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 AK Tube LLC ("AK Tube"), which further finishes flat-rolled carbon and stainless steel at two tube plants located in Ohio and Indiana into welded steel tubing used in the automotive, large truck and construction markets. 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 half of 2009, 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, layoffs of both the salaried and hourly workforce, and a reduction in the salaried workforce. It further included the temporary idling of certain of the Company's manufacturing facilities for various periods during the first and second quarters 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 half 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. Notwithstanding those successes, the Company could not overcome the anemic global demand for steel products that persisted throughout the first half, and its shipments and revenues in the second quarter of 2009 declined significantly compared both to the previous quarter and to the second quarter of 2008. In addition to planned idling due to the reduced volume, the Company took advantage of the market downturn to perform maintenance on its Middletown Works blast furnace. The furnace was down for approximately sixteen weeks and was started back up in July 2009. Details with respect to those changes in shipments and revenue, as well as other factors impacting the Company's second quarter financial results, are discussed below.

Steel shipments for the three months ended June 30, 2009 and 2008 were 740,600 tons and 1,737,800 tons, respectively. For the three-month period ended June 30, 2009, value-added products comprised 85.9% of total shipments compared to 79.2% for the three-month period ended June 30, 2008. Shipments for the six months ended June 30, 2009 and 2008 were 1,519,400 tons and 3,316,200 tons, respectively. For the six-month period ended June 30, 2009, value-added products comprised 86.1% of total shipments compared to 80.1% for the six-month period ended June 30, 2008. The percentage of value-added shipments was higher in the respective three- and six-month periods in 2009 primarily due to lower hot-rolled carbon shipments. These lower hot-rolled shipments were the result of the significant decline in demand and pricing for hot-rolled carbon steel. Total shipments for the six months ended June 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 35% decline in U.S. light vehicles sales for the first half of 2009, resulting in excess inventories of unsold vehicles and the need to reduce production at every North American manufacturer of light vehicles. As a result, North American light vehicle production was down 50% in total for the first half of 2009 compared to first half 2008. In addition, Chrysler temporarily idled all of its operations on April 30, 2009 as result of its bankruptcy filing, and General Motors also idled many of its plants during the second quarter in advance of its bankruptcy filing. The reduction in automotive demand was the principal reason for lower coated, cold-rolled, and tubular shipments during the second quarter. 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 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 June 30,                   For the Six Months Ended June 30,
(tons in thousands)               2009                      2008                      2009                      2008
Stainless / electrical       148.5         20.1 %       274.7        15.8 %       307.6        20.2 %       511.8        15.4 %
Coated                       322.4         43.5 %       717.1        41.3 %       672.8        44.3 %     1,423.4        42.9 %
Cold-rolled                  148.8         20.1 %       349.0        20.1 %       293.0        19.3 %       656.0        19.8 %
Tubular                       16.6          2.2 %        34.3         2.0 %        34.8         2.3 %        67.7         2.0 %
Subtotal value-added
shipments                    636.3         85.9 %     1,375.1        79.2 %     1,308.2        86.1 %     2,658.9        80.1 %

Hot-rolled                    64.9          8.8 %       318.3        18.3 %       140.4         9.2 %       556.0        16.8 %
Secondary                     39.4          5.3 %        44.4         2.5 %        70.8         4.7 %       101.3         3.1 %
Subtotal non
value-added shipments        104.3         14.1 %       362.7        20.8 %       211.2        13.9 %       657.3        19.9 %

Total shipments              740.6        100.0 %     1,737.8       100.0 %     1,519.4       100.0 %     3,316.2       100.0 %

For the three months ended June 30, 2009, net sales were $793.6, reflecting an approximate 65% decrease from second quarter 2008 net sales of $2,236.6, and an approximate 14% decrease from first quarter 2009 net sales of $922.2. Net sales during the first six months of 2009 and 2008 were $1,715.8 and $4,028.0, respectively. Net sales to customers outside the United States for the three- and six-month periods ended June 30, 2009 totaled $190.7 and $370.9, respectively, compared to the three- and six-month periods ended June 30, 2008 totaling $380.7 and $655.3, 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 second quarter of 2009 was $1,129 per ton, a reduction of approximate 12% from the Company's second quarter 2008 average selling price of $1,287 per ton and a 5% decrease from the first quarter 2009 average selling price of $1,184 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 decrease in average selling prices in the second quarter versus the first quarter and versus the same period last year was due to lower prices in the spot market and lower surcharges on many of the Company's products. Also the value-added product mix was lower in the second quarter of 2009 due to the decline in demand for these products in the automotive market.

Selling and administrative expense for the second quarter of 2009 was $47.9 compared to $55.0 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 $51.6 for the second quarter of 2009, slightly higher than the $51.4 for the second quarter of 2008.

The Company recorded operating losses of $72.5 and $172.4, respectively, for the three- and six-month periods ended June 30, 2009. This compares to operating profit of $237.9 and $407.6, respectively, for the three- and six-month periods ended June 30, 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 continued lower operating volumes in the first half of 2009 versus the first half of 2008, along with higher iron ore costs associated with higher cost inventory carried over into 2009. These quarter-over-quarter increases in raw material costs were partially offset by a reduction in the cost of other postretirement benefits during the same period.

The Company's maintenance outage costs in the first half of 2009 were approximately $20.0, which was significantly lower than approximately $44.0 in the corresponding period in 2008. In the second quarter of 2008, the Company had a planned maintenance outage at its Middletown Works blast furnace. In the second quarter of 2009, the Company also had a planned outage at its Middletown Works blast furnace, but the outage costs were lower because a greater portion was capital in nature related to the installation of a new hearth. The 2009 blast furnace outage was completed in July.

The Company expects to incur significantly lower raw material and energy costs 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 raw materials, particularly iron ore and hot briquetted iron ("HBI"), 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 materials but expects to experience an increased benefit from lower raw material costs during the second half of the year. Associated with these anticipated lower costs, as well as lower levels of inventories, the Company recorded a LIFO credit of $93.9 and $160.0, respectively, for the

Interest expense for the three and six months ended June 30, 2009 was $9.2 and $19.4, respectively, compared to $11.6 and $23.3, 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.

Other income, net for the three and six months ended June 30, 2009 was $3.4 and $5.7, respectively, compared to $3.8 and $9.2 for the corresponding periods in 2008. The decrease for the six-month period was due primarily to lower interest income resulting from lower levels of cash and liquid investment rates and the negative impact of foreign exchange fluctuations, primarily related to the euro. The negative impact of these items was 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 June 30, 2009 of $47.2, or $0.43 per diluted share. For the six months ended June 30, 2009, the net loss was $120.6, or $1.10 per diluted share. During the comparable three- and six- month periods in 2008, the Company reported net income of $145.2, or $1.29 per diluted share, and $246.3, or $2.18 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 third quarter of 2009 to be approximately 940,000 tons, reflecting an increase of nearly 27% over second quarter 2009 shipments. This increase is the result of anticipated increased shipments in carbon steel products. The Company anticipates that its average per-ton selling price will be approximately equivalent to the second quarter of 2009 level. The Company also anticipates that planned maintenance costs will be approximately $6.0 lower compared to the second quarter, primarily as a result of the completion of the planned blast furnace maintenance outage at its Middletown Works in early July. The Company expects to benefit from lower operating and raw material costs in the third quarter compared to the second quarter, primarily related to iron ore. Based on these factors, the Company currently expects to approximately break even at the operating profit level for the third quarter 2009, which would represent an improvement of about $70.0, or about $100 per ton, over second quarter of 2009 results.

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. In its Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, the Company provided its preliminary assessment of the anticipated impact of the Chrysler bankruptcy filing on its receivables. Among other things, the Company noted that, at the time of the Chrysler bankruptcy filing, Chrysler owed the Company for products shipped prior to the date of the filing. All of those receivables have now been paid to the Company. The Company also noted in its first quarter Form 10-Q that, following Chrysler's bankruptcy filing, Chrysler announced that it was temporarily idling its plants for an anticipated 30 to 60 days while it was in bankruptcy. On June 10, 2009, most of the assets of Chrysler were sold to a new entity known as Chrysler Group LLC ("New Chrysler") and New Chrysler since then has begun operating some of the Chrysler facilities that had been idled at the time of the old Chrysler bankruptcy filing. To the extent that the idling of the Chrysler facilities had an impact on the Company during the second quarter, that impact is included in the financial results reported in this Form 10-Q. To the extent that the temporary idling of the Chrysler facilities will continue into the third quarter, the anticipated impact of that continued idling is included in the Company's third quarter Outlook, above. In addition, however, the filing of the Chrysler bankruptcy and the idling of its facilities 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 third quarter.

Impact of General Motors Bankruptcy Filing on AK Steel

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, substantially all of the assets of General Motors were sold to a new entity known as NGMCO, Inc. At the time of the General Motors bankruptcy filing, General Motors owed the Company for products shipped prior to the date of the filing. All of those receivables have now been paid to the Company. Thus, to the extent that the General Motors bankruptcy had a direct impact on the Company's financial results, that impact is included in the financial results reported in this Form 10-Q. In addition, however, the filing of the General Motors bankruptcy and the idling of its facilities may increase the likelihood of bankruptcy filings by other suppliers to General Motors 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 third 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 continues to disagree with that interpretation of the parties' collective bargaining agreement and is studying the arbitrator's ruling to evaluate its options. As a result of the arbitrator's decision, however, the Company likely will need to continue to operate the Ashland Works blast furnace for at least some period beyond its planning idling date. That will negatively impact the Company's operating costs and also may cause the Company to idle the Middletown Works blast furnace under current circumstances in which business conditions and orders do not warrant the operation of both of the Company's blast furnaces. To the extent that the continued operation of the Ashland Works blast furnace beyond its planned idling date may have an impact on the Company's costs in the third quarter, that impact already has been factored into the discussion in the Outlook section, above.

Liquidity and Capital Resources

At June 30, 2009, the Company had total liquidity of $1,053.6, consisting of $385.8 of cash and cash equivalents and $667.8 of availability under the Company's $850.0 five-year revolving credit facility. At June 30, 2009, there were no outstanding borrowings under the credit facility; however, availability was reduced by $153.1 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, totaled $820.9 as of June 30, 2009.

Cash used by operations totaled $52.6 for the six months ended June 30, 2009. Primary uses of cash were the net loss from the Company's operating activities, a pension contribution of $100.0, 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 $162.6 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 reduction in inventories, as a result of both lower raw material costs and a reduced level of inventories, partially offset by a lower level of accounts payable resulting from lower spending levels.

During the first half of 2009, the Company made pension contributions totaling $100.0. The Company also made an additional $110.0 pension contribution early in the third quarter of 2009. The third-quarter pension contribution of $110.00 was approximatley 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 $190.0 and for 2011 to be approximately $260.0. The calculation of estimated future pension contributions requires the use of

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 six months ended June 30, 2009, net cash used by investing activities totaled $95.3, which includes $76.8 of capital investments by the Company and $18.8 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 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.

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 is behind schedule 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.

During the six months ended June 30, 2009, cash used by financing activities totaled $29.0. This includes $23.1 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 $11.0. Cash used was offset by $15.5 in advances from minority interest owner SunCoke to Middletown Coke.

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