-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OKRDzBoqw4F5beCtVROM2FJ3OqlqtNV8g9xxYOA7pLDU5f7jbHhPCd//ZKkoXGzV L7cubIrm9wu4eD3tSBGgdw== 0000094610-98-000008.txt : 19980624 0000094610-98-000008.hdr.sgml : 19980624 ACCESSION NUMBER: 0000094610-98-000008 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980623 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STONE CONTAINER CORP CENTRAL INDEX KEY: 0000094610 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 362041256 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-03439 FILM NUMBER: 98652480 BUSINESS ADDRESS: STREET 1: 150 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3123466600 MAIL ADDRESS: STREET 1: 18TH FL, CORPORATE ACCOUNTING STREET 2: 150 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60601 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K/A (x) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997. or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to ____________. Commission file number 1-3439 STONE CONTAINER CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2041256 (State or other jurisdiction of ) (I.R.S. employer incorporation or organization) identification no.) 150 North Michigan Avenue, Chicago, Illinois 60601 (Address of principal executive offices) (Zip code) Registrant's telephone number: 312 346-6600 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock New York Stock Exchange Rights to purchase Series D Preferred Stock New York Stock Exchange $1.75 Series E Cumulative Convertible Exchangeable Preferred Stock New York Stock Exchange 12-5/8% Senior Notes due July 15, 1998 New York Stock Exchange 11-7/8% Senior Notes due December 1, 1998 New York Stock Exchange 11% Senior Subordinated Notes due August 15, 1999 New York Stock Exchange 9-7/8% Senior Notes due February 1, 2001 New York Stock Exchange 10-3/4% Senior Subordinated Debentures due April 1, 2002 New York Stock Exchange Series B 10-3/4% Senior Subordinated Debentures due April 1, 2002 and 1-1/2% Supplemental Interest Certificates New York Stock Exchange 10-3/4% First Mortgage Notes due October 1, 2002 New York Stock Exchange 11-1/2% Senior Notes due October 1, 2004 New York Stock Exchange 6-3/4% Convertible Subordinated Debentures due February 15, 2007 New York Stock Exchange Rating Adjustable Senior Notes due August 1, 2016 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value as of March 26, 1998 of the voting common stock held by non-affiliates of the Registrant was approximately $1,181,000,000. The number of shares of common stock outstanding at March 26, 1998 was 99,717,665. The Proxy Statement, to be filed on or before April 30, 1998, for the Annual Meeting of Stockholders scheduled May 12, 1998 is partially incorporated by reference into Part III, Items 10, 11, 12 and 13; and Part IV, Item 14, excluding the sections entitled "Compensation Committee Report on Executive Compensation" and "Performance Graph." The registrant hereby amends the following items, financial statements, exhibits or other portions of its Annual Report for 1997 on Form 10-K as set forth in the pages attached hereto. PART IV Item 14(a)2. Financial Statement Schedules Financial Statements of Abitibi-Consolidated Inc. Item 14(d). Separate Financial Statements of Affiliates CONSOLIDATED EARNINGS
Year ended December 31 (millions of Canadian dollars, except per share amounts) 1997 1996 1995 Gross sales $4,166 $4,456 $4,259 Freight expenses 419 374 351 Net sales 3,747 4,082 3,908 Cost of sales 3,127 3,072 2,693 Depreciation and amortization 325 301 219 Selling, general and administrative expenses 176 185 145 Non-recurring expenses relating to the amalgamation (note 4) 77 - - Restructuring expenses (note 5) 10 28 6 Operating profit from continuing operations 32 496 845 Interest expense on long-term debt 115 113 99 Debt extinguishment costs and write-off of redundant fixed assets relating to the amalgamation (note 4) 98 - - Unusual items (note 6) - (27) 37 Other expense (income), net (note 7) - (6) - Earnings (loss) from continuing operations before income taxes (181) 416 709 Recovery of (provision for) income taxes (note 8) 49 (154) (251) Earnings (loss) from continuing operations (132) 262 458 Earnings from discontinued operations, net of Income tax expense of $7 (1996 - $4; 1995 - $3)(note 13) 11 6 5 Net earnings (loss) for the year $ (121) $ 268 $ 463 Per common share Earnings (loss) from continuing operations $(0.68) $ 1.35 $ 2.89 Net earnings (loss) for the year Basic (0.62) 1.39 2.92 Fully diluted (0.62) 1.37 2.62 Weighted average number of common shares outstanding (millions) Basic 194.0 193.4 156.0 Fully diluted 197.5 197.2 179.8 Fully diluted number of common shares outstanding at year-end (millions) 197.5 197.3 195.1
Consolidated Retained Earnings
Year ended December 31 (millions of Canadian dollars) 1997 1996 1995 Retained earnings, beginning of year $ 804 $ 572 $ 285 Net earnings (loss) for the year (121) 268 463 Dividends declared (67) (36) (25) Transaction costs of amalgamation, net of Deferred income tax recoveries of $8 (27) - - Purchase of common shares in excess of average stated capital (note 15(b)) - - (140) Unamortized convertible subordinated debenture issue costs, net of deferred income tax recoveries of $1 - - (3) Interest on equity element of convertible debentures, net of deferred income tax recoveries of $3 - - (8) Retained earnings, end of year $ 589 $ 804 $ 572
CONSOLIDATED BALANCE SHEETS
December 31 (millions of Canadian dollars) 1997 1996 ASSETS Current assets Cash and deposits $ 46 $ 76 Accounts receivable (note 9) 481 529 Inventories (note 10) 417 497 Prepaid expenses 28 30 Current assets of discontinued operations (note 13) 232 156 1,204 1,288 Fixed assets (note 11) 4,104 4,016 Investments and other assets (note 12) 43 84 Deferred pension cost 170 181 Goodwill 733 755 Non-current assets of discontinued operations (note 13) 41 44 $6,295 $6,368 LIABILITIES Current liabilities Bank indebtedness $ - $ 15 Accounts payable and accrued liabilities Continuing operations 663 668 Discontinued operations 92 72 Dividends payable 19 9 Current portion of long-term debt Recourse (note 14(a)) 90 130 Non-recourse (note 14(b)) 17 22 Preferred shares (note 15(c)) - 10 881 926 Long-term debt Recourse (note 14(a)) 1,338 1,147 Non-recourse (note 14(b)) 294 249 Deferred income taxes 594 647 3,107 2,969 SHAREHOLDERS' EQUITY Common shares (note 15(b)) 2,599 2,595 Retained earnings 589 804 3,188 3,399 $6,295 $6,368 CHANGES IN CONSOLIDATED CASH POSITION
Year ended December 31 (millions of Canadian dollars) 1997 1996 1995 Continuing operating activities Earnings (loss) from continuing operations $(132) $ 262 $ 458 Depreciation 304 279 203 Goodwill amortization 21 22 16 Provision for (recovery of) deferred income Taxes (55) 124 245 Non-recurring expenses relating to the Amalgamation 115 - - Restructuring expenses 10 28 - Other non-cash items 5 (6) 17 268 709 939 Changes in non-cash operating working capital components of continuing operations 123 (93) (96) Cash generated by continuing operating Activities 391 616 843 Financing activities of continuing operations Increase in long-term debt and bank Indebtedness 1,502 483 392 Repayment of long-term debt and bank Indebtedness (1,373) (393) (152) Transaction costs of amalgamation (35) - - Issuance of common shares on conversion of convertible debentures and on acquisition - 25 802 Purchase of common shares for cancellation - - (194) Issuance of redeemable preferred shares on Acquisition - - 500 Preferred shares redeemed and cancelled (10) (100) (401) Retirement of convertible debentures - (24) (626) Other 7 (1) (12) Cash generated by (used in) financing activities of continuing operations 91 (10) 309 Investing activities of continuing operations Additions to fixed assets (437) (670) (597) Acquisition (note 3) - - (731) Decrease in investments and other assets 24 12 5 Cash used in investing activities of continuing operations (413) (658) (1,323) Dividends paid to common shareholders (57) (36) (16) Cash generated by (used in) continuing Operations 12 (88) (187) Cash used in discontinued operations (42) (24) - Decrease in cash during the year (30) (112) (187) Cash and deposits, beginning of year 76 188 375 Cash and deposits, end of year $ 46 $ 76 $ 188
CONSOLIDATED BUSINESS SEGMENTS
Year ended December 31 (millions of Canadian dollars) Net Cost of Gross 1997 Sales Sales Profit Newsprint $1,830 $1,511 $ 319 Value-added groundwood paper 1,139 904 235 Non-recurring expenses relating to the amalgamation - - - Total Paper (1) & (2) 2,969 2,415 554 Kraft pulp (1) 73 65 8 Lumber (5) 170 127 43 Newsprint purchased and resold and commissions (3) & (4) 535 520 15 $3,747 $3,127 $ 620 1996 Newsprint $1,950 $1,394 $ 556 Value-added groundwood paper 1,237 841 396 Total Paper (1) & (2) 3,187 2,235 952 Kraft pulp (1) 61 58 3 Lumber 131 95 36 Newsprint purchased and resold and commissions (3) & (4) 703 684 19 $4,082 $3,072 $1,010 1995 Newsprint $2,079 $1,321 $ 758 Value-added groundwood paper 1,175 761 414 Total Paper (1) & (2) 3,254 2,082 1,172 Kraft pulp (1) 16 7 9 Lumber 67 50 17 Newsprint purchased and resold and commissions (3) & (4) 571 554 17 $3,908 $2,693 $1,215 (1) On November 1, 1995, the Company acquired Rainy River Forest Products Inc. (see note 3) increasing annual newsprint, value-added paper and kraft pulp capacity by 870,000 tonnes. (2) The Paper Business consists of the Company's 16 wholly-owned paper mills and 50% of the Company's two newsprint joint venture mills. (3) The Newsprint purchased and resold and commissions business segment consists of sales of the Company's joint venture partners' share of production of the newsprint joint venture mills and as of November 1, 1995 the 387,000 tonnes of newsprint from Boise Cascade's DeRidder, Louisiana mill. Also included are commissions received on sales of 160,000 (1996 - 154,000; 1995 - 171,000) tonnes of newsprint for the Pine Falls Paper Company and 245,000 (1996 - 260,000; 1995 - 282,000) tonnes of newsprint sold for Stone Container Corporation's Snowflake, Arizona mill.
Selling, Non- General recurring and and Paper Adminis- Depreciation Restruct- Operat- Pro- Paper Fixed trative and uring ing uction Sales Asset Total Expenses Amortization Expenses Profit (000s of tonnes) Additions(7) Assets $ 119 $ 195 $ - $ 5 2,756 2,825 $ 243 $3,583 54 118 10 53 1,306 1,340 168 2,127 - - 77 (77) 173 313 87 (19) 4,062 4,165 411 5,710 3 3 - 2 120 115 7 86 7 9 - 27 19 201 (7)(6) - - 22 726 728 - 25 $ 176 $ 325 $ 87 $ 32 4,908 5,008 $ 437 $6,022 $ 117 $ 182 $ 15 $242 2,450 2,444 $ 342 $3,616 65 108 13 210 1,334 1,211 286 2,314 182 290 28 452 3,784 3,655 628 5,930 4 3 - (4) 89 110 5 85 2 8 - 26 37 134 (3)(6) - - 22 688 690 - 19 $ 185 $ 301 $ 28 $496 4,561 4,455 $ 670 $6,168 $ 93 $ 133 $ 4 $528 2,418 2,443 56 82 2 274 1,197 1,129 149 215 6 802 3,615 3,572 1 - - 8 20 14 2 4 - 11 (7)(6) - - 24 370 365 $ 145 $ 219 $ 6 $845 4,005 3,951 (4) In 1995 and 1996, this business segment also included the Company's lumber and panelboard brokerage operations which was discontinued in the third quarter of 1996. Sales for lumber and panelboard were $373 million and $504 million in 1996 and 1995, respectively. Operating profit related to lumber and panelboard brokerage was $2 million and $9 million in 1996 and 1995, respectively. (5) In 1997, Lumber production was 439 million board feet (1996 - 332 million; 1995 - 237 million). In 1997, Lumber sales were 410 million board feet (1996 - 327 million; 1995 - 213 million). (6) Selling, general and administrative expenses include commission income of $12 million (1996 - $14 million; 1995 - $15 million). (7) Fixed asset additions include adjustments for amounts in accounts payable and accrued liabilities related to capital expenditures. CONSOLIDATED GEOGRAPHIC SEGMENTS(1)
Year ended December 31 (millions of Canadian dollars) Net Cost of Gross 1997 Sales Sales Profit Canada $ 325 $ 256 $ 69 U.S.A. 2,577 2,164 413 International(2) 845 707 138 Non-recurring expenses relating to the amalgamation - - - $3,747 $ 3,127 $ 620 1996 Canada $ 361 $ 251 $ 110 U.S.A. 3,043 2,310 733 International (2) 678 511 167 $4,082 $ 3,072 $ 1,010 1995 Canada $ 462 $ 299 $ 163 U.S.A. 2,779 1,944 835 International (2) 667 450 217 $3,908 $ 2,693 $ 1,215
(1) Geographic segments reflect the ultimate sales destination for the products. Sales and cost of sales by manufacturing location are as follows:
1997 1996 1995 Net Cost Net Cost Net Cost Sales of Sales Sales of Sales Sales of Sales Canada $2,656 $2,115 $2,909 $2,074 $3,054 $1,922 U.S.A. 875 837 927 821 620 562 International 216 175 246 177 234 209 $3,747 $3,127 $4,082 $3,072 $3,908 $2,693
Selling, Non- General recurring and and Paper Adminis- Depreciation Restruct- Operat- Pro- Paper Fixed trative and uring ing uction(3) Sales Asset Total Expenses Amortization Expenses Profit (000s of tonnes) Additions(4) Assets $ 17 $ 29 $ 1 $ 22 3,438 302 $ 43 $ 549 113 215 8 77 1,222 3,454 291 3,988 46 81 1 10 248 1,252 103 1,485 - - 77 (77) $ 176 $ 325 $ 87 $ 32 4,908 5,008 $ 437 $6,022 $ 18 $ 31 $ 3 $ 58 3,188 249 $ 78 $ 642 133 216 20 364 1,133 2,950 483 4,450 34 54 5 74 240 1,256 109 1,094 $ 185 $ 301 $ 28 $496 4,561 4,455 $ 670 $6,168 $ 20 $ 30 $ 1 $112 3,051 354 99 150 4 582 707 2,514 26 39 1 151 247 1,083 $ 145 $ 219 $ 6 $845 4,005 3,951 (2) International markets consist of all markets outside Canada and the United States. (3) All of the Company's production of lumber occurs in Canada. In 1997, 43% (1996 - 55%; 1995 - 48%) of lumber was sold in the United States and 57% (1996 - 45%; 1995 - 52%) was sold in Canada. (4) Fixed asset additions include adjustments for amounts in accounts payable and accrued liabilities related to capital expenditures. Notes to Consolidated Financial Statements December 31, 1997, 1996, and 1995 (tabular amounts in millions of Canadian dollars) 1. Summary of significant accounting policies These financial statements are expressed in Canadian dollars and are prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). These financial statements are not intended to provide disclosures which would typically be found in financial statements prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). Form 40-F, filed with the United States Securities and Exchange Commission, includes a description of the differences between Canadian GAAP and U.S. GAAP as they apply to the Company. (a) Basis of presentation The amalgamation of Abitibi-Price Inc. (Abitibi-Price) and Stone- Consolidated Corporation (Stone-Consolidated) was approved by the shareholders of the companies effective May 30, 1997. On amalgamation each common share of Abitibi-Price was exchanged for one common share of Abitibi- Consolidated Inc. and each common share of Stone-Consolidated was exchanged for 1.0062 common shares of Abitibi-Consolidated Inc. All common share numbers have been restated to reflect this share exchange ratio. In these financial statements the amalgamation has been accounted for as a pooling of interests and, as a result, the consolidated balance sheets, statements of earnings, retained earnings and changes in cash position have been prepared as though Abitibi-Price and Stone-Consolidated had been combined since their inception. Under this method, the assets and liabilities have been recorded at historical carrying values and the earnings of Abitibi- Consolidated Inc. are comprised of the earnings of Abitibi-Price and Stone- Consolidated. The net assets of each combining company as at May 30, 1997 were as follows: Abitibi- Stone- Price Consolidated Total assets $2,610 $3,924 Total liabilities 1,552 1,685 Net assets $1,058 $2,239 The net sales and losses of each combining company for the period January 1, 1997 to May 30, 1997 were as follows: Abitibi- Stone- Price Consolidated Net sales $ 973 $ 781 Net loss 30 70 Upon amalgamation, the issued, and then outstanding, common shares of Abitibi-Consolidated Inc. totalled 193.9 million of which approximately 46% were held by the former shareholders of Abitibi-Price and approximately 54% were held by the former shareholders of Stone-Consolidated. The quoted market value of these shares, on the first trading day after amalgamation, was $4.8 billion. These financial statements consolidate the accounts of Abitibi- Consolidated Inc., its subsidiary companies, the Company's proportionate interest in its U.S. joint venture partnerships comprising Augusta Newsprint Company (Augusta) - 50%, Alabama River Newsprint Company (Alabama) - 50% and Alabama River Recycling Company (Alabama Recycling) - 50%, Voyageur Panel Limited - 21%, Star Lake Hydro Partnership - 51% and the Company's investments in joint venture sawmills in Quebec. (b) Use of estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses for the reported period. Actual results could differ from those estimates. (c) Translation of foreign currencies Assets and liabilities denominated in foreign currencies are translated at year end exchange rates. Revenues and expenses are translated at prevailing market rates. The net U.S. dollar assets of self-sustaining joint ventures and subsidiaries hedge a portion of the Company's U.S. dollar debt. Any remaining U.S. dollar debt, is generally hedged by future U.S. dollar revenue. Exchange gains or losses on U.S. dollar debt, hedged by future revenue, are deferred and included in earnings in the period that the revenue is earned. Realized gains and losses on option and forward exchange rate contracts that hedge anticipated revenues are included in earnings when the revenue is earned. Option and forward exchange rate contracts that do not provide an effective hedge are recorded at market value and any gains or losses (realized or unrealized) are included in earnings. (d) Inventories Inventories are valued at the lower of average cost and net recoverable amount. Cost is calculated using the absorption cost method including depreciation. (e) Fixed assets and depreciation Fixed assets are recorded at cost, including capitalized interest and preproduction costs. Investment tax credits and government capital grants received reduce the cost of the related fixed assets. Depreciation is provided at rates which amortize the fixed asset cost over the productive life of the asset. The principal fixed asset category is production equipment which is generally depreciated over 20 years on a straight-line basis. (f) Environmental costs Environmental expenditures that continue to benefit the Company are recorded at cost and capitalized as part of fixed assets. Depreciation is charged to income over the estimated future benefit period of the asset. Environmental expenditures that do not provide a benefit to the Company in future periods are expensed as incurred. (g) Investments Long-term investments are recorded at the lower of cost and net recoverable amount. (h) Pension costs Earnings are charged with the cost of pension benefits earned by employees as services are rendered. Pension expense is determined using management's best estimates of expected investment yields, wage and salary escalation, mortality rates, terminations and retirement ages. Adjustments arising from pension plan amendments, experience gains and losses, and assumption changes are amortized to earnings over the average remaining service lives of the members. Any difference between pension expense (determined on an accounting basis) and funding (as required by regulatory authorities) gives rise to deferred pension costs. Employee post-retirement costs are expensed on a "pay-as-you-go" basis. (i) Goodwill Goodwill is recorded at the lower of book value and net recoverable amount and is amortized over its estimated period of future benefit - generally 40 years. Any impairment in value is recorded in earnings when it is identified based on management's projected undiscounted future cash flows from the related operations. (j) Income taxes Income taxes are recorded by the deferral method of accounting using historical income tax rates. Deferred income taxes result from differences in the timing of income and expense recognition for accounting and tax purposes. (k) Research and development costs Research costs are expensed as incurred. Development costs for technically and commercially feasible products or processes which management intends to produce and market and/or use are deferred until commercial use begins. At that time, these costs are charged to earnings over the estimated commercial life of the product or process. In 1997, the Company expensed $11 million (1996 - $12 million; 1995 - $8 million) of these costs. Notes to Consolidated Financial Statements December 31, 1997, 1996, and 1995 (tabular amounts in millions of Canadian dollars) 2. Newsprint joint ventures The Company's investments in newsprint joint ventures are accounted for using the proportionate consolidation method. The Company's results of operations, changes in cash position and financial position include the impact of the joint ventures as follows: 1997 Proportionate Equity Accounting Accounting for Joint for Joint Increase Venture as Ventures (Decrease) Reported Consolidated Earnings Statements from continuing operations Net sales $3,747 $ - $3,747 Operating profit (3) 35 32 Income from joint ventures 9 (9) - Interest expense (89) (26) (115) Amalgamation costs (98) - (98) Unusual items and other income and expense, net - - - Earnings (loss) before income taxes (181) - (181) Net earnings (loss) from continuing operations (132) - (132) Changes in Consolidated Cash Position from continuing operations Operating activities $ 362 $ 29 $ 391 Financing activities 113 (22) 91 Investing activities (406) (7) (413) Dividends paid (57) - (57) Cash generated by (used in) continuing operations $ 12 $ - $ 12 Consolidated Balance Sheets Current assets $1,184 $ 20 $1,204 Fixed assets 3,734 370 4,104 Investments in joint ventures 103 (103) - Deferred pension cost 176 (6) 170 Other assets 807 10 817 Total assets $6,004 $ 291 $6,295 Current liabilities $ 863 $ 18 $ 881 Long-term debt: Recourse 1,338 - 1,338 Non-recourse 21 273 294 Deferred income taxes 594 - 594 Shareholders' equity 3,188 - 3,188 Total liabilities and equity $6,004 $ 291 $6,295 2. Newsprint joint ventures (continued) 1996 1995 Proportionate Proportionate Equity Accounting Equity Accounting Accounting for Joint Accounting for Joint for Joint Increase Venture as for Joint Increase Ventures as Ventures (Decrease) Reported Ventures (Decrease) Reported Consolidated Earnings Statements from continuing operations Net sales $4,082 $ - $4,082 $3,908 $ - $3,908 Operating profit 433 63 496 769 76 845 Income from joint ventures 38 (38) - 45 (45) - Interest Expense (88) (25) (113) (67) (32) (99) Amalgamation Costs - - - - - - Unusual items and other income and expense, net 33 - 33 (38) 1 (37) Earnings (loss) before income taxes 416 - 416 709 - 709 Net earnings (loss) from continuing operations 262 - 262 458 - 458 Changes in Consolidated Cash Position from continuing operations Operating Activities $ 542 $ 74 $ 616 $ 778 $ 65 $ 843 Financing Activities 87 (97) (10) 348 (39) 309 Investing Activities (651) (7) (658) (1,313) (10) (1,323) Dividends Paid (36) - (36) (16) - (16) Cash generated by (used in) continuing operations $ (58) $ (30) $ (88) $ (203) $ 16 $ (187) Consolidated Balance Sheets Current Assets $ 1,268 $ 20 $ 1,288 Fixed Assets 3,645 371 4,016 Investments in joint ventures 131 (131) - Deferred pension cost 187 (6) 181 Other Assets 872 11 883 Total Assets $ 6,103 $ 265 $ 6,368 Current Liabilities $ 903 $ 23 $ 926 Long-term debt: Recourse 1,147 - 1,147 Non- Recourse 7 242 249 Deferred income taxes 647 - 647 Shareholders' Equity 3,399 - 3,399 Total Liabilities and equity $ 6,103 $ 265 $ 6,368 Notes to Consolidated Financial Statements December 31, 1997, 1996, and 1995 (tabular amounts in millions of Canadian dollars) 3. Acquisition Rainy River Forest Products Inc. On November 1, 1995, the Company acquired and subsequently amalgamated with Rainy River Forest Products Inc. (Rainy River). Rainy River was a manufacturer and marketer of newsprint, value-added groundwood papers and kraft pulp. It owned and operated three integrated pulp and paper mills located in Kenora and Fort Frances, Ontario and West Tacoma, Washington (U.S.A.). The purchase method was used to account for the business combination and the results of operations of Rainy River are included from the date of acquisition. The allocation of the purchase price was as follows: Assets acquired Working capital $ 94 Fixed assets 844 Goodwill 292 Other 17 1,247 Liabilities assumed Long-term debt 148 Deferred income taxes 99 Convertible subordinated debentures 269 516 Net assets acquired at fair value $ 731 Consideration Issuance of 11.9 million common shares $ 216 Issuance of 23.2 million cumulative preferred shares with an 8% dividend rate per annum 500 Cash 15 $ 731 4. Amalgamation costs Charges of $175 million relating to the amalgamation were expensed in 1997 as follows: Employee severance and related expenses $ 35 Moving expenses 14 Pension plan settlement expense 15 Other 13 77 Debt extinguishment costs 59 Write-off of redundant fixed assets 39 98 $ 175 5. Restructuring expenses 1997 1996 1995 Machine closure at the Kenogami mill $ 10 $ - $ - Thermo-mechanical pulping conversions - 28 - Relocation of inside sales and customer service offices - - 6 $ 10 $ 28 $ 6 In 1997, the Company incurred one-time restructuring charges on the closure of a paper machine at the Kenogami mill, which consisted of $2 million for the write-off of a paper machine and $8 million for employee severance and retraining. In 1996, the Company incurred one-time restructuring charges on the start-up of two thermo-mechanical pulping plants, which consisted of $19 million for the write-off of redundant fixed assets and $9 million for employee severance. 6. Unusual items 1997 1996 1995 Net proceeds from insurance claims relating to assets destroyed by flooding at the Kenogami mill and hydro plant and Port Alfred mill $ - $ (27) $ - Gain on sale of Thunder Bay, Ontario newsprint Mill - - (4) Redemption expenses - - 41 $ - $ (27) $ 37 The redemption expenses of $41 million, in 1995, consist primarily of $37 million for early debt repayment. 7. Other expense (income), net 1997 1996 1995 Interest income $ (13) $ (14) $ (24) Discounts on sales of accounts receivable (note 9) 6 11 13 Other 7 (3) 11 $ - $ (6) $ - 8. Income taxes The Company's recovery of (provision for) income taxes and effective income tax rates are: 1997 1996 1995 Earnings (loss) from continuing operations before income taxes $(181) $ 416 $ 709 Recovery of (provision for) income taxes 49 (154) (251) Effective income tax rate 27% 37% 35% Reconciliation to statutory tax rate: Average combined Canadian federal/provincial income tax rate 39% 39% 38% Manufacturing and processing allowances (7) (4) (6) Non-deductible goodwill amortization (5) 2 1 Canadian large corporations tax (5) 2 1 Difference in tax rates for foreign subsidiaries 2 - 1 Other 3 (2) - Effective income tax rate 27% 37% 35% At December 31, 1997, the Company's U.S. and Canadian operations had $404 million in tax loss carry-forwards which are available to reduce taxable income in future years and expire between 2004 and 2009. Also, at December 31, 1997, the Company's U.K. subsidiaries had $65 million in tax loss carry- forwards which are available to reduce taxable income indefinitely. The benefits of these non-capital tax loss carry-forwards were recorded in earnings in the years incurred. 9. Accounts receivable The Company had an ongoing program to sell accounts receivable, with minimal recourse, to major banks pursuant to sale agreements. The Company acted as a service agent and administered the collection of the accounts receivable sold pursuant to these agreements. These agreements were terminated when the Company refinanced its debt on amalgamation in May 1997. In December 1997, the Company resumed the practice of selling trade accounts receivable to a major bank and these proceeds were used to repay long-term debt. At December 31, 1997, the Company had sold $287 million (1996 - $174 million) of accounts receivable to major banks. The maximum credit risk exposure to the Company at December 31, 1997 was $17 million (1996 - $13 million). 10. Inventories 1997 1996 Finished goods $ 134 $ 211 Materials and supplies 200 194 Pulpwood 83 92 $ 417 $ 497 11. Fixed assets 1997 1996 Accumulated Net Book Accumulated Net Book Cost Depreciation Value Cost Depreciation Value Property, plant and equipment $6,281 $2,226 $4,055 $5,900 $1,931 $3,969 Timberlands 74 25 49 77 30 47 $6,355 $2,251 $4,104 $5,977 $1,961 $4,016 During the year, $7 million (1996 - $17 million; 1995 - $18 million) of interest was capitalized to fixed assets. In addition, the Company recorded $1 million (1996 - $6 million) of investment tax credits that reduced the cost of the related fixed assets. 12. Investments and other assets 1997 1996 Pine Falls Paper Company Limited Subordinated $37 million debenture maturing in 2004, accruing 10% simple interest to 2000, and 17% semi-annual compound interest payable thereafter; repaid in 1997 $ - $ 27 Unamortization portion of debt financing costs 14 29 Exchange loss on long-term debt hedged by future revenue and other 29 28 $ 43 $ 84 13. Discontinued operations In December 1997, the Company decided to sell its Office Products Division. The Company subsequently signed a letter of intent to sell its U.S. and Mexican operations for U.S.$110 million. This transaction is expected to be completed in the first half of 1998. Net proceeds on the disposition of this Division are expected to exceed net book value and any gain will be recorded when realized. Accordingly, the Company's Office Products Division has been classified as discontinued operations. The following amounts related to the Office Products Division have been included in these financial statements: 1997 1996 Cash $ 15 $ 11 Accounts receivable 111 51 Inventories 104 93 Prepaid expenses 2 1 Current assets of discontinued operations $ 232 $ 156 Fixed and other assets $ 11 $ 13 Goodwill 30 31 Non-current assets of discontinued operations $ 41 $ 44 Sales $ 817 $ 647 Effective July 1, 1996, the Company acquired all of the outstanding shares of Tenex Data Corporation (Tenex), of Toronto, Ontario, a distributor of computer supplies and data storage products and a paper converter, for cash consideration of $22 million. The purchase method was used to account for the business combination and the results of operations of Tenex are included in discontinued operations from the date of acquisition. 14. Long-term debt (a) Recourse The debt described below has recourse to specific assets or the general credit of Abitibi-Consolidated Inc. and consists of: 1997 1996 Term credit facilities: 5-year $800 million revolving facility bearing interest at prime or LIBOR $ 107 $ - 7-year $1.3 billion term loan bearing interest at prime or LIBOR, 5% annually to be repaid during the first five years, plus 25% in years six and seven, with the remainder being repaid at maturity (U.S. portion - U.S. $474 million 1,042 - Facilities due 2000 bearing interest approximating prime plus 1% - 368 Floating rate revolving facility bearing interest at LIBOR plus 0.875% (U.S. portion - U.S.$67 million) - 124 U.S.$178 million (1996 - U.S.$200 million) maturing in 2005 bearing interest at 7.92% 255 274 U.S.$225 million due 2000 bearing interest at 10.25% - 308 U.S.$110 million due 2001 bearing interest at 10.75% - 151 Other 24 52 1,428 1,277 Less: Current portion of long-term debt (90) (130) $1,338 $ 1,147 In connection with the amalgamation, the Company secured from a syndicate of lenders the two new term credit facilities noted above. Of the total facility, $1.4 billion is available in the form of prime rate Canadian dollar loans and $700 million is available by way of LIBOR U.S. dollar loans. The proceeds were used to repay $996 million of long-term debt facilities and $15 million of bank indebtedness. The Company's debt agreements contain certain restrictive financial and other covenants. (b) Non-recourse The Company's interest in the long-term debt of its U.S. newsprint and other joint ventures is without recourse to the assets of Abitibi- Consolidated Inc. These non-recourse loans are secured by $370 million (1996 - $371 million) of joint venture fixed assets and consist of the following debt: 1997 1996 Alabama LIBOR plus 1.875% term loans, rising to LIBOR plus 2% in 1999, maturing in 2002, with quarterly principal repayments of U.S.$2.5 million (U.S. $139 million; 1996 - U.S.$149 million) $ 199 $ 205 Alabama Recycling 10.50% senior notes, maturing in 2008 (U.S. $12 million; 1996 - U.S.$13 million) 17 18 Augusta 10.01% senior secured notes, maturing from 2001 to 2007 (U.S.$25 million) 36 34 7.7% senior secured notes, maturing 2004 to 2007 (U.S.$25 million) 36 - Other 23 14 311 271 Less: Current portion of long-term debt (17) (22) $ 294 $ 249 At December 31, 1997, Alabama had interest rate agreements with major banks, which expire between 1998 and 2000, that provide an effective interest rate of 9.6% (1996 - 9.6%; 1995 - 8.5%) on $71 million of the $199 million non-recourse debt outstanding (1996 - $68 million of $205 million). In 1997, the effective interest rate on the Alabama debt was 9.1% (1996 - 8.8%; 1995 - 8.6%). Augusta has a line of credit of U.S.$13 million bearing prevailing market interest rates. This line of credit was undrawn as at December 31, 1997 and 1996. Partnership distributions are subject to certain restrictions until these loans are repaid in accordance with the loan agreements. In 1998, Alabama may not be in compliance with certain debt covenants under certain circumstances. The outcome of these matters is not determinable. The assets less the liabilities of Alabama included in the consolidated financial statements were $24 million at December 31, 1997. Notes to Consolidated Financial Statements December 31, 1997, 1996, and 1995 (tabular amounts in millions of Canadian dollars) (c) Scheduled long-term debt repayments are as follows: (d) Recourse Non-Recourse Debt Debt 1998 $ 90 $ 17 1999 90 17 2000 94 17 2001 89 27 2002 305 154 Thereafter 760 79 $ 1,428 $ 311 (d) The estimated fair value of the long-term debt at the period end dates is as follows: 1997 1996 Recourse $1,433 $1,345 Non-recourse 324 279 $1,757 $1,624 15. Capital stock (a)The Company continued under the Canada Business Corporations Act pursuant to the amalgamation referred to in note 1, and is authorized to issue an unlimited number of preferred shares and common shares. (b) Common shares 1997 1996 1995 Millions Millions Millions of shares $ of shares $ of shares $ Common shares, beginning of year 193.6 2,595 191.8 2,570 152.9 1,822 Shares issued for: Conversion of convertible subordinated debentures 1.6 24 35.6 585 Acquisition of Rainy River - - - - 11.9 216 Exercise of stock options 0.6 4 0.2 1 0.1 1 Shares purchased and cancelled for $194 million - - - - (8.7) (54) Common shares, end of year 194.2 2,599 193.6 2,595 191.8 2,570 The $140 million excess of purchase price over the average stated capital of shares purchased and cancelled in 1995 was charged to retained earnings. At December 31, 1997, the Company had 3.3 million (1996 - 3.7 million; 1995 - 3.3 million) management stock options outstanding. These options are exercisable at prices between $12.25 and $22.69 and expire between 1998 and 2005. The payment of a cash dividend on the Company's common stock is restricted under certain debt agreements. The Company satisfied all the conditions of the debt agreements prior to declaring dividends. (c) Preferred shares 1997 1996 1995 Millions Millions Millions of shares $ of shares $ of shares $ Preferred shares, beginning of year 0.9 10 5.5 110 1.0 11 Acquisition of Rainy River - - - - 23.2 500 Shares redeemed and Cancelled (0.9) (10) (4.6) (100) (18.6) (400) Shares retracted by Holders - - - - (0.1) (1) Preferred shares, end of year - - 0.9 10 5.5 110 16. Pension plans The Company primarily has contributory, defined benefit pension plans that provide benefits based on length of service and final average earnings. The Company has an obligation to ensure these plans have sufficient funds to pay the benefits earned. The Company's contributions are made in accordance with the annual regulatory contribution requirements. At December 31, the funded status, on an accounting basis, of the Company's pension plans is: 1997 1996 Market value of assets $1,918 $1,711 Actuarial present value of accumulated plan benefits based on current service and compensation levels: Vested 1,498 1,459 Non-vested 56 77 1,554 1,536 Excess of market value of assets over accumulated benefit obligations $ 364 $ 175 In 1997, pension plan assets were increased by Company and employee contributions of $47 million (1996 - $52 million) and pension plan investment gains of $284 million (1996 - $232 million). The plan assets were reduced by benefit payments of $116 million (1996 - $115 million) and $8 million (1996 - $8 million) paid for pension fund expenses. Effective January 1, 1996 plan assets were also reduced by $11 million, the value of past service benefits for non-union employees who elected to transfer to a new defined contribution plan offered by the Company. On a going concern basis, using assumptions required by regulatory authorities, the pension plans had an aggregate unfunded liability of $28 million (1996 - $111 million) at the time of the latest actuarial valuation reports. 17. Financial instruments The Company is subject to foreign exchange exposures which arise from its foreign currency sales and international operations. Of the Company's net sales, 82% is U.S. dollar denominated; and 65% of its non-North American sales are U.S. dollar denominated with the remainder in local currencies. The Company partially manages its foreign exchange exposure with a program of foreign exchange forward contracts with major banks as counterparties for periods up to 5 years. The Company has a maximum of 40% of its foreign exchange forward contracts which may be outstanding with any one bank. The Company had the following U.S. dollar foreign exchange forward contracts outstanding at December 31 for the purchase of foreign currencies: Average U.S. Dollar Contract Amount of Contract Maturity Rate to buy $1 Cdn. U.S. Dollars (millions) 1997 1996 1997 1996 1997 - 75.13 - $725 1998 75.36 76.59 $844 $420 1999 75.68 76.61 $476 $239 2000 76.03 76.92 $338 $172 2001 76.19 76.60 $219 $138 2002 74.48 - $142 - At December 31, 1997, the Company would have had to pay $205 million to settle its then outstanding U.S. foreign exchange contracts and other financial instruments. 18. Lease commitments As at December 31, 1997, the Company has operating lease agreements for the rental of property, equipment and the charter of cargo vessels. The minimum annual rental payments under these leases are as follows: 1998 $ 19 1999 11 2000 10 2001 9 2002 8 Thereafter 17 $ 74 19. Contingent liabilities The Company and its U.S. subsidiary, Abitibi-Price Corporation, have been named as defendants in several lawsuits, including purported class actions, filed on behalf of homeowners in the United States relating to certain hardboard siding products which were manufactured by Abitibi-Price Corporation prior to October 1992. In each of the lawsuits, the plaintiffs generally allege that Abitibi-Price Corporation's hardboard siding was defective for the purposes for which it was sold. The Company denies this allegation and is vigorously defending the claims made in these actions. The Company and its indirect U.S. subsidiaries, Abitibi Consolidated Sales Corporation and Abitibi-Price Alabama Corporation, have been named as defendants in two lawsuits filed in the State of Alabama. The lawsuits have been filed allegedly on behalf of the Company's joint venture partnership, Alabama River Newsprint Company, and the partnership's two corporate partners, including Parsons & Whittemore Alabama Newsprint Corp. In the lawsuits, the plaintiffs allege a breach of the sales agreement with respect to the promotion and volume of sales of the joint venture partnership mill, and that the Abitibi-Consolidated partner breached its fiduciary duty to its joint venture partner. The Company denies these allegations and is vigorously defending the claims made in these actions. Each of the lawsuits appears to seek substantial damages in a trial by jury. It is not possible at this time to quantify meaningfully the amount of, or the range of, damages implicated by plaintiffs' claims. Management cannot at this time assess the likelihood that the Company will incur a loss or obtain an unfavorable result in connection with any one of these actions. On September 20, 1996, a motion of permission to lodge a class action suit against the Company was filed with the Superior Court of the Chicoutimi District ("Superior Court") with respect to the Saguenay floods of July, 1996. On October 20, 1997, the Superior Court granted the motion permitting a class action suit to be filed against the Company. To date no such class action suit has been filed. The Company is insured against such potential claims up to a maximum of $100 million which the Company believes to be sufficient. The Company is subject to a number of other unrelated claims in respect of which either an adequate provision has been made or for which no material liability is expected. 20. Related party transactions The Company undertakes a number of transactions with its major shareholder, Stone Container (Canada) Inc. (Stone Container), and its affiliated companies. The following table summarizes the transactions between the Company and related parties which are in the normal course of business at normal trade terms: 1997 1996 1995 Newsprint sales to a Stone Container Affiliate $ - $ 32 $ 32 Pulp purchases from Stone Container and Affiliates 15 15 20 Newsprint brokerage commissions from a Stone Container affiliate 10 11 12 Expenses charged to Stone Container for services 6 4 5 Expenses charged by a Stone Container affiliate for services - 2 4 ELEVEN-YEAR FINANCIAL REVIEW(1)
(unaudited) (millions of Canadian dollars, except per share amounts) 1997 1996 1995 CONSOLIDATED EARNINGS Net sales $ 3,747 $ 4,082 $ 3,908 Cost of sales 3,127 3,072 2,693 Depreciation and amortization 325 301 219 Selling, general and administrative Expenses 176 185 145 Non-recurring expenses relating to the Amalgamation 77 - - Restructuring expenses 10 28 6 Operating profit (loss) from continuing Operations 32 496 845 Interest expense on long-term debt 115 113 99 Debt extinguishment costs and write-off of redundant fixed assets relating to the amalgamation 98 - - Unusual items - (27) 37 Other expense (income), net - (6) - Earnings (loss) from continuing operations, before income taxes (181) 416 709 Recovery of (provision for) income Taxes 49 (154) (251) Earnings (loss) from continuing Operations (132) 262 458 Earnings (loss) from discontinued operations, net of tax 11 6 5 Net earnings (loss) for the year $ (121) $ 268 $ 463 PER BASIC COMMON SHARE Earnings (loss) from continuing Operations $ (0.68) $ 1.35 $ 2.89 Net earnings (loss) for the year (0.62) 1.39 2.92 Dividends declared (2) 0.40 0.40 0.30 Dividends paid 0.40 0.40 0.20 Common shareholders' equity 16.43 17.56 16.38 OTHER Return on average common shareholders' equity - 8% 16% Net debt/net debt plus shareholders' Equity 35% 30% 30% Number of employees at December 31 12,900 13,406 12,916 (1) The amalgamation of Abitibi-Price Inc. and Stone-Consolidated Corporation was completed on May 30, 1997 and has been accounted for as a pooling of interests. As a result, these consolidated financial statements have been prepared as though the companies had always been combined. Certain comparative balances have been reclassified to conform to the current year's financial statement presentation. These financial statements include the results of Stone-Consolidated Corporation from December 17, 1993, the date that Stone-Consolidated Corporation began operations as a corporation and became a publicly- traded company. The financial statements for the years 1987 to 1994 have been restated to reflect the adoption of the proportionate consolidation method of accounting for the Company's investments in joint venture.
consolidated financial statements December 31, 1997 REPORT OF INDEPENDENT ACCOUNTANTS Our audit of the consolidated financial statements referred to in our report dated January 30, 1998, appearing on page 42 of the Annual Report to Shareholders of Abitibi-Consolidated Inc. (which report and financial statements are incorporated by reference in this Annual Report on Form 40- F) also included an audit of the presentation of financial information in Item 6 of this Form 40-F. In our opinion, the presentation of financial information in Item 6 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Price Waterhouse Chartered Accountants January 30, 1998 Montreal, Quebec, Canada Differences between Canadian and United States generally accepted accounting principles Abitibi-Consolidated Inc.'s (the "Company") financial statements included in its Form 40-F have been prepared in accordance with generally accepted accounting principles ("GAAP") in Canada which, in the case of the Company, conform in all material respects with U.S. GAAP, with the following material exceptions: (a) The Company defers exchange gains and losses on U.S. dollar debt hedged by anticipated future revenue. Under U.S. GAAP, any unrealized exchange gains or losses on U.S. dollar debt hedged by anticipated future revenue would be recognized in income immediately. (b) The Company has outstanding foreign exchange forward contracts which it designates as a hedge of anticipated future revenue. Under U.S. GAAP, any unrealized gains or losses on such foreign exchange forward contracts would be recognized in income immediately. (c) The Company follows the deferral method of accounting for income taxes. Under U.S. GAAP, the asset and liability method of accounting for income taxes would be used. (d) The Company accounts for its joint venture investments using the proportionate consolidation method. Under U.S. GAAP, these joint ventures would be accounted for using the equity method. (e) The amalgamation of Abitibi-Price Inc. and Stone-Consolidated Corporation was accounted for as a pooling of interests. Under U.S. GAAP, the amalgamation would be accounted for by Stone-Consolidated Corporation using the purchase method and the results of Abitibi-Price Inc.'s operations would be included only from the date of amalgamation. In addition, certain amalgamation related costs were expensed or charged to retained earnings under Canadian GAAP. Under the purchase method, certain of these costs amounting to $83 million (of which $61 million was expensed and $22 million was charged to retained earnings under Canadian GAAP) would be capitalized and increase the amount of recorded goodwill. The allocation of the purchase price of Abitibi-Price Inc. would be as follows (in millions of Canadian dollars): Assets acquired Current assets $ 712 Fixed assets 1,354 Goodwill 1,003 Investments and other assets 223 3,292 Liabilities assumed Current liabilities (434) Long-term debt (633) Deferred income taxes (180) Other (82) Net assets acquired for fair value consideration of 89.2 million common shares of the Company $1,963 Goodwill is being amortized over 40 years. The following financial information is presented in accordance with U.S. GAAP, reflecting the adjustments disclosed above. CONSOLIDATED EARNINGS (in millions of Canadian dollars, except per share amounts)
Year ended December 31 1997 1996 1995 Gross sales $ 3,466 $ 2,286 $ 1,728 Freight sales 320 149 129 Net sales 3,146 2,137 1,599 Cost of sales 2,617 1,606 1,091 Depreciation and amortization 270 176 105 Selling, general and 122 52 27 administrative expenses Non-recurring expenses relating to 42 - - the amalgamation Restructuring expenses 10 - - Operating profit from continuing 85 303 376 operations Interest expense on long-term 77 72 41 debt Debt extinguishment costs and write- off of redundant fixed assets 72 - - relating to the amalgamation Unusual items - (22) 41 Other expense (income), net 17 (12) (7) Mark-to-market of foreign 117 - - exchange forward contracts Earnings (loss) from continuing operations before income taxes (198) 265 301 Recovery of (provision for) 49 (89) (109) income taxes Earnings (loss) from continuing (149) 176 192 operations Earnings from discontinued operations, net of income tax 7 - - expense of $4 Net earnings (loss) for the year $ (142) $ 176 $ 192 Per common share Earnings (loss) from continuing $ (0.95) $ 1.68 $ 2.67 operations Net earnings (loss) for the year Basic (0.91) 1.68 2.67 Fully diluted (0.91) 1.68 2.67 Weighted average number of common shares outstanding (millions) Basic 156.8 104.7 72.0 Fully diluted 159.4 105.8 84.4 Fully diluted number of common shares outstanding at year-end 197.5 105.8 105.3 (millions)
CONSOLIDATED RETAINED EARNINGS (in millions of Canadian dollars)
Year ended December 31 1997 1996 1995 Retained earnings (deficit), $ 319 $ 143 $ (49) beginning of year Net earnings (loss) for the year (142) 176 192 Dividends declared (58) - - Retained earnings, end of year $ 119 $ 319 $ 143 CHANGES IN CONSOLIDATED CASH POSITION (in millions of Canadian dollars) Year ended December 31 1997 1996 1995 Continuing operating activities Earnings (loss) from continuing $ (149) $ 176 $ 192 operations Depreciation 234 155 90 Goodwill amortization 36 21 15 Provision for (recovery of) (57) 63 96 deferred income taxes Non-recurring expenses relating to the amalgamation 54 - - Restructuring expenses 10 - - Other non-cash items 110 - (12) Changes in non-cash operating working capital components of continuing operations Decrease (increase) in current assets of continuing operations Accounts receivable 152 71 (48) Inventories 79 (93) (44) Prepaid expenses 10 (4) (2) (Decrease) increase in accounts payable and accrued liabilities of continuing operations 32 (29) 29 Cash generated by continuing 511 360 316 operating activities Financing activities of continuing operations Increase in long-term debt and - 377 392 bank indebtedness Repayment of long-term debt and bank indebtedness (127) (309) (85) Issuance of common shares on 1,963 - - acquisition Preferred shares redeemed and - (100) (400) cancelled Other 8 - - Cash generated by (used in) financing activities of 1,844 (32) (93) continuing operations Investing activities of continuing operations Additions to fixed assets (354) (327) (257) Acquisitions (1,963) - (73) Decrease (increase) in investments and other assets (7) 10 18 Cash used in investing activities of continuing operations (2,324) (317) (312) Dividends paid to common (39) - - shareholders Cash generated by (used in) continuing operations (8) 11 (89) Cash generated by discontinued 19 - - operations Increase (decrease) in cash 11 11 (89) during the year Cash and deposits, during the 27 16 105 year Cash and deposits, end of year $ 38 $ 27 $ 16
CONSOLIDATED BALANCE SHEETS (in millions of Canadian dollars)
December 31 1997 1996 Assets Current assets Cash and deposits $ 38 $ 27 Accounts receivable 484 359 Inventories 402 318 Prepaid expenses 28 13 Current assets of discontinued operations 232 - 1,184 717 Fixed assets 3,734 2,273 Investments and other assets 131 26 Deferred pension cost 160 64 Goodwill 1,632 745 Non-current assets of discontinued 91 - operations $ 6,932 $ 3,825 Liabilities Current liabilities Accounts payable and accrued liabilities Continuing operations $ 661 $ 357 Discontinued operations 92 - Dividends payable 19 - Current portion of long-term debt Recourse 90 85 Non-recourse 1 - 863 442 Long-term debt Recourse 1,338 770 Non-recourse 22 - Deferred income taxes 441 309 Other 226 28 2,890 1,549 Shareholders' equity Common shares 3,923 1,957 Retained earnings 119 319 4,042 2,276 $ 6,932 $ 3,825
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