Algoma Steel Announces Results For The Quarter Ended Dec. 31, 1998
3 February 1999
Algoma Steel Announces Results For The Quarter Ended December 31, 1998
SAULT STE. MARIE, Ontario--Feb. 2, 1999--Algoma Steel Inc. (TSE:ALG.) Algoma Steel today announced its financial results for the quarter ended December 31, 1998.
Financial Highlights
--------------------
1997 1998
---- ----
Q4 Q1 Q2 Q3 Q4
--- -- -- -- --
Sales (millions) $323.7 $328.7 $324.6 $324.3 $294.4
EBITDA(1) (millions) $36.3 $34.5 $35.9 $23.7 $10.3
Write-off from Closing
Tube & Structural
Operations $27.5
Net Income/(Loss)
(millions) $6.9 $1.5 $1.4 $(12.9)$(49.1)
Net Income/(Loss)
Per Share $0.13 $0.03 $0.03 $(0.25) $(0.94)
Weighted average shares
outstanding (millions) 52.26 52.31 52.35 52.40 52.52
Per Ton Shipped
Revenue $653 $621 $632 $637 $677
EBITDA(1) $73 $65 $70 $47 $24
(1) Earnings before interest, taxes, depreciation and
amortization.
Steel Shipments (000's of net tons)
-----------------------------------
1997 1998
---- ----
Q4 Q1 Q2 Q3 Q4
-- -- -- -- --
Sheet 288 306 298 318 285
Plate 100 117 115 118 82
Structurals 59 57 55 48 51
Tubulars 49 49 46 25 17
---- ---- ---- ---- ----
Total 496 529 514 509 435
---- ---- ---- ---- ----
Summary
The Company has determined that corporate profitability would be increased by continuing to operate the existing 106" strip mill and closing the tube and structural mills. This decision has resulted in a non-recurring write-off of related assets and a reduction in the carrying value of inventories. This will allow the Company to focus its ladle steel and other resources on the sheet and plate product lines. A net loss of $49.1 million was recorded in the fourth quarter which includes an after-tax loss of $27.5 million from the writedown of tube and structural mill assets.
The net loss in the fourth quarter, excluding the loss from discontinued operations, was $21.6 million compared to a loss in the third quarter of $12.9 million and earnings in the fourth quarter of 1997 of $6.9 million. The decline was caused mainly by lower selling prices, lower shipments, and higher raw steel costs, partially offset by lower pellet costs and lower direct start-up costs for the Direct Strip Production Complex (DSPC).
Loss From Closing The Tube and Structural Mills
The tube and structural products have consistently had lower margins than sheet and plate products. Algoma had maintained these product lines to help absorb fixed costs incurred in ladle steel production. The addition of the DSPC increases flat rolling capacity allowing all ladle steel to be directed to the sheet and plate products. This change is expected to result in better profitability. It also significantly reduces the complexity of the business and should facilitate reductions in overhead costs.
The loss from discontinuing these product lines is composed of write-offs of $16.8 million for tubular assets and $9.9 million for structural assets and a reduction of $5.0 million in the carrying value of tubular product inventories. This decision will result in the closure of the casting and ladle transfer facilities used to produce semi-finished steel for these products resulting in an asset write-off of $4.2 million. A deferred tax credit of $8.4 million was netted against these charges.
The Company expects to operate the tube facility on a limited basis until mid-year to convert the remaining inventory into saleable product. The structural mill is expected to be closed by December, 1999. The Company is working with its customers to minimize any transitional problems. The existing 106" strip mill will continue to operate for an indefinite period primarily to produce wide coils which are beyond the capability of the DSPC.
Direct Strip Production Complex (DSPC)
Production from the DSPC increased to 190,000 tons from 158,000 tons in the third quarter. Direct start-up costs declined to $4.1 million from $6.3 million in the third quarter. The quality of the product continues to improve and progress was made in expanding product capability. Further progress is expected in the first quarter.
Financial Results
A loss from operations of $6.2 million was incurred in the fourth quarter versus income from operations of $8.5 million in the third quarter. Price declines were experienced in all product lines, particularly in sheet and structurals.
Raw steel production declined in the fourth quarter caused, in part, by the reline of one of the two steelmaking vessels which reduced output in the quarter. Raw material costs were higher due to the effect of the weak Canadian dollar. Both factors combined to increase raw steel unit costs in the quarter.
Cash flow from operations before working capital declined to $12.5 million from $16.4 million in the third quarter. The quarter includes the effect of a current tax credit which will result in a cash refund of $14.9 million in 1999. Bank indebtedness declined to $45 million from $86 million at September 30. Inventories declined by $36 million due to a new arrangement whereby coal is supplied on consignment.
The unused availability under the Credit Facility at December 31 increased to $181 million. An amendment to the Credit Facility has been approved by the banking syndicate providing for revised covenants in 1999 consistent with projected financial results and includes a reduction in availability of $25 million.
The program to deal with Year 2000 issues remains on schedule with all critical systems expected to be tested and operational by mid-1999. Total spending in 1998 was $7 million which includes $4.4 million for the installation of new software.
Trade
The U.S. Department of Commerce decided in early January to revoke the anti-dumping order against cut-to-length plate from Algoma. This decision is a result of three consecutive administrative reviews with de minimis dumping margins.
Revenue Canada is currently investigating the alleged injurious dumping into Canada of hot rolled sheet and strip from France, Romania, the Russian Federation and the Slovak Republic. A preliminary determination of dumping margins is expected in early March.
In addition, Revenue Canada is investigating cold rolled sheet originating in or exported from Argentina, Belgium, New Zealand, the Russian Federation, the Slovak Republic, Spain and Turkey. The preliminary determination in this case is expected in late April.
Due to the continued importation of significant quantities of low priced steel from a variety of countries, additional anti-dumping complaints may be filed during the course of the year.
Outlook
Prices for sheet are expected to remain at current levels for the first quarter as excessive inventories caused by the high level of low-priced imports are absorbed. The Company is committed to an effective and efficient transition in 1999 to an organization focused on flat rolled products.
A. ADAM H. EARL JOUDRIE
PRESIDENT AND CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
Sault Ste. Marie, Ontario
February 2, 1999
Algoma Steel Inc.
1998 Fourth Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of income and retained earnings
Three months ended Year ended
December 31 December 31
1998 1997 1998 1997
-------- -------- -------- --------
(millions of dollars) (note 1) (note 1)
Sales $ 294.4 $ 323.7 $ 1,272.0 $ 1,261.1
-------- -------- -------- --------
Cost of sales 274.1 277.9 1,127.0 1,060.0
Administrative
and selling expense 10.0 9.5 40.6 38.4
Depreciation
and amortization 16.5 16.1 60.9 59.9
-------- -------- -------- --------
300.6 303.5 1,228.5 1,158.3
-------- -------- -------- --------
Income (loss)
from operations (6.2) 20.2 43.5 102.8
Net financial expense 21.3 9.5 81.0 28.4
-------- -------- -------- --------
Income (loss) before
the following (27.5) 10.7 (37.5) 74.4
Loss on closure of
tubular and
structural mills 35.9 - 35.9 -
-------- -------- -------- --------
Income (loss)
before income taxes (63.4) 10.7 (73.4) 74.4
-------- -------- -------- --------
Provision for
income taxes - current (14.9) (1.5) (25.9) 5.2
- deferred 0.6 5.3 11.6 17.3
-------- -------- -------- --------
(14.3) 3.8 (14.3) 22.5
-------- -------- -------- --------
Net income (loss) $ (49.1) $ 6.9 $ (59.1) $ 51.9
-------- -------- -------- --------
Net income (loss)
per common share $ (0.94) $ 0.13 $ (1.13) $ 1.01
-------- -------- -------- --------
Weighted average
common shares
outstanding - millions 52.52 52.26 52.39 51.23
-------- -------- -------- --------
Retained earnings
Balance, beginning
of period $ 279.6 $282.7 $ 289.6 $237.7
Net income (loss) (49.1) 6.9 (59.1) 51.9
-------- -------- -------- --------
Balance,
end of period $ 230.5 $289.6 $ 230.5 $289.6
-------- -------- -------- --------
Operations
(thousands of net tons)
Raw steel production 557 570 2,307 2,346
-------- -------- -------- --------
Steel shipments 435 496 1,987 2,022
-------- -------- -------- --------
Note 1. Certain comparative figures have been reclassified to
conform to the presentation adopted in the current period.
Algoma Steel Inc.
1998 Fourth Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of financial position
As at December 31
-----------------
1998 1997
--------- ---------
(millions of dollars)
Current assets
Cash $ - $ 3.8
Accounts receivable 138.9 170.9
Inventories 362.1 361.0
Income and other taxes
recoverable 15.1 -
Prepaid expenses 3.8 3.6
--------- ---------
519.9 539.3
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Other assets
Deposits in escrow 1.0 26.2
Fixed assets, net 902.7 890.2
Unamortized blast furnace
lining 32.8 41.6
Deferred charges 64.8 40.3
--------- ---------
1,001.3 998.3
--------- ---------
Total assets 1,521.2 1,537.6
--------- ---------
Current liabilities
Bank indebtedness 45.3 -
Accounts payable and accrued
liabilities 196.5 210.7
Construction holdbacks/payables
- DSPC 4.5 41.7
Income and other taxes payable - 9.7
Current portion of long-term debt 5.5 3.4
--------- ---------
251.8 265.5
--------- ---------
Other liabilities
Long-term debt 498.6 466.8
Accrued pension liability and
post-employment benefit
obligation 371.2 359.3
Deferred income taxes 64.0 52.4
--------- ---------
933.8 878.5
--------- ---------
Shareholders' equity
Common shares 186.2 185.1
Shareholders' deficiency on
restructuring (81.1) (81.1)
Retained earnings 230.5 289.6
--------- ---------
335.6 393.6
--------- ---------
Total liabilities and
shareholders' equity $ 1,521.2 $ 1,537.6
--------- ---------
Algoma Steel Inc.
1998 Fourth Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of cash flow
Three months Year ended
ended
December 31 December 31
1998 1997 1998 1997
---- ---- ---- ----
(millions of dollars)
Cash provided by (used in)
Operating activities
Cash from operations $12.5 $ 38.2 $ 74.2 $ 156.2
Decrease (increase)
in operating
working capital 49.7 77.5 (56.3) 37.4
------- -------- ------- --------
62.2 115.7 17.9 193.6
------- -------- ------- --------
Investing activities
Net additions
to fixed assets
- Direct strip
production
complex (5.6) (61.6) (22.9) (163.9)
- Capitalized
interest on DSPC - (8.8) - (40.0)
- Other (15.3) (24.3) (67.1) (71.3)
Deposits in escrow - 13.4 25.2 31.7
------- -------- ------- --------
(20.9) (81.3) (64.8) (243.5)
------- -------- ------- --------
Financing activities
Repayment of
long-term debt (0.9) (0.8) (3.4) (3.2)
Common share
proceeds 0.4 0.3 1.2 53.9
Financing expenses - - - (0.1)
Increase (decrease)
in bank indebtedness (40.8) (30.1) 45.3 -
------- -------- ------- --------
(41.3) (30.6) 43.1 50.6
------- -------- ------- --------
Cash
Change during period - 3.8 (3.8) 0.7
Balance, beginning
of period - - 3.8 3.1
------- -------- ------- --------
Balance,
end of period $ - $ 3.8 $ - $ 3.8
------- -------- ------- --------