filings.toolsSmurfit Westrock 10-Q 2024-09-30
Filed 2024-11-08. 8 sections, 408K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ T****RANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-42161
Smurfit Westrock plc
(Exact name of registrant as specified in its charter)
| Ireland | 98-1776979 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| Beech Hill, Clonskeagh Dublin 4**,** D04 N2R2 Ireland | N/A | |
| (Address of principal executive offices) | (Zip Code) |
+353 1 202 7000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| Ordinary shares, par value $0.001 per share | SW | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☐ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
As of November 5, 2024, the registrant had 520,156,112 ordinary shares, nominal value $0.001 per share, issued and outstanding.
TABLE OF CONTENTS
EXPLANATORY NOTE
On April 26, 2024, the United States Securities and Exchange Commission (the “SEC”) declared effective the Registration
Statement on Form S-4 (file number 333-278185), as amended (as supplemented by the prospectus filed with the SEC on April 26,
2024, the “Registration Statement”), of Smurfit WestRock Limited, formerly known as Cepheidway Limited and re-registered as an
Irish public limited company and renamed Smurfit Westrock plc (the “Company” or “Smurfit Westrock”), to register ordinary shares
of $0.001 each in the capital of Smurfit Westrock (the “Smurfit Westrock Shares”) to be issued to the holders of shares of common
stock of WestRock Company (“WestRock”), pursuant to a transaction agreement dated as of September 12, 2023 (the “Transaction
Agreement”), among Smurfit Westrock, Smurfit Kappa Group plc (“Smurfit Kappa”), WestRock and Sun Merger Sub, LLC (“Merger
Sub”) pursuant to which (i) Smurfit Westrock acquired Smurfit Kappa by means of a scheme of arrangement under the Companies Act
2014 of Ireland (as amended) and (ii) Merger Sub merged with and into WestRock, (the “Merger” and, together with the Smurfit
Kappa Share Exchange, the “Combination”). The Combination closed on July 5, 2024. A detailed description of the terms of the
Combination is included in the Registration Statement. Upon the completion of the Combination on July 5, 2024, Smurfit Kappa and
WestRock each became wholly owned subsidiaries of Smurfit Westrock with Smurfit Kappa shareholders owning approximately
50.3% and WestRock shareholders owning approximately 49.7%. Prior to the closing of the Combination, Smurfit Westrock had no
operations other than activities related to its formation and the Combination. Smurfit Kappa was determined to be the accounting
acquirer in the Combination; therefore, the historical Consolidated Financial Statements of Smurfit Kappa for periods prior to the
Combination are presented as the historical financial statements of the Company. Unless the context otherwise requires, Smurfit
Westrock and “the Company” refer to the business and operations of Smurfit Kappa and its wholly-owned subsidiaries, which prior to
July 5, 2024, did not include WestRock, when referring to the periods prior to the closing of the Combination, and refer to the
combined company (Smurfit Westrock, including, among others, its subsidiaries Smurfit Kappa and WestRock) when referring to the
periods after the Combination.
This Quarterly Report on Form 10-Q is being filed with respect to the interim period ended September 30, 2024.
Accordingly, the disclosures herein, including the financial statements and related Management’s Discussion and Analysis, describe
the business, financial con
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information relating to quantitative and qualitative disclosures about market risk is shown in the Registration Statement, which
information is incorporated herein by reference. There have been no material changes in Smurfit Westrock’s exposure to market risk
as identified in the 2023 Consolidated Financial Statements of Smurfit Kappa since December 31, 2023.
Item 4. Controls and Procedures
Smurfit Westrock’s management evaluated the effectiveness of the design and operation of its disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to
be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures are designed by the Company
to ensure that it records, processes, summarizes and reports in a timely manner the information it must disclose in reports that it files
with or submits to the SEC. Anthony Smurfit, President and Group Chief Executive Officer, and Ken Bowles, Executive Vice
President and Group Chief Financial Officer, reviewed and participated in management’s evaluation of the disclosure controls and
procedures.
Based on this evaluation, Mr. Smurfit and Mr. Bowles concluded that as of the end of the period covered by this quarterly report,
Smurfit Westrock’s disclosure controls and procedures were not effective as a result of the material weakness in our internal control
over financial reporting described below.
Material Weakness in Internal Control over Financial Reporting
A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting such that there
is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a
timely basis.
As discussed elsewhere in this report, on July 5, 2024, we completed the Combination between Smurfit Kappa and WestRock. Prior to
the Combination, Smurfit Kappa, as a public limited company incorporated in Ireland and listed on the London Stock Exchange and
on the Euronext Dublin Market, was not subject to Section 404 of the Sarbanes Oxley Act of 2002 (“SOX”), while WestRock, as a
U.S. publicly traded company incorporated in Delaware and listed on the New York Stock Exchange, was subject to Section 404 of
SOX. Upon the completion of the Combination Smurfit Kappa and WestRock became wholly-owned subsidiaries of Smurfit
Westrock.
As a result of the Combination, Smurfit Westrock’s management is in the process of integrating Smurfit Kappa and WestRock’s
legacy internal control frameworks. In connection with Smurfit Westrock’s assessment of its internal control over financial reporting
for the purposes of complying with Section 302 of SOX, we have identified a material weakness relating to the company’s selection
and development of control activities intended to mitigate the risks to achieving its objectives. This relates to certain processes and
controls principally at historical Smurfit Kappa that were not subject to the requirements of Section 404 of SOX prior to the
Combination.
This material weakness resulted in:
- A lack of formalization of an existing control process for documenting evidence of management review and performance of
control procedures, including the level of precision in the execution of controls and procedures to ascertain completeness and
accuracy of information produced by the Company.
- Existing controls related to the preparation and review of manual journal entries not designed to adequately mitigate the
associated risks.
- The need to augment General IT Controls, specifically as they pertain to (i) logical access controls to ensure appropriate
segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to
appropriate Company personnel and (ii) program change management controls to ensure that information technology
program and data changes affecting financial IT applications and underlying accounting records are identified, tested,
authorized and implemented appropriately.
Notwithstanding the identified material weakness, management believes that the condensed consolidated financial statements and
related financial information included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial
position, results of operations and cash flows as of and for the periods presented.
Remediation Plan
We have begun the process of designing and implementing remediation measures in respect of this material weakness and to improve
our internal control over financial reporting. These remediation measures include a number of actions:
-
designing and implementing policies and guidance related to the operation of controls;
-
developing appropriate controls over the review of manual journal entries; and
-
enhancing and expanding across the organization the general IT processes and controls.
In addition, control operators have participated in SOX training sessions, with a specific focus on the formalization of review
procedures performed in executing controls.
While we are working to remediate the identified deficiencies as timely and efficiently as possible, we cannot yet provide an estimate
of the time it will take to complete this remediation plan. The implementation of our remediation measures will require validation and
testing of the design and operating effectiveness of internal controls over a sustained period. In addition, we cannot ensure that the
measures taken by us to date, and actions that we may take in the future, will be sufficient to remediate these deficiencies or that they
will prevent or avoid potential future deficiencies.
Changes in Internal Control over Financial Reporting
Other than the changes that may continue to result from the integration following the Combination and remediation actions described
above, there has been no change in Smurfit Westrock’s internal control over financial reporting (as such term is defined in Rules
13a15(f) and 15d-15(f) under the Exchange Act) during the third quarter 2024 that has materially affected, or is reasonably likely to
materially affect, Smurfit Westrock’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information called for by this item is incorporated herein by reference to Note 17, “Commitments and Contingencies,”
included in Part I, Item 1, Financial Statements (unaudited) — Notes to Condensed Combined Financial Statements included herein.
Item 1A. Risk Factors
Risk Factor Summary
The following summary is intended to enhance the readability and accessibility of our risk factor disclosures. We encourage you to
carefully review the full risk factors discussed below in their entirety for additional information. Some of the factors that could
adversely affect our results of operations, cash flows and financial condition, and the trading price of our ordinary shares, include:
Market and Industry Risks
- As a leading global manufacturing business, we have been, and may be materially adversely affected by economic,
geopolitical and social factors that are beyond our control.
- We may be adversely affected by uncertainty, downturns, actions taken by competitors or other changes in the paper and
packaging industry.
-
Our earnings are highly dependent on demand.
-
Price fluctuations in, or shortages in the availability of, energy, transportation and raw materials could materially adversely
affect our business.
- We are exposed to significant competition in the containerboard and packaging industry, which may be materially and
adversely affect the price and volume of products sold.
Operating Risks
-
We may experience business disruptions that adversely affect our operations.
-
We may fail to anticipate trends and develop or integrate new technologies or to protect intellectual property related to our
products and technologies.
-
Our capital expenditures may not achieve the desired outcomes or may be completed at a higher cost than anticipated.
-
We are exposed to risks related to our international sales and operations.
-
We could be exposed to currency exchange rate fluctuation risks.
-
We may produce faulty or contaminated products due to failures in quality control measures.
-
We are subject to cybersecurity risks that could threaten the confidentiality, integrity and availability of data in our systems,
and could result in disruptions to our operations.
-
We may be adversely impacted by work stoppages and other labor relations matters.
-
We may not be able to attract, motivate and/or retain qualified personnel, including our key personnel.
-
We face challenges associated with sustainability matters, including climate change and scarce resources.
-
Failure by us to successfully implement strategic transformation initiatives, including those relating to information
technology infrastructure, could adversely affect our business.
- If we are unsuccessful in integrating acquisitions or if disposals result in unexpected costs or liabilities, our business could be
materially and adversely affected.
Risks Related to the Combination
- We may not realize all of the benefits of the recent Combination or such benefits may take longer than anticipated or may be
lower than estimated.
-
We may fail to successfully integrate Smurfit Kappa and WestRock, including their individual cultures and philosophies.
-
We have incurred and will incur significant costs as a result of becoming subject to various U.S. laws and regulations,
including U.S. securities laws and reporting requirements.
- We have identified a material weakness in our internal control over financial reporting that could, if not remediated, result in
material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations
- We will be required to comply with the Sarbanes-Oxley Act and may incur significant costs and devote substantial
management time towards developing and maintaining adequate internal controls, which may materially adversely affect our
operating results in the future.
- Changes in existing financial accounting standards or practices may have a material adverse effect on our results of
operations, cash flows and financial condition, and the trading price of our ordinary shares.
Financial Risks
-
Our continued growth depends on our ability to retain existing customers and attract new customers.
-
Our debt could adversely affect our financial health.
-
Adverse credit and financial market events and conditions, as well as credit rating downgrades, could, among other things,
impede access to or increase the cost of financing.
- We have a significant amount of goodwill and other intangible assets and a write-down could materially adversely impact our
operating results.
- We have a number of pension arrangements that are currently in deficit and may incur additional liability and/or increased
funding requirements in connection with multi-employer pension plans.
- Any dividend payment in respect of our shares is subject to a number of factors, and there are no guarantees that the
Company will pay dividends or the level of any such dividends.
Legal and Regulatory Risks
- We are subject to a wide variety of laws, regulations and other requirements that may change or may impose substantial
compliance costs.
-
We are subject to a growing number of environmental and climate change laws and regulations.
-
We are subject to compliance with antitrust and similar legislation in areas where we operate.
-
We are subject to a number of laws and regulations relating to privacy, security and data protection, and failure to comply
could lead to fines and/or litigation.
- Failure to comply with applicable occupational health and safety and environmental laws and regulations may have a material
adverse effect on our business.
- The Company’s maintenance of two exchange listings may adversely affect liquidity in the market for our shares and result in
pricing differentials of our shares between the two exchanges.
Risks Related to Our Incorporation in Ireland
- We are incorporated in Ireland and Irish law differs from the laws in effect in the U.S. As a result, shareholders may have less
protection, and we are required to comply with, and are subject to, certain Irish laws in respect of certain actions and
decisions, including certain capital decisions, dividends, certain tax matters and anti-takeover protections available to us.
Market and Industry Risks
As a leading global manufacturing business, we have been, and may be in the future, materially adversely affected by factors that
are beyond our control, such as economic and financial market conditions, geopolitical conflicts and other social and political
unrest or change**.**
Our industry has been, and may be, adversely affected by a number of factors that are beyond our control, including, but not limited
to:
- macroeconomic and business conditions, including deteriorating macroeconomic conditions and related supply and demand
dynamics, as well as inflation and deflation;
-
geopolitical conflicts and other social and political unrest or change;
-
sustainability, environmental regulations and trade policies and agreements;
-
conditions in the financial services markets, including counterparty risk, insurance carrier risk, rising interest rates, rising
commodity prices, and currency exchange rate fluctuations, which may impact price and demand for our products;
-
financial uncertainties in our major international markets;
-
government deficit reduction and other austerity measures in specific countries or regions, or in the various industries in
which we operate; and
- cyber incidents and related threats to the confidentiality, integrity and availability of data in systems.
The outlook for the global economy in the near- to medium-term remains uncertain and we are unable to predict the timing or rate at
which economic conditions in our markets may change and the impact of such changes. For example, if the economic climate were to
deteriorate as a result of geopolitical events (such as the Russian war in Ukraine or the conflict in the Middle East) or geopolitical
uncertainty, trade tensions and/or a pandemic, it could result in an economic slowdown which, if sustained over any significant length
of time, could have a material adverse effect on our
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) Shareholder Proposals and Director Nominations
In accordance with Rule 14a-8 under the Exchange Act (“Rule 14a-8”) and the Amended Constitution of the Company (the
“Constitution”), the deadlines for the receipt of any shareholder proposals and director nominations to be considered at the Company’s
2025 Annual Meeting of Shareholders (the “2025 Annual Meeting”) are set forth below.
Any shareholder proposal submitted pursuant to Rule 14a-8 for inclusion in the Company’s proxy materials for the 2025
Annual Meeting must be received by our Group Company Secretary at our principal executive offices or by email at
AGM@smurfitwestrock.com no later than the close of business on December 19, 2024. Any such proposal also needs to comply with
the SEC shareholder proposal rules, including the eligibility requirements set forth in Rule 14a-8.
In addition, any shareholder seeking to nominate a director or to bring other business before the 2025 Annual Meeting outside
of Rule 14a-8 under the advance notice provisions included in the Constitution must provide timely notice, as set forth in the
Constitution. Specifically, written notice of any such proposed business or nomination must be received by our Group Company
Secretary at our principal executive offices or by email at AGM@smurfitwestrock.com no earlier than the close of business on
December 27, 2024 and no later than the close of business on January 26, 2025. Any notice of proposed business or nomination also
must comply with the notice and other requirements set forth in the Constitution and with any applicable law.
For purposes of shareholder proposals, the “close of business” shall mean 5:00 p.m. local time at the principal executive offices
of the Company in Dublin, Ireland, on any calendar day, whether or not the day is a business day.
(b) Material Changes to Procedures Related to Stockholder Recommendations of Director Candidates
Effective July 5, 2024, the Board of Directors of Smurfit Westrock adopted Principles of Corporate Governance, which set forth,
among other things, criteria for Board membership and provide that the Nomination Committee of the Board will consider director
candidates recommended by Company shareholders in accordance with the procedures that will be set forth in the proxy statement that
is expected to be filed within 120 days following the end of the Company’s fiscal year.
In addition, procedures for nominating directors are set forth in the Company’s amended constitution, which is filed as Exhibit 3.1
hereto. The deadlines for submission of any such nominations under the Company’s advance notice provisions include in the amended
constitution are set forth in Item 5(a) to this Quarterly Report on Form 10-Q and incorporated herein by reference.
(c) Trading Plans
In the three months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1 under the Exchange
Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as those terms
are defined in Item 408 of Regulation S-K).
Item 6. Exhibits
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