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 September 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 September 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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 834 $1,051 $2,594 $ 3,120
Costs and expenses
Cost of goods sold 683 806 2,083 2,460
Selling and administrative expenses 65 60 195 184
Income from operations 86 185 316 476
Other income (expense)
Interest expense (49) (59) (148) (181)
Other, net 1 1 2
Income before income taxes and
extraordinary item 38 126 169 297
Provision for income taxes 16 49 67 115
Income before extraordinary item 22 77 102 182
Extraordinary item
Loss from early extinguishment of debt,
net of income tax benefits (3) (4) (3)
Net income $ 22 $ 74 $ 98 $ 179
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JSCE, Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<CAPTION>
September 30, December 31,
1996 1995
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10 $ 27
Receivables, less allowances of
$9 in 1996 and 1995 300 339
Inventories
Work-in-process and finished goods 84 85
Materials and supplies 112 139
196 224
Deferred income taxes 42 45
Prepaid expenses and other current assets 7 9
Total current assets 555 644
Net property, plant and equipment 1,465 1,456
Timberland, less timber depletion 258 258
Goodwill, less accumulated amortization of
$48 in 1996 and $42 in 1995 248 253
Other assets 164 172
$ 2,690 $ 2,783
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt $ 6 $ 81
Accounts payable 287 290
Accrued compensation and payroll taxes 99 101
Interest payable 51 37
Other accrued liabilities 118 88
Total current liabilities 561 597
Long-term debt, less current maturities 1,942 2,111
Other long-term liabilities 226 234
Deferred income taxes 350 328
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) (1,491) (1,589)
Total stockholder's deficit (389) (487)
$ 2,690 $ 2,783
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
JSCE, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<CAPTION>
Nine months ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $ 98 $ 179
Adjustments to reconcile net income to
net cash provided by operating activities
Extraordinary loss from early extinguishment of debt 7 6
Depreciation, depletion and amortization 101 104
Amortization of deferred debt issuance costs 10 11
Deferred income taxes 25 79
Non-cash employee benefit (income) expense 12 (5)
Change in current assets and liabilities,
net of effects from acquisitions
Receivables 39 (69)
Inventories 28 (54)
Prepaid expenses and other current assets (1)
Accounts payable and accrued liabilities 10 (24)
Interest payable 16 18
Income taxes payable 1 10
Other, net (3) (2)
Net cash provided by operating activities 344 252
Cash flows from investing activities
Property additions (88) (104)
Timberland additions (14) (14)
Construction funds held in escrow (8)
Investment in affiliates and acquisitions (33)
Proceeds from property and timberland disposals 5 8
Net cash used for investing activities (105) (143)
Cash flows from financing activities
Proceeds from long-term borrowings 261 227
Repayment of long-term debt (511) (379)
Deferred debt issuance costs (6) (4)
Net cash used for financing activities (256) (156)
Decrease in cash and cash equivalents (17) (47)
Cash and cash equivalents
Beginning of period 27 62
End of period $ 10 $ 15
</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>
<CAPTION>
Condensed consolidated balance sheets:
September 30, December 31,
1996 1995
<S> <C> <C>
Current assets $ 555 $ 644
Property, plant and equipment and timberlands, net 1,723 1,714
Goodwill 248 253
Other assets 164 172
Total assets $ 2,690 $ 2,783
Current liabilities $ 561 $ 597
Long-term debt 1,942 2,111
Other liabilities 576 562
Stockholder's deficit
Common stock
Additional paid-in capital 1,102 1,102
Retained earnings (deficit) (1,491) ( 1,589)
Total stockholder's deficit (389) (487)
Total liabilities and stockholder's deficit $ 2,690 $ 2,783
</TABLE>
<TABLE>
Condensed consolidated statements of operations:
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 834 $1,051 $ 2,594 $ 3,120
Costs and expenses 748 866 2,278 2,644
Interest expense 49 59 148 181
Other income, net 1 1 2
Income before income taxes and
extraordinary item 38 126 169 297
Provision for income taxes 16 49 67 115
Extraordinary item
Loss from early extinguishment of
debt, net of income tax benefits (3) (4) (3)
Net income $ 22 $ 74 $ 98 $ 179
</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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales
Paperboard/Packaging Products $ 755 $ 949 $2,346 $2,847
Newsprint 79 102 248 273
Total net sales $ 834 $1,051 $2,594 $3,120
Income from operations
Paperboard/Packaging Products $ 78 $ 173 $ 263 $ 454
Newsprint 8 12 53 22
Total income from operations $ 86 $ 185 $ 316 $ 476
</TABLE>
<PAGE>
Net sales of the Company for the three months and nine months ended
September 30, 1996 declined 21% and 17%, respectively, compared to
last year. The decreases in net sales were due primarily to lower
product pricing, particularly for containerboard, corrugated
shipping containers and reclaimed fiber. Sales volume improved in
the paperboard/packaging products segment in the third quarter,
particularly for corrugated shipping containers. The changes in
net sales for each of the Company's segments are summarized in the
chart below.
Income from operations of the Company for the three months and nine
months ended September 30, 1996 declined 54% and 34%, respectively,
compared to last year. The decreases in income from operations
were due primarily to the lower prices for containerboard and
corrugated shipping containers. The lower prices for reclaimed
fiber had a favorable effect on income from operations by reducing
fiber cost at the Company's paper mills.
<TABLE>
<CAPTION>
(In millions) Change in net sales analysis
Three months Nine months
1996 compared to 1995 1996 compared to 1995
<S> <C> <C>
Sales price and product mix
Paperboard/Packaging Products $(246) $(537)
Newsprint (16) 15
(262) (522)
Sales volume
Paperboard/Packaging Products 63 73
Newsprint (7) (40)
56 33
Acquisitions and new facilities
Paperboard/Packaging Products 1 3
Closed or sold facilities
Paperboard/Packaging Products (12) (40)
Total net sales decrease $(217) $(526)
</TABLE>
<PAGE>
Paperboard/Packaging Products Segment Sales
Net sales in the Paperboard/Packaging Products segment for the
three months and nine months ended September 30, 1996 declined 20%
and 18%, respectively, compared to last year. The declines for
both periods were due primarily to lower prices for containerboard,
corrugated shipping containers and reclaimed fiber.
Net sales of containerboard and corrugated shipping containers for
the three months and nine months ended September 30, 1996 decreased
24% and 17%, respectively. Prices of containerboard and corrugated
shipping containers have been under severe pressure this year due
to weak market conditions and excess capacity within the
containerboard industry. Domestic containerboard prices were
approximately $200/ton lower in September 1996 compared to
September 1995 and the average price of corrugated shipping
containers in the third quarter of 1996 was 24% lower compared to
the peak levels of the third quarter last year. There were signs
of increasing demand, however, during the third quarter, with
corrugated shipping container sales volume higher than last year by
6%. For the nine months ended September 30, 1996, corrugated
shipping container sales volume was higher than last year by 1%.
Net sales of reclaimed fiber for the three months and nine months
ended September 30, 1996 decreased 54% and 59%, respectively.
Recycled fiber prices decreased significantly compared to last year
due to lower demand as a result of extensive mill downtime taken by
domestic paper mills in the containerboard and newsprint
industries. On average, recycled fiber prices in the third quarter
of 1996 were lower by 60% compared to the third quarter of last
year.
Net sales of the Company's other major products in the
Paperboard/Packaging Products segment for the three months and nine
months ended September 30, 1996 were comparable to last year.
Newsprint
Net sales in the Newsprint segment for the three months and nine
months ended September 30, 1996 declined 23% and 9%, respectively,
compared to last year. The decline in the third quarter was due
primarily to an 18% decline in average newsprint prices and mill
downtime taken in response to reduced demand in 1996. On a
cumulative basis through September 1996, the average price of
newsprint was higher than last year by 6%.
Costs and Expenses
Compared to last year, cost of goods sold as a percent of net sales
for the Paperboard/Packaging Products segment increased for the
three months ended September 30 from 72% in 1995 to 81% in 1996 and
for the nine months ended September 30 from 78% in 1995 to 81% in
1996. For the Newsprint segment, cost of goods sold as a percent
of net sales increased from 84% in 1995 to 86% in 1996 for the
three months ended September 30 and decreased from 88% in 1995 to
76% in 1996 for the nine months ended September 30.
The increases in the cost of goods sold as a percent of net sales
for the periods shown were due primarily to lower sales prices.
The lower prices for recycled fiber resulted in lower fiber cost at
the Company's recycled paper mills, which partially offset the
lower pricing for other products. The Newsprint segment was also
negatively affected by market related downtime during the third
quarter of 1996. The decrease in the cost of goods sold as a
percent of net sales for the newsprint segment for the nine months
ended September 30, 1996 compared to last year was due to higher
average sales prices.
<PAGE>
Selling and administrative expenses as a percent of net sales for
the three months and nine months ended September 30, 1996 increased
compared to last year due primarily to overall lower sales prices,
higher personnel costs and inflationary increases in other costs.
Interest expense for the three months and nine months ended
September 30, 1996 declined $10 million and $33 million,
respectively due primarily to lower average debt levels outstanding
and lower effective interest rates.
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.
<TABLE>
<CAPTION>
Statistical Data Three months ended Nine months ended
(In thousands of tons, September 30, September 30,
except as noted) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Mill production:
Containerboard 510 505 1,463 1,458
Recycled boxboard and
solid bleached sulfate 198 197 579 588
Newsprint 142 157 417 464
Corrugated shipping containers
sold (billion square feet) 7.8 7.3 22.5 22.2
Folding cartons sold 118 119 350 352
Fiber reclaimed and brokered 1,135 1,070 3,270 3,265
</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 nine months ended
September 30, 1996 of $344 million and excess cash at the end of
1995 were used primarily to fund capital investments of $102
million and to make net debt repayments of $250 million.
As a result of debt prepayments and refinancing, the aggregate
annual maturities of long term debt as of September 30, 1996, were
$8 million in 1997 and $14 million in 1998.
In May 1996, Jefferson Smurfit Corporation (U.S.) ("JSC (U.S.)")
amended and restated its bank credit facility (the "1994 Credit
Agreement"). 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.
<PAGE>
At September 30, 1996, JSC (U.S.) had $354 million in unused
borrowing capacity pursuant to the revolving credit facility under
the 1994 Credit Agreement. In addition, Jefferson Smurfit Finance
Corporation ("JSFC") had additional borrowing capacity of $120
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
None
Item 5. Other Information
Mr. Patrick J. Moore has been appointed Vice President and
Chief Financial Officer of the Company effective October 1,
1996. He replaces Mr. John R. Funke, who will remain a
Vice President until April 30, 1997, when he will retire.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included in this Form 10-Q.
10.1 JSC (U.S.) Deferred Compensation Plan (incorporated
by reference to Exhibit 10.1 to JSC's quarterly
report on Form 10-Q for the quarter ended
September 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 September 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 October 29, 1996 /s/ Patrick J. Moore
Patrick J. Moore
Vice President
and Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000727742
<NAME> JSCE, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 309
<ALLOWANCES> 9
<INVENTORY> 199
<CURRENT-ASSETS> 555
<PP&E> 2550
<DEPRECIATION> 827
<TOTAL-ASSETS> 2690
<CURRENT-LIABILITIES> 561
<BONDS> 1942
0
0
<COMMON> 0
<OTHER-SE> (389)
<TOTAL-LIABILITY-AND-EQUITY> 2690
<SALES> 2594
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<CGS> 2083
<TOTAL-COSTS> 2083
<OTHER-EXPENSES> 195
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</TABLE>
