<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, 1998 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.
59,316,068 shares of common stock
---------------------------------
(as of April 20, 1998)
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AK STEEL HOLDING CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Condensed Consolidated Statements of Income -
Three Month Periods Ended March 31, 1997 and 1998 2
Condensed Consolidated Balance Sheets -
December 31, 1997 and March 31, 1998 3
Condensed Consolidated Statements of Cash Flows -
Three Month Periods Ended March 31, 1997 and 1998 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data)
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1998
---- ----
<S> (C> <C>
Net Sales $598.8 $588.2
Cost of products sold 480.9 483.6
Selling and administrative expenses 28.4 29.2
Depreciation 20.0 21.2
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Total operating costs 529.3 534.0
Operating profit 69.5 54.2
Interest expense 21.7 15.7
Other income 8.3 6.9
------ ------
Income before income taxes 56.1 45.4
Current income tax provision (Note 5) 10.3 9.9
Deferred income tax provision (Note 5) 11.3 7.1
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Net income 34.5 28.4
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising
during period -- 0.7
Less: reclassification adjustment
for gains included in net income -- --
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Comprehensive income $ 34.5 $ 29.1
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Earnings per share: (Note 2)
Basic earnings per share $ .60 $ .47
Diluted earnings per share $ .56 $ .47
Cash dividends per common share $ .10 $ .125
Common shares and common share
equivalents outstanding (weighted
average in millions):
For basic earnings per share 53.5 59.9
For diluted earnings per share 62.2 60.2
<FN>
- -----------------------
See notes to condensed consolidated financial statements.
1997 restated for a two-for-one Common Stock split effective
November 17, 1997.
</TABLE>
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<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<CAPTION>
ASSETS December 31, March 31,
1997 1998
--------- --------
S> <C> <C>
Current Assets:
Cash and cash equivalents $ 348.2 $ 395.0
Short-term investments 257.9 181.2
Accounts receivable, net (Note 4) 241.5 233.7
Inventories: (Note 3)
Finished and semi-finished 216.5 224.9
Raw materials 148.7 125.1
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Total inventories, net 365.2 350.0
Other current assets 8.8 17.6
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Total Current Assets 1,221.6 1,177.5
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Property, Plant and Equipment 2,219.2 2,416.5
Less accumulated depreciation (626.5) (647.7)
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Property, plant and equipment,
net 1,592.7 1,768.8
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Prepaid Pension 159.2 161.1
Other 110.8 104.4
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TOTAL ASSETS $3,084.3 $3,211.8
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-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 375.6 $ 314.3
Other accruals 158.0 189.5
Current portion of deferred taxes 29.7 30.4
Current portion of long-term debt
(Note 4) -- --
Current portion of pension obligation 0.1 0.1
Current portion of postretirement
benefit obligation -- --
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Total Current Liabilities 563.4 534.3
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Noncurrent Liabilities:
Long-term debt (Note 4) 997.5 1,145.0
Pension obligation -- --
Postretirement benefit obligation 554.1 560.5
Deferred taxes 30.3 37.7
Other liabilities 59.4 62.0
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Total Noncurrent Liabilities 1,641.3 1,805.2
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TOTAL LIABILITIES 2,204.7 2,339.5
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Stockholders' Equity:
Common stock, authorized 75,000,000
shares of $.01 par value each;
issued 1997, 63,503,718 shares,
1998, 63,634,421 shares; outstanding
1997, 60,808,922 shares, 1998,
59,316,068 shares 0.6 0.6
Additional paid-in capital 716.8 718.0
Treasury stock - common shares at cost,
1997, 2,694,796 shares, 1998,
4,318,353 shares (48.2) (78.3)
Retained earnings 210.4 229.2
Accumulated other comprehensive income 2.1 2.8
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TOTAL STOCKHOLDERS' EQUITY 879.6 872.3
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,084.3 $3,211.8
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------- -------
<FN>
- --------------------
See notes to condensed consolidated financial statements.
1997 restated for a two-for-one Common Stock split effective
November 17, 1997.
</TABLE>
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<TABLE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Three Months Ended
March 31,
-----------------
1997 1998
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<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $105.8 $ 56.7
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments (88.6) (197.3)
Change in short-term investments (19.0) 76.7
Other (5.7) 0.5
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NET CASH FLOWS FROM INVESTING ACTIVITIES (113.3) (120.1)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2.9 0.6
Proceeds from issuance of long-term debt 10.0 147.5
Preferred stock dividend paid (2.6) --
Common stock dividend paid (5.4) (7.5)
Purchase of common stock, held in treasury (4.1) (30.1)
Purchase of preferred stock, retired (0.6) --
Underwriting discount and fees -- (0.3)
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NET CASH FLOWS FROM FINANCING ACTIVITIES 0.2 110.2
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (7.3) 46.8
Cash and cash equivalents, beginning of period 523.1 348.2
------ ------
Cash and cash equivalents, end of period $515.8 $395.0
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Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid during the period for:
Interest $ 0.8 $0.8
Amount capitalized (1.2) (12.9)
Income taxes -- 0.2
<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, 1998,
and the results of its operations for the three-month periods
ended March 31, 1997 and 1998. 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, 1998 are not necessarily
indicative of the results to be expected for the year ending
December 31, 1998. These condensed consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements for the years ended December
31,1996 and 1997.
The Company has adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" in the first
quarter of 1998. This standard expands or modifies disclosures,
and accordingly, has no impact on the Company's financial
position, results of operations or cash flows.
2. Earnings Per Share
1997 per share amounts have been restated for a two-for-one
Common Stock split effective November 17, 1997. In addition, 1997
was restated for the adoption of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share."
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1998
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<S> <C> <C>
Basic earnings per share:
Net income $34.5 $28.4
Less preferred stock dividends paid 2.6 --
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Net income applicable to common
shareholders $31.9 $28.4
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Number of common shares outstanding
(weighted average in millions) 53.5 59.9
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Basic earnings per share $ .60 $ .47
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Diluted earnings per share:
Net income $34.5 $28.4
----- -----
----- -----
Shares (weighted average in
millions):
Number of common shares outstanding 53.5 59.9
Number of common equivalent shares
outstanding .4 .3
Assuming conversion of preferred
stock 8.3 --
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Number of common shares outstanding
as adjusted 62.2 60.2
----- -----
----- -----
Diluted earnings per share $ .56 $ .47
----- -----
----- -----
</TABLE>
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, 1998, AK Steel Receivables, Ltd. ("AKR") had
not sold accounts receivable to any participating banks under its
Receivables Purchase and Servicing Agreement although $25.7
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 January 7, 1998, the Company completed its final issuance
of an aggregate of $137.5 of Senior Secured Notes Due 2004, of
which $130.0 bear interest at 8.48% per annum and $7.5 bear
interest at 8.98% per annum.
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On February 10, 1998, the City of Rockport, Indiana issued
$10.0 in Variable Rate Demand Revenue Bonds with a 30-year term
maturing December 1, 2028, priced at an initial rate of 3.20%
which are secured by the Company's letter of credit. Interest is
at a variable rate which is reset weekly and paid monthly.
5. The book tax rate for 1998 is estimated at 37.5% compared
to 38.5% recorded in the first quarter of 1997, but comparable to
the average for the year 1997.
Item 2. Management's Discussion and Analysis of the
Condensed Consolidated Financial Statements
Results of Operations
- ---------------------
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 1998 for flat rolled products, especially
coated and cold rolled products, continued at strong levels with
shipments of 1,088,000 tons compared to 1,146,000 tons in the
first quarter of 1997. The Company had record shipments of
616,000 tons to the automotive markets during the first quarter of
1998 eclipsing the previous record of 559,000 tons set in the
fourth quarter of 1997. Shipments of higher margin coated and
cold rolled products increased to 68% of sales compared to 57% for
the previous year quarter, continuing the Company's emphasis on
sales of value added products.
Sales revenue totalled $588.2 million down from $598.8 million in
the first quarter of 1997. Most of this reduction occurred in
sales to the Distributors and Convertors markets as the Company
did not purchase any slabs in the first quarter of 1998 and, thus,
produced less hot rolled product than the year earlier period.
The Company purchased approximately 174,000 tons of slabs in the
first quarter of 1997.
The following table sets forth the Company's percent of sales to
various markets for the periods indicated:
<TABLE>
<CAPTION>
1st Qtr Year 1st Qtr
1998 1997 1997
------- ---- -------
<S> <C> <C> <C>
Automotive 65% 56% 58%
Appliance, Construction and
Manufacturing 14% 16% 14%
Distributors and Convertors 21% 28% 28%
</TABLE>
The Company recorded an operating profit of $54.2 million or $50
per ton for the first quarter of 1998, a decrease of $9 per ton
from the fourth quarter of 1997, and $11 per ton less than the
first quarter of 1997 due primarily to lower realized selling
prices and higher raw material and labor cost.
Interest expense totalled $15.7 million for the first quarter of
1998, $6.0 million lower than the prior year first quarter
primarily related to the capitalization of interest associated
with the construction of the Rockport Works facility. Capitalized
interest increased by $11.7 million from the prior year period.
Net income for the first quarter of 1998 totalled $28.4 million
compared to $34.5 million for the same period of 1997. The
Company's tax rate for the first quarter of 1998 was 37.5% as
compared with 38.5% for the first quarter of 1997, but comparable
to the average for the entire year 1997. Diluted earnings per
share in the first quarter of 1998 equalled $.47 versus $.56 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, 1998
the Company had $576.2 million of cash, cash equivalents and
short-term investments and also had $99.3 million of financing
available under its $125.0 million Accounts Receivable Purchase
Credit Facility.
In the first quarter of 1998, cash provided from operating
activities amounted to $56.7 million which was primarily
attributable to $28.4 million of net income, the impact of working
capital charges, non-cash charges for depreciation and health care
trust activities. Capital investments totalled $197.3 million, of
which $167.8 million was associated with Rockport Works.
Net cash flows from financing activities generated $110.2 million.
The Company received $137.5 million on the issuance of its Senior
Secured Notes, received $10.0 million from the issuance by the
City of Rockport, Indiana, of tax exempt debt securities, paid
$7.5 million of dividend payments and used $30.1 million for open
market purchases of the Company's common stock. The $10.0 million
tax exempt debt securities were issued as Variable Rate
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Demand Revenue Bonds, with a 30-year term maturing on December 1,
2028, priced at an initial rate of 3.20%. 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. The issue was rated A/A-1 by
Standard & Poor's and A1/P-1 by Moody's Investors Service.
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, 1998. 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
$317.2 million that can be used to meet future funding
requirements.
At March 31, 1998 the Company's liability for postretirement
benefits other than pensions totalled $560.5 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, 1998 is
equivalent to over two and one-half years of active and retiree
health care payments.
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings
In addition to the item 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.
On January 20, 1998, judgment was entered by the United States
District Court, Southern District of Ohio against the Company in
the amount of $6.5 million following a jury trial in an age
discrimination lawsuit brought by a former employee. On January
30, 1998, the Company moved for judgment in its favor as a matter
of law, reduction of the damages and a new trial.
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 21, 1998
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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 20, 1998 /s/ Richard E. Newsted
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Richard E. Newsted
Executive Vice President,
Chief Financial Officer
Date April 20, 1998 /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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 395
<SECURITIES> 181
<RECEIVABLES> 234
<ALLOWANCES> 0
<INVENTORY> 350
<CURRENT-ASSETS> 1,178
<PP&E> 2,417
<DEPRECIATION> 648
<TOTAL-ASSETS> 3,212
<CURRENT-LIABILITIES> 534
<BONDS> 1,145
<COMMON> 1
0
0
<OTHER-SE> 871
<TOTAL-LIABILITY-AND-EQUITY> 3,212
<SALES> 589
<TOTAL-REVENUES> 589
<CGS> 484
<TOTAL-COSTS> 534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 45
<INCOME-TAX> 17
<INCOME-CONTINUING> 28
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
