IPSCO Announces Third Quarter Results
14 October 1998
IPSCO Announces Third Quarter Results
REGINA, Saskatchewan--Oct. 14, 1998-- IPSCO(TSE:IPS.) (Alberta Stock Exchange:IPS.) IPSCO Inc. announced today that its after-tax profit for the quarter ended 30 September was $26.1 million. For the first nine months net income was $89.7 million on sales of $853.2 million compared with $94.1 million on $727.2 million of sales in 1997. The principal reason for the change from the year earlier period was a drop in tonnage shipments in Western Canada related to much lower oil and gas drilling activity with the resultant fall in profit too great to be overcome by the impact of IPSCO's new steelworks in the United States which has not yet reached its full production or profit potential.Sales for the quarter were 385,000 tons, eight percent ahead of the third quarter of 1997 with major differences in product mix and geographic distribution from the year earlier.
Earnings per share on the 40.7 million shares outstanding for the quarter and the nine months to date were $.64 and $2.20 respectively. This compares with $.82 and $2.31 for 1997.
Tonnage shipments of steel mill products exceeded the previous year's period by 94 percent while falling about 24 percent from the second quarter. The substantial increase over 1997 relates to the availability of the new Montpelier Steelworks. The drop from the second quarter of 1998 occurred chiefly in Canada with low levels of shipments to a producer of oil country tubulars and to Western Canadian coil processors, all affected by low drilling activity, although Montpelier plate shipments fell off towards the end of the quarter.
Tonnage sales of energy tubular products were 27 percent below the previous year's comparable quarter and six percent under the second quarter. Within the group, oil country tubular goods and small diameter line pipe were at about one-third of the third quarter 1997 levels but saw a seasonal increase of about 10 percent from the second quarter. Large diameter gas and oil transmission pipe shipments were virtually zero a year earlier and increased by 26 percent from the second quarter.
Tonnage of non-energy tubulars was ahead by 18 percent and 15 percent respectively from the previous year's third quarter and the second quarter of 1998.
Coil processing tonnage was two percent higher than the previous year although lower than the second quarter by 11 percent.
The Regina Steelworks operated at 95 percent capacity utilization. Purchased steel consumed by IPSCO's further processing operations amounted to only 38,000 tons as compared to 141,000 tons a year earlier with purchases restricted to products IPSCO does not make.
Capital spending on an accrual basis for the quarter was $29.0 million, including $6.8 million on the new mini-mill in Montpelier, Iowa with the remaining $22.2 million being spent on expansion and improvement projects at other IPSCO locations. Mainly this constituted the construction of the small diameter pipe mill in Blytheville, Arkansas and the construction of the coil processing facilities in Toronto, Ontario and Houston, Texas. Initial steel processing is planned for the Toronto facility in the fourth quarter of 1998, for the Blytheville facility in the first quarter of 1999 and for the Houston facility in the third quarter of 1999.
The Company further reported that it has completed assessment of its commercial and plant floor computer systems to determine the potential for Year 2000 problems. The company plans to have all business systems Year 2000 compliant by the end of 1998 leaving all of 1999 to address unforeseen issues. Likewise, it plans to have all necessary shop floor devices Year 2000 compliant by the end of the second quarter of 1999 leaving the final six months of 1999 to address any unexpected shortcomings. Nothing of a material nature has been identified. In addition, the Company stated that it is well advanced in its communication with all of its significant suppliers and large customers to determine the extent to which the company is exposed to those third parties' failure to remedy their own Year 2000 issue. The total cost of the Year 2000 project is estimated to not materially impact the financial results of the company.
The unprecedented surge in imports of steel mill products should see both lower price realization in the United States and lower demand in the fourth quarter as distributors de-stock after having over-ordered in an apparent attempt to profit from dumped prices. Historically the launching of trade cases in the U.S. should mean that the fourth quarter will be the low point with prices recovering gradually and assuming more normal levels after a 12-month period. Offsetting this decline will be the seasonal upturn in drilling, albeit from lower than normal levels. Also, steel scrap has undergone a substantial drop in price thus mitigating price pressures to some extent. The precise timing of the actual demand and price level changes is difficult to predict, as is the weather-related drilling pattern. On balance the profit level for the fourth quarter will probably be lower than that of the third but to what degree is difficult to assess at this time. A firm order book for large diameter pipe certainly will cushion the impact.
Going into 1999 IPSCO will profit by the ability of its new Montpelier Steelworks to produce a wider range of product and it is expected to reach capacity capability in the first quarter of the year. The question as to whether the U.S. and Canadian economies will see further deterioration as the result of the Asian flu remains to be addressed. Absent any new economic shocks, if the trade cases have their normal effect, increases in volume driven by both Montpelier and the enhancements to the company's further processing capacity will mean improving profits for IPSCO after the 1998 fourth quarter.
This news release contains forward looking information with respect to IPSCO's operations and beliefs. Actual results may differ from these forward looking statements due to numerous factors, including those discussed in IPSCO's 1997 Annual Report for its fiscal year ended December 31, 1997.
CONSOLIDATED STATEMENT OF INCOME
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(thousands of Canadian Dollars except for
share, per share, ton and per ton data)
For the For the
Three Months Ended Nine Months Ended
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30 Sept. 30 Sept. 30 June 30 Sept. 30 Sept.
1998 1997 1998 1998 1997
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Coil and Plate
Tons Produced
(thousands) 407.1 277.4 394.9 1,164.9 762.9
Finished Tons
Shipped (thousands)384.6 355.3 441.7 1,297.7 978.7
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Revenue
Sales $282,700 $274,080 $286,932 $853,240 $727,228
Interest income 1,398 2,342 1,404 4,728 8,921
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284,098 276,422 288,336 857,968 736,149
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Expenses
Cost of sales,
exclusive of the
following items 217,909 206,936 222,935 657,196 545,925
Selling, research and
administration 15,370 10,945 12,687 38,899 31,718
Interest on
long-term debt 8,137 2,366 5,858 16,329 6,489
Amortization of
capital assets 9,297 5,389 7,728 22,787 14,012
Foreign exchange
gain (1,138) (387) (252) (1,127) (560)
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249,575 225,249 248,956 734,084 597,584
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Income Before
Income Taxes 34,523 51,173 39,380 123,884 138,565
Income Taxes 8,401 17,831 10,970 34,219 44,496
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Net Income $26,122 $33,342 $28,410 $89,665 $94,069
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Summary of Net Income
Steel business $30,360 $33,106 $31,441 $97,406 $92,030
Net interest
income (expense) (5,099) (16) (3,213) (8,599) 1,685
Foreign exchange
Gain 861 252 182 858 354
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$26,122 $33,342 $28,410 $89,665 $94,069
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Earnings Per Share
- Basic $0.64 $0.82 $0.70 $2.20 $2.31
- Fully Diluted $0.62 $0.79 $0.68 $2.13 $2.24
Number of Shares
Outstanding
(thousands) 40,703 40,683 40,694 40,703 40,683
Annualized Return on
Common Shareholders'
Equity (percent) 10 15 12 12 15
Operating Profit
Per Ton (x) $107 $145 $110 $117 $139
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(x) Includes shipments from the Montpelier Steelworks after
start-up which ended 3 May 1998.
CONSOLIDATED STATEMENT OF CHANGES IN CASH POSITION
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For the Three Months For the Nine Months
Ended 30 September Ended 30 September
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1998 1997 1998 1997
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Cash Derived From
(Applied To)
Operating Activities
Working capital
provided by
operations $33,184 $26,495 $109,950 $92,354
Change in non-cash
operating working
capital (14,438) (28,539) (68,710) (46,065)
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18,746 (2,044) 41,240 46,289
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Financing Activities
Dividends (5,088) (3,255) (15,261) (9,759)
Shares issued pursuant
to share option plan 164 377 247 417
Issue (repayment) of
long-term debt (1,726) (1,527) (1,726) 18,733
Debt issue expenses - - - (390)
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(6,650) (4,405) (16,740) 9,001
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Investing Activities
Expenditures for
capital assets (31,127) (99,121) (101,954) (183,783)
Investment - - (3,022) (16,425)
Reduction in long-term
securities - 29,071 - 86,844
Cash effect of
translation of foreign
subsidiaries 5,898 348 9,854 1,355
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(25,229) (69,702) (95,122)(112,009)
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Decrease in Cash (13,133) (76,151) (70,622) (56,719)
Cash Position at
Beginning of Period 104,357 246,133 161,846 226,701
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Cash Position at
End of Period $91,224 $169,982 $91,224 $169,982
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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(thousands of Canadian Dollars)
30 Sept. 30 Sept. 31 Dec.
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1998 1997 1997
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Current Assets
Cash and cash equivalents $91,224 $169,982 $161,846
Accounts receivable 158,846 132,424 148,564
Inventories 290,962 257,701 281,573
Other 3,271 3,594 2,235
Income taxes allocated
to future years 29,367 21,206 28,261
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573,670 584,907 622,479
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Current Liabilities
Accounts payable and
accrued charges 207,921 200,193 216,310
Income and other taxes payable - 36,722 46,284
Current portion of
long-term debt 1,684 1,523 1,573
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209,605 238,438 264,167
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Working Capital 364,065 346,469 358,312
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Non-Current Assets
Long-term securities - 5,755 -
Capital and Other 1,155,019 962,036 1,024,718
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1,155,019 967,791 1,024,718
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Total Investment 1,519,084 1,314,260 1,383,030
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Long-Term Debt 438,767 407,867 417,964
Deferred Pension Credit 4,064 6,923 7,225
Income Taxes Allocated to
Future Years 23,281 17,567 24,191
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466,112 432,357 449,380
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Shareholders' Equity $1,052,972 $881,903 $933,650
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Derived from
Capital Stock $390,234 $389,918 $389,987
Retained Earnings 587,582 478,328 513,177
Cumulative Translation
Adjustment 75,156 13,657 30,486
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$1,052,972 $881,903 $933,650
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Percentage of Long-Term Debt to
Total Capitalization 29 32 31
Ratio of Current Assets to
Current Liabilities 2.7 : 1 2.5 : 1 2.4 : 1
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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. The consolidated interim financial statements are unaudited and are based on accounting principles and practices consistent with those used in the preparation of the annual financial statements.
2. Included in accounts payable and accrued charges are amounts relating to the construction of the company's Montpelier Steelworks. These amounts total $21,487 and $28,305 respectively as at 30 September 1998 and 30 September 1997 and $29,480 as at 31 December 1997.
3. The consolidated interim financial statements for the prior year have been restated to give retroactive effect to the three-for-two stock split of 9 March 1998.