<PAGE>
UNITED STATES 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, 2000
Commission File Number 0-23876
SMURFIT-STONE CONTAINER CORPORATION
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1531401
- ---------------------------------- -----------------------------------------
(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
- --------------------------------------------------------------------------------
(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 _____
-----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 2000, the registrant had outstanding 218,190,997 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 March 31, (In millions, except per share data) 2000 1999
====================================================================================================
<S> <C> <C>
Net sales ............................................................... $1,865 $ 1,705
Costs and expenses
Cost of goods sold .................................................... 1,481 1,514
Selling and administrative expenses.................................... 179 175
Restructuring charge .................................................. 6 5
-------------------
Income from operations................................................ 199 11
Other income (expense)
Interest expense, net ................................................. (121) (153)
Other, net............................................................. 7 10
-------------------
Income (loss) from continuing operations before
income taxes and minority interest.................................. 85 (132)
Benefit from (provision for) income taxes ............................... (43) 42
Minority interest expense ............................................... (2) (2)
-------------------
Income (loss) from continuing operations.............................. 40 (92)
Discontinued operations
Income from discontinued operations,
net of income taxes of $1........................................... 4
-------------------
Net income (loss)..................................................... $ 40 $ (88)
===================
Basic earnings per common share
Income (loss) from continuing operations................................ $ .18 $ (.43)
Discontinued operations ................................................ .02
-------------------
Net income (loss)..................................................... $ .18 $ (.41)
===================
Weighted average shares outstanding ..................................... 218 215
===================
Diluted earnings per common share
Income (loss) from continuing operations................................ $ .18 $ (.43)
Discontinued operations ................................................ .02
-------------------
Net income (loss)..................................................... $ .18 $ (.41)
===================
Weighted average shares outstanding ..................................... 221 215
====================================================================================================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
(In millions, except share data) 2000 1999
- ---------------------------------------------------------------------------------------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ...................................... $ 30 $ 24
Receivables, less allowances of $51 in 2000 and $50 in 1999 680 647
Inventories
Work-in-process and finished goods ........................... 243 238
Materials and supplies ....................................... 518 496
--------------------------
761 734
Refundable income taxes ........................................ 7 7
Deferred income taxes .......................................... 123 130
Prepaid expenses and other current assets ...................... 60 69
--------------------------
Total current assets ........................................ 1,661 1,611
Net property, plant and equipment ................................ 4,350 4,395
Timberland, less timber depletion ................................ 25 24
Goodwill, less accumulated amortization of
$174 in 2000 and $151 in 1999 ................................... 3,305 3,328
Investment in equity of non-consolidated affiliates .............. 180 176
Other assets ..................................................... 327 325
--------------------------
$ 9,848 $ 9,859
=========================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt ........................... $ 43 $ 174
Accounts payable ............................................... 609 662
Accrued compensation and payroll taxes ......................... 204 238
Interest payable ............................................... 142 111
Other current liabilities ...................................... 284 384
--------------------------
Total current liabilities ................................... 1,282 1,569
Long-term debt, less current maturities .......................... 4,848 4,619
Other long-term liabilities ...................................... 879 894
Deferred income taxes ............................................ 862 839
Minority interest ................................................ 93 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, 218,190,997 and 217,820,762 issued and
and outstanding in 2000 and 1999, respectively ............... 2 2
Additional paid-in capital ....................................... 3,442 3,436
Retained earnings (deficit) ...................................... (1,546) (1,586)
Accumulated other comprehensive income (loss) .................... (14) (5)
--------------------------
Total stockholders' equity .................................. 1,884 1,847
--------------------------
$ 9,848 $ 9,859
=========================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, (In millions) 2000 1999
==========================================================================================================
<S> <C> <C>
Cash flows from operating activities
Net income (loss)............................................ $ 40 $ (88)
Adjustments to reconcile net income (loss) to
net cash used for operating activities
Depreciation, depletion and amortization................... 98 110
Amortization of deferred debt issuance costs............... 3 4
Deferred income taxes...................................... 39 (31)
Gain on sale of assets..................................... (2)
Non-cash employee benefit expense.......................... 4 10
Foreign currency transaction gains......................... (2) (4)
Non-cash restructuring charge.............................. 3
Change in current assets and liabilities,
net of effects from acquisitions and dispositions
Receivables.............................................. (38) (76)
Inventories.............................................. (30) 24
Prepaid expenses and other current assets................ 11 (4)
Accounts payable and accrued liabilities................. (65) 15
Interest payable......................................... 30 20
Income taxes............................................. (2) (23)
Other, net................................................. (133)
----------------------------
Net cash used for operating activities...................... (47) (40)
----------------------------
Cash flows from investing activities
Property additions............................................ (49) (37)
Proceeds from property and investment
disposals and sale of businesses............................ 4 108
----------------------------
Net cash provided by (used for) investing activities.......... (45) 71
----------------------------
Cash flows from financing activities
Net borrowings (repayments) of debt........................... 101 (116)
Proceeds from exercise of stock options....................... 6 2
Deferred debt issuance costs.................................. (9)
----------------------------
Net cash provided by (used for) financing activities.......... 98 (114)
----------------------------
Effect of exchange rate changes on cash........................ (1)
Increase (decrease) in cash and cash equivalents............... 6 (84)
Cash and cash equivalents
Beginning of period........................................... 24 155
----------------------------
End of period................................................. $ 30 $ 71
==========================================================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SMURFIT-STONE CONTAINER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions, except share data)
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. Merger and Restructuring
On November 18, 1998, Stone merged with a wholly-owned subsidiary of the Company
(the "Merger"). The 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.
As part of the Company's continuing evaluation of all areas of its business in
connection with its Merger integration, the Company recorded restructuring
charges of $6 million and $5 million during the first quarter of 2000 and 1999,
respectively, related to the permanent shutdown of various facilities.
Additional restructuring charges are expected in 2000 as management finalizes
its plans.
4
<PAGE>
4. 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 March 31, 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 $110 million and $84 million
for the three months ended March 31, 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
March 31,
2000 1999
---- ----
<S> <C> <C>
Results of operations (a)
Net sales..................................................................... $ 167 $ 178
Cost of sales................................................................. 147 147
Income (loss) before income taxes, minority interest and extraordinary
charges.................................................................... 8 4
Net income (loss)............................................................. 7 5
</TABLE>
(a) Includes results of operations for each of the Company's affiliates for the
period it was accounted for under the equity method.
5. Discontinued Operations
During February 1999 the Company adopted a formal plan to sell the operating
assets of its subsidiary, Smurfit Newsprint Corporation ("SNC"). Accordingly,
SNC is accounted for as discontinued operations in the accompanying consolidated
financial statements. The Company transferred ownership of the Oregon City,
Oregon newsprint mill on May 9, 2000, thereby completing its exit from the
newsprint business. No proceeds from the transfer were received.
6. Comprehensive Income (Loss)
Comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
2000 1999
----- ----
<S> <C> <C>
$ 40 (88)
Net income (loss)..........................................................
Other comprehensive income (loss), net of tax:
Foreign currency translation............................................. (9) (11)
------ ------
Comprehensive income (loss)................................................ $ 31 $ (99)
====== ======
</TABLE>
5
<PAGE>
7. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended
March 31,
Numerator: 2000 1999
----- -----
<S> <C> <C>
Net income (loss)..................................................................... $ 40 $ (92)
Denominator:
Denominator for basic earnings per share -
Weighted average shares............................................................ 218 215
Effect of dilutive securities:
Employee stock options............................................................. 3
----- ------
Denominator for diluted earnings per share -
Adjusted weighted average shares................................................... 221 215
======= ======
Basic earnings (loss) per share from continuing operations............................ $ .18 $ (.43)
======= ======
Diluted earnings (loss) per share from continuing operations.......................... $ .18 $ (.43)
======= ======
</TABLE>
For the three months ended March 31, 2000 and 1999, convertible debt to
acquire one million shares of common stock with an earnings effect of $1
million, and three million additional minority interest shares with an earnings
effect of $2 million are excluded from the diluted earnings per share
computation because they are antidilutive. For the three months ending March 31,
1999, options to purchase three million shares of common stock under the
treasury stock method were also excluded from the diluted earnings per share
computation because they are antidilutive.
8. 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 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 four non-reportable segments (specialty packaging, industrial
bags, reclamation 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.
6
<PAGE>
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 March 31,
- -----------------------------
2000
----
Revenues from external customers........................ $ 1,188 $ 212 $ 465 $ 1,865
Intersegment revenues................................... 57 94 151
Income (loss) from continuing operations
before income taxes and minority interest........... 232 15 (162) 85
1999
----
Revenues from external customers........................ $ 1,100 $ 197 $ 408 $ 1,705
Intersegment revenues................................... 47 72 119
Income (loss) from continuing operations
before income taxes and minority interest............. 56 16 (204) (132)
</TABLE>
9. 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.
Stone was a party to an Output Purchase Agreement (the "OPA") with Four M
Corporation ("Four M") and Florida Coast Paper Company, L.L.C. ("FCPC"), a joint
venture owned 50% by each of Stone and Four M. The OPA required that Stone and
Four M each purchase one-half of the linerboard produced at FCPC's mill in Port
St. Joe, FL (the "FCPC Mill") at a minimum price sufficient to cover certain
obligations of FCPC. The OPA also required Stone and Four M to use their best
efforts to cause the FCPC Mill to operate at a production rate not less than the
reported average capacity utilization of the U.S. linerboard industry. FCPC
indefinitely discontinued production at the FCPC Mill in August 1998, and FCPC
and certain of its affiliates filed for Chapter 11 bankruptcy protection in
April 1999. Certain creditors of FCPC filed an adverse proceeding in the
bankruptcy against Stone and Four M, and certain of their officers and
directors, alleging among other things, default with respect to the obligations
of Stone and Four M under the OPA. On October 20, 1999, FCPC and a committee
representing the holders of the FCPC debt securities filed a bankruptcy
reorganization plan ("Plan") that provided for the settlement of all outstanding
claims in exchange for cash payments. Under the Plan, which was confirmed and
consummated in January 2000, Stone paid approximately $123 million to satisfy
the claims of creditors of FCPC, Stone received title to the FCPC mill, and all
claims under the OPA, as well as any obligations of Stone involving FCPC or its
affiliates, were released and discharged. The Company's payment is reflected in
other, net operating activities in the accompanying consolidated statements of
cash flows. In addition, Four M issued $25 million of convertible preferred
stock to Stone in connection with the consummation of the Plan.
7
<PAGE>
Subsequent to an understanding reached in December 1998, the Company and SNC
entered into a Settlement Agreement in January 1999 to implement a nationwide
class action settlement of claims involving Cladwood(R), a composite wood siding
product manufactured by SNC that has been used primarily in the construction of
manufactured or mobile homes. In 1998, the Company recorded a $30 million pre-
tax charge to reflect amounts SNC has paid into a settlement fund,
administrative costs, plaintiff's attorneys' fees, class representative payments
and other costs. The Company believes its reserve is adequate to pay eligible
claims. However, the number of claims, and the number of potential claimants
who choose not to participate in the settlement, could cause the Company to
re-evaluate whether the liabilities in connection with the Cladwood(R) cases
could exceed established reserves.
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.
10. St. Laurent Acquisition
On February 23, 2000, SSCC, Stone and a newly-formed subsidiary of Stone
("Newco") entered into a Pre-Merger Agreement with St. Laurent Paperboard Inc.
("St. Laurent") pursuant to which Newco will acquire St. Laurent for
approximately $1.4 billion, consisting of approximately $625 million in cash,
the issuance of approximately 25 million shares of SSCC common stock and the
assumption of approximately $386 million of St. Laurent's debt. Stone expects to
borrow $1,050 million to finance the acquisition of St. Laurent. Consummation of
the transaction, which is subject to St. Laurent shareholder and certain
regulatory approvals, is expected to occur in the second quarter of 2000.
11. Subsequent Event
On April 18, 2000, Stone entered into an agreement to sell the market pulp mill
at its closed Port Wentworth, GA mill site to an outside party for approximately
$63 million. Proceeds from the sale, which is expected to close in the second
quarter of 2000, will be used for debt reduction. No gain is expected on the
sale.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
-------------
Results of Operations
<TABLE>
<CAPTION>
(In millions) Three months ended
March 31,
-----------------------
2000 1999
------ -------
<S> <C> <C>
Net sales
Containerboard and corrugated containers......................................... $ 1,188 $ 1,100
Folding cartons and boxboard..................................................... 212 197
Other operations................................................................. 465 408
-------- -------
Total............................................................................ $ 1,865 $ 1,705
======== =======
Profit (loss)
Containerboard and corrugated containers......................................... $ 232 $ 56
Folding cartons and boxboard..................................................... 15 16
Other operations................................................................. 34 29
-------- -------
Total operations................................................................. 281 101
Restructuring charge............................................................. (6) (5)
Interest expense, net............................................................ (121) (153)
Other, net....................................................................... (69) (75)
-------- -------
Income (loss) from continuing operations
before income taxes and minority interest...................................... $ 85 $ (132)
======== =======
</TABLE>
For the three months ended March 31, 2000, net sales for the Company were $1,865
million, an increase of 9% compared to the same period last year and operating
profits of $85 million were $217 million higher. The increases in net sales and
operating profits were due primarily to higher average sales prices for
containerboard, corrugated containers and market pulp. Lower sales volume and
closures of operating facilities partially offset the sales price improvements.
Other, net includes corporate expenses and other costs not allocated to
segments. The increases (decreases) in net sales for each of the Company's
segments are shown in the chart below.
<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 March 31,
2000 compared to 1999
- ---------------------
Sales price and product mix.............. $ 182 $ 7 $ 53 $ 242
Sales volume............................. (48) 8 16 (24)
Closed or sold facilities................ (46) (12) (58)
------ ------ ---- ------
Total increase....................... $ 88 $ 15 $ 57 $ 160
====== ====== ==== ======
</TABLE>
9
<PAGE>
Containerboard and Corrugated Containers Segment
- ------------------------------------------------
Net sales of $1,188 million for the three months ended March 31, 2000 increased
8% compared to last year and profits increased by $176 million to $232 million.
The increases in net sales and operating profits were due primarily to higher
average sales prices for containerboard, corrugated containers and market pulp.
Net sales were negatively impacted by the permanent closure of twelve converting
facilities since the Merger and lower third party sales of containerboard and
kraft paper, market pulp and wood. Reclaimed fiber cost was higher in the first
quarter of 2000 compared to last year. Cost of goods sold as a percent of net
sales decreased to 71% for the three months ended March 31, 2000 compared to 85%
for the same period last year due primarily to the higher average sales prices.
On average, linerboard prices in the first quarter of 2000 were higher than last
year by 22% and the average price of corrugated containers was higher by 19%.
The Company implemented price increases of $50 and $60 per ton for linerboard
and medium, respectively, on February 1, 2000. Production of containerboard and
kraft paper for the first quarter of 2000 increased 5% compared to last year in
spite of economic downtime taken in order to reduce inventories. Shipments of
corrugated containers increased 1% compared to last year. The average sales
price of market pulp in the first quarter of 2000 increased 51% compared to last
year and sales volume declined 16%. The average sales price of solid bleached
sulfate in the first quarter of 2000 increased 4% compared to last year and
production was higher by 9%.
Folding Cartons and Boxboard Segment
- ------------------------------------
Net sales of $212 million for the three months ended March 31, 2000 increased
by 8% compared to last year and profits decreased by $1 million to $15 million.
The sales increase was due to higher average sales prices and increased sales
volume compared to last year. Folding carton shipments increased 2% compared to
last year. On average, boxboard sales prices were 5% higher and folding carton
sales prices were 3% higher than last year. Profits were lower due primarily to
higher reclaimed fiber costs compared to last year. Cost of goods sold as a
percent of net sales increased to 85% for the three months ended March 31, 2000
compared to 84% for the same period last year due primarily to higher fiber
cost.
Other Operations
- ----------------
Net sales of $465 million for the three months ended March 31, 2000, increased
by 14% compared to last year and profits increased by $5 million to $34 million
due primarily to the reclamation operation. Demand for reclaimed fiber,
particularly for old corrugated containers ("OCC"), the primary grade used by
recycled containerboard mills, was strong in the first quarter of 2000 and sales
prices increased. Compared to last year, the average price of OCC in the first
quarter was higher by approximately $55 per ton and the price of old newsprint
was higher by approximately $18 per ton. Total tons of fiber reclaimed and
brokered increased 7% compared to last year. Results for the Company's
industrial bag, international and specialty packaging operations were comparable
to last year.
Costs and Expenses
- ------------------
The Company's overall cost of goods sold decreased compared to last year due to
lower third party sales of containerboard and kraft paper, market pulp and other
products. Cost of goods sold as a percent of net sales for the three months
ended March 31 decreased from 89% in 1999 to 79% in 2000, due primarily to the
higher average sales prices.
Selling and administrative expenses for the three months ended March 31, 2000
were comparable to last year.
Interest expense for the three months ended March 31, 2000 was lower than last
year by $32 million, due primarily to lower average debt levels outstanding. The
Company's overall average interest rate in the 2000 period was comparable to
last year.
10
<PAGE>
Provision for income taxes of $43 million for the three months ended March 31,
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
March 31,
---------------------
2000 1999
----- -----
<S> <C> <C>
Mill production:
Containerboard.................................... 1,681 1,554
Solid bleached sulfate............................ 48 44
Kraft paper....................................... 74 110
Market pulp....................................... 151 147
Recycled boxboard................................. 213 211
Corrugated shipments (billion sq. ft.)................. 22.8 22.7
Folding carton shipments............................... 143 141
Industrial bag shipments............................... 79 79
Fiber reclaimed and brokered........................... 1,701 1,591
</TABLE>
Restructuring
As explained in the SSCC 1999 10-K, in connection with the Merger, the Company
restructured its operations. 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 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
$6 million restructuring charge in the first quarter of 2000 related to the
permanent shutdown of four converting facilities.
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 FCPC (see Note 9 to the Notes to Consolidated
Financial Statements). Since the Merger, through March 31, 2000, approximately
$211 million (70%) of the cash expenditures were incurred, approximately 58% of
which related to the FCPC settlement. The remaining exit liabilities for
JSC(U.S.) and Stone as of March 31, 2000 of approximately $89 million will be
funded through operations as originally planned. Additional restructuring
charges are expected in 2000 as management finalizes its plans.
Discontinued Operations
As explained in the SSCC 1999 10-K, in February 1999, the Company adopted a
formal plan to sell the operating assets of its subsidiary, SNC. Accordingly,
SNC is accounted for as discontinued operations. The Company transferred
ownership of the Oregon City, Oregon newsprint mill on May 9, 2000, thereby
completing its exit from the newsprint business. No proceeds from the transfer
were received.
11
<PAGE>
Liquidity and Capital Resources
For the three months ended March 31, 2000, borrowings of $101 million and
proceeds from the exercise of stock options of $6 million were used to fund
property additions of $49 million, financing fees of $9 million related to the
new Tranche F term loan discussed below and net cash used for operating
activities of $47 million.
On February 23, 2000, the Company, Stone and a newly-formed subsidiary of Stone
("Newco") entered into a Pre-Merger Agreement, as amended, with St. Laurent
Paperboard Inc. pursuant to which Newco will acquire St. Laurent for
approximately $1.4 billion, consisting of approximately $625 million in cash,
the issuance of approximately 25 million shares of SSCC common stock and the
assumption of approximately $386 million of St. Laurent's debt. Stone expects to
borrow up to $1,050 million to finance the acquisition of St. Laurent.
Consummation of the transaction is expected to occur in the second quarter of
2000.
On March 2, 2000, Stone entered into a commitment letter pursuant to which
certain financial institutions agreed, subject to certain conditions, to provide
Stone and Newco an aggregate of up to $1,150 million of new senior secured
credit facilities consisting of (i) $1,050 million of term loan facilities
maturing on December 31, 2006, and (ii) a $100 million revolving facility to
Newco maturing on December 31, 2005. Stone intends to utilize the proceeds of
the new term loan facilities 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 proceeds of the new
revolving facility will be used for general corporate purposes in the ordinary
course of Newco's business.
On March 31, 2000, Stone amended and restated its existing credit agreement (the
"Stone Credit Agreement") pursuant to which a group of financial institutions
agreed to provide an additional $575 million to Stone in the form of a new
Tranche F term loan maturing on December 31, 2005 and to extend 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.
On April 18, 2000, Stone entered into an agreement to sell the market pulp mill
at its closed Port Wentworth, GA mill site to a third party for approximately
$63 million. Proceeds from the sale, which is expected to close in the second
quarter, will be used for debt reduction. No gain is expected on the sale.
The 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 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.
12
<PAGE>
The declaration of dividends by the Board of Directors of Stone is subject to,
among other things, certain restrictive provisions contained in the Stone Credit
Agreement and certain note indentures. As of March 31, 2000, Stone had
accumulated dividend arrearages of approximately $24 million related to a series
of its preferred stock.
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, environmental
expenditures relating to compliance with the Cluster Rule (as discussed 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
March 31, 2000, JSC(U.S.) had $451 million of unused borrowing capacity under
the JSC(U.S.) Credit Agreement and Stone had $347 million of unused borrowing
capacity under the Stone 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 three months ended March 31, 2000 the exchange rates for the Canadian
dollar and the German mark strengthened (weakened) against the U.S. dollar as
follows:
Rate at March 31, 2000 vs. December 31, 1999
Canadian dollar (.7)%
German mark (5.3)%
Average Rate for the three months ended March 31, 2000 vs. 1999
Canadian dollar 3.8%
German mark (13.5)%
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 German mark obligation. The
Company recognized foreign currency transaction gains of $1 million for the
three months ended March 31, 2000 compared to $4 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 three months ended March 31, 2000.
13
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
As of March 31, 2000, Stone had accumulated dividend arrearages of approximately
$24 million related to a series of its preferred stock. 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
---------------------------------------------------
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:
10.1 Amended and Restated Credit Agreement dated as of March 31, 2000,
among Stone, the financial institutions signatory thereto and The
Chase Manhattan Bank and Bankers Trust Company as agents (incorporated
by reference to Exhibit 10.1 to Stone's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000).
11.1 Calculation of Per Share Earnings
27.1 Financial Data Schedule
b) Reports on Form 8-K
Form 8-K dated February 23, 2000 was filed with the Securities and Exchange
Commission in connection with the agreement by the Company to acquire St.
Laurent Paperboard Inc. for approximately $1.4 billion.
14
<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: May 10, 2000 /s/ Paul K. Kaufmann
------------ -----------------------------
Paul K. Kaufmann
Vice President and
Corporate Controller
(Principal Accounting Officer)
15
<PAGE>
EXHIBIT 11.1
SMURFIT-STONE CONTAINER CORPORATION
CALCULATION OF PER SHARE EARNINGS
(In millions, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
2000 1999
------------ ---------
<S> <C> <C>
Income (loss) from continuing operations $ 40 $ (92)
Discontinued operations 4
------------ ---------
Net income (loss) $ 40 $ (88)
============ =========
Weighted average shares outstanding
for basic earnings per share 218 215
Effect of diluted securities
Employee stock options 3
------------ ---------
Weighted average shares outstanding
for diluted earnings 221 215
============ =========
Basic per share amounts:
Income (loss) from continuing operations $ .18 $ (.43)
Discontinued operations .02
------------ ---------
Net income (loss) $ .18 $ (.41)
============ =========
Diluted per share amounts:
Income (loss) from continuing operations $ .18 $ (.43)
Discontinued operations .02
------------ ---------
Net income (loss) $ .18 $ (.41)
============ =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000919226
<NAME> SMURFIT-STONE CONTAINER CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 731
<ALLOWANCES> 51
<INVENTORY> 761
<CURRENT-ASSETS> 1,661
<PP&E> 5,415
<DEPRECIATION> 1,065
<TOTAL-ASSETS> 9,848
<CURRENT-LIABILITIES> 1,282
<BONDS> 4,848
0
0
<COMMON> 2
<OTHER-SE> 1,882
<TOTAL-LIABILITY-AND-EQUITY> 9,848
<SALES> 1,865
<TOTAL-REVENUES> 1,865
<CGS> 1,481
<TOTAL-COSTS> 1,481
<OTHER-EXPENSES> 185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 85
<INCOME-TAX> 43
<INCOME-CONTINUING> 40
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-BASIC> .18
<EPS-DILUTED> .18
</TABLE>
