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Saturday, July 19, 2003

Slump gets worse for AK Steel


By Mike Boyer
The Cincinnati Enquirer

Despite a slumping stock price, continuing losses and major environmental and pension liabilities, the chairman of AK Steel says the Middletown steel maker expects to weather the storm.

"It's too early to push any panic buttons," chairman Richard Wardrop told investment analysts during a conference call Friday to discuss the company's second-quarter loss of $78.2 million, or 72 cents a share.

AK's stock closed down 49 cents, or 16 percent , Friday at $2.64 a share after reporting the wider-than-expected loss blamed on a combination of lower steel prices; higher raw material, energy and maintenance costs; and several one-time charges.

In the second quarter last year, AK Steel reported a profit of $16.2 million, or 15 cents a share.

For the three months ended June 30, shipments declined about 7 percent from a year ago. Sales were $1.02 billion on shipments of 1.39 million tons. AK said its average flat-rolled selling price slipped 4 percent to $682 a ton from a year ago.

Besides a weak steel market, the 100-year-old steel company faces:

An estimated $80 million to bring its Middletown steel-making operations into compliance with new air pollution rules taking effect in 2006 and potentially millions of dollars in fines from a pending federal pollution lawsuit.

Potential pension and health-care "legacy" costs estimated at more than $5 billion last year by actuaries for its 30,000 eligible retirees and survivors.

Some steel companies have sought bankruptcy reorganization to get out from under their pension legacy costs, but Wardrop said AK Steel has no such plans.

The company has said it is studying the possibility of ending steel-making operations at its Middletown mill, to resolve some of the environmental and pension cost issues. That move could eliminate 1,000 jobs in Middletown, where the company now employs about 5,000.

Last month, the company initiated discussions with employee unions at its Middletown and Butler, Pa., plants over ways to improve the competitiveness of those operations.

Wardrop told analysts that the company is studying whether it makes sense to end basic steel-making operations and import semi-finished steel slabs to finish into coated-carbon and stainless steel for its automotive and appliance customers.

AK estimates that it will cost about $1 billion in the next decade to continue making steel at Middletown and other mills. Wardrop said the company is weighing whether it makes more sense to spend that money elsewhere.

Since losing out to rival US Steel Corp. to acquire National Steel Corp out of bankruptcy in April, some analysts have questioned AK's viability in the wake of industry consolidation.


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Jul. 19, 2003
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