IPSCO Inc. Announces 2nd Quarter Financials
19 July 1999
IPSCO Inc. Announces 2nd Quarter Financials
REGINA, Saskatchewan--July 19, 1999--IPSCO Inc. (TSE:IPS.) today announced that its second quarter net income was $16.1 million, down one percent from the first quarter and down 13 percent from the $18.5 million earned in the second quarter last year. For the first six months net income was $32.4 million, 22 percent lower than the $41.4 million earned in the first half of 1998. After deducting preferred share dividends, net income available to common shareholders for the quarter was $14.6 million and for the first six months was $29.4 million. After preferred share dividends the earnings per common share on the 40.7 million shares outstanding were $0.36 and $0.72 for the quarter and the six months to date respectively. This compares with $0.46 and $1.02 for the corresponding periods in 1998.
The 1999 profit levels were obtained on sales dollars of $185.0 million and $365.0 million for the quarter and half respectively. In dollar terms sales were one percent lower than the second quarter and two percent lower than the first half of 1998.
Shipments at 421,300 tons were up four percent from the first quarter while the average selling price fell two percent. A lower profit level is often characteristic of IPSCO's second quarter as product mix shifts to less profitable items because of seasonally lower drilling activity in Canada and hence lower sales of oil country tubular goods. In 1999 the drop was mitigated by improved costs at the Montpelier Steelworks in Iowa and the large diameter pipemaking facilities in Regina.
Market conditions were mixed. Compared to the first quarter demand remained strong as the result of a continuing buoyant U.S. economy. The effect of ongoing historically high imports, particularly to the United States, continued to directly or indirectly depress prices. An exception was the U.S. hot rolled coil market where the impact of the successful trade case aimed at imports from Japan, Brazil, and Russia started to be felt. A trade case with respect to discrete plate imports which commenced in the United States in February has not progressed far enough in the process to have any pronounced effect.
End-market conditions compared to the year earlier period were thought to be generally unchanged with the exception of oil country tubular goods, where the impact of lower oil prices continued to impact drilling activity, while lower commodity prices resulted in lower demand for agricultural equipment. In addition, an extremely wet spring in Canada further and literally dampened drilling activity levels. Demand at the steel producer level was lower, however, chiefly because of continuing problems due to bloated inventories of imported steel. Tonnage of hot rolled coil and plate shipped by IPSCO to third parties from its Montpelier and Regina steelworks was 16 percent below the second quarter of 1998. Tonnage of further fabricated products, tubulars and cut-to-length coil, increased by 10 percent. Increases in volumes for large diameter pipe, non-energy tubulars, and cut-to-length coil were higher than the decrease in oil country tubulars and mid-size line pipe.
Hot rolled coil and plate production totaled 421,300 tons, up from 366,800 tons in the first quarter and 394,900 in the second quarter of 1998. IPSCO's further fabricating facilities consumed 41,900 tons of purchased steel in addition to that provided by its own steel mills. This compares to 18,500 tons in the first quarter and 84,700 tons in the second quarter of 1998.
The Regina Steelworks saw 94 percent utilization while at Montpelier utilization was estimated at 58 percent.
On an accrual basis capital spending for the quarter of $26.8 million included $15.1 million on the Mobile Steelworks with the remaining $11.7 million being spent on expansion and improvement projects at other IPSCO locations.
IPSCO's mood of "cautious optimism" continues. The recent strengthening of oil prices and an ongoing positive outlook for natural gas demand in the U.S. and Canada suggests a stronger second half drilling season for Canada than originally predicted by many experts. This should be reflected in increased oil country tubular goods sales, higher shipments of coil to a pipe producer, and higher demand for plate for oil storage tanks in Canada. In the United States end-demand for steel generally appears to remain robust and improved offshore economic activity and the continued impact of trade cases can only have a positive impact on prices. On the supply side output from the Montpelier Steelworks is expected to continue to increase as the impact of equipment modifications introduced by IPSCO come into play. To this must be added the continually increasing output of the coil processing facilities at Toronto and Houston (the latter coming on stream in the third quarter) and the Blytheville pipe mill, about to complete its commissioning phase.
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 1998 Annual Report for its fiscal year ended December 31, 1998.
Statements Presented in United States Dollars
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------
(thousands of United States Dollars except for share,
per share, ton and per ton data)
For the
Three Months Ended
------------------------------
30 June 30 June 31 March
1999 1998 1999
--------------------------------------------------------------
Coil and Plate Tons Produced
(thousands) 421.3 394.9 366.8
Finished Tons Shipped (thousands) 421.3 441.7 406.5
--------------------------------------------------------------
Revenue
Sales $ 185,041 $ 187,134 $ 180,006
Interest income 1,472 916 1,633
--------------------------------
186,513 188,050 181,639
--------------------------------------------------------------
Expenses
Cost of sales, exclusive of
the following items 142,566 145,395 139,822
Selling, research and
administration 10,566 8,274 9,623
Interest on long-term debt 4,707 3,821 5,325
Amortization of capital assets 7,749 5,040 5,831
Foreign exchange loss (gain) 132 (164) 58
-------------------------------
165,720 162,366 160,659
--------------------------------------------------------------
Income Before Income Taxes 20,793 25,684 20,980
Income Taxes 4,665 7,155 4,720
-------------------------------
Net Income 16,128 18,529 16,260
Accrued Dividends on Preferred
Shares 1,480 - 1,464
-------------------------------
Net Income Available to Common
Shareholders $ 14,648 $ 18,529 $ 14,796
--------------------------------------------------------------
Summary of Net Income Available
to Common Shareholders
Steel business $ 18,739 $ 20,507 $ 19,166
Net interest expense (2,509) (2,096) (2,861)
Foreign exchange gain (loss) (102) 118 (45)
Accrued dividends on preferred
shares (1,480) - (1,464)
-------------------------------
$ 14,648 $ 18,529 $ 14,796
--------------------------------------------------------------
Earnings Per Common Share
- Basic $ 0.36 $ 0.46 $ 0.36
- Fully Diluted $ 0.33 $ 0.44 $ 0.34
Number of Common Shares
Outstanding (thousands) 40,727 40,694 40,709
Annualized Return on Common
Shareholders' Equity (percent) 8 12 8
Operating Profit Per Ton (x) $ 57 $ 72 $ 61
--------------------------------------------------------------
(x) Excludes shipments during start-up of the Montpelier Steelworks
which ended 3 May 1998.
For the
Six Months Ended
-------------------
30 June 30 June
1999 1998
--------------------------------------------------------------
Coil and Plate Tons Produced (thousands) 788.1 757.8
Finished Tons Shipped (thousands) 827.8 913.1
--------------------------------------------------------------
Revenue
Sales $ 365,047 $ 372,100
Interest income 3,105 2,172
---------------------
368,152 374,272
--------------------------------------------------------------
Expenses
Cost of sales, exclusive of the
following items 282,388 286,497
Selling, research and administration 20,189 15,346
Interest on long-term debt 10,032 5,342
Amortization of capital assets 13,580 8,799
Foreign exchange loss (gain) 190 8
---------------------
326,379 315,992
--------------------------------------------------------------
Income Before Income Taxes 41,773 58,280
Income Taxes 9,385 16,838
---------------------
Net Income 32,388 41,442
Accrued Dividends on Preferred Shares 2,944 -
---------------------
Net Income Available to Common
Shareholders $ 29,444 $ 41,442
--------------------------------------------------------------
Summary of Net Income Available to
Common Shareholders
Steel business $ 37,905 $ 43,727
Net interest expense (5,370) (2,282)
Foreign exchange gain (loss) (147) (3)
Accrued dividends on preferred shares (2,944) -
---------------------
$ 29,444 $ 41,442
--------------------------------------------------------------
Earnings Per Common Share -Basic $ 0.72 $ 1.02
-Fully Duluted $ 0.67 $ 0.98
Number of Common Shares Outstanding
(thousands) 40,727 40,694
Annualized Return on Common Shareholders'
Equity (percent) 8 13
Operating Profit Per Ton (x) $ 59 $ 79
--------------------------------------------------------------
(x) Excludes shipments during start-up of the Montpelier Steelworks
which ended 3 May 1998.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------
(thousands of United States Dollars)
For the For the
Three Months Six Months
Ended 30 June Ended 30 June
------------- -------------
1999 1998 1999 1998
--------------------------------------------------------------
Cash Derived From (Applied To)
Operating Activities
Working capital provided by
operations $21,159 $26,257 $39,438 $50,066
Change in non-cash
operating working capital 2,408 (8,544) 9,968 (35,396)
---------------------------------
23,567 17,713 49,406 14,670
--------------------------------------------------------------
Financing Activities
Common share dividends (3,475) (3,318) (6,834) (6,635)
Common shares issued pursuant
to share option plan 195 - 263 54
Preferred share dividends (1,410) - (2,817) -
---------------------------------
(4,690) (3,318) (9,388) (6,581)
--------------------------------------------------------------
Investing Activities
Expenditures for capital
assets (22,852) (19,934)(58,123)(46,192)
Investment - - (1,995) (1,971)
---------------------------------
(22,852) (19,934)(60,118)(48,163)
--------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents 5,602 3,474 7,232 2,580
--------------------------------------------------------------
Increase (Decrease) in Cash
and Cash Equivalents 1,627 (2,065)(12,868)(37,494)
Cash and Cash Equivalents
at Beginning of Period 118,776 70,125 133,271 105,554
---------------------------------
Cash and Cash Equivalents
at End of Period $120,403 $ 68,060 $120,403 $68,060
--------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
--------------------------------------------------------------
(thousands of United States Dollars)
30 June 30 June 31 Dec.
----------------------------
1999 1998 1998
--------------------------------------------------------------
Current Assets
Cash and cash equivalents $120,403 $ 68,060 $133,271
Accounts receivable 125,640 101,090 116,417
Inventories 159,834 172,804 164,557
Other 2,294 2,159 1,797
Income taxes allocated to
future years 49,334 18,821 37,625
-----------------------------
457,505 362,934 453,667
--------------------------------------------------------------
Current Liabilities
Accounts payable and accrued
charges 144,239 126,961 124,122
Current portion of long-term
debt 21,100 1,054 1,100
-----------------------------
165,339 128,015 125,222
--------------------------------------------------------------
Working Capital 292,166 234,919 328,445
--------------------------------------------------------------
Non-Current Assets
Capital and other 852,626 718,552 791,110
Income taxes allocated to
future years 36,653 14,594 18,014
-----------------------------
889,279 733,146 809,124
--------------------------------------------------------------
Total Investment 1,181,445 968,065 1,137,569
--------------------------------------------------------------
Long-Term Debt 269,663 278,350 286,534
Deferred Pension Liability - 3,284 -
Income Taxes Allocated to
Future Years 79,749 26,220 59,938
------------------------------
349,412 307,854 346,472
--------------------------------------------------------------
Shareholders' Equity $832,033 $660,211 $791,097
--------------------------------------------------------------
Derived from
Preferred Shares $ 99,344 $ - $ 98,577
Common Shares 254,769 254,399 254,506
Retained Earnings 419,661 373,749 397,051
Cumulative Translation Adjustment 58,259 32,063 40,963
------------------------------
$832,033 $660,211 $791,097
--------------------------------------------------------------
Percentage of Long-Term Debt to
Total Capitalization (percent) 24 30 27
Ratio of Current Assets to
Current Liabilities 2.8 : 1 2.8 : 1 3.6 : 1
--------------------------------------------------------------
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 except as explained in note 2.
2. Historically, the company's consolidated financial statements have been presented in Canadian dollars. Effective 01 January 1999, the company began reporting its financial results in United States dollars. The decision to change the currency of its financial statements was made to reflect the company's growing American presence. The comparative consolidated financial statements and notes thereto have been restated in U.S. dollars, in accordance with accounting principles generally accepted in Canada, using the 01 January 1999 exchange rate of CDN $1.5333 per U.S. $1.00. The functional currency of the company and each of its subsidiaries operations are unchanged.
3. During the fourth quarter of 1998, the company adopted the new recommendations of The Canadian Institute of Chartered Accountants with respect to accounting for income taxes retroactive to 01 January 1998. The comparative consolidated financial statements have been restated. The cumulative effect of adopting the liability method of tax allocation effective 01 January 1998 was a one time increase in income taxes allocated to future years and retained earnings of $4,254.