SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
DATED FEBRUARY 5, 2004
_________
Commission File Number: 001-14666
_________
ISPAT INTERNATIONAL N.V.
(Exact name of registrant as specified in its Charter)
_________
15th Floor, Hofplein 20
3032 AC Rotterdam
The Netherlands
(Address of registrant's principal executive offices)
_________
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F ___
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Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):
Yes ___ No X
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Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):
Yes ___ No X
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Indicate by check mark whether by furnishing the information contained in
this Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ___ No X
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If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- N/A
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INDEX
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Press Release of Ispat International N.V., dated February 5, 2004, regarding
financial results of Ispat International N.V. for the fourth quarter of 2003.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
For Immediate Release: Rotterdam, February 5, 2004
Ispat International N.V. Reports
FOURTH QUARTER 2003 results
Ispat International N.V., (NYSE: IST US; AEX: IST NA), today reported a net
income of $11 million or 9 cents per share for the fourth quarter of 2003 as
compared to net income of $51 million or 42 cents per share for the fourth
quarter of 2002.
Consolidated sales and operating income for the fourth quarter were $1.4 billion
and $22 million, respectively, as compared to $1.3 billion and $29 million,
respectively, for the fourth quarter of 2002. Total steel shipments increased by
1% to 3.8 million tons.
Debt at the end of the fourth quarter was $2.3 billion. Capital expenditure for
the fourth quarter of 2003 was $29 million. At December 31, 2003 the Company's
consolidated cash, cash equivalents and short-term liquid investments totaled
$80 million. The Company also has approximately $337 million available to it
under various undrawn lines of credit and bank credit arrangements(1).
Ispat International N.V. is one of the world's largest and most global steel
producers, with major steelmaking operations in the United States, Canada,
Mexico, Trinidad, Germany and France. The Company produces a broad range of flat
and long products sold mainly in the North American Free Trade Agreement (NAFTA)
participating countries and the European Union (EU) countries. Ispat
International N.V. is a member of the LNM Group.
This news release contains forward-looking statements that involve a number of
risks and uncertainties. These statements are based on current expectations
whereas actual results may differ. Among the factors that could cause actual
results to differ are the risk factors listed in the Company's most recent SEC
filings.
For further information, visit our web site: http://www.ispat.com, or call:
Ispat International Limited Citigate Financial Intelligence
T.N. Ramaswamy John McInerney / Jessica Wolpert
Director, Finance Investor Relations
+ 44 20 7543 1174 +1 201 499 3535 / +1 201 499 3533
NEWS RELEASE
_______________________
1 Corresponding exercisable/available limits are lower, which are based on the
level of inventory/receivable.
3
CONSOLIDATED BALANCE SHEETS UNDER U.S. GAAP
-------------------------------------------------------------------------------------------------------------------
As at
December 31, December 31,
In millions of U.S. Dollars 2003 2002
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents, including short term investments 80 77
Trade accounts receivable - net 507 529
Inventories 828 873
Prepaid expenses and other 105 95
Deferred tax assets 30 38
------------------- -----------------
Total Current Assets 1,550 1,612
Property, plant and equipment - net 3,091 3,035
Investments in affiliates and Joint Ventures 252 257
Deferred tax assets 535 438
Intangible pension assets 117 84
Other assets 90 86
------------------- -----------------
Total Assets 5,635 5,512
=================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Payable to banks and current portion of long-term debt 363 262
Trade accounts payable 577 607
Accrued expenses and other current liabilities 492 377
Deferred tax liabilities 28 28
------------------- -----------------
Total Current Liabilities 1,460 1,274
Long term debt including affiliates 1,914 2,022
Deferred tax liabilities 74 69
Deferred employee benefits 1,906 1,881
Other long term obligations 132 138
------------------- -----------------
Total Liabilities 5,486 5,384
Shareholders' equity
Common shares 7 7
Additional paid-up capital 476 484
Retained earnings 207 141
Cumulative other comprehensive income (541) (504)
------------------- -----------------
Total Shareholders' equity 149 128
------------------- -----------------
Total Liabilities and Shareholders' Equity 5,635 5,512
=================== =================
------------------------------------------------------------------------------------------------------------------
4
CONSOLIDATED FINANCIAL
& OTHER INFORMATION AS PER U.S. GAAP
------------------------------------------------------------------------------------------------------------------------------
For the Fourth Quarter For the Year Ended
Ended December 31,
December 31,
In millions of U.S. Dollars, except share, per share and other data 2003 2002 2003 2002(1)
(Unaudited) (Unaudited) (Unaudited) (Audited)
STATEMENT OF INCOME DATA
Sales 1,409 1,325 5,441 4,889
Costs and expenses:
Cost of sales (exclusive of depreciation shown separately) 1,298 1,147 4,943 4,356
Depreciation 47 45 183 177
Selling, general and administrative expenses 42 42 164 152
Other operating expenses - 62 - 62
-------------------------- ------------------------
1,387 1,296 5,290 4,747
Operating income (loss) 22 29 151 142
Operating margin 1.6% 2.2% 2.8% 2.9%
Other income (expense) - net 21 6 53 44
Financing costs:
Interest (expense) (40) (44) (167) (208)
Interest income 5 2 16 5
Net gain (loss) from foreign exchange 1 5 4 23
-------------------------- ------------------------
(34) (37) (147) (180)
Income (loss) before taxes 9 (2) 57 6
Income tax expense (benefit):
Current 11 2 22 18
Deferred (10) (55) (30) (61)
-------------------------- ------------------------
1 (53) (8) (43)
-------------------------- ------------------------
Net income (loss) before change in accounting principle 8 51 65 49
-------------------------- ------------------------
Cumulative effect of change in accounting principle 3 - 1 -
-------------------------- ------------------------
Net income (loss) 11 51 66 49
------------ ------------- ------------ -----------
Basic and diluted earnings per common share 0.09 0.42 0.53 0.40
Weighted average common shares outstanding (in millions) 122 123 122 123
OTHER DATA
Total shipments of steel products including inter-company shipments
(thousands of tons) 3,788 3,744 15,162 15,037
------------------------------------------------------------------------------------------------------------------------------
__________________
1 Certain regroupings have been made to the prior period's financial statements
in order to conform to 2003 groupings.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS AS PER U.S. GAAP
------------------------------------------------------------------------------------------------------------------------------
For the Fourth Quarter For the Year Ended
Ended December 31,
December 31,
In millions of U.S. Dollars 2003 2002 2003 2002
(Unaudited) (Unaudited) (Unaudited) (Audited)
Operating activities:
Net income 11 51 66 49
Adjustments required to reconcile net income to net cash provided
from operations:
Depreciation 47 45 183 177
Deferred employee benefit costs (19) 1 (164) (52)
Net foreign exchange loss (gain) (2) (5) (5) (23)
Deferred income tax (10) (53) (30) (61)
Undistributed earnings from joint ventures (3) 1 (28) -
Other operating expenses (8) 65 (5) 60
Changes in operating assets and liabilities, net of effects from
purchases of subsidiaries:
Trade accounts receivable (2) 13 49 (64)
Inventories 43 (57) 106 (37)
Prepaid expenses and other assets 48 (64) 18 (31)
Trade accounts payable 4 27 (72) 45
Accrued expenses and other liabilities (33) 40 71 105
------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 76 64 189 168
------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of property, plant and equipment (29) (39) (164) (108)
Proceeds from sale of assets and investments
including affiliates and joint ventures 2 4 21 18
Investments in affiliates and joint ventures (3) 11 19 11
Other - (3) - (1)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (30) (27) (124) (80)
------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from payable to banks 818 700 3,576 2,359
Proceeds from long-term debt including from affiliates 76 7 146 125
Payments of payable to banks (898) (718) (3,570) (2,346)
Payments of long-term debt including affiliates (31) (58) (207) (243)
Purchase of treasury stock - (1) (9) (1)
Sale of treasury stock - 2 - 5
------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (35) (68) (64) (101)
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 11 (31) 1 (13)
Effect of exchange rate changes on cash (2) (3) 2 5
Cash and cash equivalent:
At the beginning of the period 71 111 77 85
At the end of the period 80 77 80 77
------------------------------------------------------------------------------------------------------------------------------
6
Analysis of Results of Operations and Financial Condition
This is not Management Discussion and Analysis (MD&A). The MD&A, as an annual
document is filed as part of the Company's annual report (Form 20-F) under Item
5 - Operating and Financial Review and Prospects.
The summary consolidated financial and other information, including accounts of
Ispat International N.V. ("Ispat International" or "the Company") and its
consolidating subsidiaries are prepared in accordance with U.S. GAAP. All
material inter-company balances and transactions have been eliminated.
Quantitative information on total shipments of steel products includes
inter-company shipments.
All references to 'Net Sales' exclude freight and handling costs and fees.
Management uses 'Net Sales' to manage the business which is based on net
realizations from sales transactions. Management believes that 'Net Sales'
reflects a true underlying commercial reality of the sales performance. All
analysis presented in this earnings release is prepared using "Net Sales".
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 Stahlwerke
Ruhrort GmbH ('ISRG'), Ispat Walzdraht Hochfeld GmbH ('IWHG'), Ispat Unimetal
S.A., Trefileurope S.A. and SMR SNC.
The Company has made, and may continue to make, various forward-looking
statements with respect to its financial position, business strategy, projected
costs, projected savings, and plans and objectives of management. Such
forward-looking statements are identified by the use of the forward-looking
words or phrases such as 'anticipates', 'intends', 'expects', 'plans',
'believes', 'estimates', or words or phrases of similar import. These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, and the statements looking forward beyond 2003 are subject to
greater uncertainty because of the increased likelihood of changes in underlying
factors and assumptions. Actual results could differ materially from those
anticipated in the forward-looking statements.
7
Fourth Quarter 2003 Compared with Fourth Quarter 2002
Results of Operations
Revenue
Sales increased by 6% to $1,409 million in the fourth quarter of 2003 from
$1,325 million. Total steel shipments increased by 1% to 3.8 million tons. Net
sales increased by 6% during the same period from $1,259 million to $1,341
million primarily due to appreciation of Euro and Canadian dollars.
The following table summarizes the stand-alone numbers of net sales for our
principal operating subsidiaries.
-----------------------------------------------------------------------------------------------------------
Subsidiary Net Sales(2) Changes in
-----------------------------------------------
Q4 2003 Q4 2002 Net Sales Shipments Average Selling
Price
$ Million $ Million % % %
-----------------------------------------------------------------------------------------------------------
Ispat Inland 549 566 (3) 1 (4)
Ispat Mexicana 233 190 22 25 (2)
Ispat Sidbec 149 141 5 3 (16)*
Caribbean Ispat - Steel 59 55 7 5 3
Caribbean Ispat - DRI 36 31 16 7 10
Ispat Europe Group 305 303 1 (20) 3*
-----------------------------------------------------------------------------------------------------------
* For Ispat Sidbec and Ispat Europe Group change in Net Selling Price is based
on C$ and Euro prices respectively.
Net sales at Ispat Inland decreased by $17 million attributable largely to a
reduction of 4% in average price per ton due to an adverse movement in product
mix, caused by higher sales of hot rolled products.
Ispat Mexicana's net sales were higher by 22% due to higher shipments. Shipments
increased by 25%. Though Ispat Mexicana's principal markets are NAFTA member
states, higher demand in Asia, particularly China, resulted in lower imports
from Asia and increased demand for Ispat Mexicana's products in its principal
markets. Another contributory factor for increase in volumes was that in the
fourth quarter of 2002, production was disrupted by a natural gas shortage due
to an explosion at the Pemex facilities. Shipments to Asia contributed 22% of
total shipments compared to none in 2002. Average selling prices were marginally
lower largely due to higher freight costs.
Ispat Sidbec's net sales increased by 5% primarily due to an increase in
shipments and marginal improvements in price in US$ terms. In Canadian $,
average selling prices decreased by 16% due to an adverse mix of products.
Shipments increased by around 13,000 tons mainly from higher sales of
semi-finished products, namely billets and slabs. Flat product sales remained at
2002 levels. Long product shipments, mainly comprising wire rods and bars,
declined by 7% because of lower wire rod sales. The US is the main export market
for wire rods for Ispat Sidbec and these sales continued to be adversely
affected by the strength of the Canadian $ and US tariffs (anti-dumping duties
and countervailing duties).
Net sales at Caribbean Ispat increased 10% largely due to higher shipments of
billets. Billets sales were helped by strong overseas demand, led by a tight
market for metallics. Billet prices increased by 9% and there was a substantial
increase in shipments. Wire rod shipments declined by 17% due to soft market
conditions in the US, our principal market, as well as due to the impact of
tariffs. We used this soft market situation to effect certain improvements in
the mill, which resulted in lower production of wire rods. Prices improved by 5%
due to better geographical mix. DRI market continued to remain strong and
contributed to a 16% increase in DRI sales. DRI shipments increased by 7% along
with a 10% increase in average selling prices.
_____________________
2 Net Sales numbers are standalone numbers for certain operating subsidiaries
and include inter-company shipments.
8
Net sales at Ispat Europe increased by 1% in US$ terms, however, they declined
by 15% in Euro terms. Steel shipments were down 20% due to depressed demand for
steel in Europe, particularly in Germany and France. Prices increased by 3% in
Euros to compensate partly the increase in scrap prices. In Europe, the weak
economy impacted steel shipments and cost per ton.
Costs
Cost of sales increased by 13% to $1,298 million even though shipments increased
by only 1%. Overall, cost per ton increased by 9% primarily due to higher prices
of iron ore, scrap, natural gas, electricity and transportation cost of inputs.
Ispat Inland's cost per ton increased by 5%. The main reasons for the higher
cost were steep increase in prices of scrap as well as natural gas and alloys.
Ispat Mexicana's cost per ton increased by 6%. This was largely due to higher
prices of metallics, energy and labor.
Ispat Sidbec's cost per ton increased by 16% primarily due to higher metallic
prices including scrap, natural gas combined with higher employment costs and
appreciation of the Canadian $.
Cost per ton at Caribbean Ispat increased by 12% for DRI and 3% for steel. This
was largely due to increase in iron ore prices and higher shipping costs.
Ispat Europe's cost per ton increased due to lower shipments caused by weak
market and increases in prices of key inputs such as metallics and energy. Costs
were also affected by the appreciation of the Euro which strengthened against
the US$ by 19% during the quarter compared to a year ago.
Gross profit
Gross profit is Net Sales less Cost of Sales (excluding depreciation).
Management believes that gross profit provides useful management information as
it is a measure of profit margins over the cost of sales.
Gross profit declined to $111 million from $178 million. Overall shipments and
selling prices were flat, however, prices of natural gas, scrap and iron ore
increased steeply. In addition, currency appreciation at Ispat Sidbec and Ispat
Europe affected costs.
Comparative numbers of gross margin at the principal operating subsidiaries
were:
------------------------------------------------------------------------------------------------------------
Subsidiary Gross Margin
(%)
4Q 2003 4Q 2002
------------------------------------------------------------------------------------------------------------
Ispat Inland 6 14
Ispat Mexicana 14 19
Ispat Sidbec 5 17
Caribbean Ispat 18 15
Ispat Europe Group 8 11
------------------------------------------------------------------------------------------------------------
Operating income / (loss)
The Company had an operating income of $22 million compared to $29 million in
the same quarter last year, the decline coming entirely from the decline in
gross profit. Operating income in 2002 fourth quarter was affected by the write
down of investments in Empire Mines ($39 million) and impairment write down of
2A Bloomer and 21" Bar Mill ($23 million). There were no similar items in 2003.
Depreciation increased marginally by 4% in the last quarter.
Selling general and administrative expenses were at 2002 levels. In local
currency terms, these expenses were even lower at Ispat Europe and Ispat Sidbec.
9
Comparative numbers of Operating Income and Operating Margin at the principal
operating subsidiaries were:
-----------------------------------------------------------------------------------------------------------
Subsidiary Operating Income / (Loss) Operating Margin
$ Million (%)
4Q 2003 4Q 2002 4Q 2003 4Q 2002
-----------------------------------------------------------------------------------------------------------
Ispat Inland (0.4) (16.1) 0 (3)
Ispat Mexicana 21.9 27.3 9 14
Ispat Sidbec (2.7) 15.6 (2) 11
Caribbean Ispat 10.6 6.1 11 7
Ispat Europe Group 0.8 7.5 0 2
-----------------------------------------------------------------------------------------------------------
Other income / (expense)
The increase of $15 million is primarily due to higher profits from joint
ventures and profit on sale of land in Germany.
Financing costs
Interest expense has reduced by 10% compared to fourth quarter of 2002 mainly
due to a reduction in interest rates. Interest income increased to $5 million
due to gain on fair market value of certain financial instruments which expired
during the last quarter of 2003.
Income tax
The Company's current tax expense increased from $2 million in 2002 to $11
million in 2003. This increase was primarily due to certain non-cash provisions
at Ispat Inland. The Company benefited from a deferred tax credit of $10 million
compared to $55 million in 2002. In the last quarter of 2002, the deferred tax
benefit was higher due to the exchange loss on dollar denominated net monetary
liabilities arising from depreciation of the currency during the year at Ispat
Mexicana. In 2003, this benefit was significantly lower in Mexico.
Cumulative effect of change in accounting principle
The Company adopted the provisions of Statement of Financial Accounting
Standards 143: Accounting for asset retirement obligations ("SFAS 143") from
January 1, 2003. In the fourth quarter of 2003, the Company recorded an asset
retirement obligation on a property in Ispat Europe in existence at the
beginning of 2003. This resulted in an increase in assets and liabilities of $5
million and $13 million respectively. Ispat Europe had a provision for
retirement obligations on the same asset of $11 million, albeit not under SFAS
143, which was reversed. Accordingly, a cumulative gain arising from the change
in accounting principle of $3 million was booked in the fourth quarter of 2003.
If SFAS 143 had been applied to this retirement obligation from January 1, 2003,
the net income would have been $54 million for the first quarter of 2003
(compared to the reported net income of $51 million), $68 for the first six
months of 2003 (compared to the reported net income of $65 million) and $58
million for the first nine months of 2003 (compared to the reported net income
of $55 million). However, the net income for the year remains unchanged at $66
million.
Net income
There was a net income of $11 million in the fourth quarter of 2003 compared to
a net income of $51 million in the fourth quarter of 2002 due to the reasons
discussed above.
10
Liquidity and Capital Resources
During the fourth quarter working capital improved by $60 million due to lower
inventories and reduction in prepaid expenses and other assets. Capital
expenditure during the fourth quarter was $29 million of which $12 million was
on account of the reline of Blast Furnace No. 7 at Ispat Inland. Capital
expenditures continued to be limited to the technically required minimum.
During the quarter, Ispat Inland made a contribution of $19 million to its
pension fund in accordance with its agreement with the Pension Benefit Guaranty
Corporation.
As at December 31, 2003 the Company's cash and cash equivalents were $80
million, (December 31, 2002: $77 million). In addition, the Company's operating
subsidiaries had available borrowing capacity under their various credit lines,
including receivable factoring and securitization facilities, of $337 million
(December 31, 2002: $308 million).
The following table summarizes working capital facilities at the main operating
units:
--------------------------------------------------------------------------------------------------------
Subsidiary Limit Utilization Availability(3)
($ Millions) Dec Dec Dec Dec Dec Dec
2003 2002 2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------
Ispat Inland 381 294 281 234 100 60
Ispat Sidbec 123 111 30 13 93 98
Caribbean Ispat 65 57 61 57 4 -
Ispat Europe 75 66 50 41 25 25
--------------------------------------------------------------------------------------------------------
In addition to the credit facilities listed above, certain European subsidiaries
had the following receivable factoring and securitization facilities:
--------------------------------------------------------------------------------------------------------
Subsidiary Limit Utilization Availability(4)
($ Millions) Dec Dec Dec Dec Dec Dec
2003 2002 2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------
Ispat Europe - Receivables 261 257 159 132 102 125
factoring
--------------------------------------------------------------------------------------------------------
________________________
3 Corresponding exercisable limits are lower, which are based on the level of
inventory/receivable.
11
The Company's total debt including affiliates, both long and short term, was
$2,277 million. The corresponding amount as at December 31, 2002 was $2,284
million. The following table gives details:
--------------------------------------------------------------------------------------------------------------
Subsidiary Long Term Debt (LTD) Payable to Bank Current Portion of Total Debt
LTD
($ Millions) Dec Dec Dec Dec Dec Dec Dec Dec
2003 2002 2003 2002 2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------------
Ispat Inland 1,100 1,086 21 9 7 7 1,128 1,102
Ispat Mexicana 387 428 - - 31 15 418 443
Ispat Sidbec 118 236 30 13 119 54 267 303
Caribbean Ispat 80 106 61 57 26 29 167 192
Ispat Europe 139 131 50 41 1 4 190 176
--------------------------------------------------------------------------------------------------------------
Total debt of Ispat Europe in local currency terms has reduced by (euro)18
million for the year. The increase in US$ is due to translation from Euros to
US$.
Pension funding
The Company booked a pension write down of $81 million after tax to Other
Comprehensive Income relating to the Ispat Inland defined benefit pension plans.
Even though returns on pension assets improved significantly, this write down
was required mainly due to the lower discount rate of 6.25% compared to 7.1%.
Outlook for first quarter 2004
The steel markets continue to be significantly influenced by the high and
growing demand from China for both steel products and for steel related inputs.
The North American markets are showing signs of recovery on the back of a pick
up in the construction and industrial activity and the low levels of inventory
in the pipeline. On the other hand, even with the repeal of Section 201 tariffs,
imports into North America are unlikely to increase in the short term due to the
weakness of the US$ and high ocean freight costs.
Iron ore and scrap prices continue to increase significantly on the back of
strong global demand. Natural gas prices softened in the past few weeks
following a seasonal spike and are expected to ease marginally towards the end
of the first quarter. Ocean freight costs are at record high levels and
increasing due to continued shortages in shipping capacity.
Overall, we expect shipments and prices to increase in this quarter. However we
also expect significant cost increases due to market conditions in metallic and
shipping.
12
Year 2003 compared to year 2002
Results of Operations
Revenue
Sales increased by 11% to $5,441 million in 2003 due to a 7% increase in average
prices in US$ terms while shipments increased by 1% to 15.2 million tons. Net
Sales also went up during the same period to $5,194 million from $4,646 million,
an increase of 12%. Overall demand was flat compared to last year with some
changes within the geographical location of our subsidiaries.
The following table gives a summary of key sales numbers:
-------------------------------------------------------------------------------------------------------------
Subsidiary Net Sales(4) Changes in
2003 2002 Net Sales Shipments Average Selling
Price
$ Million $ Million % % %
-------------------------------------------------------------------------------------------------------------
Ispat Inland 2,151 2,223 (3) (6) 3
Ispat Mexicana 850 649 31 23 9
Ispat Sidbec 560 534 5 2 13*
Caribbean Ispat - Steel 234 183 28 17 9
Caribbean Ispat - DRI 142 138 3 (8) 11
Ispat Europe Group 1,297 1,129 15 (10) 5*
-------------------------------------------------------------------------------------------------------------
* For Ispat Sidbec and Ispat Europe Group change in Net Selling Price is based
on C$ and Euro prices respectively.
Costs
Cost of sales increased by 13% in 2003. The increase is largely due to the
higher price of iron ore, scrap, electricity and natural gas. Selling, general
and administrative expenses were higher by $12 million; however, excluding
currency appreciation, it remained at 2002 levels.
Gross profit
Gross Profit (Sales less Cost of Sales, exclusive of depreciation) decreased by
$35 million. This is primarily because increases in selling prices could not be
offset by increases in cost of key inputs.
The Gross Margin (Gross Profit as a percentage of Net Sales) declined from 11.5%
to 9.6%, due to a significant decline at Ispat Inland and Ispat Sidbec. Gross
margins at our other units improved or remained close to 2002 levels.
The comparative numbers of Gross Margin at the Company's operating subsidiaries
were as follows:
---------------------------------------------------------------------------------------------------------
Subsidiary Gross Margin
(%)
2003 2002
---------------------------------------------------------------------------------------------------------
Ispat Inland 5.6 9.8
Ispat Mexicana 14.7 14.9
Ispat Sidbec 5.3 13.9
Caribbean Ispat 20.2 13.8
Ispat Europe Group 9.2 10.0
---------------------------------------------------------------------------------------------------------
_______________________
4 Net Sales numbers are standalone numbers for certain operating subsidiaries
and include inter-company shipments.
13
Other operating expenses
Other operating expenses in 2002 relate to $39 million towards write-off of
Empire Mine investments and $23 million towards impairment loss of 2A Bloomer
and 21" Bar mill.
Operating income
Operating income rose by 6% during 2003 primarily due to the absence of other
operating expenses. The Operating Margin (Operating Income as a percentage of
Net Sales) was close to 2002 levels.
Comparative numbers of Operating Income and Operating Margin at the Company's
operating subsidiaries were as follows:
-----------------------------------------------------------------------------------------------------------
Subsidiary Operating Income / (Loss) Operating Margin
$ Million (%)
2003 2002 2003 2002
-----------------------------------------------------------------------------------------------------------
Ispat Inland (4) 33* (0.2) 1.2
Ispat Mexicana 84 61 9.8 9.4
Ispat Sidbec (6) 41 (1.2) 7.7
Caribbean Ispat 51 18 13.4 5.6
Ispat Europe Group 27 31 2.1 2.7
-----------------------------------------------------------------------------------------------------------
* After write down of $62 million towards Empire Mine and 2A Bloomer and 21" Bar
Mill
Other income / (expense)
During the first quarter of 2003, the Company purchased $22 million ($39 million
in first quarter of 2002) of its own bonds at discounts from face value. As a
result of these purchases, the Company recognized a gain of $13 million ($19
million net of tax in 2002) in other income. In accordance with adoption of
Statement of Financial Accounting Standard 145: Rescission of FASB Statements 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS
145") by the Company as of January 1, 2003, gain or loss on extinguishments of
debt that was previously classified as an extraordinary item in prior periods
was reclassified and included within "other (income) expense, net" on the
Company's income statement.
Ispat Inland recognized a gain of $11 million on account of a settlement reached
with Ryerson Tull in relation to environmental indemnities. The increase in
other income was also due to higher profits from joint ventures in North America
and profit on sale of surplus land in Germany.
Effect of change in accounting principle
The Company adopted the provisions of Statement of Financial Accounting
Standards 143: Accounting for asset retirement obligations ("SFAS 143") from
January 1, 2003. Based on analysis the Company has performed, it has been
determined that the assets for which an asset retirement obligation must be
recorded is the Company's Minorca Mine, a subsidiary of Ispat Inland and on
property in Hamburg.
The cumulative impact of adopting SFAS 143 on January 1, 2003, is an increase in
assets and liabilities of $9 million and $19 million, respectively. At Ispat
Europe, there was a provision of $11 million for retirement obligations on the
same asset but not calculated in accordance with the provisions of SFAS 143.
Since this provision was no longer required, it was reversed. Accordingly, a
cumulative post-tax gain of $1 million is reflected on the Consolidated
Statement of Income as a Cumulative Effect of change in Accounting Principle.
14
Financing costs
Net interest expense (interest expenses less interest income) was 26% lower at
$151 million. Interest expense reduced due to lower average borrowings and lower
interest rates which reduced borrowing costs. In addition, there was a gain of
$5 million from fair valuing an interest rate hedge which expired in 2003, in
accordance with SFAS 133.
Income tax
The Company recorded a current tax expense of $22 million ($18 million in 2002)
in 2003. Apart from the normal tax on profits, the Company's current tax
expenses increased due to certain additional non cash provisions made at Ispat
Inland.
In 2002, the deferred tax benefit was higher due to the exchange loss on dollar
denominated net monetary liabilities arising from depreciation of the currency
during the year at Ispat Mexicana. In 2003, this benefit was significantly lower
at Ispat Mexicana.
Net income
The Company made a net income of $66 million in 2003 compared to $49 million in
2002 due to the reasons discussed above.
15
SIGNATURE
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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, thereto duly authorized.
Date: February 5, 2004
ISPAT INTERNATIONAL N.V.
By: /s/ Bhikam C. Agarwal
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Bhikam C. Agarwal
Chief Financial Officer