AK Steel Posts Loss for 2014 Despite Profitable Q4
01/27/2015 - AK Steel reported its financial results for the fourth quarter and full year of 2014.
4th Quarter 2014 Performance Summary
The company reported adjusted EBITDA of US$117.0 million, or US$58 per ton, for the fourth quarter of 2014 compared to US$87.2 million, or US$61 per ton, for the fourth quarter of 2013. The company's results compared favorably to a third quarter 2014 net loss of US$7.2 million, or US$0.05 per diluted share, and third quarter adjusted EBITDA of US$100.5 million, or US$69 per ton, despite the fact the company experienced US$31 million in costs in the fourth quarter associated with a planned outage at its Ashland Works blast furnace.
Income tax expense was US$0.2 million for the fourth quarter of 2014 compared to an income tax benefit of US$24.0 million for the fourth quarter of 2013 and income tax expense of US$3.9 million for the third quarter of 2014.
"AK Steel's improved financial performance represented its best quarter of the year and quarter-over-quarter reflects strong market demand for our automotive products, lower steelmaking input costs, and the first full quarter of results associated with the Dearborn Works acquisition," said James L. Wainscott, chairman, president and CEO of AK Steel. "Also, we successfully completed a planned reline of our Ashland Works blast furnace hearth during the quarter, which helps position AK Steel well to serve our customers for many years to come."
Net sales for the fourth quarter of 2014 were US$2.00 billion on shipments of 2,010,200 tons, compared to net sales of US$1.46 billion on shipments of 1,420,000 tons for the year-ago fourth quarter and net sales of US$1.59 billion on shipments of 1,462,900 tons for the third quarter of 2014. The increase in shipments in the fourth quarter of 2014 compared to the year-ago quarter was principally due to the acquisition of Dearborn Works and continued strong demand from the automotive market. The increase in shipments in the fourth quarter of 2014 compared to the third quarter of 2014 was largely due to the acquisition of Dearborn Works and increased shipments to the carbon spot market.
The company said its average selling price for the fourth quarter of 2014 was US$987 per ton, a 4% decrease from the US$1,031 per ton reported for the fourth quarter of 2013 and a 9% decrease from the US$1,089 per ton reported for the third quarter of 2014. The lower overall average selling price in the fourth quarter of 2014 compared to the year-ago quarter was primarily due to the higher proportion of hot-rolled coil shipments in the overall sales mix as a result of the Dearborn Works acquisition. The lower overall average selling price in the fourth quarter of 2014 compared to the third quarter of 2014 was related both to the increase in hot rolled coil shipments as a result of the Dearborn Works acquisition, which resulted in a higher percentage of product shipments to the carbon spot market, as well as to a general reduction in spot market pricing.
During the fourth quarter of 2014, the company successfully completed the planned outage of the Ashland Works blast furnace to reline the hearth. The outage included US$18.0 million of capital investments and costs of US$31.0 million associated with the planned outage, as well as reduced production levels at Ashland Works in the period prior to the outage.
Included in the results for the fourth quarter of 2014 were a pension corridor charge of US$2.0 million and an OPEB settlement loss of US$3.5 million related to the Butler Works retiree settlement, totaling US$0.03 per diluted share in aggregate, and acquisition-related expenses described below of US$7.1 million, or US$0.04 per diluted share. The 2014 fourth quarter results also include a LIFO inventory credit of US$5.3 million, compared to a LIFO credit of US$4.3 million for the fourth quarter of 2013 and a LIFO credit of US$10.9 million for the third quarter of 2014.
The company ended 2014 with total liquidity of US$872.3 million. Liquidity consists of cash and cash equivalents of US$51.0 million and US$821.3 million of availability under the company's revolving credit facility. There were US$605.0 million of outstanding borrowings under the company's revolving credit facility as of the end of 2014.
Full-Year 2014 Results
For the full year 2014, the company reported a net loss of US$96.9 million, or US$0.65 per diluted share, compared to a net loss of US$46.8 million, or US$0.34 per diluted share, for 2013. Excluding the effects of the pension corridor and OPEB settlement charges and acquisition-related expenses described below, the company reported an adjusted net loss of US$59.7 million, or US$0.40 per diluted share.
Sales for 2014 were US$6.51 billion, an increase of 17% compared to US$5.57 billion for 2013. Shipments for 2014 were 6,132,700 tons, an increase of 16% from 5,275,900 tons in 2013. Both increases were principally due to the acquisition of Dearborn Works and increased demand from the automotive market. The company said its average selling price for full-year 2014 was US$1,058 per ton, slightly higher than the US$1,056 per ton reported for 2013. The increase in the average selling price for full-year 2014 was primarily due to increased sales to the automotive market and higher spot market pricing in the periods prior to the fourth quarter, partially offset by a higher percentage of product shipments to the spot market which included the increase in hot-rolled shipments as a result of the Dearborn Works acquisition.
Extreme winter weather conditions in early 2014 resulted in extra costs of approximatelyUS$45.0 million for 2014. Energy costs were higher in the first quarter of 2014, primarily for electricity and natural gas. The extreme winter weather conditions also affected the delivery of iron ore pellets in the second quarter of 2014, with the company incurring additional costs for transportation and operations.
Incidents at the company's Ashland Works blast furnace in February and the third quarter of 2014 resulted in unplanned outage costs of approximately US$41.2 million in 2014. In addition, the planned outage in the fourth quarter of 2014 resulted in costs of US$31.0 million associated with the planned outage itself and reduced production levels in the period prior to the outage. Prior year results include the effects of the June 2013 incident at the company's Middletown Works blast furnace, which resulted in unplanned outage costs of approximately US$22.3 million in 2013.
The company reported adjusted EBITDA of US$280.2 million, or US$46 per ton, for 2014 compared to adjusted EBITDA of US$255.0 million, or US$48 per ton, for 2013.
Acquisition of Dearborn
As previously disclosed, on September 16, 2014, AK Steel completed its acquisition of Dearborn, which included the integrated steelmaking assets located in Dearborn, Michigan, the Mountain State Carbon, LLC cokemaking facility located in Follansbee, West Virginia, and interests in joint ventures that process flat-rolled steel products. The company's results for the year ended 31 December 2014, include the effects of the acquisition and Dearborn's operations for the period from the date of acquisition. The results for the three months and year ended 31 December 2014 include net sales of US$477.0 million and US$567.0 million, respectively, and shipments of 596,000 tons and 707,000 tons, respectively, attributable to Dearborn since the completion of the acquisition.
For the three months ended 31 December 2014, the company incurred acquisition-related costs of US$7.1 million consisting of an income tax charge of US$6.3 million and transaction fees of US$0.8 million. For the year ended 31 December 2014, the company's results included acquisition-related costs of US$31.7 million, consisting of US$12.6 million of costs included in other income (expense) for committed bridge financing that was not utilized to complete the acquisition, transaction fees and direct costs of US$10.7 million included in selling and administrative costs, and income tax charges of US$8.4 million. The tax charges are related to changes in the value of the company's deferred tax assets resulting from the acquisition of Dearborn Works.
First Quarter 2015 Outlook
Consistent with its current practice, the company said that it will provide detailed guidance for its first quarter results of 2015 in March.
- Shipments of 2,010,200 tons
- Sales of US$2 billion with an average selling price of US$987 per ton
- Net income of US$13.5 million, or US$0.07 per diluted share
- Adjusted net income of US$26.1 million, or US$0.14 per diluted share
- Adjusted EBITDA of US$117.0 million
- Successful reline of the Ashland Works blast furnace hearth
- Liquidity of approximately US$872 million
The company reported adjusted EBITDA of US$117.0 million, or US$58 per ton, for the fourth quarter of 2014 compared to US$87.2 million, or US$61 per ton, for the fourth quarter of 2013. The company's results compared favorably to a third quarter 2014 net loss of US$7.2 million, or US$0.05 per diluted share, and third quarter adjusted EBITDA of US$100.5 million, or US$69 per ton, despite the fact the company experienced US$31 million in costs in the fourth quarter associated with a planned outage at its Ashland Works blast furnace.
Income tax expense was US$0.2 million for the fourth quarter of 2014 compared to an income tax benefit of US$24.0 million for the fourth quarter of 2013 and income tax expense of US$3.9 million for the third quarter of 2014.
"AK Steel's improved financial performance represented its best quarter of the year and quarter-over-quarter reflects strong market demand for our automotive products, lower steelmaking input costs, and the first full quarter of results associated with the Dearborn Works acquisition," said James L. Wainscott, chairman, president and CEO of AK Steel. "Also, we successfully completed a planned reline of our Ashland Works blast furnace hearth during the quarter, which helps position AK Steel well to serve our customers for many years to come."
Net sales for the fourth quarter of 2014 were US$2.00 billion on shipments of 2,010,200 tons, compared to net sales of US$1.46 billion on shipments of 1,420,000 tons for the year-ago fourth quarter and net sales of US$1.59 billion on shipments of 1,462,900 tons for the third quarter of 2014. The increase in shipments in the fourth quarter of 2014 compared to the year-ago quarter was principally due to the acquisition of Dearborn Works and continued strong demand from the automotive market. The increase in shipments in the fourth quarter of 2014 compared to the third quarter of 2014 was largely due to the acquisition of Dearborn Works and increased shipments to the carbon spot market.
The company said its average selling price for the fourth quarter of 2014 was US$987 per ton, a 4% decrease from the US$1,031 per ton reported for the fourth quarter of 2013 and a 9% decrease from the US$1,089 per ton reported for the third quarter of 2014. The lower overall average selling price in the fourth quarter of 2014 compared to the year-ago quarter was primarily due to the higher proportion of hot-rolled coil shipments in the overall sales mix as a result of the Dearborn Works acquisition. The lower overall average selling price in the fourth quarter of 2014 compared to the third quarter of 2014 was related both to the increase in hot rolled coil shipments as a result of the Dearborn Works acquisition, which resulted in a higher percentage of product shipments to the carbon spot market, as well as to a general reduction in spot market pricing.
During the fourth quarter of 2014, the company successfully completed the planned outage of the Ashland Works blast furnace to reline the hearth. The outage included US$18.0 million of capital investments and costs of US$31.0 million associated with the planned outage, as well as reduced production levels at Ashland Works in the period prior to the outage.
Included in the results for the fourth quarter of 2014 were a pension corridor charge of US$2.0 million and an OPEB settlement loss of US$3.5 million related to the Butler Works retiree settlement, totaling US$0.03 per diluted share in aggregate, and acquisition-related expenses described below of US$7.1 million, or US$0.04 per diluted share. The 2014 fourth quarter results also include a LIFO inventory credit of US$5.3 million, compared to a LIFO credit of US$4.3 million for the fourth quarter of 2013 and a LIFO credit of US$10.9 million for the third quarter of 2014.
The company ended 2014 with total liquidity of US$872.3 million. Liquidity consists of cash and cash equivalents of US$51.0 million and US$821.3 million of availability under the company's revolving credit facility. There were US$605.0 million of outstanding borrowings under the company's revolving credit facility as of the end of 2014.
Full-Year 2014 Results
For the full year 2014, the company reported a net loss of US$96.9 million, or US$0.65 per diluted share, compared to a net loss of US$46.8 million, or US$0.34 per diluted share, for 2013. Excluding the effects of the pension corridor and OPEB settlement charges and acquisition-related expenses described below, the company reported an adjusted net loss of US$59.7 million, or US$0.40 per diluted share.
Sales for 2014 were US$6.51 billion, an increase of 17% compared to US$5.57 billion for 2013. Shipments for 2014 were 6,132,700 tons, an increase of 16% from 5,275,900 tons in 2013. Both increases were principally due to the acquisition of Dearborn Works and increased demand from the automotive market. The company said its average selling price for full-year 2014 was US$1,058 per ton, slightly higher than the US$1,056 per ton reported for 2013. The increase in the average selling price for full-year 2014 was primarily due to increased sales to the automotive market and higher spot market pricing in the periods prior to the fourth quarter, partially offset by a higher percentage of product shipments to the spot market which included the increase in hot-rolled shipments as a result of the Dearborn Works acquisition.
Extreme winter weather conditions in early 2014 resulted in extra costs of approximatelyUS$45.0 million for 2014. Energy costs were higher in the first quarter of 2014, primarily for electricity and natural gas. The extreme winter weather conditions also affected the delivery of iron ore pellets in the second quarter of 2014, with the company incurring additional costs for transportation and operations.
Incidents at the company's Ashland Works blast furnace in February and the third quarter of 2014 resulted in unplanned outage costs of approximately US$41.2 million in 2014. In addition, the planned outage in the fourth quarter of 2014 resulted in costs of US$31.0 million associated with the planned outage itself and reduced production levels in the period prior to the outage. Prior year results include the effects of the June 2013 incident at the company's Middletown Works blast furnace, which resulted in unplanned outage costs of approximately US$22.3 million in 2013.
The company reported adjusted EBITDA of US$280.2 million, or US$46 per ton, for 2014 compared to adjusted EBITDA of US$255.0 million, or US$48 per ton, for 2013.
Acquisition of Dearborn
As previously disclosed, on September 16, 2014, AK Steel completed its acquisition of Dearborn, which included the integrated steelmaking assets located in Dearborn, Michigan, the Mountain State Carbon, LLC cokemaking facility located in Follansbee, West Virginia, and interests in joint ventures that process flat-rolled steel products. The company's results for the year ended 31 December 2014, include the effects of the acquisition and Dearborn's operations for the period from the date of acquisition. The results for the three months and year ended 31 December 2014 include net sales of US$477.0 million and US$567.0 million, respectively, and shipments of 596,000 tons and 707,000 tons, respectively, attributable to Dearborn since the completion of the acquisition.
For the three months ended 31 December 2014, the company incurred acquisition-related costs of US$7.1 million consisting of an income tax charge of US$6.3 million and transaction fees of US$0.8 million. For the year ended 31 December 2014, the company's results included acquisition-related costs of US$31.7 million, consisting of US$12.6 million of costs included in other income (expense) for committed bridge financing that was not utilized to complete the acquisition, transaction fees and direct costs of US$10.7 million included in selling and administrative costs, and income tax charges of US$8.4 million. The tax charges are related to changes in the value of the company's deferred tax assets resulting from the acquisition of Dearborn Works.
First Quarter 2015 Outlook
Consistent with its current practice, the company said that it will provide detailed guidance for its first quarter results of 2015 in March.
