CONSOLIDATED BALANCE SHEETS UNDER U.S. GAAP
As at
June 30, December 31,
In millions of U.S. Dollars 2002 2001
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents,
including short term investments 88 85
Trade accounts receivable - net 521 451
Inventories 760 805
Prepaid expenses and other 90 65
Deferred tax assets 37 37
Total Current Assets 1,496 1,443
Property, plant and equipment - net 3,083 3,109
Investments in affiliates and Joint
Ventures 289 299
Deferred tax assets 286 273
Intangible pension assets 93 83
Other assets 97 106
Total Assets 5,344 5,313
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Payable to banks and current
portion of long term debt 247 338
Trade accounts payable 584 540
Accrued expenses and other current
liabilities 390 303
Deferred tax liabilities 37 28
Total Current Liabilities 1,258 1,209
Long term debt 2,075 2,041
Deferred tax liabilities 106 134
Deferred employee benefits 1,453 1,493
Other long term obligations 125 98
Total Liabilities 5,017 4,975
Shareholders' equity
Common shares 7 7
Additional paid-up capital 482 480
Retained earnings 64 92
Cumulative other comprehensive
income (226) (241)
Total Shareholders' equity 327 338
Total Liabilities and Shareholders'
Equity 5,344 5,313
CONSOLIDATED UNAUDITED FINANCIAL
& OTHER INFORMATION AS PER U.S. GAAP
For the Second For the Six
Quarter Ended Months Ended
June 30, June 30,
In millions of U.S. Dollars, except
share, per share and operational
data 2002 2001 2002 2001
Statement of Income Data
Sales $1,237 $1,146 $2,302 $2,346
Costs and expenses:
Cost of sales (exclusive of
depreciation shown separately) 1,126 1,075 2,123 2,233
Depreciation 44 43 87 97
Selling, general and
administrative expenses 37 37 71 75
Other operating expenses (1) - 17 - 17
1,207 1,172 2,281 2,422
Operating income (loss) 30 (26) 21 (76)
Operating margin 2.40% (2.30%) 0.90% (3.20%)
Other income (expense) - net 6 8 4 10
Financing costs:
Interest (expense) (55) (59) (102) (118)
Interest income 1 2 2 9
Net gain (loss) from foreign
exchange 19 (10) 16 (13)
(35) (67) (84) (122)
Income (loss) before taxes 1 (85) (59) (188)
Income tax expense (benefit):
Current 12 1 14 8
Deferred (12) (17) (26) (68)
0 (16) (12) (60)
Net income (loss) before
extraordinary income 1 (69) (47) (128)
Gain on repurchase of debt, net of
tax 10 - 19 -
Net income (loss) 11 (69) (28) (128)
Basic and diluted earnings per common
share 0.09 (0.57) (0.23) (1.06)
Weighted average common shares
outstanding (in millions) 123 120 123 120
Other Data
EBITDA $109 $15 $147 $18
EBITDA margin 8.80% 1.30% 6.40% 0.80%
Total shipments of steel products
(thousands of tons) (2) 4,052 3,660 7,387 7,412
(1) Other operating expenses represents charge on account of closure of
Irish Ispat Limited.
(2) Total shipments of steel products include
inter-company shipments.
CONSOLIDATED UNAUDITED STATEMENTS OF CASH
FLOWS AS PER U.S. GAAP
For the Second For the Six
Quarter Ended Months Ended
June 30, June 30,
In millions of
U.S. Dollars 2002 2001 2002 2001
Operating activities:
Net income $11 $(69) $(28) $(128)
Adjustments required to
reconcile net income
to net cash
Provided from operations:
Depreciation 44 43 87 97
Deferred employee
benefit costs (53) 2 (53) (98)
Net foreign exchange
loss (gain) (14) 8 (15) 10
Deferred income tax (8) (15) (17) (66)
Undistributed earnings
from joint ventures 8 (14) 8 (9)
Other (2) 15 (7) 15
Changes in operating
assets and liabilities,
net of effects
from purchases of
subsidiaries:
Trade accounts
receivable 10 83 (53) 48
Short-term investments - 55 - 54
Inventories (5) 28 71 139
Prepaid expenses and other 16 25 28 10
Trade accounts payable - (13) 25 (101)
Accrued expenses
and other liabilities 42 (35) 51 49
Net cash provided (used)
by operating activities 49 113 97 20
Investing activities:
Purchase of property,
plant and equipment (18) (19) (32) (41)
Proceeds from sale of
assets and investments
including affiliates
and joint ventures - 1 5 19
Investments in affiliates
and joint ventures (7) 14 (4) 15
Other 2 1 2 9
Net cash provided (used)
by investing activities (23) (3) (29) 2
Financing activities:
Proceeds from payable
to banks 558 413 975 1,166
Proceeds from long-term
debt 3 5 117 155
Payments of payable to
banks (557) (484) (999) (1,232)
Payments of long-term
debt (29) (55) (168) (113)
Purchase of treasury
stock - - - (1)
Sale of treasury stock 1 - 2 1
Net cash provided (used)
by financing activities (24) (121) (73) (24)
Net increase (decrease)
in cash and cash
equivalents 2 (11) (5) (2)
Effect of exchange rate
changes on cash 7 7 8 8
Cash and cash equivalent:
At the beginning of
the period 79 224 85 214
At the end of the period 88 220 88 220
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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(4). 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(5). All
references to 'Net Sales' exclude freight and handling costs and fees.
Second Quarter 2002 Compared to Second
Quarter 2001
Results of Operations
Revenue and Costs:
Sales increased by 8% from $1,146 million in
the second quarter of 2001 to $1,237 million in 2002. These Sales numbers are
based on the application of EITF Issue No. 00-10 (issued by the FASB Emerging
Issues Task Force in September 2000 and adopted by the Company in the last
year) and includes all Shipping and Handling Fees and Costs billed to
customers. Prior period numbers have been recast to reflect the same. 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.
Financial statements present numbers as
required under EITF Issue No. 00-10. However, the Company believes that net
sales numbers based on net realizations from sales transactions more truly
reflects sales performance. The Company uses net sales numbers for managing its
business. All the analyses presented here onwards are based on net sales
numbers.
Total steel shipments increased by 11% to 4.1
million tons from 3.7 million tons. Net Sales went up during the same period
from $1,093 million to $1,168 million, an increase of 7%.
Ispat Inland achieved its highest shipment
level since its acquisition. Ispat Mexicana and Ispat Sidbec also achieved
significant improvement both in volume and average selling prices. At Caribbean
Ispat, there was marginal reduction in steel shipment and lower average selling
prices owing to the imposition of duties on sales to U.S. markets. At Ispat
Europe, steel shipment increased by 8%, and the average selling prices in Euro
were lower primarily due to mix.
The following table gives a summary of key
sales numbers:
Subsidiary Net Sales(6)
Q2 2002 Q2 2001
$ Million $ Million
Ispat Inland 568 502
Ispat Mexicana 165 128
Ispat Sidbec 139 120
Caribbean Ispat -
Steel 44 47
Caribbean Ispat -
DRI 32 31
Ispat Europe Group 283 277
Subsidiary Changes in
Net Sales Shipments Net Sales Price
% % %
Ispat Inland 13 11 2
Ispat Mexicana 29 16 9
Ispat Sidbec 16 10 6
Caribbean Ispat
- Steel (6) (1) (5)
Caribbean Ispat
- DRI 4 1 3
Ispat Europe Group 2 8 (6) *
* For Ispat Europe Group the Changes in Net Sales Price is shown in Euro
The Company continued to achieve cost
reductions, which partly offset increases in uncontrollable costs, mainly
metallics costs.
Other operating expense in 2001 represents a
charge on account of closure of Irish Ispat Limited.
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 improvement in sales volume and prices as well
as benefits of out continuous cost reduction efforts. Gross Profit increased by
56% from $71 million in the second quarter of 2001 to $111 million in 2002.
There was an operating income of $30 million as compared with operating loss of
$26 million.
The Gross Profit Margin (Gross Profit as a %
of Net Sales) improved from 6.5% to 9.5%, mainly due to improvements at the
North American subsidiaries. The Operating Margin (Operating Profit as a % of
Net Sales) was positive being 2.6% as compared with negative in 2001.
The comparative numbers of Gross Profit
Margin and Operating Margin at the Company's operating subsidiaries were as
follows:
Subsidiary Gross Profit Margin Operating Margin
(%) (%)
2002 2001 2002 2001
Ispat Inland 8.8 5.2 3.2 Negative
Ispat Mexicana 11.7 3.3 6.2 Negative
Ispat Sidbec 11.1 7.7 5.1 1.8
Caribbean Ispat 10.3 6.0 1.9 Negative
Ispat Europe
Group 10.6 11.3 3.4 4.9
Financing Costs:
Net Interest expense (Interest expenses less
interest income) was $54 million compared to $57 million. This was due to
reduced average borrowings outstanding and reduced average borrowing cost
partly offset by losses on interest rate hedging contract.
There was a gain on foreign exchange of $19
million as compared with loss of $10 million, primarily due to depreciation of
Mexican Peso.
Income Tax:
Current tax expenses were $12 million ($1
million in the second quarter of 2001) primarily due to the 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
$12 million in 2002 (benefit of $17 million in 2001).
Net Income:
Net Income was $11 million in the second
quarter of 2002 as compared to a Net Loss of $69 million in the second quarter
of 2001 due to the reasons discussed above. The 2002 net income included an
extraordinary gain of $10 million after-tax arising out of repurchase of debt
at a discount at Ispat Inland.
First Six Months of 2002 Compared to First
Six Months of 2001
Results of Operations
Revenue and Costs:
Sales decreased by 2% from $2,346 million to
$2,302 million in 2002. Total steel shipments remained nearly flat at 7.4
million tons. Net Sales went down during the same period from $2,239 million to
$2,182 million, a decrease of 3%.
Subsidiary Net Sales(7) Changes in
First six months 2002 2001 Net Sales Shipments
Net Sales
Price
$ Million $ Million % % %
Ispat Inland 1,080 1,012 7 8 (1)
Ispat Mexicana 254 264 (4) (12) 4
Ispat Sidbec 253 234 8 9 (1)
Caribbean Ispat
1 included an amount of $28 million on
account of slab reheating furnace startup cost at Ispat Inland.
Other operating expense in 2001 represents
charge on account of closure of Irish Ispat Limited. Depreciation in 2001 was
higher mainly on account of write down in value of e-Commerce software by $8
million.
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 our continuous cost reduction efforts as well as marginal increase in
selling prices. Gross Profit increased by 59% from $113 million to $179
million. There was an operating income of $21 million in the first six months
of 2002 as compared with an operating loss of $76 million in 2001.
The Gross Profit Margin (Gross Profit as a %
of Net Sales) improved from 5.0% to 8.2%, mainly due to improvements at the
North American subsidiaries. The Operating Margin (Operating Profit as a % of
Net Sales) was positive being 1.0% as against negative in 2001.
The comparative numbers of Gross Profit
Margin and Operating Margin at the Company's operating subsidiaries were as
follows:
Subsidiary Gross Profit Margin Operating Margin
(%) (%)
2002 2001 2002 2001
Ispat Inland 6.6 Negative 0.9 Negative
Ispat Mexicana 9.1 8.8 2.5 1.9
Ispat Sidbec 9.9 6.3 3.5 0.4
Caribbean Ispat 9.5 5.3 1.0 Negative
Ispat Europe Group 10.5 12.0 3.2 3.9
Financing Costs:
Net Interest expense (Interest expenses less
interest income) was $100 million in the first six months of 2002 compared to
$109 million in 2001. This was due to reduced average borrowings outstanding
and reduced average borrowing cost partly offset by losses on interest rate
hedging contract.
There was a gain on foreign exchange
primarily due to depreciation of Mexican Peso.
Income Tax:
The Company recorded a current tax expense of
$14 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 $26
million in the first six months of 2002 (benefit of $68 million in the first
six months of 2001).
Net Income:
The Company incurred a net loss of $28
million in the first six months of 2002 compared to a Net Loss of $128 million
in the first six months of 2001 due to the reasons discussed above. The net
loss for the first half of 2002 included an extraordinary gain of $19 million
after-tax arising out of repurchase of debt at a discount at Ispat Inland.
(1) Financial Accounting Standards Board
Emerging Issues Task Force ("EITF") reached a final consensus on EITF
Issue No. 00-10, Sales above include freight and handling costs and fees as per
EITF Issue No. 00-10.
(2) EBITDA is defined as net income plus
income tax expenses, net interest expense and depreciation.
(3) Corresponding exercisable/available
limits are lower, which are based on the level of inventory/receivable
(4) 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.
(5) In September 2000, the Financial
Accounting Standards Board Emerging Issues Task Force ("EITF")
reached a final consensus on EITF Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs." This consensus requires that all
amounts billed to a customer in a sale transaction related to shipping and
handling be classified as revenue. The Company historically netted shipping
charges billed to customers with shipping and handling costs, which were
included in Net Sales in the Consolidated Statements of Operations. With
respect to the classification of costs related to shipping and handling
incurred by the seller, the EITF determined that the classification of such
costs is an accounting policy decision that should be disclosed. As a result of
EITF Issue No. 00-10, the Company has adopted a policy to include shipping and
handling costs in its Cost of Sales; accordingly, the Company reclassified all
prior periods presented to reflect shipping and handling amounts billed to
customers as Revenues and the corresponding
expenses as Cost of Sales.
(6) Net Sales numbers are standalone numbers for certain operating
subsidiaries and include inter-company shipments.
(7) Net Sales numbers are standalone numbers for certain operating
subsidiaries and include inter-company shipments.