10-K 1 FORM 10-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, Commission File Number 1-2300 1994 SCOTT PAPER COMPANY A Pennsylvania Corporation IRS Employer Identification No. 23- 1065080 Scott Plaza Philadelphia, Pennsylvania 19113-1585 Telephone (610) 522-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED -------------------------------- ---------------------------------------------- Cumulative Senior Preferred Shares (without par value) Series designated $3.40 Cumula- tive Senior Preferred Shares.. Philadelphia Stock Exchange Series designated $4.00 Cumula- tive Senior Preferred Shares.. Philadelphia Stock Exchange Common Shares (without par val- New York Stock Exchange; Philadelphia Stock ue)............................ Exchange; Pacific Stock Exchange
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING 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 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. [X] STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING: $5,839,610,000 AT THE CLOSE OF BUSINESS ON FEBRUARY 17, 1995. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 76,086,131 COMMON SHARES OUTSTANDING AS OF FEBRUARY 17, 1995. DOCUMENTS INCORPORATED BY REFERENCE: (1) THE COMPANY'S 1994 ANNUAL REPORT TO SHAREHOLDERS INCORPORATED PARTIALLY IN PARTS I AND II HEREOF AND (2) THE COMPANY'S PROXY STATEMENT DATED MARCH 10, 1995, INCORPORATED PARTIALLY IN PARTS II AND III HEREOF. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1 PART I ITEM 1. BUSINESS. Scott Paper Company continues a business established in 1879. It was incorporated in Pennsylvania in 1922 as the successor to a company of the same name incorporated in Pennsylvania in 1905. Its executive offices are located at Scott Plaza, Philadelphia, Pennsylvania 19113-1585 (tel. 610/522-5000). As used herein, the terms "Scott" and "Company" refer to Scott Paper Company and its consolidated domestic and international subsidiaries unless the context otherwise indicates. Information contained herein is for 1994 or as of December 31, 1994, except as otherwise specified. For the past several years, the Company's business has consisted of two segments, tissue products and printing and publishing papers. In December 1994, the Company sold its printing and publishing papers business, consisting principally of its wholly-owned subsidiary, S.D. Warren Company. In the statement of consolidated operations contained in the Company's 1994 Annual Report to Shareholders, the sold business is reported as a discontinued operation. Information contained herein is exclusive of the discontinued operation unless otherwise specified. Page 39 of the Company's 1994 Annual Report to Shareholders shows, for 1994, 1993 and 1992, the sales, income (loss) before taxes and identifiable assets of the Company's remaining segment, tissue products, by geographic area. Pages 30 and 31 of the Company's 1994 Annual Report to Shareholders contains information on the Company's unconsolidated international affiliates in Canada and Mexico, which are reported on the equity method, including their combined sales, assets and net income (loss), and Scott's share of their net income (loss). These pages are incorporated herein by reference. RESTRUCTURING In January 1994, the Company announced plans to reduce the number of persons employed by the Company and its unconsolidated international affiliates from 33,000 to approximately 24,700 over a three-year period, and to realign and shut down some older and inefficient tissue producing and converting assets in the United States and Europe. In August 1994, the plan was modified to accelerate the timing and increase the total of the work force reductions. The plan was completed by the end of 1994. See "Employees" below. ASSET SALES In December 1994, the Company sold its printing and publishing papers business, consisting principally of its wholly-owned subsidiary, S.D. Warren Company, to an investor group led by Sappi Limited for $1.6 billion, including the buyer's assumption of approximately $120 million in debt. In connection therewith, the Company entered into a long-term agreement to supply pulp from its Mobile, Alabama pulp mill to the adjacent S.D. Warren mill. In December 1994, the Company completed the sale of the energy and recovery complex assets (the "Energy Complex") located at its Mobile, Alabama mill site to Mobile Energy Services Company, Inc. (MESC), which is a wholly-owned subsidiary of The Southern Company. The Company received approximately $350 million, consisting of approximately $265 million in cash and the buyer's assumption, guaranteed by The Southern Company, of $85 million of debt under a tax-exempt financing relating to the Energy Complex. Under terms of an agreement, MESC will provide power, steam and pulping liquor to the Scott and S.D. Warren mills located at this site. In December 1994, the Company sold substantially all of its interest in Scott Health Care, a 50%-owned joint venture which manufactures and markets adult incontinence and wound care products, to Molnlycke AB of Sweden, the other owner of the venture, for $65.7 million. The remainder of the Company's interest in Scott Health Care was sold to Molnlycke AB in March 1995. The Company entered into agreements with separate parties in December 1994 to sell its United States foodservice products business, including a manufacturing site in Oshkosh, Wisconsin, and Cross Paperware Limited, its United Kingdom foodservice business. Information contained herein is exclusive of the assets and businesses either sold or subject to a contract of sale by the end of 1994, unless otherwise specified. 2 In the fourth quarter of 1994, the Company announced its intention to divest additional assets, including its remaining timberlands in the United States and Canada, the Scott Maritimes Limited pulp mill in Nova Scotia, the pulp mill in Miranda del Ebro, Spain, its 20% interest in companies owning a eucalyptus pulp mill and timberlands in Chile, the pulp operations at its Everett, Washington and Mobile, Alabama mills, the energy facility at its Chester, Pennsylvania mill, and corporate real estate, including its corporate headquarters buildings near Philadelphia, Pennsylvania. In February 1995 the Company announced that it had signed a letter of intent to sell the Chester energy facility for $170 million. In March 1995 the Company announced that it had signed an agreement to sell its corporate headquarters building for $39 million and that its worldwide headquarters would be relocated to Boca Raton, Florida. TISSUE PRODUCTS The Company's tissue products segment includes products (primarily tissue products) for personal care and environmental cleaning and wiping manufactured and marketed by the Company and its unconsolidated international affiliates. The Company believes that this business, including the Company's unconsolidated international affiliates, is the world's largest manufacturer and marketer of tissue products in each of the consumer and away-from-home markets. OPERATIONS IN THE AMERICAS The Company's principal consumer tissue products marketed in the United States are listed in the following table: BATHROOM TISSUE DISPOSABLE TOWELS --------------- ----------------- Cottonelle, ScotTissue, Family Scott Job Squad, ScotTowels, Viva FACIAL TISSUE BABY WIPES PREMOISTENED CLEANSINGA CLOTHS ------------- ---------- ------------------------------ Scotties Baby Fresh, Wash a-bye Baby Sofkins, KidFresh NAPKINS "DO-IT-YOURSELF" PRODUCTS ------- ------------------------- Scott, Viva and Viva Accents Shop Towels on a Roll; Rags in a Box; napkins Gotcha Covered drop cloths; Ultra Scrub cloths The Company's consumer products are marketed principally through supermarkets, drug stores, warehouse clubs, convenience stores and mass merchandisers. The principal methods of competition in consumer tissue markets include product quality, price, design, packaging, advertising and promotion. ScotTissue bathroom tissue, ScotTowels paper towels, Scotties facial tissue, Scott napkins and Wash a-bye Baby baby wipes are the Company's principal brands in the value segment of the consumer market. In the premium segment of the consumer market, Scott's principal brands include Cottonelle bathroom tissue, Job Squad and Viva disposable towels and Baby Fresh baby wipes. In addition, the Company sells a "Do-It-Yourself" line of disposable auto care and home maintenance products. The Company's principal competitors in the United States consumer tissue market are The Procter & Gamble Company, James River Corporation of Virginia, Kimberly-Clark Corporation and Georgia-Pacific Corporation. The Company believes that it has the second largest market share in the product categories listed above, in the aggregate, in the United States. The Company believes that its principal competitive strengths in the consumer tissue market include the Scott name and reputation for quality and value, strong market positions and a strong sales force, and that its principal competitive weaknesses have included a lack of nationwide distribution of certain premium brands and uneven marketing support. 3 The Company's principal away-from-home products marketed in the United States are listed in the following table: ENVIRONMENTAL CLEANING AND WIPING PERSONAL CARE PRODUCTS PRODUCTS ---------------------- --------------------------------- Bathroom Tissue--JRT, Cottonelle Critical Task Wipers--Micro-Wipes and ScotTissue and Scottpure Facial Tissue--Scotties General Purpose Wipers--EconoMizer, Towels--Scottfold, Scott Select, WypAll and Scottcloth Sequel and Premiere Custom Wipers--Sani-Prep dairy Soaps--Sani-Fresh, Sani-Tuff and towels SureTouch Special Task Systems--Cleanworks Toilet Seat Covers--P.S. Personal concentrated cleaning chemical Seats dispensing system, WetTask Industrial Garments--Durafab cleaning system Napkins--Scottex and Admiral FIXTURES -------- Dispensing systems for bathroom tissue, towels, soaps, toilet seat covers, facial tissue, napkins and wiping products--Windows, In-Sight and Reflections The Company's away-from-home products and product systems are sold through a selective distribution network primarily to manufacturing, lodging, office building, foodservice and health care establishments and high volume public facilities. The away-from-home market has generally grown more rapidly than the consumer market for tissue products, and is expected to continue to do so. Competition in away-from-home markets is primarily on the basis of price, product utility, product quality and service. The Company's away-from-home business continues to aggressively pursue its strategy of meeting the needs of key end-user markets with distinctive products and product systems. The Company's principal competitors in the United States away-from-home products market are Fort Howard Corporation, James River Corporation of Virginia and Kimberly-Clark Corporation. The Company believes that it has the second largest market share in the product categories listed above, in the aggregate, in the United States. The Company believes that its principal competitive strengths in the away-from-home products market include the Scott name and reputation for quality and value, strong market positions, a strong sales force, the capability to manage the sale of products through distributor organizations and the ability to bring distinctive products and product systems rapidly to market. While the restructuring program undertaken in 1994 significantly reduced corporate overhead and labor density at the Company's United States manufacturing facilities, which produce both consumer and away-from-home products, most of these facilities still have relatively complex process flows and older equipment. The Company's tissue business in the Americas outside the United States is conducted by the consolidated subsidiaries in Costa Rica and Honduras and the unconsolidated affiliates in Canada and Mexico which, together with Scott's direct or indirect ownership interest therein, are listed below. CANADA -- Scott Paper Limited (50% owned) COSTA RICA -- Scott Paper Company de Costa Rica, S.A. (51% owned) HONDURAS -- Scott Paper Company-Honduras, S.A. de C.V./(1)/ MEXICO -- Compania Industrial de San Cristobal, S.A. (48.8% owned)/(2)/ -------- /(1)/ This subsidiary is 100% owned by Scott Paper Company de Costa Rica, S.A. /(2)/ An additional 3.1% of this affiliate is owned by a 40%-owned Mexican affiliate of the Company. Scott Paper Limited manufactures and markets consumer and away-from-home products and systems similar to those marketed by the Company in the U.S., including Cottonelle, Purex and White Swan bathroom tissue, ScotTowels, Viva and White Swan disposable towels, Scotties and White Swan facial tissue and Scott Family napkins, and markets Baby Fresh baby wipes. Scott Paper Limited is the largest producer of tissue products in Canada. 4 Compania Industrial de San Cristobal, S.A., through its subsidiaries and affiliates, manufactures and markets consumer tissue products, including Petalo bathroom tissue, towels and napkins, Confort and Saba sanitary protection products and Baby Fresh baby wipes, as well as away-from-home products and product systems. This affiliate also produces coated and uncoated printing and writing papers for the Mexican market. In 1994 this affiliate began an expansion program which includes the installation of a new tissue machine and a recycled fiber facility. The Costa Rican subsidiary and its subsidiary in Honduras produce consumer tissue products, principally Natural bathroom tissue, for Central American and Caribbean markets. EUROPEAN OPERATIONS Scott's European tissue business is conducted by the following consolidated subsidiaries and in certain cases by their wholly-owned subsidiaries, all of which are wholly-owned directly or indirectly by Scott unless otherwise noted. BELGIUM -- Scott Continental N.V. FRANCE -- Scott S.N.C. GERMANY -- Scott Paper GmbH, Scott GmbH ITALY -- Scott S.p.A. THE NETHERLANDS -- Scott Page B.V. PORTUGAL -- Scott Paper Portugal Lda. SPAIN -- Scott Iberica, S.A. (99.7% owned) UNITED KINGDOM -- Scott Limited, Cross Paperware Limited/(1)/ -------- /(1)/ The Company completed the sale of this subsidiary in March 1995. The Company's European subsidiaries generally market both consumer tissue products and away-from-home products and product systems in their own countries, and the products are manufactured either by the same subsidiaries or by others under arrangements designed to optimize use of the Company's manufacturing facilities across Europe. The Company's principal consumer products which are marketed in several European countries include Scottex bathroom tissue, disposable towels, napkins and facial tissue, Baby Fresh baby wipes and Cotonelle bathroom tissue and facial tissue. Similar products are sold under the Andrex trademark in the United Kingdom, the Le Trefle trademark in France, the Cel trademark in Spain, the Servus and Pro Natur trademarks in Germany and the Page and Popla trademarks in the Netherlands and Belgium. The Company's European subsidiaries together constitute the largest marketers of tissue products in the European Union. The Company's principal competitors in Europe include companies controlled by The Procter & Gamble Company, James River Corporation of Virginia and Svenska Cellulosa AB SCA. The subsidiaries in Belgium, Italy, The Netherlands, Spain and the United Kingdom are the largest marketers of tissue products in their respective countries; those in France and Portugal are the second largest; and the German subsidiary is one of the four largest. The Company's principal competitive strengths in Europe generally include strong market positions, brand names common to several countries, certain manufacturing technologies and an increasingly integrated management and manufacturing system. PACIFIC OPERATIONS The Company's tissue business in the Pacific region is conducted by the consolidated subsidiaries in China, Hong Kong, Japan, Malaysia, Singapore, Taiwan and Thailand and the unconsolidated affiliate in Korea listed below. Scott's direct or indirect ownership interest is 100% unless otherwise noted. 5 CHINA -- Scott Paper (Guangzhou) Limited (75% owned); Scott Paper (Shanghai) Co., Ltd. (56% owned)/(1)/ HONG KONG -- Scott Paper (Hong Kong) Limited JAPAN -- Scott Japan Limited KOREA -- Ssangyong Paper Co., Ltd. (23.8% owned) MALAYSIA -- Scott Paper (Malaysia) Sdn. Bhd. SINGAPORE -- Scott Paper (Singapore) Pte. Ltd. TAIWAN -- Taiwan Scott Paper Corporation (66.7% owned) THAILAND -- Scott Trading Limited; Thai-Scott Paper Company Limited (99.6% owned) -------- /(1)/ This subsidiary was formed in January 1995 and its operations are expected to commence in 1995. The Company's Pacific subsidiaries and affiliates in most cases market consumer tissue products and away-from-home products and product systems in their own countries, and the products are manufactured either by the same subsidiaries or by other Company operations. The consumer products sold in this region include bathroom tissue, disposable towels, napkins, facial tissue and baby wipes under a variety of trademarks, including Scott, Scottex, Cottonelle, Baby Fresh, Sujay (in Taiwan) and Andrex and Purex (in Hong Kong). In August 1994 the Company announced an agreement to form Scott Paper (Shanghai) Co., Ltd., a joint venture with Shanghai Paper Corporation, China's largest paper manufacturer, to produce tissue products at a new site in Shanghai. The facility is expected to start up in 1995. In December 1994 the Company announced that it had reached an agreement with an Indonesian corporation to establish a joint venture in that country which would be owned 80% by Scott. The subsidiaries in Malaysia, Singapore, Taiwan and Thailand are the largest marketers of tissue products in their respective countries. The Company's principal competitors in most of the countries in this region in which it operates are locally based. Tissue markets in this region are growing more rapidly than in the United States and Europe. GENERAL The Company generally maintains inventories to meet the delivery requirements of its customers, and in most cases the backlog of customer orders is not significant in relation to sales. The Company has patents and patent applications which cover some of its products or the processes or equipment used in manufacturing them. The Company believes that the most significant of these patents and patent applications relate to certain processes for manufacturing its higher quality products and pulp. The trademarks for all major products are federally registered. The Company believes that such trademarks, as a whole, are material to its business. SUPPLY OF RAW MATERIAL The Company's paper products are manufactured principally from wood pulp. The pulp mills and recycled fiber facilities of the Company's consolidated operations produce somewhat more than 50% of the amount of pulp used by its paper manufacturing operations. The Company's unconsolidated affiliates in Canada and Mexico in the aggregate produce somewhat more than 50% of their own pulp. Recycled fiber provides approximately 25% of the pulp used by the Company's consolidated manufacturing operations and approximately the same percentage of the aggregate pulp requirements of the unconsolidated affiliates in Canada and Mexico. Market pulp is a commodity product available from a large number of suppliers around the world. The Company purchases pulp at market-related prices from numerous suppliers under contracts which generally extend automatically unless terminated by either party. In addition, the Company has entered into long term contracts with Millar Western Pulp Limited of Canada and an affiliate of Millar Western to purchase approximately 210,000 metric tons per year of chemi- thermomechanical pulp. The Company owns 20% of Forestal e Industrial Santa Fe, S.A., which owns and operates a 240,000 metric ton per year eucalyptus pulp mill in Chile. Under a long term contract with this company, Scott is entitled to purchase up to 80% of the pulp mill's output and is required to 6 purchase at least 40% of the output. Each of these long term contracts provides for pricing which tends to reduce the effect of pulp market fluctuations on the Company. The Company's annual harvest of pulpwood from its U.S. and Nova Scotia timberlands, which constitutes approximately 65% of the total annual harvest from such timberlands, equals approximately 30% of the requirements of the pulp mills (excluding recycled fiber facilities) of the Company's consolidated North American operations. Substantially all of the remainder of the timber harvest is sold as logs in international and U.S. markets. None of the Company's consolidated international subsidiaries has significant timberlands. As stated under "Asset Sales" on page 2, the Company has announced its intention to divest certain pulp and timber operations. If these divestitures occur, the Company's operations would need to rely more heavily on purchased fiber, including fiber purchased from the buyers of these facilities. ENERGY SOURCES Approximately 47% of the energy requirements of the Company's consolidated North American operations are generated by the burning of spent pulping liquor, process wastes, biomass and wood residuals (including purchased biomass and wood residuals) and anthracite culm at facilities on or adjacent to Company operations. This percentage excludes the energy generated by the energy complex adjacent to the Mobile, Alabama mill, which was sold by the Company in December 1994, but includes energy generated by the energy facility at the Company's Chester, Pennsylvania mill, which the Company has announced its intention to sell. See "Asset Sales" on page 2. The remaining 53% of such energy requirements is provided by purchased coal, oil, natural gas and electricity. Several facilities have the capacity to alternate between oil and natural gas to take advantage of differences in their relative prices and availability. Substantially all of the energy requirements of the Company's consolidated international subsidiaries are provided by purchased electricity, natural gas and oil. RESEARCH AND DEVELOPMENT The Company's research and development programs are principally conducted at a facility located near Philadelphia, Pennsylvania. During 1994, 1993 and 1992, exclusive of the discontinued operation, the Company expended approximately $38.3 million, $47.0 million and $45.2 million, respectively, for research and development activities. These programs, some of which are conducted jointly with other organizations, support the development of new and improved products and product systems and the supporting packaging, converting, process control, and paper web process development; high-yield and recycled pulp processes; and the transmission of the results of these programs among the Company and its consolidated subsidiaries and unconsolidated affiliates. These programs also support the Company's ongoing efforts to reduce costs and to ensure employee safety, product safety and environmental protection. EMPLOYEES As a result of the restructuring described on page 2 under "Restructuring" and the sale of S.D. Warren Company and other assets, the number of persons employed by the Company decreased significantly in 1994. As of December 31, 1994, the Company employed approximately 15,100 persons and its unconsolidated affiliates in Canada and Mexico employed approximately 4,800 persons. Of the 7,800 persons employed in the consolidated North American operations, approximately 4,700 are hourly paid employees represented by collective bargaining units affiliated with regional, national or international unions. Of these union employees, approximately 33%, 32% and 35% are members of collective bargaining units whose agreements with the Company expire in 1997, 1998 and 1999, respectively. Of the 7,300 persons employed by the Company's consolidated international subsidiaries, a significant proportion of the manufacturing employees are represented by labor unions. ENVIRONMENTAL MATTERS The paper industry is subject to a wide variety of laws relating to the environment in the countries in which the Company operates. The Company believes it is currently in substantial compliance with these laws in all of its operations. 7 The Company and other manufacturers of pulp in the United States face proposed regulations imposing stringent limits on chlorinated organics, such as dioxin and chloroform, which may arise from the process of manufacturing bleached pulp. In 1993, the Environmental Protection Agency (EPA) issued proposed regulations, which include limitations on a variety of discharges and emissions. Based on its evaluation of the 1993 proposed regulations, which have not been finalized, the Company believes that the additional capital expenditures required to comply with them at its existing sites would be approximately $250 million in the 1997-1999 period. This estimate could change depending on several factors, including additional evaluation of the proposed regulations, changes in the proposed regulations, new developments in control and process technology, inflation, and the potential sale of pulp mills owned by the Company. In 1994, the Company's capital spending for environmental improvements to existing facilities (including facilities sold during 1994) was approximately $12 million. It is currently estimated that the capital spending necessary for such improvements will be approximately $10 million in each of 1995 and 1996. These amounts do not include the environmental portion of capital expenditures on new projects. Actual expenditures may vary from these dollar estimates due to inflation, additional changes in regulatory requirements or new developments in control technology. As is the case with other companies, capital expenditures on environmental improvements are in addition to the Company's normal expenditures for maintenance and replacement of its plant, and generally result in increased operating costs. The Company believes that its environmental improvement costs are of the same general magnitude as those of companies with comparable pulp and paper operations. The more significant environmental regulations appear to be applied more or less uniformly throughout the industry. Assuming that such regulations are applied uniformly in the future, the Company believes that its environmental improvement costs will not have a material adverse impact on its relative competitive position. See Item 3 for a description of litigation with respect to environmental matters. CAPITAL EXPENDITURES The Company's capital expenditures (including capital expenditures on the discontinued operation and other assets sold by the Company, and excluding acquisitions and equity investments in unconsolidated international affiliates) during the past five years were as follows:
YEAR AMOUNT ---- ------------- (IN MILLIONS) 1990........................... $ 814.8 1991........................... 314.6 1992........................... 329.7 1993........................... 457.8 1994........................... 375.0 -------- Total........................ $2,291.9 ========
The Company expects to invest $550-650 million on capital projects during the 1995-1996 period. These projects include continued construction of a state-of- the-art tissue mill in Owensboro, Kentucky, construction of a new converting facility in Yucca, Arizona, and other projects designed to sustain existing operations and reduce costs. The Company expects to finance this spending primarily from internally generated funds. 8 ITEM 2. PROPERTIES The location of the manufacturing facilities of the Company (including its consolidated subsidiaries) and the types of products produced at each facility are shown below. AMERICAS Chester, Pennsylvania--tissue Winslow, Maine--tissue products(/3/) products Yucca, Arizona--tissue products(/4/) Dover, Delaware--wet wipe products Durafab, Inc. Everett, Washington--tissue Cleburne, Texas--industrial products and pulp garments Ft. Edward, New York--tissue Italy, Texas--industrial garments products Scott Maritimes Limited Hattiesburg, Mississippi--tissue products New Glasgow, Nova Scotia--pulp Marinette, Wisconsin--tissue Scott Paper Company de Costa Rica, products S.A. Mobile, Alabama--tissue products San Jose, Costa Rica--tissue and pulp(/1/) products Oconto Falls, Wisconsin--tissue Scott Paper Company-Honduras, S.A. products de C. V. Oshkosh, Wisconsin--tabletop San Pedro, Honduras--tissue products(/2/) products Owensboro, Kentucky--tissue products San Antonio, Texas--personal cleansing products and systems EUROPE Cross Paperware Limited Scott Limited Dunstable, United Kingdom-- Barrow, United Kingdom--tissue foodservice products(/5/) products Scott Continental, N.V. Northfleet, United Kingdom-- Duffel, Belgium--tissue products tissue products Scott GmbH Scott Page B.V. Neunkirchen, Germany--wet wipe Gennep, The Netherlands--tissue products products Scott Iberica, S.A. Scott Paper GmbH Aranguren, Spain--base tissue pa- Flensburg, Germany--tissue per products Arceniaga, Spain--tissue products Dusseldorf-Reisholz, Germany-- and personal cleansing products tissue products and systems Scott S.N.C. Canarias, Canary Islands--tissue Orleans, France--tissue products products Scott S.p.A. Hernani, Spain--tissue products Alanno, Italy--tissue products Miranda del Ebro, Spain--pulp Romagnano, Italy--tissue products Salamanca, Spain--tissue products Villanovetta, Italy--tissue products PACIFIC Scott Paper (Guangzhou) Limited Scott Paper (Shanghai) Co., Ltd. Guangzhou Province, China--tissue Shanghai, China--tissue products products(/4/) Scott Paper (Hong Kong) Limited Taiwan Scott Paper Corporation Hong Kong--tissue products(/6/) Hsin Ying, Taiwan--tissue Scott Paper (Malaysia) Sdn. Bhd. products(/7/) Kluang, Malaysia--tissue products Tayaun, Taiwan--tissue products Thai-Scott Paper Company Limited Samut Prakan, Thailand--tissue products ------- /(1)/ Portions of the land under this facility are held under various long-term operating leases, the more significant of which contain options to purchase the land. /(2)/ The Company entered into an agreement to sell this facility in December 1994. /(3)/ The fiber recycling facility at this mill is held under an operating lease expiring in 2008 under which the Company has the option of renewing the lease for terms not exceeding nine additional years or purchasing the facility for its then fair market value. /(4)/ These facilities are under construction. /(5)/ The Company completed the sale of this subsidiary in March 1995. /(6)/ This facility is held under a short-term renewable lease. /(7)/ The land and a portion of this facility are subject to a mortgage. 9 The largest papermaking facilities of the Company (including its consolidated subsidiaries) are located at Chester, Everett and Mobile. The largest pulp making facilities listed above are located at Everett, Mobile and New Glasgow. Various Company plants contain equipment, pollution control facilities and solid waste disposal facilities which have been financed by issuance of industrial revenue bonds and are held by the Company under lease or installment purchase agreements. During 1994 the Company's rate of utilizing its papermaking capacity (excluding the discontinued operation) was approximately 90%. The Company's consolidated North American timber resources total approximately 1.9 million acres, including approximately 1,550,000 acres owned in fee and approximately 350,000 acres on which the Company has long-term cutting rights or lease or purchase rights. In the United States, such timber resources include approximately 646,000 acres in Alabama and Mississippi. In Canada, the Company's timber resources include approximately 1,213,000 acres (including long-term cutting rights on 214,000 acres of government lands) in Nova Scotia. The Company has mineral rights pertaining to substantially all of its U.S. timberlands but has no mineral rights pertaining to its Canadian timberlands. Scott Paper Limited in Canada operates four manufacturing facilities, Compania Industrial de San Cristobal, S.A. in Mexico operates five manufacturing facilities and Ssangyong Paper Co., Ltd. in Korea operates four manufacturing facilities. Forestal e Industrial Santa Fe, S.A. owns a pulp mill in Chile and Forestal y Agricola Monte Aguila, S.A. (of which the Company also owns 20%) owns 120,000 acres of forestland in Chile. See "Asset Sales" on page 2 for a description of certain assets which the Company has announced that it intends to sell. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in numerous actions in state and federal courts seeking damages relating to breast implants. The actions allege that the plaintiffs' breast implants were covered by polyurethane foam manufactured by the Company's former Foam Division, which was sold in 1983, and that the foam caused physical and/or psychological harm to the plaintiffs. In each of these actions the Company is one of several defendants, including the Foam Division's successor and the manufacturers of implants. The Company believes that only a small percentage of breast implants were covered by polyurethane foam manufactured by the Company's Foam Division prior to its sale. Pursuant to an order of the Multidistrict Litigation Panel, all of the federal cases involving breast implants have been consolidated for pre-trial purposes in the Northern District of Alabama. One of these cases, Lindsey et al., v. Dow Corning Corporation et al., has been provisionally certified by the Court as a class action for settlement purposes. Included in the provisionally approved class are all persons who received one or more breast implants before June 1, 1993 ("settlement class members"). Some implant recipients have elected to opt out of the class, but the precise number or the nature of their claims is not known at this time. The Court has approved a Breast Implant Litigation Settlement Agreement between settlement class members and certain settling defendants. The court-approved settlement has been appealed to the Eleventh Circuit Court of Appeals by various parties and intervenors. If the settlement is affirmed on appeal and sustained in all other respects, most of the persons with claims will be compensated for their claims in some amount by the settlement funds. The Company is not a party to the Settlement Agreement. As a result, individuals who have received breast implants covered by polyurethane foam manufactured by the Company's former Foam Division would retain their right to take legal action against the Company even if they do not opt out of the Settlement Agreement. The Company believes that it has meritorious defenses against these claims and intends to conduct a vigorous defense and seek recovery to the extent provided under its insurance policies, if necessary. Although the final results of these claims cannot be predicted with certainty, it is the present opinion of the Company, after consulting with counsel, that they will not have a material adverse effect on the Company's financial condition. The Company is involved in a number of administrative and judicial proceedings under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and comparable state laws. Most of these proceedings involve the cleanup of hazardous substances at commercial landfills which receive waste from many different sources. While joint and several liability is authorized under CERCLA, as a practical matter, liability for CERCLA cleanups is generally allocated among many waste generators. The range of reasonably possible losses in these proceedings, to the extent not already provided for, is not significant. 10 In addition, the Company is involved in lawsuits and state and Federal administrative proceedings under the environmental, antitrust and equal employment opportunity laws, among others. The relief sought in such lawsuits and proceedings includes injunctions, damages and penalties. Although the final results in these suits and proceedings cannot be predicted with certainty, it is the present opinion of the Company, after consulting with counsel, that they will not have a material adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS This item is inapplicable because no matter was submitted during the fourth quarter of 1994 to a vote of the Company's security holders. EXECUTIVE OFFICERS OF THE REGISTRANT The following chart shows, as of March 10, 1995, the names, ages, current positions and areas of responsibility, and the dates applicable to such positions and areas of responsibility, for the Company's executive officers. Previous positions and areas of responsibility over the past five years, where applicable, are included in footnotes for all persons listed. There is no "family relationship" between any of these officers or between any such officer and any Director of the Company. Each officer is elected at the regular meeting of the Board of Directors next following the Annual Meeting of Shareholders to serve for one year and until his or her successor is duly elected and qualified.
CURRENT POSITIONS AND NAME AGE AREAS OF RESPONSIBILITY POSITION HELD SINCE ---- --- ----------------------- ------------------- Albert J. Dunlap/(1)/... 57 Chairman and Chief Executive April 1994 Officer and Director Russell A. Kersh/(2)/... 41 Senior Vice President, Finance June 1994 and Administration John P. Murtagh/(3)/.... 46 Senior Vice President and General June 1994 Counsel Secretary July 1994 Richard R. Nicolo- 47 Senior Vice President September 1994 si/(4)/................ Worldwide Consumer Business P. Newton White/(5)/.... 52 Senior Vice President April 1991 Worldwide Away-From-Home Business January 1992 Basil L. Anderson/(6)/.. 49 Vice President, Treasurer and February 1992 Chief Financial Officer Edward B. Betz.......... 60 Vice President and Controller June 1979
-------- /(1)/ Mr. Dunlap was Managing Director and Chief Executive Officer of Consolidated Press Holdings Limited from August 1991 to February 1993; was Chairman and Chief Executive Officer of Gyrestar, Inc. from February 1991 to July 1991; was Chairman and Chief Executive Officer of Anglo Group plc from April 1989 to July 1990; and was Chairman and Chief Executive Officer of Cavenham Forest Industries, Inc. from April 1989 to December 1990. /(2)/ Mr. Kersh was Chief Financial Officer and Chief Operating Officer of Addidas North America Inc. from January 1993 to May 1994; was Chief Financial Officer of Gyrestar, Inc. from 1990 to July 1991; was Finance Director of Anglo Group plc from April 1989 to July 1990; and was Vice President and Director of Finance of Cavenham Forest Industries, Inc. from September 1986 to December 1990. /(3)/ Mr. Murtagh was Director of Recycling Programs from January 1993 to June 1994 and Senior Counsel from October 1988 to December 1992 of International Paper Company. /(4)/ Mr. Nicolosi was Chief Executive Officer of Nicolosi & Associates from May 1992 to August 1994 and was Corporate Group Vice President of The Procter & Gamble Company from June 1989 to April 1992 in charge of consumer paper products and pulp and cellulose operations. /(5)/ Mr. White served as Senior Vice President in charge of Scott Worldwide's Pacific Operations since April 1991 and as Vice President of Scott Worldwide's Pacific Operations since February 1989. /(6)/ Mr. Anderson served as Vice President since February 1988 and as Treasurer since January 1987. 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. See the text under the heading "Stock Exchange Listings" on page 41 of the Company's 1994 Annual Report to Shareholders, the market price and dividend information under the heading "Quarterly Highlights" on page 22 thereof, and the row "Number of common shareholders" on page 40 thereof, which portions of said pages are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. See page 40 of the Company's 1994 Annual Report to Shareholders, which page is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. See the text under the heading "Management's Discussion and Analysis" on pages 17-22 of the Company's 1994 Annual Report to Shareholders, all of which pages are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the financial statements on pages 23-39 and the information under "Quarterly Highlights" on page 22 of the Company's 1994 Annual Report to Shareholders, all of which pages or portions thereof, as the case may be, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. See "Approval of Appointment of Auditors" on page 26 of the Company's Proxy Statement dated March 10, 1995, which portion of said page is incorporated herein by reference. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. For information with respect to the Company's Directors and Director nominees, see the information under the heading "Election of Directors" on pages 4-6 of the Company's Proxy Statement dated March 10, 1995, which pages are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. See pages 8-19 of the Company's Proxy Statement dated March 10, 1995, which pages are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. See the information under the headings "Ownership of Shares" on pages 2 and 7-8 of the Company's Proxy Statement dated March 10, 1995, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. See "Certain Transactions" on page 20 of the Company's Proxy Statement dated March 10, 1995, which portion of said page is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) FINANCIAL STATEMENTS: The financial statements, including the financial statement schedules, are listed in the Index to Financial Statements on page 16 hereof. (b) REPORTS ON FORM 8-K: Reports on Form 8-K were filed on October 11, 1994 (Item 5), October 25, 1994 (Item 5) and December 22, 1994 (Items 2 and 5). 12 (c) EXHIBITS:
NUMBER DESCRIPTION ------ ----------- 3(a) --The Company's Articles, as amended effective April 22, 1987, incorporated by reference to Exhibit 3(a) to the Company's 1989 Annual Report on Form 10-K. 3(b) --The Company's Bylaws, as amended effective July 19, 1994, incorporated by reference to Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994. 4(a) --Rights Agreement dated as of July 15, 1986 between the Company and Morgan Guaranty Trust Company of New York, as Rights Agent, incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated July 16, 1986, as amended May 17, 1988 and October 18, 1988, such amendments being incorporated by reference to Exhibits 1 and 2, respectively, to the Company's Current Report on Form 8-K dated November 28, 1988. 4(b) --Indenture dated as of October 1, 1989 between the Company and The Chase Manhattan Bank (National Association), as Trustee, incorporated by reference to Exhibit 4 filed with the Company's Current Report on Form 8-K dated October 20, 1989. 4(c) --In reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K, there are not being filed various instruments defining the rights of holders of long-term debt of the Company and its subsidiaries, because the total amount of securities authorized under each instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees to furnish a copy of any such instrument to the Commission upon request. 10(a)* --The Company's 1979 Stock Option Plan, as amended, incorporated by reference to Exhibit A to the prospectus contained in Registration Statement No. 33-28777 on Form S-8, filed with the Commission on May 19, 1989. 10(b)* --The Company's 1986 Stock Option and Restricted Stock Plan, as amended, incorporated by reference to Exhibit B to the prospectus contained in Registration Statement No. 33-28777 on Form S-8, filed with the Commission on May 19, 1989. 10(c)* --The Company's 1989 Stock Option and Restricted Stock Plan, incorporated by reference to Exhibit C to the prospectus contained in Registration Statement No. 33-28777 on Form S-8, filed with the Commission on May 19, 1989. 10(d)* --The Company's 1994 Long-Term Incentive Plan, as amended July 19, 1994, incorporated by reference to Exhibit 4(a) to the Company's Registration Statement No. 33-56159 on Form S-8, filed with the Commission on October 25, 1994. 10(e)* --The Company's Performance Plan, including Schedule 1 thereto, as amended effective January 1, 1993, incorporated by reference to Exhibit 10(d) to the Company's 1992 Annual Report on Form 10-K. 10(f)* --The Company's Performance Award Deferral Plan, as amended effective April 16, 1991, incorporated by reference to Exhibit 10(e) to the Company's 1991 Annual Report on Form 10-K. 10(g)* --The Company's Supplemental Executive Retirement Plan, as amended, incorporated by reference to Exhibit 10(f) to the Company's 1989 Annual Report on Form 10-K. 10(h)* --The Company's Directors' Deferred Compensation Plan, as amended effective July 19, 1994, incorporated by reference to Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994. 10(i)* --The Company's Directors' Retirement Benefit Plan, as amended July 19, 1994, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994. 10(j)* --The Company's Deferred Compensation Plan, as amended, incorporated by reference to Exhibit 10(i) to the Company's 1988 Annual Report on Form 10-K. 10(k)* --The Company's Supplemental Long-Term Disability Plan, established as of July 1, 1992, incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the second quarter of 1993. 10(l)* --Agreement between the Company and Philip E. Lippincott, dated January 25, 1994, incorporated by reference to Exhibit 10(m) to the Company's 1993 Annual Report on Form 10-K. 10(m)* --Agreement dated August 11, 1994 between the Company and J. Richard Leaman, Jr., incorporated by reference to Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994.
13
NUMBER DESCRIPTION ------ ----------- 10(n)* --Employment Agreement dated April 19, 1994 between the Company and Albert J. Dunlap, incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the second quarter of 1994. 10(o)* --Form of Restricted Stock Agreement dated as of September 16, 1994 between the Company and certain grantees of restricted shares under the 1994 Long-Term Incentive Plan, including Albert J. Dunlap, Basil L. Anderson, Edward B. Betz, Paolo Forlin, Russell A. Kersh, John P. Murtagh, Richard R. Nicolosi and P. Newton White, incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994. 10(p)* --Form of Agreement between the Company and Russell A. Kersh, John P. Murtagh and Richard R. Nicolosi dated June 30, 1994 and September 19, 1994, respectively. 12 --Statement re computation of ratio of earnings to fixed charges. 13 --The Company's 1994 Annual Report to Shareholders. 21 --The Company's Subsidiaries. 23 --Consent of Independent Accountants. 24 --Power of Attorney.
-------- * These items are management contracts or compensatory plans or arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. 14 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. Scott Paper Company ------------------------------------ (REGISTRANT) By /s/ Albert J. Dunlap ---------------------------------- ALBERT J. DUNLAP CHAIRMAN AND CHIEF EXECUTIVE OFFICER Date: March 30, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE AND TITLE DATE ------------------- ---- March 30, 1995 By /s/ Albert J. Dunlap ---------------------------------- ALBERT J. DUNLAP CHAIRMAN AND CHIEF EXECUTIVE OFFICER March 30, 1995 By /s/ Russell A. Kersh ---------------------------------- RUSSELL A. KERSH SENIOR VICE PRESIDENT--FINANCE AND ADMINISTRATION March 30, 1995 By /s/ Basil L. Anderson ---------------------------------- BASIL L. ANDERSON VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER March 30, 1995 By /s/ Edward B. Betz ---------------------------------- EDWARD B. BETZ VICE PRESIDENT AND CONTROLLER PURSUANT TO GENERAL INSTRUCTION D TO FORM 10-K, THIS REPORT HAS BEEN SIGNED BELOW BY A MAJORITY OF THE BOARD OF DIRECTORS: WILLIAM A. ANDRES RICHARD K. LOCHRIDGE JACK J. CROCKER BRUCE K. MACLAURY ALBERT J. DUNLAP GARY L. ROUBOS PETER HARF A majority of the Board of Directors By /s/ Frank W. Bubb, III -------------------------------------- FRANK W. BUBB, III ATTORNEY-IN-FACT Date: March 30, 1995 15 INDEX TO FINANCIAL STATEMENTS The consolidated financial statements appearing on pages 23 through 39 of the accompanying 1994 Annual Report to Shareholders, are incorporated by reference in this Annual Report on Form 10-K as Exhibit 13. The report of Coopers & Lybrand L.L.P. dated January 31, 1995 on the consolidated balance sheet of the Company as of December 31, 1994, and the related consolidated statements of operations, cash flows and common shareholders' equity for the year then ended is also incorporated by reference in said Exhibit 13. With the exception of the aforementioned information and the information incorporated by reference in Items 1, 5, 6, 7 and 8, the 1994 Annual Report to Shareholders is not to be deemed filed as part of this report. The following Financial Statement Schedule should be read in conjunction with the consolidated financial statements in such 1994 Annual Report to Shareholders:
PAGE ---- Report of Predecessor Independent Accountants on Consolidated Balance Sheet as of December 25, 1993 and the related Consolidated Statements of Operations, Cash Flows and Common Shareholders' Equity for each of the two years in the period ended December 25, 1993.......................... 17 Report of Independent Accountants on 1994 Financial Statement Schedule.... 18 Report of Predecessor Independent Accountants on 1992 and 1993 Financial Statement Schedule....................................................... 19 Financial Statement Schedule: II -- Valuation and Qualifying Accounts............................... 20
Financial statement schedules other than those listed above are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the related financial review. Columns omitted from schedules filed have been omitted because the information is not applicable. Separate financial statements for each 50% or less owned affiliate have been omitted because the registrant's proportionate share of each such company's profit before income taxes and total assets is less than 20% of the respective consolidated amounts and the registrant's investment in and advances to each such company are less than 20% of the consolidated total assets of the registrant. 16 REPORT OF PREDECESSOR INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS SCOTT PAPER COMPANY In our opinion, the consolidated balance sheet and the related consolidated statements of operations, of cash flows and of common shareholders' equity as of and for each of the two years in the period ended December 25, 1993 (appearing on pages 24 through 39 of the Scott Paper Company 1994 Annual Report to Shareholders which has been incorporated by reference in this Form 10-K Annual Report) present fairly, in all material respects, the financial position, results of operations and cash flows of Scott Paper Company and its subsidiaries as of and for each of the two years in the period ended December 25, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Scott Paper Company for any period subsequent to December 25, 1993. PRICE WATERHOUSE LLP Philadelphia, PA January 25, 1994, except as to the subheading "Discontinued operation" in Note 2, which is as of December 20, 1994. 17 REPORT OF INDEPENDENT ACCOUNTANTS ON 1994 FINANCIAL STATEMENT SCHEDULE TO THE SHAREHOLDERS AND BOARD OF DIRECTORS SCOTT PAPER COMPANY Our report on the 1994 consolidated financial statements of Scott Paper Company has been incorporated by reference in the Form 10-K from page 23 of the 1994 Annual Report to Shareholders of Scott Paper Company. In connection with our audit of such financial statements, we have also audited the related 1994 financial statement schedule listed in the index on page 16 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P Philadelphia, Pennsylvania January 31, 1995 18 REPORT OF PREDECESSOR INDEPENDENT ACCOUNTANTS ON 1992 AND 1993 FINANCIAL STATEMENT SCHEDULE TO THE BOARD OF DIRECTORS SCOTT PAPER COMPANY Our audits of the consolidated financial statements referred to in our report dated January 25, 1994 appearing on page 17 of this Form 10-K also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10- K for the years 1993 and 1992. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Philadelphia, Pennsylvania January 25, 1994 19 SCOTT PAPER COMPANY SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (MILLIONS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ------------------------------ ---------- ---------- --------------- ----------- BALANCE AT CHARGED TO BEGINNING COSTS AND BALANCE AT DESCRIPTION OF YEAR EXPENSES DEDUCTIONS/(1)/ END OF YEAR ------------------------------ ---------- ---------- --------------- ----------- Year 1994 *Allowance for customer: Discounts & allowances..... $13.3 $ 6.9 $ (6.5) $13.7 Doubtful items............. 12.0 3.7 (2.2) 13.5 ----- ----- ------ ----- $25.3 $10.6 $ (8.7) $27.2 ===== ===== ====== ===== Year 1993 *Allowance for customer: Discounts & allowances..... $18.9 $ 2.6 $ (8.2) $13.3 Doubtful items ............ 11.7 4.5 (4.2) 12.0 ----- ----- ------ ----- $30.6 $ 7.1 $(12.4) $25.3 ===== ===== ====== ===== Year 1992 *Allowance for customer: Discounts & allowances..... $18.1 $1.4 $ (.6) $18.9 Doubtful items ............ 10.1 5.6 (4.0) 11.7 ----- ----- ------ ----- $28.2 $7.0 $ (4.6) $30.6 ===== ===== ====== =====
-------- * Applied as deductions from the receivables account. /(1)/ Consists of writeoffs, net of recoveries, and foreign currency translation adjustments in accordance with FAS No. 52. Also, in 1994 there is a reduction of $5.7 million representing the balances of S.D. Warren's accounts, which were included as part of the sale of its net assets.
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------------------------------- ---------- --------- ---------- ----------- BALANCE AT BEGINNING BALANCE AT DESCRIPTION OF YEAR ADDITIONS REDUCTIONS END OF YEAR -------------------------------- ---------- --------- ---------- ----------- Year 1994 Deferred Taxes Valuation Allow- ance.......................... $174.5 $ 52.1 $(41.1) $185.5 ====== ====== ====== ====== Year 1993 Deferred Taxes Valuation Allow- ance.......................... -- $174.5/(1)/ -- $174.5 ====== ====== ====== ======
-------- /(1)/ Includes $92.7 million due to the adoption of FAS No. 109 in the first quarter. 20 EXHIBIT INDEX
NUMBER DESCRIPTION ------ ----------- 3(a) --The Company's Articles, as amended effective April 22, 1987, incorporated by reference to Exhibit 3(a) to the Company's 1989 Annual Report on Form 10-K. 3(b) --The Company's Bylaws, as amended effective July 19, 1994, incorporated by reference to Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994. 4(a) --Rights Agreement dated as of July 15, 1986 between the Company and Morgan Guaranty Trust Company of New York, as Rights Agent, incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated July 16, 1986, as amended May 17, 1988 and October 18, 1988, such amendments being incorporated by reference to Exhibits 1 and 2, respectively, to the Company's Current Report on Form 8-K dated November 28, 1988. 4(b) --Indenture dated as of October 1, 1989 between the Company and The Chase Manhattan Bank (National Association), as Trustee, incorporated by reference to Exhibit 4 filed with the Company's Current Report on Form 8-K dated October 20, 1989. 4(c) --In reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K, there are not being filed various instruments defining the rights of holders of long-term debt of the Company and its subsidiaries, because the total amount of securities authorized under each instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees to furnish a copy of any such instrument to the Commission upon request. 10(a)* --The Company's 1979 Stock Option Plan, as amended, incorporated by reference to Exhibit A to the prospectus contained in Registration Statement No. 33-28777 on Form S-8, filed with the Commission on May 19, 1989. 10(b)* --The Company's 1986 Stock Option and Restricted Stock Plan, as amended, incorporated by reference to Exhibit B to the prospectus contained in Registration Statement No. 33-28777 on Form S-8, filed with the Commission on May 19, 1989. 10(c)* --The Company's 1989 Stock Option and Restricted Stock Plan, incorporated by reference to Exhibit C to the prospectus contained in Registration Statement No. 33-28777 on Form S-8, filed with the Commission on May 19, 1989. 10(d)* --The Company's 1994 Long-Term Incentive Plan, as amended July 19, 1994, incorporated by reference to Exhibit 4(a) to the Company's Registration Statement No. 33-56159 on Form S-8, filed with the Commission on October 25, 1994. 10(e)* --The Company's Performance Plan, including Schedule 1 thereto, as amended effective January 1, 1993, incorporated by reference to Exhibit 10(d) to the Company's 1992 Annual Report on Form 10-K. 10(f)* --The Company's Performance Award Deferral Plan, as amended effective April 16, 1991, incorporated by reference to Exhibit 10(e) to the Company's 1991 Annual Report on Form 10-K. 10(g)* --The Company's Supplemental Executive Retirement Plan, as amended, incorporated by reference to Exhibit 10(f) to the Company's 1989 Annual Report on Form 10-K. 10(h)* --The Company's Directors' Deferred Compensation Plan, as amended effective July 19, 1994, incorporated by reference to Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994. 10(i)* --The Company's Directors' Retirement Benefit Plan, as amended July 19, 1994, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994. 10(j)* --The Company's Deferred Compensation Plan, as amended, incorporated by reference to Exhibit 10(i) to the Company's 1988 Annual Report on Form 10-K. 10(k)* --The Company's Supplemental Long-Term Disability Plan, established as of July 1, 1992, incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the second quarter of 1993. 10(l)* --Agreement between the Company and Philip E. Lippincott, dated January 25, 1994, incorporated by reference to Exhibit 10(m) to the Company's 1993 Annual Report on Form 10-K. 10(m)* --Agreement dated August 11, 1994 between the Company and J. Richard Leaman, Jr., incorporated by reference to Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994.
21
NUMBER DESCRIPTION ------ ----------- 10(n)* --Employment Agreement dated April 19, 1994 between the Company and Albert J. Dunlap, incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the second quarter of 1994. 10(o)* --Form of Restricted Stock Agreement dated as of September 16, 1994 between the Company and certain grantees of restricted shares under the 1994 Long-Term Incentive Plan, including Albert J. Dunlap, Basil L. Anderson, Edward B. Betz, Paolo Forlin, Russell A. Kersh, John P. Murtagh, Richard R. Nicolosi and P. Newton White, incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the third quarter of 1994. 10(p)* --Form of Agreement between the Company and Russell A. Kersh, John P. Murtagh and Richard R. Nicolosi dated June 30, 1994 and September 19, 1994, respectively. 12 --Statement re computation of ratio of earnings to fixed charges. 13 --The Company's 1994 Annual Report to Shareholders. 21 --The Company's Subsidiaries. 23 --Consent of Independent Accountants. 24 --Power of Attorney.
-------- * These items are management contracts or compensatory plans or arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. 22 EX-10.P 2 MATERIAL CONTRACT EXHIBIT 10(P) , 1994 Mr. Dear In consideration of your agreement to be employed in a key executive position with Scott Paper Company ("Scott"), Scott agrees, in the event of your involuntary termination/(1)/ from Scott, or a Change of Control as that term is defined in Scott's 1994 Long-Term Incentive Plan, to pay you in a lump sum, within 30 days of the effective date of the termination or change of control, an amount equal to your then-current annual salary plus an amount determined by multiplying your preceding year's bonus under the Scott Performance Plan, or any replacement or other annual incentive plan, by a fraction, the numerator of which is the number of days you are employed during the then-current year and the denominator of which is 365. You will not be entitled to any benefit under Scott's Termination Pay Plan for Salaried Employees or any replacement severance pay program. During the year following your termination, you will be obligated to reimburse Scott for any unemployment compensation you apply for and receive. Please acknowledge your receipt and agreement to the terms of this letter by your signature below. Very truly yours, A. J. Dunlap Chairman and Chief Executive Officer Accepted and Agreed: _____________________________ DATE: _________________________ /(1)/ An "involuntary termination" excludes a separation which is voluntary, on account of death, retirement or serious misconduct. EX-12.1 3 COMPUTATION OF RATIOS EXHIBIT 12. STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(/1/) (UNAUDITED)
1990 1991 1992 1993 1994 ------ ------ ------ ------- ------ (IN MILLIONS) Income (loss) from continuing operations before taxes and share of earnings of international equity affiliates............. $ 18.8 $(64.0) $192.6 $(265.8) $380.0 Adjustments to earnings (loss): Minority interest in majority-owned subsidiaries having fixed charges. 6.6 8.9 9.1 10.4 10.3 Share of earnings (loss) before taxes of fifty percent owned equity affiliates........... 9.7 6.8 (3.6) 3.2 5.6 Distributed income of less than fifty percent owned equity affiliates and share of loss, if any, if debt is guaranteed... -- -- 14.5 -- -- Previously capitalized interest amortized during the period.... 2.6 3.3 2.5 2.4 2.7 Fixed charges net of capitalized interest. 225.6 203.4 176.4 156.9 161.7 ------ ------ ------ ------- ------ Earnings (loss) before taxes and fixed charges as adjusted............ $263.3 $158.4 $391.5 $ (92.9) $560.3 ====== ====== ====== ======= ====== Fixed charges (see below)................. $247.2 $208.4 $178.5 $ 164.6 $172.0 ====== ====== ====== ======= ====== Ratio of earnings to fixed charges.......... 1.1x/(2)/ /(3)(2)/ 2.2x /(3)(2)/ 3.3x ====== ====== ====== ======= ====== Fixed charges: Interest incurred..... $205.0 $169.5 $144.3 $ 132.7 $141.9 Share of interest incurred of fifty percent owned equity affiliates........... 25.8 20.7 15.0 12.7 12.5 Portion of rental expense which represents an appropriate interest factor............... 15.6 17.5 18.5 18.3 16.8 Share of portion of rental expense which represents an appropriate interest factor for fifty percent owned equity affiliates........... 0.8 0.7 0.7 0.9 0.8 ------ ------ ------ ------- ------ Total fixed charges..... 247.2 208.4 178.5 164.6 172.0 Less: Capitalized interest........... (21.6) (5.0) (2.1) (7.7) (10.3) ------ ------ ------ ------- ------ Total fixed charges net of capitalized interest............... $225.6 $203.4 $176.4 $ 156.9 $161.7 ====== ====== ====== ======= ======
-------- /(1)/ S.D. Warren, the Company's printing and publishing papers subsidiary, was sold on December 20, 1994, and is reflected as a discontinued operation in the statement of consolidated operations in the Company's 1994 Annual Report to Shareholders. Accordingly, these computations exclude earnings (losses) and net fixed charges of this discontinued operation for all years presented. /(2)/ Excluding the special items referred to on page 40 of the Company's 1994 Annual Report to Shareholders, the ratio of earnings to fixed charges would have been 1.5, 2.0 and 1.9 for 1990, 1991 and 1993, respectively. /(3)/ Earnings did not cover fixed charges by $50.0 million and $257.5 million in 1991 and 1993, respectively. EX-13 4 ANNUAL REPORT Management's Discussion and Analysis As a result of the decision by the Company to focus on its core tissue business, S.D. Warren, the Company's printing and publishing papers subsidiary, was sold on December 20, 1994, and is reflected as a discontinued operation in the Company's statement of consolidated operations. For 1994, S.D. Warren's results include an allocation of interest expense and income taxes, and prior years' results have been reclassified to this same basis of reporting. See Discontinued Operation in Note 2. Results of Operations -- 1994 vs. 1993 Consolidated sales for the continuing business for 1994 were essentially the same as in 1993 at approximately $3.6 billion. Income from continuing operations was $501.6 million for 1994 versus a loss of $146.1 million in 1993. Net income for 1994 was $209.8 million, or $2.81 per share, versus a net loss for 1993 of $277.0 million, or $3.75 loss per share. The Company's results for both 1994 and 1993 included the effects of special items, which are discussed further below. Excluding the special items for both periods, income from continuing operations increased 59% to $406.5 million in 1994 versus $255.0 million in 1993, and net income increased 82% to $214.4 million in 1994 from $117.6 million in 1993. The following table presents earnings for 1994 and 1993, as reported and excluding special items.
1994 1993 ---------------------------------------- Excluding Excluding (In millions, except Special Special on a per share basis) Reported Items Reported Items ------------------------------------------------------------------ Income (Loss) from continuing operations $501.6 $406.5 $(146.1) $255.0 Net Income (Loss) $209.8 $214.4 $(277.0) $117.6 Earnings (Loss) per share $2.81 $2.87 $(3.75) $1.58
The special items for 1994 totaled a net charge of $.06 per share and included:
Per Share ---------------------------------------------------------------- Sales of the energy facility in Mobile, Alabama and Scott Health Care $ .81 Share of restructuring charge -- Canadian affiliate (.05) Premiums related to the Company's debt reduction program (.82) Sale of S.D. Warren - ---------------------------------------------------------------- Total $(.06) ----------------------------------------------------------------
For 1993, special items totaled a net charge of $5.33 per share and were comprised of:
Per Share ---------------------------------------------------------------- Restructuring charge $(5.15) Share of nonrecurring items -- Mexican affiliate (.20) Changes in the U.S. tax law (.14) Premium related to the Company's debt retirement (.13) Cumulative effect of adoption of FAS 109, Accounting for Income Taxes .29 ---------------------------------------------------------------- Total $(5.33) ----------------------------------------------------------------
In August 1994, the Company's previously announced restructuring program was expanded and also accelerated in order to be completed by year end 1994. No additional charges were required to accomplish the expanded program. The revised program included additional reductions in the worldwide work force, significant decreases in controllable expenses and the closure or reduction of capacity at certain older, high-cost production facilities (see Note 3). The restructuring program resulted in the elimination of approximately 11,000 positions. These actions, together with the sale of S.D. Warren and other businesses, brought the total year end employee level to 19,900. The Company anticipates annual pretax benefits of approximately $340 million from the successful implementation of the program. As shown on the statement of consolidated operations, the following table presents income and earnings per share from continuing operations before extraordinary loss and cumulative effect of accounting change.
1994 1993 ------------------------------------------ Excluding Excluding (In millions, except Special Special on a per share basis) Reported Items Reported Items -------------------------------------------------------------------- Income (Loss) $264.1 $207.6 $(237.8) $108.2 Earnings (Loss) per share $3.54 $2.78 $(3.22) $1.45
With the completion of the sale of the printing and publishing papers subsidiary, Scott's continuing operations are reported in one segment -- "Tissue Products." The following is a discussion and analysis of this segment and the information which appears in Note 28. In order to provide a better basis for comparison, results of operations are discussed both as reported and excluding special items. Tissue Products This segment consists primarily of tissue products for personal care, environmental cleaning and wiping, health care and foodservice. Consolidated sales for the 17 tissue products segment were approximately $3.6 billion in 1994, essentially equal to 1993. Consolidated operations reported income from operations of $513.3 million in 1994 versus a loss from operations of $54.8 million in 1993. Excluding special items in both years, income from operations was approximately 48% higher in 1994 than in 1993. Excluding special items, the operating margin for the global tissue business was 12.7% in 1994 compared with 8.5% in 1993, primarily due to the benefit of cost reductions associated with the restructuring program. In the fourth quarter of 1994, as the effect of the restructuring efforts began to be more fully realized, the global tissue business reported a record operating margin from normal operations of 15.5%. United States Sales revenue for Scott's total tissue products business increased approximately 1% in 1994 compared with 1993 while sales volume decreased approximately 1%. For the year, sales volume of away-from-home products increased while sales volume of consumer products was lower. For 1994, average selling prices for tissue products were approximately 2% better than in 1993. Income from operations, excluding special items in both years, increased 53% to $289.6 million, primarily due to cost improvements in all areas of the business as a result of the restructuring program. Europe Markets in the Company's European region were weak for most of 1994, contributing to a decline in both sales revenue and volume of approximately 5% compared with 1993. Despite lower sales, income from operations, excluding special items, increased 45% in 1994 to $121.6 million. The increase in income from operations was due to the benefit from restructuring and other cost reductions, including reduced promotional spending, which more than offset lower sales volume and higher pulp prices. Average selling prices were about the same in 1994 compared with 1993. However, selected price increases were implemented in the second half of 1994. Pacific and Latin America In the Pacific and Latin American regions, sales volume increased 6% and sales revenue in 1994 was approximately 9% higher than in 1993. Income from operations, excluding special items in 1993, increased 31% due to higher volume, cost reductions and price increases which more than offset higher pulp prices and other inflation. International Equity Affiliates Scott's share of international equity affiliates' earnings was $23.9 million in 1994 versus a loss of $21.7 million in 1993. Excluding special items in both years, Scott's share of net income from international equity affiliates increased 60% to $27.3 million in 1994. The improved results in both the Canadian and Mexican affiliates were mainly due to cost reductions and increased volume in Canada which more than offset higher pulp prices and other inflation. Due to the change in the reporting date of its year end, the Mexican operation's annual results include December 1994, which although adversely affected by the devaluation of the peso during that period, did not have a material impact on earnings per share. Interest, Other Income and Taxes Interest expense in 1994 was $131.2 million versus $123.8 million in 1993, after the allocation of interest to the discontinued operation for both years. The increase was primarily due to higher market interest rates. Other income and expense totaled $9.6 million in 1994 versus $4.1 million in 1993, largely due to increased interest income. The Company reported income tax expense of $139.8 million in 1994 versus a tax benefit of $49.7 million in 1993, excluding allocations of taxes to the discontinued operation and to the extraordinary loss due to extinguishment of debt in both years. Excluding the effects of special items in both years, the effective tax rates for continuing operations for 1994 and 1993 were approximately 37% and 40%, respectively. See the Financial Review Notes for further detail on the above items. Discontinued Operation -- Printing and Publishing Papers On December 20, 1994, the Company completed the sale of S.D. Warren, its former printing and publishing papers subsidiary, for $1.6 billion including the assumption of debt. As part of the sale, Scott agreed to retain certain retiree and other liabilities, which are not expected to have a material impact on future reported earnings. The sale of S.D. Warren did not result in any gain or loss. See Discontinued Operation in Note 2. Results for S.D. Warren, net of interest expense and income taxes, were income of $6.8 million in 1994 compared with a loss of $51.3 million in 1993. Excluding special items in 1993, S.D. Warren reported income of $9.4 million in 1993. Manufacturing cost improvements and higher sales volume were not sufficient to offset lower average selling prices, higher market pulp prices and inflation. 18 Returns and Margins
1994 1993 -------------------------------------------------------------------------- Excluding Excluding Special Special Reported Items Reported Items --------------------------------------------------------------------------- Operating margin -- tissue business 14.3% 12.7% (1.5)% 8.5% Return on investment 5.7% 6.6% (3.1)% 4.5% Return on common shareholders' equity 12.7% 13.0% (14.4)% 5.9% ---------------------------------------------------------------------------
Trends The continued improvement of the U.S. economy generally resulted in a strengthening of the Company's markets as 1994 progressed. This trend is expected to continue into 1995. With the completion of the sale of S.D. Warren and the decision by the Company to focus on its core tissue business, the demand for the Company's products is expected to be less cyclical in the future. The economies in the European region appear to be in the early stages of recovery, which should improve growth prospects in that region. However, results from Scott's operations in Europe could be negatively impacted if the dollar were to strengthen relative to the currencies in countries where the Company has significant operations. Markets in the Pacific rim, including the Company's recently announced ventures in China and Indonesia, represent significant opportunities for future growth and development. In Mexico, where the Company's affiliate has recently announced capacity expansion, longer term prospects continue to be favorable despite the recent devaluation of the peso. Limited capacity expansion has been announced around the world, and industry forecasts for tissue markets indicate that worldwide operating rates are expected to gradually strengthen during 1995 and 1996 compared with the relatively weak operating rates of the past several years. The Company has also announced price increases in many of its markets around the world and is working to implement them. In view of overall market growth which is expected to be modest, the Company is accelerating its successful strategy of supplying innovative products and services to away-from-home markets and is repositioning and implementing a new global strategy for its key consumer brands. As a net buyer of pulp, Scott has benefited over the last several years from declining market prices for this commodity. However, much of this benefit has been negated by lower selling prices for finished products, especially in those markets where there are many competitors whose primary source of fiber is purchased pulp. Over the long term, pulp prices tend to follow a cyclical pattern, and as 1994 progressed, pulp and waste paper prices increased dramatically. Further price increases were announced in early 1995. The Company may be negatively impacted if prices paid by Scott for pulp increase without a corresponding increase in the selling prices for finished products. To reduce the Company's exposure to this cyclicality, a portion of Scott's pulp supply is purchased on the basis of a multi-year moving average price. In addition, the Company continues to review its use of pulp, including potential increases in the use of recycled fiber. As part of its strategy to focus on its core tissue business and reduce capital intensity, the Company has announced plans to divest a number of non-core assets in 1995, including the energy complex at its Chester, Pennsylvania facility and various pulp mill and timber assets. It is difficult to estimate the impact of the anticipated transactions on the Company's overall cost structure as operating cost increases may result from these potential asset sales while interest expense will be reduced. Scott and other manufacturers of pulp in the U.S. face proposed regulations imposing stringent limits on emissions including chlorinated organics, such as dioxin and chloroform, which may arise from the process of manufacturing bleached pulp. In 1993, the Environmental Protection Agency (EPA) issued proposed regulations, which included limitations on a variety of discharges and emissions. Based on its evaluation of the 1993 proposed regulations, the Company believes that the additional capital expenditures required to comply with them at its existing sites would be approximately $250 million implemented in the 1997-1999 period. This estimate could change further depending on several factors, including additional evaluation of the proposed regulations, changes in the proposed regulations, new developments in control and process technology, and inflation. During 1994, five-year labor agreements were ratified at three of Scott's manufacturing sites in the U.S. There are no agreements to be negotiated at large U.S. sites in 1995. [CHART ENTITLED "RETURN ON EQUITY" APPEARS HERE] 19 Liquidity and Capital Resources Cash flow provided by operating activities was $211.9 million in 1994 compared with $315.8 million and $417.3 million in 1993 and 1992, respectively. The reduction in operating cash flows was primarily due to cash payments for the restructuring program and $100.0 million to repurchase previously factored customer receivables. These cash outflows were partially offset by improved income resulting from the Company's restructuring efforts. During 1994, the Company sold various nonstrategic assets, primarily S.D. Warren, the energy complex at the Mobile, Alabama mill, and substantially all of the Company's interest in Scott Health Care. Proceeds from these sales totaled approximately $2 billion, which includes debt assumed by the acquirers. The Company has announced plans to divest other non-core assets in 1995, including the energy complex at its Chester, Pennsylvania facility, and various pulp and timber assets. The Company used the above proceeds to retire $1,477 million of debt of which $768 million occurred prior to the end of the year. The debt retirements consist of prepayments of term loans of $150 million and debentures of $784 million (see Note 16), assumptions of debt of $205 million and repayments of commercial paper and other debt of $338 million. The Company has also announced its intention to use a portion of the proceeds to repurchase $300 million of its common shares. Total capital expenditures were $375.0 million in 1994 compared with $457.8 million and $329.7 million in 1993 and 1992, respectively. See Note 7 for continuing operations' expenditures. During 1995 and 1996, the Company plans to invest $550-$650 million in capital projects. The projects include continued spending on the tissue mill in Owensboro, Kentucky, the new converting facility in Arizona, and other projects designed to sustain existing operations and reduce costs. The Company expects to finance this spending primarily from internally generated funds. In May 1994 and December 1993, the Company issued $45 million and $110 million, respectively, of tax-exempt bonds to finance portions of the Owensboro tissue mill. During 1993, the Company issued $200 million in publicly held long-term debt used primarily to pay maturing debt. The bonds issued in 1994 and 1993 were not affected by the debt reduction program initiated in December 1994. The Company has both variable rate debt and variable rate financial assets. Variable rate financial assets reduce the Company's exposure to increasing interest rates on its variable rate debt. At the end of 1994, variable rate financial assets were approximately equal to variable rate debt. When variable rate assets are netted against debt, the variable rate portion of the Company's debt was 49% and 39% as of December 25, 1993 and December 26, 1992, respectively. To maintain flexibility in meeting its financing needs, the Company has two revolving bank credit facilities totaling $775 million which were unused as of December 31, 1994, and December 25, 1993. Results of Operations -- 1993 vs. 1992 Consolidated sales from continuing operations in 1993 decreased 7% to $3.6 billion compared with $3.9 billion in 1992, primarily due to the impact of unfavorable European foreign exchange rates. Results of continuing operations were a loss of $146.1 million in 1993 versus income from operations of $322.9 million in the prior year. The Company recorded a net loss of $277.0 million, or a per-share loss of $3.75, versus net income of $167.2 million and earnings per share of $2.26 in 1992. The Company's results for 1993 included the effects of special items amounting to approximately $394.6 million after tax, or $5.33 per share. Excluding the effects of special items, net income was $117.6 million and earnings per share were $1.58. Restructuring charges related to S.D. Warren, the Company's former printing and publishing papers subsidiary, are included in the results of the discontinued operation, which also include appropriate allocations of interest expense and income taxes. The following table presents earnings for 1993 and 1992, both as reported and excluding special items in 1993. See page 17 for a discussion of the special items.
1993 1992 -------------------------------------------- Excluding (In millions, except Special on a per share basis) Reported Items Reported ----------------------------------------------------------------------------- (Loss) Income from continuing operations $(146.1) $255.0 $322.9 Net (Loss) income $(277.0) $117.6 $167.2 (Loss) Earnings per share $(3.75) $1.58 $2.26
Tissue Products The following is a discussion and analysis of the "Tissue Products" segment and the information which appears in Note 28. In order to provide a better basis for comparison, results of operations are discussed both as reported and excluding special items. Consolidated sales for the tissue products segment were $3.6 billion in 1993 compared with $3.9 billion in 1992. Consolidated operations reported a loss from operations of $54.8 million in 1993 versus income from operations of $374.7 million in 1992. Excluding special items in 1993, income from operations for the global tissue business was $305.2 million in 1993, down 19% from $374.7 million in 1992. Excluding special items in 1993, the operating margin was 8.5% in 1993 compared with 9.7% in 1992. 20 United States In 1993, sales revenue for Scott's total tissue products business was up slightly over 1992. Sales volume decreased 1%, while average selling prices for tissue products were approximately 2% better than in 1992 despite the continuation of extremely competitive market conditions. Excluding special items in 1993, income from operations decreased 11%. Manufacturing cost improvements and improved product pricing had a favorable impact on income from operations, but these positive factors were offset by manufacturing cost inflation, higher freight and distribution expenses, and increased spending for strategic product development and marketing. Europe Sales volume in the Company's European region was 3% less than in 1992 and sales revenue decreased 20%, of which approximately 16% was related to changes in exchange rates due to the continuing strength of the U.S. dollar. Also impacting results were competitive pricing pressures and the region's weak economies. Excluding special items in 1993, income from operations declined 31% compared with 1992 and, excluding the change in exchange rates, was 6% lower than in 1992. Productivity gains and manufacturing cost improvements achieved by the European businesses partially offset the negative impact of the lower sales volume and pricing. Pacific and Latin America In the Pacific and Latin American regions, sales volume for the Company's consolidated operations grew 5% compared with 1992, and sales revenue in 1993 was 5% higher than in the previous year. Income from operations, excluding special items in 1993, decreased 19%. International Equity Affiliates Scott's share of international equity affiliates' earnings was a loss of $21.7 million compared with earnings of $5.4 million in 1992. Excluding special items in 1993, Scott's share of net income from its Mexican affiliate more than doubled, primarily due to improvement in its consumer business. The Company's Canadian affiliate also reported improved results in 1993 mainly due to cost reductions. Interest, Other Income and Taxes Interest expense for 1993 was $123.8 million compared with $141.4 million in 1992, after allocation of interest to the discontinued operation for both years. The decrease was primarily due to reduced interest rates and favorable foreign exchange impacts. Other income and expense items reflect income of $4.1 million in 1993 down $7.0 million from 1992 largely due to lower interest income. The Company reported a tax benefit of $49.7 million in 1993 compared with taxes on income of $50.5 million in 1992, after allocation of taxes to the discontinued operation in both years. Excluding the effects of special items in both years, the effective tax rates for continuing operations for 1993 and 1992 were approximately 40% and 26%, respectively. See the Financial Review Notes for further detail on the above items. Discontinued Operation -- Printing and Publishing Papers Results for S.D. Warren, net of interest expense and income taxes, were a loss of $51.3 million in 1993 compared with income of $19.7 million in 1992. Excluding restructuring charges in 1993, S.D. Warren reported income of $9.4 million, a 52% decrease compared with 1992. Lower sales volume and lower average selling prices were the result of intense competitive activity and increased levels of imports into the U.S. markets. Results in 1992 were affected by increased costs associated with the shutdown and rebuild of the recovery boiler at the Somerset mill in Skowhegan, Maine. Returns and Margins
1993 1992 ---------------------------------------------------------------- Excluding Special Reported Items Reported ---------------------------------------------------------------- Operating margin -- tissue business (1.5)% 8.5% 9.7% Return on investment (3.1)% 4.5% 5.9% Return on common shareholders' equity (14.4)% 5.9% 8.2%
21 Accounting Standards Changes In the first quarter of 1994, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 112 (FAS 112), Employers' Accounting for Post-employment Benefits. This standard requires employers to recognize and, when necessary, accrue for the estimated cost of benefits provided to former or inactive employees after employment but before retirement. The effect on the Company of adopting this statement was not material. In 1994, the Company adopted FASB Statement No. 119 (FAS 119), Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments, which requires certain disclosures about derivative financial instruments. This statement does not affect how the Company accounts for financial instruments on its balance sheet or income statement. Note 17 provides information regarding the Company's financial instruments. In the first quarter of 1993, the Company adopted FASB Statement No. 109 (FAS 109), Accounting for Income Taxes. The Company reported a positive adjustment for the cumulative effect of adopting FAS 109 of $21.7 million, or $.29 per share. See Note 14. In the first quarter of 1992, the Company adopted FASB Statement No. 106 (FAS 106), Employers' Accounting for Postretirement Benefits Other Than Pensions, as discussed in Note 24. The accounting standards changes have no impact on the Company's cash flow. Effects of Changing Prices The moderate levels of inflation during recent years have not had a material effect on the Company. Although the replacement cost of assets increases during inflationary periods, cash flow and earnings can be maintained through the ability to increase selling prices when market conditions permit and also through the repayment of debt with dollars that have reduced purchasing power. Quarterly Highlights (Unaudited)
1994(1) 1993(1) ------------------------------------------- -------------------------------------------- (In millions, except 1st 2nd 3rd 4th 1st 2nd 3rd 4th on a per share basis) Quarter Quarter Quarter Quarter(4) Quarter Quarter Quarter Quarter -------------------------------------------------------------------------------------------------------------------------------- Sales $828.7 $914.3 $877.3 $960.8 $868.3 $927.5 $884.3 $ 904.8 Gross margin(2) 231.9 285.0 268.0 285.4 236.0 257.4 256.7 258.4 Income (Loss) from: Continuing operations 28.5 50.3 54.5 130.8 17.2 23.7 21.6 (300.3) Discontinued operation (3.3) (10.1) 6.1 14.1 6.3 (.2) 3.0 (60.4) Extraordinary loss on early extinguishment of debt - - - (61.1) - - - (9.6) Cumulative effect of change in accounting for income taxes - - - - 21.7 - - - -------------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 25.2 $ 40.2 $ 60.6 $ 83.8 $ 45.2 $ 23.5 $ 24.6 $(370.3) ================================================================================================================================ Dollars per common share: Income (Loss) from: Continuing operations $ .38 $ .68 $ .72 $ 1.76 $ .23 $ .32 $ .29 $ (4.06) Discontinued operation (.04) (.14) .08 .19 .09 - .04 (.82) Extraordinary loss on early extinguishment of debt - - - (.82) - - - (.13) Cumulative effect of change in accounting for income taxes - - - - .29 - - - -------------------------------------------------------------------------------------------------------------------------------- Earnings (Loss)(3) $ .34 $ .54 $ .80 $ 1.13 $ .61 $ .32 $ .33 $ (5.01) Dividends .20 .20 .20 .20 .20 .20 .20 .20 -------------------------------------------------------------------------------------------------------------------------------- Market price - high $46 3/4 $53 3/4 $66 3/8 $70 5/8 $41 $37 7/8 $35 1/2 $39 3/4 - low 39 1/2 37 1/4 50 5/8 60 33 3/4 31 7/8 31 32 3/8 ================================================================================================================================
(1) See Management's Discussion and Analysis for discussion of special items. (2) Sales less product costs. (3) Based on the average common shares outstanding at the end of each period. (4) Contains 14 week quarter, all others shown are 13 weeks. 22 Financial Review Responsibility For Financial Statements To the Shareholders Scott Paper Company The Financial Review has been prepared by the Company in conformity with generally accepted accounting principles to reflect the substance of all relevant events and transactions. The Company is responsible for all information and representations contained in the Financial Review and for the estimates and judgments required for its preparation. In order to meet this responsibility, the Company maintains a system of internal accounting controls which is designed to provide what are believed to be reasonable assurances that assets are safeguarded, transactions are executed in accordance with the Company's authorization and financial records are reliable as a basis for preparation of financial statements. The Company is continually modifying its system of internal accounting controls in response to changes in business conditions and operations. Support for this system is provided by the Company's internal auditors through their periodic audits of Scott's operations throughout the world. The Company's independent accountants, Coopers & Lybrand L.L.P., are engaged to conduct an independent audit of the Company's financial statements, which includes such review of the system of internal accounting controls to determine their auditing procedures as they consider necessary in the circumstances. Their opinion on the fairness of reported operating results and financial condition appears on this page. The Company's Board of Directors has had an Audit Committee composed solely of outside directors since 1969. This Committee reviews the Company's accounting controls and policies as well as its practices in financial reporting to shareholders and the public. It meets on a timely basis with the internal auditors, the independent accountants and Company management to review their work and to ensure that each is properly fulfilling its responsibilities. In addition, the internal auditors and independent accountants each meet periodically with the Committee, without Company management present, to discuss the results of their audit work and related matters. It is the policy of the Company to conduct its affairs in a manner designed to earn the respect of the public as a reputable and honest business firm. This is reflected in Company policy statements on the conduct of domestic and international business activities, conflicts of interests, internal accounting controls and compliance with antitrust, environmental and other laws. These policies are communicated regularly to employees and compliance is monitored regularly by the Company in an effort to provide reasonable assurances of their continuing effectiveness. Scott Paper Company Report of Independent Accountants To the Shareholders and Board of Directors Scott Paper Company We have audited the accompanying consolidated balance sheet of Scott Paper Company and its subsidiaries as of December 31, 1994, and the related consolidated statements of operations, cash flows and common shareholders' equity for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Scott Paper Company and its subsidiaries for the years ended December 25, 1993 and December 26, 1992 were audited by other auditors whose report dated January 25, 1994, included an explanatory paragraph that described the changes in accounting for income taxes in 1993 and postretirement benefits other than pensions in 1992 as discussed under Accounting Policies in the Financial Review Notes. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the 1994 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Scott Paper Company and its subsidiaries as of December 31, 1994, and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103 January 31, 1995 23 Consolidated Operations -------------------------------------------------- Scott Paper Company
(In millions, except on a per share basis) 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------------- Sales $3,581.1 $3,584.9 $3,856.0 -------------------------------------------------------------------------------------------------------------------------- Costs and expenses Product costs 2,510.8 2,576.4 2,745.7 Marketing and distribution 479.9 536.7 572.0 Research, administration and general 189.0 208.3 218.3 Restructuring and divestments - 401.1 - Other (100.2) 8.5 (2.9) -------------------------------------------------------------------------------------------------------------------------- 3,079.5 3,731.0 3,533.1 -------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations 501.6 (146.1) 322.9 Interest expense 131.2 123.8 141.4 Other income and (expense) 9.6 4.1 11.1 -------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations before taxes 380.0 (265.8) 192.6 Income taxes 139.8 (49.7) 50.5 -------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations before share of earnings (loss) of international equity affiliates, extraordinary loss and cumulative effect of accounting change 240.2 (216.1) 142.1 Share of earnings (loss) of international equity affiliates 23.9 (21.7) 5.4 -------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations before extraordinay loss and cumulative effect of accounting change 264.1 (237.8) 147.5 -------------------------------------------------------------------------------------------------------------------------- Discontinued operation -- printing and publishing papers: Income (Loss) from operations through December 20, 1994, net of income tax expense (benefit) of $4.0, $(14.3) and $8.0 for 1994, 1993 and 1992, respectively 6.8 (51.3) 19.7 Gain (Loss) on disposal - - - -------------------------------------------------------------------------------------------------------------------------- Income (Loss) before extraordinary loss and cumulative effect of accounting change 270.9 (289.1) 167.2 Extraordinary loss on early extinguishment of debt, net of income tax benefit of $35.8 and $5.2 for 1994 and 1993, respectively (61.1) (9.6) - Cumulative effect of change in accounting for income taxes - 21.7 - -------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 209.8 $ (277.0) $ 167.2 ========================================================================================================================== Per share: Income (Loss) from continuing operations before extraordinary loss and cumulative effect of accounting change $3.54 $(3.22) $1.99 Income (Loss) from discontinued printing and publishing papers operation .09 (.69) .27 Extraordinary loss on early extinguishment of debt (.82) (.13) - Cumulative effect of change in accounting for income taxes - .29 - -------------------------------------------------------------------------------------------------------------------------- Earnings (Loss) per share $2.81 $(3.75) $2.26 ========================================================================================================================== Dividends per share $.80 $.80 $.80 Average common shares outstanding 74.7 74.0 73.9 ==========================================================================================================================
The Financial Review, pages 23-39, is an integral part of these statements. 24 Consolidated Balance Sheet ----------------------------------------------------- Scott Paper Company
(Millions) December 31, 1994 December 25, 1993 ----------------------------------------------------------------------------------------------------------------------- Assets: Current assets Cash and cash equivalents $1,114.0 $ 133.6 Receivables 592.2 600.3 Inventories 401.9 523.7 Deferred income tax asset 146.6 277.9 Prepaid items and other 53.8 74.4 ----------------------------------------------------------------------------------------------------------------------- 2,308.5 1,609.9 Plant assets, at cost $ 4,625.0 $ 7,357.5 Accumulated depreciation (2,143.0) 2,482.0 (3,302.2) 4,055.3 -------- -------- Timber resources, at cost less timber harvested 84.2 113.0 Investments in international equity affiliates 174.3 223.8 Investments in and advances to other equity affiliates 53.0 84.1 Construction funds held by trustees 79.5 87.1 Notes receivable 220.0 220.0 Goodwill and other assets 224.6 231.9 ----------------------------------------------------------------------------------------------------------------------- Total $5,626.1 $6,625.1 ======================================================================================================================= Liabilities and Shareholders' Equity: Current liabilities Payable to suppliers and others $ 810.8 $ 891.5 Current maturities of long-term debt 764.8 180.2 Accrued taxes on income 254.7 59.1 Accruals for restructuring programs 108.6 639.0 ----------------------------------------------------------------------------------------------------------------------- 1,938.9 1,769.8 Long-term debt 1,093.1 2,366.2 Deferred income taxes 344.5 612.3 Other liabilities 497.2 301.1 ----------------------------------------------------------------------------------------------------------------------- 3,873.7 5,049.4 Preferred shares 7.1 7.1 Common shareholders' equity Common shares $ 506.1 $ 450.4 Reinvested earnings 1,509.6 1,358.1 Cumulative translation adjustment (259.2) (227.5) Treasury shares (11.2) 1,745.3 (12.4) 1,568.6 ----------------------------------------------------------------------------------------------------------------------- Total $5,626.1 $6,625.1 =======================================================================================================================
The Financial Review, pages 23-39, is an integral part of these statements. 25 Consolidated Cash Flows --------------------------------------------------- Scott Paper Company
(Millions) 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income (loss) $ 209.8 $ (277.0) $ 167.2 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of accounting change - (21.7) - Share of earnings/loss of affiliates, net of distributions (20.4) 29.0 16.0 Depreciation, cost of timber harvested and amortization 310.3 300.3 291.0 Deferred income taxes (121.8) (93.9) (2.9) Extraordinary loss on extinguishment of debt, net of taxes 61.1 9.6 - Gains on asset sales (99.5) (5.7) (12.9) Postretirement benefits, net (funding) cost (36.0) 30.7 17.1 Changes in current assets and current liabilities net of effects from businesses divested: (Increase) Decrease in receivables (129.5) 7.5 (9.3) Increase in inventories (2.2) (9.5) (4.1) Decrease (Increase) in prepaid items and other 16.2 (10.3) (10.5) (Decrease) Increase in payable to suppliers and others (28.2) (78.9) 43.4 (Decrease) Increase in accruals for restructuring programs (166.1) 429.1 (95.4) Increase in accrued taxes on income 218.2 6.6 17.7 -------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 211.9 315.8 417.3 -------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Investments in plant assets, timber resources and other assets (375.0) (457.8) (329.7) Proceeds from businesses divested and asset sales, net of debt assumed by acquirers 1,780.9 5.7 103.9 Decrease (Increase) in construction funds 6.0 (85.0) - Advances to affiliates, net (2.1) (2.3) (6.6) Other investing (11.4) 11.0 (11.8) -------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 1,398.4 (528.4) (244.2) -------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net decrease in short-term borrowings (36.8) (143.7) (192.6) Proceeds from issuance of long-term debt 733.1 815.4 403.7 Repayments of long-term debt (1,249.7) (389.3) (363.8) Premiums paid on early retirement of debt and interest rate swaps (59.3) - - Dividends paid (60.0) (59.5) (59.4) Proceeds from exercise of stock options 45.2 .8 3.7 Other financing (8.2) (13.3) (5.2) -------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (635.7) 210.4 (213.6) -------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 5.8 (5.9) (2.4) -------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 980.4 (8.1) (42.9) Cash and cash equivalents at beginning of year 133.6 141.7 184.6 -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 1,114.0 $ 133.6 $ 141.7 ==========================================================================================================================
The Financial Review, pages 23-39, is an integral part of these statements. 26 Consolidated Common Shares -- ------------------------------------------------------ Scott Paper Company
(Millions) ----------------------------------------------------------------------- Of 200,000,000 Authorized Common Shares (1) Cumulative ------------------------------ Common Reinvested Translation Treasury Shares Issued Treasury Shares Total Shares Earnings Adjustment Shares ------------------------------------------------------------------------------------------------------------------------------- 74,335,384 592,144 Balance at December 28, 1991 $1,981.8 $439.2 $1,609.6 $ (52.6) $(14.4) Net income 167.2 - 167.2 - - Shares issued for the exercise of stock options, stock awards 150,334 (16,264) and restricted stock 6.3 5.9 - - .4 Dividends paid on Common shares (59.1) - (59.1) - - Preferred shares (.3) - (.3) - - Foreign currency translation adjustment (69.0) - - (69.0) - Minimum pension liability adjustment (9.1) - (9.1) - - ------------------------------------------------------------------------------------------------------------------------------- 74,485,718 575,880 Balance at December 26, 1992 2,017.8 445.1 1,708.3 (121.6) (14.0) Net loss (277.0) - (277.0) - - Shares issued for the exercise of stock options, stock awards 56,066 (64,404) and restricted stock 6.9 5.3 - - 1.6 Dividends paid on Common shares (59.2) - (59.2) - - Preferred shares (.3) - (.3) - - Foreign currency translation adjustment (105.9) - - (105.9) - Minimum pension liability adjustment (13.7) - (13.7) - - ------------------------------------------------------------------------------------------------------------------------------- 74,541,784 511,476 Balance at December 25, 1993 1,568.6 450.4 1,358.1 (227.5) (12.4) Net income 209.8 - 209.8 - - Shares issued for the exercise of stock options, stock awards 1,509,686 (55,278) and restricted stock 56.9 55.7 - - 1.2 Dividends paid on Common shares (59.7) - (59.7) - - Preferred shares (.3) - (.3) - - Foreign currency translation adjustment (31.7) - - (31.7) - Minimum pension liability adjustment 1.7 - 1.7 - - ------------------------------------------------------------------------------------------------------------------------------- 76,051,470 456,198 Balance at December 31, 1994 $1,745.3 $506.1 $1,509.6 $(259.2) $(11.2) ===============================================================================================================================
(1) Without par value The Financial Review, pages 23-39, is an integral part of these statements. 27 Financial Review Notes 1. Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of all majority-owned domestic and international subsidiaries listed on page 41. This listing includes the percentage of direct or indirect ownership by Scott. All significant intercompany transactions have been eliminated. Fiscal Year End The Company's fiscal year ends on the last Saturday in December, which results in a 52- or 53-week year. Fiscal year 1994 consisted of 53 weeks while fiscal years 1993 and 1992 consisted of 52 weeks. To facilitate prompt reporting of Scott's financial results, the financial statements of most of the international subsidiaries and affiliates are based on the twelve months ending November 30. Accounting Standards Changes In 1994, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 112 (FAS 112), Employers' Accounting for Postemployment Benefits. This standard requires employers to recognize and when necessary accrue for the estimated cost of benefits provided to former or inactive employees after employment but before retirement. The effect on the Company of adopting this statement was not material. In 1994, the Company adopted FASB Statement No. 119 (FAS 119), Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments, which requires certain disclosures about derivative financial instruments. This statement does not affect how the Company accounts for financial instruments on its balance sheet or income statement. Note 17 provides information regarding the Company's financial instruments. In 1993, the Company adopted FASB Statement No. 109 (FAS 109), Accounting for Income Taxes. See Note 14 for discussion and analysis of the deferred tax accounts. In 1992, the Company adopted FASB Statement No. 106 (FAS 106), Employers' Accounting for Postretirement Benefits Other Than Pensions. See Note 24. Other Accounting Policies Goodwill and acquired patents and trademarks are amortized over various periods not exceeding 40 years. The realizability of goodwill and other intangibles is evaluated periodically to assess recoverability and if warranted impairment would be recognized. Expenditures for all other patents and trademarks are charged to income as incurred. Other significant accounting policies are included in the Notes of the Financial Review to which they apply. 2. Asset Sales and Proceeds During 1994, the Company sold several nonstrategic assets, which are discussed below. Asset Sales On December 16, 1994, the Company completed the sale of the energy and recovery complex assets (the "Energy Complex") located at its Mobile, Alabama mill site to Mobile Energy Services Company, Inc. (MESC), which is a wholly-owned subsidiary of The Southern Company. Scott received approximately $350 million, consisting of approximately $265 million in cash and the buyer's assumption, guaranteed by The Southern Company, of $85 million of debt under a tax-exempt financing relating to the Energy Complex. Under terms of an agreement, MESC will provide power, steam and pulping liquor to the mills located at this site. On December 23, 1994, the Company sold substantially all of its interest in a 50% owned joint venture for $65.7 million. This venture manufactures and markets adult incontinence and wound care products under the name "Scott Health Care." The above asset sales resulted in an aggregate pre-tax gain of $95.1 million. This gain is included in income (loss) from continuing operations under the caption "Other." Discontinued Operation On December 20, 1994, the Company completed the sale of S.D. Warren Company, its former printing and publishing papers subsidiary, to an investor group led by Sappi Limited. The Company received $1.6 billion which included the buyer's assumption of approximately $120 million in debt. The sale of S.D. Warren did not result in any gain or loss being recorded. [CHART ENTITLED "NUMBER OF EMPLOYEES" APPEARS HERE] 28 S.D. Warren's operations have been segregated and reported as a discontinued operation in the accompanying statement of consolidated operations and prior years have been reclassified to conform to the current year's presentation. However, the prior years' consolidated balance sheet and statement of consolidated cash flows have not been reclassified. The condensed statement of operations related to the discontinued operation for the years ended December 1994, 1993 and 1992 is presented below:
(Millions) 1994 1993 1992 -------------------------------------------------------------------------- Revenues $1,145.3 $1,143.9 $1,235.3 Costs and expenses 1,134.5 1,209.5 1,207.6 -------------------------------------------------------------------------- Income (Loss) before income taxes 10.8 (65.6) 27.7 Income taxes 4.0 (14.3) 8.0 -------------------------------------------------------------------------- Net Income (Loss) $ 6.8 $ (51.3) $ 19.7 ==========================================================================
The effective tax rates for the discontinued operation varied from the federal tax rates primarily due to the tax on foreign operations in 1994, the tax rate increase on deferred taxes in 1993, and depreciation and state income taxes in 1992. Proceeds A portion of the proceeds from the sale of S.D. Warren and other asset sales were used to retire debt as part of the Company's debt retirement program (see Note 16). In addition to supporting this program a portion of the balance remaining in cash and cash equivalents is intended to be used for the previously announced $300 million repurchase of the Company's common shares. 3. Restructuring In 1993, the Company recorded a charge for its planned restructuring and productivity improvement programs. The plan included the estimated costs to further reduce its work force as well as the costs to realign and shut down some older and inefficient assets. The 1993 charge of $489.6 million was combined with the balance from previous restructuring plans of $149.4 million. Included in the 1993 charge was $88.5 million for S.D. Warren. In August 1994, this plan was modified to accelerate the timing and increase the total of the work force reductions. This expanded plan was completed by year end 1994 and no additional charges were needed to achieve the restructuring. The major elements of the 1994 plan were:
Charges Reserve Against December 31 (Millions) Reserve 1994 ------------------------------------------------------------- Cost of work force reductions $330.1 $ 83.8 Plant rationalization 107.7 11.8 Divested businesses 78.5 11.9 Other 14.1 1.1 ------------------------------------------------------------- $530.4 $108.6 =============================================================
The costs for work force reductions relate to pension and medical benefit enhancements for retirement eligible terminations and severance payments (see Notes 24 and 25). Under the terms of the Company's termination policies most remaining severance payments will be paid in 1995. The plant rationalization charges were primarily related to equipment write-offs and disposals. The charges for divested businesses relate to the Company's foodservice business units, two of which are in the process of being sold, and to the discontinued operation. 4. Receivables
December 31 December 25 (Millions) 1994 1993 ----------------------------------------------------------- Customer receivables $534.2 $516.6 Allowance for discounts and doubtful items (27.2) (25.3) ----------------------------------------------------------- 507.0 491.3 Other receivables 85.2 109.0 ----------------------------------------------------------- $592.2 $600.3 ===========================================================
During 1991, the Company entered into an agreementto sell a percentage ownership interest in a defined pool of the Company's customer receivables. The Company paid fees based on the purchaser's level of investment and borrowing costs. During 1994, 1993 and 1992, the Company recorded $4.8 million, $4.5 million and $5.0 million, respectively, of these fees as interest expense. In December 1994, at no additional cost, the Company terminated this agreement by paying $100.0 million to repurchase these receivables. 5. Inventories
December 31 December 25 (Millions) 1994 1993 ------------------------------------------------------------------- Finished products $150.6 $220.0 Work in process 56.0 69.6 Pulp, logs and pulpwood 90.1 67.5 Maintenance parts 65.5 106.2 Other materials and supplies 39.7 60.4 ------------------------------------------------------------------- $401.9 $523.7 ===================================================================
Of the Company's total inventories of $401.9 million, $127.3 million represents inventories with cost determined by using the last-in, first-out (LIFO) method. If inventories had been valued at the latest production or purchase cost, they would have been $75.4 million higher at December 31, 1994 and $126.6 million higher at December 25, 1993 than the amounts shown above. The significant decrease between years is primarily due to the sale of S.D. Warren and is accounted for as part of the sale transaction. Where the LIFO method is not used, inventories are valued on a basis of average current manufacturing or purchase cost. 29 6. Plant Assets
December 31 December 25 (Millions) 1994 1993 ------------------------------------------------------------ Plant assets, at cost Land $ 65.4 $ 73.0 Buildings 645.3 895.7 Machinery and equipment 3,914.3 6,388.8 ------------------------------------------------------------ 4,625.0 7,357.5 Accumulated depreciation (2,143.0) (3,302.2) ------------------------------------------------------------ $ 2,482.0 $ 4,055.3 ============================================================
7. Capital Expenditures
(Millions) 1994 1993 ------------------------------------------------------------ Plant and other assets $330.2 $376.8 Timber resources 2.9 5.9 Continuing operations 333.1 382.7 Discontinued operation 41.9 75.1 ------------------------------------------------------------ Total $375.0 $457.8 ============================================================
Expenditures for renewals and betterments which increase the useful life or capacity of plant assets, as well as reforestation costs, are capitalized. Costs for repairs and maintenance are expensed. The unexpended appropriations for capital additions at December 31, 1994 were approximately $246.7 million compared with $388.4 million at the end of 1993. Expenditures for research and development are charged to income as incurred and for continuing operations were $38.3 million, $47.0 million and $45.2 million for the years 1994, 1993 and 1992, respectively. 8. Depreciation and Cost of Timber Harvested
(Millions) 1994 1993 1992 ---------------------------------------------------------------------- Depreciation of buildings, machinery and equipment $199.0 $188.9 $173.5 Cost of timber harvested and amortization of logging roads 5.6 5.0 4.3 ---------------------------------------------------------------------- Continuing operations $204.6 $193.9 $177.8 ======================================================================
Depreciation expense for the discontinued operation was $85.2 million, $87.2 million and $88.0 million for 1994, 1993 and 1992, respectively. Depreciation is principally calculated by the straight-line method. For certain major capital additions, depreciation is calculated on the units-of- production method during the learning curve phase of the project. Depreciation is based on average useful lives of 20 years for pulp and paper mill equipment, 15 years for finishing and converting equipment and 20 to 50 years for buildings. The cost of timber harvested is determined by calculating that portion of the investment in timber which the current year's harvest bears to the total standing timber. Amortization is the cost of logging roads absorbed as timber is harvested and is based on the estimated recoverable timber in areas serviced by the roads. On normal retirements or sales, the cost of plant assets is removed from the asset account and charged to the related depreciation reserve account. Amounts realized from such dispositions are credited to the reserve account. 9. International Equity Affiliates The Company's international equity affiliates are Scott Paper Limited (Canada) and Compauia Industrial de San Cristubal, S.A. (Mexico). These affiliates are principally engaged in the manufacture and sale of sanitary paper products similar to those sold by the Company. A minority-owned Mexican affiliate owns approximately 3% of the Company's Mexican affiliate. The Company views this indirect investment as temporary. In 1994, the Company changed the reporting date for its Mexican affiliate from November 30 to December 31. The effect of this change on the Company's statement of consolidated operations was not material. However, a reduction of $56.1 million occurred in its investment account due to foreign currency translation adjustments primarily due to the devaluation of the peso. In 1994, the Company's Canadian affiliate recorded net charges before taxes of $10.6 million for restructuring that were primarily for work force reductions. In 1993, the Company's Mexican affiliate recorded net charges before taxes of $45.6 million for restructuring including work force reductions and mill closings related to its printing and writing papers business. The following statements show the Company's investments in and share of the earnings of the unconsolidated international affiliates using the equity method of accounting.
Investments in International Equity Affiliates December 31 December 25 (Millions) 1994 1993 ------------------------------------------------------------------- Cost $ 53.2 $ 53.2 Equity in undistributed earnings 121.1 170.6 ------------------------------------------------------------------- $174.3 $223.8 ===================================================================
Changes in Investments in International Equity Affiliates (Millions) 1994 1993 ------------------------------------------------------------------- Scott's share of: Earnings (Loss) $ 23.9 $(21.7) Cumulative effect of change in accounting for income taxes - 3.7 Cash dividends paid to Scott (.6) (.6) ------------------------------------------------------------------- Increase (Decrease) in reinvested earnings 23.3 (18.6) Dispositions and other .9 .1 Foreign currency translation (73.7) (3.9) ------------------------------------------------------------------- Decrease in investments $(49.5) $(22.4) ===================================================================
30
International Equity Affiliates-Combined Earnings of International Equity Affiliates (Millions) 1994 1993 1992 --------------------------------------------------------------------------- Sales $792.6 $782.0 $729.1 Costs and expenses 708.3 754.1 694.2 Restructuring 10.6 45.6 - --------------------------------------------------------------------------- Income (Loss) from operations 73.7 (17.7) 34.9 Interest expense 10.3 15.8 18.4 Other income and (expense) (13.3) 4.6 6.4 --------------------------------------------------------------------------- Income (Loss) before taxes 50.1 (28.9) 22.9 Income taxes 3.7 12.8 12.3 --------------------------------------------------------------------------- Income (Loss) before cumulative effect 46.4 (41.7) 10.6 Cumulative effect of change in accounting for income taxes - 7.4 - --------------------------------------------------------------------------- Net Income (Loss) $ 46.4 $(34.3) $ 10.6 ===========================================================================
Financial Position of International Equity Affiliates (Millions) 1994 1993 --------------------------------------------------------------------------- Current assets $229.0 $300.1 Plant assets, net 387.7 460.6 Other assets 21.0 27.2 --------------------------------------------------------------------------- Total assets 637.7 787.9 --------------------------------------------------------------------------- Current liabilities 160.4 151.2 Long-term debt 85.3 105.6 Other liabilities and deferred credits 63.5 106.5 --------------------------------------------------------------------------- Total liabilities 309.2 363.3 --------------------------------------------------------------------------- Shareholders' equity 328.5 424.6 Other investors' share 154.2 200.8 --------------------------------------------------------------------------- Scott's investment $174.3 $223.8 ===========================================================================
10. Investments in and Advances to Other Equity Affiliates The Company's other equity affiliates are various unconsolidated 50% or less owned companies and joint ventures. The results from operations of these affiliates are included in other operating income and expense. At December 31, 1994, the Company's investments in and advances to other equity affiliates totaled $53.0 million, which primarily represents the Company's investment in companies which own a pulp mill, forestland and a tree plantation in Chile. The Company has an agreement with one of the Chilean affiliates obligating the Company to purchase a minimum of 40% of the pulp mill's production at market-related prices until 2001. The Company also has an option to purchase up to 80% of the mill's production. 11. Payable to Suppliers and Others
December 31 December 25 (Millions) 1994 1993 --------------------------------------------------------------------------- Payable to suppliers $493.7 $580.1 Accrued salaries, wages and employee benefits 129.1 146.8 Taxes, other than on income 21.1 22.9 Accrued interest 48.7 50.8 Other accrued expenses 118.2 90.9 --------------------------------------------------------------------------- $810.8 $891.5 ===========================================================================
12. Income (Loss) Before Taxes
(Millions) 1994 1993 1992 --------------------------------------------------------------------------- Continuing Operations Domestic $254.8 $(247.7) $105.9 International 125.2 (18.1) 86.7 $380.0 $(265.8) $192.6 Discontinued Operation Domestic $ 5.5 $ (61.4) $ 27.7 International 5.3 (4.2) - --------------------------------------------------------------------------- $ 10.8 $ (65.6) $ 27.7 =========================================================================== Extraordinary Loss Domestic $ (96.9) $ (14.8) - ===========================================================================
Domestic operations include the accounts of Scott Maritimes Limited, a wholly- owned Canadian subsidiary, which produces pulp primarily for transfer to Scott papermaking operations in the United States. However, the income tax expense of Scott Maritimes Limited is included in foreign taxes on income. 13. Income Taxes The components of income tax expense are:
(Millions) 1994 1993 1992 --------------------------------------------------------------------------- Current-Federal $ 213.4 $ 2.1 $29.6 -Foreign 15.7 26.1 30.1 -State and local 17.8 1.7 1.7 --------------------------------------------------------------------------- 246.9 29.9 61.4 --------------------------------------------------------------------------- Deferred-Federal (137.2) (87.6) .9 -Foreign 17.0 (11.6) (5.1) -State and local (18.7) .1 1.3 --------------------------------------------------------------------------- (138.9) (99.1) (2.9) --------------------------------------------------------------------------- $ 108.0 $ (69.2) $58.5 ===========================================================================
Income tax expense is included in the financial statements as follows:
(Millions) 1994 1993 1992 --------------------------------------------------------------------------- Continuing operations $139.8 $(49.7) $50.5 Discontinued operation 4.0 (14.3) 8.0 Extraordinary loss (35.8) (5.2) - --------------------------------------------------------------------------- $108.0 $(69.2) $58.5 ===========================================================================
31 14. Deferred Taxes In the first quarter of 1993, the Company adopted FAS 109 and reported a positive adjustment for the cumulative effect of $21.7 million or $.29 per share. This standard requires that deferred taxes be accounted for using an asset and liability approach. Under this approach the deferred taxes must be based on the enacted tax rates in effect for the years in which the assets and liabilities are expected to reverse. Under FAS 109, the cumulative deferred tax liabilities and (assets) were comprised of the following:
December 31 December 25 (Millions) 1994 1993 -------------------------------------------------------------- Depreciation $ 365.5 $667.4 Installment sales 137.9 137.9 Other 62.0 49.9 -------------------------------------------------------------- Total deferred tax liabilities 565.4 855.2 -------------------------------------------------------------- Restructuring program charges (37.5) (260.8) Tax loss carryforwards (200.3) (140.2) Employee benefits (158.7) (90.5) Alternative minimum tax credit carryforward - (71.4) Other (156.5) (132.4) -------------------------------------------------------------- Total deferred tax (assets) (553.0) (695.3) -------------------------------------------------------------- Valuation allowance 185.5 174.5 -------------------------------------------------------------- Net deferred tax liabilities $ 197.9 $334.4 ==============================================================
Valuation allowances relate to the potentially unusable portion of tax loss carryforwards of $562.9 million which are in jurisdictions outside the United States. Losses in the amount of $220.6 million have an unlimited carryover period, while the remaining losses expire between the years 1995 and 2001. For the year prior to the adoption of FAS 109, the deferred income tax provision resulted from the following:
(Millions) 1992 ---------------------------------------------------------------- Restructuring program charges $ 26.1 Depreciation 3.2 Interest expense (6.5) Other operating expenses (13.7) Other (12.0) ---------------------------------------------------------------- Deferred tax provision $ (2.9) ================================================================
Deferred taxes resulted from recognizing items of income and expense on income tax returns in periods other than when they affected reported earnings. 15. Effective Tax Rate The effective tax rate on income from continuing operations varied from the federal tax rate of 35% in 1994 and 1993 and 34% in 1992 because of the following factors:
Percent of Income (Loss) Before Taxes 1994 1993 1992 ---------------------------------------------------------------- Federal tax rate 35% (35)% 34% State income taxes 2 - - International subsidiaries taxes (6) 7 (7) Dividends from international subsidiaries and affiliates 4 6 3 Depreciation - - (4) Effect of tax rate increase on deferred taxes - 3 - Other factors 2 - - ---------------------------------------------------------------- Effective tax rate 37% (19)% 26% ================================================================
The Company's share of undistributed earnings of its consolidated international subsidiaries and unconsolidated international affiliates, which is intended to be permanently reinvested and on which no U.S. taxes have been provided, totaled approximately $545 million at the end of 1994. 16. Long-Term Debt
Average Payable December 31 December 25 Rate(1) Through 1994 1993 -------------------------------------------------------------------- (Millions) ---------------------- Debentures 8.5% 2023 $ 425.7 $1,095.4 Revenue bonds 5.9% 2024 331.4 493.5 Notes 6.3% 2009 85.0 468.0 Commercial paper 5.6% Various 22.5 154.8 Capital leases 7.6% Various 4.5 12.9 Other currencies 6.8% 2007 233.1 157.4 -------------------------------------------------------------------- 1,102.2 2,382.0 Less Unamortized Discount (9.1) (15.8) -------------------------------------------------------------------- $1,093.1 $2,366.2 ====================================================================
(1) At December 31, 1994 Scheduled maturities of long-term debt and sinking fund payments, in millions, at December 31, 1994 are: 1996 $ 43.7 1999 $ 8.3 1997 10.3 2000 112.3 1998 89.3 2001-2024 829.2
The Company maintains several long-term and short-term credit facilities of which $799.4 million and $54.8 million, respectively, were unused as of December 31, 1994. These agreements are subject to normal banking terms and conditions. Commitment fees to maintain such facilities totaled $2.2 million in each of the last three years and are included in interest expense. Since commercial paper and similar short-term borrowings are supported by the unused portion of $775.0 million of long-term credit agreements, these borrowings are classified as long- term debt. 32 The debentures and notes represent unsecured borrowings. Of the Company's $256.8 million of variable rate industrial revenue bonds, $250.0 million are supported by letters of credit which expire in 1998. Using a portion of the proceeds from the sale of S.D. Warren and other asset sales, the Company retired certain long-term debt and terminated related interest rate swaps. During the period December 21, 1994 through January 12, 1995, the Company retired $784.2 million of publicly-held debentures and notes with rates ranging from 8.3% to 10.0%, pursuant to a tender offer to repurchase such securities in the open market. Also retired during this period were $150.0 million of bank term loans with rates ranging from 9.3% to 10.6%. A portion of these debentures, notes and bank term loans were retired subsequent to December 31, 1994 and totaled $686.2 million, including an accrual for premium costs of $46.5 million. This amount is classified as current maturities. Included in the amounts retired during January 1995 are debentures and notes that were not repurchased in the open market but were defeased by placing $221.3 million of U.S. government obligations in an irrevocable trust to be used solely for satisfying scheduled debt service payments. Interest rate swaps, which had the net effect of converting $575.0 million of fixed rate liabilities to variable rate liabilities, were terminated prior to December 31, 1994. As a result of these actions, the Company recognized an extraordinary loss of $61.1 million, net of tax benefits of $35.8 million, for the net premiums paid to retire debt and terminate swaps prior to their scheduled maturities. During December 1993, the Company initiated a plan to purchase and retire its $72.1 million 11.5% debentures prior to their scheduled maturity. As a result, the Company recognized an extraordinary charge of $9.6 million, net of tax benefits of $5.2 million, for the premium to be paid and the write-off of related unamortized debt discount and issuance costs. Using funds provided by the issuance of commercial paper, the Company retired the debentures in early 1994. 17. Financial Instruments In addition to the financial instruments disclosed in Note 16 and other Notes in the Financial Review, the Company enters into derivative financial instruments for purposes other than trading and does not engage in speculation. Forward foreign exchange contracts and currency swaps hedge foreign currency transactions and balances for periods consistent with the Company's committed exposures. The Company's forward exchange contracts, which mature in 1995, and currency swaps, which mature in 1995 through 1997, reduce the Company's risk due to exchange rate movements because gains and losses on these instruments offset losses and gains on the assets, liabilities and transactions being hedged. Gains and losses related to remeasurements of currency swaps and forward contracts are included in cumulative translation adjustments when such instruments are designated as hedges of net investments in the Company's foreign subsidiaries. All other remeasurement gains and losses are included in the statement of consolidated operations. The Company manages exposure to interest rates by entering into interest rate swap agreements which are recognized as adjustments of interest expense over the borrowing period. The interest rate swaps which were not terminated in 1994 mature in 1995.
Fair Values of Financial Instruments December 31, 1994 December 25, 1993 ---------------------------------------------------------- Gross Gross Notional Notional or Principal Fair or Principal Fair (Millions) Amount Value Amount Value ---------------------------------------------------------------------------------- Cash and cash equivalents $ 1,114.0 $ 1,114.0 $ 133.6 $ 133.6 Long-term notes receivable 220.0 220.0 220.0 220.0 Current maturities and long-term debt (1,857.9) (1,857.0) (2,546.4) (2,797.3) Foreign currency contracts 235.3 3.0 363.8 4.0 Currency swaps 143.0 (11.7) 263.5 (32.8) Interest rate swaps 93.6 (1.3) 915.3 (9.4) ==================================================================================
The estimated fair values of the Company's financial instruments are generally based on quoted market prices or on current rates available to the Company for financial instruments of similar remaining maturities and do not include potential tax effects or possible expenses incurred in settling the transactions. The counterparties to interest rate swaps, foreign currency swaps and forward exchange contracts consist of a number of major international financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties, and limits the amount of agreements or contracts it enters into with any one party. Although the Company may be exposed to credit losses in the event of nonperformance by these counterparties, it does not anticipate losses due to the control procedures described above. 33 18. Interest Expense
(Millions) 1994 1993 1992 ---------------------------------------------------------------- Gross interest expense $202.3 $192.1 $211.8 Capitalized interest (10.7) (8.9) (2.9) Interest expense allocated to divestments and discontinued operation (60.4) (59.4) (67.5) ---------------------------------------------------------------- Interest expense $131.2 $123.8 $141.4 ================================================================
Interest expense is capitalized on major construction projects. Interest expense has been allocated to the discontinued operation based on the ratio of net assets sold to the sum of consolidated common shareholders' equity and consolidated debt less debt specifically related to the discontinued operation. 19. Leases A capital lease transfers substantially all of the benefits and risks of ownership of the leased property to the Company. On the Company's consolidated balance sheet, the following amounts of capitalized leases are included in plant assets and the related obligations are included in debt:
December 31 December 25 (Millions) 1994 1993 --------------------------------------------------------------- Plant assets under capital leases $ 42.8 $ 58.1 Accumulated depreciation (21.6) (30.2) --------------------------------------------------------------- Net capital leases $ 21.2 $ 27.9 =============================================================== Current lease obligations $ 2.5 $ 6.4 Long-term lease obligations 4.5 12.9 --------------------------------------------------------------- Capital lease obligations $ 7.0 $ 19.3 ===============================================================
All other leases are accounted for as operating expenses. Rental expense for operating leases for continuing operations was $50.6 million, $54.9 million and $55.5 million for 1994, 1993 and 1992, respectively. In 1994, $18.3 million represented payments on short-term leases (those expiring within one year of the balance sheet date). The future minimum obligations under leases having an initial or remaining noncancelable term in excess of one year as of December 31, 1994 are as follows:
Capital Operating (Millions) Leases Leases -------------------------------------------------------------- 1995 $ 2.9 $ 19.0 1996 2.3 14.8 1997 1.4 14.5 1998 .3 11.0 1999 .2 10.7 Later years 1.3 65.2 -------------------------------------------------------------- Future minimum obligations 8.4 $135.2 ====== Interest portion (1.4) -------------------------------------------- Capital lease obligations $ 7.0 ============================================
20. Other Income and (Expense)
(Millions) 1994 1993 1992 -------------------------------------------------------------- Interest income $ 19.9 $ 14.5 $18.4 Minority interest (10.3) (10.4) (9.1) Other - - 1.8 -------------------------------------------------------------- $ 9.6 $ 4.1 $11.1 ==============================================================
Interest income includes $1.2 million in each of 1994, 1993 and 1992 on advances to affiliates. 21. Supplemental Cash Flow Information Cash and cash equivalents consist of cash on hand and investments in short-term, highly liquid securities which generally have maturities when purchased of three months or less. Cash payments for income taxes and for interest net of amounts capitalized follow:
(Millions) 1994 1993 1992 -------------------------------------------------------------- Income taxes $ 43.3 $ 12.5 $ 30.3 Interest, net 195.8 181.9 195.3 ==============================================================
[CHART ENTITLED "CAPITAL EXPENDITURES" APPEARS HERE] 34 22. Stock Option and Incentive Plans Under the Company's stock option plans, the Company may grant nonqualified stock options to aid in attracting and retaining employees by encouraging such employees to invest in the Company's common shares and providing them with increased incentives to promote the well-being of Scott. Under these plans, 343,789, 24,500 and 41,000 restricted common shares were granted to certain key management employees in 1994, 1993 and 1992, respectively. The restricted common shares outstanding may not be transferred, pledged or otherwise disposed of for specified vesting periods. Stock appreciation rights and stock option transactions for the three years ended December 31, 1994 are summarized as follows:
Stock Appreciation Rights (Thousands) 1994 1993 1992 ------------------------------------------------------------ Balance outstanding at beginning of year 112.8 125.6 137.7 Rights granted 11.0 10.0 11.0 Rights exercised (15.3) (16.8) (23.1) Rights expired, surrendered or forfeited (107.0) (6.0) - ------------------------------------------------------------ Balance outstanding at end of year 1.5 112.8 125.6 ============================================================
Stock Options (In thousands, except for prices) 1994 1993 1992 ---------------------------------------------------------------- Balance outstanding at beginning of year 4,365.0 3,759.8 3,335.8 Options granted 4,033.0 677.4 666.3 Average price $54.48 $38.50 $43.53 Options exercised for cash (1,167.0) (31.6) (111.9) Average price $38.73 $26.30 $33.00 Options expired, surrendered or forfeited (457.0) (40.6) (130.4) ---------------------------------------------------------------- Balance outstanding at end of year 6,774.0 4,365.0 3,759.8 Average price $49.53 $41.30 $41.64 ---------------------------------------------------------------- At year end: Closing stock price $69.125 $39.625 $36.000 Options exercisable 3,572.2 3,939.0 3,427.0 Shares available for option grants and restricted stock awards 632.6 761.7 1,450.1 ================================================================
The Company's bonus plans provide incentive and reward to approximately 3,700 salaried and certain hourly employees in the U.S. In addition, various international subsidiaries also have incentive plans for key personnel. For the years 1994, 1993 and 1992 the expense under these plans for continuing operations totaled $32.9 million, $18.1 million and $38.0 million, respectively. Most of the bonuses are paid in cash in the year following the year for which they are awarded. To the extent deferral has been elected for years other than 1992 and 1993 by certain highly paid recipients, bonuses are payable wholly or partially in cash or shares in a designated subsequent year or upon termination of employment. Under the terms of these plans 8,981, 22,941 and 10,957 treasury shares were delivered to participants in 1994, 1993 and 1992, respectively, for bonuses earned in prior years. 23. Preferred Shares
December 31 December 25 December 26 (Millions) 1994 1993 1992 ------------------------------------------------------------------- Shares outstanding(1) 46,205 ($3.40 series) $4.7 $4.7 $4.7 24,435 ($4.00 series) 2.4 2.4 2.4 ------------------------------------------------------------------- $7.1 $7.1 $7.1 ===================================================================
(1) Total of 70,640 authorized cumulative senior preferred shares without par value In addition, the Company has authorized but unissued 10,000,000 Series Preferred Shares, without par value, of which 800,000 have been reserved for issuance as Series B Junior Participating Preferred Shares. [CHART ENTITLED "CAPITALIZATION" APPEARS HERE] 35 24. Postretirement Benefits Other Than Pensions The Company sponsors retiree health care and life insurance benefit plans. Substantially all of the Company's U.S. employees and certain international employees may become eligible for these benefits at retirement after meeting minimum age and service requirements. The Company funds benefits on a pay-as- you-go basis, with some retirees paying a portion of the costs. The Company accrues the estimated cost of these benefits during the participants' active service periods up to the dates on which they become eligible for full benefits. The unrecognized transition obligation is amortized on a straight-line basis over the average remaining service period of active plan participants, which is approximately 13 years.
Financial Status of Postretirement Benefit Plans December 31 December 25 (Millions) 1994 1993 ------------------------------------------------------------------ Accumulated Postretirement Benefit Obligations: Retirees $228.8 $183.1 Fully eligible active participants 10.2 52.2 Other active participants 38.0 94.2 ------------------------------------------------------------------ Total APBO 277.0 329.5 Unrecognized transition obligation (94.5) (224.1) Unrecognized net actuarial gain (loss) 22.3 (27.3) ------------------------------------------------------------------ Accrued postretirement benefit cost $204.8 $ 78.1 ================================================================== Assumptions used to value the APBO: Discount rate 8.5% 7.0% Health care cost trend rate 8.7% 10.9% ==================================================================
Net Postretirement Benefit Cost (Millions) 1994 1993 1992 ------------------------------------------------------------------ Benefits earned during the year $10.8 $ 9.3 $ 8.2 Interest cost on benefits earned in prior years 20.1 23.5 23.2 Amortization of items not previously recognized: Transition obligation 16.3 17.1 18.4 Net actuarial (gains) losses (.1) .8 - ------------------------------------------------------------------ Net postretirement benefit cost $47.1 $50.7 $49.8 ==================================================================
The health care cost trend rate used to value the APBO is assumed to decrease gradually to an ultimate rate of 5% in 2007. A one-percentage point increase in the assumed health care cost trend rates for each future year would increase the APBO at December 31, 1994 by approximately 5.7% and would increase the sum of the benefits earned and interest cost components of net postretirement benefit cost for 1994 by approximately 8.7%. In connection with the asset sales referred to in Note 2, the Company transferred postretirement benefit liabilities to the respective buyers. The net postretirement benefit curtailment and settlement loss recognized related to these sales was $34.3 million. The Company's restructuring described in Note 3 included $67.2 million of costs for enhanced termination postretirement benefits and curtailment losses. The above costs associated with the asset sales and the restructuring program increased the Company's accrued postretirement benefit cost. The Company is required to adopt FAS 106 for its international plans no later than 1995. Based upon preliminary estimates, the Company does not anticipate that the effects will be material. The cost of providing these benefits, which was not significant for the years 1994, 1993 and 1992, is currently recognized as expense when paid. 25. Retirement Plans Defined Contribution Plans The Company sponsors savings plans covering substantially all employees in the U.S. The Company's contributions to the plans are based on employee's contributions and compensation. The Company's contributions totaled $15.6 million, $15.0 million and $16.2 million in 1994, 1993 and 1992, respectively. Effective January 1, 1995, U.S. salaried employees are covered by a defined contribution retirement plan. The Company's contributions to the plan will be based on age and compensation. Defined Benefit Plans The Company and most of its consolidated subsidiaries sponsor defined benefit pension or, in certain countries, termination pay plans covering substantially all employees. Company contributions to these plans are made in accordance with applicable laws and tax regulations. Assets of funded plans are invested and benefits are paid primarily through trusts. Approximately 71% and 73% of the funded plans' assets were invested in equity securities at year end 1994 and 1993, respectively. The remainder was invested in bonds, short-term investments and real estate funds. Plans covering U.S. salaried employees provide pension benefits that are based on years of service, up to December 31, 1994, and compensation during the final years of employment. Plans covering U.S. hourly employees provide benefits of stated amounts for each year of service or benefits based on years of service and compensation during the final years of employment. Pension benefits for employees of consolidated international subsidiaries are based primarily on years of service and compensation. Prior service cost is amortized on a straight-line basis over the 36 participants' average remaining service period for plans with compensation-related benefit formulas and over seven years for other plans. In connection with the asset sales referred to in Note 2, the Company transferred pension liabilities and assets to the respective buyers. The net pension curtailment and settlement loss recognized related to these sales was $5.0 million. The Company's restructuring described in Note 3 included $109.7 million of costs for enhanced termination pension benefits and curtailment losses. The above pension costs associated with the sales and the restructuring program increased the Company's accrued pension cost.
Funded Status of Defined Benefit Pension Plans December 31, 1994 December 25, 1993 (Millions) Plans in which Plans in which ----------------------------------------------------------------------------------------------------------------------------------- Assets Exceed Accum. Benefits Assets Exceed Accum. Benefits Accum. Benefits Exceed Assets Accum. Benefits Exceed Assets ----------------------------------------------------------------------------------------------------------------------------------- Present value of future benefit payments based on service to date and: Present pay levels - Vested $181.7 $1,103.7 $381.8 $ 932.8 - Non-vested 5.5 41.0 16.4 63.7 --------------------------------------------------------------- Total Accumulated Benefit Obligation (ABO) 187.2 1,144.7 398.2 996.5 Projected pay increases 20.0 72.3 34.8 131.7 --------------------------------------------------------------- Total Projected Benefit Obligation (PBO) 207.2 1,217.0 433.0 1,128.2 Fair value of plan assets available for benefits 234.8 997.2 474.2 885.9 --------------------------------------------------------------- Assets in excess of (less than) PBO 27.6 (219.8) 41.2 (242.3) Items not yet recognized in the consolidated balance sheet: Unamortized net asset (10.1) (31.6) (21.9) (21.6) Unamortized prior service cost 8.5 17.9 10.0 34.4 Unrecognized net actuarial and investment (gains) losses (7.5) 87.0 14.6 118.1 Adjustment for minimum liability - (44.1) - (61.8) --------------------------------------------------------------- Prepaid (Accrued) pension cost recognized in the consolidated balance sheet $ 18.5 $ (190.6) $ 43.9 $(173.2) =================================================================================================================================== Weighted average assumptions used to value benefit obligations: Discount rate 8.5% 7.1% Assumed rate of increase in compensation levels 5.2% 4.6% ===================================================================================================================================
Net Pension Expense (Millions) 1994 1993 1992 ----------------------------------------------------------------------------------------------------------------------------------- Benefits earned during the year $ 36.9 $ 33.8 $ 33.3 Interest cost on benefits earned in prior years 110.1 111.3 108.9 Net investment loss (income) on plan assets: Actual 7.6 (242.1) (68.9) Deferral of difference between actual and expected income (138.3) 120.3 (52.0) Amortization of items not previously recognized: Net transition asset (5.4) (5.4) (5.6) Prior service cost 6.7 8.2 5.8 Net actuarial and investment losses 3.9 1.3 1.0 ----------------------------------------------------------------------------------------------------------------------------------- Net pension expense $ 21.5 $ 27.4 $ 22.5 =================================================================================================================================== Weighted average assumptions used to determine net pension expense: Expected long-term rate of return on plan assets 10.2% 10.5% 10.5% Discount rate for benefit obligations 7.1% 8.2% 8.3% Assumed rate of increase in compensation levels 4.6% 5.6% 5.8% ===================================================================================================================================
37 26. Litigation The Company is a defendant in numerous actions in state and federal courts seeking damages relating to breast implants. The actions allege that the plaintiffs' breast implants were covered by polyurethane foam manufactured by the Company's former Foam Division, which was sold in 1983, and that the foam caused physical or psychological harm to the plaintiffs. In each of these actions the Company is one of several defendants, including the Foam Division's successor and the manufacturers of the implants. The Company believes that a small percentage of breast implants were covered by polyurethane foam manufactured by the Company's Foam Division prior to its sale. The Company has chosen not to enter into a proposed global settlement of these actions because it believes that it has meritorious defenses against these claims and intends to conduct a vigorous defense and to seek insurance recovery to the extent provided under its insurance policies, if necessary. The Company is also involved in lawsuits and administrative and legal proceedings under other laws, including those relating to the protection of the environment. Although the final results in these suits and proceedings cannot be predicted with certainty, it is the present opinion of the Company, after consulting with counsel, that they will not have a material adverse effect on the Company's financial condition. 27. Shareholder Rights Plan Under the terms of a Shareholder Rights Plan adopted in 1986 and amended in 1988, the Company's Board of Directors declared a dividend distribution of one right for each two outstanding common shares. The rights may not be exercised or traded apart from the common shares to which they are attached unless a person or group has acquired, obtained the right to acquire, or commenced a tender offer for, at least 20% of the Company's outstanding common shares. In such event, each right will become exercisable for one one-hundredth of a Series B Junior Participating Preferred Share, of which 800,000 have been reserved for issuance, for a price of $180. If a person or group acquires 20% or more of the Company's outstanding common shares other than through an offer which provides fair value to all common shareholders; or the Company is the surviving corporation in a merger with a holder of 20% or more of its common shares and such shares are not changed or exchanged; or a holder of 20% or more of the Company's common shares engages in certain self-dealing transactions with the Company, each right will become exercisable for common shares worth $360 and the rights held by the acquirer will become null and void. If the Company is involved in a merger and its common shares are changed or exchanged, or if more than 50% of its assets or earnings power is sold or transferred, each right will become exercisable for common stock of the acquirer worth $360. The rights will expire on July 25, 1996 unless earlier redeemed by the Company for $.05 per right. Subject to its right to extend the redemption period, the Company may redeem the rights at any time until ten days after any person or group has acquired, or obtained the right to acquire, at least 20% of the Company's outstanding common shares. [CHART ENTITLED "SALES BY GEOGRAPHIC AREA" APPEARS HERE] 38 28. Business Segments-- Consolidated Operations Since the sale of the Company's printing and publishing papers operation on December 20, 1994 (see Note 2) the Company operates in one segment--tissue products. This segment includes a broad range of products (primarily tissue products) for personal care, environmental cleaning and wiping, health care and foodservice. Pulp and timberlands operations which are vertically integrated with those businesses are also included. The Company's investment in international equity affiliates of $174.3 million in 1994, $223.8 million in 1993 and $246.2 million in 1992 is included in Corporate assets. Information concerning the operations of international equity affiliates is contained in Note 9.
Geographic Area Income (Loss) Identifiable Year (Millions) Sales Before Taxes Assets(1)(2) ------------------------------------------------------------------------------------------------------------ 1994 United States $2,169.8 $ 349.7 $2,184.7 Europe 1,128.1 121.6 1,327.6 Pacific and Latin America 283.2 42.0 280.9 ------------------------------------------------------------------------------------------------------------ Subtotal--Tissue Products 3,581.1 513.3 3,793.2 Corporate - (11.7) 1,832.9 Interest expense - 131.2 - Other income and (expense) - 9.6 - ------------------------------------------------------------------------------------------------------------ Consolidated total $3,581.1 $ 380.0 $5,626.1 ============================================================================================================ 1993 United States $2,138.8 $ (55.7) $2,156.9 Europe 1,185.2 (17.0) 1,356.6 Pacific and Latin America 260.9 17.9 247.2 ------------------------------------------------------------------------------------------------------------ Subtotal--Tissue Products 3,584.9 (54.8) 3,760.7 Corporate restructuring - (41.1) - Corporate - (50.2) 2,864.4 Interest expense - 123.8 - Other income and (expense) - 4.1 - ------------------------------------------------------------------------------------------------------------ Consolidated total $3,584.9 $(265.8) $6,625.1 ============================================================================================================ 1992 United States $2,122.2 $ 213.2 $1,981.4 Europe 1,485.7 121.9 1,566.6 Pacific and Latin America 248.1 39.6 232.5 ------------------------------------------------------------------------------------------------------------ Subtotal--Tissue Products 3,856.0 374.7 3,780.5 Corporate - (51.8) 2,519.1 Interest expense - 141.4 - Other income and (expense) - 11.1 - ------------------------------------------------------------------------------------------------------------ Consolidated total $3,856.0 $ 192.6 $6,299.6 ============================================================================================================
(1) Includes investments in and advances to other equity affiliates in each of 1994, 1993 and 1992 of: Tissue Products--$50.3, $57.3, and $65.3; Corporate $2.7, $26.8 and $22.8, respectively. (2) Corporate includes discontinued Printing and Publishing Papers segment assets of $1,851.8 and $1,842.2 in 1993 and 1992, respectively. 39 Five-Year Financial Summary (1) -------------------------------------------------------------------------------- Scott Paper Company
(Millions) 1994(2) 1993(3) 1992(4) 1991(5) 1990(5) ------------------------------------------------------------------------------------------------------------------------------- Sales $3,581.1 $3,584.9 $3,856.0 $3,793.4 $3,902.0 ------------------------------------------------------------------------------------------------------------------------------- Costs and expenses Product costs 2,510.8 2,576.4 2,745.7 2,734.4 2,848.5 Marketing and distribution 479.9 536.7 572.0 540.9 528.3 Research, administration and general 189.0 208.3 218.3 221.3 224.3 Restructuring and divestments - 401.1 - 267.6 111.5 Other (100.2) 8.5 (2.9) (4.0) 40.7 ------------------------------------------------------------------------------------------------------------------------------- 3,079.5 3,731.0 3,533.1 3,760.2 3,753.3 ------------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations 501.6 (146.1) 322.9 33.2 148.7 Interest expense 131.2 123.8 141.4 164.3 155.6 Other income and (expense) 9.6 4.1 11.1 67.1 25.7 ------------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations before taxes 380.0 (265.8) 192.6 (64.0) 18.8 Income taxes 139.8 (49.7) 50.5 (4.1) (24.2) ------------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations before share of earnings (loss) of international equity affiliates, extraordinary loss and cumulative effect of accounting change 240.2 (216.1) 142.1 (59.9) 43.0 Share of earnings (loss) of international equity affiliates 23.9 (21.7) 5.4 30.2 37.8 ------------------------------------------------------------------------------------------------------------------------------- Income (Loss) from continuing operations before extraordinary loss and cumulative effect of accounting change 264.1 (237.8) 147.5 (29.7) 80.8 ------------------------------------------------------------------------------------------------------------------------------- Discontinued operation: Income (Loss) from operations through December 20, 1994, net of income taxes 6.8 (51.3) 19.7 (40.2) 67.2 Gain (Loss) on disposal - - - - - ------------------------------------------------------------------------------------------------------------------------------- Income (Loss) before extraordinary loss and cumulative effect of accounting change 270.9 (289.1) 167.2 (69.9) 148.0 Extraordinary loss on early extinguishment of debt, net of income tax benefit (61.1) (9.6) - - - Cumulative effect of change in accounting for income taxes - 21.7 - - - ------------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 209.8 $ (277.0) $ 167.2 $ (69.9) $ 148.0 =============================================================================================================================== Dollars per common share Income (Loss) from continuing operations before extraordinary loss and cumulative effect of accounting change $3.54 $(3.22) $1.99 $(.41) $1.10 Income (Loss) from discontinued operation .09 (.69) .27 (.54) .91 Extraordinary loss on early extinguishment of debt (.82) (.13) - - - Cumulative effect of change in accounting for income taxes - .29 - - - ------------------------------------------------------------------------------------------------------------------------------- Earnings (Loss) $2.81 $(3.75) $2.26 $(.95) $2.01 ------------------------------------------------------------------------------------------------------------------------------- Dividends $.80 $.80 $.80 $.80 $.80 Market price - high 70 5/8 41 46 46 5/8 51 3/8 - low 37 1/4 31 34 1/2 29 1/2 30 =============================================================================================================================== (Millions) Total assets at year end $5,626.1 $6,625.1 $6,299.6 $6,492.6 $6,900.5 Long-term debt at year end 1,093.1 2,366.2 2,030.6 2,333.2 2,454.9 Capital expenditures--continuing operations 333.1 382.7 273.2 269.1 426.2 Depreciation and cost of timber harvested--continuing operations 204.6 193.9 177.8 215.3 205.6 =============================================================================================================================== Income (Loss) from operations as a percentage of sales 14.0% (4.1)% 8.4% .9% 3.8% Debt as a percentage of total capitalization 41.7% 50.6% 45.7% 48.5% 49.5% Return on common shareholders' equity 12.7% (14.4)% 8.2% (3.3)% 6.9% =============================================================================================================================== Average common shares outstanding (Millions) 74.7 74.0 73.9 73.7 73.6 Number of common shareholders (Thousands) 34.4 37.7 37.9 39.5 40.7 Number of employees (Thousands) 15.1 25.9 26.5 29.1 30.8 ===============================================================================================================================
(1) See Management's Discussion and Analysis and Note 2 of the Financial Review for description of the discontinued operation. (2) Earnings per share included net special charges of $.06. Excluding special items earnings per share for continuing operations in 1994 were $2.78. See Management's Discussion and Analysis. (3) Loss per share included net special charges of $5.33. Excluding special items earnings would have been $1.58. See Management's Discussion and Analysis. (4) Reflects the adoption of FAS 106, Employers' Accounting for Postretirement Benefits, and the revision of estimated useful lives for depreciable assets which increased net income by $35.3 million and earnings per share by $.48. (5) (Loss) Earnings per share for 1991 and 1990 include net special charges of $2.49 and $1.36 respectively, for special items related to the Company's business improvement program. Excluding these items, earnings per share for 1991 and 1990 were $1.54 and $3.37, respectively. 40 Stock Exchange Listings Common Shares -- Listed on the New York, Philadelphia and Pacific Stock Exchanges. Stock Symbol -- SPP Cumulative Senior Preferred Shares -- Listed on the Philadelphia Stock Exchange. 41 EX-21 5 SUBSIDIARIES EXHIBIT 21. SUBSIDIARIES Scott Paper Company, a corporation organized under the laws of Pennsylvania, has the following subsidiaries and affiliates. Information is shown as of December 31, 1994. Not listed are certain small subsidiaries, including dam, water power, finance and inactive subsidiaries, which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
PERCENTAGE ORGANIZED OF VOTING UNDER THE SECURITIES LAWS OF OWNED/(1)/ ------------------- ---------- Consolidated subsidiaries Cape Chignecto Lands Limited................ Canada 100% Cartiera Scott Sud S.p.A. .................. Italy 100% Cross Paperware Limited..................... United Kingdom 100%/(2)/ Delaware Overseas Finance, Inc. ............ Delaware 100% Discott II, Inc. ........................... Delaware 100% Durafab, Inc. .............................. Texas 100% Escuhbia Oil Company........................ Alabama 100% Excell Paper Sales Company.................. Pennsylvania 100% Financo Ltd. ............................... Cayman Islands, British West Indies 100% Health Care Company......................... Delaware 100%/(2)/ Owikeno Lake Timber Company Limited......... Canada 100% Riscott Insurance, Ltd. .................... Bermuda 100% Scott CB Holding Co. ....................... Delaware 100% Scott Continental, N.V. .................... Belgium 100% Scott European Holdings, Inc. .............. Delaware 100% Scott GmbH.................................. Germany 100% Scott Graphics, Inc. ....................... Massachusetts 100% Scott Iberica, S.A. ........................ Spain 99.7% Scott Investment Company.................... Delaware 100% Scott Japan Limited......................... Japan 100% Scott Limited............................... United Kingdom 100% Scott Maritimes Limited..................... Canada 100% Scott Miranda, S.A. ........................ Spain 100% Scott Page B.V. ............................ Netherlands 100% Scott Paper Beteiligungsgesellschaft mbH.... Germany 100% Scott Paper Company de Costa Rica, S.A. .... Costa Rica 51% Scott Paper Company--Honduras, S.A. de C.V. ...................................... Honduras 51%/(3)/ Scott Paper Coordination Center, N.V. ...... Belgium 100% Scott Paper GmbH............................ Germany 100% Scott Paper (Guangzhou) Limited............. China 75% Scott Paper (Hong Kong) Limited............. Hong Kong 100% Scott Paper International Finance (Nether- lands), B.V. .............................. Netherlands 100% Scott Paper International, Limited.......... Hong Kong 100% Scott Paper International Trade Venture (Eu- rope), B.V. ............................... Belgium 100% Scott Paper (Malaysia) Sdn. Bhd. ........... Malaysia 100% Scott Paper Overseas Finance Limited........ Cayman Islands, British West Indies 100% Scott Paper Portugal Lda. .................. Portugal 100% Scott Paper (Shanghai) Co., Ltd. ........... China 56%/(4)/ Scott Paper (Singapore) Pte. Ltd. .......... Singapore 100% Scott Paper (U.K.) Ltd. .................... United Kingdom 100%
EX-23 6 CONSENT EXHIBIT 23. CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Numbers 33-56159, 33-56161 and 33-56379) and on Form S-3 (Numbers 33-49888 and 33-56157) of Scott Paper Company of our report dated January 31, 1995, on our audit of the consolidated financial statements of Scott Paper Company as of December 31, 1994, and for the year then ended, appearing on page 23 of the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 18 of this Form 10-K. Coopers & Lybrand L.L.P. Philadelphia, Pennsylvania March 29, 1995 We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Numbers 33-56159, 33-56161 and 33-56379) and on Form S-3 (Numbers 33-49888 and 33-56157) of Scott Paper Company of our report dated January 25, 1994, except as to the subheading "Discontinued operation" in Note 2, which is as of December 20, 1994, appearing on page 17 of this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 19 of this Form 10-K. Price Waterhouse LLP Philadelphia, Pennsylvania March 29, 1995 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000,000 USD YEAR DEC-31-1994 DEC-26-1993 DEC-31-1994 1 1,114 0 534 27 402 2,309 4,625 2,143 5,626 1,939 1,093 495 0 7 1,250 5,626 3,581 3,581 2,511 2,511 (100) 4 131 380 140 264 7 (61) 0 210 2.81 2.81