Exhibit 99.1
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 Canadian
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 2 to the
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 and development
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 Canadian generally accepted auditing standards and have
attested to the fairness, in all material respects, of the presentation of the
financial statements. Their report follows.
/s/ David Sutherland /s/ Robert Ratliff
David Sutherland Robert Ratliff
President and Chief Executive Officer Vice President and Chief Financial
Officer
January 28, 2003
Auditors' Report
To the Shareholders of IPSCO Inc.
We have audited the consolidated statements of financial position of IPSCO Inc.
as at December 31, 2002 and 2001 and the consolidated statements of income and
retained earnings, and cash flows for each of the years in the three year period
ended December 31, 2002. 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 Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 28, 2003, except with respect to Note 23 as to which
the date is June 18, 2003
IPSCO Inc. Consolidated Statements of Financial Position
As at December 31 (thousands of United States dollars)
NOTES 2002 2001
CURRENT ASSETS
Cash and cash equivalents $ 22,859 $ 37,492
Accounts receivable
Trade, less allowances 135,421 106,770
Other, including current portion of mortgage receivable 18,331 9,938
Inventories 3 255,410 239,394
Prepaid expenses 2,847 2,031
Future income taxes 4 41,402 44,490
-----------------------------
476,270 440,115
-----------------------------
NON-CURRENT ASSETS
Capital assets 5 1,134,357 1,155,901
Mortgage receivable 6 5,403 -
Deferred charges, less amortization 2,785 2,026
Deferred pension asset 7 3,911 -
Future income taxes 4 121,586 126,123
-----------------------------
1,268,042 1,284,050
-----------------------------
TOTAL ASSETS $ 1,744,312 $ 1,724,165
=============================
CURRENT LIABILITIES
Bank indebtedness 8 $ - $ 35,000
Accounts payable and accrued charges 9 106,155 121,464
Accrued payroll and related liabilities 13,775 15,315
Income and other taxes payable - 2,111
Current portion of long-term debt 8 35,386 21,100
Other current liabilities 16,142 13,926
-----------------------------
171,458 208,916
-----------------------------
LONG-TERM LIABILITIES
Long-term debt 8 342,202 386,809
Deferred pension liability 7 - 234
Future income taxes 4 143,229 142,668
-----------------------------
485,431 529,711
-----------------------------
SHAREHOLDERS' EQUITY
Preferred shares 10 98,553 98,545
Common shares 11 351,311 256,163
Subordinated notes 12 104,250 104,250
Retained earnings 13 494,599 491,777
Cumulative translation adjustment 38,710 34,803
-----------------------------
1,087,423 985,538
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,744,312 $ 1,724,165
=============================
Commitments and contingencies 19 & 22
The accompanying notes are an integral part of the consolidated financial
statements.
Approved by the Board
/s/ Burton Joyce /s/ David Sutherland
Burton Joyce, Director David Sutherland, Director
IPSCO Inc. Consolidated Statements of Income and Retained Earnings
Years Ended December 31 (thousands of United States dollars except per share
data)
NOTES 2002 2001 2000
Sales $ 1,081,709 $ 903,743 $ 949,263
-----------------------------------------------
Cost of sales
Manufacturing and raw material 925,343 770,788 764,633
Amortization of capital assets 51,049 37,107 35,257
-----------------------------------------------
976,392 807,895 799,890
-----------------------------------------------
Gross income 105,317 95,848 149,373
Selling, research and administration 55,155 57,527 62,076
-----------------------------------------------
Operating income 50,162 38,321 87,297
Other expenses (income)
Interest on long-term debt 8 23,821 6,634 6,934
Other interest expense (income), net 174 (928) (800)
Foreign exchange loss 938 882 365
Gain on sale of assets held for sale 6 (6,464) - -
Litigation settlement 22 - (39,000) -
Provision for loss on assets held for sale 5 - 10,000 -
-----------------------------------------------
Income before income taxes 31,693 60,733 80,798
Income taxes 4 11,414 21,865 23,125
-----------------------------------------------
NET INCOME 20,279 38,868 57,673
Dividends on preferred shares, including part VI.I tax 10 5,608 5,692 5,935
Interest on subordinated notes, net of income tax 12 5,771 5,771 4,890
-----------------------------------------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 8,900 $ 27,405 $ 46,848
===============================================
EARNINGS PER COMMON SHARE
BASIC 14 $ 0.19 $ 0.67 $ 1.15
===============================================
DILUTED 14 $ 0.19 $ 0.66 $ 0.91
===============================================
RETAINED EARNINGS AT BEGINNING OF YEAR $ 491,777 $ 475,551 $ 442,571
NET INCOME 20,279 38,868 57,673
-----------------------------------------------
512,056 514,419 500,244
Dividends on preferred shares, including part VI.I tax 10 5,608 5,692 5,935
Interest on subordinated notes, net of income tax 12 5,771 5,771 4,890
Dividends on common shares 13 6,078 11,179 13,748
Issue costs, net of income tax 12 - - 120
-----------------------------------------------
RETAINED EARNINGS AT END OF YEAR $ 494,599 $ 491,777 $ 475,551
===============================================
The accompanying notes are an integral part of the consolidated financial
statements.
IPSCO Inc. Consolidated Statements of Cash Flows
Years Ended December 31 (thousands of United States dollars)
NOTES 2002 2001 2000
CASH DERIVED FROM (APPLIED TO)
Operating activities
Working capital provided by operations 15 $ 72,397 $ 57,766 $ 92,166
Change in non-cash operating working capital 15 (59,795) 50,557 (69,412)
-----------------------------------------------
12,602 108,323 22,754
-----------------------------------------------
Financing activities
Proceeds from issuance of common shares 11 90,670 - -
Proceeds from issuance of common shares
pursuant to share option plan 11 2,953 391 115
Common share dividends (6,078) (11,179) (13,748)
Preferred share dividends (5,254) (5,337) (5,540)
Issue of subordinated notes, net of issue costs 12 - - 89,824
Subordinated notes interest (8,500) (8,500) (3,161)
Proceeds from sale-leaseback of capital assets 19 - 15,000 158,001
Issue of long-term debt 8 83,300 120,000 70,000
Repayment of long-term debt 8 (114,400) (73,100) (21,100)
-----------------------------------------------
42,691 37,275 274,391
-----------------------------------------------
Investing activities
Expenditures for capital assets 16 (34,211) (155,775) (368,190)
Proceeds from sale of assets held for sale 6 1,466 - -
Investment in partnership 17 (1,706) (1,993) (2,075)
-----------------------------------------------
(34,451) (157,768) (370,265)
-----------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (475) (3,489) (3,560)
-----------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS LESS BANK INDEBTEDNESS 20,367 (15,659) (76,680)
CASH AND CASH EQUIVALENTS LESS BANK
INDEBTEDNESS AT BEGINNING OF YEAR 2,492 18,151 94,831
-----------------------------------------------
CASH AND CASH EQUIVALENTS LESS BANK
INDEBTEDNESS AT END OF YEAR $ 22,859 $ 2,492 $ 18,151
===============================================
The accompanying notes are an integral part of the consolidated financial
statements.
IPSCO Inc. Notes to Consolidated Financial Statements
Years Ended December 31 (thousands of United States dollars except per share
data)
1. Nature of Operations
IPSCO Inc. is a producer of steel products. The Company's products are
sold primarily in Canada and the United States.
The Company currently employs approximately 2,300 people, of whom
approximately 56% are non-unionized personnel and approximately 44% are
represented by trade unions. The Company is a party to separate
collective bargaining agreements with a term to July 31, 2006 with
locals of the United Steelworkers of America (USWA) which represent
unionized employees in Regina and Calgary. These employees account for
approximately 89% of the Company's unionized employees.
In 2002, 2001 and 2000, no individual customer accounted for 10% of
sales. At December 31, 2002 and 2001, no customer represented 10% of
the accounts receivable balance.
2. Significant Accounting Policies
The consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles, 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. The accounting policies followed by the Company also conform
in all material respects with accounting principles generally accepted
in the United States, except as described in Note 21.
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 cumulative 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 inter-company 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 lowest of average cost, replacement cost
and net realizable value.
Income taxes
The Company follows the liability method of tax allocation in
accounting for income taxes. Under this method, future tax assets and
liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities, and measured using
the substantially enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Notes to Consolidated Financial Statements
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.
Amortization is provided on the straight-line basis at the following annual
rates:
Buildings 4%
Machinery and Equipment 4% to 33%
Amortization is provided on all assets acquired as they come into
production. For certain major projects, the units-of-production method is
used until a substantial level of production is reasonably sustained.
Repair and maintenance costs
Repair and maintenance costs are expensed as incurred except for the
estimated cost of major overhauls and repairs which are accrued over the
period between the major overhauls and repairs.
Deferred charges
Financing costs relating to long-term debt are deferred and amortized over
the term of the related debt and included in interest expense for the year.
Goodwill and other intangible assets
Effective January 1, 2002, the Company adopted the recommendations of The
Canadian Institute of Chartered Accountants Handbook Section 3062, Goodwill
and Other Intangible Assets. This standard requires that goodwill and
intangible assets with indefinite lives are no longer amortized; rather,
their carrying value is reviewed annually for impairment. The adoption of
this standard did not materially affect the Company.
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. Adjustments for plan amendments, changes in
assumptions and actuarial gains and losses are charged to operations over
the expected average remaining service life of the employee group which is
approximately 12 years. 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
The carrying value of cash and cash equivalents approximates its fair
value.
Mortgage receivable
The fair value of the mortgage receivable has been estimated based on
current rates for similar instruments with similar maturities. At
December 31, 2002, the estimated fair value of the mortgage receivable
was $6,332.
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.
Natural gas swap
The Company has entered into a swap agreement to hedge the cost of
purchasing natural gas. The agreement fixes the price the Company must
pay for 1,500 gigajoules per day from November 1, 2001 through October
31, 2004. As at December 31, 2002 the unrealized loss under the swap
agreement was $78 (2001 - $1,892).
Notes to Consolidated Financial Statements
Stock based compensation
The Company has a share option plan as described in Note 11 (c). No
compensation expense is recognized when the share options are issued to
employees since the options are issued at market value on the date of the
grant. Any consideration paid by employees on exercise of share options is
credited to share capital.
The Company has a deferred share unit plan as described in Note 11 (d).
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 acceptance of and shipment of products to customers.
Derivative financial instruments
The Company enters into hedging transactions, from time to time, in order
to manage its exposure to changes in energy commodity prices. Gains or
losses relating to derivative instruments are deferred and recognized in
the same period and in the same financial statement category as the gains
or losses on the corresponding hedged transactions. Premiums paid with
respect to derivatives are deferred and amortized to income over the term
of the hedge.
Reclassification
Certain of the prior year's figures have been reclassified to conform with
the presentation adopted for the current year.
3. Inventories
2002 2001
Finished goods $ 99,489 $ 105,105
Work-in-process 70,492 62,029
Raw materials 31,831 18,755
Supplies 53,598 53,505
--------------------
$ 255,410 $ 239,394
====================
4. Income Taxes
a) The components of income (loss) before income taxes are summarized
below:
2002 2001 2000
Canada $ 48,452 $ 61,033 $ 77,785
United States (16,759) (300) 3,013
---------------------------------
$ 31,693 $ 60,733 $ 80,798
=================================
b) The provision for income taxes is summarized as follows:
2002 2001 2000
Current
Canada $ 3,695 $ 30,501 $ 23,003
United States (3,169) 5,020 (4,819)
---------------------------------
526 35,521 18,184
---------------------------------
Future
Canada 14,642 (5,995) 6,649
United States (3,754) (7,661) (1,708)
---------------------------------
10,888 (13,656) 4,941
---------------------------------
$ 11,414 $ 21,865 $ 23,125
=================================
Notes to Consolidated Financial Statements
c) Income tax expense differs from the amount computed by applying the
corporate income tax rates (Canadian Federal and Provincial) to income
before income taxes. The reasons for this difference are as follows:
2002 2001 2000
Corporate income tax rate 41.1% 45.9% 46.1%
------------------------------------
Provision for income taxes based
on corporate income tax rate $ 13,026 $ 27,870 $ 37,240
Increase (decrease) in taxes resulting from
Manufacturing and processing profit (6,604) (6,748) (9,672)
Large corporation tax 895 880 857
Income taxed at different rates in the United
States (2,377) (11,952) (13,506)
Valuation allowance 3,000 10,800 8,000
Other 3,474 1,015 206
------------------------------------
$ 11,414 $ 21,865 $ 23,125
====================================
d) Future income taxes are comprised of the following:
2002 2001
Future tax assets
Accounting provisions not currently
deductible for tax purposes $ 37,100 $ 34,669
Capitalized general and administration 4,296 9,821
Net operating loss carry-forwards 141,852 141,942
Pension expense in excess of contributions - 517
Other 1,540 2,464
----------------------
Total future tax assets 184,788 189,413
----------------------
Future tax liabilities
Tax depreciation in excess of accounting amortization 133,671 129,958
Pension contributions in excess of expense 1,420 -
Foreign exchange gain on debt 3,414 9,128
Other 4,724 3,582
----------------------
Total future tax liabilities 143,229 142,668
----------------------
Valuation allowance 21,800 18,800
----------------------
Net future income tax asset $ 19,759 $ 27,945
======================
e) At December 31, 2002, United States subsidiaries of the Company had
accumulated net operating losses carried forward of $355,179 for which
the future tax benefits have been recorded. The related tax benefits
can be carried forward and, subject to certain limitations, offset
against income tax expense arising in future periods up to the year
2021. In determining the valuation allowance for net future income
taxes at December 31, 2002, the Company has considered certain tax
planning strategies that it believes to be prudent and feasible.
Notes to Consolidated Financial Statements
5. Capital Assets
2002 2001
Accumulated Accumulated
Cost Amortization Net Cost Amortization Net
------------------------------------------ -----------------------------------------
Land and land
improvements $ 55,789 $ - $ 55,789 $ 55,741 $ - $ 55,741
Buildings 132,724 38,775 93,949 130,165 33,956 96,209
Machinery and
equipment 1,213,168 257,450 955,718 1,166,975 212,889 954,086
Construction
in progress 14,085 - 14,085 35,184 - 35,184
------------------------------------------ -----------------------------------------
1,415,766 296,225 1,119,541 1,388,065 246,845 1,141,220
Assets held for sale 24,931 10,115 14,816 26,441 11,760 14,681
------------------------------------------ -----------------------------------------
$ 1,440,697 $ 306,340 $ 1,134,357 $ 1,414,50 $ 258,605 $ 1,155,901
========================================== =========================================
During the year, $nil (2001 - $20,523, 2000 - $17,055) of interest costs
were capitalized in connection with major capital asset projects.
Certain capital assets, which are not employed in production, have been
segregated pending their ultimate disposition and are carried at an amount
not exceeding management's best estimate of net realizable value. During
2001, the Company wrote down the carrying value of these assets by $10,000
to reflect the Company's valuation. The Company's valuation includes
significant estimates concerning the cost to complete environmental
remediation activities, as well as in estimating 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 net
sales value could be impacted by the prevailing economic conditions and
the Company's ability to obtain necessary zoning and other approvals. See
Note 6 for discussion of asset sales.
6. Mortgage Receivable and Sale of Assets Held for Sale
During 2002, the Company sold certain of its assets held for sale for cash
of $1,466 and a mortgage of $6,338. The transaction resulted in gain of
$6,464. The mortgage bears interest at 5% for the first two years, and at
bank prime plus 1/2% for the remaining term. Minimum principal payments
due in each of the next five years are as follows:
2003 $ 954
2004 954
2005 954
2006 954
2007 2,541
--------
6,357
Current portion, included in other accounts receivable 954
--------
$ 5,403
========
7. Pension Plans
The Company provides retirement benefits for substantially all of its
employees under several defined benefit and defined contribution 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.
Notes to Consolidated Financial Statements
The Company's policy with regard to the defined benefit plans is to fund
the amount that is required by governing legislation. Pension plan assets
are invested in Canadian and U.S. equities and Canadian fixed income
instruments with no investment in securities of the Company. During 2002,
amendments were made to increase benefits payable under plans for the
Company's Canadian unionized employees.
Net pension expense attributable to the Company's pension plans for 2002,
2001, and 2000 included the following components:
2002 2001 2000
Defined benefit plans
Service cost for benefits earned $ 3,288 $ 2,966 $ 2,899
Interest cost on benefit obligations 7,029 6,389 6,522
Expected return on plan assets (6,993) (7,303) (6,965)
Net amortization 443 - -
-----------------------------------------------
3,767 2,052 2,456
Defined contribution plans 3,050 2,743 1,917
-----------------------------------------------
Net pension expense $ 6,817 $ 4,795 $ 4,373
===============================================
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, 2002 and 2001:
2002 2001
Benefit obligation at beginning of year $ 97,449 $ 101,256
Service cost for benefits earned 3,440 3,088
Interest cost on benefit obligation 7,029 6,389
Plan amendments 8,344 -
Actuarial losses (gains) 11,076 (701)
Benefit payments (6,603) (6,587)
Currency translation 1,162 (5,996)
---------------------------
Benefit obligation at end of year 121,897 97,449
---------------------------
Market value of plan assets at beginning of year 87,554 94,101
Actual return on plan assets (5,328) (484)
Employer contributions 7,809 5,855
Plan participants contributions 253 158
Benefit payments (6,603) (6,587)
Currency translation 1,092 (5,489)
---------------------------
Market value of plan assets at end of year 84,777 87,554
---------------------------
Funded status at end of year (37,120) (9,895)
Item not recognized in earnings
Unamortized actuarial losses and plan amendments 41,031 9,661
---------------------------
Deferred pension asset (liability) $ 3,911 $ (234)
===========================
Amounts applicable to the Company's pension plans with an accumulated
benefit obligation in excess of plan assets are:
2002 2001
Projected benefit obligation $ 116,727 $ 67,721
===========================
Accumulated benefit obligation $ 111,783 $ 65,961
===========================
Market value of plan assets $ 79,702 $ 59,012
===========================
Notes to Consolidated Financial Statements
The significant actuarial assumptions adopted in measuring the Company's
accrued benefit obligations as at December 31, 2002 and 2001 follow.
Variances between such estimates and actual experience, which may be
material, are amortized over the employees' average remaining service
life.
2002 2001
Weighted average discount rate 6.6% 6.6%
Expected long-term rate of return on plan assets 7.0% 8.0%
Weighted average rate of compensation increase 3.8% 3.7%
8. Debt
a) Long-term debt
Carrying Value Fair Value
2002 2001 2002 2001
------------------------ -----------------------
10.58% Unsecured note, payable in three remaining
equal annual installments with the next
payment due September 1, 2003 $ 3,300 $ 4,400 $ 3,576 $ 4,774
6.94% Unsecured notes, payable in two remaining
equal annual installments with the next
payment due April 1, 2003 40,000 60,000 40,541 61,061
7.32% Unsecured notes, payable in seven
equal annual installments commencing
April 1, 2003 100,000 100,000 104,230 99,500
7.80% Unsecured debentures, (CDN $100,000)
maturing and payable December 1, 2006 63,573 62,794 63,605 65,639
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 14,566 13,584
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 29,459 27,890
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 9,797 9,181
Various Bank lines of credit (b) 118,000 128,000 118,000 128,000
------------------------ -----------------------
377,588 407,909 383,774 409,629
Less current portion of long-term debt (35,386) (21,100) (41,330) (23,529)
------------------------ -----------------------
$ 342,202 $ 386,809 $ 342,444 $ 386,100
======================== =======================
Fair value of debt has been estimated on the basis described in Note 2.
Notes to Consolidated Financial Statements
b) Bank lines of credit
At December 31, 2002, the Company had bank lines of credit aggregating
U.S. $250,000 (2001 - U.S. $250,000), which can be drawn in Canadian or
U.S. currency, of which U.S. $118,000 (2001 - U.S. $163,000) had been
drawn down other than letters of credit of CDN $13,049, U.S. $3,775 (2001
- CDN $13,413, U.S. $3,775). Bank lines of credit are comprised of a U.S.
$200,000 (2001 - U.S. $200,000) revolving term facility that expires March
4, 2005 and a U.S. $50,000 (2001 - U.S. $50,000) 364-day facility that
expires February 18, 2003. Both facilities bear 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 are not secured by
specific assets of the Company.
At December 31, 2002, a partnership in which the Company has a 100% (2001
- 91%) residual interest had short-term bank lines of credit aggregating
CDN $16,652 (2001 - CDN $16,652) of which CDN $Nil (2001 - CDN $Nil) had
been drawn down. These bank lines of credit are reviewed at least annually
and are revolving operating and term facilities that bear interest at
either the Canadian prime rate or the U.S. base rate and are secured by
certain assets of the partnership.
Minimum payment requirements on long-term debt arrangements, without
exercising the options to extend the terms outstanding, are as follows:
2003 $ 35,386
2004 35,386
2005 133,386
2006 77,859
2007 29,001
---------
311,018
2008 - 2010 66,570
---------
$ 377,588
=========
9. Accounts Payable and Accrued Charges
Included in accounts payable and accrued charges is an accrual to cover
the costs of major overhauls and repairs. Timing of these expenditures is
dictated by future events and market conditions. At December 31, 2002 and
2001, the amounts accrued are $16,115 and $13,578 respectively.
10. Preferred Shares
a) Authorized
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 has 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.
The Series 1 Preferred Shares are non-voting. However, if the Company
fails to declare and pay eight quarterly dividends, consecutive or
otherwise, and so long as any of those dividends are in arrears, the
Series 1 Preferred Shares become voting. The Series 1 Preferred Shares may
be redeemed in whole or in part by the Company at any time on or after May
15, 2004 for CDN $25.00 per share plus accrued and unpaid dividends. On or
after May 15, 2004, the Company may elect to convert each Series 1
Preferred Share into that number of common shares determined
Notes to Consolidated Financial Statements
by dividing CDN $25.00 plus accrued and unpaid dividends by the greater of
CDN $3.00 and 95% of the market price of the common shares. In addition,
on or after August 15, 2004, the holders have the option to convert each
Series 1 Preferred Share into that number of common shares determined by
dividing CDN $25.00 plus accrued and unpaid dividends by the greater of
CDN $3.00 and 95% of the market price of the common shares subject to the
Company's right to redeem the Series 1 Preferred Shares, arrange sales to
substitute purchasers or a combination thereof.
Unless all dividends are paid to the most recent dividend date, the
Company may not: 1) pay cash dividends on shares ranking junior to the
Series 1 Preferred Shares; 2) redeem, purchase or otherwise retire shares
ranking on parity with or junior to the Series 1 Preferred Shares; or 3)
redeem, purchase or otherwise retire less than all of the Series 1
Preferred Shares.
The Series 1 Preferred Shares, including accrued and unpaid cumulative
dividends, have been classified as equity since the Company has the
unrestricted ability to settle the Series 1 Preferred Shares and related
dividends by issuing its own common shares.
b) Issued
The Series 1 Preferred Shares amount at December 31 is comprised of:
2002 2001
Number Amount Number Amount
------------------- --------------------
Issued for cash 6,000,000 $ 97,829 6,000,000 $ 97,829
Accrued dividends - 724 - 716
------------------- --------------------
Balance at end of year 6,000,000 $ 98,553 6,000,000 $ 98,545
=================== ====================
11. Common Shares
a) Authorized
The Company is authorized to issue unlimited common shares.
b) Issued
In February 2002, the Company issued, for cash, 6,500,000 common shares at
an issue price of CDN $23.25. Gross proceeds of U.S. $94,761 have been
reduced by the related share issue expenses of $4,073, net of income taxes
of $1,507.
In July 2002, the Company granted 4,400 restricted shares to an officer of
the Company whose salaried compensation was reduced by the fair value of
the shares at the date of the award. Compensation expense was recorded in
an amount equal to the fair market value of the shares as at the date of
the grant. The rights of the recipient to dispose of the shares are
restricted for three years from the date of the grant.
Following is the continuity of common shares outstanding:
2002 2001 2000
Number Amount Number Amount Number Amount
----------------------- ---------------------- -----------------------
Balance at
beginning of year 40,843,536 $ 256,163 40,812,936 $ 255,772 40,796,436 $ 255,657
Issued for cash 6,500,000 92,195 - - - -
Issue of restricted shares 4,400 61 - - - -
Exercise of share options 319,551 2,892 30,600 391 16,500 115
----------------------- ---------------------- -----------------------
Balance at end of year 47,667,487 $ 351,311 40,843,536 $ 256,163 40,812,936 $ 255,772
======================= ====================== =======================
Notes to Consolidated Financial Statements
c) Share Option Plan
The Company has a share option plan under which common shares are reserved
for directors, officers and employees. These options, which are
exercisable within 10 years, are to be 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, 2002 expire between 2003 and
2012.
Following is the continuity of granted options outstanding in Canadian
dollars:
2002 2001 2000
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------------------- -------------------- --------------------
Balance at
beginning of year 3,311,955 $22.47 3,085,959 $22.70 2,471,325 $24.39
Options granted 439,500 22.22 284,885 20.00 654,760 16.13
--------- --------- ---------
3,751,455 22.44 3,370,844 22.48 3,126,085 22.66
Options exercised (319,551) 14.28 (30,600) 19.71 (16,500) 10.33
Options cancelled (10,500) 27.98 (28,289) 26.76 (23,626) 25.14
--------- --------- ---------
Balance at end of year 3,421,404 23.18 3,311,955 22.47 3,085,959 22.70
========= ========= =========
Following is the continuity of common shares reserved for future option
grants under the share option plan:
2002 2001 2000
Balance at beginning of year 696,558 203,154 834,288
Options approved - 750,000 -
Options granted (439,500) (284,885) (654,760)
Restricted shares issued (4,400) - -
Options cancelled 10,500 28,289 23,626
--------------------------------------
Balance at end of year 263,158 696,558 203,154
======================================
Following is the range of exercise prices and contractual life of
outstanding options under the plan in Canadian dollars as at December 31,
2002:
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 1,389,079 $16.91 4.9
$20.00 to $29.99 1,181,200 21.74 5.3
$30.00 to $50.00 851,125 35.41 4.5
---------
3,421,404 23.18 4.9
=========
56
Notes to Consolidated Financial Statements
Following is the range of exercise prices of options currently exercisable
under the plan in Canadian dollars as at December 31, 2002:
Weighted
Average
Exercise
Number Price
----------------------
Balance of options exercisable at year end
within the following ranges:
$10.00 to $19.99 1,329,578 $16.82
$20.00 to $29.99 731,700 21.46
$30.00 to $50.00 844,225 35.32
---------
2,905,503 23.36
=========
d) 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.
e) Additional Disclosure
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
granted.
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 2002, 2001 and 2000 respectively:
risk-free interest rates of 3.6%, 4.8% and 5.8%; dividend yields of 0.9%,
2.5% and 3.1%; volatility factors of the expected market price of the
Company's common stock of .44, .40 and .35; and a weighted-average
expected life of the options of 1.0 year. The weighted-average grant-date
fair value of the options granted during 2002 was $4.05 (2001 - $3.33,
2000 - $2.70).
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.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options vesting period. The Company's pro
forma information follows:
2002 2001 2000
Pro forma net income $19,304 $37,391 $55,720
=============================
Pro forma net income available to
common shareholders $ 7,925 $25,928 $44,895
=============================
Pro forma earnings per common share:
Basic $ 0.17 $ 0.64 $ 1.10
=============================
Diluted $ 0.17 $ 0.63 $ 0.88
=============================
Notes to Consolidated Financial Statements
12. Subordinated Notes
During 2000 and 1999, respectively, the Company issued $90,000 and $10,000
incremental rate junior subordinated notes maturing December 31, 2038. The
incremental rate junior subordinated notes bear interest in arrears payable
semi-annually at 8.5% for the ten year period ending December 10, 2008,
9.5% for the eleventh to fifteenth year and increasing by an additional 2%
every five years thereafter. The incremental rate junior subordinated notes
are redeemable, in whole or in part, by the Company, at any time, at the
principal amount plus accrued and unpaid interest to the date of redemption
(hereafter referred to as the Redemption Amount) and at maturity at the
principal amount plus accrued and unpaid interest to the date of maturity
(hereafter referred to as the Maturity Amount).
The Company may, at its option, pay the Redemption Amount, Maturity Amount
or any interest payment in cash or by delivering common shares to a
trustee. The trustee would sell the Company's common shares and remit the
proceeds to the holders of the incremental rate junior subordinated notes
in payment of the Redemption Amount, the Maturity Amount or the accrued
interest.
The Company may, at its option, defer payment of interest on the
incremental rate junior subordinated notes by extending the interest
payment date for up to four consecutive semi-annual periods. Interest
continues to accrue during the extension periods, but does not compound. An
interest deferral can only commence if there have been no dividends paid on
common or preferred shares during the preceding six months. Should the
Company pay any dividends on common or preferred shares during the interest
deferral period, the deferral period ceases and the payment of deferred
interest is required.
The principal amount of the incremental rate junior subordinated notes is
classified as equity and accrued interest, on an after tax basis, is
classified as a charge to retained earnings since the Company has the
ability to settle the amounts by issuing its own common shares. In 2000,
the related issue expenses of $176, $120 net of income taxes, were charged
to retained earnings.
13. Dividends
The most restrictive covenant pertaining to dividend payments in the
Company's financing agreements requires consolidated shareholders' equity,
excluding the balance of outstanding subordinated notes, to be maintained
at a minimum of $570,000 plus 50% of net income earned after December 31,
1998. At December 31, 2002, the Company's shareholders' equity exceeded
this requirement by $316,787.
Dividends on common shares totalled CDN $0.20 per share in 2002 (2001-CDN
$0.425 per share, 2000-CDN $0.50 per share).
14. 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 actual shares outstanding and share equivalents that
would arise from the exercise of share options and deferred share units,
and the conversion of preferred shares and subordinated notes.
Out-of-the-money share options, those with an exercise price greater than
market price, are excluded from the calculation as they are anti-dilutive.
Preferred shares and subordinated notes have been excluded from the
calculation in 2002 as they are anti-dilutive.
Notes to Consolidated Financial Statements
The per share amounts disclosed on the Consolidated Statements of Income and
Retained Earnings are based on the following:
2002 2001 2000
Numerator for basic earnings per share
Net income available to common shareholders $ 8,900 $ 27,405 $ 46,848
Dividends on preferred shares, including part VI.I tax - 5,692 5,935
Interest on subordinated notes, net of income tax - 5,771 4,890
-------------------------------------
Numerator for diluted earnings per share $ 8,900 $ 38,868 $ 57,673
=====================================
Common shares outstanding - January 1 40,843,536 40,812,936 40,796,436
Additional shares issued 5,638,318 19,282 9,183
-------------------------------------
Denominator for basic earnings per share 46,481,854 40,832,218 40,805,619
Adjustment for share options 366,999 231,360 145,195
Adjustment for deferred share units 44,176 29,435 7,449
Adjustment for preferred shares - 8,841,623 12,600,969
Adjustment for subordinated notes - 8,971,601 9,796,926
-------------------------------------
Denominator for diluted earnings per share 46,893,029 58,906,237 63,356,158
=====================================
15. Cash Derived from (Applied to) Operating Activities
2002 2001 2000
Working capital provided by operations
Net income $ 20,279 $ 38,868 $ 57,673
Gain on sale of assets held for sale (6,464) - -
Non-cash portion of litigation settlement - (11,000) -
Non-cash provision for loss on assets held for sale - 10,000 -
Amortization of capital assets 51,049 37,107 35,257
Amortization of deferred charges 813 549 544
Deferred pension expense (4,168) (3,958) (6,201)
Income taxes allocated to future years 10,888 (13,656) 4,941
Other - (144) (48)
-------------------------------------
$ 72,397 $ 57,766 $ 92,166
=====================================
Change in non-cash operating working capital
Trade receivables $ (28,651) $ 28,642 $ (24,069)
Other receivables (7,439) 21,099 (22,034)
Inventories (16,016) (13,436) (13,576)
Prepaid expenses (816) 600 127
Accounts payable and accrued charges (8,168) 6,916 (5,795)
Accrued payroll and related liabilities (1,540) (1,523) (1,492)
Income and other taxes payable 619 4,841 (4,851)
Other current liabilities 2,216 3,418 2,278
-------------------------------------
$ (59,795) $ 50,557 $ (69,412)
=====================================
16. Expenditures for Capital Assets
2002 2001 2000
Additions to capital assets $ 28,265 $ 155,007 $ 374,473
Decrease (increase) in accounts payable
and accrued charges for capital expenditures 5,946 768 (6,283)
-------------------------------------
$ 34,211 $ 155,775 $ 368,190
=====================================
Notes to Consolidated Financial Statements
17. Investment in Partnership
A partnership formed between the Company and Jamel Metals Ltd. (Jamel),
formerly General Scrap & Car Shredder Ltd. (General Scrap), purchased the
Canadian scrap metal operations of General Scrap and the shares of Sametco
Auto Inc., an automotive parts operation, effective April 1, 1997 for
approximately $24,131, including the assumption of debt. IPSCO's interest
in the capital of the partnership is 100% at December 31, 2002 (2001 -91%).
In 2002, the Company contributed $1,706 in exchange for the remaining 9%
interest (2001 - $1,993 for an additional 10% interest). The partnership
agreement requires annual payments of $1.3 million to Jamel through 2007
for services and land use.
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.
2002 2001 2000
Sales
Canada $ 365,854 $ 395,841 $ 463,860
United States 715,855 507,902 485,403
------------------------------------------
$1,081,709 $ 903,743 $ 949,263
==========================================
Capital Assets
Canada $ 186,377 $ 195,390
United States 947,980 960,511
----------------------------
$1,134,357 $1,155,901
============================
Sales information by product group is as follows:
2002 2001 2000
Steel mill products $ 687,439 $ 458,625 $ 492,463
Tubular products 394,270 445,118 456,800
------------------------------------------
$1,081,709 $ 903,743 $ 949,263
==========================================
19. Commitments
a) The Company and its subsidiaries have lease commitments on property
for the period to 2015. The payments required by these leases,
including the sale-leaseback transactions discussed below, are as
follows:
2003 $ 30,075
2004 25,434
2005 18,236
2006 16,568
2007 18,010
---------------
108,323
2008 - 2015 125,364
---------------
$233,687
===============
Notes to Consolidated Financial Statements
Rental expenses incurred under operating leases during 2002, 2001 and 2000
were $23,152, $26,858 and $10,839 respectively.
In 2001, the Company concluded a sale and leaseback of the temper mill at
its coil processing facility in Houston for cash proceeds of $15,000. The
sale resulted in no gain or loss. The Company has the option, but not the
obligation, to purchase the equipment for a predetermined amount after
seven years of the 7.5 year lease term.
In October 2000, the Company concluded the sale and leaseback of certain of
its Montpelier Steelworks production equipment for cash proceeds of
$150,000. 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 lease term for the fair market value of the equipment.
In December 2000, the Company concluded a sale and leaseback of the temper
mill at its coil processing facility in St. Paul for cash proceeds of
$8,251. The Company has the option, but not the obligation, to purchase the
equipment for a predetermined amount after four years of the five year
lease term.
b) The Company and its subsidiaries have commitments under service and
supply contracts for the period to 2017.
Payments required under these contracts are as follows:
2003 $ 39,629
2004 37,952
2005 37,102
2006 32,328
2007 30,846
--------------
177,857
2008 - 2017 109,930
--------------
$287,787
==============
c) At December 31, 2002, commitments to complete capital programs in
progress total $5,021.
20. Supplemental Information
2002 2001 2000
Allowance for doubtful accounts $ 9,170 $10,326 $ 6,122
===================================
Doubtful accounts charged to expense (706) 4,435 11
===================================
Interest income 819 1,561 4,866
===================================
Other interest expense 993 633 4,066
===================================
Miscellaneous income 1,391 1,477 2,022
===================================
Research and development expense 1,391 1,306 5,507
===================================
Interest paid 20,856 25,466 25,219
===================================
Income tax installments paid 12,289 26,304 60,402
===================================
Notes to Consolidated Financial Statements
21. Significant Differences Between Canadian and United States Generally
Accepted Accounting Principles (GAAP)
a) Reconciliation of net income (loss) between accounting principles
generally accepted in Canada and the United States:
2002 2001 2000
Net income as reported under Canadian GAAP $ 20,279 $ 38,868 $ 57,673
Adjustments relating to the capitalization of interest (i) - (8,908) (758)
Adjustments relating to commissioning costs (ii) - (22,776) (16,356)
Adjustments relating to amortization of capital assets (iii) (1,839) (4,126) 998
Adjustments relating to subordinated notes (iv) (5,771) (5,771) (4,890)
Adjustments relating to sale-leaseback (v) (1,404) (1,014) (709)
Adjustments relating to change in accounting principles (vi) - - (8,977)
Adjustments relating to natural gas hedge (vii) 736 (8) -
Adjustments relating to valuation allowance on net future income tax asset (viii) 26,700 (37,200) -
--------------------------------------------
Net income (loss) in accordance with U.S. GAAP 38,701 (40,935) 26,981
Dividends on preferred shares including part VI.I tax (5,608) (5,692) (5,935)
--------------------------------------------
Net income (loss) available to common shareholders in accordance with U.S. GAAP $ 33,093 $ (46,627) $ 21,046
============================================
Earnings (loss) per common share:
United States
Basic $ 0.71 $ (1.14) $ 0.52
============================================
Diluted (ix) $ 0.66 $ (1.14) $ 0.50
============================================
Common shares outstanding - January 1 40,843,536 40,812,936 40,796,436
Additional shares issued 5,638,318 19,282 9,183
--------------------------------------------
Denominator for basic earnings per share 46,481,854 40,832,218 40,805,619
Adjustment for share options 366,999 - 145,195
Adjustment for deferred share units 44,176 - 7,449
Adjustment for preferred shares 10,328,336 - 12,600,969
Adjustment for subordinated notes 10,373,134 - 9,796,926
--------------------------------------------
Denominator for diluted earnings per share 67,594,499 40,832,218 63,356,158
============================================
i) 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.
ii) United States GAAP requires commissioning or start-up costs to be
expensed as incurred. For Canadian GAAP, these costs are
capitalized.
Notes to Consolidated Financial Statements
iii) 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 (see i and ii above).
iv) United States GAAP requires that the subordinated notes be
classified as long-term debt, the related accrued interest to be
classified as a liability, the related issue costs to be recorded
as an asset which is amortized to interest expense over the term
of the debt, the related pre-tax interest to be deducted in
determining income and the related income tax benefit to be
recorded as part of income tax expense. Under Canadian GAAP, as
disclosed in Note 12, the Company has classified the subordinated
notes as part of shareholders' equity and the interest, net of
related tax effects, and the issue costs have been classified as
charges to retained earnings.
v) United States GAAP requires the financing method of accounting for
the Montpelier Steelworks sale-leaseback transaction. Under
Canadian GAAP, the transaction has been afforded operating lease
treatment. U.S. GAAP gives rise to interest expense on the
obligation and amortization of the capital asset. Under Canadian
GAAP, a lease expense is incurred.
vi) United States GAAP requires the cumulative effect of adoption of
changes in accounting principles to be recorded, net of income
taxes, as a charge to income. For Canadian GAAP, the cumulative
effect is charged directly to retained earnings. In 2000, prior to
the cumulative effect of the change in accounting principle, basic
earnings per share were $0.74 and diluted earnings per share were
$0.64.
vii) United States 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 counterparty
bankruptcy) of the natural gas hedge over the remaining life of
the contract. Canadian GAAP allows for probable hedged
transactions to be accounted for off-balance sheet.
viii) 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), ii), and iii) above for
explanation of the principal differences.
ix) Due to the net loss in 2001, no adjustment was made for
potentially dilutive instruments as the impact was anti-dilutive.
b) Comprehensive income (loss):
2002 2001 2000
Net income (loss) in accordance with U.S. GAAP $ 38,701 $ (40,935) $ 26,981
-----------------------------------
Other comprehensive income
Foreign currency translation adjustments (198) (15,686) (13,668)
Adjustments relating to minimum pension liability (25,366) (3,853) 3,427
Tax effect 9,436 1,433 (1,275)
Fair value adjustment for natural gas hedge - (1,991) -
Tax effect - 717 -
Amortization of natural gas hedge to income 664 111 -
Tax effect (239) (40) -
----------------------------------
(15,703) (19,309) (11,516)
----------------------------------
Comprehensive income (loss) in accordance
with U.S. GAAP $ 22,998 $ (60,244) $ 15,465
===================================
Notes to Consolidated Financial Statements
c) Reconciliation of the statement of financial position between accounting
principles generally accepted in Canada and the United States:
2002 2001
i) Capital assets
Balance under Canadian GAAP $ 1,134,357 $ 1,155,901
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 (8,619) (5,690)
Adjustments relating to sale-leaseback 136,432 142,269
---------------------------
Balance under U.S. GAAP $ 1,136,035 $ 1,166,345
===========================
ii) Deferred pension liability
Balance under Canadian GAAP $ (3,911) $ 234
Adjustments relating to minimum pension liability 32,081 6,715
---------------------------
Balance under U.S. GAAP $ 28,170 $ 6,949
===========================
iii) Future income taxes
Net future tax asset balance under Canadian GAAP $ (19,759) $ (27,945)
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 (3,206) (2,117)
Adjustments relating to minimum pension liability (11,934) (2,498)
Adjustments relating to sale-leaseback (1,853) (1,020)
Adjustments relating to natural gas contract (28) (681)
Adjustments relating to valuation allowance
on net future income tax asset 10,500 37,200
---------------------------
Net future tax asset balance under U.S. GAAP $ (73,203) $ (43,984)
===========================
iv) Accounts payable and accrued charges
Balance under Canadian GAAP $ 106,155 $ 121,464
Adjustments relating to subordinated notes 4,250 4,250
Adjustments relating to sale-leaseback 51 1,417
Adjustments relating to natural gas contract 78 1,892
---------------------------
Balance under U.S. GAAP $ 110,534 $ 129,023
===========================
v) Current portion of long-term debt
Balance under Canadian GAAP $ 35,386 $ 21,100
Adjustments relating to sale-leaseback 9,973 2,234
---------------------------
Balance under U.S. GAAP $ 45,359 $ 23,334
===========================
vi) Long-term debt
Balance under Canadian GAAP $ 342,202 $ 386,809
Adjustments relating to subordinated notes 100,000 100,000
Adjustments relating to sale-leaseback 131,388 141,361
---------------------------
Balance under U.S. GAAP $ 573,590 $ 628,170
===========================
Notes to Consolidated Financial Statements
vii) Shareholders' equity
Balance under Canadian GAAP $ 1,087,423 $ 985,538
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 (5,413) (3,573)
Adjustments relating to minimum pension liability (20,147) (4,217)
Adjustments relating to subordinated notes (104,250) (104,250)
Adjustments relating to sale-leaseback (3,127) (1,723)
Adjustments relating to natural gas hedge (50) (1,211)
Adjustments relating to valuation allowance on
net future income tax asset (10,500) (37,200)
----------------------------
Balance under U.S. GAAP $ 864,724 $ 754,152
============================
In accordance with FASB Statement No. 87, 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.
d) United States 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:
2002 2001 2000
Cash derived from (applied to) operating activities $ 12,602 $ 58,260 $ (4,498)
=============================================
Cash derived from financing activities $ 7,691 $ 72,275 $ 265,291
=============================================
Cash applied to investing activities $ (34,451) $ (107,705) $ (343,013)
=============================================
Effect of exchange rate changes on cash
and cash equivalents $ (475) $ (3,489) $ (3,560)
=============================================
Cash position at December 31 $ 22,859 $ 37,492 $ 18,151
=============================================
e) Stock Based Compensation
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options vesting period. Under FASB 123, Accounting and
Disclosure of Stock Based Compensation, the Company's pro forma U.S. GAAP
information follows:
2002 2001 2000
Pro forma net income (loss) $ 37,726 $ (42,412) $ 25,028
Pro forma net income (loss) available
to common shareholders $ 32,118 $ (48,104) $ 19,093
Pro forma earnings per common share:
Basic $ 0.69 $ (1.18) $ 0.47
Diluted $ 0.64 $ (1.18) $ 0.47
Notes to Consolidated Financial Statements
f) Additional disclosure required under U.S. GAAP:
i) The total interest paid, including interest on the subordinated
notes, was $39,707, $41,961 and $28,380 in 2002, 2001 and 2000
respectively.
The total fair market value of the Company's long-term debt,
including the subordinated notes, was $658,156 (2001 - $652,610)
and the current portion was $48,003 (2001 - $22,119).
ii) The Company's natural gas swap contract was designated as a hedge
against volatility in the price of natural gas purchased for
consumption in the steel production process. The bankruptcy of
the counterparty's parent company, as guarantor of the contract,
has caused the contract to be deemed ineffective. As a result,
the unrealized liability recorded in other comprehensive income
at the time of the bankruptcy will be amortized to income over
the remaining life of the contract. The fair value of the
contract liability will be marked-to-market each reporting period
with the change being recorded to income in the period.
iii) Under Staff Accounting Bulletin 74, the Company is required to
disclose certain information related to new accounting standards
which have not yet been adopted due to delayed effective dates.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses the accounting for
tangible long-lived asset retirements and their associated costs.
SFAS No. 143 is effective for 2003, and will require a liability
for the retirement of long-lived assets be recorded when incurred
and amortized over its remaining life. The Company has not yet
assessed the impact of SFAS No. 143, but its adoption could have
a significant impact on the Company's financial position.
22. Contingencies and Environmental Expenditures
The major raw material used in the steelmaking process is reclaimed iron
and steel scrap. This recycling has made a significant contribution to
protecting the environment. As an ongoing commitment to the environment,
the Company continues to monitor emissions, perform site clean-up, and
invest in new equipment and processes. Nevertheless, rapidly changing
environmental legislation and regulatory practices are likely to require
future expenditures to modify operations, install 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. However, management is of the opinion that under existing
legislation and regulatory practices, expenditures required for
environmental compliance will not have a material adverse effect on the
Company's financial position. Environmental expenditures that relate to
ongoing environmental and reclamation programs are charged against
earnings as incurred or capitalized and amortized depending on the future
economic benefits.
The Company settled the litigation with the turnkey contractors of the
Montpelier Steelworks on April 27, 2001 for cash of $28,000 and retainage
of construction holdbacks of $21,000. As a result of the settlement, the
Company recorded income of $39,000 representing claims for lost business
and reimbursement of legal costs and approximately $10,000 was recorded to
cover the necessary cost of capital asset improvements to bring the
Montpelier Steelworks to original contract specifications.
The Company is involved in various other legal actions and claims,
including environmental matters, arising from the normal course of
business. It is the opinion of management that the ultimate resolution of
these matters will not have a material adverse effect on the results of
operations, financial position or net cash flows of the Company.
23. Condensed Consolidating Financial Statements
The following information presents the condensed consolidating statements
of financial position as at December 31, 2002 and 2001, and the condensed
consolidating statements of income and cash flows for the three years ended
December 31, 2002, 2001 and 2000. Reconciliations of significant
differences between Canadian and United States Generally Accepted
Accounting Principles are also provided. 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 3/4% 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
Ontario Inc., IPSCO Enterprises Inc., IPSCO Minnesota Inc., IPSCO Texas
Inc., IPSCO Tubulars Inc., IPSCO Steel Inc., IPSCO Steel (Alabama) Inc.,
IPSCO Investments Inc. and IPSCO Alabama Ltd. 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 Financial Position
As at December 31, 2002
(thousands of United States dollars)
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 4,678 $ 14,501 $ 3,680 $ - $ 22,859
Accounts receivable
Trade, less allowances 35,546 89,478 10,397 - 135,421
Intercompany 162,378 (179,846) 17,468 - -
Other, including current portion of
mortgage receivable 17,575 (2,715) 3,471 - 18,331
Inventories 62,352 197,325 7,026 (11,293) 255,410
Prepaid expenses 1,086 1,720 41 - 2,847
Future income taxes 13,615 27,613 174 - 41,402
-------------------------------------------------------------------------
297,230 148,076 42,257 (11,293) 476,270
-------------------------------------------------------------------------
NON-CURRENT ASSETS
Capital assets 135,518 972,247 32,760 (6,168) 1,134,357
Mortgage receivable - 5,403 - - 5,403
Deferred charges, less amortization 2,464 321 - - 2,785
Deferred pension asset 4,008 (97) - - 3,911
Investment in subsidiaries 840,109 40,265 - (880,374) -
Future income taxes 1,533 121,980 47 (1,974) 121,586
-------------------------------------------------------------------------
983,632 1,140,119 32,807 (888,516) 1,268,042
-------------------------------------------------------------------------
TOTAL ASSETS $ 1,280,862 $ 1,288,195 $ 75,064 $ (899,809) $ 1,744,312
=========================================================================
CURRENT LIABILITIES
Accounts payable and accrued charges $ 8,321 $ 85,463 $ 12,371 $ - $ 106,155
Accrued payroll and related liabilities 2,380 11,353 42 - 13,775
Current portion of long-term debt 35,386 - - - 35,386
Other current liabilities 3,691 12,451 - - 16,142
-------------------------------------------------------------------------
49,778 109,267 12,413 - 171,458
-------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt 201,202 141,000 - - 342,202
Future income taxes 46,709 99,215 4,977 (7,672) 143,229
-------------------------------------------------------------------------
247,911 240,215 4,977 (7,672) 485,431
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Subordinated notes - 104,250 - - 104,250
Other equity 983,173 834,463 57,674 (892,137) 983,173
-------------------------------------------------------------------------
983,173 938,713 57,674 (892,137) 1,087,423
-------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,280,862 $ 1,288,195 $ 75,064 $ (899,809) $ 1,744,312
=========================================================================
IPSCO Inc. Condensed Consolidating Statements of Income
Year Ended December 31, 2002
(thousands of United States dollars)
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
----------------------------------------------------------------------
Sales $ 247,869 $ 1,007,790 $ 158,751 $ (332,701) $ 1,081,709
----------------------------------------------------------------------
Cost of sales
Manufacturing and raw material 221,317 894,714 138,211 (328,899) 925,343
Amortization of capital assets 10,636 39,280 1,133 - 51,049
----------------------------------------------------------------------
231,953 933,994 139,344 (328,899) 976,392
----------------------------------------------------------------------
Gross income 15,916 73,796 19,407 (3,802) 105,317
Selling, research and administration 15,816 39,147 192 - 55,155
----------------------------------------------------------------------
Operating income 100 34,649 19,215 (3,802) 50,162
Other expenses (income)
Interest on long-term debt 18,999 4,822 - - 23,821
Other interest (income) expense, net 399 (193) (32) - 174
Foreign exchange loss (gain) (659) 1,581 16 - 938
Intercompany interest/dividend (117,333) 9,577 (2,536) 110,292 -
Equity income 73,679 (12,365) - (61,314) -
Loss (gain) on sale of assets held for sale 1,075 (7,539) - - (6,464)
----------------------------------------------------------------------
Income (loss) before income taxes 23,940 38,766 21,767 (52,780) 31,693
Income taxes 3,661 1,084 8,013 (1,344) 11,414
----------------------------------------------------------------------
NET INCOME (LOSS) 20,279 37,682 13,754 (51,436) 20,279
Dividends on preferred shares, including part VI.I tax 5,608 33,829 - (33,829) 5,608
Interest on subordinated notes, net of income tax - 5,771 - - 5,771
----------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 14,671 $ (1,918) $ 13,754 $ (17,607) $ 8,900
======================================================================
IPSCO Inc. Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2002
(thousands of United States dollars)
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------------------------------------------------------------------
CASH DERIVED FROM (APPLIED TO)
Operating activities
Working capital provided by operations $ 22,066 $ 69,679 $ 17,039 $ (36,387) $ 72,397
Change in non-cash operating working capital 17,461 (37,188) (14,805) (25,263) (59,795)
--------------------------------------------------------------------
39,527 32,491 2,234 (61,650) 12,602
--------------------------------------------------------------------
Financing activities
Proceeds from issuance of common shares 90,670 610,947 1,732 (612,679) 90,670
Proceeds from issuance of common shares
pursuant to share option plan 2,953 - - - 2,953
Common share dividends (6,078) (47,903) (4,974) 52,877 (6,078)
Preferred share dividends (5,254) - - - (5,254)
Subordinated notes interest - (8,500) - - (8,500)
Issue (repayment) of long-term debt (21,100) (10,000) - - (31,100)
--------------------------------------------------------------------
61,191 544,544 (3,242) (559,802) 42,691
--------------------------------------------------------------------
Investing activities
Expenditures for capital assets (321) (32,850) (1,040) - (34,211)
Proceeds from sale of assets held for sale - 1,466 - - 1,466
Investment in subsidiaries (92,442) (529,010) - 621,452 -
Investment in partnership - (1,706) - - (1,706)
--------------------------------------------------------------------
(92,763) (562,100) (1,040) 621,452 (34,451)
--------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents 4,623 (5,124) 26 - (475)
--------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS 12,578 9,811 (2,022) - 20,367
CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS AT BEGINNING OF PERIOD (7,900) 4,690 5,702 - 2,492
--------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS AT END OF PERIOD $ 4,678 $ 14,501 $ 3,680 $ - $ 22,859
====================================================================
Significant Differences Between Canadian and United States Generally Accepted
Accounting Principles
(GAAP) as at and for the year ended December 31, 2002
a) Reconciliation of net income (loss) between accounting principles generally
accepted in Canada and the United States:
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------
Net income as reported under Canadian GAAP $ 20,279 $ 37,682 $ 13,754 $ (51,436) $ 20,279
Adjustments relating to amortization of capital assets (1,839) (1,839)
Adjustments relating to subordinated notes (5,771) (5,771)
Adjustments relating to sale-leaseback (1,404) (1,404)
Adjustments relating to natural gas hedge 736 736
Adjustments to equity income 18,422 (18,422) -
Adjustments relating to valuation allowance on net future
income tax asset 26,700 26,700
------------------------------------------------------------------
Net income (loss) in accordance with U.S. GAAP 38,701 56,104 13,754 (69,858) 38,701
Dividends on preferred shares including part VI.I tax (5,608) (5,608)
------------------------------------------------------------------
Net income (loss) available to common shareholders in
accordance with U.S. GAAP $ 33,093 $ 56,104 $ 13,754 $ (69,858) $ 33,093
==================================================================
b) Comprehensive income (loss):
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------
Net income (loss) in accordance with U.S. GAAP $ 38,701 $ 56,104 $ 13,754 $ (69,858) $ 38,701
Other comprehensive income
Foreign currency translation adjustments (198) (198)
Adjustment to equity income 425 (425) -
Adjustments relating to minimum pension liability (25,366) (25,366)
Tax effect 9,436 9,436
Amortization of natural gas hedge to income 664 664
Tax effect (239) (239)
------------------------------------------------------------------
Comprehensive income (loss) in accordance with U.S. GAAP $ 22,998 $ 56,529 $ 13,754 $ (70,283) $ 22,998
==================================================================
c) Reconciliation of the statement of financial position between accounting
principles generally accepted in Canada and the United States:
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------
i) Capital assets
Balance under Canadian GAAP $135,518 $ 972,247 $ 32,760 $ (6,168) $1,134,357
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 (8,619) (8,619)
Adjustments relating to sale-leaseback 136,432 136,432
------------------------------------------------------------------
Balance under U.S. GAAP $135,518 $ 973,925 $ 32,760 $ (6,168) $1,136,035
==================================================================
ii) Deferred pension liability (asset)
Balance under Canadian GAAP $ (4,008) $ 97 $ - $ - $ (3,911)
Adjustments relating to minimum pension liability 32,081 32,081
------------------------------------------------------------------
Balance under U.S. GAAP $ 28,073 $ 97 $ - $ - $ 28,170
==================================================================
iii) Future income taxes
Net future tax asset balance under Canadian GAAP $ 31,561 $ (50,378) $ 4,756 $ (5,698) $ (19,759)
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 (3,206) (3,206)
Adjustments relating to minimum pension liability (11,934) (11,934)
Adjustments relating to sale-leaseback (1,853) (1,853)
Adjustments relating to natural gas contract (28) (28)
Adjustments relating to valuation allowance on net -
future income tax asset 10,500 10,500
------------------------------------------------------------------
Net future tax asset balance under U.S. GAAP $ 19,627 $ (91,888) $ 4,756 $ (5,698) $ (73,203)
==================================================================
iv) Accounts payable and accrued charges
Balance under Canadian GAAP $ 8,321 $ 85,463 $ 12,371 $ - $ 106,155
Adjustments relating to subordinated notes 4,250 4,250
Adjustments relating to sale-leaseback 51 51
Adjustments relating to natural gas contract 78 78
------------------------------------------------------------------
Balance under U.S. GAAP $ 8,321 $ 89,842 $ 12,371 $ - $ 110,534
==================================================================
v) Current portion of long-term debt
Balance under Canadian GAAP $ 35,386 $ - $ - $ - $ 35,386
Adjustments relating to sale-leaseback 9,973 9,973
------------------------------------------------------------------
Balance under U.S. GAAP $ 35,386 $ 9,973 $ - $ - $ 45,359
==================================================================
vi) Long-term debt
Balance under Canadian GAAP $201,202 $ 141,000 $ - $ - $ 342,202
Adjustments relating to subordinated notes 100,000 100,000
Adjustments relating to sale-leaseback 131,388 131,388
------------------------------------------------------------------
Balance under U.S. GAAP $201,202 $ 372,388 $ - $ - $ 573,590
==================================================================
vii) Shareholders' equity
Balance under Canadian GAAP $983,173 $ 938,713 $ 57,674 $ (892,137) $1,087,423
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 (5,413) (5,413)
Adjustments relating to minimum pension liability (20,147) (20,147)
Adjustments relating to subordinated notes (104,250) (104,250)
Adjustments relating to sale-leaseback (3,127) (3,127)
Adjustments relating to natural gas hedge (50) (50)
Adjustments relating to equity income (98,302) 98,302 -
Adjustments relating to valuation allowance on net
future income tax asset (10,500) (10,500)
------------------------------------------------------------------
Balance under U.S. GAAP $864,724 $ 736,161 $ 57,674 $ (793,835) $ 864,724
==================================================================
d) United States 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:
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------
Cash derived from (applied to) operating activities $ 39,527 $ 32,491 $ 2,234 $ (61,650) $ 12,602
==================================================================
Cash derived from financing activities $ 46,191 $ 524,544 $ (3,242) $ (559,802) $ 7,691
==================================================================
Cash applied to investing activities $(92,763) $ (562,100) $ (1,040) $ 621,452 $ (34,451)
==================================================================
Effect of exchange rate changes on cash
and cash equivalents $ 4,623 $ (5,124) $ 26 $ - $ (475)
==================================================================
Cash position at December 31 $ 4,678 $ 14,501 $ 3,680 $ - $ 22,859
==================================================================
IPSCO Inc. Condensed Consolidating Statements of Financial Position
As at December 31, 2001
(thousands of United States dollars)
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 7,100 $ 24,690 $ 5,702 $ - $ 37,492
Accounts receivable -
Trade, less allowances 25,821 65,652 15,297 - 106,770
Intercompany 123,188 (124,618) 1,430 - -
Other, including current portion
of mortgage receivable 6,306 608 3,024 - 9,938
Inventories 55,930 189,106 4,582 (10,224) 239,394
Prepaid expenses 1,254 661 116 - 2,031
Future income taxes 13,376 31,940 172 (998) 44,490
-----------------------------------------------------------------------
232,975 188,039 30,323 (11,222) 440,115
-----------------------------------------------------------------------
NON-CURRENT ASSETS
Capital assets 147,831 983,144 31,331 (6,405) 1,155,901
Deferred charges, less amortization 1,649 377 - - 2,026
Investment in subsidiaries 829,533 32,806 - (862,339) -
Future income taxes 2,981 123,278 (136) - 126,123
-----------------------------------------------------------------------
981,994 1,139,605 31,195 (868,744) 1,284,050
-----------------------------------------------------------------------
TOTAL ASSETS $ 1,214,969 $ 1,327,644 $ 61,518 $ (879,966) $ 1,724,165
=======================================================================
CURRENT LIABILITIES
Bank indebtedness $ 15,000 $ 20,000 $ - $ - $ 35,000
Accounts payable and accrued charges 6,921 103,473 11,070 - 121,464
Accrued payroll and related liabilities 3,113 12,149 53 - 15,315
Income and other taxes payable (8,407) 10,868 (350) - 2,111
Current portion of long-term debt 21,100 - - - 21,100
Other current liabilities 4,129 9,784 13 - 13,926
-----------------------------------------------------------------------
41,856 156,274 10,786 - 208,916
-----------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt 235,809 151,000 - - 386,809
Deferred pension liability 234 - - - 234
Future income taxes 55,782 91,083 2,117 (6,314) 142,668
-----------------------------------------------------------------------
291,825 242,083 2,117 (6,314) 529,711
-----------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Subordinated notes - 104,250 - - 104,250
Other equity 881,288 825,037 48,615 (873,652) 881,288
-----------------------------------------------------------------------
881,288 929,287 48,615 (873,652) 985,538
-----------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,214,969 $ 1,327,644 $ 61,518 $ (879,966) $ 1,724,165
=======================================================================
IPSCO Inc. Condensed Consolidating Statements of Income
Year Ended December 31, 2001
(thousands of United States dollars)
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------------------------------------------------------------------
Sales $ 280,085 $ 780,162 $ 144,342 $ (300,846) $ 903,743
--------------------------------------------------------------------
Cost of sales
Manufacturing and raw material 235,853 705,925 126,379 (297,369) 770,788
Amortization of capital assets 12,479 23,508 1,120 - 37,107
--------------------------------------------------------------------
248,332 729,433 127,499 (297,369) 807,895
--------------------------------------------------------------------
Gross income 31,753 50,729 16,843 (3,477) 95,848
Selling, research and administration 16,938 40,406 183 - 57,527
--------------------------------------------------------------------
Operating income 14,815 10,323 16,660 (3,477) 38,321
Other expenses (income)
Interest on long-term debt 6,056 578 - - 6,634
Other interest (income) expense, net (1,227) 374 (75) - (928)
Foreign exchange loss (gain) 1,242 (280) (80) - 882
Intercompany interest/dividend (79,720) 17,176 (2,512) 65,056 -
Equity income 39,898 (10,850) - (29,048) -
Litigation settlement - (39,000) - - (39,000)
Provision for loss on assets held for sale - - 10,000 - 10,000
--------------------------------------------------------------------
Income (loss) before income taxes 48,566 42,325 9,327 (39,485) 60,733
Income taxes 9,698 9,754 3,652 (1,239) 21,865
--------------------------------------------------------------------
NET INCOME (LOSS) 38,868 32,571 5,675 (38,246) 38,868
Dividends on preferred shares, including part VI.I tax 5,692 33,814 - (33,814) 5,692
Interest on subordinated notes, net of income tax - 5,771 - - 5,771
--------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 33,176 $ (7,014) $ 5,675 $ (4,432) $ 27,405
====================================================================
IPSCO Inc. Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2001
(thousands of United States dollars)
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
---------------------------------------------------------------------
CASH DERIVED FROM (APPLIED TO)
Operating activities
Working capital provided by operations $ 59,462 $ 42,939 $ 9,062 $ (53,697) $ 57,766
Change in non-cash operating working capital 28,937 31,409 (1,857) (7,932) 50,557
---------------------------------------------------------------------
88,399 74,348 7,205 (61,629) 108,323
---------------------------------------------------------------------
Financing activities
Proceeds from issuance of common shares - 59,993 2,294 (62,287) -
Proceeds from issuance of common shares
pursuant to share option plan 391 - - - 391
Common share dividends (11,179) (58,804) (5,187) 63,991 (11,179)
Preferred share dividends (5,337) - - - (5,337)
Subordinated notes interest - (8,500) - - (8,500)
Proceeds from sale-leaseback of capital assets - 15,000 - - 15,000
Issue (repayment) of long-term debt (16,100) 63,000 - - 46,900
---------------------------------------------------------------------
(32,225) 70,689 (2,893) 1,704 37,275
---------------------------------------------------------------------
Investing activities
Expenditures for capital assets (4,798) (150,229) (748) - (155,775)
Investment in subsidiaries (59,624) (301) - 59,925 -
Investment in partnership - (1,993) - - (1,993)
---------------------------------------------------------------------
(64,422) (152,523) (748) 59,925 (157,768)
---------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (5,080) 2,048 (457) - (3,489)
---------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS (13,328) (5,438) 3,107 - (15,659)
CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS AT BEGINNING OF PERIOD 5,428 10,128 2,595 - 18,151
---------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS AT END OF PERIOD $ (7,900) $ 4,690 $ 5,702 $ - $ 2,492
=====================================================================
Significant Differences Between Canadian and United States Generally Accepted
Accounting Principles (GAAP) as at and for the year ended December 31, 2001
a) Reconciliation of net income (loss) between accounting principles
generally accepted in Canada and the United States:
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------
Net income as reported under Canadian GAAP $ 38,868 $ 32,571 $ 5,675 $ (38,246) $ 38,868
Adjustments relating to the capitalization of interest (8,908) (8,908)
Adjustments relating to commissioning costs (22,776) (22,776)
Adjustments relating to amortization of capital assets (4,126) (4,126)
Adjustments relating to subordinated notes (5,771) (5,771)
Adjustments relating to sale-leaseback (1,014) (1,014)
Adjustments relating to natural gas hedge (8) (8)
Adjustments to equity income (79,803) 79,803 -
Adjustments relating to valuation allowance on net future
income tax asset (37,200) (37,200)
-----------------------------------------------------------------
Net income (loss) in accordance with U.S. GAAP (40,935) (47,232) 5,675 41,557 (40,935)
Dividends on preferred shares including part VI.I tax (5,692) (5,692)
-----------------------------------------------------------------
Net income (loss) available to common shareholders in
accordance with U.S. GAAP $ (46,627) $ (47,232) $ 5,675 $ 41,557 $ (46,627)
=================================================================
b) Comprehensive income (loss):
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------
Net income (loss) in accordance with U.S. GAAP $ (40,935) $ (47,232) $ 5,675 $ 41,557 $ (40,935)
Other comprehensive income
Foreign currency translation adjustments (15,686) (15,686)
Adjustment to equity income (1,203) 1,203 -
Adjustments relating to minimum pension liability (3,853) (3,853)
Tax effect 1,433 1,433
Fair value adjustment for natural gas hedge (1,991) (1,991)
Tax effect 717 717
Amortization of natural gas hedge to income 111 111
Tax effect (40) (40)
-----------------------------------------------------------------
Comprehensive income (loss) in accordance with U.S. GAAP $ (60,244) $ (48,435) $ 5,675 $ 42,760 $ (60,244)
=================================================================
c) Reconciliation of the statement of financial position between
accounting principles generally accepted in Canada and the United States:
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------
i) Capital assets
Balance under Canadian GAAP $ 147,831 $ 983,144 $ 31,331 $ (6,405) $ 1,155,901
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 (5,690) (5,690)
Adjustments relating to sale-leaseback 142,269 142,269
-----------------------------------------------------------------
Balance under U.S. GAAP $ 147,831 $ 993,588 $ 31,331 $ (6,405) $ 1,166,345
=================================================================
ii) Deferred pension liability (asset)
Balance under Canadian GAAP $ 234 $ - $ - $ - $ 234
Adjustments relating to minimum pension liability 6,715 6,715
-----------------------------------------------------------------
Balance under U.S. GAAP $ 6,949 $ - $ - $ - $ 6,949
=================================================================
iii) Future income taxes
Net future tax asset balance under Canadian GAAP $ 39,425 $ (64,135) $ 2,081 $ (5,316) $ (27,945)
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 (2,117) (2,117)
Adjustments relating to minimum pension liability (2,498) (2,498)
Adjustments relating to sale-leaseback (1,020) (1,020)
Adjustments relating to natural gas contract (681) (681)
Adjustments relating to valuation allowance on
net future income tax asset 37,200 37,200
------------------------------------------------------------------
Net future tax asset balance under U.S. GAAP $ 36,927 $ (77,676) $ 2,081 $ (5,316) $ (43,984)
==================================================================
iv) Accounts payable and accrued charges
Balance under Canadian GAAP $ 6,921 $ 103,473 $ 11,070 $ - $ 121,464
Adjustments relating to subordinated notes 4,250 4,250
Adjustments relating to sale-leaseback 1,417 1,417
Adjustments relating to natural gas contract 1,892 1,892
------------------------------------------------------------------
Balance under U.S. GAAP $ 6,921 $ 111,032 $ 11,070 $ - $ 129,023
==================================================================
v) Current portion of long-term debt
Balance under Canadian GAAP $ 21,100 $ - $ - $ - $ 21,100
Adjustments relating to sale-leaseback 2,234 2,234
------------------------------------------------------------------
Balance under U.S. GAAP $ 21,100 $ 2,234 $ - $ - $ 23,334
==================================================================
vi) Long-term debt
Balance under Canadian GAAP $ 235,809 $ 151,000 $ - $ - $ 386,809
Adjustments relating to subordinated notes 100,000 100,000
Adjustments relating to sale-leaseback 141,361 141,361
------------------------------------------------------------------
Balance under U.S. GAAP $ 235,809 $ 392,361 $ - $ - $ 628,170
==================================================================
vii) Shareholders' equity
Balance under Canadian GAAP $ 881,288 $ 929,287 $ 48,615 $ (873,652) $ 985,538
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 (3,573) (3,573)
Adjustments relating to minimum pension liability (4,217) (4,217)
Adjustments relating to subordinated notes (104,250) (104,250)
Adjustments relating to sale-leaseback (1,723) (1,723)
Adjustments relating to natural gas hedge (1,211) (1,211)
Adjustments relating to equity income (122,919) 122,919 -
Adjustments relating to valuation allowance on net
future income tax asset (37,200) (37,200)
------------------------------------------------------------------
Balance under U.S. GAAP $ 754,152 $ 702,118 $ 48,615 $ (750,733) $ 754,152
==================================================================
d) United States 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:
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------------------------------------------------------------------
Cash derived from (applied to) operating activities $ 88,399 $ 24,285 $ 7,205 $ (61,629) $ 58,260
==================================================================
Cash derived from financing activities $ (17,225) $ 90,689 $ (2,893) $ 1,704 $ 72,275
==================================================================
Cash applied to investing activities $ (64,422) $ (102,460) $ (748) $ 59,925 $ (107,705)
==================================================================
Effect of exchange rate changes on cash
and cash equivalents $ (5,080) $ 2,048 $ (457) $ - $ (3,489)
==================================================================
Cash position at December 31 $ 7,100 $ 24,690 $ 5,702 $ - $ 37,492
==================================================================
IPSCO Inc. Condensed Consolidating Statements of Income
Year Ended December 31, 2000
(thousands of United States dollars)
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------------
Sales $ 278,013 $ 806,296 $ 150,455 $ (285,501) $ 949,263
-----------------------------------------------------------------------
Cost of sales
Manufacturing and raw material 237,915 677,211 132,137 (282,630) 764,633
Amortization of capital assets 14,063 20,375 819 - 35,257
-----------------------------------------------------------------------
251,978 697,586 132,956 (282,630) 799,890
-----------------------------------------------------------------------
Gross income 26,035 108,710 17,499 (2,871) 149,373
Selling, research and administration 18,728 43,127 221 - 62,076
-----------------------------------------------------------------------
Operating income 7,307 65,583 17,278 (2,871) 87,297
Other expenses (income)
Interest on long-term debt 6,934 - - - 6,934
Other interest (income) expense, net 1,271 (1,133) (938) - (800)
Foreign exchange loss (gain) (32) 446 (49) - 365
Intercompany interest/dividend (97,833) 17,640 (2,682) 82,875 -
Equity income 31,955 (11,131) - (20,824) -
-----------------------------------------------------------------------
Income (loss) before income taxes 65,012 59,761 20,947 (64,922) 80,798
Income taxes 7,339 12,499 8,135 (4,848) 23,125
-----------------------------------------------------------------------
NET INCOME (LOSS) 57,673 47,262 12,812 (60,074) 57,673
Dividends on preferred shares, including part VI.I tax 5,935 32,964 - (32,964) 5,935
Interest on subordinated notes, net of income tax - 4,890 - - 4,890
-----------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 51,738 $ 9,408 $ 12,812 $ (27,110) $ 46,848
=======================================================================
IPSCO Inc. Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2000
(thousands of United States dollars)
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
-----------------------------------------------------------------------
CASH DERIVED FROM (APPLIED TO)
Operating activities
Working capital provided by operations $ 107,660 $ 56,396 $ 16,982 $ (88,872) $ 92,166
Change in non-cash operating working capital (15,267) 1,465 (64,829) 9,219 (69,412)
-----------------------------------------------------------------------
92,393 57,861 (47,847) (79,653) 22,754
-----------------------------------------------------------------------
Financing activities
Proceeds from issuance of common shares - 75,070 3,075 (78,145) -
Proceeds from issuance of common shares
pursuant to share option plan 115 - - - 115
Common share dividends (13,748) (78,210) (5,507) 83,717 (13,748)
Preferred share dividends (5,540) - - - (5,540)
Issue of subordinated notes, net of issue costs - 89,824 - - 89,824
Subordinated notes interest - (3,161) - - (3,161)
Proceeds from sale-leaseback of capital assets - 158,001 - - 158,001
Issue (repayment) of long-term debt (11,100) 60,000 - - 48,900
-----------------------------------------------------------------------
(30,273) 301,524 (2,432) 5,572 274,391
-----------------------------------------------------------------------
Investing activities
Expenditures for capital assets (4,203) (362,514) (1,473) - (368,190)
Investment in subsidiaries (73,081) (1,000) - 74,081 -
Investment in partnership - (2,075) - - (2,075)
-----------------------------------------------------------------------
(77,284) (365,589) (1,473) 74,081 (370,265)
-----------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (1,654) (1,712) (194) - (3,560)
-----------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS (16,818) (7,916) (51,946) - (76,680)
CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS AT BEGINNING OF PERIOD 22,246 18,044 54,541 - 94,831
-----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
LESS BANK INDEBTEDNESS AT END OF PERIOD $ 5,428 $ 10,128 $ 2,595 $ - $ 18,151
=======================================================================
Significant Differences Between Canadian and United States Generally Accepted
Accounting Principles (GAAP) as at and for the year ended December 31, 2000
a) Reconciliation of net income (loss) between accounting principles generally
accepted in Canada and the United States:
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------------------------------------------------------------------
Net income as reported under Canadian GAAP $ 57,673 $ 47,262 $ 12,812 $ (60,074) $ 57,673
Adjustments relating to the capitalization of interest (758) (758)
Adjustments relating to commissioning costs (16,356) (16,356)
Adjustments relating to amortization of capital assets 998 998
Adjustments relating to subordinated notes (4,890) (4,890)
Adjustments relating to sale-leaseback (709) (709)
Adjustments relating to change in accounting principles (8,977) (8,977)
Adjustments to equity income (21,715) 21,715 -
--------------------------------------------------------------------
Net income (loss) in accordance with U.S. GAAP 26,981 25,547 12,812 (38,359) 26,981
Dividends on preferred shares including part VI.I tax (5,935) (5,935)
--------------------------------------------------------------------
Net income (loss) available to common shareholders in
accordance with U.S. GAAP $ 21,046 $ 25,547 $ 12,812 $ (38,359) $ 21,046
====================================================================
b) Comprehensive income (loss):
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------------------------------------------------------------------
Net income (loss) in accordance with U.S. GAAP $ 26,981 $ 25,547 $ 12,812 $ (38,359) $ 26,981
Other comprehensive income
Foreign currency translation adjustments (13,668) (13,668)
Adjustments relating to minimum pension liability 3,427 3,427
Tax effect (1,275) (1,275)
--------------------------------------------------------------------
Comprehensive income (loss) in accordance with U.S. GAAP $ 15,465 $ 25,547 $ 12,812 $ (38,359) $ 15,465
====================================================================
c) United States 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:
Guarantor Non-Guarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------------------------------------------------------------------
Cash derived from (applied to) operating activities $ 92,393 $ 30,609 $(47,847) $ (79,653) $ (4,498)
====================================================================
Cash derived from financing activities $(30,273) $ 292,424 $ (2,432) $ 5,572 $ 265,291
====================================================================
Cash applied to investing activities $(77,284) $(338,337) $ (1,473) $ 74,081 $(343,013)
====================================================================
Effect of exchange rate changes on cash
and cash equivalents $ (1,654) $ (1,712) $ (194) $ - $ (3,560)
====================================================================
Cash position at December 31 $ 5,428 $ 10,128 $ 2,595 $ - $ 18,151
====================================================================