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Worst still to come: leading mills reported strong results for full-year 2008, though they all took a hit in the fourth quarter and some are anticipating losses at least in first-quarter 2009.

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AK Steel

Despite Faltering Economy, Company Posts Records

AK Steel, West Chester, Ohio, considers 2008 to be one of the best years in the company's history despite barely eking out an operating profit in the fourth quarter.

"During the fourth quarter, AK Steel's results were impacted by the sudden and dramatic downturn in the global economy. However, despite the significant challenges posed by recessionary economic conditions worldwide, we reported adjusted pretax income of $600,000 for fourth quarter 2008," said Albert Ferrara Jr., vice president of finance and chief financial officer, in remarks last month to analysts and shareholders.

Including a $699.5 million non-cash charge related to the company's pension plans, AK Steel recorded a net loss of $430.6 million for the quarter.

Net sales for fourth-quarter 2008 totaled nearly $1.46 billion on shipments of about 1.1 million tons. Fourth-quarter 2008 sales and shipments were approximately 14 percent and 32 percent lower, respectively, than in the year-ago period. However, the company's average selling price for the quarter was $1,359 per ton, approximately 26 percent higher than a year ago.

For full-year 2008, AK Steel achieved record net sales of $7.64 billion on shipments of nearly 5.9 million tons. This compares to revenues of $7.0 billion on shipments of 6.5 million tons in 2007. The company's average selling price for 2008 rose to a record $1,303 per ton, approximately 21 percent above its 2007 average of $1,081 per ton.

Including the fourth-quarter pension charges, the company posted net income of $4.0 million for 2008, down from a net income of $387.7 million in 2007.

"While the sudden economic downturn late in the year made for a very challenging fourth quarter, 2008 was an exceptionally good year for AK Steel," said James L. Wainscott, chairman, president and CEO. "AK Steel is uniquely prepared to weather this economic storm, and we will continue to make the necessary adjustments, not only to meet today's challenges, but to quickly take advantage of any improving market conditions."

Nevertheless, the company anticipates a significant operating loss in first-quarter 2009. Noting that the economic situation remains uncertain, AK Steel plans to take advantage of the economic downturn by temporarily idling its Middletown, Ohio, blast furnace for maintenance beginning early in March. The project is expected to take about 45 days. The company planned to restart its previously idled furnace in Ashland, Ky., early this month.

AK Steel executives expect shipments in the first quarter to range from 850,000 to 900,000 tons. Improving shipments in the second quarter, coupled with lower raw material costs, should generate a modest operating profit.

"The first quarter of 2009 will be negatively impacted by a host of factors, including even lower production and shipment volumes, lower average selling prices, high cost raw materials carrying over from 2008 and increased maintenance costs," said Wainscott. "But we have some reason for optimism that the worst of it will be behind us in the first half of this year, if not by the tail end of the first quarter."

Looking at major product groups, Wainscott said that carbon steel demand remains depressed as the housing, capital goods and automotive sectors continue to experience historically low sales activity.

From 2007 to 2008, North American light vehicle sales declined by about three million units, from 16.2 to 13.2 million vehicles. Another three-million-unit drop is expected for 2009.

Wainscott noted that AK Steel is not as reliant on automotive business as it was in the past. The company has reduced its direct auto shipments to 32 percent of total sales from 58 percent in 2003. The fact that the auto industry is currently selling more vehicles than it is producing holds promise for 2009.

"Looking at December, only 773,000 vehicles were made in North America, while sales topped 812,000 units. The January and February production levels are expected to be even lower than the December pace, but sales are expected to remain comparable. So while it will take some time, things are slowly coming back into balance. On top of that, auto sales are likely to get some...

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