<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1997 Commission File No. 1-13696
AK STEEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-1401455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
703 Curtis Street, Middletown, Ohio 45043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 425-5000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d)of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to filing requirements for the
past 90 days.
Yes X No
--- ---
Indicate he number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
26,783,319 shares of common stock
----------------------------------
(as of July 18, 1997)
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(This page intentionally left blank.)
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AK STEEL HOLDING CORPORATION
INDEX
PART I PAGE
----
Item 1 Financial Information
Condensed Consolidated Statements of Income -
Three-Month and Six-Month Periods Ended
June 30, 1996 and 1997 2
Condensed Consolidated Balance Sheets -
December 31, 1996 and June 30, 1997 3
Condensed Consolidated Statements of Cash Flows -
Six-Month Periods Ended June 30, 1996 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of the
Condensed Consolidated Financial Statements 6
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 7
Item 6 Exhibits and Reports on Form 8-K 8
Signatures 9
- 1 -
<PAGE>
Item 1.
<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Net Sales $575.4 $622.6 $1,134.3 $1,221.4
Cost of products sold 456.5 500.7 901.0 981.6
Selling and administrative 29.0 28.3 56.2 56.7
expenses
Depreciation 20.0 19.9 40.0 39.9
------ ------ ------- -------
Total operating costs 505.5 548.9 997.2 1,078.2
Operating profit 69.9 73.7 137.1 143.2
Interest expense 9.5 19.4 18.9 41.1
Other income 2.8 9.0 5.6 17.3
------ ------ ------- -------
Income before income taxes 63.2 63.3 123.8 119.4
Current income tax provision 6.1 13.8 12.0 24.1
(Note 5)
Deferred income tax provision 18.6 10.5 36.3 21.8
(Note 5) ------ ------ ------- -------
Net income 38.5 39.0 75.5 73.5
Preferred stock dividends 2.8 2.6 5.9 5.2
------ ------ ------- -------
Net income applicable to $ 35.7 $ 36.4 $ 69.6 $ 68.3
common shareholders ------ ------ ------- -------
------ ------ ------- -------
Earnings per common share:
(Note 2)
Primary $ 1.34 $ 1.35 $ 2.65 $ 2.54
Fully diluted $ 1.24 $ 1.26 $ 2.44 $ 2.36
Cash dividends per common $ .15 $ .20 $ .30 $ .40
share
Common shares and common share
equivalents outstanding
(weighted average in
millions):
For primary earnings 26.4 26.9 26.2 26.9
per share
For fully diluted 30.9 31.1 31.0 31.1
earnings per share
<FN>
- --------------------------------
See notes to condensed consolidated financial statements.
</TABLE>
- 2 -
<PAGE>
<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<CAPTION>
ASSETS
December 31, June 30,
1996 1997
----------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 523.1 $ 511.8
Short-term investments 216.2 309.4
Accounts receivable - net (Note 4) 260.3 286.0
Inventories: (Note 3)
Finished and semi-finished 204.6 187.1
Raw materials 156.3 130.3
-------- -------
Total inventories - net 360.9 317.4
Other current assets 5.2 12.4
-------- -------
Total Current Assets 1,365.7 1,437.0
-------- -------
Property, Plant and Equipment 1,591.3 1,780.5
Less accumulated depreciation (552.7) (591.1)
-------- -------
Property, plant and equipment - net 1,038.6 1,189.4
------- -------
Prepaid Pension 153.3 157.3
Other 93.2 96.8
-------- -------
TOTAL ASSETS $2,650.8 $2,880.5
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 239.8 $ 264.6
Other accruals 120.7 145.6
Current portion of long-term debt (Note 4) - -
Current portion of pension obligation 0.1 0.1
Current portion of postretirement - -
benefit obligation -------- -------
Total Current Liabilities 360.6 410.3
-------- -------
Noncurrent Liabilities:
Long-term debt (Note 4) 875.0 977.5
Pension obligation - -
Postretirement benefit obligation 564.9 587.5
Deferred taxes 13.4 13.0
Other liabilities 59.9 59.5
-------- -------
Total Noncurrent Liabilities 1,513.2 1,637.5
-------- -------
TOTAL LIABILITIES 1,873.8 2,047.8
-------- -------
Stockholders' Equity:
Preferred stock - Authorized 25,000,000
shares of $.01 par value each; 7,479,674
shares issued; outstanding 1996 -
4,845,774 shares,1997 - 4,750,774
shares 0.1 0.1
Common stock - Authorized 75,000,000 shares
of $.01 par value each; issued 1996 -
27,258,834 shares, 1997 - 27,565,796
shares; outstanding 1996 - 26,619,950
shares, 1997 - 26,763,819 shares 0.3 0.3
Additional paid-in capital 708.9 713.1
Treasury Stock - common shares at cost -
1996 - 638,884 shares; 1997 - 801,977
shares (21.5) (27.4)
Retained earnings 89.2 146.6
-------- -------
TOTAL STOCKHOLDERS' EQUITY 777.0 832.7
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,650.8 $2,880.5
-------- --------
-------- --------
<FN>
- -----------------------------
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Six Months Ended
June 30,
----------------
1996 1997
----- ----
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $(38.3) $207.9
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments (20.0) (190.6)
Change in short-term investments 123.1 (93.2)
Other 0.6 (17.5)
------- -------
NET CASH FLOWS FROM INVESTING ACTIVITIES 103.7 (301.3)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 9.4 4.5
Proceeds from issuance of long-term debt - 102.5
Preferred stock dividends paid (6.3) (5.2)
Common stock dividends paid (7.8) (10.7)
Purchase of common stock - held in treasury - (5.9)
Purchase of preferred stock - retired (29.0) (3.1)
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES (33.7) 82.1
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 31.7 (11.3)
Cash and cash equivalents, beginning of
period 137.0 523.1
-------- --------
Cash and cash equivalents, end of period $168.7 $511.8
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid during the period for:
Interest (net of amount capitalized) $ 18.3 $ 38.9
Income taxes 1.6 20.6
<FN>
- -------------------------------
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
AK STEEL HOLDING CORPORATION
- ----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data)
- ----------------------------------------------------
1. Basis of Presentation
In the opinion of the management of AK Steel Holding Corporation
("AK Holding") and AK Steel Corporation ("AK Steel"), collectively
the ("Company"), the accompanying condensed 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, 1997, and the results of its
operations for the three-month and six-month periods ended June 30,
1996 and 1997. The results of operations and financial position of
AK Steel approximate the results and financial position of AK
Holding. The results of operations for the six-month period ended
June 30, 1997 are not necessarily indicative of the results to be
expected for the year ending December 31, 1997. These condensed
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements for the years ended
December 31, 1995 and 1996.
2. Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Net income $38.5 $39.0 $75.5 $73.5
Less preferred stock dividends
paid 2.8 2.6 5.9 5.2
------ ------ ------ ------
Net income applicable to
common shareholders $35.7 $36.4 $69.6 $68.3
------ ------ ------ ------
------ ------ ------ ------
Shares (weighted average in
millions):
Number of common shares
outstanding 25.7 26.7 25.6 26.7
Number of common equivalent
shares outstanding .7 .2 .6 .2
------ ------ ------ ------
Number of common shares
outstanding as adjusted 26.4 26.9 26.2 26.9
------ ------ ------ ------
------ ------ ------ ------
Primary earnings per
common share $ 1.34 $1.35 $2.65 $2.54
------ ------ ------ ------
Assuming full dilution:
Net income $38.5 $39.0 $75.5 $73.5
------ ------ ------ ------
------ ------ ------ ------
Shares (weighted average
in millions):
Number of common shares
outstanding 25.7 26.7 25.6 26.7
Number of common equivalent
shares outstanding .7 .2 .7 .3
Assuming conversion of
preferred stock 4.5 4.1 4.7 4.1
------ ------ ------ ------
Number of common shares
outstanding as adjusted 30.9 31.0 31.0 31.1
------ ------ ------ ------
------ ------ ------ ------
Earnings per share assuming
full dilution $ 1.24 $1.26 $ 2.44 $ 2.36
------ ------ ------ ------
The Financial Accounting Standards Board recently issued Statement
of Financial Accounting Standards ("SFAS") No.128 Earnings Per
Share ("EPS"), which is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Early
adoption of the statement is not permitted. The Company has applied
this statement to the three-month and six-month periods ended
June 30,1996 and 1997 and for the year ended December 31, 1996 and
determined that the adoption of this statement would not have had a
material impact on the earnings per share calculations for these
periods. Presentation under SFAS 128 for the three and six-month
periods ended June 30, 1997 for basic EPS would have been $1.36 and
$2.56, respectively, and for diluted EPS would have been $1.26 and
$2.37, respectively.
3. Inventories are valued at the lower of cost or market. The cost of
the majority of inventories is measured on the last in, first out
(LIFO) method. Other inventories are measured principally at average
cost.
- 5 -
<PAGE>
4. As of June 30, 1997, AK Steel Receivables, Inc. ("AKR") had not sold
accounts receivable to any participating banks under its Receivables
Purchase and Servicing Agreement although $15.7 letters of credit
had been issued. AKR had a sufficient pool of eligible receivables
that could be sold to utilize the available capacity of the
participating banks' commitments. The banks' commitments were
extended as of July 9, 1997 and now expire on July 1, 2002.
On June 17, 1997, the Company made its initial issuance of $92.5
of an aggregate of $250.0 of Senior Secured Notes Due 2004 (the
"Secured Notes"). Of the principal amounts of the Secured Notes
issued, $80.0 will bear interest at 8.98% per annum and $12.5 at
9.05% per annum.
5. The book tax rate for 1997 will approximate 38.4% compared to 39.0%
recorded in the six-month period ended June 30, 1996, but comparable
to the average for the year 1996.
Item 2. Management's Discussion and Analysis of the
Condensed Consolidated Financial Statements
The Company's principal customers are in the automotive, appliance,
construction and manufacturing markets. The Company also sells its
products to distributors and convertors. Demand in the second quarter
of 1997 for flat rolled products, especially coated and cold rolled
products, continued at strong levels as the Company set a shipping
record of 1,174,000 tons compared to 1,105,000 tons for the comparable
prior year period, and 1,146,000 tons for the first quarter of 1997.
Net revenue for the second quarter of 1997 was a record $622.6 million,
an increase of 4.0% from the first quarter and an 8.2% increase over the
second quarter of 1996. Year to date net sales for 1997 exceeded those
for the comparable 1996 period by 7.7%.
The Company recorded an operating profit of $73.7 million or $63 per net
ton for the second quarter of 1997, an increase of $2 per net ton from
the first quarter and equaling that of the 1996 second quarter. The
Company's shipments of coated and cold rolled steel equalled 63.6% of
total shipments, an increase from the first quarter total of 57.4%. Man
hours per net ton shipped continue to improve, declining to 2.75 for the
second quarter of 1997 compared to 2.84 for the first quarter and 2.93
for the second quarter of 1996.
Interest expense totalled $19.4 million for the second quarter of 1997,
including a $4.2 million credit for capitalized interest, a decrease of
$2.4 million in interest expense from the first quarter. Interest
expense increased $9.9 million from the comparable prior year period and
reflects the issuance in December of 1996 of $550.0 million principal
amount of the Company's 9-1/8% Senior Notes Due 2006 and the first
drawdown on June 17 of $92.5 million of the Company's 8.98% Senior
Secured Notes Due 2004 as part of the financing of the Company's
previously announced Rockport Works.
Net income for the second quarter of 1997 totalled $39.0 million
compared to $34.5 million in the first quarter and $38.5 million
for the comparable prior year period. Fully diluted earnings per share
totalled $1.26 in the second quarter compared to $1.11 for the first
quarter and $1.24 for the second quarter of 1996. For the six months
ending June 30, 1997, net income was $73.5 million or $2.36 fully diluted
earnings per share.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity needs are primarily for capital investments,
working capital requirements, employee benefit obligations and interest
on its indebtedness. At June 30, 1997 the Company had $821.2 million
of cash, cash equivalents and short-term investments and also had $109.3
million of financing available under its $125.0 million Accounts
Receivable Purchase Credit Facility.
Due to continued strong operating performance, cash flow from
operations generated $102.1 million in the second quarter of 1997. For
the six months ended June 30, 1997, cash provided from operating
activities amounted to $207.9 million which was primarily attributable
to $73.5 million of net income, the impact of working capital items, and
noncash charges for depreciation and healthcare trust activities.
Capital investments for the second quarter of 1997 totalled $102.0
million, of which $89.0 million was associated with Rockport Works.
Year to date capital investments total $190.6 million with Rockport
Works amounting to $152.6 million of this amount. Net cash flows
from financing totalled $81.9 million in the second quarter of 1997,
including the scheduled initial drawdown of $92.5 million of the
Company's $250.0 million Senior Secured Notes due 2004. The remaining
drawdowns of the Senior Secured Notes for the partial financing of the
Company's Rockport facility will occur by the end of 1997. In the second
quarter of 1997, the Company paid $7.9 million of dividend payments and
used $4.2 million for open market purchases of equity securities.
- 6 -
<PAGE>
The Company's pension plans are fully funded on an accumulated
benefit obligation basis in accordance with generally accepted
accounting principles as of June 30, 1997. Funding levels in the
near term (three to five years) are expected to be minimal. The Company
also has available a pension funding credit balance of $317.0 million
that can be used to meet future funding requirements.
At June 30, 1997 the Company's liability for postretirement benefits
other than pensions totalled $587.5 million. The Company has established
a healthcare trust as a means of prefunding this liability. The balance
of the trust as of June 30, 1997 is equivalent to over two years of
active and retiree healthcare payments.
<PAGE>
PART II OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
In addition to the items discussed below, the Company is also involved
in routine litigation, environmental proceedings, and claims pending
with respect to matters arising out of the normal conduct of the
business. In management's opinion, the ultimate liability resulting
from all claims, individually or in the aggregate, will not materially
affect the Company's consolidated financial position, results of
operations or cash flows.
In January 1996 an action was filed in the Court of Common Pleas of
Butler County, Ohio on behalf of four named plaintiffs who purport to
represent a class of plaintiffs consisting of all hourly employees at
the Company's Middletown Works and all hourly employees of independent
contractors working at the facility since June 1992. The complaint has
twice been amended to add three additional plaintiffs. The plaintiffs
allege negligence and intentional tort and seek compensatory and
punitive damages in an unspecified amount for alleged dangerous working
conditions at the Company's Middletown Works. The Company has filed
motions to dismiss the suit in whole and in part. No rulings have been
rendered to date on these motions. In March 1997, the Court granted
plaintiffs' motion to certify a class. The Company's appeal of this
decision was denied by the appellate court in June 1997. The Company is
considering further appeal. In April 1997, the Company commenced a
separate lawsuit in federal court seeking a permanent injunction staying
the state court case on the basis of federal preemption. No ruling has
been issued in that separate action.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on May 15, 1997. In
connection with the meeting, proxies were solicited pursuant to the
Securities Exchange Act. The following are the voting results on
proposals considered and voted upon at the meeting as described in the
proxy statement.
All nine nominees for Director listed in the proxy statement were
elected.
</TABLE>
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Allen Born 23,831,159 32,582
John A. Georges 23,830,259 33,483
Dr. Bonnie Guiton Hill 23,828,617 35,124
Robert H. Jenkins 23,832,959 30,782
Lawrence A. Leser 23,832,459 31,282
Robert E. Northam 23,831,059 32,682
Cyrus Tang 23,832,759 30,982
James A. Thomson, Ph.D. 23,831,959 31,782
Richard M. Wardrop, Jr. 23,833,059 30,682
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - None
B. Form 8-K
Earnings Release April 10, 1997
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on behalf of the registrant by the following
duly authorized persons.
AK Steel Holding Corporation
-----------------------------
(Registrant)
Date July 18, 1997 /s/ Richard E. Newsted
------------- -----------------------------
Richard E. Newsted
Executive Vice President,
Chief Financial Officer
Date July 18, 1997 /s/ Donald B. Korade
------------- ------------------------------
Donald B. Korade
Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM AK STEEL HOLDING CORPORATION'S
QUARTERLY REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 512
<SECURITIES> 309
<RECEIVABLES> 286
<ALLOWANCES> 0
<INVENTORY> 317
<CURRENT-ASSETS> 1,437
<PP&E> 1,781
<DEPRECIATION> 591
<TOTAL-ASSETS> 2,881
<CURRENT-LIABILITIES> 410
<BONDS> 978
<COMMON> 0
0
0
<OTHER-SE> 833
<TOTAL-LIABILITY-AND-EQUITY> 2,881
<SALES> 1,221
<TOTAL-REVENUES> 1,221
<CGS> 982
<TOTAL-COSTS> 1,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 119
<INCOME-TAX> 46
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> 2.54
<EPS-DILUTED> 2.36
</TABLE>
