IPSCO Inc. Earnings
4 February 2000
IPSCO Inc. Earnings
REGINA, Saskatchewan--Feb. 4, 2000-- IPSCO(TSE:IPS.)PLEASE NOTE THAT IPSCO RESULTS ARE NOW REPORTED IN U.S. DOLLARS
IPSCO Inc. announced today that its fourth quarter 1999 after-tax earnings were $21.5 million, 40 percent higher than the $15.4 million recorded for the year earlier fourth quarter. After deducting preferred share dividends and interest on subordinated notes, earnings per common share were $0.49 as compared to $0.36.
Operating profit per ton shipped was $61.
Shipments for the quarter were 515,000 tons with sales revenues of $230.5 million, up 52 and 44 percent respectively.
"Shipments of hot rolled coil and plate at 206,800 tons were double those of the fourth quarter of 1998 when orders from industrial distributors were cut back drastically due to overstocking of low priced imports. Unit prices of these products were down about eight percent from the earlier period indicating that full recovery from the price erosion caused by the import glut has yet to occur, especially for plate," IPSCO said.
Shipments of further fabricated products at 308,200 tons were up just over 30 percent from the year earlier period. Within the group large diameter pipe shipments were unchanged while other tubular products sold to the energy industry, such as oil country tubular goods and small diameter line pipe were up 60 percent reflecting higher drilling rates, tubulars for equipment manufacture and construction advanced by 40 percent as did sales from IPSCO's coil processing facilities. Average unit prices for the group were more or less flat with energy related tubular prices up about six percent while non-energy tubulars and product from the coil processing facilities were down about five percent.
Output from the Montpelier, Iowa steelworks continued to be restricted by equipment performance difficulties and the operation was shutdown for 19 days in December to make major corrections to the rolling mill and slab reheat furnace. The outage was somewhat longer than planned resulting in a greater negative impact on fourth quarter earnings. On a positive note Montpelier's monthly output for January 2000 was the best ever experienced by the facility, an indication that the modifications were a success.
For the full year after-tax earnings reached $74.3 million. After deducting preferred share dividends and interest on subordinated notes, net income available to common shareholders for the year was $68.3 million compared to $73.1 million for 1998.
Earnings per common share were $1.68 compared to $1.80 in 1998. Principal reasons for the lower yearly results were low capacity utilisation and higher costs at Montpelier due to equipment problems, price erosion due to high levels of imports entering North America at unfairly traded prices, drastic reduction of inventories held by distributors and traders, and the resultant price instability.
Annual shipments at 1,832,900 tons exceeded that of 1998 by 12 percent. Shipments to Canadian based customers constituted 51 percent of total sales on the strength of a large order of gas transmission pipe and were 14 percent ahead of 1998. Except for tubular sales for energy applications all other categories were dominated by shipments to American based customers, United States destined shipments of 895,000 tons surpassed the previous year by 10 percent.
Tonnage of steel mill products shipped, which comprises hot rolled coil and discrete plate, was 10 percent higher than 1998. Further fabricated products which include cut-to-length steel, standard pipe, hollow structurals, and energy related tubular products grew by 13 percent.
IPSCO's average realized selling price per ton fell just over nine percent with weaknesses generally across the board.
The Company's employees, and the communities in which they live, shared in the fortunes of the Company through its profit sharing plans with payouts to employees (excluding management performance bonuses) and contributions to charities and community services at $4.6 million and $1.1 million respectively in 1999 as compared to $5.0 million and $1.0 million in 1998.
IPSCO said that major capital spending for the year totalled $136 million, up from the $105 million spent in 1998. No new capital programs were announced and spending was restricted to minor maintenance type expenditures, the completion of several new further fabricating installations, modifications to correct deficiencies at the Montpelier Steelworks and IPSCO's major ongoing project, a new steelworks in Alabama.
In the fourth quarter IPSCO issued Taxable Industrial Development Revenue Bonds in the amount of $28.0 million. Interest payable on the bonds is 8.11 percent per annum, payable semi-annually, for an initial ten-year term ending 1 November 2009.
IPSCO said the outlook for 2000 was positive. Increased demand for oil country tubular goods, strengthening prices for hot rolled coil and plate, and increased output from Montpelier and new further fabricating facilities will all contribute positively to the company's bottom line, offsetting a slow down in large diameter pipe shipments. Because most of the positive factors will increase as the year goes on whereas the fall off in large diameter will be more precipitous IPSCO said it expected first quarter 2000 results to be somewhat below the fourth quarter of 1999.
(xx) For accounting purposes, commissioning of the Montpelier, Iowa steelworks was completed on 3 May 1998. Tonnage shipments reported in the financial statements are from the start of the year. However, in accordance with generally accepted accounting principles in Canada the financial statements include revenue from 4 May 1998 onward. Sales, net income, and operating profit per ton discussed in the balance of this release are based on this approach.
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
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(thousands of United States Dollars except for
share, per share, ton and per ton data)
For the For the
Three Months Ended Twelve Months Ended
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31 Dec. 31 Dec. 30 Sept. 31 Dec. 31 Dec.
1999 1998 1999 1999 1998
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Coil and Plate
Tons Produced
(thousands) 423.3 301.8 450.8 1,662.2 1,466.7
Finished Tons
Shipped
(thousands) 515.1 338.0 490.0 1,832.9 1,635.7
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Revenue
Sales $230,498 $160,490 $212,706 $808,251 $716,963
Interest
income 1,945 1,409 1,438 6,488 4,493
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232,443 161,899 214,144 814,739 721,456
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Expenses
Cost of sales,
exclusive of the
following
items 177,456 124,357 163,771 623,615 552,972
Selling, research
and admin-
istration 14,376 10,326 11,557 46,122 35,696
Interest
on long-term
debt 4,485 5,354 4,550 19,067 16,003
Amortization of
capital assets 8,333 5,340 7,757 29,670 20,202
Foreign exchange
loss (gain) (1,094) 22 (396) (1,300) (712)
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203,556 145,399 187,239 717,174 624,161
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Income Before
Income Taxes 28,887 16,500 26,905 97,565 97,295
Income Taxes 7,406 1,124 6,492 23,283 23,441
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Net Income 21,481 15,376 20,413 74,282 73,854
Dividends on
Preferred
Shares 1,483 748 1,468 5,895 748
Interest on
Subordinated
Notes 133 - - 133 -
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Net Income
Available to
Common
Shareholders $19,865 $14,628 $18,945 $68,254 $73,106
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Summary of Net Income Available
to Common Shareholders
Steel
business $22,556 $19,073 $22,474 $82,935 $82,600
Net interest
expense (1,889) (3,676) (2,361) (9,620) (9,283)
Foreign exchange
gain (loss) 814 (21) 300 967 537
Dividends on
preferred
shares (1,483) (748) (1,468) (5,895) (748)
Interest on
subordinated
notes (133) - - (133) -
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$19,865 $14,628 $18,945 $68,254 $73,106
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Earnings Per
Common Share
- Basic $0.49 $0.36 $0.47 $1.68 $1.80
- Fully Diluted $0.43 $0.32 $0.42 $1.52 $1.71
Number of Common Shares
Outstanding
(thousands) 40,796 40,703 40,751 40,796 40,703
Annualized Return on
Common Shareholders'
Equity 10% 9% 10% 9% 11%
Operating Profit
Per Ton(x) $61 $60 $61 $60 $73
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(x) Excludes shipments during start-up of the Montpelier Steelworks
which ended 3 May 1998.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(thousands of United States Dollars)
For the For the
Three Months Twelve Months
Ended 31 Ended 31
December December
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1999 1998 1999 1998
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Cash Derived From (Applied To)
Operating Activities
Working capital
provided by
operations $18,258 $22,233 $81,734 $93,941
Change in non-cash
operating working
capital (10,693) (822) (26,221) (45,634)
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7,565 21,411 55,513 48,307
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Financing Activities
Common share
dividends (3,468) (3,318) (13,744) (13,271)
Issue of
preferred shares
(net of issue
costs) - 94,953 - 94,953
Issue of
subordinated
notes (net of
issue costs) 9,980 - 9,980 -
Common shares
issued pursuant
to share option
plan 573 - 1,151 161
Preferred share
dividends (1,405) - (5,602) -
Issue (repayment)
of long-term
debt 28,000 - 26,900 (1,126)
Debt issue
expenses (394) - (394) -
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33,286 91,635 18,291 80,717
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Investing Activities
Expenditures
for capital
assets (36,190) (38,917) (118,740) (105,410)
Investment - - (1,995) (1,971)
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(36,190) (38,917) (120,735) (107,381)
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Effect of exchange
rate changes on cash
and cash equivalents 1,722 (353) 8,491 6,074
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Increase (Decrease) in
Cash and Cash Equivalents
net of Bank
Indebtedness 6,383 73,776 (38,440) 27,717
Cash and Cash Equivalents
net of Bank Indebtedness
at Beginning of Period 88,448 59,495 133,271 105,554
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Cash and Cash Equivalents
net of Bank Indebtedness
at End of Period $94,831 $133,271 $94,831 $133,271
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Statements Presented in United States Dollars
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
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(thousands of United States Dollars)
31 December
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1999 1998
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Current Assets
Cash and cash equivalents $103,931 $133,271
Accounts receivable 120,346 116,417
Inventories 212,382 164,557
Other 2,758 1,797
Income taxes allocated
to future years 39,779 37,625
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479,196 453,667
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Current Liabilities
Bank indebtedness 9,100 -
Accounts payable and
accrued charges 159,314 124,122
Income and other taxes payable 7,157 -
Current portion of long-term debt 21,100 1,100
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196,671 125,222
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Working Capital 282,525 328,445
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Non-Current Assets
Capital and other 913,069 791,110
Income taxes allocated to
future years 80,694 18,014
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993,763 809,124
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Total Investment 1,276,288 1,137,569
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Long-Term Debt 297,501 286,534
Income Taxes Allocated to
Future Years 98,915 59,938
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396,416 346,472
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Shareholders' Equity $879,872 $791,097
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Derived from
Preferred Shares $98,593 $98,577
Common Shares 255,657 254,506
Subordinated Notes 10,198 -
Retained Earnings 451,548 397,051
Cumulative Translation
Adjustment 63,876 40,963
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$879,872 $791,097
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Percentage of Long-Term Debt
to Total Capitalization 25% 27%
Ratio of Current Assets to
Current Liabilities 2.4 : 1 3.6 : 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 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.