EX-99 6 ex99-2form6k_080404.txt EXHIBIT 99.2 EXHIBIT 99.2 ------------ CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) -------------------------------------------------------------------------------- (thousands of United States Dollars except for share, per share and ton data)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 (RESTATED) (RESTATED) (RESTATED) ------------------------------------------------------------------------------------------------------------------------------------ Plate and Coil Tons Produced (thousands) 813.6 767.8 791.4 1,605.0 1,428.2 ------------------------------------------------------------------------------------------------------------------------------------ Finished Tons Shipped (thousands) 884.2 748.8 937.1 1,821.3 1,423.0 ------------------------------------------------------------------------------------------------------------------------------------ Sales $ 548,275 $ 298,216 $ 482,908 $1,031,183 $ 578,079 Cost of sales Manufacturing and raw material 394,374 267,687 384,267 778,641 507,355 Amortization of capital assets 20,188 15,245 18,521 38,709 29,811 ---------------------------------------------------------------------- 414,562 282,932 402,788 817,350 537,166 ---------------------------------------------------------------------- Gross income 133,713 15,284 80,120 213,833 40,913 Selling, research and administration 15,210 14,047 15,746 30,956 26,057 ---------------------------------------------------------------------- Operating income 118,503 1,237 64,374 182,877 14,856 Other expenses (income): Interest on long-term debt 8,640 6,271 9,348 17,988 12,024 Net interest income (406) (206) (698) (1,104) (374) Foreign exchange loss (gain) (396) (3,287) 166 (230) (4,699) ---------------------------------------------------------------------- Income (Loss) Before Income Taxes 110,665 (1,541) 55,558 166,223 7,905 Income Tax Expense 42,051 2,129 21,111 63,162 5,530 ---------------------------------------------------------------------- Net Income (Loss) 68,614 (3,670) 34,447 103,061 2,375 Dividends on Preferred Shares, including part VI.I tax 786 1,570 1,675 2,461 3,033 Interest on Subordinated Notes, net of income tax 1,442 1,443 1,443 2,885 2,886 ---------------------------------------------------------------------- Net Income (Loss) Attributable to Common Shareholders $ 66,386 $ (6,683) $ 31,329 $ 97,715 $ (3,544) ------------------------------------------------------------------------------------------------------------------------------------ Earnings (Loss) Per Common Shar- Basic $ 1.38 $ (0.14) $ 0.65 $ 2.04 $ (0.07) - Diluted $ 1.22 $ (0.14) $ 0.57 $ 1.78 $ (0.07) Denominator for Basic Earnings per Common Share (thousands) 47,965 47,667 47,863 47,914 47,667 Denominator for Diluted Earnings per Common Share (thousands) 56,274 47,667 60,368 57,779 47,667 ================================================================================================================================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) (thousands of United States Dollars)
FOR THE FOR THE THREE MONTHS ENDED SIX MONTHS ENDED --------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 ------------------------------------------------------------------------------------------------------------------------------------ Retained Earnings at Beginning of Period, as previously reported $ 515,734 $ 494,523 $ 487,924 $ 487,924 $ 494,599 Cumulative effect of change in accounting policy 15,960 11,624 14,250 14,250 10,027 --------------------------------------------------------------- Retained Earnings at Beginning of Period, as restated 531,694 506,147 502,174 502,174 504,626 Net Income (Loss) 68,614 (3,670) 34,447 103,061 2,375 Dividends on Preferred Shares, including part VI.I tax (786) (1,570) (1,675) (2,461) (3,033) Interest on Subordinated Notes, net of income tax (1,442) (1,443) (1,443) (2,885) (2,886) Dividends on Common Shares (1,771) (1,762) (1,809) (3,580) (3,380) --------------------------------------------------------------- Retained Earnings at End of Period $ 596,309 $ 497,702 $ 531,694 $ 596,309 $ 497,702 ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (thousands of United States Dollars)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 (RESTATED) (RESTATED) (RESTATED) ------------------------------------------------------------------------------------------------------------------------------------ Cash Derived From (Applied To) Operating Activities Working capital provided by operations Net income (loss) $ 68,614 $ (3,670) $ 34,447 $ 103,061 $ 2,375 Amortization of capital assets 20,188 15,245 18,521 38,709 29,811 Amortization of deferred charges 309 321 332 641 539 Deferred pension expense (1,771) 258 828 (943) 1,095 Future income taxes 32,523 1,178 11,926 44,449 2,737 ---------------------------------------------------------------------- 119,863 13,332 66,054 185,917 36,557 ---------------------------------------------------------------------- Changes in working capital Accounts receivable, less allowances (28,516) (5,974) (42,934) (80,026) 5,972 Income taxes recoverable 7,243 (5,824) (5,301) 10,518 (11,125) Inventories (12,599) (18,950) (4,792) (17,391) (5,727) Other 220 (139) (182) 38 366 Accounts payable and accrued charges (7,766) (13,936) 25,195 17,429 17,672 ---------------------------------------------------------------------- (41,418) (44,823) (28,014) (69,432) 7,158 ---------------------------------------------------------------------- 78,445 (31,491) 38,040 116,485 43,715 ------------------------------------------------------------------------------------------------------------------------------------ Financing Activities Common share dividends (1,771) (1,762) (1,809) (3,580) (3,380) Common shares issued pursuant to share option plan 3,469 -- 553 4,022 -- Preferred share dividends (1,498) (1,482) (1,555) (3,053) (2,848) Retirement of preferred shares (108,996) -- -- (108,996) -- Subordinated notes interest -- -- (4,250) (4,250) (4,250) Issue of long-term debt -- 254,600 -- -- 264,600 Repayment of long-term debt (34,286) (157,586) -- (34,286) (225,586) ---------------------------------------------------------------------- (143,082) 93,770 (7,061) (150,143) 28,536 ------------------------------------------------------------------------------------------------------------------------------------ Investing Activities Expenditures for capital assets (4,559) (4,139) (8,617) (13,176) (7,637) Change in mortgage receivable 1,717 -- (5,851) (4,134) -- Proceeds on sale of assets held for sale -- 1,032 -- -- 1,032 ---------------------------------------------------------------------- (2,842) (3,107) (14,468) (17,310) (6,605) ------------------------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and cash equivalents (2,946) (2,104) 5,228 2,282 (1,875) ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in Cash and Cash Equivalents (70,425) 57,068 21,739 (48,686) 63,771 Cash and Cash Equivalents at Beginning of Period 153,306 29,562 131,567 131,567 22,859 ---------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 82,881 $ 86,630 $ 153,306 $ 82,881 $ 86,630 ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (thousands of United States Dollars) JUNE 30 JUNE 30 DECEMBER 31 2004 2003 2003 (RESTATED) (RESTATED) ------------------------------------------------------------------------------------------------------------ Current Assets Cash and cash equivalents $ 82,881 $ 86,630 $ 131,567 Accounts receivable, less allowances 250,731 150,468 174,226 Recoverable income taxes 26,235 18,372 36,753 Inventories 299,809 278,510 286,159 Future income taxes 20,732 39,872 17,764 Other 2,759 2,660 2,833 ------------------------------------------ 683,147 576,512 649,302 ------------------------------------------------------------------------------------------------------------ Non-Current Assets Capital and other 1,104,527 1,150,071 1,132,371 Future income taxes 111,580 128,902 149,430 ------------------------------------------ 1,216,107 1,278,973 1,281,801 ------------------------------------------------------------------------------------------------------------ Total Assets $ 1,899,254 $ 1,855,485 $ 1,931,103 ------------------------------------------------------------------------------------------------------------ Current Liabilities Accounts payable and accrued charges $ 176,605 $ 138,618 $ 163,895 Current portion of long-term debt 14,286 34,286 34,286 ------------------------------------------ 190,891 172,904 198,181 ------------------------------------------------------------------------------------------------------------ Long-Term Liabilities Long-term debt 384,831 398,399 401,244 Future income taxes 206,465 157,658 182,864 ------------------------------------------ 591,296 556,057 584,108 ------------------------------------------------------------------------------------------------------------ Shareholders' Equity Preferred shares -- 98,659 98,695 Common shares 358,412 351,311 354,095 Subordinated notes 104,250 104,250 104,250 Retained earnings 596,309 497,702 502,174 Cumulative translation adjustment 58,096 74,602 89,600 ------------------------------------------ 1,117,067 1,126,524 1,148,814 ------------------------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $ 1,899,254 $ 1,855,485 $ 1,931,103 ------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (thousands of United States Dollars) 1. The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles and should be read in conjunction with the consolidated financial statements included in IPSCO Inc.'s (the "Company") Annual Report for the year ended December 31, 2003. This consolidated financial information reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for fair presentation of the consolidated financial statements for the periods shown. The results of operations of any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. Effective January 1, 2004, the Company adopted the provisions of the Canadian Institute of Chartered Accountants Handbook Section 3063 "Impairment of Long-lived Assets", Section 3110 "Asset Retirement Obligations" and Section 3475 "Disposal of Long-lived Assets and Discontinued Operations". Adoption of these new accounting standards did not have a significant effect on the Company's financial position or results of operations as of June 30, 2004 or for the three or six months ended June 30, 2004. 2. Effective April 1, 2004, the Company changed its method of accounting for the costs of major overhauls and repairs. Under the new method the cost of major overhauls and repairs which are not capitalized are expensed as incurred. Previously the non-capital estimated cost of such overhauls and repairs was accrued on a straight-line basis between the major overhauls and repairs with actual costs charged to the accrual as incurred. The Company believes the new method more appropriately recognizes such costs in the period incurred. The accounting change has been applied retroactively with restatement of prior periods. The impact of the change on financial position as of June 30 and December 31, 2003 is as follows:
JUNE 30 DECEMBER 31 2003 2003 INCREASE (DECREASE) --------------------------- Recoverable income taxes $ (4,532) $ (3,699) Future income taxes - current asset (4,649) (5,212) Accounts payable and accrued charges (21,274) (25,056) Future income taxes - long-term liability 114 1,221 Retained earnings 11,464 14,250 Cumulative translation adjustment 515 674 The impact on net income and earnings per share in previously reported periods is as follows: FOR THE SIX FOR THE THREE MONTHS ENDED MONTHS ENDED ------------------------------------------ JUNE 30 MARCH 31 JUNE 30 2003 2004 2003 --------------------------------------------------------------------------------------------------------------------- Net income (loss) as previously reported $ (6,523) $ 29,619 $ (4,981) Adjustment (160) 1,710 1,437 ------------------------------------------ Net income (loss) as restated $ (6,683) $ 31,329 $ (3,544) ------------------------------------------ Earnings (Loss) Per Common Share - Basic, as previously reported (0.14) 0.62 (0.10) Adjustment -- 0.03 0.03 ------------------------------------------ Earnings (Loss) Per Common Share - Basic, as restated $ (0.14) $ 0.65 $ (0.07) ------------------------------------------ Earnings (Loss) Per Common Share - Diluted, as previously reported (0.14) 0.54 (0.10) Adjustment -- 0.03 0.03 ------------------------------------------ Earnings (Loss) Per Common Share - Diluted, as restated $ (0.14) $ 0.57 $ (0.07) ------------------------------------------
3. Effective January 1, 2004, the Company changed the estimated useful life of certain major machinery and equipment from 25 to 20 years. This change has been applied prospectively and the impact for the three months and six months ended June 30, 2004 was to increase amortization expense by approximately $4.5 million and $7.5 million ($.06 and $.05 per basic share or $.10 and $.08 per diluted share), respectively. 4. During the quarter ended June 30, 2003, the Company increased its annual estimated effective income tax rate to 70% due to a decision not to recognize tax benefits on projected 2003 operating losses in the United States until they are realized at a future date. The change in the effective rate amounted to approximately $2.4 million ($.05 cents per share) of additional tax expense in the three months ended June 30, 2003. The 38% estimated effective tax rate for 2004 reflects the expectation that U.S. operations will be profitable. 5. Pension cost attributable to the Company's pension plans is as follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 --------------------------------------------------------------------------------------------------------------------- Defined benefit plans $ 2,183 $ 2,219 $ 2,446 $ 4,629 $ 4,127 Defined contribution plans 910 812 883 1,794 1,549 ---------------------------------------------------------------------- $ 3,093 $ 3,031 $ 3,329 $ 6,423 $ 5,676 ---------------------------------------------------------------------------------------------------------------------
6. Under the terms of the Company's agreement for sale and leaseback of certain of the Montpelier Steelworks production equipment, the Company has guaranteed the residual value of the equipment at the end of the 15 year lease term in 2015 to be $37.5 million. 7. The restricted shares and performance units vest at the end of one to three years based on continued employment or continued employment and achievement of certain Company performance objectives. Restricted shares are entitled to dividends declared on common shares during the vesting period and, upon vesting, performance units are entitled to an amount equal to dividends declared during the vesting period. The fair value of the grants is being amortized to compensation expense over the vesting period. Compensation expense of $127 and $168 has been recorded in the three month periods ended June 30 and March 31, 2004, respectively. The following table summarizes information on share capital and related matters at June 30, 2004: Outstanding Vested -------------------------- Common shares 48,219,081 Common shares - year-to-date weighted average 47,913,915 Common share stock options 2,667,817 2,656,149 Restricted shares 96,657 - Performance units 77,195 - During the quarter ended June 30, 2004, the Company redeemed all outstanding preferred shares at their face value. 8. The Company is organized and managed as a single business segment, being steel products, and the Company is viewed as a single operating segment by the chief operating decision maker for the purposes of resource allocation and assessing performance. Financial information on the Company's geographic areas follows. Sales are allocated to the country in which the third party customer receives the product.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 --------------------------------------------------------------------------------------------------------------------- Sales Canada $ 128,519 $ 96,204 $ 208,435 $ 336,954 $ 218,581 United States 419,756 202,012 274,473 694,229 359,498 ---------------------------------------------------------------------- $ 548,275 $ 298,216 $ 482,908 $ 1,031,183 $ 578,079 --------------------------------------------------------------------------------------------------------------------- JUNE 30 JUNE 30 DECEMBER 31 2004 2003 2003 --------------------------------------------------------------------------------------------------------------------- Capital Assets Canada $ 193,850 $ 205,779 $ 200,854 United States 884,069 927,665 908,564 ------------------------------------------ $ 1,077,919 $ 1,133,444 $ 1,109,418 --------------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 --------------------------------------------------------------------------------------------------------------------- Sales information by product group is as follows: Steel mill products $ 349,604 $ 184,937 $ 269,112 $ 618,716 $ 341,468 Tubular products 198,671 113,279 213,796 412,467 236,611 ---------------------------------------------------------------------- $ 548,275 $ 298,216 $ 482,908 $ 1,031,183 $ 578,079 ---------------------------------------------------------------------------------------------------------------------
9. The Company's pro forma disclosure of net income and earnings per share using the Black-Scholes option pricing model for determining the compensation expense related to employee stock options follows. For purposes of the pro forma disclosures the estimated fair value of the options is amortized over the options' vesting period. The following pro forma information is based on restated results, as described in note 2.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 --------------------------------------------------------------------------------------------------------------------- Pro forma net income $ 68,612 $ (3,649) $ 34,443 $ 103,055 $ 2,210 Pro forma net income attributable to common shareholders $ 66,384 $ (6,658) $ 31,325 $ 97,709 $ (3,709) Pro forma earnings per common share: Basic $ 1.38 $ (0.14) $ 0.65 $ 2.04 $ 0.08 Diluted $ 1.22 $ (0.14) $ 0.57 $ 1.78 $ 0.08 ---------------------------------------------------------------------------------------------------------------------
10. Certain prior period amounts have been reclassified to conform with the current presentation. TONS SHIPPED (UNAUDITED) (thousands)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 -------------------------------------------------------------------------------------------------------------------------------- Discrete Plate and Coil 458.8 400.5 448.0 906.8 713.1 Cut Plate 158.8 143.3 156.2 315.0 284.5 --------------------------------------------------------------------- Total Steel Mill Products 617.6 543.8 604.2 1,221.8 997.6 -------------------------------------------------------------------------------------------------------------------------------- Energy Tubulars 117.7 103.4 213.4 331.1 248.7 Large Diameter Tubulars 71.9 46.3 38.1 110.0 57.7 Non-Energy Tubulars 77.0 55.3 81.4 158.4 119.0 --------------------------------------------------------------------- Total Tubular Products 266.6 205.0 332.9 599.5 425.4 -------------------------------------------------------------------------------------------------------------------------------- Total Shipments 884.2 748.8 937.1 1,821.3 1,423.0 --------------------------------------------------------------------------------------------------------------------------------
NON-GAAP FINANCIAL MEASURES (UNAUDITED) (thousands of United States Dollars except for per ton data) EBITDA is defined as earnings before interest expense, income taxes and amortization. EBITDA does not represent, and should not be considered as an alternative to net income or cash flows from operating activities, each as determined in accordance with GAAP. Moreover, EBITDA does not necessarily indicate whether cash flow activities will be sufficient for items such as working capital or debt service or to react to industry changes or changes in the economy in general. We believe that EBITDA and ratios based on EBITDA are measures commonly used to evaluate a company's performance and its performance relative to its financial obligations. Because our method for calculating EBITDA may differ from other companies' methods, the EBITDA measures presented by us may not be comparable to similarly titled measures reported by other companies. Therefore, in evaluating EBITDA data, investors should consider, among other factors: the non-GAAP nature of EBITDA data; the GAAP financial statement amounts; actual cash flows and results of operations; the actual availability of funds for debt service, capital expenditures and working capital; and the comparability of our EBITDA data to similarly titled measures reported by other companies. Operating income per ton is defined as operating income divided by finished tons shipped. We believe that operating income per ton is a commonly used measure of performance, however, our method of calculation may differ from other companies' methods.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ---------------------------------------------------------------------- JUNE 30 JUNE 30 MARCH 31 JUNE 30 JUNE 30 2004 2003 2004 2004 2003 -------------------------------------------------------------------------------------------------------------------------------- The following is a reconciliation of cash derived from (applied to) operating activities to EBITDA (Canadian and U.S. GAAP): Cash derived from (applied to) operating activities $ 78,445 $ (31,490) $ 38,040 $ 116,485 $ 43,715 Changes in working capital 41,418 44,822 28,014 69,432 (7,158) Current income tax expense (benefit) 9,528 951 9,185 18,713 2,793 Interest expense, net 8,234 6,065 8,650 16,884 11,650 Other 1,462 (579) (1,160) 302 (1,634) ---------------------------------------------------------------------- EBITDA (Canadian GAAP) 139,087 19,769 82,729 221,816 49,366 US GAAP adjustments relating to: Sale and leaseback 3,471 3,471 3,471 6,942 6,942 Natural gas hedge 112 (102) (327) (215) (268) ---------------------------------------------------------------------- EBITDA (US GAAP) $ 142,670 $ 23,138 $ 85,873 $ 228,543 $ 56,040 ---------------------------------------------------------------------- Operating Income Per Ton $ 134 $ 2 $ 69 $ 100 $ 10 Annualized Return on Common Shareholders' Equity 27% -3% 13% 20% -1% --------------------------------------------------------------------------------------------------------------------------------