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A Message From Jim Wainscott
AK Steel 2014 Annual Report, February 2015
EMERGE as a Stronger Company in 2014:
At AK Steel, we were determined to "EMERGE as a stronger company" in 2014 by striving to
Execute our plans, Maintain our focus on our key values,
Enhance our earnings and cash flow as we continued to seek the full benefits of our Raw materials strategic initiatives, Grow profitable sales and enhance margins because we are Energized for our future.
Overall, 2014 was a year of progress for AK Steel. Despite battling unprecedented extreme winter weather conditions, energy price spikes, a shortage of iron ore pellets and operational challenges, the men and women of AK Steel overcame adversity and rose to the challenge. We achieved adjusted net income for each of the final three quarters of the year. In fact, our financial results for the full-year 2014 represented our best annual performance since 2008 – when the “Great Recession” began.
For the full-year 2014, AK Steel’s revenues reached approximately $6.5 billion on shipments of about 6.1 million tons. Our average selling price for 2014 was $1,058 per ton, and we ended the year 2014 with solid liquidity of approximately $872 million.
In addition, for the first time in nearly three decades, we completed a very important hearth reline maintenance outage at our blast furnace in Ashland, Kentucky. Completion of this outage, which was prudently advanced from 2015, positions us well to serve our customers’ needs for years to come.
Safety First, First In Safety
Safety is our top priority at AK Steel, and in 2014 we continued our industry-leading safety performance. As a result of our commitment to safety, the company received significant recognition.
Our Coshocton Works, Zanesville Works and AK Tube plant in Walbridge, Ohio, each received awards for safety from the Ohio Bureau of Workers’ Compensation Division of Safety and Hygiene in 2014.
Of special note, our Rockport Works operated the entire year 2014 without a single OSHA recordable injury. And, our Zanesville plant continued its record-setting performance for OSHA lost workday cases, finishing the year with 4,270 days without an OSHA lost workday.
Our Butler Works tied its best ever record for OSHA recordables and newly-acquired Dearborn Works and Mountain State Carbon, LLC set their best annual records for both OSHA recordables and lost workday cases.
In addition, our Middletown Works coke plant was honored for being one of the three safest cokemaking facilities in America in 2014. By operating the entire year without any OSHA recordable injuries, the plant earned the coveted Max Eward Safety Award from the American Coke and Coal Chemicals Institute. This recognition marks the eleventh time that our Middletown Works coke plant has received the award. And, both of our AK Tube plants received the Safety Award of Merit from the Fabricators and Manufacturers Association.
These outstanding achievements speak volumes about our people and our culture of safety at AK Steel. I offer my sincere thanks to all of our employees who make safety their number one priority every day.
On the quality front, we established several all-time best records for internal quality performance in 2014. Both Butler Works and Zanesville Works set all-time internal reject and retreat records with Rockport Works, Mansfield Works, and Coshocton Works each also setting records for retreats.
Both our carbon and specialty steel customers ranked AK Steel “Number One” in quality compared to our peers, according to independent surveys by Jacobson and Associates for 2014.
At AK Steel, serving customers better than any other steelmaker with some of the finest carbon, stainless and electrical steel products produced anywhere in the world is at the heart of who we are. The high rankings we receive are important because they speak to the solid relationships that we strive to build with all of our customers.
Dearborn Acquisition –
A Transformational Deal
At the forefront of our successful investments for 2014 was our transformational acquisition of Dearborn Works. This approximately $690 million acquisition is already exceeding our own high expectations. It has strengthened AK Steel as a premier North American steel manufacturer, and enhanced our ability to serve customers with increased size, scale, and operational flexibility.
From a cost-based synergy standpoint, we are exceeding our previously-announced targets and now believe the potential exists, partly dependent on market conditions, to double our projected amount of expected year one synergies. Since we have acquired the assets, we continue to see more opportunities ahead. So we’re raising the bar and setting higher expectations in all areas, doing more and doing better, faster, with better quality and safer than in the past. That is who we are at AK Steel and that’s what we are bringing to Dearborn Works.
To enhance our profit margins over the long-term, we also completed our investments in our strategic raw material ventures which are part of our long-term strategy to hedge our raw material needs, improve our self sufficiency, and reduce our costs.
Construction of Magnetation’s new iron ore pellet plant in Reynolds, Indiana was completed ahead of schedule. The plant provided initial pellets in the fourth quarter of 2014.
Research and Innovation
AK Steel’s focus is on the future of steelmaking in America. We are bringing innovative new products to the market to meet our customers’ needs today and in the future with products like our recently-introduced CHROMESHIELD® 22. This breakthrough nickel-free stainless steel product provides enhanced benefits and more predictable pricing for our customers. Developed by AK Steel researchers, CHROMESHIELD® 22 provides corrosion resistance that meets or exceeds the performance of conventional nickel-bearing stainless steels, and at a lower cost.
AK Steel is also at the forefront of technology for Advanced High Strength Steels for automotive light-weighting applications. Today, AK Steel produces all of the coated grades of Advanced High Strength Steels that our customers currently require. To ensure we are well-positioned to serve our customers’ needs for future light-weighting applications, we are actively involved in both internal and collaborative research and development efforts of true third-generation steel products to meet future needs. Our internal research and development efforts are in the final stages of evaluating alternative technologies and determining whether one or more approaches are the right way for us to go in the future for our customers.
In February of 2015, we announced plans to build a new, world-class Research and Innovation Center in Middletown, Ohio. This $36 million investment underscores AK Steel’s commitment to the future of steelmaking in America, and our company’s continued industry leadership as a technical innovator in the steel business. The new Research and Innovation Center will be customer-focused, providing advanced technical support to our valued customers, and developing new and improved products for our markets. We expect to break ground for this cutting-edge research facility in the late spring or early summer of 2015.
At AK Steel, we strive to operate responsibly across all aspects of our business. We believe that economic and environmental sustainability are extremely important to our country and our communities.
In recognition of our commitment to the environment through a creek restoration project, we were named a finalist for the “Environmental Stewardship Award” in 2014, which is presented by American Metal Market, a leading metal industry publication.
With regard to sustainability, AK Steel entered into an agreement with Toyota Motor Engineering & Manufacturing North America, Inc. (TEMA) and Green Metals, Inc. to recycle cast iron borings and other materials. While still in the development phase, the project is another example of the innovative work that manufacturers, suppliers and recycling experts are pioneering together to reuse viable materials and reduce waste.
On a personal note, I was honored to serve as the Chair for the United Way of Greater Cincinnati’s 2014 fundraising campaign which raised over $61 million to make a positive difference in the lives of others in the region.
Sound Financial Management
All of the progress we made in 2014 positions us well for the future as we expect to benefit from continued gains in our chosen markets, significant reductions in costs for raw materials and energy, and a full year of growth opportunities from our Dearborn operations and further realization of increasing cost-based synergies.
We contributed $197 million to the company’s pension trust fund in 2014. From 2005 through the end of 2014, we have contributed approximately $1.9 billion to the pension fund. As we look beyond 2014, we anticipate our future annual pension funding requirements will decrease dramatically over the next two years.
DRIVEN to Perform in 2015
Despite the obstacles, the men and women of AK Steel persevered in 2014. We maintained and enhanced our ability to compete, and to win, in the global steel marketplace. We have an excellent management team with a track record of success that will continue to serve the company well in 2015 and beyond.
In addition, AK Steel is well-served by its Board of Directors, including Robert H. Jenkins (Lead Director), Richard A. Abdoo, John S. Brinzo, Dennis C. Cuneo, Mark G. Essig, William K. Gerber, Ralph S. (“Mike”) Michael III, Shirley D. Peterson, Dr. James A. Thomson and Vicente Wright. I am also pleased to welcome, Sheri H. Edison, as the newest member of our Board of Directors. I would like to take this opportunity to thank each of them for his or her strong support and leadership in 2014. I would especially like to thank Shirley Peterson, who is retiring from our Board in May of 2015 after 11 years of dedicated service. We sincerely appreciate Shirley’s service to the company and wish her great success in her future endeavors.
AK Steel proved that, indeed, it could “EMERGE” as a stronger company in 2014. And we are “DRIVEN to Perform” in 2015, acutely focused on achieving things that matter greatly to AK Steel, including:
earborn Works synergies achieved
un our operations consistently well
mprove our sales margins
alidate our strategic raw material investments
arnings and cash flow dramatically increased, and
egotiate great deals on all fronts.