CONSOLIDATED FINANCIAL & OTHER INFORMATION AS PER U.S. GAAP
For the Fourth For the Year
Quarter Ended Ended
December 31, December 31,
In millions of U.S. Dollars,
except share, per share and
other data
2002 2001 2002 2001
(Unaudited) (Unaudited)(Unaudited)(Audited)
Statement of Income
Data
Sales $1,325 $1,075 $4,889 $4,486
Costs and expenses:
Cost of sales(1)
(exclusive of depreciation
shown separately) 1,147 1,032 4,356 4,273
Depreciation 45 44 177 177
Selling, general and
administrative expenses 42 44 152 155
Other operating expenses(2) 62 23 62 75
1,296 1,143 4,747 4,680
Operating income (loss) 29 (68) 142 (194)
Operating margin 2.2% (6.3%) 2.9% (4.3%)
Other income (expense)-net (3) 6 20 14 13
Financing costs:
Interest (expense) (44) (68) (208) (242)
Interest income 2 1 5 14
Net gain (loss) from foreign exchange 5 (7) 2 (9)
(37) (74) (180) (237)
Income (loss) before taxes (2) (122) (24) (418)
Income tax expense (benefit):
Current 2 (2) 18 8
Deferred (55) (34) (72) (114)
(53) (36) (54) (106)
Net income (loss) before
extraordinary income 51 (86) 30 (312)
Gain on repurchase of debt,
net of tax -- -- 19 --
Net income (loss) 51 (86) 49 (312)
Basic and diluted earnings
per common share 0.42 (0.71) 0.40 (2.58)
Weighted average common shares
outstanding (in millions) 124 121 124 121
Other Data
Total shipments of steel products
(thousands of tons)(4) 3,744 3,219 15,037 14,118
(1) Includes $18 towards workforce restructuring provision during the
fourth quarter 2001 and in addition includes $28 towards slab
reheating furnace startup cost and credit of $8 towards settlement
of lawsuit earlier during 2001.
(2) Includes provision of $19 with respect to a scrap supply contract,
$17 towards closure of Irish Ispat Limited, $17 write down in value
of certain e-commerce software and $22 impairment loss on ocean
going vessels during 2001. For the fourth quarter of 2001, includes
provision of $1 with respect to a scrap supply contract and $22
impairment loss on ocean going vessels. For the fourth quarter and
year 2002, includes $39 towards write-off of Empire mine investments
and $23 towards impairment loss of 2A Bloomer and 21" Bar mill.
(3) Includes $19 write-off of e-commerce investments in 2001. For the
fourth quarter and year 2002, includes $7 towards gain on sale of
assets by pipe making subsidiary in Mexico.
(4) Total shipments include inter-company shipments.
Note: Certain regroupings have been made to the prior period's financial
statements in order to conform to 2002 groupings.
CONSOLIDATED BALANCE SHEETS UNDER U.S. GAAP
As at
December 31, December 31,
In millions of U.S. Dollars 2002 2001
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents,
including short term investments 77 85
Trade accounts receivable - net 529 451
Inventories 873 805
Prepaid expenses and other 95 65
Deferred tax assets 38 37
Total Current Assets 1,612 1,443
Property, plant and equipment - net 3,035 3,109
Investments in affiliates and
Joint Ventures 257 299
Deferred tax assets 438 273
Intangible pension assets 84 83
Other assets 86 106
Total Assets 5,512 5,313
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Payable to banks 137 158
Current portion of long term debt 125 180
Trade accounts payable 607 540
Accrued expenses and other
current liabilities 377 303
Deferred tax liabilities 28 28
Total Current Liabilities
1,274 1,209
Long term debt 2,022 2,041
Deferred tax liabilities 69 134
Deferred employee benefits 1,881 1,493
Other long term obligations
138 98
Total Liabilities 5,384 4,975
Shareholders' equity
Common shares 7 7
Additional paid-up capital 484 480
Retained earnings 141 92
Cumulative other comprehensive income (504) (241)
Total Shareholders' equity 128 338
Total Liabilities and Shareholders'
Equity 5,512 5,313
CONSOLIDATED STATEMENTS OF CASH FLOWS AS PER U.S. GAAP
For the Fourth For the Year
Quarter Ended Ended
December 31, December 31,
In millions of U.S. Dollars 2002 2001 2002 2001
(Unaudited)(Unaudited) (Unaudited)(Audited)
Operating activities:
Net income $51 $(86) $49 $(312)
Adjustments required to
reconcile net income to net cash
provided from operations:
Depreciation 45 44 177 177
Deferred employee benefit costs 1 (7) (52) (106)
Net foreign exchange loss (gain) (5) 6 (23) 9
Deferred income tax (53) (36) (61) (114)
Undistributed earnings from joint
ventures(1) 1 13 -- 12
Other operating expenses(2) 62 22 62 56
Other 3 4 (2) 2
Changes in operating assets and
liabilities, net of effects
from purchases of subsidiaries:
Trade accounts receivable 13 39 (64) 114
Short-term investments -- 20 -- 78
Inventories (57) 33 (37) 169
Prepaid expenses and other (64) -- (31) 24
Trade accounts payable 27 (4) 45 (81)
Accrued expenses and other
liabilities 40 (19) 105 12
Net cash provided (used) by
operating activities 64 29 168 40
Investing activities:
Purchase of property, plant
and equipment (39) (30) (108) (97)
Proceeds from sale of assets
and investments including
affiliates and joint ventures 4 18 18 37
Investments in affiliates and
joint ventures 11 (10) 11 8
Other (3) (6) (1) 4
Net cash provided (used) by
investing activities (27) (28) (80) (48)
Financing activities:
Proceeds from payable to banks 700 634 2,359 2,416
Proceeds from long-term debt 7 -- 125 125
Payments of payable to banks (718) (618) (2,346) (2,418)
Payments of long-term debt (58) (78) (243) (250)
Purchase of treasury stock (1) -- (1) (1)
Sale of treasury stock 2 4 5 5
Net cash provided (used) by
financing activities (68) (58) (101) (123)
Net increase (decrease) in
cash and cash equivalents (31) (57) (13) (131)
Effect of exchange rate
changes on cash (3) (9) 5 2
Cash and cash equivalent:
At the beginning of the period 111 151 85 214
At the end of the period 77 85 77 85
(1)Includes $19 write-off of e-commerce investments during 2001.
(2)Includes $17 towards closure of Irish Ispat Limited, $17 write down in
value of certain e-commerce software, and $22 impairment loss on ocean
going vessels during 2001. For the fourth quarter of 2001, includes
$22 impairment loss on ocean going vessels. For the fourth quarter and
year 2002, includes $39 towards write-off of Empire mine investments
and $23 towards impairment loss of 2A Bloomer and 21" Bar mill.
Analysis of Results of Operations and Financial Condition
This is not Management Discussion and
Analysis (MD&A). The MD&A, as an annual document will be filed as part
of the Company's annual report (Form 20F) under Item 5 -- Operating and
Financial Review and Prospects.
The summary consolidated financial and other
information, including the accounts of Ispat International N.V. and all its
majority owned subsidiaries have been prepared in accordance with U.S. GAAP.
The consolidated financial statements and other information for 2001 include
results of Irish Ispat Limited for the first three months(1). All material
inter-company balances and transactions have been eliminated. Total shipments
of steel products include inter-company shipments.
The term 'ton' as discussed herein refers to
short ton and the term 'tonne' used herein refers to metric tonne. All
references to iron ore pellets, direct reduced iron ('DRI') and scrap are in
tonnes, and all references to steel products are in tons. The term 'steel
products' as used herein refers to semi-finished and finished steel products
and excludes DRI.
All references to 'Ispat International' are
to 'Ispat International N.V.'; to 'Ispat Inland' are to Ispat Inland Inc.; to
'Imexsa' or 'Ispat Mexicana' are to Ispat Mexicana, S.A. de C.V.; to 'Ispat
Sidbec' are to Ispat Sidbec Inc.; to 'Caribbean Ispat' are to Caribbean Ispat
Limited; to 'Ispat Europe Group' are collectively to Ispat Hamburger Stahlwerke
GmbH ('IHSW'), Ispat Stahlwerk Ruhrort GmbH ('ISRG'), Ispat Walzdraht Hochfeld
GmbH ('IWHG'), Ispat Unimetal S.A., Trefileurope and SMR.
All references to 'Sales' include freight and
handling costs and fees as per EITF Issue No. 00-10. All references to 'Net
Sales' exclude freight and handling costs and fees.
Fourth Quarter 2002 Compared with Fourth
Quarter 2001
Results of Operations
Revenue:
Sales increased by 23% from $1,075 million in
the fourth quarter of 2001 to $1,325 million in 2002.
The Company uses Net Sales(2) numbers for
managing its business. All the analyses presented here onwards are based on Net
Sales numbers.
Total steel shipments increased by 16% to 3.7
million tons from 3.2 million tons. Net Sales went up during the same period
from $1,027 million to $1,259 million, an increase of 23%.
Ispat Mexicana, Ispat Sidbec and Caribbean Ispat
continued to achieve significant improvements in both volume and selling prices.
At Ispat Inland, shipments were marginally lower but selling prices were
significantly higher. At Ispat Europe, steel shipments and average selling
prices in Euro were marginally higher. Further, the appreciation of Euro
against the US Dollar by 12% contributed to increase in Net Sales.
(1) On 15th June 2001, the Company announced the shutdown of its steel making operations in Ireland and the calling of a creditors' meeting for the appointment of a liquidator. Consequently, beginning in the Second Quarter of 2001, the results of Irish Ispat Limited have not been consolidated.
(2) The Company believes that Net Sales numbers based on net realizations from
sales transactions more truly reflects sales performance. The application of
EITF Issue No. 00-10 does not affect earnings, as it only involves inclusion of
shipping and handling fees in sales and cost of sales.
The following table gives a summary of key sales numbers:
Subsidiary Net Sales(3) Changes in
Q4 2002 Q4 2001 Net Sales Shipment Selling
Price
$ Million $ Million % % %
Ispat Inland 566 529 7 (2) 10
Ispat Mexicana 190 73 161 98 38
Ispat Sidbec 141 109 29 15 13
Caribbean Ispat
-Steel 55 34 62 53 6
Caribbean Ispat
-DRI 31 34 (9) (22) 17
Ispat Europe Group 303 260 17 3 3*
* For Ispat Europe Group Change in Net Selling Price are shown in Euro
(3) Net Sales numbers are standalone
numbers for certain operating subsidiaries and include inter-company shipments.
At Ispat Inland, the 10% increase in selling
prices was primarily due to an improvement in the spot market prices and in
certain contract sales which were negotiated in the fourth quarter of 2002 as
well as better product mix. Lower shipments at Ispat Inland reflect lower bar
sales related to idling of part of company's bar production facilities (2A
Bloomer and 21" Bar Mill) during the whole of 2002.
At Ispat Mexicana, shipments increased by 98%
in spite of loss of production in the fourth quarter of 2002. This loss of
production was caused by Natural Gas supply disruption following an explosion
at the supplier's premises. Additionally, there was a 38% increase in selling
prices primarily due to improved market conditions for slabs, mainly in the
U.S. market, helped in part by the favorable Section 201 trade ruling.
At Ispat Sidbec, the 15% increase in
shipments and 13% increase in selling prices were primarily due to general
improvement in North American market environment following the Section 201
ruling in the United States.
At Caribbean Ispat, steel shipments in the
fourth quarter of 2002 were higher relative to corresponding quarter of 2001.
This, however, was due to the fact that shipments in the fourth quarter of 2001
were impacted by caster project implementation. DRI shipments were lower due to
higher captive consumption and non availability of ships due to strike in
Venezuela. This impact was offset in part by higher selling prices primarily
due to better market conditions.
At Ispat Europe, there were marginal
increases in both selling prices in Euro and volumes. Further, the appreciation
of Euro against the US Dollar by 12% contributed to increase in Net Sales
Cost:
The Company continued to be negatively
impacted by increases in the prices of key inputs such as raw material and
energy. However, these cost increases were partly mitigated by our ongoing cost
saving efforts.
At Ispat Inland, costs were lower excluding
the negative impact of $62 million from two one-time items as discussed later.
This was due to the benefits of ongoing cost saving efforts offset in part by
increased scrap prices.
At Ispat Mexicana, costs were marginally
lower due to increased production offset in part by higher metallic prices and
higher energy costs.
At Ispat Sidbec, cost increased primarily due
to increased cost of metallic inputs offset in part by better raw material
input mix and ongoing focused cost reduction effort.
At Caribbean Ispat, cost of steel decreased
primarily due to increased production as against the comparative period. DRI
cost decreased mainly due to better ore mix offset in part by higher energy
costs.
At Ispat Europe, costs continued to be
negatively impacted by increases in the prices of key inputs such as metallics
and energy. Other increases include wage increases as per collective agreement.
These cost increases were partly mitigated by ongoing cost saving efforts.
Selling, General and Administration
(SG&A) expenses remained flat during the quarter.
Gross Profit and Operating Income:
The Company's financial performance improved
in both Gross Profit (Sales less Cost of Sales, exclusive of depreciation) and
Operating Income as a result of improvements in sales volume and prices as well
as benefits of our continuous cost reduction efforts, offset in part by
increases in raw material and energy costs as discussed above. Gross Profit
increased significantly by 314% from $43 million in the fourth quarter of 2001
to $178 million in 2002. There was an operating income of $29 million (after
write down of one-time items) as compared with operating loss of $68 million.
The Gross Profit Margin (Gross Profit as a %
of Net Sales) improved from 4.2% to 14.1%, mainly due to improvements at the
North American subsidiaries. The Operating Margin (Operating Profit as a % of
Net Sales) was positive at 2.2% as compared with negative of 6.3% in 2001.
The comparative numbers of Gross Profit
Margin at the Company's operating subsidiaries were as follows:
Subsidiary Gross Profit Margin
(%)
Q4 2002 Q4 2001
Ispat Inland 13.8 1.8
Ispat Mexicana 19.0 (13.6)
Ispat Sidbec 17.1 15.1
Caribbean Ispat 15.3 (1.0)
Ispat Europe Group 10.6 11.0
Comparative numbers of Operating Profit and
Operating Margin at the Company's operating subsidiaries were as follows:
Subsidiary Operating Profit Operating Margin
$ Million (%)
2002 2001 2002 2001
Ispat Inland (16)* (25)** (2.8) (4.7)
Ispat Mexicana 27 (17) 14.3 (23.9)
Ispat Sidbec 16 2 11.1 1.7
Caribbean Ispat 7 (7) 7.2 (10.0)
Ispat Europe Group 8 8 2.4 3.3
* After write down of $62 million towards Empire Mine and 2A Bloomer and
21" Bar Mill
** After including $18 million towards workforce restructuring provision.
Financing Costs:
Net Interest expense (Interest expenses less
interest income) was $42 million compared to $67 million. The decrease in
interest expense was primarily due to the following reasons:
(i) Interest expense in fourth quarter of 2001 was higher due to
inclusion of non cash expenses of $15 million in accordance with
SFAS No. 133, from marking to market value, in an interest hedge
contract,
(ii) Savings in interest cost on floating rate debt due to a fall in
LIBOR, and
(iii) Reduction of debt.
One-time items: (Expense) Income
Item Description Q4 2002 Q4 2001 Included
in
Workforce restructuring provision (18) Cost of sales
Provision for arbitration related
to scrap supply contract (1) Other operating
expenses
Impairment loss on ocean going
vessel (22) Other operating
expenses
Write down in investments of
Empire Mine (39) Other operating
expenses
Write down of 2A Bloomer
and 21" Bar Mill (23) Other operating
expenses
Gain on sale of assets by pipe making
subsidiary in Mexico 7 Other Income /
Expense
During the fourth quarter of 2002, the
Company recognized impairment of its idled 2A Bloomer and 21" Bar Mill at Ispat
Inland, resulting in an asset write-off of $23 million, following the Company's
assessment that these facilities, which were idled in the fourth quarter of
2001, were unlikely to be restarted.
Ispat Inland also recognized the write-off of
the assets associated with the Empire Mine following the sale, effective
December 31, 2002, of 47.5% of its 40% interest in the mine to Cleveland
Cliffs.
At Ispat Mexicana, the company recorded a
gain of $7 million arising from the sale of assets of its pipe making
subsidiary.
Income Tax:
The Company recorded a current tax expense of
$2 million (benefit of $2 million in the fourth quarter of 2001) and deferred
tax benefit of $55 million in 2002 (benefit of $34 million in 2001). The
deferred tax benefit was primarily due to the exchange loss on dollar
denominated net monetary liabilities arising from depreciation of the currency
during the year at Mexico.
Net Income:
There was a net income of $51 million in the
fourth quarter of 2002 compared to a net loss of $86 million in the fourth
quarter of 2001 due to the reasons discussed above.
Financial Condition
During the fourth quarter working capital
increased by $40 million, primarily due to higher inventories attributed
primarily to higher level of operations and sales.
Capital expenditure during the fourth quarter
of 2002 was $39 million compared to $30 million in 2001.
As at December 31, 2002 the Company's cash
and cash equivalents were $77 million ($85 million at December 31, 2001). In
addition, the Company's operating subsidiaries had available borrowing capacity
under their various credit lines, including receivable factoring and
securitization facilities, of $308 million ($354 million at 31st December,
2001). The following table gives the details of working capital credit
facilities at various units:
Subsidiary Limit Utilization Availability(4)
($ Millions) Dec-2002 Dec-2001 Dec-2002 Dec-2001 Dec-2002 Dec-2001
Ispat Inland 294 305 234 202 60 103
Ispat Sidbec 111 105 13 13 98 92
Caribbean Ispat 57 81 57 81 -- --
Ispat Europe 66 87 41 31 25 56
(4) Corresponding exercisable limits are lower, which are based on the
level of inventory/receivable.
In addition to the credit facilities listed
above, certain of the Company's European subsidiaries were parties to
Receivable factoring and securitization facilities as per the following
details:
Subsidiary Limit Utilization Availability(4)
($ Millions) Dec-2002 Dec-2001 Dec-2002 Dec-2001 Dec-2002 Dec-2001
Ispat Europe -
Receivables
(factoring
and
securiti-
zation) 257 213 132 110 125 103
The Company's total external debt -- both
long and short term, was $2,284 million. The corresponding amount as at 31st
December, 2001 was $2,379 million. The following table gives details:
Subsidiary Long Term Payable to Current portion Total Debt
Debt (LTD) Bank of LTD
($ Millions) Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec-
2002 2001 2002 2001 2002 2001 2002 2001
Ispat Inland 1,086 1,093 9 23 7 7 1,102 1,123
Ispat Mexicana 428 377 -- -- 15 124 443 501
Ispat Sidbec 236 295 13 13 54 18 303 326
Caribbean Ispat 106 135 57 81 29 26 192 242
Ispat Europe* 131 120 41 31 4 -- 176 151
* Debt at Ispat Europe has gone up primarily because of the appreciation of
Euro.
Shareholders' Equity:
As a result of changes in certain key
assumptions used in estimating pension cost and liability, the Company's U.S.
and Canadian subsidiaries recorded additional minimum pension liability. This
adjustment was recorded in Other Comprehensive Income and the amount was
approximately $273 million net of income tax. The Shareholders' Equity reduced
from $338 million at December 31, 2001 to $128 million at December 31, 2002.
Year 2002 Compared to Year 2001
Results of Operations
Revenue:
Sales increased by 9% from $4,486 million to
$4,889 million in 2002. Total steel shipments increased by 6% from 14.1 million
tons to 15.0 million tons. Net Sales also went up during the same period from
$4,278 million to $4,646 million, an increase of 9%.
The Company uses Net Sales(5) numbers for
managing its business. All the analyses presented here onwards are based on Net
Sales numbers.
All the North American subsidiaries achieved
improvements both in volume and average selling prices due to general
improvements in the market conditions. At Ispat Europe, Net Sales in US Dollar
were higher due to appreciation of Euro by 6% during the same period whereas
steel shipment remained flat and average selling prices in Euro was marginally
lower.
The following table gives a summary of key
sales numbers:
Subsidiary Net Sales(6) Changes in
Full Year 2002 2001 Net Sales Shipments Net Sales
Price
$ Million $ Million % % %
Ispat Inland 2,223 2,012 11 6 5
Ispat Mexicana 649 470 38 18 18
Ispat Sidbec 534 463 15 7 7
Caribbean Ispat
-Steel 183 156 17 13 3
Caribbean Ispat
-DRI 138 128 8 1 7
Ispat Europe Group 1,129 1,070 5 1 (1)*
(5)Sales include freight and handling costs and fees as per EITF Issue
No. 00-10.
(6) Net Sales numbers are standalone numbers for certain operating
subsidiaries and include inter-company shipments.
* For Ispat Europe Group the Change in Net Sales Price is shown in Euro
Cost:
Cost reductions were achieved at most of the
subsidiaries. The selling, general and administrative expenses were marginally
lower.
Gross Profit and Operating Income:
The Company improved in both Gross Profit
(Sales less Cost of Sales, exclusive of depreciation) and Operating Income as a
result of continuous cost reduction efforts as well as marginal increase in
selling prices. Gross Profit increased by 150% from $213 million to $533
million. There was an operating income of $142 million in 2002 as compared with
operating loss of $194 million in 2001.
The Gross Profit Margin (Gross Profit as a %
of Net Sales) improved from 5.0% to 11.5%, mainly due to improvements at the
North American subsidiaries offset in part by reduction in Ispat Europe Group.
The Operating Margin (Operating Profit as a % of Net Sales) was positive at
3.0% as against negative of 4.5% in 2001.
The comparative numbers of Gross Profit
Margin at the Company's operating subsidiaries were as follows:
Subsidiary Gross Profit Margin
(%)
2002 2001
Ispat Inland 9.8 0.5
Ispat Mexicana 14.9 3.7
Ispat Sidbec 13.9 9.0
Caribbean Ispat 13.8 4.7
Ispat Europe Group 10.0 11.3
Comparative numbers of Operating Profit and
Operating Margin at the Company's operating subsidiaries were as follows:
Subsidiary Operating Profit Operating Margin
$ Million (%)
2002 2001 2002 2001
Ispat Inland 27* (126)** 1.2 (6.3)
Ispat Mexicana 61 (18) 9.4 (3.8)
Ispat Sidbec 41 5 7.7 1.1
Caribbean Ispat 18 (11) 5.6 (3.8)
Ispat Europe Group 31 38 2.7 3.6
* After write down of $62 million towards Empire Mine and 2A Bloomer and
21" Bar Mill
** After including $38 million towards certain one-time items. Refer to
the section below.
Financing Costs:
Net Interest expense (Interest expenses less
interest income) was $203 million in 2002 compared to $228 million in 2001. The
decrease in interest expense was primarily due to the following reasons:
(i) Interest expense in fourth quarter of 2001 was higher due to
inclusion of non cash expenses of $15 million in accordance with
SFAS No. 133, from marking to market value, in an interest hedge
contract,
(ii) Savings in interest cost on floating rate debt due to a fall in
LIBOR, and
(iii) Reduction of debt.
This decrease was offset in part by debt
restructuring costs at Ispat Mexicana.
One-time items: (Expense) Income
The company recorded the following one-time items:
Item Description 2002 2001 Included in
Slab reheating furnace startup costs (28) Cost of sales
Workforce restructuring provision (18) Cost of sales
Credit for settlement of Lawsuit 8 Cost of sales
Write down in value of e-commerce software (17) Other operating
expenses
Impairment loss on ocean going vessels (22) Other operating
expenses
Provision for arbitration related to
scrap supply contract (19) Other operating
expenses
Irish Ispat Closure (17) Other operating
expenses
Write-off of investments in e-commerce
activities (19) Other Income
(expense)
Write down in investments of Empire Mine (39) Other operating
expenses
Write down of 2A Bloomer and 21" Bar Mill (23) Other operating
expenses
Gain on sale of assets by pipe making
subsidiary in Mexico 7 Other Income /
(expense)
Income Tax:
The Company recorded a current tax expense of
$18 million ($8 million in 2001) in 2002 primarily due to inclusion of certain
tax payments at Imexsa arising as a result of the 1999 Tax Reforms of the
Mexican Tax Code's Consolidation Regime.
There was deferred tax benefit of $72 million
in 2002 (benefit of $114 million in 2001). The deferred tax benefit was
primarily due to the exchange loss on dollar denominated net monetary
liabilities arising from depreciation of the currency during the year at
Mexico.
Net Income:
There was a net income of $49 million in 2002
compared to a Net Loss of $312 million in 2001 due to the reasons discussed
above. The 2002 net income included an extraordinary gain of $19 million
after-tax arising out of repurchase of debt at a discount at Ispat Inland as
mentioned above."