UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On October 1, 2007, Steel Dynamics entered into a definitive purchase agreement to acquire the net assets (excluding the assumption of approximately $210 million in debt as discussed below) of OmniSource and its subsidiaries (the "Acquisition") for total consideration of approximately $1.1 billion consisting of 9.7 million shares of Steel Dynamics common stock, $441 million in cash, including estimated transaction fees, along with the assumption of debt at closing of approximately $210 million. We will finance the cash portion of the Acquisition, and refinance the assumed liabilities, with $661.5 million of borrowings consisting of $500 million aggregate principal amount of notes and $161.5 million under our senior secured revolving credit facility (these borrowings, together with the Acquisition, are referred to as the "Transactions"). This assumed OmniSource debt is expected to be extinguished by Steel Dynamics soon after the closing of the Acquisition. While Steel Dynamics acquired the stock of OmniSource, for tax purposes, the transaction will be treated as an asset purchase. In addition to the Acquisition, we have agreed to purchase certain real estate assets from some of the shareholders of OmniSource for $10 million following the closing of the Acquisition. This real estate purchase is not reflected in the pro forma financial information.
The following unaudited pro forma condensed consolidated financial information is derived from and should be read in conjunction with historical financial statements and related notes of Steel Dynamics and OmniSource which are incorporated by reference for Steel Dynamics and included elsewhere in this offering memorandum for OmniSource.
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007 and the unaudited pro forma condensed statements of income for the twelve months ended December 31, 2006 and the six months ended June 30, 2007 are presented herein. The unaudited pro forma condensed consolidated balance sheet gives effect to the Transactions as if they occurred on June 30, 2007 and combines the historical balance sheets of Steel Dynamics and OmniSource as of June 30, 2007. The unaudited pro forma condensed consolidated statements of income for the twelve months ended December 31, 2006 give effect to the Transactions as if they occurred on January 1, 2006 and combine the historical consolidated statements of income from Steel Dynamics for the twelve months ended December 31, 2006 with the historical statements of income of OmniSource for the twelve months ended September 30, 2006. The unaudited pro forma condensed consolidated statements of income for the six months ended June 30, 2007 give effect to the Transactions as if they occurred on January 1, 2007 and combine the historical consolidated statements of income of Steel Dynamics and OmniSource for the six months ended June 30, 2007. The historical consolidated income statements of OmniSource for the three months ended December 31, 2006 have not been used in preparation of these pro forma income statements. Net sales and income before taxes for OmniSource were $485 million and $9 million, respectively, for this three month period.
The historical financial statements have been adjusted to give effect to pro forma items that are (i) directly attributable to the Transactions and (ii) factually supportable. The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of what the actual combined financial position or results of operations would have been had the Transactions been completed on the dates indicated or what such financial position or results would be for future periods.
The unaudited pro forma condensed consolidated financial statements were prepared using the purchase method of accounting to account for the Acquisition. Accordingly, we have adjusted the historical consolidated financial information to give effect to the consideration issued in connection with the Acquisition. In the unaudited pro forma condensed consolidated financial statements, Steel Dynamics' costs to acquire OmniSource have been allocated to the assets acquired and the liabilities assumed based upon management's preliminary estimate of their respective fair values. Any excess of the fair value of the consideration issued over the fair value of the identifiable assets acquired and liabilities assumed will be recorded as goodwill. The amounts allocated to the identifiable assets
acquired and liabilities assumed in the unaudited pro forma condensed consolidated financial information are based upon management's preliminary valuation estimates. Definitive allocations will be finalized based on certain valuations and other studies that will be performed by Steel Dynamics, in some cases with the assistance of outside valuation specialists, after the closing of the Acquisition. Accordingly, the purchase price allocation adjustments and related depreciation and amortization reflected in the unaudited pro forma condensed consolidated financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value after closing of the Acquisition, and such revisions could have a material effect on the accompanying unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated statements of income do not include the impacts of any revenue, costs or other operating synergies that may result from the Acquisition or any related restructuring costs. The unaudited pro forma condensed consolidated statements of income also do not reflect certain costs to be incurred resulting from the Acquisition because we consider them to be of a non-recurring nature.
Based on Steel Dynamics' review of OmniSource's significant accounting policies disclosed in the latter's historical financials statements, the nature and amount of any adjustments to the historical financial statements of OmniSource to conform their accounting policies to those of Steel Dynamics' are not expected to be significant. Upon consummation of the Acquisition, further review of OmniSource's accounting policies and financial statements may result in required revisions to OmniSource's policies and classifications to conform to Steel Dynamics' accounting policies.
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Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 2007
(Dollars in thousands, except per share data)
| |
Historical |
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Steel Dynamics |
OmniSource |
Transactions |
Pro Forma |
|||||||||||
| Assets | |||||||||||||||
| Cash and equivalents | $ | 12,212 | $ | 10,597 | $ | (12,809 | )(e)(f)(g) | $ | 10,000 | ||||||
| Accounts receivable, less allowance for doubtful accounts | 442,124 | 346,424 | (14,671) | (o) | 773,877 | ||||||||||
| Inventories | 726,236 | 141,556 | — | 867,792 | |||||||||||
| Deferred income taxes | 14,488 | — | — | 14,488 | |||||||||||
| Other current assets | 31,493 | 26,265 | — | 57,758 | |||||||||||
| Total current assets | 1,226,553 | 524,842 | (27,480 | ) | 1,723,915 | ||||||||||
| Property, plant and equipment, net | 1,249,178 | 165,998 | 30,000 | (a) | 1,445,176 | ||||||||||
| Investments | — | 42,271 | — | 42,271 | |||||||||||
| Restricted cash | 6,592 | — | — | 6,592 | |||||||||||
| Intangible assets, net | 14,110 | — | 180,000 | (b) | 194,110 | ||||||||||
| Goodwill | 48,490 | 79,931 | 377,219 | (c) | 505,640 | ||||||||||
| Other assets | 30,963 | 6,774 | 4,000 | (g) | 41,737 | ||||||||||
| Total assets | $ | 2,575,886 | $ | 819,816 | $ | 563,739 | $ | 3,959,441 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||||||
| Accounts payable | $ | 218,318 | $ | 256,199 | $ | (40,025) | (f)(o) | $ | 434,492 | ||||||
| Income taxes payable | 26,365 | — | — | 26,365 | |||||||||||
| Accrued expenses | 92,401 | 42,484 | — | 134,885 | |||||||||||
| Accrued profit sharing | 27,619 | — | — | 27,619 | |||||||||||
| Senior secured revolving credit facility | 215,000 | 19,734 | 141,742 | (f) | 376,476 | ||||||||||
| Current maturities of long-term debt | 699 | — | — | 699 | |||||||||||
| Total current liabilities | 580,402 | 318,417 | 101,717 | 1,000,536 | |||||||||||
| Senior 63/4% notes, due 2015 | 500,000 | — | — | 500,000 | |||||||||||
| New notes, due 2012 | — | — | 500,000 | (g) | 500,000 | ||||||||||
| Convertible subordinated 4.0% notes, due 2012 | 37,500 | — | — | 37,500 | |||||||||||
| Other secured debt | 16,750 | 184,197 | (184,197) | (f) | 16,750 | ||||||||||
| Total long term debt | 554,250 | 184,197 | 315,803 | 1,054,250 | |||||||||||
| Deferred income taxes | 256,210 | — | — | 256,210 | |||||||||||
| Other long term liability | — | 3,544 | — | 3,544 | |||||||||||
| Minority interest | 869 | — | — | 869 | |||||||||||
| Commitments and contingencies | |||||||||||||||
| Stockholders' Equity | |||||||||||||||
| Common stock, at $.005 par value | 540 | 3,969 | (3,969) | (d) | 540 | ||||||||||
| Treasury stock | (464,405 | ) | — | 300,700 | (e) | (163,705 | ) | ||||||||
| Additional paid-in capital | 386,935 | — | 159,177 | (e) | 546,112 | ||||||||||
| Retained earnings | 1,261,085 | 309,689 | (309,689) | (d) | 1,261,085 | ||||||||||
| Total stockholders' equity | 1,184,155 | 313,658 | 146,219 | 1,644,032 | |||||||||||
| Total liabilities and stockholders' equity | $ | 2,575,886 | $ | 819,816 | $ | 563,739 | $ | 3,959,441 | |||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
3
Unaudited Pro Forma Condensed Consolidated Statements of Income
For the Year Ended December 31, 2006
(Dollars in thousands, except per share data)
| |
Historical |
|
|
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Fiscal Year Ended December 31, 2006 |
Fiscal Year Ended September 30, 2006 |
|
|
||||||||||
| |
Steel Dynamics |
OmniSource |
Transactions |
Pro Forma |
||||||||||
| Net sales | $ | 3,238,787 | $ | 2,254,765 | $ | (126,980) | (k) | $ | 5,366,572 | |||||
| Costs of goods sold | 2,408,795 | 2,062,058 | (122,840) | (i)(k) | 4,348,013 | |||||||||
| Gross profit | 829,992 | 192,707 | (4,140 | ) | 1,018,559 | |||||||||
Selling, general and administrative expenses |
170,878 |
80,725 |
(x) |
8,300 |
(h)(m) |
259,903 |
||||||||
| Operating income | 659,114 | 111,982 | (12,440 | ) | 758,656 | |||||||||
Interest expense |
32,104 |
11,114 |
37,205 |
(j) |
80,423 |
|||||||||
| Other expense (income), net | (4,545 | ) | (15,395 | ) | — | (19,940 | ) | |||||||
| Income before income taxes | 631,555 | 116,263 | (49,645 | ) | 698,173 | |||||||||
| Income taxes | 234,848 | 7,010 | 19,637 | (n) | 261,495 | |||||||||
| Net income | $ | 396,707 | $ | 109,253 | $ | (69,282 | ) | $ | 436,678 | |||||
Basic earnings per share |
$ |
4.22 |
$ |
4.21 |
||||||||||
| Weighted average common shares outstanding | 93,931 | 9,700 | (l) | 103,631 | ||||||||||
| Diluted earnings per share | $ | 3.77 | $ | 3.80 | ||||||||||
| Weighted average common shares and share equivalents outstanding | 105,774 | 9,700 | (l) | 115,474 | ||||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
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Unaudited Pro Forma Condensed Consolidated Statements of Income
For the Six Months Ended June 30, 2007
(Dollars in thousands, except per share data)
| |
Historical |
|
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Steel Dynamics |
OmniSource |
Transactions |
Pro Forma |
|||||||||
| Net sales | $ | 1,776,922 | $ | 1,308,369 | $ | (138,417) | (k) | $ | 2,946,874 | ||||
| Costs of goods sold | 1,343,937 | 1,196,235 | (136,847) | (i)(k) | 2,404,575 | ||||||||
| Gross profit | 432,985 | 112,134 | (2,820 | ) | 542,299 | ||||||||
Selling, general and administrative expenses |
94,015 |
46,184 |
4,150 |
(h)(m) |
144,349 |
||||||||
| Operating income | 338,970 | 65,950 | (6,970 | ) | 397,950 | ||||||||
Interest expense |
14,444 |
7,480 |
16,679 |
(j) |
38,603 |
||||||||
| Other expense (income), net | 10,807 | (8,842 | ) | — | 1,965 | ||||||||
| Income before income taxes | 313,719 | 67,312 | (23,649 | ) | 357,382 | ||||||||
| Income taxes | 117,613 | 1,011 | 16,454 | (n) | 135,078 | ||||||||
Net income |
$ |
196,106 |
$ |
66,301 |
$ |
(40,103 |
) |
$ |
222,304 |
||||
Basic earnings per share |
$ |
2.07 |
$ |
2.13 |
|||||||||
| Weighted average common shares outstanding | 94,873 | 9,700 | (l) | 104,573 | |||||||||
| Diluted earnings per share | $ | 1.96 | $ | 2.03 | |||||||||
| Weighted average common shares and share equivalents outstanding | 100,209 | 9,700 | (l) | 109,909 | |||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Information.
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NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Set forth below are the estimated sources and uses of funds reflected in the Transactions column.
| |
Sources |
|
Uses |
|||||
|---|---|---|---|---|---|---|---|---|
| Senior secured revolving credit facility | $ | 161,476 | Cash and common stock to OmniSource | $ | 890,877 | |||
| Notes offered hereby | 500,000 | Acquisition fees and expenses | 10,000 | |||||
| Cash on hand | 12,809 | Financing fees and expenses | 4,000 | |||||
| Common stock | 459,877 | Repayment of OmniSource's existing indebtedness | 229,285 | |||||
| $ | 1,134,162 | $ | 1,134,162 | |||||
For purposes of the pro forma financial statements the value of common stock to be issued to OmniSource is based upon the closing price of our common stock on October 1, 2007, the date the Acquisition was announced, of $47.41. Upon closing Steel Dynamics will issue 9.7 million shares of its common stock to OmniSource. The value assigned to the shares issued in the final purchase allocation will be based upon the average price of Steel Dynamics' common stock as listed on NASDAQ a few days before and after October 1, 2007, the date the Acquisition was announced.
The estimated purchase price, excluding the assumption of OmniSource's existing indebtedness, and allocation of the estimated purchase price discussed below are preliminary as the proposed Acquisition has not yet been completed. The following is a preliminary estimate of the purchase price for the Acquisition.
| Cash and common stock to OmniSource | $ | 890,877 | |
| Estimated fees and expenses | 10,000 | ||
| Total estimated preliminary purchase price | $ | 900,877 | |
Under the purchase method of accounting, the total estimated purchase price as shown in the table above is allocated to identifiable net tangible and intangible assets of OmniSource based on their estimated fair values as of the date of the Acquisition. The purchase price in excess of the identifiable assets acquired is allocated to Goodwill. The management of Steel Dynamics has allocated the preliminary estimated purchase price based on preliminary estimates. The allocation of the preliminary purchase price and the estimated useful lives associated with certain assets are as follows:
| |
Amount |
Estimated Useful Life |
||||||
|---|---|---|---|---|---|---|---|---|
| Net tangible assets at book value | $ | 233,727 | ||||||
| Property, plant and equipment step-up | 30,000 | 12 years | ||||||
| Intangible assets | ||||||||
| Customer relationships | 150,000 | 20 years | ||||||
| Trade names | 30,000 | Indefinite | ||||||
| Goodwill | 457,150 | |||||||
| Estimated preliminary purchase price | $ | 900,877 | ||||||
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Definitive allocations will be finalized based on certain valuations and other studies that will be performed by Steel Dynamics, in some cases with the assistance of outside valuation specialists, after closing the Acquisition. Accordingly, the purchase price allocation adjustments and related depreciation and amortization reflected in the foregoing unaudited pro forma condensed consolidated financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value after closing of the Acquisition, and such revisions could have a material effect on the accompanying unaudited pro forma condensed consolidated financial statements. Such revisions could include changes to the fair value assigned to tangible or intangible assets acquired or liabilities assumed, or changes to the estimated useful lives assigned to tangible or intangible assets.
Identifiable intangible assets: Customer relationships related primarily to underlying customer relationships with distributor networks, original equipment manufacturers and other customers of OmniSource. Acquired trade names include OmniSource.
Steel Dynamics expects to amortize the fair value of customer relationships based on the pattern in which the economic benefits of this intangible asset will be consumed. Additionally, the customer relationships will be tested for impairment whenever circumstances indicate that the carrying amount may not be recoverable. The fair value of acquired trade names will not be amortized but instead will be tested for impairment at least annually (more frequently if indicators of impairment are present). In the event that management determines that the value of the acquired customer relationships or trade names has become impaired, Steel Dynamics will incur an accounting charge for the amount of impairment during the period in which the amount is determined.
Goodwill: Approximately $457,150 has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying identifiable net tangible and intangible assets. In accordance with Statement of Financial Accounting Standards ("SFAS") 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if indicators of impairment are present). In the event that management determines that the value of the goodwill has become impaired, Steel Dynamics will incur an accounting charge for the amount of impairment during the period in which the amount is determined.
Fixed assets: Management has estimated that at acquisition date the fair values of certain fixed assets of OmniSource will be higher than their respective book values in their historical financial statements.
Pro Forma adjustments for the Transactions give effect to the Acquisition under the purchase method of accounting, the issuance of common stock to OmniSource, the issuance of the notes offered hereby, borrowings under the senior secured revolving credit facility, the repayment of OmniSource's existing indebtedness, and the payment of fees and expenses.
The pro forma adjustments included in the unaudited pro forma condensed consolidated balance sheet are as described below:
7
The pro forma adjustments included in the unaudited pro forma condensed statements of income are as described below;
8