EX-99.1 2 a06-4320_1ex99d1.htm EXHIBIT 99.1

Exhibit 99.1

 

 

News Release

 

IPSCO REPORTS 2005 RECORD SALES AND EARNINGS

 

Enters 2006 with Solid Demand for Plate, Energy Tubular and Large Diameter Tubular Products

 

*Results Are Reported in U.S. Dollars on a U.S. GAAP Basis*

 

[Lisle, Illinois] [February 6, 2006] — IPSCO Inc. (NYSE/TSX:IPS) announced today record net income in 2005 of $585.8 million, or $11.96 per diluted share, compared to $454.9 million or $8.69 per diluted share in 2004. The increased earnings are primarily attributable to higher average selling prices, increased margins across most product lines, and a stronger product mix due to record sales of energy tubular products. Income before taxes increased 43% to $883.5 million compared to $618.9 million in 2004. This increase was partially offset at the net income line by a higher tax rate of 34% in 2005 versus 29% in 2004.

 

IPSCO’s sales increased 20% in 2005 to $3.03 billion compared to $2.53 billion in 2004. Average selling price per ton increased 23% while customer shipments of 3.46 million tons declined 3%. Record energy tubular shipments and strong large diameter pipe shipments totaled 903,000 tons, an increase of 5% over the prior year, and were offset by a 4% decline in steel mill products and an 18% decline in industrial products shipments. About 32%, or 1.1 million tons, of IPSCO’s total shipments in 2005 were tubular products.

 

IPSCO’s net income in the fourth quarter of 2005 was $170.2 million ($3.52 per diluted share) compared to $199.1 million ($3.91 per diluted share) for the same period last year and $134.0 million ($2.78 per diluted share) in the third quarter of 2005. Sales for the quarter were $852 million, an increase of 6% or $51 million over the same quarter last year and 17% or $126 million over the prior quarter. As compared to the same quarter last year, gross margins were compressed to 30.3% from 35.5% due to higher costs for alloys, energy and consumables. In addition, Sales, General and Administration expenses for the quarter were $10 million higher than a year ago primarily due to the increased value and number of stock based compensation units, increased expenses related to IPSCO’s SOX 404 compliance effort, and increased charitable contributions.

 

Compared to the prior quarter, increased earnings were driven by a 12% increase in shipments to a new record of 953,000 tons. Average pricing improved 4% to $894 per ton but margins were down slightly due to increased scrap and alloy costs. Late in the fourth quarter IPSCO received a favorable legal settlement related to the construction of the Mobile Steelworks. Approximately $10 million ($0.15 per diluted share) of this settlement was recorded as income to offset legal fees expensed in previous periods.

 

Changes in the foreign exchange rate resulted in a foreign exchange loss for the quarter of $9.8 million ($0.15 per diluted share) versus a gain in the prior quarter of $18.1 million ($0.24 per diluted share). Early debt retirement expense impacted earnings by $5.5 million or $0.09 per share. The effective tax rate for the quarter was 25% compared to 38% in the prior quarter and the 36% rate assumed in guidance for the fourth quarter. Compared to the prior quarter and the effective tax rate assumed in the guidance, the fourth quarter rate favorably impacted results by $0.62 and $0.52 per diluted share, respectively.

 


 

The fourth quarter 2005 effective tax rate of 25%, and subsequent impact on the annual rate of 34%, was the result of changes in the statutory tax rates and allocation factors within Canadian jurisdictions and the utilization of certain foreign tax credits for which benefit was not previously taken. An additional factor in the reduction of the effective tax rate for the quarter was the restructuring of certain subsidiaries within the Company.

 

Operating income per ton shipped for the year was $259, compared to $186 in 2004.

 

Operating income per ton in the fourth quarter was $244 compared to $300 per ton in the fourth quarter of 2004 and $238 per ton in the prior quarter.

 

During the fourth quarter new records were established in numerous areas for the Company. Total fourth quarter shipments were 953,000 tons, an increase of 58,000 tons compared to last year and 106,000 tons higher than the prior quarter. Energy tubular shipments increased 18% and 1% respectively over last year and prior quarter. IPSCO’s average fourth quarter product price was $894 per ton, inclusive of surcharge, the same as a year ago and up from $856 in the prior quarter.

 

“We are pleased to report IPSCO’s fourth consecutive year of record sales and production levels. Our challenge in 2005 was to sustain the record financial results achieved in 2004. Our employees and facilities responded with another record setting performance where we were able to increase earnings per share by 38% over our previous record,” said David Sutherland, President and Chief Executive Officer. “Our 2005 financial results were another new milestone for the Company as we enter 2006 and begin to celebrate IPSCO’s 50th anniversary.”

 

Outlook

 

The Company believes that end user demand for steel mill products will remain relatively stable in 2006.  We expect high oil and gas prices to continue to drive high rig counts and demand for OCTG products. The current 2006 forecasts suggest that drilling activity will increase 6-8% over 2005 which was itself a very strong year. Large diameter pipe bookings have been very strong and we now expect our spiral pipe facilities to be running at full capacity throughout 2006.

 

We expect to invest approximately $150 million of capital in our tubular and steel making facilities in 2006 to both maintain our production capabilities and increase our value added product mix. Our Mobile Quench and Temper mill commenced normalizing operations in December of 2005. We are pleased with the quality of product that the normalized facility is producing and are in the process of ramping up production. Completion of the Quench and Temper Line is expected to be slightly delayed into the second quarter due to the effects of Hurricane Katrina and rain.

 

We anticipate that higher costs of steel making inputs in the first quarter will result in some margin compression in our product lines. Excluding foreign exchange gains or losses and assuming a significantly higher effective tax rate of 39%, we forecast first quarter 2006 earnings to be in the range of $2.70 to $2.90 per diluted share.

 

IPSCO has scheduled the live webcast of its 2005 year end results conference call at 10:00 AM EDT on Monday, February 6, 2006. During the call IPSCO President and CEO, David Sutherland, Senior Vice President and CFO, Vicki Avril and Executive Vice President - Steel and Chief

 


 

Commercial Officer, John Tulloch will discuss IPSCO Inc.’s annual and fourth quarter results.

 

Persons wishing to listen to the web cast may access it in the Investor Information, Presentations section on the Company’s website at www.ipsco.com. The conference call, including the question and answer portion, will also be archived on IPSCO’s web site for three months.

 

IPSCO, traded as “IPS” on both the New York Stock Exchange and Toronto Stock Exchange, operates steel mills at three locations and pipe mills at six locations in the United States and Canada. As a low cost North American steel producer, IPSCO has a combined annual steel making capacity of 3,500,000 tons. The Company’s tubular facilities produce a wide range of tubular products including line pipe, oil and gas well casing and tubing, standard pipe and hollow structurals. Steel can also be further processed at IPSCO’s five temper leveling and coil processing facilities.

 

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, but not limited to: weather conditions affecting the oil patch; drilling rig availability; demand for oil and gas; supply, demand and price for scrap metal and other raw materials; supply, demand and price for electricity and natural gas; demand and prices for products produced by the Company; general economic conditions; and changes in financial markets. These and other factors are outlined in IPSCO’s regulatory filings with the Securities and Exchange Commission and Canadian securities regulators, including those in IPSCO’s Annual Report for 2004, its MD&A, particularly as discussed under the heading “Business Risks and Uncertainties”, its Annual Information Form, and its Form 40-F.

 

Company Contact:
Tom Filstrup, Director of Investor Relations

Tel. 630.810.4772

tfilstrup@ipsco.com

Release #06-03

 

#  #  #

 


 

US GAAP 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 Twelve Months Ended

 

 

 

December 31

 

December 31

 

September 30

 

December 31

 

December 31

 

 

 

2005

 

2004

 

2005

 

2005

 

2004

 

Plate and Coil Tons Produced (thousands)

 

926.9

 

851.6

 

759.3

 

3,361.4

 

3,283.3

 

Finished Tons Shipped (thousands)

 

953.4

 

895.8

 

847.8

 

3,460.5

 

3,561.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

852,236

 

$

801,076

 

$

726,079

 

$

3,032,727

 

$

2,531,390

 

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

Manufacturing and raw material

 

573,470

 

495,853

 

481,303

 

1,971,155

 

1,724,813

 

Amortization of capital assets

 

20,345

 

20,569

 

19,901

 

80,336

 

82,526

 

 

 

593,815

 

516,422

 

501,204

 

2,051,491

 

1,807,339

 

Gross income

 

258,421

 

284,654

 

224,875

 

981,236

 

724,051

 

Selling, general and administration

 

25,781

 

15,569

 

23,075

 

83,334

 

61,467

 

Operating income

 

232,640

 

269,085

 

201,800

 

897,902

 

662,584

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

 

 

Interest on long-term debt

 

6,444

 

12,258

 

8,784

 

35,631

 

52,099

 

Other expenses (income)

 

(9,904

)

(4,925

)

(1,863

)

(11,767

)

(4,925

)

Dividends on preferred shares

 

—

 

—

 

—

 

—

 

2,306

 

Net interest income

 

(6,147

)

(1,717

)

(4,456

)

(16,626

)

(3,043

)

Loss on early extinguishment of debt

 

5,484

 

—

 

690

 

16,423

 

—

 

Foreign exchange loss (gain)

 

9,785

 

3,440

 

(18,080

)

(9,448

)

(2,749

)

Equity earnings of affiliated company

 

63

 

(374

)

96

 

144

 

39

 

Income before income taxes and cumulative effect of accounting change

 

226,915

 

260,403

 

216,629

 

883,545

 

618,857

 

Income tax expense

 

56,747

 

61,283

 

82,602

 

297,729

 

178,165

 

Net income before cumulative effect of accounting change

 

170,168

 

199,120

 

134,027

 

585,816

 

440,692

 

Cumulative effect of accounting change, net of taxes

 

—

 

—

 

—

 

—

 

14,250

 

Net Income

 

170,168

 

199,120

 

134,027

 

585,816

 

454,942

 

Earnings Per Common Share

- Basic

 

$

3.56

 

$

4.06

 

$

2.81

 

$

12.07

 

$

9.42

 

 

- Diluted

 

$

3.52

 

$

3.91

 

$

2.78

 

$

11.96

 

$

8.69

 

Denominator for Basic Earnings per Common Share (thousands)

 

47,839

 

49,008

 

47,764

 

48,548

 

48,302

 

Denominator for Diluted Earnings per Common Share (thousands)

 

48,302

 

51,151

 

48,162

 

49,001

 

53,234

 

 

US GAAP CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (unaudited)

(thousands of United States Dollars)

 

 

 

For the Three Months Ended

 

For the Twelve Months Ended

 

 

 

December 31

 

December 31

 

September 30

 

December 31

 

December 31

 

 

 

2005

 

2004

 

2005

 

2005

 

2004

 

Retained Earnings at Beginning of Period

 

$

1,178,261

 

$

689,801

 

$

1,058,958

 

$

884,859

 

$

439,453

 

Net Income

 

170,168

 

199,120

 

134,027

 

585,816

 

454,942

 

Common Share Repurchase

 

(149

)

—

 

(9,018

)

(106,235

)

—

 

Dividends on Common Shares

 

(6,621

)

(4,062

)

(5,706

)

(22,781

)

(9,536

)

Retained Earnings at End of Period

 

$

1,341,659

 

$

884,859

 

$

1,178,261

 

$

1,341,659

 

$

884,859

 

 


 

US GAAP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(thousands of United States Dollars)

 

 

 

For the Three Months Ended

 

For the Twelve Months Ended

 

 

 

December 31

 

December 31

 

September 30

 

December 31

 

December 31

 

 

 

2005

 

2004

 

2005

 

2005

 

2004

 

Cash Derived From (Applied To)

 

 

 

 

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

Cash provided by operations

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

170,168

 

$

199,120

 

$

134,027

 

$

585,816

 

$

454,942

 

Gain on sale of assets held for sale

 

—

 

(4,925

)

(1,863

)

(1,863

)

(4,925

)

Unrealized foreign exchange gain

 

1,790

 

—

 

(18,714

)

(18,863

)

—

 

Loss on early extinguishment of debt

 

5,484

 

—

 

690

 

16,423

 

—

 

Stock-based compensation

 

(294

)

462

 

2,300

 

2,987

 

1,123

 

Amortization of capital assets

 

20,345

 

20,569

 

19,901

 

80,336

 

82,526

 

Amortization of deferred charges

 

387

 

338

 

409

 

1,671

 

1,291

 

Deferred income taxes

 

9,451

 

28,988

 

17,935

 

71,808

 

92,380

 

 

 

207,331

 

244,552

 

154,685

 

738,315

 

627,337

 

Changes in working capital

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, less allowances

 

(89,892

)

(52,578

)

(27,435

)

(31,977

)

(151,208

)

Inventories

 

(37,285

)

(47,729

)

29,674

 

(62,116

)

(137,446

)

Other

 

(4,750

)

(5,230

)

151

 

(359

)

(5,114

)

Accounts payable and accrued charges

 

92,354

 

31,186

 

29,142

 

53,222

 

42,118

 

Change in deferred pension asset

 

(12,848

)

(10,487

)

(660

)

(13,163

)

(11,574

)

Income taxes recoverable/payable

 

(63,155

)

88,623

 

33,521

 

(42,000

)

125,376

 

 

 

(115,576)

 

3,785

 

64,393

 

(96,393

)

(137,848

)

 

 

91,755

 

248,337

 

219,078

 

641,922

 

489,489

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

Expenditures for capital assets, net of litigation settlement

 

(23,733

)

(6,873

)

(20,798

)

(66,801

)

(29,163

)

Proceeds from sale of capital assets

 

—

 

4,759

 

1,546

 

1,546

 

4,759

 

Proceeds from (issuance of) mortgage receivable, net

 

(121

)

1,429

 

1,955

 

3,661

 

(2,983

)

 

 

(23,854

)

(685

)

(17,297

)

(61,594

)

(27,387

)

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Common share dividends

 

(6,621

)

(4,062

)

(5,706

)

(22,781

)

(9,536

)

Common shares issued pursuant to share option plan

 

279

 

18,521

 

4,387

 

21,089

 

30,364

 

Common share repurchase

 

(172

)

—

 

(11,564

)

(132,893

)

—

 

Subordinated note redemption

 

—

 

(100,000

)

—

 

—

 

(100,000

)

Retirement of preferred shares

 

—

 

—

 

—

 

—

 

(108,996

)

Repayment of long-term debt

 

(100,178

)

—

 

(2,458

)

(230,473

)

(41,255

)

 

 

(106,692

)

(85,541

)

(15,341

)

(365,058

)

(229,423

)

Effect of exchange rate changes on cash and cash equivalents

 

8,772

 

(7,200

)

2,742

 

13,020

 

(9,264

)

Increase (decrease) in Cash and Cash Equivalents

 

(30,019

)

154,911

 

189,182

 

228,290

 

223,415

 

Cash and Cash Equivalents at Beginning of Period

 

613,083

 

199,863

 

423,901

 

354,774

 

131,359

 

Cash and Cash Equivalents at End of Period

 

$

583,064

 

$

354,774

 

$

613,083

 

$

583,064

 

$

354,774

 

 


 

US GAAP CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited)

(thousands of United States Dollars)

 

 

 

December 31

 

December 31

 

 

 

2005

 

2004

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

 

$

583,064

 

$

354,774

 

Accounts receivable, less allowances

 

388,943

 

339,821

 

Inventories

 

506,237

 

434,436

 

Deferred income taxes

 

30,227

 

45,210

 

Other

 

8,615

 

8,212

 

 

 

1,517,086

 

1,182,453

 

Non-Current Assets

 

 

 

 

 

Capital assets

 

1,056,186

 

1,068,589

 

Other

 

42,851

 

24,240

 

Deferred income taxes

 

9,674

 

65,189

 

 

 

1,108,711

 

1,158,018

 

Total Assets

 

$

2,625,797

 

$

2,340,471

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable and accrued charges

 

$

303,588

 

$

247,281

 

Income and other taxes payable

 

41,073

 

90,656

 

Current portion of long-term debt

 

4,114

 

18,107

 

 

 

348,775

 

356,044

 

Long-Term Liabilities

 

 

 

 

 

Long-term debt

 

313,054

 

513,651

 

Other

 

21,688

 

15,753

 

Deferred income taxes

 

201,647

 

169,166

 

 

 

536,389

 

698,570

 

Shareholders’ Equity

 

 

 

 

 

Common shares

 

430,343

 

424,826

 

Contributed surplus

 

4,477

 

1,489

 

Retained earnings

 

1,341,659

 

884,859

 

Accumulated other comprehensive income

 

(35,846

)

(25,317

)

 

 

1,740,633

 

1,285,857

 

Total Liabilities and Shareholders’ Equity

 

$

2,625,797

 

$

2,340,471