AK Steel Reports Third Quarter 2005 Results

 

Middletown, OH, October 25, 2005—AK Steel (NYSE: AKS) today reported a third quarter 2005 net loss of $29.0 million, or $0.26 per share of common stock.  The 2005 third quarter results included $29.5 million in costs for scheduled maintenance outages conducted at the company’s Middletown and Ashland, Kentucky facilities. In the year-ago period, AK Steel reported net income of $83.1 million, or $0.76 per share.

As previously announced, the company’s third quarter 2005 results were impacted by a significant cost increase for natural gas, primarily the result of gas production disruptions following Hurricanes Katrina and Rita, as well as increased costs for steel scrap and other raw material inputs.

Also included in the third quarter results was approximately $7 million in one-time costs associated with a new progressive labor agreement the company reached with the United Steelworkers of America during the quarter. The company said that the one-time costs associated with the new labor agreement, covering hourly employees at the company’s Ashland Works, were primarily related to initial funding of a Voluntary Employees’ Beneficiary Association (VEBA), a trust fund which may be utilized to help defray future retiree and company health care cost increases.  AK Steel said, however, that taken in total, the new labor agreement provides significant ongoing total employment cost savings and additional workforce flexibility for the company.

Net sales in the third quarter of 2005 were $1,393.3 million on record quarterly shipments of 1,687,000 tons, or approximately 4% and 9% higher, respectively, than sales of $1,337.3 million on shipments of 1,541,800 tons in the year-ago period.  The company’s average selling price was $825 per ton in the third quarter of 2005, down from $866 per ton in the third quarter of 2004, due primarily to higher hot-rolled shipments and lower spot market prices.  AK Steel reported an operating loss of $25.5 million, or $15 per ton, in the third quarter of 2005, compared to operating income $94.5 million, or $61 per ton, in the third quarter of 2004.

“AK Steel continued to perform well in all the operating and quality measures within our control,” said James L. Wainscott, president and CEO.  “Clearly, however, the significant cost increases outside our control, especially the meteoric rise in natural gas following back-to-back hurricanes, more than erased the solid progress on our other cost reduction efforts.  Nonetheless, we continue to see fundamental strength for our key product lines in the fourth quarter, and we anticipate lower maintenance costs.”

AK Steel also said that it was responding to the urgent need for electrical steels, used in the manufacture of transformers and other critically needed electrical infrastructure equipment, for the rebuilding efforts in the storm-affected areas in the aftermath of the recent Gulf Coast hurricanes.

For the first nine months of 2005, the company reported income from continuing operations of $39.2 million, or $0.35 per share, which includes total non-cash charges of $32.6 million, or $0.30 per share, resulting from the reduction in the value of the company’s deferred tax assets, most of which occurred in the second quarter. Sales for the first nine months of 2005 were a record $4,270.4 million, compared to $3,783.5 million in the first nine months of 2004.  The company reported operating profit for the first nine months of 2005 of $162.3 million, or $34 per ton, which was higher than the $152.4 million, or $33 per ton reported in the first nine months of 2004.  AK Steel reported that it ended the third quarter of 2005 with $348.7 million of cash and $472.0 million of availability under its two credit facilities.

Fourth Quarter Outlook
AK Steel said it expects to record an operating profit in the fourth quarter of 2005 between $18 and $20 per ton shipped, excluding certain non-cash charges which will likely result in the company reporting an operating loss for the fourth quarter of 2005.

Specifically, the company expects to incur a non-cash, pre-tax curtailment charge of $12.9 million related to the new labor agreement previously mentioned.  The charge results from the recognition, in the fourth quarter, of past service pension benefits, which would have been amortized over future periods, as the parties agreed to “lock and freeze” the existing defined benefit pension plan, commencing January 1, 2006.

Additionally, as a result of AK Steel’s unique “corridor” accounting method for pensions and other postretirement benefit plans, it is required to recognize, as a fourth quarter adjustment, any unrecognized actuarial net gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets.  Collectively, the company estimates these non-cash, pre-tax corridor charges will range between $100 million and $150 million.

The company said it expects to realize higher steel prices on lower shipments of approximately 1,625,000 tons in the fourth quarter, with continued spot market pricing improvements during the fourth quarter.  The company said that it expects its product mix will reflect a somewhat higher percentage of value-added products in the fourth quarter compared to the third quarter.   AK Steel said it expects costs for planned maintenance outages to be approximately $25 million lower for the fourth quarter compared to the third quarter of 2005, the result of fewer planned outages.  AK Steel said it expects to continue to be impacted by higher energy and raw material costs, as the natural gas production-related effects of Hurricanes Katrina and Rita linger.
 
AK Steel, headquartered in Middletown, Ohio, produces flat-rolled carbon, stainless and electrical steels, as well as tubular steel products for the automotive, appliance, construction and manufacturing markets. Additional information about AK Steel is available on the company’s web site at www.aksteel.com.

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