UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For Quarter Ended June 30, 1994
Commission File Number 0-11951
JEFFERSON SMURFIT CORPORATION (U.S.)
(Exact name of registrant as specified in its charter)
Delaware 36-2931273
(State or other jurisdiction of (IRS Employer
Identification No.) incorporation or organization)
8182 Maryland, St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 746-1100
Registrant's telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 1, 1994, the registrant had outstanding 1,000
shares of common stock, $.01 par value per share.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $765.9 $734.9 $1,493.6 $1,470.8
Costs and expenses
Cost of goods sold 654.9 634.4 1,284.1 1,268.8
Selling and administrative expenses 55.4 59.4 107.1 119.7
710.3 693.8 1,391.2 1,388.5
Income from operations 55.6 41.1 102.4 82.3
Other income (expense)
Interest expense (69.3) (62.5) (134.1) (127.7)
Other, net 1.7 .8 3.1 2.3
(67.6) (61.7) (131.0) (125.4)
Loss before income taxes, extra-
ordinary item and cumulative effect
of accounting changes (12.0) (20.6) (28.6) (43.1)
Provision for (benefit from) income taxes (3.6) (6.0) (8.4) (13.0)
Loss before extraordinary item
and cumulative effect of
accounting changes (8.4) (14.6) (20.2) (30.1)
Extraordinary item
Loss from early extinguishment of
debt, net of income tax benefits (51.6) (37.8) (51.6) (37.8)
Cumulative effect of accounting changes
Post-retirement benefits (37.0)
Income taxes 20.5
Net loss $(60.0) $(52.4) $ (71.8) $ (84.4)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<CAPTION>
June 30, December 31,
1994 1993
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 80.9 $ 44.2
Receivables, less allowances of
$8.9 in 1994 and $9.2 in 1993 289.9 243.2
Refundable income taxes .2 .7
Inventories
Work-in-process and finished goods 89.6 96.1
Materials and supplies 128.4 137.2
218.0 233.3
Deferred income taxes 41.8 41.9
Prepaid expenses and other current assets 3.3 5.2
Total current assets 634.1 568.5
Property, plant and equipment 1,994.6 1,937.7
Less accumulated depreciation and amortization 612.8 563.2
1,381.8 1,374.5
Timberland, less timber depletion 259.8 261.5
Deferred debt issuance costs 87.4 52.3
Goodwill, less accumulated amortization of
$31.3 in 1994 and $27.6 in 1993 258.6 261.4
Other assets 98.3 78.9
$2,720.0 $2,597.1
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 8.1 $ 10.3
Accounts payable 324.4 270.6
Accrued compensation and payroll taxes 118.8 110.1
Interest payable 45.2 52.6
Other accrued liabilities 93.5 84.9
Total current liabilities 590.0 528.5
Long-term debt, less current maturities
Nonsubordinated 1,645.3 1,839.4
Subordinated 789.6 779.7
Total long-term debt 2,434.9 2,619.1
Other long-term liabilities 230.6 257.1
Deferred income taxes 190.2 232.2
Minority interest 17.3 18.0
Stockholders' deficit
Common stock, par value $.01 per share;
1,000 shares authorized and outstanding
Additional paid-in capital 1,118.3 731.8
Retained earnings (deficit) (1,861.3) (1,789.6)
Total stockholders' deficit (743.0) (1,057.8)
$2,720.0 $2,597.1
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<CAPTION>
Six months ended June 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities
Net loss $ (71.8) $(84.4)
Adjustments to reconcile net loss to net
cash provided by operating activities
Extraordinary loss from early
extinguishment of debt 83.2 59.5
Cumulative effect of accounting changes
Post-retirement benefits 58.9
Income taxes (20.5)
Depreciation, depletion and amortization 65.6 63.1
Amortization of deferred debt issuance costs 4.4 4.5
Deferred income taxes (42.0) (64.1)
Non-cash interest 10.0 8.6
Non-cash employee benefit expense (3.9) (4.6)
Change in current assets and liabilities,
net of effects from acquisitions
Receivables (57.6) (11.8)
Inventories 15.3 (9.3)
Prepaid expenses and other current assets 2.1 3.2
Accounts payable and accrued liabilities 1.1 26.3
Interest payable (6.4) (2.3)
Income taxes payable .6 16.2
Other, net (6.1) 1.1
Net cash provided by (used for) operating activities (5.5) 44.4
Cash flows from investing activities
Property additions (55.6) (47.4)
Timberland additions (9.4) (8.3)
Proceeds from property and timberland disposals 1.0 3.5
Net cash used for investing activities (64.0) (52.2)
Cash flows from financing activities
Capital contribution 386.5
Proceeds from long-term borrowings 928.4 513.9
Repayment of long-term debt (1,131.8) (486.3)
Deferred debt issuance costs (76.9) (19.9)
Net cash provided by (used for) financing activities 106.2 7.7
Increase (decrease) in cash and cash equivalents 36.7 (.1)
Cash and cash equivalents
Beginning of period 44.2 45.0
End of period $ 80.9 $ 44.9
</TABLE>
See notes to consolidated financial statements.
<PAGE>
JEFFERSON SMURFIT CORPORATION (U.S.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions)
(Unaudited)
1. -- Basis of Presentation
The accompanying consolidated financial statements of Jefferson Smurfit
Corporation (U.S.) ("the Company" or "JSC U.S.") have been prepared in
accordance with the instructions to Form 10-Q and reflect all
adjustments which management believes necessary (which include only
normal recurring accruals) to present fairly the financial position and
results of operations. These statements, however, do not include all
information and footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. Interim results may not
necessarily be indicative of results which may be expected for any other
interim period or for the year as a whole. For further information
refer to the consolidated financial statements and footnotes included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1993, filed on March 31, 1994 with the Securities and Exchange
Commission (the "JSC U.S. 1993 10-K").
As further explained in the JSC U.S. 1993 10-K, JSC U.S. is a wholly-
owned subsidiary of Jefferson Smurfit Corporation ("JSC"). Prior to May
4, 1994, 50% of the voting stock of JSC was owned by Smurfit Packaging
Corporation and Smurfit Holdings B.V., indirect wholly-owned
subsidiaries of Jefferson Smurfit Group plc ("JS Group"), a public
corporation organized under the laws of the Republic of Ireland. As of
such date, the remaining 50% was owned by the Morgan Stanley Leveraged
Equity Fund II, L.P. ("MSLEF II"). JSC has no operations other than
its investment in JSC U.S.
In May 1994, JSC completed the initial phase of a recapitalization plan
(the "Recapitalization") to repay or refinance a substantial portion of
its indebtedness in order to improve operating and financial
flexibility. In connection with the Recapitalization, (i) JSC issued
and sold 19,250,000 shares of common stock pursuant to a registered
public offering at an initial public offering price of $13.00 per share,
(ii) JS Group, through its wholly-owned subsidiary Smurfit International
B.V. ("SIBV"), purchased an additional 11,538,462 shares of common stock
for $150 million, and (iii) Container Corporation of America ("CCA")
issued and sold $300 million aggregate principal amount of 11.25% Series
A Senior Notes due 2004 and $100 million aggregate principal amount of
10.75% Series B Senior Notes due 2002 pursuant to a registered public
offering. The proceeds from the equity and debt offerings, the sale to
SIBV, and borrowings under a new bank facility, among other things, were
used to repay the Company's outstanding bank debt. The new bank
facility includes a delayed term loan which allows the Company to redeem
its Subordinated Debentures and pay related premiums on approximately
December 1, 1994, as the second phase of the Recapitalization. December
1, 1994 is the earliest date the Subordinated Debentures may be
redeemed.
In connection with the recapitalization as discussed above, in May 1994,
the Company changed its name to Jefferson Smurfit Corporation (U.S.) and
Holdings changed its name to Jefferson Smurfit Corporation.
<PAGE>
2. -- Summarized Financial Information of Container Corporation of
America
The following summarized financial information is presented for CCA, a
wholly-owned subsidiary of the Company. CCA is the issuer of the Senior
Subordinated Notes, the Subordinated Debentures and the Junior
Subordinated Accrual Debentures, as defined in the JSC U.S. 1993 10-K.
These securities are guaranteed by JSC.
<TABLE>
Condensed consolidated balance sheets:
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
Current assets $ 620.9 $ 448.1
Property, plant and equipment and timberlands, net 1,081.1 1,073.5
Due from JSC 1,260.2 1,244.3
Deferred debt issuance costs 86.0 50.5
Goodwill 92.3 93.7
Other assets 57.3 54.8
Total assets $3,197.8 $2,964.9
Current liabilities $ 345.5 $ 264.4
Long-term debt 2,176.2 2,378.4
Deferred income taxes and other liabilities 361.9 371.6
Stockholder's equity (deficit) 314.2 (49.5)
Total liabilities and stockholder's deficit $3,197.8 $2,964.9
</TABLE>
<TABLE>
Condensed consolidated statement of operations:
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $516.8 $480.7 $1,003.4 $964.8
Costs and expenses 477.8 444.6 928.8 888.8
Interest expense 64.2 58.6 124.6 119.2
Interest income from JSC 45.5 42.5 89.5 85.3
Other income, net 5.4 5.6 .1
Income before income taxes, extra-
ordinary item and cumulative
effect of accounting change 25.7 20.0 45.1 42.2
Provision for income taxes 9.1 8.3 16.3 17.0
Extraordinary item
Loss from early extinguishment
of debt, net of income tax benefits (51.6) (37.8) (51.6) (37.8)
Cumulative effect of change in accounting
for post-retirement benefits (4.7)
Net loss $(35.0) $(26.1) $ (22.8) $(17.3)
</TABLE>
<PAGE>
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following tables present net sales on a segment basis for the three
months and six months ended June 30, 1994 and 1993 and an analysis of
the increases or (decreases) in net sales:
<TABLE>
Net Sales by Segment
(In Millions)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Paperboard/Packaging Products $703.2 $672.1 $1,369.7 $1,348.7
Newsprint 62.7 62.8 123.9 122.1
Total net sales $765.9 $734.9 $1,493.6 $1,470.8
</TABLE>
<TABLE>
Net Sales Analysis
(In Millions)
<CAPTION>
Three months 1994 Six months 1994
compared to compared to
three months 1993 six months 1993
<S> <C> <C>
Increase (decrease) due to:
Sales price and product mix
Paperboard/Packaging Products $ 5.8 $(21.2)
Newsprint (2.6) .2
3.2 (21.0)
Sales Volume
Paperboard/Packaging Products 53.4 98.8
Newsprint 2.4 1.5
55.8 100.3
Acquisitions and new facilities
Paperboard/Packaging Products 1.3 2.2
Plant closings
Paperboard/Packaging Products (29.3) (58.7)
Net sales increase $31.0 $ 22.8
</TABLE>
The Company's net sales for the six months ended June 30, 1994 increased
1.6% to $1,493.6 million, compared to $1,470.8 million for the same
period in 1993. Net sales increased 1.6% in the Paperboard/Packaging
Products segment and increased 1.5% in the Newsprint segment.
The increase in Paperboard/Packaging Products segment sales was due
primarily to higher sales volumes, particularly for corrugated shipping
containers which increased 6% during the period. Sales growth was
mitigated by lower average sales prices, the shutdown of several
operating facilities pursuant to the Company's Restructuring Program (as
defined below), product mix changes and severe weather conditions
experienced in January and February. Despite two price increases since
November 1993, average prices for corrugated shipping containers were
lower during the first half of 1994, reflecting the severe price
deterioration which occurred in the second half of 1993. An additional
price increase was implemented at the beginning of the third quarter.
<PAGE>
Cost of goods sold as a percent of net sales for the six months ended
June 30, 1994 and 1993 were 84.6% and 85.0%, respectively, for the
Paperboard/Packaging Products segment and 101.5% and 102.0%,
respectively, for the Newsprint segment. The price of reclaimed fiber,
a key element of the Company's cost of sales, has escalated in recent
months due to increased demand. While unable to predict how long this
upward demand will last, the Company does not anticipate a problem
satisfying its need for this material in the foreseeable future.
Selling and administrative expenses decreased to $107.1 million (10.5%)
for the six months ended June 30, 1994 compared to $119.7 million for
the same period in 1993. The decline in cost of goods sold as a percent
of net sales, particularly in view of lower sales prices for corrugated
containers, and the reductions in selling and administrative expenses
are due in large part to cost reduction initiatives and the
Restructuring Program.
The restructuring program, which was implemented late in 1993, (the
"Restructuring Program"), was developed by the Company as a means to
improve its long-term competitive position. The Restructuring Program
provides for plant closures, asset write-downs, reductions in workforce,
and relocation of employees and consolidation of certain plant
operations, which are expected to be completed over an approximate two
to three year period. In accordance with the Restructuring Program, the
Company closed certain high cost operating facilities, including a
coated recycled boxboard mill, and five converting plants in the first
quarter of 1994 and two reclamation plants in the fourth quarter of
1993. Approximately 40% of the $53 million of cash expenditures
anticipated under the Restructuring Program was paid in the six months
ended June 30, 1994. The Company believes that a substantial portion of
the cash expenditures related to the Restructuring Program will be
funded through operations in 1994, 1995 and 1996, as originally planned.
Income from operations increased 24.4% to $102.4 million for the six
months ended June 30, 1994 compared to $82.3 million for the same period
in 1993 due primarily to the cost reduction initiatives, the
Restructuring Program and higher sales volumes, as mentioned above.
Interest expense of $134.1 million for the six months ended June 30,
1994 was $6.4 million higher than the comparable period of 1993 due to
higher effective interest rates in the 1994 period.
The benefit from income taxes for the six months ended June 30, 1994 was
$8.4 million. The effective tax rate for the period was lower than the
Federal statutory tax rate due to several factors, the most significant
of which was the nondeductibility of goodwill amortization.
The Company had a loss before extraordinary item and cumulative effect
of accounting changes for the six months ended June 30, 1994 and 1993 of
$20.2 million ($.22 per share) and $30.1 million ($.47 per share),
respectively. The Company recorded an extraordinary loss from the early
extinguishment of debt in the second quarter of each year, bringing the
net loss for the six months ended June 30, 1994 and 1993 to $71.8
million ($.80 per share) and $84.4 million ($1.33 per share),
respectively. The Company refinanced a majority of its debt in 1993 and
1994 in preparation for and in conjunction with its initial public
offering completed earlier this year. The net loss for the 1993 period
also included a loss of $16.5 million for the cumulative effects of
accounting changes related to the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and SFAS No. 109,
"Accounting for Income Taxes".
Liquidity and Capital Resources
The Company's primary uses of cash for the next several years will be
principal and interest payments on its indebtedness and capital
expenditures.
<PAGE>
In May 1994, JSC and the Company implemented the first phase of a
recapitalization plan to repay or refinance a substantial portion of
indebtedness in order to improve operating and financial flexibility by
reducing the level and overall cost of debt, extending maturities of
indebtedness, increasing stockholders' equity and increasing access to
capital markets (the "Recapitalization"). The Recapitalization included
the following: (i) the issuance and sale by CCA of $300 million
aggregate principal amount of $11.25% Series A Senior Notes due 2004 and
$100 million aggregate principal amount of 10.75% Series B Senior Notes
due 2002 (the "Debt Offerings"); (ii) the issuance and sale by JSC of
19,250,000 shares of JSC Common Stock (the "Equity Offerings") for
$13.00 per share; (iii) the purchase by SIBV of 11,538,462 shares of
JSC Common Stock for $13.00 per share (the "SIBV Investment"); and (iv)
the entering into of a new credit agreement by CCA and JSC (the "New
Credit Agreement") consisting of a $450 million revolving credit
facility (the "New Revolving Credit Facility"), a $300 million initial
term loan and a $900 million delayed term loan (the "Delayed Term
Loan").
The first step of the Recapitalization, pursuant to which the Company
applied the net proceeds of the Equity Offerings and the SIBV Investment
and a portion of the net proceeds of the Debt Offerings, together with
borrowings under the New Credit Agreement, to pay in full the Company's
previously outstanding bank debt, was completed in May 1994. The second
step of the Recapitalization involves the application, on approximately
December 1, 1994, of borrowings, including borrowings under the New
Credit Agreement (including borrowings under the Delayed Term Loan), to
redeem CCA's (a) 13.5% Senior Subordinated Notes due 1999, (b) 14.0%
Subordinated Debentures due 2001 and (c) 15.5% Junior Subordinated
Accrual Debentures due 2004. The earliest date the Subordinated
Debentures may be redeemed is December 1, 1994. Approximately $78
million of net proceeds of the Debt Offerings were segregated primarily
to fund a portion of the Company's 1994 capital expenditures or to pay
accrued and unpaid interest on the Junior Subordinated Accrual
Debentures as of December 1, 1994. To the extent such proceeds of the
Debt Offerings are used to fund the Company's 1994 capital expenditures,
the Company will use available cash or borrow under the New Revolving
Credit Facility (or, to the extent available, under the Delayed Term
Loan) to pay such interest.
The New Credit Agreement imposes an annual limit on future capital
expenditures of approximately $150.0 million. The capital spending
limit is subject to increase by an amount up to $75 million in any year
if the prior year's spending was less than the maximum amount allowed;
for 1994, the Company has a carryover of $75.0 million. Capital
expenditures consist of property and timberland additions and
acquisitions of businesses. Capital expenditures for the six months
ended June 30, 1994 were $65.0 million. Because the Company has
invested heavily in its core businesses over the last several years,
management believes the annual limitation for capital expenditures
should not impair its plans for maintenance, expansion and continued
modernization of its facilities. The New Credit Agreement also
prohibits the payment of any dividends by the Company for the
foreseeable future.
The Company has historically financed its operations through cash
provided by operations, borrowings under its credit agreement and debt
and equity financings. The Company expects that liquidity will be
provided by its operations and through the utilization of unused
borrowing capacity under its New Credit Agreement and the Securitization
Program. At June 30, 1994, the Company had $287.5 million in unused
borrowing capacity under its New Credit Agreement and borrowing capacity
of $27.8 million under the Securitization Program subject to the
Company's level of eligible accounts receivable. There are no scheduled
payments due on bank debt until October 1995, at which time
approximately $46.0 million will be payable. The Securitization Program
matures in April 1996, at which time the Company expects it to be
refinanced.
<PAGE>
The Company's existing indebtedness imposes restrictions on its ability
to incur additional indebtedness. Such restrictions, together with the
highly leveraged position of the Company, could restrict corporate
activities, including the Company's ability to respond to market
conditions, to provide for unanticipated capital expenditures or to take
advantage of business opportunities. However, the Company believes that
cash provided by operations and available financing sources will be
sufficient to meet the Company's cash requirements for the next several
years.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended June 30, 1994, the following
developments occurred in Legal Proceedings not previously
reported in the JSC 1993 10-K.
JSC and CCA have entered into a settlement with the United
States, the State of Indiana and certain other parties pursuant
to which their obligations in connection with a superfund site
in Griffin, Indiana will be satisfied in exchange for aggregate
payments of approximately $588,000, which will most likely be
made in the fourth quarter of 1994. CCA also paid $258,000 and
agreed to pay an additional amount of approximately $50,000 in
full settlement of its obligations in connection with a
superfund site in Kankakee County, Illinois.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
James R. Thompson, Partner and Chairman of the law firm of
Winston & Strawn and the former governor of the state of
Illinois, was appointed to the JSC Board of Directors on July
19, 1994.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included in this Form 10-Q.
None
b) Report on Form 8-K
A Form 8-K announcing preliminary financial results for the first
quarter of 1994 was filed with the Securities and Exchange
Commission on April 25, 1994.
The Company did not file any other reports on Form 8-K during the
three months ended June 30, 1994.
<PAGE>
Signatures
Pursuant to the requirements 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.
JEFFERSON SMURFIT CORPORATION (U.S.)
(Registrant)
Date August 5, 1994 /s/ John R. Funke
John R. Funke
Vice President
and Chief Financial Officer
(Principal Accounting Officer)
