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, 1996
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 June 30, 1996, 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 Six months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 844 $1,083 $ 1,760 $ 2,069
Costs and expenses
Cost of goods sold 689 855 1,400 1,654
Selling and administrative expenses 63 63 130 124
Income from operations 92 165 230 291
Other income (expense)
Interest expense (48) (59) (99) (122)
Other, net 2
Income before income taxes and
extraordinary item 44 106 131 171
Provision for income taxes 17 40 51 66
Income before extraordinary item 27 66 80 105
Extraordinary item
Loss from early extinguishment of debt,
net of income tax benefits (4) (4)
Net income $ 23 $ 66 $ 76 $ 105
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JSCE, Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<CAPTION>
June 30, December 31,
1996 1995
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 12 $ 27
Receivables, less allowances of
$9 in 1996 and 1995 308 339
Inventories
Work-in-process and finished goods 87 85
Materials and supplies 108 139
195 224
Deferred income taxes 38 45
Prepaid expenses and other current assets 7 9
Total current assets 560 644
Net property, plant and equipment 1,457 1,456
Timberland, less timber depletion 260 258
Goodwill, less accumulated amortization of
$46 in 1996 and $42 in 1995 249 253
Other assets 169 172
$ 2,695 $ 2,783
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt $ 21 $ 81
Accounts payable 289 290
Accrued compensation and payroll taxes 101 101
Interest payable 29 37
Other accrued liabilities 106 88
Total current liabilities 546 597
Long-term debt, less current maturities 2,002 2,111
Other long-term liabilities 225 234
Deferred income taxes 333 328
Stockholder's deficit
Common stock, par value $.01 per share;
1,000 shares authorized and outstanding
Additional paid-in capital 1,102 1,102
Retained earnings (deficit) (1,513) (1,589)
Total stockholder's deficit (411) (487)
$ 2,695 $ 2,783
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JSCE, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<CAPTION>
Six months ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $ 76 $ 105
Adjustments to reconcile net income to
net cash provided by operating activities
Extraordinary loss from early extinguishment of debt 7 1
Depreciation, depletion and amortization 67 69
Amortization of deferred debt issuance costs 7 7
Deferred income taxes 12 59
Non-cash employee benefit (income) expense 6 (4)
Change in current assets and liabilities,
net of effects from acquisitions
Receivables 31 (88)
Inventories 29 (51)
Prepaid expenses and other current assets 2 (2)
Accounts payable and accrued liabilities 5 41
Interest payable (7) (12)
Income taxes payable 1 (1)
Other, net (4) (3)
Net cash provided by operating activities 232 121
Cash flows from investing activities
Property additions (54) (73)
Timberland additions (11) (10)
Construction funds held in escrow (9)
Investment in affiliates and acquisitions (5)
Proceeds from property and timberland disposals 5 3
Net cash used for investing activities (69) (85)
Cash flows from financing activities
Proceeds from long-term borrowings 260 221
Repayment of long-term debt (432) (309)
Deferred debt issuance costs (6) (3)
Net cash used for financing activities (178) (91)
Decrease in cash and cash equivalents (15) (55)
Cash and cash equivalents
Beginning of period 27 62
End of period $ 12 $ 7
</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. For further
information refer to the consolidated financial statements and
footnotes included in the JSCE, Inc. Annual Report on Form 10-K for
the year ended December 31, 1995, filed on March 8, 1996 with the
Securities and Exchange Commission (the "JSCE 1995 10-K").
JSCE, Inc. is a wholly-owned subsidiary of Jefferson Smurfit
Corporation ("JSC"). JSCE, Inc. and where appropriate, its
consolidated subsidiaries, are hereinafter collectively referred to
as "JSCE" or the "Company". JSC has no operations other than its
investment in the Company. The Company owns a 100% equity interest
in Jefferson Smurfit Corporation (U.S.) ("JSC (U.S.)"). JSC (U.S.)
has extensive operations throughout the United States.
2. -- Summarized Financial Information of JSC (U.S.)
The following summarized financial information is presented for JSC
(U.S.), a wholly-owned subsidiary of JSCE. No separate financial
statements are presented for JSC (U.S.) because the financial
statements of JSC (U.S.) are identical to those of JSCE. JSC
(U.S.) is the issuer of the 1994 Senior Notes and the 1993 Senior
Notes and is the borrower under the 1994 Credit Agreement, each as
defined in the JSCE 1995 10-K. JSCE is the guarantor of the 1994
Senior Notes and the 1993 Senior Notes and is the guarantor under
the 1994 Credit Agreement.
<PAGE>
2. -- Summarized Financial Information of JSC (U.S.)
<TABLE>
Condensed consolidated balance sheets:
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
Current assets $ 560 $ 644
Property, plant and equipment and timberlands, net 1,717 1,714
Goodwill 249 253
Other assets 169 172
Total assets $ 2,695 $ 2,783
Current liabilities $ 546 $ 597
Long-term debt 2,002 2,111
Other liabilities 558 562
Stockholder's deficit
Common stock
Additional paid-in capital 1,102 1,102
Retained earnings (deficit) ( 1,513) ( 1,589)
Total stockholder's deficit (411) (487)
Total liabilities and stockholder's deficit $ 2,695 $ 2,783
</TABLE>
<TABLE>
Condensed consolidated statements of operations:
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 844 $1,083 $ 1,760 $ 2,069
Costs and expenses 752 918 1,530 1,778
Interest expense 48 59 99 122
Other income, net 2
Income before income taxes and
extraordinary item 44 106 131 171
Provision for income taxes 17 40 51 66
Extraordinary item
Loss from early extinguishment of
debt, net of income tax benefits (4) (4)
Net income $ 23 $ 66 $ 76 $ 105
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
<TABLE>
Results of Operations
<CAPTION>
(In millions) Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales
Paperboard/Packaging Products $ 770 $ 992 $1,591 $1,898
Newsprint 74 91 169 171
Total net sales $ 844 $1,083 $1,760 $2,069
Income from operations
Paperboard/Packaging Products $ 73 $ 158 $ 185 $ 281
Newsprint 19 7 45 10
Total income from operations $ 92 $ 165 $ 230 $ 291
</TABLE>
For the six months ended June 30, 1996, net sales of the Company
were $1,760 million, a decrease of 14.9% compared to the same
period last year. The decrease in net sales was due primarily to
lower prices for containerboard and reclamation products. Income
from operations was $230 million, a decrease of 21.0% compared to
last year. The decrease in income from operations was due
primarily to the lower prices for containerboard products. Lower
fiber cost at the Company's recycled paper mills partially offset
the lower pricing for containerboard products.
Increases (decreases) in sales for each of the Company's segments
are discussed below.
<TABLE>
<CAPTION>
(In millions) Change in net sales analysis
Three months Six months
1996 compared to 1995 1996 compared to 1995
<S> <C> <C>
Sales price and product mix
Paperboard/Packaging Products $(234) $(291)
Newsprint 4 31
(230) (260)
Sales volume
Paperboard/Packaging Products 27 10
Newsprint (21) (33)
6 (23)
Acquisitions and new facilities 1 2
Closed or sold facilities (16) (28)
Total net sales increase (decrease) $(239) $(309)
</TABLE>
Paperboard/Packaging Products Segment Sales
Net sales of the Paperboard/Packaging Products segment for the six
months ended June 30, 1996 were $1,591 million, a decrease of 16.2%
compared to last year. The decrease was due primarily to lower
prices for containerboard and reclamation products.
<PAGE>
Net sales of containerboard and corrugated shipping containers in
the first half of 1996 decreased 13.6% compared to 1995 due
primarily to lower prices resulting from weak market conditions.
Demand for containerboard declined compared to last year, and the
Company took downtime at a containerboard mill in order to reduce
excess inventories. Linerboard prices declined steadily from
approximately $490/ton at December 31, 1995 to approximately
$350/ton at June 30, 1996. The Company's shipments of corrugated
shipping containers in the first half of 1996 declined 1.6%
compared to the same period last year.
Net sales of reclamation products in the first half of 1996
decreased 55.7% compared to 1995, due primarily to sales prices.
The price of reclaimed fiber decreased significantly compared to
last year due to lower demand as a result of extensive mill
downtime taken by paper mills in the containerboard and newsprint
industries this year.
Net sales of the Company's other major products in the
Paperboard/Packaging Products segment in the first half of 1996
were comparable to last year.
Newsprint Segment Sales
Net sales of the Newsprint segment for the six months ended June
30, 1996 were $169 million, a decrease of 1.2% compared to last
year. The favorable impact of higher sales prices in 1996 was
offset by lower sales volume resulting from mill shutdowns. The
Company took downtime at its newsprint mills in response to reduced
demand in 1996.
Costs and Expenses
Cost of goods sold as a percent of net sales for the six months
ended June 30 declined from 80.8% in 1995 to 80.5% in 1996 for the
Paperboard/Packaging Products segment and declined from 90.5% in
1995 to 70.7% in 1996 for the Newsprint segment. The decrease in
the Newsprint segment was due primarily to higher sales prices.
Selling and administrative expenses as a percent of net sales for
the six months ended June 30 increased from 6.0% in 1995 to 7.4% in
1996. The increase was due primarily to overall lower sales
prices, higher personnel costs and inflationary increases in other
costs.
Interest expense for the six months ended June 30, 1996 declined
$23 million to $99 million primarily due to lower average debt
levels outstanding and lower effective interest rates.
The Company has evaluated the $25 million reserve, taken in the
fourth quarter of 1995, which related to quality issues in a non-
core product line. The Company has implemented a program of
corrective action to respond to these issues. Based on experience
to date, the Company believes the reserve is adequate.
In the first quarter of 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", the effect of which was immaterial.
<PAGE>
<TABLE>
<CAPTION>
Statistical Data Three months ended Six months ended
(In thousands of tons, June 30, June 30,
except as noted) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Mill production:
Containerboard 480 476 953 953
Recycled boxboard and
solid bleached sulfate 185 195 381 391
Newsprint 123 151 275 307
Corrugated shipping containers
sold (billion square feet) 7.5 7.4 14.7 14.9
Folding cartons sold 111 115 232 233
Fiber reclaimed and brokered 1,056 1,123 2,135 2,195
</TABLE>
Liquidity and Capital Resources
Operating activities have historically been the major source of
cash to fund the Company's capital expenditures and debt payments.
Net cash provided by operating activities for the six months ended
June 30, 1996 of $232 million and excess cash at the end of 1995
were used primarily to fund capital investments of $65 million and
to reduce debt by $172 million.
In May 1996 Jefferson Smurfit Corporation (U.S.) ("JSC (U.S.)")
amended its bank credit facility (the "1994 Credit Agreement") to
allow an additional $100 million borrowing under the Tranche B Term
Loan and $150 million borrowing under a newly created Tranche C
Term Loan. The $250 million in new proceeds of these term loans was
used to reduce scheduled installment payments of the Tranche A Term
Loan. After application of such proceeds, the principal amounts
remaining outstanding under the 1994 Credit Agreement for the years
1997, 1998 and 1999 are approximately $20 million, $19 million and
$100 million, respectively. JSC (U.S.) has prepaid its 1996
principal obligations under the 1994 Credit Agreement. JSC (U.S.)
expects its annual interest cost to increase by approximately $4
million as a result of the new borrowings. The refinancing will
provide additional financial flexibility to JSC (U.S.) by extending
maturities.
The 1994 Credit Agreement includes a $450 million revolving credit
facility, a Tranche A Term Loan, a Tranche B Term Loan and a
Tranche C 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.
At June 30, 1996, JSC (U.S.) had $338 million in unused borrowing
capacity pursuant to the revolving credit facility under the 1994
Credit Agreement. In addition, Jefferson Smurfit Finance
Corporation ("JSFC") had borrowing capacity of $109 million under
its accounts receivable securitization program, subject to 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
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Registrant's Annual Meeting of Stockholders was held on
May 9, 1996. At the meeting, stockholders voted on (i) the
election of three directors for terms of office expiring at
the annual meeting of stockholders in 1999; (ii) the
ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for 1996 and (iii) the
adoption of the Company's Management Incentive Plan
("MIP"). Voting on each matter was as follows:
<TABLE>
<CAPTION>
Votes Votes Withheld/ Broker
For Against Abstentions Non-Votes
<S> <C> <C> <C> <C>
1. Election of Directors
Alan E. Goldberg 104,222,507 378,357
Howard E. Kilroy 104,224,737 376,127
James R. Thompson 104,221,607 379,257
2. Ratification of Auditors 104,542,748 17,626 40,490
3. Adoption of MIP 102,103,130 183,601 65,341 2,248,792
</TABLE>
Item 5. Other Information
Mr. James E. Terrill, President and Chief Executive Officer
of the Company since 1994, will retire at the end of 1996.
He will afterwards serve as Vice Chairman of the Board of
Directors.
Mr. Richard W. Graham has been promoted from Senior Vice
President to President of the Company effective July 1,
1996. Upon Mr. Terrill's retirement at year-end, Mr.
Graham will assume the additional role of Chief Executive
Officer.
Mr. Eric Priestley, formerly President and Chief Executive
Officer of Rexam, Inc., a U.S. producer of packaging, print
and coated products and a subsidiary of Rexam plc, will
join the Company effective August 1, 1996, as Executive
Vice President - Chief Operating Officer.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included in this Form 10-Q.
10.1 Credit Agreement, amended and restated as of May 17, 1996,
among Jefferson Smurfit Corporation ("JSC"), JSCE, Inc.
("JSCE"), JSC (U.S.) and the banks parties thereto
(incorporated by reference to Exhibit 10.1 to JSC's
quarterly report on Form 10-Q for the quarter ended June
30, 1996).
10.2 Amendment Agreement dated as of May 17, 1996 among JSC,
JSCE, JSC (U.S.), Smurfit Newsprint Corporation ("SNC")
and the banks parties thereto (incorporated by reference
to Exhibit 10.2 to JSC's quarterly report on Form 10-Q for
the quarter ended June 30, 1996).
10.3 First Omnibus Amendment dated as of March 31, 1996 among
JSC (U.S.), JSFC and the banks parties thereto
(incorporated by reference to Exhibit 10.3 to JSC's
quarterly report on Form 10-Q for the quarter ended June
30, 1996).
10.4 Affiliate Receivables Sale Agreement dated as of March 31,
1996 between SNC and JSC (incorporated by reference to
Exhibit 10.4 to JSC's quarterly report on Form 10-Q for
the quarter ended June 30, 1996).
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, 1996.
<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 July 31, 1996 /s/ John R. Funke
John R. Funke
Vice President
and Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CIK> 0000727742
<NAME> JSCE, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 317
<ALLOWANCES> 9
<INVENTORY> 195
<CURRENT-ASSETS> 560
<PP&E> 2,259
<DEPRECIATION> 802
<TOTAL-ASSETS> 2,695
<CURRENT-LIABILITIES> 546
<BONDS> 2,002
<COMMON> 0
0
0
<OTHER-SE> (411)
<TOTAL-LIABILITY-AND-EQUITY> 2,695
<SALES> 1,760
<TOTAL-REVENUES> 1,760
<CGS> 1,400
<TOTAL-COSTS> 1,400
<OTHER-EXPENSES> 130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 131
<INCOME-TAX> 51
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</TABLE>
