FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
April 20, 2000
ST. LAURENT PAPERBOARD INC.
(Translation of registrant's name into English)
630 Rene-Levesque Boulevard, West, Suite 3000,
Montreal, Quebec H3B 5C7
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F ...... Form 40-F ..X...
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b)under the Securities Exchange Act of 1934.
Yes ..... No ...X..
INFORMATION FILED WITH THIS REPORT
The following document is filed as an Exhibit to this Report:
Exhibit I -- Annual Report of St. Laurent Paperboard Inc.
<PAGE>
On April 20, 2000 St. Laurent Paperboard Inc. publicly filed their 1999 Annual
Report.
Exhibit I -- Annual Report of St. Laurent Paperboard Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 20, 2000
ST. LAURENT PAPERBOARD INC.
(Registrant)
By: /s/ Richard Garneau
-------------------------------
Name: Richard Garneau
Title: Senior Vice President and
Chief Financial Officer
St. Laurent Paperboard Inc.
<PAGE>
EXHIBIT I
ST. LAURENT PAPERBOARD INC.
TURNING STRATEGY INTO RESULTS
1999 ANNUAL REPORT
<PAGE>
Mission
St. Laurent Paperboard Inc. is a customer-driven producer of innovative,
high-quality, value-added packaging products. We are dedicated to the creation
of stakeholder value through a focused entrepreneurial management style and
performance-driven employees.
VALUES
o As a customer-driven company, we supply high-quality products supported by
strong technical expertise.
o As an entrepreneurial organization, we maintain a culture that promotes the
ingenuity and participation of employees.
o As a performance-oriented company, we deliver added value to our customers
and shareholders.
o As a responsible corporate citizen, we provide a safe working environment, we
are respectful of the environment and we manage our fibre base for
sustainable development.
Corporate Profile
St. Laurent Paperboard is a major North American producer of high-quality,
value-added paperboard products and innovative solutions. The Company has more
than 4,500 employees serving a diverse customer base in North America and
selected international markets.
The Company's four primary mills produce white top linerboard, solid bleached
foodboard, solid bleached linerboard, unbleached kraft linerboard, as well as
regular, lightweight and featherweight corrugating medium. In 2000, a new line
of coated white top linerboard will be produced, thus consolidating St. Laurent
Paperboard's dominant position in high-quality value-added white graphic grades.
Some 17 packaging facilities with superior design capabilities convert the board
produced at our primary mills into numerous innovative packaging solutions, such
as corrugated containers, litho-labelled and direct-printed retail packaging,
point-of-purchase displays, protective packaging, post-print and other specialty
packaging products, cup stock, bacon board and mill wrap. In addition, packaging
products include microfluted sheets and packaging.
The Company owns approximately 396,000 hectares of woodlands located in the St.
Maurice region north of its La Tuque mill and has annual timber cutting rights
on Crown lands accessible from its La Tuque mill of up to 300,000 cubic metres
of residual hardwood per year.
Common shares of St. Laurent Paperboard are traded on the Toronto (SPI) and New
York (SLW) stock exchanges.
TABLE OF CONTENTS
1 1999 Financial Highlights
2 Message to Shareholders and Employees
Review of Operations
8 Paperboard
16 Packaging
21 Management's Discussion and Analysis
26 Consolidated Financial Statements
42 Historical Financial Summary
43 Glossary
44 Statement of Corporate Governance
48 Board of Directors and Corporate Directory
* In this report, unless stated otherwise, all dollar amounts are expressed in
US dollars and weight measures are in short tons.
<PAGE>
1999 FINANCIAL HIGHLIGHTS
Financial Situation
(in thousands of US dollars, except per share amounts)
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
Financial Results
- ------------------------------------------------------------------------------
Net sales 915,797 791,907
- ------------------------------------------------------------------------------
Cost of sales 711,030 665,102
- ------------------------------------------------------------------------------
Operating earnings (loss) 75,093 (1,500)
- ------------------------------------------------------------------------------
Net earnings (loss) attributable to common shares 38,337 (23,263)
- ------------------------------------------------------------------------------
Cash provided by operations 144,960 35,399
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Financial Position
- ------------------------------------------------------------------------------
Total assets 1,155,543 1,050,413
- ------------------------------------------------------------------------------
Long-term debt 338,206 356,455
- ------------------------------------------------------------------------------
Shareholders' equity 615,985 576,111
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Per Common Share
- ------------------------------------------------------------------------------
Net earnings (loss) 0.78 (0.47)
- ------------------------------------------------------------------------------
Cash provided by operations 2.94 0.72
- ------------------------------------------------------------------------------
Weighted average number of outstanding common
shares (in thousands) 49,328 49,124
- ------------------------------------------------------------------------------
Growing in value-added paperboard products
TABLE FORMAT OF BAR CHARTS FOLLOW
A Five-Year Uptrend
- ------------------------------------------------------------------------------
(in millions of US 1999 1998 1997 1996 1995 1994
dollars)
- ------------------------------------------------------------------------------
Net Sales 915.8 791.9 590.4 309.3 326.1 159.1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(in millions of US 1999 1998 1997 1996 1995 1994
dollars)
- ------------------------------------------------------------------------------
Operating Earnings (Loss) 75.1 (1.5) (8.9) 5.3 81.2 19.9
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(in US dollars) 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------
Earnings per Share 0.78 (0.47) (0.98) (0.41) 3.99 0.86
- ------------------------------------------------------------------------------
<PAGE>
Primary Shipments by Product
(in thousands of short tons)
- ----------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------
Market Pulp 3 30 0 92 102 2
- ----------------------------------------------------------------------
Kraft Linerboard/Paper 57 17 0 134 274 295
- ----------------------------------------------------------------------
Corrugating Medium 74 126 158 312 400 454
- ----------------------------------------------------------------------
White Top Linerboard 92 168 245 499 633 694
- ----------------------------------------------------------------------
SBL & Foodboard 69 104 99 108 103 118
- ----------------------------------------------------------------------
Packaging Production Cut-Up Volumes
(in thousands of short tons)
- ---------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------
Volumes 80.2 68.7 106.2 320.5 374.8 450.4
- ---------------------------------------------------------------------------
<PAGE>
VISUAL:
Photo of Raymond R. Pinard and Jay J. Gurandiano
CAPTION: Raymond R. Pinard
Chairman of the Board
Jay J. Gurandiano
President and Chief Executive Officer
Message to Shareholders and Employees
Turning Strategy into Results
For St. Laurent Paperboard, 1999 was an eventful year. For one thing, it marked
the Company's fifth anniversary, characterizing a proud history of growth and
success. Since its inception in June 1994, St. Laurent Paperboard has
substantially increased its presence in North America and selected international
markets through a number of strategic acquisitions and initiatives. Today, St.
Laurent Paperboard stands as a major producer, supplier and converter of
high-quality, value-added paperboard and packaging products, with a workforce of
more than 4,500 employees and some $1.155 billion in assets.
Throughout the past five years, we have remained focused on our business
strategy: strengthening our market leadership position through vertical
integration, increased cost-competitiveness and higher value-added premium niche
products. This, we can assure you, will continue to be our strategy for the
years to come.
In the past three years, St. Laurent Paperboard's strategic initiatives to
further increase its higher-margin, value-added paperboard and packaging
production have mainly taken place in the United States. With more than 60% of
our assets in the US and 80% of our sales denominated in US dollars, we have
established a strong presence in the US market that we hope to further expand.
In 1999, the listing of our shares on the New York Stock Exchange represented an
important strategic step towards achieving our growth objectives in the United
States. It also demonstrated our commitment to the financial markets and our
customers. Ultimately, the listing will increase the visibility of St. Laurent
Paperboard, improve liquidity and provide the Company with greater access to
sources of capital.
St. Laurent Paperboard's initiatives, such as our productivity and profitability
improvements, cost reductions and synergy enhancement, are beginning to "pay
off" in concrete measurable terms. All of our strategic initiatives in 1999,
combined with improved market conditions, led to strong financial results for
St. Laurent Paperboard. Indeed, the Company saw tremendous improvement in
revenues, operating earnings and earnings per share over the past 12 months.
<PAGE>
Excellent Financial Results
COPY: For the year ended December 31, 1999, the Company reported net earnings of
$38.3 million, or $0.78 per share, on net sales of $915.8 million, compared to a
net loss of $23.3 million, or $0.47 per share, on net sales of $791.9 million
for 1998.
Net Sales & Shipments
Net sales amounted to $915.8 million in 1999, compared to $791.9 million for the
previous year, an increase of $123.9 million. This increase is mainly
attributable to selling price increases and shipment improvements for our
products, and to businesses acquired in 1999. Shipments from our primary mills
to third parties increased by 46,000 tons or 3.6% in spite of the permanent
shutdown of the West Point mill's pulp machine at the end of 1998. On the
converting side, volume increase resulting from our existing facilities was
approximately 400,000 MSF, an improvement of 8.5% over 1998. Volume increase
resulting from the facilities acquired in 1999 was 383,000 MSF. The sawmills and
lumber re-manufacturing facility, acquired in August 1999, increased net sales
by $10.5 million.
Net Price Realizations
Net price realizations in 1999 increased by 4.9% for our containerboard
products, while the increase was close to 3.3% for our corrugated products. Net
price realizations for liquid and food packaging products decreased slightly
during 1999 compared to 1998.
Capital Expenditures
In 1999, capital expenditures were $57.1 million compared to $49.2 million for
1998. The increase in capital expenditures is attributable to "top priority"
projects currently under way at St. Laurent Paperboard.
VISUAL:
Key Financial Results
(In millions of US dollars)
- ---------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------
Net sales $915.8 $791.9
- ---------------------------------------------------------------
EBITDA $142.1 $74.9
- ---------------------------------------------------------------
EBITDA margin - % 15.5% 9.5%
- ---------------------------------------------------------------
Operating earnings (loss) $75.1 ($1.5)
- ---------------------------------------------------------------
Net earnings (loss) $38.3 ($23.3)
- ---------------------------------------------------------------
Earnings per share $0.78 ($0.47)
- ---------------------------------------------------------------
EXCERPT:
"Our strategic focus has not only led to an excellent year in results, but has
also set the stage for continued profitable growth."
Jay J. Gurandiano
<PAGE>
VISUAL:
Photo of Eastern Container Corporation
CAPTION:
Eastern Container Corporation & Castle Rock Container
The acquisitions of Eastern Container Corporation and Castle Rock Container will
allow St. Laurent Paperboard to further its strategic objective of focusing on
value-added quality niche packaging solutions.
<PAGE>
BOX:
Strategic Continuity... Strategic Results
Since the inception of St. Laurent Paperboard in 1994, four strategic business
objectives have influenced our results:
1. To focus on higher value-added, higher margin niche products.
2. To be a low cost producer.
3. To offer our customers superior service, as well as quality products backed
by strong technical expertise.
4. To maximize shareholder value.
<PAGE>
EXCERPT:
"Our strategic initiatives to further increase our higher-margin, value-added
paperboard and packaging production have strengthened our presence in North
America."
Jay J. Gurandiano
Poised for growth
The strength of St. Laurent Paperboard's performance in 1999 reinforced the
Company's position as a key player with a distinctive profile in the North
American containerboard industry. We are confident that we will continue to
grow, expanding into new markets in North America and abroad.
Behind St. Laurent Paperboard's tremendous growth in 1999 is $70.4 million in
business acquisitions and other major initiatives undertaken to increase
production of higher-margin, value-added products and raise the integration
level of our operations:
Two major projects at the La Tuque mill. The first project involves the
conversion of up to 50,000 tons of existing white top linerboard production
capacity into coated white top linerboard, which will offer greater added value
through enhanced surface quality characteristics and printability. The second
project involves the modernization of the fibre receiving and handling area.
Acquisition of Eastern Container and Castle Rock Container, which will increase
the consumption of value-added white grades produced at our primary mills.
Investment in two new greenfield facilities. GrafX Packaging, Columbus, Ohio,
new sheet plant underlines our focus on increasing our integration levels with
innovative, high-end packaging operations that complement our primary product
base. This sheet plant started commercial production in December 1999. In
addition, the Company invested in a second sheet feeder, located in Gilroy,
California, where commercial production is scheduled for the third quarter of
2000.
Investment in a new graphics packaging facility in Pickering, Ontario, which
will allow the Company to upgrade its product mix towards higher value-added
packaging.
Expansion of our specialty packaging and display facility in Latta, South
Carolina, which enables us to meet customers' display and point-of-purchase
packaging needs.
Purchase of Chesapeake Corporation's building products business, which will help
St. Laurent Paperboard to deliver high-quality, lower-cost fibre to our West
Point mill, improving its competitiveness
Start-up of an e-commerce company, our newest subsidiary, which will offer
"e-tailers" fully integrated packaging services and solutions derived from our
wide range of products and services, and alliance partners.
<PAGE>
Growth at the right cost
St. Laurent Paperboard had a profitable year in 1999, fulfilling its commitment
to improve margins and increase shareholder value. Despite rising OCC (old
corrugated container) prices, St. Laurent Paperboard realized significant
savings.
VISUAL: PIE CHART
Strategic Integration
(1999 cut-up volumes/actual paperboard production)
Owned Liquid & Food Packaging Facility 4%
Chesapeake Agreement 10%
Owned Converting Facilities 33%
Arm's Length Converting 53%
Legend: 1999 Integration level: 47%
Long-term objective: 60 to 70%
TITLE:
A Proud History
CAPTION:
From 1994 to 1999, St. Laurent Paperboard has grown steadily to become a major
producer of high-quality, value-added paperboard substrates and packaging
solutions. At the same time, it has become the leading producer of white top
linerboard in North America.
1994
Employees: 1,400
Net Sales: US$159 Million
Assets: US$283 million
Primary Mills: 2 (La Tuque & Matane, Quebec)
Converting Facilities: 3 (Burlington & Markham, Ontario: Montreal, Quebec)
Freehold 396,000 hectares
1995
Acquisitions June 1995: Thunder Bay
Primary Mill (Ontario)
<PAGE>
1996
Acquisitions January 1996: Janwin Packaging (Ontario)
July 1996: Latta
Packaging Facility (South Carolina)
September 1996: St. Leonard
Packaging Facility (Quebec)
1997
Acquisitions May 1997: West Point Primary Mill (Viginia)
May 1997: Chip Mill, Sawmill & Forest Products (Virginia)
May 1997: Baltimore Packaging Facility (Maryland)
May 1997: North Tonawanda Packaging Facility (New York)
May 1997: Richmond Packaging Facility (Virginia)
May 1997: Roanoke Packaging Facility (Virginia)
Start-Up December 1997: Innovative Packaging Corp. (Wisconsin)
(New Microfluting Sheet Feeding Facility)
1998
1999
Employees: 4,500
Net Sales: US $915.8 million
Assets: US $ 1.115 billion
Primary Mills: 4
Converting Facilities: 17
Freehold: 396,000 hectares
Acquisitions January 1999 Eastern Container Corporation
& November 1999: (49% & 51%), (Massachusetts)
May 1999: Castle Rock Container, (Wisconsin)
July 1999: Forest Products Facilities, (Virginia
and Maryland)
December 1999: The Kimball Companies, (Massachusetts)
New R&D Centre February 1999: Marketing Technical Centre, (Virginia)
Start-Up Fall 1999: GrafX Packaging Corp., (Ohio)
(New Microfluting Sheet Plant)
Factors that contributed to St. Laurent Paperboard's cost reductions included
the following:
o Supply Chain Management (SCM) - In its first year of implementation, SCM has
become an important strategic initiative that is aimed at reducing costs and
optimizing efficiency in purchasing, transportation, warehousing and
logistics. In 1999, the Company started to look at various supply streams,
generating annual savings of more than $1 million. This is only the
beginning. When fully implemented, the SCM process is expected to result in
substantial savings each year, considering the extent of the Company's
purchasing needs. Our target for 2000 is $10 million.
o Cost reductions - A series of cost reduction initiatives, including basis
weight control, extended clothing life, high-yield cooking and starch
reduction, allowed St. Laurent Paperboard to post an improvement in
profitability of some $7 million.
o Synergy enhancement - Continuing efforts in the realization of synergies,
such as secondary fibre cost reduction and freight optimization, between our
facilities translated into savings of some $18 million.
<PAGE>
o Process improvements - Process improvements, such as the conversion of an
acid to an alkaline papermaking process at both the La Tuque and West Point
mills, as well as increasing the sheet formation and strength of our
containerboard products, translated into savings estimated at $3 million for
1999.
o West Point mill's restructuring project - Initiated in 1998 and scheduled to
be completed in 2001, this project translated into recurring savings
estimated at $15 million for 1999.
VISUAL:
Significant Savings
- ---------------------------------------------------------------
Project Savings (in millions of $)
- ---------------------------------------------------------------
1999 Cumulative
- ---------------------------------------------------------------
Supply Chain Management (SCM) $1.0 $1.0
- ---------------------------------------------------------------
Cost reductions $2.0 $7.0
- ---------------------------------------------------------------
Synergy enhancement $2.0 $18.0
- ---------------------------------------------------------------
Process improvements $3.0 $3.0
- ---------------------------------------------------------------
West Point mill's restructuring project $15.0 $15.0
- ---------------------------------------------------------------
<PAGE>
A re-focused sales & marketing strategy
Maintaining a dynamic environment has always been one of the most important
strategic initiatives in and around St. Laurent Paperboard.
In 1999, reorganization of our containerboard Sales and Marketing department
provided the ideal environment for better serving our customers and exploring
new sales opportunities. Over the past 12 months, we have realigned our Sales
and Marketing structure to achieve greater customer focus. New groups in this
department were created to strengthen marketing and sales capabilities for
specific product segments. Our goal is to leverage our technology and capacities
to provide our customers in North America and selected international markets
with a broader line of higher-margin, value-added products and services.
With the reorganization of St. Laurent Paperboard's Sales and Marketing
Department, we hope to ultimately increase our share of value-added sales of
high-quality paperboard substrates and packaging solutions.
Sustainable development
St. Laurent Paperboard has also taken significant steps to protect the
environment outside its doors. Since its inception in 1994, the Company has made
environmental protection a top priority and an essential element of plant
management. Our facilities are operated with constant attention to reduction or
elimination of environmental impacts.
In 1999, our four primary mills continued to improve their effluent quality. By
the end of the year, we saw reductions of 15.4% in biochemical oxygen demand
(BOD), 15.7% in total suspended solids (TSS) and 8.5% in adsorbable organic
halides (AOX).
Y2K: Ready and able
We are proud to report that a successful transition into Year 2000 was achieved,
as no significant challenges arose during the rollover period. For the most
part, St. Laurent Paperboard's comprehensive company-wide plan helped ensure
that its operational and business systems recognized and correctly dealt with
the change of date on January 1, 2000. The Company's cost to achieve Y2K
compliance was $6.4 million.
<PAGE>
The human factor
St. Laurent Paperboard is guided today, as it has been since its inception in
1994, by its original values: a commitment to product quality, customer service,
business integrity and a high regard for individual contribution.
The Company does not only strive to create shareholder value through its pursuit
of continuous improvement and profitable growth, but also links the interests of
the Company with its employees by encouraging responsible Health and Safety
programs, ongoing education, equal opportunity employment, innovation, profit
sharing and employee share purchase plans.
The Company's performance in the field of Health and Safety continued to reflect
its commitment to an accident-free environment. In 1999, we saw a consolidated
incidence rate of 2.59, a 14% improvement over 1998. This performance is in the
first quartile of the forest products industry. To further improve safety, each
unit has the responsibility to develop an annual Health and Safety program with
the active participation of all employees. In addition, detailed corporate
Health and Safety audits, which involve senior management to a great extent, are
conducted on a regular basis, according to a fixed schedule, at all Canadian and
US units.
BAR GRAPH
VISUAL:
Improving safety performance
- ---------------------------------------------------------------
1995 1996 1997 1998 1999
- ---------------------------------------------------------------
Incidence Rate 7.0 4.7 3.4 3.0 2.59
- ---------------------------------------------------------------
In 1999, one of the major actions taken by Human Resources was the harmonization
of our Canadian and US policies and welfare plan. In early spring, the Company
evaluated its welfare plan structure for both its US and Canadian workforce. Our
objective was to build upon St. Laurent Paperboard's strong and vibrant
relationship with all its employees. During the process, Human Resources
benchmarked our current level of our welfare plan with those of key competitors
and the overall containerboard industry. In April 2000, we plan to implement St.
Laurent Paperboard's new and competitive welfare program, which is designed to
meet our objective and a wide variety of employees' needs across North America.
As part of our commitment to bringing together the skills and talent of our
highly experienced and well-trained employees and managers, we fully implemented
our comprehensive succession planning program in 1999. By the end of 1999, this
program extended from senior management to first-line supervisors.
<PAGE>
The human factor (continued)
To ensure the Company and its employees enjoy a certain level of stability, St.
Laurent Paperboard has always striven for long-term labour agreements. In 1999,
we extended existing collective agreements set to expire in 2001 at our La Tuque
and Matane mills until 2004 as well as at our Markham (now Pickering) and
Burlington facilities until 2008--which were originally set to expire in 1999.
During 1999, a one-year collective agreement was ratified with newly acquired
operations: Castle Rock Container and US chip mill operations located in
Pocomoke City. In late 2000, we intend to seek a long-term labour contract once
the Company and the new wholly owned subsidiaries harmonize their administrative
policies, standardize their employee benefits programs and, above all, foster a
corporate culture incorporating the mission and values that define St. Laurent
Paperboard.
A promising future
The "global" outlook for continuing prosperity is positive. Demand for
containerboard is expected to remain steady as the North American economies
continue to perform well. Asia's economic growth continues to improve, which
should translate into higher export volume for North American producers. We
expect that price increase announcements of $50 per ton for kraft linerboard and
$60 for corrugating medium for orders taken after February 1, 2000, should be
fully implemented during the second quarter.
Over the past 12 months, our industry has stepped up its efforts to bring its
global performance up to par with the healthy and dynamic economy. Mergers,
acquisitions, divestitures and alliances have allowed a number of companies in
the containerboard industry to rationalize, restructure and realign their
operations and product lines. The containerboard industry has also taken
important steps to address the issues of high inventories and falling prices,
which have led to a dramatic improvement in domestic sales prices since last
year. White top linerboard is up 16%; unbleached kraft linerboard is up 20%; and
corrugating medium has increased by 47%.
On the packaging front, the ever-changing retail environment is fueling the
demand for attractive, multi-purpose packaging and sophisticated
point-of-purchase displays. White top linerboard and specialty packaging
solutions produced by St. Laurent Paperboard are tailor-made to meet such a
demand.
The demands of the retail market, combined with the explosive growth of the
Internet, have also given birth to a whole new and fast expanding business
activity: e-commerce and, more specifically, online shopping. According to a
recent survey conducted by Forrester Research, Inc., e-commerce is expected to
grow with consumers likely to spend, by 2004, some $185 billion to purchase
various merchandises from companies advertising and promoting their products
through the Internet. With its value-added specialty packaging products and
services, St. Laurent Paperboard is determined to capture a share of the
e-tailing packaging market through its new Internet-focused packaging solutions
company, NextPak.com.
<PAGE>
Explosive e-commerce growth
Sales (in billions of US dollars)
1998 8 billion
2004 185 billion
As a global player, St. Laurent Paperboard will, of course, carry on turning
strategy into results by increasing its integration level, improving its
competitiveness and ensuring the long-term viability of its operations. After
all, we know what it takes to grow a business. From 1994 to 1999, the Company
has gone from $160 million to almost $1 billion in net sales.
With its close attention to strategy and the continued support of our employees,
customers, suppliers and shareholders, St. Laurent Paperboard will continue to
forge a position as an industry leader in the ever-changing world of
containerboard, offering the potential of high growth opportunities year after
year.
VISUAL:
/s/ Raymond R. Pinard
- -------------------------------
Raymond R. Pinard
Chairman of the Board
/s/ Jay J. Gurandiano
- -------------------------------
Jay J. Gurandiano
President and Chief Executive Officer
<PAGE>
HEADING:
Paperboard
VISUAL: Photo
CAPTION:
A series of cost reduction initiatives have significantly increased the
competitiveness of our four primary mills.
West Point
The West Point mill has three paper machines dedicated to the production of
white top linerboard, corrugating medium and kraft linerboard. Recent
restructuring initiatives at the mill, marking the shift toward value-added
linerboard, are instrumental in reinforcing our position as the leading producer
of white top linerboard in North America.
La Tuque
The La Tuque mill has two paper machines that operate entirely on virgin fibre:
the No.3 paper machine is dedicated to the production of white top linerboard
and the No.4 paper machine produces solid bleached linerboard and solid bleached
foodboard. Due mainly to its ability to use high proportions of low-cost fibre
like sawdust and shavings in the manufacturing process, the La Tuque mill is
very cost efficient.
Matane
The Matane mill produces corrugating medium. The Matane mill is an exceptionally
flexible facility capable of operating with either semi-chemical or recycled
fibre in an environmentally sound closed-loop system, to produce either recycled
or semi-chemical corrugating medium.
Thunder Bay
The Thunder Bay mill produces lightweight and featherweight corrugating medium.
It is unique in North America for its ability to produce "super" lightweight
(featherweight) corrugating medium, with basis weights ranging from 26 to 14
lbs. Formerly an inactive newsprint facility, St. Laurent Paperboard acquired
and converted it into a compact and cost-efficient corrugating medium producer,
operating entirely with recycled fibre.
<PAGE>
The Bottom Line
Since its inception in 1994, St. Laurent Paperboard has launched key profit
improvement programs that have helped its primary mills make significant
progress towards its objective of becoming profitable at the bottom of the
cycle. Amongst others, these are:
o Primary product line upgrades
o Increased integration levels
o Cost reduction initiatives
Strategically, we continued our evolution toward higher-margin value-added
paperboard products in 1999. This included profit improvement programs such as a
$25 million investment over two years in our La Tuque mill to further increase
its cost competitiveness and upgrade its product mix. These initiatives are
expected to add as much as $2 million to St. Laurent Paperboard's profitability
in 2000 and potentially $8 million in 2001.
Operationally, we improved efficiency and productivity at our primary mills in
1999, while synergies and cost reduction programs together have reduced costs by
$25 million since their inception.
VISUAL: Photo
CAPTION:
Profit growth
Product line upgrades, cost reduction and supply chain management have resulted
in an overall increase in profits at St. Laurent Paperboard's four primary
mills.
Product Line Upgrades
Approximately 54% of our primary mills' capacity is dedicated to the production
of high-quality value-added grades. With an estimated 32% market share, this
makes St. Laurent Paperboard the leading producer of white top in North America.
In 1999, we reinforced our dominant market position through a number of
strategic initiatives at our West Point, La Tuque, Matane and Thunder Bay mills.
West Point
To accomplish West Point's strategic goal of producing higher-margin,
value-added graphic linerboard, St. Laurent Paperboard undertook a phased,
three-year $56 million capital expenditure program, starting in the fourth
quarter of 1998. The majority of the expenditures will likely be made in 2001.
EXCERPT:
A Formula for Success
"Through a focused entrepreneurial management style and performance-driven
employees, our 1999 strategic initiatives have provided our four primary mills
with the opportunity to further their profitability, reduce costs and improve
their operational efficiency."
Alain Boivin
Senior Vice President, Containerboard Operations
<PAGE>
St. Laurent Paperboard has already ceased market pulp production at its West
Point mill, eliminating the Company's exposure to the highly cyclical pulp
market.
Ultimately, the West Point initiative, once it is fully implemented in 2001
within environmental compliance, should enable St. Laurent Paperboard to
increase its white top production by 25,000 to 50,000 tons.
In 1999, the West Point mill successfully switched from an acid to an alkaline
papermaking process. This has enabled the mill to improve its white top product
appearance and quality without additional costs.
VISUAL: Table
West Point Mill (logo ISO 9001)
- ---------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------
Product mix
o White top linerboard 43% 38%
o Kraft linerboard 37% 25%
o Corrugating medium 20% 18%
o Market pulp 0% 19%
- ---------------------------------------------------------------
Production (tons) 791,054 852,560
- ---------------------------------------------------------------
Average daily production (tons) 2,205 2,160
- ---------------------------------------------------------------
Fibre
o Virgin 67% 69%
o Recycled 33% 31%
- ---------------------------------------------------------------
Rejects (% of production) 6.2% 6.5%
- ---------------------------------------------------------------
Health and safety (incidence rate) 3.0 2.37
- ---------------------------------------------------------------
<PAGE>
Product line upgrades (continued)
La Tuque
In May 1999, St. Laurent Paperboard announced that it would invest some $25
million at its La Tuque mill which will reinforce our position as the leading
producer of value-added paperboard grades.
This investment will allow for the conversion of existing white top linerboard
production capacity into lightly coated white top linerboard, offering greater
added value through enhanced quality and printability. Over the past year, the
mill installed coating preparation, calendering, coating application and drying
equipment on the La Tuque mill's white top linerboard machine. Commercial
production is scheduled to begin in the second quarter of 2000, making the La
Tuque facility one of the first mills in North America to produce coated white
top linerboard.
We expect the La Tuque mill to be producing higher-margin coated white top
linerboard, with a ramp-up capacity of up to 50,000 tons annually.
The La Tuque mill made other process improvements. In 1999, this mill
successfully switched from an acid to an alkaline papermaking process. This has
enabled the mill to cut its fibre usage and, consequently, its fibre costs by
almost $3.6 million.
The La Tuque mill completed its conversion to an Elemental Chlorine Free (ECF)
bleaching process in July 1999, well ahead of the 2001 legislated deadlines in
Quebec and the United States (EPA Cluster Rules).
VISUAL:
La Tuque Mill (logo ISO 9002]
- ---------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------
Product mix
o White top linerboard 76% 75%
o Solid bleached linerboard 8% 9%
o Solid bleached foodboard 16% 16%
- ---------------------------------------------------------------
Production (tons) 457,440 432,400
- ---------------------------------------------------------------
Average daily production (tons) 1,276 1,206
- ---------------------------------------------------------------
Fibre (Virgin) 100% 100%
- ---------------------------------------------------------------
Rejects (% of production) 8% 9%
- ---------------------------------------------------------------
Health and safety (incidence rate) 4.15 5.1
- ---------------------------------------------------------------
<PAGE>
VISUAL: (Graph)
Top in white top
White Top Capacity of Major Producers
Estimated 1999 North American Capacity: 1,916,508 tons
St. Laurent Paperboard 32%
Smurfit-Stone (SSCC) 12%
Others 20%
Simpson Tacoma 10%
Greenbay Packaging 10%
International Paper 10%
Weyco 6%
With an estimated 32% market share, St. Laurent Paperboard is the leading
producer of white top linerboard in North America.
<PAGE>
Matane
The Matane mill produces corrugating medium with a blend of recycled and virgin
fibre content. The mill's semi-recycled corrugating medium has excellent
strength, along with a reputation for good runnability on a corrugator that
places this product among the top medium sheets in North America.
In response to market demand, trials were successfully performed in 1999 on the
mill's paper machine to run lighter basis weights. Consequently the paper
machine was shut down and upgraded during the first quarter of 2000.
VISUAL: Table
Matane Mill (Logo ISO 9002]
- ---------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------
Product mix
o Corrugating medium 100% 100%
- ---------------------------------------------------------------
Production (Tons) 146,400 143,038
- ---------------------------------------------------------------
Average daily production (tons) 404 392
- ---------------------------------------------------------------
Fibre
o Virgin 50% 50%
o Recycled 50% 50%
- ---------------------------------------------------------------
Rejects (% of production) 1.0% 1.9%
- ---------------------------------------------------------------
Health and safety (incidence rate) 0.7 0
- ---------------------------------------------------------------
<PAGE>
Product line upgrades (continued)
Thunder Bay
The Thunder Bay mill specializes in the production of lightweight and
featherweight corrugating medium. It is unique in North America for its ability
to produce featherweight corrugating medium, with basis weights as low as 14
lbs. In 1999, the production of this specialty substrate increased by 8% over
1998 to 25,000 tons, which represented 22% of total production output.
VISUAL: Table
Thunder Bay Mill (Logo ISO 9002]
- ---------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------
Product mix
- ---------------------------------------------------------------
Corrugating medium 100% 100%
- ---------------------------------------------------------------
Production (tons) 138,554 125,627
- ---------------------------------------------------------------
Average daily production 382.0 346.3
- ---------------------------------------------------------------
Fibre (recylced) 100% 100%
- ---------------------------------------------------------------
Rejects (% of production) 1.3% 1.4%
- ---------------------------------------------------------------
Health and safety (incidence rate) 3.19 8.67
- ---------------------------------------------------------------
Partners in Cost Reduction
Since their inception in 1997, St. Laurent Paperboard's production optimization
programs bore fruit as costs significantly declined at each mill.
In particular, our cost reduction initiatives achieved $7 million in recurring
savings. We also realized $18 million in recurring savings due to synergies
between our mills. Our conversion to an alkaline papermaking process at the West
Point and La Tuque mills generated $3 million in savings. In addition, a major
restructuring effort implemented at the West Point mill in late 1998 resulted in
cost reductions of $15 million in 1999 (with another $6 million expected in
2000).
Despite these initiatives, overall productivity, efficiency and revenues
increased considerably.
VISUAL: Table
Savings
Initiative 1999 Cumulative
- ----------------------------------------------------------------
Cost reduction $2 million $7 million
- ----------------------------------------------------------------
Synergies $2 million $18 million
- ----------------------------------------------------------------
Alkaline conversion $3 million $3 million
- ----------------------------------------------------------------
West Point mill
restructuring $15 million $15 million
- ----------------------------------------------------------------
Total savings $22 million $43 million
- ----------------------------------------------------------------
<PAGE>
VISUAL: Photo
CAPTION:
Further cost improvements
A series of strategic initiatives that were successfully implemented in 1997 at
our primary mills continued to bear fruit in 1999.
Partners in Operational Efficiency
In 1999, St. Laurent Paperboard significantly improved operational efficiency at
the West Point, La Tuque, Matane and Thunder Bay mills. Much of this progress is
based on productivity gains.
In 1999, our primary mills particularly benefited from less downtime, increased
machine efficiency and manufacturing changes, such as the burning of Matane's
NSSC black liquor at our La Tuque mill and Thunder Bay mill's new steamline.
Matane
In terms of operational efficiency, the top performer was our corrugating medium
mill in Matane. The total production output of the Matane mill, which reached
91% paper machine efficiency was 146,400 tons in 1999, an increase of 2.3% over
1998.
La Tuque
The two paper machines at the La Tuque mill, which produce white top linerboard,
solid beached linerboard and solid beached foodboard, posted a record production
figure of 457,440 tons in 1999, an increase of 6% over 1998.
Thunder Bay
Despite an increase in featherweight production, the Thunder Bay mill, which
specializes in lightweight corrugating medium, saw overall productivity climb to
138,554 tons in 1999, an increase of 10.3% over 1998.
<PAGE>
Partners in Operational Efficiency (con't)
West Point
In 1999, production for West Point mill's three paper machines, which
manufacture white top linerboard, kraft linerboard and corrugating medium, was
791,054 tons. Compared to 1998, the production of the west Point mill was lower
in 1999 due to the permanent shutdown of the market pulp machine.
Supply Chain Management
Given the present competitive environment in the paperboard industry, Supply
Chain Management (SCM) has become an important strategic initiative at St.
Laurent Paperboard. Indeed, the three stages of SCM --procurement, continuous
improvement and innovation--have been designed to improve our competitive
position and, in turn, our financial results.
Essentially, SCM has helped St. Laurent Paperboard streamline the acquisition
process, enabling the Company to reduce costs, increase the quality of purchased
goods and services and generate additional value for its shareholders. Through
the SCM process, a consolidated supplier strategy was chosen for each "supply
stream", allowing St. Laurent Paperboard to benefit from improved technical
support, continuous improvement and reduced prices.
VISUAL: photo
CAPTION:
The power of teamwork
The close collaboration of St. Laurent Paperboard's employees ensured that
Supply Chain Management (SCM), an important strategic initiative, improved the
Company's competitive position and, in turn, its financial results.
SCM began to take shape at St. Laurent Paperboard in late 1998 when the Company
formed a dedicated SCM Team. By April 1999, six cross-functional "supply stream"
(SST) teams were established to study those areas promising substantial
potential for savings.
During the course of 1999, its first year of implementation, the SCM process
focused on a number of supply streams with a substantial potential for savings,
generating annual savings of more than $1 million. This figure represents the
first step in a longer-term process. When fully implemented, we expect the SCM
process to lead to significant savings each year, given the magnitude of the
Company's purchasing needs. In 2000, we have already set a target of $10 million
in savings.
Synergies
In addition to the monetary gains, one of the major benefits of the SCM process
was increased cross-functional and inter-company communications, which led to
additional synergies. Indeed, the SCM process offered many St. Laurent
Paperboard employees the opportunity to learn new skills through their
participation in cross-company, cross-functional teams.
<PAGE>
Customer-Focused Marketing
In business, growth and reorganization often go hand in hand. At St. Laurent
Paperboard, this was certainly the case in 1999. To support new products and
aggressive sales goals, the Sales and Marketing Group, which is responsible for
the selling of all containerboard and foodboard products manufactured at the
West Point, La Tuque, Matane and Thunder Bay mills, reorganized its functions
into three areas of responsibility:
1. Containerboard sales
2. Foodboard sales
3. Graphic and specialty sales
With the reorganization of St. Laurent Paperboard's Sales and Marketing Group,
the Company can better serve its customers and explore new opportunities.
Ultimately, this will increase our share of value-added sales of high-quality
paperboard substrates in North America and selected international markets.
Promoting the St. Laurent brand
Given the reorganization of the Sales and Marketing Group, we have developed, in
1999, a more comprehensive marketing communications strategy. It consists of a
two-pronged effort focused on re-launching the St. Laurent brand:
1. Increase the level of awareness in our various markets.
2. Optimize the sales process.
<PAGE>
Customer-Focused Marketing (Con't)
Our marketing communications strategy will kick into high gear in the first
quarter of 2000. The plan calls for print advertising in trade magazines, trade
show participation, brochures, direct mail, ongoing public relations efforts and
a point-of-sale system. All communications are designed to achieve our strategic
initiatives and convey our key messages:
1. St. Laurent offers a "specialty advantage" as the largest producer of white
top linerboard in North America.
2. St. Laurent offers a comprehensive range of white products.
3. St. Laurent's products are recognized as consistently high-quality.
By showing St. Laurent Paperboard's customers, in both traditional and new,
fast-growing markets, its ever-growing line of innovative and value-added
products from its mills, our new approach will also reinforce our position as
the largest white top linerboard producer in North America.
VISUAL: AD PHOTO
Behind your brightest ideas
This is the first in a series of "Behind Your Brightest Ideas" full-page ads
that promote the graphic possibilities of St. Laurent Paperboard's white top
linerboard.
Continued leadership
As part of the reorganization of our Sales and Marketing Group, we also
developed a new sales strategy for containerboard products, which has two major
focal points:
1. Emphasis on the sale of white and kraft linerboard to the North American
market.
2. Focus on developing more white linerboard business with independent box
plants.
The results of these efforts will not only increase St. Laurent Paperboard's
profitability and maximize its operational efficiency, but will also enable the
Company to better address the needs of traditional and emerging markets -- and
maintain its leadership position in North America.
High-end graphics
In 1999, a new Graphics Team was created to better meet the needs of our
customers. It will aggressively sell St. Laurent Paperboard's bleached and white
top linerboard grades to pre-print, high-end post-print, display design shops
and packaged-goods companies.
Our new focus is part of an evolutionary process. We already enjoy an excellent
reputation with our existing customer base. Our sales strategy now consists of a
focused approach to obtaining high-end business in seven key geographical
markets spread across North America.
With the launch of a new "coated" white linerboard product, our Graphics Team
will establish key accounts in each of these select markets. This will help St.
Laurent Paperboard to manage both growth and customer expectations while
stimulating market demand.
Product development
As an innovative company, St. Laurent Paperboard has always conducted market
research that is focused on the needs of our customers. This focus has led to
new products in response to "real" needs, rather than production capabilities,
which has kept the Company at the forefront of the marketplace.
In 1999, much of our product development efforts were devoted to the development
and production trials of coated white top linerboard. According to our
estimates, the consumption of this grade has increased at a compounded annual
growth rate of more than 40% since 1995. Our research indicates that this growth
will continue in the coming years.
<PAGE>
Customer-Focused Marketing (Con't)
Producing coated white top linerboard will complement our comprehensive lineup
of white products. It will also further support our position as the largest
producer of white top linerboard in North America, as we will be among the first
North American producers of this high-quality and higher-margin substrate.
We will enter this market by capitalizing on our existing--and
extensive--customer base. Over time, given the growing demand and price
inelasticity of the market, coated white top linerboard should significantly
increase St. Laurent Paperboard's sales opportunities.
Long-Term Fibre Supply
Optimizing the use of its fibre supply is a top priority at St. Laurent
Paperboard. The Company ensures the continuous short- and long-term supply of
quality fibre to its mills through sustainable forest management of its
privately owned 396,000-hectare timberland, fibre procurement activities hinged
on long-term supply agreements with sawmills and private land owners, as well as
through the procurement of old corrugated containers (OCC) and other recycled
fibre.
In 1999, St. Laurent Paperboard took several steps to enhance the security of
its fibre supply and ensure its long-term sustainability. St. Laurent Paperboard
continues to ensure long-term fibre supply through its AUDACE project, which has
the aggressive goal of doubling the yield of our private woodlands, now 280,000
cubic metres per year.
Most notably, the Company purchased assets from Chesapeake Corporation,
including two pine sawmills located in West Point, Virginia, and Princess Anne,
Maryland; a hardwood lumber re- manufacturing facility located in Milford,
Virginia, as well as a chip mill located in Pocomoke City, Maryland. The two
sawmills have a combined annual capacity of 60 million board feet while the chip
mill facility has an annual capacity of 300,000 tons.
VISUAL: Photo
CAPTION:
St. Laurent Paperboard's refocused long term supply strategy to deliver
high-quality, low-cost pine and hardwood chips to the West Point mill has
substantially reduced its fibre cost.
This acquisition is in line with the Company's refocused long-term supply
strategy to deliver high-quality, low-cost pine and hardwood chips to its
primary mill located in West Point, Virginia. With the addition of these
sawmills and chip mill, West Point saw several changes:
o New source of West Point mill fibre supply. With the purchase of new US
assets, the West Point mill's fibre supply strategy was realigned to
substantially reduce its fibre cost and enhance its competitiveness.
o A new off-site processing facility. Constructed and operated by a third-party
contractor, this facility will replace West Point mill's current mill-site
woodroom operation in late 2000.
o Sale of the Elizabeth City chip mill. Plans for a new off-site processing
facility at the West Point mill resulted in the sale of St. Laurent
Paperboard's Elizabeth City-based chip mill and a corresponding reduction in
marine activity.
o Change in the West Point mill supply strategy. The mill will halt the on-site
processing of round wood in the fourth quarter of 2000 in favour of purchased
hardwood or softwood chips. This will, in effect, improve the mill's
efficiency by; lowering fibre costs, due to less manpower, reduced fibre
loss, more efficient energy consumption and greater flexibility in its
sourcing pattern.
<PAGE>
Dynamic R&D
To deliver innovative products and maintain superior quality, St. Laurent
Paperboard has built a team of researchers and applied scientists, fully
dedicated to developing state-of-the-art products and technologies for its mills
and packaging facilities.
In addition to its Research and Development Group, St. Laurent Paperboard works
closely with specialists from industry associations, research facilities and
academic institutions, using new technologies and advanced processing techniques
to achieve its strategic goals.
Efficient R&D network
In 1999, St. Laurent Paperboard, with an eye to the future, established a
research organization network to support its ongoing product development
initiatives. This gave the Company broader access to new technologies developed
and implemented in Canada and the U.S.
For St. Laurent Paperboard, the research organization network, which consists of
high-level researchers in various fields, also represents greater economies of
scale when it comes to advanced R&D and technological projects related to board
manufacturing.
VISUAL: Photo
CAPTION:
Dedicated support
Highly skilled researchers and technicians are dedicated to the support of St.
Laurent Paperboard's strategic initiatives.
The network consists of the following institutions and areas of expertise:
o Paprican (coating and paper technology)
o Graphic Communication Institute (packaging printing)
o Institute of Paper, Science and Technology (coating and fibre technology)
o Omnova (coating technology)
o Kohler Industries (coating machinery)
Innovative products
Over the past 12 months, St. Laurent Paperboard's research organization network
investigated the use of Ecowrap(R)--for which our research centre in Montreal
was awarded a patent in 1996--as vapour-proof packaging. Ecowrap(R) has proved
to be a commercially successful, recyclable replacement for conventional
polyethylene-coated paper, which is used to protect paper rolls from humidity
and water damage during transportation. Due to its unique product attributes
related to recycling, the research centre saw an opportunity in 1999 to convert
Ecowrap(R) into boxes for photocopier paper. The project has been a major
success for St. Laurent Paperboard. Our next step is to expand this box product
into other specialty packaging areas.
To maintain St. Laurent Paperboard's dominant market position as a producer of
high-quality, value-added graphic containerboard grades, the Research and
Development Group also conducted research into the coating of white top
linerboard. These efforts proved to be fruitful. Following months of trials, St.
Laurent Paperboard has successfully coated white top linerboard. A market has
already been identified for this product. The Company plans to offer this
high-quality grade to the litho-laminating marketplace and high-quality
pre-print linerboard market.
<PAGE>
PACKAGING
VISUAL: PHOTO
With more than 5.5 billion square feet of annual production, St. Laurent
Paperboard's packaging facilities offer a wide range of innovative and
high-quality value-added solutions.
Significant Integration
St. Laurent Paperboard's recent acquisitions, and its investments in both its
primary mills and packaging facilities, have been shaped to a certain extent by
the Company's determination to increase the integration level of its operations.
Integration is a very important strategic initiative at St. Laurent Paperboard
due to its shift from traditional to value-added packaging solutions. It allows
the Company to offer an ever-wider range of high-quality packaging solutions and
services to its customers. In 1999, our acquisitions and investments enabled St.
Laurent Paperboard to increase its integration level (total paperboard used
divided by the total paperboard produced) with its wholly owned facilities by
some 115,000 tons (or 8% compared to 1998).
<PAGE>
Significant integration (continued)
Eastern Container and Castle Rock Container
The acquisition of both Eastern Container and Castle Rock Container in 1999
corresponds with St. Laurent Paperboard's strategic objective of increasing its
integration level through growth in value-added packaging.
These acquisitions will allow the Company to produce high-quality specialty
packaging, corrugated sheets and containers, industrial and consumer packaging,
point-of-purchase displays, communication kits and packaging for the retail and
high-tech industries with CAD/CAM design capabilities. Combined, the facilities
convert approximately 1.3 billion square feet annually of industrial and
specialty packaging.
In addition, Eastern Container and Castle Rock Container will increase the
consumption of higher-margin, premium white substrates produced at the Company's
primary mills within its own packaging facilities, raising the level of white
top integration in St. Laurent Paperboard.
VISUAL: PHOTO
CAPTION:
Eastern Container is a leading manufacturer of high-quality specialty packaging
(triple wall/wood/foam packaging), corrugated sheets and containers, industrial
and consumer packaging, and point-of-purchase displays and packaging for the
retail and high-tech industries with CAD/CAM design capabilities.
Columbus
Given the Company's shift from traditional to value-added packaging in 1999, St.
Laurent Paperboard built and began commercial production at GrafX Packaging
Corp., a new sheet plant located in Columbus, Ohio. It is the first of its kind
in North America currently producing microfluted corrugated packaging for both
the folding carton and corrugated segment of the market. This new facility is
now providing unique packaging solutions to our customers made from sheets
manufactured by our Milwaukee sheet feeding facility, further enhancing the
Company's integration objective.
Pickering
During 1999, St. Laurent Paperboard sold its Markham, Ontario, building and
property and opened, in January 2000, a new packaging facility in Pickering,
Ontario. This has enabled us to shift from the production of corrugated
containers offered by our Markham facility to high-end, value-added packaging
solutions, including point-of-purchase displays, graphics packaging, litho
laminating and labelling.
Innovative packaging solutions
EXCERPT:
"We are in a unique position to offer excellent service, product quality and
innovative packaging solutions to our customers."
Bob Geib
Senior Vice President, Packaging
<PAGE>
Growing in Value-Added Packaging
Much like St. Laurent Paperboard's primary mills, its packaging facilities offer
market-competitive products and services. This has provided the Company with
tremendous growth since its inception. From three facilities in 1994, our
packaging division has grown to 17 facilities in 1999. Each serves a broad range
of customers with highly specialized products. All of our facilities have unique
design capabilities, production equipment and the marketing strategies to
provide superior packaging solutions to our customers.
While it is well positioned to provide its customers with creative packaging
solutions, St. Laurent Paperboard has undertaken a number of key strategic
initiatives in 1999 to continue its growth in value-added packaging.
Latta
The expansion of its specialty packaging and display facility in Latta, South
Carolina, enabled the Company to offer customers a complete, world-class,
one-stop shop approach to meeting their packaging needs through high-tech
methods and solutions in design and production. We believe that this facility
will be particularly attractive to customers active in specialty consumer
packaging such as multi-colour printing, point-of-purchase displays, litho
laminating and labelling, expert structural and graphic design, digital imaging
capabilities, and fulfillment expertise.
<PAGE>
Growing in Value-Added Packaging (continued)
Milwaukee and Columbus
The start-up of two unique microfluting facilities in Milwaukee (Innovative
Packaging Corp.) and Columbus (GrafX Packaging Corp.) fully supports St. Laurent
Paperboard's strategy of providing unique packaging solutions to its customers.
The Milwaukee sheet feeding facility uses microfluting technology to produce the
thinnest corrugated substrates supplied to the corrugated box and folding carton
markets.
The Columbus facility is a state-of-the-art sheet plant dedicated to the
production of value-added microfluting corrugated packaging solutions made from
the sheets produced by our Milwaukee facility. Together, these facilities
further underline St. Laurent Paperboard's focus on increasing its integration
level with innovative, high-end packaging operations that complement the
Company's primary product base.
Eastern Container and Castle Rock Container
The acquisitions of Eastern Container and Castle Rock Container are consistent
with St. Laurent Packaging's strategy to offer its customers a wide range of
innovative packaging solutions. Both facilities produce high-quality specialty
packaging, corrugated sheets and containers, industrial and consumer packaging,
point-of-purchase displays and packaging for retail and high-tech customers.
An offshoot of St. Laurent Paperboard's acquisition of Eastern Container is its
purchase of The Kimball Companies, a wholly owned subsidiary of Eastern
Container. It is a leading manufacturer of protective packaging such as
triplewall, foam, wood and corrugated products. As a result of this acquisition,
we are now the leading supplier of protective packaging in the Northeast United
States, which supports our strategic objective of focusing on value-added,
quality niche packaging solutions.
VISUAL: Table
Improved Results
St. Laurent Packaging Corp.
(dollar amounts are in thousands of dollars)
- ---------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------
Net sales $ 304,488 $ 246,806
- ---------------------------------------------------------------
EBITDA $ 17,356 $ 13,808
- ---------------------------------------------------------------
EBITDA margin - % 5.7% 5.6%
- ---------------------------------------------------------------
Operating earnings $ 9,000 $ 6,973
- ---------------------------------------------------------------
Cut-up volumes (in tons) 450,400 374,860
- ---------------------------------------------------------------
Integration level 47% 39%
- ---------------------------------------------------------------
Health & Safety (incidence rate) 1.75 2.59
- ---------------------------------------------------------------
<PAGE>
Growing in Value-Added Packaging (continued)
Innovative e-initiative
St. Laurent Paperboard's newest e-subsidiary, NextPak.com, was created in
December 1999. It will focus on Internet retailers, a segment of electronic
commerce that has seen explosive growth over the past few years. Located in
Massachusetts, this new entity will offer a full range of packaging products and
services. When it is fully operational in early 2000, it will provide e-tailers
with integrated packaging solutions, enabling them to market and fulfil their
products more cost-effectively.
Photo
EXCERPT:
"NextPak.com will offer a full range of packaging products and services to the
rapidly expanding e-tailing industry."
John Kiley
Senior Vice President and Chief Operating Officer, NextPak.com
Improved Uptime and Cycle Time
St. Laurent Packaging's shift from traditional to value-added packaging has
brought about many process, operational and cultural changes. In fact, the
Company's operational focus has, over time, led to better control over uptime
and cycle time.
Market conditions in 1999 led to the need for shorter runs, quicker turnaround
and higher-quality printing, prompting the Company to improve its uptime and
cycle time. To increase uptime in 1999, St. Laurent Packaging restored or
replaced key equipment such as corrugators, a bulk laminator, machine
pre-feeders, lifts, die-cutters and flexo-presses to OEM (original equipment
manufacturer) specifications. To shorten cycle time (and reduce machine
downtime), the Company followed its uptime improvements with "one-box" training
for operators.
Going forward, the Company has a number of activities under way to further
improve our productivity and reduce delivery time to our customers.
<PAGE>
Increased Capacity and Flexibility
To increase its bulk packaging production capacity, St. Laurent Packaging has
invested $1.1 million to acquire a new bulk box laminator for its Baltimore bulk
packaging facility. This custom-built machine will be fully operational by the
third quarter of 2000, giving our Baltimore plant additional production capacity
and flexibility in this important business segment.
All in all, this investment will double the facility's production capacity of
laminated bulk boxes. Through this strategic initiative, St. Laurent
Paperboard's packaging division will enhance its leadership position in the
production of bulk packaging solutions to our customers. In line with the
Company's shift from traditional to value-added solutions, the investment will
reinforce St. Laurent Packaging's ability to meet the needs of our clients with
enhanced design and graphics capabilities.
Cost-Effective Packaging Solutions
St. Laurent Packaging is determined to be a leader in each of its market
segments. All of our facilities are committed to optimizing their resources to
meet and even exceed customer expectations and industry standards.
In addition to generating substantial savings, St. Laurent Paperboard's cost
reduction initiatives allow the Company to enhance the quality and printability
of the paperboard manufactured by its primary mills, improve efficiency and, in
turn, meet the needs of customers.
In 1999, St. Laurent Packaging can take pride in its commitment to a number of
strategic initiatives that have improved customer service, cut costs and
maximized profitability:
o Supply Chain Management (SCM). The adoption of Supply Chain Management has
allowed St. Laurent Packaging to leverage its position as a major packaging
entity in order to reduce, as a first step, the overall costs of strapping,
starch and transportation.
PHOTO
o Machine effectiveness. By implementing a comprehensive maintenance management
system at each of our packaging facilities, including a preventive
maintenance program, St. Laurent Packaging has been able to keep its
equipment in OEM condition.
o Labour management. A combination of manpower optimization and machine
effectiveness has led to continued productivity gains.
o Waste reduction. With the improved waste management at each of our
facilities, the Company has seen significant reductions in costs.
o Roll stock consolidation. Determining the optimal amount of roll stock
tonnage has enabled us to better control costs and to reduce waste on our
corrugators.
VISUAL: PHOTO
<PAGE>
Marketing with the Right Pull
The driving force behind St. Laurent Paperboard's packaging sales and marketing
group is its commitment to introducing and delivering a wide range of proven
products and services custom-tailored to customer needs.
To support our strategic role as a specialty niche supplier, we adopted a
"pull-through" marketing strategy that highlights substrate benefits according
to our customers' packaging and graphics requirements.
Upgraded design and graphics capabilities
Each facility in the packaging division has been designed to offer new packaging
products and services. With ever-increasing demand for packaging solutions, each
of our facilities is either upgrading or expanding design and graphics
competencies to meet the diverse needs of our customers. Three new sales offices
with expanded design capabilities have begun operation to ensure a greater
presence in the Atlanta (Georgia), Charlotte (North Carolina) and Milwaukee
(Wisconsin) markets.
Looking ahead, St. Laurent Packaging will establish a design and graphics centre
in Richmond, Virginia, in the first quarter of 2000. It will maximize the
ability of our facilities in Baltimore, Roanoke and Richmond to fully meet the
ever-expanding customer requirements for multi-colour graphics,
point-of-purchase displays, co-packing and fulfilment.
<PAGE>
Generating Value for Our Customers
The Marketing & Technical Centre (MTC) in Richmond (Virginia), which began
operations in February 1999, is the R&D lab for the packaging division of St.
Laurent Paperboard. The centrepiece of this marketing-focused group is a
full-featured TAPPI laboratory equipped to handle most corrugated packaging
tests, beginning with basic raw materials all the way through the final filled
and palletized corrugated box. As part of its mandate, MTC works with our
customers and packaging facilities to ensure that our packaging solutions meet
customer expectations.
The MTC is dedicated to the development of new specialty packaging products and
production techniques. In its first full year of operation, MTC has proven to be
a major contributor to this process. In conjunction with the containerboard
marketing department, MTC made tremendous progress in developing paper
specifications for products that meet the needs of our customers. This is
particularly true for customers seeking performance-based products. By providing
access to new products and technology, MTC has created new business development
opportunities, allowing for the opening of new markets for our high-quality,
value-added packaging solutions.
Over the past 12 months, MTC has also developed training services for our
customers and employees in order to keep them up-to-date on new industry
initiatives, such as ECT (edge crush test), or to provide them with the proper
information on a wide assortment of industry topics. These are subjects our
customers and employees need to understand in order to build packaging solutions
that will best meet customer needs. In turn, this initiative, which will be
fully implemented in 2000, should broaden our market capabilities, boosting
demand for unique substrates from our primary mills.
Superior Food and Liquid Packaging
The production of the Montreal facility is dedicated to cup stock used for hot
and cold drinks, milk carton, bacon board, and standard mill wrap and its
recyclable counterpart, Ecowrap(R). Its raw materials come from either our La
Tuque or our West Point mill.
In terms of productivity and financial results, the Montreal facility's 1999
performance compared favourably to that of 1998. For example, overall production
climbed 12% and profitability significantly increased in 1999.
With 80% of our customer base in the US, several initiatives were undertaken at
the Montreal coating facility to sensitize all employees to customer needs.
These needs must be answered at all levels from order entry to the finished
product on our customer's equipment.
VISUAL:PHOTO
The year 2000 will be a very important one for our Montreal facility. We are
undertaking significant plant restructuring initiatives to match the best
practices in the industry. We will also make some investments to give the plant
a competitive edge in the markets we serve. This strategic move will position
the facility to better anticipate the ever-changing needs of our customers in
terms of grade mix, quality and services. This effort will also serve as a
platform for future growth, which will ultimately benefit our employees, our
customers and our shareholders.
EXCERPT:
"By exploring, developing and meeting the needs of promising new market niches,
we continued to strengthen our position and open new markets for the
high-quality board coated at our Montreal plant.
Patrice Calmels
Vice President, Foodboard Sales, Marketing & Coating Operations
<PAGE>
Core business philosophy
In January 2000, St. Laurent Paperboard completed the sale of its liquid
packaging converting facility located in St. Leonard, Quebec, to Elopak Canada.
This facility produces approximately 400 million gable top cartons annually
supplied to dairies and juice producers.
St. Laurent will continue to supply the coated milk carton board required by
Elopak from its La Tuque and P.A.T. facilities under an 18-month paper supply
contract. This divestiture corresponds with St. Laurent's strategic objective of
focusing on its core, value-added quality niche packaging and paperboard
products.
<PAGE>
Management's Discussion and Analysis
(All amounts are expressed in United States ("US") dollars except where
otherwise indicated.)
RESULTS
The Company reported net earnings of $38.3 million, or $0.78 per share, on net
sales of $915.8 million for the year ended December 31, 1999, compared to a net
loss of $23.3 million, or $0.47 per share, on net sales of $791.9 million for
the same period in 1998. The 1999 net earnings include unusual gains of $9.0
million after tax, or $0.18 per share, including a $5.8 million after tax gain
or $0.12 per share resulting from the renegotiation of fibre supply agreements
with Chesapeake Corporation, and a gain of $3.2 million after tax or $0.06 per
share resulting from the sale of the land and buildings of the Company's
Markham, Ontario converting plant. In 1998 the Company incurred a special charge
of $8.3 million after tax, or $0.17 per share, for a major restructuring at the
West Point, Virginia paperboard mill. Without these unusual items, 1999's
earnings per share would have been $0.60 compared to a loss of $0.30 per share
in 1998, an improvement of $0.90 per share.
OPERATING RESULTS
Net sales
Net sales amounted to $915.8 million in 1999, compared to $791.9 million for the
previous year, representing an increase of $123.9 million. This increase
reflects selling price increases and shipment improvements for our products, and
to new businesses acquired in 1999. Net price realizations increased by 4.9% for
containerboard products and by 3.3% for corrugated products. Net price
realizations for our liquid and food packaging products decreased slightly
compared to 1998. Shipments from our paperboard mills to third parties increased
by 46,000 tons or 3.6% in spite of the permanent shutdown of the West Point
mill's pulp machine which shipped 101,000 tons in 1998. Shipments of corrugated
products increased by 400 MMSF, an improvement of 8.5% over 1998. The new
facilities acquired during 1999 added another 383 MMSF to corrugated products
shipments. The sawmills and the lumber re-manufacturing facility, acquired in
August 1999, increased the net sales by $10.5 million.
The 1999 sales variance compared to 1998 is explained as follows:
1999-1998 Variance (in millions of $)
- --------------------------------------------------------------------------------
Mill Converting Other Total
- --------------------------------------------------------------------------------
Net price realization on all products 28.3 13.7 --- 42.0
- --------------------------------------------------------------------------------
Volume increase 17.1 22.2 0.9 40.2
- --------------------------------------------------------------------------------
Business acquisition --- 31.2 10.5 41.7
- --------------------------------------------------------------------------------
Total 45.4 67.1 11.4 123.9
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
Net Sales Summary
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
$000 Tons/MSF $000 Tons/MSF $000 Tons/MSF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Primary Mills (Tons)
Canada 250,034 625,342 209,911 559,135 186,572 512,163
US 273,498 713,572 268,193 733,507 176,864 455,000
- ------------------------------------------------------------------------------------------------------------------------------------
Converting Facilities (MSF)
Canada 57,191 1,027,636 52,276 1,053,693 52,318 1,221,247
US 246,306 4,490,869 190,520 3,682,025 109,973 2,151,057
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid and Food Facilities (Tons) 59,681 69,898 53,242 60,243 57,834 59,050
Others 29,087 17,765 6,881
- ------------------------------------------------------------------------------------------------------------------------------------
915,797 791,907 590,442
</TABLE>
Our primary mills increased their shipments of containerboard by approximately
152,000 tons, or 11%, due to better operating efficiency and inventory
reduction.
Daily primary production volume increased over 1998 by 5.7% at the La Tuque
mill, 3.2% at the Matane mill, 10.3% at the Thunder Bay mill and 2.1% at the
West Point mill resulting in an additional 58,000 tons.
At the converting level, the higher shipment volume is mostly due to the very
strong performance of the Milwaukee sheet feeder which increased its shipments
by about 80% compared to the same period in 1998.
<PAGE>
Cost of sales
In 1999, cost of sales increased by $45.9 million to a total of $711.0 million,
compared to $665.1 million for the same period in 1998. The increase is
attributable to the following items: $15 million to higher shipments of
containerboard products, $22 million to higher shipments from converting
facilities, and $34 million to converting and sawmill facilities acquired in
1999. Cost of sales increases related to higher shipments were partially offset
by lower manufacturing costs at the primary mills, which reduced the cost of
sales by close to $25 million.
The primary mills' manufacturing costs were $19 per ton lower than in 1998,
mainly due to lower manufacturing costs for white top products at both the La
Tuque and the West Point mills and a product mix change as a result of the
shutdown of the market pulp machine. Increased productivity and a reduction of
hedging opportunity loss of $11.3 million also contributed to lower costs and
helped offset higher prices for old corrugated containers (OCC) and fuel.
Lower manufacturing costs of white top products resulted from the following
items: the replacement of purchased softwood market pulp by bleached hardwood
pulp produced internally; a change in the chemistry which contributed to lower
variable costs and to increased production at the La Tuque mill, and supply
chain management initiatives which helped reduce the cost of chemical products
and other operating supplies.
The Canadian dollar remained approximately at the same level in 1999 as in 1998,
therefore, it did not have any material effect on the manufacturing costs.
As a result of higher costs for linerboard and corrugating medium, manufacturing
costs at our converting facilities were slightly higher in 1999 than in 1998.
Higher production volume however, partially offset the higher board costs.
Amortization
Amortization expense increased by $3.5 million in 1999, when compared to 1998,
mainly due to additions to property, plant and equipment and to the new
facilities acquired in 1999.
Selling and administrative expenses
Selling and administrative expenses increased to $62.7 million in 1999, from
$51.9 million in 1998. Expressed as a percentage of net sales, selling and
administrative expenses increased slightly from 6.6% to 6.8%. This $10.8 million
increase is attributable to the facilities acquired in 1999 and the various
initiatives undertaken to support the Company's growth to enhance its long-term
profitability.
A supply chain management program was put in place during the year with an
objective to enter into long-term relationships with selected suppliers in order
to optimize prices, quality, usage and availability of most of the products,
supplies and services needed for our operations.
Another initiative undertaken in 1999 was a branding advertising campaign
launched to reinforce the Company's position in the market. The containerboard
sales and marketing organizations were also restructured to enhance focus on
both the graphics and the containerboard markets.
Other income
Other income of $13.8 million was realized in 1999 compared to $0.5 million in
1998. This variance is attributable to a gain of $9.5 million resulting from the
renegotiation of fibre supply agreements with Chesapeake Corporation, and a gain
of $4.3 million resulting from the sale of the land and buildings of the
Company's Markham, Ontario converting plant, which was closed at the end of the
year.
The key amendment to the supply agreements with Chesapeake pertains to the term
of the agreements, which was reduced from 15 years to two years. The Company
renegotiated the supply agreements in conjunction with the acquisition of two
sawmills, a re-manufacturing facility and a chip mill owned by Chesapeake
Corporation. This series of transactions contributed to reducing the cost of
hardwood and softwood chips supplied to our paperboard mill located in West
Point, Virginia. The Company believes that these transactions will help lower
the mill's overall fibre cost in the future.
<PAGE>
Operating results
In 1999, the Company reported $75.1 million in operating earnings, compared to
operating earnings before restructuring charges of $11.4 million, and an
operating loss of $1.5 million after restructuring charges in 1998. The positive
variance of $63.7 million before restructuring charges can be summarized as
follows:
1999-1998 Variance - (in millions of $)
- --------------------------------------------------------------------------------
Positive (Negative)
- --------------------------------------------------------------------------------
Mill Converting Other Total
- --------------------------------------------------------------------------------
Net price realization on all products 33.7 13.7 -- 47.4
- --------------------------------------------------------------------------------
Cost reduction 14.1 (7.8) 0.5 6.8
- --------------------------------------------------------------------------------
Volume increase 3.8 7.7 0.9 12.4
- --------------------------------------------------------------------------------
Foreign exchange opportunity loss 11.3 -- -- 11.3
- --------------------------------------------------------------------------------
Selling and administration (6.7) (7.0) 3.0 (10.7)
- --------------------------------------------------------------------------------
Depreciation (1.7) (1.4) (0.4) (3.5)
- --------------------------------------------------------------------------------
54.5 5.2 4.0 63.7
- --------------------------------------------------------------------------------
Interest expense
Interest expense amounted to $28.6 million in 1999 compared to $29.4 million in
1998. This $0.8 million decrease is attributable to lower interest costs on the
Company's $224.3 million secured term loan. The effective interest rate under
this term loan in 1999 was approximately 70 basis points lower than in 1998. The
interest decrease was partially offset by a charge of $0.4 million resulting
from the prepayment of a debt due by a Company subsidiary to
Abitibi-Consolidated. The level of debt outstanding in 1999 was higher than in
1998, due to the inclusion in December 1999 of Eastern Container's long-term
debt following its acquisition. The impact of this additional indebtedness on
the interest expense for 1999 was $0.3 million.
<PAGE>
Provision for (Recovery of) income taxes
The $21.8 million income tax provision represents an effective tax rate of 36.2%
in 1999, compared to an income tax recovery rate of 23.5% in 1998, which was
affected by non-deductible items related to the translation into US$ of assets
and liabilities denominated in CAN$.
1998 Compared to 1997
Operating results
Net sales increased by $201.5 million in 1998 compared to 1997. US assets
acquired in May 1997 contributed to the full year in 1998 compared to seven
months in 1997. Shipments at the West Point mill increased the Company's total
primary shipments by 315,000 tons, while shipments of the 1997 acquired US
converting plants increased the Company's total converting shipments by 890,000
MSF, increasing net sales by $108 million and $45 million respectively. The
Milwaukee converting operation, started in the fourth quarter of 1997, also
contributed approximately $19 million to the 1998 sales increase with shipments
increasing by 527,000 MSF.
Our Canadian primary mills increased their shipments by approximately 55,000
tons, or 8.9%, due to operating efficiency improvements and continuous operation
in 1998. This volume increase resulted in a net sales increase of $11.4 million.
In 1997, the Matane and Thunder Bay mills took 28 days and 35 days of market
related downtime, respectively.
In 1998, cost of sales increased by $155.9 million to a total of $665.1 million,
compared to $509.2 million for the same period in 1997. Of this increase, $97
million is attributable to higher shipments of containerboard products, and $56
million is due to increased shipments at our converting facilities.
Manufacturing costs at our primary mills were lower than in 1997, mainly due to
synergies, profitability improvement programs, and lower OCC costs. Increased
productivity also contributed to lower fixed costs per ton, while lower prices
on old corrugated containers (OCC) helped reduce variable costs.
The weakness of the Canadian dollar in 1998 reduced the primary mills' cash
manufacturing costs denominated in CAN$ by $15.3 million, while $12.7 million in
hedging opportunity loss reduced the benefits of the lower Canadian dollar.
Total manufacturing cost per ton decreased by 7.6% at the La Tuque mill, 15.9%
at the Matane mill and 19.8% at the Thunder Bay mill. Costs fell by 1% at the
West Point mill, despite the pulp machine shutdown in October of 1998.
As a result of higher costs for linerboard and corrugating medium, manufacturing
costs at our converting facilities were higher in 1998 than in 1997. A number of
initiatives were undertaken in 1998 to reduce converting costs, including the
elimination of approximately 67 jobs and the reduction of waste which reduced
costs by approximately $3 million.
Amortization expense increased by $15.9 million in 1998, when compared to 1997,
mainly due to a full year amortization for the May 1997 acquired facilities.
Selling and administrative expenses increased to $51.9 million in 1998, from
$42.6 million in 1997, mainly due to the full year operation of the facilities
acquired in May 1997. Expressed as a percentage of net sales, these expenses
decreased from 7.2% to 6.6%.
In 1998, the Company undertook a major restructuring at its West Point mill. A
$12.9 million restructuring cost was incurred in 1998, but a significant portion
of this amount will be paid out of the Company's pension plan assets over future
years.
<PAGE>
In 1998, the Company reported $11.4 million in operating earnings before
restructuring charge and an operating loss of $1.5 million after restructuring
charge, compared to an operating loss of $8.9 million in 1997. The positive
variance of $20.3 million before restructuring charge can be summarized as
follows:
1998-1997 Variance - (in millions of $)
- --------------------------------------------------------------------------------
Positive (Negative)
- --------------------------------------------------------------------------------
Mill Converting Other Total
- --------------------------------------------------------------------------------
Net price realization on all products (3.5) 18.3 -- 14.8
- --------------------------------------------------------------------------------
Cost reduction 30.3 (8.2) (0.4) 21.7
- --------------------------------------------------------------------------------
Volume increase 19.1 2.0 1.6 22.7
- --------------------------------------------------------------------------------
Foreign exchange opportunity loss (13.6) -- -- (13.6)
- --------------------------------------------------------------------------------
Selling and administration (0.7) (11.4) 2.7 (9.4)
- --------------------------------------------------------------------------------
Depreciation (14.7) (0.9) (0.3) (15.9)
- --------------------------------------------------------------------------------
16.9 (0.2) 3.6 20.3
- --------------------------------------------------------------------------------
The decrease in interest expense of $4.4 million is attributable to the 1997
write-off of $8.4 million of debt issue costs and lower interest costs. However,
the level of debt outstanding in 1998 was higher than in 1997 due to the US
asset acquisition, thereby reducing the impact of the items mentioned above.
The $7.1 million income tax recovery represents an effective tax rate of 23.5%
in 1998, compared to 28.3% in 1997. This lower effective income tax rate in 1998
is attributable to non-deductible items related to the translation into US$ of
assets and liabilities denominated in CAN$.
<PAGE>
Financial condition and liquidity
In 1999, the Company's operating activities provided $145.0 million of cash
compared to $35.4 million in 1998. The $109.6 million increase is the result of
operating earnings improvement, the unusual gain resulting from the fibre supply
agreements renegotiation, a decrease in finished products inventory, and an
increase in the Company's accounts payable.
Investing activities
Investing activities amounted to $118.5 million in 1999 compared to $49.0
million in 1998. The increase of $69.5 million is attributable to higher capital
expenditures of $7.9 million and to business acquisitions amounting to $70.4
million completed during the year. Net proceeds from disposal of property, plant
and equipment was $9.1 million.
Business acquisitions of $70.4 million include the acquisitions of The Kimball
Companies for $6.5 million, Castle Rock Container for $24.8 million, two
sawmills, a chip mill and a lumber re-manufacturing facility for $13.8 million,
and the acquisition of Eastern Container Corp. for $25.3 million. Eastern
Container was acquired in two transactions. The first transaction occurred in
January 1999, when the Company acquired an equity interest of 49% in Eastern for
$9.6 million. The Company acquired the remaining 51% interest in Eastern in
December 1999 for $10.9 million. The Company also invested in the working
capital of Eastern during 1999, which increased the total cash consideration
paid for Eastern to $25.3 million. These acquisitions are part of the Company's
strategy to increase its integration level as well as to ensure high-quality and
low-cost fibre supplies to its primary mills.
The $57.1 million capital expenditures included two major projects at the La
Tuque mill amounting to $13.4 million. The first project, completed in January
2000, will allow the mill to produce, subject to market demand, approximately
50,000 tons of value-added coated white top linerboard while the second project
involved the modernization of the fibre receiving and handling area. Capital
expenditures also included an amount of $9.2 million invested in a value-added
graphics sheet plant project and a sheet feeder project. The graphics sheet
plant, GrafX Packaging Corp., located in Columbus, Ohio, began commercial
operation in December 1999. The sheet feeding facility, located in Gilroy,
California, will start commercial operation in the third quarter of 2000.
<PAGE>
Proceeds from disposal of property, plant and equipment are mainly related to
the sales of the land and buildings of the Company's Markham Ontario converting
plant.
- --------------------------------------------------------------
CAPITAL EXPENDITURES (in millions of $)
- --------------------------------------------------------------
1999 1998
- --------------------------------------------------------------
Maintenance of business 18.5 19.0
- --------------------------------------------------------------
Value-added projects 35.2 27.8
- --------------------------------------------------------------
Environment 3.4 2.4
- --------------------------------------------------------------
Total 57.1 49.2
- --------------------------------------------------------------
Before business acquisitions, the Company invested $6.6 million less than its
annual depreciation expense in 1999.
Financing activities
During the third quarter of 1999, the Company renegotiated certain financial
covenants to allow for more borrowing flexibility under its CAN$200 million or
US equivalent, 5-year term revolving facility. As part of this renegotiation,
the Company cancelled its CAN$70 million or US equivalent, 7-year term facility.
Concurrent with the acquisition of the remaining 51% interest of Eastern and
with the Company providing a guarantee to the lenders under Eastern's credit
facility, Eastern's existing credit agreement was also renegotiated in order to
have the covenants governing Eastern's US$24 million, 7-year term facility
similar to those governing the Company's secured term loan. The principal amount
of Eastern's term loan is payable as follows: 12.5% in 2000, 2001, 2002 and
2003, 16.7% in 2004 and 27.1% in 2005 on the original amount of US$24 million.
The credit facility is secured by Eastern's assets, and is guaranteed by St.
Laurent Paperboard Inc.
In connection with the acquisition of Eastern, a US$8 million note was issued as
a balance of sale. The principal amount of the note payable will be repaid as
follows: one third in each of the years 2000, 2001 and 2002. This note bears
interest at a fixed rate of 8.25%, and a portion of this note ranks pari passu
with the lenders under Eastern's 7-year term facility. St. Laurent Paperboard
Inc. also guarantees this note.
The note due by a Company subsidiary to Abitibi-Consolidated was repaid in
December 1999. The payment of CAN$5.0 million also included the purchase of
Abitibi-Consolidated's economic interest in the subsidiary, which consisted of
potential payments up to 2005, calculated as a percentage of the subsidiary's
earnings before taxes.
As of the end of 1999, the Company had CAN$191 million available under its
5-year revolving facility, subject to meeting certain financial covenants.
Risk Management
Foreign exchange
The results of the Company are affected by the Canadian/US dollar exchange rate.
Selling prices, for over 80% of its Canadian shipments are denominated in US
dollar, while most of the expenses are in Canadian dollars. Accordingly, an
appreciation in the value of the Canadian dollar relative to the US dollar has
the effect of increasing costs at the Canadian facilities.
To protect against the negative impact of a strengthening Canadian dollar on
manufacturing costs, the Company purchases forward up to 50% of its Canadian
dollar denominated costs for periods up to 48 months using a combination of
options and forwards. During 1999, the weak Canadian dollar effectively reduced
Canadian manufacturing costs, but the gain was partially offset by an
opportunity loss on option and forward contracts.
As of December 31, 1999, the Company had entered into forward contracts to
purchase CAN$295 million at an average rate of $US0.694.
<PAGE>
Commodity prices
The Company's results are also dependent on the prices it receives for its
products. The prices for paperboard products are volatile and subject to
fluctuations based on a number of economic factors. The Company maintains an
active risk management program to mitigate the financial impacts of decreasing
commodity prices. As of December 31, 1999, the Company had entered into swap
agreements to sell 37,500 tons of corrugating medium and 18,000 tons of
unbleached kraft linerboard. The Company also entered into swap agreement to buy
48,000 tons of old corrugated containers to protect against price increase. The
Company's Board of Directors authorized commodity-trading activities, provided
that total volume does not exceed 150,000 tons at any time.
Interest rate
The Company has approximately $245 million of debt outstanding at the end of the
year that is based on short-term interest rates. Consequently, the Company is
exposed to interest rate fluctuations and its results could be negatively
impacted by interest rate increases. In order to reduce its exposure to interest
rate fluctuations, the Company entered into interest swap agreements on a
notional amount of $55 million at a rate of 5.97%. These agreements expire in
2003.
Year 2000
A successful and smooth transition into Year 2000 was achieved without any
material disruption during the rollover period. The Company's cost to achieve
Y2K compliance was $6.4 million, of which $2.9 million has been capitalized and
$3.5 million has been expensed.
Earnings sensitivities
The Company's earnings are sensitive to fluctuations in commodity prices and, to
a lesser extent, to exchange rate. Based on 1999 annual capacity, changes in
prices and exchange rates affect earnings before and after tax as follows:
- --------------------------------------------------------------------------------
(in millions of $) Before Tax After Tax
- --------------------------------------------------------------------------------
Products - $50 selling price change
White top 34 22
Kraft linerboard 15 10
Corrugating medium 22 14
Solid bleached board 6 4
- --------------------------------------------------------------------------------
77 50
- --------------------------------------------------------------------------------
OCC - $10 purchase price change 5 3
- --------------------------------------------------------------------------------
Exchange rate - US$0.01
Canadian operations 4.0 2.6
- --------------------------------------------------------------------------------
Converting
Selling price $1 per MSF 7 4.5
- --------------------------------------------------------------------------------
Information concerning forward-looking statements
Forward-looking statements include statements evaluating market and general
economic conditions, outlook and uncertainties. Investors are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date thereof. Forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially.
<PAGE>
Uncertainties and Outlook
General
The continuous focus on value-added products and on the increase of its level of
integration should allow the Company to take advantage of the favourable market
conditions. The Company has also made some strategic investments in 1999 that
should increase its profitability in the coming years. In 2000, the Company will
complete the restructuring initiatives undertaken at its West Point mill, which
will also contribute to higher profitability. Moreover, we should see in 2000
the favourable impact of several partnership agreements negotiated by our Supply
Management Team. The expected improvement in selling prices and the continued
focus on cost reduction and value-added products will be the primary drivers of
earnings improvement in 2000.
Market
Demand for containerboard is expected to remain steady, as North American
economies continue to perform well. Asia's economic growth continues to improve,
which should translate into higher export volume for North American producers.
The Company expects that price increase announcements of $50 per ton for kraft
linerboard and $60 per ton for corrugating medium for orders taken after
February 1, 2000, should be fully implemented during the second quarter.
Acquisition by Smurfit-Stone Container Corporation
On February 23, 2000, Smurfit-Stone Container Corporation ("SSCC") and the
Company entered into a pre-merger agreement pursuant to which SSCC has agreed to
acquire all of the issued and outstanding shares of the Company for a per share
consideration of $12.50 and one-half share of SSCC. In certain circumstances,
including in the event that the Company receives a superior proposal and the
Board of Directors of the Company withdraws its support for the SSCC offer, SSCC
will be entitled to a $30 million break fee. Subject to obtaining shareholders
and regulatory approvals, the SSCC transaction is scheduled to close towards the
end of the second quarter.
<PAGE>
MANAGEMENT REPORT
The consolidated financial statements contained in this Annual Report have been
prepared by management in accordance with generally accepted accounting
principles in Canada. The financial information contained elsewhere in the
Annual Report is consistent with the consolidated financial statements.
Management maintains a system of internal accounting and administrative controls
designed to provide reasonable assurance that the financial information is
accurate and reliable and that the Company's assets are adequately accounted for
and safeguarded.
The Audit Committee, which is comprised of outside directors, meets regularly
with management to discuss the adequacy of the system of internal controls and
the integrity of the Company's financial reporting.
The consolidated financial statements have been reviewed by the Audit Committee
prior to submission to the Board. The consolidated financial statements also
have been audited by PricewaterhouseCoopers LLP, Chartered Accountants, who have
full access to the Audit Committee with and without the presence of management
to discuss the scope of their audit, the adequacy of the system of internal
controls and the adequacy of financial reporting.
Jay J. Gurandiano Richard Garneau
President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
January 24, 2000
AUDITORS' REPORT
TO THE SHAREHOLDERS OF
ST. LAURENT PAPERBOARD INC.
We have audited the consolidated balance sheets of St. Laurent Paperboard Inc.
as at December 31, 1999 and 1998 and the consolidated statements of earnings
(loss), retained earnings and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. 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, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1999 in accordance with
generally accepted accounting principles in Canada.
Chartered Accountants
Montreal, Canada
January 24, 2000, except as to Note 10 b), which is as of February 25, 2000 and
Note 20, which is as of February 23, 2000.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
(in thousands of US dollars, except per share amounts)
YEAR ENDED DECEMBER 31
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 986,819 $ 860,473 $ 642,700
COST OF DELIVERY 71,022 68,566 52,258
----------- ----------- -----------
NET SALES 915,797 791,907 590,442
----------- ----------- -----------
COST OF SALES 711,030 665,102 509,162
AMORTIZATION 67,023 63,508 47,621
SELLING AND ADMINISTRATIVE EXPENSES 62,651 51,919 42,563
RESTRUCTURING CHARGE (NOTE 17) -- 12,878 --
----------- ----------- -----------
840,704 793,407 599,346
----------- ----------- -----------
OPERATING EARNINGS (LOSS) 75,093 (1,500) (8,904)
INTEREST EXPENSE, NET (NOTE 12) 28,609 29,397 33,760
OTHER INCOME, NET (NOTE 12) (13,792) (497) (213)
----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 60,276 (30,400) (42,451)
PROVISION FOR (RECOVERY OF) INCOME TAXES (NOTE 13) 21,836 (7,137) (12,010)
----------- ----------- -----------
NET EARNINGS (LOSS) BEFORE NON-CONTROLLING INTERESTS 38,440 (23,263) (30,441)
NON-CONTROLLING INTERESTS (103) -- --
INCREASE IN EQUITY COMPONENT OF CONVERTIBLE
DEBENTURES, NET OF INCOME TAXES (1997 - $1,480) -- -- (3,094)
----------- ----------- -----------
NET EARNINGS (LOSS) ATTRIBUTABLE TO COMMON SHARES $ 38,337 $ (23,263) $ (33,535)
=========== =========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE
Basic $ 0.78 $ (0.47) $ (0.98)
----------- ----------- -----------
Fully diluted $ 0.77 (1) (1)
----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF OUTSTANDING
COMMON SHARES (IN THOUSANDS) 49,328 49,124 34,384
----------- ----------- -----------
<FN>
1 Anti-dilutive</FN>
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in thousands of US dollars)
YEAR ENDED DECEMBER 31
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 1,769 $ 25,032 $ 58,567
NET EARNINGS (LOSS) ATTRIBUTABLE TO COMMON SHARES 38,337 (23,263) (33,535)
----------- ----------- -----------
BALANCE AT END OF YEAR $ 40,106 $ 1,769 $ 25,032
----------- ----------- -----------
See notes to the Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of US dollars)
YEAR ENDED DECEMBER 31
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net earnings (loss) $ 38,337 $ (23,263) $ (30,441)
Items not involving cash
Amortization of property, plant and equipment,
start-up and deferred costs and goodwill 67,023 63,508 47,621
Amortization and write-off of debt issue costs 1,438 1,422 9,538
Future income taxes 20,379 (8,163) (13,560)
Gain on asset disposals (5,094) (235) (235)
Other (927) (758) (2,019)
Start-up and other deferred costs incurred (2,199) 414 (2,267)
Pension expense, net of funding 3,242 9,358 1,129
Interest payments, net of expense -- -- (4,795)
Non-controlling interests 103 -- --
----------- ----------- -----------
122,302 42,283 4,971
Change in non-cash working capital relating to operations
Accounts receivable (10,588) 11,913 (8,856)
Inventory 9,704 (1,942) (11,846)
Prepaid expenses 226 (8,153) (2,608)
Accounts payable and accrued liabilities 23,854 (8,825) 11,804
Income and other taxes payable (538) 123 1,829
----------- ----------- -----------
22,658 (6,884) (9,677)
----------- ----------- -----------
Cash provided by (used in) operations 144,960 35,399 (4,706)
----------- ----------- -----------
INVESTING ACTIVITIES
Business acquisitions, including bank (70,415) -- (506,353)
indebtedness assumed of $5,678 in 1997 (Note 3)
Additions to property, plant and equipment (57,138) (49,235) (44,038)
Proceeds from disposals of property, plant and equipment 9,059 235 312
----------- ----------- -----------
Cash used in investing activities (118,494) (49,000) (550,079)
----------- ----------- -----------
FINANCING ACTIVITIES
Issuance of common shares, net of expenses 1,537 2,144 349,442
Redemption of common shares -- (370) --
Issuance of long-term debt 610 230,256 245,453
Repayment of long-term debt (9,549) (241,892) (12,940)
Debt issue costs (1,354) (4,496) (8,487)
Non-controlling interests 700 -- --
Cash held in escrow -- 11,000 (11,000)
----------- ----------- -----------
Cash provided by (used in) financing activities (8,056) (3,358) 562,468
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 18,410 (16,959) 7,683
CASH (INDEBTEDNESS) AT BEGINNING OF YEAR (3,519) 13,440 5,757
----------- ----------- -----------
CASH (INDEBTEDNESS) AT END OF YEAR $ 14,891 $ (3,519) $ 13,440
=========== =========== ===========
CASH (INDEBTEDNESS) CONSISTS OF:
Cash $ 9,125 $ -- $ 3,689
Temporary investments 5,766 2,607 9,751
Bank indebtedness -- (6,126) --
----------- ----------- -----------
$ 14,891 $ (3,519) $ 13,440
=========== =========== ===========
See notes to the Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(in thousands of US dollars)
DECEMBER 31
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary investments $ 14,891 $ 2,607
Accounts receivable 124,279 95,895
Income and other taxes recoverable 4,792 4,870
Inventories (Note 4) 106,481 98,542
Prepaid expenses and other assets 13,984 13,832
----------- -----------
264,427 215,746
PROPERTY, PLANT AND EQUIPMENT (NOTE 5) 816,879 775,960
FUTURE INCOME TAXES (NOTE 13) -- 8,437
DEFERRED CHARGES AND OTHER ASSETS (NOTE 6) 33,898 30,347
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $3,991 (1998 - $2,777) 40,339 19,923
----------- -----------
$ 1,155,543 $ 1,050,413
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ -- $ 6,126
Accounts payable and accrued liabilities 102,846 72,112
Current portion of long-term debt (Note 7) 47,397 5,975
----------- -----------
150,243 84,213
LONG-TERM DEBT (NOTE 7) 338,206 356,455
OTHER LIABILITIES (NOTE 8) 32,804 27,271
FUTURE INCOME TAXES (NOTE 13) 18,305 6,363
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY
COMMON SHARES (NOTE 9) 573,471 571,934
CONTRIBUTED SURPLUS 2,408 2,408
RETAINED EARNINGS 40,106 1,769
----------- -----------
615,985 576,111
----------- -----------
$ 1,155,543 $ 1,050,413
=========== ===========
See notes to the Consolidated Financial Statements.
</TABLE>
APPROVED BY THE BOARD OF DIRECTORS,
Jay J. Gurandiano Raymond R. Pinard
Director Director
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS ARE EXPRESSED IN UNITED STATES ("US") DOLLARS EXCEPT WHERE
OTHERWISE INDICATED.)
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a producer, supplier and converter of paperboard products.
Its principal products are white top linerboard, brown linerboard,
corrugating medium and solid bleached paperboard (foodboard and
linerboard). The Company converts approximately one third of its paperboard
capacity into corrugated boxes, point-of-purchase displays and other
products. Its assets are located in the United States and Canada and the
products are sold mostly in the United States and Canada.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada. As described in Note
19, those principles differ in certain material respects from those that
the Company would have followed had its financial statements been prepared
in accordance with generally accepted accounting principles in the United
States.
The consolidated financial statements include the accounts of the Company
and all its subsidiary companies. All significant inter-company
transactions and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements requires the Company's management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities shown on the balance sheet and disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses on the statement of
earnings during the reporting period. Actual results may differ from those
estimates.
FOREIGN EXCHANGE AND HEDGING ACTIVITIES
Non-monetary assets and liabilities of Canadian activities are translated
into US dollars at historical exchange rates. As explained in Note 2, the
historical rate for non-monetary items at December 31, 1996 is the rate in
effect as at that date. Monetary assets and liabilities are translated from
other currencies into US dollars at rates of exchange in effect at the date
of the balance sheet. Exchange gains or losses on Canadian dollar
denominated long-term debt are deferred and amortized over the expected
life of the related debt using the straight-line method.
Revenues and expenses are translated at the average rate during the month
in which the transaction took place, except amortization, which is
translated at historical rates.
The Company currently manages its foreign exchange exposure to future
expenses denominated in Canadian dollars through the use of forward
contracts and options. Resulting gains and losses on contracts designated
as hedges are recognized as part of the related Canadian transactions as
they occur and, therefore, are included in the cost of sales.
The Company also manages its risk exposure to interest rate variations by
entering into swap and option agreements. Payments made or received under
these agreements are accounted for as adjustments to interest expense.
The Company also manages its commodities price exposures by entering into
cash settled-swap agreements. Resulting gains and losses on contracts
designated as hedges are recognized as part of the related transaction as
they occur and, therefore, are included in sales or cost of sales, as
applicable.
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TEMPORARY INVESTMENTS
Temporary investments are stated at the lower of cost and market value.
They are composed of debt instruments with maturities of less than three
months.
INVENTORIES
Finished products are valued at the lower of average cost and net
realizable value. Fibre, maintenance materials and operating supplies are
valued at average cost. The average cost includes, where applicable, direct
labor, manufacturing overhead expenses and amortization.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, net of related investment
tax credits. They are amortized over their estimated useful lives, which
are approximately 20 years, using the unit of production method for
manufacturing facilities and the straight-line method for converting
facilities.
Timberlands are stated at cost and are managed on a sustained yield basis.
Major roads are capitalized and amortized over their expected useful life.
Amortization is recorded based on timber harvested.
During the construction period, interest is capitalized on major
improvements and expansion projects. No amortization is charged on major
improvements or expansion projects until construction is completed.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures related to current operations are expensed or
capitalized as appropriate. Provisions are made for costs of anticipated
remedial action when they can be reasonably estimated.
OTHER ASSETS
Start-up costs, which include pre-production costs, incurred on significant
construction and modernization projects are deferred until the projects are
ready to commence commercial production and are then amortized over a
period of five years. Debt issue expenses are deferred and amortized over
the expected life of the related debt using the straight-line method.
GOODWILL
Goodwill is recorded at cost less accumulated amortization. It is amortized
over a 20-year period using the straight-line method. The Company assesses
annually whether there has been a permanent impairment in the value of the
unamortized portion of goodwill by determining whether projected
undiscounted future cash flows from the related operations exceed the net
book value of goodwill at the assessment date.
PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS
Pension costs are determined annually in consultation with independent
actuaries and include current service costs, a provision for the
amortization of prior service costs and settlement costs related to special
events. The pension plans' surplus or deficit, after including the
liabilities for past service, is amortized over the estimated average
remaining service lives of the employees. The assets of the pension plans
are invested in listed common stocks, fixed income securities and cash
equivalents.
In addition to pension benefits, the Company provides limited life
insurance, dental and health care benefits to eligible retired employees.
The cost of providing these benefits is recognized on an accrual basis
during the service years of these employees. The costs include also a
provision for the amortization of prior service costs.
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-TERM INCENTIVE PLANS
The Company recognizes compensation costs related to awards of restricted
share units and stock options (see Note 9) when the shares are issued. The
costs accounted for on the issuance date are based on the market value of
the shares at that date.
INCOME TAXES
The Company adopted in 1998 the new accounting rules for income taxes
approved by the Canadian Institute of Chartered Accountants in September
1997. Under the new rules, the Company recognizes the amount of taxes
payable or refundable for the current year and recognizes also the future
income tax liabilities and assets related to the other assets and
liabilities recognized in the balance sheet, using the current income tax
rate. The impact of the change on 1998 net earnings was not significant.
The change has not been applied retroactively since the impact was not
significant on financial statements of prior years. The Company does not
make provisions for income taxes on the undistributed earnings of foreign
subsidiaries, part of which may be subject to certain taxes on distribution
to the parent company as such income is reinvested in foreign operations.
The amount of such undistributed earnings is not significant at December
31, 1999.
EARNINGS PER COMMON SHARE
Earnings per common share are calculated using the weighted average number
of common shares outstanding during the year. Fully diluted earnings per
common share are calculated using the weighted average number of common
shares outstanding during the year and assuming that all convertible
debentures were converted to common shares at the beginning of their
respective years, that all outstanding stock options and warrants were
exercised from the beginning of the year, and that all shares, entitled to
be received through the restricted share units, were issued also at the
beginning of the year.
<PAGE>
2. CHANGE IN REPORTING CURRENCY IN 1997
The consolidated financial statements of the Company were presented in
Canadian dollars up to December 31, 1996. Until that date, the Canadian
dollar was also considered the functional currency of the Company. With the
major acquisition of U.S. assets made in May 1997 (see Note 3),
substantially all the Company's revenues are received in US dollars and the
Company's Canadian assets and expenses denominated in Canadian dollars
represent less than half of the assets and expenses of the Company. For
these reasons, the US dollar was adopted in 1997 as the Company's reporting
and functional currency. The comparative financial information for 1996 is
presented in US dollars in accordance with a translation of convenience
method using the closing exchange rate at December 31, 1996 of US$0.73 for
CAN$1.00. The translated amount for Canadian non-monetary items at December
31, 1996 became the historical basis for those items in 1997 and
subsequently.
3. BUSINESS ACQUISITIONS
The Company completed the following business acquisitions:
On December 22, 1999, the Company acquired for cash consideration of $6.5
million all the assets of THE KIMBALL COMPANIES in East Longmeadow,
Massachusetts. THE KIMBALL COMPANIES manufacture protective packaging
including triplewall, foam, wood and corrugated products.
On January 29, 1999, the Company purchased a 49% interest in EASTERN
CONTAINER CORPORATION which operates converting facilities in Massachusetts
and New Hampshire and, on November 30, 1999, the Company acquired the
remaining 51% interest. The total cash consideration paid by the Company
for this acquisition amounted to $25.3 million.
On July 30, 1999, the Company acquired from CHESAPEAKE CORPORATION all the
assets of the building products business, consisting of two softwood
sawmills located in West Point, Virginia and Princess Anne, Maryland; a
hardwood lumber re-processing facility located in Milford, Virginia; as
well as a chip mill facility located in Pocomoke City, Maryland for cash
consideration of $13.8 million.
On May 28, 1999, the Company acquired all the assets of CASTLE ROCK
CONTAINER COMPANY, a custom manufacturer of high-quality corrugated
packaging, point-of-purchase displays and communication kit, from
CONSOLIDATED PAPERS INC. located in Adams, Wisconsin for cash consideration
of $24.8 million.
In 1998, there were no business acquisitions.
On May 23, 1997, the Company acquired from Chesapeake Corporation certain
assets of its paperboard business consisting of a pulp and paper mill
located in West Point, Virginia, four converting plants located in Richmond
and Roanoke, Virginia, Baltimore, Maryland and North Tonawanda, New York,
and other related assets for $498 million paid in cash. The acquisition was
financed by the issuance of common shares and term loans.
In January 1997, the Company acquired for cash consideration of $2.9
million (CAN$3.9 million) all of the outstanding shares of Francobec Inc.,
a wood chipping facility located near La Tuque, Quebec.
The acquisitions have been accounted for using the purchase method and the
results of operations therefrom are included in the consolidated statement
of earnings of the Company from the respective acquisition dates. The
initial investment in Eastern Container Corporation on January 29, 1999 was
accounted for using the equity method up to December 1, 1999 when the
remaining 51% was acquired.
<PAGE>
The net assets acquired, at assigned values, are summarized as follows:
<TABLE>
1999 1997
----------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets $ 35,817 $ 79,610
Property, plant and equipment 51,477 457,121
Goodwill 21,630 702
Other assets 2,429 19,626
----------- -----------
111,353 557,059
Current liabilities (7,503) (32,080)
Other liabilities (33,435) (24,304)
----------- -----------
$ 70,415 $ 500,675
=========== ===========
</TABLE>
<PAGE>
4. INVENTORIES
<TABLE>
1999 1998
----------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Primary mills
Fibre $ 11,699 $ 11,058
Maintenance materials and operating supplies 29,796 29,910
Finished products 10,013 24,518
Converting plants
Raw materials 22,915 14,107
Maintenance materials and operating supplies 3,218 3,639
Finished products 18,461 10,282
Lumber
Fibre 8,500 4,921
Finished products 1,879 107
----------- -----------
$ 106,481 $ 98,542
=========== ===========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
1999
ACCUMULATED
COST AMORTIZATION NET
---------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Land $ 12,334 $ -- $ 12,334
Timberlands and roads 12,986 2,504 10,482
Buildings and equipment 995,460 201,397 794,063
----------- ----------- -----------
$ 1,020,780 $ 203,901 $ 816,879
----------- ----------- -----------
</TABLE>
<TABLE>
1998
ACCUMULATED
COST AMORTIZATION NET
---------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Land $ 6,549 $ -- $ 6,549
Timberlands and roads 12,990 2,058 10,932
Buildings and equipment 894,329 135,850 758,479
----------- ----------- -----------
$ 913,868 $ 137,908 $ 775,960
----------- ----------- -----------
Amortization expense for the year was $63,731 (1998 - $60,602; 1997 -
$43,837).
</TABLE>
<PAGE>
6. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
1999 1998
----------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred charges, net of accumulated amortization
Start-up costs $ 5,979 $ 5,626
Debt issue expenses 6,005 5,016
Foreign exchange loss on long-term debt 1,527 1,909
Other 3,765 2,107
Prepaid pension costs (Note 11) 15,326 14,279
Advances to officers and managers (Note 9) 1,296 1,410
----------- -----------
$ 33,898 $ 30,347
=========== ===========
</TABLE>
7. LONG-TERM DEBT
<TABLE>
1999 1998
----------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Secured term loan $ 224,250 $ 230,000
Senior secured notes
- Series A, 8.80% (1998 - 8.17%) 30,000 30,000
- Series B, 9.04% (1998 - 8.41% ) 85,000 85,000
- Series C, 9.42% (1998 - 8.79% ) 10,000 10,000
Eastern Container Corporation term loan 22,500 --
Industrial development revenue bonds 4,760 4,880
Note payable 8,000 --
Note payable to Abitibi-Consolidated Inc. (1998 - CAN$3.7) -- 2,389
Other 1,093 161
----------- -----------
385,603 362,430
Less: Long-term debt due within one year 47,397 5,975
----------- -----------
$ 338,206 $ 356,455
=========== ===========
</TABLE>
SECURED TERM LOAN
Under a credit agreement, the Company has a 7-year term facility with an
original amount of $230 million, of which $224.3 million were outstanding
at the end of 1999, and a CAN$200 million or US$ equivalent 5-year
revolving facility, of which CAN$191 million were available at the end of
the year, subject to meeting certain financial covenants. In the third
quarter of 1999, a CAN$70 million or US$ equivalent, 7-year term facility
available under this credit agreement was cancelled. The remaining
principal amount of the secured term loan is payable as follows: 10% in
2000 and 2001, 17.5% in 2002, 20% in 2003, 2004 and 2005 on the original
amount of US$230 million. The credit facilities bear interest at specified
margins over the alternate base rate or Libor. The actual interest rate as
of December 31, 1999 is 7.70% on the term facility (6.29% in 1998). The
credit facilities are secured by all the assets of St. Laurent Paperboard
Inc., St. Laurent Paperboard (U.S.) Inc. and their subsidiaries.
SENIOR SECURED NOTES
The US$125 million senior secured notes are secured by all the assets of
St. Laurent Paperboard Inc., St. Laurent Paperboard (U.S.) Inc. and their
subsidiaries and rank pari passu with the lenders under the credit
agreement governing the secured term loan. The Series B senior notes carry
the following principal repayment requirements: $18.3 million in 2000 and
2002 and $12.1 million in each of the years 2003 through 2006. The Series A
and C senior notes are payable in 2002 and 2008 respectively. Subject to a
make-whole provision, the notes are redeemable at any time. 7.
<PAGE>
7. LONG-TERM DEBT (CONTINUED)
EASTERN CONTAINER CORPORATION ("EASTERN") TERM LOAN
Concurrent with the acquisition of the remaining 51% of Eastern and with
the Company providing a guarantee to the lenders, Eastern's existing credit
agreement was renegotiated in order to have the covenants governing
Eastern's US$24 million, 7-year term facility similar to those governing
the Company's secured term loan. The principal amount of Eastern's term
loan is payable as follows: 12.5% in 2000, 2001, 2002 and 2003, 16.7% in
2004 and 27.1% in 2005 on the original amount of US$24 million. This credit
facility bears interest at a specified margin over prime rate or LIBOR. The
actual interest rate as of December 31, 1999 is 7.92%. The credit facility
is secured by all the assets of Eastern and is guaranteed by St. Laurent
Paperboard Inc.
INDUSTRIAL DEVELOPMENT REVENUE BONDS
In connection with the construction of a sheet corrugating facility based
in Milwaukee, Wisconsin by Innovative Packaging Corp., a subsidiary,
tax-exempt variable rate industrial development revenue bonds were issued
by this subsidiary in 1997 with a maturity of December 1, 2017. The bonds
are secured by an irrevocable bank letter of credit governed by a credit
facility, imposing certain financial covenants such as working capital and
tangible net worth. The bonds are subject to redemption at the option of
Innovative Packaging Corp., in whole or in part at any time, at par plus
accrued interest. The actual interest rate as of December 31, 1999 is 5.65%
(4.20% in 1998).
NOTE PAYABLE
In connection with the acquisition of Eastern, a US$8 million note was
issued as a balance of sale. The principal amount of the note payable will
be repaid as follows: one third in each of the years 2000, 2001 and 2002.
This note bears interest at a fixed rate of 8.25% and a portion of this
note ranks pari passu with the lenders under the Eastern Container
Corporation term loan. This note is guaranteed by St. Laurent Paperboard
Inc.
COVENANTS
Under the terms of its various debt agreements, the Company must meet
certain financial covenants, including ratios with respect to leverage,
tangible net worth and, under certain circumstances, interest coverage. In
addition, the Company is subject to limitations with regard to the sale or
disposal of assets. Specific rules and restrictions govern mergers and
acquisitions.
The minimum annual installments on long-term debt for the next five years
are as follows:
(IN THOUSANDS OF DOLLARS)
2000 $ 47,397
2001 29,152
2002 94,654
2003 61,245
2004 62,245
8. OTHER LIABILITIES
<TABLE>
1999 1998
----------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Pension liability (Note 11) $ 14,529 $ 10,659
Post-retirement benefit liability (Note 11) 16,981 15,312
Non-controlling interest 921 --
Other 373 1,300
----------- -----------
$ 32,804 $ 27,271
=========== ===========
</TABLE>
<PAGE>
9. COMMON SHARES AND CONTRIBUTED SURPLUS
The Company's authorized share capital consists of an unlimited number of
common shares and an unlimited number of preferred shares issuable in
series, in each case without nominal or par value. The number of shares
outstanding as at December 31, 1999 is 49,398,968 common shares (1998 -
49,244,696; 1997 - 49,034,871).
The changes in the number and stated value of the common shares of the
Company are as follows, in thousands of dollars except the number of
shares:
<TABLE>
1999 1998 1997
--------------------------------------------------------------------------------------
NUMBER OF STATED NUMBER OF STATED NUMBER OF STATED
SHARES VALUE SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 49,244,696 $ 571,934 49,034,871 $ 570,160 13,314,298 $ 90,111
Issued during the year
Public offering (i) -- -- -- -- 24,420,000 352,894
Conversion of debentures (ii) -- -- -- -- 11,190,770 125,638
Managers' Share Purchase Plan (iii) -- -- 9,289 107 30,603 445
Employees' Share Purchase Plan (iv) 136,925 1,360 202,129 1,647 43,784 520
Directors' Stock Option and Share
Purchase Plan (v) 10,110 108 8,233 110 6,060 98
Restricted share units matured 7,237 69 13,960 144 26,118 416
Options exercised -- -- 14,814 136 3,238 38
Buy-back of shares (vi) -- -- (38.600) (370) -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance at end of year 49,398,968 $ 573,471 49,244,696 $ 571,934 49,034,871 $ 570,160
=========== =========== =========== =========== =========== ===========
</TABLE>
(i) Net of issue costs of $10.2 million, which are net of taxes of $4.9
million.
(ii) Net of amortized issue costs of $1.1 million, which are net of taxes
of $0.5 million. If the convertible debentures had been converted at
the beginning of 1997, the loss per share figure for 1997 would have
been $0.77.
(iii) Shares issued to eligible managers under the Managers' Share Purchase
Plan were financed by interest-free loans provided by the Company. The
Company has reserved a maximum of 300,000 shares for the purpose of
the Plan. At December 31, 1999, there were 82,293 shares held by the
Plan's participants (1998 - 92,269; 1997 - 91,201) with a market value
of $1,096,966 (1998 - $646,806; 1997 - $1,172,845).
(iv) The Company has reserved a maximum of 500,000 shares for the purpose
of the Employees' Share Purchase Plan. At December 31, 1999, there
were 296,997 shares held by the Plan's participants (1998 - 267,366;
1997 - 64,853).
(v) The Company has reserved a maximum of 175,000 shares for the purpose
of the Directors' Stock Option and Share Purchase Plan. At December
31, 1999, there were 32,098 shares issued and outstanding under the
provisions of the Plan (1998 - 21,988; 1997 - 15,143).
(vi) Shares were purchased according to a normal course issuer bid that was
approved in December 1997. The bid was for approximately 5% of the 49
million common shares issued and outstanding, subject to a maximum
aggregate purchase price of CAN$40 million. The normal course issuer
bid expired in December 1998.
<PAGE>
9. COMMON SHARES AND CONTRIBUTED SURPLUS (CONTINUED)
The Company also issued shares to eligible officers under a Long-Term
Incentive Plan which were financed by interest-free loans provided by the
Company. At December 31, 1999, there were 44,004 (1998 - 44,004; 1997 -
52,234) shares issued and outstanding under this plan with a market value
of $586,573 (1998 - $308,468; 1997 - $671,867).
The interest-free loans to eligible officers and managers are secured by
the common shares issued under both plans and are repayable from proceeds
on the sale of any shares purchased, by the application of any dividends
declared and paid on such shares, and from 25% of any bonus paid to the
eligible officer or manager and, as to any remainder, upon termination of
employment.
Under the Long-Term Incentive and Managers' Share Purchase plans, at the
time of issuance of common shares, the Company granted to each eligible
officer and manager one restricted share unit ("RSU") for every two shares.
Each RSU entitles the holder to receive one common share, at no cost, three
years after its issuance. During the year, 7,237 RSUs (1998 - 13,960; 1997
- 26,118) matured and 1,731 were cancelled (1998 - 13,569; 1997 - 1,298).
In addition, the Long-Term Incentive Plan also includes a stock option
component for its participants. The number of shares that may be issued
pursuant to the exercise of options under the plan is limited to 1,031,684
common shares. The options can be exercised between one to five years after
their respective date of grant for a period of ten years, at which time
they expire.
Under the terms of the Directors' Stock Option and Share Purchase Plan, the
options granted to directors can be exercised starting one year after their
respective date of grant for a period of ten years, at which time they
expire.
The changes in the number of stock options and RSUs of the Company are as
follows:
<TABLE>
1999 1998
---------------------------------------- ---------------------------------------
NUMBER WEIGHTED NUMBER NUMBER WEIGHTED NUMBER
OF EXERCISE OF OF EXERCISE OF
OPTIONS PRICE RSUs OPTIONS PRICE RSUs
CAN$ CAN$
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 666,340 $ 19.07 22,710 594,359 $ 18.88 45,595
Issued 333,262 15.71 -- 163,769 19.25 4,644
Cancelled (67,228) 17.69 (1,731) (76,974) 19.10 (13,569)
Matured or exercised -- -- (7,237) (14,814) 13.50 (13,960)
----------- ----------- ----------- ----------- ----------- -----------
Balance at end of year 932,374 16.01 13,742 666,340 19.07 22,710
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
1997
-----------------------------------------
NUMBER WEIGHTED NUMBER
OF EXERCISE OF
OPTIONS PRICE RSUs
CAN$
<S> <C> <C> <C>
Balance at beginning of year 448,234 $ 17.22 58,328
Issued 173,396 22.86 15,300
Cancelled (24,033) 16.12 (1,915)
Matured or exercised (3,238) 16.70 (26,118)
----------- ----------- -----------
Balance at end of year 594,359 18.88 45,595
=========== ========== ===========
</TABLE>
<PAGE>
9. COMMON SHARES AND CONTRIBUTED SURPLUS (CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable stock options:
<TABLE>
<CAPTION>
AVERAGE WEIGHTED WEIGHTED
RANGE REMAINING AVERAGE AVERAGE
OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$13.50 - $17.00 432,947 7.45 years $15.00 134,189 $13.50
$17.00 - $21.00 313,785 6.52 years $19.09 155,520 $19.09
$21.00 - $23.73 185,642 6.70 years $22.99 65,464 $22.88
-------------- ---------------
932,374 355,173
============== ===============
</TABLE>
In addition to the options and the RSUs outstanding, the Company issued
380,000 warrants in the course of the acquisition of Eastern Container
Corporation. The warrants awarded give the right to the owner to buy
380,000 common shares of the Company at CAN$10.95/share and the owner has
until January 2002 to exercise those warrants.
10. COMMITMENTS AND CONTINGENCIES
a) At December 31, 1999, the Company had commitments for major capital
expenditures under purchase orders and contracts amounting to
approximately $13.5 million.
Minimum payments in US and Canadian dollars required under operating
leases are as follows:
US $ CAN $
--------------------------------
(IN THOUSANDS OF DOLLARS)
2000 5,285 1,429
2001 4,794 897
2002 4,436 813
2003 3,496 776
2004 2,614 715
Subsequent years 5,282 1,405
Under the Asset Acquisition Agreement between the Company and
Avenor Inc. in June 1994, Avenor Inc. (now Bowater Canada Inc.)
has a right of first refusal for a period of 99 years regarding
disposition of the Company's private timberlands of approximately
904,020 acres at the rate of 250 acres or more in any one
transaction or series of related transactions. Should Bowater
Canada Inc. refuse the transaction, it remains entitled to
receive from the Company any amount in excess of CAN$25 per acre.
The Company is involved in various legal actions during the
normal course of business. Management of the Company is of the
opinion that the total amount of any potential liabilities for
which provisions have not already been recorded is not expected
to have a material adverse effect on the Company's financial
position or its results.
<PAGE>
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
b) On April 19, 1999, the U.S. Environmental Protection Agency ("EPA")
and the Virginia Department of Environmental Quality ("DEQ") each
issued a Notice of Violation ("NOV") under the Clean Air Act ("CAA")
to the primary mill located in West Point, Virginia (the "Mill"),
which was acquired from Chesapeake Corporation ("Chesapeake") in 1997.
The Company is part of a group of pulp and paper companies that were
served at the same period of time with NOVs by EPA for alleged
violations of the Clean Air Act. In general, the NOVs allege that from
1984 to the present, the Mill installed certain equipment and modified
certain production processes without obtaining required permits. In
the 1997 Purchase Agreement, Chesapeake agreed to indemnify the
Company for remediation work resulting from violations of applicable
environmental laws (including the CAA) that existed at the Mill as of
the date of the Purchase Agreement and as of the May 1997 closing date
as to which Chesapeake had "knowledge" as defined in the Purchase
Agreement. Chesapeake's maximum indemnification obligation to St.
Laurent with respect to such matters is $50 million. While such costs
cannot be estimated with certainty at this time, based on presently
available information, the Company believes that the cost of
remediation work, which represents capital expenditures comprising the
engineering, procurement and construction work of Mill modifications
(including the installation of air emission controls, etc.) associated
with the NOVs may approximate $20 million.
In addition, a civil monetary penalty may be assessed by EPA and DEQ;
however, the costs associated with any such penalty cannot be
estimated at this time as the Company and Chesapeake are continuing
discussions with EPA and DEQ with respect to such matters. Based upon
discussions with EPA and DEQ to date, the Company believes that the
total cost of remediation work associated with the NOVs and fines and
penalties that may be imposed by EPA and DEQ will not exceed the
maximum amount of Chesapeake's obligation. The Company and Chesapeake
have agreed to appoint a third party to decide the scope and timing of
future remediation work that is the subject of indemnification in the
Purchase Agreement. The third party ruled on February 25, 2000 that
said extension of the indemnification period has been extended to May
8, 2000, with the possibility of a further extension, on terms that
may be determined by the third party. In the interim, the Company and
Chesapeake, with the assistance of the third party, under certain
conditions, shall work together in attempting to develop and implement
a remediation plan, which will provide for a cost-effective resolution
of the issues raised by the NOVs. The Company believes that Chesapeake
has the financial ability to honor its indemnification obligation
under the 1997 Purchase Agreement. The Company is cooperating with
Chesapeake to analyze, respond to, and defend against the matters
alleged in the NOVs. Based upon an initial review of the NOVs, the
Company believes that it has substantial defenses against the alleged
violations. The Company and Chesapeake are working with EPA and DEQ to
address the matters that are the subject of the NOVs; however, the
Company will vigorously defend itself against these allegations, if
necessary.
<PAGE>
11. EMPLOYEE PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS
PENSION COSTS
Canadian operations
Defined Benefit Pension Plans
The Company has a registered pension plan (the St. Laurent Plan) which
covers substantially all non-unionized employees. The St. Laurent Plan is a
defined benefit plan integrated with the Canada/Quebec Pension Plan, and is
funded through Company contributions.
Most of the unionized employees of the Company are covered by a registered
defined benefit plan integrated with the Canada/Quebec Pension Plan, funded
through Company and employee contributions. Employee contributions and
pension benefits for unionized employees are established pursuant to the
collective bargaining agreements in effect with their respective unions.
Defined Contribution Pension Plans
Certain unionized and non-unionized employees of the Company are covered by
registered defined contribution pension plan.
Supplementary Executive Retirement Plan (the "SERP")
The Company also has a SERP pursuant to which additional pension benefits
in excess of those that can be provided under St. Laurent Plans may become
payable to certain executive officers qualified for participation under the
SERP based on their position level.
United States operations
Defined Benefit Pension Plans
The U.S. companies currently maintain two non-contributory defined benefit
retirement plans covering substantially all U.S. employees. The plan
covering represented U.S. employees generally provides benefits of stated
amounts for each year of service or a formula based on years of service and
the employee's salary history. The plan covering U.S. salaried and
non-represented hourly employees provides benefits of stated amounts for
each year of service for most hourly employees and a formula based on years
of service and the employee's salary history for salaried employees and
certain hourly employees. Salaried employees and certain represented
employees are also entitled to supplemental benefits based on service of
more than ten years. The funding policy for the qualified plans is to
contribute amounts to the plans sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act and
the Internal Revenue Code. The U.S. companies also maintain certain
non-qualified pension plans for executives which provide benefits that are
based on targeted wage replacement percentages or provide other additional
benefits. These non-qualified plans are unfunded.
401(k) Plans
The U.S. companies also maintain two 401(k) Plans covering substantially
all U.S. employees. Participants are allowed to make voluntary employee
contributions on a pre-tax basis which contributions are matched based on
the employee's status and workplace.
The dates of the most recent actuarial valuations for the plans are
December 31, 1997 for the Canadian plans and October 1, 1998 for the U.S.
plans.
Contributions to the Company's pension plans are based on the actuarial
recommendation for each plan and meet the funding requirements of the
regulatory authorities.
<PAGE>
11. EMPLOYEE PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
PENSION EXPENSE
Net pension expense for the defined benefit plans include the following
components:
<TABLE>
1999 1998 1997
---------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service costs - pension benefits earned during
the year $ 5,647 $ 4,809 $ 3,069
Interest costs on projected benefit obligation 18,754 17,607 15,465
Actual return on pension fund assets (9,757) (21,733) (20,543)
Net amortization, deferrals and others (9,222) 2,756 4,937
----------- ----------- -----------
Net pension expense $ 5,422 $ 3,439 $ 2,928
=========== =========== ===========
</TABLE>
FUNDED STATUS OF THE PLANS
<TABLE>
1999 1998
FOR PLANS IN WHICH FOR PLANS IN WHICH
ASSETS EXCEED BENEFITS EARNED ASSETS EXCEED BENEFITS EARNED
BENEFITS EARNED EXCEED ASSETS BENEFITS EARNED EXCEED ASSETS
----------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Plan assets at fair value $ 63,955 $ 172,737 $ 60,187 $ 161,373
Projected benefit obligation 51,998 195,176 48,990 177,397
----------- ----------- ----------- -----------
Plan assets in excess of (less than)
projected benefit obligation $ 11,957 $ (22,439) $ 11,197 $ (16,024)
=========== =========== =========== ===========
The above excess (deficiency) is
Unamortized net gain (loss) $ (2,917) $ 15,736 $ (3,082) $ 7,169
Net asset (obligation) as at
June 1994, the implementation
date of the current accounting
policy -- 480 -- 584
Prior service cost of retroactive
benefits resulting from plan
amendments since June 1994 (452) (24,126) -- (13,118)
----------- ----------- ----------- -----------
(3,369) (7,910) (3,082) (5,365)
Prepaid pension cost (liability) 15,326 (14,529) 14,279 (10,659)
----------- ----------- ----------- -----------
$ 11,957 $ (22,439) $ 11,197 $ (16,024)
=========== =========== =========== ===========
</TABLE>
The following assumptions were used for the Canadian and U.S. plans:
1999 1998
-----------------------------------------------------------------------
Average rate CAN US CAN US
-----------------------------------------------------------------------
Discount rate 8.25% 7.50% 8.75% 6.75%
Salary increase 3.50% 4.75% 3.50% 4.75%
Return on assets 8.25% 9.25% 8.75% 9.25%
<PAGE>
11. EMPLOYEE PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
<TABLE>
1999 1998
----------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Costs of post-retirement benefits other than pensions:
Service costs $ 962 $ 690
Interest costs 1,350 1,252
Amortization of the transitional balance 131 131
Actuarial loss 4 --
----------- -----------
Total $ 2,447 $ 2,073
=========== ===========
Funded status of plans:
Accumulated obligation for post-retirement
benefits other than pensions $ 19,444 $ 18,740
=========== ===========
Unrecognized transitional balance $ 1,622 $ 1,653
Unrecognized net loss 841 1,775
Accrual for post-retirement benefits other than pensions 16,981 15,312
----------- -----------
$ 19,444 $ 18,740
=========== ===========
</TABLE>
The assumptions used to measure the obligation for post-retirement
benefits other than pensions are as follows:
Average age discount rate 7.50%
Health care cost trend rate 7.50% in 1999 trending down to a
rate of 5% in 2003
Effect of a 1% change in the health
care cost trend rate on post-retirement
benefits other than pensions: - Cost $0.1 million
- Obligation $0.9 million
<TABLE>
CHANGE IN BENEFITS OBLIGATION
PENSION BENEFITS OTHER POST-RETIREMENT BENEFITS
1999 1998 1999 1998
------------------------------------------------------------
(IN THOUSANDS OF DOLLARS) (IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Benefits obligation at beginning of year $ 226,387 $ 212,045 $ 18,740 $ 16,754
Acquisition 5,811 -- 1,014 --
Unrealized foreign exchange loss (gain) 9,111 (9,887) 131 (145)
Service costs 5,647 4,809 962 690
Interest costs 18,754 17,607 1,350 1,252
Plan participants' contributions 1,326 1,159 -- --
Amendments 12,032 4,140 -- --
Actuarial loss (gain) (18,258) 5,216 (930) 1,054
Special termination benefits (Note 17) -- 8,233 -- --
Benefits paid (13,636) (16,935) (1,823) (865)
----------- ----------- ----------- -----------
Benefits obligation at end of year $ 247,174 $ 226,387 $ 19,444 $ 18,740
=========== =========== =========== ===========
</TABLE>
<PAGE>
11. EMPLOYEE PENSION COSTS AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
CHANGE IN PLAN ASSETS
PENSION BENEFITS
1999 1998
-----------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Fair value of plan assets at beginning of year $ 221,560 $ 221,460
Acquisition 5,224 --
Unrealized foreign exchange gain (loss) 8,601 (9,683)
Actual return on plan assets 9,757 21,733
Employer contribution 3,860 3,826
Plan participants' contributions 1,326 1,159
Gross benefits paid (13,636) (16,935)
----------- -----------
Fair value of plan assets at end of year $ 236,692 $ 221,560
=========== ===========
</TABLE>
12. INTEREST EXPENSE (INCOME), NET AND OTHER INCOME
<TABLE>
<CAPTION>
INTEREST EXPENSE (INCOME), NET
1999 1998 1997
---------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest on long-term debt $ 27,019 $ 28,252 $ 25,635
Deferred debt issue expenses written off -- -- 8,426
Interest on debt component of convertible debentures -- -- 260
Interest income on temporary investments (943) (1,103) (1,866)
Interest capitalized on major construction projects -- -- (200)
Other 2,533 2,248 1,505
----------- ----------- -----------
$ 28,609 $ 29,397 $ 33,760
=========== =========== ===========
Cash payments of interest totaled $27.6 million in 1999 (1998 - $27.1
million; 1997 - $28.4 million).
OTHER INCOME (EXPENSE), NET
</TABLE>
<TABLE>
1999 1998 1997
----------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Gain resulting from the renegotiation
of fibre supply agreements $ 9,500 -- --
Gain from asset disposals 5,094 235 235
Other (802) 262 (22)
----------- ----------- ------------
$ 13,792 $ 497 $ 213
=========== =========== ============
</TABLE>
<PAGE>
13. PROVISION FOR (RECOVERY OF) INCOME TAXES
The composite of the applicable statutory corporate income tax rates in
Canada is 39.7% (1998 - 39.3%; 1997 - 41.1%). The following is the
reconciliation of income taxes calculated at the above composite statutory
rate with the income tax provision:
<TABLE>
1999 1998 1997
----------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Earnings (loss) before income taxes $ 60,276 $ (30,400) $ (42,451)
----------- ----------- -----------
Income taxes (recovery) at the composite statutory rate 23,943 (11,946) (17,458)
Manufacturing and processing deduction (2,455) 624 2,655
Large corporations tax 926 714 1,310
Exchange translation items (515) 3,277 1,054
Other items (63) 194 429
----------- ----------- -----------
$ 21,836 $ (7,137) $ (12,010)
=========== =========== ===========
</TABLE>
Payments for income and capital taxes in 1999 amounted to $2.9 million
(1998 - payments of $2.5 million; 1997 - payments of $2.6 million).
The following summarizes the Company's income taxes on earnings of its
Canadian and foreign operations:
<TABLE>
1999 1998 1997
---------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Canada
Earnings (loss) before income taxes $ 33,678 $ (16,063) $ (35,854)
Income taxes (recovery)
Current 913 921 1,550
Future 10,352 (2,760) (11,067)
----------- -------------- ----------
11,265 (1,839) (9,517)
----------- -------------- ----------
Net earnings (loss) before
non-controlling interests $ 22,413 $ (14,224) $ (26,337)
=========== ============== ==========
Foreign
Earnings (loss) before income taxes $ 26,598 $ (14,337) $ (6,597)
Income taxes (recovery)
Current 544 104 --
Future 10,027 (5,402) (2,493)
----------- -------------- ----------
10,571 (5,298) (2,493)
----------- -------------- ----------
Net earnings (loss) before
non-controlling interests $ 16,027 $ (9,039) $ (4,104)
=========== ============== ==========
Total
Earnings (loss) before income taxes $ 60,276 $ (30,400) $ (42,451)
Income taxes (recovery)
Current 1,457 1,026 1,550
Future 20,379 (8,163) (13,560)
----------- -------------- ----------
21,836 (7,137) (12,010)
----------- -------------- ----------
Net earnings (loss) before
non-controlling interests $ 38,440 $ (23,263) $ (30,441)
=========== ============== ==========
</TABLE>
<PAGE>
13. PROVISION FOR (RECOVERY OF) INCOME TAXES (CONTINUED)
Principal components of future income taxes are as follows:
<TABLE>
1999 1998
CANADA UNITED STATES CANADA UNITED STATES
----------------------------------------------------------
(IN THOUSANDS OF DOLLARS) (IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Future income tax assets
Operating loss carryforwards $ 5,031 $ 48,004 $ 10,423 $ 37,870
Post retirement benefits -- 7,107 -- 6,958
Shares issuance costs 2,864 -- 4,170 --
Other deductible timing differences 3,426 4,302 2,128 4,467
----------- ---------- ----------- -----------
11,321 59,413 16,721 49,295
----------- ---------- ----------- -----------
Future income tax liabilities
Differences between tax bases and
Post retirement liabilities -- 4,318 -- 4,246
Other taxable timing differences 1,388 68 1,910 64
----------- ---------- ----------- -----------
28,036 61,003 23,084 40,858
----------- ---------- ----------- -----------
Net future income tax assets (liabilities) $ (16,715) $ (1,590) $ (6,363) $ 8,437
=========== ========== =========== ===========
</TABLE>
The tax loss carryforwards expire as follows:
(IN THOUSANDS OF DOLLARS)
2003 : $ 6,800
2004 : 7,400
2010 : 900
2011 : 2,300
2012 : 23,500
2018 : 71,800
2019 : 21,800
--------
$134,500
========
14. SHAREHOLDER RIGHTS PLAN
The Company has a Shareholder Rights Plan which is designed to encourage
the fair treatment of all shareholders in connection with any takeover bid
for the Company. The Shareholder Rights Plan adopted in 1995 and subject to
reconfirmation by the shareholders at every third annual meeting, has been
renewed in 1998 and will expire on February 1, 2005.
The rights issued under the Shareholder Rights Plan become exercisable
under certain specific events related to a potential takeover other than a
permitted bid. Similar to most of the rights plans implemented in Canada,
the Shareholder Rights Plan contemplates a permitted bid concept whereby a
takeover bid will not trigger the rights if it meets specified conditions.
Should a bid other than a permitted bid be carried out, each right would
entitle a rights holder to purchase common shares of the Company at a 50%
discount of the market price at the time.
<PAGE>
15. SEGMENTED INFORMATION
The Company's primary activity is the production and marketing of
paperboard and packaging products. The Company's manufacturing and
converting facilities are located in Quebec and Ontario, Canada, and in New
York, Maryland, Massachusetts, Ohio, North Carolina, Virginia, Wisconsin,
South Carolina and New Hampshire, U.S.A. The operating activities are split
into two major segments which are the paperboard production and marketing,
and the converting operations.
Primary production includes white top and mottled white linerboard, solid
bleached foodboard and linerboard, unbleached kraftliner board, and
corrugating medium. Containerboard, consisting of linerboard and
corrugating medium, is the principal raw material used in the manufacturing
of corrugated containers. Integrated containerboard manufacturers exchange
containerboard with other manufacturers to take advantage of freight costs,
manufacturing efficiencies and to obtain grade they do not produce.
The Company owns and operates sixteen converting plants. The converting
production consists mainly of corrugated containers, litho-labeled and
direct-printed retail packaging, point-of-purchase displays, post-print,
specialty packaging products, cupstock, baconboard and liquid packaging.
The Company's converting plants consume the equivalent of approximately 37%
of the Company's production. Accounting for segment profitability involves
use of transfer prices that attempt to approximate current market value.
Segment profit and assets have been measured in accordance with the
Company's accounting policies.
<TABLE>
Woodlands,
Solid Wood
and
Primary unallocated
1999 mills Converting amounts Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to third parties $ 523,532 $ 363,178 $ 29,087 $ 915,797
Inter-segment sales 90,240 -- -- 90,240
----------- ----------- ----------- -----------
Total 613,772 363,178 29,087 1,006,037
EBITDA (i) 117,476 21,845 2,795 142,116
Amortization 56,064 8,741 2,218 67,023
Operating earnings 61,412 13,104 577 75,093
Total assets 766,288 310,233 79,022 1,155,543
Additions to property, plant and equipment 37,251 18,556 1,331 57,138
Addition to goodwill -- 21,630 -- 21,630
</TABLE>
<PAGE>
15. SEGMENTED INFORMATION (CONTINUED)
<TABLE>
Woodlands,
Solid Wood
and
Primary unallocated
1998 mills Converting amounts Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to third parties $ 478,104 $ 296,038 $ 17,765 $ 791,907
Inter-segment sales 80,354 -- -- 80,354
----------- ----------- ----------- -----------
Total 558,458 296,038 17,765 872,261
EBITDA before restructuring charge (i) 61,300 15,206 (1,620) 74,886
Amortization 54,329 7,391 1,788 63,508
Operating earnings (loss) before
restructuring charge 6,971 7,815 (3,408) 11,378
Total assets 809,947 181,532 58,934 1,050,413
Additions to property, plant and equipment 33,913 13,129 2,193 49,235
Addition to goodwill -- -- -- --
</TABLE>
(i) EBITDA: earnings before interest, income taxes, depreciation and
amortization.
<TABLE>
Woodlands,
Solid Wood
and
Primary unallocated
1997 mills Converting amounts Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to third parties $ 363,436 $ 220,125 $ 6,881 $ 590,442
Inter-segment sales 64,727 -- -- 64,727
----------- ----------- ----------- -----------
Total 428,163 220,125 6,881 655,169
EBITDA (i) 29,812 14,432 (5,527) 38,717
Amortization 39,696 6,466 1,459 47,621
Operating earnings (loss) (9,884) 7,966 (6,986) (8,904)
Identifiable assets 844,388 176,792 59,741 1,080,921
Additions to property, plant and equipment 21,388 19,113 3,537 44,038
Addition to goodwill -- -- 702 702
</TABLE>
Starting in July 1998, corporate expenses were allocated to the primary
mills and converting segments.
(i) EBITDA: earnings before interest, income taxes, depreciation and
amortization.
<PAGE>
15. SEGMENTED INFORMATION (CONTINUED)
The operations and assets of the Company by geographic area are as follows:
<TABLE>
1999 1998 1997
------------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Sales to third parties
From Canada
Within Canada $ 137,174 $ 120,620 $ 130,367
To the United States 208,086 151,903 125,206
Other 29,222 45,583 45,296
------------- ------------- -------------
374,482 318,106 300,869
From the United States 541,315 473,801 289,573
------------- ------------- -------------
$ 915,797 $ 791,907 $ 590,442
============= ============= =============
Intercompany sales between geographic areas (A)
From Canada $ 19,582 $ 9,723 $ 4,845
From the United States 1,215 2,078 1,092
------------- ------------- -------------
$ 20,797 $ 11,801 $ 5,937
============= ============= =============
Operating earnings (loss)
Canada $ 40,967 $ (4,213) $ (22,975)
United States 34,126 2,713 14,071
------------- ------------- -------------
$ 75,093 $ (1,500) $ (8,904)
============= ============= =============
Total assets (B)
Canada $ 438,551 $ 441,710 $ 468,865
United States 716,992 608,703 612,056
------------- ------------- -------------
$ 1,155,543 $ 1,050,413 $ 1,080,921
============= ============= =============
</TABLE>
<TABLE>
1999 1998 1997
------------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Property, plant, equipment and goodwill
Canada $ 325,249 $ 320,371 $ 316,170
United States 531,969 475,512 491,901
------------- ------------- -------------
$ 857,218 $ 795,883 $ 808,071
============= ============= =============
</TABLE>
(A) Intercompany sales reflect transfer prices at market value.
(B) Total assets are those which are directly used in geographic areas.
<PAGE>
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Since substantially all of the Company's revenues are denominated in US
dollars and a portion of the operating costs are incurred in Canadian
dollars, the Company has a hedging program to manage its foreign exchange
exposure on future purchases of services and products denominated in
Canadian dollars. The Company does not use derivative financial instruments
for trading or speculative purposes. At December 31, the Company had
entered into various forward contracts and options for the purchase of
Canadian dollars as follows (amounts in parentheses represent losses):
<TABLE>
1999 1998
--------------------------------------------------------------------------------
AVERAGE AVERAGE
EXCHANGE EXCHANGE
NOMINAL RATE FAIR NOMINAL RATE FAIR
AMOUNT US$/CAN$ VALUE AMOUNT US$/CA$N$ VALUE
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $ -- $ -- $ -- $ 77,000 $ 0.7125 $ (7,422)
2000 108,000 0.6950 150 84,000 0.7001 (5,493)
2001 76,000 0.6920 919 56,000 0.7027 (3,776)
2002 21,000 0.6972 208 15,000 0.7068 (1,074)
$ 205,000 $ 1,277 $ 232,000 $ (17,765)
</TABLE>
The fair value of these forward contracts and options reflects the
estimated amounts that the Company would receive or (pay) to terminate the
contracts at the year-end date. The unrealized gains and losses on open
contracts are equal to the fair value as indicated above.
INTEREST RATE RISK MANAGEMENT
Cash and temporary investments bear interest at floating rates. Accounts
receivable, accounts payable and accrued liabilities are non-interest
bearing.
The Company enters into interest rate swap agreements to reduce exposure to
interest rate fluctuations on its long-term debt. Payments made under these
agreements are accounted for as adjustments to interest expense.
At December 31, 1999, the Company has entered into interest rate swap
agreements with financial institutions to pay fixed rates on a notional
amount of US$55 million at a rate of 5.97%. These agreements expire in
2003. The fair value of these financial instruments as of December 31, 1999
represents an unrealized gain of $1.5 million.
SELLING PRICES RISK MANAGEMENT
The Company enters into cash-settled swap agreements with financial
institutions to receive fixed prices on notional amounts of 26 lb.
semichemical corrugating medium and 42 lb. unbleached kraftliner. At
December 31, 1999, the Company had entered into swap agreements for 37,500
tons of corrugating medium and 18,000 tons of unbleached kraftliner. These
agreements expire in 2000 and 2001. The fair value of these financial
instruments as of December 31, 1999 represents an unrealized loss of $1.6
million.
<PAGE>
16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
RECYCLED FIBRE RISK MANAGEMENT
The Company enters into cash-settled swap agreements with financial
institutions to pay fixed prices on notional amounts of old corrugated
container. At December 31, 1999, the Company had entered into swap
agreements for 48,000 tons of old corrugated container. These agreements
expire in 2001. The fair market value of these instruments as of December
31, 1999 represents an unrealized loss of $0.3 million.
CREDIT RISK MANAGEMENT
The Company is exposed to credit risk on the accounts receivable from its
customers. In order to reduce this risk, the Company's credit policies
include the analysis of the financial position of its customers and the
regular review of their credit limits. In some cases, the Company requires
bank letters of credit or subscribes to credit insurance. The Company does
not have significant exposure to any individual customer or counterpart and
has not incurred significant bad debt expenses in the last three years.
The Company minimizes its credit exposure to counterparties in the
derivative financial instrument transactions by entering into contracts
only with highly rated financial institutions and by distributing the
transactions among several selected financial institutions. Although the
Company's credit risk is the replacement cost at the then-estimated fair
value of the instrument, management believes that the risk of incurring
losses is remote and that such losses, if any, would not be material. The
market risk related to the derivative instruments should be offset by
changes in the valuation of the underlying items being hedged.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Rates currently available to the Company for long-term debt with similar
terms and remaining maturities are used to estimate the fair value of
existing borrowings using the present value of expected cash flows.
Short-term financial instruments included in the consolidated balance sheet
are valued at their carrying amounts which are reasonable estimates of fair
value due to the relatively short period to maturity of the instruments;
these include cash and temporary investments, accounts receivable, bank
indebtedness and accounts payable and accrued liabilities.
The fair value of the Company's other financial instruments and their
carrying amount are as follows:
<TABLE>
1999 1998
---------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Secured term loan $ 224,250 $ 224,250 $ 230,000 $ 230,000
Senior secured notes 125,000 130,845 125,000 135,588
Eastern Container Corporation term loan 22,500 22,500 -- --
Industrial development revenue bonds 4,760 4,760 4,880 4,880
Note payable 8,000 8,000 -- --
Note payable to Abitibi-Consolidated Inc. -- -- 2,389 2,389
</TABLE>
17. RESTRUCTURING CHARGE
In 1998, the Company completed a major restructuring of its West Point
mill. As a result, the market pulp machine was permanently shut down as
well as a chip mill. With this process, the Company has offered an enhanced
early retirement package to a certain number of eligible employees,
including severance payments and extended health benefits. The Company has
renegotiated the expiry date of the collective agreement extending it from
2001 to 2008. The cost related to the restructuring was incurred in 1998.
<PAGE>
18. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
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. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not yet 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. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(U.S. GAAP)
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada (Canadian GAAP) which
conform in all material respects with generally accepted accounting
principles in the United States, except as set forth below.
A) RECONCILIATION OF EARNINGS AND BALANCE SHEET TO U.S. GAAP
<TABLE>
<CAPTION>
EARNINGS ADJUSTMENTS
1999 1998 1997
-----------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net earnings (loss) in accordance with
Canadian GAAP $ 38,337 $ (23,263) $ (30,441)
============= ============= =============
Adjustments:
Pension expense (1) $ (933) $ (722) $ (414)
Unrealized exchange loss on long-term debt (2) 381 237 527
Interest on equity component of convertible
RSU/stock options (4) (804) (798) (785)
Future income taxes (5) -- (394) 394
Deferred start-up costs (6) (455) 2,180 (75)
Change in reporting currency (7) -- -- (508)
Write-off of debt issue expenses (9) -- -- 8,426
Income tax impact of the above adjustments 458 (481) (1,444)
------------- ------------- -------------
$ (1,353) $ 22 $ 1,331
------------- ------------- -------------
Net earnings (loss) in accordance with
U.S. GAAP before extraordinary item $ 36,984 $ (23,241) $ (29,110)
Extraordinary item (net of tax) ------------- ------------- -------------
Net earnings (loss) $ 36,984 $ (28,886) $ (29,110)
============= ============= =============
Net earnings (loss) per common share
Extraordinary item (net of tax) -- (0.12) --
------------- ------------- -------------
Net earnings (loss) per common share - basic $ 0.75 $ (0.59) $ (0.85)
============= ============= =============
Net earnings (loss) per common share -
fully diluted (10) $ 0.75 $ (0.59) $ (0.85)
============= ============= =============
</TABLE>
<PAGE>
19. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(U.S. GAAP) (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT OF COMPREHENSIVE INCOME
1999 1998 1997
------------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net earning (loss) $ 36,984 $ (28,886) $ (29,110)
Other comprehensive income, net of tax
Minimum pension liability 1,882 (1,995) 3,131
------------- ------------- -------------
Comprehensive income (loss) $ 38,866 $ (30,881) $ (25,979)
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET ADJUSTMENTS
1999 1998
CAN. GAAP U.S. GAAP CAN. GAAP U.S. GAAP
----------------------------------------------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Working capital $ 114,184 $ 114,184 $ 131,533 $ 131,533
Property, plant and equipment 816,879 816,879 775,960 775,960
Future income taxes (1,6) -- -- 8,437 8,437
Other assets (1,2,6,8) 74,237 77,051 50,270 57,483
------------- ------------- ------------- -------------
$ 1,005,300 $ 1,008,114 $ 966,200 $ 973,413
============= ============= ============= =============
Long-term debt $ 338,206 $ 338,206 $ 356,455 $ 356,455
Future income taxes (1,6) 18,305 16,018 6,363 3,607
Other liabilities (1) 32,804 46,528 27,271 47,310
Shareholders' equity (1,2,4,6,8) 615,985 607,362 576,111 566,041
------------- ------------- ------------- -------------
$ 1,005,300 $ 1,008,114 $ 966,200 $ 973,413
============= ============= ============= =============
</TABLE>
(1) Accounting for pension costs under U.S. GAAP differs from
Canadian GAAP principally with respect to the choice of the
discount rate used to calculate the projected benefit obligation
and to the valuation of assets and related effects on pension
expense. In addition, under U.S. GAAP, the Company would have
recorded an additional minimum liability for underfunded plans
representing the excess of the accumulated benefit obligation
over the pension plan assets, less the pension liability already
recognized and the net unamortized prior service cost. Under U.S.
GAAP, the additional minimum liability at December 31, 1999 of
$12.1 million (1998 - $19.3 million) would be accounted for and
offset by an intangible asset of $11.4 million (1998 - $15.9
million) and a component of accumulated other comprehensive
income of $0.5 million (1998 - $2.3 million), net of a tax
benefit of $0.2 million (1998 - $1.1 million).
(2) Unrealized exchange gains and losses arising on the translation,
at exchange rates prevailing on the balance sheet date, of
long-term debt repayable in a foreign currency are deferred and
amortized over the remaining life of the related debt. Under U.S.
GAAP, such exchange gains and losses are included in earnings.
(3) Under Canadian GAAP, the interest expense related to the debt
component of the convertible debenture is charged to net earnings
and the interest expense related to the equity component of the
convertible debentures, net of income taxes, is charged to
retained earnings. Under U.S. GAAP, the interest related to the
principal amount of the convertible debentures is charged to
earnings.
<PAGE>
19. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(U.S. GAAP) (CONTINUED)
(4) Under U.S. GAAP, the Company had elected in 1995 to measure
compensation costs related to awards of RSUs and stock options
using the fair value based method of accounting as recommended
under FASB Statement 123. The recognition provision has not been
applied to awards granted in 1994. The fair value of options
granted was estimated using the Black-Scholes options pricing
model, taking into account an interest risk-free rate of 6% in
1999 (6% in 1998; 7% in 1997), an expected volatility of 25% and
an expected life of four years. The weighted average grant date
fair value of options granted during the year was $3.39: (1998 -
$3.42 and 1997 - $5.28). The expected rate of cancellation of
options and RSUs is estimated at 5% and 6.5% respectively per
year. The cost related to the RSUs, which is amortized over a
period of three years, is based on the market value of the
Company's shares as of the grant date, which was $12.30 in 1998
(1997 - $15.08). The program was terminated in 1998. No RSUs were
granted in 1999.
(5) Under Canadian GAAP, future income taxes were, until 1997,
considered as non-monetary elements and were therefore translated
into US dollars using historical exchange rates. Under U.S. GAAP,
future income taxes were considered as monetary elements and
were, therefore, translated into US dollars using the exchange
rate in effect at the end of the year. In 1998, the Company
adopted the new Canadian accounting for income taxes approved by
CICA, which had the effect of considering future income taxes as
monetary items; therefore, there is no difference in the
measurement of future income taxes at the end of December 1998
and 1999.
(6) Under Canadian GAAP, start-up costs can be deferred and
amortized. Under U.S. GAAP, such costs are charged to earnings as
incurred.
(7) As mentioned in Note 2, the Company has adopted, in 1997, the US
dollar as its reporting and functional currency. Under Canadian
GAAP, prior years' financial statements are presented in US
dollars in accordance with a translation of convenience method
using the closing exchange rate at December 31, 1996 of US$0.73
per CAN$1.00. Under U.S. GAAP, prior years' financial statements
are translated according to the current rate method using the
year-end rate or the rate in effect at the transaction dates, as
appropriate.
(8) Under U.S. GAAP, advances to officers and managers for the
purchase of shares of the Company must be deducted from
shareholders' equity.
(9) Under U.S. GAAP, the write-off (Note 12) of unamortized debt
issue expense was recognized when the debt was extinguished in
1998.
(10) Under U.S. GAAP, the effect of potential conversion is calculated
using the treasury stock method for options and warrants. Under
the treasury stock method, earnings per share are calculated as
if options and warrants were exercised at the beginning of the
year and as if the funds were used to purchase the Company's
stock in the market. Under Canadian GAAP, the funds theoretically
received on conversion are assumed to earn an appropriate rate of
return.
<PAGE>
19. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(U.S. GAAP) (CONTINUED)
B) SUPPLEMENTARY DISCLOSURES UNDER U.S. GAAP
1. ACCOUNTS RECEIVABLE
1999 1998
--------------------------------
(IN THOUSANDS OF DOLLARS)
Trade receivable $ 112,380 $ 94,189
Other 13,038 2,856
------------- -------------
125,418 97,045
Less: Allowance
for doubtful accounts (1,139) (1,150)
------------- -------------
$ 124,279 $ 95,895
============= =============
2. ACCOUNTS PAYABLE AND ACCRUED CHARGES
1999 1998
--------------------------------
(IN THOUSANDS OF DOLLARS)
Trade payable $ 67,781 $ 41,136
Accrued vacation pay and
payroll deduction 13,387 9,068
Other 21,678 21,908
------------- -------------
$ 102,846 $ 72,112
============= =============
3. OPERATING LEASES
Operating lease expenses amounted to $7.4 million in 1999 (1998 -
$6.6 million; 1997 - $4.7 million).
4. SUPPLEMENTARY INFORMATION TO CONSOLIDATED STATEMENT OF CASH FLOWS
Under US GAAP, bank indebtedness is considered as a financing
activity and is reported as such in the statement of cash flows.
<PAGE>
19. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(U.S. GAAP) (CONTINUED)
5. PRO FORMA STATEMENT OF EARNINGS DATA (UNAUDITED)
The following unaudited pro forma statement of earnings data
assume that the acquisitions discussed in Note 3 occurred as at
January 1, 1998. The unaudited pro forma statement of earnings
data were prepared based upon the historical consolidated
statements of earnings of the Company for the years ended
December 31, 1999 and 1998, on the statements of earnings of the
businesses acquired for the year ended December 31, 1998 and for
the period from January 1, 1999 to the date of their respective
acquisition. The statements of earnings of the businesses
acquired have been adjusted to bring accounting policies for
amortization of property, plant and equipment and inventory
valuation in line with those of the Company. The unaudited pro
forma data are not necessarily indicative of the combined results
of operations of the Company and the businesses acquired that
would have resulted had the transactions occurred on the date
previously indicated, nor is it necessarily indicative of future
operating results of the Company.
Pro forma statement of earnings data
1999 1998
---------------------------------
(IN THOUSANDS OF DOLLAR, EXCEPT
PER SHARE AMOUNTS)
Net sales $ 1,049,161 $ 950,830
Net earnings (loss) 39,475 (26,213)
Net earnings (loss) per share 0.80 (0.53)
6. PENDING ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", which
standardized the accounting for all derivatives. This standard
will be effective for fiscal years beginning after June 15, 2000.
Management has not yet determined the impact of this new
Standard.
In March 1999, the Canadian Institute of Chartered Accountants
("CICA") released new accounting rules regarding employee future
benefits under section 3461 of the CICA Handbook. The new
accounting standards will be applicable in fiscal year 2000.
Management has not yet determined if the new rules will be
applied retroactively or prospectively as permitted under section
3461. If the new rules are applied retroactively, the benefit
liability will increase by approximately $31 million and retained
earnings will decrease by approximately $21 million net of income
taxes.
20. SUBSEQUENT EVENT
On February 23, 2000, Smurfit-Stone Container Corporation
("SSCC") and the Company entered into a pre-merger agreement
pursuant to which SSCC has agreed to acquire all of the issued
and outstanding shares of the Company for a per share
consideration of $12.50 and one-half share of SSCC. In certain
circumstances, including in the event that the Company receives a
superior proposal and the Board of Directors of the Company
withdraws its support for the SSCC offer, SSCC will be entitled
to a $30 million break fee. Subject to obtaining shareholders and
regulatory approvals, the SSCC transaction is scheduled to close
towards the end of the second quarter.
21. COMPARATIVE AMOUNTS
Certain comparative amounts have been restated to comply with the
current year's presentation.
<PAGE>
<TABLE>
Historical Summary
(in thousands of US dollars, except for amounts per share)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Results
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales 915,797 791,907 590,442 309,280 326,090 159,089
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of sales 711,030 665,102 509,162 258,826 215,732 121,717
- ------------------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) 75,093 (1,500) (8,904) 5,327 81,168 19,902
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) attributable to common shares 38,337 (23,263) (33,535) (5,400) 52,764 11,203
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operations 144,960 35,399 (4,706) (29,223) 81,635 34,755
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Position
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 1,155,543 1,050,413 1,080,921 488,031 373,867 282,752
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 338,206 356,455 368,543 139,353 7,368 13,617
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 615,985 576,111 597,600 273,274 269,122 207,451
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
- ------------------------------------------------------------------------------------------------------------------------------------
Business Acquisitions (70,415) - (506,353) (52,955) - (143,064)
- ------------------------------------------------------------------------------------------------------------------------------------
Additions to property, plant and equipment (57,138) (49,235) (44,038) (48,182) (157,433) (25,867)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
Debt-to-total-capitalization ratio 38% 39% 37% 34% 6% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Per Common Share
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 0.78 (0.47) (0.98) (0.41) 3.99 0.86
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operations 2.94 0.72 (0.14) (2.20) 6.18 2.64
- ------------------------------------------------------------------------------------------------------------------------------------
Year-end book value 12.49 11.73 12.19 20.53 20.32 15.74
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average number of outstanding common shares 49,328 49,124 34,384 13,282 13,212 13,167
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GLOSSARY
AOX (adsorbable organic halides): Measurement of a mixture of chlorinated
compounds in the water effluent produced at bleaching plants.
Bacon board: Single-ply or laminated grease-resistant board used to wrap bacon
or other fatty-type meats.
Basis weight: Measure of paper thickness and weight per unit area of paperboard,
for example, grams per square metre or pounds per thousand square feet.
BOD (biochemical oxygen demand): Method of determining the effect of organic
material in effluent on receiving waters, by measuring the consumption of
oxygen. Oxygen is required by aquatic life.
Closed-loop effluent system: System allowing the re-use and recycling of process
water. The suspended and biological solids are either recycled internally or
disposed of by landfill or incineration.
Containerboard: Combination of linerboard and corrugating medium used primarily
in the manufacture of corrugated containers.
Corrugating medium: Sheet manufactured primarily from hardwood chips or recycled
paperboard used as the middle layer of corrugated sheets.
Effluent: Residue-bearing water from manufacturing processes discharged into
bodies of water.
Featherweight: Corrugating medium of very small weight-to-bulk ratio, ranging
from 10 to 17 lb/msf, used increasingly in the microfluted packaging markets.
Fluting: A series of connected arches or ripples in a corrugating medium sheet
that provide rigidity and strength.
GrafXflutTM: One of the thinnest and lightest corrugated substrates in the
world, it provides significantly improved strength-to-weight ratios.
Hectare: 10,000 square metres or 2.471 acres.
Incidence rate: Measure of safety performance based on injuries with lost time
and appropriate work. A 2.0 incidence rate means that no more than 2% of workers
had such injuries during the year.
Liquid packaging board: Coated board used for the packaging of liquid foods,
such as milk or juice.
Linerboard: Type of paperboard used to line or face both sides of a corrugated
sheet and generally made of kraft pulp or recycled pulp.
Market pulp: Portion of pulp production available for sale.
Metric tonne: Unit of measure corresponding to 1.1023 short ton.
Microfluting: Process producing rippled middle layers of corrugated board of
small caliper, generally D, E, F and N-Flutes.
MSF: Thousands of square feet.
NSSC: Neutral-sulfite, semi-chemical pulp produced by cooking in a neutral
sulfite solution.
Paperboard: Grades of paper used in the manufacture of corrugated containers,
boxes and cartons.
Printability: Measure of the ease with which paperboard can be printed to high
quality standards with the least amount of spoilage.
Short Ton: Unit of measure equal to 1.1023 metric tonne
Solid bleached foodboard: Boxboard made from white bleached sulfate pulp and
used in coated or uncoated form to manufacture containers for the food service
industry, such as milk cartons, ice-cream cartons and paper cups.
Solid bleached linerboard: Linerboard produced exclusively from bleached sulfate
pulp.
Shareholder value added (SVA): Financial assessment and management tool that
compares the cash earnings of a business to the cash investment required to
produce these earnings. It is calculated by taking the net operating profit
after taxes (NOPAT) and subtracting from it the cost of capital employed,
obtained by multiplying the capital employed by the required rate of return.
TRS (total reduced sulphur): Sulphur compounds produced in the kraft pulping
process which are then emitted in a vapour, often associated with odours.
TSS (total suspended solids): Finely dispersed solid material in effluents; low
concentrations are desirable.
White top linerboard: Linerboard which combines a layer of unbleached pulp and a
layer of bleached pulp, making it brown on one side and white on the other. The
layers are not glued together but are formed on the paper machine during the
forming process. White top linerboard has varying degrees of whiteness on the
white side and is sometimes mottled on the white side. In the United States,
white top linerboard is generally referred to as mottled linerboard.
Yield: Calculation of the efficiency of a production process expressed as a
ratio of the product produced divided by the amount of incoming raw material. A
yield of 50% indicates that only one half of the raw material becomes part of
the final product.
<PAGE>
STATEMENT OF CORPORATE GOVERNANCE
The Board of Directors of the Company believes that sound corporate governance
practices are important and the Board has been proactive in adopting effective
corporate governance practices. In July 1995, the Corporate Governance and
Nominating Committee was established with responsibility for the review on a
continuing basis of the operation of the Board of Directors and fulfillment of
its legal duties, in the context of the Corporate Governance Guidelines of The
Toronto Stock Exchange.
A description of the Company's corporate governance practices is set out in
matrix form and attached to this Annual Report as Appendix 1. This disclosure
statement has been prepared by the Corporate Governance and Nominating Committee
of the Board and has been approved by the Board of Directors. The Company is
aligned with the guidelines adopted by The Toronto Stock Exchange.
<PAGE>
APPENDIX 1
ST. LAURENT PAPERBOARD INC. ALIGNMENT WITH CORPORATE GOVERNANCE
GUIDELINES
Does the
Corporate Governance Company
Guideline Align? Comments
- -------------------------- --------- ------------------------------------------
1. Board should Yes The Board recognizes that, under the law,
explicitly assume it is responsible for the stewardship of
responsibility for the Company, meaning that it oversees the
stewardship of the conduct of the Company's business and
Company, and supervises the executive management of
specifically for: the Company which is responsible for the
conduct of the business.
a. adoption of a Yes The Board's duties include review and
strategic approval of a long-term strategic plan,
planning process the annual budget and capital plan, which
are prepared by management.
b. identification Yes The Board's duties include the review of
of principal overall business risks and of the
risks, and Company's practices and policies for
implementing dealing with these risks.
risk managing
systems
The Environment, Health and Safety
Committee of the Board of Directors is
charged with assessing the major areas of
environmental risks and potential
liability in the Company's activities. It
reviews the Company's environmental
compliance, prevention programs and
performance. In addition, this Committee
is charged with reviewing the Company's
compliance and prevention programs in
connection with workplace health and
safety.
c. succession Yes The Board determines matters of corporate
planning and policy, assesses management's execution of
monitoring these policies and reviews the results
senior management obtained.
The Human Resources, Management
Development and Compensation Committee's
mandate includes reviewing the Company's
succession planning for senior officers.
d. communications Yes The Board has adopted a corporate
policy communications policy.
The Company has a shareholder relations
process to respond to shareholder
questions and concerns. All communications
from shareholders are referred to the
appropriate corporate officer for
response, consideration or action.
Management promptly advises the Board, if
any significant issues are raised by
shareholders. In addition, the Company
communicates with its shareholders,
securities analysts and the media
regularly on developments in its business
and results, through the annual report,
quarterly financial statements and reports
to shareholders, press releases and
material change reports, when needed.
e. integrity of Yes The Board's duties include the assessment
internal of the integrity of the Company's internal
control and controls and information systems.
management
information
systems
2. Majority of Yes The Company has no "significant
directors should shareholder", within the meaning of the
be "unrelated" Guidelines. The Board of Directors is
(independent of composed of ten members, of which J.J.
management and Gurandiano, J.O. Low and J. Turmel are the
free from only members who are related. The Board
conflicting of Directors believes that, except for
interest) to the those three members, all of its current
Company and the Board members are "unrelated".
Company's
significant
shareholder, if any
3. Disclose for each Yes J.J. related - is President
director whether Gurandiano and CEO of
he is related, and the Company
how that
conclusion was
reached J.O. Low related - is a managing
director of
one of the
Company's
investment
bankers
J. Turmel related - is a senior
executive
of one of
the Company's
bankers
R.R. Pinard unrelated
B.S. Halsey unrelated
R. Lacroix unrelated
J. LeBoutillier unrelated
G.F. Michals unrelated
E.J. Rice unrelated
J.H. Wright unrelated
4. a. Appoint a Yes The mandate of the Corporate Governance
Committee of and Nominating Committee includes
directors evaluating, considering and making
responsible for representations to the Board of Directors
proposing to with respect to candidates for nomination
the full Board as new Board members and evaluating and
new nominees to recommending nominees for all committees
the Board and of the Board of Directors. The Committee
for assessing evaluates periodically the overall
directors on an performance of the Board of Directors and
ongoing basis the performance of the individual
directors.
b. Composed Yes The Corporate Governance and Nominating
exclusively of Committee is composed of three outside
outside directors, two of whom are unrelated, and
(non-management) of the President and Chief Executive
directors, the Officer of the Company who serves as an
majority of "ex officio", non-voting member, except
whom are for those meetings of the Committee
unrelated organized by the Chairman of the Committee
for the outside directors only.
5. Implement a Yes The Corporate Governance and Nominating
process for Committee of the Board of Directors
assessing the evaluates periodically the overall
effectiveness of performance of the Board of Directors and
the Board, its the performance of the individual
Committees and directors.
individual
directors
6. Provide Yes The Corporate Governance and Nominating
orientation and Committee of the Board of Directors has
education programs adopted an orientation and education
for new directors program for new directors consisting of
formal presentations on the Company and
the industry in which it operates and a
tour of certain of the Company's
facilities.
7. Consider reducing Yes The Board of Directors of the Company has
size of Board, considered this issue and is of the view
with a view to that its size and composition are well
improving suited to the circumstances of the
effectiveness Company and allow for the efficient
functioning of the Board as a
decision-making body.
8. Board should Yes The Human Resources, Management
review Development and Compensation Committee of
compensation of the Board of Directors reviews annually
directors in light compensation policies for outside
of risks and directors and members of committees of the
responsibilities Board who are outside directors.
9. Committees of the Yes The Audit Committee is composed of four
Board should outside directors, three of whom are
generally be unrelated and one of whom is related.
composed of
outside
(non-management) The Human Resources, Management
directors, a Development and Compensation Committee is
majority of whom composed of four outside directors, three
are unrelated of whom are unrelated, and of the
directors President and CEO of the Company who
serves as an "ex officio", non-voting
member, providing advice and counsel to
the Committee except when matters
pertaining to his office are discussed.
This Committee reviews the total
compensation, and the performance of the
officers appointed by the Board, as well
as the Company's succession planning for
senior officers.
The Pension Fund Review Committee is
composed of four outside directors, three
of whom are unrelated and one of whom is
related. This Committee assists the Board
of Directors in carrying out its
responsibilities with respect to the
various pension funds of the Company. More
particularly, this Committee makes
recommendations to the Board with respect
to the appointment of outside professional
advisors, including pension fund managers
and actuaries, for the various pension
funds of the Company. As well, this
Committee advises the Board on appropriate
investment guidelines for the pension
funds of the Company and receives and
analyses reports as to conformity of
various portfolios with such guidelines.
The Environment, Health and Safety
Committee is composed of three outside
unrelated directors and of the President
and CEO of the Company who serves as an
"ex officio" member of this Committee.
The Corporate Governance and Nominating
Committee is composed of three outside
directors, two of whom are unrelated, and
of the President and CEO of the Company
who serves as an "ex officio", non-voting
member, except for those meetings of the
Committee organized by the Chairman of the
Committee for the outside directors only.
10. Board should Yes The Corporate Governance and Nominating
expressly assume Committee of the Board of Directors is
responsibility responsible for developing and monitoring
for, or assign to the Company's approach to governance
a committee the issues and for the Company's response to
general the TSE's governance guidelines.
responsibility
for, approach to
corporate
governance issues
11. a. Define Yes In general, all matters of policy and all
limits to actions proposed to be taken by the
management's Company which are not in the ordinary
responsibilities course of its operations require prior
by developing approval of the Board or of a Board
mandates for: committee to which approval authority has
been delegated by the Board. In
particular, the Board approves the
appointment of all executive officers, the
long-term strategic plan, the annual
budget and capital plan and individual
capital expenditures in excess of $1.5
million.
(i) the Board Yes Performance by the Company against the
plans described hereinafter is reviewed
quarterly by the Board of Directors and
the performance of the President and
Chief Executive Officer, and management,
is assessed against the achievement of
these plans.
(ii) the CEO Yes The President and Chief Executive Officer,
with the rest of management placed under
his direct supervision, is charged with
the implementation of the long-term
strategic plan, and of the annual budget
and capital plan which are prepared by
management and reviewed and approved by
the Board of Directors.
b. Board should Yes The said long-term strategic plan, annual
approve CEO's budget, capital plan as well as the CEO's
corporate key performance factors are approved by
objectives the Board of Directors.
12. Establish Yes The Board of Directors of the Company has
procedures to a separate, non-executive Chairman and
enable the Board only one directors out of ten is
to function management-related. At meetings of the
independently of Board of Directors and Board committees,
management the opportunity is given to outside
directors to meet independently without
any representative of management being
present.
13. a. Establish an Yes The Audit Committee is charged by the
Audit Committee Board of Directors with the review of the
with a annual and quarterly financial statements
specifically of the Company, as well as management's
defined mandate discussion and analysis before their
approval by the Board of Directors and
their dissemination to shareholders. The
Committee also monitors the effectiveness
of the internal control procedures and
information systems of the Company through
private discussions with personnel of the
Company and the internal and outside
auditors of the Company.
b. all members Yes The Audit Committee is composed of four
should be non-management directors.
non-management
directors
14. Implement a system Yes The Board of Directors has a policy which
to enable enables directors to engage their own
individual independent advisors at the expense of the
directors to Company in appropriate circumstances. Any
engage outside such engagement is subject to the
advisers, at the approval of the Corporate Governance and
Company's expense Nominating Committee and requires advice
to senior management of any such action.
<PAGE>
BOARD OF DIRECTORS AND CORPORATE DIRECTORY
Directors
Jay J. Gurandiano (1) (3) (5)
President and Chief Executive Officer
St. Laurent Paperboard Inc.
Brenton S. Halsey (1) (3)
Chairman Emeritus
Fort James Corporation
Robert Lacroix (2) (3)
Rector
Universite de Montreal
John LeBoutillier (1) (5)
President and Chief Executive Officer
Iron Ore Company of Canada
Josiah O. Low III (2) (5)
Managing Director
Donaldson, Lufkin & Jenrette Securities Corporation
George F. Michals (2) (4)
President
Baymont Capital Resources Inc.
Raymond R. Pinard (1) (5)
Chairman of the Board
St. Laurent Paperboard Inc.
E.J. (Woody) Rice (3) (4)
Vice President
Institute of Paper Science and Technology
Jean Turmel (1) (4)
President
Financial Markets, Treasury and Investment Bank
National Bank of Canada
Joseph H. Wright (2) (4)
Managing Partner
Crosbie & Company Ltd.
(1) Member of the Human Resources, Management Development and Compensation
Committee
(2) Member of the Pension Fund Review Committee
(3) Member of the Environment, Health and Safety Committee
(4) Member of the Audit Committee
(5) Member of the Corporate Governance and Nominating Committee
Officers
Marion Allaire
Vice President
Administration and Secretary
Alain Boivin
Senior Vice President
Containerboard Operations
Pierre Bourdages
Senior Vice President
Fibre
Denis Charlebois
Senior Vice President
Human Resources
Luc Dufour
Corporate Controller
Richard L. Ellis
Vice President, Technology & Research
Richard Garneau
Senior Vice President and Chief Financial Officer
Robert J. Geib
Senior Vice President, Packaging
Ronald J. Glick
Senior Vice President, Containerboard Sales & Marketing
Jay J. Gurandiano
President and Chief Executive Officer
John F. Kiley
Senior Vice President and Chief Operating Officer, E-Commerce Company
Dean Jones
Assistant Secretary
Helene St-Pierre
Treasurer
J. Bert Wayland
Vice President and Chief Information Officer
<PAGE>
St. Laurent Paperboard
Back Cover Information
Back Cover
GENERAL INFORMATION FOR SHAREHOLDERS AND INVESTORS
Common Shares
Toronto stock exchange
Trading Symbol: SPI
New York stock exchange
Trading Symbol: SLW
Outstanding shares as of December 31, 1999: 49,398,968
Annual Meeting
May 4, 2000, 11 a.m.
Les Salles du Gesu
1200, Bleury Street
Montreal (Quebec)
Transfer Agent
Montreal Trust Company
Montreal, Toronto, Calgary, Vancouver and Halifax
Auditors
PricewaterhouseCoopers Chartered Accountants
1250 Rene-Levesque Blvd. West
Suite 3500
Montreal, Quebec
H3B 2G4
Investor Relations
Richard Garneau
Senior Vice President and Chief Financial Officer
Tel.: (514) 861-5102
Fax: (514) 861-2208
Disclosure Documents
For copies of the Annual Information Form, Annual Report or Quarterly Reports,
please contact:
Communications Department
630 Rene-Levesque Blvd. West
Suite 3000
Montreal, Quebec
H3B 5C7
Tel.: (514) 861-4011 extension 234
Fax: (514) 861-7003
French Version
To obtain a French version of this report, please contact:
Communications Department
630 Rene-Levesque Blvd. West
Suite 3000
Montreal, Quebec
H3B 5C7
Tel.: (514) 861-4011 extension 234
Fax: (514) 861-7003
