Oct. 25, 2006 — AK Steel reported net income of $26.0 million on record net sales of $1,553.6 million for the third quarter of 2006.
Third Quarter Results—The $26.0 million net income ($0.23 per share of common stock) compares to a net loss of $29.0 million ($0.26 per share) in the year-ago third quarter.
Results included a one-time $15.8 million pre-tax/$10.7 million after-tax charge ($0.10 per share) related to the implementation of new labor agreements at the company's Zanesville, Ohio, and Butler, Pa., operations, as well as a $3.0 million ($0.03 per share) reduction in the value of a deferred tax asset due to recent state tax law changes. Excluding these items, third-quarter 2006 net income would have been $39.7 million ($0.36 per share of common stock).
The company said the $10.7 million after-tax charge was related primarily to pension curtailment costs associated with the new labor agreements and the initial funding of a Voluntary Employees' Beneficiary Association (VEBA) health care fund covering Butler hourly employees. The $3.0 million charge was primarily related to a change in Pennsylvania state tax law.
Net sales, a record $1,553.6 million are about 12% higher than the year-ago period. Shipments of 1,522,600 tons were about 10% lower than in the year-ago period. The company's average selling price was a record $1,020 per ton, which compares to $825 per ton in the year-ago period. Lower shipments reflect lower North American automobile and light truck production, as well as higher customer inventory levels and increased steel imports, which reduced distribution market shipments.
Operating profit of $55.1 million ($36 per ton) compares to an operating loss of $25.5 million ($15 per ton) in the third quarter of 2005. Excluding one-time, pre-tax labor contract charges of $15.8 million, third-quarter 2006 operating profit would have been $70.9 million ($47 per ton).
"In a defining year, AK Steel's most recent operating and financial results continued a steady upward trend," said James L. Wainscott, Chairman, President and CEO. "Although we recently have seen some slowing in a few of our key carbon steel markets, we anticipate continued strong demand during the fourth quarter for our stainless and electrical products."
Nine-Month Results—Net income was $61.3 million ($0.55 per share), which compares to net income of $39.2 million ($0.35 per share) in the comparable 2005 period. Results included after-tax charges of $16.4 million ($0.15 per share) resulting from implementation of new labor agreements at the Butler and Zanesville operations, and the reduction in the value of the company's deferred tax asset due to state tax law changes. Results for the comparable 2005 period included total non-cash charges of $32.6 million, or $0.30 per share, resulting from the reduction in the value of the company's deferred tax asset.
Sales were a record $4,486.8 million, compared to $4,270.4 million in the first nine months of 2005. Operating profit was $147.5 million ($32 per ton shipped). Excluding the $15.8 million one-time charges (for the Butler and Zanesville labor contracts), adjusted operating profit was $163.3 million ($35 per ton), which compares to $162.3 million ($34 per ton) on the same basis for the first nine months of 2005.
Electrical Steel Expansion Project—In light of continued strong demand for electrical steel products, the company’s board of directors approved a $55 million capital investment to further expand its electrical steel finishing capacity. Completion of projects at its Butler and Zanesville plants by mid-2008 will increase the company's annual electrical steel production capacity by about 12%, to approximately 335,000 tons. The announced investment is in addition to a $14-million capital investment announced in April to increase electrical steel production at the Butler Works. That project is scheduled to be completed during the first quarter of 2007, and is included in the total of 335,000 tons of production capacity the company will have by mid-2008.
Fourth-Quarter Outlook—AK Steel said that it expects fourth-quarter 2006 shipments of approximately 1,500,000 tons. Despite increased value-added shipments and higher stainless steel surcharge revenues, the company expects its average per-ton selling price to decrease slightly from third quarter 2006 levels. The company also expects higher costs for planned maintenance outages during the fourth quarter compared to the third quarter, as it balances its supply with demand from the markets it serves. The company also expects higher raw material and energy costs and a lower LIFO charge compared to the third quarter. The net effect of these items is expected to result in an operating profit of approximately $30 to $35 per shipped ton for the fourth quarter of 2006.
Headquartered in Middletown, Ohio, AK Steel produces flat-rolled carbon, stainless and electrical steels, as well as tubular steel products for the automotive, appliance, construction and manufacturing markets.