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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report(Date of earliest event reported): August 11, 1997
Buckeye Cellulose Corporation
Commission File Number: 33-60032
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Delaware 62-1518973
Buckeye Cellulose Corporation
1001 Tillman Street
Memphis, TN 38112
901-320-8100
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<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
June 10, 1996, as set forth in the pages attached hereto:
Item 2
Item 7.a.
Item 7.b.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 28, 1997, Buckeye Cellulose Corporation, a Delaware corporation (the
Company), announced that the Company's wholly-owned subsidiary, Buckeye
Acquisition Inc. (BAI), completed its acquisition of 27,280,541 common shares of
Merfin International Inc. (Merfin) for Cdn. $7.50 per share, representing
approximately 97.5% of the issued and outstanding common shares of Merfin.
On July 30, 1997, BAI acquired the remaining 713,073 common shares of
Merfin for Cdn. $7.50 per share. BAI now owns 100% of Merfin's common shares.
Merfin is one of the leading manufacturers of air-laid fabrics which are
used as ultra thin absorbent cores in feminine hygiene and adult incontinence
products. Other applications of air-laid fabrics include hot towels, baby wipes,
table top products and a variety of industrial wipes. Together with its
wholly-owned subsidiaries, Merfin manufactures, converts and distributes paper
products for commercial, industrial and institutional markets in North and South
America, Europe and the Pacific Rim countries of Japan, Korea, Taiwan, Hong Kong
and Singapore.
The purchase price in US dollars, including Merfin's debt as of the date of
acquisition, is approximately $207 million. The acquisition is being funded by
borrowings from the Company's new $275 million credit facility.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
7.a. Pro forma financial information.
Pro Forma Consolidated Balance Sheet as of March 31, 1997 (unaudited)
Pro Forma Consolidated Statement of Income for the Year Ended June 30,
1996 (unaudited)
Pro Forma Consolidated Statement of Income for the Nine Months Ended
March 31, 1997 (unaudited)
Notes to Pro Forma Consolidated Financial Statements (unaudited)
7.b. Financial statements of business acquired:
Audited Consolidated Financial Statements of Merfin International Inc.
Auditors Report Dated March 10, 1997
Consolidated Statements of Income and Retained Earnings for the Year
Ended December 31, 1996
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statements of Changes in Financial Position for the Year
Ended December 31, 1996
Notes to Consolidated Financial Statements
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<PAGE>
7.a. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
give effect to (i) the acquisition of the common stock of Merfin International,
Inc. (Merfin) which was consummated on May 28, 1997; (ii) the acquisition of the
common stock of Alpha Cellulose Holdings, Inc. (Alpha) consummated on August 31,
1996; (iii) the Company Stock Repurchase in July 1996; (iv) the acquisition of
the specialty cellulose pulp business of Peter Temming, AG (Temming Business) in
May 1996; (v) the business combination with Buckeye Florida Corporation and
Buckeye Foley Corporation consummated in November 1995 (the 1995 Business
Combination), together with related financing and refinancing transactions
(collectively, the 1995 Transactions).
The financial statements of the Temming Business included in these unaudited pro
forma condensed consolidated financial statements of the Company have been
derived from financial statements prepared in accordance with accounting
principles generally accepted in the Federal Republic of Germany and stated in
Deutsche marks. The financial statements of Merfin included in these unaudited
pro forma condensed consolidated financial statements have been derived from
financial statements prepared in accordance with accounting principles generally
accepted in Canada and stated in Canadian dollars. These financial statements
have been conformed to comply with accounting principles generally accepted in
the United States and have been translated to United States dollars. Such
translations should not be construed as a representation that the Deutsche mark
or Canadian dollar amounts represent, or have been, or could be converted into,
United States dollars at those or any other rate.
The unaudited pro forma condensed consolidated financial information is not
necessarily indicative of the results that would have been obtained had the
transactions been completed as of the dates presented or for any future period.
Pro forma adjustments are based on preliminary estimates and available
information and certain assumptions that management deems appropriate. The
unaudited pro forma condensed consolidated financial statements should be read
in conjunction with Buckeye Cellulose Corporation's (the Company) consolidated
financial statements and notes thereto included in its Annual Report on Form
10-K for the year ended June 30, 1996, and quarterly reports on Form 10-Q for
the quarters ended September 30, 1996, December 31, 1996 and March 31, 1997.
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<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1997
(dollars in thousands)
<CAPTION>
Historical Pro Forma Adjustments
----------------------------------- ---------------------
Buckeye Merfin
Cellulose International Merfin Pro Forma
Corporation (a) Inc. (b) Acquisition (c) Consolidated
----------------------------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments ......... $6,088 $2,049 $ - $ 8,137
Accounts receivable - net ............... 70,116 9,350 - 79,466
Inventories ............................ 100,884 6,734 - 107,618
Deferred income taxes ................... 8,537 319 - 8,856
--------------------------- --------- ---------
Total current assets........................ 185,625 18,452 - 204,077
Property, plant & equipment, net ........... 288,833 88,744 (1,639) 375,938
Goodwill ................................... 30,966 - 111,480 142,446
Deferred debt costs and other .............. 13,706 2,303 - 16,009
--------------------------- --------- ---------
Total assets ............................... $519,130 $109,499 $109,841 $738,470
=========================== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.... $51,293 $7,766 $ - $ 59,059
Current portion of long-term debt........ 4,972 6,440 - 11,412
--------------------------- --------- ---------
Total current liabilities .................. 56,265 14,206 - 70,471
Long-term debt ............................. 299,870 41,695 154,675 499,844
3,604
Postretirement benefit obligation .......... 14,027 - - 14,027
Deferred income taxes ...................... 25,850 5,329 (288) 30,891
Other liabilities .......................... 3,613 - - 3,613
Minority interest .......................... - 119 - 119
Shareholders' equity ....................... 119,505 48,150 (48,150) 119,505
--------------------------- --------- ---------
Total liabilities and shareholders' equity.. $519,130 $109,499 $109,841 $738,470
=========================== ========= =========
</TABLE>
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<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended June 30, 1996
(dollars in thousands, except share data)
<CAPTION>
Historical Pro Forma Adjustments
------------------------------------------------ --------------------------------------
Peter
Temming
AG Alpha 1995 Alpha
Specialty Cellulose Merfin Transactions Acquisition
Buckeye Pulp Holdings, International and and Pro
Cellulose Business Inc. Inc. Temming Stock Merfin Forma
Corporation (d) (e) (f) Acquisition Repurchase Acquisition Consolidated
------------------------------------------------ -------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .................. $470,979 $50,702 $50,143 $58,632 $ - $ - $ - $630,456
Cost of goods sold ......... 335,377 45,281 39,431 41,271 (1,085)(g) - - 460,275
------------------------------------------------ -------------------------------------- ------------
Gross margin ............ 135,602 5,421 10,712 17,361 1,085 - - 170,181
Selling, research and
administrative expenses... 27,035 6,658 3,536 9,923 599 (h) 2,000 (h) - 49,751
------------------------------------------------ -------------------------------------- ------------
Operating income (loss)..... 108,567 (1,237) 7,176 7,438 486 (2,000) - 120,430
Other income (expense):
Interest income ............ 1,060 4 5 (418)(i) 651
Interest expense and
amortization of debt costs (18,061) (220) (3,195) (1,817) (1,067)(i) (7,052)(j) (9,280)(k) (40,692)
Other ..................... (451) - (941) (694) 125 (l) (317)(l) (2,787)(l) (5,065)
Minority interest .......... (16,628) - - - 16,628 (l) - - -
Secondary offering costs ... (1,945) - - - 1,945 (l) - - -
----------------------------------------------- -------------------------------------- ------------
(36,025) (216) (4,131) (2,511) 17,213 (7,369) (12,067) (45,106)
----------------------------------------------- -------------------------------------- ------------
Income (loss) before income
taxes and extraordinary loss 72,542 (1,453) 3,045 4,927 17,699 (9,369) (12,067) 75,324
Income taxes (benefit)...... 25,532 - 1,030 1,921 6,197 (m) (3,259)(m) (3,619)(n) 27,802
----------------------------------------------- -------------------------------------- ------------
Income (loss) before
extraordinary loss ....... $47,010 ($1,453) $2,015 $3,006 $11,502 ($6,110) ($8,448) $47,522
=============================================== ====================================== ============
Weighted average shares
outstanding (o) .......... 21,111,793 19,016,068
Income per share before
extraordinary loss (o).... $2.23 $2.50
</TABLE>
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<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended March 31, 1997
(dollars in thousands, except share data)
<CAPTION>
Historical Pro Forma Adjustments
-------------------------------------- -------------------------
Alpha
Cellulose Merfin
Buckeye Holdings, International
Cellulose Inc. Inc. Alpha Merfin Pro Forma
Corporation (e) (f) Acquisition Acquisition Consolidated
-------------------------------------- ------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales ................................... $409,005 $ 7,436 $44,176 $ - $ - $460,617
Cost of goods sold .......................... 304,359 9,177 30,571 - - 344,107
-------------------------------------- ------------------------- ------------
Gross margin ................................ 104,646 (1,741) 13,605 - - 116,510
Selling, research and administrative expenses 26,192 2,803 6,467 333 (h) - 35,795
-------------------------------------- ------------------------- ------------
Operating income (loss)...................... 78,454 (4,544) 7,138 (333) - 80,715
Other income (expense):
Interest expense and amortization of debt costs (19,566) (795) (902) 28 (j) (6,960)(k) (28,195)
Other ....................................... (700) (83) (85)(l) (2,090)(l) (2,958)
-------------------------------------- -------------------------- ------------
(20,266) (878) (902) (57) (9,050) (31,153)
-------------------------------------- -------------------------- ------------
Income (loss) before income taxes............ 58,188 (5,422) 6,236 (390) (9,050) 49,562
Income taxes (benefit) ...................... 19,526 (2,060) 2,344 (130)(m) (2,714)(n) 16,966
-------------------------------------- -------------------------- ------------
Net income (loss) ........................... $38,662 ($3,362) $3,892 ($260) ($6,336) $32,596
====================================== ========================== ============
Weighted average shares outstanding (o) ..... 19,166,672 19,196,961
Net income per share (o) .................... $2.02 $1.70
</TABLE>
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<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(a) Reflects the unaudited condensed consolidated balance sheet of the Company
at March 31, 1997. The acquisitions of Alpha and the Temming Business, the
Company Stock Repurchase and the 1995 Business Combination are reflected in
the consolidated balance sheet of the Company at March 31, 1997.
(b) Reflects the unaudited balances of Merfin at March 31, 1997, derived from
their interim financial statements translated into United States dollars at
the March 31, 1997 exchange rate (CD $1.3833 to $1). The conversion of the
balance sheet from Canadian generally accepted accounting principles to
those generally accepted in the United States resulted in a decrease in
other assets of $1,725 and a decrease in other liabilities of $1,494 due to
differences in research and development policies and translation of foreign
currency policies. Certain balances in the financial statements of Merfin
have been reclassified to conform with the Company's presentation.
(c) Adjustments to reflect the allocation of the purchase price for the
acquisition of common stock of Merfin. A decrease of property, plant and
equipment and an increase in long-term debt were recorded based on fair
market value appraisals. In conjunction with the acquisition of Merfin, the
Company amended the Bank Credit Facility to increase the maximum
availability to $275 million. Borrowings of $154,675 for the purchase price
and $3,604 for acquisition costs were drawn under the amended Bank Credit
Facility. The excess of the purchase price over the fair value of net
assets is to be amortized over 40 years.
(d) Reflects the unaudited statement of operations of the Temming Business for
the ten months ended April 30, 1996, derived from the historical financial
statements and translated into United States dollars using the average
exchange rates for the period then ended (DM 1.458 to $1). The conversion
of the statement of operations from German generally accepted accounting
principles to those generally accepted in the United States resulted in an
increase in depreciation expense of $1,100 for the ten months ended April
30, 1996. Operations from May 1, 1996, the date of the acquisition, are
included in the Company's historical consolidated results.
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(e) Reflects the unaudited statements of operations of Alpha for the twelve
months ended June 30, 1996 and for the two months ended August 31, 1996.
Operations from August 31, 1996, the date of the acquisition, are included
in the Company's historical consolidated results.
(f) Reflects the unaudited statements of operations for Merfin for the twelve
months ended June 30, 1996 and the nine months ended March 31, 1997,
derived from the historical financial statements and translated into United
States dollars using the average exchange rates for the periods then ended
(CD $1.3625 to $1 for the twelve months ended June 30, 1996 and $1.3631 to
$1 for the nine months ended March 31, 1997). The conversion of the
statements of operations from Canadian generally accepted accounting
principles to those generally accepted in the United States resulted in a
decrease in selling, research and administrative expenses of $127 and
$1,603 for the twelve and nine-month periods, respectively. The decrease in
selling, research and administrative expenses is a result of changes in
accounting for research and development costs and foreign currency
translation.
(g) The purchase price allocation of the 1995 Business Combination resulted in
an increase in depreciation expense of $314 based on the increase in
property, plant and equipment as of the acquisition date. The purchase
price allocation of the acquisition of the Temming Business results in a
$1,399 reduction of depreciation expense for the decrease in property,
plant and equipment as of the acquisition date.
(h) The purchase price allocation of the Temming Business includes the
additional amortization of a $1,432 non-compete agreement over a two year
period. The purchase price allocation of the Alpha Acquisition includes the
additional amortization of a $4,000 non-compete agreement over a two year
period.
(i) Reflects the 1995 Transactions and the acquisition of the Temming Business
as if they had occurred on July 1, 1995. A reduction of interest income
reflects the use of approximately $14,000 of cash and short-term
investments to consummate these transactions. Adjustments reflect the net
effects of (1) the decrease in interest expense resulting from the
refinancing of existing indebtedness in the 1995 Transactions, (2) the
increase in interest expense related to borrowings under the Bank Credit
Facility to finance the acquisition of the Temming Business and (3) the net
increase in amortization of debt issuance discount and debt issuance costs
relating to the Senior Subordinated Notes due 2005 and the Bank Credit
Facility. Borrowings under the Bank Credit Facility are at a LIBOR based
rate.
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<PAGE>
(j) Adjustments to reflect the change in interest expense for borrowings to
finance the Alpha acquisition and the Stock Repurchase. On July 2 , 1996,
the Company issued 9-1/4% Senior Subordinated Notes due 2008, in the
principal amount of $100,000. The proceeds of this offering were used to
fund the Company Stock Repurchase and, together with borrowings under the
Bank Credit Facility, to consummate the acquisition of Alpha. Borrowings
under the Bank Credit Facility bear interest at a LIBOR based rate.
(k) Adjustments to reflect the increase in interest expense for borrowings to
finance the Merfin acquisition. Borrowings under the Amended Bank Credit
Facility bear interest at a LIBOR based rate.
(l) Adjustments to reflect the reduction in goodwill amortization, secondary
offering costs and minority interest as a result of the 1995 Transactions,
and the increase in amortization of goodwill resulting from the Alpha and
Merfin acquisitions. The purchase price allocation in the 1995 Business
Combination reduced goodwill by $8,971. Goodwill is assumed to generate no
tax benefit, and is amortized over 30 years for the Alpha acquisition and
40 years for the Merfin acquisition. Secondary offering costs represent
non-recurring public offering expenses paid by the Company on behalf of
certain stockholders.
(m) Adjustment to record the income tax effects at the statutory rate of 36%,
except as to amortization of goodwill which is assumed to generate no tax
benefit.
(n) Adjustment to record the income tax effects at the Canadian statutory rate
of 39%, except as to amortization of goodwill which is assumed to generate
no tax benefit.
(o) For purposes of calculating pro forma net income per share and pro forma
income per share before extraordinary loss, weighted average shares
outstanding are calculated assuming the Company Stock Repurchase and 1995
Transactions were consummated on July 1, 1995. On July 2, 1996, the Company
repurchased 2,259,887 shares of its common stock using proceeds from Senior
Subordinated Notes due 2008. The pro forma weighted average shares assumed
the Company Stock Repurchase and 164,162 shares issued in conjunction with
the Alpha acquisition were outstanding for all periods presented.
On a pro forma basis, after giving effect to the acquisition of Merfin,
outstanding borrowings at March 31, 1997 under the amended Bank Credit Facility
were $198,675. An increase of 1/8% in the LIBOR rate when applied to pro forma
outstanding borrowings would decrease net income by approximately $160 per year.
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<PAGE>
7.b.
March 10, 1997
Auditors' Report
To the Directors of
Merfin International Inc.
We have audited the consolidated balance sheets of Merfin International Inc. as
at December 31, 1996 and 1995 and the consolidated statements of income and
retained earnings and changes in financial position for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and 1995 and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended December 31, 1996
in accordance with generally accepted accounting principles in Canada. As
required by the British Columbia Company Act, we report that, in our opinion,
these principles have been applied on a consistent basis.
Price Waterhouse
Chartered Accountants
Vancouver, B.C., Canada
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<PAGE>
MERFIN INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the year ended December 31 1996 1995 1994
------------------------------ ------------------------------------
(in thousands of Canadian
Dollars except per share amounts)
Net sales................................ $79,686 $68,909 $46,902
Cost of goods sold....................... 56,338 47,584 32,924
------------------------------------
Gross profit............................. 23,348 21,325 13,978
Expenses
Research and product development...... 1,943 1,417 887
Selling and marketing................. 2,029 1,788 1,934
Administrative and corporate.......... 7,206 5,316 3,533
Interest.............................. 1,885 1,512 -
Amortization.......................... 3,679 2,286 1,674
------------------------------------
16,742 12,319 8,028
------------------------------------
Income before discontinued project
and income taxes...................... 6,606 9,006 5,950
Discontinued project (Note 10).......... - 945 -
------------------------------------
Income before income taxes............... 6,606 8,061 5,950
Income taxes (Note 9).................... 2,393 3,422 1,629
------------------------------------
Net income for the year.................. 4,213 4,639 4,321
Retained earnings (deficit),
beginning of year..................... 7,350 2,711 (1,610)
Equity distribution on convertible loan.. 88 - -
------------------------------------
Retained earnings, end of year........... $11,475 $7,350 $2,711
Basic and fully diluted net income
per share (Note 13).................. $0.17 $0.19 $0.18
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MERFIN INTERNATIONAL INC.
(Incorporated under the Company Act of British Columbia)
CONSOLIDATED BALANCE SHEETS
December 31 1996 1995
- ------------ ----------------------------------
(in thousands of Canadian Dollars)
ASSETS
Current
Cash and cash equivalents................. $6,774 $11,883
Accounts receivable (Note 2).............. 11,401 16,152
Inventories (Note 3)...................... 10,273 11,864
Prepaid expenses and deposits............. 497 529
-----------------------------
28,945 40,428
Capital assets (Note 4)................... 116,478 80,593
Product development costs (Note 5)........ 2,429 2,600
-----------------------------
$147,852 $123,621
LIABILITIES
Current liabilities
Bank indebtedness (Note 6)................ $ - $ 3,428
Accounts payable and accrued liabilities.. 10,851 5,928
Current portion of long-term debt (Note 7) 5,584 4,265
-----------------------------
16,435 13,621
Long-term debt (Note 7)...................... 58,664 37,158
Deferred credits (Note 8).................... 605 -
Deferred income taxes (Note 9)............... 6,576 4,761
Minority interest (Note 10).................. 164 9,244
-----------------------------
82,444 64,784
SHAREHOLDERS' EQUITY
Share capital (Note 11)...................... 53,933 51,487
Retained earnings............................ 11,475 7,350
-----------------------------
65,408 58,837
-----------------------------
$147,852 $123,621
=============================
Commitments and contingencies (Note 12)
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<PAGE>
MERFIN INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
For the year ended December 31 1996 1995 1994
- ------------------------------ -----------------------------------
Cash provided by (used in) (in thousands of Canadian Dollars)
OPERATING ACTIVITIES
Net income for the year................... $4,213 $4,639 $4,321
Items not affecting cash
Amortization of capital assets.......... 3,679 2,286 1,674
Amortization of dispensers
(included in cost of goods sold)..... 422 579 296
Amortization of product development
costs................................ 171 173 173
Amortization of deferred credits........ (165) - -
Deferred income taxes.................. 1,815 3,232 1,529
-----------------------------------
10,135 10,909 7,993
Changes in non-cash working capital
Accounts receivable..................... 4,751 (8,071) (2,721)
Inventories............................. 1,591 (7,917) (929)
Prepaid expenses and deposits........... 32 (198) 157
Accounts payable and accrued liabilities 4,923 849 2,820
-----------------------------------
11,297 (15,337) (673)
-----------------------------------
21,432 (4,428) 7,320
FINANCING ACTIVITIES
Proceeds of long-term debt................ 29,361 22,661 13,866
Repayment of long-term debt............... (6,536) - -
Net proceeds on issuance of share capital. 2,446 7,915 981
Deferred credits......................... 770 - -
-----------------------------------
26,041 30,576 14,847
INVESTING ACTIVITIES
Purchase of capital assets................ (39,986) (29,761) (30,826)
Deposit on capital assets................. - - 5,061
-----------------------------------
(39,986) (29,761) (25,765)
OTHER ACTIVITIES
Minority interest......................... (9,080) 9,244 -
Equity distribution on convertible loan... (88) - -
-----------------------------------
(9,168) 9,244 -
-----------------------------------
23,113 10,059 (10,918)
Increase (decrease) in cash................ (1,681) 5,631 (3,598)
Cash, beginning of year.................... 8,455 2,824 6,422
-----------------------------------
Cash, end of year.......................... $6,774 $8,455 $2,824
Cash represented by
Cash and cash equivalents............... $6,774 $11,883 $2,824
Bank indebtedness....................... - (3,428) -
-----------------------------------
$6,774 $8,455 $2,824
===================================
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<PAGE>
MERFIN INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(in thousands of Canadian dollars except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------
DESCRIPTION OF BUSINESS
The principal business of Merfin International Inc. (the "Company") is the
development and production of air-laid fabrics for use in hygiene, medical,
table top and industrial products with the majority of sales in North
America, Europe and Asia. A subsidiary also converts commercial and
industrial wipes and bathroom tissues under the Company's trademarks for
sale primarily in North America. During the year the Company changed its
name to Merfin International Inc. from Merfin Hygienic Products Ltd.
BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in Canada. 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 disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
The consolidated financial statements include the accounts of the Company
and its subsidiaries as follows:
(Percentage ownership) 1996 1995 1994
------- ------- -------
Merfin Converted Products Ltd. ...... 100.00% 100.00% 100.00%
Merfin Systems Inc. ................. 100.00% 100.00% 100.00%
Merfin Europe a.s. .................. 55.56% 55.56% --
Merfin Europe Limited................ 100.00% 100.00% --
Merfin Trading Limited............... 100.00% -- --
INVENTORIES
Inventories of raw materials and supplies are valued at the lower of cost
and net replacement value. Costs of raw materials are determined at average
cost. Finished products are valued at the lower of cost, which includes the
cost of raw materials, direct labour and manufacturing overhead expenses,
or net realizable value.
PRODUCT DEVELOPMENT COSTS
Product development costs, including direct costs and related overhead
costs, are capitalized during the development phase and are amortized on a
straight-line basis over 20 years, the estimated life of the product.
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CAPITAL ASSETS AND AMORTIZATION
Capital assets are recorded at cost. Interest incurred during construction
of an air-laid plant and production line is capitalized to the asset.
Amortization of capital assets is provided on a basis and at rates
considered adequate to amortize the cost of the assets over their estimated
useful lives as follows:
Air-laid plant and production line............ Units of production
Machinery, equipment, furniture and fixtures.. 20% declining balance
Leasehold improvements........................ Straight-line over lease term
Dispensers.................................... 3 years straight-line
Moulds ...................................... 10 years straight-line
Construction in progress is stated at cost and includes tangible costs
together with related finance and overhead costs. Amortization is not
provided until the assets are brought into use.
During the year ended December 31, 1995, the Company changed its policy of
amortizing "Air-laid plant and production line" from 20 years straight-line
to units of production.
RESEARCH AND DEVELOPMENT COSTS
The Company's policy is to expense research costs as they are incurred. The
development costs are also expensed if the costs do not meet generally
accepted criteria for capitalization and amortization.
FOREIGN EXCHANGE
The Company follows the temporal method of foreign currency translation.
Under this method, monetary assets and liabilities are translated at the
rate of exchange in effect at the end of the year. Non-monetary assets and
liabilities are translated at historical rates. Revenue and expense items
are translated at the rate of exchange in effect on the dates they occur.
Exchange gains or losses are reflected in net income of the year, except
for unrealized foreign currency gains or losses on long-term monetary
assets and liabilities, which are deferred and amortized in income over the
remaining lives of the related items.
DEFERRED CREDITS
Deferred credits arising from the foreign currency translation of long-term
monetary liabilities are amortized over the lives of the related debt.
INCOME TAXES
Deferred income taxes are provided for all significant timing differences
between the recognition of income and expenses for financial statement and
tax purposes.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to reduce
interest rate and foreign exchange risks. The Company does not hold or
issue derivative financial instruments for trading purposes.
INTEREST RATE SWAP CONTRACTS
The differentials to be received or paid under interest rate contracts are
recognized in income over the life of the contracts as adjustments to
interest expense. Gains and losses on terminations of a contract are
deferred and amortized to income over the remaining life of the contract or
the related debt, whichever is earlier.
-15-
<PAGE>
2. ACCOUNTS RECEIVABLE
- ------------------------ 1996 1995
------------------------
Trade accounts receivable.................... $11,074 $11,282
Other accounts receivable.................... 680 4,898
Allowance for doubtful accounts.............. (353) (28)
------------------------
$11,401 $16,152
========================
3. INVENTORIES
- ---------------- 1996 1995
------------------------
Raw materials and supplies................... $ 7,606 $ 9,831
Finished products............................ 2,667 2,033
------------------------
$10,273 $11,864
========================
4. CAPITAL ASSETS
- --------------------
Accumulated
DECEMBER 31, 1996 Cost amortization Net
----------------- ---------------------------------
Air-laid plant and production line ........... $ 68,600 $ 8,068 $ 60,532
Machinery, equipment, furniture and fixtures.. 6,862 3,473 3,389
Leasehold improvements ....................... 1,179 266 913
Dispensers ................................... 2,333 1,504 829
Moulds ....................................... 471 187 284
Construction in progress ..................... 50,531 -- 50,531
---------------------------------
$129,976 $ 13,498 $116,478
=================================
In 1996, interest on long-term debt of $1,555 (1995 - $nil; 1994 - $nil)
was capitalized to construction in progress; $nil (1995 - $745; 1994 -
$196) was capitalized to the cost of the air-laid plant and production
line.
-16-
<PAGE>
Accumulated
DECEMBER 31, 1995 Cost amortization Net
----------------- --------------------------------
Air-laid plant and production line ........... $67,002 $ 5,342 $61,660
Machinery, equipment, furniture and fixtures.. 5,015 2,642 2,373
Leasehold improvements ....................... 724 181 543
Dispensers ................................... 1,965 1,092 873
Moulds ....................................... 471 140 331
Construction in progress ..................... 14,813 -- 14,813
--------------------------------
$89,990 $ 9,397 $80,593
================================
5. PRODUCT DEVELOPMENT COSTS
- ------------------------------
Accumulated
Cost amortization Net
--------------------------------
December 31, 1996.......................... $3,404 $ 975 $2,429
December 31, 1995.......................... $3,404 $ 804 $2,600
================================
6. BANK INDEBTEDNESS
- ------------------------------ 1996 1995
-------------------
Bank indebtedness bears interest at a chartered bank
prime rate plus 1/2%. It is secured by accounts
receivable, inventories and a first fixed and floating
debenture on assets of the Company........................... $ nil $3,428
The bank prime rate of interest at December 31, 1996 was 4.75% and the
weighted average interest rate in the year was 6.52%.
-17-
<PAGE>
7. LONG-TERM DEBT
- -------------------
1996 1995
------- -------
Canadian Bank Loan.......................................... $23,012 $26,300
This loan bears interest at the Bank's prime lending rate
plus 3/4% per annum on the balance unfixed, $14,400 (1995 -
$18,000) fixed through interest rate swaps at 8.0% and
$8,000 at 6.22% per annum. Principal of $274 plus interest
is payable monthly over a sixty-six month period commencing
January 31,1996. Additional principal payments of $2,000 are
due March 31, 1998, $3,000 due March 31, 1999 and $3,000 due
March 31, 2000.
Canadian Bank Loan.......................................... 2,600 --
This loan bears interest at the Bank's prime lending rate
plus 3/4% per annum. The interest rate is fixed through an
interest rate swap at 6% per annum. Principal of $43 plus
interest is payable monthly over a five year period
commencing January 2, 1997.
Canadian Bank Loan.......................................... $10,000 $10,000
This loan bears interest at the Bank's prime lending rate
plus 1% per annum. The interest rate is fixed through an
interest rate swap at 8.3% per annum. Principal of $167 plus
interest is payable monthly over a five year period
commencing January 2, 1998.
European Bank Loan.......................................... 19,580 --
The term loan in the amount of 22,000 Deutschmarks bears
interest at the Bank's prime interest rate. The interest is
fixed through an interest swap at 9.04% per annum.The loan
is repayable semi-annually in 14 equal payments commencing
on December 31, 1997 if the project completion date occurs
prior to November 16,1997, otherwise, the first payment is
due June 30, 1998.
Convertible Loan............................................ 2,731 --
This loan bears interest at 7% per annum, with interest
payable semi-annually and principal due December 31, 2005.
This loan is secured by a debenture creating a second fixed
and floating charge over the assets of Merfin International
Inc.
This loan with a face value of $4,000 has been recorded as a
financial instrument for financial statement purposes. The
principal balance represents the long-term debt component of
this loan.
Term Loan................................................... 4,450 --
This term loan in the amount of 5,000 Deutschmarks bears
interest at 10% per annum, and is repayable in twelve
quarterly installments commencing March 31, 1999. An
additional payment of 5% of the average loan balance,
between inception of the loan and September 30, 1997, plus
2% of the average balance, between October 1, 1997 and the
end of the term is payable on December 31, 2001. The loan is
subordinated to the European Bank loan.
In the event of default, the loan has conversion rights to
common shares in Merfin Europe Limited to a maximum of 49%
of the outstanding shares.
Government of Canada Loan................................... 1,875 2,250
Interest at 6% per annum with principal and interest
payments commencing January, 1996 and continuing until
December, 1998 at $31 per month with additional payments of
$563 payable on January 1, 1998 and January 1, 1999.
Province of British Columbia Loan........................... -- 2,873
------------------
64,248 41,423
Less: Current portion ...................................... 5,584 4,265
------------------
Total....................................................... $58,664 $37,158
==================
-18-
<PAGE>
The various Canadian Bank loans are secured by a debenture that creates a
first fixed and floating charge over the assets of Merfin International
Inc. The European Bank loan is secured by a debenture that creates a first
fixed and floating charge over the assets of Merfin Europe Limited.
These interest rate swap contracts were acquired to balance the Company's
fixed rate and floating rate debt portfolios. Under the interest rate
swaps, the Company agrees with the other parties to exchange, at specified
intervals, the difference between fixed rate and floating rate interest
amounts calculated by reference to an agreed notional principal amount, for
terms that match the original terms of the debt.
Interest expense includes interest on long-term debt in the amount of
$2,109 (1995 - $1,295; 1994 - $187) and interest income in the amount of
$223 (1995 - $nil, 1994 - $nil).
Interest paid out in the year amounted to $3,440 (1995 - $3,241; 1994 -
$383).
Minimum principal repayments required in the next five years.
1997.................... $ 5,584
1998.................... $ 11,545
1999.................... $ 13,653
2000.................... $ 13,090
2001.................... $ 8,652
8. DEFERRED CREDITS
- --------------------- Accumulated
Cost amortization Net
---------------------------------
December 31, 1996.................... $ 770 $ 165 $ 605
December 31, 1995.................... $ nil $ nil $ nil
-19-
<PAGE>
9. INCOME TAXES
- -----------------
The Company and its subsidiaries have accumulated operating losses for
income tax purposes of approximately $6,450 which may be used to offset
future taxable income and which will expire at various dates up to 2001.
These losses have been recognized as a reduction of deferred tax credits
related to previously recorded timing differences. During the year, income
taxes in the amount of $392 (1995 - $nil; 1994 - $nil) and the large
corporations tax of $186 (1995 - $190; 1994 - $100) were paid out in cash.
1996 1995 1994
--------------------------
Net income before income taxes.................... $6,606 $8,061 $5,950
Income taxes using combined statutory federal
and provincial rates of 45.58% (1995 - 45.58%;
1994 - 45.43%).................................... 3,014 3,674 2,698
Manufacturing and processing credit............... (426) (564) (417)
Large corporations tax............................ 186 190 100
Recovery due to loss carry forwards............... (501) (149) (700)
Other............................................. 120 271 (52)
--------------------------
Income taxes...................................... $2,393 $3,422 $1,629
==========================
Income taxes comprise:
Current taxes................................... $ 578 $ 190 $ 100
Deferred income taxes........................... 1,815 3,232 1,529
--------------------------
$2,393 $3,422 $1,629
==========================
10. MINORITY INTEREST
- ----------------------
Minority interest represents the minority shareholders' interest in the
shareholders' equity of the Company's subsidiary, Merfin Europe a.s.
On November 15, 1995, the Company decided to relocate its air-laid project
(the construction of a building and installation of an air-laid plant and
production line) from the Czech Republic to the Republic of Ireland, and
project funds were returned to minority interest shareholders.
-20-
<PAGE>
11. SHARE CAPITAL (NUMBER OF SHARES IS EXPRESSED IN THOUSANDS)
- ---------------------------------------------------------------
Authorized
1996, 1995 and 1994
100,000 common shares without par value
<TABLE>
<CAPTION>
1996 1995 1994
---------------- --------------- - ----------------
Issued Shares Amount Shares Amount Shares Amount
- ------ ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year ............. 25,123 $51,487 23,610 $43,572 23,305 $42,591
Issued for cash pursuant to employee
share ownership plan ................ 148 759 128 544 142 531
Issued in private placement ............ -- -- 1,275 7,013 -- --
Issued for cash on exercise of options.. 199 523 110 358 163 450
------- ------- ------- ------- ------- -------
25,470 52,769 25,123 51,487 23,610 43,572
Equity component on issuance of
Convertible Loan .................... -- 1,164 -- -- -- --
------- ------- ------- ------- ------- -------
Balance, end of year ................... 25,470 $53,933 25,123 $51,487 23,610 $43,572
======= ======= ======= ======= ======= =======
</TABLE>
CONVERTIBLE LOAN
This loan issued during the year with a face value of $4,000 has been
recorded as a financial instrument, $1,164 net of financing costs of $105,
has been included in shareholders' equity and classified as part of share
capital for financial statement purposes. During the year, $88 which
represents a portion of the payments on the Convertible Loan, has been
recorded as an equity distribution and is reflected as a reduction of
retained earnings (see Note 7).
-21-
<PAGE>
SHARE OPTIONS
The Company does not have a formal plan for the granting of incentive share
options to its directors, officers and employees. However, the Company has
from time to time granted share options to its directors, officers and
employees. These options are ratified at each annual general meeting of the
Company. The purpose of the granting of such options has been to assist the
Company in attracting, compensating, motivating and retaining its officers,
directors and employees and to more closely align the personal interests of
those persons to the interests of the shareholders.
Common
shares Option prices
------ -------------
Share options outstanding December 31, 1993... 1,990 $2.35 - 3.87
Granted....................................... 80 3.87 - 4.00
Exercised..................................... (163) 2.35 - 3.87
Surrendered or expired........................ (660) 2.35 - 3.87
------ ------------
Share options outstanding December 31, 1994... 1,247 $2.35 - 4.00
Granted....................................... 505 4.00 - 6.66
Exercised..................................... (110) 3.06 - 3.87
Surrendered or expired........................ - -
------ ------------
Share options outstanding December 31, 1995... 1,642 $2.35 - 6.66
Granted....................................... 416 5.20 - 5.91
Exercised..................................... (199) 2.35 - 3.87
Surrendered or expired........................ (5) 6.06
------ ------------
Share options outstanding December 31, 1996... 1,854 $2.35 - 6.66
====== ============
Share options outstanding at December 31, 1996 are due to expire between
December 13, 1998 and December 13, 2001.
-22-
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
- ----------------------------------
OPERATING LEASES
The Company is committed to operating leases, expiring at various dates up
to and including 2003.
Annual lease commitments for the next five years are as follows:
1997............ $1,975
1998............ $2,028
1999............ $1,305
2000............ $ 549
2001............ $ 506
RELATED PARTY
The Company has a Licence and Supply Agreement terminating in 1997 with
Merfin Plastics Ltd., a company in which Merfin International Inc. has a 5%
ownership interest. The agreement obligates Merfin International Inc. to
purchase dispensers having a minimum aggregate value of $600 per year.
During the year, purchases from Merfin Plastics Ltd. totalled $716 (1995 -
$840).
FOREIGN EXCHANGE RISK MANAGEMENT TRANSACTIONS
The Company has adopted a strategy of hedging foreign currencies through
the use of foreign exchange option contracts, cross-currency swaps, and
forward contracts in the currencies it conducts business in.
At December 31, 1996, the notional amounts of the Company's foreign
exchange risk management contracts, net of notional amounts of contracts
with counterparties against which the Company has a legal right of offset,
the related exposures hedged and the contract maturities are as follows:
Notional Exposure
1996 Amount Hedged Date of Maturity
---- -------- -------- --------------------------
Option contracts....... $14,277 $14,277 Jan. 2, 1997
Forward contracts...... -- --
Cross-currency swaps... 6,958 6,954 Jan. 2,1997 - Feb. 3, 1997
1995
----
Option contracts....... -- --
Forward contracts...... $18,550 $18,550 Feb. 14, 1997
Cross-currency swaps... -- --
Foreign currency amounts are translated at rates current at the balance
sheet date.
-23-
<PAGE>
Gains and losses on option contracts are recognized into income upon
completion of the contract. Forward contracts and cross-currency swaps are
valued to market.
The Company continually monitors its positions with and the credit quality
of, the financial institutions which are counterparties to its financial
instruments and does not anticipate non-performance by the counterparties.
EXPANSION OF AIR-LAID PRODUCTION CAPACITY
During 1995, the Company entered into multi-year contracts to expand its
air-laid production capacity through the construction of a building and the
purchase and installation of an air-laid plant and production line. In
November 1995, the Company decided to relocate the project to the Republic
of Ireland where the total estimated project cost, net of grants, is
$60,500. To accelerate the start up of the Irish project and support a
number of smaller capital modifications a further $3,500 has been allocated
for the project budget with an additional contingency of $1,500. In the
event of cost overruns, the Company has committed 10,000 DEM ($8,900) of
standby equity backed by a 5,000 DEM ($4,450) letter of credit from the
Company's Canadian Bank. The Company may have to repay up to 2,000 DEM
($1,780) of the grant to the Irish Government if the number of employees is
less than that required by the grant on December 31, 2001.
CREDIT RISK EXPOSURES
The Company's exposures to credit risk are as indicated by the carrying
amounts of its assets except for its exposure on interest rate swaps as
stated in Note 7.
INTEREST RATE RISK EXPOSURES
Short-term financial instruments are valued at their carrying amounts
included in the statement of financial position which are reasonable
estimates of fair value due to the relatively short period to maturity of
the instruments. This approach applies to cash, receivables and certain
other liabilities.
Rates currently available to the Company for long-term debt with similar
terms and remaining maturities are used to estimate the fair value of
existing borrowings as the present value of expected cash flows.
-24-
<PAGE>
13. NET INCOME PER SHARE (number of shares is expressed in thousands)
- ----------------------------------------------------------------------
Net income per share is calculated using the weighted average number of
common shares outstanding for the year which amounted to 25,406 (1995 -
23,838; 1994 - 23,395). Fully diluted net income per share includes the
weighted average number of common share options outstanding for the year
and the number of common shares available for conversion from the
convertible debenture which, aggregated with the weighted average number of
common shares, amounted to 27,900 (1995 - 25,480; 1994 - 24,642).
14. SEGMENTED INFORMATION
- --------------------------
The Company operates out of Canada, the Republic of Ireland and the United
States of America. The following schedule provides financial information by
geographic segments for 1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 Canada U.S.A. Europe Consolidated
- ----------------- ------- ------- ------- ------------
<S> <C> <C> <C> <C>
Net sales to customers outside the enterprise
Domestic sales............................... $13,552 $10,681 $ -- $ 24,233
Export sales to:
North America - external customers........... 23,260 5,343 -- 28,603
Europe....................................... 18,173 -- -- 18,173
Asia......................................... 8,391 286 -- 8,677
------ ------- ------- --------
Total net sales.............................. $63,376 $16,310 $ -- $ 79,686
North America - other segments............... 2,240 -- -- --
------ ------- ------- --------
Total gross sales............................ $65,616 $16,310 $ -- $ 79,686
Net income for year.......................... $ 3,854 $ 359 $ -- $ 4,213
Identifiable assets.......................... $92,353 $ 7,130 $48,369 $147,852
Capital expenditures......................... $ 6,167 $ 1,337 $32,482 $ 39,986
Amortization of capital assets, dispensers
and product development.................... $ 3,842 $ 430 $ -- $ 4,272
</TABLE>
-25-
<PAGE>
In the Canadian segment, 45.0% of the Company's sales were to two
customers, 30.2% and 14.8%, who each represented more than 10% of total
sales. In the U.S.A. segment, no single customer represented more than 10%
of total sales.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 Canada U.S.A. Europe Consolidated
----------------- ------- ------- ------- ------------
<S> <C> <C> <C> <C>
Net sales to customers outside the enterprise
Domestic sales............................... $10,259 $ 8,421 $ -- $ 18,680
Export sales to:
North America - external customers......... 20,000 5,490 -- 25,490
Europe..................................... 16,121 -- -- 16,121
Asia ...................................... 8,416 202 -- 8,618
------- ------- ------- --------
Total net sales.............................. $54,796 $14,113 $ -- $ 68,909
North America - other segments............... 3,909 -- -- --
------- ------- ------- --------
Total gross sales............................ $58,705 $14,113 -- $ 68,909
Net income for year.......................... $ 5,347 $ 237 $ (945) $ 4,639
Identifiable assets.......................... $97,805 $ 5,133 $20,683 $123,621
Capital expenditures......................... $16,111 $ 475 $13,175 $ 29,761
Amortization of capital assets,
dispensers and product development........... $ 2,459 $ 579 $ -- $ 3,038
</TABLE>
-26-
<PAGE>
In the Canadian segment, 47.4% of the Company's sales were to two
customers, 31.7% and 15.7%, who each represented more than 10% of total
sales. In the U.S.A. segment, no single customer represented more than 10%
of total sales.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 Canada U.S.A. Europe Consolidated
- ----------------- ------- ------- ------- ------------
<S> <C> <C> <C> <C>
Net sales to customers outside the enterprise
Domestic sales............................... $ 8,088 $1,631 $ -- $ 9,719
Export sales to:
North America - external customers........ 17,014 996 -- 18,010
Europe.................................... 13,525 -- -- 13,525
Asia ..................................... 5,500 148 -- 5,648
------- ------- ------- --------
Total net sales.............................. $44,127 $2,775 $ -- $46,902
North America - other segments............... 619 -- -- --
------- ------- ------- --------
Total gross sales............................ $44,746 $2,775 -- $46,902
Net income for year.......................... $ 4,565 $ (244) $ -- $ 4,321
Identifiable assets.......................... $68,271 $3,382 $ -- $71,653
Capital expenditures......................... $30,059 $ 767 $ -- $30,826
Amortization of capital assets,
dispensers and product development........... $ 2,069 $ 74 $ -- $ 2,143
</TABLE>
In the Canadian segment, 37.1% of the Company's sales were to two
customers, 25.9% and 11.2%, who each represented more than 10% of total
sales. In the U.S.A. segment, no single customer represented more than 10%
of total sales.
-27-
<PAGE>
15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES OF AMERICA
ACCOUNTING PRINCIPLES AND PRACTICES
- --------------------------------------------------------------
The consolidated financial statements have been prepared in accordance with
accounting principles and practices generally accepted in Canada ("Canadian
basis") which differ in certain respects from those principles and
practices that the Company would have followed had its consolidated
financial statements been prepared in accordance with accounting principles
and practices generally accepted in the United States of America ("U.S.A.
basis").
On a U.S.A. basis, the cumulative effect of the change in amortization
policy, based on retroactive computation, would have been included in net
income in 1995, the year of change. An accounting change of $562 (net of
income taxes of $414) would be reported as cumulative adjustments in 1995
and prior periods would not be restated. On a Canadian basis a prior period
adjustment to the 1994 consolidated financial statements was made to
accumulated amortization of $976, to deferred income taxes of $375 and to
retained earnings of $601.
On a U.S.A. basis, the costs capitalized to product development costs would
have been a charge to net income in 1991, the year incurred. On a Canadian
basis, costs for product development may be deferred to the extent that,
the expenditure is directly related to producing the new product; the
expenditure is incremental and would not have been incurred without the
product; and, the expenditure is recoverable from future operations. The
costs have been capitalized and are being amortized over the life of the
asset.
On a U.S.A. basis, tax benefits related to losses are recognized when
incurred and reduced by a valuation allowance if it is more likely than not
that some portion of all of the deferred rates will not be realized. The
valuation allowance for loss carry forwards would be reversed in 1993 as it
became more likely then not that the tax credit benefits of such amount
would be realized.
-28-
<PAGE>
On a U.S.A. basis, the deferred credits associated with the translation of
foreign currency financial statements are recognized immediately in the
income statement. On a Canadian basis, the deferred credits with the
translation of a foreign currency financial statement's long-term monetary
assets are deferred and amortized over the lives of those monetary items.
These would have been reported in the consolidated balance sheets,
consolidated statements of income and retained earnings and consolidated
statements of changes in financial position as follows:
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31, 1996 1995 1994
------------ ------------------- ------------------ -------------------
Canadian U.S.A. Canadian U.S.A. Canadian U.S.A.
Basis Basis Basis Basis Basis Basis
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Capital assets ................ $116,478 $116,478 $80,593 $80,593 $53,697 $52,721
Product development costs ..... $ 2,429 $ -- $ 2,600 $ -- $ 2,773 $ --
Deferred tax assets ........... $ -- $ 2,515 $ -- $ -- $ -- $ --
Deferred credits .............. $ 605 $ -- $ -- $ -- $ -- $ --
Deferred tax liabilities ...... $ 6,576 $ 8,465 $ 4,761 $ 3,743 $ 1,529 $ (119)
Retained earnings, end of year. $ 11,475 $ 10,277 $ 7,350 $ 5,768 $ 2,711 $ 610
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<CAPTION>
DECEMBER 31, 1996 1995 1994
------------ ------------------ ----------------- -------------------
Canadian U.S.A. Canadian U.S.A. Canadian U.S.A.
Basis Basis Basis Basis Basis Basis
-------- ------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Research and product development ............... $ 1,943 $ 1,772 $1,417 $1,244 $ 887 $ 744
Administrative and corporate ................... $ 7,208 $ 6,383 $5,316 $5,316 $ 3,533 $ 3,533
Amortization of capital assets ................. $ 3,679 $ 3,679 $2,286 $1,310 $ 1,674 $ 1,722
Income taxes ................................... $ 2,393 $ 2,782 $3,422 $4,052 $ 1,629 $ 2,383
Net income for year ............................ $ 4,213 $ 4,820 $4,639 $5,158 $ 4,321 $ 3,692
Retained earnings (deficit), beginning of year.. $ 7,350 $ 5,768 $2,711 $ 610 $(1,610) $(3,082)
Retained earnings, end of year ................. $11,475 $10,277 $7,350 $5,768 $ 2,711 $ 610
Basic and fully diluted net income per share ... $ 0.17 $ 0.19 $ 0.19 $ 0.22 $ 0.18 $ 0.16
</TABLE>
-29-
<PAGE>
On a U.S.A. basis, bank indebtedness would be classified as a financing
activity. On a Canadian basis, bank indebtedness is classified as a
component of cash.
On a U.S.A. basis, advances to minority interests would be classified as an
investing activity. On a Canadian basis, advances to minority interests is
classified as a component of accounts receivable.
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<CAPTION>
DECEMBER 31, 1996 1995 1994
------------ ------------------ ------------------ -------------------
Canadian U.S.A. Canadian U.S.A. Canadian U.S.A.
Basis Basis Basis Basis Basis Basis
-------- ------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the year ...................... $4,213 $4,820 $ 4,639 $ 5,158 $ 4,321 $ 3,692
Items not affecting cash
Amortization of capital assets.............. $ -- -- $ 2,286 $ 1,310 $ 1,674 $ 1,722
Amortization of product development costs... 171 -- 173 -- 173 --
Amortization of deferred credits............ (165) (990) -- -- -- --
Deferred income taxes....................... 1,815 2,204 3,232 3,862 1,529 2,283
CHANGES IN NON-CASH WORKING CAPITAL
Accounts receivable .......................... -- -- (8,071) (3,173) (2,721) (2,721)
-- -- (4,428) 470 7,320 7,320
FINANCING ACTIVITIES
Bank indebtedness............................. -- -- -- 3,428 -- (3,327)
-- -- 30,576 34,004 14,847 11,520
INVESTING ACTIVITIES
Advances to minority interests................ -- -- -- (4,898) -- --
-- -- (29,761) (34,659) (25,765) (25,765)
------- ------- --------- -------- --------- ---------
Cash, end of year............................. $6,774 $6,774 $ 8,455 $11,883 $ 2,824 $ 2,824
======= ======= ========= ======== ========= =========
Represented by:
Cash and cash equivalents..................... $6,774 $6,774 $ 11,883 $11,883 $ 2,824 $ 2,824
Bank indebtedness............................. -- -- (3,428) -- -- --
------- ------- --------- -------- --------- ---------
$6,774 $6,774 $ 8,455 $11,883 $ 2,824 $ 2,824
======= ======= ========= ======== ========= =========
</TABLE>
16. COMPARATIVE FIGURES
- ------------------------
Certain of the comparative figures have been restated to conform to the
current year's presentation.
-30-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BUCKEYE CELLULOSE CORPORATION
By: /s/ DAVID H. WHITCOMB
----------------------------------
David H. Whitcomb
Sr. Vice President/Finance and Administration
Date: August 11, 1997
-31-
