SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly period ended June 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to ________________.
Commission file number 1-3439
STONE CONTAINER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2041256
(State or other jurisdiction of incorporation (I.R.S. employer
or organization) identification no.)
150 North Michigan Avenue, Chicago, Illinois 60601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 312-346-6600
Indicate by check mark (X) 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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No
Number of common shares outstanding as of August 11, 1997: 99,327,786
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
(in millions) 1997* 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalent...................... $ 178.7 $ 112.6
Accounts and notes receivable (less
allowances of $21.5 and 24.3)............... 578.8 572.8
Inventories................................... 690.0 741.6
Other......................................... 126.8 134.2
Total current assets................ 1,574.3 1,561.2
Property, plant and equipment................. 4,848.1 4,939.1
Accumulated depreciation and amortization..... (2,383.5) (2,305.4)
Property, plant and equipment--net.. 2,464.6 2,633.7
Timberlands................................... 49.2 34.6
Goodwill...................................... 451.7 485.4
Investment in non-consolidated affiliates..... 932.2 1,198.2
Other......................................... 484.2 440.7
Total assets.................................. $ 5,956.2 $6,353.8
Liabilities and stockholders' equity
Current liabilities:
Accounts payable.............................. $ 261.3 $ 363.8
Current maturities of senior and subordinated
long-term debt.............................. 20.7 186.7
Notes payable and current maturities of non-
recourse debt of consolidated affiliates.... 34.6 21.9
Income taxes.................................. 23.4 15.1
Accrued and other current liabilities......... 291.2 301.7
Total current liabilities........... 631.2 889.2
Senior long-term debt......................... 3,511.7 3,269.6
Subordinated debt............................. 697.4 422.3
Non-recourse debt of consolidated affiliates.. 1.2 259.2
Other long-term liabilities................... 307.3 308.1
Deferred taxes................................ 274.0 410.2
Commitments and contingencies.................
Stockholders' equity:
Series E preferred stock................... 115.0 115.0
Common stock (99.3 shares outstanding)..... 966.4 954.8
Accumulated deficit........................ (313.6) (94.2)
Foreign currency translation adjustment.... (233.5) (178.8)
Unamortized expense of restricted stock
plan..................................... (.9) (1.6)
Total stockholders' equity.......... 533.4 795.2
Total liabilities and stockholders' equity.... $ 5,956.2 $6,353.8
*Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in millions except per share) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales.................... $1,200.2 $1,282.3 $2,381.1 $2,603.8
Cost of products sold........ 1,016.7 1,013.0 2,003.6 1,985.2
Selling, general and
administrative expenses.... 140.8 156.0 287.5 309.7
Depreciation and amortization 81.0 79.0 159.6 158.0
Equity loss (income) from
affiliates.................. 10.7 (20.6) 23.2 (46.8)
Other income net............. (6.9) (5.3) (3.8) (8.1)
Income (loss) before interest
expense, income taxes,
minority interest and
extraordinary charges....... (42.1) 60.2 (89.0) 205.8
Interest expense............. (118.7) (101.5) (226.1) (201.1)
Income (loss) before income
taxes, minority interest
and extraordinary charges.. (160.8) (41.3) (315.1) 4.7
Credit for income taxes...... 53.4 19.3 111.0 4.7
Minority interest............ -- .9 -- 1.9
Income (loss) before
extraordinary charges...... (107.4) (21.1) (204.1) 11.3
Extraordinary charges from
early extinguishment of debt
(net of income tax benefit).. (13.3) -- (13.3) --
Net income (loss)............ (120.7) (21.1) (217.4) 11.3
Preferred stock dividends.... (2.0) (2.0) (4.0) (4.0)
Net income (loss) applicable
to common shares........... $ (122.7) $ (23.1) $ (221.4) $ 7.3
Retained earnings
(accumulated deficit),
beginning of period......... $ (192.9) $ 113.3 $ (94.2) $ 97.8
Net income (loss)............ (120.7) (21.1) (217.4) 11.3
Cash dividends on common and
preferred stock............ -- (16.9) (2.0) (33.8)
Retained earnings
(accumulated deficit), end
of period.................. $ (313.6) $ 75.3 $ (313.6) $ 75.3
Per share of common stock:
Income (loss) before
extraordinary charges....... $ (1.10) $ (.23) $ (2.10) $ .07
Extraordinary charges from
early extinguishment of debt
(net of income tax benefit). (.13) -- (.13) --
Net income (loss)............ $ (1.23) $ (.23) $ (2.23) $ .07
Cash dividends............... $ -- $ .15 $ -- $ .30
Common shares and common
share equivalents
outstanding (weighted
average, in millions)...... 99.3 99.2 99.3 99.4
<FN>
Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements.
*Fully diluted amounts and average shares outstanding have not been presented
due to anti-dilutive nature.
</TABLE>
<TABLE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
________ _______ ________ ________
<S> <C> <C> <C> <C>
(in millions except per share)
Cash flows from operating activities:
Net income (loss).............. $ (120.7) $ (21.1) $ (217.4) $ 11.3
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization 81.0 79.0 159.6 158.0
Deferred taxes............... (58.4) (27.1) (120.8) (23.4)
Foreign currency transaction
losses (gains).............. (.9) .3 3.6 .5
Equity loss (income) from
affiliates.................. 10.7 (20.6) 23.2 (46.8)
Extraordinary charges from
early extinguishment of debt 13.3 -- 13.3 --
Other--net................... 21.4 14.7 41.8 30.0
Changes in current assets and
liabilities net of
adjustments for an acquisition
and a disposition:
(Increase) decrease in
accounts and notes
receivable--net............ (50.8) 57.4 (52.6) 115.5
(Increase) decrease in
inventories............... 73.2 27.7 31.5 (22.1)
(Increase) decrease in other
current assets............. .3 (6.3) .2 (11.1)
Decrease in accounts payable
and other current
liabilities................ (8.6) (24.2) (81.2) (47.2)
Net cash provided by (used in)
operating activities......... (39.5) 79.8 (198.8) 164.7
Cash flows from financing activities:
Payments made on debt.......... (420.6) (11.8) (431.1) (75.0)
Payments by consolidated
affiliates on non-recourse
debt......................... (9.7) (.8) (12.9) (5.9)
Borrowings..................... 612.7 37.0 804.1 221.7
Non-recourse borrowings of
consolidated affiliates...... .1 .4 .1 1.6
Cash dividends................. -- (16.9) (2.0) (33.8)
Net cash provided by financing
activities................... 182.5 7.9 358.2 108.6
Cash flows from investing activities:
Capital expenditures........... (31.7) (60.5) (58.0) (102.3)
Proceeds from sales of assets.. .5 5.4 3.1 8.0
Purchase of securities of a
non-consolidated affiliate... -- -- -- (39.6)
Investments in and advances to
affiliates, net.............. (4.6) (38.0) (8.9) (43.7)
Other--net..................... (21.8) (5.5) (27.1) (6.3)
Net cash used in investing
activities................... (57.6) (98.6) (90.9) (183.9)
Effect of exchange rate changes
on cash...................... (1.1) (.4) (2.4) (1.6)
Net increase (decrease) in cash
and cash equivalents......... 84.3 (11.3) 66.1 87.8
Cash and cash equivalents,
beginning of period.......... 94.4 139.4 112.6 40.3
Cash and cash equivalents, end
of period.................... $ 178.7 $ 128.1 $ 178.7 $ 128.1
<FN>
See Note 7 regarding supplemental cash flow information.
Unaudited; subject to year-end audit
The accompanying notes are an integral part of these statements
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Basis of Presentation
Pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") for Form 10-Q, the financial statements, footnote
disclosures and other information normally included in the financial
statements prepared in accordance with generally accepted accounting
principles have been condensed. These financial statements, footnote
disclosures and other information should be read in conjunction with
the financial statements and the notes thereto included in Stone
Container Corporation's (the "Company's") latest Annual Report on Form
10-K. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all normal recurring
adjustments necessary to fairly present the Company's financial
position as of June 30, 1997 and the results of operations and cash
flows for the three and six month periods ended June 30, 1997 and 1996.
NOTE 2: Reclassifications
Certain prior year amounts have been restated to conform with the
current year presentation in the Consolidated Statements of Cash Flows.
NOTE 3: Acquisition/Disposition
On April 4, 1997, the Company's 90 percent owned subsidiary, Stone
Venepal (Celgar) Pulp. Inc. ("SVCPI") acquired the remaining 50 percent
interest in the Celgar pulp mill (the "Celgar Mill") in Castlegar,
British Columbia from CITIC B.C., Inc. ("CITIC"), an indirect
subsidiary of China International Trust Investment Corporation of
Bejing, People's Republic of China, in exchange for the portion of the
Celgar Mill's indebtedness owed by CITIC. Such indebtedness is non-
recourse to the Company. (See Note 7)
On June 26, 1997, the Company sold half of its ownership in SVCPI
to Celgar Investments, Inc., a 49 percent owned affiliate of the
Company. Following the sale, the Company retains a 45 percent direct
voting interest in the stock of SVCPI and accordingly is accounting for
its investment under the equity method. All of SVCPI's indebtedness
has been removed from the Company's consolidated balance sheet. (See
Note 7)
NOTE 4: Merger Of Significant Subsidiary
On May 30, 1997, Stone-Consolidated Corporation, a non-consolidated
affiliate of the Company, and Abitibi-Price Inc. merged to form Abitibi-
Consolidated Inc. ("Abitibi-Consolidated"), one of the world's leading
manufacturers and marketers of publication papers. The Company owns
approximately 25.2 percent of the common stock of Abitibi-Consolidated.
As a result of the merger, the Company reported a non-cash
extraordinary charge of $13.3 million, net of tax, representing its
share of a loss from the early extinguishment of debt incurred by
Abitibi-Consolidated. As of August 11, 1997, the Company's interest in
Abitibi-Consolidated had a market value of approximately US $915
million, based on the per share price as reported by the New York Stock
Exchange.
NOTE 5: Financing Activities
On May 28, 1997, the Company sold $275 million aggregate principal
amount of units consisting of 10-3/4 percent Senior Subordinated
Debentures due 2002 and 1-1/2 percent Supplemental Interest
Certificates (the "Units Offering"). The net proceeds from the Units
Offering was approximately $269 million. Of the proceeds, $150 million
was used to repay the Company's $150 million outstanding principal
amount of 10-3/4 percent Senior Subordinated Notes due June 15, 1997 at
maturity. The remaining proceeds will be used to fund capital
expenditures as incurred.
On June 12, 1997, the Company sold $14.7 million principal amount
of 7.2 percent Industrial Development Revenue Bonds due 2027. The
proceeds of the bonds were used in connection with a wastepaper project
for the Company's Snowflake, Arizona mill.
On June 19, 1997, the Company and its bank group further amended
and restated its Credit Agreement to, among other things, provide for
an additional senior secured loan facility of $300 million (the "E
Tranche Facility"), and ease certain financial and other covenant
requirements (including the interest coverage and indebtedness ratio
requirements). The net proceeds of $295 million from the E Tranche
Facility was used to fully repay amounts outstanding under the
Company's revolving credit facilities (without a corresponding
reduction in commitments) with the remaining proceeds to be used for
general corporate purposes.
NOTE 6: Inventories
Inventories are summarized as follows:
June 30, December 31,
(in millions) 1997 1996
Raw materials and supplies....... $ 237.0 $ 255.3
Paperstock....................... 339.0 378.1
Work in process.................. 22.2 19.5
Finished products................ 107.6 105.1
705.8 758.0
Excess of current cost over LIFO
inventory value................ (15.8) (16.4)
Total inventories................ $ 690.0 $ 741.6
NOTE 7: 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:
Three months ended Six months ended
June 30, June 30,
(in millions) 1997 1996 1997 1996
Decrease in debt due
to deconsolidation
of affiliate(1).... $ 538.0 $ -- $ 538.0 $ --
Increase in debt due
to consolidation
of affiliate(2)... 264.9 1.0 264.9 5.0
Capital lease
obligation incurred 0.9 -- 0.9 --
Cash paid during the
periods for:
Interest (net of
capitalization)... $ 112.5 $ 101.6 $ 210.9 $ 194.3
Income taxes (net
of refunds)...... 3.5 9.3 (1.6) 12.1
(1) Decrease due to the sale of a portion of the Company's interest in
SVCPI on June 26, 1997. Such amount includes the $264.9 million
of debt assumed from CITIC as discussed below.
(2) Increase due to the acquisition of CITIC's interest in the Celgar
Mill on April 4, 1997.
NOTE 8: Liquidity Matters
Due to recent industry conditions and principally to depressed product
pricing and significant interest costs attributable to the Company's
highly leveraged capital structure, the Company incurred losses in 1996
and the first half of 1997.
The Company improved its liquidity and financial flexibility during
the second quarter through the consummation of certain planned
financings designed to address the Company's near-term capital,
financing and debt amortization needs, as well as to increase the
Company's subordinated capital base to in excess of $1 billion. The
completed financings include the Units Offering, the E Tranche Facility
and a tax exempt financing with a 30-year maturity (see Note 5). The
Company is contemplating additional financings which include an $85
million mortgage financing on certain of the Company's real estate and
a financing in Germany totaling DM170 million (approximately US $90
million).
While the Company's liquidity and financial flexibility has improved,
the Company will be required in the future to generate sufficient cash
flows to fully meet its debt service requirements. At June 30, 1997,
the Company has debt amortizations of approximately $9.6 million
remaining in 1997, $409.3 million in 1998, $328.4 million in 1999
(assuming no amounts are drawn on the Company's revolving credit
facilities) and $458.3 million in 2000. In the event that operating
cash flows and borrowing availability under its revolving credit
facilities or from other financing sources do not provide sufficient
liquidity for the Company to meet its obligations, including its debt
service requirements, the Company will either seek to refinance
significant portions of its indebtedness or sell or otherwise monetize
certain of its assets. The Company's financial flexibility and ability
to incur additional indebtedness and, in certain cases, refinance
outstanding indebtedness is limited or restricted under the provisions
of the Company's bank credit agreement (the "Credit Agreement"), the
senior note indentures ("the Senior Note Indentures") and certain of
its other financial obligations. Without additional financing or an
improvement in operating results, the Company may be required to pursue
other alternatives to improve liquidity, including cost reductions,
sales or monetizations of assets, deferral of certain discretionary
capital expenditures and/or obtaining additional sources of funds, if
available. No assurance can be given that such measures, if required,
would generate the liquidity required by the Company to operate its
business and service its debt obligations.
At August 11, 1997, the Company had borrowing availability of
approximately $518 million under its revolving credit facilities in
addition to its cash and cash equivalents. Of such amount,
approximately $65 million is restricted to fund capital expenditures.
See also Management's Discussion and Analysis - "Financial
Condition and Liquidity".
STONE CONTAINER CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Provided below is certain financial data for the three and six months
ended June 30, 1997 and 1996.
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
Net sales....... $1,200.2 $1,282.3 $2,381.1 $2,603.8
Depreciation and
amortization... 81.0 79.0 159.6 158.0
Interest expense 118.7 101.5 226.1 201.1
Income (loss)
before income
taxes, minority
interest and
extraordinary
charge......... (160.8) (41.3) (315.1) 4.7
Net income (loss) $ (120.7) $ (21.1) $ (217.4) $ 11.3
The net loss for the 1997 second quarter was $120.7 million, or $1.23
per share of common stock, compared with the net loss for the 1996
second quarter of $21.1 million, or $.23 per share of common stock.
For the six months ended June 30, 1997, the Company incurred a net
loss of $217.4 million, or $2.23 per share of common stock, as compared
with net income of $11.3 million, or $.07 per share of common stock,
for the first half of 1996.
The net loss for the second quarter and the first half of 1997
includes a non-cash extraordinary charge of $13.3 million, or $.13 per
common share, representing the Company's share of a loss from the early
extinguishment of debt incurred by Abitibi-Consolidated in connection
with the merger of Stone-Consolidated Corporation with Abitibi-Price.
The Company's results were also adversely impacted by approximately $4
million, or $.04 per common share, as a result of the merger.
Net sales for the three and six month periods ended June 30, 1997
decreased $82.1 million and $222.7 million, respectively, from the
comparable prior year periods. Net sales for the second quarter and
first half of 1996 included $53.1 million and $112.4 million,
respectively, of retail bag sales now reported as part of S&G Packaging
Company, L.L.C. ("S&G"), a non-consolidated affiliate of the Company.
Excluding the effect of S&G, sales for the second quarter and first
half of 1997 decreased approximately $29.0 million, or 2.3 percent, and
$110.3 million, or 4.2 percent, respectively, from the comparable prior
year periods.
The decreases in sales and net income for the second quarter and
first half of 1997 from the prior year periods primarily resulted from
lower average selling prices for most of the Company's products;
additionally, market related downtime at certain pulp and paper mills
also contributed to the decreases.
Shipments of corrugated containers, including the Company's
proportionate share of the shipments by its foreign affiliates, were
14.0 billion square feet for the second quarter of 1997 compared with
13.4 billion square feet for the second quarter of 1996. For the first
six months of 1997, the Company shipped 27.2 billion square feet of
corrugated containers, compared with 26.5 billion square feet shipped
during the first half of 1996. Shipments of paper bags and sacks,
including the Company's proportionate share of the shipments of S&G,
were 130 thousand tons and 248 thousand tons for the three and six
months ended June 30, 1997, respectively, compared with 136 thousand
tons and 278 thousand tons shipped during the same 1996 periods.
Production of containerboard and kraft paper for the three and six
months ended June 30, 1997 were 1.21 million tons and 2.59 million
tons, respectively, compared to 1.16 million tons and 2.30 million tons
produced during the comparable 1996 periods.
Financial Condition and Liquidity
The Company's working capital ratio was 2.5 to 1 at June 30, 1997 and
1.8 to 1 at December 31, 1996. The Company's long-term debt to total
capitalization ratio was 83.8 percent at June 30, 1997 and 76.6 percent
at December 31, 1996. 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, 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 is highly
leveraged, and while highly leveraged, will incur substantial ongoing
interest expense.
The Company's bank Credit Agreement contains covenants that include,
among other things, the maintenance of certain financial tests and
ratios.
The Company's various Senior Note Indentures (under which
approximately $2.0 billion of debt is outstanding) state that if the
Company does not maintain a minimum Subordinated Capital Base (as
defined) of $1 billion for two successive quarters, the Company would
be required to semi-annually offer to purchase 10 percent of such
outstanding indebtedness at par until the minimum Subordinated Capital
Base is again attained. In the event that borrowings under the
Company's Credit Agreement exceed amounts outstanding under the Senior
Note Indentures, and would not permit the offer to repurchase, then
the Company would be required to increase the rates on the notes
outstanding under the Senior Note Indentures by 50 basis points per
quarter up to a maximum of 200 basis points until the minimum
Subordinated Capital Base is attained. The Company's Subordinated
Capital Base was $1,053.6 million at June 30, 1997. There can be no
assurance that the Company can maintain the minimum Subordinated
Capital Base in the future, as losses serve to decrease the
Subordinated Capital Base. The Company also has a minimum Net Worth
(as defined) covenant contained in its various senior subordinated
indentures (under which approximately $593.8 million of debt was
outstanding at June 30, 1997) which states that if the Company does not
maintain $500 million of Net Worth for two successive quarters, the
Company will have to increase the interest on indebtedness outstanding
under such indentures by 50 basis points per quarter up to a maximum
amount of 200 basis points.
At August 11, 1997, the Company had borrowing availability of
approximately $518 million (net of letters of credit which reduce the
amount available to be borrowed) under its revolving credit facilities
in addition to its cash and cash equivalents. Of such amount,
approximately $65 million is restricted to fund capital expenditures.
The weighted average interest rates on outstanding term loan and
revolver borrowings under the Credit Agreement for the six months ended
June 30, 1997 were 8.8 percent and 8.4 percent, respectively. The
weighted average rates do not include the effect of the amortization of
deferred debt issuance costs.
Operating activities:
Net cash used by operating activities was $198.8 million for the six
months ended June 30, 1997, compared with $164.7 million of cash
provided by operating activities for the first half of 1996. The use
of cash during the 1997 period primarily resulted from the first half
net loss in conjunction with net cash outflows associated with working
capital changes. The negative cash flow effects associated with
working capital changes for the six months ended June 30, 1997 mainly
resulted from a decrease in accounts payable and an increase in
accounts receivable due to the timing of payments and collections,
partially offset by a decrease in paperstock inventory levels. Working
capital changes in the second quarter had a positive cash flow effect
of $14.1 million as a reduction in inventories more than offset an
increase in accounts receivable.
Financing activities:
In January 1997, the Company filed a $1 billion shelf registration
statement ("Shelf Registration Statement") with the Securities and
Exchange Commission providing for the issuance of equity and/or debt
securities. The Shelf Registration Statement was declared effective
February 5, 1997.
On May 28, 1997, the Company sold $275 million aggregate principal
amount of units consisting of 10-3/4 percent Senior Subordinated
Debentures due 2002 and 1-1/2 percent Supplemental Interest
Certificates (the "Units Offering") pursuant to the Shelf Registration
Statement. The net proceeds from the Units Offering was approximately
$269 million. Of the proceeds, $150 million was used to repay the
Company's $150 million outstanding principal amount of 10-3/4 percent
Senior Subordinated Notes due June 15, 1997 at maturity. The remaining
proceeds will be used to fund capital expenditures as incurred.
On June 12, 1997, the Company sold $14.7 million principal amount
of 7.2 percent Industrial Development Revenue Bonds due 2027. The
proceeds of the bonds were used in connection with a wastepaper
project for the Company's Snowflake, Arizona mill.
On June 19, 1997, the Company and its bank group further amended
and restated its Credit Agreement to, among other things, provide for
an additional senior secured loan facility of $300 million (the "E
Tranche Facility"), and ease certain financial and other covenant
requirements (including the interest coverage and indebtedness ratio
requirements). The net proceeds of $295 million from the E Tranche
Facility was used to fully repay amounts outstanding under the
Company's revolving credit facilities (without a corresponding
reduction in commitments) with the remaining proceeds to be used for
general corporate purposes.
On January 27, 1997 the Company announced that it would not declare
a cash dividend on its Common Stock. 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.
On February 17, 1997, the Company paid a cash dividend of $0.4375 per
share on its Series E Cumulative Convertible Exchangeable Preferred
Stock ("Series E Cumulative Preferred Stock"). The Company's Credit
Agreement, Senior Note Indentures and Senior Subordinated Indenture
dated March 15, 1992 (the "Senior Subordinated Indenture") contain
provisions restricting payments of dividends on the Company's capital
stock. Due to these restrictive provisions, the Company will not be
permitted to declare or pay future dividends on the Series E Cumulative
Preferred Stock until the Company generates income or issues capital
stock to replenish the dividend pool under various of its debt
instruments and total stockholders' equity equals or exceeds $750
million. At June 30, 1997, the dividend pool under the Senior
Subordinated Indenture (which contains the most restrictive provisions)
had a deficit of approximately $134 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.
Investing activities:
Capital expenditures for the six months ended June 30, 1997 totalled
$58 million.
On April 4, 1997, the Company's 90 percent owned subsidiary, Stone
Venepal (Celgar) Pulp. Inc. ("SVCPI") acquired the remaining 50 percent
interest in the Celgar pulp mill (the "Celgar Mill") in Castlegar,
British Columbia from CITIC B.C., Inc. ("CITIC") in exchange for the
portion of the Celgar Mill's indebtedness owed by CITIC.
On June 26, 1997, the Company sold half of its ownership in SVCPI
to Celgar Investments, Inc., a 49 percent owned affiliate of the
Company. Following the sale, the Company retains a 45 percent direct
voting interest in the stock of SVCPI and accordingly is accounting for
its investment under the equity method. All of SVCPI's indebtedness
has been removed from the Company's consolidated balance sheet.
Outlook:
The Company's liquidity and financial flexibility has been adversely
affected by the net losses and insufficient operating cash flows
generated in 1996 and in the first half of 1997. However, the
completion of several financings approximating $600 million during the
second quarter enhanced the Company's liquidity and financial
flexibility. The Company is contemplating additional financings which
include an $85 million mortgage financing on certain of the Company's
real estate and a financing in Germany totalling DM 170 million
(approximately US $90 million). It is expected that the Company will
continue to incur losses unless prices for the Company's products
substantially improves.
The Company is highly leveraged and as a result, incurs substantial
ongoing interest expense (approximately $450 million annually based
upon current outstanding indebtedness). As of June 30, 1997, the
Company has debt amortizations of $9.6 million remaining in 1997,
$409.3 million in 1998, $328.4 million in 1999 (assuming no amounts are
drawn on the Company's revolving credit facilities) and $458.3 million
in 2000. In the event that operating cash flows and borrowing
availability under its revolving credit facilities or from other
financing sources do not provide sufficient liquidity for the Company
to meet its obligations, including its debt service requirements, the
Company will either seek to refinance significant portions of its
indebtedness or sell or otherwise monetize certain of its assets. The
Company's financial flexibility and ability to incur additional
indebtedness and, in certain cases, refinance outstanding indebtedness
is limited or restricted under the provisions of the Credit Agreement,
the Senior Note Indentures and certain of its other financial
obligations. Without additional financing or an improvement in
operating results, the Company may be required to pursue other
alternatives to improve liquidity, including cost reductions, sales or
monetization of assets, deferral of certain discretionary capital
expenditures and/or obtaining additional sources of funds, if
available. No assurance can be given that such measures, if required,
would generate the liquidity required by the Company to operate its
business and service it debt obligations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on May
13, 1997.
(c) The following matters were voted upon at the Annual Meeting
of Stockholders:
1. The election of the nominees for Directors who will serve
for
a term to expire at the next succeeding Annual Meeting of
Stockholders was voted on by the stockholders. The nominees,
all of whom were elected, are set forth below. The
inspectors of election certified the following vote
tabulations:
FOR WITHHELD NON-VOTES
William F. Aldinger 79,878,804 1,204,820 0
Dionisio Garza 79,863,997 1,219,627 0
Richard A. Giesen 79,868,200 1,215,424 0
James J. Glasser 79,836,843 1,246,781 0
Jack M. Greenberg 79,866,860 1,216,764 0
John D. Nichols 79,856,839 1,226,785 0
Jerry K. Pearlman 79,877,637 1,205,987 0
Richard J. Raskin 79,848,448 1,235,176 0
Phillip B. Rooney 79,841,676 1,241,948 0
Alan Stone 79,787,012 1,296,612 0
Ira N. Stone 79,798,590 1,285,034 0
James H. Stone 79,802,565 1,281,059 0
Roger W. Stone 79,801,205 1,282,419 0
2. A shareholder proposal concerning the discontinuance of all
options, rights and SAR's for officers and directors was
rejected by the stockholders. The inspectors of election
certified the following vote tabulations:
FOR AGAINST ABSTAIN NON-VOTES
4,303,261 57,426,991 1,568,382 17,784,990
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Primary and Fully Diluted Net Income
(Loss) Per Common Share.
27 Financial Data Schedule for the six months ended June
30, 1997.
(b) Reports on Form 8-K
1.A Report on Form 8-K dated April 28, 1997 was filed under
Item 5 - Other Events and Item 7 - Exhibits.
2.A Report on Form 8-K dated May 13, 1997 was filed under
Item 5 - Other Events and Item 7 - Exhibits.
3.A Report on Form 8-K dated May 28, 1997 was filed under
Item 7 - Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STONE CONTAINER CORPORATION
By: THOMAS P. CUTILLETTA
Thomas P. Cutilletta
Senior Vice President, Administration
and Corporate Controller (Principal
Accounting Officer)
Date: August 14, 1997
</TABLE>
<TABLE>
EXHIBIT 11
STONE CONTAINER CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
(in millions, except per share)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Shares of Common Stock:
Weighted average number of
common shares outstanding...... 99.3 99.2 99.3 99.4
Primary Weighted Average Shares
Outstanding..................... 99.3 99.2 99.3 99.4
Net income (loss)................. $(120.7) $ (21.1) $(217.4) $ 11.3
Less:
Series E Cumulative Convertible
Exchangeable Preferred Stock
dividend...................... (2.0) (2.0) (4.0) (4.0)
Net income (loss) used in
computing primary net income
(loss) per common share.......... $(122.7) $(23.1) $(221.4) $ 7.3
Primary Earnings Per Share........ $ (1.23) $ (.23) $ (2.23) $ .07
Fully Diluted Earnings Per Share
Shares of Common Stock:
Weighted average number of
common shares outstanding...... 99.3 99.2 99.3 99.4
Dilutive effect of options and
warrants....................... -- .3 -- --
Addition from assumed conversion
of 8.875% convertible senior
subordinated notes............ 5.1 5.2 5.1 5.2
Addition from assumed conversion
of 6.75% convertible
subordinated debentures........ 1.3 1.3 1.3 1.3
Addition from assumed conversion
of Series E Cumulative
Convertible Exchangeable
Preferred Stock................ 3.4 3.4 3.4 3.4
Fully Diluted Weighted Average
Shares Outstanding............... 109.1 109.4 109.1 109.3
Net Income (loss)................. $(120.7) $ (21.1) $(217.4) $ 11.3
Less:
Series E Cumulative Convertible
Exchangeable Preferred Stock
dividend....................... (2.0) (2.0) (4.0) (4.0)
Add back:
Interest on 8.875% convertible
senior subordinated notes..... .8 .8 1.6 1.6
Interest on 6.75% convertible
subordinated debentures....... .5 .5 .9 .9
Series E Cumulative Convertible
Exchangeable Preferred Stock
dividend...................... 2.0 2.0 4.0 4.0
Net income (loss) used in
computing fully diluted net income
(loss) per common share......... $(119.4) $ (19.8) $(214.9) $ 13.8
Fully Diluted Earnings Per
Share(A)........................ $ (1.09) $ (.18) $ (1.97) $ .13
<FN>
(A) Fully diluted earnings per share for the three and six months ended
June 30, 1997 and 1996 are not presented in the consolidated financial
statements due to anti-dilutive nature.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Stone Container
Corporation and Subsidiaries' June 30, 1997 Consolidated Balance Sheet and
Consolidated Operations and Retained Earnings and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 179
<SECURITIES> 0
<RECEIVABLES> 600
<ALLOWANCES> 21
<INVENTORY> 690
<CURRENT-ASSETS> 1574
<PP&E> 4848
<DEPRECIATION> 2383
<TOTAL-ASSETS> 5956
<CURRENT-LIABILITIES> 631
<BONDS> 4210
0
115
<COMMON> 966
<OTHER-SE> (548)
<TOTAL-LIABILITY-AND-EQUITY> 5956
<SALES> 2381
<TOTAL-REVENUES> 2381
<CGS> 2004
<TOTAL-COSTS> 2451
<OTHER-EXPENSES> 19
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226
<INCOME-PRETAX> (315)
<INCOME-TAX> (111)
<INCOME-CONTINUING> (204)
<DISCONTINUED> 0
<EXTRAORDINARY> (13)
<CHANGES> 0
<NET-INCOME> (217)
<EPS-PRIMARY> (2.23)
<EPS-DILUTED> (2.23)
</TABLE>
