IPSCO Reports Record Results in 2004

LISLE, Ill., Feb. 14 /PRNewswire-FirstCall/ -- IPSCO Inc. Toronto announced today record sales of $2.5 billion for the full year 2004, an increase of $1.2 billion over 2003. Net income was $439 million compared to $17 million last year. Net income attributable to common shareholders was $431 million, compared to $5 million in 2003. Basic and diluted earnings per share in 2004 were $8.92 and $8.24, respectively, compared to $0.09 per share for both basic and diluted earnings per share in 2003. Operating income per ton shipped for the year was $184, compared to $18 per ton in 2003.

Fourth quarter net income was $190 million. Net income attributable to common shareholders was $189 million ($3.85 per basic share and $3.71 per diluted share), up from the $9.7 million ($0.20 per both basic and diluted share, respectively) reported last year. Sales for the quarter were a record $780 million, up $398 million from $382 million in the fourth quarter of 2003. Operating income per ton in the fourth quarter was $299.

IPSCO's record revenue for 2004 resulted from significantly higher year-over-year base prices in all product lines, higher volumes of steel mill and tubular product shipments, and raw material surcharges. Higher sales of energy tubular products resulted from increased drilling activity in Canada and the United States and the completion of two major large diameter projects, Cheyenne Plains and the East Texas Expansion. The stronger Canadian Dollar also increased reported sales by $57.5 million over 2003.

For the eighth consecutive year IPSCO shipped record tonnage, amounting to 3,561,000 tons, or 13.5% more than a year earlier. Shipments of 2,432,700 tons of discrete plate, cut plate and hot rolled coil (steel mill products) were 11% higher than a year earlier. About 32%, or 1,128,300 tons, of IPSCO's total shipments in 2004 were tubular products, up from 30% in 2003, and 20% higher than last year's tubular shipments.

"We are pleased to report IPSCO's third consecutive year of record sales and production levels. We were able to take advantage of favorable market conditions including strong pricing and demand for steel," said David Sutherland, President and Chief Executive Officer. "Our balanced product mix combined with good operating results from our low cost structure continues to produce operating margins per ton that are among the best in class. We have made significant reductions in our debt levels and dilution to our common shareholders, while at the same time making value added growth investments and increasing dividends. Clearly this was a superb year and the IPSCO team responded very well to the opportunity that the market provided. While IPSCO employees were faced with dramatically changing raw material and operating demands, adverse weather including the hurricane in Alabama and new product offerings, these challenges were met while also setting new safety records for the Company. 2004 will stand as a milestone year for the Company, with new financial strength going forward. We will continue looking for opportunities to create and deliver additional shareholder value."

Sales volume for the fourth quarter was 895,600 tons. Quarterly sales of steel mill products were 624,200 tons, 3% less than in the fourth quarter of 2003. Tubular product sales of 271,400 tons in the fourth quarter were up 7% over the year earlier period. Total tons shipped were flat compared to the same quarter last year.

Results for the fourth quarter were very strong. Several factors enhanced the already positive operating performance during the quarter, including an unusually low tax rate of 27.6% primarily related to the reversal of the tax valuation allowance that had been established in periods prior to 2004, large diameter pipe revenue recognition, and favorable flow-through timing of scrap consumption and surcharge receipts. The Company has previously noted that its scrap and surcharge is profit neutral, but the flow of revenue and cost varies as scrap prices fluctuate within periods.

The Company's performance continued to set new earnings records, even without contributions from the above factors.

In October the Company doubled its quarterly cash dividend on common shares from Cdn $0.05 to $0.10 per share. Additionally, IPSCO redeemed the $100 million subordinated notes in November.

"We enter 2005 well positioned to capitalize on the continued steady demand that exists for our products," continued Sutherland. "The fundamentals of our business, pricing and demand all remain strong. We remain on track with our performance expectations."

Outlook

Demand for IPSCO's key product groups of plate and energy tubular products, with the exception of large diameter pipe, continue to exhibit steady demand and pricing levels. IPSCO is exiting 2004 with prices at a stable level and this momentum bodes well going into 2005. The Company expects first quarter earnings to meet or exceed $2.75 per share.

The fourth quarter of 2004 included several favorable factors as compared to our expectations for the first quarter of 2005, the most significant of which was the tax rate. Our estimate for the first quarter of 2005 includes several factors, which will impact earnings, the primary factor being a higher estimated effective tax rate of 37%. In addition, the timing of surcharge realization of the fourth quarter will be reversed if steady scrap price reductions continue as expected. The table below reconciles reported fourth quarter 2004 diluted earnings per share to adjusted diluted earnings per share by excluding the favorable 2004 factors. In addition the table reconciles our estimate of first quarter 2005 diluted earnings per share to put it on a comparable basis to the adjusted fourth quarter 2004 diluted earnings per share amount. We are providing this reconciliation to help our shareholders understand operating and associated income trends for the Company.

4th Qtr 2004 As Reported Reported Diluted EPS $3.71 Adjust to 37% Tax Rate ($0.48) Scrap/Surcharge/Other Factors ($0.14) Adjusted Reported EPS $3.09 1st Qtr 2005 Estimate Estimated Diluted EPS $2.75 Scrap/Surcharge/Other Factors $0.39 Adjusted EPS Estimate $3.14

Besides the scrap and surcharge flow though, other factors in the reconciliations above include differences in product mix related to large diameter shipments in the fourth quarter and increased expenses for the completed Mobile outage in the first quarter estimate.

"While these factors will cause the estimated first quarter's performance to be less than our fourth quarter results, the fundamentals of our business remain steady. With the January steel price increases fully implemented and continued strength in first quarter bookings, IPSCO is off to a good start in 2005," concluded Sutherland.

The Company continues to expect it will generate substantial cash flow during 2005. In addition to making necessary capital investments to grow and improve the business and evaluating potential acquisitions, the Company is committed to delivering additional value to shareholders through its quarterly dividend. In this respect, the Company's Board of Directors has authorized an increase in the quarterly dividend from Cdn $0.10 to $0.12. This increase is on top of a doubling of the dividend from $0.05 announced in October of 2004.

IPSCO has scheduled the live webcast of its fourth quarter 2004 results conference call at 10:00 AM EDT on Monday, February 14, 2005. During the call IPSCO President and CEO, David Sutherland and Senior Vice President and CFO, Vicki Avril will discuss IPSCO Inc.'s fourth quarter results.

Persons wishing to listen to the webcast may access it in the Investor Information, Presentations section on the Company's website at http://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 2003, its MD&A, particularly as discussed under the heading "Business Risks and Uncertainties", and its Form 40-F.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(thousands of United States Dollars except for share, per share and ton data)

For the Three Months For the Twelve Months Ended Ended December December September December December 31 31 30 31 31 2004 2003 2004 2004 2003 (restated) (restated) Plate and Coil Tons Produced (thousands) 851.6 822.9 826.7 3,283.3 3,023.7 Finished Tons Shipped (thousands) 895.6 896.8 844.1 3,561.0 3,137.1 Sales $779,629 $381,513 $641,863 $2,452,675 $1,294,566 Cost of sales Manufacturing and raw material 477,494 321,655 403,874 1,660,009 1,122,625 Amortization of capital assets 19,228 16,320 19,224 77,161 61,138 496,722 337,975 423,098 1,737,170 1,183,763 Gross income 282,907 43,538 218,765 715,505 110,803 Selling, research and administration 15,569 13,984 14,942 61,467 54,683 Operating income 267,338 29,554 203,823 654,038 56,120 Other expenses (income): Interest on long-term debt 8,605 9,349 8,692 35,285 30,583 Net interest income (1,672) (881) (693) (3,469) (1,625) Other - (43) - - (720) Gain on sale of assets held for sale (4,925) - - (4,925) - Foreign exchange loss (gain) 3,440 542 (5,959) (2,749) (5,170) Income Before Income Taxes 261,890 20,587 201,783 629,896 33,052 Income Tax Expense 72,260 7,745 55,864 191,286 16,467 Net Income 189,630 12,842 145,919 438,610 16,585 Dividends on Preferred Shares, including part VI.I tax - 1,673 - 2,461 6,304 Interest on Subordinated Notes, net of income tax 930 1,442 1,442 5,257 5,771 Net Income Attributable to Common Shareholders $188,700 $9,727 $144,477 $430,892 $4,510 Earnings Per Common Share - Basic $3.85 $0.20 $2.99 $8.92 $0.09 - Diluted $3.71 $0.20 $2.76 $8.24 $0.09 Denominator for Basic Earnings per Common Share (thousands) 49,008 47,726 48,364 48,302 47,687 Denominator for Diluted Earnings per Common Share (thousands) 51,151 48,114 52,801 53,234 47,798 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (unaudited) (thousands of United States Dollars) For the Three Months For the Twelve Months Ended Ended December December September December December 31 31 30 31 31 2004 2003 2004 2004 2003 Retained Earnings at Beginning of Period, as previously reported $738,892 $486,238 $596,309 $487,924 $494,599 Cumulative effect of change in accounting policy - 8,037 - 14,250 10,027 Retained Earnings at Beginning of Period, as restated 738,892 494,275 596,309 502,174 504,626 Net Income 189,630 12,842 145,919 438,610 16,585 Dividends on Preferred Shares, including part VI.I tax - (1,673) - (2,461) (6,304) Interest on Subordinated Notes, net of income tax (930) (1,442) (1,442) (5,257) (5,771) Dividends on Common Shares (4,062) (1,828) (1,894) (9,536) (6,962) Retained Earnings at End of Period $923,530 $502,174 $738,892 $923,530 $502,174 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (thousands of United States Dollars) For the Three Months For the Twelve Months Ended Ended December December September December December 31 31 30 31 31 2004 2003 2004 2004 2003 (restated) (restated) Cash Derived From (Applied To) Operating Activities Working capital provided by operations Net income $189,630 $12,842 $145,919 $438,610 $16,585 Gain on sale of assets held for sale (4,925) - - (4,925) - Amortization of capital assets 19,228 16,320 19,224 77,161 61,138 Amortization of deferred charges 338 333 312 1,291 1,216 Deferred pension expense (10,487) (498) (144) (11,574) 638 Future income taxes 39,492 19,672 12,760 96,701 29,488 233,276 48,669 178,071 597,264 109,065 Changes in working capital Accounts receivable, less allowances (18,797) (29,397) (23,030) (118,154) (43,436) Income taxes recoverable/ payable 58,072 8,043 26,235 91,126 - Inventories (47,656) (14,474) (72,399) (137,446) (9,035) Other (5,230) (562) 78 (5,114) 264 Accounts payable and accrued charges 34,250 11,933 18,054 69,733 42,394 20,639 (24,457) (51,062) (99,855) (9,813) 253,915 24,212 127,009 497,409 99,252 Financing Activities Common share dividends (4,062) (1,828) (1,894) (9,536) (6,962) Common shares issued pursuant to share option plan 18,521 2,444 7,821 30,364 2,581 Preferred share dividends - (1,575) - (3,053) (5,902) Retirement of preferred shares - - - (108,996) - Subordinated notes interest (3,494) - (4,250) (11,994) (8,500) Redemption of subordinated notes (100,000) - - (100,000) - Issue of long-term debt - (486) - - 264,114 Repayment of long- term debt - - - (34,286) (225,586) (89,035) (1,445) 1,677 (237,501) 19,745 Investing Activities Expenditures for capital assets (13,676) (3,335) (8,716) (35,568) (13,528) Change in mortgage receivable 1,429 - (278) (2,983) - Litigation settlement 6,500 - - 6,500 - Proceeds on sale of assets held for sale 4,759 (1,029) - 4,759 1,025 (988) (4,364) (8,994) (27,292) (12,503) Effect of exchange rate changes on cash and cash equivalents (8,798) 4,158 (2,590) (9,106) 2,214 Increase in Cash and Cash Equivalents 155,094 22,561 117,102 223,510 108,708 Cash and Cash Equivalents at Beginning of Period 199,983 109,006 82,881 131,567 22,859 Cash and Cash Equivalents at End of Period $355,077 $131,567 $199,983 $355,077 $131,567 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (thousands of United States Dollars) December 31 December 31 2004 2003 (unaudited) (restated) Current Assets Cash and cash equivalents $355,077 $131,567 Accounts receivable, less allowances 338,590 177,925 Income taxes recoverable - 33,054 Inventories 434,526 286,159 Future income taxes 45,210 17,764 Other 8,212 2,833 1,181,615 649,302 Non-Current Assets Capital and other 1,113,272 1,132,371 Future income taxes 54,034 149,430 1,167,306 1,281,801 Total Assets $2,348,921 $1,931,103 Current Liabilities Accounts payable and accrued charges $239,908 $163,895 Income and other taxes payable 90,656 - Current portion of long-term debt 14,286 34,286 344,850 198,181 Long-Term Liabilities Long-term debt 393,053 401,244 Future income taxes 221,381 182,864 614,434 584,108 Shareholders' Equity Preferred shares - 98,695 Common shares 385,582 354,095 Subordinated notes - 104,250 Retained earnings 923,530 502,174 Cumulative translation adjustment 80,525 89,600 1,389,637 1,148,814 Total Liabilities and Shareholders' Equity $2,348,921 $1,931,103 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (thousands of United States Dollars) 1. 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 December 31, 2003 is as follows: December 31, 2004 Increase (decrease) Recoverable income taxes $(3,699) Future income taxes - current asset (5,212) Current Assets (25,056) Future income taxes - long-term liability 1,221 Retained earnings 14,250 Current Liabilities 674 The impact on net income and earnings per share in previously reported periods is as follows: For the Three For the Twelve Months Ended Months Ended December 31 December 31 2003 2003 Net income attributable to common shareholders, as previously reported $7,290 $287 Adjustment 2,437 4,223 Net income attributable to common shareholders, as restated $9,727 $4,510 Earnings Per Common Share - Basic and Diluted, as previously reported $0.15 $0.01 Adjustment 0.05 0.08 Earnings Per Common Share - Basic and Diluted, as restated $0.20 $0.09 2. During the quarter ended September 30, 2004, the Company reduced its estimated annual effective income tax rate to 32.3% from the 38% utilized in the first half of 2004. The rate change is principally the result of reduction of the valuation allowance that had been provided on United States net operating losses in prior periods. Due to the Company's strong earnings performance in 2004, the United States net operating loss carryforwards are being realized and the valuation allowance is being reduced. The change in the effective rate reduced income tax expense by approximately $20.8 million and increased per share earnings ($.43 per basic share and $.39 per diluted share) for the three months ended September 30, 2004, including $9.4 million ($.20 per basic share and $.17 per diluted share) representing the catch-up effect for the first six months of 2004. During the quarter ended December 31, 2004, the change in the Company's annual estimated effective income tax rate to 30.4% had the effect of increasing net income for the quarter by approximately $7.0 million or $.14 per basic and diluted share. TONS SHIPPED (unaudited) (thousands) For the Three For the Twelve Months Ended Months Ended December December September December December 31 31 30 31 31 2004 2003 2004 2004 2003 Discrete Plate and Coil 499.8 495.6 453.0 1,859.6 1,619.9 Cut Plate 124.4 148.5 133.7 573.1 576.6 Total Steel Mill Products 624.2 644.1 586.7 2,432.7 2,196.5 Energy Tubulars 186.0 165.0 148.5 665.6 582.7 Large Diameter Tubulars 39.7 25.4 46.9 196.6 112.6 Non-Energy Tubulars 45.7 62.3 62.0 266.1 245.3 Total Tubular Products 271.4 252.7 257.4 1,128.3 940.6 Total Shipments 895.6 896.8 844.1 3,561.0 3,137.1 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 For the Twelve Months Ended Ended December December September December December 31 31 30 31 31 2004 2003 2004 2004 2003 The following is a reconciliation of cash derived from operating activities to EBITDA (Canadian and U.S. GAAP): Cash derived from operating activities $253,915 $24,213 $127,009 $497,409 $99,252 Changes in working capital (20,639) 24,456 51,062 99,855 9,813 Current income tax expense (benefit) 32,768 (11,927) 43,104 94,585 (13,021) Interest expense, net 6,933 8,468 7,999 31,816 28,958 Other 10,149 165 (168) 10,283 (1,854) EBITDA (Canadian GAAP) 283,126 45,375 229,006 733,948 123,148 US GAAP adjustments relating to: Sale and leaseback 3,471 3,471 3,471 10,413 10,413 Natural gas hedge (259) (366) (259) (474) (634) EBITDA (US GAAP) $286,338 $48,480 $232,218 $743,887 $132,927 Operating Income Per Ton $299 $33 $241 $184 $18 Annualized Return on Common Shareholders' Equity 59% 2% 53% 37% 0%