AK Steel Reports Third-Quarter 2006 Results

Middletown, OH, October 24, 2006—AK Steel (NYSE: AKS) today reported third-quarter 2006 net income of $26.0 million, or $0.23 per share of common stock.  The 2006 third-quarter results included a one-time pre-tax charge of $15.8 million ($10.7 million after-tax, or $0.10 per share), related to the implementation of new labor agreements at the company’s Zanesville, Ohio and Butler, Pennsylvania operations, as well as a $3.0 million, or $0.03 per share, reduction in the value of a deferred tax asset due to recent state tax law changes.  Excluding these items, third-quarter 2006 net income would have been $39.7 million, or $0.36 per share of common stock. In the year-ago third quarter, AK Steel reported a net loss of $29.0 million, or $0.26 per share.

The company said the $10.7 million after-tax charge was related primarily to pension curtailment costs associated with the new labor agreements and the initial funding of a Voluntary Employees’ Beneficiary Association (VEBA) health care fund covering Butler hourly employees.  The $3.0 million charge was primarily related to a change in Pennsylvania state tax law.   

Net sales for the third quarter of 2006 were a record $1,553.6 million on shipments of 1,522,600 tons.  Third-quarter 2006 sales were about 12% higher and shipments were about 10% lower than in the year-ago period. The company’s average selling price was a record $1,020 per ton in the third quarter of 2006, compared to $825 per ton in the year-ago period.   The lower year-over-year shipments reflect lower North American automobile and light truck production, as well as higher customer inventory levels and increased steel imports, which reduced distribution market shipments. 

AK Steel reported operating profit of $55.1 million, or $36 per ton, in the third quarter of 2006, compared to an operating loss of $25.5 million, or $15 per ton, in the third quarter of 2005.  Excluding one-time, pre-tax labor contract charges of $15.8 million, third-quarter 2006 operating profit would have been $70.9 million, or $47 per ton. A reconciliation of charges to adjusted net income and operating profit is illustrated by the following chart:

($ Millions) Three Months Ended 9/30/2006 Three Months Ended 9/30/2005
Reconciliation of Net Income    
Reported Net Income (Loss) $26.0 ($29.0)
Costs Associated With New Butler & Zanesville Labor Agreements (After-Tax) 10.7 -
Provision For State Tax Law Changes 3.0 -
Adjusted Net Income (Loss) $39.7 ($29.0)
     
Reconciliation of Operating Profit    
Reported Operating Profit (Loss) $55.1 ($25.5)
Costs Associated With New Butler & Zanesville Labor Agreements (Pre-Tax) 15.8 -
Adjusted Operating Profit (Loss) $70.9 ($25.5)

“In a defining year, AK Steel’s most recent operating and financial results continued a steady upward trend,” said James L. Wainscott, chairman, president and CEO.  “Although we recently have seen some slowing in a few of our key carbon steel markets, we anticipate continued strong demand during the fourth quarter for our stainless and electrical products."

Nine-Month Results

For the first nine months of 2006, AK Steel’s net income was $61.3 million, or $0.55 per share, which included after-tax charges of $16.4 million, or $0.15 per share, resulting from the implementation of new labor agreements at the Butler and Zanesville operations, and the reduction in the value of the company’s deferred tax asset due to state tax law changes.  In the comparable 2005 period, net income was $39.2 million, or $0.35 per share, which included total non-cash charges of $32.6 million, or $0.30 per share, resulting from the reduction in the value of the company’s deferred tax asset.

Sales for the first nine months of 2006 were a record $4,486.8 million, compared to $4,270.4 million in the first nine months of 2005.  Operating profit for the first nine months of 2006 was $147.5 million, or $32 per ton shipped.  Excluding the one-time charges of $15.8 million related to the Butler and Zanesville labor contracts, adjusted operating profit for the first nine months of 2006 was $163.3 million, or $35 per ton, compared to $162.3 million, or $34 per ton on the same basis for the first nine months of 2005.   A reconciliation of charges to adjusted net income and operating profit for the comparative nine-month periods is illustrated by the following chart:

($ Millions) Nine Months Ended 9/30/2006 Nine Months Ended 9/30/2005
     
Reconciliation of Net Income    
Reported Net Income $61.3 $39.2
Costs Associated With New Butler & Zanesville Labor Agreements (After-Tax) 10.7 -
Provision For State Tax Law Changes 5.7 32.6
Adjusted Net Income $77.7 $71.8
     
Reconciliation of Operating Profit    
Reported Operating Profit $147.5 $162.3
Costs Associated With New Butler & Zanesville Labor Agreements (Pre-Tax) 15.8 -
Adjusted Operating Profit $163.3 $162.3

Directors Approve $55 Million Electrical Steel Expansion Project

In light of continued strong demand for electrical steel products, the company announced Monday that its board of directors had approved a $55 million capital investment to further expand its electrical steel finishing capacity.  Completion of projects at its Butler and Zanesville plants by mid-2008 will increase the company’s annual electrical steel production capacity by about 12 percent, to approximately 335,000 tons.  The capital investment announced yesterday is in addition to a $14 million capital investment announced in April to increase electrical steel production at the Butler Works.  That project is scheduled to be completed during the first quarter of 2007, and is included in the total of 335,000 tons of production capacity the company will have by mid-2008.

Fourth-Quarter Outlook

AK Steel said that it expects fourth-quarter 2006 shipments of approximately 1,500,000 tons.  Despite increased value-added shipments and higher stainless steel surcharge revenues, the company expects its average per-ton selling price to decrease slightly from third quarter 2006 levels.  The company also expects higher costs for planned maintenance outages during the fourth quarter compared to the third quarter, as it balances its supply with demand from its served markets.  Also the company expects higher raw material and energy costs and a lower LIFO charge compared to the third quarter.  The net effect of these items is expected to result in an operating profit of approximately $30 to $35 per shipped ton for the fourth quarter of 2006.

AK Steel, headquartered in Middletown, Ohio, produces flat-rolled carbon, stainless and electrical steels,as well as tubular steel products for 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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