AK Steel Provides Second Quarter 2012 Guidance and Update on Magnetation LLC Joint Venture
06/18/2012 - AK Steel expects to generate positive net income in the second quarter of 2012, which would represent an improvement compared to its first quarter net loss. In addition, the company provided an update on its Magnetation LLC joint venture.
AK Steel provided guidance for its second quarter of 2012 financial results. The company expects total shipments of approximately 1,350,000 tons in the 2012 second quarter, which is slightly higher than the first quarter of 2012. AK expects its average per-ton selling price for the second quarter of 2012 will be about the same as in the first quarter of 2012. It also said it expects to benefit from higher operating rates and lower raw material costs in the second quarter of 2012 compared to the first quarter of 2012.
Taking all of these factors into account, and subject to the possibility discussed below of recording a valuation allowance for its deferred tax assets, AK Steel said it expects to generate net income of between $0.04 and $0.06 per diluted share of common stock for the second quarter of 2012, which would represent an improvement compared to the loss of $0.11 per diluted share reported for the first quarter of 2012. Due to increased uncertainty and volatility with respect to near-term economic conditions in the United States and in other markets served by the company, including a recent deterioration in spot market pricing, AK Steel cannot provide reliable guidance at this time for the company’s results for the remainder of 2012.
In accordance with generally accepted accounting principles, the company regularly evaluates the need for a valuation allowance for its deferred tax assets. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating whether to record a valuation allowance, the applicable accounting standards place heavy emphasis on the existence of cumulative losses in recent years. As discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2011 (at pages 33 -34), the company has been periodically assessing relevant positive and negative evidence. At the conclusion of the second quarter, the company again will assess such evidence, including the effect of recent events, such as the current global economic outlook, declining selling prices and increases in foreign imports into the United States. As a result of this assessment, the company likely will record a non-cash charge to income tax expense in the second quarter of 2012 to recognize a valuation allowance against some or all of its remaining deferred tax assets.
In addition, the company said that its Magnetation LLC joint venture continues to ramp-up operations, and AK Steel may be able to obtain iron ore pellets from the joint venture earlier than 2015, as it had previously estimated. Similarly, the company is optimistic that it is ahead of schedule to produce coal from its wholly-owned subsidiary AK Coal Resources, Inc., which is in the process of developing its mining operations.
