Novamerican Steel Inc.
NASDAQ : TONS

Novamerican Steel Inc.

September 30, 2005 14:36 ET

Novamerican Reports 31st Consecutive Profitable Quarter

MONTREAL, QUEBEC--(CCNMatthews - Sept. 30, 2005) - Novamerican Steel Inc. (NASDAQ:TONS) announced today its financial results for the third quarter ended August 27, 2005. (All amounts are in U.S. dollars).



SUMMARY OF FINANCIAL HIGHLIGHTS
(in thousands of U.S. dollars, except per share and tons data)

QUARTER ENDED
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August 27, 2005 August 28, 2004 Change
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Net sales $191,159 $201,747 ($10,588)
Gross margin 17.8% 30.1% -12.3%
Net income $4,258 $21,633 ($17,375)
Basic income per share $0.42 $2.23 ($1.81)
Diluted income per share $0.41 $2.17 ($1.76)

Tons sold 219,485 221,911 (2,426)
Tons processed 234,515 204,976 29,539
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454,000 426,887 27,113
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NINE MONTHS ENDED
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August 27, 2005 August 28, 2004 Change
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Net sales $615,478 $553,462 $62,016
Gross margin 19.5% 28.8% -9.3%
Net income $23,031 $49,222 ($26,191)
Basic income per share $2.32 $5.07 ($2.75)
Diluted income per share $2.24 $4.97 ($2.73)

Tons sold 655,226 702,212 (46,986)
Tons processed 736,832 646,332 90,500
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1,392,058 1,348,544 43,514
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THIRD QUARTER RESULTS

Despite difficult market conditions, the Company achieved its 31st consecutive profitable quarter.

Sales for the third quarter decreased by $10.6 million, or 5.2%, to $191.2 million from $201.7 million for the same period in 2004.

Sales for the nine months ended August 27, 2005 increased by $62.0 million, or 11.2%, to $615.5 million from $553.5 million in 2004.

Tons sold and processed in the third quarter of 2005 increased by 27,113 tons, or 6.4%, to 454,000 tons from 426,887 in the third quarter of 2004. While tons sold in the third quarter of 2005 decreased by 2,426 tons, or 1.1%, tons processed increased by 29,539 tons, or 14.4%, compared with the third quarter of 2004.

Tons sold and processed for the nine months ended August 27, 2005 increased by 43,514 tons, or 3.2%, to 1,392,058 tons from 1,348,544 tons in 2004. While tons sold for the nine months ended August 27, 2005 decreased by 46,986 tons, or 6.7%, tons processed increased by 90,500 tons, or 14.0%, compared with the same period in 2004.

The gross margin for the third quarter 2005 decreased to 17.8% from 30.1% in 2004.

The gross margin for the nine months ended August 27, 2005 decreased to 19.5% from 28.8% in 2004.

Net income for the third quarter decreased by $17.4 million, or 80.3%, to $4.3 million, or $0.42 per share ($0.41 after dilution), versus $21.6 million, or $2.23 per share ($2.17 after dilution), for the same period in 2004.

Net income for the nine months ended August 27, 2005 decreased by $26.2 million, or 53.2%, to $23.0 million, or $2.32 ($2.24 after dilution) per share, versus $49.2 million, or $5.07 per share ($4.97 after dilution), for the first nine months of 2004.

OPERATIONS

The decline in steel prices, which commenced prior to the end of 2004, continued through most of the Company's third quarter resulting in depressed margins and reduced profits, relative to the second quarter of 2005. However, while demand was weak in the month of June, the company's business activity improved in July and strengthened in August.

OUTLOOK

Management believes that the bottom of the current cycle, with respect to steel prices, was reached in July when industry wide inventories were finally reduced to unsustainably low levels relative to end user demand. Management expects strong market conditions in the fourth quarter as the combination of inventory replenishment, rising steel prices and steady demand should lead to substantially improved business conditions.

COMPANY DESCRIPTION

Novamerican Steel Inc., based in Montreal, Canada with twelve operating locations in Canada and eleven operating locations in the United States, processes and distributes carbon steel, stainless steel and aluminum products, including carbon steel tubing for structural and automotive markets.

FORWARD-LOOKING (SAFE HARBOUR) STATEMENTS

Except for historical information contained herein, the matters set forth in this press release are forward-looking statements that involve risks and uncertainties including, but not limited to, product demand, competition, regulatory approvals, the effect of economic conditions and technological difficulties and other risks detailed in the Company's filings with the U.S. Securities and Exchange Commission.



Novamerican Steel Inc. and Subsidiaries - Consolidated Financial
Statements
(unaudited)


CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(in accordance with U.S. GAAP, in thousands of U.S. dollars, except
per share and tons data)


Three months ended Nine months ended
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August 27, August 28, August 27, August 28,
2005 2004 2005 2004
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$ $ $ $
Net sales 191,159 201,747 615,478 553,462
Cost of sales 157,176 140,931 495,302 393,958
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Gross margin 33,983 60,816 120,176 159,504
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Operating expenses
Plant 10,787 9,576 32,345 30,146
Delivery 5,589 4,846 16,715 14,740
Selling 3,174 3,199 10,065 9,714
Administrative and general 7,139 7,721 22,354 23,747
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26,689 25,342 81,479 78,347
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Operating income 7,294 35,474 38,697 81,157
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Interest expense 885 1,166 3,403 3,696
Share in income of
a joint venture (129) (94) (389) (290)
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756 1,072 3,014 3,406
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Income before income
taxes 6,538 34,402 35,683 77,751
Income taxes 2,280 12,769 12,652 28,529
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Net income 4,258 21,633 23,031 49,222
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Net income per share
Basic 0.42 2.23 2.32 5.07
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Diluted 0.41 2.17 2.24 4.97
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Weighted average
number of shares
outstanding 10,156,226 9,700,000 9,939,800 9,700,000
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Comprehensive income
Net income 4,258 21,633 23,031 49,222
Change in cumulative
translation adjustment 7,466 2,936 1,077 (1,109)
Change in fair value of
interest rate swap,
net of deferred
income taxes 82 87 342 376
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11,806 24,656 24,450 48,489
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Tons sold 219,485 221,911 655,226 702,212
Tons processed 234,515 204,976 736,832 646,332
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454,000 426,887 1,392,058 1,348,544
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Novamerican Steel Inc. and Subsidiaries - Consolidated Financial
Statements
(unaudited)

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in accordance with U.S. GAAP, in thousands of U.S. dollars, except
share data)

Accumulated
Other Total
Common Shares Retained Comprehensive Shareholders'
Number Amount Earnings Income Equity
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$ $ $ $
Balance at
November 27,
2004 9,786,089 29,609 184,782 16,317 230,708
Options
exercised 370,137 5,182 5,182
Net income 23,031 23,031
Changes in
cumulative
translation
adjustment 1,077 1,077
Change in
fair value
of interest
rate swap,

net of
deferred
income taxes - - - 342 342
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Balance at
August 27,
2005 10,156,226 34,791 207,813 17,736 260,340
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Novamerican Steel Inc. and Subsidiaries - Consolidated Financial
Statements
(unaudited)

CONSOLIDATED STATEMENT OF CASH FLOWS
(in accordance with U.S. GAAP, in thousands of U.S. dollars)

Three months ended Nine months ended
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August 27, August 28, August 27, August 28,
2005 2004 2005 2004
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$ $ $ $

CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 4,258 21,633 23,031 49,222
Adjustments to
reconcile net income
to net cash from
operating activities
Depreciation and
amortization 2,522 2,158 7,365 6,447
Share in income
of a joint venture (131) (94) (391) (290)
Deferred income taxes (250) (509) (428) 241
Loss (gain) on disposal
of property, plant
and equipment (80) 135 23 586
Changes in working
capital items
Accounts receivable 18,617 2,477 16,743 (32,301)
Income taxes
receivable (1,890) - (4,704) 595
Inventories 35,438 (24,960) 38,392 (46,760)
Prepaid expenses
and other 803 633 (1,274) (41)
Accounts payable
and accrued
liabilities (4,559) 7,871 (25,653) 17,979
Income taxes payable 722 5,422 (18,680) 13,811
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Net cash from
operating
activities 55,450 14,766 34,424 9,489
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CASH FLOWS FROM
INVESTING ACTIVITIES
Business acquisition
Issue of common shares - - 5,182 -
Acquisition of minority
interest 1 - (203) (161)
Distribution from
a joint venture - 1,127 - 1,382
Additions to property,
plant and equipment (914) (1,504) (3,559) (6,196)
Proceeds from
disposal of
property, plant
and equipment 206 (26) 325 2,395
Other assets - (51) - (175)
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Net cash from
(used for)
investing activities (707) (454) 1,745 (2,755)
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CASH FLOWS FROM
FINANCING ACTIVITIES
Net decrease
in bank
indebtedness (23,438) (14,040) (2,924) (16,597)
Advance due to
an employee (1,218) - (723) -
Proceeds from
long-term debt (122) 8,253 2,223 23,999
Repayment of
long-term debt (11,987) (1,108) (15,019) (13,333)
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Net cash used
for financing
activities (36,765) (6,895) (16,443) (5,931)
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Effect of exchange
rate changes on
cash and cash
equivalents 844 166 383 (131)
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Net increase in
cash and cash
equivalents 18,822 7,583 20,109 672
Cash and cash
equivalents,
beginning of
period 12,749 4,354 11,462 11,265
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Cash and cash
equivalents,
end of period 31,571 11,937 31,571 11,937
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SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Interest paid 980 592 3,320 2,908
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Income taxes paid 3,905 8,883 34,628 15,023
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Novamerican Steel Inc. and Subsidiaries - Consolidated Financial
Statements

CONSOLIDATED BALANCE SHEETS
(in accordance with U.S. GAAP, in thousands of U.S. dollars)

August 27, August 28, November 27,
2005 2004 2004
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unaudited unaudited audited
$ $ $

ASSETS
Current assets
Cash and cash
equivalents 31,571 11,937 11,462
Accounts receivable 108,634 113,210 125,718
Income taxes receivable 4,860 - -
Inventories 133,682 139,206 172,850
Prepaid expenses and other 2,102 1,355 799
Deferred income taxes 1,115 2,065 1,651
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281,964 267,773 312,480
Investment in a joint
venture 2,652 2,265 2,263
Property, plant and
equipment 102,634 102,051 106,308
Goodwill 12,992 12,791 12,789
Other assets 564 1,174 1,040
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400,806 386,054 434,880
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LIABILITIES
Current liabilities
Current portion of
long-term debt 41,937 5,196 4,855
Fair value of
interest rate swap 160 - -
Bank indebtedness 427 1,812 3,442
Accounts payable
and accrued liabilities 76,604 92,974 103,964
Income taxes payable 777 13,896 19,988
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119,905 113,878 132,249
Long-term debt 6,881 62,948 56,766
Fair value of
interest rate swap - 1,110 741
Deferred income taxes 13,680 13,914 14,416
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140,466 191,850 204,172
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SHAREHOLDERS' EQUITY
Share capital 34,791 28,404 29,609
Retained earnings 207,813 161,093 184,782
Accumulated other
comprehensive income 17,736 4,707 16,317
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260,340 194,204 230,708
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400,806 386,054 434,880
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Conference call: Monday October 3, 2005 at 9:00 am. Please call 514-368-6455 for details.

Contact Information

  • Novamerican Steel Inc.
    Christopher H. Pickwoad, CA
    Chief Financial Officer
    (514) 368-6455
    www.novamerican.com