NEW YORK, NEW YORK (NASDAQ: TONSW) ("Novamerican" or the
"Company") today announced financial results for the first fiscal
quarter ended February 23, 2008.
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"). Subsequent to the acquisition, Symmetry changed its name
to Novamerican Steel Inc. and changed its fiscal year from December
31 to the last Saturday of November.
The consolidated financial statements for the three months ended
March 31, 2007, include only the financial results of Symmetry. The
consolidated balance sheet as of November 24, 2007 and the
consolidated financial statements for the three months ended
February 23, 2008 include the financial position and results of
Novamerican and its wholly-owned subsidiaries, including Acquired
Company. 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 to this release.
2008 First Fiscal Quarter Highlights
- Net sales increased $8.4 million, or 4.5 percent, to $195.6
million, as compared to $187.2 million in the first fiscal quarter
of 2007. Excluding the impact of exchange rates, net sales would
have decreased by $8.0 million or 4.3 percent.
- Total tons increased 6.2 percent to 372,200 tons as compared
to 350,600 tons in the first fiscal quarter of 2007.
- Direct sales tons decreased slightly to 202,600, or 54.4
percent of total tons, versus 203,400 tons, or 58.0 percent of
total tons, in the first fiscal quarter of 2007.
- Gross margin decreased 20.5 percent to $27.7 million, or 14.2
percent of net sales, as compared to $34.9 million, or 18.6 percent
of net sales, in the first fiscal quarter of 2007. Cost of sales in
the first fiscal quarter of 2008 included the remaining $6.7
million of purchase price that was allocated to certain
inventories. The impact of exchange rates was an increase of $2.2
million. Excluding the impact of exchange rates and the purchase
price allocation to inventory, gross margin would have decreased by
$2.7 million to $32.2 million or 18 percent of net sales.
- Operating expenses increased $2.9 million, or 10.2 percent, to
$31.6 million, as compared to $28.7 million in the first fiscal
quarter of 2007. Operating expenses included $2.7 million from
higher depreciation and amortization associated with the purchase
price allocation for fixed assets and other intangible assets. The
impact of exchange rates on operating expenses was an increase of
$2.6 million. Excluding the impact of exchange rates and higher
depreciation and amortization, operating expenses would have
decreased $2.4 million to $26.3 million.
- Adjusted EBITDA decreased by $2.6 million, or 23.2 percent, to
$8.6 million, as compared to $11.2 million in the first fiscal
quarter of 2007.
- Long-term debt at February 23, 2008 was $373.1 million and
cash and cash equivalents were $18.6 million (or a net debt of
approximately $354.5 million).
Corrado De Gasperis, Chief Executive Officer of Novamerican,
commented, "Our first fiscal quarter of 2008 started off with a
very slow first two months, particularly from weaker Canadian
manufacturing and automotive markets. February represented the
strongest month in the quarter, with higher shipping rates for
processing and structural tube and higher average selling
prices."
Liquidity and Capital Resources
Long-term debt at February 23, 2008 was approximately $373.1
million with $18.6 million of cash and cash equivalents (or a net
debt of approximately $354.5 million). On November 24, 2007, our
long term debt was approximately $390.6 million with $19.6 million
of cash and cash equivalents (or a net debt of approximately $371.0
million).
As of February 23, 2008, the aggregate borrowing base was $151.8
million (including the $15.0 million availability block), of which
$1.0 million was utilized for letter of credit obligations and
approximately $58.1 million was outstanding under the ABL Credit
Facility. At February 23, 2008, approximately $92.7 million was
available for future borrowings.
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 implementing our operating
methodology, the Decalogue(TM) , at Novamerican, effectively
operating it as one system versus 22 separate facilities. During
the first fiscal quarter, we completed the training of over 60 of
our operating managers in the Decalogue(TM) methodology, planned
and redesigned our organization and realigned responsibilities
across the one system design, and scheduled the specific projects
associated with this transformation, including how we replenish our
processing, distribution and manufacturing network and the closure
of our Cambridge, Ontario processing facility. We incurred
approximately $0.7 million in the 2008 first fiscal quarter for
operating expenses for training and development associated with
this effort."
Outlook
U.S. steel service center hot-rolled inventories continued
declining through February 2008 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 weakened from the sluggish pace of the past year with a
particularly weak automotive outlook. In the U.S., the automotive,
residential construction and related sectors are in a
recessionary-like environment and have been over the last 12
months, somewhat offset by strengthening export activity. Canadian
manufacturing, including automotive, has also experienced
shrinkage. Globally, stronger demand and pricing in markets outside
of North America, as well as the weaker U.S. currency, has kept
most imports for 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 March 2008, North American steel suppliers announced a
fifth consecutive month of increases, pushing prices for hot-rolled
coil as high as $730 per ton, with world spot export market prices
as high as $750 - $800 per ton. While cost increases may have
prompted these increases, we believe tight supply is enabling their
success and low inventory levels may result in sustaining these
increases, at least until the middle of 2008. The outlook for the
U.S. dollar, freight rates and other world steel sheet markets
indicate that import pressures are unlikely to increase rapidly,
providing for a potentially longer period of higher prices. We
experienced a pick-up in demand in late January 2008 as steel
purchasers attempted to secure their needs for 2008. Our pricing
remained soft through January until the increases from the mills
became substantively realized in the marketplace and we began
experiencing price increases.
We expect our volumes in the second fiscal quarter of 2008 to be
higher than in the first fiscal quarter of 2008, mainly due to a
relatively stronger order book from our customers, including
increased demand from our distribution customers. Our automotive
business is stronger in the second fiscal quarter than in the first
fiscal quarter as scheduled inventory reductions for our automotive
customers were completed, offset somewhat by the ongoing strike at
American Axle and its impact on General Motors. Overall, our 2008
second fiscal quarter will result in higher revenue and operating
profit than our 2008 first fiscal quarter but weaker cash flows
from operations, mainly resulting from uses of cash for working
capital and approximately $19.5 million in interest payments.
We have finalized, scheduled and commenced our project plans for
implementing our operating methodology at Novamerican, effectively
operating it as one system versus 22 separate facilities, and
during 2008 we will (a) enable the system to operate at much faster
cycle times, enabling practical capacity of approximately 2.5
million tons per annum and maximizing the throughput from the sale
of such capacity, (b) experience a permanent reduction of inventory
of approximately $50.0 million primarily from this faster
replenishment and operating cycle, and (c) implement organizational
changes, especially in our replenishment, processing and
distribution processes. This includes the closure of our Cambridge,
Ontario processing facility as we effectively consolidate the
activities of that facility with our Stoney Creek processing center
located in Hamilton, Ontario. These organizational changes and the
closing of the Cambridge facility will result in approximately
$10.0 million, net, in annual operating expense reductions, with
that resulting run rate realized by the end of 2008. We incurred
approximately $0.7 million in the 2008 first fiscal quarter for
operating expenses associated with training and development
required for these changes and estimate approximately $4.5 million
in cash exit costs associated with the organizational changes to 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 cost of these resources is included in our
estimated net operating expense reductions.
We expect cash interest payments to be approximately $40.0
million in fiscal 2008 with approximately $19.5 million paid in the
2008 second fiscal quarter. We spent $1.8 million in capital
expenditures in the first fiscal quarter of 2008, substantially all
for the Morrisville, Pennsylvania structural tubing facility
expansion. 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 the expansion at our
Morrisville, Pennsylvania structural tubing facility.
Depreciation, amortization and the purchase price allocation to
inventory for fiscal 2008 are expected to be approximately $26.7
million, including $2.5 million, $8.0 million and $6.7 million
associated with the amortization of the purchase price allocation
for plant and equipment, intangibles (other than goodwill) and
inventory, respectively.
Mr. De Gasperis commented, "Although the first two months of
this year started slow, our cash flow has been positive. We remain
cautious about the overall economy but look forward to the positive
cash flow in the third and fourth quarters resulting from our
improved cycle times and resulting lower inventory levels. 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."
2008 First Fiscal Quarter compared to Pro Forma 2007 First
Fiscal Quarter
In the first fiscal quarter of 2008, net sales increased by $8.4
million, or 4.5 percent, to $195.6 million, compared with $187.2
million in the pro forma first fiscal quarter of 2007. The impact
of exchange rates on sales was an increase of $16.4 million.
Excluding the impact of exchange rates, net sales would have
decreased by $8.0 million, or 4.3 percent, compared with the pro
forma first fiscal quarter of 2007. The decrease in sales for the
first fiscal quarter of 2008 was due to a higher percentage of
revenue from toll processed tons versus direct sales, a decline in
sales volume of automotive tubing and lower pricing on toll
processed tons, primarily resulting from decreased demand in the
automotive and general manufacturing sectors.
2008 2007 2007
First Fiscal First Fiscal Fourth Fiscal
Quarter Quarter Quarter
--------------------------------------------------------------------------
Direct sales tons 202,600 203,400 221,600
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Toll processed tons 169,600 147,200 147,500
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Total tons sold and toll processed 372,200 350,600 369,100
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Total tons directly sold and toll processed increased by 6.2
percent to 372,200 tons in the first fiscal quarter of 2008 from
350,600 tons for the pro forma first fiscal quarter of 2007. Total
tons in the first fiscal quarter of 2008 included 202,600 tons from
direct sales and 169,600 tons from toll processing. Direct sale
tons decreased by 0.4 percent to 202,600 tons in the first fiscal
quarter of 2008 from 203,400 tons for the pro forma first fiscal
quarter of 2007. The decrease in direct sale tons was due to a
decrease in volumes for our manufacturing customers, primarily in
Canada, somewhat offset by an increase in direct sales resulting
from a shift to direct sales from toll processing for certain
automotive customers. Toll processed tons increased by 15.2 percent
to 169,600 tons in the first fiscal quarter of 2008 from 147,200
tons for the pro forma first fiscal quarter of 2007. The increase
in tons toll processed in the first fiscal quarter of 2008 was
primarily driven by increased customer demand in Canada, albeit at
lower average selling prices.
Gross margin decreased from $34.9 million to $27.7 million, or
from 18.6 percent to 14.2 percent as a percentage of net sales, in
the first fiscal quarter of 2008 as compared to the pro forma first
fiscal quarter of 2007, primarily from a reduction in gross margin
dollars of $6.7 million from the additional costs associated with
the purchase price allocation to inventory. In addition, we
realized lower average selling prices for our products during the
quarter as we experienced the apparent end of the North American
service center inventory de-stocking cycle. The impact of exchange
rates on gross margin was an increase of $2.2 million. Excluding
the impact of exchange rates and the purchase price allocation to
inventory, gross margin would have decreased by $2.7 million to
$32.2 million, or 18.0 percent as a percentage of net sales.
Operating expenses increased by $2.9 million, or 10.2 percent,
and increased to 16.1 percent from 15.3 percent as a percentage of
net sales for the first fiscal quarter of 2008 as compared to the
pro forma first fiscal quarter of 2007. The increase was primarily
attributed to plant operating expenses of $12.7 million, or 6.5
percent of net sales, as compared to $11.1 million, or 6.0 percent
of net sales, and general and administrative expenses of $7.4
million, or 3.8 percent of net sales, as compared to $6.0 million,
or 3.2 percent of net sales. Plant operating expenses included
approximately $0.8 million in higher depreciation expense
associated with the purchase price allocation to property, plant
and equipment. General and administrative expenses also included
$0.7 million for training and development during the quarter for
more than 60 employees associated with the Decalogue(TM)
implementation. The impact of exchange rates on operating expenses
was an increase of $2.6 million. Excluding the impact of exchange
rates, the additional depreciation and training and development
expenses, operating expenses would have decreased by $1.2 million.
Pro forma adjustments resulted in the exclusion from administrative
costs actually incurred in the pro forma first fiscal quarter of
2007, of the following: $1.5 million in compensation for the former
officers of Acquired Company and $0.5 million in operating costs
associated with the assets disposed as part of the acquisition,
including the aircraft. The pro forma adjustments also include $0.5
million of ongoing costs for Novamerican's principal executive
officers.
In the first fiscal quarter of 2008, interest income was $0.2
million as compared to nil in the pro forma first fiscal quarter of
2007. Interest expense was $10.8 million, a decrease of $0.1
million as compared to the pro forma first fiscal quarter of 2007.
Interest expense on the Senior Secured Notes and ABL Credit
Facility was $9.1 million and $1.2 million, respectively, for the
first fiscal quarter of 2008 and $9.1 million and $1.3 million,
respectively, for the pro forma first fiscal quarter of 2007. The
remaining $0.5 million of interest expense primarily represents the
amortization of deferred financing charges.
Income taxes were a benefit of $6.5 million for the first fiscal
quarter of 2008, reflecting an estimated annual effective tax rate
of approximately 36 percent. Income taxes in the first fiscal
quarter of 2008 included a $1.3 million deferred tax benefit due to
a statutory rate reduction in Canada which is not reflected in the
estimated annual rate.
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
three months ended March 31, 2007, our audited results and
financial statement information for the period ended November 24,
2007, our unaudited results and financial statement information for
the three months ended February 23, 2008 and 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 Three Months Ended March 31, 2007
Acquired
Novamerican Company Pro Forma Pro Forma
3/31/07 2/24/07 Adjustments Combined Notes
-------------------------------------------------------------------------
$ $ $ $
Net sales - 187,190 - 187,190
Cost of sales - 152,303 - 152,303
-------------------------------------------------------------------------
Gross margin - 34,887 - 34,887
Operating expenses
Plant - 10,516 622 11,138 (1)
Delivery - 5,846 - 5,846
Selling - 3,553 - 3,553
Formation and
operating costs 112 - - 112
Amortization of
intangibles - - 1,996 1,996 (1)
Administrative and
general - 7,476 (1,456) 6,020 (2)
-------------------------------------------------------------------------
112 27,391 1,162 28,665
Operating income (loss) (112) 7,496 (1,162) 6,222
Interest income, net (420) - 420 - (3)
Interest expense, net - (63) 10,951 10,888 (4)
Share in income of
joint venture - (2) - (2)
-------------------------------------------------------------------------
(420) (65) 11,371 10,886
Income (loss) before
income taxes 308 7,561 (12,533) (4,664)
Income taxes 123 2,383 (4,045) (1,539) (5)
-------------------------------------------------------------------------
Net income (loss) 185 5,178 (8,488) (3,125)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) 185 5,178 (8,488) (3,125)
Interest expense (income) (420) (63) 11,371 10,888
Depreciation and
amortization - 2,619 2,287 4,906
Income tax 123 2,383 (4,045) (1,539)
-------------------------------------------------------------------------
EBITDA (112) 10,117 1,125 11,130
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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.
Plant depreciation $622
Amortization-intangible assets 1,996
-------------------------------------------------------------------------
Total $2,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 2
Adjustment to eliminate non-recurring compensation expense
related to certain senior management that left Acquired Company
immediately after the closing of the Acquisition, to reflect
Novamerican's projected administrative and general expenses
incurred as if the Acquisition had 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.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Fiscal Three Months Ended March 31, 2007
Administrative and general expenses-compensation $(1,457)
Administrative and general expenses-Novamerican
projected costs 500
Administrative and general expenses-operating
expenses for assets sold, net (457)
Administrative and general expenses-Novamerican
incurred transaction costs (not capitalized) (42)
-------------------------------------------------------------------------
Total $(1,456)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 3
To eliminate interest income earned on cash accounts and the Symmetry
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 $420
-------------------------------------------------------------------------
Total $420
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 4
To reflect interest expense on the Senior Secured 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 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 Senior Secured 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 Senior
Secured Notes ($315.0 million).
Interest expense-ABL Credit Facility $1,210
ABL Credit Facility fee 81
Interest expense-Senior Secured Notes 9,056
Financing fees 541
Interest income, net-historical Acquired Company 63
-------------------------------------------------------------------------
Total $10,951
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 three months ended February 24, 2007.
Income tax expense $(4,045)
-------------------------------------------------------------------------
Total $(4,045)
-------------------------------------------------------------------------
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Novamerican Steel Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands of U.S. dollars)
-------------------------------------------------------------------------
February 23, 2008 November 24, 2007
-------------------------------------------------------------------------
(unaudited)
$ $
ASSETS
Current assets
Cash and cash equivalents 18,550 19,638
Trade accounts receivable, net of
allowance $856 at February 23, 2008
and $896 at November 24, 2007 112,369 111,546
Income taxes receivable 2,863 2,822
Inventories (Note 7) 155,073 149,894
Prepaid expenses and other assets 7,116 1,666
Deferred income taxes 5,803 7,130
-------------------------------------------------------------------------
301,774 292,696
-------------------------------------------------------------------------
Investment in a joint venture 2,085 1,999
Property, plant and equipment, net of
accumulated depreciation $3,420 at
February 23, 2008 and $406 at November
24, 2007 147,187 150,436
Goodwill 150,337 149,360
Intangibles 65,441 68,431
Deferred financing charges 14,458 14,998
Other assets 57 257
Deferred income taxes - 43
-------------------------------------------------------------------------
681,339 678,220
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
Current liabilities
Trade accounts payable 70,872 64,350
Trade accounts payable to a joint
venture (Note 12) 1,866 1,639
Accrued liabilities 62,443 35,079
Deferred income taxes - 2,921
-------------------------------------------------------------------------
135,181 103,989
-------------------------------------------------------------------------
Long-term debt (Note 8) 373,149 390,588
Deferred income taxes 56,927 58,588
Other long term liabilities (Note 5) 3,332 3,410
-------------------------------------------------------------------------
568,589 556,575
-------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock: $0.001 par value;
authorized 10,000,000 shares; none
issued or outstanding - -
Common stock: $0.001 par value;
authorized 100,000,000 shares; issued
and outstanding 21,452,304 at February
23, 2008 and November 24, 2007 21 21
Additional paid-in capital 128,316 128,316
Accumulated deficit (11,836) (3,947)
Accumulated other comprehensive loss (3,751) (2,745)
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112,750 121,645
-------------------------------------------------------------------------
681,339 678,220
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Novamerican Steel Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(In thousands of U.S. dollars)
-------------------------------------------------------------------------
Three months ended Three months ended
February 23, 2008 March 31, 2007
-------------------------------------------------------------------------
(unaudited)
$ $
Net sales 195,629 -
Cost of sales 167,900 -
-------------------------------------------------------------------------
Gross margin 27,729 -
-------------------------------------------------------------------------
Operating expenses
Plant 12,745 -
Delivery 6,182 -
Selling 3,327 -
Administrative and general 7,396 -
Amortization of intangibles 1,928 -
Formation and operating costs - 112
-------------------------------------------------------------------------
31,578 112
-------------------------------------------------------------------------
Operating loss (3,849) (112)
-------------------------------------------------------------------------
Interest expense 10,772 4
Interest income (181) (424)
Share in income of a joint venture (86) -
-------------------------------------------------------------------------
10,505 (420)
-------------------------------------------------------------------------
Income (loss) before income taxes (14,354) 308
Income taxes (Note 5) (6,465) 123
-------------------------------------------------------------------------
Net income (loss) (7,889) 185
-------------------------------------------------------------------------
Net income (loss) per share (Note 6)
Basic (0.37) 0.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted (0.37) 0.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprehensive income (loss)
Net income (loss) (7,889) 185
Changes in cumulative translation
adjustment (1,006) -
-------------------------------------------------------------------------
(8,895) 185
-------------------------------------------------------------------------
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Novamerican Steel Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars, except per share data)
-------------------------------------------------------------------------
Three months ended Three months ended
February 23, 2008 March 31, 2007
-------------------------------------------------------------------------
(unaudited)
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (7,889) 185
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities
Depreciation 3,194 -
Amortization 2,467 -
Deferred income taxes (4,256) -
Gain on disposal of property, plant
and equipment (81) -
Share in income of a joint venture (86) -
Changes in working capital items
Trade accounts receivable (2,948) -
Income taxes receivable (110) -
Inventories (7,286) -
Prepaid expenses and other assets (5,474) (148)
Accounts payable and accrued
liabilities 36,194 389
Other assets - (101)
-------------------------------------------------------------------------
Net cash provided by operating
activities 13,725 325
-------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash deposited to trust - (143,700)
Increase in investments in trust - (412)
Proceeds from disposal of property,
plant and equipment 129 -
Additions to property, plant and
equipment (1,754) (19)
-------------------------------------------------------------------------
Net cash used in investing
activities (1,625) (144,131)
-------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Gross proceeds from public offering-
common stock and warrants - 150,000
Gross proceeds from private
placements-warrants - 3,750
Payment of offering costs - (6,187)
Repayments of revolving credit
facility (13,293) -
Repayment of note payable to a
related party - (500)
Refund of deposit 200 -
-------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (13,093) 147,063
-------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents (95) -
-------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (1,088) 3,257
Cash and cash equivalents, beginning
of period 19,638 262
-------------------------------------------------------------------------
Cash and cash equivalents, end of
period 18,550 3,519
-------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid 717 17
Income taxes paid 1,120 -
Net Debt Reconciliation
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
NOVAMERICAN STEEL INC. AND SUBSIDIARIES
(Dollars in millions)
Net Debt Reconciliation
February 23, 2008 November 24, 2007
$ $
-------------------------------------------------------------------------
ABL credit facility 58.1 75.6
Senior secured notes 315.0 315.0
-------------------------------------------------------------------------
Total debt 373.1 390.6
Less:
Cash and cash equivalents 18.6 19.6
-------------------------------------------------------------------------
Net debt 354.5 371.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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)
Adjusted EBITDA Reconciliation
Pro forma
Q1 2008 Q1 2007
$ $
-------------------------------------------------------------------------
Net income (loss) (7.9) (3.1)
Add back:
Interest expense, net 10.6 10.9
Depreciation and amortization 5.7 4.9
Purchase price allocation to inventory 6.7 -
Income tax (6.5) (1.5)
-------------------------------------------------------------------------
ADJUSTED EBITDA 8.6 11.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE ON ADJUSTED EBITDA RECONCILIATION: ADJUSTED 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
secured notes.
Contacts: Novamerican Steel Inc. Karen G. Narwold, esq VP, Chief
Administrative Officer and General Counsel 646-429-1540 / Cell:
917-207-7924 www.novamerican.com
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