<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------------------------------
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1994.
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________________ to ________________.
Commission file number 1-3439
STONE CONTAINER CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2041256
- -------------------------------------------------- --------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. employer identification no.)
or organization)
150 NORTH MICHIGAN AVENUE, CHICAGO, ILLINOIS 60601
- --------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER: 312 346-6600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
</TABLE>
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
- -------------------------------------------- ---------------------------------------
Common Stock New York Stock Exchange
Rights to purchase Series D Preferred Stock New York Stock Exchange
$1.75 Series E Cumulative Convertible
Exchangeable Preferred Stock New York Stock Exchange
10 3/4% Senior Subordinated Notes due
June 15, 1997 New York Stock Exchange
12 5/8% Senior Notes due July 15, 1998 New York Stock Exchange
11 7/8% Senior Notes due December 1, 1998 New York Stock Exchange
11% Senior Subordinated Notes due
August 15, 1999 New York Stock Exchange
11 1/2% Senior Subordinated Notes due
September 1, 1999 New York Stock Exchange
9 7/8% Senior Notes due February 1, 2001 New York Stock Exchange
12 1/8% Subordinated Debentures due
September 15, 2001 (Southwest Forest
Industries, Inc.) New York Stock Exchange
10 3/4% Senior Subordinated Debentures due
April 1, 2002 New York Stock Exchange
10 3/4% Senior Secured Notes due October 1,
2002 New York Stock Exchange
11 1/2% Senior Notes due October 1, 2004 New York Stock Exchange
6 3/4% Convertible Subordinated Debentures
due February 15, 2007 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act: None.
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. (X)
The aggregate market value as of February 28, 1995 of the voting
common stock held by non-affiliates of the Registrant was
approximately $1,859,000,000.
The number of shares of common stock outstanding at February 28, 1995
was 90,630,490.
The Proxy Statement, to be filed on or before April 30, 1995, for the
Annual Meeting of Stockholders scheduled May 9, 1995 is partially
incorporated by reference into Part III, Items 10, 11, 12 and 13; and
Part IV, Item 14, excluding the sections entitled "Compensation
Committee Report on Executive Compensation" and "Performance Graph".
-----------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The information relating to the general development of the Registrant's
business for the year ended December 31, 1994, is incorporated herein by
reference to Item 7---Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") included in this report, under the
sections entitled "Financial Condition and Liquidity," pages 15-21, and to the
Financial Statements, included in this report, under Notes to the Consolidated
Financial Statements, "Note 3--Acquisitions/Dispositions," page 37, "Note
16--Related Party Transactions," page 53, and "Note 19--Segment Information,"
pages 57-59.
Except where the context clearly indicates otherwise, the terms "Registrant"
and "Company" as hereinafter used refer to Stone Container Corporation together
with its consolidated subsidiaries.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information relating to the Registrant's industry segments, for
the year ended December 31, 1994, is incorporated herein by reference to the
MD&A, included in this report, under the section entitled "Results of
Operations," pages 12-15, and to the Financial Statements, included in this
report, under Notes to the Consolidated Financial Statements, "Note 19--Segment
Information," pages 57-59.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Descriptive information relating to the Registrant's principal products,
markets and industry ranking is outlined in the table entitled "Profile" on page
2 of this report and is also incorporated herein by reference to the MD&A,
included in this report, under the sections entitled "Results of Operations,"
pages 12-15, "Investing Activities," page 20, and "Environmental Issues," pages
20-21, and to the Financial Statements, included in this report, under Notes to
the Consolidated Financial Statements, "Note 3--Acquisitions/Dispositions," page
37, and "Note 19--Segment Information," pages 57-59.
1
<PAGE>
PROFILE
<TABLE>
<CAPTION>
Manufacturing 1994 Production & Shipment
Markets Industry Position Facilities Statistics
<S> <C> <C> <C> <C> <C>
PAPERBOARD CONTAINERBOARD A broad range of Industry leader Production at 16 4.694 million short tons of
AND PAPER AND CORRUGATED manufacturers of consumable mills containerboard produced
PACKAGING CONTAINERS and durable goods and other 54.1 billion square feet of
manufacturers of corrugated Converting at 111 corrugated containers shipped
containers. plants
KRAFT PAPER AND Supermarket chains and other Industry leader Production at 5 517 thousand short tons of
BAGS AND SACKS retailers of consumable mills kraft paper produced
products. Industrial and
consumer bags sold to the Converting at 18 654 thousand short tons of
food, agricultural, chemical plants paper bags and sacks shipped
and cement industries, among
others.
BOXBOARD, FOLDING Manufacturers of consumable A major position Production at 2 102 thousand short tons of
CARTONS AND OTHER goods, especially food, in Europe; a mills boxboard and other paperboard
beverage and tobacco nominal position produced
products, and other box in North America Converting at 10
manufacturers. plants 97 thousand short tons of
folding cartons and
partitions shipped
WHITE NEWSPRINT Newspaper publishers and A major position Production at 4 1.279 million short tons
PAPER AND commercial printers. mills produced
OTHER
UNCOATED Producers of advertising A major position Production at 4 536 thousand short tons
GROUNDWOOD PAPER materials, magazines, mills produced
directories and computer
papers.
MARKET PULP Manufacturers of paper A major position Production at 6 800 thousand short tons
products, including fine mills produced
papers, photographic papers,
tissue and newsprint.
LUMBER, PLYWOOD Construction and furniture A moderate Production at 16 602 million board feet of
AND VENEER industries. position in North mills lumber produced
America
404 million square feet of
plywood and veneer produced
</TABLE>
The major markets in which the Company sells its principal products are
highly competitive. Its products compete with similar products manufactured by
others and, in some instances, with products manufactured from other materials.
Areas of competition include price, innovation, quality and service. The
Company's business is affected by cyclical industry conditions and economic
factors such as industry capacity, growth in the economy, interest rates,
unemployment levels and fluctuations in foreign currency exchange rates.
Wood fiber and recycled fiber, the principal raw materials in the
manufacture of the Company's products, are purchased in highly competitive,
price sensitive markets. These raw materials have historically exhibited price
and demand cyclicality. In addition, the supply and price of wood fiber, in
particular, is dependent upon a variety of factors over which the Company has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather.
2
<PAGE>
The Company purchases or cuts a variety of species of timber from which the
Company utilizes wood fiber depending upon the product being manufactured and
each mill's geographic location. Despite this diversification, wood fiber prices
increased in 1994. A decrease in the supply of wood fiber has caused, and will
likely continue to cause, higher wood fiber costs in some of the regions in
which the Company procures wood. In addition, the increase in demand for
products manufactured in whole or in part from recycled fiber has caused a
tightness in supply of recycled fiber and a resulting significant increase in
the cost of such fiber used in the manufacture of recycled containerboard and
related products. The Company's paperboard and paper packaging products use a
large volume of recycled fiber. While the Company has not experienced any
significant difficulty in obtaining wood fiber and recycled fiber in economic
proximity to its mills, there can be no assurances that this will continue to be
the case for any or all of its mills. In addition, recent increased demand for
the Company's products has resulted in greater demand for raw materials which
has recently translated into higher raw material prices, including the
significant increase in costs of recycled fiber.
At December 31, 1994, the Company owned approximately 10 thousand and 325
thousand acres of private fee timberland in the United States and Canada,
respectively.
The Company's business is not dependent upon a single customer or upon a
small number of major customers. The loss of any one customer would not have a
material adverse effect on the Company.
Backlogs are not a significant factor in the industry in which the Company
operates; most orders placed with the Company are for delivery within 60 days or
less.
The Company expenses research and development expenditures as incurred.
Research and development costs for 1994 were approximately $12 million.
The Company owns patents, licenses, trademarks and tradenames on products.
The loss of any patent, license, trademark and tradename would not have a
material adverse effect on the Company's operations.
As of December 31, 1994, the Registrant had approximately 29,100 employees,
of whom approximately 21,400 were employees of U.S. operations and the remainder
were employees of foreign operations. Of those in the United States,
approximately 14,200 are union employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES
Financial information relating to the Registrant's foreign and domestic
operations and export sales for the year ended December 31, 1994, is
incorporated herein by reference to the Financial Statements, included in this
report, under Notes to the Consolidated Financial Statements, "Note 19--Segment
Information," pages 57-59. The Company's results are affected by economic
conditions in certain foreign countries and fluctuations in foreign exchange
rates, particularly in the white paper and other segment, where the majority of
such operations of the Company are conducted in Canada and the United Kingdom.
3
<PAGE>
ITEM 2. PROPERTIES
The Registrant, including its subsidiaries and affiliates, maintains
manufacturing facilities and sales offices throughout North America, Latin
America, Continental Europe, United Kingdom and Australia, as well as sales
offices in Japan and China. A listing of such worldwide facilities as of
December 31, 1994 is provided on pages 5-6 of this report.
The approximate annual production capacity of the Company's mills is
summarized in the following table:
<TABLE>
<CAPTION>
PAPERBOARD AND WHITE PAPER
PAPER PACKAGING AND OTHER TOTAL
---------------- -------------- ----------------
(IN THOUSANDS OF SHORT TONS) DECEMBER 31, 1994 1993 1994 1993 1994 1993
- -------------------------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
United States (1)................................. 4,665 4,583 873 853 5,538 5,436
Canada (2)(3)..................................... 434 429 1,923 1,832 2,357 2,261
Europe (3)........................................ 351 314 299 307 650 621
------ ------ ------ ------ ------ ------
5,450 5,326 3,095 2,992 8,545 8,318
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
<FN>
- ---------
(1) Includes 100 percent of the Seminole Kraft Corporation ("Seminole") and
Stone Savannah River Pulp & Paper Corporation ("Stone Savannah River")
mills.
(2) Includes 45 percent of the Celgar mill. Effective December 31, 1994, the
Company indirectly acquired an additional 20 percent of the Celgar mill,
thereby increasing its ownership interest from 25 percent to 45 percent.
(3) Includes 100 percent of Stone-Consolidated Corporation
("Stone-Consolidated").
</TABLE>
All mills and converting facilities are owned, or partially owned through
investments in other companies, by the Registrant, except for 45 converting
plants in the United States, which are leased.
The Registrant owns certain properties that have been mortgaged or otherwise
encumbered. These properties include 16 paper mills and 76 corrugated container
plants, including those subject to a leasehold mortgage.
The Registrant's properties and facilities are properly equipped with
machinery suitable for their use. Such facilities and related equipment are well
maintained and adequate for the Registrant's current operations.
Additional information relating to the Registrant's properties for the year
ended December 31, 1994 is incorporated herein by reference to the Financial
Statements, included in this report, under Notes to the Consolidated Financial
Statements, "Note 3--Acquisitions/Dispositions," page 37, "Note 10--Long-term
Debt," pages 44-48, and "Note 13--Long-term Leases," page 50.
4
<PAGE>
WORLDWIDE FACILITIES
- ----------------------------------------------------------------
UNITED STATES
ALABAMA
Birmingham (corrugated container)
ARIZONA
Eagar (forest products)
Glendale (corrugated container)
Phoenix (bag)
Snowflake (paperboard/paper/pulp)
Snowflake (paperboard/paper/pulp)
The Apache Railway
Company
ARKANSAS
Jacksonville (bag)
(Little Rock)
Little Rock (corrugated container)
Rogers (corrugated container)
CALIFORNIA
City of Industry (corrugated container)
(Los Angeles)
Fullerton (corrugated container)
Los Angeles (bag)
Salinas (corrugated container)
San Jose (corrugated container)
Santa Fe Springs (corrugated container, 2)
COLORADO
Denver (corrugated container)
South Fork (forest products)
CONNECTICUT
Portland (corrugated container)
Torrington (corrugated container)
Uncasville (paperboard/paper/pulp)
FLORIDA
Cantonment (bag)
(Pensacola)
Graceville (forest products)
Jacksonville (paperboard/paper/pulp)
Panama City (paperboard/paper/pulp)
Yulee (bag)
Orlando (corrugated container)
Packaging Systems
Jacksonville (corrugated container)
Preprint
GEORGIA
Atlanta (corrugated container, 3)
Port Wentworth (paperboard/paper/pulp)
Atlanta (paperboard/paper/pulp)
Technology and
Engineering Center
ILLINOIS
Bedford Park (corrugated container)
(Chicago)
Bloomington (corrugated container)
Cameo (corrugated container)
(Chicago)
Danville (corrugated container)
*Herrin (corrugated container)
Joliet (corrugated container)
Naperville (corrugated container)
(Chicago)
North Chicago (corrugated container)
Plainfield (bag)
Quincy (bag)
*Zion (corrugated container)
Burr Ridge (paperboard/paper/pulp)
Technology and Engineering
Center
Oakbrook (corrugated container)
Marketing and Technical
Center
INDIANA
Columbus (corrugated container)
Indianapolis (corrugated container)
Mishawaka (corrugated container)
South Bend (corrugated container)
IOWA
Des Moines (corrugated container); (bag)
Keokuk (corrugated container)
Sioux City (corrugated container)
KANSAS
Kansas City (corrugated container)
KENTUCKY
Louisville (corrugated container); (bag)
LOUISIANA
Arcadia (bag)
Hodge (paperboard/paper/pulp); (bag)
New Orleans (corrugated container)
MARYLAND
Savage (bag)
(Baltimore)
MASSACHUSETTS
Mansfield (corrugated container)
Westfield (corrugated container)
MICHIGAN
*Detroit (corrugated container)
Grand Rapids (bag)
Ontonagon (paperboard/paper/pulp)
*Melvindale (corrugated container)
(Detroit)
MINNESOTA
Minneapolis (corrugated container)
Rochester (corrugated container)
St. Cloud (corrugated container)
St. Paul (corrugated container)
Minneapolis (corrugated container)
Preprint
MISSISSIPPI
Jackson (corrugated container)
Tupelo (corrugated container, 2)
MISSOURI
Blue Springs (corrugated container)
Kansas City (bag)
Liberty (corrugated container)
(Kansas City)
Springfield (corrugated container)
St. Joseph (corrugated container)
St. Louis (corrugated container)
MONTANA
Missoula (paperboard/paper/pulp)
NEBRASKA
Omaha (corrugated container)
NEW JERSEY
Elizabeth (bag)
Teterboro (corrugated container)
NEW MEXICO
Reserve (forest products)
NEW YORK
Buffalo (corrugated container)
NORTH CAROLINA
Charlotte (corrugated container)
Lexington (corrugated container)
Raleigh (corrugated container)
NORTH DAKOTA
Fargo (corrugated container)
OHIO
Cincinnati (corrugated container)
Coshocton (paperboard/paper/pulp)
Jefferson (corrugated container)
Mansfield (corrugated container)
Marietta (corrugated container)
New Philadelphia (bag)
OKLAHOMA
Oklahoma City (corrugated container)
Sand Springs (corrugated container)
(Tulsa)
OREGON
Grants Pass (forest products)
Medford (forest products)
White City (forest products)
PENNSYLVANIA
Philadelphia (corrugated container, 2)
Williamsport (corrugated container)
York (paperboard/paper/pulp)
SOUTH CAROLINA
Columbia (corrugated container); (forest products)
Florence (paperboard/paper/pulp)
Fountain Inn (corrugated container)
Orangeburg (forest products)
SOUTH DAKOTA
Sioux Falls (corrugated container)
TENNESSEE
Chattanooga (corrugated container)
Collierville (corrugated container)
(Memphis)
Nashville (corrugated container)
TEXAS
Dallas (corrugated container)
El Paso (corrugated container, 2); (folding carton)
Grand Prairie (corrugated container)
(Dallas)
Houston (corrugated container)
Temple (corrugated container)
Tyler (corrugated container)
UTAH
Salt Lake City (bag)
Salt Lake City (bag)
Bag Packaging Systems
VIRGINIA
Hopewell (paperboard/paper/pulp)
Martinsville (corrugated container)
Richmond (corrugated container, 2); (bag)
WEST VIRGINIA
Wellsburg (bag)
WISCONSIN
Beloit (corrugated container)
Germantown (corrugated container)
(Milwaukee)
Neenah (corrugated container)
CANADA
ALBERTA
*Calgary (corrugated container)
*Edmonton (corrugated container)
BRITISH COLUMBIA
*Castlegar (paperboard/paper/pulp)
*New Westminster (corrugated container)
MANITOBA
*Winnipeg (corrugated container)
NEW BRUNSWICK
Bathurst (paperboard/paper/pulp); (forest products)
*Saint John (corrugated container)
NOVA SCOTIA
*Dartmouth (corrugated container)
ONTARIO
*Etobicoke (corrugated container)
*Guelph (corrugated container)
*Pembroke (corrugated container)
*Rexdale (corrugated container)
*Whitby (corrugated container)
PRINCE EDWARD ISLAND
*Summerside (corrugated container)
5
<PAGE>
- -----------------------
QUEBEC
Chibougamau (forest products)
Grand-Mere (paperboard/paper/pulp)
La Baie (paperboard/paper/pulp)
New Richmond (paperboard/paper/pulp)
Portage-du-Fort (paperboard/paper/pulp)
Roberval (forest products)
Saint-Fulgence (forest products)
*Saint-Laurent (corrugated container)
Shawinigan (paperboard/paper/pulp)
Trois-Rivieres (paperboard/paper/pulp)
*Ville Mont-Royal (corrugated container)
Grand-Mere (paperboard/paper/pulp)
Research Center
SASKATCHEWAN
*Regina (corrugated container)
GERMANY
*Augsburg (folding carton)
*Bremen (folding carton)
Dusseldorf (corrugated container)
*Frankfurt (folding carton)
Germersheim (corrugated container)
Hamburg (corrugated container)
Heppenheim (corrugated container)
Hoya (paperboard/paper/pulp)
Julich (corrugated container)
Lauenburg (corrugated container)
Lubbecke (corrugated container)
Neuburg (corrugated container)
Plattling (corrugated container)
Viersen (paperboard/paper/pulp)
Waren (corrugated container)
Hamburg
Institute for Package
and Corporate Design
UNITED KINGDOM
*Chesterfield (folding carton)
Ellesmere Port (paperboard/paper/pulp)
NETHERLANDS
*Sneek (folding carton)
BELGIUM
Ghlin (corrugated container)
Grand-Bigard (corrugated container)
FRANCE
*Bordeaux (folding carton)
*Cholet (folding carton)
Molieres-Sur-Ceze (corrugated container)
Nimes (corrugated container)
*Soissons (folding carton)
*Strasbourg (folding carton)
AUSTRALIA
*Melbourne (corrugated container)
*Sydney (corrugated container)
MEXICO
Monterrey (corrugated container)
COSTA RICA
Palmar Norte (forest products)
San Jose (forest products)
Administrative Office
VENEZUELA
*Puerto Ordaz (forest products)
Administrative Office
CORPORATE HEADQUARTERS
Chicago, Illinois
FAR EAST OFFICES
Beijing, China
Tokyo, Japan
*STONE CONTAINER
JAPAN COMPANY, LTD.
*affiliates
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On October 27, 1992, the Florida Department of Environmental Regulation,
predecessor to the Department of Environmental Protection ("DEP"), filed a civil
complaint in the Fourteenth Judicial Circuit Court of Bay County, Florida
against the Company seeking injunctive relief, an unspecified amount of fines
and civil penalties, and other relief based on alleged groundwater contamination
at the Company's Panama City, Florida pulp and paperboard mill. In addition, the
complaint alleges operation of a solid waste facility without a permit and
discrepancies in hazardous waste shipping manifests. Because of uncertainties in
the interpretation and application of DEP's rules, it is premature to assess the
Company's potential liability, if any, in the event of an adverse ruling. At the
parties' request, the case has been placed in abeyance pending the conclusion of
a related administrative proceeding petitioned by the Company in June 1992
following DEP's proposal to deny the Company a permit renewal to continue
operating its wastewater pretreatment facility at the mill site. The
administrative proceeding has been referred to a hearing officer for an
administrative hearing on the consolidated issues of compliance with a prior
consent order, denial of the permit renewal, completion of a contamination
assessment and denial of a sodium exemption. The consolidated cases were abated
at the parties' request in order to allow additional studies to be performed.
The Company intends to vigorously assert its entitlement to the permit renewal
and to defend against the groundwater contamination and unpermitted facility
allegations.
In November 1990, the U.S. Environmental Protection Agency ("EPA") announced
its decision to list two bodies of water in Arizona, Dry Lake and Twin Lakes, as
"waters of the United States" impacted by toxic pollutant discharges under
Section 304(l) of the federal Clean Water Act. These bodies of water have been
used by the Company's Snowflake, Arizona pulp and paperboard mill for the
evaporation of its process wastewater. The EPA is preparing a draft consent
decree to resolve the alleged past unpermitted discharges which will include the
EPA's proposal that the Company pay civil penalties in the amount of $900,000.
The Company has vigorously disputed the application of the Clean Water Act to
these two privately owned evaporation ponds. The Company has begun
implementation of a plan to use its wastewater to irrigate a biomass plantation
and discontinue using Dry Lake to evaporate wastewater. It is premature to
predict the amount of penalties that will eventually be assessed.
As a result of the April 13, 1994 digester vessel rupture at the Company's
Panama City, Florida pulp and paperboard mill (the "Panama City Mill") the
Occupational Safety and Health Administration ("OSHA") conducted an
investigation at the Panama City Mill which resulted in the issuance by OSHA of
citations with fines totalling $1,072,000. In October 1994, Company
representatives met informally with OSHA representatives to discuss the
citations and related fines. As a result of that meeting, the Company filed a
notice of contest, and thereafter the Secretary of Labor filed a complaint with
the Occupational Safety and Health Review Commission (the "Commission") to
enforce the citations. The matter is pending before the Commission and the
Company intends to vigorously contest the alleged violations.
On April 20, 1994, Carolina Power & Light ("CP&L") commenced proceedings
against the Company before the Federal Energy Regulatory Commission ("FERC")
(the "FERC Proceeding") and in the United States District Court for the Eastern
District of North Carolina (the "Federal Court Action"). Both proceedings relate
to the Company's electric cogeneration facility located at its Florence, South
Carolina mill (the "Facility") and the Company's Electric Power Purchase
Agreement (the "Agreement") with CP&L. Prior to the filing of the proceedings,
the Company and CP&L had been in discussions relating to a transaction involving
the Facility and the Agreement.
In the FERC Proceeding, CP&L alleges that the Facility lost its qualifying
facility ("QF") certification under the Public Utility Regulatory Policy Act of
1978 on August 13, 1991, when the Agreement, pursuant to which CP&L purchases
electricity generated by the Facility, was amended to reflect the Company's
election under the Agreement to switch to a "buy-all/sell-all mode of
operation". As a result, CP&L alleges the Company became a "public utility" on
August 13, 1991 subject to FERC regulation under the Federal Power Act. CP&L has
also requested that the FERC determine the "just and reasonable rate" for sales
of electric energy and capacity from the Facility since August 13, 1991 and to
order the Company to refund any amounts paid in excess of that rate, plus
interest and penalties.
In its answer filed with the FERC on June 2, 1994, the Company stated that
its power sales to CP&L fully complied with the FERC's regulations. The Company
also requested that the FERC waive compliance with any applicable FERC
regulations in the event that the FERC should determine, contrary to the
Company's position, that the Company has not complied with the FERC's
regulations in any respect. CP&L has also filed several other pleadings to which
the Company has responded. If the FERC were to determine that the Company had
become a "public utility", the Company's issuance of securities and incurrence
of debt after the date that it became a "public utility" could be subject to the
jurisdiction and approval of the FERC unless the FERC granted a waiver. In the
absence of such a waiver, certain other activities and contracts of the Company
after such date could also be subject to additional federal and
7
<PAGE>
state regulatory requirements, and defaults might be created under certain
existing agreements. Based on past administrative practice of the FERC in
granting waivers of certain other regulations, the Company believes that it is
likely that such a waiver would be granted by the FERC in the event that such a
waiver became necessary. However, the FERC Proceeding is in its preliminary
stages and no assurance can be provided as to the timing of the FERC's decision
or the outcome.
In the Federal Court Action, CP&L has requested declaratory judgements that
sales of electric energy and capacity under the Agreement since August 13, 1991
are subject to a just and reasonable rate to be determined by the FERC and that
the Agreement has been terminated as a result of the Company's failure to
maintain the Facility's QF status and the invalidity of the Agreement's rate
provisions. CP&L has also sought damages for breach of contract and for
purchases in excess of the just and reasonable rate to be determined by the
FERC. On June 9, 1994, the Company moved to dismiss CP&L's Federal Court Action
on the principal grounds that any proceedings in the United States District
Court are premature unless and until the FERC Proceeding is finally resolved. On
September 20, 1994, the United States District Court stayed the Federal Court
action pending the outcome of the FERC proceeding.
The Company intends to contest these actions vigorously. Due to the pendency
of the litigation, a planned transaction involving a favorable energy contract
related to the Facility and the Agreement did not occur.
On September 30, 1994, the United States Environmental Protection Agency,
Region IV, ("EPA") issued an Administrative Order ("Order") to the Company's
Panama City Mill pursuant to Section 3008(h) of the Federal Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section6928(h)(l). The Order
requires the Company to perform a RCRA Facility Investigation at the Panama City
Mill together with confirmatory sampling, interim corrective measures and any
other activities necessary to correct alleged actual or threatened releases of
hazardous substances or hazardous constituents at or from the Panama City Mill.
The Company has filed a protest and requested a hearing to contest the EPA's
RCRA Section 3008(h) jurisdiction over the Pamana City Mill. The Company
believes that the Panama City Mill is not currently a RCRA facility. The
corrective measures mandated by the Order would require the Company to conduct
extensive groundwater and soil sampling and analyses. The Company does not know
at this time the likelihood of success in challenging the Order. Notwithstanding
the success in challenging the Order, an owner of property adjacent to the
Panama City Mill is currently subject to extensive clean-up under RCRA, and the
EPA is empowered to require clean-up for materials discharged from the property
which may have migrated onto the Panama City Mill's property. The Company does
not yet know the extent, if any, of such adjacent property owner's
responsibility to remediate contamination, if any, at the Panama City Mill site.
In July 1994, the State of Ohio Environmental Protection Agency ("OEPA")
informed the Company of OEPA's intent to initiate an enforcement action against
the Company's paperboard mill in Coshocton, Ohio (the "Coshocton Mill") for
alleged violations of the Coshocton Mill's wastewater discharge permit. Company
representatives have commenced settlement negotiations with OEPA, and no
enforcement action has been taken to date. The Company intends to continue
negotiations with OEPA to resolve the matter. If settlement negotiations are
unsuccessful, the Company intends to vigorously contest the matter if an
enforcement action is taken by OEPA.
On September 13, 1994 and December 21, 1994, the Ministry of Environment of
the Province of Quebec ("MEF") filed notices of violation against
Stone-Consolidated Corporation ("Stone-Consolidated"), alleging violations of
the Province's pulp and paper regulations relating to wastewater at
Stone-Consolidated's Wayagamack mill in Trois-Rivieres, Quebec. If found in
violation of the regulations, the Company would be fined an undetermined amount.
The Company intends to vigorously contest the alleged violations.
In addition, the Registrant is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. The Company has been named as a potentially
responsible party ("PRP") at a number of sites which are the subject of remedial
activity under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA" or "Superfund") or comparable state laws.
Although the Company is subject to joint and several liability imposed under
Superfund, at most of the multi-PRP sites there are organized groups of PRPs and
costs are being shared among PRPs.
The Registrant is involved in contractual disputes, administrative and legal
proceedings and investigations of various types. Although any litigation,
proceeding or investigation has an element of uncertainty, the Registrant
believes that the outcome of any proceeding, lawsuit or claim which is pending
or threatened, or all of them combined, would not have a material adverse effect
on its consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) PRINCIPAL MARKET, STOCK PRICE AND DIVIDEND INFORMATION
Information relating to the principal market, stock price and dividend
information for the Registrant's Common and Preferred Stock and related
stockholder matters, for the year ended December 31, 1994, is incorporated
herein by reference to the MD&A, included in this report, under the sections
entitled "Common and Series E Cumulative Preferred Stock--Cash Dividends, Market
and Price Range," pages 21-22 and "Financial Condition and Liquidity," pages
15-21, and to the Financial Statements, included in this report, under Notes to
the Consolidated Financial Statements, "Note 10--Long-term Debt," pages 44-48,
"Note 14--Preferred Stock," pages 50-51, "Note 15--Common Stock," pages 51-53
and "Note 20--Summary of Quarterly Data (unaudited)," page 60.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
There were approximately 6,513 holders of record of the Registrant's common
stock, as of February 28, 1995.
ITEM 6. SELECTED FINANCIAL DATA
In addition to the table set forth on pages 10-11 of this report, selected
financial data of the Registrant is incorporated herein by reference to the
Financial Statements, included in this report, under Notes to the Consolidated
Financial Statements, "Note 1--Summary of Significant Accounting Policies,"
pages 35-37, and "Note 3--Acquisitions/Dispositions," page 37.
9
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS EXCEPT PER SHARE) 1994 1993 1992 1991 1990 1989(b) 1988
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales............................... $ 5,748.7 $ 5,059.6 $ 5,520.7 $ 5,384.3 $ 5,755.9 $5,329.7 $ 3,742.5
Cost of products sold................... 4,564.3 4,223.5 4,473.7 4,287.2 4,421.9 3,893.8 2,618.0
Selling, general and administrative
expenses............................... 568.2 512.2 543.5 522.8 495.5 474.5 351.1
Depreciation and amortization........... 358.9 346.8 329.2 273.5 257.0 237.1 148.1
Interest expense........................ 456.0 426.7 386.1 397.4 421.7 344.7 108.3
Income (loss) before income taxes,
minority interest, extraordinary losses
and cumulative effects of accounting
changes................................ (163.1) (463.3) (224.0) (12.2) 194.1 481.8 549.7
(Provision) credit for income taxes..... 35.5 147.7 59.4 (31.1) (92.8) (195.2) (207.7)
Minority interest....................... (1.2) (3.6) (5.3) (5.8) (5.9) (.8) (.2)
Income (loss) before extraordinary
losses and cumulative effects of
accounting changes..................... (128.8) (319.2) (169.9) (49.1) 95.4 285.8 341.8
Extraordinary losses from early
extinguishments of debt................ (61.6) -- -- -- -- -- --
Cumulative effects of accounting
changes................................ (14.2) (39.5) (99.5) -- -- -- --
Net income (loss)....................... (204.6) (358.7) (269.4) (49.1) 95.4 285.8 341.8
---------- ---------- ---------- ---------- ---------- ---------- ----------
PER SHARE OF COMMON STOCK (a)
Income (loss) before extraordinary
losses and cumulative effects of
accounting changes..................... (1.60) (4.59) (2.49) (.78) 1.56 4.67 5.58
Extraordinary losses from early
extinguishments of debt................ (.70) -- -- -- -- -- --
Cumulative effects of accounting
changes................................ (.16) (.56) (1.40) -- -- -- --
Net income (loss):
Primary............................... (2.46) (5.15) (3.89) (.78) 1.56 4.67 5.58
Fully diluted......................... (i) (i) (i) (i) (i) (i) (i)
Dividends and distributions paid........ -- -- .35 .71 .71 .70 .35
Common stockholders' equity (end of
year).................................. 5.90 6.91 13.91 22.12 24.34 22.50 17.73
Price range of common shares-N.Y.S.E.
High.................................. 21.13 19.50 32.63 26.00 25.25 36.38 39.50
Low................................... 9.63 6.38 12.50 9.00 8.13 22.13 20.67
Average common shares outstanding (in
millions):
Primary............................... 88.2 71.2 71.0 63.2 61.3 61.2 61.3
Fully diluted......................... (i) (i) (i) (i) (i) (i) (i)
---------- ---------- ---------- ---------- ---------- ---------- ----------
FINANCIAL POSITION AT END OF YEAR.......
Current assets.......................... $ 1,816.9 $ 1,753.2 $ 1,701.8 $ 1,685.3 $ 1,586.0 $1,687.0 $ 865.7
Current liabilities..................... 1,031.5 943.5 944.8 914.8 1,146.5 1,072.6 408.3
Working capital......................... 785.4 809.7 757.0 770.5 439.5 614.4 457.4
Property, plant and equipment-net....... 3,359.0 3,386.4 3,703.2 3,520.2 3,364.0 2,977.9 1,276.0
Total assets............................ 7,004.9 6,836.7 7,027.0 6,902.9 6,690.0 6,253.7 2,395.0
Long-term debt.......................... 4,431.9 4,268.4 4,105.1 4,046.4 3,680.5 3,536.9 765.1
Deferred taxes.......................... 381.4 470.6 685.2 263.9 262.7 185.6 140.3
Redeemable preferred stock.............. -- 42.3 36.3 31.1 26.6 22.7 --
Minority interest (h)................... 221.8 234.5 .2 3.8 8.0 9.7 .3
Stockholders' equity.................... 648.1 607.1 1,102.7 1,537.5 1,460.5 1,347.6 1,063.6
---------- ---------- ---------- ---------- ---------- ---------- ----------
ADDITIONAL INFORMATION
Paperboard, paper and market pulp:
Produced (thousand short tons) (d).... 7,928 7,475 7,517 7,365 7,447 6,772 4,729
Converted (thousand short tons) (d)... 4,477 4,354 4,373 4,228 4,241 3,930 3,344
Corrugated shipments (billion square
feet) (d).............................. 54.10 52.48 51.67 49.18 47.16 41.56 34.47
Employees (end of year-in thousands).... 29.1 29.0 31.2 31.8 32.3 32.6 20.7
Capital expenditures.................... $ 232.6 $ 149.7 $ 281.4 $ 430.1 $ 552.0 $ 501.7 $ 136.6
Net cash/funds provided by (used in)
operating activities (e)............... $ (6.5) $ (212.7) $ 85.6 $ 210.5 $ 451.5 $ 315.2 $ 453.6
Working capital ratio................... 1.8/1 1.9/1 1.8/1 1.8/1 1.4/1 1.6/1 2.1/1
Percent long-term debt/total
capitalization (f)..................... 78.0% 75.9% 69.2% 68.8% 67.7% 69.3% 38.9%
Return on beginning common stockholders'
equity (g)............................. (26.2%) (32.3%) (11.1%) (3.4%) 7.1% 26.9% 46.2%
Pretax margin........................... (2.9%) (9.2%) (4.2%) (.3%) 3.3% 9.0% 14.7%
After tax margin........................ (3.6%) (7.1%) (4.9%) (.9%) 1.7% 5.4% 9.1%
---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN MILLIONS EXCEPT PER SHARE) 1987(b) 1986(b) 1985 1984
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales............................... $3,232.9 $2,032.3 $ 1,229.1 $ 1,244.4
Cost of products sold................... 2,347.8 1,564.6 944.1 924.9
Selling, general and administrative
expenses............................... 343.8 241.2 157.0 147.6
Depreciation and amortization........... 138.7 92.3 67.8 64.4
Interest expense........................ 131.1 85.3 63.3 59.3
Income (loss) before income taxes,
minority interest, extraordinary losses
and cumulative effects of accounting
changes................................ 283.5 59.7 1.5 55.3
(Provision) credit for income taxes..... (122.1) (24.3) 2.3 (21.7)
Minority interest....................... (.1) -- -- --
Income (loss) before extraordinary
losses and cumulative effects of
accounting changes..................... 161.3 35.4 3.8 33.7
Extraordinary losses from early
extinguishments of debt................ -- -- -- --
Cumulative effects of accounting
changes................................ -- -- -- --
Net income (loss)....................... 161.3 35.4 3.8 33.7
---------- ---------- ---------- ----------
PER SHARE OF COMMON STOCK (a)
Income (loss) before extraordinary
losses and cumulative effects of
accounting changes..................... 2.79 .73 .09 .78
Extraordinary losses from early
extinguishments of debt................ -- -- -- --
Cumulative effects of accounting
changes................................ -- -- -- --
Net income (loss):
Primary............................... 2.79 .73 .09 .78
Fully diluted......................... 2.65 (i) (i) (i)
Dividends and distributions paid........ .25 .19 .19 .19
Common stockholders' equity (end of
year).................................. 12.40 9.92(c) 7.08 7.18
Price range of common shares-N.Y.S.E.
High.................................. 39.83 20.00 13.17 14.42
Low................................... 15.33 11.38 8.00 8.58
Average common shares outstanding (in
millions):
Primary............................... 57.9 48.8 42.3 43.1
Fully diluted......................... 60.9 (i) (i) (i)
---------- ---------- ---------- ----------
FINANCIAL POSITION AT END OF YEAR.......
Current assets.......................... $ 737.4 $ 530.4 $ 320.2 $ 323.3
Current liabilities..................... 334.9 203.4 165.1 164.4
Working capital......................... 402.5 327.0 155.1 158.9
Property, plant and equipment-net....... 1,300.0 924.4 642.6 657.7
Total assets............................ 2,286.1 1,523.6 1,010.3 1,006.7
Long-term debt.......................... 1,070.5 767.0 493.3 482.8
Deferred taxes.......................... 120.4 69.9 49.2 55.8
Redeemable preferred stock.............. 1.5 1.5 8.0 8.5
Minority interest (h)................... .2 -- -- --
Stockholders' equity.................... 740.3 481.8 294.7 295.1
---------- ---------- ---------- ----------
ADDITIONAL INFORMATION
Paperboard, paper and market pulp:
Produced (thousand short tons) (d).... 4,373 3,154 2,168 2,236
Converted (thousand short tons) (d)... 2,998 2,495 1,530 1,439
Corrugated shipments (billion square
feet) (d).............................. 32.09 25.95 15.19 14.46
Employees (end of year-in thousands).... 18.8 15.5 9.4 9.0
Capital expenditures.................... $ 105.7 $ 63.3 $ 47.1 $ 41.9
Net cash/funds provided by (used in)
operating activities (e)............... $ 277.8 $ 160.7 $ 68.4 $ 116.9
Working capital ratio................... 2.2/1 2.6/1 1.9/1 2.0/1
Percent long-term debt/total
capitalization (f)..................... 55.4% 58.1% 58.4% 57.3%
Return on beginning common stockholders'
equity (g)............................. 41.8% 10.2% 1.1% 11.9%
Pretax margin........................... 8.8% 2.9% .1% 4.4%
After tax margin........................ 5.0% 1.7% .3% 2.7%
---------- ---------- ---------- ----------
</TABLE>
10
<PAGE>
- ------------
NOTES TO SELECTED FINANCIAL DATA
(a) Amounts per average common share and average common shares outstanding have
been adjusted to reflect the 2 percent stock dividend in 1992, the 3-for-2
stock split in 1988 and the 2-for-1 stock split in 1987. The price range of
common shares outstanding has been adjusted only to reflect the previously
mentioned stock splits.
(b) The Company made major acquisitions in 1989, 1987 and 1986.
(c) For 1986, calculation assumes conversion of convertible preferred stock and
convertible subordinated debentures which were converted/redeemed in 1987.
(d) Includes non-consolidated affiliates.
(e) In accordance with Statement of Financial Accounting Standards No. 95,
"Statements of Cash Flows," the Company now discloses "Net cash provided by
(used in) operating activities". For years prior to 1986, "Net funds
provided by operations" are presented in this summary.
(f) Represents the percentage of long-term debt to the sum of long-term debt,
stockholders' equity, redeemable preferred stock, minority interest and
deferred taxes.
(g) 1994, 1993 and 1992 return on beginning common stockholders' equity
calculated using the loss before extraordinary losses and cumulative effects
of accounting changes.
(h) For 1994 and 1993, includes the Company's 25.4 percent minority interest
liability in the common shares of Stone-Consolidated.
(i) Fully diluted amounts and average common shares outstanding have not been
presented as amounts are either anti-dilutive or when compared to primary
earnings per share, the potential dilution effect is less than 3 percent.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARATIVE RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1993 1992
----------------- ------------------ ------------------
PERCENT PERCENT PERCENT
OF NET OF NET OF NET
(DOLLARS IN MILLIONS) AMOUNT SALES AMOUNT SALES AMOUNT SALES
- -------------------------------------------------- ------ -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................................... $5,749 100.0% $ 5,060 100.0% $ 5,521 100.0%
Cost of products sold............................. 4,564 79.4 4,223 83.5 4,474 81.0
Selling, general and administrative expenses...... 568 9.9 512 10.1 544 9.9
Depreciation and amortization..................... 359 6.2 347 6.9 329 6.0
Equity loss from affiliates....................... 8 .1 12 .2 5 .1
Other operating (income) expense-net.............. (34) (.6) 5 .1 13 .2
Other (income) expense-net........................ (9) (.1) (3) (.1) (6) (.1)
------ -------- ------- -------- ------- --------
Income (loss) before interest expense, income
taxes, minority interest, extraordinary losses
and cumulative effects of accounting changes..... 293 5.1 (36) (.7) 162 2.9
Interest expense.................................. (456) (7.9) (427) (8.4) (386) (7.0)
------ -------- ------- -------- ------- --------
Loss before income taxes, minority interest,
extraordinary losses and cumulative effects of
accounting changes............................... (163) (2.8) (463) (9.1) (224) (4.1)
Credit for income taxes........................... 35 .6 148 2.9 59 1.1
Minority interest................................. (1) -- (4) (.1) (5) (.1)
------ -------- ------- -------- ------- --------
Loss before extraordinary losses and cumulative
effects of accounting changes.................... (129) (2.2) (319) (6.3) (170) (3.1)
Extraordinary losses from early extinguishments of
debt............................................. (62) (1.1) -- -- -- --
Cumulative effects of accounting changes.......... (14) (.3) (40) (.8) (99) (1.8)
------ -------- ------- -------- ------- --------
Net loss.......................................... $ (205) (3.6) $ (359) (7.1) $ (269) (4.9)
------ -------- ------- -------- ------- --------
------ -------- ------- -------- ------- --------
</TABLE>
1994 COMPARED WITH 1993
Net sales for 1994 were $5.7 billion, an increase of 13.6 percent over 1993
net sales of $5.1 billion. Net sales increased as a result of both increased
sales volume and higher average selling prices for most of the Company's
products. In 1994, the Company incurred a loss before extraordinary losses from
the early extinguishments of debt and the cumulative effect of a change in the
accounting for postemployment benefits of $129 million, or $1.60 per share of
common stock. The Company recorded extraordinary losses from the early
extinguishments of debt totalling $61.6 million, net of income tax benefits, or
$.70 per share of common stock and a one-time, non-cash charge of $14.2 million,
net of income tax benefit, or $.16 per share of common stock, to reflect the
cumulative effect of adopting Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), resulting
in a net loss for 1994 of $205 million, or $2.46 per share of common stock. In
1993, the Company incurred a loss before the cumulative effect of a change in
the accounting for postretirement benefits other than pensions of $319 million,
or $4.59 per share of common stock. The Company adopted Statement of Financial
Accounting Standards No. 106, "Accounting for Postretirement Benefits Other than
Pensions" ("SFAS 106"), effective January 1, 1993 and recorded a one-time,
non-cash cumulative effect charge of $39.5 million, net of income tax benefit,
or $.56 per share of common stock, resulting in a net loss of $359 million, or
$5.15 per share of common stock.
The improved results for 1994 over 1993 primarily reflect improved product
pricing for most of the Company's products which more than offset a substantial
increase in recycled fiber costs, higher interest expense and a decrease in the
income tax benefit. The Company incurred a significant increase in recycled
fiber costs for 1994 over 1993 mainly as a result of a shortage for this raw
material. The 1994 results were also unfavorably impacted by an increase in
interest expense, primarily as a result of higher interest rates, and by foreign
currency transaction losses of $15.8 million. The 1993 results included foreign
currency transaction losses of $11.8 million. The 1994 results included a
12
<PAGE>
$22 million pretax involuntary conversion gain associated with a digester vessel
rupture at the Company's Panama City, Florida pulp and paperboard mill, whereas
the 1993 results included a $35.4 million pretax gain from the sale of the
Company's 49 percent equity interest in Empaques de Carton Titan, S.A.,
("Titan") and the favorable effect of a reduction in an accrual relating to a
change in the Company's vacation pay policy. The Company recorded an income tax
benefit of $35.5 million in 1994 as compared with an income tax benefit of
$147.7 million in 1993. The decrease in the income tax benefit primarily
reflects the tax effect associated with the lower pretax loss for 1994 as
compared with 1993. The Company's effective tax rates for both years reflect the
impact of non-deductible depreciation and amortization.
SEGMENT DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1994 1993 1992
----------------------------- ------------------------ ------------------------
INCOME (LOSS) INCOME INCOME
BEFORE INCOME (LOSS) (LOSS)
TAXES, MINORITY BEFORE INCOME BEFORE INCOME
INTEREST, TAXES, TAXES,
EXTRAORDINARY MINORITY MINORITY
LOSSES AND INTEREST AND INTEREST AND
CUMULATIVE CUMULATIVE CUMULATIVE
EFFECT OF AN EFFECT OF AN EFFECT OF AN
NET ACCOUNTING NET ACCOUNTING NET ACCOUNTING
(IN MILLIONS) SALES CHANGE SALES CHANGE SALES CHANGE
- --------------------------------------------- ------ --------------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Paperboard and paper packaging............... $4,241 $ 354 $ 3,810 $ 207 $ 4,186 $ 322
White paper and other........................ 1,550 26 1,296 (158) 1,381 (75)
Intersegment................................. (42) -- (46) -- (46) --
------ ------ ------- ------ ------- ------
5,749 380 5,060 49 5,521 247
Interest expense............................. (456) (427) (386)
Foreign currency transaction losses.......... (16) (12) (15)
General corporate and miscellaneous (net).... (71) (73) (70)
------ ------ ------- ------ ------- ------
Total........................................ $5,749 $ (163) $ 5,060 $ (463) $ 5,521 $ (224)
------ ------ ------- ------ ------- ------
------ ------ ------- ------ ------- ------
</TABLE>
SEGMENT AND PRODUCT LINE SALES DATA
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
-------------------------------------------
1994 VS 1993 1993 VS 1992
NET SALES -------------------- -------------------
--------------------------- SALES SALES SALES SALES
(DOLLARS IN MILLIONS) YEAR ENDED DECEMBER 31, 1994 1993 1992 REVENUE VOLUME REVENUE VOLUME
- -------------------------------------------------------- ------- ------- ------- --------- ------- -------- -------
Paperboard and paper packaging:
<S> <C> <C> <C> <C> <C> <C> <C>
Corrugated containers................................. $ 2,433 $ 2,155 $ 2,234 12.9% 5.3% (3.5)% 1.4%
Paperboard and kraft paper............................ 1,055 901 1,032 17.1 9.8 (12.7) (5.1)
Paper bags and sacks.................................. 641 579 634 10.7 6.6 (8.7) (11.0)
Folding cartons....................................... -- 60 178 nm nm (66.3) nm
Other................................................. 112 115 108 (2.6) nm 6.5 nm
------- ------- -------
Total paperboard and paper packaging................ 4,241 3,810 4,186 11.3 nm (9.0) nm
------- ------- -------
White paper and other:
Newsprint and groundwood paper........................ 883 770 757 14.7 14.9 1.7 5.1
Market pulp........................................... 305 187 312 63.1 5.3 (40.0) (8.4)
Other................................................. 362 339 312 6.8 nm 8.7 nm
------- ------- -------
Total white paper and other......................... 1,550 1,296 1,381 19.6 nm (6.2) nm
------- ------- -------
Intersegment............................................ (42) (46) (46) 8.7 nm -- nm
------- ------- -------
Total net sales..................................... $ 5,749 $ 5,060 $ 5,521 13.6 nm (8.4) nm
------- ------- -------
------- ------- -------
<FN>
nm = not meaningful
</TABLE>
See Note 19 of the consolidated financial statements included in this report
for additional segment information.
PAPERBOARD AND PAPER PACKAGING:
The 1994 net sales for the paperboard and paper packaging segment increased
11.3 percent over 1993 reflecting sales increases for virtually every product
line within this segment. Net sales for 1993 included sales for the Company's
European folding carton operations, which in the early part of 1993 were merged
into a joint venture and accordingly,
13
<PAGE>
are now accounted for under the equity method of accounting. Sales from these
operations prior to the merger in May of 1993 were approximately $60 million.
Excluding the effect of the folding carton operations, 1994 net sales increased
13.1 percent from the prior year.
Net sales of corrugated containers and paperboard increased 12.9 percent and
17.7 percent, respectively, over 1993. These increases reflect both increased
sales volume and higher average selling prices.
Also, reflecting volume increases and higher average selling prices, net
sales for paper bags and sacks increased 10.7 percent over 1993. Additionally,
net sales of kraft paper increased 2.2 percent over 1993 solely as a result of
increased sales volume.
Operating income for the paperboard and paper packaging segment for 1994
increased $146.8 million, or 70.8 percent over 1993 due to improved operating
margins primarily as a result of higher average selling prices and improved
sales volumes for corrugated containers, containerboard and paper bags and
sacks. Operating income for 1994 includes a pretax gain of approximately $11
million which represents the segment's portion of the previously mentioned
involuntary conversion gain relating to a digester vessel rupture at the
Company's Panama City, Florida pulp and paperboard mill. Operating income for
1993 included a $35.4 million pretax gain from the sale of Titan and a favorable
effect of a reduction in an accrual resulting from a change in the Company's
vacation policy. The earnings impact from these 1993 non-recurring items were
partially offset by the writedowns of the carrying values of certain Company
assets.
WHITE PAPER AND OTHER:
The 1994 net sales for the white paper and other segment increased 19.6
percent as a result of sales increases for market pulp and for newsprint and
groundwood paper. The sales increase for market pulp of 63.1 percent over 1993
primarily reflects significantly higher average selling prices, although
improved volume also contributed to the increase. Net sales of newsprint and
groundwood paper increased 14.7 percent in 1994 over 1993 primarily as a result
of increased sales volume, with higher average selling prices also contributing
to the increase. The increased sales volume and higher average selling prices
for newsprint and groundwood paper more than offset unfavorable foreign exchange
translation effects attributable to the stronger U.S. dollar.
Operating income for the white paper and other segment for 1994 was $25.4
million compared to an operating loss in 1993 of $158.8 million. This
significant improvement in operating income was mainly attributable to improved
operating margins primarily resulting from the significantly higher average
selling prices for market pulp and, to a lesser extent, to the increased volume
and higher average selling prices for newsprint and groundwood paper.
Additionally, operating income for 1994 included a pretax gain of approximately
$11 million which represents the segment's portion of the previously mentioned
involuntary conversion gain relating to a digester vessel rupture at the
Company's Panama City, Florida pulp and paperboard mill.
1993 COMPARED WITH 1992
Net sales for 1993 were $5.1 billion, a decrease of 8.4 percent over 1992
net sales of $5.5 billion. Net sales decreased as a result of both reduced sales
volume and lower average selling prices for most of the Company's products. In
1993, the Company incurred a loss before the cumulative effect of a change in
the accounting for postretirement benefits other than pensions of $319 million,
or $4.59 per common share. The Company adopted Statement of Financial Accounting
Standards No. 106, "Accounting for Postretirement Benefits Other than Pensions"
("SFAS 106"), effective January 1, 1993, and recorded a one-time, non-cash
cumulative effect charge of $39.5 million, net of income tax benefit, or $.56
per common share, resulting in a net loss of $359 million or $5.15 per common
share. In 1992, the Company incurred a loss before the cumulative effect of a
change in the accounting for income taxes of $170 million, or $2.49 per common
share. The adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), effective January 1, 1992, required
a one-time, non-cash cumulative effect charge of $99.5 million, or $1.40 per
common share, resulting in a net loss of $269 million or $3.89 per common share.
The increase in the loss before the cumulative effects of accounting changes
primarily resulted from lower average selling prices for most of the Company's
products.
The 1993 results included a $35.4 million pretax gain from the sale of Titan
and the favorable effect of a reduction in an accrual relating to a change in
the Company's vacation pay policy. The earnings impact of these non-recurring
items was partially offset by the writedowns of the carrying values of certain
Company assets. The 1993 results also reflect both an increase in interest
expense, primarily associated with a reduction in capitalized interest caused by
completion of capital projects, and foreign currency transaction losses of $11.8
million. The 1992 results included foreign currency transaction losses of $15.0
million and an $8.8 million pretax charge relating to the writedown of
14
<PAGE>
investments. The Company recorded an income tax benefit of $147.7 million in
1993 as compared with an income tax benefit of $59.4 million in 1992. The
increase in the income tax benefit primarily reflects the tax effect associated
with the increased pretax loss for 1993 over 1992. Additionally, deferred income
taxes were provided for the retroactive increase in the U.S. federal income tax
rate, which was more than offset by the effects of an enacted decrease in German
and Canadian income tax rates. The Company's effective income tax rates for both
years reflect the impact of non-deductible depreciation and amortization.
PAPERBOARD AND PAPER PACKAGING:
The 1993 net sales for the paperboard and paper packaging segment decreased
9.0 percent compared to 1992. This decrease was due in part to the exclusion of
sales for the Company's European folding carton operations which in the early
part of 1993 were merged into a joint venture and accordingly are now accounted
for under the equity method of accounting. Sales from these operations were
approximately $178 million in 1992. Sales for 1993 were approximately $60
million prior to the merger in May. Excluding the effect of the folding carton
operations, 1993 net sales for the paperboard and paper packaging segment
decreased 6.4 percent.
Net sales of corrugated containers decreased 3.5 percent from 1992 primarily
due to lower average selling prices in 1993 which more than offset a slight
increase in sales volume. Net sales of paperboard decreased 11.9 percent from
1992 as a result of significantly lower average selling prices and declines in
sales volume. Net sales of kraft paper decreased 28.0 percent from 1992
primarily due to reduced sales volume.
Net sales for paper bags and sacks decreased from 1992 primarily due to
lower sales volume and a decrease in average selling prices for retail paper
bags which more than offset a modest increase in average selling prices for
industrial paper bags.
Operating income for the paperboard and paper packaging segment for 1993
decreased 35.9 percent from 1992 due to significantly lower operating margins,
primarily resulting from the lower average selling prices for corrugated
containers and containerboard. Operating income for this segment includes the
previously mentioned $35.4 million pretax gain from the sale of Titan and a
favorable effect of a reduction in an accrual resulting from a change in the
Company's vacation policy. The earnings impact from these non-recurring items
was partially offset by the writedowns of the carrying values of certain Company
assets.
WHITE PAPER AND OTHER:
The 1993 net sales for the white paper and other segment decreased 6.2
percent, as significant sales declines for market pulp more than offset a sales
increase for groundwood paper. The sales declines for market pulp were primarily
attributable to significantly lower average selling prices which deteriorated
further in 1993 from the low average selling prices of 1992. Reduced sales
volume in 1993 also contributed to the lower market pulp sales. Newsprint sales
declined slightly in 1993 compared to 1992, primarily as a result of unfavorable
foreign exchange translation effects attributable to the stronger U.S. dollar,
which more than offset the benefits of higher average selling prices and a
slight volume increase. Net sales for groundwood paper increased 11 percent,
primarily as a result of significant volume increases which more than offset the
effects of slightly lower average selling prices.
The operating loss for the white paper and pulp segment for 1993 increased
significantly over 1992 due to reduced operating margins primarily resulting
from the significantly lower average selling prices for market pulp. Slightly
lower average selling prices for groundwood paper also contributed to the
reduced earnings, although to a much lesser extent. While average selling prices
for newsprint in 1993 improved over the depressed levels of 1992 (although such
prices declined in the fourth quarter of 1993 and in the first quarter of 1994),
and certain cost reductions had been implemented, the margins associated with
such improvements only partially offset the effects of the lower average selling
prices for market pulp and groundwood paper.
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital ratio was 1.8 to 1 at December 31, 1994 and
1.9 to 1 at December 31, 1993. The Company's long-term debt to total
capitalization ratio was 78.0 percent at December 31, 1994 and 75.9 percent at
December 31, 1993. Capitalization, for purposes of this ratio, includes
long-term debt (which includes debt of certain consolidated affiliates which is
non-recourse to the Company), deferred income taxes, redeemable preferred stock,
minority interest and stockholders' equity.
The Company's primary capital requirements consist of debt service and
capital expenditures, including capital investment for compliance with certain
environmental legislation requirements and ongoing maintenance expenditures and
improvements. The Company continues to be highly leveraged and will continue to
incur substantial ongoing interest expense. No significant debt amortization
obligations are due until June 1997 other than for the
15
<PAGE>
September 1995 maturities of Stone Financial Corporation ("Stone Fin") and Stone
Fin II Receivables Corporation ("Stone Fin II"), which the Company is currently
planning to refinance. The proposed refinancing transaction is currently
contemplated to approximate $300 million of receivables financing, which would
have a 5-year maturity together with a supplementary revolving credit facility.
The proposed receivables refinancing is subject to the placement and execution
of definitive documentation. At December 31, 1994, the Company's Consolidated
Balance Sheet included $253.8 million of outstanding indebtedness under the
Stone Fin and Stone Fin II receivables securitization program. Refer to Note 10
of the Consolidated Financial Statements, included in this report, for further
information relating to the Company's repayment obligations with respect to its
indebtedness. See also "Outlook" included in this section.
In October 1994, the Company entered into a new credit agreement consisting
of a $400 million senior secured term loan facility maturing through April 1,
2000, which has been fully drawn down to repay other indebtedness, and a $450
million senior secured revolving credit facility commitment maturing May 15,
1999, which includes a $25 million swing-line sub-facility maturing May 15, 1999
(the "Credit Agreement"). See also "Financing Activities" included later in this
section. At February 28, 1995, the Company had unused borrowing availability of
$355.2 million under the revolving credit facility, net of letters of credit of
$84.8 million issued under this facility which reduce the amount available to be
borrowed.
Borrowings under the Credit Agreement are secured with a significant portion
of the assets of the Company. The Credit Agreement contains covenants that
include, among other things, the maintenance of certain financial tests and
ratios consisting of an indebtedness ratio and a minimum interest coverage ratio
and certain restrictions and limitations, including those on capital
expenditures, changes in control, payment of dividends, sales of assets, lease
payments, investments, additional borrowings, liens, repurchases or prepayment
of certain indebtedness, guarantees of indebtedness, mergers and purchases of
stock and assets. The Credit Agreement also contains cross-default provisions to
the indebtedness of $10 million or more of the Company and certain subsidiaries,
as well as cross-acceleration provisions to the non-recourse debt of $10 million
or more of Stone-Consolidated, Seminole Kraft Corporation ("Seminole") and Stone
Venepal (Celgar) Pulp Inc. ("SVCPI"). Additionally, the term loan portion of the
Credit Agreement provides for mandatory prepayments from sales of certain
assets, certain debt financings and a percentage of excess cash flow (as
defined). The Company's bank lenders at their option may waive the receipt of
any mandatory prepayment. The amortizations for each semi-annual period is 1/2
of 1 percent of the principal amount of the outstanding term loans and all
mandatory and voluntary prepayments are allocated against the term loan
amortizations in inverse order of maturity. Mandatory prepayments from sales of
collateral, unless replacement collateral is provided, will be applied ratably
to the term loan and revolving credit facility, permanently reducing the loan
commitments under the Credit Agreement. See Note 10 of the Consolidated
Financial Statements for additional information regarding the Credit Agreement.
The Credit Agreement limits, except in certain specific circumstances, any
additional investments by the Company in Stone-Consolidated and Seminole.
Seminole had incurred substantial indebtedness in connection with project
financings and is significantly leveraged. As of December 31, 1994, Seminole had
$143.1 million in outstanding indebtedness (including $111.7 million in secured
indebtedness owed to bank lenders). Seminole produces 100 percent recycled
linerboard and is dependent upon an adequate supply of recycled fiber, in
particular old corrugated containers ("OCC"). Pursuant to an output purchase
agreement entered into in 1986 with Seminole, the Company is obligated to
purchase from Seminole and Seminole is obligated to sell to the Company all of
Seminole's linerboard production. Under the agreement, the Company paid fixed
prices for linerboard, which generally exceeded market prices, until June 3,
1994. Subsequent to that date, the Company began purchasing linerboard at market
prices and will continue to do so for the remainder of the agreement which is
scheduled to expire on December 31, 2000. Seminole did not comply with certain
financial covenants at September 30, 1994 and accordingly, had received waivers
and amendments with respect to such covenants from its bank lenders for periods
up to and including June 30, 1995. Additionally, Seminole is in the process of
seeking and expects to receive future covenant relief from certain of its other
financial covenants covering the periods from March 31, 1995 through March 29,
1996. There can be no assurance that Seminole will not require additional
waivers in the future or, if required, that the lenders will grant them.
Furthermore, in the event that management determines that it is probable that
Seminole will not be able to comply with any covenant contained in the Seminole
credit agreement within twelve months after the waiver of a violation of such
covenant, then certain Seminole debt would be reclassified as short-term debt
under the provisions of Emerging Issues Task Force Issue No. 86-30
"Classification of Obligations When a Violation is Waived By the Creditor".
Depending upon the level of market prices and the cost and supply of recycled
fiber, Seminole may need to undertake additional measures to meet its financial
covenants and its debt service requirements, including obtaining additional
sources of funds or liquidity, postponing or restructuring of debt service
payments or refinancing the
16
<PAGE>
indebtedness. In the event that such measures are required and are not
successful, and such indebtedness is accelerated by the respective lenders to
Seminole, the lenders to the Company under the Credit Agreement and various
other of its debt instruments would be entitled to accelerate the indebtedness
owed by the Company.
Additionally, the Credit Agreement contains cross-acceleration provisions
relating to the non-recourse debt of SVCPI. At December 31, 1994, SVCPI had
approximately $288 million in secured indebtedness owed to bank lenders. The
Credit Agreement allows, under certain specific circumstances, for the Company
to make further investments in SVCPI, if necessary.
OUTLOOK:
The Company's liquidity and financial flexibility was adversely affected by
the net losses incurred during the past four years. The Company improved its
liquidity and financial flexibility by operating profitably in the 1994 fourth
quarter, by completing significant refinancings in February and October of 1994
and by entering into the previously mentioned Credit Agreement which provides
for, among other things, a $450 million revolving credit facility (see also
"Financing activities" later in this section). At February 28, 1995, the Company
had borrowing availability of $355.2 million (net of letters of credit which
reduce the amount available to be borrowed) under its $450 million revolving
credit facility. Additionally, at February 28, 1995, Stone-Consolidated, a
non-recourse subsidiary of the Company, had no outstanding borrowings under its
$100 million revolving credit facility. (All amounts presented for
Stone-Consolidated are in U.S. dollars unless otherwise indicated.)
Notwithstanding these improvements in the Company's liquidity and financial
flexibility, the Company will be required in the future to generate sufficient
cash flows to fully meet the Company's debt service requirements. Included in
the Company's current maturities of debt at December 31, 1994 are the previously
mentioned $253.8 million of obligations related to the Company's accounts
receivable securitization program which matures September 15, 1995. While the
Company is in the process of refinancing such obligations, no assurance can be
given that it will be successful in doing so. In the event this refinancing is
not consummated, management nevertheless believes that operating cash flows and
borrowing availability under the Credit Agreement will provide more than
sufficient liquidity for the Company to meet its 1995 and 1996 debt service
requirements. Beginning in 1997 and continuing thereafter, the Company will be
required to make significant amortization payments on its existing indebtedness.
In the event the Company is unable to generate sufficient operating cash flows
to fully meet such debt service requirements, it may deplete a substantial
portion of its cash resources and borrowing availability under its revolving
credit facility. In such event, the Company would be required to pursue other
alternatives to improve liquidity, including cost reductions, sales of assets,
the deferral of certain capital expenditures and/or obtaining additional sources
of funds.
The financial resources of Seminole and Stone-Consolidated are not available
to the Company until certain financial covenants contained in debt instruments
of Seminole and Stone-Consolidated are satisfied. Such financial covenants have
not been satisfied to date.
As previously mentioned, the Company realized price increases for most of
its products during 1994, and current industry conditions appear to indicate
that further product price improvement should occur in 1995. While certain of
the Company's competitors in the containerboard industry have announced plans
for some future capacity increases, the Company does not believe that such
capacity increases will significantly affect the favorable supply/demand
characteristics currently present in the industry.
As a result of such favorable industry conditions, the Company has
implemented a containerboard price increase and also began implementing price
increases for corrugated containers in January of 1995. The Company's
containerboard and corrugated container product lines represent a substantial
portion of the Company's net sales. The Company converts more than 80 percent of
its containerboard production into corrugated containers making the achievement
of price increases for corrugated containers essential for the Company to
realize substantial financial benefit from containerboard price increases. A
further containerboard price increase has been announced effective April 1,
1995. Also in January 1995, the Company implemented price increases for market
pulp and has announced a further price increase effective March 1995.
Additionally, the Company has announced newsprint and groundwood paper price
increases beginning March 1995 and also a May 1995 price increase for newsprint.
While there can be no assurance that prices will continue to increase, the
Company believes that the supply/demand characteristics for its product lines
have substantially improved which should allow for sustained product price
improvement over 1994 year-end levels.
Wood fiber and recycled fiber, the principal raw materials used in the
manufacture of the Company's products, are purchased in highly competitive,
price sensitive markets. These raw materials have historically exhibited price
and demand cyclicality. In addition, the supply and price of wood fiber in
particular, is dependent upon a variety of factors
17
<PAGE>
over which the Company has no control, including environmental and conservation
regulations, natural disasters, such as forest fires and hurricanes, and
weather. In addition, recent increased demand for the Company's products has
resulted in greater demand for raw materials which has recently translated into
higher raw material prices, including the significant increase in costs of
recycled fiber. The Company purchases or cuts a variety of species of timber
from which the Company utilizes wood fiber depending upon the product being
manufactured and each mill's geographic location. A decrease in the supply of
wood fiber has caused, and will likely continue to cause, higher wood fiber
costs in some of the regions in which the Company procures wood. In addition,
the increase in demand for products manufactured, in whole or in part, from
recycled fiber has caused a tightness in supply of recycled fiber and a
resulting significant increase in the cost of such fiber used in the manufacture
of recycled containerboard and related products. As a result, the cost of
recycled fiber increased significantly in 1994 and remains high. There can be no
assurance that recycled fiber costs will not continue to escalate in the future.
Additionally, while the Company has not experienced any significant difficulty
in obtaining wood fiber and recycled fiber in economic proximity to its mills,
there can be no assurances that this will continue to be the case for any or all
of its mills.
The Company is continuing to pursue its financial strategy of enhancing its
liquidity and financial flexibility by evaluating certain alternatives related
to certain of its non-core assets, including the U.S. wood products business. As
an initial step in achieving this objective, the Company ceased operations of
three wood products facilities in the Pacific Northwest and intends to divest
the assets of these facilities as appropriate opportunities arise during 1995.
Accordingly, such net assets held for sale are included in other current assets
within the December 31, 1994 Consolidated Balance Sheet. The impact of such
closures did not have a material effect on the Company's 1994 Statement of
Operations.
As previously mentioned, in the second quarter of 1994, a digester vessel
ruptured at the Company's pulp and paperboard mill in Panama City, Florida
causing extensive damage to certain of the facility's assets. The Company is
seeking recovery for both the losses to property and the losses as a result of
business interruption arising from the Panama City occurrence. A partial
recovery of $20 million has already been received by the Company from certain
carriers and claims of approximately $66 million covering the major portion of
such losses are still pending. The insurance carrier providing boiler and
machinery coverage for the Company has denied the Company's claim; the Company
has not accepted such denial. In addition, the all-risks insurance carriers,
which would cover the losses not covered under the boiler and machinery
coverage, have reserved their rights with respect to the Company's claim in
order to investigate the application of coverage without prejudicing their
rights. Management believes the receivable recorded on its financial statements
is fully recoverable.
CASH FLOWS FROM OPERATIONS:
The following table shows, for the last three years, the net cash provided
by (used in) operating activities:
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1993 1992
- -------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net loss.......................................... $(205) $ (359 ) $ (269 )
Depreciation and amortization..................... 359 347 329
Deferred taxes.................................... (55) (134) (67)
Payment on settlement of interest rate swaps...... -- (33) --
Extraordinary losses from early extinguishments of
debt............................................. 62 -- --
Cumulative effects of accounting changes.......... 14 39 99
(Increase) decrease in accounts and notes
receivable--net.................................. (176) 45 (67)
Decrease in inventories........................... 30 29 11
(Increase) decrease in other current assets....... (46) (9) 9
Increase (decrease) in accounts payable and other
current liabilities.............................. 87 (60) (35)
Other............................................. (77)(a) (78)(b) 76(c)
--------- --------- ---------
Net cash provided by (used in) operating
activities....................................... $ (7) $(213) $ 86
--------- --------- ---------
--------- --------- ---------
<FN>
- ---------
(a) Includes debt issuance costs of approximately $79 million.
(b) Includes debt issuance costs of approximately $84 million.
(c) Includes $54 million of cash received from the sale of an energy contract
in October 1992.
</TABLE>
18
<PAGE>
The results of operations for the past four years have had a significant
adverse impact on the Company's cash flow and liquidity. Borrowings in each of
these years were necessary in order to meet cash flow needs.
During 1994, the Company entered into various financing and investing
activities designed to provide liquidity and enhance financial flexibility. See
"Financing activities" and "Investing activities".
Significant working capital changes affecting the Company's cash flows from
operations are as follows:
The 1994 increase in accounts and notes receivable primarily reflects
increased sales volume and higher average selling prices for the majority of the
Company's products. The 1993 decrease in accounts and notes receivable reflects
the timing of receivable collections, lower average selling prices for a
majority of the Company's products and the writedown of certain receivables to
net realizable value.
The decrease in inventories for 1994 primarily reflects a reduction in
quantities of certain paperstock levels due to increased sales volume.
Inventories decreased in 1993 due primarily to a reduction in certain paperstock
levels, partially attributable to market-related downtime.
The 1994 increase in other current assets resulted mainly from the insurance
claim receivable associated with the digester vessel rupture at the Company's
pulp and paperboard mill in Panama City, Florida, partially offset by the
receipt of an income tax refund relating to prior years.
The increase in accounts payable for 1994 was due primarily to the timing of
payments while the increase in accrued and other current liabilities mainly
reflects an increase in accrued interest primarily associated with interest on
the Company's 9 7/8 percent Senior Notes, 10 3/4 percent First Mortgage Notes
and the 11 1/2 percent Senior Notes which is payable semi-annually at various
dates throughout the year. The 1993 decrease in accounts payable and other
current liabilities was due primarily to the timing of payments.
FINANCING ACTIVITIES:
The following summarizes the Company's significant financing activities in
1994:
- On October 12, 1994, the Company sold $500 million principal amount of
10 3/4 percent First Mortgage Notes due October 1, 2002 (the "10 3/4
percent First Mortgage Notes") and $200 million principal amount of 11 1/2
percent Senior Notes due October 1, 2004 (the "11 1/2 percent Senior
Notes") (hereafter referred together as the "October Offering"). The
10 3/4 percent First Mortgage Notes and the 11 1/2 percent Senior Notes
are redeemable by the Company after September 30, 1999 and interest is
payable semi-annually on April 1 and October 1, commencing April 1, 1995.
Net proceeds from the sale of these securities was approximately $679.1
million.
Concurrent with the October Offering, the Company (i) entered into the
Credit Agreement, (ii) repaid all of the outstanding indebtedness and
commitments under its previously existing bank credit agreements which
consisted of two term loan facilities, two revolving credit facilities and
an additional term loan (the "1989 Credit Agreement") which were then
terminated, (iii) merged the Company's 93 percent owned subsidiary Stone
Savannah River Pulp & Paper Corporation ("Stone Savannah River") into a
wholly-owned subsidiary of the Company and, (iv) as described below,
repaid or acquired Stone Savannah River's outstanding indebtedness,
preferred stock and common stock (collectively, the "October Related
Transactions"). In connection with the Stone Savannah River merger, the
Company (i) repaid all the indebtedness outstanding under and terminated
Stone Savannah River's bank credit agreement, (ii) redeemed the $130
million principal amount of Stone Savannah River's 14 1/8 percent Senior
Subordinated Notes due 2000 for approximately $139.2 million, equal to the
principal amount and the applicable premium percentage of the principal
amount, plus accrued interest, (iii) redeemed on November 14, 1994 the
425,243 outstanding shares of Series A Cumulative Redeemable Exchangeable
Preferred Stock of Stone Savannah River not owned by the Company for
approximately $52 million, representing the applicable premium percentage
of the principal amount plus accrued and unpaid dividends, and (iv)
acquired the 72,346 outstanding shares of common stock of Stone Savannah
River not owned by the Company. The Credit Agreement also provides for the
issuance of letters of credit which to the extent utilized serve to reduce
borrowing availability under the revolving credit facility of the Credit
Agreement. The completion of the October Offering, together with the
October Related Transactions, has extended the scheduled amortization
obligations and final maturities of more than $1 billion of the Company's
indebtedness and improved the Company's liquidity and financial
flexibility by, among other things, providing for the $450 million senior
secured revolving credit facility commitment under the Credit Agreement.
- In February 1994, the Company sold $710 million principal amount of 9 7/8
percent Senior Notes due February 1, 2001 and 18.97 million shares of
common stock for an additional $289.3 million at $15.25 per common share
19
<PAGE>
(the "February Offerings"). The net proceeds from the February Offerings
of approximately $962 million were used as follows: (i) approximately $652
million was used to prepay all of the 1995 and portions of the 1996 and
1997 scheduled amortizations under the Company's then existing 1989 Credit
Agreement including the ratable amortization payment under the revolving
credit facilities of the 1989 Credit Agreement; (ii) to redeem the
Company's 13 5/8 percent Subordinated Notes due 1995 at a price equal to
par, approximately $98 million principal amount, plus accrued interest to
the redemption date; (iii) approximately $136 million was used to repay
the outstanding borrowings under the Company's revolving credit facilities
without reducing the commitments thereunder; and (iv) provided incremental
liquidity in the form of cash.
As a result of the debt prepayments associated with the October Offering
and Related Transactions and the February Offerings, the Company's 1994
results reflect charges of $61.6 million, net of income tax benefit of
$36.5 million, for the write-off of unamortized deferred debt issuance
costs and other costs associated with the debt that was repaid. Such
charges are reflected as losses from early extinguishments of debt in the
Company's Consolidated Statement of Operations for the year ended December
31, 1994.
INVESTING ACTIVITIES:
The following summarizes the Company's primary 1994 investing activities:
- In December 1994, the Company acquired an additional 40 percent of the
common stock of SVCPI, previously a 50-percent owned non-consolidated
affiliate, thereby increasing the Company's ownership interest to 90
percent. Accordingly, SVCPI is now accounted for as a consolidated
subsidiary. As a result, approximately $288 million of existing
indebtedness of SVCPI, which is non-recourse to the Company, is included
in the December 31, 1994 Consolidated Balance Sheet. Additionally, this
transaction indirectly increased the Company's ownership interest in the
Celgar pulp mill located in Castlegar, British Columbia from 25 percent to
45 percent as SVCPI has a 50 percent joint venture interest in the Celgar
pulp mill.
- In October 1994, the Company acquired the remaining 7 percent of the
common stock of Stone Savannah River, thereby making it a wholly-owned
subsidiary of the Company. See Note 10 -- "Long-term Debt" for further
discussion.
- The Company received approximately $37 million in cash from the sales of
certain assets.
- Capital expenditures for 1994 totaled approximately $233 million. The
Company's capital expenditures for 1995 are budgeted at approximately $400
million, of which approximately $172 million are budgeted for Stone-
Consolidated.
ENVIRONMENTAL ISSUES:
The Company's operations are subject to extensive environmental regulation
by federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. The Company has in
the past made significant capital expenditures to comply with water, air and
solid and hazardous waste regulations and expects to make significant
expenditures in the future. Capital expenditures for environmental control
equipment and facilities were approximately $53 million in 1994 and the Company
anticipates that 1995 and 1996 environmental capital expenditures will
approximate $95 million and $67 million, respectively (exclusive of any
potential expenditures which may be required if the proposed "cluster rules"
described below are adopted). Included in these amounts are capital expenditures
for Stone-Consolidated which were approximately $32 million in 1994 and are
anticipated to approximate $56 million in 1995 and $19 million in 1996. Although
capital expenditures for environmental control equipment and facilities and
compliance costs in future years will depend on legislative and technological
developments which cannot be predicted at this time, the Company anticipates
that these costs will increase when final "cluster rules" as described below,
are adopted and as other environmental regulations become more stringent.
Environmental control expenditures include projects which, in addition to
meeting environmental concerns, yield certain benefits to the Company in the
form of increased capacity and production cost savings. In addition to capital
expenditures for environmental control equipment and facilities, other
expenditures incurred to maintain environmental regulatory compliance (including
any remediation) represent ongoing costs to the Company.
In December 1993, the U.S. Environmental Protection Agency (the "EPA")
issued a proposed rule affecting the pulp and paper industry. These proposed
regulations, informally known as the "cluster rules," would make more stringent
requirements for discharge of wastewaters under the Clean Water Act and would
impose new requirements on air emissions under the Clean Air Act. Pulp and paper
manufacturers (including the Company) have submitted extensive comments to the
EPA on the proposed regulations in support of the position that requirements
under the
20
<PAGE>
proposed regulations are unnecessarily complex, burdensome and environmentally
unjustified. The EPA has indicated that it may reopen the comment period on the
proposed regulations to allow review and comment on new data that the industry
will submit to the agency on the industry's air toxic emissions. It cannot be
predicted at this time whether the EPA will modify the requirements in the final
regulations which are currently scheduled to be issued in 1996, with compliance
required within three years from such date. The Company is considering and
evaluating the potential impact of the rules, as proposed, on its operating and
capital expenditures over the next several years. Estimates, based on currently
proposed regulations, indicate that the Company could be required to make
capital expenditures of $350-$450 million during the period of 1996 through 1998
in order to meet the requirements of the rules. In addition, annual operating
expenses would increase by as much as $20 million beginning in 1998. The
ultimate financial impact of the regulations cannot be accurately estimated at
this time but will be affected by several factors, including the actual
requirements imposed under the final rule, advancements in control process
technologies, possible reconfiguration of mills and inflation.
In addition, the Company is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. The Company has been named as a potentially
responsible party ("PRP") at a number of sites which are the subject of remedial
activity under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA" or "Superfund") or comparable state laws.
Although the Company is subject to joint and several liability imposed under
Superfund, at most of the multi-PRP sites there are organized groups of PRPs and
costs are being shared among PRPs. Future environmental regulations, including
the final "cluster rules," may have an unpredictable adverse effect on the
Company's operations and earnings, but they are not expected to adversely affect
the Company's competitive position.
COMMON AND SERIES E CUMULATIVE PREFERRED STOCK -- CASH DIVIDENDS, MARKET AND
PRICE RANGE
Due to limitations and restrictions imposed upon the Company either under
certain of its Indentures, the Credit Agreement or under the previous 1989
Credit Agreement, the Company did not declare or pay a cash dividend on its
shares of common stock during 1994, 1993 or in the third and fourth quarters of
1992. Cash dividends per common share were $.35 for 1992. Cash dividends on
common stock cannot be declared and paid until the Company fully satisfies all
accumulated preferred stock dividends in arrears and there is an available
dividend pool under the Senior Subordinated Indenture and under the Credit
Agreement.
The Company paid cash dividends during the first two quarters of 1993 on its
Series E Cumulative Convertible Exchangeable Preferred Stock ("Series E
Cumulative Preferred Stock"). Due to the restrictive provisions in the Company's
indentures, of which the most restrictive provision is contained in the Senior
Subordinated Indenture dated March 15, 1992 (the "Senior Subordinated
Indenture") relating to the Company's 10 3/4 percent Senior Subordinated Notes
due June 15, 1997, its 11 percent Senior Subordinated Notes due August 15, 1999
and its 10 3/4 percent Senior Subordinated Debentures due April 1, 2002, the
Board of Directors did not declare the scheduled August 15, 1993 or the November
15, 1993 quarterly dividend of $.4375 per share on the Company's Series E
Cumulative Preferred Stock. As a result of the February 1994 Offerings, the
"dividend pool" established by the restrictions on payment of dividends under
the Senior Subordinated Indenture was replenished from the sale of the common
stock. On May 16, 1994, the Company paid both a regular quarterly cash dividend
of $.4375 per share and a cumulative cash dividend of $1.3125 per share on the
Series E Cumulative Preferred Stock to stockholders of record on April 15, 1994.
The cumulative cash dividend fully satisfied all accumulated dividends in
arrears on the Series E Cumulative Preferred Stock at that time. As a result of
net losses in the 1994 second and third quarters, the dividend pool had been
subsequently depleted and, accordingly, the Company's Board of Directors did not
declare the scheduled August 15, 1994, November 15, 1994 or the February 15,
1995 quarterly dividend of $.4375 on the 4.6 million shares of Series E
Cumulative Preferred Stock. The dividend pool was partially replenished with the
net income from the fourth quarter of 1994. At December 31, 1994, the dividend
pool in the Senior Subordinated Indenture had a deficit of approximately $103
million.
In the event the Company has six quarterly dividends which remain unpaid on
the Series E Cumulative Preferred Stock, the holders of the Series E Cumulative
Preferred Stock would have the right to elect two members to the Company's Board
of Directors until the accumulated dividends on such Series E Cumulative
Preferred Stock have been declared and paid or set apart for payment. The
dividend pool under the Credit Agreement will be calculated
21
<PAGE>
from October 1, 1994. Irrespective of the amount of the dividend pool under the
Credit Agreement, the Credit Agreement permits dividends to be paid on the
Series E Cumulative Preferred Stock if there is available dividend pool under
the Senior Subordinated Indenture.
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------
1994 1993
-------------- --------------
Quarter High Low High Low
- --------------------------------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1st........................................................................ $16.88 $ 9.63 $19.50 $12.63
2nd........................................................................ 16.63 12.25 14.00 6.38
3rd........................................................................ 21.13 14.50 9.25 6.50
4th........................................................................ 20.50 14.63 12.38 6.88
Year....................................................................... 21.13 9.63 19.50 6.38
------ ------ ------ ------
<CAPTION>
SERIES E CUMULATIVE
PREFERRED STOCK
------------------------------
1994 1993
-------------- --------------
Quarter High Low High Low
- --------------------------------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1st........................................................................ $19.50 $15.25 $20.50 $17.50
2nd........................................................................ 20.63 17.38 19.00 10.50
3rd........................................................................ 20.88 17.50 17.63 8.75
4th........................................................................ 19.88 16.63 15.75 9.63
Year....................................................................... 20.88 15.25 20.50 8.75
------ ------ ------ ------
</TABLE>
There were approximately 6,634 common stockholders and 405 preferred
stockholders of record at December 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's financial statements required by Item 8, together with the
report thereon of the independent accountants dated February 6, 1995, are set
forth on pages 30-60 of this report. The financial statement schedules listed
under Item 14(a)2, together with the report thereon of the independent
accountants dated February 6, 1995, are set forth on pages 61 and 63 of this
report and should be read in conjunction with the financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the Registrant's Directors and Executive Officers is
incorporated herein by reference to the Proxy Statement, to be filed on or
before April 30, 1995, for the Annual Meeting of Stockholders scheduled May 9,
1995, under the captions "Nominees for Directors," "Information as to Directors
and Executive Officers" and "Directors -- Certain Transactions".
ITEM 11. EXECUTIVE COMPENSATION
Information relating to the Registrant's executive compensation is
incorporated herein by reference to the Proxy Statement, to be filed on or
before April 30, 1995, for the Annual Meeting of Stockholders scheduled May 9,
1995, under the caption "Compensation", excluding the section thereunder
entitled "Compensation Committee Report on Executive Compensation" and
"Performance Graph".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Information relating to certain beneficial ownership of the Registrant's
common stock is incorporated herein by reference to the Proxy Statement, to be
filed on or before April 30, 1995, for the Annual Meeting of Stockholders
scheduled May 9, 1995, under the captions "Nominees for Directors" and "Security
Ownership by Certain Beneficial Owners and Management -- Security Ownership by
Certain Beneficial Owners".
(b) SECURITY OWNERSHIP OF MANAGEMENT
Information relating to ownership of the Registrant's equity securities by
Directors and Executive Officers is incorporated herein by reference to the
Proxy Statement, to be filed on or before April 30, 1995, for the Annual Meeting
of Stockholders scheduled May 9, 1995, under the captions "Nominees for
Directors" and "Security Ownership by Certain Beneficial Owners and Management
- -- Security Ownership by Management".
(c) CHANGES IN CONTROL
The Registrant knows of no contractual arrangements which may, at a
subsequent date, result in a change in control of the Registrant.
22
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information related to certain relationships and related transactions is
incorporated herein by reference to the Proxy Statement, to be filed on or
before April 30, 1995, for the Annual Meeting of Stockholders scheduled May 9,
1995, under the caption "Directors -- Certain Transactions".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. FINANCIAL STATEMENTS. The Registrant's financial statements, for
the year ended December 31, 1994, together with the Report of Independent
Accountants are set forth on pages 30-60 of this report. The supplemental
financial information listed and appearing hereafter should be read in
conjunction with the Financial Statements included in this report. Separate
financial statements of 50-percent or less owned persons accounted for by
the equity method have been omitted because they would not constitute a
significant subsidiary.
2. SUPPLEMENTAL FINANCIAL INFORMATION. The following are included in
Part IV of this report for each of the years ended December 31, 1994, 1993
and 1992 as applicable:
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Accountants on Supplemental Financial
Information................................................ 61
Valuation and Qualifying Accounts and Reserves (Schedule
II)........................................................ 63
Summarized Financial Information--Stone Southwest, Inc...... 63
</TABLE>
Financial statement schedules not included in this report have been omitted,
either because they are not applicable or because the required information is
shown in the financial statements or notes thereto, included in this report. At
December 31, 1994, the Company had outstanding loans receivable of $412,483 and
$250,000, respectively, to James Doughan, President and Chief Executive Officer
of Stone-Consolidated, and to James B. Heider, Senior Vice President and General
Manager, North American Containerboard, Paper and Pulp Division. Such loans bear
no interest and are repayable on demand pursuant to request by the Company.
3. EXHIBITS. The exhibits required to be filed by Item 601 of
Regulation S-K are listed under the caption "Exhibits" in Item 14(c).
(b) REPORTS ON FORM 8-K
A Report on Form 8-K dated January 3, 1994 was filed reporting (i) under
Item 2--Acquisition or Disposition of Assets, that Stone-Consolidated, an
indirect Canadian subsidiary of the Company, sold in Canada in an initial public
offering both common stock and convertible subordinated debentures and
concurrently sold in the United States senior secured notes and; (ii) under Item
5--Other Events, that the Company and its bank group entered into an Amended and
Restated Credit Agreement effective December 17, 1993 (the "Third Restated
Credit Agreement").
A Report on Form 8-K dated January 5, 1994 was filed reporting under Item
5--Other Events, with respect to certain amendments to the 1989 Credit
Agreements and disclosure relating to the Offerings, and other recent
developments.
A Report on Form 8-K dated January 24, 1994 was filed reporting under Item
5--Other Events, that (i) the Company issued a press release on February 3, 1994
announcing its financial results for the fourth quarter of 1993 and for the year
ended December 31, 1993 and the recent developments concerning the Company's
issuance of common stock and senior unsecured notes and (ii) the Company amended
and received a waiver to its 1989 Credit Agreements as of January 24, 1994.
A Report on Form 8-K dated April 19, 1994 was filed reporting under Item
5--Other Events, certain environmental capital expenditures and expenses which
could be required if and when the "cluster rules" are finalized by the U.S.
Environmental Protection Agency.
A Report on Form 8-K dated February 16, 1995 was filed reporting under Item
5--Other Events, that the Company issued a press release on February 6, 1995
announcing its financial results for the fourth quarter of 1994 and for the year
ended December 31, 1994.
23
<PAGE>
(c) EXHIBITS
<TABLE>
<C> <S>
3(a) Restated Certificate of Incorporation of the Company, filed as Exhibit
3(a) to the Company's Registration Statement on Form S-1, Registration
Number 33-54769, is hereby incorporated by reference.
3(b) By-laws of the Company, as amended March 28, 1994, filed as Exhibit
3(b) to the Company's Registration Statement on Form S-1, Registration
Number 33-54769, is hereby incorporated by reference.
4(a) Specimen certificate representing Common Stock, $.01 par value, filed
as Exhibit 4(a) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1987, is hereby incorporated by reference.
4(b) Specimen certificate representing the $1.75 Series E Cumulative
Convertible Exchangeable Preferred Stock, filed as Exhibit 4(g) to the
Company's Registration Statement on Form S-3, Registration Number
33-45374, is hereby incorporated by reference.
4(c) Rights Agreement, dated as of July 25, 1988, between the Company and
The First National Bank of Chicago, filed as Exhibit 1 to the
Company's Registration Statement on Form 8-A dated July 27, 1988, is
hereby incorporated by reference.
4(d) Amendment to Rights Agreement, dated as of July 23, 1990, between the
Company and The First National Bank of Chicago, filed as Exhibit 1A to
the Company's Form 8 dated August 2, 1990 amending the Company's
Registration Statement on Form 8-A dated July 27, 1988, is hereby
incorporated by reference.
4(e) Credit Agreement ("Credit Agreement") dated as of October 12, 1994
among the Company, the financial institutions signatory thereto,
Bankers Trust Company, as agent (the "Agent"), and Bank of America
National Trust & Savings Association, The Bank of New York, The Bank
of Nova Scotia, Caisse National de Credit Agricole, Chemical Bank, The
Chase Manhattan Bank, N.A., Dresdner Bank AG-Chicago and Grand Cayman
Branches, The First National Bank of Chicago, The Long-Term Credit
Bank of Japan, Ltd., NationsBank of North Carolina, N.A., The Sumitomo
Bank, Ltd., Chicago Branch and The Toronto-Dominion Bank, as co-agents
(the "Co-Agents"), filed as Exhibit 4(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994, is
hereby incorporated by reference.
4(f) First Amendment, Consent and Waiver of Credit Agreement dated as of
January 30, 1995 among the Company, the Agents and the Co-Agents
amending the Credit Agreement.**
4(g) Indenture dated as of October 12, 1994 between the Company and Norwest
Bank Minnesota, N.A., as Trustee, relating to the 10 3/4 percent First
Mortgage Notes due October 1, 2002, filed as Exhibit 4(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, is hereby incorporated by reference.
4(h) Indenture dated as of October 12, 1994 between Stone Container
Corporation and The Bank of New York, as Trustee, relating to the
11 1/2 percent Senior Notes due October 1, 2004, filed as Exhibit 4(c)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, is hereby incorporated by reference.
4(i) Indenture, dated as of September 15, 1986, relating to the 12 1/8
percent Subordinated Debentures due September 15, 2001 of Stone
Southwest Corporation (now Stone Southwest, Inc.), between Southwest
Forest Industries, Inc. and Bankers Trust Company, as Trustee,
together with the First Supplemental Indenture, dated as of September
1, 1987, among Stone Container Corporation, a Nevada corporation, the
Registrant and National Westminster Bank USA, as Trustee (which has
been succeeded by Shawmut Bank, N.A., as Trustee), and the Second
Supplemental Indenture, dated as of December 14, 1987, among Stone
Southwest Corporation, the Company and National Westminster Bank USA,
as Trustee (which has been succeeded by Shawmut Bank, N.A., as
Trustee), filed as Exhibit 4(i) to the Company's Registration
Statement on Form S-3, Registration Number 33-36218, is hereby
incorporated by reference.
- ---------
** Filed herewith
</TABLE>
24
<PAGE>
<TABLE>
<C> <S>
4(j) Indenture, dated as of September 1, 1989, between the Company and
Bankers Trust Company, as Trustee, relating to the Company's 11 1/2
percent Senior Subordinated Notes due September 1, 1999, filed as
Exhibit 4(n) to the Company's Registration Statement on Form S-3,
Registration Number 33-46764, is hereby incorporated by reference.
4(k) Indenture, dated as of February 15, 1992, between the Company and The
Bank of New York, as Trustee, relating to the Company's 6 3/4 percent
Convertible Subordinated Debentures due February 15, 2007, filed as
Exhibit 4(p) to the Company's Registration Statement on Form S-3,
Registration Number 33-45978, is hereby incorporated by reference.
4(l) Senior Subordinated Indenture, dated as of March 15, 1992, between the
Company, and The Bank of New York, as Trustee, filed as Exhibit 4(a)
to the Company's Registration Statement Form S-3, Registration Number
33-46764, is hereby incorporated by reference.
4(m) Indenture dated as of June 15, 1993, between the Company and Norwest
Bank Minnesota, National Association, as Trustee, relating to the
Company's 8 7/8 percent Convertible Senior Subordinated Notes due
2000, filed as Exhibit 4(a) to the Company's Registration Statement on
Form S-3, Registration Number 33-66086, is hereby incorporated by
reference.
4(n) Indenture, dated as of November 1, 1991, between the Company and The
Bank of New York, as Trustee, relating to the Company's Senior Debt
Securities, filed as Exhibit 4(u) to the Company's Registration
Statement on Form S-3, Registration Number 33-45374, is hereby
incorporated by reference.
4(o) First Supplemental Indenture dated as of June 23, 1993, between the
Company and The Bank of New York, as Trustee, relating to the
Indenture, dated as of November 1, 1991, between the Company and The
Bank of New York, as Trustee, filed as Exhibit 4(aa) to the Company's
Registration Statement on Form S-3, Registration Number 33-66086, is
hereby incorporated by reference.
4(p) Second Supplemental Indenture dated as of February 1, 1994, between
the Company and the Bank of New York, as Trustee, relating to the
Indenture, dated as of November 1, 1991, as amended, filed as Exhibit
4.2 to the Company's Current Report on Form 8-K, dated January 24,
1994, is hereby incorporated herein by reference.
Indentures with respect to other long-term debt, none of which exceeds
10 percent of the total assets of the Company and its subsidiaries on
a consolidated basis, are not attached. (The Registrant agrees to
furnish a copy of such documents to the Commission upon request).
4(q) Guaranty, dated October 7, 1983, between the Company and The
Continental Group, Inc., filed as Exhibit 4(h) to the Company's
Registration Statement on Form S-3, Registration Number 33-36218, is
hereby incorporated by reference.
10(a) Management Incentive Plan, filed as Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1980, is
hereby incorporated by reference.*
10(b) Unfunded Deferred Director Fee Plan, filed as Exhibit 10(d) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1981, is hereby incorporated by reference.*
10(c) Form of "Stone Container Corporation Compensation Agreement" between
the Company and its directors that elect to participate, filed as
Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988, is hereby incorporated by reference.*
10(d) Stone Container Corporation 1982 Incentive Stock Option Plan, filed as
Appendix A to the Prospectus included in the Company's Form S-8
Registration Statement, Registration Number 2-79221, effective
September 27, 1982, is hereby incorporated by reference.*
- ---------
* Management contract or compensatory plan or arrangement
</TABLE>
25
<PAGE>
<TABLE>
<C> <S>
10(e) Stone Container Corporation 1993 Stock Option Plan, filed as Appendix
A to the Company's Proxy Statement dated as of April 10, 1992, is
hereby incorporated by reference.*
10(f) Stone Container Corporation Deferred Income Savings Plan, conformed to
reflect amendment effective as of January 1, 1990, filed as Exhibit
4(i) to the Company's Form S-8 Registration Statement, Registration
Number 33-33784, filed March 9, 1990, is hereby incorporated by
reference.*
10(g) Form of "Employee Continuity Agreement in the Event of a Change of
Control" entered into with all officers with 5 or more years of
service with the Company, filed as Exhibit 10(j) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988, is
hereby incorporated by reference.*
10(h) Stone Container Corporation 1986 Long-Term Incentive Program, filed as
Exhibit A to the Company's Proxy Statement dated as of April 5, 1985,
is hereby incorporated by reference.*
10(i) Stone Container Corporation 1992 Long-Term Incentive Program, filed as
Exhibit A to the Company's Proxy Statement dated as of April 11, 1991,
is hereby incorporated by reference.*
10(j) Supplemental Retirement Income Agreement between Company and James
Doughan dated as of February 10, 1989, filed as Exhibit 10(q) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988, is hereby incorporated by reference.*
11 Computation of Primary and Fully Diluted Net Loss Per Common Share.**
12 Computation of Ratios of Earnings to Fixed Charges.**
21 Subsidiaries of the Company.**
27 Financial Data Schedules.**
<FN>
- ---------
* Management contract or compensatory plan or arrangement
** Filed herewith
</TABLE>
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
STONE CONTAINER CORPORATION
By: ROGER W. STONE
------------------------------------------------------- March 10, 1995
Roger W. Stone
CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT
(CHIEF EXECUTIVE OFFICER)
ARNOLD F. BROOKSTONE
------------------------------------------------------- March 10, 1995
Arnold F. Brookstone
EXECUTIVE VICE PRESIDENT
(CHIEF FINANCIAL AND PLANNING OFFICER)
THOMAS P. CUTILLETTA
------------------------------------------------------- March 10, 1995
Thomas P. Cutilletta
SENIOR VICE PRESIDENT AND CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
27
<PAGE>
SIGNATURES--(CONTINUED)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
RICHARD A. GIESEN RICHARD J. RASKIN
- ------------------------------------------ ------------------------------------------
Richard A. Giesen Richard J. Raskin
DIRECTOR March 10, 1995 DIRECTOR March 10, 1995
JAMES J. GLASSER ALAN STONE
- ------------------------------------------ ------------------------------------------
James J. Glasser Alan Stone
DIRECTOR March 10, 1995 DIRECTOR March 10, 1995
GEORGE D. KENNEDY AVERY J. STONE
- ------------------------------------------ ------------------------------------------
George D. Kennedy Avery J. Stone
DIRECTOR March 10, 1995 DIRECTOR March 10, 1995
HOWARD C. MILLER, JR. IRA N. STONE
- ------------------------------------------ ------------------------------------------
Howard C. Miller, Jr. Ira N. Stone
DIRECTOR March 10, 1995 DIRECTOR March 10, 1995
JOHN D. NICHOLS JAMES H. STONE
- ------------------------------------------ ------------------------------------------
John D. Nichols James H. Stone
DIRECTOR March 10, 1995 DIRECTOR March 10, 1995
JERRY K. PEARLMAN ROGER W. STONE
- ------------------------------------------ ------------------------------------------
Jerry K. Pearlman Roger W. Stone
DIRECTOR March 10, 1995 DIRECTOR March 10, 1995
</TABLE>
28
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
ITEM: PAGE
- ---------------------------------------------------------------------- -----
<S> <C>
Financial Statements:
Report of Independent Accountants................................... 30
Consolidated Statements of Operations............................... 31
Consolidated Balance Sheets......................................... 32
Consolidated Statements of Cash Flows............................... 33
Consolidated Statements of Stockholders' Equity..................... 34
Notes to the Consolidated Financial Statements...................... 35
Supplemental Financial Information:
Report of Independent Accountants on Supplemental Financial
Information........................................................ 61
Consent of Independent Accountants.................................. 62
Valuation and Qualifying Accounts and Reserves (Schedule II)........ 63
Summarized Financial Information--Stone Southwest, Inc. ............ 63
</TABLE>
29
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Stockholders of
Stone Container Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Stone
Container Corporation and its subsidiaries at December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes, for postretirement benefits
other than pensions and for postemployment benefits effective January 1, 1992,
1993 and 1994, respectively.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 6, 1995
30
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
SALES
Net sales................................................................ $ 5,748.7 $ 5,059.6 $ 5,520.7
---------- ---------- ----------
COSTS AND EXPENSES
Cost of products sold.................................................... 4,564.3 4,223.5 4,473.7
Selling, general and administrative expenses............................. 568.2 512.2 543.5
Depreciation and amortization............................................ 358.9 346.8 329.2
Equity loss from affiliates.............................................. 7.7 11.7 5.3
Other operating (income) expense--net.................................... (34.4) 4.7 12.8
Other (income) expense--net.............................................. (8.9) (2.7) (5.9)
---------- ---------- ----------
Income (loss) before interest expense, income taxes, minority interest,
extraordinary losses and cumulative effects of accounting changes....... 292.9 (36.6) 162.1
Interest expense......................................................... (456.0) (426.7) (386.1)
---------- ---------- ----------
Loss before income taxes, minority interest, extraordinary losses and
cumulative effects of accounting changes................................ (163.1) (463.3) (224.0)
Credit for income taxes.................................................. 35.5 147.7 59.4
Minority interest........................................................ (1.2) (3.6) (5.3)
---------- ---------- ----------
NET LOSS
Loss before extraordinary losses and cumulative effects of accounting
changes................................................................. (128.8) (319.2) (169.9)
Extraordinary losses from early extinguishments of debt (net of income
tax benefits)........................................................... (61.6) -- --
Cumulative effects of accounting changes (net of income tax benefits).... (14.2) (39.5) (99.5)
---------- ---------- ----------
Net loss................................................................... (204.6) (358.7) (269.4)
Preferred stock dividends.................................................. (8.1) (8.1) (6.9)
Redemption premium of redeemable preferred stock of a consolidated
affiliate................................................................. (4.0) -- --
---------- ---------- ----------
Net loss applicable to common shares....................................... $ (216.7) $ (366.8) $ (276.3)
---------- ---------- ----------
---------- ---------- ----------
NET LOSS PER COMMON SHARE
Loss before extraordinary losses and cumulative effects of accounting
changes................................................................. (1.60) (4.59) (2.49)
Extraordinary losses from early extinguishments of debt.................. (.70) -- --
Cumulative effects of accounting changes................................. (.16) (.56) (1.40)
---------- ---------- ----------
Net loss per common share.................................................. $ (2.46) $ (5.15) $ (3.89)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 108.6 $ 247.4
Accounts and notes receivable (less allowances of $20.2 and
$19.3)............................................................. 824.5 622.3
Inventories......................................................... 673.1 719.4
Other............................................................... 210.7 164.1
--------- ---------
Total current assets.............................................. 1,816.9 1,753.2
--------- ---------
Property, plant and equipment....................................... 5,465.5 5,240.7
Accumulated depreciation and amortization........................... (2,106.5) (1,854.3)
--------- ---------
Property, plant and equipment--net................................ 3,359.0 3,386.4
Timberlands......................................................... 75.1 83.9
Goodwill............................................................ 860.2 910.5
Other............................................................... 893.7 702.7
--------- ---------
Total assets...................................................... $ 7,004.9 $ 6,836.7
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 328.0 $ 297.1
Current maturities of senior and subordinated long-term debt........ 276.1 22.6
Notes payable and current maturities of non-recourse debt of
consolidated affiliates............................................ 36.5 290.5
Income taxes........................................................ 35.2 47.6
Accrued and other current liabilities............................... 355.7 285.7
--------- ---------
Total current liabilities......................................... 1,031.5 943.5
--------- ---------
Senior long-term debt............................................... 2,488.5 2,338.0
Subordinated debt................................................... 1,159.6 1,257.8
Non-recourse debt of consolidated affiliates........................ 783.8 672.6
Other long-term liabilities......................................... 290.2 270.3
Deferred taxes...................................................... 381.4 470.6
Redeemable preferred stock of consolidated affiliate................ -- 42.3
Minority interest................................................... 221.8 234.5
Commitments and contingencies (Note 18).............................
Stockholders' equity:
Series E preferred stock............................................ 115.0 115.0
Common stock (90.4 and 71.2 shares outstanding)..................... 849.1 574.3
Retained earnings (accumulated deficit)............................. (96.3) 101.6
Foreign currency translation adjustment............................. (215.2) (179.0)
Unamortized expense of restricted stock plan........................ (4.5) (4.8)
--------- ---------
Total stockholders' equity........................................ 648.1 607.1
--------- ---------
Total liabilities and stockholders' equity........................ $ 7,004.9 $ 6,836.7
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
--------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.............................................................. $ (204.6) $(358.7) $ (269.4)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization..................................... 358.9 346.8 329.2
Deferred taxes.................................................... (54.6) (133.9) (67.5)
Foreign currency transaction losses............................... 15.8 11.8 15.0
Payment on settlement of interest rate swaps...................... -- (33.0) --
Extraordinary losses from early extinguishments of debt........... 61.6 -- --
Cumulative effects of accounting changes.......................... 14.2 39.5 99.5
Other--net........................................................ (92.4) (89.3) 60.6
Changes in current assets and liabilities--net of adjustments for
acquisitions and dispositions:
(Increase) decrease in accounts and notes receivable--net......... (175.7) 44.9 (66.6)
Decrease in inventories........................................... 29.7 28.9 10.5
(Increase) decrease in other current assets....................... (45.9) (9.3) 9.2
Increase (decrease) in accounts payable and other current
liabilities...................................................... 86.5 (60.4) (34.9)
--------- ------- --------
Net cash provided by (used in) operating activities................... (6.5) (212.7) 85.6
--------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments made on debt................................................. (1,655.8) (698.1) (912.4)
Payments by consolidated affiliates on non-recourse debt.............. (429.3) (55.0) (10.4)
Borrowings............................................................ 1,949.8 611.4 1,024.8
Non-recourse borrowings of consolidated affiliates.................... 8.4 400.6 40.0
Proceeds from issuance of common stock................................ 276.3 -- .1
Proceeds from issuance of preferred stock............................. -- -- 111.0
Proceeds from issuance of common stock of a consolidated subsidiary... -- 161.8 --
Redemption of redeemable preferred stock of a consolidated
affiliate............................................................ (52.6) -- --
Refund of letter of credit............................................ 13.5 -- --
Proceeds from the settlement of cross currency swaps.................. -- 67.9 --
Cash dividends........................................................ (8.1) (4.0) (30.7)
--------- ------- --------
Net cash provided by financing activities............................. 102.2 484.6 222.4
--------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................. (232.6) (149.7) (281.4)
Payments made for businesses acquired................................. (24.5) (.1) (27.2)
Proceeds from sales of assets......................................... 36.5 106.0 9.5
Other--net............................................................ (14.4) (40.7) (10.7)
--------- ------- --------
Net cash used in investing activities................................. (235.0) (84.5) (309.8)
--------- ------- --------
Effect of exchange rate changes on cash............................... .5 1.1 (3.4)
--------- ------- --------
NET CASH FLOWS
Net increase (decrease) in cash and cash equivalents.................. (138.8) 188.5 (5.2)
Cash and cash equivalents, beginning of period........................ 247.4 58.9 64.1
--------- ------- --------
Cash and cash equivalents, end of period.............................. $ 108.6 $ 247.4 $ 58.9
--------- ------- --------
--------- ------- --------
</TABLE>
- ---------
See Note 5 regarding non-cash financing and investing activities and
supplemental cash flow information.
The accompanying notes are an integral part of these statements.
33
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions except per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992
--------------- --------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance at January 1.................................................. $ 115.0 4.6 $ 115.0 4.6 $ -- --
Issuance of preferred stock:
Public offering..................................................... -- -- -- -- 115.0 4.6
------- ------ ------- ------ -------- ------
Balance at December 31................................................ 115.0 4.6 115.0 4.6 115.0 4.6
------- ------ ------- ------ -------- ------
------ ------ ------
COMMON STOCK
Balance at January 1.................................................. 574.3 71.2 645.7 71.0 613.2 69.5
Issuance of common stock:
Public offering..................................................... 276.3 19.0 -- -- -- --
Exercise of stock options and preferred stock conversion............ .1 -- .1 -- .1 --
Restricted stock plan............................................... 2.4 .2 2.9 .2 2.8 .1
Redemption premium of redeemable preferred stock of a consolidated
affiliate.......................................................... (4.0) -- -- -- -- --
2 percent common stock dividend..................................... -- -- -- -- 29.6 1.4
Public offering of subsidiary stock................................. -- -- (74.4) -- -- --
------- ------ ------- ------ -------- ------
Balance at December 31................................................ 849.1 90.4 574.3 71.2 645.7 71.0
------- ------ ------- ------ -------- ------
------ ------ ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance at January 1.................................................. 101.6 496.0 832.8
Net loss.............................................................. (204.6) (358.7) (269.4)
Cash dividends:
Preferred stock*.................................................... (8.1) (4.0) (5.9)
Common stock*....................................................... -- -- (24.8)
2 percent common stock dividend....................................... -- -- (29.6)
Decrease (increase) in minimum pension liability in excess of
unrecognized prior service cost...................................... 14.8 (31.7) (7.1)
------- ------- --------
Balance at December 31................................................ (96.3) 101.6 496.0
------- ------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at January 1.................................................. (179.0) (149.3) 95.5
Adjustment from translation of foreign currency statements............ (36.2) (29.7) (244.8)
------- ------- --------
Balance at December 31................................................ (215.2) (179.0) (149.3)
------- ------- --------
UNAMORTIZED EXPENSE OF RESTRICTED STOCK PLAN
Balance at January 1.................................................. (4.8) (4.7) (4.0)
Issuance of shares.................................................... (2.4) (2.9) (2.8)
Amortization of expense............................................... 2.7 2.8 2.1
------- ------- --------
Balance at December 31................................................ (4.5) (4.8) (4.7)
------- ------- --------
Total stockholders' equity at December 31............................. $ 648.1 $ 607.1 $1,102.7
------- ------- --------
------- ------- --------
<FN>
- ---------
* Cash dividends paid on common stock, adjusted for the 2 percent stock dividend
issued September 15, 1992, were $.35 per share in 1992. No cash dividends on
common stock were paid in 1994 or in 1993. Cash dividends paid on preferred
stock were $1.75 per share in 1994, $.875 per share in 1993 and $1.28 per
share in 1992.
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and all subsidiaries that are more than 50 percent owned. All significant
intercompany accounts and transactions have been eliminated. Investments in
non-consolidated affiliated companies are primarily accounted for by the equity
method.
PER SHARE DATA:
Net loss per common share is computed by dividing net loss applicable to
common shares by the weighted average number of common shares outstanding during
each year. The weighted average number of common shares outstanding was
88,195,190 in 1994, 71,162,646 in 1993 and 70,986,564 in 1992. Common stock
equivalent shares, issuable upon exercise of outstanding stock options, are
included in these calculations when they would have a dilutive effect on the per
share amounts. All amounts per common share and the weighted average number of
common shares outstanding have been adjusted for the 2 percent common stock
dividend issued September 15, 1992. Fully diluted earnings per share for the
years ended December 31, 1994, 1993 and 1992 is not disclosed because the
amounts are anti-dilutive.
RECLASSIFICATIONS:
Certain prior year amounts have been restated to conform with the current
year presentation in the Consolidated Statements of Operations and the
Consolidated Statements of Cash Flows.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents and, therefore,
includes such investments as cash and cash equivalents in its financial
statements.
INVENTORIES:
Inventories are stated at the lower of cost or market. The primary methods
used to determine inventory costs are the first-in-first-out ("FIFO") method,
the last-in-first-out ("LIFO") method and the average cost method.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION:
Property, plant and equipment is stated at cost. Expenditures for
maintenance and repairs are charged to income as incurred. Additions,
improvements and major replacements are capitalized. The cost and accumulated
depreciation related to assets sold or retired are removed from the accounts and
any gain or loss is credited or charged to income.
For financial reporting purposes, depreciation and amortization is primarily
provided on the straight-line method over the estimated useful lives of
depreciable assets, or over the duration of the lease for certain capitalized
leases, based on the following annual rates:
<TABLE>
<CAPTION>
TYPE OF ASSET RATES
- --------------------------------------------- -------------
<S> <C>
Machinery and equipment...................... 5% to 33%
Buildings and leasehold improvements......... 2% to 10%
Land improvements............................ 4% to 7%
</TABLE>
TIMBERLANDS:
Timberlands are stated at cost less accumulated cost of timber harvested.
The Company amortizes its private fee timber costs over the estimated total
fiber that will be available during the estimated growth cycle. Cost of non-fee
timber harvested is determined on the basis of timber removal rates and the
estimated volume of recoverable timber. The Company capitalizes interest costs
related to pre-merchantable timber.
INCOME TAXES:
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
required a change from the deferred method to the liability method of accounting
for income taxes. In connection with the adoption of SFAS 109, the Company
recorded a one-time, non-cash after-tax charge to its first quarter 1992
earnings of $99.5 million or $1.40 per share of common stock. This adjustment is
reported as a cumulative effect of a change in accounting principles in the
Company's Consolidated
35
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Statements of Operations. SFAS 109 requires that assets and liabilities acquired
in a business combination accounted for under the purchase method of accounting
be recorded at their gross fair values, with a separate deferred tax balance
recorded for the related tax effects.
GOODWILL AND OTHER ASSETS:
Goodwill is amortized on a straight-line basis over 40 years, and is
recorded net of accumulated amortization of approximately $147 million and $129
million at December 31, 1994 and 1993, respectively. The Company assesses at
each balance sheet date whether there has been a permanent impairment in the
value of goodwill. This is accomplished by determining whether projected
undiscounted future cash flows from operations exceed the net book value of
goodwill as of the assessment date. Such projections reflect price, volume and
cost assumptions. Additional factors considered by management in the preparation
of the projections and in assessing the value of goodwill include the effects of
obsolescence, demand, competition and other pertinent economic factors and
trends and prospects that may have an impact on the value or remaining useful
life of goodwill.
Deferred debt issuance costs are amortized over the expected life of the
related debt using the interest method. Start-up costs on major projects were
capitalized and amortized over a ten-year period prior to October 1, 1993.
Effective October 1, 1993, the Company changed its estimate of the useful life
of deferred start-up costs to a five-year period. The effect of this change in
estimate was to increase depreciation and amortization expense by approximately
$12.2 million and $3.1 million and increase the net loss by $7.7 million and
$2.0 million or $.09 per common share and $.02 per common share for 1994 and
1993, respectively. Other long-term assets include approximately $68 million and
$80 million of unamortized deferred start-up costs at December 31, 1994 and
1993, respectively.
PUBLIC OFFERING OF STOCK OF A SUBSIDIARY:
When the sale of stock of a subsidiary takes the form of a direct sale of
its unissued shares, the Company records the difference relating to the carrying
amount per share and the offering price per share as an adjustment to common
stock in those instances in which the Company has determined that the difference
does not represent a permanent impairment.
FOREIGN CURRENCY TRANSLATION:
The functional currency for the Company's foreign operations is the
applicable local currency. Accordingly, assets and liabilities are translated at
the exchange rate in effect at the balance sheet date and income and expenses
are translated at average exchange rates prevailing during the year. Translation
gains or losses are accumulated as a separate component of stockholders' equity
entitled Foreign Currency Translation Adjustment. Foreign currency transaction
gains or losses are credited or charged to income. These transaction gains or
losses arise primarily from the translation of monetary assets and liabilities
that are denominated in a currency other than the local currency.
FOREIGN CURRENCY AND FINANCIAL INSTRUMENTS:
The Company has utilized various financial instruments to hedge certain of
its foreign currency and/or interest rate exposures. Premiums received and fees
paid on the financial instruments are deferred and amortized over the period of
the agreements. Gains and losses or interest received and paid on the
instruments are recorded as foreign exchange transaction gains or losses or as
interest in the Consolidated Statements of Operations.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" ("SFAS 106"), which required the Company to change from the
pay-as-you-go (cash) method to the accrual method of accounting for such
postretirement benefits (primarily health care and life insurance). Upon
adoption of SFAS 106, the Company recorded its catch-up accumulated
postretirement benefit obligation (approximately $63 million) by recognizing a
one-time, non-cash charge of $39.5 million, net of income tax benefit, as a
cumulative effect of an accounting change in its 1993 first quarter Consolidated
Statement of Operations.
POSTEMPLOYMENT BENEFITS:
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"), which requires accrual accounting for the estimated
36
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
costs of providing certain benefits to former or inactive employees and the
employees' beneficiaries and dependents after employment but before retirement.
Upon adoption of SFAS 112, the Company recorded its catch-up obligation
(approximately $24 million) by recognizing a one-time, non-cash charge of $14.2
million, net of income tax benefit, as a cumulative effect of an accounting
change in its 1994 first quarter Consolidated Statement of Operations.
NOTE 2--INSURANCE MATTERS
In the second quarter of 1994, a digester vessel ruptured at the Company's
pulp and paperboard mill in Panama City, Florida causing extensive damage to
certain of the facility's assets. As a result of this occurrence, the Company's
1994 Statement of Operations includes a $22 million pretax involuntary
conversion gain (approximately $13.7 million after taxes). The Company is
seeking recovery for both the losses to property and the losses as a result of
business interruption arising from the Panama City occurrence. A partial
recovery of $20 million has already been received by the Company from certain
carriers and claims of approximately $66 million covering the major portion of
such losses are still pending. The insurance carrier providing boiler and
machinery coverage for the Company has denied the Company's claim; the Company
has not accepted such denial. In addition, the all-risks insurance carriers,
which would cover the losses not covered under the boiler and machinery
coverage, have reserved their rights with respect to the Company's claim in
order to investigate the application of coverage without prejudicing their
rights. Management believes the receivable recorded on its financial statements
is fully recoverable.
NOTE 3--ACQUISITIONS/DISPOSITIONS
In December 1994, the Company acquired an additional 40 percent of the
common stock of Stone Venepal (Celgar) Pulp Inc. ("SVCPI"), previously a
50-percent owned nonconsolidated affiliate, thereby increasing the Company's
ownership interest to 90 percent. As a result of this transaction, SVCPI is now
accounted for as a consolidated subsidiary. Additionally, this transaction
indirectly increased the Company's ownership interest in the Celgar pulp mill
located in Castlegar, British Columbia from 25 percent to 45 percent as SVCPI
has a 50 percent joint venture interest in the Celgar pulp mill.
In October 1994, the Company acquired the remaining 7 percent of the common
stock of Stone Savannah River Pulp & Paper Corporation ("Stone Savannah River")
thereby making it a wholly-owned subsidiary of the Company. See Note
10--"Long-term Debt" for further discussion. The Company had previously
increased its ownership in the common stock of Stone Savannah River from 50
percent to 93 percent through a series of equity transactions from 1991 through
1993. Stone Savannah River operates a linerboard and market pulp mill in Port
Wentworth, Georgia.
In December 1993, the Company sold its 49 percent equity interest in
Empaques de Carton Titan, S.A. ("Titan").
On May 6, 1993, the Company's wholly-owned German subsidiary, Europa Carton
A.G., ("Europa Carton"), completed a joint venture with Financiere Carton Papier
("FCP"), a French company, to merge the folding carton operations of Europa
Carton with those of FCP ("FCP Group"). Under the joint venture, FCP Group is
owned equally by Europa Carton and the former shareholders of FCP. The Company's
investment in the joint venture is being accounted for under the equity method
of accounting.
NOTE 4--PUBLIC OFFERING OF STOCK OF A SUBSIDIARY
In December 1993, Stone-Consolidated Corporation ("Stone-Consolidated"), a
newly-created Canadian subsidiary, acquired the newsprint and uncoated
groundwood papers business of Stone Container (Canada) Inc. ("Stone-Canada")
(formerly Stone-Consolidated, Inc.) and sold $346.5 million of units in an
initial public offering comprised of both common stock and convertible
subordinated debentures (the "Units Offering"). Each unit was priced at $2,100
and consisted of 100 shares of common stock at $10.50 per share and $1,050
principal amount of convertible subordinated debentures. The convertible
subordinated debentures mature December 31, 2003, bear interest at an annual
rate of 8 percent and are convertible into 6.211 shares of common stock for each
Canadian $100 principal amount, representing a conversion price of $12.08 per
share. Concurrent with the initial public offering, Stone-Consolidated sold $225
million of senior secured notes in a public offering in the United States. The
senior secured notes mature December 15, 2000 and bear interest at an annual
rate of 10.25 percent.
37
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--PUBLIC OFFERING OF STOCK OF A SUBSIDIARY (CONTINUED)
As a result of the Units Offering, 16.5 million shares of common stock,
representing 25.4 percent of the total shares outstanding of Stone-Consolidated,
were sold to the public, resulting in the recording in the Company's December
31, 1993 Consolidated Balance Sheet of a minority interest liability of $236.7
million.
The Company used approximately $373 million of the net proceeds from the
sale of the Stone-Consolidated securities for repayment of commitments under its
previously existing 1989 bank credit agreement (which was subsequently
terminated and replaced by a new credit agreement--see Note 10--"Long-term
Debt") and the remainder for general corporate purposes. As a result of the
Units Offering, the Company recorded in 1993 a charge of $74.4 million to common
stock related to the excess carrying value per common share over the offering
price per common share associated with the shares issued.
NOTE 5--ADDITIONAL CASH FLOW STATEMENT INFORMATION
The Company's non-cash investing and financing activities and cash payments
(receipts) for interest and income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Assumption of non-recourse debt of an affiliate....................... $ 115.0 $ -- $ --
Short-term note receivable recorded as partial consideration from sale
of an investment..................................................... 7.8 -- --
Preferred stock dividends issued by a consolidated affiliate.......... -- 6.0 5.1
Conversion of investment in an affiliate into a note receivable....... 3.2 -- --
Capital lease obligations incurred.................................... 2.4 .3 4.3
Note receivable received from sale of assets.......................... 1.3 -- --
Issuance of 2 percent common stock dividend........................... -- -- 29.6
Conversion of notes receivable into investments in an affiliate....... -- -- 7.3
Assumption of debt in connection with an acquisition.................. -- -- 3.8
Note payable issued in exchange for common shares of a consolidated
affiliate............................................................ -- -- 1.1
------- ------- -------
------- ------- -------
Cash paid (received) during the year for:
Interest (net of capitalization).................................... $ 373.7 $ 375.9 $ 355.6
Income taxes (net of refunds)....................................... (4.1) (11.7) (1.9)
------- ------- -------
------- ------- -------
</TABLE>
In 1994 and 1993, the other-net component of net cash used in operating
activities included debt issuance costs of approximately $79 million and $84
million, respectively. In 1992, the other-net component of net cash provided by
operating activities included $54 million of cash received from the sale of an
energy contract in October 1992.
NOTE 6--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
(IN MILLIONS) 1994 1993
- ------------------------------------------------------------ ------- -------
<S> <C> <C>
Raw materials and supplies.................................. $ 306.9 $ 333.8
Paperstock.................................................. 263.4 284.2
Work in process............................................. 21.4 16.8
Finished products........................................... 116.1 99.5
------- -------
707.8 734.3
Excess of current cost over LIFO inventory value............ (34.7) (14.9)
------- -------
Total inventories........................................... $ 673.1 $ 719.4
------- -------
------- -------
</TABLE>
38
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INVENTORIES (CONTINUED)
At December 31, 1994 and 1993, the percentages of total inventories costed
by the LIFO, FIFO and average cost methods were as follows:
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
LIFO.......................... 42% 44%
FIFO.......................... 7% 6%
Average Cost.................. 51% 50%
</TABLE>
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(IN MILLIONS) 1994 1993
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
Machinery and equipment..................................... $ 4,554.1 $ 4,398.7
Buildings and leasehold improvements........................ 687.0 675.0
Land and land improvements.................................. 102.0 103.0
Construction in progress.................................... 122.4 64.0
--------- ---------
Total property, plant and equipment......................... 5,465.5 5,240.7
Accumulated depreciation and amortization................... (2,106.5) (1,854.3)
--------- ---------
Total property, plant and equipment--net.................... $ 3,359.0 $ 3,386.4
--------- ---------
--------- ---------
</TABLE>
Property, plant and equipment includes capitalized leases of $13.8 million
and $70.3 million and related accumulated amortization of $5.3 million and $24.2
million at December 31, 1994 and 1993, respectively.
NOTE 8--INCOME TAXES
The Company provides for income taxes in accordance with the liability
method of accounting for income taxes. Under the liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
(IN MILLIONS) 1994 1993 1992
- -------------------------------------------------- ------- -------- -------
<S> <C> <C> <C>
Currently payable (refundable):
Federal......................................... $ -- $ (28.4) $ (24.7)
State........................................... 1.1 4.0 3.0
Foreign......................................... 18.0 10.6 21.7
------- -------- -------
19.1 (13.8) --
------- -------- -------
Deferred:
Federal......................................... (45.3) (45.4) 4.9
State........................................... (1.1) (31.3) (10.8)
Foreign......................................... (8.2) (57.2) (53.5)
------- -------- -------
(54.6) (133.9) (59.4)
------- -------- -------
Total credit for income taxes..................... $ (35.5) $ (147.7) $ (59.4)
------- -------- -------
------- -------- -------
</TABLE>
39
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
The income tax credit at the federal statutory rate is reconciled to the
credit for income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------------------------------------- ------- -------- -------
<S> <C> <C> <C>
Federal income tax credit at federal statutory rate................... $ (57.1) $ (162.2) $ (76.2)
Additional taxes (credits) resulting from:
Non-deductible depreciation and amortization of intangibles......... 9.0 9.5 9.5
Expenses not deductible in foreign jurisdictions.................... 4.3 .7 .1
Foreign statutory rate increase (decreases)......................... 1.8 (11.2) --
U.S. statutory rate increase........................................ -- 8.7 --
State income taxes, net of federal income tax effect................ -- (17.7) (5.1)
Foreign income taxed at rates in excess of U.S. statutory rate...... 1.8 4.3 6.1
Minimum taxes-foreign jurisdictions................................. 5.8 3.6 4.6
Other-net........................................................... (1.1) 16.6 1.6
------- -------- -------
Credit for income taxes............................................... $ (35.5) $ (147.7) $ (59.4)
------- -------- -------
------- -------- -------
</TABLE>
The components of the net deferred tax liability as of December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
(IN MILLIONS) 1994 1993
- ---------------------------------------------------------------------- -------- --------
<S> <C> <C>
Deferred tax assets:
Carryforwards....................................................... $ 280.5 $ 262.6
Compensation-related accruals....................................... 49.1 49.3
Extraordinary losses from early extinguishments of debt............. 35.9 --
Reserves............................................................ 38.3 33.7
Deferred gain....................................................... 24.8 26.2
Tax benefit transfers............................................... 4.6 8.8
Other............................................................... 17.2 11.6
-------- --------
450.4 392.2
Valuation allowance................................................... (1.2) (1.2)
-------- --------
Total deferred tax asset.............................................. 449.2 391.0
Deferred tax liabilities:
Depreciation and amortization....................................... (715.2) (754.3)
Start-up costs...................................................... (20.7) (27.8)
LIFO reserve........................................................ (19.6) (18.1)
Pension............................................................. (16.0) (12.5)
Other............................................................... (52.6) (35.2)
-------- --------
Total deferred tax liability.......................................... (824.1) (847.9)
-------- --------
Deferred tax liability--net........................................... $ (374.9) $ (456.9)
-------- --------
-------- --------
</TABLE>
40
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
The components of the loss before income taxes, minority interest,
extraordinary losses and cumulative effects of accounting changes are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
United States......................................................... $ (126.6) $ (310.8) $ (68.8)
Foreign............................................................... (36.5) (152.5) (155.2)
-------- -------- --------
Loss before income taxes, minority interest, extraordinary losses and
cumulative effects of accounting changes............................. $ (163.1) $ (463.3) $ (224.0)
-------- -------- --------
-------- -------- --------
</TABLE>
At December 31, 1994, the Company had approximately $404 million of net
operating loss carryforwards for U.S. federal tax purposes and, additionally,
approximately $167 million of net operating loss carryforwards for Canadian tax
purposes. To the extent not utilized, the U.S. federal net operating losses will
expire in 2007, 2008 and 2009 and the Canadian net operating losses will expire
in 1998, 1999 and 2000. Further, the Company had approximately $900 million of
net operating loss carryforwards for U.S. state tax purposes (which represents
approximately $59 million of deferred tax assets), which, to the extent not
utilized, expire in 1995 through 2009. The Company also had approximately $11
million of alternative minimum tax credit carryforwards for U.S. federal tax
purposes which are available indefinitely.
In addition, as a result of certain acquisitions, the Company had, at
December 31, 1994, approximately $27 million of pre-acquisition net operating
loss carryforwards and approximately $5 million of investment tax credit
carryforwards for federal income tax purposes. To the extent not utilized, the
carryforwards will expire in the period commencing in the year 1996 and ending
in the year 2004.
At December 31, 1994, Bridgewater Paper Company Ltd., a wholly-owned
subsidiary of Stone-Consolidated, had approximately $87 million of net operating
loss carryforwards for United Kingdom income tax purposes. These losses are
available indefinitely.
NOTE 9--PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company has contributory and noncontributory pension plans for the
benefit of most salaried and certain hourly employees. The funding policy for
the plans, with the exception of the Company's salaried supplemental unfunded
plans and the Company's German subsidiary's unfunded plan, is to annually
contribute the statutory required minimum. The salaried pension plans provide
benefits based on a formula that takes into account each participant's estimated
final average earnings. The hourly pension plans provide benefits under a flat
benefit formula. The salaried and hourly plans provide reduced benefits for
early retirement. The salaried plans take into account offsets for governmental
benefits.
Net pension expense for the combined pension plans includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the period....................... $ 21.5 $ 17.4 $ 17.2
Interest cost on projected benefit obligations........................ 63.5 63.7 64.0
Actual return on plan assets.......................................... (13.7) (91.9) (32.8)
Net amortization and deferral......................................... (37.5) 40.4 (26.6)
------- ------- -------
Net pension expense................................................... $ 33.8 $ 29.6 $ 21.8
------- ------- -------
------- ------- -------
</TABLE>
41
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following table sets forth the funded status of the Company's pension
plans and the amounts recorded in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
(IN MILLIONS) BENEFITS ASSETS BENEFITS ASSETS
- -------------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits................................. $ (167.7) $ (469.1) $ (185.0) $ (498.8)
Non-vested benefits............................. (7.3) (40.8) (11.4) (37.9)
------------- ------- ------------- -------
Accumulated benefit obligation.................. (175.0) (509.9) (196.4) (536.7)
Effect of increase in compensation levels....... (19.9) (57.5) (23.2) (76.6)
------------- ------- ------------- -------
Projected benefit obligation for service rendered
through December 31.............................. (194.9) (567.4) (219.6) (613.3)
Plan assets at fair value, primarily stocks,
bonds, guaranteed investment contracts, real
estate and mutual funds which invest in listed
stocks and bonds................................. 192.9 385.2 219.0 395.3
------------- ------- ------------- -------
Excess of projected benefit obligation over
plan assets...................................... (2.0) (182.2) (.6) (218.0)
Unrecognized prior service cost................... 8.3 29.0 4.6 29.4
Unrecognized net actuarial loss................... 36.3 70.8 39.4 127.3
Adjustment required to recognize minimum
liability........................................ -- (63.4) -- (92.4)
------------- ------- ------------- -------
Net prepaid (accrual)............................. $ 42.6 $ (145.8) $ 43.4 $ (153.7)
------------- ------- ------------- -------
------------- ------- ------------- -------
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 87,
"Employer's Accounting for Pensions," the Company has recorded an additional
minimum liability for underfunded plans representing the excess of the unfunded
accumulated benefit obligation over previously recorded liabilities. The
additional minimum liability at December 31, 1994 of $63.4 million is recorded
as a long-term liability with an offsetting intangible asset of $25.8 million
and a charge to stockholders' equity of $23.7 million, net of a tax benefit of
$13.9 million. At December 31, 1993, the additional minimum liability of $92.4
million was recorded as a long-term liability with an offsetting intangible
asset of $29.4 million and a charge to stockholders' equity of $39.6 million,
net of a tax benefit of $23.4 million.
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligations at December 31, 1994 were 9.0
percent and at December 31, 1993 were 7.5 percent for all U.S. and German
operations and 8.0 percent for Canadian and United Kingdom operations. The rate
of increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligations was 4.0 percent for 1994 and
1993. The expected long-term rate of return on assets was 11 percent for 1994
and 1993. The change in the weighted average discount rates during 1994 had the
effect of decreasing the total projected benefit obligation at December 31, 1994
by $88.4 million.
Certain domestic operations of the Company participate in various
multi-employer union-administered defined benefit pension plans that principally
cover production workers. Pension expense under these plans was $5.2 million for
1994 and $5.1 million for 1993 and 1992.
In addition to providing pension benefits, the Company provides certain
retiree health care and life insurance benefits covering substantially all U.S.
salaried and hourly employees and certain Canadian employees. Employees become
eligible for such benefits if they are fully vested in one of the Company's
pension plans when they retire from the Company and they begin to draw
retirement benefits upon termination of service. Such retiree health care costs
were expensed as the claims were paid through December 31, 1992. However, as
discussed in Note 1--"Summary of Significant Accounting Policies," effective
January 1, 1993, the Company adopted SFAS 106, which required the
42
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
Company to accrue for its obligation to pay such postretirement health care
costs during the employees' years of service, as opposed to when such costs are
actually paid. The effect of SFAS 106 on income before interest expense, income
taxes, minority interest, extraordinary losses and cumulative effects of
accounting changes is not material.
Net worldwide periodic postretirement benefits costs for 1994 and 1993
included the following components:
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1993
- ---------------------------------------------------------------------- ----- -----
<S> <C> <C>
Service cost-benefits attributed to service during the period......... $ 1.5 $ 1.0
Interest cost on accumulated postretirement benefit obligation........ 6.0 5.5
Net amortization and deferral......................................... .9 --
----- -----
Net worldwide periodic postretirement benefits costs.................. $ 8.4 $ 6.5
----- -----
----- -----
</TABLE>
Worldwide postretirement benefits costs for retired employees approximated
$4.7 million for 1992.
The following table sets forth the components of the Company's accumulated
postretirement benefit obligation and the amount recorded in the Consolidated
Balance Sheets:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------ ---------------------------
(IN MILLIONS) U.S. FOREIGN TOTAL U.S. FOREIGN TOTAL
- ---------------------------------------------------------------------- ----- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................ $15.9 $21.5 $ 37.4 $ 19.0 $22.5 $ 41.5
Active employees--fully eligible.................................... 14.7 2.0 16.7 15.3 3.0 18.3
Other active employees.............................................. 14.7 3.7 18.4 15.5 2.6 18.1
----- ------- ------- ------- ------- -------
Total accumulated postretirement benefit obligation................... 45.3 27.2 72.5 49.8 28.1 77.9
Unrecognized net loss................................................. (5.5) (2.1) (7.6) (12.6) (2.1) (14.7)
----- ------- ------- ------- ------- -------
Postretirement benefit obligation..................................... $39.8 $25.1 $ 64.9 $ 37.2 $26.0 $ 63.2
----- ------- ------- ------- ------- -------
----- ------- ------- ------- ------- -------
</TABLE>
The Company has not currently funded any of its accumulated postretirement
benefit obligation.
The discount rates used in determining the accumulated postretirement
benefit obligation were 9.0 percent at December 31, 1994 and 7.5 percent for
U.S. operations and 8.0 percent for Canadian operations at December 31, 1993.
The change in the discount rates had the effect of decreasing the total
projected benefit obligation at December 31, 1994 by $8.9 million. The assumed
health care cost trend rates for substantially all employees used in measuring
the accumulated postretirement benefit obligation at December 31, 1994 and 1993
ranged from 7 percent to 13 percent decreasing to ultimate rates of 5.5 percent
to 8 percent. If the health care cost trend rate assumptions were increased by 1
percent, the accumulated postretirement benefit obligation at December 31, 1994
and 1993 and the net periodic postretirement benefit cost for the years ended
December 31, 1994 and 1993 would have increased by $5.6 million and $6.5 million
and by $.7 million and $.6 million, respectively.
At December 31, 1994, the Company had approximately 8,700 retirees and
29,100 active employees of which approximately 3,400 and 21,400, respectively,
were employees of U.S. operations.
43
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(IN MILLIONS) 1994 1993
- ----------------------------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
SENIOR DEBT:
9.875% senior notes due February 1, 2001................................................................... $ 710.0 $ --
10.75% first mortgage notes due October 1, 2002 (less unamortized debt discount of $3.2)................... 496.8 --
Term loan (8.6% weighted average rate) payable in nine semi-annual installments of $2.0 on April 1 and
October 1 of each year from 1995 through April 1, 1999, $190.0 on October 1, 1999 and $192.0 on April 1,
2000...................................................................................................... 400.0 --
Revolving credit facility (8.3% weighted average rate) due May 15, 1999.................................... 23.0 --
1989 term loans (9.3% and 8.3% weighted average rates for 1994 and 1993, respectively)..................... -- 877.7
Additional term loan (7.1% and 6.3% weighted average rates for 1994 and 1993, respectively)................ -- 292.9
1989 revolving credit agreements (7.3% and 5.7% weighted average rates for 1994 and 1993, respectively).... -- 263.8
11.875% senior notes due December 1, 1998 (less unamortized discount of $.9 and $1.1)...................... 239.1 238.9
11.5% senior notes due October 1, 2004 (less unamortized debt discount of $1.4)............................ 198.6 --
12.625% senior notes due July 15, 1998..................................................................... 150.0 150.0
5.375% to 11.625% fixed rate utility systems and pollution control revenue bonds, payable in varying annual
sinking fund payments through the year 2010 and varying principal payments through the year 2016 (less
unamortized debt discount of $7.2 and $7.8)............................................................... 206.2 203.5
Obligations under accounts receivable securitization programs (5.6% and 4.8% weighted average rates) due
September 15, 1995........................................................................................ 253.8 232.4
4.0% to 7.96% term loans payable in varying amounts through 1999........................................... 37.2 41.2
Cartomills variable and fixed rate loans, payable in annual installments through the year 1999............. 11.1 12.2
Other (including obligations under capitalized leases of $9.0 and $11.2)................................... 38.8 43.1
---------- ----------
2,764.6 2,355.7
Less: Current maturities................................................................................... (276.1) (17.7)
---------- ----------
Total senior long-term debt............................................................................ 2,488.5 2,338.0
---------- ----------
SUBORDINATED DEBT:
11.5% senior subordinated notes, payable in two annual sinking fund payments of $57.5 commencing September
1, 1997 and maturing on September 1, 1999 with a lump sum payment of $115.0............................... 230.0 230.0
10.75% senior subordinated debentures maturing on April 1, 2002 (less unamortized debt discount of $.8 and
$.9)...................................................................................................... 199.2 199.1
8.875% convertible senior subordinated notes maturing on July 15, 2000 (less unamortized debt discount of
$1.4 and $1.5)............................................................................................ 248.6 248.5
10.75% senior subordinated notes maturing on June 15, 1997................................................. 150.0 150.0
11.0% senior subordinated notes maturing on August 15, 1999................................................ 125.0 125.0
6.75% convertible subordinated debentures with annual sinking fund payments of $11.5 commencing on February
15, 2002 and maturing on February 15, 2007 with a lump sum payment of $57.5............................... 115.0 115.0
13.625% subordinated notes maturing on June 1, 1995 (less unamortized debt
discount of $.2).......................................................................................... -- 98.1
12.125% subordinated debentures with annual sinking fund payments of $14.0 commencing on September 15, 1996
and maturing in the year 2001 with a lump sum payment of $70.0 (including unamortized debt premium of $1.9
and $2.2 and net of $50.1 repurchased by the Company)..................................................... 91.8 92.1
Subordinated note bearing an incremental borrowing rate adjusted annually (10.0% average rate) payable on
January 18, 1994.......................................................................................... -- 4.9
---------- ----------
1,159.6 1,262.7
Less: Current maturities................................................................................... -- (4.9)
---------- ----------
Total subordinated debt................................................................................ 1,159.6 1,257.8
---------- ----------
</TABLE>
44
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(IN MILLIONS) 1994 1993
- ----------------------------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
NON-RECOURSE DEBT OF CONSOLIDATED AFFILIATES:
SVCPI credit facilities (7.1% weighted average rate) maturing December 31, 2002............................ 280.2 --
Stone-Consolidated 10.25% senior secured notes due December 15, 2000....................................... 225.0 225.0
Stone-Consolidated 8.0% convertible subordinated debentures maturing on December 31, 2003.................. 164.7 174.5
Stone Savannah River obligations (7.4% to 14.125%) (less unamortized debt discount of $1.2)................ -- 402.6
Seminole obligation under a senior credit facility (7.3% and 6.4% weighted average rates), payable in
varying amounts through the year 2000..................................................................... 103.3 120.6
Seminole obligation payable at 13.5% imputed interest rate (less unamortized debt discount of $1.4 and
$2.4)..................................................................................................... 9.8 11.6
Seminole revolving credit agreement (10.5% average rate) due March 27, 1997................................ 8.4 --
Seminole 13.5% subordinated notes with annual sinking fund payments of $7.2 and maturing on October 15,
1996 with a lump sum payment of $14.4..................................................................... 21.6 28.8
---------- ----------
813.0 963.1
Less: Current maturities................................................................................... (29.2) (290.5)
---------- ----------
Total non-recourse debt of consolidated affiliates..................................................... 783.8 672.6
---------- ----------
Total long-term debt....................................................................................... $ 4,431.9 $ 4,268.4
---------- ----------
---------- ----------
</TABLE>
In October 1994, the Company sold $500 million principal amount of 10 3/4
percent First Mortgage Notes due October 1, 2002 (the "10 3/4 percent First
Mortgage Notes") and $200 million principal amount of 11 1/2 percent Senior
Notes due October 1, 2004 (the "11 1/2 percent Senior Notes") (hereafter
referred together as the "October Offering"). The 10 3/4 percent First Mortgage
Notes and the 11 1/2 percent Senior Notes are redeemable by the Company after
September 30, 1999 and interest is payable semi-annually on April 1 and October
1, commencing April 1, 1995. Net proceeds from the sale of these securities were
approximately $679.1 million.
Concurrent with the October Offering, the Company (i) entered into a new
credit agreement (the "Credit Agreement") consisting of a $400 million senior
secured term loan maturing through April 1, 2000, a $450 million senior secured
revolving credit facility commitment maturing May 15, 1999, which includes a $25
million swing-line sub-facility maturing May 15, 1999 (any borrowings under the
swing-line sub-facility would reduce the borrowing availability under the
revolving credit facility), (ii) repaid all of the outstanding indebtedness and
commitments under its previously existing bank credit agreements which had
consisted of two term loan facilities, two revolving credit facilities and an
additional term loan (the "1989 Credit Agreement") which were then terminated,
(iii) merged the Company's 93 percent owned subsidiary Stone Savannah River into
a wholly-owned subsidiary of the Company and, (iv) as described below, repaid or
acquired Stone Savannah River's outstanding indebtedness, preferred stock and
common stock (collectively, the "October Related Transactions"). In connection
with the Stone Savannah River merger, the Company (i) repaid all the
indebtedness outstanding under and terminated Stone Savannah River's bank credit
agreement, (ii) redeemed the $130 million principal amount of Stone Savannah
River's 14 1/8 percent Senior Subordinated Notes due 2000 for approximately
$139.2 million, equal to the principal amount and the applicable premium
percentage of the principal amount, plus accrued interest, (iii) redeemed on
November 14, 1994 the 425,243 outstanding shares of Series A Cumulative
Redeemable Exchangeable Preferred Stock of Stone Savannah River not owned by the
Company for approximately $52 million, representing the applicable premium
percentage of the principal amount plus accrued and unpaid dividends, and (iv)
acquired the 72,346 outstanding shares of common stock of Stone Savannah River
not owned by the Company. The Credit Agreement also provides for the issuance of
letters of credit which to the extent utilized serve to reduce borrowing
availability under the revolving credit facility of the Credit Agreement. The
completion of the October Offering, together with the October Related
Transactions, has
45
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT (CONTINUED)
extended the scheduled amortization obligations and final maturities of more
than $1 billion of the Company's indebtedness and improved the Company's
liquidity and financial flexibility by, among other things, providing for the
$450 million senior secured revolving credit facility commitment under the
Credit Agreement.
The Credit Agreement permits the Company to choose among various interest
rate options for the revolving credit facility and the term loan and to specify
the interest rate period to which the interest rate options are to apply,
subject to certain parameters. The applicable interest rate options available to
the Company are: (i) under the revolving credit facility (a) the higher of (1)
Bankers Trust Company's prime rate and (2) the Federal Funds Effective Rate plus
1/2 of 1 percent (the alternative base rate ("ABR")), plus, in the case of (1)
or (2), 1 5/8 percent per annum or (b) the London Interbank Offered Rate
("LIBOR") plus 2 5/8 percent per annum; (ii) under the swing-line sub-facility,
ABR plus 1 5/8 percent per annum and (iii) under the term loan, ABR plus 2 1/8
percent per annum or LIBOR plus 3 1/8 percent per annum. Upon achievement of
specified indebtedness ratios and cash flow coverage ratios or other performance
related tests, the interest rate margins for the revolving credit facility
(including the swing-line sub-facility) will be reduced. Additionally, the
Company pays a 1/2 percent commitment fee on the unused portions of the
revolving credit facility and pays 2 5/8 percent over LIBOR less 1/2 percent
plus a facing fee on letters of credit issued under the revolving credit
facility.
At December 31, 1994, the $426.4 million of borrowings and accrued interest
outstanding under the Credit Agreement were secured by property, plant and
equipment with a net book value of $1.23 billion, and by a lien on certain of
the Company's inventories. Additionally, other loan agreements with a net book
value of $1.42 billion were collateralized by approximately $1.26 billion of
property, plant and equipment-net and an investment and by $376.4 million of
cash, accounts receivable and inventories.
In February 1994, the Company sold $710 million principal amount of 9 7/8
percent Senior Notes due February 1, 2001 and 18.97 million shares of common
stock for an additional $289.3 million at $15.25 per common share (the "February
Offerings"). The net proceeds from the February Offerings of approximately $962
million, were used as follows: (i) approximately $652 million was used to prepay
all of the 1995 and portions of the 1996 and 1997 scheduled amortizations under
the Company's then existing 1989 Credit Agreement including the ratable
amortization payment under the revolving credit facilities of the 1989 Credit
Agreement; (ii) to redeem the Company's 13 5/8 percent Subordinated Notes due
1995 at a price equal to par, approximately $98 million principal amount, plus
accrued interest to the redemption date; (iii) approximately $136 million was
used to repay the outstanding borrowings under the Company's revolving credit
facilities of the 1989 Credit Agreement without reducing the commitments
thereunder; and (iv) provided incremental liquidity in the form of cash. The
9 7/8 percent Senior Notes are redeemable by the Company on or after February 1,
1999. Interest is payable semi-annually commencing August 1, 1994 and continuing
each February 1 and August 1 until maturity.
As a result of the debt prepayments associated with the October Offering and
Related Transactions and the February Offerings, the Company's 1994 results
reflect charges of $61.6 million, net of income tax benefit of $36.5 million,
for the write-off of unamortized deferred debt issuance costs and other costs
associated with the debt that was repaid. Such charges are reflected as
extraordinary losses from the early extinguishments of debt in the Company's
Consolidated Statement of Operations for the year ended December 31, 1994.
As a result of the consolidation of SVCPI (see Note
3--"Acquisitions/Dispositions") the Company's Consolidated Balance Sheet at
December 31, 1994 includes the debt of this subsidiary. Such debt is solely the
obligation of SVCPI and is without recourse to the Company.
At December 31, 1993, certain long-term debt of Stone Savannah River had
been classified as current in accordance with the provisions of Emerging Issues
Task Force Issue No. 86-30, "Classification of Obligations When a Violation is
Waived by the Creditor". Such debt was fully repaid as part of the October
Offering and the October Related Transactions.
On July 6, 1993, the Company sold $150 million principal amount of 12 5/8
percent Senior Notes due July 15, 1998 (the "12 5/8 percent Senior Notes"). The
12 5/8 percent Senior Notes are not redeemable by the Company prior to maturity.
Interest is payable semi-annually on January 15 and July 15, commencing January
15, 1994.
46
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT (CONTINUED)
Also on July 6, 1993, the Company sold, in a private transaction, $250
million principal amount of 8 7/8 percent Convertible Senior Subordinated Notes
due July 15, 2000 (the "8 7/8 percent Convertible Senior Subordinated Notes").
The Company filed a shelf registration statement registering the 8 7/8 percent
Convertible Senior Subordinated Notes for resale by the holders thereof, which
was declared effective August 13, 1993. The 8 7/8 percent Convertible Senior
Subordinated Notes are convertible, at the option of the holder, into shares of
the Company's common stock at a conversion price of $11.55 per share of common
stock, subject to adjustment in certain events. Additionally, the 8 7/8 percent
Convertible Senior Subordinated Notes are redeemable, at the option of the
Company, in whole or in part, on and after July 15, 1998. Interest is payable
semi-annually on January 15 and July 15, commencing January 15, 1994.
The net proceeds of approximately $386 million received from the sales of
the 12 5/8 percent Senior Notes and the 8 7/8 percent Convertible Senior
Subordinated Notes were used by the Company to repay bank indebtedness.
In December 1993, Stone-Consolidated sold $173.3 million of 8 percent
convertible subordinated debentures as part of the Units Offering. Concurrent
with the Units Offering, Stone-Consolidated sold $225 million of 10 1/4 percent
Senior Secured Notes maturing on December 15, 2000 in a public offering in the
United States. See Note 4--"Public Offering of Stock of a Subsidiary", for
further details.
The Company has an accounts receivable securitization program consisting of
two tranches whereby various of its subsidiaries sell certain of their accounts
receivable to one of two wholly-owned subsidiaries of the Company, Stone
Financial Corporation ("Stone Fin") or Stone Fin II Receivables Corporation
("Stone Fin II"). In accordance with the program, Stone Fin and Stone Fin II
purchase, on an ongoing basis, certain of the accounts receivable of various
subsidiaries. These accounts receivable are purchased by Stone Fin and Stone Fin
II with proceeds provided primarily from borrowings under their respective
revolving credit facilities. Stone Fin has a $185 million revolving credit
facility and Stone Fin II has a $90 million revolving credit facility, both of
which mature in September 1995. The purchased accounts receivable are solely the
assets of either Stone Fin or Stone Fin II, both of which are wholly-owned but
separate corporate entities of the Company, with their own separate creditors.
In the event of a liquidation of Stone Fin or Stone Fin II, such creditors would
be entitled to satisfy their claims from Stone Fin or Stone Fin II, as the case
may be, prior to any distribution to the Company. At December 31, 1994, the
Company's Consolidated Balance Sheet included $226.0 million and $100.3 million,
respectively, of Stone Fin and Stone Fin II accounts receivable and $187.8
million and $66.0 million, respectively, of borrowings under the program. At
December 31, 1993, the Company's Consolidated Balance Sheet included $175.6
million and $124.4 million, respectively, of Stone Fin and Stone Fin II accounts
receivable and $150.5 million and $81.9 million, respectively, of borrowings
under the program. The Company is currently planning to refinance its accounts
receivable securitization program. The proposed refinancing is currently
contemplated to approximate $300 million of receivables financing which would
have a 5-year maturity together with a supplementary revolving credit facility.
The proposed refinancing is subject to the placement and execution of definitive
documentation.
The amounts of long-term debt outstanding at December 31, 1994 maturing
during the next five years are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
- ------------------------------
<S> <C>
1995.......................... $ 302.6
1996.......................... 65.2
1997.......................... 280.8
1998.......................... 503.1
1999.......................... 523.6
Thereafter.................... 3,052.9
</TABLE>
The 1995 maturities include $253.8 million outstanding under Stone Fin's and
Stone Fin II's revolving credit facilities. Stone Fin and Stone Fin II have the
option, subject to bank consents, to extend or refinance such obligations beyond
1995. As previously mentioned, the Company intends to refinance the Stone Fin
and Stone Fin II obligations in 1995.
47
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT (CONTINUED)
Amounts payable under capitalized lease agreements are excluded from the
above tabulation. See Note 13 for capitalized lease maturities.
Borrowings under the Credit Agreement are secured with a significant portion
of the assets of the Company. The Credit Agreement contains covenants that
include, among other things, the maintenance of certain financial tests and
ratios consisting of an indebtedness ratio and a minimum interest coverage ratio
and certain restrictions and limitations, including those on capital
expenditures, changes in control, payment of dividends, sales of assets, lease
payments, investments, additional borrowings, liens, repurchases or prepayment
of certain indebtedness, guarantees of indebtedness, mergers and purchases of
stock and assets. The Credit Agreement also contains cross-default provisions to
the indebtedness of $10 million or more of the Company and certain subsidiaries,
as well as cross-acceleration provisions to the non-recourse debt of $10 million
or more of Stone-Consolidated, Seminole and SVCPI. Additionally, the term loan
portion of the Credit Agreement provides for mandatory prepayments from sales of
certain assets, certain debt financings and a percentage of excess cash flow (as
defined). The Company's bank lenders at their option may waive the receipt of
any mandatory prepayment. The amortizations for each semi-annual period is 1/2
of 1 percent of the principal amount of the outstanding term loans and all
mandatory and voluntary prepayments are allocated against the term loan
amortizations in inverse order of maturity. Mandatory prepayments from sales of
collateral, unless replacement collateral is provided, will be applied ratably
to the term loan and revolving credit facility, permanently reducing the loan
commitments under the Credit Agreement. Further, the Credit Agreement limits,
except in certain specific circumstances, any additional investments by the
Company in Stone-Consolidated, Seminole and SVCPI.
In 1994, the Company entered into two long-term interest rate swap
transactions related to $250 million of certain fixed rate indebtedness. These
swaps effectively reduced the interest expense pertaining to such debt during
1994. Also, in March of 1994, an interest rate swap contract which had fixed the
interest rate on $150 million of bank indebtedness at 12.9 percent, expired. In
1993, the Company sold, prior to their expiration date, certain interest rate
swaps and cross currency swaps associated with certain U.S. dollar denominated
bank indebtedness of Stone-Canada. The net proceeds of approximately $34.9
million received from the sale of these swaps were primarily used to repay bank
indebtedness.
NOTE 11--LIQUIDITY MATTERS
The Company's liquidity and financial flexibility was adversely affected by
the net losses incurred during the past four years. The Company improved its
liquidity and financial flexibility through the completion of: (i) the October
Offering and the October Related Transactions; and (ii) the February Offerings
as discussed in Note 10-- "Long-term Debt". At December 31, 1994, the Company
had borrowing availability of $350 million (net of letters of credit which
reduce the amount available to be borrowed) under its $450 million revolving
credit facility. Additionally, at December 31, 1994, Stone-Consolidated, a
non-recourse subsidiary of the Company, had no borrowings outstanding under its
$100 million revolving credit facility. (All amounts presented for
Stone-Consolidated are in U.S. dollars, unless otherwise indicated).
Notwithstanding these improvements in the Company's liquidity and financial
flexibility, the Company will be required in the future to generate sufficient
cash flows to fully meet the Company's debt service requirements. Included in
the Company's current maturities of debt at December 31, 1994 are $253.8 million
of obligations related to the Company's accounts receivable securitization
program that mature September 15, 1995 (see Note 10--"Long-term Debt"). While
the Company is in the process of refinancing such obligations, no assurance can
be given that it will be successful in doing so. In the event this refinancing
is not consummated, management nevertheless believes that operating cash flows
and borrowing availability under the Credit Agreement will provide more than
sufficient liquidity for the Company to meet its 1995 and 1996 debt service
requirements. Beginning in 1997 and continuing thereafter, the Company will be
required to make significant amortization payments on its existing indebtedness.
In the event the Company is unable to generate sufficient operating cash flows
to fully meet such debt service requirements, it may deplete a substantial
portion of its cash resources and borrowing availability under its revolving
credit facility. In such event, the Company would be required to pursue other
alternatives to improve liquidity, including cost reductions, sales of assets,
the deferral of certain capital expenditures and/or obtaining additional sources
of funds.
48
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--FINANCIAL INSTRUMENTS
At December 31, 1994 and 1993, the carrying values and fair values of the
Company's financial instruments are listed below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1993
----------------- ------------------
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------- ------- -------- -------- --------
<S> <C> <C> <C> <C>
Notes receivable and long-term
investments............................ $ 136.2 $ 135.4 $ 98.0 $ 84.0
Senior debt............................. 2,755.6 2,728.0 2,344.5 2,362.8
Subordinated debt....................... 1,159.6 1,302.9 1,262.6 1,189.5
Non-recourse debt of consolidated
affiliates............................. 813.0 840.3 963.1 1,002.3
Standby letters of credit-payable....... .4 .4 .4 .4
Interest rate swaps in receivable
(payable) position..................... .4 (33.3) (2.6) (4.2)
</TABLE>
The fair values of notes receivable and certain investments are based on
discounted future cash flows or the applicable quoted market price. The fair
value of the Company's debt is estimated based on the quoted market prices for
the same or similar issues. The fair value of the letters of credit is based on
fees currently charged for similar agreements. The face amount on the letters of
credit was $88.3 million and $76.1 million at December 31, 1994 and 1993,
respectively. The fair value of interest rate swap agreements are obtained from
dealer quotes. These values represent the estimated amount the Company would pay
to terminate agreements, taking into consideration the current interest rate and
market conditions. The Company does not hold or issue financial instruments for
trading purposes.
The Company is party to two interest rate swap contracts with durations of
five and ten years to hedge against interest rate exposures on $250 million of
certain fixed rate indebtedness. The separate contracts have the effect of
converting the fixed rate of interest into a floating interest rate on $100
million of the 9 7/8 percent Senior Notes and on $150 million of the 11 1/2
percent Senior Notes. These interest rate swap contracts were entered into in
order to balance the Company's fixed-rate and floating-rate debt portfolios.
Under the interest rate swaps, the Company agrees with the other party to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. While the Company is exposed to credit loss on its
interest-rate swaps in the event of nonperformance by the counterparties to such
swaps, management believes that such nonperformance is unlikely to occur given
the financial resources of the counterparties.
The following table indicates the weighted average receive rate and pay rate
during 1994 relating to the interest rate swaps outstanding at December 31,
1994:
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Interest rate swap--notional amount (in
millions)........................................ $ 150.0
Average receive rate (fixed).................... 6.0%
Average pay rate................................ 4.4%
Interest rate swap-notional amount (in
millions)........................................ $ 100.0
Average receive rate (fixed).................... 5.6%
Average pay rate................................ 4.5%
</TABLE>
The average pay rate for both interest rate swaps is the six month LIBOR.
49
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--LONG-TERM LEASES
The Company leases certain of its facilities and equipment under leases
expiring through the year 2023.
Future minimum lease payments under capitalized leases and their present
value at December 31, 1994, and future minimum rental commitments (net of
sublease rental income and exclusive of real estate taxes and other expenses)
under operating leases having initial or remaining non-cancellable terms in
excess of one year, are reflected below:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
(IN MILLIONS) LEASES LEASES
- ---------------------------------------- ------------ ---------
<S> <C> <C>
1995.................................... $ 3.4 $ 74.5
1996.................................... 2.6 63.9
1997.................................... 1.8 56.6
1998.................................... .9 48.9
1999.................................... .8 39.5
Thereafter.............................. 1.6 139.8
------ ---------
Total minimum lease payments 11.1 $ 423.2
---------
---------
Less: Imputed interest (2.1)
------
Present value of future minimum lease
payments............................... $ 9.0
------
------
</TABLE>
Minimum lease payments for capitalized leases have not been reduced by
minimum sublease rental income of $.9 million due in the future under a
non-cancellable lease.
Rent expense for operating leases, including leases having a duration of
less than one year, was approximately $87 million in 1994, $83 million in 1993
and $84 million in 1992.
NOTE 14--PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, $.01 par
value, of which 4.6 million shares are outstanding at December 31, 1994. Shares
of preferred stock can be issued in series with varying terms as determined by
the Board of Directors.
On February 20, 1992, the Company issued 4.6 million shares of $1.75 Series
E Cumulative Convertible Exchangeable Preferred Stock (the "Series E Cumulative
Preferred Stock") at $25.00 per share. Dividends on the Series E Cumulative
Preferred Stock are payable quarterly when, as and if declared by the Company's
Board of Directors. The Series E Cumulative Preferred Stock is convertible, at
the option of the holder at any time, into shares of the Company's common stock
at a conversion price of $33.94 per share of common stock (adjusted for the 2
percent common stock dividend issued September 15, 1992), subject to adjustment
under certain conditions. The Series E Cumulative Preferred Stock may
alternatively be exchanged, at the option of the Company, on any dividend
payment date commencing February 15, 1994, for the Company's 7 percent
Convertible Subordinated Exchange Debentures due February 15, 2007 (the
"Exchange Debentures") in a principal amount equal to $25.00 per share of Series
E Cumulative Preferred Stock so exchanged. The Exchange Debentures would be
virtually identical to the 6 3/4 percent Subordinated Debentures, except that
the Exchange Debentures would bear interest at the rate of 7 percent per annum
and the interest payment dates would differ. Additionally, the Series E
Cumulative Preferred Stock is redeemable at the option of the Company, in whole
or from time to time in part, on and after February 16, 1996. The net proceeds
of $111 million from the sale of the Series E Cumulative Preferred Stock were
used to prepay bank indebtedness.
The Company paid cash dividends during the first two quarters of 1993 on its
Series E Cumulative Preferred Stock. However, due to the restrictive provisions
in the Company's indentures, of which the most restrictive provision is
contained in the Senior Subordinated Indenture, dated March 15, 1992 (the
"Senior Subordinated Indenture") relating to the Company's 10 3/4 percent Senior
Subordinated Notes, its 11 percent Senior Subordinated Notes and its 10 3/4
percent Senior Subordinated Debentures, the Board of Directors did not declare
the scheduled August 15, 1993, November 15, 1993 or the February 15, 1994
quarterly dividend of $.4375 per share on the 4.6 million shares of
50
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--PREFERRED STOCK (CONTINUED)
Series E Cumulative Preferred Stock nor was it permitted to declare or pay
future dividends on the Series E Cumulative Preferred Stock until the Company
generated income, or effected certain sales of capital stock, to replenish the
"dividend pool" under various of its debt instruments.
As a result of the February Offerings discussed in Note 10--"Long-term
Debt", the "dividend pool" established by the restrictions on payment of
dividends under the Senior Subordinated Indenture was replenished from the sale
of the common shares. On May 16, 1994, the Company paid both a regular quarterly
cash dividend of $.4375 per share and a cumulative cash dividend of $1.3125 per
share on the Company's Series E Cumulative Preferred Stock to stockholders of
record on April 15, 1994. The cumulative cash dividend fully satisfied all
accumulated dividends in arrears on the Series E Cumulative Preferred Stock at
that time. As a result of net losses in the 1994 second and third quarters, the
dividend pool had been subsequently depleted and, accordingly, the Company's
Board of Directors did not declare the scheduled August 15, 1994, November 15,
1994 or the February 15, 1995 quarterly dividend of $.4375 on the 4.6 million
shares of Series E Cumulative Preferred Stock. The dividend pool was partially
replenished with the net income from the fourth quarter of 1994. At December 31,
1994, the dividend pool in the Senior Subordinated Indenture had a deficit of
approximately $103 million. In the event the Company has six quarterly dividends
which remain unpaid on the Series E Cumulative Preferred Stock, the holders of
the Series E Cumulative Preferred Stock would have the right to elect two
members to the Company's Board of Directors until the accumulated dividends on
such Series E Cumulative Preferred Stock have been declared and paid or set
apart for payment. The dividend pool under the Credit Agreement will be
calculated from October 1, 1994. Irrespective of the amount available in the
dividend pool under the Credit Agreement, the Credit Agreement permits dividends
to be paid on the Series E Cumulative Preferred Stock if there is an available
dividend pool under the Senior Subordinated Indenture.
REDEEMABLE PREFERRED STOCK OF A CONSOLIDATED AFFILIATE:
The Company's Consolidated Balance Sheet at December 31, 1993 includes the
Series A Cumulative Redeemable Exchangeable Preferred Stock (the "Series A
Preferred Stock") of Stone Savannah River. Stone Savannah River had authorized
650,000 shares of Series A Preferred Stock, of which 637,900 shares, having a
total liquidation preference of $63.8 million, were outstanding at December 31,
1993. The Company owned one-third of the Series A Preferred Stock and eliminated
such investment in consolidation. As discussed in Note 10--"Long-term Debt", as
part of the October Related Transactions, the Company redeemed the remaining
425,243 outstanding shares of Series A Preferred Stock of Stone Savannah River
not owned by the Company for approximately $52 million, representing the
applicable premium percentage of the principal amount plus accrued and unpaid
dividends.
The Series A Preferred Stock, $.01 par value, liquidation preference $100
per share, was cumulative with dividends of $15.375 per annum payable quarterly
when, as and if declared by Stone Savannah River's Board of Directors. On or
prior to December 15, 1993, dividends were payable through the issuance of
additional shares of Series A Preferred Stock; thereafter, such dividends were
payable in cash. Stock dividends of approximately $6.0 million in 1993 and $5.1
million in 1992 representing approximately 60,000 shares and 51,000 shares,
respectively, were distributed to shareholders other than the Company.
SERIES F PREFERRED STOCK:
As a result of a cash payment by the Company in 1994 as settlement for the
exchange agreement between the Company and Venezalona de Pulpa y Papel
("Venepal"), a Venezuelan pulp and paper company, the authorized 400,000 shares
of 7 percent Series F Cumulative Convertible Exchangeable Preferred Stock will
be cancelled.
NOTE 15--COMMON STOCK
The Company has authorized 200,000,000 shares of common stock, $.01 par
value, of which 90,396,099 shares were outstanding at December 31, 1994.
In February 1994, the Company issued 18.97 million shares of common stock at
$15.25 per share. See also Note 10--"Long-term Debt."
The Company has restrictions on the payment of cash dividends on its common
stock under certain of the Company's Indentures and under its Credit Agreement.
Cash dividends on common stock cannot be declared and
51
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--COMMON STOCK (CONTINUED)
paid until the Company fully satisfies all accumulated preferred stock dividends
in arrears (see also Note 14-- "Preferred Stock") and there is an available
dividend pool under the Senior Subordinated Indenture and under the Credit
Agreement.
On September 15, 1992, the Company issued a 2 percent stock dividend to
common stockholders of record August 25, 1992. The stock dividend was effected
by the issuance of one share of common stock for every 50 shares of common stock
held. Accordingly, all amounts per common share and the weighted average number
of common shares for all periods included in the consolidated financial
statements have been retroactively adjusted to reflect this stock dividend.
STOCK RIGHTS:
Each outstanding share of the Company's common stock carries a stock
purchase right ("Right"). Each Right entitles the holder to purchase from the
Company one one-hundredth of a share of Series D Junior Participating Preferred
Stock, par value $.01 per share, at a purchase price of $130 subject to
adjustment under certain circumstances. The Rights expire August 8, 1998 unless
extended or earlier redeemed by the Company.
The Rights will be exercisable only if a person or group, subject to certain
exceptions, acquires 15 percent or more of the Company's common stock or
announces a tender offer, the consummation of which would result in ownership by
such person or group of 15 percent or more of the Company's common stock. The
Company can redeem the Rights at the rate of $.01 per Right at any time before
the tenth business day (subject to extension) after a 15 percent position is
acquired.
If the Company is acquired in a merger or other business combination
transaction, each Right will entitle its holder (other than the acquiring person
or group) to purchase, at the Right's then-current exercise price, a number of
the acquiring company's shares of common stock having a market value at that
time of twice the Right's then-current exercise price.
In addition, in the event that a 15 percent or greater stockholder acquires
the Company by means of a reverse merger in which the Company and its common
stock survive, or engages in self-dealing transactions with the Company, each
holder of a Right (other than the acquiring person or group) will be entitled to
purchase the number of shares of the Company's common stock having a market
value of twice the then-current exercise price of the Right.
STOCK OWNERSHIP AND OPTION PLANS:
The Company's Board of Directors adopted an Incentive Stock Option Plan,
effective January 1, 1993, which replaced a previous plan. The plan authorizes
1,530,000 shares of common stock. The plan provides for the issuance of either
incentive stock options or non-qualified stock options for the purchase of
common shares at prices not less than 100 percent of the market value of such
shares on the date of grant. The options are exercisable, in whole or in part,
after one year but no later than ten years from the date of the respective
grant. No accounting recognition is given to stock options until they are
exercised, at which time the option price received is credited to common stock.
52
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--COMMON STOCK (CONTINUED)
Transactions under the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
OPTION OPTION PRICE
SHARES PER SHARE*
--------- ------------
<S> <C> <C>
Outstanding January 1, 1992............................ 564,835 $ 4.98-29.29
Granted.............................................. -- --
Exercised............................................ (22,950) 4.98-29.29
Adjustment for 2 percent stock dividend.............. 10,707 8.74-29.29
Cancelled............................................ (6,561) 6.01
--------- ------------
Outstanding December 31, 1992.......................... 546,031 8.74-29.29
Granted.............................................. -- --
Exercised............................................ -- --
Cancelled............................................ -- --
--------- ------------
Outstanding December 31, 1993.......................... 546,031 8.74-29.29
Granted.............................................. 670,000 13.38
Exercised............................................ (9,691) 8.74-13.38
Cancelled............................................ (164,055) 8.74-29.29
--------- ------------
Outstanding December 31, 1994.......................... 1,042,285 8.74-29.29
---------
---------
Options exercisable at December 31,
1994................................................. 395,285 8.74-29.29
1993................................................. 546,031 8.74-29.29
Options available for grant at December 31,
1994................................................. 880,500
1993................................................. 1,530,000
<FN>
- ---------
* Adjusted for the 2 percent stock dividend issued September 15, 1992.
</TABLE>
Additionally, the Company's Long-Term Incentive Program provides for
contingent awards of restricted shares of common stock and cash to certain key
employees. The payment of the cash portion of the awards granted will depend on
the extent to which the Company has met certain long-term performance goals as
established by a committee of outside directors. The compensation related to
this program is amortized over the related five-year restricted periods. The
charge (credit) to compensation expense under this plan was $3.6 million, $(1.2)
million and $3.6 million in 1994, 1993 and 1992, respectively. In 1993, prior
cash awards that had been accrued were deemed to be not payable due to the
financial results of the Company. Under the 1992 plan, 1,800,000 shares have
been reserved for issuance, of which 249,655, 186,253 and 120,834 shares were
granted in 1994, 1993 and 1992, respectively. At December 31, 1994, there were
1,248,376 shares available for grant.
NOTE 16--RELATED PARTY TRANSACTIONS
The Company sells paperboard to various non-consolidated affiliates
including MacMillian Bathurst, FCP Group and Laimbeer Packaging Company, each of
which is 50 percent owned, and Mannkraft Corporation and ORPACK, each of which
is 49 percent owned. Such transactions are primarily at market prices.
The following table summarizes the Company's sales to and receivable
balances due from its non-consolidated affiliates at the end of each year
presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Sales to................................ $ 137.7 $ 120.3 $ 94.8
Net receivable from..................... 35.0 18.2 26.3
</TABLE>
The Company has outstanding loans and interest receivable from a
non-consolidated affiliate of approximately $7.8 million and $3.4 million at
December 31, 1994 and 1993, respectively.
53
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS
OTHER OPERATING (INCOME) EXPENSE -- NET:
The major components of other operating (income) expense -- net are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Gain from an involuntary conversion at a
paper mill............................. $ (22.0) $ -- $ --
Gains on sales of investments or
assets................................. (13.8) (40.7) --
Loss on writedown of investments........ 1.4 3.4 8.8
Writedown of decommissioned assets...... -- 19.2 4.0
Writedown of certain receivables to net
realizable value....................... -- 14.2 --
Other................................... -- 8.6 --
------- ------- -------
Total other operating (income) expense
-- net................................. $ (34.4) $ 4.7 $ 12.8
------- ------- -------
------- ------- -------
</TABLE>
INTEREST EXPENSE:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Total interest cost incurred............ $ 460.7 $ 437.5 $ 433.5
Interest capitalized.................... (4.7) (10.8) (47.4)
------- ------- -------
Interest expense........................ $ 456.0 $ 426.7 $ 386.1
------- ------- -------
------- ------- -------
</TABLE>
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:
Selling, general and administrative expenses include provisions for doubtful
accounts and notes receivable of $6.6 million for 1994, $12.2 million for 1993
and $8.3 million for 1992.
OTHER (INCOME) EXPENSE -- NET:
The major components of other (income) expense -- net are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Interest income......................... $ (20.9) $ (11.2) $ (11.5)
Dividend income......................... (.4) (.4) (.8)
Foreign currency transaction losses..... 15.8 11.8 15.0
Other................................... (3.4) (2.9) (8.6)
-------- -------- --------
Total other (income) expense -- net..... $ (8.9) $ (2.7) $ (5.9)
-------- -------- --------
-------- -------- --------
</TABLE>
ASSETS HELD FOR SALE:
The Company ceased operations of three wood products facilities in the
Pacific Northwest and intends on divesting the assets of these facilities as
appropriate opportunities arise during 1995. Accordingly, such net assets of
approximately $60 million are included in other current assets within the
December 31, 1994 Consolidated Balance Sheet.
INVESTMENTS IN NON-CONSOLIDATED AFFILIATES:
The Company had investments in non-consolidated affiliates of $345.4 million
and $107.2 million at December 31, 1994 and 1993, respectively. These amounts
are included in other long-term assets in the Company's Consolidated Balance
Sheets. See Note 16 for discussion of the transactions between the Company and
its major non-consolidated affiliates.
LONG-TERM NOTE RECEIVABLE:
The Company had a net receivable with a domestic customer of approximately
$90 million at December 31, 1994. Of this amount, approximately $77 million is
included in other long-term assets with the remaining amount reflected in
54
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
accounts and notes receivable in the Company's Consolidated Balance Sheet. The
seven year interest bearing note requires quarterly payments which commenced in
the first quarter of 1995. The Company believes this note receivable, which is
partially guaranteed, is fully recoverable.
ACCRUED AND OTHER CURRENT LIABILITIES:
The major components of accrued and other current liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
(IN MILLIONS) 1994 1993
- ---------------------------------------- -------- --------
<S> <C> <C>
Accrued interest........................ $ 110.8 $ 68.2
Accrued payroll, related taxes and
employee benefits...................... 98.8 85.8
Other................................... 146.1 131.7
-------- --------
Total accrued and other current
liabilities............................ $ 355.7 $ 285.7
-------- --------
-------- --------
</TABLE>
OTHER LONG-TERM LIABILITIES:
Included in other long-term liabilities at December 31, 1994 and 1993 is
approximately $47.0 million and $52.3 million, respectively, of deferred income
relating to the October 1992 sale of an energy contract at the Company's
Hopewell mill. This amount is being amortized over a 12 year period.
NOTE 18--COMMITMENTS AND CONTINGENCIES
At December 31, 1994, the Company, excluding Seminole and SVCPI, had
commitments outstanding for capital expenditures under purchase orders and
contracts of approximately $75.8 million of which $49.9 million relates to
Stone-Consolidated. Seminole and SVCPI had, at December 31, 1994, commitments
outstanding for capital expenditures of approximately $.4 million and $.1
million, respectively.
The Credit Agreement limits, except in certain specific circumstances, any
further investments by the Company in Stone-Consolidated and Seminole. Seminole
had incurred substantial indebtedness in connection with project financings and
is significantly leveraged. As of December 31, 1994, Seminole had $143.1 million
in outstanding indebtedness (including $111.7 million in secured indebtedness
owed to bank lenders). Seminole produces 100 percent recycled linerboard and is
dependent upon an adequate supply of recycled fiber, in particular old
corrugated containers ("OCC"). The Company in 1986 entered into an output
purchase agreement with Seminole under which it is obligated to purchase and
Seminole is obligated to sell to the Company all of Seminole's linerboard
production. Under the agreement, the Company paid fixed prices for linerboard,
which generally exceeded market prices, until June 3, 1994. Subsequent to that
date, the Company began purchasing linerboard at market prices and will continue
to do so for the remainder of the agreement which is scheduled to expire on
December 31, 2000. Seminole did not comply with certain financial covenants at
September 30, 1994 and accordingly, had received waivers and amendments with
respect to such covenants from its bank lenders for periods up to and including
June 30, 1995. Additionally, Seminole is in the process of seeking and expects
to receive future covenant relief from certain of its other financial covenants
covering the periods from March 31, 1995 through March 29, 1996. There can be no
assurance that Seminole will not require additional waivers in the future or, if
required, that the lenders will grant them. Furthermore, in the event that
management determines that it is probable that Seminole will not be able to
comply with any covenant contained in the Seminole credit agreement within
twelve months after the waiver of a violation of such covenant, then certain
Seminole debt would be reclassified as short-term debt under the provisions of
Emerging Issues Task Force Issue No. 86-30 "Classification of Obligations When a
Violation is Waived By the Creditor". Depending upon the level of market prices
and the cost and supply of recycled fiber, Seminole may need to undertake
additional measures to meet its financial covenants and its debt service
requirements, including obtaining additional sources of funds or liquidity,
postponing or restructuring of debt service payments or refinancing the
indebtedness. In the event that such measures are required and are not
successful, and such indebtedness is accelerated by the respective lenders to
Seminole, the lenders to the Company under the Credit Agreement and various
other of its debt instruments would be entitled to accelerate the indebtedness
owed by the Company.
55
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Additionally, the Credit Agreement contains cross-acceleration provisions
relating to the non-recourse debt of SVCPI. At December 31, 1994, SVCPI had
approximately $288 million in secured indebtedness owed to bank lenders. The
Credit Agreement allows, under certain specific circumstances, for the Company
to make further investments in SVCPI, if necessary.
Under certain timber contracts, title passes as the timber is cut. These are
considered to be commitments and are not recorded until the timber is removed.
At December 31, 1994 commitments on such contracts, which run through 1998, were
approximately $8 million.
The Company's operations are subject to extensive environmental regulation
by federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. The Company has in
the past made significant capital expenditures to comply with water, air and
solid and hazardous waste regulations and expects to make significant
expenditures in the future. Capital expenditures for environmental control
equipment and facilities were approximately $53 million in 1994 and the Company
anticipates that 1995 and 1996 environmental capital expenditures will
approximate $95 million and $67 million, respectively (exclusive of any
potential expenditures which may be required if the proposed "cluster rules"
described below are adopted). Included in these amounts are capital expenditures
for Stone-Consolidated which were approximately $32 million in 1994 and are
anticipated to approximate $56 million in 1995 and $19 million in 1996. Although
capital expenditures for environmental control equipment and facilities and
compliance costs in future years will depend on legislative and technological
developments which cannot be predicted at this time, the Company anticipates
that these costs will increase when final "cluster rules" are adopted and as
other environmental regulations become more stringent.
In December 1993, the U.S. Environmental Protection Agency (the "EPA")
issued a proposed rule affecting the pulp and paper industry. These proposed
regulations, informally known as the "cluster rules," would make more stringent
requirements for discharge of wastewaters under the Clean Water Act and would
impose new requirements on air emissions under the Clean Air Act. Pulp and paper
manufacturers (including the Company) have submitted extensive comments to the
EPA on the proposed regulations in support of the position that requirements
under the proposed regulations are unnecessarily complex, burdensome and
environmentally unjustified. The EPA has indicated that it may reopen the
comment period on the proposed regulations to allow review and comment on new
data that the industry will submit to the agency on the industry's air toxic
emissions. It cannot be predicted at this time whether the EPA will modify the
requirements in the final regulations which are currently scheduled to be issued
in 1996, with compliance required within three years from such date. The Company
is considering and evaluating the potential impact of the rules, as proposed, on
its operations and capital expenditures over the next several years. Estimates,
based on the currently proposed regulations, indicate that the Company could be
required to make capital expenditures of $350-$450 million during the period of
1996 through 1998 in order to meet the requirements of the rules. In addition,
annual operating expenses would increase by as much as $20 million beginning in
1998. The ultimate financial impact of the regulations cannot be accurately
estimated at this time but will be affected by several factors, including the
actual requirements imposed under the final rule, advancements in control
process technologies, possible reconfiguration of mills and inflation.
On September 30, 1994, the EPA, Region IV, issued an Administrative Order
("Order") to the Company's Panama City mill pursuant to Section 3008(h) of the
Federal Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
Section6928(h)(l). The Order requires the Company to perform a RCRA Facility
Investigation at the Panama City mill together with confirmatory sampling,
interim corrective measures and any other activities necessary to correct
alleged actual or threatened releases of hazardous substances or hazardous
constituents at or from the Panama City mill. The Company has filed a protest
and requested a hearing to contest the EPA's RCRA Section 3008(h) jurisdiction
over the Pamana City mill. The Company believes that the Panama City mill is not
currently a RCRA facility. The corrective measures mandated by the Order would
require the Company to conduct extensive groundwater and soil sampling and
analyses. The Company does not know at this time the likelihood of success in
challenging the Order. Notwithstanding the success in challenging the Order, an
owner of property adjacent to the Panama City mill is currently subject to
extensive clean-up under RCRA, and the EPA is empowered to require clean-up for
materials discharged
56
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--COMMITMENTS AND CONTINGENCIES (CONTINUED)
from the property which may have migrated onto the Panama City mill's property.
The Company does not yet know the extent, if any, of such adjacent property
owner's responsibility to remediate contamination, if any, at the Panama City
mill site.
In addition, the Company is from time to time subject to litigation and
governmental proceedings regarding environmental matters in which injunctive
and/or monetary relief is sought. The Company has been named as a potentially
responsible party ("PRP") at a number of sites which are the subject of remedial
activity under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA" or "Superfund") or comparable state laws.
Although the Company is subject to joint and several liability imposed under
Superfund, at most of the multi-PRP sites there are organized groups of PRPs and
costs are being shared among PRPs. Future environmental regulations, including
the final "cluster rules," may have an unpredictable adverse effect on the
Company's operations and earnings, but they are not expected to adversely affect
the Company's competitive position.
Refer to Notes 10 and 13 for further discussion of the Company's debt,
hedging and lease commitments.
Additionally, the Company is involved in certain litigation primarily
arising in the normal course of business. In the opinion of management, the
Company's liability under any pending litigation would not materially affect its
financial condition or results of operations.
NOTE 19--SEGMENT INFORMATION
BUSINESS SEGMENTS:
The Company operates principally in two business segments. The paperboard
and paper packaging segment is comprised primarily of facilities that produce
containerboard, kraft paper, boxboard, corrugated containers and paper bags and
sacks. The white paper and other segment consists primarily of facilities that
manufacture and sell newsprint, groundwood paper and market pulp. Intersegment
sales are accounted for at transfer prices which approximate market prices.
Operating profit includes all costs and expenses directly related to the
segment involved. The corporate portion of operating profit includes corporate
general and administrative expenses and equity income (loss) of non-consolidated
affiliates.
Assets are assigned to segments based on use. Corporate assets primarily
consist of cash and cash equivalents, fixed assets, certain deferred charges and
investments in non-consolidated affiliates.
57
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19--SEGMENT INFORMATION (CONTINUED)
Financial information by business segment is summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
SALES:
Paperboard and paper packaging.......... $4,241.5 $3,810.1 $4,185.7
White paper and other................... 1,549.6 1,295.6 1,381.3
Intersegment............................ (42.4) (46.1) (46.3)
----------- ----------- -----------
Total sales........................... $5,748.7 $5,059.6 $5,520.7
----------- ----------- -----------
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST, EXTRAORDINARY LOSSES
AND CUMULATIVE EFFECTS OF ACCOUNTING
CHANGES:
Paperboard and paper packaging.......... $ 354.2 $ 207.4 $ 322.1
White paper and other................... 25.4 (158.8) (75.0)
----------- ----------- -----------
379.6 48.6 247.1
Interest expense........................ (456.0) (426.7) (386.1)
Foreign currency transaction losses..... (15.8) (11.8) (15.0)
General corporate....................... (70.9)(1) (73.4)(1) (70.0)(1)
----------- ----------- -----------
Loss before income taxes, minority
interest, extraordinary losses and
cumulative effects of accounting
changes.............................. $ (163.1) $ (463.3) $ (224.0)
----------- ----------- -----------
----------- ----------- -----------
DEPRECIATION AND AMORTIZATION:
Paperboard and paper packaging.......... $ 199.1 $ 179.5 $ 173.3
White paper and other................... 147.3 156.7 147.9
General corporate....................... 12.5 10.6 8.0
----------- ----------- -----------
Total depreciation and amortization... $ 358.9 $ 346.8 $ 329.2
----------- ----------- -----------
----------- ----------- -----------
ASSETS:
Paperboard and paper packaging.......... $3,440.1 $3,436.5 $3,516.3
White paper and other................... 2,884.4 2,977.4 3,143.0
General corporate....................... 680.4(2) 422.8(2) 367.7(2)
----------- ----------- -----------
Total assets.......................... $7,004.9 $6,836.7 $7,027.0
----------- ----------- -----------
----------- ----------- -----------
CAPITAL EXPENDITURES:
Paperboard and paper packaging.......... $ 114.6 $ 100.7 $ 177.1
White paper and other................... 114.0 45.7 103.4
General corporate....................... 4.0 3.3 .9
----------- ----------- -----------
Total capital expenditures............ $ 232.6 $ 149.7 $ 281.4
----------- ----------- -----------
----------- ----------- -----------
<FN>
- ---------
(1) Includes equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: Paperboard and paper packaging
segment--$(1.4) in 1994, $(9.2) in 1993 and $(2.9) in 1992 and White paper
and other segment--$(6.3) in 1994, $(2.5) in 1993 and $(2.4) in 1992.
(2) Includes investments in non-consolidated vertically integrated affiliates
as follows: Paperboard and paper packaging segment--$82.7 in 1994, $77.7
in 1993 and $42.2 in 1992 and White paper and other segment--$262.7 in
1994, $29.5 in 1993 and $31.6 in 1992.
</TABLE>
58
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19--SEGMENT INFORMATION (CONTINUED)
GEOGRAPHIC SEGMENTS:
The chart below provides financial information for the Company's operations
based on the region in which the operations are located.
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE
INCOME TAXES,
MINORITY INTEREST,
EXTRAORDINARY LOSSES
AND CUMULATIVE EFFECT
INTER-AREA OF AN ACCOUNTING
(IN MILLIONS) TRADE SALES SALES TOTAL SALES CHANGE ASSETS
- -------------------- ----------- ------------ ----------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
1994
- --------------------
United States....... $ 4,187.7 $ 23.9 $ 4,211.6 $ 344.0 $ 3,393.8
Canada.............. 942.0 36.0 978.0 20.3 2,152.8
Europe.............. 619.0 -- 619.0 15.3 777.9
----------- ------------ ----------- -------- --------------
5,748.7 59.9 5,808.6 379.6 6,324.5
Interest expense.... (456.0)
Foreign currency
transaction
losses............. (15.8)
General corporate... (70.9)(1) 680.4(2)
Inter-area
eliminations....... (59.9) (59.9) --
----------- ------------ ----------- -------- --------------
Total............... $ 5,748.7 $ -- $ 5,748.7 $ (163.1) $ 7,004.9
----------- ------------ ----------- -------- --------------
----------- ------------ ----------- -------- --------------
<CAPTION>
INCOME (LOSS)
BEFORE INCOME TAXES,
MINORITY INTEREST AND
INTER-AREA CUMULATIVE EFFECT OF
(IN MILLIONS) TRADE SALES SALES TOTAL SALES AN ACCOUNTING CHANGE ASSETS
- -------------------- ----------- ------------ ----------- --------------------- --------------
<S> <C> <C> <C> <C> <C>
1993
- --------------------
United States....... $ 3,678.2 $ 16.4 $ 3,694.6 $ 107.1 $ 3,256.8
Canada.............. 756.2 16.9 773.1 (62.3) 2,374.8
Europe.............. 625.2 1.7 626.9 3.8 782.3
----------- ------------ ----------- -------- --------------
5,059.6 35.0 5,094.6 48.6 6,413.9
Interest expense.... (426.7)
Foreign currency
transaction
losses............. (11.8)
General corporate... (73.4)(1) 422.8(2)
Inter-area
eliminations....... (35.0) (35.0) --
----------- ------------ ----------- -------- --------------
Total............... $ 5,059.6 $ -- $ 5,059.6 $ (463.3) $ 6,836.7
----------- ------------ ----------- -------- --------------
----------- ------------ ----------- -------- --------------
<CAPTION>
INCOME (LOSS)
BEFORE INCOME TAXES,
MINORITY INTEREST AND
INTER-AREA CUMULATIVE EFFECT OF
(IN MILLIONS) TRADE SALES SALES TOTAL SALES AN ACCOUNTING CHANGE ASSETS
- -------------------- ----------- ------------ ----------- --------------------- --------------
1992
- --------------------
<S> <C> <C> <C> <C> <C>
United States....... $ 3,908.5 $ 28.9 $ 3,937.4 $ 300.3 $ 3,406.0
Canada.............. 770.4 20.0 790.4 (94.7) 2,375.6
Europe.............. 841.8 5.1 846.9 41.5 877.7
----------- ------------ ----------- -------- --------------
5,520.7 54.0 5,574.7 247.1 6,659.3
Interest expense.... (386.1)
Foreign currency
transaction
losses............. (15.0)
General corporate... (70.0)(1) 367.7(2)
Inter-area
eliminations....... (54.0) (54.0) --
----------- ------------ ----------- -------- --------------
Total............... $ 5,520.7 $ -- $ 5,520.7 $ (224.0) $ 7,027.0
----------- ------------ ----------- -------- --------------
----------- ------------ ----------- -------- --------------
<FN>
- ---------
(1) Includes equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: United States-- $.6 in 1994, $(1.0) in
1993 and $(1.2) in 1992; Canada--$(2.3) in 1994, $(3.0) in 1993 and $(3.0)
in 1992; and other--$(6.0) in 1994, $(7.7) in 1993 and $(1.1) in 1992.
(2) Includes investments in non-consolidated vertically integrated affiliates
as follows: United States--$1.5 in 1994, $ -- in 1993 and $4.7 in 1992;
Canada--$295.2 in 1994, $63.0 in 1993 and $68.7 in 1992; and other--$48.7
in 1994, $44.2 in 1993 and $.4 in 1992.
</TABLE>
The Company's export sales from the United States were $476 million, $341
million and $428 million for 1994, 1993 and 1992, respectively.
59
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 20--SUMMARY OF QUARTERLY DATA (UNAUDITED)
The following table summarizes quarterly financial data for 1994 and 1993:
<TABLE>
<CAPTION>
QUARTER YEAR
--------------------------------------------- ---------
(IN MILLIONS EXCEPT PER SHARE) FIRST(1) SECOND THIRD(2) FOURTH(3)
- ------------------------------------------------------------ --------- --------- --------- ---------
1994
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................................................... $ 1,290.8 $ 1,354.3 $ 1,482.2 $ 1,621.4 $ 5,748.7
Cost of products sold....................................... 1,067.1 1,116.9 1,183.4 1,197.0 4,564.3
Depreciation and amortization............................... 89.3 88.5 89.7 91.3 358.9
Income (loss) before extraordinary losses and cumulative
effect of an accounting change............................. (78.9) (50.8) (28.9) 29.8 (128.8)
Extraordinary losses from early extinguishments of debt..... (16.8) -- (44.8) -- (61.6)
Cumulative effect of change in accounting for postemployment
benefits................................................... (14.2) -- -- -- (14.2)
Net income (loss)........................................... (109.9) (50.8) (73.7) 29.8 (204.6)
--------- --------- --------- --------- ---------
Per share of common stock:
Income (loss) before extraordinary losses and cumulative
effect of an accounting change........................... (.99) (.58) (.38) .31 (1.60)
Extraordinary losses from early extinguishments of debt... (.21) -- (.50) -- (.70)
Cumulative effect of change in accounting for
postemployment benefits.................................. (.17) -- -- -- (.16)
--------- --------- --------- --------- ---------
Net income (loss)-primary................................. (1.37) (.58) (.88) .31 (2.46)
--------- --------- --------- --------- ---------
Net income (loss)-fully diluted........................... * * * .28 *
--------- --------- --------- --------- ---------
Cash dividends per common share............................. -- -- -- -- --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
1993
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................................................... $ 1,306.3 $ 1,267.6 $ 1,242.6 $ 1,243.1 $ 5,059.6
Cost of products sold....................................... 1,070.3 1,050.3 1,058.9 1,044.1 4,223.5
Depreciation and amortization............................... 87.1 88.8 81.2 89.7 346.8
Loss before cumulative effect of an accounting change....... (62.7) (71.6) (99.2) (85.8) (319.2)
Cumulative effect of change in accounting for postretirement
benefits................................................... (39.5) -- -- -- (39.5)
Net loss.................................................... (102.2) (71.6) (99.2) (85.8) (358.7)
--------- --------- --------- --------- ---------
Per share of common stock:
Loss before cumulative effect of an accounting change..... (.91) (1.03) (1.42) (1.23) (4.59)
Cumulative effect of change in accounting for
postretirement benefits.................................. (.56) -- -- -- (.56)
--------- --------- --------- --------- ---------
Net loss.................................................... (1.47) (1.03) (1.42) (1.23) (5.15)
--------- --------- --------- --------- ---------
Cash dividends per common share............................. -- -- -- -- --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<FN>
- ---------
(1) The Company adopted SFAS 112 effective January 1, 1994 and SFAS 106
effective January 1, 1993.
(2) Amounts per share of common stock in 1994 have been adjusted for the
redemption premium on redeemable preferred stock of a consolidated
affiliate.
(3) The fourth quarter of 1993 includes a pretax gain of approximately $35.4
million from the sale of the Company's 49 percent equity interest in Titan
and a reduction in an accrual resulting from a change in the Company's
vacation pay policy which were partially offset by the writedown of the
carrying values of certain Company assets.
* Fully diluted earnings per share are not disclosed because the amounts are
anti-dilutive.
</TABLE>
60
<PAGE>
Report of Independent Accountants on
Supplemental Financial Information
-----------------------------------
To the Board of Directors of
Stone Container Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 6, 1995 appearing on page 30 of this Annual Report on Form 10-K
(such report contains an explanatory paragraph referring to the change in
accounting methods discussed in Note 1 to the Company's consolidated financial
statements) also included an audit of the Supplemental Financial Information
listed and appearing in Item 14(a)2 of this Form 10-K. In our opinion, this
Supplemental Financial Information presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 6, 1995
61
<PAGE>
Consent of Independent Accountants
---------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-66086) and
in the Registration Statements on Form S-8 (Nos. 2-79221, 33-33784, 33-56345 and
33-66132) of Stone Container Corporation of our report dated February 6, 1995
appearing on page 30 of this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Supplemental Financial
Information, which appears on page 61 of this Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 10, 1995
62
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ---------------------------------------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts and
notes and sales returns and allowances:
Year ended December 31, 1994.......... $19.3 $13.0 $12.1 $20.2
Year ended December 31, 1993.......... $19.3 $29.2 $29.2 $19.3
Year ended December 31, 1992.......... $15.6 $14.3 $10.6 $19.3
</TABLE>
SUMMARIZED FINANCIAL INFORMATION--STONE SOUTHWEST, INC.
Shown below is consolidated, summarized financial information for Stone
Southwest, Inc. (formerly known as Southwest Forest Industries, Inc.). The
summarized financial information for Stone Southwest, Inc. ("Stone Southwest")
does not include purchase accounting adjustments or the impact of the debt
incurred to finance the acquisition of Stone Southwest:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
(IN MILLIONS) 1994 1993 1992
- -------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales......................................... $ 1,795.8 $ 1,660.1 $ 1,755.9
Cost of products sold and depreciation............ 1,482.3 1,396.6 1,390.7
Income (loss) before cumulative effects of
accounting changes............................... 48.6 (12.6) 57.7
Cumulative effect of change in accounting for
postemployment benefits.......................... (3.9) -- --
Cumulative effect of change in accounting for
postretirement benefits.......................... -- (8.3) --
Cumulative effect of change in accounting for
income taxes..................................... -- -- (27.2)
Net income (loss)................................. 44.6 (20.8) 30.5
<CAPTION>
DECEMBER 31,
---------------------
(IN MILLIONS) 1994 1993
- -------------------------------------------------- --------- ---------
<S> <C> <C> <C> <C>
Current assets.................................... $ 312.8 $ 360.9
Noncurrent assets*................................ 1,723.6 1,600.5
Current liabilities............................... 154.9 141.3
Noncurrent liabilities and obligations............ 412.5 395.8
<FN>
- ---------
* Includes $962.8 and $857.4 due from the Registrant at December 31, 1994 and
1993, respectively.
</TABLE>
63
<PAGE>
[LOGO]
STONE CONTAINER CORPORATION
150 North Michigan Avenue
Chicago, Illinois 60601-7568
This entire report is printed on paper with
recycled content. The body of the report
is uncoated free sheet paper produced
by Stone-Consolidated's Wayagamack mill in
Trois-Rivieres, Quebec.
<PAGE>
Exhibit 4(F)
FIRST AMENDMENT,
CONSENT AND WAIVER OF
CREDIT AGREEMENT
THIS FIRST AMENDMENT, CONSENT AND WAIVER OF CREDIT AGREEMENT is dated as of
January 30, 1995 (this "AMENDMENT") and is by and among Stone Container
Corporation, a Delaware corporation (the "BORROWER"), the undersigned financial
institutions, including Bankers Trust Company, in their capacities as lenders
(collectively, the "LENDERS," and each individually, a "LENDER"), Bankers Trust
Company, as agent (the "AGENT") for the Lenders, and Bank of America National
Trust & Savings Association, The Bank of New York, The Bank of Nova Scotia,
Caisse Nationale de Credit Agricole, Chemical Bank, The Chase Manhattan Bank,
N.A., Dresdner Bank AG-Chicago and Grand Cayman Branches, The First National
Bank of Chicago, The Long-Term Credit Bank of Japan, Ltd., NationsBank of North
Carolina, N.A., The Sumitomo Bank, Ltd., Chicago Branch and The Toronto Dominion
Bank, as co-agents for the Lenders (collectively, the "CO-AGENTS," and each
individually, a "CO-AGENT").
RECITALS:
A. The Borrower, the Co-Agents, the Agent and the Lenders are parties to
that certain Credit Agreement dated as of October 12, 1994 (the "CREDIT
AGREEMENT").
B. The Borrower, the Co-Agents, the Agent and the Lenders desire to amend
the Credit Agreement on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, all
capitalized terms used herein shall have the meanings given them in the Credit
Agreement.
SECTION 2. AMENDMENT TO THE CREDIT AGREEMENT. The Credit Agreement is,
as of the date hereof, hereby amended as follows:
(a) SECTION 2.8(g) of the Credit Agreement is amended by
deleting the words "on the date on which such Prime Rate Loan is
converted to a Eurodollar Rate Loan, on the date of any voluntary or
mandatory repayment," appearing in the fourth sentence of such
Section.
(b) SECTION 3.2 of the Credit Agreement is amended by (i)
deleting the word "and" appearing at the end of clause (iii) thereof
and (ii) inserting at the end of clause (iv) thereof the following:
-1-
<PAGE>
"and (v) in the case of a voluntary prepayment of the Term Loans
as to which the Borrower requests a waiver pursuant to SECTION
3.6(F), the notice of prepayment shall be given at least ten (10)
Business Days prior to the date of such proposed prepayment and
shall, subject to SECTION 3.6(F), be irrevocable."
(c) SECTION 3.4(a) of the Credit Agreement is amended by deleting
such Section in its entirety and replacing it with the following:
"(a) PREPAYMENTS FROM EXCESS CASH FLOW. Within five (5)
Business Days after the delivery to the Agent of any Excess Cash
Flow Schedule pursuant to SECTION 5.1.1(b) or 5.1.1(c), beginning
with the Excess Cash Flow Schedule delivered in 1995 with respect
to the Fiscal Quarter ending December 31, 1994, the Borrower
shall prepay the Term Loan in accordance with SECTION 3.6 if the
Excess Cash Flow disclosed on such Excess Cash Flow Schedule with
respect to the preceding Fiscal Quarter is positive (but
excluding $12,500,000 of positive Excess Cash Flow with respect
to the Fiscal Quarter ending December 31, 1994 and, thereafter,
excluding the first $50,000,000 of positive Excess Cash Flow in
any Fiscal Year). Any mandatory prepayment pursuant to this
SECTION 3.4(a) shall, subject to SECTION 3.6(f), be in an amount
equal to (A)(1) the amount of such positive Excess Cash Flow (but
excluding $12,500,000 of positive Excess Cash Flow with respect
to the Fiscal Quarter ending December 31, 1994 and, thereafter,
excluding the first $50,000,000 of positive Excess Cash Flow in
any Fiscal Year) MULTIPLIED BY (2) 50% or such lesser Excess Cash
Flow Percentage as may be in effect at such time, less (B) the
amount of any voluntary prepayment of the Term Loan made during
the Fiscal Quarter in which such Excess Cash Flow is generated."
(d) SECTION 3.6(f) of the Credit Agreement is amended by
deleting such Section in its entirety and replacing it with the
following:
"(f) Notwithstanding anything in SECTION 3.2, 3.4, 3.6 OR 9.2 to
the contrary, at the request of the Borrower any Term Lender may
waive its right to receive all or any part of such Lender's
portion of any voluntary prepayment of the Term Loan made under
SECTION 3.2 or any mandatory prepayment of the Term Loan required
to be made under SECTION 3.4 (any such portion, "WAIVED
PROCEEDS") by delivering
-2-
<PAGE>
such waiver in writing to the Agent and the Borrower, signed by an
authorized officer of such Lender and in form satisfactory to the
Agent. Upon receipt of such written waiver, the Borrower (i) shall,
to the extent of any voluntary prepayment of the Term Loan so waived,
be relieved of its obligation, if any, to prepay such amount pursuant
to SECTION 3.4(a) with respect to any Excess Cash Flow reported by the
Borrower for the Fiscal Quarter in which such voluntary prepayment is
made (or was proposed to be made) and may apply such Waived Proceeds
to Permitted Uses, and (ii) shall, to the extent of any mandatory
prepayment of the Term Loan so waived, be relieved of its obligation
to prepay such amount and may apply such Waived Proceeds to Permitted
Uses. Any request by the Borrower for a waiver of any prepayment
pursuant to this SECTION 3.6(f) shall be in writing and shall be
delivered to the Agent, which shall promptly distribute such request
to the Term Lenders. Each Term Lender shall use reasonable efforts to
respond to such waiver request within five Business Days following
receipt of a written request therefor. Any failure by a Term Lender
to respond to such waiver request within such period shall be deemed
to be an election by such Lender not to waive its right to receive its
portion of such prepayment and shall in no event give rise to any
obligation or liability of any kind on the part of such Term Lender."
(e) SECTION 5.1.1(b) of the Credit Agreement is amended by (i)
replacing the word "and" appearing at the end of clause (i) thereof with a
comma and (ii) inserting at the end of clause (ii) thereof the following:
"and (iii) a schedule setting forth the computation of Excess
Cash Flow for the Fiscal Quarter then ended (an "EXCESS CASH FLOW
SCHEDULE")"
(f) SECTION 5.1.1(c) of the Credit Agreement is amended by deleting
clause (iii) thereof in its entirety and replacing it with the following:
"(iii) an Excess Cash Flow Schedule setting forth the computation
of Excess Cash Flow for the last Fiscal Quarter in the Fiscal
Year then ended"
(g) SECTION 5.1.17(b) of the Credit Agreement is amended by
replacing "January 31, 1995" appearing in the second line thereof with
"February 17, 1995".
-3-
<PAGE>
(h) SECTION 5.2.2(c) of the Credit Agreement is amended by inserting
after the words "Europa Carton, A.G.," appearing therein the words "Stone
Container Holdings GmbH,".
(i) SECTION 5.2.7(k) of the Credit Agreement is amended by (i)
inserting after the words "Europa Carton, A.G." appearing in the first line
thereof the words "or Stone Container Holdings GmbH" and (ii) inserting
after the words "Europa Carton, A.G." appearing in the second line thereof
the words "or Stone Container Holdings GmbH, respectively,".
(j) SECTION 5.2.11 of the Credit Agreement is amended by deleting the
final sentence thereof in its entirety and replacing it with the following:
"Notwithstanding the foregoing limitations on Capital
Expenditures in this SECTION 5.2.11, (A) the Borrower and its
Subsidiaries may make Cluster Expenditures and (B) Europa Carton,
A.G. and Stone Container Holdings GmbH may make Capital
Expenditures out of the proceeds of Indebtedness incurred by
Europa Carton, A.G. or Stone Container Holdings GmbH,
respectively, pursuant to SECTION 5.2.2(c)."
(k) The definition of "DISCRETIONARY FUNDS" appearing in the
Definitional Appendix to the Credit Agreement is amended by deleting clause
(iv) thereof in its entirety and replacing it with the following:
"(iv) the aggregate amount of Excess Cash Flow for each Fiscal
Quarter of the Borrower commencing with the Fiscal Quarter ending
December 31, 1994 which is not required by SECTION 3.4(a) to be
utilized as a mandatory prepayment, such amount to be determined
without giving effect to any prepayment reduction or waiver
pursuant to clause (B) of SECTION 3.4(a) or SECTION 3.6(f) and
such amount with respect to any Fiscal Quarter becoming
Discretionary Funds only after the delivery of the Excess Cash
Flow Schedule for such Fiscal Quarter pursuant to SECTION
5.1.1(b) or 5.1.1(c)."
(l) The definition of "EXCESS CASH FLOW" appearing in the
Definitional Appendix to the Credit Agreement is amended by (i) replacing
the words "Fiscal Year" in each case where they appear with the words
"Fiscal Quarter" and (ii) replacing the word "year" in each case where it
appears with the word "quarter".
(m) The definition of "EXCESS CASH FLOW SCHEDULE" appearing in the
Definitional Appendix to the Credit Agreement
-4-
<PAGE>
is amended by replacing the reference to "SECTION 5.1.1(c)" appearing
therein with the reference "SECTION 5.1.1(b)".
(n) The definition of "INTEREST COVERAGE RATIO" appearing in the
Definitional Appendix to the Credit Agreement is amended by adding
after the word "period" appearing in clause (iii) thereof the
following:
"plus (iv) any non-cash loss resulting from the early
extinguishment of debt deducted in determining Consolidated Net
Income for such period"
SECTION 3. AMENDMENT TO SCHEDULE 1.1(b). Schedule 1.1(b) to the Credit
Agreement is, as of the date hereof, hereby amended by (a) replacing the words
"Fiscal Year" in each case where they appear in paragraph 2 of Schedule 1.1(b)
with the words "Fiscal Quarter" and (b) replacing the reference to "SECTION
5.1.1(C)" in each case where it appears in paragraph 2 of Schedule 1.1(b) with
the reference "SECTION 5.1.1(b) or 5.1.1(c)".
SECTION 4. CONSENT AND WAIVER. In connection with the Borrower's
contemplated lease financing for the acquisition and construction of a woodyard
at the Borrower's Hopewell, Virginia mill site (the "WOODYARD FACILITY"), which
Woodyard Facility will be located on a portion of the Mortgaged Property that is
subject to the Mortgage (the "HOPEWELL MORTGAGE") covering the Hopewell,
Virginia mill site, the Borrower anticipates entering into (a) a ground lease
(the "GROUND LEASE") with the providers of such lease financing (the "LESSORS")
to, among other things, lease that portion of the Mortgaged Property upon which
the Woodyard Facility will be situated to the Lessors, (b) a facility lease (the
"FACILITY LEASE") providing, among other things, for the lease of the Woodyard
Facility from the Lessors to the Borrower and (c) other agreements related to
the Ground Lease and the Facility Lease (collectively with the Ground Lease and
the Facility Lease, the "WOODYARD FACILITY DOCUMENTS"). In order to facilitate
the contemplated financing for the Woodyard Facility, the Lenders hereby (i)
consent to (A) the Borrower entering into the Ground Lease, provided such Ground
Lease is in form and substance satisfactory to the Agent, and (B) the Agent
entering into a non-disturbance and/or subordination agreement whereby the Agent
agrees, among other things, that the Lessors' rights under the Ground Lease will
not be terminated or disturbed by reason of the Agent's exercise of its rights
under the Hopewell Mortgage relative to the Woodyard Facility and the property
subject to the Ground Lease, provided that (x) the Woodyard Facility Documents
are in form and substance satisfactory to the Agent, (y) the Borrower
collaterally assigns certain of its rights under the Woodyard Facility Documents
to the Agent for the benefit of the Lenders to secure the Obligations, pursuant
to such agreements, instruments and documents in form and substance satisfactory
to the Agent, and (z) the Lessors consent to and acknowledge such assignment
-5-
<PAGE>
contemplated by clause (y) above and (ii) waive any breach of SECTION 5.2.1 of
the Credit Agreement which may arise solely out of the transactions contemplated
by the Woodyard Facility Documents. Each of the parties hereto hereby
authorizes and consents to the Agent executing and delivering any and all
agreements, instruments and documents, including, without limitation, any
modifications to the Hopewell Mortgage or the Security Agreements, in form and
substance satisfactory to the Agent in order to effectuate the consents set
forth in this SECTION 4.
The consents and waivers by the Lenders as described in the immediately
preceding paragraph shall not operate as a waiver of (i) any other right, power
or remedy of the Agent or the Lenders under the Loan Documents or (ii) any other
Event of Default under the Credit Agreement. Such consents and waivers are only
applicable and shall only be effective in the specific instance and for the
specific purpose for which made or given.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants to the Lenders, the Co-Agents and the Agent as
follows:
(a) The representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct in all
material respects at and as of the date hereof as though made on and as of
the date hereof (except to the extent specifically made with regard to a
particular date).
(b) No Event of Default or Unmatured Event of Default has occurred
and is continuing.
(c) The execution, delivery and performance of this Amendment has
been duly authorized by all necessary action on the part of, and duly
executed and delivered by, the Borrower and this Amendment is a legal,
valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as the enforcement thereof
may be subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law).
(d) The execution, delivery and performance of this Amendment do not
conflict with or result in a breach by the Borrower of any term of any
material contract, loan agreement, indenture or other agreement or
instrument to which the Borrower is a party or is subject.
SECTION 6. REFERENCES TO AND EFFECT ON THE CREDIT AGREEMENT.
(a) On and after the date hereof each reference in the Credit
Agreement to "this Agreement," "hereunder,"
-6-
<PAGE>
"hereof," "herein," or words of like import, and each reference to in the
Loan Documents and all other documents (the "ANCILLARY DOCUMENTS")
delivered in connection with the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement, the
Loan Documents and all other Ancillary Documents shall remain in full force
and effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Lenders, the Co-Agents or the Agent under the Credit
Agreement, the Loan Documents or the Ancillary Documents.
SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be executed
in counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument. This Amendment shall be binding upon the respective parties
hereto upon the execution and delivery of this Amendment by the Borrower, the
Agent, the Majority Term Lenders and the Required Lenders regardless of whether
it has been executed and delivered by all of the Lenders.
SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE INTERNAL CONFLICTS OF LAWS PROVISIONS THEREOF.
Section 9. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
[Signature Pages Follow]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date above first written.
STONE CONTAINER CORPORATION BANKERS TRUST COMPANY, in its
individual capacity and as
By: Agent
------------------------------
Name: By:
------------------------------ ------------------------------
Title: Name:
------------------------------ ------------------------------
Title:
----------------------------
BANK OF AMERICA NATIONAL TRUST THE BANK OF NEW YORK, in its
AND SAVINGS ASSOCIATION, in its individual capacity and as a
individual capacity and as a Co-Agent
Co-Agent
By:
By: ------------------------------
------------------------------ Name:
Name: ------------------------------
------------------------------ Title:
Title: ----------------------------
------------------------------
THE BANK OF NOVA SCOTIA, in its CAISSE NATIONALE DE CREDIT
individual capacity and as a AGRICOLE, in its individual
Co-Agent capacity and as a Co-Agent
By: By:
------------------------------ ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
CHEMICAL BANK, in its THE CHASE MANHATTAN BANK, N.A.,
individual capacity and as a in its individual capacity and
Co-Agent as a Co-Agent
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
-8-
<PAGE>
DRESDNER BANK AG (Chicago and THE FIRST NATIONAL BANK OF
Grand Cayman Branches), in its CHICAGO, in its individual
individual capacity and as a capacity and as a Co-Agent
Co-Agent
By:
By: ----------------------------
---------------------------- Name:
Name: ----------------------------
---------------------------- Title:
Title: ----------------------------
----------------------------
THE LONG-TERM CREDIT BANK OF NATIONSBANK OF NORTH CAROLINA,
JAPAN, LTD. in its individual N.A., in its individual
capacity and as a Co-Agent capacity and as a Co-Agent
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
SUMITOMO BANK, LTD., CHICAGO THE TORONTO DOMINION BANK, in
BRANCH, in its individual its individual capacity and as
capacity and as a Co-Agent a Co-Agent
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
COMPAGNIE FINANCIERE DE CIC ET PRIME INCOME TRUST
DE L'UNION EUROPEENNE
By:
By: ----------------------------
--------------------------- Name:
Name: ----------------------------
---------------------------- Title:
Title: ----------------------------
----------------------------
EATON VANCE PRIME RATE RESERVES MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:
---------------------------- By:
Name: ----------------------------
---------------------------- Name:
Title: ----------------------------
---------------------------- Title:
-----------------------------
SENIOR HIGH INCOME PORTFOLIO, INC. SENIOR HIGH INCOME PORTFOLIO II,
INC.
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
-9-
<PAGE>
SENIOR STRATEGIC INCOME FUND, PILGRIM PRIME RATE TRUST
INC.
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
PROSPECT STREET SENIOR PROTECTIVE LIFE INSURANCE
PORTFOLIO, L.P. (by Prospect COMPANY
Street Senior Loan corporation,
as managing general partner) By:
----------------------------
By: Name:
---------------------------- ----------------------------
Name: Title:
---------------------------- ----------------------------
Title:
----------------------------
VAN KAMPEN MERRITT PRIME RATE
INCOME TRUST STRATA FUNDING, LTD.
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
STICHTING RESTRUCTURED RESTRUCTURED OBLIGATIONS BACKED
OBLIGATIONS BACKED BY SENIOR BY SENIOR ASSETS B.V.
ASSETS 2 (ROSA2)
By its Managing Director By its Managing Director
ABN TRUSTCOMPANY (NEDERLAND) ABN TRUSTCOMPANY (NEDERLAND)
B.V. B.V.
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
-10-
<PAGE>
CERES FINANCE LTD. MERRILL LYNCH PRIME RATE
PORTFOLIO
By:
----------------------------- By: Merill Lynch Asset
Name: Management, LP,
---------------------------- as Investment Advisor
Title:
---------------------------- By:
----------------------------
UNION BANK OF FINLAND, LTD., Name:
GRAND CAYMAN BRANCH ----------------------------
Title:
By: ----------------------------
----------------------------
Name:
----------------------------
Title:
----------------------------
MERRILL LYNCH, PIERCE, FENNER &
PEARL STREET L.P. SMITH, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
-11-
<PAGE>
EXHIBIT 11
STONE CONTAINER CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED
NET LOSS PER SHARE(A)
(IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE 1994 1993 1992(A)
- ---------------------------------------- -------- -------- ---------
Shares of Common Stock:
Weighted average number of common
shares outstanding................... 88.2 71.2 71.0
-------- -------- ---------
Primary Weighted Average Shares
Outstanding............................ 88.2 71.2 71.0
-------- -------- ---------
-------- -------- ---------
Net Loss................................ $ (204.6) $ (358.7) $ (269.4)
Less: Series E Cumulative Convertible
Exchangeable Preferred Stock
dividend.......................... (8.1) (8.1) (6.9)
Redemption premium on redeemable
preferred stock of a consolidated
affiliate......................... (4.0) -- --
-------- -------- ---------
Net loss used in computing primary net
loss per common share.................. $ (216.7) $ (366.8) $ (276.3)
-------- -------- ---------
-------- -------- ---------
Primary Earnings Per Share.............. $ (2.46) $ (5.15) $ (3.89)
-------- -------- ---------
-------- -------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
FULLY DILUTED EARNINGS PER SHARE 1994 1993 1992
- ---------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Shares of Common Stock:
Weighted average number of common
shares outstanding................... 88.2 71.2 71.0
Dilutive effect of options and
warrants............................. .1 -- --
Addition from assumed conversion of
8.875% convertible senior
subordinated notes................... 21.6 10.4 --
Addition from assumed conversion of
6.75% convertible subordinated
debentures........................... 3.4 3.4 2.9
Addition from assumed conversion of
Series E Cumulative Convertible
Exchangeable Preferred Stock......... 3.4 3.4 2.9
-------- -------- ---------
Fully Diluted Weighted Average Shares
Outstanding............................ 116.7 88.4 76.8
-------- -------- ---------
-------- -------- ---------
Net Loss................................ $ (204.6) $ (358.7) $ (269.4)
Less: Series E Cumulative Convertible
Exchangeable Preferred Stock
dividend.......................... (8.1) (8.1) (6.9)
Redemption premium on redeemable
preferred stock of a consolidated
affiliate......................... (4.0) -- --
Add back: Interest on 8.875% convertible
senior subordinated notes..... 13.5 6.8 --
Interest on 6.75% convertible
subordinated debentures....... 4.7 4.7 4.0
Income adjustment on
Stone-Consolidated 8% convertible
subordinated debentures...... 6.9 .6 --
Series E Cumulative
Convertible Exchangeable Preferred
Stock dividend............... 8.1 8.1 6.9
-------- -------- ---------
Net loss used in computing fully diluted
net loss per common share.............. $ (183.5) $ (346.6) $ (265.4)
-------- -------- ---------
-------- -------- ---------
Fully Diluted Earnings Per Share (B).... $ (1.57) $ (3.92) $ (3.46)
-------- -------- ---------
-------- -------- ---------
<FN>
- ---------
(A) Amounts per common share and average common shares outstanding have been
adjusted for the 2 percent stock dividend in 1992.
(B) Fully diluted earnings per share are not disclosed in the consolidated
financial statements because the amounts are anti-dilutive.
</TABLE>
64
<PAGE>
EXHIBIT 12
STONE CONTAINER CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS) 1990 1991 1992 1993 1994
- ---------------------------------------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
losses and cumulative effects of
accounting changes..................... $ 95.4 $ (49.1) $ (169.9) $ (319.2) $ (128.8)
Income tax provision (credit)........... 92.8 31.1 (59.4) (147.7) (35.5)
Minority interest in consolidated
subsidiaries........................... 5.9 5.8 5.3 3.6 1.2
Preferred stock dividend requirements of
majority owned subsidiary.............. (3.9) (5.9) (4.7) (5.7) (9.4)
Undistributed (earnings) loss of
non-consolidated subsidiaries.......... (.6) 5.4 6.0 13.3 9.1
Capitalized interest.................... (64.8) (81.9) (47.4) (10.8) (4.7)
--------- --------- --------- --------- ---------
124.8 (94.6) (270.1) (466.5) (168.1)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fixed charges:
Interest charges (expensed and
capitalized), amortization of debt
discount and debt fees on all
indebtedness........................ 487.6 479.7 433.5 437.5 460.7
Interest cost portion of rental
expenses (33 1/3%).................. 25.4 26.8 27.8 27.4 29.1
Preferred stock dividend requirements
of majority owned subsidiary........ 3.9 5.9 4.7 5.7 9.4
--------- --------- --------- --------- ---------
Total fixed charges............... 516.9 512.4 466.0 470.6 499.2
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings before income taxes,
undistributed (earnings) loss of
non-consolidated subsidiaries, minority
interest and fixed charges (excluding
capitalized interest).................. $ 641.7 $ 417.8 $ 195.9 $ 4.1 $ 331.1
--------- --------- --------- --------- ---------
Ratio of earnings to fixed charges...... 1.2 (D) (C) (B) (A)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<FN>
- ---------
(A) The Company's earnings for the year ended December 31, 1994 were
insufficient to cover fixed charges by $168.1 million. Earnings for 1994
included a non-recurring pretax gain of $22.0 million relating to an
involuntary conversion at the Company's Panama City, Florida pulp and
paperboard mill. If such a non-recurring event had not occurred, earnings
would have been insufficient to cover the fixed charges by $190.1 million.
(B) The Company's earnings for the year ended December 31, 1993 were
insufficient to cover fixed charges by $466.5 million. Earnings for 1993
included a non-recurring pretax gain of $35.4 million from the sale of the
Company's 49 percent equity interest in Empaques de Carton Titan, S.A.
("Titan"). If such a non-recurring event had not occurred, earnings would
have been insufficient to cover fixed charges by $501.9 million.
(C) The Company's earnings for the year ended December 31, 1992 were
insufficient to cover fixed charges by $270.1 million.
(D) The Company's earnings for the year ended December 31, 1991 were
insufficient to cover fixed charges by $94.6 million. Earnings for 1991
included a non-recurring pretax gain of $41.8 million associated with the
settlement and termination of a Canadian supply contract and a
non-recurring pretax gain of $17.5 million relating to an involuntary
conversion at the Company's Missoula, Montana mill. If such non-recurring
events had not occurred, earnings would have been insufficient to cover
the fixed charges by $153.9 million.
</TABLE>
65
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
ORGANIZED
UNDER THE LAWS PERCENTAGE
OF OWNERSHIP
-------------- -----
<S> <C> <C>
Consolidated Subsidiaries:
Abbeville-Grimes Railway Corporation................. Delaware 100%
Ace Box Company, Inc................................. Georgia 100%
A.H. Julius Rohde GmbH............................... Germany 100%
Alexander Financial.................................. Delaware 74.6%
Apache Railway Corporation........................... Arizona 100%
Atlanta & Saint Andrews Bay Railroad Company......... Florida 100%
Baie Holdings Limited (NPL).......................... Canada 100%
Bridgewater Paper Company Limited.................... England 74.6%
Bridgewater Newsprint Limited........................ England 74.6%
Cameo Container Corporation.......................... Illinois 100%
Cartomills, S.A...................................... Belgium 100%
Cartomills France S.A.R.L............................ France 100%
Cartonnages Robert Delubac S.A.R.L................... France 95.7%
Central Louisiana & Gulf Railroad Corporation........ Delaware 100%
Charter Oak Containers, Inc.......................... Connecticut 100%
Cheshire Recycling Limited........................... England 74.6%
Compagnie de Flottage du St. Maurice Ltee............ Canada 58%
Cousins Leasing Corporation.......................... New York 100%
DST Design Service Team GmbH......................... Germany 100%
Europa Carton AG..................................... Germany 100%
Europa Carton Gesellschaft mbh....................... Austria 100%
Eurotrend Gesellschaft Gmbh.......................... Germany 100%
Gamache Exploration & Mining Co. Ltd (NPL)........... Canada 100%
Grundstrucks-Verwaltungsgesellschaft Altona mbh...... Germany 95%
Gulf Container Corporation........................... Louisiana 100%
IFP Packungsgestaltung GmbH.......................... Germany 100%
IDENTITY Institute fur Corporate Design GmbH......... Germany 100%
Leasing-Kontor Fur Investitionsguter GmbH............ Germany 100%
National Packaging Corporation....................... Minnesota 100%
North Louisiana & Gulf Railroad Corporation.......... Louisiana 100%
Orangeburg Trucking, Inc............................. South Carolina 100%
Penn Central Containers, Inc......................... Pennsylvania 100%
Seminole Kraft Corporation........................... Delaware 99%
SFI Forest Industries, Inc........................... Delaware 100%
Societe Emballages des Cevennes, S.A................. France 98.8%
Societe Europeenne de Carton S.A.R.L................. France 100%
South Carolina Industries, Inc....................... Delaware 100%
Southwest Forest Insurance Company, Ltd.............. Bermuda 100%
Southwest Forest Industries, Inc..................... Nevada 100%
Southwest Kenworth, Inc.............................. Arizona 100%
Speditions-Gesellschaft Visurgis mbh................. Germany 100%
Ston Forestal, S.A................................... Costa Rica 100%
Stone Aviation, Inc.................................. Delaware 100%
Stone Communications Corporation..................... Delaware 100%
Stone Connecticut Paperboard Properties, Inc......... Delaware 100%
Stone-Consolidated Corporation....................... Canada 74.6%
Stone-Consolidated (Europe) S.A...................... Belgium 74.6%
Stone-Consolidated Paper Sales Corporation........... Delaware 74.6%
Stone Container (Canada), Inc........................ Canada 100%
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED
UNDER THE LAWS PERCENTAGE
OF OWNERSHIP
-------------- -----
Consolidated Subsidiaries (continued):
<S> <C> <C>
Stone Container de Mexico S.A. de C.V................ Mexico 100%
Stone Container International Corporation............ Virgin Islands 100%
Stone Export Trading Company......................... Delaware 100%
Stone Financial Corporation.......................... Delaware 100%
Stone Fin II Receivables Corporation................. Delaware 100%
Stone Papers, Inc.................................... Delaware 100%
Stone Receivables Corporation........................ Delaware 100%
Stone Southwest, Inc................................. Delaware 100%
Stone Venepal Consolidated Pulp, Inc................. Canada 90%
Strong-Robinette Bag Company, Inc.................... Virginia 100%
Tarheel Container Corporation........................ North Carolina 100%
Wellpappenwerk Waren GmbH............................ Germany 100%
2736551 Canada, Inc.................................. Canada 100%
Non-consolidated Entities:
AB Specialty Packaging, Inc.......................... Delaware 50%
Aspamill, Inc........................................ Canada 45%
Associated Paper Mills (Ontario) Limited............. Canada 45%
Compagnie d'Estacades de La Cascapedia, Inc.......... Canada 50%
Financiere Carton Papier............................. France 50%
GfA-Gesellschaft fur Altpapier und Rohstoffe mbh..... Germany 33.3%
ICO Inc.............................................. Canada 42%
Indupa Vertriebgesellschaft mbh & Co. KG............. Germany 50%
Indupa Grundstucksgesellschaft mbh................... Germany 50%
Laimbeer Packaging Company LLC....................... Delaware 50%
L & M Corrugated Container Corporation............... Illinois 50%
MacMillan Bathurst................................... Canada 50%
MacMillan Bathurst, Inc.............................. Canada 50%
Mannkraft Corporation................................ Pennsylvania 49%
Maritime Containers Limited.......................... Canada 35%
ORPACK-Stone Corporation............................. Delaware 49%
Paper Recycling International, L.P................... Delaware 50%
Paroco Rohstoffverwertung GmbH....................... Germany 49%
Produits Forestiers Petit Paris, Inc................. Canada 37.3%
River House Packaging Pty., Ltd...................... Australia *
Rohstoffhandel Kiel GmbH............................. Germany 37.5%
Rosenbloom Group, Inc................................ Canada 45%
Scieries Saugenay Ltee............................... Canada 37.3%
Stone-Billerud S.A................................... Switzerland 50%
Stone Container (Hong Kong) Limited.................. Hong Kong 50%
Stone Container Japan Co., Ltd....................... Japan 50%
Tradepak Internacional S.A. de C.V................... Mexico 49%
Trans-Seal Corporation............................... Japan 50%
Venepal-Stone Forestal, S.A.......................... Venezuela 49%
Vertriebsgesellschaft Rohstoffhandel Kiel GmbH....... Germany 37.5%
<FN>
- ---------
* The Company has the option to exercise its right to convert its investment
into 50 percent of the voting common stock of River House Packaging Pty., Ltd.
</TABLE>
67
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Stone
Container Corporation and Subsidiaries' December 31, 1994 Consolidated Balance
Sheet and Consolidated Statement of Operations and is qualified in its entirety
by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 109
<SECURITIES> 0
<RECEIVABLES> 845
<ALLOWANCES> 20
<INVENTORY> 673
<CURRENT-ASSETS> 1,817
<PP&E> 5,466
<DEPRECIATION> 2,107
<TOTAL-ASSETS> 7,005
<CURRENT-LIABILITIES> 1,032
<BONDS> 4,432
<COMMON> 849
0
115
<OTHER-SE> (316)
<TOTAL-LIABILITY-AND-EQUITY> 7,005
<SALES> 5,749
<TOTAL-REVENUES> 5,749
<CGS> 4,564
<TOTAL-COSTS> 5,491
<OTHER-EXPENSES> (36)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 456
<INCOME-PRETAX> (163)
<INCOME-TAX> (36)
<INCOME-CONTINUING> (129)
<DISCONTINUED> 0
<EXTRAORDINARY> (62)
<CHANGES> (14)
<NET-INCOME> (205)
<EPS-PRIMARY> (2.46)
<EPS-DILUTED> 0
</TABLE>
