<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 September 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
26,764,719 shares of common stock
---------------------------------
(as of October 13, 1997)
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AK STEEL HOLDING CORPORATION
INDEX
PART I Page
----
Item 1 Financial Information
Condensed Consolidated Statements of Income -
Three-Month and Nine-Month Periods Ended
September 30, 1996 and 1997 2
Condensed Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997 3
Condensed Consolidated Statements of Cash Flows -
Nine-Month Periods Ended September 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 8
Item 6 Exhibits and Reports on Form 8-K 8
Signatures 9
- 1-
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Item 1.
<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ----------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $559.3 $598.6 $1,693.6 $1,820.0
Cost of products sold 440.3 482.3 1,341.3 1,463.9
Selling and administrative
expenses 28.5 28.1 84.7 84.8
Depreciation 18.7 19.8 58.7 59.7
----- ----- ------- -------
Total operating costs 487.5 530.2 1,484.7 1,608.4
Operating profit 71.8 68.4 208.9 211.6
Interest expense 9.5 18.7 28.4 59.8
Other income 2.8 9.9 8.4 27.2
----- ----- ------- -------
Income before income taxes 65.1 59.6 188.9 179.0
Current income tax provision
(benefit) (Note 5) (1.6) 11.7 10.4 35.8
Deferred income tax provision
(Note 5) 27.0 10.9 63.3 32.7
----- ----- ------- -------
Net income 39.7 37.0 115.2 110.5
Preferred stock dividends 2.6 2.5 8.5 7.7
----- ----- ------ ------
Net income applicable to
common shareholders $37.1 $34.5 $106.7 $102.8
----- ----- ------ ------
----- ----- ------ ------
Earnings per common share:
(Note 2)
Primary $ 1.40 $ 1.27 $ 4.03 $ 3.81
Fully diluted $ 1.28 $ 1.19 $ 3.71 $ 3.55
Cash dividends per common share $ .15 $ .20 $ .45 $ .60
Common shares and common share
equivalents outstanding
(weighted average in
millions):
For primary earnings per
share 26.6 27.1 26.5 26.9
For fully diluted earnings
per share 30.9 31.1 31.1 31.1
<FN>
- -----------------------
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<CAPTION>
ASSETS
December 31, September 30,
1996 1997
----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 523.1 $ 512.0
Short-term investments 216.2 297.5
Accounts receivable - net (Note 4) 260.3 263.4
Inventories: (Note 3)
Finished and semi-finished 204.6 203.3
Raw materials 156.3 133.0
------- -------
Total inventories - net 360.9 336.3
Other current assets 5.2 10.1
------- -------
Total Current Assets 1,365.7 1,419.3
-------- -------
Property, Plant and Equipment 1,591.3 1,954.4
Less accumulated depreciation (552.7) (609.7)
-------- -------
Property, plant and equipment - net 1,038.6 1,344.7
------- -------
Prepaid Pension 153.3 158.3
Other 93.2 101.9
------- -------
TOTAL ASSETS $2,650.8 $3,024.2
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 239.8 $ 304.9
Other accruals 120.7 195.1
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 360.6 500.1
------- -------
Noncurrent Liabilities:
Long-term debt (Note 4) 875.0 997.5
Pension obligation - -
Postretirement benefit obligation 564.9 591.7
Deferred taxes 13.4 12.6
Other liabilities 59.9 58.8
------- -------
Total Noncurrent Liabilities 1,513.2 1,660.6
------- -------
TOTAL LIABILITIES 1,873.8 2,160.7
------- -------
Stockholders' Equity:
Preferred stock - Authorized 25,000,000
shares of $.01 par value each; issued
and outstanding 1996-4,845,774 shares,
1997-4,750,774 shares (Note 6) 0.1 0.1
Common Stock-Authorized 75,000,000 shares
of $.01 par value each; issued 1996-
27,258,834 shares, 1997-27,648,796 shares;
outstanding 1996-26,619,950 shares, 1997-
26,764,719 shares 0.3 0.3
Additional paid-in capital 708.9 716.3
Treasury Stock-common shares at cost-
1996-638,884 shares; 1997-884,077 shares (21.5) (31.0)
Retained earnings 89.2 177.8
-------- -------
TOTAL STOCKHOLDERS' EQUITY 777.0 863.5
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,650.8 $3,024.2
-------- -------
-------- -------
<FN>
- --------------------
See notes to condensed consolidated financial statements.
</TABLE>
- 3 -
<PAGE>
<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Nine Months Ended
September 30,
------------------
1996 1997
---- ----
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 13.8 $366.4
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments (55.3) (365.8)
Change in short-term investments 110.6 (81.3)
Other 2.5 (17.3)
------ ------
NET CASH FLOWS FROM INVESTING ACTIVITIES 57.8 (464.4)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 9.4 6.8
Proceeds from issuance of long-term debt - 122.5
Preferred stock dividends paid (9.1) (7.8)
Common stock dividends paid (11.7) (16.0)
Purchase of common stock-held in treasury (0.1) (9.5)
Purchase of preferred stock-retired (39.1) (3.1)
Underwriting discount and fees - (6.0)
------ ------
NET CASH FLOWS FROM FINANCING ACTIVITIES (50.6) 86.9
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 21.0 (11.1)
Cash and cash equivalents, beginning of period 137.0 523.1
------ ------
Cash and cash equivalents, end of period $158.0 $512.0
------ ------
------ ------
Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid during the period for:
Interest (net of amount capitalized) $ 18.7 $ 33.2
Income taxes 1.9 32.0
<FN>
- --------------------
See notes to condensed consolidated financial statements.
</TABLE>
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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 September 30, 1997, and the results of its operations for
the three-month and nine-month periods ended September 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 nine-month period ended September 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Net income $39.7 $37.0 $115.2 $110.5
Less preferred stock dividends
paid 2.6 2.5 8.5 7.7
----- ----- ------ ------
Net income applicable to common
shareholders $37.1 $34.5 $106.7 $102.8
----- ----- ------ ------
----- ----- ------ ------
Shares (weighted average in
millions):
Number of common shares
outstanding 26.2 26.8 26.1 26.6
Number of common equivalent
shares outstanding .4 .3 .4 .3
----- ----- ------ ------
Number of common shares
outstanding as adjusted 26.6 27.1 26.5 26.9
----- ----- ------ ------
----- ----- ------ ------
Primary earnings per common share $ 1.40 $ 1.27 $ 4.03 $ 3.81
----- ----- ------ ------
----- ----- ------ ------
Assuming full dilution:
Net income $39.7 $37.0 $115.2 $110.5
----- ----- ------ ------
----- ----- ------ ------
Shares (weighted average in
millions):
Number of common shares
outstanding 26.2 26.8 26.1 26.6
Number of common equivalent
shares outstanding .4 .2 .4 .4
Assuming conversion of
preferred stock 4.3 4.1 4.6 4.1
----- ----- ------ -----
Number of common shares
outstanding as adjusted 30.9 31.1 31.1 31.1
----- ----- ------ ------
----- ----- ------ ------
Earnings per share assuming
full dilution $1.28 $1.19 $3.71 $3.55
----- ----- ------ ------
----- ----- ------ ------
</TABLE>
The Financial Accounting Standards Board recently issued Statement
of Financial Accounting Standards ("SFAS")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 nine-month periods ended September 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 nine-month periods ended September 30, 1997 for basic EPS
would have been $1.29 and $3.84, respectively, and for diluted EPS would
have been $1.19 and $3.56, 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.
4. As of September 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.
On June 17, 1997, the Company made its initial drawdown 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. On
September 16, 1997, the Company made its second drawdown of an aggregate
of $20.0 which will bear interest at 8.98% per annum.
5. The book tax rate for the nine-month period ending September 30,
1997 was 38.3% compared to 39.0% recorded in the nine-month period ended
September 30, 1996.
6. On September 18, 1997, the Company announced it is calling for
redemption all of its outstanding 7% Convertible Preferred Stock, stated
value $30.75 per share, Stock Appreciation Income Linked Securities
("SAILS"). SAILS outstanding at September 30, 1997 totalled 4,750,774.
Each of the SAILS will be redeemed solely in exchange for .8621 of a
share of AK Steel common stock, the same amount that would apply upon
voluntary conversion.
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 third quarter of
1997 for flat rolled products, especially coated and cold rolled
products, continued at strong levels. Shipments totalled 1,147,000 tons
compared to 1,048,000 tons for the comparable prior year period, and the
record 1,174,000 tons for the second quarter of 1997.
Net revenue for the third quarter of 1997 totalled $598.6 million, an
increase of 7.0% over the third quarter of 1996. Year to date net sales
for 1997 exceeded those for the comparable 1996 period by 7.5%.
The Company recorded an operating profit of $68.4 million or $60 per net
ton for the third quarter of 1997, a decrease of $3 per net ton from the
second quarter. The Company's shipments of coated and cold rolled steel
equalled 63.5% of total shipments, equal to that of the second quarter.
Manhours per net ton shipped totalled 2.90 for the third quarter of 1997
compared to 2.75 for the second quarter. Manhours per net ton shipped
for the third quarter of 1996 totalled 3.06.
Interest expense totalled $18.7 million for the third quarter of 1997,
including a $6.4 million credit for capitalized interest, a decrease of
$.7 million in interest expense from the second quarter. Interest
expense increased $9.2 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 drawdowns of
$112.5 million of the Company's Senior Secured Notes Due 2004 as part of
the financing of the Company's previously announced Rockport Works.
Net income for the third quarter of 1997 totalled $37.0 million compared
to $39.0 million in the second quarter and $39.7 million for the
comparable prior year period. Fully diluted earnings per share totalled
$1.19 in the third quarter compared to $1.28 for the third quarter of
1996. For the nine months ending September 30, 1997, net income was
$110.5 million or $3.55 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 September 30, 1997, the Company had $809.5
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.
Cash flow from operations generated $158.5 million in the third quarter
of 1997. For the nine months ended September 30, 1997, cash provided
from operating activities amounted to $366.4 million which was primarily
attributable to $110.5 million of net income, the impact of working
capital items, and noncash charges for depreciation and healthcare trust
activities. Capital investments for the third quarter of 1997 totalled
$175.0 million, of which $144.4 million was associated with Rockport
Works. Year to date capital investments total $365.8 million with
Rockport Works amounting to $300.9 million of this amount. Net cash
flows from financing totalled $4.8 million in the third quarter of 1997,
including the schedule drawdown of $20.0 million of the Company's $250.0
million Senior Secured Notes due 2004. Additionally, the Company paid
$7.9 million of dividend payments and used $3.6 million for open market
purchases of equity securities. The remaining drawdown of the Senior
Secured Notes will occur by the end of 1997.
The Company's pension plans are fully funded on an accumulated benefit
obligation basis in accordance with generally accepted accounting
principles as of September 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 September 30, 1997 the Company's liability for postretirement
benefits other than pensions totalled $591.7 million. The Company has
established a healthcare trust as a means of prefunding this liability.
The balance of the trust as of September 30, 1997 is equivalent to over
two years of active and retiree healthcare payments.
OCAW Settlement
- ---------------
On September 18, 1997 the Company reached an agreement with the Oil,
Chemical and Atomic Workers International Union (OCAW) on a new labor
agreement covering about 360 hourly employees of the Company's Ashland,
Kentucky Coke Plant.
The contract is in effect until April 1, 2001. Provisions of the
contract include a $.50 per hour general wage increase and $500 bonus
effective October 1, 1997; a $.25 per hour general wage increase and
$500 bonus effective October 1, 1998 and October 1, 1999; and an
improved pension program.
Other
- -----
On September 18, 1997 the Company announced that it is calling for
redemption all of its outstanding 7% Convertible Preferred Stock, stated
value $30.75 per share, Stock Appreciation Income Linked Securities
(SAILS). The redemption date is October 16, 1997.
Each of the SAILS will be redeemed solely in exchange for .8621 of a
share of AK Steel common stock, the same amount that would apply upon
voluntary conversion. Following the redemption, the Company will have
approximately 31 million shares of common stock outstanding.
The redemption will not dilute the interests of common shareholders
because per share earnings since the issuance of the SAILS have been
calculated on a fully diluted basis that has given effect to the
mandatory conversion of the SAILS. Cash requirements for the redemption
are minimal, relating only to payment for fractional shares. Redemption
of the SAILS will eliminate approximately $10 million annually in
preferred stock dividend requirements.
On October 8, 1997 the Company's Board of Directors authorized a two-
for-one common stock split in the form of a stock dividend payable
November 17, 1997 to stockholders of record on October 21, 1997.
Following the stock split, approximately 62 million common shares will
be outstanding.
The Board also approved a 25% increase in the Company's common stock
dividend to an annual indicated rate of $1.00 per share on a pre-split
basis (equivalent to $.50 per share post-split). A post-split quarterly
dividend of $.125 per share was declared payable on November 17, 1997 to
shareholders of record on October 21, 1997.
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
has further appealed this decision to the Ohio Supreme Court. In April
1997, the Company commenced a separate lawsuit in federal court seeking
a permanent injunction staying the state court case and seeking a
declaration that the state court case is preempted by federal law. On
August 21, 1997, the federal court denied the motion for an injunction
and ordered the parties to brief the question of its jurisdiction to
hear the case.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - None
B. Form 8-K
Change of Transfer Agent September 15, 1997
Redemption of 7% Convertible September 24, 1997
Preferred Stock, Stock Appreciation
Income Linked Securities (SAILS)
Agreement with Oil, Chemical and September 24, 1997
Atomic Workers International Union
(OCAW)
- 7 -
<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 October 14, 1997 /s/ Richard E. Newsted
---------------- ----------------------------
Richard E. Newsted
Executive Vice President,
Chief Financial Officer
Date October 24, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 512
<SECURITIES> 298
<RECEIVABLES> 263
<ALLOWANCES> 0
<INVENTORY> 336
<CURRENT-ASSETS> 1,419
<PP&E> 1,954
<DEPRECIATION> 610
<TOTAL-ASSETS> 3,024
<CURRENT-LIABILITIES> 500
<BONDS> 998
<COMMON> 0
0
0
<OTHER-SE> 864
<TOTAL-LIABILITY-AND-EQUITY> 3,024
<SALES> 1,820
<TOTAL-REVENUES> 1,820
<CGS> 1,464
<TOTAL-COSTS> 1,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 179
<INCOME-TAX> 69
<INCOME-CONTINUING> 110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110
<EPS-PRIMARY> 3.81
<EPS-DILUTED> 3.55
</TABLE>
