Profitable Growth
Our record sales and relentless cost-control efforts enabled us to achieve record operating profitability in 2007. For the first time in the company's history, we achieved $100 per ton in quarterly operating profit—a long-held, but previously unmet goal. More importantly, we surpassed this performance benchmark for the entire year, strengthening our ability to compete in the global steel marketplace.

Our full-year 2007 adjusted operating profit of $103 per ton represents a 194% increase over 2006 adjusted operating profit of $35 per ton. It also represents a $185 per ton improvement over the $82 per ton operating loss experienced in the second and third quarters of 2003—prior to the company's executive management changes. Our strong cash inflows during 2007 produced a solid cash balance of $714 million. That is an increase of nearly $200 million over 2006, even after taking into account debt redemptions, pension contributions and capital investments totaling more than $800 million.

In recognition of our "Break-Through" performance in 2007, AK Steel received a MANNY award for excellence in manufacturing from Cincy magazine, a leading business publication in Greater Cincinnati.

Enhanced Shareholder Value
Over the course of a few short years, AK Steel has emerged as a Wall Street winner. We recorded net income of $387.7 million in 2007, or $3.46 per diluted share.

From 2003 through the end of 2007, investors saw the value of their AK Steel shares increase by approximately 2,000%. Our performance in 2007 alone prompted CNNMoney.com to list AK Steel among its Top 10 Best Performing FORTUNE 500 stocks of the year. With a 174% gain in value in 2007, AK Steel claimed the second spot on this prestigious list.

De-Leverage the Balance Sheet
AK Steel completed a series of significant
liability-reduction initiatives in 2007 to strengthen our balance sheet. Our strong financial performance enabled us to redeem the entire $450 million of 7 7⁄8% senior notes that were due in 2009. In addition, we made three early contributions to our pension trust fund totaling $250 million. From 2005 through the end of 2007, AK Steel contributed $609 million to the pension trust.

We also reached a VEBA (Voluntary Employees Beneficiary Association) health care settlement with current retirees at our Middletown Works. The retirees were former hourly and salaried members of their local union. The settlement will further strengthen our balance sheet by reducing the company's current OPEB liability by approximately one-half.

Asset Maximization
Throughout 2007, AK Steel took several major steps to maximize assets—to do more with less and increase unit productivity. For example, to better meet global demand for our electrical steel products, our Board of Directors approved our fourth electrical steel expansion project in recent years—a $180 million capital investment to lower production costs and increase electrical steel capacity at our specialty steel operations in Butler, Pennsylvania and Zanesville, Ohio.

This project, which is expected to be completed by the end of 2009, will also provide us with the opportunity to increase carbon steel slab production at Butler Works, significantly lowering AK Steel's need to purchase carbon slabs on the volatile world market.

We also negotiated "new era" labor agreements at our Rockport, Coshocton and Middletown Works—each providing for a smaller, more flexible workforce, as well as affordable pensions and health care cost-sharing. We now have competitive labor deals in place at each of our steelmaking plants.

And, in August, our corporate staff and executive management team moved to a newly constructed corporate headquarters building in West Chester, Ohio—located in the Greater Cincinnati area. The state-of-the-art building enhances our corporate team's ability to service our domestic and international customers and support our manufacturing plants.

Long-Term, Sustained Profitability
When given a level playing field, we believe AK Steel can compete with any steelmaker in the world. Although challenged by increased raw material and energy costs, as well as foreign competition, AK Steel continued to move steadily in the direction of long-term, sustained profitability in 2007.

We took, and continue to take, the steps necessary to achieve our potential. We negotiated competitive labor contracts, enabling AK Steel to operate more efficiently and cost-effectively. We worked with our suppliers to find innovative ways to lower our costs. And, together with many of our contract customers, we established agreements that take into account our escalating steelmaking input costs. Most importantly, all of this was accomplished without sacrificing our key values—safety, quality and productivity.

Safety First, First in Safety
Safety is our highest priority at AK Steel, and we experienced our best-ever safety performance in 2007. Nearly every plant turned in record safety results, with employees at our Mansfield, Rockport and Zanesville operations working the entire year without a single OSHA recordable incident.

Employees at our Ashland coke plant also went injury-free in 2007, earning the Max Eward Safety Award from the American Coke and Coal Chemicals Institute (ACCCI) for the third consecutive year. The award marks the 10th time in the past 11 years that an AK Steel coke plant has received the ACCCI's highest safety honor.

In addition, our Zanesville and Coshocton Works received multiple awards for safety from the Ohio Bureau of Workers' Compensation division of Safety and Hygiene. And, our tube plant in Columbus, Indiana received the "Safety Award of Merit" from the Fabricators & Manufacturers Association International for its safety performance. AK Steel also joined the OSHA Strategic Partnership Program in 2007 to help strengthen our safety and health efforts at our company's Mansfield Works.

With a total recordable incident rate of 0.22 for the entire year of 2007, AK Steel's company-wide safety performance was 12 times better than the steel industry average.

Relentless Pursuit of Quality
We relentlessly pursue quality in everything we do at AK Steel, and our 2007 performance shined in the eyes of our customers. Our low level of customer claims in 2007 reflects our proven ability to provide top-quality products and world-class customer service on a consistent basis—two of our greatest competitive advantages.

Furthermore, our carbon, stainless and electrical steel customers gave us their highest possible honor for 2007—a number one rating in product quality. That is an outstanding accomplishment, and it speaks volumes about our quality control processes at all of our steelmaking and steel finishing facilities. By putting the customer first, AK Steel earned supplier-excellence awards from both Moen, Inc. and Magic Steel Corporation in 2007.

In addition to providing quality products and customer service, AK Steel operates in a manner that protects the quality of the environment. In 2007, AK Steel spent $2.4 million on environmental-related capital projects. From 2003 through the end of 2007, AK Steel spent a total of $75.2 million on environmental-related capital projects and $556.3 million to operate and maintain our environmental controls.

Record-Setting Productivity
Thanks to the tremendous work of our employees, each of our plants achieved new levels of excellence in areas such as maintenance, coating, casting and other productivity metrics in 2007. Total shipments for the year were a record 6,478,700 tons, and demand for our electrical steel products was especially strong.

We are also excited about the productivity gains we anticipate seeing as a result of our Butler Works expansion project. Total steel production at our Butler Works is expected to increase by approximately 40% annually following the completion of the project in 2009.

A Solid Foundation, a Stronger Future
There is much to be proud of at AK Steel, but I firmly believe that our best years are yet to come. It took a lot of hard work, and the dedication of many, to get AK Steel back on the path toward long-term, sustained profitability. I can enthusiastically say we've made significant progress in turning around one of America's premier steel companies, and that is a testament to the character of our company and the resiliency of our employees.

Following AK Steel's break-through year, I would like to take this opportunity to thank our outstanding Board of Directors for their strong support and leadership, including: Robert H. Jenkins, Richard A. Abdoo, William K. Gerber, Dr. Bonnie G. Hill, Daniel J. Meyer, Shirley D. Peterson and Dr. James A. Thomson. I am also pleased to welcome three new members to our Board, John S. Brinzo, Dennis C. Cuneo and Ralph S. (Mike) Michael III. Their experience is a tremendous asset to AK Steel, and I look forward to their continued contributions to our company's success.

We put the "PEDAL to the Metal" in 2007, and we'll be striving to "FORGE Ahead" in 2008 by focusing on improving our Fundamentals, Optimizing our margins, Rewarding our shareholders, Growing our profits and Executing as world-class managers do.

© 2003 - 2008 AK Steel Corporation. All rights reserved.
HOME   SEARCH   TERMS OF USE