Results of Operations

The Company's operations consist of seven steelmaking and finishing plants located in Indiana, Kentucky, Ohio and Pennsylvania that produce flat-rolled carbon steels, including premium-quality coated, cold-rolled and hot-rolled products, and specialty stainless and electrical steels that are sold in 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 operations also include two plants operated by AK Tube LLC, where flat-rolled carbon and stainless steel is further finished into welded steel tubing used in the automotive, large truck and construction markets. In addition, the Company operates European trading companies that buy and sell steel and steel products.

Even before the start of the first quarter of 2009, the Company reacted quickly to the economic downturn that started last fall and initiated a concerted, Company-wide effort to reduce controllable costs wherever reasonably possible and to conserve cash. That effort continued throughout the first quarter, and included a reduction in salaried employee compensation, an initiative to encourage early retirements of salaried personnel, lock and freeze of the remaining qualified defined benefit pension plans, and layoffs of both the salaried and hourly workforce. It further included the temporary idling of certain of the Company's manufacturing facilities for various periods during the quarter to better match production with customer demand. At the same time, the Company also continued to focus on its core values - safety, quality and productivity. The Company achieved considerable success during the first quarter with respect to all of those efforts - reducing costs, conserving cash, operating safely, producing the highest quality steel as efficiently as possible under the current market conditions. Notwithstanding those successes, the Company could not overcome the anemic global demand for steel products that persisted throughout the quarter, and its shipments and revenues declined significantly compared both to the previous quarter and to the first quarter of 2008. Details with respect to those changes in shipments and revenue, as well as other factors impacting the Company's first quarter financial results, are discussed below.

Steel shipments for the three months ended March 31, 2009 and 2008 were 778,800 tons and 1,578,400 tons, respectively. For the three-month period ended March 31, 2009, value-added products comprised 86.3% of total shipments compared to 81.3% for the three-month period ended March 31, 2008. The value-added shipments were higher primarily due to lower hot-rolled carbon shipments as a percentage of total shipments. Total shipments for the first three months ended March 31, 2009 were substantially lower than the same period in 2008 due to weak steel demand in all markets, but especially in the automotive market. The coated, cold-rolled, and tubular shipment declines were driven by lower automotive demand. The reduction in stainless / electrical steel shipments reflects lower demand in the automotive market with respect to stainless and the weakness in the domestic housing market with respect to electrical. The reduction in hot-rolled was due to weak spot market conditions globally. The Company continues to focus on maximizing product profitability based on current and projected market demands - both domestically and internationally. The following presents net shipments by product line:

                                               For the Three Months Ended March 31,
    (tons in thousands)                           2009                       2008
    Stainless / electrical                   159.1          20.5 %       237.1        15.0 %
    Coated                                   350.4          45.0 %       706.3        44.7 %
    Cold-rolled                              144.2          18.5 %       307.0        19.5 %
    Tubular                                   18.2           2.3 %        33.4         2.1 %
    Subtotal value-added shipments           671.9          86.3 %     1,283.8        81.3 %
    Hot-rolled                                75.5           9.7 %       237.7        15.1 %
    Secondary                                 31.4           4.0 %        56.9         3.6 %
    Subtotal non value-added shipments       106.9          13.7 %       294.6        18.7 %
    Total shipments                          778.8         100.0 %     1,578.4       100.0 %

For the three months ended March 31, 2009, net sales were $922.2, reflecting an approximate 49% decrease from first quarter 2008 net sales of $1,791.4. Net sales to customers outside the United States totaled $180.2 and $246.6 during the first three months of 2009 and 2008, respectively. A substantial majority of the revenue outside of the United States is associated with electrical and stainless steel products. The Company's average selling price for the first quarter of 2009 was $1,184 per ton, an approximate 4% improvement over the Company's first quarter 2008 average selling price of $1,135 per ton. The decrease in net sales was caused by weak demand for all steel products, particularly in the automotive market, resulting from the worst global economic conditions in decades. The increase in average selling prices was the result of a higher value-added product mix primarily caused by lower hot-rolled shipments.

Selling and administrative expense for the first quarter of 2009 was $47.8 compared to $56.5 for the same period in 2008. The reduction was due primarily to lower compensation and employee benefit costs, driven largely by a reduction in headcount, and an overall lower level of spending on other expense items. This general reduction in spending resulted from the Company's prompt and proactive steps to reduce controllable costs in the face of the poor steel industry and overall economic conditions which began in the fourth quarter of 2008. Depreciation expense was $51.3 for the first quarter of 2009, slightly lower than the $52.0 for the first quarter of 2008.

For the first quarter of 2009, the Company recorded an operating loss of $99.9, or $128 per ton, compared to an operating profit of $169.7, or $108 per ton, in the first quarter of 2008. The principal cause of this decline in operating performance was significantly lower steel shipments driven by reduced customer demand. Also, the Company's costs were negatively impacted by lower operating volumes and higher raw material costs in the first quarter of 2009 versus the first quarter of 2008. The most significant impact of higher raw material costs related to iron ore, but many other input costs also increased during 2008. These quarter-over-quarter increases in raw material costs were partially offset by a reduction in other postretirement benefit costs during the same period.

The Company's maintenance outage costs in the first three months of 2009 were approximately $4.7, which was slightly higher than in the corresponding period in 2008. The maintenance outage costs in the first three months of 2009 were related to the planned outage at the Company's Middletown blast furnace. That outage will continue into the second quarter.

The Company expects to incur significantly lower raw material and energy costs in 2009 and already is experiencing significant reductions in some of these costs. Because, however, of the abnormally low production and shipment volumes caused by the poor business conditions starting in the fourth quarter of 2008, the Company continues to consume raw materials, particularly iron ore, which were purchased in 2008 at higher prices than prevail currently. As a consequence, the Company has not yet experienced the full benefit of the lower costs it currently is paying for raw material and energy. Associated with the anticipated lower costs, the Company recorded a LIFO credit of $66.1 for the three months ended March 31, 2009, compared to a LIFO charge of $59.4 for the three months ended March 31, 2008.

For the first quarter of 2009, the Company's interest expense was $10.2, compared to $11.7 for the same period in 2008. The decrease was due primarily to the Company's repurchase, in 2008 and 2009, of a portion of its 7 3/4% senior notes due in 2012.

Other income, net for the three months ended March 31, 2009 was $2.3, compared to $5.4 for the corresponding period in 2008. The decrease was due primarily to the impact of foreign exchange fluctuations primarily related to the euro, partially offset by a gain attributable to the repurchase of a portion of the Company's debt obligations.

Income taxes recorded for the year 2009 have been estimated based on year-to-date income and projected financial results for the full year. The final effective tax rate to be applied to 2009 will depend, among other things, on the actual amount of taxable income generated by the Company for the full year.

As a result of the various factors and conditions described above, the Company reported a net loss in the three months ended March 31, 2009 of $73.4, or $0.67 per diluted share, compared to a net income of $101.1, or $0.90 per diluted share, in the first quarter of 2008.

Outlook

All of the statements in this "Outlook" section are subject to, and qualified by, the cautionary information set forth under the heading "Forward-Looking Statements."

During its earnings conference call on April 21, 2009, the Company stated that, compared to the first quarter of 2009, it expected shipments for the second quarter of 2009 to increase slightly to an estimated 800,000 tons and its operating loss to improve to approximately $50.0. Since that time, General Motors has announced plans to idle more than half of its North American plants for up to nine weeks starting in mid-May. In addition, Chrysler LLC ("Chrysler") has filed a bankruptcy petition and announced that it will idle all of its plants until the proposed sale of Chrysler's principal assets to a new company is completed, which Chrysler has stated it anticipates will be within 30 to 60 days. See discussion below of the anticipated impact of the Chrysler bankruptcy on the Company.

Those actions by General Motors and Chrysler likely will negatively impact not only the Company's direct shipments to them during the second quarter, but also its sales to other customers of the Company who likewise supply General Motors and Chrysler. As a consequence, the Company now anticipates that its second quarter shipments likely will be closer to 725,000 tons.

The Company now anticipates that the average selling price for its products in the second quarter will decrease by approximately 3% to 4% compared to the first quarter of 2009. The decrease in average selling price is being driven by both lower steel market prices and lower raw material surcharges.

The recent action by General Motors and Chrysler also likely will negatively impact the Company's financial performance as a result of both lost margin and cost impact. However, despite that negative impact, the Company continues to expect improved second quarter financial results as compared to the first quarter of 2009, though less improved than was expected as of the time of the Company's conference call on April 21, 2009. The principal reason for this expected improvement is an anticipated reduction in operating and raw material costs. Partially offsetting the benefit of these reduced costs, the Company expects planned maintenance costs to be approximately $15.0 higher in the second quarter, primarily the result of a planned outage at the Middletown Works blast furnace. That outage was started late in the first quarter, but will be performed principally in the second quarter of 2009. As a result of these factors, the Company currently is forecasting an operating loss of approximately $75.0 to $80.0, which is still an improvement over the results of the first quarter and an important next step towards returning to operating profitability later in the year. This forecast excludes amounts which may need to be reserved as a result of the Chrysler bankruptcy or the filing of a petition in bankruptcy by one or more other customers of the Company during the second quarter.

Anticipated Impact of Chrysler Bankruptcy Filing on AK Steel

On April 30, 2009, Chrysler filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code to reorganize its business. While the full impact of this filing on the Company cannot yet be reliably determined at this very early stage of the proceeding, the Company has evaluated, and reached some preliminary conclusions with respect to, the anticipated impact of the Chrysler bankruptcy on its receivables. In addition, as the Company did last fall when faced with a dramatic downturn in general business conditions, the Company has taken prompt action to try to minimize the negative impact on its business of the Chrysler bankruptcy, including reducing inventories and extending the Company's payment terms to its suppliers, where possible, to continue to maintain a strong cash position.

At the time of its filing, Chrysler owed the Company approximately $7.2 for products shipped prior to the date of the filing. Of those total receivables, approximately $0.4 are expected to be paid pursuant to the government-backed Auto Supplier Support Program (the "Program") within the next several days, subject to a 3% discount from their face value. Approximately $3.6 of the remaining unpaid receivables relate to goods received by Chrysler within 20 days preceding its bankruptcy filing. The Company's claim for the value of such goods thus is expected to receive an administrative priority under applicable bankruptcy rules. Therefore, to the extent the Chrysler receivables are not paid through the Program, a portion of them still may be paid as an administrative claim during the bankruptcy proceeding. The timing and extent of such administrative priority payments, if any, will depend upon whether the Chrysler bankruptcy estate is administratively solvent and whether its reorganization plan is approved. In addition, Chrysler has filed a motion in the bankruptcy court seeking approval to continue the Program and to pay pre-petition claims of its "essential suppliers." Some or all of the Company's remaining pre-petition accounts receivables from Chrysler may be paid in the near term pursuant to that motion or later through the ordinary bankruptcy claims process.

Following its bankruptcy filing, Chrysler announced that it is temporarily idling its plants for an anticipated 30 to 60 days while it is in bankruptcy. The Company has included the anticipated direct impact of the Chrysler bankruptcy filing and the temporary idling of the Chrysler plants in its second quarter Outlook, above. In addition, however, the filing of the Chrysler bankruptcy may increase the likelihood of bankruptcy filings by other suppliers to Chrysler which also are customers of the Company. The Company cannot at this time reasonably predict which, if any, of those customers will file bankruptcy petitions or what impact, if any, these additional filings may have on its Outlook for the second quarter.

Liquidity and Capital Resources

At March 31, 2009, the Company had total liquidity of $1,138.6, consisting of $462.0 of cash and cash equivalents and $676.6 of availability under the Company's $850.0 five-year revolving credit facility. At March 31, 2009, there were no outstanding borrowings under the credit facility; however, availability was reduced by $173.4 due to outstanding letters of credit. Availability under the credit facility can fluctuate monthly based on the varying levels of eligible collateral. The Company's obligation is secured by its inventory and accounts receivable.

Cash used by operations totaled $29.0 for the three months ended March 31, 2009. Primary uses of cash were the net loss from the Company's operating activities, a pension contribution of $50.0, and a $65.0 contribution to a VEBA Trust established for Middletown Works retirees. Partially offsetting the Company's use of cash in the first quarter was the generation of cash in the amount of $125.8 from a decrease in working capital. The decrease in working capital resulted primarily from lower accounts receivable attributable to the reduced level of sales revenue. Also contributing to the decrease in working capital was a reduction in inventories, as a result of both lower raw material costs and a reduced level of inventories.

During the first quarter of 2009, the Company made a pension contribution of $50.0 as part of an approximate $155.0 of anticipated required contributions in 2009. The Company also has announced plans to make an additional pension contribution of $50.0 by the end of the second quarter of 2009. That additional contribution will reduce the Company's remaining anticipated required pension contribution for 2009 to approximately $55.0 and will increase the Company's total pension fund contributions since 2005 to $934.0. Currently, the Company estimates required annual pension contributions for 2010 and 2011 to be approximately $250.0 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 benchmark interest rate used to discount future 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 contributions must be made increases.

In the first quarter of 2008, the Company received court approval regarding the October 2007 settlement with the Middletown Works retirees that required the Company to make a total of $663.0 in cash payments to a VEBA Trust. The Company made the initial contribution of $468.0 in the first quarter of 2008 and the first of three subsequent annual payments of $65.0 in March 2009. See discussion of Middletown Works Retiree Healthcare Benefits Litigation in Note 9 of Part I, Item 1.

During the three months ended March 31, 2009, net cash used by investing activities totaled $44.7, which includes $32.9 of routine capital investments and $12.2 in capital investments related to the investment by Middletown Coke Company, Inc. ("Middletown Coke") in capital equipment for the coke plant being constructed in Middletown, Ohio (see discussion immediately below).

In March 2008, the Company's Board of Directors approved a 20-year supply contract with Middletown Coke, an affiliate of SunCoke Energy, Inc. ("SunCoke"), 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. The proposed new facility will produce about 550,000 tons of coke and 50 megawatts of electrical power annually. The anticipated cost to build the facility is approximately $340.0. Under the agreement, the Company will purchase all of the coke and electrical power generated from the new plant for at least 20 years, helping the Company achieve its goal of more fully integrating its raw material supply and providing about 25% of the power requirements of Middletown Works. The agreement is contingent upon, among other conditions, Middletown Coke receiving all necessary local, state and federal approvals and permits, as well as available economic incentives, to build and operate the proposed new facility. There are no plans to idle any existing

cokemaking capacity if the proposed SunCoke project is consummated. Currently, there is litigation pending which challenges the issuance of an environmental permit necessary to construct the new facility. See discussion of Monroe litigation in Note 9 of Part I, Item 1.

During the three months ended March 31, 2009, cash used by financing activities totaled $27.0. This includes $19.9 relating principally to the repurchase of 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 $5.5. Cash used was offset by $11.2 in advances from minority interest owner SunCoke to Middletown Coke.

In October 2007, the Company announced its intent to build a new electric arc furnace ("EAF") and ladle metallurgy furnace at its Butler Works. Currently, the Company operates three EAFs at Butler Works. This project involves a capital investment of approximately $140.0 and will replace two of the existing EAFs with a single furnace capable of melting more than 1.45 million tons annually, about 40% more than is currently produced with a three-furnace operation. The project was initially expected to be completed by the end of 2009. However, the project has been delayed due to delays in obtaining a required environmental permit and the Company currently anticipates completing it in mid-to-late 2010.

In July 2008, the Company announced a $21.0 capital investment to further expand the Company's production capabilities for high value-added, 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. This capital investment is an addition to a previously-announced, but not-yet-completed, project at the Company's Butler and Zanesville Works which also was for the purpose of expanding production of electrical steels. Due to the current depressed business conditions, the Company has temporarily suspended work on both of these projects.

Despite the existing depressed business conditions, the Company believes that its current liquidity will be adequate to meet its obligations for the foreseeable future. Future liquidity requirements for employee benefit plan contributions, scheduled debt maturities, planned debt redemptions and capital investments are expected to be funded by internally generated cash and/or other financing sources. To the extent, if at all, that the Company would need to fund any of its planned capital investments other than through internally generated cash, the Company currently has an $850.0 five-year revolving credit facility available for that purpose. At March 31, 2009, there were no outstanding borrowings under the credit facility, with availability reduced $173.4 due to outstanding letters of credit. However, it is extremely difficult to provide reliable financial forecasts, even on a quarterly basis, in the current economic climate. The foregoing projection thus is subject to change in the event of a further material deterioration in the steel industry or the overall economy. The Company's forward looking statement on liquidity is based on currently available information and, to the extent the information is inaccurate, there could be a material adverse impact to the Company's liquidity.

On January 27, 2009, 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, 2009, to stockholders of record on February 13, 2009. Also, on April 21, 2009, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.05 per share of common stock, payable on June 10, 2009, to stockholders of record on May 15, 2009.

The payment of cash dividends is subject to a restrictive covenant contained in the instruments governing most of 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. As of March 31, 2009, the limitation on these restricted payments was approximately $124.7. 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 March 31, 2009, the availability under the asset-based revolving credit facility of $676.6 significantly exceeds $150.0. Accordingly, none of the covenants currently prevent the Company from declaring and paying a dividend to its stockholders.

During the first quarter of 2009, the Company repurchased $23.1 of its 7 3/4% senior notes due in 2012, with cash payments totaling $19.8. In connection with these repurchases, the Company recorded non-cash, pre-tax gains of approximately $3.3. The repurchases were funded from the Company's existing cash balances. 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.

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:

? A minimum interest coverage ratio of at least 2.5 to 1 for the incurrence of debt. Failure to meet this covenant would not constitute an event of default. Rather it would limit the amount of additional debt the Company could incur to $100.0 beyond the borrowing available under our existing revolving credit facility. At March 31, 2009, the ratio was approximately 9.6 to 1 and the Company believes that as a result of continued weak economic conditions, the interest coverage ratio could be below 2.5 later in 2009. However, other than the impact on borrowing noted above, noncompliance with this covenant would not materially impact the Company's cash or liquidity position. The ratio is calculated by dividing the interest expense, including capitalized interest and fees on letters of credit, into EBITDA (defined, essentially, as operating income (i) before interest, income taxes, depreciation, amortization of intangible assets and restricted stock, extraordinary items and purchase accounting and asset distributions, (ii) adjusted for income before income taxes for discontinued operations, and (iii) reduced for the charges related to impairment of goodwill special charges, and pension and other postretirement employee benefit obligation corridor charges). The corridor charges are amortized over a 10-year period for this calculation.

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