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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 1-13696.
AK STEEL HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
31-1401455
DELAWARE (I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
703 CURTIS STREET, MIDDLETOWN, OHIO 45043
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
Registrant's telephone number, including area code: (513) 425-5000.
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------- ------------------------------
COMMON STOCK $.01 PAR VALUE NEW YORK STOCK EXCHANGE
10 3/4% SENIOR NOTES DUE 2004 NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Aggregate market value of the registrant's voting stock held by non-
affiliates at January 22, 1998: $894,263,776.
At January 22, 1998 there were 60,762,130 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be furnished pursuant to Part III of this Form
10-K will be set forth in, and incorporated by reference from, the
registrant's definitive proxy statement for the annual meeting of stockholders
to be held May 21, 1998, (the "1997 Proxy Statement"), which will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year ended December 31, 1997.
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AK STEEL HOLDING CORPORATION
TABLE OF CONTENTS
PAGE
----
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 4
Item 3. Legal Proceedings................................................. 4
Item 4. Submission of Matters to a Vote of Security Holders............... 5
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 6
Item 6. Selected Financial Data........................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 9
Item 8. Financial Statements and Supplementary Data....................... 13
Item 9. Changes in and Disagreements with Accountants..................... 31
Item 10. Directors and Executive Officers of the Registrant................ 31
Item 11. Executive Compensation............................................ 31
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 31
Item 13. Certain Relationships and Related Transactions.................... 31
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K.. 32
i
PART I
ITEM 1. BUSINESS.
GENERAL
AK Steel Holding Corporation, through its wholly-owned subsidiary, AK Steel
Corporation (collectively, the "Company"), is a fully-integrated producer of
flat rolled steel. The Company concentrates on the production of premium
quality coated, cold rolled and hot rolled carbon steel primarily for sale to
the automotive, appliance, construction and manufacturing markets. The Company
also cold rolls and aluminum coats stainless steel for automotive industry
customers. During 1997, the Company's shipments totalled 4,646,800 tons, of
which 2,874,800 tons, or approximately 62%, consisted of value-added coated
and cold rolled carbon steel products, as well as approximately 70,000 tons of
aluminum coated stainless steel.
The Company has earned a reputation, particularly among high-end customers,
for consistent product quality and superior service, receiving numerous
customer quality awards. The Company is registered under the ISO 9002
international quality standard and certified under the QS 9000 quality
assurance program used by domestic automotive manufacturers.
OPERATIONS
The Company currently conducts operations at its Middletown Works in
Middletown, Ohio, and its Ashland Works in Ashland, Kentucky. In November
1996, the Company announced plans to construct its Rockport Works, a state-of-
the-art finishing facility currently being constructed on a 1,700 acre site in
Spencer County, Indiana, near the Ohio River community of Rockport. For
further information with respect to these facilities, see Item 2. Properties.
CUSTOMERS
The Company's principal customers are in the automotive, appliance,
construction and manufacturing markets. The Company also sells its products to
distributors and convertors.
The Company's marketing efforts are principally directed toward those
customers who require on-time delivery, technical support and the highest
quality coated and cold rolled products. The Company believes that its
enhanced product quality and delivery capabilities, and its emphasis on
customer technical support and product planning, are critical factors in its
ability to serve this segment of the market.
The following table sets forth the percentage of the Company's net sales
attributable to various markets:
YEARS ENDED
DECEMBER 31,
--------------
1995 1996 1997
---- ---- ----
Automotive.................................................... 50% 55% 56%
Appliance, Construction and Manufacturing..................... 16% 15% 16%
Distributors and Convertors................................... 34% 30% 28%
Consistent with management's strategy of concentrating on the high-end of
the flat rolled carbon steel market, shipments to the automotive market have
increased steadily in recent years. A major factor contributing to this
increase has been the growth in the number of U.S.-based plants of foreign
automotive manufacturers. The Company supplies coated, cold rolled and hot
rolled steel to nearly all of these producers and is a major supplier to
General Motors, Ford and Chrysler. Shipments to General Motors, the Company's
largest customer, accounted for approximately 20%, 17% and 18% of net sales in
1995, 1996 and 1997, respectively. No other customer accounted for more than
10% of net sales for any of these years.
1
The appliance, construction and manufacturing markets consist principally of
the home appliance market, heating, ventilation and air conditioning market
and the lighting industry. Distributors and convertors, the third category of
the Company's primary markets, purchase primarily hot rolled and cold rolled
products and may process these further or sell them directly to third parties.
Sales generally are made on a spot market basis.
RAW MATERIALS
The principal raw materials and commodities required in the Company's
manufacturing operations are coal, iron ore, electricity, natural gas, oxygen,
scrap metal, limestone and other commodity materials, all of which are
purchased at competitive or prevailing market prices. Adequate sources of
supply exist for all of the Company's raw material requirements.
EMPLOYEES
As of December 31, 1997, the Company had approximately 5,800 active
employees, of whom approximately 55% were represented by the Armco Employees
Independent Federation, Inc. (the "AEIF"), 19% by the United Steelworkers of
America (the "USWA") and 6% by the Oil, Chemical and Atomic Workers Union (the
"OCAW"). The AEIF represents all hourly employees and certain nonexempt
salaried employees at the Middletown Works. The USWA represents hourly
steelmaking employees and certain nonexempt salaried employees at the Ashland
Works. The OCAW represents hourly employees at the Ashland Works coke
manufacturing facility.
The Company's existing labor contracts are scheduled to expire as follows:
AEIF--February 29, 2000, USWA--September 1, 2000, and OCAW--April 1, 2001.
COMPETITION
The Company competes with domestic and foreign flat-rolled carbon steel
producers and producers of plastics, aluminum and other materials that can be
used in place of flat-rolled carbon steel in manufactured products. Price,
service, delivery and quality are the primary competitive factors faced by the
Company, and vary in importance according to the category of product and
customer requirements.
Domestic steel producers face significant competition from foreign producers
who typically have lower labor costs. In addition, many foreign steel
producers are owned, controlled or subsidized by their governments and their
decisions with respect to production and sales may be influenced more by
political and economic policy considerations than by prevailing market
conditions.
ENVIRONMENTAL MATTERS
Domestic steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment.
The Company has expended the following for environmental related capital
investments and environmental compliance:
YEARS ENDED
DECEMBER 31,
------------
1995 1996 1997
----- ----- -----
(IN MILLIONS)
Environmental related capital investments................. $19.1 $ 6.1 $ 4.3
Environmental compliance costs............................ 51.7 53.6 52.9
2
The Clean Air Act Amendments of 1990 (the "Amendments") imposed new
standards designed to reduce air emissions. The Amendments have directly
affected many of the Company's operations, particularly its coke oven
batteries. As of December 31, 1997, the Company has incurred $67.3 million in
capital investments to bring its coke operations into compliance with the
Amendments' requirements.
The Company does not anticipate any material impact on its future recurring
operating costs or profitability as a result of its compliance with current
environmental regulations. Moreover, the Company believes that since all
domestic steel producers operate under the same set of environmental
regulations, the Company is under no competitive disadvantage resulting from
compliance with such regulations.
Environmental Remediation
The Company and its predecessors have been conducting steel manufacturing
and related operations for over 90 years. Although the Company believes that
its predecessors utilized operating practices that were standard in the
industry at the time, hazardous materials may have been released in or under
currently or previously operated sites. Although the Company does not have
sufficient information to estimate its potential liability in connection with
any potential future remediation, it believes that if any such remediation is
required, it will occur over an extended period of time.
Pursuant to the Resource Conservation and Recovery Act ("RCRA"), which
governs the treatment, handling and disposal of hazardous waste, the United
States Environmental Protection Agency ("EPA") and authorized state
environmental agencies may conduct inspections of RCRA regulated facilities to
identify areas where there have been releases of hazardous waste or hazardous
constituents into the environment and order the facilities to take corrective
action to remediate such releases. The Middletown Works and the Ashland Works
are subject to RCRA inspections by environmental regulators. While the Company
cannot predict the future actions of these regulators, the potential exists
for required corrective action at these facilities.
Under the authority of the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), EPA and state environmental
authorities have conducted site investigations at certain of the Company's
facilities, portions of which previously had been used for disposal of
currently regulated materials. While the results of these investigations are
still pending, the Company could, in the future, be directed to incur costs
for remedial activities at the former disposal areas. Given the uncertain
status of these investigations, however, the Company currently is unable to
predict if and when such costs might arise or, if they should arise, their
magnitude.
Environmental Proceedings
Under the authority of CERCLA, the Kentucky Department of Environmental
Protection conducted a comprehensive review of the waste management control
systems and handling practices at the Ashland Works coke department and
steelmaking facility in July, August and September 1991. As a result of this
inspection, the Kentucky Natural Resources and Environmental Protection
Cabinet instituted an administrative proceeding against the Company in
November 1993, alleging certain regulatory violations. The Company is
vigorously contesting these allegations. To date, the EPA has not indicated
whether it will seek additional penalties for these or other alleged
violations as a result of the above inspection.
In March 1991, the Ohio Environmental Protection Agency notified the Company
that it had referred to the Ohio Attorney General for potential enforcement
action certain alleged violations of Ohio's hazardous waste regulations at the
Middletown Works. Although the Company believes it has a strong basis for
contesting the alleged violations, it is in the process of negotiating a
consent order with the Ohio Attorney General that will address the State's
concerns.
In addition to the foregoing matters, the Company is or may be involved in
legal proceedings with various regulatory authorities that may require the
Company to pay fines relating to violations of environmental laws
3
and regulations, comply with more rigorous standards or other requirements,
and incur capital and operating expenses to meet such obligations.
The Company does not believe that the ultimate disposition of the foregoing
proceedings, individually or in the aggregate, will have a material adverse
effect on its financial condition, results of operations or cash flows.
ITEM 2. PROPERTIES.
The Company's corporate headquarters is located in Middletown, Ohio. The
Company currently conducts operations at its Middletown Works in Middletown,
Ohio, and its Ashland Works in Ashland, Kentucky. Coke manufacturing plants,
blast furnaces, basic oxygen furnaces and continuous casters are located at
both of these facilities. The Company's hot rolling mill, cold rolling mill,
pickling lines, annealing facilities and temper mills as well as four of its
coating lines are located at the Middletown Works, and one additional coating
line is located at the Ashland Works. All of these facilities are owned and
together comprise approximately 3,700 acres of land.
The Rockport Works, currently under construction, is located on a 1,700 acre
site in Spencer County, Indiana near the Ohio river community of Rockport. The
facility will consist of a state-of-the-art continuous cold rolling mill, a
hot dip galvanizing and galvannealing line, a continuous carbon and stainless
steel pickling line, a stainless steel annealing and pickling line, hydrogen
annealing facilities and a temper mill. The first production component to
begin commercial operation will be the hot dip galvanizing and galvannealing
line, which is projected to start-up during the third quarter of 1998. The
continuous cold mill is scheduled to start-up during the first quarter of 1999
with the remaining facilities coming on line in a staggered fashion during the
balance of 1999.
ITEM 3. LEGAL PROCEEDINGS.
In addition to the items discussed below, the Company is also involved in
routine litigation, environmental proceedings, and claims pending with respect
to matters arising out of the normal conduct of the business. In management's
opinion, the ultimate liability resulting from all claims, individually or in
the aggregate, will not materially affect the Company's consolidated financial
position, results of operations or cash flows.
As a result of a 1991 inspection of the Ashland Works' cokemaking operations
by the EPA and the Kentucky Department of Environmental Protection alleging
mishandling of certain regulated materials, the Company has entered into non-
binding mediation with the Kentucky Cabinet for Natural Resources.
Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various constituents
in coke plant wastewaters prior to discharge into publicly owned treatment
works ("POTW"). Due to concentrations of ammonia and phenol in excess of these
limits at the Middletown Works, the Company, through the Middletown POTW,
petitioned the EPA for "removal credits," a type of compliance exemption,
based on the Middletown POTW's satisfactory treatment of the Company's
wastewater for ammonia and phenol. The EPA declined to review the Company's
application on the grounds that it had not yet promulgated new sludge
management rules. The Company thereupon sought and obtained from the Federal
District Court for the Southern District of Ohio an injunction prohibiting the
EPA from instituting enforcement action against the Company for noncompliance
with the pretreatment limitations, pending the EPA's promulgation of the
applicable sludge management regulations. Although the Company is unable to
predict the outcome of this matter, if the EPA eventually refuses to grant the
Company's request for removal credits, the Company could incur additional
costs to construct pretreatment facilities at the Middletown Works.
In January 1996, an action was filed in the Court of Common Pleas of Butler
County, Ohio on behalf of four named plaintiffs who purport to represent a
class of plaintiffs consisting of all hourly employees at the Company's
Middletown Works and all hourly employees of independent contractors working
at the facility since June 1992. The complaint has twice been amended to add
additional named plaintiffs. The plaintiffs allege
4
negligence and intentional tort and seek compensatory and punitive damages in
an unspecified amount for alleged dangerous working conditions at the
Company's Middletown Works. The Company has filed motions to dismiss the suit
in whole and in part. No rulings have been rendered to date on these motions.
In March 1997, the Court granted plaintiffs' motion to certify a class. The
Company's appeal of this decision was denied by the appellate court in June
1997. The Company has further appealed this decision to the Ohio Supreme Court
and a decision is pending. In April 1997, the Company commenced a separate
lawsuit in the United States District Court, Southern District of Ohio,
seeking a permanent injunction staying the state court case and seeking a
declaration that the state court case is preempted by federal law. On August
21, 1997, the federal court denied the motion for an injunction and ordered
the parties to brief the question of its jurisdiction to hear the case.
In April 1996, an action was filed in the United States District Court,
Southern District of Ohio, by a number of former employees of the Company
seeking certain pension and postretirement benefits which they allege were
wrongly denied them when the Company outsourced their positions. On May 30,
1997, the Company filed a motion for summary judgment seeking dismissal of the
case and a decision is pending.
In May 1996, an action was commenced against the Company in the United
States District Court, Southern District of Ohio, on behalf of eleven named
plaintiffs seeking declaratory and injunctive relief and both compensatory and
punitive damages as a consequence of an underground coke oven gas line leak at
the Middletown Works. In March 1997, the court granted the Company's motion to
dismiss all federal law claims. Subsequently, the Company entered into a
settlement agreement with all plaintiffs on their pending state law claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and principal position with the
Company of each of its executive officers as of January 23, 1997:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Richard M. Wardrop,
Jr..................... 52 Chairman of the Board and Chief Executive Officer
James L. Wareham........ 58 President
Richard E. Newsted...... 40 Executive Vice President, Chief Financial Officer
Michael P. Christy...... 41 Vice President, Purchasing and Financial Analysis
Thomas C. Graham, Jr.... 43 Vice President, Research and Design Engineering
Brenda S. Harmon........ 46 Vice President, Human Resources
John G. Hritz........... 43 Vice President, General Counsel and Secretary
Alan H. McCoy........... 46 Vice President, Public Affairs
James W. Stanley........ 53 Vice President, Safety and Health
James L. Wainscott...... 40 Vice President and Treasurer
James F. Walsh.......... 44 Vice President, Manufacturing
Donald B. Korade........ 55 Controller
Richard M. Wardrop, Jr. was elected Chairman of the Board effective January
27, 1997. Mr. Wardrop was elected a director of the Company on March 2, 1995
and on May 17, 1995 he was elected Chief Executive Officer in addition to his
role as President. He had been President and Chief Operating Officer of the
Company since April 7, 1994, having previously served from June 1992 as Vice
President, Manufacturing.
James L. Wareham was named President in March 1997. Since 1992 Mr. Wareham
was Chairman, President and Chief Executive Officer of Wheeling Pittsburgh
Steel Corporation as well as President of WHX Corporation, the parent company
of Wheeling Pittsburgh Steel Corporation.
5
Richard E. Newsted was named Executive Vice President, Chief Financial
Officer in May 1997. Prior to that he had been Senior Vice President, Chief
Financial Officer of the Company since August 1994. In addition, he was
Treasurer from August 1994 through March 1995. From January 1993 until June
1994, Mr. Newsted was Vice President, Chief Financial Officer and Secretary of
National Steel Corporation.
Michael P. Christy was elected Vice President, Purchasing and Financial
Analysis in January 1998. Mr. Christy was named Director, Purchasing and
Financial Analysis in May 1997 after having served as Director, Financial
Planning and Analysis since June 1996. Prior to that Mr. Christy held various
positions in finance, planning and operations at National Steel Corporation.
Thomas C. Graham, Jr. has been Vice President, Research and Design
Engineering since June 1996. From early 1994 until that date, he was General
Manager Sales, Construction for National Steel Corporation, having previously
held various positions in Project Engineering, Process and Technology, and
Operations Management at that company.
Brenda S. Harmon was elected Vice President, Human Resources in January of
1998. Mrs. Harmon has been General Manager, Human Resources since September
1996, after having been named Corporate Manager, Human Resources in March
1995. Prior to that Mrs. Harmon held various positions within the Company's
Human Resources Department.
John G. Hritz has been Vice President, General Counsel and Secretary since
August 1996. Mr. Hritz joined the Company in 1989 as Counsel in the Law
Department, and was named Assistant General Counsel in 1993 and Assistant
Secretary in 1994. Since June 1996, Mr. Hritz also has had responsibility for
the Company's employee and labor relations.
Alan H. McCoy has been Vice President, Public Affairs since January 1997.
From March 1994 until that date Mr. McCoy served as General Manager, Public
Relations. Prior to that Mr. McCoy held various positions within the Company's
Public Relations Department.
James W. Stanley has been Vice President, Safety and Health since January
1996. Prior to joining the Company, Mr. Stanley held various management
positions with the U.S. Department of Labor's Occupational Safety and Health
Administration since its inception in 1971.
James L. Wainscott has been Vice President and Treasurer since April 1995.
For more than ten years prior to joining the Company, Mr. Wainscott held
various financial positions with National Steel Corporation.
James F. Walsh has been Vice President, Manufacturing since January 1996.
Mr. Walsh joined the Partnership in January 1993 as Manager, Maintenance
Technology, and in April 1994 was named General Manager, Middletown Works. He
was elected Vice President, Research and Design Engineering in August 1995.
From 1987 to 1993 Mr. Walsh held various management positions at Qualimatrix,
Inc.
Donald B. Korade has been Controller since September 1995. Mr. Korade was
Assistant Controller, Financial Accounting from June 1989 until September
1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been listed on the New York Stock Exchange
since April 5, 1995 (symbol: AKS). In October 1997, the Company's Board of
Directors authorized a two-for-one stock split of its outstanding Common Stock
effective November 17, 1997 and a 25% increase in the Company's Common Stock
dividend to an annual indicated rate of $.50 per share on a post-split basis.
The table below sets forth, for
6
the calendar quarters indicated, the reported high and low sale prices of the
Common Stock, as adjusted for the two-for-one stock split:
1996 HIGH LOW
---- --------- ---------
First Quarter.......................................... $20 1/2 $16 1/2
Second Quarter......................................... $22 1/16 $18 15/16
Third Quarter.......................................... $21 7/16 $17 7/8
Fourth Quarter......................................... $21 1/4 $17 3/8
1997 HIGH LOW
---- --------- ---------
First Quarter.......................................... $20 11/16 $17 1/2
Second Quarter......................................... $22 3/16 $17 3/4
Third Quarter.......................................... $24 1/32 $20 9/16
Fourth Quarter......................................... $22 5/8 $16 1/8
As of January 22, 1998, there were 60,762,130 shares of Common Stock
outstanding and held of record by 219 stockholders. Because many of these
shares were held by depositories, brokers and other nominees, the number of
record holders is not representative of the number of beneficial holders.
On October 9, 1995, the Board of Directors approved a plan to repurchase,
from time to time, up to $100.0 million of its outstanding equity securities.
Pursuant to this plan, in 1995 the Company repurchased and is holding in its
treasury 1,274,870 shares (on a post-split basis) of Common Stock for $21.5
million, an average of $16.81 per share. In addition, the Company repurchased
and retired 1,563,700 shares of its Convertible Preferred Stock, Stock
Appreciation Income Linked Securities ("SAILS") (2,696,132 post-split Common
Stock equivalents) for $52.3 million, an average of $33.43 per SAILS, and in
1996 an additional 707,600 SAILS (1,220,044 post-split Common Stock
equivalents) were purchased and retired for $26.2 million, an average of
$37.16 per SAILS. The last purchases under this plan were completed in April
1996.
On May 15, 1996, the Board of Directors approved a second plan to
repurchase, from time-to-time, up to an additional $100.0 million of its
outstanding equity securities. Pursuant to this plan, in 1997 the Company
repurchased and is holding in its treasury 1,409,050 shares (on a post split
basis) of its Common Stock for $26.7 million, an average of $18.96 per share.
In addition, in 1996, the Company repurchased and retired 362,600 SAILS
(625,195 post-split Common Stock equivalents) for $12.8 million, an average of
$35.36 per SAILS and in 1997 the Company repurchased and retired an additional
95,000 SAILS (163,799 post-split Common Stock equivalents) for $3.1 million,
an average of $32.92 per SAILS.
On October 16, 1997, the Company redeemed its remaining outstanding
4,750,774 SAILS, in exchange for the issuance of 8,191,284 shares (on a post-
split basis) of Common Stock.
The Company has paid quarterly dividends on its Common Stock since November
15, 1995. Dividends at the post-split rate of $0.075 per share were paid on
February 15, May 15, and August 15, 1996 and a dividend of $0.10 per post-
split share was paid on November 15, 1996. In 1997, dividends at the post-
split rate of $0.10 were paid on February 15, May 15, August 15 and a dividend
of $0.125 was paid on November 15. The declaration and payment of cash
dividends is subject to restrictions imposed by the instruments governing its
senior debt. At December 31, 1997, the Company had adequate amounts available
for the payment of cash dividends.
7
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical consolidated financial data for each of
the five years in the period ended December 31, 1997 have been derived from
the Company's audited consolidated financial statements. The selected
historical consolidated financial data presented herein are qualified in their
entirety by, and should be read in conjunction with, the consolidated
financial statements of the Company and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
(1)
Net sales...................... $1,594.5 $2,016.6 $2,257.3 $2,301.8 $2,440.5
-------- -------- -------- -------- --------
Cost of products sold.......... 1,380.3 1,655.2 1,768.1 1,846.5 1,964.5
Selling and administrative
expenses...................... 111.2 113.7 116.5 114.7 114.8
Depreciation................... 73.5 70.7 74.6 76.1 79.8
Special charges and unusual
items (2)..................... 17.6 (15.9) -- -- --
-------- -------- -------- -------- --------
Total operating costs.......... 1,582.6 1,823.7 1,959.2 2,037.3 2,159.1
-------- -------- -------- -------- --------
Operating profit (2)........... 11.9 192.9 298.1 264.5 281.4
Interest expense............... 58.1 48.2 35.6 39.8 76.3
Other income................... 3.5 7.3 19.0 12.3 36.4
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
items......................... (42.7) 152.0 281.5 237.0 241.5
Provision (benefit) for income
taxes (3)..................... -- (120.5) 12.9 91.1 90.6
-------- -------- -------- -------- --------
Income (loss) before
extraordinary items........... (42.7) 272.5 268.6 145.9 150.9
Extraordinary items (4)........ -- (14.9) -- -- --
-------- -------- -------- -------- --------
Net income (loss).............. $ (42.7) $ 257.6 $ 268.6 $ 145.9 $ 150.9
======== ======== ======== ======== ========
Basic earnings per share: (5)
Income before extraordinary
items....................... n/a $ 5.13 $ 4.82 $ 2.57 $ 2.59
Extraordinary items.......... n/a (0.28) -- -- --
Net income................... n/a 4.85 4.82 2.57 2.59
Diluted earnings per share: (5)
Income before extraordinary
items....................... n/a 4.17 4.09 2.35 2.43
Extraordinary items.......... n/a (0.23) -- -- --
Net income................... n/a 3.94 4.09 2.35 2.43
Cash dividend per common share
(5)........................... n/a n/a .075 .325 .425
AS OF DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
BALANCE SHEET DATA: (1)
Cash, cash equivalents and
short-term investments........ $ 144.2 $ 261.8 $ 312.8 $ 739.3 $ 606.1
Working capital................ 55.9 443.5 489.8 1,005.1 658.2
Total assets................... 1,518.7 1,933.2 2,115.5 2,650.8 3,084.3
Current portion of long-term
debt.......................... 130.8 -- -- -- --
Long-term debt (excluding
current portion).............. 598.6 330.0 325.0 875.0 997.5
Current portion of pension and
postretirement benefit
obligations................... 93.8 110.3 0.1 0.1 0.1
Long-term pension and
postretirement benefit
obligations (excluding current
portion)...................... 922.8 638.3 655.7 564.9 554.1
Stockholders' equity (6)....... (586.2) 449.0 674.2 777.0 879.6
8
- --------
(1) AK Steel Holding and AK Steel were formed effective March 29, 1994, as a
result of a recapitalization of Armco Steel Company, L.P. (the
"Partnership"), which was a joint venture of Armco Inc. and Kawasaki Steel
Corporation. Accordingly, data for 1993 is derived from the financial
statements of the Partnership.
(2) The operating profit for 1993 includes special charges and unusual items
of $17.6 million relating to fixed asset write offs and related disposal
costs as well as other miscellaneous charges. The operating profit for
1994 includes gain of $15.9 million from the sale of the Company's equity
interests in Southwestern Ohio Steel, L.P. and Nova Steel Processing.
(3) Includes a tax benefit of $120.3 million in 1994 associated with
recognition of the deferred tax asset related to postretirement benefits.
(4) The extraordinary item of $14.9 million in 1994 consists of charges
associated with the prepayment of certain outstanding debt.
(5) The historical per share amounts have been restated for a two-for-one
Common Stock split effective November 17, 1997. The Company has adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" ("EPS"). The effect of this standard on the EPS calculation was
not material.
(6) Stockholders' equity at December 31, 1993 and at December 31, 1994,
reflect reductions to equity of $113.2 million and $39.3 million (net of
tax), respectively, related to the establishment of an additional pension
plan liability. As of December 31, 1995, the Company had fully funded its
pension plan liability on an accumulated benefit obligation basis and
eliminated the reduction to stockholders' equity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company concentrates on the production of premium quality coated, cold
rolled and hot rolled carbon steel primarily for sale to the automotive,
appliance, construction and manufacturing markets. The Company also cold rolls
and aluminum coats stainless steel for automotive industry customers.
1997 COMPARED TO 1996
Net sales increased 6% in 1997 over 1996 with coated and cold rolled
shipments accounting for 75% of total product sales. The Company continues to
focus on the automotive market with record shipments and sales during 1997.
The following table sets forth the percentage of the Company's net sales
attributable to various markets for the years indicated:
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
Automotive.............. 50% 55% 56%
Appliance, Construction
and Manufacturing...... 16% 15% 16%
Distributors and
Convertors............. 34% 30% 28%
Operating profit in 1997 totalled $281.4 million, or $61 per ton shipped,
compared to $264.5 million or $60 per ton shipped in 1996. Reductions in
selling prices and increases in raw materials and energy costs were offset as
the Company continues to emphasize productivity gains and quality enhancements
as the primary components of its cost reduction efforts. Manhours per net ton
shipped continued to improve, declining to 2.83 for the year of 1997 from 3.02
for 1996.
Interest expense, net of capitalized interest of $20.9 million, totalled
$76.3 million in 1997 compared to $39.8 million in 1996. The increase in
interest expense is attributable primarily to the issuance in December 1996 of
$550.0 million of 9 1/8% Senior Notes Due 2006 (the "9 1/8% Notes") as well as
the issuance in June and September 1997 of $92.5 million and $20.0 million,
respectively, of Senior Secured Notes Due 2004 (the "Secured Notes"). Other
income, consisting primarily of interest income, increased to $36.4 million in
1997 from $12.3 million in 1996.
9
The total income tax provision was $90.6 million, the components of which
are described in Note 3 to the Consolidated Financial Statements herein. The
tax rate was 38.4% and 37.5% for 1996 and 1997, respectively.
Net income for 1997 totalled $150.9 million compared to $145.9 million for
1996. Diluted earnings per share have been calculated in compliance with the
adoption of SFAS No. 128 and adjusted for the two-for-one Common Stock split.
Diluted earnings per share for 1997 totalled $2.43 compared to $2.35 for 1996.
Many business and process control systems used in the current business
environment were designed to use only two digits in the date field and thus
may not function properly in the year 2000. Over the past several years, the
Company has been assessing and modifying its own business systems to be year
2000 compliant. The Company has a plan to achieve year 2000 compliance with
respect to its own business systems, including systems and user testing, and
does not expect the costs associated with that plan to be material. The
Company is continuing to assess its process control systems for year 2000
compliance and intends to make the necessary modifications to prevent
disruption to its operations. The Company is unable at this time to estimate
the costs of such modifications.
1996 COMPARED TO 1995
Net sales increased 2% in 1996 over 1995. Flat rolled product sales
increased 5% or $108.2 million. However, due to the shutdown of two of the
coke oven batteries at the Company's Middletown Works in December of 1995,
sales of merchant coke decreased $58.8 million. A decline in flat rolled steel
prices during 1996 for sales made on a contract basis, which account for
approximately 70% of sales, was more than offset by an increase in flat rolled
tonnage shipped coupled with an improving product mix and series of price
increases on non-contract sales. The following table sets forth the percentage
of the Company's net sales attributable to various markets for the years
indicated:
YEARS ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
Automotive.............. 47% 50% 55%
Appliance, Construction
and Manufacturing...... 16% 16% 15%
Distributors and
Convertors............. 37% 34% 30%
Sales of higher margin coated products in 1996 were 15% higher than in 1995.
This increase was largely attributable to improved productivity of the
Company's coating facilities as a result of significant capital investments
during 1995. The emphasis on production of coated products resulted in a
decrease in sales of cold rolled products, as an increased percentage of the
output from the Company's Middletown Works cold rolling mill was allocated to
its coating facilities in order to maximize shipments of coated products.
Operating profit in 1996 totalled $264.5 million, or $60 per ton shipped,
compared to $298.1 million or $74 per ton shipped in 1995. The reduction was
primarily due to reduced selling prices, increased raw material costs and an
unplanned blast furnace outage at the Middletown Works in December 1996. The
Company continues to emphasize productivity gains and quality enhancements as
the primary components of its cost reduction efforts. Manhours per net ton
shipped continued to improve, declining to 3.02 for the year of 1996 from 3.26
for 1995.
Interest expense in 1996 increased 11%, or $4.2 million, over 1995,
reflecting a reduction of $3.0 million in capitalized interest and the
issuance in December 1996 of $550.0 million of 9 1/8% Notes.
The total income tax provision in 1996 was $91.1 million, the components of
which are described in Note 3 to the Consolidated Financial Statements herein.
Net income for 1996 totalled $145.9 million compared to $268.6 million for
the same period of 1995. Because the Company attained full book taxpayer
status in 1996, its book tax rate was 38.4% compared to 4.7%
10
for 1995. On a comparably taxed basis, net income for 1995 would have been
$173.5 million. Diluted earnings per share for 1996, as adjusted for the
adoption of SFAS 128 and the two-for-one Common Stock split, were $2.35,
compared to a reported $4.09 ($2.64 on a comparably taxed basis) for 1995.
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED DECEMBER 31, 1997
At December 31, 1997, the Company had $606.1 million in cash, cash
equivalents and short term investments and $109.4 million of financing
available under its $125.0 million accounts receivable purchase credit
facility. During 1997, cash flow from operations generated $472.0 million.
Operating cash flows were attributed primarily to net income, the impact of
working capital items and noncash charges for depreciation and taxes.
Cash flows used in investing activities totalled $706.3 million of which
$508.4 million was associated with the Rockport Works. Remaining capital
investments totalled $128.1 million and purchases of short-term investments
were $41.7 million.
Cash flows from financing activities generated $59.4 million. In 1997 the
Company issued an aggregate of $112.5 million of its Secured Notes with a
weighted average interest rate of 8.99%, an additional $137.5 million of the
Secured Notes were issued in January 1998 with a weighted average interest
rate of 8.51%. The Company paid $34.1 million in dividends and utilized $29.8
million for open market purchases of its equity securities during 1997.
Anticipated Debt Service
The Company's long-term debt at December 31, 1997, totalled $997.5 million,
and consisted of $325.0 million principal amount of its 10 3/4% Senior Notes
Due 2004 and $550.0 million principal amount of its 9 1/8% Notes, none of
which is subject to amortization prior to maturity, $112.5 million aggregate
principal amount of its Secured Notes, which, together with an additional
$137.5 million of Secured Notes issued in January 1998, will be repayable in
four successive annual installments of $62.5 million commencing in December
2001, and $10.0 million in tax exempt revenue bonds due on December 1, 2027.
Interest expense for 1997, net of capitalized interest of $20.9 million,
totalled $76.3 million.
Capital Investments
In addition to the projected $1.1 billion cost of constructing and equipping
Rockport Works, the Company anticipates annual capital investments of
approximately $125.0 million to maintain the competitiveness and efficiency of
its existing facilities and to assure its compliance with applicable safety
and environmental standards. Capital investments excluding Rockport Works
totalled $128.1 million during 1997. At December 31, 1997, commitments for
future capital investments, excluding Rockport Works but including those made
to assure environmental compliance, totalled approximately $61.4 million, all
of which will be funded in 1998. In addition, at December 31, 1997, the
Company had outstanding commitments for the constructing and equipping of
Rockport Works under contracts aggregating $348.5 million; however, the
Company's maximum aggregate liability in the event of cancellation of these
contracts is limited to $130.7 million. Peak capital investment is expected to
occur in the first half of 1998, declining steadily thereafter until final
completion of the facility in December of 1999. In addition to the proceeds
from issuance of its 9 1/8% Notes and Secured Notes, the Company will use
approximately $300.0 million of cash from operations to finance construction
of Rockport Works.
Employee Benefit Obligations
The Company's pension plans are fully funded on an accumulated benefit
obligation basis in accordance with generally accepted accounting principles
as of December 31, 1997. Funding levels in the near term (three to five years)
are expected to be minimal. The Company also has available a pension funding
credit balance of $317.2 million that can be used to meet future pension
funding requirements, if any, although there are no present plans to do so.
11
At December 31, 1997, the Company's liability for postretirement benefits
other than pensions totalled $554.1 million. The Company has prefunded a
portion of this liability through the establishment of a health care trust. At
December 31, 1997, the balance of the trust including the earnings on the
trust investments was $219.3 million which is equivalent to approximately
three years of active and retiree health care benefit payments.
Other
On October 8, 1997, the Company's Board of Directors authorized a two-for-
one Common Stock split that became effective November 17, 1997. Following the
stock split, approximately 62 million common shares were outstanding.
On October 16, 1997, the Company redeemed its then outstanding 4,750,774
SAILS in exchange for the issuance of 8,191,284 shares (on a post-split basis)
of Common Stock. The redemption did not dilute the interests of common
shareholders because per share earnings from the date of issuance of the SAILS
had been calculated on a diluted basis that gave effect to the mandatory
conversion feature of the SAILS. Cash requirements for the redemption were
minimal, relating only to payment for fractional shares. Redemption of the
SAILS resulted in net annual dividend cash flow savings of $6.1 million.
In October 1997, the Board of Directors also approved a 25% increase in the
Company's Common Stock dividend to an annual indicated rate of $.50 per share
on a post-split basis. A post-split quarterly dividend of $.125 per share was
paid on November 17, 1997 to shareholders of record on October 21, 1997.
YEAR ENDED DECEMBER 31, 1996
On December 17, 1996, the Company completed arrangements for $800.0 million
of debt financing for the construction of Rockport Works. On that date the
Company issued $550.0 million of 9 1/8% Notes and entered into definitive
agreements for the private sale beginning in June of 1997 of an aggregate of
$250.0 million of Secured Notes, which will be collateralized by the hot-dip
galvanizing and galvannealing line and the continuous cold mill at the
Rockport Works. Pending completion of these facilities, the Company is
prohibited from granting liens on its inventories.
At December 31, 1996, the Company had $739.3 million in cash, cash
equivalents and short term investments and $119.4 million of financing
available under its $125.0 million accounts receivable purchase credit
facility. During 1996 cash flow from operations generated $86.3 million. Cash
flows from net income were partially offset as the Company contributed a total
of $100.0 million to a trust established to prefund health care benefits for
both active and retired employees, contributed $25.0 million to its pension
trust and paid profit sharing bonuses of $34.6 million.
Cash flows used in investing activities totalled $185.1 million of which
$53.6 million was associated with the Rockport Works.
Cash flows from financing activities generated $484.9 million as the net
proceeds from the issuance of $550.0 million of the 9 1/8% Notes were
partially offset as the Company paid cash dividends of $28.7 million and
utilized $39.2 million for open market purchases of its equity securities
during 1996.
YEAR ENDED DECEMBER 31, 1995
The Company's cash, cash equivalents and short-term investment position
increased by $51.0 million during 1995. Cash flow from operations generated
$300.1 million. The Company contributed $93.0 million to its pension trust and
$70.0 million to the health care benefits trust, made capital investments of
$175.7 million and used $73.8 million for open market purchases of its equity
securities.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
AK STEEL HOLDING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report............................................. 14
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996 and 1997........................................................... 15
Consolidated Balance Sheets as of December 31, 1996 and 1997............. 16
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997..................................................... 17
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997........................................ 18
Notes to Consolidated Financial Statements............................... 19
13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AK Steel Holding Corporation:
We have audited the accompanying consolidated balance sheets of AK Steel
Holding Corporation and Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1996 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 20, 1998
14
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1995 1996 1997
-------- -------- --------
Net Sales (Note 7).................................. $2,257.3 $2,301.8 $2,440.5
Operating Costs:
Cost of products sold (Notes 1 and 7)............. 1,768.1 1,846.5 1,964.5
Selling and administrative expenses............... 116.5 114.7 114.8
Depreciation (Note 1)............................. 74.6 76.1 79.8
-------- -------- --------
Total Operating Costs........................... 1,959.2 2,037.3 2,159.1
-------- -------- --------
Operating Profit.................................... 298.1 264.5 281.4
Interest Expense (Note 4)........................... 35.6 39.8 76.3
Other Income........................................ 19.0 12.3 36.4
-------- -------- --------
Income Before Income Taxes.......................... 281.5 237.0 241.5
Current Income Tax Provision (Note 3)............... 6.2 3.8 46.3
Deferred Income Tax Provision (Note 3).............. 6.7 87.3 44.3
-------- -------- --------
Net Income.......................................... 268.6 145.9 150.9
Preferred Stock Dividends (Note 2).................. 15.3 11.1 7.7
-------- -------- --------
Net Income Applicable to Common Shareholders........ $ 253.3 $ 134.8 $ 143.2
======== ======== ========
Earnings per share: (Note 2)*
Basic earnings per share:......................... $ 4.82 $ 2.57 $ 2.59
Diluted earnings per share........................ 4.09 2.35 2.43
Cash dividends per common share................... .075 .325 .425
*Restated for two-for-one Common Stock split effective November 17, 1997.
See notes to consolidated financial statements.
15
AK STEEL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(DOLLARS IN MILLIONS)
1996 1997
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents (Note 1)....................... $ 523.1 $ 348.2
Short-term investments................................... 216.2 257.9
Accounts receivable, net (Notes 1 and 4)................. 260.3 241.5
Inventories, net (Note 1)................................ 360.9 365.2
Other.................................................... 5.2 8.8
-------- --------
Total Current Assets................................... 1,365.7 1,221.6
-------- --------
Property, plant and equipment (Note 1):
Land, land improvements and leaseholds................... 46.2 47.8
Buildings................................................ 82.3 81.8
Machinery and equipment.................................. 1,350.6 1,396.4
Construction in progress................................. 112.2 693.2
-------- --------
Total.................................................. 1,591.3 2,219.2
Less accumulated depreciation............................ (552.7) (626.5)
-------- --------
Property, plant and equipment, net....................... 1,038.6 1,592.7
Prepaid pension (Note 6)................................... 153.3 159.2
Other (Note 6)............................................. 93.2 110.8
-------- --------
Total Assets........................................... $2,650.8 $3,084.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 239.8 $ 375.6
Accrued salary and wages................................. 68.4 66.1
Other accruals (Notes 2 and 3)........................... 50.0 91.9
Current portion of deferred taxes (Note 3)............... 2.3 29.7
Current portion of long-term debt (Note 4)............... -- --
Current portion of pension obligation (Note 6)........... 0.1 0.1
Current portion of postretirement benefit obligation
(Note 6)................................................ -- --
-------- --------
Total Current Liabilities.............................. 360.6 563.4
-------- --------
Noncurrent Liabilities:
Long-term debt (Note 4).................................. 875.0 997.5
Pension obligation (Note 6).............................. -- --
Postretirement benefit obligation (Note 6)............... 564.9 554.1
Deferred taxes (Note 3).................................. 13.4 30.3
Other liabilities........................................ 59.9 59.4
Commitments and contingencies (Notes 4, 8 and 9)......... -- --
-------- --------
Total Noncurrent Liabilities........................... 1,513.2 1,641.3
-------- --------
Total Liabilities...................................... 1,873.8 2,204.7
-------- --------
Stockholders' Equity:*
Preferred stock, Authorized 25,000,000 shares of $.01 par
value each; issued and outstanding, 1996, 4,845,774
shares (Note 2)......................................... 0.1 --
Common stock, Authorized 75,000,000 shares of $.01 par
value each; issued, 1996, 54,517,668 shares; 1997,
63,503,718 shares; outstanding, 1996, 53,239,900 shares;
1997, 60,808,922 shares (Note 2)........................ 0.3 0.6
Additional paid-in capital............................... 708.9 716.8
Treasury stock, common shares at cost, 1996, 1,277,768;
1997, 2,694,796 shares (Note 2)......................... (21.5) (48.2)
Retained earnings........................................ 89.2 210.4
-------- --------
Total Stockholders' Equity................................. 777.0 879.6
-------- --------
Total Liabilities and Stockholders' Equity................. $2,650.8 $3,084.3
======== ========
*Restated for two-for-one Common Stock split effective November 17, 1997
See notes to consolidated financial statements.
16
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN MILLIONS)
1995 1996 1997
------ ------ ------
Cash flows from operating activities:
Net income........................................... $268.6 $145.9 $150.9
------ ------ ------
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation....................................... 74.6 76.1 79.8
Deferred income taxes.............................. 6.7 87.3 44.3
Other, net......................................... 2.3 3.5 12.8
Changes in Assets and Liabilities:
Accounts and notes receivable.................... 32.4 (42.4) 19.0
Inventories...................................... (17.6) (20.2) (4.3)
Current liabilities.............................. 67.5 (36.2) 179.0
Other assets..................................... (30.5) (19.1) 7.7
Pension obligation............................... (75.6) (14.4) (5.9)
Postretirement benefit obligation................ (19.8) (90.8) (10.8)
Other liabilities................................ (8.5) (3.4) (0.5)
------ ------ ------
Total Adjustments.............................. 31.5 (59.6) 321.1
------ ------ ------
Net cash flows from operating activities......... 300.1 86.3 472.0
------ ------ ------
Cash flows from investing activities:
Capital investments.................................. (175.7) (141.6) (636.5)
Net purchase of short-term investments............... (175.8) (40.4) (41.7)
Purchase of long-term investments.................... (3.9) -- (26.4)
Proceeds from the sale of investments................ 2.7 -- 0.4
Proceeds from sale of property, plant and equipment.. 5.8 0.3 0.9
Proceeds from sale of Eveleth Notes.................. 7.7 -- --
Advances to investees................................ (5.5) (5.4) (3.0)
Proceeds, asset sales................................ 10.5 2.0 --
------ ------ ------
Net cash flows from investing activities......... (334.2) (185.1) (706.3)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock............... 8.1 16.6 7.0
Principal payments on long-term debt................. (5.0) -- --
Proceeds from issuance of long-term debt............. -- 550.0 122.5
Purchase of treasury stock........................... (21.5) -- (26.7)
Purchase of preferred stock.......................... (52.3) (39.2) (3.1)
Preferred stock dividends paid....................... (16.1) (11.7) (10.3)
Common stock dividends paid.......................... (3.9) (17.0) (23.8)
Underwriting discount and stock issuance expense..... -- (13.8) (6.1)
Other, net........................................... -- -- (0.1)
------ ------ ------
Net cash flows from financing activities......... (90.7) 484.9 59.4
------ ------ ------
Net increase (decrease) in cash and cash equivalents... (124.8) 386.1 (174.9)
Cash and cash equivalents, beginning of period....... 261.8 137.0 523.1
------ ------ ------
Cash and cash equivalents, end of period............. $137.0 $523.1 $348.2
====== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)............... $ 33.7 $ 36.3 $ 72.1
Income taxes....................................... 4.2 5.8 42.6
See notes to consolidated financial statements.
17
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS)
ADDITIONAL
PREFERRED COMMON PAID-IN- TREASURY RETAINED
STOCK STOCK CAPITAL STOCK EARNINGS TOTAL
--------- ------ ---------- -------- -------- ------
BALANCE, DECEMBER 31, 1994 $0.1 $0.3 $752.7 $(304.1) $449.0
Minimum accumulated benefit
obligation, net of
tax (Notes 3 and 6)...... 39.3 39.3
Net income.................. 268.6 268.6
Stock options exercised..... 8.1 8.1
Tax benefit from exercise of
stock options (Note 3)... 1.1 1.1
Purchase of stock........... (48.0) $(21.5) (4.3) (73.8)
Cash dividend:
Preferred stock $.538
cash dividend per
quarter................... (15.3) (15.3)
Common stock $.075 cash
dividend in fourth quarter*. (3.9) (3.9)
Issuance of restricted stock, net 2.1 2.1
Unamortized restricted
stock (Note 2)......... (1.0) (1.0)
---- ---- ------ ------ ------- ------
BALANCE, DECEMBER 31,
1995................... 0.1 0.3 715.0 (21.5) (19.7) 674.2
Net income.............. 145.9 145.9
Stock options exercised 16.6 16.6
Tax benefit from exer-
cise of stock options
(Note 3)............... 4.1 4.1
Tax benefit from vesting
of restricted stock.... 0.3 0.3
Purchase of stock....... (30.3) (8.9) (39.2)
Cash dividend:
Preferred stock $.538
cash dividend per
quarter............... (11.1) (11.1)
Common stock $.075 cash
dividend per quarter,
$.10 in fourth quar-
ter*.................. (17.0) (17.0)
Issuance of restricted
stock, net............. 4.3 4.3
Unamortized restricted
stock (Note 2)......... (1.1) (1.1)
---- ---- ------ ------ ------- ------
BALANCE, DECEMBER 31,
1996................... 0.1 0.3 708.9 (21.5) 89.2 777.0
Net income.............. 150.9 150.9
Unrealized gain on mar-
ketable securities..... 2.1 2.1
Stock options exer-
cised.................. 7.0 7.0
Two-for-one Common Stock
split.................. 0.3 (0.3)
Tax benefit from exer-
cise of stock options
(Note 3)............... 1.2 1.2
Tax benefit from vesting
of restricted stock.... 0.1 0.1
Purchase of stock....... (2.8) (26.7) (0.3) (29.8)
Redemption of preferred
stock.................. (0.1) (0.1) (0.2)
Cash dividend:
Preferred stock $.538
cash dividend per
quarter............... (7.7) (7.7)
Common stock $.10 cash
dividend per quarter,
$.125 in fourth quarter* (23.8) (23.8)
Issuance of restricted
stock, net............. 6.2 6.2
Unamortized restricted
stock (Note 2)......... (3.4) (3.4)
---- ---- ------ ------ ------- ------
BALANCE, DECEMBER 31,
1997................... $ -- $0.6 $716.8 $(48.2) $ 210.4 $879.6
==== ==== ====== ====== ======= ======
*Restated for two-for-one Common Stock split effective November 17, 1997
See notes to consolidated financial statements.
18
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: AK Steel Holding Corporation ("AK Holding") and its
wholly-owned subsidiary AK Steel Corporation ("AK Steel," collectively the
"Company") were formed effective March 29, 1994 as a result of the
recapitalization of Armco Steel Company, L.P. ("the Partnership").
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management estimates.
Actual results could differ from those estimates.
The results of operations and financial position of AK Steel approximates
the results of operations and financial position of AK Holding.
For comparison purposes certain 1995 and 1996 items have been reclassified
to conform with 1997 classifications. All references to the number of common
shares and per share amounts have given effect to the two-for-one Common Stock
split effective November 17, 1997.
The Company consists of the operations and accounts of the Middletown Works,
Ashland Works, Rockport Works, Headquarters, AKSR Investments Inc. ("AKR") and
AKS Investments, Inc. and its group of wholly-owned subsidiaries, (the "AKSII
Group"). The Company is an integrated steel producer of carbon flat rolled
steel for the automotive, appliance, manufacturing and other markets. The
Company has one major customer that accounted for 20%, 17% and 18% of its net
sales in 1995, 1996 and 1997, respectively.
Employees: As of December 31, 1997, the Company had approximately 5,800
active employees, of whom approximately 55% were represented by the Armco
Employees Independent Federation, Inc. (the "AEIF"), 19% by the United
Steelworkers of America (the "USWA") and 6% by the Oil, Chemical and Atomic
Workers Union (the "OCAW"). The AEIF represents all hourly employees and
certain nonexempt salaried employees at the Middletown Works. The USWA
represents hourly steelmaking employees and certain nonexempt salaried
employees at the Ashland Works. The OCAW represents hourly employees at the
Ashland Works coke manufacturing facility.
The Company's existing labor contracts are scheduled to expire as follows:
AEIF--February 29, 2000, USWA--September 1, 2000, and OCAW--April 1, 2001.
Cash Equivalents: Cash equivalents include short-term, highly liquid
investments that are readily convertible to known amounts of cash and are of
an original maturity of three months or less.
Fair Value of Financial Instruments: The carrying value of the Company's
financial instruments does not differ materially from their estimated fair
value (quoted market prices) in 1996 and 1997 with the exception of the 10
3/4% Senior Notes Due 2004 whose fair value approximates $354.2 and $347.3 at
December 31, 1996 and 1997, respectively, and the 9 1/8% Senior Notes Due 2006
("9 1/8% Notes") whose fair market value approximates $569.5 at December 31,
1997.
Accounts Receivable: The allowance for doubtful accounts was $1.5 at
December 31, 1996 and 1997.
Inventories: Inventories are valued at the lower of cost or market. The cost
of the majority of inventories is measured on the last in, first out ("LIFO")
method. Other inventories are measured principally at average cost.
19
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1996 1997
------ ------
Inventories on LIFO:
Finished and semifinished.................................. $220.4 $235.5
Raw materials and supplies................................. 160.4 154.2
Adjustment to state inventories at LIFO value.............. (27.3) (31.6)
------ ------
Total.................................................... 353.5 358.1
Other inventories............................................ 7.4 7.1
------ ------
Total inventories........................................ $360.9 $365.2
====== ======
There was no liquidation of LIFO inventory layers in 1995, 1996 or 1997.
Investments: The Company has investments in associated companies (joint
ventures and an entity that the Company does not control). These investments
are accounted for under the equity method. Because these companies are
directly integrated in the basic steelmaking facilities, the Company includes
its proportionate share of the income (loss) of these associated companies in
cost of products sold.
Through November 1996, Virginia Horn Taconite Company ("Virginia Horn"), a
member of the AKSII Group, owned a 56% equity interest in Eveleth Expansion
Company ("Eveleth"), a partnership that produced iron ore pellets, which
equated to a 35% interest in Eveleth Mines. In December 1996, under a
restructuring of Eveleth Mines, Virginia Horn increased its ownership interest
in Eveleth Mines LLC ("EVTAC"), a newly formed Minnesota limited liability
company, to 40%. In connection with such investment, Virginia Horn has certain
commitments to EVTAC. The Company's proportionate share of the gains/(losses)
of Eveleth was ($0.2) and $5.4 in 1995 and 1996 and of EVTAC was ($1.9) in
1997.
Property, Plant and Equipment: Plant and equipment are depreciated under the
straight line method over their estimated lives ranging from 3 to 31 years.
Accounting Policies: The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS"). The
effect of this standard on the EPS calculation was not material and prior
periods have been restated.
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." These statements which are
effective for periods after December 15, 1997, expand or modify disclosures
and, accordingly, will have no impact on the Company's financial position,
results of operations or cash flows.
2.STOCKHOLDERS' EQUITY
Preferred Stock: In October 1994, the Company issued 7,479,674 shares of
Convertible Preferred Stock, Shared Appreciation Income Linked Securities (the
"SAILS") which constituted a series of the Company's Preferred Stock and
ranked prior to the Common Stock as to payment of dividends and distribution
of assets upon liquidation. The SAILS were entitled to cumulative dividends,
payable quarterly in arrears, at a rate of 7% per annum of their stated value
of $30.75 per share. Between October, 1995 and May, 1997, 2,728,900 SAILS were
repurchased and retired under the Company's share repurchase programs. On
October 16, 1997, the Company redeemed the 4,750,774 SAILS then remaining
outstanding in exchange for 8,191,284 shares (on a post-split basis) of Common
Stock.
20
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Common Stock: On November 17, the Company implemented a two-for-one stock
split of its outstanding Common Stock in the form of a 100% stock dividend,
issuing approximately 30.6 million shares pursuant thereto. The holders of
Common Stock are entitled to receive dividends when and as declared by the
Board of Directors out of funds legally available and therefore, have one vote
per share in respect of all matters and are not entitled to preemptive rights.
Dividends: The Company has paid quarterly dividends on its Common Stock
since November 15, 1995. Dividends at the post-split rate of $0.075 per share
were paid on February 15, May 15, and August 15, 1996 and a dividend of $0.10
per post-split share was paid on November 15, 1996. In 1997, dividends at the
post-split rate of $0.10 were paid on February 15, May 15, August 15 and a
dividend of $0.125 was paid on November 15. The declaration and payment of
cash dividends is subject to restrictions imposed by the instruments governing
its senior debt. At December 31, 1997, the Company had adequate amounts
available for the payment of cash dividends.
Stock Repurchase Plans: On October 9, 1995, the Board of Directors approved
a plan to repurchase, from time to time, up to $100.0 of its outstanding
equity securities. Pursuant to this plan, in 1995 the Company repurchased and
is holding in its treasury 1,274,870 shares (on a post-split basis) of Common
Stock for $21.5, an average of $16.81 per share. In addition, the Company
repurchased and retired 1,563,700 SAILS (2,696,132 post-split Common Stock
equivalents) for $52.3, an average of $33.43 per SAILS, and in 1996 an
additional 707,600 SAILS (1,220,044 post-split Common Stock equivalents) were
purchased and retired for $26.2, an average of $37.16 per SAILS. The last
purchases under this plan were completed in April 1996.
On May 15, 1996, the Board of Directors approved a second plan to
repurchase, from time to time, up to an additional $100.0 of its outstanding
equity securities. Pursuant to this plan, in 1997 the Company repurchased and
is holding in its treasury 1,409,050 shares (on a post-split basis) of its
Common Stock for $26.7, an average of $18.96 per Share. In addition, in 1996
the Company repurchased and retired 362,600 SAILS (625,195 post-split Common
Stock equivalents) for $12.8, an average of $35.36 per SAILS and in 1997 the
Company repurchased and retired an additional 95,000 SAILS (163,799 post-split
Common Stock equivalents) for $3.1, an average of $32.92 per SAILS.
Stockholder Rights Plan: On January 23, 1996, the Board of Directors adopted
a Stockholder Rights Plan pursuant to which it has issued one Preferred Share
Purchase Right (collectively, the "Rights") for each share of Common Stock
outstanding. The Rights are generally not exercisable unless, and no sooner
than 10 business days after, any person or group acquires beneficial ownership
of 20% or more of the Company's voting stock or announces a tender offer that
could result in the acquisition of 30% or more of such voting stock. In
addition, as adjusted to reflect the two-for-one Common Stock split, each
Right entitles the holder, upon occurrence of certain specified events, to
purchase 1/200th of a share of Series A Junior Preferred Stock ("Junior
Preferred Stock") at an exercise price of $65 per share. Each share of Junior
Preferred Stock, if and when issued, will entitle the holder to 200 votes in
respect of all matters submitted to a vote of the holders of Common Stock.
Upon the occurrence of certain events, holders of the Rights would be entitled
to purchase either shares of the Company or an acquiring entity at half of
market value. The Rights are redeemable, under certain circumstances, at any
time prior to their expiration on January 23, 2006.
Common Stock Options and Restricted Stock Awards: On January 13, 1994, the
stockholders of the Company approved the AK Steel Holding Corporation 1994
Stock Incentive Plan (the "SIP"). The SIP, which is administered by the
Compensation Committee of the Board of Directors, permits the granting of
nonqualified stock options and restricted stock awards to directors, officers
and key management employees of the Company.
21
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Under the original SIP, 4,600,000 shares were reserved for issuance of which
3,833,334 shares were reserved for stock options and 766,666 were reserved for
restricted stock awards. In May 1996, the plan was amended to increase the
maximum number of shares covered thereby to 7,800,000 and to eliminate the
separate maximum limitations on the number of shares available for grant of
stock options and restricted stock awards. The exercise price of each option
may not be less than the market price of the Company's Common Stock on the
date of the grant. Stock options have a maximum term of 10 years and may not
be exercised earlier than six months following the date of grant (or such
other term as may be specified in the award agreement). Generally, 25% of the
shares covered by a restricted stock award vest two years after the date of
the award and an additional 25% vest on the third, fourth and fifth
anniversaries of the date of the award. The nonqualified stock options vest at
the rate of 33% per year over three years.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations in accounting for
the SIP. The compensation cost that has been charged against income for the
restricted stock awards issued under the SIP was $0.9, $3.2 and $2.7 for 1995,
1996 and 1997, respectively. The Company adopted the pro forma disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", in
the fourth quarter of 1996. Had compensation cost for the Company's SIP been
determined based on the fair value at the grant dates for awards under the
plan consistent with the method of SFAS No. 123 and earnings per share been
reported consistent with the requirements of SFAS No. 128, the Company's net
income and earnings per share for 1995, 1996 and 1997 would have been reduced
to the pro forma amounts indicated below:
1995 1996 1997
------ ------ ------
Net income.................. As reported $268.6 $145.9 $150.9
Pro forma $268.2 $144.1 $149.5
Basic earnings per share.... As reported $ 4.82 $ 2.57 $ 2.59
Pro forma $ 4.81 $ 2.54 $ 2.57
Diluted earnings per share.. As reported $ 4.09 $ 2.35 $ 2.43
Pro forma $ 4.08 $ 2.32 $ 2.41
22
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations per SFAS 128 is as follows:
1995 1996 1997
------ ------ ------
Net Income for Diluted EPS............................. $268.6 $145.9 $150.9
Preferred Dividends.................................. 15.3 11.1 7.7
------ ------ ------
Net Income for Basic EPS............................... $253.3 $134.8 $143.2
Shares for Basic EPS................................... 52.6 52.4 55.2
Dilutive Effect of Stock Options..................... 0.4 0.8 0.4
Dilutive Effect of Preferred Stock................... 12.6 8.9 6.4
------ ------ ------
Shares for Diluted EPS................................. 65.6 62.1 62.0
Basic EPS.............................................. $ 4.82 $ 2.57 $ 2.59
Diluted EPS............................................ $ 4.09 $ 2.35 $ 2.43
The fair value of the options is estimated on the grant date using a Black-
Scholes option pricing model considering the appropriate dividend rates along
with the following weighted average assumptions:
1996 1997
-------- --------
Expected volatility........................................ 20.5% 21.0%
Risk free interest rates................................... 6.40% 6.40%
Expected lives............................................. 5.0 yrs. 5.0 yrs.
A summary of the status of stock options and restricted stock awards under
the SIP as of December 31, 1996 and 1997 and changes during each of those
years is presented below:
1996 1997
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
STOCK OPTIONS SHARES PRICE SHARES PRICE
------------- --------- -------- --------- --------
Outstanding at beginning of year..... 2,877,984 $12.58 2,210,654 $15.34
Granted.............................. 718,000 $19.86 554,000 $19.70
Exercised............................ 1,385,330 $11.96 490,334 $14.21
Forfeited............................ -- -- 60,000 $11.75
Outstanding at end of year........... 2,210,654 $15.34 2,214,320 $16.78
Options exercisable at year end...... 796,012 $13.97 1,187,024 $14.98
Weighted average fair value of op-
tions granted during the year....... 718,000 $ 5.37 554,000 $ 5.01
WEIGHTED WEIGHTED
AVERAGE AVERAGE
GRANT DATE GRANT DATE
RESTRICTED STOCK AWARDS SHARES FAIR VALUE SHARES FAIR VALUE
----------------------- ------- ---------- ------- ----------
Granted during year................... 323,244 $19.95 332,884 $19.55
The following table summarizes information about stock options outstanding
at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
$11.75 to $17.24...... 1,057,320 6.95 yrs. $13.38 881,334 $13.20
$17.25 to $22.90...... 1,157,000 8.82 yrs. $19.88 305,690 $20.11
23
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
3.INCOME TAXES
The Company and its subsidiaries file a consolidated federal tax return.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1996 and 1997 are as follows:
1996 1997
------- -------
Deferred tax assets:
Net operating loss and tax credit carryovers............. $ 49.7 $ 30.0
Postretirement reserves.................................. 210.5 206.0
Other reserves........................................... 42.0 39.4
Valuation reserve........................................ (13.2) (13.2)
------- -------
Total deferred assets.................................. 289.0 262.2
------- -------
Deferred tax liabilities:
Depreciable assets....................................... (208.3) (223.1)
Inventories.............................................. (33.1) (33.2)
Pension assets........................................... (63.3) (65.9)
------- -------
Total deferred liabilities............................. (304.7) (322.2)
------- -------
Net liability.......................................... $ (15.7) $ (60.0)
======= =======
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the consolidated financial statements in different years than
recognized in the tax returns. The postretirement benefit difference includes
amounts expensed in the consolidated financial statements for health care,
life insurance and other postretirement benefits which become deductible in
the tax return upon payment or funding in qualified trusts. Other temporary
differences represent principally various expenses accrued for financial
reporting purposes which are not deductible for tax reporting purposes until
paid. The depreciable assets temporary difference represents generally tax
depreciation in excess of financial statement depreciation. The inventory
difference relates primarily to differences in the LIFO reserve, reduced by
tax overhead capitalized in excess of book amounts. At December 31, 1996, the
Company had a regular tax net operating loss carryforward of $114.6. At
December 31, 1997 the Company had a regular tax net operating loss carryover
of $37.4 which will expire in the years 2006 through 2008 unless previously
utilized. In addition, at December 31, 1997, the Company had unused
Alternative Minimum Tax ("AMT") credit carryovers of $16.5, which may be used
to offset future regular income tax liabilities. At December 31, 1996, the AMT
credit carryovers were $4.7. These credits can be carried forward
indefinitely.
Significant components of the provision for income taxes are as follows:
1995 1996 1997
----- ----- -----
Current:
Federal.................................................. $ 5.9 $ 3.8 $45.1
State.................................................... 0.3 -- 1.2
Deferred:
Federal.................................................. 4.8 77.9 35.7
State.................................................... 1.9 9.4 8.6
----- ----- -----
Total tax provision.................................... $12.9 $91.1 $90.6
===== ===== =====
24
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
1995 1996 1997
------- ------ -----
Income at statutory rate............................ $ 98.5 $ 83.0 $84.5
State tax provision................................. 17.4 9.4 9.8
Reduction in deferred tax asset valuation reserve... (106.1) (2.2) --
Tax exempt state/local interest income.............. -- (0.7) (4.6)
Losses limited by Internal Revenue Code Section 382
and other
permanent differences.............................. 3.1 1.6 0.9
------- ------ -----
Tax provision..................................... $ 12.9 $ 91.1 $90.6
======= ====== =====
4.LONG-TERM DEBT AND OTHER FINANCING
On December 17, 1996, the Company completed arrangements for $800.0 of debt
financing for the construction of its Rockport Works. The Company issued
$550.0 of 9 1/8% Notes and entered into definitive agreements for the issuance
beginning in June of 1997 of an aggregate of $250.0 of Senior Secured Notes
Due 2004 ("Secured Notes"), which will be collateralized by the hot dip
galvanizing and galvannealing line and the continuous cold mill at the
Rockport Works when completed. Pending completion of these facilities, the
Company is prohibited from granting liens on its inventories.
On June 17, 1997, the Company made its initial issuance of an aggregate of
$92.5 of the Secured Notes, of which $80.0 bear interest at 8.98% per annum
and $12.5 bear interest at 9.05% per annum. On September 16, 1997, the Company
made its second issuance of $20.0 which bear interest at 8.98% per annum. The
remaining $137.5 of Secured Notes were issued on January 7, 1998, of which
$130.0 bear interest at 8.48% per annum and $7.5 bear interest at 8.98% per
annum.
On December 1, 1994, the Company entered into a Receivables Purchase
Agreement with AK Steel Receivables Ltd. ("AKR Ltd."). On the same date, AKR
Ltd. entered into a Receivables Purchase and Servicing Agreement (the
"Purchase Agreement") with a group of six banks. Under the Purchase Agreement,
the total commitment of the banks is $125.0, including up to $40.0 in letters
of credit. The Company sold substantially all of its accounts receivable to
AKR Ltd. and will sell additional receivables to AKR Ltd. as they are
generated. AKR Ltd. will fund its purchase of receivables from cash
collections on the purchased receivables and proceeds from selling interests
in the receivables to the participating banks. The banks' commitments expire
on July 1, 2002. The Company acts as servicer of the receivables sold and will
make billings and collections in the ordinary course of business.
As of December 31, 1997, no amounts were outstanding under the Purchase
Agreement, although $15.6 in letters of credit had been issued. At December
31, 1997, AKR Ltd. had a sufficient pool of eligible receivables that could be
sold to utilize the available capacity of the participating banks'
commitments.
At December 31, 1996 and 1997, the Company's long-term debt, less current
maturities, was as follows:
1996 1997
------ ------
Senior Notes Due 2004......................................... $325.0 $325.0
Senior Notes Due 2006......................................... 550.0 550.0
Senior Secured Notes Due 2004................................. -- 112.5
Tax Exempt Financing Due 2027................................. -- 10.0
------ ------
Total....................................................... $875.0 $997.5
====== ======
25
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
At December 31, 1997, the maturities of long-term debt are as follows:
1998.................................................................. --
1999.................................................................. --
2000.................................................................. --
2001.................................................................. --
2002.................................................................. --
2003 and thereafter................................................... $997.5
------
Total............................................................... $997.5
======
The Company has not purchased and is not holding any derivative financial
instruments.
The Company capitalized interest on projects under construction of $4.7,
$1.7 and $20.9 during 1995, 1996 and 1997, respectively.
5. OPERATING LEASES
Rental expense was $14.1, $12.6 and $13.3 for 1995, 1996 and 1997,
respectively.
At December 31, 1997, obligations to make future minimum lease payments were
as follows:
1998................................................................... $0.8
1999................................................................... 0.3
2000................................................................... 0.1
2001................................................................... 0.1
2002................................................................... 0.1
----
Total lease obligations.............................................. $1.4
====
6. EMPLOYEE AND RETIREE BENEFIT PLANS
Pension Plans: The Company provides noncontributory pension benefits to all
employees. Benefits are based on the higher of several calculations including
years of service and earnings in the highest 60 consecutive months in the last
120 months prior to retirement, a minimum amount per year of service, or a
combination of both. The qualified plans are funded in accordance with the
minimum funding requirements of the Employee Retirement Income Security Act of
1974, as amended, with additional amounts contributed at the Company's
discretion. The Company's pension contributions for 1995 and 1996 were $93.0
and $25.0, respectively. There was no pension contribution during 1997.
The details of the net periodic pension expense for 1995, 1996 and 1997 are
as follows:
1995 1996 1997
------ ------ -------
Economic assumptions:
Discount rate................................... 8.75% 7.25% 8.00%
Expected long-term rate of return on assets..... 9.50% 9.00% 9.75%
Rate of future compensation increases........... 4.00% 4.00% 4.00%
Pension cost:
Cost of benefits earned during the period....... $ 12.9 $ 16.2 $ 13.6
Interest cost on the projected benefit
obligation..................................... 88.3 90.1 93.1
Less actual return on plan assets............... (263.6) (85.0) (262.7)
Net amortization and deferral................... 181.5 (8.2) 152.4
------ ------ -------
Net periodic pension (income) expense......... $ 19.1 $ 13.1 $ (3.6)
====== ====== =======
26
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The assumptions used to determine the plans' funded status are as follows:
1996 1997
---- ----
Economic assumptions:
Discount rate.................................................. 8.00% 7.50%
Rate of future compensation increases.......................... 4.00% 4.00%
The funded status of the plans reconciled with amounts recognized in the
Company's consolidated balance sheets at December 31, 1996 and 1997 are as
follows:
1996 1997
-------- --------
Actuarial present value of benefit obligations:
Vested benefits....................................... $1,115.2 $1,168.5
Nonvested benefits.................................... 44.7 46.5
-------- --------
Accumulated benefit obligation........................ $1,159.9 $1,215.0
======== ========
Projected benefit obligation.......................... $1,210.9 $1,271.9
Less plan assets at fair value........................ 1,255.7 1,422.4
-------- --------
Reconciliation of funded status to recorded amounts:
Unfunded (over funded) projected benefit obligation... (44.8) (150.5)
Unrecognized prior service............................ (61.5) (56.7)
Unrecognized net (loss) or gain....................... (46.9) 48.1
-------- --------
Prepaid pension cost.................................. $ (153.2) $ (159.1)
======== ========
The mix of pension assets held in the pension trust is as follows:
Equities................................................................. 61%
Fixed income securities.................................................. 38%
Cash and cash equivalents................................................ 1%
Retiree Health Care and Life Insurance Benefits: In addition to providing
pension benefits, the Company provides certain health and life insurance
benefits for retirees. Most employees become eligible for these benefits at
retirement. For 1995, 1996 and 1997, claims paid for retiree health and life
insurance benefits amounted to $36.2, $37.4 and $40.6, respectively.
The Company records health care costs per SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual of retiree medical and life insurance benefits as these benefits are
earned rather than recognition of these costs as claims are paid. In 1995 and
1996, the excess of total postretirement benefit expense recorded under SFAS
No. 106 over the Company's former method of accounting for these benefits was
$21.2 and $2.1, respectively. In 1997, the cost of claims paid exceeded the
SFAS No. 106 expense by $1.9. Payments of medical and life insurance benefits
to employees of the Company, retired former employees and their eligible
dependents continue to be made from the Welfare Benefit Master Trust
("Trust"). The Company has continued to reimburse the Trust for these payments
although no funding obligation exists.
27
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following sets forth the plans' funded status, reconciled with amounts
recognized in the Company's consolidated balance sheets at December 31, 1996
and 1997:
1996 1997
------ ------
Accumulated postretirement benefit obligation:
Retirees....................................................... $450.6 $467.1
Fully eligible active plan participants........................ 75.8 81.4
Other active plan participants................................. 103.4 115.6
------ ------
Total accumulated postretirement benefit obligation.......... 629.8 664.1
Less fair value of plan assets................................... 136.9 187.0
------ ------
Accumulated postretirement benefit obligation in excess of plan
assets.......................................................... 492.9 477.1
Prior service credit not yet recognized in net periodic
postretirement benefit cost..................................... 28.9 25.1
Unrecognized net gain............................................ 43.1 51.9
------ ------
Accrued postretirement benefit cost.............................. $564.9 $554.1
====== ======
The components of postretirement benefit costs are as follows:
1995 1996 1997
----- ----- -----
Service cost--benefits attributed to service during the
period................................................. $ 5.6 $ 5.1 $ 4.8
Interest cost on accumulated postretirement benefit ob-
ligations.............................................. 52.6 44.8 48.8
Less actual return on plan assets....................... (4.5) (4.7) (26.8)
Net of other components................................. 3.7 (5.7) 11.9
----- ----- -----
Net periodic postretirement benefit cost................ $57.4 $39.5 $38.7
===== ===== =====
For measurement purposes, health care costs are assumed to increase 7.50% in
1998 grading down by 1.00% yearly to a constant level of 4.50% annual increase
for pre-65 benefits and 4.50% in 1998 with a constant rate of 4.50% for post-
65 benefits. In concluding that health care trend rates will decrease at a
rate of 1.00% per year, the Company has considered future rates of inflation,
recent movements toward managed health care programs in negotiated contracts
and the trend among larger companies toward the formation of coalitions in an
effort to reduce health care costs. The Company has implemented a managed care
program for the Ashland location. The Company is also evaluating Medicare risk
contracts for its retired employees. A one (1) percentage point increase in
the assumed health care cost trend rate for each year would increase the 1997
accumulated postretirement benefit obligation by $67.0 and the aggregate of
the service cost and interest cost components of net period benefit cost for
the year then ended by $5.8. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 8.00% and
7.50% for 1996 and 1997, respectively.
7. RELATED PARTY TRANSACTIONS
The Company, in the ordinary course of business, sells steel to and
purchases scrap from National Material Limited Partnership, of which a
director of the Company is President and Chief Executive Officer. During 1995,
1996 and 1997 sales amounted to $20.3, $21.8 and $21.5 and purchases amounted
to $0.4, $0.6 and $1.1, respectively.
8. COMMITMENTS
The principal raw materials and commodities required in the Company's
manufacturing operations are coal, iron ore, electricity, natural gas, oxygen,
scrap metal, limestone and other commodity materials, all of which are
28
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
purchased at competitive or prevailing market prices. Adequate sources of
supply exist for all of the Company's raw material requirements.
At December 31, 1997, commitments for future capital investments, excluding
Rockport Works but including those made to assure environmental compliance,
totalled approximately $61.4, all of which will be funded in 1998. In
addition, at December 31, 1997, the Company had outstanding commitments for
the constructing and equipping of Rockport Works under contracts aggregating
$348.5.
9. LEGAL, ENVIRONMENTAL MATTERS AND CONTINGENCIES
Domestic steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment.
The Company has expended the following for environmental related capital
investments and environmental compliance:
1995 1996 1997
----- ---- ----
Environmental related capital investments.................. $19.1 $6.1 $4.3
Environmental compliance costs............................. 51.7 53.6 52.9
The Clean Air Act Amendments of 1990 (the "Amendments") imposed new
standards designed to reduce air emissions. The Amendments have directly
affected many of the Company's operations, particularly its coke oven
batteries. As of December 31, 1997, the Company has incurred $67.3 in capital
investments to bring its coke operations into compliance with the Amendments'
requirements.
In addition to the items discussed below, the Company is also involved in
routine litigation, environmental proceedings, and claims pending with respect
to matters arising out of the normal conduct of the business. In management's
opinion, the ultimate liability resulting from all claims, individually or in
the aggregate, will not materially affect the Company's consolidated financial
position, results of operations or cash flows.
As a result of a 1991 inspection of the Ashland Works' cokemaking operations
by the United States Environmental Protection Agency ("EPA") and the Kentucky
Department of Environmental Protection alleging mishandling of certain
regulated materials, the Company has entered into non-binding mediation with
the Kentucky Cabinet for Natural Resources.
Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various constituents
in coke plant wastewaters prior to discharge into publicly owned treatment
works ("POTW"). Due to concentrations of ammonia and phenol in excess of these
limits at the Middletown Works, the Company, through the Middletown POTW,
petitioned the EPA for "removal credits," a type of compliance exemption,
based on the Middletown POTW's satisfactory treatment of the Company's
wastewater for ammonia and phenol. The EPA declined to review the Company's
application on the grounds that it had not yet promulgated new sludge
management rules. The Company thereupon sought and obtained from the Federal
District Court for the Southern District of Ohio an injunction prohibiting the
EPA from instituting enforcement action against the Company for noncompliance
with the pretreatment limitations, pending the EPA's promulgation of the
applicable sludge management regulations. Although the Company is unable to
predict the outcome of this matter, if the EPA eventually refuses to grant the
Company's request for removal credits, the Company could incur additional
costs to construct pretreatment facilities at the Middletown Works.
29
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
In January 1996, an action was filed in the Court of Common Pleas of Butler
County, Ohio on behalf of four named plaintiffs who purport to represent a
class of plaintiffs consisting of all hourly employees at the Company's
Middletown Works and all hourly employees of independent contractors working
at the facility since June 1992. The complaint has twice been amended to add
additional named plaintiffs. The plaintiffs allege negligence and intentional
tort and seek compensatory and punitive damages in an unspecified amount for
alleged dangerous working conditions at the Company's Middletown Works. The
Company has filed motions to dismiss the suit in whole and in part. No rulings
have been rendered to date on these motions. In March 1997, the Court granted
plaintiffs' motion to certify a class. The Company's appeal of this decision
was denied by the appellate court in June 1997. The Company has further
appealed this decision to the Ohio Supreme Court and a decision is pending. In
April 1997, the Company commenced a separate lawsuit in the United States
District Court, Southern District of Ohio, seeking a permanent injunction
staying the state court case and seeking a declaration that the state court
case is preempted by federal law. On August 21, 1997, the federal court denied
the motion for an injunction and ordered the parties to brief the question of
its jurisdiction to hear the case.
In April 1996, an action was filed in the United States District Court,
Southern District of Ohio, by a number of former employees of the Company
seeking certain pension and postretirement benefits which they allege were
wrongly denied them when the Company outsourced their positions. On May 30,
1997, the Company filed a motion for summary judgment seeking dismissal of the
case and a decision is pending.
In May 1996, an action was commenced against the Company in the United
States District Court, Southern District of Ohio, on behalf of eleven named
plaintiffs seeking declaratory and injunctive relief and both compensatory and
punitive damages as a consequence of an underground coke oven gas line leak at
the Middletown Works. In March 1997, the court granted the Company's motion to
dismiss all federal law claims. Subsequently, the Company entered into a
settlement agreement with all plaintiffs on their pending state law claims.
10. CONSOLIDATED QUARTERLY SALES AND EARNINGS (UNAUDITED)
Each quarter and the year are calculated individually and may not add to the
total for the year. The historical per share amounts have been restated for a
two-for-one Common Stock split effective November 17, 1997.
1996
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
Net sales.......................... $558.9 $575.4 $559.3 $608.2 $2,301.8
Gross profit....................... 114.4 119.0 119.0 102.9 455.3
Net income......................... 37.0 38.5 39.7 30.7 145.9
Basic earnings per share........... .67 .69 .71 .53 2.57
Diluted earnings per share......... .60 .62 .64 .50 2.35
1997
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
Net sales.......................... $598.8 $622.6 $598.6 $620.5 $2,440.5
Gross profit....................... 117.9 121.9 116.3 119.9 476.0
Net income......................... 34.5 39.0 37.0 40.4 150.9
Basic earnings per share........... .60 .68 .64 .67 2.59
Diluted earnings per share......... .56 .63 .59 .66 2.43
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the Company's Executive Officers is set forth in
Part I of this Annual Report pursuant to General Instruction G of Form 10-K.
The information required to be furnished pursuant to this item with respect to
Directors of the Company will be set forth under the caption "Election of
Directors" in the Company's proxy statement (the "1998 Proxy Statement") to be
furnished to stockholders in connection with the solicitation of proxies by
the Company's Board of Directors for use at the Annual Meeting of Stockholders
to be held on May 21, 1998, and is incorporated herein by reference.
The information required to be furnished pursuant to this item with respect
to compliance with Section 16(a) of the Exchange Act will be set forth under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required to be furnished pursuant to this item will be set
forth under the caption "Executive Compensation" in the 1998 Proxy Statement,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required to be furnished pursuant to this item will be set
forth under the caption "Stock Ownership," in the 1998 Proxy Statement, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required to be furnished pursuant to this item will be set
forth under the captions "Certain Relationships and Transactions" in the 1998
Proxy Statement, and is incorporated herein by reference. See also Note 7 of
the Notes to Consolidated Financial Statements included in Item 8 hereof.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K.
(a) The list of financial statements filed as part of this report is
submitted as a separate section, the index to which is located on page 13.
(b) Reports on Form 8-K filed during the fourth quarter of 1997 were:
Earnings Release.......................................... October 14, 1997
Two-for-One Common Stock Split............................ October 14, 1997
(c) Exhibits:
List of exhibits begins on next page.
32
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Incorporation of the Company, filed with the Secretary
of State of the State of
Delaware on December 20, 1993, as amended (incorporated herein by
reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (No. 33-74432)
("Registration No. 33-74432")).
3.2 By-laws of the Company (incorporated herein by reference to Exhibit
3.2 to Registration No. 33-74432).
3.3 Certificate of Designations, Preferences, Rights and Limitations of
Series A Junior Preferred Stock (included in Exhibit 10.19).
4.1 Indenture, dated as of December 17, 1996, relating to the Company's 9
1/8% Senior Notes Due 2006 (the "1996 Indenture") (incorporated herein
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (No. 333-19781) ("Registration No. 333-19781").
4.2 Indenture, dated as of April 1, 1994, relating to the Company's 10
3/4% Senior Notes Due 2004 (the "1994 Indenture") (incorporated herein
by reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-1, No. 33-83792 ("Registration No. 33-83792")).
4.3 Supplemental Indenture, dated as of September 21, 1994, to the 1994
Indenture (incorporated herein by reference to Exhibit 4.4 to
Registration No. 33-83792).
4.4 Supplemental Indenture, dated as of December 11, 1996, to the 1994
Indenture (incorporated herein by reference to Exhibit 4.4 to
Registration No. 333-19781).
4.5 Form of Note Purchase Agreement, dated as of December 17, 1996, with
respect to the Company's Senior Secured Notes Due 2004 (incorporated
herein by reference to Exhibit 4.5 to Registration No. 333-19781).
10.4 Form of Executive Officer Severance Agreement (filed herewith).
10.5 Form of Executive Officer Severance Agreement--Richard M. Wardrop, Jr.
(filed herewith).
10.6 Form of Executive Officer Severance Agreement--James L. Wareham (filed
herewith).
10.7 Annual Management Incentive Plan (incorporated herein by reference to
Exhibit 10.15 to Registration No. 33-83792).
10.8 1994 Stock Incentive Plan, as amended May 15, 1996 and November 21,
1996 (incorporated herein by reference to Exhibit 10.6 to Registration
No. 333-19781).
10.9 Executive Minimum and Supplemental Retirement Plan (incorporated
herein by reference to
Exhibit 10.17 to Registration No. 33-83792).
10.10 Registration Rights Agreement, dated as of April 7, 1994, among the
Company and certain subsidiaries of Kawasaki (incorporated herein by
reference to Exhibit 10.19 to Registration No. 33-83792).
10.11 Receivables Purchase Agreement, dated as of December 1, 1994, by and
between AK Steel and AK Acquisition Receivables Ltd., as successor to
AK Steel Receivables, Inc. (incorporated herein by reference to
Exhibit 10.23 to Registration No. 33-86678).
10.12 Purchase and Servicing Agreement, dated as of December 1, 1994, among
AK Acquisition
Receivables Ltd., as successor to AK Steel Receivables Inc., AK Steel,
the institutions from time to
time party thereto and PNC Bank, Ohio, National Association
(incorporated herein by reference to Exhibit 10.24 to Registration No.
33-86678).
10.13 Amendment No. 1 to the Purchase and Servicing Agreement, dated as of
November 17, 1995, among AK Steel, AK Acquisition Receivables Ltd., as
successor to AK Steel Receivables, Inc., the purchasers party thereto
and PNC Bank, Ohio, National Association (incorporated herein by
reference to Exhibit 10.11(a) to Registration No. 333-19781).
33
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.14 Consent, Amendment and Assumption Agreement, dated as of December 31,
1996, to the Receivables Purchase Agreement and the Purchase and
Servicing Agreement, among the Company, AK Steel Receivables Inc., AK
Acquisition Receivables Ltd., AKSR Investments, Inc., the purchasers
party thereto and PNC Bank, Ohio, National Association (incorporated
herein by reference to Exhibit 10.11(b) to Registration No. 333-
19781).
10.15 Amendment, dated July 10, 1997, to the Receivables Purchase Agreement
and the Purchase and Servicing Agreement.
10.16 Letter Agreement dated July 31, 1995, between the Company and Kawasaki
(incorporated herein by reference to Exhibit 10 to Post-Effective
Amendment No. 2 on Form S-3 to the Company's Registration Statement on
Form S-1, Registration No. 33-86678).
10.17 Deferred Compensation Plan for Management (incorporated herein by
reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.18 Deferred Compensation Plan for Directors (incorporated herein by
reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.19 Rights Agreement, dated as of January 23, 1996, between the Company
and the Bank of New York as predecessor to Fifth Third Bank, as Rights
Agent, with respect to the Company's Stockholder Rights Plan
(incorporated by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A under the Securities Exchange Act of 1934, as
filed with the Commission on February 5, 1996).
10.20 Substitution of The Fifth Third Bank as Successor Rights Agent and
Amendment No. 1, dated September 15, 1997, to Rights Agreement dated
as of January 23, 1996 (incorporated herein by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K, dated September 15,
1997).
10.21 Instrument of Resignation, Appointment and Acceptance, dated as of
September 15, 1997, with respect to resignation of The Bank of New
York as Trustee and appointment of The Fifth Third Bank as Successor
Trustee under the 1994 Indenture (incorporated herein by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K dated
September 15, 1997).
10.22 Instrument of Resignation, Appointment and Acceptance, dated as of
September 15, 1997, with respect to resignation of The Bank of New
York as Trustee and the appointment of The Fifth Third Bank as
Successor Trustee under the 1996 Indenture (incorporated herein by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K,
dated September 15, 1997).
10.23 Long Term Performance Plan, as amended and restated effective November
21, 1996 (incorporated herein by reference to Exhibit 10.15 to
Registration No. 333-19781).
10.24 First Amendment, dated September 18, 1997, to Deferred Compensation
Plan for Management (filed herewith).
10.25 First Amendment, dated July 17, 1997, to Executive Minimum and
Supplemental Retirement Plan (filed herewith).
10.26 Second Amendment, dated September 18, 1997, to Executive Minimum and
Supplemental Retirement Plan (filed herewith).
11.0 Statement re Computation of Per Share Earnings.
23.1 Independent Auditors' consent.
27. Financial Data Schedule.
34
EXHIBIT 11.0
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
See Notes 2 and 10 of the accompanying Notes to Consolidated Financial
Statements.
35
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No.
1 to Registration Statement No. 333-04505 and Post-Effective Amendment No. 4
to Registration Statement No. 33-84578 of AK Steel Holding Corporation on Form
S-8 of our report dated January 20, 1998, appearing in this Annual Report on
Form 10-K of AK Steel Holding Corporation for the year ended December 31,
1997.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 22, 1998
36
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF MIDDLETOWN, STATE OF
OHIO, ON JANUARY 22, 1998.
AK STEEL HOLDING CORPORATION
/s/ Richard E. Newsted
By: _________________________________
RICHARD E. NEWSTED EXECUTIVE VICE
PRESIDENT, CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Richard M. Wardrop, Jr. Chairman of the January 22,
- ------------------------------------- Board and Chief 1998
RICHARD M. WARDROP, JR. Executive Officer
/s/ James L. Wareham President January 22,
- ------------------------------------- 1998
JAMES L. WAREHAM
/s/ Richard E. Newsted Executive Vice January 22,
- ------------------------------------- President, Chief 1998
RICHARD E. NEWSTED Financial Officer
/s/ Donald B. Korade Controller January 22,
- ------------------------------------- 1998
DONALD B. KORADE
/s/ Allen Born Director January 22,
- ------------------------------------- 1998
ALLEN BORN
/s/ John A. Georges Director January 22,
- ------------------------------------- 1998
JOHN A. GEORGES
Director January 22,
- ------------------------------------- 1998
DR. BONNIE GUITON HILL
Director January 22,
- ------------------------------------- 1998
ROBERT H. JENKINS
/s/ Lawrence A. Leser Director January 22,
- ------------------------------------- 1998
LAWRENCE A. LESER
/s/ Robert E. Northam Director January 22,
- ------------------------------------- 1998
ROBERT E. NORTHAM
/s/ Cyrus Tang Director January 22,
- ------------------------------------- 1998
CYRUS TANG
/s/ James A. Thomson Director January 22,
- ------------------------------------- 1998
DR. JAMES A. THOMSON
37