EX-99.2 4 a07-3397_4ex99d2.htm EX-99.2

Exhibit 99.2

Unaudited pro forma combined balance sheet of IPSCO Inc. as of September 30, 2006 and the unaudited pro forma combined statements of income for the nine months ended September 30, 2006 and for the year ended December 31, 2005

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

On December 1, 2006, IPSCO Inc. (IPSCO) through its wholly owned subsidiary PI Acquisition Company completed the purchase of the shares of NS Group, Inc. (NS Group).  The total purchase price was approximately $1.5 billion, including transaction costs, and was funded through a combination of cash on hand and funds obtained through a bank financing.

The Unaudited Pro Forma Combined Statements of Income for the year ended December 31, 2005 and the nine-months ended September 30, 2006 combine the historical consolidated statements of income of IPSCO and the historical consolidated statements of income of NS Group, giving effect to the merger as if it had been competed on January 1, 2005.  The Unaudited Pro Forma Combined Balance Sheet combines the historical consolidated balance sheet of IPSCO and the historical consolidated balance sheet of NS Group, giving effect to the merger as if it had been completed on September 30, 2006.  This information should be read in conjunction with the:

·                                          Accompanying notes to the unaudited pro forma combined financial statements

·                                          Historical financial statements of IPSCO as of and for the year ended December 31, 2005 included in IPSCO’s Form 10-K for the year ended December 31, 2005

·                                          Historical financial statements of IPSCO as of and for the nine-months ended September 30, 2006 included in IPSCO’s Form 10-Q for the nine-months ended September 30, 2006

·                                          Historical financial statements of NS Group as of and for the year ended December 31, 2005 included in NS Group’s Form 10-K for the year ended December 31, 2005

·                                          Historical financial statements of NS Group as of and for the nine-months ended September 30, 2006 included in NS Group’s Form 10-Q for the nine-months ended September 30, 2006

The unaudited pro forma combined financial information was prepared using the purchase method of accounting with IPSCO treated as the acquirer.  Under this method of accounting, the purchase price is allocated to the fair values of assets acquired and liabilities assumed.  The purchase price for NS Group was preliminarily allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.  IPSCO is in the process of determining the fair values of identifiable intangible assets and certain tangible assets.  Such a valuation requires significant estimates and assumptions including but not limited to estimating future cash flows and developing appropriate discount rates.  The Company believes the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.  The purchase price and fair value estimates for the purchase price allocation will be refined as additional information becomes available.  Accordingly, the purchase allocation pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma combined financial information and are subject to revision based on a final determination of fair value.

The unaudited pro forma combined financial statements are provided for informational purposes only.  The unaudited pro forma combined financial statements are not necessarily and should not be assumed to be an indication of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future.  Furthermore, no effect has been given in the unaudited pro forma combined financial statements of income for synergistic benefits that may be realized through the combination of the two companies or the costs that may be incurred in integrating their operations.



Unaudited Pro Forma Combined Balance Sheet
September 30, 2006
(thousands of U.S. dollars)

 

 

IPSCO Inc.

 

NS Group

 

Adjustments

 

 

 

Pro Forma

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

743,546

 

$

76,982

 

$

(799,400

)

1.,2.

 

$

21,128

 

Accounts receivable, net

 

376,334

 

74,615

 

—

 

 

 

450,949

 

Inventories

 

764,053

 

185,141

 

30,892

 

1.

 

980,086

 

Prepaid expenses

 

5,406

 

8,430

 

—

 

 

 

13,836

 

Deferred income taxes

 

37,999

 

8,332

 

(11,900

)

1.

 

34,431

 

 

 

1,927,338

 

353,500

 

(780,408

)

 

 

1,500,430

 

Non-Current Assets

 

 

 

 

 

 

 

 

 

 

 

Capital assets

 

1,063,291

 

79,970

 

152,500

 

1.

 

1,295,761

 

Amortizable intangible assets

 

—

 

69,659

 

635,800

 

1.

 

705,459

 

Goodwill

 

—

 

4,558

 

596,300

 

1.

 

600,858

 

Other

 

56,710

 

4,453

 

4,400

 

2.

 

65,563

 

 

 

1,120,001

 

158,640

 

1,389,000

 

 

 

2,667,641

 

Total Assets

 

$

3,047,339

 

$

512,140

 

$

608,592

 

 

 

$

4,168,071

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Bank indebtedness

 

$

—

 

$

—

 

$

100,000

 

2.

 

$

100,000

 

Accounts payable

 

335,975

 

90,527

 

—

 

 

 

426,502

 

Taxes payable

 

—

 

6,231

 

—

 

 

 

6,231

 

Current portion of long-term debt

 

20,879

 

—

 

—

 

 

 

20,879

 

 

 

356,854

 

96,758

 

100,000

 

 

 

553,612

 

Long-Term Liabilities

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

292,175

 

—

 

600,000

 

2.

 

892,175

 

Other

 

44,538

 

11,456

 

1,700

 

1.

 

57,694

 

Deferred income taxes

 

189,939

 

3,418

 

307,400

 

1.

 

500,757

 

 

 

526,652

 

14,874

 

909,100

 

 

 

1,450,626

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Common shares

 

414,499

 

270,697

 

(270,697

)

1.

 

414,499

 

Contributed surplus

 

22,202

 

—

 

—

 

 

 

22,202

 

Retained earnings

 

1,744,297

 

129,783

 

(129,783

)

1.

 

1,744,297

 

Accumulated other comprehensive loss

 

(17,165

)

28

 

(28

)

1.

 

(17,165

)

 

 

2,163,833

 

400,508

 

(400,508

)

 

 

2,163,833

 

Total Liabilities and Equity

 

$

3,047,339

 

$

512,140

 

$

608,592

 

 

 

$

4,168,071

 

 



Unaudited Pro Forma Combined Statement of Income
For the Nine Months Ended September 30, 2006
(thousands of U.S. dollars)

 

 

IPSCO Inc.

 

NS Group

 

Adjustments

 

 

 

Pro Forma

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

2,793,321

 

$

566,867

 

$

—

 

 

 

$

3,360,188

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

1,937,726

 

404,945

 

19,700

 

3.

 

2,362,371

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross income

 

855,595

 

161,922

 

(19,700

)

 

 

997,817

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administration

 

76,776

 

23,404

 

41,100

 

4.

 

141,280

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

778,819

 

138,518

 

(60,800

)

 

 

856,537

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest on long-term debt

 

(17,661

)

(428

)

(31,700

)

2.

 

(49,789

)

Interest income, net

 

24,705

 

5,142

 

(24,700

)

5.

 

5,147

 

Foreign exchange

 

1,262

 

—

 

—

 

 

 

1,262

 

Other

 

353

 

265

 

—

 

 

 

618

 

Income before income taxes

 

787,478

 

143,497

 

(117,200

)

 

 

813,775

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

283,320

 

54,529

 

(45,200

)

6.

 

292,649

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

504,158

 

$

88,968

 

$

(72,000

)

 

 

$

521,126

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

10.61

 

$

3.96

 

 

 

 

 

$

10.97

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

10.51

 

$

3.94

 

 

 

 

 

$

10.87

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (000’s)

 

 

 

 

 

 

 

 

 

 

 

Basic

 

47,497

 

22,468

 

 

 

 

 

47,497

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

47,949

 

22,576

 

 

 

 

 

47,949

 

 



Unaudited Pro Forma Combined Statement of Income
For the Year Ended December 31, 2005
(thousands of U.S. dollars)

 

 

 

IPSCO Inc.

 

NS Group

 

Adjustments

 

 

 

Pro Forma

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

3,032,727

 

$

600,895

 

$

—

 

 

 

$

3,633,622

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

2,051,491

 

439,361

 

57,092

 

3.

 

2,547,944

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross income

 

981,236

 

161,534

 

(57,092

)

 

 

1,085,678

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administration

 

83,334

 

22,949

 

55,500

 

4.

 

161,783

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

897,902

 

138,585

 

(112,592

)

 

 

923,895

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest on long-term debt

 

(35,631

)

(621

)

(45,900

)

2.

 

(82,152

)

Interest income, net

 

16,626

 

2,933

 

(16,600

)

5.

 

2,959

 

Foreign exchange

 

9,448

 

—

 

—

 

 

 

9,448

 

Loss on early extinguishment of debt

 

(16,423

)

—

 

—

 

 

 

(16,423

)

Gain on assets held for sale

 

1,863

 

—

 

—

 

 

 

1,863

 

Other

 

9,760

 

311

 

—

 

 

 

10,071

 

Income before income taxes

 

883,545

 

141,208

 

(175,092

)

 

 

849,661

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

297,729

 

14,113

 

(67,500

)

6.

 

244,342

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

585,816

 

$

127,095

 

$

(107,592

)

 

 

$

605,319

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

12.07

 

$

5.70

 

 

 

 

 

$

12.47

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

11.96

 

$

5.62

 

 

 

 

 

$

12.35

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (000’s)

 

 

 

 

 

 

 

 

 

 

 

Basic

 

48,548

 

22,303

 

 

 

 

 

48,548

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

49,001

 

22,604

 

 

 

 

 

49,001

 

 



Unaudited Pro Forma Combined Financial Information
Notes
(thousands of U.S. dollars)

1.                                       Purchase price allocation

The aggregate purchase price, based on the number of shares of NS Group common stock outstanding at a purchase price of $66 per share, plus transaction costs, was approximately $1.5 billion.  The acquisition was financed through a combination of cash on hand and funds obtained through a syndicated bank credit facility.

IPSCO has completed a preliminary assessment of the fair value of assets and liabilities of NS Group and the related business integration plans.  The information below represents a preliminary allocation of the total consideration to NS Group’s tangible and intangible assets and liabilities based on IPSCO management’s preliminary estimate of their respective fair values.

 

(in thousands)

 

NS Group’s historical equity

 

$

400,508

 

Adjustment to fair value inventory

 

30,892

 

Adjustment to fair value capital assets

 

152,500

 

Adjustment to fair value identifiable intangible assets

 

635,800

 

Adjustment to fair value lease obligation

 

(1,700

)

Deferred income tax impact of purchase accounting adjustments

 

(319,300

)

Residual goodwill created from the merger

 

596,300

 

Total consideration allocated

 

$

1,495,000

 

 

Upon completion of the fair value assessment, the ultimate purchase price allocation may differ materially from the preliminary assessment outlined above.  Any changes to the initial estimates of the fair value of the assets and liabilities will be allocated to goodwill.

2.                                       Financing of the acquisition

The acquisition was financed through a combination of cash on hand and funds obtained through a syndicated 5-year bank credit facility as follows:

 

(in thousands)

 

Operating line

 

$

100,000

 

Term loan

 

250,000

 

Bridge financing

 

350,000

 

Total external financing

 

$

700,000

 

 

Borrowings under the facility bears interest at LIBOR plus a spread based on the Company’s credit ratings.  For purposes of these pro forma financial statements, the Company has assumed a weighted average interest rate of 6.13%.  A change of 0.125% in the assumed interest rate would change the annual interest cost included in the pro forma financial statements by $875.

As the Company has the ability and intent to convert the bridge financing, due on November 20, 2007, to a long-term facility, the bridge financing has been classified as long-term debt for purposes of these pro forma financial statements.

The Company incurred an additional $4,400 of debt issue costs in connection with the financing.

3.                                       Capital assets

For purposes of the preliminary allocation of the purchase price, the Company has estimated a fair value adjustment for NS Group’s capital assets based on a review of NS Group’s historical costs and management’s intended future use.  The fair value adjustment will be depreciated over estimated useful lives of four to thirteen years depending on the asset.

The impact of the adjustment to fair value inventory has been fully realized in the pro forma combined statement of income for the year ended December 31, 2005.



4.                                       Intangible assets

The Company has preliminarily estimated the fair value of NS Group’s identifiable intangible assets as $635,800.  The allocation of the preliminary fair values is as follows:

 

 

 

Amortization

 

 

 

 

 

Period

 

Trade name and trademarks

 

$

5,900

 

3 - 5 years

 

Customer relationships

 

612,300

 

10 -15 years

 

Non-compete agreements

 

17,600

 

3 years

 

 

 

$

635,800

 

 

 

 

The majority of the intangible valuation relates to customer relationships having an estimated average remaining life of 10-15 years based on low historical and projected customer attrition rates among NS Group’s customer base.

5.                                       Interest income

IPSCO’s interest income has been eliminated as the acquisition resulted in no cash balances available for investment.

6.                                       Income taxes

The deferred income tax impacts as a result of purchase accounting adjustments are estimated at the statutory income tax rate for the periods presented.