Ak Steel Holding Corp (AKS) SEC Annual Report (10-K) for 2009

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x        Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2009.

OR

¨        Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from        to         .

Commission File No. 1-13696.

AK STEEL HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (513) 425-5000.

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   T   No   £ .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes   £ No   T .

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   T   No   £ .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   T .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   T   No   £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Act.

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934.   Yes   £   No   T .

Aggregate market value of the registrant's voting stock held by non-affiliates at June 30, 2009: $2,076,650,398.

At February 19, 2010, there were 109,866,415 shares of the registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

AK Steel Holding Corporation

Table of Contents

(Dollars in millions, except per share and per ton amounts)

PART I

Operations Overview

AK Steel Holding Corporation ("AK Holding") is a corporation formed under the laws of Delaware in 1993 and is a fully-integrated producer of flat-rolled carbon, stainless and electrical steels and tubular products through its wholly-owned subsidiary, AK Steel Corporation ("AK Steel" and, together with AK Holding, the "Company").  AK Steel is the successor through merger to Armco Inc., which was formed in 1900.

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 hot band, and sheet and strip form.  The Company's operations also include AK Tube LLC ("AK Tube"), which further finishes flat-rolled carbon and stainless steel at two tube plants, one located in Ohio and one located in Indiana, into welded steel tubing used in the automotive, large truck and construction markets.  In addition, the Company's operations include European trading companies that buy and sell steel and steel products and other materials.

Customers

In conducting its steel operations, the Company principally directs its marketing efforts toward those customers who require the highest quality flat-rolled steel with precise "just-in-time" delivery and technical support. Management believes that the Company's enhanced product quality and delivery capabilities, and its emphasis on customer technical support and product planning, are critical factors in its ability to serve this segment of the market.  The Company's standards of excellence have been embraced by a wide array of diverse customers and, accordingly, no single customer accounted for more than 10% of net sales of the Company during 2009.

The Company's flat-rolled carbon steel products are sold primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets.  This includes electrical transmission, heating, ventilation and air conditioning, and appliances.  The Company also sells coated, cold rolled, and hot rolled carbon steel products to distributors, service centers and converters who may further process these products prior to reselling them.  To the extent management believes necessary, the Company carries increased inventory levels to meet the requirements of certain of its customers for "just-in-time" delivery.

The Company sells its stainless steel products to manufacturers and their suppliers in the automotive industry, to manufacturers of food handling, chemical processing, pollution control, medical and health equipment and to distributors and service centers.  The Company sells electrical steels, which are iron-silicon alloys with unique magnetic properties, primarily to manufacturers of power transmission and distribution transformers and electrical motors and generators in the infrastructure and manufacturing markets.

The Company sells its carbon products principally to customers in the United States.  The Company's electrical and stainless steel products are sold both domestically and internationally.  The Company's customer base is geographically diverse and, there is no single country outside of the United States as to which sales are material relative to the Company's total sales revenue.   The Company attributes revenue from foreign countries based upon the destination of physical shipment of a product.   Revenue from direct sales, and sales as a percentage of total sales, in 2009, 2008 and 2007 domestically and internationally were as follows:

The Company does not have any material long-lived assets located outside of the United States.

The Company's sales in 2009 were adversely impacted by significantly depressed global economic conditions, and, particularly, declines in the automotive market and construction markets, both residential and non-residential.  The effects of the recession on each of the Company's markets resulted in declines in shipments in every product category

for the Company.  The most significant decline was felt in the distributors and converters market, due to reduced end-use demand, inventory reduction throughout the supply chain, and falling steel prices, which resulted in a decrease in its percentage of total Company sales as compared to the Company's other two markets.

Despite an absolute reduction in total direct automotive sales from year to year, the Company's direct automotive revenues as a percent of its total business rose to approximately 36% in 2009, compared to 32% in 2008.  The relative increase in automotive sales was principally due to that market being the most heavily weighted toward contract business. During downturns, contract business maintains more consistent volumes and provides greater price stability than spot market business because of contractual requirements that limit demand and price volatility.  The Company's infrastructure and manufacturing market sales also experienced a reduction in absolute dollars of sales.  The percentage of Company revenue attributable to that market increased, however, to 31% of total Company revenue in 2009, from 29% in 2008, primarily as a result of the relatively greater revenue decline in the distributors and converters market.

The following table sets forth the percentage of the Company's net sales attributable to each of its markets:

The Company is a party to contracts with all of its major automotive and most of its infrastructure and manufacturing industry customers. These contracts, which are primarily one year in duration, set forth prices to be paid for each product during their term.  Approximately 83% of the Company's shipments to current contract customers permit price adjustments to reflect changes in prevailing market conditions or certain energy and raw material costs.  Approximately 55% of the Company's shipments of flat-rolled steel products in 2009 were made to contract customers, and the balance of the Company's shipments were made in the spot market at prevailing prices at the time of sale.

In 2009, the automotive industry experienced its worst market conditions in decades.  The dramatic downturn in the domestic and global economies, which started in the fall of 2008, significantly reduced demand for light vehicles.  As a result, North American light vehicle production in 2009 was substantially below historic levels.  Because the automotive market continues to be an important element of the Company's business, reduced North American light vehicle production adversely impacts the Company's total sales and shipments.  Lower prices and shipments to the automotive market contributed to a dramatic decrease in the Company's total sales in 2009.  Although the Company has seen an improvement in shipments since the low point in 2009, a level of sales significantly below recent historic levels likely will continue throughout 2010. At this point, it is impossible to determine when, or if, the domestic and/or global economies will return to pre-recession levels.

In addition, continued low levels of North American light vehicle production could cause further financial difficulties (including possible bankruptcy filings) for additional automotive manufacturers and suppliers to the automotive industry, many of whom are customers of the Company.  The Company could be adversely impacted by such financial difficulties and bankruptcies, including not only reductions in future sales, but also losses associated with an inability to collect outstanding accounts receivables from those customers.  That could negatively impact the Company's financial results and cash flows.  The Company is continuing to monitor this situation closely and has taken steps to try to mitigate its exposure to such adverse impacts, but because of current market conditions and the volume of business involved, it cannot eliminate these risks entirely.

Raw Materials and Other Inputs

The principal raw materials required for the Company's steel manufacturing operations are iron ore, coal, coke, chrome, nickel, silicon, manganese, zinc, limestone, and carbon and stainless steel scrap.  The Company also uses large volumes of natural gas, electricity and oxygen in its steel manufacturing operations.  In addition, the Company

historically has purchased approximately 500,000 to 700,000 tons annually of carbon steel slabs from other steel producers to supplement the production from its own steelmaking facilities, though it did not do so in 2009 because of substantially reduced demand for the Company's products.  The Company makes most of its purchases of iron ore, coal, coke and oxygen at negotiated prices under annual and multi-year agreements.  The Company typically makes purchases of carbon steel slabs, carbon and stainless steel scrap, natural gas, a majority of its electricity, and other raw materials at prevailing market prices, which are subject to price fluctuations in accordance with supply and demand.  The Company enters into financial instruments designated as hedges with respect to some purchases of natural gas and certain raw materials, the prices of which may be subject to volatile fluctuations.  In 2009, the Company experienced a significant decline in raw material and energy costs, primarily carbon scrap, nickel and natural gas.

To the extent that multi-year contracts are available in the marketplace, the Company has used such contracts to secure adequate sources of supply to satisfy key raw materials needs for the next three to five years.  Where multi-year contracts are not available, or are not available on terms acceptable to the Company, the Company continues to seek to secure the remainder of its raw materials needs through annual contracts or spot purchases.  The Company also continues to attempt to reduce the risk of future supply shortages by considering equity investments with respect to certain raw materials and by evaluating alternative sources and substitute materials.

The Company currently believes that it either has, or will be able to secure, adequate sources of supply for its raw material and energy requirements for 2010.  As a result, however, of lower than normal year-end inventories in 2009, and increased demand beyond the Company's initial projections for 2010, the Company still needs to secure additional volumes of some raw materials, principally iron ore, for 2010.  Based on current reduced demand for most raw materials, the Company does not anticipate major shortages in the market unless substantial supply capacity is taken out of the market.  The potential exists, however, for production disruptions due to shortages of raw materials in the future.  If such a disruption were to occur, it could have a material impact on the Company's financial condition, operations and cash flows.

The Company produces most of the coke it consumes in its blast furnaces, but had also been purchasing approximately 350,000 net tons annually from a third party pursuant to a ten-year supply contract (the "Shenango Coke Contract") which expired on December 31, 2009.  In anticipation of the expiration of the Shenango Coke Contract, the Company entered into a long-term agreement with Haverhill North Coke Company ("SunCoke Haverhill"), an affiliate of SunCoke Energy, Inc. ("SunCoke"), to provide the Company with metallurgical-grade coke from the SunCoke Haverhill facility in southern Ohio.  Under the agreement, SunCoke Haverhill provides AK Steel with up to 550,000 tons of coke annually.  The Company will also benefit under the agreement from electricity co-generated from the heat recovery coke battery.  This is in addition to the previously announced project with Middletown Coke Company, Inc., another SunCoke affiliate ("Middletown Coke"), to construct a new state-of-the-art, environmentally friendly heat-recovery coke battery contiguous to the Company's Middletown Works which will be capable of producing 550,000 net tons of metallurgical grade coke annually.  It is likely that the Company will need the production from both SunCoke facilities due to reduced production available from, and uncertainties with respect to, the Company's Ashland, Kentucky coke batteries as a result of environmental issues.  To the extent the two SunCoke facilities, combined with the Company's existing coke batteries in Ashland, Kentucky and Middletown, Ohio, provide more coke than the Company needs for its steel production, the Company anticipates that it will be able to sell any excess coke in the merchant coke market.

Research and Development

The Company conducts a broad range of research and development activities aimed at improving existing products and manufacturing processes and developing new products and processes.  Research and development costs incurred in 2009, 2008 and 2007 were $6.2, $8.1 and $8.0, respectively.

Employees

At December 31, 2009, the Company's operations included approximately 6,500 employees, of which approximately 4,900 are represented by labor unions under various contracts that will expire in the years 2010 through 2013.  See discussion under Labor Agreements in the Liquidity and Capital Resources section below for additional information on these agreements.  Because of the extraordinary economic conditions which have adversely impacted the Company's business, the Company announced in late 2008 that it would temporarily idle certain facilities and lay off some of its employees.  By the end of 2009, most of the idled facilities had been returned to production and most of the laid-off employees had been returned to work.  However, some of the Company's facilities continue to be idled and some of its employees continue to be laid off.  That circumstance is expected to continue until market conditions improve.

Competition

The Company competes with domestic and foreign flat-rolled carbon, stainless and electrical steel producers (both integrated steel producers and mini-mill producers) and producers of plastics, aluminum and other materials that can be used in lieu of flat-rolled steels in manufactured products.  Mini-mills generally offer a narrower range of products than integrated steel mills, but can have some competitive cost advantages as a result of their different production processes and typically non-union work forces.  Price, quality, on-time delivery and customer service are the primary competitive factors in the steel industry and vary in relative importance according to the category of product and customer requirements.

Domestic steel producers, including the Company, face significant competition from foreign producers.  For a variety of reasons, these foreign producers often are able to sell products in the United States at prices substantially lower than domestic producers. These reasons include lower labor, raw material, energy and regulatory costs, as well as significant government subsidies and preferential trade practices in their home countries.  The annual level of imports of foreign steel into the United States also is affected to varying degrees by the strength of demand for steel outside the United States and the relative strength or weakness of the U.S. dollar against various foreign currencies.  U.S. imports of finished steel decreased slightly from the 2008 level and accounted for approximately 22% of domestic steel market demand in 2009.  By comparison, imports of finished steel accounted for approximately 29% and 27%, respectively, of domestic steel demand in 2008 and 2007.

The Company's ability to compete has been negatively impacted by the bankruptcies of numerous domestic steel companies, including several former major competitors of the Company, and the subsequent and continuing global steel industry consolidation.  Those bankruptcies facilitated the global consolidation of the steel industry by enabling other entities to purchase and operate the facilities of the bankrupt steel companies without accepting any responsibility for most, and in some instances any, pension or healthcare obligations to the retirees of the bankrupt companies.  In contrast, the Company has continued to provide pension and healthcare benefits to its retirees, resulting in a competitive disadvantage compared to certain other domestic integrated steel companies and the mini-mills that do not provide such benefits to any or most of their retirees.  Over the course of the last several years, however, the Company has negotiated progressive new labor agreements that have significantly reduced total employment costs at all of its union-represented facilities.  The new labor agreements have increased the Company's ability to compete in the highly competitive global steel market while, at the same time, enhancing the ability of the Company to continue to support its retirees' pension and healthcare needs.  In addition, the Company has eliminated approximately $1.0 billion of its retiree healthcare costs associated with a group of retirees from its Middletown Works as part of the settlement reached with those retirees in October 2007.  For a more detailed description of this settlement, see the discussion in the " Legal Contingencies" section of Note 9 to the Consolidated Financial Statements in Item 7 below.

The Company also is facing the likelihood of increased competition from foreign-based and domestic steel producers who have announced plans, or have already started to build or expand steel production and/or finishing facilities in the United States.

Environmental

Information with respect to the Company's environmental compliance, remediation and proceedings may be found in Note 9 to Consolidated Financial Statements in Item 7 of this Form 10-K, which is incorporated herein by reference.

Executive Officers of the Registrant

The following table sets forth the name, age and principal position with the Company of each of its executive officers as of February 19, 2010:

James L. Wainscott was elected Chairman of the Board of Directors of the Company, effective January 1, 2006, and elected President and Chief Executive Officer in October 2003.  Previously, Mr. Wainscott had been the Company's

Chief Financial Officer since July 1998.  Mr. Wainscott also served as Treasurer from April 1995 until April 2001.  He was elected Senior Vice President in January 2000, having previously served as a Vice President from April 1995 until that date.  Before joining the Company, Mr. Wainscott held a number of increasingly responsible financial positions for National Steel Corporation, and was elected Treasurer and Assistant Secretary for National Steel in 1993.

David C. Horn was elected Senior Vice President, General Counsel and Secretary in January 2005.  Mr. Horn was elected Vice President and General Counsel in April 2001 and assumed the additional position of Secretary in August 2003.  Before joining the Company as Assistant General Counsel in December 2000, Mr. Horn was a partner in the Cincinnati-based law firm now known as Frost Brown Todd LLC.

John F. Kaloski was elected Senior Vice President, Operations in January 2005.  Mr. Kaloski was named Vice President in April 2003.  Prior to joining the Company in October 2002 as Director, Operations Technology, Mr. Kaloski served as a Senior Vice President at National Steel Corporation and held senior management positions at U.S. Steel Corporation.

Albert E. Ferrara, Jr. was elected Vice President, Finance and Chief Financial Officer in November 2003.  Mr. Ferrara joined the Company in June 2003 as Director, Strategic Planning and was named Acting Chief Financial Officer in September 2003.  Prior to joining the Company, Mr. Ferrara was Vice President, Corporate Development for NS Group, Inc., a tubular products producer, and previously held positions as Senior Vice President and Treasurer with U.S. Steel Corporation and Vice President, Strategic Planning at USX Corporation.

Douglas W. Gant was elected Vice President, Sales and Customer Service in January 2004.  From February 2001 until that date, Mr. Gant was Director, Sales and Marketing, having previously served as General Manager, Sales since May 1999.  Mr. Gant was a regional sales manager from September 1995 until May 1999.

Alan H. McCoy was elected Vice President, Government and Public Relations in January 1997.  From 1994 to 1997, Mr. McCoy was General Manager, Public Relations.

Lawrence F. Zizzo, Jr. was elected Vice President, Human Resources in January 2004.  Before joining the Company, Mr. Zizzo was Vice President, Human Resources at National Steel Corporation.  Prior to that position, Mr. Zizzo was Regional Director, Human Resources at National Steel.

Available Information

The Company maintains an internet website at www.aksteel.com.  Information about the Company is available on the website free of charge, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.  Information on the Company's website is not incorporated by reference into this report.

The Company cautions readers that its business activities involve risks and uncertainties that could cause actual results to differ materially from those currently expected by management.  The most significant of those risks are:

While the previously listed items represent the most significant risks to the Company, the Company regularly monitors and reports risks to management and the Board of Directors by means of a formal Total Enterprise Risk Management program.

The Company has no unresolved Securities and Exchange Commission staff comments.

The Company is leasing a building in West Chester, Ohio which the Company is using as its corporate headquarters.  The lease commenced in 2007 and the initial term is twelve years with two five-year options to extend the lease.  The Company continues to own its former headquarters and research buildings, but has razed other surrounding buildings located in Middletown, Ohio.  Steelmaking, finishing and tubing operations are conducted at nine facilities located in Indiana, Kentucky, Ohio and Pennsylvania. All of these facilities are owned by the Company, either directly or through wholly-owned subsidiaries.

Middletown Works is situated on approximately 2,400 acres in Middletown, Ohio.  It consists of a coke facility, blast furnace, basic oxygen furnaces and continuous caster for the production of carbon steel.  Also located at the Middletown site are a hot rolling mill, cold rolling mill, two pickling lines, four annealing facilities, two temper mills and three coating lines for finishing the product.

Ashland Works is located on approximately 600 acres in Ashland, Kentucky.  It consists of a coke facility, blast furnace, basic oxygen furnaces and continuous caster for the production of carbon steel.  A coating line at Ashland also helps to complete the finishing operation of the material processed at the Middletown plant.

Rockport Works is located on approximately 1,700 acres near Rockport, Indiana.  The 1.7 million square-foot plant consists of a state-of-the-art continuous cold rolling mill, a continuous hot-dip galvanizing and galvannealing line, a continuous carbon and stainless steel pickling line, a continuous stainless steel annealing and pickling line, hydrogen annealing facilities and a temper mill.

Butler Works is situated on approximately 1,300 acres in Butler, Pennsylvania.  The 3.5 million square-foot plant produces stainless, electrical and carbon steel.  Melting takes place in three electric arc furnaces that feed an argon-oxygen decarburization unit.  These units feed two double strand continuous casters.  The Butler Works also includes a hot rolling mill, annealing and pickling units and two fully automated tandem cold rolling mills. It also has various intermediate and finishing operations for both stainless and electrical steels.

Coshocton Works is located on approximately 650 acres in Coshocton, Ohio.  The 570,000 square-foot stainless steel finishing plant contains two Sendzimer mills and two Z-high mills for cold reduction, four annealing and pickling lines, nine bell annealing furnaces, four hydrogen annealing furnaces, two bright annealing lines and other processing equipment, including temper rolling, slitting and packaging facilities.

Mansfield Works is located on approximately 350 acres in Mansfield, Ohio.  The 1.1 million square-foot facility produces stainless steel and includes a melt shop with two electric arc furnaces, an argon-oxygen decarburization unit, a thin-slab continuous caster, and a six-stand hot rolling mill.

Zanesville Works is located on 130 acres in Zanesville, Ohio.  It consists of a 508,000 square-foot finishing plant for some of the stainless and electrical steel produced at Butler Works and Mansfield Works and has a Sendzimer cold rolling mill, annealing and pickling lines, high temperature box anneal and other decarburization and coating units.

AK Tube's Walbridge plant, located in Ohio, operates six electric resistance weld tube mills and two slitters housed in a 330,000 square foot facility.  AK Tube's Columbus plant, located in Indiana, is a 142,000 square-foot facility with eight electric resistance weld and two laser weld tube mills.

Information with respect to this item may be found in Note 9 to Consolidated Financial Statements in Item 7 of this Form 10-K, which is incorporated herein by reference.

PART II

AK Holding's common stock has been listed on the New York Stock Exchange since April 5, 1995 (symbol: AKS).  The table below sets forth, for the calendar quarters indicated, the reported high and low sales prices of the common stock:

As of February 19, 2010 there were 109,866,415 shares of common stock outstanding and held of record by 5,007 stockholders.  The closing stock price on February 19, 2010 was $23.36 per share.  Because depositories, brokers and other nominees held many of these shares, the number of record holders is not representative of the number of beneficial holders.

The payment of cash dividends is subject to a restrictive covenant contained in the instruments governing the Company's outstanding senior debt.  The covenant allows the payment of dividends, if declared by the Board of Directors, and the redemption or purchase of shares of its outstanding capital stock, subject to a formula that reflects cumulative net earnings.  During the period from 2001 to the third quarter of 2007, the Company was not permitted under the formula to pay a cash dividend on its common stock or repurchase its shares as a result of cumulative losses recorded before and during that period.  During the third quarter of 2007, the cumulative losses calculated under the formula were eliminated due to the improved financial performance of the Company.  Accordingly, since that time, payment of a cash dividend and repurchase of the Company's shares have been permissible under the senior debt covenants.  As of December 31, 2009, the limitation on these restricted payments was approximately $55.2.  Restrictive covenants also are contained in the instruments governing the Company's $850.0 asset-based revolving credit facility.  Under the credit facility covenants, dividends and share repurchases are not restricted unless availability falls below $150.0, at which point dividends would be limited to $12.0 annually and share repurchases would be prohibited.  As of December 31, 2009, the availability under the asset-based revolving credit facility of $600.4 significantly exceeds $150.0.  Accordingly, there currently are no covenant restrictions on the Company's ability to declare and pay a dividend to its shareholders.

The Company established an initial quarterly common stock dividend rate of $0.05 per share effective with the March 2008 dividend payment.  Information concerning the amount and frequency of dividends declared and paid in 2009 and 2008 is as follows:

On January 25, 2010, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.05 per share of common stock, payable on March 10, 2010, to shareholders of record on February 12, 2010.

There were no unregistered sales of equity securities in the quarter or year ended December 31, 2009.

ISSUER PURCHASES OF EQUITY SECURITIES

The following graph compares cumulative total stockholder return on the Company's common stock for the five-year period from January 1, 2005 through December 31, 2009 with the cumulative total return for the same period of (i) the Standard & Poor's 500 Stock Index and (ii) S&P 500 Metals & Mining Index.  The S&P 500 Metals & Mining Index is made up of AK Steel Holding Corporation, Alcoa Inc., Titanium Metals Corporation, Newmont Mining Corporation, Nucor Corporation, Freeport-McMoRan Copper & Gold Inc., Allegheny Technologies Inc., Cliffs Natural Resources, Inc., and United States Steel Corporation.  These comparisons assume an investment of $100 at the commencement of the period and reinvestment of dividends.

Cumulative Total Returns

January 1, 2005 through December 31, 2009

(Value of $100 invested on January 1, 2005)

The following selected historical consolidated financial data for each of the five years in the period ended December 31, 2009 have been derived from the Company's audited consolidated financial statements. The selected historical consolidated financial data presented herein are qualified in their entirety by, and should be read in conjunction with, the consolidated financial statements of the Company set forth in Item 7 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in Item 6.

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, infrastructure and manufacturing, and distributors and converters markets.  The Company sells its carbon products principally to domestic customers.  The Company's electrical and stainless steel products are sold both domestically and, increasingly, 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 and other materials.

Safety, quality and productivity are the focal points of AK Steel's operations and the hallmarks of its success.  In 2009, the Company experienced another year of outstanding safety performance and received a variety of awards.  The coke plants in Ashland, Kentucky and Middletown, Ohio, were co-recipients in 2009 of the Max Eward Safety Award, which annually recognizes the coke plant with the best safety record in the U.S. among members of the American Coke and Coal Chemicals Institute.  The Ashland coke plant received this award for the fourth consecutive year and the Middletown coke plant is now an eight-time recipient of the award.  The Company's Zanesville Works was honored in 2009 by the Ohio Bureau of Workers Compensation with three awards for its safety performance.  Also in 2009, the Columbus, Indiana and Walbridge, Ohio plants of AK Tube LLC, a wholly-owned subsidiary of the Company, were recognized for their outstanding safety performances in 2008 by the Fabricators & Manufacturers Association, International and CNA Insurance.  Furthermore, AK Tube's Columbus, Indiana plant was re-certified as a "Star" site in the Voluntary Protection Program ("VPP") of the Indiana Department of Labor's Occupational Safety

and Health Administration ("OSHA"), a prestigious designation signifying that the excellence of its safety programs exceeded the requirements established by OSHA.  AK Tube's Columbus plant has been VPP Star certified since 2006.  The Company's Rockport and Zanesville Works experienced no recordable injuries for 2009.

The Company also had outstanding performance with respect to quality in 2009.  The Company continued to be recognized in leading surveys for being industry-best in overall quality for carbon, stainless and electrical steels.  Jacobson and Associates recently named the Company number one in overall customer satisfaction, quality and delivery.  The Company also received a variety of quality awards from customers and others in 2009.

With respect to productivity, the severe downturn in the economy in 2009 resulted in the Company reducing its operations substantially and idling various pieces of equipment and facilities at various times throughout the year.  Thus, in 2009 the Company focused on making and finishing its products in the most cost effective manner possible to conserve cash, reduce costs and maximize its competitiveness.  As a result of a general improvement in steel demand, the Company was able to increase its production levels at virtually all of its facilities during the second half of 2009.

Despite the downturn in the economy and the need to conserve cash, the Company continued to perform maintenance in 2009 where needed and to invest its capital for the future.  For example, the Company invested approximately $27.0 to successfully complete the reline of the hearth and bosh sections for its Middletown Works blast furnace.

Also in 2009, the Company announced that it had reached agreement with Haverhill North Coke Company ("SunCoke Haverhill"), an affiliate of SunCoke Energy, Inc. ("SunCoke") to provide the Company with metallurgical-grade coke from the SunCoke Haverhill facility in southern Ohio.  Under the agreement, SunCoke Haverhill provides AK Steel with up to 550,000 tons of coke annually.  The Company will also benefit under the agreement from the electricity co-generated from the heat recovery coke battery.  This is in addition to the previously announced project with Middletown Coke Company, Inc., another SunCoke affiliate ("Middletown Coke"), to construct a new state-of-the-art, environmentally friendly heat-recovery coke battery contiguous to the Company's Middletown Works which will be capable of producing 550,000 net tons of metallurgical grade coke annually.  It is likely that the Company will need the production from both SunCoke facilities due to reduced production available from, and uncertainties with respect to, the Company's Ashland, Kentucky coke batteries as a result of environmental issues.  To the extent the two SunCoke facilities, combined with the Company's existing coke batteries in Ashland, Kentucky and Middletown, Ohio, provide more coke than the Company needs for its steel production, the Company anticipates that it will be able to sell any excess coke in the merchant coke market.

2009 Financial Results Overview

The Company faced challenging times throughout 2009 as the entire steel industry was adversely impacted by the significant decline in the domestic and global economies.  The Company took immediate and proactive measures to address the challenging economic conditions, including reducing its operations to match customer demand, reducing overhead costs, implementing a five-percent pay cut for all salaried employees until conditions improved at the start of the fourth quarter, locking and freezing the defined benefit plans for its salaried employees, temporary layoffs of hourly and salaried employees, and reducing the size of its salaried workforce by offering an early retirement package and eliminating positions.  While 2009 began with weak demand for the Company's products, market conditions improved as the year progressed and the Company improved its financial performance each quarter throughout 2009.  The Company achieved both operating profit and net income in the second half of 2009.  For the full year, the Company reported an operating loss of $70.1 and a net loss  attributable to AK Steel Holding Corporation of $74.6, or $0.68 per share.

The Company reported record low shipments in the first half of 2009 but saw significant improvement in the second half as the recession bottomed out and customer demand began to improve.  In fact, the Company finished the year strong with shipments of 1,368,300 tons in the fourth quarter.  This still was below the record levels experienced in 2008, but nearly double the record low shipments the Company experienced in the second quarter of 2009.

Key Factors Generally Impacting Financial Results

The key factor impacting the Company's 2009 financial results was the severe decline in the domestic and global economies which began late in 2008 and continued throughout 2009.  Although the Company began to see improvements for the demand for its products in the second half of 2009, overall for the year it experienced a significant decline in demand for all of its products.  This severe decline resulted in the Company reducing its operations to try to match customer demand, including periodically idling various operations throughout the year.  These steps were required to mitigate the financial impact to the Company and to allow it to manage its working capital in an efficient manner.

2009 Compared to 2008

Shipments

Steel shipments in 2009 were 3,935,500 tons, compared to 5,866,000 tons in 2008.  The year-over-year reduction was primarily the result of decreased customer demand throughout the year due to the severe decline in overall economic conditions.  Shipments declined in all reported product categories in 2009 compared to 2008, but the percentage of decline was greatest with respect to hot-rolled steel products.   As a result, the Company's value-added shipments as a percent of total volume shipped increased to 85.5% in 2009 compared to 80.7% in 2008.  Tons shipped by product category for 2009 and 2008, with percent of total shipments, were as follows:

Net Sales

Net sales in 2009 were $4,076.8, down 47% from the Company's all-time annual record for net sales of $7,644.3 in 2008.  The year-to-year decrease resulted from lower selling prices across all of the Company's product categories as a result of the severe decline in the demand for steel products driven by the economic recession.  The average selling price was $1,036 per net ton in 2009, compared to $1,303 per net ton in 2008.  The Company has variable pricing mechanisms with most of its contract customers, under which both rising and falling commodity costs are passed through to the customer during the life of the contract.  The Company had such variable pricing mechanisms with respect to approximately 83% of its contract shipments in 2009.  In 2009, the Company experienced a significant decline in its raw material and energy costs.  As a consequence, surcharges to customers were reduced and that contributed to both the lower average selling price and the lower net sales for the year.

Net sales to customers outside the United States were $767.0, or 19% of total steel sales, for 2009, compared to $1,267.9, or 17% of total steel sales, for 2008.  A substantial majority of the revenue from sales outside of the United States is associated with electrical and stainless steel products.  The increase in the percentage of total sales represented by international sales in 2009 was principally due to the fact that domestic sales declined proportionately more than international sales.

Although the percentage of the Company's net sales attributable to the automotive industry increased in 2009 versus 2008, its total volume of direct automotive sales declined.   The decline in automotive sales was principally the result of significantly reduced light vehicle production in North America due to the downturn in the economy, which led to reduced orders from the Company's automotive customers.  The lowest point of customer demand was in the second quarter of the year, and demand began to increase during the second half of 2009.  This increase in demand was buoyed by the United States federal government's "cash for clunkers" program in the third quarter which helped boost 

the sale of light vehicles in the United States and subsequently resulted in the need for automotive manufacturers to increase vehicle production, spurring demand for the Company's automotive market products.

The Company likewise experienced a decline in its sales to the infrastructure and manufacturing markets.  This decrease also was driven primarily by the decline in global and domestic economies.  Sales of the Company's electrical steel products make up a significant component of its infrastructure and manufacturing sales.  Those electrical steel sales were down significantly in 2009 principally because of the decline in the United States housing market, which drives the need for new electrical transformers.  To a much lesser degree, the Company's electrical steel sales were negatively impacted in the fourth quarter of 2009 by the trade cases initiated in China with respect to grain oriented electrical steel imported from the United States and Russia into China.

The most significant sales decline in 2009 was in the distributors and converters market, particularly with respect to hot-rolled steel shipments.  During 2007 and the first half of 2008, spot market pricing in the steel industry rose to unprecedented levels.  As a result, the Company elected to increase its sales to the spot market as a means of maximizing its earnings.  Starting, however, in the second half of 2008 and continuing through most of 2009, the opposite was true - that is, the spot market price for steel, particularly hot-rolled steel, declined and the Company made a concerted effort to move away from such sales.  This led to a disproportionate decline in sales to the distributor and converter market relative to the Company's other markets, which typically are more heavily weighted toward contract sales.

The following table sets forth the percentage of the Company's net sales attributable to each of its markets:

Operating Profit (Loss) and Adjusted Operating Profit

The Company reported an operating loss for 2009 of $70.1, compared to an operating profit of $28.0 for 2008. Included in 2008 annual results were a pre-tax, non-cash corridor charge and a pre-tax, non-cash pension curtailment charge, which are described more fully below.  The exclusion of those charges for 2008 would have resulted in adjusted operating profit of $727.5 for 2008.  Exclusion of the non-cash charges from the operating results is presented in order to clarify the effects of those charges on the Company's operating results and to reflect more clearly the operating performance of the Company on a comparative basis for 2009 and 2008.

In 2009, the Company incurred no corridor charges.  In 2008, however, the Company incurred a pension corridor charge of $660.1.  A corridor charge, if required after a re-measurement of the Company's pension and/or other postretirement obligations, historically has been recorded in the fourth quarter of the year in accordance with the method of accounting for pension and other postretirement benefits which the Company adopted as a result of its merger with Armco Inc. in 1999.  Since 2001, the Company has recorded approximately $2.5 billion in non-cash pre-tax corridor charges as a result of this accounting treatment.  These corridor charges have had a significant negative impact on the Company's financial statements including a substantial increase in the Company's accumulated deficit.  Though these corridor charges have been required in seven of the last nine years, it is impossible to reliably forecast or predict whether they will occur in future years or, if they do, what the magnitude will be.  They are driven mainly by events and circumstances beyond the Company's control, primarily changes in interest rates, performance of the financial markets, healthcare cost trends and mortality and retirement experience.

The Company also experienced a pension curtailment charge in 2008.  This curtailment charge was the result of salaried workforce cost reductions implemented by the Company.  A defined benefit plan covering all salaried employees was "locked and frozen" and was replaced with a defined contribution pension plan.  Under the new defined contribution pension plan, the Company makes a fixed percent contribution to the participants' retirement accounts, but no longer guarantees a minimum or specific level of retirement benefit.  As a result, the Company was required to recognize in the fourth quarter of 2008 the past service pension expense that previously would have been amortized.

Additional information concerning both the pension corridor charge and the pension curtailment charge is contained in the " Pension & Other Postretirement Employee Benefit Charges " section below.

Management believes that reporting adjusted operating profit (as a total and on a per-ton basis), which is not a financial measure under generally accepted accounting principles ("GAAP"), more clearly reflects the Company's current operating results and provides investors with a better understanding of the Company's overall financial performance.  In addition, the adjusted operating results facilitate the ability to compare the Company's financial results to those of our competitors.  Management views the reported results of adjusted operating profit as an important operating performance measure and, as such, believes that the GAAP financial measure most directly comparable to it is operating profit.  Adjusted operating profit is used by management as a supplemental financial measure to evaluate the performance of the business.  Management believes that the non-GAAP measure, when analyzed in conjunction with the Company's GAAP results and the accompanying reconciliations, provides additional insight into the financial trends of the Company's business versus the GAAP results alone.  Management also believes that investors and potential investors in the Company's securities should not rely on adjusted operating profit as a substitute for any GAAP financial measure and the Company encourages investors and potential investors to review the reconciliations of adjusted operating profit to the comparable GAAP financial measure.  While management believes that the non-GAAP measures allow for comparability to competitors, the most significant limitation on that comparison is that the Company immediately recognizes the pension and other postretirement benefit corridor charges, if required, after a re-measurement of the liability, historically, in the fourth quarter of the year.  The Company's competitors do not recognize these pension and other postretirement costs immediately, but instead, amortize these costs over future years.  Management compensates for the limitations of this non-GAAP financial measure by recommending that this non-GAAP measure be evaluated in conjunction with the GAAP financial measure.

The following table reflects the reconciliation of non-GAAP financial measures for the full year 2009 and 2008 results:

Reconciliation of Operating Profit (Loss) to Adjusted Operating Profit (Loss)

Reconciliation of Operating Profit (Loss) Per Ton to Adjusted Operating Profit (Loss) Per Ton

Operating Costs

Operating costs in 2009 and 2008 were $4,146.9 and $7,616.3, respectively.  The primary reason that operating costs for 2009 were lower was the substantial decrease in sales from 2008 to 2009.  Also contributing in 2009 were reduced raw material and energy costs and a LIFO credit instead of a LIFO charge.  The Company experienced lower raw material and energy costs in 2009, primarily associated with carbon scrap, natural gas and alloys, as a result of reduced pricing in response to the global decline in business conditions.  The Company recorded a LIFO credit in 2009 of $417.2 as a result of its lower raw material costs, as well as a decline in its year-end inventories.  The Company lowered inventory levels as the year progressed to conserve cash and to align with customer demand.  Conversely, in 2008, demand for raw materials increased throughout much of the year, resulting in rising prices for raw materials until the fourth quarter.  As a result of such progressively increasing costs in 2008, the Company recorded a LIFO charge in 2008 of $283.3.

Selling and Administrative Expense

The Company's selling and administrative expense decreased to $192.7 in 2009 from $223.6 in 2008.  This decline is the result of a reduction in the salaried workforce, a 5% pay cut for all salaried employees which applied for the first

three quarters of 2009, additional cost sharing for employees' health care costs, lower overhead costs as the result of locking and freezing the Company's defined benefit pension plan for all salaried employees, and lower insurance costs.  There was also an overall reduction in spending in response to the economic downturn.

Depreciation Expense

Depreciation expense increased to $204.6 in 2009 from $202.1 in 2008, consistent with the increases in the Company's capital investments in recent years.

Goodwill Impairment

The Company is required to review its goodwill for possible impairment at least annually and did so in 2009 and 2008.  Management judgment is used to evaluate the impact of changes in operations and to estimate future cash flows to measure fair value.  Assumptions such as forecasted growth rates and cost of capital are consistent with internal projections.  The evaluation requires that the reporting unit underlying the goodwill be measured at fair value and, if this value is less than the carrying value of the unit, a second test must be performed.  Under the second test, the current fair value of the reporting unit is allocated to the assets and liabilities of the unit including an amount for "implied" goodwill.  If implied goodwill is less than the net carrying amount of goodwill, the difference becomes the amount of the impairment that must be recorded in that year.  Neither the 2009 nor the 2008 annual reviews identified any goodwill impairment for the Company.

Pension & Other Postretirement Employee Benefit Charges

The Company adopted its method of accounting for pension and other postretirement benefit plans at the time of its merger with Armco Inc. in 1999.  Under such method, the Company did not incur a corridor charge in 2009, but did incur a non-cash, pre-tax corridor charge in 2008 of $660.1 with respect to its pension benefit plans.  Pursuant to this method of accounting, the Company is required to recognize into its results of operations, as a non-cash "corridor" adjustment, any unrecognized actuarial net gains or losses that exceed 10% of the larger of projected benefit obligations or plan assets.  Prior to January 31, 2009, amounts inside this 10% corridor were amortized over the average remaining service life of active plan participants.  Beginning January 31, 2009, the date of the "lock and freeze" of a defined benefit pension plan covering all salaried employees, the actuarial gains and losses will be amortized over the plan participants' life expectancy.  Actuarial net gains and losses occur when actual experience differs from any of the many assumptions used to value the benefit plans, or when the assumptions change, as they may each year when a valuation is performed.  The effect of prevailing interest rates on the discount rate used to value projected plan obligations as of the December 31 measurement date is one of the more important factors used to determine the Company's year-end liability, corridor adjustment and subsequent year's expense for these benefit plans.  The 2008 corridor charge of $660.1 was caused principally by actuarial losses on the investment performance of pension assets.   The Company did not incur a corridor charge related to other postretirement benefits in 2009 or 2008.

ASC Topic 715 "Compensation-Retirement Benefits" provides guidance for accounting for pensions and other postretirement benefit plans.  This guidance requires companies to recognize on their balance sheet the overfunded or underfunded position of their plans with a corresponding adjustment to accumulated other comprehensive income, net of tax.  The Company changed its measurement date from October 31 to December 31 during 2008 to meet the requirements of ASC Subparagraph 715-20-65-1.  The change in the measurement date resulted in an increase in the deferred tax asset of $5.6, an increase to pension and other postretirement benefit liabilities of $15.8, a decrease to retained earnings of $7.4 and a decrease to accumulated other comprehensive income of $2.8.

In the fourth quarter of 2008, the Company recognized a curtailment charge of $39.4 as a result of the Company's decision to "lock and freeze", as of January 31, 2009, the accruals for a defined benefit pension plan covering all salaried employees.  The defined benefit pension accruals were replaced by a fixed percent contribution to a defined contribution pension plan.  As a result, the Company was required to recognize in the fourth quarter of 2008 the past service pension expense that previously would have been amortized.

Interest Expense

The Company's interest expense for 2009 was $37.0, which was $9.5 lower than in 2008.  This decrease was due primarily to the Company's early redemption during 2009 of $26.4 of its $550.0 outstanding senior notes due in 2012 and lower interest rates on the Company's variable rate debt.  The Company also recognized higher capitalized interest due primarily to the ongoing electrical steel projects at the Company's Butler Works.

Interest Income

The Company's interest income for 2009 was $2.7, which was $7.8 lower than in 2008.  The reduction is attributable to lower levels of cash and cash equivalents, as well as lower returns earned on that cash and cash equivalents in 2009 compared to 2008.

Other Income

The Company's other income for 2009 was $6.4, which was $4.8 higher than in 2008.  This increase was due primarily to foreign exchange gains as a result of the strengthening of the euro against the dollar.

Income Taxes

In 2009, the Company had an income tax benefit of $20.0, which included a charge of $5.1 due to a state tax law change, compared to an income tax benefit of $10.9 in 2008.  This increase in the tax benefit was due primarily to a higher pre-tax loss in 2009.

Net Income (Loss) Attributable to AK Steel Holding Corporation

The Company's net loss in 2009 was $74.6, or $0.68 per diluted share.  In 2008, the Company reported net income of $4.0, or $0.04 per diluted share. The reduction in 2009 compared to 2008 was principally a result of the severe economic downturn in the domestic and global economies, which caused a significant decline in sales in all of the Company's markets.  The Company had sales of $4,076.8 for 2009 compared to record sales of $7,644.3 for 2008.  This extraordinary decline in sales was attributable to both a decline in volume and a decline in average selling price.  The detrimental impact of this loss of revenue from 2008 to 2009 on the Company's net results was partially offset by the fact that the Company incurred a pre-tax non-cash curtailment charge and a pre-tax, non-cash pension corridor charge in 2008 which totaled $699.5.  There were no curtailment or corridor charges in 2009.

2008 Compared to 2007

Shipments

Steel shipments in 2008 were 5,866,000 tons, compared to 6,478,700 tons in 2007.  The year-to-year decrease was primarily the result of decreased sales in the fourth quarter due to the extreme decline in overall economic conditions.  Shipments of stainless, coated, cold-rolled and tubular products all declined in 2008 compared to 2007.  Partially offsetting these declines were increases in shipments of the Company's high-end, grain-oriented electrical steel products and shipments by the Company's European operations.   The increase in high-end electrical steel shipments was principally the result of strong demand for such products through the first nine months of the year, both domestically and internationally, and was facilitated by the Company's prior capital investments to increase its production capacity of electrical steel products.  As a result of the overall decline throughout most of the Company's business, the value-added shipments remained relatively constant at 80.7% compared to 80.3%.  Tons shipped by product category for 2008 and 2007 were as follows:

Net Sales

The Company set an all-time record for net sales in 2008 of $7,644.3, up 9% from the 2007 then-record sales of $7,003.0.  The year-to-year increase was driven by a record 2008 average annual selling price of $1,303 per ton

compared to $1,081 per ton in 2007.  Several factors helped drive this improvement.  First, the Company benefited from an increase in pricing related to its contract business, with approximately 50% of its total shipments for the year being made subject to such pricing.  Second, with respect to the Company's spot market sales, prices increased as a result of strong demand during the first nine month of the year, before retreating significantly during the fourth quarter. Third, over the course of the last several years, the Company has focused on optimizing its product mix to focus on growing its niche markets where its profit margins are strongest.  Lastly, as a result of volatile raw material and energy costs, the Company has negotiated variable pricing mechanisms with most of its contract customers, which enable the Company to pass on rising or falling commodity and energy costs during the life of the contract.  The Company had such variable pricing mechanisms with respect to approximately 75% of its contract shipments in 2008.

Net sales to customers outside the United States were $1,267.9, or 17% or total steel sales, for 2008, and $925.1, or 13% of total steel sales, for 2007.  A substantial majority of the revenue outside of the United States is associated with electrical and stainless steel products.

The Company's direct automotive sales declined to approximately 32% of the Company's total sales in 2008, compared to 40% in 2007.  The relative decline in automotive sales is principally the result of significantly reduced light vehicle production in North America due to the downturn in the economy, which led to reduced orders from the Company's automotive customers, particularly in the fourth quarter of 2008.  It also is attributable to an increased volume of sales into the spot market of hot rolled products to non-automotive customers.  Also contributing to the decline in the percentage of direct automotive sales was an increase in the Company's revenues from 2007 to 2008 attributable to electrical steel products which are included below in the infrastructure and manufacturing markets for the Company's products.  The increase in revenue for electrical steel products was the result of both higher prices and increased shipments, particularly with respect to high-end, grain-oriented electrical steel products.  The Company's infrastructure and manufacturing market sales increased to 29% of the Company's total sales in 2008, compared to 26% in 2007.  This increase is principally the result of the increased electrical steel sales and reduced direct automotive sales.  The Company's distributor and converter sales increased to 39% from 34% in 2007.  The principal reason for this percentage increase also was the decline in direct automotive sales.  The following table sets forth the percentage of the Company's net sales attributable to various markets:

Operating Profit and Adjusted Operating Profit

The Company reported an operating profit for 2008 of $28.0, compared to an operating profit of $624.4 for 2007. Included in 2008 and 2007 annual results were pre-tax, primarily non-cash corridor charges, which are described more fully below.  The exclusion of those charges results in record adjusted operating profit for 2008 of $727.5 compared to $664.2 for 2007.

Exclusion of the non-cash charges, discussed below, from the operating results is presented in order to clarify the effects of those charges on the Company's operating results and to more clearly reflect the operating performance of the Company on a comparative basis for 2008 and 2007.  The excluded charges consist of a pension corridor charge in 2008 and pension curtailment charges in 2008 and 2007.

The Company incurred a corridor charge in 2008 of $660.1 related to its pension obligations.  There were no corridor charges in 2007.  A corridor charge, if required after a re-measurement of the Company's pension and other postretirement obligations, historically has been recorded in the fourth quarter of the year in accordance with the method of accounting for pension and other postretirement benefits which the Company adopted as a result of its merger with Armco Inc. in 1999.  Since 2001, the Company has recorded approximately $2.5 billion in non-cash pre-tax corridor charges as a result of this accounting treatment.  These corridor charges have had a significant negative impact on the Company's financial statements including a substantial reduction in the Company's accumulated deficit.  Additional information concerning these corridor charges is contained in the "Pension & Other Postretirement Employee Benefit Charges" section below.  Though these corridor charges have been required in seven of the last eight years, it is impossible to reliably forecast or predict whether they will occur in future years or, if they do, what the magnitude will be.  They are driven mainly by events and circumstances beyond the Company's control, primarily

changes in interest rates, performance of the financial markets, healthcare cost trends and mortality and retirement experience.

The 2008 curtailment charge was a result of salaried workforce cost reductions implemented by the Company.  A defined benefit plan covering all salaried employees was "locked and frozen" and was replaced with a fixed percent contribution to a defined contribution pension plan.  As a result, the Company was required to recognize in the fourth quarter of 2008 the past service pension expense that previously would have been amortized.  Additional information concerning this charge is contained in the " Pension & Other Postretirement Employee Benefit Charges " section below.

The 2007 curtailment charge was a result of new labor agreements that the Company entered into with the represented employees at the Company's Middletown Works and Mansfield Works.  Under these agreements, the existing defined benefit pension plan was "locked and frozen" in 2007, with subsequent Company contributions being made to multiemployer pension trusts.  As a result, the Company was required to recognize in 2007 the past service pension expense that previously would have been amortized.  These new labor agreements extend until 2011 and no further curtailment or other charges are anticipated to occur for the duration of the agreements.  Additional information concerning these charges is contained in the " Pension & Other Postretirement Employee Benefit Charges " section below.

Management believes that reporting adjusted operating profit (as a total and on a per-ton basis), which is not a financial measure under generally accepted accounting principles ("GAAP"), more clearly reflects the Company's current operating results and provides investors with a better understanding of the Company's overall financial performance.  In addition, the adjusted operating results facilitate the ability to compare the Company's financial results to those of our competitors.  Management views the reported results of adjusted operating profit as an important operating performance measure and, as such, believes that the GAAP financial measure most directly comparable to it is operating profit.  Adjusted operating profit is used by management as a supplemental financial measure to evaluate the performance of the business.  Management believes that the non-GAAP measure, when analyzed in conjunction with the Company's GAAP results and the accompanying reconciliations, provides additional insight into the financial trends of the Company's business versus the GAAP results alone.  Management also believes that investors and potential investors in the Company's securities should not rely on adjusted operating profit as a substitute for any GAAP financial measure and the Company encourages investors and potential investors to review the reconciliations of adjusted operating profit to the comparable GAAP financial measure.  While management believes that the non-GAAP measures allow for comparability to competitors, the most significant limitation on that comparison is that the Company immediately recognizes the pension and other postretirement benefit corridor charges, if required, after a re-measurement of the liability, historically, in the fourth quarter of the year.  The Company's competitors do not recognize these pension and other postretirement costs immediately, but instead, amortize these costs over future years.  Management compensates for the limitations of this non-GAAP financial measure by recommending that this non-GAAP measure be evaluated in conjunction with the GAAP financial measure.

The following table reflects the reconciliation of non-GAAP financial measures for the full year 2008 and 2007 results:

Reconciliation of Operating Profit to Adjusted Operating Profit

Reconciliation of Operating Profit Per Ton to Adjusted Operating Profit Per Ton

Reconciliation of Pre-Tax Income (Loss) to Adjusted Pre-Tax Income

Operating Costs

Operating costs in 2008 and 2007 were $7,616.3 and $6,378.6, respectively.  Operating costs for 2008 were negatively affected by higher steelmaking input costs, principally with respect to certain raw materials and energy costs.  Total 2008 costs for various raw materials, including iron ore, alloys, zinc, aluminum, and purchased slabs, increased by over $780.  As a result of the progressively increasing costs during both years, the Company recorded LIFO charges in 2008 and 2007 of $283.3 and $31.2, respectively.  In 2008, the Company benefited from the lower costs associated with lower retiree healthcare benefits resulting from the settlement in the first quarter of 2008 with a group of retirees from its Middletown Works.  Operating costs were higher in 2007 as the result of an unplanned outage at its Ashland Works blast furnace during the third and fourth quarters of 2007.

Selling and Administrative Expense

The Company's selling and administrative expense increased slightly to $223.6 in 2008 from $223.5 in 2007.

Depreciation Expense

Depreciation expense increased to $202.1 in 2008 from $196.3 in 2007, in line with the increases in the Company's capital investments in recent years.

Goodwill Impairment

The Company is required to review its goodwill for possible impairment at least annually.  The 2008 and 2007 annual reviews did not result in any goodwill impairment for the Company.

Pension & Other Postretirement Employee Benefit Charges

The Company adopted its method of accounting for pension and other postretirement benefit plans at the time of its merger with Armco Inc. in 1999.  Under such method, the Company incurred a non-cash, pre-tax corridor charge in 2008 of $660.1 with respect to its pension benefit plans.  Pursuant to this method of accounting, the Company is required to recognize into its results of operations, as a non-cash "corridor" adjustment, any unrecognized actuarial net gains or losses that exceed 10% of the larger of projected benefit obligations or plan assets.  Prior to January 31, 2009, amounts inside this 10% corridor were amortized over the average remaining service life of active plan participants.  Beginning January 31, 2009, the date of the "lock and freeze" of a defined benefit pension plan covering all salaried employees, the actuarial gains and losses will be amortized over the plan participants' life expectancy.  Actuarial net gains and losses occur when actual experience differs from any of the many assumptions used to value the benefit plans, or when the assumptions change, as they may each year when a valuation is performed.  The effect of prevailing interest rates on the discount rate used to value projected plan obligations as of the December 31 measurement date is one of the more important factors used to determine the Company's year-end liability, corridor adjustment and subsequent year's expense for these benefit plans.  The 2008 corridor charge of $660.1 was caused principally by actuarial losses on the investment performance of pension assets.   The Company did not incur an other postretirement employee benefit corridor charge in 2008.  There were no corridor charges incurred in 2007.

ASC Topic 715, "Compensation-Retirement Benefits" provides guidance for accounting for pensions and other postretirement benefit plans.  This guidance requires companies to recognize on their balance sheet the overfunded or underfunded position of their plans with a corresponding adjustment to accumulated other comprehensive income, net of tax.  The Company changed its measurement date from October 31 to December 31 during 2008 to meet the requirements of ASC Subparagraph 715-20-65-1.  The change in the measurement data resulted in an increase in the deferred tax asset of $5.6, an increase to pension and other postretirement benefit liabilities of $15.8, a decrease to retained earnings of $7.4 and a decrease to accumulated other comprehensive income of $2.8.

In the fourth quarter of 2008, the Company recognized a curtailment charge of $39.4 as a result of the Company's decision to "lock and freeze", as of January 31, 2009, the accruals for a defined benefit pension plan covering all salaried employees.  The defined benefit pension accruals were replaced by a fixed percent contribution to a defined contribution pension plan.  As a result, the Company was required to recognize in the fourth quarter of 2008 the past service pension expense that previously would have been amortized.

In 2007, the Company recognized curtailment charges associated with new labor agreements at the Company's Mansfield Works and Middletown Works of $15.1 and $24.7, respectively.  Under these agreements, the existing defined benefit pension plan at each facility was "locked and frozen" with subsequent Company contributions being made to multiemployer pension trusts.  As a result, the Company was required to recognize in 2007 the past service pension expense that previously would have been amortized.  On balance, the Company expects the future benefits associated with the new labor agreement, including the locking and freezing of the defined benefit plans will outweigh the one-time curtailment charges and the ongoing contributions to the multiemployer pension trusts.

Interest Expense

The Company's interest expense for 2008 was $46.5, which was $21.8 lower than in 2007.  This decrease was due primarily to the Company's early redemption during 2007 of the entire $450.0 of outstanding 7 7/8% senior notes due in 2009.  While the Company experienced some of the benefit of that reduction in interest expense during 2007, it experienced the full benefit for the first time in 2008.

Interest Income

The Company's interest income for 2008 was $10.5, which was $21.7 lower than in 2007.  This decrease was due primarily to the fact that the Company received $12.5 of interest in 2007 as a result of the recapitalization of Combined Metals of Chicago, LLC, a private stainless steel processing company in which the Company holds a 40% equity interest.  The reduction also is attributable to lower levels of cash and cash equivalents, as well as lower returns earned on that cash and cash equivalents in 2008 compared to 2007.

Other Income

The Company's other income for 2008 was $1.6, which was $2.1 lower than in 2007.  This decrease was due primarily to foreign exchange losses partially offset by gains associated with the repurchase of $19.6 par value of the Company's $550.0 outstanding 7 3/4% senior notes due in 2012.

Income Taxes

In 2008, the Company had an income tax benefit of $10.9, compared to an income tax provision of $203.6 in 2007, which included a benefit of $11.4 due to state tax law changes.  This reduction was due primarily to a significantly lower level of pre-tax income in 2008.

Net Income Attributable to AK Steel Holding Corporation

The Company's net income in 2008 was $4.0, or $0.04 per diluted share.  In 2007, the Company reported net income of $387.7, or $3.46 per diluted share. The reduction in 2008 compared to 2007 was principally a result of the negative impact of the pre-tax pension corridor and curtailment charges incurred in 2008, which was partially offset by the beneficial impact of significantly increased sales.   In 2008, the Company's pre-tax curtailment charge and pension corridor charge totaled $699.5.  In 2007, the Company recorded pension curtailment charges of $39.8 and incurred no corridor charges.  The Company had record sales of $7,644.3 for 2008 compared to $7,003.0 in 2007.  This record sales performance was driven by a record 2008 average selling price of approximately $1,303 per ton compared to $1,081 per ton in 2007.  The benefit of the record 2008 sales was partially offset by higher raw material costs, a higher LIFO charge and higher operating costs associated with the reduction in production levels in the fourth quarter of 2008 as a result of the significant decline in economic conditions which severely impacted the steel industry.

Outlook

All of the statements in this Outlook section are subject to, and qualified by, the information in the Forward Looking Statements section below.

The Company currently expects first quarter 2010 shipments to be essentially flat compared to the fourth quarter of 2009 shipments of approximately 1.4 million tons.  As is typically the case, we expect the first quarter to be our lowest

shipment quarter of the year.  We expect our average selling price to rise approximately 4% to 5% over the previous quarter level, driven by both an increase in the demand for steel products due to improving economic conditions and the passing through, where possible, of rising input costs.  The Company anticipates lower operating and maintenance costs compared to the fourth quarter of 2009 due to improved operating rates and a continuous improvement in all areas of our business.  In addition, the Company expects maintenance outage costs in the first quarter of 2010 to be approximately $18.0 lower than in the fourth quarter of 2009.  Conversely, while the Company recorded a significant LIFO credit in the fourth quarter of 2009, it expects to incur a LIFO charge in the first quarter of 2010, driven by higher costs for raw materials.  Netting the positive and negative factors, the Company expects to report an operating profit of approximately $35 per ton for the first quarter of 2010.  For the remainder of the year, the Company currently anticipates higher quarterly shipment levels and higher average selling prices than during the first quarter of 2010.

Other factors relevant to the Company's full-year 2010 outlook include the following:

There are many factors which could significantly impact this outlook.  In the current economic environment, it is extremely difficult to provide reliable financial forecasts, even on a quarterly basis.  The foregoing outlook thus is subject to change depending on developments in the economy, in the Company's business, and in the businesses of the Company's customers.  For example, although electrical steel sales have increased from 2009 levels, the market for electrical steel products is recovering more slowly than had been originally anticipated and, if this continues, it could adversely impact the Company's total electrical steel sales for 2010.  With respect to carbon steel products, there is a risk that the current recalls of certain Toyota vehicles could have a negative impact on North American vehicle production by Toyota and, because Toyota is an important customer of AK Steel, on demand for the Company's steel products. To date, however, there has been minimal adverse impact on the Company's sales to Toyota and Toyota has publicly announced that it has identified fixes to the problems that caused the recalls.  It is a developing situation, however, and the Company continues to monitor it closely.  Even if the impact of the recalls on Toyota's North American vehicle sales becomes greater than is presently anticipated, the Company has no reason to believe that it will significantly reduce overall demand for vehicles in North America. Under such circumstances, because the Company sells its steel to all major automotive manufacturers in North America, any reduction in the Company's sales to Toyota likely would be substantially offset by an increase in sales to other automotive manufacturers.

Liquidity and Capital Resources

At December 31, 2009, the Company had $461.7 of cash and cash equivalents and $600.4 of availability under the Company's $850.0 five-year revolving credit facility for total liquidity of $1,062.1.  At December 31, 2009, there were no outstanding borrowings under the credit facility; however, the availability reflects the reduction of $136.9 associated with outstanding letters of credit.  The Company's obligation under its credit facility is secured by its inventory and accounts receivable.  Thus, availability also may be reduced by a decline in the level of eligible collateral, which can fluctuate monthly under the terms of the credit facility.  The Company's eligible collateral, after application of applicable advance rates, totaled $737.3 as of December 31, 2009.  The Company has no significant scheduled debt payments due until June 2012 when its 7 3/4% senior notes are due.  In addition, the Company's credit facility expires in February 2012.

During 2009, cash generated by operating activities totaled $58.8, due primarily to lower inventories, which was partially offset by a contribution to the Middletown Works retirees VEBA Trust and contributions to the pension trust.  The Company generated $138.7 of cash from managing the level of accounts receivable, inventories, accounts payable and current liabilities due primarily to the lower level of inventories mentioned above.  Management believes that the Company's receivables and current liability levels are reflective of the current business environment.

During 2009, the Company made pension contributions totaling $210.0.  Contributions of $50.0 were made in the first and second quarters.  The third quarter pension contribution of $110.0 was double the $55.0 that was required for the

balance of 2009 and reduced the Company's 2010 contribution obligation to approximately $105.0.  A $75.0 contribution toward that total was made in the first quarter of 2010.  The most recent contribution increased the Company's total pension contributions since 2005 to over $1.1 billion.  The Company estimates annual required pension contributions for the years 2011 and 2012 to be approximately $275.0 each year.  The calculation of estimated future pension contributions requires the use of assumptions concerning future events.  The most significant of these assumptions relate to future investment performance of the pension funds, actuarial data relating to plan participants, and the interest rate used to discount future benefits to their present value. Because of the variability of factors underlying these assumptions, including the possibility of changes to pension legislation in the future, the reliability of estimated future pension contributions decreases as the length of time until the contributions must be made increases.  For a more detailed discussion of the pension contribution estimates, see Employee Benefit Obligations below.

Cash used by investing activities in 2009 totaled $133.4.  This includes $109.5 of capital investments and $24.0 related to the investment by Middletown Coke Company, Inc. in capital equipment for the coke plant being constructed in Middletown, Ohio, as discussed above in the "Operations Overview" section of this Item 6 and as further discussed below.  The Middletown Coke capital investment is funded by its parent SunCoke and is reflected as a payable from Middletown Coke to SunCoke.

The Company entered into a 20-year supply contract in 2008 with Middletown Coke to provide the Company with metallurgical-grade coke and electrical power.  The coke and power will come from a new facility to be constructed, owned and operated by Middletown Coke adjacent to the Company's Middletown Works.  Even though the Company has no ownership interest in Middletown Coke, the expected production from the facility is completely committed to the Company.  As such, Middletown Coke is deemed to be a variable interest entity and the financial results of Middletown Coke are required to be consolidated with the results of the Company as directed by ASC Topic 810, "Consolidation".  At December 31, 2009, Middletown Coke had approximately $71.9 in assets comprised mainly of construction in progress.  Additionally, Middletown Coke had approximately $74.8 in liabilities, comprised mainly of payables to its parent, SunCoke.

Cash used by financing activities in 2009 totaled $26.4.  This includes $23.5 to repurchase a portion of the Company's debt obligations, the purchase of $11.4 of the Company's common stock primarily related to the Company's share repurchase program, and the payment of common stock dividends in the amount of $22.0.  The collective amount of these uses was offset by $29.0 in advances from noncontrolling interest owner SunCoke to Middletown Coke, and $0.5 in proceeds resulting from the exercise by recipients of the Company's stock options.

In July 2008, the Company announced a $21.0 capital investment to further expand the Company's production capabilities for high-end, grain-oriented electrical steels.  The project includes installation of new production equipment at the Company's Butler Works to utilize the Company's proprietary special annealing technology, as well as upgrades to an existing processing line at Butler Works.  In addition to enhancing production capacity for higher quality grades of electrical steels, the project also will help improve the Company's product mix flexibility.  The Company currently expects the project to be completed in 2010.  This capital investment is a part of a previously-announced project currently underway at the Company's Butler and Zanesville Works which is the Company's fourth project since 2005 to expand production of electrical steels.

During 2009, the Company repurchased $26.4 of the original $550.0 par value of its 7 3/4% senior notes due in 2012, with cash payments totaling $22.8.  In connection with these repurchases, the Company incurred non-cash, pre-tax gains of approximately $3.6 in 2009.  The repurchases were funded from the Company's existing cash balances.  In 2010, the Company from time to time may continue to make cash repurchases of its outstanding senior notes though open market purchases, privately negotiated transactions or otherwise.  Such repurchases, if any, will depend upon whether any senior notes are offered to the Company by the holders, prevailing market conditions, the Company's cash and liquidity position and needs, and other relevant factors.  The amounts involved in the repurchases may or may not be material.

During 2009, the Company repurchased $11.4 of its common stock.  In 2010, the Company from time to time may continue to purchase stock in accordance with the Company's share repurchase program.

The Company believes that its current liquidity will be adequate to meet its obligations for the foreseeable future.  With respect to short-term sources of cash, the Company's primary sources are cash generated by operations, and if necessary, borrowings from its revolving credit facility.  Despite the downturn in the global economic markets which commenced in the latter part of 2008 and continued through 2009, in 2009 the Company made pension payments of $210.0, contributions to the Middletown Works retirees VEBA trust of $65.0, and funded postretirement benefit obligation costs of $108.5.  Even taking into account the above mentioned cash outflows, the Company generated $58.8 of cash flow from operations in 2009.

Other primary uses of cash include capital expenditures, repayment and repurchase of debt and related interest, repurchase of common shares and dividends on common stock.  In 2009, 2008 and 2007 the Company made capital expenditures of $109.5, $166.8 and $104.4, respectively.   In 2009, 2008 and 2007 the Company made total debt repayments and repurchases of $23.5, $26.9 and $450.0, respectively.  While the 2009 and 2008 debt-related payments were primarily for the repurchase of senior notes due in 2012, the full 2007 amount was used to redeem all of the Company's outstanding senior notes due in 2009.

As to longer-term obligations, the Company has significant debt maturities and other obligations that come due after 2010, including estimated cash contributions to its qualified pension plans, based on current legislation and actuarial assumptions.  For further information, see the Tabular Disclosure of Contractual Obligations section below.  The Company's $850.0 revolving credit facility expiring in 2012 is secured by the Company's product inventory and accounts receivable and contains restrictions on, among other things, distributions and dividends, acquisitions and investments, indebtedness, liens and affiliated transactions.  The facility requires maintenance of a minimum fixed charge coverage ratio of 1 to 1 if availability under the facility falls below $125.0.  The Company is in compliance with its credit facility covenants and, absent the occurrence of unexpected adverse events, expects that it will remain in compliance for the foreseeable future.  At December 31, 2009, the Company had no outstanding borrowings under the credit facility; however, availability was reduced by $136.9 due to outstanding letters of credit.  In addition, availability under the facility can fluctuate monthly as a result of changes in the amount of eligible collateral, such as the Company's inventory and accounts receivable.  As of December 31, 2009, the Company's eligible collateral, after application of applicable advance rates, totaled $737.3.

The instruments governing the Company's outstanding 7-3/4% senior notes due in 2012 include a minimum interest coverage ratio of at least 2.5 to 1 for the incurrence of debt.  As discussed below, failure to meet this covenant limits to $100.0 the amount of debt that the Company can incur in addition to the aggregate amount outstanding under the senior notes and the availability at the time under the credit facility.  At December 31, 2009, the ratio fell below the 2.5 to 1 incurrence test.

Notwithstanding the current limit on its ability to incur additional debt, as discussed in the preceding paragraph, the Company believes that it will be able to meet its cash requirements for the foreseeable future in light of its cash generated from operations, significant availability under its revolving credit facility, and ability to access the capital markets to refinance and/or repay debt and other obligations as they come due.  Uncertainties related to the global and U.S. economies and financial markets, however, could restrict the Company's flexibility with respect to its available liquidity sources, such as preventing the Company from refinancing those liabilities at more favorable rates than those currently available.

Dividends

The payment of cash dividends is subject to a restrictive covenant contained in the instruments governing the Company's outstanding senior debt.  The covenant allows the payment of dividends, if declared by the Board of Directors, and the redemption or purchase of shares of its outstanding capital stock, subject to a formula that reflects cumulative net earnings.  From 2001 through the first half of 2007, the Company was not permitted under that formula to pay a cash dividend on its common stock as a result of cumulative losses recorded over several years.  During the third quarter 2007, the cumulative losses calculated under the formula were eliminated due to the improved financial performance of the Company.  Accordingly, a cash dividend has been permissible since that time under the Company's senior debt covenants.  Restrictive covenants also are contained in the instruments governing the Company's $850.0 asset-based revolving credit facility.  Under the credit facility covenants, dividends are not restricted unless availability falls below $150.0, at which point dividends would be limited to $12.0 annually.  Currently, the availability under the credit facility significantly exceeds $150.0.  Accordingly, there currently are no covenant restrictions on the Company's ability to declare and pay a dividend to its shareholders.

The Company established an initial quarterly common stock dividend rate of $0.05 per share effective with the March 2008 dividend payment.  Information concerning the amount and frequency of dividends declared and paid in 2009 is as follows:

On January 25, 2010, the Company announced that its Board of Directors had declared a quarterly cash dividend of $0.05 per share of common stock, payable on March 10, 2010, to shareholders of record on February 12, 2010.

Financial Covenants

The indentures governing the Company's outstanding 7 3/4% senior notes due in 2012 and its $850.0 revolving credit facility contain restrictions and covenants that may limit the Company's operating flexibility.

The senior note indenture includes restrictive covenants regarding (a) the use of proceeds from asset sales, (b) some investments, (c) the amount of sale/leaseback transactions, and (d) transactions by subsidiaries and with affiliates.  Furthermore, the senior note indenture imposes the following additional financial covenants:

The Company's $850.0 five-year revolving credit facility secured by the Company's product inventory and accounts receivable contains restrictions on, among other things, distributions and dividends, acquisitions and investments, indebtedness, liens and affiliate transactions.  None of these restrictions affect or limit the Company's ability to conduct its business in the ordinary course.  In addition, the facility requires maintenance of a minimum fixed charge coverage ratio of 1 to 1 if availability under the facility is less than $125.0.

Capital Investments

The Company anticipates 2010 capital investments of approximately $200.0, which the Company expects to be funded from cash generated from operations.  In addition, with respect to prior capital investments, the Commonwealth of Kentucky has provided the Company the ability to receive tax incentives in the form of payroll tax and other withholdings over a 10-year period to help defray the costs for the installation of a vacuum degasser and caster modifications at its Ashland Works under the Kentucky Industrial Revitalization Act Tax Credit Program.  These tax incentives are based on certain employment levels and thus may vary if employment levels are below the designated minimum levels.  Through December 31, 2009, the Company has accumulated $14.7 in such withholdings, which amount is included as a reduction of property, plant and equipment in the consolidated financial statements.

To meet the anticipated long-term growth in demand for energy efficient products used in power generation and distribution transformers, the Company previously announced that it is expanding its production capacity for high-end, grain-oriented electrical steels.  The Company has announced capital investments totaling $268.0 to achieve this increased electrical steel capacity.  At December 31, 2009, spending for these future capital investments totaled

approximately $186.0.  Included in the estimate of 2010 capital investments is approximately $87.5 related to the projects to increase electrical steel capacity which slightly exceeds the originally announced amount.

Employee Benefit Obligations

Under its method of accounting for pension and other postretirement benefit plans, the Company recognizes, as of the Company's measurement date of December 31, any unrecognized actuarial gains and losses that exceed 10% of the larger of projected benefit obligations or plan assets (the "corridor").  The Company incurred no corridor charges in 2009.  In 2008, the unrecognized losses attributable to the Company's qualified pension plans exceeded the corridor by $660.1, primarily as a result of poor pension asset investment returns.  Accordingly, the Company incurred a pre-tax corridor charge of $660.1 in the fourth quarter of 2008.  There was no corridor charge in 2008 associated with the Company's other postretirement benefit plans.

The Company changed its measurement date from October 31 to December 31 during 2008 to meet the requirements of ASC Subparagraph 715-20-65-1.  The change in the measurement data resulted in an increase in the deferred tax asset of $5.6, an increase to pension and other postretirement benefit liabilities of $15.8, a decrease to retained earnings of $7.4 and a decrease to accumulated other comprehensive income of $2.8.

Based on current assumptions, the Company anticipates that its required pension funding contributions during 2010 will total approximately $105.0.  A $75.0 contribution toward that total was made in the first quarter of 2010.  The amount and timing of future required contributions to the pension trust depend on the use of assumptions concerning future events.  The most significant of these assumptions relate to future investment performance of the pension funds, actuarial data relating to plan participants and the benchmark interest rate used to discount benefits to their present value.  Because of the variability of factors underlying these assumptions, including the possibility of future pension legislation, the reliability of estimated future pension contributions decreases as the length of time until the contribution must be made increases.  Currently, the Company's major pension plans are significantly underfunded.  As a result, absent major increases in long-term interest rates, above average returns on pension plan assets and/or changes in legislated funding requirements, the Company will be required to make contributions to its pension trusts of varying amounts in the long-term.  Some of these contributions could be substantial. Currently, the Company estimates annual required contributions for 2011 and 2012 to average approximately $275.0 in each year.

The Company provides healthcare benefits to most of its employees and retirees.  Based on the assumptions used to value other postretirement benefits, primarily retiree healthcare and life insurance benefits, annual cash payments for these benefits are expected to be in a range of $16.1 to $80.0 for each of the next 30 years.  These payments do not include the two remaining $65.0 contributions to the VEBA Trust which are required as part of the Settlement of the Middletown Works Retiree Healthcare Benefit Litigation.  For a more detailed description of the Settlement, see the discussion below and in the " Legal Contingencies" section of Note 9 to the Consolidated Financial Statements in Item 7 below.  The total projected future benefit obligation of the Company with respect to payments for healthcare benefits is included in "Pension and other postretirement benefit obligations" in the Company's consolidated financial statements.  The net amount recognized by the Company as of the end of 2009 for future payment of such healthcare benefit obligations was $875.6.

Accounting for retiree healthcare benefits requires the use of actuarial methods and assumptions, including assumptions about current employees' future retirement dates, the anticipated mortality rate of retirees, anticipated future increases in healthcare costs and the obligation of the Company under future collective bargaining agreements with respect to healthcare benefits for retirees.  Changing any of these assumptions could have a material impact on the calculation of the Company's total obligation for future healthcare benefits.  For example, the Company's calculation of its future retiree healthcare benefit obligation as of the end of 2009 assumed that the Company would continue to provide healthcare benefits to current and future retirees.  If this assumption is altered, it could have a material effect on the calculation of the Company's total future retiree healthcare benefit obligation.  This assumption could be altered as a result of one or more of the following developments or other unforeseen events.

First, retirees could consent to a change in the current level of healthcare benefits provided to them.  Second, in certain instances, the union which represented a particular group of retirees when they were employed by the Company could, in the course of negotiations with the Company, accept such a change.  Third, in certain instances, at or following the expiration of a collective bargaining agreement which affects the Company's obligation to provide healthcare benefits to retired employees, the Company could take action to modify or terminate the benefits provided to those retirees without the agreement of those retirees or the union, subject to the right of the union subsequently to bargain to alter or reverse such action by the Company.  The precise circumstances under which retiree healthcare benefits may be altered unilaterally or by agreement with a particular union vary depending on the terms of the relevant collective bargaining agreement.  Some of these developments already have occurred and either already have impacted, or may

impact in the future, the Company's retiree healthcare benefit obligation.  The most significant of these developments are summarized below.

In December 2008, the Company announced that all salaried employees accruing service in a defined benefit pension plan would have their benefit "locked and frozen" as of January 31, 2009.  The accruals for the defined benefit plan have been replaced by a fixed percent contribution to a defined contribution pension plan.  This action required the Company to recognize the past service pension expense that previously would have been amortized as a curtailment charge in 2008 of $39.4.

Since late 2003, the Company has negotiated new labor agreements with the various unions at all of its represented facilities.  In addition, during this time period the new labor contracts and the Company's overall actions to reduce employment costs have resulted in a significant reduction in the Company's other postretirement benefit ("OPEB") liability.  Under GAAP, the Company may not recognize this benefit immediately.  Rather, it is required to amortize the net benefits of this reduction into future years.  The Company thus will be able to recognize the benefit of this net reduction annually through its earnings in the future as a reduction in its other postretirement benefit costs.

In October 2007, the Company announced that it had reached a settlement (the "Settlement") of the claims in litigation filed against the Company by retirees of its Middletown Works relating to their retiree health and welfare benefits.  The Settlement was approved by the federal district court on February 21, 2008 and, subject to a pending appeal, reduced the Company's total OPEB liability of approximately $2.0 billion as of September 30, 2007 by approximately $1.0 billion.   Under the terms of the Settlement, AK Steel was obligated to initially fund the VEBA Trust with a contribution of $468.0 in cash within two business days of the effective date of the Settlement.  AK Steel made this contribution on March 4, 2008.  AK Steel further is obligated under the Settlement to make three subsequent annual cash contributions of $65.0 each, for a total contribution of $663.0.  AK Steel has timely made the first of these three annual cash contributions of $65.0, leaving it obligated to make two more annual cash contributions of $65.0 each in March of 2010 and 2011, respectively.  For a more detailed description of the Settlement, see the discussion in the " Legal Contingencies" section of Note 9 to the Consolidated Financial Statements in Item 7 below.

Labor Agreements

At December 31, 2009, the Company's operations included approximately 6,500 employees, of which approximately 4,900 are represented by labor unions under various contracts that will expire in the years 2010 through 2013.

The labor contract for approximately 340 hourly employees represented by the United Autoworkers Local 3462 at the Company's Coshocton, Ohio plant was scheduled to expire on March 31, 2010.  In December 2009, the members of that union ratified an extension of the existing contract through March 31, 2013.

An agreement with the United Steelworkers of America Local 1865, which represents approximately 750 hourly employees at the Company's Ashland, Kentucky, West Works is scheduled to expire on September 1, 2010.

The labor contract for approximately 100 hourly production and maintenance employees represented by United Steelworkers of America Local 1915 at the Walbridge, Ohio facility of AK Tube, LLC, a wholly-owned subsidiary of the Company, was scheduled to expire on January 25, 2009.  In January 2009, the members of that union ratified a new three-year labor agreement which will expire on January 22, 2012.

Energy and Raw Material Hedging

The Company enters into derivative transactions in the ordinary course of business to hedge the cost of natural gas and certain raw materials.  At December 31, 2009, the consolidated balance sheets included other current assets of $1.9, other non-current assets of $0.1 and accrued liabilities of $5.8 for the fair value of these derivatives.  Changes in the prices paid for the related commodities are expected to offset the effect on cash of settling these amounts.

Off Balance Sheet Arrangements

There were no off balance sheet arrangements as of December 31, 2009.

Potential Impact of Climate Change Legislation

At this time the Company is unable to determine whether any of the pending legislative bills in Congress relating to climate change are reasonably likely to become law.  Even in the event that any of the pending bills are enacted, the Company cannot anticipate the final form of such laws, or the extent to which they will be applicable to the Company

and its operations.  As a result, the Company currently has no reasonable basis on which it can reliably predict or estimate the specific effects any eventually enacted laws may have on the Company or how the Company may be able to mitigate any negative impacts on its business and operations.

There exists the possibility, however, that limitations on greenhouse gas emissions may be imposed in the United States at some point in the future through some form of federally enacted regulation or legislation.  For example, the U.S. EPA has proposed to regulate carbon emissions under the federal Clean Air Act.   In addition, bills recently introduced in the United States Congress aim to limit carbon emissions over long periods of time from facilities which emit significant amounts of greenhouse gases.   Such bills, if enacted, would apply to the steel industry, in general, and to the Company, in particular, because the process of producing steel from elemental iron results in the creation of carbon dioxide, one of the targeted greenhouse gases.  Although the Company and other steel producers in the United States are actively participating in research and development efforts to develop breakthrough technology for low- or zero-emission steelmaking processes, the development of such technologies will take time and their potential for success cannot be accurately determined.  To address this need for the development of new technologies, not just in the steel industry but elsewhere, some of the proposed legislative bills include a system of carbon emission credits, which would be available to certain companies for a period of time, similar to the European Union's existing "cap and trade" system.   Each of these bills is likely to be altered substantially as it moves through the legislative process, making it virtually impossible at this time to forecast the provisions of any final legislation and the resulting effects on the Company. 

If regulation or legislation regulating carbon emissions is enacted, however, it is reasonable to assume that the net financial impact on the Company will be negative, despite some potential beneficial aspects discussed below.  On balance, such regulation or legislation likely would cause the Company to incur increased energy, environmental and other costs in order to comply with the limitations that would be imposed on greenhouse gas emissions.  For example, the Company likely would incur the direct cost of purchasing carbon emissions credits for its own operations.  Similarly, to the extent that the Company's raw material and/or energy suppliers likewise would have to purchase such credits, they may pass their own increased costs on to the Company through price hikes.   The Company likely also would incur increased capital costs as a result of cap and trade legislation.  Such costs could take the form of new or retrofitted equipment, or the development of new technologies ( e.g. , sequestration), to try to control or reduce greenhouse gas emissions.  In addition, if similar cap and trade requirements were not imposed globally, the domestic legislation could negatively impact the Company's ability to compete with foreign steel companies not subject to similar requirements. 

The enactment of climate control legislation or regulation also could have some beneficial impact on the Company, which may somewhat mitigate the adverse effects noted above.  For example, to the extent that climate change legislation provides incentives for energy efficiency, the Company could benefit from increased sales of its grain-oriented electrical steel products, which are among the most energy efficient in the world.  The Company sells its electrical steels, which are iron-silicon alloys with unique magnetic properties, primarily to manufacturers of power transmission and distribution transformers and electrical motors and generators.  The sale of such products may be enhanced by climate control legislation in different ways.   For instance, to the extent that the legislation may promote the use of renewable energy technology, such as wind or solar technology, it could increase demand for the Company's high-efficiency electrical steel products used in power transformers, which are needed to connect these new sources to the electricity grid.  In addition, effective January 1, 2010, the U.S. Department of Energy adopted higher efficiency standards for certain types of power distribution transformers and these new standards are usually achieved through the use of more, and more highly efficient, electrical steels.  Implementation of even higher efficiency standards for the future is being studied.

The likelihood of such legislation or regulation is uncertain, and any effect on the Company would depend on the final terms of such legislation or regulation.  Presently, the Company is unable to predict with any reasonable degree of accuracy when or even if climate control legislation or regulation will be enacted, or if so, what will be their terms and applicability to the Company.   In the meantime, the items described above provide some indication of the potential impact on the Company of climate control legislation or regulation generally.  The Company will continue to monitor the progress of such legislation and/or regulation closely.

Tabular Disclosure of Contractual Obligations

In the ordinary course of business, the Company enters into agreements under which it is obligated to make legally enforceable future payments.  These agreements include those related to borrowing money, leasing equipment and purchasing goods and services.  The following table summarizes by category expected future cash outflows associated with contractual obligations in effect as of December 31, 2009 .

In calculating the amounts for purchase obligations, the Company first identified all contracts under which the Company has a legally enforceable obligation to purchase products or services from the vendor and/or make payments to the vendor for an identifiable period of time.  Then for each identified contract, the Company determined its best estimate of payments to be made under the contract assuming (1) the continued operation of existing production facilities, (2) normal business levels, (3) the contract would be adhered to in good faith by both parties throughout its term and (4) prices are as set forth in the contract.  Because of changes in the markets it serves, changes in business decisions regarding production levels or unforeseen events, the actual amounts paid under these contracts could differ significantly from the numbers presented above.  For example, as is the case currently with the contracts entered into with certain of the Company's raw material suppliers, circumstances could arise which create exceptions to minimum purchase obligations that are set forth in the contracts.   The purchase obligations set forth in the table above have been calculated without regard to such exceptions.

A number of the Company's purchase contracts specify a minimum volume or price for the products or services covered by the contract.  If the Company were to purchase only the minimums specified, the payments set forth in the table would be reduced.  Under "requirements contracts" the quantities of goods or services the Company is required to purchase may vary depending on its needs, which are dependent on production levels and market conditions at the time.  If the Company's business deteriorates or increases, the amount it is required to purchase under such a contract would likely change.  Many of the Company's agreements for the purchase of goods and services allow the Company to terminate the contract without penalty upon 30 to 90 days' prior notice.  Any such termination could reduce the projected payments.

The Company's consolidated balance sheets contain reserves for pension and other postretirement benefits and other long-term liabilities.  The benefit plan liabilities are calculated using actuarial assumptions that the Company believes are reasonable under the circumstances.  However, because changes in circumstances can have a significant effect on the liabilities and expenses associated with these plans including, in the case of pensions, pending or future legislation, the Company cannot reasonably and accurately project payments into the future.  While the Company does include information about these plans in the above table, it also discusses these benefits elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations and in the notes to its consolidated financial statements, set forth in Item 7.

future events, such as the filing of a claim or completion of due diligence investigations, settlement negotiations, audit and examinations by taxing authorities, documentation or legal proceedings.

Critical Accounting Policies and Estimates

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America.  These principles permit choices among alternatives and require numerous estimates of financial matters.  The Company believes the accounting principles chosen are appropriate under the circumstances, and that the estimates, judgments and assumptions involved in its financial reporting are reasonable.

Revenue Recognition

Revenue from sales of products is recognized at the time title and the risks and rewards of ownership pass. This occurs when the products are shipped per customers' instructions, the sales price is fixed and determinable, and collection is reasonably assured.

Inventory Costing

Inventories are valued at the lower of cost or market.  The cost of the majority of inventories is measured on the last in, first out ("LIFO") method.  The LIFO method allocates the most recent costs to cost of products sold and, therefore, recognizes into operating results fluctuations in raw material, energy and other inventoriable costs more quickly than other methods.  Other inventories, consisting mostly of foreign inventories and certain raw materials, are measured principally at average cost.

Use of Estimates

Accounting estimates are based on historical experience and information that is available to management about current events and actions the Company may take in the future.  Significant items subject to estimates and assumptions include the carrying value of long-lived assets; valuation allowances for receivables, inventories and deferred income tax assets; environmental and legal liabilities; and assets and obligations related to employee benefit plans.  There can be no assurance that actual results will not differ from these estimates.

The Company maintains an allowance for doubtful accounts as a reserve for the loss that would be incurred if a customer is unable to pay amounts due to the Company.  The Company determines this based on various factors, including the customer's financial condition.  While losses due to customer defaults have been low, if in the future the financial condition of some customers deteriorates to an extent that may affect their ability to pay, additional allowances may be needed.  Approximately 29% of the Company's trade receivables outstanding at December 31, 2009 are due from businesses associated with the U.S. automotive industry, including General Motors, Chrysler and Ford.  Except in a few situations where the risk warrants it, collateral is not required on trade receivables.  In light, however, of the current economic conditions which have had a particularly detrimental impact on the automotive industry, the Company is monitoring its trade receivables position even more closely than normal.  While the Company currently still believes the trade receivables recorded on its balance sheet will be collected, in the event of default in payment of a trade receivable, the Company would follow normal collection procedures.

The Company records a valuation allowance to reduce its deferred tax asset to an amount that is more likely than not to be realized.  In estimating levels of future taxable income needed to realize the deferred tax asset, the Company has considered historical results of operations and the cyclical nature of the steel business and would, if necessary, consider the implementation of prudent and feasible tax planning strategies to generate future taxable income.  If future taxable income is less than the amount that has been assumed in determining the deferred tax asset, then an increase in the valuation allowance will be required, with a corresponding charge against income.  On the other hand, if future taxable income exceeds the level that has been assumed in calculating the deferred tax asset, the valuation allowance could be reduced, with a corresponding credit to income.   In the current year, there was an increase in the valuation allowance related to state deferred tax assets for loss carryforwards and tax credits in certain states.  These states have limited carryforward periods and limits on how much loss carryforward can be used to offset estimated future taxable income annually.  These factors caused an increase in the Company's valuation allowance for 2009.  A valuation allowance has not been recorded on the Company's temporary differences, nor its federal net operating loss carryforwards, which do not begin to expire until 2028, as the Company believes that the estimated levels of future taxable income is sufficient such that it is more likely than not that it will realize these deferred tax assets.

The Company is involved in a number of environmental and other legal proceedings.  The Company records a liability when it has determined that litigation has commenced or a claim or assessment has been asserted and, based on available information, it is probable that the outcome of such litigation, claim or assessment, whether by decision or settlement, will be unfavorable and the amount of the liability is reasonably estimable.  The Company measures the liability using available information, including the extent of damage, similar historical situations, its allocable share of the liability and, in the case of environmental liabilities, the need to provide site investigation, remediation and future monitoring and maintenance.  Accruals of probable costs have been made based on a combination of litigation and settlement strategies on a case-by-case basis and, where appropriate, are supplemented with incurred but not reported development reserves.  However, amounts recognized in the financial statements in accordance with accounting principles generally accepted in the United States exclude costs that are not probable or that may not be currently estimable.  The ultimate costs of these environmental and legal proceedings may, therefore, be higher than those currently recorded on the Company's financial statements.  In addition, results of operations in any future period could be materially affected by changes in assumptions or by the effectiveness of the Company's strategies.

Pension and Other Postretirement Benefit Plans

Under its method of accounting for pension and other postretirement benefit plans, the Company recognizes into income, as of the Company's measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of projected benefit obligations or plan assets, defined as the corridor.  This method results in faster recognition of actuarial net gains and losses than the minimum amortization method permitted by prevailing accounting standards and used by the vast majority of companies in the United States.  Faster recognition under this method also results in the potential for highly volatile and difficult to forecast corridor adjustments, similar to those recognized by the Company in recent years.  Prior to January 31, 2009, amounts inside this 10% corridor were amortized over the average remaining service life of active plan participants.  Beginning January 31, 2009, the date of the "lock and freeze" of a defined benefit pension plan covering all salaried employees, the actuarial gains and losses will be amortized over the plan participants' life expectancy.

ASC Topic 715 requires the Company to fully recognize and disclose an asset or liability for the overfunded or underfunded status of its benefit plans in financial statements.  The Company changed its measurement date from October 31 to December 31 during 2008 to meet the requirements of ASC Subparagraph 715-20-65-1.  The change in the measurement data resulted in an increase in the deferred tax asset of $5.6, an increase to pension and other postretirement benefit liabilities of $15.8, a decrease to retained earnings of $7.4 and a decrease to accumulated other comprehensive income of $2.8.

Under the applicable accounting standards, actuarial net gains and losses occur when actual experience differs from any of the many assumptions used to value the benefit plans or when the assumptions change, as they may each year when a valuation is performed.  The major factors contributing to actuarial gains and losses for pension plans are the differences between expected and actual returns on plan assets and changes in the discount rate used to value pension liabilities as of the measurement date.  For other postretirement benefit plans, differences in estimated versus actual healthcare costs, changes in assumed healthcare cost trend rates or a change in the difference between the discount rate and the healthcare trend rate are major factors contributing to actuarial gains and losses.  In addition to the potential for corridor adjustments, these factors affect future net periodic benefit expenses.  Changes in key assumptions can have a material effect on the amount of annual expense recognized.  For example, a one-percentage-point decrease in the expected rate of return on pension plan assets would increase the projected 2010 pension expense by approximately $23.7 before tax.  Based on the Company's liability as of December 31, 2009, a one-percentage-point increase in the assumed healthcare trend rate would increase the projected 2010 other postretirement benefit expense by approximately $0.6 before tax.  The discount rate used to value liabilities and assets affects both pensions and other postretirement benefit calculations.  Similarly, a one-quarter-percentage-point decrease in this rate would decrease pension expense by less than $0.1 and decrease the other postretirement credit by $0.1.  These estimates exclude any potential corridor adjustments.

Property, Plant and Equipment

The total weighted average useful life of the Company's machinery and equipment is 18.3 years based on the depreciable life of the assets.  The Company recognizes costs associated with major maintenance activities at its operating facilities in the period in which they occur.

Investments

The Company's financial statements consolidate the operations and accounts of the Company and all subsidiaries in which the Company has a controlling interest.  The Company also has investments in associated companies that are accounted for under the equity method and, because the operations of these companies are integrated with the Company's basic steelmaking operations, its proportionate share of their income (loss) is reflected in the Company's cost of products sold in the consolidated statements of operations.  In addition, the Company holds investments in debt securities and minor holdings in equity securities, which are accounted for as available-for-sale or held-to-maturity cost investments.  At December 31, 2009, the Company had no investments that it accounted for as trading securities.  Each of the Company's investments is subject to a review for impairment, if and when, circumstances indicate that a loss in value below its carrying amount is other than temporary.  Under these circumstances, the Company would write the investment down to its fair value, which would become its new carrying amount.

The Company's investment in AFSG Holdings, Inc. represents the carrying value of its discontinued insurance and finance leasing businesses, which have been largely liquidated.  The activities of the remaining operating companies are being classified as "runoff" and the companies are accounted for, collectively, as a discontinued operation under the liquidation basis of accounting, whereby future cash inflows and outflows are considered.  The Company is under no obligation to support the operations or liabilities of these companies.

Financial Instruments

The Company is a party to derivative instruments that are designated and qualify as hedges under ASC Topic 815, "Derivatives and Hedging".  The Company's objective in using such instruments is to protect its earnings and cash flows from fluctuations in the fair value of selected commodities and currencies.  For example, in the ordinary course of business, the Company uses cash settled commodity price swaps, with a duration of up to three years, to hedge the price of a portion of its natural gas, nickel, aluminum and zinc requirements.  The Company designates the natural gas swaps as cash flow hedges and the changes in their fair value, excluding the ineffective portion, are recorded in other comprehensive income.  Subsequent gains and losses are recognized into cost of products sold in the same period as the underlying physical transaction.  Other commodity swaps are marked to market recognizing gains or losses into earnings.  The pre-tax net loss recognized in earnings during 2009 for natural gas hedges representing the component of the derivative instruments' current effectiveness and excluded from the assessment of hedge effectiveness was $9.4 and was recorded in cost of products sold.  At December 31, 2009, currently valued outstanding commodity hedges would result in the reclassification into earnings of $1.3 in net-of-tax losses within the next twelve months.  Based on such reviews as it deems reasonable and appropriate, the Company believes that all counterparties to its outstanding derivative instruments are entities with substantial credit worthiness.

Goodwill

At December 31, 2009 and 2008, the Company's assets included $37.1 of goodwill, which is less than 1% of the Company's assets.  Each year, as required by ASC Subtopic 350-20, "Goodwill", the Company performs an evaluation of goodwill to test this balance for possible impairment.  Management judgment is used to evaluate the impact of changes in operations and to estimate future cash flows to measure fair value.  Assumptions such as forecasted growth rates and cost of capital are consistent with internal projections.  The evaluation requires that the reporting unit underlying the goodwill be measured at fair value and, if this value is less than the carrying value of the unit, a second test must be performed.  Under the second test, the current fair value of the reporting unit is allocated to the assets and liabilities of the unit including an amount for "implied" goodwill.  If implied goodwill is less than the net carrying amount of goodwill, the difference becomes the amount of the impairment that must be recorded in that year.  The Company's businesses operate in highly cyclical industries and the valuation of these businesses can be expected to fluctuate, which may lead to further impairment charges in future operating costs. The 2009 annual review did not result in any goodwill impairment for the Company.

New Accounting Pronouncements

Certain amounts in prior year financial statements have been reclassified to reflect the reporting requirements of ASC Subparagraph 810-10-65-1, "Transition Related to FASB Statements No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51, and No. 164, Not-for-Profit Entities: Mergers and Acquisitions".

ASC Topic 810, "Consolidation", as amended, requires an enterprise to perform an analysis to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a variable interest entity.  The

amendment to ASC Topic 810 is effective for fiscal years beginning on or after November 15, 2009.  The Company believes that this guidance does not alter the accounting treatment previously accorded to the consolidation of Middletown Coke and Vicksmetal/Armco Associates.

Earnings per share have been restated in prior periods in conformity with ASC Subparagraph 260-10-65-2, "Transition Related to FSP EITF 03-6-1".

Effective with this Form 10-K, the Company has amended its disclosure relating to postretirement benefit plan assets in compliance with ASC Subparagraph 715-20-65-2, "Transition related to FSP FAS 132(R)-1, Employers' Disclosures about Postretirement Benefit Plan Assets".  The disclosure now includes discussion on:

· investment policies and strategies;

· categories of plan assets;

· fair value measurements of plan assets; and

· significant concentrations of risk.

No other new accounting pronouncement issued or effective during the 2009 fiscal year has had or is expected to have a material impact on the Company's consolidated financial statements.

Forward-Looking Statements

Certain statements made or incorporated by reference in this Form 10-K, or made in press releases or in oral presentations made by Company employees, reflect management's estimates and beliefs and are intended to be, and are hereby identified as "forward-looking statements" for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  In particular, these include (but are not limited to) statements in the foregoing sections entitled Raw Materials, Employees, Competition, Environmental, Risk Factors, Legal Proceedings, Management's Discussion and Analysis of Financial Condition and Results of Operations, Operations Overview, Key Factors Generally Impacting Financial Results, Outlook, Liquidity and Capital Resources, Tabular Disclosure of Contractual Obligations, Critical Accounting Policies and Estimates, and New Accounting Pronouncements.  In addition, these include statements in Item 6A, Quantitative and Qualitative Disclosure about Market Risk and in the Notes to Consolidated Financial Statements in the paragraphs entitled, Property Plant and Equipment, Goodwill and Other Intangible Assets, Pension and Other Postretirement Benefits Accounting, Concentrations of Credit Risk, Union Contracts, Financial Instruments, Income Taxes, Commitments, and Environmental and Legal Contingencies.

The Company cautions readers that such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those currently expected by management.  See Item 1A Risk Factors for more information on certain of these risks and uncertainties.

Except as required by law, the Company disclaims any obligation to update any forward-looking statements to reflect future developments of events.

In the ordinary course of business, the Company's primary areas of market risk include changes in (a) interest rates, (b) the prices of raw materials and energy sources, and (c) foreign currency exchange rates.  The Company manages interest rate risk by issuing variable- and fixed-rate debt, and currently has $504.0 of fixed-rate debt and $103.0 of variable-rate debt outstanding.  The fair value of this debt as of December 31, 2009 was $609.6.  A reduction in prevailing interest rates or improvement in the Company's credit rating could increase the fair value of this debt.  A reduction in the rate used to discount total future principal and interest payments of 1% would result in an increase in the total fair value of the Company's long-term debt of approximately $38.8.  An unfavorable effect on the Company's financial results and cash flows from exposure to interest rate declines and a corresponding increase in the fair value of its debt would result only if the Company elected to repurchase its outstanding debt securities at prevailing market prices.

With regard to raw materials and energy sources, natural gas prices, in particular, have been highly volatile.  At normal consumption levels, a one dollar per MCF change in natural gas prices would result in an approximate $40.0 change in annual pre-tax operating results, excluding the offsetting effects of any then-existing hedging instruments.  In addition, the cost of scrap (which is purchased in the spot market and is not susceptible to hedging) and the cost of iron ore both have been volatile over the course of the last several years.  Collectively, these and other raw material and energy cost fluctuations have affected the Company's margins and made it more difficult to forecast because much of the Company's revenue comes from annual or longer contracts with its customers.  To address such cost

volatility, where competitively possible, the Company attempts to add a surcharge to the price of steel it sells to the spot market and to negotiate a variable pricing mechanism with its contract customers that allows the Company to adjust selling prices in response to changes in the cost of certain raw materials and energy.  In addition, in the case of stainless steel, increased costs for nickel, chrome and molybdenum can usually be recovered through established price surcharges.  Approximately 55% of the Company's shipments in 2009 were made under contracts having durations of six months or more.  The Company anticipates that its percentage of contract sales will be similar in 2010.  Approximately 83% of the Company's shipments to contract customers in 2009 permitted an adjustment of selling prices in response to changes in the cost of certain raw materials and energy.  Therefore, fluctuations in the price of energy (particularly natural gas), raw materials (such as scrap, purchased slabs, coal, iron ore, and zinc) or other commodities will be, in part, passed on to the Company's customers rather than absorbed solely by the Company.

In addition, in order to further minimize its exposure to fluctuations in raw material costs, and to secure an adequate supply of raw materials, the Company has entered into multi-year purchase agreements for certain raw materials that provide for fixed prices or only a limited variable price mechanism.  While enabling the Company to reduce its exposure to fluctuations in raw material costs, this also exposes the Company to an element of market risk relative to its sales contracts.  Currently, approximately 55% of the Company's sales contracts have durations of six months or more.  Approximately 17% of those contracts have fixed price terms and the other 83% have some form of variable pricing which does not necessarily enable the Company to recoup the full amount of increases in its raw material and energy costs.  After new contracts are negotiated with the Company's customers, the average sales prices could increase or decrease.  If that average sales price decreases, the Company may not be able to reduce its raw material costs to a corresponding degree due to the multi-year term and fixed price nature of some of its raw material purchase contracts.  In addition, some of the Company's existing multi-year supply contracts, particularly with respect to iron ore, have required minimum purchase quantities.  Under adverse economic conditions, such as were present in 2009, those minimums may exceed the Company's needs.  Subject to exceptions for force majeure and other circumstances impacting the legal enforceability of the contracts, such minimum purchase requirements could require the Company to purchase quantities of raw materials, particularly iron ore, which significantly exceed its anticipated needs.  Under such circumstances, the Company would attempt to negotiate agreements for new purchase quantities.  There is a risk, however, that in one or more instances the Company would not be successful in securing lower purchase quantities, either through negotiation or litigation.  In that event, the Company would likely need to purchase more of a particular raw material in a particular year than it needs, negatively impacting its cash flow.

The Company uses cash settled commodity price swaps and/or options to hedge the price of a portion of its natural gas, nickel, aluminum and zinc requirements.  The Company's hedging strategy is designed to protect it against normal volatility.  However, abnormal price increases in any of these commodity markets could negatively impact operating costs.  The effective portion of the gains and losses from the use of these instruments for natural gas are deferred in accumulated other comprehensive loss on the consolidated balance sheets and recognized into cost of products sold in the same period as the underlying physical transaction.  At December 31, 2009, accumulated other comprehensive loss included $1.3 in unrealized net-of-tax losses for the fair value of these derivative instruments.  All other commodity price swaps and options are marked to market and recognized into cost of products sold with the offset recognized as other current assets or other accrued liabilities.  At December 31, 2009, other current assets of $1.9, other non-current assets of $0.1 and accrued liabilities of $5.8 were included on the consolidated balance sheets for the fair value of these commodity hedges.  The following table presents the negative effect on pre-tax income of a hypothetical change in the fair value of derivative instruments outstanding at December 31, 2009 due to an assumed 10% and 25% decrease in the market price of each of the indicated commodities.

Because these instruments are structured and used as hedges, these hypothetical losses would be offset by the benefit of lower prices paid for the physical commodity used in the normal production cycle.  The Company currently does not enter into swap or option contracts for trading purposes.

The Company is also subject to risks of exchange rate fluctuations on a small portion of intercompany receivables that are denominated in foreign currencies.  The Company occasionally uses forward currency contracts to manage exposures to certain of these currency price fluctuations.  At December 31, 2009, the Company had outstanding forward currency contracts with a total notional value of $23.3 for the sale of euros.  At December 31, 2009, the fair value of the Company's outstanding forward currency contracts was $0.9.  Based on the contracts outstanding at the end of 2009, a 10% increase in the dollar to euro exchange rate would result in a $2.3 pre-tax loss in the value of those contracts, which would offset the income benefit of a more favorable exchange rate.

MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS

The Company prepares its consolidated financial statements and financial statement schedule in conformity with accounting principles generally accepted in the United States of America.  These principles permit choices among alternatives and require numerous estimates of financial matters.  The Company believes the accounting principles chosen are appropriate under the circumstances, and that the estimates, judgments and assumptions involved in its financial reporting are reasonable.

The Company's management is responsible for the integrity and objectivity of the financial information presented in its consolidated financial statements.  It maintains a system of internal accounting controls designed to provide reasonable assurance that Company employees comply with stated policies and procedures, that the Company's assets are safeguarded and that its financial reports are fairly presented.  On a regular basis, the Company's financial management discusses internal accounting controls and financial reporting matters with its independent registered public accounting firm and its Audit Committee, composed solely of independent outside directors.  The independent registered public accounting firm and the Audit Committee also meet privately to discuss and assess the Company's accounting controls and financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

AK Steel Holding Corporation

West Chester, Ohio

We have audited the accompanying consolidated balance sheets of AK Steel Holding Corporation and subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, cash flows, and comprehensive income (loss) for each of the three years in the period ended December 31, 2009.  Our audits also included the financial statement schedule listed in the Index to Exhibits at Item 14.  These financial statements and financial statement schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2009 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2010 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Cincinnati, Ohio

February 23, 2010

See notes to consolidated financial statements.

See notes to consolidated financial statements.