Algoma Steel Announces Results for the Quarter Ended Sept 30, 1998
30 October 1998
Algoma Steel Announces Results for the Quarter Ended September 30, 1998
SAULT STE. MARIE, Ontario--Oct. 29, 1998--Algoma Steel Inc. (TSE:ALG.) Algoma Steel today announced its financial results for the quarter ended September 30, 1998.
Financial Highlights
---------------------
1997 1998
--------------- ----------------------
Q3 Q4 Q1 Q2 Q3
Sales (millions) $319.8 $323.7 $328.7 $324.6 $324.3
EBITDA(1) (millions) $42.4 $36.3 $34.5 $35.9 $23.7
Net Income/(Loss)
(millions) $14.6 $6.9 $1.5 $1.4 $(12.9)
Net Income/(Loss)
Per Share $0.28 $0.13 $0.03 $0.03 $(0.25)
Weighted average
shares
outstanding
(millions) 52.09 52.26 52.31 52.35 52.40
Per Ton Shipped
---------------
Revenue $620 $653 $621 $632 $637
EBITDA(1) $82 $73 $65 $70 $47
(1) Earnings before interest, taxes, depreciation and
amortization.
Steel Shipments (000's of net tons)
-----------------------------------
1997 1998
--------------- ------------------------
Q3 Q4 Q1 Q2 Q3
Sheet 312 288 306 298 318
Plate 104 100 117 115 118
Structurals 55 59 57 55 48
Tubulars 45 49 49 46 25
--- ---- ---- ---- ---
Total 516 496 529 514 509
--- --- --- --- ---
SummaryA net loss of $12.9 million or $0.25 per share was incurred in the third quarter compared to a second quarter profit of $1.4 million or $0.03 per share and earnings in the third quarter of 1997 of $14.6 million or $0.28 per share. Costs in the third quarter were negatively affected by approximately $6 million due to the consumption of iron ore pellets produced at a high unit cost in the first quarter due to a major equipment failure at the Tilden Mine. Pellet costs are expected to return to normal levels in the fourth quarter. The weaker Canadian dollar resulted in higher costs for all U.S. dollar purchases and U.S. dollar financial expense. Lower selling prices for structurals and plate also affected results.
Direct Strip Production Complex (DSPC)
Total production from the DSPC in the third quarter increased to 158,000 tons from 133,000 tons in the second quarter resulting in a reduction in direct start-up costs to $6.3 million versus $7.2 million in the second quarter. Production was limited by an inconsistent caster operation and an increased level of product development trials. Increased production levels are expected in the fourth quarter through improved reliability in the casting process and a decline in the number of product development trials.
Financial Results
Income from operations declined to $8.5 million from $20.9 million in the second quarter. Financial results continue to be affected by the direct costs of the DSPC ($6.3 million) and various indirect DSPC costs incurred mainly in the ironmaking and steelmaking facilities.
Raw steel production at 584,000 tons was significantly lower than capability and planned levels due, in part, to scheduling and logistical issues associated with the DSPC. It is expected that raw steel production levels will increase as the reliability and output levels improve on the DSPC.
Cash flow from operations before working capital declined to $16.4 million from $18.7 million in the second quarter. Pension funding in the third quarter was $0.3 million compared to $13.0 million in the second quarter. Pension funding is expected to approximate $3 million in the fourth quarter.
Bank indebtedness increased to $86 million from $58 million in the second quarter. The unused availability under the Credit Facility at September 30 was $164 million. Inventories of $398 million were little changed from the second quarter. A reduction in slab inventories was offset by higher tubular inventories, higher inventories of plate and sheet, and an increase in coal inventories as the normal seasonal build-up commences prior to the end of the navigation season.
The Company has implemented a comprehensive cash conservation program during this period of weak steel markets. A number of initiatives are being considered to reduce the investment in inventories. This will include a closure of the tube mill for approximately eight weeks commencing in mid-November.
Year 2000 Status
The Company continues to make progress on its Year 2000 program. Actions include modifications to existing computer hardware, programs and software, installation of new replacement software, modification to or replacement of embedded components for process and manufacturing control systems, and review of the Year 2000 status of key suppliers and customers. Total spending to date in 1998 is estimated at $5 million which includes capital expenditures for the implementation of new software of $3.4 million. All critical systems are expected to be tested and operational by mid-1999.
Trade
Steel imports into Canada have increased dramatically reaching almost 50 percent of Canadian consumption in the month of July. In response to this unprecedented flood of unfairly priced imports, Algoma has joined with other Canadian producers to initiate the preparation of anti-dumping complaints against a number of countries. The Company is also in the process of preparing an anti-dumping complaint covering wide flange imports from up to nine countries.
Outlook
The continued high level of imports has caused deterioration in price levels on all major product lines and this is expected to result in lower selling prices in the fourth quarter. The Company continues to monitor import activity and trade cases will be pursued aggressively so that a fair competitive environment for steel sales in Canada is restored.
A. ADAM H. EARL JOUDRIE
PRESIDENT AND CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
Sault Ste. Marie, Ontario
October 29, 1998
Algoma Steel Inc.
1998 Third Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of income and retained earnings
Three months Nine months
ended ended
September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
(millions of dollars) (note 1) (note 1)
Sales $324.3 $319.8 $977.6 $937.4
----- ----- ----- ------
Cost of sales 290.7 267.7 852.9 782.1
Administrative and
selling expense 9.9 9.7 30.6 28.9
Depreciation and
amortization 15.2 14.3 44.4 43.8
---- ---- ---- ----
315.8 291.7 927.9 854.8
----- ----- ----- -----
Income from operations 8.5 28.1 49.7 82.6
Net financial expense 22.1 6.0 59.7 18.9
---- --- ---- ----
Income (loss) before
income taxes (13.6) 22.1 (10.0) 63.7
---- ---- ---- ----
Provision for income
taxes - current (4.9) 1.1 (11.0) 6.7
- deferred 4.2 6.4 11.0 12.0
--- --- ---- ----
(0.7) 7.5 - 18.7
--- --- ---- ----
Net income (loss) $ (12.9) $14.6 $ (10.0) $45.0
---- ---- ------ ----
Net income (loss) per
common share $ (0.25) $0.28 $ (0.19) $0.88
---- ---- ----- ----
Weighted average common
shares
outstanding - millions 52.40 52.09 52.35 50.88
------ ----- ----- ------
Retained earnings
Balance, beginning of
period $292.5 $268.1 $289.6 $237.7
Net income (loss) (12.9) 14.6 (10.0) 45.0
---- ---- ---- ----
Balance, end of period $279.6 $282.7 $279.6 $282.7
------ ----- ----- -----
Operations
(thousands of net tons)
Raw steel production 584 612 1,794 1,776
--- --- ----- -----
Steel shipments 509 516 1,552 1,527
--- --- ----- -----
Note 1. Certain comparative figures have been reclassified to conform
to the presentation adopted in the current period.
Algoma Steel Inc.
1998 Third Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of financial position
As at September 30
------------------------
1998 1997
-------- --------
(millions of dollars) (note 1)
Current assets
Accounts receivable $ 186.9 $ 188.5
Inventories 398.0 350.3
Income and other taxes recoverable 3.4 -
Prepaid expenses 4.4 8.8
-------- --------
592.7 547.6
-------- --------
Other assets
Deposits in escrow 1.0 39.6
Fixed assets, net 921.6 808.6
Unamortized blast furnace lining 34.9 43.9
Deferred charges 66.9 25.9
-------- --------
1,024.4 918.0
-------- --------
Total assets 1,617.1 1,465.6
-------- --------
Current liabilities
Bank indebtedness 86.1 30.1
Accounts payable and accrued
liabilities 210.9 167.6
Construction holdbacks/payables
- DSPC 2.4 16.1
Income and other taxes payable - 12.5
Current portion of long-term debt 6.2 3.3
-------- --------
305.6 229.6
-------- --------
Other liabilities
Long-term debt 497.2 451.0
Accrued pension liability and
post-employment benefit obligation 366.5 351.5
Deferred income taxes 63.4 47.1
-------- --------
927.1 849.6
-------- --------
Shareholders' equity
Common shares 185.9 184.8
Shareholders' deficiency on
restructuring (81.1) (81.1)
Retained earnings 279.6 282.7
-------- --------
384.4 386.4
-------- --------
Total liabilities and shareholders'
equity $ 1,617.1 $ 1,465.6
-------- --------
Note 1. Certain comparative figures have been reclassified
to conform to the presentation adopted in the current
period.
Algoma Steel Inc.
1998 Third Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of cash flow
Three months Nine months
ended ended
September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
(millions of dollars)
Cash provided by (used in)
Operating activities
Cash from operations $16.4 $42.0 $61.7 $118.0
Increase in operating
working capital (25.4) (60.2) (106.0) (40.1)
---- ---- ----- ----
(9.0) (18.2) (44.3) 77.9
--- ---- ---- ----
Investing activities
Net additions to fixed
assets
- Direct strip production
complex (3.5) (24.3) (17.3) (102.3)
- Capitalized interest
on DSPC - (11.3) - (31.2)
- Other (15.2) (25.8) (51.9) (47.0)
Deposits in escrow - 6.0 25.3 18.3
---- ---- ---- ----
(18.7) (55.4) (43.9) (162.2)
---- ---- ---- -----
Financing activities
Repayment of long-term debt (0.8) (0.8) (2.5) (2.4)
Common share proceeds 0.3 3.1 0.8 53.6
Financing expenses - - - (0.1)
Increase in bank
indebtedness 28.2 30.1 86.1 30.1
---- ---- ---- ----
27.7 32.4 84.4 81.2
---- ---- ---- ----
Cash
Change during period - (41.2) (3.8) (3.1)
Balance, beginning of period - 41.2 3.8 3.1
--- ---- --- ---
Balance, end of period $ - $ - $ - $ -
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