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 March 31, 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
incorporation or organization) Identification No.)
8182 Maryland, St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 746-1100
Registrant's telephone number, including area code
Jefferson Smurfit Corporation
(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 May 13, 1994, the registrant had outstanding 1,000
shares of common stock, $.01 par value per share.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
(Unaudited)
<CAPTION>
Three months ended March 31,
1994 1993
<S> <C> <C>
Net sales $727.7 $735.9
Costs and expenses
Cost of goods sold 629.2 635.8
Selling and administrative expenses 51.7 60.3
680.9 696.1
Income from operations 46.8 39.8
Other income (expense)
Interest expense (64.8) (65.2)
Other, net 1.4 2.9
(63.4) (62.3)
Loss before income taxes and
cumulative effect of
accounting changes (16.6) (22.5)
Provision for (benefit from) income taxes (4.8) (7.0)
Loss before cumulative effect of
accounting changes (11.8) (15.5)
Cumulative effect of accounting changes
Post-retirement benefits (37.0)
Income taxes 20.5
Net loss $(11.8) $(32.0)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION (U.S.)
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<CAPTION>
March 31, December 31,
1994 1993
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 44.0 $ 44.2
Receivables, less allowances of
$8.6 in 1994 and $9.2 in 1993 258.3 243.2
Refundable income taxes .3 .7
Inventories
Work-in-process and finished goods 90.6 96.1
Materials and supplies 134.8 137.2
225.4 233.3
Deferred income taxes 42.5 41.9
Prepaid expenses and other current assets 6.0 5.2
Total current assets 576.5 568.5
Property, plant and equipment 1,964.3 1,937.7
Less accumulated depreciation and amortization 588.4 563.2
1,375.9 1,374.5
Timberland, less timber depletion 262.2 261.5
Deferred debt issuance costs 51.5 52.3
Goodwill, less accumulated amortization of
$29.5 in 1994 and $27.6 in 1993 260.4 261.4
Other assets 82.0 78.9
$2,608.5 $2,597.1
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt $ 9.8 $ 10.3
Accounts payable 257.4 270.6
Accrued compensation and payroll taxes 120.3 110.1
Interest payable 77.8 52.6
Other accrued liabilities 89.4 84.9
Total current liabilities 554.7 528.5
Long-term debt, less current maturities
Nonsubordinated 1,851.0 1,839.4
Subordinated 784.6 779.7
Total long-term debt 2,635.6 2,619.1
Other long-term liabilities 243.1 257.1
Deferred income taxes 227.1 232.2
Minority interest 17.6 18.0
Stockholder's deficit
Common stock, par value $.01 per share;
1,000 shares authorized and outstanding
Additional paid-in capital 731.8 731.8
Retained earnings (deficit) (1,801.4) (1,789.6)
Total stockholder's deficit (1,069.6) (1,057.8)
$2,608.5 $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>
Three months ended March 31,
1994 1993
<S> <C> <C>
Cash flows from operating activities
Net loss $(11.8) $(32.0)
Adjustments to reconcile net loss to net
cash provided by operating activities
Cumulative effect of accounting changes
Post-retirement benefits 58.9
Income taxes (20.5)
Depreciation, depletion and amortization 33.4 31.1
Amortization of deferred debt issuance costs 1.9 2.9
Deferred income taxes (5.8) (26.8)
Non-cash interest 4.9 4.2
Non-cash employee benefit expense (1.9) (2.5)
Change in current assets and liabilities,
net of effects from acquisitions
Receivables (15.1) (8.6)
Inventories 7.9 (8.5)
Prepaid expenses and other current assets (.8) 1.4
Accounts payable and accrued liabilities 1.5 17.5
Interest payable 28.0 17.0
Income taxes payable .4 (1.8)
Other, net (18.4) (1.3)
Net cash provided by operating activities 24.2 31.0
Cash flows from investing activities
Property additions (24.5) (20.0)
Timberland additions (6.9) (3.2)
Proceeds from property and timberland disposals .4 1.9
Net cash used for investing activities (31.0) (21.3)
Cash flows from financing activities
Proceeds from long-term borrowings 12.3 21.4
Repayment of long-term debt (4.6) (29.6)
Deferred debt issuance costs (1.1)
Net cash provided by (used for) financing activities 6.6 (8.2)
Increase (decrease) in cash and cash equivalents (.2) 1.5
Cash and cash equivalents
Beginning of period 44.2 45.0
End of period $ 44.0 $ 46.5
</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") 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 1993 10-K").
As further explained in the JSC 1993 10-K, JSC is a wholly-owned
subsidiary of SIBV/MS Holdings, Inc. ("Holdings"). As of March 31,
1994, 50% of the voting stock of Holdings 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").
Holdings has no operations other than its investment in JSC.
In connection with a recapitalization effected May 4, 1994, as
discussed more fully in Note 3 below, 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
Container Corporation of America ("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 1993 10-K. These
securities are guaranteed by JSC.
<TABLE>
Condensed consolidated balance sheets:
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Current assets $ 521.5 $ 448.1
Property, plant and equipment and timberlands, net 1,077.6 1,073.5
Due from JSC 1,244.3 1,244.3
Deferred debt issuance costs 49.9 50.5
Goodwill 93.0 93.7
Other assets 55.8 54.8
Total assets $3,042.1 $2,964.9
Current liabilities $ 320.5 $ 264.4
Long-term debt 2,391.0 2,378.4
Deferred income taxes and other liabilities 367.8 371.6
Stockholder's deficit (37.2) (49.5)
Total liabilities and stockholder's deficit $3,042.1 $2,964.9
</TABLE>
<TABLE>
Condensed consolidated statements of operations:
<CAPTION>
Three months ended March 31,
1994 1993
<S> <C> <C>
Net sales $486.6 $484.1
Costs and expenses 451.0 444.2
Interest expense 60.4 60.6
Interest income from JSC 44.0 42.8
Other income, net .2 .1
Income before income taxes and cumulative effect
of accounting change 19.4 22.2
Provision for income taxes 7.2 8.7
Cumulative effect of change in accounting
for post-retirement benefits (4.7)
Net income $ 12.2 $ 8.8
</TABLE>
3. -- Subsequent Event
In May 1994, Holdings implemented a recapitalization plan to repay
or refinance a substantial portion of its indebtedness in order to
improve operating and financial flexibility. In connection with
the recapitalization plan, (i) Holdings 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) 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.
<PAGE>
The proceeds from the equity and debt offerings, the sale to SIBV,
and borrowings under a new bank facility were used, among other
things, 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
<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 ended March 31, 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 March 31,
1994 1993
<S> <C> <C>
Paperboard/Packaging Products $666.5 $676.6
Newsprint 61.2 59.3
Total net sales $727.7 $735.9
</TABLE>
<TABLE>
Net Sales Analysis
(In millions)
<CAPTION>
Three months 1994
compared to
Three months 1993
<S> <C>
Increase (decrease) due to:
Sales price and product mix
Paperboard/Packaging Products $(27.0)
Newsprint 2.8
(24.2)
Sales volume
Paperboard/Packaging Products 45.4
Newsprint (.9)
44.5
Acquisitions and new facilities
Paperboard/Packaging Products .9
Plant closings
Paperboard/Packaging Products (29.4)
Net sales decrease $ (8.2)
</TABLE>
The Company's net sales for the three months ended March 31, 1994
decreased 1.1% to $727.7 million, compared to $735.9 million for
the same period in 1993. Net sales decreased 1.5% in the
Paperboard/Packaging Products segment and increased 3.2% in the
Newsprint segment.
The decrease in the Paperboard/Packaging Products segment sales, as
compared to the three months ended March 31, 1993, was due
primarily to the shutdown of several operating facilities pursuant
to the Company's Restructuring Program (as discussed below), lower
sales prices, product mix and severe weather conditions. Average
prices for linerboard, one of the Company's major products, during
the first quarter of 1994 were lower compared to last year, despite
a $25 per ton increase implemented in November 1993. The Company
has been able to implement an additional increase of $30 per ton in
March 1994. Increases in sales volume, primarily for corrugated
containers, which improved approximately 4% for the three months
ended March 31, 1994, helped counteract the decreases due to the
shutdown plants, sales price and product mix. Sales volume for
other products was generally unchanged as compared to the three
month period ended March 31, 1993.
<PAGE>
The net sales increase in the Newsprint segment was due primarily
to improvements in mix, although partially offset by lower sales
volume.
Cost of goods sold as a percent of net sales for the three months
ended March 31, 1994 and 1993 were 85.0% and 84.7% respectively,
for the Paperboard/Packaging Products segment and 101.8% and
106.0%, respectively, for the Newsprint segment. Selling and
administrative expenses decreased to $51.7 million (14.3%) for the
three months ended March 31, 1994 compared to $60.3 million for the
same period in 1993. The modest increase in cost of goods sold as
a percent of net sales for the Paperboard/Packaging Products
segment, the improvement in cost of goods sold as a percent of net
sales for the Newsprint segment 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, was
developed by the Company to improve its long-term competitive
position (the "Restructuring Program"). 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. 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 60% of the cash costs of the Restructuring Program
are expected to be incurred in 1994 and 1995 and approximately 51%
of these anticipated expenditures were incurred in the first
quarter of 1994. The Company anticipates that the cash
expenditures related to the Restructuring Program will be funded
through operations as originally planned.
Income from operations increased to $46.8 million (17.6%) for the
three months ended March 31, 1994 compared to $39.8 million for the
same period in 1993 due primarily to the cost reduction
initiatives, Restructuring Program and higher sales volumes, as
mentioned above.
Interest expense of $64.8 million for the three months ended March
31, 1994 was comparable to last year.
The benefit from income taxes for the three months ended March 31,
1994 was $4.8 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 net loss for the three months ended March 31, 1994 was $11.8
million as compared to a net loss of $32.0 million for the same
period in 1993. The net loss for the 1993 period included a net
provision 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.
In May 1994, Holdings and the Company implemented a
recapitalization plan to repay or refinance a substantial portion
of their indebtedness in order to improve operating and financial
flexibility by reducing the level and overall cost of their debt,
extending maturities of indebtedness, increasing stockholders'
equity and increasing their access to capital markets (the
"Recapitalization Plan"). The Recapitalization Plan includes 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 Holdings of 19,250,000 shares of Holdings Common Stock
(the "Equity Offerings") for $13.00 per share; (iii) the purchase
by SIBV of 11,538,462 shares of Holdings 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 $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").
<PAGE>
The first step of the Recapitalization Plan, 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
Plan involves the application, on approximately December 1, 1994,
of borrowings, including borrowings under the New Credit Agreement
(including 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. 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.
Following the Equity and Debt Offerings, borrowings of $88.0
million and letters of credit of approximately $93.7 million were
outstanding under the New Revolving Credit Facility. There are no
significant scheduled payments due on bank debt until October 1995,
at which time approximately $46.0 million will be payable.
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 three
months ended March 31, 1994 were $31.4 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.
Operating activities have historically been the major source of
cash for the Company's working capital needs, capital expenditures
and debt payments. For the three months ended March 31, 1994 net
cash provided by operating activities was $24.2 million.
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. At March
31, 1994, the Company had $100.9 million in unused borrowing
capacity under the then existing Revolving Credit Facility and
borrowing capacity of $42.5 million under the Securitization
Program subject to the Company's level of eligible accounts
receivable. The Securitization Program matures in April 1996, at
which time the Company expects it to be refinanced. Upon
completion of the first step of the Recapitalization Plan in May
1994, the Company had $268.3 million in unused borrowing capacity
under the New Credit Agreement.
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 March 31, 1994, there were no
material developments in Legal Proceedings previously reported
in the JSC 1993 10-K.
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
None
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included in this Form 10-Q.
4.1 Indenture, dated as of May 1, 1994, among CCA, JSC and
NationsBank of Georgia, as trustee, relating to CCA's 11 1/4%
Series A Senior Notes due 2004, guaranteed by JSC
(incorporated by reference to exhibit 4.1 to Holdings'
quarterly report on Form 10-Q for the quarter ended March 31,
1994).
4.2 Indenture, dated as of May 1, 1994, among CCA, JSC and
NationsBank of Georgia, as trustee, relating to CCA's 10 3/4%
Series B Senior Notes due 2002, guaranteed by JSC
(incorporated by reference to exhibit 4.2 to Holdings'
quarterly report on Form 10-Q for the quarter ended March 31,
1994).
10.1 Credit Agreement, dated as of May 11, 1994, among the
Company, JSC, CCA, the Lenders named therein, the Managing
Agents named therein, Chemical Bank and Bankers Trust
Company, as Senior Managing Agents, Bankers Trust Company, as
Fronting Bank, Chemical Bank, as Swingline Lender, and
Chemical Bank, as Administrative Agent and Collateral Agent
(incorporated by reference to exhibit 10.1 to Holdings'
quarterly report on Form 10-Q for the quarter ended March 31,
1994).
10.2 Stockholders Agreement, dated as of May 3, 1994, among SIBV,
MSLEF II, the Company and certain other parties thereto
(incorporated by reference to exhibit 10.2 to Holdings'
quarterly report on Form 10-Q for the quarter ended March 31,
1994).
10.3 Registration Rights Agreement, dated as of May 3, 1994, among
MSLEF II, SIBV, the Company and certain other parties thereto
(incorporated by reference to exhibit 10.3 to Holdings'
quarterly report on Form 10-Q for the quarter ended March 31,
1994).
<PAGE>
10.4 Stock Subscription Agreement, dated as of May 3, 1994, among
the Company, JSC, CCA and SIBV, as amended (incorporated by
reference to exhibit 10.4 to Holdings' quarterly report on
Form 10-Q for the quarter ended March 31, 1994).
10.5 Agreement, dated as of May 11, 1994, among CCA, Smurfit
Paperboard, Inc., SIBV, Bankers Trust Company, as Collateral
Trustee, and Chemical Bank, as Collateral Agent (incorporated
by reference to exhibit 10.5 to Holdings' quarterly report on
Form 10-Q for the quarter ended March 31, 1994).
b) Reports on Form 8-K
A Form 8-K regarding the filing of an S-1 registration
statement by SIBV/MS Holdings, Inc and the filing of an S-2
registration statement by the Company was filed with the
Securities and Exchange Commission on February 28, 1994.
A Form 8-K announcing preliminary financial results for the
first quarter of 1994 was filed with the Securities and
Exchange Commission on April 26, 1994.
The Company did not file any other reports on Form 8-K during
the three months ended March 31, 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 May 16, 1994 /s/ John R. Funke
John R. Funke
Vice President and
Chief Financial Officer
(Principal Accounting Officer)
