AK STEEL HOLDING CORPORATION (Exact Name of Registrant As Specified in Its Charter)
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Table of Contents SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 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) Delaware 31-1401455 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 703 Curtis Street, Middletown, Ohio 45043 (Address of principal executive offices) (Zip Code) (513) 425-5000 (Registrant’s telephone number, including area code) 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 filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 108,704,401 shares of common stock (as of April 30, 2004) Table of Contents AK STEEL HOLDING CORPORATION INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations - Three-Month Periods Ended March 31, 2003 and 2004 1 Consolidated Balance Sheets - As of December 31, 2003 and March 31, 2004 2 Condensed Consolidated Statements of Cash Flows - Three-Month Periods Ended March 31, 2003 and 2004 3 Notes to Consolidated Financial Statements 4 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12 Item 4. Controls and Procedures 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements AK STEEL HOLDING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in millions, except per share data) Three Months Ended (unaudited) March 31, 2003 2004 Net sales $ 985.3 $1,134.4 Cost of products sold 912.0 1,026.4 Selling and administrative expenses 59.5 52.5 Depreciation 56.9 54.0 Total operating costs 1,028.4 1,132.9 Operating profit (loss) (43.1) 1.5 Interest expense 28.6 29.7 Other income 1.2 1.6 Loss before income taxes (70.5) (26.6) Income tax benefit 28.1 10.2 Loss from continuing operations (42.4) (16.4) Discontinued operations: (Note 6) Income from discontinued operations, net of tax 1.6 6.9 Gain on sale of discontinued operations, net of tax — 174.9 Net income (loss) $ (40.8) $ 165.4 Basic and diluted income (loss) per share: (Note 2) Loss from continuing operations $ (0.39) $ (0.15) Income from discontinued operations 0.01 0.06 Gain on sale of discontinued operations — 1.61 Net income (loss) per share $ (0.38) $ 1.52 Common shares and common share equivalents outstanding (weighted average in millions): 108.4 108.7 See notes to consolidated financial statements. -1- Table of Contents AK STEEL HOLDING CORPORATION CONSOLIDATED BALANCE SHEETS (dollars in millions) (unaudited) December 31, March 31, 2003 2004 ASSETS Current Assets: Cash and cash equivalents $ 54.7 $ 299.9 Accounts receivable 399.3 478.2 Inventories (Note 3) 730.9 782.0 Deferred tax asset 99.0 108.7 Current assets held for sale 46.5 1.7 Other current assets 27.6 28.9 Total Current Assets 1,358.0 1,699.4 Property, Plant and Equipment 4,793.9 4,804.8 Less accumulated depreciation (2,360.0) (2,414.1) Property, plant and equipment, net 2,433.9 2,390.7 Other Assets: Investment in AFSG Holdings, Inc. 55.6 55.6 Other investments 110.0 92.8 Goodwill 37.1 37.1 Other intangible assets 80.3 80.2 Deferred tax asset 827.5 793.9 Non-current assets held for sale 65.5 28.6 Other assets 57.7 53.8 TOTAL ASSETS $ 5,025.6 $ 5,232.1 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Notes payable $ — $ 80.0 Accounts payable 376.3 327.5 Accrued liabilities 181.9 203.5 Current liabilities of discontinued operations 16.8 0.6 Current portion of long-term debt 62.5 62.5 Current portion of pension and other postretirement benefit obligations 141.4 141.4 Total Current Liabilities 778.9 815.5 Non-current Liabilities: Long-term debt 1,197.8 1,197.9 Pension and other postretirement benefit obligations 2,940.6 2,956.7 Non-current liabilities of discontinued operations 9.1 — Other liabilities 152.0 145.6 Total Non-current Liabilities 4,299.5 4,300.2 TOTAL LIABILITIES 5,078.4 5,115.7 Stockholders’ Equity: Common stock, authorized 200,000,000 shares of $.01 par value each; issued 2003, 117,082,911 shares, 2004, 117,247,012 shares; outstanding 2003, 108,577,655 shares, 2004, 108,706,511 shares 1.2 1.2 Additional paid-in capital 1,815.9 1,817.1 Treasury stock, common shares at cost, 2003, 8,505,256 shares; 2004, 8,540,501 shares (122.7) (122.8) Accumulated deficit (1,544.2) (1,378.8) Accumulated other comprehensive loss (Note 7) (203.0) (200.3) TOTAL STOCKHOLDERS’ EQUITY (52.8) 116.4 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 5,025.6 $ 5,232.1 See notes to consolidated financial statements. -2- Table of Contents AK STEEL HOLDING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) Three Months Ended (unaudited) March 31, 2003 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (40.8) $ 165.4 Depreciation and amortization 59.3 57.8 Deferred income taxes (28.1) (10.7) Pension and other postretirement benefit expense in excess of payments 41.0 16.2 Exclusion of income from and gain on sale of discontinued operations (1.6) (181.8) Working capital (53.0) (162.3) Other 1.4 (3.7) Net cash flows from operating activities of continuing operations (21.8) (119.1) CASH FLOWS FROM INVESTING ACTIVITIES: Capital investments (15.0) (10.8) Purchase of investments (0.9) — Proceeds from sale of business — 263.9 Proceeds from sale of investments 1.3 18.8 Other (0.3) (0.1) Net cash flows from investing activities of continuing operations (14.9) 271.8 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuing notes payable — 80.0 Purchase of treasury stock (0.5) (0.2) Other 0.9 (0.1) Net cash flows from financing activities of continuing operations 0.4 79.7 Cash flows from discontinued operations 3.0 12.8 Net increase (decrease) in cash and cash equivalents (33.3) 245.2 Cash and cash equivalents, beginning of period 282.5 54.7 Cash and cash equivalents, end of period $ 249.2 $ 299.9 Supplemental disclosure of cash flow information: Net cash paid (received) during the period for: Interest, net of capitalized interest $ 24.9 $ 26.4 Income taxes (0.1) 0.1 Supplemental disclosure of non-cash investing and financing activities — Issuance of restricted stock $ 5.3 $ 0.8 See notes to consolidated financial statements. -3- Table of Contents AK STEEL HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in millions, except per share data) 1. Basis of Presentation In the opinion of the management of AK Steel Holding Corporation (“AK Holding”) and AK Steel Corporation (“AK Steel”, and together with AK Holding, the “Company”), the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2004 and the results of its operations and cash flows for the three- month periods ended March 31, 2003 and 2004. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2003. 2. Earnings Per Share Three Months Ended March 31, 2003 2004 Income (loss) for calculation of basic and diluted earnings per share: Loss from continuing operations $ (42.4) $ (16.4) Income from discontinued operations 1.6 6.9 Gain on sale of discontinued operations — 174.9 Net income (loss) $ (40.8) $ 165.4 Weighted average common shares (in millions) 108.4 108.7 Basic and diluted income (loss) per share: Loss from continuing operations $ (0.39) $ (0.15) Income from discontinued operations 0.01 0.06 Gain on sale of discontinued operations — 1.61 Net income (loss) per share $ (0.38) $ 1.52 Potentially issuable common shares (in millions) excluded from earnings per share calculation due to antidilutive effect 4.2 5.2 3. 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. December 31, March 31, 2003 2004 Finished and semi-finished $ 641.8 $ 712.6 Raw materials 180.0 186.7 Total cost 821.8 899.3 Adjustment to state inventories at LIFO value (90.9) (117.3) Net inventories $ 730.9 $ 782.0 4.