AK Steel Holding (AKS)

Q4 2011 Earnings Call

January 24, 2012 11:00 am ET

Executives

James L. Wainscott - Chairman, Chief Executive Officer and President

Albert E. Ferrara - Chief Financial Officer and Senior Vice President of Finance

Analysts

Devin Corr

Brett Levy - Jefferies & Company, Inc., Research Division

Michelle Applebaum - Steel Market Intelligence Inc

Charles A. Bradford - Bradford Research, Inc.

David Katz - JP Morgan Chase & Co, Research Division

Kuni M. Chen - CRT Capital Group LLC, Research Division

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Richard Garchitorena - Crédit Suisse AG, Research Division

Jonathan Sullivan

Luke Folta - Jefferies & Company, Inc., Research Division

David S. MacGregor - Longbow Research LLC

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Evan L. Kurtz - Morgan Stanley, Research Division

Presentation

Operator

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Good morning, ladies and gentlemen, and welcome to AK Steel's Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

With us today are Mr. James L. Wainscott, Chairman, President and Chief Executive Officer of AK Steel; and Mr. Albert E. Ferrara Jr., Senior Vice President of Finance and Chief Financial Officer.

At this time, I will turn the conference call over to Mr. Ferrara. Please go ahead, sir.

Albert E. Ferrara

Thank you, Amy, and good morning, everyone. In a moment, I'll review our fourth quarter and full year 2011 financial results. Following my remarks, Jim will offer his comments, and together, we will field your questions.

Our comments today will include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Included among those forward-looking statements will be any comments concerning our expectations as to future shipments, product mix, prices, costs, operating profit or liquidity. Please note that our actual results may differ materially from what is contained in the forward-looking statements provided during this call. Information concerning factors that could cause such material differences and results is contained in our earnings release issued earlier today. Except as required by law, the company disclaims any obligation to update any forward-looking statements to reflect future developments or events. To the extent we refer to material information that includes non-GAAP financial measures, the reconciliation information required by Regulation G is available on the company's website at aksteel.com.

Let me begin by reviewing AK Steel's results for the fourth quarter of 2011, which we reported earlier today. During the quarter, we continued to experience challenging market conditions, along with ongoing high costs for steelmaking raw materials. As a result, for the fourth quarter, AK Steel reported an adjusted net loss of $28 million or $0.26 per share. The adjusted result excludes a pretax non-cash corridor charge of $268.1 million related to our pension plan. The corridor charge relates to actuarial losses associated with our pension plan. Under our method of employee benefits accounting, we are required to recognize these charges immediately instead of amortizing them over time. The corridor charge in the fourth quarter was primarily due to a lower discount rate as well as earning a less-than-assumed rate of return on the plan's investments in 2011. Once again, I would emphasize the corridor charge is noncash.

I would also note that we have reduced our expected annual rate of return on the pension plan investment portfolio to 8% from 8.5% beginning in 2012. While this change will affect our reported income in 2012, it will not impact our future funding levels.

Shipments for the fourth quarter of 2011 totaled 1.4 million tons, an increase of about 3% compared to the third quarter and consistent with our guidance. Our average selling price in the fourth quarter was $1,070 per ton, a decrease of approximately 8% compared to the third quarter and in line with our guidance.

Revenues in the fourth quarter totaled $1,509,000,000, a decrease of about 5% compared to the prior quarter. Sales outside the U.S. continue to be an important source of revenue for us and totaled approximately $212 million for the quarter or about 14% of sales.

During the fourth quarter of 2011, raw material costs moderated slightly but continued to pressure our financial results. However, these costs were largely in line with our expectations.

We did benefit from a LIFO credit of $44.1 million in the fourth quarter compared to a LIFO credit of $9.5 million in the third quarter. Our LIFO credit for the fourth quarter was larger than we had anticipated due principally to certain year-end inventory levels that were lower than expected. Also due to the continued weakening of the euro, our fourth quarter results were negatively impacted by a foreign exchange loss of approximately $3.5 million.

On an operating basis, we incurred an adjusted operating loss of $32.6 million or $23 per ton for the fourth quarter of 2011, substantially better than our guidance of a loss of $40 to $45 per ton.

Turning now to our full year results. Shipments for 2011 totaled 5.7 million tons, a slight increase compared to our shipments in 2010. Revenues totaled nearly $6.5 billion, an increase of approximately 8% compared to 2010 revenues. Our average selling price in 2011 was $1,131 per ton, about 7% higher than 2010. And sales outside U.S. totaled $946.4 million for 2011, an increase of $123 million or about 15% compared to 2010.

We recorded an adjusted operating profit of $66.8 million or $12 per ton for 2011. That represents an improvement of about $128 million or $23 per ton compared to our adjusted operating loss of $61.1 million or $11 per ton for 2010.

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