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STRONGCO ANNOUNCES
INCREASED PRE-TAX EARNINGS FOR 1998
MISSISSAUGA, ONTARIO - Tuesday, February 16, 1999, 12:22 PM EST
Strongco Inc. today released its operating results for the fourth
quarter and year ended December 31, 1998. Consolidated revenue
for the year, at $607.8 million, was up 27% over 1997. The gross
margin percentage, at 19.2%, was up slightly over 1997 while the
operating expense ratio was down, leading to a third consecutive
year of improved operating income, measured both in dollar terms
and as a percentage of revenue. Interest expense for the year
increased over 1997's level due to the combined effect of higher
market rates applied against a larger balance sheet which arose
from Strongco's 1998 corporate growth. In spite of this, pre-tax
earnings for the year established a new company record of $16.8
million. Net income for the year, taxed at an effective rate of
44.8% compared to 24.8% last year, was $9.3 million, down from
$12.0 million last year. The year's higher tax rate also caused
a decline in Strongco's earnings per share, to $1.00 from $1.41
last year, and its after-tax return on shareholders' equity,
which was 11.8% compared to 21.2% in 1997.
For the quarter ended December 31, 1998, Strongco's consolidated
revenue was $186.8 million, a 33.1% increase over last year's
fourth quarter. The gross margin percentage was 17.0% compared
to 18.9% last year, but the operating expense ratio also
declined, to 12.9% from 13.8%. Pre-tax income for the quarter
was $3.0 million after fourth quarter expenses of approximately
$2 million arising from facilities and personnel consolidations
and related corporate realignment. The future annual cost
savings resulting from these activities will approximate $4
million.
Strongco's annual and quarterly financial results are summarized
below (in $millions, except EPS):
1998 1997
---- ----
Q4 Q3 Q2 Q1 Year Q4 Q3 Q2 Q1 Year
-----------------------------------------------------------------
Revenue
186.8 141.1 162.9 117.0 607.8 140.3 122.5 125.5 89.9 478.2
Pre-Tax Income
3.0 4.2 7.6 2.0 16.8 4.9 4.6 5.3 1.2 16.0
Net Income
1.4 2.3 4.4 1.2 9.3 3.4 3.6 4.1 .9 12.0
Earnings/Share
$0.15 $0.23 $0.48 $0.14 $1.00 $0.41 $0.42 $0.47 $0.11 $1.41
"Although the industry slowdown that occurred in the second half
of the year resulted in 1998 earnings that were below our earlier
expectations, we were pleased to once again increase our annual
pre-tax income," said Larry Pirnak, Strongco Chairman. "The
economic uncertainty that prevailed early in the third quarter
dissipated as the second half unfolded, and Strongco enjoyed a
strong finish to the year. Nevertheless, we did respond to the
third quarter slowdown by accelerating our consolidation of
facilities and personnel. This was particularly true in the
Greater Toronto Area, where a major expansion and renovation of
our Mississauga building enabled us to combine several operations
into the one facility, and in Western Canada, where the declining
Alberta economy caused us to revisit our cost base there. We
estimate that the costs associated with these consolidation
activities reduced our earnings per share for the year by
approximately $0.15. The associated benefits, however, will add
to Strongco's earnings in the future."
"Strongco made several important advances during 1998," Mr.
Pirnak said. "Each of the five acquisitions completed during the
year strengthened the company by adding to its geographic and
business diversification. Each also contributed positively
toward Strongco's earnings. Furthermore, through acquisitions
and supplier negotiations we were able to add important new
equipment lines to Strongco's product offering," said Mr. Pirnak.
"We anticipate more growth in our Canadian and U.S. operations in
1999, and we remain optimistic that activity levels within
Strongco's primary markets will be buoyant."
For further information, contact:
Randy Henderson
Senior Vice President and CFO
905-565-3802
STRONGCO INC.
Condensed Consolidated Balance Sheet
As at December 31
1998 1997
----- -----
Accounts Receivable 87,775 71,404
Inventories 199,493 181,879
Other Current Assets 8,030 5,161
------ ------
295,298 258,444
Capital Assets 32,970 27,223
Rental Equipment 59,791 7,487
Goodwill and Other 19,549 8,077
------- -------
407,608 301,231
======= =======
Bank Indebtedness 49,385 37,492
Equipment Notes Payable 120,636 126,486
Accounts Payable and Accruals 59,157 47,594
Other 36,640 8,965
------- --------
265,818 220,537
Long-Term Debt 52,928 16,365
Deferred Income Taxes 4,426 1,050
Shareholders' Equity 84,436 63,279
------- -------
407,608 301,231
======== =======
Note: In April, 1998, Stronco filed a Notice of Intention to
Make a Normal Course Issuer Bid with the Toronto Stock Exchange
and the Montreal Exchange. This program allows Strongco to
purchase up to 300,000 of its common shares during the period of
April 30, 1998 to April 29, 1999. To December 31, 1998, 269,000
shares have been purchased by Strongco under this Issuer Bid.
STRONGCO INC.
Consolidated Statements of Income
For the Three and Twelve Months Ended December 31
1998 1997 1998 1997
Revenue 186,818 140,261 607,758 478,243
--------- -------- --------- ---------
Gross Margin 31,736 26,501 116,493 90,188
Administrative, Distribution
and Selling Expenses 24,068 19,320 84,035 66,660
Interest Expense 4,686 2,317 15,660 7,534
-------- -------- -------- ---------
28,754 21,637 99,695 74,194
------- ------- -------- ---------
Pre-Tax Income 2,982 4,864 16,798 15,994
Income and Other Taxes 1,586 1,361 7,527 3,965
------- ------- ------- ---------
Net Income 1,396 3,503 9,271 12,029
======== ======== ======== ========
Per Share $0.15 $0.41 $1.00 $1.41
========= ======== ======== ========
Note: Income tax loss carryforwards were utilized in 1997 and, to
a lesser extent, in 1998 to reduce income taxes otherwise
payable.
STRONGCO INC.
Consolidated Statements of Changes in Financial Position
For the Three and Twelve Months Ended December 31
1998 1997 1998 1997
OPERATING ACTIVITIES
Net Income 1,396 3,503 9,271 12,029
Non-Cash Items
Depreciation and
Amortization 3,054 1,284 8,814 4,034
Other 2,339 1,728 1,359 2,109
Net Change in Non-Cash
Working Capital
Balances 25,334 171 (2,244) (13,702)
-------- ------ -------- --------
Cash Provided by
(Used in) Operations 32,123 6,686 17,200 4,470
--------- ------- ------- --------
INVESTING ACTIVITIES
Business Acquisitions
& Divestitures, net (2,743) (7,731) (30,707) (15,416)
Rental Equipment
& Capital Assets, net(29,582) (618) (43,075) (4,769)
Other Assets (354) 762 25 33
------- ------- ------- --------
Cash Provided by (Used in)
Investing Activities (32,679) (7,587) (73,757) (20,152)
------- ------- -------- --------
FINANCING ACTIVITIES
Repayment of Notes Payable issued
for acquisition - (6,967) - (6,967)
Long-Term Debt, net 21,173 6,598 33,181 17,321
Share Capital
Transactions, net (699) 352 11,483 787
-------- ------- -------- -------
Cash Provided by (Used in)
Financing Activities 20,474 (17) 44,664 11,141
-------- ------ ------- --------
DIVIDENDS
- - - -
-------- ------- ------- --------
Net Decrease (Increase) in
Bank Indebtedness 19,918 (918) (11,893) (4,541)
Bank Indebtedness -
beginning of period (69,303) (36,574) (37,492) (32,951)
-------- -------- -------- ----------
Bank Indebtedness -
end of period (49,385) (37,492) (49,385) (37,492)
========= ======== ======== ========
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