UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For Quarter Ended March 31, 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 No.)
incorporation or organization)
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 No X
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 21, 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
<TABLE>
JSCE, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
(Unaudited)
<CAPTION>
Three months ended March 31,
1995 1994
<S> <C> <C>
Net sales $1,001.1 $ 727.7
Costs and expenses
Cost of goods sold 813.8 627.6
Selling and administrative expenses 61.3 53.3
Income from operations 126.0 46.8
Other income (expense)
Interest expense (62.8) (64.8)
Other, net 1.8 1.4
Income (loss) before income taxes
and extraordinary item 65.0 (16.6)
Provision for (benefit from) income taxes 25.7 (4.8)
Income (loss) before extraordinary item 39.3 (11.8)
Extraordinary item
Loss from early extinguishment of debt, net
of income tax benefit of $.1 in 1995 (.4)
Net income (loss) $ 38.9 $ (11.8)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JSCE, Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<CAPTION>
March 31, December 31,
1995 1994
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 14.6 $ 61.8
Receivables, less allowances of
$9.0 in 1995 and $8.6 in 1994 379.8 316.3
Inventories
Work-in-process and finished goods 96.7 86.9
Materials and supplies 161.0 136.8
257.7 223.7
Deferred income taxes 38.9 38.1
Prepaid expenses and other current assets 11.8 6.6
Total current assets 702.8 646.5
Net property, plant and equipment 1,438.5 1,427.1
Timberland, less timber depletion 259.4 259.0
Goodwill, less accumulated amortization of
$36.9 in 1995 and $35.0 in 1994 257.1 257.1
Other assets 171.9 169.3
$2,829.7 $2,759.0
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt $ 48.9 $ 50.2
Accounts payable 370.1 348.8
Accrued compensation and payroll taxes 107.7 114.3
Interest payable 67.9 48.3
Other accrued liabilities 86.4 74.4
Total current liabilities 681.0 636.0
Long-term debt, less current maturities 2,355.3 2,391.7
Other long-term liabilities 231.4 237.5
Deferred income taxes 236.5 207.7
Minority interest 16.9 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) (1,793.8) (1,832.7)
Total stockholder's deficit (691.4) (730.3)
$2,829.7 $2,759.0
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JSCE, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<CAPTION>
Three months ended March 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 38.9 $(11.8)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Extraordinary loss from early
extinguishment of debt .5
Depreciation, depletion and amortization 33.7 33.4
Amortization of deferred debt issuance costs 2.6 1.9
Deferred income taxes 28.0 (5.8)
Non-cash interest 4.9
Non-cash employee benefit expense (1.6) (1.9)
Change in current assets and liabilities,
net of effects from acquisitions
Receivables (63.6) (15.1)
Inventories (33.7) 7.9
Prepaid expenses and other current assets (2.1) (.8)
Accounts payable and accrued liabilities 23.1 (14.6)
Interest payable 22.7 28.0
Income taxes payable (3.1) .4
Other, net (3.5) ( 2.3)
Net cash provided by operating activities 41.9 24.2
Cash flows from investing activities
Property additions (33.1) (24.5)
Timberland additions (6.2) (6.9)
Acquisitions (4.3)
Proceeds from property and timberland disposals 2.0 .4
Net cash used for investing activities (41.6) (31.0)
Cash flows from financing activities
Proceeds from long-term borrowings 213.1 12.3
Repayment of long-term debt (258.1) (4.6)
Deferred debt issuance costs (2.5) (1.1)
Net cash provided by (used for) financing activities (47.5) 6.6
Decrease in cash and cash equivalents (47.2) (.2)
Cash and cash equivalents
Beginning of period 61.8 44.2
End of period $ 14.6 $ 44.0
</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 had been named "SIBV/MS Holdings, Inc."
and Old JSC (U.S.) had been 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 March 31, 1995, $100.8
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>
Three months ended March 31,
(In millions) 1995 1994
Operating
Net Operating Net profit
Sales profit Sales (loss)
<S> <C> <C> <C> <C>
Paperboard/Packaging Products $ 921.3 $124.9 $666.5 $ 52.3
Newsprint 79.8 2.9 61.2 (4.1)
Total net sales $1,001.1 $127.8 $727.7 $ 48.2
</TABLE>
The Company had record net sales of $1,001.1 million for the three
months ended March 31, 1995, up 37.6% compared to the same period
in 1994. The increase is due primarily to higher sales prices for
many of the Company's major products. Increases in sales for each
of the Company's segments are shown in the chart below. Compared
to the same period in 1994, net sales for the three months ended
March 31, 1995 increased 38.2% in the Paperboard/Packaging Products
segment and increased 30.4% in the Newsprint segment.
<TABLE>
<CAPTION>
(In millions) Net sales increase
Paperboard/
Packaging
Products Newsprint Total
<S> <C> <C> <C>
Sales price and product mix $226.9 $17.1 $244.0
Sales volume 26.0 1.5 27.5
Acquisitions and new facilities 1.9 1.9
Total net sales increase $254.8 $18.6 $273.4
</TABLE>
Cost of goods sold as a percent of net sales for the three months
ended March 31, 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 three months ended
March 31, 1995 for the Paperboard/Packaging Products and Newsprint
segments were 80.3% and 92.4%, respectively, compared to 85.0% and
101.8%, respectively, for the same period in 1994. The cost of
recycled fibre, a key raw material used by the Company's paper
mills, was sharply higher in the three month period ended March 31,
1995 compared to the same period in 1994, due to unprecedented
demand which began in the second quarter of 1994.
Selling and administrative expenses for the three months ended
March 31, 1995 rose 15.0% compared to the same period in 1994 due
primarily to higher provisions for management incentive plans,
selling commissions, employee benefits and inflationary increases
in other costs.
Interest expense for the three months ended March 31, 1995 was
lower compared to the same period in 1994 due to lower average debt
levels outstanding. Effective interest rates for the 1995 period
were higher than the comparable period in 1994.
The tax provision for the three months ended March 31, 1995 was
$25.7 million compared to a tax benefit of $4.8 million for the
same period in 1994. The effective tax rate for the 1995 period
was higher than the Federal statutory tax rate due to several
factors, the most significant of which was the effect of permanent
differences between book and tax accounting.
<PAGE>
The Company recorded an extraordinary loss from early
extinguishment of debt (net of income tax benefits) amounting to
$.4 million for the three months ended March 31, 1995, as a result
of optional payments on the Tranche A and Tranche B Term Loans (as
discussed in "Liquidity and Capital Resources").
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.
The Company has a carryover of $62.4 million for 1995. Because the
Company has invested heavily in its core businesses in prior years,
management believes the annual limitation for capital expenditures
does not impair its plans for maintenance, expansion and continued
modernization of its facilities.
During the three months ended March 31, 1995, the Company made net
long-term debt repayments of $45.0 million, including $35.0 million
of mandatory and 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 and $54.0
million for environmental and other charges. The Restructuring
Program provided for plant closures, asset write-downs, reductions
in workforce, relocation of employees and consolidation of certain
plant operations, which are expected to be completed over an
approximate two to three year period. In accordance with the
Restructuring Program, the Company closed certain high cost
operating facilities, including a coated recycled boxboard mill,
five converting plants and two reclamation plants in 1993 and 1994.
Approximately $28.5 million (54%) of the $53.0 million of cash
expenditures anticipated under the Restructuring Program was paid
during the period October 1, 1993 to March 31, 1995 as planned.
The Company believes that a substantial portion of the remaining
cash expenditures related to the Restructuring Program will
continue to be funded through operations in 1995 and 1996, as
originally planned.
<PAGE>
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 three months ended
March 31, 1995 was $41.9 million compared to $24.2 million for the
same period in 1994.
At March 31, 1995, the Company had $302.7 million in unused
borrowing capacity under the 1994 Credit Agreement and $100.8
million of 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended March 31, 1995, there were no
material developments in Legal Proceedings 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.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included in this Form 10-Q.
10.1 Term Loan Agreement dated as of February 23, 1995 among
JS Finance and Bank Brussels Lambert, New York Branch
(incorporated by reference to Exhibit 10.1 to JSC's
quarterly report on Form 10-Q for the quarter ended March
31, 1995).
10.2 Depositary and Issuing and Paying Agent Agreement (Series
A Commercial Paper) as of February 23, 1995 (incorporated
by reference to Exhibit 10.2 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995).
10.3 Depositary and Issuing and Paying Agent Agreement (Series
B Commercial Paper) as of February 23, 1995 (incorporated
by reference to Exhibit 10.3 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995).
10.4 Receivables Purchase and Sale Agreement dated as of
February 23, 1995 among JSC (U.S.), as the Seller, JSC
(U.S.), as the Initial Servicer and JS Finance, as the
Purchaser (incorporated by reference to Exhibit 10.4 to
JSC's quarterly report on Form 10-Q for the quarter ended
March 31, 1995).
10.5 Termination and Reassignment Agreement dated as of March
3, 1995 among JS Finance, JSC (U.S.), Emerald Funding
Corporation and Bankers Trust Company (incorporated by
reference to Exhibit 10.5 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995).
10.6 Liquidity Agreement dated as of February 23, 1995 among
JS Finance, the Financial Institutions parties hereto as
Banks, Bankers Trust Company, as Facility Agent and
Bankers Trust Company as Collateral Agent (incorporated
by reference to Exhibit 10.6 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995).
<PAGE>
10.7 Commercial Paper Dealer Agreement dated as of February 23,
1995 among BT Securities Corporation, Morgan Stanley & Co.
Incorporated, JSC (U.S.) and JS Finance (incorporated by
reference to Exhibit 10.7 to JSC's quarterly report on
Form 10-Q for the quarter ended March 31, 1995).
10.8 Addendum dated March 6, 1995 to Commercial Paper Dealer
Agreement (incorporated by reference to Exhibit 10.8 to
JSC's quarterly report on Form 10-Q for the quarter ended
March 31, 1995).
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 March 31, 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 May 3, 1995 /s/ John R. Funke
John R. Funke
Vice President
and Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000727742
<NAME> JSCE, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 14600
<SECURITIES> 0
<RECEIVABLES> 388800
<ALLOWANCES> 9000
<INVENTORY> 257700
<CURRENT-ASSETS> 702800
<PP&E> 2118900
<DEPRECIATION> 680400
<TOTAL-ASSETS> 2829700
<CURRENT-LIABILITIES> 681000
<BONDS> 2355300
<COMMON> 0
0
0
<OTHER-SE> (691400)
<TOTAL-LIABILITY-AND-EQUITY> 2829700
<SALES> 1001100
<TOTAL-REVENUES> 1001100
<CGS> 813800
<TOTAL-COSTS> 813800
<OTHER-EXPENSES> 61300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62800
<INCOME-PRETAX> 65000
<INCOME-TAX> 25700
<INCOME-CONTINUING> 39300
<DISCONTINUED> 0
<EXTRAORDINARY> (400)
<CHANGES> 0
<NET-INCOME> 38900
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
