4       Acquisition of Business

On December 1, 2006, the Company acquired 100% of the common shares of NS Group, Inc. a manufacturer of seamless and welded oilfield tubular goods, for $66 per share in cash. The total value of the transaction including acquisition costs, and net of cash acquired of approximately $66,000, was $1,428,029. NS Group is now a wholly-owned subsidiary and the results of NS Group’s operations have been included in the consolidated financial statements since the December 1, 2006 acquisition date.

The acquisition was funded through a combination of cash on hand and financing obtained under a $1.1 billion syndicated credit facility. An investment banker was retained to provide both advisory services in structuring the acquisition and interim financing for which they were paid $1,575 which has been accounted for as debt issue costs.

The Company paid a premium over the fair value of the net tangible and identified intangible assets acquired (goodwill) for a number of reasons, including the following:

Strategic Fit

The acquisition of the NS Group is in line with the Company’s strategy to expand value added product offerings as NS Group is a major U.S. supplier of a diverse range of energy tubular products. Its product offering includes seamless tubular products, alloy energy tubulars, premium tubular connections and oil field accessories. With the acquisition, the Company adds seamless energy tubular products and additional capacity for connections and oil field accessories to its product offerings. The Company believes that both product offerings present significant opportunities for growth given the underlying strength in the oil and gas industry fundamentals.

Consistent with IPSCO’s long-term strategies, the acquisition will immediately provide value added energy products and services, expanded presence in the U.S. energy tubular market, and enhanced opportunities for IPSCO’s steel short strategy as NS Group does not have internal steel production capability for its welded tubular products.

Synergies

The expanded geographic footprint of the combined company will allow better optimization of production and freight considerations.

Corporate redundancies will be eliminated.

Best practices of both organizations will be combined by leveraging the expertise of two highly skilled workforces.

Combined heat treating capabilities will allow reduction of costs.

The application of purchase accounting under FAS 141, Business Combinations, requires that the total purchase price be allocated to the fair value of assets acquired and liabilities assumed based on their fair values at the acquisition date, with the amount exceeding the fair values recorded as goodwill. The allocation process requires an analysis of acquired inventory, capital assets, contracts, customer lists and relationships, patents, legal contingencies and brand value to identify and record the fair value of all assets acquired and liabilities assumed.

In valuing acquired assets and assumed liabilities, fair values were based on, but not limited to: the current market price less estimated cost to sell for inventories; future expected discounted cash flows for customer relationships, trade names and trade marks; current replacement cost for similar capacity and obsolescence for capital assets; comparable market rates for contractual obligations; and, appropriate discount and growth rates.

Under the purchase method of accounting, the assets and liabilities of NS Group have been recorded at their respective fair values as of the acquisition date. We have obtained preliminary third-party valuations of inventories, capital assets and intangible assets. Because of the proximity of this transaction to year end, the valuations are preliminary and are subject to adjustments as additional information is obtained. Changes to the valuation of the tangible and identifiable intangible assets, to be completed within one year of the acquisition, may result in adjustment to goodwill.

The Company has not identified any material unrecorded pre-acquisition contingencies where the related asset, liability or impairment is probable and the amount can be reasonably estimated. Prior to finalization of the purchase price allocation, if information becomes available which would indicate it is probable that such events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation and may adjust goodwill.

The following table summarizes the preliminary estimated fair values of the NS Group assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date.

Based on the preliminary purchase price allocation, goodwill of $598,310 has been allocated to the legal entities acquired. The value assigned to goodwill includes the value of NS Group’s assembled workforce, which is not separately classified under FAS 141. The purchased intangibles and goodwill are not deductible for tax purposes; however, purchase accounting requires the establishment of deferred tax liabilities on the fair value increments related to inventories and intangible assets that will be recognized as a tax benefit on future Consolidated Statements of Income as the related assets are amortized.

$8,100 of the trade name and trademarks have an indefinite life, and accordingly, are not subject to amortization. Amortizable trade name and trademarks, proprietary technology and non-compete agreements are being amortized over their weighted average estimated life of 6.5 years. The customer relationships intangible asset is being amortized on a straight-line basis over a weighted period of 14.6 years. Amortization expense related to the intangible asset fair value increment amounted to $5,173 for 2006.

NS Group maintained change-in-control agreements with its employees that provided for acceleration of vesting provisions for stock-based compensation arrangements and enhanced severance and benefit entitlements on a change of control. Included in the assets acquired and liabilities assumed are accruals of approximately $5,200 which were paid out in December 2006.

The following unaudited pro forma consolidated results of operations assume the acquisition of NS Group was completed as of January 1 for each of the fiscal years shown below. Pro forma data may not be indicative of the results that would have been obtained had the acquisition actually occurred at the beginning of the periods presented, or of results which may occur in the future.

The unaudited pro forma information presented above reflects the results of operations for 2005 and 2006 as though the acquisition had been completed at the beginning of each year. The fair value adjustment to inventory ($23,600, net of tax) has been recorded as a reduction of net income in each year. In addition, costs of a non-recurring nature relating to the acquisition and change-in-control agreements ($23,400, net of tax) have reduced 2006 net income.