<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, 1999 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.
59,407,627 shares of common stock
---------------------------------
(as of April 19, 1999)
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AK STEEL HOLDING CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income -
Three Month Periods Ended March 31, 1998 and 1999 2
Condensed Consolidated Balance Sheets -
December 31, 1998 and March 31, 1999 3
Condensed Consolidated Statements of Cash Flows -
Three Month Periods Ended March 31, 1998 and 1999 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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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,
------------------
1998 1999
---- ----
<S> <C> <C>
Net Sales $588.2 $632.2
Cost of products sold 483.6 521.5
Selling and administrative expenses 29.2 30.2
Depreciation 21.2 33.2
------ ------
Total operating costs 534.0 584.9
Operating profit 54.2 47.3
Interest expense 15.7 24.7
Other income 6.9 3.2
------ ------
Income before income taxes 45.4 25.8
Current income tax provision (Note 5) 9.9 4.1
Deferred income tax provision/(credit) 7.1 (5.9)
(Note 5) ------ ------
Net income 28.4 27.6
Other comprehensive income, net of tax:
Unrealized gains/(losses) on securities:
Unrealized holding gains/(losses)
arising during period 0.7 (0.2)
Less: reclassification adjustment
for gains included in net income -- 0.3
------ ------
Comprehensive income $ 29.1 $ 27.1
------ ------
------ ------
Earnings per share: (Note 2)
Basic earnings per share $ .47 $ .47
Diluted earnings per share $ .47 $ .46
Cash dividends per common share $ .125 $ .125
Common shares and common share
equivalents outstanding (weighted
average in millions):
For basic earnings per share 59.9 59.2
For diluted earnings per share 60.2 59.7
<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,
1998 1999
--------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 83.0 $ 498.2
(including restricted cash of
$338.1) (Note 4)
Accounts receivable, net (Note 4) 286.8 314.5
Inventories: (Note 3)
Finished and semi-finished 259.9 267.7
Raw materials 172.0 122.9
-------- -------
Total inventories, net 431.9 390.6
Other current assets 5.8 17.0
-------- -------
Total Current Assets 807.5 1,220.3
------- -------
Property, Plant and Equipment 2,932.5 3,016.6
Less accumulated depreciation (681.6) (714.8)
------- -------
Property, plant and equipment,
net 2,250.9 2,301.8
------- -------
Prepaid Pension 170.3 168.8
Other 77.6 80.5
------- -------
TOTAL ASSETS $3,306.3 $3,771.4
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 322.9 $ 279.4
Other accruals 184.5 208.8
Current portion of deferred taxes 23.9 20.4
Current portion of long-term debt
(Note 4) -- 325.0
Current portion of pension obligation 0.1 --
Current portion of postretirement
benefit obligation -- --
------- -------
Total Current Liabilities 531.4 833.6
------- -------
Noncurrent Liabilities:
Long-term debt (Note 4) 1,145.0 1,280.0
Pension obligation -- --
Postretirement benefit obligation 572.6 578.2
Deferred taxes (Note 5) 68.0 65.1
Other liabilities 59.8 61.6
------- -------
Total Noncurrent Liabilities 1,845.4 1,984.9
------- -------
TOTAL LIABILITIES 2,376.8 2,818.5
------- -------
Stockholders' Equity:*
Common stock, authorized 200,000,000
shares of $.01 par value each;
issued 1998, 63,868,087 shares,
1999, 64,132,912 shares; outstanding
1998, 59,022,588 shares, 1999,
59,267,105 shares 0.6 0.6
Additional paid-in capital 722.0 725.9
Treasury stock, common shares at cost,
1998, 4,318,353 shares, 1999,
4,845,499 shares (87.8) (88.2)
Retained earnings 293.1 313.3
Accumulated other comprehensive income 1.6 1.3
------- -------
TOTAL STOCKHOLDERS' EQUITY 929.5 952.9
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,306.3 $3,771.4
------- -------
------- -------
<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,
-----------------
1998 1999
---- ----
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 56.7 $ 54.3
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments (197.3) (84.1)
Change in short-term investments 76.7 --
Other 0.5 0.2
------ ------
NET CASH FLOWS FROM INVESTING ACTIVITIES (120.1) (83.9)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0.6 2.4
Proceeds from issuance of long-term debt 147.5 460.0
Common stock dividends paid (7.5) (7.4)
Purchase of common stock, held in treasury (30.1) (0.4)
Underwriting discount and fees (0.3) (9.8)
------ ------
NET CASH FLOWS FROM FINANCING ACTIVITIES 110.2 444.8
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 46.8 415.2
Cash and cash equivalents, beginning of period 348.2 83.0
------ ------
Cash and cash equivalents, end of period $395.0 $498.2
------ ------
------ ------
Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid during the period for:
Interest $ 0.8 $ 1.0
Interest capitalized (12.9) (9.6)
Income taxes 0.2 1.0
<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 March 31, 1999,
and the results of its operations for the three-month periods
ended March 31, 1998 and 1999. 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, 1999 are not necessarily
indicative of the results to be expected for the year ending
December 31, 1999. These condensed consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements for the years ended December
31,1997 and 1998.
2. Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1999
---- ----
<S> <C> <C>
Basic earnings per share:
Net income $28.4 $27.6
----- -----
----- -----
Number of common shares outstanding
(weighted average in millions) 59.9 59.2
----- -----
----- -----
Basic earnings per share $ .47 $ .47
----- -----
----- -----
Diluted earnings per share:
Net income $28.4 $27.6
----- -----
----- -----
Shares (weighted average in
millions):
Number of common shares outstanding 59.9 59.2
Number of common stock options
outstanding .3 .5
----- -----
Number of common shares outstanding
as adjusted 60.2 59.7
----- -----
----- -----
Diluted earnings per share $ .47 $ .46
----- -----
----- -----
</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. On January 7, 1999, the city of Rockport, Indiana issued
$10.0 in Variable Rate Demand Revenue Bonds with a 30-year term
maturing on June 1, 2029 priced at an initial rate of 3.0%, which
are secured by the Company's letter of credit. Interest is at a
variable rate which is reset weekly and paid monthly.
On February 10, 1999, the Company issued $450.0 principal
amount of 7 7/8% Senior Notes Due 2009 ("Notes") with interest
payable semiannually commencing on August 15, 1999. The Notes
were sold at 99.623% of their principal amount. The Notes have
not been registered under the Securities Act of 1933 pursuant to
an exemption from the registration requirements of the Act.
On April 1, 1999, the Company used the proceeds from the sale
of the Notes (after the discount to the initial purchasers and
other expenses of the offering) to finance the $338.1 cost of
redeeming the 10 3/4% Senior Notes Due 2004 and the remaining
$104.0 for general corporate purposes. Until utilized, the
proceeds of the Notes had been invested in short-term interest-
bearing U.S. Government obligations. Early extinguishment of the
debt will result in an extraordinary loss of $12.0 (after taxes of
$7.3) or approximately $.20 per diluted earnings per share to be
recognized in the second quarter of 1999.
As of March 31, 1999, AK Steel Receivables, Ltd. ("AKR") had
not sold accounts receivable to any participating banks under its
Receivables Purchase and Servicing Agreement although $35.9
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 15,
1999, AKR's Purchase and
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Servicing Agreement was increased from $125.0 to $200.0 and
the expiration extended to December 31, 2003.
5. The book tax rate for 1999 is estimated at 38% compared
to 37.5% recorded in the first quarter of 1998. The deferred
income tax provision includes $11.6 related to prior years for a
recycling tax credit from the Commonwealth of Kentucky.
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 converters. Shipments
for the first quarter of 1999 totalled 1,274,000 tons compared to
1,088,000 in the first quarter of 1998. Shipments of higher
margin coated and cold rolled produces increased to 75% compared
to 68% for the previous year quarter, and 67% for the prior year
fourth quarter, continuing the Company's emphasis on sales of
value added products.
Sales revenue totalled $632.2 million, up from $588.2 million in
the first quarter of 1998 due mainly to the increase in volume.
The following table sets forth the Company's percent of sales to
various markets for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------ Year
1998 1999 1998
---- ---- ----
<S> <C> <C> <C>
Automotive 65% 57% 60%
Appliance, Construction and
Manufacturing 14% 17% 17%
Distributors and Converters 21% 26% 23%
</TABLE>
The Company recorded an operating profit of $47.3 million or $37
per ton for the first quarter of 1999, down $13 from the first
quarter of 1998 and $24 from the fourth quarter of 1998, due
primarily to lower realized selling prices, lower sales to the
automotive makers and higher depreciation associated with the
Company's Rockport Works.
Interest expense totalled $24.7 million for the first quarter of
1999, $15.7 million and $15.5 million for the first and fourth
quarters of 1998, respectively. The increase in interest expense
occurred because the Company capitalized less interest on the
Rockport Works capital investments and also had increased interest
expense due to the issuance of $450.0 million of 7 7/8% Senior
Notes Due 2009 ("Notes"). A significant portion of the proceeds
of this offering was used to retire the $325.0 million 10 3/4%
Senior Notes Due 2004 and associated call premium on April 1,
1999. (Please see Liquidity section for additional details
regarding the Notes).
Income taxes were a credit of $1.8 million in the first quarter of
1999 as the Company recorded a deferred income tax provision of
$11.6 million related to prior years for the Commonwealth of
Kentucky recycling credit.
Net income for the first quarter of 1999 totalled $27.6 million
compared to $28.4 million for the prior year first quarter and
$43.4 million for the fourth quarter of 1998. Fully diluted
earnings per share totalled $.46 compared to $.47 for the first
quarter of 1998 and $.73 for the fourth quarter of 1998.
Liquidity and Capital Resources
- -------------------------------
On February 10, 1999, the Company issued $450.0 million principal
amount of Notes with interest payable semiannually commencing on
August 15, 1999. These Notes were sold at 99.623% of their
principal amount. The Notes have not been registered under the
Securities Act of 1933 pursuant to an exemption from the
registration requirements of the Act.
The Company's liquidity needs are primarily for capital
investments, working capital requirements, employee benefit
obligations and interest on its indebtedness. At March 31, 1999
the Company had $498.2 million of cash and cash equivalents,
including $338.1 million of restricted cash to be used for
extinguishment of debt and also had $164.1 million of financing
available under its $200.0 million Accounts Receivable Purchase
Credit Facility. On April 1, 1999, the Company used the proceeds
from the sale of the Notes (after the discount to the initial
purchasers and other expenses of the offering) to finance the
$338.1 million cost of redeeming the 10 3/4% Senior Notes Due 2004
and the remaining $104.0 million for general corporate purposes.
Until utilized, the proceeds of the Notes had been invested in
short-term interest-bearing U.S. Government obligations. Early
extinguishment of the debt will result in an extraordinary loss of
$12.0 million (after taxes of $7.3 million) or approximately $.20
per diluted earnings per share to be recognized in the second
quarter of 1999.
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<PAGE>
During the first quarter, the City of Rockport, Indiana issued
$10.0 million in Variable Rate Demand Revenue Bonds with a 30-year
term, maturing on June 1, 2029, priced at an initial interest rate
of 3.00%. Interest is at a floating rate which will be reset
weekly and paid monthly. The bonds are secured by a letter of
credit.
Additionally, in the first quarter of 1999, due to continued
strong operating performance, cash flow from operations generated
$54.3 million. Capital investments including capitalized interest
totalled $84.1 million principally for the continued funding of
the Company's Rockport Works. The Company also made dividend
payments of $7.4 million in the first quarter of 1999.
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, 1999. 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
$298.1 million that can be used to meet future funding
requirements.
At March 31, 1999 the Company's liability for postretirement
benefits other than pensions totalled $578.2 million. The Company
has established a health care trust as a means of prefunding this
liability. The balance of the trust on March 31, 1999 is
equivalent to over two years of active and retiree health care
payments.
Year 2000 Issue
- ---------------
The year 2000 issue arises from the design of computer operating
systems and computer software programs which recognize only two
digits in the date field and, as a result, may interpret "00"
incorrectly as the year 1900 instead of as the year 2000. Such
incorrect recognition has the potential to disrupt both business
systems and process control systems, of which the latter could
directly impact the manufacturing process.
The Company has assessed and essentially completed all necessary
modifications and upgrades to its business systems to be year 2000
compliant. Additionally, with the assistance of outside
consultants, the Company has assessed and essentially completed
all necessary modifications and upgrades to its process control
systems to be year 2000 compliant. The Company plans to complete
testing of its business and process control systems by September
1999.
In addition, the Company has responded to numerous customer
inquiries on the year 2000 issue. Inquiries have also been made
of the Company's major suppliers as to their year 2000 readiness.
Electronic data interchange testing with customers and suppliers
is expected to be completed by September 30, 1999.
The Company currently estimates its expenditures for year 2000
compliance will approximate $5.0 million. Additional
expenditures, if any, beyond this amount could be required based
on the nature and extent of required modifications or upgrades
identified during testing.
Numerous factors could cause the expected cost and completion
dates to differ from the above estimates. Contingency plans, if
needed, will be in place prior to January 1, 2000. However, the
Company currently believes that the year 2000 issues will not have
a material adverse impact on the Company's financial condition or
results of operations or cash flow.
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.
In April 1996, an action was filed in the United States District
Court, Southern District of Ohio by a number of former employees
of the Company seeking certain pension and postretirement benefits
which they allege were wrongly denied them when the Company
outsourced their positions. In mediation in January, 1999, a
settlement in principle was reached. The settlement is pending
finalization.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - None
B. Form 8-K
Initiated private offering of
$450.0 million of Senior Notes February 1, 1999
Priced offering of Senior Notes February 8, 1999
Consummated Sale of Senior Notes February 10, 1999
Supreme Court denies petition
and Corporate Secretary named March 24, 1999
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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 April 20, 1999 /s/ James L. Wainscott
-------------- ------------------------------
James L. Wainscott
Vice President, Treasurer
and Chief Financial Officer
Date April 20, 1999 /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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 498
<SECURITIES> 0
<RECEIVABLES> 315
<ALLOWANCES> 0
<INVENTORY> 391
<CURRENT-ASSETS> 1,220
<PP&E> 3,017
<DEPRECIATION> 715
<TOTAL-ASSETS> 3,771
<CURRENT-LIABILITIES> 834
<BONDS> 1,280
<COMMON> 1
0
0
<OTHER-SE> 952
<TOTAL-LIABILITY-AND-EQUITY> 3,771
<SALES> 632
<TOTAL-REVENUES> 632
<CGS> 522
<TOTAL-COSTS> 585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 26
<INCOME-TAX> (2)
<INCOME-CONTINUING> 28
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
