STONE CONTAINER CORPORATION
DEFERRED INCOME SAVINGS PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
STONE CONTAINER CORPORATION
DEFERRED INCOME SAVINGS PLAN
INDEX
Page
Report of Independent Accountants 1
Financial Statements:
Statement of Net Assets Available for
Benefits as of December 31, 1997 and 1996 2
Statement of Changes in Net Assets Available
for Benefits for the Years Ended
December 31, 1997 and 1996 3
Notes to Financial Statements 4
Note: Supplementary schedules have been omitted
because they are not applicable.
Report of Independent Accountants
June 23, 1998
To the Participants and
Administrator of the
Stone Container Corporation
Deferred Income Savings Plan
In our opinion, the accompanying statement of net assets available
for benefits and the related statement of changes in net assets
available for benefits present fairly, in all material respects,
the net assets available for benefits of the Stone Container
Corporation Deferred Income Savings Plan (the Plan) at December 31,
1997 and 1996, and the changes in net assets available for benefits
for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Plan's management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
STONE CONTAINER CORPORATION
DEFERRED INCOME SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
Investment in Stone
Container Corporation Defined
Contribution Master Trust $177,326,925 $160,456,872
Employer contributions receivable 4,578,194 1,151,094
Accrued income -- 926,759
Net assets available for
benefits $181,905,119 $162,534,725
<FN>
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION
DEFERRED INCOME SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Sources of assets:
Contributions:
Employee $ 14,029,102 $ 14,300,054
Employer 4,578,194 1,151,094
Net investment income in the Stone
Container Corporation Defined
Contribution Master Trust 16,958,101 16,927,852
Transfers of assets from other plans 1,012,872 14,939,684
Other - 20,701
36,578,269 47,339,385
Application of assets:
Participant withdrawals 10,902,783 10,610,680
Common stock distributed
to participants 790,496 780,735
Transfers of assets to other plans 5,489,476 -
Other 25,120 34,070
17,207,875 11,425,485
Increase in net assets available
for benefits 19,370,394 35,913,900
Net assets available for benefits:
Beginning of period 162,534,725 126,620,825
End of period $ 181,905,119 $ 162,534,725
<FN>
The accompanying notes are an integral part of these statements.
STONE CONTAINER CORPORATION
DEFERRED INCOME SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - DESCRIPTION OF THE PLAN:
The following description of the Stone Container Corporation Deferred
Income Savings Plan (the Plan) is provided for general informational
purposes only. Participants should refer to the Plan document for
complete information.
General
The Plan was adopted by the Board of Directors of Stone Container
Corporation (Stone or the Company) to offer eligible employees of the
Company an opportunity to invest a portion of their income in the Plan on
a regular basis through salary reduction under the provisions of section
401(k) of the Internal Revenue Code of 1986 (IRC). The Plan is
administered by a committee of three individuals appointed by the Company
and is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). The Plan's year end is December 31.
On May 10, 1998, Stone Container Corporation signed an agreement to merge
with Jefferson Smurfit Corporation. The merger has been approved by the
boards of directors of both companies, but is awaiting approval of the
shareholders and regulatory clearance. It has not been determined what
effect, if any, this transaction would have on the future of the Plan.
Eligibility
All salaried employees of the Company are eligible to participate in the
Plan on any January 1 or July 1 enrollment date by filing written
elections indicating their elective contributions (or by other procedure
established by the Plan administrator for this purpose).
Contributions
Employee salary reduction contributions are to be not less than one
percent or greater than ten percent of compensation up to the maximum
contribution as permitted by the IRC. Compensation is defined as the
total of wages, bonuses, commissions and overtime pay. Participants may
change their contribution percentages and fund investment alternatives at
specified dates during the year. Contributions may be suspended at any
time by notifying the Plan administrator. Contributions and earnings on
participants' contributions are fully vested and nonforfeitable at all
times. In 1997, the Company began matching participant contributions
with Company stock in an amount equal to 50 percent of the first five percent
of pay contributed to the Plan, subject to the maximum annual compensation
limit allowed by the Internal Revenue Service. Prior to January 1, 1997,
the Company matched participant contributions in an amount equal to $.50
for each $1 of contribution made by participants up to a maximum employer
contribution of $300 per participant, per year. Employer contributions
are made annually within 60 days subsequent to the Plan year end.
Employer contributions of Company stock are calculated based on the fair
value of the stock at the date of contribution. Participants must be
employed on the last day of the Plan year to qualify for the employer
contribution, except in the case of death, permanent disability, or
retirement during the Plan year. Effective January 1, 1997,
participants become fully vested in the 1997 and subsequent plan year
employer matching contributions after completion of five years of service
from their date of hire. Notwithstanding the foregoing, if as of March
2, 1997, participants have three or more years of service from their date
of hire, they are fully vested in their December 31, 1996 account balance
and all future employer matching contributions. Prior to January 1,
1997, participants were fully vested, at all times, in the Company's
matching contributions and earnings thereon.
Distributions
The balance in a participant's account is distributable upon termination
of the participant's employment for any reason, including death,
retirement, permanent disability, resignation or dismissal. Participant
balances in the Company stock fund are distributable in shares of Stone
common stock valued as of the end of the accounting period during which
the distribution is requested. Participants who have not terminated
employment are entitled to distributions of their account balances upon
attainment of age 59-1/2. Participants must commence distribution of
their account balances no later than April 1 of the calendar year
following the calendar year in which they attain age 70-1/2. All
distributions are made in the form of lump-sum payments. Upon request,
an annuity option is also available.
Prior to normal distribution of benefits, participants who demonstrate
financial hardship may request a withdrawal of all or any portion
of the vested employer matching contribution account and salary
reduction contributions account as of December 31, 1988,
plus their aggregate salary reduction contributions, but not
earnings thereon, made on or after January 1, 1989. All hardship
requests are evaluated and subject to approval by the Plan administrator.
Such withdrawals are subject to a $500 minimum in 1997 and a $250 minimum
prior to January 1, 1997. The Company stock fund is not
available for hardship withdrawals. Participants who make hardship
withdrawals are not eligible to make salary reduction contributions for
twelve months or more after the receipt of the distribution.
Investment alternatives
Participants have the option to invest their balances in a fixed income
fund, a balanced fund, an equity fund, an international equity fund, a
small company growth fund and a Company stock fund. Prior to 1989,
certain participants also had the option to invest in a money market
fund.
Investment decisions for each fund are made by the Bankers Trust Company
(the Trustee) or the investment managers selected by the Plan
administrator. Participants may elect to invest their contributions in
the various funds in increments of one percent. Prior to January 1,
1997, participants could also elect to invest the matching Company
contributions in increments of one percent. Effective with the 1997 plan
year, however, all employer contributions are invested in the Company
stock fund and no such contributions or any amounts attributable thereto
should be subject to any investment election by a participant until their
attainment of age 55. All contributions received are held and invested
in the short-term investment fund until it is administratively possible
for the Trustee to invest such contributions and earnings thereon
pursuant to the participants' investment elections. No contributions and
earnings thereon shall be held in the short-term investment fund longer
than the following accounting date.
Termination of the Plan
Although it has not expressed any interest to do so, the Company
reserves the right to discontinue the Plan at any time.
If the Plan is terminated, the assets of the Plan shall be allocated
among participants and beneficiaries in accordance with the applicable
provisions of ERISA and the IRC.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of accounting
The financial statements of the Plan are presented on the accrual basis
of accounting. Accordingly, investment income is recognized when earned
and expenses are recognized when incurred.
Effective January 1, 1996, the Plan participates in the Stone Container
Corporation Defined Contribution Master Trust (the Master Trust). The
financial statements of the Plan disclose only the Plan's allocated share
of the assets and the investment earnings and losses of the Master Trust
(Note 5). During 1997 and 1996, the Master Trust included four other
defined contribution plans that are sponsored by the Company.
Allocation of Master Trust assets and transactions
In order to preserve for participating plans an interest in the combined
assets of the Master Trust, the Trustee computes the beneficial interest
in the Master Trust for each defined contribution plan by fund. The
current month's Master Trust investment transactions are allocated based
on each plan's computed share in the applicable Master Trust fund at the
end of the prior month, adjusted for the current month's contributions
less payments to beneficiaries and certain administrative expenses.
These allocated amounts are then added to or subtracted from the prior
month's computed shares, as adjusted, to determine computed shares at the
end of the current month. Master Trust investment transactions allocated
to the Plan include dividend and interest income and net appreciation
(depreciation) in the fair value of investments. These amounts, net of
allocated administrative expenses, represent the Plan's share of gain or
loss on investment in the Master Trust and are presented on the Statement
of Changes in Net Assets Available for Benefits.
Investment valuation
Mutual fund investments are valued at the last reported sales prices on
the last business day of the year. Fixed investment contracts and pooled
investment funds are valued at contract values plus accrued interest,
which approximates market values. The Company's common stock is valued
at the closing price on the last business day of the year.
Administrative expenses
Investment manager expenses for the fixed income fund are paid by the
Plan. The investment manager expenses for the fixed income fund for the
years ended December 31, 1997 and 1996 were $23,815 and $22,738,
respectively. The majority of other administrative expenses are paid by
the Company. Beginning in 1996, when the Plan began participating in the
Master Trust, certain trustee fees are also paid by the Plan. Such fees
for the years ended December 31, 1997 and 1996 were $1,305 and $3,671,
respectively.
Payments to withdrawing participants
The Plan records payments to withdrawing participants at the time of
disbursement, in accordance with generally accepted accounting
principles. Under the rules for preparation of its Form 5500, the Plan
reflects an accrual for the amount to be paid to participants who have
withdrawn from the Plan prior to year end. Amounts payable to
participants at December 31, 1997 and 1996 were $715,323 and $359,583,
respectively.
The following is a reconciliation of net assets available for benefits
per the financial statements to the Form 5500:
December 31,
1997 1996
Net assets available for
benefits per the financial statements $181,905,119 $162,534,725
Amounts payable to withdrawing participants (715,323) ( 359,583)
Net assets available for benefits per the
Form 5500 $181,189,796 $162,175,142
The following is a reconciliation of benefits paid to participants per
the financial statements to the Form 5500:
Years ended December 31,
1997 1996
Benefits paid to participants per
the financial statements $11,693,279 $11,391,415
Add: Amounts payable to withdrawing
participants at December 31, 1997
and 1996 715,323 359,583
Less: Amounts payable to withdrawing
participants at December 31, 1996
and 1995 (359,583) (1,419,808)
Benefits paid to participants per the
Form 5500 $12,049,019 $10,331,190
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 amounts reported in the financial statements
and related notes to the financial statements. Changes in such estimates
may affect amounts reported in future periods.
NOTE 3 - TRANSFER OF ASSETS WITH OTHER PLANS:
Effective January 1, 1996, the Stone Container Corporation Frozen Savings
Plan (the Frozen Plan) merged into the Plan. At that time, participants
of the Frozen Plan became participants of the Plan and the Frozen Plan
was terminated. The net assets of the Frozen Plan were transferred to
the Plan's Trustee.
Beginning in 1997, employees who were formerly participants in the Stone
Container Hourly Employees' Deferred Income Savings Plan that were
eligible for participation in the Deferred Income Savings Plan were
allowed to transfer their balances to the Plan.
Effective January 1, 1997, employees of S&G Packaging,LLC and US Forest
Industries Inc. who were formerly participants in the Plan, were
transferred to the S&G Packaging,LLC Employee Retirement Savings Plan
and the US Forest Industries Inc. Salaried 401(k) Savings
Plan, respectively. The net assets of the Plan relating to these
participants were transferred to the respective plans' trustees.
NOTE 4 - TAX STATUS OF THE PLAN:
The Internal Revenue Service has determined and informed the Company by
letter dated March 29, 1996 that the Plan is designed in accordance with
the applicable sections of the IRC. The Plan has been amended since
receiving the determination letter. However, the Plan administrator and
the Plan's counsel believe that the Plan is designed and is currently
being operated in compliance with the applicable requirements of the IRC.
Therefore, no provision for income taxes has been included in the Plan's
financial statements.
NOTE 5 - PARTICIPATION IN THE MASTER TRUST:
As described in Note 2, the Plan's investment assets are included with
the assets of several of the Company's defined contribution plans in the
Master Trust. The Trustee determines the Plan's proportionate share of
trust assets and related changes in trust assets, as described in Note 2,
and such amounts are reflected in the Plan's Statement of Net Assets
Available for Benefits and of Changes in Net Assets Available for
Benefits. At December 31, 1997 and 1996, the Plan's interest in the net
assets of the Master Trust was approximately 64 percent and 69 percent,
respectively.
The following table presents the net assets held by the Master Trust as
of December 31, 1997 and 1996.
1997 1996
Investments, at fair value:
Cash and cash equivalents $ 8,863,696 $ 7,510,768
Mutual funds 170,355,345 119,806,503
Common stock 13,945,469 20,087,230
Fixed income funds 71,338,087 62,938,266
Pooled investment funds 13,088,507 21,399,468
Total investments 277,591,104 231,742,235
Accrued income 9,696,663 2,520,445
Total assets 287,287,767 234,262,680
Due to broker 9,412,739 1,661,815
Total liabilities 9,412,739 1,661,815
Net assets held by Master Trust $ 277,875,028 $ 232,600,865
The following table presents investment income for the Master Trust for
the years ended December 31, 1997 and 1996.
1997 1996
Net appreciation in fair value
of investments $14,323,840 $ 9,126,639
Dividends 11,040,805 7,149,986
Interest 7,148,863 9,751,826
Total investment income 32,513,508 26,028,451
Administrative expenses 41,602 38,748
Net investment income $ 32,471,906 $ 25,989,703
The following table presents the change in the net appreciation in fair
value of investments (including gains and losses on investments sold
during the year and unrealized gains and losses on investments purchased
and held during the year) held by the Master Trust for the years ended
December 31, 1997 and 1996.
1997 1996
Mutual funds $19,306,026 $7,941,245
Common stock (4,982,186) 1,185,394
Net appreciation in fair value
of investments $ 14,323,840 $ 9,126,639
NOTE 6 - SIGNIFICANT INVESTMENTS:
Investments with fair values in excess of five percent of net assets
available for benefits at either December 31, 1997 or 1996 were:
1997 1996
Investment in Stone Container
Corporation Defined Contribution
Master Trust $177,326,925 $ 160,456,872
============ =============
NOTE 7 - CONFEDERATION LIFE
The Plan maintained insurance contracts with Confederation Life Insurance
Company (Confederation Life). These contracts were held as investments
in the fixed income fund until the Plan merged into the Master Trust at
which time the contracts were segregated from the fixed income fund and
participants were prohibited from making contributions, transfers or
withdrawals to and from these contracts. The investment contracts with
Confederation Life held as of December 31, 1996 were:
Original Original
Carrying Crediting Maturity
Value Rate Date
Confederation Life #62630 $1,201,371 7.68% 1/31/97
Confederation Life
CIC #62618 1,199,497 7.45% 2/19/97
Confederation Life #62639 1,198,565 7.72% 9/26/96
Confederation Life #62640 1,199,649 7.76% 11/26/96
$4,799,082
In August 1994, following the placement of Confederation Life's Canadian
operations under the regulatory control of the Canadian government,
Michigan insurance regulators filed an order of rehabilitation against
the United States branch of Confederation Life. In response to the
seizure of Confederation Life, the Plan ceased accruing interest on the
investments effective August 31, 1994.
In October 1996, the Confederation Life rehabilitation plan was approved
by the courts and in November 1996, the rehabilitation plan was
finalized. In accordance with the rehabilitation plan, the Plan elected
to receive its contract payments including accrued interest in
installments commencing in April 1997. As of May 30, 1997, the Plan had
received contract payments totaling $5,725,841 from Confederation Life
and state guaranty associations, and any additional payments are
expected to be minor. The excess of contract payments
received as compared to the carrying value of the Confederation Life
contracts at December 31, 1996 was due to the cessation of interest
accrued by the Plan. The excess was recorded as income in the 1996
financial statements.
NOTE 8 - INFORMATION BY FUND:
Net asset balances as of December 31, 1997 and 1996, and employee
contributions, employer contributions, net investment income, transfers
of assets from other plans, participant withdrawals and common stock
distributed to participants, transfers of assets to other plans and
transfers from (to) associated funds for the years ended December 31,
1997 and 1996, by fund are as follows:
As of As of
Net asset balance: 12/31/97 12/31/96
Fixed Income Fund $ 63,250,133 $ 65,441,053
Equity Fund 66,175,173 51,545,524
Company Stock Fund -
Participant Directed 14,833,057 19,960,119
Company Stock Fund -
Company Directed 4,578,194 -
Money Market Fund 213,211 213,398
Balanced Fund 27,163,784 21,732,009
International Equity Fund 2,802,298 1,300,643
Small Company Growth Fund 2,889,269 2,341,979
$181,905,119 $162,534,725
Year ended Year ended
Employee contributions: 12/31/97 12/31/96
Fixed Income Fund $ 3,974,447 $ 4,818,728
Equity Fund 5,252,703 4,978,209
Company Stock Fund -
Participant Directed 1,424,978 1,943,037
Company Stock Fund -
Company Directed - -
Money Market Fund - -
Balanced Fund 2,554,569 2,408,602
International Equity Fund 441,600 59,314
Small Company Growth Fund 380,805 92,164
$ 14,029,102 $ 14,300,054
Year ended Year ended
Employer contributions: 12/31/97 12/31/96
Fixed Income Fund $ - $ 310,795
Equity Fund - 425,905
Company Stock Fund -
Participant Directed - 138,131
Company Stock Fund -
Company Directed 4,578,194 -
Money Market Fund - -
Balanced Fund - 207,197
International Equity Fund - 34,533
Small Company Growth Fund - 34,533
$ 4,578,194 $ 1,151,094
Year Ended Year Ended
Net investment income: 12/31/97 12/31/96
Fixed Income Fund $ 3,974,341 $ 4,848,810
Equity Fund 13,371,571 8,242,552
Company Stock Fund -
Participant Directed (4,975,363) 1,402,942
Company Stock Fund -
Company Directed - -
Money Market Fund 11,844 12,441
Balanced Fund 4,521,037 2,326,077
International Equity Fund 133,996 65,121
Small Company Growth Fund (79,325) 29,909
$ 16,958,101 $16,927,852
Year Ended Year Ended
Transfers of assets from other plans: 12/31/97 12/31/96
Fixed Income Fund $ 194,038 $11,972,903
Equity Fund 668,308 2,186,452
Company Stock Fund -
Participant Directed - -
Company Stock Fund -
Company Directed - -
Money Market Fund - -
Balanced Fund 150,526 780,329
International Equity Fund - -
Small Company Growth Fund - -
$ 1,012,872 $14,939,684
Participant withdrawals and common Year Ended Year Ended
stock distributed to participants: 12/31/97 12/31/96
Fixed Income Fund $ 5,802,300 $ 7,051,101
Equity Fund 3,234,642 2,456,567
Company Stock Fund -
Participant Directed 790,496 780,735
Company Stock Fund -
Company Directed - -
Money Market Fund 2,165 17,601
Balanced Fund 1,707,206 1,085,052
International Equity Fund 87,857 -
Small Company Growth Fund 68,613 359
$11,693,279 $11,391,415
Year Ended Year Ended
Transfers of assets to other plans: 12/31/97 12/31/96
Fixed Income Fund $1,870,497 $ -
Equity Fund 1,976,630 -
Company Stock Fund -
Participant Directed 819,739 -
Company Stock Fund -
Company Directed - -
Money Market Fund 9,876 -
Balanced Fund 719,219 -
International Equity Fund 46,616 -
Small Company Growth Fund 46,899 -
$ 5,489,476 $ -
Year Ended Year Ended
Transfers from (to) associated funds: 12/31/97 12/31/96
Fixed Income Fund ($2,635,829) ($4,743,217)
Equity Fund 548,339 845,125
Company Stock Fund -
Participant Directed 33,558 (1,407,623)
Company Stock Fund -
Company Directed - -
Money Market Fund 10 (101,337)
Balanced Fund 632,068 2,079,647
International Equity Fund 1,060,532 1,141,673
Small Company Growth Fund 361,322 2,185,732
$ - $ -