Lakeside Reports 2nd Quarter Results, Proposed Financings
12/02/2011 - Lakeside Steel Inc. reported a net loss of $7,601,420 on revenue of $47,771,086 for the fiscal 2012 second quarter, and a net loss of $8,694,479 on revenue of $100,799,032 for the six months ended September 30, 2011.
Lakeside Steel Inc. reported a net loss of $7,601,420 on revenue of $47,771,086 for the fiscal 2012 second quarter, and a net loss of $8,694,479 on revenue of $100,799,032 for the six months ended September 30, 2011.
Second Quarter Results — The net loss of $7,601,420 reflects a decrease of $8,801,171 from net income of $1,199,751 for the year-ago second quarter. On a per-share basis, the company reported a loss of $0.04, which compares compared to earnings of $0.02 per share for the year-ago second quarter.
The company's $47,771,086 second-quarter revenue represents a decrease of $18,714,773 (28.1%) from revenue of $66,485,859 for the year-ago second quarter.
The company's reported adjusted EBITDA of ($6,274,060), a decrease of $9,870,625 from adjusted EBITDA of $3,596,565 for the year-ago second quarter.
Six Month Results — The six-month net loss of $8,694,479 reflects a decrease of $9,085,568 from net income of $391,089 for the comparable year-ago period. On a per-share basis, the company reported a loss of $0.05, which compares to earnings of $0.01 per share for the comparable year-ago period.
The company’s YTD revenue was $100,799,032, which represents a decrease of $27,889,682 (21.7%) from revenue of $128,688,724 for the comparable year-ago period.
For YTD 2012, the Company's adjusted EBITDA was ($6,290,129), which represents a decrease of $10,455,453 from adjusted EBITDA of $4,165,324 for YTD 2011.
Management Comments — The Company noted several factors that contributed to the $7.6 million loss in Q2 2012, including:
· $3.0 million margin erosion due to low priced imports and the sale of plain end pipe at higher raw material costs;
· $1.4 million start-up costs for the U.S. sites in Alabama, Corpus Christi and Houston;
· $1.3 million lost absorption of fixed overhead due to the shutdown of the Welland plant for nine days;
· $1.1 million foreign exchange loss; and
· $0.3 million valuation allowance on taxes recoverable.
The company also noted customer demand for oil country tubular goods shifted during fiscal 2012 from plain end pipe to thermally treated and end finished products. The change resulted in customer demand that substantially exceeded available capacity among third-party thermal treatment and end-finishing processors, leading to extended wait times.
Construction Update — "The first half of this fiscal year has been a challenge for the company as the rapid and sustained shift in customer demand towards fully finished OCTG products, the constraints in thermal treatment and end finishing capacity in the market, higher cost of goods sold and the presence of low cost overseas imports of plain end products all contributed to an erosion of the Company's margins,” commented Ron Bedard, President and Chief Operating Officer.
"The current lack of sufficient thermal treatment and end finishing capacity in the market illustrates the importance of Lakeside's vertical integration strategy,” added Bedard. “This strategy will enable Lakeside to become a full-service provider of thermally treated and end finished OCTG products."
The Company's new casing mill in Alabama, with an estimated capacity of 192,000 annual tons, will begin production in December 2011, and thermal treatment and end finishing facilities for tubing products are due to be completed in January 2012. This facility will add 67,000 annual tons of thermal treatment capacity and 55,000 annual tons of end finishing capacity for tubing products.
The company said thermal treatment and end finishing facility for casing products are to be completed in June 2012. This facility will add 150,000 annual tons of thermal treatment capacity and 110,000 annual tons of end finishing capacity for casing products. The total remaining capital expenditures for the Alabama facilities are $17.8 million.
Lakeside anticipates is progress toward self-sufficiency in thermal treatment and end finishing will allow the company to return to profitability with fully finished products to meet customer demand.
Proposed Financings — The company also announced that as a result of recent losses and increased wait times at third party processors, which have resulted in higher working capital requirements, the company will require additional financing to complete the Alabama and Corpus Christi thermal treatment and end finishing facilities and to ramp up production. The company proposes to complete the following financing arrangements:
· The company has agreed in principle with Romspen Investment Corp on terms of a $22.5 million term debt facility (Term Debt Facility) that will provide the company with net proceeds of $13.0 million after repayment of a $7.5-million term loan with the company's working capital lender, repayment of $1.3 million owing to Bennett Environmental Inc. and fees and expenses.
· The company also entered into an agreement with Northern Securities Inc., on behalf of a syndicate and Northern Financial Corp. to raise $7.5 million, in a private placement of common shares, to be priced in the context of the market, with a firm commitment on the financing from Northern Financial subject to certain conditions (Private Placement).
The Term Debt Facility and Private Placement financing, which are scheduled to close prior to December 23, 2011, are subject to receipt of all required regulatory approvals.
"The Term Debt Facility and Private Placement will provide the company with the remaining capital it requires to complete the construction phase of its U.S. facilities,: noted Bedard. “This additional capital will allow the company to complete its vertical integration strategy and provide its customers with fully finished OCTG products."
Lakeside, the parent company of Lakeside Steel Corp., Lakeside Steel Alabama Inc. and Lakeside Steel Texas Inc., is a diversified steel pipe and tubing manufacturer with a focus on manufacturing and upgrading Oil Country Tubular Goods. Lakeside has operating facilities located in Welland, Ont., and Corpus Christi, Texas, as well as three facilities currently under construction in Thomasville, Ala. Lakeside's list of customers includes large oil and gas end users as well as distributors across North America.
Lakeside Steel Alabama will be a diversified steel pipe manufacturer with thermal treatment and end-finishing capabilities strategically situated in the southern United States. Construction of the Alabama facilities is currently underway.
