0001104659-07-035980.txt : 20070504 0001104659-07-035980.hdr.sgml : 20070504 20070504153835 ACCESSION NUMBER: 0001104659-07-035980 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20070504 DATE AS OF CHANGE: 20070504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IPSCO INC CENTRAL INDEX KEY: 0000879933 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14568 FILM NUMBER: 07820220 BUSINESS ADDRESS: STREET 1: PO BOX 1670 REGINA CITY: SASKATCHEWAN S4P 3C7 STATE: A9 BUSINESS PHONE: 2123733000 MAIL ADDRESS: STREET 1: P O BOX 1670 REGINA CITY: SASKATCHEWAN STATE: A9 ZIP: S4P3C7 10-Q 1 a07-11143_110q.htm 10-Q

United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2007

Commission File Number: 001-14568

IPSCO Inc.

(Exact name of registrant as specified in its charter)

CANADA

(State or other jurisdiction of incorporation or organization)

98-0077354

(I.R.S. Employer Identification No.)

650 Warrenville Road, Suite 500, Lisle, Illinois 60532
Telephone: (630)-810-4800

(Address and telephone number of principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes o No

The number of shares of common stock outstanding as of April 30, 2007 is 47,216,092.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

IPSCO Inc.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands of United States Dollars except for per share and ton data)

		For the Three Months Ended
		Mar 31 2007			Mar 31 2006
Plate and Coil Tons Produced (thousands)		829.8			895.6
Finished Tons Shipped (thousands)		1,073.3			1,005.4
Sales		$	1,031,686		$	902,896
Cost of sales		803,470			623,429
Gross income		228,216			279,467
Selling, general and administration		48,743			32,386
Operating income		179,473			247,081
Other expenses (income):
Interest on long-term debt		16,124			5,833
Net interest income		(1,855		)	(7,015		)
Foreign exchange loss		933			1,324
Other		(373		)	(112		)
Income Before Income Taxes		164,644			247,051
Income Tax Expense		55,201			96,350
Net Income		109,443			150,701
Cumulative translation adjustment		(3,713		)	1,226
Change in fair value of derivatives, net of tax		(2,205		)	(5,398		)
Comprehensive income		$	103,525		$	146,529
Earnings per Common Share	—Basic	$	2.33		$	3.15
	—Diluted	$	2.30		$	3.12
Dividends Declared per Common Share (Canadian dollars)		$	0.20		$	0.18

IPSCO Inc.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (unaudited)
(thousands of United States Dollars)

	For the Three Months Ended
	Mar 31 2007			Mar 31 2006
Retained Earnings at Beginning of Period	$	1,875,067		$	1,341,659
Net Income	109,443			150,701
Dividends on Common Shares	(8,087		)	(7,450		)
Retained Earnings at End of Period	$	1,976,423		$	1,484,910

IPSCO Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands of United States Dollars)

	For the Three Months Ended
	Mar 31 2007			Mar 31 2006
Operating Activities
Net income	$	109,443		$	150,701
Adjustments to reconcile net income to net cash flows from operating activities
Stock-based compensation	2,489			1,237
Depreciation of capital assets	26,788			20,083
Amortization of intangible assets	14,428			—
Amortization of deferred charges	1,271			461
Deferred income taxes	(18,475		)	804
Changes in operating assets and liabilities
Accounts receivable, less allowances	47,129			(12,725		)
Inventories	84,053			(43,356		)
Other	10,932			1,435
Accounts payable and accrued charges	9,190			(27,708		)
Change in pension liability	(795		)	(178		)
Income taxes payable	62,770			29,352
Net cash provided by operations	349,223			120,106
Investing Activities
Expenditures for capital assets	(55,194		)	(30,599		)
Other	—			(94		)
Acquisition of business	(2,281		)	—
Net cash used for investing activities	(57,475		)	(30,693		)
Financing Activities
Common share dividends	(8,087		)	(7,450		)
Common shares issued pursuant to share option plan	45			447
Repayment of operating line	(44,821		)	—
Repayment of long-term debt	(10,302		)	(4,991		)
Net cash used for financing activities	(63,165		)	(11,994		)
Effect of exchange rate changes on cash and cash equivalents	333			2,841
Increase in Cash and Cash Equivalents	228,916			80,260
Cash and Cash Equivalents at Beginning of Period	34,377			583,064
Cash and Cash Equivalents at End of Period	$	263,293		$	663,324

IPSCO Inc.
CONSOLIDATED BALANCE SHEETS (unaudited)
(thousands of United States Dollars)

	Mar 31 2007			Dec 31 2006
Current Assets
Cash and cash equivalents	$	263,293		$	34,377
Accounts receivable, less allowances	405,552			449,736
Inventories	815,157			896,477
Income taxes recoverable	—			30,031
Deferred income taxes	46,930			40,689
Other	18,485			28,703
	1,549,417			1,480,013
Non-Current Assets
Capital assets	1,337,644			1,313,517
Goodwill and other intangible assets	1,290,684			1,298,144
Other	38,293			40,079
	2,666,621			2,651,740
Total Assets	$	4,216,038		$	4,131,753
Current Liabilities
Bank indebtedness	$	—		$	45,000
Accounts payable and accrued charges	357,583			354,207
Income and other taxes payable	32,737			—
Current portion of long-term debt	35,212			33,379
	425,532			432,586
Long-Term Liabilities
Long-term debt	867,667			879,675
Other	75,040			68,639
Deferred income taxes	478,190			491,052
	1,420,897			1,439,366
Shareholders’ Equity
Common shares	414,979			414,934
Contributed surplus	27,520			25,031
Retained earnings	1,976,423			1,875,067
Accumulated other comprehensive loss	(49,313		)	(55,231		)
	2,369,609			2,259,801
Total Liabilities and Shareholders’ Equity	$	4,216,038		$	4,131,753

IPSCO Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (unaudited)
(thousands of United States Dollars)

1. These unaudited consolidated financial statements have been prepared on a basis consistent with those used in the preparation of the statements and notes thereto filed with the Securities and Exchange Commission in the Company’s 2006 Annual Report on Form 10-K. In the opinion of the Company, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. These interim results are not necessarily indicative of expected results for the year.

The Company files tax returns for Canadian federal and provincial jurisdictions and U.S. federal and state jurisdictions. The Canada Revenue Agency has completed examinations of the Canadian tax returns up to and including the taxation year ended December 31, 2002. They will begin an examination of the Canadian tax returns for the periods ending December 31, 2003, 2004, and 2005 beginning in the second quarter of 2007 and expected to be completed by the end of 2008. The Internal Revenue Service in the United States has completed examinations for the taxation year ending December 31, 1999. The U.S. federal tax returns are closed through December 31, 2002 due to the lapsing of the statute of limitations except for certain net operating losses that were utilized after this date.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. In the Balance Sheet, the Company has an $11 million liability recorded for unrecognized tax benefits at January 1, 2007, including interest and penalties of $2 million. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of tax expense. The total amount of unrecognized tax benefits which, if recognized, would affect tax expense is $11 million. However, the Company does not anticipate that the total amount of unrecognized tax benefit will materially change within the next 12 months. The Company did not record any adjustment to its January 1, 2007 opening retained earnings balance as a result of the adoption of FASB Interpretation No. 48.

2. Inventories

	Mar 31 2007		Dec 31 2006
Finished goods	$	324,608	$	340,816
Work-in-process	263,504		344,330
Raw materials	115,136		103,544
Supplies	111,909		107,787
	$	815,157	$	896,477

3. Pensions

Pension cost attributable to the Company’s pension plans is as follows:

	For the Three Months Ended
	Mar 31 2007			Mar 31 2006
Defined benefit plans
Service cost	$	2,158		$	2,059
Interest cost	3,267			3,166
Expected return on plan assets	(3,568		)	(3,201		)
Amortization of gains, losses and past service costs	1,246			1,552
	3,103			3,576
Defined contribution plans	1,847			1,650
	$	4,950		$	5,226

4. Earnings per share

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is calculated by dividing net income by the weighted average shares outstanding plus share equivalents that would arise from the exercise of share options, deferred share units, restricted shares and performance units. The per share amounts disclosed are based on the following:

	For the Three Months Ended
	Mar 31 2007			Mar 31 2006
Numerator for basic and diluted earnings per share	$	109,443		$	150,701
Common shares outstanding—March 31	47,215,092			48,073,019
Non-vested restricted shares	(163,884		)	(210,003		)
Weighted average impact of shares issued	(833		)	(9,610		)
Denominator for basic earnings per share	47,050,375			47,853,406
Adjustment for share options	81,907			97,884
Adjustment for deferred share units	123,298			116,569
Adjustment for restricted shares	93,161			129,607
Adjustment for performance units	229,204			152,931
Denominator for diluted earnings per share	47,577,945			48,350,397

The Company issued 1,500 and 21,400 common shares in the quarters ended March 31, 2007 and 2006, respectively, as a result of option exercises.

5. Stock Based Compensation

The Company has an incentive share plan under which common shares are reserved for directors, officers and employees. As of March 31, 2007 and March 31, 2006, shares available for future grants are 599,149 and 728,364, respectively. The restricted shares and performance units vest at the end of three years based on 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. For the quarters ended March 31, 2007 and March 31, 2006 compensation expense of $5,838 and $8,936 has been recorded, respectively.

6. Income Taxes

During the quarter ended March 31, 2007, the Company calculated its estimated annual effective income tax rate to be 33.5% compared to the prior year rate of 35.8%. The decrease is due to the benefit that is expected to be received from tax planning strategies implemented at the time of the acquisition of NS Group on December 1, 2006. The 33.5% rate for the quarter ended March 31, 2007 as compared to the 39% effective rate for the quarter ended March 31, 2006 reflects the fact that the Company now estimates that all of its unremitted earnings from the U.S. operations would be permanently reinvested and the Company is no longer required to record a liability for withholding tax payments on repatriation of the funds. In addition, the first quarter 2006 tax rate reflected an expense for the impact of rate changes on the opening deferred tax balances as a result of increases in the effective tax rate of the U.S. operations. Finally, the deduction for the manufacturing and processing activities in the U.S. increased from 3% to 6% resulting in a lower tax rate for the first quarter of 2007 as compared to the first quarter of 2006.

7. Segmented Information

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
	Mar 31 2007		Mar 31 2006
Sales
Canada	$	297,793	$	340,833
United States	733,893		562,063
	$	1,031,686	$	902,896

	Mar 31 2007		Dec 31 2006
Capital assets and goodwill
Canada	$	232,420	$	217,309
United States	1,707,699		1,694,518
	$	1,940,119	$	1,911,827

	For the Three Months Ended
	Mar 31 2007		Mar 31 2006
Sales information by product group is as follows:
Steel mill products	$	499,465	$	504,213
Tubular products	532,221		398,683
	$	1,031,686	$	902,896

Tubular product sales volume in the first and second quarters can be negatively impacted by weather conditions in Western Canada.

8. Business Combination

On December 1, 2006, the Company acquired 100% of the common shares of NS Group, Inc. a manufacturer of seamless and welded oilfield tubular goods, for $66 per share in cash. The total value of the transaction including acquisition costs, and net of cash acquired of approximately $66,000, was $1,428,029. NS Group is now a wholly-owned subsidiary and the results of NS Group’s operations have been included in the consolidated financial statements since the December 1, 2006 acquisition date.

During the quarter ending March 31, 2007, the Company continued to refine the purchase price asset allocation resulting in a $6.8 million reduction of capital assets, $2.8 million increase of customer relationships, $2.2 million decrease of long-term deferred tax liability and $1.8 million increase in goodwill. In addition, a working capital adjustment related to the purchase of Ultra Premium Oilfield Services by NS Group, Inc. was recorded resulting in additional goodwill of $2.3 million.

The following pro forma consolidated results of operations assume the acquisition of NS Group was completed as of the beginning of the period being reported on. Pro forma data may not be indicative of the results that would have been obtained had the acquisition actually occurred at the beginning of the period presented, or of results which may occur in the future.

	For the Three Months Ended
	Mar 31 2006
Sales		$	1,093,354
Net income		$	134,628
Earnings per common share
Basic		$	2.81
Diluted		$	2.78

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Statements made in this report that are not statements of historical fact are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, without limitation, any statements that may project, indicate or imply future results, events, performance or achievements and can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these terms or other comparable words, or by discussions of strategy, plans or intentions.

Forward-looking information reflects management’s current views of future events and financial performance that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include, but are not limited to, the following: (1) general economic conditions; (2) changes in financial markets; (3) political conditions and developments, including conflict in the Middle East and the war on terrorism; (4) changes in the supply and demand for steel and our specific steel products; (5) the level of demand outside of North America for steel and steel products; (6) equipment performance at our manufacturing facilities; (7) the occurrence of any material lawsuits; (8) the availability of capital; (9) our ability to properly and efficiently staff our manufacturing facilities; (10) domestic and international competitive factors, including the level of steel imports into the Canadian and U.S. markets; (11) economic conditions in steel exporting nations; (12) trade sanction activities and the enforcement of trade sanction remedies; (13) supply and demand for scrap steel and iron, alloys and other raw materials; (14) supply, demand and pricing for the electricity and natural gas that we use; (15) changes in environmental and other regulations, including regulations arising from the Canadian Parliament’s ratification of the Kyoto Protocol, and the magnitude of future environmental expenditures; (16) inherent uncertainties in the development and performance of new or modified equipment or technologies; (17) North American interest rates; and (18) exchange rates.

This list is not exhaustive of the factors that may impact our forward-looking statements. These and other factors should be considered carefully and users should not place undue reliance on our forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements.

We refer you to the sections captioned “Statement Regarding Forward-Looking Information” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, incorporated herein by reference, for a more detailed discussion of some of the many factors, variables, risks, and uncertainties that could cause actual results to differ materially from those we may have expected or anticipated. We caution that any forward-looking statement reflects only our reasonable belief at the time the statement is made. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures the Company makes on related subjects as may be detailed in our other filings made from time to time with the Securities and Exchange Commission.

General

The following discussion and analysis presents factors which affected the Company’s consolidated results of operations for the three-month periods ended March 31, 2007 and March 31, 2006, and the Company’s consolidated financial position at March 31, 2007. We continue to operate and report our business as a single business segment. The following information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Form 10-Q and in the Company’s Form 10-K for the year-ended December 31, 2006. As used in this report, IPSCO Inc. and its subsidiaries, unless otherwise specified, are collectively referred to as “IPSCO” or the “Company”, and unless the context otherwise requires, the terms “we”, “us”, “our” and similar references refer to the Company.

Recent Developments

Pending Arrangement

On May 3, 2007, the Company, SSAB Svenskt Stål AB, a corporation existing under the laws of Sweden (“SSAB”) and SSAB Canada Inc., a wholly owned subsidiary of SSAB and a corporation existing under the laws of Canada (“Acquisition Sub”), entered into an Arrangement Agreement (the “Arrangement Agreement”). The Arrangement Agreement provides that, upon the terms and subject to the conditions set forth in the Arrangement Agreement, Acquisition Sub will acquire all of the outstanding common shares of IPSCO for cash at a price per share of $160.00 (the “Purchase Price”), to be implemented by way of a court-approved plan of arrangement (the “Arrangement”).

At the effective time of the Arrangement, we will become a wholly owned subsidiary of SSAB and each common share of IPSCO (other than shares held by (i) any shareholders who properly exercise dissent rights under Canadian law or (ii) SSAB, Acquisition Sub or any of their affiliates) will be transferred to Acquisition Sub in consideration for the Purchase Price.

Consummation of the Arrangement is subject to customary conditions, including IPSCO shareholder approval, court approval, expiration or termination of the applicable Hart-Scott-Rodino waiting period and similar antitrust laws in Canada, and receipt of certain other regulatory approvals, including under the Investment Canada Act.

The Arrangement Agreement contains certain termination rights for both IPSCO and SSAB, and further provides that, upon termination of the Arrangement Agreement under specified circumstances, we may be required to pay SSAB a termination fee of 3.0% of the aggregate Purchase Price. The Arrangement Agreement additionally provides that upon termination of the Arrangement Agreement under specified circumstances, we may be required to reimburse SSAB for expenses incurred by SSAB in connection with the transactions contemplated by the Arrangement Agreement in an amount not to exceed $10 million.

Overview: First Quarter Operating Results 2007 vs. 2006

First quarter 2007 sales were a record $1,031.7 million, $128.8 million or 14.3% higher than the $902.9 million reported in the first quarter of 2006. Steel mill product revenue of $499.5 million decreased $4.7 million from the first quarter 2006. The decrease in steel mill product sales were primarily due to inventory reduction efforts by service centers and a scheduled maintenance outage at our Mobile steelmaking facility. Tubular product sales of $532.2 million increased $133.5 million or 33.5% from the same quarter last year. The increase resulted from the combination of the addition of shipments related to the NS Group, Inc. (“NSG”) acquisition and an increase in large diameter shipments.

For the quarter, we shipped a record 1,073,000 tons of finished products, up 68,000 tons or 6.7% from the 1,005,000 tons reported last year. Steel mill product shipments in the first quarter of 649,000 tons were 9,000 tons or 1.4% lower than the prior year. Tubular products had record shipments in the first quarter of 424,000 tons, 77,000 tons or 22.3% higher than 347,000 tons in last year’s first quarter. Energy tubular shipments of 272,000 tons, and large diameter pipe shipments of 89,000 tons were 63,000 and 10,000 tons greater than the same period last year, respectively.

Plate and coil tons produced in the first quarter of 2007 of 830,000 tons were 66,000 tons less than the prior year. The Mobile maintenance shutdown was the primary reason for the decrease.

Gross income for the quarter was $228.2 million a decline of $51.3 million from the first quarter of last year. The lower gross income is the result of the amortization of the remaining $24 million fair value increment allocated to NSG inventory, higher scrap costs, expenses related to the Mobile maintenance outage, and higher tubular product costs.

The average per ton cost of scrap consumed in the first quarter of 2007 increased 8% from the first quarter of 2006. Aggregate conversion costs for the three steelworks were 4% higher than the same period last year due to

increases in scrap, alloys, energy and maintenance costs. We supply the majority of steel input needed to make tubular product and any additional coil needed for tubular production is purchased externally. The increase in the cost of steel produced, as well as the increase in the cost of purchased coil, has driven average tubular costs higher year over year. The average cost per ton of all product sold increased to $749 per ton, $129 per ton higher than the same quarter last year, of which $29 per ton relates to the inventory and capital asset fair value amortization. Increases in scrap, steel mill product conversion costs, increases in the costs of purchased coil, and a higher cost sales mix due to increased large diameter pipe sales and the inclusion of seamless product costs in the first quarter of 2007 were other factors which contributed to the average product cost increase.

Selling, general and administrative expenses were $48.7 million during the first quarter of 2007, as compared to $32.4 million during the same period in 2006, an increase of $16.3 million. Amortization of intangibles related to the NSG acquisition were $14.4 million. Excluding the amortization of intangibles, expenses increased $1.9 million, or 6% over first quarter 2006. Expense due to share price appreciation was $7.4 million in the first quarter 2007 compared to $4.7 million in first quarter 2006. Selling, general and administrative expenses , including the amortization of intangibles related to NSG are 5% of sales. Exclusive of this amortization, SG&A represented 3% of sales compared to 4% in 2006.

Operating income per ton in the first quarter was $167 per ton compared to $246 per ton in the prior period as amortization expense of the fair value increment relating to the tangible and intangible assets acquired in the NSG acquisition reduced operating profit by $36 per ton, increased cost of scrap was $23 per ton, and costs related to the Mobile maintenance outage were $9 per ton.

Interest expense on long-term debt was $16.1 million, compared to $5.8 million in the first quarter of 2006. This increase in the first quarter 2007 as compared to first quarter 2006 is primarily the result of long-term financing related to the acquisition of NSG. Interest income declined to $1.9 million from $7.0 million in the prior period reflecting the significant use of cash balances in December of 2006 for the NSG acquisition.

Changes in the Canadian to U.S. dollar exchange rates can impact reported earnings. The first quarter 2007 foreign exchange loss was $0.9 million compared to a loss in 2006 of $1.3 million.

The effective tax rate was 33.5% compared to 39% recorded in the first quarter of 2006. In the first quarter of 2006, we had recorded a tax liability for the portion of our earnings in the U.S. that were not expected to be permanently reinvested in order to reflect the future withholding tax payments on repatriation of the funds. In the first quarter of 2007, we have estimated that all of our un-remitted earnings from the U.S. operations will be permanently reinvested. The first quarter 2006 tax rate reflected an additional liability for the impact of effective tax rate changes on deferred tax balances as the result of increases in the effective tax rate of the U.S. operations. The Company has adopted tax planning strategies in conjunction with the NSG acquisition which reduce the effective tax rate by approximately 2%. Finally, the deduction rate for the manufacturing and processing activities in the U.S. increased from 3% to 6% resulting in a lower tax rate for the first quarter of 2007 as compared to the first quarter 2006.

Net income for the first quarter of 2007 was $109.4 million or $2.30 per diluted share compared to $150.7 million or $3.12 per diluted share during first quarter of 2006. The decrease in net income during 2007 was due to factors described above. The denominator used in the earnings per share calculation was 47.6 million shares in the first quarter of 2007 compared to 48.3 million shares in the first quarter of 2006.

Outlook

Solid end user demand for our steel mill products is continuing while service centers returned to a buying mode late in the first quarter. IPSCO’s steel mill capacity is fully committed through the second quarter and we have no scheduled outages in the second quarter. The pricing environment has improved on plate and wide coil however higher scrap costs will impact margins.

We expect high oil and gas prices to continue to drive high U.S. rig counts. However, due to spring break up, we expect second quarter OCTG sales volumes in Canada will be seasonally weaker than the first quarter with improvement in the last half of the year. In addition, our spiral pipe facilities are now booked at full capacity through May 2009.

Excluding foreign exchange gains or losses and share price volatility, and assuming an effective tax rate of 33.5%, we forecast second quarter earnings to be in the range of $2.60 to $2.80 per diluted share.

Financial Position and Liquidity

Cash at March 31, 2007 was $263.3 million, an increase of $228.9 million in the quarter. Net cash generated by operating activities for the three months ended March 31, 2007 was $349.2 million compared to $120.1 million generated by operating activities for the same period in 2006. This increase was primarily due to decreases in inventory of $84.1 million and accounts receivable of $47.1 million and an increase in taxes payable of $62.8 million.

Capital expenditures in the first quarter of 2007 were $55.2 million, compared with $30.6 million in the same period in 2006. Capital expenditures are anticipated to total approximately $300 million in 2007. Some of the major expenditures in the quarter are related to the spiral mill line being installed at our Regina facility, Blytheville Heat Treat Facility, Montpelier Vacuum Degasser and the Mobile Reheat and Rolling Mill upgrades.

In February 2007, IPSCO’s Board of Directors approved a quarterly cash dividend on the Company’s common shares of CDN $0.20 per share, paid on March 30, 2007 to stockholders of record on March 15, 2007.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to various market risks, including commodity price risk, foreign currency risk and interest rate risk. To manage the volatility related to these risks, we have entered into various derivative contracts, the majority of which are settled in cash. Such settlements have not had a significant effect on our liquidity in the past, nor are they expected to be significant in the future. We do not use derivatives for speculative or trading purposes.

Commodity Price Risk

IPSCO manages a portion of our exposure to price risk related to natural gas purchases by using derivative financial instruments. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas. Gains and losses from the use of these instruments are deferred in accumulated other comprehensive income on the consolidated balance sheets and recognized into production costs in the same period as the underlying transaction. At March 31, 2007, accumulated other comprehensive income/loss includes $0.8 million in unrealized net-of-tax losses for the fair value of these instruments. A sensitivity analysis indicates that the reduction in the fair value of these instruments at March 31, 2007, due to hypothetical declines of 10% and 25% in market prices of natural gas at that time would be $2.7 million and $6.7 million, respectively (March 31, 2006 - $4.2 million and $10.5 million, respectively). Any resulting changes in fair value would be recorded as adjustments to other comprehensive income, net of tax. Because these instruments are hedges, these hypothetical losses would be offset by the benefit of lower prices paid for the natural gas used in the normal production cycle.

Interest Rate Risk

Our outstanding debt is a combination of both fixed rate debt and variable rate debt. The variable rate portion of long-term debt is $597 million out of a total of $903 million. An increase of 1% in short term rates would decrease pretax income by $5.97 million or alternatively a decrease of 1% in interest rates would increase pretax income by $5.97 million. Our investment practice is to invest in highly liquid money market funds or securities with short remaining maturities. As a result, changes in interest rates are not expected to have a significant impact on the value of these investments. As such, future changes in interest rates will not have any impact on the value of cash equivalent

investments however; changes in interest rates will impact interest expense due to variable rate debt within our debt structure. We have not engaged in interest swaps to manage interest rate exposure.

Foreign Currency Risk

IPSCO is subject to the impact of changes in exchange rates on revenues and operating costs, firm commitments for capital expenditures and existing assets or liabilities (including certain inter-company balances), particularly changes in the value of the U.S. dollar versus the Canadian dollar. At March 31, 2007, there were no foreign exchange contracts outstanding.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Management, under the supervision of the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2007. Based on such evaluation, IPSCO’s President and Chief Executive Officer and Senior Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of March 31, 2007, and that there have been no significant changes in such controls and procedures, or in other factors, that could significantly affect these controls subsequent to their evaluation date.

Changes in Internal Control

During the quarter ended March 31, 2007, the Company has developed and implemented internal controls relating to the new reporting standards under FASB Interpretation No. 48.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

There have been no material changes in legal proceedings since the issuance of the Company’s Form 10-K.

Item 1A. Risk Factors.

There have been no material changes in the risk factors provided in Item 1A of Part 1 of the Company’s Form 10-K for the year ended December 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

2.2		Arrangement Agreement dated as of May 3, 2007 among IPSCO Inc., SSAB Svenskt Stål AB and SSAB Canada Inc. incorporated by reference to Exhibit 2.1 to Form 8-K filed May 3, 2007 (the schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K).
31.1		Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	IPSCO Inc. (Registrant)
	By:	/s/ DAVID S. SUTHERLAND
Date: May 4, 2007		David S. Sutherland
		President and Chief Executive Officer
	By:	/s/ VICKI L. AVRIL
Date: May 4, 2007		Vicki L. Avril
		Senior Vice President and Chief Financial Officer

EX-31.1 2 a07-11143_1ex31d1.htm EX-31.1

Exhibit 31.1

CERTIFICATION

I, David S. Sutherland, certify that:

1. I have reviewed this quarterly report on Form 10-Q of IPSCO Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2007
/s/ DAVID S. SUTHERLAND
David S. Sutherland,
President and Chief Executive Officer

EX-31.2 3 a07-11143_1ex31d2.htm EX-31.2

Exhibit 31.2

CERTIFICATION

I, Vicki L. Avril, certify that:

1. I have reviewed this quarterly report on Form 10-Q of IPSCO Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2007
/s/ VICKI L. AVRIL
Vicki L. Avril,
Senior Vice President and Chief Financial Officer

EX-32.1 4 a07-11143_1ex32d1.htm EX-32.1

Exhibit 32.1

CERTIFICATION

In connection with this quarterly report of IPSCO Inc. (the “registrant”), the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

1. The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 4, 2007
By:	/s/ DAVID S. SUTHERLAND	By:	/s/ VICKI L. AVRIL
	David S. Sutherland		Vicki L. Avril
	President and Chief Executive Officer		Senior Vice President and Chief Financial Officer