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OUTOKUMPU OYJ (OUT1V)

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Outokumpu Oyj : Outokumpu - Publication of listing particulars

12/28/2012 | 07:10am US/Eastern
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Outokumpu - Publication of listing particulars

OUTOKUMPU OYJ
STOCK EXCHANGE RELEASE
December 28, 2012 at 1.30 pm EET


Outokumpu Oyj announced earlier today on December 28, 2012 that it will issue 621 042 572 new shares in Outokumpu to ThyssenKrupp AG. This represents 29.9% of the outstanding shares of Outokumpu immediately following the completion of the directed share issue.

The Finnish Financial Supervisory Authority has today approved the Finnish language listing particulars related to the listing of 621 042 572 new shares on the official list of NASDAQ OMX Helsinki. The Finnish language listing particulars together with an unofficial English translation are available on Outokumpu's website www.outokumpu.com/investors as of today.

The listing particulars contain following previously unpublished information (terms used in this document are explained in detail in the listing particulars):

EUR 250 Million Forward Start Revolving Credit Facility

In December 2012, Outokumpu entered into a EUR 250 million FSF with Nordea to replace the remaining commitments under the EUR 400 million credit facility that Outokumpu signed in April 2012, which will mature in June 2013. The new facility will become available in June 2013 and will mature in January 2014. Amounts drawn under the facility will bear interest at a floating rate and the undrawn amount will be subject to a commitment fee. The facility agreement includes customary covenants, customary events of default and a customary change of control clause. It also includes a financial covenant based on net gearing (as defined in the agreement) that requires Outokumpu to maintain a level of net gearing that is equal to or lower than 115 percent before June 2013 and 95 percent thereafter. The FSF commitments shall be cancelled by each euro in excess of EUR 750 million raised in refinancing of EUR 750 million and EUR 400 million revolving credit facilities.

Loan Note

Pursuant to the Business Combination Agreement, the ThyssenKrupp Nederland B.V. and Outokumpu have entered into the Loan Note agreement on the Completion Date. The Loan Note is part of the consideration for the Inoxum Transaction and is contractually subordinated to certain specified current and future debt of Outokumpu in the event of an insolvency of Outokumpu. The principal amount of the Loan Note has been calculated based on an estimate of Inoxum's Intra-Group Financing Balance prepared by ThyssenKrupp in accordance with the Business Combination Agreement and consists of two tranches. The initial principal amount of Tranche A is approximately EUR 700 million, which will be adjusted following the Completion Date as described below, and the initial principal amount of Tranche B is EUR 550 million.

Within 15 business days after the Completion Date, ThyssenKrupp will submit its calculation of Inoxum's Final Intra-Group Financing Balance to Outokumpu. Outokumpu will then have 10 business days to object to ThyssenKrupp's calculation of Inoxum's Final Intra-Group Financing Balance. If Outokumpu does not object to ThyssenKrupp's calculation of Inoxum's Final Intra-Group Financing Balance within the provided timeframe, it will become final and the principal amount of Tranche A will be adjusted to reflect the difference between (i) Inoxum's estimated Intra-Group Financing Balance prepared by ThyssenKrupp prior to the Closing Date and (ii) Inoxum's Final Intra-Group Financing Balance. The parties have agreed to a mechanism to resolve the dispute if Outokumpu objects to ThyssenKrupp's calculation of Inoxum's Final Intra-Group Financing Balance. Further, the principal amount of Tranche B will be adjusted to account for the financial impact of the disposal of the Divestment Assets (the difference between the fair market value and the sale price and the amount of lost synergies). The adjustment will be calculated in accordance with the terms of the Business Combination Agreement and cannot exceed EUR 200 million. Once the adjustment amount has been bindingly determined and, therefore, becomes due and payable, the adjustment will occur on January 31, 2014, or earlier if so requested by Outokumpu, and no interest will accrue on the adjustment amount from the time it becomes due and payable until the adjustment occurs.

Repayments of Tranche A will begin on the fourth anniversary of the Completion Date in accordance with an agreed repayment schedule. The Loan Note will finally mature on December 28, 2021 (i.e., on the ninth anniversary of the Completion Date). Interest accrues on the principal amount of the Loan Note at a rate of three-month Euribor plus a margin (which increases over time from 4.0 percent per annum to 9.5 percent per annum). Interest is payable every three months. Regarding Tranche A, Outokumpu has the option to capitalize up to 100 percent of the interest during the first 24 months and up to 50 percent for months 25 through 36. After month 36, Outokumpu will not have the option to capitalize interest on Tranche A. Regarding Tranche B, Outokumpu has the option to capitalize up to 100 percent of the interest during the first 60 months, but if Outokumpu capitalizes more than 50 percent of the interest for interest periods ending during months 25 through 36 or any interest for interest periods ending during months 37 through 60, it would have to pay a higher margin. After month 60, Outokumpu will not have the option to capitalize interest on Tranche B.

The Loan Note agreement contains a change of control clause that allows ThyssenKrupp (or any assignee or transferee of any amount outstanding under the Loan Note) to cancel their respective amount outstanding under the Loan Note, which would then become immediately due and payable upon a change of control (a party or group of parties acting in concert gains control (directly or indirectly) of either (i) at least 50 percent of the issued share capital or voting rights; or (ii) at least 30 percent of the issued share capital or voting rights and is required to make a mandatory takeover offer) of Outokumpu, except if ThyssenKrupp or an affiliate gains control of Outokumpu. Tranche A is subject to mandatory prepayment of 50 percent of the net proceeds from any disposal of assets outside of the ordinary course of business by any member of the Outokumpu group to the extent that the aggregate net proceeds from such disposals exceed EUR 400 million, subject to certain exceptions. Voluntary prepayments are permitted; however, Tranche B may be prepaid only after Tranche A has been discharged in full. The Loan Note contains a negative pledge in relation to Outokumpu, subject to certain customary exceptions. The Loan Note agreement contains certain customary representations, covenants and events of default.

TK Backup Facilities

Pursuant to the Business Combination Agreement, (i) ThyssenKrupp Nederland Holding B.V., as lender; Nirosta and VDM, as borrowers; and Outokumpu, as guarantor, have entered into the EUR 81,524,000 Supplier Finance Backup Facility agreement dated the Completion Date to provide financing following any specific shortfall in commitments made available to Nirosta's and VDM's suppliers by financial institutions under specified credit lines due to the relevant financial institution terminating or reducing the respective credit line or increasing the interest rate on the respective credit line above specified limits and (ii) ThyssenKrupp Nederland Holding B.V., as lender, and Outokumpu, as borrower, have entered into the EUR 250 million Revolving Backup Facility agreement, dated the Completion Date, to cover increased working capital requirements due to the Inoxum Transaction. Outokumpu guarantees the performance of Nirosta and VDM under the Supplier Finance Backup Facility.

The TK Backup Facilities agreements contain certain customary conditions for utilization and certain additional conditions specific to the Supplier Finance Backup Facility. Amounts drawn on the Supplier Finance Backup Facility are repayable one month from the utilization date and amounts drawn on the Revolving Backup Facility are repayable three months from the utilization date, but can be rolled over. Interest on amounts drawn under the TK Backup Facilities accrues at a rate of Euribor plus margin. The Supplier Finance Backup Facility agreement provides for mandatory prepayment and cancellation in case of certain disposals outside of the ordinary course of business by the Combined Group. The TK Backup Facilities agreements contains change of control clauses that allows any lender under the relevant facility to cancel their respective amount outstanding under the Loan Note, which amount would become immediately due and payable upon a change of control (a party or group of parties acting in concert gains control (directly or indirectly) of either (i) at least 50 percent of the issued share capital or voting rights; or (ii) at least 30 percent of the issued share capital or voting rights and is required to make a mandatory takeover offer) of Nirosta or VDM, including through a change in control of Outokumpu (in the case of the Supplier Finance Backup Facility), or Outokumpu (in the case of the Revolving Backup Facility), except if ThyssenKrupp or an affiliate gains control of Outokumpu). Voluntary prepayments and voluntary cancellations by Outokumpu are permitted pursuant to the terms of the TK Backup Facilities agreements.

The final maturity date of the Supplier Finance Backup Facility is the fifth anniversary of the Completion Date and the final maturity date of the Revolving Backup Facility is December 31, 2013. The borrowers under the TK Backup Facilities are able to draw on the respective TK Backup Facility from the Completion Date until three months prior to the respective final maturity date. Subject to certain limitations, promptly after becoming aware of a termination or reduction of a commitment that could be covered by the Supplier Finance Backup Facility, Nirosta, VDM and Outokumpu must use best efforts to secure a replacement or supplement for such terminated or reduced commitment. The TK Backup Facilities agreements also contain certain customary representations, covenants and events of default.

Outlook

In Outokumpu's interim report for the quarter ended September 30, 2012 it was stated that the outlook included in such interim report (including the profit forecast) applies only to Outokumpu and not to the Combined Group following the completion of the Inoxum Transaction. Outokumpu expects to update its outlook in connection with publishing its results for the quarter ending December 31, 2012. Due to the global economic uncertainty, the demand for stainless steel is expected to remain relatively weak during the fourth quarter of 2012.

Pro Forma Financial Information

The following tables present unaudited pro forma financial information giving effect to the Inoxum Transaction as if the Inoxum Transaction had been completed on:

  • January 1, 2011 for the purposes of the unaudited pro forma statement of income and unaudited pro forma statement of comprehensive income for the 12 months ended December 31, 2011, and that of the unaudited pro forma interim statement of income and unaudited pro forma interim statement of comprehensive income for the nine months ended September 30, 2012; and
  • September 30, 2012 for the purposes of the unaudited pro forma statement of financial position.

The unaudited pro forma financial information below was prepared on a basis consistent with IFRS as adopted by the EU, except for the Remedy Adjustments. The underlying remedy assets, associated liabilities and related income and expenses are carved out from the unaudited pro forma financial information (i.e., they are deducted from the corresponding items of the Combined Group in a separate column).

The unaudited pro forma financial information is based on the financial information derived from the following sources:

  • The unaudited pro forma statement of financial position as at September 30, 2012 was based on and derived from (a) Outokumpu's unaudited consolidated statement of financial position as at September 30, 2012; (b) Inoxum's audited combined statement of financial position as at September 30, 2012; and (c) the internal IFRS reporting of the Divestment Assets of Outokumpu and Inoxum;
  • The unaudited pro forma statement of income and unaudited pro forma statement of comprehensive income for the 12 months ended December 31, 2011 were based on and derived from (a) Outokumpu's audited consolidated statement of income and audited consolidated statement of comprehensive income for the year ended December 31, 2011; (b) Inoxum's audited combined statement of income and audited combined statement of comprehensive income for the fiscal year ended September 30, 2011 (excluding Inoxum's unaudited combined interim statement of income and unaudited combined interim statement of comprehensive income for the three months ended December 31, 2010 and including Inoxum's unaudited combined interim statement of income and unaudited combined interim statement of comprehensive income for the three months ended December 31, 2011); and (c) the internal IFRS reporting of the Divestment Assets of Outokumpu and Inoxum; and
  • The unaudited pro forma interim statement of income and unaudited pro forma interim statement of comprehensive income for the nine months ended September 30, 2012 were based on and derived from (a) Outokumpu's unaudited consolidated interim statement of income and unaudited consolidated interim statement of comprehensive income for the nine months ended September 30, 2012; (b) Inoxum's audited combined statement of income and audited combined statement of comprehensive income for the fiscal year ended September 30, 2012 (excluding Inoxum's unaudited combined interim statement of income and unaudited combined interim statement of comprehensive income for the three months ended December 31, 2011); and (c) the internal IFRS reporting of the Divestment Assets of Outokumpu and Inoxum.

The unaudited pro forma financial information below was prepared in a manner consistent with the accounting principles applied in Outokumpu's audited consolidated financial statements as at and for the year ended December 31, 2011, except for the accounting policies related to post-employment benefit arrangements (pensions). Outokumpu applies the corridor method for the recognition of actuarial gains and losses arising from pension arrangements while Inoxum recognizes such gains and losses in other comprehensive income. Inoxum classifies interest expenses related to pension plans as well as the expected return on pension plan assets as financial expenses and financial income, respectively. Outokumpu treats these interest expenses and the expected return on plan assets as part of the employee benefit expenses. In preparation of the pro forma financial information the future accounting policy of Outokumpu has been applied which corresponds to Inoxum's current accounting policy and has been explained in more detail in Note 3.

The unaudited pro forma adjustments also give effect to events that are directly attributable to the Inoxum Transaction, and the proposed financing thereof. The unaudited pro forma statement of financial position presents the Inoxum Transaction as being accounted for under the acquisition method in accordance with "IFRS 3 - Business Combinations." Under the acquisition method, assets and liabilities are recorded at their fair values on the date of acquisition. The adjustments also include the Remedy Adjustments. The remedy adjustments include the following from the Divestment Assets: Outokumpu's stainless steel service center in Willich, Germany; Inoxum's AST S.p.A., Italy; Inoxum's Terninox stainless steel service center, Italy; and Inoxum's IT-service company Aspasiel S.r.l, Italy. Those assets that may be divested at the option of the purchaser of the Divestment Assets have not been included in the Impact of Remedy Adjustments, except for the warehouses in Padova, Ancona, Florence and Bologna, Italy that are legally a part of Terninox. The unaudited pro forma financial information below, including the provisional purchase price allocation, are mainly based on the carrying values since the fair values of the assets could not be determined reliably as at the date of this pro forma financial information. Therefore, the provisional purchase price allocation is hypothetical and the final purchase price allocation may significantly differ from the provisional purchase price allocation presented in this unaudited pro forma financial information.

The unaudited pro forma financial information below has been prepared for illustrative purposes and, because of their nature, addresses a hypothetical situation and therefore, do not represent Outokumpu's actual financial position or results of operations. The unaudited pro forma financial information does not purport to represent what Outokumpu's financial position and results would have been if the Inoxum Transaction had been completed on the dates indicated nor do they purport to represent Outokumpu's or the Combined Group's results of operations for any future period or financial position at any future date. The unaudited pro forma financial information does not reflect the effect of estimated synergies and efficiencies associated with the Inoxum Transaction.

Outokumpu will recognize the identifiable assets acquired and the liabilities assumed as of the Completion Date. The provisional amounts recognized at the Completion Date, based on the provisional purchase price allocation including the determination of fair values, may be adjusted within 12 months after the Completion Date, to reflect new information obtained about facts and circumstances that existed as at the Completion Date.

Unaudited Pro Forma Statement of Income

Outokumpu, for the year ended December 31,
  2011(1)
Inoxum, for the 12 months ended December 31,
  2011(2)
Differences in accounting
  policies(3)
Differences in presen­
  tation(4)
PPA
adjustments(5)
Impact of Remedy
Adjust-
  ments(6)
Impact of
  Loan Note(7)
Reversal of Inoxum intra-group financing with Thyssen-
  Krupp(8)
Pro forma Combined Group
(audited) (unaudited)
(EUR in millions)
Sales 5,009 6,572 - (17) - (1,917) - - 9,647
Cost of sales (4,882) (6,275) 2 10 (3) 1,947 - - (9,201)
Gross margin 127 297 2 (7) (3) 29 - - 446
Other operating income 47 23 - 83 353 (9) - - 497
Selling and marketing expenses (147) (208) 4 (26) - 68 - - (309)
Administrative expenses (153) (163) 3 - 1 25 - - (287)
Research and development expenses (21) - - (14) - 3 - - (32)
Other operating expenses (113) (337) - (61) (37) 27 - - (521)
Operating result (260) (388) 9 (25) 315 143 - - (207)
Share of results in associated companies (5) 1 - - - 0 - - (4)
Financial income and expenses:
Interest income 13 34 21 - - (13) - (21) 34
Interest expenses (77) (84) (21) - (3) 18 (53) 54 (166)
Market price gains and losses (120) - - - - - - - (120)
Other financial income 248 - - - - - - - 248
Other financial expenses (52) (23) - - - - (9) - (84)
Total financial income and expenses 12 (73) 0 - (3) 4 (62) 33 (89)
Profit before taxes (253) (460) 9 (25) 312 147 (62) 33 (299)
Income taxes 67 20 (2) 8 (30) 0 15 (10) 68
Net result for the period (186) (440) 7 (17) 282 147 (47) 23 (231)

Unaudited Pro Forma Statement of Comprehensive Income

Outokumpu, for the year ended December 31,
  2011(1)
Inoxum, for the 12 months ended December 31,
  2011(2)
Differences in accounting
  policies(3)
Impact of Remedy
  Adjustments(6)
Other pro forma adjustments to statement of income and statement of comprehensive
    income(4)(5)(7)(8)
Pro forma Combined Group
(audited) (unaudited)
(EUR in millions)
Net result for the period (186) (440) 7 147 241 (231)
Other comprehensive income:
Exchange differences on translating foreign operations 12 (5) - - - 7
Available-for-sale financial assets:
Fair value changes during the period (23) - - - - (23)
Reclassification adjustments from other comprehensive income to profit or loss (65) - - - - (65)
Income tax relating to available-for-sale financial assets 11 - - - - 11
Actuarial gains / (losses) from pensions and similar obligations:
Change in actuarial gains / (losses), net - (1) (5) 2 - (4)
Income tax relating to actuarial gains / (losses) - 1 2 (1) (1) 1
Cash flow hedges:
Fair value changes during the period (4) (14) - - - (18)
Reclassification adjustments from other comprehensive income to profit or loss 1 3 - - - 4
Income tax relating to cash flow hedges 1 7 - - (7) 1
Share of other comprehensive income of associated companies (2) - - - - (2)
Other comprehensive income for the period, net of tax (68) (9) (3) 1 (8) (88)
Total comprehensive income for the period (255) (449) 4 148 233 (319)

Unaudited Pro Forma Statement of Financial Position

Outokumpu, as at September
  30, 2012(1)
Inoxum, as at September
  30, 2012(2)
Differences in accounting
  policies(3)
Differences in presen­
  tation(4)
PPA adjust­
  ments(5)
Impact of Remedy Adjust­
  ments(6)
Impact of
  Loan Note(7)
Reversal of Inoxum intra-group financing with Thyssen­
  Krupp(8)
Impact of
  Placement(9)
Pro forma Combined Group
(unaudited) (audited)
(EUR in millions)
Assets
Non-current assets:
Intangible assets 531 68 - - (32) (4) - - - 563
Property, plant and equipment 2,135 2,445 - - 62 (522) - - - 4,120
Investment property - 12 - - 3 (15) - - - 0
Investments in associated companies 40 18 - - - (8) - - - 50
Available-for-sale financial assets 20 2 - - - - - - - 22
Investments at fair value through profit or loss 2 - - - - - - - - 2
Derivative financial instruments 6 - - - - (3) - - - 3
Trade and other receivables, interest-bearing 163 - - - - - - - - 163
Loan receivables and other interest-bearing assets 230 20 - - - (11) - - - 238
Trade and other receivables, non-interest-bearing 65 7 (56) - - - - - - 16
Deferred tax assets 78 186 33 - (186) - - - - 111
Total non-current assets 3,039 2,737 (23) - (153) (552) - - - 5,048
Current assets: -
Inventories 1,103 1,677 - - - (404) - - - 2,375
Available-for-sale financial assets 6 - - - - - - - - 6
Investments at fair value through profit or loss 88 - - - - - - - - 88
Derivative financial instruments 32 52 - - - - - - - 84
Trade and other receivables, interest-bearing 8 - - - - - - - - 8
Loans receivables 1 158 - - - (12) - (91) - 55
Loan receivables and other interest-bearing assets 134 210 - - - (12) - (91) - 242
Trade and other receivables, non-interest bearing 636 688 - - - (146) - - - 1,177
Cash and cash equivalents 1,178 67 - - (1,000) - - - - 245
Total current assets 3,051 2,641 - - (1,000) (562) - (91) - 4,039
Net remedy assets - - - - - 594 - - - 594
Total assets 6,090 5,378 (23) - (1,153) (520) - (91) - 9,681
Equity and liabilities
Equity attributable to the equity holders of the Company:
Share capital 311 - - - - - - - - 311
Premium fund 714 - - - - - - - - 714
Share issue 973 - - - - - - - 460 1,433
Other reserves 50 - - - - - - - - 50
Retained earnings 1,022 - (85) - - - - - - 937
Result for the period (226) - - - - - - - - (226)
Equity of Inoxum - 134 - - 219 0 - - - 353
Equity attributable to the equity holders of the Company 2,843 134 (85) - 219 0 - 460 3,572
Non-controlling interests 17 13 - - - - - - - 30
Total equity 2,860 147 (85) - 219 0 - - 460 3,601
Non-current liabilities:
Long-term debt 1,574 47 - - 62 (10) 876 - - 2,549
Derivative financial instruments 39 - - - - - - - 39
Deferred tax liabilities 8 90 (1) - 3 (1) - - - 100
Defined benefit and other long-term employee benefit obligations 63 338 63 - - (38) - - - 426
Provisions 18 135 - - - (5) - - - 148
Trade and other payables 6 1 - - - (1) - - - 6
Total non-current liabilities 1,706 611 62 - 65 (54) 876 - - 3,265
Current liabilities:
Current debt 649 3,041 - - 1 (3) - (2,888) - 799
Derivative financial instruments 12 35 - - - - - - - 47
Trade and other payables, interest-bearing 10 - - - 23 - - - - 33
Provisions 16 65 - (5) - (13) - - - 64
Income tax liabilities 0 6 - - - 33 - - - 39
Trade and other payables, non interest-bearing 836 1,473 - 5 - (481) - - - 1,832
Total current liabilities. 1,524 4,620 - 0 24 (464) - (2,888) - 2,816
Total equity and liabilities 6,090 5,378 (23) 0 308 (519) 876 (2,888) 460 9,681

__________

(1)  This column reflects Outokumpu's audited consolidated statement of income and audited consolidated statement of comprehensive income for the year ended December 31, 2011 and Outokumpu's unaudited consolidated statement of financial position as at September 30, 2012. Outokumpu's financial year is the calendar year.

(2)  This column reflects Inoxum's unaudited combined statement of income and unaudited combined statement of comprehensive income for the 12 months ended December 31, 2011. As Inoxum's fiscal year-end is September 30 and in order to present unaudited pro forma financial information on comparable periods, Inoxum's audited combined statement of income and audited combined statement of comprehensive income for the fiscal year ended September 30, 2011 has been adjusted by (i) adding the income and expenses from Inoxum's unaudited combined interim statement of income and unaudited combined interim statement of comprehensive income for the three months ended December 31, 2011; and (ii) subtracting the income and expenses from Inoxum's unaudited combined interim statement of income and unaudited combined interim statement of comprehensive income for the three months ended December 31, 2010. Inoxum's unaudited combined statement of income and unaudited combined statement of comprehensive income for the 12 months ended December 31, 2011 were derived as follows:

Inoxum
For the fiscal year ended September 30, 2011 For the three months ended December 31, 2010 (-) For the three months ended December 31, 2011 (+) For the 12 months ended December 31, 2011
(audited) (unaudited)
(EUR in millions)
Net sales 6,739 1,605 1,438 6,572
Cost of sales (6,363) (1,517) (1,429) (6,275)
Gross profit 376 88 9 297
Other operating income 22 3 4 23
Selling expenses (206) (48) (50) (208)
General and administrative expenses (155) (39) (47) (163)
Other operating expenses (325) (7) (19) (337)
Income / (loss) from operations (288) (3) (103) (388)
Income from companies accounted for using the equity method 3 2 - 1
Interest income 27 2 9 34
Interest expense (59) (13) (38) (84)
Other financial expense, net (25) (6) (4) (23)
Financial expense, net (54) (15) (33) (72)
Loss before taxes (342) (18) (136) (460)
Income tax benefit 2 5 23 20
Net loss (340) (13) (113) (440)
Other comprehensive income:
Foreign currency translation adjustment:
Change in unrealized gains/(losses), net (1) 13 9 (5)
Actuarial gains/(losses) from pensions and similar obligations:
Change in actuarial gains/(losses), net 28 21 (8) (1)
Tax effect (9) (7) 3 1
Unrealized (losses)/gains on derivative financial instruments:
Change in unrealized gains/(losses), net (27) (1) 12 (14)
Net realized (gains)/losses 5 2 - 3
Tax effect 7 - - 7
Other comprehensive income 3 28 16 (9)
Total comprehensive income (337) 15 (97) (449)

An impairment loss on goodwill, amounting to EUR 290 million, was recognized within other operating expenses in Inoxum's audited combined statement of income for the fiscal year ended September 30, 2011.

(3)  This column reflects the impact of accounting policy alignment of historical financial information between Outokumpu and Inoxum. In this column adjustments are made to arrive at comparable figures.

Adjustments to the Unaudited Pro Forma Statement of Financial Position as at September 30, 2012

Outokumpu applies the corridor method for recognizing actuarial gains and losses arising from pension benefit arrangements, while Inoxum recognizes such actuarial gains and losses in other comprehensive income. In the preparation of the unaudited pro forma financial information, Inoxum's accounting policy has been applied to follow the "IAS 19 - Employee Benefits" principles which will become effective on January 1, 2013, to reflect the impact of this future requirement. This amendment decreased Outokumpu's other receivables by EUR 56 million, increased pension obligations by EUR 63 million and had an aggregate impact on retained earnings of negative EUR 119 million. The related impact on deferred taxes being taken into account, the decrease in deferred tax liabilities was EUR 1 million and the increase in deferred tax assets was EUR 33 million. Consequently, the net effect on equity was negative EUR 85 million.

Adjustments to the Unaudited Pro Forma Statement of Income for the 12 Months Ended December 31, 2011

The recognition of actuarial gains and losses in other comprehensive income instead of the application of the corridor method had a positive effect of EUR 9 million on the unaudited pro forma statement of income for the 12 months ended December 31, 2011. The impact of the amendment was EUR 2 million on cost of sales, EUR 4 million on selling and marketing expenses and EUR 3 million on administrative expenses. The related income tax effect was EUR 2 million. The positive effect resulted mainly from certain curtailments. When actuarial gains and losses are recognized in other comprehensive income, such gains and losses are not reclassified to profit or loss in subsequent periods. The impact of the reversal of the actuarial losses recognized as part of the curtailments carried out in the 12 months ended December 31, 2011 amounted to EUR 8 million. Interest expenses of EUR 21 million and expected return on plan assets of EUR 21 million were transferred from operating functions to interest expenses and interest income, respectively, in accordance with the adopted principle of presenting the interest expense and expected return on plan assets within the financial items.

The actuarial losses recognized in other comprehensive income amounted to EUR 5 million and the related tax effect was EUR 2 million.

(4) This column reflects the differences in presentation of financial statement items, thus adjustments are made to present Inoxum's figures in a manner consistent with Outokumpu's figures. This column also reflects the transfer of the re-charge for the utilization of ThyssenKrupp trade name from equity to the statement of income of Inoxum.

Adjustment to the Unaudited Pro Forma Statement of Financial Position as at September 30, 2012

Reclassifications of line items include the following items:

  • Certain employee benefit obligations: These obligations, amounting to EUR 5 million, were recognized in other provisions in Inoxum's statement of financial position as at September 30, 2012. These obligations were reclassified to other payables in accordance with Outokumpu's accounting policy.

Adjustments to the Unaudited Pro Forma Statement of Income for the 12 Months Ended December 31, 2011

Reclassifications of line items include the following major items:

  • Inoxum recognizes the impact of fair value changes arising from derivatives not under hedge accounting in sales and cost of sales to which they relate, whereas Outokumpu treats them as adjustments to other operating income and other operating expenses. The reclassification of the fair value changes arising from derivatives not under hedge accounting had an impact of negative EUR 17 million on sales, EUR 10 million on cost of sales, EUR 83 million on other operating income and negative EUR 75 million on other operating expenses;
  • The re-charge for the utilization of the ThyssenKrupp trade name was accounted for by Inoxum as an equity transaction with ThyssenKrupp. In the unaudited pro forma statement of income the re-charge for the right to use the ThyssenKrupp trade name is presented according to Outokumpu's accounting policy (i.e., it is expensed). The resulting effect on the unaudited pro forma statement of income on selling and marketing expenses was negative EUR 26 million. The related income tax effect was EUR 8 million; and
  • Inoxum recognizes research and development expenses in other operating expenses, whereas Outokumpu presents such expenses as a separate line item in the statement of income. These expenses, amounting to EUR 14 million, were reclassified from other operating expenses to research and development expenses.

(5) This column reflects the effects of the Inoxum Transaction and the provisional purchase price allocation on the unaudited pro forma statement of financial position as at September 30, 2012. The final purchase price allocation could significantly differ from the provisional purchase price allocation below, which is principally based on the carrying values and is presented for illustrative purposes only.

Consideration to Be Transferred for Inoxum and Liabilities to Be Assumed

The total consideration payable by Outokumpu to ThyssenKrupp as part of the Inoxum Transaction and the liabilities to be assumed by Outokumpu comprised the following items as at September 30, 2012:

As at September 30, 2012
(EUR in millions)
Consideration to be transferred:
Consideration in cash 1,000
Placement Shares to ThyssenKrupp 460(1)
Loan Note to be issued to ThyssenKrupp 876(2)
Liabilities to be assumed:
Inoxum's pension obligations 338
Inoxum's net external financial debt 133
Total consideration and liabilities to be assumed 2,807

_____________

(1) Based on Outokumpu share price of EUR 0.74 as at November 9, 2012.

(2) The principal amount of the Loan Note is subject to adjustment. For more information on the Loan Note, see Note 7.

The total consideration payable by Outokumpu to ThyssenKrupp as part of the Inoxum Transaction and the liabilities to be assumed by Outokumpu amount to, in aggregate, EUR 2,807 million consisting of (i) EUR 1 billion in cash; (ii) the Placement Shares, with a value of EUR 460 million, to be issued to ThyssenKrupp (based on the reported closing price of Outokumpu's shares on the Helsinki Stock Exchange on November 9, 2012); (iii) the Loan Note, with a principal amount of EUR 876 million based on Inoxum's audited combined statement of financial position as at September 30, 2012; and (iv) Outokumpu assuming Inoxum's pension obligations of EUR 338 million and net external financial debt of EUR 133 million (based on Inoxum's audited combined statement of financial position as at September 30, 2012), defined as total liabilities to financial institutions plus total finance lease liabilities less cash and cash equivalents. The EUR 1 billion cash consideration and the Loan Note are the consideration for ThyssenKrupp's outstanding receivables against Inoxum. For more information on the Loan Note, see Note 7.

The parties have agreed that the disposal of the Divestment Assets will result in an adjustment to the consideration payable by Outokumpu to ThyssenKrupp for Inoxum (through a reduction of the principal amount of the Loan Note) to account for the financial impact of the divestment (the difference between the fair market value and the sale price and the amount of lost synergies). The adjustment will be calculated in accordance with the terms of the Business Combination Agreement and cannot exceed EUR 200 million. For more information, see "Material Agreements-Inoxum Transaction-Business Combination Agreement

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