HAMILTON, ON, Oct. 24 /CNW/ - Stelco Inc. ("Stelco" or the "Corporation") (TSX:STE) today reported net income for the quarter ended September 30, 2007 of $38 million ($1.26 per fully diluted share), compared to a net loss of $41 million (loss of $1.51 per share) for the second quarter of 2007 and a loss of $25 million (loss of $0.93 per share) in the third quarter of 2006. Net income for the third quarter of 2007 included workforce reduction costs of $5 million and foreign exchange gains of $36 million.
EBITDA(x) increased to $67 million for the third quarter ended September 30, 2007, an improvement of $14 million over the second quarter of 2007. The improvement in EBITDA(x) was largely driven by a significant improvement in the cost structure resulting from the strategic and operational restructuring initiatives over the past 18 months plus lower input costs, offset by lower selling prices.
Proposed Acquisition of Stelco by US Steel Corporation
On August 26, 2007, Stelco and US Steel Corporation ("US Steel") entered into an arrangement agreement providing for a subsidiary of US Steel to acquire all of the outstanding common shares of Stelco for $38.50 in cash per common share and Stelco will become an indirect wholly-owned subsidiary of US Steel under a plan of arrangement pursuant to the provisions of applicable corporate legislation. As part of the acquisition, holders of warrants to purchase common shares will receive, for each warrant held, a cash payment from Stelco equal to $27.50 (being the difference between $38.50 and the exercise price of the warrants) and holders of options to purchase common shares will receive, for each option held, a cash payment from Stelco equal to the difference between $38.50 and the exercise price of such option.
In connection with the acquisition, it is anticipated that the floating rate notes will be redeemed and Stelco's secured term and asset based loans, as well as a term loan made by a subsidiary of Stelco will be retired.
Completion of the acquisition is subject to customary conditions, including Stelco shareholder approval, court approval and receipt of certain regulatory approvals. Subject to the satisfaction of such conditions, it is anticipated that the acquisition will be completed on or about October 31, 2007. A special meeting of the shareholders of Stelco has been scheduled to be held on October 26, 2007 for the purpose of considering a special resolution approving the acquisition. The resolution is required to be approved by at least two-thirds of the votes cast by shareholders represented in person or by proxy at the Meeting. Shareholders owning more than 76 percent of Stelco's outstanding common shares have entered into agreements with US Steel whereby they have irrevocably agreed to vote in favour of the acquisition at the meeting.
Financial and Operational Summary
Stelco's financial and operational summary, consolidated statements of financial position and a cash flow summary are attached. These materials should be reviewed in conjunction with the Corporation's unaudited interim financial statements, including the notes thereto, and the related management's discussion and analysis, a copy of which can be viewed on the Corporation's website at www.stelco.ca or on SEDAR at www.sedar.com.
(x) EBITDA is a non-Canadian GAAP measure which may not be comparable to
measures used by other companies. Please refer to the note regarding
Non-GAAP Financial measures in the accompanying financial and operational
summary of the Corporation.
Conference Call
The Corporation will not be having a conference call on third quarter results.
About Stelco
Stelco is one of Canada's largest steel companies. It is focused on its two Ontario-based integrated steel businesses located in Hamilton and in Nanticoke. These operations produce high quality value-added hot rolled, cold rolled, coated sheet and bar products. To learn more about Stelco and its businesses, please refer to our Web site at www.stelco.ca.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This press release contains "forward-looking information" that is based on Stelco's expectations, estimates and projections as of the date of this press release or as of the date on which such information is identified to be given. This forward-looking information includes, among other things, factors relating to the business, financial position, operations and prospects of Stelco, including: Stelco's proposed transaction with US Steel; Stelco's strategies and plans to reduce costs and the anticipated outcome of such strategies and plans; anticipated productivity levels and profitability; labour matters related to Stelco's predominantly unionized workforce; pension matters; consolidation in the steel industry; Stelco's energy and raw material costs and the availability of such materials; the volatility of selling prices for steel; international trade matters, including increases in steel imports into Canada; employee matters, including staffing levels, the retention of the skills and knowledge of Stelco's employees and the ability to attract and retain new employees; changes to environmental laws and regulations concerned with, among other things, emissions into the air, discharges to water or land, noise control and the generation, handling, storage, transportation and disposal of toxic substances; new technological developments and Stelco's ability to make capital expenditures to maintain and enhance its technological ability; development of new products; planned capital expenditures; and currency fluctuations in the US dollar and their impact on the Corporation's US dollar denominated long-term debt, steel pricing, and costs. Often, but not always, forward-looking information can be identified by the use of words and phrases such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or states that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.
Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Stelco to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Actual results, performance and achievements are likely to differ, and may differ materially, from those expressed or implied by the forward-looking information contained herein. Such forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not limited to: assumptions relating to the satisfaction of the conditions to the completion (including conditions relating to the receipt of regulatory and other approvals) and the consummation of Stelco's proposed transaction with US Steel; exchange rates, energy and other anticipated and unanticipated costs; pension contributions and expenses; the supply and demand for, deliveries of, and the level and volatility of prices of, steel and raw materials; the continued availability of financing on appropriate terms; market competition; the impact on Stelco of various environmental regulations and initiatives; and Stelco's ongoing relations with its employees and staffing levels. While Stelco anticipates that subsequent events and developments may cause Stelco's views to change, Stelco specifically disclaims any obligation to update this forward-looking information. This forward-looking information should not be relied upon as representing Stelco's views as of any date subsequent to the date of this press release.
Stelco Inc.
Financial and Operational Summary
($ in millions, except Three months ended Nine months ended
as indicated (x)) Sept. 30 June 30 Sept. 30 Sept. 30
(unaudited) 2007 2007 2006 2007
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Net sales $ 634 $ 717 $ 660 $ 1,960
Costs 567 664 596 1,827
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EBITDA(1) 67 53 64 133
Amortization of property,
plant, and equipment 29 28 25 88
Amortization of
intangible assets - - - 1
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Operating earnings
(loss) before the
following: 38 25 39 44
Asset impairment charges - 38 - 38
Employee future benefits
- workforce reduction
costs 5 9 6 14
Foreign exchange (gain)
loss on long-term debt (36) (30) 1 (69)
Interest on long-term
debt and revolving
term loans 19 20 19 58
Write off of financing fees - 7 - 7
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Income (loss) before
income tax 50 (19) 13 (4)
Income tax expense
(recovery)
Current 6 7 5 13
Future 6 15 33 25
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Net income (loss) $ 38 $ (41) $ (25) $ (42)
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Average revenue
per ton (x)$ 606 (x)$ 658 (x)$ 719 (x)$ 641
Average cost per ton (x)$ 542 (x)$ 610 (x)$ 649 (x)$ 597
Semi-finished steel
production (thousands
of net tons) 1,095 1,084 912 3,279
Shipments (thousands
of net tons) 1,047 1,089 918 3,058
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(1) Non-GAAP Financial Measures
The financial information contained in this MD&A is presented in
accordance with Canadian GAAP. Reference is also made to "EBITDA", which
is a non-Canadian GAAP measure. "EBITDA" refers to operating earnings
(losses) before interest, income taxes, amortization and other non-
operating income and expenses such as asset impairment charges, workforce
reduction costs, foreign exchange gains and losses on long-term debt and
the write off of financing fees. Information concerning EBITDA has been
included in this MD&A because management considers it to be, and uses it
as, a meaningful indicator for assessing the operating performance of the
Corporation. EBITDA does not represent cash generated from operations as
defined by Canadian GAAP and it is not necessarily indicative of cash
available to fund cash needs. Non-Canadian GAAP earnings measures (such
as EBITDA) do not have any standardized meaning and therefore the
Corporation's use of EBITDA measures may not be comparable to measures
used by other companies. A reconciliation to net income (loss), which is
a Canadian GAAP measure, is presented above in the Financial and
Operational Summary.
Stelco Inc.
Consolidated Statements of Financial Position
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At At
September 30 December 31
(in millions) (unaudited) 2007 2006
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Assets
Current assets
Cash and cash equivalents $ 21 $ -
Accounts receivable 329 214
Inventories 564 693
Prepaid expenses 29 28
Future income taxes 18 27
Assets held for sale 127 -
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1,088 962
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Other assets
Property, plant and equipment 1,552 1,743
Intangible assets 5 1
Other 12 32
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1,569 1,776
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Total Assets $ 2,657 $ 2,738
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Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable and accrued $ 176 $ 220
Income and other taxes 11 1
Employee future benefits 57 58
Pension liability 58 65
Long-term debt due within one year 7 13
Liabilities held for sale 86 -
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395 357
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Other liabilities
Employee future benefits 1,235 1,254
Pension liability 271 338
Long-term debt 562 342
Revolving term loans 186 383
Future income taxes 71 88
Asset retirement obligation 1 24
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2,326 2,429
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Total Liabilities 2,721 2,786
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Shareholders' Deficit
Capital stock 151 149
Contributed surplus 25 1
Warrants 3 3
Retained deficit (243) (201)
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Total Shareholders' Deficit (64) (48)
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Total Liabilities and Shareholders' Deficit $ 2,657 $ 2,738
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Stelco Inc.
Cash Flow Summary
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Nine months
Three months ended ended
Sept. 30, Sept. 30, Sept. 30,
(in millions) (unaudited) 2007 2006 2007
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Cash provided by (used for):
Operations adjusted for items
not affecting cash $ 8 $ 36 $ (30)
Changes in operating elements
of working capital 27 (10) (6)
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Operating activities 35 26 (36)
Investment activities (5) (8) (22)
Financing activities (40) (23) 79
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Net change in cash position $ (10) $ (5) $ 21
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%SEDAR: 00001549E