The Cincinnati Enquirer
AK Steel's assurances that it doesn't plan to seek bankruptcy
protection, steel analysts Thursday said the clock is ticking
on the future of the Middletown steel maker.
AK cautioned late Wednesday that it expects a third-quarter
loss of as much as $2.61 a share versus loss of 3 cents a
share a year ago. It "has to be able to turn a profit in six
to nine months," independent steel analyst Charles Bradford
There's been increased speculation that the company, which
employs 4,100 in Middletown, might go into Chapter 11
bankruptcy reorganization, particularly since chairman and CEO
Richard Wardrop and president John Hritz resigned unexpectedly
Wardrop, a veteran steel executive, repeatedly opposed
bankruptcy protection as a strategy to get out from under huge
pension and retiree health-care liabilities. The strategy has
been used by some of AK's leading U.S. competitors.
AK says it has liquidity of about $500 million, mainly
through new financing arranged last month. It also said it
could sell noncore assets valued at about $300 million to
Analysts said the company doesn't face an immediate debt
crunch. It has a $62.5 million debt payment due in December
and other $62.5 million debt payment due in December next
But Bradford cautioned: "They can't go into 2005 with Wall
Street estimates of losing $1 a share."
Company officials have acknowledged as much.
In disclosing the wider third-quarter loss, acting CEO
James L. Wainscott said the company will soon "outline an
approach that is designed to return us to a sustainable level
Thursday, AK Steel's shares fell 9 percent, closing at
$1.91, off 19 cents after the company said a less profitable
product mix and higher energy and raw material costs will
result in an operating loss later this month of 82 to 86 cents
The consensus among analysts had been for an operating loss
of 59 cents a share.
In addition, the company said it is studying noncash
charges for goodwill and deferred tax assets of about $190
million, after tax, or $1.75 per share.
Leo Larkin, an industry analyst for Standard & Poor's,
said it is imperative that the flat-rolled carbon, stainless
and electrical steel maker negotiate agreements with its labor
unions as soon as possible to put its costs on par with larger
competitors such as Cleveland-based International Steel Group
and U.S. Steel Corp.
This summer, the company approached the leadership of the
independent union representing hourly workers in Middletown to
discuss future plant operations. Those talks have been delayed
by completion of a company-requested confidentiality
agreement. The union, Armco Employees Independent Federation,
also completed officer elections Thursday.
Chris Olin, analyst with Longbow Research in Cleveland,
said AK Steel still faces hurdles.
"They've lost market share in the auto industry,'' he said.
And, "they have to get a labor agreement to get their costs
Among the noncore assets AK could be looking to sell are
Douglas Dynamics LLC, a maker of ice and snow removal plows it
acquired in its 1999 acquisition of Armco Inc., and an
industrial park it owns in Houston.
But Larkin said AK still needs the same type of labor
concessions that privately held International Steel Group was
able to negotiate with the United Steelworkers of America in
acquiring assets of Bethlehem and LTV Steel out of bankruptcy.
"Without labor contract concessions, they can't survive,''
Even with that, he said, the company may eventually have to
seek a buyer for all or part of its business.
Analysts such as Bradford say AK Steel's crisis has been
aggravated by the President Bush's tariffs on imported steel,
which are up for renewal.
The industry's problem is too much capacity, Bradford said.
The tariffs have acted as a subsidy for that excess capacity
and weakened the market for all suppliers, he said.
AK Steel, which buys imported steel slabs for finishing,
has opposed the import tariffs, which are backed by other
steel makers and the steelworkers' union.
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