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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2000
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _______________
Commission file number 1-3439
Stone Container Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-2041256
(State of incorporation or organization) (I.R.S. Employer Identification)
150 North Michigan Avenue, Chicago, Illinois 60601
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number: (312) 346-6600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
10-3/4% Senior Subordinated Debentures due April 1, 2002 New York Stock Exchange
Series B 10-3/4% Senior Subordinated Debentures due April 1, 2002 and
1-1/2% Supplemental Interest Certificates New York Stock Exchange
10-3/4% First Mortgage Notes due October 1, 2002 New York Stock Exchange
11-1/2% Senior Notes due October 1, 2004 New York Stock Exchange
6-3/4% Convertible Subordinated Debentures due February 15, 2007 New York Stock Exchange
Rating Adjustable Senior Notes due August 1, 2016 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
All outstanding shares of the registrant's common stock are owned by Smurfit-
Stone Container Corporation.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K
Document Into Which Document is Incorporated
- -------- -----------------------------------
None
The registrant meets the conditions set forth in General Instruction (I) (1) (a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format permitted thereby.
STONE CONTAINER CORPORATION
Annual Report on Form 10-K
December 31, 2000
TABLE OF CONTENTS
PART I Page No.
Item 1. Business......................................................................................... 2
Item 2. Properties....................................................................................... 7
Item 3. Legal Proceedings................................................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................ 10
Item 6. Selected Financial Data.......................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 13
Item 7a. Quantitative and Qualitative Disclosures About Market Risk....................................... 22
Item 8. Financial Statements and Supplementary Data...................................................... 24
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure............. 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................. 58
FORWARD-LOOKING STATEMENTS
Except for the historical information contained in this Annual Report on Form
10-K, certain matters discussed herein, including (without limitation) under
Part I, Item 1, "Business-Environmental Compliance", under Part 1, Item 3,
"Legal Proceedings" and under Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contain forward-
looking statements, within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended. Although we believe that, in making any such
statements, our 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
document, the words "anticipates," "believes," "expects," "intends" and similar
expressions as they relate to Stone Container Corporation or its management are
intended to identify such forward-looking statements. These forward-looking
statements are subject to numerous risks and uncertainties. There are important
factors that could cause actual results to differ materially from those in
forward-looking statements, certain of which are beyond our control. These
factors, risks and uncertainties include among others, the following:
. the impact of general economic conditions in North America and Europe and
in other locations in which we and our subsidiaries currently do business;
. general 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;
. fluctuations in energy prices; and
. obtaining required approvals, if any, of debt holders.
Our actual results, performance or achievement could differ materially from
those expressed in, or implied by, these forward-looking statements, and
accordingly we can give no assurances 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 our results of operations or financial condition.
We expressly decline any obligation to publicly revise any forward-looking
statements that have been made to reflect the occurrence of events after the
date hereof.
1
PART I
ITEM 1. BUSINESS
--------
Unless the context otherwise requires, "we", "us", "our" or Stone Container
refers to the business of Stone Container Corporation and its subsidiaries.
GENERAL
- -------
Stone Container Corporation, a Delaware corporation, is an integrated producer
of containerboard, corrugated containers, multiwall bags and other packaging
products. We have operations primarily in North America and Europe. For the year
ended December 31, 2000, our net sales were $5,738 million and net income was
$115 million.
Stone Container is a wholly-owned subsidiary of Smurfit-Stone Container
Corporation, a Delaware corporation. Smurfit-Stone is a holding company with no
business operations of its own. Smurfit-Stone conducts its business operations
through two wholly-owned subsidiaries: Stone Container and JSCE, Inc., Delaware
corporations. Smurfit-Stone acquired Stone Container through the November 18,
1998 merger of a wholly-owned subsidiary of Jefferson Smurfit Corporation, now
known as Smurfit-Stone, with and into Stone Container.
On May 31, 2000, Stone Container, through a subsidiary, acquired St. Laurent
Paperboard, Inc. Pursuant to an Amended and Restated Pre-Merger Agreement, each
outstanding common share and restricted share unit of St. Laurent was exchanged
for 0.5 shares of Smurfit-Stone common stock and $12.50 in cash. The total
consideration paid in connection with the St. Laurent acquisition was
approximately $1.4 billion, consisting of approximately $631 million in cash,
approximately 25.3 million shares of Smurfit-Stone common stock and the
assumption of $376 million of St. Laurent's debt. Amounts included in the
discussion below include St. Laurent's operations after May 31, 2000.
PRODUCTS
- --------
Our operations are organized by industry segments: 1) Containerboard and
corrugated containers, 2) Specialty Packaging and 3) International. For
financial information relating to the segments, see the information set forth in
Note 19 in the Notes to Consolidated Financial Statements.
CONTAINERBOARD AND CORRUGATED CONTAINERS SEGMENT
Sales for the Containerboard and Corrugated Containers segment in 2000 were
$4,720 million (including $130 million of intersegment sales). This segment
includes 17 paper mills (11 located in the United States and six in Canada), 97
container plants (91 located in the United States, two in Canada and four in
Mexico) and five wood products plants (four located in the United States and one
in Canada). In addition, we own approximately 1,112,000 acres of timberland and
operate wood harvesting facilities in Canada. The primary products of the
Containerboard and Corrugated Containers segment include:
. corrugated containers;
. containerboard;
. kraft paper;
. market pulp; and
. solid bleached sulfate.
Stone Container offers a full range of high quality corrugated containers
designed to protect, ship, store and display products and satisfy customers'
merchandising and distribution needs. Corrugated containers are sold to a broad
range of manufacturers of consumable goods. Corrugated containers are
2
used to ship such diverse products as home appliances, electric motors, small
machinery, grocery products, produce, computers, books, furniture and many other
products. We provide customers with innovative packaging solutions to advertise
and sell their products. Stone Container, along with its affiliates, has the
most complete line of graphic capabilities in the industry, including
flexographic and lithographic preprint, colored and coated substrates,
lithographic labels, and high resolution post print. In addition, we offer a
complete line of retail ready, point of purchase displays and a full line of
specialty products, including pizza boxes, corrugated clamshells for the food
industry, Cordeck(R) recyclable pallets and custom die-cut boxes to display
packaged merchandise on the sales floor. Our container plants serve local
customers and large national accounts.
Production for the paper mills and sales volume for the corrugated container
facilities, including our proportionate share of affiliates, for the last three
years were:
2000 1999 1998
----- ----- -----
Tons produced (in thousands)
Containerboard................................................... 5,072 4,381 4,432
Kraft paper...................................................... 290 437 457
Market pulp...................................................... 550 572 639
Solid bleached sulfate........................................... 68
Corrugated containers sold (in billion sq. ft.).................... 52.0 50.9 50.8
Our containerboard mills produce a full line of containerboard, which for 2000
included 2,997,000, 415,000 and 1,660,000 tons of unbleached kraft linerboard,
white top linerboard and corrugating medium, respectively. The containerboard
mills and corrugated container operations are highly integrated, with the
majority of containerboard production used internally by our corrugated
container operations. In 2000, the corrugated container plants consumed
3,158,000 tons of containerboard, representing an integration level of
approximately 62%. A significant portion of the kraft paper production is
consumed internally by our specialty packaging operations.
We also produce bleached northern and southern hardwood pulp. Market pulp is
sold to manufacturers of paper products, including photographic and other
specialty papers, as well as the printing and writing sectors.
Sales volumes shown above include our proportionate share of the operations of
Smurfit-MBI, a Canadian producer of corrugated containers, and other affiliates
reported on an equity ownership basis. Stone Container and Jefferson Smurfit
Group plc, a principal shareholder of Smurfit-Stone, each own a 50% interest in
Smurfit-MBI.
SPECIALTY PACKAGING SEGMENT
Sales for the Specialty Packaging segment in 2000 were $517 million. This
segment includes 14 plants located throughout the United States. The primary
products of the Specialty Packaging segment include:
. multiwall bags;
. consumer bags; and
. intermediate bulk containers.
Multiwall bags are designed to safely and effectively ship a wide range of
industrial and consumer products, including fertilizers, chemicals, concrete,
flour, sugar, feed, seed, pet foods, popcorn, charcoal and salt. In 2000, our
specialty packaging plants consumed approximately 65% of the kraft paper
produced by our kraft paper mills. Shipments of multiwall bags for 2000, 1999
and 1998 were 247,000, 249,000 and 244,000 tons, respectively, excluding the
proportionate share of non-consolidated affiliates.
3
INTERNATIONAL SEGMENT
International segment sales were $587 million in 2000. Our International
operations, which produce containerboard, coated recycled boxboard and
corrugated containers, are located predominantly in Europe. The European
operations include:
. three paper mills located in Hoya and Viersen, Germany and Cordoba, Spain;
. 20 corrugated container plants (eleven located in Germany, three in Spain,
four in Belgium and two in the Netherlands); and
. six reclamation plants (five located in Germany and one in Spain).
In addition, we operate one container plant in Indonesia and have several small
affiliate operations in Chile and China. Production for our international mills
and sales volume for our international corrugated container facilities for the
last three years were:
2000 1999 1998
---- ---- ----
Tons produced (in thousands)
Containerboard................................................... 405 380 380
Coated boxboard.................................................. 85 79 78
Corrugated containers sold (in billion sq. ft.).................... 12.1 11.6 11.6
In 2000, our foreign corrugated container plants consumed 734,000 tons of
containerboard.
OTHER NON-REPORTABLE SEGMENT
- ----------------------------
Consumer Packaging
Sales for the Consumer Packaging segment in 2000 were $44 million. This segment
includes one plant in the United States and one in Canada. The primary products
of the Consumer Packaging segment include microflute packaging and laminated and
extruded paperboard for the food service industry, including cup stock and bacon
board.
FIBER RESOURCES
- ---------------
Wood fiber and reclaimed fiber are the principal raw materials used in the
manufacture of our paper products. We satisfy the majority of our need for wood
fiber through purchases on the open market or under supply agreements. We
satisfy essentially all of our need for reclaimed fiber through Smurfit-Stone's
reclamation operations and national brokerage system.
Wood fiber and reclaimed fiber are purchased in highly competitive, price-
sensitive markets, which have historically exhibited price and demand
cyclicality. Conservation regulations have caused, and will likely continue to
cause, a decrease in the supply of wood fiber and higher wood fiber costs in
some of the regions in which we procure wood fiber. Fluctuations in supply and
demand for reclaimed fiber have occasionally caused tight supplies of reclaimed
fiber and, at those times, we have experienced an increase in the cost of such
fiber. While we have not experienced any significant difficulty in satisfying
our need for wood fiber and reclaimed fiber, we can give no assurances that this
will continue to be the case for any or all of our mills.
4
MARKETING
- ---------
Our marketing strategy is to sell a broad range of paper-based packaging
products to marketers of industrial and consumer products. In managing the
marketing activities of our paperboard mills, we seek to meet the quality and
service needs of the customers of our package converting plants at the most
efficient cost, while balancing those needs against the demands of our open
market customers. Our converting plants focus on supplying both specialized
packaging with high value graphics that enhance a product's market appeal and
high-volume sales of commodity products.
We seek to serve a broad customer base for each of our segments and as a result
we serve thousands of accounts. Each plant has its own sales force and many have
product design engineers and other service professionals who are in close
contact with customers to respond to their specific needs. We complement our
local plants' marketing and service capabilities with regional and national
design and service capabilities. We also maintain national sales offices for
customers who purchase through a centralized purchasing office. National account
business may be allocated to more than one plant because of production capacity
and equipment requirements.
Our business is not dependent upon a single customer or upon a small number of
major customers. We do not believe the loss of any one customer would have a
materially adverse effect on our business.
COMPETITION
- -----------
The markets in which we sell our principal products are highly competitive and
comprised of many participants. Although no single company is dominant, we do
face significant competitors in each of our businesses. Our competitors include
large vertically integrated companies as well as numerous smaller companies.
The industries in which we compete are particularly sensitive to price
fluctuations brought about by shifts in industry capacity and other cyclical
industry conditions. Other competitive factors include design, quality and
service, with varying emphasis depending on product line.
BACKLOG
- -------
Demand for our major product lines is relatively constant throughout the year
and seasonal fluctuations in marketing, production, shipments and inventories
are not significant. Backlogs are not a significant factor in the industry. We
do not have a significant backlog of orders as most orders are placed for
delivery within 30 days.
RESEARCH AND DEVELOPMENT
- ------------------------
Our research and development center, located in Carol Stream, Illinois, uses
state-of-the-art technology to assist all levels of the manufacturing and sales
processes, from raw material supply through finished packaging performance.
Research programs have provided improvements in coatings and barriers,
stiffeners, inks and printing. The technical staff conducts basic, applied and
diagnostic research, develops processes and products and provides a wide range
of other technical services.
We actively pursue applications for patents on new inventions and designs and
attempt to protect our patents against infringement. Nevertheless, we believe
our success and growth are more dependent on the quality of our products and our
relationships with customers, than on the extent of our patent protection.
We hold or are licensed to use certain patents, licenses, trademarks and trade
names on products. However, we do not consider the successful continuation of
any material aspect of our business to be dependent upon such intellectual
property.
5
EMPLOYEES
- ---------
We had approximately 25,600 employees at December 31, 2000, of which
approximately 19,000 were employees of U.S. operations. Of the domestic
employees, approximately 11,900 employees (63%) are represented by collective
bargaining units. The expiration dates of union contracts for our major paper
mill facilities are as follows:
. the Missoula, Montana mill, expiring in May 2001;
. the Jacksonville, Florida (Seminole) mill, expiring in June 2001;
. the Hopewell, Virginia mill, expiring in July 2002;
. the Panama City, Florida mill, expiring in March 2003;
. the Florence, South Carolina mill, expiring in August 2003;
. the La Tuque, Quebec,Canada mill, expiring in August 2004;
. the Hodge, Louisiana mill, expiring in June 2006; and
. the West Point, Virginia mill, expiring in September 2008.
We believe our employee relations are generally good. We are currently in the
process of bargaining with unions representing production employees at a number
of our operations. In addition, while the terms of these agreements may vary, we
believe the material terms of our collective bargaining agreements are customary
for the industry and the type of facility, the classification of the employees
and the geographic location covered by such agreements.
ENVIRONMENTAL COMPLIANCE
- ------------------------
Our operations are subject to extensive environmental regulation by federal,
state and local authorities. In the past, we have made significant capital
expenditures to comply with water, air, solid and hazardous waste and other
environmental laws and regulations. We expect to make significant expenditures
in the future for environmental compliance. Because various environmental
standards are subject to change, it is difficult to predict with certainty the
amount of capital expenditures that will ultimately be required to comply with
future standards.
In particular, the United States Environmental Protection Agency (EPA) has
finalized significant parts of its comprehensive rule governing the pulp, paper
and paperboard industry, known as the "Cluster Rule". Compliance with this rule
has required and will continue to require substantial expenditures. We have
spent approximately $134 million (of which approximately $124 million was spent
in 2000) for capital projects to comply with the initial portions of the Cluster
Rule and anticipate additional spending of $30 million in 2001 to complete these
projects. Additional portions of the Cluster Rule, some of which are not yet
finalized, could require up to $45 million of capital expenditures over the next
several years. The remaining cost of complying with the regulations cannot be
predicted with certainty until the remaining portions of the Cluster Rule are
finalized.
In addition to Cluster Rule compliance, we anticipate additional capital
expenditures related to environmental compliance. Excluding the spending on
Cluster Rule projects described above, for the past three years, we have spent
an average of approximately $8 million annually on capital expenditures for
environmental purposes. Since our principal competitors are subject to
comparable environmental standards, including the Cluster Rule, management is of
the opinion, based on current information, that compliance with environmental
standards will not adversely affect our competitive position.
6
ITEM 2. PROPERTIES
----------
We maintain manufacturing facilities and sales offices throughout North America
and Europe. Our facilities are properly maintained and equipped with machinery
suitable for their use. Our manufacturing facilities as of December 31, 2000 are
summarized below:
Number of Facilities State
---------------------------------------------------
Total Owned Leased Locations
----- ----- ------ ---------
United States
Paper mills......................................... 11 11 9
Corrugated container plants......................... 91 53 38 32
Specialty packaging plants.......................... 14 7 7 12
Consumer packaging plant............................ 1 1 1
Wood products plants................................ 4 4 2
--- --- ---
Subtotal............................................. 121 76 45 36
Canada and Other North America
Paper mills......................................... 6 6 N/A
Container plants.................................... 6 4 2 N/A
Consumer packaging plant............................ 1 1 N/A
Wood products plant................................. 1 1 N/A
Europe and Other
Paper mills......................................... 3 3 N/A
Reclamation plants.................................. 6 3 3 N/A
Corrugated container plants......................... 21 19 2 N/A
--- --- ---
Total................................................ 165 113 52 N/A
The paper mills represent approximately 74% of our investment in property, plant
and equipment. In addition to manufacturing facilities, we own approximately
1,112,000 acres of timberland and operate wood harvesting facilities in Canada.
The approximate annual tons of productive capacity, of our paper mills at
December 31, 2000 were:
Annual Capacity
---------------
(in thousands)
United States
Containerboard......................................... 4,996
Kraft paper............................................ 296
Market pulp............................................ 351
-----
Subtotal........................................... 5,643
Canada
Containerboard......................................... 1,165
Market pulp............................................ 243
Solid bleached sulfate................................. 123
Europe
Containerboard......................................... 446
Coated boxboard........................................ 66
-----
Total........................................ 7,686
7
ITEM 3. LEGAL PROCEEDINGS
-----------------
LITIGATION
- ----------
In 1998, seven putative class action complaints were filed in the United States
District Court for the Northern District of Illinois and the United States
District Court for the Eastern District of Pennsylvania. These complaints
alleged that we reached agreements in restraint of trade that affected the
manufacture, sale and pricing of corrugated products in violation of antitrust
laws. The complaints have been amended to name several other defendants,
including Jefferson Smurfit Corporation (U.S.) and Smurfit-Stone. The suits seek
an unspecified amount of damages arising out of the sale of corrugated products
for the period from October 1, 1993 through March 31, 1995. Under the
provisions of the applicable statutes, any award of actual damages could be
trebled. The Federal Multidistrict Litigation Panel has ordered all of the
complaints to be transferred to and consolidated in the United States District
Court for the Eastern District of Pennsylvania. We believe we have meritorious
defenses and are vigorously defending these cases.
We are a defendant in a number of lawsuits and claims arising out of the conduct
of our business, including those related to environmental matters. While the
ultimate results of such suits or other proceedings against us cannot be
predicted with certainty, our management believes the resolution of these
matters will not have a material adverse effect on our consolidated financial
condition or results of operations.
ENVIRONMENTAL MATTERS
- ---------------------
In September 1997, we received a Notice of Violation and a Compliance Order
from the EPA alleging noncompliance with air emissions limitations for the smelt
dissolving tank at our Hopewell, Virginia mill and for failure to comply with
New Source Performance Standards applicable to certain other equipment at the
mill. In cooperation with the EPA, we responded to information requests,
conducted tests and took measures to ensure continued compliance with applicable
emission limits. In December 1997 and November 1998, we received additional
requests from the EPA for information about past capital projects at the mill.
In April 1999, the EPA issued a Notice of Violation alleging that we had
"modified" the recovery boiler and increased nitrogen oxide emissions without
obtaining a required construction permit. We responded to this notice and
indicated the EPA's allegations were without merit. We have entered into a
tolling agreement with the EPA that defers any prosecution of this matter until
at least July 2, 2001.
In April 1999, the EPA and the Virginia Department of Environmental Quality
(Virginia DEQ) each issued a notice of violation under the Clean Air Act to St.
Laurent's mill located in West Point, Virginia, which was acquired from
Chesapeake Corporation in May 1997. In general, the notices of violation allege
that, from 1984 to the present, the West Point mill installed certain equipment
and modified certain production processes without obtaining the required
permits. St. Laurent made a claim for indemnification from Chesapeake for its
costs relating to these notices of violation pursuant to the purchase agreement
between St. Laurent and Chesapeake and the parties appointed a third-party
arbitrator to resolve the issues relating to the indemnification claim. The
arbitrator has established a binding cost-sharing formula between the parties as
to the cost of any required capital expenditures that might be required to
resolve the notices of violation, as well as any fines and penalties imposed in
connection therewith. St. Laurent and Chesapeake are attempting to reach
agreement with the EPA and Virginia DEQ on a capital expenditure plan to remedy
the notices of violation, and based on the information developed to date and
discussions with the EPA and Virginia DEQ, we believe our share of the costs to
resolve this matter will not be material and will not exceed established
reserves.
In August 1999, we received a Notice of Infraction from the Ministry of
Environment of the Province of Quebec alleging noncompliance with specified
environmental standards at our New Richmond, Quebec mill. The majority of the
citations alleged that we had discharged total suspended solids in the mill's
treated effluent which exceeded the regulatory limitations for the rolling 30-
day average. The remainder of
8
the citations were for monitoring, reporting and administrative deficiencies
uncovered during an inspection performed by the Ministry earlier in the year.
The total fine demanded by the Ministry for all of the alleged violations is
$6.5 million (Canadian). We entered a plea of "not guilty" as to all of the
citations and intend to vigorously defend ourselves against these alleged
violations.
Federal, state and local environmental requirements are a significant factor in
our business. We employ processes in the manufacture of pulp, paperboard and
other products, which result in various discharges, emissions and wastes. These
processes are subject to numerous federal, state and local environmental laws
and regulations, including reporting and disclosure obligations. We operate and
expect to operate under permits and similar authorizations from various
governmental authorities that regulate such discharges, emissions and wastes.
We also face potential liability as a result of releases, or threatened
releases, of hazardous substances into the environment from various sites owned
and operated by third parties at which company-generated wastes have allegedly
been deposited. Generators of hazardous substances sent to off-site disposal
locations at which environmental problems exist, as well as the owners of those
sites and certain other classes of persons (generally referred to as
"potentially responsible parties" or "PRPs") are, in most instances, subject to
joint and several liability for response costs for the investigation and
remediation of such sites under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) and analogous state laws,
regardless of fault or the lawfulness of the original disposal. We have
received notice that we are or may be a PRP at a number of federal and/or state
sites where response action may be required, and as a result may have joint and
several liability for cleanup costs at such sites. However, liability for
CERCLA sites is typically shared with other PRPs and costs are commonly
allocated according to relative amounts of waste deposited. Our relative
percentage of waste deposited at a majority of these sites is quite small. In
addition to participating in the remediation of sites owned by third parties, we
have entered into consent orders for investigation and/or remediation of certain
of our owned properties.
Based on current information, we believe the probable costs of the potential
environmental enforcement matters discussed above, response costs under CERCLA
and similar state laws, and the remediation of owned property, will not have a
material adverse effect on our financial condition or results of operations. We
believe our liability for these matters was adequately reserved at December 31,
2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On October 26, 2000, a special meeting of Stone Container's shareholders was
held. At the meeting, the shareholders approved an Agreement and Plan of Merger
among Smurfit-Stone, SCC Merger Co. and Stone Container pursuant to which each
share of issued and outstanding $1.75 Series E Cumulative Convertible
Exchangeable Preferred Stock of Stone Container would be converted into the
right to receive one share of 7% Series A Cumulative Exchangeable Redeemable
Convertible Preferred Stock of Smurfit-Stone. In addition, a cash payment would
be made by Smurfit-Stone equal to the accrued and unpaid dividends on each
outstanding share of Stone Container Preferred Stock, less $0.12 per share to
cover certain transaction related expenses. The Preferred Stock exchange was
completed on November 15, 2000, and the cash payment per share of Stone
Container Preferred Stock was $6.4425.
The results of the voting at the special meeting of shareholders were as
follows:
Votes Shares
Votes For Against Abstentions Not Voted
---------- ------- ----------- ---------
Common Stock.............................. 135,335,381
Series E Preferred Stock.................. 3,093,165 61,223 5,122 1,439,790
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
MARKET INFORMATION
- ------------------
We are a wholly-owned subsidiary of Smurfit-Stone, and therefore, all of our
outstanding common stock is owned by Smurfit-Stone. As a result, there is no
established public market for our common stock.
DIVIDENDS ON COMMON STOCK
- -------------------------
We have not paid cash dividends on our common stock and do not intend to pay
dividends in the foreseeable future. Our ability to pay dividends in the future
is restricted by certain restrictive provisions contained in our Credit
Agreement, Senior Note Indentures, Senior Subordinated Indenture and Restated
Certificate of Incorporation. See Management's Discussion and Analysis of
Financial Condition and Results of Operations, Liquidity and Capital Resources.
10
ITEM 6. SELECTED FINANCIAL DATA (f)
------------------------
(In millions, except per share and statistical data)
Predecessor
---------------------------------------------
Year Ended Period from Period from Year Ended
December 31, November 19 January 1 to December 31,
--------------------- To December November --------------------------
2000(a) 1999 31, 1998(b) 18, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Summary of Operations
Net sales(c).................................. $ 5,738 $ 4,500 $ 480 $ 4,399 $ 4,849 $ 5,142
Income (loss) from operations(d).............. 591 197 (15) (152) (89) 146
Income (loss) before extraordinary item....... 115 (75) (36) (749) (405) (122)
Net income (loss) applicable to common
shares...................................... 115 (77) (36) (749) (418) (126)
Basic earnings per share of common stock (e)
Loss before extraordinary item.............. (7.43) (4.16) (1.32)
Net loss.................................... (7.43) (4.29) (1.35)
Weighted average shares outstanding........... 102 99 99
Diluted earnings per share of common stock (e)
Loss before extraordinary item.............. (7.43) (4.16) (1.32)
Net loss.................................... (7.43) (4.29) (1.35)
Weighted average shares outstanding........... 102 99 99
Cash dividends per common share .60
- ---------------------------------------------------------------------------------------------------------------------------------
Other Financial Data
Net cash provided by (used for) operating
activities.................................. $ 558 $ 72 $ 12 $ (16) $ (259) $ 288
Net cash provided by (used for) investing
activities.................................. (808) 683 (22) 35 (174) (342)
Net cash provided by (used for) financing
activities.................................. 262 (883) (111) 128 438 128
Depreciation and amortization................. 313 296 34 239 302 315
Capital investments and acquisitions.......... 247 87 22 219 150 358
Working capital, net.......................... 369 32 488 507 672
Property, plant, equipment and timberlands,
net......................................... 4,406 3,110 4,012 2,427 2,668
Total assets.................................. 9,051 7,565 8,793 5,824 6,354
Long-term debt................................ 3,813 3,157 4,063 4,351 4,160
Redeemable preferred stock.................... 78 78 115 115
Stockholders' equity.......................... 3,003 2,506 2,590 277 795
- ---------------------------------------------------------------------------------------------------------------------------------
Statistical Data (tons in thousands)
Containerboard production (tons).............. 5,477 4,761 541 4,271 4,935 4,591
Kraft production (tons)....................... 290 437 63 394 436 439
Market pulp production (tons)................. 550 572 71 568 1,127 1,009
Solid bleached sulfate production (tons)...... 68
Coated boxboard production (tons)............. 85 79 8 70 76 77
Corrugated containers sold (billion sq. ft.).. 64.1 62.5 6.6 55.8 55.7 53.1
Multiwall bags sold (tons).................... 247 249 27 217 248 240
Number of employees........................... 25,600 21,900 23,000 24,600 24,200
11
Notes to Selected Financial Data
(a) Results for 2000 include St. Laurent's operations after May 31, 2000, the
date of the St. Laurent acquisition.
(b) On November 18, 1998, we completed a merger with a wholly-owned subsidiary
of Smurfit-Stone. The merger was accounted for as a purchase business
combination, and accordingly, purchase accounting adjustments, including
goodwill, have been pushed down and are reflected in our financial
statements subsequent to November 18, 1998. The financial statements for
periods before November 18, 1998 were prepared using the historical basis
of accounting and are designated as "Predecessor". The comparability of
operating results for the Predecessor periods and the periods subsequent to
November 18, 1998 are affected by the purchase accounting adjustments.
(c) Net sales for all periods have been restated to comply with the Emerging
Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling
Fees and Costs". Previously, we recognized shipping and handling costs as
a reduction to net sales. Shipping and handling costs are now included in
cost of goods sold. The reclassification had no effect on income from
operations. The effect of this reclassification increased net sales and
cost of goods sold from previously reported amounts by $159 million in
1999, $160 million in 1998, $153 million in 1997 and $153 million in 1996.
(d) In connection with the 1998 merger with Smurfit-Stone, we recorded a pretax
restructuring charge of $53 million in 2000 related to the permanent
shutdown of a containerboard mill and seven other operations.
(e) Subsequent to the 1998 merger with Smurfit-Stone, earnings per share
information is no longer presented because we are a wholly-owned subsidiary
of Smurfit-Stone.
(f) Certain prior year amounts have been restated to conform to current year
presentation.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
- -------
Market conditions and demand for containerboard and corrugated containers, our
primary products, have historically been subject to cyclical changes in the
economy and changes in industry capacity, both of which can significantly impact
selling prices and our profitability.
Market conditions were generally weak in 1997 and 1998 due primarily to excess
capacity within the industry. During the second half of 1998, the
containerboard industry took market related downtime, resulting in a significant
reduction in inventory levels. In addition, several paper companies, including
Stone Container, permanently shut down paper mill operations approximating 6% of
industry capacity. The balance between supply and demand for containerboard
improved as a result of the shutdowns and inventories were reduced. Corrugated
container shipments for the industry were strong in 1999, increasing
approximately 2% compared to 1998. As a result of these developments, linerboard
prices rose $90 per ton in 1999, and increased an additional $50 per ton in
February 2000. Domestic economic growth slowed in the second half of 2000. This
slowdown, in addition to weak export markets exerted downward pressure on
containerboard demand. In order to maintain a balance between supply and demand,
the industry took extensive market related downtime in 2000. In January 2001,
sluggish corrugated demand resulted in a $15 per ton decline in linerboard
pricing to $465 per ton. We do not expect a recovery in demand for corrugated
containers until the U.S. economy strengthens.
Market pulp is also subject to cyclical changes in the economy and changes in
industry capacity. Mill closures, market related downtime and the recovery of
the Asian markets resulted in tighter supplies and a recovery in prices in 1999.
As a result, market prices increased approximately $160 per metric ton in 1999
and $100 per metric ton in 2000. Demand for market pulp weakened in the second
half of 2000 and pulp producers took market related downtime in the fourth
quarter. As a result of the weakening demand, significant price discounting has
occurred in certain markets.
Wood fiber and reclaimed fiber are the principal raw materials used in the
manufacture of our products. Demand for reclaimed fiber, which was weak in 1998,
grew stronger in 1999 primarily as a result of strong export demand. Reclaimed
fiber prices rose in 1999, but declined in the second half of 2000 due primarily
to lower demand brought about by the extensive market related downtime taken by
containerboard mills as described above. The price of old corrugated containers,
commonly known as OCC, the principal grade used in recycled containerboard
mills, was higher in 2000 compared to 1999 by approximately 8%. Wood fiber
prices declined 4% in 2000 compared to 1999.
ACQUISITION
- -----------
On May 31, 2000, we acquired St. Laurent. The St. Laurent acquisition was
accounted for as a purchase business combination and, accordingly, the results
of operations of St. Laurent have been included in the Consolidated Statements
of Operations after May 31, 2000. The cost to acquire St. Laurent has been
preliminarily allocated to the assets acquired and liabilities assumed according
to estimated fair values and is subject to adjustment when additional
information concerning asset and liability valuations is finalized. The
preliminary allocation resulted in acquired goodwill of approximately $195
million, which is being amortized on a straight-line basis over 40 years. In
connection with the St. Laurent acquisition, we recorded exit liabilities of $10
million in 2000 for the termination of certain St. Laurent employees,
liabilities for long-term commitments and the permanent shutdown of a container
plant, which were included in the preliminary allocation of the cost to acquire
St. Laurent. Cash payments for exit liabilities in 2000 were $3 million and
future cash outlays will be $6 million in 2001 and $1 million in 2002.
13
Synergy savings of $50 million from the St. Laurent acquisition are targeted by
the end of 2001. These synergies will be achieved through a combination of
purchasing savings, supply chain management, manufacturing efficiencies and
administrative reductions.
MERGER AND RESTRUCTURING
- ------------------------
As previously discussed, on November 18, 1998, a wholly-owned subsidiary of
Smurfit-Stone merged with Stone Container. In connection with the merger, we
restructured our operations. The most significant elements of the restructuring
for Stone Container included the permanent closure of two paper mills, having
approximately 500,000 tons of containerboard capacity and approximately 400,000
tons of market pulp capacity, and 12 additional facilities.
Smurfit-Stone's cost to acquire Stone Container, included among other things,
adjustments to fair value of property, plant and equipment associated with the
closure of certain facilities and establishment of liabilities for the
termination of certain employees, long-term commitments and the resolution of
litigation related to our investment in Florida Coast Paper Company, L.L.C. In
2000, we recorded a restructuring charge of $53 million related to the permanent
shutdown of certain of the facilities discussed above.
The restructuring of our operations in connection with the merger was completed
in 2000. Annualized synergy savings in excess of $350 million have been achieved
by Smurfit-Stone primarily as a result of optimization of the combined
manufacturing systems of Jefferson Smurfit (U.S.) and Stone Container,
purchasing leverage and reduction of selling and administrative cost.
Since the merger with Smurfit-Stone, through December 31, 2000, Stone Container
has incurred approximately $187 million (82%) of the planned cash expenditures
to close facilities and to pay severance and other exit liabilities.
Approximately 66% of the expenditure related to the Florida Coast settlement.
The exit liabilities remaining as of December 31, 2000 consisted of $42 million
of anticipated cash expenditures. Future cash outlays, principally for the long-
term commitments, are anticipated to be $14 million in 2001, $7 million in 2002
and $21 million thereafter. The remaining cash expenditures will continue to be
funded through operations as originally planned.
RESULTS OF OPERATIONS
- ---------------------
Segment Data
(In millions)
For purposes of the following discussion of results of operations, the 1998
financial information for the period before November 18, 1998 (the Predecessor)
has been combined with the financial information for the period from November 19
to December 31, 1998. The financial statements for the Predecessor period were
prepared using Stone Container's historical basis of accounting. The
comparability of operating results for the Predecessor period and the periods
encompassing push down accounting are affected by the purchase accounting
adjustments.
14
2000 1999 1998
--------------------------- -------------------------- ------------------------
Net Profit/ Net Profit/ Net Profit/
Sales (Loss) Sales (Loss) Sales (Loss)
---------------------------------------------------------------------------------
Containerboard and corrugated containers....... $ 4,590 $ 738 $ 3,407 $ 322 $ 3,746 $ (22)
Specialty packaging............................ 517 32 524 37 532 35
International.................................. 587 37 567 30 588 22
Other operations............................... 44 (2) 2 (3) 13 (51)
-------- -------- -------- -------- -------- --------
Total operations.............................. $ 5,738 805 $ 4,500 386 $ 4,879 (16)
======== ======== ========
Restructuring charge........................... (53)
Interest expense, net.......................... (371) (340) (452)
Other, net..................................... (140) (121) (421)
-------- -------- --------
Net income (loss) before income taxes and
extraordinary item............................ $ 241 $ (75) $ (889)
======== ======== ========
Other, net includes corporate expenses, intracompany profit elimination and LIFO
expense, goodwill amortization, corporate charges to segments for working
capital interest, gains or losses on asset sales and other expenses not
allocated to segments.
2000 COMPARED TO 1999
- ---------------------
Improvements in containerboard and other markets and the St. Laurent acquisition
were the primary reasons for the increases in net sales and operating profits in
2000. Net sales increased 28% compared to 1999 and operating profits increased
109%. Other, net expense was higher in 2000 compared to 1999 due primarily to
higher goodwill amortization and corporate expenses related to the St. Laurent
acquisition and a $39 million gain on an asset sale in 1999. Other, net in 2000
was favorably impacted by the effects of lower intracompany profit elimination
and LIFO expense. Interest expense, net increased by $31 million due to higher
average interest rates and to new borrowings used to fund the St. Laurent
acquisition. The increases (decreases) in net sales for each of our segments are
shown in the chart below.
Income before income taxes and extraordinary item improved $316 million compared
to 1999. Net income in 2000 was $108 million as compared to a loss of $85
million in 1999.
(In millions) 2000 Compared to 1999
-------------------------------------------------------------------------------------
Container-
board &
Corrugated Specialty Other
Containers Packaging International Operations Total
---------- --------- ------------- ---------- -----
Increase (decrease) in net sales due to:
Sales price and product mix............. $ 573 $ 27 $ 1 $ $ 601
Sales volume............................ (22) (18) 25 (15)
Acquisition and other................... 754 44 798
Closed or sold facilities............... (122) (16) (6) (2) (146)
------ ---- --- --- ------
Net increase (decrease)................... $1,183 $ (7) $20 $42 $1,238
====== ==== === === ======
Containerboard and Corrugated Containers Segment
Net sales for 2000 increased by 35% compared to 1999 due to higher sales prices
and the St. Laurent acquisition. Profits improved by $416 million to $738
million. Market conditions were stronger in the first half of the year, enabling
us to implement a linerboard price increase on February 1, followed by
corresponding price increases for corrugated containers. Although shipments grew
weaker as the year progressed, we were able to maintain the price increases
achieved earlier in the year. On average, corrugated container prices improved
by 15% compared to last year and linerboard prices were higher by 17%. Strong
demand for market pulp drove prices higher in the first half of 2000. Demand for
market pulp weakened in the second half of 2000 and significant price
discounting has occurred in certain markets. The average price
15
of market pulp for 2000 was 31% higher compared to 1999. The average sales price
of kraft paper increased 15% compared to 1999.
Production of containerboard increased 16% compared to 1999 due to the St.
Laurent acquisition. Exclusive of St. Laurent, production of containerboard
declined 3% compared to last year as a result of the higher levels of market
related downtime. Shipments of corrugated containers increased 1% compared to
last year. Exclusive of St. Laurent, shipments of corrugated containers declined
6% due to container plant closures and weaker demand in the second half of the
year. Production of market pulp declined 4% primarily due to market related
downtime taken in the fourth quarter of 2000. Kraft paper production declined
34% compared to 1999 primarily due to the shifting of available capacity from
kraft paper to containerboard.
Profits increased due to the higher average prices and the St. Laurent
acquisition. Profits were negatively impacted by market related downtime and
higher cost of energy and fiber. Cost of goods sold as a percent of net sales
decreased to 77% for 2000 compared to 82% for 1999 due primarily to the higher
average sales prices.
Specialty Packaging Segment
Net sales for 2000 decreased by 1% compared to 1999 and profit decreased $5
million to $32 million. Sales prices improved compared to 1999, but sales volume
was lower due to plant closures and a labor strike at one of our operating
facilities. Profits declined due primarily to the effects of the labor strike.
Cost of goods sold as a percent of net sales was 84%, unchanged from 1999.
International Segment
Net sales for 2000 increased by 4% compared to 1999 and profit increased $7
million to $37 million. The increase in net sales was due to increases in volume
for corrugated container operations and higher sales prices for containerboard
and reclaimed fiber. Sales were negatively impacted compared to 1999 by the sale
of a corrugated container operation located in Australia. Profits increased
primarily due to the higher sales prices and a non-recurring gain on sale of
land. Cost of goods sold as a percent of net sales increased from 85% in 1999 to
87% in 2000 due primarily to the inability of the corrugated container
operations to pass on increased containerboard cost to customers.
Other Operations
Other operations include St. Laurent's consumer packaging facilities after May
31, 2000, the date of the St. Laurent acquisition. Other operations in 1999
consisted primarily of non-consolidated affiliates, which were subsequently
sold.
Costs and Expenses
Cost of goods sold for 2000 in our Consolidated Statements of Operations
increased compared to 1999 due primarily to the St. Laurent acquisition. Cost of
goods sold as a percent of net sales decreased from 87% in 1999 to 81% in 2000
due primarily to the higher average sales prices. The improvements were
partially offset by the higher cost of energy and reclaimed fiber cost and the
effects of the higher level of market related downtime.
Selling and administrative expenses as a percent of net sales decreased from 9%
in 1999 to 8% in 2000 due primarily to higher average sales prices. Selling and
administrative expenses for 2000 increased compared to 1999 due primarily to the
St. Laurent acquisition.
Interest expense, net increased $31 million compared to 1999 due to higher
average interest rates and to new borrowings used to fund the St. Laurent
acquisition. Our overall average effective interest rate in 2000 was higher than
1999 by 0.5%.
16
Other, net in the Consolidated Statements of Operations declined in 2000 due
primarily to a $39 million gain recorded in 1999 on the sale of our equity
interest in Abitibi-Consolidated, Inc. and foreign exchange gains, which were
more favorable in 1999.
The effective income tax rate for 2000 differed from the federal statutory tax
rate due to several factors, the most significant of which were state income
taxes and the effect of permanent differences from applying purchase accounting.
For information concerning income taxes see Liquidity and Capital Resources and
Note 9 of the Notes to Consolidated Financial Statements.
1999 COMPARED TO 1998
Net sales for 1999 decreased $379 million, or 8%, compared to 1998 due primarily
to lower sales volume and the closure of operating facilities in the
Containerboard and Corrugated Containers segment. Higher sales prices partially
offset the decline in volume. Operating profits increased $402 million compared
to 1998 due primarily to the performance of our Containerboard and Corrugated
Containers segment. Other, net in 1999 improved $300 million compared to 1998
due primarily to the write-down of certain investments in 1998 and reductions in
administrative expenses. The increases or (decreases) in net sales for each of
our segments is shown in the chart below.
Loss before income taxes and extraordinary item was $75 million in 1999 as
compared to $889 million in 1998. Net loss in 1999 was $85 million as compared
to a loss of $793 million in 1998.
(In millions) 1999 Compared to 1998
-----------------------------------------------------------------------------------
Container-
board &
Corrugated Specialty Other
Containers Packaging International Operations Total
---------- ---------- ------------- ---------- -----
Increase (decrease) in net sales due to:
Sales price and product mix.............. $ 137 $ 3 $(24) $ (4) $ 112
Sales volume............................. (190) 5 27 (158)
Closed or sold facilities................ (286) (16) (24) ( 7) (333)
----- ---- ---- ---- -----
Net decrease.............................. $(339) $ (8) $(21) $(11) $(379)
===== ==== ==== ==== =====
Containerboard and Corrugated Containers Segment
Net sales of $3,407 million for 1999 decreased by 9% compared to 1998. The
benefit from the improvement in sales prices was offset by a reduction in
containerboard sales volume, plant closures resulting from the our merger with
Smurfit-Stone and the sale of our newsprint operation located in Snowflake,
Arizona in October 1998. We were able to implement two price increases for
containerboard in 1999, totaling $90 per ton for linerboard and $130 per ton for
medium. On average, linerboard and corrugated container prices increased 8% and
2%, respectively, compared to 1998. The average price of kraft paper and market
pulp in 1999 increased 4% and 15%, respectively, compared to 1998.
Containerboard production tons in 1999 decreased by 1% and pulp production
declined 10% compared to 1998 due primarily to the mill closures. Production of
kraft paper declined 4%. Corrugated container shipments were unchanged from
1998.
Profits improved by $344 million compared to 1998 to $322 million due to higher
sales prices, plant shutdowns, reduced mill downtime, cost saving initiatives
undertaken in connection with our merger with Smurfit-Stone and the elimination
of losses related to our non-consolidated affiliates divested during 1998 and
1999. Cost of goods sold as a percent of net sales decreased to 82% for 1999
compared to 92% for 1998.
17
Specialty Packaging Segment
Net sales for 1999 decreased by 2% compared to 1998 due primarily to plant
closures. Profits improved by $2 million compared to 1998 due primarily to
higher sales prices. Cost of goods sold as a percent of net sales decreased to
83% for 1999 compared to 88% for 1998 due primarily to the higher average sales
prices.
International Segment
Net sales for 1999 decreased by 4% compared to 1998 due to lower average sales
prices in Europe and the sale of our corrugated container operations located in
Australia. Exclusive of the Australia operations, shipments of corrugated
containers increased 5% compared to 1998. Profits improved by $8 million
compared to 1998 due primarily to elimination of losses related to our non-
consolidated affiliates divested after our merger with Smurfit-Stone. Cost of
goods sold as a percent of net sales decreased from 87% in 1998 to 85% in 1999.
Other Operations
Net sales of other operations declined due primarily to plant closures. Profits
improved due primarily to elimination of losses related to our non-consolidated
affiliate Abitibi-Consolidated, Inc that we divested in 1999.
Costs and Expenses
Cost of goods sold for 1999 in the Consolidated Statements of Operations
decreased compared to 1998 due primarily to the effects of our merger with
Smurfit-Stone and the sale of the Snowflake mill. Such decreases were partially
offset by higher LIFO expense, higher depreciation expense related to the fair
value adjustments made to the historical basis of property, plant and equipment
in the purchase price allocation adjustment and increased goodwill amortization
charges. Overall cost of goods sold as a percent of net sales decreased from 92%
in 1998 to 87% in 1999 due primarily to the effects of the merger and higher
average sales prices.
Selling and administrative expenses for 1999 decreased compared to 1998 due
primarily to staff reductions, certain other merger synergies achieved and a
reduction in bad debt expense. Selling and administrative expenses as a percent
of net sales decreased from 11% in 1998 to 9% in 1999.
Interest expense, net decreased $112 million compared to 1998 primarily as a
result of lower average outstanding borrowings during 1999.
Other, net in the Consolidated Statements of Operations improved in 1999 due
primarily to non-cash charges in 1998 of $174 million for the write-down of
certain investments and assets. In addition, we recorded foreign exchange gains
in 1999 as compared to foreign exchange losses in 1998. Other, net included a
gain of $39 million on the sale of shares of Abitibi in 1999 and a gain of $37
million on the sale of the Snowflake mill in 1998. In connection with our merger
with Smurfit-Stone, we recorded charges of $32 million in the 1998 Predecessor
period related to certain merger transactions cost and change in control
payments.
The effective income tax rate for 1999 differed from the federal statutory tax
rate due to several factors, the most significant of which was the effect of
permanent differences from applying purchase accounting.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
General
In 2000, net cash provided by operating activities of $558 million, borrowings
under bank credit facilities of $1,525 million and proceeds from the sale of
assets of $70 million were used to fund the $631 million cash component of the
St. Laurent acquisition, net debt repayments of $1,246 million, financing fees
of $17 million and property additions of $247 million. Debt repayments for 2000
included the $559 million redemption of our outstanding 9.875% senior notes due
February 1, 2001, repayment of approximately
18
$376 million of existing indebtedness of St. Laurent, prepayments on our bank
term loans and scheduled debt repayments.
On November 15, 2000, pursuant to an Agreement and Plan of Merger among Smurfit-
Stone, SCC Merger Co. and Stone Container, approximately 4.6 million shares of
$1.75 Series E Preferred Stock of Stone Container were converted into
approximately 4.6 million shares of 7% Series A Cumulative Exchangeable
Redeemable Convertible Preferred Stock of Smurfit-Stone. In addition a cash
payment of $6.4425 per share, totaling approximately $30 million, was made by
Smurfit-Stone to the holders of the Stone Container Preferred Stock. The cash
payment was equal to the accrued and unpaid dividends on each share of the Stone
Container Preferred Stock, less $0.12 per share to cover certain transaction
related expenses. Smurfit-Stone made a $78 million capital contribution to the
company to effect the Preferred Stock exchange.
On May 31, 2000, we acquired St. Laurent. The total consideration paid in
connection with the St. Laurent acquisition was approximately $1.4 billion,
consisting of approximately $631 million in cash, approximately 25.3 million
shares of Smurfit-Stone common stock and the assumption of $376 million of St.
Laurent's debt. The cash portion of the purchase price was financed through
borrowings under certain of our credit facilities, including a new credit
facility. The new credit facility consists of (i) $950 million in the form of
Tranche G and Tranche H term loans maturing on December 31, 2006, and (ii) a
$100 million revolving credit facility maturing on December 31, 2005. The
proceeds of the new credit facility were used to fund the cash component of the
St. Laurent acquisition, refinance certain existing indebtedness of St. Laurent
and pay fees and expenses related to the acquisition. The new revolving credit
facility will be used for general corporate purposes. The new credit facility is
secured by a security interest in substantially all of the assets acquired in
the St. Laurent acquisition.
In May 2000, we sold our market pulp mill at the Port Wentworth, Georgia mill
site to a third party. Net proceeds of approximately $58 million from the sale
were used for debt reduction.
Financing Activities
On January 25, 2001, we issued $750 million of 9.75% senior notes due 2011 and
$300 million of 9.25% senior notes due 2008 (the New Senior Notes). The proceeds
of this issuance, along with additional borrowings on the Stone Container
revolving credit facility of $34 million, were used on February 23, 2001 to
redeem (i) $200 million aggregate principal amount of 10.75% senior subordinated
debentures due April 1, 2002, (ii) $100 million aggregate principal amount of
10.75% senior subordinated debentures and 1.5% supplemental interest
certificates due April 1, 2002, (iii) $45 million aggregate principal of 6.75%
convertible subordinated debentures due February 15, 2007, (iv) $500 million
aggregate principal of 10.75% first mortgage notes due October 1, 2002 and (v)
$200 million aggregate principal of 11.50% senior notes due October 1, 2004. In
addition, the proceeds were used to pay $39 million in fees, call premiums and
other expenses related to these transactions. The New Senior Notes have not been
registered under the Securities Act of 1933 and are subject to certain transfer
restrictions. If, by July 18, 2001, we do not consummate a registered exchange
offer for a series of notes or cause a shelf registration statement with respect
to resales of such series of notes to be declared effective, the interest rate
on the notes will be increased by 50 basis points per annum until the
consummation of a registered exchange offer or the effectiveness of a shelf
registration statement.
After giving effect to the issuance of the New Senior Notes, we have senior
notes aggregating $1,081 million which are redeemable, in whole or in part, at
our option at various dates beginning in August 2001, at par plus a weighted
average premium of 4.08%.
On November 30, 2000, we prepaid $147 million of the 10.75% senior subordinated
debentures and 1.50% supplemental interest certificates due April 1, 2002.
On March 31, 2000, we amended and restated our existing bank credit agreement
pursuant to which a group of financial institutions provided an additional $575
million to us in the form of a Tranche F term loan
19
maturing on December 31, 2005 and extended the maturity date of the revolving
credit agreement to December 31, 2005. On April 28, 2000, we used $559 million
of the proceeds of the Tranche F term loan to redeem the 9.875% senior notes due
February 1, 2001.
Our credit agreements contain various business and financial covenants
including, among other things, (i) limitations on dividends, redemptions and
repurchases of capital stock, (ii) limitations on the incurrence of indebtedness
(iii) limitations on capital expenditures, and (iv) maintenance of certain
financial covenants. The credit agreements also require prepayments if we have
excess cash flows, as defined, or receive proceeds from certain asset sales or
incurrence of certain indebtedness. The obligations under the credit agreements
are secured by a security interest in substantially all of our assets and 65% of
the stock of our Canadian subsidiary. The security interest excludes cash, cash
equivalents, certain trade receivables, four paper mills and the land and
buildings of the corrugated container facilities. Such restrictions, together
with our highly leveraged position, could restrict corporate activities,
including our ability to respond to market conditions, to provide for
unanticipated capital expenditures or to take advantage of business
opportunities.
The indentures governing our 11.50% Senior Notes due 2006 and the 12.58% Rating
Adjustable Senior Notes due 2016, totaling $325 million at December 31, 2000
generally provide that in the event of a "change of control" (as defined in the
indentures), we must offer to repurchase these senior notes. Our merger with
Smurfit-Stone constituted such a change of control. As a result, we are
required to make an offer to repurchase these senior notes at a price equal to
101% of the principal amount thereof (together with accrued but unpaid interest
thereon), provided however, if such repurchase would constitute an event of
default under our bank debt, prior to making an offer to repurchase these senior
notes, the indentures require that we either pay our bank debt or obtain the
consent of our bank lenders. A repurchase of these senior notes is currently
prohibited by the terms of our bank debt. Although the terms of these senior
notes refer to an obligation to repay our bank debt or obtain the consent of the
bank lenders to such repurchase, the terms do not expressly specify a deadline
following the applicable change of control for taking such actions. We have
sought and intend to actively seek commercially acceptable sources of financing
to repay such bank debt or alternative financing arrangements which would cause
the bank lenders to consent to the repurchase of these senior notes. There can
be no assurance that we will be successful in obtaining such financing or
consents or as to the terms of any such financing or consents. If we are
unsuccessful in repaying our bank debt or obtaining the requisite consents from
the lenders thereunder, holders of these senior notes may assert that we are
obligated to offer to repurchase the notes as a result of the change of control
or may assert other damages.
Based upon covenants in certain of the indentures, we are required to maintain
certain levels of equity. If the minimum equity levels are not maintained for
two consecutive quarters, the applicable interest rates on the indentures are
increased by 50 basis points per semiannual interest period (up to a maximum of
200 basis points) until the minimum equity level is attained. Our equity level
has exceeded the minimum since April 1999.
We expect internally generated cash flows and existing financing resources will
be sufficient for the next several years to meet our ordinary course
obligations, including debt service, expenditures under the Cluster Rule and
other capital expenditures. We intend to hold capital expenditures below our
annual depreciation levels for the next several years. Scheduled debt payments,
after giving effect to the New Stone Senior Notes and the related debt
redemption on February 23, 2001, are $29 million in 2001 and $37 million in
2002, with increasing amounts thereafter. We expect to use any excess cash flows
provided by operations to make further debt reductions. As of December 31, 2000,
we had $437 million of unused borrowing capacity under our credit agreements.
Income Tax Matters
At December 31, 2000, we had approximately $1,000 million of net operating loss
carryforwards for U.S. federal income tax purposes that expire from 2011 through
2019, with a tax value of $350 million. A valuation allowance of $152 million
has been established for a portion of these deferred tax assets. Further, we had
net operating loss carryforwards for state purposes with a tax value of $77
million, which
20
expire from 2001 through 2020. A valuation allowance of $46 million has been
established for a portion of these deferred taxes. We had approximately $32
million of alternative minimum tax credit carryforwards for U.S. federal income
tax purposes, which are available indefinitely.
Environmental Matters
Our operations are subject to extensive environmental regulation by federal,
state and local authorities in the United States and regulatory authorities with
jurisdiction over our foreign operations. We have made, and expect to continue
to make, significant capital expenditures to comply with water, air, solid and
hazardous waste and other environmental laws and regulations. Capital
expenditures for environmental control equipment and facilities were
approximately $133 million in 2000 and $14 million in 1999. We anticipate that
environmental capital expenditures will approximate $37 million in 2001. The
majority of the expenditures in 2000 and 2001 relate to projects required to
comply with the Cluster Rule. In November 1997, the EPA issued the Cluster Rule,
which made existing requirements for discharge of wastewater under the Clean
Water Act more stringent and imposed new, more stringent requirements on air
emissions under the Clean Air Act for the pulp and paper industry. Although
portions of the Cluster Rule are not yet fully promulgated, we currently believe
we may be required to make additional capital expenditures of up to $45 million
during the next several years in order to meet the requirements of the new
regulations. Also, additional operating expenses will be incurred as capital
installations required by the Cluster Rule are put into service.
In addition, we are from time to time subject to litigation and governmental
proceedings regarding environmental matters in which compliance action and
injunctive and/or monetary relief are sought. We have been named as a PRP at a
number of sites, which are the subject of remedial activity under CERCLA or
comparable state laws. Although we are subject to joint and several liability
imposed under CERCLA, at most of the multi-PRP sites there are organized groups
of PRPs and costs are being shared among PRPs. Payments related to cleanup at
existing and former operating sites and CERCLA sites were not material to our
liquidity during 2000. Future environmental regulations may have an
unpredictable adverse effect on our operations and earnings, but they are not
expected to adversely affect our competitive position.
Although capital expenditures for environmental control equipment and facilities
and compliance costs in future years will depend on engineering studies and
legislative and technological developments which cannot be predicted at this
time, such costs could increase as environmental regulations become more
stringent. Environmental expenditures include projects which, in addition to
meeting environmental concerns, may yield certain benefits to us 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 costs) represent ongoing costs to us.
Effects of Inflation
Although inflation has slowed in recent years, it is still a factor in the
economy and we continue to seek ways to mitigate its impact. In 2000, energy
resources were tight in certain areas of the United States and prices of natural
gas and purchased electricity escalated dramatically. Our paper mills are large
users of energy and we attempt to mitigate these cost increases through hedging
programs and supply contracts. With the exception of energy cost, inflationary
increases in operating costs have been moderate during the last three years and
have not had a material impact on our financial position or operating results.
We use the last-in, first-out method of accounting for approximately 53% of our
inventories. Under this method, the cost of goods sold reported in the
financial statements approximates current cost and thus provides a closer
matching of revenue and expenses in periods of increasing costs.
As a result of our merger with Smurfit-Stone and the recent St. Laurent
acquisition, our asset values were adjusted to fair market value in the
allocations of the purchase price in both transactions. Therefore,
21
depreciation expense in future years will approximate current cost of productive
capacity being consumed.
Prospective Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 2000. We will adopt
Statement No. 133 effective January 1, 2001. The statement requires us to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings.
Based on our derivative positions at December 31, 2000, we estimate that upon
adoption we will record an asset for the fair value of existing derivatives of
approximately $5 million and a corresponding reduction in cost of goods sold.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Foreign Currency Risk
We are exposed to foreign currency rate risk. Our principal foreign exchange
exposures are the Canadian dollar and the German mark. In general, with a net
asset exposure, a weakening of these currencies relative to the U.S. dollar has
a negative translation effect. Conversely, with a net asset exposure, a
strengthening of these currencies would have the opposite effect. The average
exchange rates for the German mark weakened against the U.S. dollar in 2000 by
15.2%, while the Canadian dollar remained unchanged.
Assets and liabilities outside the United States are primarily located in Canada
and Germany. The functional currency for the majority of our foreign operations
is the applicable local currency except for the operations in Canada. The
functional currency for the Canadian operations was changed from their local
currency to the U.S. dollar beginning on June 1, 2000, in conjunction with the
St. Laurent acquisition. Our investments in foreign subsidiaries with a
functional currency other than the U.S. dollar are not hedged. The potential
loss in fair value resulting from a hypothetical 10% adverse change in the
German Mark exchange rate would be approximately $8 million and in the Canadian
dollar exchange rate would be $16 million at December 31, 2000. Any loss in fair
value, associated with the German mark, in the Consolidated Balance Sheets would
be reflected as a cumulative translation adjustment in Accumulated Other
Comprehensive Income and would not impact our net income. A gain or loss in fair
value, associated with the Canadian dollar, in the Consolidated Balance Sheets
would be recorded as a gain or loss on foreign currency transactions.
In 2000, 1999 and 1998, the average exchange rates for the Canadian dollar and
the German mark strengthened (weakened) against the U.S. dollar as follows:
Year ended December 31,
------------------------
2000 1999 1998
----- ----- -----
Canadian dollar............................... % (0.2)% (7.1)%
German mark................................... (15.2) (4.4) (1.4)
We enter into foreign currency exchange agreements. There were no foreign
currency exchange agreements at December 31, 2000.
22
Interest Rate Risk
Our earnings and cash flow are significantly affected by the amount of interest
on our indebtedness. Our financing arrangements include both fixed and variable
rate debt in which changes in interest rates will impact the fixed and variable
debt differently. A change in the interest rate of fixed rate debt will impact
the fair value of the debt, whereas a change in the interest rate on the
variable rate debt will impact interest expense and cash flows. Management's
objective is to protect Stone Container from interest rate volatility and reduce
or cap interest expense within acceptable levels of market risk. We may
periodically enter into interest rate swaps, caps or options to hedge interest
rate exposure and manage risk within company policy. We do not utilize
derivatives for speculative or trading purposes. Any derivative would be
specific to the debt instrument, contract or transaction, which would determine
the specifics of the hedge. There were no interest rate derivatives outstanding
at December 31, 2000.
The table below presents principal amounts by year of anticipated maturity for
our debt obligations and related average interest rates based on the weighted
average interest rates at the end of the period. Variable interest rates
disclosed do not attempt to project future interest rates. This information
should be read in conjunction with Note 7 of the Notes to Consolidated Financial
Statements.
Short and Long-Term Debt
Outstanding as of December 31, 2000 There- Fair
(U.S.$, in millions) 2001 2002 2003 2004 2005 after Total Value
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. bank term loans and revolver -
10.2% average interest rate (variable)...... $ 13 $ 13 $ 580 $ 6 $ 725 $ 750 $2,087 $2,082
U.S. senior and senior subordinated notes -
11.0% average interest rate (fixed)......... 1 801 2 202 2 442 1,450 1,466
U.S. industrial revenue bonds -
8.9% average interest rate (fixed).......... 3 13 13 13 13 168 223 223
German mark bank term loans -
5.5% average interest rate (variable)....... 5 5 1 1 12 12
Other-U.S...................................... 9 7 3 2 1 22 22
Other-foreign.................................. 3 3 3 2 2 6 19 19
------------------------------------------------------------------------------------
Total debt..................................... $ 34 $ 842 $ 602 $ 226 $ 742 $1,367 $3,813 $3,824
====================================================================================
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Page No.
--------
Index to Financial Statements
Management's Responsibility for Financial Statements............................................ 25
Report of Independent Auditors.................................................................. 26
Consolidated Balance Sheets - December 31, 2000 and 1999........................................ 27
For the years ended December 31, 2000, 1999 and 1998:...........................................
Consolidated Statements of Operations....................................................... 28
Consolidated Statements of Stockholders' Equity............................................. 29
Consolidated Statements of Cash Flows....................................................... 30
Notes to Consolidated Financial Statements...................................................... 31
The following consolidated financial statement schedule is included in Item 14(a):
II: Valuation and Qualifying Accounts and Reserves....................................... 57
All other schedules specified under Regulation S-X have been omitted because
they are not applicable, because they are not required or because the
information required is included in the financial statements or notes thereto.
24
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Management of Stone Container is responsible for the information contained
in the consolidated financial statements and in other parts of this report. The
consolidated financial statements have been prepared by us in accordance with
accounting principles generally accepted in the United States appropriate in the
circumstances and necessarily include certain amounts based on management's best
estimate and judgment.
We maintain a system of internal accounting control, which we believe is
sufficient to provide reasonable assurance that in all material respects
transactions are properly authorized and recorded, financial reporting
responsibilities are met and accountability for assets is maintained. In
establishing and maintaining any system of internal control, judgment is
required to assess and balance the relative costs and expected benefits.
Management believes that through the careful selection of employees, the
division of responsibilities and the application of formal policies and
procedures, Stone Container has an effective and responsive system of internal
accounting controls. The system is monitored by our staff of internal auditors,
who evaluate and report to management on the effectiveness of the system.
/s/ Ray M. Curran
- -------------------------------------
Ray M. Curran
President and Chief Executive Officer
/s/ Paul K. Kaufmann
- ------------------------------------
Paul K. Kaufmann
Vice President and Corporate Controller
(Principal Accounting Officer)
25
Report of Independent Auditors
Board of Directors
Stone Container Corporation
We have audited the accompanying consolidated balance sheets of Stone
Container Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 2000 and 1999, the period from November 19 to
December 31, 1998, and the period from January 1 to November 18, 1998
(Predecessor). Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stone Container
Corporation at December 31, 2000 and 1999 and the consolidated results of its
operations and its cash flows for the years ended December 31, 2000 and 1999,
the period from November 19 to December 31, 1998, and the period from January
1 to November 18, 1998 (Predecessor) in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule for the years ended December 31, 2000 and 1999,
the period from November 19 to December 31, 1998, and the period from January
1 to November 18, 1998 (Predecessor), when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
St. Louis, Missouri
January 29, 2001,
except for paragraph 1 of Note 7, as to
which the date is February 23, 2001
26
STONE CONTAINER CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, (In millions, except share data) 2000 1999
=======================================================================================================================
Assets
Current assets
Cash and cash equivalents......................................................... $ 24 $ 13
Receivables, less allowances of $44 in 2000 and $41 in 1999....................... 369 343
Inventories
Work-in-process and finished goods.............................................. 154 143
Materials and supplies.......................................................... 385 357
------------------------------
539 500
Deferred income taxes............................................................. 159 88
Prepaid expenses and other current assets......................................... 42 48
------------------------------
Total current assets........................................................ 1,133 992
Net property, plant and equipment................................................... 4,348 3,089
Timberland, less timber depletion................................................... 58 21
Goodwill, less accumulated amortization of $161 in 2000 and $79 in 1999............. 3,170 3,123
Investment in equity of non-consolidated affiliates................................. 132 136
Other assets........................................................................ 210 204
------------------------------
$ 9,051 $ 7,565
=======================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt.............................................. $ 34 $ 162
Accounts payable.................................................................. 405 365
Accrued compensation and payroll taxes............................................ 118 119
Interest payable.................................................................. 71 82
Other current liabilities......................................................... 136 232
------------------------------
Total current liabilities................................................... 764 960
Long-term debt, less current maturities............................................. 3,779 2,995
Other long-term liabilities......................................................... 708 668
Deferred income taxes............................................................... 797 436
Stockholders' equity
Series E preferred stock, par value $.01 per share; no shares authorized,
issued or outstanding in 2000; 10,000,000 shares authorized; 4,599,300
issued and outstanding in 1999.................................................. 78
Common stock, par value $.01 per share; 200,000,000 shares authorized,
135,335,381 shares issued and outstanding in 2000 and 200,000,000 shares
authorized, 110,000,000 shares issued and outstanding in 1999................... 1 1
Additional paid-in capital........................................................ 3,015 2,544
Retained earnings (deficit)....................................................... 2 (113)
Accumulated other comprehensive income (loss)..................................... (15) (4)
------------------------------
Total stockholders' equity.................................................... 3,003 2,506
------------------------------
$ 9,051 $ 7,565
=======================================================================================================================
See notes to consolidated financial statements.
27
STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Predecessor
-----------
Period from Period from
Year Ended Year Ended November 19 to January 1 to
December 31, December 31, December 31, November 18,
(In millions, except per share data) 2000 1999 1998 1998
====================================================================================================================================
Net sales.......................................................... $ 5,738 $ 4,500 $ 480 $ 4,399
Costs and expenses
Cost of goods sold................................................ 4,629 3,914 448 4,049
Selling and administrative expenses............................... 465 389 47 502
Restructuring charge.............................................. 53
------------------------------------------------------------
Income (loss) from operations.................................... 591 197 (15) (152)
Other income (expense)
Interest expense, net............................................. (371) (340) (45) (407)
Equity income (loss) of affiliates................................ 13 12 4 (92)
Other, net........................................................ 8 56 4 (186)
------------------------------------------------------------
Income (loss) before income taxes and extraordinary item......... 241 (75) (52) (837)
Benefit from (provision for) income taxes.......................... (126) 16 88
------------------------------------------------------------
Income (loss) before extraordinary item........................... 115 (75) (36) (749)
Extraordinary item
Loss from early extinguishment of debt, net of income
tax benefit of $1 in 1999........................................ (2)
------------------------------------------------------------
Net income (loss)................................................ 115 (77) (36) (749)
Preferred stock dividends.......................................... (7) (8) (1) (7)
------------------------------------------------------------
Net income (loss) applicable to common shares.................... $ 108 $ (85) $ (37) $ (756)
============================================================
Basic earnings per common share
Income (loss) before extraordinary item........................... $ (7.43)
Extraordinary item................................................
------------------------------------------------------------
Net loss......................................................... $ (7.43)
============================================================
Weighted average shares outstanding................................ 102
============================================================
Diluted earnings per common share
Income (loss) before extraordinary item........................... $ (7.43)
Extraordinary item................................................
------------------------------------------------------------
Net loss......................................................... $ (7.43)
============================================================
Weighted average shares outstanding................................ 102
=================================================================================================================================
See notes to consolidated financial statements.
28
STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
===================================================================================================================================
Stockholders' Equity
------------------------------------------------------------
Accumulated
Number of Shares Additional Retained Other
-------------------
Preferred Common Preferred Common Paid-In Earnings Comprehensive
Stock Stock Stock Stock Capital (Deficit) Income (Loss) Total
-----------------------------------------------------------------------------
Predecessor
- -----------
Balance at January 1, 1998....................... 5 99 $ 115 $ 966 $ $ (472) $ (332) $ 277
Comprehensive income (loss)
Net loss...................................... (749) (749)
Other comprehensive income (loss), net of tax
Increase in minimum pension liability........ (21) (21)
Foreign currency translation adjustment...... (76) (76)
-----------------------------------------------------------------------------
Comprehensive income (loss)................. (749) (97) (846)
Debt conversion to common stock.................. 5 59 59
Exercise of stock options and issuance of
common stock under deferred benefit plan...... 1 8 8
-----------------------------------------------------------------------------
Balance at November 18, 1998..................... 5 105 115 1,033 (1,221) (429) (502)
Effect of Stone Merger
Retire predecessor common equity.............. (105) (1,033) 1,221 429 617
Excess of purchase price over common stock.... (37) 1 2,244 2,208
Issuance of common stock...................... 110
Comprehensive income (loss)
Net loss...................................... (36) (36)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment...... 3 3
-----------------------------------------------------------------------------
Comprehensive income (loss)................. (36) 3 (33)
Capital contribution from SSCC................... 300 300
-----------------------------------------------------------------------------
Balance at December 31, 1998..................... 5 110 78 1 2,544 (36) 3 2,590
Comprehensive income (loss)
Net loss...................................... (77) (77)
Other comprehensive income (loss), net of tax
Unrealized holding gain on marketable
securities............................... 3 3
Foreign currency translation adjustment...... (10) (10)
-----------------------------------------------------------------------------
Comprehensive income (loss)................. (77) (7) (84)
-----------------------------------------------------------------------------
Balance at December 31, 1999..................... 5 110 78 1 2,544 (113) (4) 2,506
Effect of St. Laurent Acquisition
Issuance of common stock...................... 25 393 393
Comprehensive income (loss)
Net income.................................... 115 115
Other comprehensive income (loss), net of tax
Minimum pension liability.................... (3) (3)
Foreign currency translation adjustment...... (8) (8)
-----------------------------------------------------------------------------
Comprehensive income (loss)................. 115 (11) 104
Preferred stock transaction...................... (5) (78) 78
-----------------------------------------------------------------------------
Balance at December 31, 2000..................... 135 $ $ 1 $ 3,015 $ 2 $ (15) 3,003
===================================================================================================================================
See notes to consolidated financial statements.
29
STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Predecessor
-----------
Period from Period from
Year Ended Year Ended November 19 to January 1 to
December 31, December 31, December 31, November 18
(In millions) 2000 1999 1998 1998
===================================================================================================================================
Cash flows from operating activities
Net income (loss)................................................. $ 115 $ (77) $ (36) $ (749)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Extraordinary loss from early extinguishment of debt............ 3
Depreciation and amortization................................... 313 296 34 239
Amortization of deferred debt issuance costs.................... 3 4 19
Deferred income taxes........................................... 108 (17) (21) (106)
Non cash employee benefits...................................... 7 1 4 5
Non cash restructuring charge................................... 32
Foreign currency transaction (gains) losses..................... (7) (4) 24
Equity (income) loss of affiliates.............................. (13) (12) (4) 92
Write-down of investments in non-consolidated affiliates........ 155
Gain on sale of assets.......................................... (39) (37)
Change in current assets and liabilities, net of
effects from acquisitions and dispositions
Receivables.................................................. 96 (166) 77 65
Inventories.................................................. 48 23 111
Prepaid expenses and other current assets.................... 29 51 (12) 22
Accounts payable and other current liabilities............... (26) 104 (48) 49
Interest payable............................................. (11) (17) 24 (29)
Income taxes................................................. (3) (10)
Other, net..................................................... (143) (72) (2) 134
-----------------------------------------------------------
Net cash provided by (used for) operating activities.............. 558 72 12 (16)
-----------------------------------------------------------
Cash flows from investing activities
Property additions............................................... (247) (87) (22) (145)
Investments in and advances to affiliates, net................... (74)
Proceeds from sales of assets.................................... 70 544 252
Net proceeds from sale of receivables............................ 226
Payment on acquisition, net of cash received..................... (631)
Other, net....................................................... 2
-----------------------------------------------------------
Net cash provided by (used for) investing activities............. (808) 683 (22) 35
-----------------------------------------------------------
Cash flows from financing activities
Debt repayments.................................................. (1,246) (657) (463) (323)
Borrowings....................................................... 1,525 61 453
Net repayments under accounts receivable
securitization program.......................................... (226)
Deferred debt issuance costs..................................... (17) (9) (4)
Capital contribution from SSCC................................... 300
Proceeds from issuance of common stock........................... 2
-----------------------------------------------------------
Net cash provided by (used for) financing activities............. 262 (883) (111) 128
-----------------------------------------------------------
Effect of exchange rate changes on cash.......................... (1) 4 (2)
-----------------------------------------------------------
Increase (decrease) in cash and cash equivalents................... 11 (124) (121) 145
Cash and cash equivalents
Beginning of period.............................................. 13 137 258 113
-----------------------------------------------------------
End of period.................................................... $ 24 $ 13 $ 137 $ 258
==================================================================================================================================
See notes to consolidated financial statements.
30
STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions, except per share data)
1. Significant Accounting Policies
Basis of Presentation: Stone Container Corporation ("Stone"), hereafter referred
to as the "Company," is a wholly-owned subsidiary of Smurfit-Stone Container
Corporation ("SSCC"), which was formerly known as Jefferson Smurfit Corporation.
On November 18, 1998, Stone was merged with a wholly-owned subsidiary of SSCC
(the "Merger"). The Merger was accounted for as a purchase business combination
and, accordingly, purchase accounting adjustments, including goodwill, have been
pushed down and are reflected in these financial statements subsequent to
November 18, 1998. The financial statements for the period ended before November
18, 1998, were prepared using Stone's historical basis of accounting and are
designated as "Predecessor." The comparability of operating results for the
Predecessor period and the periods subsequent to the Merger date are affected by
the purchase accounting adjustments. On May 31, 2000, the Company acquired (the
"St. Laurent Acquisition") St. Laurent Paperboard, Inc. ("St. Laurent") (See
Note 2).
Nature of Operations: The Company's major operations are containerboard and
corrugated containers and specialty packaging products. The Company's paperboard
mills procure virgin and reclaimed fiber and produce paperboard for conversion
into corrugated containers and bags at Company-owned facilities and third-party
converting operations. Paper product customers represent a diverse range of
industries including paperboard and paperboard packaging, wholesale trade,
retailing and agri-business. Customers and operations are located principally in
North America. Credit is extended to customers based on an evaluation of their
financial condition.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and majority-owned and controlled subsidiaries.
Investments in majority-owned affiliates where control does not exist and
non-majority owned affiliates are primarily accounted for under the equity
method. Significant intercompany accounts and transactions are eliminated in
consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Revenue Recognition: In December 1999, the Securities and Exchange Commission
staff issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 further defines the basic principles of
revenue recognition and was adopted by the Company on October 1, 2000. The
Company recognizes revenue at the time products are shipped to external
customers. The adoption of SAB No. 101 did not have a material effect on the
2000 financial statements.
Shipping and Handling Costs: During 2000, the Emerging Issues Task Force
("EITF") issued EITF 00-10, "Accounting for Shipping and Handling Fees and
Costs." Previously, the Company recognized shipping and handling costs as a
reduction to net sales. Effective with the adoption of SAB No. 101 on October 1,
2000, EITF 00-10 requires shipping and handling costs to be included in cost of
goods sold. Accordingly, shipping and handling costs have been reclassified to
cost of goods sold for all periods presented. The effect of adopting EITF 00-10
increased net sales and cost of goods sold from previously reported amounts by
$159 million in 1999, $15 million for the period November 19, 1998 to December
31, 1998 and $145 million for the period January 1, 1998 to November 18, 1998.
Inventories: Inventories are valued at the lower of cost or market, under the
last-in, first-out ("LIFO") method except for $255 million in 2000 and $186
million in 1999, which are valued at the lower of average cost or market.
First-in, first-out ("FIFO") costs (which approximate replacement costs) exceed
the LIFO value by $16 million and $12 million at December 31, 2000 and 1999,
respectively.
31
Net Property, Plant and Equipment: Property, plant and equipment were recorded
at fair market value on the date of the Merger. The costs of additions,
improvements and major replacements are capitalized, while maintenance and
repairs are charged to expense as incurred. Provisions for depreciation and
amortization are made using straight-line rates over the estimated useful lives
of the related assets and the terms of the applicable leases for leasehold
improvements. Papermill machines have been assigned a useful life of 18 years,
while major converting equipment has been assigned a remaining useful life of 12
years. Based upon preliminary appraisal results, property, plant and equipment
of St. Laurent was recorded at fair value on the date of the acquisition and
assigned useful lives consistent with the Company (See Note 2).
Timberland, Less Timber Depletion: Timberland is stated at cost less accumulated
cost of timber harvested. The portion of the costs of timberland attributed to
standing timber is charged against income as timber is cut, at rates determined
annually, based on the relationship of unamortized timber costs to the estimated
volume of recoverable timber. The costs of seedlings and reforestation of
timberland are capitalized.
Goodwill: The excess of cost over the fair value assigned to the net assets
acquired is recorded as goodwill and is being amortized using the straight-line
method over 40 years.
Deferred Debt Issuance Costs: Deferred debt issuance costs included in other
assets are amortized over the terms of the respective debt obligations using the
interest method.
Long-Lived Assets: In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to Be Disposed of," long-lived assets held and used by
the Company and the related goodwill are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
Income Taxes: The Company accounts for income taxes in accordance with the
liability method of accounting for income taxes. Under the liability method,
deferred assets and liabilities are recognized based upon anticipated future tax
consequences attributable to differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases (See Note 9).
Foreign Currency Translation: The functional currency for the majority of the
Company's foreign operations is the applicable local currency, except for the
operations of Canada. The functional currency for the Canadian operations was
changed from their local currency to the U.S. dollar beginning on June 1, 2000,
in conjunction with the St. Laurent Acquisition. This change had an
insignificant impact on the current year consolidated financial statements.
Assets and liabilities for foreign operations using the local currency as the
functional currency are translated at the exchange rate in effect at the balance
sheet date, and income and expenses are translated at average exchange rates
prevailing during the year. Translation gains or losses are included within
stockholders' equity as part of accumulated other comprehensive income (See Note
13). 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.
Transfers of Financial Assets: The Company accounts for transfers of financial
assets in accordance with SFAS No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." Accordingly, financial
assets transferred to qualifying special-purpose entities and the liabilities of
such entities are not reflected in the consolidated financial statements of the
Company. Gain or loss on sale of financial assets depends in part on the
previous carrying amount of the financial assets involved in the transfer,
allocated between the assets sold and the retained interests based on their
32
relative fair value at the date of the transfer. Quoted market prices are
generally not available for retained interests, so the Company generally
estimates fair value based on the present value of expected cash flows estimated
by using management's best estimates of key assumptions. The Company has
complied with the disclosure requirements of SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS No. 140 replaces SFAS No. 125, effective March 31, 2001, and more clearly
defines the accounting standards for transfers of financial assets (See Note 4).
Employee Stock Options: The Company's employees participate in SSCC's
stock-based plans. Accounting for stock-based plans is in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" (See Note 12).
Environmental Matters: The Company expenses environmental expenditures related
to existing conditions resulting from past or current operations and from which
no current or future benefit is discernible. Expenditures that extend the life
of the related property or mitigate or prevent future environmental
contamination are capitalized. Reserves for environmental liabilities are
established in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." The Company records a liability at the time when it is
probable and can be reasonably estimated. Such liabilities are not discounted or
reduced for potential recoveries from insurance carriers.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications of prior year presentations have
been made to conform to the 2000 presentation.
Start-up Costs: In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs
of Start-Up Activities," which requires that costs related to start-up
activities be expensed as incurred. Prior to 1998, the Company capitalized
certain costs to open new plants or to start new production processes. As a
result of the Merger, unamortized start-up costs were written off in the
purchase price allocation.
Prospective Accounting Pronouncements: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, as amended by SFAS No. 138, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
by the Company effective January 1, 2001. The statement requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings.
Based on the Company's derivative positions at December 31, 2000, the Company
estimates that upon adoption it will record an asset for the fair value of
existing derivatives of approximately $5 million and a corresponding reduction
in cost of goods sold.
33
2. St. Laurent Acquisition
The St. Laurent Acquisition was accounted for as a purchase business
combination, and accordingly, the results of operations of St. Laurent have been
included in the consolidated statements of operations of the Company after May
31, 2000. Each outstanding common share and restricted share unit of St. Laurent
was exchanged for 0.5 shares of SSCC common stock and $12.50 in cash. The total
consideration paid by the Company in connection with the St. Laurent Acquisition
was approximately $1.4 billion, consisting of approximately $631 million in
cash, approximately 25.3 million shares of SSCC common stock and the assumption
of $376 million of St. Laurent's debt. The cash portion of the purchase price
was financed through borrowings under certain of the Company's credit
facilities, including a new credit facility entered into by the Company.
The cost to acquire St. Laurent has been preliminarily allocated to the assets
acquired and liabilities assumed according to estimated fair values and is
subject to adjustment when additional information concerning asset and liability
valuations are finalized. The preliminary allocation has resulted in acquired
goodwill of approximately $195 million, which is being amortized on a
straight-line basis over 40 years.
The following unaudited pro forma information presents the results of operations
of the Company as if the St. Laurent Acquisition had taken place on January 1,
2000 and 1999, respectively:
2000 1999
------------------
Net sales.................................................. $6,223 $5,433
Income (loss) before extraordinary item.................... 106 (95)
Net income (loss).......................................... 106 (97)
The unaudited pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the St. Laurent Acquisition occurred as
of January 1, 2000 and 1999, respectively.
The following is a summary of the exit liabilities recorded in the preliminary
allocation of the purchase price:
Lease Other
Severance Commitments Commitments Total
-------------------------------------------------
Opening balance $ 4 $ 2 $ 4 $ 10
Payments (1) (2) (3)
-------------------------------------------------
Balance at December 31, 2000 $ 3 $ 2 $ 2 $ 7
-------------------------------------------------
Future cash outlays under the exit liabilities are anticipated to be $6 million
in 2001 and $1 million in 2002.
3. Merger and Restructuring
Merger
Under the terms of the Merger, each share of the Company's common stock was
exchanged for the right to receive .99 of one share of SSCC common stock. A
total of 104 million shares of SSCC common stock were issued in the Merger
resulting in a total purchase price (including the fair value of stock options
and related fees) of approximately $2,245 million. The Merger was accounted for
as a purchase business combination, and accordingly, the cost to acquire the
Company was allocated to the assets acquired and liabilities assumed according
to their estimated fair values.
34
Included in the allocation of the cost to acquire the Company is the adjustment
to fair value of property and equipment associated with the permanent shutdown
of certain containerboard mill and pulp mill facilities, liabilities for the
termination of certain Company employees, and liabilities for long-term
commitments. The assets at these facilities were recorded at their estimated
fair value less cost to sell based upon appraisals. The terminated employees
included approximately 550 employees at these mill facilities and 200 employees
in the corporate office. These employees were terminated in December 1998, and
the facilities were shut down.
During 1999, the Company permanently closed five converting facilities. Included
in the purchase price allocation for these facilities are the adjustments to
fair value of property, plant and equipment less the costs to sell, liabilities
for the termination of employees, and liabilities for long-term commitments,
primarily leases. Approximately 500 employees were terminated in 1999. The
amounts associated with these closures are included in the following table of
exit liabilities as part of the 1999 adjustments.
In October 1999, Florida Coast Paper Company L.L.C. ("FCPC") and a committee
representing the holders of the FCPC secured debt filed a bankruptcy
reorganization plan to resolve all matters relating to the bankruptcies of the
FCPC companies. In January 2000, the Company paid approximately $123 million to
satisfy the claims of creditors of FCPC. The Company received title to the FCPC
mill, and all claims under an output purchase agreement, as well as any
obligations of the Company involving FCPC or its affiliates, were released and
discharged.
In May 2000, the Company sold the market pulp mill at its closed Port Wentworth
facility to a third party for approximately $63 million. Net cash proceeds of
$58 million from the sale were used for debt reduction. No gain or loss was
recognized.
The following table is a summary of the exit liabilities recorded as part of the
Merger. The 2000 adjustments represent a reduction of exit liabilities of $15
million, primarily due to the sale of the Port Wentworth facility and the
assumption of certain lease commitments by the buyer. The remaining long-term
lease commitments include the five converting facilities and the corporate
office.
Settlement Mill
Lease of FCPC Other Closure
Severance Commitments Litigation Commitments Costs Total
-----------------------------------------------------------------------------------------
Opening balance $ 14 $ 38 $ 37 $ 19 $ 9 $ 117
Payments (4) (1) (6) (11)
-----------------------------------------------------------------------------------------
Balance at December 31, 1998 10 37 37 13 9 106
Payments (13) (6) (1) (2) (7) (29)
Adjustments 8 8 87 4 (1) 106
-----------------------------------------------------------------------------------------
Balance at December 31, 1999 5 39 123 15 1 183
Payments (3) (8) (123) (2) (1) (137)
Adjustments (2) (13) (15)
-----------------------------------------------------------------------------------------
Balance at December 31, 2000 $ $ 18 $ $ 13 $ $ 31
-----------------------------------------------------------------------------------------
Future cash outlays under the exit liabilities are anticipated to be $7 million
in 2001, $5 million in 2002, $5 million in 2003, and $14 million thereafter.
35
Restructuring
During 2000, the Company recorded a restructuring charge of $53 million related
to the permanent shutdown of a containerboard mill, five converting facilities,
a sawmill and a multiwall bag facility. The assets of these facilities were
adjusted to their estimated fair value less costs to sell. The terminated
employees included approximately 220 employees at the containerboard mill and
sawmill and approximately 680 employees at the converting facilities, including
the multiwall bag facility. The net sales and operating loss of these shutdown
facilities in 2000 prior to closure were $56 million and $17 million,
respectively.
The following is a summary of the restructuring liabilities recorded:
Write-down of
Property and Facility
Equipment to Lease Closure Other
Fair Value Severance Commitments Costs Commitments Total
--------------------------------------------------------------------------------------------
Opening balance $ 32 $12 $ 4 $ 4 $ 1 $ 53
Payments (8) (1) (1) (10)
Adjustments (32) (32)
--------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ $ 4 $ 3 $ 3 $ 1 $ 11
--------------------------------------------------------------------------------------------
Future cash outlays under the restructuring liabilities are anticipated to be $7
million in 2001, $2 million in 2002, zero in 2003, and $2 million thereafter.
4. Transfers of Financial Assets
On October 15, 1999, the Company entered into a new six-year $250 million
accounts receivable securitization program whereby the Company sells, without
recourse, on an ongoing basis, certain of its accounts receivable to Stone
Receivables Corporation ("SRC"), a wholly owned non-consolidated subsidiary of
the Company. SRC transfers the receivables to a trust for which it has sold
beneficial interest to third-party investors. The Company has retained servicing
responsibilities and a subordinated interest in the trust. The Company receives
annual servicing fees of 1% of the unpaid balances of the receivables and rights
to future cash flows arising after the investors in the securitization trust
have received the return for which they have contracted. The investors and
securitization trusts have no recourse to the Company's other assets for failure
of debtors to pay when due.
SRC is a qualified special-purpose entity under the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." Accordingly, accounts receivable sold to SRC for which the
Company did not retain an interest are not included in the Company's
consolidated balance sheets.
At December 31, 2000 and 1999, $295 million and $304 million of accounts
receivable had been sold under the program, of which $66 million and $73 million
were retained by the Company as a subordinated interest and recorded in accounts
receivable in the accompanying consolidated balance sheets. In 2000, the Company
recognized a loss on sales of receivables to SRC of $16 million, which is
included in other, net in the consolidated statements of operations.
36
Key economic assumptions used in measuring the retained interest at the date of
securitization resulting from securitizations completed during the year and at
December 31, 2000 are as follows:
Year Ended December 31,
December 31, 2000 2000
------------------------------
Residual cash flows discounted at ............... 8.00% 8.00%
Expected loss and dilution rate.................. 3.42%-3.82% 5.45%
Variable return to investors .................... LIBOR, plus 50 to 7.20%
180 basis points
At December 31, 2000, the sensitivity of the current fair value of residual cash
flows to immediate 10% and 20% adverse changes in the expected loss and dilution
rate was $1 million and $2 million, respectively. The effects of the sensitivity
analysis on the residual cash flow discount rate and the variable return to
investors were insignificant.
The table below summarizes certain cash flows received from and paid to SRC:
Year Ended
December 31, 2000
-----------------
Cash proceeds from sales of receivables.......... $2,748
Servicing fees received.......................... 3
Other cash flows received on retained interest... 30
Interest income.................................. 1
5. Net Property, Plant and Equipment
Net property, plant and equipment at December 31 consists of:
2000 1999
--------------------
Land ..................................................... $ 82 $ 67
Buildings and leasehold improvements....................... 320 249
Machinery, fixtures and equipment.......................... 4,244 2,901
Construction in progress................................... 134 87
-----------------
4,780 3,304
Less accumulated depreciation and amortization............. (432) (215)
-----------------
Net property, plant and equipment.................... $4,348 $3,089
-----------------
The total value assigned to the St. Laurent property, plant and equipment was
$1,320 million in the preliminary purchase price allocation (See Note 2).
Depreciation expense was $231 million in 2000, $225 million in 1999, $26 million
for the period from November 19 to December 31, 1998 and $212 million for the
period from January 1 to November 18, 1998. Property, plant and equipment
include capitalized leases of $11 million and $18 million and related
accumulated amortization of $3 million and $2 million at December 31, 2000 and
1999, respectively.
37
6. Non-Consolidated Affiliates
The Company has several non-consolidated affiliates that are engaged in paper
and packaging operations in North America, South America and Europe.
On July 23, 1998, Stone Venepal (Celgar) Pulp, Inc. ("SVCPI"), a non-
consolidated Canadian affiliate of the Company, filed for bankruptcy protection.
SVCPI's lenders and creditors have no recourse against the Company. As a result
of the bankruptcy filing, the Company recorded a loss in the second quarter of
1998 to write off the Company's investment in SVCPI of $67 million.
Due to the continued operating losses and deteriorating financial liquidity
conditions experienced in the second half of 1998, the Company recorded
impairment charges of $32 million and $56 million related to its investments in
Venepal S.A.C.A. ("Venepal") and Financiere Carton Papier ("FCP"), respectively.
Venepal is a publicly traded, Venezuelan based manufacturer of paperboard and
paper packaging products in which the Company owns a 16% interest. FCP is a
privately held folding carton converting operation based in France that was 50%
owned by the Company.
During 1999, the Company sold its interest in Abitibi-Consolidated, Inc.
("Abitibi"), a Canadian based manufacturer and marketer of publication paper,
and recorded a $39 million gain.
The Company's significant non-consolidated affiliate at December 31, 2000 is
Smurfit-MBI, a Canadian corrugated container company, in which the Company owns
a 50% interest. The remaining 50% interest is indirectly owned by Jefferson
Smurfit Group plc ("JS Group"), a significant shareholder of the Company.
Smurfit-MBI had net sales of $460 million and $402 million in 2000 and 1999,
respectively.
Combined summarized financial information for all of the Company's non-
consolidated affiliates that are accounted for under the equity method of
accounting is presented as follows:
2000 1999
--------------------------------------------------
Results of operations (a)
Net sales................................................ $ 697 $ 648
Cost of sales............................................ 604 560
Income before income taxes, minority interest and
extraordinary charges.................................. 36 32
Net income............................................... 35 31
December 31, December 31,
2000 1999
-----------------------------------------------------
Financial position:
Current assets........................................... $ 153 $ 154
Noncurrent assets........................................ 147 136
Current liabilities...................................... 91 101
Noncurrent liabilities................................... 111 106
Stockholders' equity..................................... 98 84
(a) Includes results of operations for each of the Company's affiliates for the
period it was accounted for under the equity method.
38
7. Long-term Debt
Long-term debt as of December 31 is as follows:
2000 1999
---------------------------
Bank Credit Facilities
Tranche C Term Loan (10.3% weighted average variable rate), payable in various
installments through October 1, 2003............................................. $ 181 181
Tranche D Term Loan (10.3% weighted average variable rate), payable in various
installments through October 1, 2003............................................. 173 173
Tranche E Term Loan (10.3% weighted average variable rate), payable in various
installments through October 1, 2003............................................. 233 234
Tranche F Term Loan (9.7% weighted average variable rate), payable in various
installments through December 31, 2005........................................... 569
Tranche G Term Loan (10.3% weighted average variable rate), payable in various
installments through December 31, 2006........................................... 402
Tranche H Term Loan (10.3% weighted average variable rate), payable in various
installments through December 31, 2006........................................... 348
Revolving credit facility (10.5% weighted average variable rate), due December
31, 2005......................................................................... 177 93
Revolving credit facility (Canada) (12.0% weighted average variable rate), due
December 31, 2005................................................................ 3
Europa Carton AG (a wholly-owned German subsidiary) 7.96% term loan, denominated
in German marks, payable in March 2003........................................... 22
4.98% to 7.96% term loans, denominated in foreign currencies, payable in varying
amounts through 2004............................................................. 12 18
---------------------------
2,098 721
Senior Notes
10.75% first mortgage notes, due October 1, 2002 (plus unamortized premium of $9
and $13)......................................................................... 509 513
8.45% mortgage notes, payable in monthly installments through August 1, 2007 and
$69 on September 1, 2007......................................................... 80 81
9.875% unsecured senior notes, due February 1, 2001 (plus unamortized premium of
$3 in 1999)...................................................................... 562
11.5% unsecured senior notes, due October 1, 2004 (plus unamortized premium of $8
and $10)......................................................................... 208 210
11.5% unsecured senior notes, due August 15, 2006 (plus unamortized premium of $4
and $5).......................................................................... 204 205
12.58% rating adjustable unsecured senior notes, due August 1, 2016 (plus
unamortized premium of $2 and $2)................................................ 127 127
---------------------------
1,128 1,698
Other Debt
Fixed rate utility systems and pollution control revenue bonds (fixed rates
ranging from 6.0% to 9.0%), payable in varying annual sinking fund payments
through 2027..................................................................... 223 235
Other (including obligations under capitalized leases of $7 and $9)............... 26 22
---------------------------
249 257
39
Subordinated Debt
10.75% senior subordinated debentures and 1.5% supplemental interest
certificates, due on April 1, 2002 (less unamortized discount of
$1 and $3)....................................................................... 99 244
10.75% senior subordinated debentures, due April 1, 2002.......................... 200 200
6.75% convertible subordinated debentures (convertible at $34.28 per share), due
February 15, 2007 (less unamortized discount of $6 and $8)....................... 39 37
---------------------------
338 481
---------------------------
Total debt........................................................................ 3,813 3,157
Less current maturities........................................................... (34) (162)
---------------------------
Long-term debt.................................................................... $3,779 $2,995
---------------------------
The amounts of total debt outstanding at December 31, 2000 maturing during the
next five years are as follows:
2001.................................................... $ 34
2002.................................................... 842
2003.................................................... 602
2004.................................................... 226
2005.................................................... 742
Thereafter.............................................. 1,367
Bond Offering
Subsequent to year-end, on January 25, 2001, the Company closed on a bond
offering (the "Bond Offering") to issue $750 million of 9.75% Senior Notes due
2011 and $300 million of 9.25% Senior Notes due 2008. The proceeds of this
issuance along with additional borrowings on the Revolving Credit Facility of
$34 million were used on February 23, 2001 to redeem (i) $300 million in
aggregate principal of senior subordinated debentures due on April 1, 2002, (ii)
$45 million in aggregate principal of convertible subordinated debentures due
February 15, 2007, (iii) $500 million in aggregate principal of first mortgage
notes due October 1, 2002, and (iv) $200 million in aggregate principal of
senior notes due October 1, 2004. In addition, the proceeds were used to pay
$39 million in fees, call premiums and other expenses related to these
transactions. The notes have not been registered under the Securities Act of
1933 and are subject to certain transfer restrictions. If, by July 18, 2001,
the Company does not consummate a registered exchange offer for a series of
notes or cause a shelf registration statement with respect to resales of such
series of notes to be declared effective, the interest rate on the notes will be
increased by 50 basis points per annum until the consummation of a registered
exchange offer or the effectiveness of a shelf registration statement.
After adjusting for the Company's Bond Offering and the related debt
redemptions, the amounts of total debt outstanding at December 31, 2000 maturing
during the next five years are as follows:
2001.................................................... $ 29
2002.................................................... 37
2003.................................................... 601
2004.................................................... 25
2005.................................................... 763
Thereafter.............................................. 2,373
40
Bank Credit Facilities
The Company has a bank credit agreement which provides for four senior secured
term loans (Tranche C, Tranche D, Tranche E and Tranche F term loans),
aggregating $1,156 million at December 31, 2000 with maturities ranging from
October 1, 2003 to December 31, 2005, and a $560 million senior secured
revolving credit facility, of which up to $100 million may consist of letters of
credit, maturing December 31, 2005 (collectively the "Credit Agreement"). The
Company pays a 0.5% commitment fee on the unused portions of its revolving
credit facility. At December 31, 2000, the unused portion of this facility,
after giving consideration to outstanding letters of credit, was $359 million.
The Credit Agreement is secured by a security interest in substantially all of
the assets of the Company and 65% of the stock of its Canadian subsidiary. The
security interest excludes cash, cash equivalents, certain trade receivables,
four paper mills and the land and buildings of the corrugated container plants.
On March 31, 2000, the Company amended and restated its existing Credit
Agreement, pursuant to which a group of financial institutions provided an
additional $575 million to the Company in the form of a Tranche F term loan
maturing on December 31, 2005 and extended the maturity dates of the revolving
credit facilities under its Credit Agreement to December 31, 2005. On April 28,
2000, the Company used $559 million of the proceeds of the Tranche F term loan
to redeem the 9.875% senior notes due February 1, 2001. An extraordinary gain of
$2 million (net of income tax of $1 million) was recorded on the early
extinguishment of debt.
On May 31, 2000, the Company and certain of its wholly owned subsidiaries closed
on new credit facilities (the "Additional Credit Agreement") with a group of
financial institutions consisting of (i) $950 million in the form of Tranche G
and Tranche H term loans maturing on December 31, 2006 and (ii) a $100 million
revolving credit facility maturing on December 31, 2005. The proceeds of the
Additional Credit Agreement were used to fund the cash component of the St.
Laurent Acquisition, refinance certain existing indebtedness of St. Laurent, and
pay fees and expenses related to the St. Laurent Acquisition. The new revolving
credit facility will be used for general corporate purposes. At December 31,
2000, the unused portion of this facility, after giving consideration to
outstanding letters of credit, was $78 million. The Additional Credit Agreement
is secured by a security interest in substantially all of the assets acquired in
the St. Laurent Acquisition. The Company prepaid $48 million of Tranche G and
$153 million of Tranche H resulting in an extraordinary loss of $1 million (net
of income tax of $1 million).
The Credit Agreement and the Additional Stone Credit Agreement contain various
covenants and restrictions including, among other things, (i) limitations on
dividends, redemptions and repurchases of capital stock, (ii) limitations on the
incurrence of indebtedness, liens, leases and sale-leaseback transactions, (iii)
limitations on capital expenditures, and (iv) maintenance of certain financial
covenants. Both credit agreements also require prepayments of the term loans if
the Company has excess cash flows, as defined, or receives proceeds from certain
asset sales, insurance or incurrence of certain indebtedness.
Senior Notes
The Company's senior notes (the "Senior Notes"), aggregating $1,048 million at
December 31, 2000, of which $700 million aggregate principal was paid off with
the proceeds from the Company's Bond Offering, are redeemable in whole or in
part at the option of the Company at various dates, at par plus a weighted
average premium of 2.04%.
The indentures governing the Company's 11.5% senior notes due 2006 and the
12.58% rating adjustable senior notes due 2016, totaling aggregate principal of
$325 million at December 31, 2000, generally provide that in the event of a
"change of control" (as defined in the indentures), the Company must offer to
repurchase the senior notes. The Merger constituted such a change of control.
As a result, the Company is required to make an offer to repurchase the senior
notes at a price equal to 101% of the principal amount thereof (together with
accrued but unpaid interest thereon), provided however, if such repurchase would
constitute an event of default under the Company's bank debt, prior to making an
offer to repurchase the indentures require that the Company either pay the bank
debt or obtain the consent of its bank lenders to such repurchase. A repurchase
of the senior notes is currently prohibited by the terms
41
of the Company's bank debt. Although the terms of the senior notes refer to an
obligation to repay the Company's bank debt or obtain the consent of the bank
lenders to such repurchase, the terms do not expressly specify a deadline
following the applicable change of control for taking such actions. The Company
has sought and intends to actively seek commercially acceptable sources of
financing to repay such bank debt or alternative financing arrangements which
would cause the bank lenders to consent to the repurchase of the senior notes.
The 10.75% first mortgage notes are secured by the assets at four of the
Company's containerboard mills. The 8.45% mortgage notes are secured by the
assets at 37 of the Company's corrugated container plants.
Subordinated Debt
The Company's Senior Subordinated Debentures, aggregating $338 million, were
paid off with the proceeds from the Company's Bond Offering. During the fourth
quarter, the Company prepaid $147 million of the 10.75% senior subordinated
debentures and 1.5% supplemental interest certificates due April 1, 2002,
resulting in an extraordinary loss of $1 million (net of income tax of $1
million).
Other
Interest costs capitalized on construction projects were $5 million for 2000, $1
million for 1999, zero for the period from November 19 to December 31, 1998 and
$2 million for the period from January 1 to November 18, 1998. Interest
payments on all debt instruments were $393 million for 2000, $369 million for
1999, $22 million for the period from November 19 to December 31, 1998 and $424
million for the period from January 1 to November 18, 1998.
8. Leases
The Company leases certain facilities and equipment for production, selling and
administrative purposes under operating leases. Future minimum rental
commitments (exclusive of real estate taxes and other expenses) under operating
leases having initial or remaining noncancelable terms in excess of one year,
excluding lease commitments on closed facilities, are reflected below:
2001.................................................... $ 73
2002.................................................... 56
2003.................................................... 47
2004.................................................... 37
2005.................................................... 32
Thereafter.............................................. 56
-----------
Total minimum lease payments...................... $ 301
-----------
Net rental expense for operating leases, including leases having a duration of
less than one year, was approximately $105 million in 2000, $106 million in
1999, $15 million for the period from November 19 to December 31, 1998 and $106
million for the period from January 1 to November 18, 1998.
42
9. Income Taxes
Significant components of the Company's deferred tax assets and liabilities at
December 31 are as follows:
2000 1999
--------------------------
Deferred tax liabilities
Property, plant and equipment and timberland.................................. $(1,193) $ (951)
Inventory..................................................................... (20) (15)
Prepaid pension costs......................................................... (11) (11)
Investment in affiliate....................................................... (45) (45)
Other......................................................................... (19) (69)
--------------------------
Total deferred tax liabilities......................................... (1,288) (1,091)
--------------------------
Deferred tax assets
Employee benefit plans........................................................ 128 105
Net operating loss, alternative minimum tax and tax credit carryforwards...... 459 558
Deferred gain................................................................. 27 29
Purchase accounting liabilities............................................... 94 132
Deferred debt issuance costs.................................................. 48 48
Other......................................................................... 92 69
--------------------------
Total deferred tax assets.............................................. 848 941
Valuation allowance for deferred tax asset.................................... (198) (198)
--------------------------
Net deferred tax assets................................................ 650 743
--------------------------
Net deferred tax liabilities........................................... $ (638) $ (348)
--------------------------
At December 31, 2000, the Company had approximately $1,000 million of net
operating loss carryforwards for U.S. federal income tax purposes that expire
from 2011 through 2019, with a tax value of $350 million. A valuation allowance
of $152 million has been established for a portion of these deferred tax assets.
Further, the Company had net operating loss carryforwards for state purposes
with a tax value of $77 million, which expire from 2001 through 2020. A
valuation allowance of $46 million has been established for a portion of these
deferred tax assets. The Company had approximately $32 million of alternative
minimum tax credit carryforwards for U.S. federal tax purposes, which are
available indefinitely.
43
Benefit from (provision for) income taxes on income (loss) before income taxes
and extraordinary item as follows:
Predecessor
--------------------
Period from Period from
November 19 to January 1 to
December 31, November 18,
2000 1999 1998 1998
-------------------------------------------------------------------
Current
Federal...................................... $ (1) $ $ $
Foreign...................................... (6) (19) (5) (18)
-------------------------------------------------------------------
Total current expense........................ (7) (19) (5) (18)
Deferred
Federal...................................... (87) 24 15 121
State and local.............................. (20) 2 3 (34)
Foreign...................................... (12) (7) 3 19
-------------------------------------------------------------------
Total deferred benefit (expense)............. (119) 19 21 106
-------------------------------------------------------------------
Total benefit from (provision for)
income taxes............................... $(126) $ $ 16 $ 88
-------------------------------------------------------------------
The Company's benefit from (provision for) income taxes differed from the amount
computed by applying the statutory U.S. federal income tax rate to income (loss)
before income taxes and extraordinary item as follows:
Predecessor
-------------------
Period from Period from
November 19 to January 1 to
December 31, November 18,
2000 1999 1998 1998
------------------------------------------------------------------
U.S. federal income tax benefit
(provision) at federal statutory rate....... $ (84) $ 26 $ 18 $ 293
Effect of valuation allowances on
deferred tax assets, net of federal
benefit..................................... (151)
Unutilized capital loss...................... (36)
Permanent differences from applying
purchase accounting......................... (29) (26) (3)
Permanently non-deductible expenses.......... (1) (7)
Equity earnings of affiliates, net
of tax...................................... (30)
State income taxes, net of federal
income tax effect........................... (13) 2 2 22
Minimum taxes-foreign jurisdictions.......... (4)
Other, net................................... (1) (1) 1
------------------------------------------------------------------
Total benefit from (provision for)
income taxes................................ $(126) $ $ 16 $ 88
------------------------------------------------------------------
44
The components of the income (loss) before income taxes and extraordinary item
are as follows:
Predecessor
-------------------
Period from Period from
November 19 to January 1 to
December 31, November 18,
2000 1999 1998 1998
-------------------------------------------------------------------
United States.................................... $ 199 $(128) $ (54) $(405)
Foreign.......................................... 42 53 2 (432)
-------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item.............................. $ 241 $ (75) $ (52) $(837)
--------------------------------------------------------------------
The Company made income tax payments of $4 million in 2000, $14 million in 1999,
$6 million for the period from November 19 to December 31, 1998 and $27 million
for the period from January 1 to November 18, 1998.
10. Employee Benefit Plans
Defined Benefit Plans
The Company participates in the SSCC sponsored noncontributory defined benefit
pension plans covering substantially all employees. On December 31, 2000, the
domestic defined benefit plans of St. Laurent were merged with the defined
benefit plans of the Company and Jefferson Smurfit Corporation (U.S.)
("JSC(U.S.)"). The assets of these plans are available to meet the funding
requirements of the combined plans. The Company intends to fund its
proportionate share of the future contributions based on the funded status of
the Company's plan determined on an actuarial basis. Therefore, the plan asset
information provided below is based on an actuarial estimate of assets and
liabilities, excluding the effect of the plan merger, in order to be consistent
with the presentation of the consolidated statements of operations and balance
sheets.
The benefit obligation, fair value of plan assets and the over funded status of
the JSC(U.S.) defined benefit plans at December 31, 2000 were $1,052 million,
$1,073 million and $21 million, respectively.
Approximately 34% of the merged pension plan assets at December 31, 2000 are
invested in cash equivalents or debt securities, and 66% are invested in equity
securities. Equity securities at December 31, 2000 include 0.7 million shares
of SSCC common stock with a market value of approximately $11 million and 26
million shares of JS Group common stock having a market value of approximately
$52 million. Dividends paid on JS Group common stock during 2000 and 1999 were
approximately $2 million.
The Company sponsors noncontributory defined benefit pension plans for its
foreign operations. Approximately 44% of the foreign pension plan assets at
December 31, 2000 are invested in cash equivalents or debt securities, and 56%
are invested in equity securities.
Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits for all
salaried as well as certain hourly employees. The assumed health care cost
trend rates used in measuring the accumulated postretirement benefit obligation
("APBO") at December 31, 2000, were 5.25% for the U.S. plans and 6.00% for the
foreign plans. The effect of a 1% increase in the assumed health care cost
trend rate would increase the APBO as of December 31, 2000 by $8 million and
would increase the annual net periodic postretirement benefit cost by $1 million
for 2000.
45
As a result of the Merger and the St. Laurent Acquisition, the Company recorded
previously unrecognized actuarial gains and losses and prior service cost in its
purchase price allocation. The following provides a reconciliation of benefit
obligations, plan assets, and funded status of the plans:
Defined Benefit Plans Postretirement Plans
------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at January 1................. $ 754 $ 778 $ 74 $ 73
Service cost.................................... 23 22 1 1
Interest cost................................... 68 52 6 5
Acquisition..................................... 278 22
Amendments...................................... 11 5
Actuarial (gain) loss........................... 60 (60) (3) (2)
Plan participants' contributions................ 2 1 2 2
Benefits paid................................... (48) (36) (10) (6)
Foreign currency rate changes................... (16) (8) (1) 1
Curtailment..................................... (2)
------------------------------------------------------------------
Benefit obligation at December 31............... $1,130 $ 754 $ 91 $ 74
------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at January 1.......... $ 542 $ 504 $ $
Acquisition..................................... 242
Actual return on plan assets.................... 19 51
Employer contributions.......................... 21 13 10 7
Benefits paid................................... (48) (36) (10) (7)
Foreign currency rate changes................... (8) 10
------------------------------------------------------------------
Fair value of plan assets at December 31........ $ 768 $ 542 $ $
------------------------------------------------------------------
Over (under) funded status:..................... $ (362) $(212) $ (91) $ (74)
Unrecognized actuarial (gain) loss.............. 7 (98) (4) (2)
Unrecognized prior service cost................. 19 10
------------------------------------------------------------------
Net amount recognized........................... $ (336) $(300) $ (95) $ (76)
------------------------------------------------------------------
Amounts recognized in the balance sheets:
Accrued pension liability....................... $ (352) $(300) $ (95) $ (76)
Intangible asset................................ 12
Accumulated other comprehensive income.......... 4
------------------------------------------------------------------
Net amount recognized........................... $ (336) $(300) $ (95) $ (76)
------------------------------------------------------------------
The weighted average assumptions used in the accounting for the defined benefit
plans and postretirement plans were:
Defined Benefit Plans Postretirement Plans
-------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------
Weighted average discount rate:
U.S. plans......................... 7.50% 8.00% 7.50% 8.00%
Foreign plans...................... 7.00% 6.50-8.00% 7.00% 8.00%
Rate of compensation increase......... 3.50-4.00% 3.00-4.50% N/A N/A
Expected return on plan assets........ 7.80-9.50% 9.50% N/A N/A
Health care cost trend on covered
charges............................ N/A N/A 5.25-6.00% 6.50%
46
The components of net pension expense for the defined benefit plans and the
components of the postretirement benefits costs follow:
Defined Benefit Plans
Predecessor
-----------------
Period from Period from
November 19 to January 1 to
December 31, November 18,
2000 1999 1998 1998
---------------------------------------------------------------------------------
Service cost.......................... $ 23 $ 22 $ 2 $ 19
Interest cost......................... 68 52 6 43
Expected return on plan assets........ (61) (47) (5) (44)
Net amortization and deferral......... (3) (1) 9
Multi-employer plans.................. 4 4 5
---------------------------------------------------------------------------------
Net periodic benefit cost............. $ 31 $ 30 $ 3 $ 32
---------------------------------------------------------------------------------
Postretirement Plans
Predecessor
--------------
Period from Period from
November 19 to January 1 to
December 31, November 18,
2000 1999 1998 1998
---------------------------------------------------------------------------------
Service cost.......................... $ 2 $ 1 $ $ 1
Interest cost......................... 6 5 1 4
Net amortization and deferral......... (1)
Multi-employer plans.................. 1 1 1
---------------------------------------------------------------------------------
Net periodic benefit cost............. $ 8 $ 7 $ 1 $ 6
---------------------------------------------------------------------------------
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $1,130 million, $960 million and $768 million,
respectively, as of December 31, 2000 and $272 million, $262 million and $126
million as of December 31, 1999.
Savings Plans
The Company sponsors voluntary savings plans covering substantially all salaried
and certain hourly employees. The Company match is paid in SSCC common stock,
up to an annual maximum. The Company's expense for the savings plans totaled
$10 million in 2000, $8 million in 1999, $1 million in the period from November
19 to December 31, 1998, and $4 million for the period from January 1 to
November 18, 1998.
11. Preferred Stock
On November 15, 2000, pursuant to an Agreement and Plan of Merger among SSCC,
SCC Merger Co. and the Company, approximately 4.6 million shares of $1.75 Series
E Preferred Stock of the Company (the "Preferred Stock") were converted into
approximately 4.6 million shares of Series A Cumulative Exchangeable Redeemable
Convertible Preferred Stock of SSCC ("the SSCC Preferred Stock"). In addition,
a cash payment of $6.4425 per share, totaling approximately $30 million, was
made by SSCC to the holders of the Preferred Stock. The cash payment was equal
to the accrued and unpaid dividends on each share of Preferred Stock, less $0.12
per share to cover certain transaction related expenses. SSCC made a $78 million
capital contribution to the Company to effect the preferred stock exchange. The
Company had accumulated dividend arrearages on the Preferred Stock of $22
million at December 31, 1999.
47
12. Stock Option and Incentive Plans
Prior to the Merger, the Company maintained incentive plans for selected
employees. The Company's plans included incentive stock options and non-
qualified stock options issued at prices equal to the fair market value of the
Company's common stock at the date of grant which expire upon the earlier of ten
years from the date of grant or termination of employment, death, or disability.
Effective with the Merger, options outstanding under the Company's plans were
converted into options to acquire SSCC common stock, with the number of shares
and exercise price being adjusted in accordance with the exchange ratio of .99
to one established in the Merger Agreement, and all outstanding options under
both the Company and SSCC plans became exercisable and fully vested.
In November 1998, the Company's parent, SSCC, adopted the 1998 Long-Term
Incentive Plan ("1998 Plan") and reserved 8.5 million shares of SSCC common
stock for non-qualified stock options and performance awards. Certain employees
of the Company are covered under the 1998 Plan as are certain employees of
JSC(U.S.). The options are exercisable at a price equal to the fair market
value of SSCC's common stock at the date of grant and vest eight years after the
date of grant subject to accelerations based upon the attainment of
preestablished stock price targets. The options expire ten years after the date
of grant.
The Company and its parent have elected to continue to follow APB Opinion No. 25
to account for stock awards granted to employees. If the Company adopted SFAS
No. 123 to account for stock awards granted to employees, the Company's net
income for the period from November 19 to December 31, 1998 and the years ended
December 31, 1999 and 2000, based on a Black-Scholes option pricing model, would
not have been materially different. The effects of applying SFAS No. 123 as
described above may not be representative of the effects on reported net income
for future years.
Pro forma information for the Predecessor period regarding net income and
earnings per share is required by SFAS No. 123 and has been determined as if the
Company had accounted for its employee stock options issued subsequent to
December 31, 1994 under the fair value method. The pro forma net income
information required by SFAS No. 123 is not likely to be representative of the
effects on reported net income for future years. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions:
Predecessor
----------------------
Period from January
1 to November 18,
1998
----------------------
Expected option life (years)......................................... 7
Risk-free weighted average interest rate............................. 5.6%
Stock price volatility............................................... 50%
Dividend yield....................................................... 0.0%
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
48
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's
unaudited pro forma information is as follows:
Predecessor
----------------------
Period from January
1 to November 18,
1998
----------------------
As Reported
Net loss........................................................... $ (749)
Basic earnings (loss) per share.................................... (7.43)
Diluted earnings (loss) per share.................................. (7.43)
Pro Forma
Net loss........................................................... $ (753)
Basic earnings (loss) per share.................................... (7.46)
Diluted earnings (loss) per share.................................. (7.46)
The weighted average fair value of options granted during 1998 was $6.93 per
share.
Additional information relating to the plans is as follows:
Weighted
Average
Shares Under Option Exercise
Option Price Range Price
------------------------------------------------------------------
Outstanding at December 31, 1997................. 4,787,098 $13.38 - 29.29 $ 15.23
Granted........................................ 1,617,870 11.75 11.75
Exercised...................................... (180,616) 13.38 - 18.00 13.68
Cancelled...................................... (125,328) 13.38 - 29.29 22.89
-----------------------
Outstanding at November 18, 1998................. 6,099,024 13.38 - 29.29 14.21
Converted to SSCC options...................... (6,099,024) 13.38 - 29.29 (14.21)
-----------------------
Outstanding at December 31, 1998.................
-----------------------
49
13. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) is as follows:
Foreign Unrealized Accumulated
Currency Minimum Holding Gain on Other
Translation Pension Marketable Comprehensive
Adjustment Liability Securities Income (Loss)
----------------------------------------------------------------------------------
Predecessor:
Balance at January 1, 1998............... $(293) $(39) $ $(332)
Current period change................ (76) (21) (97)
----------------------------------------------------------------------------------
Balance at November 18, 1998............. (369) (60) (429)
Effect of Merger:
Retire predecessor equity............ 369 60 429
Current period change................ 3 3
----------------------------------------------------------------------------------
Balance at December 31, 1998............. 3 3
Current period change............... (10) 3 (7)
----------------------------------------------------------------------------------
Balance at December 31, 1999 (7) 3 (4)
Current period change............... (8) (3) (11)
----------------------------------------------------------------------------------
Balance at December 31, 2000............. $ (15) $ (3) $ 3 $ (15)
----------------------------------------------------------------------------------
50
14. Earnings Per Share
Subsequent to the Merger, earnings per share information is no longer presented
because the Company is a wholly owned subsidiary of SSCC.
The following table sets forth the computation of basic and diluted earnings per
share for the Predecessor period:
Predecessor
-------------------
Period from
January 1 to
November 18,
1998
-------------------
Numerator:
Loss from continuing operations before extraordinary item........... $ (749)
Less: Preferred stock dividends.................................... (7)
Loss applicable to common stockholders.............................. $ (756)
-------------------
Denominator:
Denominator for basic earnings per share --
Weighted average shares........................................... 102
Denominator for diluted earnings per share --
Adjusted weighted average shares.................................. 102
-------------------
Basic earnings (loss) per share before extraordinary item............. $(7.43)
-------------------
Diluted earnings (loss) per share before extraordinary item........... $(7.43)
-------------------
Convertible debt to acquire four million shares of common stock with an earnings
effect of $3 million, and exchangeable preferred stock to acquire four million
shares of common stock with an earnings effect of $7 million are excluded from
the diluted earnings per share computation in the period from January 1 to
November 18, 1998 because they are antidilutive.
15. Related Party Transactions
Transactions with JSC(U.S.)
The Company sold and purchased containerboard at market prices from JSC(U.S.), a
subsidiary of SSCC, as follows:
Period from
November 19 to
December 31,
2000 1999 1998
-------------------------------------------------------------
Product sales................................................. $ 422 $ 237 $ 8
Product and raw material purchases............................ 387 248 14
Net payables at December 31................................... 24 28 4
Corporate shared expenses are allocated between the Company and JSC(U.S.) based
on an established formula using a weighted average rate based on the net book
value of fixed assets, number of employees and sales. Net payables are settled
in cash.
51
Transactions with JS Group
Transactions with JS Group, a significant shareholder of the Company, its
subsidiaries and affiliated companies were as follows:
2000 1999
----------------
Product sales................................................. $ 21 $ 12
Product and raw material purchases............................ 11 5
Receivables at December 31.................................... 3 1
Payables at December 31....................................... 1 1
Note receivable at December 31................................ 1
Sale of business.............................................. 2
Purchase of business.......................................... 2
Product sales to and purchases from JS Group, its subsidiaries and affiliates
are consummated on terms generally similar to those prevailing with unrelated
parties.
Transactions with Non-consolidated Affiliates
The Company sold paperboard, market pulp and fiber to and purchased
containerboard and kraft paper from various non-consolidated affiliates. The
following table summarizes the Company's related party transactions with its
non-consolidated affiliates for each year presented:
Predecessor
--------------------
Period from Period from
November 19 to January 1 to
December 31, November 18,
2000 1999 1998 1998
--------------------------------------------------------------------------------
Product sales.......................... $ 210 $ 297 $ 24 $ 220
Product and raw material purchases..... 23 29 113
Receivables at December 31............. 31 42 65
Payables at December 31................ 1 2
Fees payable for services received..... 10
On September 4, 1998, Stone Container (Canada) Inc., ("Stone Canada") a wholly
owned subsidiary of the Company, purchased the remaining 50% of Smurfit-MBI from
MacMillan Bloedel ltd. for $185 million (Canadian). Simultaneously, Stone
Canada sold the newly acquired 50% interest to JS Group for the same amount.
On October 15, 1998, the Company sold its Snowflake, Arizona, newsprint
manufacturing operations and related assets to Abitibi for approximately $250
million. The Company retained ownership of a corrugating medium machine located
in the facility that Abitibi operated on behalf of the Company pursuant to an
operating agreement entered into as part of the sale. Payments made to Abitibi,
prior to the sale of the Company's remaining interest (see Note 6), were $17
million in the period from January 1 to April 23, 1999, $4 million in the period
from January 1 to November 18, 1998 and $4 million in the period from November
19 to December 31, 1998.
52
16. Fair Value of Financial Instruments
The carrying values and fair values of the Company's financial instruments at
December 31 are as follows:
2000 1999
------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------------------------
Cash and cash equivalents...................................... $ 24 $ 24 $ 13 $ 13
Notes receivable and long-term investments..................... 28 28 26 26
Long-term debt including current maturities.................... 3,813 3,824 3,157 3,196
The carrying value of cash equivalents approximates fair value because of the
short maturity of those instruments. The fair values of notes receivable and
long-term investments are based on discounted future cash flows or the
applicable quoted market price. The fair value of the Company's debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities.
17. Other, Net
The significant components of other, net are as follows:
Predecessor
------------------
Period from Period from
November 19 to January 1 to
December 31, November 18,
2000 1999 1998 1998
-----------------------------------------------------------------------------
Foreign currency transaction gains (losses)... $ $ 7 $ 4 $ (24)
Gain on redemption of convertible preferred
stock of Four M Corporation.................. 13
Loss on sales of receivables to SRC........... (16)
Gains on sales of investments or assets....... 2 39 37
Write-down of investments in non-consolidated
affiliates................................... (155)
Merger related and change of control expenses. (32)
Other......................................... 9 10 (12)
-----------------------------------------------------------------------------
Total other, net.............................. $ 8 $ 56 $ 4 $(186)
-----------------------------------------------------------------------------
18. Contingencies
The Company's past and present operations include activities which are subject
to federal, state and local environmental requirements, particularly relating to
air and water quality. The Company faces potential environmental liability as a
result of violations of permit terms and similar authorizations that have
occurred from time to time at its facilities. In addition, the Company faces
potential liability for response costs at various sites for which it has
received notice as being a potentially responsible party ("PRP") concerning
hazardous substance contamination. In estimating its reserves for environmental
remediation and future costs, the Company's estimated liability reflects only
the Company's expected share after consideration for the number of other PRPs at
each site, the identity and financial condition of such parties and experience
regarding similar matters.
53
The Company is a defendant in a number of lawsuits and claims arising out of the
conduct of its business, including those related to environmental matters. While
the ultimate results of such suits or other proceedings against the Company
cannot be predicted with certainty, the management of the Company believes that
the resolution of these matters will not have a material adverse effect on its
consolidated financial condition or results of operations.
19. Business Segment Information
In the fourth quarter of 2000, the Company reorganized its business segments.
The Industrial Bag segment was renamed as the Specialty Packaging segment. The
St. Laurent facilities were assigned primarily to the Containerboard and
Corrugated Containers segment. In addition, during 2000, corporate expenses
previously allocated to business segments are no longer allocated. Income (loss)
in non-consolidated affiliates is included with its related segment. The
information for 1999 and 1998 has been restated from the prior year in order to
conform to the 2000 presentation.
The Company has three reportable segments: (1) Containerboard and Corrugated
Containers, (2) Specialty Packaging, and (3) International. The Containerboard
and Corrugated Containers segment is highly integrated. It includes a system of
mills and plants that produces a full line of containerboard that is converted
into corrugated containers. Corrugated containers are used to transport such
diverse products as home appliances, electric motors, small machinery, grocery
products, produce, books, tobacco and furniture. The Specialty Packaging segment
converts kraft and specialty paper into multiwall bags, consumer bags, and
intermediate bulk containers. These bags and containers are designed to ship and
protect a wide range of industrial and consumer products including fertilizers,
chemicals, concrete and pet and food products. The International segment is
primarily comprised of the Company's containerboard mills and corrugating
facilities located in Europe and South America.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, interest expense, and other
nonoperating gains and losses. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies except that the Company accounts for inventory on a FIFO
basis at the segment level compared to a LIFO basis at the consolidated level.
Intersegment sales and transfers are recorded at market prices. Intercompany
profit is eliminated at the corporate division level.
The Company's North American reportable segments are strategic business units
that offer different products, and each is managed separately because they
manufacture distinct products. The International segment is managed separately
because it has different customers, and its operations are based in markets
outside of the North American market. Other includes one nonreportable segment
and corporate related items which include goodwill, income and expense not
allocated to reportable segments (corporate expenses, restructuring charges,
goodwill amortization, interest expense, and the adjustment to record inventory
at LIFO), the elimination of intercompany assets and intercompany profit and a
$39 million gain on the sale of Abitibi in 1999 (See Note 6).
54
Purchase price allocation adjustments related to property, plant and equipment
have been pushed down to the applicable operating segment assets as of December
31, 2000 and 1999.
A summary by business segment follows:
Container-
board &
Corrugated Specialty Inter-
Containers Packaging National Other Total
---------- --------- -------- ----- -----
Year ended December 31, 2000
Revenues from external customers........... $4,590 $517 $587 $ 44 $5,738
Intersegment revenues...................... 130 130
Depreciation and amortization.............. 205 5 20 83 313
Segment profit (loss)...................... 738 32 37 (566) 241
Income in non-consolidated affiliates...... 12 1 13
Segment assets............................. 4,550 193 482 3,826 9,051
Expenditures for long-lived assets......... 217 7 13 10 247
Year ended December 31, 1999
Revenues from external customers........... $3,407 $524 $567 $ 2 $4,500
Intersegment revenues...................... 153 153
Depreciation and amortization 120 5 27 144 296
Segment profit (loss)...................... 322 37 30 (464) (75)
Income (loss) in non-consolidated
affiliates................................ 15 (3) 12
Segment assets............................. 3,145 193 443 3,784 7,565
Expenditures for long-lived assets......... 54 5 26 2 87
Period from November 19 to December 31,
1998
Revenues from external customers........... $ 355 $ 59 $ 65 $ 1 $ 480
Intersegment revenues...................... 18 18
Depreciation and amortization.............. 15 1 3 15 34
Segment profit (loss)...................... 6 3 2 (63) (52)
Income in non-consolidated affiliates...... 3 1 4
Segment assets............................. 4,398 217 519 3,659 8,793
Expenditures for long-lived assets......... 13 1 8 22
Predecessor period from January 1 to
November 18, 1998
Revenues from external customers........... $3,391 $473 $523 $ 12 $4,399
Intersegment revenues...................... 171 1 172
Depreciation and amortization.............. 154 5 24 56 239
Segment profit (loss)...................... (28) 32 20 (861) (837)
Loss in non-consolidated affiliates........ (26) (13) (53) (92)
Expenditures for long-lived assets......... 112 6 27 145
55
The following table presents net sales to external customers by country of
origin:
Predecessor
------------------
Period from Period from
November 19 to January 1 to
December 31, November 18,
2000 1999 1998 1998
------------------------------------------------------------------------
United States.............................. $4,743 $3,678 $ 394 $3,669
Canada..................................... 345 210 17 181
Europe and other........................... 650 612 69 549
------------------------------------------------------------------------
Total...................................... $5,738 $4,500 $ 480 $4,399
------------------------------------------------------------------------
The following table presents long-lived assets by country at December 31:
2000 1999 1998
------------------------------------------------------
United States................................................ $3,337 $2,526 $3,427
Canada....................................................... 756 227 190
Europe and other............................................. 313 357 395
------------------------------------------------------
4,406 3,110 4,012
Goodwill..................................................... 3,170 3,123 2,643
------------------------------------------------------
Total........................................................ $7,576 $6,233 $6,655
------------------------------------------------------
The Company's export sales from the United States were approximately $246
million for 2000, $208 million for 1999 and $448 million for 1998.
20. Summary of Quarterly Data (Unaudited)
The following table summarizes quarterly financial data for 2000 and 1999.
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
----------------------------------------------------------------
Net sales.......................................... $1,286 $1,379 $1,576 $1,497
Gross profit....................................... 247 248 327 287
Income (loss) before extraordinary charges......... 28 (2) 56 33
Net income......................................... 28 55 32
1999
Net sales.......................................... $1,105 $1,083 $1,127 $1,185
Gross profit....................................... 96 132 163 195
Income (loss) before extraordinary charges......... (65) (12) (10) 12
Net income (loss).................................. (65) (13) (11) 12
The effect of adopting EITF 00-10, "Accounting for Shipping and Handling Fees
and Costs," during the fourth quarter of 2000 was to increase net sales and cost
of goods sold from previously reported amounts in the first, second and third
quarters by $61 million, $67 million and $74 million, respectively.
56
STONE CONTAINER CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)
Column A Column B Column C Column D Column E Column F
- ---------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning of Costs and Other Deductions End of
Description Period Expenses Describe Describe Period
- ---------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts and
sales returns and allowances:
Year ended December 31, 2000......... $ 41 $ 9 $ 3 (a) $ 9 (c) $ 44
--------------------------------------------------------------------
Year ended December 31, 1999......... $ 61 $ 6 $ (10)(b) $ 16 (c) $ 41
--------------------------------------------------------------------
Period from November 19 to
December 31, 1998.................... $ 61 $ $ $ $ 61
--------------------------------------------------------------------
Predecessor
Period from January 1 to
November 18, 1998.................... $ 14 $64 $ $ 17 (c) $ 61
--------------------------------------------------------------------
Exit liabilities:
Year ended December 31, 2000......... $183 $ $ (5)(d) $ 140 (f) $ 38
--------------------------------------------------------------------
Year ended December 31, 1999......... $106 $ $ 106 (e) $ 29 (f) $183
--------------------------------------------------------------------
Period from November 19 to
December 31, 1998.................... $ $ $ 117 (e) $ 11 (f) $106
--------------------------------------------------------------------
Restructuring:
Year ended December 31, 2000......... $ $53 $ $ 42 (f) $ 11
--------------------------------------------------------------------
(a) Amount acquired with the St. Laurent Acquisition.
(b) Includes the effect of the accounts receivable securitization application
of SFAS No. 125.
(c) Uncollectible amounts written off, net of recoveries.
(d) Charges associated with the exit activities included in the purchase price
allocation of St. Laurent and reduction to Stone exit liabilities.
(e) Charges associated with exit activities and litigation settlements included
in the purchase price allocation of Stone.
(f) Charges against the exit liability reserves.
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) (1) and (2) The list of Financial Statements and Financial Statement
Schedules required by this item is included in Item 8.
(3) Exhibits.
2.1 Agreement and Plan of Merger, dated as of August 8, 2000, by and among
Smurfit-Stone Container Corporation ("SSCC"), SCC Merger Co. and Stone
Container Corporation ("Stone Container") (incorporated by reference to
SSCC's Registration Statement on Form S-4 (File No. 333-43656)).
3.1 Certificate of Merger merging SCC Merger Co. with and into Stone
Container (including the Certificate of Incorporation of Stone
Container).
3.2 By-laws of Stone Container.
Indentures with respect to long-term debt, none of which exceeds 10 percent of
the total assets of Stone Container and its subsidiaries on a consolidated
basis, are not filed herewith. The Registrant agrees to furnish a copy of such
documents to the Commission upon request.
4.1 Amended and Restated Credit Agreement, dated as of March 31, 2000, among
Stone Container, the financial institutions signatory thereto and The
Chase Manhattan Bank and Bankers Trust Company as Agents, and Bankers
Trust Company as Administrative Agent and Collateral Agent (incorporated
by reference to Exhibit 10.1 to Stone Container's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000).
4.2 Credit Agreement, dated as of May 31, 2000, among Stone Container, St.
Laurent Paperboard Inc., financial institutions signatory thereto, The
Chase Manhattan Bank, as Agent, Bankers Trust Company, as Administrative
Agent and Collateral Agent and Deutsche Bank Canada, as Canadian
Administrative Agent (incorporated by reference to Exhibit 10.1 to Stone
Container's Quarterly Report on Form 10-Q for the quarter ended June 30,
2000).
4.3 Indenture, dated as of August 16, 1996, between Stone Container Finance
Company of Canada (the "Issuer"), Stone Container, as guarantor, and The
Bank of New York, as Trustee, relating to the Issuer's 11 1/2% Senior
Notes due 2006 (incorporated by reference to Exhibit 4(u) to the Stone
Container Annual Report on Form 10-K for the fiscal year ended December
31, 1996).
4.4 Indenture, dated as of July 24, 1996, between Stone Container and The
Bank of New York, as Trustee, relating to the Rating Adjustable Senior
Notes due 2016 (incorporated by reference to Exhibit 4.1 to Stone
Container's Registration Statement on Form S-4, Registration Number 333-
12155).
58
4.5 First Supplemental Indenture, dated July 24, 1996, between Stone
Container and The Bank of New York, as Trustee, relating to the Rating
Adjustable Senior Notes due 2016 (incorporated by reference to Exhibit
4.2 to Stone Container's Registration Statement on Form S-4,
Registration Number 333-12155).
4.6 Guaranty, dated October 7, 1983, between Stone Container and The
Continental Group, Inc. (incorporated by reference to Exhibit 4(h) to
Stone Container's Registration Statement on Form S-3, Registration
Number 33-36218).
4.7 Amendment No. 1 to Guaranty, dated as of June 1, 1996, among
Continental Holdings, Inc., Continental Group, Inc. and Stone
Container (incorporated by reference to Exhibit 4(r) to Stone
Container's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
10.1* Stone Container Corporation 1982 Incentive Stock Option Plan
(incorporated by reference to Appendix A to the Prospectus included in
Stone Container's Form S-8 Registration Statement, Registration Number
2-79221, effective September 27, 1982).
10.2(a)* Stone Container Corporation 1993 Stock Option Plan (incorporated by
reference to Appendix A to the Stone Container's Proxy Statement dated
as of April 10, 1992).
10.2(b)* Amendment of the Stone 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.2 to Stone Container's Quarterly Report on
Form 10-Q for the quarter ended September 30,1999).
10.3* Stone Container Corporation 1992 Long-Term Incentive Program
(incorporated by reference to Exhibit A to Stone Container's Proxy
Statement dated as of April 11, 1991).
10.4(a)* Stone Container Corporation 1995 Long-Term Incentive Plan
(incorporated by reference to Exhibit A to Stone Container's Proxy
Statement dated as of April 7, 1995).
10.4(b)* Amendment of the 1995 Long-Term Incentive Plan of Stone (incorporated
by reference to Exhibit 10.2 to the Stone Container's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999).
10.5* Jefferson Smurfit Corporation (U.S.) Management Incentive Plan
(incorporated by reference to Exhibit 10.10 to SSCC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.6(a)* SSCC 1998 Long Term Incentive Plan (incorporated by reference to
Exhibit 10.14 to SSCC's Annual Report on form 10-K for the fiscal year
ended December 31, 1998).
10.6(b)* First Amendment of the SSCC 1998 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to SSCC's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999).
10.7(a) Pooling and Servicing Agreement, dated October 1, 1999, by and among
Stone Receivables Corporation, as Transferor, Stone Container, as
Securer, and The Chase Manhattan Bank, as
59
Trustee (incorporated by reference to Exhibit 10.1(a) to Stone
Container's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.7(b) Series 1999-1 Supplement, dated as of October 15, 1999, among Stone
Receivables Corporation, as Transferor, Stone Container as Servicer,
and The Chase Manhattan Bank, as Trustee, under the Pooling and
Servicing Agreement (incorporated by reference to Exhibit 10.1(b) to
Stone Container's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.7(c) Series 1999-2 Supplement, dated as of October 15, 1999, among Stone
Receivables Corporation, as Transferor, Stone Container as Servicer,
and The Chase Manhattan Bank, as Trustee, under the Pooling and
Servicing Agreement (incorporated by reference to Exhibit 10.1(c) to
Stone Container's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.7(d) Receivables Purchase Agreement, dated October 15, 1999, between Stone
Container, as Seller and Stone Receivables Corporation, as Purchaser
(incorporated by reference to Exhibit 10.1(d) to Stone Container's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).
10.8* Employment Agreement of Ray M. Curran (incorporated by reference to
Exhibit 10.27 to SSCC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.9* Employment Agreement of Patrick J. Moore (incorporated by reference to
Exhibit 10.28 to SSCC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.10* Employment Agreement of William N. Wandmacher (incorporated by
reference to Exhibit 10.31 to SSCC's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
10.11* Employment Agreement of F. Scott Macfarlane (incorporated by reference
to Exhibit 10.32 to SSCC's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000).
10.12* Employment Agreement of Joseph J. Gurandiano (incorporated by reference
to Exhibit 10.1 to SSCC's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000).
10.13* Severance Benefits Agreement of Joseph J. Gurandiano (incorporated by
reference to Exhibit 10.2 to SSCC's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000).
10.14 Pre-Merger Agreement, dated as of February 23, 2000, among SSCC, Stone
Container, 3038727 Nova Scotia Company and St. Laurent Paperboard Inc.
(incorporated by reference to Exhibit 99.2 to Stone Container's Current
Report on Form 8-K dated February 23, 2000).
16.1 Letter from PricewaterhouseCoopers LLP pursuant to Item 304 of
Regulation S-K (incorporated by reference to Exhibit 19 to Stone
Container's Current Report on Form 8-K dated November 18, 1998).
24.1 Powers of Attorney.
*Indicates a management contract or compensation plan or arrangement.
(b) Report on Form 8-K.
There were no Form 8-K filings during the three months ended December
31, 2000.
60
Stone Container filed Form 8-K on January 17, 2001 regarding plans to sell
$500 million of senior notes.
Stone Container filed Form 8-K on January 19, 2001 announcing that it had
entered into an agreement to sell $750 million of 9.75% Senior Notes due
2011 and $300 million of 9.25% Senior Notes due 2008.
61
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.
Date March 13, 2001 Stone Container Corporation
----------------------------------------------
(Registrant)
BY /s/ Patrick J. Moore
----------------------------------------------
Patrick J. Moore
Vice-President and Chief Financial Officer
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 in
the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
*
- ------------------------------
Ray M. Curran President and Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Patrick J. Moore Vice-President and Chief Financial March 13, 2001
- ------------------------------ Officer and Director (Principal Financial Officer)
Patrick J. Moore
/s/ Paul K. Kaufmann
- ------------------------------
Paul K. Kaufmann Vice President and Corporate Controller March 13, 2001
(Principal Accounting Officer)
* By /s/ Patrick J. Moore pursuant to Powers of Attorney filed as
------------------------- a part of the Form 10-K
Patrick J. Moore
62