AK Steel Reports Fourth Quarter And Full-Year 2014 Financial Results

 

West Chester, OH, January 27, 2015—AK Steel (NYSE: AKS) today reported its financial results for the fourth quarter and full year of 2014.

 

4th Quarter 2014 Performance Summary
•  Shipments of 2,010,200 tons
•  Sales of $2 billion with an average selling price of $987 per ton
•  Net income of $13.5 million, or $0.07 per diluted share
•  Adjusted net income of $26.1 million, or $0.14 per diluted share
•  Adjusted EBITDA of $117.0 million
•  Successful reline of the Ashland Works blast furnace hearth
•  Liquidity of approximately $872 million

AK Steel reported net income of $13.5 million, or $0.07 per diluted share of common stock, for the fourth quarter of 2014, compared to net income of $35.2 million, or $0.26 per diluted share, for the fourth quarter of 2013.  Excluding the fourth quarter effects of pension and other postretirement benefit (“OPEB”) charges and one-time expenses associated with the acquisition of Severstal Dearborn, LLC (“Dearborn”), the company reported adjusted net income of $26.1 million, or $0.14 per diluted share, for the fourth quarter of 2014.  Neither the pension corridor charge nor OPEB loss had any current cash flow impact.

The company reported adjusted EBITDA (as defined in the “Non-GAAP Financial Measures” section below) of $117.0 million, or $58 per ton, for the fourth quarter of 2014 compared to $87.2 million, or $61 per ton, for the fourth quarter of 2013.  The company’s results compared favorably to a third quarter 2014 net loss of $7.2 million, or $0.05 per diluted share, and third quarter adjusted EBITDA of $100.5 million, or $69 per ton, despite the fact the company experienced $31 million in costs in the fourth quarter associated with a planned outage at its Ashland Works blast furnace.

Income tax expense was $0.2 million for the fourth quarter of 2014 compared to an income tax benefit of $24.0 million for the fourth quarter of 2013 and income tax expense of $3.9 million for the third quarter of 2014.

“AK Steel’s improved financial performance represented its best quarter of the year and quarter-over-quarter reflects strong market demand for our automotive products, lower steelmaking input costs, and the first full quarter of results associated with the Dearborn Works acquisition,” said James L. Wainscott, Chairman, President and CEO of AK Steel.  “Also, we successfully completed a planned reline of our Ashland Works blast furnace hearth during the quarter, which helps position AK Steel well to serve our customers for many years to come.”

Net sales for the fourth quarter of 2014 were $2.00 billion on shipments of 2,010,200 tons, compared to net sales of $1.46 billion on shipments of 1,420,000 tons for the year-ago fourth quarter and net sales of $1.59 billion on shipments of 1,462,900 tons for the third quarter of 2014.  The increase in shipments in the fourth quarter of 2014 compared to the year-ago quarter was principally due to the acquisition of Dearborn Works and continued strong demand from the automotive market.  The increase in shipments in the fourth quarter of 2014 compared to the third quarter of 2014 was largely due to the acquisition of Dearborn Works and increased shipments to the carbon spot market.

The company said its average selling price for the fourth quarter of 2014 was $987 per ton, a 4% decrease from the $1,031 per ton reported for the fourth quarter of 2013 and a 9% decrease from the $1,089 per ton reported for the third quarter of 2014.  The lower overall average selling price in the fourth quarter of 2014 compared to the year-ago quarter was primarily due to the higher proportion of hot-rolled coil shipments in the overall sales mix as a result of the Dearborn Works acquisition.  The lower overall average selling price in the fourth quarter of 2014 compared to the third quarter of 2014 was related both to the increase in hot rolled coil shipments as a result of the Dearborn Works acquisition, which resulted in a higher percentage of product shipments to the carbon spot market, as well as to a general reduction in spot market pricing.

During the fourth quarter of 2014, the company successfully completed the planned outage of the Ashland Works blast furnace to reline the hearth.  The outage included $18.0 million of capital investments and costs of $31.0 million associated with the planned outage, as well as reduced production levels at Ashland Works in the period prior to the outage.

Included in the results for the fourth quarter of 2014 were a pension corridor charge of $2.0 million and an OPEB settlement loss of $3.5 million related to the Butler Works retiree settlement, totaling $0.03 per diluted share in aggregate, and acquisition-related expenses described below of $7.1 million, or $0.04 per diluted share.  The 2014 fourth quarter results also include a LIFO inventory credit of $5.3 million, compared to a LIFO credit of $4.3 million for the fourth quarter of 2013 and a LIFO credit of $10.9 million for the third quarter of 2014.

The company ended 2014 with total liquidity of $872.3 million.  Liquidity consists of cash and cash equivalents of $51.0 million and $821.3 million of availability under the company’s revolving credit facility.  There were $605.0 million of outstanding borrowings under the company’s revolving credit facility as of the end of 2014.

Full-Year 2014 Results
For the full year 2014, the company reported a net loss of $96.9 million, or $0.65 per diluted share, compared to a net loss of $46.8 million, or $0.34 per diluted share, for 2013.  Excluding the effects of the pension corridor and OPEB settlement charges and acquisition-related expenses described below, the company reported an adjusted net loss of $59.7 million, or $0.40 per diluted share.

Sales for 2014 were $6.51 billion, an increase of 17% compared to $5.57 billion for 2013.  Shipments for 2014 were 6,132,700 tons, an increase of 16% from 5,275,900 tons in 2013.  Both increases were principally due to the acquisition of Dearborn Works and increased demand from the automotive market.  The company said its average selling price for full-year 2014 was $1,058 per ton, slightly higher than the $1,056 per ton reported for 2013.  The increase in the average selling price for full-year 2014 was primarily due to increased sales to the automotive market and higher spot market pricing in the periods prior to the fourth quarter, partially offset by a higher percentage of product shipments to the spot market which included the increase in hot-rolled shipments as a result of the Dearborn Works acquisition.

Extreme winter weather conditions in early 2014 resulted in extra costs of approximately $45.0 million for 2014.  Energy costs were higher in the first quarter of 2014, primarily for electricity and natural gas.  The extreme winter weather conditions also affected the delivery of iron ore pellets in the second quarter of 2014, with the company incurring additional costs for transportation and operations.

Incidents at the company’s Ashland Works blast furnace in February and the third quarter of 2014 resulted in unplanned outage costs of approximately $41.2 million in 2014.  In addition, the planned outage in the fourth quarter of 2014 resulted in costs of $31.0 million associated with the planned outage itself and reduced production levels in the period prior to the outage.  Prior year results include the effects of the June 2013 incident at the company’s Middletown Works blast furnace, which resulted in unplanned outage costs of approximately $22.3 million in 2013.

The company reported adjusted EBITDA of $280.2 million, or $46 per ton, for 2014 compared to adjusted EBITDA of $255.0 million, or $48 per ton, for 2013.

Acquisition of Dearborn
As previously disclosed, on September 16, 2014, AK Steel completed its acquisition of Dearborn, which included the integrated steelmaking assets located in Dearborn, Michigan, the Mountain State Carbon, LLC cokemaking facility located in Follansbee, West Virginia, and interests in joint ventures that process flat-rolled steel products. 

The company’s results for the year ended December 31, 2014, include the effects of the acquisition and Dearborn’s operations for the period from the date of acquisition. 

The results for the three months and year ended December 31, 2014 include net sales of $477.0 million and $567.0 million, respectively, and shipments of 596,000 tons and 707,000 tons, respectively, attributable to Dearborn since the completion of the acquisition.

For the three months ended December 31, 2014, the company incurred acquisition-related costs of $7.1 million consisting of an income tax charge of $6.3 million and transaction fees of $0.8 million.  For the year ended December 31, 2014, the company’s results included acquisition-related costs of $31.7 million, consisting of $12.6 million of costs included in other income (expense) for committed bridge financing that was not utilized to complete the acquisition, transaction fees and direct costs of $10.7 million included in selling and administrative costs, and income tax charges of $8.4 million.  The tax charges are related to changes in the value of the company’s deferred tax assets resulting from the acquisition of Dearborn Works.

First Quarter 2015 Outlook
Consistent with its current practice, the company said that it will provide detailed guidance for its first quarter results of 2015 in March.

Safe Harbor Statement
The statements in this release with respect to future results reflect management’s estimates and beliefs and are intended to be, and hereby are identified as “forward-looking statements” for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Words such as “expects,” “anticipates,” “believes,” “intends,” “plans,” “estimates” and other similar references to future periods typically identify such forward-looking statements. 

The company cautions readers that such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those currently expected by management, including that Dearborn will not be integrated successfully into AK Steel following the consummation of the acquisition, and that cost savings, synergies, accretion to earnings, increased shipments and other anticipated benefits and opportunities from the acquisition may not be fully realized or may take longer to realize than expected.  In addition, our results and financial condition and any benefits from the acquisition could be adversely affected by reduced selling prices, shipments and profits associated with a highly competitive industry with excess capacity; changes in the cost of raw materials and energy; the company’s significant amount of debt and other obligations; severe financial hardship or bankruptcy of one or more of the company’s major customers; reduced demand in key product markets due to competition from alternatives to steel or other factors; increased global steel production and imports; excess inventory of raw materials; supply chain disruptions or poor quality of raw materials; production disruption or reduced production levels; the company’s healthcare and pension obligations; not timely reaching new labor agreements; major litigation, arbitrations, environmental issues and other contingencies; regulatory compliance and changes; climate change and greenhouse gas emission limitations; conditions in the financial, credit, capital and banking markets; the company’s use of derivative contracts to hedge commodity pricing volatility; the value of the company’s net deferred tax assets; inability to fully realize benefits of long-term cost savings and margin enhancement initiatives; lower quantities, quality or yield of estimated coal reserves of AK Coal Resources, Inc.; increased governmental regulation of mining activities; inability to hire or retain skilled labor and experienced manufacturing and mining managers; and IT security threats and sophisticated cybercrime; as well as those risks and uncertainties discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2013, as updated in subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with or furnished to the Securities and Exchange Commission.  Except as required by law, the company disclaims any obligation to update any forward-looking statements to reflect future developments or events.

AK Steel
AK Steel is a world leader in the production of flat-rolled carbon, stainless and electrical steel products, primarily for automotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets.  The company’s AK Tube LLC subsidiary produces carbon and stainless electric resistance welded tubular steel products for truck, automotive and other markets.  Headquartered in West Chester, Ohio (Greater Cincinnati), the company employs approximately 8,000 men and women at eight steel plants, two coke plants and two tube manufacturing plants across six states: Indiana, Kentucky, Michigan, Ohio, Pennsylvania and West Virginia.  The company also has interests in iron ore through its Magnetation LLC joint venture and in metallurgical coal through its AK Coal Resources, Inc. subsidiary.  Additional information about AK Steel is available at www.aksteel.com.

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