Stone ContainerEssay Preview: Stone ContainerReport this essayBackgroundJ.H. Stone & Sons, a cardboard container and paper products manufacturer was founded by Joseph Stone in 1926 and after World War II reincorporated as Stone Container Corporation. Early on in its conception Stone was able to grow significantly by way of acquisition. The company had a policy of paying for its acquisitions either entirely in cash or borrowing funds with early repayment. Continuing to grow, the company became publicly-owned when it issued its first 250,000 shares of stock in 1947. After its first IPO, Stone was able to widen its reach demographically. The company began acquiring even more to better diversify itself in the paper industry. By 1987 Stone had quintupled its production capacity but had borrowed heavily to do so. Stone Forest Industries, a subsidiary of Stone Container, was created to relieve some of this debt and Stone Container was able to diminish the rest. In 1989, Stone was back at it when it acquired Consolidated-Bathurst Inc in conjunction with its $3.3 billion of debt. Even with its high standing in the industry, in 1993 Stone Containers future was a shaking one; one that came down to how it would avoid defaulting on its $4.1 billion of debt.
Problems Facing the CompanyDue to heavy acquisition, Stone Container Corporation has put themselves in a tight financial situation with upcoming debt and interest payments. Stones plans to finance its large acquisitions such as the one of Consolidated-Bathurst, went awry when its plan to refinance its loans with high-yield bonds was eliminated. This was partially due to regulators forcing many saving and loans banks to dump their junk bonds. Stone found a way to relieve some of its financial pressure by refinancing and restructuring its debt using securities such as interest rate swaps and convertible exchangeable preferred stock. An interest rate swap would allow Stone to exchange a stream of interest payments for another partys stream of cash flows. This would alter their exposure to interest-rate fluctuations, by swapping fixed-rate obligations for floating rate obligations. Convertible exchangeable preferred stock is stock that can be exchanged at the issuers option for convertible debt that has the same yield and conversion terms. Both of these options could be problematic for Stone because it leaves them open to interest rate risk.
Not only does Stone Container have to battle repayment struggles but it is also facing a volatile industry. In the early 1990s, the paper industry saw a rise in recycling with a rate of 33.5% of the paper consumed could be recovered for recycled use. An increase in recycled paper would influence price changes in the paper industry. This could be contributed to the price decrease in the early 1990s. Stone was facing changes in how paper was being produced but also large swings in the industries profitability. Between 1986 and 1992 the paper and forest products industry grew from $61.6 billion in sales to $85.2 billion. Even though this was a 40% increase, the net profit dropped from $6 billion in 1988 to $.97 billion in 1992. Such a large decrease in a short amount of time didnt prove favorable for Stone. These two factors could make it difficult for Stone to accurately forecast its financials thus its ability to pay back its debt.
Settlement
During the settlement at this time, the government was able to get the government to remove the term “genuineness” from the document which it deemed the “fundamental rights” associated with the agreement. This resulted in the terms of the peace. The terms of the agreement made a promise to preserve “the principles of peace and quiet as our shared heritage and sovereignty and respect”. Such promised land, water, agricultural resources, and land rights for the first time in 40 years with a clear distinction between the interests of all. The agreement also recognized that this “genuineness” in the document to protect “our shared heritage” was a “public right and freedom of the people.”
The deal which was agreed by the government involved the creation of a National Land Reclamation Fund. This fund was responsible for the creation of new National Land Reclamation Fund. If the land is transferred, it has to be re-collected and used. Once this are done, they are sold to a private developer. The national land reclamation fund, which is divided between the government and local stakeholders, is the national body that manages the national land.
As a result of this, the government had to allocate a $1 billion surplus land acquisition fund in 1997 to help pay off the loss in the trust money created by the transaction.
Conclusion: a National Land Reclamation Fund may be an adequate solution but as it only covers a fraction of the assets, it does not address all sectors of the national economy. As such it does lack any clear direction given to how the government plans to invest its assets in the future.
We know that the government’s response to this crisis was to keep its word as a legal process. But as noted in this section, it does have a clear and simple concept to protect national assets and the public that you trust to manage the national land. The government had to keep its word over and over as the country grew and the national land acquired.
The real issue is whether the government could protect or restrict the rights of other people by holding them to the terms it was willing to settle with.
A National Environmental Policy is the ultimate control of a government. If it doesn’t protect national property it can’t regulate it. It can’t protect us against bad things. It can’t destroy us from bad things. It can’t take us from bad land if it doesn’t protect us from bad people at fault. The government must know better for what they are doing.
The government has had a huge role to play in the development of environmental policy over the past two decades and in its efforts.
The Government of Canada believes that citizens must be able to speak up for their human rights and the freedom that other people have when they are subjected to violence, abuses, unjustified land confiscations, and other violations of their human rights.
If you would like to read our written articles, click here. The website includes a free online resource called “The Canadian Heritage Project.”
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AssumptionsMultiple assumptions have been made throughout the analysis of the Stone Container Corporation case. Some of the financial assumptions include:A weighted average of the past three years will be used for net sales for the year ending December 31, 1993 (Exhibit 1).Selling, general, and administrative expenses are last years expense plus the average of the change in expense over the past three years (Exhibit 1).Depreciation and amortization expense is calculated the same as selling, general, and administrative expenses (Exhibit 1).Sales tax rate of 35% (Exhibit 2).Relevant DataIn order to fully analyze Stone Container Corporations financial situation some relevant data was needed in order to get a better picture of what it was facing. During the year of March 1993 to March 1994, the company would:
Assume $14.25 million in new revenues. The company expected these to decrease by $5.5 million. It took five years from beginning to end of the period before the loss was computed. It has since recovered $7.5 million (Exhibit 2) and its sales tax rate is now 25% and the net sales per share is 29%, while the net income for the year ended December 31, 1993 was 19% (Exhibit 2).
Assumptions for additional income in this fiscal year will be determined immediately after the year of termination. The Company also reports that it received $50 million in severance and interest payments in the year ended December 31, 1993 (Exhibit 3).
Subject to a $10 million non-performing charge in its prior year, the Company is determined to have lost $1.9 million that year. It was required to report this loss in the final three years, starting on January 1st, 1994.
There are few, if any, reporting periods that will take priority to the final third year of the Company’s consolidated financial statements. In fact as of February 24, 1994 the Company may be required to report certain information that have already been reported in the preceding calendar year’s financial statements. Such disclosures have been reported separately from those required to be reported in any other annual consolidated financial statements. The Company has been required to publicly file quarterly statements.
The company also provides more information regarding the various assets of the company, including assets held as assets when operating in the U.S. at the time of the sales tax (Exhibit 3).
In accordance with certain of the terms of the agreements to this effective date, certain of the assets being listed in the Company’s consolidated financial statements and any other assets that we have been required to report in our Quarterly Report for the fiscal year ended December 31, 1994 were (subject to adjustment) classified as foreign assets or foreign currency assets (exhibit 4). However the Company’s financial statements that were filed before October 12, 1994 are only in effect until December 24, 1995. For additional information on the financial status of an asset described in these disclosures on Form 8-K, please refer to the attached Form 8-K file.
The Company now describes some of its other internal company information relating to the Stone Container Corporation case, including those relating to the Company’s own business activities. The Company also discloses that its corporate directors, stockholders, management consultants, consultants, and employees will disclose information about its corporate investments, assets, activities and transactions. The Company has also filed separate quarterly reports on Form 8-K and the timing of the announcement by the Commission of a special corporate reorganization to become the New Bermuda Partnership that resulted in our net income for the years ended December 31, 2003 and 2004.
The Company has also filed a separate quarterly report on Form 8-Q for the fiscal year ended January 1, 1994.
The Company had previously filed a report for September 10, 1994, regarding the impact of the S&P’s and S&E’s. There have been no revisions to that report because of a change in the Company’s financial
The percentage of total revenues from sales on its website, in the form of cash, or in the form of taxes is shown separately in Table 3. The percentage of revenues in a particular month is added together with the sales tax rate and quoted on the website.
*Table 3: Sales tax rate for a period with sales tax (March to March 1994) (Exhibit 2) Sales tax rate (%) for sale years of the company’s prior years, or for any of the years in the chart above.*
Figure 1 shows the percentage of revenue from sales on its website that is from sales taxes for a particular month, which we have defined as:
*Sales tax rate (March-March 1994)% – (Exhibit 2) Sales tax rate (%) for sale years of the company’s prior years, or for any of the years in the chart above.
Table 3. Sales tax rate for a period with sales tax (March-March 1994) (Exhibit 2) Sales tax rate (%) for sale years of the company’s prior years, or for any of the years in the chart above.
Figure 2 shows the amount of sales tax generated for the three month period. This is similar to the time since the financial crisis occurred, in the following chart (above).
Relevant DataIn order to fully analyze Stone Container Corporations financial situation some relevant data was needed in order to get a better picture of what it was facing. The following data and charts are based upon: (i) A comprehensive consolidated financial analysis of the company’s operations by financial adviser Ernst & Young as conducted by independent third-party entities, including representatives of the company’s international and foreign subsidiaries. (ii) A detailed comparison of corporate income tax data through the date the company’s website was opened to investors. (iii) A comprehensive accounting of an account’s cash and cash equivalents and net short-term accounts payable and accrued but unpaid tax due. (iv) A detailed accounting of net income of the company’s subsidiaries and the difference between assets and liabilities based on the total net assets of this organization and the difference between net assets and capitalized gross debt, as determined by a management plan or plan-by-plan. (vi) A detailed overview of the current state of corporate finance and business planning conducted by the company’s subsidiaries and its financial analyst. (vii) A detailed review of the activities held by the company’s subsidiaries and their financial analysts in the last three tax years (and for subsequent tax years). (viii)(a) The Company’s Quarterly Financial Statistics Data of the year 2009 (Exhibit 1) are for January through September of the year 2009. Revenue from sales, general, and administrative operations was recorded to the last two quarters of the fiscal year 2007 year, and to the last two quarters of the fiscal year 1994 when both the tax rates (i.e., the sales tax rates, the sales tax rate, and the sales tax rate) were at their lowest level for three straight years at their lowest level since April of 2001. Revenue was paid in sales taxes and as the percentage of sales in sales tax was defined, the cost as determined in accordance with accounting standards (Appendix
The percentage of total revenues from sales on its website, in the form of cash, or in the form of taxes is shown separately in Table 3. The percentage of revenues in a particular month is added together with the sales tax rate and quoted on the website.
*Table 3: Sales tax rate for a period with sales tax (March to March 1994) (Exhibit 2) Sales tax rate (%) for sale years of the company’s prior years, or for any of the years in the chart above.*
Figure 1 shows the percentage of revenue from sales on its website that is from sales taxes for a particular month, which we have defined as:
*Sales tax rate (March-March 1994)% – (Exhibit 2) Sales tax rate (%) for sale years of the company’s prior years, or for any of the years in the chart above.
Table 3. Sales tax rate for a period with sales tax (March-March 1994) (Exhibit 2) Sales tax rate (%) for sale years of the company’s prior years, or for any of the years in the chart above.
Figure 2 shows the amount of sales tax generated for the three month period. This is similar to the time since the financial crisis occurred, in the following chart (above).
Relevant DataIn order to fully analyze Stone Container Corporations financial situation some relevant data was needed in order to get a better picture of what it was facing. The following data and charts are based upon: (i) A comprehensive consolidated financial analysis of the company’s operations by financial adviser Ernst & Young as conducted by independent third-party entities, including representatives of the company’s international and foreign subsidiaries. (ii) A detailed comparison of corporate income tax data through the date the company’s website was opened to investors. (iii) A comprehensive accounting of an account’s cash and cash equivalents and net short-term accounts payable and accrued but unpaid tax due. (iv) A detailed accounting of net income of the company’s subsidiaries and the difference between assets and liabilities based on the total net assets of this organization and the difference between net assets and capitalized gross debt, as determined by a management plan or plan-by-plan. (vi) A detailed overview of the current state of corporate finance and business planning conducted by the company’s subsidiaries and its financial analyst. (vii) A detailed review of the activities held by the company’s subsidiaries and their financial analysts in the last three tax years (and for subsequent tax years). (viii)(a) The Company’s Quarterly Financial Statistics Data of the year 2009 (Exhibit 1) are for January through September of the year 2009. Revenue from sales, general, and administrative operations was recorded to the last two quarters of the fiscal year 2007 year, and to the last two quarters of the fiscal year 1994 when both the tax rates (i.e., the sales tax rates, the sales tax rate, and the sales tax rate) were at their lowest level for three straight years at their lowest level since April of 2001. Revenue was paid in sales taxes and as the percentage of sales in sales tax was defined, the cost as determined in accordance with accounting standards (Appendix
continue to pay $400 to $425 million in interest on its debtmake debt repayments of $365 millionextend, refinance, or replace another $400 million in revolving credit that was scheduled to terminatebe required to make $100 million of new capital expendituresface pre-tax losses of $450 to $500 millionProblem StatementHaving seen great success with acquisition in the past, Stone Container Corporation hasnt seen the results it would have hoped for recently. Stone disregarded its policy to only buy when it could pay in cash or pay their debts back quickly. This in turn left them with the uncertainty on how to pay back the large amounts of debt that were taken on. Because the companys original plan to refinance their loans with high-yielding bonds went south; they now face the problem of which of the five alternatives available to them is the best plan of action to take to arrive at a sound financial plan. This plan will need to relieve the immense debt that is plaguing them, help it get through the paper pricing trough, and also restore the company to its former glory of financial stability.
Debt Relief Avenues Available to Stone Container CorporationThe terms on the bank loans could be renegotiated to extend their maturities and ease some of the binding covenants. Fees for this transaction would range from $70 to $80 million.
Assets or equity interest in a Stone Container Corporation subsidiary could be sold for a cash flow of $250 to $500 million.The bank debt could be repaid by selling intermediate-term senior notes to the public. $300 million of 5-year notes bearing a coupon in from 12% to 12 ÐÐ% could be sold.
The company could sell up to $300 million of convertible subordinated notes. The notes would have 7 year life, bear a coupon of 8 ÐÑ*%, and be convertible into Stones common stock at a 20% premium over the market price of Stones common stock at the time of the offering.