AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1994
REGISTRATION NO.
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SIBV/MS HOLDINGS, INC.
(TO BE RENAMED JEFFERSON SMURFIT CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 2653 43-1531401
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
JEFFERSON SMURFIT CENTRE
8182 MARYLAND AVENUE
ST. LOUIS, MISSOURI 63105
(314) 746-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN R. FUNKE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
8182 MARYLAND AVENUE
ST. LOUIS, MISSOURI 63105
(314) 746-1100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
LOU R. KLING, ESQ. FRED H. COHEN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM SHEARMAN & STERLING
919 THIRD AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 735-3000 (212) 848-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES PRICE AGGREGATE REGISTRATION
TO BE REGISTERED AMOUNT TO BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
Common Stock, par value $.01 per share........ 21,725,549 shares $20.50 $445,373,755 $153,578
(1) Includes 2,197,500 shares of Common Stock which the U.S. Underwriters have
the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the 'U.S.
Prospectus') and one to be used in connection with a concurrent offering outside
the United States and Canada (the 'International Prospectus'). The U.S.
Prospectus and International Prospectus are identical except for the front cover
page. The form of U.S. Prospectus is included herein and is followed by the
front cover page to be used in the International Prospectus. The front cover
page for the International Prospectus included herein is labeled 'Alternate Page
for International Prospectus'.
Prior to the date on which this Registration Statement is declared
effective by the Securities and Exchange Commission, the Registrant, SIBV/MS
Holdings, Inc., intends to change its name to 'Jefferson Smurfit Corporation',
and the Registrant's subsidiary, Jefferson Smurfit Corporation, intends to
change its name to 'Jefferson Smurfit Corporation (U.S.)'. All references in
this Prospectus to the 'Company' refer to the corporation currently named
SIBV/MS Holdings, Inc. and, when the context requires, its consolidated
subsidiaries; all references in this Prospectus to 'JSC' refer to the
corporation currently named Jefferson Smurfit Corporation.
JEFFERSON SMURFIT CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
FORM S-1 PART I ITEM PROSPECTUS LOCATION OR CAPTION
- --------------------------------------------------------------------- ------------------------------------------
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus........................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus........ Inside Front Cover Page; Additional
Information
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................ Prospectus Summary; Risk Factors; Selected
Historical Financial Data; Pro Forma
Financial Data
4. Use of Proceeds................................................ Use of Proceeds
5. Determination of Offering Price................................ Underwriters
6. Dilution....................................................... Dilution
7. Selling Security Holders....................................... *
8. Plan of Distribution........................................... Cover Page; Underwriters
9. Description of Securities to be Registered..................... Description of Capital Stock
10. Interests of Named Experts and Counsel......................... *
11. Information with Respect to the Registrant..................... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Recapitalization
Plan; Use of Proceeds; Dividend Policy;
Capitalization; Selected Historical
Financial Data; Pro Forma Financial
Data; Management's Discussion and
Analysis of Results of Operations and
Financial Condition; Business;
Management; Security Ownership of
Certain Beneficial Owners; Certain
Transactions; Description of Certain
Indebtedness; Description of Capital
Stock; Shares Eligible for Future Sale;
Certain United States Federal Tax
Considerations for Non-U.S. Holders of
Common Stock; Index to Financial
Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................... *
- ------------
* Not applicable.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED FEBRUARY 18, 1994
14,650,000 SHARES
JEFFERSON SMURFIT CORPORATION
COMMON STOCK
- ----------------------------------------------------------
ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE
14,650,000 SHARES OF COMMON STOCK BEING OFFERED, 11,720,000 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 2,930,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE
OF THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS.
SEE 'UNDERWRITERS'. PRIOR TO THIS OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
PER SHARE WILL BE IN THE RANGE OF $ TO
$ . SEE 'UNDERWRITERS' FOR A DISCUSSION OF THE
FACTORS CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
THE COMPANY IS ALSO SELLING SHARES OF COMMON STOCK (ASSUMING THE PRICE TO
PUBLIC IS EQUAL TO THE MIDPOINT OF THE RANGE SET FORTH ABOVE) TO SMURFIT
INTERNATIONAL, B.V. (OR A CORPORATE AFFILIATE), THE CURRENT BENEFICIAL OWNER
OF 50% OF THE COMPANY'S OUTSTANDING STOCK, AT A PRICE PER SHARE EQUAL TO
THE PRICE TO PUBLIC PER SHARE OF COMMON STOCK OFFERED HEREBY (OR FOR AN
AGGREGATE PURCHASE PRICE OF $100 MILLION). FOR A FURTHER DESCRIPTION
OF THE TERMS AND CONDITIONS OF SUCH SALE AND CERTAIN RELATED
MATTERS, SEE 'RECAPITALIZATION PLAN'.
- ----------------------------------------------------------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE.
- ----------------------------------------------------------
SEE 'RISK FACTORS' FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
- ----------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------
PRICE $ A SHARE
- ----------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------------------- -------------------- --------------------
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $ .
Excludes proceeds of sale of shares of Common Stock to Smurfit
International, B.V. No underwriting discounts or commissions will be paid
on the sale of such shares.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days from the date hereof to purchase in the aggregate up to
2,197,500 additional shares of Common Stock, at the Price to Public less
underwriting discounts and commissions, for the purpose of covering
overallotments, if any. If the option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ and $ , respectively. See
'Underwriters'.
- ----------------------------------------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1994, at the
office of Morgan Stanley & Co. Incorporated, New York, New York, against payment
therefor in New York funds.
- ----------------------------------------------------------
MORGAN STANLEY & CO.
INCORPORATED
KIDDER, PEABODY & CO.
INCORPORATED
SALOMON BROTHERS INC
, 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
- ----------------------------------------------------------
No action has been or will be taken in any jurisdiction by the Company or
any Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.
In this Prospectus, references to 'dollar' and '$' are to United States
dollars, and the terms 'United States' and 'U.S.' mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. All tons referenced are short tons.
- ----------------------------------------------------------
UNTIL , 1994 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ----------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................. 4
Risk Factors................................... 10
Recapitalization Plan.......................... 17
Use of Proceeds................................ 21
Dividend Policy................................ 22
Dilution....................................... 23
Capitalization................................. 24
Selected Historical Financial Data............. 26
Pro Forma Financial Data....................... 28
Management's Discussion and Analysis of Results
of Operations and Financial Condition........ 33
Business....................................... 36
Management..................................... 55
PAGE
----
Security Ownership of Certain Beneficial
Owners....................................... 63
Certain Transactions........................... 65
Description of Certain Indebtedness............ 70
Description of Capital Stock................... 78
Shares Eligible for Future Sale................ 80
Certain United States Federal Tax
Considerations for Non-U.S. Holders of Common
Stock........................................ 81
Underwriters................................... 83
Legal Matters.................................. 86
Experts........................................ 86
Additional Information......................... 87
Index to Financial Statements.................. F-1
------------------------
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and a report thereon by the
Company's independent auditors and quarterly reports containing unaudited
consolidated financial data for the first three quarters of each fiscal year.
- ----------------------------------------------------------
The principal executive offices of the Company are located at 8182 Maryland
Avenue, St. Louis, Missouri 63105, and the Company's telephone number is (314)
746-1100. The Company was incorporated in Delaware in 1989.
3
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and the financial statements and notes thereto that appear elsewhere
in this Prospectus. Unless otherwise indicated, (i) all references in this
Prospectus to per share amounts and numbers and percentages of shares
outstanding reflect the Reclassification (as defined below) which will occur
immediately prior to the consummation of the Equity Offerings (as defined below)
and assume that there is no exercise of the over-allotment option by the U.S.
Underwriters, and (ii) references to the 'Company' refer to Jefferson Smurfit
Corporation, and where appropriate, its subsidiaries.
THE COMPANY
The Company believes it is one of the nation's largest producers of
paperboard and packaging products and is the largest producer of recycled
paperboard and recycled packaging products. The Company's system of 16
paperboard mills produces virgin and recycled containerboard, solid bleached
sulfate ('SBS') and recycled boxboard, and recycled cylinderboard, which is sold
to the Company's own converting operations or to third parties. The Company's
converting operations consist of 52 corrugated container plants, 18 folding
carton plants, and 16 industrial packaging plants located across the country,
with three plants located outside the U.S. In 1993, the Company's container
plants converted an amount of containerboard equal to approximately 105.5% of
the amount the Company produced, its folding carton plants converted an amount
of SBS, recycled boxboard and coated natural kraft equal to approximately 65.4%
of the amount the Company produced, and its industrial packaging plants
converted an amount of recycled cylinderboard equal to approximately 59.7% of
the amount the Company produced. The Company's Paperboard/Packaging Products
segment contributed 91.6% of the Company's net sales in 1993. The Company's
paperboard operations are supported by its reclamation division and by its
timber operations which manage approximately one million acres of owned or
leased timberland located in close proximity to its virgin fibre mills.
In addition, the Company believes it is one of the nation's largest
producers of recycled newsprint. The Company's newsprint division includes two
newsprint mills in Oregon and two facilities that produce Cladwood'r', a
construction material produced from newsprint and wood by-products.
The predecessor to the Company was founded in 1974 when Jefferson Smurfit
Group plc ('JS Group'), a worldwide leader in the packaging products industry,
commenced operations in the United States by acquiring 40% of a small paperboard
and packaging products company. The remaining 60% of that company was acquired
in 1977, and in 1978 net sales were $42.9 million. The Company implemented a
strategy to build a fully integrated, broadly based, national packaging
business, primarily through acquisitions, including Alton Box Board Company in
1979, the paperboard and packaging divisions of Diamond International
Corporation in 1982, 80% of Smurfit Newsprint Corporation ('SNC') in 1986, and
50% of Container Corporation of America ('CCA') in 1986. The Company financed
its acquisitions by using leverage, and in several cases, utilized joint venture
financing whereby the Company eventually obtained control of the acquired
company. While no major acquisition has been made since 1986, the Company has
made 18 smaller acquisitions and started up five new facilities which had
combined sales in 1993 of $280.3 million. Jefferson Smurfit Corporation (U.S.)
('JSC') was formed in 1983 to consolidate the operations of the Company, and
today the Company ranks among the industry leaders in its two business segments,
Paperboard/Packaging Products and Newsprint. In 1993, the Company had net sales
of $2.9 billion, achieving a compound annual sales growth rate of 32.6% for the
period since 1978.
The principal components of the Company's business strategy include the
following:
Maintain Focus on Recycled Products. The Company believes that it is
the largest recycler of wastepaper; the largest producer of coated
recycled paperboard and one of the largest producers of recycled
newsprint in the United States, and is well positioned to supply an
increasing demand for environmentally friendly packaging.
Focus on Cost Reduction. The Company is implementing a company-wide
cost reduction program designed to improve the cost competitiveness
of all the Company's operating facilities and staff functions.
Additionally, in 1993 the Company began a restructuring program to
realign and consolidate various manufacturing operations over the
next 2 to 3 years.
4
Continue to Pursue Vertical Integration. The Company's high level of
integration assures the Company of top quality and economically
priced supplies of fibre for its paperboard mills, and protects the
Company from potential regional supply and demand imbalances for
recycled fibre grades. Integration also reduces the volatility of
pricing for the Company's containerboard products and allows the
Company to run its mills at higher operating rates during industry
downturns.
Continue Growth in Core Businesses. The Company intends to continue
its strategy of building its core packaging businesses primarily by
pursuing acquisitions and through capital improvement programs.
Maintain Leading Market Positions. The Company's prominence in the
United States packaging industry provides the Company certain
advantages in marketing its products, including excellent customer
visibility, which has enabled the Company to enter into strategic
alliances with select large national account customers. The Company's
broad range of packaging products provides a single source option to
supply all of a customer's packaging needs.
Improve Financial Profile. The Recapitalization Plan (as defined
below) will improve operating and financial flexibility by reducing
the level and overall cost of its debt, extending maturities of its
indebtedness, increasing stockholders' equity and increasing its
access to capital markets.
Prior to the consummation of the Equity Offerings, 50% of the stock of the
Company was owned by direct and indirect subsidiaries of Smurfit International,
B.V. ('SIBV') an indirect wholly-owned subsidiary of JS Group, a public
corporation organized under the laws of the Republic of Ireland, % was
beneficially owned by The Morgan Stanley Leveraged Equity Fund II, L.P., a
Delaware limited partnership investment fund formed to make investments in
industrial and other companies ('MSLEF II'), and certain related entities and
% was beneficially owned by certain other investors. MSLEF II is an affiliate
of both Morgan Stanley & Co. Incorporated ('MS&Co.'), a representative of the
U.S. Underwriters, and Morgan Stanley & Co. International Limited, a
representative of the International Underwriters.
After the consummation of the Recapitalization Plan, including the Equity
Offerings and the purchase by SIBV (or a corporate affiliate) of
shares of Common Stock for $100 million (assuming a purchase price per share
equal to the midpoint of the range of the anticipated high and low per share
public offering prices set forth on the cover) (the 'SIBV Investment'), SIBV
will beneficially own approximately %, MSLEF II and certain related entities
will beneficially own in the aggregate approximately %, and all other
stockholders (including public stockholders) will beneficially own approximately
% of the outstanding shares of Common Stock. See 'Security Ownership of
Certain Beneficial Owners' and 'Certain Transactions'.
5
The Company conducts its business through its wholly-owned subsidiaries,
JSC and CCA. The following chart illustrates the corporate structure of the
Company, JSC and CCA, and the indebtedness of such corporations following the
consummation of the Recapitalization Plan.
[GRAPHIC REPRESENTATION of the corporate structure and principal assets and
indebtedness of Jefferson Smurfit Corporation**** ('the Company'), Jefferson
Smurfit Corporation (U.S.) **** ('JSC') and Container Corporation of America
('CCA'), illustrating that: (i) the principal assets of the Company include 100%
of the stock of JSC, (ii) the principal assets of JSC include 100% of the stock
of CCA, 80% of the stock of Smurfit Newsprint Corporation, paper mills,
converting facilities and other operating assets, (iii) the principal assets of
CCA include paper mills, converting facilities, timberland and other operating
assets, (iv) JSC's indebtedness consists of Senior Obligations* (New Revolving
Credit Facility, Guarantees of CCA debt under New Revolving Credit Facility,
Initial Term Loan, Delayed Term Loan**, 1993 Notes and Senior Notes), other
indebtedness *** and Subordinated Obligations (None**) and (v) CCA's
indebtedness consists of Senior Obligations* (New Revolving Credit Facility,
Initial Term Loan, Delayed Term Loan**, Guarantee of JSC debt under New
Revolving Credit Facility, 1993 Notes and Senior Notes), other indebtedness and
Subordinated Obligations (None**). The asterisks relate to the four footnotes
following the graphic representation.]
- ------------
* Includes those obligations (other than intercompany indebtedness) that are
senior with respect to all subordinated obligations listed and rank equally
with each other senior obligation listed (except that certain of such
obligations, but not all, are secured).
** Prior to the consummation of the Subordinated Debt Refinancing (as defined
below), CCA will have outstanding, and JSC will guarantee on a subordinated
basis, subordinated obligations consisting of the Senior Subordinated
Notes, the Subordinated Debentures and the Junior Accrual Debentures (each
as defined below) and no indebtedness will be outstanding under the Delayed
Term Loan (as defined below), except to the extent borrowings are made
thereunder to fund purchases of such subordinated debt prior to December
15, 1994 pursuant to open market or privately negotiated transactions, and
to repay amounts under the New Revolving Credit Facility which were
borrowed prior to December 15, 1994 for such repurchases.
*** A limited-purpose subsidiary of the Company has certain borrowings pursuant
to the Company's accounts receivable securitization program. See
'Description of Certain Indebtedness -- Securitization' and 'Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources'.
**** Prior to April 1994, the Company had been named 'SIBV/MS Holdings, Inc.'
and Jefferson Smurfit Corporation (U.S.) had been named 'Jefferson Smurfit
Corporation'. In this document, references to the 'Company' are to
Jefferson Smurfit Corporation, and references to 'JSC' are references to
its subsidiary, now called 'Jefferson Smurfit Corporation (U.S.)'.
6
THE OFFERINGS
Common Stock offered by the Company:
U.S. Equity Offering......................... 11,720,000 shares
International Equity Offering................ 2,930,000 shares
Total................................... 14,650,000 shares
Common Stock to be outstanding following the
Equity Offerings and the SIBV Investment........ shares
Use of Proceeds................................... The net proceeds to the Company from the Equity Offerings and
the SIBV Investment, together with the net proceeds to the
Company from the Debt Offerings (as defined below), will be
used to effect certain of the transactions contemplated by the
Recapitalization Plan. See 'Recapitalization Plan'.
Proposed New York Stock Exchange Symbol...........
The Company is also selling shares of Common Stock to SIBV (or a corporate
affiliate), pursuant to the SIBV Investment, for an aggregate purchase price of
$100 million. See 'Recapitalization Plan -- Sale of Stock to SIBV'.
RECAPITALIZATION PLAN
The Company is implementing a recapitalization plan (the 'Recapitalization
Plan') to refinance a substantial portion of its indebtedness in order to
improve operating and financial flexibility by reducing the level and overall
cost of its debt, extending maturities of indebtedness, increasing stockholders'
equity and increasing its access to capital markets. For the year ended December
31, 1993, the Recapitalization Plan would, on a pro forma basis for such year,
have resulted in $68.7 million of aggregate savings in interest expense, of
which $53.8 million represents cash interest expense savings (in each case on a
pre-tax basis).
The Recapitalization Plan includes the following primary components:
(i) (a) The offering by the Company of 14,650,000 shares of
Common Stock pursuant to this Prospectus (the 'Equity Offerings');
(b) The SIBV Investment;
(c) The offering by CCA of $500 million aggregate principal
amount of % Series A Senior Notes due 2004 (the 'Series A
Senior Notes') and $100 million aggregate principal amount of
% Series B Senior Notes due 2002 (the 'Series B Senior
Notes' and, together with the Series A Senior Notes, the 'Senior
Notes') (the 'Debt Offerings'). The Equity Offerings and the Debt
Offerings are collectively referred to herein as the 'Offerings';
(d) The entering into of a new credit agreement by CCA and
JSC (the 'New Credit Agreement') consisting of a $450 million
revolving credit facility (the 'New Revolving Credit Facility'), a
$200 million term loan (the 'Initial Term Loan') and an $850
million delayed term loan (the 'Delayed Term Loan' and, together
with the Initial Term Loan, the 'New Term Loans').
(ii) The application of the net proceeds of the Offerings and the SIBV
Investment, together with borrowings under the New Credit Agreement, to
refinance (the 'Bank Debt Refinancing') all of the Company's indebtedness
outstanding under (a) the Second Amended and Restated Credit Agreement,
dated as of November 9, 1989, among the Company, JSC, CCA, the lenders
which are parties thereto, Bankers Trust Company as agent and Chemical Bank
and Bank of America National Trust and Savings Association as co-agents
(the '1989 Credit Agreement'); (b) the Amended and Restated Note Purchase
Agreement, dated as of December 14, 1989, among the Company, JSC, CCA and
the purchasers of the secured notes (the 'Secured Notes') issued thereunder
(the 'Secured Note Purchase Agreement'), and (c) the Loan and Note Purchase
Agreement, dated as of August 26, 1992, among the Company, JSC, CCA, the
lenders which are
7
party thereto, Chemical Bank as agent and the managing agents and
collateral trustee which are party thereto (the '1992 Credit Agreement'
and, together with the 1989 Credit Agreement, the 'Old Bank Facilities').
(iii) The application, on approximately December 1, 1994, of the
borrowings under the Delayed Term Loan to redeem (the 'Subordinated Debt
Refinancing') CCA's (a) 13 1/2% Senior Subordinated Notes due 1998 (the
'Senior Subordinated Notes'), (b) 14% Subordinated Debentures due 2001 (the
'Subordinated Debentures') and (c) 15 1/2% Junior Subordinated Accrual
Debentures due 2004 (the 'Junior Accrual Debentures' and, together with the
Senior Subordinated Notes and the Subordinated Debentures, the
'Subordinated Debt'). The earliest date the Subordinated Debt may be
redeemed is December 1, 1994. Borrowings under the Delayed Term Loan will
be subject to the satisfaction of certain limited conditions.
SOURCES AND USES
The following table sets forth the sources and uses of funds to be used to
effect the Recapitalization Plan:
($ MILLIONS)
------------
Sources of Funds
The Equity Offerings(a)............................................................... $ 300
SIBV Investment(a).................................................................... 100
The Debt Offerings(a)................................................................. 600
New Revolving Credit Facility(b)...................................................... --
New Term Loans........................................................................ 1,050
------------
Total............................................................................ $2,050
------------
------------
Uses of Funds
Prepayment of debt under Old Bank Facilities.......................................... $ 810
Prepayment of Secured Notes........................................................... 271
Redemption of Subordinated Debt(c).................................................... 844
Fees and expenses(d).................................................................. 104
Increase in cash(e)................................................................... 21
------------
Total............................................................................ $2,050
------------
------------
- ------------
(a) Assuming an initial public offering price of $ per share of Common Stock
(which is equal to the midpoint of the range of the anticipated high and
low per share public offering prices set forth on the cover) and, in the
case of the Offerings, without deducting estimated underwriting discounts
and commissions and expenses.
(b) The maximum amount available under such facility will be $450 million, with
up to $150 million of such amount being available for letters of credit. It
is anticipated that immediately following the Offerings, letters of credit
of approximately $90 million will be outstanding under such facility. See
also (c) below.
(c) Represents the outstanding principal amount and redemption premiums
required to be paid on the Senior Subordinated Notes and the Subordinated
Debentures, and the estimated accreted value of the Junior Accrual
Debentures as of December 1, 1994. The Company expects that accrued and
unpaid interest at June 1 and December 1, 1994 on the Senior Subordinated
Notes and the Subordinated Debentures will be paid through internal cash
flow or with additional borrowings under the New Revolving Credit Facility.
(d) Expenses include estimated underwriting discounts and commissions relating
to the Equity Offerings and the Debt Offerings, respectively. There are no
underwriting discounts or commissions on the sale of Common Stock pursuant
to the SIBV Investment.
(e) If the U.S. Underwriters exercise their overallotment option in full, cash
will be increased by an additional $ million.
The aggregate amount of proceeds, net of estimated expenses, necessary
immediately following the Offerings to consummate the Recapitalization Plan
(excluding the Subordinated Debt Refinancing) is approximately $1,120 million.
The sources of funds for such amount are set forth in the above table. Prior to
consummation of the Offerings, however, the Company may determine to change the
size of the various components of the Recapitalization Plan and, accordingly,
among other things may change the size of the Debt Offerings and/or the Equity
Offerings which could, in turn, affect the size of the Initial Term Loan and/or
the Delayed Term Loan.
In order to consummate the Recapitalization Plan, the Company must obtain
certain consents and waivers, consisting, among others, of the consent of (i) a
majority in principal amount of the holders of CCA's 9 3/4% Senior Notes due
2003 (the '1993 Notes'), (ii) 60% of the holders of the outstanding principal
amount of Secured Notes and (iii) certain parties under JSC's and CCA's trade
receivables
8
securitization (the 'Securitization') (collectively, the 'Consents and
Waivers'). The Company expects that, prior to entering into the Underwriting
Agreement (as defined below), it shall have obtained the Consents and Waivers.
For more information concerning the Consents and Waivers, see 'Recapitalization
Plan -- Consents and Waivers'.
All of the transactions contemplated by the Recapitalization Plan (other
than the Subordinated Debt Refinancing) are expected to occur substantially
contemporaneously. Consummation of the Equity Offerings is conditioned on the
substantially concurrent consummation of the other components of the
Recapitalization Plan (other than the Subordinated Debt Refinancing), including,
among other things, consummation of (i) the SIBV Investment, (ii) the Debt
Offerings, and (iii) the Bank Debt Refinancing. In addition, consummation of the
Equity Offerings is conditioned on the Company obtaining the Consents and
Waivers.
For more information concerning the Recapitalization Plan, see
'Recapitalization Plan'.
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Common Stock, see 'Risk Factors'.
9
SUMMARY FINANCIAL DATA
The summary historical and pro forma financial data presented below were
derived from the consolidated financial statements and the pro forma financial
statements of the Company included elsewhere herein and should be read in
conjunction with 'Selected Historical Financial Data', 'Pro Forma Financial
Data', 'Management's Discussion and Analysis of Results of Operations and
Financial Condition' and the consolidated financial statements and the pro forma
financial statements of the Company included elsewhere in this Prospectus. The
summary pro forma financial data presented below give effect to the offering of
the 1993 Notes in April 1993 (the '1993 Note Offering') and the Recapitalization
Plan as if such transactions had occurred as of January 1, 1993, in the case of
operating results. The pro forma balance sheet data is as if the
Recapitalization Plan occurred at December 31, 1993.
YEAR ENDED
DECEMBER 31,
1993
HISTORICAL ----------------
----------------------------------- AS ADJUSTED FOR
RECAPITALIZATION
YEAR ENDED DECEMBER 31, PLAN AND
----------------------------------- 1993 NOTE
1991 1992 1993 OFFERING(a)
-------- -------- -------- ----------------
(IN MILLIONS, EXCEPT RATIOS, SHARE
DATA, AND STATISTICAL DATA)
OPERATING RESULTS:
Net sales........................................................... $2,940.1 $2,998.4 $2,947.6 $2,947.6
Restructuring and other charges..................................... 150.0 150.0
Income (loss) from operations....................................... 305.5 267.7 (14.7) (14.7)
Interest expense.................................................... (335.2) (300.1) (254.2) (185.5)
Loss before extraordinary item and cumulative effect of accounting
changes(b)........................................................ (77.1) (34.0) (174.6) (129.9)
Extraordinary item -- (loss) from early extinguishment of debt, net
of income tax benefit............................................. (49.8) (37.8) (98.2)
Cumulative effect of accounting changes............................. (16.5) (16.5)
Net loss............................................................ (77.1) (83.8) (228.9) (244.6)
Net loss per share(c)............................................... (2.52) (2.19) (3.60)
Ratio of earnings to fixed charges (d).............................. (e) (e) (e) (e)
OTHER DATA:
Gross profit margin(f).............................................. 18.1% 16.6% 12.7% 12.7%
Selling and administrative expenses as a percent of net sales....... 7.7 7.7 8.1 8.1
EBITDA(g)........................................................... $ 440.9 $ 407.8 $ 274.2 $ 274.2
Ratio of EBITDA to interest expense................................. 1.32x 1.36x 1.08x 1.48x
Property and timberland additions................................... $ 118.9 $ 97.9 $ 117.4 $ 117.4
Depreciation, depletion and amortization............................ 130.0 134.9 130.8 130.8
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital..................................................... $ 76.9 $ 105.7 $ 40.0 $ 81.9
Total assets........................................................ 2,460.1 2,436.4 2,597.1 2,667.4
Long-term debt (excluding current maturities)....................... 2,650.4 2,503.0 2,619.1 2,408.8
Stockholders' deficit............................................... (976.9) (828.9) (1,057.8) (745.8)
STATISTICAL DATA:
Containerboard production (thousand tons)........................... 1,830 1,918 1,840
Boxboard production (thousand tons)................................. 826 832 829
Newsprint production (thousand tons)................................ 614 615 615
Corrugated shipping containers sold (thousand tons)................. 1,768 1,871 1,936
Folding cartons sold (thousand tons)................................ 482 487 475
Fibre reclaimed and brokered (thousand tons)........................ 3,666 3,846 3,907
Timberland owned or leased (thousand acres)......................... 978 978 984
- ------------
(a) See 'Pro Forma Financial Data' for certain pro forma financial data giving
effect to the Recapitalization Plan (excluding the Subordinated Debt
Refinancing).
(b) The loss before extraordinary item for the year ended December 31, 1991
includes after-tax charges of $29.3 million and $6.7 million for the
write-off of the Company's equity investments in Temboard, Inc., formerly
Temboard and Company Limited Partnership ('Temboard'), and PCL Industries
Limited ('PCL'), respectively. See Note 3 to the Company's consolidated
financial statements at and for the year ended December 31, 1993.
(c) Gives effect to the ten-for-one stock split pursuant to the
Reclassification. See 'Recapitalization Plan -- Reclassification and
Related Transactions'.
(d) For purposes of these calculations, earnings consist of income (loss)
before income taxes, equity in earnings (loss) of affiliates, minority
interests, extraordinary item and cumulative effect of accounting changes,
plus fixed charges. Fixed charges consist of interest on indebtedness,
amortization of deferred debt issuance costs and that portion of lease
rental expense considered to be representative of the interest factor
therein (deemed to be one-fourth of lease rental expense).
(e) For the years ended December 31, 1991, 1992 and 1993, earnings were
inadequate to cover fixed charges by $26.7 million, $31.4 million and 264.2
million, respectively. On a pro forma basis for 1993, earnings were
inadequate to cover fixed charges by $195.5 million as adjusted for the
1993 Note Offering and the Recapitalization Plan.
(f) Gross profit margin represents the excess of net sales over cost of goods
sold divided by net sales.
(g) EBITDA represents net income before interest expense, income taxes,
depreciation, depletion and amortization, equity in earnings (loss) of
affiliates, minority interests and extraordinary items and cumulative
effect of accounting changes and in 1993, nonrecurring restructuring and
other charges. The restructuring and other charges include $43 million of
asset writedowns and $107 million of future cash expenditures. EBITDA is
presented here, not as a measure of operating results, but rather as a
measure of the Company's debt service ability.
10
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the securities offered by this Prospectus.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT; SUBORDINATED DEBT REFINANCING
The Company has, and following the consummation of the Recapitalization
Plan will continue to have, on a consolidated basis a substantial amount of
debt, much of which was originally incurred to finance (or to refinance debt
originally incurred to finance) the 1989 Transaction (as defined below). The
Company's long-term debt at December 31, 1993 was $2,619.1 million and, on a pro
forma basis after giving effect to the Recapitalization Plan, the Company's
long-term debt as of such date would have been $2,408.8 million. The amount of
long-term indebtedness at such date on a historical basis was greater than the
book value of the Company's total assets, as reflected on its balance sheet
(which is not based on fair saleable or fair value), and is substantial relative
to the Company's stockholders' equity, which has been negative in recent years
due to the accounting treatment of the 1989 Transaction and recent net losses.
See ' -- Recent Losses; Negative Stockholders' Equity'. Although the
consummation of the Recapitalization Plan will reduce the Company's consolidated
interest expense over the next several years, JSC and CCA will remain obligated
to make substantial interest payments on indebtedness under the New Credit
Agreement, the 1993 Notes and the Senior Notes and, until the consummation of
the Subordinated Debt Refinancing, on the Subordinated Debt. For a description
of the terms of the Company's indebtedness, see 'Description of Certain
Indebtedness'. For the year ended December 31, 1993, the Company's earnings were
inadequate to cover fixed charges by $264.2 million and, on a pro forma basis,
after giving effect to the Recapitalization Plan and to the Recapitalization
Plan (excluding the Subordinated Debt Refinancing), would have been inadequate
to cover fixed charges by $195.5 million and $254.1 million, respectively. See
'Capitalization' and 'Pro Forma Financial Data'.
The Company generally expects to fund its and its subsidiaries' debt
service obligations, capital expenditures and working capital requirements
through funds generated from operations and additional borrowings under the New
Revolving Credit Facility. As of the closing of the Offerings and the
consummation of the other transactions contemplated by the Recapitalization Plan
(other than the Subordinated Debt Refinancing), the Company expects JSC and CCA
to have in the aggregate approximately $360 million in unused borrowing capacity
under the New Revolving Credit Facility. See 'Capitalization'. In 1991, JSC and
CCA financed their receivables through the Securitization, thereby reducing
their borrowings under the 1989 Credit Agreement. See 'Management's Discussion
and Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources' and 'Description of Certain Indebtedness -- Securitization'.
The Securitization matures in April 1996, at which time the Company expects to
refinance it. Although the Company believes that it will be able to do so, no
assurances can be given in this regard.
The ability of the Company and its subsidiaries to meet their obligations
and to comply with the financial covenants contained in the New Credit
Agreement, the 1993 Notes and the Senior Notes and, until the consummation of
the Subordinated Debt Refinancing, the Subordinated Debt, is largely dependent
upon the future performance of the Company and its subsidiaries, which will be
subject to financial, business and other factors affecting them. Many of these
factors are beyond the Company's control, such as the state of the economy,
demand for and selling prices of its products, costs of its raw materials and
legislative factors and other factors relating to its industry generally or to
specific competitors. There can be no assurance that the Company and its
subsidiaries will generate sufficient cash flow to meet their obligations under
their indebtedness, which includes repayment obligations, assuming consummation
of the Subordinated Debt Refinancing, of $102 million during the second and $152
million during each of the third through fifth years following consummation of
the Offerings (and increasing thereafter). If the Company and its subsidiaries
are unable to generate sufficient cash flow or otherwise obtain funds necessary
to make required payments on their indebtedness, or if the Company or any of its
subsidiaries fails to comply with the various covenants in such indebtedness,
they would be in default under the terms thereof, which would permit the lenders
thereunder to accelerate the maturity of such indebtedness and could cause
defaults under other indebtedness of the Company and
11
its subsidiaries or result in a bankruptcy of the Company and its subsidiaries.
See 'Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources' and 'Description of Certain
Indebtedness'. In addition, if a 'Change of Control' as defined in the New
Credit Agreement, the 1993 Notes or the Senior Notes is deemed to have occurred,
then the holders of such indebtedness shall have the right to be repaid 101% of
the principal amount of such indebtedness plus accrued and unpaid interest
thereon. See ' -- Shares Eligible for Future Sale'. Similarly, the exercises of
such rights could also trigger cross-default or cross-acceleration provisions,
and lead to the bankruptcy of the Company and its subsidiaries.
The Subordinated Debt Refinancing is an integral part of the
Recapitalization Plan and a significant portion of the benefits intended to be
achieved as a result of the Recapitalization Plan is derived from it. The
availability of the financing under the Delayed Term Loan necessary to effect
the Subordinated Debt Refinancing is subject to the satisfaction of certain
conditions, although the failure to satisfy such conditions will in almost all
instances indicate that a significant and adverse change in the Company's
financial condition has occurred. The Company expects to be able to satisfy such
conditions, although, in any event, it reserves the right not to consummate the
Subordinated Debt Refinancing for any reason. See 'Recapitalization
Plan -- Subordinated Debt Refinancing'. In addition, the Company believes that,
even if the Subordinated Debt Refinancing is not consummated, it will realize
substantial benefits from the consummation of the other components of the
Recapitalization Plan, including a decrease in leverage and a resulting increase
in stockholders' equity. See 'Pro Forma Financial Data'.
CERTAIN RESTRICTIVE COVENANTS
The limitations contained in the agreements relating to the Company's and
its subsidiaries' indebtedness, together with the highly leveraged position of
such companies, as well as various provisions in the Company's agreements
relating to its governance, including the Stockholders Agreement and the
Registration Rights Agreement (as defined below), could limit the ability of the
Company and its subsidiaries to effect future debt or equity financings and may
otherwise restrict corporate activities, including their ability to avoid
defaults and to respond to market conditions, to provide for capital
expenditures beyond those permitted or to take advantage of business
opportunities. If the Company and its subsidiaries cannot generate sufficient
cash flow from operations to meet their obligations, then their indebtedness
might have to be refinanced. There can be no assurance that any such refinancing
could be effected successfully or on terms that are acceptable to the Company
and its subsidiaries. In the absence of such refinancing, the Company and its
subsidiaries could be forced to dispose of assets in order to make up for any
shortfall in the payments due on their indebtedness under circumstances that
might not be favorable to realizing the best price for such assets. Further,
there can be no assurance that any assets could be sold quickly enough, or for
amounts sufficient, to enable the Company and its subsidiaries to make any such
payments.
RECENT LOSSES; NEGATIVE STOCKHOLDERS' EQUITY
Although the Company and its subsidiaries have consistently generated
substantial income from operations, they have experienced, primarily as a result
of interest expense resulting from high leverage (see ' -- Substantial Leverage;
Ability to Service Debt; Subordinated Debt Refinancing'), net losses for the
fiscal years ended December 31, 1993, 1992 and 1991. See 'Selected Historical
Financial Data' and 'Pro Forma Financial Data'. Improvements in the Company's
consolidated results of operations depend largely upon its ability to increase
prices of its products; accordingly, there can be no assurances as to its
ability to generate net income in future periods. See ' -- Pricing and
Competition' and 'Management's Discussion and Analysis of Results of Operations
and Financial Condition'.
The Company has had a deficit in stockholders' equity since 1989 when it
was organized to effect the acquisition of the publicly held shares of JSC and
the shares of CCA not then owned by JSC, and the recapitalization of such
companies (the '1989 Transaction'), since such transaction was treated as a
recapitalization for financial accounting purposes. On a historical basis, at
December 31, 1993, the Company's stockholders' deficit was $1,057.8 million and,
on a pro forma basis, after giving effect to the Recapitalization Plan, there
would have been a stockholders' deficit of $745.8 million. See 'Capitalization'
and 'Pro Forma Financial Data'.
12
PRICING AND COMPETITION
Most markets in which the Company competes are subject to significant price
fluctuations. The Company's sales and profitability have historically been more
sensitive to price changes than changes in volume, and recent reductions in
prices have had an adverse impact on the Company's results of operations. Future
decreases in prices (or the inability to achieve price increases) for the
Company's products would adversely affect its operating results. These factors,
coupled with the highly leveraged financial position of the Company, may
adversely impact the Company's ability to respond to competition and to other
market conditions or to otherwise take advantage of business opportunities.
Operating rates in the industry during 1991 and 1992 were at high levels
relative to demand, which was lower due to the sluggish U.S. economy and a
decline in export markets. This imbalance resulted in excess inventories in the
industry and lower prices for the Company's containerboard and corrugated
shipping container products, which began early in 1991 and has continued
throughout 1992 and most of 1993. During 1993, industry operating rates were
lower as many containerboard producers, including the Company, took downtime at
containerboard mills to reduce the excess inventories. By the end of the third
quarter of 1993, inventory levels had decreased significantly. The lower level
of inventories and the stronger U.S. economy provided what the Company believes
were improved market conditions late in 1993. Although the Company believes that
containerboard pricing will be improved in 1994, there can be no assurance that
price increases will hold or that the Company's containerboard prices will not
decline from current levels.
Newsprint prices have fallen substantially since 1990 due to supply and
demand imbalances. During 1991 and 1992, new capacity of approximately two
million tons annually came on line, representing an approximate 12% increase in
supply. At the same time, U.S. consumption of newsprint fell due to declines in
readership and ad linage. As prices fell, certain high cost, virgin paper
machines, primarily in Canada, representing approximately 1.2 million tons of
annual production capacity, were shut down and remained idle during 1993. While
supply was diminished, a price increase announced for 1993 was unsuccessful.
Although market demand has improved in the fourth quarter of 1993, the Company
does not expect significant improvement in prices before the second quarter of
1994.
The paperboard and packaging products industries are highly competitive,
and no single company is dominant. The Company's competitors include large,
vertically integrated paperboard and packaging products companies and numerous
smaller companies. In recent years, there has been a trend toward consolidation
within the paperboard and packaging products industries, and the Company
believes that this trend is likely to continue. See 'Business -- Industry
Overview'. The primary competitive factors in the paperboard and packaging
products industries are price, design, quality and service, with varying
emphasis on these factors depending on the product line. To the extent that one
or more of the Company's competitors becomes more successful with respect to any
key competitive factor, the Company's business could be materially, adversely
affected. See 'Business -- Competition'.
ENVIRONMENTAL MATTERS
Federal, state and local environmental requirements, particularly relating
to air and water quality, are a significant factor in the Company's business.
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 with respect to which the Company has received notice
that it may be a 'potentially responsible party' as well as for contamination of
certain Company-owned properties, under the Comprehensive Environmental
Response, Compensation and Liability Act, analogous state laws and other laws
concerning hazardous substance contamination. While the Company believes it is
currently in compliance with all applicable environmental laws in all material
respects and has budgeted for future expenditures required to maintain such
compliance, unforeseen significant expenditures in connection with such
compliance could have an adverse effect on the Company's financial condition.
See 'Management's Discussion and Analysis of Results of Operations and Financial
Condition -- General' and 'Business -- Environmental Matters'.
13
RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has never declared or paid any cash dividends on any class of
its capital stock, and does not intend to pay dividends on its Common Stock in
the foreseeable future. Following the consummation of the Offerings, the 1993
Notes and the Senior Notes will allow the Company to pay aggregate annual
dividends of not more than $ on all outstanding shares of its Common
Stock. However, the New Credit Agreement and, unless and until the Subordinated
Debt Refinancing is consummated, the indentures governing the Subordinated Debt,
will effectively prohibit the payment of dividends on the Common Stock for the
foreseeable future. See 'Dividend Policy'.
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Equity Offerings, SIBV and the MSLEF II Associated
Entities (as defined below) will beneficially own % and %, respectively, and
will in the aggregate beneficially own % of the outstanding shares of Common
Stock. As a result, upon completion of the Equity Offerings, SIBV and the MSLEF
II Associated Entities will, acting together, be able to control the vote on all
matters submitted to a vote of holders of Common Stock. The presence of SIBV
and, until they dispose of their shares (see below), the MSLEF II Associated
Entities, as controlling stockholders, is also likely to deter a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
the Company, even if such events might be favorable to the Company's
stockholders. See ' -- Anti-Takeover Provisions'.
SIBV, MSLEF II and the Company will, at or prior to completion of the
Equity Offerings, enter into a Stockholders Agreement (the 'Stockholders
Agreement') which contains, among other things, provisions for various corporate
governance matters, including the election as directors of certain of their
designees. SIBV and MSLEF II collectively will have the power, particularly in
light of the terms of the Stockholders Agreement which effectively consolidates
their voting power, to elect all of the Company's directors, and thereby
influence and control the management and policies of the Company. In addition,
all officers of the Company (other than the Chief Financial Officer) will be
nominated and appointed by directors of the Company designated by SIBV, and the
Chief Financial Officer will be nominated and appointed by directors of the
Company designated by MSLEF II. Pursuant to the Stockholders Agreement,
operational decisions concerning the Company will be made generally by the
management of the Company; however certain transactions that do not generally
pertain to the day-to-day management of the Company will be subject to approval
by certain of the directors designated by SIBV and MSLEF II. The possibility of
a deadlock exists with respect to such approval and may hinder the ability of
management to take a certain course of action. For a description of the
Stockholders Agreement, see 'Management -- Provisions of Stockholders Agreement
Pertaining to Management' and 'Certain Transactions -- Stockholders Agreement'.
SIBV, which owns its Common Stock through two wholly-owned subsidiaries, is
itself an indirect wholly-owned subsidiary of JS Group, an international
paperboard and packaging corporation organized under the laws of the Republic of
Ireland. JS Group is listed on the London and Dublin Stock Exchanges and is the
largest industrial corporation in Ireland. JS Group and its subsidiaries have a
number of operations similar to those of the Company, although for the most part
outside the United States other than their newsprint operations. Accordingly, JS
Group's interests with respect to various business decisions of the Company may
conflict with the Company's interests.
MSLEF II, Morgan Stanley Leveraged Equity Fund II, Inc. ('MSLEF II, Inc.'),
a Delaware corporation that is a wholly owned subsidiary of Morgan Stanley Group
Inc. ('Morgan Stanley Group') and the general partner of MSLEF II, and SIBV/MS
Equity Investors, L.P., a Delaware limited partnership the general partner of
which is a wholly owned subsidiary of Morgan Stanley Group ('Equity Investors',
and together with MSLEF II and MSLEF II, Inc., the 'MSLEF II Associated
Entities') will hold approximately %, % and %, respectively, of the
shares of Common Stock immediately following the Equity Offerings. The intention
of the MSLEF II Associated Entities is to dispose of the shares of Common Stock
owned by them. The timing of such sales or other dispositions by them (which
could include distributions to the partners of MSLEF II) will depend on market
and other conditions, but could occur or commence relatively soon after the 180
day hold back period. See 'Underwriters'. MSLEF II is unable to predict the
timing of sales by any of its limited partners in the
14
event of a distribution to them. Pursuant to the terms of the Stockholders
Agreement, SIBV may, at its option, terminate the Stockholders Agreement once
the MSLEF II Group (as defined in the Stockholders Agreement) ceases to own six
percent or more of the outstanding Common Stock. Upon the termination of the
Stockholders Agreement, SIBV will no longer be contractually limited to electing
only four of the eight directors. In addition, if the MSLEF II Group's ownership
is 10% or less of the outstanding Common Stock, SIBV will no longer be required
to obtain the approval of two directors who are designees of MSLEF II for the
Company to engage in certain activities, for which such approval is otherwise
required by the Stockholders Agreement. See 'Management -- Provisions of
Stockholders Agreement Pertaining to Management'. Furthermore, MSLEF II has the
right at any time to waive any of the provisions of the Stockholders Agreement,
to agree to the early termination thereof or to fail to exercise any of its
rights thereunder.
In addition, although SIBV and the MSLEF II Associated Entities have in the
past made additional investments in the Company, they are not obligated to do so
in the future. Investors should not assume or expect that either or both of such
shareholders or their affiliates will invest additional capital, whether in the
form of debt or equity, in the future, particularly in light of the intention of
the MSLEF II Associated Entities to dispose of their shares of Common Stock and
the fact that SIBV's ability to make such investments is subject to limitations
contained in agreements relating to indebtedness of SIBV and its affiliates.
TAX NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1993, the Company had net operating loss ('NOL')
carryforwards of approximately $309 million for federal income tax purposes.
These carryforwards, if not utilized to offset taxable income in future periods,
will expire at various times in 2005 through 2008.
If the Company experiences an 'ownership change' within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended (the 'Code'), the
Company's ability to use its NOL carryforwards existing at such time to offset
its taxable income, if any, generated in taxable periods after the ownership
change would be subject to an annual limitation (the 'Section 382 Limitation')
described below. In general, an ownership change occurs if the percentage of
stock owned by certain '5% shareholders' increases by more than 50 percentage
points over the lowest percentage of stock owned by such shareholders during a
prescribed testing period (generally the preceding three years). Under special
rules in the Code and applicable Treasury regulations, certain shareholders
which individually own less than 5% of the Company's stock are aggregated and
treated as a single 5% shareholder. Thus, purchasers of less than 5% of the
Common Stock in the Equity Offerings generally would be treated as a single 5%
shareholder. The amount of NOL carryforwards which may be utilized on an annual
basis following an ownership change generally would be equal to the product of
the value of the outstanding stock of the Company immediately prior to the
ownership change (reduced by certain contributions to the Company's capital made
in the two years prior to the ownership change) multiplied by the 'long-term
tax-exempt rate', which is determined monthly and was 5.15% for February 1994.
Although the Company does not believe that it will experience an ownership
change upon consummation of the Equity Offerings, it is possible that during the
three year period following the Equity Offerings, future events that are beyond
the control of the Company (such as transfers of Common Stock by 5%
shareholders, including MSLEF II, its affiliates, its partners and SIBV and its
affiliates, in registered sales or otherwise), or certain stock issuances or
other actions by the Company, could cause the Company to experience an ownership
change. By way of example and without limitation, a sale by MSLEF II of a
substantial amount of Common Stock in one or more registered secondary offerings
would generally be treated as if MSLEF II sold such stock to a new 5%
shareholder (i.e., the public group that purchased such stock) whose lowest
percentage ownership in the Company during the three years prior to such sale
was zero. Accordingly, the increase in such public group's percentage ownership
in the Company, combined with prior owner shifts in the three years preceding
the sale by MSLEF II, would likely result in an ownership change. As indicated
under ' -- Control by Principal Shareholders' MSLEF II currently intends to
dispose of its Common Stock and sales or other dispositions by it could occur
relatively soon after the 180 day hold back period.
15
Under special rules contained in temporary Treasury regulations, certain
options are treated as exercised solely for purposes of Section 382 if the
deemed exercise thereof would result in an ownership change. Accordingly, under
these rules, it is possible that the deemed exercise by SIBV and its affiliates
of their option to purchase all of the Common Stock owned by the MSLEF II Group
(see under 'Certain Transactions -- Stockholders Agreement'), combined with
certain transfers of even a relatively small percentage of the Common Stock by
certain shareholders after the consummation of the Equity Offerings, or any
sales of Common Stock by MSLEF II Associated Entities, would cause an ownership
change. Proposed Treasury regulations which would apply to testing dates on or
after November 5, 1992 but which have not yet been adopted in final form,
however, do not contain such a 'deemed exercise' rule applicable to options.
Although it appears likely, based on informal statements from Treasury
officials, that the proposed regulations will be adopted in substantially their
current form with respect to this issue, there can be no assurance as to whether
or in what form such proposed regulations will be finalized or what their
retroactive application, if any, would be.
If the Company experienced an ownership change (as described in either of
the two preceding paragraphs) at a time at which the value of the Common Stock
was equal to the Price to Public set forth on the cover of $ per share, the
Section 382 Limitation would be $[70-80] million using a 'long-term tax exempt
rate' of 5.15%. Depending on the circumstances, such an ownership change could
significantly restrict the Company's ability to utilize NOLs existing at such
time to offset subsequent taxable income. Accordingly, due to uncertainty as to
whether an ownership change will occur following the Equity Offerings,
prospective purchasers of Common Stock should not assume the unrestricted
availability of the Company's currently existing or future NOL carryforwards in
making their investment decisions.
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Equity Offerings, there has been no public market for the
Common Stock of the Company. The initial public offering price for the Common
Stock will be determined by negotiations among the Company and the
representatives of the Underwriters in accordance with the recommendation of
Salomon Brothers Inc, the 'qualified independent underwriter', as is required by
the by-laws of the National Association of Securities Dealers, Inc. (the
'NASD'). Although the Company will apply to list the Common Stock on the New
York Stock Exchange, there can be no assurance that an active trading market
will develop or continue after the completion of the Equity Offerings or that
the market price of the Common Stock will not decline below the initial public
offering price. See 'Underwriters'.
SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of Common Stock currently outstanding are 'restricted
securities' as defined by Rule 144 under the Securities Act of 1933 (the
'Securities Act'). Of such shares, shares will be eligible for sale
pursuant to Rule 144 following the completion of the Equity Offerings. In
addition, the Company, MSLEF II and SIBV have entered into a registration rights
agreement (the 'Registration Rights Agreement') providing that MSLEF II shall
have certain rights to have the shares of Common Stock owned by the MSLEF II
Group after the Equity Offerings registered by the Company under the Securities
Act in order to permit the public sale of such shares. The Stockholders
Agreement also grants SIBV certain rights, including rights of first refusal, to
purchase shares held by the MSLEF II Group. The intention of the MSLEF II
Associated Entities is to dispose of the shares of Common Stock owned by them.
The timing of such sales or other dispositions by them (which could include
distributions to the partners of MSLEF II) will depend on market and other
conditions, but could occur or commence relatively soon after the 180 day hold
back period. See ' -- Control by Principal Stockholders'. Such dispositions
could be privately negotiated transactions or, subject to SIBV's rights of first
refusal if applicable, public sales. Sales or dispositions of shares of Common
Stock by MSLEF II to persons including its limited partners, other than SIBV or
its affiliates, could increase the likelihood of a 'Change of Control' being
deemed to have occurred under the indentures relating to the Company's
Subordinated Debt, 1993 Notes and Senior Notes; however, so long as MSLEF II,
SIBV and their affiliates own more than 50% of the aggregate outstanding voting
stock of the Company, no such Change of Control will be deemed to have occurred
by reason of any other person's or group's ownership of the Company's voting
stock. See 'Description of Certain Indebtedness'. The Company
16
and certain stockholders of the Company (including SIBV and the MSLEF II
Associated Entities) who beneficially own an aggregate of shares of
Common Stock have agreed, however, subject to limited exceptions, that they will
not offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of MS&Co. (except with respect to shares of Common Stock
held by the MSLEF II Associated Entities, for which the prior written consent of
Kidder, Peabody & Co. Incorporated ('Kidder, Peabody'), a representative of the
U.S. Underwriters, will be required). See 'Underwriters'.
No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of Common Stock for future sale, will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales may occur, could adversely affect the prevailing market price of the
Common Stock or the ability of the Company to raise capital through a public
offering of its equity securities. See 'Shares Eligible for Future Sale'.
DILUTION
The purchasers of the Common Stock offered hereby will suffer an immediate
and substantial dilution of $ in pro forma net tangible book value per
share of the Common Stock from the initial public offering price. See
'Dilution'.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and By-laws contain
several provisions which may discourage or make more difficult any attempt by a
person or group to obtain control of the Company, including provisions
authorizing the issuance of preferred stock without shareholder approval,
restricting the persons who may call a special meeting of shareholders,
requiring notice of shareholder nominations for directors and shareholder
proposals at meetings and prohibiting shareholder action by written consent.
Although such provisions do not have substantial practical significance to
investors while SIBV and the MSLEF II Associated Entities control the Company,
such provisions could become significant if each of SIBV and the MSLEF II
Associated Entities reduces its respective ownership interest in the Company
such that they no longer control it. See 'Description of Capital
Stock -- Restated Certificate of Incorporation and By-laws.'
17
RECAPITALIZATION PLAN
The Company is implementing the Recapitalization Plan to refinance a
substantial portion of its indebtedness in order to improve operating and
financial flexibility by reducing the level and overall cost of its debt,
extending maturities of indebtedness, increasing stockholders' equity and
increasing its access to capital markets. As described below, the
Recapitalization Plan includes the following primary components in addition to
others described below: (i) the Equity Offerings, (ii) the SIBV Investment,
(iii) the Debt Offerings, (iv) the Bank Debt Refinancing and (v) the
Subordinated Debt Refinancing, which is anticipated to occur on approximately
December 1, 1994.
For the year ended December 31, 1993, the Recapitalization Plan would, on a
pro forma basis for such year, have resulted in $68.7 million of aggregate
savings in interest expense, of which $53.8 million represents cash interest
expense savings (in each case on a pre-tax basis). See 'Pro Forma Financial
Data'.
SOURCES AND USES
The following table sets forth the sources and uses of funds to be used to
effect the Recapitalization Plan:
($ MILLIONS)
Sources of Funds
The Equity Offerings(a)........................................................... $ 300
SIBV Investment(a)................................................................ 100
The Debt Offerings(a)............................................................. 600
New Revolving Credit Facility(b).................................................. --
Initial Term Loan................................................................. 200
Delayed Term Loan................................................................. 850
-------
Total........................................................................ $2,050
-------
-------
Uses of Funds
Prepayment of debt under 1989 Credit Agreement.................................... $ 609
Prepayment of debt under 1992 Credit Agreement.................................... 201
Prepayment of Secured Notes....................................................... 271
Redemption of Senior Subordinated Notes(c)........................................ 374
Redemption of Subordinated Debentures(c).......................................... 321
Redemption of Junior Accrual Debentures(d)........................................ 149
Fees and expenses(e).............................................................. 104
Increase in cash(f)............................................................... 21
-------
Total........................................................................ $2,050
-------
-------
- ------------
(a) Assuming an initial public offering price of $ per share of Common
Stock (which is equal to the midpoint of the range of the anticipated high
and low per share offering prices set forth on the cover) and, in the case
of the Offerings, without deducting estimated underwriting discounts and
commissions and expenses.
(b) The maximum amount available under such facility will be $450 million, with
up to $150 million of such amount being available for letters of credit. It
is anticipated that immediately following the Offerings letters of credit
of approximately $90 million will be outstanding under such facility. See
also (c) below.
(c) Represents the outstanding principal amount and redemption premiums
required to be paid on such securities. Aggregate redemption premiums for
the Senior Subordinated Notes and the Subordinated Debentures are estimated
to be $24 million and $21 million, respectively. The Company expects that
accrued and unpaid interest at June 1 and December 1, 1994 on the Senior
Subordinated Notes and the Subordinated Debentures will be paid through
internal cash flow or with additional borrowings under the New Revolving
Credit Facility.
(d) Represents the estimated accreted value of the Junior Accrual Debentures as
of December 1, 1994.
(e) Expenses include underwriting discounts and commissions relating to the
Equity Offerings and the Debt Offerings, respectively. There are no
underwriting discounts or commissions on the sale of Common Stock pursuant
to the SIBV Investment.
(f) If the U.S. Underwriters exercise their overallotment option in full, cash
will be increased by an additional $ million.
The aggregate amount of proceeds, net of estimated expenses, necessary
immediately following the Offerings to consummate the Recapitalization Plan
(excluding the Subordinated Debt Refinancing) is
18
approximately $1,120 million. The sources of funds for such amount are set forth
in the above table. Prior to consummation of the Offerings, however, the Company
may determine to change the size of the various components of the
Recapitalization Plan and, accordingly, among other things may change the size
of the Debt Offerings and/or the Equity Offerings which could, in turn, affect
the size of the Initial Term Loan and/or the Delayed Term Loan. If the Company
and its lenders determine to decrease the amount of the Delayed Term Loan, with
a corresponding increase in the Initial Term Loan, or, if for any other reason,
any of the proceeds to be used to effect the Subordinated Debt Refinancing are
provided by any of the sources of funds set forth above other than the Delayed
Term Loan, the Company intends to invest the proceeds so received and which are
to be so used in short term investments until such proceeds are used to acquire
Subordinated Debt (pursuant to the Subordinated Debt Refinancing or in privately
negotiated or open market purchases) or until the abandonment of the
Subordinated Debt Refinancing.
EQUITY OFFERINGS
Concurrently with the Debt Offerings, the Company is offering hereby
shares of Common Stock initially in the United States and Canada (the 'U.S.
Equity Offering') and shares of Common Stock initially outside the
United States and Canada (the 'International Equity Offering'). The closings of
the Equity Offerings and the Debt Offerings are conditioned on one another as
well as on the substantially concurrent consummation of the other components of
the Recapitalization Plan (other than the Subordinated Debt Refinancing) and on
the satisfaction of certain other closing conditions contained in the respective
underwriting agreements related thereto.
SALE OF STOCK TO SIBV
SIBV has agreed to purchase, or to cause a corporate affiliate to purchase,
from the Company pursuant to the SIBV Investment shares of Common
Stock covered by the Registration Statement, of which this Prospectus is a part,
for an aggregate purchase price of $100 million. The shares to be purchased by
SIBV are not part of the shares of Common Stock offered for sale pursuant to
this Prospectus. Such purchase by SIBV is conditioned on the substantially
concurrent consummation of the Offerings and the other components of the
Recapitalization Plan (other than Subordinated Debt Refinancing) and the
satisfaction of certain other closing conditions contained in the purchase
agreement related thereto. Following the consummation of the Equity Offerings
and the SIBV Investment, SIBV, indirectly through its subsidiaries, will
beneficially own % of the outstanding shares of Common Stock. See 'Security
Ownership of Certain Beneficial Owners'.
DEBT OFFERINGS
Concurrently with the Equity Offerings, CCA is offering Senior Notes in the
Debt Offerings. The closings of the Equity Offerings and the Debt Offerings are
conditioned on one another as well as on the substantially concurrent
consummation of the other components of the Recapitalization Plan (other than
the Subordinated Debt Refinancing) and on the satisfaction of certain other
closing conditions contained in the respective underwriting agreements related
thereto.
The Senior Notes will be general unsecured obligations of CCA, initially
guaranteed by JSC, and will rank pari passu in right of payment with all other
senior indebtedness of CCA. For a description of certain terms of the Senior
Notes see 'Description of Certain Indebtedness -- Senior Notes'.
BANK DEBT REFINANCING
As part of the Recapitalization Plan, CCA and JSC will enter into the New
Credit Agreement. Substantially concurrently with the consummation of the
Offerings, CCA will use borrowings under the Initial Term Loan pursuant to the
New Credit Agreement and net proceeds of the Offerings and the SIBV Investment
contributed to it by the Company, to refinance its indebtedness outstanding
under the Old Bank Facilities and Secured Notes. See 'Description of Certain
Indebtedness -- Terms of New Credit Agreement'.
19
RECLASSIFICATION AND RELATED TRANSACTIONS
The capital stock of the Company currently consists of four classes of
outstanding common stock (Class A, Class B, Class C and Class D) and a fifth
class of common stock (Class E) reserved for issuance upon the exercise of
outstanding options. Currently, the only outstanding shares of voting stock of
the Company are the shares of Class A common stock (all outstanding shares of
which are indirectly owned by SIBV) and Class B common stock (all outstanding
shares of which are owned by MSLEF II). Immediately prior to the consummation of
the Equity Offerings, the Reclassification will occur, pursuant to which the
Company's five classes of common stock will be converted into one class, on a
basis of ten shares of Common Stock for each share of stock outstanding of each
of the old classes. Following the Reclassification, the Company's only class of
common stock will be the Common Stock, shares of which will be
outstanding immediately prior to the Equity Offerings and the SIBV Investment.
See 'Description of Capital Stock'. The Company intends prior to or
substantially concurrently with the Offerings, to cause CCA Enterprises, Inc. a
wholly-owned subsidiary of CCA, to become a direct wholly owned subsidiary of
JSC and then, to merge it and JSC Enterprises, Inc., also a wholly-owned
subsidiary of JSC, into JSC. This will result in the cancellation of the
intercompany notes held by such entities which are their only assets. The
Company also intends to interpose a wholly-owned subsidiary between it and JSC
which would own all of the capital stock of JSC. See 'Description of Certain
Indebtedness -- Substitution Transaction'.
STOCKHOLDERS AGREEMENT; CHARTER AND BY-LAW AMENDMENTS
Since the 1989 Transaction, the Company, JSC and CCA have been operated
pursuant to the terms of an organization agreement (the 'Organization
Agreement'), which, among other things, provides for the election of directors,
the selection of officers and the day-to-day management of the Company. Pursuant
to the terms of the Organization Agreement and as part of the Recapitalization
Plan, (i) the Organization Agreement will terminate upon the closing of the
Equity Offerings and, at or prior to such closing, the Stockholders Agreement
shall be entered into by SIBV, MSLEF II and the Company and (ii) the
certificates of incorporation and by-laws of each of the Company, JSC and CCA
will, at or prior to the closing of the Offerings, be amended. See ' Description
of Capital Stock'. See 'Management -- Directors', 'Management -- Provisions of
Stockholders Agreement Pertaining to Management' and 'Certain
Transactions -- Stockholders Agreement' for a description of the Stockholders
Agreement. In addition, a prior commitment, subject to certain conditions, of
SIBV to purchase subordinated debt of CCA guaranteed by JSC in order to fund
purchases by CCA of its Subordinated Debt, will be terminated upon consummation
of the Offerings. See 'Certain Transactions -- Other Transactions'.
SUBORDINATED DEBT REFINANCING
On approximately December 1, 1994, the Company intends to cause CCA to use
borrowings under the Delayed Term Loan to effect the Subordinated Debt
Refinancing, which consists of the redemption of the Senior Subordinated Notes,
the Subordinated Debentures and the Junior Accrual Debentures (and, to the
extent necessary, to use borrowings under the New Revolving Credit Facility to
pay accrued but unpaid interest on the Senior Subordinated Notes and the
Subordinated Debentures). The earliest date such securities may be redeemed is
December 1, 1994. The Company reserves the right, however, to acquire the
Subordinated Debt in open market or privately negotiated transactions prior to
such date. Such acquisitions of Subordinated Debt are expected to be financed
with borrowings under the New Credit Agreement, subject to the limitation that
the indentures governing each of the classes of the Subordinated Debt prohibit
borrowings under the New Credit Agreement to be used to acquire Subordinated
Debt junior to such class. See 'Description of Certain Indebtedness -- Terms of
New Credit Agreement' and ' -- Terms of Subordinated Debt'. This is likely to
result in only Senior Subordinated Notes being acquired prior to December 1,
1994. The amount of Subordinated Debt so acquired, if any, will depend on market
conditions and availability of such securities at acceptable prices. The Company
and CCA also reserve the right to determine not to consummate the Subordinated
Debt Refinancing for any reason, even if they are able to do so.
Borrowings under the Delayed Term Loan, which are necessary to effect the
Subordinated Debt Refinancing, will be subject to the following and only the
following conditions: (a) no order, judgment
20
or decree shall purport to enjoin or restrain (x) borrowings under the Delayed
Term Loan or (y) CCA from redeeming the Subordinated Debt, (b) certain events of
bankruptcy, insolvency or reorganization with respect to the Company, JSC or CCA
shall not have occurred, (c) there shall not have occurred and be continuing a
payment default under the New Credit Agreement, the 1993 Notes, the Senior Notes
or under any subordinated debt (in each case, other than under the New Credit
Agreement, after the expiration of any applicable grace period), (d) the lenders
under the New Credit Agreement shall not have accelerated all or any of the
loans under the New Credit Agreement, (e) there shall not have occurred and be
continuing any event of default under the New Credit Agreement relating to
cross-acceleration of certain other debt and (f) in the event of any borrowing
under the Delayed Term Loan prior to December 15, 1994, the Subordinated Debt
repurchased with the proceeds thereof shall have been repurchased pursuant to
open-market or negotiated transactions for a price not in excess of 113% of the
aggregate principal amount of the Subordinated Debt to be so repurchased.
CONSENTS AND WAIVERS
As described below, the Company must obtain the Consents and Waivers under,
among other things, the 1993 Notes, the Secured Notes and the Securitization in
order to consummate the Recapitalization Plan. The Company expects that, prior
to entering into the Underwriting Agreement, it shall have obtained the Consents
and Waivers.
1993 Notes. The terms of the 1993 Notes prohibit the Subordinated Debt
Refinancing because the indebtedness incurred to effect such refinancing would
be unsubordinated secured debt under the New Credit Agreement. The Company,
however, intends to solicit the consent of the holders of the 1993 Notes to
amend the related indenture (the '1993 Note Indenture'), among other things, in
order to allow the Subordinated Debt Refinancing to be consummated without any
violation thereof (the 'Proposed 1993 Note Amendment'). In connection with such
solicitation, the Company will make certain consent payments, in cash, for each
$1,000 principal amount of such securities for which consents have been validly
tendered (and not revoked) on or before the date a supplemental indenture has
been executed. The Company's obligation to make the consent payments with
respect to the 1993 Notes is subject to the terms of the solicitation and is
conditioned on the execution of a supplemental indenture.
Pursuant to the Proposed 1993 Note Amendment (i) the covenant contained in
the 1993 Note Indenture which limits debt incurrence by JSC and CCA would be
modified to allow the Company, JSC or CCA to refinance the existing Subordinated
Debt (or any portion thereof) with indebtedness for borrowed money or with an
exchange for indebtedness of any such company, so long as, at or prior to the
time such indebtedness is incurred but in no event later than April 30, 1995,
the Company, JSC or CCA shall have consummated one or more public or private
sales of its capital stock and applied not less than $ million of the
proceeds therefrom to the repayment of indebtedness of JSC or CCA which is not
by its terms expressly subordinated in right of payment to the 1993 Notes, (ii)
the covenant contained in the 1993 Note Indenture which limits certain payments
by JSC and CCA would be modified to allow, following an initial public offering
of any of the capital stock of the Company, JSC or CCA, the payment of annual
dividends on each share of such capital stock (or on the capital stock of JSC
and CCA as may be necessary to enable the Company or JSC, as the case may be, to
pay such dividends on each share of such capital stock), up to 6% of the per
share initial public offering price in such offering, (iii) certain technical
amendments would be made to the 1993 Note Indenture to clarify the circumstances
under which wholly-owned subsidiaries would be permitted to merge into JSC or
CCA, (iv) the definition of 'change of control' would be amended to delete
therefrom a change in a majority of the outstanding directors and (v) the
Substitution Transaction (as defined under 'Description of Certain
Indebtedness -- Substitution Transaction') would be permitted to occur.
The 1993 Note Indenture requires a majority in principal amount of the
holders of the 1993 Notes to consent to the adoption of the Proposed 1993 Note
Amendment.
Secured Notes. Under the terms of the Secured Notes, the Bank Debt
Refinancing (which involves a prepayment of the Secured Notes) would require
that the holders of the Secured Notes be given a 30 day notice of prepayment.
The Company intends to request that the holders of the Secured Notes waive such
30 day notice of prepayment. Such waiver requires the consent of the holders of
60% of the holders of the outstanding principal amount of Secured Notes.
21
Securitization. In 1991, JSC and CCA entered into the Securitization. The
Securitization involved the sale of JSC's and CCA's trade receivables (the
'Receivables') to Jefferson Smurfit Finance Corporation ('JSFC'), a special
purpose subsidiary of JSC. Under the Securitization, JSFC currently has
borrowings of $182.3 million outstanding at December 31, 1993 from Emerald
Funding Corporation ('EFC'), a third-party owned corporation not affiliated with
JSC, and has pledged its interest in such Receivables to EFC. EFC issued
commercial paper notes ('CP Notes') and term notes ('Term Notes'). EFC also
entered into a liquidity facility with a group of banks, for whom Dresdner Bank
AG acted as agent (the 'Liquidity Banks'), and a subordinated loan agreement
with Bank Brussels Lambert (the 'Subordinated Lender') to provide additional
sources of funding. EFC pledged its interest in the Receivables assigned to it
by JSFC to secure EFC's obligations to the Liquidity Banks, the Subordinated
Lender, and the holders of the CP Notes and the Term Notes.
Under the terms of the Master Agreement relating to the Securitization, the
completion of the Equity Offerings would result in the occurrence of a
'Liquidation Event' because JS Group and its affiliates would cease to own or
control at least 50% of the issued and outstanding shares of capital stock of
the Company entitled to vote for the election of members of the Company's Board
of Directors. In addition, the consummation of a merger of JSC into CCA (see
'Description of Certain Indebtedness -- Substitution Transaction') would
constitute a 'Liquidation Event.' The effect of the occurrence of a Liquidation
Event which is not waived is that collections on receivables are no longer
applied to purchase new receivables, but are used to pay down the amount of
outstanding debt owed to the Liquidity Banks, the Subordinated Lender and the
holders of the CP Notes and the Term Notes.
JSC intends to solicit the consents necessary to amend the Securitization
documents to amend the definition of 'Liquidation Event' so that the
consummation of the Equity Offerings and of a subsequent merger of JSC into CCA
will not result in the occurrence of a Liquidation Event.
Such proposed Securitization amendment requires the unanimous consent of
all of the Liquidity Banks, the Subordinated Lender and all of the holders of
the Term Notes.
Other. The consent of The Times Mirror Company is required under the
shareholders agreement between JSC and The Times Mirror Company in order to
consummate the Recapitalization Plan.
CERTAIN CONDITIONS
All of the transactions contemplated by the Recapitalization Plan (other
than the Subordinated Debt Refinancing) are expected to occur contemporaneously.
Consummation of the Equity Offerings is conditioned on the substantially
concurrent consummation of the other components of the Recapitalization Plan
(other than the Subordinated Debt Refinancing), including, among other things,
consummation of (i) the SIBV Investment, (ii) the Debt Offerings and (iii) the
Bank Debt Refinancing. In addition, consummation of the Equity Offerings is
conditioned on obtaining the Consents and Waivers and the execution of (i) a
supplemental indenture providing for the Proposed 1993 Note Amendment, (ii) a
waiver to the Secured Note Purchase Agreement and (iii) an amendment to the
Securitization documents.
USE OF PROCEEDS
The net proceeds to the Company (after deducting estimated underwriting
discounts and commissions) from the sale of shares of Common Stock in the Equity
Offerings (at an assumed initial public offering price of $ per share of,
the midpoint of the range of the anticipated high and low public offering prices
per share set forth on the cover) are estimated to be $ million ($ million
if the U.S. Underwriters' overallotment option is exercised in full). The
proceeds to the Company from the sale of shares of Common Stock to SIBV (or a
corporate affiliate) pursuant to the SIBV Investment will be $100 million. The
net proceeds to the Company (after deducting estimated underwriting discounts
and commissions) from the sale of Senior Notes in the Debt Offerings are
estimated to be million.
The Company intends to use all of such net proceeds, together with
borrowings under the New Credit Agreement, to pay in full all amounts under the
1989 and 1992 Credit Agreements and the Secured Notes. Specifically, the Company
will repay $196.5 million outstanding at December 31, 1993 under the revolving
credit facility under the 1989 Credit Agreement (the 'Revolving Credit
Facility'),
22
which bears interest at the Adjusted Eurodollar Rate (as defined therein) plus
2.25; $412.3 million of term loan indebtedness outstanding at December 31, 1993
under the 1989 Credit Agreement, which bears interest at the Adjusted Eurodollar
Rate (as defined therein) plus 2.25% (the weighted average rate at December 31,
1993 on outstanding 1989 Credit Agreement borrowings was 5.95%); $201.3 million
of term loan indebtedness at December 31, 1993 under the 1992 Credit Agreement,
which bears interest at the Adjusted Eurodollar Rate (as defined therein) plus
3.00% (6.375% at December 31, 1993); and $270.5 million of Secured Notes at
December 31, 1993 bearing interest at the three-month Adjusted Eurodollar Rate
(as defined therein) plus 2.75% (6.25% at December 31, 1993). The Company has
interest rate swaps and other hedging agreements with commercial banks which
effectively fix (for remaining periods of up to 3 years) the Company's interest
rate on $215 million of such variable rate borrowings at average all-in rates of
approximately 9.10%. The Revolving Credit Facility is scheduled to terminate on
December 14, 1995, the term loan indebtedness under the 1989 and 1992 Credit
Agreements is scheduled to mature on December 31, 1997 and the Secured Notes are
scheduled to mature on December 1, 1998.
If the U.S. Underwriters' overallotment option is exercised, proceeds from
the sale of shares of Common Stock pursuant thereto will be used by the Company
for general corporate purposes. See 'Underwriters'.
The Company may enter into floating rate interest rate swap agreements with
respect to some or all of its obligations under the Senior Notes and, if it does
so, will be sensitive to prevailing interest rates for the term of such
agreements, which may range from one year to the maturity of the Senior Notes.
DIVIDEND POLICY
The Company has not paid cash dividends on any class of its capital stock
and does not intend to pay dividends on its Common Stock in the foreseeable
future. As a holding company, the Company's ability to pay dividends is
dependent on the receipt of dividends or other payments from JSC and CCA. The
payment of dividends by JSC and CCA is subject to certain restrictions under the
terms of certain outstanding indebtedness and Delaware law. Following the
consummation of the Offerings, the 1993 Notes and the Senior Notes will allow
each of JSC and CCA to pay dividends such that the Company would be able, and
permitted thereunder, to pay aggregate annual dividends of not more than $ on
all outstanding shares of its Common Stock. However, the New Credit Agreement
and, unless and until the Subordinated Debt Refinancing is consummated, the
indentures governing the Subordinated Debt, will prohibit the payment of any
dividends by JSC or CCA and, accordingly, by the Company for the foreseeable
future. Delaware law generally requires that dividends are payable only out of a
company's surplus or current net profits in accordance with the General
Corporation Law of Delaware. Such Delaware law limitations apply to the payment
of dividends by the Company as well as JSC and CCA. Any determination to pay
cash dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
at the time by the Board of Directors.
23
DILUTION
The deficit in net tangible book value of the Company as of December 31,
1993, after giving effect to the Reclassification, was $ million or $ per
share of Common Stock. Net tangible book value per share represents the amount
of total net tangible assets of the Company (total assets, excluding intangible
assets, less total liabilities) divided by the total number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of (i)
shares of Common Stock offered hereby (at an assumed initial public
offering price of $ per share (the midpoint of the range of the anticipated
high and low public offering prices per share set forth on the cover) and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses) and (ii) shares of Common Stock to SIBV (or a
corporate affiliate) (assuming an initial public offering price as set forth
above) pursuant to the SIBV Investment the pro forma deficit in net tangible
book value of the Company as of December 31, 1993 would have been $ million or
$ per share. This represents an immediate increase in pro forma net tangible
book value per share of $ to existing stockholders and an immediate dilution
of $ per share to new investors. The following table illustrates this per
share dilution:
Assumed initial public offering price per share.................................... $
Deficit in net tangible book value per share prior to the Equity Offerings and
the SIBV Investment.......................................................... $( )
Increase in net tangible book value per share attributable to new investors...
-------
Pro forma deficit in net tangible book value per share after the Equity Offerings
and the SIBV Investment.......................................................... ( )
-------
Dilution in net tangible book value per share to new investors..................... $
-------
-------
The purchase price paid per share of Common Stock by the existing
stockholders (other than SIBV and its affiliates), as adjusted to reflect the
Reclassification constituting part of the Recapitalization Plan, was $ .
24
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of December 31, 1993, as adjusted for the Recapitalization
Plan (at an assumed initial public offering price of $ per share, the
midpoint of the range of the anticipated high and low public offering prices per
share set forth on the cover, for the Equity Offerings and the SIBV Investment).
This table should be read in conjunction with the historical consolidated
statements of operations and balance sheet of the Company and 'Pro Forma
Financial Data' included elsewhere in this Prospectus.
DECEMBER 31, 1993
------------------------------
AS ADJUSTED FOR
THE
RECAPITALIZATION
ACTUAL PLAN(a)
-------- ---------------
(IN MILLIONS)
Short-term debt (represents current maturities of long-term debt)............... $ 10.3 $ 10.3
-------- ---------------
-------- ---------------
Long-term debt:
New Revolving Credit Facility(b)(c)........................................ $ -- $ --
Initial Term Loan(b)....................................................... -- 200.0
Delayed Term Loan(b)....................................................... -- 850.0
Revolving Credit Facility(c)............................................... 196.5 --
1989 Term Loan Facility.................................................... 412.3 --
1992 Term Loan Facility.................................................... 201.3 --
Secured Notes.............................................................. 270.5 --
1993 Notes(d).............................................................. 500.0 500.0
Senior Notes(e)............................................................ 600.0
Securitization Loans....................................................... 182.3 182.3
Other senior indebtedness (excluding current maturities)................... 76.5 76.5
Senior Subordinated Notes(f)............................................... 350.0 --
Subordinated Debentures(f)................................................. 300.0 --
Junior Accrual Debentures(f)(g)............................................ 129.7 --
-------- ---------------
Total long-term debt....................................................... 2,619.1 2,408.8
-------- ---------------
Minority interest in subsidiary................................................. 18.0 18.0
-------- ---------------
Stockholders' deficit:
Additional paid-in capital and common stock................................ 798.8 1,166.5
Retained deficit(h)........................................................ (1,856.6) (1,912.3)
-------- ---------------
Total stockholders' deficit................................................ (1,057.8) (745.8)
-------- ---------------
Total capitalization.................................................. $1,579.3 $ 1,681.0
-------- ---------------
-------- ---------------
- ------------
(a) Until the Subordinated Debt Refinancing occurs, or if it does not occur,
and assuming no open market or privately negotiated purchases of
Subordinated Debt prior to the Subordinated Debt Refinancing (see
'Description of Certain Indebtedness -- Terms of New Credit
Agreement -- The New Bank Facilities'), the Senior Subordinated Notes, the
Subordinated Debentures and the Junior Accrual Debentures will remain
outstanding and no borrowings will be made under the Delayed Term Loan.
(b) For further information about the New Revolving Credit Facility, the
Initial Term Loan and the Delayed Term Loan see 'Description of Certain
Indebtedness -- Terms of New Credit Agreement'.
(c) Represents funds utilized under such revolving credit facilities. The
maximum amount available under each of the New Revolving Credit Facility
(including the amount anticipated to be drawn down upon consummation of the
Recapitalization Plan) and the Revolving Credit Facility is $450 million
(with up to $150 million of such amount being available for letters of
credit) and $400 million (with up to $125 million of such amount being
available for letters of credit), respectively. It is anticipated that
immediately following the Offerings letters of credit of approximately $90
million will be outstanding under the New Revolving Credit Facility. The
Company expects that accrued and unpaid interest at June 1 and December 1,
1994 on the Senior Subordinated Notes and the Subordinated Debentures will
be paid through internal cash flow or with additional borrowings under the
New Revolving Credit Facility.
(d) For further information about the 1993 Notes, see 'Description of Certain
Indebtedness -- Terms of 1993 Notes'.
(e) For further information about the Senior Notes, see 'Description of Certain
Indebtedness -- Terms of Senior Notes'.
(f) For further information about the Subordinated Debt, see 'Description of
Certain Indebtedness -- Terms of Subordinated Debt'.
(g) The Junior Accrual Debentures accrete in value at the rate of 15 1/2%
compounded semi-annually. The aggregate accreted value, including accrued
interest, of the Junior Accrual Debentures was approximately $129.7 at
December 31, 1993 and will be approximately $148.7 million at December 1,
1994.
(h) The change in retained earnings (deficit) as a result of the
Recapitalization Plan represents $55.7 million of after-tax cost related to
the extraordinary loss from early extinguishment of debt. The extraordinary
loss on a pre-tax basis includes a $35.3 million write-off of existing
deferred debt issuance costs, $44.6 million of call premiums, and a $5.9
million adjustment to reflect the result of marking-to-market the interest
rate swaps related to the long-term debt to be repaid with borrowings under
the New Credit Agreement and net proceeds of the Offerings and the SIBV
Investment. See 'Pro Forma Financial Data'.
- ----------------------------------------------------------
For information concerning possible changes in sources and uses of funds
pertaining to the Recapitalization Plan, see 'Recapitalization Plan -- Sources
and Uses'.
25
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company as of and for each of the years ended December 31, 1989, 1990, 1991,
1992 and 1993. This data should be read in conjunction with 'Management's
Discussion and Analysis of Results of Operations and Financial Condition' and
the consolidated financial statements of the Company and the related notes
included elsewhere in this Prospectus. The selected consolidated financial data
of the Company presented under the captions Operating Results and Balance Sheet
Data, with the exception of the ratio of earnings to fixed charges, were derived
from the consolidated financial statements of the Company, which were audited by
independent auditors.
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1989 1990 1991 1992
--------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIOS, SHARE DATA, AND
STATISTICAL DATA)
OPERATING RESULTS:
Net sales................................................................ $ 2,936.3 $2,910.9 $2,940.1 $2,998.4
Cost of goods sold....................................................... 2,275.9 2,296.1 2,409.4 2,499.3
Selling and administrative expenses...................................... 254.9 218.8 225.2 231.4
Restructuring and other charges..........................................
--------- -------- -------- --------
Income (loss) from operations............................................ 405.5 396.0 305.5 267.7
Recapitalization expenses................................................ (139.2)
Interest expense......................................................... (119.1) (337.8) (335.2) (300.1)
Other, net............................................................... 8.4 6.5 5.4 5.2
--------- -------- -------- --------
Income (loss) before income taxes, equity in earnings (loss) of
affiliates, minority interests, extraordinary item and cumulative
effect of accounting changes........................................... 155.6 64.7 (24.3) (27.2)
Provision for (benefit from) income taxes................................ 74.0 35.4 10.0 10.0
Equity in earnings (loss) of affiliates(a)............................... 11.9 (2.2) (39.9) 0.5
Minority interest share of income (loss) in:
Smurfit Newsprint Corporation.......................................... 3.6 5.3 2.9 (2.7)
CCA, prior to acquisition.............................................. 24.4
--------- -------- -------- --------
Income (loss) before extraordinary item and cumulative effect of
accounting changes..................................................... 65.5 21.8 (77.1) (34.0)
Extraordinary item:
Loss from early extinguishment of debt, net of income tax benefit...... (29.7) (49.8)
Cumulative effect of accounting changes:
Postretirement benefits................................................
Income taxes...........................................................
--------- -------- -------- --------
Net income (loss)........................................................ $ 35.8 $ 21.8 $ (77.1) $ (83.8)
--------- -------- -------- --------
--------- -------- -------- --------
Net income (loss) per share(b)........................................... $ .88 $ .04 $ (2.51) $ (2.19)
--------- -------- -------- --------
--------- -------- -------- --------
Ratio of earnings to fixed charges(c).................................... 2.24 1.17 (d) (d)
--------- -------- -------- --------
--------- -------- -------- --------
OTHER DATA:
Gross profit margin(e)................................................... 22.5% 21.1% 18.1% 16.6%
Selling and administrative expenses as a percent of net sales............ 8.7 7.5 7.7 7.7
EBITDA(f)................................................................ $ 508.8 $ 525.1 $ 440.9 $ 407.8
Ratio of EBITDA to interest expense...................................... 4.27x 1.55x 1.32x 1.36x
Property and timberland additions........................................ $ 201.3 $ 192.0 $ 118.9 $ 97.9
Depreciation, depletion and amortization................................. 94.9 122.6 130.0 134.9
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.......................................................... $ 156.9 $ 60.7 $ 76.9 $ 105.7
Property, plant and equipment and timberland, net........................ 1,422.3 1,527.3 1,525.9 1,496.5
Total assets............................................................. 2,436.7 2,447.9 2,460.1 2,436.4
Long-term debt (excluding current maturities)............................ 2,684.4 2,636.7 2,650.4 2,503.0
Deferred income taxes (excluding current portion)........................ 145.5 168.6 158.3 159.8
Stockholders' deficit.................................................... (921.6) (899.4) (976.9) (828.9)
STATISTICAL DATA:
Containerboard production (thousand tons)................................ 1,792 1,797 1,830 1,918
Boxboard production (thousand tons)...................................... 816 809 826 832
Newsprint production (thousand tons)..................................... 582 623 614 615
Corrugated shipping containers sold (thousand tons)...................... 1,581 1,655 1,768 1,871
Folding cartons sold (thousand tons)..................................... 444 455 482 487
Fibre reclaimed and brokered (thousand tons)............................. 3,549 3,547 3,666 3,846
Timberland owned or leased (thousand acres).............................. 992 968 978 978
1993
--------
OPERATING RESULTS:
Net sales................................................................ $2,947.6
Cost of goods sold....................................................... 2,573.1
Selling and administrative expenses...................................... 239.2
Restructuring and other charges.......................................... 150.0
--------
Income (loss) from operations............................................ (14.7)
Recapitalization expenses................................................
Interest expense......................................................... (254.2)
Other, net............................................................... 8.1
--------
Income (loss) before income taxes, equity in earnings (loss) of
affiliates, minority interests, extraordinary item and cumulative
effect of accounting changes........................................... (260.8)
Provision for (benefit from) income taxes................................ (83.0)
Equity in earnings (loss) of affiliates(a)...............................
Minority interest share of income (loss) in:
Smurfit Newsprint Corporation.......................................... (3.2)
CCA, prior to acquisition..............................................
--------
Income (loss) before extraordinary item and cumulative effect of
accounting changes..................................................... (174.6)
Extraordinary item:
Loss from early extinguishment of debt, net of income tax benefit...... (37.8)
Cumulative effect of accounting changes:
Postretirement benefits................................................ (37.0)
Income taxes........................................................... 20.5
--------
Net income (loss)........................................................ $ (228.9)
--------
--------
Net income (loss) per share(b)........................................... $ (3.60)
--------
--------
Ratio of earnings to fixed charges(c).................................... (d)
--------
--------
OTHER DATA:
Gross profit margin(e)................................................... 12.7%
Selling and administrative expenses as a percent of net sales............ 8.1
EBITDA(f)................................................................ $ 274.2
Ratio of EBITDA to interest expense...................................... 1.08x
Property and timberland additions........................................ $ 117.4
Depreciation, depletion and amortization................................. 130.8
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.......................................................... $ 40.0
Property, plant and equipment and timberland, net........................ 1,636.0
Total assets............................................................. 2,597.1
Long-term debt (excluding current maturities)............................ 2,619.1
Deferred income taxes (excluding current portion)........................ 232.2
Stockholders' deficit.................................................... (1,057.8)
STATISTICAL DATA:
Containerboard production (thousand tons)................................ 1,840
Boxboard production (thousand tons)...................................... 829
Newsprint production (thousand tons)..................................... 615
Corrugated shipping containers sold (thousand tons)...................... 1,936
Folding cartons sold (thousand tons)..................................... 475
Fibre reclaimed and brokered (thousand tons)............................. 3,907
Timberland owned or leased (thousand acres).............................. 984
- ------------
(a) Equity in earnings (loss) of affiliates in 1991 includes after-tax charges
of $29.3 million and $6.7 million for the write-off of the Company's equity
investments in Temboard and PCL, respectively.
(b) Gives effect to the ten-for-one stock split pursuant to the
Reclassification. See 'Recapitalization Plan -- Reclassification and Related
Transactions'.
(c) For purposes of these calculations, earnings consist of income (loss) before
income taxes, equity in earnings (loss) of affiliates, minority interests
and extraordinary item and cumulative effect of accounting changes, plus
fixed charges. Fixed charges consist of interest on indebtedness,
amortization of deferred debt issuance costs and that portion of lease
rental expense considered to be representative of the interest factor
therein (deemed to be one-fourth of lease rental expense).
(d) For the years ended December 31, 1991, 1992 and 1993, earnings were
inadequate to cover fixed charges by 26.7 million, $31.4 million and $264.2
million, respectively.
(e) Gross profit margin represents the excess of net sales over cost of goods
sold divided by net sales.
(f) EBITDA represents net income before interest expense, income taxes,
depreciation, depletion and amortization, equity in earnings (loss) of
affiliates, minority interests, recapitalization expense and extraordinary
items and cumulative effect of accounting changes and in 1993, nonrecurring
restructuring and other charges. The restructuring and other charges include
$43 million of asset writedowns and $107 million of future cash
expenditures. EBITDA is presented here, not as a measure of operating
results, but rather as a measure of the Company's debt service ability.
26
PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1993 and the unaudited pro forma
condensed consolidated balance sheet as of December 31, 1993 have been prepared
to reflect the following: (i) the Recapitalization Plan (excluding the
Subordinated Debt Refinancing) and (ii) the Recapitalization Plan (including the
Subordinated Debt Refinancing). The statement of operations also includes the
pro forma effects of the 1993 Note Offering. The pro forma effects of such
transactions have been presented assuming that they occurred as of the beginning
of the period presented in the unaudited pro forma condensed consolidated
statement of operations. The unaudited pro forma condensed consolidated balance
sheet was prepared as if the Recapitalization Plan (excluding the Subordinated
Debt Refinancing) and the Recapitalization Plan (including the Subordinated Debt
Refinancing) occurred as of December 31, 1993.
The pro forma financial data set forth below in giving effect to the
Recapitalization Plan assumes an initial public offering price of $ per
share, the midpoint of the range of the anticipated high and low public offering
prices per share set forth on the cover, for the Equity Offerings and the SIBV
Investment.
The estimated transaction fees and expenses included in the following pro
forma financial data are provided solely for purposes of presenting the pro
forma financial data set forth below. The actual transaction fees and expenses
may differ from the assumptions set forth below.
The pro forma financial data are provided for informational purposes only
and do not purport to be indicative of the Company's financial position or
results which would actually have been obtained had such transactions been
completed as of the date or for the periods presented, or which may be obtained
in the future.
The pro forma financial data should be read in conjunction with the
historical financial statements of the Company and related notes thereto
appearing elsewhere in this Prospectus.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED SUBORDINATED
JEFFERSON DEBT REFINANCING) DEBT REFINANCING)
SMURFIT ------------------------ ------------------------
CORPORATION PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- --------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales..................................... $ 2,947.6 $ $2,947.6 $ $2,947.6
Cost of goods sold............................ 2,573.1 2,573.1 2,573.1
Selling and administrative expenses........... 239.2 239.2 239.2
Restructuring and other charges............... 150.0 150.0 150.0
----------- ----------- --------- ----------- ---------
Loss from operations.......................... (14.7) (14.7 ) (14.7 )
Interest expense(a)........................... (254.2) 10.1 (244.1 ) 68.7 (185.5 )
Other -- net.................................. 8.1 8.1 8.1
----------- ----------- --------- ----------- ---------
Loss before income taxes, minority interest,
extraordinary item, and cumulative effect of
accounting changes.......................... (260.8) 10.1 (250.7 ) 68.7 (192.1 )
Provision for (benefit) from income tax(b).... (83.0) 3.4 (79.6 ) 24.0 (59.0 )
----------- ----------- --------- ----------- ---------
(177.8) 6.7 (171.1 ) 44.7 (133.1 )
Minority interest share of loss............... 3.2 3.2 3.2
----------- ----------- --------- ----------- ---------
Loss before extraordinary item and cumulative
effect of accounting changes(c)............. $ (174.6) 6.7 (167.9 ) 44.7 (129.9 )
----------- ----------- --------- ----------- ---------
----------- ----------- --------- ----------- ---------
Loss per share before extraordinary item and
cumulative effect of accounting changes..... $ (2.75) $ $ $ $
----------- ----------- --------- ----------- ---------
----------- ----------- --------- ----------- ---------
Weighted average shares outstanding(d)........ 63.6
----------- ----------- --------- ----------- ---------
----------- ----------- --------- ----------- ---------
27
NOTES TO PRO FORMA CONDENSED STATEMENTS OF OPERATION
(a) Interest expense is based upon pro forma consolidated indebtedness following
consummation of the 1993 Notes, the Recapitalization Plan (excluding the
Subordinated Debt Refinancing), and the Recapitalization Plan (including the
Subordinated Debt Refinancing) as if the transactions had been consummated
as of the beginning of the period presented, as follows:
PRO FORMA ADJUSTMENTS
----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
----------------------------------------------------------
AS ADJUSTED FOR THE
RECAPITALIZATION PLAN AS ADJUSTED FOR THE
(EXCLUDING THE RECAPITALIZATION PLAN
SUBORDINATED DEBT (INCLUDING THE SUBORDINATED
REFINANCING) DEBT REFINANCING)
-------------------------- ----------------------------
(IN MILLIONS)
1993 Notes:
Net increase of interest expense, interest rate swap
payments and mark-to-market adjustment, and
amortization of related deferred debt issuance
costs in connection with the issuance of the 1993
Notes and repayment of existing indebtedness(1).... $ 5.3 $ 5.3
5.3 5.3
------- -------
Recapitalization Plan:
Interest expense related to Initial Term Loan and
Debt Offerings(2).................................. 56.5 56.5
Net reduction of interest expense, interest rate swap
payments and amortization of related deferred debt
issuance costs on indebtedness assumed to be
retired(3)......................................... (76.7) (76.7)
Amortization of deferred debt issuance costs
associated with the above debt(4).................. 4.8 4.8
------- -------
(15.4) (15.4)
Subordinated Debt Refinancing:
Interest expense related to Delayed Term Loan(5)..... 48.5
Amortization of deferred debt issuance costs
associated with the above debt(4).................. 3.5
Net reduction of interest expense and amortization of
related deferred debt issuance costs on
indebtedness assumed to be retired(6).............. (110.6)
-------
(58.6)
------- -------
Net decrease of interest expense.......................... $(10.1) $(68.7)
------- -------
------- -------
- ------------
(1) Represents the actual interest expense incurred, amortization of related
deferred debt issuance costs, and cash payments and the mark-to-market
adjustment of the related interest rate swap agreements during the year
ended December 31, 1993 on indebtedness assumed to be retired in the
refinancing of the term loan indebtedness under the 1989 Credit Agreement in
connection with the 1993 Notes. The pro forma condensed consolidated
statement of operations assumes that the interest rate swap agreements on
debt assumed to be retired were marked-to-market as of the beginning of the
period presented. The loss associated with marking these agreements to
market was treated as an extraordinary charge and therefore does not appear
in the pro forma statements of operations. See Note (c) to the pro forma
condensed consolidated statement of operations.
(2) Interest expense on the Initial Term Loan is at the Adjusted LIBOR Rate (as
defined below) plus 3.0%. Assumes the Debt Offerings are swapped to a
floating interest rate of LIBOR plus 3.77% (average rate of approximately
6.98% for the year ended December 31, 1993). A change in the Adjusted LIBOR
Rate of .25% would change interest expense on the Debt Offerings by
approximately $1.5 million for the year ended December 31, 1993.
(3) Represents the actual interest expense incurred, amortization of related
deferred debt issuance costs, and cash payments under swap agreements during
the year ended December 31, 1993 on indebtedness assumed to be repaid with
the proceeds from the Equity Offerings, Debt Offerings and the Initial Term
Loan. Assumes that the interest rate swap agreements on debt assumed to be
repaid were marked-to-market as of the beginning of the period presented.
The loss associated with marking these agreements to market was treated as
an extraordinary charge and therefore does not appear in the pro forma
statements of operations. See Note (c) to the pro forma condensed
consolidated statement of operations.
(4) Deferred debt costs will be amortized over the term of the related debt.
(5) Interest expense on the Delayed Term Loan is at the Adjusted LIBOR Rate plus
2.5%. A change in the Adjusted LIBOR Rate of .25% would change interest
expense by approximately $2.1 million for the year ended December 31, 1993.
(6) Represents the actual interest expense incurred, amortization of related
deferred debt issuance costs during the year ended December 31, 1993 on
indebtedness assumed to be retired by the Subordinated Debt Refinancing.
28
(b) Tax expense related to reduction in the interest expense at an effective tax
rate of 35.0%.
(c) The preceding historical statement of operations for the year ended December
31, 1993 excludes an after tax extraordinary loss of $37.8 million resulting
from the early extinguishment of debt as a result of the 1993 Notes. The
following details the additional nonrecurring charges resulting from the
Recapitalization Plan including and excluding the Subordinated Debt
Refinancing. These charges would be treated as an extraordinary loss from
early extinguishment of debt and consequently are not included on the pro
forma statements of operations:
PRO FORMA ADJUSTMENTS
-----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------------
AS ADJUSTED FOR THE
RECAPITALIZATION PLAN AS ADJUSTED FOR THE
(EXCLUDING THE RECAPITALIZATION PLAN
SUBORDINATED DEBT (INCLUDING THE SUBORDINATED
REFINANCING) DEBT REFINANCING)
-------------------------- -----------------------------
(IN MILLIONS)
1993 Notes:
Write-off of existing deferred debt
issuance costs related to long-term
debt repaid........................... $ 2.6 $ 2.6
Impact of marking-to-market the interest
rate swap agreements related to the
1993 Notes............................ (2.4) (2.4)
------ ------
.2 .2
Recapitalization Plan:
Write-off of existing deferred debt
issuance costs related to indebtedness
assumed to be retired and consent
fees.................................. 8.9 8.9
Impact of marking-to-market the interest
rate swap agreements.................. 12.5 12.5
------ ------
21.4 21.4
Subordinated Debt Refinancing:
Write-off of deferred debt issuance
costs related to subordinated debt
repaid or retired..................... 26.7
Premiums paid on subordinated debt
retired............................... 44.6
------ ------
71.3
------ ------
21.6 92.9
Assumed tax benefit at 35%................... 7.6 32.5
------ ------
Pro forma adjustment to extraordinary item... 14.0 60.4
Extraordinary item, net of income tax benefit
of $21.7 million on a historical basis..... 37.8 37.8
------ ------
Pro forma extraordinary item, net of tax
benefit.................................... $ 51.8 $98.2
------ ------
------ ------
(d) The computation of loss per share is based on the weighted average number of
common shares outstanding which includes the assumed ten-for-one stock
split.
29
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
AS ADJUSTED FOR THE
RECAPITALIZATION PLAN
(EXCLUDING THE
SUBORDINATED DEBT
JEFFERSON REFINANCING)
SMURFIT --------------------------
CORPORATION PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ---------
(IN MILLIONS)
ASSETS
Current assets
Cash and cash equivalents................................. $ 44.2 $ 14.9(b) $ 59.1
Receivables............................................... 243.2 243.2
Inventories............................................... 233.3 233.3
Refundable income taxes................................... .7 .7
Deferred income taxes..................................... 41.9 41.9
Prepaid expenses and other current assets................. 5.2 5.2
----------- ----------- ---------
Total current assets................................. 568.5 14.9 583.4
Property, plant and equipment, net............................. 1,374.5 1,374.5
Timberland, net................................................ 261.5 261.5
Deferred debt issuance costs................................... 52.3 53.0(a) 105.3
Goodwill, less accumulated amortization........................ 261.4 261.4
Other assets................................................... 78.9 78.9
----------- ----------- ---------
Total assets......................................... $ 2,597.1 $ 67.9 $2,665.0
----------- ----------- ---------
----------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt...................... $ 10.3 $ 10.3
Accounts payable.......................................... 270.6 270.6
Other accrued expenses.................................... 247.6 $ (1.3)(b) 246.3
----------- ----------- ---------
Total current liabilities............................ 528.5 (1.3) 527.2
Existing long-term debt, less current maturities:
Nonsubordinated........................................... 1,839.4 (1,080.6)(c) 758.8
Subordinated.............................................. 779.7 779.7
Initial Term Loan.............................................. 200.0(c) 200.0
Delayed Term Loan..............................................
Debt Offerings................................................. 600.0(c) 600.0
Other long-term liabilities.................................... 257.1 257.1
Deferred income taxes.......................................... 232.2 (6.3)(d) 225.9
Minority interests............................................. 18.0 18.0
Stockholders' deficit
Common stock and additional paid-in capital............... 798.8 367.7(e) 1,166.5
Retained deficit.......................................... (1,856.6) (11.6)(f) (1,868.2)
----------- ----------- ---------
Total stockholders' deficit.......................... (1,057.8) 356.1 (701.7)
----------- ----------- ---------
$ 2,597.1 $ 67.9 $2,665.0
----------- ----------- ---------
----------- ----------- ---------
AS ADJUSTED FOR THE
RECAPITALIZATION PLAN
(INCLUDING THE SUBORDINATED DEBT REFINANCING)
-----------------------------------
PRO FORMA
ADJUSTMENTS PRO FORMA
----------------------------- -----------------------------
ASSETS
Current assets
Cash and cash equivalents................................. $ 40.6(b) $ 84.8
Receivables............................................... 243.2
Inventories............................................... 233.3
Refundable income taxes................................... .7
Deferred income taxes..................................... 41.9
Prepaid expenses and other current assets................. 5.2
----------- -----------
Total current assets................................. 40.6 609.1
Property, plant and equipment, net............................. 1,374.5
Timberland, net................................................ 261.5
Deferred debt issuance costs................................... 29.7 (a 82.0
Goodwill, less accumulated amortization........................ 261.4
Other assets................................................... 78.9
----------- -----------
Total assets......................................... $ 70.3 $ 2,667.4
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt...................... $ 10.3
Accounts payable.......................................... 270.6
Other accrued expenses.................................... (1.3)(b) 246.3
----------- -----------
Total current liabilities............................ (1.3) 527.2
Existing long-term debt, less current maturities:
Nonsubordinated........................................... (1,080.6)(c) 758.8
Subordinated.............................................. (779.7)(c)
Initial Term Loan.............................................. 200.0 (c 200.0
Delayed Term Loan.............................................. 850.0 850.0
Debt Offerings................................................. 600.0 (c 600.0
Other long-term liabilities.................................... 257.1
Deferred income taxes.......................................... (30.1)(d) 202.1
Minority interests............................................. 18.0
Stockholders' deficit
Common stock and additional paid-in capital............... 367.7 (e 1,166.5
Retained deficit.......................................... (55.7)(f) (1,912.3)
----------- -----------
Total stockholders' deficit.......................... 312.0 (745.8)
----------- -----------
$ 70.3 $ 2,667.4
----------- -----------
----------- -----------
(footnote on next page)
30
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(a) Net increase in deferred debt issuance is summarized as follows:
PRO FORMA
ADJUSTMENTS AS PRO FORMA ADJUSTMENTS
ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED DEBT SUBORDINATED DEBT
REFINANCING) REFINANCING)
--------------------- ---------------------
(IN MILLIONS)
Estimated costs and expenses associated with the
Recapitalization (which will be capitalized and amortized
over the term of the Debt Offerings, Initial and Delayed
Term Loan and the New Revolving Credit Facility).......... $62.5 $62.5
Reduction in deferred debt issuance costs related to the
existing long-term debt to be repaid or retired........... (9.5) (32.8)
------ ------
$53.0 $29.7
------ ------
------ ------
(b) Represents increase in cash and net reduction in accrued expenses as a
result of the Recapitalization Plan.
(c) Represents repayment of existing nonsubordinated indebtedness and
subordinated indebtedness and issuance of new indebtedness under the Initial
and Delayed Term Loan including payments of fees and expenses of $71.7 in
connection with the Recapitalization Plan including Subordinated Debt
Refinancing.
(d) Changes in deferred taxes related to the tax benefit of the extraordinary
loss from early extinguishment of debt.
(e) Issuance of $400 million common equity net of $32.3 million in fees related
to the Equity Offerings.
(f) Represents the after-tax costs related to the extraordinary loss from early
extinguishment of debt as a result of the Recapitalization Plan and
Subordinated Debt Refinancing. Summarized as follows:
PRO FORMA
ADJUSTMENTS AS PRO FORMA ADJUSTMENTS
ADJUSTED FOR THE AS ADJUSTED FOR THE
RECAPITALIZATION PLAN RECAPITALIZATION PLAN
(EXCLUDING THE (INCLUDING THE
SUBORDINATED DEBT SUBORDINATED DEBT
REFINANCING) REFINANCING)
--------------------- ---------------------
(IN MILLIONS)
Write-off of existing deferred debt issuance costs related
to long-term debt repaid or retired and write-off of
consent fees and miscellaneous expenses................... $12.0 $35.3
Adjustment to reflect the result of marking-to-market the
interest rate swaps related to long-term debt to be repaid
with the proceeds of the Recapitalization................. 5.9 5.9
Call premiums on existing subordinated debt to be repaid or
retired................................................... 44.6
------ ------
17.9 85.8
Assumed tax benefit at 35.0%................................ (6.3) (30.1)
------ ------
$11.6 $55.7
------ ------
------ ------
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with
the selected historical financial data and the historical consolidated financial
statements of the Company. Except as otherwise indicated, the following
discussion relates solely to historical results and does not consider the
potential impact from the Recapitalization Plan.
GENERAL
INDUSTRY CONDITIONS
Sales of containerboard and corrugated shipping containers, two of the
Company's most important products, are generally subject to changes in industry
capacity and cyclical changes in the economy, both of which can significantly
impact selling prices and the Company's profitability. Operating rates in the
industry during 1991 and 1992 were at high levels relative to demand, which was
lower due to the sluggish U.S. economy and a decline in export markets. This
imbalance resulted in excess inventories in the industry and lower prices for
the Company's containerboard and corrugated shipping container products, which
began early in 1991 and has continued throughout 1992 and most of 1993. From the
first quarter of 1991 through the third quarter of 1993 industry linerboard
prices fell from $347 per ton to $295 per ton. During 1993, industry operating
rates were lower as many containerboard producers, including the Company, took
downtime at containerboard mills to reduce the excess inventories. By the end of
the third quarter of 1993, inventory levels had decreased significantly. The
lower level of inventories and the stronger U.S. economy provided improved
market conditions late in 1993, enabling the Company and other producers to
implement a $25 per ton price increase for containerboard. A further linerboard
increase of $30 per ton has been announced by all major integrated
containerboard producers, including the Company, for March 1, 1994.
Newsprint prices have fallen substantially since 1990 due to supply and
demand imbalances. During 1991 and 1992, new capacity of approximately two
million tons annually came on line, representing an approximate 12% increase in
supply. At the same time, U.S. consumption of newsprint fell, due to declines in
readership and ad linage. As prices fell, certain high cost, virgin paper
machines, primarily in Canada, representing approximately 1.2 million tons of
annual production capacity, were shut down and remained idle during 1993. While
supply was diminished, a price increase announced for 1993 was unsuccessful.
Although market demand has improved in the fourth quarter of 1993, the Company
does not expect significant improvement in prices before the second quarter of
1994.
In addition, prices for many of the Company's other products, including
solid bleached sulfate, recycled boxboard, folding cartons and reclaimed fibre
weakened in 1993 and 1992. While the effect of the reclaimed fibre price
decreases is unfavorable to the reclamation products division, it is favorable
to the Company overall because of the reduction in fibre cost to the Company's
paper mills that use reclaimed fibre. The Company has taken various steps to
extend its business into less cyclical product lines, such as industrial
packaging and consumer packaging.
As a result of these industry conditions, the Company's gross margin
declined from 18.1% in 1991 to 16.6% in 1992 and 12.7% in 1993.
The Company's sales and profitability have historically been more sensitive
to price changes than changes in volume. There can be no assurance that
announced price increases for the Company's products can be implemented, or that
prices for the Company's products will not decline from current levels.
COST REDUCTION INITIATIVES
The recent cyclical downturn in the Paperboard/Packaging Products segment
has led management to undertake several major cost reduction initiatives. In
1991, the Company implemented an austerity program to freeze staff levels, defer
certain discretionary spending programs and more aggressively manage capital
expenditures and working capital in order to conserve cash and reduce interest
expense. While these measures successfully reduced expenses and increased cash
flow, the length and extent of
32
the industry downturn led the Company, in 1993, to initiate a new six year plan
to reduce costs, increase volume and improve product mix (the 'Plan').
The Plan is a systematic Company-wide effort designed to improve the cost
competitiveness of all the Company's operating facilities and staff functions.
In addition to increases in volume and improvements in product mix resulting
from a focus on less commodity oriented business at its converting operations,
the program will focus on opportunities to reduce costs and other measures,
including (i) productivity improvements, (ii) capital projects which provide
high returns and quick paybacks, (iii) reductions in fibre cost, (iv) reductions
in the purchase cost of materials, (v) reductions in personnel costs and (vi)
reductions in waste cost. See 'Business -- Business Strategy'.
RESTRUCTURING AND OTHER CHARGES
In September 1993, the Company recorded a pre-tax charge of $150 million to
implement a restructuring program (the 'Restructuring Program') designed to
improve the Company's long-term competitive position and to provide for various
environmental and other matters. The charge consists of approximately $96
million related to the restructuring program and approximately $54 million of
other charges related primarily to environmental matters. The restructuring
component of the charge includes a provision for direct expenses associated with
plant closures, reductions in workforce, and realignment and consolidation of
various manufacturing operations over an approximate two to three year period.
The restructuring program is expected to reduce production cost, employee
expense and depreciation charges. As part of the Restructuring Program, the
Company closed certain high cost operating facilities, including a coated
recycled boxboard mill and five converting plants, in January 1994. While future
benefits of the Restructuring Program are uncertain, the operating losses in
1993 for the plants shut down in January 1994 and those contemplated in the
future were $31 million. While the Company believes that it would have realized
financial benefits in 1993 had these plants been shut down at the beginning of
the year, and that it will realize such benefits in future periods, no
assurances can be given in this regard and, in particular, no assurances can be
given as to what portion of such loss would not have been realized in 1993 had
such plants been shut down for the entire year.
Approximately $39 million in other charges consists of a provision for
environmental and legal matters which primarily represent remediation and other
clean-up costs related to plant closures, existing facilities, and former
operating sites. These estimates mainly include clean-up costs for contamination
at certain Company-owned properties, and to a lesser extent, probable expenses
for response costs at various sites where the Company has received notice that
it is a potentially responsible party ('PRP'). As discussed under 'Risk
Factors -- Environmental Matters' and 'Business -- Environmental Matters', the
Company, as well as other companies in the industry, faces potential
environmental liability related to various sites at which wastes have allegedly
been deposited. The Company has received notice that it is or may be a PRP at a
number of federal and state sites (the 'Sites') where remedial action may be
required. Because the laws that govern the clean up of waste disposal sites have
been construed to authorize joint and several liability, government agencies or
other parties could seek to recover all response costs for any Site from any one
of the PRPs for such Site, including the Company, despite the involvement of
other PRPs. Although the Company is unable to estimate the aggregate response
costs in connection with the remediation of all Sites, if the Company were held
jointly and severally liable for all response costs at some or all of the Sites,
it would have a material adverse effect on financial condition of the Company.
However, joint and several liability generally has not in the past been imposed
on PRPs, and, based on such past practice, the Company's past experience and the
financial conditions of other PRPs with respect to the Sites, the Company does
not expect to be held jointly and severally liable for all response costs at any
Site. Liability at waste disposal sites is typically shared with other PRPs and
costs generally are allocated according to relative volumes of waste deposited.
At most Sites, the waste attributed to the Company is a very small portion of
the total waste deposited at the Site (generally significantly less than 1%).
There are approximately ten Sites where final settlement has not been reached
and where the Company's potential liability is expected to exceed de minimis
levels. Accordingly, the Company believes that its estimated total probable
liability for response costs at the Sites was adequately reserved at December
31, 1993. Further, the estimate takes into consideration the number of other
PRPs at each site, the identity, and financial
33
position of such parties, in light of the joint and several nature of the
liability, but does not take into account possible insurance coverage or other
similar reimbursement.
The $150 million charge in connection with the Restructuring Program and
various environmental and other matters consists of approximately $43 million
for the write-down of assets at closed facilities and certain other
nonproductive assets and $107 million of probable future cash expenditures. The
Company anticipates that the cash expenditures will be funded through operations
and that a substantial portion related to the Restructuring Program will be paid
in 1994, 1995 and 1996.
RESULTS OF OPERATIONS
The following tables present net sales on a segment basis for the years
ended December 31, 1993, 1992 and 1991 and an analysis of period-to-period
increases (decreases) in net sales (in millions):
NET SALES BY SEGMENT
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
Paperboard/Packaging Products........................................ $2,699.5 $2,751.0 $2,653.9
Newsprint............................................................ 248.1 247.4 286.2
-------- -------- --------
Total net sales................................................. $2,947.6 $2,998.4 $2,940.1
-------- -------- --------
-------- -------- --------
NET SALES ANALYSIS
1993 1992
COMPARED TO COMPARED TO
1992 1991
----------- -----------
Increase (decrease) due to:
Sales price and product mix
Paperboard/Packaging Products.................................... $ (91.2) $ .8
Newsprint........................................................ (3.0) (39.4)
----------- -----------
(94.2) (38.6)
Sales volume
Paperboard/Packaging Products.................................... 15.8 88.7
Newsprint........................................................ 3.7 .6
----------- -----------
19.5 89.3
Acquisitions and new facilities
Paperboard/Packaging Products.................................... 34.9 9.8
Plant closings and asset distributions
Paperboard/Packaging Products.................................... (11.0) (2.2)
----------- -----------
Total net sales increase (decrease)......................... $ (50.8) $ 58.3
----------- -----------
----------- -----------
1993 COMPARED TO 1992
The Company's net sales for 1993 decreased 1.7% to $2.95 billion compared
to $3.0 billion in 1992. Net sales decreased 1.9% in the Paperboard/Packaging
Products segment and increased 0.3% in the Newsprint segment.
The decrease in Paperboard/Packaging Products segment sales for 1993 was
due primarily to lower prices and changes in product mix for containerboard,
corrugated shipping containers and folding cartons. This decrease was partially
offset by an increase in sales volume primarily of corrugated shipping
containers, which set a record in 1993. A newly constructed corrugated container
facility and several minor acquisitions in 1992 caused net sales to increase
$34.9 million for 1993.
The net sales increase in the Newsprint segment was a result of an increase
in sales volume in 1993 compared to 1992, partially offset by a decline in sales
prices.
34
Cost of goods sold as a percent of net sales for 1993 and 1992 were 85.9%
and 81.9%, respectively, for the Paperboard/Packaging Products segment and
102.8% and 99.0%, respectively, for the Newsprint segment. The increase in cost
of goods sold as a percent of net sales for the Paperboard/Packaging Products
segment was due primarily to the aforementioned changes in pricing and product
mix. The increase in the cost of goods sold as a percent of net sales for the
Newsprint segment was due primarily to the higher cost of energy and fibre and
decreases in sales price. The Company changed the estimated depreciable lives of
its paper machines and major converting equipment. These changes were made to
better reflect the estimated periods during which the assets will remain in
service and were based upon the Company's historical experience and comparable
industry practice. These changes were made effective January 1, 1993 and had the
effect of reducing depreciation expense by $17.8 million and decreasing the 1993
net loss by $11.0 million.
Selling and administrative expenses increased to $239.2 million (3.4%) for
1993 compared to $231.4 million for 1992. The increase was due primarily to
higher provisions for retirement costs, acquisitions, new facilities and other
costs.
In order to minimize significant year-to-year fluctuations in pension cost
caused by financial market volatility, the Company changed, effective January 1,
1993, the method of accounting for the recognition of fluctuations in the market
value of pension assets. The effect of this change on 1993 results of
operations, including the cumulative effect of prior years, was not material.
See Note 8 to the Company's consolidated financial statements.
The Company reduced its weighted average discount rate in measuring its
pension obligations from 8.75% to 7.6% and its rate of increase in compensation
levels from 5.5% to 4.0% at December 31, 1993. The net effect of changing these
assumptions was the primary reason for the increase in the projected benefit
obligations and the changes are expected to increase pension cost by
approximately $3.4 million in 1994.
As a result of the $150 million provision for restructuring and other
charges and the lower margins, primarily for newsprint and containerboard
products, the Company had a loss from operations of $14.7 million for 1993,
compared to $267.7 million income from operations for 1992.
Interest expense for 1993 declined $45.9 million due to lower effective
interest rates and the lower level of subordinated debt outstanding resulting
primarily from the 1992 Transaction (as defined below).
The benefit from income taxes for 1993 was $83.0 million compared to a tax
provision of $10.0 million in 1992. The significant difference in the income tax
provision from 1993 to 1992 results from the use of the liability method of
accounting which restored deferred income taxes and increased the related asset
values for tax effects previously recorded as a reduction of the carrying amount
of the related assets under prior business combinations. The Company's effective
tax rate for 1993 was lower than the Federal statutory tax rate due to the
nondeductibility of goodwill amortization and a $5.7 million provision to adjust
deferred tax assets and liabilities in 1993 due to the enacted Federal income
tax rate change from 34% to 35%.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ('SFAS') No. 109, 'Accounting for Income Taxes' and SFAS
No. 106, 'Employers' Accounting for Postretirement Benefits Other Than
Pensions'. The cumulative effect of adopting SFAS No. 109 was to increase net
income for 1993 by approximately $20.5 million. The cumulative effect of
adopting SFAS No. 106 was to decrease net income for 1993 by approximately $37
million. The Company will adopt SFAS No. 112 'Employers' Accounting for
Postemployment Benefits' in 1994, the effect of which is not expected to be
material.
The loss before extraordinary item and cumulative effect of accounting
changes for 1993 was $174.6 million, compared to $34.0 million for the
comparable period in 1992. The Company recorded an extraordinary loss of $37.8
million (net of income tax benefits of $25.8 million) for the early
extinguishment of debt associated with the issuance of the 1993 Notes.
35
1992 COMPARED TO 1991
Net sales for 1992 increased to $3.0 billion (2.0%) compared to $2.94
billion in 1991. Net sales increased 3.7% in the Paperboard/Packaging Products
segment and decreased 13.6% in the Newsprint segment.
The increase in Paperboard/Packaging Products segment sales was due
primarily to a 5.6% increase in sales volume for corrugated shipping containers.
Segment sales were also positively affected by increases in sales volumes for
papertubes and partitions and to a lesser extent for folding cartons and
reclamation products. Prices of containerboard products improved over 1991 but
did not increase sufficiently to cover cost increases, causing margins to be
somewhat lower in 1992. Prices for most of the Company's other packaging
products have declined compared to 1991. A minor acquisition in 1992 and the
operation of new facilities in the Paperboard/Packaging Products segment
resulted in an increase in net sales of $9.8 million, while plant closings
caused net sales to decrease by $2.2 million.
The net sales decrease in the Newsprint segment was a result of the lower
sales prices as discussed above. Newsprint sales volume for 1992 was virtually
the same as 1991.
The Company continued to benefit from certain austerity measures first
implemented during 1991 to help offset the impact of the recession. These
measures had a positive effect on cost of goods sold and selling and
administrative expenses. Cost of goods sold as a percent of net sales for 1992
and 1991 were 81.9% and 81.8% , respectively, for the Paperboard/Packaging
Products segment and 99.0% and 83.1% respectively, for the Newsprint segment.
The increase in the Newsprint segment was due primarily to the aforementioned
decrease in sales price.
Selling and administrative expense as a percent of net sales for 1992 was
7.7%, unchanged from 1991. The Company continues to benefit from certain cost
containment measures implemented in 1991 to reduce expenses to help offset the
impact of the recession and inflation.
Income from operations for 1992 decreased 12.4% to $267.7 million as a
result of the low average selling prices for newsprint and packaging products
discussed above.
Interest expense for 1992 was lower by $35.1 million, due to lower
effective interest rates and the lower level of debt outstanding as a result of
the 1992 Transaction. During 1992, the Company replaced $425.0 million of mature
swaps with $400.0 million of the new two-year fixed interest rate swaps at an
annual savings of approximately 3.8% on such amount (equivalent to an annual
savings of approximately $15.1 million).
The Company recorded a $10.0 million income tax provision in both 1992 and
1991 on income before income taxes, equity in earnings (loss) of affiliates and
extraordinary item of $27.2 and $24.3 million, respectively. The tax provisions
for 1992 and 1991 were higher than the Federal statutory tax rate due to several
factors, the most significant of which was the impact of permanent differences
from applying purchase accounting.
Equity in loss of affiliates for 1991 included a write-down of $36.0
million with respect to the Company's equity investments in Temboard and Company
Limited Partnership and PCL Industries Limited. See Note 3 to the Company's
consolidated financial statements. For 1992 the Company had an extraordinary
loss of $49.8 million (net of income tax benefits of $25.8 million) for the
early extinguishment of debt associated with the 1992 Transaction.
IMPACT OF INFLATION AND CHANGING PRICES
The Company uses the LIFO method of accounting for approximately 81% of its
inventories. Under this method, the cost of products sold reported in the
financial statements approximates current cost and thus reduces the distortion
in reported income due to increasing costs. In recent years, inflation has not
had a material effect on the financial position or results of operations of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash for the next several years will be
principal and interest payments on its indebtedness and capital expenditures.
36
In April 1993, the Company issued $500 million aggregate principal amount
of the 1993 Notes. Proceeds of the 1993 Notes were used to refinance a
substantial portion of indebtedness in order to improve operating and financial
flexibility by extending maturities of indebtedness and improving liquidity. As
a result of the issuance of the 1993 Notes, there are no significant scheduled
payments due on bank term loans until June 1996 (assuming the Bank Debt
Refinancing is not consummated). In connection with the issuance of the 1993
Notes, a subsidiary of JS Group committed to purchase up to $200 million
aggregate principal amount of 11 1/2% Junior Subordinated Notes maturing 2005,
the proceeds of which must be used to repurchase or otherwise retire
Subordinated Debt. The Company does not intend to use the commitment if the
Recapitalization Plan occurs.
The Company is implementing the Recapitalization Plan to refinance a
substantial portion of its indebtedness in order to improve operating and
financial flexibility by (i) reducing the level and overall cost of debt, (ii)
extending maturities of indebtedness, (iii) increasing stockholders' equity and
(iv) increasing its access to capital markets. The Recapitalization Plan
includes (i) the offering by the Company of shares of Common Stock,
(ii) the SIBV Investment, (iii) the offering by CCA of $500 million aggregate
principal amount of % Series A Senior Notes, which will be due 2004 and $100
million aggregate principal amount of % Series B Senior Notes, which will be
due 2002, and (iv) the New Credit Agreement consisting of a $450 million New
Revolving Credit Facility due 2001, a $200 million Initial Term Loan due 2002
and an $850 million Delayed Term Loan due 2001. Proceeds of the Recapitalization
Plan, exclusive of the $850 million Delayed Term Loan, will be used to refinance
all of the Company's indebtedness under the 1989 and 1992 Credit Agreements and
the Secured Notes. The applications of borrowings under the Delayed Term Loan
shall be used to redeem or repurchase the Subordinated Debt. It is anticipated
that letters of credit of approximately $90 million will be outstanding under
the New Revolving Credit Facility immediately following the Offerings. After
giving effect to the Recapitalization Plan on a pro forma basis, at December 31,
1993 the Company would have had approximately $2,408.8 million of total
long-term debt outstanding, all of which would have been senior debt, as
compared to $2,619.1 million of long-term debt outstanding had the
Recapitalization Plan not been effected. After completion of the
Recapitalization Plan there will be no significant scheduled payments due on
bank debt (other than required payments out of 'excess cash', if any) until 18
months following consummation of the Offerings, at which time approximately
$51.0 million will be payable.
The Company's earnings are significantly affected by the amount of interest
on its indebtedness. At December 31, 1993, the Company had $215 million of
variable rate debt which had been swapped to a weighted average fixed rate of
approximately 9.1%. The Company also had interest rate swap agreements related
to the Securitization Program that effectively converted $95 million of fixed
rate borrowings to a variable rate of 5.6% (at December 31, 1993) and converted
$80 million of variable rate borrowings to a fixed rate of 7.2% through January
1996. In addition, the Company is party to interest rate swap agreements related
to the 1993 Notes which convert $500 million of fixed rate borrowings to a
variable rate of 8.6% (at December 31, 1993).
Capital expenditures consist of property and timberland additions and
acquisitions of businesses. Capital expenditures for 1993, 1992 and 1991 were
$117.4 million, $97.9 million and $118.9 million, respectively. Financing
arrangements entered into in connection with the 1989 Transaction impose an
annual limit on future capital expenditures, as defined in the financing
arrangements, of approximately $125.0 million. The capital spending limit is
subject to increase in any year if the prior year's spending was less than the
maximum amount allowed. For 1993, such carryover from 1992 was $75 million.
Because the Company has invested heavily in its core businesses over the last
several years, management believes the annual limitation on capital expenditures
should not impair its plans for maintenance, expansion and continued
modernization of its facilities. It is expected that the New Credit Agreement
will contain limitations on capital expenditures substantially similar to those
contained in the financing arrangements entered into in connection with the 1989
Transaction. The Company anticipates making capital expenditures of
approximately $142 million in 1994.
Under the terms of the Old Bank Facilities, the Company is required to
comply with certain financial covenants, including maintenance of quarterly and
annual interest coverage ratios and earnings, as defined. In anticipation of
violating these financial covenants at September 30, 1993, the
37
Company requested and received waivers from its lender group, and in December,
1993 amended the Old Bank Facilities to modify financial covenants. The Company
was in compliance with the amended covenants at December 31, 1993. The Company
expects to have similar covenants in the New Credit Agreement.
Operating activities have historically been the major source of cash for
the Company's working capital needs, capital expenditures and debt payments. For
1993 and 1992, net cash provided by operating activities was $78.2 million and
$145.7 million, respectively.
At December 31, 1993, the Company had $112.1 million in unused borrowing
capacity under the Revolving Credit Facility. Following the Offerings, the
Company anticipates having $360.0 million of unused borrowing capacity under the
New Credit Agreement. The Company has borrowing capacity of $230.0 million under
the Securitization subject to the Company's level of eligible accounts
receivable. At December 31, 1993, the Company had borrowed $182.3 million under
the Securitization and the level of eligible receivables did not permit any
additional borrowings under the Securitization at the date. The Securitization
matures in April 1996, at which time the Company expects to refinance it.
Although the Company believes that it will be able to do so, no assurance can be
given in this regard.
The Company's existing indebtedness imposes restrictions on its ability to
incur additional indebtedness. Such restrictions, together with the highly
leveraged position of the Company, could restrict corporate activities,
including the Company's ability to respond to market conditions, to provide for
unanticipated capital expenditures or to take advantage of business
opportunities. However, the Company believes that cash provided by operations
and available financing sources will be sufficient to meet the Company's cash
requirements for the next several years.
38
BUSINESS
GENERAL
The predecessor to the Company was founded in 1974 when JS Group, a
worldwide leader in the packaging products industry, commenced operations in the
United States by acquiring 40% of a small paperboard and packaging products
company. The remaining 60% of that company was acquired by JS Group in 1977, and
in 1978 net sales were $42.9 million. The Company implemented a strategy to
build a fully integrated, broadly based, national packaging business, primarily
through acquisitions, including Alton Box Board Company in 1979, the paperboard
and packaging divisions of Diamond International Corporation in 1982, 80% of SNC
in 1986 and 50% of CCA in 1986. The Company financed its acquisitions by using
leverage and, in several cases, utilized joint venture financing whereby the
Company eventually obtained control of the acquired company. While no major
acquisition has been made since 1986, the Company has made 18 smaller
acquisitions and started up five new facilities which had combined sales in 1993
of $280.3 million. JSC was formed in 1983 to consolidate the operations of the
Company, and today the Company ranks among the industry leaders in its two
business segments, Paperboard/Packaging Products and Newsprint. In 1993, the
Company had net sales of $2.9 billion, achieving a compound annual sales growth
rate of 32.6% for the period since 1978.
The Company believes it is one of the nation's largest producers of
paperboard and packaging products and is the largest producer of recycled
paperboard and recycled packaging products. In 1993, the Company's system of 16
paperboard mills produced 1,840,000 tons of virgin and recycled containerboard,
829,000 tons of coated and uncoated recycled boxboard and SBS and 206,000 tons
of recycled cylinderboard, which were sold to the Company's own converting
operations or to third parties. The Company's converting operations consist of
52 corrugated container plants, 18 folding carton plants, and 16 industrial
packaging plants located across the country, with three plants located outside
the U.S. In 1993, the Company's container plants converted 1,942,000 tons of
containerboard, an amount equal to approximately 105.5% of the amount it
produced, its folding carton plants converted 542,000 tons of SBS, recycled
boxboard and coated natural kraft, an amount equal to approximately 65.4% of the
amount it produced, and its industrial packaging plants converted 123,000 tons
of recycled cylinderboard, an amount equal to approximately 59.7% of the amount
it produced.
The Company's paperboard operations are supported by its reclamation
division, which processed or brokered 3.9 million tons of wastepaper in 1993,
and by its timber division which manages approximately one million acres of
owned or leased timberland located in close proximity to its virgin fibre mills.
The paperboard/packaging products operations also include 14 consumer packaging
plants.
In addition, the Company believes it is one of the nation's largest
producers of recycled newsprint. The Company's newsprint division includes two
newsprint mills in Oregon, which produced 615,000 tons of recycled newsprint in
1993, and two facilities that produce Cladwood'r', a construction material
produced from newsprint and wood by-products. The Company's newsprint mills are
also supported by the Company's reclamation division.
DEVELOPMENT OF BUSINESS
Since its founding in 1974, the Company has followed a strategy to build a
broadly based packaging business, primarily through acquisitions. The Company's
acquisitions were principally motivated by opportunities to expand productive
capacity, both geographically and into new product lines, further integrate its
operations and broaden its existing product lines and customer base. The Company
has sought to improve the productivity of plants and operations acquired by it.
The most significant acquisitions were:
1979 -- Acquired 51% of Alton Box Board Company; the remaining 49% was
acquired in 1981. Alton's containerboard and industrial packaging
businesses consisted of fully integrated containerboard and paperboard
operations. The Alton acquisition significantly enhanced the Company's
presence in the midwest and expanded its operations to the southeast. In
addition, the Alton acquisition expanded the Company's product lines to
include folding cartons and industrial packaging and provided a network of
reclamation facilities which supplied wastepaper to the Company's recycled
mills. Alton owned a kraft linerboard mill and a recycled medium
39
mill, two recycled cylinderboard mills, 32 converting facilities and 9
recycled wastepaper plants. Alton's total annual paperboard production at
the date of acquisition was 471,775 tons, as compared to 582,017 tons in
1993.
1982 -- Acquired 50% of the paperboard and packaging divisions of Diamond
International Corporation through a joint venture; the remaining 50% was
acquired in 1983. In addition to expanding the Company's existing product
lines and customer base, the Diamond acquisition added new product lines,
including labels and other consumer packaging, and a related business
which produced rotogravure cylinders for use on printing presses used
extensively by the folding carton industry. Diamond owned two coated
recyled boxboard mills, which provided the Company with an integrated
source of recycled boxboard for use in its folding carton plants, as well
as three folding carton plants, three shipping container plants and three
consumer packaging plants. Diamond's operations were located primarily in
the midwest. Diamond's annual coated recycled boxboard production,
exclusive of a mill recently shut down, at the date of acquisition was
74,494 tons, as compared to 113,006 tons in 1993.
1986 -- Acquired 80% of SNC, formerly Publishers Paper Company. The SNC
acquisition extended the Company's product line to include newsprint and
also expanded the Company's reclamation operations to the west coast. The
SNC acquisition consisted of two newsprint mills and two Cladwood'r'
manufacturing plants, all of which are located in Oregon. SNC's annual
newsprint production at the date of acquisition was 592,804 tons, as
compared to 615,151 tons in 1993.
1986 -- Acquired 50% of CCA through a joint venture with the Morgan
Stanley Leveraged Equity Fund I, L.P.; the remaining 50% was acquired in
1989. The total CCA acquisition cost was $1,130 million, which was
financed with $1,060 million of debt and $70 million of preferred and
common equity. The CCA acquisition substantially enhanced the Company's
production capacity and further integrated the Company's operations. It
also expanded its paperboard and packaging operations to the west coast,
which enabled the Company to compete on a national level and broaden its
customer base. The CCA acquisition consisted primarily of 9 paperboard
mills, 40 converting plants and 5 reclamation facilities as well as
approximately 1,000,000 acres of owned or leased timberlands. CCA's
operations are located throughout the United States. CCA's total annual
paperboard production at the date of acquisition was 1,760,039 tons, as
compared to 2,002,064 tons in 1993.
INDUSTRY OVERVIEW
PAPERBOARD
General
Paperboard is a general term used to describe certain heavyweight grades of
paper primarily used for packaging products. Paperboard is produced from four
basic types of pulp: (i) unbleached kraft; (ii) bleached kraft; (iii) recycled
and (iv) semi-chemical. Unbleached kraft, bleached kraft and semi-chemical
paperboards, are produced primarily from wood pulp. Recycled paperboard is
produced primarily from wastepaper. Recycled paperboard demand has grown at a
more rapid rate than virgin grades based primarily on its increased quality and
rising environmental awareness by consumers.
Paperboard is classified by three major end-uses: (i) containerboard, (ii)
boxboard and (iii) other paperboard. Containerboard primarily includes
linerboard and corrugating medium, the components of corrugated boxes used in
the transportation of manufactured goods. Boxboard includes folding carton
stock, setup boxboard and food board. Folding cartons, the major segment of
boxboard, are used to package a wide range of consumer products such as health
and beauty products, dry cereals and soap powders. Folding cartons are often
clay-coated for better printability and consumer appeal. Other paperboard
includes paperboard used in a number of industrial applications: fiber drums,
composite cans, spiral tubes, cores, gypsum wallboard liner and box partitions.
40
According to the American Forest & Paper Association (the 'AFPA'), the
following table represents 1993 containerboard and boxboard production in the
United States.
%
PRODUCTION(1) --------------------------------------------------
------------- UNBLEACHED BLEACHED
END-USE % OF TOTAL KRAFT KRAFT RECYCLED SEMICHEMICAL
- ----------------------------------- (TONS IN ---------- ---------- -------- -------- ------------
THOUSANDS)
Containerboard..................... 26,175 77% 64 1 14 21
Boxboard........................... 7,718 23 16 45 39 --
------------- ----------
33,893 100%
------------- ----------
------------- ----------
- ------------
(1) Excludes approximately 3.0 million export containerboard tons and 1.1
million export boxboard tons.
Containerboard
Demand. Containerboard production grew from 21.3 million tons in 1983 to
29.2 million tons in 1993 (consisting of 26.2 million tons of domestic
production and 3.0 million tons of exports) for a compound annual growth rate
('Rate') of 3.3%. From 1983-1993, containerboard produced from recycled
paperboard grew at a much faster rate than unbleached kraft, experiencing a 7.6%
Rate. Containerboard demand is highly cyclical and fluctuates with the general
level of economic activity.
[GRAPHIC REPRESENTATION of the relationship between the change in Gross
Domestic Product ('GDP') and the change in containerboard production from 1983
to 1993. For each year during hte period 1983-1993, the annual percentage change
in GDP was 3.9%, 6.2%, 3.2%, 2.9%, 3.1%, 3.9%, 2.5%, 1.2%, (0.7%), 2.6% and
2.9%, respectively. During this same period, the annual percentage change in
containerboard production was 10.2%, 7.1%, (3.7%), 8.4%, 7.1%, 1.8%, 1.1%, 3.7%,
2.2%, 4.2% and 1.0%, respectively. The source of the containboard production
data is the America Forest and Paper Association.]
Overall, containerboard demand is a function of the level of corrugated box
shipments from box converting plants and, to some extent, the level of
containerboard inventories on hand. Over the last six months of 1993, corrugated
box demand was very strong with shipments from August 1993 through December 1993
exceeding corresponding 1992 months by 9.1%, 6.6%, 5.7%, 12.3% and 10.1%,
respectively. Box plant containerboard inventory levels were at 2.16 million
tons on December 31, 1993, up slightly from 1.98 million tons on October 31,
1993, their lowest level on a tonnage basis since 1987. Containerboard demand
has also been assisted in recent months by an increase in exports. The Company
is currently experiencing strong demand and believes that it will continue as
the economy improves. Resource Information Systems, Inc. ('RISI'), a well known
industry consultant, projects domestic containerboard production to grow to 28.9
million tons by 1996, a 3.3% Rate from 1993.
41
Supply. U.S. containerboard capacity totaled 31.1 million tons in 1993, for
a 2.9% Rate from 1983 to 1993. From 1983 to 1993, capacity utilization reached a
high of 97.8% in 1987 and a low of 90.3% in 1985. Approximately, 4.0 million
tons of new capacity was added between year-end 1988 and year-end 1993,
decreasing operating rates from 1987 levels.
Operating rates in the industry during 1991 and 1992, however, ran at high
levels relative to demand, which was lower due to the sluggish U.S. economy and
a decline in export markets. This imbalance resulted in excess inventories in
the industry and lower prices for the Company's containerboard and corrugated
shipping container products, which continued throughout most of 1993. To reduce
rising inventories, many containerboard producers, including the Company, took
downtime at containerboard mills which resulted in lowering operating rates to
93.7% for 1993. By the end of the third quarter of 1993, inventory levels had
decreased significantly.
According to the AFPA, producers plan to add only a modest 2.1 million tons
of containerboard capacity in 1994-1996. 1.4 million tons, or 70% of the added
capacity, will be recycled linerboard and corrugating medium. The following
graph reflects the historical relationship between containerboard capacity
utilization and linerboard prices, the predominant grade for containerboard
products.
[GRAPHIC REPRESENTATION of the relationship between the level of
containerboard capacity utilizaiton and linerboard prices from 1983 to 1993.
For each year during the period 1983-1993, annual containerboard capacity
utilization was 90.4%, 94.5%, 90.3%, 95.2%, 97.8%, 95.5%, 94.6%, 95.1%, 95.2%,
95.6% and 93.7%, respectively. For each year during this same period, unbleached
kraft lineboard prices per short ton (42 lb., Eastern Market) were $290, $335,
$274, $295, $361, $403, $405, $378, $336, $345 and $316, respectively (1983-1984
prices are as of December 31. 19985-1993 prices reflect the average of the four
quarter-ed prices). The source of the containerboard capacity utilization data
is the American Forest and Paper Association. The source of the linerboard
prices is the Pulp and Paper North American Factbook.]
Pricing. Pricing historically has been correlated with the levels of
industry capacity utilization. Over the past business cycle, containerboard
prices peaked in 1989. Linerboard peaked at approximately $410 per ton and
reached a low of $280-$290 per ton the second quarter of 1993, owing to
decreased demand and increased inventories. Over the past several months,
containerboard pricing has strengthened as demand has increased, inventories
have fallen, and corrugated box producers have been successful in increasing
prices to customers. For example, a $25 per ton increase for linerboard was
implemented in November 1993, raising prices to $315-$325 per ton, and most of
the major linerboard producers, including the Company, have announced a $30 per
ton increase effective March 1, 1994. Although there can be no assurance that
this price increase will be successfully implemented, management believes that
such price increase will hold.
42
Boxboard
Demand. Total boxboard production (including exports) grew to 8.8 million
tons in 1993 from 6.8 million tons in 1983, representing a 2.5% Rate.
Traditionally, recycled and SBS have been by far the largest segments of
boxboard production, representing 40% and 49%, respectively. During 1983 to
1993, recycled boxboard grew at a 2.0% Rate, SBS boxboard grew at a 1.0% Rate
and unbleached kraft, starting from a much smaller base, grew at a 5.2% Rate.
Like containerboard, boxboard demand tends to fluctuate with the general level
of economic activity. During the late 1980s, the use of clay coated recycled
boxboard as a substitute for SBS boxboard increased based on its improved
quality, heightened environmental awareness by consumers and increased demand by
customers for less expensive packaging alternatives. RISI projects both recycled
boxboard production and SBS production to increase at a 2.2% Rate from 1993 to
1996.
Supply. From 1983 to 1993 total boxboard capacity grew from 7.6 million
tons to 9.3 million tons, a 2.0% Rate. SBS folding boxboard grew at a 1.7% Rate,
reaching 2.5 million tons by 1993, while recycled folding boxboard grew to 3.0
million tons by 1993, a 1.1% Rate.
[GRAPHIC REPRESENTATION of the level of boxboard capacity utilization from
1983 to 1993. For each year during the period 1983-1993 , annual boxboard
capacity utilization was 89.9%, 92.9%, 87.5%, 89.5%, 90.2%, 92.2%, 92.8%, 90.7%,
93.5%, 92.6% and 94.8%, respectively. The source of this data is the American
Forest and Paper Association.]
According to the AFPA, 1.2 million tons of boxboard capacity will be added
between 1993-1996. Recycled boxboard accounts for 16% and SBS for 56% of
announced capacity additions.
Pricing. While general boxboard pricing levels are dependent on the overall
balance of supply and demand, relative pricing of different grades of boxboard
is affected by the substitutability of one grade for another in various customer
applications. For example, although the clay coated recycled demand and supply
situation is positive for the upcoming years, clay coated recycled prices are
influenced by SBS prices. During the late 1980s, SBS prices were substantially
higher than clay coated recycled prices. In recent years, SBS prices have
declined at a greater percentage than clay coated recycled, so that on a yield
basis, there is not currently a significant price differential between the two.
Future price growth in some grades of SBS may be tempered by recent and
projected capacity increases.
NEWSPRINT
General. Newsprint is an uncoated paper used in newspaper production.
Virgin newsprint is manufactured primarily from mechanical or groundwood pulps.
In recent years, the majority of U.S. state legislatures have enacted recycled
content laws requiring newspaper publishers to use newsprint
43
containing various percentages of recycled fiber. Although the bulk of North
American newsprint capacity is located in Canada, the majority of recycled
newsprint capacity is located in the U.S. because of the close proximity of
wastepaper collection sites.
Demand. According to the AFPA, the total U.S. newsprint production in 1993
remained flat, compared to 1992, with 7.08 million tons being produced. Canadian
production is estimated to have been 10.39 million tons in 1993, compared to
9.84 million tons in 1992. From 1983 to 1993, North American newsprint
production grew at a 1.6% Rate. Newsprint demand is dependent on the general
level of newspaper advertising. RISI estimates North American newsprint
shipments will remain flat through 1995.
According to the AFPA, North American production is also influenced by the
export levels to major newsprint consuming regions such as Western Europe and
Asia. In 1992, U.S. and Canadian producers increased export shipments 17% over
1991. 1993 witnessed a significant decline in North American exports due to
unfavorable currency exchange rates and new capacity in Europe and Asia.
Supply. According to the AFPA, North American newsprint capacity was 18.1
million tons in 1993, reflecting a 1.2% Rate since 1983. During the period from
year end 1989 to year end 1991, 1.26 million tons of U.S. newsprint capacity and
.95 million tons of Canadian newsprint capacity were added, severely depressing
utilization rates in the early 1990s. Capacity expansion in the newsprint
industry has been concentrated on recycling and, over the last three years,
eleven new deinking plants have been brought into operation with the capacity to
recycle 2.9 million tons of recovered paper.
Capacity utilization has been at relatively low levels during the early
1990s as a large growth in capacity has coincided with a decline in newsprint
demand, which has led to lower rates for North American mills overall. Capacity
utilization from 1983 to 1993 is shown in the table below:
[GRAPHIC REPRESENTATION of the level of newsprint capacity utilizsation in
the United States and Canada from 1983 to 1993. For eac year during the period
1983-1993, U.S. newsprint capacity utilization was 89.5%, 94.7%, 93.8%, 97.0%,
97.3% 97.8%, 96.7%, 97.3%, 97.0% and 98.0%, respectively. For each year during
this same period, Canadian newsprintc capacity utilization was 85.1%, 91.8%,
91.4%, 93.9% 97.7%, 98.9%, 96.2%, 89.8%, 87.3%, 88.6% and 95.7%, respectively.
The source of these figures is the American Forest and Paper Association.]
According to the AFPA, North American newsprint capacity will decline from
16.7 million metric tons in 1992 to 16.6 million metric tons in 1996. This
decline in capacity is expected because no new mills or machines are planned
during these years and capacity gains resulting from rebuilds of existing
machines and miscellaneous improvements will be offset by the reallocation of
capacity in several mills to produce groundwood and specialty papers rather than
newsprint. Several new recycled newsprint mills have been announced recently in
Western Europe, and such mills are expected to affect future exports by North
American producers.
44
Pricing. Newsprint is a commodity paper grade with pricing largely a
function of capacity utilization. West coast prices fell from a peak of
approximately $595 per metric ton (30-lb, delivered) in 1988 to a low of $420
per metric ton in the second quarter of 1992. In December, 1993 newsprint
producers, including the Company, announced price increases which were
unsuccessful. Although market demand has improved in the fourth quarter of 1993,
the Company does not expect significant improvement in prices before the second
quarter of 1994.
BUSINESS STRATEGY
The principal components of the Company's business strategy include the
following:
MAINTAIN FOCUS ON RECYCLED PRODUCTS
The Company believes it is the largest processor of wastepaper, the largest
producer of coated recycled paperboard, the largest producer of recycled medium
and one of the largest producers of recycled newsprint in the U.S. The Company
has historically utilized a significant amount of recycled fibre in its products
and has maintained a strategy to allow it to supply all of the Company's
recycled fibre needs for its paper producing operations. There are several
advantages to this strategy. First, the Company's national operations allow it
to minimize costs of transporting wastepaper to its mills. Second, recycled
fibre has a lower cost base than virgin fibre and wastepaper supplies are
increasing. Third, recycled products are gaining in popularity with customers as
a result of increased environmental awareness and improved quality, making them
more competitive with products made from virgin fibre. The following chart
indicates the significant percentage of recycled paperboard produced and
consumed, by the Company's operations.
1991 1992 1993
----- ----- -----
(TONS IN THOUSANDS)
Total paperboard produced by the Company............................. 2,852 2,963 2,875
Percent recycled................................................ 46.5% 46.1% 47.5%
Total paperboard consumed by the Company............................. 2,476 2,569 2,607
Percent recycled................................................ 34.5% 35.9% 32.3%
FOCUS ON COST REDUCTION
The Company continuously strives to reduce operating costs on a system-wide
basis through the implementation of cost reduction programs. In 1991, the
Company implemented an austerity program to offset the impact of declining
prices. This austerity program froze staff levels, deferred certain
discretionary spending programs and more aggressively managed capital
expenditures and working capital to conserve cash and reduce interest expense.
For example, as a result of the austerity program the Company's average working
capital as a percentage of annual sales has averaged 2.8% over the last two
years.
While the austerity program succeeded in reducing expenses and improving
cash flow, the length and extent of the recession led the Company in 1993, to
initiate the Plan and the Restructuring Program.
The Plan is a systematic Company-wide effort designed to improve the cost
competitiveness of all the Company's operating facilities and staff functions.
The Plan focuses on reducing costs and other measures, including:
Productivity improvements to reduce variable unit cost at production
facilities and to increase volume.
Identification of approximately $100 million of high return, quick payback
capital projects for which spending will be accelerated.
Reduction in fibre cost.
Reduction in cost of materials generated through a Company-wide council
which will negotiate large national purchasing activities.
45
Reductions in personnel cost through a Company-wide freeze on compensation
for salaried employees in 1994 and reductions in workforce.
Reduction in waste cost in the manufacturing process.
Increased focus on specialty niche businesses which are less commodity
oriented and carries pricing premiums.
The Company is implementing the Restructuring Program to improve the
Company's long-term competitive position. The Restructuring Program includes
plant closures, reductions in workforce, and the realignment and consolidation
of various manufacturing operations over an approximately two to three year
period. The Restructuring Program is expected to reduce production cost,
employee expense and depreciation charges. While future benefits of the
Restructuring Program are uncertain, the operating losses in 1993 for the plants
shut down in January 1994 and those contemplated in the future were $31 million.
While the Company believes that it would have realized financial benefits in
1993 had these plants been shut down at the beginning of the year, and that it
will realize such benefits in future periods, no assurances can be given in this
regard and, in particular, no assurances can be given as to what portion of such
loss would not have been realized in 1993 had such plants been shut down for the
entire year. The Company closed certain high cost operating facilities,
including a coated recycled boxboard mill and five converting plants, in January
1994.
CONTINUE TO PURSUE VERTICAL INTEGRATION
The Company's operations are vertically integrated in that the Company uses
significant amounts of timber harvested from its timberlands and wastepaper
provided by its reclamation operations in the manufacture of paperboard and
newsprint, and converts its production of paperboard into shipping containers,
folding cartons, papertubes and other products. The Company also exchanges a
significant amount of containerboard with other major companies in the industry.
These exchanges are generally used when shipment from the Company's mills would
not be freight cost efficient or when container plants require a certain grade
of containerboard not manufactured by the Company.
The Company's integration reduces the volatility of pricing for its
containerboard products, allows it to run its mills at higher operating rates
during industry downturns and protects the Company from potential regional
supply and demand imbalances for recycled fibre grades.
The following table illustrates the balance between the Company's
production and consumption levels for its core businesses for the last three
years.
1991 1992 1993
----- ----- -----
(TONS IN THOUSANDS)
Wastepaper
Collected by reclamation division................................................... 3,666 3,846 3,907
Consumed by paperboard and newsprint mills.......................................... 1,822 1,910 1,905
Containerboard
Produced by containerboard mills.................................................... 1,830 1,918 1,840
Consumed by containerboard plants................................................... 1,813 1,898 1,942
SBS and Recycled Boxboard
Produced by SBS and recycled boxboard mills......................................... 826 832 829
Consumed by folding carton plants................................................... 561 551 542
CONTINUE GROWTH IN CORE BUSINESSES
The Company has built its core businesses through selective acquisitions of
existing businesses and ongoing capital improvements.
Over the years, the Company's acquisition strategy has accomplished several
objectives, including (i) geographic expansion of its operations, (ii) growth of
its recycling capacity and expertise, (iii) expansion of its product lines in
order to satisfy most of the packaging needs of large national and multinational
customers, (iv) expansion of its operations into related products which can be
successfully
46
marketed to existing customers as well as into related products to which the
Company can apply its papermaking expertise, and (v) integration of its
operations. The Company intends to continue its current strategy by exploring
potential acquisitions and pursuing those which meet its business objectives.
MAINTAIN LEADING MARKET POSITIONS
The Company believes it is one of the most broadly based paperboard
packaging producers in the United States. The Company has achieved this status
through its selective acquisitions and its ongoing capital improvements program.
The Company believes it maintains significant U.S. market positions including
the following:
largest producer of recycled paperboard
largest producer of folding cartons
largest producer of coated recycled boxboard
largest processor of wastepaper
largest producer of mottled white linerboard
one of the largest producers of recycled newsprint
second largest producer of corrugated shipping containers
largest producer of recycled medium
fifth largest producer of containerboard
The Company believes that its size, as evidenced by its leading U.S. market
positions, provides certain advantages in marketing its products. The Company's
prominence in the U.S. packaging industry gives it excellent customer
visibility. The Company is well recognized by its customers as a quality
producer and has recently entered a select number of strategic alliances with
certain large, national account customers to supply packaging. In addition, the
Company's broad range of packaging products provides a single source option,
whereby all of the customers' packaging needs can be satisfied by the Company.
IMPROVE FINANCIAL PROFILE TO GROW CORE BUSINESSES
Since the 1989 recapitalization of JSC, the Company has pursued a strategy
designed to reduce its financial risk profile. During this period, the Company
has accessed various capital markets through several transactions, resulting in
improved financial flexibility.
In 1991, the Company completed a $230 million accounts receivable
securitization. Initial proceeds of $168 million were raised by an A1/D1+
commercial paper issue and a AA-medium term note issue. The proceeds were used
to retire debt, while the transaction increased the liquidity of the Company by
$180 million.
In 1992, the Company received cash equity capital from a subsidiary of JS
Group and MSLEF II (and certain of its limited partners who owned Junior Accrual
Debentures) of $33 million and $200 million, respectively, and in December 1993
a subsidiary of JS Group converted its $167 million of preferred stock into
common stock. The Company also negotiated a $400 million senior secured term
loan. The equity and loan proceeds were used to repurchase $193.5 million of the
Junior Accrual Debentures and to prepay a portion of certain subordinated
indebtedness and $400 million of the 1989 term loan. This transaction reduced
near term debt service requirements and also reduced annual interest expense by
$30 million.
In 1993, in order to improve operating and financial flexibility, CCA
issued $500 million aggregate principal amount of 1993 Notes, the proceeds of
which were used to repay $100 million of revolving credit indebtedness and an
aggregate of $387.5 million of term loan indebtedness under its existing credit
agreements. As a result of such refinancing, the Company successfully extended
maturities of its indebtedness and improved its liquidity.
47
The Company anticipates that the Recapitalization Plan will further improve
operating and financial flexibility by reducing the level and overall cost of
its debt, extending maturities of indebtedness, increasing stockholders' equity
and increasing its access to capital markets.
PRODUCTS
PAPERBOARD/PACKAGING PRODUCT SEGMENT
Containerboard and Corrugated Shipping Containers. The Company's
containerboard operations are highly integrated and the Company believes this
integration enhances its ability to respond quickly and efficiently to customers
and to fill orders on short lead times. Tons of containerboard produced and
converted for the last three years were:
1991 1992 1993
----- ----- -----
(TONS IN THOUSANDS)
Containerboard
Production................................................................ 1,830 1,918 1,840
Consumption............................................................... 1,813 1,898 1,942
The Company's mills produce a full line of containerboard, including
unbleached kraft linerboard, mottled white linerboard and recycled medium.
The Company believes it is the nation's largest producer of mottled white
linerboard, the largest producer of recycled medium and the fifth largest
producer of containerboard. Unbleached kraft linerboard is produced at the
Company's mills located in Fernandina Beach and Jacksonville, Florida and
mottled white linerboard is produced at its Brewton, Alabama mill. Recycled
medium is produced at the Company's mills located in Alton, Illinois, Carthage,
Indiana, Circleville, Ohio and Los Angeles, California. In 1993, the Company
produced 1,018,000, 315,000 and 507,000 tons of unbleached kraft linerboard,
mottled white linerboard and recycled medium, respectively.
Large capital investment is required to sustain the Company's
containerboard mills, which employ state of the art computer controlled
machinery in their manufacturing processes. During the last five years, the
Company has invested approximately $246 million to enhance product quality,
reduce costs, expand capacity and increase production efficiency, as well as
make required improvements to stay in compliance with environmental regulations.
Major capital projects completed in the last five years include (i) a rebuild of
Jacksonville's linerboard machine to produce high performance, lighter weight
grades now experiencing higher demand, (ii) modifications to Brewton's mottled
white machine to increase run speed by 100 tons per day and (iii) a project to
reduce sulfur emissions from the Fernandina Beach linerboard mill. A key
strategy for the next few years will be to reduce wood cost at its virgin fibre
mills by modifying methods of woodchip production and handling, utilizing random
length roundwood forms and continuing to pursue forest management practices
designed to enhance timberland productivity.
The Company's sales of containerboard in 1993 were $670.6 million
(including $384.1 million of intracompany sales). Sales of containerboard to its
52 container plants are reflected at prices based upon those published by
Official Board Markets which are generally higher than those paid by third
parties except in exchange contracts.
The Company believes it is the second largest producer of corrugated
shipping containers in the U.S. Corrugated shipping containers, manufactured
from containerboard in converting plants, are used to ship such diverse products
as home appliances, electric motors, small machinery, grocery products, produce,
books, tobacco and furniture, and for many other applications, including point
of purchase displays. The Company stresses the value added aspects of its
corrugated containers, such as labeling and multi-color graphics, to
differentiate its products and respond to customer requirements. The Company's
container plants serve local customers and large national accounts and are
located nationwide, generally in or near large metropolitan areas. The Company's
total sales of corrugated shipping containers in 1993 were $1,175.7 million
(including $81.1 million of intracompany sales).
48
Corrugated shipping container sales volumes for 1991, 1992 and 1993 were 25,178,
26,593 and 27,268 million square feet, respectively.
RECYCLED BOXBOARD, SBS AND FOLDING CARTONS
The Company's recycled boxboard, SBS and folding carton operations are also
well integrated. Tons of recycled boxboard and SBS produced and converted for
the last three years are provided below:
1991 1992 1993
---- ---- ----
(TONS IN THOUSANDS)
Recycled Boxboard and SBS
Production...................................................... 826 832 829
Consumption..................................................... 561 551 542
The Company's mills produce recycled coated and uncoated boxboard and SBS.
The Company believes it is the nation's largest producer of clay-coated
boxboard, made from 100 percent recycled fibre, which offers comparable quality
to virgin boxboard for most applications. The Company also believes that its
premium-priced SBS offers a high quality product for packaging applications.
Coated recycled boxboard is produced at the Company's mills located in
Middletown, Ohio, Philadelphia, Pennsylvania, Santa Clara, California and
Wabash, Indiana. The Company produces uncoated recycled boxboard at its Los
Angeles, California mill and SBS at its Brewton, Alabama mill. The Company
believes its coated recycled boxboard, known as MASTERCOAT'r', is recognized in
the industry for its high quality and extensive range of grades and calipers.
The Brewton machine produces four basic grades of SBS including MASTERPRINT'r',
which is ideally suited for converting into folding cartons and related end
uses, MASTERSEAL'r' and MASTERVAC'r', which are used for visual carded packaging
that facilitates merchandising at the point of sale, and MASTERWITE'r', which is
designed for intricately printed and die-cut greeting cards and other specialty
uses. In 1993, the Company produced 653,000 and 176,000 tons of recycled
boxboard and SBS, respectively. The Company's total sales of recycled boxboard
and SBS in 1993 were $409.7 million (including $197.2 million of intracompany
sales).
The Company believes it is the nation's largest producer of folding
cartons, offering the broadest range of converting capabilities, including web
and sheet litho, rotogravure and flexo printing and a full line of structural
and design graphics services. The Company's 18 folding carton plants convert
recycled boxboard and SBS, including approximately 49% of the boxboard and SBS
produced by the Company, into folding cartons. Folding cartons are used
primarily to protect customers' products while providing point of purchase
advertising. The Company makes folding cartons for a wide variety of
applications, including food and fast foods, detergents, paper products,
beverages, health and beauty aids and other consumer products. Customers range
from small local accounts to large national and multinational accounts. The
Company's folding carton plants are located nationwide, generally in or near
large metropolitan areas. The Company's sales of folding cartons in 1993 were
$648.2 million (including $2.2 million of intracompany sales). Folding carton
sales volumes for 1991, 1992 and 1993 were 482,000, 487,000 and 475,000 tons,
respectively.
The Company has focused its capital expenditures in these operations and
its marketing activities to support a strategy of enhancing product quality as
it relates to packaging graphics, increasing flexibility while reducing customer
response time and assisting customers in innovating package designs.
The Company provides marketing consultation and research activities, a key
competitive factor within the folding carton industry, through its Design and
Market Research (DMR) Laboratory. It provides customers with graphic and product
design tailored to the specific technical requirements of lithographic,
rotogravure and flexographic printing, as well as photography for packaging,
sales promotion concepts, and point of purchase displays.
49
RECYCLED CYLINDERBOARD AND INDUSTRIAL PACKAGING
The Company's recycled cylinderboard and industrial packaging operations
are also integrated. Tons of recycled cylinderboard produced and converted for
the last three years are shown in the table below:
1991 1992 1993
---- ---- ----
(TONS IN THOUSANDS)
Recycled Cylinderboard
Production.................................................................... 196 213 206
Consumption................................................................... 102 120 123
The Company's recycled cylinderboard mills are located in: Tacoma,
Washington, Monroe, Michigan (2 mills), Lafayette, Indiana, and Cedartown,
Georgia. In 1993, total sales of recycled cylinderboard were $61.8 million
(including $17.9 million of intracompany sales).
The Company's 16 industrial packaging plants convert recycled
cylinderboard, including a portion of the recycled cylinderboard produced by the
Company, into papertubes and cores. Papertubes and cores are used primarily for
paper, film and foil, yarn carriers and other textile products and furniture
components. The Company also produces solid fibre partitions for the
pharmaceutical, electronics, cosmetics and plastics industries. In addition, the
Company produces a patented self-locking partition especially suited for
automated packaging and product protection. The Company believes it is the
nation's third largest producer of tubes and cores. The Company's industrial
packaging sales in 1993 were $88.1 million (including $1.6 million in
intracompany sales).
CONSUMER PACKAGING
The Company manufactures a wide variety of consumer packaging products,
which are generally non-cyclical. These products include flexible packaging,
printed paper labels, foil labels, and labels that are heat transferred to
plastic containers for a wide range of industrial and consumer product
applications. The contract packaging plants provide cartoning, bagging, liquid-
or powder-filling, high-speed overwrapping and fragranced advertising products.
The Company produces high-quality rotogravure cylinders and has a full-service
organization highly experienced in the production of color separations and
lithographic film for the commercial printing, advertising and packaging
industries. The Company also designs, manufactures and sells custom machinery
including specialized machines that apply labels to customers' packaging. The
Company currently has 14 facilities including the engineering service center
referred to below and has improved their competitiveness by installing
state-of-the-art production equipment.
In addition, the Company has an engineering services center, specializing
in automated production systems and highly specialized machinery, providing
expert consultation, design and equipment fabrication for consumer and
industrial products manufacturers, primarily from the food, beverage and medical
products industries.
Total sales of consumer packaging products and services were $179.8 million
(including $15.1 million of intracompany sales).
RECLAMATION OPERATIONS; FIBRE RESOURCES AND TIMBER PRODUCTS
The raw materials essential to the Company's business are reclaimed fibre
from wastepaper and wood, in the form of logs or chips. The Brewton,
Circleville, Jacksonville and Fernandina mills use primarily wood fibres, while
the other paperboard mills use reclaimed fibre exclusively. The newsprint mills
use approximately 45% wood fibre and 55% reclaimed fibre.
The Company believes it is the nation's largest recycler of wastepaper. The
use of recycled products in the Company's operations begins with its reclamation
division which operates 26 facilities that collect, sort, grade and bale
wastepaper, as well as collect aluminum and glass. The reclamation division
provides valuable fibre resources to both the paperboard and newsprint segments
of the Company as well as to other producers. Many of the reclamation facilities
are located in close proximity to the Company's recycled paperboard and
newsprint mills, assuring availability of supply, when needed, with
50
minimal shipping costs. In 1993, the Company processed 3.9 million tons of
wastepaper, which the Company believes is approximately twice the amount of
wastepaper processed by its closest competitor. The amount of wastepaper
collected and the proportions sold internally and externally by the Company's
reclamation division for the last three years were:
1991 1992 1993
----- ----- -----
(TONS IN THOUSANDS)
Wastepaper collected by Reclamation Division......................... 3,666 3,846 3,907
Percent sold internally......................................... 49.7% 49.7% 48.8%
Percent sold to third parties................................... 50.3% 50.3% 51.2%
The reclamation division also operates a nationwide brokerage system
whereby it purchases and resells wastepaper (including wastepaper for use in its
recycled fibre mills) on a regional and national contract basis. Such contracts
provide bulk purchasing, resulting in lower prices and cleaner wastepaper. Total
sales of recycled materials for 1993 were $242.9 million (including $120.8
million of intracompany sales).
During 1993, the wastepaper which was reclaimed by the Company's
reclamation plants and brokerage operations satisfied all of the Company's mill
requirements for reclaimed fibre.
The Company's timber division manages approximately one million acres of
owned and leased timberland. In 1993, approximately 53% of the timber harvested
by the Company was used in its Jacksonville, Fernandina and Brewton Mills. The
Company harvested 808,000 cords of timber which would satisfy approximately 32%
of the Company's requirements for woodfibres. The Company's woodfibre
requirements not satisfied internally are purchased on the open market or under
long-term contracts. In the past, the Company has not experienced difficulty
obtaining an adequate supply of wood through its own operations or open market
purchases. The Company is not aware of any circumstances that would adversely
affect its ability to satisfy its wood requirements in the foreseeable future.
In recent years, a shortage of wood fibre in the spotted owl regions in the
Northwest has resulted in increases in the cost of virgin wood fibre. However,
the Company's use of reclaimed fibre in its newsprint mills has mitigated the
effect of this in significant part.
In 1993, the Company's total sales of timber products were $227.8 million
(including $185.1 million of intracompany sales).
NEWSPRINT SEGMENT
Newsprint Mills. The Company believes it is one of the largest producer of
recycled newsprint and the fourth largest producer overall of newsprint in the
United States. The Company's newsprint mills are located in Newberg and Oregon
City, Oregon. During 1991, 1992 and 1993, the Company produced 614,000, 615,000
and 615,000 tons of newsprint, respectively. In 1993, total sales of newsprint
were $219.5 million (none of which were intracompany sales).
For the past three years, an average of approximately 56% of the Company's
newsprint production has been sold to The Times Mirror Company ('Times Mirror')
pursuant to a long-term newsprint agreement (the 'Newsprint Agreement') entered
into in connection with the Company's acquisition of SNC stock in February 1986.
Under the terms of the Newsprint Agreement, the Company supplies newsprint to
Times Mirror generally at prevailing West Coast market prices. Sales of
newsprint to Times Mirror in 1993 amounted to $115.2 million.
Cladwood'r'. Cladwood'r' is a wood composite panel used by the housing
industry, manufactured from sawmill shavings and other wood residuals and
overlayed with recycled newsprint. The Company has two Cladwood'r' plants
located in Oregon. Total sales for Cladwood'r' in 1993 were $29.1 million ($.5
million of which were intracompany sales).
MARKETING
The marketing strategy for the Company's mills is to maximize sales of
products to manufacturers located within an economical shipping area. The
strategy in the converting plants focuses on both specialty products tailored to
fit customers' needs and high volume sales of commodity products. The
51
Company also seeks to broaden the customer base for each of its segments rather
than to concentrate on only a few accounts for each plant. These objectives have
led to decentralization of marketing efforts, such that each plant has its own
sales force, and many have product design engineers, who are in close contact
with customers to respond to their specific needs. National sales offices are
also maintained for customers who purchase through a centralized purchasing
office. National account business may be allocated to more than one plant
because of production capacity and equipment requirements.
COMPETITION
The paperboard and packaging products markets are highly competitive and
are comprised of many participants. Although no single company is dominant, the
Company does face significant competitors in each of its businesses. The
Company's competitors include large vertically integrated companies as well as
numerous smaller companies. The industries in which the Company competes are
particularly sensitive to price fluctuations as well as other competitive
factors including design, quality and service, with varying emphasis on these
factors depending on product line. The market for the Newsprint segment is also
highly competitive.
BACKLOG
Demand for the Company's major product lines is relatively constant
throughout the year and seasonal fluctuations in marketing, production,
shipments and inventories are not significant. The Company does not have a
significant backlog of orders, as most orders are placed for delivery within 30
days.
RESEARCH AND DEVELOPMENT
The Company's research and development center works with JSC's
manufacturing and sales operations, providing state-of-the-art technology, from
raw materials supply through finished packaging performance. Research programs
have provided improvements in coatings and barriers, stiffeners, inks and
printing. The technical staff conducts basic, applied and diagnostic research,
develops processes and products and provides a wide range of other technical
services.
The Company actively pursues applications for patents on new inventions and
designs and attempts to protect its patents against infringement. Nevertheless,
the Company believes that its success and growth are dependent on the quality of
its products and its relationships with its customers, rather than on the extent
of its patent protection. The Company holds or is licensed to use certain
patents, but does not consider that the successful continuation of any important
phase of its business is dependent upon such patents.
EMPLOYEES
At December 31, 1993, the Company had approximately 16,600 employees, of
which approximately 11,300 employees (68%), are represented by collective
bargaining units. The expiration date of union contracts for the Company's major
facilities are as follows: the Alton mill, expiring June 1994; the Newberg mill,
expiring March 1995; the Oregon City mill, expiring March 1997; the Brewton
mill, expiring October 1997; the Fernandina mill, expiring June 1998; a group of
12 properties, including 4 paper mills and 8 corrugated container plants,
expiring June 1998; and the Jacksonville mill, expiring June 1999. The Company
believes that its employee relations are generally good and is currently in the
process of bargaining with unions representing production employees at a number
of its other operations.
52
PROPERTIES
The Company's properties at December 31, 1993 are summarized in the table
below. The table reflects the previously mentioned closure in early 1994 of
three container plants, two folding carton plants and one recycled boxboard mill
but does not reflect the additional closures contemplated by the Restructuring.
Approximately 62% of the Company's investment in property, plant and equipment
is represented by its paperboard and newsprint mills.
NUMBER OF STATE
FACILITIES LOCATIONS
---------- ---------
Paperboard mills
Containerboard mills................................................................... 7 6
Boxboard mills......................................................................... 4 4
Cylinderboard mills.................................................................... 5 4
Newsprint mills............................................................................. 2 1
Reclamation plants.......................................................................... 26 12
Converting facilities
Container plants....................................................................... 52 22
Folding carton plants.................................................................. 18 10
Industrial packaging plants............................................................ 16 11
Consumer packaging plants................................................................... 14 9
Cladwood'r' plants.......................................................................... 2 1
Wood product plants......................................................................... 1 1
--
---
Total............................................................................. 147 28
--- --
--- --
In addition to its manufacturing facilities, the Company owns and leases
approximately 758,000 acres and 226,000 acres of timberland, respectively, and
also operates wood harvesting facilities.
LITIGATION
In May 1993, CCA received a notice of default on behalf of Otis B. Ingram,
as executor of the estate of Naomi M. Ingram, and Ingram-LeGrand Lumber Company
with respect to certain timber purchase agreements and timber management
agreements between CCA and such parties dated November 22, 1967 pertaining to
approximately 30,000 acres of property in Georgia (the 'Agreements'). In June
1993, CCA filed suit against such parties in the United States District Court,
Middle District of Georgia, seeking declaratory and injunctive relief and
damages in excess of $3 million arising out of the defendants' alleged breach
and anticipatory repudiation of the Agreements. The defendants have filed an
answer and counterclaim seeking damages in excess of $14 million based on
allegations that CCA breached the Agreements and failed to pay for timber
allegedly stolen or otherwise removed from the property by CCA or third parties.
The alleged thefts of timber are being investigated by the Georgia Bureau of
Investigation, which has advised CCA that it is not presently a target of this
investigation. CCA has filed a third-party complaint against Keadle Lumber
Enterprises, Inc. seeking indemnification with respect to such alleged thefts
and has filed a reply to the defendants' counterclaims denying the allegations
and any liability to the defendants. Management does not believe that the
outcome of this litigation will have a material adverse effect on the Company's
financial condition or operations.
The Company is a defendant in a number of other lawsuits that have arisen
in the normal course of business. While any litigation has an element of
uncertainty, the management of the Company believes that the outcome of such
suits will not have a material adverse effect on its financial condition or
operations.
ENVIRONMENTAL MATTERS
Federal, state and local environmental requirements, particularly relating
to air and water quality, are a significant factor in the Company's business.
The Company employs processes in the manufacture
53
of pulp, paperboard and other products, resulting in various discharges and
emissions that are subject to numerous federal, state and local environmental
control statutes, regulations and ordinances. The Company operates and expects
to operate under permits and similar authorizations from various governmental
authorities that regulate such discharges and emissions.
Occasional violations of permit terms have occurred from time to time at
the Company's facilities, resulting in administrative actions, legal proceedings
or consent decrees and similar arrangements. Pending proceedings include the
following:
In March 1992, JSC entered into an administrative consent order with
the Florida Department of Environmental Regulation to carry out any
necessary assessment and remediation of JSC-owned property in Duval County,
Florida that was formerly the site of a sawmill that dipped lumber into a
chemical solution. Assessment is on-going, but initial data indicates soil
and groundwater contamination that may require nonroutine remediation.
Management believes that the probable costs of this site, taken alone or
with potential costs at other Company-owned properties where some
contamination has been found, will not have a material adverse effect on
its financial condition or operations.
In February 1994, JSC executed a consent decree with the State of Ohio
in full satisfaction of all liability for alleged violations of applicable
standards for particulate and opacity emissions with respect to two
coal-fired boilers at its Lockland, Ohio recycled boxboard mill (which has
been permanently closed as part of the Company's restructuring program),
and will be required to pay $122,000 in penalties and enforcement costs
pursuant to such consent decree. The United States Environmental Protection
Agency has also issued a notice of violation with respect to such
emissions, but has informally advised JSC's counsel that no Federal
enforcement is likely to be commenced in light of the settlement with the
State of Ohio.
The Company also faces potential liability as a result of releases, or
threatened releases, of hazardous substances into the environment from various
sites owned and operated by third parties at which Company-generated wastes have
allegedly been deposited. Generators of hazardous substances sent to off-site
disposal locations at which environmental problems exist, as well as the owners
of those sites and certain other classes of persons (generally referred to as
'potentially responsible parties' or 'PRPs'), are, in most instances, subject to
joint and several liability for response costs for the investigation and
remediation of such sites under the Comprehensive Environmental Response,
Compensation and Liability Act ('CERCLA') and analogous state laws, regardless
of fault or the legality of the original disposal. The Company has received
notice that it is or may be a potentially responsible party at a number of
federal and/or state sites where remedial action may be required, and as a
result may have joint and several liability for cleanup costs at such sites.
However, liability of CERCLA sites is typically shared with the other
potentially responsible parties and costs are commonly allocated according to
relative amounts of waste deposited. Because the Company's relative percentage
of waste deposited at the majority of these sites is quite small, management of
the Company believes that its probable liability under CERCLA, taken on a case
by case basis or in the aggregate, will not have a material adverse effect on
its financial condition or operations. Pending CERCLA proceedings include the
following:
In January 1990, CCA filed a motion for leave to intervene and for
modification of the consent decree in United States v. General Refuse
Services, a case pending in the United States District Court for the
Southern District of Ohio. CCA contends that it should be allowed to
participate in the proposed consent decree, which provides for remediation
of alleged releases or threatened releases of hazardous substances at a
site in Miami County, near Troy, Ohio, according to a plan approved by the
United States Environmental Protection Agency, Region V (the 'Agency'). The
Court granted CCA's motion to intervene in this litigation, but denied
CCA's motion for an order denying entry of the consent decree.
Consequently, the consent decree has been entered without CCA's being
included as a party to the decree, meaning that CCA may have some exposure
to potential claims for contribution to remediation costs incurred by other
participants and for non-reimbursed response costs incurred by the Agency,
which costs are reported by the Agency as $3.4 million as of February 1994.
CCA's appeal of the Court's decision to the Sixth Circuit Court of Appeals
is pending.
54
In December 1991, the United States filed a civil action against CCA
in United States District Court, Southern District of Ohio, to recover its
unreimbursed costs at the Miami County site, and CCA subsequently filed a
third-party complaint against certain entities that had joined the original
consent decree. In October 1993, the United States filed an additional suit
against CCA in the same court seeking injunctive relief and damages up to
$25,000 per day from March 27, 1989 to the present, based on CCA's alleged
failure to properly respond to the Agency's document and information
requests in connection with this site. In July 1993, counsel for CCA was
advised by the Office of the United States Attorney, Northern District of
Illinois that a criminal inquiry is also underway relating to CCA's
responses to the Agency's document and information requests. CCA is
investigating the circumstances regarding its responses, and is pursuing
settlement with respect to all matters relating to the Miami County site.
CCA has paid approximately $768,000 pursuant to two partial consent
decrees entered into in 1990 and 1991 with respect to clean-up obligations
at the Operating Industries site in Monterey Park, California. It is
anticipated that there will be further remedial measures beyond those
covered by these partial settlements.
In addition to other Federal and State laws regarding hazardous substance
contamination at sites owned or operated by the Company, the New Jersey
Industrial Site Recovery Act ('ISRA') requires that a 'Negative Declaration' or
a 'Cleanup Plan' be filed and approved by the New Jersey Department of
Environmental Protection and Energy ('DEPE') as a precondition to the 'transfer'
of an 'industrial establishment'. The ISRA regulations provide that a transferor
may close a transaction prior to the DEPE's approval of a negative declaration
if the transferor enters into an administrative consent order with the DEPE. The
Company is currently a signatory to administrative consent orders with respect
to two formerly leased or owned industrial establishments and has recently
closed a facility and applied for a negative declaration with respect thereto.
Management believes that any requirements that may be imposed by the DEPE with
respect to these sites will not have a materially adverse effect on the
financial condition or operations of the Company.
The Company's paperboard and newsprint mills are large consumers of energy,
using either natural gas or coal. Approximately 67% of the Company's total
paperboard tonnage is produced by mills which have coal-fired boilers. The cost
of energy is dependent, in part, on environmental regulations concerning sulfur
dioxide and particulate emissions.
Because various pollution control standards are subject to change, it is
not possible at this time to predict the amount of capital expenditures that
will ultimately be required to comply with future standards. For the past three
years, the Company has spent an average of approximately $10 million annually on
capital expenditures for environmental purposes. Further sums may be required in
the future, although, in the opinion of management, such expenditures will not
have a material effect on its financial condition or operations. The amount
budgeted for such expenditures for fiscal 1994 is approximately $10 million.
Since the Company's competitors are subject to comparable pollution control
standards, management is of the opinion that compliance with future pollution
standards will not adversely affect the Company's competitive position.
55
MANAGEMENT
DIRECTORS
The following table sets forth the names and ages of the directors of the
Company.
NAME AGE
- --------------------------------- ---
Michael W.J. Smurfit............. 57
Howard E. Kilroy................. 58
James E. Terrill................. 60
Donald P. Brennan................ 53
Alan E. Goldberg................. 39
David R. Ramsay.................. 30
Following completion of the Offerings and pursuant to the Stockholders
Agreement (as described below), the Company intends to expand its Board of
Directors to include two additional directors, one of whom will be designated
by, but not affiliated with, SIBV and, one of whom will be designated by, but
not affiliated with, MSLEF II.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the executive officers
of the Company, JSC and CCA and the positions they will hold as of immediately
prior to the consummation of the Offerings.
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------------
Michael W.J. Smurfit............. 57 Chairman of the Board and Director
James E. Terrill................. 60 President, Chief Executive Officer and Director
Howard E. Kilroy................. 58 Senior Vice President and Director
Richard W. Graham................ 59 Senior Vice President and General Manager -- Folding Carton
and Boxboard Mill Division
C. Larry Bradford................ 57 Vice President -- Sales and Marketing
Raymond G. Duffy................. 52 Vice President -- Planning
Michael C. Farrar................ 53 Vice President -- Environmental and Governmental Affairs
John R. Funke.................... 52 Vice President and Chief Financial Officer
Richard J. Golden................ 52 Vice President -- Purchasing
Michael F. Harrington............ 53 Vice President -- Personnel and Human Resources
Alan W. Larson................... 55 Vice President and General Manager -- Consumer Packaging
Division
Edward F. McCallum............... 59 Vice President and General Manager -- Container Division
Lyle L. Meyer.................... 57 Vice President
Patrick J. Moore................. 39 Vice President and Treasurer
David C. Stevens................. 59 Vice President and General Manager -- Smurfit Recycling
Company
Truman L. Sturdevant............. 59 President of SNC
Michael E. Tierney............... 45 Vice President and General Counsel and Secretary
Richard K. Volland............... 55 Vice President -- Physical Distribution
William N. Wandmacher............ 51 Vice President and General Manager -- Containerboard Mill
Division
Gary L. West..................... 51 Vice President and General Manager -- Industrial Packaging
Division
BIOGRAPHIES
C. Larry Bradford has been Vice President -- Sales and Marketing since
January 1993. He served as Vice President and General Manager -- Container
Division from February 1991 until October 1992. Prior to that time, he was Vice
President and General Manager of the Folding Carton and Boxboard Mill Division
from January 1983 to February 1991.
56
Donald P. Brennan joined MS&Co. in 1982 and has been a Managing Director
since 1984. He is responsible for MS&Co.'s Merchant Banking Division and is
Chairman and President of MSLEF II, Inc. and Chairman of Morgan Stanley Capital
Partners III, Inc. ('MSCP III, Inc.'). Mr. Brennan serves as Director of
Agricultural Minerals and Chemicals Inc., Agricultural Minerals Company, L.P.,
A/S Bulkhandling, Beaumont Methanol Corporation, BMC Holdings Inc., Coltec
Industries Inc, Fort Howard Corporation, Hamilton Services Limited, PSF Finance
Holdings, Inc., Shuttleway, and Stanklav Holdings, Inc. Mr. Brennan is also
Deputy Chairman and Director of Waterford Wedgwood plc.
Raymond G. Duffy has been Vice President -- Planning since July 1983 and
served as Director of Corporate Planning from 1980 to 1983.
Michael C. Farrar was appointed Vice President-Environmental and
Governmental Affairs in March 1992. Prior to joining JSC, he was Vice President
of the American Paper Institute and the National Forest Products Association for
more than 5 years.
John R. Funke has been Vice President and Chief Financial Officer since
April 1989 and was Corporate Controller and Secretary from 1982 to April 1989.
Richard J. Golden has been Vice President -- Purchasing since January 1985
and was Director of Corporate Purchasing from October 1981 to January 1985. In
January 1994, he was assigned responsibility for world-wide purchasing for JS
Group.
Alan E. Goldberg has been a member of MS&Co.'s Merchant Banking Division
since its formation in 1985 and a Managing Director of MS&Co. since 1988. Mr.
Goldberg is a member of the Finance Committee of MS&Co. Mr. Goldberg is Chairman
and President of Morgan Stanley Leveraged Equity Fund I, Inc., a Delaware
corporation, is a Vice President and a Director of MSLEF II, Inc. and is a Vice
Chairman and a Director of MSCP III, Inc. Mr. Goldberg also serves as Director
of Agricultural Minerals and Chemicals Inc., AMC Holdings Inc., Amerin
Corporation, Amerin Guaranty Corporation, Beaumont Methanol Corporation and BMC
Holdings Inc.
Richard W. Graham was appointed Senior Vice President and General
Manager -- Folding Carton and Boxboard Mill Division in February 1994. He served
as Vice President and General Manager -- Folding Carton and Boxboard Mill
Division from February 1991 to January 1994. Mr. Graham was Vice President and
General Manager -- Folding Carton Division from October 1986 to February 1991.
Mr. Graham joined CCA in 1959 and has served in various management positions,
becoming Group Vice President of Administration for CCA in 1984.
Michael F. Harrington was appointed Vice President-Personnel and Human
Resources in January 1992. Prior to joining JSC, he was Corporate Director of
Labor Relations/Safety and Health with Boise Cascade Corporation for more than 5
years.
Howard E. Kilroy has been Chief Operations Director of JS Group since 1978
and President of JS Group since October 1986. Mr. Kilroy was a member of the
Supervisory Board of SIBV from January 1978 to January 1992. He has been a
Director of JSC since 1979 and Senior Vice President for over 5 years. In
addition, he is Governor (Chairman) of Bank of Ireland and a Director of Aran
Energy plc.
Alan W. Larson has been Vice President and General Manager -- Consumer
Packaging Division since October 1988. Prior to joining JSC in 1988, he was
Executive Vice President of The Black and Decker Corporation.
Edward F. McCallum has been Vice President and General Manager -- Container
Division since October 1992. He served as Vice President and General Manager of
the Industrial Packaging Division from January 1991 to October 1992. Prior to
that time, he served in various positions in the Container Division since
joining JSC in 1971.
Lyle L. Meyer has been Vice President since April 1989. He has also been
President of Smurfit Pension and Insurance Services Company since 1982.
Patrick J. Moore has been Vice President and Treasurer since February 1993.
He was Treasurer from October 1990 to February 1993. Prior to joining JSC in
1987 as Assistant Treasurer, Mr. Moore was with Continental Bank in Chicago
where he served in various corporate lending, international banking and
administrative capacities.
57
David R. Ramsay is a Vice President of MS&Co.'s Merchant Banking Division
where he has worked since his graduation from business school in 1989. Mr.
Ramsay also serves as a Director of Agricultural Minerals and Chemicals Inc. and
Stanklav Holdings, Inc. and is President and a Director of PSF Finance Holdings,
Inc.
Michael W.J. Smurfit has been Chairman and Chief Executive Officer of JS
Group since 1977. Dr. Smurfit has been a Director of JSC since 1979 and Chairman
of the Board since September 1983. He was Chief Executive Officer from September
1983 to July 1990.
David C. Stevens has been Vice President and General Manager -- Smurfit
Recycling Company since January 1993. He joined JSC in 1987 as General Sales
Manager and was named Vice President later that year. He held various management
positions with International Paper and was President of Mead Container Division
prior to joining JSC.
Truman L. Sturdevant has been President of SNC since February 1993. He was
Vice President and General Manager of SNC from August 1990 to February 1993. Mr.
Sturdevant joined the Company in 1984 as Vice President and General Manager of
the Oregon City newsprint mill.
James E. Terrill was named a Director and President and Chief Executive
Officer in February 1994. He served as Executive Vice President -- Operations
from August 1990 to February 1994. He also served as Executive Vice President of
SNC from February 1993 to February 1994. He was President of SNC from February
1986 to February 1993. He served as Vice President and General Manager --
Industrial Packaging Division of JSC from 1979 to February 1986.
Michael E. Tierney has been Vice President and General Counsel and
Secretary since January 1993. He served as Senior Counsel and Assistant
Secretary since joining JSC in 1987.
Richard K. Volland has been Vice President -- Physical Distribution since
1978.
William N. Wandmacher has been Vice President and General
Manager -- Containerboard Mill Division since January 1993. He served as
Division Vice President -- Medium Mills from October 1986 to January 1993. Since
joining the Company in 1966, he has held increasingly responsible positions in
production, plant management and planning, both domestic and foreign.
Gary L. West has been Vice President and General Manager -- Industrial
Packaging Division since October 1992. He served as Vice President -- Converting
and Marketing for the Industrial Packaging Division from January 1991 to October
1992. Prior to that time, he held various management positions in the Container
and Consumer Packaging divisions since joining JSC in 1980.
PROVISIONS OF STOCKHOLDERS AGREEMENT PERTAINING TO MANAGEMENT
The Stockholders Agreement provides that SIBV and the MSLEF II Group shall
vote their shares of Common Stock to elect as directors of the Company (a) four
individuals selected by SIBV (each, an 'SIBV Nominee') one of whom shall be the
Chief Executive Officer and one of whom shall not be affiliated with SIBV, the
Company, JSC or CCA (an 'SIBV Unaffiliated Director') and (b) four individuals
selected by MSLEF II (each, a 'MSLEF II Nominee'), one of whom shall not be
affiliated with MSLEF II, the Company, JSC or CCA (a 'MSLEF II Unaffiliated
Director'), if (i) the MSLEF II Group owns collectively more than 10% of the
outstanding Common Stock or SIBV owns less than 25% of the outstanding Common
Stock and the MSLEF II Group shall not have received the Initial Return (as
defined below) or (ii) the MSLEF II Group owns 30% or more of the outstanding
Common Stock or the MSLEF II Group owns a greater number of voting shares than
SIBV and the MSLEF II Group shall have collectively received the Initial Return;
provided, however, that in the event that the MSLEF II Group owns 10% or more
and less than 30% of the outstanding Common Stock and has received the Initial
Return, then SIBV shall not be required to have one of its nominees be an SIBV
Unaffiliated Director and MSLEF II shall nominate a total of (a) two MSLEF II
Unaffiliated Directors if the MSLEF II Group owns 20% or more but less than 30%
of the outstanding Common Stock and (b) three MSLEF II Unaffiliated Directors if
the MSLEF II Group owns 10% or more but less than 20% of the Common Stock;
provided, further, that in the event that the MSLEF II Group owns 6% or more but
less than 10% of the outstanding Common Stock and has received the Initial
Return, then SIBV shall nominate four SIBV Nominees, MSLEF II shall nominate one
MSLEF II Nominee and the
58
Company's Board of Directors shall nominate three persons to the Board of
Directors, two of whom shall be SIBV Unaffiliated Directors and one of whom
shall be the Chief Executive Officer. The Stockholders Agreement defines
'Initial Return' to mean the receipt, as dividends or as a result of sales of
shares of Common Stock, of $400 million in cash or certain other property (or a
combination thereof) collectively by members of the MSLEF II Group. Calculations
made for purposes of the foregoing shall not give effect to shares of Common
Stock purchased after the date of the closing of the Offerings.
Pursuant to the terms of the Stockholders Agreement, SIBV and MSLEF II will
each be entitled to designate four nominees to the Company's Board of Directors
upon the consummation of the Recapitalization Plan (excluding the Subordinated
Debt Refinancing). Such designees include, in the case of SIBV, Michael W. J.
Smurfit, Howard E. Kilroy and James E. Terrill and, in the case of MSLEF II,
Donald P. Brennan, Alan E. Goldberg and David R. Ramsay. The MSLEF II
Unaffiliated Director and the SIBV Unaffiliated Director will be named following
completion of the Offerings. See ' -- Directors'.
Pursuant to the Stockholders Agreement, the Board of Directors of the
Company shall have all powers and duties and the full discretion to manage and
conduct the business and affairs of the Company as may be conferred or imposed
upon a board of directors pursuant to Section 141 of the Delaware General
Corporation Law. Provided that the MSLEF II Group's ownership of Common Stock
shall be more than 30%, or more than 10% if members of the MSLEF II Group have
not received the Initial Return, approval of certain specified actions shall
require approval of (a) the sum of one and a majority of the entire Board of
Directors (the 'Required Majority') present at a meeting of the Board of
Directors and (b) two directors who are SIBV Nominees and two directors who are
MSLEF II Nominees. Without limiting the foregoing, if the MSLEF II Group owns 6%
or more but less than 10% of the Common Stock during any period when the
Company's Board of Directors does not consist of eight members (or such greater
number of members as may be agreed to by SIBV, MSLEF II and the Company) then
all actions of the Board of Directors shall require approval of at least one
director who is a SIBV Nominee and one director who is a MSLEF II Nominee. The
specified corporate actions that must be approved by a Required Majority include
the amendment of the certificate of incorporation or by-laws of the Company or
any of its subsidiaries; the issuance, sale, purchase or redemption of
securities of the Company or any of its subsidiaries; the establishment of and
appointments to the Audit Committee of the Company's Board of Directors; certain
sales of assets or investments in, or certain transactions with, JS Group or its
affiliates in excess of a specified amount or any other person in excess of
other specified amounts; certain mergers, consolidations, dissolutions or
liquidations of the Company or any of its subsidiaries; the filing of a petition
in bankruptcy; the setting aside or making of any payment or distribution by way
of dividend or otherwise to the stockholders of the Company or any of its
subsidiaries; the incurrence of new indebtedness, the creation of liens or
guarantees, the institution, termination or settlement of material litigation,
the surrender of property or rights, making certain investments, commitments,
capital expenditures or donations, in each case in excess of certain specified
amounts; entering into any lease (other than a capitalized lease) of any assets
of the Company located in any one place having a book value in excess of a
specified amount; the entering into any agreement or material transaction
between the Company and a director or officer of the Company, JSC, JS Group,
CCA, SIBV or MSLEF II or their affiliates; the replacement of the independent
accountants for the Company or any of its subsidiaries or modification of
significant accounting methods; the amendment or termination of the Company's
1992 Stock Option Plan; the election or removal of directors and officers of
each of JSC and CCA; and any decision regarding registration, except as provided
in the Registration Rights Agreement.
COMMITTEES
Following consummation of the Offerings, there will be four committees of
the Board of Directors: the Executive Committee (comprised of
), the Compensation Committee (comprised of
), the Audit Committee (comprised of )
and the Appointment Committee (comprised of ), which
committee shall, among other things, select, replace or remove the Company's
officers. The Stockholders Agreement provides that SIBV and MSLEF II will use
their best efforts to cause their respective designees on the Company's Board of
Directors, subject to their fiduciary duties, to (i) insure that MSLEF II
Nominees constitute a majority
59
of the members on the Compensation Committee and any other committees which
administer any option or incentive plan of the Company and (ii) subject to
certain limitations (including limitations based on the percentage stock
ownership of the MSLEF II Group and/or SIBV), insure that (a) SIBV Nominees
constitute a majority of the members, and a MSLEF II Nominee is a member, of the
Appointment Committee and (b) nominees of the SIBV Nominees for officers of the
Company (other than Chief Financial Officer), and a nominee of the MSLEF II
Nominee for Chief Financial Officer, are appointed or elected to such positions,
whether by the Appointment Committee or the Board of Directors. In addition,
SIBV and MSLEF II shall use their best efforts to cause their respective
designees on the Company's Board of Directors, subject to their fiduciary
duties, to cause the officers of the Company to be the respective officers of
each of JSC and CCA, unless SIBV and MSLEF II otherwise agree.
DIRECTOR COMPENSATION
Prior to the completion of the Offerings, no directors of the Company
received any fees for their services as directors; however, the directors were
reimbursed for their travel expenses in connection with their attendance at
board meetings. Following the completion of the Offerings, the Company intends
to reimburse all its directors for their travel expenses in connection with
their attendance at board meetings and to pay all its directors who are not
Company officers an annual fee of $35,000 plus $2,000 for attendance at each
meeting which is in excess of four meetings per year.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company (the 'Named Executive Officers') during 1993.
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION($)
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) (a)(b)(c)
- ---------------------------------------- ---- -------- -------- --------------- ------------ ---------------
Michael W.J. Smurfit, Chairman of the
Board................................. 1993 $832,369 $ 0 $30,000 0 $16,775
1992 793,273 526,605 0 102,600 15,764
1991 705,033 0 0 0 14,042
James E. Terrill, President and Chief
Executive Officer, formerly Executive
Vice President -- Operations(d)....... 1993 440,000 0 17,318 0 19,545
1992 367,500 243,477 944 18,100 16,346
1991 326,667 0 555 0 18,554
Alan W. Larson, Vice President and
General Manager -- Consumer Packaging
Division.............................. 1993 292,600 121,558 0 0 8,068
1992 280,000 121,238 1,881 4,500 7,658
1991 236,133 95,634 2,054 0 3,500
C. Larry Bradford, Vice
President -- Sales and Marketing...... 1993 369,000 0 18,209 0 15,085
1992 353,000 3,644 1,361 12,100 13,658
1991 299,600 23,370 2,408 0 3,500
James B. Malloy, former President, Chief
Executive Officer and Chief Operating
Officer(d)............................ 1993 992,000 0 24,208 0 15,561
1992 945,000 626,082 14,542 72,400 16,755
1991 840,000 0 13,991 0 14,873
(a) 1993 totals consist of a $3,500 Company contribution to the Company's
Savings Plan (the 'Savings Plan') for each Named Executive Officer (other
than Dr. Smurfit) and Company-paid split-dollar term life insurance
premiums for Dr. Smurfit ($16,775) and Messrs. Malloy ($12,061), Terrill
($16,045), Larson ($4,568) and Bradford ($11,585). Mr. Malloy also had
reportable (above 120% of the applicable federal long-term rate) earnings
equal to $6,341 credited to his account under the Company's Deferred
Compensation Capital Enhancement Plan (the 'Deferred Compensation Plan').
(b) 1992 totals consist of a $3,500 Company contribution to the Savings Plan
for each Named Executive Officer (other than Dr. Smurfit) and Company-paid
split-dollar term life insurance premiums for Dr. Smurfit ($15,764) and
Messrs. Malloy ($13,255), Terrill ($12,846), Larson ($4,158) and Bradford
($10,158). Mr. Malloy also had reportable earnings of $6,539 credited to
his account under the Deferred Compensation Plan.
(c) 1991 totals consist of a $3,500 Company contribution to the Savings Plan
for each Named Executive Officer (other than Dr. Smurfit) and Company-paid
split-dollar term life insurance premiums for Dr. Smurfit ($14,042) and
Messrs. Malloy ($11,373),
(footnotes continued on next page)
60
(footnotes continued from previous page)
Terrill ($10,493), Larson ($3,665) and Bradford ($8,081). Mr. Malloy also
had reportable earnings of $6,036 credited to his account under the
Deferred Compensation Plan. Mr. Terrill received a moving allowance of
$4,561.
(d) As of February 1, 1994, James B. Malloy retired as President, Chief
Executive Officer and Chief Operating Officer, and James E. Terrill
succeeded to Mr. Malloy's positions as President and Chief Executive
Officer. Previously, Mr. Terrill was the Executive Vice
President -- Operations.
Prior to consummation of the Offerings, the Company intends to pay
aggregate cash bonuses of $7.62 million to a number of its and its affilates'
officers, including approximately $1,964,000, $347,000, $87,000, $231,000 and
$1,386,000 to Messrs. Smurfit, Terrill, Larson, Bradford and Malloy,
respectively, and $1.77 million to officers of JS Group and its affiliates
(other than Michael W.J. Smurfit). In addition, the Company paid approximately
$2.9 million of bonuses to other employees of the Company in 1992.
1994 LONG-TERM INCENTIVE PLAN
Prior to consummation of the Equity Offerings, JSC intends to adopt the
Jefferson Smurfit Corporation (U.S.) 1994 Long-Term Incentive Plan (the
'Incentive Plan'). Pursuant to the Plan, participants will be granted awards,
payable in cash on June 30, 1997 (the 'Payment Date') (or earlier in the event
of death or disability) if and to the extent vested. A participant's award will
vest on the Payment Date if he is still employed by JSC or any of its
subsidiaries at such time; provided that such award shall vest in full if the
participant dies or becomes disabled and shall vest 20% on June 30, 1995, and an
additional 20% on June 30, 1996 if the participant is employed on such date and
is thereafter terminated, prior to June 30, 1997, by the Company without cause.
Notwithstanding the foregoing, no amounts shall be paid under the Incentive Plan
unless the Equity Offerings are consummated. The aggregate amount of awards
under the Incentive Plan will not exceed $5 million. The awards expected to be
granted to Messrs. Terrill, Larson and Bradford are $1,000,000, $200,000 and
$75,000, respectively.
1992 STOCK OPTION PLAN
OPTION PLAN
Under the Company's 1992 Stock Option Plan, the Named Executive Officers
and certain other eligible employees have been granted options to purchase
shares of stock of the Company. The options become vested over a ten year period
and vest in their entirety upon the death, disability or retirement of the
optionee. Non-vested options are forfeited upon any other termination of
employment. Options may not be exercised unless they are both exercisable and
vested. Upon the earliest to occur of (i) MSLEF II's transfer of all of its
Common Stock or, if MSLEF II distributes its Common Stock to its partners
pursuant to its dissolution, the transfer by such partners of at least 50% of
the aggregate Common Stock received from MSLEF II pursuant to its dissolution,
(ii) the 11th anniversary of the grant date of the options, and (iii) a public
offering of common stock (including the Equity Offerings), all vested options
shall become exercisable and all options which vest subsequently shall become
exercisable upon vesting; provided, however, that if a public offering occurs
prior to the Threshold Date (defined below) all vested options and all options
which vest subsequent to the public offering but prior to the Threshold Date
shall be exercisable in an amount (as of periodic determination dates) equal to
the product of (a) the number of shares of Common Stock vested pursuant to the
option (whether previously exercised or not) and (b) the Morgan Percentage (as
defined below) as of such date; provided further that in any event a holder's
options shall become exercisable from time to time in an amount equal to the
percentage that the number of shares sold or distributed to its partners by
MSLEF II represents of its aggregate ownership of shares (with vested options
becoming exercisable up to such number before any non-vested options become so
exercisable) less the number of options, if any, which have become exercisable
on January 1, 1995 as set forth below. The Threshold Date is the earlier of (x)
the date the members of the MSLEF II Group (as defined below) shall have
received collectively $200,000,000 in cash and/or other property as a return of
their investment in the Company (as a result of sales of shares of the Company's
common equity) and (y) the date that the members of the MSLEF II Group shall
have transferred an aggregate of at least 30% of the Company's common equity
owned by the MSLEF II Group as of August 26, 1992. The Morgan Percentage as of
any date is the percentage determined from the quotient of (a) the number of
shares of the Company's common equity held as of August 26, 1992, that were
transferred by the MSLEF II Group as of the determination date
61
and (b) the number of shares of the Company's common equity outstanding as of
such date. The Plan Committee, with the consent of the Board of Directors of the
Company, may accelerate the exercisability of options at such times and
circumstances as it deems appropriate in its discretion. The option exercise
price is not adjustable other than pursuant to an antidilution provision. Ten
percent of stock options granted prior to 1993 vest and become exercisable on
January 1, 1995 so long as the Equity Offerings have been consummated. The
foregoing describes the current terms of the 1992 Stock Option Plan, as intended
to be amended prior to the consummation of the Equity Offerings.
OPTION GRANTS
No option grants were made during 1993 to any Named Executive Officers.
Effective as of February 15, 1994 options with an exercise price of $20 per
share were granted to a number of officers and employees including Messrs.
Terrill and Larson who were granted options for 319,000, and 5,000 shares,
respectively (such dollar amount and numbers have been adjusted to reflect the
ten-for-one stock split). Such options vest over the period ending on December
31, 1999.
62
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table summarizes the exercise of options by the Named
Executive Officers during 1993 and the value of options held by such officers as
of the end of 1993. No stock appreciation rights have been granted to any Named
Executive Officers. The table gives effect to the ten-for-one stock split
provided for by the Recapitalization Plan, but does not give effect to options
granted in 1994. In addition, options to purchase 755,000 shares (as adjusted
for the ten-to-one stock split) have been granted to officers and employees of
JS Group and its affiliates (other than Michael W.J. Smurfit).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUE
----------------------------------------------------------------------------------
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES UNDERLYING OPTIONS AT
UNEXERCISED DECEMBER 31,
SHARES OPTIONS AT DECEMBER 31, 1993 1993
ACQUIRED ON VALUE ---------------------------------- --------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($)
- ----------------------------- ----------- ----------- -------------- ---------------- --------------
Michael W. J. Smurfit........ 0 N/A 0 1,026,000 0
James E. Terrill............. 0 N/A 0 181,000 0
Alan W. Larson............... 0 N/A 0 45,000 0
C. Larry Bradford............ 0 N/A 0 121,000 0
James B. Malloy.............. 0 N/A 0 724,000 $0
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS AT
DECEMBER 31,
1993
----------------
NAME UNEXERCISABLE($)
- ----------------------------- ----------------
Michael W. J. Smurfit........ 0
James E. Terrill............. 0
Alan W. Larson............... 0
C. Larry Bradford............ 0
James B. Malloy.............. $0
PENSION PLANS
SALARIED EMPLOYEES' PENSION PLAN AND SUPPLEMENTAL INCOME PENSION PLANS
The Company and its subsidiaries maintain a non-contributory pension plan
for salaried employees (the 'Pension Plan') and non-contributory supplemental
income pension plans (the 'SIP Plans') for certain key executive officers. The
Pension Plan provides monthly benefits at age 65 equal to 1.5% of a
participant's final average earnings minus 1.2% of such participant's primary
social security benefit, multiplied by the number of years of credited service.
Final average earnings equals the average of the highest five consecutive years
of the participant's last 10 years of service, including overtime and certain
bonuses, but excluding bonus payments under the Management Incentive Plan,
deferred or acquisition bonuses, fringe benefits and certain other compensation.
Employees' pension rights vest after five years of service. Benefits are also
available under the Pension Plan upon early or deferred retirement. The pension
benefits for the Named Executive Officers can be calculated pursuant to the
following table, which shows the total estimated single life annuity payments
that would be payable to the Named Executive Officers participating in the
Pension Plan and one of the SIP Plans after various years of service at selected
compensation levels. A limit of 20 and 22.5 years of service can be credited for
SIP I and SIP II, respectively. Payments under the SIP Plans are an unsecured
liability of the Company.
In order to participate in the SIP Plans, an executive must be selected by
the Board of Directors. SIP Plan I provides annual benefits at normal retirement
age (65) equal to 2.5% of a participant's final average earnings multiplied by
the number of years of credited service (with a limit of 20 years or 50% of
final average earnings), less such participant's regular Pension Plan benefit
and a certain portion of the social security benefit, whereas SIP Plan II uses a
2% multiplier (with a limit of 22.5 years or 45% of final average earnings).
Final average earnings equals the participant's average earnings, including
bonus payments made under the Management Incentive Plan, for the five
consecutive highest-paid calendar years out of the last 10 years of service.
Participants may elect to receive benefits in the form of either a life annuity,
a life annuity with ten years certain or a designated survivor annuity.
63
SIP I PARTICIPANTS
----------------------------------------------
ANNUAL BENEFITS (SINGLE LIFE ANNUITY)
UPON FINAL RETIREMENT WITH FINAL
YEARS OF SERVICE INDICATED
FINAL (PRIOR TO ADJUSTMENT FOR SOCIAL SECURITY)
AVERAGE ----------------------------------------------
EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS
- ----------------------------------------------------- -------- -------- -------- ----------
$ 200,000............................................ $ 25,000 $ 50,000 $ 75,000 $ 100,000
400,000........................................... 50,000 100,000 150,000 200,000
600,000........................................... 75,000 150,000 225,000 300,000
800,000........................................... 100,000 200,000 300,000 400,000
1,000,000........................................... 125,000 250,000 375,000 500,000
1,200,000........................................... 150,000 300,000 450,000 600,000
1,400,000........................................... 175,000 350,000 525,000 700,000
1,600,000........................................... 200,000 400,000 600,000 800,000
1,800,000........................................... 225,000 450,000 675,000 900,000
2,000,000........................................... 250,000 500,000 750,000 1,000,000
SIP II PARTICIPANTS
---------------------------------------------------------
ANNUAL BENEFITS (SINGLE LIFE ANNUITY)
UPON FINAL RETIREMENT WITH FINAL
YEARS OF SERVICE INDICATED
(PRIOR TO ADJUSTMENT FOR SOCIAL SECURITY)
FINAL ---------------------------------------------------------
AVERAGE 22.5
EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS YEARS
- ------------------------------------------ ------- -------- -------- ---------- --------
$ 200,000................................. $20,000 $ 40,000 $ 60,000 $ 80,000 $ 90,000
400,000................................ 40,000 80,000 120,000 160,000 180,000
600,000................................ 60,000 120,000 180,000 240,000 270,000
800,000................................ 80,000 160,000 240,000 320,000 360,000
1,000,000................................ 100,000 200,000 300,000 400,000 450,000
1,200,000................................ 120,000 240,000 360,000 480,000 540,000
1,400,000................................ 140,000 280,000 420,000 560,000 630,000
1,600,000................................ 160,000 320,000 480,000 640,000 720,000
1,800,000................................ 180,000 360,000 540,000 720,000 810,000
2,000,000................................ 200,000 400,000 600,000 800,000 900,000
Dr. Smurfit and Mr. Malloy participate in SIP Plan I and have 21 and 15
years of credited service, respectively. SIP Plan II became effective January 1,
1993, and Mr. Terrill, Mr. Larson and Mr. Bradford participate in such plan and
have 22, 5 and 11 years of credited service, respectively. Estimated final
average earnings for each of the the Named Executive Officers are as follows:
Mr. Malloy ($1,185,000); Dr. Smurfit ($1,040,000); Mr. Terrill ($532,000); Mr.
Larson ($366,000); and Mr. Bradford ($461,000).
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE OF CONTROL
ARRANGEMENTS
The Company and its subsidiaries maintain a severance pay plan for all
salaried employees who have at least one year of credited service (the
'Severance Plan'). Upon a covered termination, the Severance Plan provides for
the payment of one week's salary for each full year of service, payable in
accordance with payroll practices.
Mr. Malloy has a deferred compensation agreement with JSC pursuant to which
JSC intends to pay to him, upon his retirement, lifetime payments of $70,000
annually in addition to his accrued benefits under SIP Plan I.
DEFERRED COMPENSATION CAPITAL ENHANCEMENT PLAN
The Company's Deferred Compensation Capital Enhancement Plan (the 'DCC')
allows for the deferral of compensation of key full-time salaried employees of
the Company and its subsidiaries. Participants may defer a portion of their
compensation and their employer may defer discretionary bonuses (together the
'Deferred Compensation Amount'). Deferrals occur in 18 month cycles. A
participant becomes vested with respect to amounts deferred during a particular
cycle if he continues to be employed by the Company or its subsidiaries for
seven years from the beginning of the cycle, retires
64
at age 65 or leaves employment for reasons of death or disability. Upon Normal
Retirement (as defined in the DCC) benefits are distributed under the DCC.
Certain participants will receive preretirement distributions from the DCC,
beginning in the eighth year of each cycle. The amounts distributed upon Normal
Retirement for each cycle are determined with reference to the age of the
participant at the beginning of the cycle and the participant's Deferred
Compensation Amount with respect to the cycle. If a participant is younger than
45 years old at the beginning of a cycle, he will receive upon Normal Retirement
a total of fifteen annual payments, each totalling one and one-half times his
Deferred Compensation Amount. If at the beginning of a cycle a participant is
between the ages of 45 and 55 years old, at Normal Retirement he will receive a
total of fifteen annual payments that, in the aggregate, equal his Deferred
Compensation Amount with respect to the cycle plus appreciation credited
annually at 100% of the Moody's Rate (as defined in the DCC). If at the
beginning of a cycle a participant is at least 55 years old, his Normal
Retirement benefit will be a total of fifteen annual payments that, in the
aggregate, equal his Deferred Compensation Amount with respect to the cycle plus
appreciation credited annually at 150% of the Moody's Rate. If at the beginning
of a cycle a participant is age 65 or older, the number of such annual payments
shall be five. If a participant dies prior to retirement, the value of his death
benefit may be more or less than his Normal Retirement benefits, depending on
his age at the beginning of the cycle. Benefits may be reduced by the employer
if a former participant is engaged in a competing business within two years of
termination from the Company or its subsidiaries. Participants may receive early
distributions in the event that they experience unforeseen financial
emergencies. Benefits otherwise payable to the participant are then actuarially
reduced to reflect such early distributions. The benefits payable under the DCC
are funded by the Company through life insurance policies. There have been no
deferrals under the DCC since 1986. Deferrals made by the Named Executive
Officers during 1985 and 1986 and their ages at the time of such deferrals were:
Mr. Malloy ($30,000 at 57, $50,000 at 58), Dr. Smurfit ($30,000 at 48), Mr.
Terrill ($15,000 at 51, $25,000 at 52), Mr. Bradford ($15,000 at 49, $25,000 at
50) and Mr. Larson ($0). In 1993, the Company made the first preretirement
distribution to certain participants totaling $195,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has not heretofore maintained a formal compensation committee.
Dr. Smurfit, Mr. Malloy and Mr. Kilroy, executive officers of the Company,
participated in deliberations of the Board of Directors on executive
compensation matters during 1993. Following consummation of the Offerings, the
Company will maintain a Compensation Committee of the Board of Directors. See
' -- Committees'.
Dr. Smurfit and Mr. Kilroy are both directors and executive officers of JS
Group, the Company, JSC and CCA, and Mr. Malloy is a director of JS Group and a
former director and executive officer of the Company, JSC and CCA.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding the beneficial
ownership of the Company's capital stock as of February , 1994, and as
adjusted to give effect to the Reclassification and the Equity Offerings, by (i)
each person who is known to the Company to be the beneficial owner of more than
5% of any class of the Company's voting stock, together with such person's
address, (ii) each of the Named Executive Officers, (iii) each of the directors
of the Company and (iv) all directors and executive officers of the Company as a
group. Except as set forth below, the stockholders named below have sole voting
and investment power with respect to all shares of stock shown as being
beneficially owned by them.
65
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP AFTER EQUITY
PRIOR TO EQUITY OFFERINGS
BENEFICIAL OWNERS OFFERINGS ----------------------
- ---------------------------------------------------------------- ----------------------------------------- SHARES OF PERCENT OF
5% STOCKHOLDERS, NAMED EXECUTIVE OFFICERS, DIRECTORS AND NUMBER PERCENT PERCENT COMMON COMMON
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP OF SHARES(a) CLASS OF CLASS OF STOCK STOCK(a) STOCK
- ---------------------------------------------------------------- ------------ ------ --------- --------- ---------- ----------
SIBV ........................................................... 18,400,000 A 100% 50% (b) (b)
Smurfit International B.V. 21,700,000 D 100%
Strawinskylaan 2001 Total ........... 40,100,000
Amsterdam 107722, The Netherlands
Attention: Rokin Corporate Services B.V.
MSLEF II Associated Entities ................................... 18,400,000 B 100% 0(d)
c/o Morgan Stanley & Co. Incorporated 13,400,000 C 61.8% 39.7%
1251 Avenue of the Americas Total .............. 31,800,000 C
New York, NY 10020
Attention: Donald P. Brennan
First Plaza Group Trust(c) ..................................... 5,000,000 23% 6.2%
c/o Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, NY 10020
Attention: Donald P. Brennan
Michael W.J. Smurfit(d)(e) ..................................... 0 0
Howard E. Kilroy(d)(e) ......................................... 0 0
James E. Terrill(d) ............................................ 0 0
James B. Malloy(d) ............................................. 0 0
Alan W. Larson(d) .............................................. 0 0
C. Larry Bradford(d) ........................................... 0 0
Donald P. Brennan .............................................. 0 0
Alan E. Goldberg ............................................... 0 0
David R. Ramsay ................................................ 0 0
All directors and executive officers as a group (23]
persons)(d) .................................................. 0 0
- ------------
(a) Gives effect to the Reclassification pursuant to which, immediately prior
to the consummation of the Equity Offerings, the Company's five classes of
common stock will be converted into one class, on a basis of ten shares of
Common Stock for each share of stock of each of the old classes. Following
the Reclassification, the Company's only class of common stock will be the
Common Stock.
(b) Includes shares of Common Stock to be purchased by SIBV (or a
corporate affiliate) from the Company pursuant to the SIBV Investment.
(c) Amounts shown exclude shares of Common Stock owned by MSLEF II, of which
each of First Plaza Group Trust and State Street Bank & Trust Co. is a
limited partner. If MSLEF II were to distribute its shares of Common Stock
to its partners each of First Plaza Group Trust and State Street Bank &
Trust Co. would receive a number of shares based on its pro rata ownership
of MSLEF II.
(d) Amounts shown exclude shares of Common Stock that have been reserved for
sale to certain directors, officers and other employees of the Company; the
actual amounts of such shares to be purchased by the individuals listed in
the foregoing table and by all directors and executive officers as a group
are undetermined. See 'Underwriters'. Messrs. Malloy, Smurfit, Terrill,
Larson, Bradford and Kilroy and all directors and executive officers as a
group own options to purchase 724,000, 1,026,000, 500,000, 50,000, 121,000
and 423,000 shares of Common Stock, respectively. None of such options are
currently or will become exercisable within 60 days following consummation
of the Offerings. However, a portion of options hereafter vested will
become exercisable, based upon the number of shares transferred by the
MSLEF II Group (as defined in the Option Plan) following the Equity
Offerings. See 'Management -- Executive Compensation -- 1992 Stock Option
Plan'. Prior to the Recapitalization, the holder of an option granted under
the 1992 Stock Option Plan has the right to acquire Class E Stock.
Subsequent to the Recapitalization, the holder of an option has the right
to acquire Common Stock.
(e) Amounts exclude shares of Common Stock owned by SIBV as to which such
persons disclaim beneficial ownership.
CERTAIN TRANSACTIONS
Set forth below is a summary of certain agreements and arrangements entered
into by the Company and related parties in connection with the 1989 Transaction
and the 1992 Transaction (as defined below), as well as other transactions
between the Company and related parties which have taken place during the
Company's most recently completed three fiscal years.
GENERAL
As a result of certain transactions which occurred in December 1989 (the
'1989 Transaction'), JSC became a wholly-owned subsidiary of the Company and CCA
became an indirect wholly-owned subsidiary of JSC. As part of the 1989
Transaction, the Company issued (i) 1,510,000 shares of the Company's Class A
common stock ('Class A Stock') and 500,000 shares of the Company's Class D
common stock ('Class D Stock') to SIBV for $150 million and $50 million,
respectively, (ii) 1,510,000
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shares of the Company's Class B common stock ('Class B Stock') to MSLEF II for
$150 million, (iii) 100,000 shares of the Company's Class C common stock ('Class
C Stock') to MSLEF II, Inc. (the general partner of MSLEF II) and 400,000 shares
of Class C Stock to the Direct Investors (as defined below) for $10 million and
$40 million, respectively (the Direct Investors also purchased Junior Accrual
Debentures and Subordinated Debentures in aggregate principal amounts of $129.2
million and $30.8 million, respectively), and (iv) its preferred stock ('Old
Preferred Stock') to SIBV for $100 million. SIBV subsequently transferred all of
such common and preferred stock to Smurfit Packaging.
In addition to the issuances of capital stock by the Company described
above, the financing for the 1989 Transaction was provided by (i) the issuance
by CCA of the Secured Notes and the Subordinated Debt, and (ii) the incurrence
of term debt and revolving credit indebtedness pursuant to the 1989 Credit
Agreement.
As a result of certain transactions among the Company and CCA and certain
of their securityholders which occurred in August 1992 (the '1992 Transaction'),
(i) MSLEF II acquired an additional 330,000 and 1,212,788 shares of Class B
Stock and Class C Stock, respectively, and certain holders of Class C Stock
acquired 457,212 additional shares of Class C Stock, for an aggregate of $200
million, (ii) Smurfit Holdings, B.V., a subsidiary of SIBV, acquired 330,000
shares of Class A Stock for $33 million, (iii) Smurfit Packaging agreed that its
Old Preferred Stock (including shares issued since the 1989 Transaction as a
dividend) would convert into 1,670,000 shares of Class D Stock on December 31,
1993, (iv) proceeds from the issuances of shares described in clauses (i) and
(ii) above were used to acquire, at a purchase price of $1,100 per $1,000
accreted value, an aggregate of $129.2 million principal amount ($193.5 million
accreted value) of Junior Accrual Debentures from the Direct Investors, (v) CCA
borrowed approximately $400 million under the 1992 Credit Agreement, and used
the proceeds to prepay approximately $400 million of scheduled installments
relating to term loan indebtedness under the 1989 Credit Agreement, (vi) various
provisions of the 1989 Credit Agreement and the Secured Note Purchase Agreement
were amended and restated, and (vii) MSLEF II and SIBV amended a number of the
provisions contained in the Organization Agreement, agreed to the terms of a
Stockholders Agreement (which will replace the Organization Agreement upon the
closing of the Equity Offerings) and entered into the Registration Rights
Agreement.
Currently Smurfit Packaging and Smurfit Holdings, through their ownership
of all of the outstanding Class A Stock, and MSLEF II, through its ownership of
all of the outstanding Class B Stock, each own 50% of the voting common stock of
the Company. MSLEF II, MSLEF II, Inc., Equity Investors, First Plaza Group
Trust, as trustee for certain pension plans ('First Plaza'), and Leeway & Co.,
as nominee for State Street Bank and Trust Co., as trustee for a master pension
trust ('Leeway,' and together with First Plaza, the 'Direct Investors')
(collectively, the 'MSLEF II Group'), and Smurfit Packaging own all of the
non-voting stock of the Company. On December 31, 1993, all of the Old Preferred
Stock owned by Smurfit Packaging was converted into 1,670,000 shares of Class D
Stock. Since such conversion of Old Preferred Stock, each of Smurfit Packaging
and the MSLEF II Group own, through their ownership of Class D Stock and Class C
Stock, respectively, 50% of the non-voting common stock of the Company.
The Company's capital stock currently consists of Class A Stock, Class B
Stock, Class C Stock, Class D Stock and Class E common stock (the 'Class E
Stock' and, together with the Class A, Class B, Class C and Class D Stock, the
'Old Common Stock'). The classes of stock comprising the Old Common Stock are
identical in all respects except with respect to certain voting rights, and
certain exchange provisions that do not affect the percentage of the Company
owned by SIBV and MSLEF II. The Company's Class E Stock is non-voting stock
reserved for issuance pursuant to the Company's 1992 Stock Option Plan. In the
Reclassification, the Old Common Stock, which consists of five classes of stock,
will be converted into one class, on a basis of ten shares of Common Stock for
each share of the Old Common Stock. Following the Reclassification, the
Company's only class of common stock will be Common Stock. Immediately prior to
the consummation of the Equity Offerings, shares of Common Stock will
be outstanding and such stock will be owned by the Company's stockholders in
proportion to their ownership of the Old Common Stock as described in the two
preceding paragraphs. Substantially concurrently with the consummation of the
Equity Offerings, SIBV (or a corporate affiliate) will purchase
shares of Common Stock from the Company pursuant to the SIBV
67
Investment. Accordingly, following the consummation of the Equity Offerings and
the SIBV Investment, MSLEF II Associated Entities and SIBV through its
subsidiaries will beneficially own % and %, respectively, of the shares of
Common Stock then outstanding. See 'Security Ownership of Certain Beneficial
Owners'.
The relationships among JSC, CCA, the Company and its stockholders are set
forth in a number of agreements described below. The summary descriptions herein
of the terms of such agreements do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of such agreements, which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. Capitalized terms not otherwise
defined below or elsewhere in this Prospectus have the meanings given to them in
such agreements. Any reference to either SIBV or MSLEF II in the following
descriptions of the Organization Agreement and the Stockholders Agreement or in
references to the terms of those agreements set forth in this Prospectus shall
be deemed to include their permitted transferees, unless the context indicates
otherwise.
THE ORGANIZATION AGREEMENT
Since the 1989 Transaction, the Company has been operated pursuant to the
terms of the Organization Agreement, which has been amended on various
occasions. The Organization Agreement, among other things, provides generally
for the election of directors, the selection of officers and the day-to-day
management of the Company. The Organization Agreement provides that one-half of
the directors of each of the Company, CCA and JSC be elected by the holders of
the Class A Stock (Smurfit Holdings and Smurfit Packaging) and one-half by the
holders of the Class B Stock (MSLEF II) and that officers of such companies be
designated by the designees of Smurfit Holdings and Smurfit Packaging on the
respective boards, except that the Chief Financial Officer of the Company be
designated by the holders of the Class B Stock (MSLEF II). The Organization
Agreement also contains certain tag along rights, rights of first refusal and
call and put provisions and provisions relating to a sale of the Company as an
entirety, as well as provisions relating to transactions between the Company and
its affiliates, on the one hand, and SIBV or MSLEF II, as the case may be, and
their respective affiliates, on the other. These latter provisions are similar
to those contained in the Stockholders Agreement described below.
Pursuant to the terms of the Organization Agreement and in connection with
the Recapitalization Plan, the Organization Agreement will terminate upon the
closing of the Equity Offerings and, at or prior to such closing, the
Stockholders Agreement shall be entered into by SIBV, MSLEF II and the Company.
The Organization Agreement also contains provisions whereby each of SIBV,
MSLEF II, MSLEF II, Inc., the Company, JSC, CCA and the holders of Class C Stock
indemnify each other and related parties with respect to certain matters arising
under the Organization Agreement or the transactions contemplated thereby,
including losses resulting from a breach of the Organization Agreement. In
addition, the Company, JSC and CCA have also agreed to indemnify SIBV, MSLEF II,
MSLEF II, Inc. and the holders of Class C Stock and related parties against
losses arising out of (i) the conduct and operation of the business of the
Company, JSC or CCA, (ii) any action or failure to act by the Company, JSC or
CCA, (iii) the 1989 Transaction and the 1992 Transaction or (iv) the financing
for the 1989 Transaction. Further, SIBV has agreed to indemnify the Company,
JSC, CCA and each of their subsidiaries against all liability for taxes,
charges, fees, levies or other assessments imposed on such entities as a result
of their not having withheld tax upon the issuance or payment of a specified
note to SIBV and the transfer of certain assets to SIBV in connection with the
1989 Transaction. The foregoing indemnification provisions survive a termination
of the Organization Agreement, including a termination in connection with the
closing of the Equity Offerings.
STOCKHOLDERS AGREEMENT
The Stockholders Agreement will be entered into at or prior to the
consummation of the Offerings by SIBV, MSLEF II and the Company. The Company,
SIBV and MSLEF II are discussing an amendment to the Stockholders Agreement and
the Registration Rights Agreement which would
68
modify restrictions contained therein on the ability of MSLEF II and its
affiliates to sell or otherwise dispose of any or all of their shares of Common
Stock.
DIRECTORS AND MANAGEMENT
For a description of certain provisions of the Stockholders Agreement which
relate to the management of the Company (including the election of directors of
the Company), see 'Management -- Provision of Stockholders Agreement Pertaining
to Management'.
TRANSACTIONS WITH AFFILIATES; OTHER BUSINESSES
The Stockholders Agreement specifically permits SIBV and MSLEF II (and
their affiliates) to engage in transactions with the Company, JSC and CCA in
addition to certain specific transactions contemplated by the Stockholders
Agreement, provided such transactions (except for (i) transactions between any
of the Company, JSC and CCA, (ii) the transactions contemplated by the
Stockholders Agreement, (iii) the transactions contemplated by the Operating
Agreement, dated as of April 30, 1992, between CCA and Smurfit Paperboard, Inc.
('SPI'), or in the Rights Agreement, dated as of April 30, 1992, between CCA,
SPI and Bankers Trust Company, (iv) the transactions contemplated by the
Registration Rights Agreement, (v) the provision of services pursuant to the
Financial Advisory Services Agreement, dated as of September 12, 1989, by and
among MS&Co., SIBV and the Company, and (vi) the provisions of certain other
specified agreements) are fully and fairly disclosed, have fair and equitable
terms, are reasonably necessary and are treated as a commercial arms-length
transaction with an unrelated third party.
Neither SIBV nor MSLEF II (or their affiliates) is prohibited from owning,
operating or investing in any business, regardless of whether such business is
competitive with the Company, JSC or CCA, nor is either SIBV or MSLEF II
required to disclose its intention to make any such investment to the other or
to advise the Company, JSC or CCA of the opportunity presented by any such
prospective investment.
TRANSFER OF OWNERSHIP
In general, transfers of Common Stock to entities affiliated with SIBV or
the members of the MSLEF II Group are not restricted. The Stockholders Agreement
provides members of the MSLEF II Group the right to 'tag along' pro rata upon
the transfer by SIBV of any Common Stock, other than transfers to affiliates and
sales pursuant to a public offering registered under the Securities Act or
pursuant to Rule 144 under the Securities Act.
No member of the MSLEF II Group may transfer, within any thirty-six month
period, in the aggregate five percent or more of the outstanding Common Stock to
any non-affiliated person or group without SIBV's prior written consent.
Transfers of two percent or more in the aggregate of the outstanding Common
Stock are subject to the right of first refusal on the part of SIBV; transfers
of less than two percent in the aggregate are not restricted by the Stockholders
Agreement. In the event that there is a public trading market for the Common
Stock, no member of the MSLEF II Group may effect a sale of Common Stock
pursuant to rights granted in the Registration Rights Agreement without first
offering the shares to be sold to SIBV for purchase. SIBV and its affiliates
have the right, exercisable on or after August 26, 2002, to purchase all, but
not less than all, of the Common Stock then owned by the MSLEF II Group at a
price equal to the Fair Market Value (as defined in the Stockholders Agreement).
In general, if JS Group either does not, directly or indirectly, own a
majority of the voting stock of SIBV, or directly or indirectly, have the right
to appoint a majority of the directors and officers of SIBV, then all of the
obligations of MSLEF II and the members of the MSLEF II Group under the
Stockholders Agreement and all the rights of SIBV under the Stockholders
Agreement shall cease.
TERMINATION
The Stockholders Agreement shall terminate either upon mutual agreement of
SIBV and MSLEF II, or at the option of SIBV or the MSLEF II Group, as the case
may be, upon either the
69
MSLEF II Group or SIBV, respectively, ceasing to own six percent or more of the
outstanding Common Stock.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement, dated as of August 26, 1992,
between MSLEF II, SIBV and the Company, as amended by Amendment No. 1 thereto
dated as of April 15, 1993 (the 'Registration Rights Agreement'), entered into
in connection with the 1992 Transaction, MSLEF II and the other members of the
MSLEF II Group have the right, upon a notice (a 'Registration Notice') from
MSLEF II to both the Company and SIBV, to cause the Company to use its best
efforts to register the shares of Common Stock owned by such holders. MSLEF II
may not deliver a Registration Notice until the earlier of (a) consummation of
the refinancing of certain long-term debt of CCA and (b) December 31, 1997. Upon
the consummation of the Recapitalization Plan clause (a) of the preceding
sentence will be satisfied and MSLEF II will be entitled to exercise its demand
registration rights as described herein. The MSLEF II Group is entitled to four
such demand registrations pursuant to the Registration Rights Agreement, two of
which MSLEF II will have the right to effect prior to the Company effecting a
common stock registration for its own account. MSLEF II may not, however,
deliver a Registration Notice (i) until the conclusion of any pending Company
Registration Process (as defined in the Registration Rights Agreement), (ii)
within 30 days of the conclusion of a MSLEF II Registration Process (as defined
in the Registration Rights Agreement), or (iii) in certain other limited
situations. The Company is generally prohibited from 'piggybacking' and selling
stock for its own account on a registration effected pursuant to a Registration
Notice except after the second completed registration for MSLEF II, in which
event MSLEF II may require that any such securities which are 'piggybacked' be
offered and sold on the same terms as the securities offered by MSLEF II. The
Registration Rights Agreement also sets forth certain waiting periods following
sales by MSLEF II pursuant to a registration statement. The MSLEF II Group is
entitled, subject to certain limitations, to register its Common Stock in
connection with a registration statement prepared by the Company to register
Common Stock or any equity securities exercisable for, convertible into, or
exchangeable for Common Stock. The Company, SIBV and MSLEF II are discussing an
amendment to the Registration Rights Agreement which would modify restrictions
contained therein on the ability of MSLEF II to exercise its demand registration
rights.
The Company will pay all registration expenses (other than underwriting
discounts and commissions) in connection with MSLEF II's first two completed
demand registrations and all registrations made in connection with a Company
registration. The Registration Rights Agreement also contains customary terms
and provisions with respect to, among other things, registration procedures and
certain rights to indemnification and contribution granted by parties thereunder
in connection with the registration of Common Stock subject to such agreement.
FINANCIAL ADVISORY SERVICES AGREEMENT
Under a financial advisory services agreement (the 'Financial Advisory
Services Agreement'), MS&Co. agreed to act as the Company's financial advisor
and provided certain services and earned certain fees in connection with its
roles in the 1989 Transaction, with an expectation that for the term of the
Organization Agreement, the Company would retain MS&Co. to render it investment
banking services at market rates to be negotiated.
OTHER TRANSACTIONS
In connection with the 1986 acquisition of CCA, CCA and SIBV entered into
an agreement pursuant to which CCA granted SIBV an option to purchase CCA's
non-U.S. operations (the 'CCA Option'). In 1987, SIBV exercised the CCA Option
with respect to CCA's European, Venezuelan and Puerto Rican subsidiaries for an
aggregate cash price of $64.3 million, which was approximately equal to CCA's
investment as of the date of exercise. In June 1989, SIBV exercised the
remainder of the CCA Option and purchased CCA's beneficial interests in its
Mexican and Colombian subsidiaries for an
70
aggregate cash price of approximately $150.7 million, which was approximately
equal to CCA's investment as of the date of exercise.
In the 1989 Transaction, (i) the Company acquired the entire equity
interest in JSC, (ii) JSC (through its ownership of JSC Enterprises) acquired
the entire equity interest in CCA, (iii) The Morgan Stanley Leveraged Equity
Fund, L.P., a Delaware limited partnership ('MSLEF I'), and certain other
private investors, including MS&Co. and certain limited partners of MSLEF I
investing in their individual capacity (collectively, the 'MSLEF I Group')
received $500 million in respect of their shares of CCA common stock and (iv)
SIBV received $41.75 per share, or an aggregate of approximately $1.25 billion,
in respect of its shares of JSC stock, and the public stockholders received $43
per share of JSC stock. Certain assets of JSC and CCA were also transferred to
SIBV or one of its affiliates (the 'Designated Assets'). Pursuant to a tender
offer and consent solicitation for certain debentures of CCA which were
outstanding prior to the consummation of the 1989 Transaction, MS&Co. received
an aggregate of $3.7 million in consideration. MS&Co. also received $29.5
million for serving in its capacity as financial advisor to the Company in
connection with the 1989 Transaction. In addition, MS&Co. as underwriter of the
Subordinated Debt received aggregate net discounts and commissions of $34.6
million. In connection with the sale of the Secured Notes to Morgan Stanley
International, MS&Co. received a placement fee of $7.5 million from CCA; in
addition, CCA agreed to indemnify MS&Co. against certain liabilities in
connection therewith, including liabilities under the Securities Act.
In connection with the issuance of the 1993 Notes, the Company entered into
an agreement with SIBV whereby SIBV committed to purchase up to $200 million
aggregate principal amount of 11 1/2% Junior Subordinated Notes maturing 2005 to
be issued by the Company. From time to time until December 31, 1994, the
Company, at its option, may issue the Junior Subordinated Notes, the proceeds of
which must be used to repurchase or otherwise retire Subordinated Debt. The
Company is obligated to pay SIBV for letter of credit fees incurred by SIBV in
connection with this commitment in addition to an annual commitment fee of
1.375% on the undrawn principal amount. The amount payable for such commitment
for 1993 was $2.9 million. The above commitments will be terminated upon the
consummation of the Offerings.
Net sales by JSC to JS Group, its subsidiaries and affiliates were $18.4
million, $22.8 million and $21.0 million for the years ended December 31, 1993,
1992 and 1991, respectively. Net sales by JS Group, its subsidiaries and
affiliates to JSC were $49.3 million, $60.1 million and $11.8 million for the
years ended December 31, 1993, 1992 and 1991, respectively. Product sales to and
purchases from JS Group, its subsidiaries and affiliates were consummated on
terms generally similar to those prevailing with unrelated parties.
JSC provides certain subsidiaries and affiliates of JS Group with general
management and elective management services under separate management services
agreements. The services provided include, but are not limited to, management
information services, accounting, tax and internal auditing services, financial
management and treasury services, manufacturing and engineering services,
research and development services, employee benefit plan and management
services, purchasing services, transportation services and marketing services.
In consideration of general management services, JSC is paid a fee up to 2% of
the subsidiaries' or affiliates' gross sales, which fee amounted to $2.3
million, $2.4 million and $2.5 million for 1993, 1992 and 1991, respectively. In
consideration for elective services, JSC received approximately $3.5 million,
$3.2 million and $2.9 million in 1993, 1992 and 1991, respectively, for its cost
of providing such services. In addition, JSC paid JS Group and its affiliates
$0.4 million in 1993, $0.3 million in 1992 and $0.7 million in 1991 for
management services and certain other services.
In October 1991, an affiliate of JS Group completed a rebuild of the No. 2
paperboard machine owned by it, located in CCA's Fernandina Beach, Florida
paperboard mill (the 'Fernandina Mill'). Pursuant to the Fernandina Operating
Agreement, CCA operates and manages the machine, which is owned by a subsidiary
of SIBV. As compensation to CCA for its services, the affiliate of JS Group
agreed to reimburse CCA for production and manufacturing costs directly
attributable to the No. 2 paperboard machine and to pay CCA a portion of the
indirect manufacturing, selling and administrative costs incurred by CCA for the
entire Fernandina Mill. The compensation is determined by applying various
formulas and agreed upon amounts to the subject costs. The amounts reimbursed to
CCA totaled $62.2 million, $54.7 million and $10.9 million in 1993, 1992 and
1991, respectively.
71
CCA, JS Group and MSLEF II have had discussions from time to time regarding
the purchase of the No. 2 paperboard machine in the Fernandina Mill by the
Company from JS Group in exchange for cash or Common Stock. No agreement has
been reached as to any such transaction. The Company expects, however, that it
may in the future reach an agreement with regard to such acquisition from JS
Group but cannot predict when and on what terms such acquisition would be
consummated. Such acquisition will occur only if it is approved by the Board of
Directors of the Company and is determined by the Board of Directors to be on
terms no less favorable than a sale made to a third party in an arm's length
transaction.
During 1990, certain assets of CCA comprising the business unit performing
management services for the foreign subsidiaries previously owned by CCA were
sold to a subsidiary of JS Group at a price equal to their net book value of
approximately $5.2 million. Net sales and income from operations related to
these assets were not material. Payment for the assets was received in February
1991.
On February 21, 1986, JSC purchased from Times Mirror 80% of the issued and
outstanding capital stock of SNC for approximately $132 million, including a
promissory note to National Westminster Bank plc in the amount of $42 million
(the 'Subordinated Note'). The Subordinated Note was guaranteed by JS Group. In
the 1992 Transaction, the Company prepaid $19.1 million aggregate principal
amount on the Subordinated Note. The remaining amount of $22.9 million was due
and paid on February 22, 1993.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a brief discussion of the basic terms of and the
instruments governing certain indebtedness of the Company. The following
discussion does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the instruments governing the respective
indebtedness, which instruments are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
TERMS OF NEW CREDIT AGREEMENT
GENERAL
Pursuant to a commitment letter dated February 10, 1994 (the 'Commitment
Letter') among Chemical Bank ('Chemical'), Chemical Securities Inc. ('CSI'),
Bankers Trust Company ('Bankers Trust'), BT Securities Corporation ('BTSC'), JSC
and CCA, Chemical has committed to provide $250 million of the New Bank
Facilities (as defined below), Bankers Trust has committed to provide $250
million of the New Bank Facilities and CSI and BTSC have agreed to use their
best efforts to assemble a syndicate of financial institutions (the 'Lenders')
to provide the balance of the remaining commitments for the New Bank Facilities
in a maximum aggregate principal amount of $1.5 billion, all upon the terms and
subject to the conditions set forth in the Commitment Letter, including the
execution of definitive financing agreements.
Pursuant to the Commitment Letter, the New Bank Facilities are expected to
consist of (i) the New Term Loans, consisting of two senior secured term loan
facilities to be provided to CCA in an aggregate principal amount of $1.05
billion, to be allocated between the Delayed Term Loan in an aggregate principal
amount of $850 million and the Initial Term Loan in an aggregate principal
amount of $200 million and (ii) the New Revolving Credit Facility consisting of
a seven year senior secured revolving credit facility available to JSC and CCA
in an aggregate principal amount of $450 million, of which up to $150 million
will be available as a letter of credit facility (the 'Letter of Credit
Facility').
The Commitment Letter provides that the commitments of Chemical and Bankers
Trust will terminate unless definitive financing agreements with respect thereto
shall have been executed and delivered on or prior to June 30, 1994.
In connection with the New Bank Facilities, Chemical will act as the
administrative agent (in such capacity, the 'Agent'), Chemical and Bankers Trust
will act as senior managing agents and CSI and BTSC will act as the arrangers
for the New Bank Facilities. The Commitment Letter also contemplates that
certain managing agents will be appointed for the New Bank Facilities.
72
JSC and CCA have agreed, jointly and severally, to pay certain fees to the
Agent for its own account and for the account of the other Lenders in connection
with the New Bank Facilities, payable as follows: (i) a commitment fee of 1/2 of
1% per annum on the undrawn amount of the Initial Term Loan and the New
Revolving Credit Facility, accruing, with respect to each Lender, on the date of
acceptance of such Lender's commitment and (ii) with respect to each Lender
which has a commitment under the Delayed Term Loan, (A) 1/2 of 1% per annum on
the amount of such commitment accruing for the period from and including the
date of acceptance of such Lender's commitment to but excluding the date of the
initial funding of the New Bank facilities (the 'Closing Date') or the earlier
termination of such Lender's commitment and (B) 3/4 of 1% per annum on the
undrawn amount of such Lender's commitment, accruing from and including the
Closing Date to the date of the funding of the Delayed Term Loan. All such
commitment fees will be payable on the Closing Date and, thereafter, in arrears
at the end of each quarter and upon termination of any commitment. The fees
payable in respect of letters of credit provided under the New Revolving Credit
Facility are in an amount equal to the greater of (a) the margin in excess of
the Adjusted LIBOR Rate applicable to the New Revolving Credit Facility at such
time minus 1/2 of 1% and (b) 1%. In addition, a separate fronting fee shall be
payable by JSC and CCA to the bank issuing the letters of credit for its own
account in an amount to be agreed. All letter of credit fees shall be payable on
the aggregate face amount of outstanding letters of credit under the New
Revolving Credit Facility, and shall be payable in arrears at the end of each
quarter and upon the termination of the New Revolving Credit Facility. CSI, BTSC
and the Lenders shall receive such other fees as have been separately agreed
upon with CSI, BTSC, Chemical and Bankers Trust.
Pursuant to the Commitment Letter, JSC and CCA agreed, regardless of
whether the financing agreements relating to the New Bank Facilities are
executed or the commitments to provide the New Bank Facilities are terminated,
to reimburse Chemical, Bankers Trust, CSI and BTSC for, among other things, all
of their respective out-of-pocket costs and expenses incurred or sustained by
such entities in connection with the transactions contemplated by the Commitment
Letter and to indemnify Chemical, Bankers Trust, CSI and BTSC, and each
director, officer, employee and affiliate thereof against certain claims,
damages, liabilities and expenses incurred or asserted in connection with the
transactions contemplated by the Commitment Letter.
THE NEW BANK FACILITIES
The New Bank Facilities will be provided pursuant to the terms and
conditions of the New Credit Agreement.
Borrowings under the Initial Term Loan will be used, together with the
proceeds of the Equity Offerings, the Debt Offerings and the SIBV Investment, to
consummate the Bank Debt Refinancing. Borrowings under the Delayed Term Loan
must be made on or before December 15, 1994 and will be used solely to redeem or
repurchase the Subordinated Debt and pay accrued interest and the applicable
redemption premiums thereon, to repay amounts drawn under the New Revolving
Credit Facility prior to December 15, 1994 for the purpose of repurchasing
Subordinated Debt, and to pay the related fees and expenses in connection with
such repurchase or redemption. Borrowings under the New Revolving Credit
Facility are to be used for the sole purpose of providing working capital for
JSC, CCA and their subsidiaries and for other general corporate purposes
including to fund open market or privately negotiated purchases of Subordinated
Debt prior to December 15, 1994. Amounts borrowed and outstanding under the New
Revolving Credit Facility to finance purchases of Subordinated Debt which
aggregate at least $20 million will be repaid with the proceeds of borrowings
from time to time under the Delayed Term Loan.
The obligations under the New Credit Agreement will be unconditionally
guaranteed by the Company, JSC, CCA, SNC (but only to the extent permitted under
the Shareholders Agreement, dated as of February 21, 1986, between JSC and Times
Mirror) and certain other existing and subsequently acquired or organized
material subsidiaries of the Company, JSC and CCA (each such entity providing
such a guaranty, a 'Guarantor'). The obligations of JSC and CCA under the New
Credit Agreement (including all guarantee obligations of JSC and CCA in respect
thereof) will be secured by a security interest in substantially all of the
assets of JSC, CCA and their material subsidiaries, with the exception
73
of trade receivables of JSC, CCA and their material subsidiaries sold to JSFC,
and by a pledge of all the capital stock of JSC, CCA and each material
subsidiary of the Company, JSC and CCA.
The Delayed Term Loan and the New Revolving Credit Facility will each
mature on the date which is seven years after the Closing Date. The Initial Term
Loan will mature on the date which is eight years after the Closing Date. The
outstanding principal amount of the New Term Loans is repayable as follows, such
repayments to be made at the end of each six month period after the Closing Date
as follows:
SEMI-ANNUAL TOTAL
PERIOD AFTER DELAYED TERM LOAN INITIAL TERM LOAN SEMI-ANNUAL
CLOSING DATE SEMI-ANNUAL AMOUNT SEMI-ANNUAL AMOUNT AMOUNT
- ------------------------------------------------------- ------------------ ------------------ --------------
First.................................................. $ -- $ -- $ 0
Second................................................. 0 0 0
Third.................................................. 50,000,000 1,000,000 51,000,000
Fourth................................................. 50,000,000 1,000,000 51,000,000
Fifth.................................................. 75,000,000 1,000,000 76,000,000
Sixth.................................................. 75,000,000 1,000,000 76,000,000
Seventh................................................ 75,000,000 1,000,000 76,000,000
Eighth................................................. 75,000,000 1,000,000 76,000,000
Ninth.................................................. 75,000,000 1,000,000 76,000,000
Tenth.................................................. 75,000,000 1,000,000 76,000,000
Eleventh............................................... 75,000,000 5,000,000 80,000,000
Twelfth................................................ 75,000,000 5,000,000 80,000,000
Thirteenth............................................. 75,000,000 6,000,000 81,000,000
Fourteenth............................................. 75,000,000 6,000,000 81,000,000
Fifteenth.............................................. -- 85,000,000 85,000,000
Sixteenth.............................................. -- 85,000,000 85,000,000
------------------ ------------------ --------------
$850,000,000 $200,000,000 $1,050,000,000
------------------ ------------------ --------------
------------------ ------------------ --------------
The New Term Loans and the New Revolving Credit Facility may be prepaid at
any time, in whole or in part, at the option of the borrowers. Voluntary
reductions of the unutilized portion of the New Revolving Credit Facility are
permitted at any time. Pursuant to the Commitment Letter, required prepayments
on the New Bank Facilities are to be made in an amount equal to (i) 75% of
Excess Cash Flow (to be defined as the parties shall mutually agree), reducing
to 50% of Excess Cash Flow upon the satisfaction of certain performance tests to
be agreed, (ii) 100% of the net proceeds of the issuance or incurrence of
certain indebtedness (not including the Debt Offerings), (iii) 100% of the net
proceeds of certain non-ordinary course asset sales, (iv) 100% of the net
proceeds of certain condemnation or insurance proceeds, (v) in the event the
gross proceeds from the Equity Offerings and any other equity infusion in the
Company is less than $500 million (the amount by which $500 million exceeds such
gross proceeds, the 'Differential'), the lesser of (A) 100% of the net proceeds
to the Company of the sale of Common Stock in connection with the exercise of
the underwriters' overallotment option, if any, in connection with the Equity
Offerings and (B) the amount of the Differential, and (vi) 25% of the net
proceeds of the issuance of any other equity securities (other than the Equity
Offerings and the exercise of management stock options). Required prepayments
will be allocated pro rata between the Delayed Term Loan and the Initial Term
Loan, and will be applied pro rata against the remaining scheduled amortization
payments under each of the New Term Loans (and, if the Delayed Term Loan has not
then been drawn, the amount allocable thereto will permanently reduce the
commitments thereunder) or, if the New Term Loans have been fully repaid, to
permanently reduce the then existing commitments under the New Revolving Credit
Facility.
Interest on indebtedness outstanding under the Delayed Term Loan and the
New Revolving Credit Facility, from and including the Closing Date to but
excluding the first anniversary of the Closing Date, will be payable at a rate
per annum, selected at the option of the borrower, equal to the ABR Rate (as
defined below) plus 1.5% per annum or the Adjusted LIBOR Rate plus 2.5% per
annum. From and including the first anniversary of the Closing Date and
thereafter, the margin in excess of the ABR Rate or the Adjusted LIBOR Rate
applicable to such New Bank Facilities will be determined by reference to
74
certain financial tests. Interest on indebtedness outstanding under the Initial
Term Loan will be payable at a rate per annum, selected at the option of CCA,
equal to the ABR Rate plus 2% per annum or the Adjusted LIBOR Rate plus 3% per
annum. Notwithstanding the foregoing, for the first 90 days following the
Closing Date, all such borrowings may only be made with reference to the ABR
Rate or the Adjusted LIBOR Rate for one month borrowings. All overdue
installments of principal and, to the extent permitted by law, interest on
borrowings accruing interest based on the ABR Rate or the Adjusted LIBOR Rate
shall bear interest at a rate per annum equal to 2% in excess of the interest
rate then borne by such borrowings. The borrowers shall have the option of
selecting the type of borrowing and the length of the interest period applicable
thereto.
'ABR Rate' shall mean the higher of (a) the rate at which Chemical
announces from time to time as its prime lending rate, (b) 1/2 of 1% in excess
of the Federal Funds Rate and (c) 1% in excess of the base certificate of
deposit rate.
'Adjusted LIBOR Rate' shall mean the London Interbank Offered Rate,
adjusted for statutory reserves at all times.
Interest based on the ABR Rate and the Adjusted LIBOR Rate shall be
determined based on the number of days elapsed over a 360 day year. Interest
based on the (i) ABR Rate shall be payable quarterly and (ii) Adjusted LIBOR
Rate shall be payable at the end of the applicable interest period but in any
event not less often than quarterly.
The New Credit Agreement will contain certain representations and
warranties, certain negative, affirmative and financial covenants, certain
conditions and certain events of default which are customarily required for
similar financings, in addition to other representations, warranties, covenants,
conditions and events of default appropriate to the specific transactions
contemplated thereby. Such covenants will include restrictions and limitations
of dividends, redemptions and repurchases of capital stock, the incurrence of
debt, liens, leases, sale-leaseback transactions, capital expenditures, the
issuance of stock, transactions with affiliates, the making of loans,
investments and certain payments, and on mergers, acquisitions and asset sales,
in each case subject to exceptions to be agreed upon. Furthermore, the Company
will be required to maintain compliance with certain financial covenants, such
as minimum levels of consolidated earnings before depreciation, interest, taxes
and amortization, and minimum interest coverage ratios.
Events of default under the New Credit Agreement will include, among other
things, (i) failure to pay principal, interest, fees or other amounts when due;
(ii) violation of covenants; (iii) failure of any representation or warranty
made by the Company to the Lenders to be true in all material aspects; (iv)
cross default and cross acceleration with certain other indebtedness; (v)
'change of control' (the definition of which is to be mutually agreed upon);
(vi) certain events of bankruptcy; (vii) certain material judgments; (viii)
certain ERISA events; and (ix) the invalidity of the guarantees of the
indebtedness under the New Credit Agreement or of the security interests granted
to the Lenders, in certain cases with appropriate grace periods to be agreed
upon.
The conditions to the borrowing of the Delayed Term Loan are set forth
above. See 'Recapitalization Plan -- Subordinated Debt Refinancing'.
The foregoing summary of the Commitment Letter is qualified in its entirety
by reference to the text of such letter, a copy of which has been filed with the
Securities and Exchange Commission as an exhibit to the Registration Statement
of which this Prospectus forms a part.
SECURITIZATION
In 1991, JSC and CCA entered into the Securitization in order to reduce its
borrowings under the 1989 Credit Agreement. The Securitization involved the sale
of Receivables to JSFC, a special purpose subsidiary of JSC. Under the
Securitization, JSFC currently has borrowings of $182.3 million outstanding from
EFC, a third-party owned corporation not affiliated with JSC, and has pledged
its interest in such Receivables to EFC. EFC issued CP Notes and Term Notes. EFC
also entered into a liquidity facility with the Liquidity Banks and a
subordinated loan agreement with the Subordinated Lender to provide additional
sources of funding. EFC pledged its interest in the Receivables assigned to it
by JSFC to secure EFC's obligations to the Liquidity Banks, the Subordinated
Lender, and the
75
holders of the CP Notes and the Term Notes. Neither the Company nor JSFC is a
guarantor of CP Notes, the Term Notes or borrowings under the liquidity
facility. See Note 5 to the Company's consolidated financial statements and
'Recapitalization Plan -- Consents and Waivers -- Securitization'.
TERMS OF 1993 NOTES
In April 1993, CCA issued $500 million aggregate principal amount of 1993
Notes. The 1993 Notes are unsecured senior obligations of CCA and will mature
April 1, 2003. The 1993 Notes bear interest at 9.75% per annum. Interest is
payable semiannually on April 1 and October 1, of each year. The 1993 Notes are
not redeemable prior to maturity.
The 1993 Notes are senior unsecured obligations of CCA, which rank pari
passu with the other senior indebtedness of CCA, including, without limitation,
CCA's obligations under the New Credit Agreement and the Senior Notes, and are
senior in right to payment to the Subordinated Debt. CCA's obligations under the
New Credit Agreement, but not the 1993 Notes, will be secured by liens on
substantially all the assets of CCA and its subsidiaries with the exception of
cash and cash equivalents and trade receivables. The secured indebtedness will
have priority over the 1993 Notes with respect to the assets securing such
indebtedness.
The 1993 Note Indenture contains certain covenants that, among other
things, limit the ability of JSC and its subsidiaries (including CCA) to incur
indebtedness, pay dividends, engage in transactions with stockholders and
affiliates, issue capital stock, create liens, sell assets, enter into
sale-leaseback transactions, engage in mergers and consolidations and make
investments in unrestricted subsidiaries. The limitations imposed by the
covenants on JSC and its subsidiaries (including CCA) are subject to certain
exceptions.
Upon a Change of Control (as defined below), CCA is required to make an
offer to purchase the 1993 Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued interest. Certain transactions with
affiliates of the Company may not constitute a Change of Control. 'Change of
Control' is defined to mean such time as (i)(a) a person or group, other than
MSLEF II, Morgan Stanley Group, SIBV, JS Group and any affiliate thereof,
(collectively, the 'Original Stockholders'), becomes the beneficial owner of
more than 35% of the total voting power of the then outstanding voting stock of
the Company or a parent of the Company and (b) the Original Stockholders
beneficially own, directly or indirectly, less than the then outstanding voting
stock of the Company or a parent of the Company beneficially owned by such
person or group; (ii)(a) a person or group, other than the Original
Stockholders, becomes the beneficial owner of more than 35% of the total voting
power of the then outstanding voting stock of JSC, (b) the Original Stockholders
beneficially own, directly or indirectly, less than the then outstanding voting
stock of JSC beneficially owned by such person or group and (c) CCA is a
subsidiary of JSC at the time that the later of (a) and (b) above occurs; or
(iii) individuals who at the beginning of any period of two consecutive calendar
years constituted the Board of Directors of JSC (together with any new directors
whose election by the Board of Directors or whose nomination for election by
JSC's shareholders was approved by a vote of at least two-thirds of the members
of the Board of Directors of JSC then still in office who either were members of
the Board of Directors of JSC at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors of JSC then in
office. Pursuant to the Proposed 1993 Note Amendment, the Company and JSC are
seeking to eliminate clause (iii) above.
The payment of principal and interest on the 1993 Notes is unconditionally
guaranteed on a senior basis by JSC. Such guarantee ranks pari passu with the
other senior indebtedness of JSC, including, without limitation, JSC's
obligations under the New Credit Agreement (including its guarantees of CCA's
obligations thereunder) and JSC's guarantee of CCA's obligations under the
Senior Notes, and is senior in right of payment to JSC's guarantees of the
Subordinated Debt. JSC's obligations under the New Credit Agreement, but not its
guarantees of the 1993 Notes, will be secured by liens on substantially all the
assets of JSC and its subsidiaries with the exception of cash and cash
equivalents and trade receivables, and guaranteed by CCA and certain
subsidiaries of JSC and CCA. The secured indebtedness will have priority over
JSC's guarantees of the 1993 Notes with respect to the assets securing such
indebtedness. In the event that (i) a purchaser of capital stock of CCA acquires
a majority
76
of the voting rights thereunder or (ii) there occurs a merger or consolidation
of CCA that results in CCA having a parent other than JSC and, at the time of
and after giving effect to such transaction, such purchaser or parent satisfies
certain minimum net worth and cash flow requirements, JSC will be released from
its guarantee of the 1993 Notes. Such sale, merger or consolidation will be
prohibited unless certain other requirements are met, including that the
purchaser or the entity surviving such a merger or consolidation expressly
assumes JSC's or CCA's obligations, as the case may be, and that no Event of
Default (as defined in the 1993 Note Indenture) occur or be continuing.
The net proceeds from the offering of the 1993 Notes were used to repay
certain revolving credit indebtedness and term loan indebtedness outstanding
under the Old Bank Facilities. The Company has also entered into reverse
interest rate swap agreements which hedge a portion of the 1993 Note issue.
MS&Co. acted as underwriter in connection with the original offering of the
1993 Notes and received an underwriting discount of $12.5 million in connection
therewith.
In connection with implementing the Recapitalization Plan, the Company
intends to amend the terms of the 1993 Note Indenture. Among other things, the
Proposed 1993 Note Amendment will modify the provisions of the 1993 Note
Indenture which limit the ability of the Company, JSC and CCA to incur
indebtedness and to make certain restricted payments. See 'Recapitalization
Plan -- Consents and Waivers'.
TERMS OF SENIOR NOTES
Concurrently with the Equity Offerings, CCA is offering $500 million
aggregate principal amount of % Series A Senior Notes due 2004 and $100
million aggregate principal amount of % Series B Senior Notes due 2002 in the
Debt Offerings. The Senior Notes are unsecured senior obligations of CCA with
interest payable semiannually on and , of each year.
The Senior Notes are senior unsecured obligations of CCA, which rank pari
passu with the other senior indebtedness of CCA, including, without limitation,
CCA's obligations under the New Credit Agreement and the 1993 Notes, and are
senior in right to payment to the Subordinated Debt. CCA's obligations under the
New Credit Agreement, but not the Senior Notes, will be secured by liens on
substantially all the assets of CCA and its subsidiaries with the exception of
cash and cash equivalents and trade receivables. The secured indebtedness will
have priority over the Senior Notes with respect to the assets securing such
indebtedness.
The Senior Notes are redeemable in whole or in part at the option of CCA,
at any time on or after , 1999, at the following redemption
prices (expressed as percentages of principal amount) together with accrued and
unpaid interest to the redemption date, if redeemed during the 12-month period
commencing:
REDEMPTION
[ ] PRICES
- --------------------------------------------------------------------------------- ----------
1999........................................................................... %
2000...........................................................................
2001...........................................................................
2002...........................................................................
2003...........................................................................
2004...........................................................................
The indentures relating to the Senior Notes (the 'Senior Note Indentures')
contain certain covenants that, among other things, limit the ability of JSC and
its subsidiaries (including CCA) to incur indebtedness, pay dividends, engage in
transactions with stockholders and affiliates, issue capital stock, create
liens, sell assets, engage in mergers and consolidations and make investments in
unrestricted subsidiaries. The limitations imposed by the covenants on JSC and
its subsidiaries (including CCA) are subject to certain exceptions.
Upon a Change of Control, CCA is required to make an offer to purchase the
Senior Notes at a purchase price equal to % of the principal amount thereof,
plus accrued interest. Certain transactions with affiliates of the Company may
not constitute a change of Control. 'Change of
77
Control' is defined to mean such time as (i)(a) a person or group, other than
the Original Stockholders, becomes the beneficial owner of more than 35% of the
total voting power of the then outstanding voting stock of the Company or a
parent of the Company and (b) the Original Stockholders beneficially own,
directly or indirectly, less than the then outstanding voting stock of the
Company or a parent of the Company beneficially owned by such person or group;
or (ii)(a) a person or group, other than the Original Stockholders, becomes the
beneficial owner of more than 35% of the total voting power of the then
outstanding voting stock of JSC, (b) the Original Stockholders beneficially own,
directly or indirectly, less than the then outstanding voting stock of JSC
beneficially owned by such person or group and (c) CCA is a subsidiary of JSC at
the time that the later of (a) and (b) above occurs.
The payment of principal and interest on the Senior Notes is
unconditionally guaranteed on a senior basis by JSC. Such guarantee ranks pari
passu with the other senior indebtedness of JSC, including, without limitation,
JSC's obligations under the New Credit Agreement (including its guarantees of
CCA's obligations thereunder) and JSC's guarantee of CCA's obligations under the
1993 Notes, and is senior in right of payment to JSC's guarantees of the
Subordinated Debt. JSC's obligations under the New Credit Agreement, but not its
guarantees of the Senior Notes, will be secured by liens on substantially all
the assets of JSC and its subsidiaries with the exception of cash and cash
equivalents and trade receivables, and guaranteed by CCA and certain
subsidiaries of JSC and CCA. The secured indebtedness will have priority over
JSC's guarantees of the Senior Notes with respect to the assets securing such
indebtedness. In the event that (i) a purchaser of capital stock of CCA acquires
a majority of the voting rights thereunder or (ii) there occurs a merger or
consolidation of CCA that results in CCA having a parent other than JSC and, at
the time of and after giving effect to such transaction, such purchaser or
parent satisfies certain minimum net worth and cash flow requirements, JSC will
be released from its guarantee of the Senior Notes. Such sale, merger or
consolidation will be prohibited unless certain other requirements are met,
including that the purchaser or the entity surviving such a merger or
consolidation expressly assumes JSC's or CCA's obligations, as the case may be,
and that no Event of Default (as defined in the Senior Note Indenture) occur or
be continuing.
The net proceeds from the offering of the Senior Notes will be used to
effect the Bank Debt Refinancing, as contemplated by the Recapitalization Plan.
See 'Recapitalization Plan'.
MS&Co. is acting as underwriter in connection with the original offering of
the Senior Notes and will receive an underwriting discount of $ million in
connection therewith.
SUBSTITUTION TRANSACTION
JSC is currently the guarantor on all of CCA's outstanding public
indebtedness (consisting of the 1993 Notes and the three classes of Subordinated
Debt) and will similarly guarantee the Senior Notes. The Company will organize a
new subsidiary ('Smurfit Interco'), all the outstanding capital stock of which
will be owned by the Company and which will own all of the outstanding capital
stock of JSC, but which will have no other significant assets (other than
intercompany note receivables) and, except for guarantees of indebtedness of
CCA, no indebtedness for borrowed money. Subject to obtaining the consent of the
holders of the 1993 Notes to the Proposed 1993 Note Amendment and the consents
necessary to amend the Securitization documents, the Company intends (i) to
cause Smurfit Interco to replace JSC as guarantor under the indentures relating
to CCA's public indebtedness (and under the New Credit Agreement), (ii) to amend
such indentures so that references to JSC therein and in the 1993 Notes and the
Senior Notes shall be changed to be Smurfit Interco and (iii) to cause JSC to
merge into CCA, which shall succeed to all of JSC's assets and liabilities
(except that any guaranty of obligations of CCA by JSC shall be extinguished)
(collectively, the 'Substitution Transaction'). The purpose of the Substitution
Transaction is to maximize operating efficiencies by combining the Company's two
key operating subsidiaries into one entity and achieve cost savings.
TERMS OF SUBORDINATED DEBT
SUBORDINATED DEBT
Terms. The Senior Subordinated Notes are unsecured senior subordinated
obligations of CCA, limited to $350 million aggregate principal amount, and will
mature on December 1, 1999. The Senior
78
Subordinated Notes bear interest at 13 1/2% from the date of their issuance or
from the most recent interest payment date to which interest has been paid or
duly provided for. Interest is payable semiannually on June 1 and December 1 of
each year.
The Subordinated Debentures are unsecured subordinated obligations of CCA,
limited to $300 million aggregate principal amount, and will mature on December
1, 2001. The Subordinated Debentures bear interest at 14% from the date of
issuance of the Subordinated Debentures or from the most recent interest payment
date to which interest has been paid or duly provided for. Interest is payable
semiannually on June 1 and December 1 of each year.
The Junior Accrual Debentures are unsecured junior subordinated obligations
of CCA, limited to $200 million aggregate principal amount, and will mature on
December 1, 2004. The Junior Accrual Debentures bear interest at 15 1/2% from
the date of issuance. No interest will be paid on the Junior Accrual Debentures
prior to December 1, 1994. On December 1, 1994 all interest accrued from the
date of issuance of the Junior Accrual Debentures to and including November 30,
1994 will be paid in one lump sum. From and after December 1, 1994 interest on
the Junior Accrual Debentures will be payable semiannually on each June 1 and
December 1, commencing June 1, 1995.
The indentures under which the Subordinated Debt is governed contain
certain restrictive covenants which impose limitations on JSC and CCA and
certain of their subsidiaries' ability to, among other things: (i) incur
additional indebtedness; (ii) pay dividends and make other distributions; (iii)
create liens; and (iv) use the proceeds of certain asset sales.
Optional Redemption. The Senior Subordinated Notes will be redeemable in
whole or in part, at the option of CCA, at any time on or after December 1,
1994, at the following redemption prices (expressed in percentages of principal
amount) together with accrued and unpaid interest to the redemption date, if
redeemed during the 12-month period commencing:
REDEMPTION
DECEMBER 1 PRICES
- ------------------------------------------------------------- ----------
1994......................................................... 106.750%
1995......................................................... 103.375
1996 and thereafter.......................................... 100.000
The Subordinated Debentures will be redeemable in whole or in part, at the
option of CCA, at any time on or after December 1, 1994, at the following
redemption prices (expressed in percentages of principal amount) together with
accrued and unpaid interest to the redemption date, if redeemed during the
12-month period commencing:
REDEMPTION
DECEMBER 1 PRICES
- ------------------------------------------------------------- ----------
1994......................................................... 107.000%
1995......................................................... 103.500
1996 and thereafter.......................................... 100.000
The Junior Accrual Debentures will be redeemable, in whole or in part, at
the option of CCA, at any time on or after December 1, 1994, at 100% of the
principal amount thereof, together with accrued and unpaid interest to the
redemption date.
Sinking Fund. The Subordinated Debenture Indenture requires CCA to provide
for retirement, by redemption, of 33 1/3% of the original aggregate principal
amount of the Subordinated Debentures on each of December 15, 1999 and December
15, 2000 at a redemption price of 100% of the principal amount thereof, plus
accrued interest to the redemption date. Such sinking fund payments are
calculated to retire 66 2/3% of the principal amount of the Subordinated
Debentures originally issued under the Subordinated Debenture Indenture prior to
maturity. CCA may, at its option, receive credit against sinking fund payments
for the principal amount of Subordinated Debentures acquired by CCA and
surrendered for cancellation or redeemed otherwise than through operation of the
sinking fund.
The Junior Accrual Debenture Indenture requires CCA to provide for
retirement, by redemption, of 33 1/3% of the original aggregate principal amount
of the Junior Accrual Debentures on each of December 1, 2002 and December 1,
2003 at a redemption price of 100% of the principal amount
79
thereof, plus accrued interest to the redemption date. Such sinking fund
payments are calculated to retire 66 2/3% of the principal amount of the Junior
Accrual Debentures originally issued under the Junior Accrual Debenture
Indenture prior to maturity. CCA may, at its option, receive credit against
sinking fund payments for the principal amount of Junior Accrual Debentures
acquired by CCA and surrendered for cancellation or redeemed otherwise than
through operation of the sinking fund.
Subordination. The Subordinated Debt is subordinated in right of payment to
all Senior Debt (as defined in the indentures relating to the Subordinated Debt
(the 'Subordinated Debt Indentures') of CCA which includes CCA's obligations
under the New Credit Agreement, the 1993 Notes, the Senior Notes and certain
other indebtedness of CCA.
Guarantees. The payment of principal and interest on the Subordinated Debt
is guaranteed on a senior subordinated, subordinated and junior subordinated
basis, respectively, by JSC. Such guarantees are subordinated in right of
payment to all Senior Debt of JSC, which includes JSC's obligations under the
New Credit Agreement (including its guarantee of CCA's obligations thereunder),
JSC's guarantee of CCA's obligations under the 1993 Notes and the Senior Notes
and certain other borrowings of JSC.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of shares of
Common Stock and shares of preferred stock, par value $.01 per share
(the 'Preferred Stock'). JSC's authorized capital stock consists of 1,000 shares
of common stock, par value $.01 per share, of which 1,000 shares of common stock
are issued and outstanding and are owned by the Company. CCA's authorized
capital stock consists of 1,000 shares of common stock, par value $.01 per
share, of which 1,000 shares are issued and outstanding and are indirectly owned
by the Company. The following summary does not purport to be complete and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Company's Restated Certificate of Incorporation and By-laws,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part, and to the applicable provisions of the
Delaware General Corporation Law.
COMMON STOCK
As of the date of this Prospectus, shares of Common Stock were
issued and outstanding.
Voting Rights. Each share of Common Stock entitles the holder thereof to
one vote in elections of directors and all other matters submitted to a vote of
stockholders. The Common Stock does not have cumulative voting rights, which
means that holders of a majority of the outstanding Common Stock voting for the
election of directors can elect all directors then being elected. Upon the
consummation of the Equity Offerings, SIBV and MSLEF II will enter into the
Stockholders Agreement, which provides, among other things, for the election of
the Company's Board of Directors. See 'Certain Transactions -- Stockholders
Agreement' and 'Management -- Provisions of Stockholders Agreement Pertaining to
Management'. Following the consummation of the Equity Offerings and the SIBV
Investment, SIBV and MSLEF II Associated Entities collectively will beneficially
own % of the outstanding shares of Common Stock, and consequently they
collectively will have the power, and in accordance with the Stockholders
Agreement intend, to elect all of the Company's directors. See 'Risk
Factors -- Control by Principal Stockholders'.
Dividends. Each share of Common Stock has an equal and ratable right to
receive dividends to be paid from the Company's assets legally available
therefor when, as and if declared by the Board of Directors. The declaration and
payment of dividends on the Common Stock are currently effectively prohibited by
the terms of the Company's outstanding indebtedness. In addition, Delaware law
generally requires that dividends are payable only out of the Company's surplus
or current net profits in accordance with the Delaware General Corporation Law.
See 'Dividend Policy'.
Liquidation. In the event of the dissolution, liquidation or winding up of
the Company, the holders of Common Stock are entitled to share equally and
ratably in the assets available for distribution after
80
payments are made to the Company's creditors and to the holder of any Preferred
Stock of the Company that may be outstanding at the time.
Other. The holders of shares of Common Stock have no preemptive,
subscription, redemption or conversion rights and are not liable for further
call or assessment. All of the outstanding shares of Common Stock are, and the
Common Stock offered hereby will be, fully paid and nonassessable.
Prior to the date of this Prospectus, there has been no established public
trading market for the Common Stock. Application will be made to list the Common
Stock on the New York Stock Exchange under the symbol ' '. See 'Risk
Factors -- Absence of Prior Public Market'.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
stockholder action, to divide any or all shares of authorized Preferred Stock
into series and to fix and determine the designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion or
exchange privileges. As of the date of this Prospectus, the Board of Directors
of the Company has not authorized any series of Preferred Stock and there are no
plans, agreements or understandings for the issuance of any shares of Preferred
Stock.
STOCKHOLDERS AGREEMENT
The Stockholders Agreement, among other things, provides for the election
of directors of the Company and the selection of officers. See 'Certain
Transactions -- Stockholders Agreement' and 'Management -- Provisions of
Stockholders Agreement Pertaining to Management'.
RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Stockholders' rights and related matters are governed by the Delaware
General Corporation Law, the Company's Restated Certificate of Incorporation and
its By-laws. Certain provisions of the Restated Certificate of Incorporation and
By-laws of the Company, which are summarized below, may discourage or make more
difficult any attempt by a person or group to obtain control of the Company.
No Stockholder Action by Written Consent; Special Meeting. The Company's
Restated Certificate of Incorporation prohibits stockholders from taking action
by written consent in lieu of an annual or special meeting, and thus
stockholders may only take action at an annual or special meeting called in
accordance with the Company's By-laws. The Company's By-laws provide that
special meetings of stockholders may only be called by (i) the Chairman of the
Board, (ii) the President, (iii) any Vice President, (iv) the Secretary or (v)
any Assistant Secretary. Special meetings may not be called by the stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Company's By-laws establish advance notice procedures with
regard to stockholder proposals and the nomination, other than by or at the
direction of the Board of Directors or a committee thereof, of candidates for
election as directors. These procedures provide that the notice of stockholder
proposals and stockholder nominations for the election of directors at an annual
meeting must be in writing and received by the Secretary of the Company not less
than 60 days nor more than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, however, that in
the event that the annual meeting is called for a date that is not within 30
days before or after such anniversary date, notice by the stockholder in order
to be timely must be received not later than the close of business on the 10th
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs. The notice of stockholder nominations must set forth
certain information with respect to the stockholder giving the notice and with
respect to each nominee.
Indemnification. The Company's By-laws will provide that the Company shall
advance expenses to and indemnify each director and officer of the Company to
the fullest extent permitted by law.
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LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Restated Certificate of Incorporation provides that no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemptions
or purchases or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of these provisions will be to eliminate
the rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of fiduciary duty as a director (including breaches resulting from
grossly negligent behavior), except in the situations described above. These
provisions will not limit the liability of directors under federal securities
laws and will not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law ('DGCL') prohibits
certain transactions between a Delaware corporation and an 'interested
stockholder,' which is defined as a person who, together with any affiliates
and/or associates of such person, beneficially owns, directly or indirectly, 15
percent or more of the outstanding voting shares of a Delaware corporation. This
provision prohibits certain business combinations (defined broadly to include
mergers, consolidations, sales or other dispositions of assets having an
aggregate value of 10 percent or more of the consolidated assets of the
corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock, unless (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder acquired shares; (ii) the interested stockholder
acquired at least 85 percent of the voting stock of the corporation in the
transaction in which it became an interested stockholder; or (iii) the business
combination is approved by a majority of the board of directors and by the
affirmative vote of two-thirds of the outstanding voting stock owned by
disinterested stockholders at an annual or special meeting. A Delaware
corporation, pursuant to a provision in its certificate of incorporation or
by-laws, may choose not to be governed by Section 203 of the DGCL in which case
such election becomes effective one year after its adoption. The Company
anticipates that it will choose, pursuant to a provision of its Restated
Certificate of Incorporation, not to be governed by Section 203 of the DGCL.
Such election is expected to become effective on or about the first anniversary
of the completion of the Offerings.
REGISTRAR AND TRANSFER AGENT
[ ] will act as Registrar and Transfer Agent for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Equity Offerings, the Company will have
shares of Common Stock outstanding, assuming no exercise of the overallotment
option granted to the U.S. Underwriters and assuming the exercise of all other
options granted by the Company. Of these shares, the shares of Common
Stock issued in the Equity Offerings will be freely tradeable without
restriction or further registration under the Securities Act, except for any of
such shares held by 'affiliates' (as defined under the Securities Act) of the
Company. The shares of Common Stock sold by the Company to SIBV (or a corporate
affiliate) pursuant to the SIBV Investment will be shares held by an
'affiliate'. The remaining shares of Common Stock will be deemed
'restricted' securities under the meaning of Rule 144 under the Securities Act
('Rule 144'). Neither shares held by an affiliate nor restricted securities may
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemptions contained in
Rule 144.
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Generally, Rule 144 provides that a person who has owned restricted
securities for at least two years, or who may be deemed an 'affiliate' of the
Company, is entitled to sell, within any three-month period, up to the number of
restricted securities that does not exceed the greater of (i) one percent of the
then outstanding shares of Common Stock, or (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of sale
is filed with the Securities and Exchange Commission (the 'Commission'). Sales
under Rule 144 are subject to certain restrictions relating to manner of sale,
volume of sales and the availability of current public information about the
Company. In addition, restricted securities that have been held by a person who
is not an 'affiliate' of the Company for at least three years may be sold under
Rule 144(k) without regard to the volume limitations or current public
information or manner of sale requirements of Rule 144. As defined in Rule 144,
an 'affiliate' of an issuer is a person that directly, or indirectly through the
use of one or more intermediaries, controls, or is controlled by, or is under
the common control with, such issuer.
The Company, SIBV and the MSLEF II Associated Entities have agreed, subject
to certain exceptions, not to offer, sell, contract to sell or otherwise dispose
of shares of Common Stock for a period of 180 days after the date of this
Prospectus, without the prior written consent of MS&Co. (except with respect to
shares of Common Stock held by the MSLEF II Associated Entities, for which the
prior written consent of Kidder, Peabody will be required). See 'Underwriters'.
Prior to the Equity Offerings, there has been no public market for the
Common Stock. Trading of the Common Stock is expected to commence following the
completion of the Equity Offerings. There can be no assurance that an active
trading market will develop or continue after the completion of the Equity
Offerings or that the market price of the Common Stock will not decline below
the initial public offering price. No prediction can be made as to the effect,
if any, that future sales of shares, or the availability of shares for future
sale, will have on the market price prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales could occur, could adversely affect the prevailing market price of
the Common Stock or the ability of the Company to raise capital through a public
offering of its equity securities. See 'Risk Factors -- Absence of Prior Public
Market'.
In addition, the Company, MSLEF II and SIBV have entered into the
Registration Rights Agreement providing that MSLEF II shall have certain rights
to have the shares of Common Stock owned by it and certain other parties after
the Equity Offerings registered by the Company under the Securities Act in order
to permit the public sale of such shares. The Stockholders Agreement also grants
SIBV certain rights, including rights of first refusal, to purchase shares held
by MSLEF II and certain related parties. As described under 'Risk
Factors -- Control by Principal Stockholders', MSLEF II's (and its affiliates')
intention is to dispose of the shares of Common Stock owned by them. The timing
of such sales or other dispositions by them (which could include distributions
to the partners of MSLEF II) will depend on market and other conditions, but
could occur or commence relatively soon after the 180 day hold back period. See
'Risk Factors -- Control by Principal Stockholders'. Such dispositions could be
privately negotiated transactions or, subject to SIBV's rights of first refusal,
if applicable, public sales. Sales or dispositions of shares of Common Stock by
MSLEF II to persons, including its limited partners, other than SIBV or its
affiliates could increase the likelihood of a 'Change of Control' being deemed
to have occurred under the indentures relating to the Company's Subordinated
Debt, 1993 Notes and Senior Notes; however, so long as MSLEF II, SIBV and their
affiliates own more than 50% of the aggregate outstanding voting stock of the
Company, no such Change of Control will be deemed to have occurred by reason of
any other person's or group's ownership of the Company's voting stock. See
'Description of Certain Indebtedness'.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by 'Non-U.S. Holders'. In general, a 'Non-U.S. Holder' is an individual or
entity other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state or (iii) an estate or trust, the
income of which is includable in gross income for
83
United States federal income tax purposes regardless of its source. The term
'Non-U.S. Holder' does not include individuals who were United States citizens
within the ten-year period immediately preceding the date of this Prospectus and
whose loss of United States citizenship had as one of its principal purposes the
avoidance of United States taxes. This discussion is based on current law and is
for general information only. This discussion does not address aspects of United
States federal taxation other than income and estate taxation and does not
address all aspects of income and estate taxation, nor does it consider any
specific facts or circumstances that may apply to a particular Non-U.S. Holder.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME
AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States, or (ii) if certain income tax treaties apply, attributable to a
permanent establishment in the United States maintained by the Non-U.S. Holder.
Dividends effectively connected with such a United States trade or business or
attributable to such a United States permanent establishment generally will not
be subject to withholding tax (if the Non-U.S. Holder files certain forms,
including IRS Form 4224, with the payor of the dividend) and generally will be
subject to United States federal income tax on a net income basis, in the same
manner as if the Non-U.S. Holder were a resident of the United States. A
Non-U.S. Holder that is a corporation may be subject to an additional branch
profits tax at a rate of 30% (or such lower rate as may be specified by an
applicable treaty) on the repatriation from the United States of its
'effectively connected earnings and profits,' subject to certain adjustments. To
determine the applicability of a tax treaty providing for a lower rate of
withholding, dividends paid to an address in a foreign country are presumed
under current Treasury Regulations to be paid to a resident of that country
absent knowledge to the contrary. Treasury regulations proposed in 1984 that
have not been finally adopted, however, would require Non-U.S. Holders to file
certain forms to obtain the benefit of any applicable tax treaty providing for a
lower rate of withholding tax on dividends. Such forms would contain the
Non-U.S. Holder's name and address and an official statement by the competent
authority (as designated in the applicable treaty) in the foreign country
attesting to the Non-U.S. Holder's status as a resident thereof.
SALE OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain recognized upon the disposition of Common Stock unless
(i) the gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or, alternatively, if certain tax
treaties apply, attributable to a permanent establishment in the United States
maintained by the Non-U.S. Holder (and in either such case, the branch profits
tax may also apply if the Non-U.S. Holder is a corporation); (ii) in the case of
a Non-U.S. Holder who is a nonresident alien individual and holds shares of
stock as a capital asset, such individual is present in the United States for
183 days or more in the taxable year of disposition, and either (a) such
individual has a 'tax home' (as defined for United States federal income tax
purposes) in the United States, or (b) the gain is attributable to an office or
other fixed place of business maintained by such individual in the United
States; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of United States tax law applicable to certain United States expatriates; or
(iv) the Company is or has been a United States real property holding
corporation (a 'USRPHC') for United States federal income tax purposes (which
the Company does not believe that it is or is likely to become) at any time
within the shorter of the five year period preceding such disposition or such
Non-U.S. Holder's holding period. If the Company were or were to become a
USRPHC, gains realized upon a disposition of Common Stock by a Non-U.S. Holder
which did not directly or indirectly own more than 5% of the Common Stock during
the shorter of the periods described above generally would not be subject to
United States federal income tax, provided that the
84
Common Stock is 'regularly traded' on an established securities market. Since
the Common Stock will trade on the New York Stock Exchange, the Company believes
that the Common Stock will be 'regularly traded' on an established securities
market.
ESTATE TAX
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includable in the individual's
gross estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise, and therefore may be subject to United
States federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides or is established.
United States backup withholding (which generally is imposed at the rate of
31% on certain payments to persons that fail to furnish the information required
under the United States information reporting requirements) and information
reporting generally will not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the United States.
The payment of proceeds from the disposition of Common Stock to or through
a United States office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of proceeds from the disposition of Common Stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting, except as noted below. In the case
of proceeds from a disposition of Common Stock paid to or through a non-United
States office of a broker that is (i) a United States person, (ii) a 'controlled
foreign corporation' for United States federal income tax purposes or (iii) a
foreign person 50% or more of whose gross income from certain periods is
effectively connected with a United States trade or business, (a) backup
withholding will not apply unless such broker has actual knowledge that the
owner is not a Non-U.S. Holder, and (b) information reporting will apply unless
the broker has documentary evidence in its files that the owner is a Non-U.S.
Holder (and the broker has no actual knowledge to the contrary).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
Internal Revenue Service.
85
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the 'Underwriting Agreement'), the U.S. Underwriters
named below have severally agreed to purchase, and the Company has agreed to
sell to them, and the International Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, the respective
number of shares of the Common Stock set forth opposite the names of such
Underwriters below:
NUMBER OF
NAME SHARES
- -------------------------------------------------------------------------------------------- ---------
U.S. Underwriters:
Morgan Stanley & Co. Incorporated......................................................
Kidder, Peabody & Co. Incorporated.....................................................
Salomon Brothers Inc...................................................................
---------
Subtotal..........................................................................
---------
International Underwriters:
Morgan Stanley & Co. International Limited.............................................
Kidder, Peabody International Limited..................................................
Salomon Brothers International Limited.................................................
---------
Subtotal..........................................................................
---------
Total..................................................................................
---------
---------
The U.S. Underwriters and the International Underwriters are collectively
referred to as the 'Underwriters'. The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all of the shares of Common Stock offered
hereby (other than those covered by the U.S. Underwriters' over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions, (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Agreement Between U.S. and
International Underwriters. As used herein, 'United States or Canadian Person'
means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person) and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be purchased by the U.S. Underwriters and the
International Underwriters are referred to herein as the U.S. Shares and the
International Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the Price to Public set forth on the cover page hereof, in
United
86
States dollars, less an amount not greater than the per share amount of the
concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any shares of Common Stock a notice stating in substance that, by
purchasing such Common Stock, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of such
Common Stock in Canada or to, or for the benefit of, any resident of Canada in
contravention of the securities laws of Canada or any province or territory
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the foregoing
effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and will not offer or sell any shares of Common Stock in the United
Kingdom by means of any document (other than in circumstances which do not
constitute an offer to the public within the meaning of the Companies Act 1985);
(ii) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the shares of Common Stock offered hereby in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the issue of the shares of Common Stock, other than any document
which consists of, or is a part of, listing particulars, supplementary listing
particulars or any other document required or permitted to be published by
listing rules under Part IV of the Financial Services Act 1986, if that person
is of a kind described in Article 9(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1988.
The Underwriters propose to offer part of the Common Stock directly to the
public at the Price to Public set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of
$ per share under the Price to Public. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
other Underwriters or to certain dealers.
Application will be made to list the Common Stock on the New York Stock
Exchange, under the symbol ' '. The Underwriters intend to sell the shares of
Common Stock so as to meet the distribution requirements of such listing.
Pursuant to the Underwriting Agreement, the Company has granted the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 2,195,122 additional shares of Common Stock at the
Price to Public set forth on the cover page hereof, less underwriting discounts
and commissions. The U.S. Underwriters may exercise such option to purchase
solely for the purpose of covering overallotments, if any, made in connection
with the offering of the shares of Common Stock offered hereby. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such U.S. Underwriter's name
in the preceding table bears to the total number of U.S. Shares offered hereby.
The Company has agreed that, without the prior written consent of MS&Co.,
it will not register for sale or offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 180 days after the
date of this Prospectus, other than (i) the shares of Common Stock offered
hereby and the shares of Common Stock to be sold to Smurfit Holdings as
described in this Prospectus, (ii) any shares of Common Stock sold upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date of this Prospectus and (iii) any shares of Common Stock sold pursuant
to
87
existing employee benefit plans of the Company. In addition, SIBV and the MSLEF
II Associated Entities have agreed not to offer, sell, contract to sell or
otherwise dispose of shares of Common Stock for a period of 180 days after the
date of this Prospectus without the prior written consent of MS&Co. (except with
respect to shares of Common Stock held by the MSLEF II Associated Entities, for
which the prior written consent of Kidder, Peabody will be required). See
'Shares Eligible For Future Sale'.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Upon consummation of the Equity Offerings and the SIBV Investment,
affiliates of MS&Co. will own approximately % of the outstanding shares of
Common Stock ( % if the U.S. Underwriters' overallotment option is exercised
in full). See 'Security Ownership of Certain Beneficial Owners'. In addition,
MS&Co. owns approximately $ million aggregate principal amount of the 1993
Notes, approximately $ million aggregate principal amount of the Senior
Subordinated Notes, approximately $ million aggregate principal amount of the
Subordinated Debentures and approximately $ million aggregate principal amount
of the Junior Accrual Debentures.
The provisions of Schedule E ('Schedule E') to the By-laws of the NASD
apply to the U.S. Offering. Accordingly, the public offering price can be no
higher than that recommended by a 'qualified independent underwriter'. The NASD
requires that the 'qualified independent underwriter' (i) be an NASD member
experienced in the securities or investment banking business, (ii) not be an
affiliate of the issuer of the securities and (iii) agree to undertake the
responsibilities and liabilities of an underwriter under the Securities Act. In
accordance with this requirement, Salomon Brothers Inc ('Salomon') is serving in
such role, and the initial public offering price of the Common Stock offered
hereby will not be higher than Salomon's recommended initial public offering
price. Salomon also participated in the preparation of the Registration
Statement of which this Prospectus is a part and has performed due diligence
with respect thereto. The Company has agreed to pay Salomon a fee of $ in
connection with the Equity Offerings and to reimburse Salomon for certain
expenses. The Company has also agreed to indemnify Salomon against certain
liabilities, including liabilities under the Securities Act.
Pursuant to the provisions of Schedule E, NASD members may not execute
transactions in Common Stock offered hereby to any accounts over which they
exercise discretionary authority without prior written approval of the customer.
Rule 312(g) of the New York Stock Exchange effectively prohibits MS&Co. and
its affiliates, following the Equity Offerings, from effecting any transaction
(except on an unsolicited basis) for the account of any customer in, or making
any recommendation with respect to, the Common Stock.
The Company has reserved up to shares of Common Stock, representing
% of the shares of Common Stock to be sold in the Equity Offerings ( % if
the U.S. Underwriters' overallotment option is exercised in full), for sale to
certain of its directors, officers and other employees at the Price to Public
set forth on the cover page hereof. If such shares are not so sold to directors,
officers and other employees of the Company, they will be sold to the public.
From time to time MS&Co. has provided, and continues to provide, investment
banking services to the Company and its affiliates. See 'Certain Transactions'.
PRICING OF THE OFFERINGS
Prior to the Equity Offerings, there has been no public market for the
Common Stock. The initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Underwriters in
accordance with the recommendation of Salomon, the 'qualified independent
underwriter,' as is required by the by-laws of the NASD. Among the factors to be
considered in determining the initial public offering price will be the sales,
earnings and certain other financial and operating information of the Company in
recent periods, the future prospects of the Company and its industry in general,
and certain ratios, market prices of securities and certain financial and
operating information of companies engaged in activities similar to those of the
Company.
88
LEGAL MATTERS
The validity of the Common Stock and certain other legal matters relating
to the Equity Offerings have been passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom, New York, New York. Certain legal matters have been
passed upon for the Underwriters by Shearman & Sterling, New York, New York.
Skadden, Arps, Slate, Meagher & Flom also represented MSLEF II and the Company
in connection with the 1989 Transaction, the 1992 Transaction and regularly
represents the Company, MS&Co. and MSLEF II on a variety of legal matters.
Shearman & Sterling regularly represents MSLEF II on a variety of legal matters.
EXPERTS
The consolidated financial statements and schedules of the Company at
December 31, 1993 and 1992, and for each of the three years in the period ended
December 31, 1993, appearing in this Prospectus and Registration Statement, have
been audited by Ernst & Young, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendment thereto) on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, to which reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act, and in accordance therewith will
be required to file reports and other information with the Commission. The
Registration Statement and the exhibits and schedules thereto filed by the
Company with the Commission, as well as such reports and other information filed
by the Company with the Commission, may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and should also be available for inspection
and copying at the regional offices of the Commission located in the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can also be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
The Company anticipates that copies of such materials and other information
concerning the Company also will be available for inspection at the New York
Stock Exchange, 20 Broad Street, New York, New York 10005 on which Exchange the
Company's Common Stock will be traded.
89
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements of Jefferson Smurfit Corporation
(formerly SIBV/MS Holdings, Inc.):
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheets at December 31, 1993 and 1992................................................ F-3
For the Years Ended December 31, 1993, 1992 and 1991:
Consolidated Statements of Operations................................................................. F-4
Consolidated Statements of Stockholders' Deficit...................................................... F-5
Consolidated Statements of Cash Flows................................................................. F-6
Notes to Consolidated Financial Statements............................................................... F-7
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
JEFFERSON SMURFIT CORPORATION
(formerly SIBV/MS Holdings, Inc.)
We have audited the accompanying consolidated balance sheets of Jefferson
Smurfit Corporation (formerly SIBV/MS Holdings, Inc.) as of December 31, 1993
and 1992, and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three years in the period ended December
31, 1993. Our audits also included the financial statement schedules listed in
the Index at Item 16(b) of the Registration Statement. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jefferson
Smurfit Corporation at December 31, 1993 and 1992, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As described in Note 6 and Note 8 to the financial statements, in 1993, the
Company changed its method of accounting for income taxes and postretirement
benefits.
ERNST & YOUNG
St. Louis, Missouri
January 28, 1994
F-2
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------
1993 1992
--------- ---------
(IN MILLIONS, EXCEPT
SHARE DATA)
ASSETS
Current assets
Cash and cash equivalents................................................................ $ 44.2 $ 45.0
Receivables, less allowances of $9.2 in 1993 and $7.8 in 1992............................ 243.2 243.7
Refundable income taxes.................................................................. .7 17.0
Inventories
Work-in-process and finished goods................................................... 96.1 91.4
Materials and supplies............................................................... 137.2 132.6
--------- ---------
233.3 224.0
Deferred income taxes.................................................................... 41.9 41.1
Prepaid expenses and other current assets................................................ 5.2 10.1
--------- ---------
Total current assets............................................................. 568.5 580.9
Property, plant and equipment
Land..................................................................................... 60.2 47.6
Buildings and leasehold improvements..................................................... 241.3 216.4
Machinery, fixtures and equipment........................................................ 1,601.1 1,477.8
--------- ---------
1,902.6 1,741.8
Less accumulated depreciation and amortization........................................... 563.2 525.0
--------- ---------
1,339.4 1,216.8
Construction in progress................................................................. 35.1 53.3
--------- ---------
Net property, plant and equipment.................................................... 1,374.5 1,270.1
Timberland, less timber depletion............................................................ 261.5 226.4
Deferred debt issuance costs, net............................................................ 52.3 67.0
Goodwill, less accumulated amortization of $27.6 in 1993 and $20.3 in 1992................... 261.4 226.0
Other assets................................................................................. 78.9 66.0
--------- ---------
$ 2,597.1 $ 2,436.4
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt..................................................... $ 10.3 $ 32.4
Accounts payable......................................................................... 270.6 267.8
Accrued compensation and payroll taxes................................................... 110.1 85.7
Interest payable......................................................................... 52.6 45.4
Other accrued liabilities................................................................ 84.9 43.9
--------- ---------
Total current liabilities........................................................ 528.5 475.2
Long-term debt, less current maturities
Nonsubordinated.......................................................................... 1,839.4 1,741.3
Subordinated............................................................................. 779.7 761.7
--------- ---------
Total long-term debt............................................................. 2,619.1 2,503.0
Other long-term liabilities.................................................................. 257.1 108.1
Deferred income taxes........................................................................ 232.2 159.8
Minority interest............................................................................ 18.0 19.2
Stockholders' deficit
Cumulative exchangeable preferred stock, par value and liquidation value $1,000 per
share; authorized 500,000 shares; 167,000 issued and outstanding in 1992................ 167.0
Common stock
Class A, par value $.01 per share; authorized 4,010,000 shares; 1,840,000 shares
issued and outstanding in 1993 and 1992
Class B, par value $.01 per share; authorized 4,010,000 shares; 1,840,000 shares
issued and outstanding in 1993 and 1992
Class C, non-voting, par value $.01 per share; authorized 2,170,000 shares; 2,170,000
shares issued and outstanding in 1993 and 1992
Class D, non-voting, par value $.01 per share; authorized 2,170,000 shares; 2,170,000
issued and outstanding in 1993; 500,000 issued and outstanding in 1992
Class E, non-voting par value $.01 per share; authorized 603,656 shares; no shares
issued and outstanding
Additional paid-in capital............................................................... 798.8 631.8
Retained earnings (deficit)
At date of 1989 Recapitalization..................................................... (1,421.3) (1,421.3)
Subsequent to 1989 Recapitalization.................................................. (435.3) (206.4)
--------- ---------
(1,856.6) (1,627.7)
--------- ---------
Total stockholders' deficit...................................................... (1,057.8) (828.9)
--------- ---------
$ 2,597.1 $ 2,436.4
--------- ---------
--------- ---------
See notes to consolidated financial statements.
F-3
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
(IN MILLIONS EXCEPT PER SHARE
DATA)
Net sales...................................................................... $2,947.6 $2,998.4 $2,940.1
Costs and expenses
Cost of goods sold........................................................ 2,573.1 2,499.3 2,409.4
Selling and administrative expenses....................................... 239.2 231.4 225.2
Restructuring and other charges........................................... 150.0
-------- -------- --------
Income (loss) from operations........................................ (14.7) 267.7 305.5
Other income (expense)
Interest expense.......................................................... (254.2) (300.1) (335.2)
Other, net................................................................ 8.1 5.2 5.4
-------- -------- --------
Loss before income taxes, equity in earnings (loss) of affiliates,
minority interests, extraordinary item and cumulative effect of
accounting changes................................................. (260.8) (27.2) (24.3)
Provision for (benefit from) income taxes...................................... (83.0) 10.0 10.0
-------- -------- --------
(177.8) (37.2) (34.3)
Equity in earnings (loss) of affiliates........................................ .5 (39.9)
Minority interest share of (income) loss....................................... 3.2 2.7 (2.9)
-------- -------- --------
Loss before extraordinary item and cumulative effect of accounting
changes............................................................ (174.6) (34.0) (77.1)
Extraordinary item
Loss from early extinguishments of debt, net of income tax benefit of
$21.7 in 1993 and $25.8 in 1992......................................... (37.8) (49.8)
Cumulative effect of accounting changes
Postretirement benefits, net of income tax benefit of $21.9............... (37.0)
Income taxes.............................................................. 20.5
-------- -------- --------
Net loss............................................................. $ (228.9) $ (83.8) $ (77.1)
Per share of common stock:
Loss before extraordinary item and cumulative effect of accounting
changes................................................................. $ (27.47) $ (11.55) $ (25.20)
Extraordinary item........................................................ (5.95) (10.31)
Cumulative effect of accounting changes................................... (2.60)
-------- -------- --------
Net loss............................................................. $ (36.02) $ (21.86) $ (25.20)
-------- -------- --------
-------- -------- --------
See notes to consolidated financial statements.
F-4
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN MILLIONS EXCEPT SHARE DATA)
CUMULATIVE
EXCHANGEABLE
PREFERRED STOCK COMMON STOCK
---------------------- ------------------------
AMOUNT NUMBER AMOUNT NUMBER ADDITIONAL RETAINED
($1000 PAR OF ($.01 PAR OF PAID-IN EARNINGS
VALUE) SHARES VALUE) SHARES CAPITAL (DEFICIT)
---------- -------- --------- ----------- ---------- ---------
Balance at January 1, 1991............ $ 121.0 121,000 $ 4,020,000 $400.0 $(1,420.8)
Net loss.............................. (77.1)
Dividend on cumulative exchangeable
preferred stock in additional
shares.............................. 24.2 24,200 (24.2)
---------- -------- --------- ----------- ---------- ---------
Balance at January 1, 1992............ 145.2 145,200 4,020,000 400.0 (1,522.1)
Net loss.............................. (83.8)
Issuance of common stock, net of
related expenses.................... 2,330,000 231.8
Dividend on cumulative exchangeable
preferred stock in additional shares
through August 1992................. 21.8 21,800 (21.8)
---------- -------- --------- ----------- ---------- ---------
Balance at December 31, 1992.......... 167.0 167,000 6,350,000 631.8 (1,627.7)
Net loss.............................. (228.9)
Conversion of cumulative exchangeable
preferred stock..................... (167.0) (167,000) 1,670,000 167.0
---------- -------- --------- ----------- ---------- ---------
Balance at December 31, 1993.......... $ $ 8,020,000 $798.8 $(1,856.6)
---------- -------- --------- ----------- ---------- ---------
---------- -------- --------- ----------- ---------- ---------
See notes to consolidated financial statements.
F-5
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
(IN MILLIONS)
Cash flows from operating activities
Net loss..................................................................... $(228.9) $ (83.8) $ (77.1)
Adjustments to reconcile net loss to net cash provided by operating
activities
Extraordinary loss from early extinguishment of debt.................... 59.5 75.6
Cumulative effect of accounting changes
Postretirement benefits............................................ 58.9
Income taxes....................................................... (20.5)
Restructuring and other charges......................................... 150.0
Depreciation, depletion and amortization................................ 130.8 134.9 130.0
Amortization of deferred debt issuance costs............................ 7.9 14.6 17.6
Deferred income taxes................................................... (156.9) .1 (6.3)
Equity in (earnings) loss of affiliates................................. (.5) 39.9
Non-cash interest....................................................... 18.0 33.6 37.8
Non-cash employee benefit expense....................................... (12.5) (18.8) (9.4)
Change in current assets and liabilities, net of effects from
acquisitions
Receivables........................................................ .7 12.9 (6.8)
Inventories........................................................ 14.2 (10.4) (20.8)
Prepaid expenses and other current assets.......................... 5.0 (2.9) 2.3
Accounts payable and accrued liabilities........................... 26.2 14.9 (30.8)
Interest payable................................................... 4.7 (4.9) 5.5
Income taxes....................................................... 16.2 (17.3) 13.4
Other, net.............................................................. 4.9 (2.3) 37.7
------- ------- -------
Net cash provided by operating activities.................................... 78.2 145.7 133.0
------- ------- -------
Cash flows from investing activities
Property additions........................................................... (97.2) (77.5) (102.0)
Timberland additions......................................................... (20.2) (20.4) (16.9)
Investments in affiliates and acquisitions................................... (.1) (5.8) (9.9)
Proceeds from property and timberland disposals and sale of businesses....... 24.5 1.8 6.1
------- ------- -------
Net cash used for investing activities....................................... (93.0) (101.9) (122.7)
------- ------- -------
Cash flows from financing activities
Borrowings under senior unsecured notes...................................... 500.0
Net borrowings (repayments) under accounts receivable securitization
program..................................................................... 6.4 (8.8) 184.7
Borrowings under bank credit facility........................................ 400.0
Other increases in long-term debt............................................ 12.0 56.8 55.8
Payments of long-term debt and, in 1992, related premiums.................... (479.2) (698.6) (203.3)
Deferred debt issuance costs................................................. (25.2) (40.4) (3.7)
Capital contribution, net of related expenses................................ 231.8
------- ------- -------
Net cash provided by (used for) financing activities......................... 14.0 (59.2) 33.5
------- ------- -------
Increase (decrease) in cash and cash equivalents.................................. (.8) (15.4) 43.8
Cash and cash equivalents
Beginning of year............................................................ 45.0 60.4 16.6
------- ------- -------
End of year.................................................................. $ 44.2 $ 45.0 $ 60.4
------- ------- -------
------- ------- -------
See notes to consolidated financial statements.
F-6
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
1. BASIS OF PRESENTATION
Jefferson Smurfit Corporation (formerly SIBV/MS Holdings, Inc.),
hereinafter referred to as the 'Company', owns 100% of the equity interest in
Jefferson Smurfit Corporation (U.S.) (formerly Jefferson Smurfit Corporation),
hereinafter referred to as 'JSC'. The Company has no operations other than its
investment in JSC. Fifty percent of the voting stock of the Company is owned by
Smurfit Packaging Corporation ('SPC') and Smurfit Holdings B.V. ('SHBV'),
indirect wholly-owned subsidiaries of Jefferson Smurfit Group plc ('JS Group'),
a public corporation organized under the laws of the Republic of Ireland. The
remaining 50% is owned by The Morgan Stanley Leveraged Equity Fund II, L.P.
('MSLEF II').
In December 1989, pursuant to a series of transactions referred to
hereafter as the '1989 Recapitalization', the Company acquired the entire equity
interest in JSC and Container Corporation of America ('CCA') acquired its equity
interest not owned by JSC. Prior to the 1989 Recapitalization, Smurfit
International B.V. ('SIBV'), an indirect wholly-owned subsidiary of JS Group,
owned 78% of JSC's outstanding common equity, the public owned the remaining
common equity of JSC and JSC indirectly owned 50% of the common stock and 100%
of the preferred stock of CCA. The other 50% of the common stock of CCA was
owned by The Morgan Stanley Leveraged Equity Fund L.P. and other investors
('MSLEF I Group'). Both MSLEF II and MSLEF I Group are affiliates of Morgan
Stanley & Co. Incorporated ('MS&Co.'). Unless otherwise indicated, references to
the Company include JSC and CCA.
For financial accounting purposes, the Company's purchase of the JSC common
equity owned by SIBV and the acquisition by CCA of its common equity owned by
MSLEF I Group were accounted for as purchases of treasury stock, resulting in a
deficit balance in stockholders' equity in the accompanying consolidated
financial statements. The Company's acquisition of JSC's minority interest,
representing approximately 22% of JSC's common equity, was accounted for as a
purchase.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. Significant
intercompany accounts and transactions are eliminated in consolidation.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. At
December 31, 1993 cash and cash equivalents of $42.9 million are maintained as
collateral for obligations under the accounts receivable securitization program
(see Note 5).
Revenue Recognition: Revenue is recognized at the time products are
shipped.
Inventories: Inventories are valued at the lower of cost or market,
principally under the last-in, first-out ('LIFO') method except for $50.6
million in 1993 and $51.9 million in 1992 which are valued at the lower of
average cost or market. First-in, first-out costs (which approximate replacement
costs) exceed the LIFO value by $44.7 million and $46.3 million at December 31,
1993 and 1992, respectively.
Property, Plant and Equipment: Property, plant and equipment are carried at
cost. Provisions for depreciation and amortization are made using straight-line
rates over the estimated useful lives of the related assets and the terms of the
applicable leases for leasehold improvements.
Effective January 1, 1993, the Company changed its estimate of the useful
lives of certain machinery and equipment. Based upon historical experience and
comparable industry practice, the depreciable lives of the papermill machines
that previously ranged from 16 to 20 years were increased to an average of 23
years, while major converting equipment and folding carton presses that
previously averaged 12 years were increased to an average of 20 years. These
changes were made to better reflect
F-7
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
the estimated periods during which such assets will remain in service. The
change had the effect of reducing depreciation expense by $17.8 million and
decreasing net loss by $11.0 million in 1993.
Timberland: The portion of the costs of timberland attributed to standing
timber is charged against income as timber is cut, at rates determined annually,
based on the relationship of unamortized timber costs to the estimated volume of
recoverable timber. The costs of seedlings and reforestation of timberland are
capitalized.
Deferred Debt Issuance Costs: Deferred debt issuance costs are amortized
over the terms of the respective debt obligations using the interest method.
Goodwill: The excess of cost over the fair value assigned to the net assets
acquired is recorded as goodwill and is being amortized using the straight-line
method over 40 years.
Income Taxes: Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability method
required by Statement of Financial Accounting Standards ('SFAS') No. 109,
'Accounting for Income Taxes' (see Note 6).
Interest Rate Swap Agreements: The Company enters into interest rate swap
agreements which involve the exchange of fixed and floating rate interest
payments without the exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements as an adjustment to interest expense.
Earnings (Loss) Per Common Share: The computations of earnings (loss) per
common share are based on the weighted average number of common shares
outstanding of 6,355,000, 4,831,000 and 4,020,000 during 1993, 1992 and 1991,
respectively, after recognition of preferred dividend requirements in 1992 and
1991 of $21.8 million and $24.2 million, respectively. The computations do not
assume the inclusion of common stock equivalents associated with stock options
or the conversion of the cumulative exchangeable preferred stock as the results
would have been antidilutive.
Reclassifications: Certain reclassifications of prior year presentations
have been made to conform to the 1993 presentation.
3. INVESTMENTS
Equity in loss of affiliates of $39.9 million in 1991, which is net of
deferred income tax benefits of $18.5 million, includes the Company's (i)
write-off of its equity investment in Temboard, Inc., formerly Temboard and
Company Limited Partnership ('Temboard'), totalling $29.3 million, (ii)
write-off of its remaining equity investment in PCL Industries Limited ('PCL')
totaling $6.7 million, and (iii) proportionate share of the net loss of equity
affiliates, including PCL prior to the write-off of that investment, totaling
$3.9 million.
F-8
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
4. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH JS GROUP
Transactions with JS Group, its subsidiaries and affiliates were as
follows:
YEAR ENDED DECEMBER 31,
-------------------------
1993 1992 1991
----- ----- -----
Product sales............................................................ $18.4 $22.8 $21.0
Product and raw material purchases....................................... 49.3 60.1 11.8
Management services income............................................... 5.8 5.6 5.4
Charges from JS Group for services provided.............................. .4 .3 .7
Charges from JS Group for letter of credit and commitment fees (see Note
5)..................................................................... 2.9
Charges to JS Group for costs pertaining to the No. 2 paperboard
machine................................................................ 62.2 54.7 10.9
Receivables at December 31............................................... 1.7 3.3 2.4
Payables at December 31.................................................. 11.6 10.2 3.4
Product sales to and purchases from JS Group, its subsidiaries, and
affiliates are consummated on terms generally similar to those prevailing with
unrelated parties.
JSC provides certain subsidiaries and affiliates of JS Group with general
management and elective management services under separate Management Services
Agreements. In consideration for general management services, JSC is paid a fee
up to 2% of the subsidiaries' or affiliate's gross sales. In consideration for
elective services, JSC is reimbursed for its direct cost of providing such
services.
In October 1991 an affiliate of JS Group completed a rebuild of the No. 2
paperboard machine owned by the affiliate that is located in CCA's Fernandina
Beach, Florida paperboard mill (the 'Fernandina Mill'). Pursuant to an operating
agreement between CCA and the affiliate, the affiliate engaged CCA to operate
and manage the No. 2 paperboard machine. As compensation to CCA for its services
the affiliate reimburses CCA for production and manufacturing costs directly
attributable to the No. 2 paperboard machine and pays CCA a portion of the
indirect manufacturing, selling and administrative costs incurred by CCA for the
entire Fernandina Mill. The compensation is determined by applying various
formulas and agreed upon amounts to the subject costs. The amounts reimbursed to
CCA are reflected as reductions of cost of goods sold and selling and
administrative expenses in the accompanying consolidated statements of
operations.
TRANSACTIONS WITH TIMES MIRROR
Under the terms of a long-term agreement, Smurfit Newsprint Corporation
('SNC'), a majority-owned subsidiary of the Company, supplies newsprint to Times
Mirror, a minority shareholder of SNC, at amounts which approximate prevailing
market prices. The obligations of the Company and Times Mirror to supply and
purchase newsprint, respectively, are wholly or partially terminable upon the
occurrence of certain defined events. Sales to Times Mirror for 1993, 1992 and
1991 were $115.2 million, $114.0 million and $150.6 million, respectively.
F-9
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
5. LONG-TERM DEBT
Long-term debt at December 31 consists of:
1993 1992
----------------------- -----------------------
CURRENT CURRENT
MATURITIES LONG-TERM MATURITIES LONG-TERM
---------- --------- ---------- ---------
1992 term loan.......................................... $ $ 201.3 $ $ 392.3
1989 term loan.......................................... 412.3 608.8
Revolving loans......................................... 196.5 223.0
Senior secured notes.................................... 270.5 270.5
Accounts receivable securitization program loans........ 182.3 175.9
Senior unsecured notes.................................. 500.0
Other................................................... 10.3 76.5 9.5 70.8
---------- --------- ---------- ---------
Total non-subordinated........................ 10.3 1,839.4 9.5 1,741.3
13.95% Subordinated note, due 1993...................... 22.9
13.5% Senior subordinated notes, due 1999............... 350.0 350.0
14.0% Subordinated debentures, due 2001................. 300.0 300.0
15.5% Junior subordinated accrual debentures, due
2004.................................................. 129.7 111.7
---------- --------- ---------- ---------
Total subordinated............................ 779.7 22.9 761.7
---------- --------- ---------- ---------
$ 10.3 $2,619.1 $ 32.4 $2,503.0
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Aggregate annual maturities of long-term debt at December 31, 1993, for the
next five years are $10.3 million in 1994, $220.6 million in 1995, $379.8
million in 1996, $431.5 million in 1997, and $273.0 million in 1998. In
addition, approximately $77.7 million in accrued interest related to the Junior
Subordinated Accrual Debentures (the 'Junior Accrual Debentures') becomes due in
1994. Accrued interest of approximately $58.9 million is classified as long-term
debt in the accompanying financial statements because it is the Company's
intention to refinance the Junior Accrual Debentures in December 1994 with the
proceeds from its $200 million commitment from SIBV described below.
1992 TERM LOAN
In August 1992, the Company repurchased $193.5 million of Junior Accrual
Debentures, and repaid $19.1 million of the Subordinated Note and $400 million
of the 1989 term loan facility ('1989 Term Loan'). Proceeds of $231.8 million
from the issuance of additional common stock (see Note 7) and a $400 million
senior secured term loan ('1992 Term Loan') were used to repurchase the Junior
Accrual Debentures and repay the loans. Premiums paid in connection with this
transaction, the write-off of related deferred debt issuance costs, and losses
on interest rate swap agreements, totaling $49.8 million (net of income tax
benefits of $25.8 million), are reflected in the accompanying 1992 consolidated
statement of operations as an extraordinary loss.
Outstanding loans under the 1992 Term Loan bear interest primarily at rates
for which Eurodollar deposits are offered plus 3% (6.375% at December 31, 1993).
The 1992 Term Loan, which matures on December 31, 1997, may require principal
prepayments before then as defined in the 1992 Term Loan.
1989 TERM LOAN AND REVOLVING CREDIT FACILITY
The 1989 Amended and Restated Credit Agreement ('1989 Credit Agreement')
consists of the 1989 Term Loan and a $400.0 million revolving credit facility
(which expires in 1995) of which up to $125.0 million may consist of letters of
credit. The 1989 Term Loan, which expires in 1997, requires
F-10
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
minimum annual principal reductions, subject to additional reductions if the
Company has excess cash flows or excess cash balances, as defined, or receives
proceeds from certain sales of assets, issuance of equity securities, permitted
indebtedness or any pension fund termination.
Outstanding loans under the 1989 Credit Agreement bear interest primarily
at rates for which Eurodollar deposits are offered plus 2.25%. The weighted
average interest rate at December 31, 1993 on outstanding Credit Agreement
borrowings was 5.95%. A commitment fee of 1/2 of 1% per annum is assessed on the
unused portion of the revolving credit facility. At December 31, 1993, the
unused portion of the revolving credit facility, after giving consideration to
outstanding letters of credit, was $112.1 million.
SENIOR SECURED NOTES
The Senior Secured Notes due in 1998 may be prepaid at any time. Mandatory
prepayment is required from a pro rata portion of net cash proceeds of certain
sales of assets or additional borrowings. The Senior Secured Notes bear interest
at rates for which three month Eurodollar deposits are offered plus 2.75% (6.25%
at December 31, 1993).
Obligations under the 1992 Term Loan, the 1989 Credit Agreement, and the
Senior Secured Notes Agreement share pro rata in certain mandatory prepayments
and the collateral and guarantees that secure these obligations. These
obligations are secured by the common stock of JSC and CCA and substantially all
of their assets, with the exception of cash and cash equivalents and trade
receivables, and are guaranteed by the Company. These agreements contain various
business and financial covenants including, among other things, (i) limitations
on the incurrence of indebtedness; (ii) limitations on capital expenditures;
(iii) restrictions on paying dividends, except for dividends paid by SNC; (iv)
maintenance of minimum interest coverage ratios; and (v) maintenance of
quarterly and annual cash flows, as defined.
In anticipation of violation of certain financial covenants at September
30, 1993, in connection with its 1992 Term Loan, 1989 Credit Agreement and the
Senior Secured Notes, the Company requested and received waivers from its lender
group. In addition, the Company's credit facilities were amended in December
1993, to modify financial covenants that had become too restrictive due to
continued pricing weakness in the paper industry. The Company complied with the
amended covenants at December 31, 1993.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM LOANS
The $230.0 million accounts receivable securitization program
('Securitization Program') provides for the sale of certain of the Company's
trade receivables to a wholly-owned, bankruptcy remote, limited purpose
subsidiary, Jefferson Smurfit Finance Corporation ('JS Finance'), which finances
its purchases of the receivables, through borrowings from a limited purpose
finance company (the 'Issuer') unaffiliated with the Company. The Issuer, which
is restricted to making loans to JS Finance, issued $95.0 million in fixed rate
term notes, issued $13.8 million under a subordinated loan, and may issue up to
$121.2 million in trade receivables backed commercial paper or obtain up to
$121.2 million under a revolving liquidity facility to fund loans to JS Finance.
At December 31, 1993, $47.1 million was available for additional borrowing.
Borrowings under the Securitization Program, which expires April 1996, have been
classified as long-term debt because of the company's intent to refinance this
debt on a long-term basis and the availability of such financing under the terms
of the program.
At December 31, 1993, all assets of JS Finance, principally cash and cash
equivalents of $42.9 million and trade receivables of $173.8 million, are
pledged as collateral for obligations of JS Finance to the Issuer. Interest
rates on borrowings under this program are at a fixed rate of 9.56% for $95.0
million of the borrowings and at a variable rate on the remainder (3.94% at
December 31, 1993).
F-11
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
SENIOR UNSECURED NOTES
In April 1993, CCA issued $500.0 million of 9.75% Senior Unsecured Notes
due 2003 which are unconditionally guaranteed by JSC. Net proceeds from the
offering were used to repay: $100.0 million outstanding under the revolving
credit facility, $196.5 million outstanding under the 1989 Term Loan, and $191.0
million outstanding under the 1992 Term Loan. The write-off of related deferred
debt issuance costs and losses on interest rate swap agreements, totalling $37.8
million (net of income tax benefits of $21.7 million), are reflected in the
accompanying 1993 consolidated statement of operations as an extraordinary item.
In connection with the issuance of the Senior Unsecured Notes, the Company
entered into an agreement with SIBV whereby SIBV committed to purchase up to
$200 million of 11.5% Junior Subordinated Notes to be issued by the Company
maturing December 1, 2005. From time to time until December 31, 1994, the
Company, at their option, may issue the Junior Subordinated Notes, the proceeds
of which must be used to repurchase or otherwise retire subordinated debt. The
Company is obligated to pay SIBV for letter of credit fees incurred by SIBV in
connection with this commitment in addition to an annual commitment fee of
1.375% on the undrawn principal amount (See Note 4).
The Senior Unsecured Notes due April 1, 2003, which are not redeemable
prior to maturity, rank pari passu with the 1992 Term Loan, the 1989 Credit
Agreement and the Senior Secured Notes. The Senior Unsecured Note Agreement
contains business and financial covenants which are substantially less
restrictive than those contained in the 1992 Term Loan, the 1989 Credit
Agreement and the Senior Secured Notes Agreement.
OTHER NON-SUBORDINATED DEBT
Other non-subordinated long-term debt at December 31, 1993, is payable in
varying installments through the year 2004. Interest rates on these obligations
averaged approximately 9.76 % at December 31, 1993.
SUBORDINATED DEBT
The Senior Subordinated Notes, Subordinated Debentures and Junior Accrual
Debentures are unsecured obligations of CCA and are unconditionally guaranteed
on a senior subordinated, subordinated and junior subordinated basis,
respectively, by JSC. Semi-annual interest payments are required on the Senior
Subordinated Notes, and Subordinated Debentures. Interest on the Junior Accrual
Debentures accrues and compounds on a semi-annual basis until December 1, 1994
at which time accrued interest is payable. Thereafter, interest on the Junior
Accrual Debentures will be payable semi-annually.
The Senior Subordinated Notes are redeemable at CCA's option beginning
December 1, 1994 with premiums of 6.75% and 3.375% of the principal amount if
redeemed during the 12-month periods commencing December 1, 1994 and 1995,
respectively. The payment of principal and interest is subordinated to the prior
payment, when due, of all senior indebtedness, as defined.
The Subordinated Debentures are redeemable at CCA's option beginning
December 1, 1994 with premiums of 7% and 3.5% of the principal amount if
redeemed during the 12-month periods commencing December 1, 1994 and 1995,
respectively. The payment of principal and interest is subordinated to the prior
payment, when due, of all senior indebtedness, as defined, and the Senior
Subordinated Notes. Sinking fund payments to retire 33 1/3% of the original
aggregate principal amount of the Subordinated Debentures are required on each
of December 15, 1999 and 2000.
The Junior Accrual Debentures are redeemable at CCA's option beginning
December 1, 1994 at 100% of the principal amount. The payment of principal and
interest is subordinated to the prior
F-12
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
payment, when due, of all senior indebtedness, as defined, the Senior
Subordinated Notes and the Subordinated Debentures. Sinking fund payments to
retire 33 1/3% of the original aggregate principal amount of the Junior Accrual
Debentures are required on each of December 1, 2002 and 2003.
Holders of the Senior Subordinated Notes, Subordinated Debentures, and
Junior Accrual Debentures have the right, subject to certain limitations, to
require the Company to repurchase their securities at 101% of the principal
amount plus accrued and unpaid interest, upon the occurrence of a change of
control or in certain events from proceeds of major asset sales, as defined. The
Senior Subordinated Notes, Subordinated Debentures and Junior Accrual Debentures
contain various business and financial covenants which are less restrictive than
those contained in the 1992 Term Loan, the 1989 Credit Agreement and the Senior
Secured Notes Agreement.
INTEREST RATE SWAPS
At December 31, 1993, the Company has interest rate swap and other hedging
agreements with commercial banks which effectively fix (for remaining periods up
to 3 years) the Company's interest rate on $215 million of variable rate
borrowings at average all-in rates of approximately 9.1%. At December 31, 1993,
the Company had $435 million of swap commitments outstanding which were marked
to market in April 1993. The Company also has outstanding interest rate swap
agreements related to the Securitization Program that effectively convert $95.0
million of fixed rate borrowings to a variable rate (5.6% at December 31, 1993)
through December 1995, and convert $80.0 million of variable rate borrowings to
a fixed rate of 7.2% through January 1996. In addition, the Company is party to
interest rate swap agreements related to the Senior Unsecured Notes which
effectively converts $500.0 million of fixed rate borrowings to a variable rate
(8.6% at December 31, 1993) maturing at various dates through May 1995. The
Company is exposed to credit loss in the event of non-performance by the other
parties to the interest rate swap agreements. However, the Company does not
anticipate non-performance by the counter parties.
Interest costs capitalized on construction projects in 1993, 1992 and 1991
totalled $3.4 million, $4.2 million and $2.4 million, respectively. Interest
payments on all debt instruments for 1993, 1992 and 1991 were $226.2 million,
$257.6 million and $273.1 million, respectively.
6. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
No. 109, 'Accounting for Income Taxes'. As permitted under the new rules, prior
years' financial statements have not been restated.
The cumulative effect of adopting SFAS No. 109 as of January 1, 1993 was to
increase net income by $20.5 million. For 1993, application of SFAS No. 109
increased the pretax loss by $14.5 million because of increased depreciation
expense as a result of the requirement to report assets acquired in prior
business combinations at pretax amounts.
In adopting this new accounting principle, the Company (i) adjusted assets
acquired and liabilities assumed in prior business combinations from their
net-of-tax amounts to their pre-tax amounts and recognized the related deferred
tax assets and liabilities for those temporary differences, (ii) adjusted
deferred income tax assets and liabilities to statutory income tax rates and for
previously unrecognized tax benefits related to certain state net operating loss
carryforwards and, (iii) adjusted asset and liability accounts arising from the
1986 acquisition and the 1989 Recapitalization to recognize potential tax
liabilities related to those transactions. The net effect of these adjustments
on assets and liabilities was to increase inventory $23.0 million, increase
property, plant and equipment and timberlands $196.5 million, increase goodwill
$42.0 million, increase liabilities by $12.6 million, and increase deferred
income taxes by $228.4 million.
F-13
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
At December 31, 1993, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $308.6 million (expiring in the
years 2005 through 2008), none of which are available for utilization against
alternative minimum taxes.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1993 are as follows:
Deferred tax liabilities:
Depreciation and depletion.................................................. $354.5
Pensions.................................................................... 26.7
Other....................................................................... 104.0
------
Total deferred tax liabilities......................................... 485.2
------
Deferred tax assets:
Retiree medical............................................................. $ 44.6
Other employee benefit and insurance plans.................................. 70.3
Restructuring and other charges............................................. 49.3
NOL and tax credit carryforwards............................................ 108.4
Other....................................................................... 47.1
------
Total deferred tax assets.............................................. 319.7
Valuation allowance for deferred tax assets...................................... (24.8)
------
Net deferred tax assets..................................................... 294.9
------
Net deferred tax liabilities................................................ $190.3
------
------
F-14
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
Provisions for (benefit from) income taxes before extraordinary item and
cumulative effect of accounting changes were as follows:
LIABILITY
METHOD DEFERRED METHOD
--------- ----------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
--------- --------------- ---------------
Current
Federal............................................................ $ 28.1 $(2.2) $14.4
State and local.................................................... 2.2 2.1 1.9
--------- ------ ------
30.3 (.1) 16.3
Deferred
Federal............................................................ (53.5) 9.7 (7.1)
State and local.................................................... 6.0 .4 .8
Benefits of net operating loss carryforwards....................... (71.5)
--------- ------ ------
(119.0) 10.1 (6.3)
Adjustment of deferred tax assets and liabilities for enacted tax rate
change................................................................ 5.7
--------- ------ ------
$ (83.0) $10.0 $10.0
--------- ------ ------
--------- ------ ------
The Company increased its deferred tax assets and liabilities in 1993 as a
result of legislation enacted during 1993 increasing the corporate federal
statutory tax rate from 34% to 35% effective January 1, 1993.
The Internal Revenue Service completed the examination of the Company's
consolidated federal income tax returns for 1987 and 1988. The provision for
current taxes includes settlement of the additional tax liabilities.
The components of the provision for (benefit from) deferred taxes were as
follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1992 1991
----------------------- -----------------------
Depreciation and depletion................................................ $ 15.2 $ 21.8
Alternative minimum tax................................................... 10.2 (7.5)
Tax loss carryforwards.................................................... (24.3) (9.7)
Equity in affiliates...................................................... 6.8 3.2
Other employee benefits................................................... 2.7 (10.7)
Other, net................................................................ (.5) (3.4)
------- -------
$ 10.1 $ (6.3)
------- -------
------- -------
F-15
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
A reconciliation of the difference between the statutory Federal income tax
rate and the effective income tax rate as a percentage of loss before income
taxes, equity in earnings (loss) of affiliates, extraordinary items, and
cumulative effect of accounting changes is as follows:
LIABILITY
METHOD DEFERRED METHOD
--------- ----------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
--------- --------------- ---------------
U.S. Federal statutory rate............................................. (35.0)% (34.0)% (34.0)%
Adjustment of deferred tax assets and liabilities for enacted tax rate
change................................................................ 2.2
State and local taxes, net of Federal tax benefit....................... (2.0) 5.8 7.3
Permanent differences from applying purchase accounting................. 3.5 62.7 65.4
Taxes on foreign distributions.......................................... .1 .8 4.5
Effect of valuation allowances on deferred tax assets, net of Federal
benefit............................................................... 1.2
Other, net.............................................................. (1.8) 1.5 (2.1)
--------- ------ ------
(31.8)% 36.8% 41.1%
--------- ------ ------
--------- ------ ------
The Company made income tax payments of $33.0 million, $6.6 million, and
$5.9 million in 1993, 1992, and 1991, respectively.
7. CAPITAL STOCK
On August 26, 1992, the Company's shareholders approved an increase in the
authorized number of shares of Class C and Class D common stock of the Company
from 500,000 shares to 2,170,000 shares, and authorized the issuance of up to
603,656 shares of Class E non-voting shares. The Company then issued an
additional 330,000 shares of Class A common stock to SHBV, and an additional
330,000 shares of Class B common stock and 1,670,000 shares of Class C common
stock to MSLEF II Group. Net proceeds from the shares issued totalled $231.8
million and were used to repay a portion of the Company's long-term debt (see
Note 5). At December 31, 1993, SPC converted its shares of Cumulative
Exchangeable Preferred Stock ('Preferred Stock'), bearing dividends at a
quarterly rate of 4.664% payable in additional preferred shares, to 1,670,000
shares of Class D common stock at a value of $167 million.
Because the Preferred Stock shares were converted at December 31, 1993 into
1,670,000 shares of Class D common stock with a fixed value at August 26, 1992
of $167 million, no Preferred Stock dividends were recognized by the Company
subsequent to August 26, 1992.
The Company's Class A, Class B, Class C, Class D and Class E common stock
are identical in all respects, except for voting rights and except that the
Company's Board of Directors can cause the exchange of shares of the Class C
stock into Class B stock at any time, thereby causing the automatic conversion
of an equal number of shares of Class D stock into Class A stock.
8. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company sponsors noncontributory defined benefit pension plans covering
substantially all employees not covered by multi-employer plans. Plans that
cover salaried and management employees provide pension benefits that are based
on the employee's five highest consecutive calendar years' compensation during
the last ten years of service. Plans covering non-salaried employees generally
provide benefits of stated amounts for each year of service. These plans provide
reduced benefits for
F-16
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
early retirement. The Company's funding policy is to make minimum annual
contributions required by applicable regulations. The Company also participates
in several multi-employer pension plans, which provide defined benefits to
certain union employees.
In order to minimize significant year-to-year fluctuations in pension cost
caused by financial market volatility, the Company changed, effective as of
January 1, 1993 the method of accounting used for determining the market-related
value of plan assets. The method changed from a fair market value to a
calculated value that recognizes all changes in a systematic manner over a
period not to exceed four years and eliminates the use of a corridor approach
for amoritizing gains and losses. The effect of this change on 1993 results of
operations, including the cumulative effect of prior years, was not material.
Assumptions used in the accounting for the defined benefit plans were:
1993 1992 1991
------ ------ -------
Weighted average discount rates........................................ 7.60% 8.75% 9.0%
Rates of increase in compensation levels............................... 4.0% 5.5% 6.0%
Expected long-term rate of return on assets............................ 10.0% 10.0% 10.0%
The components of net pension income for the defined benefit plans and the
total contributions charged to pension expense for the multi-employer plans
follows:
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
------ ------ -------
Defined benefit plans:
Service cost-benefits earned during the period..................... $ 12.7 $ 12.1 $ 11.3
Interest cost on projected benefit obligations..................... 54.0 50.1 47.6
Actual (return) loss on plan assets................................ (91.1) (26.4) (147.9)
Net amortization and deferral...................................... 8.8 (54.6) 80.3
Multi-employer plans.................................................... 2.2 2.1 1.5
------ ------ -------
Net pension income............................................ $(13.4) $(16.7) $ (7.2)
------ ------ -------
------ ------ -------
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at December 31 for the Company's and its
subsidiaries' defined benefit pension plans:
1993 1992
------ ------
Actuarial present value of benefit obligations:
Vested benefit obligations...................................................... $616.7 $530.5
------ ------
Accumulated benefit obligations................................................. $664.3 $543.0
------ ------
Projected benefit obligations................................................... $716.0 $599.0
Plan assets at fair value............................................................ 778.1 729.2
------ ------
Plan assets in excess of projected benefit obligations............................... 62.1 130.2
Unrecognized net (gain) loss......................................................... 34.5 (45.2)
Unrecognized net asset at December 31, being recognized over 14 to 15 years.......... (29.2) (33.2)
------ ------
Net pension asset.......................................................... $ 67.4 $ 51.8
------ ------
------ ------
Approximately 44% of plan assets at December 31, 1993 are invested in cash
equivalents or debt securities and 56% are invested in equity securities,
including common stock of JS Group having a market value of $87.7 million.
F-17
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits for
all salaried and certain hourly employees. The Company has various plans under
which the cost may be borne either by the Company, the employee or partially by
each party. The Company does not currently fund these plans. These benefits are
discretionary and are not a commitment to long-term benefit payments. The plans
were amended effective January 1, 1993 to allow employees who retire on or after
January 1, 1994 to become eligible for these benefits only if they retire after
age 60 while working for the Company.
Effective January 1, 1993, the Company adopted SFAS No. 106, 'Employers'
Accounting for Postretirement Benefits Other Than Pensions', which requires
companies to accrue the expected cost of retiree benefit payments, other than
pensions, during employees' active service period. The Company elected to
immediately recognize the accumulated liability, measured as of January 1, 1993.
The cumulative effect of this change in accounting principle resulted in a
charge of $37.0 million (net of income tax benefits of $21.9 million). The
Company had previously recorded an obligation of $36.0 million in connection
with prior business combinations. The net periodic postretirement benefit cost
for 1993 was $9.8 million. In 1992 and 1991, the cost of the postretirement
benefits was recognized as claims were paid and was $6.4 million and $5.3
million, respectively.
The following table sets forth the accumulated postretirement benefit
obligation ('APBO') with respect to these benefits as of December 31, 1993:
Retirees................................................................... $ 58.3
Active employees........................................................... 51.8
------
Total accumulated postretirement benefit obligation........................ 110.1
Unrecognized net loss...................................................... (11.9)
------
Accrued postretirement benefit cost........................................ $ 98.2
------
------
Net periodic postirement benefit cost for 1993 included the following
components:
Service cost of benefits earned............................................ $ 1.5
Interest cost on accumulated postretirement benefit obligation............. 8.3
------
Net periodic postretirement benefit cost................................... $ 9.8
------
------
A weighted-average discount rate of 7.6% was used in determining the APBO
at December 31, 1993. The weighted-average annual assumed rate of increase in
the per capita cost of covered benefits ('healthcare cost trend rate') was 11%,
with an annual decline of 1% until the rate reaches 5%. The effect of a 1%
increase in the assumed healthcare cost trend rate would increase both APBO as
of December 31, 1993 by $5.7 million and the annual net periodic postretirement
benefit cost for 1993 by $.8 million.
1992 STOCK OPTION PLAN
Effective August 26, 1992, the Company adopted the 1992 Stock Option Plan
(the 'Plan') which replaced the 1990 Long-Term Management Incentive Plan. Under
the Plan, selected employees of the Company and its affiliates and subsidiaries
are granted non-qualified stock options, up to a maximum of 603,656 shares, to
acquire shares of common stock of the Company. The stock options are exercisable
at a price equal to the fair market value, as defined, of the Company's common
stock on the date of grant. The options vest pursuant to the schedule set forth
for each option and expire upon the earlier of twelve years from the date of
grant or termination of employment. The stock options become exercisable upon
the earlier of the occurrence of certain trigger dates, as defined, or eleven
years from the date of grant. Options for 494,215 and 502,645 shares, were
outstanding at December 31, 1993 and 1992, respectively at an exercise price of
$100.00, none of which were exercisable.
F-18
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
9. LEASES
The Company leases certain facilities and equipment for production, selling
and administrative purposes under operating leases. Future minimum lease
payments at December 31, 1993, required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year are $30.3 million
in 1994, $22.5 million in 1995, $15.5 million in 1996, $11.3 million in 1997,
$8.3 million in 1998 and $19.1 million thereafter.
Net rental expense was $45.0 million, $42.2 million, and $38.7 million for
1993, 1992 and 1991, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
DECEMBER 31,
--------------------------------------------
1993 1992
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Cash and cash equivalents.......................................... $ 44.2 $ 44.2 $ 45.0 $ 45.0
Long-term debt, including current maturities....................... 2,629.4 2,686.4 2,535.4 2,540.4
Gain (loss) on interest rate swap agreements....................... (3.9) (35.5)
The carrying amount of cash equivalents approximate fair value because of
the short maturity of those instruments. The fair value of the Company's
long-term debt is estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for debt of the
same remaining maturities. The fair value of the interest rate swap agreements
is the estimated amount the Company would pay, net of accrued interest expense,
to terminate the agreements at December 31, 1993, taking into account current
interest rates and the current credit worthiness of the swap counterparties.
11. RESTRUCTURING AND OTHER CHARGES
In September 1993, the Company recorded a pre-tax charge of $150 million to
recognize the effects of a restructuring program designed to improve the
Company's long-term competitive position and future profitability and to provide
for environmental and other matters. Charges related to the restructuring
program consist of approximately $96 million of expenses associated with plant
closures, reductions in workforce, realignment and consolidation of various
manufacturing operations and write-downs of nonproductive assets. The charge
also includes a provision of $54 million related primarily to environmental
remediation costs associated with plant closures, and existing and former
operating sites. See Restructuring and Other Charges section of Management's
Discussion and Analysis of Operation.
12. CONTINGENCIES
The Company is a defendant in a number of lawsuits and claims arising out
of the conduct of its business. 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 resolution of these matters will not
have a material adverse effect on its consolidated financial condition or
results of operation.
13. BUSINESS SEGMENT INFORMATION
The Company's business segments are paperboard/packaging products and
newsprint. Substantially all the Company's operations are in the United States.
The Company's customers represent a diverse
F-19
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
range of industries including paperboard and paperboard packaging, consumer
products, wholesale trade, retailing agri-business, and newspaper publishing
located throughout the United States. Credit is extended based on an evaluation
of the customer's financial condition. The paperboard/packaging products segment
includes the manufacture and distribution of containerboard, boxboard and
cylinderboard, corrugated containers, folding cartons, fibre partitions, spiral
cores and tubes, labels and flexible packaging. A summary by business segment of
net sales, operating profit, identifiable assets, capital expenditures and
depreciation, depletion and amortization follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
Net sales
Paperboard/packaging products............................................. $2,699.5 $2,751.0 $2,653.9
Newsprint................................................................. 248.1 247.4 286.2
-------- -------- --------
$2,947.6 $2,988.4 $2,940.1
-------- -------- --------
-------- -------- --------
Operating profit (loss)
Paperboard/packaging products............................................. $ 13.3 $ 281.4 $ 273.0
Newsprint................................................................. (21.4) (10.3) (36.4)
-------- -------- --------
Total operating profit (loss)........................................ (8.1) 271.1 309.4
Interest expense, net.......................................................... (252.7) (298.3) (333.7)
-------- -------- --------
Loss before income taxes, equity in earnings (loss) of affiliates,
minority interests, extraordinary item, and cumulative effect of
accounting changes...................................................... $ (260.8) $ (27.2) $ (24.3)
-------- -------- --------
-------- -------- --------
Identifiable assets
Paperboard/packaging products............................................. $2,153.3 $1,960.6 $1,971.6
Newsprint................................................................. 224.9 235.1 253.1
Corporate assets.......................................................... 218.8 240.7 235.4
-------- -------- --------
$2,597.1 $2,436.4 $2,460.1
-------- -------- --------
-------- -------- --------
Capital expenditures
Paperboard/packaging products............................................. $ 107.2 $ 91.6 $ 114.7
Newsprint................................................................. 10.2 6.3 4.2
-------- -------- --------
$ 117.4 $ 97.9 $ 118.9
-------- -------- --------
-------- -------- --------
Depreciation, depletion and amortization
Paperboard/packaging products............................................. $ 115.2 $ 121.2 $ 116.7
Newsprint................................................................. 15.6 13.7 13.3
-------- -------- --------
$ 130.8 $ 134.9 $ 130.0
-------- -------- --------
-------- -------- --------
Sales and transfers between segments are not material. Export sales are
less than 10% of total sales. Corporate assets consist principally of cash and
cash equivalents, refundable and deferred income taxes, investments in
affiliates, deferred debt issuance costs and other assets which are not specific
to a segment.
F-20
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(TABULAR AMOUNTS IN MILLIONS)
14. QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1993
Net sales................................................... $735.9 $734.9 $745.7 $731.1
Gross profit................................................ 100.1 99.4 95.8 79.2
Income (loss) from operations(1)............................ 39.8 40.0 (111.6 ) 17.1
Income (loss) before extraordinary item and cumulative
effect of accounting changes.............................. (15.5 ) (14.6 ) (116.7 ) (27.8 )
Loss from early extinguishment of debt...................... (37.8 )
Cumulative effect of changes in accounting principles
Postretirement benefits................................ (37.0 )
Income taxes........................................... 20.5
Net loss.................................................... (32.0 ) (52.4 ) (116.7 ) (27.8 )
1992
Net sales................................................... $741.9 $794.0 $773.0 $734.5
Gross profit................................................ 110.7 121.5 140.5 126.4
Income from operations...................................... 53.7 65.3 83.6 65.1
Income (loss) before extraordinary item..................... (19.9 ) (11.3 ) 1.6 (4.4 )
Loss from early extinguishment of debt...................... (49.8 )
Net loss.................................................... (19.9 ) (11.3 ) (48.2 ) (4.4 )
- ------------
(1) In the third quarter of 1993, the Company recorded a pre-tax charge of $150
million for restructuring and other charges to recognize the effects of a
restructuring program designed to improve the Company's long term
competitive position and future profitability and to provide for
environmental and other matters.
F-21
[LOGO]
JEFFERSON SMURFIT CORPORATION
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED FEBRUARY 18, 1994
14,650,000 SHARES
JEFFERSON SMURFIT CORPORATION
COMMON STOCK
- ----------------------------------------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 14,650,000 SHARES OF COMMON STOCK BEING OFFERED, 2,930,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 11,720,000 SHARES ARE BEING OFFERED INITIALLY
IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
'UNDERWRITERS'. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED
THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE IN THE
RANGE OF $ TO $ . SEE 'UNDERWRITERS' FOR A DISCUSSION
OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
THE COMPANY IS ALSO SELLING SHARES OF COMMON STOCK
(ASSUMING THE PRICE TO PUBLIC IS EQUAL TO THE MIDPOINT OF THE
RANGE SET FORTH ABOVE) TO SMURFIT INTERNATIONAL, B.V. (OR A
CORPORATE AFFILIATE), THE CURRENT BENEFICIAL OWNER OF 50%
OF THE COMPANY'S OUTSTANDING STOCK, AT A PRICE PER SHARE
EQUAL TO THE PRICE TO PUBLIC PER SHARE OF COMMON STOCK
OFFERED HEREBY (OR FOR AN AGGREGATE PURCHASE PRICE OF
$100 MILLION). FOR A FURTHER DESCRIPTION OF THE
TERMS AND CONDITIONS OF SUCH SALE AND CERTAIN
RELATED MATTERS SEE 'RECAPITALIZATION PLAN'.
- ----------------------------------------------------------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE NEW
YORK STOCK EXCHANGE.
- ----------------------------------------------------------
SEE 'RISK FACTORS' FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------------
PRICE $ A SHARE
----------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------ -------------- ------------
Per Share................................. $ $ $
Total(3).................................. $ $ $
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at
$ . Excludes proceeds of sale of shares of Common Stock to
Smurfit International, B.V. No underwriting discounts or commissions
will be paid on the sale of such shares.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days from the date hereof to purchase in the aggregate up to
2,197,500 additional shares of Common Stock, at the Price to Public
less underwriting discounts and commissions, for purpose of covering
over-allotments, if any. If the option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds
to Company will be $ , $ and $ , respectively. See
'Underwriters'.
- ----------------------------------------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Shares will be made on or about , 1994, at the office of Morgan
Stanley & Co. Incorporated, New York, New York, against payment therefor in New
York funds.
- ----------------------------------------------------------
MORGAN STANLEY & CO.
INTERNATIONAL
KIDDER, PEABODY INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
, 1994
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
A-1
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses payable by the
Registrant in connection with the offering of the securities being registered
hereby, other than underwriting discounts and commissions. All of such expenses,
except the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fees, are estimated.
EXPENSES AMOUNT
- ---------------------------------------------------------------------------------------------------- ----------
Security and Exchange Commission registration fee................................................... $ 153,578
National Association of Securities Dealers, Inc. filing fee.........................................
Blue Sky fees and expenses..........................................................................
New York Stock Exchange listing fees................................................................
Printing and engraving expenses.....................................................................
Legal fees and expenses.............................................................................
Accounting fees and expenses........................................................................
Transfer Agent fees and expenses....................................................................
Miscellaneous.......................................................................................
----------
Total..................................................................................... $
----------
----------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation of the Registrant provides the
Registrant with the authority to indemnify directors, officers, employees and
agents of the Registrant to the full extent allowed by the laws of the State of
Delaware as those laws exist now or as they may hereafter be amended. In
addition, the stockholders of the Registrant have approved the execution by the
Registrant of indemnification agreements with directors and officers of the
Registrant. The indemnification agreements approved by the stockholders provide
that the Registrant shall indemnify directors and officers to the same extent as
would otherwise be available to the indemnified parties had the Registrant
purchased directors and officers liability insurance. To date, indemnification
agreements with all of the Registrant's respective directors have been executed
by the Registrant and such directors.
See Item 17 for the Registrant's undertaking with respect to
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
TITLE OF SECURITIES SHARES OF
DATE OF SALE SOLD SECURITIES SOLD* PURCHASERS
- ------------------ --------------------- ---------------- ------------------------------------------
August 26, 1992 Class A Common Stock 330,000 Smurfit Holdings
August 26, 1992 Class B Common Stock 330,000 MSLEF II
August 26, 1992 Class C Common Stock 1,212,788 MSLEF II
August 26, 1992 Class C Common Stock 150,000 Leeway & Co.
August 26, 1992 Class C Common Stock 250,000 Mellon Bank, N.A. as trustee of First
Plaza Group Trust
August 26, 1992 Class C Common Stock 52,333 MSLEF II, Inc.
August 26, 1992 Class C Common Stock 4,879 SIBV/MS Equity Investors, L.P.
December 31, 1993 Class D Common Stock 1,670,000 Smurfit Packaging
- ------------
* Share data are not adjusted to reflect the ten-for-one stock split pursuant
to the Reclassification.
The sales described above were made in reliance upon the exemption provided
under SS 4(2) of the Securities Act of 1933. Each share of stock was sold for
$100 with the exception of the 1,670,000 Class D shares received by Smurfit
Packaging upon the conversion of all of its Old Preferred Stock.
II-1
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1* Form of Restated Certificate of Incorporation of the Company.
3.2* Form of By-laws of the Company.
4.1* Form of certificate for the Company's Common Stock.
4.2* Form of Indenture for the 1993 Notes.
4.3* Form of Indenture for the Senior Notes.
4.4* Form of Indenture for the Senior Subordinated Notes.
4.5* Form of Indenture for the Subordinated Debentures.
4.6* Form of Indenture for the Junior Subordinated Accrual Debentures.
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1(a) Financial Advisory Services Agreement, dated September 12, 1989, among MS&Co., the Company
and SIBV (incorporated by reference to Exhibit 10.8(a) to JSC/CCA's Registration Statement
on Form S-1 (File No. 33-31212)).
10.1(b) Financial Advisory Services Agreement Amendment, dated as of October 19, 1989, among
MS&Co., the Company and SIBV (incorporated by reference to Exhibit 10.8(b) to JSC/CCA's
Registration Statement on Form S-1 (File No. 33 31212)).
10.2 Stock Purchase Agreement, dated as of January 15, 1986, between JSC and Times Mirror
(incorporated by reference to Exhibit 2 to JSC's Current Report on Form 8-K, dated
February 21, 1986).
10.3 Shareholders Agreement, dated as of February 21, 1986, between JSC and Times Mirror
(incorporated by reference to Exhibit 4.2 to JSC's Current Report on Form 8-K, dated
February 21, 1986).
10.4 1989 Management Incentive Plan (incorporated by reference to Exhibit 10(ab) to JSC's
quarterly report on Form 10-Q for the quarter ended March 31, 1989).
10.5 Deferred Compensation Agreement, dated January 1, 1979, between JSC and James B. Malloy,
as amended and effective November 10, 1983 (incorporated by reference to Exhibit 10(m) to
JSC's Registration Statement on Form S-1 (File No. 2-86554)).
10.6(a) JSC Deferred Compensation Capital Enhancement Plan (incorporated by reference to Exhibit
10(r) to JSC's quarterly report on Form 10-Q for the quarter ended September 30, 1985).
10.6(b) Amendment No. 1 to the Deferred Compensation Capital Enhancement Plan (incorporated by
reference to Exhibit 10.37 to JSC/CCA's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
10.7 Letter Agreement, dated November 24, 1982, between C. Larry Bradford and Alton Packaging
Corporation, as amended and effective November 10, 1983 (incorporated by reference to
Exhibit 10(g) to JSC's Registration Statement on Form S-1 (File No. 2-86554)).
10.8 Form of Agreement for Indemnification of Directors and Officers of JSC and CCA
(incorporated by reference to Exhibit 10(v) to JSC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1986).
10.9(a) JSC Deferred Director's Fee Plan (incorporated by reference to Exhibit 10.33 to JSC/CCA's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989).
10.9(b) Amendment No. 1 to JSC Deferred Director's Fee Plan (incorporated by reference to Exhibit
10.34 to JSC/CCA's Annual Report on Form 10-K for the fiscal year ended December 31,
1989).
10.10* JSC Management Incentive Plan 1994.
10.11 Restated Newsprint Agreement, dated January 1, 1990, by and between SNC and The Times
Mirror Company (incorporated by reference to Exhibit 10.39 to JSC's Annual Report on Form
10-K for the fiscal year ended December 31, 1990). Portions of this exhibit have been
excluded pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
II-2
10.12 Operating Agreement, dated as of April 30, 1992, by and between CCA and Smurfit
Paperboard, Inc. (incorporated by reference to Exhibit 10.42 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1992).
10.13 Rights Agreement, dated as of April 30, 1992, among CCA, Smurfit Paperboard, Inc. and
Bankers Trust Company, as collateral trustee (incorporated by reference to Exhibit 10.43
to JSC's quarterly report on Form 10-Q for the quarter ended March 31, 1992).
10.14 Registration Rights Agreement, dated as of August 26, 1992, among MSLEF II, the Company
and SIBV (incorporated by reference to Exhibit 10.45 to JSC's quarterly report on Form
10-Q for the quarter ended September 30, 1992).
10.15* Amendment No. 1, dated April 15, 1993, to the Registration Rights Agreement, dated as of
August 26, 1992, among the Company, MSLEF II and SIBV.
10.16 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.48
to JSC's quarterly report on Form 10-Q for the quarter ended September 30, 1992).
10.17* Form of Stockholders Agreement, dated as of , 1994, among MSLEF II, the
Company and SIBV.
10.18* Commitment Letter, dated February 10, 1994, among JSC, CCA, Chemical, Bankers Trust, CSI
and BTSC.
11.1 Calculation of Historical Per Share Earnings.
12.1 Calculation of Historical Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5).
23.2 Consent of Ernst & Young.
24.1 Powers of Attorney.
(b) ** Financial Statement Schedules:
Schedule II: Amounts Receivable From Related Parties and Underwriters, Promoters and Employees
Other than Related Parties
Schedule V: Property, Plant and Equipment
Schedule VI: Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment
Schedule VIII: Valuation and Qualifying Accounts
Schedule X: Supplementary Income Statement Information
* To be filed by amendment.
** All other schedules specified under Regulation S-X for the Registrant have
been omitted because they are either not applicable, not required or because
the information required is included in the Financial Statements of the
Registrant or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ('Securities Act') may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon
II-3
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To provide the underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on February 18, 1994.
SIBV/MS HOLDINGS, INC.
By /s/ JOHN R. FUNKE
...................................
John R. Funke
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- ------------------
* Director, Chairman of the Board
.........................................
MICHAEL W.J. SMURFIT
* Director, President and Chief Executive
......................................... Officer (Principal Executive Officer)
JAMES E. TERRILL
/s/ JOHN R. FUNKE Vice President and Chief Financial Officer February 18, 1994
......................................... (Principal Financial and
JOHN R. FUNKE Accounting Officer)
* Director
.........................................
HOWARD E. KILROY
* Director
.........................................
DONALD P. BRENNAN
* Director
.........................................
ALAN E. GOLDBERG
* Director
.........................................
DAVID R. RAMSAY
*By /s/ JOHN R. FUNKE
..................................
JOHN R. FUNKE
ATTORNEY-IN-FACT
FEBRUARY 18, 1994
II-5
THE COMPANY
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER
THAN RELATED PARTIES
(IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------- ---------- -------- --------------------- -------------------
BALANCE AT END
DEDUCTIONS OF PERIOD
--------------------- -------------------
BALANCE AT AMOUNTS
BEGINNING AMOUNTS WRITTEN NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF CURRENT CURRENT
- -------------------------------------- ---------- -------- --------- ------- ------- -------
Year ended December 31, 1993
JS Group............................ $ $ $ $ $ $
----- -------- --------- ------- ------- -------
----- -------- --------- ------- ------- -------
Year ended December 31, 1992
JS Group............................ $ $ $ $ $ $
----- -------- --------- ------- ------- -------
----- -------- --------- ------- ------- -------
Year ended December 31, 1991
JS Group............................ $5.2 $ $ 5.2 $ $ $
----- -------- --------- ------- ------- -------
----- -------- --------- ------- ------- -------
S-1
THE COMPANY
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
(IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------------------------- ------------ -------- ----------- ----------- --------
BALANCE AT OTHER
BEGINNING OF CHANGES BALANCE
PERIOD, AS ADDITIONS ADD(DEDUCT) AT END
PREVIOUSLY AT COSTS DESCRIBE OF
CLASSIFICATION REPORTED (A) RETIREMENTS (B) PERIOD
- ----------------------------------------------- ------------ -------- ----------- ----------- --------
Year ended December 31, 1993
Land...................................... $ 47.6 $ $ (1.3) $ 13.9 $ 60.2
Buildings and leasehold improvements...... 216.4 9.6 (2.6) 17.9 241.3
Machinery, fixtures and equipment......... 1,477.8 119.7 (40.0) 43.6 1,601.1
Construction in progress.................. 53.3 (14.9) (1.8) (1.5) 35.1
------------ -------- ----------- ----------- --------
$1,795.1 $114.4 $ (45.7) $ 73.9 $1,937.7
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Timberland, less timber depletion......... $ 226.4 $ 20.1 $ (.7) $ 15.7 $ 261.5
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Year ended December 31, 1992
Land...................................... $ 47.3 $ .2 $ $ .1 $ 47.6
Buildings and leasehold improvements...... 211.3 5.3 (.3) .1 216.4
Machinery, fixtures and equipment......... 1,418.8 79.1 (23.5) 3.4 1,477.8
Construction in progress.................. 59.1 (5.8) 53.3
------------ -------- ----------- ----------- --------
$1,736.5 $ 78.8 $ (23.8) $ 3.6 $1,795.1
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Timberland, less timber depletion......... $ 228.5 $ 20.4 $ (2.2) $ (20.3) $ 226.4
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Year ended December 31, 1991
Land...................................... $ 50.4 $ .3 $ (.1) $ (3.3) $ 47.3
Buildings and leasehold improvements...... 205.0 4.9 (2.0) 3.4 211.3
Machinery, fixtures and equipment......... 1,329.7 99.9 (13.4) 2.6 1,418.8
Construction in progress.................. 56.4 2.5 .2 59.1
------------ -------- ----------- ----------- --------
$1,641.5 $107.6 $ (15.5) $ 2.9 $1,736.5
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
Timberland, less timber depletion......... $ 231.9 $ 16.9 $ (2.3) $ (18.0) $ 228.5
------------ -------- ----------- ----------- --------
------------ -------- ----------- ----------- --------
- ------------
(A) Includes capitalized leases which are not reflected in the Consolidated
Statements of Cash Flow.
(B) See next page.
S-2
THE COMPANY
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
COMPONENTS OF OTHER CHANGES
(IN MILLIONS)
TOTAL
TIMBER OTHER
CLASSIFICATION ACQUISITIONS SFAS 109(A) RESTRUCTURING(B) DEPLETION OTHER CHANGES
- ------------------------------------ ------------ ----------- ---------------- --------- ------ -------
Year ended December 31, 1993
Land........................... $ $ 15.2 $ (1.5) $ $ .2 $ 13.9
Buildings and leasehold
improvements................. 27.7 (9.9) .1 17.9
Machinery, fixtures and
equipment.................... 1.4 120.5 (78.0) (.3) 43.6
Construction in progress....... .1 (1.5) (.1) (1.5 )
----- ----------- ------- --------- ------ -------
$1.5 $ 163.4 $(90.9) $ $ (.1) $ 73.9
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Timberland, less timber
depletion.................... $ $ 35.9 $ (20.2) $ $ 15.7
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Year ended December 31, 1992
Land........................... $ $ $ $ $ .1 $ .1
Buildings and leasehold
improvements................. .1 .1
Machinery, fixtures and
equipment.................... 5.2 (1.8) 3.4
Construction in progress.......
----- ----------- ------- --------- ------ -------
$5.2 $ $ $ $ (1.6) $ 3.6
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Timberland, less timber
depletion.................... $ $ $ $ (20.3) $ $(20.3 )
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Year ended December 31, 1991
Land........................... $ .1 $ $ $ $ (3.4) $ (3.3 )
Buildings and leasehold
improvements................. .8 2.6 3.4
Machinery, fixtures and
equipment.................... 3.2 (.6) 2.6
Construction in progress....... .3 (.1) .2
----- ----------- ------- --------- ------ -------
$4.4 $ $ $ $ (1.5) $ 2.9
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
Timberland, less timber
depletion.................... $ $ $ $ (18.1) $ .1 $(18.0 )
----- ----------- ------- --------- ------ -------
----- ----------- ------- --------- ------ -------
- ------------
(A) Represents increase in property balances in connection with the adoption of
SFAS No. 109. See footnote 6 to the December 31, 1993 consolidated
financial statements.
(B) Represents reduction in property balances in connection with restructuring
and other charges. See footnote 11 to the December 31, 1993 consolidated
financial statements.
S-3
THE COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN MILLIONS)
COLUMN B
------------ COLUMN C COLUMN E COLUMN F
BALANCE AT ---------- ------------ --------
BEGINNING OF ADDITIONS OTHER BALANCE
COLUMN A PERIOD, AS CHARGED TO COLUMN D CHANGES AT END
- --------------------------------------------- PREVIOUSLY COSTS AND ----------- ADD (DEDUCT) OF
DESCRIPTION REPORTED EXPENSES RETIREMENTS DESCRIBE(A) PERIOD
- --------------------------------------------- ------------ ---------- ----------- ------------ --------
Year ended December 31, 1993:
Buildings and leasehold improvements.... $ 52.1 $ 11.2 $ (1.6) $ (5.8) $ 55.9
Machinery, fixtures and equipment....... 472.9 92.1 (19.1) (38.6) 507.3
------------ ---------- ----------- ------------ --------
$525.0 $103.3 $ (20.7) $(44.4) $563.2
------------ ---------- ----------- ------------ --------
------------ ---------- ----------- ------------ --------
Year ended December 31, 1992:
Buildings and leasehold improvements.... $ 41.9 $ 10.6 $ (.2) $ (.2) $ 52.1
Machinery, fixtures and equipment....... 397.2 95.9 (20.2) 472.9
------------ ---------- ----------- ------------ --------
$439.1 $106.5 $ (20.4) $ (.2) $525.0
------------ ---------- ----------- ------------ --------
------------ ---------- ----------- ------------ --------
Year ended December 31, 1991:
Buildings and leasehold improvements.... $ 34.1 $ 9.7 $ (1.9) $ $ 41.9
Machinery, fixtures and equipment....... 312.0 96.1 (11.7) .8 397.2
------------ ---------- ----------- ------------ --------
$346.1 $105.8 $ (13.6) $ .8 $439.1
------------ ---------- ----------- ------------ --------
------------ ---------- ----------- ------------ --------
- ------------
(A) See next page.
The annual provisions for depreciation have been computed principally in
accordance with the following estimated lives:
Building and leasehold improvements -- 20 to 50 years
Machinery, fixtures and equipment -- 3 to 30 years
S-4
THE COMPANY
SCHEDULE VI -- ACCMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
COMPONENTS OF OTHER CHANGES
(IN MILLIONS)
TOTAL
OTHER
CLASSIFICATION ACQUISITIONS SFAS 109(1) RESTRUCTURING(2) OTHER CHANGES
- -------------------------------------------------- ------------ ----------- ---------------- ----- -------
Year Ended December 31, 1993
Building and leasehold improvements.......... $ $ .2 $ (5.7) $(.3 ) $ (5.8 )
Machinery, fixtures and equipment............ .4 2.8 (41.8) (38.6 )
--- ----- ------- ----- -------
$ .4 $ 3.0 $(47.5) $(.3 ) $(44.4 )
--- ----- ------- ----- -------
--- ----- ------- ----- -------
Year ended December 31, 1992
Buildings and leasehold improvements......... $ $ $ $(.2 ) $ (.2 )
Machinery, fixtures and equipment............
--- ----- ------- ----- -------
$ $ $ $(.2 ) $ (.2 )
--- ----- ------- ----- -------
--- ----- ------- ----- -------
Year Ended December 31, 1991
Buildings and leasehold improvements......... $ .1 $ $ $(.1 ) $
Machinery, fixtures and equipment............ .8 .8
--- ----- ------- ----- -------
$ .9 $ $ $(.1 ) $ .8
--- ----- ------- ----- -------
--- ----- ------- ----- -------
- ------------
(1) Represents increase in property balances in connection with the adoption of
SFAS No. 109. See footnote 6 to the December 31, 1993 consolidated financial
statements.
(2) Represents reduction in property balances in connection with restructuring
and other charges. See footnote 11 to the December 31, 1993 consolidated
financial statements.
S-5
THE COMPANY
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
COLUMN B
------------ COLUMN C COLUMN E
BALANCE AT ------------------------ COLUMN D --------
BEGINNING OF CHARGED TO ---------- BALANCE
COLUMN A PERIOD, AS CHARGED TO OTHER DEDUCTIONS AT END
- ------------------------------------------------ PREVIOUSLY COSTS AND ACCOUNTS DESCRIBE OF
DESCRIPTION REPORTED EXPENSES DESCRIBE (A) PERIOD
- ------------------------------------------------ ------------ ---------- ---------- ---------- --------
Year ended December 31, 1993
Allowance for doubtful accounts............ $7.8 $4.0 $ $2.6 $9.2
----- ----- ----- ----- --------
----- ----- ----- ----- --------
Year ended December 31, 1992
Allowance for doubtful accounts............ $8.2 $3.5 $ $3.9 $7.8
----- ----- ----- ----- --------
----- ----- ----- ----- --------
Year ended December 31, 1991
Allowance for doubtful accounts............ $7.8 $3.6 $ $3.2 $8.2
----- ----- ----- ----- --------
----- ----- ----- ----- --------
- ------------
(A) Uncollectible accounts written off, net of recoveries.
S-6
THE COMPANY
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN MILLIONS)
COLUMN B
-------------------------------------
COLUMN A YEAR ENDED DECEMBER 31,
- --------------------------------------------------- -------------------------------------
ITEM 1993 1992 1991
- --------------------------------------------------- ----------------------- ----------------------- -----------------------
Maintenance and repairs............................ $ 237.8 $ 232.0 $ 208.5
Amounts for (i) depreciation and amortization of intangible assets,
pre-operating costs and similar deferrals, (ii) taxes, other than payroll and
income taxes, (iii) royalties and (iv) advertising costs are not presented as
such amounts are less than 1% of total sales and revenue in all periods.
S-7