(dollars in millions, except per share and per ton data)

Results of Operations

AK Steel’s Steel Operations consist of seven steelmaking and finishing plants that produce flat-rolled carbon steels, including premium quality coated, cold-rolled and hot-rolled products, and specialty stainless and electrical steels that are sold in slab, hot band, sheet and strip forms. These products are sold primarily to the domestic automotive, appliance, industrial machinery and equipment, and construction markets, as well as to distributors, service centers and converters. Steel Operations also include AK Tube LLC, which further finishes flat-rolled steel into welded steel tubing, and European trading companies that buy and sell steel and steel products. The Snow and Ice Control Products segment consists of the operations of Douglas Dynamics, L.L.C., the largest North American manufacturer of snowplows and salt and sand spreaders for four-wheel drive light trucks. The Company’s other operations consist of Greens Port Industrial Park on the Houston, Texas ship channel.

Steel shipments for the three months ended June 30, 2003 and 2002 were 1,399,000 tons and 1,504,500 tons, respectively. Shipments for the six months ended June 30, 2003 and 2002 were 2,764,400 tons and 2,940,200 tons, respectively. The current year decreases were primarily due to reduced demand from contract customers in the appliance, construction and manufacturing markets and the Company’s decision to limit shipments of value-added products to the spot market due to lower than acceptable spot market pricing. For the six months ended June 30, 2003, value-added products comprised 89.2% of total shipments, down from 93.5% reported in the first half of 2002. In 2003, the Company offset some of the decrease in its contract steel sales with increased sales to the spot market, resulting in an increase in hot-rolled steel shipments.

For the quarter ended June 30, 2003, net sales were $1,021.4, an 11% decrease from the $1,141.5 reported for the corresponding period in 2002. Steel Operations contributed $981.2 to net sales in the second quarter of 2003, compared to $1,102.3 for the 2002 period. Compared to the prior year second quarter, average per ton flat-rolled steel sales decreased by $26 to $682 per ton in the second quarter of 2003, primarily as a result of the increase in sales of lower-priced hot-rolled steel products. For the six-month period ended June 30, 2003, net sales were $2,023.8 compared to $2,109.2 in the first half of 2002. Steel Operations generated $1,966.6 year-to-date net sales in 2003, compared to $2,055.1 for the 2002 period.

The second quarter 2003 operating loss was $101.8 compared to a $69.9 profit in the corresponding period in 2002. Steel Operations’ operating profit (loss) for the same periods were $(115.1) and $56.7, respectively. The operating loss for the first half of 2003 was $142.4 compared to a $35.6 profit in the corresponding period in 2002, while six-month Steel Operations’ operating loss for 2003 was $158.3 and operating profit for 2002 was $20.9. Second quarter 2002 operating profit was favorably impacted by a $23.9 pretax benefit arising from settlements with certain of the Company’s insurance carriers, partially offset by an increase in environmental reserves. The settlement benefit was net of legal fees and expenses. In contrast, second quarter 2003 operating costs were unfavorably impacted by an $11.4 planned Middletown Works blast furnace maintenance outage and a $4.1 write-off of equipment at the Middletown Works sinter plant following a change to a type of iron ore pellets that avoids the need to produce high cost sinter. During the quarter, the Company also recognized $2.4 for start-up costs for an Ashland Works coke battery, which was restarted from hot idle and is expected to achieve savings of at least $3.0 per year compared to the costs of purchasing coke. The second quarter 2003 operating loss also included a $7.2 LIFO inventory charge, reflecting higher current costs for purchased slabs, scrap, nickel and natural gas, and $4.8 of expenses incurred in connection with the Company’s efforts to acquire the assets of National Steel Corporation. Second quarter and six month 2003 operating results compared to the same periods last year were unfavorably impacted by reduced production and shipment volumes and increases in pension and other postretirement benefit expenses.

For each of the three months ended June 30, 2003 and 2002, Snow and Ice Control Products recorded an operating profit of $11.2. Sales for the three months ended June 30, 2003 and 2002 were $36.8 and $36.0, respectively. Operating profit for the six months ended June 30, 2003 and 2002 were $11.6 and $10.6, respectively, on sales of $50.3 and $47.5, respectively. The favorable variances in the year-over-year comparison reflect increased snowplow shipments due to comparatively higher snowfalls at the beginning of 2003 than experienced in early 2002 and continued strong truck sales.

In the first quarter of 2002, the Company liquidated all of the nearly 1.5 million shares of Anthem Inc. stock it had received in 2001 upon the demutualization of its primary healthcare insurance provider. The Company recorded a gain on the sale of this stock of $24.1, which was included in income from continuing operations in the six months ended June 30, 2002.

On April 19, 2002, the Company sold its Sawhill Tubular division, recording a $6.3, or $0.06 per share, loss in the second quarter of that year. Sawhill Tubular, which was accounted for as a discontinued operation, generated an after-tax loss of $1.0, or $0.01 per share, for the period from April 1, 2002 through the date of sale and a net after-tax loss of $0.5, which rounded to zero cents per share, from the beginning of 2002 to the date of sale.

-12-

Table of Contents

The Company’s net losses in the three and six months ended June 30, 2003 were $78.2, or $0.72 per share, and $119.0, or $1.10 per share, respectively. In 2002, the Company recorded net income of $16.2, or $0.15 per share, for the second quarter and a net loss of $9.4, or $0.09 per share, for the first six months. In the year-over-year comparison for the second quarter and first six months, the 2003 unfavorable variances were due, in large part, to lower operating results, partially offset by a decrease in interest expense as a result of lower debt balances and the refinancing, at a lower interest rate, of $550.0 of its senior notes.

Outlook

The Company expects third quarter 2003 shipments to be slightly lower than the second quarter at approximately 1.375 million tons. This amount reflects a decline in automotive shipments as the automotive companies perform their normal two-week seasonal maintenance outage and re-tooling in preparation for production of new model year vehicles, partially offset by an increase in spot market sales. This shipment level forecast assumes each of the large domestic automakers reaches a new labor contract by the current contract expiration date of August 31 ^st . Should any of these customers fail to reach a labor agreement and a work stoppage occurs, the Company’s shipments and results could be adversely affected. The modest automotive decrease is expected to reduce the Company’s average selling price per ton by approximately $5 in the third quarter from second quarter levels.

Lower average selling prices in the third quarter are expected to be more than fully offset by cost savings as a result of fewer planned maintenance outages and expected lower costs for natural gas. In addition, the Company should realize the operational benefits of the second quarter blast furnace outage, shutdown of the sinter plant and restart of the coke battery.

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 net gains and losses that exceed 10% of the larger of projected benefit obligations or plan assets. Prevailing interest rates on the fourth quarter measurement date are one of the factors used to determine the Company’s year-end liability, fourth quarter corridor charge and subsequent year’s expense for these benefit plans. Based on prevailing interest rates at the end of the second quarter, the Company would recognize a substantial fourth quarter non-cash charge in 2003. However, at this time, because factors influencing the determination of plan liabilities and expenses are likely to change, the Company cannot reasonably estimate the amount of a fourth quarter charge, if one is necessary.

Under current accounting rules, the Company is required to review for possible impairment most of its $109.7 of goodwill at least annually. During the second half of 2003, management, with the help of outside consultants, will determine if a decline in the Company’s businesses has led to a permanent loss in the value of its goodwill below the amount at which it is carried on the balance sheet. If an impairment is necessary, the consultants will assist in a calculation of the amount by which the goodwill balance has been impaired and the Company will record a non-cash charge against operating profit (loss) for that amount. The Company currently cannot reasonably estimate the amount of such a charge, if one is necessary.

At June 30, 2003, the Company had recorded a net deferred tax asset of $834.4. The valuation of this net deferred tax asset is dependent on, among other things, the ability of the Company to generate a sufficient level of future taxable income. In estimating future taxable income, the Company has considered both positive and negative evidence, such as historical results of operations, including the substantial losses realized in recent periods, and would, if necessary, consider the implementation of prudent and feasible tax planning strategies. The Company has and will continue to review on a quarterly basis its assumptions and tax planning strategies and, if the amount of the realizable net deferred tax asset is less than the amount currently on the balance sheet, the Company would reduce its deferred tax asset, recognizing a non-cash charge against net income (loss). At June 30, 2003, the Company concluded that it is more likely than not that the net deferred tax asset will be realized.

On July 2, 2003, the Company announced that its wholly-owned subsidiary, AK Tube LLC, had signed a definitive agreement to acquire ArvinMeritor’s Central Tubing Facility in Columbus, Indiana. The transaction is subject to regulatory approval. The acquisition includes a multi-year supply agreement between AK Tube and ArvinMeritor.

Liquidity and Capital Resources

At June 30, 2003, the Company had $192.9 of cash and cash equivalents and $120.6 of availability under a $300.0 accounts receivable purchase credit facility. At that date, there were no outstanding borrowings under the credit facility; however, availability was reduced by $90.1 of outstanding letters of credit and a reduced pool of eligible receivables. The Company’s liquidity needs are primarily for capital investments, working capital, employee benefit obligations and debt service.

-13-

Table of Contents

On July 24, 2003, AK Steel entered into a $400.0, five-year senior secured revolving credit facility with a syndicate of lenders. Borrowings will be secured by certain of the Company’s inventories. The obligations of AK Steel under the facility are guaranteed by AK Holding and three subsidiaries of the Company.

Cash used by operations totaled $49.2 for the six months ended June 30, 2003. Included in the Company’s reported loss of $119.0 were non-cash depreciation and amortization expense of $121.2, pension and other postretirement benefit expense in excess of cash payments of $65.5 and a non-cash income tax benefit of $80.2. Working capital utilized cash of $42.0 during the period, including $42.2 as a result of an increase in inventories. Inventories are expected to decrease during the remainder of the year to approximate prior year-end levels.

During the six months ended June 30, 2003, cash used by investing activities totaled $41.3, including capital investments of $42.5. Capital spending for the year 2003 is expected to total approximately $100.0.

During the six months ended June 30, 2003, cash flows from financing activities generated $0.9.

Effective as of June 30, 2003, the agreement governing AK Steel’s Senior Secured Notes due 2004 was amended to modify the definition of Consolidated Net Worth used in those Notes for purposes of various covenants. The amendment excludes from the calculation of Consolidated Net Worth for all years ending on or after December 31, 2001 the immediate effect of a fourth quarter corridor adjustment resulting from the calculation of actuarial net gains and losses in respect of the Company’s pension and other postretirement benefit plans which otherwise are recognized pursuant to the Company’s method of accounting. Instead, the amount of such an adjustment will be amortized in equal monthly installments over the succeeding ten-year period.

New Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“Statement”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” The Statement amends and clarifies financial accounting and reporting for both derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Except for certain provisions that relate to Statement No. 133 implementation issues already in effect, Statement No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company will adopt this Statement as required, but does not believe adoption will have a material effect on its financial statements.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” In general, the Statement requires an issuer to classify a financial instrument within its scope as a liability (or an asset in some circumstances). These include certain financial instruments that a) are mandatorily redeemable, b) embody an obligation to repurchase the issuer’s equity shares or c) embody an obligation that the issuer must or may settle by issuing a variable number of its equity shares. The Statement is effective as of July 1, 2003 or for financial instruments entered into or modified after May 31, 2003. The Company will adopt this Statement as required, but does not believe adoption will have a material effect on its financial statements.

Forward-Looking Statements

Certain statements in this Form 10-Q, particularly those in the paragraph entitled “Outlook,” 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. As discussed in its Form 10-K for the year ended December 31, 2002, 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.