Results of Operations

Overview

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 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.

Beginning late in 2008, the Company reacted quickly to the economic downturn and initiated a concerted, Company-wide effort to reduce controllable costs wherever possible and focused on efforts to conserve cash. That effort continued throughout the first nine months of 2009, and included the temporary idling of certain of the Company's manufacturing facilities for various periods during the year to better match the Company's production with its customer demand. The Company used such lower customer demand opportunistically, when possible, in order to prepare for maximum production efficiency when the global economy recovers. For example, while the Company's Middletown Works blast furnace was idled due to the reduced volume demand during the second and early part of the third quarter of 2009, the Company took advantage of that opportunity to perform significant maintenance on that furnace. The furnace was down for approximately sixteen weeks and was started back up in July 2009. Despite its ongoing cost containment efforts, the Company continues to focus on its core values - safety, quality and productivity. The Company achieved considerable success during the first nine months with respect to all of those efforts - reducing costs, conserving cash, operating safely, and producing the highest quality steel as efficiently as possible under the current market conditions. With respect to safety, the Company's recordable injury rate continues to lead the steel industry by a wide margin. With respect to quality, the Company continues to be recognized in leading surveys for being industry-best in overall quality for carbon, stainless and electrical steels. With respect to costs and other financial measures, the Company's quick and sustained reaction to the economic downturn helped the Company to generate a net income for the first time since the downturn began last fall.

The Company's net income during the third quarter was aided by increased shipments and revenues compared to the previous quarter, as the Company experienced near term, incremental improvement in steel demand and economic conditions. This increased demand was spurred in part by improved automotive demand for inventory replacement in the wake of the U.S. government's successful "Cash for Clunkers" program. Despite these recent positive economic trends, however, the global economic climate remains volatile and steel demand is likely to be well below the historically-high levels of 2007 and 2008 for the foreseeable future. This is evidenced by the fact that third quarter 2009 shipments and revenue, though up from the immediately preceding quarter, were still substantially below the second quarter of 2008 record shipment levels.

In short, the Company continues to struggle against the anemic global demand for steel products that has persisted throughout the first three quarters of 2009, but has made substantial progress in reducing its costs to the point where it is capable of making a net income even in these extremely challenging economic conditions.

Steel Shipments

Steel shipments for the three months ended September 30, 2009 and 2008 were 1,047,800 tons and 1,476,300 tons, respectively. For the three-month period ended September 30, 2009, value-added products comprised 85.3% of total shipments compared to 79.6% for the three-month period ended September 30, 2008. Shipments for the nine months ended September 30, 2009 and 2008 were 2,567,200 tons and 4,792,500 tons, respectively. For the nine-month period ended September 30, 2009, value-added products comprised 85.8% of total shipments compared to 80.0% for the nine-month period ended September 30, 2008. The percentage of value-added shipments was higher in the respective three-

and nine-month periods in 2009 primarily due to lower hot-rolled carbon shipments compared to the same 2008 periods, both in real terms and as a percentage of total shipments. Total shipments for the nine months ended September 30, 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 weak demand in the automotive market was driven by a year-on-year 27% decline in U.S. light vehicles sales for the first nine months of 2009, resulting in excess inventories of unsold vehicles and the need to reduce production at every North American manufacturer of light vehicles. In addition, Chrysler temporarily idled all of its operations on April 30, 2009, and General Motors also idled many of its plants during the second quarter. As a result, total North American light vehicle production was down 42% for the first nine months of 2009 compared to the first nine months of 2008. The significant reduction in automotive demand was the principal reason for lower coated, cold-rolled, and tubular shipments during the third quarter of 2009 compared to the third quarter of 2008. The automotive market did begin to improve in the third quarter of 2009, however, resulting in an increase in shipments compared to the second quarter of 2009. The reduction in stainless / electrical steel shipments also reflects lower demand in the automotive market with respect to stainless and, with respect to electrical, the weakness in the domestic housing market and global economy. The reduction in hot-rolled shipments 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                                 For the Nine Months
                                      Ended September 30,                                 Ended September 30,
(tons in thousands)             2009                      2008                      2009                      2008
Stainless /
electrical                  178.0        17.0 %       240.3        16.3 %       485.6        18.9 %       752.1        15.7 %
Coated                      497.3        47.5 %       592.0        40.1 %     1,170.1        45.6 %     2,015.4        42.1 %
Cold-rolled                 194.4        18.6 %       314.2        21.3 %       487.4        19.0 %       970.2        20.2 %
Tubular                      23.5         2.2 %        28.3         1.9 %        58.3         2.3 %        96.0         2.0 %
Subtotal value-added
shipments                   893.2        85.3 %     1,174.8        79.6 %     2,201.4        85.8 %     3,833.7        80.0 %
Hot-rolled                  118.5        11.3 %       260.7        17.7 %       258.9        10.1 %       816.7        17.0 %
Secondary                    36.1         3.4 %        40.8         2.7 %       106.9         4.1 %       142.1         3.0 %
Subtotal non
value-added
shipments                   154.6        14.7 %       301.5        20.4 %       365.8        14.2 %       958.8        20.0 %
Total shipments           1,047.8       100.0 %     1,476.3       100.0 %     2,567.2       100.0 %     4,792.5       100.0 %

Sales

For the three months ended September 30, 2009, net sales were $1,041.1, reflecting an approximate 52% decrease from third quarter 2008 net sales of $2,157.6. On a positive note, such sales represented an approximate 31% increase from second quarter 2009 net sales of $793.6. Net sales during the first nine months of 2009 and 2008 were $2,756.9 and $6,185.6, respectively. The 2009 decrease in net sales compared to the same periods in 2008 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 net sales for the third quarter of 2009 compared to the second quarter of 2009 was the result of increased carbon shipments, principally to the automotive and distributors and converters markets. Net sales to customers outside the United States for the three- and nine-month periods ended September 30, 2009 totaled $194.0 and $564.9, respectively, compared to the three- and nine-month periods ended September 30, 2008 totaling $349.3 and $1,004.6, respectively. A substantial majority of the revenue outside of the United States is associated with electrical and, to a lesser extent, stainless steel products. The Company's average selling price for the third quarter of 2009 was $994 per ton, a reduction of approximately 32% from the Company's third quarter 2008 average selling price of $1,462 per ton and a 7% decrease from the second quarter 2009 average selling price of $1,072 per ton. The decrease in average selling price in the third quarter of 2009 versus the third quarter of 2008 was primarily due to lower prices in the spot market and lower surcharges on many of the Company's products. The lower average selling price in the third quarter of 2009 versus the second quarter of 2009 was primarily the result of an increase in carbon shipments.

Maintenance Outage Costs

The Company's maintenance outage costs in the first nine months of 2009 were approximately $31.5, compared to costs of approximately $55.2 in the corresponding period in 2008. The outage costs in the third quarter of 2009 were comparable to outage costs in the third quarter of 2008.

Raw Material and Energy Costs

The Company expects to incur lower raw material costs, primarily related to iron ore, during the remainder of 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 some of the raw materials, particularly iron ore and hot briquetted iron ("HBI"), which were purchased in 2008 at higher prices than prevail currently. The Company has experienced some of the benefit of the lower costs it currently is paying for raw materials and it expects to benefit increasingly from lower raw material costs during the fourth quarter of this year. Associated with these anticipated lower costs, as well as lower levels of inventories, the Company recorded a LIFO credit of $106.3 and $266.4, respectively, for the three and nine months ended September 30, 2009, compared to a LIFO charge of $65.4 and $267.3, respectively, for the three and nine months ended September 30, 2008. While the Company has benefited from a LIFO credit in 2009, in the absence of a continued decline in raw material costs, energy costs and/or inventory levels in 2010, the Company would not anticipate a substantial LIFO credit for 2010.

Selling and Administrative Expenses

The Company continued its disciplined approach to containing costs during the third quarter. Selling and administrative expense for the third quarter of 2009 was $45.6 compared to $56.6 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 overhead 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. Depreciation expense was $51.0 for the third quarter of 2009, slightly higher than the $50.5 for the third quarter of 2008.

Operating Profit

The Company recorded operating profit of $15.3 and $309.6, respectively, for the three-month periods ended September 30, 2009 and 2008. The Company recorded an operating loss of $157.1 for the nine-month period ended September 30, 2009. This compares to an operating profit of $717.2 for the nine-month period ended September 30, 2008. The principal cause of this decline in operating performance was significantly lower steel shipments driven by reduced customer demand, negatively affecting both revenues and overhead absorption. The lower steel shipments also resulted in the Company carrying over iron ore inventory from 2008 into 2009. This inventory had higher costs than the current market prices for iron ore, and its use in 2009 also negatively impacted 2009 operating profit results.

Interest Expense

Interest expense for the three and nine months ended September 30, 2009 was $9.0 and $28.4, respectively, compared to $11.6 and $34.9, respectively, for the same periods 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 and a reduction of rates on variable-interest debt.

Other Income

Other income, net for the three and nine months ended September 30, 2009 was $2.9 and $8.6, respectively, compared to $0.9 and $10.1 for the corresponding periods in 2008. The increase for the three-month period was due primarily to foreign exchange gains partially offset by lower interest income due to lower levels of cash and investment rates. The decrease for the nine-month period was due primarily to lower interest income resulting from lower cash and investment rates partially offset by foreign exchange gains.

Income Taxes

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.

Net Income

The Company reported net income in the three months ended September 30, 2009 of $6.2, or $0.06 per diluted share. For the nine months ended September 30, 2009, the net loss was $114.4, or $1.05 per diluted share. During the

comparable three- and nine- month periods in 2008, the Company reported net income of $188.3, or $1.67 per diluted share, and $434.6, or $3.85 per diluted share, respectively.

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."

The Company expects shipments in the fourth quarter of 2009 to be approximately 1,300,000 tons, reflecting an increase of nearly 24% over third quarter 2009 shipments. This increase is the result of anticipated increased shipments in carbon steel products, principally due to improved automotive demand as the domestic automotive companies rebuild depleted inventories during the fourth quarter. The Company anticipates its average per-ton selling price to decline approximately 2% compared to the third quarter of 2009 level. The expected decline in the average selling price is due to an anticipated higher percentage of carbon steel shipments relative to stainless and electrical shipments in the fourth quarter as compared to the third quarter. The Company also anticipates that maintenance costs will be approximately $10.0 higher compared to the third quarter as a result of maintenance work at the Company's Middletown Works blast furnace and Ashland Works basic oxygen furnace. The Company expects to benefit from lower operating costs and lower raw material costs, primarily related to iron ore, in the fourth quarter compared to the third quarter. Based on these factors, the Company currently expects to earn an operating profit of between $30 and $35 per ton for the fourth quarter of 2009. The Company expects to incur a non-cash charge of approximately $5.0, or $0.05 per share of common stock, primarily as the result of a decrease in the value of the Company's deferred tax assets as the result of state tax law changes.

Under its method of accounting for pension and other postretirement benefit plans, the Company recognizes into income (loss), as a fourth quarter adjustment, any unrecognized actuarial gains and losses that exceed 10% of the larger of projected benefit obligations or plan assets (the "corridor"). These corridor charges 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. It thus is impossible to reliably forecast or predict whether they will occur in any given year or, if they do, what the magnitude will be. Based upon currently available information and reasonable projections, however, the Company does not anticipate a fourth quarter 2009 corridor charge related to its other postretirement benefit plans. Although the Company, at this time, cannot determine whether there will be such a corridor charge with respect to its pension plans, it is possible that a pension-related corridor charge could occur depending on year-end interest rates and pension plan asset values.

Impact of Chrysler and General Motors Bankruptcy Filings 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. On June 1, 2009, General Motors filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code to reorganize its business. On June 10, 2009, most of the assets of Chrysler were sold to a new entity known as Chrysler Group LLC ("New Chrysler"). On July 10, 2009, substantially all of the assets of General Motors were sold to a new entity known as NGMCO, Inc. Both Chrysler and General Motors idled facilities in anticipation of, and/or in connection with, those bankruptcy filings. Most of those facilities have now been re-started by the new entities that acquired assets out of the Chrysler and General Motors bankruptcies. To the extent that the idling of any of the Chrysler or General Motors facilities will continue into the fourth quarter, the anticipated impact of that continued idling is included in the Company's fourth quarter Outlook, above. In addition, however, the filing of the Chrysler and General Motors bankruptcies and the idling of their facilities may increase the likelihood of bankruptcy filings by other suppliers to the automotive industry 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 fourth quarter.

Ashland Works Arbitration Award

On May 13, 2009, the Company announced its intention to idle most of the Ashland Works beginning in late July or early August. The planned idling was due to depressed business conditions and the resulting lack of sufficient orders to operate both of the Company's blast furnaces. The Company's intent was to idle the Ashland Works blast furnace relatively soon after restarting its Middletown Works blast furnace, which had been idled since late March 2009 as part of a planned outage to replace its hearth. On May 22, 2009, the United Steelworkers of America Local 1865 ("Local 1865") filed a grievance which challenged the right of the Company to proceed with its planned idling. The grievance

was heard on June 17-18, 2009 and on July 15, 2009 the arbitrator issued an opinion which sustained the grievance. In summary, the arbitrator held that, under the terms of the applicable collective bargaining agreement, the Ashland Works cannot be idled so long as there is demand for products which can be produced at Ashland. The Company disagreed with that interpretation of the parties' collective bargaining, but the Company has re-started the Ashland Works blast furnace and has entered into an agreement with Local 1865 to resolve this matter and related disputes.

Liquidity and Capital Resources

Overview

The Company continued its strong and stable liquidity position in the third quarter, with a total liquidity of over one billion dollars. At September 30, 2009, the Company had total liquidity of $1,052.0, consisting of $339.5 of cash and cash equivalents and $712.5 of availability under the Company's $850.0 five-year revolving credit facility. At September 30, 2009, there were no outstanding borrowings under the credit facility; however, availability was reduced by $137.5 due to 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, exceeded $850.0 as of September 30, 2009.

Cash used by operations totaled $87.4 for the nine months ended September 30, 2009. Primary uses of cash were the net loss from the Company's operating activities, a pension contribution of $210.0, 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 nine months was the generation of cash in the amount of $174.6 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 that resulted from the idling of numerous automotive production facilities by the Company's customers. Also contributing to the decrease in working capital was a higher level of accounts payable reflecting the improved business conditions in the third quarter.

Pension- and Retiree Healthcare Benefit-related Matters

During the first nine months of 2009, the Company made pension contributions totaling $210.0. The third-quarter pension contribution of $110.0 was approximately double the $55.0 that was required for the balance of 2009 and is expected to reduce the Company's 2010 contribution obligation. The additional contribution brought the total 2009 pension contributions to $210.0 and increased the Company's total pension fund contributions since 2005 to over $1.0 billion. Currently, the Company estimates required annual pension contributions for 2010 to be approximately $105.0 and for 2011 to be approximately $280.0. 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.

Investment and Financing Activity

During the nine months ended September 30, 2009, net cash used by investing activities totaled $111.4, which includes $91.2 of capital investments by the Company and $22.5 in capital investments related to the investment by Middletown Coke Company, Inc. ("Middletown Coke") in capital equipment for the coke plant to be constructed in Middletown, Ohio.

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 ("SunCoke Middletown") to be constructed, owned and

operated by Middletown Coke adjacent to the Company's Middletown Works. The proposed new SunCoke Middletown 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 SunCoke Middletown 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. 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.

In August 2009, the Board also approved an agreement with Haverhill North Coke Company, an affiliate of SunCoke, to provide the Company with 550,000 tons of coke annually from SunCoke's Haverhill facility ("SunCoke Haverhill") located in southern Ohio. The agreement has a 12-year term with two five-year renewal options. Under the agreement, the Company also will purchase a portion of the electricity co-generated from the heat recovery coke battery. Like the SunCoke Middletown agreement, this agreement enhances the Company's long-term supply of cost-competitive coke and energy in an environmentally responsible fashion. It also furthers the Company's strategic goals to assure an adequate supply of a key raw material and to better insulate itself from volatile coke and energy prices. The SunCoke Haverhill agreement does not replace or diminish the Company's need for the coke and electricity from the SunCoke Middletown facility. The Company continues to need the coke from that facility on a long-term basis and has no immediate plans to idle any of its existing cokemaking capacity. However, the age and rapidly escalating environmental compliance costs associated with the Company's Ashland coke batteries are continuing concerns.

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 . . .