<PAGE>
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, 2000
Commission File Number 0-23876
SMURFIT-STONE CONTAINER CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 43-1531401
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
150 North Michigan Avenue, Chicago, Illinois 60601
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(Address of principal executive offices) (Zip Code)
(312) 346-6600
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(Registrant"s telephone number, including area code)
Not Applicable
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(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
of1934 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 _____
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 2000, the registrant had outstanding 243,541,323 shares of
common stock, $.01 par value per share.
<PAGE>
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------------------------
2000 1999 2000 1999
(In millions, except per share data)
=============================================================================================================================
<S> <C> <C> <C> <C>
Net sales................................................................... $ 2,031 $ 1,730 $ 3,896 $ 3,435
Costs and expenses
Cost of goods sold...................................................... 1,613 1,457 3,094 2,971
Selling and administrative expenses..................................... 180 196 359 371
Restructuring charge.................................................... 40 4 46 9
----------------------------------------------
Income from operations............................................... 198 73 397 84
Other income (expense)
Interest expense, net.................................................... (129) (143) (250) (296)
Other, net............................................................... 47 7 57
----------------------------------------------
Income (loss) from continuing operations before
income taxes, minority interest and extraordinary item............ 69 (23) 154 (155)
Benefit from (provision for) income taxes................................... (36) 2 (79) 44
Minority interest expense................................................... (2) (2) (4) (4)
----------------------------------------------
Income (loss) from continuing operations before extraordinary item... 31 (23) 71 (115)
Discontinued operations
Income (loss) from discontinued operations, net of income
tax benefit of $1 for the three months ended June 30, 1999
and $0 for the six months ended June 30, 1999...................... (1) 3
Gain on disposition of discontinued operations,
net of income taxes of $4.......................................... 6 6
----------------------------------------------
Income (loss) before extraordinary item............................ 37 (24) 77 (112)
Extraordinary item
Gain (loss) from early extinguishment of debt, net of income
tax benefit of $0 and $1 for the three months and six
months ended June 30, 2000 and 1999................................ 1 (1) 1 (1)
----------------------------------------------
Net income (loss)........................................................... $ 38 $ (25) $ 78 $ (113)
==============================================
Basic earnings per common share
Income (loss) from continuing operations before
extraordinary item................................................... $ .14 $ (.11) $ .32 $ (.53)
Discontinued operations................................................. (.01)
Gain on disposition of discontinued operations.......................... 03 .03
Extraordinary item......................................................
----------------------------------------------
Net income (loss).................................................... $ .17 $ (.12) $ .35 $ (.52)
==============================================
Weighted average shares outstanding......................................... 226 216 222 216
==============================================
Diluted earnings per common share
Income (loss) from continuing operations before
extraordinary item.................................................. $ .14 $ (.11) $ .32 $ (.53)
Discontinued operations................................................ (.01) .01
Gain on disposition of discontinued operations......................... 03 .03
Extraordinary item.....................................................
----------------------------------------------
Net income (loss)................................................... $ .17 $ (.12) $ .35 $ (.52)
==============================================
Weighted average shares outstanding........................................ 228 216 224 216
=============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
SMURFITSTONE CONTAINER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(In millions, except share data) 2000 1999
=========================================================================================================================
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents............................................................ $ 53 $ 24
Receivables, less allowances of $53 in 2000 and $50 in 1999.......................... 778 647
Inventories
Work-in-process and finished goods................................................. 265 238
Materials and supplies............................................................. 535 496
--------------------------------
800 734
Refundable income taxes.............................................................. 36 7
Deferred income taxes................................................................ 125 130
Prepaid expenses and other current assets............................................ 88 69
--------------------------------
Total current assets.............................................................. 1,880 1,611
Net property, plant and equipment..................................................... 5,594 4,395
Timberland, less timber depletion..................................................... 42 $ 24
Goodwill, less accumulated amortization of $194 in 2000 and $151 in 1999.............. 3,406 3,328
Investment in equity of nonconsolidated affiliates.................................... 176 176
Other assets.......................................................................... 342 325
--------------------------------
$ 11,440 $ 9,859
=========================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of longterm debt.................................................. $ 55 $ 174
Accounts payable..................................................................... 678 662
Accrued compensation and payroll taxes............................................... 225 238
Interest payable..................................................................... 111
Other current liabilities............................................................ 348 384
--------------------------------
Total current liabilities......................................................... 1,306 1,569
Long-term debt, less current maturities............................................... 5,660 4,619
Other long-term liabilities........................................................... 934 894
Deferred income taxes................................................................. 1,116 839
Minority interest..................................................................... 97 91
Stockholders' equity
Preferred stock, par value $.01 per share; 25,000,000
shares authorized; none issued and outstanding....................................
Common stock, par value $.01 per share; 400,000,000 shares
authorized, 243,541,323 and 217,820,762 issued and
and outstanding in 2000 and 1999, respectively.................................... 2 2
Additional paid-in capital............................................................ 3,835 3,436
Retained earnings (deficit)........................................................... (1,509) (1,586)
Accumulated other comprehensive income (loss)......................................... (1) (5)
--------------------------------
Total stockholders' equity....................................................... 2,327 1,847
--------------------------------
$ 11,440 $ 9,859
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, (In millions) 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)............................................................ $ 78 $ (113)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Gain on disposition of discontinued operations.............................. (10)
Extraordinary (gain) loss from early extinguishment of debt................. (2) 2
Depreciation, depletion and amortization.................................... 201 219
Amortization of deferred debt issuance costs................................ 5 7
Deferred income taxes....................................................... 92 (69)
Gain on sale of assets...................................................... (2) (39)
Non-cash employee benefit expense........................................... 1 29
Foreign currency transaction gains.......................................... (1) (6)
Non-cash restructuring charge............................................... 32 6
Change in current assets and liabilities,
net of effects from acquisitions and dispositions
Receivables................................................................ (1) (113)
Inventories................................................................ 24 48
Prepaid expenses and other current assets.................................. (2)
Accounts payable and accrued liabilities................................... (54) 112
Interest payable........................................................... (6) (15)
Income taxes............................................................... (37) 14
Other, net................................................................. (143) (10)
----------------------------
Net cash provided by operating activities..................................... 177 70
----------------------------
Cash flows from investing activities
Property additions............................................................ (115) (69)
Proceeds from property and investment
disposals and sale of businesses............................................. 67 546
Payments on acquisition, net of cash received................................. (631)
----------------------------
Net cash provided by (used for) investing activities.......................... (679) 477
----------------------------
Cash flows from financing activities
Borrowings under bank credit facilities....................................... 1,525
Net borrowings (repayments) of debt........................................... (993) (579)
Net borrowings under the accounts
receivable securitization program............................................ 10 10
Proceeds from exercise of stock options....................................... 6 8
Deferred debt issuance costs.................................................. (17)
----------------------------
Net cash provided by (used for) financing activities.......................... 531 (561)
----------------------------
Effect of exchange rate changes on cash........................................ 2
Increase (decrease) in cash and cash equivalents............................... 29 (12)
Cash and cash equivalents
Beginning of period........................................................... 24 155
----------------------------
End of period................................................................. $ 53 $ 143
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</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions)
1. Significant Accounting Policies
The accompanying consolidated financial statements and notes thereto of Smurfit-
Stone Container Corporation ("SSCC" or the "Company") 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, results of operations and cash flows.
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 that
may be expected for any other interim period or for the year as a whole. These
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the SSCC Annual Report on Form
10-K for the year ended December 31, 1999, (the "SSCC 1999 10-K"), filed March
14, 2000 with the Securities and Exchange Commission.
SSCC, formerly Jefferson Smurfit Corporation, owns 100% of the common equity
interest in JSCE, Inc. and Stone Container Corporation ("Stone"). The Company
has no operations other than its investments in JSCE, Inc. and Stone. JSCE, Inc.
owns 100% of the equity interest in Jefferson Smurfit Corporation (U.S.)
("JSC(U.S.)") and is the guarantor of the senior indebtedness of JSC(U.S.).
JSCE, Inc. has no other material operations other than its investment in
JSC(U.S.). JSC(U.S.) has extensive operations throughout the United States.
Stone has extensive domestic and international operations.
2. Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
3. St. Laurent Acquisition
On May 31, 2000, the Company, through a subsidiary of Stone, acquired St.
Laurent Paperboard Inc. ("St. Laurent"). Under the terms of the merger
agreement, each common share and restricted share unit of St. Laurent was
exchanged for 0.5 shares of SSCC common stock and $12.50 in cash. A total of
approximately 25.3 million shares of SSCC common stock were issued. The total
purchase price, including cash paid of $631 million and debt assumed of $376
million, was approximately $1.4 billion.
The acquisition (the "St. Laurent Acquisition") was accounted for as a purchase
business combination and, accordingly, the results of operations of St. Laurent
have been included in the consolidated statements of operations of the Company
after May 31, 2000. The cost to acquire St. Laurent has been preliminarily
allocated to the assets acquired and liabilities assumed according to estimated
fair values and are subject to adjustment when additional information concerning
asset and liability valuations are finalized. The preliminary allocation has
resulted in acquired goodwill of approximately $180 million, which is being
amortized on a straight-line basis over 40 years.
4
<PAGE>
The following unaudited pro forma combined information presents the results of
operations of the Company as if the St. Laurent Acquisition had taken place on
January 1, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
Six months ended
Pro Forma Information June 30,
------------------
2000 1999
---- ----
<S> <C> <C>
Net sales....................................................................... $ 4,381 $ 3,861
Income (loss) before extraordinary item......................................... 68 (131)
Net income (loss)............................................................... 69 (132)
Net income (loss) per common share
Basic........................................................................ $ .28 $ (.55)
Diluted...................................................................... $ .28 $ (.55)
</TABLE>
The unaudited pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the St. Laurent Acquisition occurred as
of January 1, 2000 and 1999, respectively.
4. Merger and Restructuring
On November 18, 1998, Stone merged with a wholly-owned subsidiary of the Company
(the "Stone Merger"). The Stone Merger was accounted for as a purchase business
combination. The cost to acquire Stone was allocated to the assets acquired and
liabilities assumed according to their fair values. The allocation resulted in
acquired goodwill of $3,202 million, which is being amortized on a straight-line
basis over 40 years.
In May 2000, the Company sold the market pulp mill at its closed Port Wentworth
facility to a third party for approximately $63 million. Net cash proceeds of
$58 million from the sale were used for debt reduction. No gain was recognized.
As part of the Company's continuing evaluation of all areas of its business in
connection with its Stone Merger integration, the Company recorded a pretax
restructuring charge of $40 million during the second quarter of 2000 related to
the permanent shutdown of a containerboard mill and a corrugated container
facility. Included in the restructuring charge is the adjustment to fair value
of property and equipment and spare parts ($31 million) of closed facilities,
liabilities for the termination of certain employees ($5 million), and
liabilities for long-term commitments ($4 million). The assets at these
facilities were adjusted to their estimated fair value less cost to sell. The
terminated employees included approximately 105 employees at the mill facility
and 150 employees at the container facility. The long-term commitments consist
of environmental clean-up and one-time closure costs. Restructuring charges were
$46 million for the six months ended June 30, 2000.
The Company recorded a $4 million restructuring charge during the second quarter
of 1999, and $9 million for the six months ended June 30, 1999 related to the
permanent shutdown of various facilities.
5. Long-Term Debt
On March 31, 2000, Stone amended and restated its existing credit agreement (the
"Stone Credit Agreement") pursuant to which a group of financial institutions
provided an additional $575 million to Stone in the form of a Tranche F term
loan maturing on December 31, 2005 and extended the maturity dates of the
revolving credit facilities under the Stone Credit Agreement to December 31,
2005. On April 28, 2000, Stone used the proceeds of the Tranche F term loan to
redeem the 9.875 % senior notes due February 1, 2001.
5
<PAGE>
On May 31, 2000, Stone and certain of its wholly-owned subsidiaries closed on
new credit facilities (the "Stone Additional Credit Agreement") with a group of
financial institutions consisting of (i) $950 million in the form of Tranche G
and Tranche H term loans maturing on December 31, 2006, and (ii) a $100 million
revolving credit facility maturing on December 31, 2005. The proceeds of the
Stone Additional Credit Agreement were used to fund the cash component of the
St. Laurent Acquisition, refinance certain existing indebtedness of St. Laurent,
and pay fees and expenses related to the St. Laurent Acquisition. The new
revolving credit will be used for general corporate purposes. The Stone
Additional Credit Agreement is secured by a security interest in substantially
all of the assets acquired in the St. Laurent Acquisition.
6. Other Significant Events
During 1999, the Company sold its interest in Abitibi-Consolidated, Inc., a
Canadian-based manufacturer and marketer of publication paper, resulting in a
gain of $39 million, which was reflected in other, net during the second quarter
of 1999.
During the second quarter of 1999, the Company recorded a $26 million charge in
selling and administrative expenses related to the cashless exercise of stock
options under the Jefferson Smurfit Corporation stock option plan.
7. Non-Consolidated Affiliates
The Company has several non-consolidated affiliates that are engaged in paper
and packaging operations in North America, South America and Europe. Investments
in majority-owned affiliates where control does not exist and non majority-owned
affiliates are accounted for under the equity method.
The Company's only significant non-consolidated affiliate at June 30, 2000 is
Smurfit-MBI, a Canadian corrugated container company, in which the Company owns
a 50% interest. The remaining 50% interest is owned by an affiliate of Jefferson
Smurfit Group plc. Smurfit-MBI had net sales of $112 million and $98 million for
the three months ended June 30, 2000 and 1999, respectively, and $222 million
and $182 million for the six months ended June 30, 2000 and 1999, respectively.
Combined summarized financial information for all of the Company's non-
consolidated affiliates that are accounted for under the equity method of
accounting is presented below:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Results of operations (a)
Net sales............................................. $ 170 $ 154 $ 337 $ 332
Cost of sales......................................... 149 122 296 269
Income before income taxes, minority interest
and extraordinary charges.......................... 10 12 18 16
Net income............................................ 10 10 17 15
</TABLE>
(a) Includes results of operations for each of the Company's affiliates for the
period it was accounted for under the equity method.
8. Discontinued Operations
During February 1999 the Company adopted a formal plan to sell the newsprint
mills of its subsidiary, Smurfit Newsprint Corporation ("SNC"). Accordingly, the
newsprint operations of SNC are accounted for as discontinued operations in the
accompanying consolidated financial statements. The Company transferred
ownership of the Oregon
6
<PAGE>
City, Oregon newsprint mill to a third party in May 2000, thereby completing its
exit from the newsprint business. No proceeds from the transfer were received.
During the second quarter of 2000, the Company recorded a $6 million after tax
gain to reflect adjustments to previous estimates on disposition of discontinued
operations.
9. Comprehensive Income (Loss)
Comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss)........................................... $ 38 $ (25) $ 78 $ (113)
Other comprehensive income (loss), net of tax:
Foreign currency translation.............................. 13 2 4 (9)
------- ------- ------- --------
Comprehensive income (loss)................................. $ 51 $ 23 $ 82 $ (122)
======= ======= ======= =========
</TABLE>
10. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Income (loss) from continuing operations before
extraordinary item.......................................... $ 31 $ (23) $ 71 $ (115)
Denominator:
Denominator for basic earnings per share -
Weighted average shares................................. 226 216 222 216
Effect of dilutive securities:
Employee stock options.................................. 2 2
------- -------- -------- -------
Denominator for diluted earnings per share -
Adjusted weighted average shares....................... 228 216 224 216
======= ======== ======== =======
Basic earnings (loss) per share from continuing
operations before extraordinary item........................ $ .14 $ (.11) $ .32 $ (.53)
======= ========== ========= =======
Diluted earnings (loss) per share from continuing
operations before extraordinary item.................... $ 14 $ (.11) $ .32 $ (.53)
========= ========== ========= =======
</TABLE>
For the three and six month periods ended June 30, 2000 and 1999, convertible
debt to acquire one million shares of common stock with an earnings effect of
$.5 million and $1 million, respectively, and three million additional minority
interest shares with an earnings effect of $2 million and $4 million,
respectively, are excluded from the diluted earnings per share computation
because they are antidilutive. For the three and six month periods ended June
30, 1999, options to purchase four million shares of common stock under the
treasury stock method were also excluded from the diluted earnings per share
computation because they are antidilutive.
11. Business Segment Information
The Company has two reportable segments: (1) Containerboard and Corrugated
Containers and (2) Folding Cartons and Boxboard. The Containerboard and
Corrugated Containers segment is highly
7
<PAGE>
integrated. It includes a system of mills and plants that produces a full line
of containerboard that is converted into corrugated containers. Corrugated
containers are used to transport such diverse products as home appliances,
electric motors, small machinery, grocery products, produce, books, tobacco and
furniture. The Folding Cartons and Boxboard segment is also highly integrated.
It includes a system of mills and plants that produces a broad range of coated
recycled boxboard that is converted into folding cartons. Folding cartons are
used primarily to protect products, such as food, fast food, detergents, paper
products, beverages, health and beauty aids and other consumer products, while
providing point of purchase advertising.
Other includes five non-reportable segments (specialty packaging, industrial
bags, reclamation, St. Laurent converting plants acquired May 31, 2000 and
international) and corporate related items. Corporate related items include
income and expense not allocated to reportable segments, goodwill amortization,
net interest expense, the adjustment to record inventory at LIFO and the
elimination of intercompany profit.
The information for 1999 has been restated from the prior year's presentation in
order to conform to the 2000 presentation.
<TABLE>
<CAPTION>
Container-
board & Folding
Corrugated Cartons &
Containers Boxboard Other Total
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Three months ended June 30,
---------------------------
2000
----
Revenues from external customers............ $ 1,275 $ 227 $ 529 $2,031
Intersegment revenues....................... 31 96 127
Income (loss) from continuing
operations before income taxes and
minority interest........................ 208 22 (161) 69
1999
----
Revenues from external customers............ $ 1,130 $ 208 $ 392 $1,730
Intersegment revenues....................... 49 66 115
Income (loss) from continuing
operations before income taxes and
minority interest........................ 96 18 (137) (23)
Six months ended June 30,
------------------------
2000
----
Revenues from external customers............ $ 2,463 $ 439 $ 994 $3,896
Intersegment revenues....................... 88 190 278
Income (loss) from continuing
operations before income taxes and
minority interest......................... 440 37 (323) 154
1999
----
Revenues from external customers............ $ 2,230 $ 405 $ 800 $ 3,435
Intersegment revenues....................... 96 138 234
Income (loss) from continuing
operations before income taxes and
minority interest......................... 152 33 (340) (155)
</TABLE>
8
<PAGE>
12. Contingencies
The Company's past and present operations include activities which are subject
to federal, state and local environmental requirements, particularly relating to
air and water quality. The Company faces potential environmental liability as a
result of violations of permit terms and similar authorizations that have
occurred from time to time at its facilities. In addition, the Company faces
potential liability for response costs at various sites for which it has
received notice as being a potentially responsible party ("PRP") concerning
hazardous substance contamination. In estimating its reserves for environmental
remediation and future costs, the Company's estimated liability reflects only
the Company's expected share after consideration for the number of other PRPs at
each site, the identity and financial condition of such parties and experience
regarding similar matters.
In March 1999, management of SNC's former Oregon City, Oregon newsprint mill
became aware of possible alterations by one of its employees of data utilized in
determining compliance with the mill's National Pollutant Discharge Elimination
System permit. SNC conducted a thorough internal investigation of this matter.
Based on this investigation, it concluded that such alterations did occur and,
as a result, the mill may have violated its permit limits on suspended solids on
several occasions. SNC provided both the Environmental Protection Agency ("EPA")
and the Oregon Department of Environmental Quality ("ODEQ") with a detailed
report of its investigation, and the agencies conducted additional
investigations based on this report. SNC fully cooperated with these
investigations. In July 2000 SNC paid a civil penalty of less than $100,000 to
the ODEQ to settle the Notice of Assessment of Civil Penalty issued by the ODEQ
in connection with this matter. In addition, the U.S. Attorney's Office has
advised SNC that it does not intend to commence a criminal prosecution against
SNC. Accordingly, SNC now considers this matter fully resolved.
In April 1999, the EPA and the Virginia Department of Environmental Quality
("VDEQ") each issued a notice of violation under the Clean Air Act to St.
Laurent's mill located in West Point, Virginia, which was acquired from
Chesapeake Corporation ("Chesapeake") in May, 1997. In general, the notices of
violations allege that, from 1984 to the present, the West Point mill installed
certain equipment and modified certain production processes without obtaining
the required permits. In the purchase agreement between St. Laurent and
Chesapeake, Chesapeake agreed to indemnify St. Laurent for remediation work
resulting from violations of applicable laws, including the Clean Air Act, that
existed at the mill before and on the date of the purchase agreement, as to
which Chesapeake had "knowledge" (as defined in the purchase agreement), up to a
maximum of $50 million. While such costs cannot be estimated with certainty at
this time, based on presently available information, St. Laurent believes that
the cost of remediation work, which represents capital expenditures comprising
engineering, procurement and construction work of mill modifications (including
the installation of air emission controls, etc.) associated with the notices of
violations may approximate $25 million. In addition, civil or criminal penalties
may be pursued by the EPA and VDEQ; however, based upon discussions with the EPA
and VDEQ to date, St. Laurent believes that the total cost of remediation work
associated with the notices of violations and fines and penalties that may be
imposed by the EPA and VDEQ will not exceed the maximum amount of Chesapeake's
indemnification obligation. St. Laurent and Chesapeake have appointed a third
party arbitrator to decide the scope and timing of future remediation work that
is the subject of the indemnification in the purchase agreement. The arbitrator
has ruled that any fines and penalties that may result from any breach of
Chesapeake's representations and warranties arising out of the notices of
violations, either by adjudication or settlement, are part of the costs and
expenses that are subject to reimbursement by Chesapeake to St. Laurent under
the purchase agreement. By agreement of the parties, the 30-month period for
reimbursement by Chesapeake of costs and expenses incurred by St. Laurent under
the provisions of the purchase agreement has been extended indefinitely. St.
Laurent is cooperating with Chesapeake to analyze, respond to and defend against
the matters alleged in the notices of violation and to develop and implement a
remediation plan as required by the notices of violation.
9
<PAGE>
The Company is a defendant in a number of lawsuits and claims arising out of the
conduct of its business, including those related to environmental matters. While
the ultimate results of such suits or other proceedings against the Company
cannot be predicted with certainty, the management of the Company believes that
the resolution of these matters will not have a material adverse effect on its
consolidated financial condition or results of operations.
13. Subsequent Event
In the fourth quarter of 2000, SSCC and Stone intend to complete a transaction
in which SSCC will exchange approximately 4.6 million shares of a newly
authorized class of its preferred stock ("Series A Preferred Stock"), plus cash,
for the outstanding shares of Stone's Series E Preferred Stock (the "Series E
Preferred Stock"). SSCC proposes to effect such exchange through a merger
transaction in which each outstanding share of Series E Preferred Stock will be
exchanged for one share of SSCC's new issued Series A Preferred Stock (less
certain merger-related legal expenses).
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
<TABLE>
<CAPTION>
(In millions) Three months ended Six months ended
June 30, June 30,
----------------------- ----------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales
Containerboard and corrugated containers................... $ 1,275 $ 1,130 $ 2,463 $ 2,230
Folding cartons and boxboard............................... 227 208 439 405
Other operations........................................... 529 392 994 800
---------- -------- --------- ---------
Total ..................................................... $ 2,031 $ 1,730 $ 3,896 $ 3,435
========== ======== ========= =========
Profit (loss)
Containerboard and corrugated containers................... $ 208 $ 96 $ 440 $ 152
Folding cartons and boxboard............................... 22 18 37 33
Other operations........................................... 30 26 64 55
---------- -------- --------- ---------
Total operations........................................... $ 260 $ 140 $ 541 $ 240
Restructuring charge....................................... (40) (4) (46) (9)
Interest expense, net...................................... (129) (143) (250) (296)
Other, net ................................................ (22) (16) (91) (90)
---------- -------- --------- ---------
Income (loss) before income taxes ......................... $ 69 $ (23) $ 154 $ (155)
========== ======== ========= =========
</TABLE>
Improvements in containerboard and other markets in 2000 resulted in strong
increases in net sales and profits for the Company. Net sales for the Company
for the three and six month periods ended June 30, 2000, increased 17% and 13%,
respectively, compared to the same periods last year. The increase in net sales
was due primarily to higher average sales prices for containerboard, corrugated
containers and market pulp and the acquisition of St. Laurent. Net sales and
income before income taxes for St. Laurent of $96 million and $6 million,
respectively, are included in the Company"s results of operations after May 31,
2000, the date of the acquisition. Operating profits for the Company for the
three and six month periods ended June 30, 2000 increased 86% and 125%,
respectively, compared to last year due primarily to the sales price increases.
Operating profits in the second quarter of 2000 were reduced by the economic
downtime taken at the Company"s containerboard mills in order to reduce
inventories. Other, net for 1999 included a $39 million gain on asset sales and
an expense of $26 million related to the cashless exercise of SSCC stock options
under the Jefferson Smurfit Corporation stock option plan. The increases
(decreases) in net sales for each of the Company"s segments are shown in the
chart below.
11
<PAGE>
<TABLE>
<CAPTION>
(In millions)
Container-
board & Folding
Increase (decrease) Corrugated Cartons & Other
in net sales due to: Containers Boxboard Operations Total
-------------------- ---------- -------- ----------- -----
<S> <C> <C> <C> <C>
Three months ended June 30,
2000 compared to 1999
---------------------
Sales price and product mix............. $ 221 $ 17 $ 83 $ 321
Sales volume............................ (76) 2 10 (64)
St. Laurent acquisition................. 49 47 96
Closed or sold facilities............... (49) (3) (52)
-------- ------ ------ -------
Total increase ...................... $ 145 $ 19 $ 137 $ 301
======== ====== ====== =======
Six months ended June 30,
2000 compared to 1999
---------------------
Sales price and product mix............. $ 412 $ 24 $ 138 $ 574
Sales volume............................ (135) 10 26 (99)
St. Laurent acquisition................. 49 47 96
Closed or sold facilities............... (93) (17) (110)
------- ------ ------ ------
Total increase ...................... $ 233 $ 34 $ 194 $ 461
======= ====== ====== ======
</TABLE>
Containerboard and Corrugated Containers Segment
------------------------------------------------
Market conditions in the containerboard industry continued to improve in the
first half of 2000, and the Company implemented price increases of $50 per ton
and $60 per ton on February 1, 2000 for linerboard and medium, respectively. On
average, linerboard prices for the second quarter of 2000 were higher than last
year by 22% and the average price of corrugated containers was higher by 21%.
Strong demand for market pulp continued to drive prices higher in the first half
of 2000. Pulp prices were increased $30 per metric ton on January 1, 2000 and
$40 per metric ton on April 1, 2000. Pulp prices were increased again on July 1,
2000 by $30 per metric ton. The average price of market pulp for the second
quarter of 2000 increased 35% compared to last year. Solid bleached sulfate
("SBS") prices increased 10% compared to last year.
Production of containerboard and kraft paper for the second quarter of 2000,
exclusive of St. Laurent"s containerboard production of 110,000 tons, declined
10% compared to last year due to higher levels of maintenance downtime, as well
as economic downtime taken in order to reduce inventories. Shipments of
corrugated containers decreased 3% compared to last year due to plant closures
and customer rationalization. The Company had lower third party sales of
containerboard and kraft, market pulp and other products in the three and six
month periods ended June 30, 2000. Sales volume for market pulp and SBS for the
second quarter declined 5% and 4%, respectively, compared to last year.
Net sales of $1,275 million for the three months ended June 30, 2000 increased
13% compared to last year and profits increased by $112 million to $208 million.
The increase in net sales was due to higher average prices for containerboard,
corrugated containers and market pulp and the St. Laurent acquisition. Profits
increased primarily as a result of the higher average sales prices, but the
impact of the additional mill downtime and higher reclaimed fiber cost partially
offset the improvement. Net sales and profit for the St. Laurent operations
included in this segment were $49 million and $15 million, respectively. Cost of
goods sold as a percent of net sales decreased to 75% for the three months ended
June 30, 2000 compared to 84% for the same period last year due primarily to the
higher average sales prices.
For the six months ended June 30, 2000, net sales of $2,463 million increased
10% compared to last year and profits increased by $288 million to $440 million.
On average, linerboard prices were higher than
12
<PAGE>
last year by 22% and the average price of corrugated containers was higher by
20%. Production of containerboard and kraft paper for the six months ended June
30, 2000, exclusive of St. Laurent"s containerboard production of 110,000 tons,
decreased 2% due primarily to the downtime. Shipments of corrugated containers
declined 1% compared to last year. The average sales price of market pulp
increased 37% compared to last year while sales volume declined 11%. The average
price of SBS increased by 7% compared to last year while sales volume was lower
by 1%. Profits increased due primarily to the higher average sales prices,
although the additional mill downtime and the higher reclaimed fiber cost
partially offset the sales price improvements. Cost of goods sold as a percent
of net sales decreased to 74% for the six months ended June 30, 2000 compared to
84% for the same period last year due primarily to the higher average sales
prices.
Folding Cartons and Boxboard Segment
------------------------------------
Net sales of $227 million for the three months ended June 30, 2000 increased by
9% compared to last year and profits increased by $4 million to $22 million. The
sales increase was due primarily to higher average sales prices and product mix.
On average, boxboard sales prices were 13% higher and folding carton sales
prices were 7% higher than last year. Folding carton shipments were comparable
to last year. Higher reclaimed fiber cost and increases in the cost of other
materials and converting costs partially offset the improvements in sales price
and product mix. Cost of goods sold as a percent of net sales decreased to 83%
for the three months ended June 30, 2000 compared to 84% for the same period
last year due primarily to the higher sales prices.
For the six months ended June 30, 2000 net sales of $439 million increased by 8%
compared to last year. On average, boxboard sales prices were 9% higher and
folding carton sales prices were 5% higher than last year. Folding carton
shipments increased 1% and boxboard shipments increased 14% compared to last
year. The higher cost of materials and higher converting costs partially offset
the improvements in sales price and product mix, resulting in a profit
improvement of $3 million compared to last year. Cost of goods sold as a percent
of net sales of 84% for the six months ended June 30, 2000 was comparable to the
same period last year.
Other Operations
----------------
Net sales of $529 million for the three months ended June 30, 2000, increased by
35% compared to last year and profits increased by $4 million to $30 million due
primarily to the reclamation operation. Demand for reclaimed fiber has been
strong in 2000 causing the cost and sales price of reclaimed fiber to escalate
rapidly. Compared to last year, the average price of old corrugated containers
("OCC") and old newsprint ("ONP") were each higher by $50 per ton. The amount of
mill downtime taken by the paper industry and a decline in export shipments in
the second quarter of 2000, however, have reduced demand, thereby bringing cost
and sales prices down in June and July. Total tons of fiber reclaimed and
brokered were comparable to last year. Results for the Company"s industrial bag,
international and specialty packaging operations were comparable to last year.
Other operations include sales and profit for St Laurent"s converting facilities
after May 31, 2000, the date of the acquisition, of $47 million and $2 million,
respectively.
Net sales of $994 million for the six months ended June 30, 2000, increased by
24% compared to last year and profits increased by $9 million to $64 million due
primarily to the reclamation operations and St. Laurent"s converting operations.
Compared to last year, the average prices of OCC and ONP were higher by $50 per
ton and $40 per ton, respectively. Total tons of fiber reclaimed and brokered
increased 3% compared to last year. Results for the Company"s industrial bag,
international and specialty packaging operations were comparable to last year.
Costs and Expenses
------------------
Costs and expenses for the three and six month periods ended June 30, 2000
include expenses for St. Laurent after May 31, 2000. Exclusive of St. Laurent,
the Company"s cost of goods sold compared to last year was lower because of
third party sales of containerboard and kraft, market pulp and other products.
The Company"s overall cost of goods sold as a percent of net sales for the three
months ended June 30
13
<PAGE>
decreased from 84% in 1999 to 79% in 2000, and for the six months ended June 30
decreased from 87% in 1999 to 79% in 2000, due primarily to the higher average
sales prices.
Selling and administrative expenses decreased compared to last year due to
expense in 1999 of $26 million related to the cashless exercise of SSCC stock
options under the Jefferson Smurfit Corporation stock option plan. Exclusive of
the effect of the 1999 charge for stock option exercises, selling and
administrative expenses as a percent of net sales for the three and six month
periods ended June 30 declined from 10% in 1999 to 9% in 2000. In each case, the
decline was the result of higher sales prices in 2000.
Other income and expense, net for the three months and six months ended June 30,
1999 include a $39 million gain on the sale of the Company"s equity interest in
Abitibi-Consolidated Inc. In addition, foreign exchange gains were more
favorable in 1999 as compared to 2000.
Interest expense, net for the three and six months ended June 30, 2000 was lower
than last year by $14 million and $46 million, respectively, due to lower
average outstanding debt levels. The decrease was partially offset by higher
average interest rates and new borrowings used to fund the St. Laurent
acquisition. The Company"s overall average effective interest rates in the 2000
periods were higher than last year for the three and six month periods ended
June 30, by 0.6% and 0.5%, respectively.
Provision for income taxes for the three and six month periods ended June 30,
2000 differed from the federal statutory tax rate due to several factors, the
most significant of which were state income taxes and the effect of permanent
differences from applying purchase accounting.
Statistical Data
<TABLE>
<CAPTION>
(In thousands of tons, except as noted) Three months ended Six months ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Mill production:
Containerboard................................. 1,553 1,566 3,234 3,120
Kraft paper.................................... 71 115 145 225
Market pulp................................... 156 145 307 292
Solid bleached sulfate......................... 58 47 106 91
Recycled boxboard.............................. 212 204 425 415
Corrugated shipments (billion sq. ft.)............. 22.4 23.0 45.2 45.7
Folding carton shipments........................... 148 147 291 288
Industrial bag shipments........................... 75 78 154 157
Fiber reclaimed and brokered....................... 1,630 1,630 3,331 3,221
</TABLE>
Restructuring
As explained in the SSCC 1999 10-K, the Company restructured its operations in
connection with the Stone Merger. The Company recorded a pretax charge of $257
million in the fourth quarter of 1998 for restructuring costs related to the
permanent closure of certain JSC(U.S.) mill operations and related facilities on
December 1, 1998. In addition, the allocation of the cost to acquire Stone
included an adjustment to fair value of property, plant and equipment associated
with the permanent closure of certain containerboard and pulp mill facilities
owned by Stone on December 1, 1998 and five Stone converting facilities during
the allocation period in 1999. As part of the Company"s continuing evaluation of
all areas of its business in connection with its Stone Merger integration, the
Company recorded a $10 million restructuring charge in the year ended December
31, 1999 related to the permanent shutdown of eight additional JSC(U.S.)
facilities and a $46 million restructuring charge in the first half of 2000
related to the permanent shutdown of a Stone containerboard mill and five Stone
converting facilities. The containerboard mill shutdown in 2000 had an annual
capacity of 130,000 tons of corrugating medium.
14
<PAGE>
The restructuring charges and the allocation of costs to acquire Stone included
adjustments to liabilities for the termination of certain employees of the
Company, the liabilities for long-term commitments and resolution of litigation
related to Stone"s investment in Florida Coast Paper Company, L.L.C. ("FCPC").
Since the Stone Merger, through June 30, 2000, approximately $221 million (75%)
of the cash expenditures were incurred, approximately 56% of which related to
the FCPC settlement. The remaining exit liabilities for JSC(U.S.) and Stone as
of June 30, 2000 of approximately $75 million will be funded through operations
as originally planned.
Discontinued Operations
As explained in the SSCC 1999 10-K, in February 1999, the Company adopted a
formal plan to sell the newsprint mills of its subsidiary, SNC. Accordingly, the
newsprint operations of SNC are accounted for as discontinued operations. The
Company transferred ownership of the Oregon City, Oregon newsprint mill on May
9, 2000 to a third party, thereby completing its exit from the newsprint
business. No proceeds from the transfer were received. During the second quarter
of 2000, the Company recorded a $6 million after tax gain to reflect adjustments
to the previous estimates on disposition of discontinued operations.
Liquidity and Capital Resources
Net cash provided by operating activities for the six months ended June 30, 2000
of $177 million, borrowings under bank credit facilities of $1,525 million,
proceeds from the sale of assets of $67 million and proceeds from exercise of
stock options of $6 million were used to fund the $631 million cash component of
the St. Laurent acquisition, $983 million of net debt repayments, $17 million of
financing fees and property additions of $115 million. Debt repayments for the
first half of 2000 include the $559 million redemption of Stone"s outstanding
9.875% senior notes due February 1, 2001, repayment of approximately $376
million of existing indebtedness of St. Laurent, prepayments on the Company"s
bank term loans and scheduled debt repayments.
On May 31, 2000, the Company, through a subsidiary of Stone, acquired St.
Laurent. Under the terms of the merger agreement, each common share and
restricted share unit of St. Laurent was exchanged for 0.5 shares of SSCC common
stock and $12.50 in cash. Approximately 25.3 million shares of SSCC common stock
were issued. The total purchase price, including cash paid of $631 million and
debt assumed of $376 million, was approximately $1.4 billion.
On May 31, 2000, Stone and certain of its wholly-owned subsidiaries closed on
the Stone Additional Credit Agreement with a group of financial institutions
consisting of (i) $950 million in the form of Tranche G and Tranche H term loans
maturing on December 31, 2006, and (ii) a $100 million revolving credit facility
maturing on December 31, 2005. The proceeds of the Stone Additional Credit
Agreement were used to fund the cash component of the St. Laurent acquisition,
refinance certain existing indebtedness of St. Laurent and pay fees and expenses
related to the acquisition. The new revolving credit facility will be used for
general corporate purposes. The Stone Additional Credit Agreement is secured by
a security interest in substantially all of the assets acquired in the St.
Laurent Acquisition.
In May 2000, Stone sold the market pulp mill at its Port Wentworth, Georgia mill
site to a third party. Net proceeds of approximately $58 million were used for
debt reduction.
On March 31, 2000, Stone amended and restated its existing Stone Credit
Agreement pursuant to which a group of financial institutions provided an
additional $575 million to Stone in the form of a Tranche F term loan maturing
on December 31, 2005 and extended the maturity date of the revolving credit
agreement to December 31, 2005. On April 28, 2000, Stone used the proceeds of
the Tranche F term loan to redeem the 9.875% senior notes due February 1, 2001.
The bank credit facilities of JSC(U.S.) and Stone (collectively, the "Credit
Agreements") contain various business and financial covenants including, among
other things, (i) limitations on dividends, redemptions
15
<PAGE>
and repurchases of capital stock, (ii) limitations on the incurrence of
indebtedness, (iii) limitations on capital expenditures and (iv) maintenance of
certain financial covenants. The Credit Agreements also require prepayments if
JSC(U.S.) or Stone have excess cash flows, as defined, or receive proceeds from
certain asset sales, insurance, issuance of certain equity securities or
incurrence of certain indebtedness. The obligations under the JSC(U.S.) Credit
Agreement are unconditionally guaranteed by the Company and certain of its
subsidiaries. The obligations under the JSC(U.S.) Credit Agreement are secured
by a security interest in substantially all of the assets of JSC(U.S.). The
obligations under the Stone Credit Agreement are secured by a security interest
in substantially all of the assets of Stone and 65% of the stock of its Canadian
subsidiary. The security interest excludes cash, cash equivalents, certain trade
receivables, four paper mills and the land and buildings of the corrugated
container facilities. 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.
The declaration of dividends by the Board of Directors is subject to, among
other things, certain restrictive provisions contained in the Credit Agreement
and certain note indentures. At June 30, 2000, Stone had accumulated dividend
arrearages of $26 million related to its preferred stock. The Company intends to
exchange approximately 4.6 million shares of a newly authorized class of its
preferred stock, plus cash, for the outstanding shares of Series E Preferred
Stock of Stone (the "Series E Preferred Stock"). The Company expects to effect
the exchange through a merger transaction in which each outstanding share of
Series E Preferred Stock will be exchanged for one share of the Company"s newly
issued Series A Preferred Stock plus an amount in cash equal to the accrued and
unpaid dividends per share of Series E Preferred Stock (less certain merger-
related legal expenses). The Company has filed a registration statement on Form
S-4 with the Securities and Exchange Commission that details the terms and
conditions of the proposed transaction. The Company presently anticipates that
this transaction will occur in the fourth quarter of 2000.
The Company expects that internally generated cash flows, proceeds from asset
divestitures and existing financing resources will be sufficient for the next
several years to meet its obligations, including debt service, expenditures
under the Cluster Rule (as defined in the SSCC 1999 10-K) and other capital
expenditures. The Company expects to use any excess cash flows provided by
operations to make further debt reductions. As of June 30, 2000, JSC(U.S.) had
$432 million of unused borrowing capacity under the JSC(U.S.) Credit Agreement
and Stone had $605 million of unused borrowing capacity under the Stone Credit
Agreement and the Stone Additional Credit Agreement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
For a discussion of certain market risks related to the Company, See Part II,
Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", in the
SSCC 1999 10-K.
Foreign Currency Risk
During the six months ended June 30, 2000 the exchange rates for the Canadian
dollar and the German mark strengthened/(weakened) against the U.S. dollar as
follows:
Rate at June 30, 2000 vs. December 31, 1999
Canadian dollar (2.5)%
German mark (5.5)%
Average rate for the six months ended June 30, 2000 vs. 1999
Canadian dollar 1.7%
German mark (13.2)%
The Company has experienced foreign currency transaction gains and losses on the
translation of U.S. dollar denominated obligations of certain of its Canadian
subsidiaries, non-consolidated affiliates and a
16
<PAGE>
German mark obligation. The Company recognized foreign currency transaction
gains of $2 million for the six months ended June 30, 2000 compared to a gain of
$6 million for the same period last year.
Interest Rate Risk
The Company"s earnings and cash flows are significantly affected by the amount
of interest on its indebtedness. No significant change has occurred in the
Company"s exposure to such risk for the six months ended June 30, 2000.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
In March 1999, management of SNC"s former Oregon City, Oregon newsprint mill
became aware of possible alterations by one of its employees of data utilized in
determining compliance with the mill's National Pollutant Discharge Elimination
System permit. SNC conducted a thorough internal investigation of this matter.
Based on this investigation, it concluded that such alterations did occur and,
as a result, the mill may have violated its permit limits on suspended solids on
several occasions. SNC provided both the EPA and the ODEQ with a detailed report
of its investigation, and the agencies conducted additional investigations based
on this report. SNC fully cooperated with these investigations. In July 2000 SNC
paid a civil penalty of less than $100,000 to the ODEQ to settle the Notice of
Assessment of Civil Penalty issued by the ODEQ in connection with this matter.
In addition, the U.S. Attorney's Office has advised SNC that it does not intend
to commence a criminal prosecution against SNC. Accordingly, SNC now considers
this matter fully resolved.
In April 1999, the EPA and the VDEQ each issued a notice of violation under the
Clean Air Act to St. Laurent's mill located in West Point, Virginia, which was
acquired from Chesapeake in May, 1997. In general, the notices of violations
allege that, from 1984 to the present, the West Point mill installed certain
equipment and modified certain production processes without obtaining the
required permits. In the purchase agreement between St. Laurent and Chesapeake,
Chesapeake agreed to indemnify St. Laurent for remediation work resulting from
violations of applicable laws, including the Clean Air Act, that existed at the
mill before and on the date of the purchase agreement, as to which Chesapeake
had "knowledge" (as defined in the purchase agreement), up to a maximum of $50
million. While such costs cannot be estimated with certainty at this time, based
on presently available information, St. Laurent believes that the cost of
remediation work, which represents capital expenditures comprising engineering,
procurement and construction work of mill modifications (including the
installation of air emission controls, etc.) associated with the notices of
violations may approximate $25 million. In addition, civil or criminal penalties
may be pursued by the EPA and VDEQ; however, based upon discussions with the EPA
and VDEQ to date, St. Laurent believes that the total cost of remediation work
associated with the notices of violations and fines and penalties that may be
imposed by the EPA and VDEQ will not exceed the maximum amount of Chesapeake"s
indemnification obligation. St. Laurent and Chesapeake have appointed a third
party arbitrator to decide the scope and timing of future remediation work that
is the subject of the indemnification in the purchase agreement. The arbitrator
has ruled that any fines and penalties that may result from any breach of
Chesapeake"s representations and warranties arising out of the notices of
violations either by adjudication or settlement, are part of the costs and
expenses that are subject to reimbursement by Chesapeake to St. Laurent under
the purchase agreement. By agreement of the parties, the 30-month period for
reimbursement by Chesapeake of costs and expenses incurred by St. Laurent under
the provisions of the purchase agreement has been extended indefinitely.
St. Laurent is cooperating with Chesapeake to analyze, respond to and defend
against the matters alleged in the notices of violation and to develop and
implement a remediation plan as required by the notices of violation.
Item 2. Changes in Securities
17
<PAGE>
None
Item 3. Defaults Upon Senior Securities
-------------------------------
As of June 30, 2000, Stone had accumulated dividend arrearages of approximately
$26 million related to a series of its preferred stock (see additional
discussion of preferred stock in Item 5, Other Information). Declaration of
dividends in respect of such stock is currently prohibited by the terms of the
Stone Credit Agreement and certain note indentures.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Registrant's Annual Meeting of Stockholders was held on May 18, 2000. At the
meeting, stockholders voted on (i) the election of nine directors for terms of
office expiring at the Annual Meeting of Stockholders in 2000 and (ii) the
ratification of the appointment of Ernst & Young LLP as independent auditors of
the Company for 2000. Voting on each matter was as follows:
Votes Votes Withheld/
1. Election of Directors For Against Abstentions
----------- ------- -----------
Ray M. Curran 194,547,041 0 1,679,668
Richard A. Giesen 194,844,064 0 1,382,645
Alan E. Goldberg 194,831,897 0 1,394,812
Howard E. Goldberg 194,464,950 0 1,761,759
James J. O"Connor 194,874,606 0 1,352,103
Jerry K. Pearlman 194,834,525 0 1,392,184
Thomas A. Reynolds, III 194,162,137 0 2,064,572
Dermot F. Smurfit 194,545,749 0 1,680,960
Michael W. J. Smurfit 194,543,341 0 1,683,368
Ratification of Auditors 195,939,918 168,593 118,198
Item 5. Other Information
-----------------
The Company intends to complete a transaction in which it will exchange
approximately 4.6 million shares of a newly authorized class of its preferred
stock, plus cash, for the outstanding shares of Stone"s Series E Preferred
Stock. The Company expects to effect such exchange through a merger transaction
in which each outstanding share of Series E Preferred Stock will be exchanged
for one share of the Company"s newly issued Series A Preferred Stock plus an
amount in cash equal to the accrued and unpaid dividends per share of Series E
Preferred Stock (less certain merger-related legal expenses). The Company has
filed a registration statement on Form S-4 with the Securities and Exchange
Commission that details the terms and conditions of the proposed transaction.
The Company anticipates that this transaction will occur in the fourth quarter
of 2000.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included in this Form 10-Q.
10.1 Employment agreement for Joseph J. Gurandiano.
10.2 Severance benefits agreement for Joseph J. Gurandiano.
10.3 Credit Agreement, dated as of May 31, 2000, among the Company, St.
Laurent and the lenders named therein, Chase Manhattan Bank, as Agent,
Bankers Trust Company, an Administrative Agent and Deutsche Bank Canada,
as Canadian Administrative Agent (incorporated by reference to Exhibit
10.1 to Stone"s Quarterly Report on Form 10-Q for the quarter ended June
30, 2000).
27.1 Financial Data Schedule
b) Reports on Form 8-K
Form 8-K dated May 26, 2000 was filed with the Securities and Exchange
Commission in connection with the completion of the St. Laurent Acquisition.
19
<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.
SMURFIT-STONE CONTAINER CORPORATION
-----------------------------------
(Registrant)
Date: August 14, 2000 /s/ Paul K. Kaufmann
--------------- ----------------------------
Paul K. Kaufmann
Vice President and
Corporate Controller
(Principal Accounting Officer)
20
