NEW YORK, NEW YORK (NASDAQ: TONSW) today announced financial
results for the fourth quarter and year ended November 24,
2007.
On November 15, 2007, the Company (the former Symmetry Holdings
Inc. ("Symmetry")) completed the acquisition of Novamerican Steel
Inc. and its subsidiaries, a Canadian corporation ("Acquired
Company"). The gross acquisition price was $585.2 million. The
acquisition included $94.1 million of cash on hand at closing from
Acquired Company and an additional $15.4 million of proceeds from
the sale of assets, primarily an aircraft and undeveloped land.
Sources of funding for the acquisition were provided by $127.0
million of equity proceeds previously held in trust by the Company
and from a private placement, borrowings of $68.1 million from a
$175.0 million revolving credit facility and $315.0 million of
senior secured notes. The excess sources over uses funded $15.1
million of financing and related fees and certain transaction
expenses not otherwise previously paid by the Company.
Subsequent to the acquisition, Symmetry changed its name to
Novamerican Steel Inc. ("Novamerican") and the Company changed its
fiscal year from December 31 to the last Saturday of November. The
fiscal period ending November 24, 2007 includes the financial
results of Symmetry from January 1, 2007 through November 24, 2007,
and the financial results of Acquired Company for the ten-day
period commencing on the acquisition date (November 15, 2007)
through November 24, 2007. The fiscal period ending December 31,
2006 includes the financial results of Symmetry only from April 26,
2006 (the date of inception of Symmetry). For the purposes of this
release, we have also discussed results of operations on a pro
forma basis for both consistency and relevance. We have provided
both actual and pro forma results of operations in the
attachments.
2007 Fiscal Full Year Pro Forma Highlights
- Net sales decreased 4.7 percent, to $801.3 million, versus
2006 net sales of $840.8 million.
- Total tons decreased by 17.1 percent to 1,450,300 tons, versus
2006 tons of 1,749,100.
- Gross margin decreased 19.6 percent to $148.8 million or 18.6
percent of net sales, as compared to $185.1 million, or 22.0
percent of net sales, in 2006.
- Operating expenses decreased $9.1 million to $111.4 million,
or 7.5 percent, as compared to $120.5 million in 2006, primarily
from reductions in certain plant operating and general and
administrative expenses, including lower incentive
compensation.
- EBITDA decreased by $27.8 million, to $57.5 million, or 32.6
percent, as compared to $85.3 million in 2006.
- Actual long-term debt at November 24, 2007 was $390.6 million
and cash and cash equivalents were $19.6 million (or a net debt of
approximately $371.0 million).
- On February 20, 2008, our actual net debt was approximately
$359.8 million.
2007 Fiscal Fourth Quarter Pro Forma Highlights
- Net sales increased $5.6 million to $210.2 million, a 2.8
percent increase over net sales of $204.6 million in the fourth
quarter of 2006.
- Total tons decreased 8.3 percent to 369,100 tons versus
402,400 tons in the fourth quarter of 2006 but with a higher
proportion from direct sales.
- Direct sales tons increased to 221,600, or 60.0 percent of
total tons versus 206,900 tons, or 51.4 percent of total tons in
the fourth quarter of 2006.
- Gross margin decreased 19.9 percent to $36.0 million or 17.1
percent of net sales, as compared to $44.9 million, or 22.0 percent
of net sales, in the fourth quarter of 2006
- Operating expenses increased $2.4 million to $28.3 million, or
9.3 percent, as compared to $25.9 million in 2006.
- EBITDA decreased by $11.3 million to $13.0 million, or 46.9
percent, as compared to $24.3 million in the fourth quarter of
2006. The lower EBITDA includes approximately $1.0 million in
charges for write-downs, primarily for stainless steel inventory in
the fourth quarter of 2006.
Corrado De Gasperis, Chief Executive Officer of Novamerican,
commented, "Fiscal 2007 represented a difficult year for
Novamerican, particularly from difficult Canadian manufacturing and
automotive markets. We experienced weaker volumes with continued
pressure of pricing and margins. Our customers, including steel
distribution centers remained cautious into the beginning of the
new year in restocking their steel needs."
Actual Liquidity and Capital Resources
Long-term debt at November 24, 2007 was approximately $390.6
million with $19.6 million of cash and cash equivalents (or a net
debt of approximately $371.0 million). On February 20, 2008, our
long-term debt was approximately $373.5 million and we had
approximately $13.7 million of cash and cash equivalents (or a net
debt of approximately $359.8 million).
As of November 24, 2007, the aggregate borrowing base was $140.0
million (including the $15 million availability block), of which
$1.0 million was utilized for letter of credit obligations,
resulting in borrowing availability of approximately $139.0
million. Of this amount, approximately $75.6 million was
outstanding under the ABL Credit Facility at November 24, 2007,
with approximately $63.4 million in availability for future
borrowings.
As of November 24, 2007, our total shares and warrants
outstanding were 21,452,304 and 25,579,069, respectively.
Mr. De Gasperis commented, "Our business strategies place the
highest priority on accelerating the amount and speed of cash
generated every day. We expect cash flow from operations to be
positively impacted by our plans for integrating our operating
methodology, the Decalogue, into Novamerican, effectively operating
it as one system versus 22 separate facilities. Our efforts include
leveraging the Novamerican system, primarily how we replenish our
processing, distribution and manufacturing network, by reducing
cycle times and driving higher utilization rates from our existing
assets and accelerating external marketing and selling initiatives
across all of our potential markets."
Outlook
U.S. steel service center hot-rolled inventories continued
declining through November of 2007 to historical lows, just under a
seasonally adjusted average of approximately three months on hand,
typically a leading indicator of future increases in shipping
volumes. We believe that underlying consumption in the U.S. and
Canada has not materially worsened, except for auto-related demand.
Globally, stronger demand and pricing in markets outside of North
America, as well as the weaker U.S. currency, has kept most imports
into our market subdued since mid 2007. The combination of low
imports and low inventory levels tightened North American supply
and, when combined with higher raw material costs for our
suppliers, has resulted in higher prices from steel mills in early
2008.
In early February 2008, North American steel suppliers announced
a fourth consecutive month of price increases, pushing the cost for
hot-rolled coil as high as $650-$670 per ton. Current spot pricing
is now in excess of $700 per ton. While cost increases may have
prompted these increases, we believe tight supply is supporting
their success and low inventory levels will sustain these
increases, at least until the middle of 2008. We experienced a
pick-up in demand in late January 2008 as steel purchasers
attempted to secure their needs for 2008. Our pricing also remained
soft through January until the increases from the mills became
generally accepted in the marketplace and we began to realize price
increases.
We expect our volumes in the first fiscal quarter of 2008 to be
lower than in the fourth fiscal quarter of 2007, mainly due to
seasonality-related lower demand from our customers and lower than
expected processing and tubing for the automotive sector. Overall,
our 2008 first fiscal quarter will result in lower revenue and
operating profit than our 2007 fourth fiscal quarter but the last
month of the 2008 first fiscal quarter has shown strong improvement
in all areas over the first two months of that quarter.
We have validated our plans for integrating our operating
methodology into Novamerican, effectively operating it as one
system versus 22 separate facilities and believe that during fiscal
2008 we will (a) enable Novamerican to operate at much faster cycle
times, expanding practical capacity to approximately 2.5 million
tons, (b) experience a permanent reduction of inventory of
approximately $50.0 million primarily from this faster operating
cycle, and (c) change the organizational design, especially related
to our replenishment processes, including some realignment of steel
processing, resulting in approximately $10.0 million, net, in
annual operating expense reductions, with that resulting run rate
being realized by the end of fiscal 2008. We expect to incur
approximately $1.0 million in the 2008 first fiscal quarter for
operating expenses associated with training and development
required for these changes and approximately $3.0 million in other
exit costs associated with the organizational changes that would be
incurred over the last three quarters of fiscal 2008. The plan also
includes increasing resources in certain areas such as
replenishment, production scheduling, statistical process control
and human resources. The costs of these resources are included in
our planned net operating expense reductions.
We expect cash interest payments to be approximately $40.0
million in fiscal 2008. We expect capital expenditures of
approximately $7.5 million in fiscal 2008, with $3.0 million for
maintenance capital and $4.5 million for the completion of our
expansion at our Morrisville, Pennsylvania structural tubing
facility in 2008.
Depreciation and amortization for fiscal 2008 is expected to be
approximately $20.0 million, including $2.5 million and $8.0
million associated with the amortization of the purchase price
allocation for plant and equipment and intangibles, other than
goodwill, respectively. In addition, on November 24, 2007, our
finished goods inventory included $6.7 million of purchase price
allocation to increase the acquired inventories up to their fair
market value on the date of the acquisition. The $6.7 million will
be amortized as these inventories are sold, substantially all of
which should occur in the 2008 first fiscal quarter.
Mr. De Gasperis commented, "Although the first two months of
this fiscal year started slow, our cash flow has been positive and
February has been robust. We remain cautious about the overall
economy but look forward to the positive cash flow from our
improved cycle times and resulting lower inventory levels
throughout fiscal 2008. This will have the most meaningful impact
for Novamerican, not just in terms of strong liquidity but also in
terms of enabling a much faster and more reliable delivery system
that will result in higher asset turnover and utilization."
Pro Forma Fiscal Year 2007 compared to Pro Forma Fiscal Year
2006
In fiscal year 2007, net sales decreased by $39.5 million, or
4.7%, to $801.3 million, compared with $840.8 million in fiscal
year 2006. Revenue declines for fiscal 2007 were caused by lower
average selling prices, decreases in sales volumes of structural
tubing and lower toll processing revenues resulting from an
increase in imports and decreased demand in the automotive and
general manufacturing sectors.
Total tons directly sold and toll processed decreased by 17.1
percent to 1,450,300 tons in fiscal year 2007 from 1,749,100 tons
for the same period in 2006. Total tons in the fiscal year 2007
include 845,700 tons from direct sales and 604,600 tons from toll
processing. Direct sale tons decreased by 4.7 percent to 845,700
tons in fiscal year 2007 from 887,100 tons for the same period in
2006. The decrease in direct sale tons in 2007 was due to a decline
in sales volume of structural tubing due to an increase in imports
and decreased demand in the automotive and general manufacturing
sectors. The decrease in tons toll processed in 2007 was primarily
due to a decline in demand in the Canadian automotive and general
manufacturing sectors.
Gross margin decreased from $185.1 million to $148.8 million and
from 22.0 percent to 18.6 percent as a percentage of net sales,
respectively, in the fiscal year 2007 as compared to the same
period in 2006. In addition to the reasons described in the
discussion above for revenues, tons sold and tons processed, the
decreases in gross margin dollars and gross margin as a percentage
of sales during the 2007 fiscal year and three months ended
November 24, 2007 were attributable to lower pricing relative to
higher costs of inventory sold including an approximately $1.0
million write down of stainless steel inventory and a lower
percentage of toll processing. In fiscal 2007, toll processing
accounted for 41.7 percent of total tons as compared to 49.2
percent for fiscal 2006.
Operating expenses decreased by $9.1 million or 7.5 percent, and
also decreased as a percentage of sales to 13.9 percent from 14.3
percent for the fiscal year 2007 as compared to the fiscal year
2006. The decreases result primarily from certain plant operating
and general and administrative expenses, including lower incentive
compensation due to lower operating performance. Pro forma
adjustments resulted in the exclusion from administrative costs
actually incurred in fiscal 2007, the following: $2.2 million in
compensation for the former officers of Acquired Company, $1.9
million in operating costs associated with the disposed assets,
including the aircraft, $12.8 million in transaction related costs
incurred by Acquired Company before the acquisition, including
investment banking, legal and accounting services and change in
control and related termination benefits and $4.4 million from
realized losses on dissolution of an entity. The pro forma
adjustments also exclude $3.4 million of transaction costs incurred
by Symmetry that were not capitalized but include $2.0 million of
ongoing costs for Symmetry's principal executive officers of which
$1.7 million was incurred in 2007.
Interest expense was $43.5 million for fiscal 2007, representing
$36.2 million of interest on the senior secured notes, $5.1 million
of interest on the revolving credit facility and $2.2 million in
related amortization of deferred financing fees.
NOTE ON FORWARD-LOOKING STATEMENTS: This news release and
related discussions may contain forward-looking statements about
such matters as: our pro forma statement of operations for the
periods ended December 31, 2006 and November 24, 2007, our audited
results and financial statement information for the period ended
December 31, 2006 and November 24, 2007, our outlook for 2008;
expected future or targeted operational and financial performance
in the future; growth rates for, future prices and sales of, and
demand for our products and our customers' products; changes in
production capacity in our operations and our customers'
operations; costs of materials and production, including
anticipated increases therein; productivity, business process and
operational initiatives, and their impact on us; our position in
markets we serve; employment and contributions of key personnel;
employee relations and collective bargaining agreements covering
our operations; tax rates; capital expenditures and their impact on
us; industry market conditions and the impact thereof; interest
rate management activities; currency rate management activities;
deleveraging activities; realignment, strategic alliance, raw
material and supply chain, technology development and
collaboration, investment, acquisition, venture, consulting,
operational, tax, financial and capital projects; legal
proceedings, contingencies, and environmental compliance; potential
offerings, sales and other actions regarding debt or equity
securities of us or our subsidiaries; and future asset sales,
costs, working capital, revenues, business opportunities, debt
levels, cash flows, cost savings and reductions, margins, earnings
and growth. When used in this document, the words "believe,"
"expect," "anticipate," "estimate," "project," "plan," "should,"
"intend," "may," "will," "would," "potential" and similar
expressions are intended to identify forward-looking
statements.
Unaudited Pro Forma Condensed Consolidated Statement
of Operations for the Fiscal Year Ended December 31, 2006
Novamerican Acquired
Steel Company Pro Forma Pro Forma
12/31/06 11/25/06 Adjustments Combined Notes
Net sales $ - $ 840,798 $ - $ 840,798
Cost of sales - 655,659 - 655,659
------------------------------------------------------------------------
Gross margin - 185,139 - 185,139
Operating expenses
Plant - 45,233 2,488 47,721 (1)
Delivery - 25,586 - 25,586
Selling - 13,886 - 13,886
Formation and
operating costs 144 - - 144
Amortization of
intangible assets - - 7,983 7,983 (1)
Administrative
and general - 31,034 (5,882) 25,152 (2)
------------------------------------------------------------------------
144 115,739 4,589 120,472
Operating income (144) 69,400 (4,589) 64,667
Interest income, net - - - -
Interest expense, net 4 1,139 42,247 43,390 (3)
Share in income
of joint venture - (743) - (743)
------------------------------------------------------------------------
4 396 42,247 42,647
Income before
income taxes (148) 69,004 (46,836) 22,020
Income taxes - 24,706 (17,439) 7,267 (4)
------------------------------------------------------------------------
Net Income $(148) $ 44,298 $(29,396) $ 14,754
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income $(148) $ 44,298 $(29,396) $ 14,754
Interest expense
(income) 4 1,139 42,247 43,390
Depreciation and
Amortization 5 10,697 9,183 19,885
Income Tax - 24,706 (17,439) 7,267
------------------------------------------------------------------------
EBITDA $(139) $ 80,840 $ 4,594 $ 85,296
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 1
Represents the change in depreciation and amortization from
purchase accounting adjustments, assuming the Acquisition occurred
on January 1, 2006. The depreciation and amortization are
calculated on a straight line basis assuming a useful life of 30
years, 12 years, two years and 15 years for buildings, customer
relationships, non-compete agreements and all other property, plant
and equipment, respectively.
Property, plant and equipment depreciation $ 2,488
Amortization--intangible assets 7,983
------------------------------------------------------------------------
Total $ 10,471
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 2
Adjustment to eliminate non-recurring compensation expenses
related to certain senior management that left Acquired Company
immediately after closing of the Acquisition, to reflect
Novamerican Steel's projected administrative and general expenses
incurred as if the Acquisition occurred as of January 1, 2006, to
eliminate operating expenses relating to assets that were sold or
sold and leased back upon the consummation of the Acquisition as
part of Acquired Company's asset sales and the sale leaseback, and
to add the lease payment for the property subject to the sale
leaseback.
Administrative and general expenses
-compensation $(5,797)
Administrative and general expenses
-operating expenses for assets sold, net (2,085)
Administrative and general expenses
-Novamerican Steel projected costs 2,000
------------------------------------------------------------------------
Total $(5,882)
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 3
To reflect interest expense on the Notes, amounts borrowed under
the ABL Credit Facility which would have been applied to the
financing of the Acquisition as of January 1, 2006, and the fees on
the undrawn portion of the ABL Credit Facility as if obtained at
January 1, 2006, to reflect amortization of deferred financing fees
into interest expense as if the Acquisition occurred January 1,
2006 and to reverse Acquired Company's interest expense on debt,
which would have been repaid upon the closing of the Acquisition as
of January 1, 2006. The interest rate on the ABL Credit Facility
used to calculate the pro forma interest expense was the daily
average LIBOR rate plus 175 basis points. In addition, the $175.0
million ABL Credit Facility has a facility fee calculated as 30
basis points of the undrawn portion. The interest rate used to
calculate pro forma interest expense on the Notes was 11.5%.
Deferred financing costs were 1.0% of the total availability under
the ABL Credit Facility ($175.0 million) and 2.5% of the Notes
($315.0 million). A hypothetical 0.125% increase in the applicable
interest rate would increase the pro forma interest expense under
the ABL Credit Facility by $85,141.
Interest expense--ABL Credit Facility $ 4,680
ABL Credit Facility facility fee 321
Interest expense--Notes 36,225
Financing fees 2,164
Interest expense--historical Novamerican Steel (4)
Interest expense, net--historical Acquired Company (1,139)
------------------------------------------------------------------------
Total $ 42,247
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 4
To adjust the provision for income taxes for the effect of pro
forma income for the year ended November 25, 2006.
Income tax expense $(17,439)
------------------------------------------------------------------------
Total $(17,439)
------------------------------------------------------------------------
------------------------------------------------------------------------
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Fiscal Year Ended November 24, 2007
Novamerican Acquired
Steel Company Pro Forma Pro Forma
11/24/07 11/24/07 Adjustments Combined Notes
------------------------------------------------------------------------
Net sales $ - $ 801,348 $ - $ 801,348
Cost of sales - 652,540 - 652,540
------------------------------------------------------------------------
Gross margin - 148,808 - 148,808
Operating expenses
Plant - 43,023 2,488 45,511 (1)
Delivery - 24,689 - 24,689
Selling - 13,893 - 13,893
Formation and
operating costs 2,110 - - 2,110
Amortization
of intangibles - - 7,983 7,983 (1)
Administrative
and general 1,650 39,896 (24,347) 17,199 (2)(6)
------------------------------------------------------------------------
3,760 121,501 (13,876) 111,385
Operating income (3,760) 27,307 13,876 37,423
Interest income, net (5,105) - 5,105 - (3)
Interest expense, net - (1,671) 45,217 43,546 (4)
Share in income
of joint venture - (251) - (251)
------------------------------------------------------------------------
(5,105) (1,922) 50,322 43,295
Income before
income taxes 1,345 29,229 (36,446) (5,872)
Income taxes 451 11,430 (13,819) (1,938) (5)
------------------------------------------------------------------------
Net Income $ 894 $ 17,799 $(22,627) $(3,934)
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income $ 894 $ 17,799 $(22,627) $(3,934)
Interest expense
(income) (5,105) (1,671) 50,322 43,546
Depreciation and
Amortization 7 10,695 9,137 19,839
Income Tax 451 11,430 (13,819) (1,938)
------------------------------------------------------------------------
EBITDA $(3,753) $ 38,253 $ 23,013 $ 57,513
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 1
Represents the change in depreciation and amortization from
purchase accounting adjustments, assuming the Acquisition occurred
on January 1, 2007. The depreciation and amortization are
calculated on a straight line basis assuming a useful life of 30
years, 12 years, two years and 15 years for buildings, customer
relationships, non-compete agreements and all other property, plant
and equipment, respectively.
Property, plant and equipment depreciation $ 2,488
Amortization--intangible assets 7,983
------------------------------------------------------------------------
Total $ 10,471
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 2
Adjustment to eliminate non-recurring compensation expense
related to certain senior management that left Acquired Company
immediately after closing of the Acquisition, to reflect
Novamerican Steel's projected administrative and general expenses
incurred as if the Acquisition occurred as of January 1, 2007, to
eliminate operating expenses relating to assets that were sold or
sold and leased back upon the consummation of the Acquisition as
part of Acquired Company's asset sales and the sale leaseback, to
add the lease payment for the property subject to the sale
leaseback and to eliminate transaction costs incurred by
Novamerican in connection with the Acquisition.
Administrative and general expenses
-compensation $(2,244)
Administrative and general expenses
-Novamerican Steel actual costs (1,650)
Administrative and general expenses
-Novamerican Steel projected costs 2,000
Administrative and general expenses
-operating expenses for assets sold, net (1,943)
Administrative and general expenses
-Novamerican Steel incurred transaction costs
(not capitalized) (3,358)
Administrative and general expenses
-Acquired Company incurred transaction costs (12,782)
------------------------------------------------------------------------
Total $(19,977)
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 3
To eliminate interest income earned on cash accounts and the
trust account through November 15, 2007, which would have been
applied to the Acquisition as of January 1, 2007.
Interest income-Trust and Cash Accounts $ 5,105
------------------------------------------------------------------------
Total $ 5,105
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 4
To reflect interest expense on the Notes and amounts borrowed
under the ABL Credit Facility which would have been applied to the
financing of the Acquisition as of January 1, 2007 and the fees on
the undrawn portion of the ABL Credit Facility as if obtained at
January 1, 2007, to reflect amortization of deferred financing fees
into interest expense as if the Acquisition occurred January 1,
2007 and to reverse Acquired Company's interest expense on debt,
which would have been repaid upon the closing of the Acquisition as
of January 1, 2007. The interest rate on ABL Credit Facility used
to calculate the pro forma interest expense was the daily average
LIBOR rate plus 175 basis points. In addition, the $175.0 million
ABL Credit Facility has a facility fee calculated as 30 basis
points of the undrawn portion. The interest rate used to calculate
pro forma interest expense on the Notes was 11.50%. Deferred
financing costs were 1.0% of the total availability under the ABL
Credit Facility ($175.0 million) and 2.5% of the Notes ($315.0
million).
Interest expense- ABL Credit Facility $ 4,836
ABL Credit Facility facility fee 321
Interest expense-Notes 36,225
Financing fees 2,164
Interest income, net-historical Acquired Company 1,671
------------------------------------------------------------------------
Total $ 45,217
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 5
To eliminate the provision for income taxes on interest income
described in Note 3 and to adjust the provision for income taxes
for the effect of pro forma income for the twelve months ended
November 24, 2007.
Income tax expense on sale of aircraft $(3,698)
Income tax expense (10,120)
------------------------------------------------------------------------
Total $(13,819)
------------------------------------------------------------------------
------------------------------------------------------------------------
Note 6
To eliminate foreign exchange loss from the liquidation of the
Annaco legal entity in conjunction with the new legal structure of
the Company.
Foreign exchange loss $(4,370)
------------------------------------------------------------------------
Total $(4,370)
------------------------------------------------------------------------
------------------------------------------------------------------------
Novamerican Steel Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands of U.S. dollars)
------------------------------------------------------------------------
------------------------------------------------------------------------
November 24, December 31,
2007 2006
------------------------------------------------------------------------
$ $
ASSETS
Current assets
Cash and cash equivalents 19,638 262
Trade accounts receivable, net (Note 6) 111,546 -
Income taxes receivable 2,822 -
Inventories (Note 7) 149,894 -
Prepaid expenses and other 1,666 9
Deferred income taxes (Note 4) 7,130 -
------------------------------------------------------------------------
292,696 271
------------------------------------------------------------------------
Investment in a joint venture (Note 19) 1,999 -
Property, plant and equipment (Note 8) 150,436 -
Goodwill 149,360 -
Intangibles (Note 9) 68,431 -
Deferred financing charges (Note 12) 14,998 -
Deferred offering costs - 443
Other assets 257 -
Deferred income taxes (Note 4) 43 -
------------------------------------------------------------------------
678,220 714
------------------------------------------------------------------------
------------------------------------------------------------------------
LIABILITIES
Current liabilities
Trade accounts payable 64,350 357
Trade accounts payable to
a joint venture (Note 19) 1,639 -
Accrued liabilities (Note 10) 35,079 -
Note payable to a related party (Note 11) - 500
Deferred income taxes (Note 4) 2,921 -
------------------------------------------------------------------------
103,989 857
------------------------------------------------------------------------
Long-term debt (Note 12) 390,588 -
Deferred income taxes (Note 4) 58,588 -
Other long term liabilities (Note 4) 3,410 -
------------------------------------------------------------------------
556,575 857
------------------------------------------------------------------------
------------------------------------------------------------------------
Contingencies and commitments (Notes 20 and 21)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: $0.001 par value;
authorized 10,000,000 shares; none issued
or outstanding (Note 16)
Common stock: $0.001 par value;
authorized 100,000,000 shares; issued and
outstanding 21,452,304 in 2007 and
4,687,500 in 2006 (Note 15) 21 5
Additional paid-in capital 128,316 -
Accumulated deficit (3,947) (148)
Accumulated other comprehensive loss (2,745) -
------------------------------------------------------------------------
121,645 (143)
------------------------------------------------------------------------
678,220 714
------------------------------------------------------------------------
------------------------------------------------------------------------
Novamerican Steel Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
------------------------------------------------------------------------
------------------------------------------------------------------------
Period from Period from
January 1, 2007 April 26, 2006
to November to December
24, 2007 31, 2006
------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES $ $
Net loss (3,799) (148)
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 644 -
Deferred income taxes (3,114) -
Gain on disposal of property,
plant and equipment (108) -
Share in income of a joint venture (12) -
Changes in working capital items
Trade accounts receivable 3,724 -
Income taxes receivable (480) -
Inventories 2,566 -
Prepaid expenses and other 1,224 -
Accounts payable and accrued liabilities (665) 8
Income taxes payable (5,425) -
------------------------------------------------------------------------
Net cash used for operating activities (5,445) (140)
------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisitions, net (Note 3) (491,110) -
Proceeds from disposal of property,
plant and equipment 15,423 -
Payment of acquisition costs (2,889) -
Additions to property, plant and equipment (72) -
------------------------------------------------------------------------
Net cash used for investing activities (478,648) -
------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock - 5
Gross proceeds from public offering -
common stock and warrants 150,000 -
Gross proceeds from private placements -
warrants 4,750 -
Gross proceeds from private placement -
common stock and warrants 15,000 -
Conversion of shares into cash (30,263) -
Payment of offering costs (11,159) (103)
Borrowings from senior secured notes 315,000 -
Borrowings from revolving credit agreement 75,807 -
Proceeds from note payable to a related party - 500
Payment of debt financing costs (15,057) -
Repayment of note payable to a related party (500) -
------------------------------------------------------------------------
Net cash from financing activities 503,578 402
------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (109) -
------------------------------------------------------------------------
Net increase in cash and cash equivalents 19,376 262
Cash and cash equivalents, beginning of year 262 -
------------------------------------------------------------------------
Cash and cash equivalents, end of year 19,638 262
------------------------------------------------------------------------
------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid 17 -
Income taxes paid 7,522 -
------------------------------------------------------------------------
------------------------------------------------------------------------
Novamerican Steel Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(In thousands of U.S. dollars, except per share data)
------------------------------------------------------------------------
------------------------------------------------------------------------
Period from Period from
January 1, 2007 April 26, 2006
to November to December
24, 2007 31, 2006
------------------------------------------------------------------------
$ $
Net sales 16,304 -
Cost of sales 14,792 -
------------------------------------------------------------------------
Gross margin 1,512 -
------------------------------------------------------------------------
Operating expenses
Plant 1,355 -
Delivery 574 -
Selling 263 -
Administrative and general 2,139 145
Formation and operating costs 2,334 -
------------------------------------------------------------------------
6,665 145
------------------------------------------------------------------------
Operating loss (5,153) (145)
------------------------------------------------------------------------
Transaction expenses (Note 3) 4,438 -
Interest expense 1,290 13
Interest income (4,797) (10)
Share in income of a joint venture (12) -
------------------------------------------------------------------------
919 3
------------------------------------------------------------------------
Loss before income taxes (6,072) (148)
Income taxes (Note 4) (2,273) -
------------------------------------------------------------------------
Net loss (3,799) (148)
------------------------------------------------------------------------
------------------------------------------------------------------------
Net loss per share (Note 5)
Basic (0.20) (0.03)
------------------------------------------------------------------------
------------------------------------------------------------------------
Diluted (0.20) (0.03)
------------------------------------------------------------------------
------------------------------------------------------------------------
Comprehensive loss
Net loss (3,799) (148)
Changes in cumulative
translation adjustment (2,745) -
------------------------------------------------------------------------
(6,544) (148)
------------------------------------------------------------------------
------------------------------------------------------------------------
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
NOVAMERICAN STEEL INC. AND SUBSIDIARIES
(Dollars in Millions)
Net Debt Reconciliation
November 24, 2007
------------------------------------------------------------------------
ABL credit facility $ 75.6
Senior secured notes 315.0
------------------------------------------------------------------------
Total debt $ 390.6
Less:
Cash and cash equivalents 19.6
------------------------------------------------------------------------
Net debt $ 371.0
------------------------------------------------------------------------
------------------------------------------------------------------------
NOTE ON NET DEBT RECONCILIATION: Net debt is a non-GAAP
financial measure that Novamerican calculates according to the
schedule above, using GAAP amounts from the Consolidated Financial
Statements. Novamerican believes that net debt is generally
accepted as providing useful information regarding a company's
indebtedness and that net debt provides meaningful information to
investors to assist them to analyze leverage. Management uses net
debt as well as other financial measures in connection with its
decision making activities. Net debt should not be considered in
isolation or as a substitute for total debt or total debt and other
long term obligations calculated in accordance with GAAP.
Novamerican's method for calculating net debt may not be comparable
to methods used by other companies.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
NOVAMERICAN STEEL INC. AND SUBSIDIARIES
(Dollars in Millions)
(Unaudited)
Pro Forma EBITDA Reconciliation
Q4 2006 2006 Year Q4 2007 2007 Year
------------------------------------------------------------------------
Net income (loss) $ 5.6 $ 14.8 $(2.0) $(3.9)
Add back:
Interest expense 10.9 43.4 10.9 43.5
Depreciation and amortization 5.1 19.9 5.1 19.8
Income tax 2.7 7.2 (1.0) (1.9)
------------------------------------------------------------------------
EBITDA $ 24.3 $ 85.3 $ 13.0 $ 57.5
------------------------------------------------------------------------
NOTE ON PRO FORMA EBITDA RECONCILIATION: EBITDA is a non-GAAP
financial measure that Novamerican currently calculates according
to the schedule above, using GAAP amounts from the Consolidated
Financial Statements. Novamerican believes that such non-GAAP
financial measures are generally accepted as providing useful
information regarding a company's credit facilities and certain
financial-based covenants and, accordingly, its ability to incur
debt and maintain adequate liquidity. Such non-GAAP financial
measures should not be considered in isolation or as a substitute
for net income (loss), cash flows from continuing operations or
other consolidated income or cash flow data prepared in accordance
with GAAP. Novamerican's method for calculating such non-GAAP
financial measures may not be comparable to methods used by other
companies and is not the same as the method for calculating EBITDA
under its senior secured revolving credit facility or its senior
notes.
ACQUISITION SOURCES AND USES OF FUNDS RECONCILIATION
NOVAMERICAN STEEL INC. AND SUBSIDIARIES
AS OF NOVEMBER 15, 2007
(Dollars in Millions)
(Unaudited)
Sources of Funds:
Equity in Trust $112.0
Private Placement 15.0
Senior Secured Notes 315.0
Asset-Backed Loan 68.1
Proceeds from disposal of property, plant and equipment 15.4
Cash Acquired 94.1
------------------------------------------------------------------------
Net $619.6
------------------------------------------------------------------------
------------------------------------------------------------------------
Uses of Funds:
Purchase Price $585.2
Financing and Related Fees 15.1
Increase in net working capital (a) 19.3
------------------------------------------------------------------------
Net $619.6
------------------------------------------------------------------------
------------------------------------------------------------------------
(a) Amounts used for payment of accrued taxes, other liabilities related
to the transaction and other general corporate purposes.
Contacts: Novamerican Steel Inc. Karen G. Narwold, Esq. VP,
Chief Administrative Officer and General Counsel 646-429-1540
(office) 917-207-7924 (cell) www.novamerican.com
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