AK Steel finished the year 2012 with a strong resolve to win in 2013 and beyond. Despite sluggish economic conditions that have persisted since the Fall of 2008, the men and women of AK Steel have simply refused to lose. That is a testament to the character of our company and the dedication of our people. Thanks to a team effort, AK Steel remains well-positioned to take advantage of opportunities as the economy continues to slowly improve.
For the full-year 2012, AK Steel’s revenues reached approximately $6 billion on shipments of about 5.4 million tons. Our average selling price for 2012 was $1,092 per ton, and we ended the year 2012 with strong liquidity of approximately
Safety First, First In Safety
Safety remains our highest priority at AK Steel, and our 2012 safety performance was nothing short of outstanding. While one injury is always one too many, taken as a whole, the year 2012 represented our second best annual safety performance in the history of AK Steel.
As a result of our commitment to safety, the company earned significant recognition in 2012. Our Coshocton Works and Zanesville Works both received awards for safety from the Ohio Bureau of Workers’ Compensation Division of Safety and Hygiene in 2012, and both of our AK Tube plants were recognized by the Fabricators & Manufacturers Association, International, for their exceptional safety performance.
Of special note, the employees at our Ashland, Rockport and Zanesville plants worked the entire year of 2012 without any OSHA recordable injuries. In addition, our Coshocton Works received Occupational Health and Safety Assessment Series 18001:2007 certification, becoming the first location within AK Steel to do so. These are fantastic achievements, and I offer my sincere thanks and congratulations to all of our employees for making safety their highest priority each and every day.
On the quality front, we established all-time company best records for internal quality performances in 2012. Our rates for both internal rejections and retreated products came in at their lowest levels in company history, surpassing the records that had been set in the year 2011. Our customers were equally happy with the quality of our products in 2012. In fact, according to independent surveys, our carbon and specialty steel customers once again rated AK Steel “Number One” in quality, service and overall customer satisfaction. It does not get any better than that.
In addition, throughout 2012, AK Steel received a number of honors from important customers, highlighted by our “Metallic Supplier of the Year Award” from Chrysler Group LLC.
AK Steel was the only metal supplier in the world to receive this prestigious honor from Chrysler. We were also delighted to receive awards for quality from General Electric and Kenwal Steel, and to be recognized by Toyota for Supplier Diversity and Quality Performance Achievement.
At AK Steel, serving customers better than any other steelmaker is at the heart of who we are, what we do and how we do it. The high rankings and awards we receive are important because they speak to the solid relationships that we strive to build with all of our customers. They are also a valuable indicator of future business opportunities that will come our way.
To enhance our profit margins over the long-term, we continued to develop our strategic investments in Magnetation and AK Coal Resources throughout 2012.
In the near future, those operations will provide us with approximately 50 percent of our annual iron ore and metallurgical coal requirements. By becoming more vertically integrated in this regard, we will gain greater control over our cost structure, enhance our raw materials self-sufficiency and benefit from a financial hedge against global market price increases for those critical steelmaking inputs.
On the iron ore front, we made great progress in 2012 at Magnetation, our joint venture to produce iron ore pellets for our blast furnaces in Middletown, Ohio and Ashland, Kentucky. The joint venture utilizes magnetic separation technology to recover iron ore from existing stockpiles of previously mined material. The first phase of the project, which involved the construction of a second iron-ore concentrate plant, was completed in 2012. That facility is running well and operating at its expected capacity. The second phase, which involves the construction of a pellet plant, is also progressing well.
In November of 2012, Magnetation announced that it would build its pellet plant in Reynolds, Indiana – about halfway between Chicago and Indianapolis. To supply the new plant, Magnetation will transport iron ore concentrate from its mineral recovery operations in Northern Minnesota to its new plant in Reynolds, where it will be converted into high-quality iron ore pellets for our blast furnaces in Ohio and Kentucky.
The new pellet plant supports our objective to become approximately 50 percent self-sufficient in iron ore by the year 2015. This will help insulate AK Steel from volatile swings in market prices for that critical steelmaking raw material. The new pellet plant is expected to commence operations in late 2014 or early 2015. Until then, our share of earnings from Magnetation’s current iron ore concentrate operations will help serve as a partial hedge to our iron ore pellet costs.
AK Coal Resources, Inc.
On the coal front, we are equally pleased with the progress made at AK Coal Resources in 2012. During the third quarter of 2012, we completed the acquisition of a coal preparation plant located in Southwestern Pennsylvania. That plant began supplying prepared coal to SunCoke Middletown in 2012 for conversion into coke to fuel our Middletown blast furnace. In 2013, the plant will begin supplying coal to SunCoke’s Haverhill, Ohio coke plant as well, which produces coke for our Ashland, Kentucky blast furnace.
AK Coal Resources expects to receive its permit to construct and operate its initial underground mine in 2013, and we anticipate mining significant amounts of coal beginning in 2014. Our investment in AK Coal Resources continues to make excellent strategic sense for us. Ultimately, we anticipate reaching our goal of becoming about 50 percent self-sufficient in met coal by year-end 2015. That positions us well for the future in a volatile coal market.
Sound Financial Management
To enhance liquidity and produce greater financial and strategic flexibility for AK Steel, we successfully completed a $300 million senior notes offering in March of 2012. During the fourth quarter of 2012, we also completed three additional capital market transactions that generated $601 million in gross proceeds. Those transactions solidified the company’s balance sheet and substantially enhanced our liquidity.
In addition, we contributed $170 million to AK Steel’s pension trust fund in 2012. From 2005 through the end of 2012, we contributed nearly $1.5 billion to the pension fund. We also made a payment of $32 million related to the Butler Works VEBA in 2012. On the strength of our capital market transactions, as well as our solid working capital management, we ended the year 2012 with strong liquidity of $1.1 billion.
RESOLVE to Win in 2013
Time and again, the men and women of AK Steel have demonstrated an incredible resolve to rise to meet the challenge. I am fortunate to lead an excellent management team with proven resolve and experience – a combination of qualities that will continue to serve the company well as we take advantage of the opportunities in 2013 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, William K. Gerber, Dr. Bonnie G. Hill, Ralph S. (“Mike”) Michael, III, Shirley D. Peterson and Dr. James A. Thomson. I would like to take this opportunity to thank each of them for their strong support and leadership in 2012.
AK Steel was focused on “TEAMwork” in 2012, and we will maintain our strong “RESOLVE” to win in 2013 by striving to:
Restore profitability and generate
EBITDA to meet our needs; to
Sell more and grow profitable sales; to
Operate at higher rates of efficiency; to ensure
Liquidity remains strong while we
Vertically integrate and work hard to