AK Steel Holding (AKS)

Operations Overview

Operations Overview

The Company’s operations consist of seven steelmaking and finishing plants that produce flat-rolled carbon steels, including premium-quality coated, cold-rolled and hot-rolled products, and specialty stainless and electrical steels that are sold in hot band, sheet and strip form. These products are sold to the automotive, appliance, industrial machinery and equipment, and construction markets, as well as to distributors, service centers and converters. The Company sells its carbon products principally to domestic customers. The Company’s electrical and stainless steel products are sold both domestically and internationally. The Company’s continuing operations also include two plants operated by AK Tube where flat-rolled carbon and stainless steel is further finished into welded steel tubing. In addition, the Company operates European trading companies that buy and sell steel and steel products.

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Safety, quality and productivity are the focal points of AK Steel’s operations. AK Steel has led the steel industry in safety performance for many years. In 2007, the Company experienced its best-ever safety performance. The Company’s Mansfield, Rockport and Zanesville Works operated the entire year without a single OSHA recordable injury. Also, the Company’s Coshocton Works and Zanesville Works were honored in 2007 for outstanding safety performance. In 2007, the Company also joined the Strategic Partnership Program of the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) to further strengthen safety and health efforts at the Company’s Mansfield Works. The Strategic Partnership Program is a voluntary, cooperative relationship formed by OSHA in order to encourage, assist and recognize a company’s efforts to achieve a high level of worker safety and health.

The Company also had one of its best performances with respect to quality in 2007. The Company has been recognized repeatedly in leading surveys for being industry-best in overall quality for carbon, stainless and electrical steels and received such recognition again in 2007. The Company also received a variety of quality awards from customers and others in 2007. All of the Company’s steel plants have been awarded ISO/TS 16949:2002 Quality Management System certification, which is an international quality management system standard developed by the International Automotive Task Force and the Japan Automobile Manufacturers Association in conjunction with the international standards community. All of the Company’s steel facilities also have been awarded certificates of registration under ISO 14001, a set of voluntary environmental management systems standards that enable an organization to control the impact of its activities, products or services on the environment. Audits to maintain these certifications are performed on a periodic and timely basis, and the Company continues to be ISO/TS16949:2002 and ISO 14001 certified. With respect to productivity, in 2007 the Company continued to improve on its historically excellent productivity performance and achieved record performances at numerous units at all locations. There were productivity and yield improvements in units at all locations, with the most significant strides taking place at the Company’s electrical and stainless steel operations.

In October 2007, the Company announced a capital investment totaling $180.0 to lower production costs and increase the electrical steel capacity of its specialty steel operations at its Butler and Zanesville Works. The project will include installation of a new electric arc furnace (“EAF”) and ladle metallurgy furnace, as well as additional electrical steel finishing equipment. The Company currently operates three EAFs at its Butler Works and this project will replace two of the existing EAFs with a single furnace capable of melting more than 1.45 million tons annually. When completed, the new two-furnace operation will provide about a 40% increase over the current three-furnace operation and will provide increased flexibility in helping the Company serve the growing demand for its electrical steel products. It further will provide an opportunity to increase carbon steel production at Butler Works, thereby reducing the Company’s need to purchase carbon slabs in the spot market. This project represents the fourth phase of a continued expansion of the Company’s electrical steels capacity since 2004. Phases one and two involved equipment upgrades and were both completed by early 2007. The third phase, an investment totaling $55.0 to increase production capacity for high-quality, grain-oriented electrical sheet steels, was substantially completed by the end of 2007. Collectively, the four phases of this expansion are aimed at helping the Company meet strong global market demand for electrical steel products and should have a favorable ongoing impact on its operations and financial results.

Operations Overview

The Company’s continuing operations consist of seven steelmaking and finishing plants that produce flat-rolled carbon steels, including premium-quality coated, cold-rolled and hot-rolled products, and specialty stainless and electrical steels that are sold in slab, hot band, sheet and strip form. These products are sold primarily to the domestic automotive, appliance, industrial machinery and equipment, and construction markets, as well as to distributors, service centers and converters. The Company’s continuing operations also include two plants operated by AK Tube which further finishes flat-rolled carbon and stainless steel into welded steel tubing. In addition, the Company operates European trading companies that buy and sell steel and steel products.

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Safety, quality and productivity are hallmarks of AK Steel’s operations. AK Steel has led the steel industry in safety performance for many years. In 2006, the Company experienced its best-ever safety performance and received several safety awards. Similarly, the Company has been recognized repeatedly in leading surveys for being industry-best in overall quality for carbon, stainless and electrical steels. The Company also had its overall best-ever performance in 2006 with respect to customer claims, with many of its plants setting new records in various quality metrics. The Company received a variety of quality awards from customers and others in 2006. All of the Company’s steel plants have been awarded ISO/TS 16949:2002 Quality Management System certification, which is an international quality management system standard developed by the International Automotive Task Force and the Japan Automobile Manufacturers Association in conjunction with the international standards community. All of the Company’s steel facilities also have been awarded certificates of registration under ISO 14001, a set of voluntary environmental management systems standards that enable an organization to control the impact of its activities, products or services on the environment. Audits to maintain these certifications are performed on a periodic and timely basis, and the Company continues to be ISO/TS16949:2002 and ISO 14001 certified. With respect to productivity, in 2006 the Company continued to improve on its historically excellent productivity performance and achieved record performances at numerous units at all locations, including casting, hot rolling and finishing at Middletown Works. There were productivity and yield improvements in units at all locations, with the most significant strides taking place at the Company’s stainless and specialty steel plants. At those locations, numerous annual production records were shattered, with a double-digit number of records set at the Company’s Coshocton Works, Mansfield Works and Zanesville Works. In addition, the Company’s Butler Works cast more than one million tons for the first time ever and set more than fifty production records in 2006. The Company’s Rockport Works was named one of the Best Plants in North America by Industry Week, and was also honored with the U.S. Senate Productivity Award.

The Company announced or completed several capital projects in 2006 which should have a favorable ongoing impact on its operations and financial results. In April 2006, the Company announced a capital investment of $14.0 for the second phase of a project to increase production capacity for high quality, grain oriented electrical sheet steels. The first phase of the project included investments for equipment upgrades at Butler and Zanesville Works and the introduction of new operating practices and was completed in 2006. Phase two of the project will upgrade existing production equipment at the Company’s Butler Works and is expected to be completed in early 2007. In October 2006, the Company announced a third phase of its project to increase production capacity for high quality, grain-oriented electrical sheet steels. The third phase involves a capital investment of approximately $55.0 and will increase production capacity by approximately 12%. Upon completion of this third phase, the Company’s electrical steel production capacity will increase to an annual rate of about 335,000 tons by mid-2008. Collectively, the three phases of this project are aimed at helping the Company meet strong market demand for electrical steel products.

The Company announced in April 2006 that it would make an $8.5 capital investment to expand tubular production capacity at the Walbridge, Ohio AK Tube plant. This capital investment gives the Company the capability to produce large diameter stainless steel tubing that will help heavy duty truck manufacturers meet stringent new U.S. EPA standards for diesel vehicle emissions. The project was completed and the new line started up in September 2006.

Operations Overview

The Company’s continuing operations consist of seven steelmaking and finishing plants that produce flat-rolled carbon steels, including premium-quality coated, cold-rolled and hot-rolled products, and specialty stainless and electrical steels that are sold in slab, hot band, sheet and strip form. These products are sold primarily to the domestic automotive, appliance, industrial machinery and equipment, and construction markets, as well as to distributors, service centers and converters. The Company’s continuing operations also include two plants operated by AK Tube LLC, a wholly-owned subsidiary of the Company, which further finishes flat-rolled carbon and stainless steel into welded steel tubing. In addition, the Company operates European trading companies that buy and sell steel and steel products.

Safety and quality are hallmarks of AK Steel’s operations. AK Steel has led the steel industry in safety performance for many years. In 2005, the Company experienced its best-ever safety performance and received

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several safety awards. Similarly, the Company has been recognized repeatedly in leading surveys for being industry-best in overall customer satisfaction. In 2005, AK Steel was ranked first in customer satisfaction in a leading industry survey of key automotive, appliance and service center customers, not just with respect to carbon steel but also with respect to specialty products. The Company also had its overall best-ever performance with respect to quality, with most of its plants setting new records in various quality metrics, and received a variety of quality awards from customers and others in 2005. All of the Company’s steel plants have been awarded ISO/TS 16949:2002 Quality Management System certification, which is an international quality management system standard developed by the International Automotive Task Force and the Japan Automobile Manufacturers Association in conjunction with the international standards community. All of the Company’s steel facilities also have been awarded certificates of registration under ISO 14001, a set of voluntary standards that enable an organization to control the impact of its activities, products or services on the environment. Audits to maintain these certifications are performed on a periodic and timely basis, and the Company continues to be ISO/TS16949:2002 and ISO 14001 certified.

The Company completed or announced several capital projects in 2005 which should have a favorable ongoing impact on its operations and financial results. In July 2005, the Company completed the installation of a new vacuum degasser and the modification of the continuous caster at its Ashland Works. This project enables the Company to more closely match its steel production capabilities with customer requirements for ultra-low carbon steel products, primarily for the automotive and appliance markets. In October 2005, the Company completed the construction of a new recycling facility at its Ashland Works. The facility can process and recycle waste materials from the plant’s blast furnace, cokemaking operation and continuous caster and reuse the products in the Company’s steelmaking process. The new facility is capable of recycling up to 250,000 tons of waste per year and recovering iron and carbon units that would otherwise be sent to a landfill. The use of the recycled materials will reduce the amount of purchased raw materials needed for the Ashland Works steelmaking process. In addition, in December 2005, the Company announced that it will invest approximately $8.5 million in its AK Tube facility to enable it to produce large diameter stainless tubing.

On March 31, 2004 the Company completed the sale of Douglas Dynamics, L.L.C., the largest North American manufacturer of snowplows and salt and sand spreaders for four-wheel drive light trucks. On April 12, 2004 the Company completed the sale of Greens Port Industrial Park on the Houston, Texas ship channel. For all periods presented, the results of Douglas Dynamics and Greens Port Industrial Park are classified as discontinued operations.

Operations Overview

The Company’s continuing operations consist of seven steelmaking and finishing plants that produce flat-rolled carbon steels, including premium-quality coated, cold-rolled and hot-rolled products, and specialty stainless and electrical steels that are sold in slab, hot band, sheet and strip form. These products are sold primarily to the domestic automotive, appliance, industrial machinery and equipment, and construction markets, as well as to distributors, service centers and converters. The Company’s continuing operations also include AK Tube LLC, (“AK Tube”) which further finishes flat-rolled carbon and stainless steel into welded steel tubing. In the third quarter of 2003, AK Tube acquired ArvinMeritor’s Central Tubing Facility in Columbus, Indiana. In addition, the Company operates European trading companies that buy and sell steel and steel products.

On March 31, 2004 the Company completed the sale of Douglas Dynamics, L.L.C., the largest North American manufacturer of snowplows and salt and sand spreaders for four-wheel drive light trucks. On April 12, 2004 the Company completed the sale of Greens Port Industrial Park on the Houston, Texas ship channel. On April 19, 2002, the Company completed the sale of Sawhill Tubular Products, a manufacturer of a wide range of steel pipe and tubing products. For all periods presented, the results of Douglas Dynamics, Greens Port Industrial Park and Sawhill Tubular are classified as discontinued operations.

The Company operates in a cyclical industry that was particularly hard hit by the economic downturn that continued until the end of 2003. A number of steel companies, including large and small competitors of AK Steel, filed for bankruptcy protection during that downturn. Nonetheless, the level of domestic competition

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remains high, because many of the steelmaking assets of these businesses were purchased through the bankruptcy process and are being operated by companies that are able to enjoy cost advantages resulting principally from the elimination of large portions of their predecessors’ retiree pension and healthcare costs, a reduced workforce and a significant reduction in the number of job classes. During the economic downturn, the Company also faced significant competitive challenges and a deteriorating financial condition. Through an aggressive and systematic effort to improve its relations with its customers, reduce costs and conserve cash, the Company was able to return to profitability and began to generate positive cash flow.

With an environment of improved customer relations, an improving economy and the realization of cost savings from initiatives that began in the fourth quarter of 2003, the Company experienced significant improvements in 2004 in its shipments, sales and operating results, excluding the pension and other postretirement benefit corridor charges. Value-added shipments continued to trend higher, and the Company benefited from higher spot market pricing and raw material and energy surcharges which increased average pricing to a record level. Sales to the spot market comprised approximately 30% of total net sales in 2004. Also, the Company was successful in negotiating higher prices for sales to approximately 90% of its contract customers commencing in 2005. Many of these new contracts include a variable pricing mechanism and/or a raw material and energy surcharge. The Company continued to improve its cash position, ending the year with $377.1 of cash and $500.4 of availability under its two credit facilities, representing total liquidity of $877.5.

Despite this financial improvement, there were continued financial challenges in 2004. For the fourth year in a row, the Company recognized non-cash fourth quarter pension and other postretirement benefit corridor charges, which accelerate the recognition of actuarial losses. The Company had to contend with extremely high and unprecedented costs for raw materials and energy, as well as its high levels of long-term debt and pension and other postretirement benefit obligations. Because of the nature of its business, it also incurred significantly increased costs to comply with stringent, and in some instances new, environmental regulations. For example, in 2004, the Company committed to spend approximately $66.0 to install new environmental equipment at its Middletown Works to comply with newly-enacted regulations governing particulate emissions.

The Company was able to partially mitigate these unfavorable factors by aggressively improving productivity and quality, lowering operating and overhead costs, reducing discretionary spending wherever prudent, and where possible, adding surcharges to the price of carbon, stainless and electrical steel product sales.