Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the fiscal year ended Commission File
December 31, 1993 Number 0-11951
Jefferson Smurfit Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-2931273
(State of incorporation or organization) (I.R.S. Employer
Identification)
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (314) 746-1100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
15 1/2% Junior Subordinated
Accrual Debentures of Container The Pacific Stock Exchange
Corporation of America Due 2004
Guarantee of 15 1/2% Junior Subordinated
Accrual Debentures of Container The Pacific Stock Exchange
Corporation of America Due 2004
Securities to be registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
As of March 15, 1994, none of registrant's voting stock was held by
non-affiliates.
As of March 15, 1994, registrant had 1,000 shares of common stock,
$.01 par value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
JEFFERSON SMURFIT CORPORATION
Annual Report on Form 10-K
December 31, 1993
TABLE OF CONTENTS
PART I
Page
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . .1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . . . 13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . 13
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 17
Item 8. Financial Statements and Supplementary Data . . . . . . 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . 53
PART III
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . . . . . 53
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . 60
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . 66
Item 13. Certain Relationships and Related Transactions. . . . . 67
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . 75
<PAGE>
PART I
ITEM 1. BUSINESS
SUMMARY OF SIGNIFICANT TRANSACTIONS
Jefferson Smurfit Corporation ("JSC") was incorporated in 1976
under the laws of the State of Delaware. JSC is a wholly-owned
subsidiary of SIBV/MS Holdings, Inc. ("Holdings"), a corporation
formed in connection with the 1989 Transaction (as defined below),
50% of the voting stock of which is owned by Smurfit Packaging
Corporation ("Smurfit Packaging") and Smurfit Holdings B.V.
("Smurfit Holdings"). The remaining 50% is owned by The Morgan
Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"). Holdings has
no operations other than its investment in JSC. MSLEF II is an
investment fund formed by Morgan Stanley & Co. Incorporated
("MS&CO."). Smurfit Packaging and Smurfit Holdings are wholly-
owned subsidiaries of Smurfit International B.V. ("SIBV"), which is
an indirect wholly-owned subsidiary of Jefferson Smurfit Group plc,
a corporation organized under the laws of the Republic of Ireland
("JS Group").
Container Corporation of America ("CCA") was incorporated in 1968
under the laws of the State of Delaware. On September 30, 1986,
JSC acquired a 50% equity interest in CCA. Prior to September 30,
1986, CCA was a wholly-owned subsidiary of Mobil Corporation.
In December 1989, (i) Holdings acquired the entire equity interest
in JSC, (ii) JSC 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 capacities (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. Holdings' acquisition of all of the outstanding
JSC common stock and CCA's acquisition of the 50% of its common
equity owned by the MSLEF I Group are referred to hereafter as the
"1989 Transaction". Financing for the 1989 Transaction was
provided through borrowings under bank credit facilities, the sale
of various debt securities, including $850.0 million of
subordinated notes (the "Subordinated Debt") and debentures (the
"Secured Notes") sold by CCA which are unconditionally guaranteed
by JSC, equity contributions by Holdings and available cash of JSC
and CCA.
In August 1992, proceeds from a $231.8 million capital contribution
by Holdings and a new $400 million senior secured term loan (the
"1992 Credit Agreement") were used to prepay $400 million of the
1989 term loan facility (the "1989 Credit Agreement"), retire
$193.5 million accreted value of the Junior Accrual Debentures and
prepay $19.1 million aggregate principal amount of the subordinated
note due in 1993. The proceeds from the capital contribution and
the 1992 Credit Agreement and the prepayments of the 1989 Credit
Agreement and the subordinated debt are referred to hereafter as
the "1992 Transaction". The 1989 Credit Agreement and the 1992
Credit Agreement are collectively referred to herein as the "Old
Bank Facilities".
<PAGE>
Holdings is implementing a recapitalization plan (the
"Recapitalization Plan") to repay or 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. In the first quarter of 1994, Holdings filed a
registration statement with the Securities and Exchange Commission
(the "SEC") for an offering of 17,250,000 shares of common stock
(the "Equity Offerings"). In addition, CCA filed a registration
statement with the SEC for an offering of $300 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"). The
Series A Senior Notes and the Series B Senior Notes are referred to
herein as the "Senior Notes" or the "Debt Offerings". The Equity
Offerings and the Debt Offerings are collectively referred to
herein as the "Offerings". The Recapitalization Plan includes,
among other things, (i) the Offerings, (ii) the sale of $100
million of Common Stock to SIBV (or a corporate affiliate) (the
"SIBV Investment") and (iii) a new credit agreement by JSC and CCA
(the "New Credit Agreement") consisting of a $450 million revolving
credit facility (the "New Revolving Credit Facility"), a $300
million term loan (the "Initial Term Loan") and a $900 million
delayed term loan (the "Delayed Term Loan" and, together with the
Initial Term Loan, the "New Term Loans"). Proceeds of the
Recapitalization Plan, exclusive of the 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 on approximately December 1,
1994 (the "Subordinated Debt Refinancing").
Prior to the date on which the Registration Statements are declared
effective by the SEC, Holdings intends to change its name to
"Jefferson Smurfit Corporation" and JSC intends to change its name
to "Jefferson Smurfit Corporation (U.S.)". All references in this
10-K to the "Company" or to "JSC" refer to the corporation
currently named Jefferson Smurfit Corporation and, when the context
requires, its consolidated subsidiaries. All references in this
10-K to "Holdings" refer to the corporation currently named SIBV/MS
Holdings, Inc.
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 Smurfit Newsprint
Corporation ("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.
<PAGE>
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 solid bleached sulfate ("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/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, 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 segment
includes two newsprint mills in Oregon, which produced 615,000 tons
of recycled newsprint in 1993, and two facilities that produce
Cladwood, a construction material produced from newsprint and wood
by-products. The Company's newsprint mills are also supported by
the Company's reclamation division.
PRODUCTS
PAPERBOARD/PACKAGING PRODUCTS SEGMENT
CONTAINERBOARD AND CORRUGATED SHIPPING CONTAINERS
The Company's containerboard operations are highly integrated.
Tons of containerboard produced and converted for the last three
years were:
<TABLE>
<CAPTION>
1991 1992 1993
(Ton in thousands)
<S> <C> <C> <C>
Containerboard
Production 1,830 1,918 1,840
Consumption 1,813 1,898 1,942
</TABLE>
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
<PAGE>
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 third 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). 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 integrated. Tons of recycled boxboard and SBS produced
and converted for the last three years were:
<TABLE>
<CAPTION>
1991 1992 1993
(Tons in thousands)
<S> <C> <C> <C>
Recycled Boxboard and SBS
Production 826 832 829
Consumption 561 551 542
<PAGE>
The Company's mills produce recycled coated and uncoated boxboard
and SBS. The Company believes it is the nation's largest producer
of coated recycled 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, 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, which is ideally suited for converting into
folding cartons and related end uses, MASTERSEAL and MASTERVAC,
which are used for visual carded packaging that facilitates
merchandising at the point of sale, and MASTERWITE, 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 a broad 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
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.
<PAGE>
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 were:
</TABLE>
<TABLE>
<CAPTION>
1991 1992 1993
(Tons in thousands)
<S> <C> <C> <C>
Recycled Cylinderboard
Production 196 213 206
Consumption 102 120 123
</TABLE>
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. 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 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).
<PAGE>
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 processor 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 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:
<TABLE>
<CAPTION>
1991 1992 1993
(Tons in thousands)
<S> <C> <C> <C>
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%
</TABLE>
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).
<PAGE>
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
Cladwood 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
plants located in Oregon. Total sales for Cladwood 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 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.
<PAGE>
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 its
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
Subsequent to closure in early 1994 of three container plants, two
folding carton plants and one recycled boxboard mill, the Company
had approximately 16,600 employees at March 1, 1994, 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.
<PAGE>
ITEM 2. 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 Program. Approximately
62% of the Company's investment in property, plant and equipment is
represented by its paperboard and newsprint mills.
<TABLE>
<CAPTION>
Number
of State
Facilities Locations
<S> <C> <C>
Paperboard mills:
Containerboard mills 7 6
Boxboard mills 4 4
Cylinderboard mills 5 4
Newsprint mills 2 1
Reclamation plants 26 12
Converting facilities:
Corrugated container plants 52 22
Folding carton plants 18 10
Industrial packaging plants 16 11
Consumer packaging plants 14 9
Cladwood plants 2 1
Wood product plants 1 1
Total 147 28
</TABLE>
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.
ITEM 3. LEGAL PROCEEDINGS
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.
<PAGE>
The Company is a defendant in a number of other lawsuits which 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 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 entered into 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 is 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 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 PRP at a number
of federal and/or state sites where remedial action may be
<PAGE>
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 PRPs 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.
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 Stated 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
<PAGE>
administrative consent orders with respect to two formerly leased
or owned industrial establishments and has recently closed a
facility and received 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. In particular, the United States Environmental
Protection Agency has proposed a comprehensive rule governing the
pulp, paper and paperboard industry, which could require
substantial compliance expenditures on the part of the Company.
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
results of operations. The amount budgeted for such expenditures
for fiscal 1994 is approximately $10 million. Since the Company's
competitors are, or will be, subject to comparable pollution
control standards, including the proposed rule discussed above, if
implemented, management is of the opinion that compliance with
future pollution standards will not adversely affect the Company's
competitive position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the
registrant during the fourth quarter of 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER
MATTERS
MARKET INFORMATION
CCA is an indirect wholly-owned subsidiary of JSC. All of the
outstanding common stock of JSC ("JSC Common Stock") is owned by
Holdings. As a result, there is no established public market for
either the JSC Common Stock or the common stock of CCA ("CCA Common
Stock").
DIVIDENDS
In connection with the 1989 Transaction, the number of outstanding
shares of JSC Common Stock was reduced from 38,557,721 to 1,000.
There have been no dividends on the JSC Common Stock or the CCA
Common Stock since the date of the 1989 Transaction.
<PAGE>
Following the consummation of the Offerings, the Senior Notes and
the 9.75% Senior Unsecured Notes due 2003 (the "1993 Notes") will
allow each of JSC and CCA to pay dividends such that the Company
would be able, and permitted thereunder, to pay dividends.
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 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 JSC and CCA. Any
determination to pay cash dividends in the future will be at the
discretion of the 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In millions, except statistical data)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989<F1>
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $2,947.6 $2,998.4 $2,940.1 $2,910.9 $2,936.3
Cost of goods sold 2,573.1 2,499.3 2,409.4 2,296.1 2,275.9
Selling and administrative expenses 239.2 231.4 225.2 218.8 254.9
Restructuring charge 96.0
Environmental and other charges 54.0
Income (loss) from operations (14.7) 267.7 305.5 396.0 405.5
Recapitalization expenses (139.2)
Interest expense (254.2) (300.1) (335.2) (337.8) (119.1)
Other, net 8.1 5.2 5.4 6.5 8.4
Income (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) 64.7 155.6
Provision for (benefit from)
income taxes (83.0) 10.0 10.0 35.4 74.0
Equity in earnings (loss)
of affiliates <F2> .5 (39.9) (2.2) 11.9
Minority interest in
SNC (3.2) (2.7) 2.9 5.3 3.6
CCA, prior to acquisition 24.4
Income (loss) before
extraordinary item and
cumulative effect of
accounting changes (174.6) (34.0) (77.1) 21.8 65.5
Extraordinary item:
Loss from early extinguishment
of debt, net of income tax benefit (37.8) (49.8) (29.7)
Cumulative effect of accounting
changes:
Postretirement benefits (37.0)
Income taxes 20.5
Net income (loss) $ (228.9) $ (83.8) $ (77.1) $ 21.8 $ 35.8
Other Financial Data
Working capital $ 40.0 $ 105.7 $ 76.9 $ 60.8 $ 156.9
Property, plant and equipment and
timberland, net 1,636.0 1,496.5 1,525.9 1,527.3 1,422.3
Total assets 2,597.1 2,436.4 2,460.1 2,447.9 2,436.7
Long-term debt (excluding
current maturities) 2,619.1 2,503.0 2,650.4 2,636.7 2,684.4
Deferred income taxes
(excluding current portion) 232.2 159.8 158.3 168.6 145.5
Stockholder's deficit (1,057.8) (828.9) (976.9) (899.4) (921.6)
Property and timberland additions 117.4 97.9 118.9 192.0 201.3
Depreciation, depletion and
amortization 130.8 134.9 130.0 122.6 94.9
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (cont'd)
(In millions, except statistical data)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989<F1>
<S> <C> <C> <C> <C> <C>
Other Information (tons in thousands)
Containerboard production (tons) 1,840 1,918 1,830 1,797 1,792
Boxboard production (tons) 829 832 826 809 816
Newsprint production (tons) 615 615 614 623 582
Corrugated shipping containers
sold (tons) 1,936 1,871 1,768 1,655 1,581
Folding cartons sold (tons) 475 487 482 455 444
Fibre reclaimed and brokered (tons) 3,907 3,846 3,666 3,547 3,549
Timberland owned or leased
(thousand acres) 984 978 978 968 992
</TABLE>
[FN]
<F1> Data for the year ended December 31, 1989, includes CCA's results of
operations as if CCA were consolidated with JSC as of January 1, 1989.
<F2> 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 Company
Company Limited Partnership, Inc., and PCL Industries Limited,
respectively.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
1992 and 1991 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 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
what the Company believes were improved market conditions late in
1993, enabling the Company and other producers to implement a $25
per ton price increase for linerboard. A further linerboard
increase of $30 per ton was implemented by all major integrated
containerboard producers, including the Company, effective March 1,
1994.
Newsprint prices have fallen substantially since 1990 due to supply
and demand imbalances. During 1991 and 1992, new capacity of
approximately 2.0 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.
<PAGE>
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
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.
Restructuring Program
To further counteract the downturn in the industries in which the
Company operates, management examined its cost and operating
structure and developed a restructuring program (the "Restructuring
Program") to improve its long-term position. As a result of
management's review, in September 1993, the Company recorded a pre-
tax charge of $96 million including a provision for direct expenses
associated with (i) plant closures (consisting primarily of
employee severance and termination benefits, lease termination
costs and environmental costs); (ii) asset write-downs (consisting
primarily of write-off of machinery no longer used in production
and nonperforming machine upgrades); (iii) employee severance and
termination benefits for the elimination of salaried and hourly
personnel in operating and management realignment; and (iv)
relocation of employees and consolidation of plant operations.
Management anticipates that it will take approximately two to three
years to complete the Restructuring Program due to ongoing customer
demands. The Restructuring Program is expected to reduce
production costs, employee expenses 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.
The $96 million charge consists of approximately $43 million for
the write-down of assets at closed facilities and certain other
nonproductive assets and $53 million of future cash expenditures.
Significant anticipated cash expenditures reflected in the above
amount include $33 million of plant closure costs, $5 million of
employee severance and termination benefits and $7 million of
<PAGE>
consolidation and relocation of plant employees and equipment, a
substantial portion of which will be paid in 1994, 1995 and 1996.
Environmental Matters
The Company recorded a provision of $54 million of which $39
million relates to environmental matters, representing asbestos and
PCB removal, solid waste cleanup at existing and former operating
sites, and expenses for response costs at various sites where the
Company has received notice that it is a potentially responsible
party ("PRP"). 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 the financial condition and results of
operations 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 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.
<PAGE>
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):
<TABLE>
NET SALES BY SEGMENT
<CAPTION>
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
NET SALES ANALYSIS
<CAPTION>
1993 1992
Compared to Compared to
1992 1991
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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.
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. In 1993, 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 $96 million restructuring charge, $54 million
environmental 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.
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.
<PAGE>
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
$21.7 million) for the early extinguishment of debt associated with
the issuance of the 1993 Notes.
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.
<PAGE>
Selling and administrative expense as a percent of net sales for
1992 was 7.7%, unchanged from 1991. The Company continued 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 to both
1992 and 1991 on income before income taxes, equity in earnings
(loss) of affiliates and extraordinary item of $27.2 million 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.
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 refinancing of the
Company's indebtedness under 1989 and 1992 Credit Agreements and
the Secured Notes is not consummated). In connection with the
issuance of the 1993 Notes, SIBV 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 above
commitment will be terminated upon the consummation of the
Offerings.
<PAGE>
Holdings and the Company are implementing the Recapitalization Plan
to repay or refinance a substantial portion of their indebtedness
in order to improve operating and financial flexibility by (i)
reducing the level and overall cost of their debt, (ii) extending
maturities of indebtedness, (iii) increasing stockholders' equity
and (iv) increasing their access to capital markets. The
Recapitalization Plan includes (i) the Debt Offerings, (ii) the
Equity Offerings, (iii) the SIBV Investment, and (iv) the New
Credit Agreement consisting of the New Revolving Credit Facility
and the New Term Loans. Proceeds of the Recapitalization Plan,
exclusive of funds used to effect the Subordinated Debt Refinancing
(including the remaining borrowings under the Delayed Term Loan and
available proceeds of the Debt Offerings), will be used to
refinance all of the Company's indebtedness under the 1989 and 1992
Credit Agreements and the Secured Notes. Available proceeds of the
Debt Offerings, remaining borrowings under the Delayed Term Loan
and, to the extent required, borrowings under the New Revolving
Credit Facility or available cash shall be used to redeem or
repurchase the Subordinated Debt on approximately December 1, 1994.
It is anticipated that immediately following the Offerings,
borrowings of $65 million and letters of credit of approximately
$90 million will be outstanding under the New Revolving Credit
Facility. After giving effect to the Recapitalization Plan on a
pro forma basis, at December 31, 1993 the Company would have had
approximately $2,371.1 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 actually outstanding. 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 $46.0 million will be
payable. Assuming consummation of the Recapitalization Plan
(whether including or excluding the Subordinated Debt Refinancing),
the Company does not currently anticipate that it will experience
any liquidity problems which would cause it to fail to make any
scheduled payment on its bank debt. As discussed below, the
Company expects that liquidity will be provided by its operations
and through the utilization of unused borrowing capacity under the
New Credit Agreement and the Securitization (defined below).
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 Accounts
Receivable Securitization Program (the "Securitization") 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
<PAGE>
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 $140 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 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 $295.0 million of
unused borrowing capacity under the New Revolving Credit Facility
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.
<PAGE>
This page is intentionally left blank.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page No.
The following consolidated financial statements of Jefferson
Smurfit
Corporation are included in this report:
Consolidated balance sheets - December 31, 1993 and 1992 . . . . . 30
For the years ended December 31, 1993, 1992 and 1991:
Consolidated statements of operations . . . . . . . . . . . . 32
Consolidated statements of stockholder's deficit. . . . . . . . . 33
Consolidated statements of cash flows . . . . . . . . . . . . . . 34
Notes to consolidated financial statements. . . . . . . . . . . . . 35
The following consolidated financial statement schedules of
Jefferson
Smurfit Corporation are included in Item 14(a):
II: Amounts Receivable From Related Parties and Underwriters,
Promoters and Employees Other than Related Parties. . . . . . 79
V: Property, Plant and Equipment . . . . . . . . . . . . . . . . 80
VI: Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment . . . . . . . . . . . . . . . . 82
VIII: Valuation and Qualifying Accounts . . . . . . . . . . . . . . 84
X: Supplementary Income Statement Information. . . . . . . . . . 85
All other schedules specified under Regulation S-X for Jefferson
Smurfit Corporation have been omitted because they are either not
applicable, not required or because the information required is
included in the financial statements or notes thereto.
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of the Company is responsible for the information
contained in the consolidated financial statements and in other
parts of this report. The consolidated financial statements have
been prepared by the Company in accordance with generally accepted
accounting principles appropriate in the circumstances, and
necessarily include certain amounts based on management's best
estimate and judgment.
The Company maintains a system of internal accounting control,
which it believes is sufficient to provide reasonable assurance
that in all material respects transactions are properly authorized
and recorded, financial reporting responsibilities are met and
accountability for assets is maintained. In establishing and
maintaining any system of internal control, judgment is required to
assess and balance the relative costs and expected benefits.
Management believes that through the careful selection of
employees, the division of responsibilities and the application of
formal policies and procedures, the Company has an effective and
responsive system of internal accounting controls. The system is
monitored by the Company's staff of internal auditors, who evaluate
and report to management on the effectiveness of the system.
The Audit Committee of the Board of Directors is composed of two
directors who meet with the independent auditors, internal auditors
and management to discuss specific accounting, reporting and
internal control matters. Both the independent auditors and
internal auditors have full and free access to the Audit Committee.
James E. Terrill
President, Chief Executive Officer
John R. Funke
Vice President and Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
JEFFERSON SMURFIT CORPORATION
We have audited the accompanying consolidated balance sheets of
Jefferson Smurfit Corporation as of December 31, 1993 and 1992, and
the related consolidated statements of operations, stockholder's
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 14(a). 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 7 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 except
as to Note 15, as to which
the date is February 23, 1994
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<CAPTION>
December 31, 1993 1992
<S> <C> <C>
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
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S 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
Stockholder's deficit
Common stock, par value $.01 per share;
1,000 shares authorized and outstanding
Additional paid-in capital 731.8 731.8
Retained earnings (deficit)
At date of 1989 Recapitalization (1,425.9) (1,425.9)
Subsequent to date of 1989
Recapitalization (363.7) (134.8)
(1,789.6) (1,560.7)
Total stockholder's deficit (1,057.8) (828.9)
$2,597.1 $2,436.4
</TABLE>
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
<CAPTION>
Year Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
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 charge 96.0
Environmental and other charges 54.0
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 benefits 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)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(In millions, except share data)
<CAPTION>
Common Stock
Amount Number Additional Retained
($.01 Par of Paid-In Earnings
Value) Shares Capital (Deficit)
<S> <C> <C> <C>
Balance at January 1, 1991 1,000 $500.0 $(1,399.8)
Net loss (77.1)
Balance at December 31, 1991 1,000 500.0 (1,476.9)
Net loss (83.8)
Capital contribution,
net of related expenses 231.8
Balance at December 31, 1992 1,000 731.8 (1,560.7)
Net loss (228.9)
Balance at December 31, 1993 1,000 $731.8 $(1,789.6)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<CAPTION>
Year Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
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 charge 96.0
Environmental and other charges 54.0
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
</TABLE>
See notes to consolidated financial statements.
<PAGE>
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(Tabular amounts in millions)
1. -- Basis of Presentation
Jefferson Smurfit Corporation ("JSC" or the "Company") is a wholly-owned
subsidiary of SIBV/MS Holdings, Inc. ("Holdings"). Fifty percent of
the voting stock of Holdings 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"). Holdings has no operations other than its investment
in JSC. In December 1989, pursuant to a series of transactions referred
to hereafter as the "1989 Recapitalization", Holdings acquired the
entire equity interest in JSC. Concurrently with Holdings' acquisition
of JSC, Container Corporation of America ("CCA") acquired its common
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 remaining
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.").
For financial accounting purposes, the 1989 acquisition by CCA of its
common equity owned by MSLEF I Group and the purchase of the JSC common
equity owned by SIBV were accounted for as purchases of treasury stock,
resulting in a deficit balance in stockholder's equity in the
accompanying consolidated financial statements. The 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.
<PAGE>
2. -- Significant Accounting Policies (cont)
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 the estimated periods during which such assets will remain in
service. These changes 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: The taxable income of the Company is included in the
consolidated federal income tax return filed by Holdings. The Company's
income tax provisions are computed on a separate return basis. JSC's
state income tax returns are filed on a separate return basis.
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.
Reclassifications: Certain reclassifications of prior year
presentations have been made to conform to the 1993 presentation.
<PAGE>
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"), totaling $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.
4. -- Related Party Transactions
Transactions with JS Group
Transactions with JS Group, its subsidiaries and affiliates were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
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
</TABLE>
Product sales to and purchases from JS Group, its subsidiaries, and
affiliates are consummated on terms generally similar to those
prevailing with unrelated parties.
The Company 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, the Company is paid a fee up to 2% of the subsidiaries' or
affiliate's gross sales. In consideration for elective services, the
Company 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.
<PAGE>
4. -- Related Party Transactions (cont)
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.
5. -- Long-Term Debt
<TABLE>
Long-term debt at December 31 consists of:
<CAPTION>
1993 1992
Current Current
maturities Long-term maturities Long-term
<S> <C> <C> <C> <C>
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
</TABLE>
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 the Equity and Debt Offerings and the new bank facility
described in Note 15 or from its $200 million commitment from SIBV
described below.
<PAGE>
5. -- Long-Term Debt (cont)
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"). The proceeds
from a $231.8 million capital contribution by Holdings 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 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
Holdings. 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.
<PAGE>
5. -- Long-Term Debt (cont)
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 have
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).
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).
<PAGE>
5. -- Long-Term Debt (cont)
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, 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 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.
<PAGE>
5. -- Long-Term Debt (cont)
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 pretax 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
of CCA 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.
<PAGE>
6. -- Income Taxes (cont)
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:
<TABLE>
<S> <C>
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
</TABLE>
Provisions for (benefit from) income taxes before extraordinary item and
cumulative effect of accounting changes were as follows:
<TABLE>
<CAPTION>
Liability
Method Deferred Method
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
6. -- Income Taxes (cont)
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:
<TABLE>
<CAPTION>
Year Ended December 31,
1992 1991
<S> <C> <C>
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)
</TABLE>
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 item, and cumulative effect of accounting changes is as
follows:
<TABLE>
<CAPTION>
Liability
Method Deferred Method
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
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%
</TABLE>
The Company made income tax payments of $33.0 million, $6.6 million, and
$5.9 million in 1993, 1992, and 1991, respectively.
<PAGE>
7. -- 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 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 of four years and
eliminates the use of a corridor approach for amortizing 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:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Weighted average discount rates 7.6% 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%
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
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 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)
</TABLE>
<PAGE>
7. -- Employee Benefit Plans (cont)
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:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
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
</TABLE>
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.
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, "Employer's
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.
<PAGE>
7. -- Employee Benefit Plans (cont)
The following table sets forth the accumulated postretirement benefit
obligation ("APBO") with respect to these benefits as of December 31,
1993:
<TABLE>
<S> <C>
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
</TABLE>
Net periodic postretirement benefit cost for 1993 included the following
components:
<TABLE>
<S> <C>
Service cost of benefits earned $ 1.5
Interest cost on accumulated postretirement
benefit obligation 8.3
Net periodic postretirement benefit cost $ 9.8
</TABLE>
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 the 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, Holdings adopted the Holdings 1992 Stock
Option Plan (the "Plan") which replaced the 1990 Long-Term Management
Incentive Plan. Under the Plan, selected employees of JSC 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
Holdings. The stock options are exercisable at a price equal to the
fair market value, as defined, of Holdings' 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.
8. -- 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.
<PAGE>
9. -- Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31
1993 1992
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
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
Loss on interest rate swap agreements (3.9) (35.5)
</TABLE>
The carrying amount of cash equivalents approximates 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.
10. -- Restructuring Charge
During 1993, the Company recorded a pretax charge of $96.0 million to
recognize the effects of a restructuring program designed to improve the
Company's long-term competitive position. The charge includes a
provision for direct expenses associated with plant closures, reductions
in workforce, realignment and consolidation of various manufacturing
operations and write-downs of nonproductive assets.
11. -- Contingencies
During 1993, the Company recorded a pretax charge of $54.0 million of
which $39.0 million represents asbestos and PCB removal, solid waste
cleanup at existing and former operating sites, and expenses for
response costs at various sites where the company has received notice
that it is a potentially responsible party.
The Company is a defendant in a number of lawsuits and claims arising
out of the conduct of its business, including those related to
environmental matters. While the ultimate results of such suits or
other proceedings against the Company cannot be predicted with
certainty, the management of the Company believes that the resolution of
these matters will not have a material adverse effect on its
consolidated financial condition or results of operation.
<PAGE>
12. -- 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 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:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Net sales
Paperboard/packaging products $2,699.5 $2,751.0 $2,653.9
Newsprint 248.1 247.4 286.2
$2,947.6 $2,998.4 $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 $2,153.4 $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
</TABLE>
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.
<PAGE>
13. -- Summarized Financial Information of CCA
Summarized below is financial information for CCA which is the issuer of
the Senior Subordinated Notes, Senior Unsecured Notes, Subordinated
Debentures and Junior Accrual Debentures.
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheets
December 31,
1993 1992
<S> <C> <C>
Assets
Current assets $ 448.1 $ 365.7
Property and timberlands - net 1,073.5 944.5
Due from JSC 1,244.3 1,221.5
Deferred debt issuance costs 50.5 64.8
Goodwill 93.7 54.2
Other assets 54.8 46.0
$2,964.9 $2,696.7
Liabilities and Stockholder's Deficit
Current liabilities $ 264.4 $ 268.4
Long-term debt 2,378.4 2,273.4
Deferred income taxes and other liabilities 371.6 165.2
Stockholder's deficit (49.5) (10.3)
$2,964.9 $2,696.7
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Net sales $1,931.6 $2,014.4 $1,947.6
Cost of goods sold 1,647.4 1,655.3 1,587.4
Selling and administrative expenses 141.8 141.6 136.2
Other 65.0
Interest expense 237.4 277.3 313.6
Interest income from JSC 173.2 160.1 159.6
Other income .1 5.0 2.4
Income before income taxes,
extraordinary item, and cumulative
effect of accounting change 13.3 105.3 72.4
Provision for income taxes 10.0 51.0 39.0
Income before extraordinary item and
cumulative effect of accounting change 3.3 54.3 33.4
Extraordinary item
Loss from early extinguishment of debt,
net of income tax benefits of $21.7
in 1993 and $25.5 in 1992 (37.8) (49.1)
Cumulative effect of accounting change
for postretirement benefits, net of
income tax benefit of $2.7 million (4.7)
Net income (loss) $ (39.2) $ 5.2 $ 33.4
</TABLE>
<PAGE>
13. -- Summarized Financial Information of CCA (cont)
Intercompany loans to the Company made in connection with the 1989
Recapitalization ($1,262.0 million at December 31, 1993) are classified
as long-term by CCA and are evidenced by a demand note which bears
interest at 12.65%, which was the weighted average interest rate
applicable to the bank credit facilities and the various debt securities
sold in connection with the 1989 Recapitalization. Term loans to the
Company under the Securitization Program ($262.5 million at December 31,
1993) are included in CCA's current assets and bear interest at the
average borrowing rate under the Securitization Program (6.56% at
December 31, 1993). Other amounts advanced to or from the Company are
non-interest bearing.
14. -- Quarterly Results (Unaudited)
The following is a summary of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
1993
<S> <C> <C> <C> <C>
Net sales $735.9 $734.9 $745.7 $731.1
Gross profit 100.1 99.4 95.8 79.2
Income (loss) from operations<F3> 39.8 40.0 (111.6) 17.1
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 $749.0 $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)
<FN>
<F3> In the third quarter of 1993, the Company recorded a pretax charge
of $96.0 million to recognize the effects of a restructuring program
designed to improve the Company's long term competitive position and
recorded a pretax charge of $54.0 million relating primarily to
environmental matters.
</TABLE>
<PAGE>
15. -- Subsequent Events
Holdings has filed with the Securities and Exchange Commission ("SEC")
a Registration Statement on Form S-1 relating to the offering of
25,551,786 shares of common stock. JSC has filed with the SEC a
Registration Statement on Form S-2 relating to the offering of $300
million of Senior Notes due 2004 and $100 million of Senior notes due
2002. In addition, JSC has obtained a new $1.65 billion bank facility.
The proceeds from the debt and equity offerings and the new bank
facility will be used to repay the 1992 Term Loan, the 1989 Term Loan
and revolving credit facility, the Senior Secured Notes and the
subordinated debentures and related premiums.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The following table sets forth the names and ages of the directors of
each of JSC and CCA. The Board of Directors is currently comprised of
six directors, three of whom, the Class B Directors, were nominees of
MSLEF II and three of whom, the Class A Directors, were nominees of
Smurfit Packaging as provided in the Organization Agreement.
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.
Upon consummation of the Offerings, the current Board of Directors of
each of JSC and CCA will be divided into three classes of directors
serving staggered three-year terms. The terms of office of Messrs.
Terrill and Ramsay expire in 1995, of Messrs. Kilroy and Goldberg expire
in 1996 and of Messrs. Smurfit and Brennan expire in 1997. The terms of
office of the additional unaffiliated directors who are to be designated
by MSLEF II and SIBV as described above shall expire in 1995 and 1996,
respectively.
Executive Officers
The following table sets forth the names and ages of the executive
officers of each of JSC and CCA and the positions they will hold
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
<PAGE>
Name Age Position
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.
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 Morgan Stanley
Leveraged Equity Fund II, Inc. ("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 Corporation, Coltec Industries Inc,
Fort Howard Corporation, Hamilton Services Limited, PSF Finance
Holdings, Inc., Shuttleway, A/S Bulkhandling 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.
<PAGE>
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 and is 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.,
Agricultural Minerals Corporation, Amerin Guaranty Corporation,
CIMIC Holdings Limited, Centre Cat Limited and Hamilton Services
Limited.
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.
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., Agricultural Minerals
Corporation, ARM Financial Group Inc., Hamilton Services Limited
and Stanklav Holdings, Inc. and is President and a Director of PSF
Finance Holdings, Inc.
<PAGE>
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 will provide that SIBV and MS Holders
(as defined in the Stockholders Agreement and which term includes
the MSLEF II Associated Entities and, with respect to certain of
their shares, includes the Direct Investors (as defined below))
shall vote their shares of Holdings Common Stock, or grant an
irrevocable proxy to MSLEF II to vote their shares of Common Stock,
to elect as directors of Holdings (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, Holdings, JSC or CCA (an "SIBV Unaffiliated Director") and
(b) four individuals selected by MSLEF II (each, a "MSLEF II
<PAGE>
Nominee"), one of whom shall not be affiliated with MSLEF II,
Holdings, JSC or CCA (a "MSLEF II Unaffiliated Director"), if (i)
the MS Holders collectively own more than 10% of the outstanding
Holdings Common Stock or SIBV owns less than 25% of the outstanding
Holdings Common Stock and the MS Holders shall not have received
the Initial Return (as defined below) ("Tier 1") or (ii) the MS
Holders collectively own 30% or more of the outstanding Holdings
Common Stock or the MS Holders collectively own a greater number of
voting shares than SIBV and the MS Holders shall have collectively
received the Initial Return ("Tier 2"); provided however, that in
the event that the MS Holders collectively own 7 1/2% or more and
less than 30% of the outstanding Holdings Common Stock and have
collectively received the Initial Return, then SIBV shall not be
required to have one of its nominees be an SIBV Unaffiliated
Director and the four MSLEF II Nominees shall include two MSLEF II
Unaffiliated Directors; provided, further, that in the event that
the MS Holders collectively own 6% or more but less than 7 1/2% of
the outstanding Holdings Common Stock and have collectively
received the Initial Return, then SIBV shall nominate four SIBV
Nominees (one of whom shall be the Chief Executive Officer), MSLEF
II shall nominate two MSLEF II Nominees and Holdings' Board of
Directors shall nominate two persons to the Board of Directors who
shall be reasonably acceptable to MSLEF II and SIBV. Unless MSLEF
II determines otherwise, MSLEF II, except MSLEF II Unaffiliated
Directors, Nominees shall be Managing Directors, Principals or Vice
Presidents of MS&Co. The Stockholders Agreement defines "Initial
Return" to mean the receipt, as dividends or as a result of sales
of shares of Holdings Common Stock, of $400 million in cash or
certain other property (or a combination thereof) collectively by
the MS Holders. For purposes of calculating the Initial Return,
shares which MSLEF II or Equity Investors (as defined below)
distributes to its partners will be deemed to have been sold at the
closing sales price per share as of the date such distribution is
declared. Calculations made for purposes of the foregoing shall
not give effect to shares of Holdings Common Stock purchased after
the date of the closing of the Offerings (other than shares of
Common Stock purchased by SIBV pursuant to the preemptive rights
set forth in the Stockholders Agreement). In addition,
notwithstanding the termination of the Stockholders Agreement upon
the MS Holders ceasing to own six percent or more of the Holdings
Common Stock, so long as MSLEF II or MSLEF II, Inc. and its
affiliates own Holdings Common Stock with a market value of at
least $25 million, MSLEF II shall be entitled to designate, and
SIBV shall vote its shares of Holdings Common Stock for the
election of, one nominee to the Board of Directors of Holdings (who
need not be a MSLEF II Unaffiliated Director).
Pursuant to the terms of the Stockholders Agreement, SIBV and MSLEF
II will each be entitled to designate four nominees to Holdings'
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, 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, SIBV and MSLEF II have
agreed to ensure the election of only eight directors (unless they
otherwise agree). In addition, the MS Holders and SIBV have agreed
pursuant to the Stockholders Agreement to use their best efforts to
cause their respective nominees to resign from the Holdings' Board
of Directors and to cause the remaining Directors, subject to their
fiduciary duties, to fill the resulting vacancies, if and to the
extent changes in directors are necessary in order to reflect the
Board representation contemplated by the Stockholders Agreement.
<PAGE>
Pursuant to the Stockholders Agreement, the Board of Directors of
Holdings shall have all powers and duties and the full discretion
to manage and conduct the business and affairs of Holdings as may
be conferred or imposed upon a board of directors pursuant to
Section 141 of the Delaware General Corporation Law; provided,
however, that if the MS Holders' collective ownership of Holdings
Common Stock shall be in Tier 1 or Tier 2, approval of certain
specified actions shall require approval of (a) the sum of one and
a majority of the entire Board of Directors of the Company 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 (the
"Required Majority"). Without limiting the foregoing, unless the
MS Holders collectively own 6% or more but less than 7 1/2% of the
Holdings Common Stock during any period when Holdings' 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 Holdings) 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 Holdings or any of its
subsidiaries; the issuance, sale, purchase or redemption of
securities of Holdings or any of its subsidiaries; the
establishment of and appointments to the Audit Committee of
Holdings' 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 Holdings 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 Holdings 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 Holdings located in any one place having a book value in
excess of a specified amount; the entering into any agreement or
material transaction between Holdings and a director or officer of
Holdings, JSC, JS Group, CCA, SIBV or MSLEF II or their affiliates;
the replacement of the independent accountants for Holdings or any
of its subsidiaries or modification of significant accounting
methods; the amendment or termination of Holdings' 1992 Stock
Option Plan; except as provided in the Stockholders Agreement, 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.
Pursuant to the Stockholders Agreement, SIBV and MSLEF II shall use
their best efforts to cause their respective designees to Holdings'
Board of Directors to elect directors to the Boards of Directors of
JSC and CCA in an analogous manner. It is currently anticipated
that the directors of Holdings, JSC and CCA will be the same
individuals.
Committees
Following consummation of the Offerings, there will be four
committees of the Boards of Directors of each of Holdings, JSC and
CCA; the Executive Committee, the Compensation Committee, the Audit
Committee and the Appointment Committee, which committee shall,
among other things, select, replace or remove officers. The
<PAGE>
Stockholders Agreement provides that SIBV and MSLEF II will use
their best efforts to cause their respective designees on the
Holdings Board of Directors, subject to their fiduciary duties, to
(i) insure that MSLEF II Nominees constitute a majority of the
members on the Compensation Committee and any other committees
which administer any option or incentive plan of Holdings and the
Company and (ii) subject to certain limitations (including
limitations based on the percentage stock ownership of the MS
Holders 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 Holdings, JSC and CCA (other than Chief Financial
Officer), and a nominee of the MSLEF II Nominee for Chief Financial
Officer of Holdings, JSC and CCA, 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 Holdings' Board of
Directors, subject to their fiduciary duties, to cause the officers
of Holdings to be the respective officers of each of JSC and CCA,
unless SIBV and MSLEF II otherwise agree. Appointments to the
committees listed above will be made following consummation of the
Offerings.
Director Compensation
Prior to the completion of the Offerings, no directors of Holdings,
JSC and CCA 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, each of Holdings, JSC and CCA 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 officers an annual fee of $35,000 plus
$2,000 for attendance at each meeting which is in excess of four
meetings per year.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and noncash compensation
for each of the last three fiscal years awarded to or earned by the
Chief Executive Officer and the four other most highly compensated
executive officers of the Company (the "Named Executive Officers")
during 1993.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Annual Compensation Securities All Other
Other Annual Underlying Compensation($)
Name and Principal Position Year Salary($)<F4> Bonus($) Compensation($) Options #<F5> <F6><F7><F8>
<S> <C> <C> <C> <C> <C> <C>
Michael W.J. Smurfit, 1993 $832,369 $ 0 $30,000 0 $16,775
Chairman of the Board 1992 793,273 526,605 0 1,026,000 15,764
1991 705,033 0 0 0 14,042
James E. Terrill, President 1993 440,000 0 17,318 0 19,545
and Chief Executive Officer, 1992 367,500 243,477 944 181,000 16,346
formerly Executive Vice 1991 326,667 0 555 0 18,554
President-Operations <F9>
Alan W. Larson, Vice President 1993 292,600 121,558 0 0 8,068
and General Manager - Consumer 1992 280,000 121,238 1,881 45,000 7,658
Packaging Division 1991 236,133 95,634 2,054 0 3,500
C. Larry Bradford, Vice President- 1993 369,000 0 18,209 0 15,085
Sales and Marketing 1992 353,000 3,644 1,361 121,000 13,658
1991 299,600 23,370 2,408 0 3,500
James B. Malloy, former President, 1993 992,000 0 17,867 0 21,902
Chief Executive Officer and 1992 945,000 626,082 8,003 724,000 23,294
Chief Operating Officer <F9> 1991 840,000 0 7,955 0 20,909
<FN>
<f4) The salary amounts for 1991 reflect a 10% salary reduction for
each officer, implemented during 1991 to help offset the
impact of the recession. The salary reductions were in place
for the period of April 1, 1991 to December 15, 1991.
<F5> Gives effect to the Reclassification, pursuant to which, prior
to the consummation of the Equity Offerings, Holdings' five
classes of common stock will be converted into one class, on
a basis of ten shares of Holdings Common Stock for each share
of stock outstanding of each of the old classes (the
"Reclassification").
<PAGE>
<F6> 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").
<F7> 1992 totals consist of $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.
<F8> 1991 totals consist of $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), 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.
<F9> 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.
</TABLE>
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
affiliates' 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
<PAGE>
aggregate amount of awards under the Incentive Plan is $5 million.
The awards expected to be granted to Messrs. Terrill, Larson and
Bradford are $1,000,000, $200,000 and $75,000, respectively.
Aggregate and individual awards will be increased by earnings
accrued thereon (by virtue of the actual or deemed investment
thereof, as determined by the Compensation Committee) during the
period beginning as soon as practicable after the consummation of
the Equity Offerings and ending on the Payment Date or earlier date
of payment.
1992 Stock Option Plan
Option Plan
Under Holdings' 1992 Stock Option Plan, the Named Executive
Officers and certain other eligible employees have been granted
options to purchase shares of stock of Holdings. 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 Holdings Common Stock or, if MSLEF II
distributes its Holdings Common Stock to its partners pursuant to
its dissolution, the transfer by such partners of at least 50% of
the aggregate Holdings 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 Holdings 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 Holdings 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 in the 1992
Stock Option Plan) shall have received collectively $200,000,000 in
cash and/or other property as a return of their investment in
Holdings (as a result of sales of shares of Holdings' common
equity) and (y) the date that the members of the MSLEF II Group
shall have transferred an aggregate of at least 30% of Holdings'
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 Holdings' common
equity held as of August 26, 1992, that were transferred by the
MSLEF II Group as of the determination date and (b) the number of
shares of Holdings' common equity outstanding as of such date. The
Plan Committee, with the consent of the Board of Directors of
Holdings, 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
<PAGE>
prior to 1993 vest and become exercisable on January 1, 1995 so
long as the Equity Offerings have been consummated. Already owned
shares and shares otherwise issuable upon exercise may be used to
pay the exercise price of options and any tax withholding
liability. The foregoing describes the 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 $20 per share were granted to a number of
officers and employees including Messrs. Terrill and Larson who
were granted options of 319,000, and 5,000 shares of Holdings
Common Stock, respectively (such dollar amount and numbers have
been adjusted to reflect the ten-for-one stock split contemplated
by the Reclassification). Such options vest over the period ending
on December 31, 1999.
Option Exercises and Year-End Value Table
The following table summarizes the exercise of options relating to
shares of Holdings Common Stock by the Named Executive Officers
during 1993 and the value of options held by such officers as of
the end of 1993. No stock appreciation rights have been granted to
any Named Executive Officers. In addition, options to purchase
755,000 shares (as adjusted for the ten-to-one stock split) have
been granted to officers and employees of JS Group and its
affiliates (other than Michael W.J. Smurfit).
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Value
Shares Number of Securities Underlying Value of Unexercised
Acquired Unexercised In-the-Money
on Value Options at December 31, 1993 Options at December 31, 1993
Name Exercise(#) Realized($) Exercisable(#) Unexercisable(#)<F10> Exercisable($) Unexercisable($)
<S> <C> <C> <C> <C> <C> <C>
Michael W.J. Smurfit 0 N/A 0 1,026,000 $0 $0
James E. Terrill 0 N/A 0 181,000 0 0
Alan W. Larson 0 N/A 0 45,000 0 0
C. Larry Bradford 0 N/A 0 121,000 0 0
James B. Malloy 0 N/A 0 724,000 0 0
<FN>
<F10> Gives effect to the ten-for-one stock split contemplated by
the Reclassification, but does not give effect to options
granted in 1994.
</TABLE>
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
<PAGE>
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
participants' 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 participants' 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.
<TABLE>
<CAPTION>
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
<C> <C> <C> <C> <C>
$ 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIP II 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 22.5 Years
<C> <C> <C> <C> <C> <C>
$ 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
</TABLE>
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 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 at age 65 or leaves employment for reasons of death or
<PAGE>
disability. Upon Normal Retirement (as defined in the DCC)
benefits are distributed under the DCC. Certain participants will
receive pre-retirement 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.
Dr. Smurfit and Mr. Kilroy are both directors and executive
officers of JS Group, Holdings, JSC and CCA, and Mr. Malloy is a
director of JS Group and a former director and executive officer of
Holdings, JSC and CCA.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
All of the outstanding JSC Common Stock is owned by Holdings. The
outstanding voting stock of Holdings is owned equally by (i)
<PAGE>
Smurfit Packaging, 8182 Maryland <PAGE>
Avenue, St. Louis, Missouri 63105 and Smurfit
Holdings, 92/96
Rokin, Amsterdam 1012KZ, The Netherlands, and (ii) MSLEF II, 1251
Avenue of the Americas, New York, New York 10020.
The Old Bank Facilities and Senior Secured Notes are secured by,
among other things, the CCA Common Stock and the JSC Common Stock.
If an Event of Default occurs under the Old Bank Facilities or the
Senior Secured Notes, the banks or the holders of the Senior
Secured Notes will have the right to foreclose upon such stock.
The Organization Agreement (as defined in Item 13 below) provides
that, under certain specified conditions, (i) SIBV may purchase all
of the voting stock of Holdings owned by MSLEF II, (ii) MSLEF II
may require SIBV to purchase all of the voting stock of Holdings
owned by MSLEF II and (iii) MSLEF II may direct the sale of
Holdings in its entirety. See Item 13. "Certain Relationships and
Related Transactions -- Agreements Entered Into in Connection with
the 1989 Transaction -- The Organization Agreement".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 well as other
transactions between the Company and related parties which have
taken place during 1993.
General
As a result of certain transactions which occurred in December 1989
(the "1989 Transaction"), JSC became a wholly-owned subsidiary of
Holdings and CCA became an indirect wholly-owned subsidiary of JSC.
As part of the 1989 Transaction, Holdings issued (i) 1,510,000
shares of Holdings Class A common stock ("Class A Stock") and
500,000 shares of Holdings Class D common stock ("Class D Stock")
to SIBV for $150 million and $50 million, respectively, (ii)
1,510,000 shares of Holdings Class B common stock ("Class B Stock")
to MSLEF II for $150 million, (iii) 100,000 shares of Holdings
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 Holdings 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 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
<PAGE>
$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 Holdings. MSLEF II, 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, 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"), First Plaza Group Trust, as trustee for
certain pension plans ("First Plaza"), 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"), certain other investors and Smurfit Packaging own all
of the non-voting stock of Holdings. 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, Smurfit Packaging, on the one hand, and the
MSLEF II Associated Entities, the Direct Investors and such other
investors, on the other, own, through their ownership of Class D
Stock and Class C Stock, respectively, 50% of the non-voting common
stock of Holdings.
Holdings' 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 Holdings owned by
SIBV and MSLEF II. Holdings' Class E Stock is non-voting stock
reserved for issuance pursuant to the 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, Holdings' only class of common
stock will be Holdings Common Stock. Immediately prior to the
consummation of the Equity Offerings, 80,200,000 shares of Holdings
Common Stock will be outstanding and such stock will be owned by
the Holdings' stockholders in proportion to their ownership of the
Old Common Stock as described in the two preceding paragraphs.
<PAGE>
Substantially concurrently with the consummation of the Equity
Offerings, SIBV (or a corporate affiliate of SIBV) will purchase
5,714,286 shares of Holdings Common Stock from Holdings pursuant to
the SIBV 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
30.8% and 44.4%, respectively, of the shares of Holdings Common
Stock then outstanding.
The relationships among JSC, CCA, Holdings 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
filed February 18, 1994. Capitalized terms not otherwise defined
below or elsewhere in the document 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 document 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 Holdings, 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 Holdings as
an entirety, as well as provisions relating to transactions between
Holdings, 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.
In connection with the Recapitalization Plan, the Organization
Agreement will be terminated upon the closing of the Offerings and,
at such time, the Stockholders Agreement shall become effective
among the Company, SIBV, the MSLEF II Associated Entities and
certain other entities.
The Organization Agreement also contains provisions whereby each of
SIBV, MSLEF II, MSLEF II, Inc., Holdings, 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, Holdings, 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 Holdings, JSC or CCA, (ii) any action
<PAGE>
or failure to act by Holdings, 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 Holdings,
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 Recapitalization Plan.
Stockholders Agreement
The Stockholders Agreement will be entered into at or prior to the
consummation of the Offerings by Holdings, SIBV, the MSLEF II
Associated Entities and certain other entities.
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 Item 10. Directors
and Executives Officers of the Registrant -Provisions 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 Holdings, JSC
and CCA in addition to certain specific transactions contemplated
by the Stockholders Agreement, provided such transactions (except
for (i) transactions between any of Holdings, JSC and CCA, (ii) the
transactions contemplated by the Stockholders Agreement or by the
Organization 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 Holdings, 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 Holdings, 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 Holdings, JSC or
CCA of the opportunity presented by any such prospective
investment.
<PAGE>
Transfer of Ownership
In general, transfers of Holdings Common Stock to entities
affiliated with SIBV or any MS Holder are not restricted. The
Stockholders Agreement provides MS Holders the right to "tag along"
pro rata upon the transfer by SIBV of any Holdings 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 MS Holder may, without SIBV's prior written consent, transfer
shares of Holdings Common Stock to any non-affiliated person or
group which, when taken together with all other shares of Holdings
Common Stock then owned by such person or group, represent more
than ten percent of the Holdings Common Stock then outstanding.
Transfers by MS Holders of ten percent or less in the aggregate of
the outstanding Holdings Common Stock are subject to certain rights
of first offer and rights of first refusal on the part of SIBV.
Such transfers by MS Holders which are subject to SIBV's right of
first refusal may not be made to any competitor of SIBV or the
Company. SIBV and its affiliates have the right, exercisable on or
after August 26, 2002, to purchase all, but not less than all, of
the Holdings Common Stock then owned by the MS Holders at a price
equal to the Fair Market Value (as defined in the Stockholders
Agreement).
The terms of the Stockholders Agreement do not restrict the ability
of MSLEF II or Equity Investors to distribute, upon dissolution or
otherwise, shares of Common Stock to their respective partners.
Following any such distribution the partners of MSLEF II or Equity
Investors, as the case may be (other than MSLEF II, Inc., its
affiliates and, in respect of shares owned other than as a result
of any such distribution, the Direct Investors) will not be subject
to the Stockholders Agreement. In addition, following any such
distribution, MSLEF II may, on behalf of its partners or the
partners of Equity Investors, include shares in a registration
rquested by it under the Registration Rights Agreement of Common
Stock which have been distributed to its partners. See "--
Registration Rights 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 may, at its option, terminate the Stockholders Agreement.
Termination
The Stockholders Agreement shall terminate either upon mutual
agreement of SIBV and MSLEF II, or at the option of SIBV or MSLEF
II, as the case may be, upon either the MS Holders collectively or
SIBV, respectively, ceasing to own six percent or more of the
outstanding Holdings Common Stock.
Registration Rights Agreement
Pursuant to the Registration Rights Agreement, each of MSLEF II and
SIBV have certain rights, upon giving a notice as provided in the
Registration Rights Agreement, to cause Holdings to use its best
efforts to register under the Securities Act the shares of Holdings
<PAGE>
Common Stock owned by MSLEF II (including its partners) and certain
other entities and certain shares of Holdings Common Stock owned by
SIBV. See "--Stockholders Agreement -- Transfer of Ownership".
Upon consummation of the Recapitalization Plan (other than the
Subordinated Debt Refinancing), MSLEF II will be entitled to effect
up to four such demand registrations pursuant to the Registration
Rights Agreement. SIBV will be entitled to effect up to two such
demand registrations pursuant to the Registration Rights Agreement;
provided, however, that SIBV may not exercise such rights until the
earlier of (i) such time as MSLEF II shall have effected two such
demand registrations and (ii) October 31, 1996. Neither MSLEF II
nor SIBV may, however, exercise a demand right (i) until the
conclusion of any Holdings Registration Process, MSLEF II
Registration Process or SIBV Registration Process (each, as defined
in the Registration Rights Agreement), or (ii) in certain other
limited situations. In addition, MSLEF II (including its partners)
and certain other entities and, under certain circumstances, SIBV
are entitled, subject to certain limitations, to register their
shares of Holdings Common Stock in connection with a registration
statement prepared by Holdings to register Holdings Common Stock or
any equity securities exercisable for, convertible into, or
exchangeable for Holdings Common Stock. In the event that there is
a public trading market for the Holdings Common Stock, MSLEF II and
certain other entities may not effect a sale of Holdings Common
Stock pursuant to the demand registration rights granted in the
Registration Rights Agreement without first offering the shares
proposed to be sold to SIBV for purchase.
Under the terms of the Registration Rights Agreement, Holdings may
not effect a common stock registration for its own account until
the earlier of (i) such time as MSLEF II shall have effected two
demand registrations and (ii) July 31, 1996. In addition, Holdings
is generally prohibited from "piggybacking" and selling stock for
its own account in demand registrations except in the case of any
registration requested by SIBV and any registration requested by
MSLEF II after the second completed registration for MSLEF II, in
which event SIBV or MSLEF II, as the case may be may require that
any such securities which are "piggybacked" be offered and sold on
the same terms as the securities offered by SIBV or MSLEF II, as
the case may be.
Holdings will pay all registration expenses (other than
underwriting discounts and commissions) in connection with MSLEF
II's first two completed demand registrations, SIBV's first
completed demand registrations and all registrations made in
connection with a Holdings 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 Holdings 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 Holdings'
and 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
Stockholders Agreement, the Company would retain MS&Co. to render
it investment banking services at market rates to be negotiated.
<PAGE>
Other Transactions
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 the 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. The Company has agreed to pay
certain costs of SIBV associated with such commitments and the
termination thereof up to a maximum of $900,000.
Net sales by JSC to JS Group, its subsidiaries and affiliates were
$18.4 million in 1993. Net sales by JS Group, its subsidiaries and
affiliates to JSC were $49.3 million in 1993. 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 for
1993. In consideration for elective services, JSC received
approximately $3.5 million in 1993 for its cost of providing such
services. In addition, JSC paid JS Group and its affiliates $0.4
million in 1993, 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 in 1993.
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 Holdings Common Stock. No agreement has been reached as to any
<PAGE>
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.
The Company has agreed to reimburse SIBV for legal fees and other
out-of-pocket expenses incurred by SIBV in connection with the
Recapitalization Plan.
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 Westminister 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. In connection with
the purchase of the SNC capital stock, JSC and Times Mirror entered
into a shareholders agreement dated as of February 21, 1986.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) (1) and (2) The list of Financial Statements and Financial
Statement Schedules required by this item are included in Item
8 on page 27.
(3) Exhibits. The Company agrees to furnish a copy of any
long-term debt instrument wherein the securities authorized do
not exceed 10 percent of the registrant's total assets on a
consolidated basis upon the request of the Securities and
Exchange Commission.
3.1 Restated Certificate of Incorporation of CCA. (i)
3.2 Restated Certificate of Incorporation of JSC. (i)
3.3 By-laws of CCA. (i)
3.4 By-laws of JSC. (i)
4.1 Form of Indenture for the Senior Subordinated Notes. (ii)
4.2 Form of Indenture for the Subordinated Debentures. (ii)
4.3 Form of Indenture for the Junior Accrual Debentures. (ii)
4.4 Form of Indenture for the 1993 Notes. (ii)
10.1 Second Amended and Restated Organization Agreement dated
as of August 26, 1992 among the parties thereto. (iii)
10.2 Second Amended and Restated Credit Agreement dated as of
November 9, 1989 among the parties thereto. (iii)
10.3(a) Financial Advisory Services Agreement, dated September
12, 1989, among Morgan Stanley & Co. Incorporated,
Holdings and SIBV. (iv)
10.3(b) Financial Advisory Services Agreement Amendment dated as
of October 19, 1989 among Morgan Stanley & Co.
Incorporated, Holdings and SIBV. (iv)
10.4 Stock Purchase Agreement, dated as of January 15, 1986,
between JSC and The Times Mirror Company. (v)
10.5 Shareholders Agreement, dated as of February 21, 1986,
between JSC and The Times Mirror Company. (v)
10.6 Deferred Compensation Agreement, dated January 1, 1979,
between JSC and James B. Malloy, as amended and effective
November 10, 1983. (vi)
10.7(a) JSC Deferred Compensation Capital Enhancement Plan. (vii)
10.7(b) Amendment No. 1 to the Deferred Compensation Capital
Enhancement Plan. (viii)
10.8 Letter Agreement, dated November 24, 1982, between C.
Larry Bradford and Alton Packaging Corporation. (vi)
10.9 Form of Agreement for Indemnification of Directors and
Officers of JSC and CCA. (ix)
10.10 Amended and Restated Note Purchase Agreement dated as of
December 14, 1989, as amended and restated as of August
26, 1992, among the parties thereto. (iii)
10.11(a) JSC Deferred Director's Fee Plan. (viii)
10.11(b) Amendment No. 1 to JSC Deferred Director's Fee Plan.
(viii)
See Page 77 for footnotes.
<PAGE>
10.12 Restated Newsprint Agreement, dated January 1, 1990, by
and between Smurfit Newsprint Corporation and The Times
Mirror Company. Portions of this exhibit have been
excluded pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended. (i)
10.13 Operating Agreement, dated as of April 30, 1992, by and
between CCA and Smurfit Paperboard, Inc. (x)
10.14 Rights Agreement, dated as of April 30, 1992, between
CCA, Smurfit Paperboard, Inc. and Bankers Trust Company,
as collateral trustee. (x)
10.15 Loan and Note Purchase Agreement dated as of August 26,
1992 among the parties thereto. (iii)
10.16 1992 SIBV/MS Holdings, Inc. Stock Option Plan. (iii)
10.17 Form of Indenture for the Junior Subordinated Notes. (xi)
10.18 Form of Purchase Agreement relating to the Junior
Subordinated Notes. (xi)
10.19 Amendment No. 3 to Second Amended and Restated Credit
Agreement and Amendment No. 3 to Amended and Restated
Note Purchase Agreement.
10.20 JSC Management Incentive Plan 1994. (ii)
12.1 Calculation of Historical Ratios of Earnings to Fixed
Charges. (xii)
18.1 Letter regarding change in accounting for pension plans.
(xiii)
21.1 Subsidiaries of JSC (ii)
24.1 Powers of Attorney for Directors of JSC and CCA.
b) Form 8-K, regarding the adoption of a company-wide restructuring
program, was filed with the Securities and Exchange Commission
on October 14, 1993. The Company did not file any other reports
on Form 8-K during the three months ended December 31, 1993.
See page 77 for footnotes.
<PAGE>
Footnotes to Exhibit List
(i) Previously filed as an exhibit to JSC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, and
incorporated by this reference.
(ii) Previously filed as an exhibit to Holdings' Registration
Statement on Form S-1, which was initially filed on
February 18, 1994 (file No. 33-75520), and incorporated by
this reference.
(iii) Previously filed as an exhibit to JSC's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1992, and
incorporated by this reference.
(iv) Previously filed as an exhibit to JSC/CCA's Registration
Statement on Form S-1 which was initially filed on
September 22, 1989 (file No. 33-31212), and incorporated
by this reference.
(v) Previously filed as an exhibit to JSC's Current Report
on Form 8-K dated February 21, 1986 and incorporated by
this reference.
(vi) Previously filed as an exhibit to JSC's final Prospectus
dated November 10, 1983, contained in the Registration
Statement on Form S-1 (file No. 2-86554), as amended and
effective November 10, 1983, and incorporated by this
reference.
(vii) Previously filed as an exhibit to JSC's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1985, and
incorporated by this reference.
(viii) Previously filed as an exhibit to JSC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989, and
incorporated by this reference.
(ix) Previously filed as an exhibit to JSC's Annual Report on
Form 10-K for the fiscal year ended December 31, 1986, and
incorporated by this reference.
(x) Previously filed as an exhibit to JSC's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1992 and
incorporated by this reference.
(xi) Previously filed as an exhibit to JSC/CCA's Registration
Statement on Form S-2, which was initially filed on
February 12, 1993 (file No. 33-58348), and incorporated by
this reference.
(xii) Previously filed as an exhibit to JSC/CCA's Registration
Statement on form S-2, which was initially filed on
February 23, 1994 (file No. 33-52383), and incorporated by
this reference.
(xiii) Previously filed as an exhibit to JSC's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993, and
incorporated by this reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATE March 31, 1994 JEFFERSON SMURFIT CORPORATION
(Registrant)
BY /s/ John R. Funke
John R. Funke
Vice-President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
* Chairman of the Board
Michael W. J. Smurfit and Director
*
President, Chief Executive Officer
James E. Terrill and Director (Principal Executive
Officer)
/s/ John R. Funke Vice-President and Chief Financial
John R. Funke Officer (Principal Accounting
Officer)
* Director
Howard E. Kilroy
* Director
Donald P. Brennan
* Director
Alan E. Goldberg
* Director
David R. Ramsay
* By /s/ John R. Funke , pursuant to Powers of Attorney
John R. Funke filed as a part of the Form 10-K.
As Attorney in Fact
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(In Millions)
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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 $ $ $
</TABLE>
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In Millions)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at Other
Beginning of Changes
Period, as Additions Add(Deduct) Balance
Previously at Costs Retire- Describe at End
Classification Reported <F11> ments <F12> of Period
<S> <C> <C> <C> <C> <C>
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
<FN>
<F11> Includes capitalized leases which are not reflected in the Consolidated Statements of Cash Flow.
<F12> See next page.
</TABLE>
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
COMPONENTS OF OTHER CHANGES
(In Millions)
<CAPTION>
SAFS 109 Total
Adjustment Restructuring Timber Other
Classification Acquisitions <F13> <F14> Depletion Other Changes
<S> <C> <C> <C> <C> <C> <C>
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 process .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 process
$ 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 equipemnt 3.2 (.6) 2.6
Construction in process .3 (.1) .2
$ 4.4 $ $ $ $(1.5) $ 2.9
Timberland, less timber depletion $ $ $ $(18.1) $ .1 $(18.0)
<FN>
<F13> 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.
<F14> Represents reduction in property balances in connection with restructuring and other charges. See
footnote 10 to the December 31, 1993 consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(In Millions)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at
Beginning of Additions Other
Period, as Charged to Changes Balance
Previously Costs and Retire- Add(Deduct) at End
Description Reported Expenses ments Describe<F15> of Period
<S> <C> <C> <C> <C> <C>
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
<FN>
<F15> See next page.
</TABLE>
The annual provisions for depreciation have been computed principally in
accordance with the following estimated lives:
Buildings and leasehold improvements - 20 to 50 years
Machinery, fixtures and equipment - 3 to 30 years
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
COMPONENTS OF OTHER CHANGES
(In Millions)
<CAPTION>
SFAS 109 Total
Adjustment Restructuring Other
Classification Acquisitions <F16> <F17> Other Changes
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Buildings 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
<FN>
<F16> 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.
<F17> Represents reduction in property balances in connection with restructuring and other charges. See
footnote 10 to the December 31, 1993 consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In Millions)
<CAPTION>
Column A Column B Column C Column D Column E
Balance at
Beginning of Charged
Period, as Charged to to Other Deductions Balance
Previously Costs and Accounts Describe at End
Description Reported Expenses Describe <F18> of Period
<S> <C> <C> <C> <C> <C>
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
<FN>
<F18> Uncollectible accounts written off, net of recoveries.
</TABLE>
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Millions)
<CAPTION>
Column A Column B
Item Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Maintenance and repairs $237.8 $232.0 $208.5
</TABLE>
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.
EXHIBIT 10.19
AMENDMENT NO. 3 dated as of December 10,
1993, relating to the Loan and Note Purchase
Agreement dated as of August 26, 1992 (as amended
prior to the date hereof, the "Loan Agreement"),
by and among SIBV/MS HOLDINGS, INC. ("Holdings"),
JEFFERSON SMURFIT CORPORATION ("JSC"), CONTAINER
CORPORATION OF AMERICA ("CCA"), the CREDITORS (as
defined in the Loan Agreement), CHEMICAL BANK, as
agent (the "Agent") for the Lenders (as defined in
the Loan Agreement), and CHEMICAL BANK and BANKERS
TRUST COMPANY, as Managing Agents for the Lenders
(individually referred to herein as a "Managing
Agent" and collectively as the "Managing Agents"),
and BANKERS TRUST COMPANY, as Collateral Trustee
(the "Collateral Trustee") for the Creditors.
R E C I T A L S :
A. Holdings, JSC, CCA, the Creditors, the
Managing Agents and the Collateral Trustee are parties to
the Loan Agreement.
B. JSC and CCA have proposed implementing a
company-wide operational restructuring, which will require
increased levels of capital spending.
C. Holdings, JSC and CCA have asked the Creditors
to amend certain provisions of the Loan Agreement to, among
other things, provide for certain additional capital
expenditures and the financing therefor and amend the
financial covenants and certain other provisions contained
therein.
AGREEMENT
The parties hereto agree as follows:
SECTION 1. Defined Terms. Each capitalized term
used and not otherwise defined herein shall have the meaning
assigned to such term in the Loan Agreement (including those
terms that are defined in the Loan Agreement after giving
effect to this Amendment).
SECTION 2. Amendments. (a) Definitions,
Subsection 1.1 of the Loan Agreement is hereby amended by:
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(i) adding to the end of the definition of
"Consolidated Capital Expenditures" in the Loan
Agreement the following:
"In addition, notwithstanding any of the
foregoing, all amounts that would otherwise
constitute Consolidated Capital Expenditures, to
the extent such amounts are financed by
Indebtedness for Money Borrowed issued, incurred
or assumed in accordance with the provisions of
clause (F) of subsection 6.1(i) hereof, shall not
constitute Consolidated Capital Expenditures for
the limited purpose of determining compliance with
subsection 6.6C hereof.";
(ii) inserting the following in its proper place
alphabetically in the Loan Agreement:
"'Consolidated Total Interest Expense' means, for
any period, without duplication, (x) total
interest expense for such period (including that
attributable to Financing Leases in accordance
with GAAP) of JSC and its Subsidiaries on a
consolidated basis with respect to all outstanding
Indebtedness of JSC and its Subsidiaries (whether
or not payable in cash), including, without
limitation, all capitalized interest, all
commissions, discounts and other fees and charges
owed with respect to letters of credit and
bankers' acceptance financing and (y) net costs
under Interest Rate Agreements for such period,
but excluding, however, in the case of clause (x),
any amounts referred to in subsection 2.8 payable
to Agent and Lenders on or before the Closing Date
and Transaction Costs relating to the Subordinated
Debt, the Senior Notes, this Agreement and the
Recapitalization, all as determined in conformity
with GAAP"; and
(iii) adding after clause (xi) of the definition of
"Excess Cash Flow" in the Loan Agreement the
following:
"minus (xii) cash payments, made during such
period, of expenses relating to JSC's and CCA's
1993 operational restructuring (including without
limitation employee severance and manufacturing
facility consolidation expense), which expenses
were previously accrued as a non-cash charge in
fiscal 1993".
<PAGE>
(b) Prepayments from Issuance of Indebtedness for
Money Borrowed. Subsection 2.9A(ii)(e) of the Loan
Agreement is hereby amended by deleting the phrase
"subsections 6.1(i)(F) and (G)" therein and inserting in
lieu thereof the phrase "subsections 6.1(i)(D), (F), (G) and
(O)."
(c) Affirmative Covenants. Financial Statements
and Other Reports. Subsection 5.1(iv) of the Loan Agreement
is hereby amended (A) by deleting the word "and" before
"(b)" therein and inserting in lieu thereof a comma and (B)
by adding after clause (b) thereof the following:
"and (c) an Officers' Certificate (which may be
included as a part of the Compliance Certificate
relating to such period delivered pursuant to the
foregoing clause (b)) of JSC, CCA or SNC, as the case
may be, setting forth in reasonable detail (1) the
amount of Indebtedness for Money Borrowed issued,
incurred or assumed by JSC, CCA, SNC or their
respective Subsidiaries in accordance with clause (F)
of subsection 6.1(i) hereof during the period covered
by such financial statements, if any, (2) a description
of the property to which such Indebtedness for Money
Borrowed relates, if any, (3) the date of the earlier
to occur of either the placement in service of, or the
final payment on, such property, if any, and (4) the
date of issuance, incurrence or assumption of such
Indebtedness for Money Borrowed, if any."
(d) Negative Covenants. (i) Indebtedness for
Money Borrowed. Subsection 6.1(i) of the Loan Agreement is
hereby amended (A) by inserting the phrase "and shall not
exceed $200 million" after the phrase "$100 million" in the
proviso in each of clauses (D) and (O) thereof, (B) by
deleting the phrase "$100 million" from clause (F) thereof
and inserting in lieu thereof the phrase "$200 million", and
(C) by adding to the end of clause (F) thereof the
following:
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"and provided, further, that such Indebtedness for
Money Borrowed issued, incurred or assumed in respect
of the purchase or construction price of property to be
purchased or built after January 1, 1993 and prior to
or on December 31, 1993 shall be so issued, incurred or
assumed prior to January 9, 1994 and shall not exceed
$40 million in the aggregate, to be allocated among the
properties described in Schedule Q hereto in the manner
set forth in Schedule Q hereto; and provided, further,
that such Indebtedness for Money Borrowed to be issued,
incurred or assumed in respect of the purchase or
construction price of property to be purchased or built
after December 31, 1993 shall be so issued, incurred or
assumed within 90 days of the earlier to occur of
either the placement in service of, or the final
payment on, such property."
(ii) Financial Covenants.
A. Consolidated EBDIT. Subsection 6.6A of the
Loan Agreement is hereby amended (1) by deleting the phrase
"last day of any quarter falling in any period" and
inserting in lieu thereof the word "date", (2) by deleting
the word "period:" and inserting in lieu thereof the word
"date:", and (3) by deleting the table and substituting the
following therefor:
"Date Amount
December 31, 1993 $250,000,000
March 31, 1994 $250,000,000
June 30, 1994 $250,000,000
September 30, 1994 $270,000,000
December 31, 1994 $300,000,000
March 31, 1995 $325,000,000
June, 30, 1995 $350,000,000
September 30, 1995 $350,000,000
December 31, 1995 $375,000,000
March 31, 1996 $400,000,000
June 30, 1996 $425,000,000
September 30, 1996 $450,000,000
December 31, 1996 $500,000,000"
and thereafter
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B. Cumulative Consolidated EBDIT.
Subsection 6.6B of the Loan Agreement is hereby amended by
deleting the table following "year:" and substituting the
following therefor:
"Year Amount
1992 $1,325,000,000
1993 $1,575,000,000
1994 $1,900,000,000
1995 $2,300,000,000
1996 $2,825,000,000
1997 $3,350,000,000"
C. Interest Coverage Ratio. Subsection 6.6C of
the Loan Agreement is hereby amended (1) by deleting the
phrase "Consolidated Cash Interest Expense" and inserting in
lieu thereof the phrase "Consolidated Total Interest
Expense", (2) by deleting the phrase "last day of any fiscal
period falling in any period" and inserting in lieu thereof
the word "date", (3) by deleting the word "period:" and
inserting in lieu thereof the word "date:", and
(4) by deleting the table and substituting the following
therefor:
"Date Ratio
December 31, 1993 0.50 to 1
March 31, 1994 0.60 to 1
June 30, 1994 0.75 to 1
September 30, 1994 0.85 to 1
Decemember 31, 1994 1.00 to 1
March 31, 1995 1.00 to 1
June 30, 1995 1.15 to 1
September 30, 1995 1.15 to 1
December 31, 1995 1.25 to 1
March 31, 1996 1.25 to 1
June 30, 1996 1.50 to 1
September 30, 1996 1.50 to 1
December 31, 1996 1.75 to 1
and thereafter
<PAGE>
SECTION 3. Representations and Warranties of
Holdings, JSC and CCA. Each of Holdings, JSC and CCA hereby
represents and warrants on the Effective Date (as
hereinafter defined) to each of the Creditors that:
(a) The execution, delivery and performance by
each of Holdings, JSC and CCA of this Amendment and the
consummation of the other transactions contemplated hereby
(collectively, the "Amendment Transactions") (i) have been
duly authorized by all requisite corporate action and
(ii) do not and will not, after giving effect to this
Amendment, and the amendment attached hereto as Exhibit A to
the 1989 Credit Agreement and the Note Purchase Agreement,
(A) violate any provision of law applicable to Holdings, JSC
or CCA, the Certificate of Incorporation or By-laws of
Holdings, JSC or CCA, or any order, judgment or decree of
any court or other agency of government binding on Holdings,
JSC or CCA, (B) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a
default under any Contractual Obligation of Holdings, JSC or
CCA, including, without limitation, any of the outstanding
series of Subordinated Debt, the Loan Agreement, the 1989
Credit Agreement, the Note Purchase Agreement, the Senior
Notes (as defined in the 1989 Credit Agreement), the 1993
Subordinated Notes or the 1993 Senior Unsecured Notes,
(C) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Holdings, JSC
or CCA (other than Liens in favor of the Collateral Trustee)
or (D) require any approval of stockholders or any approval
or consent of any Person under any Contractual Obligation of
Holdings, JSC or CCA, including, without limitation, the
Subordinated Debt, the Loan Agreement, the 1989 Credit
Agreement, the Note Purchase Agreement, the Senior Notes (as
defined in the 1989 Credit Agreement), the 1993 Subordinated
Notes or the 1993 Senior Unsecured Notes, except for
(I) such approvals or consents that will be obtained on or
before the Effective Date and (II) such violations,
conflicts, breaches, Liens and defaults that would not have,
and such approvals the absence of which would not have, a
material adverse effect on Holdings, JSC or CCA and their
respective Subsidiaries, taken as a whole.
(b) This Amendment has been duly executed and
delivered by Holdings, JSC and CCA and constitutes a legal,
valid and binding obligation of Holdings, JSC and CCA,
enforceable against Holdings, JSC and CCA in accordance with
its terms, except as the enforceability hereof may be
limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding at
law or in equity).
<PAGE>
(c) Other than those which have been taken or
obtained and are currently in full force and effect on the
Effective Date, no action, consent or approval of, or
registration or filing with, or any other action by, any
Federal, state, local or foreign court or governmental
agency, authority, instrumentality or regulatory body, in
each case to be obtained or made by Holdings, JSC or CCA, is
or will be required in connection with any of the Amendment
Transactions.
SECTION 4. Conditions to Effectiveness of
Amendment; Amendment Fee. This Amendment shall become
effective at such time (the "Effective Date") when
(a) Holdings, JSC, CCA and the Requisite Creditors shall
have executed this Amendment, (b) Holdings, JSC and CCA
shall have paid, collectively, in full to the Agent, for
distribution to the Lenders signing this Amendment on or
prior to 5:00 p.m. on December 10, 1993, an amount equal to
1/4 of 1% of each such Lender's pro rata share of the
aggregate amount of outstanding Loans as of the Effective
Date, (c) the Agent shall have received an Officer's
Certificate, dated the Effective Date, of Holdings, JSC and
CCA confirming compliance with the conditions precedent set
forth in clause (d) below, (d) the representations and
warranties set forth herein shall be true and correct in all
material respects on and as of the Effective Date, (e) the
amendment attached hereto as Exhibit A to the 1989 Credit
Agreement and Note Purchase Agreement shall have been
approved by the Requisite Lenders (as defined in the 1989
Agreement) and shall have or shall become effective on the
Effective Date, and (f) the Agent shall have received a
certificate of the Chief Financial Officer or Treasurer of
Holdings, JSC and CCA, dated the Effective Date, certifying
that after giving effect to this Amendment, (1) the
representations and warranties set forth in Section 4 of the
Loan Agreement shall be true and correct in all material
respects with the same effect as if made on and as of the
Effective Date, except to the extent such representations
and warranties expressly relate to an earlier date or a
change therein is permitted by the Loan Agreement, and
(2) no Default or Event of Default shall have occurred and
be continuing.
<PAGE>
SECTION 5. No Waiver; Certain Obligations of
Holdings, JSC and CCA. Except as expressly contemplated
herein, all terms, provisions, covenants, representations,
warranties, agreements and conditions of Holdings, JSC and
CCA contained in the Loan Agreement shall remain in full
force and effect and shall not otherwise be deemed to be
waived, modified or amended hereby.
SECTION 6. New York Law. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
SECTION 7. Counterparts; Effectiveness. This
Amendment may be executed and delivered in any number of
counterparts, each of which counterparts, when so executed
and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute one and
the same agreement and shall become effective, subject to
the conditions set forth in paragraph 4 hereof, when
executed and delivered by Holdings, JSC, CCA and the
Requisite Creditors. Delivery of an executed counterpart of
a signature page of this Amendment by facsimile transmission
shall be effective as delivery of a manually executed
counterpart of this Amendment. From and after the
effectiveness of this Amendment, any reference to the Loan
Agreement (or any particular subsection thereof) shall be
deemed to be a reference to the Loan Agreement (or such
subsection) as and to the extent amended hereby.
<PAGE>
SECTION 8. Headings. Section headings used
herein are for convenience of reference only, are not part
of this Amendment and are not to affect the construction of,
or to be taken into consideration in interpreting, this
Amendment.
IN WITNESS WHEREOF, the parties have caused this
Amendment to be duly executed as of the date first written
above.
SIBV/MS HOLDINGS, INC.,
by
/s/ Patrick J. Moore
Name: Patrick J. Moore
Title: Vice President and
Treasurer
JEFFERSON SMURFIT CORPORATION,
by
/s/ Patrick J. Moore
Name: Patrick J. Moore
Title: Vice President and
Treasurer
CONTAINER CORPORATION OF AMERICA,
by
/s/ Patrick J. Moore
Name: Patrick J. Moore
Title: Vice President and
Treasurer
LENDERS:
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
by
/s/ Kathleen McKay
Name: Kathleen McKay
Title: Senior Vice President
<PAGE>
BANK OF IRELAND,
by
/s/ John T. Noonan
Name: John T. Noonan
Title: Vice President
THE BANK OF NEW YORK,
by
/s/ David S. Stueber
Name: David S. Stueber
Title: Vice President
BANKERS TRUST COMPANY,
by
/s/ Mary Jo Jolly
Name: Mary Jo Jolly
Title: Assistant Vice
President
CHEMICAL BANK,
by
/s/ George W. Brash, Jr.
Name: George W. Brash
Title: Managing Director
CHRISTIANIA BANK OG KREDITKASSE,
by
/s/ Carl P. Svendsen
Name: Carl P. Svendsen
Title: Vice President
by
/s/ Svein Engh
Name: Svein Engh
Title: Vice President
<PAGE>
CITIBANK, N.A.,
by
/s/ Barbara A. Cohen
Name: Barbara A. Cohen
Title: Vice President
DRESDNER BANK AG CHICAGO BRANCH,
by
/s/ Brian Brodeur
Name: Brian Brodeur
Title: Vice President
by
/s/ John Schaus
Name: John Schaus
Title: Vice President
KEYPORT LIFE INSURANCE COMPANY,
by
/s/ Christopher A. Bondy
Name: Christopher A. Bondy
Title: Assistant Vice President
CHANCELLOR SENIOR
SECURED MANAGEMENT,
INC., as portfolio
advisor
<PAGE>
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS, B.V. (ROSA),
by
/s/ Christopher A. Bondy
Name: Christopher A. Bondy
Title: Assistant Vice President
CHANCELLOR SENIOR
SECURED MANAGEMENT,
INC., as portfolio
advisor
STICHTING RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS II
(ROSA II),
by
/s/ Christopher A. Bondy
Name: Christopher A. Bondy
Title: Assistant Vice President
CHANCELLOR SENIOR
SECURED MANAGEMENT,
INC., as portfolio
advisor
KIDDER, PEABODY EMERGING MARKETS,
INC.,
by
/s/ Timothy W. Aker
Name: Timothy W. Aker
Title: Vice President
MERRILL LYNCH PRIME FUND, INC.,
by
/s/ John W. Fraser
Name: John W. Fraser
Title: Authorized Signatory
<PAGE>
SENIOR HIGH INCOME PORTFOLIO, INC.,
by
/s/ John W. Fraser
Name: John W. Fraser
Title: Authorized Signatory
SENIOR HIGH INCOME PORTFOLIO II,
INC.,
by
/s/ John W. Fraser
Name: John W. Fraser
Title: Authorized Signatory
NATIONAL WESTMINSTER BANK,
by
/s/ David H. Hannah
Name: David H. Hannah
Title: Vice President
NATIONSBANK,
by
/s/ Michael O. Lincoln
Name: Michael O. Lincoln
Title: Vice President
PRIME INCOME TRUST,
by
/s/ Rafael Scolari
Name: Rafael Scolari
Title: Investment Manager
PROSPECT STREET SENIOR PORTFOLIO,
L.P.,
by
/s/ Preston I. Carnes, Jr.
Name: Preston I. Carnes, Jr.
Title: Vice President
PROSPECT STREET SENIOR
LOAN CORP., as Managing
General Partner
THE TRAVELERS INDEMNITY COMPANY,
by
/s/ John W. Petchler
Name: John W. Petchler
Title: Second Vice President
<PAGE>
THE TRAVELERS INSURANCE COMPANY,
by
/s/ John W. Petchler
Name: John W. Petchler
Title: Second Vice President
UNION BANK OF FINLAND LTD.,
GRAND CAYMAN BRANCH,
by
/s/ James Kyprios
Name: James Kyprios
Title: Senior Vice President
by
/s/ Durval Araujo
Name: Durval Araujo
Title: Vice President
VAN KAMPEN MERRITT PRIME RATE
INCOME TRUST,
by
/s/ Kathleen A. Zarn
Name: Kathleen A. Zarn
Title: Vice President
XEROX FINANCIAL SERVICES LIFE
INSURANCE COMPANY,
by
/s/ Peter W. Hegel
Name: Peter W. Hegel
Title: Authorized Signatory
EXHIBIT 24.1
POWER OF ATTORNEY
Each person whose signature appears below constitutes
and appoints Michael W. J. Smurfit, James E. Terrill, and
John R. Funke, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign Annual Reports on Form 10-
K and all required interim reports and to file the same, with
all exhibits thereto, and other documents in connection
therewith, regarding Jefferson Smurfit Corporation, a
Delaware corporation, with the Securities and Exchange
Commission and any other regulatory authority, granting unto
said attorney-in-fact and agents, full power and authority to
do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-
fact and agents, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Signature Title
/s/Michael W.J. Smurfit Chairman of the Board
Michael W. J. Smurfit and Director
/s/James E. Terrill President, Chief Executive
James E. Terrill Officer, Chief Operating
Officer and Director
(Principal Executive
Officer)
/s/John R. Funke Vice President and Chief
John R. Funke Financial Officer
(Principal Accounting
Officer) and (Principal
Financial Officer)
/s/Howard E. Kilroy Director
Howard E. Kilroy
/s/Donald P. Brennan Director
Donald P. Brennan
/s/Alan E. Goldberg Director
Alan E. Goldberg
/s/David R. Ramsay Director
David R. Ramsay
Date: February 28, 1994
