AK Steel Holding (AKS)

Results of Operations

The Company’s operations consist of seven steelmaking and finishing plants located in Indiana, Kentucky, Ohio and Pennsylvania 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, and sheet and strip form. The Company’s operations also include AK Tube LLC, which further finishes flat-rolled carbon and stainless steel at two tube plants located in Ohio and Indiana into welded steel tubing used in the automotive, large truck and construction markets, and European trading companies that buy and sell steel and steel products.

Steel shipments for the three months ended March 31, 2007 and 2006 were 1,596,200 tons and 1,526,800 tons, respectively. For the three months ended March 31, 2007, value-added products comprised 81.0% of total shipments, down from 88.5% reported in the first three months of 2006. The change in the value-added product mix is the result of increased shipments of hot-rolled products and reduced shipments of zinc-coated products. This change is the result of the Company continuing to focus on maximizing product profitability based on current market demand, including taking advantage of the currently strong spot market. The following presents net shipments by product line:

For the quarter ended March 31, 2007, net sales were a record $1,719.9, reflecting a 20% increase from the $1,435.9 reported for the corresponding period in 2006. The Company’s average steel selling price increased from $940 per ton in the first three months of 2006 to a record $1,078 per ton in the first three months of 2007. The increase in net sales and in average selling price was the result of higher contract sales prices, higher surcharges and higher spot market prices.

Selling and administrative expense for the first quarter of 2007 was $54.1 versus $52.1 for the same period of 2006. Depreciation expense was $49.8 for the first quarter of 2007, slightly less than the $50.1 for the first quarter of 2006.

For the first quarter of 2007, the Company recorded an operating profit of $120.0, or $75 per ton, compared to operating profit of $29.4, or $19 per ton, in the first quarter of 2006. The year-over-year improvement was the result of various items, principally higher selling prices and increased shipments. In addition, the Company’s first quarter 2007 costs associated with the Middletown Works lockout were approximately $3.0 which was approximately $24.0 lower than the costs incurred in the first quarter of 2006. That lockout was settled in the first quarter of 2007. Similarly, outage costs were $3.7 in the first quarter of 2007 compared to the approximately $10.5 incurred in the same period last year. The Company also had lower total employment costs in the first quarter 2007 versus 2006 as a result of the labor agreements negotiated during 2006 and 2007. Since late 2003, the Company has negotiated a new labor agreement with each of its unions at all of the Company’s represented facilities. These new labor agreements, along with the Company’s overall efforts to reduce its total employment costs, have enabled the Company to reduce its pre-tax labor costs by approximately $195.0 on an annualized basis. These actions have resulted in a cumulative reduction in the Company’s other postretirement benefit obligation of approximately $435.0. These actions have resulted in a reduction of net periodic pension and other postretirement benefits costs of $11.5 in the first quarter of 2007 compared to the first quarter of 2006. However, in the first quarter of 2007, the Company also incurred a non-cash pension benefit curtailment charge of $15.1 in connection with the new labor agreement with the Company’s Mansfield Works. These net first quarter 2007 collective improvements were partially offset by increased quarter-over-quarter raw material costs, including for scrap, iron ore, coating metals and purchased slabs. Also, in the three months ended March 31, 2007 and 2006, the Company incurred LIFO charges of $48.5 and $13.4, respectively, reflecting the continued increase in cost for raw materials.

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For the first quarter of 2007, the Company’s interest expense was $24.6, an increase of $2.6 over the same period in 2006 primarily as a result of an approximate $1.3 charge for unamortized debt expense related to the $225.0 redemption of senior notes and an approximate $2.8 charge for the unamortized expense associated with prior inventory and receivable credit facilities that were replaced by a new credit facility in the first quarter of 2007. The impact of the write-off of unamortized expenses was partially offset by approximately $1.5 in lower interest expense related to the early redemption of the senior notes mentioned above.

Income taxes recorded through March 31, 2007 have been estimated at 37% based on year-to-date income and projected results for the full year. The final effective tax rate to be applied to 2007 will depend on the actual amount of taxable income generated by the Company for the full year and the amount of net operating loss carry-forwards that can alternately be used to offset that income.

In March 2006, new tax legislation was enacted in the State of Indiana. Under that new legislation, the Company expects to pay less in taxes in future years due to a lower effective tax rate. As a result, in the first quarter of 2006, under FAS 109 “Accounting for Income Tax”, the Company was required to recognize as part of its tax provision a non-cash tax charge of $1.5 for the reduction in value of the Company’s deferred tax assets resulting from a lower effective state income tax rate in Indiana.

The Company’s net income in the three months ended March 31, 2007 was $62.7, or $0.56 per diluted share, compared to $6.2, or $0.06 per diluted share, in the first quarter of 2006. The favorable performance was the result of the items discussed above.

Results of Operations

The Company’s operations consist of seven steelmaking and finishing plants located in Indiana, Kentucky, Ohio and Pennsylvania 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, and sheet and strip form. The Company’s operations also include AK Tube LLC, which further finishes flat-rolled carbon and stainless steel at two tube plants located in Ohio and Indiana into welded steel tubing used in the automotive, large truck and construction markets, and European trading companies that buy and sell steel and steel products.

Steel shipments for the three months ended March 31, 2006 and 2005 were 1,526,800 tons and 1,520,500 tons, respectively. For the three months ended March 31, 2006, value-added products comprised 88.5% of total shipments, up slightly from 88.0% reported in the first three months of 2005. The following presents net shipments by product line:

For the quarter ended March 31, 2006, net sales were $1,435.9, reflecting a 1% increase from the $1,422.5 reported for the corresponding period in 2005. The Company’s average steel selling price increased from $934 per ton in the first three months of 2005 to a record $940 per ton in the first three months of 2006. The increase in net sales and in average selling price was the result of both higher contract sales prices under new and renegotiated sales agreements with a substantial majority of the Company’s contract customers and an improved value-added product mix.

Selling and administrative expense for the first quarter of 2006 was $52.1 versus $52.3 for the same period of 2005. Depreciation expense was $50.1 for the first quarter of 2006 versus $50.3 for the first quarter of 2005.

For the first quarter of 2006, the Company recorded an operating profit of $29.4, or $19 per ton, compared to $113.6 operating profit, or $75 per ton for the first quarter of 2005. The year-over-year decline was primarily the result increased costs, including higher operating costs related to the lock-out of the Middletown Works hourly workforce, maintenance outages, higher natural gas costs and higher costs for coating metals. The lockout of approximately 2,700 hourly employees at the Company’s Middletown Works in Ohio began on March 1 following the expiration, on February 28, of a collective bargaining agreement between the Company and the independent union that represents hourly employees at the plant. In order to continue meeting customer requirements, the Company implemented a contingency plan on March 1 to operate the Middletown plant with a temporary replacement workforce, resulting in approximately $13.0 of additional costs in the quarter, principally for training and overtime. In addition, the Company recognized costs of approximately $14.0 related to fixed costs associated with the reduced level of operations at Middletown Works during March. The Company also incurred costs of nearly $11.0 in the quarter for various maintenance outages at the Middletown Works, including a blast furnace outage the Company elected to perform in early March to coincide with the reduced operating rate previously mentioned. Work was also accelerated in the quarter to complete the second phase of a project to install additional environmental controls on the Middletown blast furnace and steelmaking operations. These increased costs were partially offset by improved net sales. Also, in the three months ended March 31, 2006 and 2005, LIFO charges of $13.4 and $33.8, respectively, reflected continued increasing costs for key raw materials, including iron ore, coating metals and coal.

The Company holds an equity interest in AK-ISG Steel Coating Company (“AK-ISG”), a joint venture that operated an electrogalvanizing line in Cleveland, OH. As previously reported, AK-ISG decided in the fourth quarter of 2005 to

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indefinitely idle its electrogalvanizing line in the first quarter of 2006. That line was indefinitely idled effective March 17, 2006. The Company fully impaired its investment in AK-ISG in the fourth quarter of 2005 and the idling of the AK-ISG electrogalvanizing line in the first quarter of 2006 had no impact on the Company’s first quarter results.

For the first quarter of 2006, the Company’s interest expense was $22.0, a decline of $0.4 from the same period in 2005 primarily as a result of reduced commitment fees for the inventory and receivables credit facilities. Other income decreased by $1.4 to $4.0 in the first quarter of 2006 as a result of lower foreign currency gains relative to the euro partially offset by higher interest income as a result of higher amounts of cash and favorable investment rates.

Income taxes recorded through March 31, 2006 have been estimated based on year-to-date income and projected results for the full year. The final effective tax rate to be applied to 2006 will depend on the actual amount of taxable income generated by the Company for the full year and the amount of net operating loss carry-forwards that can alternately be used to offset that income.

On March 24, 2006, new tax legislation was enacted in the State of Indiana. Under that new legislation, the Company expects to pay less in taxes in future years due to a lower effective tax rate. As a result, in the first quarter of 2006, under SFAS No. 109 “Accounting for Income Tax”, the Company was required to recognize as part of its tax provision a non-cash tax charge of $1.5 for the reduction in value of the Company’s deferred tax assets resulting from a lower effective state income tax rate in Indiana. During the first quarter of 2005, new tax legislation also was enacted in the Commonwealth of Kentucky. As a result of that legislation, the Company similarly recognized during that quarter in its tax provision a non-cash tax charge of $3.1 for the reduction in value of the Company’s deferred tax assets resulting from lower state income tax rates in Kentucky.

The Company’s net income in the three months ended March 31, 2006 was $6.2, or $0.06 per share, compared to $59.2, or $0.54 per share, in the first quarter of 2005.

Results of Operations

AK Steel’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 slab, hot band, sheet and strip forms. Its operations also include AK Tube LLC, which further finishes flat-rolled steel into welded steel tubing, and European trading companies that buy and sell steel and steel products.

Steel shipments for the three months ended March 31, 2005 and 2004 were 1,520,500 tons and 1,514,300 tons, respectively. For the three months ended March 31, 2005, value-added products comprised 88.0% of total shipments, down from 93.7% reported in the first three months of 2004, as a result of significantly stronger shipments of hot-rolled carbon steel products. The following presents net shipments by product line:

For the quarter ended March 31, 2005, net sales were $1,422.5, a 25% increase from the $1,134.4 reported for the corresponding period in 2004. The increase in net sales was the result of both higher contract sales prices from new and renegotiated sales agreements with a substantial majority of the Company’s contract customers and higher spot market prices. The Company’s average steel selling price increased from $747 per ton in the first three months of 2004 to a record $934 per ton in the first three months of 2005.

Selling and administrative expense for the first quarter of 2005 of $52.3 was slightly lower than the $52.5 for the same period of 2004. Depreciation expense of $50.3 for the first quarter of 2005 was less than the first quarter of 2004 amount of $54.0, due primarily to older Company assets that have become fully depreciated and recent lower capital spending.

For the first quarter of 2005, the Company recorded an operating profit of $113.6, or $75 per ton, compared to a $1.5 operating profit, or $1 per ton for the first quarter of 2004. The year-over-year improvement resulted largely from increased net sales because of the higher contract customer pricing and higher spot market pricing. In addition, the Company lowered its operating and overhead costs, reflecting the benefits of cost containment efforts. However, in the three months ended March 31, 2005 and 2004, LIFO charges of $33.8 and $26.4, respectively, reflected continued increasing costs for key raw materials and energy, primarily iron ore, scrap, purchased slabs and coal. The Company also experienced higher employee benefit costs. The 2005 operating profit was also net of a charge of $17.7 for planned maintenance outages at the Company’s Middletown and Mansfield facilities.

For the first quarter of 2005, the Company’s interest expense was $22.4, a decline of $7.3 from the same period in 2004, reflecting the reduction of debt in 2004. Other income increased by $3.8 to $5.4 in the first quarter of 2005, reflecting a combination of foreign currency gains from the strong Euro and increased interest income from higher interest rates on increased levels of cash.

On March 18, 2005, new tax legislation was enacted in the Commonwealth of Kentucky. As a result, in the first quarter of 2005, under Financial Accounting Standard No. 109, the Company was required to recognize in its tax provision a non-cash tax charge of $3.1 for the reduction in value of the Company’s deferred tax assets resulting from lower state income tax rates.

In the first quarter of 2004, the effective tax rate applied to the loss from continuing operations approximated statutory rates. However, an effective rate of approximately 16% was applied to the operating income of discontinued operations and the gain on the sale of Douglas Dynamics. This lower rate resulted from the recognition of a benefit the Company estimated it would realize in 2004 from the use of net operating loss carryovers that had previously been reduced by a deferred tax asset valuation allowance.

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On March 31, 2004, the Company sold Douglas Dynamics, L.L.C. for $264.0, before fees and expenses, and recognized a pre-tax gain of $208.3 ($174.9, after tax, or $1.61 per share) in the first quarter. On April 9, 2004, the Company sold Greens Port Industrial Park for $75.0, before fees and expenses. Both businesses were accounted for as discontinued operations and together generated after-tax income of $6.9 during the first quarter of 2004.

The Company’s net income in the three months ended March 31, 2005 was $59.2, or $0.54 per share, compared to $165.4, or $1.52 per share, in the first quarter of 2004. The 2004 net income included $181.8 for the gain and income on discontinued operations.