**United StatesSecurities and Exchange Commission**

**Washington,D.C. 20549**

**FORM 10-Q**

**x**                              QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**Forthe quarterly period ended March 31, 2006**

**CommissionFile Number: 001-14568**

**IPSCO Inc.**

(Exact name of registrantas specified in its charter)

**CANADA**

(State or otherjurisdiction of incorporation or organization)

**98-0077354**

(I.R.S. EmployerIdentification No.)

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

(Address and telephonenumber of principal executive offices)

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

x Yes  o No

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.
| Large accelerated filer** **x |   | Accelerated filer o |   | Non-accelerated filer o |
|------------------------------------|--------|--------------------------|--------|------------------------------|

 

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

o Yes  x No 

**APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THEPRECEEDING FIVE YEARS:**

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

o Yes  o No

The number of shares of common stock outstanding as ofApril 24, 2006 is 48,076,018.

 

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**PART I—FINANCIAL INFORMATION**

**Item1.**                        FinancialStatements.

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

| ** **                                              | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                              | ** ** | **March 31**                                  | ** ** | **March 31** | ** ** |
| ** **                                              | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Plate and Coil Tons  Produced (thousands)               |       | 895.6                                              |       | 817.5 |   |
| Finished Tons Shipped  (thousands)                      |       | 1,005.4                                            |       | 855.8 |   |
| Sales                                                   |       | $                                                  | 902,896    |   | $ | 766,738 |   |
| Cost of sales                                           |       |                                               |       |   |   |
| Manufacturing and raw  material                         |       | 603,346                                            |       | 479,349 |   |
| Depreciation of capital  assets                         |       | 20,083                                             |       | 19,802 |   |
|                                                    |       | 623,429                                            |       | 499,151 |   |
| Gross income                                            |       | 279,467                                            |       | 267,587 |   |
| Selling, general and  administration                    |       | 32,386                                             |       | 18,337 |   |
| Operating income                                        |       | 247,081                                            |       | 249,250 |   |
| Other expenses (income):                                |       |                                               |       |   |   |
| Interest on long-term  debt                             |       | 5,833                                              |       | 10,728 |   |
| Net interest income                                     |       | (7,015                                             | )          | (2,783 | ) |
| Foreign exchange loss  (gain)                           |       | 1,324                                              |       | (394 | ) |
| Other                                                   |       | (112                                               | )          | (95 | ) |
| Income Before Income  Taxes                             |       | 247,051                                            |       | 241,794 |   |
| Income Tax Expense                                      |       | 96,350                                             |       | 87,026 |   |
| Net Income                                              |       | 150,701                                            |       | 154,768 |   |
| Cumulative translation  adjustment                      |       | 1,226                                              |       | 1,959 |   |
| Fair value of  derivatives, net of tax                  |       | (5,398                                             | )          | 4,041 |   |
| Comprehensive income                                    |       | $                                                  | 146,529    |   | $ | 160,768 |   |
| Earnings per Common  Share                              |       |                                               |       |   |   |
| —Basic                                             |       | $                                                  | 3.15       |   | $ | 3.11 |   |
| —Diluted                                           |       | $                                                  | 3.12       |   | $ | 3.06 |   |
| Dividends Declared per  Common Share (Canadian dollars) |       | $                                                  | 0.18       |   | $ | 0.12 |   |

 

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

| ** **                                | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **March 31**              | ** ** | **March 31** | ** ** |
| ** **                                | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| Retained Earnings at  Beginning of Period |       | $                              | 1,341,659  |   | $ | 884,859 |   |
| Net Income                                |       | 150,701                        |       | 154,768 |   |
| Common Share Repurchase                   |       | —                         |       | (13,370 | ) |
| Dividends on Common  Shares               |       | (7,450                         | )          | (4,958 | ) |
| Retained Earnings at End of Period        |       | $                              | 1,484,910  |   | $ | 1,021,299 |   |

 

2

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

| ** **                                                                       | ** ** | **For the Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                       | ** ** | **March 31**                                  | ** ** | **March 31** | ** ** |
| ** **                                                                       | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Operating Activities                                                             |       |                                               |       |   |   |
| Net income                                                                       |       | $                                                  | 150,701    |   | $ | 154,768 |   |
| Adjustments to  reconcile net income to net cash flows from operating activities |       |                                               |       |   |   |
| Stock-based compensation                                                         |       | 1,237                                              |       | 458 |   |
| Depreciation of capital assets                                                   |       | 20,083                                             |       | 19,802 |   |
| Amortization of deferred charges                                                 |       | 461                                                |       | 370 |   |
| Deferred income taxes                                                            |       | 804                                                |       | 39,589 |   |
| Changes in  operating assets and liabilities                                     |       |                                               |       |   |   |
| Accounts receivable, less allowances                                             |       | (12,725                                            | )          | 25,526 |   |
| Inventories                                                                      |       | (43,356                                            | )          | 6,416 |   |
| Other                                                                            |       | 1,435                                              |       | 2,580 |   |
| Accounts payable and accrued charges                                             |       | (27,708                                            | )          | (38,494 | ) |
| Change in deferred pension liability                                             |       | (178                                               | )          | 1,092 |   |
| Income taxes payable                                                             |       | 29,352                                             |       | (60,850 | ) |
| Net cash provided  by operations                                                 |       | 120,106                                            |       | 151,257 |   |
| Investing Activities                                                             |       |                                               |       |   |   |
| Expenditures for capital assets                                                  |       | (30,599                                            | )          | (13,358 | ) |
| Proceeds from mortgage receivable, net                                           |       | 236                                                |       | 1,457 |   |
| Investments                                                                      |       | (330                                               | )          | (170 | ) |
| Net cash used for  investing activities                                          |       | (30,693                                            | )          | (12,071 | ) |
| Financing Activities                                                             |       |                                               |       |   |   |
| Common share dividends                                                           |       | (7,450                                             | )          | (4,958 | ) |
| Common shares issued pursuant to share option plan                               |       | 447                                                |       | 10,929 |   |
| Common share repurchase                                                          |       | —                                             |       | (16,261 | ) |
| Repayment of long-term debt                                                      |       | (4,991                                             | )          | (4,589 | ) |
| Net cash used for  financing activities                                          |       | (11,994                                            | )          | (14,879 | ) |
| Effect of  exchange rate changes on cash and cash equivalents                    |       | 2,841                                              |       | 2,441 |   |
| Increase in Cash  and Cash Equivalents                                           |       | 80,260                                             |       | 126,748 |   |
| Cash and Cash  Equivalents at Beginning of Period                                |       | 583,064                                            |       | 354,774 |   |
| Cash and Cash  Equivalents at End of Period                                      |       | $                                                  | 663,324    |   | $ | 481,522 |   |

 

3

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

| ** **                                       | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **2006**          | ** ** | **2005**             | ** ** |
| Current Assets                                   |       |              |       |                 |       |
| Cash and cash equivalents                        |       | $                 | 663,324    |                 | $          | 583,064 |   |
| Accounts receivable, less allowances             |       | 395,938           |       | 388,943              |       |
| Inventories                                      |       | 559,521           |       | 506,237              |       |
| Deferred income taxes                            |       | 27,400            |       | 30,227               |       |
| Other                                            |       | 7,184             |       | 8,615                |       |
|                                             |       | 1,653,367         |       | 1,517,086            |       |
| Non-Current Assets                               |       |              |       |                 |       |
| Capital assets                                   |       | 1,054,779         |       | 1,056,186            |       |
| Other                                            |       | 64,190            |       | 65,747               |       |
|                                             |       | 1,118,969         |       | 1,121,933            |       |
| Total Assets                                     |       | $                 | 2,772,336  |                 | $          | 2,639,019 |   |
| Current Liabilities                              |       |              |       |                 |       |
| Accounts payable and accrued charges             |       | $                 | 276,912    |                 | $          | 303,589 |   |
| Income and other taxes payable                   |       | 70,516            |       | 41,073               |       |
| Current portion of long-term debt                |       | 6,300             |       | 4,114                |       |
|                                             |       | 353,728           |       | 348,776              |       |
| Long-Term Liabilities                            |       |              |       |                 |       |
| Long-term debt                                   |       | 305,877           |       | 313,053              |       |
| Other                                            |       | 44,538            |       | 44,584               |       |
| Deferred income taxes                            |       | 186,798           |       | 191,973              |       |
|                                             |       | 537,213           |       | 549,610              |       |
| Shareholders’ Equity                        |       |              |       |                 |       |
| Common shares                                    |       | 419,719           |       | 419,272              |       |
| Contributed surplus                              |       | 16,785            |       | 15,548               |       |
| Retained earnings                                |       | 1,484,910         |       | 1,341,659            |       |
| Accumulated other comprehensive loss             |       | (40,019           | )          | (35,846              | )          |
|                                             |       | 1,881,395         |       | 1,740,633            |       |
| Total Liabilities and  Shareholders’ Equity |       | $                 | 2,772,336  |                 | $          | 2,639,019 |   |

 

4

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

1.      Effective with the fourthquarter of 2005, the Company prepares its financial statements in accordancewith the generally accepted  accountingprinciples (GAAP) of the United States. A reconciliation of the differencesbetween GAAP in Canada and the United States as they apply to the Company isprovided in note 8.

These unaudited consolidated financial statementsshould be read in the context of the consolidated financial statements andnotes thereto filed with the Securities and Exchange Commission in theCompany’s 2005 Annual Report on Form 10-K. In the opinion of theCompany, the information furnished herein reflects all known accruals and adjustmentsnecessary for a fair statement of the results for the periods reported herein.All such adjustments are of a normal recurring nature. These interim resultsare not necessarily indicative of expected results for the year.

2.                 Inventories

| ** **      | ** ** | **March 31** | ** ** | **December 31** | ** ** |
|-----------------|------------|-------------------|------------|----------------------|------------|
| ** **      | ** ** | **2006**          | ** ** | **2005**             | ** ** |
| Finished goods  |       | $                 | 144,223    |                 |       | $ | 148,650 |   |   |
| Work-in-process |       | 236,044           |       |                 | 190,860    |   |   |
| Raw materials   |       | 93,063            |       |                 | 99,706     |   |   |
| Supplies        |       | 86,191            |       |                 | 67,021     |   |   |
|            |       | $559,521          |       |                 | $          | 506,237 |   |   |
|                 |            |                   |            |                      |            |  |  |  |  |

 

3.                 Pensioncost attributable to the Company’s pension plans is as follows:

| ** **                                           | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                           | ** ** | **March 31**                                  | ** ** | **March 31** | ** ** |
| ** **                                           | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Defined benefit plans                                |       |                                               |       |   |   |   |   |   |   |
| Service cost                                         |       |                                               | $          | 2,059 |   |   |   | $ | 1,605 |   |   |
| Interest cost                                        |       |                                               | 3,166      |   |   |   | 3,074 |   |   |
| Expected return on plan assets                       |       |                                               | (3,201     | ) |   |   | (2,873 | ) |   |
| Amortization of gains, losses and past service costs |       |                                               | 1,552      |   |   |   | 941 |   |   |
|                                                 |       |                                               | 3,576      |   |   |   | 2,747 |   |   |
| Defined  contribution plans                          |       |                                               | 1,650      |   |   |   | 1,294 |   |   |
|                                                 |       |                                               | $          | 5,226 |   |   |   | $ | 4,041 |   |   |

 

4.      Basic earnings per share is calculated by dividing net incomeavailable to common shareholders by the weighted average number of commonshares outstanding. Diluted earnings per share is calculated by dividing netincome by the weighted average shares outstanding plus share equivalents thatwould arise from the exercise of share options, deferred share units,restricted shares and performance units. The per share amounts disclosed arebased on the following:

5

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| ** **                                              | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                              | ** ** | **March 31**                                  | ** ** | **March 31** | ** ** |
| ** **                                              | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Numerator for basic and  diluted earnings per share     |       | $                                                  | 150,701    |   | $ | 154,768 |   |
| Common shares outstanding—January 1           |       | 48,051,619                                         |       | 49,737,180 |   |
| Non-vested restricted shares                            |       | (210,003                                           | )          | (171,504 | ) |
| Weighted average impact of shares issued  (repurchased) |       | 11,790                                             |       | 230,575 |   |
| Denominator for basic earnings per share                |       | 47,853,406                                         |       | 49,796,251 |   |
| Adjustment for share options                            |       | 97,884                                             |       | 396,817 |   |
| Adjustment for deferred share units                     |       | 116,569                                            |       | 105,438 |   |
| Adjustment for restricted shares                        |       | 129,607                                            |       | 138,828 |   |
| Adjustment for performance units                        |       | 152,931                                            |       | 105,982 |   |
| Denominator for diluted earnings per share              |       | 48,350,397                                         |       | 50,543,316 |   |
|                                                         |            |                                                    |            |  |  |  |  |

 

5.      Effective January 1, 2006, theCompany adopted SFAS No. 123 (revised, Share-Based Payment (SFAS 123(R))using the modified prospective approach. Prior to the adoption of SFAS123(R) the Company accounted for share based awards in accordance with FASBStatement No. 123, Accounting for Stock Based Compensation. Under themodified prospective approach, SFAS 123(R) applies to new awards and to awardsoutstanding on January 1, 2006 that are subsequently modified, repurchasedor cancelled. Under the modified prospective approach, compensation costrecognized in the first quarter 2006 includes compensation cost for all sharebased payments granted prior to, but not yet vested as of January 1, 2006,based on the grant-date fair value estimated in accordance with the originalprovisions of SFAS 123, and compensation cost for all share based paymentsgranted subsequent to January 1, 2006, based on the grant-date fair valueestimated in accordance with provisions of SFAS 123(R). The impact of adopting SFAS123(R) was not material to the financial statements.

The Company has a share option plan under which commonshares are reserved for directors, officers and employees. As of March 31,2006 and March 31, 2005, shares available for future grants are 728,364and 372,696, respectively. The restricted shares and performance units vest atthe end of three years based on continued employment and achievement of certainCompany performance objectives. Restricted shares are entitled to dividendsdeclared on common shares during the vesting period and, upon vesting,performance units are entitled to an amount equal to dividends declared duringthe vesting period. The fair value of the grants is being amortized tocompensation expense over the vesting period. Compensation expense of $8,936 and$458 has been recorded in the three month periods ended March 31, 2006 andMarch 31, 2005, respectively.

*Share Options*

Thefollowing is the continuity of granted options outstanding with weightedaverage exercise price in Canadian dollars:

| ** **                      | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|
| ** **                      | ** ** | **March 31, 2006**                       | ** ** | **March 31, 2005** | ** ** |
| ** **                      | ** ** | ** **                                         | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                      | ** ** | **Number of**                                 | ** ** | **Average** | ** ** | **Number of** | ** ** | **Average** | ** ** |
| ** **                      | ** ** | **Shares**                                         | ** ** | **Exercise Price** | ** ** | **Shares** | ** ** | **Exercise Price** | ** ** |
| Balance at  beginning of period |       |                                               | 175,025    |   |   |   | 23.50 |   |   | 1,205,065 |   |   | 24.90 |   |   |
| Options exercised               |       |                                               | (21,400    | ) |   |   | 24.17 |   |   | (534,095 | ) |   | 25.18 |   |   |
| Balance at end of  period       |       |                                               | 153,625    |   |   |   | 23.41 |   |   | 670,970 |   |   | 24.69 |   |   |

 

The March 31, 2006 weighted average remainingcontractual life of the outstanding options is 4.8 years.

6

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Intrinsic value for stock options is defined as thedifference between the current market value and the grant price. The totalintrinsic value of the outstanding and exerciseable options at March 31,2006 is CDN 15.0 million. The total intrinsic value of options exercisedduring the quarters ended March 31, 2006 and 2005 was CDN $1.8 million andCDN $19.8 million, respectively.

*Performance Units*

Thefollowing is the continuity of performance units outstanding:

| ** **                      | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|
| ** **                      | ** ** | **March 31**                                  | ** ** | **March 31** | ** ** |
| ** **                      | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Balance at  beginning of period |       |                                               | 242,766    |   |   |   | 133,985 |   |   |
| Performance units  granted      |       |                                               | 800        |   |   |   | — |   |   |
| Performance units  cancelled    |       |                                               | (625       | ) |   |   | — |   |   |
| Balance at end of period        |       |                                               | 242,941    |   |   |   | 133,985 |   |   |

 

The March 31, 2006 weighted average grant datefair value of the performance units is CDN $42.55.

*Restricted Shares*

Thefollowing is the continuity of restricted shares outstanding:

| ** **                              | ** ** | **For the Three Months Ended** | ** ** |
|-----------------------------------------|------------|----------------------------------------------------|------------|
| ** **                              | ** ** | **March 31**                                  | ** ** | **March 31** | ** ** |
| ** **                              | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Balance at  beginning and end of period |       |                                               | 210,003    |   |   |   | 171,504 |   |   |
|                                         |            |                                                    |            |  |  |  |  |  |  |

 

The March 31, 2006 weighted average grant datefair value of the restricted shares is CDN $30.70.

At March 31, 2006, there was $14.8 million ofunrecognized compensation cost related to share-based payments which is expectedto be recognized over the weighted-average vesting period of 2 years.

In March 2005, the Company filed a normal courseissuer bid which entitled the Company to acquire approximately 4.2 million of itscommon shares between March 16, 2005 and March 15, 2006. Allpurchases were made on the open market at the market price at the time of thepurchase. All shares purchased under the bid were cancelled. During the quarterended March 31, 2005, 294,000 common shares were purchased for $16.3million.

6.      The Company is organized and managed as a single businesssegment, being steel products, and the Company is viewed as a single operatingsegment by the chief operating decision maker for the purposes of resourceallocation and assessing performance.

Financialinformation on the Company’s geographic areas follows. Sales are allocated tothe country in which the third party customer receives the product.

| ** **    | ** ** | **For the Three Months Ended** | ** ** |
|---------------|------------|----------------------------------------------------|------------|
| ** **    | ** ** | **March 31**                                  | ** ** | **March 31** | ** ** |
| ** **    | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| Sales         |       |                                               |       |   |   |
| Canada        |       | $                                                  | 340,833    |   | $ | 245,509 |   |
| United States |       | 562,063                                            |       | 521,229 |   |
|          |       | $                                                  | 902,896    |   | $ | 766,738 |   |

 

7

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| ** **     | ** ** | **March 31** | ** ** | **March 31** |   |
|----------------|------------|-------------------|------------|-------------------|--------|
| ** **     | ** ** | **2006**          | ** ** | **2005**          |   |
| Capital Assets |       |              |       |              |   |
| Canada         |       | $                 | 212,322    |              | $      | 213,621 |   |
| United States  |       | 842,457           |       | 842,565           |   |
|           |       | $                 | 1,054,779  |              | $      | 1,056,186 |   |

 

| ** **                                         | ** ** | **For the Three Months Ended** |       |
|----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                         | ** ** | **March 31**                                  | ** ** | **March 31** |   |
| ** **                                         | ** ** | **2006**                                           | ** ** | **2005** |   |
| Sales information  by product group is as follows: |       |                                               |       |   |   |
| Steel mill products                                |       | $                                                  | 504,213    |   | $ | 500,489 |   |
| Tubular products                                   |       | 398,683                                            |       | 266,249 |   |
|                                               |       | $                                                  | 902,896    |   | $ | 766,738 |   |

 

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

8

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7.                 ConsolidatingFinancial Statements

The following information presents the condensedconsolidating balance sheet as at March 31, 2006 and December 31,2005, and the condensed consolidating statements of income and cash flows forthe quarters ended March 31, 2006 and 2005. The condensed consolidatingfinancial statements present the accounts of IPSCO Inc. (“Parent”), and itsGuarantor and Non-Guarantor subsidiaries, as defined in the indenture dated asof June 18, 2003 to the IPSCO Inc. 83⁄4% Senior Notes due 2013 (“the Notes”)which were issued on June 18, 2003. The Notes are fully andunconditionally guaranteed, on a joint and several basis, by the Guarantorsubsidiaries. The Guarantor subsidiaries, all of which are wholly-owned byIPSCO Inc., are IPSCO Saskatchewan Inc., IPSCO Recycling Inc., IPSCOEnterprises Inc., IPSCO Minnesota Inc., IPSCO Texas Inc., IPSCO TubularsInc., IPSCO Steel Inc., and IPSCO Steel (Alabama) Inc. Non-Guarantorsubsidiaries are IPSCO Direct Inc., Western Steel Limited, General ScrapPartnership, IPSCO Sales Inc., IPSCO Construction Inc. and General Scrap Inc.

**IPSCO Inc.Condensed Consolidating Statements of IncomeThree Months Ended March 31, 2006(thousands of United States dollars)**

| ** **                            | ** ** | ** ** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------|------------|------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                            | ** ** | **Parent** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Sales                                 |       | $          | 229,659    |             |       | $                 | 798,382    |             |       |             | $          | 137,686 |   |   |   | $ | (262,831 | ) |   |   | $ | 902,896 |   |   |
| Cost of sales                         |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Manufacturing and raw material        |       | 197,395    |       |             | 554,298    |              |       |             | 120,377    |             |       |   | (268,724 | ) |   |   | 603,346 |   |   |
| Depreciation of capital assets        |       | 4,216      |       |             | 15,552     |              |       |             | 315        |             |       |   | — |   |   |   | 20,083 |   |   |
|                                  |       | 201,611    |       |             | 569,850    |              |       |             | 120,692    |             |       |   | (268,724 | ) |   |   | 623,429 |   |   |
| Gross income                          |       | 28,048     |       |             | 228,532    |              |       |             | 16,994     |             |       |   | 5,893 |   |   |   | 279,467 |   |   |
| Selling, general  and administration  |       | 17,466     |       |             | 15,025     |              |       |             | (105       | )                |       |   | — |   |   |   | 32,386 |   |   |
| Operating income                      |       | 10,582     |       |             | 213,507    |              |       |             | 17,099     |             |       |   | 5,893 |   |   |   | 247,081 |   |   |
| Other expenses (income)               |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Interest on long-term debt            |       | 4,023      |       |             | 2,696      |              |       |             | —     |             |       |   | (886 | ) |   |   | 5,833 |   |   |
| Other interest (income) expense,  net |       | (1,225     | )          |             | (5,580     | )                 |       |             | (210       | )                |       |   | — |   |   |   | (7,015 | ) |   |
| Foreign exchange loss (gain)          |       | 1,093      |       |             | 213        |              |       |             | 18         |             |       |   | — |   |   |   | 1,324 |   |   |
| Intercompany interest/dividend        |       | 1,882      |       |             | (796       | )                 |       |             | (194       | )                |       |   | (892 | ) |   |   | — |   |   |
| Equity income                         |       | (148,100   | )          |             | (8,950     | )                 |       |             | —     |             |       |   | 156,938 |   |   |   | (112 | ) |   |
| Other (income) expense                |       | (6,575     | )          |             | (891       | )                 |       |             | —     |             |       |   | 7,466 |   |   |   | — |   |   |
| Income (loss)  before income taxes    |       | 159,484    |       |             | 226,815    |              |       |             | 17,485     |             |       |   | (156,733 | ) |   |   | 247,051 |   |   |
| Income taxes                          |       | 8,783      |       |             | 80,901     |              |       |             | 6,543      |             |       |   | 123 |   |   |   | 96,350 |   |   |
| Net income (loss)                     |       | $          | 150,701    |             |       | $                 | 145,914    |             |       |             | $          | 10,942 |   |   |   | $ | (156,856 | ) |   |   | $ | 150,701 |   |   |

 

9

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**IPSCO Inc.Condensed Consolidating Statements of IncomeThree Months Ended March 31, 2005(thousands of United States dollars)**

| ** **                           | ** ** | ** ** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------|------------|------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                           | ** ** | **Parent** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Sales                                |       | $          | 179,383    |             |       | $                 | 726,184    |             |       |             | $          | 55,807 |   |   |   | $ | (194,636 | ) |   |   | $ | 766,738 |   |   |
| Cost of sales                        |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Manufacturing and raw material       |       | 164,631    |       |             | 491,342    |              |       |             | 48,350     |             |       |   | (224,974 | ) |   |   | 479,349 |   |   |
| Depreciation of capital assets       |       | 4,899      |       |             | 14,562     |              |       |             | 341        |             |       |   | — |   |   |   | 19,802 |   |   |
|                                 |       | 169,530    |       |             | 505,904    |              |       |             | 48,691     |             |       |   | (224,974 | ) |   |   | 499,151 |   |   |
| Gross income                         |       | 9,853      |       |             | 220,280    |              |       |             | 7,116      |             |       |   | 30,338 |   |   |   | 267,587 |   |   |
| Selling, general  and administration |       | 6,378      |       |             | 12,325     |              |       |             | —     |             |       |   | (366 | ) |   |   | 18,337 |   |   |
| Operating income                     |       | 3,475      |       |             | 207,955    |              |       |             | 7,116      |             |       |   | 30,704 |   |   |   | 249,250 |   |   |
| Other expenses (income)              |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Interest on long-term debt           |       | 7,957      |       |             | 2,771      |              |       |             | —     |             |       |   | — |   |   |   | 10,728 |   |   |
| Other interest (income) expense, net |       | (228       | )          |             | (2,368     | )                 |       |             | (187       | )                |       |   | — |   |   |   | (2,783 | ) |   |
| Foreign exchange loss (gain)         |       | (2,383     | )          |             | 1,987      |              |       |             | 2          |             |       |   | — |   |   |   | (394 | ) |   |
| Intercompany interest/dividend       |       | (298       | )          |             | 2,118      |              |       |             | (992       | )                |       |   | (828 | ) |   |   | — |   |   |
| Equity income                        |       | (153,263   | )          |             | (4,594     | )                 |       |             | —     |             |       |   | 157,762 |   |   |   | (95 | ) |   |
| Other (income) expense               |       | (4,975     | )          |             | (1,185     | )                 |       |             | (6         | )                |       |   | 6,166 |   |   |   | — |   |   |
| Income (loss)  before income taxes   |       | 156,665    |       |             | 209,226    |              |       |             | 8,299      |             |       |   | (132,396 | ) |   |   | 241,794 |   |   |
| Income taxes                         |       | 1,897      |       |             | 72,750     |              |       |             | 3,244      |             |       |   | 9,135 |   |   |   | 87,026 |   |   |
| Net income (loss)                    |       | $          | 154,768    |             |       | $                 | 136,476    |             |       |             | $          | 5,055 |   |   |   | $ | (141,531 | ) |   |   | $ | 154,768 |   |   |

 

10

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**IPSCO Inc.Condensed Consolidating Statements of Cash FlowsThree Months Ended March 31, 2006(thousands of United States dollars)**

| ** **                                                    | ** ** | ** ** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Parent** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Operating  activities                                         |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net income (loss)                                             |       | $          | 150,701    |             |       | $                 | 145,914    |             |       |             | $          | 10,942 |   |   |   | $ | (156,856 | ) |   |   | $ | 150,701 |   |   |
| Non-cash adjustments                                          |       | (141,345   | )          |             | 2,519      |              |       |             | 4,353      |             |       |   | 157,058 |   |   |   | 22,585 |   |   |
| Change in operating assets and liabilities                    |       | 209,945    |       |             | (264,466   | )                 |       |             | 581        |             |       |   | 760 |   |   |   | (53,180 | ) |   |
| Net cash provided by (used for) operating activities          |       | 219,301    |       |             | (116,033   | )                 |       |             | 15,876     |             |       |   | 962 |   |   |   | 120,106 |   |   |
| Investing  activities                                         |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Expenditures for capital assets                               |       | (2,955     | )          |             | (22,862    | )                 |       |             | (3,897     | )                |       |   | (885 | ) |   |   | (30,599 | ) |   |
| Proceeds from mortgage receivable, net                        |       | —     |       |             | —     |              |       |             | 236        |             |       |   | — |   |   |   | 236 |   |   |
| Other investing activities                                    |       | —     |       |             | (330       | )                 |       |             | —     |             |       |   | — |   |   |   | (330 | ) |   |
| Net cash used for investing activities                        |       | (2,955     | )          |             | (23,192    | )                 |       |             | (3,661     | )                |       |   | (885 | ) |   |   | (30,693 | ) |   |
| Financing  activities                                         |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Common share dividends                                        |       | (7,450     | )          |             | —     |              |       |             | —     |             |       |   | — |   |   |   | (7,450 | ) |   |
| Common shares issued pursuant to share option plan            |       | 447        |       |             | —     |              |       |             | —     |             |       |   | — |   |   |   | 447 |   |   |
| Repayment of long-term debt                                   |       | —     |       |             | (4,991     | )                 |       |             | —     |             |       |   | — |   |   |   | (4,991 | ) |   |
| Net cash used for financing activities                        |       | (7,003     | )          |             | (4,991     | )                 |       |             | —     |             |       |   | — |   |   |   | (11,994 | ) |   |
| Effect of exchange rate changes on cash and cash  equivalents |       | 2,750      |       |             | 2,221      |              |       |             | (2,053     | )                |       |   | (77 | ) |   |   | 2,841 |   |   |
| Increase (decrease)  in cash and cash equivalents             |       | 212,093    |       |             | (141,995   | )                 |       |             | 10,162     |             |       |   | — |   |   |   | 80,260 |   |   |
| Ccash and cash  equivalents at beginning of period            |       | 57,366     |       |             | 514,599    |              |       |             | 11,099     |             |       |   | — |   |   |   | 583,064 |   |   |
| Cash and cash  equivalents at end of period                   |       | $          | 269,459    |             |       | $                 | 372,604    |             |       |             | $          | 21,261 |   |   |   | $ | — |   |   |   | $ | 663,324 |   |   |

 

11

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**IPSCO Inc.Condensed Consolidating Statements of Cash FlowsThree Months Ended March 31, 2005(thousands of United States dollars)**

| ** **                                                    | ** ** | ** ** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Parent** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Operating  activities                                         |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net income (loss)                                             |       | $          | 154,768    |             |       | $                 | 136,476    |             |       |             | $          | 5,055 |   |   |   | $ | (141,531 | ) |   |   | $ | 154,768 |   |   |
| Non-cash adjustments                                          |       | (149,565   | )          |             | 42,631     |              |       |             | 257        |             |       |   | 166,896 |   |   |   | 60,219 |   |   |
| Change in operating assets and liabilities                    |       | 34,200     |       |             | (58,066    | )                 |       |             | (15,832    | )                |       |   | (24,032 | ) |   |   | (63,730 | ) |   |
| Net cash provided by (used for) operating activities          |       | 39,403     |       |             | 121,041    |              |       |             | (10,520    | )                |       |   | 1,333 |   |   |   | 151,257 |   |   |
| Investing  activities                                         |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Expenditures for capital assets                               |       | (6,114     | )          |             | (5,865     | )                 |       |             | (1,379     | )                |       |   | — |   |   |   | (13,358 | ) |   |
| Proceeds from mortgage receivable, net                        |       | —     |       |             | 1,538      |              |       |             | (81        | )                |       |   | — |   |   |   | 1,457 |   |   |
| Other investing activities                                    |       | —     |       |             | (170       | )                 |       |             | —     |             |       |   | — |   |   |   | (170 | ) |   |
| Net cash used for investing activities                        |       | (6,114     | )          |             | (4,497     | )                 |       |             | (1,460     | )                |       |   | — |   |   |   | (12,071 | ) |   |
| Financing  activities                                         |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Common share dividends                                        |       | (4,958     | )          |             | —     |              |       |             | —     |             |       |   | — |   |   |   | (4,958 | ) |   |
| Common shares issued pursuant to share option plan            |       | 10,929     |       |             | —     |              |       |             | —     |             |       |   | — |   |   |   | 10,929 |   |   |
| Common share repurchase                                       |       | (16,261    | )          |             | —     |              |       |             | —     |             |       |   | — |   |   |   | (16,261 | ) |   |
| Issue (repayment) of long-term  debt                          |       | —     |       |             | (4,589     | )                 |       |             | —     |             |       |   | — |   |   |   | (4,589 | ) |   |
| Net cash used for financing activities                        |       | (10,290    | )          |             | (4,589     | )                 |       |             | —     |             |       |   | — |   |   |   | (14,879 | ) |   |
| Effect of exchange rate changes on cash and cash  equivalents |       | 5,011      |       |             | (6,465     | )                 |       |             | 5,228      |             |       |   | (1,333 | ) |   |   | 2,441 |   |   |
| Increase  (decrease) in cash and cash equivalents             |       | 28,010     |       |             | 105,490    |              |       |             | (6,752     | )                |       |   | — |   |   |   | 126,748 |   |   |
| Cash and cash equivalents  at beginning of period             |       | 14,277     |       |             | 304,785    |              |       |             | 35,712     |             |       |   | — |   |   |   | 354,774 |   |   |
| Cash and cash  equivalents at end of period              |       | $          | 42,287     |             |       | $                 | 410,275    |             |       |             | $          | 28,960 |   |   |   | $ | — |   |   |   | $ | 481,522 |   |   |

 

12

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**IPSCO Inc.Condensed Consolidating Balance SheetsAs at March 31, 2006(thousands of United States dollars)**

| ** **                                       | ** ** | ** ** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **Parent** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Current assets                                   |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |
| Cash and cash equivalents                        |       | $          | 269,459    |             | $          | 372,604           |       |             | $          | 21,261           |       |   | $ | — |   |   | $ | 663,324 |   |   |
| Accounts receivable, less  allowances            |       | (61,476    | )          | 412,794          |       |              | 44,620     |             |       | —           |       |   | 395,938 |   |   |
| Inventories                                      |       | 168,058    |       | 395,128          |       |              | 10,878     |             |       | (14,543          | )          |   | 559,521 |   |   |
| Deferred income taxes                            |       | 20,610     |       | 4,297            |       |              | 2,493      |             |       | —           |       |   | 27,400 |   |   |
| Other                                            |       | 3,757      |       | 2,955            |       |              | 472        |             |       | —           |       |   | 7,184 |   |   |
|                                             |       | 400,408    |       | 1,187,778        |       |              | 79,724     |             |       | (14,543          | )          |   | 1,653,367 |   |   |
| Non-current assets                               |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |
| Capital assets                                   |       | 133,923    |       | 892,880          |       |              | 25,302     |             |       | 2,674            |       |   | 1,054,779 |   |   |
| Other                                            |       | 1,637,190  |       | 63,582           |       |              | 3,288      |             |       | (1,639,870       | )          |   | 64,190 |   |   |
|                                             |       | 1,771,113  |       | 956,462          |       |              | 28,590     |             |       | (1,637,196       | )          |   | 1,118,969 |   |   |
| Total assets                                     |       | $          | 2,171,521  |             | $          | 2,144,240         |       |             | $          | 108,314          |       |   | $ | (1,651,739 | ) |   | $ | 2,772,336 |   |   |
| Current liabilities                              |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |
| Accounts payable and accrued charges             |       | $          | 66,822     |             | $          | 203,831           |       |             | $          | 6,259            |       |   | $ | — |   |   | $ | 276,912 |   |   |
| Income and other taxes payable                   |       | (7,359     | )          | 71,165           |       |              | 6,710      |             |       | —           |       |   | 70,516 |   |   |
| Current portion of long-term debt                |       | —     |       | 6,300            |       |              | —     |             |       | —           |       |   | 6,300 |   |   |
|                                             |       | 59,463     |       | 281,296          |       |              | 12,969     |             |       | —           |       |   | 353,728 |   |   |
| Long-term liabilities                            |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |
| Long-term debt                                   |       | 168,570    |       | 137,307          |       |              | —     |             |       | —           |       |   | 305,877 |   |   |
| Other                                            |       | 16,949     |       | 27,589           |       |              | —     |             |       | —           |       |   | 44,538 |   |   |
| Deferred income taxes                            |       | 45,144     |       | 120,598          |       |              | 25,750     |             |       | (4,694           | )          |   | 186,798 |   |   |
|                                             |       | 230,663    |       | 285,494          |       |              | 25,750     |             |       | (4,694           | )          |   | 537,213 |   |   |
| Shareholders’  equity                       |       | 1,881,395  |       | 1,577,450        |       |              | 69,595     |             |       | (1,647,045       | )          |   | 1,881,395 |   |   |
| Total liabilities and  shareholders’ equity |       | $          | 2,171,521  |             | $          | 2,144,240         |       |             | $          | 108,314          |       |   | $ | (1,651,739 | ) |   | $ | 2,772,336 |   |   |

 

13

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**IPSCO Inc.Condensed Consolidating Balance SheetsAs at December 31, 2005(thousands of United States dollars)**

| ** **                                       | ** ** | ** ** | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------|------------|------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **Parent** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Total**        | ** ** |
| Current assets                                   |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |
| Cash and cash equivalents                        |       | $          | 57,366     |             | $          | 514,599           |       |             | $          | 11,099           |       |   | $ | — |   |   | $ | 583,064 |   |   |
| Accounts receivable, less  allowances            |       | 173,594    |       | 178,538          |       |              | 36,811     |             |       | —           |       |   | 388,943 |   |   |
| Inventories                                      |       | 144,730    |       | 363,974          |       |              | 11,594     |             |       | (14,061          | )          |   | 506,237 |   |   |
| Deferred income taxes                            |       | 25,169     |       | 4,651            |       |              | 407        |             |       | —           |       |   | 30,227 |   |   |
| Other                                            |       | 5,156      |       | 2,410            |       |              | 1,049      |             |       | —           |       |   | 8,615 |   |   |
|                                             |       | 406,015    |       | 1,064,172        |       |              | 60,960     |             |       | (14,061          | )          |   | 1,517,086 |   |   |
| Non-current assets                               |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |
| Capital assets                                   |       | 138,449    |       | 894,130          |       |              | 22,086     |             |       | 1,521            |       |   | 1,056,186 |   |   |
| Other                                            |       | 1,470,677  |       | 104,284          |       |              | 3,182      |             |       | (1,512,396       | )          |   | 65,747 |   |   |
|                                             |       | 1,609,126  |       | 998,414          |       |              | 25,268     |             |       | (1,510,875       | )          |   | 1,121,933 |   |   |
| Total assets                                     |       | $          | 2,015,141  |             | $          | 2,062,586         |       |             | $          | 86,228           |       |   | $ | (1,524,936 | ) |   | $ | 2,639,019 |   |   |
| Current  liabilities                             |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |
| Accounts payable and accrued charges             |       | $          | 53,428     |             | $          | 246,843           |       |             | $          | 3,318            |       |   | $ | — |   |   | $ | 303,589 |   |   |
| Income and other taxes payable                   |       | (11,794    | )          | 50,668           |       |              | 2,199      |             |       | —           |       |   | 41,073 |   |   |
| Current portion of long-term debt                |       | —     |       | 4,114            |       |              | —     |             |       | —           |       |   | 4,114 |   |   |
|                                             |       | 41,634     |       | 301,625          |       |              | 5,517      |             |       | —           |       |   | 348,776 |   |   |
| Long-term liabilities                            |       |       |       |             |       |              |       |             |       |             |       |   |   |   |   |
| Long-term debt                                   |       | 168,569    |       | 144,484          |       |              | —     |             |       | —           |       |   | 313,053 |   |   |
| Other                                            |       | 16,966     |       | 27,618           |       |              | —     |             |       | —           |       |   | 44,584 |   |   |
| Deferred income taxes                            |       | 47,339     |       | 127,623          |       |              | 21,843     |             |       | (4,832           | )          |   | 191,973 |   |   |
|                                             |       | 232,874    |       | 299,725          |       |              | 21,843     |             |       | (4,832           | )          |   | 549,610 |   |   |
| Shareholders’  equity                       |       | 1,740,633  |       | 1,461,236        |       |              | 58,868     |             |       | (1,520,104       | )          |   | 1,740,633 |   |   |
| Total liabilities and  shareholders’ equity |       | $          | 2,015,141  |             | $          | 2,062,586         |       |             | $          | 86,228           |       |   | $ | (1,524,936 | ) |   | $ | 2,639,019 |   |   |

 

14

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8.                 Differencesbetween United States and Canadian generally accepted accounting principles

Reconciliation of the line items of the consolidatedstatements of income and cash flows and the consolidated balance sheets fromU.S. GAAP to Canadian GAAP follows. Information on the nature of theseadjustments is provided in Note 21 to the Company’s 2005 consolidated financialstatements.

**CONSOLIDATEDSTATEMENTS OF INCOME(thousands of United States Dollars except for per share and ton data)**

| ** **                                                             | ** ** | **For the Three Months  Ended March 31, 2006** | ** ** | **For the Three Months  Ended March 31, 2005** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **U.S. GAAP**                                                           | ** ** | **Ref**                                                                      | ** ** | **Amount** | ** ** | **Canadian  GAAP** | ** ** | **U.S. GAAP** | ** ** | **Ref** | ** ** | **Amount** | ** ** | **Canadian  GAAP** | ** ** |
| Plate and Coil Tons Produced (thousands)                               |       |                                                                         | 895.6      |                                                                         |       |   |   |   |   |   |   |   | 895.6 |   |   |   | 817.5 |   |   |   |   |   |   |   |   |   | 817.5 |   |   |
| Finished Tons Shipped (thousands)                                      |       |                                                                         | 1,005.4    |                                                                         |       |   |   |   |   |   |   |   | 1,005.4 |   |   |   | 855.8 |   |   |   |   |   |   |   |   |   | 855.8 |   |   |
| Sales                                                                  |       |                                                                         | $          | 902,896                                                                      |       |   |   | a) |   |   | $ | (27,483 | ) |   | $ | 875,413 |   |   |   | $ | 766,738 |   |   |   | a) |   |   | $ | (20,741 | ) |   | $ | 745,997 |   |   |
| Cost of sales                                                          |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Manufacturing and raw material                                         |       |                                                                         | 603,346    |                                                                         |       |   | a) |   |   | (27,483 | ) |   | 579,181 |   |   |   | 479,349 |   |   |   | a) |   |   | (20,741 | ) |   | 461,941 |   |   |
|                                                                   |       |                                                                         |       |                                                                         |       |   | b) |   |   | 3,471 |   |   |   |   |   |   |   |   |   |   | b) |   |   | 3,471 |   |   |   |   |   |
|                                                                   |       |                                                                         |       |                                                                         |       |   | c) |   |   | (153 | ) |   |   |   |   |   |   |   |   |   | c) |   |   | (138 | ) |   |   |   |   |
| Amortization of capital assets                                         |       |                                                                         | 20,083     |                                                                         |       |   | b) |   |   | (2,224 | ) |   | 23,219 |   |   |   | 19,802 |   |   |   | b) |   |   | (2,224 | ) |   | 19,251 |   |   |
|                                                                   |       |                                                                         |       |                                                                         |       |   | c) |   |   | 41 |   |   |   |   |   |   |   |   |   |   | c) |   |   | 38 |   |   |   |   |   |
|                                                                   |       |                                                                         |       |                                                                         |       |   | d) |   |   | 5,319 |   |   |   |   |   |   |   |   |   |   | d) |   |   | 1,635 |   |   |   |   |   |
|                                                                   |       |                                                                         | 623,429    |                                                                         |       |   |   |   |   | (21,029 | ) |   | 602,400 |   |   |   | 499,151 |   |   |   |   |   |   | (17,959 | ) |   | 481,192 |   |   |
| Gross income                                                           |       |                                                                         | 279,467    |                                                                         |       |   |   |   |   | (6,454 | ) |   | 273,013 |   |   |   | 267,587 |   |   |   |   |   |   | (2,782 | ) |   | 264,805 |   |   |
| Selling, general and  administration                              |       |                                                                         | 32,386     |                                                                         |       |   |   |   |   |   |   |   | 32,386 |   |   |   | 18,337 |   |   |   |   |   |   |   |   |   | 18,337 |   |   |
| Operating income                                                       |       |                                                                         | 247,081    |                                                                         |       |   |   |   |   | (6,454 | ) |   | 240,627 |   |   |   | 249,250 |   |   |   |   |   |   | (2,782 | ) |   | 246,468 |   |   |
| Other expenses (income):                                               |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest on long-term debt                                             |       |                                                                         | 5,833      |                                                                         |       |   | b) |   |   | (2,118 | ) |   | 3,715 |   |   |   | 10,728 |   |   |   | b) |   |   | (2,194 | ) |   | 8,534 |   |   |
| Net interest income                                                    |       |                                                                         | (7,015     | )                                                                            |       |   | c) |   |   | — |   |   | (7,015 | ) |   |   | (2,783 | ) |   |   | c) |   |   | 5 |   |   | (2,778 | ) |   |
| Foreign exchange loss (gain)                                           |       |                                                                         | 1,324      |                                                                         |       |   |   |   |   |   |   |   | 1,324 |   |   |   | (394 | ) |   |   |   |   |   |   |   |   | (394 | ) |   |
| Other (income) expenses                                                |       |                                                                         | (112       | )                                                                            |       |   | c) |   |   | 112 |   |   | — |   |   |   | (95 | ) |   |   | c) |   |   | 95 |   |   | — |   |   |
| Income before income taxes and cumulative effect of  accounting change |       |                                                                         | 247,051    |                                                                         |       |   |   |   |   | (4,448 | ) |   | 242,603 |   |   |   | 241,794 |   |   |   |   |   |   | (688 | ) |   | 241,106 |   |   |
| Income tax expense                                                     |       |                                                                         | 96,350     |                                                                         |       |   | b) |   |   | 339 |   |   | 94,615 |   |   |   | 87,026 |   |   |   | b) |   |   | 341 |   |   | 86,778 |   |   |
|                                                                   |       |                                                                         |       |                                                                         |       |   | d) |   |   | (2,074 | ) |   |   |   |   |   |   |   |   |   | d) |   |   | (589 | ) |   |   |   |   |
| Net Income                                                             |       |                                                                         | $          | 150,701                                                                      |       |   |   |   |   |   | $ | (2,713 | ) |   | $ | 147,988 |   |   |   | $ | 154,768 |   |   |   |   |   |   | $ | (440 | ) |   | $ | 154,328 |   |   |
| Earnings PerCommon Share  — Basic                                 |       |                                                                         | $          | 3.15                                                                         |       |   |   |   |   |   |   |   |   | $ | 3.09 |   |   |   | $ | 3.11 |   |   |   |   |   |   |   |   |   | $ | 3.10 |   |   |
| — Diluted                                                         |       |                                                                         | $          | 3.12                                                                         |       |   |   |   |   |   |   |   |   | $ | 3.06 |   |   |   | $ | 3.06 |   |   |   |   |   |   |   |   |   | $ | 3.05 |   |   |

----

a)                  Freight invoiced to customers

b)                 2000 sale-leaseback transaction

c)                  Joint venture

d)                 Amortization of difference in amounts capitalized

e)                  Translation of convenience

f)                   Capitalization of interest

g)                  Capitalization of commissioning costs

h)                 Derivatives

i)                    Minimum pension liability

j)                    Change in accounting policy

15

----

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (unaudited)(thousands of United States Dollars)**

|                 |   | **For the Three Months Ended March 31, 2006** | ** ** | **For the Three Months Ended March 31, 2005** |       |
|----------------------|--------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
|                 |   | **U.S. GAAP**                                                               | ** ** | **Ref**                                                                          | ** ** | **Amount** | ** ** | **Canadian  GAAP** | ** ** | **U.S. GAAP** | ** ** | **Ref** | ** ** | **Amount** | ** ** | **Canadian  GAAP** |   |
| Operating Activities |   |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                      |        |                                                                                  |            |                                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| Net income                                                                       |   |   | $       | 150,701 |   |   |   |   |   |   |   | $      | (2,713 | )      |    |   | $      | 147,988 |    |   |   | $      | 154,768 |   |   |   |   |   |   |   | $       | (440   | )      |   |   | $ | 154,328 |   |   |
|----------------------------------------------------------------------------------|--------|--------|---------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|---------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|---|---------|--------|--------|
| Adjustments to reconcile net income to  net cash flows from operating activities |   |   |    |    |   |   |   |   |   |   |   |   |   |   |    |   |   |    |    |   |   |   |    |   |   |   |   |   |   |   |    |   |   |
| Depreciation of capital assets                                                   |   |   | 20,083  |    |   |   |   |   |   |   | 3,136  |   |   |   | 23,219  |   |   |    | 19,802  |   |   |   |    |   |   |   | (551   | )      |   |   | 19,251  |   |   |
| Amortization of deferred charges                                                 |   |   | 461     |    |   |   |   |   |   |   |   |   |   |   | 461     |   |   |    | 370     |   |   |   |    |   |   |   |   |   |   |   | 370     |   |   |
| Stock based compensation                                                         |   |   | 1,237   |    |   |   |   |   |   |   |   |   |   |   | 1,237   |   |   |    | 458     |   |   |   |    |   |   |   |   |   |   |   | 458     |   |   |
| Deferred income taxes                                                            |   |   | 804     |    |   |   | b)     |   |   |   | 339    |   |   |   | (931    | )      |   |    | 39,589  |   |   |   | b)      |   |   |   | 341    |   |   |   | 39,341  |   |   |
|                                                                             |   |   |    |    |   |   | d)     |   |   |   | (2,074 | )      |   |   |    |   |   |    |    |   |   |   | d)      |   |   |   | (589   | )      |   |   |    |   |   |
| Changes in operating assets and  liabilities                                     |   |   |    |    |   |   |   |   |   |   |   |   |   |   |    |   |   |    |    |   |   |   |    |   |   |   |   |   |   |   |    |   |   |
| Accounts receivable                                                              |   |   | (12,725 | )       |   |   | c)     |   |   |   | (294   | )      |   |   | (13,019 | )      |   |    | 25,526  |   |   |   | c)      |   |   |   | 155    |   |   |   | 25,681  |   |   |
| Inventories                                                                      |   |   | (43,356 | )       |   |   | c)     |   |   |   | (67    | )      |   |   | (43,423 | )      |   |    | 6,416   |   |   |   | c)      |   |   |   | 32     |   |   |   | 6,448   |   |   |
| Other current assets                                                             |   |   | 1,435   |    |   |   |   |   |   |   |   |   |   |   | 1,435   |   |   |    | 2,580   |   |   |   |    |   |   |   |   |   |   |   | 2,580   |   |   |
| Accounts payable and accrued charges                                             |   |   | (27,708 | )       |   |   | b)     |   |   |   | (3,638 | )      |   |   | (31,236 | )      |   |    | (38,494 | )      |   |   | b)      |   |   |   | (3,312 | )      |   |   | (41,999 | )      |   |
|                                                                             |   |   |    |    |   |   | c)     |   |   |   | 110    |   |   |   |    |   |   |    |    |   |   |   | c)      |   |   |   | (193   | )      |   |   |    |   |   |
| Change in deferred pension   liability                                           |   |   | (178    | )       |   |   |   |   |   |   |   |   |   |   | (178    | )      |   |    | 1,092   |   |   |   |    |   |   |   |   |   |   |   | 1,092   |   |   |
| Income and other taxes payable                                                   |   |   | 29,352  |    |   |   | c)     |   |   |   | — |   |   |   | 29,352  |   |   |    | (60,850 | )      |   |   | c)      |   |   |   | 155    |   |   |   | (60,695 | )      |   |
| Net cash provided by operations                                                  |   |   | 120,106 |    |   |   |   |   |   |   | (5,201 | )      |   |   | 114,905 |   |   |    | 151,257 |   |   |   |    |   |   |   | (4,402 | )      |   |   | 146,855 |   |   |
| Investing Activities                                                             |   |   |    |    |   |   |   |   |   |   |   |   |   |   |    |   |   |    |    |   |   |   |    |   |   |   |   |   |   |   |    |   |   |
| Expenditures for capital assets, net of  litigation settlement                   |   |   | (30,599 | )       |   |   | c)     |   |   |   | (54    | )      |   |   | (30,653 | )      |   |    | (13,358 | )      |   |   | c)      |   |   |   | (48    | )      |   |   | (13,406 | )      |   |
| Proceeds from mortgage receivable, net                                      |   |   | 236     |    |   |   |   |   |   |   |   |   |   |   | 236     |   |   |    | 1,457   |   |   |   |    |   |   |   |   |   |   |   | 1,457   |   |   |
| Investments                                                                      |   |   | (330    | )       |   |   | c)     |   |   |   | 330    |   |   |   | —  |   |   |    | (170    | )      |   |   | c)      |   |   |   | 170    |   |   |   | —  |   |   |
| Net cash used for investing activities                                           |   |   | (30,693 | )       |   |   |   |   |   |   | 276    |   |   |   | (30,417 | )      |   |    | (12,071 | )      |   |   |    |   |   |   | 122    |   |   |   | (11,949 | )      |   |
| Financing Activities                                                             |   |   |    |    |   |   |   |   |   |   |   |   |   |   |    |   |   |    |    |   |   |   |    |   |   |   |   |   |   |   |    |   |   |
| Common shares issued pursuant to share option plan                               |   |   | 447     |    |   |   |   |   |   |   |   |   |   |   | 447     |   |   |    | 10,929  |   |   |   |    |   |   |   |   |   |   |   | 10,929  |   |   |
| Common share dividends                                                           |   |   | (7,450  | )       |   |   |   |   |   |   |   |   |   |   | (7,450  | )      |   |    | (4,958  | )      |   |   |    |   |   |   |   |   |   |   | (4,958  | )      |   |
| Common share repurchase                                                          |   |   | —  |    |   |   |   |   |   |   |   |   |   |   | —  |   |   |    | (16,261 | )      |   |   |    |   |   |   |   |   |   |   | (16,261 | )      |   |
| Repayment of long-term debt                                                      |   |   | (4,991  | )       |   |   | b)     |   |   |   | 4,991  |   |   |   | —  |   |   |    | (4,589  | )      |   |   | b)      |   |   |   | 4,589  |   |   |   | —  |   |   |
| Net cash (used for) provided by financing activities                             |   |   | (11,994 | )       |   |   |   |   |   |   | 4,991  |   |   |   | (7,003  | )      |   |    | (14,879 | )      |   |   |    |   |   |   | 4,589  |   |   |   | (10,290 | )      |   |
| Effect of exchange rate changes on cash  and cash equivalents                    |   |   | 2,841   |    |   |   |   |   |   |   |   |   |   |   | 2,841   |   |   |    | 2,441   |   |   |   |    |   |   |   |   |   |   |   | 2,441   |   |   |
| Increase in Cash and Cash Equivalents                                            |   |   | 80,260  |    |   |   |   |   |   |   | 66     |   |   |   | 80,326  |   |   |    | 126,748 |   |   |   |    |   |   |   | 309    |   |   |   | 127,057 |   |   |
| Cash and Cash Equivalents at Beginning  of Period                                |   |   | 583,064 |    |   |   | c)     |   |   |   | 144    |   |   |   | 583,208 |   |   |    | 354,774 |   |   |   | c)      |   |   |   | 303    |   |   |   | 355,077 |   |   |
| Cash and Cash  Equivalents at End of Period                                      |   |   | $       | 663,324 |   |   |   |   |   |   |   | $      | 210    |   |    |   | $      | 663,534 |    |   |   | $      | 481,522 |   |   |   |   |   |   |   | $       | 612    |   |   |   | $ | 482,134 |   |   |

 

16

----

**CONSOLIDATEDBALANCE SHEETS (unaudited)(thousands of United States Dollars)**

| ** **                                       | ** ** | **March 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **U.S. GAAP**           | ** ** | **Ref**                         | ** ** | **Amount** | ** ** | **Canadian  GAAP** | ** ** | **U.S. GAAP** | ** ** | **Ref** | ** ** | **Amount** | ** ** | **Canadian  GAAP** | ** ** |
| Current Assets                                   |       |                         |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                        |       |                         | $          | 663,324                         |       |   |   | c) |   |   | $ | 210 |   | $ | 663,534 |   |   | $ | 583,064 |   |   |   | c) |   |   | $ | 144 |   | $ | 583,208 |   |
| Accounts  receivable, less allowances  |       |                         | 395,938    |                            |       |   | c) |   |   | 679 |   | 391,844 |   |   | 388,943 |   |   |   | c) |   |   | 222 |   | 377,324 |   |
|                                             |       |                         |       |                            |       |   | h) |   |   | (4,773 | ) |   |   |   |   |   |   |   | h) |   |   | (11,841 | ) |   |   |
| Inventories                                      |       |                         | 559,521    |                            |       |   | c) |   |   | 217 |   | 559,738 |   |   | 506,237 |   |   |   | c) |   |   | 150 |   | 506,387 |   |
| Future income taxes                              |       |                         | 27,400     |                            |       |   |   |   |   | — |   | 27,400 |   |   | 30,227 |   |   |   |   |   |   | — |   | 30,227 |   |
| Other                                            |       |                         | 7,184      |                            |       |   |   |   |   | — |   | 7,184 |   |   | 8,615 |   |   |   | c) |   |   | 22 |   | 8,637 |   |
|                                             |       |                         | 1,653,367  |                            |       |   |   |   |   | (3,667 | ) | 1,649,700 |   |   | 1,517,086 |   |   |   |   |   |   | (11,303 | ) | 1,505,783 |   |
| Non-Current Assets                               |       |                         |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital assets                                   |       |                         | 1,054,779  |                            |       |   | b) |   |   | (110,580 | ) | 1,061,069 |   |   | 1,056,186 |   |   |   | b) |   |   | (112,804 | ) | 1,065,558 |   |
|                                             |       |                         |       |                            |       |   | c) |   |   | 2,582 |   |   |   |   |   |   |   |   | c) |   |   | 2,569 |   |   |   |
|                                             |       |                         |       |                            |       |   | d) |   |   | (11,847 | ) |   |   |   |   |   |   |   | d) |   |   | (6,528 | ) |   |   |
|                                             |       |                         |       |                            |       |   | f) |   |   | 13,902 |   |   |   |   |   |   |   |   | f) |   |   | 13,902 |   |   |   |
|                                             |       |                         |       |                            |       |   | g) |   |   | 112,233 |   |   |   |   |   |   |   |   | g) |   |   | 112,233 |   |   |   |
| Other                                            |       |                         | 64,190     |                            |       |   | c) |   |   | (2,955 | ) | 68,343 |   |   | 65,747 |   |   |   | c) |   |   | (2,776 | ) | 70,033 |   |
|                                             |       |                         |       |                            |       |   | i) |   |   | 7,108 |   |   |   |   |   |   |   |   | i) |   |   | 7,062 |   |   |   |
|                                             |       |                         | 1,118,969  |                            |       |   |   |   |   | 10,443 |   | 1,129,412 |   |   | 1,121,933 |   |   |   |   |   |   | 13,658 |   | 1,135,591 |   |
| Total Assets                                     |       |                         | $          | 2,772,336                       |       |   |   |   |   |   | $ | 6,776 |   | $ | 2,779,112 |   |   | $ | 2,639,019 |   |   |   |   |   |   | $ | 2,355 |   | $ | 2,641,374 |   |
| Current Liabilities                              |       |                         |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts payable  and accrued charges            |       |                         | $          | 276,912                         |       |   |   | b) |   |   | $ | (10,240 | ) | $ | 266,069 |   |   | $ | 303,589 |   |   |   | b) |   |   | $ | (6,602 | ) | $ | 297,318 |   |
|                                             |       |                         |       |                            |       |   | c) |   |   | 733 |   |   |   |   |   |   |   |   | c) |   |   | 331 |   |   |   |
|                                             |       |                         |       |                            |       |   | h) |   |   | (1,336 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income and other  taxes payable                  |       |                         | 70,516     |                            |       |   |   |   |   |   |   | 70,516 |   |   | 41,073 |   |   |   |   |   |   |   |   | 41,073 |   |
| Current portion of  long-term debt               |       |                         | 6,300      |                            |       |   | b) |   |   | (6,300 | ) | — |   |   | 4,114 |   |   |   | b) |   |   | (4,114 | ) | — |   |
|                                             |       |                         | 353,728    |                            |       |   |   |   |   | (17,143 | ) | 336,585 |   |   | 348,776 |   |   |   |   |   |   | (10,385 | ) | 338,391 |   |
| Long-Term Liabilities                            |       |                         |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term debt                                   |       |                         | 305,877    |                            |       |   | b) |   |   | (109,307 | ) | 196,570 |   |   | 313,053 |   |   |   | b) |   |   | (116,483 | ) | 196,570 |   |
| Other                                            |       |                         | 44,538     |                            |       |   | i) |   |   | (44,538 | ) | — |   |   | 44,584 |   |   |   | i) |   |   | (44,584 | ) | — |   |
| Future income taxes                              |       |                         | 186,798    |                            |       |   | b) |   |   | 5,629 |   | 250,747 |   |   | 191,973 |   |   |   | b) |   |   | 5,290 |   | 254,652 |   |
|                                             |       |                         |       |                            |       |   | d) |   |   | (4,925 | ) |   |   |   |   |   |   |   | d) |   |   | (2,851 | ) |   |   |
|                                             |       |                         |       |                            |       |   | f) |   |   | 5,172 |   |   |   |   |   |   |   |   | f) |   |   | 5,172 |   |   |   |
|                                             |       |                         |       |                            |       |   | g) |   |   | 41,751 |   |   |   |   |   |   |   |   | g) |   |   | 41,751 |   |   |   |
|                                             |       |                         |       |                            |       |   | h) |   |   | (1,341 | ) |   |   |   |   |   |   |   | h) |   |   | (4,346 | ) |   |   |
|                                             |       |                         |       |                            |       |   | i) |   |   | 17,663 |   |   |   |   |   |   |   |   | i) |   |   | 17,663 |   |   |   |
|                                             |       |                         | 537,213    |                            |       |   |   |   |   | (89,896 | ) | 447,317 |   |   | 549,610 |   |   |   |   |   |   | (98,388 | ) | 451,222 |   |
| Shareholders’ Equity                        |       |                         |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common shares                                    |       |                         | 419,719    |                            |       |   | e) |   |   | (40,733 | ) | 378,986 |   |   | 419,272 |   |   |   | e) |   |   | (40,733 | ) | 378,539 |   |
| Contributed surplus                              |       |                         | 16,785     |                            |       |   |   |   |   |   |   | 16,785 |   |   | 15,548 |   |   |   |   |   |   |   |   | 15,548 |   |
| Retained earnings                                |       |                         | 1,484,910  |                            |       |   | b) |   |   | 9,642 |   | 1,519,142 |   |   | 1,341,659 |   |   |   | b) |   |   | 9,110 |   | 1,378,603 |   |
|                                             |       |                         |       |                            |       |   | d) |   |   | (6,922 | ) |   |   |   |   |   |   |   | d) |   |   | (3,678 | ) |   |   |
|                                             |       |                         |       |                            |       |   | e) |   |   | (47,700 | ) |   |   |   |   |   |   |   | e) |   |   | (47,700 | ) |   |   |
|                                             |       |                         |       |                            |       |   | f) |   |   | 8,730 |   |   |   |   |   |   |   |   | f) |   |   | 8,730 |   |   |   |
|                                             |       |                         |       |                            |       |   | g) |   |   | 70,482 |   |   |   |   |   |   |   |   | g) |   |   | 70,482 |   |   |   |
| Accumulated other  comprehensive loss            |       |                         | (40,019    | )                               |       |   | e) |   |   | 88,433 |   | 80,297 |   |   | (35,846 | ) |   |   | e) |   |   | 88,433 |   | 79,071 |   |
| Cumulative  translation adjustment          |       |                         |       |                            |       |   | h) |   |   | (2,096 | ) |   |   |   |   |   |   |   | h) |   |   | (7,495 | ) |   |   |
|                                             |       |                         |       |                            |       |   | i) |   |   | 33,979 |   |   |   |   |   |   |   |   | i) |   |   | 33,979 |   |   |   |
|                                             |       |                         | 1,881,395  |                            |       |   |   |   |   | 113,815 |   | 1,995,210 |   |   | 1,740,633 |   |   |   |   |   |   | 111,128 |   | 1,851,761 |   |
| Total Liabilities  and Shareholders’ Equity |       |                         | $          | 2,772,336                       |       |   |   |   |   |   | $ | 6,776 |   | $ | 2,779,112 |   |   | $ | 2,639,019 |   |   |   |   |   |   | $ | 2,355 |   | $ | 2,641,374 |   |

 

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

**Forward-LookingStatements**

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

Forward-looking information reflects management’scurrent views of future events and financial performance that involve a numberof risks and uncertainties. The factors that could cause actual results todiffer materially include, but are not limited to, the following: (1) generaleconomic conditions; (2) changes in financial markets; (3) politicalconditions and developments, including conflict in the Middle East and the waron terrorism; (4) changes in the supply and demand for steel and ourspecific steel products; (5) the level of demand outside of North Americafor steel and steel products; (6) equipment performance at ourmanufacturing facilities; (7) the occurrence of any material lawsuits; (8) theavailability of capital; (9) our ability to properly and efficiently staffour manufacturing facilities; (10) domestic and international competitivefactors, including the level of steel imports into the Canadian and U.S.markets; (11) economic conditions in steel exporting nations; (12) tradesanction activities and the enforcement of trade sanction remedies; (13) supplyand demand for scrap steel and iron, alloys and other raw materials; (14)supply,****demand and pricing for theelectricity and natural gas that we use; (15) changes in environmental andother regulations, including regulations arising from the Canadian Parliament’sratification of the Kyoto Protocol, and the magnitude of future environmentalexpenditures; (16) inherent uncertainties in the development and performance ofnew or modified equipment or technologies; (17) North American interest rates;and (18) exchange rates.

This list is not exhaustive of the factors that mayimpact our forward-looking statements. These and other factors should beconsidered carefully and users should not place undue reliance on ourforward-looking statements. As a result of the foregoing and other factors, noassurance can be given as to any such future results, levels of activity orachievements and neither we nor any other person assumes responsibility for theaccuracy and completeness of these forward-looking statements.

We refer you to thesections captioned “Statement Regarding Forward-Looking Information” and “RiskFactors” in our Annual Report on Form 10-K for the year ended December 31,2005, incorporated herein by reference, for a more detailed discussion of someof the many factors, variables, risks, and uncertainties that could causeactual results to differ materially from those we may have expected oranticipated. We caution that any forward-looking statement reflects only ourreasonable belief at the time the statement is made. The Company undertakes noobligation to publicly update forward-looking statements, whether as a resultof new information, future events or otherwise. You are advised, however, toconsult any further disclosures the Company makes on related subjects as may bedetailed in our other filings made from time to time with the Securities andExchange Commission.

**General**

The following discussionand analysis presents factors which affected the Company’s consolidated resultsof operations for the three-month periods ended March 31, 2006 and March 31,2005, and the Company’s consolidated financial position at March 31, 2006.We continue to operate and report our business as a single business segment. Thefollowing information should be read in conjunction with the ConsolidatedFinancial Statements and Notes thereto included in this Form 10-Q and inthe Company’s Form 10-K for the year-ended December 31, 2005. As usedin this report, IPSCO Inc. and its subsidiaries, 

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unlessotherwise specified, are collectively referred to as “IPSCO” or the “Company”,and unless the context otherwise requires, the terms “we”, “us”, “our” andsimilar references refer to the Company.

**Overview: FirstQuarter Operating Results 2006 vs. 2005**

First quarter 2006 sales were a record $902.9 million,$136.2 million or 17.8% higher than the $766.7 million reported in the firstquarter of 2005. Steel mill product revenue of $504.2 million increased $3.7million over the first quarter 2005 as significant steel mill product volumeincreases were offset by lower average selling prices. Tubular product sales of$398.7 million increased $132.4 million or 49.7% from the same quarter lastyear driven by higher sales volumes and increased pricing.

For the quarter, IPSCO shipped a record 1,005,000 tonsof finished products, up 150,000 tons or 17.5% from the 856,000 tons reportedlast year. Steel mill products had record shipments in the first quarter of658,000 tons, 40,000 tons or 6.5% more than the prior year. Tubular productshad record shipments in the first quarter of 347,000 tons, 109,000 tons or46.0% higher compared to 238,000 tons in last year’s first quarter. Smalldiameter energy tubular sales, driven by higher rig counts in Canada were atrecord levels. Energy tubular shipments were 209,000 tons, up 25,000 tons fromthe same period last year. Large diameter pipe shipments were 80,000 tons, up76,000 tons from first quarter of 2005. The market for large diameter productis a function of new pipeline projects and maintenance to existing pipelines. Sincethe first quarter of 2005, there has been a substantial increase in pipelineprojects.

Plate and coil tons produced in the first quarter of2006 were 896,000 tons compared to 818,000 tons in first quarter of 2005. Afavorable product mix and production efficiencies led to the volume increasefrom first quarter of 2005.

Gross income of $279.5 million for the first quarterof 2006 was $11.9 million higher than the same period last year. First quartergross margin declined from 34.9% to 31.0% for the first quarter of 2005 due tolower average steel mill product selling prices, higher costs relating to steelmill inputs and higher tubular input and conversion costs partially offset byhigher average tubular pricing.

The average per ton cost of scrap consumed in thefirst quarter of 2006 increased 4% from the first quarter of 2005. Aggregateconversion costs for the three steelworks were 11% higher than the same periodlast year due to increases in alloys, energy costs and maintenance. IPSCOsupplies the majority of steel input needed to make tubular product. Anyadditional coil needed for tubular production is purchased externally. Theincrease in the cost of steel produced, as well as the increase in the cost ofpurchased coil, increased average tubular costs. The average cost per ton ofall product sold increased to $620 per ton, $37 per ton higher than the samequarter last year.

Selling, general and administrative expenses were$32.4 million during the first quarter of 2006, as compared to $18.4 millionduring the same period in 2005, an increase of $14.0 million, or 77%.Administrative expenses increased $10.0 million due to the increased shareprice and subsequent impact on share based compensation and the adoption of SFAS123(R), *Share-Based Payment* in the first quarterof 2006. Selling, general and administrative expenses represented 3.6% of salescompared to 2.4% in 2005.

Operating income per ton in the first quarter was $246per ton compared to $291 per ton in the prior period compared due to thefactors previously discussed.

Interest expense on long-term debt was $5.8 million,down 46% from $10.7 million in the first quarter of 2005. This reduction in firstquarter 2006 compared to first quarter 2005 is the result of significantreduction in long-term debt through 2005 from scheduled payments, redemptionsand open market purchases. Interest income increased $4.2 million to $7.0million due to higher average cash balances and interest rate increasescompared to the prior period.

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Changes in the Canadian to U.S. dollar exchange ratescan impact reported earnings. During the quarters compared, the exchange ratewas volatile but moved in opposite directions, resulting in a first quarter2006 foreign exchange loss of $1.3 million compared to a gain in 2005 of $0.4million.

The effective tax rate of 39% was up from the 36%recorded in the first quarter of 2005. In the first quarter of 2005, IPSCOestimated that all of the anticipated U.S. earnings would be permanentlyreinvested in our U.S. operations. The resulting estimate of the annual taxrate was 36% for 2005. With the record shipments and sales within our U.S.operations in the first quarter of 2006, IPSCO currently believes that aportion of our earnings in the United States would not be permanentlyreinvested and has recorded a tax rate of 39% to reflect future withholding taxpayments on repatriation of these funds.

Net income for the firstquarter of 2006 was $150.7 million or $3.12 per diluted share compared to$154.8 million or $3.06 per diluted share during first quarter of 2005. Thedecrease in net income during 2006 was due to the factors described above. Earningsper diluted share in the first quarter of 2006 were reduced $0.15 per dilutedshare as compared to the prior year due to the impact of the higher effectivetax rate. Earnings per diluted share benefited by $0.14 compared to the prioryear due to the reduction of shares resulting from the share buy back effortsin 2005. The denominator used in the earnings per share calculation was 50.5million shares in the first quarter of 2005 versus 48.4 million shares in thefirst quarter of 2006.

**Outlook**

Robust end user demand for steel mill products is expectedfor all of 2006. IPSCO’s steel mill capacity is fully committed through thesecond quarter. The favorable pricing environment, which has been better thanpreviously anticipated, will be partially offset by increased costs. Operationsare expected to maintain strong performance as scheduled maintenance outagesare minimal during the year.

We expect high oil and gas prices to continue to drivehigh rig counts and demand for OCTG products. First quarter 2006 rig countswere 35% higher in Canada and 18% higher in the U.S. than first quarter of lastyear. North American energy tubular demand is anticipated to be at the highestlevels that weather conditions and rig availability will allow for all of 2006.In addition, our spiral pipe facilities are booked at full capacity through thethird quarter of 2007.

We anticipate that oursecond quarter energy tubular sales volumes will experience the normal seasonalreduction as a result of the spring thaw and road restrictions in WesternCanada. However, due to the strong market conditions we are running all smalldiameter pipe mills at capacity in order to meet customer needs for productfollowing spring break up. Excluding foreign exchange gains or losses andassuming an effective tax rate of 39%, we forecast second quarter 2006 earningsto be in the range of $2.60 to $2.80 per diluted share.

**Financial Positionand Liquidity**

Cash at March 31, 2006 was $663.3 million, anincrease of $80.3 million in the quarter. Net cash generated by operatingactivities for the three months ended March 31, 2006 was $120.1 millioncompared to $151.3 million generated by operating activities for the sameperiod in 2005. This decrease was primarily due to an increase in inventory andaccounts receivable related to increased production volumes and sales.

Capital expenditures in the first quarter of 2006 were$30.6 million, compared with $13.4 million in the same period in 2005. In theprior year, capital expenditures focused primarily on maintenance projects. In2006, in addition to maintenance projects, IPSCO has approved a number ofadditional projects targeted to reduce costs and add value to our product lines.In February 2006, the Company approved the expenditure of a total of $45.2million for the installation of a vacuum degasser at the Montpelier Steelworksand a coil preparation facility as well as other related enhancements to thelarge diameter spiral 

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pipe mill operationslocated in Regina, Saskatchewan. Capital expenditures are anticipated to totalapproximately $160 million in 2006.

In February 2006,IPSCO’s Board of Directors approved a 12% increase in the quarterly cashdividend on the Company’s common shares from CDN $0.16 to $0.18 per share, paidon March 31, 2006 to stockholders of record on March 10, 2006.

**Item 3.**                        Quantitativeand Qualitative Disclosures About Market Risk.

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

**Commodity PriceRisk**

IPSCO manages a portion ofour exposure to price risk related to natural gas purchases by using derivativefinancial instruments. Changes in the market value of these derivativeinstruments have a high correlation to changes in the spot price of naturalgas. Gains and losses from the use of these instruments are deferred inaccumulated other comprehensive incomeon the consolidated balance sheets and recognized into production costs in thesame period as the underlying transaction. At March 31, 2006, accumulatedother comprehensive income/loss includes $2.1 million in unrealized net-of-tax gains****forthe fair value of these instruments. A sensitivity analysis indicates that thereduction in the fair value of these instruments at March 31, 2006, due tohypothetical declines of 10% and 25% in market prices of natural gas at thattime would be $4.2 million and $10.5 million,respectively (March 31, 2005 - $3.9 million and $9.3 million,respectively). Any resulting changes in fair value would be recorded asadjustments to other comprehensive income, net of tax. Because theseinstruments are hedges, these hypothetical losses would be offset by thebenefit of lower prices paid for the natural gas used in the normal productioncycle.

**Interest Rate Risk**

IPSCO’s outstanding debtis fixed rate debt and IPSCO’s investment practice is to invest in highlyliquid money market funds or securities with short remaining maturities. As aresult, changes in interest rates are not expected to have a significant impacton the value of these investments. As such, future changes in interest ratesare not expected to impact interest expense or the value of cash equivalentinvestments. IPSCO does not engage in interest swaps to manage interest rateexposure.

**Foreign CurrencyRisk**

IPSCO is subject to theimpact of changes in exchange rates on revenues and operating costs, firmcommitments for capital expenditures and existing assets or liabilities(including certain inter-company balances), particularly changes in the valueof the U.S. dollar versus the Canadian dollar. At March 31, 2006, therewere no foreign exchange contracts outstanding.

**Item 4.**                        Controlsand Procedures.

**Evaluation ofDisclosure Controls and Procedures**

Management, under thesupervision of the President and Chief Executive Officer and Senior VicePresident and Chief Financial Officer, has evaluated the effectiveness of theCompany’s disclosure controls and procedures as of March 31, 2006. Basedon such evaluation, IPSCO’s President and Chief Executive Officer and SeniorVice President and Chief Financial Officer have concluded that the disclosurecontrols 

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andprocedures were effective as of March 31, 2006, and that there have beenno significant changes in such controls and procedures, or in other factors,that could significantly affect these controls subsequent to their evaluationdate.

**Changes in InternalControl**

There were no changes in our internal control overfinancial reporting during the quarter ended March 31, 2006 that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

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**PART II—OTHERINFORMATION**

**Item 1.**                        LegalProceedings.

There have been nomaterial changes in legal proceedings since the issuance of the Company’s Form 10-K.

**Item 1A.**                RiskFactors.

There have been nomaterial changes in the risk factors provided in Item 1A of Part 1 of theCompany’s Form 10-K for the year ended December 31, 2005.

**Item 2.**                        UnregisteredSales of Equity Securities and Use of Proceeds.

None.

**Item 3.**                        DefaultsUpon Senior Securities.

None.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders.

None.

**Item 5.**                        OtherInformation.

None.

**Item6.**                        Exhibits.
| 31.1 |   | Certification of President and Chief Executive  Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.              |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of Senior  Vice President and Chief Financial Officer Pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
| 32.1 |   | Certification Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                       |

 

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Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                         | **IPSCO INC.**(Registrant)                          |
|-------------------------|-----------------------------------------------------|
| ** **              | **By:  /s/ DAVID S. SUTHERLAND**          |   |
| Date: May 1,  2006 | David S. Sutherland                                 |
|                    | *President and Chief Executive Officer*             |
| ** **              | **By:  /s/ VICKI L. AVRIL**               |   |
| Date: May 1,  2006 | Vicki L. Avril                                      |
|                    | *Senior Vice President and Chief Financial Officer* |

 

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