<PAGE>
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, 1998
( ) 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 of incorporation or organization) (I.R.S. Employer Identification)
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:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -----------------------
<S> <S>
$1.75 Series E Cumulative Convertible Exchangeable Preferred Stock 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
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
Indicate by check mark whether 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 (or for such shorter period that the registrant was
required to file such reports), 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. [ ]
All outstanding shares of the Registrant's common stock are owned by
Smurfit-Stone Container Corporation.
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K
Document Into Which Document is Incorporated
- -------- -----------------------------------
<S> <C>
Sections of the Registrant's Proxy Statement, to be filed on
or before April 30, 1999, for the Annual Meeting of
Stockholders to be held on May 17, 1999. Part III
</TABLE>
<PAGE>
The registrant hereby amends the following items, financial statements, exhibits
or other portions of its Annual Report for 1998 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
<PAGE>
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended
December 31, 1998, 1997 and 1996
<PAGE>
AUDITORS' REPORT
TO THE DIRECTORS OF
ABITIBI-CONSOLIDATED INC.
We have audited the consolidated balance sheets of ABITIBI-CONSOLIDATED INC. as
at December 31, 1998 and 1997 and the consolidated statements of earnings,
retained earnings and changes in cash position for each of the three years in
the period ended December 31, 1998. These consolidated 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, 1998
and 1997 and the results of its operations and the changes in its cash position
for each of the three years in the period ended December 31, 1998 in accordance
with Canadian generally accepted accounting principles.
PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
February 2, 1999
Montreal, Quebec, Canada
<PAGE>
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED EARNINGS
YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Gross sales $ 3,657 $ 4,166 $ 4,456
Freight expenses 316 419 374
-----------------------------------
NET SALES 3,341 3,747 4,082
Cost of sales 2,707 3,127 3,072
Depreciation and amortization 351 325 301
Selling, general and administrative expenses 168 176 185
Restructuring and other unusual expenses (NOTE 4) 67 10 28
Non-recurring expenses relating to the amalgamation (NOTE 1(a)) - 77 -
-----------------------------------
OPERATING PROFIT FROM CONTINUING OPERATIONS 48 32 496
Interest expense on long-term debt 132 115 113
Debt extinguishment costs and write-off of redundant fixed assets
relating to the amalgamation (NOTE 1(a)) - 98 -
Unusual items (NOTE 5) 16 - (27)
Other expense (income), net (NOTE 6) 6 - (6)
-----------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (106) (181) 416
Recovery of (provision for) income taxes (NOTE 7) 25 49 (154)
-----------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (81) (132) 262
EARNINGS FROM DISCONTINUED OPERATIONS (NOTE 12) 50 11 6
-----------------------------------
NET EARNINGS (LOSS) FOR THE YEAR $ (31) $ (121) $ 268
-----------------------------------
-----------------------------------
PER COMMON SHARE
Earnings (loss) from continuing operations $ (0.42) $ (0.68) $ 1.35
Net earnings (loss) for the year
Basic (0.16) (0.62) 1.39
Fully diluted (0.16) (0.62) 1.37
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (millions)
Basic 192.0 194.0 193.4
Fully diluted 196.5 197.5 197.2
FULLY DILUTED NUMBER OF COMMON SHARES OUTSTANDING AT END OF YEAR
(millions) 195.1 197.5 197.3
-----------------------------------
-----------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ABITIBI-CONSOLIDATED INC.
CONSOLIDATED RETAINED EARNINGS
YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR $ 589 $ 804 $ 572
Net earnings (loss) for the year (31) (121) 268
Dividends declared (77) (67) (36)
Transaction costs of amalgamation, net of deferred income
tax recovery of $8 - (27) -
Purchase of common shares in excess of average stated capital
(Note 14(b)) (25) - -
--------------------------------------
RETAINED EARNINGS, END OF YEAR $ 456 $ 589 $ 804
--------------------------------------
--------------------------------------
</TABLE>
2
<PAGE>
ABITIBI-CONSOLIDATED INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and deposits $ 151 $ 46
Accounts receivable (NOTE 8) 554 481
Inventories (NOTE 9) 423 417
Prepaid expenses 32 28
Current assets of discontinued operations (NOTE 12) - 232
------------------------------------
1,160 1,204
FIXED ASSETS (NOTE 10) 4,407 4,104
RESTRICTED CASH (NOTE 17(a)) 230 -
OTHER ASSETS (NOTE 11) 156 43
DEFERRED PENSION COST 166 170
GOODWILL 716 733
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS (NOTE 12) - 41
------------------------------------
$ 6,835 $ 6,295
------------------------------------
------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Continuing operations $ 768 $ 663
Discontinued operations - 92
Dividends payable 19 19
Current portion of long-term debt
Recourse (NOTE 13(a)) 44 90
Non-recourse (NOTE 13(b)) 18 17
------------------------------------
849 881
LONG-TERM DEBT
Recourse (NOTE 13(a)) 2,087 1,338
Non-recourse (NOTE 13(b)) 310 294
DEFERRED INCOME TAXES 583 594
------------------------------------
3,829 3,107
------------------------------------
SHAREHOLDERS' EQUITY
COMMON SHARES (NOTE 14(b)) 2,550 2,599
RETAINED EARNINGS 456 589
------------------------------------
3,006 3,188
------------------------------------
$ 6,835 $ 6,295
------------------------------------
------------------------------------
</TABLE>
APPROVED BY THE BOARD
- ----------------------- ------------------------ -----------
James Doughan Ronald Y. Oberlander John Tory
Director Director Director
3
<PAGE>
ABITIBI-CONSOLIDATED INC.
CHANGES IN CONSOLIDATED CASH POSITION
YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
CONTINUING OPERATING ACTIVITIES
Earnings (loss) from continuing operations $ (81) $ (132) $ 262
Depreciation 328 304 279
Goodwill amortization 23 21 22
(Recovery of) provision for deferred income taxes (27) (55) 124
Restructuring expenses 40 10 28
Non-recurring expenses relating to the amalgamation - 115 -
Other non-cash items 33 5 (6)
--------------------------------------
316 268 709
Changes in non-cash operating working capital components of
continuing operations 19 123 (93)
--------------------------------------
Cash generated by continuing operating activities 335 391 616
--------------------------------------
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Increase in long-term debt and bank indebtedness 1,713 1,502 483
Repayment of long-term debt and bank indebtedness (1,109) (1,373) (393)
Purchase of common shares for cancellation (75) - -
Debt issuance costs (8) - -
Transaction costs of amalgamation - (35) -
Preferred shares redeemed and cancelled - (10) (100)
Issuance of common shares on conversion of convertible debentures - - 25
Retirement of convertible debentures - - (24)
Other - 7 (1)
--------------------------------------
Cash generated by (used in) financing activities of continuing operations 521 91 (10)
--------------------------------------
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Additions to fixed assets (250) (437) (670)
Acquisition (NOTE 3) (408) - -
Restricted cash (NOTE 17(a)) (230) - -
(Increase) decrease in other assets (32) 24 12
--------------------------------------
Cash used in investing activities of continuing operations (920) (413) (658)
--------------------------------------
DIVIDENDS PAID TO COMMON SHAREHOLDERS (77) (57) (36)
--------------------------------------
CASH GENERATED BY (USED IN) CONTINUING OPERATIONS (141) 12 (88)
Cash generated by (used in) discontinued operations 246 (42) (24)
--------------------------------------
INCREASE (DECREASE) IN CASH DURING THE YEAR 105 (30) (112)
CASH AND DEPOSITS, BEGINNING OF YEAR 46 76 188
--------------------------------------
CASH AND DEPOSITS, END OF YEAR $ 151 $ 46 $ 76
--------------------------------------
--------------------------------------
</TABLE>
4
<PAGE>
ABITIBI-CONSOLIDATED INC.
<TABLE>
<CAPTION>
CONSOLIDATED BUSINESS SEGMENTS (5)
YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
NON-
SELLING, RECURRING
GENERAL AND DEPRECIATION AND
COST OF GROSS ADMINISTRATIVE AND RESTRUCTURING
NET SALES SALES PROFIT EXPENSES AMORTIZATION EXPENSES
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Newsprint $ 1,595 $ 1,248 $ 347 $ 101 $ 203 $ 40
Value-added groundwood paper 922 687 235 61 135 -
----------------------------------------------------------------------------
Total paper (1) 2,517 1,935 582 162 338 40
Lumber and kraft pulp (3) 208 171 37 10 13 -
Newsprint purchased and resold and
commissions (1) & (2) 616 601 15 (4) (4) - -
Synergy incentive - - - - - -
Year 2000 compliance expenses - - - - - -
----------------------------------------------------------------------------
Continuing operations $ 3,341 $ 2,707 $ 634 $ 168 $ 351 $ 40
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1997
Newsprint $ 1,830 $ 1,511 $ 319 $ 119 $ 195 $ -
Value-added groundwood paper 1,139 904 235 54 118 10
Non-recurring expenses relating to
the amalgamation - - - - - 77
----------------------------------------------------------------------------
Total paper (1) 2,969 2,415 554 173 313 87
Lumber and kraft pulp(3) 243 192 51 10 12 -
Newsprint purchased and resold and
commissions (1) & (2) 535 520 15 (7) (4) - -
----------------------------------------------------------------------------
Continuing operations $ 3,747 $ 3,127 $ 620 $ 176 $ 325 $ 87
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1996
Newsprint $ 1,950 $ 1,394 $ 556 $ 117 $ 182 $ 15
Value-added groundwood paper 1,237 841 396 65 108 13
----------------------------------------------------------------------------
Total paper (1) 3,187 2,235 952 182 290 28
Lumber and kraft pulp(3) 192 153 39 6 11 -
Newsprint purchased and resold and
commissions (1) & (2) 703 684 19 (3) (4) - -
----------------------------------------------------------------------------
Continuing operations $ 4,082 $ 3,072 $ 1,010 $ 185 $ 301 $ 28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<CAPTION>
SYNERGY
INCENTIVE AND
YEAR 2000
COMPLIANCE OPERATING PAPER PAPER FIXED ASSET
EXPENSES PROFIT (LOSS) PRODUCTION SALES ADDITIONS TOTAL ASSETS
----------------------------------------------------------------------------
(000s of tonnes)
<S> <C> <C> <C> <C> <C> <C>
1998
Newsprint $ - $ 3 2,125 2,129 $ 515 $ 3,842
Value-added groundwood paper - 39 985 1,018 75 2,632
----------------------------------------------------------------------------
Total paper (1) - 42 3,110 3,147 590 6,474
Lumber and kraft pulp (3) - 14 - - 21 301
Newsprint purchased and resold and
commissions (1) & (2) - 19 729 728 - 60
Synergy incentive 20 (20) - - - -
Year 2000 compliance expenses 7 (7) - - - -
---------------------------------------------------------------------------
Continuing operations $ 27 $ 48 3,839 3,875 $ 611 $ 6,835
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1997
Newsprint $ - $ 5 2,756 2,825 $ 243 $ 3,386
Value-added groundwood paper - 53 1,306 1,340 168 2,324
Non-recurring expenses relating to
the amalgamation - (77) - - - -
---------------------------------------------------------------------------
Total paper (1) - (19) 4,062 4,165 411 5,710
Lumber and kraft pulp(3) - 29 - - 26 287
Newsprint purchased and resold and
commissions (1) & (2) - 22 726 728 - 25
---------------------------------------------------------------------------
Continuing operations $ - $ 32 4,788 4,893 $ 437 $ 6,022
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1996
Newsprint $ - $ 242 2,450 2,444
Value-added groundwood paper - 210 1,334 1,211
----------------------------------------------------
Total paper (1) - 452 3,784 3,655
Lumber and kraft pulp(3) - 22 - -
Newsprint purchased and resold and
commissions (1) & (2) - 22 688 690
----------------------------------------------------
Continuing operations $ - $ 496 4,472 4,345
----------------------------------------------------
----------------------------------------------------
</TABLE>
(1) Prior to October 15, 1998, the Paper Business consisted of the Company's 16
wholly-owned paper mills and 50% of the Company's two newsprint joint
venture mills. After October 14, 1998, the Paper Business also included the
Company's Snowflake, Arizona mill which was acquired on October 15, 1998
(see Note 3).
(2) The Newsprint purchased and resold and commissions business segment relates
to sales of the Company's joint venture partners' share of production of
the newsprint joint venture mills and the 387,000 tonnes of newsprint from
Boise Cascade's DeRidder, Louisiana mill. Also included are commissions
received on sales of 42,000 (1997 - 160,000; 1996 - 154,000) tonnes of
newsprint sold for Pine Falls Paper Company and until October 15, 1998,
230,000 (1997 - 245,000; 1996 - 260,000) tonnes of newsprint sold for Stone
Container Corporation's Snowflake, Arizona mill. The Company's contact to
sell for Pine Falls Paper Company ended in February 1998. The business
segment also included the Company's lumber and panelboard brokerage
operations which were discontinued in the third quarter of 1996. Sales for
lumber and panelboard were $373 million in 1996. Operating profit related
to lumber and panelboard was $2 million in 1996.
(3) In 1998, lumber production was 412 million (1997 - 415 million; 1996 - 322
million) board feet. In 1998, lumber sales were 422 million (1997 - 410
million; 1996 - 327 million) board feet. In 1998, pulp production was
60,000 (1997 - 120,000; 1996 - 87,050) tonnes. In 1998, market kraft pulp
sales were 56,000 (1997 - 115,000; 1996 - 100,000) tonnes.
(4) Selling, general and administrative expenses include commission income of
$10 million (1997 - $12 million; 1996 - $14 million).
(5) The operations of the business are managed using these business segments.
<PAGE>
ANTIBI-CONSOLIDATED INC.
<TABLE>
<CAPTION>
CONSOLIDATED GEOGRAPHIC INFORMATION (1)
YEAR ENDED DECEMBER 31
(IN MILLIONS OF CANADIAN DOLLARS)
NON-
SELLING, RECURRING
GENERAL AND DEPRECIATION AND
COST OF GROSS ADMINISTRATIVE AND RESTRUCTURING
NET SALES SALES PROFIT EXPENSES AMORTIZATION EXPENSES
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Canada $ 290 $ 226 $ 64 $ 17 $ 35 $ -
U.S.A. 2,281 1,866 415 107 227 20
International (2) 770 615 155 44 89 20
Synergy incentive - - - - - -
Year 2000 compliance expenses - - - - - -
----------------------------------------------------------------------------
Continuing operations $ 3,341 $ 2,707 $ 634 $ 168 $ 351 $ 40
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1997
Canada $ 325 $ 256 $ 69 $ 17 $ 29 $ 1
U.S.A. 2,577 2,164 413 113 215 8
International (2) 845 707 138 46 81 1
Non-recurring expenses relating
to the amalgamation - - - - - 77
----------------------------------------------------------------------------
Continuing operations $ 3,747 $ 3,127 $ 620 $ 176 $ 325 $ 87
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1996
Canada $ 361 $ 251 $ 110 $ 18 $ 31 $ 3
U.S.A. 3,043 2,310 733 133 216 20
International (2) 678 511 167 34 54 5
----------------------------------------------------------------------------
Continuing operations $ 4,082 $ 3,072 $ 1,010 $ 185 $ 301 $ 28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<CAPTION>
SYNERGY
INCENTIVE AND
YEAR 2000 TOTAL FIXED
COMPLIANCE OPERATING PAPER PAPER FIXED ASSET ASSETS AND
EXPENSES PROFIT (LOSS) PRODUCTION SALES ADDITIONS GOODWILL
-----------------------------------------------------------------------------
(000s of tonnes)
<S> <C> <C> <C> <C> <C> <C>
1998
Canada $ - $ 12 2,306 278 $ 22 $ 445
U.S.A. - 61 1,288 2,600 532 3,497
International (2) - 2 245 997 57 1,181
Synergy incentive 20 (20) - - - -
Year 2000 compliance expenses 7 (7) - - - -
-----------------------------------------------------------------------------
Continuing operations $ 27 $ 48 3,839 3,875 $ 611 $ 5,123
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1997
Canada $ - $ 22 3,438 302 $ 43 $ 441
U.S.A. - 77 1,102 3,339 291 3,203
International (2) - 10 248 1,252 103 1,193
Non-recurring expenses relating
to the amalgamation - (77) - - - -
-----------------------------------------------------------------------------
Continuing operations $ - $ 32 4,788 4,893 $ 437 $ 4,837
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1996
Canada $ - $ 58 3,188 249
U.S.A. - 364 1,044 2,840
International (2) - 74 240 1,256
------------------------------------------------
Continuing operations $ - $ 496 4,472 4,345
------------------------------------------------
------------------------------------------------
</TABLE>
(1) Geographic information reflects the ultimate sales destination for the
products. Sales and cost of sales by manufacturing location are as follows:
(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 1998, 70%
(1997 - 70%; 1996 - 55%) of lumber was sold in the United States and 30%
(1997 - 30%; 1996 - 45%) was sold in Canada.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------
COST OF COST OF COST OF
NET SALES SALES NET SALES SALES NET SALES SALES
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Canada $ 2,028 $ 1,579 $ 2,656 $ 2,115 $ 2,909 $ 2,074
U.S.A. 1,095 949 875 837 927 821
International 218 179 216 175 246 177
------------------------------------------------------------------------
$ 3,341 $ 2,707 $ 3,747 $ 3,127 $ 4,082 $ 3,072
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
These financial statements are expressed in Canadian dollars and are
prepared in accordance with Canadian generally accepted accounting
principles (Canadian GAAP) which, in the case of Abitibi-Consolidated
Inc., differ in certain respects from those in the United States as
explained in Note 20.
(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:
<TABLE>
<CAPTION>
ABITIBI-
PRICE STONE-CONSOLIDATED
-----------------------------------
<S> <C> <C>
Total assets $ 2,610 $ 3,924
Total liabilities 1,552 1,685
-----------------------------------
Net assets $ 1,058 $ 2,239
-----------------------------------
-----------------------------------
</TABLE>
The net sales and losses of each combining company for the period
January 1, 1997 to May 30, 1997 were as follows:
<TABLE>
<CAPTION>
ABITIBI-
PRICE STONE-CONSOLIDATED
-----------------------------------
<S> <C> <C>
Net sales $ 973 $ 781
Net loss $ 30 $ 70
-----------------------------------
-----------------------------------
</TABLE>
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.
7
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES ...CONTINUED
Charges of $175 million relating to the amalgamation were expensed
in 1997 as follows:
<TABLE>
<CAPTION>
<S> <C>
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
------------------
------------------
</TABLE>
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.
(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.
8
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES ...CONTINUED
(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) 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.
(h) 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.
(i) 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.
9
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(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:
<TABLE>
<CAPTION>
1998 1997
------------------------------------ -------------------------------------
PROPOR- PROPO-
TIONATE TIONATE
EQUITY ACCOUNTING EQUITY ACCOUNTING
ACCOUNTING FOR JOINT ACCOUNTING FOR JOINT
FOR JOINT INCREASE VENTURES AS FOR JOINT INCREASE VENTURES AS
VENTURES (DECREASE) REPORTED VENTURES (DECREASE) REPORTED
------------------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED EARNINGS
STATEMENTS FROM
CONTINUING
OPERATIONS
Net sales $ 3,341 $ - $ 3,341 $ 3,747 $ - $ 3,747
Operating profit (loss) (17) 65 48 (3) 35 32
Income from joint
ventures 39 (39) - 9 (9) -
Interest expense (105) (27) (132) (89) (26) (115)
Amalgamation costs - - - (98) - (98)
Unusual items and
other income and
expense, net 21 1 22 - - -
Earnings (loss) before
income taxes (106) - (106) (181) - (181)
Net earnings (loss)
from continuing
operations (81) - (81) (132) - (132)
------------------------------------ -------------------------------------
------------------------------------ -------------------------------------
CHANGES IN
CONSOLIDATED CASH
POSITION FROM
CONTINUING
OPERATIONS
Operating activities $ 277 $ 58 $ 335 $ 362 $ 29 $ 391
Financing activities 519 2 521 113 (22) 91
Investing activities (873) (47) (920) (406) (7) (413)
Dividends paid (77) - (77) (57) - (57)
------------------------------------ -------------------------------------
Cash generated by
(used in)
continuing
operations $ (154) $ 13 $ (141) $ 12 $ - $ 12
------------------------------------ -------------------------------------
------------------------------------ -------------------------------------
CONSOLIDATED BALANCE
SHEETS
Current assets $ 1,122 $ 38 $ 1,160 $ 1,184 $ 20 $ 1,204
Fixed assets 4,034 373 4,407 3,734 370 4,104
Investments in joint
ventures 113 (113) - 103 (103) -
Deferred pension cost 172 (6) 166 176 (6) 170
Other assets 1,093 9 1,102 807 10 817
------------------------------------ ------------------------------------
TOTAL ASSETS $ 6,534 $ 301 $ 6,835 $ 6,004 $ 291 $ 6,295
------------------------------------ -------------------------------------
------------------------------------ -------------------------------------
Current liabilities $ 823 $ 26 $ 849 $ 863 $ 18 $ 881
Long-term debt
Recourse 2,087 - 2,087 1,338 - 1,338
Non-recourse 35 275 310 21 273 294
Deferred income taxes 583 - 583 594 - 594
Shareholders' equity 3,006 - 3,006 3,188 - 3,188
------------------------------------ -------------------------------------
TOTAL LIABILITIES AND
EQUITY $ 6,534 $ 301 $ 6,835 $ 6,004 $ 291 $ 6,295
------------------------------------ -------------------------------------
------------------------------------ -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------
PROPO-
TIONATE
EQUITY ACCOUNTING
ACCOUNTING FOR JOINT
FOR JOINT INCREASE VENTURES AS
VENTURES (DECREASE) REPORTED
------------------------------------
<S> <C> <C> <C>
CONSOLIDATED EARNINGS
STATEMENTS FROM
CONTINUING
OPERATIONS
Net sales $ 4,082 $ - $ 4,082
Operating profit (loss) 433 63 496
Income from joint
ventures 38 (38) -
Interest expense (88) (25) (113)
Amalgamation costs - - -
Unusual items and
other income and
expense, net 33 - 33
Earnings (loss) before
income taxes 416 - 416
Net earnings (loss)
from continuing
operations 262 - 262
------------------------------------
CHANGES IN
CONSOLIDATED CASH
POSITION FROM
CONTINUING
OPERATIONS
Operating activities $ 542 $ 74 $ 616
Financing activities 87 (97) (10)
Investing activities (651) (7) (658)
Dividends paid (36) - (36)
------------------------------------
CASH GENERATED BY
(USED IN)
CONTINUING
OPERATIONS $ (58) $ (30) $ (88)
------------------------------------
------------------------------------
</TABLE>
10
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
3 ACQUISITION
SNOWFLAKE, ARIZONA NEWSPRINT MILL
On October 15, 1998, the Company acquired Stone Container Inc.'s (parent
company of Stone Container (Canada) Inc.) Snowflake, Arizona, newsprint
mill. The purchase method was used to account for the acquisition and
the results of operations of the Snowflake mill are included from the
date of acquisition.
The allocation of the purchase price was as follows:
<TABLE>
<S> <C>
Assets acquired
Working capital $ 47
Fixed assets 361
-------------------
Net assets acquired at fair value $ 408
-------------------
-------------------
Cash consideration paid $ 408
-------------------
-------------------
4 RESTRUCTURING AND OTHER UNUSUAL EXPENSES
1998 1997 1996
--------------------------------------
Machine closures and related costs $ 40 $ 10 $ -
Remuneration related to synergy incentive 20 - -
Year 2000 compliance expenses 7 - -
Thermo-mechanical pulping conversions and related costs - - 28
--------------------------------------
$ 67 $ 10 $ 28
--------------------------------------
--------------------------------------
5 UNUSUAL ITEMS
1998 1997 1996
--------------------------------------
Provision for judgment relating to Alabama River Newsprint
Company lawsuit (Note 18(b)) $ 29 $ - $ -
Net proceeds from insurance claims relating to assets destroyed by
flooding at the Kenogami mill and hydro plant and Port Alfred mill (19) - (27)
Unsuccessful acquisition costs 6 - -
--------------------------------------
$ 16 $ - $ (27)
--------------------------------------
--------------------------------------
</TABLE>
11
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
6 OTHER EXPENSE (INCOME), NET
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Interest income $ (19) $ (13) $ (14)
Discounts on sales of accounts receivable (Note 8) 12 6 11
Other 13 7 (3)
--------------------------------------
$ 6 $ - $ (6)
--------------------------------------
--------------------------------------
</TABLE>
7 INCOME TAXES
The Company's recovery of (provision for) income taxes and effective
income tax rates are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Earnings (loss) from continuing operations before income taxes $ (106) $ (181) $ 416
Recovery of (provision for) income taxes 25 49 (154)
Effective income tax rate 24% 27% 37%
---------------------------------------
---------------------------------------
Reconciliation to statutory tax rate:
Average combined Canadian federal/provincial income tax rate 38% 39% 39%
Manufacturing and processing allowances (7) (7) (4)
Non-deductible goodwill amortization (8) (5) 2
Canadian large corporations tax (10) (5) 2
Difference in tax rates for foreign subsidiaries 3 2 -
Other 8 3 (2)
---------------------------------------
Effective income tax rate 24% 27% 37%
---------------------------------------
---------------------------------------
</TABLE>
8 ACCOUNTS RECEIVABLE
The Company has an ongoing program to sell accounts receivable, with
minimal recourse, to major banks pursuant to sale agreements. The
Company acts as a service agent and administers the collection of the
accounts receivable sold pursuant to these agreements. At December 31,
1998, the banks owned $223 million (1997 - $287 million) of such
receivables which are not reflected in accounts receivable. The maximum
credit risk exposure to the Company is approximately $16 million (1997 -
$17 million).
12
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
9 INVENTORIES
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Finished goods $ 118 $ 134
Materials and supplies 224 200
Pulpwood 81 83
-----------------------------------
$ 423 $ 417
-----------------------------------
-----------------------------------
</TABLE>
10 FIXED ASSETS
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property, plant and equipment $ 6,914 $ 2,554 $ 4,360 $ 6,281 $ 2,226 $ 4,055
Timberlands 74 27 47 74 25 49
--------------------------------- ---------------------------------
$ 6,988 $ 2,581 $ 4,407 $ 6,355 $ 2,251 $ 4,104
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
</TABLE>
During the year, $2 million (1997 - $7 million; 1996 - $17 million) of
interest was capitalized to fixed assets.
11 OTHER ASSETS
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Deferred financing charges $ 60 $ 14
Exchange loss on long-term debt hedged by future revenue 96 27
Other - 2
------------------------------------
$ 156 $ 43
------------------------------------
------------------------------------
</TABLE>
13
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
12 DISCONTINUED OPERATIONS
In December 1997, the Company's Office Products Division was
reclassified as discontinued operations. The following amounts related
to discontinued operations have been included in these financial
statements:
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Cash $ - $ 15
Accounts receivable - 111
Inventories - 104
Prepaid expenses - 2
------------------------------------
Current assets of discontinued operations $ - $ 232
------------------------------------
------------------------------------
Fixed and other assets $ - $ 11
Goodwill - 30
------------------------------------
Non-current assets of discontinued operations $ - $ 41
------------------------------------
------------------------------------
1998 1997 1996
---------------------------------------
Sales $ 656 $ 817 $ 647
---------------------------------------
---------------------------------------
Earnings from operations, net of income tax expenses of $2 million
(1997 - $7 million; 1996 - $4 million) $ 5 $ 11 $ 6
Gain on disposition, net of income tax expense of $18 million,
including deferred income tax expense of $15 million 45 - -
---------------------------------------
Earnings from discontinued operations $ 50 $ 11 $ 6
---------------------------------------
---------------------------------------
</TABLE>
During 1998 the Company sold its Office Products Division for net
proceeds of $246 million.
14
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
13 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:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
US$250 million 6.95% notes due April 1, 2008 $ 383 $ -
US$100 million 7.40% debentures due April 1, 2018 153 -
US$250 million 7.50% debentures due April 1, 2028 383 -
US$156 million (1997 - US$178 million) 7.92% notes
maturing in 2005 239 255
US$400 million facility bearing interest at prime or LIBOR,
maturing in 2003 615 -
Multi-currency revolving facility bearing interest at prime or
LIBOR, maturing in 2002 (US$50 million; 1997 - nil) 137 107
Multi-currency term loan bearing interest at prime or LIBOR
maturing in 2004 (US$89 million; 1997 - US$474 million) 197 1,042
Other 24 24
-----------------------------------
2,131 1,428
Less: Current portion of long-term debt 44 90
-----------------------------------
$ 2,087 $ 1,338
-----------------------------------
-----------------------------------
</TABLE>
In November 1998, the Company obtained a US$400 million floating
rate facility, the proceeds from which were used to finance the
purchase of the Snowflake, Arizona newsprint mill and to finance
most of the Company's equity in the Asian Joint Venture (see Note
17(a)). On April 1, 1998, the Company issued US$600 million in
long-term unsecured debt. The proceeds were used to repay floating
rate term credit facilities. At December 31, 1998, the Company had
approximately $500 million of revolving credit available.
The debt agreements contain certain restrictive financial and
other covenants.
15
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
13 LONG-TERM DEBT ...CONTINUED
(b) NON-RECOURSE
The Company's portion of 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
$373 million (1997 - $370 million) of joint venture fixed assets
and consist of the following debt:
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Alabama
LIBOR plus 1.875% term loans, rising to LIBOR plus 2% in 1999,
maturing in 2002, with quarterly principal repayments of
US$2.5 million (US$129 million; 1997 - US$139 million) $ 198 $ 199
Alabama Recycling
10.50% senior notes, maturing in 2008 (US$12 million;
1997 - US$12 million) 18 17
Augusta
10.01% senior notes, maturing in 2007 (US$25 million;
1997 - US$25 million) 38 36
7.7% senior notes, maturing in 2007 (US$25 million;
1997 - US$25 million) 38 36
Other 36 23
------------------------------------
328 311
Less: Current portion of long-term debt 18 17
------------------------------------
$ 310 $ 294
------------------------------------
------------------------------------
</TABLE>
At December 31, 1998, Alabama had interest rate agreements with
major banks, which expire in 1999 and 2000, that provide an
effective interest rate of 9.7% (1997 - 9.6%) on $57 million of
the $198 million non-recourse debt outstanding (1997 - $71 million
of $199 million). In 1998, the effective interest rate on the
Alabama debt was 8.9% (1997 - 9.1%).
Augusta has a line of credit of US$13 million bearing prevailing
market interest rates. This line of credit was undrawn at December
31, 1998 and 1997.
Partnership distributions are subject to certain restrictions
until these loans are repaid in accordance with the loan
agreements.
In 1999, 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 $32
million at December 31, 1998.
16
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
13 LONG-TERM DEBT ...CONTINUED
(c) Scheduled long-term debt repayments are as follows:
<TABLE>
<CAPTION>
RECOURSE NON-RECOURSE
DEBT DEBT
------------------------------------
<S> <C> <C>
1999 $ 44 $ 18
2000 110 18
2001 106 28
2002 95 158
2003 663 25
Thereafter 1,113 81
------------------------------------
$ 2,131 $ 328
------------------------------------
------------------------------------
</TABLE>
(d) The estimated fair value of the long-term debt at the year-end
dates is as follows and has been determined based on management's
best estimate of the fair value to renegotiate debt with similar
terms at the respective year-end dates:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Recourse $ 2,112 $ 1,433
Non-recourse 347 324
-----------------------------------
$ 2,459 $ 1,757
-----------------------------------
-----------------------------------
</TABLE>
14 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.
17
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
14 CAPITAL STOCK ...CONTINUED
(b) Common shares
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------
MILLIONS $ MILLIONS $ MILLIONS
OF SHARES OF SHARES OF SHARES $
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common shares, beginning of year 194.2 $ 2,599 193.6 $ 2,595 191.8 $ 2,570
Shares issued for:
Conversion of convertible
subordinated debentures - - - - 1.6 24
Exercise of stock options 0.1 1 0.6 4 0.2 1
Shares purchased and cancelled for
$75 million (3.8) (50) - - - -
---------------------------------------------------------------
Common shares, end of year 190.5 $ 2,550 194.2 $ 2,599 193.6 $ 2,595
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
The $25 million excess of purchase price over the average stated
capital of shares purchased and cancelled in 1998 was charged to
retained earnings. At December 31, 1998, the Company had 4.6
million (1997 - 3.3 million; 1996 - 3.7 million) management stock
options outstanding. These options are exercisable at prices
between $14.25 and $22.69 and expire between 1999 and 2008.
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
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------
MILLIONS MILLIONS
OF OF
SHARES $ SHARES $
-------------------------------------------
<S> <C> <C>
Preferred shares, beginning of year 0.9 $ 10 5.5 $ 110
Shares redeemed and cancelled (0.9) (10) (4.6) (100)
-------------------------------------------
Preferred shares, end of year - $ - 0.9 $ 10
-------------------------------------------
-------------------------------------------
</TABLE>
18
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
15 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 that 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 pension plans is:
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
Market value of assets $ 1,977 $ 1,918
Actuarial present value of accumulated plan benefits based on current
service and compensation levels:
Vested 1,639 1,498
Non-vested 63 56
---------------------------
1,702 1,554
---------------------------
Excess of market value of assets over accumulated
benefit obligations $ 275 $ 364
---------------------------
---------------------------
</TABLE>
In 1998, pension plan assets were increased by Company and employee
contributions of $40 million (1997 - $47 million) and pension plan
investment gains of $148 million (1997 - $284 million). The plan assets
were reduced by benefit payments of $122 million (1997 - $116 million)
and $7 million (1997 - $8 million) paid for pension fund expenses.
On a going concern basis, using assumptions required by regulatory
authorities, the pension plans had an aggregate unfunded liability of
$25 million (1997 - $28 million) at the time of the latest actuarial
valuation reports.
16 FINANCIAL INSTRUMENTS
The Company is subject to foreign exchange exposures which arise from
its foreign currency sales and international operations. Of the
Company's 1998 net sales, 84% was U.S. dollar denominated; and 69% of
its non-North American sales was 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 of up to 5 years. The Company has set a
maximum of 20% of its foreign exchange forward contracts which may be
outstanding with any one bank.
19
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
16 FINANCIAL INSTRUMENTS ...CONTINUED
The Company had the following U.S. dollar foreign exchange forward
contracts outstanding at December 31 for the purchase of foreign
currencies:
<TABLE>
<CAPTION>
AVERAGE U.S. DOLLAR CONTRACT RATE AMOUNT OF CONTRACT U.S. DOLLARS
TO BUY $1 CDN. (MILLIONS)
----------------------------------- ------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
1998 - 75.36 CENTS $ - $ 844
1999 73.07 CENTS 75.68 CENTS $ 927 $ 476
2000 73.19 CENTS 76.03 CENTS $ 670 $ 338
2001 72.36 CENTS 76.19 CENTS $ 574 $ 219
2002 71.51 CENTS 74.48 CENTS $ 526 $ 142
2003 68.36 CENTS - $ 449 $ -
----------------------------------- ------------------------------------
----------------------------------- ------------------------------------
</TABLE>
At December 31, 1998, the Company would have had to pay $401 million
(1997 - $205 million) to settle its then outstanding U.S. foreign
exchange forward contracts and other financial instruments. If the
Company settled these contracts in the future, any gain or loss would be
recorded in earnings when the hedged revenue is earned. A related tax
liability or benefit would be recorded at the time of recognition of any
such gains or losses. The unrecorded tax benefit as at December 31, 1998
was $132 million (1997 - $67 million). Fair value has been determined
based on quoted rates from financial institutions.
17 COMMITMENTS
(a) ASIAN JOINT VENTURE
On February 2, 1999, the Company, Norske Skogindustrier ASA and
Hansol Paper Co. Ltd. entered into a joint venture to create the
largest newsprint company in the Asian Pacific region. The joint
venture, equally owned by each venturer, purchased Hansol Paper
Co. Ltd.'s Korean and Chinese newsprint mills as well as Norske
Skogindustrier ASA's newsprint mills in Korea and Thailand for a
price of approximately US$1.3 billion. The Company's equity share
of the purchase price was US$200 million, with the remainder to be
financed by joint venture non-recourse debt. At year-end, the
Company had drawn US$150 million on a credit facility to fund its
equity in this venture. As a result, this amount has been
presented as restricted cash on the consolidated balance sheet.
(b) LEASE COMMITMENTS
As at December 31, 1998, 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:
<TABLE>
<S> <C>
1999 $ 16
2000 16
2001 14
2002 13
2003 12
Thereafter 32
------
$ 103
------
------
</TABLE>
20
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
18 CONTINGENT LIABILITIES AND YEAR 2000
CONTINGENT LIABILITIES
(a) 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.
(b) The Company and its indirect U.S. subsidiary, Abitibi
Consolidated Sales Corporation, were named as defendants in a
lawsuit filed in the Federal Court of the State of Alabama. The
lawsuit was 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 lawsuit, the plaintiff
alleged a breach of the sales agreement with respect to the
promotion and volume of sales of the joint venture partnership
mill. In December 1998, the plaintiff was awarded US$29.4 million
in damages plus interest. The Company continues to deny these
allegations and intends to appeal this award. The Company,
however, has recorded a provision for its share of the cost
relating to the December 1998 judgement.
In addition, a lawsuit was filed in the State Court of the State
of Alabama against the Company's indirect subsidiary,
Abitibi-Price Alabama Corporation, alleging a breach of fiduciary
duty to its joint venture partner. This lawsuit 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' claim.
Management cannot at this time assess the likelihood that the
Company will incur a further loss or obtain an unfavourable result
in connection with these matters.
(c) 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.
(d) 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.
21
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
18 CONTINGENT LIABILITIES AND YEAR 2000 ...CONTINUED
YEAR 2000
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed including systems
failures or interruptions where manufacturing, processing, communication
or transportation facilities are involved. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed
by the Company and its business partners, the impact on operations and
financial reporting may range from minor errors to significant systems
failure which could affect an entity's ability to conduct normal
business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting the Company, including those related to
the efforts of customers, suppliers, or other third parties, will be
fully resolved.
19 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:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Newsprint sales to a Stone Container affiliate $ - $ - $ 32
Pulp purchases from Stone Container and affiliates 1 15 15
Newsprint brokerage commissions from a Stone Container affiliate 10 10 11
Expenses charged to Stone Container for services 11 6 4
Expenses charged by a Stone Container affiliate for services - - 2
--------------------------------------
--------------------------------------
</TABLE>
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The Company's consolidated financial statements 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 includes in earnings gains and losses on U.S. dollar
debt hedged by anticipated future revenue when the revenue is
earned. 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.
22
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
(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.
In 1998, FASB Statement 133 was issued in the United States. This
statements addresses accounting and disclosure requirements for
derivative instruments and hedging activities. The Company is
required to adopt the statement at the latest in fiscal year 2000.
Management believes that this new standard, which can only be
adopted on a prospective basis, may allow it to designate foreign
exchange forward contracts as hedges of anticipated future revenue
and effectively record gains or losses on such contracts in
earnings when the revenue is earned, consistent with Canadian
GAAP.
(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 and Stone-Consolidated was
accounted for as a pooling of interests. Under U.S. GAAP, the
amalgamation would be accounted for by Stone-Consolidated using
the purchase method and the results of Abitibi-Price's operations
would be included from the date of amalgamation. As a result, the
Company's consolidated financial statements prepared in accordance
with U.S. GAAP reflect only the operations of Stone-Consolidated
for fiscal year 1996. For fiscal year 1997, the consolidated
financial statements reflect only the operations of
Stone-Consolidated up to May 30, 1997 and the combined operations
of Abitibi-Price and Stone-Consolidated for the remainder of the
year. The amalgamation plan required the consolidation of the head
offices and sales offices of the two companies. These activities
were substantially completed by December 1997. The costs of this
consolidation and certain other costs relating to the amalgamation
were expensed or charged to retained earnings under Canadian GAAP.
Under the purchase method, certain of these costs amounting to
$83 million on a pre-tax basis (of which $61 million was expensed
and $22 million was charged to retained earnings under Canadian
GAAP) would be capitalized and would increase the amount of
recorded goodwill which is being amortized over 40 years.
In 1998, machine closure and related costs of $40 million
(pre-tax) and a gain on disposition of discontinued operations of
$45 million (after-tax) were recorded under Canadian GAAP. Under
the purchase method, the assets related to these items were
recorded at fair value in 1997. As well, included in the $40
million is $11 million of severance accruals which do not meet the
requirements for recognition under U.S. GAAP. Therefore, under
U.S. GAAP, machine closure and related costs are $49 million
(pre-tax) and the loss on disposition of discontinued operations
is $5 million (after-tax).
23
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
The allocation of the purchase price of Abitibi-Price is as follows:
<TABLE>
<S> <C>
Assets acquired
Current assets $ 712
Fixed assets 1,354
Goodwill 903
Investments and other assets, including $100 million of fair value increment
relating to equity investment 323
-------------
3,292
Liabilities assumed
Current liabilities 434
Long-term debt 633
Deferred income taxes 180
Other 82
-------------
1,329
-------------
Net assets acquired for fair value consideration of 89.2 million
common shares of the Company $ 1,963
-------------
-------------
</TABLE>
The following pro forma selected financial information shows the results
as though the acquisition of Abitibi-Price had been made as of January
1, 1996. The pro forma 1997 results include non-recurring expenses and
write-off of redundant fixed assets on a pre-tax basis of $55 million
relating to the amalgamation and an extraordinary item for debt
extinguishment costs, net of taxes, of $40 million.
<TABLE>
<CAPTION>
PRO FORMA
1997 1996
------------------------------------
(unaudited)
<S> <C> <C>
Net sales $ 3,779 $ 4,080
Operating profit from continuing operations 49 410
Earnings (loss) from continuing operations (157) 228
Net earnings (loss) (205) 234
Per common share (in dollars)
Earnings (loss) from continuing operations (0.81) 1.18
Net earnings (loss) (1.06) 1.21
------------------------------------
------------------------------------
</TABLE>
24
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
The following financial information is presented in accordance with U.S.
GAAP, reflecting the adjustments disclosed above. The Company's
operating results are reported in four segments: newsprint, value-added
groundwood paper, kraft pulp and lumber, and newsprint purchased and
resold and commissions.
Newsprint is used to print newspapers and advertising flyers and the
demand is determined by circulation and advertising. Value-added
groundwood paper is used by commercial printers, converters, advertisers
and publishers to produce advertising inserts, books, telephone
directories, business forms, magazines and catalogues.
Most of the Company's products are marketed globally with a significant
concentration in the U.S.
25
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
CONSOLIDATED EARNINGS
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Gross sales $ 3,746 $ 3,466 $ 2,286
Freight expenses 316 320 149
--------------------------------------
NET SALES 3,430 3,146 2,137
Cost of sales 2,801 2,617 1,606
Depreciation and amortization 343 270 176
Selling, general and administrative expenses 167 122 52
Restructuring and other unusual expenses 76 10 -
Non-recurring expenses relating to the amalgamation (NOTE (i)) - 42 -
--------------------------------------
OPERATING PROFIT FROM CONTINUING OPERATIONS 43 85 303
Interest expense on long-term debt 104 77 72
Write-off of redundant fixed assets relating to the amalgamation
(NOTE (i)) - 13 -
Unusual items 16 - (22)
Other expense (income), net (NOTE (ii)) 364 134 (12)
--------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (441) (139) 265
Recovery of (provision for) income taxes (NOTE (iii)) 98 30 (89)
--------------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (343) (109) 176
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME
TAX EXPENSE (NOTE (vii)) - 7 -
--------------------------------------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS (343) (102) 176
Extraordinary items
Debt extinguishment costs, net of deferred income tax recovery
of $19 million in 1997 - 40 -
--------------------------------------
NET EARNINGS (LOSS) FOR THE YEAR $ (343) $ (142) $ 176
--------------------------------------
--------------------------------------
PER BASIC COMMON SHARE (in dollars)
Earnings (loss) from continuing operations $ (1.79) $ (0.70) $ 1.68
Earnings from discontinued operations - 0.04 -
Earnings (loss) before extraordinary items (1.79) (0.66) 1.68
Extraordinary items - (0.25) (0.39)
Net earnings (loss) (1.79) (0.91) 1.68
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (millions) 192.0 156.8 104.7
--------------------------------------
--------------------------------------
</TABLE>
26
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
CONSOLIDATED RETAINED EARNINGS (DEFICIT)
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR $ 135 $ 335 $ 159
Net earnings (loss) for the year (343) (142) 176
Dividends declared (77) (58) -
--------------------------------------
RETAINED EARNINGS (DEFICIT), END OF YEAR $ (285) $ 135 $ 335
--------------------------------------
--------------------------------------
CONSOLIDATED COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------
Net earnings (loss) for the year $ (343) $ (142) $ 176
Other comprehensive income, net of tax
Foreign currency translation adjustments 26 - 28
Minimum pension liability adjustment (72) - -
--------------------------------------
Consolidated comprehensive income (loss) $ (389) $ (142) $ 204
--------------------------------------
--------------------------------------
</TABLE>
27
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and deposits $ 130 $ 38
Accounts receivable 553 484
Inventories (NOTE (iv)) 407 402
Prepaid expenses 32 28
Current assets of discontinued operations (NOTE (vii)) - 232
------------------------------------
1,122 1,184
FIXED ASSETS (NOTE (v)) 4,034 3,734
RESTRICTED CASH 230 -
INVESTMENTS AND OTHER ASSETS (NOTE (vi)) 386 265
DEFERRED PENSION COST 106 160
GOODWILL 1,473 1,532
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS (NOTE (vii)) - 91
------------------------------------
$ 7,351 $ 6,966
------------------------------------
------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities
Continuing operations $ 749 $ 662
Discontinued operations - 92
Dividends payable 19 19
Current portion of long-term debt - recourse 44 90
Unrealized loss on foreign exchange forward contracts 140 72
------------------------------------
952 935
LONG-TERM DEBT - RECOURSE 2,087 1,338
DEFERRED INCOME TAXES 322 441
UNREALIZED LOSS ON FOREIGN EXCHANGE FORWARD CONTRACTS 261 106
OTHER 193 70
------------------------------------
3,815 2,890
------------------------------------
SHAREHOLDERS' EQUITY
COMMON SHARES (NOTE (viii)) 3,849 3,923
RETAINED EARNINGS (DEFICIT) (285) 135
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (28) 18
------------------------------------
3,536 4,076
------------------------------------
$ 7,351 $ 6,966
------------------------------------
------------------------------------
</TABLE>
28
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
CHANGES IN CONSOLIDATED CASH POSITION
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) for the year $ (343) $ (142) $ 176
Depreciation 298 234 155
Goodwill amortization 45 36 21
Unrealized loss on foreign exchange forward contracts 223 117 -
Unrealized loss on translation of long-term debt 69 - -
Equity earnings from joint ventures (41) (12) -
Provision for (recovery of) deferred income taxes (86) (53) 63
Non-recurring expenses relating to the amalgamation - 54 -
Restructuring expenses 49 10 -
Other non-cash items 37 13 -
Changes in non-cash operating working capital components
Decrease (increase) in current assets
Accounts receivable (25) 152 71
Inventories 18 79 (93)
Prepaid expenses (4) 10 (4)
(Decrease) increase in accounts payable and accrued liabilities 61 32 29
--------------------------------------
Cash generated by operating activities 301 530 360
--------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt and bank indebtedness 1,713 1,246 377
Repayment of long-term debt and bank indebtedness (1,093) (1,373) (309)
Purchase of common shares for cancellation (75) - -
Debt issuance costs (8) - -
Preferred shares redeemed and cancelled - - (100)
Dividends paid to common shareholders (77) (39) -
Other - 8 -
--------------------------------------
Cash generated by (used in) financing activities 460 (158) (32)
--------------------------------------
INVESTING ACTIVITIES
Additions to fixed assets (245) (354) (327)
Proceeds on sale of discontinued operations 246 - -
Acquisitions (408) - -
Restricted cash (230) - -
Decrease (increase) in investments and other assets (32) (7) 10
--------------------------------------
Cash used in investing activities (669) (361) (317)
--------------------------------------
INCREASE IN CASH DURING THE YEAR 92 11 11
CASH AND DEPOSITS, BEGINNING OF YEAR 38 27 16
--------------------------------------
CASH AND DEPOSITS, END OF YEAR $ 130 $ 38 $ 27
--------------------------------------
--------------------------------------
</TABLE>
29
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(i) AMALGAMATION COSTS
Charges relating to the amalgamation were expensed in 1997 as follows:
<TABLE>
<S> <C>
Employee severance and related expenses $ 14
Moving expenses 3
Pension plan settlement expense 15
Other 10
-------------------
Non-recurring expenses 42
Write-off of redundant fixed assets 13
-------------------
$ 55
-------------------
-------------------
</TABLE>
(ii) OTHER EXPENSE (INCOME), NET
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Equity earnings from joint ventures $ (41) $ (12) $ -
Interest income (19) (10) -
Foreign exchange loss including loss on foreign exchange
forward contracts 399 146 -
Discounts on sales of accounts receivable 12 3 -
Other 13 7 (12)
--------------------------------------
$ 364 $ 134 $ (12)
--------------------------------------
--------------------------------------
</TABLE>
30
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(iii) INCOME TAXES
The Company's recovery of (provision for) income taxes and effective
income tax rate are:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Earnings (loss) from continuing operations before income taxes
and extraordinary items $ (441) $ (139) $ 265
Recovery of (provision for) income taxes 98 30 (89)
Effective income tax rate 22% 22% 34%
---------------------------------------
---------------------------------------
Reconciliation to statutory tax rate
Average combined Canadian federal/provincial income tax rate 38% 39% 39%
Manufacturing and processing allowances (7) (7) (4)
Non-deductible goodwill amortization (5) (10) 2
Canadian large corporations tax (3) (5) 2
Difference in tax rates for foreign subsidiaries 1 2 -
Income tax rate adjustment - - (3)
Other (2) 3 (2)
---------------------------------------
Effective income tax rate 22% 22% 34%
---------------------------------------
---------------------------------------
The earnings (loss) from continuing operations before income taxes and
extraordinary items consists of the following:
1998 1997 1996
---------------------------------------
Canada $ (480) $ (157) $ 204
U.S. 32 3 13
U.K. 7 15 48
---------------------------------------
Earnings (loss) from continuing operations before
income taxes and extraordinary items $ (441) $ (139) $ 265
---------------------------------------
---------------------------------------
</TABLE>
31
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The provision for (recovery of) income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Current
Canada $ 11 $ 13 $ 20
U.S. - - 6
U.K. - - -
--------------------------------------
11 13 26
--------------------------------------
Deferred
Canada (123) (56) 48
U.S. 12 7 (1)
U.K. 2 6 16
--------------------------------------
(109) (43) 63
--------------------------------------
Provision for (recovery of) income taxes $ (98) $ (30) $ 89
--------------------------------------
--------------------------------------
The components of the deferred taxes are:
1998 1997
------------------------------------
Deferred tax assets
Loss carryforwards $ 170 $ 168
Unrealized loss on foreign exchange forward contracts 131 57
Minimum pension liability 36 -
Other 113 48
------------------------------------
388 265
------------------------------------
Deferred tax liabilities
Depreciation and amortization 638 629
Pension 32 47
------------------------------------
Total deferred tax liability 670 676
------------------------------------
Deferred tax liability - net $ 322 $ 441
------------------------------------
------------------------------------
</TABLE>
32
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(iv) INVENTORIES
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Finished goods $ 118 $ 133
Materials and supplies 208 186
Pulpwood 81 83
-----------------------------------
$ 407 $ 402
-----------------------------------
-----------------------------------
</TABLE>
(v) FIXED ASSETS
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property, plant and equipment $ 4,967 $ 980 $ 3,987 $ 4,383 $ 698 $ 3,685
Timberlands 74 27 47 74 25 49
--------------------------------- --------------------------------
$ 5,041 $ 1,007 $ 4,034 $ 4,457 $ 723 $ 3,734
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
</TABLE>
(vi) INVESTMENTS AND OTHER ASSETS
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Investment in joint ventures $ 213 $ 203
Deferred financing charges 60 14
Other 113 48
------------------------------------
$ 386 $ 265
------------------------------------
------------------------------------
</TABLE>
33
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(vii) DISCONTINUED OPERATIONS
The net assets of the Office Products Division, previously owned by
Abitibi-Price, were recorded at estimated fair market value at May 30,
1997 as part of the business combination of Abitibi-Price and
Stone-Consolidated.
The following amounts related to discontinued operations have been
included in the U.S. GAAP financial statements:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Cash $ - $ 15
Accounts receivable - 111
Inventories - 104
Prepaid expenses - 2
Goodwill - -
----------------------------------
Current assets of discontinued operations $ - $ 232
----------------------------------
----------------------------------
Fixed and other assets $ - $ 11
Goodwill - 80
----------------------------------
Non-current assets of discontinued operations $ - $ 91
----------------------------------
----------------------------------
1998 1997
----------------------------------
Sales $ 656 $ 468
----------------------------------
----------------------------------
Earnings from operations, net of income tax expenses of $2 million
(1997 - $4 million) $ 5 $ 7
Loss on disposition, net of income tax expense of $18 million, including
deferred income tax expense of $15 million (5) -
----------------------------------
Earnings from discontinued operations $ - $ 7
----------------------------------
----------------------------------
</TABLE>
34
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(viii) CAPITAL STOCK
(a) Common shares
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------
MILLIONS $ MILLIONS $ MILLIONS
OF SHARES OF SHARES OF SHARES $
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common shares, beginning of year 194.2 $ 3,923 104.0 $ 1,957 104.0 $ 1,957
Shares issued for:
Acquisition of Abitibi-Price 89.6 1,962 - -
Exercise of stock options 0.1 1 0.6 4 - -
Shares purchased and cancelled at book
value for $75 million (3.8) (75) - - - -
---------------------------------------------------------------
Common shares, end of year 190.5 $ 3,849 194.2 $ 3,923 104.0 $ 1,957
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
35
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(b) Preferred shares
<TABLE>
<CAPTION>
1996
------------------------------------
Millions of shares $
------------------------------------
<S> <C> <C>
Preferred shares, beginning of year 4.6 $ 100
Shares redeemed and cancelled (4.6) (100)
------------------------------------
Preferred shares, end of year - $ -
------------------------------------
------------------------------------
</TABLE>
(c) Share option plan
The Company has an employee share option plan for its key
employees. Options may be granted for the purchase of up to 7.9%
of the issued and outstanding common shares. A total of 15,241,125
common shares have been reserved initially for issuance under the
option plan. Prior to the amalgamation, each of Stone-Consolidated
and Abitibi-Price maintained respective stock option plans as
well. The Stone-Consolidated options granted in 1994 vested on the
first anniversary of the date of grant. One-quarter of the
Stone-Consolidated options granted in 1995, 1996 and 1997 vest on
each of the first, second, third and fourth anniversary dates of
the date of grant. These options expire at various dates during
the next 10 years. Options granted under the Abitibi-Price plan
expire after five years and vest as follows: 30% on each of the
first and second anniversaries of the date of grant and 40% on the
third anniversary. Prior to 1995, options have been granted under
the Abitibi-Price plan that expire after 10 years and vest as
follows: 50% on the date of grant and 50% on the first anniversary
of the date of grant. No new options under the former plans will
be issued. Options granted in 1998 under the Company plan expire
after 10 years and vest as follows: one-quarter on each of the
first, second, third and fourth anniversaries of the date of
grant. At December 31, 1998, 2,470,761 options are exercisable
(1997 - 1,705,341; 1996 - 271,761). The weighted average remaining
contractual life of all options outstanding at December 31, 1998
is approximately 6.4 years. Options are exercisable at prices
ranging from $14.25 to $22.69 per common share. Changes in the
number of common shares under option are summarized below.
36
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1998 PRICE 1997 PRICE 1996 PRICE
----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 3,320,947 $ 18.25 1,188,606 $ 17.13 741,718 $ 16.47
Granted 1,367,200 18.52 463,500 21.53 528,000 17.78
Exercised (67,698) 12.76 (293,892) 21.22 (11,151) 15.15
Cancelled (22,363) 15.16 (168,590) 18.09 (69,961) 15.30
Conversion * - - 2,131,323 18.64 - -
----------------------- --------------------- -------------------------
Outstanding, end of year 4,598,086 18.43 3,320,947 $ 18.25 1,188,606 $ 17.13
------------------------ --------------------- -------------------------
------------------------ --------------------- -------------------------
</TABLE>
* Under the amalgamation in 1995, outstanding options for
371,211 common shares of Rainy River were converted into
options for 386,060 of the Company's common shares. Of the
386,060 options, 195,220 were granted in 1994 and 190,840 in
1995. One-third of these options vest on each of the first,
second and third anniversary dates of the date of grant. Under
the amalgamation in 1997, outstanding options for 2,144,537
common shares of Abitibi-Price were converted into options for
2,131,323 of the Company's common shares.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
DECEMBER 31, 1998 DECEMBER 31, 1998
---------------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE PRICE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$14.25 to $18.50 1,908,942 5.6 years $17.12 1,443,142 $16.83
$18.51 to $22.69 2,689,144 7.0 years $19.36 1,027,619 $20.52
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(d) Diluted earnings per share
Diluted earnings per share reflects the most dilutive effect
which would have resulted if the share options had been exercised
at the beginning of the year. This would be anti-dilutive
therefore no diluted earnings per share is disclosed.
37
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(ix) PENSION PLANS
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 2,062 $ 744
Acquisition of Abitibi-Price Inc. - 881
Service cost 49 27
Interest cost 131 127
Past service cost (plan amendment) 53 5
Plan participants' contributions 15 18
Changes in assumptions 44 356
Actuarial loss attributable to experience - 24
Foreign exchange loss 10 2
Benefits paid (122) (122)
------------------------------------
Benefit obligation at end of year 2,242 2,062
------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year 1,884 788
Acquisition of Abitibi-Price Inc. - 905
Return on plan assets 141 268
Foreign exchange loss 8 2
Employer contributions 23 25
Plan participants' contributions 15 18
Benefits paid (122) (122)
------------------------------------
Fair value of plan assets at end of year 1,949 1,884
------------------------------------
Funded status of the plans (293) (178)
Unrecognized prior service cost 96 52
Unrecognized actuarial loss 394 342
Unrecognized transition asset (16) (20)
------------------------------------
Net amount recognized $ 181 $ 196
------------------------------------
------------------------------------
Amount recognized in the balance sheet consists of:
Prepaid benefit cost $ 106 $ 160
Accrued benefit liability (109) -
Intangible asset 52 12
Accumulated other comprehensive income (pre-tax) 132 24
------------------------------------
Net amount recognized $ 181 $ 196
------------------------------------
------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were $1,152 million,
$1,015 million and $917 million, respectively as of December 31,
1998, and $490 million, $418 million and $372 million,
respectively as of December 31, 1997.
38
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
Service cost $ 49 $ 27 $ 15
Interest cost 130 127 54
Expected return on plan assets (161) (144) (73)
Amortization of prior service cost 9 7 2
Recognized net actuarial loss 13 5 4
Amortization of the unrecognized transition obligation (3) (4) -
-------------------------------------
Net pension expense $ 37 $ 18 $ 2
-------------------------------------
-------------------------------------
Weighted-average assumptions as of December 31:
<CAPTION>
1998 1997
------------------------------------
Discount rate 6.00% 6.25%
Expected return on plan assets 8.75% 8.75%
Rate of compensation increase 3.50% 4.00%
------------------------------------
------------------------------------
</TABLE>
39
<PAGE>
ABITIBI-CONSOLIDATED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...CONTINUED
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS)
20 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ...CONTINUED
NOTES TO FOREGOING CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(x) ADDITIONAL DISCLOSURES
CHANGES IN CONSOLIDATED CASH POSITION
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest (net of capitalization) $ 117 $ 81 $ 72
Income taxes 10 9 9
--------------------------------------
--------------------------------------
CASH AND DEPOSITS
Cash and deposits consist of cash on hand and balances with banks, and
investments in short-term deposits with an original maturity of less
than three months.
ACCOUNTS RECEIVABLE
The major components of accounts receivable are as follows:
1998 1997
------------------------------------
Trade $ 353 $$ 390
Allowance for doubtful accounts (10) (13)
Other 210 107
------------------------------------
$ 553 $ 484
------------------------------------
------------------------------------
</TABLE>
Financial instruments which potentially subject the Company to
concentrations of credit risk are trade receivables which are derived
from a diverse group of customers worldwide with a concentration in the
U.S. The Company maintains an allowance based on the expected
collectibility of the amounts.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The major components of accounts payable and accrued liabilities are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Trade $ 506 $ 434
Accrued vacation pay 81 64
Other 162 164
------------------------------------
$ 749 $ 662
------------------------------------
------------------------------------
</TABLE>
40
