Algoma Steel Inc.: Financial Results for the Second Quarter Ended June 30, 2002.Business Editors SAULT STE. MARIE Sault Sainte Marie — pronounced "Soo Saint Marie" (IPA /su seɪnt məˈɹi/) — is the name of two cities on the Saint Marys River, which forms part of the boundary between the United States and Canada. , Ontario--(BUSINESS WIRE)--July 31, 2002 Algoma Steel ''See also Algoma (Disambiguation) Algoma Steel Corporation (TSX: AGA) was founded in 1902 by Francis Clergue, an American entrepreneur who had settled in Sault Ste. Marie, Ontario. Inc. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :AGA) today reported net income of $21.6 million or $1.03 per share for the second quarter ended June June: see month. 30, 2002. This compares to a net loss of $47.8 million for the quarter ended June 30, 2001. Improved earnings over the comparable period of the prior fiscal year were mainly due to higher steel prices, increased shipments, lower operating costs operating costs npl → gastos mpl operacionales and the benefits arising out of the Company's restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). completed on January January: see month. 29, 2002. Ben Duster, Algoma's Chairman, said "The second quarter results reflect the Company's improved performance since completion of its restructuring on January 29, 2002. We are encouraged by the month-over-month improvement in operating performance that has been maintained since the restructuring. Based on current market conditions, we expect this positive performance to continue in the third quarter. Market conditions for the fourth quarter are less certain, particularly in light of the adverse finding on hot rolled sheet in the safeguard investigation". A summary of the financial highlights for the quarter compared to previous quarters follows:
Financial Highlights
2001(1) 2002
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Q2 Q3 Q4 Jan. Feb./Mar. Q2
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($ millions except per share data)
Sales $230.9 $241.8 $211.6 $83.6 $158.3 $287.2
EBITDA (2) $(25.8) $3.3 $(28.4) $(4.7) $12.6 $36.5
Operating
Income
(Loss) $(43.3) $(14.4) $(45.8) $(10.5) $3.0 $21.5
Income
(Loss)
Before
Taxes $(47.3) $(61.5) $(61.1) $(25.9) $(4.0) $22.2
Net Income
(Loss) $(47.8) $(61.9) $(116.0) $(26.1) $(4.4) $21.6
Net Income
(Loss) Per
Share:
- Basic $(0.89) $(1.15) $(2.16) $(0.49) $(0.23) $1.03
- Diluted $(0.89) $(1.15) $(2.16) $(0.49) $(0.23) $0.72
Basic
weighted
average
number of
common
shares
outstanding
(millions) 53.65 53.65 53.65 53.65 19.19 20.79
Revenue
Per Ton
Shipped $477 $478 $476 $431 $452 $499
EBITDA Per
Ton
Shipped(2) $(53) $7 $(64) $(24) $36 $63
(1) Restated for change in accounting policy in respect of foreign currency translation. (2) Earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
and foreign exchange. This earnings measure is not a recognized measure for financial statement presentation under Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "). Non-GAAP earnings measures (such as EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ) do not have any standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. meaning and therefore may not be comparable to similar measures presented by other companies. This earnings measure is provided to assist users in analyzing operating profitability before non-operating expenses and non-cash charges.
Steel Shipments (000's of net tons)
2001 2002
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Q2 Q3 Q4 Jan Feb./Mar. Q2
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Sheet 375 393 371 167 296 496
Plate 109 113 73 27 54 80
Tubulars 0 0 1 0 0 0
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Total 484 506 445 194 350 576
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For further details, please see the attached financial statements
and Management's Discussion and Analysis.
MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial The following discussion and analysis should be read in conjunction with the interim financial statements and notes contained in this report. Financial and Operating Results Net income for the three months ended June 30, 2002 was $21.6 million, a significant improvement over the net loss of $47.8 million incurred for the three months ended June 30, 2001. The quarter over quarter improvement results from an increase in selling prices and shipments, in conjunction with lower operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. resulting from higher production levels and the restructuring plan implementation on January 29, 2002. Revenue was $287.2 million for the three months ended June 30, 2002 based on average selling prices The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. of $499 per ton compared with revenue of $230.9 million and average selling prices of $477 per ton for the three months ended June 30, 2001. The average selling price improvement is due to industry price increases on most product lines. The increase in revenue also results from an improvement in steel shipments with shipments of 576,000 tons for the three months ended June 30, 2002 compared to 484,000 tons for the three months ended June 30, 2001. Despite higher shipments, operating expenses declined to $265.7 million for the three months ended June 30, 2002 from $274.2 million for the three months ended June 30, 2001. Cost of sales declined by $9.5 million in the quarter as a result of physical and valuation adjustments to scrap, coal and ore inventories. Unit operating costs declined in the quarter due to the production efficiency of higher volumes and restructuring savings. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the three months ended June 30, 2002 was $21.5 million, an improvement of $64.8 million over the $43.3 million operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. reported for the three months ended June 30, 2001. Financial income for the three months ended June 30, 2002 was $0.7 million compared to $1.8 million income for the three months ended June 30, 2001. Financial income for the three months ended June 30, 2002 comprises of a foreign exchange gain of $9.5 million, (primarily on the U.S. denominated long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. ), offset by interest expense of $8.8 million. For the three months ended June 30, 2001, a foreign exchange gain of $22.2 million was primarily on the U.S. denominated long-term debt, offset by interest expense of $20.4 million. The Company implemented fresh start accounting effective January 31, 2002 and, as a result, year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. net income is reported for the five months ended June 30, 2002. Net income in the post-restructuring period of February February: see month. to June, 2002 was $17.2 million. On a comparable six-month period ending June 30, 2002, a net loss of $8.9 million is reported compared to a $184.5 million net loss for the six-month period ending June 30, 2001. The lower net loss can be attributed to lower reorganization expenses, a significant accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. reported in 2001, improved selling prices, higher shipments and lower operating expenses. Income tax expense for the three and five-month periods ended June 30, 2002 differs from the amount determined using the Company's statutory manufacturing and processing tax rate of 33% due to the utilization of tax loss carryforwards tax loss carryforward See carryforward. , the benefit of which had not previously been recognized. Financial Resources and Liquidity The Company reported cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses of $27.6 million for the three months ended June 30, 2002 compared with $2.1 million for the three months ended June 30, 2001 due to the improvement in operating results. Capital expenditures for the three months ended June 30, 2002 of $5.5 million compared to expenditures of $6.1 million for the three months ended June 30, 2001. The improvement in cash flow for the three months ended June 30, 2002 resulted in a repayment of $22.1 million in bank indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. . Bank indebtedness declined from $76.6 million as at March 31, 2002 to $54.5 million at June 30, 2002. Unused availability under the revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility at June 30, 2002 was $99 million. During the second quarter, U.S. $22.7 million principal value of the 1% Notes was converted at the holder's option into 3.6 million common shares, resulting in $11.1 million of the equity component and $1.9 million of the debt component being transferred to share capital. ORGANIZATIONAL CHANGES During the quarter, the Company announced the following executive appointments. Glen Manchester Manchester, city, England Manchester (măn`chəstər, –chĕs'tər), city and metropolitan district (1991 pop. 397,400), NW England, on the Irwell, Medlock, Irk, and Tib rivers. has been appointed to the position of Senior Vice President - Corporate Development. Keith Keith may refer to: People with the given name Keith:
Jamaican-born American writer who figured prominently in the Harlem Renaissance of the 1920s. His works include collections of poetry, such as Constab Ballads (1912), and novels, including Home to Harlem (1928). has been appointed to the position of Vice President - Finance and Chief Financial Officer. Algoma Algoma may refer to:
He was born near Forres, in Morayshire. From his earliest years he showed uncommon diligence and perseverance in classical studies, notwithstanding many will be stepping down as President and Chief Executive Officer and that a search for a new President and Chief Executive Officer is underway. TRADE The results of the injury phase of the Canadian Steel Safeguard investigation before the Canadian International Trade Tribunal The Canadian International Trade Tribunal is an independent quasi-judicial group operating in Canada's trade remedy system. The administrative tribunal, which considers cases of dumping and subsidizing, reports to Parliament through the Minister of Finance. (CITT CITT Canadian International Trade Tribunal CITT Citizens’ Independent Transportation Trust CITT Canadian Institute for Theatre Technology (Canadian equivalent of USITT) CITT Canadian Institute of Traffic and Transportation ) were announced on July July: see month. 5, 2002. Nine product categories were under individual review and three of these (carbon plate, cold rolled sheet and hot rolled sheet) are products manufactured by Algoma Steel. The CITT found injury in the plate and cold rolled sheet product categories and these products are now part of the remedy phase of the investigation. The CITT's recommendations on remedy to the Government of Canada The Government of Canada is the federal government of Canada. The powers and structure of the federal government are set out in the Constitution of Canada. In modern Canadian use, the term "government" (or "federal government") refers broadly to the cabinet of the day and are expected on August 19, 2002. The CITT did not make a finding of injury for the Company's principal product, hot rolled sheet. The Company, along with the other producers of hot rolled sheet, are carefully monitoring the volume and pricing of hot rolled sheet imports. The Government of Canada has stated that it will act immediately if another surge in imports occurs. An anti-dumping order covering imports of certain hot rolled carbon steel plate originating in or exported from Mexico Mexico, city, Mexico Mexico or Mexico City, Span. Ciudad de México (Méjico), city (1990 pop. 8,236,960; 1991 met. area est. 20,899,000), central Mexico, capital and largest city of Mexico. , the People's Republic People's Republic n. A political organization founded and controlled by a national Communist party. of China, the Republic of South Africa South Africa, Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa. and the Russian Federation Russian Federation: see Russia. is due to expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. in late October October: see month. 2002. The CITT has initiated an expiry review to determine whether the order should be renewed. A decision by the CITT is expected in early January 2003. OUTLOOK The current strong markets are expected to continue through the third quarter. Further improvement is expected in steel prices based on previously announced increases on sheet and plate products. Market conditions for the fourth quarter are less certain, particularly in light of the adverse finding on hot rolled sheet in the safeguard investigation. The steelmaking Steelmaking is the second step in producing steel from iron ore. In this stage, impurities such as sulfur, phosphorus, and excess carbon are removed from the raw iron, and alloying elements such as manganese, nickel, chromium and vanadium are added to produce the exact steel operation is scheduled to be curtailed for approximately six days in October to complete maintenance on the blast furnace blast furnace, structure used chiefly in smelting. The principle involved in this means of extracting metals is that of the reduction of the ores by the action of carbon monoxide, i.e., the removal of oxygen from the metal oxide in order to obtain the metal. . This news release contains forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information with respect to Algoma's operations and future financial results. Actual results may differ from expected results for a variety of reasons including the factors discussed in the Corporation's Management's Discussion and Analysis section of its 2001 Annual Report.
Algoma Steel Inc.
Consolidated Statements of Income (Loss) and Retained Earnings
(Deficit) (Unaudited)
(millions of Canadian dollars - except per share amounts)
Pre-reorganization
---------------------------
Three Five One Three Six
Months Months Month Months Months
Ended Ended Ended Ended Ended
June 30 June 30 January 31 June 30 June 30
2002 2002 2002 2001 2001
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(Restated - note 1)
Sales $ 287.2 $ 445.5 $ 83.6 $ 230.9 $ 458.4
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Operating expenses
Cost of sales 240.3 380.5 85.2 247.7 501.3
Administrative and
selling 10.4 15.9 3.1 9.0 18.5
Depreciation and
amortization 15.0 24.6 5.8 17.5 34.9
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265.7 421.0 94.1 274.2 554.7
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Income (loss) from
operations 21.5 24.5 (10.5) (43.3) (96.3)
Financial expense
(income)
Interest on long-term
debt (note 3) 5.5 9.3 - - 16.5
Foreign exchange loss
(gain) (note 1) (9.5) (8.6) (2.3) (22.2) 3.1
Other interest 3.3 5.6 7.6 20.4 25.1
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(0.7) 6.3 5.3 (1.8) 44.7
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Income (loss) before the
following 22.2 18.2 (15.8) (41.5) (141.0)
Loss on disposal of joint
venture interest (note 6) - - (6.8) - -
Reorganization expenses
(note 7) - - (3.3) (5.8) (42.5)
---------------------------------------------------------------------
Income (loss) before
income taxes 22.2 18.2 (25.9) (47.3) (183.5)
Provision for income
taxes - current 0.6 1.0 0.2 0.5 1.0
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Net income (loss) $ 21.6 $ 17.2 $(26.1) $ (47.8) $(184.5)
---------------------------------------------------------------------
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Net income (loss) per
common share (note 5)
Basic $ 1.03 $ 0.84 $(0.49) $ (0.89) $ (3.44)
---------------------------------------------------------------------
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Diluted $ 0.72 $ 0.58 $(0.49) $ (0.89) $ (3.44)
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Weighted average number
of common shares
outstanding - millions
(note 5)
Basic 20.79 20.16 53.65 53.65 53.65
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Diluted 30.01 30.01 53.65 53.65 53.65
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Retained earnings
(deficit)
Balance, beginning
of period $ (4.5) $ - $(264.6) $(38.0) $ 128.5
Change in accounting
policy (note 1) - - - - (29.8)
Net income (loss) 21.6 17.2 (26.1) (47.8) (184.5)
Accretion of equity
component of
convertible debt (0.2) (0.3) - - -
Fresh start adjustment
(note 1) - - 290.7 - -
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Balance, end of
period $ 16.9 $ 16.9 $ - $(85.8) $ (85.8)
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SUPPLEMENTAL
NON-FINANCIAL
INFORMATION
Operations (thousands
of net tons)
Raw steel production 631 1,036 186 559 1,055
Steel shipments 576 926 194 484 974
See accompanying notes.
Algoma Steel Inc.
Consolidated Statements of Financial Position (Unaudited)
(millions of Canadian dollars)
June 30 January 31
2002 2002
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(note 1)
Current assets
Accounts receivable $ 155.1 $ 125.6
Inventories 181.6 191.6
Prepaid expenses 9.2 7.6
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345.9 324.8
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Capital assets, net 694.8 712.3
Deferred charges 3.5 4.4
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Total assets $ 1,044.2 $ 1,041.5
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Current liabilities
Bank indebtedness (note 2) $ 54.5 $ 68.1
Accounts payable and
accrued liabilities 66.6 61.4
Income and other taxes
payable 5.1 10.5
Accrued pension liability
and post-employment
benefit obligation 28.7 28.7
Current portion of term
loan (note 2) 40.0 20.0
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194.9 188.7
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Term loan, net of current
portion (note 2) 10.0 30.0
Long-term debt (note 3) 192.8 203.5
Interest on long-term
debt (note 3) 8.8 -
Accrued pension liability
and post-employment
benefit obligation 308.9 309.7
Other long-term
liabilities 9.6 9.6
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530.1 552.8
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Shareholders' equity
Capital stock (notes 4 & 5) 213.1 160.0
Stock options (note 4) - 40.0
Convertible long-term
debt (note 3) 19.6 30.4
Shareholders' surplus on
reorganization 69.6 69.6
Retained earnings 16.9 -
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319.2 300.0
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Total liabilities and
shareholders' equity $ 1,044.2 $ 1,041.5
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See accompanying notes.
Algoma Steel Inc.
Consolidated Statement of Cash Flows (Unaudited)
(millions of Canadian dollars)
Pre-reorganization
----------------------------------------------------------------------
Three Months Five Months One Month Three Months Six Months
Ended Ended Ended Ended Ended
June 30 June 30 January 31 June 30 June 30
2002 2002 2002 2001 2001
----------------------------------------------------------------------
(Restated - note 1)
Cash provided
by (used in)
Operating
activities
Net income
(loss) $ 21.6 $ 17.2 $ (26.1) $ (47.8) $ (184.5)
Adjustment
for items
not affecting
cash 11.0 25.1 8.1 (1.1) 81.6
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32.6 42.3 (18.0) (48.9) (102.9)
Changes in
operating
working
capital (5.0) (21.3) 49.0 51.0 73.7
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27.6 21.0 31.0 2.1 (29.2)
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Investing activities
Capital asset
expenditures (5.5) (7.4) (1.3) (6.1) (13.2)
--------------------------------------------------------------------
Financing activities
Repayment of
long-term debt - - - (0.1) (0.3)
Proceeds from term
loan (note 2) - - 50.0 - -
Increase (decrease)
in bank
indebtedness (22.1) (13.6) (79.7) 4.1 42.7
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(22.1) (13.6) (29.7) 4.0 42.4
--------------------------------------------------------------------
Cash
Change during
The period - - - - -
Balance, beginning
of period - - - - -
--------------------------------------------------------------------
Balance, end of
period $ - $ - $ - $ - $ -
--------------------------------------------------------------------
See accompanying notes.
Algoma Steel Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
(millions of Canadian dollars)
1. Financial reorganization and basis of presentation Financial reorganization On April 23, 2001 (the "Filing Date"), Algoma Steel Inc. (the "Corporation") obtained protection under the Companies' Creditors Arrangement Act ("CCAA CCAA Comunidades Autónomas CCAA China Center of Adoption Affairs CCAA Companies' Creditors Arrangement Act (Canada) CCAA California Collegiate Athletic Association CCAA Commercial Collection Agency Association ") in the Ontario Superior Court of Justice The Superior Court of Justice for Ontario, Canada is the successor to the former Ontario Court of Justice (General Division), and was created on April 19 1999. Its predecessor, the Ontario Court (General Division) was the result of the 1990 merger and discontinuance of the previous (the "Court"). The Court subsequently granted extensions of the CCAA protection until January 31, 2002. This allowed the Corporation to continue operating its business as it negotiated a restructuring plan with its stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. by preventing legal action being brought against the Corporation and by staying substantially all unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. and under-secured claims as of the Filing Date. Additional financing was obtained providing for continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the through the anticipated restructuring period. On October 24, 2001, the Corporation filed an initial Plan of Arrangement and Reorganization with the Court. A second and third amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. and restated Plan of Arrangement and Reorganization were filed on November November: see month. 8, 2001 and December December: see month. 10, 2001, respectively. The third amended and restated Plan of Arrangement and Reorganization (the "Plan") was voted upon and approved by each Class of Affected Creditors on December 10 and December 17, 2001 and on December 19, 2001, the Court issued a Final Order sanctioning sanc·tion n. 1. Authoritative permission or approval that makes a course of action valid. See Synonyms at permission. 2. Support or encouragement, as from public opinion or established custom. 3. the Plan. The Corporation subsequently emerged from CCAA protection and the Plan was implemented on January 29, 2002 ("Implementation Date"). The significant provisions of the Plan are as follows: -- the cancellation of all currently outstanding common shares and employee voting shares for no consideration and the issuance of new common shares as set out below; -- the settlement of the First Mortgage Notes (U.S. $349.4 million) and related interest obligation (U.S. $47 million) in exchange for U.S. $125 million of 11% Notes maturing in 2009, U.S. $62.5 million of 1% convertible Notes maturing in 2030 and 15 million new common shares; -- a cash payment of $0.8 million and 1 million new common shares in satisfaction of all claims of the unsecured creditors; -- options for 4 million new common shares issued to employees for nominal consideration and new collective bargaining agreements which include wage and benefit reductions, reduced vacation, pension benefit changes and manning reductions. The pension obligations were restructured through the new collective bargaining agreements and an arrangement with the Superintendent of the Financial Services Commission of Ontario; -- new financing facilities and a $50 million loan guarantee provided by the Government of Canada; and -- a new Board of Directors comprised of 7 nominees of the holders of the First Mortgage Notes and 3 nominees of the United Steelworkers of America. Basis of presentation Fresh start accounting The Corporation has accounted for the reorganization by using the principles of fresh start accounting as required under Canadian generally accepted accounting principles ("GAAP"). For accounting purposes, the Corporation has used an effective date of January 31, 2002. Under fresh start accounting, all assets and liabilities were revalued at estimated fair values and the Corporation's deficit was eliminated by a reduction of contributed surplus. In order to establish the fresh start consolidated statement of financial position, an equity value of $300 million was calculated based on the net present value of estimated future free cash flows reduced by bank indebtedness, long-term debt and pension and post-employment obligations. Prior to the Implementation Date, the Corporation's previous Board of Directors passed a resolution setting the stated capital stated capital See legal capital. of the new common shares at $10 per share based upon the $300 million equity value. The book values of the assets and liabilities at January 31, 2002 approximated their fair values, with the exception of fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → and the pension and post-employment benefit obligations. The fair value of the pension and post-employment benefit obligations were determined by an independent actuary actuary One who calculates insurance risks and premiums. Actuaries compute the probability of the occurrence of such events as birth, marriage, illness, accidents, and death. . The fair value of fixed assets was calculated as the excess of the equity value and liabilities over the fair value of the remaining assets.
Algoma Steel Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
(millions of Canadian dollars)
1. Financial reorganization and basis of presentation (continued)
The following table summarizes the adjustments recorded to
implement the reorganization and to reflect the fresh start basis of
accounting:
Jan. 31, 2002 Jan. 31, 2002
Balance Fresh Balance
Prior to Reorganization Start After
Reorganization Adjustments Adjustments Adjustments
---------------------------------------------------------------------
Assets
Current assets $ 324.8 $ $ $ 324.8
Fixed assets, net 799.7 (87.4) 712.3
Deferred charges - 4.4(f) 4.4
---------------------------------------------------------------------
$1,124.5 $ 4.4 $ (87.4) $ 1,041.5
Liabilities
Bank indebtedness $ 118.1 $ (50.0)(a) $ $ 68.1
Accounts payable and
accrued liabilities 209.2 (68.5)(b) 61.4
(75.0)(c)
(13.3)(e)
9.0(f)
Income and other taxes
payable 8.8 2.5(b) (0.8) 10.5
Accrued pension
liability and
post-employment
benefit obligation - 28.7 28.7
Current portion of
long-term debt 554.6 20.0(a) 20.0
(554.6)(c)
---------------------------------------------------------------------
890.7 (729.9) 27.9 188.7
Long-term debt - 30.0(a) 233.5
203.5(c)
Accrued pension
liability 263.4 (262.7)(d) 92.2 92.9
Post-employment
benefit obligation 147.1 3.4(d) 66.3 216.8
Other long-term
liabilities 7.1 2.5(b) 9.6
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1,308.3 (753.2) 186.4 741.5
---------------------------------------------------------------------
Shareholders' equity
(deficiency)
Issued capital stock 188.0 (188.0)(g) -
Capital stock to be
issued - 10.0(b) 160.0
150.0(c)
Stock options - 40.0(e) 40.0
Convertible long-term debt - 30.4(c) 30.4
Surplus (deficit) on
restructuring (81.1) 715.2(h) (564.5) 69.6
Deficit (290.7) 290.7 -
---------------------------------------------------------------------
(183.8) 757.6 (273.8) 300.0
---------------------------------------------------------------------
$ 1,124.5 $ 4.4 $ (87.4) $ 1,041.5
---------------------------------------------------------------------
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Summary of adjustments: (a) Refinancing Refinancing An extension and/or increase in amount of existing debt. of bank indebtedness into a $50 million term loan repayable in $10 million quarterly installments beginning September September: see month. 30, 2002. (b) Claims of unsecured and under-secured creditors are settled in exchange for $0.8 million in cash and 1 million new common shares having a stated capital of $10 million. The Municipal Claim of $7.4 million in respect of taxes owing to owing to prep. Because of; on account of: I couldn't attend, owing to illness. owing to prep → debido a, por causa de the City of Sault Ste. Marie is compromised in exchange for $5 million payable in two equal installments on December 31, 2002 and 2003. (c) First Mortgage Note principal of $554.6 million (U.S. $349.4 million) and accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. of $75 million (U.S. $47.2 million) are settled in exchange for $198.4 million (U.S. $125 million) of 11% Notes due 2009, U.S. $62.5 million of 1% convertible Notes due 2030 and 15 million new common shares having a stated capital of $150 million. As required by Canadian generally accepted accounting principles, the 1% convertible Notes have Algoma Steel Inc. Notes to Interim Consolidated Financial Statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge (Unaudited) (millions of Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents ) 1. Financial reorganization and basis of presentation (continued) been separated into debt and equity components for financial statement presentation purposes. The present value of the interest payments for the years 2002 to 2009 of $5.1 million (U.S. $3.2 million) has been presented as debt. The present value of the principal payment in 2030 and interest for the period 2010 through 2030 of $8.4 million (U.S. $5.2 million) plus $22 million ascribed to the value of the holder conversion option have been presented as equity. All present value amounts were determined using an 11% discount rate. (d) Adjust the post-employment and pension liabilities Pension liabilities Future liabilities resulting from pension commitments made by a corporation. Accounting for pension liabilities varies widely by country. for the new collective bargaining agreements The contractual agreement between an employer and a Labor Union that governs wages, hours, and working conditions for employees and which can be enforced against both the employer and the union for failure to comply with its terms. , the elimination of pension indexing benefits and the arrangement with the Superintendent of the Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. Commission of Ontario Ontario, city, United States Ontario, city (1990 pop. 133,179), San Bernardino co., S Calif., near Los Angeles, in a region of vineyards; inc. 1891. . (e) Accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. vacation liability is reduced by $13.3 million as a result of reduced vacation entitlements contained in the new collective bargaining agreements. The agreements also include wage and benefit reductions, pension benefit changes, manning reductions and the issuance to employees of options for 4 million new common shares for nominal consideration. These options are reflected in shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. at $40 million. (f) Accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. for additional reorganization expenses of $4.6 million and $4.4 million of fees relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the new banking facilities. (g) Capital stock issued and outstanding prior to the reorganization are cancelled for no consideration. (h) The net effect of adjustments (b) to (g) is an increase to contributed surplus of $715.2 million. Accounting policies The unaudited interim consolidated financial statements have been prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Canadian GAAP on a basis consistent with the accounting policies described in the fiscal 2001 Annual Report, except that the Corporation's assets and liabilities have been comprehensively revalued as noted above. Effective January 1, 2002, the Corporation retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin adopted the new recommendations of the Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. ("CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ") with respect to foreign currency translation. The new recommendations eliminate the deferral deferral - Waiting for quiet on the Ethernet. and amortization of unrealized translation gains and losses on foreign currency denominated long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. monetary assets and liabilities Monetary assets and liabilities Assets and liabilities with contractual payoffs. and require separate disclosure of exchange gains or losses included in the determination of net income. This accounting change has not had a significant impact on the consolidated financial statements in 2002. The results for the first quarter of 2001 and six months ended June 30, 2001 have been restated to reduce the net loss by $29.8 million of pre- pre- word element [L.], before (in time or space). pre- pref. 1. Earlier; before; prior to: prenatal. 2. 2001 exchange losses charged to reorganization expense with a corresponding decrease to opening retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. . An additional $23.2 million of exchange loss has been reclassified from reorganization expenses to financial expense for comparative purposes. Effective January 1, 2002, the Corporation adopted the recommendations of the CICA relating to stock-based compensation and other stock-based payments. The new recommendations are generally applicable only to awards granted after the date of adoption. The adoption of the new recommendations did not have a significant impact on the consolidated financial statements. Management is required to make estimates and assumptions that affect the amounts reported in the unaudited interim consolidated financial statements. Management believes that the estimates are reasonable, however, actual results could differ from these estimates. The unaudited interim consolidated financial statements do not conform in all respects to the requirements of Canadian GAAP for annual consolidated financial statements. The unaudited interim consolidated financial statements have been prepared on a "going concern" basis that assumes the Corporation will continue in operation for the foreseeable fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. future and will be able to realize its assets and discharge its liabilities in the normal course of business. These unaudited interim consolidated financial statements do not reflect any adjustments that would be necessary if the "going concern" principle was not appropriate. The Corporation is dependent upon continued strengthening in the North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. steel market and improving financial results. The outcome of these matters is not determinable Liable to come to an end upon the happening of a certain contingency. Susceptible of being determined, found out, definitely decided upon, or settled. determinable adj. at this time. Comparative figures Comparative financial information for periods prior to January 31, 2002 are required under securities legislation and may be of limited interest to readers of these unaudited interim consolidated financial statements. In reviewing the comparative information, readers are reminded that the information does not reflect the effects of the financial reorganization or the application of fresh start accounting. In addition, the consolidated financial statements for 2001 have been restated to reflect the retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a application of the change in accounting policy in respect of foreign currency translation. Algoma Steel Inc. Notes to Interim Consolidated Financial Statements (Unaudited) (millions of Canadian dollars) 2. Banking facilities On January 29, 2002, the Corporation entered into an Amended and Restated Loan Agreement ("Agreement"). The Agreement expires on December 30, 2003 and provides the Corporation with a revolving credit facility ("Revolving Facility") and a term loan ("Term Facility"). The Revolving Facility provides financing equal to the lesser of $180 million and a borrowing base determined by the levels of the Corporation's accounts receivable, inventories and a loan guarantee provided by the Government of Canada ("Loan Guarantee"), less certain reserves. There was $99 million of unused excess availability under the Revolving Facility at June 30, 2002. The Revolving Facility matures on December 30, 2003 and is collateralized by a first charge on accounts receivable and inventories and a second charge on the Loan Guarantee. Borrowings can be made in either Canadian or United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. (U.S) funds at 4.5% over either the Canadian or U.S. prime bank rate or, at the Corporation's option, at 5.5% over bankers' acceptance A bankers' acceptance, or BA, is a time draft drawn on and accepted by a bank. Before acceptance, the draft is not an obligation of the bank; it is merely an order by the drawer to the bank to pay a specified sum of money on a specified date to a named person or to the rate or London London, city, Canada London, city (1991 pop. 303,165), SE Ont., Canada, on the Thames River. The site was chosen in 1792 by Governor Simcoe to be the capital of Upper Canada, but York was made capital instead. London was settled in 1826. interbank in·ter·bank adj. Relating to, involving, or connecting two or more banks: interbank borrowing; an interbank network of automated teller machines. offering rate (LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). ) for U.S. dollar loans. The Term Facility is for $50 million and is repayable in $10 million quarterly installments commencing September 30, 2002 and ending September 30, 2003. Amounts repaid under the Term Facility cannot be reborrowed. Borrowings are in Canadian funds at 4.5% over the Canadian prime bank rate or, at the Corporation's option, at 5.5% over bankers' acceptance rate loans. The Term Facility is collateralized by a first charge on fixed assets, the Loan Guarantee and a second charge on accounts receivable and inventories. At June 30, 2002, the Corporation was in compliance with all restrictive covenants Restrictive covenants Provisions that place constraints on the operations of borrowers, such as restrictions on working capital, fixed assets, future borrowing, and payment of dividends. contained in the Agreement.
3. Long-term debt
June 30 January 31
2002 2002
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11% Notes maturing December 31, 2009,
principal value U.S. $125 million (a) $ 189.6 $ 198.4
1% convertible Notes maturing December
31, 2030, principal value U.S. $39.8
million (January 31, 2002 - U.S. $62.5
million) (b) 3.2 5.1
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192.8 203.5
Less: current portion - -
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$ 192.8 $ 203.5
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(a) The 11% Notes are redeemable Redeemable Eligible for redemption under the terms of an indenture. after 2005 at a declining premium ranging from 105.5% of principal in 2006 to 101.4% in 2008. Mandatory redemptions of U.S. $12.5 million per year are required commencing December 31, 2007 with the balance payable at maturity. Interest for 2002 and the first half of 2003 will accrue To increase; to augment; to come to by way of increase; to be added as an increase, profit, or damage. Acquired; falling due; made or executed; matured; occurred; received; vested; was created; was incurred. and be paid on December 31, 2003. Interest for the second half of 2003 will accrue and be paid on June 30, 2004. After 2003, interest will be paid semi-annually on June 30 and December 31 of each year. Notwithstanding the foregoing, no interest will be paid unless and until the banking facilities described in note 2 are repaid or refinanced. The 11% Notes are collateralized by a first charge on fixed assets, subject to collateral on the Term Facility (note 2), and a second charge on other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. . (b) The collateral, interest accrual and interest payment terms are the same as for the 11% Notes. The 1% Notes are convertible into common shares at the holder's option at a conversion price per share of $10 ("Conversion Price"). After December 31, 2002, the Corporation may convert all or any part of the principal amount at the Conversion Price if the average trading price Trading price The price at which a security is currently selling. of the common shares exceeds 125% of the Conversion Price for 30 consecutive trading days In Business, the trading day is the time span that a particular stock exchange is open. For example, the New York Stock Exchange is, as of 2006, open from 09:30AM to 4:00PM. Trading days never take place on weekends. , or at any time after December 31, 2009. For conversion purposes, the exchange rate to be used is U.S. $1.00 = CDN (Content Delivery Network) A system of distributed content on a large intranet or the public Internet in which copies of content are replicated and cached throughout the network. $1.60. As required by Canadian GAAP, the 1% convertible Notes are separated into debt and equity components for financial statement presentation purposes. The present value of the interest payments up to and including 2009 are presented as debt. The present value of the principal payment in 2030 and interest for the period 2010 through 2030 plus the value ascribed to the holder conversion option are presented as equity. All present value amounts are determined using an 11% discount rate. During the second quarter, U.S. $22.7 million principal value of 1% Notes were converted at the holder's option into 3.6 million common shares resulting in $11.1 million of the equity component and $1.9 million of the debt component being transferred to share capital. Algoma Steele Inc. Notes to Interim Consolidated Financial Statements (Unaudited) (millions of Canadian dollars)
4. Share Capital
Authorized - Unlimited common shares
The following summarizes the share capital transactions for the
five Months ended June 30, 2002 expressed in millions of shares and
dollars
Common Shares
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Stock Options To Be Issued Issued and Outstanding
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Ascribed Stated Stated
# Options Value # Shares Capital # Shares Capital
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Balance at
January 31,
2002 (a) 4.0 $ 40.0 16.0 $ 160.0 - $ -
Issued pursuant
to Plan
of Arrangement
to:
First Mortgage
Note
holders (15.0) (150.0) 15.0 150.0
Unsecured
creditors (1.0) (10.0) 1.0 10.0
Stock options
exercised
by employees (4.0) (40.0) 4.0 40.0
Conversion of
long-term
debt (note 3) 3.6 13.0
Directors Share
Award
Plan
(note 8) - 0.1
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Balance at
June 30, 2002 - $ - - $ - 23.6 $ 213.1
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(a) As part of the consideration for the settlement of their claims, holders of the First Mortgage Notes received 15 million common shares and 1 million common shares were distributed to unsecured creditors Unsecured Creditor An individual or institution that lends money without obtaining specified assets as collateral. This poses a higher risk to the creditor because they have nothing to fall back on should the borrower default on the loan. A debenture holder is an unsecured creditor. in April 2002 (note 1). Employees received 4 million common shares on February 12, 2002, upon the exercise of stock options having a nominal exercise price, which were granted as part of the new collective bargaining agreements. 5. Earnings per share Basic net income (loss) per common share is calculated by adjusting reported net income (loss) by the net charge to retained earnings related to the accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the of the equity component of the 1% convertible Notes. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. net income (loss) per common share assumes the dilutive effect Dilutive effect Result of a transaction that decreases earnings per common share (EPS). of the conversion of the 1% convertible Notes as of January 31, 2002 at the Conversion Price (note 3).
Three Months Five Months
Ended Ended
June 30 June 30
2002 2002
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Basic
Net income $ 21.6 $ 17.2
Convertible debt - net
charge to retained
earnings (0.2) (0.3)
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Net income attributable
to common shareholders $ 21.4 $ 16.9
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Diluted
Net income $ 21.6 $ 17.2
Convertible debt - net
charge to income 0.1 0.2
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Net income attributable
to common shareholders $ 21.7 $ 17.4
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Basic weighted average
number of common shares
outstanding 20.79 20.16
Common shares issued on
the assumed conversion of
convertible debt 9.22 9.85
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Diluted weighted average
number of common shares
outstanding 30.01 30.01
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In calculating the basic weighted average number of common shares outstanding, the 16 million common shares issued to the holders of the First Mortgage Notes and the unsecured creditors were assumed to have been issued on January 31, 2002, and the 4 million shares issued to employees were included as of February 12, 2002. Algoma Steel Inc. Notes to Interim Consolidated Financial Statements (Unaudited) (millions of Canadian dollars) 6. Disposition of joint venture interest In January 2002, the Corporation's wholly-owned U.S. subsidiary, Cannelton Iron Ore Company ("CIOC CIOC Chief Information Officers Council CIOC Community Information Online Consortium CIOC Combined/Current Intelligence Operations Center CIOC Counter-Insurgency Operations Command CIOC COMBICON I/O Connector "), completed an agreement with Cleveland-Cliffs Inc. ("Cliffs") to transfer CIOC's 45% interest in the Tilden Mining Company L.C. ("Tilden") in exchange for the assumption by Cliffs of CIOC's share of Tilden's liabilities and no cash consideration. As part of this arrangement, the Corporation has entered into an exclusive 15-year supply agreement with Cliffs for a minimum annual supply of 2.5 million tons of iron ore at market prices. If the Corporation defaults under the supply agreement prior to December 31, 2008, then 50% of the liabilities assumed by Cliffs will revert re·vert v. 1. To return to a former condition, practice, subject, or belief. 2. To undergo genetic reversion. back to CIOC and the Corporation. These assumed liabilities may include contingent obligations, such as environmental costs, that are not reflected in Tilden's financial statements. 7. Reorganization expenses
The following costs have been charged to reorganization expenses:
One Month Three Months Six Months
Ended Ended Ended
January 31 June 30 June 30
2002 2001 2001
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(Restated - note 1)
Unamortized discount on
First Mortgage Notes $ - $ - $ 29.5
Deferred debt issue costs - - 7.2
Professional fees and
other expenses 3.3 5.8 5.8
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$ 3.3 $ 5.8 $ 42.5
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8. Stock-based compensation plans In May 2002, the shareholders of the Corporation approved a Share Award Plan (the "Plan") for members of the Board of Directors which permits the Corporation, at its option, to award common shares to eligible Directors as a portion of their compensation. Any shares granted under the Plan are issued quarterly. The Corporation accrues for this compensation based on the fair market value of the shares granted. |
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