HAMILTON, ON, Feb. 3 /CNW/ - Dofasco Inc. today reported its earnings for
the year and quarter ended December 31, 2005. Dofasco's 2005 net income was
$171.0 million or $2.21 per share, compared to $376.9 million or $4.92 per
share in 2004. For the three months ended December 31, 2005, net income was
$28.4 million or $0.37 per share. This compares to net income of $96.8 million
or $1.26 per share in the fourth quarter of 2004.
The consolidated net income for the fourth quarter reflected good results
at the Corporation's Mining Operations and Gallatin Steel segments offset by a
loss at Dofasco's Steel Operations business segment.
The financial results for the Steel Operations segment, which includes
Dofasco's Hamilton operations, were negatively impacted in the fourth quarter
by continued high input costs and various production issues. In addition, a
number of non-operating items had a net unfavourable impact on Dofasco's
fourth quarter net income of approximately $9 million or 11 cents per share.
These results also reflect the recent volatility experienced in the North
American pricing environment. In 2004, robust global flat rolled steel demand
led to a rapid escalation of U.S. spot market selling prices over the first
three quarters of the year, reaching a record level of US $740 per ton as
published by CRU International Inc. in September 2004. Increased levels of
imports into North America in the second half of 2004 resulted in higher
inventories throughout the supply chain which led to a decline in industry-
reported prices of approximately US $100 per ton during the fourth quarter. In
2005, the high inventory levels, combined with softening end-user demand,
resulted in a further decline in published hot band spot prices of more than
US $200, reaching a low of US $425 per ton in August before recovering to US
$550 per ton for the fourth quarter, as reported by CRU.
Commenting on the year's results, Dofasco's President and CEO Don Pether
said, "We are pleased by our two recent acquisitions, Quebec Cartier Mining
Company and the Copperweld automotive and mechanical tubing businesses, and by
their performance to date. In addition, Gallatin continued its excellent
operational performance with record annual shipments. Gallatin's earnings
performance was only surpassed by record results in 2004." Mr. Pether
continued, "However, in Hamilton, Dofasco faced a number of challenges in
2005. Profitability was negatively impacted by significantly higher costs for
purchased slabs, raw materials and energy and a significant drop in market
pricing. Hamilton employees continued to remain focused in the face of these
challenges and in the midst of the completion of the No. 2 Blast Furnace
rebuild and working towards completion of Phase 1 of the Finishing Division
Improvement Program."
Gross Income by Business Segment
Consolidated gross income for the fourth quarter of 2005 was
$123.6 million, a 44% decline from gross income of $219.7 million for the same
quarter of 2004. This decrease is mainly the result of significantly lower
results at Steel Operations and lower results at Gallatin Steel. On the
positive side, the results of the Corporation's Mining Operations segment
increased significantly as a result of the impact of the acquisition of Quebec
Cartier Mining Company (QCM) and improved results at Wabush Resources. For the
year ended December 31, 2005, consolidated gross income was $536.2 million
compared to $836.2 million in 2004.
Gross income is used by management to analyze the margins of its
reporting segments. Gross income is a financial measure that is not recognized
by generally accepted accounting principles (GAAP) in Canada. This measure,
presented in respect of Dofasco and its business segments, may not be
comparable to similar measures presented by other companies.
Steel Operations Gross Income
For the quarter ended December 31, 2005, Steel Operations gross income
was $9.9 million, a significant decrease from the $173.1 million generated in
the fourth quarter of 2004. Gross income for the year ended December 31, 2005
was $291.3 million, compared to $654.1 million gross income in 2004.
As in previous quarters, the results of the Steel Operations segment were
largely driven by the Corporation's Hamilton operations.
Hamilton Operations Gross Income
At the Corporation's Hamilton operations, shipments were 1,020,000 tons
in the fourth quarter, virtually unchanged from the 1,019,000 tons shipped in
the fourth quarter of 2004.
Average revenue per ton of steel shipped from Hamilton in the fourth
quarter of 2005 was $758 per ton compared to $870 per ton in the fourth
quarter of 2004 driven by a substantial decrease in selling prices across all
products and the impact of a stronger Canadian dollar, averaging $0.85 in the
fourth quarter of 2005 versus $0.82 in the fourth quarter of 2004. In the
third quarter, various short-term operating interruptions caused some
shipments to be delayed until the fourth quarter. As a result, revenue per ton
in the fourth quarter was also negatively impacted since these shipments were
influenced by the third quarter spot market prices which were well below the
fourth quarter levels.
Average cost per ton for the fourth quarter was $755 per ton, an increase
of $38 per ton over the level experienced in the same period in 2004. This
increase was mainly due to the impact of the higher excess cost of purchased
slabs in the quarter, which was approximately $26 per ton shipped higher than
in the fourth quarter of 2004. Costs were also higher due to production
interruptions at steelmaking operations and additional outside processing and
other costs incurred in preparation for the January shutdown associated with
the No. 2 Coupled Pickle Line Cold Mill (No. 2 CPCM) project, the total of
which contributed approximately $20 to the higher cost per ton. Increased
costs for raw materials and energy were partly offset by lower scrap costs,
higher hot mill and finishing production as well as lower variable
compensation expense versus the fourth quarter of 2004.
As a result of these factors, gross income from Hamilton operations
declined to $3.0 million in the fourth quarter compared to $158.0 million in
the fourth quarter of 2004.
Gallatin Steel Gross Income
Dofasco's 50% share of Gallatin Steel's gross income was $123.6 million
for the year ended December 31, 2005, compared to $191.9 million gross income
in 2004.
Gallatin Steel contributed $32.1 million of gross income in the fourth
quarter of 2005, lower than the excellent results of $50.1 million reported in
the fourth quarter of 2004. The decline in gross income was mainly a result of
significantly lower average revenue per ton and the impact of a weaker U.S.
dollar on the translation of Gallatin's results.
Shipments were 406,000 tons in the fourth quarter, the second highest
ever, and 32,000 tons higher than in the fourth quarter of 2004. Hot band
steel production in the quarter was a record 406,000 tons.
Gallatin's average revenue per ton in the fourth quarter of 2005 was
US $546 per ton compared to US $682 per ton in the fourth quarter of 2004, a
decrease of US $136 per ton reflecting considerably lower U.S. spot market
selling prices.
The average cost per ton shipped in the fourth quarter decreased by
US $53 over the same period in 2004 primarily driven by lower average scrap
costs in the quarter.
Mining Operations Gross Income
Gross income for the Corporation's Mining Operations segment, consisting
of QCM and Wabush Resources, was $123.9 million for the quarter ended
December 31, 2005, of which $117.7 million was contributed by QCM, compared to
a loss of $4.3 million in the fourth quarter of 2004, which included only
Wabush Resources.
Mining Operations average revenue per tonne for pellets and concentrate
in the period was $78 reflecting the higher market pricing for both pellets
and concentrate in 2005, partially offset by the unfavourable impact of the
stronger Canadian dollar on sales which are denominated in U.S. dollars.
Average cost per tonne shipped in the quarter was $45.
For the year, Mining Operations contributed $193.7 million of gross
income in 2005, a significant improvement over the loss of $9.6 million posted
in 2004.
Of the Mining Operations gross income reported in the fourth quarter,
$41.9 million has been eliminated on consolidation, reflecting the change in
the unrealized intercompany profit in the quarter. The corresponding amount
for the year ended December 31, 2005 is $71.6 million. The unrealized
intercompany profit at the end of each period relates to Mining Operations
profit remaining in Dofasco's pellet and steel inventories.
Copperweld
On October 3, 2005, Dofasco successfully completed the acquisition of
certain mechanical tubing and automotive components assets of Copperweld
Holding Company. The integration of the acquired Copperweld organization is
ongoing. At this early stage, Copperweld is being impacted by one time
integration costs and as a result did not make a significant contribution to
earnings during the quarter. The results of Copperweld have been included in
the Steel Operations segment effective as at the acquisition date.
Depreciation and Amortization
Consolidated depreciation and amortization of $75.0 million increased by
$17.4 million in the fourth quarter of 2005 compared to the same period in
2004. The increase in the fourth quarter of 2005 reflects depreciation of
$13.3 million for QCM, $2.8 million for Copperweld assets acquired, as well as
higher depreciation in Hamilton following the commissioning of the No. 2 Blast
Furnace. These factors were partially offset by the impact of certain
facilities in Hamilton becoming fully depreciated during 2004.
For the year ended December 31, 2005, consolidated depreciation and
amortization was $234.1 million compared to $235.8 million for 2004.
Income Taxes
The consolidated effective tax rate of 36% for the fourth quarter was
consistent with the Corporation's Canadian manufacturing and processing
effective tax rate, and compares to the effective tax rate of 35% for the same
period in 2004.
For the year 2005 the consolidated effective tax rate of 35% was
consistent with the Corporation's Canadian manufacturing and processing
effective statutory rate and slightly higher than the effective tax rate of
33% for 2004. The lower effective rate in 2004 was largely due to an
$11.6 million reduction of income tax expense due to the reversal of the
valuation allowance against U.S. future income tax assets.
Management Appointment
On November 11, 2005, Dofasco's Board of Directors appointed Andy Harshaw
to the position of Vice President, Manufacturing, succeeding Dave Borsellino
who retired on the same date.
Credit Facility
On January 26, 2006, Dofasco's Board of Directors authorized entering
into a credit facility for $300 million. On January 27, 2006, $215 million of
the credit facility was drawn down to pay the break fee due to ThyssenKrupp
AG.
As previously advised, no further commentary on Dofasco's earnings will
be provided.
Dofasco is a leading North American steel solutions provider. Product
lines include hot rolled, cold rolled, galvanized, Extragal(TM), Galvalume(TM)
and tinplate flat rolled steels, as well as tubular products, laser-welded
blanks and Zyplex(TM), a proprietary laminate. Dofasco's wide range of steel
products is sold to customers in the automotive, construction, energy,
manufacturing, pipe and tube, appliance, packaging and steel distribution
industries.
This News Release contains forward-looking information with respect to
Dofasco's operations and future financial results. Actual results may differ
from expected results for a variety of reasons including the factors discussed
in the Management's Discussion and Analysis section of Dofasco's 2004 Annual
Report and the Quarterly Reports to Shareholders for the periods ended
March 31, 2005, June 30, 2005 and September 30, 2005.
<<
Consolidated Statements of Income and Retained Earnings (Unaudited)
-------------------------------------------------------------------------
Three Months Ended Years Ended
(in millions except per December 31 December 31
share amounts) 2005 2004 2005 2004
-------------------------------------------------------------------------
Income
Net sales $ 1,324.3 $ 1,113.1 $ 4,562.9 $ 4,224.9
Cost of sales 1,200.7 893.4 4,026.7 3,388.7
-------------------------------------------
Gross income 123.6 219.7 536.2 836.2
Depreciation and amortization 75.0 57.6 234.1 235.8
-------------------------------------------
Operating income 48.6 162.1 302.1 600.4
Interest on long-term debt 8.3 9.5 34.0 39.3
Investment and other income (1.7) (3.0) (7.8) (10.5)
Foreign exchange (gain) loss (3.2) 4.8 5.7 5.9
-------------------------------------------
Income before income taxes 45.2 150.8 270.2 565.7
Income tax expense 16.4 52.7 94.5 183.7
-------------------------------------------
28.8 98.1 175.7 382.0
Minority interest 0.4 1.3 4.7 5.1
-------------------------------------------
Net income $ 28.4 $ 96.8 $ 171.0 $ 376.9
-------------------------------------------------------------------------
Earnings per Common Share
Basic $ 0.37 $ 1.26 $ 2.21 $ 4.92
Diluted $ 0.36 $ 1.25 $ 2.20 $ 4.90
-------------------------------------------------------------------------
Retained Earnings
Opening balance $ 1,418.2 $ 1,280.8 $ 1,352.0 $ 1,072.2
Net income 28.4 96.8 171.0 376.9
Premium on redemption of
preferred shares - (0.1) - (0.1)
-------------------------------------------
1,446.6 1,377.5 1,523.0 1,449.0
-------------------------------------------
Dividends declared:
Preferred shares - - - 0.4
Common shares 25.6 25.5 102.0 96.6
-------------------------------------------
25.6 25.5 102.0 97.0
-------------------------------------------
Ending balance $ 1,421.0 $ 1,352.0 $ 1,421.0 $ 1,352.0
-------------------------------------------------------------------------
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Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------
December December
(in millions) 31 2005 31 2004
-------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 122.4 $ 262.2
Short-term investments - 106.0
Accounts receivable 644.0 499.3
Inventories 1,397.7 1,060.4
Future income tax assets 54.8 11.1
Other current assets 26.1 3.1
---------------------
2,245.0 1,942.1
---------------------
Fixed and other assets:
Fixed assets 2,219.3 1,669.7
Future income tax assets 46.2 -
Accrued pension benefit 88.5 76.2
Investments and other assets 29.9 34.2
---------------------
2,383.9 1,780.1
-------------------------------------------------------------------------
Total assets $ 4,628.9 $ 3,722.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Current liabilities:
Short-term borrowings $ 221.1 $ 4.9
Accounts payable and accrued liabilities 542.1 498.7
Income and other taxes payable 45.2 61.8
Dividends payable 25.5 25.4
Current requirements on long-term debt 49.1 219.9
---------------------
883.0 810.7
---------------------
Long-term liabilities:
Long-term debt 584.9 224.6
Future income tax liabilities 77.8 56.5
Employee future benefits 722.5 402.5
Other long-term liabilities 72.6 26.2
---------------------
1,457.8 709.8
---------------------
Minority interest 42.7 35.8
---------------------
Shareholders' equity:
Common shares 867.4 850.6
Contributed surplus 11.5 9.2
Retained earnings 1,421.0 1,352.0
Currency translation adjustment (54.5) (45.9)
---------------------
2,245.4 2,165.9
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,628.9 $ 3,722.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
-------------------------------------------------------------------------
Three Months Ended Years Ended
December 31 December 31
(in millions) 2005 2004 2005 2004
-------------------------------------------------------------------------
Cash provided from (used for):
Operating activities:
Net income $ 28.4 $ 96.8 $ 171.0 $ 376.9
Add (deduct) items not
affecting cash
Depreciation and
amortization 75.0 57.6 234.1 235.8
Future income taxes (24.8) 35.6 (27.6) 25.8
Employee future benefits (8.0) (65.0) 11.1 (19.3)
Stock-based compensation 7.5 0.9 12.9 7.4
Minority interest 0.4 - 4.7 5.1
Other 2.3 2.1 6.0 1.3
-------------------------------------------
80.8 128.0 412.2 633.0
Add (deduct) changes in
non-cash components of
working capital 90.3 (57.5) (161.6) (196.9)
-------------------------------------------
171.1 70.5 250.6 436.1
-------------------------------------------------------------------------
Investment activities:
Capital expenditures (84.2) (116.1) (382.2) (318.0)
Business acquisitions, net
of cash acquired (172.2) - (399.4) -
Decrease (increase) in
short-term investments - 9.4 106.0 (51.5)
Other 5.3 (0.2) (1.4) (0.4)
-------------------------------------------
(251.1) (106.9) (677.0) (369.9)
-------------------------------------------------------------------------
Financing activities:
Increase (decrease) in
short-term borrowings 78.5 (1.3) 216.2 (7.3)
Issuance of long-term debt - - 387.0 -
Repayment of long-term debt (27.3) (24.5) (226.8) (54.8)
Redemption of preferred
shares - (11.5) - (11.5)
Common shares issued 5.3 0.6 14.2 26.2
Dividends paid (25.6) (25.5) (101.9) (94.5)
Dividends paid to minority
interest - - (1.3) -
-------------------------------------------
30.9 (62.2) 287.4 (141.9)
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents 0.1 (4.3) (0.8) (8.2)
-------------------------------------------------------------------------
Cash and cash equivalents:
Decrease in the period (49.0) (102.9) (139.8) (83.9)
Balance at beginning of
period 171.4 365.1 262.2 346.1
-------------------------------------------
Balance at end of period $ 122.4 $ 262.2 $ 122.4 $ 262.2
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- SUPPLEMENTARY INFORMATION -
Segmented Information (Unaudited) Dofasco Inc.
--------------------------------------------------- ---------------------
(in millions except
shipments and per
ton amounts) 2005 2004(++) 2005 2004(++)
--------------------------------------------------- ---------------------
Fourth Third Fourth
Quarter Quarter Quarter Year Year
-------------------------------- ---------------------
Net Sales
Mining
Operations(x) $ 292.7 $ 226.9 $ 16.8 $ 567.5 $ 55.2
Gallatin(xx) 130.1 107.2 156.0 513.9 576.9
Steel
Operations(xxx) 1,003.1 851.2 956.8 3,699.1 3,645.9
Intercompany
Elimination (101.6) (80.8) (16.5) (217.6) (53.1)
--------------------------------------------------- ---------------------
Consolidated
Sales $ 1,324.3 $ 1,104.5 $ 1,113.1 $ 4,562.9 $ 4,224.9
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Cost of Sales
Mining
Operations(x) $ 168.8 $ 170.9 $ 21.1 $ 373.8 $ 64.8
Gallatin(xx) 98.0 89.5 105.9 390.3 385.0
Steel
Operations(xxx) 993.2 815.6 783.7 3,407.8 2,991.8
Intercompany
Elimination (59.3) (63.6) (17.3) (145.2) (52.9)
--------------------------------------------------- ---------------------
Consolidated Cost
of Sales $ 1,200.7 $ 1,012.4 $ 893.4 $ 4,026.7 $ 3,388.7
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Gross Income
Mining
Operations(x) $ 123.9 $ 56.0 $ (4.3) $ 193.7 $ (9.6)
Gallatin(xx) 32.1 17.7 50.1 123.6 191.9
Steel
Operations(xxx) 9.9 35.6 173.1 291.3 654.1
Intercompany
Elimination (42.3) (17.2) 0.8 (72.4) (0.2)
--------------------------------------------------- ---------------------
Consolidated Gross
Income $ 123.6 $ 92.1 $ 219.7 $ 536.2 $ 836.2
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Depreciation &
Amortization
Mining
Operations(x) $ 13.9 $ 10.5 $ 0.6 $ 25.6 $ 2.0
Gallatin(xx) 7.2 4.8 5.3 21.9 21.2
Steel
Operations(xxx) 53.9 46.6 51.7 186.6 212.6
--------------------------------------------------- ---------------------
Consolidated
Depreciation &
Amortization $ 75.0 $ 61.9 $ 57.6 $ 234.1 $ 235.8
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Interest on
Long-term Debt
Mining
Operations(x) $ 0.2 $ - $ 0.1 $ 0.3 $ 0.2
Gallatin(xx) - 0.1 - 0.1 0.2
Steel
Operations(xxx) 8.1 8.3 9.4 33.6 38.9
--------------------------------------------------- ---------------------
Consolidated
Interest on
Long-term Debt $ 8.3 $ 8.4 $ 9.5 $ 34.0 $ 39.3
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Investment and
Other Income
Mining
Operations(x) $ (0.7) $ (0.6) $ (0.2) $ (1.5) $ (0.4)
Gallatin(xx) - (0.2) (0.1) (0.7) (0.6)
Steel
Operations(xxx) (1.0) (0.9) (2.7) (5.6) (9.5)
--------------------------------------------------- ---------------------
Consolidated
Investment and
Other Income $ (1.7) $ (1.7) $ (3.0) $ (7.8) $ (10.5)
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Foreign Exchange
(Gain) Loss
Mining
Operations(x) $ (4.7) $ 6.3 $ - $ 1.6 $ -
Gallatin(xx) - - - - 0.1
Steel
Operations(xxx) 1.5 5.8 4.8 4.1 5.8
--------------------------------------------------- ---------------------
Consolidated
Foreign
Exchange
(Gain) Loss $ (3.2) $ 12.1 $ 4.8 $ 5.7 $ 5.9
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Income Before
Income Taxes
Mining
Operations(x) $ 115.2 $ 39.8 $ (4.8) $ 167.7 $ (11.4)
Gallatin(xx) 24.9 13.0 44.9 102.3 171.0
Steel
Operations(xxx) (52.6) (24.2) 109.9 72.6 406.3
Intercompany
Elimination (42.3) (17.2) 0.8 (72.4) (0.2)
--------------------------------------------------- ---------------------
Consolidated
Income Before
Income Taxes $ 45.2 $ 11.4 $ 150.8 $ 270.2 $ 565.7
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Shipments
Mining
Operations
(000's
tonnes)(x) 3,732 2,831 342 7,141 1,067
------------------------------------------------- ---------------------
------------------------------------------------- ---------------------
Steel Shipments
Gallatin
(000's net
tons)(xx) 202 194 188 764 758
Hamilton & DSG
Operations
(000's net
tons) 1,020 1,025 1,019 4,047 4,244
--------------------------------------------------- ---------------------
Total Steel
Shipments 1,222 1,219 1,207 4,811 5,002
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Sales Per Ton
Mining Operations
($/MT)(x) $ 78 $ 80 $ 49 $ 79 $ 52
Gallatin $ 641 $ 553 $ 834 $ 672 $ 762
Hamilton & DSG
Operations $ 758 $ 768 $ 870 $ 808 $ 803
Gross Income
(Loss) Per Ton
Mining Operations
($/MT)(x) $ 33 $ 20 $ (13) $ 27 $ (10)
Gallatin $ 158 $ 91 $ 267 $ 162 $ 253
Hamilton & DSG
Operations $ 3 $ 29 $ 153 $ 65 $ 142
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
Number of common
shares outstanding:
Period-end
(000's) 77,582 77,417 77,105 77,582 77,105
Year-to-date
weighted
average (000's) 77,237 77,167 76,589 77,237 76,589
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
(x) Mining Operations include Wabush Resources Inc. and Quebec Cartier
Mining Company.
(xx) Represents Dofasco's 50% share.
(xxx) Steel Operations include Hamilton operations, Dofasco USA,
Powerlasers, DoSol Galva, Dofasco de Mexico, Dofasco Marion,
Dofasco Tubular Products and Dofasco's share of Baycoat, DJ
Galvanizing, and Sorevco.
(++) Reclassified to conform to current year's presentation.
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