AK Steel Reports 3rd Quarter Results
10/24/2007 - AK Steel reports net income of $108.4 million on net sales of $1,721.7 million for the third quarter, and net income of $281.0 million on record net sales of $5,311.1 million for the first nine months of 2007.
AK Steel reported net income of $108.4 million on net sales of $1,721.7 million for the third quarter, and net income of $281.0 million on record net sales of $5,311.1 million for the first nine months of 2007
Third Quarter Results—The $108.4 million net income ($0.97 per diluted share of common stock) compares to net income of $26.0 million ($0.23 per diluted share) for the third quarter of 2006.
Results include an $11.8-million non-cash tax credit ($0.10 per share of common stock) for the increase in value of the company's deferred tax assets as the result of a state tax law change. Results for the third quarter of 2006 included a $10.7-million ($0.10 per share) after-tax charge related to the implementation of labor agreements at the company's Zanesville, Ohio and Butler, Pa., operations, plus a $3.0-million ($0.03 per share) reduction in the value of a deferred tax asset due to state tax law changes.
Net sales were $1,721.7 million on shipments of 1,603,000 tons, reflecting increases of approximately 11% and 5%, respectively, compared to the year-ago period. The company's average selling price was $1,074 per ton, which is approximately 5% higher than the $1,020 per ton average price in the year-ago period.
Operating profit was $163.5 million ($102 per ton), compared to an operating profit of $55.1 million ($36 per ton) in the third quarter of 2006. Excluding $15.8 million of one-time, pre-tax labor contract charges, the adjusted third-quarter 2006 operating profit was $70.9 million ($47 per ton).
Management Comments—"AK Steel once again turned in world-class operating profit exceeding $100 per ton," said James L. Wainscott, Chairman, President and CEO of AK Steel. "Notwithstanding somewhat softer market conditions for some products during the quarter, the company's quarterly performance continued to enhance shareholder value."
Health Care Settlement—On October 8, 2007, AK Steel announced it had reached a settlement agreement with a group of current retirees from its Middletown Works wherein the company will fund a Voluntary Employees Beneficiary Association (VEBA) health care trust with a total contribution of $663 million over a three-year period. The agreement is subject to approval by a U.S. District Court in Cincinnati, which is expected to hold a hearing to consider the settlement in the first quarter of 2008. If the settlement is approved by the court, AK Steel will make an initial trust contribution of $468 million, with three subsequent annual contributions of $65 million each.
AK Steel anticipates that the initial contribution will be made late in the first quarter of 2008. In exchange for the funding of the VEBA trust, all of AK Steel's healthcare and welfare obligations (OPEB) to the retirees will transfer from AK Steel to the VEBA trust; thereafter AK Steel will have no further liability with respect to such OPEB obligations. The transfer will be effective upon court approval of the settlement, and all claims incurred by the retirees for covered benefits after the effective date will be the responsibility of the VEBA trust.
As of June 30, 2007, AK Steel's total OPEB liability was approximately $2.1 billion, of which approximately one-half was related to the retirees covered by the settlement agreement.
"We are pleased to have reached this settlement which will serve the interests of both AK Steel and the Middletown Works retirees," said Wainscott.
Nine-Month Results—Net income of $281.0 million ($2.51 per share) compares to net income of $61.3 million ($0.55 per share) for the comparable 2006 period. Results included pre-tax, non-cash pension curtailment charges totaling $39.8 million ($24.9 million after-tax) related to labor agreements for the company's Mansfield and Middletown plants, as well as an approximately $12.0-million increase in the value of the company's deferred tax assets due to state tax law changes. Results for the first nine months of 2006 included after-tax charges of $16.4 million, or $0.15 per share, resulting from the implementation of new labor agreements at the Butler and Zanesville operations, and the reduction in the value of the company's deferred tax asset due to state tax law changes.
Sales were a record $5,311.1 million, compared to sales of $4,486.8 million in the first nine months of 2006. Operating profit was $470.9 million ($96 per ton shipped), which compares to operating profit of $147.5 million ($32 per ton) on the same basis for the first nine months of 2006.
Excluding the pension curtailment charges, operating profit in the first nine months of 2007 was $510.7 million ($104 per ton). Adjusted operating profit for the first nine months of 2006 was $163.3 million ($35 per ton), excluding one-time charges of $15.8 million related to the Butler and Zanesville labor contracts.
Outlook—AK Steel said that it expects its fourth-quarter 2007 shipments to be comparable to third-quarter 2007 levels, with average per-ton selling prices slightly lower than for its third-quarter 2007 level. The company also anticipates higher costs in the fourth quarter, as compared to the third quarter, including $20 million of higher planned maintenance outage costs, and a $30-million increase for LIFO expense. AK Steel said it expects to report an operating profit of approximately $70 per ton in the fourth quarter of 2007.
AK Steel produces flat-rolled carbon, stainless and electrical steels, as well as tubular steel products for the automotive, appliance, construction and manufacturing markets.
