Exhibit 99.2
GERDAU AMERISTEEL CORPORATION
SUPPLEMENTAL INFORMATION STATEMENT
TO THE
MANAGEMENT PROXY CIRCULAR
DATED JULY 7, 2010
IN CONNECTION WITH
A SPECIAL MEETING OF HOLDERS
OF COMMON SHARES OF GERDAU AMERISTEEL
CORPORATION
OF COMMON SHARES OF GERDAU AMERISTEEL
CORPORATION
TO CONSIDER
THE PLAN OF ARRANGEMENT WHEREBY GERDAU S.A. WILL
ACQUIRE ALL OF THE OUTSTANDING COMMON SHARES OF
GERDAU AMERISTEEL CORPORATION THAT IT DOES NOT
CURRENTLY OWN FOR U.S. $11.00 PER COMMON SHARE
ACQUIRE ALL OF THE OUTSTANDING COMMON SHARES OF
GERDAU AMERISTEEL CORPORATION THAT IT DOES NOT
CURRENTLY OWN FOR U.S. $11.00 PER COMMON SHARE
The Management Proxy Circular requires immediate attention. It requires shareholders to make important decisions. If you are in doubt as to how to make such decisions, please contact your legal or other professional advisers.
Neither the U.S. Securities and Exchange Commission nor any securities commission of any state of the United States of America or any province or territory of Canada has approved or disapproved of this transaction or passed upon the merits or fairness of this transaction or upon the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offense
AUGUST 13, 2010
SUPPLEMENTAL INFORMATION STATEMENT
This supplement (the “Supplemental Information Statement”) modifies and supplements the Management Proxy Circular (the “Circular”) dated July 7, 2010. Terms with initial capital letters not otherwise defined in this Supplemental Information Statement have the meanings ascribed thereto in the Circular. This Supplemental Information Statement shall form part of and be deemed to be included in the Circular. To the extent that any statement contained in this Supplemental Information Statement modifies, supplements or amends any statement contained in the Circular, such statement in the Circular shall be deemed to be so modified, supplemented or amended.
Special Factors
The Circular is hereby amended by deleting the reference to the heading “INFORMATION REGARDING THE ARRANGEMENT” on page v of the table of contents and replacing such reference with a reference to the heading “SPECIAL FACTORS”. The heading “INFORMATION REGARDING THE ARRANGEMENT” on page 11 of the Circular is hereby deleted and replaced with the heading “SPECIAL FACTORS”.
Exhibit H
The Circular is hereby amended by adding “EXHIBIT H PROJECTIONS” beneath “EXHIBIT G INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF GERDAU AMERISTEEL” on page vii of the table of contents.
Information Contained in this Circular
The third sentence of the second paragraph under the heading “INFORMATION CONTAINED IN THIS CIRCULAR” on page 1 of the Circular which reads:
“Neither the Board nor Gerdau Ameristeel assumes any responsibility for the accuracy or completeness of such information, nor for any omission on the part of Gerdau S.A. or the Acquiror to disclose facts or events which may affect the accuracy or completeness of any such information.” |
is hereby deleted in its entirety.
Statement Regarding Forward-Looking Information
The first sentence of the first paragraph under the heading “STATEMENT REGARDING FORWARD-LOOKING INFORMATION” on page 2 of the Circular which reads:
“This Circular contains or incorporates by reference statements that, to the extent that they are not recitations of historical fact, may constitute “forward-looking statements” within the meaning of applicable securities legislation.” |
is hereby deleted in its entirety and replaced with the following sentence:
“This Circular contains or incorporates by reference statements that, to the extent that they are not recitations of historical fact, may constitute “forward-looking statements” within the meaning of applicable Canadian securities legislation.” |
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Background to the Proposal
The Circular is amended and supplemented by adding after the seventh full paragraph on page 12 of the Circular under the heading “Background to the Proposal” the following:
“The May 10, 2010 presentation by RBC to the Special Committee was for discussion purposes only and did not address any proposal from Gerdau S.A. The presentation covered the following matters: |
(a) | an overview of the situation, including the potential proposal by Gerdau S.A., Gerdau S.A.’s current shareholdings, the establishment of the Special Committee and the engagement of RBC and counsel by the Special Committee; |
(b) | an overview of the Corporation and Gerdau S.A.’s businesses; |
(c) | certain analyses prepared by RBC relating to the North American steel industry, the Corporation’s share price performance since January 2007, comparisons of the Corporation’s share price performance against its peers and Gerdau S.A., historical multiples for North American mini mills and analyst commentary on the steel industry and the Corporation; |
(d) | the scope of RBC’s review, including the information received from management of the Corporation; |
(e) | RBC’s approach to financial assessment, being that RBC had relied primarily on a discounted cash flow (“DCF”) approach, that RBC had reviewed precedent transactions, however, the multiples paid in such precedent transactions were deemed to have limited applicability given the different point of the business cycle in which most of these transactions occurred and that RBC had reviewed trading multiples of public companies in the steel manufacturing industry in North America, however, as these public company multiples implied values that were below the DCF values and public company values generally reflect minority discount values rather than “en bloc” values, RBC did not rely on this methodology; |
(f) | RBC’s review of management’s projections for the years ending December 31, 2010 through 2012 and RBC’s approach to preparing a five year, “base case” forecast for its DCF analysis, including RBC’s adjustments to certain of management’s projections; |
(g) | a detailed review of the preliminary base case forecast prepared by RBC, including key operating assumptions relating to volumes shipped and revenue, metal spreads, mill manufacturing costs per ton, EBITDA margin and EBITDA $ per ton and the level of sensitivity of such assumptions; |
(h) | a review of the DCF model itself, a DCF summary based on EBITDA multiples and perpetual growth rates, the weighted average cost of capital and the sensitivities of each; |
(i) | a precedent transaction analysis, including transaction multiples at various prices; and |
(j) | an analysis of Canadian going-private premiums.” |
The Circular is amended and supplemented by adding after the second full paragraph on page 13 of the Circular under the heading “Background to the Proposal” the following:
“In the days leading up to the May 14, 2010 meeting between J.P. Morgan and RBC and prior to the call between Mr. Schirmer and Mr. Heffernan on May 25, 2010, J.P. Morgan and Mr. Schirmer discussed the potential transaction and a price range for making a proposal to Mr. Heffernan. Mr. Schirmer and J.P. Morgan discussed a price range of $8.10 to $10.00 based on financial analyses J.P. Morgan had performed internally that are substantially similar to those summarized under “Special Factors—Valuation and Fairness Opinion.” Following Mr. Schirmer’s discussions with J.P. Morgan and internal discussions at Gerdau S.A., it was decided that Mr. Schirmer would present a range of $9.00 to $10.50 to Mr. Heffernan. During this time, Mr. Schirmer and J.P. Morgan also discussed how best to present the price range to Mr. Heffernan on the call.” |
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Position of the Special Committee as to Fairness of the Proposal
The last sentence of the first full paragraph on page 14 of the Circular under the heading “Position of the Special Committee as to Fairness of the Proposal” which reads:
“Given the valuation methodologies for the Common Shares contained in the Valuation, and after discussion with RBC as to the rationale for the methodologies used by RBC in preparing the Valuation and the Fairness Opinion, the Special Committee did not consider other valuation methods such as net book value or liquidation value.” |
is hereby deleted in its entirety and replaced with the following:
“Given the valuation methodologies for the Common Shares contained in the Valuation (in particular, the going concern value using a discounted cash flow analysis which was used by RBC for purposes of the Valuation and Fairness Opinion), and after discussion with RBC as to the rationale for the methodologies used by RBC in preparing the Valuation and the Fairness Opinion, the Special Committee did not consider other valuation methods such as historical market prices, net book value or liquidation value. In RBC’s professional judgment, these methodologies were not appropriate in the circumstances as they are not typically used to value going concern businesses with positive cash flows such as the Corporation. The Corporation is a viable going concern and there are no plans to liquidate the Corporation, and therefore, the discounted cash flow approach was deemed more appropriate. For more information regarding RBC’s valuation on a going concern basis using a discounted cash flow analysis, see “Independent Valuation and Fairness Opinion — Valuation Methods.” |
The Circular is amended and supplemented by adding after the second full paragraph beginning on page 14 of the Circular under the heading “Position of the Special Committee as to Fairness of the Proposal” the following:
“The Special Committee was not aware of any firm offers from an unaffiliated third party during the past two years for: (i) the merger or consolidation of Gerdau Ameristeel with or into another company, (ii) the sale or transfer of all or the substantial part of the assets of Gerdau Ameristeel, or (iii) a purchase of Common Shares that would enable the holder to exercise control of Gerdau Ameristeel, and therefore did not consider any such offers in assessing the fairness of the Proposal. As the Special Committee is not aware of any prior valuations, as defined in MI 61-101, prepared in respect of Gerdau Ameristeel or the Common Shares during the last two years, they did not consider any valuations other than the Valuation in assessing the fairness of the Proposal.” |
The first sentence of the fifth full paragraph on page 14 of the Circular under the heading “Position of the Special Committee as to Fairness of the Proposal” which reads:
“In reaching its conclusion that the Proposal was substantively fair to the Public Shareholders, the Special Committee considered and relied upon a number of factors, including the following:” |
is hereby deleted in its entirety and replaced with the following:
“In reaching its conclusion that the Proposal was substantively fair to the Public Shareholders and unaffiliated Shareholders, the Special Committee considered and relied upon a number of factors, including the following:” |
The first sentence of the first paragraph on page 15 of the Circular under the heading “Position of the Special Committee as to Fairness of the Proposal” which reads:
“The Special Committee believed the Proposal was procedurally fair to the Public Shareholders for the following reasons:” |
is hereby deleted in its entirety and replaced with the following:
“The Special Committee believed the Proposal was procedurally fair to the Public Shareholders and unaffiliated Shareholders for the following reasons:” |
Negotiation of the Arrangement Agreement
The last sentence of the last full paragraph beginning on page 15 under the heading “Negotiation of the Arrangement Agreement” which reads:
“Based on its review, the Special Committee was of the unanimous view that the Arrangement is fair to the Public Shareholders and is in the best interests of the Corporation and it unanimously recommended that the Board approve the Arrangement and recommend to the Public Shareholders that they vote their Common Shares in favour of the Arrangement.” |
is hereby deleted in its entirety and replaced with the following:
“Based on its review, the Special Committee was of the unanimous view that the Arrangement is fair to the Public Shareholders and unaffiliated Shareholders and is in the best interests of the Corporation and it unanimously recommended that the Board approve the Arrangement and recommend to the Public Shareholders that they vote their Common Shares in favour of the Arrangement.” |
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The second sentence of the first full paragraph on page 16 of the Circular under the heading “Negotiation of the Arrangement Agreement” which reads:
“Based on, among other things, the unanimous recommendation of the Special Committee, the Board unanimously (with the Gerdau Designees declaring their interest in the Arrangement and abstaining from voting) (i) determined that the Arrangement is fair to the Public Shareholders and is in the best interests of the Corporation, (ii) approved the Arrangement and the execution and performance of the Arrangement Agreement and (iii) resolved to recommend to the Public Shareholders that they vote their Common Shares in favour of the Arrangement.” |
is hereby deleted in its entirety and replaced with the following:
“Based on, among other things, the unanimous recommendation of the Special Committee, the Board unanimously (with the Gerdau Designees declaring their interest in the Arrangement and abstaining from voting) (i) determined that the Arrangement is fair to the Public Shareholders and unaffiliated Shareholders and is in the best interests of the Corporation, (ii) approved the Arrangement and the execution and performance of the Arrangement Agreement and (iii) resolved to recommend to the Public Shareholders that they vote their Common Shares in favour of the Arrangement.” |
Position of the Special Committee as to Fairness of the Arrangement
The first sentence of the sixth full paragraph on page 16 of the Circular under the heading “Position of the Special Committee as to Fairness of the Arrangement” which reads:
“In reaching its conclusion that the Arrangement is substantively fair to the Public Shareholders and the Arrangement is in the best interests of the Corporation, the Special Committee considered and relied upon a number of factors, including those listed above under “Position of the Special Committee as to Fairness of the Proposal”.” |
is hereby deleted in its entirety and replaced with the following:
“In reaching its conclusion that the Arrangement is substantively fair to the Public Shareholders and unaffiliated Shareholders and the Arrangement is in the best interests of the Corporation, the Special Committee considered and relied upon a number of factors, including those listed above under “Position of the Special Committee as to Fairness of the Proposal”.” |
The first sentence of the seventh full paragraph on page 16 of the Circular under the heading “Position of the Special Committee as to Fairness of the Arrangement” which reads:
“The Special Committee believes the Arrangement is procedurally fair to the Public Shareholders for the reasons listed above under “Position of the Special Committee as to Fairness of the Proposal” and the following reasons:” |
is hereby deleted in its entirety and replaced with the following:
“The Special Committee believes the Arrangement is procedurally fair to the Public Shareholders and unaffiliated Shareholders for the reasons listed above under “Position of the Special Committee as to Fairness of the Proposal” and the following reasons:” |
Recommendation of the Special Committee
The first full paragraph on page 17 of the Circular under the heading “Recommendation of the Special Committee” which reads:
“Having received the Valuation and Fairness Opinion, the Special Committee, after consultation with its financial and legal advisors, has determined unanimously that the Arrangement is fair to the Public Shareholders and is in the best interests of the Corporation and has unanimously recommended that the Board approve the Arrangement and recommend to the Public Shareholders that they vote their Common Shares in favour of the Arrangement.” |
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is hereby deleted in its entirety and replaced with the following:
“Having received the Valuation and Fairness Opinion, the Special Committee, after consultation with its financial and legal advisors, has determined unanimously that the Arrangement is fair to the Public Shareholders and unaffiliated Shareholders and is in the best interests of the Corporation and has unanimously recommended that the Board approve the Arrangement and recommend to the Public Shareholders that they vote their Common Shares in favour of the Arrangement.” |
Recommendation of the Board
The first sentence of the second full paragraph on page 17 of the Circular under the heading “Recommendation of the Board” which reads:
“On June 29, 2010, the Board, having received the recommendation of the Special Committee and after consultation with its legal advisors, unanimously (with the Gerdau Designees declaring their interests in the Arrangement and abstaining from voting) (i) determined that the Arrangement is fair to the Public Shareholders and is in the best interests of the Corporation and (ii) approved the Arrangement and the execution and performance of the Arrangement Agreement.” |
is hereby deleted in its entirety and replaced with the following:
“On June 29, 2010, the Board, having received the recommendation of the Special Committee and after consultation with its legal advisors, unanimously (with the Gerdau Designees declaring their interests in the Arrangement and abstaining from voting) (i) determined that the Arrangement is fair to the Public Shareholders and unaffiliated Shareholders and is in the best interests of the Corporation and (ii) approved the Arrangement and the execution and performance of the Arrangement Agreement.” |
The first sentence of the third full paragraph on page 17 of the Circular under the heading “Recommendation of the Board” which reads:
“In adopting the Special Committee’s recommendations and concluding that the Arrangement is fair to the Public Shareholders and that the Arrangement is in the best interests of the Corporation, the Board considered and relied upon the same factors and considerations that the Special Committee relied upon, as described above, and adopted the Special Committee’s analyses in their entirety.” |
is hereby deleted in its entirety and replaced with the following:
“In adopting the Special Committee’s recommendations and concluding that the Arrangement is fair to the Public Shareholders and unaffiliated Shareholders and that the Arrangement is in the best interests of the Corporation, the Board considered and relied upon the same factors and considerations that the Special Committee relied upon, as described above, and adopted the Special Committee’s analyses in their entirety.” |
Position of the Acquiror and Gerdau S.A. Regarding Fairness of the Arrangement
The Circular is hereby amended by deleting the reference to the heading “Position of the Acquiror and Gerdau S.A. Regarding Fairness of the Arrangement” on page v of the table of contents and replacing such reference with a reference to the heading “Position of the Acquiror, Gerdau S.A. and the Gerdau Designees Regarding Fairness of the Arrangement”. The heading “Position of the Acquiror and Gerdau S.A. Regarding Fairness of the Arrangement” on page 18 of the Circular is hereby deleted and replaced with the heading “Position of the Acquiror, Gerdau S.A. and the Gerdau Designees Regarding Fairness of the Arrangement”.
The information contained in the section “Position of the Acquiror and Gerdau S.A. Regarding Fairness of the Arrangement” on page 18 of the Circular which reads:
“Under SEC rules, the Acquiror and Gerdau S.A. may be required to provide certain information regarding their positions as to fairness of the Arrangement to the Public Shareholders. The Acquiror and Gerdau S.A. are making the statements included in this section solely for purposes of complying with the requirements of these rules. Their views as to the fairness of the Arrangement should not be construed as a recommendation to any Shareholder as to how that Shareholder should vote on the proposal to approve the Arrangement. |
The boards of directors of the Acquiror and Gerdau S.A. believe that the Acquisition Price is fair to the Public Shareholders. In reaching this conclusion, the Acquiror and Gerdau S.A. noted the conclusions in the Valuation and Fairness Opinion delivered to the Special Committee, the recommendations of the Special Committee and the Board and the factors considered by, and the analyses and conclusions made by, the Special Committee and the Board and expressly adopted these factors, analyses and conclusions. See also “Position of the Special Committee as to Fairness of the Proposal”.” |
is hereby deleted in its entirety and replaced with the following:
“Under SEC rules, the Acquiror, Gerdau S.A. and the Gerdau Designees are required to provide certain information regarding their positions as to fairness of the Arrangement to the unaffiliated security holders. The Acquiror, Gerdau S.A. and the Gerdau Designees are making the statements included in this section solely for purposes of complying with the requirements of these rules. Their views as to the fairness of the Arrangement should not be construed as a recommendation to any Shareholder as to how that Shareholder should vote on the proposal to approve the Arrangement. |
The boards of directors of the Acquiror and Gerdau S.A. and the Gerdau Designees believe that the Acquisition Price is fair to the Public Shareholders and to the unaffiliated Shareholders. In reaching this conclusion, the Acquiror, Gerdau S.A. and the Gerdau Designees noted the conclusions in the Valuation and Fairness Opinion delivered to the Special Committee, the recommendations of the Special Committee and the Board and the factors considered by, and the analyses and conclusions made by, the Special Committee and the Board and expressly adopted these factors, analyses and conclusions. See also “Position of the Special Committee as to Fairness of the Proposal.” |
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Certain Effects of the Arrangement
The Circular is amended and supplemented by adding after the third full paragraph beginning on page 18 of the Circular under the heading “Certain Effects of the Arrangement” the following:
“Upon completion of the Arrangement, each of the Acquiror’s and Gerdau S.A.’s interest in the earnings and net book value of Gerdau Ameristeel as of June 30, 2010 would increase from 66% to 100%, which, in each case, represents an increase of approximately $23.7 million and approximately $1.4 billion, respectively. For reporting purposes under International Financial Reporting Standards, Gerdau S.A. currently already consolidates 100% of Gerdau Ameristeel and records a minority interest. Accordingly, the Acquiror and its shareholders will be the beneficiaries of any future increases in the value of Gerdau Ameristeel and will bear the entire risk of all losses incurred in the operation of, and all decreases in the value of, Gerdau Ameristeel. Public Shareholders will no longer have an equity interest in Gerdau Ameristeel and will therefore cease to benefit from, and bear any of the risks incident to, ownership of an equity interest in Gerdau Ameristeel.” |
Valuation Methods
The Circular is amended and supplemented by adding after the second paragraph on page 21 of the Circular under the heading “Valuation Methods” the following:
Management of the Corporation provided certain projections to RBC for purposes of assisting RBC in preparing the Valuation and Fairness Opinion. The projections reviewed by RBC were as follows: (i) the unaudited projected financial statements for the Corporation on a consolidated basis and segmented by operating segment prepared by management of the Corporation for the years ending December 31, 2010 through 2012 (the “Consolidated Projections”); (ii) the internal management budget of Gallatin Steel Company (“Gallatin”) for the year ending December 31, 2010 (the “Gallatin 2010 Budget”); and (iii) the unaudited projected financial statements of Gallatin, prepared by management of Gallatin, for the years ending December 31, 2011 and 2012 (the “Gallatin 2011 and 2012 Projections”) (the Consolidated Projections, the Gallatin 2010 Budget and the Gallatin 2011 and 2012 Projections are collectively referred to as the “Projections”). Gallatin is a 50% owned joint venture of the Corporation and a third party. The Consolidated Projections include the proportionate joint venture earnings from Gallatin based generally on the information from the Gallatin 2010 Budget and the Gallatin 2011 and 2012 Projections (as well as the Corporation’s proportionate joint venture earnings/losses from other joint ventures)). Copies of the Projections are set out as Exhibit H to this Circular. Management of the Corporation also discussed selected financial information with RBC that resulted in the verbal update of certain aspects of the Projections. |
Management of the Corporation was responsible for preparing the Consolidated Projections, under the supervision of Ms. Barbara Smith, Vice President, Finance and Chief Financial Officer of the Corporation. The Consolidated Projections were prepared during the fourth quarter of 2009 and were finalized and provided to the Board early during the first quarter of 2010 for review and approval. Mr. Mario Longhi, President and Chief Executive Officer of the Corporation, reviewed and approved the Consolidated Projections. The Gallatin 2010 Budget and the Gallatin 2011 and 2012 Projections were prepared by Gallatin. |
The material aspects of the Projections that were reviewed and relied upon to some extent by RBC in its preparation of the Valuation and Fairness Opinion consisted of shipments, revenue, EBITDA, capital expenditures, changes in non-cash working capital and pension cash contribution for the years ending December 31, 2010 through December 31, 2012. This material information from the Projections is set out below. The Projections were generally reviewed and relied upon to some extent by RBC in its preparation of the Valuation and Fairness Opinion. |
The Corporation does not as a matter of course make public projections as to future sales, earnings, or other results. However, the management of the Corporation has prepared the projections set forth below and in Exhibit H to this Circular to present the data relied upon by RBC in its preparation of the Valuation and Fairness Opinion. The accompanying projections were not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to projections, but, in the view of the Corporation’s management, were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of the Corporation. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Circular are cautioned not to place undue reliance on the projections. |
Neither the Corporation’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the projections contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the projections. |
The Corporation’s key business and economic assumptions underlying the projections set forth below and in Exhibit H to this Circular include assumptions regarding the following: |
U.S. Forecasts Indicator | Unit | 2010 | 2011 | 2012 | ||||||||||||
GDP | % | 2.3 | 2.8 | 3.6 | ||||||||||||
Exchange Rate (average) | C$/US | 1.07 | 1.08 | 1.08 | ||||||||||||
Exchange Rate (average)* | US$/€ | 1.40 | 1.43 | 1.45 | ||||||||||||
Inflation (year end) | % | 1.90 | 2.45 | 2.30 | ||||||||||||
Interest Rate (Fed Funds) | % | 1.00 | 2.50 | 3.00 |
* | Source: Sidenor |
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Global GDP Forecasts | Unit | 2010 | 2011 | 2012 | ||||||||||||
World | % | 2.5 | 4.3 | 4.8 | ||||||||||||
Latin America* | % | 2.1 | 3.9 | 4.5 | ||||||||||||
Europe Union | % | -0.1 | 1.7 | 2.4 | ||||||||||||
Middle East | % | 3.7 | 4.2 | 4.4 | ||||||||||||
Developed Asia | % | 1.4 | 4.4 | 4.8 | ||||||||||||
Developing Asia | % | 7.0 | 8.3 | 8.9 |
* | Excludes Brazil. |
Other Forecasts | 2010 | 2011 | 2012 | |||||||||
World Production (million mt) | 1,280 | 1,374 | 1,486 | |||||||||
Installed Capacity (million mt) | 1,895 | 1,958 | 2,043 | |||||||||
Capacity Utilization Rate | 67.5 | % | 70.2 | % | 72.7 | % | ||||||
World Demand (million mt) | 1,201 | 1,289 | 1,394 |
However, assumptions and estimates underlying the projections are inherently uncertain and, though considered reasonable by the management of the Corporation as of the date of their preparation, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the projections, including, among others, risks and uncertainties set out in the “Risks and Uncertainties” section of the Corporation’s annual information form for the year ended December 31, 2009 and the Corporation’s management’s discussion and analysis as at and for the three months ended March 31, 2010 and March 31, 2009, which are incorporated by reference herein. Accordingly, there can be no assurance that the projections are indicative of the future performance of the Corporation or that actual results will not differ materially from those presented in the projections. |
The Corporation does not generally publish its business plans and strategies or make external disclosures of its anticipated financial position or results of operations. Accordingly, the Corporation does not intend to update or otherwise revise the projections to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, the Corporation does not intend to update or revise the projections to reflect changes in general economic or industry conditions. |
The inclusion in this Circular of the projections in the table below and in Exhibit H to this Circular should not be regarded by any Shareholder as an indication that these projections will be predictive of actual future results, and these projections should not be relied upon as such. Neither the Corporation nor any of its respective representatives has made or makes any representation to any Shareholder regarding these projections. |
2010P(1) | 2011P | 2012P | ||||||||||
Shipments (in K tons) | 6,502 | 7,160 | 7,924 | |||||||||
Revenue (in $M) | 4,975 | 5,967 | 6,713 | |||||||||
EBITDA | 450 | 1,091 | 1,357 | |||||||||
Capital Expenditures | 175 | 200 | 201 | |||||||||
Changes in Non-Cash Working Capital | 234 | 112 | 152 | |||||||||
Pension Cash Contribution | 71 | 71 | 71 |
(1) | These numbers are for January 1, 2010 to December 31, 2010. The numbers reflected in the RBC Base Case in the Valuation and Fairness Opinion cover the period from June 1, 2010 to December 31, 2010. |
In considering the projections in the chart set out above and in Exhibit H to this Circular, RBC, in the exercise of its professional judgment and based on discussions with management, has made certain adjustments to such projections for purposes of developing projected future cash flows for its DCF approach (i.e. its 5-year base case scenario (the “RBC Base Case”)). Based on first quarter results (three months ended March 31, 2010) which were materially higher than the Projections, and management’s expectation that this trend will continue, RBC increased expected EBITDA for the year ending December 31, 2010 in the Projections by $157.2 million (to $607.3 million), primarily as a result of increased product shipments in the mini-mill business unit and lower than projected manufacturing costs. RBC accepted the assumptions under the Projections for the years ending December 31, 2011 and 2012, except for working capital levels which were adjusted after discussions with management of the Corporation. |
In completing its DCF analysis, RBC did not rely on any single series of projected cash flows but performed a variety of sensitivity analyses using the RBC Base Case free cash flows. Variables sensitized included tons shipped, metal spreads, manufacturing costs, margins, capital expenditures and working capital levels, discount rates and terminal value assumptions. The results of these sensitivity analyses are reflected in RBC’s judgment as to the appropriate values resulting from the DCF approach. |
For more information, see the Valuation and Fairness Opinion attached as Appendix E to this Circular, “Valuation of the Shares — Discounted Cash Flow Analysis”.” |
The Circular is amended and supplemented by adding at the end of the section entitled “Valuation Methods” the following:
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“More specifically, the steel manufacturing industry in North America is subject to a general business cycle consistent with growth and recessionary periods in North America. The Transaction is occurring at the end of a recessionary period (i.e. the recession of late 2008 through 2009), while the precedent transactions considered by RBC occurred during growth periods (i.e. the growth period of 2005 through mid-2008). | ||
The transactions considered by RBC (including the announcement dates) and the multiples paid in such transaction are set forth in the table below. | ||
(US$ millions, unless otherwise noted) |
Enterprise | Enterprise | Enterprise | ||||||||||||||||||
Value / | Value / | Value / | ||||||||||||||||||
Announce | Enterprise | LTM | Ton of | Tons | ||||||||||||||||
Date | Acquiror | Target | Value | EBITDA | Capacity | Shipped | ||||||||||||||
Mini Mill | ||||||||||||||||||||
June 16, 2008 | Arcelor Mittal | Bayou Steel Corp. | $ | 475 | n/a | n/a | $ | 931 | ||||||||||||
May 20, 2008 | Severstal International | Esmark Inc. | $ | 1,006 | nmf | $ | 402 | $ | 950 | |||||||||||
March 14, 2008 | Evraz Group S.A. | IPSCO (N.A. Tubular Assets) | $ | 4,025 | 9.6x | $ | 1,660 | $ | 2,683 | |||||||||||
December 9, 2007 | Evraz Group S.A. | Claymont Steel Holdings, Inc. | $ | 573 | 8.3x | $ | 1,155 | $ | 1,348 | |||||||||||
July 10, 2007 | Gerdau Ameristeel | Chaparral Steel Company | $ | 4,003 | 8.6x | $ | 1,483 | $ | 1,763 | |||||||||||
May 3, 2007 | SSAB Svenskt | IPSCO Inc. | $ | 8,213 | 8.0x | $ | 1,910 | $ | 1,985 | |||||||||||
November 20, 2006 | Evraz Group | Oregon Steel Mills | $ | 2,310 | 7.2x | $ | 1,216 | $ | 1,423 | |||||||||||
October 18, 2005 | Steel Dynamics | Roanoke Electric Steel | $ | 281 | 3.4x | $ | 375 | $ | 375 | |||||||||||
Mean | 7.5x | $ | 1,171 | $ | 1,432 | |||||||||||||||
Median | 8.1x | $ | 1,216 | $ | 1,385 | ” |
Fairness Opinion
The Circular is amended and supplemented by inserting before the first full paragraph on page 22 of the Circular under the heading “Fairness Opinion” the following:
“RBC’s review of other transactions in the Canadian equity market where controlling shareholders successfully acquired publicly traded minority interests identified 38 such transactions with an implied en bloc value over $250 million since January 2000. Success was defined as acquiring at least one-half of the minority shares outstanding at the time of the transaction. Defining the premium for this purpose as the amount by which the value per share offered under the relevant transaction exceeded the closing price of the shares on the principal trading exchange on the day immediately prior to announcement of the transaction resulted in premiums as follows: |
Highest | Lowest | Mean | Median | |||
60% | (5%) | 23% | 22% |
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The range of premiums paid in the above transactions is very wide. Although every transaction has its own particular circumstances and direct comparison of any single transaction to the Transaction is difficult, RBC believes that the 38 transactions reviewed, in the aggregate, provide a useful comparison benchmark. |
Details of the 38 transactions reviewed are as follows: |
Date of Announcement | Target/Purchaser | Premium | ||
July 29, 2008 | Fording / Teck Cominco | 12% | ||
March 18, 2008 | Royal Utilities Income Fund / Sherritt International Corp. | 22% | ||
March 4, 2008 | Spectra Energy Income Fund / Westcoast Energy Inc | 14% | ||
June 29, 2007 | CCS Income Trust / David Werklund & Investor Group | 21% | ||
May 25, 2007 | CanWest Media Works / CanWest Global Comm. | 7% | ||
April 26, 2007 | Sobeys / Empire Corporation | 53% | ||
February 26, 2007 | St. Lawrence Cement / Holcim Group | 12% | ||
November 6, 2006 | Four Seasons / Kingdom Hotels, Triples Holdings & Cascade Inv. | 28% | ||
October 23, 2006 | Shell Canada / Royal Dutch | 22% | ||
October 11, 2006 | Bell Nordiq / Bell Aliant | 6% | ||
May 29, 2006 | Mexgold Resources / Gammon Lake Resources | 17% | ||
November 21, 2005 | Bolivar / Gold Fields | 26% | ||
March 9, 2005 | Falconbridge / Noranda | 10% | ||
November 11, 2004 | Rogers Wireless / Rogers Communications | 16% | ||
October 25, 2004 | Decoma International Inc/Magna Intl. | 27% | ||
October 25, 2004 | Tesma International Inc/Magna Intl. | 28% | ||
October 25, 2004 | Intier Automotive Inc/Magna Intl. | 31% | ||
August 29, 2003 | Cara Operations / Cara Holdings Ltd (Phelan Family) | 36% | ||
March 19, 2003 | DuPont Canada / Dupont EI de Nemours & Co. | 22% | ||
March 26, 2002 | Trilon Financial / Brascan Corporation | 3% |
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Date of Announcement | Target/Purchaser | Premium | ||
August 21, 2001 | Oxford Properties / OMERS | 25% | ||
June 12, 2001 | Rogers Wireless / Rogers Communications | 24% | ||
April 30, 2001 | Cominco / Teck | 16% | ||
February 2, 2001 | BAE Systems Canada / Investor Group | 7% | ||
January 12, 2001 | Bentall / SITQ (Caisse) | 17% | ||
December 15, 2000 | Labrador Iron Ore Royalty / Rio Tinto | 24% | ||
December 12, 2000 | Great Lakes Power Inc. / Brascan Corp. | -5% | ||
October 27, 2000 | Crown Life / Haro Financial and Extendicare | 23% | ||
September 22, 2000 | Trimac / McCaig Family | 17% | ||
August 25, 2000 | Equisure Financial Network / ING Groep NV | 43% | ||
August 11, 2000 | AEC Pipelines / Alberta Energy | 31% | ||
August 2, 2000 | Desjardins Laurentian Financial Corp / La Confederation | 40% | ||
July 24, 2000 | Gentra / Brookfield | 11% | ||
July 14, 2000 | Canadian Satellite Communications / Shaw | 18% | ||
May 25, 2000 | Cambridge Shopping Centres / Ivanhoe III | 21% | ||
April 10, 2000 | Northrock Resources / Unocal | 60% | ||
April 7, 2000 | Monarch Development / Taylor Woodrow | 50% | ||
February 15, 2000 | Teleglobe / BCE | 20%” |
Selected Financial Information
The Circular is amended and supplemented by inserting after the first full paragraph on page 41 of the Circular under the heading “Selected Financial Information” the following:
“The following tables set forth certain selected consolidated financial information for the Corporation prepared in accordance with U.S. GAAP. The information as at and for each of the years ended December 31, 2008 and 2009 has been derived from the audited annual consolidated financial statements of the Corporation, which are included in the Corporation’s Annual Reports on Form 40-F for the year ended December 31, 2009, filed |
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with the SEC on March 29, 2010, and which is incorporated by reference herein. The information as at and for the three months ended March 31, 2010 has been derived from the unaudited interim consolidated financial statements of the Corporation, which are included the Corporation’s Report of Foreign Private Issuer on Form 6-K, furnished to the SEC on May 7, 2010, and which is incorporated by reference herein. The information presented below is only a summary and should be read in conjunction with the relevant financial statements of the Corporation, including the notes thereto. |
The Corporation’s audited annual financial information below were prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The Corporation’s unaudited interim financial information below were prepared in accordance with International Financial Reporting Standards (“IFRS”) and is subject to Canadian auditing and auditor independence standards. The Corporation adopted IFRS, as issued by the International Accounting Standards Board, as of January 1, 2010. The Corporation’s financial statements prepared in accordance with IFRS may not be comparable to financial statements of U.S. companies. Information regarding the significant differences between the previous historical US GAAP accounting policies and the current IFRS accounting policies applied by the Corporation is contained in the notes to our unaudited interim financial statements for the three months ended March 31, 2010, which is incorporated by reference herein. Our unaudited interim financial statements for the three months ended March 31, 2010 do not contain a reconciliation of financial information from U.S. GAAP to IFRS. |
Consolidated Balance Sheets
(US$ in thousands)
(US$ in thousands)
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS | ||||||||
Current Assets | $ | 2,074,562 | $ | 2,731,265 | ||||
Non-current Assets | 4,292,403 | 4,538,790 | ||||||
TOTAL ASSETS | $ | 6,366,965 | $ | 7,270,055 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | $ | 385,324 | $ | 478,417 | ||||
Noncurrent Liabilities | 3,110,706 | 3,858,146 | ||||||
TOTAL LIABILITIES | 3,496,030 | 4,336,563 | ||||||
Shareholders’ Equity | ||||||||
Capital stock | 2,554,110 | 2,552,323 | ||||||
Retained earnings | 352,825 | 523,187 | ||||||
Accumulated other comprehensive loss | (65,898 | ) | (178,636 | ) | ||||
Total Corporation & Subsidiaries Shareholders’ Equity | 2,841,037 | 2,896,874 | ||||||
Noncontrolling interest | 29,898 | 36,618 | ||||||
TOTAL SHAREHOLDERS’ EQUITY | 2,870,935 | 2,933,492 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 6,366,965 | $ | 7,270,055 |
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Consolidated Statements of Earnings
(US$ in thousands, except earnings per share data)
(US$ in thousands, except earnings per share data)
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
NET SALES | $ | 4,195,723 | $ | 8,528,480 | ||||
OPERATING EXPENSES | 4,282,161 | 8,661,568 | ||||||
LOSS FROM OPERATIONS | (86,438 | ) | (133,088 | ) | ||||
NET LOSS | $ | (164,273 | ) | $ | (575,455 | ) | ||
Less: Net (loss) income attributable to noncontrolling interest | (2,557 | ) | 11,952 | |||||
NET LOSS ATTRIBUTABLE TO THE CORPORATION & SUBSIDIARIES | $ | (161,716 | ) | $ | (587,407 | ) | ||
EARNINGS PER SHARE ATTRIBUTABLE TO THE CORPORATION & SUBSIDIARIES | ||||||||
Loss per common share — basic | $ | (0.37 | ) | $ | (1.36 | ) | ||
Loss per common share — diluted | $ | (0.37 | ) | $ | (1.36 | ) |
Consolidated Statements of Comprehensive Loss
(US$ in thousands)
(US$ in thousands)
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
Net loss | $ | (164,273 | ) | $ | (575,455 | ) | ||
TOTAL COMPREHENSIVE LOSS | $ | (51,535 | ) | $ | (818,387 | ) | ||
Total comprehensive loss attributable to: | ||||||||
— Noncontrolling interest | — | — |
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Consolidated Statements of Cash Flows
(US$ in thousands)
(US$ in thousands)
Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
OPERATING ACTIVITIES | ||||||||
Net loss | $ | (164,273 | ) | $ | (575,455 | ) | ||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 754,020 | 767,992 | ||||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 120,940 | (656,258 | ) | |||||
NET CASH USED IN FINANCING ACTIVITIES | (751,844 | ) | (148,225 | ) | ||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 148,758 | (64,827 | ) | |||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 631,293 | $ | 482,535 |
Condensed Consolidated Balance Sheets
(US$ in thousands)
(Unaudited)
(US$ in thousands)
(Unaudited)
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS | ||||||||
Current Assets | $ | 2,233,632 | $ | 2,053,820 | ||||
Non-current assets | 4,235,125 | 4,263,319 | ||||||
TOTAL ASSETS | $ | 6,468,757 | $ | 6,317,139 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | $ | 497,006 | $ | 392,912 | ||||
Non-current liabilities | 3,097,111 | 3,079,766 | ||||||
TOTAL LIABILITIES | 3,594,117 | 3,472,678 | ||||||
Shareholders’ equity | ||||||||
Capital | 2,536,839 | 2,535,883 | ||||||
Retained earnings | 212,306 | 187,105 | ||||||
Other comprehensive income | 98,915 | 94,893 | ||||||
Equity attributable to equity holders of the Corporation | 2,848,060 | 2,817,881 | ||||||
Equity attributable to noncontrolling interest | 26,580 | 26,580 | ||||||
TOTAL SHAREHOLDERS’ EQUITY | 2,874,640 | 2,844,461 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 6,468,757 | $ | 6,317,139 |
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Condensed Consolidated Statements Of Operations
(US$ in thousands, except earnings per share data)
(Unaudited)
(US$ in thousands, except earnings per share data)
(Unaudited)
Three Months Ended | ||||||||
March 31, 2010 | March 31, 2009 | |||||||
NET SALES | $ | 1,137,725 | $ | 1,037,699 | ||||
GROSS PROFIT | 105,897 | 47,920 | ||||||
OPERATING EXPENSES | 58,287 | 64,807 | ||||||
INCOME (LOSS) FROM OPERATIONS | 47,610 | (16,887 | ) | |||||
NET INCOME (LOSS) | 24,178 | (33,452 | ) | |||||
NET INCOME (LOSS) ATTRIBUTABLE TO: | ||||||||
Equity holders of the Corporation | 25,201 | (31,480 | ) | |||||
Noncontrolling interest | (1,023 | ) | (1,972 | ) | ||||
EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE CORPORATION | ||||||||
Basic earnings (loss) per share | $ | 0.06 | $ | (0.07 | ) | |||
Diluted earnings (loss) per share | $ | 0.06 | $ | (0.07 | ) |
Consolidated Statements of Comprehensive Loss
(US$ in thousands)
(Unaudited)
(US$ in thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
NET INCOME (LOSS) | $ | 24,178 | $ | (33,452 | ) | |||
TOTAL COMPREHENSIVE INCOME (LOSS) | $ | 28,200 | $ | (39,432 | ) | |||
Total comprehensive income attributable to: | ||||||||
— Equity holders of the company | $ | 29,223 | $ | (37,460 | ) | |||
— Noncontrolling interest | (1,023 | ) | (1,972 | ) |
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Consolidated Statements of Cash Flows
(US$ in thousands)
(Unaudited)
(US$ in thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | 24,178 | $ | (33,452 | ) | |||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (58,486 | ) | 231,897 | |||||
NET CASH USED IN INVESTING ACTIVITIES | (144,524 | ) | (159,096 | ) | ||||
NET CASH USED IN FINANCING ACTIVITIES | (6,835 | ) | (14,771 | ) | ||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (201,492 | ) | 53,064 | |||||
CASH AND CASH EQUIVALENTS END OF PERIOD | $ | 429,801 | $ | 535,599 |
The following table sets forth the ratio of earnings to fixed charges and the book value per common share of the Corporation for the periods indicated below. |
Three | ||||||||||||
Months | ||||||||||||
Ended | Year ended | |||||||||||
March 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||
Ratio of Earnings to Fixed Charges | 1.65 | (0.49 | ) | (0.60 | ) | |||||||
Deficiency of Earnings required to get ratio to 1:1 (in thousands) | — | US$ | 276,477 | US$ | 306,954 |
As at | As at | As at | ||||||||||
March 31, 2010 | December 31, 2009 | December 31,2008 | ||||||||||
Book Value per Common Share (basic) | Cdn.$6.62 | Cdn.$6.56 | Cdn.$6.69” |
Source of Funds
The Circular is amended and supplemented by inserting after the first full paragraph on page 47 of the Circular under the heading “Source of Funds” the following:
“Gerdau S.A. will obtain $700,000,000 in bridge financing from JPMorgan Chase Bank, N.A. The loan will mature on December 12, 2010. The borrower under the facility will be Gerdau Steel North America Inc. and Gerdau S.A., Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A. and Gerdau Comercial de Aços S.A. will |
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serve as guarantors. The facility will rank as senior unsecured debt. The interest rate will be one (1) month London Interbank Offered Rate (LIBOR) plus 110 basis points per annum payable monthly. In addition to the bridge financing described above, as of June 30, 2010, Gerdau S.A. held cash and cash equivalents of $2.4 billion that will finance any funding requirements for the Plan of Arrangement.” |
Litigation
The information contained under the heading “Litigation” on page 48 of the Circular which reads:
“On June 11, 2010, a proposed class action (the “Claim”) was commenced against the Corporation, its directors, Gerdau S.A. and the Acquiror in the Circuit Court of the Thirteenth Judicial Court in Hillsborough County, Florida. In the Claim, the plaintiff, who states that he is a shareholder of the Corporation, seeks, among other things, an injunction to prevent the consummation of the Arrangement and rescission of the Arrangement. The defendants believe the Claim to be without merit and they intend to defend it vigorously.” |
is hereby deleted in its entirety and replaced with the following:
“On June 11, 2010, a proposed class action (the “Claim”) was commenced against the Corporation, its directors, Gerdau S.A. and the Acquiror in the Circuit Court of the Thirteenth Judicial Court in Hillsborough County, Florida (the “Florida State Court”). In the Claim, the plaintiff, who stated that he was a shareholder of the Corporation, sought, among other things, an injunction to prevent the consummation of the Arrangement and rescission of the Arrangement. | ||
On July 23, 2010, the Florida State Court granted Gerdau Ameristeel’s motion to abstain or to stay the Claim, abstained from accepting jurisdiction over the Claim and dismissed the Claim.” |
Frequently Asked Questions About the Arrangement
The answer to the fourth question on page 50 of the Circular under the heading “FREQUENTLY ASKED QUESTIONS ABOUT THE ARRANGEMENT” which reads:
“In reaching their conclusion that the Arrangement is fair to the Public Shareholders, and that the Arrangement is in the best interests of Gerdau Ameristeel, the Special Committee and the Board considered and relied upon a number of factors, including those described under the headings “Information Regarding the Arrangement—Position of the Special Committee as to Fairness of the Proposal” and “Information Regarding the Arrangement—Position of the Special Committee as to the Fairness of the Arrangement”.” |
is hereby deleted in its entirety and replaced with the following:
“In reaching their conclusion that the Arrangement is fair to the Public Shareholders and unaffiliated Shareholders, and that the Arrangement is in the best interests of Gerdau Ameristeel, the Special Committee and the Board considered and relied upon a number of factors, including those described under the headings “Information Regarding the Arrangement—Position of the Special Committee as to Fairness of the Proposal” and “Information Regarding the Arrangement—Position of the Special Committee as to the Fairness of the Arrangement”.” |
Definition of Public Shareholders
The definition of “Public Shareholders” under the heading “GLOSSARY OF KEY TERMS” on page 56 of the Circular which reads:
““Public Shareholders” means the holders of the Common Shares other than Gerdau S.A. and its subsidiaries (including the Acquiror and the Corporation) and any other person who holds Common Shares in respect of which votes are required to be excluded under Section 8.1(2) of MI 61-101 for the purposes of determining minority approval for the Arrangement.” |
is hereby deleted in its entirety and replaced with the following:
““Public Shareholders” means the unaffiliated holders of the Common Shares which are those holders of the Common Shares other than (i) Gerdau S.A. and its subsidiaries (including the Acquiror and the Corporation), (ii) the officers and directors of Gerdau S.A. and the Acquiror, (iii) the officers and directors of the Corporation that are also officers and/or directors of Gerdau S.A. and/or the Acquiror and (iv) any other person who holds Common Shares in respect of which votes are required to be excluded under Section 8.1(2) of MI 61-101 for the purposes of determining minority approval for the Arrangement.” |
APPROVAL AND CERTIFICATE
The contents and distribution of this Supplemental Information Statement have been approved by the board of directors of Gerdau Ameristeel Corporation.
DATED at Tampa, Florida on August 13, 2010.
/s/ ROBERT E. LEWIS
ROBERT E. LEWIS
Vice President, General Counsel and Corporate Secretary
Vice President, General Counsel and Corporate Secretary
EXHIBIT H
PROJECTIONS
The Corporation does not as a matter of course make public projections as to future sales, earnings, or other results. However, the management of the Corporation has prepared the projections set forth below to present the data relied upon by RBC in its preparation of the Valuation and Fairness Opinion. The accompanying projections were not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to projections, but, in the view of the Corporation’s management, were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of the Corporation. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this Circular are cautioned not to place undue reliance on the projections.
Neither the Corporation’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the projections contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the projections.
Any assumptions and estimates underlying the projections are inherently uncertain and, though considered reasonable by the management of the Corporation as of the date of their preparation, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the projections, including, among others, risks and uncertainties set out in the “Risks and Uncertainties” section of the Corporation’s annual information form for the year ended December 31, 2009 and the Corporation’s management’s discussion and analysis as at and for the three months ended March 31, 2010 and March 31, 2009, which are incorporated by reference herein. Accordingly, there can be no assurance that the projections are indicative of the future performance of the Corporation or that actual results will not differ materially from those presented in the projections.
The Corporation does not generally publish its business plans and strategies or make external disclosures of its anticipated financial position or results of operations. Accordingly, the Corporation does not intend to update or otherwise revise the projections to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, the Corporation does not intend to update or revise the projections to reflect changes in general economic or industry conditions.
The inclusion of this Exhibit H in the Circular should not be regarded by any Shareholder as an indication that these projections will be predictive of actual future results, and these projections should not be relied upon as such. Neither the Corporation nor any of its respective representatives has made or makes any representation to any Shareholder regarding these projections.
Gerdau Ameristeel Corporation
Statements of Operations
(US$ in thousands)
Statements of Operations
(US$ in thousands)
Years Ending December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
Net Sales: | ||||||||||||
Finished Goods | 4,090,948 | 5,020,006 | 5,732,339 | |||||||||
Billets Internal | 0 | 0 | 0 | |||||||||
Billets External | 179,397 | 167,868 | 176,504 | |||||||||
Other | 704,595 | 778,643 | 804,159 | |||||||||
Total | 4,974,940 | 5,966,517 | 6,713,002 | |||||||||
Cost of sales: | ||||||||||||
Finished Goods | 3,472,237 | 3,890,865 | 4,377,559 | |||||||||
Billets Internal | (11,448 | ) | (8,095 | ) | (9,098 | ) | ||||||
Billets External | 176,324 | 130,690 | 138,216 | |||||||||
Other | 804,236 | 820,086 | 839,499 | |||||||||
Warehouse expenses | 75,817 | 75,124 | 76,703 | |||||||||
Total cost of sales | 4,517,166 | 4,908,670 | 5,422,879 | |||||||||
Operating expenses: | ||||||||||||
Mill sales expense allocation | 91,745 | 94,489 | 97,280 | |||||||||
Corporate G&A allocation | 147,571 | 154,827 | 162,036 | |||||||||
Other | 73,214 | 73,090 | 73,516 | |||||||||
Total operating expenses | 312,530 | 322,406 | 332,832 | |||||||||
Operating income | 145,244 | 735,441 | 957,291 | |||||||||
Operating income % | 3% | 12% | 14% | |||||||||
Other Expenses: | ||||||||||||
Interest expense | 126,664 | 119,689 | 161,582 | |||||||||
Deferred financing expense | 13,692 | 13,692 | 11,304 | |||||||||
Other Income and Exp (including Joint Venture earnings) | (14,477 | ) | (60,970 | ) | (91,520 | ) | ||||||
Total Other expenses | 125,879 | 72,411 | 81,366 | |||||||||
Income before taxes | 19,365 | 663,030 | 875,925 | |||||||||
Provision for income taxes | (16,642 | ) | 221,951 | 302,851 | ||||||||
Minority Earnings | 631 | 3,851 | 5,373 | |||||||||
Net income | 35,376 | 437,228 | 567,701 | |||||||||
EBITDA | 450,052 | 1,091,032 | 1,356,720 | |||||||||
Shipment Volume (in thousands) | 6,502 | 7,160 | 7,924 |
Gerdau Ameristeel Corporation
Consolidated Balance Sheets
(US$ in thousands)
Consolidated Balance Sheets
(US$ in thousands)
December 31, | December 31, | December 31, | ||||||||||
2010 | 2011 | 2012 | ||||||||||
ASSETS | ||||||||||||
CURRENT ASSETS | ||||||||||||
Cash and cash equivalents | 536,585 | 1,025,552 | 1,375,880 | |||||||||
Accounts receivable, net | 559,977 | 671,589 | 755,613 | |||||||||
Inventories | 974,635 | 1,059,107 | 1,170,054 | |||||||||
Deferred tax assets and recoverable taxes | 43,064 | 43,064 | 43,064 | |||||||||
Other current assets | 27,329 | 27,329 | 27,329 | |||||||||
TOTAL CURRENT ASSETS | 2,141,590 | 2,826,641 | 3,371,940 | |||||||||
PROPERTY, PLANT AND EQUIPMENT | ||||||||||||
Fixed assets at cost | 2,795,317 | 3,129,521 | 3,394,624 | |||||||||
Less accumulated depreciation | (1,222,844 | ) | (1,533,918 | ) | (1,778,288 | ) | ||||||
NET PROPERTY, PLANT AND EQUIPMENT | 1,572,473 | 1,595,603 | 1,616,336 | |||||||||
INVESTMENTS | 132,361 | 113,316 | 115,716 | |||||||||
OTHER ASSETS | 53,952 | 53,952 | 53,952 | |||||||||
OTHER INTANGIBLE ASSETS | 414,286 | 318,123 | 252,183 | |||||||||
GOODWILL | 1,962,098 | 1,962,098 | 1,962,098 | |||||||||
DEFERRED FINANCING COSTS | 21,668 | 1,700 | 396 | |||||||||
DEFERRED TAX ASSETS | 45 | 45 | 45 | |||||||||
TOTAL ASSETS | 6,298,473 | 6,871,478 | 7,372,666 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES | ||||||||||||
Trade accounts payable | 292,646 | 318,010 | 351,323 | |||||||||
Accrued salaries, wages and employee benefits | 83,295 | 90,515 | 99,996 | |||||||||
Other current liabilities | 14,032 | 21,248 | 21,248 | |||||||||
Current maturities of long-term borrowings | 3,174 | 3,174 | 3,174 | |||||||||
TOTAL CURRENT LIABILITIES | 393,147 | 432,947 | 475,741 | |||||||||
LONG-TERM BORROWINGS, LESS CURRENT PORTION | 2,355,601 | 2,353,601 | 2,353,601 | |||||||||
OTHER LIABILITIES | 386,293 | 349,670 | 349,670 | |||||||||
DEFERRED TAX LIABILITIES | 281,449 | 445,862 | 445,862 | |||||||||
Minority Interest | 27,797 | 25,506 | 25,506 | |||||||||
Shareholders Equity — Beginning | 2,854,127 | 2,861,329 | 3,263,892 | |||||||||
Net Income | 2,948 | 437,228 | 567,701 | |||||||||
Dividends | (2,889 | ) | (34,665 | ) | (109,307 | ) | ||||||
TOTAL SHAREHOLDERS’ EQUITY | 2,854,186 | 3,263,892 | 3,722,286 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 6,298,473 | 6,871,478 | 7,372,666 |
Gerdau Ameristeel Corporation
Select Cash Flow Items
(US$ in millions)
Select Cash Flow Items
(US$ in millions)
Years Ending December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
Net Income | 35 | 437 | 568 | |||||||||
Cash and Equivalents | 537 | 1,026 | 1,376 | |||||||||
Cash Generation | (140 | ) | 508 | 350 | ||||||||
Cash Generation — Net Income | 35 | 437 | 568 | |||||||||
Cash Generation — Operating Working Capital | (234 | ) | (112 | ) | (152 | ) | ||||||
Cash Generation — Other Current | 12 | 0 | (0 | ) | ||||||||
Cash Generation — Depreciation/Amortization | 277 | 300 | 322 | |||||||||
Cash Generation — Minority Cash Distribution | 42 | 69 | 89 | |||||||||
Cash Use — Pension | (71 | ) | (38 | ) | 0 | |||||||
Cash Use — Capex | (144 | ) | (249 | ) | (265 | ) | ||||||
Cash Use — Acquisitions | 0 | 0 | 0 | |||||||||
Cash Use — Debt Repayment/Issue | (4 | ) | 0 | 0 | ||||||||
Cash Use — Dividends | (3 | ) | (35 | ) | (109 | ) | ||||||
Cash Use — Other | (19 | ) | 134 | (102 | ) | |||||||
Operating Working Capital | 1,210 | 1,322 | 1,474 | |||||||||
Other Current Assets/Liabilities | 46 | 46 | 46 |
Gallatin Steel Company*
2010 Budget
Statement of Operations
(US$ in thousands)
2010 Budget
Statement of Operations
(US$ in thousands)
Year Ending | ||||
December 31, | ||||
2010 | ||||
Shipments(in thousands) | 1,669 | |||
Net Sales | 1,107,863 | |||
Cost of Sales | (981,414 | ) | ||
Gross Margin | 126,449 | |||
Overhead Expenses | (15,852 | ) | ||
EBITDA | 110,597 | |||
Interest Income | (984 | ) | ||
Interest Expense | (1,289 | ) | ||
Imputed Capitalized Interest | — | |||
Adjustments | — | |||
Depreciation | (35,987 | ) | ||
Earnings Before Long Term Interest | 72,337 | |||
Income Tax Expense | (16 | ) | ||
Dividend Income | 9,500 | |||
Capital Lease Interest | (1,700 | ) | ||
Net Income (Loss) | 80,121 | |||
Depreciation | 35,987 | |||
Capital Lease Interest | 1,700 | |||
Dividend Income | (9,500 | ) | ||
Gain (Loss) on Disposals | — | |||
Cash Flow From Operations | 108,308 | |||
RETURN ON CAPITAL | 33.27 | % |
* | NOTE: The projections contained in the table above reflect the entire projected results of Gallatin, and were not adjusted to reflect the Corporation’s 50% interest in Gallatin. |
Gallatin Steel Company*
Balance Sheet
2010 Budget
(US$ in thousands)
Balance Sheet
2010 Budget
(US$ in thousands)
December 31, | ||||
2010 | ||||
ASSETS | ||||
CURRENT ASSETS: | ||||
Cash | 31,473 | |||
Accounts Receivable | 99,268 | |||
Supplies and Consumable Inventory | 13,824 | |||
Scrap Inventory | 49,788 | |||
Hot Band Inventory | 18,468 | |||
Prepaid Expenses | 1,201 | |||
TOTAL CURRENT ASSETS | 214,022 | |||
LAND | 14,356 | |||
BUILDINGS AND EQUIPMENT | 553,080 | |||
LESS ACCUMULATED DEPRECIATION | (460,626 | ) | ||
NET PROPERTY. PLANT, AND EQUIPMENT | 106,811 | |||
OTHER LONG TERM PREPAID EXPENSES | 100 | |||
TOTAL ASSETS | 320,933 | |||
LIABILITIES & EQUITY | ||||
CURRENT LIABILITIES: | ||||
Current Portion of Long Term Debt | 159 | |||
Accounts Payable | 65,693 | |||
Accrued Expenses | 18,146 | |||
Accrued Interest | 575 | |||
TOTAL CURRENT LIABILITIES | 84,573 | |||
CAPITAL LEASES | 17,000 | |||
LONG TERM DEBT | 2,405 | |||
CAPITAL LEASES-OTHER | 274 | |||
TOTAL LIABILITIES | 104,252 | |||
PARTNERS’ EQUITY: | ||||
CAPITAL-Gerdau-Ameristeel | (50,000 | ) | ||
CAPITAL-Dofasco | (50,000 | ) | ||
TOTAL PARTNERS’ EQUITY | (100,000 | ) | ||
RETAINED EARNINGS | 316,681 | |||
TOTAL LIABILITIES & EQUITY | 320,933 | |||
* | NOTE: The projections contained in the table above reflect the entire projected results of Gallatin, and were not adjusted to reflect the Corporation’s 50% interest in Gallatin. |
Gallatin Steel Company*
Cash Flow Statement
2010 Budget
(US$ in thousands)
Cash Flow Statement
2010 Budget
(US$ in thousands)
Year Ending | ||||
December 31, | ||||
2010 | ||||
Cash From Operations | ||||
Net Income | 80,120 | |||
Depreciation | 36,151 | |||
Cash Earnings | 116,271 | |||
Capital Expenditures | (17,503 | ) | ||
Working Capital Changes | ||||
Accounts Receivable | (35,592 | ) | ||
Inventory | (8,479 | ) | ||
Prepaid Expenses | 181 | |||
Other Long Term Prepaid Expenses | 120 | |||
Accounts Payable | 12,388 | |||
Accrued Expenses | 4,497 | |||
Accrued Interest | (1 | ) | ||
Total Working Capital Changes | (26,886 | ) | ||
Scheduled Financing Activities | ||||
Net Payment From (To) Partners | (100,000 | ) | ||
Industrial Revenue Principal | — | |||
Other Principal | (136 | ) | ||
Scheduled Financing Activities | (100,136 | ) | ||
Total Funds (Used) | (28,254 | ) | ||
BEGINNING CASH BALANCE | 59,727 | |||
Total Funds Available | 31,473 | |||
Bank Loan Borrowing (Repayment) | — | |||
Ending Cash Balance | 31,473 | |||
* | NOTE: The projections contained in the table above reflect the entire projected results of Gallatin, and were not adjusted to reflect the Corporation’s 50% interest in Gallatin. |
Gallatin Steel Company*
2011 and 2012 Forecast
Income Statement
(US$ in thousands)
2011 and 2012 Forecast
Income Statement
(US$ in thousands)
Years Ending December 31, | ||||||||
2011 | 2012 | |||||||
Sales tons(in thousands) | 1,600 | 1,700 | ||||||
Revenue | 902,400 | 958,800 | ||||||
Cost of Sales | (816,000 | ) | (867,000 | ) | ||||
Gross Margin | 86,400 | 91,800 | ||||||
Overheads | (14,000 | ) | (16,000 | ) | ||||
Misc Income | 2,200 | 3,800 | ||||||
EBITDA | 74,600 | 79,600 | ||||||
Depreciation | (36,000 | ) | (36,000 | ) | ||||
EBIT | 38,600 | 43,600 | ||||||
Interest Expense | (4,200 | ) | (4,200 | ) | ||||
Tax Expense | (60 | ) | (60 | ) | ||||
Net Income | 34,340 | 39,340 | ||||||
* | NOTE: The projections contained in the table above reflect the entire projected results of Gallatin, and were not adjusted to reflect the Corporation’s 50% interest in Gallatin. |
Gallatin Steel Company*
2011 and 2012 Forecast
Balance Sheets
(US$ in thousands)
2011 and 2012 Forecast
Balance Sheets
(US$ in thousands)
December 31, | December 31, | |||||||
2011 | 2012 | |||||||
Cash | 0 | 0 | ||||||
Accounts Receivable | 75,200 | 79,900 | ||||||
Inventory | 81,600 | 86,700 | ||||||
Other Current Assets | 4,036 | 4,036 | ||||||
Total Current Assets | 160,836 | 170,636 | ||||||
Fixed Assets at Cost | 573,660 | 603,662 | ||||||
Accumulated Depreciation | (496,600 | ) | (532,600 | ) | ||||
Net Fixed Assets | 77,060 | 71,062 | ||||||
Other Assets | 100 | 100 | ||||||
Total Assets | 237,996 | 241,798 | ||||||
Accounts Payable | 45,560 | 48,408 | ||||||
Accrued Liabilities | 13,550 | 13,550 | ||||||
Current Debt | 155 | 155 | ||||||
Total Current Liabilities | 59,265 | 62,113 | ||||||
Long Term Debt | 19,313 | 19,203 | ||||||
Other Liabilities | 239 | 214 | ||||||
Partners Capital | 159,180 | 160,268 | ||||||
Total Liabilities & Partners Capital | 237,997 | 241,798 | ||||||
* | NOTE: The projections contained in the table above reflect the entire projected results of Gallatin, and were not adjusted to reflect the Corporation’s 50% interest in Gallatin. |
Gallatin Steel Company*
2011 and 2012 Forecast
Cash Flow Statement
(US$ in thousands)
2011 and 2012 Forecast
Cash Flow Statement
(US$ in thousands)
Years Ending December 31, | ||||||||
2011 | 2012 | |||||||
Net Income | 34,340 | 39,340 | ||||||
Depreciation | 36,000 | 36,000 | ||||||
Capital Spending | (15,000 | ) | (30,000 | ) | ||||
Accounts Receivable | (406 | ) | (4,700 | ) | ||||
Inventory | (3,893 | ) | (5,100 | ) | ||||
Accounts Payable | 2,174 | 2,848 | ||||||
Working Capital Change | (2,125 | ) | (6,952 | ) | ||||
Cash from Operations | 53,215 | 38,388 | ||||||
Debt Payments | (110 | ) | (110 | ) | ||||
Distributions to Partners | (53,080 | ) | (38,253 | ) | ||||
Other Changes | (25 | ) | (25 | ) | ||||
Net Change In Cash | — | — | ||||||
Beginning Cash Balance | 0 | 0 | ||||||
Ending Cash Balance | 0 | 0 | ||||||
* | NOTE: The projections contained in the table above reflect the entire projected results of Gallatin, and were not adjusted to reflect the Corporation’s 50% interest in Gallatin. |