UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For Quarter Ended June 30, 1995
Commission File Number 0-11951
JSCE, Inc.
(Exact name of registrant as specified in its charter)
Delaware 37-1337160
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
8182 Maryland, St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 746-1100
Registrant's telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 25, 1995, the registrant had outstanding 1,000
shares of common stock, $.01 par value per share.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JSCE, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $1,103.3 $765.9 $2,104.4 $1,493.6
Costs and expenses
Cost of goods sold 874.8 654.9 1,688.6 1,284.1
Selling and administrative expenses 63.9 55.4 125.2 107.1
Income from operations 164.6 55.6 290.6 102.4
Other income (expense)
Interest expense (57.7) (69.3) (120.5) (134.1)
Other, net (.1) 1.7 1.7 3.1
Income (loss) before income
taxes and extraordinary item 106.8 (12.0) 171.8 (28.6)
Provision for (benefit from)
income taxes 40.5 (3.6) 66.2 (8.4)
Income (loss) before
extraordinary item 66.3 (8.4) 105.6 (20.2)
Extraordinary item
Loss from early extinguishment of
debt, net of income tax benefits (.2) (51.6) (.6) (51.6)
Net income (loss) $ 66.1 $(60.0) $ 105.0 $ (71.8)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
JSCE, Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 7.4 $ 61.8
Receivables, less allowances of
$9.3 in 1995 and $8.6 in 1994 403.3 316.3
Inventories
Work-in-process and finished goods 107.8 86.9
Materials and supplies 166.8 136.8
274.6 223.7
Deferred income taxes 37.9 38.1
Prepaid expenses and other current assets 9.0 6.6
Total current assets 732.2 646.5
Net property, plant and equipment 1,451.3 1,427.1
Timberland, less timber depletion 257.0 259.0
Goodwill, less accumulated amortization of
$38.8 in 1995 and $35.0 in 1994 256.0 257.1
Other assets 169.8 169.3
$2,866.3 $2,759.0
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt $ 53.7 $ 50.2
Accounts payable 392.1 348.8
Accrued compensation and payroll taxes 117.7 114.3
Interest payable 33.3 48.3
Other accrued liabilities 78.5 74.4
Total current liabilities 675.3 636.0
Long-term debt, less current maturities 2,307.4 2,391.7
Other long-term liabilities 224.4 237.5
Deferred income taxes 266.7 207.7
Minority interest 17.8 16.4
Stockholder's deficit
Common stock, par value $.01 per share;
1,000 shares authorized and outstanding
Additional paid-in capital 1,102.4 1,102.4
Retained earnings (deficit) (1,727.7) (1,832.7)
Total stockholder's deficit (625.3) (730.3)
$2,866.3 $2,759.0
</TABLE>
See notes to consolidated financial statements.
<PAGE>
JSCE, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $105.0 $(71.8)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Extraordinary loss from early
extinguishment of debt .9 83.2
Depreciation, depletion and amortization 68.6 65.6
Amortization of deferred debt issuance costs 6.9 4.4
Deferred income taxes 59.3 (42.0)
Non-cash interest 10.0
Non-cash employee benefit expense (3.7) (3.9)
Change in current assets and liabilities,
net of effects from acquisitions
Receivables (87.1) (57.6)
Inventories (50.6) 15.3
Prepaid expenses and other current assets (2.1) 2.1
Accounts payable and accrued liabilities 40.7 1.1
Interest payable (12.1) (6.4)
Income taxes payable (.3) .6
Other, net (3.3) (6.1)
Net cash provided by (used for) operating activities 122.2 (5.5)
Cash flows from investing activities
Property additions (73.3) (55.6)
Timberland additions (10.0) (9.4)
Acquisitions (5.3)
Proceeds from property and timberland disposals 3.0 1.0
Net cash used for investing activities (85.6) (64.0)
Cash flows from financing activities
Capital contribution 386.5
Proceeds from long-term borrowings 221.4 928.4
Repayment of long-term debt (309.6) (1,131.8)
Deferred debt issuance costs (2.8) (76.9)
Net cash provided by (used for) financing activities (91.0) 106.2
Increase (decrease) in cash and cash equivalents (54.4) 36.7
Cash and cash equivalents
Beginning of period 61.8 44.2
End of period $ 7.4 $ 80.9
</TABLE>
See notes to consolidated financial statements.
<PAGE>
JSCE, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions)
(Unaudited)
1. -- Basis of Presentation
The accompanying consolidated financial statements of JSCE, Inc.
have been prepared in accordance with the instructions to Form 10-Q
and reflect all adjustments which management believes necessary
(which include only normal recurring accruals) to present fairly
the financial position and results of operations. These
statements, however, do not include all information and footnotes
necessary for a complete presentation of financial position,
results of operations and cash flows in conformity with generally
accepted accounting principles. Interim results may not
necessarily be indicative of results which may be expected for any
other interim period or for the year as a whole.
JSCE, Inc. is a wholly-owned subsidiary of Jefferson Smurfit
Corporation ("JSC"). JSC has no operations other than its
investment in JSCE, Inc. On December 31, 1994 Jefferson Smurfit
Corporation (U.S.), a wholly-owned subsidiary of JSC ("Old JSC
(U.S.)"), merged (the "Merger") into its wholly-owned subsidiary,
Container Corporation of America ("CCA"), with CCA surviving and
changing its name to Jefferson Smurfit Corporation (U.S.) ("JSC
(U.S.)"). As used in this Form 10-Q, references to the "Company"
shall, as the context may require, refer collectively to CCA and
Old JSC (U.S.) prior to the Merger, or JSCE, Inc. and JSC (U.S.).
JSCE, Inc. has no operations other than its investment in JSC
(U.S.). On December 31, 1994, JSC contributed 100% of the common
stock of JSC (U.S.) to JSCE, Inc. This transaction has been
accounted for in a manner similar to a pooling of interests and
accordingly, the consolidated financial statements for all periods
presented include the accounts of JSC (U.S.).
Prior to May 4, 1994, JSC was named "SIBV/MS Holdings, Inc." and
Old JSC (U.S.) was named "Jefferson Smurfit Corporation". Prior to
May 4, 1994, 50% of the voting stock of JSC was owned by Smurfit
Packaging Corporation and Smurfit Holdings B.V., indirect wholly-
owned subsidiaries of Jefferson Smurfit Group plc, a public
corporation organized under the laws of the Republic of Ireland.
The remaining 50% was owned by The Morgan Stanley Leveraged Equity
Fund II, L.P. and certain other investors.
2. -- Long-Term Debt
On February 23, 1995, JSC (U.S.) entered into a $315.0 million
accounts receivable securitization program (the "1995
Securitization"). The 1995 Securitization provides for the sale of
certain of JSC (U.S.)'s trade receivables to a wholly-owned,
bankruptcy remote, limited purpose subsidiary, Jefferson Smurfit
Finance Corporation ("JS Finance"), which finances its purchases of
eligible JSC (U.S.) receivables through the issuance of commercial
paper or the proceeds of borrowings under a revolving liquidity
facility and a term loan. JS Finance borrowed $15.0 million under
the term loan, and may issue up to $300.0 million trade
receivables-backed commercial paper or borrow up to $300.0 million
under a revolving liquidity facility. At June 30, 1995, $90.9
million was available for additional borrowing under the 1995
Securitization based on JSC (U.S.)'s level of eligible accounts
receivable. The 1995 Securitization matures in December 1999.
Interest rates on borrowings under the 1995 Securitization are at
a variable rate. Proceeds of the 1995 Securitization were used to
extinguish JSC (U.S.)'s borrowings under the pre-existing accounts
receivable securitization program.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
<TABLE>
<CAPTION>
(In millions) Three months ended Six months ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales
Paperboard/Packaging Products $1,012.3 $703.2 $1,933.6 $1,369.7
Newsprint 91.0 62.7 170.8 123.9
Total $1,103.3 $765.9 $2,104.4 $1,493.6
Operating profit
Paperboard/Packaging Products $ 158.0 $ 61.0 $ 282.9 $ 113.3
Newsprint 6.5 (3.7) 9.4 (7.8)
Total $ 164.5 $ 57.3 $ 292.3 $ 105.5
</TABLE>
The Company had record net sales for both the three months and six
months ended June 30, 1995, up 44% and 41%, respectively, compared
to the same periods last year. Sales increased in each of the
Company's operating segments, primarily as a result of improved
pricing. The chart below shows the components of the sales
increases for each of the Company segments.
<PAGE>
<TABLE>
<CAPTION>
(In millions) Change in net sales analysis
Three months 1995 Six months 1995
compared to compared to
three months 1994 six months 1994
<S> <C> <C>
Sales price and product mix
Paperboard/Packaging Products $288.6 $515.5
Newsprint 31.3 48.4
319.9 563.9
Sales volume
Paperboard/Packaging Products 18.6 44.6
Newsprint (3.0) (1.5)
15.6 43.1
Acquisitions and new facilities
Paperboard/Packaging Products 1.9 3.8
Total $337.4 $610.8
</TABLE>
The Company was able to implement price increases during the first
and second quarters on all its major products. The sales price and
product mix improvements in the Paperboard/Packaging Products
segment were due primarily to price increases on containerboard and
corrugated shipping containers and reclaimed fibre.
Cost of goods sold as a percent of net sales for the six months
ended June 30, 1995 declined compared to the same period in 1994 in
each of the Company's segments, primarily as a result of the higher
sales prices. The percentages for the six months ended June 30,
1995 and 1994 were 79.3% and 84.6%, respectively, for the
Paperboard/Packaging Products segment and 90.5% and 101.5%,
respectively, for the Newsprint segment. The cost of recycled
fibre, a key raw material used by the Company's paper mills, was
sharply higher in the six month period ended June 30, 1995 compared
to the same period in 1994, due to unprecedented demand which
began in the second quarter of 1994. While prices of reclaimed
fibre appear to have peaked in the second quarter of 1995,
and have since begun to decline moderately, it is too early to
determine whether or not such lower prices will be sustained.
<PAGE>
Selling and administrative expenses for the six months ended June
30, 1995 rose 16.9% compared to the same period in 1994 due
primarily to higher provisions for personnel costs, management
incentive plans, selling commissions and inflationary increases in
other costs.
Interest expense for the six months ended June 30, 1995 was lower
compared to the same period in 1994 due to lower average debt
levels outstanding and lower effective interest rates.
The extraordinary loss in 1994 of $51.6 million resulted from
refinancing a significant portion of the Company's debt in
conjunction with the initial public offering completed in the
second quarter of 1994.
<TABLE>
<CAPTION>
Statistical Data
(In thousands of tons, Three months ended Six months ended
except as noted) June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Production:
Containerboard 525 469 1,047 951
Recycled boxboard and
solid bleached sulfate 195 182 391 371
Newsprint 151 155 307 307
Corrugated shipping containers
sold (billion square feet) 7.4 7.7 14.9 15.2
Folding cartons sold 115 117 233 235
Fibre reclaimed and boxboard 1,123 995 2,195 1,957
</TABLE>
Liquidity and Capital Resources
On February 23, 1995, JSC (U.S.) entered into the 1995
Securitization consisting of a $300.0 million trade receivables-
backed commercial paper program and a $15.0 million term loan,
which matures in December 1999. Proceeds of the 1995
Securitization were used to extinguish JSC (U.S.)'s borrowings
under its pre-existing accounts receivable securitization program.
Interest rates on borrowings under the 1995 Securitization are at
a variable rate.
In conjunction with the Company's recapitalization in 1994, the
Company entered into a new bank credit facility (the "1994 Credit
Agreement") consisting of a $450.0 million revolving credit
facility, a $900.0 million Tranche A Term Loan and a $300.0 million
Tranche B Term Loan. The 1994 Credit Agreement contains various
business and financial covenants including, among other things, (i)
limitations on dividends, redemptions and repurchases of capital
stock, (ii) limitations on the incurrence of indebtedness, liens,
leases and sale-leaseback transactions, (iii) limitations on
capital expenditures, (iv) maintenance of minimum levels of
consolidated earnings before depreciation, interest, taxes and
amortization and (v) maintenance of minimum interest coverage
ratios. Such restrictions, together with the highly leveraged
position of the Company, could restrict corporate activities,
including the Company's ability to respond to market conditions, to
provide for unanticipated capital expenditures or to take advantage
of business opportunities.
The 1994 Credit Agreement imposes an annual limit on future capital
expenditures of $150.0 million. The capital spending limit is
subject to increase by an amount up to $75.0 million in any year if
the prior year's spending was less than the maximum amount allowed.
<PAGE>
The Company has a carryover of $62.4 million for 1995. Management
believes the annual limitation for capital expenditures does not
impair its plans for maintenance, expansion and continued
modernization of its facilities.
During the six months ended June 30, 1995, the Company made net
long-term debt repayments of $88.2 million, including $19.0 million
of mandatory and $68.0 million of optional payments in respect of
the Tranche A and Tranche B Term Loans under the 1994 Credit
Agreement.
In the third quarter of 1993, the Company recognized charges of
$96.0 million for a restructuring program (the "Restructuring
Program") to improve its long-term competitive position. The
Restructuring Program provided for plant closures, asset write-
downs, reductions in workforce, relocation of employees and
consolidation of certain plant operations. The cash expenditures
anticipated under the Restructuring Program for the remainder of
1995 and 1996 will be funded through operations, as originally
planned.
Operating activities have historically been the major source of
cash for the Company's capital expenditures and debt payments. Net
cash provided by operating activities for the six months ended June
30, 1995 was $122.2 million compared to $10.4 million for the same
period in 1994. The increase was primarily attributable to the
improved level of earnings which were partially offset by changes
in accounts receivable and inventories in the current year. The
increase in accounts receivable was due primarily to the
significant increase in sales compared to last year and inventories
were higher due to the higher cost of raw materials and increases
in inventory levels.
In July 1995, Jefferson Smurfit Corporation marked its entry into
Asia through the formation of a company in the Peoples Republic of
China to purchase a controlling interest in a linerboard mill near
Shanghai. The mill, Zhejiang CIMIC Nanyang Paper Products Co.,
Ltd., produces about 50,000 tons of packaging linerboard annually
and operates several waste paper recycling facilities. In addition
to operating the mill, the joint venture plans to pursue other
opportunities in the Chinese paper and packaging industry. The
Chinese paper industry is the world's third largest, producing 18.5
million tons in 1993. Consumption has grown at a compound rate of
nearly 10 percent since 1980, despite per capita consumption of
only 17 kilograms in 1993, compared with more than 300 kilograms
per capita in the United States. The Company owns a 42.5% equity
interest in the joint venture.
In July 1995, under the terms of a Shareholder Agreement with the
Times Mirror Company ("Times Mirror"), the Company acquired the 20%
minority interest of Smurfit Newsprint Corporation which was owned
by Times Mirror. The Company already owned 80% of the newsprint
company, which was originally acquired in 1986 from Times Mirror.
The acquisition of the minority interest is expected to make a
positive contribution to earnings this year. Smurfit Newsprint
Corporation's operations include two newsprint mills located near
Portland, Oregon producing approximately 615,000 tons annually and
two facilities which produce Cladwood, a composite wood panel made
of sawmill shavings and other wood residuals used by the housing
industry. The Company will continue to be a major supplier of
newsprint to Times Mirror. Purchase of the remaining equity had no
effect on the existing 40-year newsprint supply contract.
At June 30, 1995, the Company had $305.9 million of unused
borrowing capacity under the 1994 Credit Agreement and $90.9
million of unused borrowing capacity under the 1995 Securitization
based on JSC (U.S.)'s level of eligible accounts receivable. The
Company believes that cash provided by operating activities and
available financing sources will be sufficient for the next several
years to pay interest on the Company's obligations, amortize its
term loans and fund anticipated capital expenditures. Management
<PAGE>
believes the Sweet Home matter referred to in Item 1 - Legal
Proceedings of Part II - Other Information will not have a material
adverse effect on its consolidated financial condition or results
of operation.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended June 30, 1995, the following
developments occurred in Legal Proceedings not previously
reported in JSC (U.S.)'s Annual Report on Form 10-K and
amended Form 10-K/A for the fiscal year ended December 31,
1994.
On May 11, 1995, the United States Environmental Protection
Agency ("EPA") executed a search warrant at the Sweet Home,
Oregon manufacturing facility (the "Facility") of the
Cladwood Division of Smurfit Newsprint Corporation ("SNC"),
an indirect wholly-owned subsidiary of the Company. The
Facility manufactures Cladwood, a wood composite panel
manufactured from sawmill shavings.
According to the search warrant, the U.S. Attorney's Office
for the District of Oregon and the EPA are investigating
whether the Facility violated the Clean Water Act or other
federal laws in connection with waste water discharges at
the Facility.
The Company has been advised that the government has
presented, or intends to present, evidence to a grand jury
in connection with the investigation. SNC and certain of
its employees could be charged, and SNC could be assessed
significant fines and penalties if an indictment and
conviction follows as a result of the grand jury
proceeding.
Miami County, Ohio Site
In April 1995, the Company, pursuant to a consent decree
previously entered into with the United States, paid $3.1
million in satisfaction of its alleged and/or potential
liability for past and future response costs in connection
with the Miami County, Ohio site under the Comprehensive
Environmental Response, Compensation and Liability Act
("CERCLA").
In July 1995 the Company, pursuant to a consent decree
previously entered into with the United States, settled the
cause of action commenced by the government in October 1993
against the Company for alleged failures to properly
respond to document and information requests by the EPA
with respect to the Miami County, Ohio CERCLA Site.
Pursuant to the consent decree the Company paid $1.2
million to the government.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Registrant's Annual Meeting of Stockholders was held on
April 25, 1995. At the meeting, stockholders voted on (i)
the election of three directors and (ii) the ratification
of the appointment of Ernst & Young LLP as independent
auditors of the Company for 1995. Voting on each such
matter was as follows:
<TABLE>
<CAPTION>
Votes Votes Withheld/ Broker
For Against Abstentions Non-Votes
<C> <S> <S> <S> <S>
1. Election of Directors
James E. Terrill 100,824,614 - 119,350 -
David R. Ramsay 100,822,469 - 121,495 -
G. Thompson Hutton 100,822,928 - 121,036 -
2. Ratification of Auditors 100,938,195 2,123 3,646 -
</TABLE>
Item 5. Other Information
On July 24, 1995, JSC (U.S.) announced that it had reached
a decision to permanently cease operations at its East
Mill in Monroe, Michigan which produces approximately
50,000 tons per year of recycled cylinderboard. The
closure is anticipated to occur prior to the end of
September. The cost of closure was previously reserved
for as part of the Company's Restructuring Program
implemented in the third quarter of 1993.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included in this Form 10-Q.
27.1 Financial Data Schedule
b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the three months ended June 30, 1995.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JSCE, Inc.
(Registrant)
Date August 4, 1995 /s/ John R. Funke
John R. Funke
Vice President
and Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000727742
<NAME> JSCE, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 7400
<SECURITIES> 0
<RECEIVABLES> 403300
<ALLOWANCES> 9300
<INVENTORY> 274600
<CURRENT-ASSETS> 732200
<PP&E> 2157300
<DEPRECIATION> 706000
<TOTAL-ASSETS> 2866300
<CURRENT-LIABILITIES> 675300
<BONDS> 2307400
<COMMON> 0
0
0
<OTHER-SE> (625300)
<TOTAL-LIABILITY-AND-EQUITY> 2866300
<SALES> 2104400
<TOTAL-REVENUES> 2104400
<CGS> 1688600
<TOTAL-COSTS> 1688600
<OTHER-EXPENSES> 125200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120500
<INCOME-PRETAX> 171800
<INCOME-TAX> 66200
<INCOME-CONTINUING> 105600
<DISCONTINUED> 0
<EXTRAORDINARY> (600)
<CHANGES> 0
<NET-INCOME> 105000
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
