<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, 2000 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 Identification No.)
incorporation or organization)
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.
111,115,952 shares of common stock
----------------------------------
(as of May 5, 2000)
<PAGE>
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, 1999 and 2000 2
Condensed Consolidated Balance Sheets -
December 31, 1999 and March 31, 2000 3
Condensed Consolidated Statements of Cash Flows -
Three-Month Periods Ended March 31, 1999 and 2000 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of the
Condensed Consolidated Financial Statements 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 2000
-------- --------
<S> <C> <C>
Net sales $1,024.3 $1,139.8
Cost of products sold 822.0 936.5
Selling and administrative expenses 73.6 64.9
Depreciation 50.1 60.2
-------- --------
Total operating costs 945.7 1,061.6
Operating profit 78.6 78.2
Interest expense 30.5 33.9
Other income 4.7 0.4
-------- --------
Income before income taxes 52.8 44.7
Income tax provision (Note 4) 9.5 18.2
Minority interest 2.0 --
-------- --------
Income before extraordinary loss 41.3 26.5
Extraordinary loss on retirement of debt, net of tax (Note 5) 1.7 --
-------- --------
Net income $ 39.6 $ 26.5
======== ========
Earnings per share: (Note 2)
Basic earnings per share:
Income before extraordinary loss $ 0.39 $ 0.24
Extraordinary loss on retirement of debt 0.02 --
-------- --------
Net income $ 0.37 $ 0.24
======== ========
Diluted earnings per share:
Income before extraordinary loss $ 0.38 $ 0.24
Extraordinary loss on retirement of debt 0.02 --
-------- --------
Net income $ 0.36 $ 0.24
======== ========
Cash dividends per common share $ 0 .125 $ 0.125
Common shares and common share equivalents
outstanding (weighted average in millions):
For basic earnings per share 100.7 111.2
For diluted earnings per share 108.2 111.3
</TABLE>
___________
See notes to condensed consolidated financial statements
-2-
<PAGE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
1999 2000
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 54.4 $ 56.9
Accounts receivable 507.2 519.0
Inventories (Note 3) 797.6 798.6
Deferred tax asset 64.5 61.8
Other current assets 8.8 10.7
-------- --------
Total Current Assets 1,432.5 1,447.0
-------- --------
Property, Plant and Equipment 4,573.5 4,606.5
Less accumulated depreciation 1,585.7 1,645.5
-------- --------
Property, plant and equipment, net 2,987.8 2,961.0
-------- --------
Other Assets
AFSG Holdings, Inc. (Note 6) 85.6 85.6
Other investments 51.7 51.5
Goodwill 121.3 119.6
Prepaid pension 122.4 136.9
Deferred tax asset 328.0 314.1
Other 72.2 66.3
-------- --------
TOTAL ASSETS $5,201.5 $5,182.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 496.0 $ 479.1
Accrued liabilities 297.3 269.3
Current portion of long-term debt 5.9 5.9
Current portion of postretirement benefit obligation 68.8 68.8
-------- --------
Total Current Liabilities 868.0 823.1
-------- --------
Noncurrent Liabilities:
Long-term debt 1,451.0 1,450.8
Postretirement benefit obligation 1,390.7 1,392.4
Other liabilities 214.0 220.4
-------- --------
Total Noncurrent Liabilities 3,055.7 3,063.6
-------- --------
TOTAL LIABILITIES 3,923.7 3,886.7
-------- --------
Stockholders' Equity:
Preferred stock 14.9 14.9
Common stock, authorized 200,000,000 shares of
$.01 par value each; issued 1999, 115,048,490
shares, 2000, 115,736,151 shares; outstanding
1999, 110,640,088 shares, 2000, 111,303,934 shares 1.2 1.2
Additional paid-in capital 1,793.6 1,799.1
Treasury stock, common shares at cost,
1999, 4,408,402 shares; 2000, 4,432,217 shares (80.2) (80.5)
Accumulated deficit (450.0) (437.7)
Accumulated other comprehensive income (loss) (Note 7) (1.7) (1.7)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 1,277.8 1,295.3
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,201.5 $5,182.0
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
AK STEEL HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 2000
---- ----
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 58.1 $ 48.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital investments (90.2) (33.4)
Change in short-term investments (3.7) --
Other 3.9 0.6
------- ------
NET CASH FLOWS FROM INVESTING ACTIVITIES (90.0) (32.8)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 1.6
Proceeds from issuance of long-term debt 460.0 --
Principal payments on long-term debt (113.2) (0.2)
Common stock dividends paid (7.4) (13.9)
Preferred stock dividends paid (2.4) (0.3)
Purchase of common stock, held in treasury (0.5) (0.3)
Underwriting discount and fees (9.8) --
Other 2.1 (0.4)
------- ------
NET CASH FLOWS FROM FINANCING ACTIVITIES 328.8 (13.5)
------- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 296.9 2.5
Cash and cash equivalents, beginning of period 346.7 54.4
------- ------
Cash and cash equivalents, end of period $ 643.6 $ 56.9
======= ======
Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid during the period for:
Interest $10.1 $24.7
Interest capitalized (9.6) (0.7)
Income taxes 1.0 1.8
Supplemental schedule of non-cash investing and
financing activities
Issuance of restricted stock $ 6.6 $ 5.1
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<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", and together with AK
Holding, 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, 2000, and the results of its operations and cash
flows for the three-month periods ended March 31, 1999 and 2000. The
results of operations for the three-month period ended March 31, 2000 are
not necessarily indicative of the results to be expected for the year
ending December 31, 2000. These condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements of AK Holding for the year ended December 31, 1999.
There is no summarized financial information included for AK Steel because
there is no substantial difference in the operations of AK Steel and AK
Holding and because the debt of AK Steel is fully and unconditionally
guaranteed by AK Holding. AK Holding has no independent operations. Interim
financial information for 1999 has been restated to reflect the merger of
Armco Inc. with and into AK Steel effective September 30, 1999 and
accounted for as a pooling of interests.
2. Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------
<S> <C> <C>
1999 2000
------ ------
Income for calculation of basic earnings per share:
Income before extraordinary loss $ 41.3 $ 26.5
Less: Preferred stock dividends 2.5 0.3
------ ------
Income before extraordinary loss
available to common stockholders 38.8 26.2
Extraordinary loss on retirement of debt 1.7 --
------ ------
Net income available to common stockholders $ 37.1 $ 26.2
====== ======
Common shares outstanding (weighted average in millions) 100.7 111.2
====== ======
Basic earnings per share:
Income before extraordinary loss $ 0.39 $ 0.24
Extraordinary loss on retirement of debt 0.02 --
------ ------
Net income $ 0.37 $ 0.24
====== ======
Income for calculation of diluted earnings per share:
Income before extraordinary loss $ 41.3 $ 26.5
Less: Preferred stock dividends -- 0.3
------ ------
Income before extraordinary loss
available to common stockholders 41.3 26.2
Extraordinary loss on retirement of debt 1.7 --
------ ------
Net income available to common stockholders $ 39.6 $ 26.2
====== ======
Shares (weighted average in millions):
Common shares outstanding 100.7 111.2
Assumed conversion of preferred stock 7.0 --
Common stock options outstanding 0.5 0.1
------ ------
Common shares outstanding as adjusted 108.2 111.3
====== ======
Diluted earnings per share:
Income before extraordinary loss $ 0.38 $ 0.24
Extraordinary loss on retirement of debt 0.02 --
------ ------
Net income $ 0.36 $ 0.24
====== ======
</TABLE>
-5-
<PAGE>
3. Inventories
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.
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------ ------
<S> <C> <C>
Finished and semi-finished $630.4 $653.9
Raw materials 190.0 170.9
------ ------
Total cost 820.4 824.8
Adjustment to state inventories at LIFO value (22.8) (26.2)
------ ------
Net inventories $797.6 $798.6
====== ======
</TABLE>
4. Taxes
The book tax rate for 2000 is estimated to be 40%. The first quarter 1999
income tax provision includes an $11.6 recycling tax credit from the
Commonwealth of Kentucky related to prior years.
5. Extraordinary Loss on Early Retirement of Debt
In the first three months of 1999, the Company recorded an extraordinary
loss of $1.7, or $0.02 per share, related to the early redemption of
Armco's 9-3/8% Senior Notes Due 2000.
6. AFSG Holdings, Inc.
In March 1997, North Atlantic Insurance Company, a group of international
insurance companies previously affiliated with Armco's Financial Services
Group but sold in 1991, filed an application for provisional liquidation in
the United Kingdom. As a result, claims related to certain insurance
policies assumed by North Atlantic were asserted by policyholders against
Northwestern National Insurance Company ("NNIC"). NNIC, which is currently
in runoff, is a subsidiary of AFSG Holdings, Inc. and an indirect
subsidiary of the Company. On April 21, 2000, the U.S. Bankruptcy Court
issued a permanent injunction prohibiting policyholders from asserting
claims related to these policies against NNIC and directing that any such
claims be made against the North Atlantic estate.
7. Comprehensive Income
For the three months ended March 31, 1999 and 2000, comprehensive income is
as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------
1999 2000
----- -----
<S> <C> <C>
Net income $39.6 $26.5
Other comprehensive income, net of tax:
Foreign currency translation adjustment (0.4) (0.5)
Unrealized gains/losses on securities:
Unrealized holding gains arising during period 0.7 0.4
Reclassification for losses included in net income - 0.1
----- -----
Comprehensive income $39.9 $26.5
===== =====
</TABLE>
8. Segment Information
The Company's Steel Operations consist of the production, finishing and
sale of flat-rolled carbon, stainless and electrical steels. The Company's
Other Operations include an industrial park, the production and sale of
snowplow and ice control products, and the production and sale of steel
pipe and tubular products. The following presents the results of the
Company's Steel Operations and Other Operations.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1999 2000
-------- --------
<S> <C> <C>
Net sales:
Steel Operations $ 964.3 $1,072.4
Other Operations 60.0 67.4
-------- --------
Total net sales $1,024.3 $1,139.8
======== ========
Operating profit:
Steel Operations $ 76.0 $ 75.7
Other Operations 2.6 2.5
-------- --------
Total operating profit $ 78.6 $ 78.2
======== ========
</TABLE>
-6-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(dollars in millions, except per share and per ton data)
Results of Operations
- ---------------------
For the three months ended March 31, 1999 and 2000, consolidated net sales
totaled $1,024.3 and $1,139.8 on shipments of 1,638,000 tons and 1,604,000 tons,
respectively. While shipments decreased 2% in the period-to-period comparison,
the percentage of value-added products, including stainless and electrical
steels, coated and cold-rolled carbon steels and tubular products, increased
from 80% of total shipments in the first quarter 1999 to 89% in the most recent
quarter.
Consolidated operating profit remained level, as the Company posted profits of
$78.6 in the first quarter of 1999 and $78.2 in 2000. Higher costs for raw
materials and purchased slabs and an $11.0 scheduled maintenance outage at the
Middletown Works blast furnace were partially offset by the strong demand for
value-added products. The Company recognized operating profit of $48 per ton in
the first quarter of 1999, $59 per ton in the fourth quarter of 1999, and $49
per ton in the first quarter of 2000. The fourth quarter per ton amount excludes
the effect of a special charge of $57.7 related to the merger with Armco Inc.
Consolidated operating profit per ton is normally lower in the first quarter as
a result of the seasonal drop in snowplow sales during the first three months of
the year.
Interest expense totaled $33.9 for the first quarter of 2000, a decrease of $0.6
from the fourth quarter 1999, but $3.4 higher than the first quarter of 1999.
The increase over last year's interest expense is primarily due to an $8.9
reduction in capitalized interest, partially offset by a decrease in debt
outstanding during the respective periods.
In the first quarter of 1999, income tax provision included a Commonwealth of
Kentucky recycling credit of $11.6 related to prior years.
Income before extraordinary loss totaled $41.3 and $26.5 for the first quarter
of 1999 and 2000, respectively. The decrease was primarily due to higher
interest and income tax expenses.
In the first three months of 1999, the Company incurred an extraordinary loss of
$1.7, or $0.02 per share, due to the early redemption of Armco's 9-3/8% Senior
Notes Due 2000.
Net income in the first three months of 2000 was $26.5, or $0.24 per share,
compared to $39.6, or $0.37 per basic share ($0.36 per diluted share) in the
first quarter of 1999.
The Company's Steel Operations produce and finish flat-rolled carbon, stainless
and electrical steels for sale principally to the automotive, appliance,
construction and manufacturing markets. The Company also sells these products to
distributors and convertors. Steel Operations' shipments for the first quarter
of 2000 totaled 1,518,000 tons, approximately equal to shipments in the fourth
quarter 1999, but 3% lower than the first quarter 1999, primarily due to the
shutdown of the Dover Works at the beginning of 2000.
Steel Operations net sales for the first quarter of 2000 totaled $1,072.4, an
11% increase over the first quarter of 1999. Steel Operations net sales
increased, in spite of lower shipments, in large part due to an increase in
value-added shipments to 88% of total steel shipments from 79% in the first
three months of 1999.
The Steel Operations recorded an operating profit of $75.7, or $50 per ton, for
the first quarter of 2000, versus $53 per ton in the fourth quarter last year
and $49 per ton in the first quarter of 1999. The fourth quarter 1999 amount
excludes the special charge of $57.7. Operating profit in the comparison of each
of the first quarter periods remained virtually unchanged as the improved
product mix was offset by higher costs for raw materials and purchased slabs,
the Middletown Works blast furnace outage and the Mansfield labor dispute, which
is estimated to have reduced operating income by approximately $7.0 in the first
quarter of 2000. The effect of the labor dispute, if it continues, is not
expected to be material to the Company's financial results in future quarters.
Due to continued strong market conditions, the Company announced on March 27,
2000 a four to six percent price increase on all 200-, 300- and 400-series flat-
rolled stainless steel products. The increase is effective with shipments not
otherwise covered under long-term price agreements beginning on April 3, 2000.
In addition, the Company announced spot market price increases of $20 per ton on
hot- and cold-rolled carbon steels and $25 per ton on all coated products
effective with shipments on and after July 3, 2000.
-7-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity needs are primarily for capital investments, working
capital requirements, employee benefit obligations and interest on indebtedness.
At March 31, 2000, the Company had $56.9 of cash and cash equivalents, as well
as $220.5 available under its $300.0 Accounts Receivable Purchase Credit
Facility. While there were no outstanding borrowings under the credit facility,
$79.5 of the facility was used to support letters of credit.
Cash flow from operations generated $48.8 for the three months ended March 31,
2000. Income, excluding depreciation, amortization and other noncash items, of
$90.1 was partially offset by a net increase in working capital. The working
capital increase reflected higher accounts receivables and lower accrued
liabilities, primarily related to annual incentive payments for hourly and
salaried employees.
During the first three months of 2000, the Company expended almost $5.6,
primarily for severance payments, related to the Armco merger. Payments related
to the merger during the remainder of 2000 are expected to amount to less than
$5.0.
Cash used in investing activities totaled $32.8. Capital investments amounted to
$33.4, including $0.7 in capitalized interest. Capital investments for 2000 are
expected to total approximately $175.0, which is to be paid out of existing cash
balances and cash generated from operations.
Cash flows from financing activities used $13.5, primarily for dividends on
common and preferred stock.
Share Repurchase Plan
- ---------------------
On April 25, 2000, the Company announced that its Board of Directors had
approved a new plan authorizing the Company to repurchase, from time to time, up
to $100.0 of its outstanding equity securities. At May 5, 2000, these securities
consist of 111,115,952 shares of the Company's common stock and 305,931 shares
of its Series B $3.625 cumulative convertible preferred stock. Payments to
repurchase equity securities will be made out of existing cash balances and cash
generated from operations.
Forward-Looking Statements
- --------------------------
Certain statements made or incorporated by reference in this Form 10-Q, reflect
management's estimates and beliefs and are intended to be, and are hereby
identified as "forward-looking statements" for purposes of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. As discussed
in its Form 10-K for the year ended December 31, 1999, the Company cautions
readers that such forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those currently
expected by management. In addition to those noted in the statements themselves,
these factors include, but are not limited to, the following: risks of a
downturn in the general economy or in the highly cyclical steel industry;
volatility in financial markets, which may affect invested pension plan assets
and the calculation of benefit plan liabilities and expenses; changes in demand
for the Company's products; unplanned plant outages, equipment failures or labor
difficulties; actions by the Company's foreign and domestic competitors;
unexpected outcomes of major litigation and contingencies; changes in United
States trade policy and actions with respect to imports; disruptions in the
supply of raw materials; actions by reinsurance companies with which AFSG does
business, or foreign or domestic insurance regulators; and changes in
application or scope of environmental regulations applicable to the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 19, 2000, a purported class action was filed in the United States
District Court for the Southern District of Ohio by Bernard Fidel against AK
Steel Holding Corporation and certain of its directors and officers, alleging
material misstatements and omissions in the Company's public disclosure about
its business and operations. Since that date, one additional purported class
action has been filed in the same court against the same defendants setting
forth the same allegations as those set forth in the Fidel action. The
defendants intend to vigorously defend these actions.
-8-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A. The following is an index of the exhibits included in this Form 10-Q:
None
B. Form 8-K
Two new members elected to the Board of Directors January 4, 2000
Earnings Release January 27, 2000
-9-
<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 May 9, 2000 /s/ James L. Wainscott
---------------------- -----------------------
James L. Wainscott
Senior Vice President, Treasurer and Chief
Financial Officer
Date May 9, 2000 /s/ Donald B. Korade
---------------------- ---------------------
Donald B. Korade
Vice President and Controller
-10-
<TABLE> <S> <C>
<PAGE>
<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.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> JAN-01-2000
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 57
<SECURITIES> 0
<RECEIVABLES> 519
<ALLOWANCES> 0
<INVENTORY> 799
<CURRENT-ASSETS> 1,447
<PP&E> 4,607
<DEPRECIATION> 1,646
<TOTAL-ASSETS> 5,182
<CURRENT-LIABILITIES> 823
<BONDS> 1,451
0
15
<COMMON> 1
<OTHER-SE> 1,279
<TOTAL-LIABILITY-AND-EQUITY> 5,182
<SALES> 1,140
<TOTAL-REVENUES> 1,140
<CGS> 937
<TOTAL-COSTS> 1,062
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> 45
<INCOME-TAX> 18
<INCOME-CONTINUING> 27
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
</TABLE>
