United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2006
Commission File Number: 001-14568
IPSCO Inc.
(Exact name of registrant as specified in its charter)
CANADA
(State or other jurisdiction of incorporation or organization)
98-0077354
(I.R.S. Employer Identification No.)
650 Warrenville Road, Suite 500, Lisle, Illinois 60532
Telephone: (630)-810-4800
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
| Accelerated filer o |
| Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
o Yes o No
The number of shares of common stock outstanding as of April 24, 2006 is 48,076,018.
IPSCO Inc.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(thousands of United States Dollars except for per share and ton data)
|
| For the Three Months Ended |
| ||||
|
| March 31 |
| March 31 |
| ||
|
| 2006 |
| 2005 |
| ||
Plate and Coil Tons Produced (thousands) |
| 895.6 |
| 817.5 |
| ||
Finished Tons Shipped (thousands) |
| 1,005.4 |
| 855.8 |
| ||
Sales |
| $ | 902,896 |
| $ | 766,738 |
|
Cost of sales |
|
|
|
|
| ||
Manufacturing and raw material |
| 603,346 |
| 479,349 |
| ||
Depreciation of capital assets |
| 20,083 |
| 19,802 |
| ||
|
| 623,429 |
| 499,151 |
| ||
Gross income |
| 279,467 |
| 267,587 |
| ||
Selling, general and administration |
| 32,386 |
| 18,337 |
| ||
Operating income |
| 247,081 |
| 249,250 |
| ||
Other expenses (income): |
|
|
|
|
| ||
Interest on long-term debt |
| 5,833 |
| 10,728 |
| ||
Net interest income |
| (7,015 | ) | (2,783 | ) | ||
Foreign exchange loss (gain) |
| 1,324 |
| (394 | ) | ||
Other |
| (112 | ) | (95 | ) | ||
Income Before Income Taxes |
| 247,051 |
| 241,794 |
| ||
Income Tax Expense |
| 96,350 |
| 87,026 |
| ||
Net Income |
| 150,701 |
| 154,768 |
| ||
Cumulative translation adjustment |
| 1,226 |
| 1,959 |
| ||
Fair value of derivatives, net of tax |
| (5,398 | ) | 4,041 |
| ||
Comprehensive income |
| $ | 146,529 |
| $ | 160,768 |
|
Earnings per Common Share |
|
|
|
|
| ||
—Basic |
| $ | 3.15 |
| $ | 3.11 |
|
—Diluted |
| $ | 3.12 |
| $ | 3.06 |
|
Dividends Declared per Common Share (Canadian dollars) |
| $ | 0.18 |
| $ | 0.12 |
|
IPSCO Inc.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
(thousands of United States Dollars)
|
| For the Three Months Ended |
| ||||
|
| March 31 |
| March 31 |
| ||
|
| 2006 |
| 2005 |
| ||
Retained Earnings at Beginning of Period |
| $ | 1,341,659 |
| $ | 884,859 |
|
Net Income |
| 150,701 |
| 154,768 |
| ||
Common Share Repurchase |
| — |
| (13,370 | ) | ||
Dividends on Common Shares |
| (7,450 | ) | (4,958 | ) | ||
Retained Earnings at End of Period |
| $ | 1,484,910 |
| $ | 1,021,299 |
|
2
IPSCO Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(thousands of United States Dollars)
|
| For the Three Months Ended |
| ||||
|
| March 31 |
| March 31 |
| ||
|
| 2006 |
| 2005 |
| ||
Operating Activities |
|
|
|
|
| ||
Net income |
| $ | 150,701 |
| $ | 154,768 |
|
Adjustments to reconcile net income to net cash flows from operating activities |
|
|
|
|
| ||
Stock-based compensation |
| 1,237 |
| 458 |
| ||
Depreciation of capital assets |
| 20,083 |
| 19,802 |
| ||
Amortization of deferred charges |
| 461 |
| 370 |
| ||
Deferred income taxes |
| 804 |
| 39,589 |
| ||
Changes in operating assets and liabilities |
|
|
|
|
| ||
Accounts receivable, less allowances |
| (12,725 | ) | 25,526 |
| ||
Inventories |
| (43,356 | ) | 6,416 |
| ||
Other |
| 1,435 |
| 2,580 |
| ||
Accounts payable and accrued charges |
| (27,708 | ) | (38,494 | ) | ||
Change in deferred pension liability |
| (178 | ) | 1,092 |
| ||
Income taxes payable |
| 29,352 |
| (60,850 | ) | ||
Net cash provided by operations |
| 120,106 |
| 151,257 |
| ||
Investing Activities |
|
|
|
|
| ||
Expenditures for capital assets |
| (30,599 | ) | (13,358 | ) | ||
Proceeds from mortgage receivable, net |
| 236 |
| 1,457 |
| ||
Investments |
| (330 | ) | (170 | ) | ||
Net cash used for investing activities |
| (30,693 | ) | (12,071 | ) | ||
Financing Activities |
|
|
|
|
| ||
Common share dividends |
| (7,450 | ) | (4,958 | ) | ||
Common shares issued pursuant to share option plan |
| 447 |
| 10,929 |
| ||
Common share repurchase |
| — |
| (16,261 | ) | ||
Repayment of long-term debt |
| (4,991 | ) | (4,589 | ) | ||
Net cash used for financing activities |
| (11,994 | ) | (14,879 | ) | ||
Effect of exchange rate changes on cash and cash equivalents |
| 2,841 |
| 2,441 |
| ||
Increase in Cash and Cash Equivalents |
| 80,260 |
| 126,748 |
| ||
Cash and Cash Equivalents at Beginning of Period |
| 583,064 |
| 354,774 |
| ||
Cash and Cash Equivalents at End of Period |
| $ | 663,324 |
| $ | 481,522 |
|
3
IPSCO Inc.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(thousands of United States Dollars)
|
| March 31 |
| December 31 |
| ||
|
| 2006 |
| 2005 |
| ||
Current Assets |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 663,324 |
| $ | 583,064 |
|
Accounts receivable, less allowances |
| 395,938 |
| 388,943 |
| ||
Inventories |
| 559,521 |
| 506,237 |
| ||
Deferred income taxes |
| 27,400 |
| 30,227 |
| ||
Other |
| 7,184 |
| 8,615 |
| ||
|
| 1,653,367 |
| 1,517,086 |
| ||
Non-Current Assets |
|
|
|
|
| ||
Capital assets |
| 1,054,779 |
| 1,056,186 |
| ||
Other |
| 64,190 |
| 65,747 |
| ||
|
| 1,118,969 |
| 1,121,933 |
| ||
Total Assets |
| $ | 2,772,336 |
| $ | 2,639,019 |
|
Current Liabilities |
|
|
|
|
| ||
Accounts payable and accrued charges |
| $ | 276,912 |
| $ | 303,589 |
|
Income and other taxes payable |
| 70,516 |
| 41,073 |
| ||
Current portion of long-term debt |
| 6,300 |
| 4,114 |
| ||
|
| 353,728 |
| 348,776 |
| ||
Long-Term Liabilities |
|
|
|
|
| ||
Long-term debt |
| 305,877 |
| 313,053 |
| ||
Other |
| 44,538 |
| 44,584 |
| ||
Deferred income taxes |
| 186,798 |
| 191,973 |
| ||
|
| 537,213 |
| 549,610 |
| ||
Shareholders’ Equity |
|
|
|
|
| ||
Common shares |
| 419,719 |
| 419,272 |
| ||
Contributed surplus |
| 16,785 |
| 15,548 |
| ||
Retained earnings |
| 1,484,910 |
| 1,341,659 |
| ||
Accumulated other comprehensive loss |
| (40,019 | ) | (35,846 | ) | ||
|
| 1,881,395 |
| 1,740,633 |
| ||
Total Liabilities and Shareholders’ Equity |
| $ | 2,772,336 |
| $ | 2,639,019 |
|
4
IPSCO Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(unaudited)
(thousands of United States Dollars)
1. Effective with the fourth quarter of 2005, the Company prepares its financial statements in accordance with the generally accepted accounting principles (GAAP) of the United States. A reconciliation of the differences between GAAP in Canada and the United States as they apply to the Company is provided in note 8.
These unaudited consolidated financial statements should be read in the context of the consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in the Company’s 2005 Annual Report on Form 10-K. In the opinion of the Company, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of expected results for the year.
2. Inventories
|
| March 31 |
| December 31 |
| ||||
|
| 2006 |
| 2005 |
| ||||
Finished goods |
| $ | 144,223 |
|
| $ | 148,650 |
|
|
Work-in-process |
| 236,044 |
|
| 190,860 |
|
| ||
Raw materials |
| 93,063 |
|
| 99,706 |
|
| ||
Supplies |
| 86,191 |
|
| 67,021 |
|
| ||
|
| $559,521 |
|
| $ | 506,237 |
|
| |
3. Pension cost attributable to the Company’s pension plans is as follows:
|
| For the Three Months Ended |
| ||||||||
|
| March 31 |
| March 31 |
| ||||||
|
| 2006 |
| 2005 |
| ||||||
Defined benefit plans |
|
|
|
|
|
|
|
|
| ||
Service cost |
|
| $ | 2,059 |
|
|
| $ | 1,605 |
|
|
Interest cost |
|
| 3,166 |
|
|
| 3,074 |
|
| ||
Expected return on plan assets |
|
| (3,201 | ) |
|
| (2,873 | ) |
| ||
Amortization of gains, losses and past service costs |
|
| 1,552 |
|
|
| 941 |
|
| ||
|
|
| 3,576 |
|
|
| 2,747 |
|
| ||
Defined contribution plans |
|
| 1,650 |
|
|
| 1,294 |
|
| ||
|
|
| $ | 5,226 |
|
|
| $ | 4,041 |
|
|
4. Basic earnings per 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 the exercise of share options, deferred share units, restricted shares and performance units. The per share amounts disclosed are based on the following:
5
|
| For the Three Months Ended |
| ||||
|
| March 31 |
| March 31 |
| ||
|
| 2006 |
| 2005 |
| ||
Numerator for basic and diluted earnings per share |
| $ | 150,701 |
| $ | 154,768 |
|
Common shares outstanding—January 1 |
| 48,051,619 |
| 49,737,180 |
| ||
Non-vested restricted shares |
| (210,003 | ) | (171,504 | ) | ||
Weighted average impact of shares issued (repurchased) |
| 11,790 |
| 230,575 |
| ||
Denominator for basic earnings per share |
| 47,853,406 |
| 49,796,251 |
| ||
Adjustment for share options |
| 97,884 |
| 396,817 |
| ||
Adjustment for deferred share units |
| 116,569 |
| 105,438 |
| ||
Adjustment for restricted shares |
| 129,607 |
| 138,828 |
| ||
Adjustment for performance units |
| 152,931 |
| 105,982 |
| ||
Denominator for diluted earnings per share |
| 48,350,397 |
| 50,543,316 |
| ||
5. Effective January 1, 2006, the Company adopted SFAS No. 123 (revised, Share-Based Payment (SFAS 123(R)) using the modified prospective approach. Prior to the adoption of SFAS 123(R) the Company accounted for share based awards in accordance with FASB Statement No. 123, Accounting for Stock Based Compensation. Under the modified prospective approach, SFAS 123(R) applies to new awards and to awards outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled. Under the modified prospective approach, compensation cost recognized in the first quarter 2006 includes compensation cost for all share based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with provisions of SFAS 123(R). The impact of adopting SFAS 123(R) was not material to the financial statements.
The Company has a share option plan under which common shares are reserved for directors, officers and employees. As of March 31, 2006 and March 31, 2005, shares available for future grants are 728,364 and 372,696, respectively. The restricted shares and performance units vest at the end of three years based on continued employment and achievement of certain Company performance objectives. Restricted shares are entitled to dividends declared on common shares during the vesting period and, upon vesting, performance units are entitled to an amount equal to dividends declared during the vesting period. The fair value of the grants is being amortized to compensation expense over the vesting period. Compensation expense of $8,936 and $458 has been recorded in the three month periods ended March 31, 2006 and March 31, 2005, respectively.
Share Options
The following is the continuity of granted options outstanding with weighted average exercise price in Canadian dollars:
|
| For the Three Months Ended |
| ||||||||||||
|
| March 31, 2006 |
| March 31, 2005 |
| ||||||||||
|
|
|
| Weighted |
|
|
| Weighted |
| ||||||
|
| Number of |
| Average |
| Number of |
| Average |
| ||||||
|
| Shares |
| Exercise Price |
| Shares |
| Exercise Price |
| ||||||
Balance at beginning of period |
|
| 175,025 |
|
|
| 23.50 |
|
| 1,205,065 |
|
| 24.90 |
|
|
Options exercised |
|
| (21,400 | ) |
|
| 24.17 |
|
| (534,095 | ) |
| 25.18 |
|
|
Balance at end of period |
|
| 153,625 |
|
|
| 23.41 |
|
| 670,970 |
|
| 24.69 |
|
|
The March 31, 2006 weighted average remaining contractual life of the outstanding options is 4.8 years.
6
Intrinsic value for stock options is defined as the difference between the current market value and the grant price. The total intrinsic value of the outstanding and exerciseable options at March 31, 2006 is CDN 15.0 million. The total intrinsic value of options exercised during the quarters ended March 31, 2006 and 2005 was CDN $1.8 million and CDN $19.8 million, respectively.
Performance Units
The following is the continuity of performance units outstanding:
|
| For the Three Months Ended |
| ||||||
|
| March 31 |
| March 31 |
| ||||
|
| 2006 |
| 2005 |
| ||||
Balance at beginning of period |
|
| 242,766 |
|
|
| 133,985 |
|
|
Performance units granted |
|
| 800 |
|
|
| — |
|
|
Performance units cancelled |
|
| (625 | ) |
|
| — |
|
|
Balance at end of period |
|
| 242,941 |
|
|
| 133,985 |
|
|
The March 31, 2006 weighted average grant date fair value of the performance units is CDN $42.55.
Restricted Shares
The following is the continuity of restricted shares outstanding:
|
| For the Three Months Ended |
| ||||||
|
| March 31 |
| March 31 |
| ||||
|
| 2006 |
| 2005 |
| ||||
Balance at beginning and end of period |
|
| 210,003 |
|
|
| 171,504 |
|
|
The March 31, 2006 weighted average grant date fair value of the restricted shares is CDN $30.70.
At March 31, 2006, there was $14.8 million of unrecognized compensation cost related to share-based payments which is expected to be recognized over the weighted-average vesting period of 2 years.
In March 2005, the Company filed a normal course issuer bid which entitled the Company to acquire approximately 4.2 million of its common shares between March 16, 2005 and March 15, 2006. All purchases were made on the open market at the market price at the time of the purchase. All shares purchased under the bid were cancelled. During the quarter ended March 31, 2005, 294,000 common shares were purchased for $16.3 million.
6. 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.
|
| For the Three Months Ended |
| ||||
|
| March 31 |
| March 31 |
| ||
|
| 2006 |
| 2005 |
| ||
Sales |
|
|
|
|
| ||
Canada |
| $ | 340,833 |
| $ | 245,509 |
|
United States |
| 562,063 |
| 521,229 |
| ||
|
| $ | 902,896 |
| $ | 766,738 |
|
7
|
| March 31 |
| March 31 |
| ||
|
| 2006 |
| 2005 |
| ||
Capital Assets |
|
|
|
|
| ||
Canada |
| $ | 212,322 |
| $ | 213,621 |
|
United States |
| 842,457 |
| 842,565 |
| ||
|
| $ | 1,054,779 |
| $ | 1,056,186 |
|
|
| For the Three Months Ended |
| ||||
|
| March 31 |
| March 31 |
| ||
|
| 2006 |
| 2005 |
| ||
Sales information by product group is as follows: |
|
|
|
|
| ||
Steel mill products |
| $ | 504,213 |
| $ | 500,489 |
|
Tubular products |
| 398,683 |
| 266,249 |
| ||
|
| $ | 902,896 |
| $ | 766,738 |
|
Tubular product sales volume in the first and second quarters can be negatively impacted by weather conditions in Western Canada.
8
7. Consolidating Financial Statements
The following information presents the condensed consolidating balance sheet as at March 31, 2006 and December 31, 2005, and the condensed consolidating statements of income and cash flows for the quarters ended March 31, 2006 and 2005. 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. 8¾% 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 Statements of Income
Three Months Ended March 31, 2006
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||||||||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||||||||||
Sales |
| $ | 229,659 |
|
| $ | 798,382 |
|
|
| $ | 137,686 |
|
|
| $ | (262,831 | ) |
|
| $ | 902,896 |
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Manufacturing and raw material |
| 197,395 |
|
| 554,298 |
|
|
| 120,377 |
|
|
| (268,724 | ) |
|
| 603,346 |
|
| |||||
Depreciation of capital assets |
| 4,216 |
|
| 15,552 |
|
|
| 315 |
|
|
| — |
|
|
| 20,083 |
|
| |||||
|
| 201,611 |
|
| 569,850 |
|
|
| 120,692 |
|
|
| (268,724 | ) |
|
| 623,429 |
|
| |||||
Gross income |
| 28,048 |
|
| 228,532 |
|
|
| 16,994 |
|
|
| 5,893 |
|
|
| 279,467 |
|
| |||||
Selling, general and administration |
| 17,466 |
|
| 15,025 |
|
|
| (105 | ) |
|
| — |
|
|
| 32,386 |
|
| |||||
Operating income |
| 10,582 |
|
| 213,507 |
|
|
| 17,099 |
|
|
| 5,893 |
|
|
| 247,081 |
|
| |||||
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest on long-term debt |
| 4,023 |
|
| 2,696 |
|
|
| — |
|
|
| (886 | ) |
|
| 5,833 |
|
| |||||
Other interest (income) expense, net |
| (1,225 | ) |
| (5,580 | ) |
|
| (210 | ) |
|
| — |
|
|
| (7,015 | ) |
| |||||
Foreign exchange loss (gain) |
| 1,093 |
|
| 213 |
|
|
| 18 |
|
|
| — |
|
|
| 1,324 |
|
| |||||
Intercompany interest/dividend |
| 1,882 |
|
| (796 | ) |
|
| (194 | ) |
|
| (892 | ) |
|
| — |
|
| |||||
Equity income |
| (148,100 | ) |
| (8,950 | ) |
|
| — |
|
|
| 156,938 |
|
|
| (112 | ) |
| |||||
Other (income) expense |
| (6,575 | ) |
| (891 | ) |
|
| — |
|
|
| 7,466 |
|
|
| — |
|
| |||||
Income (loss) before income taxes |
| 159,484 |
|
| 226,815 |
|
|
| 17,485 |
|
|
| (156,733 | ) |
|
| 247,051 |
|
| |||||
Income taxes |
| 8,783 |
|
| 80,901 |
|
|
| 6,543 |
|
|
| 123 |
|
|
| 96,350 |
|
| |||||
Net income (loss) |
| $ | 150,701 |
|
| $ | 145,914 |
|
|
| $ | 10,942 |
|
|
| $ | (156,856 | ) |
|
| $ | 150,701 |
|
|
9
IPSCO Inc. Condensed Consolidating Statements of Income
Three Months Ended March 31, 2005
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||||||||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||||||||||
Sales |
| $ | 179,383 |
|
| $ | 726,184 |
|
|
| $ | 55,807 |
|
|
| $ | (194,636 | ) |
|
| $ | 766,738 |
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Manufacturing and raw material |
| 164,631 |
|
| 491,342 |
|
|
| 48,350 |
|
|
| (224,974 | ) |
|
| 479,349 |
|
| |||||
Depreciation of capital assets |
| 4,899 |
|
| 14,562 |
|
|
| 341 |
|
|
| — |
|
|
| 19,802 |
|
| |||||
|
| 169,530 |
|
| 505,904 |
|
|
| 48,691 |
|
|
| (224,974 | ) |
|
| 499,151 |
|
| |||||
Gross income |
| 9,853 |
|
| 220,280 |
|
|
| 7,116 |
|
|
| 30,338 |
|
|
| 267,587 |
|
| |||||
Selling, general and administration |
| 6,378 |
|
| 12,325 |
|
|
| — |
|
|
| (366 | ) |
|
| 18,337 |
|
| |||||
Operating income |
| 3,475 |
|
| 207,955 |
|
|
| 7,116 |
|
|
| 30,704 |
|
|
| 249,250 |
|
| |||||
Other expenses (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest on long-term debt |
| 7,957 |
|
| 2,771 |
|
|
| — |
|
|
| — |
|
|
| 10,728 |
|
| |||||
Other interest (income) expense, net |
| (228 | ) |
| (2,368 | ) |
|
| (187 | ) |
|
| — |
|
|
| (2,783 | ) |
| |||||
Foreign exchange loss (gain) |
| (2,383 | ) |
| 1,987 |
|
|
| 2 |
|
|
| — |
|
|
| (394 | ) |
| |||||
Intercompany interest/dividend |
| (298 | ) |
| 2,118 |
|
|
| (992 | ) |
|
| (828 | ) |
|
| — |
|
| |||||
Equity income |
| (153,263 | ) |
| (4,594 | ) |
|
| — |
|
|
| 157,762 |
|
|
| (95 | ) |
| |||||
Other (income) expense |
| (4,975 | ) |
| (1,185 | ) |
|
| (6 | ) |
|
| 6,166 |
|
|
| — |
|
| |||||
Income (loss) before income taxes |
| 156,665 |
|
| 209,226 |
|
|
| 8,299 |
|
|
| (132,396 | ) |
|
| 241,794 |
|
| |||||
Income taxes |
| 1,897 |
|
| 72,750 |
|
|
| 3,244 |
|
|
| 9,135 |
|
|
| 87,026 |
|
| |||||
Net income (loss) |
| $ | 154,768 |
|
| $ | 136,476 |
|
|
| $ | 5,055 |
|
|
| $ | (141,531 | ) |
|
| $ | 154,768 |
|
|
10
IPSCO Inc. Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2006
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||||||||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||||||||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
| $ | 150,701 |
|
| $ | 145,914 |
|
|
| $ | 10,942 |
|
|
| $ | (156,856 | ) |
|
| $ | 150,701 |
|
|
Non-cash adjustments |
| (141,345 | ) |
| 2,519 |
|
|
| 4,353 |
|
|
| 157,058 |
|
|
| 22,585 |
|
| |||||
Change in operating assets and liabilities |
| 209,945 |
|
| (264,466 | ) |
|
| 581 |
|
|
| 760 |
|
|
| (53,180 | ) |
| |||||
Net cash provided by (used for) operating activities |
| 219,301 |
|
| (116,033 | ) |
|
| 15,876 |
|
|
| 962 |
|
|
| 120,106 |
|
| |||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for capital assets |
| (2,955 | ) |
| (22,862 | ) |
|
| (3,897 | ) |
|
| (885 | ) |
|
| (30,599 | ) |
| |||||
Proceeds from mortgage receivable, net |
| — |
|
| — |
|
|
| 236 |
|
|
| — |
|
|
| 236 |
|
| |||||
Other investing activities |
| — |
|
| (330 | ) |
|
| — |
|
|
| — |
|
|
| (330 | ) |
| |||||
Net cash used for investing activities |
| (2,955 | ) |
| (23,192 | ) |
|
| (3,661 | ) |
|
| (885 | ) |
|
| (30,693 | ) |
| |||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Common share dividends |
| (7,450 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (7,450 | ) |
| |||||
Common shares issued pursuant to share option plan |
| 447 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 447 |
|
| |||||
Repayment of long-term debt |
| — |
|
| (4,991 | ) |
|
| — |
|
|
| — |
|
|
| (4,991 | ) |
| |||||
Net cash used for financing activities |
| (7,003 | ) |
| (4,991 | ) |
|
| — |
|
|
| — |
|
|
| (11,994 | ) |
| |||||
Effect of exchange rate changes on cash and cash equivalents |
| 2,750 |
|
| 2,221 |
|
|
| (2,053 | ) |
|
| (77 | ) |
|
| 2,841 |
|
| |||||
Increase (decrease) in cash and cash equivalents |
| 212,093 |
|
| (141,995 | ) |
|
| 10,162 |
|
|
| — |
|
|
| 80,260 |
|
| |||||
Ccash and cash equivalents at beginning of period |
| 57,366 |
|
| 514,599 |
|
|
| 11,099 |
|
|
| — |
|
|
| 583,064 |
|
| |||||
Cash and cash equivalents at end of period |
| $ | 269,459 |
|
| $ | 372,604 |
|
|
| $ | 21,261 |
|
|
| $ | — |
|
|
| $ | 663,324 |
|
|
11
IPSCO Inc. Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2005
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||||||||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||||||||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
| $ | 154,768 |
|
| $ | 136,476 |
|
|
| $ | 5,055 |
|
|
| $ | (141,531 | ) |
|
| $ | 154,768 |
|
|
Non-cash adjustments |
| (149,565 | ) |
| 42,631 |
|
|
| 257 |
|
|
| 166,896 |
|
|
| 60,219 |
|
| |||||
Change in operating assets and liabilities |
| 34,200 |
|
| (58,066 | ) |
|
| (15,832 | ) |
|
| (24,032 | ) |
|
| (63,730 | ) |
| |||||
Net cash provided by (used for) operating activities |
| 39,403 |
|
| 121,041 |
|
|
| (10,520 | ) |
|
| 1,333 |
|
|
| 151,257 |
|
| |||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for capital assets |
| (6,114 | ) |
| (5,865 | ) |
|
| (1,379 | ) |
|
| — |
|
|
| (13,358 | ) |
| |||||
Proceeds from mortgage receivable, net |
| — |
|
| 1,538 |
|
|
| (81 | ) |
|
| — |
|
|
| 1,457 |
|
| |||||
Other investing activities |
| — |
|
| (170 | ) |
|
| — |
|
|
| — |
|
|
| (170 | ) |
| |||||
Net cash used for investing activities |
| (6,114 | ) |
| (4,497 | ) |
|
| (1,460 | ) |
|
| — |
|
|
| (12,071 | ) |
| |||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Common share dividends |
| (4,958 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (4,958 | ) |
| |||||
Common shares issued pursuant to share option plan |
| 10,929 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,929 |
|
| |||||
Common share repurchase |
| (16,261 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (16,261 | ) |
| |||||
Issue (repayment) of long-term debt |
| — |
|
| (4,589 | ) |
|
| — |
|
|
| — |
|
|
| (4,589 | ) |
| |||||
Net cash used for financing activities |
| (10,290 | ) |
| (4,589 | ) |
|
| — |
|
|
| — |
|
|
| (14,879 | ) |
| |||||
Effect of exchange rate changes on cash and cash equivalents |
| 5,011 |
|
| (6,465 | ) |
|
| 5,228 |
|
|
| (1,333 | ) |
|
| 2,441 |
|
| |||||
Increase (decrease) in cash and cash equivalents |
| 28,010 |
|
| 105,490 |
|
|
| (6,752 | ) |
|
| — |
|
|
| 126,748 |
|
| |||||
Cash and cash equivalents at beginning of period |
| 14,277 |
|
| 304,785 |
|
|
| 35,712 |
|
|
| — |
|
|
| 354,774 |
|
| |||||
Cash and cash equivalents at end of period |
| $ | 42,287 |
|
| $ | 410,275 |
|
|
| $ | 28,960 |
|
|
| $ | — |
|
|
| $ | 481,522 |
|
|
12
IPSCO Inc. Condensed Consolidating Balance Sheets
As at March 31, 2006
(thousands of United States dollars)
|
|
|
| Guarantor |
| Non-Guarantor |
|
|
| Consolidated |
| |||||||||
|
| Parent |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Total |
| |||||||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 269,459 |
| $ | 372,604 |
|
| $ | 21,261 |
|
| $ | — |
|
| $ | 663,324 |
|
|
Accounts receivable, less allowances |
| (61,476 | ) | 412,794 |
|
| 44,620 |
|
| — |
|
| 395,938 |
|
| |||||
Inventories |
| 168,058 |
| 395,128 |
|
| 10,878 |
|
| (14,543 | ) |
| 559,521 |
|
| |||||
Deferred income taxes |
| 20,610 |
| 4,297 |
|
| 2,493 |
|
| — |
|
| 27,400 |
|
| |||||
Other |
| 3,757 |
| 2,955 |
|
| 472 |
|
| — |
|
| 7,184 |
|
| |||||
|
| 400,408 |
| 1,187,778 |
|
| 79,724 |
|
| (14,543 | ) |
| 1,653,367 |
|
| |||||
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital assets |
| 133,923 |
| 892,880 |
|
| 25,302 |
|
| 2,674 |
|
| 1,054,779 |
|
| |||||
Other |
| 1,637,190 |
| 63,582 |
|
| 3,288 |
|
| (1,639,870 | ) |
| 64,190 |
|
| |||||
|
| 1,771,113 |
| 956,462 |
|
| 28,590 |
|
| (1,637,196 | ) |
| 1,118,969 |
|
| |||||
Total assets |
| $ | 2,171,521 |
| $ | 2,144,240 |
|
| $ | 108,314 |
|
| $ | (1,651,739 | ) |
| $ | 2,772,336 |
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable and accrued charges |
| $ | 66,822 |
| $ | 203,831 |
|
| $ | 6,259 |
|
| $ | — |
|
| $ | 276,912 |
|
|
Income and other taxes payable |
| (7,359 | ) | 71,165 |
|
| 6,710 |
|
| — |
|
| 70,516 |
|
| |||||
Current portion of long-term debt |
| — |
| 6,300 |
|
| — |
|
| — |
|
| 6,300 |
|
| |||||
|
| 59,463 |
| 281,296 |
|
| 12,969 |
|
| — |
|
| 353,728 |
|
| |||||
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt |
| 168,570 |
| 137,307 |
|
| — |
|
| — |
|
| 305,877 |
|
| |||||
Other |
| 16,949 |
| 27,589 |
|
| — |
|
| — |
|
| 44,538 |
|
| |||||
Deferred income taxes |
| 45,144 |
| 120,598 |
|
| 25,750 |
|
| (4,694 | ) |
| 186,798 |
|
| |||||
|
| 230,663 |
| 285,494 |
|
| 25,750 |
|
| (4,694 | ) |
| 537,213 |
|
| |||||
Shareholders’ equity |
| 1,881,395 |
| 1,577,450 |
|
| 69,595 |
|
| (1,647,045 | ) |
| 1,881,395 |
|
| |||||
Total liabilities and shareholders’ equity |
| $ | 2,171,521 |
| $ | 2,144,240 |
|
| $ | 108,314 |
|
| $ | (1,651,739 | ) |
| $ | 2,772,336 |
|
|
13
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, less allowances |
| 173,594 |
| 178,538 |
|
| 36,811 |
|
| — |
|
| 388,943 |
|
| |||||
Inventories |
| 144,730 |
| 363,974 |
|
| 11,594 |
|
| (14,061 | ) |
| 506,237 |
|
| |||||
Deferred income taxes |
| 25,169 |
| 4,651 |
|
| 407 |
|
| — |
|
| 30,227 |
|
| |||||
Other |
| 5,156 |
| 2,410 |
|
| 1,049 |
|
| — |
|
| 8,615 |
|
| |||||
|
| 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 |
|
| |||||
Other |
| 1,470,677 |
| 104,284 |
|
| 3,182 |
|
| (1,512,396 | ) |
| 65,747 |
|
| |||||
|
| 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 |
| $ | 53,428 |
| $ | 246,843 |
|
| $ | 3,318 |
|
| $ | — |
|
| $ | 303,589 |
|
|
Income and other taxes payable |
| (11,794 | ) | 50,668 |
|
| 2,199 |
|
| — |
|
| 41,073 |
|
| |||||
Current portion of long-term debt |
| — |
| 4,114 |
|
| — |
|
| — |
|
| 4,114 |
|
| |||||
|
| 41,634 |
| 301,625 |
|
| 5,517 |
|
| — |
|
| 348,776 |
|
| |||||
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt |
| 168,569 |
| 144,484 |
|
| — |
|
| — |
|
| 313,053 |
|
| |||||
Other |
| 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 |
|
|
14
8. Differences between United States and Canadian generally accepted accounting principles
Reconciliation of the line items of the consolidated statements of income and cash flows and the consolidated balance sheets from U.S. GAAP to Canadian GAAP follows. Information on the nature of these adjustments is provided in Note 21 to the Company’s 2005 consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(thousands of United States Dollars except for per share and ton data)
|
| For the Three Months |
| For the Three Months |
| ||||||||||||||||||||||||||||||
|
| U.S. GAAP |
| Ref |
| Amount |
| Canadian |
| U.S. GAAP |
| Ref |
| Amount |
| Canadian |
| ||||||||||||||||||
Plate and Coil Tons Produced (thousands) |
|
| 895.6 |
|
|
|
|
|
|
|
|
| 895.6 |
|
|
| 817.5 |
|
|
|
|
|
|
|
|
| 817.5 |
|
| ||||||
Finished Tons Shipped (thousands) |
|
| 1,005.4 |
|
|
|
|
|
|
|
|
| 1,005.4 |
|
|
| 855.8 |
|
|
|
|
|
|
|
|
| 855.8 |
|
| ||||||
Sales |
|
| $ | 902,896 |
|
|
| a) |
|
| $ | (27,483 | ) |
| $ | 875,413 |
|
|
| $ | 766,738 |
|
|
| a) |
|
| $ | (20,741 | ) |
| $ | 745,997 |
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Manufacturing and raw material |
|
| 603,346 |
|
|
| a) |
|
| (27,483 | ) |
| 579,181 |
|
|
| 479,349 |
|
|
| a) |
|
| (20,741 | ) |
| 461,941 |
|
| ||||||
|
|
|
|
|
|
| b) |
|
| 3,471 |
|
|
|
|
|
|
|
|
|
| b) |
|
| 3,471 |
|
|
|
|
| ||||||
|
|
|
|
|
|
| c) |
|
| (153 | ) |
|
|
|
|
|
|
|
|
| c) |
|
| (138 | ) |
|
|
|
| ||||||
Amortization of capital assets |
|
| 20,083 |
|
|
| b) |
|
| (2,224 | ) |
| 23,219 |
|
|
| 19,802 |
|
|
| b) |
|
| (2,224 | ) |
| 19,251 |
|
| ||||||
|
|
|
|
|
|
| c) |
|
| 41 |
|
|
|
|
|
|
|
|
|
| c) |
|
| 38 |
|
|
|
|
| ||||||
|
|
|
|
|
|
| d) |
|
| 5,319 |
|
|
|
|
|
|
|
|
|
| d) |
|
| 1,635 |
|
|
|
|
| ||||||
|
|
| 623,429 |
|
|
|
|
|
| (21,029 | ) |
| 602,400 |
|
|
| 499,151 |
|
|
|
|
|
| (17,959 | ) |
| 481,192 |
|
| ||||||
Gross income |
|
| 279,467 |
|
|
|
|
|
| (6,454 | ) |
| 273,013 |
|
|
| 267,587 |
|
|
|
|
|
| (2,782 | ) |
| 264,805 |
|
| ||||||
Selling, general and administration |
|
| 32,386 |
|
|
|
|
|
|
|
|
| 32,386 |
|
|
| 18,337 |
|
|
|
|
|
|
|
|
| 18,337 |
|
| ||||||
Operating income |
|
| 247,081 |
|
|
|
|
|
| (6,454 | ) |
| 240,627 |
|
|
| 249,250 |
|
|
|
|
|
| (2,782 | ) |
| 246,468 |
|
| ||||||
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest on long-term debt |
|
| 5,833 |
|
|
| b) |
|
| (2,118 | ) |
| 3,715 |
|
|
| 10,728 |
|
|
| b) |
|
| (2,194 | ) |
| 8,534 |
|
| ||||||
Net interest income |
|
| (7,015 | ) |
|
| c) |
|
| — |
|
| (7,015 | ) |
|
| (2,783 | ) |
|
| c) |
|
| 5 |
|
| (2,778 | ) |
| ||||||
Foreign exchange loss (gain) |
|
| 1,324 |
|
|
|
|
|
|
|
|
| 1,324 |
|
|
| (394 | ) |
|
|
|
|
|
|
|
| (394 | ) |
| ||||||
Other (income) expenses |
|
| (112 | ) |
|
| c) |
|
| 112 |
|
| — |
|
|
| (95 | ) |
|
| c) |
|
| 95 |
|
| — |
|
| ||||||
Income before income taxes and cumulative effect of accounting change |
|
| 247,051 |
|
|
|
|
|
| (4,448 | ) |
| 242,603 |
|
|
| 241,794 |
|
|
|
|
|
| (688 | ) |
| 241,106 |
|
| ||||||
Income tax expense |
|
| 96,350 |
|
|
| b) |
|
| 339 |
|
| 94,615 |
|
|
| 87,026 |
|
|
| b) |
|
| 341 |
|
| 86,778 |
|
| ||||||
|
|
|
|
|
|
| d) |
|
| (2,074 | ) |
|
|
|
|
|
|
|
|
| d) |
|
| (589 | ) |
|
|
|
| ||||||
Net Income |
|
| $ | 150,701 |
|
|
|
|
|
| $ | (2,713 | ) |
| $ | 147,988 |
|
|
| $ | 154,768 |
|
|
|
|
|
| $ | (440 | ) |
| $ | 154,328 |
|
|
Earnings PerCommon Share |
|
| $ | 3.15 |
|
|
|
|
|
|
|
|
| $ | 3.09 |
|
|
| $ | 3.11 |
|
|
|
|
|
|
|
|
| $ | 3.10 |
|
| ||
— Diluted |
|
| $ | 3.12 |
|
|
|
|
|
|
|
|
| $ | 3.06 |
|
|
| $ | 3.06 |
|
|
|
|
|
|
|
|
| $ | 3.05 |
|
|
a) Freight invoiced to customers
b) 2000 sale-leaseback transaction
c) Joint venture
d) Amortization of difference in amounts capitalized
e) Translation of convenience
f) Capitalization of interest
g) Capitalization of commissioning costs
h) Derivatives
i) Minimum pension liability
j) Change in accounting policy
15
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands of United States Dollars)
|
| For the Three Months Ended March 31, 2006 |
| For the Three Months Ended March 31, 2005 |
| ||||||||||||||||||||||||||||
|
| U.S. GAAP |
| Ref |
| Amount |
| Canadian |
| U.S. GAAP |
| Ref |
| Amount |
| Canadian |
| ||||||||||||||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| $ | 150,701 |
|
|
|
|
|
|
| $ | (2,713 | ) |
|
| $ | 147,988 |
|
|
| $ | 154,768 |
|
|
|
|
|
|
| $ | (440 | ) |
|
| $ | 154,328 |
|
|
Adjustments to reconcile net income to net cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation of capital assets |
|
| 20,083 |
|
|
|
|
|
|
| 3,136 |
|
|
| 23,219 |
|
|
| 19,802 |
|
|
|
|
|
|
| (551 | ) |
|
| 19,251 |
|
| ||||||
Amortization of deferred charges |
|
| 461 |
|
|
|
|
|
|
|
|
|
|
| 461 |
|
|
| 370 |
|
|
|
|
|
|
|
|
|
|
| 370 |
|
| ||||||
Stock based compensation |
|
| 1,237 |
|
|
|
|
|
|
|
|
|
|
| 1,237 |
|
|
| 458 |
|
|
|
|
|
|
|
|
|
|
| 458 |
|
| ||||||
Deferred income taxes |
|
| 804 |
|
|
| b) |
|
|
| 339 |
|
|
| (931 | ) |
|
| 39,589 |
|
|
| b) |
|
|
| 341 |
|
|
| 39,341 |
|
| ||||||
|
|
|
|
|
|
| d) |
|
|
| (2,074 | ) |
|
|
|
|
|
|
|
|
|
| d) |
|
|
| (589 | ) |
|
|
|
|
| ||||||
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable |
|
| (12,725 | ) |
|
| c) |
|
|
| (294 | ) |
|
| (13,019 | ) |
|
| 25,526 |
|
|
| c) |
|
|
| 155 |
|
|
| 25,681 |
|
| ||||||
Inventories |
|
| (43,356 | ) |
|
| c) |
|
|
| (67 | ) |
|
| (43,423 | ) |
|
| 6,416 |
|
|
| c) |
|
|
| 32 |
|
|
| 6,448 |
|
| ||||||
Other current assets |
|
| 1,435 |
|
|
|
|
|
|
|
|
|
|
| 1,435 |
|
|
| 2,580 |
|
|
|
|
|
|
|
|
|
|
| 2,580 |
|
| ||||||
Accounts payable and accrued charges |
|
| (27,708 | ) |
|
| b) |
|
|
| (3,638 | ) |
|
| (31,236 | ) |
|
| (38,494 | ) |
|
| b) |
|
|
| (3,312 | ) |
|
| (41,999 | ) |
| ||||||
|
|
|
|
|
|
| c) |
|
|
| 110 |
|
|
|
|
|
|
|
|
|
|
| c) |
|
|
| (193 | ) |
|
|
|
|
| ||||||
Change in deferred pension |
|
| (178 | ) |
|
|
|
|
|
|
|
|
|
| (178 | ) |
|
| 1,092 |
|
|
|
|
|
|
|
|
|
|
| 1,092 |
|
| ||||||
Income and other taxes payable |
|
| 29,352 |
|
|
| c) |
|
|
| — |
|
|
| 29,352 |
|
|
| (60,850 | ) |
|
| c) |
|
|
| 155 |
|
|
| (60,695 | ) |
| ||||||
Net cash provided by operations |
|
| 120,106 |
|
|
|
|
|
|
| (5,201 | ) |
|
| 114,905 |
|
|
| 151,257 |
|
|
|
|
|
|
| (4,402 | ) |
|
| 146,855 |
|
| ||||||
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Expenditures for capital assets, net of litigation settlement |
|
| (30,599 | ) |
|
| c) |
|
|
| (54 | ) |
|
| (30,653 | ) |
|
| (13,358 | ) |
|
| c) |
|
|
| (48 | ) |
|
| (13,406 | ) |
| ||||||
Proceeds from mortgage receivable, net |
|
| 236 |
|
|
|
|
|
|
|
|
|
|
| 236 |
|
|
| 1,457 |
|
|
|
|
|
|
|
|
|
|
| 1,457 |
|
| ||||||
Investments |
|
| (330 | ) |
|
| c) |
|
|
| 330 |
|
|
| — |
|
|
| (170 | ) |
|
| c) |
|
|
| 170 |
|
|
| — |
|
| ||||||
Net cash used for investing activities |
|
| (30,693 | ) |
|
|
|
|
|
| 276 |
|
|
| (30,417 | ) |
|
| (12,071 | ) |
|
|
|
|
|
| 122 |
|
|
| (11,949 | ) |
| ||||||
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common shares issued pursuant to share option plan |
|
| 447 |
|
|
|
|
|
|
|
|
|
|
| 447 |
|
|
| 10,929 |
|
|
|
|
|
|
|
|
|
|
| 10,929 |
|
| ||||||
Common share dividends |
|
| (7,450 | ) |
|
|
|
|
|
|
|
|
|
| (7,450 | ) |
|
| (4,958 | ) |
|
|
|
|
|
|
|
|
|
| (4,958 | ) |
| ||||||
Common share repurchase |
|
| — |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (16,261 | ) |
|
|
|
|
|
|
|
|
|
| (16,261 | ) |
| ||||||
Repayment of long-term debt |
|
| (4,991 | ) |
|
| b) |
|
|
| 4,991 |
|
|
| — |
|
|
| (4,589 | ) |
|
| b) |
|
|
| 4,589 |
|
|
| — |
|
| ||||||
Net cash (used for) provided by financing activities |
|
| (11,994 | ) |
|
|
|
|
|
| 4,991 |
|
|
| (7,003 | ) |
|
| (14,879 | ) |
|
|
|
|
|
| 4,589 |
|
|
| (10,290 | ) |
| ||||||
Effect of exchange rate changes on cash and cash equivalents |
|
| 2,841 |
|
|
|
|
|
|
|
|
|
|
| 2,841 |
|
|
| 2,441 |
|
|
|
|
|
|
|
|
|
|
| 2,441 |
|
| ||||||
Increase in Cash and Cash Equivalents |
|
| 80,260 |
|
|
|
|
|
|
| 66 |
|
|
| 80,326 |
|
|
| 126,748 |
|
|
|
|
|
|
| 309 |
|
|
| 127,057 |
|
| ||||||
Cash and Cash Equivalents at Beginning of Period |
|
| 583,064 |
|
|
| c) |
|
|
| 144 |
|
|
| 583,208 |
|
|
| 354,774 |
|
|
| c) |
|
|
| 303 |
|
|
| 355,077 |
|
| ||||||
Cash and Cash Equivalents at End of Period |
|
| $ | 663,324 |
|
|
|
|
|
|
| $ | 210 |
|
|
| $ | 663,534 |
|
|
| $ | 481,522 |
|
|
|
|
|
|
| $ | 612 |
|
|
| $ | 482,134 |
|
|
16
CONSOLIDATED BALANCE SHEETS (unaudited)
(thousands of United States Dollars)
|
| March 31, 2006 |
| December 31, 2005 |
| ||||||||||||||||||||||||||
|
| U.S. GAAP |
| Ref |
| Amount |
| Canadian |
| U.S. GAAP |
| Ref |
| Amount |
| Canadian |
| ||||||||||||||
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
|
| $ | 663,324 |
|
|
| c) |
|
| $ | 210 |
| $ | 663,534 |
|
| $ | 583,064 |
|
|
| c) |
|
| $ | 144 |
| $ | 583,208 |
|
Accounts receivable, less allowances |
|
| 395,938 |
|
|
| c) |
|
| 679 |
| 391,844 |
|
| 388,943 |
|
|
| c) |
|
| 222 |
| 377,324 |
| ||||||
|
|
|
|
|
|
| h) |
|
| (4,773 | ) |
|
|
|
|
|
|
| h) |
|
| (11,841 | ) |
|
| ||||||
Inventories |
|
| 559,521 |
|
|
| c) |
|
| 217 |
| 559,738 |
|
| 506,237 |
|
|
| c) |
|
| 150 |
| 506,387 |
| ||||||
Future income taxes |
|
| 27,400 |
|
|
|
|
|
| — |
| 27,400 |
|
| 30,227 |
|
|
|
|
|
| — |
| 30,227 |
| ||||||
Other |
|
| 7,184 |
|
|
|
|
|
| — |
| 7,184 |
|
| 8,615 |
|
|
| c) |
|
| 22 |
| 8,637 |
| ||||||
|
|
| 1,653,367 |
|
|
|
|
|
| (3,667 | ) | 1,649,700 |
|
| 1,517,086 |
|
|
|
|
|
| (11,303 | ) | 1,505,783 |
| ||||||
Non-Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital assets |
|
| 1,054,779 |
|
|
| b) |
|
| (110,580 | ) | 1,061,069 |
|
| 1,056,186 |
|
|
| b) |
|
| (112,804 | ) | 1,065,558 |
| ||||||
|
|
|
|
|
|
| c) |
|
| 2,582 |
|
|
|
|
|
|
|
| c) |
|
| 2,569 |
|
|
| ||||||
|
|
|
|
|
|
| d) |
|
| (11,847 | ) |
|
|
|
|
|
|
| d) |
|
| (6,528 | ) |
|
| ||||||
|
|
|
|
|
|
| f) |
|
| 13,902 |
|
|
|
|
|
|
|
| f) |
|
| 13,902 |
|
|
| ||||||
|
|
|
|
|
|
| g) |
|
| 112,233 |
|
|
|
|
|
|
|
| g) |
|
| 112,233 |
|
|
| ||||||
Other |
|
| 64,190 |
|
|
| c) |
|
| (2,955 | ) | 68,343 |
|
| 65,747 |
|
|
| c) |
|
| (2,776 | ) | 70,033 |
| ||||||
|
|
|
|
|
|
| i) |
|
| 7,108 |
|
|
|
|
|
|
|
| i) |
|
| 7,062 |
|
|
| ||||||
|
|
| 1,118,969 |
|
|
|
|
|
| 10,443 |
| 1,129,412 |
|
| 1,121,933 |
|
|
|
|
|
| 13,658 |
| 1,135,591 |
| ||||||
Total Assets |
|
| $ | 2,772,336 |
|
|
|
|
|
| $ | 6,776 |
| $ | 2,779,112 |
|
| $ | 2,639,019 |
|
|
|
|
|
| $ | 2,355 |
| $ | 2,641,374 |
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable and accrued charges |
|
| $ | 276,912 |
|
|
| b) |
|
| $ | (10,240 | ) | $ | 266,069 |
|
| $ | 303,589 |
|
|
| b) |
|
| $ | (6,602 | ) | $ | 297,318 |
|
|
|
|
|
|
|
| c) |
|
| 733 |
|
|
|
|
|
|
|
| c) |
|
| 331 |
|
|
| ||||||
|
|
|
|
|
|
| h) |
|
| (1,336 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income and other taxes payable |
|
| 70,516 |
|
|
|
|
|
|
|
| 70,516 |
|
| 41,073 |
|
|
|
|
|
|
|
| 41,073 |
| ||||||
Current portion of long-term debt |
|
| 6,300 |
|
|
| b) |
|
| (6,300 | ) | — |
|
| 4,114 |
|
|
| b) |
|
| (4,114 | ) | — |
| ||||||
|
|
| 353,728 |
|
|
|
|
|
| (17,143 | ) | 336,585 |
|
| 348,776 |
|
|
|
|
|
| (10,385 | ) | 338,391 |
| ||||||
Long-Term Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term debt |
|
| 305,877 |
|
|
| b) |
|
| (109,307 | ) | 196,570 |
|
| 313,053 |
|
|
| b) |
|
| (116,483 | ) | 196,570 |
| ||||||
Other |
|
| 44,538 |
|
|
| i) |
|
| (44,538 | ) | — |
|
| 44,584 |
|
|
| i) |
|
| (44,584 | ) | — |
| ||||||
Future income taxes |
|
| 186,798 |
|
|
| b) |
|
| 5,629 |
| 250,747 |
|
| 191,973 |
|
|
| b) |
|
| 5,290 |
| 254,652 |
| ||||||
|
|
|
|
|
|
| d) |
|
| (4,925 | ) |
|
|
|
|
|
|
| d) |
|
| (2,851 | ) |
|
| ||||||
|
|
|
|
|
|
| f) |
|
| 5,172 |
|
|
|
|
|
|
|
| f) |
|
| 5,172 |
|
|
| ||||||
|
|
|
|
|
|
| g) |
|
| 41,751 |
|
|
|
|
|
|
|
| g) |
|
| 41,751 |
|
|
| ||||||
|
|
|
|
|
|
| h) |
|
| (1,341 | ) |
|
|
|
|
|
|
| h) |
|
| (4,346 | ) |
|
| ||||||
|
|
|
|
|
|
| i) |
|
| 17,663 |
|
|
|
|
|
|
|
| i) |
|
| 17,663 |
|
|
| ||||||
|
|
| 537,213 |
|
|
|
|
|
| (89,896 | ) | 447,317 |
|
| 549,610 |
|
|
|
|
|
| (98,388 | ) | 451,222 |
| ||||||
Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common shares |
|
| 419,719 |
|
|
| e) |
|
| (40,733 | ) | 378,986 |
|
| 419,272 |
|
|
| e) |
|
| (40,733 | ) | 378,539 |
| ||||||
Contributed surplus |
|
| 16,785 |
|
|
|
|
|
|
|
| 16,785 |
|
| 15,548 |
|
|
|
|
|
|
|
| 15,548 |
| ||||||
Retained earnings |
|
| 1,484,910 |
|
|
| b) |
|
| 9,642 |
| 1,519,142 |
|
| 1,341,659 |
|
|
| b) |
|
| 9,110 |
| 1,378,603 |
| ||||||
|
|
|
|
|
|
| d) |
|
| (6,922 | ) |
|
|
|
|
|
|
| d) |
|
| (3,678 | ) |
|
| ||||||
|
|
|
|
|
|
| e) |
|
| (47,700 | ) |
|
|
|
|
|
|
| e) |
|
| (47,700 | ) |
|
| ||||||
|
|
|
|
|
|
| f) |
|
| 8,730 |
|
|
|
|
|
|
|
| f) |
|
| 8,730 |
|
|
| ||||||
|
|
|
|
|
|
| g) |
|
| 70,482 |
|
|
|
|
|
|
|
| g) |
|
| 70,482 |
|
|
| ||||||
Accumulated other comprehensive loss |
|
| (40,019 | ) |
|
| e) |
|
| 88,433 |
| 80,297 |
|
| (35,846 | ) |
|
| e) |
|
| 88,433 |
| 79,071 |
| ||||||
Cumulative translation adjustment |
|
|
|
|
|
| h) |
|
| (2,096 | ) |
|
|
|
|
|
|
| h) |
|
| (7,495 | ) |
|
| ||||||
|
|
|
|
|
|
| i) |
|
| 33,979 |
|
|
|
|
|
|
|
| i) |
|
| 33,979 |
|
|
| ||||||
|
|
| 1,881,395 |
|
|
|
|
|
| 113,815 |
| 1,995,210 |
|
| 1,740,633 |
|
|
|
|
|
| 111,128 |
| 1,851,761 |
| ||||||
Total Liabilities and Shareholders’ Equity |
|
| $ | 2,772,336 |
|
|
|
|
|
| $ | 6,776 |
| $ | 2,779,112 |
|
| $ | 2,639,019 |
|
|
|
|
|
| $ | 2,355 |
| $ | 2,641,374 |
|
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Statements made in this report that are not statements of historical fact are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, without limitation, any statements that may project, indicate or imply future results, events, performance or achievements and can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these terms or other comparable words, or by discussions of strategy, plans or intentions.
Forward-looking information reflects management’s current views of future events and financial performance that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include, but are not limited to, the following: (1) general economic conditions; (2) changes in financial markets; (3) political conditions and developments, including conflict in the Middle East and the war on terrorism; (4) changes in the supply and demand for steel and our specific steel products; (5) the level of demand outside of North America for steel and steel products; (6) equipment performance at our manufacturing facilities; (7) the occurrence of any material lawsuits; (8) the availability of capital; (9) our ability to properly and efficiently staff our manufacturing facilities; (10) domestic and international competitive factors, including the level of steel imports into the Canadian and U.S. markets; (11) economic conditions in steel exporting nations; (12) trade sanction activities and the enforcement of trade sanction remedies; (13) supply and demand for scrap steel and iron, alloys and other raw materials; (14) supply, demand and pricing for the electricity and natural gas that we use; (15) changes in environmental and other regulations, including regulations arising from the Canadian Parliament’s ratification of the Kyoto Protocol, and the magnitude of future environmental expenditures; (16) inherent uncertainties in the development and performance of new or modified equipment or technologies; (17) North American interest rates; and (18) exchange rates.
This list is not exhaustive of the factors that may impact our forward-looking statements. These and other factors should be considered carefully and users should not place undue reliance on our forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements.
We refer you to the sections captioned “Statement Regarding Forward-Looking Information” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, incorporated herein by reference, for a more detailed discussion of some of the many factors, variables, risks, and uncertainties that could cause actual results to differ materially from those we may have expected or anticipated. We caution that any forward-looking statement reflects only our reasonable belief at the time the statement is made. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the Company makes on related subjects as may be detailed in our other filings made from time to time with the Securities and Exchange Commission.
The following discussion and analysis presents factors which affected the Company’s consolidated results of operations for the three-month periods ended March 31, 2006 and March 31, 2005, and the Company’s consolidated financial position at March 31, 2006. We continue to operate and report our business as a single business segment. The following information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Form 10-Q and in the Company’s Form 10-K for the year-ended December 31, 2005. As used in this report, IPSCO Inc. and its subsidiaries,
18
unless otherwise specified, are collectively referred to as “IPSCO” or the “Company”, and unless the context otherwise requires, the terms “we”, “us”, “our” and similar references refer to the Company.
Overview: First Quarter Operating Results 2006 vs. 2005
First quarter 2006 sales were a record $902.9 million, $136.2 million or 17.8% higher than the $766.7 million reported in the first quarter of 2005. Steel mill product revenue of $504.2 million increased $3.7 million over the first quarter 2005 as significant steel mill product volume increases were offset by lower average selling prices. Tubular product sales of $398.7 million increased $132.4 million or 49.7% from the same quarter last year driven by higher sales volumes and increased pricing.
For the quarter, IPSCO shipped a record 1,005,000 tons of finished products, up 150,000 tons or 17.5% from the 856,000 tons reported last year. Steel mill products had record shipments in the first quarter of 658,000 tons, 40,000 tons or 6.5% more than the prior year. Tubular products had record shipments in the first quarter of 347,000 tons, 109,000 tons or 46.0% higher compared to 238,000 tons in last year’s first quarter. Small diameter energy tubular sales, driven by higher rig counts in Canada were at record levels. Energy tubular shipments were 209,000 tons, up 25,000 tons from the same period last year. Large diameter pipe shipments were 80,000 tons, up 76,000 tons from first quarter of 2005. The market for large diameter product is a function of new pipeline projects and maintenance to existing pipelines. Since the first quarter of 2005, there has been a substantial increase in pipeline projects.
Plate and coil tons produced in the first quarter of 2006 were 896,000 tons compared to 818,000 tons in first quarter of 2005. A favorable product mix and production efficiencies led to the volume increase from first quarter of 2005.
Gross income of $279.5 million for the first quarter of 2006 was $11.9 million higher than the same period last year. First quarter gross margin declined from 34.9% to 31.0% for the first quarter of 2005 due to lower average steel mill product selling prices, higher costs relating to steel mill inputs and higher tubular input and conversion costs partially offset by higher average tubular pricing.
The average per ton cost of scrap consumed in the first quarter of 2006 increased 4% from the first quarter of 2005. Aggregate conversion costs for the three steelworks were 11% higher than the same period last year due to increases in alloys, energy costs and maintenance. IPSCO supplies the majority of steel input needed to make tubular product. Any additional coil needed for tubular production is purchased externally. The increase in the cost of steel produced, as well as the increase in the cost of purchased coil, increased average tubular costs. The average cost per ton of all product sold increased to $620 per ton, $37 per ton higher than the same quarter last year.
Selling, general and administrative expenses were $32.4 million during the first quarter of 2006, as compared to $18.4 million during the same period in 2005, an increase of $14.0 million, or 77%. Administrative expenses increased $10.0 million due to the increased share price and subsequent impact on share based compensation and the adoption of SFAS 123(R), Share-Based Payment in the first quarter of 2006. Selling, general and administrative expenses represented 3.6% of sales compared to 2.4% in 2005.
Operating income per ton in the first quarter was $246 per ton compared to $291 per ton in the prior period compared due to the factors previously discussed.
Interest expense on long-term debt was $5.8 million, down 46% from $10.7 million in the first quarter of 2005. This reduction in first quarter 2006 compared to first quarter 2005 is the result of significant reduction in long-term debt through 2005 from scheduled payments, redemptions and open market purchases. Interest income increased $4.2 million to $7.0 million due to higher average cash balances and interest rate increases compared to the prior period.
19
Changes in the Canadian to U.S. dollar exchange rates can impact reported earnings. During the quarters compared, the exchange rate was volatile but moved in opposite directions, resulting in a first quarter 2006 foreign exchange loss of $1.3 million compared to a gain in 2005 of $0.4 million.
The effective tax rate of 39% was up from the 36% recorded in the first quarter of 2005. In the first quarter of 2005, IPSCO estimated that all of the anticipated U.S. earnings would be permanently reinvested in our U.S. operations. The resulting estimate of the annual tax rate was 36% for 2005. With the record shipments and sales within our U.S. operations in the first quarter of 2006, IPSCO currently believes that a portion of our earnings in the United States would not be permanently reinvested and has recorded a tax rate of 39% to reflect future withholding tax payments on repatriation of these funds.
Net income for the first quarter of 2006 was $150.7 million or $3.12 per diluted share compared to $154.8 million or $3.06 per diluted share during first quarter of 2005. The decrease in net income during 2006 was due to the factors described above. Earnings per diluted share in the first quarter of 2006 were reduced $0.15 per diluted share as compared to the prior year due to the impact of the higher effective tax rate. Earnings per diluted share benefited by $0.14 compared to the prior year due to the reduction of shares resulting from the share buy back efforts in 2005. The denominator used in the earnings per share calculation was 50.5 million shares in the first quarter of 2005 versus 48.4 million shares in the first quarter of 2006.
Robust end user demand for steel mill products is expected for all of 2006. IPSCO’s steel mill capacity is fully committed through the second quarter. The favorable pricing environment, which has been better than previously anticipated, will be partially offset by increased costs. Operations are expected to maintain strong performance as scheduled maintenance outages are minimal during the year.
We expect high oil and gas prices to continue to drive high rig counts and demand for OCTG products. First quarter 2006 rig counts were 35% higher in Canada and 18% higher in the U.S. than first quarter of last year. North American energy tubular demand is anticipated to be at the highest levels that weather conditions and rig availability will allow for all of 2006. In addition, our spiral pipe facilities are booked at full capacity through the third quarter of 2007.
We anticipate that our second quarter energy tubular sales volumes will experience the normal seasonal reduction as a result of the spring thaw and road restrictions in Western Canada. However, due to the strong market conditions we are running all small diameter pipe mills at capacity in order to meet customer needs for product following spring break up. Excluding foreign exchange gains or losses and assuming an effective tax rate of 39%, we forecast second quarter 2006 earnings to be in the range of $2.60 to $2.80 per diluted share.
Financial Position and Liquidity
Cash at March 31, 2006 was $663.3 million, an increase of $80.3 million in the quarter. Net cash generated by operating activities for the three months ended March 31, 2006 was $120.1 million compared to $151.3 million generated by operating activities for the same period in 2005. This decrease was primarily due to an increase in inventory and accounts receivable related to increased production volumes and sales.
Capital expenditures in the first quarter of 2006 were $30.6 million, compared with $13.4 million in the same period in 2005. In the prior year, capital expenditures focused primarily on maintenance projects. In 2006, in addition to maintenance projects, IPSCO has approved a number of additional projects targeted to reduce costs and add value to our product lines. In February 2006, the Company approved the expenditure of a total of $45.2 million for the installation of a vacuum degasser at the Montpelier Steelworks and a coil preparation facility as well as other related enhancements to the large diameter spiral
20
pipe mill operations located in Regina, Saskatchewan. Capital expenditures are anticipated to total approximately $160 million in 2006.
In February 2006, IPSCO’s Board of Directors approved a 12% increase in the quarterly cash dividend on the Company’s common shares from CDN $0.16 to $0.18 per share, paid on March 31, 2006 to stockholders of record on March 10, 2006.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to various market risks, including commodity price risk, foreign currency risk and interest rate risk. To manage the volatility related to these risks, we have entered into various derivative contracts, the majority of which are settled in cash. Such settlements have not had a significant effect on our liquidity in the past, nor are they expected to be significant in the future. We do not use derivatives for speculative or trading purposes.
IPSCO manages a portion of our exposure to price risk related to natural gas purchases by using derivative financial instruments. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas. Gains and losses from the use of these instruments are deferred in accumulated other comprehensive income on the consolidated balance sheets and recognized into production costs in the same period as the underlying transaction. At March 31, 2006, accumulated other comprehensive income/loss includes $2.1 million in unrealized net-of-tax gains for the fair value of these instruments. A sensitivity analysis indicates that the reduction in the fair value of these instruments at March 31, 2006, due to hypothetical declines of 10% and 25% in market prices of natural gas at that time would be $4.2 million and $10.5 million, respectively (March 31, 2005 - $3.9 million and $9.3 million, respectively). Any resulting changes in fair value would be recorded as adjustments to other comprehensive income, net of tax. Because these instruments are hedges, these hypothetical losses would be offset by the benefit of lower prices paid for the natural gas used in the normal production cycle.
IPSCO’s outstanding debt is fixed rate debt and IPSCO’s investment practice is to invest in highly liquid money market funds or securities with short remaining maturities. As a result, changes in interest rates are not expected to have a significant impact on the value of these investments. As such, future changes in interest rates are not expected to impact interest expense or the value of cash equivalent investments. IPSCO does not engage in interest swaps to manage interest rate exposure.
IPSCO is subject to the impact of changes in exchange rates on revenues and operating costs, firm commitments for capital expenditures and existing assets or liabilities (including certain inter-company balances), particularly changes in the value of the U.S. dollar versus the Canadian dollar. At March 31, 2006, there were no foreign exchange contracts outstanding.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management, under the supervision of the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2006. Based on such evaluation, IPSCO’s President and Chief Executive Officer and Senior Vice President and Chief Financial Officer have concluded that the disclosure controls
21
and procedures were effective as of March 31, 2006, and that there have been no significant changes in such controls and procedures, or in other factors, that could significantly affect these controls subsequent to their evaluation date.
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
22
There have been no material changes in legal proceedings since the issuance of the Company’s Form 10-K.
There have been no material changes in the risk factors provided in Item 1A of Part 1 of the Company’s Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
None.
31.1 |
| Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
| Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
| Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
23
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
IPSCO INC. | ||
| By: /s/ DAVID S. SUTHERLAND |
|
Date: May 1, 2006 | David S. Sutherland | |
| President and Chief Executive Officer | |
| By: /s/ VICKI L. AVRIL |
|
Date: May 1, 2006 | Vicki L. Avril | |
| Senior Vice President and Chief Financial Officer |
24