Exhibit 99.1
IPSCO Inc.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
1
Management’s Responsibility for Financial Statements
The accompanying consolidated financial statements of IPSCO Inc., and all information in this report, were prepared by management, which is responsible for its integrity and objectivity.
The financial statements have been prepared in accordance with United States generally accepted accounting principles and necessarily include some estimates based upon management’s judgments. The significant accounting policies, which management believes appropriate for the Company, are described in Note 3 to the Consolidated Financial Statements. Financial and operating data presented elsewhere in the annual report are consistent with the information contained in the financial statements.
The integrity and reliability of IPSCO’s reporting systems are achieved through the use of formal policies and procedures, the careful selection of employees and an appropriate division of responsibilities. Internal accounting controls are continually monitored by an internal audit staff through ongoing reviews and comprehensive audit programs. IPSCO regularly communicates throughout the organization the requirement for employees to maintain high ethical standards in their conduct of the Company’s affairs.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control and exercises this responsibility principally through the Audit Committee of the Board. The Board of Directors annually appoints this Audit Committee which is comprised of directors who are neither employees of IPSCO nor of companies affiliated with the Company. This Committee meets regularly with management, the head of the internal audit department, and the shareholders’ auditors to review significant accounting, reporting and internal control matters. Both the internal and shareholders’ auditors have unrestricted access to the Audit Committee. Following its review of the financial statements and annual report and discussions with the shareholders’ auditors, the Audit Committee reports to the Board of Directors prior to the Board’s approval of the financial statements and annual report. The Audit Committee recommends the appointment of the Company’s external auditors, who are appointed by the Company’s shareholders at its annual meeting.
Ernst & Young LLP, the shareholders’ auditors, have performed an independent audit in accordance with the standards of the Public Company Accounting Oversight Board and have attested to the fairness, in all material respects, of the presentation of the financial statements. Their report follows.
/s/ David S. Sutherland |
| /s/ Vicki Avril |
|
David Sutherland | Vicki Avril | ||
President and Chief Executive Officer | Senior Vice President and Chief Financial Officer | ||
February 24, 2006 |
|
2
Report of Independent Registered Public Accounting Firm
To the Shareholders of IPSCO Inc.
We have audited the accompanying consolidated balance sheets of IPSCO Inc. as of December 31, 2005 and 2004 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in accordance with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Oversight Board (United States), the effectiveness of IPSCO Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2006 expressed an unqualified opinion thereon.
As discussed in Note 4 to the financial statements, in 2004 the Company changed its method of accounting for the costs of major overhauls and repairs.
/s/ Ernst & Young LLP |
|
Chicago, Illinois |
|
February 24, 2006 |
|
3
IPSCO Inc. Consolidated Balance Sheets
As of December 31
(thousands of U.S. dollars)
|
| 2005 |
| 2004 |
| ||
CURRENT ASSETS |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 583,064 |
| $ | 354,774 |
|
Accounts receivable |
|
|
|
|
| ||
Trade, less allowances |
| 336,902 |
| 325,037 |
| ||
Other, including current portion of mortgages receivable |
| 52,041 |
| 14,784 |
| ||
Inventories (Note 5) |
| 506,237 |
| 434,436 |
| ||
Prepaid expenses |
| 8,615 |
| 8,212 |
| ||
Deferred income taxes (Note 6) |
| 30,227 |
| 45,212 |
| ||
|
| 1,517,086 |
| 1,182,455 |
| ||
|
|
|
|
|
| ||
NON-CURRENT ASSETS |
|
|
|
|
| ||
Capital assets (Note 7) |
| 1,056,186 |
| 1,068,589 |
| ||
Mortgages receivable (Note 8) |
| 11,542 |
| 14,243 |
| ||
Other long-term assets |
| 54,205 |
| 26,178 |
| ||
|
| 1,121,933 |
| 1,109,010 |
| ||
|
|
|
|
|
| ||
TOTAL ASSETS |
| $ | 2,639,019 |
| $ | 2,291,465 |
|
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
| ||
Accounts payable and accrued charges |
| $ | 236,171 |
| $ | 200,195 |
|
Accrued payroll and related liabilities |
| 62,014 |
| 39,130 |
| ||
Income and other taxes payable |
| 41,073 |
| 90,656 |
| ||
Current portion of long-term debt (Note 10) |
| 4,114 |
| 18,107 |
| ||
Other current liabilities |
| 5,404 |
| 7,956 |
| ||
|
| 348,776 |
| 356,044 |
| ||
|
|
|
|
|
| ||
LONG-TERM LIABILITIES |
|
|
|
|
| ||
Long-term debt (Note 10) |
| 313,053 |
| 513,651 |
| ||
Deferred pension liability (Note 9) |
| 44,584 |
| 31,934 |
| ||
Deferred income taxes (Note 6) |
| 191,973 |
| 103,979 |
| ||
|
| 549,610 |
| 649,564 |
| ||
|
|
|
|
|
| ||
SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
Common shares (Note 12) |
| 419,272 |
| 424,826 |
| ||
Contributed surplus |
| 15,548 |
| 1,489 |
| ||
Retained earnings (Note 15) |
| 1,341,659 |
| 884,859 |
| ||
Accumulated other comprehensive loss (Note 16) |
| (35,846 | ) | (25,317 | ) | ||
|
| 1,740,633 |
| 1,285,857 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 2,639,019 |
| $ | 2,291,465 |
|
Commitments and contingencies (Notes 19 & 22)
The accompanying notes are an integral part of the consolidated financial statements.
On behalf of the Board:
/s/ Burton Joyce |
| /s/ David Sutherland |
|
Burton Joyce, Director | David Sutherland, Director |
4
IPSCO Inc. Consolidated Statements of Income
Years ended December 31
(thousands of U.S. dollars except per share data)
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| |||
Sales |
| $ | 3,032,727 |
| $ | 2,531,390 |
| $ | 1,358,811 |
|
|
|
|
|
|
|
|
| |||
Cost of sales |
|
|
|
|
|
|
| |||
Manufacturing and raw material |
| 1,971,155 |
| 1,724,813 |
| 1,181,247 |
| |||
Depreciation of capital assets |
| 80,336 |
| 82,526 |
| 61,904 |
| |||
|
| 2,051,491 |
| 1,807,339 |
| 1,243,151 |
| |||
|
|
|
|
|
|
|
| |||
Gross income |
| 981,236 |
| 724,051 |
| 115,660 |
| |||
Selling, general and administration |
| 83,334 |
| 61,467 |
| 54,683 |
| |||
|
|
|
|
|
|
|
| |||
Operating income |
| 897,902 |
| 662,584 |
| 60,977 |
| |||
|
|
|
|
|
|
|
| |||
Other expenses (income) |
|
|
|
|
|
|
| |||
Interest on long-term debt |
| 35,631 |
| 54,405 |
| 51,747 |
| |||
Other interest income, net |
| (16,626 | ) | (3,481 | ) | (1,625 | ) | |||
Foreign exchange gain |
| (9,448 | ) | (2,749 | ) | (5,170 | ) | |||
Gain on sale of assets held for sale (Note 8) |
| (1,863 | ) | (4,925 | ) | — |
| |||
Other (income) expenses |
| (9,760 | ) | 477 |
| (183 | ) | |||
Loss on early extinguishment of debt |
| 16,423 |
| — |
| — |
| |||
|
|
|
|
|
|
|
| |||
Income before income taxes and cumulative effect of accounting change |
| 883,545 |
| 618,857 |
| 16,208 |
| |||
|
|
|
|
|
|
|
| |||
Income taxes (Note 6) |
| 297,729 |
| 178,165 |
| 11,536 |
| |||
|
|
|
|
|
|
|
| |||
Income before cumulative effect of accounting change |
| 585,816 |
| 440,692 |
| 4,672 |
| |||
|
|
|
|
|
|
|
| |||
Cumulative effect of accounting change, net of taxes (Note 4) |
| — |
| 14,250 |
| — |
| |||
|
|
|
|
|
|
|
| |||
NET INCOME |
| 585,816 |
| 454,942 |
| 4,672 |
| |||
|
|
|
|
|
|
|
| |||
Dividends on preferred shares, including part VI.I tax (Note 11) |
| — |
| — |
| 3,033 |
| |||
|
|
|
|
|
|
|
| |||
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS |
| $ | 585,816 |
| $ | 454,942 |
| $ | 1,639 |
|
|
|
|
|
|
|
|
| |||
EARNINGS PER COMMON SHARE (Note 17) |
|
|
|
|
|
|
| |||
Income before cumulative effect of accounting change |
| $ | 12.07 |
| $ | 9.12 |
| $ | 0.03 |
|
Cumulative effect of accounting change |
| — |
| 0.30 |
| — |
| |||
Earnings per Common Share - Basic |
| $ | 12.07 |
| $ | 9.42 |
| $ | 0.03 |
|
|
|
|
|
|
|
|
| |||
Income before cumulative effect of accounting change |
| $ | 11.96 |
| $ | 8.42 |
| $ | 0.03 |
|
Cumulative effect of accounting change |
| — |
| 0.27 |
| — |
| |||
Earnings per Common Share - Diluted |
| $ | 11.96 |
| $ | 8.69 |
| $ | 0.03 |
|
|
|
|
|
|
|
|
| |||
Pro forma amounts assuming the change in accounting had been applied retroactively (Note 4) |
|
|
|
|
|
|
| |||
Net income available to common shareholders |
|
|
| $ | 440,692 |
| $ | 5,862 |
| |
|
|
|
|
|
|
|
| |||
Earnings per Common Share - Basic |
|
|
| $ | 9.12 |
| $ | 0.12 |
| |
|
|
|
|
|
|
|
| |||
Earnings per Common Share - Diluted |
|
|
| $ | 8.42 |
| $ | 0.12 |
|
The accompanying notes are an integral part of the consolidated financial statements.
5
IPSCO Inc. Consolidated Statements of Shareholders’ Equity
Years Ended December 31
(thousands of U.S. dollars except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
| ||||||
|
| Preferred Shares |
| Common Shares |
| Contributed |
| Retained |
| Comprehensive |
|
|
| ||||||||||
|
| Number |
| Amount |
| Number |
| Amount |
| Surplus |
| Earnings |
| Loss |
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance January 1, 2003 |
| 6,000,000 |
| $ | 97,529 |
| 47,667,487 |
| $ | 392,042 |
| $ | — |
| $ | 444,776 |
| $ | (69,624 | ) | $ | 864,723 |
|
Net income |
| — |
| — |
| — |
| — |
| — |
| 4,672 |
| — |
| 4,672 |
| ||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| — |
| — |
| 46,762 |
| 46,762 |
| ||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 51,434 |
| ||||||
Dividends on preferred shares, including part VI.I tax |
| — |
| — |
| — |
| — |
| — |
| (3,033 | ) | — |
| (3,033 | ) | ||||||
Dividends on common shares |
| — |
| — |
| — |
| — |
| — |
| (6,962 | ) | — |
| (6,962 | ) | ||||||
Issue of common shares |
| — |
| — |
| 273,420 |
| 2,420 |
| — |
| — |
| — |
| 2,420 |
| ||||||
Stock based compensation |
| — |
| — |
| — |
| — |
| 366 |
|
|
|
|
| 366 |
| ||||||
Other |
| — |
| 142 |
| — |
| — |
| — |
| — |
| — |
| 142 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance as of December 31, 2003 |
| 6,000,000 |
| 97,671 |
| 47,940,907 |
| 394,462 |
| 366 |
| 439,453 |
| (22,862 | ) | 909,090 |
| ||||||
Net income |
| — |
| — |
| — |
| — |
| — |
| 454,942 |
| — |
| 454,942 |
| ||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| — |
| (2,455 | ) | (2,455 | ) | ||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 452,487 |
| ||||||
Dividends on common shares |
| — |
| — |
| — |
| — |
| — |
| (9,536 | ) | — |
| (9,536 | ) | ||||||
Issue of common shares |
| — |
| — |
| 1,796,273 |
| 30,364 |
|
|
| — |
| — |
| 30,364 |
| ||||||
Stock based compensation |
| — |
| — |
| — |
| — |
| 1,123 |
|
|
|
|
| 1,123 |
| ||||||
Redemption of preferred shares |
| (6,000,000 | ) | (97,671 | ) | — |
| — |
| — |
| — |
| — |
| (97,671 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance as of December 31, 2004 |
| — |
| — |
| 49,737,180 |
| 424,826 |
| 1,489 |
| 884,859 |
| (25,317 | ) | 1,285,857 |
| ||||||
Net income |
| — |
| — |
| — |
| — |
| — |
| 585,816 |
| — |
| 585,816 |
| ||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| — |
| (10,529 | ) | (10,529 | ) | ||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 575,287 |
| ||||||
Dividends on common shares |
| — |
| — |
| — |
| — |
| — |
| (22,781 | ) | — |
| (22,781 | ) | ||||||
Issue of common shares |
| — |
| — |
| 1,068,539 |
| 21,104 |
|
|
| — |
| — |
| 21,104 |
| ||||||
Stock based compensation |
| — |
| — |
| — |
| — |
| 14,059 |
| — |
|
|
| 14,059 |
| ||||||
Repurchase of common shares |
| — |
| — |
| (2,754,100 | ) | (26,658 | ) | — |
| (106,235 | ) | — |
| (132,893 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance as of December 31, 2005 |
| — |
| $ | — |
| 48,051,619 |
| $ | 419,272 |
| $ | 15,548 |
| $ | 1,341,659 |
| $ | (35,846 | ) | $ | 1,740,633 |
|
The accompanying notes are an integral part of the consolidated financial statements.
6
IPSCO Inc. Consolidated Statements of Cash Flows
Years Ended December 31
(thousands of U.S. dollars)
|
| 2005 |
| 2004 |
| 2003 |
| |||
Operating activities |
|
|
|
|
|
|
| |||
Net income |
| $ | 585,816 |
| $ | 454,942 |
| $ | 4,672 |
|
Adjustments to reconcile net income to net cash flows from operating activities |
|
|
|
|
|
|
| |||
Depreciation of capital assets |
| 80,336 |
| 82,526 |
| 61,904 |
| |||
Amortization of deferred charges |
| 1,671 |
| 1,291 |
| 1,216 |
| |||
Stock based compensation |
| 2,987 |
| 1,123 |
| 305 |
| |||
Deferred income taxes |
| 71,808 |
| 92,380 |
| 30,532 |
| |||
Gain on sale of assets held for sale |
| (1,863 | ) | (4,925 | ) | — |
| |||
Unrealized foreign exchange gain |
| (18,863 | ) | — |
| — |
| |||
Loss on early extinguishment of debt |
| 16,423 |
| — |
| — |
| |||
Changes in operating assets and liabilities |
|
|
|
|
|
|
| |||
Trade receivables |
| (7,924 | ) | (146,191 | ) | (23,185 | ) | |||
Other receivables |
| (24,053 | ) | (5,017 | ) | (23,875 | ) | |||
Income taxes recoverable |
| — |
| 36,753 |
| — |
| |||
Inventories |
| (62,116 | ) | (137,446 | ) | (9,035 | ) | |||
Prepaid expenses |
| (359 | ) | (5,114 | ) | 264 |
| |||
Accounts payable and accrued charges |
| 32,890 |
| 21,255 |
| 57,085 |
| |||
Accrued payroll and related liabilities |
| 22,884 |
| 23,506 |
| 469 |
| |||
Change in deferred pension liability |
| (13,163 | ) | (11,574 | ) | 638 |
| |||
Income and other taxes payable |
| (42,000 | ) | 91,126 |
| — |
| |||
Other current liabilities |
| (2,552 | ) | (5,791 | ) | (12,604 | ) | |||
Net cash provided by operating activities |
| 641,922 |
| 488,844 |
| 88,386 |
| |||
|
|
|
|
|
|
|
| |||
Investing activities |
|
|
|
|
|
|
| |||
Expenditures for capital assets |
| (66,801 | ) | (29,068 | ) | (13,528 | ) | |||
Proceeds from sale of assets held for sale (Note 8) |
| 1,546 |
| 4,759 |
| 1,022 |
| |||
Proceeds from (issuance of) mortgages receivable, net |
| 3,661 |
| (2,983 | ) | 2,174 |
| |||
Purchase of investments |
| — |
| (95 | ) | (2,379 | ) | |||
Net cash used for investing activities |
| (61,594 | ) | (27,387 | ) | (12,711 | ) | |||
|
|
|
|
|
|
|
| |||
Financing activities |
|
|
|
|
|
|
| |||
Proceeds from issuance of common shares pursuant to share option plan |
| 21,104 |
| 30,364 |
| 2,581 |
| |||
Common share dividends |
| (22,781 | ) | (9,536 | ) | (6,962 | ) | |||
Common share repurchase |
| (132,893 | ) | — |
| — |
| |||
Preferred share dividends |
| — |
| — |
| (2,631 | ) | |||
Redemption of preferred shares |
| — |
| (108,996 | ) | — |
| |||
Redemption of subordinated notes |
| — |
| (100,000 | ) | — |
| |||
Proceeds from issuance of long-term debt (Note 10) |
| — |
| — |
| 264,114 |
| |||
Repayment of long-term debt (Note 10) |
| (230,473 | ) | (38,107 | ) | (225,586 | ) | |||
Net cash (used for) provided by financing activities |
| (365,043 | ) | (226,275 | ) | 31,516 |
| |||
|
|
|
|
|
|
|
| |||
Effect of exchange rate changes on cash and cash equivalents |
| 13,005 |
| (11,767 | ) | 1,309 |
| |||
|
|
|
|
|
|
|
| |||
INCREASE IN CASH AND CASH EQUIVALENTS |
| 228,290 |
| 223,415 |
| 108,500 |
| |||
|
|
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
| 354,774 |
| 131,359 |
| 22,859 |
| |||
|
|
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS AT END OF YEAR |
| $ | 583,064 |
| $ | 354,774 |
| $ | 131,359 |
|
The accompanying notes are an integral part of the consolidated financial statements.
7
IPSCO Inc. Notes to Consolidated Financial Statements
For the Years Ended December 31
(thousands of U.S. dollars except share and per share data)
1 Nature of Operations
IPSCO Inc. (the Company) is a producer of steel products. The Company’s products are sold primarily in the United States and Canada.
The Company currently employs approximately 2,700 people, of whom approximately 57% are non-unionized personnel and approximately 43% are represented by trade unions. In 2005, the Company renewed the separate collective bargaining agreements with locals of the United Steelworkers of America (USWA) which represent unionized employees in Regina and Calgary for the period August 1, 2006 to July 31, 2011. These employees account for approximately 86% of the Company’s unionized employees.
In 2005, 2004 and 2003, no individual customer accounted for 10% or more of sales. At December 31, 2005 and 2004, no customer represented 10% or more of the accounts receivable balance.
2 Change in Reporting Generally Accepted Accounting Principles
IPSCO has historically prepared and filed its financial statements in accordance with Canadian generally accepted accounting principles (GAAP) with a reconciliation to United States (U.S.) GAAP. In 2005, the Company adopted U.S. GAAP as its primary reporting standard for presentation of its consolidated financial statements. Historical consolidated financial statements were restated in accordance with U.S. GAAP. Note 21 - Differences between United States and Canadian Generally Accepted Accounting Principles provides an explanation and reconciliation of differences between U.S. and Canadian GAAP.
The Company adopted U.S. GAAP to comply with Securities and Exchange Commission requirements, enhance its communication with its shareholders, improve comparability of financial information with its competitors and peer group, and promote a common financial language within IPSCO.
3 Significant Accounting Policies
The consolidated financial statements have been prepared in accordance with U.S. GAAP, and include certain estimates based on management’s judgments. These estimates affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results may differ from those estimates.
REPORTING CURRENCY
Assets and liabilities of the Company’s operations having a functional currency other than the U.S. dollar are translated into U.S. dollars using the exchange rate in effect at the year-end and revenues and expenses are translated at the average rate during the year. Exchange gains or losses on translation of the Company’s net equity investment in these operations are deferred as a separate component of shareholders’ equity.
The change in the foreign currency translation adjustment results primarily from fluctuations of the Canadian dollar against the U.S. dollar.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany balances and transactions are eliminated on consolidation.
CASH EQUIVALENTS
Cash equivalents are securities of the government of Canada and its provinces, the government of the United States, banks, and other corporations, with a maturity of less than three months when purchased. These highly liquid securities are short-term and have fixed interest rates.
INVENTORIES
Inventories are valued at the lower of average cost and net realizable value.
8
INCOME TAXES
The Company follows the liability method of tax allocation in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
CAPITAL ASSETS
Capital assets are stated at cost. For major projects under construction, the Company capitalizes interest based on expenditures incurred to a maximum of interest costs on debt. Repair and maintenance costs are expensed as incurred.
Amortization is provided on the straight-line basis at the following annual rates:
Buildings |
| 4% |
Machinery and Equipment |
| 5% to 33% |
Effective January 1, 2004, the Company changed its estimate of the useful life of certain major machinery and equipment from 25 to 20 years. This change was applied prospectively, and resulted in an increase to 2004 depreciation expense of $15,144 ($0.21 per basic share and $0.19 per diluted share).
Depreciation is provided on all assets acquired as they are placed into production.
DEFERRED FINANCING COSTS
Financing costs relating to long-term debt are deferred and amortized into interest expense over the term of the related debt.
PENSION EXPENSE AND DEFERRED PENSION BALANCE
The cost of pension benefits earned by the employees covered by defined benefit plans is actuarially determined using the projected benefit method prorated on service and management’s best estimate of expected plan investment performance, salary escalation, terminations, and retirement ages of plan members. Plan assets are valued at fair value for the purpose of determining the expected return on plan assets. Adjustments for plan amendments are charged to operations over the expected average remaining service life of the employee group which is approximately 12 years. Actuarial gains and losses arise from changes in assumptions and differences between assumptions and the actual experience of the pension plans. The excess of accumulated actuarial gains and losses over 10% of the greater of the benefit obligation and the fair value of plan assets is also charged to operations over the expected average service life of the employee group. The costs of pension benefits for defined contribution plans are charged to operations as contributions are earned.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents and accounts receivable
The carrying value of cash and cash equivalents and accounts receivable approximates fair value.
Mortgages receivable
The fair value of mortgages receivable has been estimated based on current rates for similar instruments with similar maturities. At December 31, 2005, the estimated fair value of mortgages receivable is $19,876 (2004 - $16,986).
Long-term debt
The fair value of the Company’s long-term debt has been estimated based on current market prices. Where no market price is available, an estimate based on current rates for similar instruments with similar maturities has been used to approximate fair value. See note 10 for fair values.
Natural gas hedge
The Company utilizes fixed price physical delivery contracts and hedge contracts to manage the variability of the cost of purchasing natural gas. The Company has designated as cash flow hedge instruments certain agreements matched against variable price forecasted natural gas purchases through October 31, 2009. The instruments will reduce or increase costs as the underlying physical transaction occurs. As of December 31, 2005, the fair value of the agreements was $11,841 (2004 - $1,546, 2003 - $44 loss).
9
STOCK BASED COMPENSATION
Prior to 2003, the Company accounted for stock based compensation plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Effective January 1, 2003, the Company adopted the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, prospectively for all employee awards granted, modified or settled after January 1, 2003. Awards vest over periods ranging from 1 to 3 years, therefore, the cost related to stock based employee compensation included in the determination of net income for 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of Statement No. 123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in 2003.
|
| 2003 |
| |
|
|
|
| |
Net income available to common shareholders |
| $ | 1,639 |
|
Compensation expense determined under fair value based method for all awards, net of tax |
| (313 | ) | |
Pro forma net income available to common shareholders |
| $ | 1,326 |
|
Pro forma earnings per common share: |
|
|
| |
Basic |
| $ | 0.03 |
|
Diluted |
| $ | 0.03 |
|
The fair value for the stock options was estimated at the date of grant using a Black-Scholes option pricing model using the following weighted-average assumptions for 2003: risk-free interest rate of 3.1%; dividend yield of 1.3%; volatility factor of the expected market price of the Company’s common stock of ..44; and a weighted-average expected life of the options of 2 years. The weighted-average grant-date fair value of the options granted during 2003 was $3.92.
The Black-Scholes option valuation model was developed for use in estimating fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
The Company has a deferred share unit plan as described in Note 14. Compensation expense equal to the amount deferred is recorded. The liability relating to the deferred share units is revalued quarterly based on the market value of the Company’s common shares and the resulting adjustment recorded in income.
REVENUE RECOGNITION
Sales and related costs are recognized upon transfer of ownership which coincides with shipment of products to customers or specific terms included in customer contracts. Products are generally shipped without right of return. Returns are accepted in limited circumstances, which historically, have been insignificant. Sales are recognized when collectibility is reasonably assured.
FREIGHT COSTS
Amounts billed to customers in a sales transaction related to shipping and handling are recorded as revenue. The Company reflects freight costs associated with shipping its products to customers as a component of cost of goods sold.
CREDIT RISK
Credit is extended by the Company based upon an evaluation of the customer’s financial position, and generally, advance payment is not required. The Company provides for doubtful accounts equal to estimated collection losses that will be incurred in the collection of receivables. Estimated losses are based on a review by management of the current status of receivables, as well as historical collection experience.
10
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into hedging transactions in order to manage its exposure to changes in energy commodity prices and the relationship between the Canadian and U.S. dollars. For these cash flow hedge transactions, the Company records the fair value of the derivatives on the Consolidated Balance Sheet. The derivative transactions are evaluated as effective or ineffective at inception and quarterly thereafter based on various factors including the creditworthiness of the counterparty and expectation of achieving forecast activity. The effective portions of the changes in the fair values of these derivatives are recorded in other comprehensive income and are reclassified to income in the period in which earnings are impacted by the hedged items. Any ineffectiveness is recorded in income as identified. Premiums paid with respect to derivatives are deferred and amortized to income over the term of the hedge. Assuming market rates remain constant with the rates at December 31, 2005, $4,630 of the $7,495 gain included in other comprehensive income is expected to be recognized in earnings over the next 12 months.
RECENT ACCOUNTING STANDARDS
The impact on the Company of accounting standards adopted in 2005 and accounting standards which have not been adopted due to delayed effective dates follows:
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which requires all share-based payments to employees to be recognized in the income statement based on their fair values. The standard will be effective for the Company’s 1st quarter 2006 reporting period. The Company expects that the effect of adoption will not be material to the consolidated financial statements.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, which requires that abnormal amounts of idle facility expense, freight, handling costs and spoilage be recognized as period costs and that the allocation of fixed production overheads be based on the normal capacity of production facilities. The Company adopted SFAS No. 151 effective January 1, 2005 and the effect of such adoption was not material to the consolidated financial statements.
RECLASSIFICATION
Certain of the prior year amounts have been reclassified to conform with the presentation adopted for the current year.
4 Accounting Change
Effective April 1, 2004, the Company changed its method of accounting for the costs of major overhauls and repairs. Under the new method, the cost of major overhauls and repairs which are not capitalized are expensed as incurred. Previously, the non-capital estimated cost of such overhauls and repairs was accrued on a straight-line basis between the major overhauls and repairs with actual costs charged to the accrual as incurred. The Company believes the new method more appropriately recognizes such costs in the period incurred.
The impact of the accounting change was applied with the cumulative effect recorded through income on the date of adoption of the change. The impact of the change on the financial statements as of April 1, 2004 is as follows:
|
| Increase (decrease) |
| |
Income taxes recoverable |
| $ | (3,699 | ) |
Deferred income taxes - current asset |
| (5,212 | ) | |
Accounts payable and accrued charges |
| (25,056 | ) | |
Deferred income taxes - long-term liability |
| 1,221 |
| |
Cumulative translation adjustment |
| 674 |
| |
Net income |
| 14,250 |
| |
5 Inventories
|
| 2005 |
| 2004 |
| ||
|
|
|
|
|
| ||
Finished goods |
| $ | 148,650 |
| $ | 133,250 |
|
Work-in-process |
| 190,860 |
| 156,531 |
| ||
Raw materials |
| 99,706 |
| 86,218 |
| ||
Supplies |
| 67,021 |
| 58,437 |
| ||
|
| $ | 506,237 |
| $ | 434,436 |
|
11
6 Income Taxes
a) The components of income (loss) before income taxes are summarized below:
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| |||
Canada |
| $ | 383,236 |
| $ | 281,944 |
| $ | 18,945 |
|
United States |
| 500,309 |
| 336,913 |
| (2,737 | ) | |||
|
| $ | 883,545 |
| $ | 618,857 |
| $ | 16,208 |
|
b) The provision (benefit) for income taxes is summarized as follows:
|
| 2005 |
| 2004 |
| 2003 |
| |||
Current |
|
|
|
|
|
|
| |||
Canada |
| $ | 109,988 |
| $ | 85,786 |
| $ | (16,685 | ) |
U.S. Federal |
| 109,817 |
| 6,019 |
| (2,558 | ) | |||
U.S. State |
| 6,116 |
| 413 |
| 247 |
| |||
|
| 225,921 |
| 92,218 |
| (18,996 | ) | |||
|
|
|
|
|
|
|
| |||
Deferred |
|
|
|
|
|
|
| |||
Canada |
| 5,149 |
| 6,526 |
| 30,803 |
| |||
U.S. Federal |
| 62,381 |
| 71,717 |
| (254 | ) | |||
U.S. State |
| 4,278 |
| 7,704 |
| (17 | ) | |||
|
| 71,808 |
| 85,947 |
| 30,532 |
| |||
|
| $ | 297,729 |
| $ | 178,165 |
| $ | 11,536 |
|
c) The corporate income tax rate is determined using the Canadian federal and provincial tax rates applicable to the parent company. Income tax expense differs from the amount computed by applying the corporate income tax rates to income before income taxes. The reasons for this difference are as follows:
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| |||
Corporate income tax rate |
| 34.2 | % | 34.9 | % | 37.7 | % | |||
|
|
|
|
|
|
|
| |||
Provision for income taxes based on corporate income tax rate |
| $ | 302,172 |
| $ | 216,043 |
| $ | 6,104 |
|
Increase (decrease) in taxes resulting from |
| (3,784 | ) | (5,141 | ) | 349 |
| |||
Canadian large corporation tax |
| 192 |
| 2,576 |
| 1,048 |
| |||
U.S. withholding taxes on dividends |
| — |
| — |
| 1,973 |
| |||
Part VI.I tax |
| — |
| — |
| 1,360 |
| |||
Income taxed at different rates in the United States |
| 3,464 |
| 304 |
| (254 | ) | |||
U.S. state income tax |
| 10,393 |
| 8,116 |
| 229 |
| |||
U.S. extra-territorial income exclusion |
| (6,858 | ) | — |
| — |
| |||
Recognition of capital losses |
| (55,669 | ) | — |
| — |
| |||
Change in valuation allowance on capital losses |
| 55,669 |
| — |
| — |
| |||
Recognition of operating losses |
| — |
| — |
| (11,349 | ) | |||
Change in valuation allowance on operating losses |
| — |
| (43,694 | ) | 11,349 |
| |||
Other |
| (7,850 | ) | (39 | ) | 727 |
| |||
|
| $ | 297,729 |
| $ | 178,165 |
| $ | 11,536 |
|
The U.S. extra-territorial income exclusion (ETI) includes a previously unrecorded benefit for 2004 transactions of $3,540. The 2005 ETI benefit is estimated to be $3,318.
Cash tax payments of $271,700, $22,527, and $12,800 were made for the years ended December 31, 2005, December 31, 2004, and December 31, 2003 respectively.
12
d) Deferred income taxes are comprised of the following:
|
| 2005 |
| 2004 |
| ||
Deferred tax assets |
|
|
|
|
| ||
Accounting provisions not currently deductible for tax purposes |
| $ | 26,731 |
| $ | 42,151 |
|
Costs capitalized to inventory for tax purposes |
| 3,496 |
| 3,061 |
| ||
Net operating loss carry-forwards |
| — |
| 43,570 |
| ||
Foreign exchange losses on debt |
| — |
| 458 |
| ||
Alternative minimum tax credit |
| — |
| 6,610 |
| ||
Capital loss carry-forwards |
| 55,669 |
| — |
| ||
Pension expense in excess of contributions |
| 6,444 |
| 7,279 |
| ||
Other |
| 3,230 |
| 3,394 |
| ||
Gross deferred tax assets |
| 95,570 |
| 106,523 |
| ||
Valuation allowance on capital loss carry-forward |
| (55,669 | ) | — |
| ||
Total net deferred tax assets |
| 39,901 |
| 106,523 |
| ||
|
|
|
|
|
| ||
Deferred tax liabilities |
|
|
|
|
| ||
Tax depreciation in excess of accounting depreciation |
| 190,569 |
| 164,755 |
| ||
Foreign exchange gains on debt |
| 6,478 |
| — |
| ||
Other |
| 4,600 |
| 535 |
| ||
Total deferred tax liabilities |
| 201,647 |
| 165,290 |
| ||
|
|
|
|
|
| ||
Net deferred income tax liability |
| $ | (161,746 | ) | $ | (58,767 | ) |
The net deferred income tax liability is comprised of the following components: |
|
|
|
|
|
Short-term deferred tax asset |
| $ | 30,227 |
| $ | 45,212 |
|
Long-term deferred tax liability |
| 191,973 |
| 103,979 |
| ||
Net deferred income tax liability |
| $ | (161,746 | ) | $ | (58,767 | ) |
e) At December 31, 2005, the Company had no accumulated net operating losses carried forward.
In the fourth quarter of 2005, an internal reorganization of certain of the consolidated entities resulted in a Canadian subsidiary realizing a capital loss. The Company believes it is more likely than not that the deferred tax asset relating to its capital loss will not be realized and therefore a valuation allowance of $55,669 has been recorded against the capital loss for 2005.
Undistributed earnings of certain consolidated U.S. subsidiaries at December 31, 2005 amounted to $332,300. No provision for deferred income taxes has been made for these earnings because the Company intends to permanently reinvest such earnings in those operations. If such earnings were not permanently reinvested, a deferred tax liability of $16,600 would have been recorded.
7 Capital Assets
|
| 2005 |
| 2004 |
| ||||||||||||||
|
| Accumulated |
| Accumulated |
| ||||||||||||||
|
| Cost |
| Depreciation |
| Net |
| Cost |
| Depreciation |
| Net |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Land and land improvements |
| $ | 57,458 |
| $ | — |
| $ | 57,458 |
| $ | 57,020 |
| $ | — |
| $ | 57,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Buildings |
| 167,152 |
| 62,267 |
| 104,885 |
| 157,439 |
| 58,958 |
| 98,481 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Machinery and equipment |
| 1,359,063 |
| 533,854 |
| 825,209 |
| 1,343,403 |
| 458,906 |
| 884,497 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Construction in progress |
| 64,211 |
| — |
| 64,211 |
| 23,985 |
| — |
| 23,985 |
| ||||||
|
| 1,647,884 |
| 596,121 |
| 1,051,763 |
| 1,581,847 |
| 517,864 |
| 1,063,983 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Assets held for sale |
| 7,480 |
| 3,057 |
| 4,423 |
| 7,643 |
| 3,037 |
| 4,606 |
| ||||||
|
| $ | 1,655,364 |
| $ | 599,178 |
| $ | 1,056,186 |
| $ | 1,589,490 |
| $ | 520,901 |
| $ | 1,068,589 |
|
13
During 2005, $1,098 of interest costs were capitalized. No interest was capitalized in 2003 or 2004.
Included in machinery and equipment are assets under capital lease with cost and accumulated depreciation of $146,432 and $48,065 (2004 - $146,432 and $39,169), respectively. Amortization of assets under capital lease is included in depreciation expense.
Certain capital assets, which are not employed in production, have been segregated pending their ultimate disposition and are carried at the lower of carrying value and management’s best estimate of fair value less cost to sell. The Company’s valuation includes significant estimates concerning the cost to complete voluntary environmental remediation activities prior to the sale, as well as the ultimate net recovery value of the property. The estimated environmental costs could change depending on the remediation method used. The Company’s estimates of fair value less cost to sell could be impacted by the prevailing economic conditions and the Company’s ability to obtain necessary zoning and other approvals. See Note 8 for discussion of asset sales.
8 Mortgages Receivable and Sales of Assets Held for Sale
The Company sold certain of its assets held for sale for cash of $1,546 (2004 - $4,759, 2003 - $1,022) and mortgages of $3,599 (2004 - $nil, 2003 - $6,261). The transactions resulted in gains of $1,863 (2004 - $4,925, 2003 - $nil). The mortgages bear interest at rates from 5.50% to 7.75%.
During 2005, the Company advanced funds secured by a mortgage of $800 (2004 - $7,000). The mortgage bears interest at 7.75%.
Minimum principal payments from mortgages receivable due in each of the next four years are as follows:
2006 |
| $ | 5,377 |
|
2007 |
| 1,611 |
| |
2008 |
| 401 |
| |
2009 |
| 9,530 |
| |
|
| 16,919 |
| |
Current portion, included in other accounts receivable |
| 5,377 |
| |
|
| $ | 11,542 |
|
9 Pension Plans
The Company provides retirement benefits for substantially all of its employees under several defined benefit and defined contribution pension plans. The defined benefit plans provide benefits that are based on a combination of years of service and an amount that is either fixed or based on final earnings. The defined contribution plans restrict the Company’s matching contributions to 5% of each participating employee’s annual earnings. The Company’s benefit plans do not provide for post-retirement health care benefits. During 2005, amendments were made to increase benefits payable under plans for employees of one of the Company’s Canadian unions and for senior executives.
The Company’s policy with regard to the defined benefit plans is to fund the amount that is required by governing legislation. Periodically, the Company may fund additional amounts depending on cash availability and in comparison to alternate uses for the cash. For plans representing 94% of the benefit obligation, the most recent actuarial valuations for funding purposes were carried out as of December 31, 2004. The remaining plan is scheduled to have an actuarial valuation for funding purposes completed as of December 31, 2005. In addition to funding required by legislation, the Company pays benefits as they come due for unfunded defined benefit plan obligations.
The ratio of plan assets to benefit obligations for the Company’s defined benefit pension plans as of December 31 is as follows:
|
| 2005 |
| 2004 |
|
Registered plans |
| 85.3% |
| 83.4% |
|
Non-registered plans |
| 1.1% |
| 2.2% |
|
Total |
| 77.0% |
| 79.0% |
|
14
The actual and target distribution of pension plan assets by market value as of December 31, 2005 follows. The investment strategy for plan assets is to maximize returns with consideration to the long-term nature of benefit obligations, while reducing volatility through investment in fixed income securities. Investment performance is evaluated relative to a portfolio invested in line with the target asset allocation and returns based on an appropriate index for each asset class. There is no investment made in securities of the Company.
|
| Actual |
| Target |
|
Canadian and U.S. equities |
| 62% |
| 55% |
|
Canadian fixed income |
| 34% |
| 43% |
|
Other |
| 4% |
| 2% |
|
Total |
| 100% |
| 100% |
|
Net pension expense attributable to the Company’s pension plans for the years ended December 31 includes the following components:
|
| 2005 |
| 2004 |
| 2003 |
| |||
Defined benefit plans |
|
|
|
|
|
|
| |||
Service cost for benefits earned |
| $ | 5,811 |
| $ | 4,850 |
| $ | 4,410 |
|
Interest cost on benefit obligations |
| 11,042 |
| 9,849 |
| 8,935 |
| |||
Actual return on plan assets |
| (19,687 | ) | (11,927 | ) | (11,955 | ) | |||
Plan amendments |
| 12,212 |
| — |
| 610 |
| |||
Actuarial losses |
| 28,086 |
| 8,693 |
| 8,758 |
| |||
Costs arising in the year |
| 37,464 |
| 11,465 |
| 10,758 |
| |||
Differences between costs arising and costs recognized |
|
|
|
|
|
|
| |||
Return on plan assets |
| 9,220 |
| 3,701 |
| 5,222 |
| |||
Actuarial gains and losses |
| (25,691 | ) | (6,250 | ) | (6,772 | ) | |||
Plan amendments |
| (11,221 | ) | 923 |
| 220 |
| |||
Costs recognized in the year |
| 9,772 |
| 9,839 |
| 9,428 |
| |||
Defined contribution plans |
| 4,349 |
| 3,888 |
| 3,224 |
| |||
Net pension expense |
| $ | 14,121 |
| $ | 13,727 |
| $ | 12,652 |
|
The following table sets forth the defined benefit plans’ funded status and amount included in the deferred pension balance in the Company’s statement of financial position at December 31:
|
| 2005 |
| 2004 |
| ||
|
|
|
|
|
| ||
Benefit obligation at beginning of year |
| $ | 194,331 |
| $ | 164,237 |
|
Service cost for benefits earned |
| 6,015 |
| 5,051 |
| ||
Interest cost on benefit obligation |
| 11,042 |
| 9,849 |
| ||
Plan amendments |
| 12,212 |
| — |
| ||
Actuarial losses |
| 28,086 |
| 8,693 |
| ||
Benefit payments |
| (9,248 | ) | (7,776 | ) | ||
Currency translation |
| 8,520 |
| 14,277 |
| ||
Benefit obligation at end of year |
| 250,958 |
| 194,331 |
| ||
|
|
|
|
|
| ||
Market value of plan assets at beginning of year |
| 153,489 |
| 116,957 |
| ||
Actual return on plan assets |
| 19,687 |
| 11,927 |
| ||
Employer contributions |
| 22,424 |
| 21,613 |
| ||
Plan participants contributions |
| 277 |
| 215 |
| ||
Benefit payments |
| (9,248 | ) | (7,776 | ) | ||
Currency translation |
| 6,525 |
| 10,553 |
| ||
Market value of plan assets at end of year |
| 193,154 |
| 153,489 |
| ||
|
|
|
|
|
| ||
Funded status at end of year |
| (57,804 | ) | (40,842 | ) | ||
Unamortized actuarial gains and losses |
| 66,513 |
| 47,773 |
| ||
Unamortized past service costs |
| 21,249 |
| 9,250 |
| ||
Net amount recognized |
| $ | 29,958 |
| $ | 16,181 |
|
|
|
|
|
|
| ||
Amounts recognized in the consolidated balance sheets consist of: |
|
|
|
|
| ||
Accrued benefit - long-term liability |
| $ | (44,584 | ) | $ | (31,934 | ) |
Prepaid benefit cost |
| 1,647 |
| 6,931 |
| ||
Intangible asset |
| 21,249 |
| 9,250 |
| ||
Accumulated other comprehensive loss |
| 51,646 |
| 31,934 |
| ||
Net amount recognized |
| $ | 29,958 |
| $ | 16,181 |
|
The total accumulated benefit obligation of the Company’s pension plans is: |
| $ | 237,656 |
| $ | 185,141 |
|
15
Amounts applicable to the Company’s pension plans with an accumulated benefit obligation in excess of plan assets are:
|
| 2005 |
| 2004 |
| ||
Accumulated benefit obligation |
| $ | 227,950 |
| $ | 184,121 |
|
Market value of plan assets |
| $ | 183,366 |
| $ | 152,187 |
|
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligations as of December 31, 2005 and 2004 follow. To develop the expected long-term rate of return on plan assets assumption, the Company considered the historical returns and the future expectation for returns for each asset class, as well as the target asset allocation of the pension portfolio. Variances between such estimates and actual experience, which may be material, are amortized over the employees average remaining service life.
|
| 2005 |
| 2004 |
|
Pension expense for the year ended December 31: |
|
|
|
|
|
Weighted average discount rate |
| 5.8% |
| 6.1% |
|
Expected long-term rate of return on plan assets |
| 6.8% |
| 7.0% |
|
Weighted average rate of compensation increase |
| 3.5% |
| 3.2% |
|
|
| 2005 |
| 2004 |
|
Benefit obligation as of December 31: |
|
|
|
|
|
Weighted average discount rate |
| 5.0% |
| 5.8% |
|
Weighted average rate of compensation increase |
| 3.5% |
| 3.5% |
|
Total cash payments for pension benefits for 2005, consisting of cash contributed by the Company to its defined benefit and defined contribution plans was $26,773 (2004 - $25,501, 2003 - $11,570). Based on the most recent actuarial valuations for funding purposes, the total estimated Company contributions to the pension plans for 2006 are $14,810.
Benefits expected to be paid over the next ten fiscal years are as follows:
2006 |
| $ | 10,802 |
|
2007 |
| 11,101 |
| |
2008 |
| 11,626 |
| |
2009 |
| 12,425 |
| |
2010 |
| 13,337 |
| |
2011 - 2015 |
| 76,181 |
|
16
10 Debt
|
|
| Carrying Value |
| Fair Value |
| ||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| ||||||
a) | Long-term debt |
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
| 6.00% | Unsecured loan, maturing and payable June 1, 2007. The Company has the option at maturity to extend the term of the loan to no later than June 1, 2027 at an interest rate to be negotiated |
| $ | 14,715 |
| $ | 14,715 |
| $ | 14,538 |
| $ | 14,586 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |||||
| 8.11% | Unsecured financing, maturing and payable November 1, 2009. The Company has the option at maturity to extend the term of the loan to no later than November 1, 2029 at an interest rate to be negotiated |
| 28,000 |
| 28,000 |
| 28,913 |
| 28,843 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
| 6.875% | Unsecured financing, maturing and payable May 1, 2010. The Company has the option at maturity to extend the term of the loan to no later than May 1, 2030 at an interest rate to be negotiated |
| 10,000 |
| 10,000 |
| 9,872 |
| 9,733 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
| 8.75% | Unsecured notes, maturing and payable June 1, 2013. The Company has the option to redeem the notes after June 1, 2008 for a premium declining ratably to par at June 1, 2011 |
| 143,855 |
| 200,000 |
| 158,240 |
| 228,820 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Financing lease (i) |
| 120,597 |
| 124,419 |
| 103,060 |
| 109,220 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
| 7.80% | Unsecured debentures, (CDN $100,000) repaid in 2005 |
| — |
| 83,195 |
| — |
| 88,787 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
| 7.32% | Unsecured notes, repaid in 2005 |
| — |
| 71,429 |
| — |
| 72,481 |
| |||||
|
|
|
| 317,167 |
| 531,758 |
| $ | 314,623 |
| $ | 552,470 |
| |||
| Less current portion of long-term debt |
| (4,114 | ) | (18,107 | ) |
|
|
|
| ||||||
|
|
|
|
| $ | 313,053 |
| $ | 513,651 |
|
|
|
|
| ||
Fair value of debt has been estimated on the basis described in Note 2.
(i) In October 2000, the Company completed the sale and leaseback of certain of its Montpelier Steelworks production equipment for cash proceeds of $150,000. The implicit interest rate in the lease is 7.28%, with variable amount semi-annual payments required in January and July each year. The Company has options, but is not obligated, to purchase the equipment after seven and ten years for predetermined amounts and at the end of the 15-year lease term for the fair market value of the equipment, subject to a residual guarantee of $37,500 which has been included in the minimum lease payment requirements shown below.
Anticipated minimum lease payment requirements on the financing lease are as follows:
2006 |
| $ | 12,707 |
|
2007 |
| 14,378 |
| |
2008 |
| 15,531 |
| |
2009 |
| 15,532 |
| |
2010 |
| 15,531 |
| |
2011 - 2015 |
| 107,756 |
| |
|
| 181,435 |
| |
Less amount representing interest: |
| 60,838 |
| |
|
| 120,597 |
|
17
Minimum payment requirements on long-term debt arrangements, without exercising the options to extend the terms outstanding, are as follows:
2006 |
| $ | — |
|
2007 |
| 14,715 |
| |
2008 |
| — |
| |
2009 |
| 28,000 |
| |
2010 |
| 10,000 |
| |
|
| 52,715 |
| |
2011 - 2013 |
| 143,855 |
| |
|
| $ | 196,570 |
|
b) Bank lines of credit
At December 31, 2005, the Company had bank lines of credit aggregating $150,000, which can be drawn in Canadian or U.S. currency, of which no amounts had been drawn other than letters of credit of CDN $11,810 and U.S. $3,775. Bank lines of credit are comprised of a $150,000 revolving term facility that expires November 19, 2007. The revolving term facility bears interest at spreads over the Canadian prime rate, the U.S. base rate, Canadian Bankers’ Acceptances Reference Discount Rate or U.S. dollar LIBOR and is unsecured.
c) Covenants
The Company’s debt arrangements require the Company to meet certain financial and other covenants.
11 Preferred Shares
The Company is authorized to issue unlimited first and second preferred shares. The first preferred shares rank in priority to the second preferred shares and the common shares as to payment of dividends and the distribution of assets. The first and second preferred shares may be issued in series and the directors of the Company may fix, before issuance, the further rights, privileges, restrictions and conditions attached thereto.
The Company issued first preferred shares, Series 1 (the Series 1 Preferred Shares) at a price of CDN $25.00 per Series 1 Preferred Share with a fixed cumulative preferential dividend as and when declared by the directors equal to 5.50% per annum payable quarterly on the 15th of February, May, August and November of each year.
Until 2003, the Series 1 Preferred Shares, including accrued and unpaid cumulative dividends, were classified as equity given the Company’s unrestricted ability to settle the Series 1 Preferred Shares and related dividends by issuing its own common shares. Effective July 1, 2003, the Company adopted the provisions of SFAS No. 150, issued by FASB in May 2003. As a result, the preferred shares were classified as debt, with the associated dividends declared until the preferred shares were redeemed, recorded in determining net income for the year.
As provided for under the terms of the Series 1 Preferred Shares, the shares were fully redeemed by the Company on May 15, 2004 for a total of $110,494, representing CDN $25.00 per share plus accrued dividends of $1,498.
12 Common Shares
a) Authorized
The Company is authorized to issue unlimited common shares.
b) Normal Course Issuer Bid
In March 2005, the Company filed a normal course issuer bid which entitles the Company to repurchase approximately 4.2 million of its common shares between March 16, 2005 and March 15, 2006. All share repurchases will be made on the open market at the market price at the time of the purchase. All shares purchased under the bid will be cancelled. During 2005, 2,754,100 common shares were repurchased for $132,893.
18
13 Stock Based Compensation
a) Share Option Plan
The Company has a share option plan under which common shares are reserved for directors, officers and employees. Under the terms of the plan, reserved common shares may be granted as options, performance units or restricted shares.
Following is the continuity of common shares reserved for future grants under the Share Option Plan:
|
| 2005 |
| 2004 |
| 2003 |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
| 275,819 |
| 372,696 |
| 263,158 |
|
Common shares reserved |
| 600,000 |
| — |
| — |
|
Grants |
| (148,530 | ) | (169,777 | ) | (157,460 | ) |
Cancellations |
| 1,250 |
| 72,900 |
| 266,998 |
|
Balance at end of year |
| 728,539 |
| 275,819 |
| 372,696 |
|
If all outstanding performance units with variable performance criteria vest at the maximum performance level, a grant of an additional 68,261 common shares would be required to satisfy the commitment, reducing the shares available for future grants.
b) Compensation Expense
In 2005, total compensation expense recognized related to the Company’s share option plan was $5,575 (2004 - $1,123; 2003 - $305).
During 2005, contributed surplus was increased by the tax benefit resulting from option exercises of $11,071.
c) Share options
The options, which are exercisable within ten years, are granted at a price established by the Board of not less than the last Toronto Stock Exchange board lot trading price on the day of the grant. The options vest over one to three years. Outstanding options at December 31, 2005 expire between 2006 and 2013.
Following is the continuity of granted options outstanding with the weighted average exercise price in Canadian dollars:
|
| 2005 |
| 2004 |
| 2003 |
| |||||||||
|
|
|
| Weighted |
|
|
| Weighted |
|
|
| Weighted |
| |||
|
|
|
| Average |
|
|
| Average |
|
|
| Average |
| |||
|
|
|
| Exercise |
|
|
| Exercise |
|
|
| Exercise |
| |||
|
| Number |
| Price |
| Number |
| Price |
| Number |
| Price |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Balance at beginning of year |
| 1,205,065 |
| $ | 24.90 |
| 2,973,251 |
| $ | 23.31 |
| 3,421,404 |
| $ | 23.18 |
|
Options granted |
| — |
| — |
| — |
| — |
| 5,000 |
| 15.81 |
| |||
Options exercised |
| (1,030,040 | ) | 25.14 |
| (1,711,686 | ) | 22.17 |
| (186,503 | ) | 17.44 |
| |||
Options cancelled |
| — |
| — |
| (56,500 | ) | 23.65 |
| (266,650 | ) | 25.65 |
| |||
Balance at end of year |
| 175,025 |
| 23.50 |
| 1,205,065 |
| 24.90 |
| 2,973,251 |
| 23.31 |
| |||
Following is the range of exercise prices in Canadian dollars and contractual life of outstanding options under the plan as of December 31, 2005:
|
|
|
| Weighted |
| Weighted |
| |
|
|
|
| Average |
| Average |
| |
|
|
|
| Exercise |
| Contractual |
| |
|
| Number |
| Price |
| Life |
| |
|
|
|
|
|
|
|
| |
Balance of options outstanding at year end within the following ranges: |
|
|
|
|
|
|
| |
$10.00 to $19.99 |
| 68,600 |
| $ | 17.41 |
| 5.1 |
|
$20.00 to $29.99 |
| 61,425 |
| 22.65 |
| 6.4 |
| |
$30.00 to $50.00 |
| 45,000 |
| 33.94 |
| 3.0 |
| |
|
| 175,025 |
| 23.50 |
| 5.0 |
| |
19
Following is the range of exercise prices in Canadian dollars of options currently exercisable under the plan as of December 31, 2005:
|
|
|
| Weighted |
| |
|
|
|
| Average |
| |
|
|
|
| Exercise |
| |
|
| Number |
| Price |
| |
|
|
|
|
|
| |
Balance of options exercisable at year end within the following ranges: |
|
|
|
|
| |
$10.00 to $19.99 |
| 66,932 |
| $ | 17.45 |
|
$20.00 to $29.99 |
| 61,425 |
| 22.65 |
| |
$30.00 to $50.00 |
| 45,000 |
| 33.94 |
| |
|
| 173,357 |
|
|
| |
d) Performance units
The performance units, which require no payment by the holder, vest at the end of three years based on continued employment and achievement of certain Company performance objectives. Upon vesting, 174,505 of the performance units will be converted to one common share. Depending on the level of achievement of the performance objectives, the remaining 68,261 performance units will convert to common shares at a percentage ranging from 0% to 200%. Holders of performance units are entitled to payment of an amount equal to dividends declared during the vesting period. The weighted average grant date fair value of performance units in Canadian dollars was $67.43 (2004 - $29.66, 2003 - $13.38).
Following is the continuity of granted performance units outstanding:
|
| 2005 |
| 2004 |
| 2003 |
|
Balance at beginning of year |
| 133,985 |
| 65,195 |
| — |
|
Performance units granted |
| 110,031 |
| 69,190 |
| 65,543 |
|
Performance units cancelled |
| (1,250 | ) | (400 | ) | (348 | ) |
Balance at end of year |
| 242,766 |
| 133,985 |
| 65,195 |
|
e) Restricted shares
Under the Company’s share option plan, the Company has granted restricted shares to officers of the Company. The shares vest at the end of one to three years based on continued employment and achievement of certain Company performance objectives. During the vesting period the holders of the restricted shares are entitled to all the rights of a common shareholder including dividends and voting. The rights of the holders to dispose of the shares are restricted until the shares are vested. The weighted average grant date fair value of restricted shares in Canadian dollars was $68.50 (2004 - $29.47,
2003 - $13.38).
Following is the continuity of restricted shares outstanding:
|
| 2005 |
| 2004 |
| 2003 |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
| 175,904 |
| 91,317 |
| 4,400 |
|
Granted |
| 38,499 |
| 100,587 |
| 86,917 |
|
Vested |
| (4,400 | ) | — |
| — |
|
Cancelled |
| — |
| (16,000 | ) | — |
|
Balance at end of year |
| 210,003 |
| 175,904 |
| 91,317 |
|
20
14 Deferred Share Unit Plan
The Company has a deferred share unit plan into which directors must defer at least half of their annual retainer. Such deferrals are converted to deferred share units, each of which has a value equal to the value of one common share. On retirement from the Board, the director may receive payment of their deferred share units in cash, shares purchased on the open market or shares issued by the Company. The liability for deferred share units is included in accrued payroll and related liabilities.
Following is the continuity of deferred share units outstanding:
|
| 2005 |
| 2004 |
| 2003 |
| |||||||||
|
| Number |
| Amount |
| Number |
| Amount |
| Number |
| Amount |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Balance at beginning of year |
| 105,400 |
| $ | 5,025 |
| 87,267 |
| $ | 1,618 |
| 55,088 |
| $ | 555 |
|
Granted |
| 11,150 |
| 654 |
| 18,133 |
| 488 |
| 36,418 |
| 456 |
| |||
Redeemed |
| — |
| — |
| — |
| — |
| (4,239 | ) | (38 | ) | |||
Revaluation |
| — |
| 4,013 |
| — |
| 2,919 |
| — |
| 645 |
| |||
Balance at end of year |
| 116,550 |
| $ | 9,692 |
| 105,400 |
| $ | 5,025 |
| 87,267 |
| $ | 1,618 |
|
15 Dividends
Under the terms of the 8.75% unsecured notes, certain payments, including dividends on common shares, are subject to limitations. At December 31, 2005, the restricted payments are limited to $326,000.
Dividends on common shares totaled CDN $0.56 per share in 2005 (2004 - CDN $0.25 per share, 2003 - CDN $0.20 per share).
16 Accumulated Other Comprehensive Income (Loss)
|
| Foreign |
| Minimum |
| Unrealized |
| Unrealized |
| Accumulated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance December 31, 2002 |
| $ | (48,698 | ) | $ | (20,147 | ) | $ | — |
| $ | (779 | ) | $ | (69,624 | ) |
Other comprehensive income (loss) |
| 50,214 |
| (3,967 | ) | 90 |
| 425 |
| 46,762 |
| |||||
Balance December 31, 2003 |
| 1,516 |
| (24,114 | ) | 90 |
| (354 | ) | (22,862 | ) | |||||
Other comprehensive income (loss) |
| (9,420 | ) | 5,625 |
| (90 | ) | 1,430 |
| (2,455 | ) | |||||
Balance December 31, 2004 |
| (7,904 | ) | (18,489 | ) | — |
| 1,076 |
| (25,317 | ) | |||||
Other comprehensive income (loss) |
| (1,454 | ) | (15,494 | ) | — |
| 6,419 |
| (10,529 | ) | |||||
Balance December 31, 2005 |
| $ | (9,358 | ) | $ | (33,983 | ) | $ | — |
| $ | 7,495 |
| $ | (35,846 | ) |
The minimum pension liability adjustment is shown net of income tax (expense) benefit of $4,218, ($2,457), and $3,968 for 2005, 2004, and 2003 respectively. The unrealized gain of foreign currency derivatives is shown net of income tax expense of ($90). The unrealized gain (loss) on natural gas derivatives is shown net of income tax expense of ($3,876), ($669), and ($239) for 2005, 2004 and 2003, respectively.
The net amount of foreign currency gain (loss) related to instruments designated as a hedge of the foreign currency exposure of the Company’s net investment in foreign operations which has been included in the foreign currency translation adjustment was $6,158, ($2,158) and ($41,723) for 2005, 2004 and 2003, respectively.
21
17 Earnings Per Common Share
Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is calculated by dividing net income by the weighted average shares outstanding plus share equivalents that would arise from a) the exercise of share options, deferred share units, restricted shares and performance units, and b) the conversion of preferred shares and subordinated notes. In 2003, 826,625 out-of-the-money share options, those with an exercise price greater than market price, were excluded from the calculation as they were anti-dilutive. Conversion of preferred shares and subordinated notes were excluded from the calculation in 2003 as they were anti-dilutive. The per share amounts disclosed on the Consolidated Statements of Income are based on the following:
|
| 2005 |
| 2004 |
| 2003 |
| |||
Numerator for basic earnings per share - |
|
|
|
|
|
|
| |||
Net income available to common shareholders |
| $ | 585,816 |
| $ | 454,942 |
| $ | 1,639 |
|
Dividends on preferred shares, including part VI.I tax (Note 11) |
| — |
| 2,461 |
| — |
| |||
Interest on subordinated notes, net of income tax |
| — |
| 5,257 |
| — |
| |||
Numerator for diluted earnings per share |
| $ | 585,816 |
| $ | 462,660 |
| $ | 1,639 |
|
|
|
|
|
|
|
|
| |||
Common shares outstanding - January 1 |
| 49,737,180 |
| 47,940,907 |
| 47,667,487 |
| |||
Weighted average impact of shares issued (repurchased) |
| (1,189,639 | ) | 361,137 |
| 19,637 |
| |||
Denominator for basic earnings per share |
| 48,547,541 |
| 48,302,044 |
| 47,687,124 |
| |||
Adjustment for share options |
| 202,061 |
| 554,164 |
| 528 |
| |||
Adjustment for deferred share units |
| 110,243 |
| 94,433 |
| 68,667 |
| |||
Adjustment for restricted shares |
| 106,847 |
| 55,289 |
| 16,372 |
| |||
Adjustment for performance units |
| 33,832 |
| 35,139 |
| 10,057 |
| |||
Adjustment for preferred shares |
| — |
| 2,284,644 |
| — |
| |||
Adjustment for subordinated notes |
| — |
| 1,908,213 |
| — |
| |||
Denominator for diluted earnings per share |
| 49,000,524 |
| 53,233,926 |
| 47,782,748 |
|
18 Segmented Information
The Company is organized and managed as a single business segment, being steel products, and the Company is viewed as a single operating segment by the chief operating decision maker for the purposes of resource allocation and assessing performance.
Financial information on the Company’s geographic areas follows. Sales are allocated to the country in which the third party customer receives the product.
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| |||
Sales |
|
|
|
|
|
|
| |||
Canada |
| $ | 978,898 |
| $ | 825,680 |
| $ | 520,963 |
|
United States |
| 2,053,829 |
| 1,705,710 |
| 837,848 |
| |||
|
| $ | 3,032,727 |
| $ | 2,531,390 |
| $ | 1,358,811 |
|
|
|
|
|
|
|
|
| |||
Capital Assets |
|
|
|
|
|
|
| |||
Canada |
| $ | 213,621 |
| $ | 216,254 |
|
|
| |
United States |
| 842,565 |
| 852,335 |
|
|
| |||
|
| $ | 1,056,186 |
| $ | 1,068,589 |
|
|
|
Sales information by product group is as follows:
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| |||
Steel mill products |
| $ | 1,801,153 |
| $ | 1,573,201 |
| $ | 800,802 |
|
Tubular products |
| 1,231,574 |
| 958,189 |
| 558,009 |
| |||
|
| $ | 3,032,727 |
| $ | 2,531,390 |
| $ | 1,358,811 |
|
22
19 Commitments
a) The Company and its subsidiaries have lease commitments on property for the period to 2015. The payments required by these leases are as follows:
2006 |
| $ | 8,021 |
|
2007 |
| 6,204 |
| |
2008 |
| 5,596 |
| |
2009 |
| 1,589 |
| |
2010 |
| 1,025 |
| |
|
| 22,435 |
| |
2011 - 2015 |
| 2,442 |
| |
|
| $ | 24,877 |
|
Rental expenses incurred under operating leases during 2005, 2004, and 2003 were $8,485, $9,202, and $11,001 respectively.
b) The Company and its subsidiaries have commitments under service and supply contracts for the period to 2018. Payments required under these contracts are as follows:
2006 |
| $ | 115,533 |
|
2007 |
| 48,670 |
| |
2008 |
| 41,720 |
| |
2009 |
| 27,880 |
| |
2010 |
| 16,987 |
| |
|
| 250,790 |
| |
2011 - 2018 |
| 58,526 |
| |
|
| $ | 309,316 |
|
Payments made in relation to these commitments during 2005, 2004, and 2003 were $65,053, $63,016, and $40,687, respectively.
c) At December 31, 2005, commitments to complete capital programs in progress total $26,708.
20 Supplemental Information
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| |||
Allowance for doubtful accounts |
| $ | 1,055 |
| $ | 833 |
| $ | 3,214 |
|
|
|
|
|
|
|
|
| |||
Doubtful accounts charged to expense |
| $ | 338 |
| $ | (170 | ) | $ | 259 |
|
|
|
|
|
|
|
|
| |||
Interest income |
| $ | 16,798 |
| $ | 3,709 |
| $ | 1,860 |
|
|
|
|
|
|
|
|
| |||
Other interest expense |
| $ | 177 |
| $ | 240 |
| $ | 235 |
|
|
|
|
|
|
|
|
| |||
Miscellaneous income |
| $ | 2,607 |
| $ | 3,110 |
| $ | 1,512 |
|
|
|
|
|
|
|
|
| |||
Research and development expense |
| $ | 3,234 |
| $ | 1,829 |
| $ | 1,542 |
|
|
|
|
|
|
|
|
| |||
Interest paid |
| $ | 37,984 |
| $ | 54,814 |
| $ | 45,396 |
|
23
21 Significant Differences Between United States and Canadian Generally Accepted Accounting Principles (GAAP)
a) Reconciliation of net income between accounting principles generally accepted in the United States and Canada:
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| |||
Net income available to common shareholders as reported under U.S. GAAP |
| $ | 585,816 |
| $ | 454,942 |
| $ | 1,639 |
|
Adjustments relating to amortization of capital assets (i) |
| (4,094 | ) | (2,460 | ) | (2,536 | ) | |||
Adjustments relating to sale-leaseback (ii) |
| 2,367 |
| 2,839 |
| 777 |
| |||
Adjustments relating to natural gas hedge (iii) |
| — |
| 321 |
| 407 |
| |||
Adjustments relating to change in accounting (iv) |
| — |
| (14,250 | ) | 4,223 |
| |||
Adjustments relating to valuation allowance on net deferred income tax asset (v) |
| — |
| (10,500 | ) | — |
| |||
Net income available to common shareholders, in accordance with Canadian GAAP |
| $ | 584,089 |
| $ | 430,892 |
| $ | 4,510 |
|
|
|
|
|
|
|
|
| |||
Earnings per common share: |
|
|
|
|
|
|
| |||
Basic |
| $ | 12.03 |
| $ | 8.92 |
| $ | 0.09 |
|
|
|
|
|
|
|
|
| |||
Diluted (vi) |
| $ | 11.92 |
| $ | 8.24 |
| $ | 0.09 |
|
|
|
|
|
|
|
|
| |||
Net income available to common shareholders, in accordance with Canadian GAAP |
| $ | 584,089 |
| $ | 430,892 |
| $ | 4,510 |
|
Dividends on preferred shares |
| — |
| 2,461 |
| — |
| |||
Interest on subordinated notes |
| — |
| 5,257 |
| — |
| |||
Numerator for diluted earnings per share |
| $ | 584,089 |
| $ | 438,610 |
| $ | 4,510 |
|
|
|
|
|
|
|
|
| |||
Common shares outstanding - January 1 |
| 49,737,180 |
| 47,940,907 |
| 47,667,487 |
| |||
Weighted average impact of shares issued (repurchased) |
| (1,189,639 | ) | 361,137 |
| 19,637 |
| |||
Denominator for basic earnings per share |
| 48,547,541 |
| 48,302,044 |
| 47,687,124 |
| |||
Adjustment for share options |
| 202,061 |
| 554,164 |
| 528 |
| |||
Adjustment for deferred share units |
| 110,243 |
| 94,433 |
| 68,667 |
| |||
Adjustment for restricted shares |
| 106,847 |
| 55,289 |
| 16,372 |
| |||
Adjustment for performance units |
| 33,832 |
| 35,139 |
| 10,057 |
| |||
Adjustment for preferred shares |
| — |
| 2,284,644 |
| — |
| |||
Adjustment for subordinated notes |
| — |
| 1,908,213 |
| — |
| |||
Denominator for diluted earnings per share |
| 49,000,524 |
| 53,233,926 |
| 47,782,748 |
|
(i) United States GAAP requires amortization of capital assets to commence when the capital assets are available for use. Under Canadian GAAP, amortization commences when the assets are placed into production which occurs at the end of the commissioning or start-up period. Further, the amount capitalized to capital assets under United States GAAP differs from the amount capitalized under Canadian GAAP. United States GAAP requires interest to be capitalized on the expenditures incurred for all major projects under construction to a maximum of all interest costs during the year or until the assets are placed into production. Commissioning and start-up costs are not included in the calculation of interest to be capitalized. For Canadian GAAP, commissioning and start-up costs are included in the calculation. United States GAAP requires commissioning or start-up costs to be expensed as incurred. For Canadian GAAP, these costs have been capitalized.
(ii) U.S. GAAP requires the financing method of accounting for a 2000 sale and leaseback transaction which involves real property resulting in interest expense on the obligation and amortization of the capital asset. Under Canadian GAAP, the transaction has been afforded operating lease treatment and lease expense is incurred.
(iii) U.S. GAAP requires recording of the ineffective portion of cash flow hedges in the income statement including the mark-to-market adjustment of the natural gas contract and the amortization of the effective portion (prior to the counter party bankruptcy) of the natural gas hedge over the remaining life of the contract. As the contract expired in 2004, the impact of AG 13 for Canadian GAAP purposes was insignificant.
(iv) U.S. GAAP requires the cumulative effect of a change in accounting principle to be recorded, net of income taxes, as a charge to income in the current period. For Canadian GAAP, the change has been applied retroactively with restatement of prior periods, as discussed in Note 4.
24
v) The adjustment represents the change in the valuation allowance provided on the net tax asset allocated to future years for United States GAAP as a result of differences in accounting practices between United States and Canadian GAAP. See i) above for explanation of the principal differences.
vi) In 2003, no adjustment was made for conversion of preferred shares or subordinated notes as they were anti-dilutive.
b) Reconciliation of the statement of financial position between accounting principles generally accepted in Canada and the United States:
|
| 2004 |
| 2005 |
| ||
i) Current assets |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | 1,517,086 |
| $ | 1,182,455 |
|
Adjustment relating to fair value of natural gas hedge |
| (11,841 | ) | (1,546 | ) | ||
Adjustment relating to investment in joint venture |
| 538 |
| 708 |
| ||
Balance under Canadian GAAP |
| $ | 1,505,783 |
| $ | 1,181,617 |
|
|
|
|
|
|
| ||
ii) Investment in joint venture |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | 2,776 |
| $ | 2,661 |
|
Adjustment relating to investment in joint venture |
| (2,776 | ) | (2,661 | ) | ||
Balance under Canadian GAAP |
| $ | — |
| $ | — |
|
|
|
|
|
|
| ||
iii) Capital assets |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | 1,056,186 |
| $ | 1,068,589 |
|
Adjustments relating to the capitalization of interest |
| 13,902 |
| 13,902 |
| ||
Adjustments relating to commissioning costs |
| 112,233 |
| 112,233 |
| ||
Adjustments relating to amortization of capital assets |
| (6,528 | ) | 12 |
| ||
Adjustments relating to 2000 sale-leaseback transaction |
| (112,804 | ) | (121,699 | ) | ||
Adjustment relating to investment in joint venture |
| 2,569 |
| 2,475 |
| ||
Balance under Canadian GAAP |
| $ | 1,065,558 |
| $ | 1,075,512 |
|
|
|
|
|
|
| ||
iv) Deferred pension liability (asset) |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | 44,584 |
| $ | 31,934 |
|
Adjustments relating to minimum pension liability |
| (74,542 | ) | (48,115 | ) | ||
Balance under Canadian GAAP |
| $ | (29,958 | ) | $ | (16,181 | ) |
|
|
|
|
|
| ||
v) Current liabilities |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | 348,776 |
| $ | 356,044 |
|
Adjustments relating to 2000 sale-leaseback transaction |
| (10,716 | ) | (11,716 | ) | ||
Adjustment relating to investment in joint venture |
| 331 |
| 522 |
| ||
Balance under Canadian GAAP |
| $ | 338,391 |
| $ | 344,850 |
|
|
|
|
|
|
| ||
vi) Long-term debt |
|
|
|
|
| ||
Balance under U.S. GAAP |
|
|
|
|
| ||
Adjustments relating to 2000 sale-leaseback transaction |
| $ | 313,053 |
| $ | 513,651 |
|
Balance under Canadian GAAP |
| (116,484 | ) | (120,598 | ) | ||
|
| $ | 196,569 |
| $ | 393,053 |
|
25
vii) Deferred income taxes - long-term liability |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | 191,973 |
| $ | 103,979 |
|
Adjustments relating to the capitalization of interest |
| 5,172 |
| 5,172 |
| ||
Adjustments relating to commissioning costs |
| 41,751 |
| 41,751 |
| ||
Adjustments relating to amortization of capital assets |
| (2,851 | ) | (405 | ) | ||
Adjustments relating to minimum pension liability |
| 17,663 |
| 13,445 |
| ||
Adjustments relating to 2000 sale-leaseback transaction |
| 5,290 |
| 3,876 |
| ||
Adjustments relating to natural gas contract |
| (4,346 | ) | (470 | ) | ||
Balance under Canadian GAAP |
| $ | 254,652 |
| $ | 167,348 |
|
|
|
|
|
|
| ||
viii) Common shares |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | 419,272 |
| $ | 424,826 |
|
Adjustment relating to translation of convenience method |
| (40,733 | ) | (40,733 | ) | ||
Balance under Canadian GAAP |
| $ | 378,539 |
| $ | 384,093 |
|
|
|
|
|
|
| ||
ix) Retained earnings |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | 1,341,659 |
| $ | 884,859 |
|
Adjustments relating to the capitalization of interest |
| 8,730 |
| 8,730 |
| ||
Adjustments relating to commissioning costs |
| 70,482 |
| 70,482 |
| ||
Adjustments relating to amortization of capital assets |
| (3,677 | ) | 416 |
| ||
Adjustments relating to 2000 sale-leaseback transaction |
| 9,110 |
| 6,743 |
| ||
Adjustment relating to translation of convenience method |
| (47,700 | ) | (47,700 | ) | ||
Balance under Canadian GAAP |
| $ | 1,378,604 |
| $ | 923,530 |
|
|
|
|
|
|
| ||
x) Accumulated other comprehensive income |
|
|
|
|
| ||
Balance under U.S. GAAP |
| $ | (35,846 | ) | $ | (25,317 | ) |
Adjustments relating to minimum pension liability |
| 33,983 |
| 18,486 |
| ||
Adjustments relating to natural gas hedge |
| (7,495 | ) | (1,076 | ) | ||
Adjustment relating to translation of convenience method |
| 88,433 |
| 88,433 |
| ||
Balance under Canadian GAAP - Cumulative translation adjustment |
| $ | 79,075 |
| $ | 80,526 |
|
Under U.S. GAAP the equity method of accounting for the Company’s investment in a jointly controlled enterprise is required, as the investment is not controlled. Under Canadian GAAP, the Company has followed the proportionate consolidation method of accounting for its investment.
Under U.S. GAAP, the Company has recorded the changes in the fair value of the effective portion of derivatives qualifying as cash flow hedges, net of tax, in accumulated other comprehensive income. Under Canadian GAAP, this is not required.
Under U.S. GAAP, the Company has recorded an additional minimum pension liability for underfunded plans representing the excess of unfunded accumulated benefit obligations over previously recorded pension cost liabilities. A corresponding amount is recognized as a deferred charge except to the extent that these additional liabilities exceed the related unrecognized prior service cost and net transition obligation, in which case the increase in liabilities is charged directly to shareholders’ equity, net of related deferred income taxes.
When the Company changed reporting currencies effective January 1, 1999, the translation of convenience method was used for Canadian GAAP. U.S. GAAP requires that the U.S. dollar amounts be determined using the historical rates in effect when the underlying transactions occurred.
c) U.S. GAAP defines cash position to be cash and cash equivalents. Under Canadian GAAP, cash position, in certain circumstances, can be defined as cash and cash equivalents less bank indebtedness. This difference and the above U.S. GAAP adjustments result in the following statements of cash flows for the Company:
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| |||
Cash derived from operating activities |
| $ | 638,289 |
| $ | 485,697 |
| $ | 87,848 |
|
Cash (applied to) derived from financing activities |
| (361,222 | ) | (222,454 | ) | 34,147 |
| |||
Cash applied to investing activities |
| (61,941 | ) | (27,292 | ) | (12,537 | ) | |||
Effect of exchange rate changes on cash and cash equivalents |
| 13,005 |
| (12,441 | ) | (750 | ) | |||
Cash position at beginning of year |
| 355,077 |
| 131,567 |
| 22,859 |
| |||
|
|
|
|
|
|
|
| |||
Cash position at December 31 |
| $ | 583,208 |
| $ | 355,077 |
| $ | 131,567 |
|
26
d) Stock Based Compensation
Section 3870 of the CICA Handbook requires the disclosure of pro forma information regarding net income and earnings per share using option valuation models that calculate the fair value of employee stock options that are outstanding but not accounted for under the fair value based method.
|
| 2003 |
| |
Net income available to common shareholders, in accordance with Canadian GAAP |
| $ | 4,510 |
|
Compensation expense determined under fair value based method for all awards, net of tax |
| (313 | ) | |
Pro forma net income available to common shareholders in accordance with Canadian GAAP |
| $ | 4,197 |
|
Pro forma earnings per common share: |
|
|
| |
Basic |
| $ | 0.09 |
|
Diluted |
| $ | 0.09 |
|
e) Additional disclosure required under Canadian GAAP:
i) The total interest paid, excluding interest on the subordinated notes, was $29,273, $33,538, and $26,993 in 2005, 2004 and 2003 respectively.
The total fair value of the Company’s long-term debt was $211,563 (2004 - $443,250) and the current portion was $nil (2004 - $14,496).
ii) A summary of the impact of accounting standards adopted in 2005 and accounting standards which have not yet been adopted due to delayed effective dates follows:
In November 2003, the CICA issued a revision to Section 3860, Financial Instruments – Disclosure and Presentation, which requires obligations that may be settled at the issuer’s option by a variable number of the issuer’s own equity instruments to be presented as liabilities. Such instruments were presented as equity. The new standard was effective for fiscal years beginning on or after November 1, 2004. The accounting change necessary for initial application has been recognized and disclosed as an accounting policy change under Section 1506. The Company adopted Section 3860 effective January 1, 2005. During 2004 the Company redeemed all of its Preferred Shares and Subordinated Notes, consequently adoption of the standard required only restatement of comparative periods to classify the Preferred Shares and Subordinated Notes as liabilities in the Company’s consolidated statements of financial position, with the associated dividends and interest accounted for in determining the Company’s net income.
In January 2005, the CICA issued accounting standards Section 3855, Financial Instruments - Recognition and Measurement; Section 3865, Hedges; and Section 1530, Comprehensive Income. Section 3855 prescribes when and at what amounts financial instruments are recognized on the balance sheet and how resulting gains and losses are to be presented. Section 3865 specifies how hedge accounting is to be applied and the disclosures required when hedge accounting is applied. Sections 1530 introduces a new requirement to present certain gains and losses temporarily outside net income. The new standards must be adopted at the same time and are effective for fiscal years beginning on or after October 1, 2006. The Company will adopt the standards effective January 1, 2007. The impact of adopting these standards on the Canadian GAAP consolidated financial statements is not yet determinable as it will be dependent on outstanding positions and their fair values at the time of transition.
27
f) Following are the 2004 balance sheet, and the income statements and statements of cash flows for the years ended December 31, 2004 and 2003 reported under Canadian GAAP. Previously reported figures have been restated (i) to reflect the adoption of CICA Handbook Section 3860 “Financial Instruments - Disclosure and Presentation”, as described above, and (ii) to reclassify the long-term deferred tax asset balance against the long-term deferred tax liability.
IPSCO Inc. Consolidated Balance Sheet
As of December 31
(thousands of U.S. dollars)
|
| 2004 |
| |
CURRENT ASSETS |
|
|
| |
Cash and cash equivalents |
| $ | 355,077 |
|
Accounts receivable |
|
|
| |
Trade, less allowances |
| 325,246 |
| |
Other, including current portion of mortgages receivable |
| 13,344 |
| |
Inventories |
| 434,526 |
| |
Prepaid expenses |
| 8,212 |
| |
Future income taxes |
| 45,212 |
| |
|
| 1,181,617 |
| |
|
|
|
| |
NON-CURRENT ASSETS |
|
|
| |
Capital assets |
| 1,075,512 |
| |
Mortgages receivable |
| 14,243 |
| |
Deferred financing costs, less amortization |
| 7,336 |
| |
Deferred pension asset |
| 16,181 |
| |
|
| 1,113,272 |
| |
|
|
|
| |
TOTAL ASSETS |
| $ | 2,294,889 |
|
|
|
|
| |
CURRENT LIABILITIES |
|
|
| |
Accounts payable and accrued charges |
| $ | 196,610 |
|
Accrued payroll and related liabilities |
| 39,130 |
| |
Income taxes payable |
| 90,656 |
| |
Current portion of long-term debt |
| 14,286 |
| |
Other current liabilities |
| 4,168 |
| |
|
| 344,850 |
| |
|
|
|
| |
LONG-TERM LIABILITIES |
|
|
| |
Long-term debt |
| 393,053 |
| |
Future income taxes |
| 167,348 |
| |
|
| 560,401 |
| |
|
|
|
| |
SHAREHOLDERS’ EQUITY |
|
|
| |
Common shares |
| 384,093 |
| |
Contributed surplus |
| 1,489 |
| |
Retained earnings |
| 923,530 |
| |
Cumulative translation adjustment |
| 80,526 |
| |
|
| 1,389,638 |
| |
|
|
|
| |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 2,294,889 |
|
28
IPSCO Inc. Consolidated Statements of Income
Years ended December 31
(thousands of U.S. dollars except per share data)
|
| 2004 |
| 2003 |
| ||
|
|
|
|
|
| ||
Sales |
| $ | 2,452,675 |
| $ | 1,294,566 |
|
|
|
|
|
|
| ||
Cost of sales |
|
|
|
|
| ||
Manufacturing and raw material |
| 1,660,009 |
| 1,122,625 |
| ||
Amortization of capital assets |
| 77,161 |
| 61,138 |
| ||
|
| 1,737,170 |
| 1,183,763 |
| ||
|
|
|
|
|
| ||
Gross income |
| 715,505 |
| 110,803 |
| ||
Selling, research and administration |
| 61,467 |
| 54,683 |
| ||
|
|
|
|
|
| ||
Operating income |
| 654,038 |
| 56,120 |
| ||
|
|
|
|
|
| ||
Other expenses (income) |
|
|
|
|
| ||
Interest on long-term debt |
| 45,336 |
| 44,993 |
| ||
Other interest income, net |
| (3,469 | ) | (2,345 | ) | ||
Foreign exchange gain |
| (2,749 | ) | (5,170 | ) | ||
Gain on sale of assets held for sale |
| (4,925 | ) | — |
| ||
|
|
|
|
|
| ||
Income before income taxes |
| 619,845 |
| 18,642 |
| ||
|
|
|
|
|
| ||
Income taxes |
| 188,953 |
| 14,132 |
| ||
|
|
|
|
|
| ||
NET INCOME |
| $ | 430,892 |
| $ | 4,510 |
|
|
|
|
|
|
| ||
EARNINGS PER COMMON SHARE |
|
|
|
|
| ||
Basic |
| $ | 8.92 |
| $ | 0.09 |
|
|
|
|
|
|
| ||
Diluted |
| $ | 8.24 |
| $ | 0.09 |
|
29
IPSCO Inc. Consolidated Statements of Cash Flows
Years Ended December 31
(thousands of U.S. dollars)
|
| 2004 |
| 2003 |
| ||
CASH DERIVED FROM (APPLIED TO) |
|
|
|
|
| ||
Operating activities |
|
|
|
|
| ||
Working capital provided by operations |
|
|
|
|
| ||
Net income |
| $ | 430,892 |
| $ | 4,510 |
|
Amortization of capital assets |
| 77,161 |
| 61,138 |
| ||
Amortization of deferred charges |
| 1,291 |
| 1,441 |
| ||
Stock based compensation |
| 1,123 |
| 305 |
| ||
Change in deferred pension asset |
| (11,574 | ) | 638 |
| ||
Future income taxes |
| 96,701 |
| 29,488 |
| ||
Gain on sale of assets held for sale |
| (4,925 | ) | — |
| ||
|
| 590,669 |
| 97,520 |
| ||
Change in non-cash operating working capital |
|
|
|
|
| ||
Trade receivables |
| (146,191 | ) | (23,185 | ) | ||
Other receivables |
| (5,017 | ) | (20,251 | ) | ||
Income taxes recoverable |
| 33,054 |
| — |
| ||
Inventories |
| (137,446 | ) | (9,035 | ) | ||
Prepaid expenses |
| (5,114 | ) | 264 |
| ||
Accounts payable and accrued charges |
| 47,114 |
| 51,638 |
| ||
Accrued payroll and related liabilities |
| 23,506 |
| 469 |
| ||
Income and other taxes payable |
| 91,126 |
| 2,730 |
| ||
Other current liabilities |
| (6,004 | ) | (12,302 | ) | ||
|
| (104,972 | ) | (9,672 | ) | ||
|
| 485,697 |
| 87,848 |
| ||
Financing activities |
|
|
|
|
| ||
Proceeds from issuance of common shares pursuant to share option plan |
| 30,364 |
| 2,581 |
| ||
Common share dividends |
| (9,536 | ) | (6,962 | ) | ||
Redemption of preferred shares |
| (108,996 | ) | — |
| ||
Redemption of subordinated notes |
| (100,000 | ) | — |
| ||
Issuance (repayment) of long-term debt |
| (34,286 | ) | 38,528 |
| ||
|
| (222,454 | ) | 34,147 |
| ||
Investing activities |
|
|
|
|
| ||
Expenditures for capital assets |
| (29,068 | ) | (13,562 | ) | ||
Proceeds from sale of assets held for sale |
| 4,759 |
| 1,022 |
| ||
Proceeds from (issuance of) mortgages receivable, net |
| (2,983 | ) | 2,174 |
| ||
Purchase of investments |
| — |
| (2,171 | ) | ||
|
| (27,292 | ) | (12,537 | ) | ||
Effect of exchange rate changes on cash and cash equivalents |
| (12,441 | ) | (750 | ) | ||
|
|
|
|
|
| ||
INCREASE IN CASH AND CASH EQUIVALENTS |
| 223,510 |
| 108,708 |
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
| 131,567 |
| 22,859 |
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS AT END OF YEAR |
| $ | 355,077 |
| $ | 131,567 |
|
30
22 Contingencies and Environmental Expenditures
The Company’s past and present operations include activities that are subject to federal, provincial, state and local environmental requirements, particularly relating to air, water and solid and hazardous waste management. The Company is engaged in various ongoing environmental monitoring and compliance programs, voluntary remediation activities, and capital improvement projects. Nevertheless, rapidly changing environmental legislation and regulatory practices are likely to require future expenditures to modify operations, install additional pollution control equipment, dispose of waste products, and perform site clean-up and site management. The magnitude of future expenditures cannot be determined at this time. As of December 31, 2005, the Company had approximately $3,700 reserved for environmental liabilities in the consolidated balance sheet. The Company believes the liability for these matters was adequately reserved at December 31, 2005.
The Company is a defendant in a number of lawsuits and claims arising out of the conduct of its business, including those related to environmental matters. While the ultimate results of such suits or other proceedings against the Company cannot be predicted with certainty, the management of the Company believes that the resolution of these matters will not have a material adverse effect on its consolidated financial condition or results of operations.
23 Quarterly Information (unaudited)
Earnings per share are computed independently for each of the quarters presented; therefore, the sum of the quarterly earnings per share may not equal the total for the year.
|
| 1st Quarter |
| 2nd Quarter |
| 3rd Quarter |
| 4th Quarter |
| ||||
2005 |
|
|
|
|
|
|
|
|
| ||||
Sales |
| $ | 766,738 |
| $ | 687,674 |
| $ | 726,079 |
| $ | 852,236 |
|
Gross income |
| 267,587 |
| 230,353 |
| 224,875 |
| 258,421 |
| ||||
Net income |
| 154,768 |
| 126,853 |
| 134,027 |
| 170,168 |
| ||||
Earnings per share |
|
|
|
|
|
|
|
|
| ||||
Basic |
| 3.11 |
| 2.60 |
| 2.81 |
| 3.56 |
| ||||
Diluted |
| 3.06 |
| 2.57 |
| 2.78 |
| 3.52 |
| ||||
2004 |
|
|
|
|
|
|
|
|
| ||||
Sales |
| $ | 503,867 |
| $ | 566,446 |
| $ | 660,001 |
| $ | 801,076 |
|
Gross income |
| 82,405 |
| 136,204 |
| 220,788 |
| 284,654 |
| ||||
Net income |
| 30,990 |
| 80,636 |
| 144,196 |
| 199,120 |
| ||||
Earnings per share |
|
|
|
|
|
|
|
|
| ||||
Basic |
| 0.65 |
| 1.68 |
| 2.98 |
| 4.06 |
| ||||
Diluted |
| 0.56 |
| 1.47 |
| 2.76 |
| 3.91 |
|
31
24 Consolidating Financial Statements
The following information presents the condensed consolidating balance sheet as at December 31, 2005 and 2004, and the condensed consolidating statements of income and cash flows for the years ended December 31, 2005, 2004 and 2003. The condensed consolidating financial statements present the accounts of IPSCO Inc. (“Parent”), and its Guarantor and Non-Guarantor subsidiaries, as defined in the indenture dated as of June 18, 2003 to the IPSCO Inc. 8 ¾% Senior Notes due 2013 (“the Notes”) which were issued on June 18, 2003. The Notes are fully and unconditionally guaranteed, on a joint and several basis, by the Guarantor subsidiaries. The Guarantor subsidiaries, all of which are wholly-owned by IPSCO Inc., are IPSCO Saskatchewan Inc., IPSCO Recycling Inc., IPSCO Enterprises Inc., IPSCO Minnesota Inc., IPSCO Texas Inc., IPSCO Tubulars Inc., IPSCO Steel Inc., and IPSCO Steel (Alabama) Inc. Non-Guarantor subsidiaries are IPSCO Direct Inc., Western Steel Limited, General Scrap Partnership, IPSCO Sales Inc., IPSCO Construction Inc. and General Scrap Inc.
IPSCO Inc. Condensed Consolidating Balance Sheets
As at December 31, 2005
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 57,366 |
| $ | 514,599 |
| $ | 11,099 |
| $ | — |
| $ | 583,064 |
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| |||||
Trade, less allowances |
| 88,872 |
| 219,469 |
| 28,561 |
| — |
| 336,902 |
| |||||
Intercompany |
| 80,349 |
| (83,755 | ) | 3,406 |
| — |
| — |
| |||||
Other, including current portion of mortgage receivable |
| 4,373 |
| 42,824 |
| 4,844 |
| — |
| 52,041 |
| |||||
Inventories |
| 144,730 |
| 363,974 |
| 11,594 |
| (14,061 | ) | 506,237 |
| |||||
Prepaid expenses |
| 5,156 |
| 2,410 |
| 1,049 |
| — |
| 8,615 |
| |||||
Deferred income taxes |
| 25,169 |
| 4,651 |
| 407 |
| — |
| 30,227 |
| |||||
|
| 406,015 |
| 1,064,172 |
| 60,960 |
| (14,061 | ) | 1,517,086 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NON-CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital assets |
| 138,449 |
| 894,130 |
| 22,086 |
| 1,521 |
| 1,056,186 |
| |||||
Mortgage receivable |
| — |
| 8,360 |
| 3,182 |
| — |
| 11,542 |
| |||||
Investment in subsidiaries |
| 1,456,651 |
| 58,521 |
| — |
| (1,512,396 | ) | 2,776 |
| |||||
Other long-term assets |
| 14,026 |
| 37,403 |
| — |
| — |
| 51,429 |
| |||||
|
| 1,609,126 |
| 998,414 |
| 25,268 |
| (1,510,875 | ) | 1,121,933 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
TOTAL ASSETS |
| $ | 2,015,141 |
| $ | 2,062,586 |
| $ | 86,228 |
| $ | (1,524,936 | ) | $ | 2,639,019 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable and accrued charges |
| $ | 28,058 |
| $ | 204,899 |
| $ | 3,214 |
| $ | — |
| $ | 236,171 |
|
Accrued payroll and related liabilities |
| 24,133 |
| 37,777 |
| 104 |
| — |
| 62,014 |
| |||||
Income and other taxes payable |
| (11,794 | ) | 50,668 |
| 2,199 |
| — |
| 41,073 |
| |||||
Current portion of long-term debt |
| — |
| 4,114 |
| — |
| — |
| 4,114 |
| |||||
Other current liabilities |
| 1,237 |
| 4,167 |
| — |
| — |
| 5,404 |
| |||||
|
| 41,634 |
| 301,625 |
| 5,517 |
| — |
| 348,776 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt |
| 168,569 |
| 144,484 |
| — |
| — |
| 313,053 |
| |||||
Deferred pension liability |
| 16,966 |
| 27,618 |
| — |
| — |
| 44,584 |
| |||||
Deferred income taxes |
| 47,339 |
| 127,623 |
| 21,843 |
| (4,832 | ) | 191,973 |
| |||||
|
| 232,874 |
| 299,725 |
| 21,843 |
| (4,832 | ) | 549,610 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
SHAREHOLDERS’ EQUITY |
| 1,740,633 |
| 1,461,236 |
| 58,868 |
| (1,520,104 | ) | 1,740,633 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 2,015,141 |
| $ | 2,062,586 |
| $ | 86,228 |
| $ | (1,524,936 | ) | $ | 2,639,019 |
|
32
IPSCO Inc. Condensed Consolidating Balance Sheets
As at December 31, 2004
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 14,277 |
| $ | 304,785 |
| $ | 35,712 |
| $ | — |
| $ | 354,774 |
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| |||||
Trade, less allowances |
| 84,719 |
| 227,186 |
| 13,132 |
| — |
| 325,037 |
| |||||
Intercompany |
| 407,725 |
| (420,282 | ) | 12,767 |
| (210 | ) | — |
| |||||
Other, including current portion of mortgage receivable |
| 2,570 |
| 8,123 |
| 4,091 |
| — |
| 14,784 |
| |||||
Inventories |
| 140,957 |
| 320,264 |
| 13,653 |
| (40,438 | ) | 434,436 |
| |||||
Prepaid expenses |
| 4,860 |
| 2,895 |
| 457 |
| — |
| 8,212 |
| |||||
Income taxes recoverable |
| (2,099 | ) | 1,524 |
| 575 |
| — |
| — |
| |||||
Deferred income taxes |
| 1,353 |
| 43,623 |
| 236 |
| — |
| 45,212 |
| |||||
|
| 654,362 |
| 488,118 |
| 80,623 |
| (40,648 | ) | 1,182,455 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NON-CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital assets |
| 156,941 |
| 894,314 |
| 25,819 |
| (8,485 | ) | 1,068,589 |
| |||||
Mortgage receivable |
| — |
| 9,256 |
| 4,987 |
| — |
| 14,243 |
| |||||
Other long-term assets |
| 14,308 |
| 9,209 |
| 859 |
| (859 | ) | 23,517 |
| |||||
Investment in subsidiaries |
| 927,434 |
| 92,358 |
| — |
| (1,017,131 | ) | 2,661 |
| |||||
|
| 1,098,683 |
| 1,005,137 |
| 31,665 |
| (1,026,475 | ) | 1,109,010 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
TOTAL ASSETS |
| $ | 1,753,045 |
| $ | 1,493,255 |
| $ | 112,288 |
| $ | (1,067,123 | ) | $ | 2,291,465 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable and accrued charges |
| $ | 21,176 |
| $ | 174,905 |
| $ | 4,510 |
| $ | (396 | ) | $ | 200,195 |
|
Accrued payroll and related liabilities |
| 8,732 |
| 30,315 |
| 83 |
| — |
| 39,130 |
| |||||
Income and other taxes payable |
| 2,705 |
| 87,047 |
| 904 |
| — |
| 90,656 |
| |||||
Current portion of long-term debt |
| 14,286 |
| 3,821 |
| — |
| — |
| 18,107 |
| |||||
Other current liabilities |
| 3,603 |
| 4,167 |
| — |
| 186 |
| 7,956 |
| |||||
|
| 50,502 |
| 300,255 |
| 5,497 |
| (210 | ) | 356,044 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt |
| 365,053 |
| 148,598 |
| — |
| — |
| 513,651 |
| |||||
Deferred pension liability |
| 14,164 |
| 17,770 |
| — |
| — |
| 31,934 |
| |||||
Deferred income taxes |
| 37,469 |
| 67,758 |
| 16,432 |
| (17,680 | ) | 103,979 |
| |||||
|
| 416,686 |
| 234,126 |
| 16,432 |
| (17,680 | ) | 649,564 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
SHAREHOLDERS’ EQUITY |
| 1,285,857 |
| 958,874 |
| 90,359 |
| (1,049,233 | ) | 1,285,857 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 1,753,045 |
| $ | 1,493,255 |
| $ | 112,288 |
| $ | (1,067,123 | ) | $ | 2,291,465 |
|
33
IPSCO Inc. Condensed Consolidating Statements of Income
Year ended December 31, 2005
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales |
| $ | 749,346 |
| $ | 2,777,963 |
| $ | 316,440 |
| $ | (811,022 | ) | $ | 3,032,727 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
| |||||
Manufacturing and raw material |
| 617,040 |
| 1,894,244 |
| 278,388 |
| (818,517 | ) | 1,971,155 |
| |||||
Depreciation of capital assets |
| 18,678 |
| 59,799 |
| 1,859 |
| — |
| 80,336 |
| |||||
|
| 635,718 |
| 1,954,043 |
| 280,247 |
| (818,517 | ) | 2,051,491 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Gross income |
| 113,628 |
| 823,920 |
| 36,193 |
| 7,495 |
| 981,236 |
| |||||
Selling, general and administration |
| 27,987 |
| 56,976 |
| (77 | ) | (1,552 | ) | 83,334 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
| 85,641 |
| 766,944 |
| 36,270 |
| 9,047 |
| 897,902 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest on long-term debt |
| 24,550 |
| 11,081 |
| — |
| — |
| 35,631 |
| |||||
Other interest (income) expense, net |
| (993 | ) | (14,683 | ) | (950 | ) | — |
| (16,626 | ) | |||||
Foreign exchange loss (gain) |
| 2,607 |
| (12,045 | ) | (10 | ) | — |
| (9,448 | ) | |||||
Gain on sale of assets held for sale |
| (1,863 | ) | — |
| — |
| — |
| (1,863 | ) | |||||
Intercompany interest/dividend |
| 2,717 |
| (945 | ) | (1,772 | ) | — |
| — |
| |||||
Equity income |
| (534,579 | ) | (25,451 | ) | — |
| 560,030 |
| — |
| |||||
Loss on early extinguishment of debt |
| 16,423 |
| — |
| — |
| — |
| 16,423 |
| |||||
Other (income) expense |
| (23,088 | ) | (11,432 | ) | (19 | ) | 24,779 |
| (9,760 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) before income taxes |
| 599,867 |
| 820,419 |
| 39,021 |
| (575,762 | ) | 883,545 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income taxes |
| 14,051 |
| 276,422 |
| 13,938 |
| (6,682 | ) | 297,729 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INCOME (LOSS) |
| $ | 585,816 |
| $ | 543,997 |
| $ | 25,083 |
| $ | (569,080 | ) | $ | 585,816 |
|
IPSCO Inc. Condensed Consolidating Statements of Income
Year ended December 31, 2004
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales |
| $ | 561,188 |
| $ | 2,334,761 |
| $ | 295,637 |
| $ | (660,196 | ) | $ | 2,531,390 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
| |||||
Manufacturing and raw material |
| 472,234 |
| 1,648,165 |
| 256,805 |
| (652,391 | ) | 1,724,813 |
| |||||
Depreciation of capital assets |
| 17,567 |
| 63,264 |
| 1,695 |
| — |
| 82,526 |
| |||||
|
| 489,801 |
| 1,711,429 |
| 258,500 |
| (652,391 | ) | 1,807,339 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Gross income |
| 71,387 |
| 623,332 |
| 37,137 |
| (7,805 | ) | 724,051 |
| |||||
Selling, general and administration |
| 18,481 |
| 43,035 |
| (28 | ) | (21 | ) | 61,467 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
| 52,906 |
| 580,297 |
| 37,165 |
| (7,784 | ) | 662,584 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest on long-term debt |
| 35,273 |
| 19,132 |
| — |
| — |
| 54,405 |
| |||||
Other interest (income) expense, net |
| (900 | ) | (2,219 | ) | (362 | ) | — |
| (3,481 | ) | |||||
Foreign exchange loss (gain) |
| 25,092 |
| (27,830 | ) | (11 | ) | — |
| (2,749 | ) | |||||
Intercompany interest/dividend |
| (1,065 | ) | 6,189 |
| (5,124 | ) | — |
| — |
| |||||
Gain on sale of assets held for sale |
| (4,925 | ) | — |
| — |
| — |
| (4,925 | ) | |||||
Equity income |
| (449,370 | ) | (26,132 | ) | — |
| 475,502 |
| — |
| |||||
Other (income) expense |
| (22,076 | ) | 727 |
| (265 | ) | 22,091 |
| 477 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) before income taxes and cumulative effect of accounting change |
| 470,877 |
| 610,430 |
| 42,927 |
| (505,377 | ) | 618,857 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income taxes |
| 15,935 |
| 156,781 |
| 16,845 |
| (11,396 | ) | 178,165 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) before cumulative effect of accounting change |
| 454,942 |
| 453,649 |
| 26,082 |
| (493,981 | ) | 440,692 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cumulative effect of accounting change, net of taxes |
| — |
| 14,250 |
| — |
| — |
| 14,250 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INCOME (LOSS) |
| $ | 454,942 |
| $ | 467,899 |
| $ | 26,082 |
| $ | (493,981 | ) | $ | 454,942 |
|
34
IPSCO Inc. Condensed Consolidating Statements of Income
Year ended December 31, 2003
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales |
| $ | 362,464 |
| $ | 1,411,798 |
| $ | 153,331 |
| $ | (568,782 | ) | $ | 1,358,811 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
| |||||
Manufacturing and raw material |
| 316,871 |
| 1,297,799 |
| 135,386 |
| (568,809 | ) | 1,181,247 |
| |||||
Depreciation of capital assets |
| 13,421 |
| 47,194 |
| 1,289 |
| — |
| 61,904 |
| |||||
|
| 330,292 |
| 1,344,993 |
| 136,675 |
| (568,809 | ) | 1,243,151 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Gross income |
| 32,172 |
| 66,805 |
| 16,656 |
| 27 |
| 115,660 |
| |||||
Selling, general and administration |
| 15,275 |
| 38,759 |
| 649 |
| — |
| 54,683 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
| 16,897 |
| 28,046 |
| 16,007 |
| 27 |
| 60,977 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest on long-term debt |
| 30,208 |
| 21,539 |
| — |
| — |
| 51,747 |
| |||||
Other interest (income) expense, net |
| (582 | ) | (721 | ) | (322 | ) | — |
| (1,625 | ) | |||||
Foreign exchange loss (gain) |
| (239 | ) | (5,224 | ) | 293 |
| — |
| (5,170 | ) | |||||
Intercompany interest/dividend |
| 882 |
| 3,811 |
| (4,693 | ) | — |
| — |
| |||||
Equity income |
| (1,567 | ) | (13,615 | ) | — |
| 15,182 |
| — |
| |||||
Other (income) expense |
| (22,890 | ) | 22,707 |
| (26 | ) | 26 |
| (183 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) before income taxes |
| 11,085 |
| (451 | ) | 20,755 |
| (15,181 | ) | 16,208 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income taxes |
| 6,413 |
| (2,635 | ) | 8,058 |
| (300 | ) | 11,536 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INCOME (LOSS) |
| 4,672 |
| 2,184 |
| 12,697 |
| (14,881 | ) | 4,672 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Dividends on preferred shares, including part VI.I tax |
| 3,033 |
| — |
| — |
| — |
| 3,033 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS |
| $ | 1,639 |
| $ | 2,184 |
| $ | 12,697 |
| $ | (14,881 | ) | $ | 1,639 |
|
IPSCO Inc. Condensed Consolidating Statements of Cash Flows
Year ended December 31, 2005
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
| $ | 585,816 |
| $ | 543,997 |
| $ | 25,083 |
| $ | (569,080 | ) | $ | 585,816 |
|
Non-cash adjustments |
| (513,182 | ) | 102,794 |
| 2,857 |
| 560,030 |
| 152,499 |
| |||||
Change in operating assets and liabilities |
| 333,616 |
| (372,323 | ) | (569 | ) | (57,117 | ) | (96,393 | ) | |||||
|
| 406,250 |
| 274,468 |
| 27,371 |
| (66,167 | ) | 641,922 |
| |||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for capital assets |
| (5,799 | ) | (60,771 | ) | (231 | ) | — |
| (66,801 | ) | |||||
Other investing activities |
| 1,546 |
| 892 |
| 2,769 |
| — |
| 5,207 |
| |||||
|
| (4,253 | ) | (59,879 | ) | 2,538 |
| — |
| (61,594 | ) | |||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Proceeds from issuance of common shares pursuant to share option plan |
| 21,104 |
| — |
| — |
| — |
| 21,104 |
| |||||
Common share dividends |
| (22,781 | ) | (21,167 | ) | (45,000 | ) | 66,167 |
| (22,781 | ) | |||||
Common share repurchase |
| (132,893 | ) | — |
| — |
| — |
| (132,893 | ) | |||||
Repayment of long-term debt |
| (226,651 | ) | (3,822 | ) | — |
| — |
| (230,473 | ) | |||||
|
| (361,221 | ) | (24,989 | ) | (45,000 | ) | 66,167 |
| (365,043 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
| 2,313 |
| 20,214 |
| (9,522 | ) | — |
| 13,005 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 43,089 |
| 209,814 |
| (24,613 | ) | — |
| 228,290 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 14,277 |
| 304,785 |
| 35,712 |
| — |
| 354,774 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ | 57,366 |
| $ | 514,599 |
| $ | 11,099 |
| $ | — |
| $ | 583,064 |
|
35
IPSCO Inc. Condensed Consolidating Statements of Cash Flows
Year ended December 31, 2004
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
| $ | 454,942 |
| $ | 467,899 |
| $ | 26,082 |
| $ | (493,981 | ) | $ | 454,942 |
|
Non-cash adjustments |
| (460,431 | ) | 163,181 |
| 2,780 |
| 466,865 |
| 172,395 |
| |||||
Change in operating assets and liabilities |
| 61,293 |
| (216,486 | ) | (12,919 | ) | 27,116 |
| (140,996 | ) | |||||
|
| 55,804 |
| 414,594 |
| 15,943 |
| — |
| 486,341 |
| |||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for capital assets |
| (11,028 | ) | (19,347 | ) | 1,307 |
| — |
| (29,068 | ) | |||||
Other investing activities |
| 4,759 |
| (3,890 | ) | 812 |
| — |
| 1,681 |
| |||||
|
| (6,269 | ) | (23,237 | ) | 2,119 |
| — |
| (27,387 | ) | |||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Proceeds from issuance of common shares pursuant to share option plan |
| 30,364 |
| — |
| — |
| — |
| 30,364 |
| |||||
Common share dividends |
| (9,536 | ) | — |
| — |
| — |
| (9,536 | ) | |||||
Issue (repayment) of long-term debt |
| (140,135 | ) | (106,968 | ) | — |
| — |
| (247,103 | ) | |||||
|
| (119,307 | ) | (106,968 | ) | — |
| — |
| (226,275 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
| 8,064 |
| (8,947 | ) | (8,381 | ) | — |
| (9,264 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| (61,708 | ) | 275,442 |
| 9,681 |
| — |
| 223,415 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 75,985 |
| 29,343 |
| 26,031 |
| — |
| 131,359 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ | 14,277 |
| $ | 304,785 |
| $ | 35,712 |
| $ | — |
| $ | 354,774 |
|
IPSCO Inc. Condensed Consolidating Statements of Cash Flows
Year ended December 31, 2003
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
| $ | 4,672 |
| $ | 2,184 |
| $ | 12,697 |
| $ | (14,881 | ) | $ | 4,672 |
|
Non-cash adjustments |
| (1,628 | ) | 80,779 |
| 5,440 |
| 9,366 |
| 93,957 |
| |||||
Change in operating assets and liabilities |
| (268,393 | ) | 362,487 |
| 13,095 |
| (117,432 | ) | (10,243 | ) | |||||
|
| (265,349 | ) | 445,450 |
| 31,232 |
| (122,947 | ) | 88,386 |
| |||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for capital assets |
| (1,862 | ) | (13,512 | ) | 1,846 |
| — |
| (13,528 | ) | |||||
Other investing activities |
| 211,903 |
| (1,290 | ) | 2,107 |
| (211,903 | ) | 817 |
| |||||
|
| 210,041 |
| (14,802 | ) | 3,953 |
| (211,903 | ) | (12,711 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Net redemption of common shares |
| — |
| (211,903 | ) | — |
| 211,903 |
| — |
| |||||
Proceeds from issuance of common shares pursuant to share option plan |
| 2,581 |
| — |
| — |
| — |
| 2,581 |
| |||||
Common share dividends |
| (6,962 | ) | (69,989 | ) | — |
| 69,989 |
| (6,962 | ) | |||||
Preferred share dividends |
| (2,631 | ) | (52,958 | ) | — |
| 52,958 |
| (2,631 | ) | |||||
Issue (repayment) of long-term debt |
| 161,502 |
| (122,974 | ) | — |
| — |
| 38,528 |
| |||||
|
| 154,490 |
| (457,824 | ) | — |
| 334,850 |
| 31,516 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Effect of exchange rate changes on cash and cash equivalents |
| (27,875 | ) | 42,018 |
| (12,834 | ) | — |
| 1,309 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
INCREASE IN CASH AND CASH EQUIVALENTS |
| 71,307 |
| 14,842 |
| 22,351 |
| — |
| 108,500 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 4,678 |
| 14,501 |
| 3,680 |
| — |
| 22,859 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ | 75,985 |
| $ | 29,343 |
| $ | 26,031 |
| $ | — |
| $ | 131,359 |
|
36
IPSCO Inc.
Schedule II - Valuation and Qualifying Accounts
|
|
|
| Additions |
|
|
|
|
| |||||||
Description |
| Balance at |
| Charged to |
| Charged to |
| Deductions |
| Balance at |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
| |||||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for doubtful accounts |
| $ | 833 |
| $ | 338 |
| $ | — |
| $ | 142 | (2) | $ | 1,055 |
|
Allowance for customer claims |
| 7,520 |
| 4,124 |
| 54 | (1) | 6,521 | (3) | 5,177 |
| |||||
Allowance for valuation of assets held for sale |
| 19,218 |
| — |
| 644 | (1) | — |
| 19,862 |
| |||||
Alllowance for valuation of deferred tax assets |
| — |
| 55,669 |
| — |
| — |
| 55,669 |
| |||||
Total |
| $ | 27,571 |
| $ | 60,131 |
| $ | 698 |
| $ | 6,637 |
| $ | 81,763 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Year ended December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
| |||||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for doubtful accounts |
| $ | 3,214 |
| $ | (170 | ) | $ | — |
| $ | 2,211 | (2) | $ | 833 |
|
Allowance for customer claims |
| 3,543 |
| 7,615 |
| 93 | (1) | 3,731 | (3) | 7,520 |
| |||||
Allowance for valuation of assets held for sale |
| 17,810 |
| — |
| 1,408 | (1) | — |
| 19,218 |
| |||||
Alllowance for valuation of deferred tax assets |
| 43,649 |
| — |
| — |
| 43,649 | (4) | — |
| |||||
Total |
| $ | 68,216 |
| $ | 7,445 |
| $ | 1,501 |
| $ | 49,591 |
| $ | 27,571 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Year ended December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
| |||||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
| |||||
Allowance for doubtful accounts |
| $ | 9,170 |
| $ | 259 |
| $ | — |
| $ | 6,215 | (2) | $ | 3,214 |
|
Allowance for customer claims |
| 3,471 |
| 4,810 |
| 398 | (1) | 5,136 | (3) | 3,543 |
| |||||
Allowance for valuation of assets held for sale |
| 14,606 |
| — |
| 3,204 | (1) | — |
| 17,810 |
| |||||
Alllowance for valuation of deferred tax assets |
| 32,300 |
| 11,349 |
| — |
| — |
| 43,649 |
| |||||
Total |
| $ | 59,547 |
| $ | 16,418 |
| $ | 3,602 |
| $ | 11,351 |
| $ | 68,216 |
|
(1) Exchange rate fluctuations
(2) Uncollectible accounts written off, net of recoveries
(3) Claims settled with customers
(4) Allowance reversed as realization of benefit was more likely than not
37