Current Report Filing (8-k)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT – September 8, 2014

(Date of Earliest Event Reported)

AK STEEL HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Commission File No. 1-13696

Delaware

31-1401455

(State of

Incorporation)

(I.R.S. Employer

Identification No.)


9227 Centre Pointe Drive, West Chester, OH		45069
(Address of principal executive offices)		(Zip Code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Solicitation material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01

Other Events

AK Steel Holding Corporation (the “Company”) is filing this Current Report on Form 8-K to provide certain financial information with respect to Severstal Dearborn, LLC (“Dearborn”) and the pending acquisition of Dearborn by AK Steel Corporation (the “AK Steel”), a wholly-owned subsidiary of the Company. As previously disclosed in its Current Report on Form 8-K filed on July 22, 2014, AK Steel entered into a Membership Interest Purchase Agreement, dated as of July 18, 2014 (the “Purchase Agreement”), by and among Severstal Columbus Holdings, LLC, Dearborn and AK Steel. Pursuant to and subject to the terms and conditions of the Purchase Agreement, the Company will acquire all of Severstal’s membership interests in Dearborn (the “Dearborn Acquisition”).

Included in this filing as Exhibit 99.1 are the audited consolidated financial statements of Dearborn for the periods described in Item 9.01(a) below, the notes related thereto and the Independent Auditors’ Report, and included in this filing as Exhibit 99.2 are the unaudited consolidated financial statements of Dearborn for the periods described in Item 9.01(a) below and the notes related thereto and the Independent Auditors’ Review Report.

Also included in this filing as Exhibit 99.3 is Management’s Discussion and Analysis of Financial Condition and Results of Operations of Severstal Dearborn, LLC for the periods indicated therein and included as Exhibit 99.4 is the pro forma financial information described in Item 9.01(b) below.

Item 9.01

Financial Statement and Exhibits.

(a)	Financial Statements

•

Audited consolidated financial statements of Severstal Dearborn, LLC and its subsidiaries comprised of the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), changes in member’s equity, and cash flows for each of the years in the three-year period ended December 31, 2013, and the related notes to the consolidated financial statements, attached as Exhibit 99.1 hereto.

•

Unaudited consolidated financial statements of Severstal Dearborn, LLC and its subsidiaries comprised of the consolidated balance sheets as of June 30, 2014 and December 31, 2013, and the related consolidated statements of operations, comprehensive income (loss), member’s equity, and cash flows for the six months ended June 30, 2014 and 2013, and the related notes to the unaudited consolidated financial statements, attached as Exhibit 99.2 hereto.

(b)	Pro Forma Financial Information

The following unaudited pro forma condensed consolidated financial information of the Company, giving effect to the Dearborn Acquisition, the relating financing therefor, which includes an offering of senior notes and an offering of common stock, and the application of the proceeds from the offerings, including any remainder from such offerings, after the financing of the Dearborn Acquisition, to repay outstanding borrowings under the Company’s asset-backed revolving credit facility, is included in Exhibit 99.3 hereto:

•

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2014.

•

Unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 2013.

•

Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six months ended June 30, 2014.

•

Unaudited Pro Forma Condensed Consolidated Statements of Operations for the twelve months ended June 30, 2014.

•

Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information.


Exhibit Number		Description

15.1		Awareness Letter of KPMG LLP.

23.1		Consent of KPMG LLP.

99.1		Audited consolidated financial statements of Severstal Dearborn, LLC and its subsidiaries as of December 31, 2013 and 2012 and for each of the three years in the period ended December 31, 2013, the notes related thereto and the Independent Auditors’ Report.

99.2		Unaudited consolidated financial statements of Severstal Dearborn LLC and its subsidiaries as of June 30, 2014 and December 31, 2013 and for the six month periods ended June 30, 2014 and 2013, the notes related thereto and the Independent Auditors’ Review Report.

99.3		Management’s Discussion and Analysis of Financial Condition and Results of Operations of Severstal Dearborn, LLC.

99.4		Unaudited Pro Forma Condensed Consolidated Financial Information.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


AK STEEL HOLDING CORPORATION

By:		/s/ David C. Horn
		David C. Horn
		Secretary

Dated: September 8, 2014

EXHIBIT INDEX


Exhibit Number		Description

15.1		Awareness Letter of KPMG LLP.

23.1		Consent of KPMG LLP.

99.1		Audited consolidated financial statements of Severstal Dearborn, LLC and its subsidiaries as of December 31, 2013 and 2012 and for each of the years in the three year period ended December 31, 2013, the notes related thereto and the Independent Auditors’ Report.

99.2		Unaudited consolidated financial statements of Severstal Dearborn LLC and its subsidiaries as of June 30 , 2014 and December 31, 2013 and as of June 30, 2014 and December 31, 2013 for the six month periods ended June 30, 2014 and 2013, and the notes related thereto and the Independent Auditors’ Review Report.

99.3		Management’s Discussion and Analysis of Financial Condition and Results of Operations of Severstal Dearborn, LLC.

99.4		Unaudited Pro Forma Condensed Consolidated Financial Information.

Exhibit 15.1

September 8, 2014

Severstal Dearborn, LLC

Dearborn, Michigan

Re: Post-Effective Amendment No. 1 to Registration Statement No. 333-194078 on Form S-3 of AK Steel Holding Corporation

With respect to the subject registration statement, we acknowledge our awareness of the incorporation by reference therein of our report dated September 3, 2014 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

Detroit, Michigan

Exhibit 23.1

Consent of Independent Auditors

The Board of Directors

Severstal Dearborn, LLC

We consent to the incorporation by reference in Post Effective Amendment No. 1 to registration statement (No. 333-194078) on Form S-3 of AK Steel Holding Corporation of our audit report dated April 11, 2014, with respect to the consolidated balance sheets of Severstal Dearborn, LLC as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), member’s equity, and cash flows for each of the years in the three-year period ended December 31, 2013, which report appears in the Form 8-K of AK Steel Holding Corporation dated September 8, 2014.

/s/ KPMG LLP

Detroit, Michigan

September 8, 2014

Exhibit 99.1

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2013 and 2012

(With Independent Auditors’ Report Thereon)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Table of Contents


		Page(s)

Independent Auditors’ Report		1–2

Consolidated Balance Sheets		3

Consolidated Statements of Operations		4

Consolidated Statements of Comprehensive Income (Loss)		5

Consolidated Statements of Member’s Equity		6

Consolidated Statements of Cash Flows		7

Notes to Consolidated Financial Statements		8–27

Independent Auditors’ Report

The Board of Directors

Severstal Dearborn, LLC:

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Severstal Dearborn, LLC and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), changes in member’s equity, and cash flows for each of the years in the three-year period ended December 31, 2013, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Severstal Dearborn, LLC and its subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in accordance with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Detroit, Michigan

April 11, 2014

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars)


	2013		2012
Assets
Current assets:
Cash and cash equivalents	$	262		162
Accounts receivable:
Trade and other (net of allowance for doubtful accounts of $1,700 and $2,516 at December 31, 2013 and 2012, respectively)		154,402		118,602
Affiliates		24,941		15,555
Inventories		393,475		487,642
Other current assets		34,781		33,362

Total current assets		607,861		655,323

Property, plant, and equipment:
Land		4,771		4,771
Buildings and improvements		323,018		290,035
Machinery and equipment		1,358,318		1,228,312
Construction in progress		29,599		182,077

Subtotal		1,715,706		1,705,195
Less accumulated depreciation		378,240		281,365

Net property, plant, and equipment		1,337,466		1,423,830
Investment in unconsolidated affiliates		99,946		118,301
Long term receivables from related party		94,000		86,908
Deferred charges and other		135,645		157,676

Total assets	$	2,274,918		2,442,038

Liabilities and Member’s Equity
Current liabilities:
Accounts payable:
Trade	$	207,763		181,932
Affiliates		29,793		30,186
Current portion of long-term debt		—		45,667
Short-term debt		64		8,168
Accrued vacation pay		8,410		8,474
Taxes other than income		4,455		4,879
Other accrued liabilities		33,095		26,107

Total current liabilities		283,580		305,413
Long-term debt		398,391		465,202
Other postretirement benefits		64,965		67,158
Deferred credits		27,295		28,544
Other liabilities		19,136		8,593

Total liabilities		793,367		874,910
Member’s equity		1,481,551		1,567,128

Total liabilities and member’s equity	$	2,274,918		2,442,038

See accompanying notes to consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2013, 2012 and 2011

(Amounts in thousands of U.S. dollars)


	2013			2012			2011
Sales:
Unaffiliated customers	$	2,003,856			2,136,655			2,003,343
Affiliates		26,289			6,701			54,934

Total sales		2,030,145			2,143,356			2,058,277

Costs and expenses:
Costs (excluding items listed below)		1,880,693			1,964,597			1,945,380
Depreciation and amortization		101,745			89,918			60,377
Selling and administrative expenses		56,302			60,580			53,583
Impairment of long-lived assets		42,983			—			—

Total costs and expenses		2,081,723			2,115,095			2,059,340

Operating income (loss)		(51,578	)		28,261			(1,063	)
Interest income		9,315			12,513			10,352
Interest expense		(38,431	)		(31,007	)		(15,871	)
Gain (loss) on disposal of assets		(712	)		(2,209	)		7
Other—net		796			789			984
Equity income (loss) from unconsolidated affiliates		(10,177	)		(11,562	)		7,266

Income (loss) before income taxes		(90,787	)		(3,215	)		1,675
Income tax benefit		125			267			550

Net income (loss)	$	(90,662	)		(2,948	)		2,225

See accompanying notes to consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

Years ended December 31, 2013, 2012 and 2011

(Amounts in thousands of U.S. dollars)


	2013			2012			2011
Net income (loss)	$	(90,662	)		(2,948	)		2,225
Other comprehensive income (loss):
Postemployment benefits:
Amortization of prior service cost included in net periodic benefit costs		125			125			125
Actuarial gain (loss)		3,056			(6,751	)		(3,106	)
Cash flow hedges:
Gain (loss) on cash flow hedges		—			810			(854	)
Reclassification to statement of operations		1,904			1,089			1,962

Other comprehensive income (loss)		5,085			(4,727	)		(1,873	)

Comprehensive income (loss)	$	(85,577	)		(7,675	)		352

See accompanying notes to consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Statements of Member’s Equity

Years ended December 31, 2013, 2012 and 2011

(Amounts in thousands of U.S. dollars)


	Contributed capital		Accumulated earnings (deficit)			Accumulated other comprehensive loss			Total
Balance at December 31, 2010	$	549,942		504,287			(2,260	)		1,051,969
Net income		—		2,225			—			2,225
Other comprehensive loss		—		—			(1,873	)		(1,873	)
Capital contribution from member		233,699		—			—			233,699
Affiliate debt converted to equity		273,783		—			—			273,783

Balance at December 31, 2011		1,057,424		506,512			(4,133	)		1,559,803
Net loss		—		(2,948	)		—			(2,948	)
Other comprehensive loss		—		—			(4,727	)		(4,727	)
Capital contribution from member		15,000		—			—			15,000

Balance at December 31, 2012		1,072,424		503,564			(8,860	)		1,567,128
Net loss		—		(90,662	)		—			(90,662	)
Other comprehensive income		—		—			5,085			5,085

Balance at December 31, 2013	$	1,072,424		412,902			(3,775	)		1,481,551

See accompanying notes to consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2013, 2012 and 2011

(Amounts in thousands of U.S. dollars)


	2013			2012			2011
Cash flows from operating activities:
Net income (loss)	$	(90,662	)		(2,948	)		2,225
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		101,745			89,918			60,377
Amortization of capitalized debt costs		9,401			2,756			2,530
Loss (gain) on disposal/sale of assets		712			2,209			(7	)
Equity (income) loss from unconsolidated affiliates		10,177			11,562			(7,266	)
Dividends from investments in unconsolidated affiliates		6,297			8,832			24,796
Interest in kind from related party		(7,092	)		(10,035	)		(10,352	)
Impairment of long-lived assets		42,983			—			—
Deferred credits		(1,249	)		(1,250	)		—
Changes in assets and liabilities:
Accounts receivable		(45,459	)		62,188			(20,601	)
Income tax receivable		—			—			19,322
Inventories		95,970			66,201			(156,789	)
Other current assets and deferred charges		14,921			(38,686	)		(31,744	)
Accounts payable and accrued liabilities		34,716			(86,348	)		92,705

Net cash provided by (used in) operating activities		172,460			104,399			(24,804	)

Cash flows from investing activities:
Capital expenditures		(48,744	)		(125,450	)		(319,706	)
Investments in unconsolidated affiliates		77			(98	)		(322	)
Proceeds from disposal of assets		325			501			78
Other—net		274			—			—

Net cash used in investing activities		(48,068	)		(125,047	)		(319,950	)

Cash flows from financing activities:
Proceeds from debt financing		1,295,359			914,651			1,065,286
Payment of debt		(1,415,941	)		(908,896	)		(945,354	)
Fees paid for debt		(3,710	)		(138	)		(8,803	)
Capital contribution from member		—			15,000			233,699

Net cash provided by (used in) financing activities		(124,292	)		20,617			344,828

Net increase (decrease) in cash and cash equivalents		100			(31	)		74
Cash and cash equivalents—beginning of year		162			193			119

Cash and cash equivalents—end of year	$	262			162			193

Supplemental information:
Cash paid for interest	$	16,493			31,088			23,757
Cash received for income taxes		—			—			(19,322	)
Interest capitalized		—			—			19,807
Noncash transactions:
Affiliate debt converted to equity	$	—			—			273,783

See accompanying notes to consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

(1) Summary of Significant Accounting Policies and Practices

(a) The Company and Principles of Consolidation

Severstal Dearborn, LLC (SDL or the Company) reorganized as a single-member limited liability company wholly owned by Severstal US Holdings (SUSH) on December 31, 2010. On December 31, 2013, SDL’s shares were transferred to Severstal Columbus Holdings, LLC (Holdings), a wholly owned subsidiary of SUSH.

The consolidated financial statements include the accounts of SDL and its wholly owned subsidiaries, SNA Holdings, LLC (SHL), SNA Carbon, LLC (Carbon), and Charnwood I, LLC (CHL). All intercompany balances and transactions have been eliminated in consolidation. Investments in business entities in which the Company does not have control but has the ability to exercise significant influence over the entity’s operating and financial policies are accounted for under the equity method. Intercompany profit associated with inventory purchased from affiliates accounted for under the equity method has been eliminated.

(b) Segment Information

SDL operates in one segment, the manufacture, and sale of flat-rolled steel products. The Company’s business is conducted in North America, with the exception of certain raw material and semi-finished steel procurement, which from time to time accesses global markets.

(c) Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

(d) Revenue Recognition

Revenue from product sales is recognized when product shipment has occurred, the customer has taken title and assumed the risks of ownership, the price is fixed or determinable, and collectibility is reasonably assured. Provisions for returns and other adjustments are recorded in the period in which the revenue is recognized.

(e) Financial Instruments

The carrying amount of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable, and short-term debt, approximates their fair value at December 31, 2013 and 2012. The carrying amounts for short-term and long-term revolving and affiliate debt approximate fair value because the debt’s interest rates vary with the market and, therefore, are adjusted frequently. The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

(f) Significant Risk and Uncertainties

Industry

The steel industry is cyclical in nature and, within the United States, has been adversely affected in recent years by the volatility of steel imports, worldwide production overcapacity, increased domestic and international competition, high labor and energy costs, inefficient plants, and, at times, shortages of raw materials. As a result of these conditions, SDL pursues initiatives designed to improve the Company’s competitiveness, including cost and productivity improvements.


		8		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

Environmental

The Company’s operations are subject to federal, state, and local laws, regulations, permits, and consent agreements relating to the protection of human health and the environment. Although the Company believes that its facilities are in material compliance with these provisions, from time to time the Company is subject to investigations by environmental agencies. In management’s opinion, such current investigations, in the aggregate, will not have a materially adverse effect on the Company’s consolidated financial position, results of operations, or cash flows (note 8(e)).

Current Economic Conditions

The Company’s operations and principal markets for its products in the domestic automotive industry and their suppliers, service centers, and steel converters have been, and could be, adversely affected by near-term unfavorable general economic conditions. While general economic conditions have improved since the recession of 2008-2010, the Company’s aforementioned initiatives continued throughout 2012-2013 and have at various times included selective reduction in melt and finishing operations, optimization of production schedules across related North American facilities, efforts to align the Company’s supply base more consistently with downscaled production requirements, and labor and overhead cost reduction actions.

(g) Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable. The Company limits its credit risk by performing ongoing credit evaluations and, when deemed necessary, by requiring letters of credit, guarantees, or collateral. The Company’s customers comprise manufacturers in the domestic automotive industry and their suppliers, service centers, and steel converters serving various market segments. Management believes that risk associated with the Company’s concentration of credit at December 31, 2013 is adequately addressed by existing controls. However, the ability of SDL’s debtors to honor their obligations to the Company is dependent upon economic developments in the automotive and other flat-rolled steel-consuming industries. General slowdowns in consumer spending caused by uncertainty about future market conditions have at times adversely impacted the profits and cash flows of the Company’s customers and may continue to do so. As such, it is reasonably possible that the financial condition of the Company’s customers may deteriorate in the near term. Inventory, accounts receivable, and revenue losses resulting from such deterioration may have a correspondingly adverse impact on the operations of the Company.

(h) Significant Customers

The Company’s significant customers in 2013 were Ford Motor Company (Ford), Fiat SPA (formerly, Chrysler LLC), and General Motors Corporation (GM). Revenues earned from sales to these customers comprised 25%, 14%, and 11%, respectively, of total revenues for the year ended December 31, 2013. At December 31, 2013, amounts due from those customers comprised 7%, 17% and 13% of accounts receivable, respectively.

Revenues earned from sales to these customers comprised 26%, 15%, and 13%, respectively, of total revenues for the year ended December 31, 2012. At December 31, 2012, amounts due from those customers comprised 11%, 18%, and 21% of accounts receivable, respectively.


		9		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

Revenues earned from sales to these customers comprised 26%, 14%, and 11%, respectively, of total revenues for the year ended December 31, 2011.

(i) Trade Accounts Receivable

The Company reviews its allowance for doubtful accounts monthly. Balances over 90 days past due and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

(j) Concentration of Labor Risk

Approximately three-fourths of the Company’s workforce is represented by the United Auto Workers (UAW). The current UAW labor agreement was ratified and made effective in January 2004, amended in April 2012, and expires on March 31, 2017.

(k) Inventories

The Company values its inventories at the lower of cost or market. Cost is determined using the average actual cost method for raw materials, semi finished, and finished goods, and the first-in, first-out (FIFO) method for nonproduction inventories and sundry. Costs in inventory include raw materials, labor, applied manufacturing overhead, and galvanized coating processes.

(l) Property, Plant, and Equipment

Purchases of property, plant, and equipment are recorded at cost. Replacements and major improvements are capitalized, while planned or unplanned maintenance and repairs are expensed as incurred. Interest costs for debt incurred as a result of large long term construction projects are capitalized as a component of construction in progress.

Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of buildings is 35 years, land improvement is 20 years, steel-producing machinery and equipment ranges from 18 to 25 years, power equipment is 28 years, and office equipment is 12 years. Expenditures for improvements are capitalized and depreciated over the expected useful lives. Expenditures for normal maintenance and repairs are charged to expense as incurred. Mill roll expenditures are capitalized as incurred and depreciated over their expected useful lives of up to 3 years.

The Company has completed a modernization project to upgrade its steelmaking facilities. New facilities include a $504,103 pickle line tandem cold mill (PLTCM) placed into service in September 2011 and a $296,901 hot-dip galvanizing line (HDGL) placed into service in December 2011.

Environmental expenditures are capitalized if the costs mitigate or prevent future environmental contamination or if the costs improve existing assets’ environmental safety or efficiency. All other environmental expenditures are expensed as incurred.


		10		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

(m) Investments in Unconsolidated Affiliates

Investments in three affiliated companies, Double Eagle Steel Coating Company (Double Eagle), Spartan Steel Coating, L.L.C. (Spartan), and Delaco Processing, L.L.C. (Delaco) provide downstream steel processing and coating services and are accounted for using the equity method. SDL also has an investment in Mountain State Carbon (MSC), a coke producing joint venture that provides raw materials to SDL and is accounted for using the equity method.

(n) Impairment

Long-lived assets, such as property and equipment, purchased intangibles subject to amortization and investments in unconsolidated subsidiaries are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to its estimated future cash flows or, where applicable, independent appraisal. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds its fair value. Assets subject to disposition would be separately presented in the balance sheet and reported at lower of carrying amount or fair value less costs to sell, and no longer depreciated. The assets and liabilities of an asset group classified as held-for-sale would be presented separately in the appropriate asset and liability section of the consolidated balance sheet.

For the year ended December 31, 2013, SDL recorded an asset impairment charge of $42,983 for certain construction in progress expenditures associated with the potential replacement of its “B” blast furnace which suffered major damage in 2008. The expenditures were facilitated by proceeds received in 2008 as part of an insurance settlement, the portion of which related to “B” blast furnace was accounted for as a non-operating gain.

(o) Income Taxes

The Company is considered a disregarded entity by SUSH for federal income tax purposes. As such, SDL is not directly subject to federal and most state income taxes and the Company’s operating results are included in the income tax filings of SUSH.

(p) Use of Estimates

The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of property, plant, and equipment and investment in affiliates; valuation allowances for receivables and inventories; income tax uncertainties; and obligations related to employee benefits. Actual results could differ from those estimates.

(q) Derivative Instruments

The Company accounts for derivatives and hedging activities in accordance with Accounting Standards Codification (ASC) Topic 815, Derivatives and Hedging, which requires entities to recognize all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. For derivatives


		11		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

designated in hedging relationships, changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings.

The Company only enters into derivative contracts that it intends to designate as a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is de-designated as a hedging instrument because it is unlikely that a forecasted transaction will occur, or management determines that designation of the derivative as a hedging instrument is no longer appropriate.

In all situations in which hedge accounting is discontinued and the derivative is retained, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings.

(r) Comprehensive Income (Loss)

The Company displays comprehensive income (loss) in the consolidated statements of comprehensive income (loss). Items considered to be other comprehensive income (loss) include adjustments made for postemployment costs (under ASC Topic 715, Compensation—Retirement Benefits) and hedging activities (under ASC Topic 815).

Accumulated other comprehensive loss consists of the following:


	December 31
	2013			2012			2011
Realized and unrealized losses on hedges	$	—			(1,904	)		(3,803	)
Postemployment benefits		(3,775	)		(6,956	)		(330	)

Total accumulated other comprehensive loss	$	(3,775	)		(8,860	)		(4,133	)


		12		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

(s) Deferred Credits

Tax Incentives

As of December 15, 2008, SDL’s application for a $10,000 Michigan Public Act (PA) 381 Brownfield MBT credit (MBT Credit) was approved and authorized by the Michigan Economic Development Corporation as an incentive related to the Company’s PLTCM Modernization. For purposes of final approval of the MBT Credit, the PLTCM project and related capital spending were completed in September 2011. Other conditions precedent to issuance of the PLTCM project completion certificate included: (1) actual employee count of at least 1,500 and (2) active progress toward resolution of certain Michigan OSHA findings. These conditions were met in September 2011. In order to accelerate its realization, the Company sought to assign the MBT Credit to other parties under PA 381’s credit assignment provisions. Buyers of the rights to the MBT Credit were identified and sale/assignment was executed in October 2011 at discounts ranging from 9%—10%. The MBT Credit assignments contain provisions which indemnify the buyer in the event of credit recapture. The Company received $8,961, net of brokers fees, associated with the sale of the MBT Credit in December 2011.

The Company also negotiated a $30,000 Jumbo Brownfield Credit, payable in $3,000 installments over 10 years, as an incentive related to the Company’s HDGL project. Certification of the Jumbo Credit was received in December 2011. The Company sold the 2011 credit at the same discount range of 9%—10%, and received $2,660, net of brokerage fees in January 2012.

Beginning in 2012, Brownfield Credits can be claimed as 90% refundable, and can also be claimed during the tax year. Previously, if a taxpayer elected to claim the credit as a refundable credit, the rate was 85% and could only be claimed on a filed tax return. The Company elected to claim the 2013 and 2012 credits as refundable credits, and received $2,700 in May 2013 and $2,700 in May 2012.

The Company recognized the MBT Credit and Jumbo Credit as tax receivables and deferred items within the Company’s consolidated balance sheets as shown below:


	December 31
	2013			2012
Other current asset:
Gross current receivable	$	2,700			2,700
Discount on receivable (4.6% rate)		(729	)		(816	)

Net current receivable		1,971			1,884

Deferred charges and other:
Gross noncurrent receivable		16,200			18,900
Discount on receivable (4.6% rate)		(2,319	)		(3,048	)

Net noncurrent receivable		13,881			15,852

Total tax incentive receivable	$	15,852			17,736

Deferred income:
Other accrued liabilities	$	1,250			1,250
Deferred credits		27,295			28,544

Total deferred income	$	28,545			29,794


		13		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

The deferred credits are being amortized to costs and expenses on a straight-line basis over the estimated useful life of the associated assets. Amortization for the years ended December 31, 2013, 2012 and 2011 was $1,250, $1,250 and $194, respectively. The accretion of the tax incentive receivable is recognized in interest income in the Company’s consolidated statement of operations over the 10 year payback period using the effective interest method, starting in 2012. Interest income recognized for the years ended December 31, 2013 and 2012 was $816 and $899, respectively.

(t) New Accounting Standards

There were no accounting pronouncements adopted or issued during 2013 that had, or are expected to have, a material impact on the Company’s results of operations or financial condition.

(2) Inventories

The major classes of inventories are as follows:


	December 31
	2013		2012
Production:
Raw materials	$	174,429		242,017
Semi finished and finished steel products:
On site		86,579		100,844
On consignment		113,232		131,891

Total production inventories at average actual cost		374,240		474,752
Nonproduction and sundry		19,235		12,890

Total inventories	$	393,475		487,642

(3) Investments in Unconsolidated Affiliates

At December 31, 2013 and 2012, the Company’s investments in unconsolidated affiliates consisted of a 50% interest in Double Eagle, a 48% interest in Spartan, a 49% interest in Delaco, and a 50% interest in MSC. The Company’s investments in unconsolidated affiliates are accounted for under the equity method.

Double Eagle is an electro galvanizing facility that is operated as a cost center. Accordingly, Double Eagle records neither sales revenue nor income. The Company is committed to pay 50% of the fixed costs incurred and a pro rata share of variable costs based on coatings applied to the Company’s products. These costs are reflected in inventory. At December 31, 2013 and 2012, the Company’s share of the underlying net assets of Double Eagle exceeded its investments by $3,180 and $5,779, respectively. This difference resulted from SDL applying purchase accounting to its investment in Double Eagle during 2004 and is being amortized over the estimated useful lives of the investee’s property, plant, and equipment. In May 2013, the members agreed to dissolve Double Eagle by March 31, 2015. Double Eagle has adjusted its estimate of the useful lives for all property, plant and equipment accordingly.

Spartan is a hot-dip galvanizing facility. Coating costs associated with Spartan’s processing of the Company’s products are reflected in inventory. At December 31, 2013 and 2012, the Company’s share of the


		14		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

underlying net assets of Spartan exceeded its investment by $10,718 and $11,135, respectively. This difference resulted from SDL applying purchase accounting to its investment in Spartan during 2004 and is being amortized over the estimated useful lives of the investee’s property, plant, and equipment.

Delaco is a flat-rolled steel slitting operation. Slitting costs associated with Delaco’s processing of the Company’s products are reflected in cost and expenses. At December 31, 2013 and 2012, the Company’s share of the underlying net assets of Delaco approximated its investment.

On September 29, 2005, Carbon and Wheeling Pittsburg Steel Corporation (successor in interest RG Wheeling LLC (RG Wheeling)) entered into an Amended and Restated Limited Liability Company Agreement (LLC Agreement) to form MSC to produce and sell metallurgical coke to its members under the terms of coke supply agreements between MSC and its members. Under the terms of the LLC Agreement, Carbon contributed $60,000 during the period from September 29, 2005 to December 31, 2005 in exchange for a 33.33% nonvoting capital interest and a 50% voting interest. Carbon contributed an additional $60,000 in the first half of 2006 in return for an additional nonvoting capital interest of 16.67% effective March 15, 2006. The Company has determined that it does not have the power to direct the activities that most significantly affect MSC’s economic performance; therefore the Company’s interest in MSC is accounted for under the equity method.

In May 2012, MSC terminated a coke supply agreement with RG Wheeling as a result of RG Wheeling’s failure to cure certain defaults under the agreement. On May 31, 2012, RG Wheeling, in conjunction with its parent, petitioned for protection in Delaware under federal bankruptcy law and subsequent to such filing ceased all operations. Presently, while the Company continues to purchase its historically consistent 50% level of MSC’s coke capacity, the Delaware bankruptcy court continues to deliberate the disposition of RG Wheeling’s membership interest in the MSC venture. The Company’s U.S. parent, SUSH, has provided liquidity support to MSC in response to RG Wheeling’s failure to perform under the coke supply agreement.

In August 2012, MSC participated in the settlement of a supplier lawsuit involving multiyear raw material supply damages. In connection with this settlement and receipt of cash proceeds in August 2012, the Company recorded a gain of $10,000, its proportionate share of the gain. MSC used proceeds from the settlement to repay a short term loan from SDL and satisfy working capital requirements.

The tables below set forth summarized financial information for SDL’s unconsolidated affiliates:


	December 31
	2013		2012
Current assets	$	62,652		74,591
Noncurrent assets		229,595		250,856
Current liabilities		28,608		29,769
Noncurrent liabilities		34,887		24,803


	Year ended December 31
	2013			2012			2011
Net sales	$	200,664			290,832			464,876
Gross profit		11,217			26,657			48,420
Net income (loss)		(20,410	)		(10,688	)		17,793


		15		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

(4) Debt

Debt consisted of the following at December 31, 2013 and 2012:


	December 31				Rate of interest at December 31, 2013			Maturity date
	2013		2012		Rate of interest at December 31, 2013			Maturity date
Short-term debt:
Insurance premium financing	$	64		8,168		3.89	%		March 2014
Current portion of long-term debt		—		45,667		7.62	%

Total short-term debt		64		53,835

Long-term debt:
Revolving credit facility		180,406		302,863		4.00	%		November 2018
Term loan:
Tranche A		—		80,000		—
Tranche B		—		20,167		—
ECA—KfW		—		2,041		—
ECA—Commerzbank		—		36,523		—
Obligations in respect of deferred purchase price (note 8)		—		22,275		9.00	%		December 2013
Unsecured loan—due to SUSH, an affiliate		217,985		47,000		8.00	%		May 2017

Total long-term debt		398,391		510,869
Less amount due in one year		—		45,667

Long-term debt due after one year		398,391		465,202

Total debt	$	398,455		519,037

Debt matures as follows:


	2014		2015		2016		2017		2018		Thereafter		Total
Short-term debt:
Insurance premium financing	$	64		—		—		—		—		—		64
Long-term debt:
Revolving credit facility		—		—		—		—		180,406		—		180,406
Unsecured loans—due to SUSH, an affiliate		—		—		—		217,985		—		—		217,985

Total maturities	$	64		—		—		217,985		180,406		—		398,455

(a) Revolving Credit Facilities

In November 2013, SDL executed a $335,000 credit agreement (Asset Based Revolver or ABR) with certain financial institutions with Bank of America as agent. The Asset Based Revolver replaced the credit agreement from Citicorp more fully described below. The ABR will expire in November 2018 and, under certain conditions, is subject to combination within a single agreement with a related party’s similar ABR agreement. The ABR is secured primarily by the Company’s accounts receivable and inventories. Borrowing under the ABR is limited to


		16		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

specified percentages of accounts receivable and inventories. The ABR has one financial covenant: a minimum fixed charge coverage ratio (FCCR) that is tested only when borrowing availability falls below a certain threshold. As of December 31, 2013, SDL was not required to test the FCCR as availability was above the threshold.

At December 31, 2013, eligible accounts receivables and inventories at SDL supported borrowing capacity under the ABR of $321,437, of which up to an additional $139,640 could be borrowed after subtracting the amount of borrowings outstanding and the amount of letters of credit outstanding. Outstanding letters of credit at December 31, 2013 SDL was $1,391. The ABR bears a unused-line fee of 0.325% per year. Interest on loans under the ABR is calculated by one of two methods: (i) the prime rate plus a per annum margin ranging from 0.5% to 1.0%, depending on average quarterly excess availability for the preceding quarter and (ii) LIBOR plus a per annum margin ranging from 1.5% to 2.0%, depending on average quarterly excess availability for the preceding quarter. In 2013, SDL paid and capitalized closing fees of $3,710. The capitalized closing fees are being amortized over 60 months, the duration of the ABR. The unamortized capitalized closing fees of $3,647 are included in deferred charges in the consolidated balance sheet at December 31, 2013.

In January 2007, SDL executed a $350,000 Amended and Restated Credit Agreement with Citicorp (the Amended and Restated Credit Agreement). The Amended and Restated Credit Agreement was originally scheduled to expire in January 2012. In September 2011, SDL exercised its option to increase the commitments under the Amended and Restated Credit Agreement by $45,000. In November 2011, SDL executed the Second Amended and Restated Credit Agreement for $375,000. In November 2011, SDL exercised the accordion feature of the Second Amended and Restated Credit Agreement and increased the Revolving Credit Commitments by $25,000 for a total facility amount of $400,000. SDL was the borrower under the Second Amended and Restated Credit Agreement, which was secured by a first lien in SDL’s accounts receivable, inventories, and investments in unconsolidated affiliates, as well as a pledge by SUSH of its membership interests in SDL and a second lien in SDL’s fixed assets. Borrowings under the Second Amended and Restated Credit Agreement were limited to specified percentages of accounts receivable and inventories. The Second Amended and Restated Credit Agreement had two financial covenants: (i) a minimum liquidity requirement and (ii) a limit on capital expenditures. In November 2013, SDL terminated the Second Amended and Restated Credit Agreement and repaid all amounts outstanding.

In 2011, SDL paid closing fees of $8,803 and was amortizing this amount over 60 months, the duration of the Second Amended and Restated Credit Agreement prior to the termination. Upon termination of the Second Amended and Restated Credit Agreement, the unamortized fees of $5,544 that would have been amortized in 2014 through 2016 were recognized in interest expense in the consolidated statement of operations in 2013.

In June 2012, SDL and Citicorp executed an amendment to the Second Amended and Restated Credit Agreement which formalized intercompany arrangements for administrative overhead expenses between SDL and Severstal Columbus LLC (SCL), a related party.

In August 2012, SDL, SUSH and Citicorp executed an amendment to the Second Amended and Restated Credit Agreement which exempts SUSH from certain covenants and provisions of the credit agreement.

(b) Term Loans

In February 2007, SDL executed a $250,000 term loan facility agreement (the Facility Agreement) with KfW IPEX-Bank, as Administrative Agent. The Facility Agreement had three tranches: Tranche A, Tranche B, and the Export Credit Agency (ECA) Tranche. Loans under the ECA Tranche were subject to individual loan


		17		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

agreements (ILAs). The Facility Agreement was secured by a first lien in SDL’s fixed assets and a second lien in substantially all the rest of SDL’s assets. The Facility Agreement had four financial covenants: (i) minimum tangible net worth, (ii) maximum net financial debt to tangible net worth ratio, (iii) maximum net financial debt to EBITDA ratio, and (iv) minimum debt service coverage ratio.

In September 2007, SDL, KfW, and Commerzbank Aktiengesellschaft, Tokyo Branch (Commerzbank), executed Amendment No. 1 to Facility Agreement, which increased the ECA Tranche from $70,000 to $95,000 in order to permit SDL to finance certain equipment under the ECA Tranche with a guarantee from the export credit agency in Japan. Commerzbank was the agent for the ECA lender participating in the individual loan agreement subject to this guarantee.

Between December 2007 and July 2009, the Facility Agreement was amended five times. Among other items, Amendments No. 2 through 6 amended certain financial covenants and other nonmaterial terms. In December 2009, SDL, KfW, and Commerzbank executed Amendment No. 7 to Facility Agreement (Amendment No. 7) to, among other things, (i) permit the Company to delay the completion of construction of its new PLTCM, (ii) amend financial covenants, and (iii) increase the interest rate. In connection with Amendment No. 7, SDL repaid $70,617 of the term loans with the proceeds of an insurance claim. In February 2013, SDL terminated the Facility Agreement and repaid all amounts outstanding. This repayment was financed with a draw on the $500 Million Multidraw Term Loan from SUSH discussed below. The total amount of the repayment, including principal, accrued interest, LIBOR breakage fees, hedge termination costs and related professional fees was $147,985.

SDL paid a closing fee of $8,441 in connection with the Facility Agreement in 2007. This amount was being amortized over 84 to 114 months, the duration of the Facility Agreement and the associated ILAs. In 2008, the Company paid $207 in fees and was amortizing this amount over the remaining life of the agreement. The unamortized balance at termination and repayment was $2,360 and was fully recognized in interest expense in the consolidated statement of operations in February 2013.

(c) Subordinated Debt

In 2004 and 2005, SDL refinanced $135,500 of subordinated debt with Severstal Financial Services Sp. z.o.o. (SFSS) of the Republic of Poland, a related party. In October 2006, SDL and SFSS amended the terms of the subordinated debt to extend its maturity date from April 2008 to April 2016. SDL’s note with SFSS bore interest at an annual rate equal to LIBOR plus a margin of 3.2%. In March 2011, SFSS was liquidated and the notes related to the SFSS subordinated debt (the Notes) were contributed to SUSH. On the same date, SUSH contributed the Notes to SDL and SDL recorded a contribution of capital of $136,463 for the principal and interest outstanding on that date.

In September 2009, SDL issued a promissory note to OAO Severstal, a related company, for $30,000 (the $30 Million Subordinated Loan). The $30 Million Subordinated Loan had an expiration date of March 2019 and, until December 2009, bore interest at an annual rate of 15% per annum. An amended and restated promissory note dated December 2009 reduced the interest rate to 8.6%. A second amended and restated promissory note dated May 2011 reduced the interest rate to 8.0%. In October 2011, the $30 Million Subordinated Loan agreement was amended to eliminate the associated note. Interest was payable quarterly and was paid in-kind. In November 2011, the $30 Million Subordinated Loan was assigned to and assumed by SUSH. SDL recorded a contribution of capital of $34,460 for the principal and interest outstanding on that date.


		18		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

In October 2010, SDL and OAO Severstal, a related company, executed a $120,000 subordinated loan agreement (the $120 Million Subordinated Loan). Loans under the $120 Million Subordinated Loan agreement had an expiration date of January 2013 and, until May 2011, bore interest at an annual rate of 8.6%. In May 2011, an amendment to the $120 Million Subordinated Loan agreement reduced the interest rate to 8.0%. In October 2011, the $120 Million Subordinated Loan agreement was amended to eliminate the associated note. The $120 Million Subordinated Loan has been fully drawn. Interest was payable quarterly and was paid in-kind. In November 2011, the $120 Million Subordinated Loan was assigned to and assumed by SUSH. The Company recorded a contribution of capital of $102,860 for the principal and interest outstanding on that date.

In August 2012, SDL and SUSH executed a $500 Million Multi Draw Subordinated Term Loan. Loans under the $500 Million Multi Draw Subordinated Loan agreement have a maturity date of May 2017. The loans bear interest at 8% per annum and is due on maturity of the loan. SDL has drawn $217,985 under this agreement as of December 31, 2013.

(d) Insurance Premium Financing

In 2013, SDL financed annual insurance premiums of $200 with Premium Funding Associates, Inc. The financings carry an interest rate of 3.89% per annum payable in equal monthly installments through March 2014.

(5) Postretirement and Postemployment Benefit Plans

The Company has adopted postretirement benefit plans (the Plans) covering certain employees. The Plans are operated on a pay-as-you-go basis. There are no assets that have been segregated and restricted to provide for retiree medical benefits under the Plans. The following table presents the benefit obligation for the Plans:


	2013			2012			2011
Benefit obligation at beginning of year	$	68,819			59,511			53,411
Service cost		1,761			1,591			1,325
Interest cost		2,374			2,494			2,503
Benefit payments		(2,469	)		(1,528	)		(834	)
Actuarial (gain) loss		(3,020	)		6,751			3,106

Total benefit obligation at end of year	$	67,465			68,819			59,511

The obligation is presented in the following categories of the Company’s consolidated balance sheets at December 31, 2013 and 2012:


	2013		2012
Other accrued liabilities	$	2,825		1,983
Other post retirement benefits		64,640		66,836

Total benefit obligation at end of year	$	67,465		68,819

The following table presents the funded status of the Plans and the Company’s accrued postretirement benefit cost recognized in other accrued liabilities and other postretirement benefits on the Company’s consolidated balance sheets at December 31, 2013 and 2012:


	2013			2012
Funded status	$	(67,465	)		(68,819	)


		19		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

Amounts recognized in accumulated other comprehensive loss at December 31, 2013 and 2012 consists of:


	2013			2012
Unrecognized net actuarial loss	$	(3,549	)		(6,605	)
Unrecognized prior service cost		(226	)		(351	)

Accumulated other comprehensive loss	$	(3,775	)		(6,956	)

The estimated amount that will be amortized from accumulated other comprehensive earnings over the next fiscal year for prior service cost is $125.

Per the UAW labor agreement, claim costs for represented hourly employees were increased by trend rates until 2009. Claim costs have been frozen at 2009 levels. Retirees will be responsible for any increase in premium costs above the 2009 annual cap. Commencing on January 1, 2009, $0.10 per hour worked shall be deferred from the Profit Sharing Plan for Hourly Employees and contributed to a qualified Voluntary Employees’ Beneficiary Association (VEBA) to defray postemployment healthcare costs for retirees, for example, costs over the annual cap borne by retirees and Medicare Part B reimbursement. No further provision was necessary in 2013, 2012 and 2011.

There have been no substantive plan changes for salaried employees in 2013, 2012 and 2011.

Net periodic postretirement benefit cost consists of the service and interest components noted above, as well as amortization of prior service costs and actuarial gain (loss). Benefit payments of $2,469 were made during 2013. The following table presents expected benefit payments under the Plans for the next five years and the aggregate payments for the following five years:


Year:
2014	$	2,825
2015		3,426
2016		3,850
2017		4,276
2018		4,525
2019-2023		25,433

The weighted average assumptions for the Plans’ current year-end obligations and subsequent year costs are as follows:


	2013			2012			2011
Weighted average assumptions:
Discount rate		4.50	%		3.50	%		4.25	%

Under the terms of the labor contract with hourly employees and a postretirement benefit plan for salaried employees, the Company’s obligation under the Plans is limited to the healthcare trend rate through calendar year 2009. Any further increase in healthcare costs as a result of future healthcare trend rate increases is to be borne by the plan beneficiaries.


		20		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

The Company maintains defined contribution plans for certain hourly and salaried employees. Total expense for these plans amounted to $5,245, $5,585 and $5,291 for the years ended December 31, 2013, 2012 and 2011, respectively.

(6) Income Taxes

SDL’s income tax benefit consists of the following components:


	Year ended December 31
	2013			2012			2011
Current	$	(125	)		(267	)		(550	)
Deferred		—			—			—

Income tax benefit	$	(125	)		(267	)		(550	)

The $(125), $(267) and $(550) of current tax benefit recognized in 2013, 2012 and 2011, respectively, represents the reversal of liabilities for amounts reserved as uncertain tax positions under ASC 740 Income Taxes (formerly FIN 48) for tax years prior to SDL’s conversion to a limited liability company on December 31, 2010. SDL is still subject to U.S. federal or state examinations for open tax years prior to the conversion to a disregarded single-member limited liability company, currently extending back until 2007.

(7) Derivative Instruments and Hedging

The Company was required to hedge its exposure to interest rate volatility by the terms and conditions of its debt agreement with KfW when it had borrowings in excess of $75,000. Borrowings on the term debt exceeded this amount in December 2007, and the Company entered into interest rate swap contracts on January 3, 2008. These derivative contracts were cash flow hedges that qualified for hedge accounting treatment. The swaps changed the variable rate cash flow exposure on a portion of the debt obligations to fixed cash flows. The ineffective portion of these hedging instruments, if any, was included in the results of operations. Interest expense for the years ended December 31, 2013, 2012 and 2011 includes $2,886, $(612) and $(921), respectively, of net gains (losses) representing cash flow hedge ineffectiveness arising from differences between the terms of the interest rate swap and the hedged debt obligation. The fair market value of the derivative instruments as of December 31, 2013 and 2012 was $0 and $(5,428), respectively, and is included in other liabilities on the Company’s consolidated balance sheets. Fluctuations in interest rates were expected to offset the effect on cash flows of settling these amounts. As of December 31, 2013 and 2012, the total notional amount of the Company’s outstanding interest-rate swap agreements that were entered into to hedge outstanding or forecasted debt obligations was $0 and $71,167, respectively.


		21		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

The following table summarizes the impact of interest rate cash flow hedges on accumulated other comprehensive loss:


Interest rate hedge:
Accumulated other comprehensive loss, January 1, 2011	$	4,911
Net change on cash flow hedge		854
Reclassification to interest expense		(1,962	)

Accumulated other comprehensive loss, December 31, 2011		3,803
Net change on cash flow hedge		(810	)
Reclassification to interest expense		(1,089	)

Accumulated other comprehensive loss, December 31, 2012		1,904
Net change on cash flow hedge		—
Reclassification to interest expense		(1,904	)

Accumulated other comprehensive loss, December 31, 2013	$	—

(8) Commitments and Contingencies

(a) Commitments to Ford

The Company purchases various services from Ford, including environmental, maintenance, and other miscellaneous services. In addition, the Company leases certain office space from Ford under a long-term operating lease. Future payments under this lease are included in note 8(d) below.

The Company jointly owns with Ford certain power and utility distribution assets, which are operated under a renewable 10-year agreement that was modified by two letter agreements in 2005 and 2006. The agreement was set to expire on December 31, 1999, but has been extended thereafter on a rolling 30-day basis unless terminated by either party upon 30 days’ notice. Power and utility distribution assets are owned 60% by the Company and 40% by Ford. The modified agreement outlines the separation of operating costs between the Company and Ford for most utilities. The operating costs shared by the Company and Ford are allocated based on consumption formulas or fixed percentage allocation.

(b) Contractual Purchase Commitments

The Company is obligated to make payments under contractual purchase commitments, including unconditional purchase obligations. Payments for contracts with remaining terms are summarized below:


2014	2015		2016		2017		2018		Thereafter		Total
$324,592		324,450		324,009		324,009		317,469		1,085,608		2,700,137

Unconditional purchase obligations relate to the supply of raw materials, transportation services, and industrial gases with terms ranging from three to 22 years. Total payments relating to unconditional purchase obligations in 2013, 2012 and 2011 were approximately $471,943, $504,712 and $505,943, respectively.

In an amended and restated agreement (the Pellet Agreement) and additional amendment and extension of the Pellet Agreement (the Term Sheet) with Cliffs Sales Company (Cliffs), the Company has agreed to purchase


		22		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

from Cliffs all of the iron ore pellets that it requires. The Term Sheet also requires the Company to pay to Cliffs, over the period 2009 through 2013, supplemental payments totaling $179,817, which will be applied to 2009 through 2022 pellet costs. The Company had deferred $22,275 of the supplemental payments due in 2009 until 2013 under a June 2009 agreement, which provide for the payment of interest on the deferral until paid in full. Deferred supplemental payments were reflected as short term debt and long term debt in the Company’s consolidated balance sheet as of December 31, 2012. The Company paid $179,817 and $157,542 of the supplemental payments as of December 31, 2013 and 2012, respectively. Unamortized supplemental payments as of December 31, 2013 and 2012 are reflected in the following captions on the Company’s consolidated balance sheets:


	December 31
	2013		2012
Other current assets	$	12,844		12,844
Deferred charges and other		102,753		115,597

Total unamortized supplemental payments	$	115,597		128,441

In 2005, the Company entered into coke supply agreements through its affiliate, Carbon, with WPSC and MSC, providing for the delivery of 50% of MSC’s production of metallurgical coke at an agreed-upon transfer price, which is based upon MSC’s cost of production.

In February 2007, the Company entered into an agreement with Norfolk Southern Railway Company (Norfolk) for the transportation of coke from one of Company’s suppliers (Haverhill agreement). The Haverhill agreement provides for minimum annual transportation charges of approximately $6,688 starting in July 2008. Since the underlying Haverhill agreement was terminated in 2009, there have been no purchases under the transportation agreement. In December 2010, the Company entered into another agreement with Norfolk for the transportation of coke from another supplier, in which the Company is required to transport a minimum of 95% of coke from the supplier by Norfolk (MSC agreement). The Company must pay a deficit charge for each ton under the annual minimum. Tonnage shipped under MSC agreement satisfies the annual minimums for the Haverhill agreement ton for ton retroactive to January 1, 2010. Actual purchases under this agreement for the year ended December 31, 2013 satisfied the 2013 requirements of the Haverhill agreement.

In September 2010, the Company entered into an agreement with Air Technologies for the supply of compressed air. The agreement became effective March 1, 2011. The agreement has a term of six months with an automatic renewal for successive six-month terms. There is an amortizing decommissioning charge ranging from $100 to $750 upon cancellation of the agreement, depending on time elapsed since the effective date.

In November 2011, the Company entered into a three-year agreement with CSX Transportation, Inc. for the transportation of coke to the Company’s facility in Dearborn. The agreement provides for minimum transportation of 300,000 net tons of coke annually, or approximately 25,000 net tons per month. For the years ended December 31, 2013, 2012 and two months ended December 31, 2011, the Company transported 351,546, 340,493 and 51,347 net tons, respectively.

(c) Capital Commitments

At December 31, 2013, SDL’s commitments to acquire property, plant and equipment totaled approximately $51,247.


		23		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

(d) Lease Commitments

The Company has several noncancelable operating leases, primarily for equipment, that expire over the next eight years. These leases generally contain renewal options for periods ranging from one to five years, and require the Company to pay all executory costs, such as maintenance and insurance. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2013 are as follows:


Year ending December 31:
2014	$	8,239
2015		7,418
2016		6,789
2017		6,681
2018		4,870
2019 and thereafter		18,540

Total	$	52,537

Operating rent expense for the years ended December 31, 2013, 2012 and 2011 was $6,766, $6,263 and $5,661, respectively.

(e) Environmental Matters

SDL was indemnified by Ford through December 15, 2009 for environmental obligations relating to conditions arising prior to the acquisition of Rouge Steel from Ford in 1989. SDL did not acquire any of the environmental obligations of Rouge Steel.

For the years ended December 31, 2013, 2012 and 2011, the Company accrued $(1,922), $1,951 and $210, respectively, for anticipated fines associated with letters of violation from the Michigan Department of Environmental Quality. The costs are reflected in costs and expenses in the Company’s consolidated statements of operations. These estimates are subject to possible change in future periods.

(f) Legal Matters

The Company is party to legal actions and claims arising in the ordinary course of business. SDL believes, based upon information currently available, that such litigation and claims, both individually and in the aggregate, will be resolved without a material effect on its results of operations and its financial statements as a whole in the period of resolution. However, litigation involves an element of uncertainty, and future developments could cause these actions or claims to have a material adverse effect on the SDL results of operations and its financial statements as a whole in the period of resolution.

(9) Related-Party Transactions

The Company purchased machine repair services from Victory Industries, Inc., a related party until October 2012. For the years ended December 31, 2012 and 2011, purchases of such services amounted to $417 and $740, respectively. There were no amounts payable related to such purchases as of December 31, 2012.


		24		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

In 2010, Infocom, a related party, began providing information technology services to the Company. For the years ended December 31, 2013, 2012 and 2011, purchases of such services amounted to $70, $120 and $395, respectively. Amounts payable related to such purchases as of December 31, 2013 and 2012 were $0 and $40, respectively.

The Company purchases blast furnace coke from MSC, an unconsolidated subsidiary. In 2013, the Company also sold limited quantities of metallurgic coal, a raw material for coke production, to MSC. For the years ended December 31, 2013, 2012 and 2011, purchases of blast furnace coke from MSC amounted to $141,458, $159,408 and $197,692, respectively. Amounts payable related to such purchases as of December 31, 2013 and 2012 were $8,513 and $14,877, respectively. Coal sales to MSC amounted to $11,904 for the year ended December 31, 2013. Amounts receivable relating to such sales as of December 31, 2013 was $1,429.

The Company purchases steel galvanizing services from Spartan, an unconsolidated subsidiary. For the years ended December 31, 2013, 2012 and 2011, purchases of such services amounted to $41,710, $46,718 and $59,483, respectively. Amounts payable related to such purchases as of December 31, 2013 and 2012 were $10,446 and $6,707, respectively.

The Company purchases steel processing services from Delaco Steel Processing, an unconsolidated subsidiary. For the years ended December 31, 2013, 2012 and 2011, purchases of such services amounted to $2,647, $2,177 and $1,531, respectively. Amounts payable related to such purchases as of December 31, 2013 and 2012 were $0 and $194, respectively.

The Company purchases certain services from CherMK & Shared Service C/T, related parties. For the years ended December 31, 2013, 2012 and 2011, purchases of such services amounted to $372, $448 and $540, respectively. Amounts payable related to such purchases as of December 31, 2013 and 2012 were $0 and $30, respectively.

The Company purchases scrap from Double Eagle, an unconsolidated subsidiary. For the years ended December 31, 2013, 2012, and 2011, purchases amounted to $1,837, $2,053 and $2,517, respectively. Amounts payable related to such purchases as of December 31, 2013 and 2012 were $457 and $265, respectively.

The Company purchases certain raw materials, services, and semi-finished steel from related parties located in North America. The Company also sells certain services, raw materials, and semi-finished steel to the same related parties. Purchases and sales for years ended December 31, 2013, 2012 and 2011 and amounts payable and receivable for such transactions as of December 31, 2013 and 2012 are as follows:


	Year ended December 31, 2013
	Purchases		Payable		Sales		Receivable
Severstal US Holdings, LLC	$	—		346		—		6,797
Severstal Columbus, LLC		76,273		10,055		14,385		15,603

Total	$	76,273		10,401		14,385		22,400


	Year ended December 31, 2012
	Purchases		Payable		Sales		Receivable
Severstal US Holdings, LLC	$	—		1,641		—		10,385
Severstal Columbus, LLC		129,307		6,458		6,556		3,895

Total	$	129,307		8,099		6,556		14,280


		25		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)


	Year ended December 31, 2011
	Purchases		Sales
Severstal Columbus	$	116,911		20,580
Severstal Sparrows Point, LLC		17,385		—
Severstal Warren, Inc.		188		34,354
Severstal Wheeling, Inc.		5,768		—

Total	$	140,252		54,934

In April 2008, the Company agreed to loan SCL up to $130,000 in exchange for a promissory note yielding 15% interest that matured on September 30, 2014. The subordinated debt agreement provides for payment-in-kind (PIK) interest until SCL’s primary loan agreements permit cash payment of interest. In February 2010, an amendment extended the expiration date to September 2018. In September 2012, the agreement was amended to change the interest rate to 8.0%. For the years ended December 31, 2013, 2012, and 2011, the Company recorded interest income of $7,092, $10,035 and $10,352 for this note. On December 31, 2013 and 2012, the outstanding loan amount, which consists of principal and PIK interest, was $94,000 and $86,908, respectively.

(10) Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market.

The hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:

•

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities

•

Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices in active markets that are observable either directly or indirectly

•

Level 3—Unobservable inputs for which there is little or no market data

The Company measures its financial assets and liabilities using one or more of the following three valuation techniques outlined in ASC Subtopic 820-10 Fair Value Measurements and Disclosures:

•

Market approach—Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities

•

Cost approach—Amount that would be required to replace the service capacity of an asset (replacement cost)

•

Income approach—Techniques to convert future amounts to a single present amount based upon market expectations

The Company has no financial assets or liabilities for which fair value was measured using Level 3 inputs.


		26		(Continued)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

(Amounts in thousands of U.S. dollars unless otherwise noted)

(a) Items Measured at Fair Value on a Recurring Basis

The Company has variable rate debt and is subject to fluctuations in interest-related cash flows due to changes in market interest rates. The Company’s hedging policy allows derivative instruments designated as cash flow hedges, which fix a portion of future variable rate interest expense. The Company had executed two pay-fixed receive-variable interest rate swaps to hedge against changes in the LIBOR benchmark interest rate on a portion of the Company’s term debt. The fair value of the interest rate swap liabilities, using significant other observable inputs (Level 2), as of December 31, 2013 and 2012 was $0 and $(5,428), respectively. The fair value of the swap was determined using the income approach and is calculated based on LIBOR at the reporting date.

(b) Items Measured at Fair Value on a Nonrecurring Basis

In addition to items that are measured at fair value on a recurring basis, SDL has assets that may be measured at fair value on a nonrecurring basis. These assets include long-lived assets which may be written down to fair value as a result of impairment. For the year ended December 31, 2013, SDL recorded asset impairment charge of $42,983 for certain construction in progress expenditures associated with the potential replacement of its “B” blast furnace which suffered major damage in 2008. SDL has subsequently decided not to replace the blast furnace. The fair value of the asset was determined using an independent appraisal at orderly liquidation value (Level 2).

(c) Financial Instruments Not Carried at Fair Value

The carrying value of the Company’s long-term debt approximates fair value based on interest rates that are believed to be available to the Company for debt with similar provisions provided for in the existing debt agreements.

(11) Subsequent Events

The Company has evaluated subsequent events from the consolidated balance sheet date through April 11, 2014, the date at which the consolidated financial statements were available to be issued, and determined there were no other items to disclose.

* * * * *

Exhibit 99.2

Independent Auditors’ Review Report

The Board of Directors

Severstal Dearborn, LLC:

Report on the Financial Statements

We have reviewed the accompanying consolidated balance sheet as of June 30, 2014 of Severstal Dearborn, LLC and subsidiaries (the Company) and the related consolidated statements of operations, comprehensive income (loss), member’s equity, and cash flows for the six month periods ended June 30, 2014 and 2013.

Management’s Responsibility

The Company’s management is responsible for the preparation and fair presentation of the interim financial information in accordance with U.S. generally accepted accounting principles; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with U.S. generally accepted accounting principles.

Auditors’ Responsibility

Our responsibility is to conduct our reviews in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion.

Conclusion

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial information referred to above for it to be in accordance with U.S. generally accepted accounting principles.

Report on Balance Sheet as of December 31, 2013

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of operations, comprehensive income (loss), member’s equity and cash flows for the year then ended (not presented herein); and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated April 11, 2014. In our opinion, the accompanying consolidated balance sheet of Severstal Dearborn, LLC and subsidiaries as of December 31, 2013 is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.

/s/ KPMG LLP

Detroit, Michigan

September 3, 2014

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands of U.S. dollars)


	Unaudited
	June 30, 2014		December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	239		262
Accounts receivable:
Trade and other (net of allowance for doubtful accounts of $829 and $1,700 at June 30, 2014 and December 31, 2013, respectively)		144,754		154,402
Affiliates		25,466		24,941
Inventories		295,366		393,475
Other current assets		24,778		34,781

Total current assets		490,603		607,861

Net property, plant, and equipment		386,422		1,337,466
Investment in unconsolidated affiliates		45,725		99,946
Long term receivables from related party		97,760		94,000
Deferred charges and other		130,311		135,645

Total assets	$	1,150,821		2,274,918

Liabilities and Member’s Equity
Current liabilities:
Accounts payable:
Trade	$	179,613		207,763
Affiliates		25,383		29,793
Short-term debt		—		64
Accrued vacation pay		8,846		8,410
Taxes other than income		72		4,455
Other accrued liabilities		21,244		33,095

Total current liabilities		235,158		283,580
Long-term debt		108,416		180,406
Long-term debt-related party		196,385		217,985
Other postretirement benefits		66,749		64,965
Deferred credits		26,670		27,295
Other liabilities		26,998		19,136

Total liabilities		660,376		793,367

Member’s equity		490,445		1,481,551

Total liabilities and member’s equity	$	1,150,821		2,274,918

See accompanying notes to unaudited consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Statements of Operations

(Amounts in thousands of U.S. dollars)


	Unaudited
	Six Months Ended June 30,
	2014			2013
Sales:
Unaffiliated customers	$	1,001,034			1,012,257
Affiliates		5,162			6,028

Total sales		1,006,196			1,018,285

Costs and expenses:
Costs (excluding items listed below)		957,026			940,097
Depreciation and amortization		53,705			48,916
Selling and administrative expenses		19,249			27,104
Impairment of long-lived assets		915,738			—

Total costs and expenses		1,945,718			1,016,117

Operating income (loss)		(939,522	)		2,168
Interest income		5,155			4,591
Interest expense		(11,285	)		(19,690	)
Loss on disposal of assets		(651	)		(598	)
Other – net		413			366
Equity loss from unconsolidated affiliates		(45,305	)		(7,508	)

Loss before income taxes		(991,195	)		(20,671	)
Income tax benefit		27			—

Net loss	$	(991,168	)		(20,671	)

See accompanying notes to unaudited consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands of U.S. dollars)


	Unaudited
	Six Months Ended June 30,
	2014			2013
Net loss	$	(991,168	)		(20,671	)

Other comprehensive income (loss):
Postemployment benefits:
Amortization of prior service cost included in net periodic benefit costs		62			63
Cash flow hedges:
Reclassification to statement of operations		—			1,904

Other comprehensive income		62			1,967

Comprehensive loss	$	(991,106	)		(18,704	)

See accompanying notes to unaudited consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Statements of Member’s Equity

(Amounts in thousands of U.S. dollars)

Unaudited


						Accumulated
			Accumulated			other
	Contributed		Earnings/			comprehensive
	capital		(deficit)			loss			Total
Balance at December 31, 2012	$	1,072,424		503,564			(8,860	)		1,567,128
Net loss		—		(20,671	)		—			(20,671	)
Other comprehensive income		—		—			1,967			1,967

Balance at June 30, 2013		1,072,424		482,893			(6,893	)		1,548,424

Balance at December 31, 2013		1,072,424		412,902			(3,775	)		1,481,551
Net loss		—		(991,168	)		—			(991,168	)
Other comprehensive income		—		—			62			62

Balance at June 30, 2014		1,072,424		(578,266	)		(3,713	)		490,445

See accompanying notes to unaudited consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands of U.S. dollars)


	Unaudited
	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(991,168	)		(20,671	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		53,705			48,916
Amortization of capitalized debt costs		377			3,342
Loss on disposal of assets		651			598
Equity loss from unconsolidated affiliates		45,305			7,509
Dividends from investments in unconsolidated affiliates		4,686			2,435
Interest in kind from related party		(3,760	)		(3,477	)
Impairment of long-lived assets		915,738			—
Deferred credits		(625	)		(624	)
Changes in assets and liabilities:
Accounts receivable		9,122			(55,783	)
Inventories		102,320			143,724
Other current assets and deferred charges		14,986			11,095
Accounts payable and accrued liabilities		(40,069	)		9,277

Net cash provided by operating activities		111,268			146,341

Cash flows from investing activities:
Capital expenditures		(18,240	)		(25,433	)
Investments in unconsolidated affiliates		21			12
Proceeds from disposal of assets		609			102

Net cash used in investing activities		(17,610	)		(25,319	)

Cash flows from financing activities:
Proceeds from debt financing		804,996			425,293
Payment of debt		(898,650	)		(546,285	)
Fees paid for debt		(27	)		—

Net cash used in financing activities		(93,681	)		(120,992	)

Net increase (decrease) in cash and cash equivalents		(23	)		30
Cash and cash equivalents – beginning of period		262			162

Cash and cash equivalents – end of period	$	239			192

Supplemental information:
Cash paid for interest	$	2,758			12,214
Unpaid purchases of property, plant and equipment included in accounts payable		15,360			15,059

See accompanying notes to unaudited consolidated financial statements.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

NOTE 1: Basis of Presentation

In the opinion of the management of Severstal Dearborn (SDL), LLC and its wholly owned subsidiaries, SNA Holdings, LLC (SHL), SNA Carbon, LLC (Carbon), and Charnwood I, LLC (CHL) (together, the Company), the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of June 30, 2014, the results of its operations and cash flows for the six months ended June 30, 2014 and 2013. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2013.

NOTE 2: Trade Accounts Receivable and Significant Customers

The Company reviews its accounts receivable balances for collectability on a periodic basis. Customer accounts that are determined to be at risk for collection by management, such as those customers in bankruptcy proceedings, are 100% reserved. Customer accounts considered to be collectible with a high level of confidence by management are not reserved. All other customer accounts are reviewed for collectability and a reserve is established using the following method:

a) Unpaid accounts receivable invoices past due date for 30-60 days are reserved 25%

b) Unpaid accounts receivable invoices past due date for 61-90 days are reserved 50%

c) Unpaid accounts receivable invoices past due date for 91 or more days are reserved 100%

This policy was changed during the six months ended June 30, 2014 to align with the policy of the parent. The change in policy resulted in an insignificant difference in the estimated uncollectible accounts. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

The Company’s significant customers in the six months ended June 30, 2014 were Ford Motor Company (Ford) and Fiat SPA (Fiat, formerly Chrysler LLC). Revenues earned from sales to these customers comprised 25% and 15% respectively, of total revenues for the six months ended June 30, 2014. At June 30, 2014, amounts due from those customers comprised 14% and 22% of accounts receivable, respectively.

The Company’s significant customers in the first six months of 2013 were Ford, Fiat and General Motors Corporation (GM). Revenues earned from sales to these customers comprised 26%, 14%, and 12%, respectively, of total revenues for the six months ended June 30, 2013. At December 31, 2013, amounts due from those customers comprised 7%, 17%, and 13% of accounts receivable, respectively.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

NOTE 3: Inventories

The major classes of inventories are as follows:


	June 30, 2014		December 31, 2013
Production:
Raw materials	$	91,004		174,429
Semi finished and finished steel products:
On site		102,288		86,579
On consignment		78,378		113,232

Total production inventories at average actual cost		271,670		374,240
Nonproduction and sundry		23,696		19,235

Total inventories	$	295,366		393,475

NOTE 4: Property, Plant and Equipment

Property, Plant and Equipment consist of the following:


	June 30, 2014		December 31, 2013
Land	$	4,771		4,771
Buildings and improvements		82,143		323,018
Machinery and equipment		266,667		1,358,318
Construction in progress		32,841		29,599

Subtotal		386,422		1,715,706
Less accumulated depreciation		—		378,240

Total Property, Plant and Equipment	$	386,422		1,337,466

NOTE 5: Investments in Unconsolidated Affiliates

The Company’s investments in unconsolidated affiliates consists of a 50% interest in Double Eagle Steel Coating company (Double Eagle), a 48% interest in Spartan Steel Coating, L.L.C. (Spartan), a 49% interest in Delaco Steel Processing, L.L.C. (Delaco), and a 50% interest in Mountain State Carbon, L.L.C. (MSC). The Company’s investments in unconsolidated affiliates are accounted for under the equity method.

The table below set forth summarized financial information for the Company’s unconsolidated affiliates:


	Six months ended June 30,
	2014			2013
Net sales	$	110,632			85,864
Gross profit (loss)		5,247			(13,892	)
Net loss		(90,577	)		(17,711	)

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

Double Eagle is an electro galvanizing facility that is operated as a cost center. Accordingly, Double Eagle records neither sales revenue nor income. In May 2013, the members agreed to dissolve Double Eagle by March 31, 2015. Double Eagle has adjusted its estimate of the useful lives for all property, plant and equipment accordingly. The Company is committed to pay 50% of the fixed costs incurred and a pro rata share of variable costs based on coatings applied to the Company’s products. These costs were reflected in inventory through February 2014, after which time the Company eliminated electro galvanized steel from its product offerings. Starting in March 2014, Double Eagle fixed costs paid by the Company, in the amount of $6,215 for the six months ended June 30, 2014, are reflected in Costs on the accompanying consolidated statement of operations.

Spartan is a hot-dip galvanizing facility. Coating costs associated with Spartan’s processing of the Company’s products are reflected in inventory. Delaco is a flat-rolled steel slitting operation. Slitting costs associated with Delaco’s processing of the Company’s products are reflected in cost and expenses.

In May 2012, MSC terminated a coke supply agreement with RG Wheeling as a result of RG Wheeling’s failure to cure certain defaults under the agreement. On May 31, 2012, RG Wheeling, in conjunction with its parent, petitioned for protection in Delaware under federal bankruptcy law and subsequent to such filing ceased all operations. The Company continued to purchase its historically consistent 50% level of MSC’s coke capacity while the Delaware bankruptcy court continued to deliberate the disposition of RG Wheeling’s membership interest in the MSC venture. The Company’s U.S. parent, Severstal US Holdings, LLC (SUSH), has provided liquidity support to MSC in response to RG Wheeling’s failure to perform under the coke supply agreement.

In July 2014, the bankruptcy court approved a mutually agreed settlement of all claims between RG Steel, LLC (RG Steel), RG Wheeling’s parent, and SUSH. Terms of this settlement agreement provided for, among other things, the release of a note receivable issued by RG Steel payable to SUSH that was secured by RG Wheeling’s 50% interest in MSC. The settlement agreement also provided for Carbon to assume RG Wheeling’s 50% interest in MSC.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

The table below summarizes the fair values of assets acquired and liabilities assumed by the Company in July 2014:


Assets:
Current Assets
Cash and cash equivalents	$	4,464
Accounts Recievable		7,857
Inventories		13,423
Other current assets		395
Property, Plant, & Equipment		60,885
Intangible assets		1,747

Total assets		88,771

Liabilities:
Current liabilities
Accounts Payable	$	6,541
Other accrued liabilities		9,751
Long term debt -related party		30,441
Other long term liabilities		2,409

Total liabilities		49,142

The Company assumed an environmental contingency in the amount of $2,409, presented in “Other long term liabilities” in the table above. The Company also assumed a contingency related to an employment matter in the amount of $290, presented in Other accrued liabilities in the table above.

Supplemental information on an unaudited pro forma basis, as if the Mountain State Carbon acquisition had been consummated on January 1, 2013, is presented as follows:


	Six Months Ended June 30,
	2014			2013
	(Unaudited)
Revenues	$	1,012,280			1,021,214
Net loss		(1,040,951	)		(32,978	)

As of June 30, 2014, the historical value of the Company’s equity interest in Mountain State Carbon was $20,336. The balance includes the Company’s respective 50% share, or $44,702, of an impairment recorded at MSC in June 2014. The impairment was recorded as a result of an indication of fair value from the change in control transaction subsequent to June 30, 2014. Therefore, the Company’s investment in MSC is reflected at its fair value as of June 30, 2014. This transaction is considered a “step acquisition” whereby the Company’s ownership interest in MSC held before the acquisition is required to be remeasured to fair value at the date of the acquisition. The Company’s ownership in Mountain State Carbon was remeasured at fair market value determined by the income approach, using a discounted cash flow analysis. The impairment loss of $44,702 as a result of remeasurement is included in Equity (loss) from unconsolidated affiliates on the accompanying consolidated statement of operations.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

NOTE 6: Income Taxes

The Company is considered a disregarded entity by SUSH for Federal income tax purposes. As such, the Company is not directly subject to Federal and most state income taxes and the Company’s operating results are included in the income tax filings of SUSH. Income taxes for the six months ended June 30, 2014 were ($27) with an effective tax rate of 0%, compared to $0 with an effective rate of 0% during the same period in 2013. Income taxes incurred during the six months ended June 30, 2014 represent Federal and state taxes for periods prior to the Company’s conversion to a disregarded single member limited liability company on December 31, 2010. The Company is still subject to Federal or state examinations for open tax years prior to the conversion, currently extending back until 2007.

NOTE 7: Debt

Debt consisted of the following at June 30, 2014 and December 31, 2013:


	June 30,		December 31,
	2014		2013
Short-term debt:
Insurance premium financing	$	—		64
Long-term debt:
Revolving credit facility		108,416		180,406
Term loan:
Unsecured loan – due to SUSH, an affiliate		196,385		217,985

Total long-term debt		304,801		398,391

Total debt	$	304,801		398,455

The revolving credit facility has one financial covenant: a minimum fixed charge coverage ratio (FCCR) that is tested only when borrowing availability falls below a certain threshold. As of June 30, 2014, the Company was not required to test the FCCR as availability was above the threshold.

At June 30, 2014, eligible accounts receivables and inventories at the Company supported borrowing capacity under the revolving credit facility of $252,129, of which up to an additional $141,973 could be borrowed after subtracting the amount of borrowings outstanding and the amount of letters of credit outstanding. Outstanding letters of credit at June 30, 2014 under the revolving credit facility was $1,741. The interest rate on the revolving credit facility was 4% at June 30, 2014.

Accrued and unpaid interest of $23,900 and $15,380 as of June 30, 2014 and December 31, 2013, respectively, for the unsecured loan from SUSH is presented in Other liabilities on the accompanying consolidated balance sheet.

NOTE 8: Postretirement and Postemployment Benefit Plans

The Company has adopted postretirement benefit plans (the Plans) covering certain employees. The Plans are operated on a pay-as-you-go basis. There are no assets that have been segregated and restricted to provide for retiree medical benefits under the Plans. The benefit amounts paid for six months ended June 30, 2014 and 2013 were $524 and $1,166, respectively.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

The following table presents net periodic benefit cost of the Plans:


	Six months ended June 30,
	2014		2013
Service cost	$	814		886
Interest cost		1,486		1,194
Amortization of prior service cost		63		63
Amortization of loss		—		18

Net periodic benefit cost:	$	2,363		2,161

NOTE 9: Deferred Credits

Tax Incentives

As of December 15, 2008, The Company’s application for a $10,000 Michigan Public Act (PA) 381 Brownfield MBT credit (MBT Credit) was approved and authorized by the Michigan Economic Development Corporation as an incentive related to the Company’s pickle line tandem cold mill (PLTCM) Modernization. For purposes of final approval of the MBT Credit, the PLTCM project and related capital spending were completed in September 2011. Other conditions precedent to issuance of the PLTCM project completion certificate included: (1) actual employee count of at least 1,500 and (2) active progress toward resolution of certain Michigan OSHA findings. These conditions were met in September 2011. In order to accelerate its realization, the Company sought to assign the MBT Credit to other parties under PA 381’s credit assignment provisions. Buyers of the rights to the MBT Credit were identified and sale/assignment was executed in October 2011 at discounts ranging from 9 – 10%. The MBT Credit assignments contain provisions which indemnify the buyer in the event of credit recapture. The Company received $8,961, net of brokers fees, associated with the sale of the MBT Credit in December 2011.

The Company also negotiated a $30,000 Jumbo Brownfield Credit, payable in $3,000 installments over 10 years, as an incentive related to the Company’s hot dip galvanizing line (HDGL) project. Certification of the Jumbo Credit was received in December 2011. The Company sold the 2011 credit at the same discount range of 9 – 10%, and received $2,660, net of brokerage fees in January 2012.

Beginning in 2012, Brownfield Credits can be claimed as 90% refundable, and can also be claimed during the tax year. Previously, if a taxpayer elected to claim the credit as a refundable credit, the rate was 85% and could only be claimed on a filed tax return. The Company elected to claim the 2012-2014 credits as refundable, and received $2,700 in March 2014 and $2,700 in March 2013.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

The Company recognized the MBT Credit and Jumbo Credit as tax receivables and deferred items within the Company’s consolidated balance sheets as shown below:


	June 30, 2014			December 31, 2013
Other current asset:
Gross current receivable	$	2,700			2,700
Discount on receivable (4.6% rate)		(684	)		(729	)

Net current receivable		2,016			1,971

Deferred charges and other:
Gross noncurrent receivable		13,500			16,200
Discount on receivable (4.6% rate)		(2,000	)		(2,319	)

Net noncurrent receivable		11,500			13,881

Total tax incentive receivable	$	13,516			15,852

Deferred income:
Other accrued liabilities	$	1,250			1,250
Deferred credits		26,670			27,295

Total deferred income	$	27,920			28,545

The deferred credits are being amortized to cost of sales on a straight-line basis over the estimated useful life of the associated assets. Amortization for the six months ended June 30, 2014 and 2013 was $625 and $625, respectively. The accretion of the tax incentive receivable is recognized in interest income in the accompanying consolidated statement of operations over the 10 year payback period using the effective interest method, starting in 2012. Interest income recognized for the six months ended June 30, 2014 and 2013 was $365 and $408, respectively.

NOTE 10: Environmental and Legal Contingencies

Environmental Matters

The Company was indemnified by Ford through December 15, 2009 for environmental obligations relating to conditions arising prior to the acquisition of Rouge Steel Company (Rouge Steel), the Company’s predecessor, from Ford in 1989. The Company did not acquire any of the environmental obligations of Rouge Steel.

For the six months ended June 30, 2014 and 2013, the Company accrued and recognized in the accompanying consolidated statement of operations $400 and $580, respectively, for anticipated fines associated with letters of violation from the Michigan Department of Environmental Quality. The Company is currently in negotiations with environmental regulators that would result in a consent order and agreement that would require the Company to pay fines for all outstanding letters of violation and would stipulate corrective actions required by the Company to mitigate environmental excursions in the future. The estimated amount of settlement recognized in the accompanying consolidated balance sheet as of June 30, 2014 is $2,199 and is subject to possible change in future periods. The matter is expected to be resolved during the second half of 2014.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

Legal Matters

The Company is party to legal actions and claims arising in the ordinary course of business. The Company’s management believes, based upon information currently available, that such litigation and claims, both individually and in the aggregate, will be resolved without a material effect on its results of operations and its financial statements as a whole in the period of resolution. However, litigation involves an element of uncertainty, and future developments could cause these actions or claims to have a material adverse effect on the Company’s results of operations and its financial statements as a whole in the period of resolution. Legal matters for which the Company has made a determination that a loss is not probable or estimable and, therefore, has not recorded an accrual include the following:

In 2010, ArcelorMittal filed a claim against the Company and two other steel manufacturing companies alleging patent infringement for certain steel products. The claim seeks injunctive relief and unspecified damages. In 2011, a jury trial found the Company did not infringe on the patent and the patent was invalid. ArcelorMittal appealed the decision. The appeals court affirmed the jury finding that the Company did not infringe on the patent. However, the Court reversed certain findings regarding the validity of the patent. The case was remanded to the trail court for further proceedings. In 2013, ArcelorMittal petitioned for, and received, a reissued patent and filed a second claim alleging infringement of the reissued patent, again seeking injunctive relief and unspecified damages. In 2013, the court found that the Company did not infringe on the reissued patent and that the reissued patent was invalid due to a statute of limitations on enhancements of the original patent. Also, in 2013, ArcelorMittal filed an appeal of the courts findings of the second claim. The Company continues to vigorously defend against this claim.

In 2013, Cliffs Sales Company (Cliffs) filed a claim against the Company for $13,300 alleging breach of contract regarding a commitment to purchase iron ore chips from Cliffs. The Company maintains that the purchase commitment was satisfied pursuant to a subsequent revised agreement. Discovery is ongoing and a trial date has not been determined.

In 2014, several plaintiffs filed a claim against the Company alleging violations of the environmental air permit issued to the Company in 2008 for its new blast furnace operations. The claim seeks damages relating to the violations. No trial date has been established, nor has discovery commenced.

In 2013, the Company and Mechel Bluestone Inc. (Bluestone) settled several legal claims and counterclaims regarding a coal supply agreement between Bluestone and a related party of the Company. The agreement required Bluestone to pay the Company $12,000 in three installments through November 2014 and required the Company to purchase a specified amount of coal from Bluestone over a two year period at market rates determined at the beginning of each year. The Bluestone payments were guaranteed by Bluestone’s parent, Mechel Mining OAO, and the Company recorded a receivable for the future installments. Bluestone failed to make the second installment payment of $4,000 due on November 30, 2013. The Company has subsequently stopped purchasing coal from Bluestone. In 2014, the Company filed a complaint seeking to recover the payment. The total amount of the receivable from Bluestone is $7,200, which includes the final payment due in November 2014.

NOTE 11: Comprehensive Income (Loss)

The Company displays comprehensive income (loss) in the consolidated statements of comprehensive income (loss). Items considered to be other comprehensive income (loss) include adjustments made for postemployment costs (under ASC Topic 715, Compensation – Retirement Benefits) and hedging activities (under ASC Topic 815).

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

Accumulated other comprehensive loss consists of the following:


	June 30,			December 31,
	2014			2013
Postemployment benefits	$	(3,713	)		(3,775	)

Total accumulated other comprehensive loss	$	(3,713	)		(3,775	)

NOTE 12: Fair Value Measurements

The hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:

•

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities

•

Level 2 – Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices in active markets that are observable either directly or indirectly

•

Level 3 – Unobservable inputs for which there is little or no market data

The Company measures its financial assets and liabilities using one or more of the following three valuation techniques outlined in ASC Subtopic 820 10 Fair Value Measurements and Disclosures:

•

Market approach – Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities

•

Cost approach – Amount that would be required to replace the service capacity of an asset (replacement cost)

•

Income approach – Techniques to convert future amounts to a single present amount based upon market expectations

The Company has no financial assets or liabilities for which fair value was measured using Level 3 inputs.

(a) Items Measured at Fair Value on a Nonrecurring Basis

The Company has assets that may be measured at fair value on a nonrecurring basis. These assets include long lived assets which may be written down to fair value as a result of impairment. For the six months ended June 30, 2014, the Company recorded asset impairment charge of $915,738 for property, plant and equipment and intangible assets. The fair value of the asset was determined using the actual price negotiated to sell the net assets, adjusted for certain intercompany balances and expected estimated working capital price adjustments, of the Company to AK Steel Corporation (Level 2). The Company’s investment in Mountain State Carbon is also measured at fair value due to the transaction to acquire the remaining 50% interest subsequent to June 30, 2014, as discussed in Note 4 above.

(b) Financial Instruments Not Carried at Fair Value

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

The carrying value of the Company’s revolving credit facility approximates fair value based on interest rates that are believed to be available to the Company for debt with similar provisions provided for in the existing debt agreements.

The Company’s management has determined it is not practical to estimate and disclose the fair value of the Company’s long term receivable from a related party and unsecured loan – due to SUSH as they are related party arrangements.

NOTE 13: Derivative Instruments and Hedging Activities

The Company accounts for derivatives and hedging activities in accordance with ASC Topic 815, Derivatives and Hedging, which requires entities to recognize all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated in hedging relationships, changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings.

Interest Rate Hedge

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

variable rate cash flow exposure on a portion of the debt obligations to fixed cash flows. The ineffective portion of these hedging instruments, if any, was included in the results of operations. Interest expense for the six months ended June 30, 2014 and 2013 includes $0 and $2,886, respectively, of net gains (losses) representing cash flow hedge ineffectiveness arising from differences between the terms of the interest rate swap and the hedged debt. The contracts were terminated in February 2013.

The following table summarizes the impact of interest rate cash flow hedges on accumulated other comprehensive loss:


Interest rate hedge:
Accumulated other comprehensive loss, January 1, 2013	$	1,904
Net change on cash flow hedge
Reclassification to interest expense		(1,904	)

Accumulated other comprehensive loss, June 30, 2013	$	—

NOTE 14: Related Party Transactions

In 2010, Infocom, a related party, began providing information technology services to the Company. For the six months ended June 30, 2014 and 2013, purchases of such services amounted to $0 and $60 respectively. Amounts payable related to such purchases as of June 30, 2014 and December 31, 2013 were $0.

The Company purchases blast furnace coke from MSC, an unconsolidated subsidiary. In 2013, the Company also sold limited quantities of metallurgic coal, a raw material for coke production, to MSC. For the six months ended June 30, 2014 and 2013, purchases of blast furnace coke from MSC amounted to $71,573 and $73,117, respectively. Amounts payable related to such purchases as of June 30, 2014 and December 31, 2013 were $8,988 and $8,513, respectively. Coal sales to MSC for the six months ended June 30, 2014 and 2013 amounted to $1,340 and $3,568, respectively. Amounts receivable relating to such sales as of June 30, 2014 and December 31, 2013 were $0 and $1,429, respectively.

The Company purchases steel galvanizing services from Spartan, an unconsolidated subsidiary. For the six months ended June 30, 2014 and 2013, purchases of such services amounted to $24,294 and $16,765, respectively. Amounts payable related to such purchases as of June 30, 2014 and December 31, 2013 were $7,713 and $10,446, respectively.

The Company purchases steel processing services from Delaco Steel Processing, an unconsolidated subsidiary. For the six months ended June 30, 2014 and 2013, purchases of such services amounted to $1,473, and $1,443, respectively. Amounts payable related to such purchases as of June 30, 2014 and December 31, 2013 were $182 and $0, respectively.

The Company purchases certain services from CherMK & Shared Service C/T, related parties. For the periods ended June 30, 2014 and 2013, purchases of such services amounted to $0 and $392, respectively. Amounts payable related to such purchases as of June 30, 2014 and December 31, 2013 were $0.

The Company purchases scrap from Double Eagle, an unconsolidated subsidiary. For the periods ended June 30, 2014 and 2013, purchases amounted to $729 and $800, respectively. Amounts payable related to such purchases as of June 30, 2014 and December 31, 2013 were $339 and $457, respectively.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

The Company purchases certain raw materials, services, and semi-finished steel from other related parties located in North America and Europe. The Company also sells certain services, raw materials, and semi-finished steel to the same related parties. Purchases and sales for six months ended June 30, 2014 and 2013 and amounts payable and receivable for such transactions as of June 30, 2014 and December 31, 2013 are as follows:


	Six Months ended June 30, 2014				As of June 30, 2014
	Purchases		Sales		Payable		Receivable
Severstal US Holdings, LLC	$	—		—		—		23,679
Severstal Columbus, LLC		60,222		3,822		8,160		625

Total	$	60,222		3,822		8,160		24,304


	Six Months ended June 30, 2013				As of December 31, 2013
	Purchases		Sales		Payable		Receivable
Severstal US Holdings, LLC	$	—		—		346		6,797
Severstal Columbus, LLC		39,451		2,460		10,055		15,603

Total	$	39,451		2,460		10,401		22,400

During the six month period ended June 30, 2013, the Company incurred and recorded as expense $10,252 of corporate management services, such as payroll, legal and other professional services. The expense for these management services are reflected in selling and administrative expenses in the accompanying statement of operation. Effective January 1, 2014, the Company started allocating the cost of these corporate management services in their entirety to SUSH.

In April 2008, the Company agreed to loan Severstal Columbus, LLC up to $130,000 in exchange for a promissory note yielding 15% interest that matured on September 30, 2014. The subordinated debt agreement provides for payment-in-kind (PIK) interest until Columbus’ primary loan agreements permit cash payment of interest. In February 2010, an amendment extended the expiration date to September 2018. In September 2012, the agreement was amended to change the interest rate to 8.0%. For the six months ended June 30, 2014 and 2013, the Company recorded interest income of $3,760 and $3,476 for this note. On June 30, 2014 and December 31, 2013, the outstanding loan amount, which consists of principal and PIK interest, was $97,800 and $94,000, respectively.

Note 15: Impairment

On July 19, 2014, Severstal Columbus Holdings, LLC, the Company’s parent, entered into a membership interest purchase agreement (MIPA) to sell all issued and outstanding membership interest units of the Company to AK Steel Corporation (AK Steel) for $700,000 of consideration. The sale is subject to customary closing conditions, purchase price adjustment relating to working capital, and regulatory approvals. Subject to the conclusion of the regulatory review, the closing is expected to occur late in the third quarter or in the fourth quarter of 2014.

SEVERSTAL DEARBORN, LLC

AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Amounts in thousands of U.S. dollars unless otherwise noted)

The MIPA triggered measurement of long lived assets for impairment using the selling price for the membership interests as the primary indicator of fair market value. On June 30, 2014, the Company recorded an asset impairment charge of $915,738. The impairment is reflected in Impairment of long-lived assets on the accompanying consolidated statement of operations for the six months ended June 30, 2014 and applied to the following assets on the balance sheet as of June 30, 2014:


Property, plant, and equipment:
Buildings and improvements	$	214,722
Machinery and equipment		697,621
Intangible assets		3,395

	$	915,738

Note 16: New Accounting Pronouncements

The Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), during the second quarter of 2014. Topic 606 affects virtually all aspects of an entity’s revenue recognition, including determining the measurement of revenue and the timing of when it is recognized for the transfer of goods or services to customers. Topic 606 is effective for public companies for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the effect and method of adoption of Topic 606 on its financial position and results of operations.

Note 17: Subsequent Events

The Company has evaluated subsequent events from the consolidated balance sheet date through September 3, 2014, the date at which the consolidated financial statements were available to be issued, and determined there were no items to disclose, except as discussed above.

* * * * *

Exhibit 99.3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SEVERSTAL DEARBORN, LLC

The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties.These risks could cause actual results to differ materially from any future performance suggested below. Dollars are shown in millions, except per share and per ton amounts or otherwise specifically noted.

Overview

Dearborn’s principal operations consist of a single integrated steelmaking facility located in Dearborn, Michigan. Dearborn produces flat-rolled carbon steel products including high-quality coated, hot-rolled and cold-rolled products sold primarily to domestic automotive, converter and service center markets. The Dearborn plant, which produces high-quality, flat-rolled steels primarily for the automotive, construction and appliance markets, completed a large-scale modernization campaign in 2011. During the campaign, major capital was invested in new state-of-the-art equipment and various operational improvements. The Dearborn facility is strategically located in close proximity to many customers of AK Steel Holding Corporation (together with its subsidiaries, “AK Steel”), and the assets at the steel plant and the other acquired facilities complement AK Steel’s existing carbon steel operations. The blast furnace at Dearborn was rebuilt in 2007. The plant also began operating a new pickle line tandem cold mill and a new hot dip galvanizing line in 2011. Similar to AK Steel’s existing carbon steel operations, the Dearborn plant produces hot and cold rolled sheet and hot dip galvanized products, as well as other flat-rolled steel products. The plant employs approximately 1,400 people and is capable of producing about 2.4 million tons of finished steel per year.

In addition to its integrated Dearborn steelmaking facility, Dearborn’s operations include a 50% interest in Mountain State Carbon (“MSC”) as of June 30, 2014, a cokemaking facility located in West Virginia; a 48% interest in Spartan Steel Coating Company (“Spartan”), a hot-dip galvanizing facility in Michigan; and a 49% interest in Delaco Steel Processing (“Delaco”), a flat-rolled steel slitting operation in Michigan; and a 50% interest in Double Eagle Steel Coating (“Double Eagle”), an electrogalvanizing facility in Michigan (which currently is scheduled for dissolution in the first quarter of 2015).

Six Months Ended June 30, 2014 Financial Results Overview

Dearborn’s first half 2014 results compared unfavorably with the first half of 2013. Dearborn had a net loss for the first half of 2014 of $991.2, which included a long-lived asset impairment charge of $915.7, versus a net loss in the first half of 2013 of $20.7. The impairment charge was triggered by the execution of a definitive agreement to sell Dearborn to AK Steel Corporation for $700.0, on which basis Dearborn determined its long-term asset recoverability.

Operationally, unusually extreme winter weather conditions in the Midwest United States drove the price of raw materials higher and also resulted in higher maintenance costs. Production tons, net sales revenue and shipments were slightly down in the first half of 2014 compared to the first half of 2013. Steel revenue and shipments decreased to $994.9 and 1,206,400 net tons, respectively, in the six months ended June 30, 2014 from $1,000.8 and 1,232,600 net tons for the six months ended June 30, 2013.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Steel Shipments

Total shipments for the six months ended June 30, 2014 and 2013 were 1,206,400 and 1,232,600 net tons, respectively. The approximate 2% decrease in total shipments was attributable principally to lower production due to weather conditions noted above.

For the six months ended June 30, 2014, value-added products comprised 58.0% of total shipments, compared to 56.9% of total shipments in the six months ended June 30, 2013. Dearborn continues to focus on maximizing profitability through product mix enhancements based on current and projected market demands as well as improving quality. The following table presents net shipments by product line:


	Six Months Ended June 30,
	2014				2013
	(tons in thousands)
Value-added Shipments
Cold Rolled		174.0	14.4	%		177.6	14.4	%
Coated		526.4	43.6	%		523.9	42.5	%

Subtotal value-added shipments		700.4	58.0	%		701.5	56.9	%

Non-Value-added Shipments
Hot rolled		409.3	34.0	%		433.9	35.2	%
Secondary		96.7	8.0	%		97.2	7.9	%

Subtotal non value-added shipments		506.0	42.0	%		531.1	43.1	%

Total shipments		1,206.4	100.0	%		1,232.6	100.0	%

Sales

Net sales for the six months ended June 30, 2014 decreased by approximately 1.2% compared to the six months ended June 30, 2013 primarily due to lower shipments. Dearborn’s average selling price for the first half of 2014 was $825 per ton, 1.6% above Dearborn’s average selling price of $812 per ton for the six months ended June 30, 2013. The increase is due primarily to increases in spot market pricing of approximately 6%, in addition to a market shift from automotive to non-automotive.

Cost of Products Sold

Dearborn experienced higher input costs for iron ore, scrap and utilities partially offset by lower coke prices in the six months ended June 30, 2014 compared to the six months ended June 30, 2013. While Dearborn had a sufficient supply of iron ore on hand to avoid production curtailment as a result of the delayed 2014 Great Lakes shipping season resulting from the severe winter in the upper Midwest, Dearborn did experience weather-related higher pricing associated with utilities and natural gas.

Overall, Dearborn estimates higher raw material prices resulted in increased costs of $41.5 for the six months ended June 30, 2014 over the six months ended June 30, 2013. Iron ore costs, due to new contractual pricing, were approximately $36.1 of the $41.5, with utilities, primarily natural gas, comprising the remainder of the cost impact. The increased cost of natural gas for the six months ended June 30, 2014 over the six months ended June 30, 2013, reflecting both the unfavorable economics noted above and also increased usage, amounted to $11.3, and was a direct result of the unusually severe winter weather during the period. Dearborn also reported higher maintenance costs of $16.7 in the six months ended June 30, 2014 versus the six months ended June 30, 2013, primarily driven by hot-strip mill furnace maintenance and blast furnace stove work.

Selling and Administrative Expenses

Selling and administrative expenses for the six months ended June 30, 2014 were $19.2, compared to $27.1 for the six months ended June 30, 2013. The decrease is primarily due to the elimination of allocated corporate selling and administrative costs from Dearborn’s North American parent. Excluding the change in allocation of corporate costs, selling and administrative expenses for the six months ended June 30, 2014 would have been $30.6.

Depreciation

Depreciation expense for the six months ended June 30, 2014 was $53.7, compared to $48.9 in the corresponding period in 2013. The increase from 2013 to 2014 was due to increased depreciation expense from capital expenditures placed in service in late 2013.

Operating Profit

Dearborn reported an operating loss of $939.5 in the six months ended June 30, 2014 compared to an operating profit of $2.2 in the six months ended June 30, 2013. Operating profit for the six months ended June 30, 2014 includes the aforementioned June 2014 long-lived asset impairment charge of $915.7. Dearborn also experienced increased raw material and maintenance costs compared to the same period in 2013 amounting to $41.5, as noted above. Included in first half 2014 operating loss is a $8.0 gain resulting from an arbitration award from Dearborn’s iron ore supplier while the first half of 2013 contained a $12.0 gain from a legal settlement with a coal supplier.

2013 Financial Results Overview

Dearborn’s full year 2013 results compare unfavorably with full year 2012 results. Dearborn’s net loss for 2013 was $90.7 versus a net loss for 2012 of $2.9. Production tons, net sales revenue and shipments were slightly down in 2013 compared to 2012. Steel revenue and shipments decreased to $1,985.4 and 2,429,500 net tons, respectively, in 2013 from $2,105.6 and 2,495,000 net tons in 2012.

2013 Compared to 2012

Steel Shipments

Total shipments for 2013 and 2012 were 2,429,500 and 2,495,000 net tons, respectively. The approximate 3% decrease in total shipments was attributable principally to lower demand for Dearborn’s products.

For the year ended December 31, 2013, value-added products comprised 58.5% of total shipments, compared to 56.4% of total shipments in the year ended December 31, 2012. Dearborn continues to focus on maximizing profitability through product mix enhancements based on current and projected market demands, as well as improving quality. The following table presents net shipments by product line:


	Year ended December 31,
	2013				2012
	(tons in thousands)
Value-added shipments
Cold Rolled		350.9	14.4	%		365.1	14.6	%
Coated		1,070.6	44.1	%		1,043.4	41.8	%

Subtotal value-added shipments		1,421.5	58.5	%		1,408.5	56.4	%

Non Value-added shipments
Hot rolled		822.7	34.0	%		831.9	33.3	%
Secondary		185.3	7.6	%		254.6	10.2	%

Subtotal non value-added shipments		1,008.0	41.6	%		1,086.5	43.5	%

Total shipments		2,429.5	100.0	%		2,495.0	100.0	%

Sales

Net sales for the full year 2013 decreased by approximately 5.3% compared to full year 2012. Dearborn’s average selling price in 2013 was $817 per ton, a decrease of 3% from the Dearborn’s average selling price of $844 per ton for 2012. The decrease is due primarily to lower spot market pricing, particularly in the first half of 2013, and shifts in Dearborn’s automotive product mix.

Cost of Products Sold

Dearborn experienced lower prices for scrap and fuel inputs offset partially by higher input costs for iron ore in the year ended December 31, 2013 compared to the year ended December 31, 2012. Dearborn also experienced higher conversion costs in 2013 compared to 2012 in its caster and hot mill operations.

Dearborn estimates overall raw material pricing resulted in decreased costs of $25.9 for the full year 2013 compared to full year 2012, primarily due to favorable pricing on coke, scrap, and utilities offset by higher 2013 iron ore contract pricing. Dearborn experienced higher maintenance costs of $20.1 in the year ended December 31, 2013 compared to the year ended December 31, 2012, primarily driven by hot mill furnace and coiler maintenance.

Selling and Administrative Expenses

Selling and administrative expenses for the year ended December 31, 2013 were $56.3, compared to $60.6 for the year ended December 31, 2012. The decrease is primarily due to a reduction in the premium cost of Dearborn’s property insurance programs.

Depreciation

Depreciation expense for the year ended December 31, 2013 was $101.7 compared to $89.9 for the year ended December 31, 2012. The increase from 2012 to 2013 was due to a full year’s depreciation expense in 2013 for the new continuous pickle line-tandem rolling and hot dip galvanizing facilities completed in 2012.

Operating Profit (Loss)

Dearborn reported an operating loss of $51.6 for the year ended December 31, 2013 compared to an operating profit of $28.3 for the year ended December 31, 2012. Dearborn experienced an average reduction in selling price of $27 per ton for full year 2013 compared to full year 2012. The year-over-year average reduction in selling price of $27 per ton was partially mitigated by decreasing 2013 raw material pricing offset by increased maintenance costs compared to 2012, as noted above. Dearborn also recorded an impairment charge of $43.0 related to blast furnace reconstruction project expenditures that are not expected to be completed.

Liquidity and Capital Resources

Cash provided by operations totaled $111.3 for the six months ended June 30, 2014, versus $146.3 for the six months ended June 30, 2013. The change in cash provided from operations was largely a result of a lower amount of cash provided from seasonal liquidation of inventory in 2014 versus 2013 and other changes in working capital.

Cash used in investing activities was $17.6 for the six months ended June 30, 2014 compared to $25.3 for the six months ended June 30, 2013 and consisted primarily of capital expenditures.

Cash provided by operations totaled $172.5 for the year ended December 31, 2013 compared to $104.4 for the year ended December 31, 2012. The change in cash provided from operations was largely the result of continuing efforts to improve inventory performance and other changes in working capital.

Cash used in investing activities was $48.1 for the year ended December 31, 2013 compared to $125.0 for the year ended December 31, 2012. The reduction was the result of lower capital expenditures in 2013 due to the completion of Dearborn’s new continuous pickle line-tandem rolling and hot dip galvanizing facilities in 2012.

Legal Contingencies

On June 13, 2013, Cliffs Sales Company (“Cliffs”) filed an action in the United States District Court for the Northern District of Ohio, Civil Action No. 1:13 cv 1308, against Dearborn. Cliffs claims that Dearborn breached a May 21, 2008 Agreement for Sale of Reclaimed Iron Units, as amended (the “Iron Unit Agreement”). Cliffs claims that Dearborn breached the Iron Unit Agreement by failing to purchase the required amount of pellets, chips and fines as allegedly required. Dearborn filed an answer denying the material allegations of the complaint and asserting several affirmative defenses. In January of 2014, the presiding judge ordered a stay of the proceedings until Cliffs and Dearborn completed an arbitration of a separate dispute. That arbitration is now concluded and it is anticipated that the stay of the litigation will be lifted. Discovery is expected to re-commence in the near future. Assuming the closing of the Dearborn Acquisition, AK Steel intends to contest this matter vigorously. At this time, AK Steel has not made a determination that a loss is probable and it does not have adequate information to reliably or accurately estimate its potential loss in the event that Cliffs were to prevail in this lawsuit. Because AK Steel has been unable to determine that a loss is probable or estimable, it has not recorded an accrual related to this matter. In the event that AK Steel’s assumptions used to evaluate whether a loss in this matter is either probable or estimable prove to be incorrect or change in future periods, AK Steel may be required to record a liability for an adverse outcome.

On August 29, 2014, Dearborn served a private arbitration demand and asserted a breach of contract claim against PCI Enterprises Company (“PCI”). In its demand, Dearborn seeks a declaration that it properly terminated a Pulverized Coal Supply Agreement with PCI (the “PCI Agreement”) and damages in the amount of $11,778.082. On the same date, PCI served a statement of claim against Dearborn alleging that Dearborn breached the PCI Agreement and seeking damages in an amount between $12.0 and $14.0 million. Discovery has not yet commenced. Assuming the closing of the Dearborn Acquisition, AK Steel intends to vigorously defend against PCI’s counterclaim. At this time, AK Steel has not made a determination that a loss is probable and it does not have adequate information to reliably or accurately estimate its potential loss in the event that PCI were to prevail on its counterclaim. Because AK Steel has been unable to determine that a loss is probable or estimable, it has not recorded an accrual related to this matter. In the event that AK Steel’s assumptions used to evaluate whether a loss in this matter is either probable or estimable prove to be incorrect or change in future periods, AK Steel may be required to record a liability for an adverse outcome.

On January 20, 2010, ArcelorMittal France and ArcelorMittal Atlantique et Lorraine (collectively “ArcelorMittal”) filed an action against Dearborn, Wheeling-Nisshin, Inc. (“Wheeling”) and AK Steel Corporation in the United States District Court for the District of Delaware, Case No. 10-050-SLR. The complaint alleged that Dearborn is infringing the claims of U.S. Patent No. 6,296,805 (the “Patent”) in making pre-coated cold-rolled boron steel sheet and seeks injunctive relief and unspecified compensatory damages. Wheeling produces the boron steels sheet product exclusively for Dearborn and Dearborn has agreed to indemnify Wheeling in this matter. Dearborn filed an answer in which it denied ArcelorMittal’s claims and raised various affirmative defenses. On that date, Dearborn also filed counterclaims against ArcelorMittal for a declaratory judgment that it is not infringing the Patent and that the Patent is invalid. Subsequently, the trial court bifurcated the issues of liability and damages. The case proceeded with a trial to a jury on the issue of liability in January 2011. The jury returned a verdict that Dearborn did not infringe the Patent and that the Patent was invalid. Judgment subsequently was entered in favor of Dearborn and ArcelorMittal filed an appeal with the United States Court of Appeals for the Federal Circuit. On November 30, 2012, the Court of Appeals issued a decision reversing certain findings related to claim construction and the validity of the Patent and remanded the case to the trial court for further proceedings. On January 30, 2013, ArcelorMittal filed a motion for rehearing with the Court of Appeals. On March 20, 2013, the Court of Appeals denied ArcelorMittal’s motion for

rehearing. The case then was remanded to the trial court for further proceedings. On April 16, 2013, pursuant to a petition previously filed by ArcelorMittal and ArcelorMittal USA LLC, the U.S. Patent and Trademark Office reissued the Patent as U.S. Reissue Patent RE44,153 (the “Reissued Patent”). Also on April 16, 2013, ArcelorMittal filed a second action against Dearborn in the United States District Court for the District of Delaware, Case No. 1:13-cv-00686 (the “Second Action”). The complaint filed in the Second Action alleges that Dearborn is infringing the claims of the Reissued Patent and seeks injunctive relief and unspecified compensatory damages. On May 13, 2013, Dearborn filed a motion to dismiss key elements of the complaint filed in the Second Action. On October 25, 2013, the District Court granted summary judgment in favor of Dearborn. The Court ruled that ArcelorMittal’s Reissued Patent was invalid due to ArcelorMittal’s deliberate violation of a statutory prohibition on broadening a patent through reissue more than two years after the original Patent was granted and that the original Patent had been surrendered when the Reissued Patent was issued and thus is no longer in effect. Final Judgment was entered on October 31, 2013. On November 6, 2013, ArcelorMittal filed a motion to clarify or, in the alternative, to alter or amend the October 31, 2013 judgment. On December 5, 2013, the court issued a memorandum and order denying the motion and entering final judgment in favor of defendants, including Dearborn and against ArcelorMittal, specifically ruling that all claims of ArcelorMittal’s Reissued Patent are invalid as violative of 35 U.S.C. §251(d). On December 30, 2013, ArcelorMittal filed notices of appeal to the Federal Circuit Court of Appeals. The parties have fully briefed the issues on appeal and the case has not yet been assigned for argument before the Federal Circuit Court of Appeals. Assuming the closing of the Acquisition, AK Steel intends to continue to contest this matter vigorously. At this time, AK Steel has not made a determination that a loss is probable and it does not have adequate information to reliably or accurately estimate its potential loss in the event that ArcelorMittal were to prevail in its appeal in this dispute. Because AK Steel has been unable to determine that the potential loss in this case is probable or estimable, it has not recorded an accrual related to this matter. In the event that AK Steel’s assumptions used to evaluate whether a loss in this matter is either probable or estimable prove to be incorrect or change in future periods, AK Steel may be required to record a liability for an adverse outcome.

Environmental Contingencies

On May 12, 2014, the Michigan Department of Environmental Quality (“MDEQ”) issued to Dearborn an Air Permit to Install (“PTI”) No. 182-05C to increase the emission limits for the blast furnace and other emission sources. The PTI was issued as a correction to a prior PTI based on information that was not available during the prior permitting process. On July 10, 2014, the South Dearborn Environmental Improvement Association (“SDEIA”), Detroiters Working for Environmental Justice, Original United Citizens of Southwest Detroit and Sierra Club filed a Claim of Appeal of the PTI in the State of Michigan Wayne County Circuit, Case No. 14-008887-AA. Appellants and the MDEQ stipulated to the intervention of Severstal in this action as an additional Appellee. The Appellants allege multiple deficiencies with the permit and the permitting process. AK Steel believes that the MDEQ issued this permit properly in compliance with applicable law and will vigorously contest this appeal following the closing of the Dearborn Acquisition. Until the appeal is resolved, AK Steel cannot determine what the ultimate permit limits will be or reliably estimate the costs, if any, in the event that the appeal is successful or the timeframe over which any potential costs would be incurred. There can be no assurances that such costs will not be material.

On August 21, 2014, the SDEIA filed a Complaint under the Michigan Environmental Protection Act (“MEPA”) in the State of Michigan, Wayne County Circuit Case No. 14-010875-CE. The plaintiffs allege that the air emissions from the Dearborn facility are impacting the air, water and other natural resources, as well as the public trust in such resources. The plaintiffs are, among other requested relief, requesting that the court assess the limitations in PTI No. 182-05C, issued May 12, 2014, to determine their sufficiency. Assuming the closing of the Dearborn Acquisition, AK Steel will vigorously contest these claims. Until the claims that are the subject of this Complaint are resolved, AK Steel cannot reliably estimate the costs, if any, associated with the claims or the timeframe over which any potential costs would be incurred.

Between 2008 and the end of 2013, Dearborn had been issued multiple Notices of Violation (“NOVs”) from MDEQ and the United State Environmental Protection Agency (“EPA”), covering a wide range of alleged

environmental violations, mostly regarding the Clean Air Act. The United States Department of Justice (“DOJ”) and MDEQ have proposed a settlement to Dearborn to resolve the alleged violations contained in the NOVs and the parties are currently negotiating the terms of a proposed Consent Decree. Assuming the closing of the Dearborn Acquisition, AK Steel believes it has the potential to reach a settlement in this matter, but it cannot be certain that a settlement will be reached or reliably estimate at this time how long it will take to reach a settlement or the terms of such a settlement. AK Steel will vigorously contest any claims which cannot be resolved through a settlement. Until it has reached a settlement with MDEQ and EPA or the claims that are the subject of the NOVs are otherwise resolved, AK Steel cannot reliably estimate the costs or fines, if any, associated with the potential Consent Decree or the timeframe over which any potential costs or fines would be incurred.

On April 9, 2014, SDEIA sent a Notice of Intent to Sue under the Clean Air Act to Dearborn. On June 18, 2014, SDEIA filed a Complaint under the citizen enforcement action provisions of the Clean Air Act against Dearborn in Federal District Court for the Eastern District of Michigan, Case No. 2:14-cv-12387-GER-PJK. The Complaint alleges violations nearly identical to those alleged in the NOVs arising under the Clean Air Act that were issued to Dearborn by MDEQ and EPA between 2008 and 2013 and are the subject of ongoing settlement negotiations. On August 29, 2014, Severstal Dearborn moved to dismiss many of the counts in the Complaint. Assuming the closing of the Dearborn Acquisition, AK Steel will vigorously contest these claims. Until the claims that are the subject of this Complaint are resolved, AK Steel cannot reliably estimate the costs, if any, associated with the claims or the timeframe over which any potential costs would be incurred.

On April 27, 2000, MDEQ issued a Resource Conservation and Recovery Act (“RCRA”) Corrective Action Order No. 111-04-00-07E to Rouge Steel Company and Ford Motor Company for the property that includes the Dearborn facility. The Corrective Action Order has been amended five times. Dearborn became a party to the Corrective Action Order via an amendment dated January 24, 2004 as a result of becoming the successor-in-interest to Rouge Steel Company for certain matters. The Corrective Action Order requires the site-wide investigation and where appropriate, remediation, of the facility. The site investigation and remediation is ongoing. AK Steel cannot reliably estimate at this time how long it will take to complete this site investigation and remediation. Dearborn has accrued, and assuming the closing of the Dearborn Acquisition, AK Steel currently intends to continue to accrue, approximately $0.4 for the projected cost of the continuing investigation. To date, Ford Motor Company has incurred most of the costs of the investigation and remediation due to its prior ownership of the steelmaking operations at the Dearborn facility. Until the site investigation is completed, AK Steel cannot reliably estimate the additional costs, if any, associated with any potentially required remediation of the site or the timeframe during which these potential costs would be incurred.

On August 29, 2013, the West Virginia Department of Environmental Protection (“WVDEP”) issued to Mountain State Carbon a renewal National Pollution Discharge Elimination System (“NPDES”) permit for wastewater discharge from the facility to the Ohio River. The new NPDES permit included numerous new, and more stringent, effluent limitations. On October 7, 2013, Mountain State Carbon appealed the permit to the Environmental Quality Board, Appeal No. 13-25-EQB. Assuming the closing of the Dearborn Acquisition, AK Steel believes it has the potential to reach a settlement in this matter, but it cannot be certain that a settlement will be reached or reliably estimate at this time how long it will take to reach a settlement or the terms of such a settlement. AK Steel will vigorously contest any claims which cannot be resolved through a settlement. Until it has reached a settlement with WVDEP or the issues that are the subject of the appeal are otherwise resolved, AK Steel cannot determine what the ultimate permit limits will be or reliably estimate the costs, if any, associated with the renewal permit or the timeframe over which any potential costs would be incurred. There can be no assurances that such costs will not be material.

On February 6, 2012, the United States and the WVDEP filed a Complaint under the Clean Air Act and RCRA against Mountain State Carbon in the U.S. District Court for the Northern District for West Virginia, Civil Action No. 5:12-CV-19. On March 6, 2012, WVDEP voluntarily dismissed its claims against Mountain State Carbon. The case proceeded to a bench trial in May 2014, during which the United States pursued three main

claims alleging: (1) excess opacity at the combustion stack caused by deficient through walls; (2) excess hydrogen sulfide emissions due to a deficient primary cooler; and (3) various RCRA violations. The government sought injunctive relief on each claim, and a civil penalty of $10.6. On July 17, 2014, the Court issued its Findings of Facts, Conclusions of Law and Memorandum Order and dismissed most of the United States’ claims in their entirety. The Court did, however, assess a civil penalty of approximately $2.4 and order three injunctive relief measures: (1) the assessment by both parties’ experts of the sufficiency of the cokemaking facility’s through walls and the submission to the Court of a report by October 15, 2014, following which the replacement of some or all through walls could be required; (2) the requirement for Mountain State Carbon to install and utilize an automated system that tracks oven charging times at Battery 8 to identify ovens that cause opacity violations; and (3) the requirement for Mountain State Carbon to clean all spirals in the heat exchangers as soon as practicable and establish a regular cleaning schedule. On August 21, 2014, the Court issued an Order in response to the Plaintiff’s Motion for Entry of Judgment, memorializing the judgment identified in the Findings of Fact, Conclusions of Law and Memorandum Order. In the event the United States appeals the judgment, and assuming the closing of the Dearborn Acquisition, AK Steel will vigorously defend the judgment in such appeal.

Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma Condensed Consolidated Balance Sheet set forth below gives effect to the Dearborn Acquisition, the concurrent offerings by AK Steel Corporation (“AK Steel”) of its senior notes and AK Steel Holding Corporation (“AK Steel Holding” or the “Company”) of shares of its common stock and the application of the proceeds from both offerings (collectively referred to herein as the “Transactions”) as if they occurred on June 30, 2014, and the unaudited pro forma Condensed Consolidated Statements of Operations gives effect to the Transactions as if they had occurred at the beginning of each period. The unaudited pro forma condensed consolidated financial statements includes adjustments that give effect to events that are directly attributable to the Transactions and are expected to have a continuing effect and are factually supportable. The notes to the unaudited pro forma condensed consolidated financial statements describe the pro forma amounts and adjustments presented. The pro forma information is unaudited, are for informational purposes only and are not necessarily indicative of what our financial position or results of operations would have been had the Transactions been completed as of such dates and do not purport to represent what our financial position, results of operations or cash flows might be for any future period. In addition, the preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are preliminary and have been made solely for purposes of developing the unaudited pro forma condensed consolidated financial statements. Actual results could differ, perhaps materially, from these estimates and assumptions.

The Dearborn Acquisition will be accounted for using the acquisition method of accounting in accordance with U.S. GAAP and upon the assumptions set forth in the notes included in this section. The unaudited pro forma condensed consolidated financial statements reflect management’s preliminary valuation of assets acquired and liabilities assumed. The final allocation of the Dearborn Acquisition consideration will be based upon management’s consideration of valuation studies and post-closing purchase price adjustments. Any adjustments based on that final valuation may change the allocations of the Dearborn Acquisition consideration, which could affect the fair value assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed consolidated financial statements. The unaudited pro forma condensed consolidated financial statements are primarily based on, and should also be read in conjunction with, the historical financial statements of AK Steel Holding and Severstal Dearborn, LLC.

As a result of a settlement agreement approved by the bankruptcy trustee of RG Steel, LLC on July 18, 2014, Dearborn became the 100% owner of Mountain State Carbon LLC (“Mountain State Carbon”). Prior to the settlement, Dearborn accounted for its 50% interest in Mountain State Carbon using the equity method. The unaudited pro forma condensed consolidated financial statements reflect the results of Mountain State Carbon as if it had been consolidated as of June 30, 2014 or the beginning of the period presented as applicable.

AK STEEL HOLDING CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

June 30, 2014

(dollars in millions, except per share data)


	AK Steel			Dearborn			Mountain State Carbon			Adjustments				Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	54.8		$	0.2		$	1.4		$	(1.6	)	(1)	$	54.8
Accounts receivable, net		596.2			170.2			10.3			(34.5	)	(2)		742.2
Inventory, net		738.3			295.4			13.4			15.0		(3)		1,062.1
Deferred tax assets, current		63.9			—			—			—				63.9
Other current assets		52.8			24.8			0.7			(24.5	)	(4)		53.8

Total current assets		1,506.0			490.6			25.8			(45.6	)			1,976.8
Property, plant and equipment, net		1,805.3			386.4			61.2			106.5		(5)		2,359.4
Other non-current assets:
Investment in Magnetation LLC		229.0			—			—			—				229.0
Other non-current assets		266.3			273.8			1.8			(215.3	)	(6)(7)		326.6

TOTAL ASSETS	$	3,806.6		$	1,150.8		$	88.8		$	(154.4	)		$	4,891.8

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	642.4		$	205.0		$	13.1		$	(9.0	)	(8)	$	851.5
Accrued liabilities		170.2			27.4			4.9			3.7		(9)		206.2
Current portion of long-term debt		0.4			—			—			—				0.4
Current portion of pension and other postretirement benefit obligations		69.5			2.8			—			2.2		(10)		74.5

Total current liabilities		882.5			235.2			18.0			(3.1	)			1,132.6

Non-current liabilities:
Long-term debt		1,948.2			304.8			30.4			64.4		(11)		2,347.8
Pension and other postretirement benefit obligations		816.3			66.7			—			48.3		(10)		931.3
Other non-current liabilities		115.3			53.7			5.0			(50.6	)	(12)		123.4

TOTAL LIABILITIES		3,762.3			660.4			53.4			59.0				4,535.1

Equity:
Common stock, authorized 300,000,000 shares of $0.01 par value each; issued 136,936,413 shares; pro forma issued 171,936,413 shares; outstanding 136,793,421 shares; pro forma outstanding 171,793,421 shares		1.4			—			—			0.4		(13)		1.8
Additional paid-in capital		1,910.9			1,072.4			132.2			(870.6	)	(13)(14)		2,244.9
Treasury stock, common shares at cost, 142,992 shares		(1.0	)		—			—			—				(1.0	)
Accumulated earnings (deficit)		(2,554.3	)		(578.3	)		(96.8	)		653.1		(14)(15)		(2,576.3	)
Accumulated other comprehensive income (loss)		272.0			(3.7	)		—			3.7		(16)		272.0

Total stockholders’ equity (deficit)		(371.0	)		490.4			35.4			(213.4	)			(58.6	)
Noncontrolling interests		415.3			—			—			—				415.3

TOTAL EQUITY		44.3			490.4			35.4			(213.4	)			356.7

TOTAL LIABILITIES AND EQUITY	$	3,806.6		$	1,150.8		$	88.8		$	(154.4	)		$	4,891.8

AK STEEL HOLDING CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2013

(dollars in millions, except per share data)


	AK Steel			Dearborn			Mountain State Carbon			Adjustments				Pro Forma
Net sales	$	5,570.4		$	2,030.1		$	154.5		$	(153.4	)	(17)	$	7,601.6
Cost of products sold (exclusive of items shown separately below)		5,107.8			1,877.0			169.0			(185.2	)	(18)(19)		6,968.6
Selling and administrative expenses (exclusive of items shown separately below)		205.3			55.7			5.6			—				266.6
Depreciation		190.1			101.7			17.0			(83.8	)	(20)		225.0
Pension and OPEB expense (income)		(68.6	)		4.3			—			4.1		(21)		(60.2	)
Asset impairment		—			43.0			—			—				43.0

Total operating costs		5,434.6			2,081.7			191.6			(264.9	)			7,443.0

Operating profit		135.8			(51.6	)		(37.1	)		111.5				158.6
Interest expense		127.4			38.4			1.9			(6.8	)	(22)		160.9
Other income (expense)		(1.4	)		(0.8	)		6.7			6.5		(18)(23)		11.0

Income (loss) before income taxes		7.0			(90.8	)		(32.3	)		124.8				8.7
Income tax expense (benefit) (24)		(10.4	)		(0.1	)		—			—				(10.5	)

Net income (loss)		17.4			(90.7	)		(32.3	)		124.8				19.2
Less: Net income attributable to noncontrolling interests		64.2			—			—			—				64.2

Net income (loss) attributable to AK Steel Holding Corporation	$	(46.8	)	$	(90.7	)	$	(32.3	)	$	124.8			$	(45.0	)

Basic and diluted earnings per share:
Net income (loss) attributable to AK Steel Holding Corporation common stockholders (25)	$	(0.34	)											$	(0.26	)

Common shares outstanding (weighted-average shares in millions) (25)		135.8													170.8

AK STEEL HOLDING CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2014

(dollars in millions, except per share data)


	AK Steel			Dearborn			Mountain State Carbon			Adjustments				Pro Forma
Net sales	$	2,914.3		$	1,006.2		$	79.0		$	(72.9	)	(17)	$	3,926.6
Cost of products sold (exclusive of items shown separately below)		2,752.5			955.0			76.0			(85.9	)	(18)(19)		3,697.6
Selling and administrative expenses (exclusive of items shown separately below)		114.1			18.8			3.2			—				136.1
Depreciation		97.2			53.7			8.8			(45.0	)	(20)		114.7
Pension and OPEB expense (income)		(50.7	)		2.4			—			1.9		(21)		(46.4	)
Asset impairment		—			915.6			89.4			—				1,005.1

Total operating costs		2,913.1			1,945.6			177.4			(129.0	)			4,907.1

Operating profit (loss)		1.2			(939.4	)		(98.4	)		56.1				(980.5	)
Interest expense		65.4			11.3			1.2			4.2		(22)		82.1
Other income (expense)		(4.9	)		(40.5	)		—			44.8		(18)(23)		(0.6	)

Income (loss) before income taxes		(69.1	)		(991.2	)		(99.6	)		96.7				(1,063.2	)
Income tax expense (benefit) (24)		3.6			—			—			—				3.6

Net income (loss)		(72.7	)		(991.2	)		(99.6	)		96.7				(1,066.8	)
Less: Net income attributable to noncontrolling interests		30.5			—			—			—				30.5

Net income (loss) attributable to AK Steel Holding Corporation	$	(103.2	)	$	(991.2	)	$	(99.6	)	$	96.7			$	(1,097.3	)

Basic and diluted earnings per share:
Net income (loss) attributable to AK Steel Holding Corporation common stockholders (25)	$	(0.13	)											$	(6.41	)

Common shares outstanding (weighted-average shares in millions) (25)		136.2													171.2

AK STEEL HOLDING CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

TWELVE MONTHS ENDED JUNE 30, 2014

(dollars in millions, except per share data)


	AK Steel			Dearborn			Mountain State Carbon			Adjustments				Pro Forma
Net sales	$	5,710.4		$	2,018.1		$	154.0		$	(149.6	)	(17)	$	7,732.9
Cost of products sold (exclusive of items shown separately below)		5,298.8			1,893.5			156.7			(175.5	)	(18)(19)		7,173.5
Selling and administrative expenses (exclusive of items shown separately below)		217.6			48.0			5.7			—				271.3
Depreciation		190.8			106.5			17.5			(89.1	)	(20)		225.7
Pension and OPEB expense (income)		(86.9	)		4.5			—			3.9		(21)		(78.5	)
Asset impairment		—			958.7			89.4			—				1,048.1

Total operating costs		5,620.3			3,011.2			269.3			(260.7	)			8,640.1

Operating profit (loss)		90.1			(993.1	)		(115.3	)		111.1				(907.2	)
Interest expense		129.8			30.0			2.2			1.3		(22)		163.3
Other income (expense)		(10.6	)		(38.2	)		7.8			45.0		(18)(23)		4.0

Income (loss) before income taxes		(50.3	)		(1,061.3	)		(109.7	)		154.8				(1,066.5	)
Income tax expense (benefit) (24)		(13.7	)		(0.1	)		—			—				(13.8	)

Net income (loss)		(36.6	)		(1,061.2	)		(109.7	)		154.8				(1,052.7	)
Less: Net income attributable to noncontrolling interests		63.1			—			—			—				63.1

Net income (loss) attributable to AK Steel Holding Corporation	$	(99.7	)	$	(1,061.2	)	$	(109.7	)	$	154.8			$	(1,115.8	)

Basic and diluted earnings per share:
Net income (loss) attributable to AK Steel Holding Corporation common stockholders (25)	$	(0.73	)											$	(6.53	)

Common shares outstanding (weighted-average shares in millions) (25)		136.0													171.0

AK STEEL HOLDING CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(dollars in millions)

Note A—Basis of Pro Forma Presentation

Assuming consummation of the Transactions on June 30, 2014, the purchase price of Dearborn (including Mountain State Carbon) would be allocated on a preliminary basis to the following assets and liabilities:


Accounts receivable	$	146.0
Inventory		323.8
Other current assets		1.0
Property, plant and equipment		554.1
Other non-current assets		48.3
Accounts payable		(209.1)
Accrued liabilities		(36.0)
Other postretirement benefit obligations		(120.0)
Other non-current liabilities		(8.1)

Purchase price	$	700.0

The preliminary allocation is based on a purchase price of $700.0, which will be paid in cash for the outstanding membership units of Dearborn at closing. The purchase price is subject to a working capital adjustment at closing.

For the purpose of preparing the unaudited pro forma condensed consolidated financial statements, the total estimated purchase price is allocated to Dearborn’s net tangible and intangible assets acquired and liabilities assumed as of the acquisition date. Final allocation of the purchase price will be based on the actual value of identifiable assets acquired and liabilities assumed in accordance with U.S. GAAP. Accordingly, the fair value of these identifiable assets and liabilities assumed included in the table above is preliminary and is subject to change. An allocation of an increased portion of the purchase price to inventory, property, plant and equipment, other non-current assets or intangible assets would result in increased depreciation and/or amortization expense. We expect to finalize the valuation and complete the purchase price allocation as soon as practical but no later than one year from the date of Dearborn Acquisition.

We estimate that the proceeds from both offerings, after deducting fees and estimated expenses, will be approximately $754.4 million. We intend to use the net proceeds from the offering by AK Steel of its senior notes, together with the net proceeds from the concurrent offering of AK Steel Holding’s shares of common stock, to finance the Dearborn Acquisition. We estimate the remaining proceeds from the offering of AK Steel Holding’s shares of common stock after payment for the Dearborn Acquisition and any fees and expenses related to the closing of the Dearborn Acquisition and the amendment of its Credit Facility to be $30.4 million, which will be used to repay outstanding borrowings under the Credit Facility.

Note B—Pro Forma Adjustments

(1)	Reflects a decrease of $1.6 to eliminate the cash of Dearborn that will be retained by Severstal U.S. Holdings LLC (“Severstal U.S. Holdings”) at the closing of the Transactions.

(2)

Reflects a decrease of $25.5 associated with the accounts receivable from Severstal U.S. Holdings that will be settled prior to the closing of the Transactions and $9.0 for the elimination of accounts receivable between Dearborn and Mountain State Carbon as a result of the consolidation of Mountain State Carbon.

(3)

Reflects an increase of $15.0 associated with the estimated increase in the carrying value of inventory, based on preliminary estimates of the allocation of the estimated purchase price for Dearborn. The fair value of finished goods inventory, which is comprised principally of slabs and coils, is at its estimated selling price less the sum of disposal costs and a reasonable profit allowance for selling effort. Raw material inventory has been valued at current replacement cost, which approximated Dearborn’s carrying value.

(4)	Reflects a decrease of $24.5 associated with the estimated decrease in the carrying value of other current assets, based on preliminary estimates of the allocation of the estimated purchase price for Dearborn.

(5)

Reflects an increase of $106.5 associated with the estimated increase in the carrying value of property, plant and equipment, based on preliminary estimates of the allocation of the estimated purchase price for Dearborn. The property, plant and equipment of Dearborn were substantially impaired under U.S. GAAP as of June 30, 2014 as more fully described in the stand-alone historical financial statements. The increase in fair value is expected to be primarily related to machinery and equipment. These preliminary measurements of fair value reflected are subject to change and such changes could be material.

(6)

Reflects a decrease of $97.8 associated with a loan receivable from an affiliate of Severstal U.S. Holdings that will be settled prior to the closing of the Transactions and a decrease of $129.5 associated with the estimated net decrease in the carrying value of other non-current assets, based on preliminary estimates of the allocation of the estimated purchase price for Dearborn. Significant components of the adjustments to other non-current assets include the following:

•

Elimination of prepaid balances of $100.9 related to a long-term supply contract that has been allocated a fair value as a stand-alone intangible asset.

•

Elimination of long-term receivables of $11.5 no longer contractually owed as a result of the Transactions.

(7)	Reflects an increase of $12.0 associated with financing costs eligible for capitalization related to the issuance of debt securities to finance the Dearborn Acquisition and the intended amendment of the Credit Facility.

(8)	Reflects a decrease of $9.0 for the elimination of accounts payable between Dearborn and Mountain State Carbon as a result of the consolidation of Mountain State Carbon.

(9)	Reflects an increase of $3.7 associated with the estimated increase in the value of accrued liabilities, based on preliminary estimates of the allocation of the estimated purchase price for Dearborn.

(10)

Reflects an increase of $2.2 associated with the estimated increase in the current portion of other postretirement benefit obligations and $48.3 associated with the estimated increase in the non-current portion, based on preliminary estimates of the allocation of the estimated purchase price for Dearborn. The preliminary estimate is based on a remeasurement of the other postretirement benefit obligation as of June 30, 2014 to reflect current assumptions as of that date. The actual results may differ from the current estimate.

(11)	Represents adjustments for debt and related components as follows:


Issuance of Notes related to the Acquisition	$	430.0
Payment on revolving credit facility		(30.4	)
Settlement—Intercompany debt owed to Severstal U.S. Holdings		(335.2	)

Net adjustment to total debt	$	64.4

(12)	Reflects a decrease of $23.9 associated with interest payable on intercompany debt owed to Severstal U.S. Holdings that will be settled prior to the closing of the Transactions and a decrease of $26.7 associated with the elimination of previously deferred income.

(13)	Reflects an increase of $0.4 in common stock and $334.0 in additional paid-in capital associated with the net estimated proceeds from the offering of AK Holding’s common stock as part of the financing for the Dearborn Acquisition.

(14)	Reflects a decrease of $1,204.6 in additional paid-in capital and an increase of $675.1 in accumulated earnings (deficit) for the elimination of historical equity of Dearborn and Mountain State Carbon.

(15)	Reflects a decrease of $22.0 for the transaction costs related to the Dearborn Acquisition ($10.0) and estimated issue costs to be recognized as of the closing of the Transactions for other financing commitments in connection with the Transactions ($12.0).

(16)	Reflects an increase of $3.7 to eliminate Dearborn’s historical accumulated other comprehensive income (loss).

(17)	Reflects a decrease for the elimination of sales between Dearborn and Mountain State Carbon as a result of the consolidation of Mountain State Carbon as follows:

Year

Ended

Dec. 31,

2013

Six

Months

Ended

June 30,

2014

Twelve

Months

Ended

June 30,

2014

Elimination of transactions between Dearborn and Mountain State Carbon

153.4

72.9

149.6

(18)

Dearborn included its share of Mountain State Carbon’s net losses in cost of products sold and its share of an asset impairment charge and losses of the prior member in other income (loss). As a result of the consolidation of Mountain State Carbon, the share of Mountain State Carbon’s net losses and asset impairment were eliminated as follows:


	Year Ended Dec. 31, 2013		Six Months Ended June 30, 2014		Twelve Months Ended June 30, 2014
Elimination of 50% of Mountain State Carbon’s net loss from cost of products sold	$	16.2	$	5.1	$	10.2
Elimination of 50% of Mountain State Carbon’s net loss from other income (expense)		16.1		49.8		54.8

Share of Mountain State Carbon’s net loss eliminated from Dearborn results		32.3		54.9		65.0
Prior member’s share of Mountain State Carbon’s asset impairment		—		44.7		44.7

Mountain State Carbon’s net loss	$	32.3	$	99.6	$	109.7

(19)

Reflects a decrease for the elimination of cost of products sold between Dearborn and Mountain State Carbon as a result of the consolidation of Mountain State Carbon and a decrease for costs for the decreased carrying value of certain assets and liabilities, based on the preliminary estimates of the allocation of the estimated purchase price for Dearborn as follows:


	Year Ended Dec. 31, 2013		Six Months Ended June 30, 2014		Twelve Months Ended June 30, 2014
Elimination of transactions between Dearborn and Mountain State Carbon	$	153.4	$	72.9	$	149.6
Effects of consolidation of Mountain State Carbon		16.2		5.1		10.2
Decrease in amortization of certain assets and liabilities		15.6		7.9		15.7

Decrease in cost of products sold	$	185.2	$	85.9	$	175.5

The reduction in amortization expense is primarily a result of lower carrying values for long-term supply arrangements and changes in the fair value of the joint ventures investments.

(20)

Reflects a decrease for estimated annual depreciation expense associated with the estimated fair value of property, plant and equipment, based on the preliminary estimates of the allocation of the estimated purchase price for Dearborn. For purposes of depreciation for property, plant and equipment, we have assumed average useful lives ranging from seven to 20 years based primarily on historical experience. The adjustments are as follows:

Year

Ended

Dec. 31,

2013

Six

Months
Ended
June 30,
2014

Twelve

Months
Ended
June 30,
2014

Decrease in depreciation expense

83.8

45.0

89.1

(21)	Reflects an increase in the estimated net postretirement benefit cost, based on preliminary estimates of the allocation of the estimated purchase price for Dearborn as discussed in note 10, as follows:

Year

Ended

Dec. 31,

2013

Six

Months
Ended
June 30,
2014

Twelve

Months
Ended
June 30,
2014

Increase in net periodic postretirement benefit expense

4.1

1.9

3.9

(22)

Reflects the reduction of interest on Dearborn’s pre-acquisition long-term debt that will be repaid by Severstal U.S. Holding prior to the consummation of the Transactions. Also reflects our pro forma interest expense and the amortization of financing costs over the terms of the corresponding debt. A summary follows:


	Year Ended Dec. 31, 2013			Six Months Ended June 30, 2014			Twelve Months Ended June 30, 2014
Pro forma interest expense (a)	$	31.8		$	15.8		$	31.8
Elimination of Dearborn historical interest expense		(40.3	)		(12.5	)		(32.2	)
Amortization of deferred financing fees (b)		1.7			0.9			1.7

Net increase (decrease) in interest expense	$	(6.8	)	$	4.2		$	1.3

(a)

Represents pro forma interest expense calculated using interest rates as of June 30, 2014 for (i) assumed commitment fees for the estimated increase in letters of credit and the increase in the unused balance related to the Credit Facility, assumed interest expense savings on estimated payments of $30.4 on the Credit Facility for part of the financing for the Dearborn Acquisition and (ii) assumed interest rates on the new $430.0 senior unsecured notes. Each one-eighth of one percent change in interest rates would result in (i) less than a $0.1 change in the annual interest expense on additional borrowings on the Credit Facility, and (ii) a $0.5 change in the annual interest expense on the new $430.0 senior unsecured notes. Each $10.0 change in the amount of proceeds from the issuance of common stock would result in a $0.2 change in the annual interest expense on the change in the draw from or payment of borrowings under the Credit Facility.

(b)

Deferred financing fees are amortized over the life of the various debt instruments.

(23)

Reflects an increase for the elimination of the equity loss of Mountain State Carbon as a result of the consolidation of Mountain State Carbon discussed in note 18. Also reflects the decrease in interest income associated with a loan receivable from an affiliate of Severstal U.S. Holdings that will be settled prior to the closing of the Transactions. Also reflects an increase in costs for the increased carrying value of certain assets and liabilities, based on the preliminary estimates of the allocation of the estimated purchase price for Dearborn. A summary follows:


	Year Ended Dec. 31, 2013			Six Months Ended June 30, 2014			Twelve Months Ended June 30, 2014
Elimination of 50% of Mountain State Carbon’s net losses	$	16.1		$	5.1		$	10.1
Elimination of 50% of Mountain State Carbon’s asset impairment		—			44.7			44.7
Decrease in interest income from affiliate note receivable		(7.1	)		(3.8	)		(7.4	)
Increase in carrying value of certain assets and liabilities		(2.5	)		(1.2	)		(2.4	)

Increase in other income (expense)	$	6.5		$	44.8		$	45.0

(24)

The Company has recorded a valuation allowance against a substantial portion of its deferred tax assets and as a result, income tax expense recognized is primarily determined based upon changes in the value of the tax-planning strategy associated with LIFO inventory. As a result, no income tax effect is recognized associated with the pro forma adjustments as any income tax expense or benefit would be offset with a change in the valuation allowance.

(25)

The pro forma weighted-average shares used in calculating pro forma net income (loss) attributable to AK Steel Holding per diluted share of common stock gives effect to the assumed issuance and sale of 35 million shares of AK Steel Holding common stock at a price of $10.01 per share (the closing price on September 3, 2014). For each increase or decrease by one million shares in the number of shares of AK Steel Holding common stock assumed issued and sold, there would be a $0.2 change in the annual interest expense on the change in the draw from or payment of borrowings under the Credit Facility and no material change in net income (loss) attributable to AK Steel Holding Corporation common stockholders on a per share basis.

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