occurring or a sickness first manifesting itself after the Date of Termination; (3) be eligible to continue to make contributions to any Internal Revenue Code Section 401(k) plan maintained by AKS or qualify for a share of any employer contribution made to any tax-qualified defined contribution plan; or (4) be eligible to accumulate service for pension plan purposes; and 7 provided, further, that if, during the Severance Pay Period, you are (and for so long as you remain) employed by any other employer, the obligations of AKS to continue to provide you with life, disability and medical, hospital and other health insurance benefits shall be limited solely to those benefits necessary to assure that, together with the corresponding benefits provided to you by your new employer, you receive total benefits comparable to those to which you were entitled at the Date of Termination. (v) You shall qualify for full COBRA health benefit continuation coverage upon the expiration of the Severance Pay Period. (vi) You shall be entitled, at no cost to you, to full executive outplacement assistance with an agency selected by AKS. (b) If your employment with AKS is involuntarily terminated by AKS without Cause in accordance with Section 4(a), or if at any time after a Change in Control you voluntarily terminate your employment with AKS (or any Affiliate, any successor of AKS, or any entity which as a result of the completion of the transactions causing a Change in Control becomes affiliated with AKS) for Good Reason (as defined in Section 4(d)), within ten (10) days following the Date of Termination you will receive, in addition to any benefits you may be entitled to under Section 5(a) above, a lump sum payment in an amount equal to the benefit you would be entitled to under the AK Steel Corporation Executive Minimum and Supplemental Retirement Plan as amended (the "EMSRP") determined as if (i) your Vesting Date (as defined under the EMSRP) had occurred prior to the Date of Termination (if it has not already occurred as of the Date of Termination) and (ii) you had attained age 60 prior to the Date of Termination (if you have not already attained age 60 as of the Date of Termination). The amount of any such additional benefit shall be calculated as of the Date of Termination in accordance with the benefit formula under the EMSRP (as if you had attained age 60, or your actual age if greater), and the payment of such benefit shall be in lieu of any payment under the EMSRP. (c) Voluntary termination of your employment with AKS for Good Reason under Section 4(d) shall not be considered a voluntary termination under the AK Steel Deferred Compensation Plan (the "DCP"). Accordingly, if you terminate your employment with AKS for Good Reason under Section 4(d), you will be fully vested in the interest credited to your account under the DCP and will be paid your entire account at such time as provided under the DCP. (d) You shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefits provided for in this Section 5 be reduced 8 by any compensation or benefits earned by you as the result of employment by another employer (except as expressly provided in Section 5(a)(iv) above) or by retirement benefits, or be offset against any amount claimed to be owed by you to AKS or any of its Affiliates or successors. (e) For purposes of calculating any amount due under this Agreement the effect of any deferral of income shall be disregarded and all sums due shall be calculated as if no such deferral had been made. 6. Certain Tax Matters ------------------- (a) If any of the payments provided to you pursuant to Section 5 hereof (the "Contract Payments") or any other portion of the Total Payments (as defined below) becomes subject at any time to the tax (the "Excise Tax") imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), AKS shall pay to you at the time specified in section 6(b) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of the Excise Tax on any Contract Payments and/or other Total Payments, any federal and state and local income tax and Excise Tax upon the payment(s) provided for by this paragraph, and any interest, penalties or additions to tax payable by you with respect thereto, shall be equal to the present value of the Contract Payments and such other Total Payments. For purposes of determining whether any of the foregoing payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a Change In Control or the termination of your employment (whether such payments are Contract Payments or are payable pursuant to the terms of any other plan, arrangement or agreement with AKS, Holding or any of their respective Affiliates or successors, any person whose actions result in a Change In Control or any corporation which, as a result of the completion of the transactions causing a Change In Control, will become affiliated with AKS or Holding within the meaning of section 1504 of the Code (such other payments, together with the Contract Payments, the "Total Payments")) shall be treated as "parachute payments" within the meaning of section 28OG(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 28OG(b)(1) shall be treated as subject to the Excise Tax, except to the extent that, in the opinion of tax counsel selected by AKS' independent auditors and acceptable to you ("Tax Counsel"), the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Total Payments or (2) the amount of excess parachute payments within the meaning of sections 28OG(b)(1) (after applying clause (i) hereof), and (iii) the value of 9 any noncash benefits or any deferred payment or benefit shall be determined by AKS' independent auditors in accordance with the principles of sections 28OG(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment(s), you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment(s) is (are) to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of your residence in the calendar year in which the Gross-Up Payment(s) is (are) to be made, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, you shall repay to AKS at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a federal and state and local income tax deduction), plus interest on the amount of such repayment at the applicable federal rate (as defined in section 1274(d) of the Code). In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), AKS shall make an additional Gross-Up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (b) The Gross-up Payment(s) provided for in section 6(a) above shall be made not later than the tenth day following the Date of Termination or, with respect to any portion of the Excise Tax not determined on or before such date to be due, upon the imposition of such portion of the Excise Tax; provided, however, that if the amounts of such payments cannot be finally determined on or before such date, AKS shall pay to you on such day an estimate, as determined in good faith by AKS, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently finally determined to have been due, such excess shall constitute a loan by the Corporation to you, payable on the tenth day after demand by the Corporation (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (c) In the event of any change in, or further interpretation of, sections 28OG or 4999 of the Code and the regulations promulgated thereunder, you shall be entitled, by written notice to AKS, to request an opinion of Tax Counsel 10 regarding the application of such change to any of the foregoing, and AKS shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of Tax Counsel incurred in connection with this Agreement shall be borne by AKS. 7. Definitions ----------- For purposes of this Agreement the following terms shall have the following meanings: (a) "Affiliate" of any specified person means (i) any other person which, --------- directly or indirectly, is in control of, is controlled by or is under common control with such specified person or (ii) any other person who is a director or officer (1) of such specified person, (2) of any subsidiary of such specified person or (3) of any person described in clause (i) above. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (b) "Change In Control" means the occurrence of any of the following ----------------- events: (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total voting power of the Voting Equity Interests of Holding; provided, -------- however, that a Person shall not be deemed the "beneficial owner" ------- of shares tendered pursuant to a tender or exchange offer made by that Person or any Affiliate of that Person until the tendered shares are accepted for purchase or exchange; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board, or whose nomination for election by the shareholders of Holding, as the case may be, was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office; or (iii) Holding fails to own 100% of the outstanding stock of AKS; 11 provided, however, that it shall not be deemed a Change in -------- ------- Control if Holding merges into AKS except that, in such case, AKS shall be substituted for Holding for purposes of this definition of "Change in Control" and this clause (iii) shall not longer be applicable. (c) "Voting Equity Interests" of a corporation means all classes of stock ------------------------- then outstanding and normally entitled to vote in the election of directors or other governing body of such corporation. 8. Benefits Upon Voluntary Termination or Termination for Cause ------------------------------------------------------------ Upon your Date of Termination for Cause in accordance with Section 4(b) or your Date of Termination without Good Reason in accordance with Section 4(c), all benefits under this Agreement will be void, but, you nevertheless shall be eligible for any benefits provided in accordance with the plans and practices of AKS which are applicable to employees generally. 9. Arbitration ----------- Any dispute under this Agreement (except for disputes arising under Sections 10 and 12 below) shall be submitted to binding arbitration subject to the rules of the American Arbitration Association. Except as hereinafter provided, AKS and you shall each bear your own attorney's fees and shall share equally the cost of arbitration. However, if you prevail in a challenge by you to AKS' assertion of the existence of Cause for Termination or in a challenge by AKS to your assertion of the existence of Good Reason for Termination, you shall be reimbursed by AKS for all reasonable costs or expenses incurred by you in such challenge, including reasonable attorney's fees. 10. Confidentiality --------------- You will not disclose to any person or use for the benefit of yourself or any other person any confidential or proprietary information of AKS without the prior written consent of an elected officer of AKS. Upon your termination of employment, you will return to AKS all written or electronically stored memoranda, notes, plans, records, reports or other documents of any kind or description (including all copies in any form whatsoever) relating to the business of AKS. 11. Conflicts of Interest --------------------- You agree for so long as you are employed by AKS to avoid dealings and situations which would create the potential for a conflict of interest with AKS. In this regard, you agree to comply with the AKS policy regarding conflicts of interest. 12 12. Covenant Not to Compete ----------------------- During the term of this Agreement, and for a period of one year following your Date of Termination for any reason other than for Cause pursuant to Section 4 (b) you agree not to be employed by, or serve as director of or consultant or advisor to, any business engaged directly or indirectly in the melting, hot rolling, cold rolling, or coating of carbon or stainless, flat rolled steel, or that is reasonably likely to engage in such business during the one-year period following your termination of employment; provided however, if a Change in Control occurs, the foregoing restriction -------- ------- applicable to the one year period following your Date of Termination shall lapse and be null and void. 13. Notice ------ Notices required or permitted under this Agreement shall be in writing and shall be deemed to have been given when personally delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to the intended recipient at its or his address first above written. Notices to AKS shall be marked for the attention of the Chief Executive Officer of AKS. 14. Modification; Waiver -------------------- No provision of this Agreement may be waived, modified or discharged except pursuant to a written instrument signed by you and the Chairman of the Board or the Chief Executive Officer of AKS. 15. Successors; Binding Agreement ----------------------------- (a) AKS and Holding will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of AKS to expressly assume and agree to perform this Agreement in the same manner and to the same extent that AKS would be required to perform it if no such succession had taken place. Failure of AKS or Holding to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder had you continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee, or, if there is no such devisee, legatee or designee, to your estate. 13 16. Validity; Counterparts ---------------------- This Agreement shall be governed by and construed under the law of the State of Delaware. The validity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision hereof. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. Sincerely, AK STEEL HOLDING CORPORATION By: ------------------------------------- Accepted and agreed to this _____ day __________________, 19___. ___________________________________ AK STEEL CORPORATION By: ------------------------------------- 14 EX-10.15 5 AMENDED AGMT. TO PURCHASE & SERVICING AGMT. Exhibit 10.15 THIRD CONSENT AND AMENDMENT AGREEMENT dated as of July 10, 1997 to PURCHASE AND SERVICING AGREEMENT dated as of December 1, 1994 among AK STEEL CORPORATION, as Originator and Servicer, AK STEEL RECEIVABLES LTD., as Transferor The Purchasers Party Thereto and PNC BANK, OHIO, NATIONAL ASSOCLATION, as L/C Issuing Bank, as Lender under Swing Line Advances and as Agent for the Purchasers TABLE OF CONTENTS Document Tab No. - -------- ------- Third Consent and Amendment Agreement, dated as of July 10, 1997 1 Certificate of the Secretary of AK Steel Corporation 2 Certificate of the Secretary of AKSR Investments, Inc. 3 ================================================================================ THIRD CONSENT AND AMENDMENT AGREEMENT dated as of July 10, 1997 to -- PURCHASE AND SERVICING AGREEMENT dated as of December 1, 1994 among AK STEEL CORPORATION, as Originator and Servicer, AK STEEL RECEIVABLES LTD., as Transferor The Purchasers Party Thereto and PNC BANK, OHIO, NATIONAL ASSOCIATION, as L/C Issuing Bank, as lender under Swing Line Advances, and as Agent for the Purchasers ================================================================================ This THIRD CONSENT and AMENDMENT AGREEMENT (this "Amendment"), dated as of --------- July 10, 1997, is made among AK STEEL CORPORATION ("AK Steel"), as -------- Originator and Servicer, AK STEEL RECEIVABLES LTD. ("AK Ltd."), as successor ------- to the original Transferor, the Purchasers party hereto, and PNC BANK, OHIO, NATIONAL ASSOCIATION ("PNC"), as L/C Issuing Bank, as lender under Swing --- Line Advances, and as Agent for the Purchasers (the "Agent"). ----- BACKGROUND A. AK Steel, AK Ltd., the Purchasers party hereto, PNC and the Agent are parties to a Purchase and Servicing Agreement dated as of December 1, 1994, (as amended or otherwise modified from time to time, the "Purchase and ------------ Servicing Agreement"), pursuant to which AK Ltd. sells, and the Purchasers ------------------- purchase, Undivided Fractional Interests in certain Transferor Receivables and related Transferor Assets originated by AK Steel; B. The parties hereto wish to amend the Purchase and Servicing Agreement with respect to the Amortization Date, the L/C Facility Sub-Amount and certain fees, as provided below. NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. Definitions. Except as otherwise defined herein, capitalized ----------- terms shall have the meanings set forth in the Purchase and Servicing Agreement. SECTION 2. Consent. Each of AK Steel, AK Ltd., PNC (in all its capacities ------- set forth on the signature pages hereto) and each Purchaser consents to and approves the amendment of the Purchase and Servicing Agreement as set forth herein. SECTION 3. Certain Amendments to the Purchase and Servicing Agreement. ---------------------------------------------------------- SECTION 3.1 Amendments to Article I of Purchase and Servicing Agreement. ----------------------------------------------------------- (A) The definition of "Adjusted Eurodollar Rate" contained in Section 1.01 is amended to read in full as follows: ""Adjusted Eurodollar Rate" shall mean, with respect to the subject ------------------------ Eurodollar Tranche and the subject Yield Period, an interest rate per annum equal to (a) the Eurodollar Rate calculated with respect to the subject Eurodollar Tranche and relevant Yield Period, plus (b) 0.50%." ---- (B) The definition of "Amortization Date" contained in Section 1.01 is amended to read in full as follows: ""Amortization Date" shall mean June 30, 2002, or, if earlier, the date ----------------- specified as the Amortization Date pursuant to Section 10.01 following the ------------- occurrence of an Early Amortization Event or by the Transferor pursuant to Section 15.01." ------------- (C) The definition of "Applicable Commitment Fee Percentage" contained in Section 1.01 is amended to read in full as follows: ""Applicable Commitment Fee Percentage" shall mean, for any day, (a) ------------------------------------ 0.15% per annum, if rating Level 1 applies on such day, (b) 0.20% per annum, if Rating Level 2 applies on such day, or (c) 0.30% per annum, if Rating Level 3 applies on such day. Each change in the Applicable Commitment Fee Percentage resulting from a change in the Rating Level shall become effective as of the opening of business on the date of announcement or publication by the respective Rating Agencies of a change in such rating or, in the absence of such announcement or publication as of the opening of business on the effective date of such changed rating. In calculating the Applicable Commitment Fee Percentage, Rating Level 3 shall be deemed to apply on any day on which either (i) an Early Amortization Event shall have occurred and be continuing, or (ii) either Rating Agency suspends or withdraws its rating of any long-term unsecured debt issues of the Originator." (D) The definition of "L/C Facility Sub-Amount" contained in Section 1.01 is deleted in its entirety. (E) The definition of "Utilization Fee" contained in Section 1.01 is deleted in its entirety. SECTION 3.2 Amendments to Article III of Purchase and Servicing Agreement. ------------------------------------------------------------- (A) Section 3.02(a) is amended to read in its entirety as follows: "(a) after giving effect to the issuance of the requested Letter of Credit, (i) the Aggregate Participation Amount would exceed the Maximum Invested Amount, (ii) the Required Net Pool balance would be greater than the Net Pool Balance, or (iii) any Early Amortization Event or Potential Early Amortization Event would exist;" (B) Section 3.06(b) is amended to read in its entirety as follows: "(b) Responsibilities of the L/C Issuing Bank; Issuance. The L/C -------------------------------------------------- Issuing Bank shall determine, as of the close of business on the Business Day page 2 immediately preceding the requested issuance date, the excess of the Maximum Invested Amount over the Aggregate Participation Amount. If, and only if, the face amount of the requested Letter of Credit is less than or equal to the amount of such excess, and subject to the conditions set forth in Article VIII hereof, the L/C Issuing Bank shall issue the ------------ Letter of Credit. In this connection, the L/C Issuing Bank may conclusively presume that the applicable conditions set forth in Section 8.02 have been satisfied unless the L/C Issuing ------------ Bank shall have received written notice to the contrary from the Transferor, the Servicer, the Agent or a Purchaser." SECTION 3.3 Amendments to Article V of Purchase and Servicing Agreement. ----------------------------------------------------------- (A) Section 5.02(a)(ii) is amended to read in its entirety as follows: "(ii) The Transferor shall pay to the Agent, solely for the account of the Purchasers, a nonrefundable issuance fee for each Letter of Credit issued hereunder, such issuance fee to be equal to 0.50% per annum payable quarterly as provided in Section 5.04(c), on the aggregate face amount of --------------- such Letters of Credit outstanding from time to time, for distribution to the Purchasers in proportion to their respective participations therein, provided, that on any day when an Early Amortization Event shall have -------- occurred and be continuing, such fee shall accrue and be payable at the rate of 2.0% per annum. (B) Section 5.02(d) is deleted and replaced with the following: "(d) [Intentionally omitted]" SECTION 4. Representations and Warranties. Each of AK Steel and AK Ltd. ------------------------------ represents and warrants to the Agent and each Purchaser that: (A) the execution and delivery by it of this Amendment, and the performance of its obligations under the Purchase and Servicing Agreement, as modified by this Amendment, are within its corporate powers or its power as a limited liability company, as the case may be, have been duly authorized by all necessary corporate and other action, have received all necessary governmental and other consents and approvals, and do not and will not contravene or conflict with or violate any Requirements of Law applicable to AK Steel or AK Ltd. or their respective property or conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust or other instrument to which AK Steel or AK Ltd. is a party or by which either of them or their properties are bound, page 3 (B) this Amendment has been duly executed and delivered by it, and the Purchase and Servicing Agreement, as amended hereby, is its legal, valid and binding obligation, enforceable against it in accordance with its terms, (C) (i) the representations and warranties made by it in the Purchase and Servicing Agreement, without giving effect to this Amendment, are true and correct immediately prior to this Amendment as though made at such time, except to the extent that they specifically relate to an earlier date, and (ii) the representations and warranties made by it in the Purchase and Servicing Agreement will be true and correct immediately after giving effect to this Amendment, and (D) after giving effect to this Amendment, no Early Amortization Event or Potential Early Amortization Event shall exist. SECTION 5. Effectiveness. This Amendment will become effective on the date ------------- when the Agent shall have received the following (including by facsimile transmission): (A) Counterparts of this Amendment executed by AK Steel, AK Ltd., PNC, and each Purchaser; (B) Certified resolutions of the boards of directors (or executive committees thereof) of AK Steel and the members of AK Ltd., and a certified resolution of the members of AK Ltd., authorizing the execution, delivery and performance of this Amendment and of the Purchase and Servicing Agreement as amended hereby; and (C) Incumbency certificates showing specimen signatures and offices of the Persons executing this Amendment on behalf of AK Steel and the members of AK Ltd. SECTION 6. Miscellaneous. ------------- (A) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF OHIO. (B) This Amendment may be executed in any number of counterparts and by the different Parties in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which together shall constitute one and the same agreement. (C) Any reference to the Purchase and Servicing Agreement contained in any notice, request, certificate or other document executed in connection herewith shall be deemed to be a reference to the Purchase and Servicing Agreement as amended or modified hereby. Except as expressly modified hereby, the Purchase and Servicing Agreement is hereby ratified and confirmed by AK Steel and AK Ltd. and remains in full force and effect. page 4 IN WITNESS WHEREOF, the Parties have caused their duly authorized officers to execute this Amendment as of the day and year first above written. AK STEEL CORPORATION, as Originator and Servicer By: /s/ James L. Wainscott ------------------------------ Name: James L. Wainscott Title: Vice President and Treasurer AK STEEL RECEIVABLES LTD. By AKSR INVESTMENTS, INC., its Managing Member By: /s/ James L. Wainscott ----------------------------- Name: James L. Wainscott Title: Treasurer and By: AKS INVESTMENTS, INC. its only other Member By: /s/ James L. Wainscott ----------------------------- Name: James L. Wainscott Title: Treasurer PNC BANK, OHIO, NATIONAL ASSOCIATION, as L/C Issuing Bank, as lender under Swing Line Advances, as Agent for the Purchasers and as a Purchaser By: /s/ Matthew D. Tevis ----------------------------- Name: Matthew D. Tevis Title: Vice President page 5 NBD BANK, N.A., as a Purchaser By: /s/ Robert A Minardi ---------------------------------- Name: Robert A. Minardi Title: Vice President COMERICA BANK, as a Purchaser By: /s/ Hugh G. Porter ---------------------------------- Name: Hugh G. Porter Title: Vice President KEY BANK, NATIONAL ASSOCIATION (formerly called Society National Bank), as a Purchaser By: /s/ Thomas J. Purcell ---------------------------------- Name: Thomas J. Purcell Title: Vice President THE FIFTH THIRD BANK, as a Purchaser By: /s/ A.K. Hauck ---------------------------------- Name: A.K. Hauck Title: Vice President STAR BANK, NATIONAL ASSOCIATION, as a Purchaser By: /s/ Jane L. Lewin ---------------------------------- Name: Jane L. Lewin Title: Assistant Vice President page 6 CERTIFICATE OF SECRETARY OF AK STEEL CORPORATION This Certificate is furnished in connection with that certain Third Consent and Amendment Agreement, dated as of July 9, 1997, among AK Steel Corporation, as Originator and Servicer, AK Steel Receivables Inc., as Transferor, the Purchasers parties thereto, and PNC Bank, Ohio, National Association, as L/C Issuing Bank, as lender under Swing Line Advances and as Agent for the Purchasers. Unless otherwise defined herein, capitalized terms used in this Certificate have the meanings assigned to such terms in the Third Consent and Amendment Agreement. I, the undersigned, Secretary of AK STEEL CORPORATION, a Delaware corporation (the "Corporation"), DO HEREBY CERTIFY as follows: 1. Attached hereto as Exhibit I is a true, correct and complete copy of --------- resolutions duly adopted by the Board of Directors of the Corporation, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. 2. The persons named in Exhibit II hereto are duly elected and duly ---------- qualified officers of the Corporation holding the respective offices set forth therein opposite their names, and the signatures set forth therein opposite their names are their genuine signatures. WITNESS my hand as of July 9 , 1997. /s/ John G. Hritz ------------------------------ John G. Hritz Secretary I, the undersigned, Executive Vice President of AK STEEL CORPORATION, a Delaware corporation, DO HEREBY CERTIFY that: John G. Hritz is the duly elected and qualified Secretary of AK STEEL CORPORATION and the signature above is such person's genuine signature. WITNESS my hand as of July 9 , 1997. /s/ Richard E. Newsted ------------------------------ Richard E. Newsted Executive Vice President EXHIBIT I --------- COPY OF THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF AK STEEL CORPORATION See attachment hereto. RECEIVABLES SECURITIZATION - -------------------------- RESOLVED, that the proposed securitization (the "Receivables Securitization") by AK Steel Corporation (the "Corporation") of its accounts receivable together with certain contract rights and other assets related thereto generated in connection with the sale of goods and services to its customer base is hereby authorized and approved, and that each of the Designated Officers is hereby authorized and directed to take any and all actions, including those described in these resolutions, deemed necessary or advisable in order to implement the Receivables Securitization, subject only to any restrictions imposed by these resolutions. RESOLVED, that the Corporation is hereby authorized to incorporate AK Steel Receivables Inc., a Delaware special purpose corporation ("AKR"), and is further authorized to subscribe and pay for 100% of the issued and outstanding capital stock of AKR pursuant to the Receivables Purchase Agreement referred to below. RESOLVED, that the Corporation shall sell, convey and transfer, without recourse, to AKR from time to time all of its accounts receivable which exist as of a date determined by the Designated Officers, or which arise from time to time thereafter, in exchange for cash and stock, and subordinated notes or letter of credit notes, pursuant to a Receivables Purchase Agreement between the Corporation and AKR (the "Receivables Purchase Agreement"), in the form and containing such terms and provisions as the officer or officers executing the same shall deem necessary and appropriate, including without limitation certain indemnifications relating to Deemed Collections (as defined in the Receivables Purchase Agreement), and that the proceeds from the sales of receivables pursuant to the Receivables Purchase Agreement shall be used for general corporate purposes. RESOLVED, that the Corporation is hereby authorized to enter into a Purchase and Servicing Agreement among AKR, as Transferor, the Corporation, as Servicer and Originator, the financial institutions parties thereto ("Purchasers"), and PNC Bank, Ohio, National Association, as Agent, L/C Issuing Bank and Swing Line Lender (the "Purchase and Servicing Agreement"), in the form and containing such terms and provisions as the officer or officers executing the same shall deem necessary and appropriate. RESOLVED, that each of the Designated Officers of the Corporation is hereby authorized on behalf of the Corporation to perform any act or discharge any duty of the Corporation under or pursuant to the Purchase and Servicing Agreement (including without limitation the Corporation's duties as Servicer thereunder), the Receivables Purchase Agreement and any and all ancillary agreements or documents required or contemplated thereby, including, without limitation, to deliver any certificates, to request, consent to and execute and deliver any waivers 2 or amendments to such agreements, and to give any notices required to be given under any of them. RESOLVED, that each of the Designated Officers of the Corporation is each hereby authorized to negotiate and conclude the Receivables Securitization, including the Purchase and Servicing Agreement, the Receivables Purchase Agreement and any and all ancillary agreements or documents required or contemplated thereby, and are hereby authorized to take any and a11 actions and to enter into and to execute and deliver, or cause to be executed and delivered, such other documents, agreements or instruments as the officer or officers executing the same may deem necessary or advisable to fully implement the purposes of the foregoing resolutions, the authority for the taking of such actions and the execution and delivery of such agreements, documents and instruments to be conclusively evidenced thereby, and the Receivables Securitization as so concluded is in all respects approved and authorized. RESOLVED, that the Board of Directors hereby determines in good faith that the terms of such Receivables Purchase Agreement and Purchase and Servicing Agreement are not less favorable to the Corporation than would be obtainable currently for a comparable transaction or series of similar transactions in arms-length dealings with an unrelated third party. 3 GENERAL - ------- RESOLVED, that the term "Designated Officers" as used herein shall mean the Chief Executive Officer, the Chief Financial Officer, the Controller and the General Counsel of the Corporation or any one of them and, for certification purposes only, the Secretary and any Assistant Secretary. RESOLVED, that each of the Designated Officers of the Corporation shall be, and hereby are, authorized and directed to take, or cause to be taken, any and all actions, and to execute and deliver in the name and on behalf of the Corporation any and all certificates, orders, receipts, notices, requests, demands, directions, consents, approvals, orders, applications, agreements, undertakings, supplements, amendments, further assurances and other instruments, documents and communications consistent with these resolutions, as such Designated Officer may deem to be necessary or advisable in order to carry into effect the intent of these resolutions or to comply with the requirements of the instruments approved and authorized by these resolutions or to effectuate fully the actions contemplated hereby. RESOLVED, that any actions of the Board, and of any person or persons designated and authorized to act by the Board, which acts would have been authorized by the foregoing resolutions, shall be, and hereby are, severally ratified, confirmed, approved and adopted as acts in the name and on behalf of the Corporation, and 4 that any acts of the Designated Officers in respect of the matters set forth in these resolutions shall be deemed to be acts in the name of and on behalf of the Board and the Corporation as fully as if such acts were made by the entire Board. RECISION OF PRIOR RESOLUTIONS - ----------------------------- RESOLVED, that the resolutions adopted by this Board on July 6, 1994 authorizing a Receivables Securitization and a Revolving Inventory Credit Agreement are hereby rescinded. 5 Exhibit II ---------- OFFICERS -------- OF -- AK STEEL CORPORATION -------------------- Name Title Signature ---- ----- --------- Richard E. Newsted Chief Financial Officer /s/ Richard E. Newsted -------------------- ------------------------- ------------------------ John G. Hritz General Counsel /s/ John G. Hritz -------------------- ------------------------- ------------------------ CERTIFICATE OF SECRETARY OF AKSR INVESTMENTS, INC. This Certificate is furnished in connection with that certain Third Consent and Amendment Agreement, dated as of July 9, 1997, among AK Steel Corporation, as Originator and Servicer, AK Steel Receivables Ltd., as Transferor, the Purchasers parties thereto, and PNC Bank, Ohio, National Association, as L/C Issuing Bank, as lender under Swing Line Advances and as Agent for the Purchasers. Unless otherwise defined herein, capitalized terms used in this Certificate have the meanings assigned to such terms in the Third Consent and Amendment Agreement. I, the undersigned, Secretary of AKSR INVESTMENTS, INC., an Ohio corporation (the "Corporation"), the manager of AK STEEL RECEIVABLES LTD. ("AK Ltd."), DO HEREBY CERTIFY as follows: 1. Attached hereto as Exhibit I is a true, correct and complete copy of --------- resolutions duly adopted by the Board of Directors of the Corporation, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. 2. The persons named in Exhibit II hereto are duly elected and duly ---------- qualified officers of the Corporation holding the respective offices set forth therein opposite their names, and the signatures set forth therein opposite their names are their genuine signatures. 3. Attached hereto as Exhibit III is a true, correct and complete copy of ----------- resolutions duly adopted by all of the members of AK Ltd., which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. WITNESS my hand as of July 9, 1997. /s/ Joseph W. Plye ------------------------- Joseph W. Plye Secretary I, the undersigned, President of AKSR INVESTMENTS, INC., an Ohio corporation (the "Corporation"), the manager of AK STEEL RECEIVABLES LTD., DO HEREBY CERTIFY that: Joseph W. Plye is the duly elected and qualified Secretary of AKSR INVESTMENTS, INC. and the signature above is such person's genuine signature. WITNESS my hand as of July 9, 1997. /s/ Richard E. Newsted ------------------------------- Richard E. Newsted President EXHIBIT I --------- RESOLUTIONS OF THE BOARD OF DIRECTORS ------------------------------------- OF -- AKSR INVESTMENTS INC. --------------------- (the "Corporation") RESOLVED, that the Corporation, in its own capacity and as manager on behalf of AK Steel Receivables Ltd. ("AK Ltd."), is hereby authorized and directed to enter into a Third Consent and Amendment Agreement dated as of July 9, 1997 (the "Amendment") among AK Steel Corporation, as Originator and Servicer, AK Ltd., as Transferor, the Purchasers parties thereto, and PNC Bank, Ohio, National Association ("PNC"), as L/C Issuing Bank, as lender under Swing Line Advances and as Agent for the Purchasers (in such capacity "Agent"), in the form and containing such terms and provisions as the Designated Officer or Officers executing the same shall deem necessary and appropriate. RESOLVED, that each of the Designated Officers of the Corporation is hereby authorized to negotiate and conclude on behalf of the Corporation and AK Ltd. the Amendment and any and all ancillary agreements or documents required or contemplated thereby, and are hereby authorized to take any and all actions and to enter into and to execute and deliver, or cause to be executed and delivered, on behalf of the Corporation and AK Ltd., such other documents, agreements or instruments as the officer or officers executing the same may deem necessary or advisable to fully implement the purposes of the foregoing resolutions, the authority for the taking of such actions and the execution and delivery of such agreements, documents and instruments to be conclusively evidenced thereby, and such agreements and transactions as so concluded are in all respects approved and authorized by the Board of Directors. RESOLVED, that the term "Designated Officers" as used herein shall mean the President, any Vice President, the Treasurer, the Controller and the Secretary of the Corporation or any one of them and, for certification purposes only, the Secretary or any Assistant Secretary. RESOLVED, that each of the Designated Officers of the Corporation shall be, and hereby are, authorized and directed to take, or cause to be taken, on behalf of the Corporation and AK Ltd., any and all actions, and to execute and deliver in the name and on behalf of the Corporation, in its own capacity and as manager of AK Ltd., any and all certificates, orders, receipts, notices, requests, demands, directions, consents, approvals, orders, applications, agreements, undertakings, supplements, amendments, further assurances and other instruments, documents and communications, consistent with these resolutions, as such Designated Officer may deem to be necessary or advisable in order to carry into effect the intent of these resolutions or to comply with the requirements of the instruments referred to in these resolutions or to effectuate fully the actions contemplated hereby. RESOLVED, that any actions of the Board, and of any person or persons designated and authorized to act by the Board, which acts would have been authorized by the foregoing resolutions, shall be, and hereby are, severally ratified, confirmed, approved and adopted as acts in the name and on behalf of the Corporation and AK Ltd.; and that any acts of the Designated Officers in respect of the matters set forth in these resolutions shall be deemed to be acts in the name of and on behalf of the Board and the Corporation and AK Ltd. as fully as if such acts were made by the entire Board. Exhibit II ---------- OFFICERS -------- OF -- AKSR INVESTMENTS, INC. ---------------------- Name Title Signature ---- ----- --------- Richard E. Newsted President /s/ Richard E. Newsted - ----------------------- -------------------- --------------------------- John G. Hritz Vice President /s/ John G. Hritz - ----------------------- -------------------- --------------------------- James L. Wainscott Treasurer /s/ James L. Wainscott - ----------------------- -------------------- --------------------------- Donn Korade Controller /s/ Donn Korade - ----------------------- -------------------- --------------------------- Joseph W. Plye Secretary /s/ Joseph W. Plye - ----------------------- -------------------- --------------------------- EXHIBIT III ----------- AK STEEL RECEIVABLES LTD. WRITTEN CONSENT OF MEMBERS The undersigned, being all the members of AK Steel Receivables Ltd. (the "Company"), hereby waive notice of a members' meeting for the consideration of the following resolutions and hereby consent in writing, to the adoption without a meeting of the following resolutions: RESOLVED, that the Company, is hereby authorized and directed to enter into a Third Consent and Amendment Agreement dated as of July 9 , 1997 (the "Amendment") among AK Steel Corporation, as Originator and Servicer, the Company, as Transferor, the Purchasers parties thereto, and PNC Bank, Ohio, National Association ("PNC"), as L/C Issuing Bank, as lender under Swing Line Advances and as Agent for the Purchasers (in such capacity "Agent"), in the form and containing such terms and provisions as any officer of any member of the Company executing the same shall deem necessary and appropriate. Dated: July 9, 1997. AKSR INVESTMENTS, INC. By: /s/ Richard E. Newsted -------------------------------------- Richard E. Newsted, President AKS INVESTMENTS, INC. By: /s/ Richard E. Newsted -------------------------------------- Richard E. Newsted, President EX-10.24 6 FIRST AMEND. TO DEFERRED COMPENSATION PLAN EXHIBIT 10.24 FIRST AMENDMENT TO THE AK STEEL CORPORATION DEFERRED COMPENSATION PLAN Pursuant to the power of amendment reserved to AK Steel Holding Corporation (the "Company") in Section 9.4 of the AK Steel Corporation Deferred Compensation Plan as adopted on November 16, 1995 (the "Plan"), the Plan is hereby amended effective retroactively to the date of inception of the Plan, as follows: (1) Subsection 6.1(d) is changed in its entirety to read as follows: "(d) Thrift Plan Transfers. By authorizing Elective Deferrals under this Plan, a Member who is eligible to participate in the Thrift Plan shall be deemed to have authorized the Trustee and Administrator to transfer to the Trustee under the Thrift Plan on or before the last day of the Thrift Plan Transfer Period an amount equal to the Thrift Plan Transfer Amount, provided such Member is employed by the Company on the date such transfer would otherwise be made." (2) Section 6.7 is changed in its entirety to read as follows: "6.7 Vested Rights Except as provided in Section 10.4, a Member's Elective Deferrals, Matched Elective Deferrals, Other Permitted Deferrals, Company Matching Contributions and Incentive Company Contributions shall at all times be fully vested and nonforfeitable. Elective Deferrals, Matched Elective Deferrals and Other Permitted Deferrals shall be credited to the Member's Account on the date such amounts would have been paid to the Member but for the Member's election to defer these amounts under the Plan. Any Incentive Company Contributions and Company Matching Contributions shall be credited to the Member's Account at such time as determined by the Administrator but not less frequently than annually. Except as provided in Section 10.4, a Member's investment earnings credited to the Member's Account in accordance with Section 7.2 shall at all times be fully vested and nonforfeitable; provided however, with respect to a Member whose employment with the Company terminates due to the Member's voluntary resignation, such Member shall have a nonforfeitable right to such investment earnings based on the number of years the Member was eligible to participate under the Plan as of his Termination Date in accordance with the following schedule: Years of Eligibility Vested Percentage -------------------- ----------------- Less than 1 0% 1 20% 2 40% 3 60% 4 80% 5 or more 100%" IN WITNESS WHEREOF, AK Steel Holding Corporation has caused this First Amendment to be executed this 18th day of September, 1997. AK STEEL HOLDING CORPORATION By: /s/ John G. Hritz ----------------------------- Title: Vice President --------------------------- EX-10.25 7 FIRST AMEND. TO EXEC. MINIMUM AND SUPP. RETIREMENT PLAN EXHIBIT 10.25 FIRST AMENDMENT TO THE AK STEEL CORPORATION EXECUTIVE MINIMUM AND SUPPLEMENTAL RETIREMENT PLAN (AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1996) --------------------------------------------------------- Pursuant to the power of amendment reserved to the Board of Directors of AK Steel Holding Corporation in Section 8.3 of the AK Steel Corporation Executive Minimum and Supplemental Retirement Plan (as amended and restated effective as of January 1, 1996) (the "Plan"), Section 2.17 of the Plan is amended in its entirety to read as follows, effective as of January 1, 1997: "2.17 'VESTING DATE' The last to occur of the date a Member (i) completes five (5) years of Key Management Service and (ii) completes ten (10) years of Service; or such other date as determined by the Administrator in its sole discretion." IN WITNESS WHEREOF, AK Steel Holding Corporation has caused this First Amendment to be executed this 17th day of July, 1997. AK STEEL HOLDING CORPORATION By: /s/ John G. Hritz ----------------------------- Title: Vice President ---------------------------- EX-10.26 8 SECOND AMEND. TO EXEC. MINIMUM AND SUPP. RETIREMENT PLAN EXHIBIT 10.26 SECOND AMENDMENT TO THE AK STEEL CORPORATION EXECUTIVE MINIMUM AND SUPPLEMENTAL RETIREMENT PLAN (AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1996) --------------------------------------------------------- Pursuant to the power of amendment reserved to the Board of Directors of AK Steel Holding Corporation in Section 8.3 of the AK Steel Corporation Executive Minimum and Supplemental Retirement Plan (as amended and restated effective as of January 1, 1996) (the "Plan"), the Plan is amended as follows, effective as of the date of execution of this Second Amendment: (1) Section 2.17 (the definition of "Vesting Date") is changed by adding the following sentence thereto: "Notwithstanding the foregoing, in the event of a Member's death prior to his or her Vesting Date as determined under the preceding sentence, such Member's Vesting Date for purposes of this Plan shall be the Member's date of death if the Member had completed at least five (5) years of Service as of his or her date of death." (2) Section 4.4 is added immediately following Section 4.3 to read as follows: "4.4 FUNDING UPON A CHANGE IN CONTROL Upon the occurrence of a Change In Control (as defined below), the Company shall fully fund all benefits then accrued under this Plan by delivering assets in cash or in kind to the Trustee under the Trust. Such funding obligation may be secured by an irrevocable letter of credit issued to the Trustee by such bank or lending agency as the Administrator shall approve. For purposes of this Plan, the term "Change In Control" have the same meaning as set forth in the Trust." (3) Section 7.1 is changed in its entirety to read as follows: "7.1 PAYMENT OF BENEFITS. Except as provided in Plan Section 9.4, the Benefit to be paid in accordance with Plan Article 6 shall be paid in a single lump-sum payment, the amount of which shall be determined in accordance with Plan Section 7.2 as reduced by the amount determined in accordance with Plan Section 7.3. Payment shall be made to the Member, or in the case of the Member's death, to the Member's designated beneficiary, within 30 days following the Member's Termination Date. Any designation of beneficiary shall be made by the Member on an election form filed with the Administrator and may be changed by the Member at any time by filing another election form containing the revised instructions. If no beneficiary is designated or no designated beneficiary survives the Member, payment shall be made to the Member's surviving spouse or, if none, to the Member's issue, per stirpes. If no spouse or issue survives the Member, payment shall be made in a single lump-sum to the Member's estate." IN WITNESS WHEREOF, AK Steel Holding Corporation has caused this Second Amendment to be executed this 18th day of September, 1997. AK STEEL HOLDING CORPORATION By: /s/ John G. Hritz -------------------------- Title: Vice President ----------------------- -2- EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AK STEEL HOLDING CORPORATION'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 348 258 242 0 365 1,222 2,219 627 3,084 563 998 0 0 1 879 3,084 2,441 2,441 1,965 2,159 0 0 76 242 91 151 0 0 0 151 2.59 2.43
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