<PAGE>
FORWARD LOOKING STATEMENTS
This report made by Stone Container Corporation (the "Registrant") contains
certain forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including, without limitation, Item
3--Legal Proceedings and Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations. Although the Registrant believes
that, in making any such statements, its expectations are based on reasonable
assumptions, any such statement may be influenced by factors that could cause
actual outcomes and results to be materially different from those projected.
When used in this report, the words "anticipates," "believes," "expects,"
"intends" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertainties.
Important factors that could cause actual results to differ materially from
those in forward-looking statements, certain of which are beyond the Company's
control, include: the impact of general economic conditions in the U.S. and
Canada and in other countries in which the Company and its subsidiaries
currently do business (including in Asia, Europe, and Latin and South America);
industry conditions, including competition and product and raw material prices;
fluctuations in exchange rates and currency values; capital expenditure
requirements; legislative or regulatory requirements, particularly concerning
environmental matters; interest rates; access to capital markets; the
negotiation and execution of definitive agreements with respect to announced
asset sale or monetization transactions and the final valuations thereof, and
obtaining required approvals of debt holders. The Company's actual results,
performance or achievement could differ materially from those expressed in, or
implied by, these forward-looking statements and, accordingly, no assurances can
be given that any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do so, what impact they will have on
the results of operations and financial condition of the Registrant.
<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, 1997, 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 section
entitled "Financial Condition and Liquidity," pages 14-18, and to the Financial
Statements, included in this report, under Notes to the Consolidated Financial
Statements, "Note 3--Acquisition/Disposition," page 36, "Note 15--Related Party
Transactions," pages 48-49, and "Note 18--Segment and Geographic Information,"
pages 51-52.
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
Effective with the November 1, 1995 amalgamation of Stone-Consolidated
Corporation with Rainy River Forest Products Inc. discussed in Note 2 of the
Consolidated Financial Statements included in this report, the Registrant began
reporting Stone-Consolidated as a non-consolidated affiliate in accordance with
the equity method of accounting. As a result of this de-consolidation of
Stone-Consolidated and the integrated nature of the Registrant's principal
consolidated operations, the Registrant now operates in a single business--the
production and sale of commodity pulp, paper and packaging products.
Accordingly, effective in 1996, business segment reporting is no longer
applicable. Financial information relating to the Registrant's historical
industry segments, for the year ended December 31, 1995 is incorporated herein
by reference to the Financial Statements included in this report, under Notes to
the Consolidated Financial Statements, "Note 18--Segment and Geographic
Information," pages 51-52.
(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 12-14, "Investing Activities," page 17 , and "Environmental Issues," pages
17-18, and to the Financial Statements, included in this report, under Notes to
the Consolidated Financial Statements, "Note 3--Acquisition/Disposition," page
36, and "Note 18--Segment and Geographic Information," pages 51-52.
1
<PAGE>
PROFILE
<TABLE>
<CAPTION>
KEY PRODUCTS Markets Industry Position
<S> <C> <C>
CONTAINERBOARD AND A broad range of manufacturers of consumable and Industry leader
CORRUGATED CONTAINERS durable goods and other manufacturers of
corrugated containers.
KRAFT PAPER AND BAGS AND Industrial and consumer bags sold to the food, Industry leader
SACKS* agricultural chemical and cement industries, among
others. Retail bags and sacks sold to supermarket
chains and other retailers of consumable products.
BOXBOARD, FOLDING Manufacturers of consumable goods, especially A major position in Europe (FCP Group); a
CARTONS AND OTHER food, beverage and tobacco products, and other box nominal position in North America
manufacturers.
PUBLICATION PAPERS Newspaper publishers, commercial printers, and Industry leader, through its
producers of advertising materials, magazines, non-consolidated affiliate,
directories and computer papers. Abitibi-Consolidated Inc.
MARKET PULP Manufacturers of paper products, including fine A major position
papers, photographic papers, tissue and newsprint.
</TABLE>
1997 PRODUCTION AND SHIPMENT STATISTICS
<TABLE>
<S> <C>
MILL PRODUCTION* (thousands of short tons)
Containerboard................................................................................ 4,935
Kraft Paper................................................................................... 436
Market Pulp................................................................................... 1,127
Publication Papers............................................................................ 1,378
Boxboard and Other............................................................................ 80
---------
Total....................................................................................... 7,956
---------
---------
CONTAINERBOARD AND KRAFT PAPER CONVERTED* (thousands of short tons)............................. 4,478
WASTEPAPER RECOVERED AND RECYCLED (thousands of short tons)..................................... 3,373
CONVERTED PRODUCT SHIPMENTS*
Corrugated Containers (billions of square feet)............................................... 55.7
Paper Bags and Sacks (thousands of short tons)................................................ 509
Folding Cartons (thousands of short tons)..................................................... 102
Flexible Packaging (thousands of short tons).................................................. 15
NUMBER OF MANUFACTURING FACILITIES*
Paperboard, Paper and Pulp Mills.............................................................. 23
Converting Plants............................................................................. 171
Sawmills...................................................................................... 3
Packaging Machinery Plants.................................................................... 2
Preprint Plants............................................................................... 2
---------
Total....................................................................................... 201
---------
---------
</TABLE>
- ---------
*Includes certain affiliates on an equity ownership basis.
2
<PAGE>
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 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 over which the Company has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather.
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 due to
conservation regulation 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 from time to time caused a tightness in the supply of
recycled fiber and at those times a significant increase in the cost of such
fiber used in the manufacture of recycled containerboard and related products.
The Company's paper 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.
At December 31, 1997, the Company owned approximately 2 thousand and 137
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 were $8 million and $9 million for 1997 and 1996,
respectively.
The Company owns patents, licenses, trademarks and tradenames on products.
The loss of any patent, license, trademark or tradename would not have a
material adverse effect on the Company's operations.
As of December 31, 1997, the Registrant had approximately 24,600 employees,
of whom approximately 19,900 were employees of U.S. operations and the remainder
were employees of foreign operations. Of those in the United States,
approximately 13,100 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, 1997, is
incorporated herein by reference to the Financial Statements, included in this
report, under Notes to the Consolidated Financial Statements, "Note 18--Segment
and Geographic Information," pages 51-52. The Company's results are affected by
economic conditions in certain foreign countries and by fluctuations in foreign
exchange rates.
ITEM 2. PROPERTIES
The Registrant, including its subsidiaries and affiliates, maintains
manufacturing facilities and sales offices throughout North America, Europe,
Central and South America, Australia and Asia. A listing of such worldwide
facilities as of December 31, 1997 is provided on pages 5-6 of this report.
3
<PAGE>
The approximate annual production capacity of the Company's mills is
summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
(IN THOUSANDS OF SHORT TONS) 1997 1996
- -------------------------------------------------- ------ ------
<S> <C> <C>
United States(1).................................. 6,059 6,041
Canada(2)(3)...................................... 2,096 2,174
Europe(3)......................................... 534 643
------ ------
8,689 8,858
------ ------
------ ------
</TABLE>
- ---------
(1) Includes 50 percent of the Florida Coast mill.
(2) Includes 69 percent and 45 percent of the Celgar mill for 1997 and 1996,
respectively.
(3) Includes 25.2 percent of Abitibi-Consolidated Inc. for 1997 and 46.6 percent
of Stone-Consolidated Corporation for 1996.
All mills and converting facilities are owned, or partially owned through
investments in other companies, by the Registrant, except for 43 converting
plants in the United States, which are leased.
The Registrant owns certain properties that have been mortgaged or otherwise
encumbered. These properties include 12 paper mills, 78 corrugated container
plants and a pledge of a 51 percent stock interest in the Company's 100 percent
owned Canadian subsidiary, Stone Container (Canada), Inc. 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, 1997 is incorporated herein by reference to the Financial
Statements, included in this report, under the Notes to the Consolidated
Financial Statements, "Note 3--Acquisition/Disposition" page 36, "Note
2--Subsidiary Issuance of Stock/Merger of Significant Subsidiary" pages 35-36,
"Note 10--Long-term Debt," pages 42-44, and "Note 12--Long-term Leases," page
45.
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)
Bentonville (other)
Packaging Solution
Center
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)
CONNECTICUT
Portland (corrugated container)
Torrington (corrugated container)
Uncasville (paperboard/paper/pulp)
FLORIDA
Cantonment (bag)
(Pensacola)
Jacksonville (paperboard/paper/pulp); (corrugated container)
Panama City (paperboard/paper/pulp)
*Port St. Joe (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
*Alsip (bag)
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
Westmont (corrugated container)
Marketing and Technical
Center
INDIANA
Columbus (corrugated container)
Fowler (bag)
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)
*Hodge (bag)
New Orleans (corrugated container)
MASSACHUSETTS
Mansfield (corrugated container)
Westfield (corrugated container)
MICHIGAN
*Detroit (corrugated container)
*Flint (corrugated container)
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 YORK
Buffalo (corrugated container)
*Walden (bag)
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)
PENNSYLVANIA
Philadelphia (corrugated container, 2)
Williamsport (corrugated container)
York (paperboard/paper/pulp)
SOUTH CAROLINA
Columbia (corrugated container)
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)
WASHINGTON
Seattle (corrugated container)
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)
QUEBEC
New Richmond (paperboard/paper/pulp)
Portage-du-Fort (paperboard/paper/pulp)
*Saint-Laurent (corrugated container)
*Ville Mont-Royal (corrugated container)
SASKATCHEWAN
*Regina (corrugated container)
MEXICO
Mexicali (corrugated container)
Monterrey (corrugated container)
*Monterrey (joint venture office)
Queretaro (corrugated container)
EUROPE
GERMANY
*Augsburg (folding carton)
*Bremen (folding carton)
Delitzsch (corrugated container)
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)
Tamworth (corrugated container)
(Birmingham)
NETHERLANDS
Oosterhout/Breda (corrugated container, 2)
*Sneek (folding carton)
BELGIUM
Arlon (corrugated container)
Ghlin (corrugated container)
Groot-Bijaarden (corrugated container)
FRANCE
*Bordeaux (folding carton)
*Cholet (folding carton)
Molieres-Sur-Ceze (corrugated container)
Nimes (corrugated container)
*Soissons (folding carton)
*Strasbourg (folding carton)
*Valenciennes (corrugated container)
SPAIN
Cordoba (paperboard/paper/pulp); (corrugated container)
Madrid (corrugated container)
Seville (corrugated container)
AUSTRALIA
Melbourne (corrugated container)
Sydney (corrugated container)
5
<PAGE>
- -----------------------
ASIA
CHINA
*Beijing (joint venture office)
*Dong Guan (corrugated container)
Hong Kong (other)
Packaging Solution
Center
*Qingdao (corrugated container)
*Shanghai (corrugated container)
JAPAN
*Tokyo (joint venture office)
TAIWAN
Taipei (other)
Packaging Solution
Center
CENTRAL AND
SOUTH AMERICA
ARGENTINA
*Bernal (Buenos Aires) (paperboard/paper/pulp); (corrugated container)
*Mendoza (corrugated container)
CHILE
*Santiago (corrugated container)
COLOMBIA
*Bogota (corrugated container)
COSTA RICA
Palmar Norte (forest products)
San Jose (forest products)
Administrative Office
PUERTO RICO
*San Juan (corrugated container)
VENEZUELA
*Maracay (other, 2)
*Miranda (other)
*Moron (paperboard/paper/pulp); (bag)
*Puerto Ordaz (joint venture office)
*Valencia (paperboard/paper/pulp); (corrugated container); (bag)
CORPORATE
HEADQUARTERS
Chicago, Illinois
*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 stayed since September 1993 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 are
scheduled for hearing in May 1998. The Company intends to vigorously assert its
entitlement to the permit renewal and to defend against the groundwater
contamination and unpermitted facility allegations.
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 plant (the "Facility") and the Electric Power Purchase Agreement (the
"Agreement") between the Company and CP&L.
In the FERC Proceeding, CP&L alleged that in August 1991 when the Company
elected to switch to a "buy-all/sell-all mode of operation" pursuant to the
Agreement, the Facility lost its qualifying facility ("QF") certification under
the Public Utility Regulatory Policy Act of 1978 thereby making it a public
utility. In the Federal Court Action, CP&L had requested declaratory judgments
that (i) sales of electric energy by the Company after August 1991 were subject
to a reasonable rate determination by the FERC, and (ii) the Company's failure
to maintain the Facility's QF status terminated the Agreement. On September 20,
1994, the United States District Court (the "District Court") stayed the Federal
Court Action pending the FERC's decision.
On February 11, 1998, the FERC entered its order denying CP&L's motion to
revoke the Facility's QF status, and the Company may, therefore, continue to
sell electric power to CP&L pursuant to the Agreement's buy-all/sell-all option.
Subsequent to the FERC's decision CP&L has requested the District Court to
dismiss the action with prejudice and in conjunction with the expiration of any
rehearing rights with the FERC, the FERC decision will be final and
nonappealable.
On January 22, 1996, the United States of America filed a suit against the
Company in the United States District Court for the District of Montana seeking
injunctive relief and an unspecified amount in civil penalties based on the
alleged failure of the Company to comply with certain provisions of the Clean
Air Act ("CAA"), its implementing regulations, and the Montana State
Implementation Plan at the Company's Missoula, Montana kraft pulp mill, (the
"Missoula Mill"). The complaint specifically alleges that the Company exceeded
the 20% opacity limitation for recovery boiler emissions; failed to properly set
the span on a recovery boiler continuous emissions monitor; and violated
limitations on venting of an air contaminant by improperly venting
non-condensible gasses. The statutory penalty for violations of the CAA is
$25,000 per day for each day of violation. The Company has engaged in extensive
negotiations with EPA and the United States Department of Justice to settle this
matter while vigorously contesting the allegations. While it is premature to
predict the outcome of this matter at this time, negotiators for the Company and
the United States have reached an agreement in principle to settle this case,
which currently is expected to include a penalty of $312,000.
In a related matter, on January 29, 1996 a Complaint was filed in the United
States District Court for the District of Montana by the Montana Coalition for
Health, Environmental and Economic Rights, Inc.; Cold Mountain, Cold Rivers,
Inc. and Native Forest Network, Inc. (collectively "Plaintiffs") alleging
numerous violations at the Missoula Mill of the provisions of the CAA, the
Federal Water Pollution Control Act and the Emergency Planning and Community
Right-to-Know Act. The Complaint, as amended, sought declaratory and injunctive
relief together with civil penalties of $25,000 per day for each day of alleged
violation. After extensive discussions with Plaintiffs, on March 12, 1998, the
Company executed a Consent Decree with Plaintiffs pursuant to which the Company
has agreed to (i) the payment of a penalty of $50,000; (ii) the funding of
$300,000 over five years for specified projects to be undertaken by the Missoula
City-County Air Pollution Control Board, the Missoula Water Quality District
Board and the Missoula County Local Emergency Planning Committee; (iii) the
payment of $150,000 for specified habitat restoration and creation projects
7
<PAGE>
along the Clark Fork River and Basin; (iv) the development and implementation of
a Pollution Prevention Program at the Missoula Mill; and (v) undertake specified
analyses with respect to alternative bleaching technologies, UCC rejects
handling technologies and use of alternative fibers in the production process.
On September 4, 1997, the Company received a Notice of Violation and a
Compliance Order from the EPA alleging noncompliance with air emissions
limitations for the smelt dissolving tank at the Company's Hopewell, Virginia
mill and for failure to comply with New Source Performance Standards applicable
to certain other equipment at the mill. In cooperation with EPA, the Company has
conducted tests and taken measures to ensure continued compliance with
applicable emission limits. The Clean Air Act authorizes EPA to assess a penalty
of $25,000 per day of each violation, however, no penalties have yet been
assessed. If EPA decides to commence an enforcement action to assess penalties
in this matter, the Company intends to vigorously contest such action.
By letter dated November 8, 1994, the Federal Trade Commission (the "FTC")
informed the Company that it was conducting a non-public investigation to
determine whether containerboard manufacturers may have engaged in unfair
methods of competition or unfair acts and practices in violation of Section 5 of
the Federal Trade Commission Act (the "Act"). The Company agreed to voluntarily
provide certain documents and information requested by the FTC. In November,
1995, after the Company provided all voluntary requests, the FTC authorized the
use of compulsory process in connection with its investigation and proceeded to
subpoena documents and conduct investigational hearings of current and former
employees.
In early 1997, the staff of the FTC advised the Company that it intended to
seek authority to pursue an administrative complaint against the Company
alleging violations of Section 5 of the Act, based on the Company's decision to
reduce or suspend production at certain of its linerboard mills during 1993,
coupled with certain public announcements and alleged discussions.
Believing the allegations to be without merit and without admitting
liability, the Company has entered into a Consent Agreement with the FTC to
resolve the matter. The Consent Agreement will become final after FTC approval
and a public comment period. In pertinent part, the Consent Agreement requires
the Company to cease and desist from "requesting, suggesting, urging or
advocating that any manufacturer or seller of linerboard raise, fix, or
stabilize prices or price levels ..." and from "entering into, or attempting to
enter into ... any agreement ... to fix, raise, establish, maintain or stabilize
prices or price levels ...".
There are no monetary fines, sanctions or damages imposed by the FTC in
connection with the Consent Agreement. However, the Company will be required to
file certain reports on an annual basis with the FTC to evidence its compliance
with the Consent Agreement.
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, results of operations or liquidity.
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, 1997, 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," page 18 and "Financial Condition and Liquidity," pages 14-18,
and to the Financial Statements, included in this report, under Notes to the
Consolidated Financial Statements, "Note 10--Long-term Debt," pages 42-44, "Note
13--Preferred Stock," page 46, "Note 14--Common Stock," pages 46-48 and "Note
19--Summary of Quarterly Data (unaudited)," page 53.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
There were approximately 6,052 holders of record of the Registrant's common
stock, as of March 26, 1998.
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 33-35, and "Note 3--Acquisition/Disposition," page 36.
9
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS
EXCEPT PER SHARE) 1997(b) 1996 1995(b) 1994 1993 1992 1991 1990 1989(c) 1988 1987(c)
- -------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF
OPERATIONS
Net sales........... $4,849.1 $5,141.8 $7,351.2 $5,748.7 $5,059.6 $5,520.7 $5,384.3 $5,755.9 $5,329.7 $3,742.5 $3,232.9
Cost of products
sold............... 4,069.6 4,085.4 5,168.9 4,564.3 4,223.5 4,473.7 4,287.2 4,421.9 3,893.8 2,618.0 2,347.8
Selling, general and
administrative
expenses........... 567.0 596.2 608.5 568.2 512.2 543.5 522.8 495.5 474.5 351.1 343.8
Depreciation and
amortization....... 301.7 314.8 371.8 358.9 346.8 329.2 273.5 257.0 237.1 148.1 138.7
Interest expense.... 457.1 413.5 460.3 456.0 426.7 386.1 397.4 421.7 344.7 108.3 131.1
Income (loss) before
income taxes,
minority interest,
extraordinary
charges and
cumulative effects
of accounting
changes............ (605.1 ) (189.1) 794.7 (163.1) (463.3) (224.0) (12.2) 194.1 481.8 549.7 283.5
(Provision) credit
for income taxes... 200.8 66.0 (320.9 ) 35.5 147.7 59.4 (31.1) (92.8) (195.2 ) (207.7) (122.1 )
Minority interest... (.1 ) .6 (29.3 ) (1.2) (3.6) (5.3) (5.8) (5.9) (.8 ) (.2) (.1 )
Income (loss) before
extraordinary
charges and
cumulative effects
of accounting
changes............ (404.4 ) (122.5) 444.5 (128.8) (319.2) (169.9) (49.1) 95.4 285.8 341.8 161.3
Extraordinary
charges from early
extinguishments of
debt............... (13.3 ) (3.7) (189.0 ) (61.6) -- -- -- -- -- -- --
Cumulative effects
of accounting
changes............ -- -- -- (14.2) (39.5) (99.5) -- -- -- -- --
Net income (loss)... (417.7 ) (126.2) 255.5 (204.6) (358.7) (269.4) (49.1) 95.4 285.8 341.8 161.3
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
PER SHARE OF COMMON
STOCK (a)
BASIC:
Income (loss) before
extraordinary
charges and
cumulative effects
of accounting
changes............ (4.16 ) (1.32) 4.64 (1.60) (4.59) (2.49) (.78) 1.56 4.67 5.59 2.77
Extraordinary
charges from early
extinguishments of
debt............... (.13 ) (.03) (2.01 ) (.70) -- -- -- -- -- -- --
Cumulative effects
of accounting
changes............ -- -- -- (.16) (.56) (1.40) -- -- -- -- --
Net income
(loss)--Basic...... (4.29 ) (1.35) 2.63 (2.46) (5.15) (3.89) (.78) 1.56 4.67 5.59 2.77
DILUTED:
Income (loss) before
extraordinary
charges and
cumulative effects
of accounting
changes............ (4.16 ) (1.32) 3.89 (1.60) (4.59) (2.49) (.78) 1.56 4.67 5.58 2.67
Extraordinary
charges from early
extinguishments of
debt............... (.13 ) (.03) (1.65 ) (.70) -- -- -- -- -- -- --
Cumulative effects
of accounting
changes............ -- -- -- (.16) (.56) (1.40) -- -- -- -- --
Net income
(loss)--Diluted.... (4.29 ) (1.35) 2.24 (2.46) (5.15) (3.89) (.78) 1.56 4.67 5.58 2.67
Dividends and
distributions paid -- .60 .30 -- -- .35 .71 .71 .70 .35 .25
Common stockholders'
equity (end of
year).............. 1.63 6.85 8.98 5.90 6.91 13.91 22.12 24.34 22.50 17.73 12.40
Price range of
common
shares--N.Y.S.E.
High.............. 17.81 17.38 24.63 21.13 19.50 32.63 26.00 25.25 36.38 39.50 39.83
Low............... 9.63 12.13 12.50 9.63 6.38 12.50 9.00 8.13 22.13 20.67 15.33
Average common
shares outstanding
(in millions):
Basic............. 99.3 99.2 93.9 88.2 71.2 71.0 63.2 61.2 61.1 61.1 57.6
Diluted........... 99.3 99.2 114.7 88.2 71.2 71.0 63.2 61.3 61.2 61.3 60.9
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
FINANCIAL POSITION
AT END OF YEAR
Current assets...... $1,595.7 $1,561.2 $1,682.9 $1,816.9 $1,753.2 $1,701.8 $1,685.3 $1,586.0 $1,687.0 $ 865.7 $ 737.4
Current
liabilities........ 1,089.0 889.2 701.7 1,031.5 943.5 944.8 914.8 1,146.5 1,072.6 408.3 334.9
Working capital..... 506.7 672.0 981.2 785.4 809.7 757.0 770.5 439.5 614.4 457.4 402.5
Property, plant and
equipment--net..... 2,377.5 2,633.7 2,635.8 3,359.0 3,386.4 3,703.2 3,520.2 3,364.0 2,977.9 1,276.0 1,300.0
Total assets........ 5,824.1 6,353.8 6,398.9 7,004.9 6,836.7 7,027.0 6,902.9 6,690.0 6,253.7 2,395.0 2,286.1
Long-term debt...... 3,935.5 3,951.1 3,885.1 4,431.9 4,268.4 4,105.1 4,046.4 3,680.5 3,536.9 765.1 1,070.5
Deferred taxes...... 216.0 410.2 493.1 381.4 470.6 685.2 263.9 262.7 185.6 140.3 120.4
Redeemable preferred
stock.............. -- -- -- -- 42.3 36.3 31.1 26.6 22.7 -- 1.5
Minority interest
(h)................ 1.8 4.3 .7 221.8 234.5 .2 3.8 8.0 9.7 .3 .2
Stockholders'
equity............. 276.9 795.2 1,005.3 648.1 607.1 1,102.7 1,537.5 1,460.5 1,347.6 1,063.6 740.3
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
ADDITIONAL
INFORMATION
Paperboard, paper
and market pulp:
Produced (thousand
short tons)
(d).............. 7,956 7,396 7,980 7,928 7,475 7,517 7,365 7,447 6,772 4,729 4,373
Converted
(thousand short
tons) (d)........ 4,478 4,326 4,355 4,477 4,354 4,373 4,228 4,241 3,930 3,344 2,998
Corrugated shipments
(billion square
feet) (d).......... 55.7 53.1 53.0 54.10 52.48 51.67 49.18 47.16 41.56 34.47 32.09
Employees (end of
year-in
thousands)......... 24.6 24.2 25.9 29.1 29.0 31.2 31.8 32.3 32.6 20.7 18.8
Capital
expenditures....... $ 136.6 $ 250.8 $ 386.5 $ 232.6 $ 149.7 $ 281.4 $ 430.1 $ 552.0 $ 501.7 $ 136.6 $ 105.7
Net cash/funds
provided by (used
in) operating
activities (e)..... $(259.5 ) $ 287.6 $ 961.7 $ 72.3 $ (129.1) $ 120.9 $ 247.2 $ 468.6 $ 370.9 $ 454.1 $ 298.3
Working capital
ratio.............. 1.5/1 1.8/1 2.4/1 1.8/1 1.9/1 1.8/1 1.8/1 1.4/1 1.6/1 2.1/1 2.2/1
Percent long-term
debt/total
capitalization
(f)................ 88.8% 76.6% 72.2% 78.0% 75.9% 69.2% 68.8% 67.7% 69.3% 38.9% 55.4%
Return on beginning
common
stockholders'
equity (g)......... (59.5% ) (13.7%) 83.4% (26.2%) (32.3%) (11.1%) (3.4%) 7.1% 26.9% 46.2% 41.8%
Pretax margin....... (12.5% ) (3.7%) 10.4% (2.9%) (9.2%) (4.2%) (.3%) 3.3% 9.0% 14.7% 8.8%
After-tax margin.... (8.6% ) (2.5%) 3.5% (3.6%) (7.1%) (4.9%) (.9%) 1.7% 5.4% 9.1% 5.0%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
</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. All prior period earnings per share data presented
have been restated to conform with the provisions of SFAS 128.
(b) On November 1, 1995, Stone-Consolidated Corporation ("Stone-Consolidated"),
a Canadian subsidiary of the Company, amalgamated its operations with Rainy
River Forest Products, Inc. a Toronto-based Canadian pulp and paper company.
As a result of the amalgamation, the Company's equity ownership in
Stone-Consolidated was reduced from 74.6 percent to 46.6 percent and
accordingly, effective November 1, 1995, the Company began reporting
Stone-Consolidated as a non-consolidated affiliate in accordance with the
equity method of accounting. Furthermore, on May 30, 1997,
Stone-Consolidated merged with Abitibi-Price Inc. to form
Abitibi-Consolidated Inc. ("Abitibi-Consolidated"). The Company owns
approximately 25.2 percent of the common stock of Abitibi-Consolidated.
(c) The Company made major acquisitions in 1989 and 1987.
(d) Includes certain non-consolidated affiliates.
(e) Certain prior year amounts have been restated to conform to current year
presentation.
(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) 1997, 1996, 1995, 1994, 1993 and 1992 return on beginning common
stockholders' equity calculated using the income (loss) before extraordinary
charges 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.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
ACTUAL RESTATED
-------------------- --------------------
(IN MILLIONS) 1997 1996 1995 1995(1)
- -------------------------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales............................................................................. $ 4,849 $ 5,142 $ 7,351 $ 6,459
Depreciation and amortization......................................................... 302 315 372 315
Interest expense...................................................................... 457 414 460 432
Equity income (loss) from affiliates.................................................. (71) 63 20 104
Income (loss) before income taxes, minority interest and extraordinary charges........ (605) (189) 795 704
Net income (loss)..................................................................... $ (418) $ (126) $ 256 $ 256
</TABLE>
- ---------
(1) Effective November 1, 1995, the Company began reporting Stone-Consolidated
as a non-consolidated affiliate in accordance with the equity method of
accounting. Prior to such date the Company reported Stone-Consolidated as a
consolidated subsidiary. See also Note 2 to the Consolidated Financial
Statements. The financial data presented has been restated to report, for
comparative purposes only, supplemental financial information assuming that
the historical financial results of Stone-Consolidated were reported by the
Company in accordance with the equity method of accounting effective
January 1, 1995.
1997 COMPARED WITH 1996
In 1997, the Company incurred a loss before extraordinary charges from the
early extinguishment of debt of $405 million, or $4.16 per share of common
stock. The Company recorded an extraordinary charge of $13 million, net of
income tax benefit, or $.13 per common share, representing its share of a loss
from the early extinguishment of debt incurred by Stone-Consolidated in
connection with the May 30, 1997 merger of Stone-Consolidated with Abitibi-Price
Inc. ("the Merger"), resulting in a net loss for 1997 of $418 million, or $4.29
per share of common stock. See also Note 2 of the Consolidated Financial
Statements for a discussion of the Merger. In 1996, the Company incurred a loss
of $122 million, or $1.32 per share of common stock, before extraordinary
charges from the early extinguishments of debt. The Company recorded
extraordinary charges from the early extinguishments of debt totaling $4
million, net of income tax benefit, or $.03 per share of common stock, resulting
in a net loss for 1996 of $126 million, or $1.35 per share of common stock.
The significantly higher net loss for 1997 over 1996 resulted primarily from
lower operating margins mainly due to a decrease in average selling prices for
most of the Company's products. Additionally, the Company's 1997 results were
adversely impacted by its share of losses incurred at non-consolidated
affiliates, higher interest expense resulting primarily from increased
borrowings and by a $10 million increase in foreign currency transaction losses.
The Company recorded an income tax benefit of $201 million on a pretax loss of
$605 million in 1997 as compared with a 1996 income tax benefit of $66 million
on a pretax loss of $189 million. The Company's effective income tax rates for
both years reflect the impact of non-deductible amortization of intangibles.
PRODUCT LINE SALES DATA
<TABLE>
<CAPTION>
NET SALES
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Paperboard and corrugated containers.................... $ 3,477 $ 3,662 $ 4,444
Kraft paper and industrial paper bags and sacks......... 627 593 519
Market pulp............................................. 395 330 750
Other................................................... 350 365 363
--------- --------- ---------
Sub-total............................................. 4,849 4,950 6,076
Net sales of retail bag operations (prior to July 1996
de-consolidation)..................................... -- 120 283
Net sales of wood product operations (prior to October
1996 sale)............................................ -- 72 100
Net sales of Stone-Consolidated......................... -- -- 892
--------- --------- ---------
Total net sales....................................... $ 4,849 $ 5,142 $ 7,351
--------- --------- ---------
--------- --------- ---------
</TABLE>
Net sales for 1997 decreased $293 million to $4.85 billion from $5.14
billion in 1996. Included in the Company's 1996 sales are sales contributed from
certain wood product operations ($72 million) which were sold in October 1996
12
<PAGE>
and sales from retail bag operations ($120 million) which, in July 1996 were
contributed, together with those of Gaylord Container Corporation to form S&G
Packaging Company, L.L.C. ("S&G"), a joint venture that the Company reports as a
non-consolidated affiliate under the equity method of accounting. On a proforma
basis excluding sales generated by the wood product and retail bag operations
for 1996, sales for 1997 decreased approximately $101 million or 2 percent from
1996.
Net sales of paperboard and corrugated containers decreased 5.1 percent from
1996 as significantly lower average selling prices more than offset improved
sales volumes. Corrugated container sales volume, including the proportionate
share of the Company's non-consolidated affiliates, increased 4.9 percent to
55.7 billion square feet, up from 53.1 billion square feet shipped in 1996.
Net sales of kraft paper and industrial paper bags and sacks increased 5.7
percent as sales volume increases more than offset decreases in average selling
prices. Net sales of industrial paper bags and sacks increased 2 percent over
1996 as increased volume more than offset a slight price decrease.
Market pulp sales increased 19.7 percent to $395 million in 1997 as a result
of increased sales volume and improved selling prices. Despite this improvement,
market pulp prices continue to remain at low levels. Effective June 26, 1997,
the Company sold half of its interest in Stone Venepal (Celgar) Pulp, Inc.
("SVCPI") and began reporting SVCPI under the equity method of accounting.
Excluding SVCPI's sales for 1997 and 1996, respectively, market pulp sales
increased 28.1 percent on a proforma basis over the prior year.
The Company's share of losses from affiliates reported under the equity
method of accounting was $71 million in 1997, which represents a $134 million
decrease from 1996 earnings from non-consolidated affiliates of $63 million.
Approximately $84 million of this decrease was attributable to a decrease in the
results of operations of Abitibi-Consolidated which primarily resulted from a
substantial decrease in average selling prices for publication papers. The $23
million equity loss from Abitibi-Consolidated for 1997 was also unfavorably
impacted by foreign exchange transaction losses (approximately $16 million, net
of tax) and by non-recurring merger related restructuring charges (approximately
$7 million, net of tax). The Company's equity losses from non-consolidated
affiliates for 1997 was also adversely affected by its share of net losses
incurred at SVCPI, Florida Coast Paper Company, L.L.C. ("Florida Coast") and S &
G, which aggregated approximately $49 million.
1996 COMPARED WITH 1995
In 1996, the Company incurred a loss before extraordinary charges from the
early extinguishments of debt of $122 million, or $1.32 per share of common
stock. The Company recorded extraordinary charges from the early extinguishments
of debt totaling $4 million, net of income tax benefit, or $.03 per common share
resulting in a net loss for 1996 of $126 million, or $1.35 per common share. In
1995, the Company reported income before extraordinary charges from the early
extinguishments of debt of $445 million, or $4.64 per common share and $3.89 per
common share on a diluted basis. The Company recorded extraordinary charges from
the early extinguishments of debt totaling $189 million, net of income tax
benefit, or $2.01 per common share and $1.65 per common share on a diluted
basis, resulting in net income for 1995 of $256 million, or $2.63 per common
share and $2.24 per common share on a diluted basis.
The net loss for 1996 represented a significant decrease from the net
earnings of 1995. This decrease resulted from substantially lower operating
margins primarily attributable to significantly lower average selling prices for
most of the Company's products. Additionally, the Company's 1996 results
included a non-recurring $5 million pretax loss associated with the sale of
certain assets and foreign exchange transaction losses of $.5 million as
compared with foreign exchange transaction gains of $8 million in 1995. The
Company recorded an income tax benefit of $66 million on a pretax loss of $189
million in 1996 as compared with a 1995 income tax provision of $321 million on
pretax earnings of $795 million. The Company's effective income tax rates for
both years reflect the impact of non-deductible amortization of intangibles.
Net sales for 1996 decreased $2.2 billion from 1995. Net sales for 1995
included $892 million of sales of Stone-Consolidated. Excluding the effect of
Stone-Consolidated, sales for 1996 decreased approximately $1.3 billion or 20.4
percent from 1995.
Net sales of paperboard and corrugated containers, kraft paper and paper
bags and sacks, and market pulp decreased 17.6 percent, 11.1 percent and 56.0
percent, respectively, from 1995 mainly due to sharply lower selling prices.
Additionally, a 21 percent reduction in market pulp sales volume also
contributed to the sales decrease.
13
<PAGE>
Corrugated container sales volume of 53.1 billion square feet, including the
proportionate share of the Company's non-consolidated affiliates, was virtually
unchanged from that of the prior year, while paperboard and kraft paper volume
improved modestly.
The decrease in sales for paper bags and sacks was primarily attributable to
the de-consolidation of the Company's retail bag packaging operations effective
with the previously mentioned July 12, 1996 formation of S&G, a joint venture
that the Company reports as a non-consolidated affiliate under the equity method
of accounting. Net sales of industrial paper bags and sacks increased 2 percent
from 1995 as modest price improvement more than offset a slight volume decrease.
As previously mentioned, the Company began reporting Stone-Consolidated as a
non-consolidated affiliate under the equity method of accounting effective
November 1, 1995 (the "SCI de-consolidation"). Largely as a result of this,
equity earnings increased to $63 million in 1996 from $20 million in 1995.
However, 1996 equity earnings decreased approximately $41 million when compared
to equity earnings for 1995 on a restated basis (restated to reflect
Stone-Consolidated historical results as those of a non-consolidated affiliate
under the equity method of accounting effective January 1, 1995). This decrease
was mainly due to reduced operating margins at Stone-Consolidated primarily
attributable to lower average selling prices for newsprint and groundwood
papers.
The Company incurred substantial interest expense due to its significant
level of indebtedness. Interest expense decreased in 1996 to $414 million from
$460 million in 1995. This decrease was partially due to the SCI de-
consolidation as interest expense for 1995 included approximately $28 million of
Stone-Consolidated's interest expense. The remainder of the decrease primarily
reflected the effect of lower average outstanding borrowings in 1996 as compared
with 1995.
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital ratio was 1.5 to 1 at December 31, 1997 and
1.8 to 1 at December 31, 1996. This decrease was primarily due to the increase
in current maturities of the Company's indebtedness. The Company's long-term
debt to total capitalization ratio was 88.8 percent at December 31, 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 and stockholders'
equity.
On June 19, 1997, the Company and its bank group amended and restated the
Company's credit agreement to, among other things, provide for an additional
senior secured loan facility of $300 million (the "E Tranche Facility"), and
modify certain financial and other covenant requirements (including the interest
coverage and indebtedness ratio requirements). Subsequently, on December 23,
1997 and on March 26, 1998, the Company and its bank group further amended the
credit agreement to, among other things, modify certain financial covenant
requirements. At December 31, 1997, the Company's bank credit agreement, as
amended, provided for four senior secured term loans aggregating $1,054 million
which mature through October 1, 2003 and $560 million of senior secured
revolving credit facility commitments maturing May 15, 1999 (collectively the
"Credit Agreement"). At March 26, 1998, the Company had borrowing availability
of approximately $375 million (net of letters of credit which reduce the amount
available to be borrowed) under its revolving credit facilities. Of such amount,
approximately $47 million is restricted to fund capital expenditures. The term
loans and revolving credit facilities had weighted average interest rates for
the year ended December 31, 1997 of 8.9 percent and 8.5 percent, respectively.
The weighted average rates do not include the effect of the amortization of
deferred debt issuance costs.
The term loan portions of the Credit Agreement provide for mandatory
prepayments (absent waiver by the lenders) from sales of certain assets, certain
debt financing and a percentage of excess cash flow (as defined). Any 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
loans and revolving credit facilities, permanently reducing the loan commitments
under the Credit Agreement. The Credit Agreement also contains cross-default
provisions to the indebtedness of $10 million or more of the Company and certain
subsidiaries.
The Credit Agreement contains covenants that include, among other things,
the maintenance of certain financial tests and ratios. Unless operating results
improve, the Company may be required to seek further covenant relief from its
bank group during 1998. Although no assurance can be given, the Company believes
such relief, if sought, would be granted.
14
<PAGE>
The Company's various senior note indentures (the "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 any two successive quarters, then the Company will 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 the Company's Credit Agreement does not permit the offer to
repurchase, then the Company will be required to increase the interest 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 senior subordinated indenture dated March 15, 1992 (the
"Senior Subordinated Indenture") (under which approximately $594 million of debt
was outstanding at December 31, 1997) states that if the Company does not
maintain $500 million of Net Worth (as defined) for any two successive quarters,
the Company will be required to increase the interest rate on indebtedness
outstanding under the Senior Subordinated Indenture by 50 basis points per
quarter up to a maximum amount of 200 basis points.
The Company has reviewed its calculation of the Subordinated Capital Base
under its Senior Note Indentures and the Net Worth test under its Senior
Subordinated Indenture. The review indicated that the calculations thereunder
must be performed utilizing Generally Accepted Accounting Principles in effect
at November 1, 1991 for purposes of the Senior Note Indentures, and March 15,
1992 for purposes of the Senior Subordinated Indenture rather than the Generally
Accepted Accounting Principles in effect as of the current date.
The Company's Subordinated Capital Base was $1.058 billion at September 30,
1997 (above the defined minimum) and $898.6 million at December 31, 1997 (below
the defined minimum). The Company's Net Worth was $537.6 million at September
30, 1997 (above the defined minimum) and $378.4 million at December 31, 1997
(below the defined minimum). The Company will not meet the defined minimum for
the Subordinated Capital Base and Net Worth for the quarter ended March 31,
1998. There can be no assurance that the Company can achieve or maintain the
minimum Subordinated Capital Base or required Net Worth in the future. The March
1998 Credit Agreement amendment permits the Company to make a one-time offer for
the repurchase of 10 percent of the senior notes issued under the Senior Note
Indentures at par, subject to certain restrictions and conditions.
OUTLOOK:
The Company's liquidity and financial flexibility has been adversely
impacted by the net losses and insufficient operating cash flows generated
during the past two years. On October 27, 1997, the Company announced its intent
to, among other things, sell its ownership interest in Stone-Canada which at the
time of sale would include its 25.2 percent ownership interest in
Abitibi-Consolidated, its 50 percent interest in MacMillan-Bathurst and its
wholly owned pulp mill located at Portage-du-Fort, Quebec. If completed, this
transaction would provide a significant amount of cash to the Company which
would be used to repay debt. Additionally, the Company announced its intent to
also sell or monetize certain other of its assets (including its remaining pulp
operations) with any proceeds received therefrom to also be applied towards debt
reduction. While the Company currently believes that these sales and/or
monetizations will be consummated, no assurance can be given that such asset
sales or monetizations will be completed. The Company's debt agreements require
that proceeds from asset sales be used only for debt reduction.
The Company's ability to incur additional indebtedness and refinance its
1998 debt maturities is significantly limited under the Company's debt
agreements. The Company has debt amortizations of $412 million of principal plus
interest of approximately $450 million (at current debt and interest-rate
levels) due in 1998 and has significant annual debt service requirements beyond
1998. These 1998 debt amortizations include $150 million of 12 5/8 percent
Senior Notes due July 15, 1998 and $240 million of 11 7/8 percent Senior Notes
due December 1, 1998.
It is expected that the Company will continue to incur losses unless prices
for the Company's products substantially improve. Without achieving price
increases and sustaining such levels in the future, the Company's cash resources
and borrowing availability under the existing revolving credit facilities could
be utilized, thereby reducing such sources of liquidity. While pricing for
certain of the Company's products has improved slightly over 1997 year end
levels, the Company will report a first quarter 1998 net loss. 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 as a result incurs substantial ongoing
interest expense. Besides the 1998 debt service requirements previously
mentioned, the Company, based upon indebtedness outstanding at December 31,
1997, will be required to make debt principal repayments of approximately $354
million in 1999, $465 million in 2000 and $604 million in 2001. In the event
that operating cash flows, proceeds from any asset sales, borrowing availability
under its revolving credit facilities or
15
<PAGE>
from other financing sources do not provide sufficient liquidity for the Company
to meet its obligations, including its debt service requirements, the Company
will be required to pursue other alternatives to repay indebtedness and improve
liquidity, including cost reductions, deferral of certain discretionary capital
expenditures and seeking amendments to its debt agreements. No assurances can be
given that such measures, if required, would generate the liquidity required by
the Company to operate its business and service its obligations.
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 over which the Company has no
control, including environmental and conservation regulations, natural
disasters, such as forest fires and hurricanes, and weather. 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 of products
manufactured, in whole or in part, from recycled fiber has from time to time
caused a tightness in supply of recycled fiber and at those times a significant
increase in the cost of such fiber used in the manufacture of recycled
containerboard and related products. Such costs are likely to continue to
fluctuate based upon demand/supply characteristics. 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.
YEAR 2000
The Company has certain computer programs and manufacturing equipment which
utilize 2 digit codes to define a given year rather than 4 digit codes. These
programs and equipment, if left as is, might not recognize dates beyond the year
1999 and, as a result, could cause computer applications to create unreliable
data or to fail altogether and cause manufacturing equipment failure.
Accordingly, the Company has developed plans to address this exposure. Financial
and operational systems and manufacturing equipment have been assessed, detailed
plans have been and continue to be developed and conversion efforts have
commenced. The Company is also communicating with critical suppliers to
ascertain that they are addressing potential year 2000 issues. Based on current
assessments, Management believes that the Company's systems and equipment will
be year 2000 compliant before December 31, 1999 and that the costs required to
achieve this will not materially impact the Company's consolidated financial
position, results of operations or cash flows.
CASH FLOWS FROM OPERATIONS:
The following table shows, for the last three years, the net cash provided
by (used in) operating activities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Net income (loss)........................................................................................ $(418) $(126) $ 256
Depreciation and amortization............................................................................ 302 315 372
Deferred taxes........................................................................................... (217) (88) 214
Extraordinary charges from early extinguishments of debt................................................. 13 4 189
Equity (income) loss from affiliates..................................................................... 71 (63) (20)
(Increase) decrease in accounts and notes receivable--net................................................ (131) 185 (81)
(Increase) decrease in inventories....................................................................... 4 (51) (146)
Decrease in other current assets......................................................................... 4 15 22
Increase in accounts payable and other current liabilities............................................... 18 56 62
Other.................................................................................................... 94 41 94
----- ----- -----
Net cash provided by (used in) operating activities...................................................... $(260) $ 288 $ 962
----- ----- -----
----- ----- -----
</TABLE>
The results of operations for 1997 and 1996 have had an adverse impact on
the Company's cash flow and liquidity. As a result, the Company increased its
indebtedness in both periods in order to meet cash flow needs.
The 1997 increase in accounts and notes receivable primarily reflects an
improvement in selling prices for the Company's products during the second half
of the year and, to a lesser extent, a decrease in the rate of collections. The
1996 decrease in accounts and notes receivable primarily reflects lower average
selling prices for the Company's products.
16
<PAGE>
FINANCING ACTIVITIES:
The following summarizes the Company's primary financing activities in 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"). The net proceeds from the Units Offering was approximately
$269 million. Of such 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 were used to fund capital expenditures.
- 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 borrowed under its $300 million bank loan E
Tranche Facility. The net proceeds of $295 million were used to fully
repay amounts then outstanding under the Company's revolving credit
facilities (without a corresponding reduction in commitments) with the
remaining proceeds used for general corporate purposes.
- On August 29, 1997, the Company completed an $83.3 million box plant
mortgage financing having a final maturity date of September 1, 2007 and
an interest rate of 8.45 percent. The net proceeds are being used to fund
capital expenditures as incurred.
See also Note 10 to the Consolidated Financial Statements.
INVESTING ACTIVITIES:
The following summarizes the Company's primary investing activities in 1997:
- Capital expenditures for 1997 totaled $137 million. The Company's capital
expenditures for 1998 are budgeted at approximately $189 million.
- On April 4, 1997, the Company's then 90 percent owned subsidiary, SVCPI
acquired the remaining 50 percent interest in the Celgar pulp mill (the
"Celgar Mill") located in Castlegar, British Columbia from CITIC B.C.,
Inc. ("CITIC") in exchange for the portion of the Celgar Mill's
indebtedness owed by CITIC. Such indebtedness is non-recourse to the
Company.
- 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 retained a 45 percent direct voting
interest in the stock of SVCPI and began accounting for its interest in
SVCPI under the equity method.
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 $24 million in 1997, and the Company
anticipates that 1998 and 1999 environmental capital expenditures will
approximate $18 million and $50 million, respectively. The majority of the 1999
expenditures relate to amounts that the Company currently anticipates will be
required to comply with the "cluster rules" described below. 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, such costs could increase as
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 November 1997, the U.S. Environmental Protection Agency (the "EPA")
issued its final rules, informally known as the "cluster rules", which make more
stringent existing requirements for discharge of wastewaters under the Clean
Water Act and impose new requirements on air emissions under the Clean Air Act
for the pulp and paper industry. Though the final rules are less stringent in
some respects than as initially proposed, the Company currently believes it will
be required to make capital expenditures of approximately $180 million during
the period of 1998 through 2005 in
17
<PAGE>
order to meet the requirements of the new regulations. Also, additional
operating expense will be incurred as capital installations required by the
cluster rules are put into service. Such incremental expense will ultimately
increase to as much as $20 million per year by the year 2005.
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 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
The Company paid cash dividends on its Series E Cumulative Convertible
Exchangeable Preferred Stock (the "Series E Preferred Stock") of $.4375 per
share in 1997, $1.75 per share in 1996 and $2.625 per share in 1995. The Company
paid cash dividends of $0.60 and $0.30 per share on its common stock in 1996 and
1995, respectively. The declaration of dividends by the Board of Directors is
subject to, among other things, certain restrictive provisions contained in the
Company's Credit Agreement, Senior Note Indentures and Senior Subordinated
Indenture. Due to these restrictive provisions, the Company cannot declare or
pay dividends on its Series E Cumulative Preferred Stock or common stock until
the Company generates income or issues capital stock to replenish the dividend
pool under various of its debt instruments and Net Worth (as defined) equals or
exceeds $750 million. Additionally, common stock cash dividends cannot be
declared and paid in the event accumulated preferred stock dividend arrearages
exist. At December 31, 1997, the dividend pool under the Senior Subordinated
Indenture (which contains the most restrictive dividend pool provision) had a
deficit of approximately $338 million and Net Worth (as defined) was $378.4
million. In the event six quarterly dividends 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. At December 31, 1997
the Company had accumulated dividend arrearages on the Series E Preferred Stock
of $6 million, which represents three consecutive quarters for which dividends
have not been paid. The Company did not make its February 15, 1998 dividend
payment and absent an amendment from its senior and senior subordinated note
holders, the Company is not likely to make dividend payments in 1998.
<TABLE>
<CAPTION>
SERIES E CUMULATIVE
COMMON STOCK PREFERRED STOCK
------------------------------------------ ------------------------------------------
1997 1996 1997 1996
-------------------- -------------------- -------------------- --------------------
Quarter High Low High Low High Low High Low
- ----------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st...................................... $ 17.25 $ 11.13 $ 15.88 $ 12.38 $ 20.50 $ 12.25 $ 21.75 $ 18.50
2nd...................................... 14.75 9.63 17.38 13.50 17.63 12.75 21.00 18.88
3rd...................................... 17.81 14.19 15.88 12.13 19.13 17.13 20.63 18.63
4th...................................... 16.13 10.00 16.25 13.63 18.44 14.63 20.50 18.00
Year..................................... 17.81 9.63 17.38 12.13 20.50 12.25 21.75 18.00
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
There were approximately 6,082 common stockholders and 363 preferred
stockholders of record at December 31, 1997.
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 March 26, 1998 are set forth
on pages 28-53 of this report. The financial statement schedules listed under
Item 14(a)2, together with the report thereon of the independent accountants
dated March 26, 1998 are set forth on pages 54 and 55 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.
18
<PAGE>
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, 1998, for the Annual Meeting of Stockholders scheduled May 12,
1998, under the captions "Directors--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, 1998, for the Annual Meeting of Stockholders scheduled May 12,
1998, under the caption "Compensation," excluding the section thereunder
entitled "Compensation Committee Report on Executive Compensation."
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, 1998, for the Annual Meeting of Stockholders
scheduled May 12, 1998, under the captions "Directors--Nominees for Directors"
and "Security Ownership of Certain Beneficial Owners and Management--Security
Ownership of 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, 1998, for the Annual Meeting
of Stockholders scheduled May 12, 1998, under the captions "Directors--Nominees
for Directors" and "Security Ownership of Certain Beneficial Owners and
Management--Security Ownership of 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.
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, 1998, for the Annual Meeting of Stockholders scheduled May 12,
1998, 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, 1997, together with the Report of Independent
Accountants are set forth on pages 28-53 of this report. The supplemental
financial information listed and appearing hereafter should be read in
conjunction with the Financial Statements included in this report.
2. FINANCIAL STATEMENT SCHEDULES. The following are included in Part IV of
this report for each of the years ended December 31, 1997, 1996 and 1995 as
applicable:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants on Financial Statement Schedule..... 54
Valuation and Qualifying Accounts and Reserves (Schedule II).......... 55
Financial Statements of Abitibi-Consolidated Inc...................... *
</TABLE>
- ---------
* To be filed as an amendment to this Report on or before June 30, 1998.
19
<PAGE>
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, 1997, the Company had outstanding non-interest bearing loans
receivable of $611,384 to Randolph Read, Senior Vice President-Chief Financial
and Planning Officer, $300,000 to Harold Wright, Senior Vice President and
General Manager, North American Containerboard, Paper and Pulp and $100,000 to
Emil Winograd, Vice President and General Manager, Market Pulp Sales and Export
Containerboard and Kraft Paper Sales. Mr. Read's loan is repayable on demand
pursuant to request by the Company. Mr. Wright's and Mr. Winograd's loans are
due in 2002.
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 April 28, 1997 was filed under Item 5--Other
Events and Item 7--Exhibits.
A Report on Form 8-K dated May 13, 1997 was filed under Item 5--Other Events
and Item 7--Exhibits.
A Report on Form 8-K dated May 28, 1997 was filed under Item 7--Exhibits.
A Report on Form 8-K dated October 27, 1997 was filed under Item 5--Other
Events.
20
<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 23, 1998.**
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) Amendment to Rights Agreement dated as of May 16, 1996 between the Company and First Chicago
Trust Company of New York, filed as Exhibit 1 to the Company's Form 8 dated June 8, 1996
amending the Company's Registration Statement on Form 8 dated August 2, 1990 amending the
Company's Registration Statement on Form 8-A dated July 27, 1988, as amended, is hereby
incorporated by reference.
4(f) Amended and Restated Credit Agreement ("Credit Agreement") dated as of June 19, 1997, among
the Company, the financial institutions signatory thereto, and Bankers Trust Company, as agent
(the "Agent"), filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, is hereby incorporated by reference.
4(g) First Amendment of Credit Agreement dated as of December 23, 1997 among the Company, the
financial institutions signatory thereto and Bankers Trust Company, as Agent.**
4(h) Second Amendment of Credit Agreement dated as of March 26, 1998 among the Company, the
financial institutions signatory thereto and Bankers Trust Company, as Agent.**
4(i) Indenture dated as of August 16, 1996 between Stone Container Finance Company of Canada (the
"Issuer"), the Company, as guarantor, and The Bank of New York, as Trustee, relating to the
Issuer's 11 1/2 percent Senior Notes due 2006, filed as Exhibit 4(u) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated by reference.
4(j) Indenture dated as of July 24, 1996 between the Company and The Bank of New York, as Trustee,
relating to the Rating Adjustable Senior Notes due 2016, filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-4, Registration Number 333-12155, is hereby incorporated by
reference.
4(k) First Supplemental Indenture dated July 24, 1996 between the Company and The Bank of New York,
as Trustee, relating to the Rating Adjustable Senior Notes due 2016, filed as Exhibit 4.2 to
the Company's Registration Statement on Form S-4, Registration Number 333-12155, is hereby
incorporated by reference.
4(l) 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(m) Indenture dated as of October 12, 1994 between the Company 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.
</TABLE>
21
<PAGE>
<TABLE>
<C> <S>
4(n) 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(o) 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(p) First Supplemental Indenture dated as of May 28, 1997 between the Company and The Bank of New
York, as Trustee, relating to the Indenture dated as of March 15, 1992, filed as Exhibit 4(i)
(i) to the Company's Current Report on Form 8-K dated May 28, 1997, is hereby incorporated by
reference.
4(q) 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(r) 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(s) 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(t) 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 by reference.
4(u) Master Trust Indenture and Security Agreement dated as of March 14, 1995, among Stone
Receivables Corporation, the Company, as Servicer, Marine Midland Bank, as Trustee, and
Bankers Trust Company, as Administrative Agent, relating to the accounts receivable
securitization program, filed as Exhibit 4(o) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, is hereby incorporated by reference.
4(v) Series 1995-1 Supplement dated as of March 14, 1995, to the Master Trust Indenture and
Security Agreement dated as of March 14, 1995, among Stone Receivables Corporation, the
Company, as Servicer, Marine Midland Bank, as Trustee, and Bankers Trust Company, as
Administrative Agent, relating to the accounts receivable securitization program, filed as
Exhibit 4(p) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995,
is hereby incorporated 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(w) 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.
4(x) Amendment No. 1 to Guaranty, dated as of June 1, 1996, among Continental Holdings, Inc.,
Continental Group, Inc. and the Company, filed as Exhibit 4(r) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, 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) Stone Container Corporation Directors' Deferred Compensation Plan.*-**
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
10(c) 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.*
10(d) 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(e) Stone Container Corporation Deferred Income Savings Plan, as amended, filed as Exhibit 4.3 to
the Company's Form S-8 Registration Statement, Registration Number 333-42087 is hereby
incorporated by reference.*
10(f) 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(g) Stone Container Corporation 1995 Long-Term Incentive Plan, filed as Exhibit A to the Company's
Proxy Statement dated as of April 7, 1995, is hereby incorporated by reference.*
10(h) Stone Container Corporation 1995 Key Executive Officer Short-Term Incentive Plan, filed as
Exhibit B to the Company's Proxy Statement dated as of April 7, 1995, is hereby incorporated
by reference.*
10(i) Form of Severance Agreement, dated July 22, 1996, entered into between the Company and Roger
W. Stone, filed as Exhibit 10 (j) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, is hereby incorporated by reference.*
10(j) Form of Severance Agreement, dated July 22, 1996, entered into between the Company and John D.
Bence, Thomas W. Cadden, Matthew S. Kaplan, Randolph C. Read and Harold D. Wright, filed as
Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996
is hereby incorporated by reference.*
10(k) Form of Severance Agreement, dated July 22, 1996, entered into between the Company and all
other executive and divisional officers of the Company, filed as Exhibit 10(l) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 is hereby
incorporated by reference.*
11 Computation of Earnings (Loss) Per Common Share.**
12 Computation of Ratios of Earnings to Fixed Charges.**
21 Subsidiaries of the Company.**
23 Consent of Independent Accountants.**
27(a) Financial Data Schedule for the year ended December 31, 1997.**
27(b) Financial Data Schedule for the years ended December 31, 1996 and December 31, 1995, and the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996. (restated)**
27(c) Financial Data Schedule for the quarters ended March 31, 1997, June 30, 1997 and September 30,
1997. (restated)**
</TABLE>
- ---------
* Management contract or compensatory plan or arrangement
** Filed herewith
(d) SEPARATE FINANCIAL STATEMENTS OF AFFILIATES
Abitibi-Consolidated Inc., a 25.2 percent owned affiliate of the Company,
qualifies as a significant subsidiary under Rule 3-09 of Regulation S-X. The
December 31, 1997 separate financial statements of Abitibi-Consolidated Inc., a
foreign business, will be filed as an amendment to this Report, as required, on
or before June 30, 1998.
23
<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 30, 1998
Roger W. Stone
CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT
(CHIEF EXECUTIVE OFFICER)
RANDOLPH C. READ
------------------------------------------------------- March 30, 1998
Randolph C. Read
SENIOR VICE PRESIDENT
(CHIEF FINANCIAL AND PLANNING OFFICER)
THOMAS P. CUTILLETTA
------------------------------------------------------- March 30, 1998
Thomas P. Cutilletta
SENIOR VICE PRESIDENT, ADMINISTRATION AND
CORPORATE CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
24
<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>
WILLIAM F. ALDINGER, III PHILLIP B. ROONEY
- ------------------------------------------ ------------------------------------------
William F. Aldinger, III Phillip B. Rooney
DIRECTOR March 30, 1998 DIRECTOR March 30, 1998
RICHARD A. GIESEN ALAN STONE
- ------------------------------------------ ------------------------------------------
Richard A. Giesen Alan Stone
DIRECTOR March 30, 1998 DIRECTOR March 30, 1998
JAMES J. GLASSER IRA N. STONE
- ------------------------------------------ ------------------------------------------
James J. Glasser Ira N. Stone
DIRECTOR March 30, 1998 DIRECTOR March 30, 1998
JACK M. GREENBERG JAMES H. STONE
- ------------------------------------------ ------------------------------------------
Jack M. Greenberg James H. Stone
DIRECTOR March 30, 1998 DIRECTOR March 30, 1998
DIONISIO GARZA ROGER W. STONE
- ------------------------------------------ ------------------------------------------
Dionisio Garza Roger W. Stone
DIRECTOR March 30, 1998 DIRECTOR March 30, 1998
JOHN D. NICHOLS
- ------------------------------------------
John D. Nichols
DIRECTOR March 30, 1998
JERRY K. PEARLMAN
- ------------------------------------------
Jerry K. Pearlman
DIRECTOR March 30, 1998
RICHARD J. RASKIN
- ------------------------------------------
Richard J. Raskin
DIRECTOR March 30, 1998
</TABLE>
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
ITEM: PAGE
- ------------------------------------------------------------------------- -----
<S> <C>
Financial Statements:
Management's Responsibility for the Financial Statements............... 27
Report of Independent Accountants...................................... 28
Consolidated Statements of Operations.................................. 29
Consolidated Balance Sheets............................................ 30
Consolidated Statements of Cash Flows.................................. 31
Consolidated Statements of Stockholders' Equity........................ 32
Notes to the Consolidated Financial Statements......................... 33
Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule...... 54
Valuation and Qualifying Accounts and Reserves (Schedule II)........... 55
</TABLE>
26
<PAGE>
Management's Responsibility for the Financial Statements
The management of Stone Container Corporation is responsible for insuring that
the financial statements and other information in this report give a fair and
accurate financial picture of the Company. In preparing this material, we make
informed judgments and estimates that conform with generally accepted accounting
principles.
We have developed a system of internal controls which is designed to provide
reasonable assurance that the books and records accurately reflect the
transactions of the Company and that the Company's established policies and
procedures are followed properly. The concept of reasonable assurance recognizes
that the cost of a control procedure should not exceed the expected benefits.
Our system is augmented by written policies and procedures, a comprehensive
internal audit program, and the selection and training of qualified personnel.
The Company engages Price Waterhouse LLP, who are responsible for performing an
independent audit of the financial statements. Their audit includes obtaining an
understanding of the Company's accounting systems and procedures to the extent
required by generally accepted auditing standards and testing them as they deem
necessary.
An audit committee of Stone Container's directors, who are not employees of the
Company, meet periodically to review internal financial controls and procedures.
The audit committee and our independent accountants have unrestricted access to
each other, with or without the presence of management representatives.
ROGER W. STONE
Chairman of the Board of Directors and President
(Chief Executive Officer)
RANDOLPH C. READ
Senior Vice President
(Chief Financial and Planning Officer)
THOMAS P. CUTILLETTA
Senior Vice President, Administration and Corporate Controller
(Principal Accounting Officer)
27
<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, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, 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.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 26, 1998
28
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
SALES
Net sales................................................................ $ 4,849.1 $ 5,141.8 $ 7,351.2
---------- ---------- ----------
COST AND EXPENSES
Cost of products sold.................................................... 4,069.6 4,085.4 5,168.9
Selling, general and administrative expenses............................. 567.0 596.2 608.5
Depreciation and amortization............................................ 301.7 314.8 371.8
Equity (income) loss from affiliates..................................... 70.8 (63.2) (19.9)
Other (income) expense--net.............................................. (12.0) (15.8) (33.1)
---------- ---------- ----------
Income (loss) before interest expense, income taxes, minority interest
and extraordinary charges............................................... (148.0) 224.4 1,255.0
Interest expense......................................................... (457.1) (413.5) (460.3)
---------- ---------- ----------
Income (loss) before income taxes, minority interest and extraordinary
charges................................................................. (605.1) (189.1) 794.7
(Provision) credit for income taxes...................................... 200.8 66.0 (320.9)
Minority interest........................................................ (.1) .6 (29.3)
---------- ---------- ----------
NET INCOME (LOSS)
Income (loss) before extraordinary charges............................... (404.4) (122.5) 444.5
Extraordinary charges from early extinguishments of debt (net of income
tax benefits)........................................................... (13.3) (3.7) (189.0)
---------- ---------- ----------
Net income (loss)........................................................ (417.7) (126.2) 255.5
Preferred stock dividends................................................ (8.1) (8.1) (8.1)
---------- ---------- ----------
Net income (loss) applicable to common shares............................ $ (425.8) $ (134.3) $ 247.4
---------- ---------- ----------
---------- ---------- ----------
PER SHARE OF COMMON STOCK:
BASIC:
Income (loss) before extraordinary charges............................... $ (4.16) $ (1.32) $ 4.64
Extraordinary charges from early extinguishments of debt................. (.13) (.03) (2.01)
---------- ---------- ----------
Net income (loss)........................................................ $ (4.29) $ (1.35) $ 2.63
---------- ---------- ----------
---------- ---------- ----------
DILUTED:
Income (loss) before extraordinary charges............................... $ (4.16) $ (1.32) $ 3.89
Extraordinary charges from early extinguishments of debt................. (.13) (.03) (1.65)
---------- ---------- ----------
Net income (loss)........................................................ $ (4.29) $ (1.35) $ 2.24
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................................. $ 112.6 $ 112.6
Accounts and notes receivable (less allowances of $27.8 and $24.3).................................... 652.7 572.8
Inventories........................................................................................... 716.0 741.6
Other................................................................................................. 114.4 134.2
---------- ----------
Total current assets................................................................................ 1,595.7 1,561.2
---------- ----------
Property, plant and equipment........................................................................... 4,857.3 4,939.1
Accumulated depreciation and amortization............................................................... (2,479.8) (2,305.4)
---------- ----------
Property, plant and equipment--net.................................................................. 2,377.5 2,633.7
Timberlands............................................................................................. 49.6 34.6
Goodwill................................................................................................ 444.0 485.4
Investment in equity of non-consolidated affiliates..................................................... 878.1 1,198.2
Other................................................................................................... 479.2 440.7
---------- ----------
Total assets........................................................................................ $ 5,824.1 $ 6,353.8
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................................... $ 327.9 $ 363.8
Current maturities of senior and subordinated long-term debt.......................................... 415.9 186.7
Notes payable and current maturities of non-recourse debt of consolidated affiliates.................. -- 21.9
Income taxes.......................................................................................... 26.6 15.1
Accrued and other current liabilities................................................................. 318.6 301.7
---------- ----------
Total current liabilities........................................................................... 1,089.0 889.2
---------- ----------
Senior long-term debt................................................................................. 3,238.0 3,269.6
Subordinated debt..................................................................................... 697.5 422.3
Non-recourse debt of consolidated affiliates.......................................................... -- 259.2
Other long-term liabilities........................................................................... 306.7 308.1
Deferred taxes........................................................................................ 216.0 410.2
Commitments and contingencies (Note 17).................................................................
Stockholders' equity:
Series E preferred stock.............................................................................. 115.0 115.0
Common stock (99.3 shares outstanding)................................................................ 966.3 954.8
Accumulated deficit................................................................................... (510.8) (94.2)
Foreign currency translation adjustment............................................................... (293.3) (178.8)
Unamortized expense of restricted stock plan.......................................................... (.3) (1.6)
---------- ----------
Total stockholders' equity.......................................................................... 276.9 795.2
---------- ----------
Total liabilities and stockholders' equity.......................................................... $ 5,824.1 $ 6,353.8
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).............................................................................. $ (417.7) $ (126.2) $ 255.5
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization.............................................................. 301.7 314.8 371.8
Deferred taxes............................................................................. (217.1) (88.1) 213.6
Foreign currency transaction (gains) losses................................................ 10.7 .5 (8.1)
Equity (income) loss from affiliates....................................................... 70.8 (63.2) (19.9)
Extraordinary charges from early extinguishments of debt................................... 13.3 3.7 189.0
Other--net................................................................................. 84.6 41.1 102.1
Changes in current assets and liabilities--net of adjustments for acquisitions and
dispositions:
(Increase) decrease in accounts and notes receivable--net.................................. (130.6) 185.1 (80.8)
(Increase) decrease in inventories......................................................... 3.6 (51.4) (145.5)
Decrease in other current assets........................................................... 3.6 15.0 21.7
Increase in accounts payable and other current liabilities................................. 17.6 56.3 62.3
--------- --------- ---------
Net cash provided by (used in) operating activities............................................ (259.5) 287.6 961.7
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt repayments................................................................................ (475.6) (376.2) (826.3)
Payments by consolidated affiliates on non-recourse debt....................................... (16.1) (18.9) (146.1)
Borrowings..................................................................................... 931.6 587.7 515.8
Non-recourse borrowings of consolidated affiliates............................................. .1 2.6 4.2
Proceeds from issuance of common stock......................................................... .1 .4 1.7
Cash dividends................................................................................. (2.0) (67.6) (41.5)
--------- --------- ---------
Net cash provided by (used in) financing activities............................................ 438.1 128.0 (492.2)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................................................... (136.6) (250.8) (386.5)
Investments in and advances to affiliates, net................................................. (12.9) (107.2) (56.7)
Proceeds from sales of assets.................................................................. 6.8 53.1 20.3
Purchase of securities of a non-consolidated affiliate......................................... -- (39.6) --
Effect on cash of de-consolidation of Stone-Consolidated....................................... -- -- (113.1)
Other--net..................................................................................... (30.9) 2.9 (9.1)
--------- --------- ---------
Net cash used in investing activities.......................................................... (173.6) (341.6) (545.1)
--------- --------- ---------
Effect of exchange rate changes on cash........................................................ (5.0) (1.7) 7.3
--------- --------- ---------
NET CASH FLOWS
Net increase (decrease) in cash and cash equivalents........................................... -- 72.3 (68.3)
Cash and cash equivalents, beginning of period................................................. 112.6 40.3 108.6
--------- --------- ---------
Cash and cash equivalents, end of period....................................................... $ 112.6 $ 112.6 $ 40.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------
See Note 4 regarding non-cash financing and investing activities and
supplemental cash flow information.
The accompanying notes are an integral part of these statements.
31
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions except per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------- ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance at January 1 and December 31.................................. $ 115.0 4.6 $ 115.0 4.6 $ 115.0 4.6
------ ------ ------
------ ------ ------
COMMON STOCK
Balance at January 1.................................................. 954.8 99.3 953.1 99.1 849.1 90.4
Issuance of common stock:
Debt conversions.................................................... -- -- 1.3 .1 180.4 8.5
Exercise of stock options........................................... .1 -- .4 .1 1.7 .1
Restricted stock plan............................................... .5 -- -- -- 2.1 .1
Subsidiary issuance of stock.......................................... 10.9 -- -- -- (80.2) --
------- ------ ------- ------ -------- ------
Balance at December 31................................................ 966.3 99.3 954.8 99.3 953.1 99.1
------- ------ ------- ------ -------- ------
------ ------ ------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance at January 1.................................................. (94.2) 97.8 (96.3)
Net income (loss)..................................................... (417.7) (126.2) 255.5
Cash dividends:
Preferred stock*.................................................... (2.1) (8.1) (12.1)
Common stock*....................................................... -- (59.5) (29.4)
Decrease (increase) in minimum pension liability in excess of
unrecognized prior service cost...................................... 3.2 1.8 (19.9)
------- ------- --------
Balance at December 31................................................ (510.8) (94.2) 97.8
------- ------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at January 1.................................................. (178.8) (156.9) (215.2)
Adjustment from translation of foreign currency statements............ (114.5) (21.9) 58.3
------- ------- --------
Balance at December 31................................................ (293.3) (178.8) (156.9)
------- ------- --------
UNAMORTIZED EXPENSE OF RESTRICTED STOCK PLAN
Balance at January 1.................................................. (1.6) (3.7) (4.5)
Issuance of shares.................................................... -- -- (2.0)
Amortization of expense............................................... 1.3 2.1 2.8
------- ------- --------
Balance at December 31................................................ (.3) (1.6) (3.7)
------- ------- --------
Total stockholders' equity at December 31............................. $ 276.9 $ 795.2 $1,005.3
------- ------- --------
------- ------- --------
</TABLE>
- ---------
* Cash dividends paid on common stock were $.60 per share in 1996 and $.30 in
1995. No cash dividends on common stock were paid in 1997. Cash dividends paid
on preferred stock were $.4375 per share in 1997, $1.75 per share in 1996 and
$2.625 per share in 1995.
The accompanying notes are an integral part of these statements.
32
<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 except for S&G
Packaging Company, L.L.C. which is accounted for under the equity method. All
significant intercompany accounts and transactions have been eliminated.
Investments in non-consolidated affiliated companies are primarily accounted for
by the equity method. The consolidated financial statements are prepared in
conformity with generally accepted accounting principles which require the use
of management estimates. Changes in such estimates may affect amounts reported
in future periods.
PER SHARE DATA:
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 simplifies the standards for computing earnings per share
and is effective for financial statements for both interim and annual periods
ending after December 15, 1997. Earlier application was not permitted. The
adoption of SFAS 128 did not have a material impact on the Company's previously
reported earnings per share. As required, all prior-period earnings per share
data presented have been restated to conform with the provisions of SFAS 128.
SFAS 128 replaces the presentation of primary earnings per share with basic
earnings per share and fully diluted earnings per share with diluted earnings
per share.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of shares outstanding. Diluted
earnings per share is computed to show, on a pro forma basis, per share earnings
available to common shareholders assuming the exercise or conversion of all
dilutive securities that are exercisable or convertible into common stock.
RECONCILIATION OF BASIC AND DILUTED EPS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ---------
INCOME INCOME INCOME
IN MILLIONS, EXCEPT PER SHARE DATA (LOSS) SHARES (LOSS) SHARES (LOSS)
- --------------------------------------------------------------------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary charges........................... $ (404.4) $ (122.5) $ 444.5
Less: Preferred dividends............................................ (8.1) (8.1) (8.1)
--------- --------- ---------
BASIC EPS
Income available to common stockholders.............................. (412.5) 99.3 (130.6) 99.2 436.4
Effect of Dilutive Securities:
Options and warrants............................................... (a) --
Convertible debt................................................... (b) (b) (b) (b) 1.7
Exchangeable Preferred Stock....................................... (c) (c) (c) (c) 8.1
--------- ----- --------- ----- ---------
DILUTED EPS.......................................................... $ (412.5) 99.3 $ (130.6) 99.2 $ 446.2
--------- ----- --------- ----- ---------
--------- ----- --------- ----- ---------
BASIC EARNINGS PER SHARE AMOUNT...................................... (4.16) (1.32)
----- -----
----- -----
DILUTED EARNINGS PER SHARE AMOUNT.................................... (4.16) (1.32)
----- -----
----- -----
<CAPTION>
IN MILLIONS, EXCEPT PER SHARE DATA SHARES
- --------------------------------------------------------------------- ---------
<S> <C>
Income (loss) before extraordinary charges...........................
Less: Preferred dividends............................................
BASIC EPS
Income available to common stockholders.............................. 93.9
Effect of Dilutive Securities:
Options and warrants............................................... .2
Convertible debt................................................... 17.2
Exchangeable Preferred Stock....................................... 3.4
---------
DILUTED EPS.......................................................... 114.7
---------
---------
BASIC EARNINGS PER SHARE AMOUNT...................................... 4.64
---------
---------
DILUTED EARNINGS PER SHARE AMOUNT.................................... 3.89
---------
---------
</TABLE>
- ---------
(a) Options to purchase .2 million shares are excluded from the diluted EPS
computation because they are antidilutive.
(b) Convertible debt effects of $5.1 million and 6.4 million shares are excluded
from the diluted EPS computation in 1997 and 1996 because they are
antidilutive.
(c) Exchangeable preferred stock effect of $8.1 million and 3.4 million shares
is excluded from the dilutive EPS computation in 1997 and 1996 because they
are antidilutive.
33
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 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.
GOODWILL AND OTHER ASSETS:
Goodwill is amortized on a straight-line basis over 40 years and is recorded
net of accumulated amortization of approximately $131 million and $122 million
at December 31, 1997 and 1996, 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.
Deferred debt issuance costs are amortized over the expected life of the
related debt using the interest method. Start-up costs on major projects are
capitalized and amortized over a five-year period. Other long-term assets
include approximately $22 million and $35 million of unamortized deferred
start-up costs at December 31, 1997 and 1996, respectively.
Other long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. This review is accomplished by determining whether projected
undiscounted future cash flows from operations exceed the net book value of the
asset as of the assessment date.
SUBSIDIARY ISSUANCE OF STOCK:
When a subsidiary issues stock, the Company records the difference relating
to the carrying amount per share and the issuance 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 majority of 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
34
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The
functional currency for foreign operations operating in highly inflationary
economies is the U.S. dollar and any gains or losses are credited or charged to
income.
FOREIGN CURRENCY AND FINANCIAL INSTRUMENTS:
The Company has utilized various financial instruments to reduce 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
Comprehensive income represents the change in stockholders' equity during a
period resulting from transactions and other events and circumstances from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners. SFAS 130
is effective for interim and annual periods beginning after December 15, 1997.
Reclassification of prior period financial statements for comparative purposes
is required. The Company will adopt SFAS 130 in the first quarter of 1998. The
adoption of SFAS 130 will have no impact on the Company's consolidated results
of operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim and
annual financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. Prior periods' disclosures are required to be
restated. The Company is in the process of evaluating the disclosure
requirements and will adopt the provisions of the statement in its year-end 1998
financial statements. The adoption of SFAS 131 will have no impact on the
Company's consolidated results of operations, financial position or cash flows.
NOTE 2--SUBSIDIARY ISSUANCE OF STOCK/MERGER OF SIGNIFICANT SUBSIDIARY
On May 30, 1997, Stone-Consolidated Corporation ("Stone-Consolidated") and
Abitibi-Price Inc. amalgamated to form Abitibi-Consolidated Inc.
("Abitibi-Consolidated"), a Canada based manufacturer and marketer of
publication papers. For U.S. GAAP purposes, the combination of
Stone-Consolidated and Abitibi-Price Inc. was accounted for under the purchase
method of accounting, as the acquisition of Abitibi-Price Inc. by
Stone-Consolidated. The Company owns approximately 25.2 percent of the common
stock of Abitibi-Consolidated and accounts for its interest in this Canadian
affiliate under the equity method of accounting. Effective with the merger, the
Company recorded a credit of $10.9 million to common stock related to the excess
of the market value per common share over the carrying value of its investment
per common share. Additionally, 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 Stone-Consolidated.
On November 1, 1995, Stone-Consolidated Corporation, then a Canadian
subsidiary of the Company, amalgamated its operations (the "Amalgamation") with
Rainy River Forest Products Inc. ("Rainy River"), a Toronto-based Canadian pulp
and paper company. The combination of Stone-Consolidated Corporation and Rainy
River to form the amalgamated entity ("Amalco") was accounted for as the
acquisition of Rainy River by Stone-Consolidated Corporation. Therefore, the
purchase method of accounting was used by Stone-Consolidated Corporation to
account for the business combination. Amalco continued under the name of
Stone-Consolidated Corporation ("Stone-Consolidated"). As a result of the
issuance of common shares by Stone-Consolidated associated with the
Amalgamation, the Company's equity ownership in Stone-Consolidated was reduced
from 74.6 percent to 46.6 percent. Thus, effective November 1, 1995, the Company
began reporting Stone-Consolidated as a non-consolidated affiliate in accordance
35
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUBSIDIARY ISSUANCE OF STOCK/MERGER OF SIGNIFICANT SUBSIDIARY
(CONTINUED)
with the equity method of accounting. The Company recorded in 1995 a charge of
approximately $80 million to common stock related to the excess carrying value
per common share over the issuance price per common share associated with the
shares issued.
NOTE 3--ACQUISITION/DISPOSITION
On April 4, 1997, the Company's then 90 percent owned subsidiary, Stone
Venepal (Celgar) Pulp, Inc. ("SVCPI") acquired the remaining 50 percent interest
in the Celgar pulp mill (the "Celgar Mill") located in Castlegar, British
Columbia from CITIC B.C., Inc. ("CITIC"), an indirect subsidiary of China
International Trust Investment Corporation of Beijing, 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.
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 retained a 45 percent direct voting interest in the stock of
SVCPI and began accounting for its interest in SVCPI under the equity method of
accounting.
NOTE 4--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) 1997 1996 1995
- --------------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Decrease in debt due to de-consolidation of affiliate........................................ $ 537.5 $ -- $ 397.4
Assumption of non-recourse debt of affiliates................................................ 273.2 -- 15.0
Assumption of debt of consolidated affiliates................................................ -- 5.0 --
Note receivable received as partial consideration for sale of assets......................... -- 32.7 --
Capital lease obligations incurred........................................................... 3.3 5.0 2.3
Issuance of common stock as partial consideration to extinguish debt......................... -- 1.3 180.4
--------- --------- ---------
--------- --------- ---------
Cash paid (received) during the year for:
Interest (net of capitalization)........................................................... $ 420.4 $ 383.1 $ 443.7
Income taxes (net of refunds).............................................................. (33.6) 4.8 125.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 5--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(IN MILLIONS) 1997 1996
- -------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Raw materials and supplies............................................................ $ 263.5 $ 255.3
Paperstock............................................................................ 342.1 378.1
Work in process....................................................................... 21.5 19.5
Finished products..................................................................... 108.5 105.1
--------- ---------
735.6 758.0
Excess of current cost over LIFO inventory value...................................... (19.6) (16.4)
--------- ---------
Total inventories..................................................................... $ 716.0 $ 741.6
--------- ---------
--------- ---------
</TABLE>
Inventories costed by the LIFO, FIFO and average cost methods represented
approximately 36 percent, 7 percent and 57 percent, respectively, of total
inventories at December 31, 1997 and approximately 39 percent, 7 percent and 54
percent, respectively, of total inventories at December 31, 1996.
36
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Machinery and equipment....................................................... $ 3,973.6 $ 4,053.2
Buildings and leasehold improvements.......................................... 656.5 656.5
Land and land improvements.................................................... 128.7 122.4
Construction in progress...................................................... 98.5 107.0
----------- -----------
Total property, plant and equipment........................................... 4,857.3 4,939.1
Accumulated depreciation and amortization..................................... (2,479.8) (2,305.4)
----------- -----------
Total property, plant and equipment--net...................................... $ 2,377.5 $ 2,633.7
----------- -----------
----------- -----------
</TABLE>
Property, plant and equipment includes capitalized leases of $17.5 million
and $21.0 million and related accumulated amortization of $3.7 million and $5.6
million at December 31, 1997 and 1996, respectively.
NOTE 7--SUMMARIZED FINANCIAL INFORMATION OF NON-CONSOLIDATED AFFILIATES
Combined summarized financial information for the Company's non-consolidated
affiliates that are accounted for under the equity method of accounting is
presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Results of operations:(a)
Net sales................................................................... $ 4,072.8 $ 3,059.9
Income (loss) before income taxes, minority interest and extraordinary
charges.................................................................... (165.4) 207.8
Net income (loss)........................................................... (175.8) 151.4
------------- -------------
<CAPTION>
DECEMBER 31,
----------------------------
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Financial position:
Current assets.............................................................. $ 1,297.4 $ 1,084.8
Noncurrent assets........................................................... 5,315.7 3,515.6
Current liabilities......................................................... 1,010.4 668.0
Noncurrent liabilities...................................................... 2,618.0 1,302.9
Stockholders' equity........................................................ 2,984.7 2,629.5
------------- -------------
</TABLE>
- ---------
(a) Includes results for each affiliate for the period it was accounted for
under the equity method.
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.
37
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
The (provision) credit for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Currently (payable) refundable:
Federal............................................................................ $ 4.4 $ (2.0) $ (59.6)
State.............................................................................. (.1) (.3) (10.5)
Foreign............................................................................ (20.6) (19.8) (37.2)
--------- --------- ---------
(16.3) (22.1) (107.3)
Deferred:
Federal............................................................................ 166.5 64.1 (80.9)
State.............................................................................. 29.8 13.0 (26.2)
Foreign............................................................................ 20.8 11.0 (106.5)
--------- --------- ---------
217.1 88.1 (213.6)
--------- --------- ---------
Total (provision) credit for income taxes............................................ $ 200.8 $ 66.0 $ (320.9)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax (provision) credit at the federal statutory rate is
reconciled to the (provision) credit for income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Federal income tax (provision) credit at federal statutory rate...................... $ 211.8 $ 66.2 $ (278.1)
Additional (taxes) credits resulting from:
Non-deductible amortization of intangibles......................................... (6.3) (6.8) (8.8)
Equity earnings (losses) of affiliates, net of tax................................. (19.1) 18.7 1.4
State income taxes, net of federal income tax effect............................... 19.3 8.3 (23.9)
Valuation allowance adjustment..................................................... (8.5) (10.1) --
Minimum taxes-foreign jurisdictions................................................ (4.4) (4.9) (7.8)
Permanent differences on assets sold............................................... -- (3.5) --
Other-net.......................................................................... 8.0 (1.9) (3.7)
--------- --------- ---------
(Provision) credit for income taxes.................................................. $ 200.8 $ 66.0 $ (320.9)
--------- --------- ---------
--------- --------- ---------
</TABLE>
38
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
The components of the net deferred tax liability as of December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
(IN MILLIONS) 1997 1996
- ---------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets:
Carryforwards............................................................................... $ 367.2 $ 225.3
Compensation-related accruals............................................................... 38.1 43.4
Extraordinary charges from early extinguishments of debt.................................... -- 2.4
Minimum pension liability................................................................... 19.7 19.1
Reserves.................................................................................... 47.8 52.3
Deferred gain............................................................................... 19.9 22.7
Other....................................................................................... .1 10.6
--------- ---------
492.8 375.8
Valuation allowance........................................................................... (37.0) (44.1)
--------- ---------
Total deferred tax asset...................................................................... 455.8 331.7
Deferred tax liabilities:
Depreciation and amortization............................................................... (588.2) (639.4)
Start-up costs.............................................................................. (2.9) (7.8)
LIFO reserve................................................................................ (13.2) (19.3)
Pension..................................................................................... (2.9) (10.0)
Other....................................................................................... (29.9) (48.6)
--------- ---------
Total deferred tax liability.................................................................. (637.1) (725.1)
--------- ---------
Deferred tax liability--net................................................................... $ (181.3) $ (393.4)
--------- ---------
--------- ---------
</TABLE>
The components of the income (loss) before income taxes, minority interest
and extraordinary charges are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
United States.................................................................. $ (521.1) $ (207.8) $ 455.8
Foreign........................................................................ (84.0) 18.7 338.9
--------- --------- ---------
Income (loss) before income taxes, minority interest, and extraordinary
charges....................................................................... $ (605.1) $ (189.1) $ 794.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1997, the Company had approximately $726 million of net
operating loss carryforwards for U.S. federal tax purposes. To the extent not
utilized, the U.S. federal net operating losses will expire in 2012. Further,
the Company had approximately $1,133 million of net operating loss carryforwards
for U.S. state tax purposes (which represents approximately $79 million of
deferred tax assets), which to the extent not utilized, expire in 1998 through
2012. The Company had approximately $91 million of capital loss carryforwards
for Canadian tax purposes. A valuation allowance has been provided for the
deferred tax assets related to these capital loss carryforwards. The Company
also had approximately $24 million of alternative minimum tax credit
carryforwards for U.S. federal tax purposes which are available indefinitely.
39
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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) 1997 1996 1995
- ----------------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the period................................................ $ 18.8 $ 17.7 $ 17.0
Interest cost on projected benefit obligations................................................. 46.7 42.9 63.5
Actual return on plan assets................................................................... (74.1) (47.6) (100.0)
Net amortization and deferral.................................................................. 41.1 20.4 51.7
--------- --------- ---------
Net pension expense............................................................................ $ 32.5 $ 33.4 $ 32.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
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,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
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............................................ $ (144.9) $ (451.4) $ (74.9) $ (442.6)
Non-vested benefits........................................ (10.7) (21.1) (9.5) (21.9)
------- ------- ------ -------
Accumulated benefit obligation............................. (155.6) (472.5) (84.4) (464.5)
Effect of increase in compensation levels.................. (12.8) (66.9) (6.2) (52.6)
------- ------- ------ -------
Projected benefit obligation for service rendered through
December 31................................................ (168.4) (539.4) (90.6) (517.1)
Plan assets at fair value, primarily stocks, bonds, fixed
investment contracts, real estate and mutual funds which
invest in listed stocks and bonds.......................... 171.0 297.2 93.2 300.1
------- ------- ------ -------
Plan assets in excess of (less than) projected benefits
obligation................................................. 2.6 (242.2) 2.6 (217.0)
Unrecognized prior service cost.............................. 7.7 15.6 5.1 17.6
Unrecognized net actuarial loss.............................. 25.3 111.1 6.2 90.4
Adjustment required to recognize minimum liability........... -- (66.6) -- (69.7)
------- ------- ------ -------
Net prepaid (accrual)........................................ $ 35.6 $ (182.1) $ 13.9 $ (178.7)
------- ------- ------ -------
------- ------- ------ -------
</TABLE>
The Company has recorded an additional minimum liability for underfunded
plans representing the excess of the unfunded accumulated benefit obligation
over previously recorded liabilities. At December 31, 1997, the additional
minimum liability of $66.6 million was recorded as a long-term liability with an
offsetting intangible asset of $15.6 million and a charge to stockholders'
equity of $31.3 million, net of a tax benefit of $19.7 million. The additional
minimum liability at December 31, 1996 of $69.7 million was recorded as a
long-term liability with an offsetting intangible asset of $19.1 million and a
charge to stockholders' equity of $31.5 million, net of a tax benefit of $19.1
million. In addition at December 31, 1996, the Company had a cumulative net
charge to retained earnings of $11.1 million representing its share of the net
charges to retained earnings recorded by certain non-consolidated affiliates
associated with their additional minimum liabilities.
40
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligations at December 31, 1997 were 7.0
percent and 7.25 percent for its US and foreign plans, respectively, and 7.75
percent in 1996. 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 both 1997 and 1996. The expected long-term rate of return on
assets was 11 percent for both 1997 and 1996. The change in the weighted average
discount rates had the net effect of increasing the total projected benefit
obligation at December 31, 1997 by $64.6 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 $5.4 million,
$5.2 million and $5.5 million for 1997, 1996 and 1995, respectively.
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. Net periodic
postretirement benefit costs for 1997, 1996 and 1995 included the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits attributed to service during the period......................... $ 1.1 $ 1.0 $ .8
Interest cost on accumulated postretirement benefit obligation......................... 4.9 4.6 6.6
Net amortization and deferral.......................................................... .6 .4 .7
--- --- ---
Net periodic postretirement benefit cost............................................... $ 6.6 $ 6.0 $ 8.1
--- --- ---
--- --- ---
</TABLE>
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, 1997 DECEMBER 31, 1996
--------------------------------- ---------------------------------
(IN MILLIONS) U.S. FOREIGN TOTAL U.S. FOREIGN TOTAL
- ------------------------------ --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees.................... $ 21.7 $ 11.6 $ 33.3 $ 17.7 $ 11.7 $ 29.4
Active employees - fully
eligible................... 19.7 1.4 21.1 18.4 .9 19.3
Other active employees...... 16.2 1.7 17.9 15.0 1.3 16.3
--------- ----- --------- --------- ----- ---------
Total accumulated
postretirement benefit
obligation.................. 57.6 14.7 72.3 51.1 13.9 65.0
Unrecognized net loss......... (15.3) (3.4) (18.7) (9.6) (2.4) (12.0)
--------- ----- --------- --------- ----- ---------
Postretirement benefit
obligation.................. $ 42.3 $ 11.3 $ 53.6 $ 41.5 $ 11.5 $ 53.0
--------- ----- --------- --------- ----- ---------
--------- ----- --------- --------- ----- ---------
</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 7.0 percent and 7.25 percent at December 31, 1997 for
its U.S. and foreign plans, respectively, and 7.75 percent at December 31, 1996.
The change in the discount rate had the net effect of increasing the total
accumulated postretirement benefit obligation at December 31, 1997 by $5.8
million. The assumed health care cost trend rates for substantially all
employees used in measuring the accumulated postretirement benefit obligation
ranged from 5.0 percent to 10.0 percent at December 31, 1997 and 6.0 percent to
11.0 percent at December 31, 1996, decreasing to ultimate rates of 5.0 percent
to 8.0 percent. If the health care cost trend rate assumptions were increased by
1 percent, the total accumulated postretirement benefit obligation at December
31, 1997 and 1996 would have increased by $6.2 million and $5.7 million,
respectively. The effect of a 1 percent increase in the health care cost trend
rate assumptions on the net periodic postretirement benefit costs for 1997 and
1996 would be insignificant.
At December 31, 1997, the Company had approximately 6,900 retirees and
24,600 active employees of which approximately 3,900 and 19,900, respectively,
were employees of U.S. operations.
41
<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) 1997 1996
- ------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
SENIOR DEBT:
9.875% senior notes due February 1, 2001............................................. $ 573.7 $ 573.7
10.75% first mortgage notes due October 1, 2002 (less unamortized debt discount of
$2.3 and $2.6)..................................................................... 497.7 497.4
Term loan (8.8% and 8.6% weighted average rates) payable in three semiannual
installments of $2.0 on April 1 and October 1 of each year through April 1, 1999,
$190.0 on October 1, 1999 and $176.0 on April 1, 2000.............................. 372.0 376.0
Additional term loans (9.0% and 8.9% weighted average rates) payable in ten
semiannual payments of $3.45 on April 1 and October 1 of each year through 2002,
$323.1 on April 1, 2003 and $324.1 on October 1, 2003.............................. 681.7 387.0
Revolving credit facility (8.5% and 8.9% weighted average rates) due May 15, 1999.... 20.0 50.0
11.875% senior notes due December 1, 1998 (less unamortized debt discount of $.3 and
$.5)............................................................................... 239.7 239.5
11.5% senior notes due August 15, 2006............................................... 200.0 200.0
11.5% senior notes due October 1, 2004 (less unamortized debt discount of $1.1 and
$1.2).............................................................................. 198.9 198.8
12.625% senior notes due July 15, 1998............................................... 150.0 150.0
12.58% rating adjustable senior notes due August 1, 2016............................. 125.0 125.0
5.8% to 9.0% 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 2027 (less unamortized debt discount of $4.9 and $5.7)... 236.4 229.6
Floating rate receivables-backed notes (6.1% and 5.9% weighted average rates) due
December 15, 2000.................................................................. 210.0 210.0
8.45% mortgage notes payable in monthly installments through August 1, 2007 and $68.7
million on September 1, 2007....................................................... 83.0 --
4.98% to 7.96% term loans payable in varying amounts through 2004.................... 31.3 23.8
Other (including obligations under capitalized leases of $9.0 and $10.5)............. 34.5 45.5
--------- ---------
3,653.9 3,306.3
Less: current maturities............................................................. (415.9) (36.7)
--------- ---------
Total senior long-term debt........................................................ 3,238.0 3,269.6
--------- ---------
SUBORDINATED DEBT:
10.75% senior subordinated debentures and 1.5% supplemental interest certificates
maturing on April 1, 2002.......................................................... 275.0 --
10.75% senior subordinated debentures maturing on April 1, 2002 (less unamortized
debt discount of $.6 and $.7)...................................................... 199.4 199.3
10.75% senior subordinated notes maturing on June 15, 1997........................... -- 150.0
11.0% senior subordinated notes maturing on August 15, 1999.......................... 119.4 119.4
8.875% convertible senior subordinated notes (convertible at $11.55 per share)
maturing on July 15, 2000 (less unamortized debt discount of $.1 and $.2).......... 58.5 58.4
6.75% convertible subordinated debentures (convertible at $33.94 per share) maturing
on February 15, 2007............................................................... 45.2 45.2
--------- ---------
697.5 572.3
Less: current maturities............................................................. -- (150.0)
--------- ---------
Total subordinated debt............................................................ 697.5 422.3
--------- ---------
NON-RECOURSE DEBT OF CONSOLIDATED AFFILIATES:
SVCPI credit facilities (6.4% weighted average rate) payable in semiannual
installments beginning July 31, 1997 of $8.5 through July 31, 1998 and $14.1
thereafter through January 31, 2002 with a final payment of $138.3 on December 31,
2002............................................................................... -- 262.8
Other................................................................................ -- 7.4
--------- ---------
-- 270.2
Less: current maturities............................................................. -- (11.0)
--------- ---------
Total non-recourse debt of consolidated affiliates................................. -- 259.2
--------- ---------
Total long-term debt................................................................. $ 3,935.5 $ 3,951.1
--------- ---------
--------- ---------
</TABLE>
42
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT (CONTINUED)
On June 19, 1997, the Company and its bank group 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 modify
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 were used to fully repay amounts outstanding under
the Company's revolving credit facilities (without a corresponding reduction in
commitments) with the remaining proceeds used for general corporate purposes.
Subsequently, on December 23, 1997 and on March 26, 1998, the Company and its
bank group further amended the credit agreement to, among other things, modify
certain financial covenant requirements. At December 31, 1997, the Company's
bank credit agreement, as amended, provides for four senior secured term loans
aggregating $1,054 million which mature through October 1, 2003 and $560 million
of senior secured revolving credit facility commitments maturing May 15, 1999
(collectively the "Credit Agreement").
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 were approximately $269 million. Of such
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 are being 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 August 29, 1997, the Company completed an $83.3 million box plant
mortgage financing having a final maturity date of September 1, 2007 and an
interest rate of 8.45 percent. The net proceeds are being used to fund capital
expenditures as incurred.
The Company's results reflect extraordinary charges from the early
extinguishments of debt of $13.3 million (net of income tax benefit of $6.5
million), $3.7 million (net of income tax benefit of $2.4 million) and $189.0
million (net of income tax benefit of $4.9 million) for 1997, 1996, and 1995,
respectively.
At December 31, 1997, the $1.08 billion of borrowings and accrued interest
outstanding under the Credit Agreement were secured by property, plant and
equipment with a net book value of $1.3 billion, by 51 percent of the stock of
its Canadian subsidiary and by a lien on certain of the Company's inventories.
Additionally, other loan agreements with a balance of $826.8 million were
collateralized by approximately $236.8 million of property, plant and
equipment--net and by $268.9 million of cash and accounts receivable.
The Company pays a 1/2 percent commitment fee on the unused portions of its
revolving credit facility. The Credit Agreement contains covenants that include,
among other things, the maintenance of certain financial tests and ratios.
Unless operating results improve, the Company may be required to seek further
covenant relief from its bank group during 1998. Although no assurance can be
given, the Company believes such relief, if sought, would be granted.
Additionally, the term loan portions of the Credit Agreement provide for
mandatory prepayments (absent waiver by the lenders) from sales of certain
assets, certain debt financings and a percentage of excess cash flow (as
defined). Any 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 loans and revolving credit facility, permanently reducing
the loan commitments under the Credit Agreement. The Credit Agreement also
contains cross-default provisions to the indebtedness of $10 million or more of
the Company and certain subsidiaries.
The Company's various senior note indentures (the "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 any two successive quarters, then the Company will 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 the Company's Credit Agreement does not permit the offer to
repurchase, then the Company will be required to increase the interest 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 $898.6
million at December 31, 1997, and will remain below
43
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LONG-TERM DEBT (CONTINUED)
the required level at March 31, 1998. The Company's senior subordinated
indenture dated March 15, 1992 (the "Senior Subordinated Indenture") (under
which approximately $594 million of debt was outstanding at December 31, 1997)
states that if the Company does not maintain $500 million of Net Worth (as
defined) for any two successive quarters, the Company will be required to
increase the interest rate on indebtedness outstanding under the Senior
Subordinated Indentures by 50 basis points per quarter up to a maximum amount of
200 basis points. The Company's Net Worth was $378.4 million at December 31,
1997 and will remain below the required level at March 31, 1998. There can be no
assurance that the Company can achieve or maintain the minimum Subordinated
Capital Base or required Net Worth in the future.
The Company has an accounts receivable securitization program whereby Stone
Receivables Corporation purchases, on an ongoing basis, certain of the accounts
receivable of the Company. The purchased accounts receivable are solely the
assets of Stone Receivables Corporation, which is a wholly owned but separate
corporate entity of the Company with its own separate creditors. In the event of
a liquidation of Stone Receivables Corporation, such creditors would be entitled
to satisfy their claims from Stone Receivables Corporation prior to any
distribution to the Company. At December 31, 1997, the Company's Consolidated
Balance Sheet included $228 million of Stone Receivables Corporation accounts
receivable under the program and $210 million of borrowings under the program.
At December 31, 1996, the Company's Consolidated Balance Sheet included $213
million of Stone Receivables Corporation accounts receivable under the program
and $210 million of borrowings under the program.
The amounts of long-term debt outstanding at December 31, 1997 maturing
during the next five years are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
- ----------------------------------------------------------------------------------------------------
<S> <C>
1998................................................................................................ $ 412.2
1999................................................................................................ 354.3
2000................................................................................................ 464.8
2001................................................................................................ 604.1
2002................................................................................................ 1,002.8
Thereafter.......................................................................................... 1,504.2
</TABLE>
Amounts payable under capitalized lease agreements are excluded from the
above tabulation. See Note 12-- "Long-term Leases" for capitalized lease
maturities.
See also first three paragraphs included in the "Outlook" section of the
MD&A for a discussion of the Company's liquidity and financial condition.
NOTE 11--FINANCIAL INSTRUMENTS
The carrying values and fair values of the Company's financial instruments
at December 31, 1997 and 1996 are listed below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1997 1996
---------------------- ----------------------
CARRYING CARRYING
(IN MILLIONS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ------------------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Notes receivable and long-term investments..................................... $ 117.3 $ 108.7 $ 147.8 $ 136.7
Indebtedness................................................................... 4,342.4 4,415.5 4,138.3 4,246.1
Interest rate swaps in payable position........................................ (.2) (4.1) (.1) (9.8)
</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 price for
the same or similar issues. 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. These financial instruments are not held
for trading purposes.
44
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--FINANCIAL INSTRUMENTS (CONTINUED)
The Company is party to two interest-rate swap contracts with a duration of
five and ten years to manage 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 1997 relating to the interest-rate swaps outstanding at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Interest-rate swap--notional amount (in millions)................................................. $ 150.0 $ 150.0
Average receive rate (fixed by contract terms).................................................. 5.7% 5.7%
Average pay rate................................................................................ 5.7% 5.5%
Interest-rate swap--notional amount (in millions)................................................. $ 100.0 $ 100.0
Average receive rate (fixed by contract terms).................................................. 5.6% 5.6%
Average pay rate................................................................................ 5.8% 5.6%
</TABLE>
The average pay rate for both interest-rate swaps is the six-month LIBOR.
NOTE 12--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, 1997 and future minimum rental commitments (exclusive of
real estate taxes and other expenses) under operating leases having initial or
remaining non-cancelable terms in excess of one year are reflected below:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
(IN MILLIONS) LEASES LEASES
- --------------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
1998......................................................................................... $ 4.0 $ 87.6
1999......................................................................................... 2.5 75.4
2000......................................................................................... 1.1 61.0
2001......................................................................................... .9 51.6
2002......................................................................................... .4 43.4
Thereafter................................................................................... 1.6 163.3
----- -----------
Total minimum lease payments................................................................. 10.5 $ 482.3
-----------
-----------
Less: Imputed interest....................................................................... 1.5
-----
Present value of future minimum lease payments............................................... $ 9.0
-----
-----
</TABLE>
Rent expense for operating leases, including leases having a duration of
less than one year, was approximately $114 million in 1997, $108 million in 1996
and $103 million in 1995.
45
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--PREFERRED STOCK
The Company has authorized 10 million shares of Preferred Stock. At December
31, 1997, the Company has issued and outstanding 4.6 million shares of $1.75
Series E Cumulative Convertible Exchangeable Preferred Stock (the "Series E
Cumulative Preferred Stock"), $.01 par value. Shares of preferred stock can be
issued in series with varying terms as determined by the Board of Directors.
Dividends on the Series E Cumulative Preferred Stock are payable quarterly when
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, subject to adjustment under certain conditions. The Series E Cumulative
Preferred Stock may alternatively be exchanged, at the option of the Company,
for the Company's 7 percent Convertible Subordinated Exchange Debentures due
February 15, 2007 in a principal amount equal to $25.00 per share of Series E
Cumulative Preferred Stock so exchanged. Additionally, the Series E Cumulative
Preferred Stock is redeemable at the option of the Company, in whole or from
time to time in part, commencing February 16, 1996.
The Company paid cash dividends of $.4375 per share on the Series E
Cumulative preferred stock in 1997, $1.75 per share in 1996 and $2.625 per share
in 1995. The declaration of dividends by the Board of Directors is subject to,
among other things, certain restrictive provisions contained in the Company's
Credit Agreement, Senior Note Indentures and Senior Subordinated Indenture. Due
to these restrictive provisions, the Company cannot declare or pay dividends on
its Series E Cumulative Preferred Stock or common stock until the Company
generates income or issues capital stock to replenish the dividend pool under
various of its debt instruments and Net Worth (as defined) equals or exceeds
$750 million. At December 31, 1997, the dividend pool under the Senior
Subordinated Indenture (which contains the most restrictive dividend pool
provision) had a deficit of approximately $338 million and Net Worth (as
defined) was $378.4 million. In the event six quarterly dividends 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.
At December 31, 1997 the Company had accumulated dividend arrearages on the
Series E Preferred Stock of $6 million, which represents three consecutive
quarters for which dividends have not been paid.
NOTE 14--COMMON STOCK
The Company has authorized 200,000,000 shares of common stock, $.01 par
value, of which 99,324,328 shares were outstanding at December 31, 1997.
In 1995, the Company issued approximately 8.5 million shares of common stock
related to the extinguishment of 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.
Due to these restrictions the Company cannot pay common stock cash dividends
until the Company generates income or issues capital stock to replenish the
dividend pool under various of its debt instruments and Net Worth (as defined)
equals or exceeds $750 million. Additionally, common stock cash dividends cannot
be declared and paid in the event accumulated preferred stock dividend
arrearages exist. See also Note 13. The Company paid cash dividends of $0.60 and
$0.30 per share on its common stock in 1996 and 1995, respectively.
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.
46
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--COMMON STOCK (CONTINUED)
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 stockholders approved a Stock Option Plan, effective January
1, 1993 (the "1993 Plan"), which authorized 1,530,000 shares of common stock and
provided 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. Options granted
under the 1993 Plan are exercisable, in whole or in part, after one year but no
later than ten years from the date of the respective grant. On May 9, 1995, the
stockholders approved the 1995 Long-term Incentive Plan (the "1995 Plan") which
permits the Company to issue incentive stock options, non-qualified stock
options, stock appreciation rights, restricted stock, bonus stock and
performance shares. Under the 1995 Plan, the annual amount of common stock
available for grant, other than for incentive stock options, will be limited to
1 1/2 percent of the outstanding shares of common stock as of the beginning of
each year plus a carryover from prior years if such 1 1/2 percent is not
granted. In no event shall any stock options be exercised later than ten years
from the respective grant date.
Transactions under the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
OPTION OPTION PRICE
SHARES PER SHARE
----------- ---------------
<S> <C> <C>
Outstanding January 1, 1995....................................................................... 1,043,812 $ 8.74-29.29
Granted......................................................................................... 1,037,900 18.00-22.13
Exercised....................................................................................... (134,860) 8.74-21.20
Canceled........................................................................................ (49,890) 13.38-29.29
----------- ---------------
Outstanding December 31, 1995..................................................................... 1,896,962 13.38-29.29
Granted......................................................................................... 1,980,721 13.38
Exercised....................................................................................... (30,000) 13.38
Canceled........................................................................................ (97,147) 13.38-29.29
----------- ---------------
Outstanding December 31, 1996..................................................................... 3,750,536 13.38-29.29
Granted......................................................................................... 1,296,706 14.00
Exercised....................................................................................... (12,500) 13.38
Canceled........................................................................................ (247,644) 13.38-29.29
----------- ---------------
Outstanding December 31, 1997..................................................................... 4,787,098 13.38-29.29
-----------
-----------
Options exercisable at December 31,
1997............................................................................................ 1,599,482 13.38-29.29
1996............................................................................................ 1,003,890 13.38-29.29
1995............................................................................................ 881,262 13.38-29.29
Options available for grant at December 31,
1997............................................................................................ 1,085,288
1996............................................................................................ 805,932
1995............................................................................................ 1,227,066
</TABLE>
The Company's previous Long-term Incentive Plan, which had been adopted in
1992 (the "1992 Plan") and provided for contingent awards of restricted shares
of common stock and cash to certain key employees, was replaced by the 1995
Plan. The payment of the cash portion of awards granted under the 1992 Plan will
depend on the
47
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--COMMON STOCK (CONTINUED)
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. Under
the 1992 Plan, 1,800,000 shares had been reserved for issuance, of which 133,176
shares were granted in 1995.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its plans.
Accordingly, no recognition is given to stock options until they are exercised,
at which time the option price received is credited to common stock. The charge
to compensation cost related to the restricted shares was $1.2 million, $1.5
million, and $3.8 million for 1997, 1996 and 1995, respectively. In 1996, prior
cash awards that were accrued have been deemed to be not payable because of the
financial results of the Company.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), by electing to continue to apply the intrinsic value-based method of
accounting for stock-based compensation. Had compensation cost been determined
on the basis of fair value pursuant to SFAS 123, net income and earnings per
share would have been reduced as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)--as reported.................................................... $ (417.7) $ (126.2) $ 255.5
Net income (loss)--proforma....................................................... (422.7) (130.0) 254.2
Basic earnings (loss) per share--as reported...................................... (4.29) (1.35) 2.63
Basic earnings (loss) per share--proforma......................................... (4.34) (1.39) 2.61
Diluted earnings (loss) per share--as reported.................................... (4.29) (1.35) 2.24
Diluted earnings (loss) per share--proforma....................................... (4.34) (1.39) 2.23
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Expected life (years)............................................................. 7 6 6
Expected volatility............................................................... 51% 47% 47%
Risk-free interest rate........................................................... 6.6% 5.5% 7.2%
Expected dividend yield........................................................... 4.2% 4.2% 4.2%
</TABLE>
The weighted average estimated fair value of each employee stock option
granted during fiscal 1997, 1996 and 1995 was $5.59, $4.81 and $7.36,
respectively.
NOTE 15--RELATED PARTY TRANSACTIONS
The Company sold paperboard, market pulp and fiber to and purchased
containerboard and kraft paper from various non-consolidated affiliates. Such
transactions were primarily at market prices. The Company paid a commission fee
to Abitibi-Consolidated pursuant to a sales agency agreement expiring December
31, 2004 and paid fees for services rendered by Abitibi-Consolidated. The
Company also received commissions and management fees from SVCPI for services
rendered. The amounts included in the table below include transactions with
Abitibi-Consolidated since November 1, 1995, with Florida Coast since June 1,
1996, with S&G since July 12, 1996 and with SVCPI since July 1, 1997.
The following table summarizes the Company's related party transactions with
its non-consolidated affiliates for each year presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
(IN MILLIONS) 1997 1996 1995
- ---------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Net sales to/(purchases from)..................................................... $ 103.1 $ 183.0 $ 211.2
Net receivable from/(payable to).................................................. 54.7 45.9 40.5
Net commissions and fees payable for services received/rendered................... 8.6 10.4 2.3
</TABLE>
48
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--RELATED PARTY TRANSACTIONS (CONTINUED)
The Company had outstanding loans and interest receivable from
non-consolidated affiliates of approximately $108.4 million and $48.6 million at
December 31, 1997 and 1996, respectively. Additionally at December 31, 1997 and
1996, the Company held $40 million Convertible Debt securities of Financiere
Carton Papier ("FCP") a non-consolidated affiliate of the Company. The
securities are not convertible into FCP common stock until March 1999. If the
Company converted the securities into FCP common stock, the Company would own
approximately 80 percent of the outstanding shares of FCP.
NOTE 16--ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS
OTHER (INCOME) EXPENSE, NET:
The major components of other (income) expense--net are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
(IN MILLIONS) 1997 1996 1995
- ---------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Interest income................................................................... $ (16.0) $ (16.1) $ (15.5)
Foreign currency transaction (gains) losses....................................... 10.7 .5 (8.1)
(Gains) losses on sales of investments or assets.................................. (1.2) 5.4 --
Other............................................................................. (5.5) (5.6) (9.5)
----------- ----------- -----------
Total other (income) expense--net................................................. $ (12.0) $ (15.8) $ (33.1)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
INTEREST EXPENSE:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
(IN MILLIONS) 1997 1996 1995
- ---------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Total interest cost incurred...................................................... $ 460.3 $ 425.2 $ 473.5
Interest capitalized.............................................................. (3.2) (11.7) (13.2)
----------- ----------- -----------
Interest expense.................................................................. $ 457.1 $ 413.5 $ 460.3
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:
Selling, general and administrative expenses include provisions for doubtful
accounts and notes receivable of $3.3 million for 1997, $5.5 million for 1996
and $6.7 million for 1995.
ASSETS HELD FOR SALE:
The Company has ceased operations of certain non-core wood products
facilities and is liquidating such assets as appropriate opportunities are
presented. These net assets, which are included in other current assets in the
Consolidated Balance Sheets, aggregated approximately $12 million and $20
million at December 31, 1997 and 1996, respectively.
INSURANCE RECEIVABLE:
As a result of the 1994 Panama City, Florida digester accident, the Company
is seeking recovery from its insurance carriers for both the losses to property
and the losses as result of business interruption. A partial recovery of
approximately $31 million has been received by the Company from certain
carriers, claims of approximately $9 million have been committed to be paid and
claims of approximately $43 million covering the remaining portion of such
losses are still pending.
LONG-TERM NOTE RECEIVABLE:
The Company had a net receivable from a domestic customer of approximately
$52 million and $58 million at December 31, 1997 and 1996, respectively. Of
these amounts, approximately $38 million and $44 million, respectively, are
included in other long-term assets with the remaining amounts reflected in
accounts and notes receivable in the Company's Consolidated Balance Sheets.
49
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--ADDITIONAL INFORMATION RELATING TO THE CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
ACCRUED AND OTHER CURRENT LIABILITIES:
The major components of accrued and other current liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
(IN MILLIONS) 1997 1996
- ---------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Accrued interest.............................................................................. $ 103.7 $ 93.4
Accrued payroll, related taxes and employee benefits.......................................... 75.2 70.8
Other......................................................................................... 139.7 137.5
----------- -----------
Total accrued and other current liabilities................................................... $ 318.6 $ 301.7
----------- -----------
----------- -----------
</TABLE>
OTHER LONG-TERM LIABILITIES:
Included in other long-term liabilities at December 31, 1997 and 1996 is
approximately $31 million and $36 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 17--COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company had commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $26 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 $24 million in 1997, and the Company
anticipates that 1998 and 1999 environmental capital expenditures will
approximate $18 million and $50 million, respectively. The majority of the 1999
expenditures relate to the amounts that the Company currently anticipates will
be required to comply with the "cluster rules" described in "Environmental
Issues" on pages 17-18 of the MD&A. Although capital expenditures for
environmental control equipment and facilities and compliance costs in future
years will depend on legislative and technological developments that cannot be
predicted at this time, the Company anticipates that these costs will increase
due to the "cluster rules" and as other environmental regulations become more
stringent. See also "Environmental Issues" on pages 17-18 of the MD&A for
further environmental matters.
Refer to Notes 10, 11 and 12 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, results of operations or liquidity.
50
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--SEGMENT AND GEOGRAPHIC INFORMATION
BUSINESS SEGMENTS:
As a result of the November 1995 de-consolidation of Stone-Consolidated (see
Note 2) and the integrated nature of the Company's principal consolidated
operations, the Company now operates in a single business--the production and
sale of commodity pulp, paper and packaging products. Accordingly, business
segment reporting is no longer presented.
Financial information by business segment for 1995 is summarized as follows:
<TABLE>
<CAPTION>
DEPRECIATION
INCOME AND CAPITAL
(IN MILLIONS) SALES (LOSS)(1) AMORTIZATION ASSETS EXPENDITURES
- --------------------------------------------------- ---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
1995
Paperboard and paper packaging..................... $ 5,405.8 $ 943.6 $ 203.5 $ 3,536.2 $ 198.3
White paper and other.............................. 2,010.6 367.7 158.4 1,347.2 183.2
Intersegment sales(4).............................. (65.2)
---------- ---------- ------------ ---------- ------------
7,351.2 1,311.3 361.9 4,883.4 381.5
Interest expense................................... (460.3)
Foreign currency gains............................. 8.1
General corporate.................................. (64.4 (2) 9.9 1,515.5(3) 5.0
---------- ---------- ------------ ---------- ------------
Total.............................................. $ 7,351.2 $ 794.7 $ 371.8 $ 6,398.9 $ 386.5
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
</TABLE>
- ---------
(1) Income (loss) before taxes, minority interest and extraordinary charges.
(2) Included equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: Paperboard and paper packaging segment
$4.2 and White paper and other segment $15.7.
(3) Included investments in non-consolidated vertically integrated affiliates as
follows: Paperboard and paper packaging segment $85.8 and White paper and
other segment $1,010.4.
(4) Intersegment sales were accounted for at transfer prices which approximate
market prices.
51
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
GEOGRAPHIC SEGMENTS:
The table below provides financial information for the Company's operations
based on the region in which the operations are located.
<TABLE>
<CAPTION>
TRADE INTER-AREA INCOME
(IN MILLIONS) SALES SALES TOTAL SALES (LOSS)(3) ASSETS
- ----------------------------------------------------- ---------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
1997
United States........................................ $ 3,969.5 $ 51.1 $ 4,020.6 $ (.7) $ 2,951.7
Canada............................................... 291.8 54.6 346.4 7.2 781.4
Europe and other..................................... 587.8 -- 587.8 21.1 628.7
---------- --------- ------------ --------- ------------
4,849.1 105.7 4,954.8 27.6 4,361.8
Interest expense..................................... (457.1)
Foreign currency transaction losses.................. (10.7)
General corporate.................................... (164.9 (1) 1,462.3(2)
Inter-area eliminations.............................. (105.7) (105.7)
---------- --------- ------------ --------- ------------
Total................................................ $ 4,849.1 $ -- $ 4,849.1 $ (605.1) $ 5,824.1
---------- --------- ------------ --------- ------------
---------- --------- ------------ --------- ------------
</TABLE>
<TABLE>
<CAPTION>
TRADE INTER-AREA INCOME
(IN MILLIONS) SALES SALES TOTAL SALES (LOSS)(3) ASSETS
- ----------------------------------------------------- ---------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
1996
United States........................................ $ 4,223.5 $ 33.0 $ 4,256.5 $ 243.7 $ 2,961.2
Canada............................................... 309.6 54.5 364.1 (15.1) 916.4
Europe and other..................................... 608.7 -- 608.7 15.9 669.8
---------- ----------- ------------ --------- ------------
5,141.8 87.5 5,229.3 244.5 4,547.4
Interest expense..................................... (413.5)
Foreign currency transaction losses.................. (.5)
General corporate.................................... (19.6 (1) 1,806.4(2)
Inter-area eliminations.............................. (87.5) (87.5) --
---------- ----------- ------------ --------- ------------
Total................................................ $ 5,141.8 $ -- $ 5,141.8 $ (189.1) $ 6,353.8
---------- ----------- ------------ --------- ------------
---------- ----------- ------------ --------- ------------
</TABLE>
<TABLE>
<CAPTION>
TRADE INTER-AREA INCOME
(IN MILLIONS) SALES SALES TOTAL SALES (LOSS)(3) ASSETS
- ---------------------------------------------------- ---------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
1995
United States....................................... $ 5,238.7 $ 46.1 $ 5,284.8 $ 941.9 $ 3,313.4
Canada.............................................. 1,276.8 60.2 1,337.0 334.3 942.5
Europe and other.................................... 835.7 -- 835.7 35.1 627.5
---------- --------- ------------ ---------- ------------
7,351.2 106.3 7,457.5 1,311.3 4,883.4
Interest expense.................................... (460.3)
Foreign currency transaction gains.................. 8.1
General corporate................................... (64.4 (1) 1,515.5(2)
Inter-area eliminations............................. (106.3) (106.3) --
---------- --------- ------------ ---------- ------------
Total............................................... $ 7,351.2 $ -- $ 7,351.2 $ 794.7 $ 6,398.9
---------- --------- ------------ ---------- ------------
---------- --------- ------------ ---------- ------------
</TABLE>
- ---------
(1) Includes equity in net income (loss) of non-consolidated vertically
integrated affiliates as follows: United States $(25.0) in 1997, $(2.0) in
1996 and $3.5 in 1995; Canada $(34.3) in 1997, $74.5 in 1996 and $28.6 in
1995; and other $(11.5) 1997, $(9.3) in 1996 and $(12.2) in 1995.
(2) Includes investments in non-consolidated vertically integrated affiliates as
follows: United States $33.1 in 1997, $37.4 in 1996 and $9.8 in 1995; Canada
$777.6 in 1997, $1,077.9 in 1996 and $1,022.3 in 1995; and other $67.4 in
1997, $69.8 in 1996 and $64.1 in 1995.
(3) Income (loss) before taxes, minority interest and extraordinary charges.
The Company's export sales from the United States were approximately $548
million, $470 million and $839 million for 1997, 1996 and 1995, respectively.
52
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19--SUMMARY OF QUARTERLY DATA (UNAUDITED)
The following table summarizes quarterly financial data for 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
(IN MILLIONS EXCEPT PER SHARE) FIRST SECOND THIRD FOURTH(1) YEAR
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997
Net sales............................................. $ 1,180.8 $ 1,200.2 $ 1,182.8 $ 1,285.3 $ 4,849.1
Cost of products sold................................. 986.8 1,016.7 998.3 1,067.7 4,069.6
Depreciation and amortization......................... 78.5 81.0 73.9 68.3 301.7
Loss before extraordinary charges..................... (96.7) (107.4) (98.7) (101.6) (404.4)
Extraordinary charges from early extinguishments of
debt................................................ -- (13.3) -- -- (13.3)
---------- ---------- ---------- ---------- ----------
Net loss.............................................. (96.7) (120.7) (98.7) (101.6) (417.7)
---------- ---------- ---------- ---------- ----------
Per share of common stock--basic and diluted:
Loss before extraordinary charges..................... (.99) (1.10) (1.01) (1.04) (4.16)
Extraordinary charges from early extinguishments of
debt................................................ -- (.13) -- -- (.13)
---------- ---------- ---------- ---------- ----------
Net loss--basic and diluted........................... (.99) (1.23) (1.01) (1.04) (4.29)
---------- ---------- ---------- ---------- ----------
Cash dividends per common share....................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
QUARTER YEAR
---------------------------------------------- ----------
(IN MILLIONS EXCEPT PER SHARE) FIRST SECOND THIRD FOURTH
- ------------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
Net sales............................................. $ 1,321.5 $ 1,282.3 $ 1,295.1 $ 1,242.9 $ 5,141.8
Cost of products sold................................. 972.2 1,013.0 1,037.1 1,063.1 4,085.4
Depreciation and amortization......................... 79.0 79.0 78.2 78.6 314.8
Income (loss) before extraordinary charges............ 32.4 (21.1) (47.7) (86.1) (122.5)
Extraordinary charges from early extinguishments of
debt................................................ -- -- (3.3) (.3) (3.7)
---------- ---------- ---------- ---------- ----------
Net income (loss)..................................... 32.4 (21.1) (51.0) (86.4) (126.2)
---------- ---------- ---------- ---------- ----------
Per share of common stock--basic:
Income (loss) before extraordinary charges............ .31 (.23) (.50) (.89) (1.32)
Extraordinary charges from early extinguishments of
debt................................................ -- -- (.03) -- (.03)
---------- ---------- ---------- ---------- ----------
Net income (loss)--basic.............................. .31 (.23) (.53) (.89) (1.35)
---------- ---------- ---------- ---------- ----------
Net income (loss)--diluted............................ .30 (.23) (.53) (.89) (1.35)
---------- ---------- ---------- ---------- ----------
Cash dividends per common share....................... .15 .15 .15 .15 .60
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------
(1) The Company's fourth quarter 1997 results were adversely impacted by foreign
currency transaction losses of $26 million, net of tax, or $.26 per common
share. Approximately $22 million of this charge represents the Company's
share of foreign currency transaction losses incurred by certain of the
Company's non-consolidated Canadian affiliates which are accounted for under
the equity method of accounting.
53
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
-----------------------------------
To the Board of Directors of
Stone Container Corporation
Our audits of the consolidated financial statements referred to in our report
dated March 26, 1998, appearing in this Annual Report on Form 10-K also included
an audit of the Financial Statement Schedule listed and appearing in Item 14(a)2
of this Form 10-K. In our opinion, the Financial Statement Schedule 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
March 26, 1998
54
<PAGE>
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN C
COLUMN B -----------
----------- ADDITIONS
BALANCE CHARGED
COLUMN A AT TO COSTS COLUMN D
- --------------------------------------------------------------------------------- BEGINNING AND -----------
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS
- --------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Allowance for doubtful accounts and notes and sales returns and allowances:
Year ended December 31, 1997................................................... $ 24.3 $ 12.0 $ 8.5
Year ended December 31, 1996................................................... $ 22.1 $ 14.9 $ 12.7
Year ended December 31, 1995................................................... $ 20.2 $ 14.6 $ 12.7
<CAPTION>
COLUMN E
-----------
COLUMN A BALANCE
- --------------------------------------------------------------------------------- AT END OF
DESCRIPTION PERIOD
- --------------------------------------------------------------------------------- -----------
<S> <C>
Allowance for doubtful accounts and notes and sales returns and allowances:
Year ended December 31, 1997................................................... $ 27.8
Year ended December 31, 1996................................................... $ 24.3
Year ended December 31, 1995................................................... $ 22.1
</TABLE>
55
<PAGE>
STONE CONTAINER CORPORATION
[LOGO]
150 North Michigan Avenue
Chicago, IL 60601-7568
T he body of this report is printed on 75 brightness Mando-Registered Trademark-
Prime from Abitibi-Consolidated's Fort Frances mill.
<PAGE>
BY-LAWS
OF
STONE CONTAINER CORPORATION
AS AMENDED AND IN EFFECT
MARCH 23, 1998
<PAGE>
BY-LAWS
OF
STONE CONTAINER CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1.1 ANNUAL MEETING. The annual meeting of stockholders
for the election of directors and the transaction of such other business as
may properly come before it shall be held on the second Tuesday of May of
each year, or such other date, and at such time and place, within or without
the State of Delaware, as shall be determined by resolution of the Board of
Directors. If the day fixed for the annual meeting is a legal holiday, such
meeting shall be held on the next succeeding business day.
Except as otherwise provided by the laws of Delaware or the
Certificate of Incorporation of the Corporation, the only business which
properly shall be conducted at any annual meeting of stockholders shall (a)
have been specified in the written notice of the meeting (or any supplement
thereto) given as provided in Section 1.3, (b) be brought before the meeting
by or at the direction of the Board of Directors or the officer of the
Corporation presiding at the meeting or (c) have been specified in a written
notice (a "Stockholder Meeting Notice") given to the Corporation, in
accordance with all of the following requirements, by or on behalf of any
stockholder who is entitled to vote at such meeting. Each Stockholder
Meeting Notice must be delivered personally to, or be mailed to and received
by, the Secretary of the Corporation at the principal executive offices of
the Corporation, in Chicago, Illinois, not less than sixty nor more than
ninety days prior to the annual meeting; PROVIDED, HOWEVER, that in the event
that less than seventy days' notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders, notice by the
stockholder to be timely must be received not later than the close of
business on the tenth day following the day on which such notice of the date
of the annual meeting was mailed or such public disclosure was made,
whichever first occurs. Each Stockholder Meeting Notice shall set forth:
(a) a description of each item of business proposed to be brought before the
meeting and the reasons for conducting such business at the annual meeting;
(b) the name and record address of the stockholder proposing to bring such
item of business before the meeting; (c) the class and number of shares of
capital stock held of record, owned beneficially and represented by proxy by
such stockholder as of the record date for the meeting (if such date shall
then have been made publicly available) and as of the date of such
Stockholder Meeting Notice; and (d) such other information which would be
required to be included in a proxy statement filed with the Securities and
Exchange Commission if, with respect to any such item of business, such
stockholder were a participant in a solicitation subject to Section 14 of the
Securities Exchange Act of 1934, as amended. No business shall be brought
before any annual meeting of stockholders of the Corporation otherwise than
as provided in this Section 1.1; PROVIDED, HOWEVER, that nothing contained in
this Section 1.1 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting. The officer of the
Corporation presiding at the annual meeting of stockholders shall, if the
facts so warrant, determine that business was not properly brought before the
meeting in accordance with the provisions of this Section 1.1 and, if such
officer should so determine, such officer shall so declare to the meeting and
any such business so determined to be not properly brought before the meeting
shall not be transacted.
Section 1.2 SPECIAL MEETING. Special meetings of stockholders may
only be called by the Board of Directors or the Chairman of the Board.
Special meetings of stockholders may be held at such places, within or
without the State of Delaware, as may be specified in the call of any meeting.
Section 1.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written
notice of every meeting of stockholders stating the place, date, time and
purposes thereof, shall, except when otherwise required by the laws of the
State of Delaware, be mailed at least ten but not more than sixty days prior
to the meeting to each stockholder of record entitled to vote thereat. Any
meeting at which a quorum of stockholders is present, in person or by proxy,
may adjourn from time to time without notice other than announcement at such
meeting until its business is completed. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date
<PAGE>
is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting.
Section 1.4. QUORUM. The holders of a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote,
present in person or by proxy, shall, except as otherwise provided by law,
constitute a quorum for the transaction of business at all meetings of
stockholders. If at any meeting a quorum is not present, the chairman of the
meeting or the holders of the majority of the voting power of the shares of
capital stock present or represented may adjourn the meeting from time to
time until a quorum is present. At the adjourned meeting, the Corporation
may transact any business that might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record dated is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. The stockholders present or represented at
a duly called or held meeting at which a quorum is present may continue to
transact business until final adjournment notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
Section 1.5 VOTING. (a) Except as otherwise provided in the
Certificate of Incorporation of the Corporation or these By-Laws, each holder
of capital stock entitled to vote at a stockholders' meeting shall, as to all
matters in respect of which such capital stock has voting rights, be entitled
to one vote in person or by written proxy for each share of capital stock
owned of record by him, but no proxy shall be voted or acted upon after three
years from its date unless the proxy provides for a longer period. No vote
upon any matter need be by ballot unless demanded by the holders of at least
ten percent of the voting power of the shares represented and entitled to
vote at the meeting. Except as provided in Section 1.5(b) of these By-Laws
with respect to the election of directors, all questions or matters shall be
decided by a majority of the votes cast, unless otherwise required by the
laws of the State of Delaware, the Certificate of Incorporation or these
By-Laws.
(b) In all elections for directors, each stockholder entitled to
vote thereat shall be entitled to as many votes as shall equal the number of
votes which (except for this Section 1.5(b)) such stockholder would be
entitled to cast for the election of directors with respect to such
stockholder's shares of stock multiplied by the number of directors to be
elected, and such stockholder may cast all of such votes for a single
director or may distribute them among the number to be voted for or for any
two or more of them as such stockholder may see fit.
Section 1.6 CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. (a) Any
action required to be taken or which may be taken at any annual or special
meeting of stockholders of the Corporation may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting
forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
(b) Within three business days after receipt of the earliest
dated consent delivered to the Corporation in the manner provided in Section
228(c) of the Delaware General Corporation Law or the determination by the
Board of Directors of the Corporation that the Corporation should seek
corporate action by written consent, as the case may be, the Secretary of the
Corporation shall engage nationally recognized independent inspectors of
elections for the purpose of performing a ministerial review of the validity
of the consents and revocations. The cost of retaining inspectors of
election shall be borne by the Corporation.
(c) Consents and revocations shall be delivered to the inspectors
upon receipt by the Corporation, any stockholder or stockholders soliciting
consents or soliciting revocations in opposition to action by consent
proposed by the Corporation ("Soliciting Stockholders"), proxy solicitors of
the Corporation or Soliciting Stockholders or other designated agents. As
soon as consents and revocations are received, the inspectors shall review
the consents and revocations and shall maintain a count of the number of
valid and unrevoked consents. The inspectors shall keep such count
confidential and shall not reveal the count to the Corporation, the
Soliciting Stockholders, representatives of the Corporation or the Soliciting
Stockholders or any other entity. As soon as practicable after the earlier
of (i) sixty days after the date of the earliest dated consent delivered to
the Corporation in the manner provided in Section 228(c) of the Delaware
General Corporation Law or (ii) a written request therefor by the Corporation
or Soliciting Stockholders, whichever is soliciting consents, notice of which
request shall be given to the party opposing the solicitation of consents, if
any, and which shall state that the Corporation or Soliciting
2
<PAGE>
Stockholders, as the case may be, have a good faith belief that the requisite
number of valid and unrevoked consents to authorize or take the action
specified in the consents has been received in accordance with these By-Laws,
the inspectors shall issue a preliminary report to the Corporation and the
Soliciting Stockholders stating: (i) the number of valid consents; (ii) the
number of valid revocations; (iii) the number of valid and unrevoked
consents; (iv) the number of invalid consents; (v) the number of invalid
revocations; (vi) whether, based on their preliminary count, the requisite
number of valid and unrevoked consents has been obtained to authorize or take
the action specified in the consents.
(d) Unless the Corporation and the Soliciting Stockholders shall
agree to a shorter or longer period, the Corporation and the Soliciting
Stockholders shall have 48 hours to review the consents and revocations and
to advise the inspectors and the opposing party in writing as to whether they
intend to challenge the preliminary report of the inspectors. If no written
notice of an intention to challenge the preliminary report is received within
48 hours after the inspectors' issuance of the preliminary report, the
inspectors shall issue to the Corporation and the Soliciting Stockholders
their final report containing the information from the inspectors'
determination with respect to whether the requisite number of valid and
unrevoked consents was obtained to authorize or take the action specified in
the consents. If the Corporation or the Soliciting Stockholders issue
written notice of an intention to challenge the inspectors' preliminary
report within 48 hours after the issuance of that report, a challenge session
shall be scheduled by the inspectors as promptly as practicable. A
transcript of the challenge session shall be recorded by a certified court
reporter. Following completion of the challenge session, the inspectors
shall as promptly as practicable issue their final report to the Soliciting
Stockholders and the Corporation, which report shall contain the information
included in the preliminary report, plus all changes in the vote totals as a
result of the challenge or otherwise and a certification of whether the
requisite number of valid and unrevoked consents was obtained to authorize or
take the action specified in the consents. A copy of the final report of the
inspectors shall be included in the book in which the proceedings of meetings
of stockholders are recorded.
(e) The Corporation shall give prompt notice to the stockholders
of the results of any consent solicitation or the taking of the corporate
action without a meeting by less than unanimous written consent.
Section 1.7 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of capital stock or for the
purpose of any other lawful action other than stockholder action by written
consent, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any such other action.
(b) If no record date is fixed:
(1) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held.
(2) The record date for determining stockholders for any other
purpose other than stockholder action by written consent shall be
at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new
record date for the adjourned meeting.
(d) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix, in advance, a record date, which shall not be
more than ten days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. Any stockholder or record seeking
to have the stockholders authorize or take corporate action by written
3
<PAGE>
consent shall, by written notice to the Secretary of the Corporation at its
principal executive offices in Chicago, Illinois, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but
in all events within ten days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has
been fixed by the Board of Directors within ten days after the date on which
such a request is received, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by applicable law, shall
be the first date on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the Corporation by delivery to
its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified
or registered mail, return receipt requested. If no record date has been
fixed by the Board of Directors and prior action by the Board of Directors is
required by applicable law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be
at the close of business on the date on which the Board of Directors adopts
the resolution taking such prior action.
ARTICLE II
DIRECTORS
Section 2.1 NUMBER, ELECTION AND TERM OF OFFICE OF DIRECTORS. The
Board of Directors of the Corporation shall consist of not less than 10 nor
more than 15 directors, the number thereof to be determined from time to time
by resolution of the Board of Directors, except that from time to time, such
number shall be deemed, for all purposes of these By-Laws and otherwise,
increased or decreased (each such increase or decrease to occur automatically
without any action required by the Corporation, the Board of Directors or the
stockholders) to the extent required by the terms of any issued and
outstanding series of preferred stock of the Corporation. Each director
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal. No director need be a stockholder.
Section 2.2 RESIGNATION OR REMOVAL. Any director may resign by
giving written notice to the Board of Directors or the Chairman of the Board,
any such resignation shall take effect at the time of receipt of notice
thereof or at any later time specified therein, and, unless expressly
required, acceptance of such resignation shall not be necessary to make it
effective. Except as otherwise required by the laws of the State of Delaware,
the Certificate of Incorporation or in any Preferred Stock Designation (as
defined in Article Fourth of the Certificate of Incorporation), any director
may be removed, with or without cause, by the affirmative vote or consent of
the holders of a majority of the voting power of shares of capital stock
issued and outstanding and entitled to vote.
Section 2.3 VACANCIES. Except as otherwise required by the
Certificate of Incorporation or in any Preferred Stock Designation, any
vacancy occurring in the Board of Directors and any directorship to be filled
by reason of an increase in the number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by
the stockholders. A director elected to fill a vacancy shall hold office
until his successor is elected and qualified or until his earlier resignation
or removal. Except as otherwise required by the Certificate of
Incorporation, when one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill
such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this Section 2.3 for the filling of
other vacancies.
Section 2.4 PLACE OF MEETINGS. Meetings of the Board of Directors
may be held at such places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as may be specified in
the call of any meetings.
Section 2.5 REGULAR MEETINGS. A regular annual meeting of the
Board of Directors shall be held without call or notice immediately after and
at the same general place as the annual meeting of stockholders, for the
purpose of organizing the Board of Directors, electing officers and
transacting any other business that may properly
4
<PAGE>
come before the meeting. Additional regular meetings of the Board of
Directors may be held without call or notice at such place and at such time
as shall be fixed by resolution of the Board of Directors.
Section 2.6 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors or any two
directors then in office. Notice of special meetings either shall be mailed
by the Secretary to each director at least two days before the meeting or
shall be given personally or telegraphed or telecopied to each director by
the Secretary at least twenty-four hours before the meeting. Such notice
shall set forth the date, time and place of such meeting but need not, unless
otherwise required by law, state the purpose of the meeting.
Section 2.7 QUORUM AND VOTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors unless otherwise provided by the laws of the State of
Delaware, the Certificate of Incorporation or these By-Laws. A majority of
the directors present at any meeting at which a quorum is present may adjourn
the meeting to any other date, time or place without further notice other
than announcement at the meeting. If at any meeting a quorum is not present,
a majority of the directors present may adjourn the meeting to any other
date, time or place without notice other than announcement at the meeting
until a quorum is present.
Section 2.8 COMPENSATION. The directors shall be paid their
reasonable expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors and an annual retainer or salary for services as a
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 2.9 TELEPHONIC MEETINGS. Members of the Board of
Directors may participate in a meeting of the Board of Directors by means of
conference telephone or other similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 2.9 shall constitute
presence in person at such meeting.
Section 2.10 RETIREMENT. No person shall be nominated or elected
to the office of director of the Corporation if he or she has attained, as of
the date of the annual or special meeting of stockholders at which he or she
is to be elected, the age of 70.
Section 2.11 HONORARY DIRECTORS. Mr. Marvin N. Stone and Mr.
Jerome H. Stone shall be honorary directors and, as such, shall be entitled
to notice of and to participate at meetings of directors, but shall have no
vote.
Section 2.12 EXECUTIVE COMMITTEE. The Board of Directors may, in
its discretion by resolution passed by a majority of the Board of Directors,
designate an Executive Committee consisting of such number of directors as
the Board of Directors shall determine. The Executive Committee shall have
and may exercise all of the authority of the Board of Directors in the
management of the Corporation with respect to any matter which may require
action prior to, or which in the opinion of the Executive Committee may be
inconvenient, inappropriate or undesirable to be postponed until, the next
meeting of the Board of Directors; PROVIDED, the Executive Committee shall
have no authority to obligate the Corporation to any expenditure or liability
in excess of $1,500,000 in respect of any one project or series of related
projects unless in furtherance of resolutions or actions previously adopted
by the Board of Directors; and FURTHER PROVIDED, the Executive Committee
shall not have the power or authority of the Board of Directors in reference
to amending the Certificate of Incorporation, adopting an agreement of merger
or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or
a revocation of a dissolution, or amending these By-Laws. Any member of the
Board of Directors may request the Chairman of the Executive Committee to
call a meeting of the Executive Committee with respect to a specified subject.
Section 2.13 OTHER COMMITTEES. The Board of Directors may from
time to time, in its discretion, by resolution passed by a majority of the
Board of Directors, designate, and appoint, other committees of one or more
directors which shall have and may exercise such lawfully delegable powers
and duties conferred or authorized by the
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resolutions of designation and appointment. The Board shall have power at
any time to change the members of any such committee, to fill vacancies, and
to discharge any such committee.
Section 2.14 NOMINATIONS. Except as otherwise provided in the
Certificate of Incorporation or any Preferred Stock Designation relating to
the rights of the holder of any one or more classes or series of preferred
stock issued by the Corporation, acting separately by class or series, to
elect, under specified circumstances, directors at a meeting of stockholders,
nominations for the election of directors may be made by the Board of
Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of directors generally.
However, any stockholder entitled to vote in the election of directors
generally may nominate one or more persons for election as directors at a
meeting at which directors are to be elected only if written notice of such
stockholder's intent to make such nomination or nominations has been
delivered personally to, or been mailed to and received by, the Secretary of
the Corporation at the principal executive offices of the Corporation in
Chicago, Illinois, not less than sixty days nor more than ninety days prior
to the meeting; PROVIDED, HOWEVER, that, in the event that less than seventy
days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Each such notice shall set
forth: (i) the name and record address of the stockholder who intends to
make the nomination; (ii) the name, age, principal occupation or employment,
business address and residence address of the person or persons to be
nominated; (iii) the class and number of shares of capital stock held of
record, owned beneficially and represented by proxy by such stockholder and
by the person or persons to be nominated as of the record date for the
meeting (if such date shall then have been made publicly available) and the
date of such notice; (iv) a representation that the stockholder intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (v) a description of all arrangements or
understandings between such stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination
or nominations are to be made by such stockholder; (vi) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the Securities
Exchange Act of 1934, as amended, and the proxy rules of the Securities and
Exchange Commission; and (vii) the consent of each nominee to serve as a
director of the Corporation if so elected. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. The officer of the
Corporation presiding at the meeting of stockholders shall, if the facts so
warrant, determine that a nomination was not made in accordance with the
provisions of this Section 2.14 and, if such officer should so determine,
such officer shall so declare to the meeting and the defective nomination
shall be disregarded. No person shall be eligible for election as a director
of the Corporation unless nominated in accordance with the procedures set
forth in these By-Laws.
ARTICLE III
OFFICERS
Section 3.1 NUMBER AND DESIGNATION. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents (the number thereof to be determined by the Board of Directors and
one or more of whom may be designated as Executive Vice Presidents or Senior
Vice Presidents), a Secretary and a Treasurer, and such Assistant
Secretaries, Assistant Treasurers or other officers as may be elected or
appointed by the Board of Directors. Any two or more offices may be held by
the same person, except that no one person may hold the offices of both
Chairman of the Board and Secretary nor both President and Secretary.
Section 3.2 ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices created and filled at any meeting of
the Board of Directors. Each officer shall hold office until his or her
successor shall have been duly elected and shall have qualified or until his
or her earlier resignation or removal.
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Section 3.3 REMOVAL. Any officer or agent elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Corporation would be served thereby,
but such removal shall be without prejudice to the contract rights, if any,
of the person so removed.
Section 3.4 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 3.5 CHAIRMAN OF THE BOARD. The Chairman of the Board
shall be the chief executive officer of the Corporation and shall in general
supervise and control all of the business and affairs of the Corporation.
The Chairman of the Board may sign, alone or with the Secretary or any other
proper officer of the Corporation thereunto authorized by the Board of
Directors, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where
the signing and execution thereof shall be expressly delegated by the Board
of Directors or by these By-Laws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed,
and in general he shall perform all duties incident to the office of Chairman
of the Board and such other duties as from time to time may be prescribed by
the Board of Directors. When present, he shall preside at all meetings of
the stockholders and of the Board of Directors.
Section 3.6 PRESIDENT. The President shall be the principal
officer of the Corporation, second only to the Chairman of the Board. In the
absence of the Chairman of the Board or in the event of his or her inability
or refusal to act as Chairman of the Board, the President shall perform the
duties of the Chairman of the Board and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Chairman of the
Board. He or she may sign, alone or with the Secretary or any other proper
officer of the Corporation thereunto authorized by the Board of Directors,
any deeds, mortgages, bonds, contracts, or other instruments which the Board
of Directors has authorized to be executed, except in cases where the signing
and execution thereof shall be expressly delegated by the Board of Directors
or by these By-Laws to some other officer or agent of the Corporation, or
shall be required by law to be otherwise signed or executed, and in general
he shall perform all duties incident to the office of President and such
other duties as from time to time may be prescribed by the Board of Directors
or the Chairman of the Board.
Section 3.7 THE VICE PRESIDENTS. In the absence of the President
or in the event of his or her inability or refusal to act, the Vice President
(or in the event there be more than one Vice President, the Vice Presidents
in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President shall perform such
duties as from time to time may be assigned to him or her by the Chairman of
the Board, the President or by the Board of Directors.
Section 3.8 THE TREASURER. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his duties in
such sum and with such surety or sureties as the Board of Directors shall
determine. The Treasurer shall have charge and custody of and be responsible
for all funds and securities of the Corporation, receive and give receipts
for moneys due and payable to the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of Article IV of these By-Laws. The Treasurer shall in general
perform all the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him or her by the Chairman of
the Board, the President or by the Board of Directors.
Section 3.9 THE SECRETARY. The Secretary shall: (a) keep the
minutes of the stockholders' and of the Board of Directors' meetings in one
or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by
law; (c) be custodian of the corporate records and of the seal of the
Corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the Secretary by such stockholder;
(e) have general charge of the stock transfer books of the Corporation; and
(f) in general perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him or her by the
President or the Board of Directors.
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Section 3.10 ASSISTANT TREASURERS AND SECRETARIES. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine. The Assistant Treasurers
and Assistant Secretaries, in general, shall perform such duties as shall be
assigned to them by the Treasurer or the Secretary, respectively, or by the
Chairman of the Board, the President or the Board of Directors.
Section 3.11 SALARIES. The salaries of the officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE IV
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 4.1 CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the Corporation,
and such authority may be general or confined to specific instances.
Section 4.2 LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in the name of
the Corporation unless authorized by a resolution of the Board of Directors.
Such authority may be general or confined to specific instances.
Section 4.3 CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for the payment of money issued in the name of the Corporation shall
be signed by such officers, employees or agents of the Corporation as shall
from time to time be designated by the Chairman of the Board, the President,
the Vice President-Finance or the Treasurer.
Section 4.4 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as shall be
designated from time to time by the Chairman of the Board, the President, a
Vice President or the Treasurer; and such officers may designate any type of
depository arrangement (including but not limited to depository arrangements
resulting in net debits against the Corporation) as from time to time offered
or available.
ARTICLE V
CERTIFICATES OF STOCK
The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the Board of
Directors may from time to time prescribe. The shares of the stock of the
Corporation shall be transferred on the books of the Corporation by the
holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power
of transfer endorsed thereon or attached thereto, duly executed, with such
proof of the authenticity of the signature as the Corporation or its agents
may reasonably require.
The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
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ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January in each year and end on the thirty-first day of December in each year.
ARTICLE VII
OFFICES
The Corporation may have offices outside of the State of Delaware
at such places as shall be determined from time to time by the directors.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 GENERAL. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a
person of whom he or she is the legal representative is or was a director,
officer or employee of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the General
Corporation Law of the State of Delaware as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit or his or her heirs, executors and administrators; PROVIDED,
HOWEVER, that except as provided in Section 8.2 with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. The
right to indemnification conferred in this Article VIII shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that if the General Corporation Law of the
State of Delaware requires, the payment of such expenses incurred by a
director of officer in his or her capacity as a director or officer (and not
in any other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking by or
on behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not entitled
to be indemnified under this Article VIII or otherwise.
Section 8.2 EXPENSES. If a claim under Section 8.1 is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. It shall be a defense to any
such
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action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which
make it permissible under the General Corporation Law of the State of
Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel or stockholders) to have made a determination prior
to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard
of conduct set forth in the General Corporation Law of the State of Delaware,
nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable standard
of conduct.
Section 8.3 NON-EXCLUSIVE. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article VIII shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, By-Law, agreement,
vote of stockholders or disinterested directors or otherwise.
Section 8.4 INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust
or other enterprise against any expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of the State of
Delaware.
Section 8.5 AGENTS. The Corporation may, to the extent authorized
from time to time by the Board of Directors, grant rights to indemnification,
and rights to be paid by the Corporation the expenses incurred in defending
any proceeding in advance of its final disposition, to any agent of the
Corporation to the fullest extent of the provisions of this Article VIII with
respect to the indemnification and advancement of expenses of directors,
officers and employees of the Corporation.
ARTICLE IX
AMENDMENTS
Except to the extent otherwise provided in the Certificate of
Incorporation, any Preferred Stock Designation or these By-Laws, these
By-Laws shall be subject to alteration, amendment or repeal, and new By-Laws
may be adopted (i) by the affirmative vote of the holders of not less than a
majority of the voting power of all of the outstanding shares of capital
stock of the Corporation then entitled to vote generally in the election of
directors, voting together as a single class, at any regular or special
meeting of the stockholders, or (ii) by the affirmative vote of not less than
a majority of the members of the Board of Directors at any meeting of the
Board of Directors at which there is a quorum present and voting; PROVIDED,
that in the case of clause (i), any alteration, amendment or repeal made with
respect to, or the adoption of a new By-Law inconsistent with, Section 1.5(b)
of Article I of these By-Laws, shall require the affirmative vote of the
holders of not less than eighty percent of the voting power of all of the
outstanding shares of capital stock of the Corporation then entitled to vote
generally in the election of directors.
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Exhibit 4(g)
FIRST AMENDMENT
OF CREDIT AGREEMENT
THIS FIRST AMENDMENT OF CREDIT AGREEMENT, dated as of December 23, 1997
(this "AMENDMENT"), 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 the undersigned financial institutions in
their capacities as Co-Agents.
RECITALS:
A. The Borrower, Bank of America National Trust & Savings Association,
The Bank of New York, The Bank of Nova Scotia, Caisse Nationale de Credit
Agricole, 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, N.A. (Carolinas), The Sumitomo Bank, Ltd.,
Chicago Branch and Toronto Dominion (Texas), Inc., as co-agents
(collectively, the "CO-AGENTS," and each individually, a "CO-AGENT"), the
Agent and the Lenders are parties to that certain Amended and Restated Credit
Agreement dated as of June 19, 1997 (the "CREDIT AGREEMENT").
B. The Borrower has requested the Agent and the Lenders to amend the
Credit Agreement to, among other things, adjust the Indebtedness Ratio levels
that are required to be maintained by the Borrower under SECTION 5.3 of the
Credit Agreement, and to modify certain other provisions of the Credit
Agreement.
C. The Borrower, 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. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement
is, as of the Effective Date (as defined below), hereby amended as follows:
(a) SECTION 3.4(c) of the Credit Agreement is amended by deleting
"(but excluding (1) indebtedness required to be repaid upon any subsequent
conversion, exchange or other receipt of Monetized Assets and (2) any
indebtedness related to the German Financing that is repaid as contemplated
in clause (H) below)" appearing in clause (iii) of the second sentence of
such Section and substituting therefor the following:
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"(but excluding indebtedness required to be repaid upon any
subsequent conversion, exchange or other receipt of Monetized
Assets)"
(b) SECTION 3.4(c) of the Credit Agreement is further amended by
deleting clauses (G) through (L) appearing in the second sentence of such
Section and substituting therefor the following:
"(G) up to an aggregate amount of $300 million (such amount being
referred to herein as the "EXCLUDED SALE PROCEEDS BASKET") of net
proceeds from the sale or other disposition of Assets not
constituting (1) Abitibi Shares, (2) the capital stock of Stone
Snowflake as permitted by SECTION 5.2.12(vi) and (3) Collateral
or Mortgaged Property or Assets constituting Collateral or
Mortgaged Property for which Substitute Collateral has been
provided pursuant to SECTION 9.13(c), designated by the Borrower
in writing to the Agent as being excluded from the prepayment
requirements of this Section (any amount so designated being
"EXCLUDED SALE PROCEEDS"), with the Excluded Sale Proceeds Basket
being subject to reduction by the amount of the Abitibi 75%
Portion; (H) proceeds from the cancellation of the German
Financing Intercompany Note upon the consummation of the German
Financing Subsidiary Transfer; (I) proceeds from any Abitibi
Sale/Monetization; (J) proceeds from the sale or other
disposition of any Assets constituting collateral which secures
the Indebtedness under the First Mortgage Note Documents; or (K)
proceeds from the sale or other disposition of any Assets
constituting collateral which secures the Indebtedness incurred
pursuant to SECTION 5.2.2.(x) but only to the extent such
proceeds are promptly used to repay such Indebtedness."
(c) A new SECTION 3.4(f) is added to the Credit Agreement as follows:
"(f) PREPAYMENT FROM GERMAN FINANCING. If the German Financing
is consummated, the Borrower shall as soon as possible (but in
any event within five Business Days after the consummation of the
German Financing and the incurrence of the Indebtedness
thereunder) prepay a portion of the E Tranche Term Loan with all
of the net proceeds of the Indebtedness incurred in the German
Financing, net of direct costs and expenses incurred in
connection with the German Financing."
(d) SECTION 3.6(b) of the Credit Agreement is amended by deleting
"(other than prepayments made (A) under SECTION 3.4(c) with any Material
Sale Proceeds derived from the sale of any Collateral or Mortgaged Property
and (B) under SECTION 3.4(d) with any proceeds derived from any Abitibi
Sale/Monetization)" appearing in such Section and substituting therefor the
following:
"(other than prepayments made (A) under SECTION 3.4(c) with any
Material Sale Proceeds derived from the sale of any Collateral or
Mortgaged Property,
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(B) under SECTION 3.4(d) with any proceeds derived from any Abitibi
Sale/Monetization and (C) under SECTION 3.4(f) with the net proceeds
derived from the German Financing)"
(e) A new SECTION 3.6(h) is added to the Credit Agreement immediately
following SECTION 3.6(g) as follows:
"(h) All prepayments of principal of the E Tranche Term Loan made
by the Borrower pursuant to SECTION 3.4(f) shall be applied (i)
to the unpaid principal amount of the E Tranche Term Loan in the
inverse order of the remaining regularly scheduled principal
installments set forth in SECTION 2.2(g); together with accrued
interest on such prepaid principal amount; and (ii) first to the
payment of Prime Rate Loans and second to the payment of
Eurodollar Rate Loans, and within such Eurodollar Rate Loans, pro
rata in order of the maturity of the Interest Periods of such
Loans."
(f) SECTION 5.2.2(c) of the Credit Agreement is amended by deleting
"(it being understood and agreed that the Stone-Canada Intercompany Note
shall not be deemed to make the Indebtedness incurred in the German
Financing recourse to Stone-Canada for purposes of this SECTION 5.2.2(c))"
appearing at the end of such Section and substituting therefor the
following:
"(it being understood and agreed that the German Financing
Intercompany Note shall not be deemed to make the Indebtedness
incurred in the German Financing recourse to the obligor thereof
for purposes of this SECTION 5.2.2(C))"
(g) SECTION 5.2.2(d) of the Credit Agreement is amended by deleting
such Section in its entirety and substituting therefor the following:
"(d) intercompany loans and advances (i) made in the ordinary
course of business to the Borrower or Wholly-Owned Subsidiaries
of the Borrower and, in the case of non-Wholly-Owned
Subsidiaries, Indebtedness arising out of Investments permitted
by SECTION 5.2.7; (ii) evidenced by the German Financing
Intercompany Note; or (iii) made to StoneSub in an aggregate
principal amount at any time outstanding not in excess (together
with any unreimbursed capital contributions made pursuant to
SECTION 5.2.7(h)) of (A) the amounts contemplated from time to
time by the terms of the respective Receivables Financings and
(B) those amounts, up to an aggregate at any one time outstanding
of $5 million for each $100 million (on a pro-rated basis) of
Receivables Financings which have been established and are in
existence at such time, which may be advanced to StoneSub in
order to cure or remedy, or otherwise avoid the commencement of,
liquidation, termination or similar events in connection with the
Receivables Financings; PROVIDED, HOWEVER, that (1) all such
intercompany loans and advances owing to or in favor of the
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Borrower from Stone-Canada are evidenced by an intercompany
promissory note in the form of EXHIBIT 5.2.2(d) hereto (or such
other form, in form and substance satisfactory to the Agent),
which notes are delivered to the Agent and pledged by the
Borrower to the Agent as Collateral pursuant to a Pledge
Agreement, (2) except as otherwise expressly permitted under this
Agreement, this clause (d) shall not be deemed to permit
intercompany Indebtedness for Money Borrowed made to SVCPI (other
than pursuant to contractual agreements permitted by this
Agreement and as in effect on the date hereof) or to S-CC or any
of S-CC's Subsidiaries other than Indebtedness for Money Borrowed
made between S-CC and its Subsidiaries or between Subsidiaries of
S-CC, and (3) this clause (d) shall not be deemed to permit
intercompany Indebtedness for Money Borrowed made to Stone
Container GmbH or any of its Subsidiaries except for (x)
Indebtedness for Money Borrowed made between Stone Container GmbH
and its Subsidiaries or between Subsidiaries of Stone Container
GmbH and (y) Indebtedness for Money Borrowed evidenced by the
German Financing Intercompany Note;"
(h) SECTION 5.2.2(T) of the Credit Agreement is amended by adding the
following at the end of such Section:
"and PROVIDED FURTHER, that until such time as the Borrower has
fully complied with provisions set forth in the first proviso to
SECTION 5.2.10(e), neither the Borrower nor any of its
Subsidiaries will incur any further Indebtedness under this
SECTION 5.2.2(t) from and after December 23, 1997 except for the
sole purpose of repaying the Excess Revolver Amount, if any, as
provided in SECTION 5.2.10(e); and PROVIDED FURTHER, that if the
aggregate principal amount of Indebtedness which the Borrower
proposes to incur under this SECTION 5.2.2(t) in order to repay
the Excess Revolver Amount exceeds the aggregate principal amount
which the Borrower and its Subsidiaries are permitted to incur
under this SECTION 5.2.2(t) (after giving effect to all prior
incurrences of Indebtedness hereunder), then the aggregate
principal amount of Indebtedness permitted to be incurred under
this SECTION 5.2.2(t) shall be increased in an amount necessary
such that the principal amount of such Indebtedness proposed to
be incurred under this SECTION 5.2.2(t) will be equal to the
Excess Revolver Amount;"
(i) SECTION 5.2.3(i) of the Credit Agreement is amended by deleting
such Section in its entirety and substituting therefor the following:
"(i) guarantees by the Borrower or any Subsidiary of the Borrower
of Indebtedness of any Person not exceeding $10 million in
aggregate principal amount at any time."
(j) SECTION 5.2.4 of the Credit Agreement is amended by deleting
clause (iii) appearing in such Section and substituting therefor the
following:
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<PAGE>
"(iii) the German Financing Intercompany Note and the German
Financing Subsidiary Transfer and"
(k) SECTION 5.2.7(f) of the Credit Agreement is amended by deleting
such Section in its entirety and substituting therefor the following:
"(f) loans or advances of a type included in the definition of
Investments and made by the Borrower or any Subsidiary of the
Borrower in the ordinary course of the Borrower's or such
Subsidiary's business; PROVIDED, HOWEVER, that no such loans or
advances shall be made to Stone Container GmbH or any of its
Subsidiaries other than (A) such loans and advances made between
Stone Container GmbH and its Subsidiaries or between Subsidiaries
of Stone Container GmbH and (B) cancellation of the German
Financing Intercompany Note as contemplated in clause (vii) of
SECTION 5.2.12;"
(l) SECTION 5.2.10(a) of the Credit Agreement is amended by (i)
deleting the words "Stone-Canada" appearing in clause (iv) of such Section
and substituting therefor the words "German Financing", (ii) inserting the
word "and" immediately prior to subclause (C) appearing in clause (xv) of
such Section and (iii) deleting the subclause "and (D) utilizing the
proceeds of the German Financing as permitted by clause (iii) of the
definition of "German Financing"" appearing in clause (xv) of such Section.
(m) SECTION 5.2.10(a) of the Credit Agreement is further amended by
(i) deleting the word "and" appearing immediately prior to clause (xvii) of
such Section and (ii) inserting a new clause (xviii) at the end of such
Section as follows:
"and (xviii) the obligor under the German Financing Intercompany
Note may affect the cancellation of such note in full on or prior
to March 31, 1998 solely in consideration of the German Financing
Subsidiary Transfer;"
(n) SECTION 5.2.10(d) of the Credit Agreement is amended by deleting
clause (iii) appearing at the end of such Section and substituting therefor
the following:
"(iii) amend, modify, grant any waiver or otherwise change any
provision of the German Financing Intercompany Note."
(o) SECTION 5.2.10(e) of the Credit Agreement is amended by deleting
such Section in its entirety and replacing it with the following:
"(e) Make any mandatory offer to purchase, or redeem or purchase,
any Indebtedness created pursuant to or evidenced by any of the
Specified Senior Indentures pursuant to a "Deficiency Offer" made
in accordance with Article Eleven (or any other similar Article
or provision) of any thereof (it being understood and agreed that
no such Deficiency Offer may be directly or indirectly made out
of the proceeds of Indebtedness incurred as permitted by
-5-
<PAGE>
SECTION 5.2.2(q) or out of Discretionary Funds); PROVIDED, HOWEVER,
that the Borrower may make a Deficiency Offer solely with respect to
the Borrower's failure to maintain the Minimum Subordinated
Capital Base (as such term is defined in each of the Senior
Indentures) as of Borrower's two consecutive Fiscal Quarters
ended September 30, 1997 and December 31, 1997, no later than
February 28, 1998 (regardless of the actual payment date for
securities accepted pursuant to such Deficiency Offer) in
accordance with the terms and conditions set forth in Article
Eleven of each of the Senior Indentures, provided that the
Borrower satisfies each of the following conditions: (i) the
aggregate amount of principal paid by the Borrower in such
Deficiency Offer shall not exceed $200,000,000; and (ii) in the
event the Borrower uses proceeds, whether directly or indirectly,
of Revolving Loans and/or Supplemental Revolving Loans in an
aggregate amount in excess of $100,000,000 (such amount in excess
of $100,000,000 being referred to herein as the "EXCESS REVOLVER
AMOUNT"), then the Borrower shall repay such Excess Revolver
Amount on or before the 180th day following the incurrence of
such Revolving Loans and/or Supplemental Loans, the proceeds of
which are used, directly or indirectly, to fund such Deficiency
Offer, with proceeds from the incurrence of Indebtedness which
the Borrower or any of its Subsidiaries incurs in compliance with
the terms and conditions of this Agreement (including, without
limitation, SECTION 5.2.2); PROVIDED FURTHER, that if the
aggregate principal amount of Revolving Loans and Supplemental
Revolving Loans borrowed in connection with such permitted
Deficiency Offer is equal to or greater than $60,000,000, then
the Borrower shall pay to the Agent on the 120th day (the "FEE
PAYMENT DATE") following the date on which such Revolving Loans
and/or Supplemental Revolving Loans are incurred, for ratable
distribution to those Lenders (including an assignee of any such
Lender pursuant to SECTION 9.12(d), the "FIRST AMENDMENT
LENDERS") that have executed and delivered on or prior to
December 23, 1997 that certain First Amendment of Credit
Agreement dated as of December 23, 1997 among the Borrower, the
Agent and the Lenders signatory thereto, a fee equal to .10% of
the aggregate outstanding Loans (in the case of Term Loans,
Additional Term Loans, D Tranche Term Loans and E Tranche Term
Loans) and Commitments (in the case of Revolving Loan Commitments
and Supplemental Revolving Loan Commitments) of such First
Amendment Lenders as of the Fee Payment Date, provided that no
such fee shall be payable if the Borrower has repaid Revolving
Loans and Supplemental Revolving Loans (other than any payments
made, directly or indirectly, with proceeds of Revolving Loans
and/or Supplemental Revolving Loans) in an aggregate principal
amount of at least $60,000,000 between the period commencing on
the date on which Revolving Loans and/or Supplemental Loans were
borrowed in connection with such permitted Deficiency Offer and
ending on the day immediately prior to the Fee Payment Date; and
PROVIDED FURTHER, that the terms and conditions of the foregoing
provisos shall not be construed to permit the Borrower to make
any
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<PAGE>
subsequent Deficiency Offer following the one-time Deficiency
Offer that is expressly permitted in the foregoing proviso, any
such subsequent Deficiency Offer remaining expressly prohibited
by this SECTION 5.2.10(e)."
(p) SECTION 5.2.12 of the Credit Agreement is amended by deleting
clause (v) appearing in the first sentence of such Section and substituting
therefor the following:
"(v) is an Abitibi Sale/Monetization and within (A) five Business
Days after the issuance or sale of any securities, instruments or
other rights, or after the sale or other disposition, in
connection with such Abitibi Sale/Monetization, the Borrower
shall use the Abitibi 25% Portion to effect the prepayments in
accordance with SECTION 3.4(D), and (B) five Business Days after
the issuance or sale of any securities, instruments or other
rights, or after the sale or other disposition, in connection
with such Abitibi Sale/Monetization (or such longer period of
time so long as proceeds are held pursuant to escrow arrangements
satisfactory to the Agent), the Borrower shall (1) use the first
$200,000,000 in the aggregate of the Abitibi 75% Portion to
prepay, repurchase, redeem or otherwise extinguish any scheduled
installment or stated maturity of any Indebtedness for Money
Borrowed of the Borrower which, pursuant to the contractual terms
thereof, is scheduled for repayment or maturity prior to May 15,
1999, and (2) use the remainder of the Abitibi 75% Portion to
prepay, repurchase, redeem or otherwise extinguish (x) any
Indebtedness for Money Borrowed of the Borrower constituting
Senior Indebtedness and/or (y) any Indebtedness for Money
Borrowed of the Borrower constituting Subordinated Debt, PROVIDED
that no more than 50% of the aggregate amount of the remainder of
the Abitibi 75% Portion may be used to prepay, repurchase, redeem
or otherwise extinguish Subordinated Debt;"
(q) SECTION 5.2.12 of the Credit Agreement is further amended by (i)
deleting the word "or" appearing immediately prior to clause (vi) appearing
in the first sentence of such Section and (ii) inserting a new clause (vii)
at the end of the first sentence of such Section as follows:
"or (vii) is a sale or transfer of all of the capital stock of
one or more direct or indirect Subsidiaries of the Borrower
(other than Stone-Canada) which are organized in a foreign
country, to Stone Container GmbH or one of its Subsidiaries (such
sale or transfer being referred to herein as the "GERMAN
FINANCING SUBSIDIARY TRANSFER") provided that (A) the aggregate
fair market value of all such capital stock to be sold or
transferred, as such value is determined by the Agent in its sole
discretion, shall not exceed the lesser of (1) the Dollar
equivalent of DM 90,000,000 and (2) the Dollar equivalent of the
outstanding principal amount owing under the German Financing
Intercompany Note, (B) the sole consideration for such sale or
transfer is the cancellation of the German Financing Intercompany
Note and (C) on the
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<PAGE>
effective date of such transfer or exchange the Agent shall have
received a certificate from the Borrower's chief executive or chief
financial officer certifying that no Event of Default or Unmatured
Event of Default has occurred and is continuing as of such date, both
before and after giving effect to such sale or transfer."
(r) SECTION 5.2.17 of the Credit Agreement is amended by (i) deleting
"the Stone-Canada Intercompany Note, the Stone-Canada Guarantee or the
German Financing" appearing at the end of the first sentence of such
Section and substituting therefor "the German Financing Intercompany Note
(other than a cancellation thereof as contemplated in clause (vii) of
SECTION 5.2.12) or the German Financing", and (ii) deleting the second
sentence of such Section in its entirety.
(s) SECTION 5.3.2 of the Credit Agreement is amended by deleting such
Section in its entirety and replacing it with the following:
"Section 5.3.2 INDEBTEDNESS RATIO. Have an Indebtedness Ratio
of not more than the following amounts as of the end of each
Fiscal Quarter ending on a date set forth below:
DATE RATIO
December 31, 1994 through
March 31, 1997 .85 to 1
June 30, 1997 .86 to 1
September 30, 1997 .88 to 1
December 31, 1997 .90 to 1
March 31, 1998 .90 to 1
June 30, 1998 .90 to 1
September 30, 1998 .87 to 1
December 31, 1998 .85 to 1
March 31, 1999 .83 to 1
June 30, 1999 .81 to 1
September 30, 1999 .78 to 1
December 31, 1999 and
thereafter .75 to 1"
(t) The Definitional Appendix of the Credit Agreement is amended by
deleting the definition of "German Financing" appearing therein in its
entirety and substituting therefor the following:
""GERMAN FINANCING" means one or more credit facilities
consummated on or prior to March 31, 1998 pursuant to which Stone
Container GmbH and/or any of its Subsidiaries (including Europa
Carton A.G.) incurs Indebtedness in an aggregate principal amount
denominated in Deutsch Marks not to
-8-
<PAGE>
exceed DM 90,000,000 and secured only by the stock and/or assets
of Subsidiaries of Stone Container GmbH, PROVIDED that (a) such
Indebtedness is incurred on terms and conditions substantially
similar to the terms and conditions set forth on SCHEDULE 1.1(h)
hereto and on other terms and conditions, and pursuant to
documentation, in form and substance satisfactory to the Agent,
(b) the Agent shall have received an opinion of Sidley & Austin,
counsel to the Borrower, and/or other counsel to the Borrower
reasonably acceptable to Agent, in form and substance reasonably
satisfactory to the Agent and stating that the execution, delivery
and performance of the documentation for the German Financing does
not conflict with or result in a breach of, or constitute a default
under, any of the Loan Documents or any other agreements or
instruments known to such counsel to which the Borrower or any of
its Subsidiaries are bound, and (c) all of the proceeds of such
Indebtedness are used (i) to pay the direct costs and expenses
incurred in connection with the German Financing and (ii) to prepay
a portion of the E Tranche Term Loan in accordance with
SECTION 3.4(f), and (d) the Agent shall have received a certificate
of the Chief Financial Officer or the Treasurer of the Borrower
certifying that no Event of Default or Unmatured Event of Default
has occurred and is continuing either before or after giving effect
to the consummation of the German Financing."
(u) The Definitional Appendix of the Credit Agreement is amended by
(i) deleting the definitions of "German Financing Abitibi Portion", "German
Financing Portion", "Stone-Canada Guarantee" and "Stone-Canada Intercompany
Note" appearing therein in their entirety, and (ii) adding the following
new definitions in their appropriate alphabetical order:
""GERMAN FINANCING INTERCOMPANY NOTE" means the intercompany
promissory note issued by Stone-Canada or the Borrower in favor
of Stone Container GmbH and/or Europa Carton A.G. upon
consummation of the German Financing in the principal amount of
up to DM 90,000,000 on terms and conditions, and pursuant to
documentation, in form and substance satisfactory to the Agent.
"GERMAN FINANCING SUBSIDIARY TRANSFER" is defined in SECTION
5.2.12."
(v) The Credit Agreement is further amended by deleting SCHEDULE
1.1(h) to the Credit Agreement in its entirety and substituting therefor
SCHEDULE 1.1(h) attached to this Amendment.
SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. This
Amendment shall become effective upon the date (the "EFFECTIVE DATE") when each
of the following conditions precedent are satisfied:
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<PAGE>
(a) each of the Borrower, the Agent, the Majority Term Lenders, the
Majority Additional Term Lenders, the Majority D Tranche Term Lenders, the
Majority E Tranche Term Lenders and the Required Lenders shall have
executed and delivered this Amendment; and
(b) the Agent shall have received from the Borrower such certificates
and opinions with respect hereto as the Agent may reasonably require.
SECTION 4. 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 5. REFERENCES TO AND EFFECT ON THE CREDIT AGREEMENT.
(a) On and after the Effective Date each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words
of like import, and each reference to the Credit Agreement 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.
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<PAGE>
(c) The execution, delivery and effectiveness of this Amendment shall
not 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.
(d) The Borrower acknowledges and agrees that this Amendment
constitutes a "Loan Document" for purposes of the Credit Agreement,
including, without limitation, SECTION 7.1(d) of the Credit Agreement.
SECTION 6. 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, Majority Term Lenders, the Majority Additional Term Lenders, the Majority
D Tranche Term Lenders, the Majority E Tranche Term Lenders and the Required
Lenders regardless of whether it has been executed and delivered by all of the
Lenders. Delivery of an executed counterpart of a signature page of this
Amendment by facsimile transmission shall be effective as delivery of a manually
executed counterpart of this Amendment.
SECTION 7. 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 8. 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.
SECTION 9. SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
[Signature Pages Follow]
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<PAGE>
SCHEDULE 1.1(h)
GERMAN FINANCING TERM SHEET
See attached.
<PAGE>
SECOND AMENDMENT
OF CREDIT AGREEMENT
THIS SECOND AMENDMENT OF CREDIT AGREEMENT, dated as of March 26, 1998 (this
"AMENDMENT"), 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 the undersigned financial institutions in
their capacities as Co-Agents.
RECITALS:
A. The Borrower, Bank of America National Trust & Savings Association,
The Bank of New York, The Bank of Nova Scotia, Caisse Nationale de Credit
Agricole, 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, N.A. (Carolinas), The Sumitomo Bank, Ltd., Chicago
Branch and Toronto Dominion (Texas), Inc., as co-agents (collectively, the
"CO-AGENTS," and each individually, a "CO-AGENT"), the Agent and the Lenders are
parties to that certain Amended and Restated Credit Agreement dated as of June
19, 1997, as amended by the First Amendment of Credit Agreement dated as of
December 22, 1997 (the "CREDIT AGREEMENT").
B. The Borrower has requested the Agent and the Lenders to amend the
Credit Agreement to, among other things, adjust the Indebtedness Ratio levels
that are required to be maintained by the Borrower under SECTION 5.3 of the
Credit Agreement, and to modify certain other provisions of the Credit
Agreement.
C. The Borrower, 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. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement
is, as of the Effective Date (as defined below), hereby amended as follows:
(a) SECTION 5.2.2(t) of the Credit Agreement is amended by deleting
"December 23, 1997" appearing in the second proviso of such Section and
substituting "March 26, 1998" therefor.
(b) SECTION 5.2.10(e) of the Credit Agreement is amended by deleting
such Section in its entirety and substituting therefor the following:
<PAGE>
"(e) Make any mandatory offer to purchase, or redeem or purchase,
any Indebtedness created pursuant to or evidenced by any of the
Specified Senior Indentures pursuant to a "Deficiency Offer" made
in accordance with Article Eleven (or any other similar Article
or provision) of any thereof (it being understood and agreed that
no such Deficiency Offer may be directly or indirectly made out
of the proceeds of Indebtedness incurred as permitted by SECTION
5.2.2(q) or out of Discretionary Funds); PROVIDED, HOWEVER, that
the Borrower may make a Deficiency Offer solely with respect to
the Borrower's failure to maintain the Minimum Subordinated
Capital Base (as such term is defined in each of the Senior
Indentures) as of Borrower's two consecutive Fiscal Quarters
ended December 31, 1997 and March 31, 1998, no later than April
7, 1998 (regardless of the actual payment date for securities
accepted pursuant to such Deficiency Offer) in accordance with
the terms and conditions set forth in Article Eleven of each of
the Senior Indentures, and purchase any securities tendered in
such Deficiency Offer, provided that the Borrower satisfies each
of the following conditions: (i) the sum of (A) the Total
Available Revolving Commitment PLUS (B) the Total Available
Supplemental Revolving Commitment shall be equal to or greater
than $225,000,000 on the final date for the tender of securities
in such Deficiency Offer (and after taking into effect any
proposed borrowings of Revolving Loans and Supplemental Revolving
Loans, the proceeds of which are proposed to be used to purchase
securities tendered in such Deficiency Offer and accepted for
payment); (ii) on the final date for the tender of securities in
such Deficiency Offer, all of the securities outstanding under
the Specified Senior Indentures (other than the 12-5/8% Senior
Notes due July 15, 1998, the 11-7/8% Senior Notes due December 1,
1998 and the 9-7/8% Senior Notes due February 1, 2001) shall be
trading at a price of not less than par value as quoted to the
Agent by at least two out of three independent brokers and/or
market makers acceptable to the Agent; and (iii) in the event the
Borrower uses proceeds, whether directly or indirectly, of
Revolving Loans and/or Supplemental Revolving Loans in an
aggregate amount in excess of $60,000,000 (such amount in excess
of $60,000,000 being referred to herein as the "EXCESS REVOLVER
AMOUNT"), then the Borrower shall repay such Excess Revolver
Amount (provided that the Borrower shall not be obligated to
repay such Excess Revolver Amount until the Excess Revolver
Amount is equal to or greater than $5,000,000) on or before the
90th day following the last incurrence of such Revolving Loans
and/or Supplemental Loans, the proceeds of which are used,
directly or indirectly, to fund such Deficiency Offer, with
proceeds from the incurrence of Indebtedness which the Borrower
or any of its Subsidiaries incurs in compliance with the terms
and conditions of this Agreement (including, without limitation,
SECTION 5.2.2) and the Specified Senior Indentures; and PROVIDED
FURTHER, that the terms and conditions of the foregoing proviso
shall not be construed to permit the Borrower to make any
subsequent Deficiency Offer following the one-time Deficiency
Offer that is expressly permitted in the foregoing proviso, any
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<PAGE>
such subsequent Deficiency Offer remaining expressly prohibited by
this SECTION 5.2.10(e)."
(c) SECTION 5.3.1(a) of the Credit Agreement is amended by deleting
the ratio "0.75 to 1" appearing opposite the date "June 30, 1998" in such
Section and substituting therefor the ratio "0.65 to 1".
(d) SECTION 5.3.2 of the Credit Agreement is amended by deleting such
Section in its entirety and substituting therefor the following:
"Section 5.3.2 INDEBTEDNESS RATIO. Have an Indebtedness Ratio
of not more than the following amounts as of the end of each
Fiscal Quarter ending on a date set forth below:
<TABLE>
<CAPTION>
Date Ratio
----- -------
<S> <C>
December 31, 1994 through
March 31, 1997 .85 to 1
June 30, 1997 .86 to 1
September 30, 1997 .88 to 1
December 31, 1997 .90 to 1
March 31, 1998 .92 to 1
June 30, 1998 .92 to 1
September 30, 1998 .92 to 1
December 31, 1998 .91 to 1
March 31, 1999 .90 to 1
June 30, 1999 .85 to 1
September 30, 1999 .80 to 1
December 31, 1999 and
thereafter .76 to 1"
</TABLE>
(e) The Definitional Appendix of the Credit Agreement is amended by
deleting the last sentence appearing in the definition of "Consolidated Net
Income" and "Consolidated Net Loss" appearing therein and substituting
therefor the following:
"Notwithstanding the foregoing, (i) any loss recognized upon the
sale or other disposition of any Abitibi Shares (including,
without limitation, upon the exchange or conversion of any
security or other instrument for Abitibi Shares which constituted
Monetized Assets), (ii) any non-cash exchange related gain or
loss at Stone Finance from and after October 1, 1997 and (iii)
any loss recognized as the result of the write-off of all or any
portion of Stone-Canada's investment in SVCPI, in each case,
shall be excluded for purposes of determining Consolidated Net
Income and Consolidated Net Loss."
3
<PAGE>
(f) The Definitional Appendix of the Credit Agreement is amended by
inserting at the end of the definition of "Consolidated Net Worth"
appearing therein the following:
"Notwithstanding the foregoing, (i) any loss recognized as the
result of the write-off of all or any portion of Stone-Canada's
investment in SVCPI, (ii) any losses recognized in the fourth
Fiscal Quarter in 1997 up to an aggregate amount not exceeding
$29 million with respect to non-cash exchange related losses and
one-time restructuring charges at S-CC, Stone Finance and SVCPI,
and (iii) any non-cash exchange related gain or loss at S-CC,
Stone Finance or SVCPI from and after January 1, 1998, in each
case, shall be excluded for purposes of determining Consolidated
Net Worth."
SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. This
Amendment shall become effective upon the date (the "EFFECTIVE DATE") when
each of the following conditions precedent are satisfied:
(a) each of the Borrower, the Agent and the Required Lenders shall
have executed and delivered this Amendment;
(b) the Borrower shall have paid in full to the Agent on or before
March 27, 1998 (the "FEE PAYMENT DATE"), for ratable distribution to those
Lenders that have executed and delivered this Amendment at or before 5:00
p.m. (Chicago time) on March 26, 1998, an amount equal to .125% of the
aggregate outstanding Loans (in the case of Term Loans, Additional Term
Loans, D Tranche Term Loans and E Tranche Term Loans) and Commitments (in
the case of Revolving Loan Commitments and Supplemental Revolving Loan
Commitments) of such Lenders as of the Fee Payment Date; PROVIDED, HOWEVER,
that no such fee shall be payable pursuant to this clause (b) in the event
that this Amendment is not executed by the Required Lenders; and
(c) the Agent shall have received from the Borrower an opinion of
Sidley & Austin, counsel to the Borrower, in form and substance reasonably
satisfactory to the Agent and stating that (i) the Credit Agreement, as
amended by this Amendment, constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms, and
(ii) the execution, delivery and performance of the Credit Agreement, as
amended by this Amendment, does not conflict with or result in a breach of,
or constitute a default under, any indenture, loan or credit agreement or
other agreement or instrument known to such counsel to which the Borrower
or any of its Subsidiaries is a party or by which any of their respective
properties are bound, and such certificates and other opinions with respect
hereto as the Agent may reasonably require.
SECTION 4. 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
4
<PAGE>
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 5. REFERENCES TO AND EFFECT ON THE CREDIT AGREEMENT.
(a) On and after the Effective Date each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of
like import, and each reference to the Credit Agreement 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 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.
(d) The Borrower acknowledges and agrees that this Amendment
constitutes a "Loan Document" for purposes of the Credit Agreement,
including, without limitation , SECTION 7.1(d) of the Credit Agreement.
SECTION 6. 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 and the Required Lenders regardless of whether it has been executed
5
<PAGE>
and delivered by all of the Lenders. Delivery of an executed counterpart of a
signature page of this Amendment by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Amendment.
SECTION 7. 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 8. 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.
SECTION 9. SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
[Signature Pages Follow]
6
<PAGE>
EXHIBIT 10(b)
STONE CONTAINER CORPORATION
DIRECTORS' DEFERRED COMPENSATION PLAN
1. PURPOSE. The purpose of the Stone Container Corporation
Directors' Deferred Compensation Plan (this "Plan") is to permit members of the
Board of Directors (the "Board") of Stone Container Corporation, a Delaware
corporation (the "Company"), to defer receipt of all or a portion of their
annual retainers and/or meeting fees.
2. PARTICIPATION. (a) ELIGIBILITY. Each person who on the first
day of any "Retainer Year" (as defined below), is a member of the Board (a
"Director") shall be eligible to participate in this Plan. A "Retainer Year"
is each 12-month period beginning on January 1 and ending on December 31 of
each year until the termination of this Plan pursuant to Section 13 hereof.
(b) ELECTIONS. Each Director who is eligible to participate in this
Plan for a Retainer Year may file an election to defer for such Retainer Year
the receipt of all or any portion of the (i) annual cash retainer, (ii) annual
stock retainer, (iii) Board meeting fees and (iv) committee meeting fees, in
each case, payable to such Director during such Retainer Year. Each deferral
election made hereunder shall be on a form provided by the Company and filed
with the Secretary of the Company not later than the day immediately preceding
the first day of such Retainer Year. Any such election to defer may not be
revoked or changed by the Director with respect to such Retainer Year, and
shall remain effective for each succeeding Retainer Year unless revoked or
changed by the Director with respect to a succeeding Retainer Year prior to the
commencement of such succeeding Retainer Year.
3. DEFERRED ACCOUNTS. The Company shall establish on its books a
Deferred Interest Account and/or a Deferred Phantom Stock Account
(individually, a "Deferred Account" and collectively, "Deferred Accounts") in
the name and on behalf of each Director who makes a deferral election pursuant
to Section 2 hereof. Such Deferral Accounts shall be for bookkeeping purposes
only and shall not represent any interest in any assets of the Company.
(a) DEFERRED INTEREST ACCOUNT. A Deferred Interest Account
established on behalf of a Director shall be credited with the amount of the
annual cash retainer, Board meeting fees and/or committee meeting fees
specified in the Director's election pursuant to Section 2 hereof to be
deferred and credited to the Deferred Interest Account as of the date on which
such amounts would have been paid to such Director but for such election.
<PAGE>
(b) DEFERRED PHANTOM STOCK ACCOUNT. A Deferred Phantom Stock
Account established on behalf of a Director shall be credited with the amount
of the annual stock retainer specified in the Director's election pursuant to
Section 2 hereof to be deferred as of the date on which such stock retainer
would have been paid to such Director but for such election. The number of
phantom stock units which shall be credited to the Deferred Phantom Stock
Account in respect of such deferred annual stock retainer shall be equal to the
number of shares of common stock of the Company ("Common Stock") which is
deferred pursuant to such election. In addition, such Deferred Phantom Stock
Account shall be credited with the amount of the annual cash retainer, Board
meeting fees and/or committee meeting fees specified in the Director's election
pursuant to Section 2 hereof to be deferred and credited to the Deferred
Phantom Stock Account as of the end of each calendar quarter or as of such
other date on which such retainer or fees would have been paid to such Director
but for such election. The number of phantom stock units which shall be
credited to the Deferred Phantom Stock Account in respect of such deferred
annual cash retainer, Board meeting fees and/or committee meeting fees shall be
equal to the amount of such cash retainer and/or fees which is deferred
pursuant to such election, divided by the Fair Market Value (as defined below)
of a share of Common Stock as of the end of each calendar quarter or as of such
other date on which such retainer or fees would have been paid to such Director
but for such election. For purposes of this Plan, "Fair Market Value" shall
mean the closing price of a share of Common Stock on the date of the
determination thereof, as reported in THE WALL STREET JOURNAL as New York Stock
Exchange Composite Transactions.
(c) ADJUSTMENT. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization, or
any distribution to holders of Common Stock other than a cash dividend, the
number of phantom stock units then credited to Deferred Phantom Stock Accounts
under this Plan shall be appropriately adjusted by the Committee, such
adjustment to be made without a change in the aggregate value of such phantom
stock units.
4. EARNINGS ON DEFERRED ACCOUNTS. (a) EARNINGS ON DEFERRED
INTEREST ACCOUNTS. As of the close of each calendar quarter, the Company shall
credit to each Deferred Interest Account established on its books pursuant to
Section 3 of this Plan an amount representing interest on the balance of such
account. The amount of such interest shall be calculated using a rate equal to
the weighted average rate of interest, calculated on a daily basis, payable by
the Company for money borrowed from banks for such quarter. Notwithstanding
the foregoing, if the balance
<PAGE>
of a Director's Deferred Interest Account becomes payable prior to the last
day of a calendar quarter, such account shall be credited with interest at
the rate described above for the period between the last day of the
immediately preceding quarter and the payment date.
(b) EARNINGS ON DEFERRED PHANTOM STOCK ACCOUNTS. As of each date on
which dividends are paid on the shares of Common Stock, the Company shall
credit to each Deferred Phantom Stock Account established on its books pursuant
to Section 3 of this Plan additional phantom stock units, the number of which
shall be determined by multiplying the amount of such dividend per share of
Common Stock by the number of phantom stock units then credited to such
account, and dividing the product thereof by the Fair Market Value of a share
of Common Stock on the applicable dividend payment date.
5. VESTING. Amounts credited to Deferred Accounts pursuant to the
terms of this Plan shall be fully vested and not subject to forfeiture for any
reason.
6. TRANSFERS BETWEEN DEFERRED ACCOUNTS. A Director may, by written
election delivered to the Secretary of the Company, transfer all or any portion
of the amount credited to his or her Deferred Interest Account to his or her
Deferred Phantom Stock Account, or transfer all or any portion of the amount
credited to his or her Deferred Phantom Stock Account to his or her Deferred
Interest Account, provided that no such election shall be made which would
subject a Director to liability under Section 16(b) of the Securities Exchange
Act of 1934, as amended.
7. DISTRIBUTIONS. (a) GENERAL. At such time as a Director shall
make a deferral election pursuant to Section 2(b) of this Plan, such Director
shall designate that the balance of his or her Deferred Accounts shall be
distributed in (i) a lump sum, (ii) five annual installments or (iii) 10 annual
installments, with such lump sum or the first of such installments, as the case
may be, being paid on the first business day of the calendar year following the
calendar year in which such Director ceases to be a member of the Board.
Notwithstanding the foregoing, a Director may change such payment designation
to a different designation set forth in clause (i), (ii) or (iii) of the
preceding sentence by written direction to the Secretary of the Company prior
to the beginning of the calendar year in which such payment would otherwise be
made. All distributions pursuant to this Plan shall be made in cash. Deferred
Accounts shall continue to be credited with earnings in accordance with Section
4 of this Plan during any period of distribution of installment payments. If a
Director shall cease to be a member of the Board on account of such Director's
death or if a Director shall die during any period in which installment
distributions are being made to such Director, the balance of the Director's
Deferred
<PAGE>
Accounts shall be distributed as soon as practicable thereafter to the
Director's beneficiary in accordance with Section 8 hereof.
(b) ALTERNATE DISTRIBUTEES. Any distribution in respect of a person
who at the time of payment is under legal disability or who is, in the judgment
of the Committee (as defined in Section 11 hereof), unable to care for his or
her affairs because of illness or accident, may be made to the spouse or any
child or personal representative of such person, or to any other individual or
entity deemed by the Company to have incurred expenses for such person. Any
such distribution shall constitute a complete discharge of the Company's
obligation to make such distribution pursuant to this Plan.
(c) CHANGE IN CONTROL. Notwithstanding anything herein to the
contrary, immediately following a "Change in Control" as defined in the
Restated Stone Container Corporation 1995 Long-Term Incentive Plan (the "Long-
Term Incentive Plan"), each Director shall be entitled to receive a lump sum
distribution equal to the entire balance of the Director's Deferred Accounts as
of the date of such Change in Control.
8. BENEFICIARIES. Each Director for whom a Deferred Account is
maintained under this Plan shall have the right to designate a beneficiary, and
amend or revoke such designation at any time, in writing. Such designation,
amendment or revocation shall be effective upon receipt by the Secretary of the
Company. If no designated beneficiary survives the Director, the Committee
shall direct that the distribution of such Director's Deferred Accounts be made
to such Director's estate.
9. UNFUNDED STATUS. The Company's obligation hereunder shall
constitute a general, unsecured obligation, payable solely out of its general
assets, and no Director shall have any right to any specific assets of the
Company. Neither the Company nor the Committee shall be required to segregate
any assets that may at any time be represented by the amounts credited to
Deferred Accounts hereunder. Neither the Company nor the Committee shall be
deemed to be a trustee of any amounts to be distributed or paid pursuant to
this Plan. No liability or obligation of the Company pursuant to this Plan
shall be deemed to be secured by any pledge of, or encumbrance on, any property
of the Company or any affiliate of the Company.
10. NONASSIGNABILITY. No amount deferred under this Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment or garnishment by creditors of any Director or
any beneficiary, and any attempt to transfer or encumber the same shall be
void.
<PAGE>
11. ADMINISTRATION. This Plan shall be administered by the
committee designated by the Board to administer the Long-Term Incentive Plan
(the "Committee"). The Committee shall have full power and authority to
interpret, construe and administer this Plan. The Committee's interpretation
and construction hereof, and actions hereunder, or the amount or recipient of
any distribution to be made hereunder, shall be binding and conclusive on all
persons for all purposes. The Committee may delegate to any officer or
employee of the Company the duty to act for the Committee hereunder. Neither
the Committee or any member thereof, nor any officer or employee of the
Company, shall be liable for any act, omission, interpretation, construction or
determination made in good faith in connection with the Plan, and the members
of the Committee and the officers and employees of the Company shall be
entitled to indemnification by the Company in respect of any claim, loss,
damage or expense (including attorneys' fees) arising therefrom to the fullest
extent permitted by law. The expenses of administering this Plan shall not be
charged against this Plan.
12. AMENDMENT. The Board may, in its sole discretion and without
the consent of any Director (acting in his or her capacity as a participant in
this Plan) or beneficiary, amend this Plan at any time; PROVIDED, HOWEVER, that
no amendment shall reduce the amount credited prior to such amendment to the
Deferred Account of any Director under this Plan.
13. TERMINATION. The Board may, in its sole discretion and without
the consent of any Director (acting in his or her capacity as a participant in
this Plan) or beneficiary, terminate this Plan at any time by giving written
notice thereof to each Director who is a participant hereunder. All amounts
distributable under this Plan shall be paid to the persons entitled thereto at
such time and in such manner as the Company shall determine, but not later than
the date on which distributions would have been made had this Plan not been
terminated.
14. SUCCESSORS AND ASSIGNS. The provisions of this Plan shall bind
and inure to the benefit of the Company and its successors and assigns, and
each Director who is a participant in this Plan and his or her beneficiaries
and successors.
15. GOVERNING LAW. This Plan shall be interpreted and construed in
accordance with the internal laws of the State of Illinois, without regard to
principles of conflicts of law.
<PAGE>
EXHIBIT 11
STONE CONTAINER CORPORATION
COMPUTATION OF BASIC AND DILUTED
NET INCOME (LOSS) PER SHARE
(in millions, except per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Shares of Common Stock:
Weighted average number of common shares outstanding.......................................... 99.3 99.2 93.9
--------- --------- ---------
Basic Weighted Average Shares Outstanding....................................................... 99.3 99.2 93.9
--------- --------- ---------
--------- --------- ---------
Net Income (Loss)............................................................................... $ (417.7) $ (126.2) $ 255.5
Less: Series E Cumulative Convertible Exchangeable Preferred Stock dividend..................... (8.1) (8.1) (8.1)
--------- --------- ---------
Net income (loss) used in computing basic net income (loss) per common share.................... $ (425.8) $ (134.3) $ 247.4
--------- --------- ---------
--------- --------- ---------
Basic Earnings Per Share........................................................................ $ (4.29) $ (1.35) $ 2.63
--------- --------- ---------
--------- --------- ---------
DILUTED EARNINGS PER SHARE
Shares of Common Stock:
Weighted average number of common shares outstanding.......................................... 99.3 99.2 93.9
Dilutive effect of options and warrants....................................................... -- .2 .2
Addition from assumed conversion of 8.875% convertible senior subordinated notes.............. 5.1 5.2 15.2
Addition from assumed conversion of 6.75% convertible subordinated debentures................. 1.3 1.3 2.0
Addition from assumed conversion of Series E Cumulative Convertible Exchangeable Preferred
Stock........................................................................................ 3.4 3.4 3.4
--------- --------- ---------
Diluted Weighted Average Shares Outstanding................................................... 109.1 109.3 114.7
--------- --------- ---------
--------- --------- ---------
Net Income (Loss)............................................................................. $ (417.7) $ (126.2) $ 255.5
Less: Series E Cumulative Convertible Exchangeable Preferred Stock dividend................... (8.1) (8.1) (8.1)
Income adjustment associated with assumed conversion of Stone-Consolidated Corporation 8%
convertible subordinated debentures -- -- (10.6)
Add back: Interest on 8.875% convertible senior subordinated notes.............................. 3.2 3.2 9.5
Interest on 6.75% convertible subordinated debentures................................. 1.9 1.9 2.8
Series E Cumulative Convertible Exchangeable Preferred Stock dividend................. 8.1 8.1 8.1
--------- --------- ---------
Net income (loss) used in computing diluted net income (loss) per common share.................. $ (412.6) $ (121.1) $ 257.2
--------- --------- ---------
--------- --------- ---------
Diluted Earnings Per Share (A)................................................................ $ (3.78) $ (1.11) $ 2.24
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------
(A) Diluted Earnings per share for 1997 and 1996 are different from the
consolidated financial statements because amounts are anti-dilutive.
56
<PAGE>
EXHIBIT 12
STONE CONTAINER CORPORATION
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary charges and cumulative effects of
accounting changes................................................... $ (319.2) $ (128.8) $ 444.5 $ (122.5) $ (404.4)
Income tax provision (credit).......................................... (147.7) (35.5) 320.9 (66.0) (200.8)
Minority interest in consolidated subsidiaries......................... 3.6 1.2 29.3 (.6) .1
Preferred stock dividend requirements of majority owned subsidiary..... (5.7) (9.4) -- -- --
Undistributed (earnings) loss of non-consolidated subsidiaries......... 13.3 9.1 (9.0) (48.6) 94.0
Capitalized interest................................................... (10.8) (4.7) (13.2) (11.7) (3.2)
--------- --------- ---------- --------- ---------
(466.5) (168.1) 772.5 (249.4) (514.3)
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Fixed charges:
Interest charges (expensed and capitalized), amortization of debt
discount and debt fees on all indebtedness.......................... 437.5 460.7 473.5 425.2 457.1
Interest cost portion of rental expenses (33 1/3%)................... 27.4 29.1 35.4 36.0 38.1
Preferred stock dividend requirements of majority owned subsidiary... 5.7 9.4 -- -- --
--------- --------- ---------- --------- ---------
Total fixed charges................................................ 470.6 499.2 508.9 461.2 495.2
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Earnings before income taxes, undistributed (earnings) loss of
non-consolidated subsidiaries, minority interest and fixed charges
(excluding capitalized interest)..................................... $ 4.1 $ 331.1 $ 1,281.4 $ 211.8 $ (19.1)
Ratio of earnings to fixed charges..................................... (D) (C) 2.52 (B) (A)
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
- ---------
(A) The Company's earnings for the year ended December 31, 1997 were
insufficient to cover fixed charges by $514.3 million.
(B) The Company's earnings for the year ended December 31, 1996 were
insufficient to cover fixed charges by $249.4 million.
(C) 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.
(D) 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. If
such a non-recurring event had not occurred, earnings would have been
insufficient to cover fixed charges by $501.9 million.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
ORGANIZED UNDER PERCENTAGE
THE LAWS OF OWNERSHIP
------------------------ -----------
<S> <C> <C>
CONSOLIDATED SUBSIDIARIES:
A.H. Julius Rohde GmbH.................................................................. Germany 100%
Apache Railway Corporation.............................................................. Arizona 100%
Atlanta & Saint Andrews Bay Railroad Co................................................. Florida 100%
Cameo Container Corporation............................................................. Illinois 100%
Cartomills France, S.A.R.L.............................................................. France 100%
Cartonnages Robert Delubac S.A.R.L...................................................... France 98.8%
Cousins Leasing Corporation............................................................. New York 100%
DST Design Service Team, GmbH........................................................... Germany 100%
Eurosave Institut fur Verpackungslogistik GmbH.......................................... Germany 100%
Eurotrend Gesellschaft GmbH............................................................. Germany 100%
Fowler Specialty Packaging, Inc......................................................... Delaware 100%
Grundstrucks-Verwaltungsgesellschaft Altona mbh......................................... Germany 95%
IFP Packungsgestaltung GmbH............................................................. Germany 100%
IDENTITY Institute fur Corporate Design GmbH............................................ Germany 100%
Indonesian Container Investments Corp................................................... British Virgin Islands 100%
Industrial Cordobesa, S.A............................................................... Spain 98%
Inversiones Stone de Argentina (BVI) Ltd................................................ British Virgin Islands 100%
Inversiones Stone de Chile (BVI) Ltd.................................................... British Virgin Islands 100%
Leasing-Kontor fur Investitionsguter GmbH............................................... Germany 100%
Orangeburg Trucking, Inc................................................................ South Carolina 100%
Oxford Holdings, Inc.................................................................... Delaware 100%
PT Stone Container Indonesia............................................................ Indonesia 80%
Societe Europeenne de Carton S.A.R.L.................................................... France 95%
Southwest Forest Insurance Company, Ltd................................................. Bermuda 100%
Speditions-Gesellschaft Visurgis mbh.................................................... Germany 100%
SSJ Corporation......................................................................... Delaware 100%
Ston Forestal, S.A...................................................................... Costa Rica 100%
Ston Forestal Panama S.A................................................................ Panama 100%
Stone Cartomills Luxembourg............................................................. Luxembourg 100%
Stone Cartomills, S.A................................................................... Belgium 100%
Stone Communications Corporation........................................................ Delaware 100%
Stone Container Administradora Argentina................................................ British Virgin Islands 100%
Stone Container Asia Corporation........................................................ Delaware 100%
Stone Container Australia Pty., Ltd..................................................... Australia 100%
Stone Container (Canada) Inc............................................................ Canada 100%
Stone Container (China) Corporation..................................................... British Virgin Islands 100%
Stone Container de Mexico S.A. de C.V................................................... Mexico 100%
Stone Espana S.A........................................................................ Spain 100%
Stone Container Finance Company of Canada............................................... Canada 100%
Stone Container GmbH.................................................................... Germany 100%
CONSOLIDATED SUBSIDIARIES:
Stone Container International Corporation............................................... U.S. Virgin Islands 100%
Stone Container Latin America Corporation............................................... Delaware 100%
Stone Europa Carton AG.................................................................. Germany 100%
Stone Europapel S.A..................................................................... Spain 98%
Stone Global, Inc....................................................................... Delaware 100%
Stone Graficarton S.A................................................................... Spain 98.4%
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED UNDER PERCENTAGE
THE LAWS OF OWNERSHIP
------------------------ -----------
<S> <C> <C>
Stone LAKI Corporation.................................................................. British Virgin Islands 100%
Stone Papers, Inc....................................................................... Delaware 100%
Stone Receivables Corporation........................................................... Delaware 100%
Stone/River House Australian Investments, Inc........................................... Delaware 100%
Stone Snowflake Newsprint Company....................................................... Delaware 100%
Stone Societe Emballages des Cevennes, S.A.............................................. France 98.8%
Stone Truepenny H.K. Limited............................................................ Hong Kong 100%
Stone Truepenny International, Inc...................................................... British Virgin Islands 100%
Stone-Ven Investments, Inc.............................................................. Delaware 100%
Trobox Kartonnages B.V.................................................................. Netherlands 100%
Trobox Verpakkingen B.V................................................................. Netherlands 100%
WWG Weser-Werstoff-Gesellschaft mbH..................................................... Germany 51%
Wellpappenwerk Waren GmbH............................................................... Germany 100%
NON-CONSOLIDATED ENTITIES:
3288641 Canada Inc. Canada 25%
AP Holding B.V.......................................................................... Netherlands 25%
Abitibi Canada Funding Inc.............................................................. Canada 25%
Abitibi-Consolidated, Inc............................................................... Canada 25%
Abitibi-Price Refinance Inc............................................................. Canada 25%
Abitibi-Price Sales Company Limited..................................................... United Kingdom 25%
Abitibi-Price Support Services B.V...................................................... Netherlands 25%
Abitibi-Price Woodlands Inc............................................................. Canada 25%
Aspamill Inc............................................................................ Canada 45%
Associated Paper Mills (Ontario) Limited................................................ Canada 45%
Axidata Inc. (formerly Tenex Data Corp.)................................................ Canada 25%
Azerty de Mexico S.A. de C.V............................................................ Mexico 24.8%
B.C. Shipper Supplies Ltd............................................................... Canada 50%
Bridgewater Paper Company Ltd........................................................... United Kingdom 25%
Bridgewater Paper Leasing Limited....................................................... United Kingdom 25%
Cajofe Industries S.A................................................................... France 50%
Cartonex Bernal S.A..................................................................... Argentina 50%
Cartonex S.A. I.C.F.Y.F................................................................. Argentina 50%
Cartonnages De France S.A............................................................... France 48.8%
Celgar Investments Inc.................................................................. British Virgin Islands 49%
Cheshire Recycling Limited.............................................................. United Kingdom 25%
Dyne-A-Pak.............................................................................. Canada 45%
Europa Carton B.V....................................................................... Netherlands 50%
Europa Carton Faltschachtel GmbH........................................................ Germany 50%
Europa Carton Holding B.V............................................................... Netherlands 50%
Eurozerty B.V........................................................................... Netherlands 25%
FCP Robinson Cartons Ltd................................................................ United Kingdom 50%
Florida Coast Paper Company, L.L.C...................................................... Delaware 50%
Florida Coast Paper Corporation......................................................... Delaware 50%
Florida Coast Paper Finance Corporation................................................. Delaware 50%
Florida Coast Paper Holding Company, L.L.C.............................................. Delaware 50%
GfA-Gesellschaft fur Altpapier und Rohstoffe............................................ Germany 33.3%
Grand Falls Central Railway Company Ltd................................................. Canada 25%
Groupement Forestier de Champlain Inc................................................... Canada 10%
ICO, Inc................................................................................ Canada 42%
ISFO B.V................................................................................ Netherlands 25%
ICP Logistiques S.A..................................................................... France 50%
Indupa Vertriebgesellschaft mbh & Co. KG................................................ Germany 50%
International Bridge & Terminal......................................................... United Kingdom 25%
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED UNDER PERCENTAGE
THE LAWS OF OWNERSHIP
------------------------ -----------
<S> <C> <C>
Interstate Packaging Corp............................................................... New York 50%
Laimbeer Packaging Company L.L.C........................................................ Delaware 50%
La Compagnie Gaspesia Limitee........................................................... Canada 25%
La Compagnie de Pulpe de Jonquiere...................................................... Canada 25%
La Compagnie Price Ltee................................................................. Canada 25%
Les Explorations Terra Nova Ltee........................................................ Canada 25%
L & M Corrugated Container Corp......................................................... Illinois 50%
MacMillan Bathurst...................................................................... Canada 50%
MacMillan Bathurst Inc.................................................................. Canada 50%
Maritime Containers Limited............................................................. Canada 35%
Maritime Paper Products Limited......................................................... Canada 35%
ORPACK-Stone Corporation................................................................ Delaware 49%
OSB Holdings Inc........................................................................ Canada 25%
Paper Recycling Intl. L.P............................................................... Delaware 50%
Paroco Rohstoffvetwertung GmbH.......................................................... Germany 49%
Price (Nfld.) Pulp & Paper Limited...................................................... Canada 25%
Rohstoffhandel Kiel GmbH................................................................ Germany 37.5%
Rollcraft Inc........................................................................... Canada 45%
Rosenbloom Group Inc.................................................................... Canada 45%
S&G Packaging Company, L.L.C............................................................ Delaware 65%
SCI Les Chenes.......................................................................... France 50%
Shanghai Stone Millennium Packaging & Paper Company Ltd................................. China 50%
Stirling Fibre (Holdings) Limited....................................................... United Kingdom 25%
Stone Cartonnages MGC S.A............................................................... France 50%
Stirling Fibre Limited.................................................................. United Kingdom 25%
Stirling Recycling Limited.............................................................. United Kingdom 25%
Stone-Consolidated (Europe) S.A......................................................... Belgium 25%
Stone Container (Hong Kong) Limited..................................................... Hong Kong 50%
Stone Container Japan Company, Ltd...................................................... Japan 50%
Stone Corrupac S.A...................................................................... Chile 50%
Stone Financiere Carton Papier ......................................................... France 50%
Stone Venepal (Celgar) Pulp Inc......................................................... Canada 45%
St. Germain Cartonnages S.A............................................................. France 50%
Tradepak Internacional S.A. de C.V...................................................... Mexico 30.8%
Tradepak International, Inc............................................................. Delaware 35.9%
Trans-Seal Corporation.................................................................. Japan 50%
Venepal S.A.C.A......................................................................... Venezuela 19.7%
Venepal-Stone Forestal S.A.............................................................. Venezuela 59.1%
Vertriebsgesellschaft Rohstoffhandel Kiel............................................... Germany 50%
Weedon Holdings Ltd..................................................................... United Kingdom 40%
</TABLE>
60
<PAGE>
EXHIBIT 23
Consent of Independent Accountants
---------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 33-66086 and
333-20467) and in the Registration Statements on Form S-8 (Nos. 2-79221,
33-33784, 33-56345, 33-59189, 33-66132 and 333-42087) of Stone Container
Corporation of our report dated March 26, 1998, appearing in this Annual Report
on Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears in this Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STONE CONTAINER CORPORATION AND SUBSIDIARIES' DECEMBER 31, 1997 CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED OPERATIONS AND RETAINED EARNINGS (ACCUMULATED
DEFICIT) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 113
<SECURITIES> 0
<RECEIVABLES> 681
<ALLOWANCES> 28
<INVENTORY> 716
<CURRENT-ASSETS> 1,596
<PP&E> 4,857
<DEPRECIATION> 2,480
<TOTAL-ASSETS> 5,824
<CURRENT-LIABILITIES> 1,089
<BONDS> 3,936
0
115
<COMMON> 966
<OTHER-SE> (804)
<TOTAL-LIABILITY-AND-EQUITY> 5,824
<SALES> 4,849
<TOTAL-REVENUES> 4,849
<CGS> 4,070
<TOTAL-COSTS> 4,938
<OTHER-EXPENSES> 59
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 457
<INCOME-PRETAX> (605)
<INCOME-TAX> (200)
<INCOME-CONTINUING> (405)
<DISCONTINUED> 0
<EXTRAORDINARY> (13)
<CHANGES> 0
<NET-INCOME> (418)
<EPS-PRIMARY> (4.29)
<EPS-DILUTED> (4.29)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STONE
CONTAINER CORPORATION AND SUBSIDIARIES' DECEMBER 31, 1995, DECEMBER 31, 1996,
MARCH 31, 1996, JUNE 30, 1996 AND SEPTEMBER 30, 1996 CONSOLIDATED BALANCE
SHEETS AND CONSOLIDATED OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996
JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996
SEP-30-1996
<CASH> 40 113 139 128
210
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 765 597 708 650
630
<ALLOWANCES> 22 24 22 23
24
<INVENTORY> 733 742 782 753
721
<CURRENT-ASSETS> 1,683 1,561 1,771 1,672
1,679
<PP&E> 4,750 4,939 4,791 4,832
4,819
<DEPRECIATION> 2,114 2,305 2,182 2,240
2,250
<TOTAL-ASSETS> 6,399 6,354 6,511 6,430
6,425
<CURRENT-LIABILITIES> 702 889 693 826
824
<BONDS> 3,885 3,951 3,995 3,862
3,953
0 0 0 0
0
115 115 115 115
115
<COMMON> 953 955 953 953
953
<OTHER-SE> (63) (275) (55) (105)
(171)
<TOTAL-LIABILITY-AND-EQUITY> 6,399 6,354 6,511 6,430
6,425
<SALES> 7,351 5,142 1,322 2,604
3,899
<TOTAL-REVENUES> 7,351 5,142 1,322 2,604
3,899
<CGS> 5,169 4,085 972 1,985
3,022
<TOTAL-COSTS> 6,149 4,996 1,205 2,453
3,716
<OTHER-EXPENSES> (53) (79) (29) (55)
(65)
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 460 414 100 201
308
<INCOME-PRETAX> 795 (189) 46 5
(60)
<INCOME-TAX> 321 (66) 15 (5)
(22)
<INCOME-CONTINUING> 445 (122) 32 11
(37)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> (189) (4) 0 0
(3)
<CHANGES> 0 0 0 0
0
<NET-INCOME> 256 (126) 32 11
(40)
<EPS-PRIMARY> 2.63 (1.35) .31 .07
(.46)
<EPS-DILUTED> 2.24 (1.35) .30 .07
(.46)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STONE
CONTAINER CORPORATION AND SUBSIDIARIES' MARCH 31, 1997, JUNE 30, 1997 AND
SEPTEMBER 30, 1997 CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED OPERATIONS
AND RETAINED EARNINGS (ACCUMULATED DEFICIT) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 94 179 215
<SECURITIES> 0 0 0
<RECEIVABLES> 590 600 632
<ALLOWANCES> 21 21 25
<INVENTORY> 779 690 706
<CURRENT-ASSETS> 1,570 1,574 1,636
<PP&E> 4,907 4,848 4,874
<DEPRECIATION> 2,349 2,383 2,444
<TOTAL-ASSETS> 6,234 5,956 5,960
<CURRENT-LIABILITIES> 810 631 838
<BONDS> 4,126 4,210 4,159
0 0 0
115 115 115
<COMMON> 955 966 966
<OTHER-SE> (416) (548) (650)
<TOTAL-LIABILITY-AND-EQUITY> 6,234 5,956 5,960
<SALES> 1,181 2,381 3,564
<TOTAL-REVENUES> 1,181 2,381 3,564
<CGS> 987 2,004 3,002
<TOTAL-COSTS> 1,214 2,451 3,658
<OTHER-EXPENSES> 14 19 30
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 107 226 341
<INCOME-PRETAX> (154) (315) (465)
<INCOME-TAX> (57) (111) (162)
<INCOME-CONTINUING> (97) (204) (303)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (13) (13)
<CHANGES> 0 0 0
<NET-INCOME> (97) (217) (316)
<EPS-PRIMARY> (.99) (2.23) (3.24)
<EPS-DILUTED> (.99) (2.23) (3.24)
</TABLE>
