AK Steel Reports Fourth Quarter and Full-Year 2005 Results

Middletown, OH, January 24, 2006—AK Steel (NYSE: AKS) today reported that its 2005 fourth quarter adjusted income before income taxes was $65.1 million, compared to an adjusted income before income taxes of $73.7 million for the fourth quarter of 2004.  The adjusted income excludes charges of $132.7 million, of which only $17.5 million is cash.  Without the adjustments, the company recorded a net loss of $41.5 million, or $0.38 per common share for the 2005 fourth quarter, compared to a net loss of $102.8 million, or $0.95 per share in the 2004 fourth quarter.

Net sales for the fourth quarter of 2005 totaled $1,377.0 million on shipments of 1,600,200 tons.  The company said that its average steel selling price for the fourth quarter of 2005 was $860 per ton, and that its adjusted operating profit for the 2005 fourth quarter was $83.5 million, or $52 per ton, compared to adjusted operating profit of $98.7 million, or $61 per ton for the 2004 fourth quarter.    AK Steel said that a better than expected LIFO adjustment that resulted in an $17.7 million credit, as well as receipt of a foreign trade duty payment of $7.1 million, were beneficial to the 2005 fourth quarter results.

Fourth Quarter 2005 Charges

The largest fourth quarter charge totaled $65.6 million, of which $33.9 million was related to the company’s decision to impair its investment in AK-ISG Steel Coating Company, a joint venture that operates an electrogalvanizing line in Cleveland, Ohio, which will be indefinitely idled by March 31, 2006

AK Steel has determined that it is now able to fully satisfy its electrogalvanizing requirements, under prevailing market conditions, solely through its own facilities.  AK Steel recorded a charge of $31.7 million related to certain previously idled processing equipment at its Butler (PA) and Mansfield (OH) plants, which the company said is not currently necessary to support its markets due to operating efficiencies at its other processing facilities.   

AK Steel also recorded a $54.2 million non-cash OPEB corridor charge in the fourth quarter under its previously-described accounting method.  Notably, however, the charge related solely to actuarial losses associated with retiree healthcare costs, and no corridor charge was incurred related to pension losses.  Lastly, a non-cash curtailment charge of $12.9 million in the 2005 fourth quarter, previously disclosed, was the result of an agreement with the United Steelworkers union (USW) to “lock and freeze” the existing defined benefit pension plan for about 750 Ashland (KY) Works hourly employees as of January 1, 2006, requiring the company to recognize past service pension expense that previously would have been amortized.

AK Steel said the fourth quarter items, while resulting in largely non-cash charges, were the result of actions which better position the company for the future by further consolidating and rationalizing its operations to be more cost effective, and addressing long-term pension and healthcare costs.

The following schedule reflects the reconciliation of Non-GAAP financial measures for AK Steel’s fourth quarter 2005 results discussed within this news release:

Full-Year 2005 Results

For the full year, AK Steel had adjusted income before income taxes of $170.7 million, compared to 2004 adjusted income before income taxes of $146.2 million, which excludes the fourth quarter charges previously detailed.  Including the charges, AK Steel reported a net loss $2.3 million, or $0.02 per common share for 2005, compared to net income of $238.4 million, or $2.18 per common share for 2004.  The 2004 results included a gain of $201.4 million related to the sale of non-core assets.

Net sales for 2005 were a record $5,647.4 million, on record shipments of 6,418,200 tons, compared to net sales in 2004 of $5,217.3 million, on shipments of 6,252,600 tons.  The company said its average steel selling price in 2005 rose to $879 per ton, compared to its 2004 average of $833 per ton, and that its adjusted operating profit for 2005 was $245.8 million, equal to $38 per ton, compared to 2004 adjusted operating profit, excluding the previously detailed charges, of $251.1 million, or $40 per ton.  Including the charges, 2005 operating profit was $113.1 million, or $18 per ton, compared to an operating loss of $79.7 million, or $13 per ton in 2004.  AK Steel said that it ended 2005 with a cash balance of $519.6 million.   

A Solid Year

“AK Steel achieved outstanding operating and sales performances in 2005,” said James L. Wainscott, chairman, president and CEO.  “In every core operating metric – safety, quality and productivity, we achieved record performances, and we surpassed our aggressive controllable cost targets.  However, the continued volatility in energy, raw materials and spot market pricing underscores AK Steel’s need to further lower its operating costs to achieve sustained profitability.” he said.

Mr. Wainscott indicated that AK Steel was preparing to take advantage of growth opportunities resulting from changing market conditions.

“We are rebalancing our operations and making prudent capital investments to take advantage of changes in our markets,” Mr. Wainscott said.  “Electrical steel demand is strong and growing stronger throughout the world, and we are planning to make targeted capital investments to increase our electrical steel capacity to meet increased customer requirements.  We will also invest in large diameter stainless tube-making equipment to help AK Tube meet market demand for more efficient large diesel exhaust components required by more stringent environmental regulations,” he said.

The following schedule reflects the reconciliation of Non-GAAP financial measures for AK Steel’s full-year 2005 results discussed within this news release: 

First Quarter 2006 Outlook

AK Steel said it expects shipments between 1,575,000 and 1,600,000 tons in the first quarter of 2006, with an average selling price per ton 4% to 5% higher than in the fourth quarter of 2005, with raw material costs higher and natural gas costs similar to fourth quarter 2005 levels.  The company said it expects to generate operating profit in the first quarter of 2006 between $33 and $37 per shipped ton. 

SafeHarborStatement

The statements in this release with respect to future results reflect management’s estimates and beliefs and are intended to be, and hereby are identified as “forward-looking statements” for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  The company cautions readers that such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those currently expected by management.  Except as required by law, the company disclaims any obligation to update any forward-looking statements to reflect future developments or events.

AK Steel

AK Steel, headquartered in Middletown, Ohio, produces flat-rolled carbon, stainless and electrical steels, as well as tubular steel products for customers in the automotive, appliance, construction and manufacturing markets.  Additional information about AK Steel is available on the company’s web site at www.aksteel.com.

 

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