<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 March 31, 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.
26,663,325 shares of common stock
---------------------------------
(as of April 24, 1997)
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AK STEEL HOLDING CORPORATION
INDEX
PART I Page
----
Item 1 Financial Information
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1996 and 1997 2
Condensed Consolidated Balance Sheets -
December 31, 1996 and March 31, 1997 3
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 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 7
Signatures 8
- 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
March 31,
------------------
1996 1997
---- ----
<S> (C> <C>
Net Sales $558.9 $598.8
Cost of products sold 444.5 480.9
Selling and administrative expenses 27.2 28.4
Depreciation 20.0 20.0
---- ----
Total operating costs 491.7 529.3
Operating profit 67.2 69.5
Interest expense 9.4 21.7
Other income 2.8 8.3
---- ----
Income before income taxes 60.6 56.1
Current income tax provision (Note 5) 5.9 10.3
Deferred income tax provision (Note 5) 17.7 11.3
---- ----
Net income 37.0 34.5
Preferred stock dividends 3.1 2.6
---- ----
Net income applicable to common shareholders $33.9 $31.9
----- -----
----- -----
Earnings per common share: (Note 2)
Primary $ 1.31 $ 1.19
Fully diluted $ 1.20 $ 1.11
Cash dividends per common share $ .15 $ .20
Common shares and common share
equivalents outstanding (weighted
average in millions):
For primary earnings per share 25.9 26.9
For fully diluted earnings per share 30.8 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, March 31,
1996 1997
----------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 523.1 $ 515.8
Short-term investments 216.2 235.2
Accounts receivable - net (Note 4) 260.3 273.1
Inventories: (Note 3)
Finished and semi-finished 204.6 207.6
Raw materials 156.3 123.8
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Total inventories - net 360.9 331.4
Other current assets 5.2 13.8
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Total Current Assets 1,365.7 1,369.3
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Property, Plant and Equipment 1,591.3 1,679.9
Less accumulated depreciation (552.7) (572.7)
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Property, plant and equipment - net 1,038.6 1,107.2
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Prepaid Pension 153.3 154.3
Other 93.2 92.6
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TOTAL ASSETS $2,650.8 $2,723.4
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 239.8 $ 238.5
Other accruals 120.7 144.5
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 360.6 383.1
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Noncurrent Liabilities:
Long-term debt (Note 4) 875.0 885.0
Pension obligation - -
Postretirement benefit obligation 564.9 576.2
Deferred taxes 13.4 15.0
Other liabilities 59.9 60.9
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Total Noncurrent Liabilities 1,513.2 1,537.1
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TOTAL LIABILITIES 1,873.8 1,920.2
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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 - 4,825,774 shares 0.1 0.1
Common stock - Authorized 75,000,000 shares of
$.01 par value each; issued 1996 - 27,258,834
shares, 1997 - 27,459,276 shares; outstanding
1996 - 26,619,950 shares, 1997 - 26,705,792
shares 0.3 0.3
Additional paid-in capital 708.9 712.7
Treasury Stock-common shares at cost-1996 -
638,884 shares; 1997 - 753,484 shares (21.5) (25.6)
Retained earnings 89.2 115.7
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TOTAL STOCKHOLDERS' EQUITY 777.0 803.2
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,650.8 $2,723.4
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-------- --------
<FN>
- --------------------
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Three Months Ended
March 31,
------------------
1996 1997
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<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $(102.0) $105.8
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments (5.4) (88.6)
Change in short-term investments 127.2 (19.0)
Other (0.7) (5.7)
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NET CASH FLOWS FROM INVESTING ACTIVITIES 121.1 (113.3)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3.3 2.9
Proceeds from issuance of long-term debt - 10.0
Preferred stock dividends paid (3.3) (2.6)
Common stock dividends paid (3.9) (5.4)
Purchase of common stock-held in treasury - (4.1)
Purchase of preferred stock-retired (17.6) (0.6)
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NET CASH FLOWS FROM FINANCING ACTIVITIES (21.5) 0.2
-------- ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2.4) (7.3)
Cash and cash equivalents, beginning of period 137.0 523.1
-------- ------
Cash and cash equivalents, end of period $134.6 $515.8
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-------- ------
Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid during the period for:
Interest (net of amount capitalized) $ 0.4 -
Income taxes 0.9 -
<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 March 31, 1997, and the results of its operations for the
three-month periods ended March 31, 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
three-month period ended March 31, 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
March 31,
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1996 1997
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<S> <C> <C>
Primary:
Net income $37.0 $34.5
Less preferred stock dividends paid 3.1 2.6
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Net income applicable to common shareholders $33.9 $31.9
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Shares (weighted average in millions):
Number of common shares outstanding 25.3 26.6
Number of common equivalent shares
outstanding .6 .3
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Number of common shares outstanding
as adjusted 25.9 26.9
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Primary earnings per common share $1.31 $1.19
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Assuming full dilution:
Net income $37.0 $34.5
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Shares (weighted average in millions):
Number of common shares outstanding 25.3 26.6
Number of common equivalent shares
outstanding .6 .3
Assuming conversion of preferred stock 4.9 4.2
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Number of common shares outstanding as
adjusted 30.8 31.1
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Earnings per share assuming full dilution $1.20 $1.11
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</TABLE>
The Financial Accounting Standards Board recently issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share," 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 1996 first
quarter and annual results and to the 1997 first quarter results and
determined that the adoption of this statement would not have had a
material impact on the earnings per share calculations for these periods.
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 March 31, 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.
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The city of Rockport, Indiana issued $10.0 in Variable Rate Demand
Revenue Bonds with a 30-year term maturing December 1, 2027, priced at an
initial rate of 3.45% which are secured by the Company's letter of
credit. Interest is at a floating rate which is reset weekly and paid
monthly. The Company's Accounts Receivable Purchase Credit Facility was
amended to allow for the issuance of a three-year letter of credit.
5. The book tax rate for 1997 will approximate 38.4% compared to 39.0%
recorded in the first quarter of 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 first quarter of
1997 for flat rolled products, especially coated and cold rolled
products, continued at strong levels with shipments of 1,146,000 tons
compared to 1,064,000 in the first quarter of 1996.
Net sales for the first quarter of 1997 exceeded those for the comparable
1996 quarter by 7.0%. The Company shipped a record 541,000 tons to
automotive customers in the first quarter of 1997, eclipsing the previous
record of 489,000 tons set in the fourth quarter of 1996. The following
table sets forth the percentage of the Company's sales revenue from
various markets for the periods indicated:
<TABLE>
<CAPTION>
1st Qtr Year 1st Qtr
1997 1996 1996
------- ---- -------
<S> <C> <C> <C>
Automotive 58% 55% 54%
Appliance, Construction and
Manufacturing 14% 15% 16%
Distributors and Convertors 28% 30% 30%
</TABLE>
The Company recorded an operating profit of $69.5 million or $61 per net
ton for the 1997 first quarter, an increase of $13 per ton from the
fourth quarter of 1996, and $2 less than the first quarter of 1996 due to
an increased percentage of lower margin hot rolled products in the total
sales mix. The Company continues to emphasize productivity gains and
quality enhancements as the primary components of its cost reduction
efforts. Man hours per net ton shipped continue to improve, declining to
2.84 for the first quarter of 1997 compared to 3.09 for the 1996 first
quarter and 3.02 for the full year of 1996.
Interest expense in the 1997 first quarter increased $12.3 million over
the first quarter of 1996, reflecting the issuance in December 1996 of
$550.0 million principal amount of the Company's 9-1/8% Senior Notes due
2006 as part of the financing of the Company's recently announced
Rockport Works.
Net income for the first quarter of 1997 totalled $34.5 million compared
to $37.0 million for the same period of 1996. The Company's tax rate for
the first quarter of 1997 was 38.4% as compared with 39.0% for the first
quarter of 1996, but comparable to the average for the entire year 1996.
Earnings per fully diluted share in the first quarter of 1997 were $1.11
versus $1.20 for the comparable prior year period.
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 March 31, 1997 the Company had $751.0 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 which expires on December 1, 2000.
In the first quarter of 1997, due to continued strong operating
performance, cash flow from operations generated $105.8 million.
Operating cash flow was reduced by $21.3 million for profit sharing
bonuses paid to salaried and hourly employees. Capital investments
totalled $87.4 million, of which $63.6 million was associated with
Rockport Works. Net cash flows from financing generated $0.2 million.
The Company received $10.0 million from the issuance by the city of
Rockport, Indiana, of tax exempt debt securities, paid $8.0 million of
dividend payments and used $4.7 million for open market purchases of the
Company's equity securities. The $10.0 million tax exempt debt securities
were issued as Variable Rate Demand Revenue Bonds, with a 30-year term
maturing on December 1, 2027, priced at an initial rate of 3.45%.
Interest is at a floating rate which is reset weekly and paid monthly.
The bonds are secured by a letter of credit under the Company's Accounts
Receivable Purchase Credit Facility, which was amended to allow for the
issuance of a three-year letter of credit. The issue was rated A/A-1 by
Standard & Poor's and A1/P-1 by Moody's Investors Service.
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<PAGE>
The Company's pension plans are fully funded on an accumulated benefit
obligation basis in accordance with generally accepted accounting
principles as of March 31, 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 $342.0 million that can be
used to meet future funding requirements.
At March 31, 1997 the Company's liability for postretirement benefits
other than pensions totalled $576.2 million. The Company has established
a health care trust as a means of prefunding this liability. The balance
of the trust as of March 31, 1997 is equivalent to over two years of
active and retiree health care payments.
Other
- -----
On March 19, 1997, the Company and the United Steelworkers of America
("USWA") reached an agreement resolving the expiration date of the labor
agreement covering the Company's Ashland Works' USWA-represented
employees. The new agreement is effective until September 1, 2000. The
agreement provides for wage increases of $.50 per hour on March 30, 1997
and $.25 per hour on March 29, 1998 and March 28, 1999. In addition,
there will be $500 lump sum bonuses paid in April of 1997, 1998 and 1999.
PART II OTHER INFORMATION
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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 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 has appealed this decision.
In May, 1996, an action was filed in the United States District Court,
Southern District of Ohio, by several plaintiffs under the citizen action
suit provisions of federal environmental laws alleging violations of
those laws as all as state claims in connection with the accidental
release of coke oven gas from the Company's Middletown Works in January,
1996. In March, 1997, the Court dismissed all claims, with the exception
of a minor portion of one of the federal claims.
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
Earnings Release January 27, 1997
Agreement with United Steelworkers of
America March 25, 1997
James L. Wareham Elected President March 25, 1997
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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 April 25, 1997 /s/ Richard E. Newsted
-------------- ----------------------------
Richard E. Newsted
Senior Vice President,
Chief Financial Officer
Date April 25, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 516
<SECURITIES> 235
<RECEIVABLES> 273
<ALLOWANCES> 0
<INVENTORY> 331
<CURRENT-ASSETS> 1,369
<PP&E> 1,680
<DEPRECIATION> 573
<TOTAL-ASSETS> 2,723
<CURRENT-LIABILITIES> 383
<BONDS> 885
<COMMON> 0
0
0
<OTHER-SE> 803
<TOTAL-LIABILITY-AND-EQUITY> 2,723
<SALES> 599
<TOTAL-REVENUES> 599
<CGS> 481
<TOTAL-COSTS> 529
<OTHER-EXPENSES> (8)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 56
<INCOME-TAX> 22
<INCOME-CONTINUING> 34
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.11
</TABLE>
