3ATUS (O
'JTERNAL CORRESPONDENCE
TO: L. W. Arentsen DATE: October 30, 1984
FROM: G. M. Riley
COPY: F. A. Burke
J. K. Caudill
J. R. Clifford
B. D. Cummi ns
L. E. Oliver
Subject: Imasco Stock Purchase
The purpose of this memo is to si-arize the conclusions
---reached at our recent meeting regarding the Imas co Stock Purchase
roposal.
Summary
A new Nevada subsidiary will be established with only a minimal
capital contribution from BATUS. The newly formed subsidiary
would then borrow approximately $147 million Canadian ($112
million U.S.) directly from BATIF who would in turn borrow the
funds from BATCAP. The new subsidiary would then purchase
stock from Imasco in the same amount. Both the asset and
liability would remain on the books of the new subsidiary.
Proposed Debt
The debt would be denominated in Canadian dollars thereby
eliminating any exchange gain or loss exposure as the
investment would also be denominated In Canadian dollars. The
interest rate on the debt would mirror the BATCAP rate adjusted
to reflect the additional cost of a long term standby facility
,agreement. In this way the debt would be classified as "long
term" for financial accounting purposes.
--Met Loan Covenant Compliance
JSATUS would Identify this subsidiary as an unrestricted sub for
purposes of compliance with the Met loan agreement, and as a
result of the new Nevada subsidiary borrowing directly from
BATIF, the transaction would not impact the loan covenant
calculations. However, contributions by BATUS to cover annual
debt service net of dividends received would be Included in the
Met loan covenant calculation as a restricted investment. This
impact, however, would be minimal.
QJ4
CN
BAT Industries document for Province of British Columbia 12 April 1999

Dividend Income Considerations
By having the Imasco investment held in the proposed Nevada sub
versus BATUS, the group would avoid City of Louisville
occupational and Kentucky intangible taxes which amount to
approximately $105,000 per year. State income tax would not be
incurred on the dividend income and there would be no state tax
benefit en the interest expense.
interest Expense Consideration
Current dividend policy has resulted In the maximization of
debt and related interest expense being carried on the books of
the operating companies for purposes of com uting state income
taxes, therefore, no additional debt would Ee carried by an
operating subsidiary via the dividend declaration mechanism.
Furthermore, carrying the debt at the operating group level
(BWT) would negatively impact the Met loan covenant computation
@s ince our major operating subsidiaries are considered
e8tTicted subsidiaries for this purpose.
Impact of Purchase
The following chart details the impact of the BATUS purchase of
3.4 million shares of Imasco stock at $43.25 Canadian assuming
a debt cost of 11.5%.
U.S. Millions
Impact on BATUS
Net Income
Equity in Earnings +9.8
Debt Carrying Costs -12.8
Tax Benefit +4.8
Total
Annual Cash Flow
Dividends
+3.2
Debt Carrying Costs -12.8
Taxes +4.8
Total - =4.
As a result of the additional debt load. the SATUS debt to
equity ratio on a U.K. basis would increase by approximately
6.0 percentage points from 59.3% as of December 31, 1984.
r1i
G. M. R. CD
GKR/gs CD
BAT Industries document for Province of British Columbia 12 April 1999