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AK Steel Reports Third-Quarter Financial Results

10/27/2010 - AK Steel reported a net loss of $59.2 million, or $0.54 per diluted share of common stock, for the third quarter of 2010, compared to net income of $6.2 million, or $0.06 per diluted share, for the same period a year ago.

AK Steel reported a net loss of $59.2 million, or $0.54 per diluted share of common stock, for the third quarter of 2010, compared to net income of $6.2 million, or $0.06 per diluted share, for the same period a year ago.
 
Net sales for the third quarter were $1,575.9 million on shipments of 1,465,800 tons compared to sales of $1,041.1 million on shipments of 1,047,800 tons for the year-ago third quarter. The company said its average selling price was $1,075 per ton, a 2% decrease from the $1,101 per-ton price in the second quarter of 2010, and about 8% higher than the $994 per-ton average price realized in the third quarter of 2009.
 
The company reported an operating loss for the third quarter of 2010 of $102.5 million, or $70 per ton, compared to an operating profit of $15.3 million, or $15 per ton, for the third quarter of 2009.
 
Iron-ore price increase– AK Steel says that it has agreed with two of its three primary iron ore suppliers that the requirements for the establishment of the annual benchmark price of iron ore for 2010 have been met. That 2010 benchmark is an increase of 98.65% over the 2009 benchmark, and is higher than the 65% increase the company had previously estimated for the first half and for its third-quarter guidance.
 
The third primary supplier of iron ore to the company has not acknowledged yet that an annual benchmark price has been established. That supplier continues to seek a price increase in excess of the 98.65% annual benchmark price, according to AK Steel. For purposes of the iron ore purchased from this supplier, the company has used an estimated benchmark price increase of 98.65% in its third-quarter financial results.
 
The company's Q3 2010 financial results reflect the year-to-date impact of the higher iron ore price, which increased the company's third-quarter operating loss by approximately $76.0 million, or $52 per ton. Excluding the effect of the change in the price of iron ore, the company's operating loss in the third quarter was approximately $26.5 million, or $18 per ton, which includes the costs associated with an 11-day blast furnace maintenance outage that had been planned for the first half of 2011. That outage on the company's Ashland (Ky.) blast furnace was moved to the third quarter due to furnace conditions.
 
"The combined impact of significantly higher iron ore costs and the accelerated blast furnace maintenance obscured the solid year-over-year performance turned in by AK Steel employees," said James L. Wainscott, Chairman, President and CEO of AK Steel. "Nonetheless, a stubbornly reluctant economic recovery and soaring raw material costs will continue to challenge us in the near term."
 
Nine-month results – For the first nine months of 2010, the company reported a net loss of $30.6 million, or $0.28 per diluted share of common stock, compared to a net loss of $114.4 million, or $1.05 per diluted share for the corresponding 2009 period. Results for the first nine months of 2010 include a non-cash charge in the first quarter of $25.3 million, or $0.23 per diluted share of common stock, related to federal healthcare legislation signed into law in March. Excluding the special charge, the net loss for the first nine months was $5.3 million, or $0.05 per diluted share.
 
Sales for the first nine months of 2010 were $4,577.7 million compared to $2,756.9 million a year ago. Shipments for the first nine months were 4,301,000 tons compared to 2,567,200 tons for the first nine months of 2009. The company reported an operating profit of $20.7 million, or $5 per ton, for the first nine months of 2010 compared to an operating loss of $157.1 million, or $61 per ton, last year.
 
During the first nine months, the company made $110.0 million in pension fund contributions and a $65.0 million contribution associated with the Middletown Works VEBA settlement.
 
Fourth-quarter 2010 outlook – AK Steel says it expects shipments of approximately 1,300,000 to 1,350,000 tons for the fourth quarter, with an average selling price per ton decrease of approximately 4% from the third quarter.
 
While the company expects fourth-quarter maintenance costs to decrease by about $20 million from the third quarter, it nonetheless expects to incur an operating loss of approximately $80 per ton for the fourth quarter of 2010, largely due to the lower shipments and selling prices combined with continued high iron ore and other raw material costs.
 
AK Steel produces flat-rolled carbon, stainless, and electrical steels primarily for automotive, appliance, construction, and electrical power generation and distribution markets. The company employs about 6200 people in Middletown, Mansfield, Coshocton, and Zanesville, Ohio; Butler, Pa.; Ashland, Ky.; Rockport, Ind.; and its corporate headquarters in West Chester, Ohio.
 
AK Tube LLC, a wholly owned subsidiary of AK Steel, employs about 300 people in plants in Walbridge, Ohio, and Columbus, Ind. The company produces carbon and stainless electric resistance welded (ERW) tubular steel products for truck, automotive, and other markets.