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AK Steel's Third Quarter Performance Exceeded Expectations
11/04/2014 - As it reported its third quarter results, AK Steel commented on its recent acquisition of Severstal Dearborn, as well as the expected impact of a fourth quarter blast furnace outage.
AK Steel reported its financial results for the third quarter of 2014.
3rd Quarter 2014 Performance Summary
• Completed the acquisition of Severstal Dearborn
• Shipments of 1,462,900 tons
• Sales of US$1.59 billion with an average selling price of US$1,089 per ton
• Net loss of US$7.2 million, or US$0.05 per diluted share
• Adjusted net income of US$16.4 million, or US$0.12 per diluted share
• Adjusted EBITDA of US$100.5 million
• Ended 3rd quarter with liquidity of US$912 million
AK Steel reported a net loss of US$7.2 million, or US$0.05 per diluted share of common stock, for the third quarter of 2014, compared to a net loss of US$31.7 million, or US$0.23 per diluted share, for the third quarter of 2013 and a net loss of US$17.1 million, or US$0.13 per diluted share, for the second quarter of 2014. The third quarter 2014 results reflect one-time costs associated with the acquisition of Severstal Dearborn LLC, which the company completed on 16 September 2014. Excluding acquisition-related expenses totaling US$23.6 million, or US$0.17 per diluted share, as discussed below, the company reported adjusted net income of US$16.4 million, or US$0.12 per diluted share. The company reported adjusted EBITDA of US$100.5 million, or US$69 per ton, for the third quarter of 2014 compared to adjusted EBITDA of US$53.5 million, or US$43 per ton, for the year-ago third quarter and adjusted EBITDA of US$65.5 million, or US$47 per ton, for the second quarter of 2014.
“AK Steel’s third quarter financial performance exceeded our expectations,” said James L. Wainscott, chairman, president and CEO of AK Steel. “Our continuing trend of posting adjusted net income provides us with a solid foundation for future growth in earnings and cash flow.”
Net sales for the third quarter of 2014 were US$1.59 billion on shipments of 1,462,900 tons, compared to net sales of US$1.33 billion on shipments of 1,242,400 tons for the year-ago third quarter and net sales of US$1.53 billion on shipments of 1,397,500 tons for the second quarter of 2014. The increase in shipments in the third quarter of 2014 compared to the year-ago period and to the second quarter of 2014 was principally due to shipments from Dearborn Works following the acquisition and higher shipments of carbon steel to the automotive and infrastructure and manufacturing markets.
The company said that its average selling price for the third quarter of 2014 was US$1,089 per ton, down slightly from the second quarter of 2014. The minor decrease from the second quarter was due to a change in product mix related to the addition of Dearborn. The company also said its average selling price for the third quarter of 2014 increased 2% from the third quarter of 2013, primarily as a result of higher spot market prices for carbon steel products. Costs of products sold increased in the third quarter of 2014 due to the acquisition of Dearborn (see discussion below) and to the continued adverse effects from an unplanned outage at the Ashland Works blast furnace. During the third quarter, the company incurred US$23.2 million for unplanned outage costs at the Ashland Works blast furnace and for costs related to lower than normal production levels.
The company also incurred US$1.1 million of costs for planned outages during the third quarter of 2014, compared to US$4.2 million in the year-ago third quarter and US$2.5 million in the second quarter of 2014.
The 2014 third quarter results include a LIFO credit of US$10.9 million, compared to a LIFO credit of US$15.8 million for the third quarter of 2013 and a LIFO credit of US$3.3 million for the second quarter of 2014. Included in the LIFO credit for the third quarter of 2014 is a credit of US$7.3 million related to the Dearborn acquisition.
The company ended the third quarter of 2014 with total liquidity of US$912.3 million, consisting of cash and cash equivalents and US$868.6 million of availability under the company’s revolving credit facility. Consistent with prior seasonal patterns, working capital was a source of US$19.0 million of cash in the third quarter of 2014. The company anticipates that working capital will be a source of cash in the fourth quarter of 2014.
Nine-Month Results
For the first nine months of 2014, the company reported a net loss of US$110.4 million, or US$0.79 per diluted share. Excluding acquisition-related expenses totaling US$24.6 million, or US$0.18 per diluted share, as discussed below, the company reported an adjusted net loss of US$85.8 million, or US$0.61 per diluted share. For the corresponding nine months of 2013, the company reported a net loss of US$82.0 million, or US$0.60 per diluted share. Sales for the first nine months of 2014 were US$4.51 billion compared to sales of US$4.11 billion in the first nine months of 2013. Shipments for the first nine months of 2014 were 4,122,500 tons compared to 3,855,900 tons in the first nine months of 2013.
Extreme winter weather conditions in early 2014 resulted in extra costs of approximately US$45.0 million for the first nine months of 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. The first nine months of 2014 also included a US$5.8 million charge relating to a litigation settlement.
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 the first nine months of 2014. The prior year, in June 2013, an incident at the company’s Middletown Works blast furnace resulted in unplanned outage costs of approximately US$18.0 million in the first nine months of 2013.
The company recorded expenses of US$31.9 million during the first nine months of 2014 for planned outages, compared to expenses of US$26.8 million during the first nine months of 2013.
Acquisition of Dearborn
As previously disclosed, on 16 September 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 three and nine months ended September 30, 2014, include the effects of the acquisition and Dearborn’s operations for the period from the date of acquisition. The results for the three and nine months ended 30 September 2014 include net sales and operating profit of US$90.0 million and US$2.1 million, respectively, attributable to Dearborn since the acquisition. For the three and nine months ended 30 September 2014, the company incurred acquisition costs of US$6.3 million and US$7.3 million, respectively. Acquisition costs are primarily comprised of transaction fees and direct costs, including legal, finance, consulting and other professional fees and are included in selling and administrative expenses. In addition, the company incurred US$12.6 million of costs in the three and nine months ended 30 September 2014 for committed bridge financing that was unused. As a result, these costs were expensed in the third quarter and are included in other income (expense). Subsequent to the acquisition, the company incurred severance costs of US$2.6 million for certain employees of Dearborn, which are included in selling and administrative expenses for the three and nine months ended 30 September 2014, and an income tax charge of US$2.1 million related to changes in the value of deferred tax assets resulting from the acquisition.
Fourth Quarter 2014 Outlook
Consistent with its current practice, the company expects to provide detailed guidance for its fourth quarter results in December. However, in advance of that guidance, the company notes that its fourth quarter results will be affected by a planned outage at the company’s Ashland Works blast furnace which began in late October and is expected to last approximately 28 days.
That outage previously had been planned to occur in 2015, but has been advanced to fully address operational issues with the Ashland Works blast furnace that began earlier this year. Among other things, the planned outage will include a reline of the blast furnace hearth.
The reduced operations at the Ashland Works blast furnace as a result of the outage will affect the fourth quarter of 2014 in terms of production, shipments, operating costs and margins. In the fourth quarter of 2014, the company expects to make capital investments of US$20.0 million and to incur costs of approximately US$30.0 million associated with the planned outage itself and reduced production levels at Ashland Works in the period prior to the outage. The company took steps in advance of the planned outage to minimize the potential impact on its customers, including purchasing additional slabs and building inventory through increased production at other plants.
3rd Quarter 2014 Performance Summary
• Completed the acquisition of Severstal Dearborn
• Shipments of 1,462,900 tons
• Sales of US$1.59 billion with an average selling price of US$1,089 per ton
• Net loss of US$7.2 million, or US$0.05 per diluted share
• Adjusted net income of US$16.4 million, or US$0.12 per diluted share
• Adjusted EBITDA of US$100.5 million
• Ended 3rd quarter with liquidity of US$912 million
AK Steel reported a net loss of US$7.2 million, or US$0.05 per diluted share of common stock, for the third quarter of 2014, compared to a net loss of US$31.7 million, or US$0.23 per diluted share, for the third quarter of 2013 and a net loss of US$17.1 million, or US$0.13 per diluted share, for the second quarter of 2014. The third quarter 2014 results reflect one-time costs associated with the acquisition of Severstal Dearborn LLC, which the company completed on 16 September 2014. Excluding acquisition-related expenses totaling US$23.6 million, or US$0.17 per diluted share, as discussed below, the company reported adjusted net income of US$16.4 million, or US$0.12 per diluted share. The company reported adjusted EBITDA of US$100.5 million, or US$69 per ton, for the third quarter of 2014 compared to adjusted EBITDA of US$53.5 million, or US$43 per ton, for the year-ago third quarter and adjusted EBITDA of US$65.5 million, or US$47 per ton, for the second quarter of 2014.
“AK Steel’s third quarter financial performance exceeded our expectations,” said James L. Wainscott, chairman, president and CEO of AK Steel. “Our continuing trend of posting adjusted net income provides us with a solid foundation for future growth in earnings and cash flow.”
Net sales for the third quarter of 2014 were US$1.59 billion on shipments of 1,462,900 tons, compared to net sales of US$1.33 billion on shipments of 1,242,400 tons for the year-ago third quarter and net sales of US$1.53 billion on shipments of 1,397,500 tons for the second quarter of 2014. The increase in shipments in the third quarter of 2014 compared to the year-ago period and to the second quarter of 2014 was principally due to shipments from Dearborn Works following the acquisition and higher shipments of carbon steel to the automotive and infrastructure and manufacturing markets.
The company said that its average selling price for the third quarter of 2014 was US$1,089 per ton, down slightly from the second quarter of 2014. The minor decrease from the second quarter was due to a change in product mix related to the addition of Dearborn. The company also said its average selling price for the third quarter of 2014 increased 2% from the third quarter of 2013, primarily as a result of higher spot market prices for carbon steel products. Costs of products sold increased in the third quarter of 2014 due to the acquisition of Dearborn (see discussion below) and to the continued adverse effects from an unplanned outage at the Ashland Works blast furnace. During the third quarter, the company incurred US$23.2 million for unplanned outage costs at the Ashland Works blast furnace and for costs related to lower than normal production levels.
The company also incurred US$1.1 million of costs for planned outages during the third quarter of 2014, compared to US$4.2 million in the year-ago third quarter and US$2.5 million in the second quarter of 2014.
The 2014 third quarter results include a LIFO credit of US$10.9 million, compared to a LIFO credit of US$15.8 million for the third quarter of 2013 and a LIFO credit of US$3.3 million for the second quarter of 2014. Included in the LIFO credit for the third quarter of 2014 is a credit of US$7.3 million related to the Dearborn acquisition.
The company ended the third quarter of 2014 with total liquidity of US$912.3 million, consisting of cash and cash equivalents and US$868.6 million of availability under the company’s revolving credit facility. Consistent with prior seasonal patterns, working capital was a source of US$19.0 million of cash in the third quarter of 2014. The company anticipates that working capital will be a source of cash in the fourth quarter of 2014.
Nine-Month Results
For the first nine months of 2014, the company reported a net loss of US$110.4 million, or US$0.79 per diluted share. Excluding acquisition-related expenses totaling US$24.6 million, or US$0.18 per diluted share, as discussed below, the company reported an adjusted net loss of US$85.8 million, or US$0.61 per diluted share. For the corresponding nine months of 2013, the company reported a net loss of US$82.0 million, or US$0.60 per diluted share. Sales for the first nine months of 2014 were US$4.51 billion compared to sales of US$4.11 billion in the first nine months of 2013. Shipments for the first nine months of 2014 were 4,122,500 tons compared to 3,855,900 tons in the first nine months of 2013.
Extreme winter weather conditions in early 2014 resulted in extra costs of approximately US$45.0 million for the first nine months of 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. The first nine months of 2014 also included a US$5.8 million charge relating to a litigation settlement.
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 the first nine months of 2014. The prior year, in June 2013, an incident at the company’s Middletown Works blast furnace resulted in unplanned outage costs of approximately US$18.0 million in the first nine months of 2013.
The company recorded expenses of US$31.9 million during the first nine months of 2014 for planned outages, compared to expenses of US$26.8 million during the first nine months of 2013.
Acquisition of Dearborn
As previously disclosed, on 16 September 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 three and nine months ended September 30, 2014, include the effects of the acquisition and Dearborn’s operations for the period from the date of acquisition. The results for the three and nine months ended 30 September 2014 include net sales and operating profit of US$90.0 million and US$2.1 million, respectively, attributable to Dearborn since the acquisition. For the three and nine months ended 30 September 2014, the company incurred acquisition costs of US$6.3 million and US$7.3 million, respectively. Acquisition costs are primarily comprised of transaction fees and direct costs, including legal, finance, consulting and other professional fees and are included in selling and administrative expenses. In addition, the company incurred US$12.6 million of costs in the three and nine months ended 30 September 2014 for committed bridge financing that was unused. As a result, these costs were expensed in the third quarter and are included in other income (expense). Subsequent to the acquisition, the company incurred severance costs of US$2.6 million for certain employees of Dearborn, which are included in selling and administrative expenses for the three and nine months ended 30 September 2014, and an income tax charge of US$2.1 million related to changes in the value of deferred tax assets resulting from the acquisition.
Fourth Quarter 2014 Outlook
Consistent with its current practice, the company expects to provide detailed guidance for its fourth quarter results in December. However, in advance of that guidance, the company notes that its fourth quarter results will be affected by a planned outage at the company’s Ashland Works blast furnace which began in late October and is expected to last approximately 28 days.
That outage previously had been planned to occur in 2015, but has been advanced to fully address operational issues with the Ashland Works blast furnace that began earlier this year. Among other things, the planned outage will include a reline of the blast furnace hearth.
The reduced operations at the Ashland Works blast furnace as a result of the outage will affect the fourth quarter of 2014 in terms of production, shipments, operating costs and margins. In the fourth quarter of 2014, the company expects to make capital investments of US$20.0 million and to incur costs of approximately US$30.0 million associated with the planned outage itself and reduced production levels at Ashland Works in the period prior to the outage. The company took steps in advance of the planned outage to minimize the potential impact on its customers, including purchasing additional slabs and building inventory through increased production at other plants.
