Novamerican Steel Inc.
NASDAQ : TONS

Novamerican Steel Inc.

September 21, 2007 13:05 ET

Novamerican Reports 39th Consecutive Profitable Quarter

Attention Business/Financial Editors

MONTREAL, QUEBEC--(Marketwire - Sept. 21, 2007) - Novamerican Steel Inc. (NASDAQ:TONS) announced today its financial results for the third quarter ended August 25, 2007. (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 25, 2007 August 26, 2006 Change
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Net sales $191,480 $211,324 ($19,844)
Gross margin 19.0% 23.1% -4.1%
Net income $7,365 $11,521 ($4,156)
Basic income per share $0.70 $1.10 ($0.40)
Diluted income per share $0.70 $1.10 ($0.40)

Tons sold 194,074 214,048 (19,974)
Tons processed 144,664 197,615 (52,951)
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338,738 411,663 (72,925)
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NINE MONTHS ENDED
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August 25, 2007 August 26, 2006 Change
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Net sales $591,117 $636,210 ($45,093)
Gross margin 19.1% 22.0% -2.9%
Net income $22,621 $32,382 ($9,761)
Basic income per share $2.16 $3.12 ($0.96)
Diluted income per share $2.16 $3.11 ($0.95)

Tons sold 624,153 680,230 (56,077)
Tons processed 457,095 666,491 (209,396)
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1,081,248 1,346,721 (265,473)
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THIRD QUARTER RESULTS

Sales for the third quarter decreased by $19.8 million, or 9.4%, to $191.5 million from $211.3 million for the same period in 2006.

Sales for the nine months ended August 25, 2007 decreased by $45.1 million, or 7.1%, to $591.1 million from $636.2 million for the same period in 2006.

Tons sold and processed in the third quarter of 2007 decreased by 72,925 tons, or 17.7%, to 338,738 tons from 411,663 in the third quarter of 2006.

Tons sold and processed for the nine months ended August 25, 2007 decreased by 265,473 tons, or 19.7%, to 1,081,248 tons from 1,346,721 tons for the same period in 2006.

The gross margin for the third quarter 2007 decreased to 19.0% from 23.1% for the third quarter 2006.

The gross margin for the nine months ended August 25, 2007 decreased to 19.1% from 22.0% for the same period in 2006.

Net income for the third quarter decreased by $4.2 million, or 36.1%, to $7.4 million, or $0.70 ($0.70 after dilution) per share, versus $11.5 million, or $1.10 ($1.10 after dilution) per share, for the same period in 2006.

Net income for the nine months ended August 25, 2007 decreased by $9.8 million, or 30.1%, to $22.6 million, or $2.16 ($2.16 after dilution) per share, versus $32.4 million, or $3.12 per share ($3.11 after dilution), for the first nine months of 2006.

During the quarter, the Company incurred one-time, deal-related costs amounting to $1.1 million. Excluding the impact of these costs, EBITDA for the quarter was $14.8 million.

OPERATIONS

The Company experienced a relatively weak fiscal third quarter primarily from lower sales volumes due to longer than expected summer shutdowns, particularly in the automotive sector, and the continued industry-wide reductions of excess inventories. As a result, steel prices continued to decrease during the summer months, albeit at a slower rate than in May and June. The resulting lower margins were partially offset by lower variable operating expenses and continued realization of cost saving initiatives. Cash flow from operations was a positive source of approximately $19.1 million, including inventory reductions of approximately $7.9 million.

OUTLOOK

Management believes that the bottom of the current steel price cycle occurred in August. Recently announced price increases in steel coil and structural tubing should benefit the Company in its fiscal fourth quarter. Potential trade action relating to unfairly subsidized pipe imports from China is beginning to generate more buying interest in North American pipe and tube supply. Management also believes that weakness in the US dollar will have a positive effect on U.S. exports which should increase demand for North American steel. In addition, the lower value of the US dollar will make it more difficult for imported steel to be competitive in North America.

UPDATE ON PROPOSED ACQUISITION BY SYMMETRY

The previously announced acquisition of all the issued and outstanding shares of Novamerican at $56.00 per share by way of plan of arrangement by Symmetry Holdings Inc. will require court approval as well as a vote by the shareholders of both Symmetry and Novamerican. Symmetry's proxy is currently under customary review by the U.S. Securities and Exchange Commission. As Symmetry completes the SEC review process of the proxy, Novamerican will request an interim court order to, among other things, set the date of the special meeting of shareholders and mail the proxy materials required to approve the plan of arrangement. At this time, it is not possible to determine the exact date of the shareholder meetings. However, management expects that the transaction will be completed in November 2007.

COMPANY DESCRIPTION

Novamerican Steel Inc., based in Montreal, Canada with eleven 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)
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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
--------------------------------------------------------------------------
August 25, August 26, August 25, August 26,
2007 2006 2007 2006
--------------------------------------------------------------------------
$ $ $ $
Net sales 191,480 211,324 591,117 636,210
Cost of sales 155,019 162,506 478,295 496,016
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Gross margin 36,461 48,818 112,822 140,194
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Operating expenses
Plant 10,517 11,032 31,742 34,326
Delivery 5,762 6,401 17,964 19,840
Selling 3,305 3,509 10,480 10,576
Administrative and
general 5,838 9,537 19,717 24,832
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25,422 30,479 79,903 89,574
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Operating income 11,039 18,339 32,919 50,620
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Interest expense 52 876 565 2,686
Other revenue (402) (608) (1,483) (1,809)
Share in income of
A joint venture (39) (173) (133) (621)
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(389) 95 (1,051) 256
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Income before income
taxes 11,428 18,244 33,970 50,364
Income taxes 4,063 6,723 11,349 17,982
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Net income 7,365 11,521 22,621 32,382
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Net income per share
Basic 0.70 1.10 2.16 3.12
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Diluted 0.70 1.10 2.16 3.11
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Weighted average
number of shares
outstanding 10,450,000 10,450,000 10,450,000 10,372,521
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Comprehensive income
Net income 7,365 11,521 22,621 32,382
Change in cumulative
translation adjustment 4,715 (1,133) 13,342 9,283
Change in fair value
of interest rate
swap, net of
deferred income taxes - - - 42
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12,080 10,388 35,963 41,707
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Tons sold 194,074 214,048 624,153 680,230
Tons processed 144,664 197,615 457,095 666,491
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338,738 411,663 1,081,248 1,346,721
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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
------------------------------------------------------------------------
$ $ $ $
Balance at
November 25,
2006 10,450,000 38,904 266,018 23,624 328,546
Net income 22,621 22,621
Changes in
cumulative
translation
adjustment 13,342 13,342
Change in fair
value of
interest rate
swap, net of
deferred
income taxes - - - - -
------------------------------------------------------------------------
Balance at
August 25,
2007 10,450,000 38,904 288,639 36,966 364,509
------------------------------------------------------------------------
------------------------------------------------------------------------



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
--------------------------------------------------------------------------
August 25, August 26, August 25, August 26,
2007 2006 2007 2006
--------------------------------------------------------------------------
$ $ $ $
Net income 7,365 11,521 22,621 32,382
Adjustments to reconcile
net income to net
cash from operating
activities
Depreciation and
amortization 2,680 2,729 7,947 7,892
Share in income of a
joint venture (39) (173) (133) (621)
Deferred income taxes (367) (357) (441) (1,037)
Loss on disposal of
property, plant and
equipment (13) - (5) 3
Changes in working
capital items
Accounts receivable 10,862 17,298 7,295 11,899
Income taxes
receivable (89) 794 81 2,858
Inventories 7,942 (20,637) 15,070 (47,916)
Prepaid expenses
and other (507) 395 (1,388) (1,267)
Accounts payable and
accrued liabilities (10,677) (6,222) (1,915) 78
Income taxes payable 1,902 1,425 (2,357) 415
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Net cash from
operating activities 19,059 6,773 46,775 4,686
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CASH FLOWS FROM
INVESTING ACTIVITIES
Repayment of loan to
a Corporation 172 134 37,541 17,581
Distribution from a
joint venture - 2 - 264
Additions to property,
plant and equipment (4,000) (1,193) (10,474) (7,246)
Proceeds from disposal
of property, plant
and equipment 102 10 357 15
Other assets (36) (18) (66) (59)
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Net cash from (used for)
investing activities (3,762) (1,065) 27,358 10,555
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CASH FLOWS FROM
FINANCING ACTIVITIES
Net decrease in bank
indebtedness (23) (145) (532) (2,095)
Issue of common shares - - - 4,113
Repayment of long-term
debt (111) (1,352) (41,346) (2,675)
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Net cash used for
financing activities (134) (1,497) (41,878) (657)
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Effect of exchange rate
changes on cash and
cash equivalents 1,127 (179) 2,958 1,960
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Net increase in cash and
cash equivalents 16,290 4,032 35,213 16,544
Cash and cash
equivalents, beginning
of period 49,939 60,317 31,016 47,805
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Cash and cash
equivalents, end of
period 66,229 64,349 66,229 64,349
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SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest paid (201) 673 216 1,603
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Income taxes paid 3,315 6,042 14,877 17,243
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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 25, August 26, November 25,
2007 2006 2006
--------------------------------------------------------------------------
unaudited unaudited audited
$ $ $
ASSETS
Current assets
Cash and cash equivalents 66,229 64,349 31,016
Trade accounts receivable, net 107,257 115,010 109,609
Loan receivable - - 37,670
Income taxes receivable 621 - -
Inventories 154,411 179,683 163,060
Prepaid expenses and other 3,614 2,766 2,096
Deferred income taxes 1,253 1,851 1,957
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333,385 363,659 345,408
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Investment in a joint venture 1,881 2,494 1,748
Property, plant and equipment 112,635 105,164 106,309
Goodwill 12,994 12,994 12,994
Deferred income taxes 3,841 2,230 2,260
Other assets 302 376 328
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465,038 486,917 469,047
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LIABILITIES
Current liabilities
Current portion of long-term debt - 39,539 38,642
Bank indebtedness - 670 513
Trade accounts payable and accrued
liabilities 81,174 101,121 79,302
Trade accounts payable to a company
controlled by a director 1,204 1,021 677
Trade accounts payable to a joint
venture 1,377 1,489 592
Advances due to related parties 27 122 192
Income taxes payable - 1,430 1,703
Deferred income taxes - 42 290
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83,782 145,434 121,911
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Long-term debt - 2,841 2,645
Deferred income taxes 16,747 15,863 15,945
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100,529 164,138 140,501
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SHAREHOLDERS' EQUITY
Preferred shares, no par value:
Unlimited number of shares
authorized; none issued or
outstanding
Common shares, no par value:
Unlimited number of shares
authorized; issued and outstanding
shares: 10,450,000 in 2007 and
10,372,521 in 2006 38,904 38,904 38,904
Retained earnings 288,639 254,102 266,018
Accumulated other comprehensive
income 36,966 29,773 23,624
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364,509 322,779 328,546
--------------------------------------------------------------------------
465,038 486,917 469,047
--------------------------------------------------------------------------
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Contact Information

  • Novamerican Steel Inc.
    Lawrence P. Cannon, CA
    Vice President and Chief Financial Officer
    514-368-6455
    www.novamerican.com