<PAGE>
As filed with the Securities and Exchange Commission on May 9, 2000
Registration Nos. 33-52383 and 33-58348
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
POST-EFFECTIVE AMENDMENTS NOS. 6 AND 7
ON
FORM S-2 TO FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
JEFFERSON SMURFIT CORPORATION (U.S.)
(FORMERLY CONTAINER CORPORATION OF AMERICA)
(Exact Name of Registrant as Specified in its Charter)
--------------
Delaware 36-2659288
(State or other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
Patrick J. Moore
Vice President And Chief Financial
150 North Michigan Avenue Officer
Chicago, Illinois 60601 150 North Michigan Avenue
(312) 346-6600 Chicago, Illinois 60601
(Address, Including Zip Code, and (312) 346-6600
Telephone (Name, Address, Including Zip Code,
Number, Including Area Code, of and Telephone
Registrant's Principal Executive Number, Including Area Code, of Agent
Offices) For Service)
--------------
JSCE, INC.
(Exact Name of Co-Registrant as Specified in Its Charter)
--------------
Delaware 37-1337160
(State or other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
Patrick J. Moore
150 North Michigan Avenue Vice President And Chief Financial
Chicago, Illinois 60601 Officer
(312) 346-6600 150 North Michigan Avenue
(Address, Including Zip Code, and Chicago, Illinois 60601
Telephone Number, (312) 346-6600
Including Area Code, of Co- (Name, Address, Including Zip Code,
registrant's and Telephone
Principal Executive Offices) Number, Including Area Code, of Agent
For Service)
--------------
Copies to:
Joseph A. Walsh, Jr. John R. Ettinger
Steven J. Gavin Leonard Kreynin
Winston & Strawn Davis Polk & Wardwell
35 West Wacker Drive, Chicago, 450 Lexington Avenue, New York, New
Illinois 60601 York 10017
(312) 558-5600 (212) 450-4000
--------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
Pursuant to Rule 429 under the Securities Act of 1933, as amended (the
"Securities Act"), the Prospectus included in these Post-Effective Amendments
relates to Registration Statement No. 33-52383 filed by the Registrant and
declared effective May 4, 1994 and Registration Statement No. 33-58348 filed
by the Registrant and declared effective April 6, 1993. These Post-Effective
Amendments consist of Post-Effective Amendment No. 6 to Registration Statement
No. 33-52383 and Post-Effective Amendment No. 7 to Registration Statement No.
33-58348 and shall become effective in accordance with Section 8(c) of the
Securities Act. The Prospectus included in the Post-Effective Amendments has
been prepared in accordance with the requirements of Form S-2 and is filed
pursuant to Rule 401 of the Securities Act. These post-effective amendments
are collectively referred to as "Post-Effective Amendments" and the
registration statements amended hereby are collectively referred to as the
"Registration Statements."
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities or accept an offer to buy these securities until +
+this prospectus is delivered in final form. This prospectus is not an offer +
+to sell these securities and we are not soliciting offers to buy these +
+securities in any state where such offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
May 9, 2000
[LOGO]
Jefferson Smurfit Corporation (U.S.)
JSCE, Inc.
$900,000,000
$300,000,000 11 1/4% Series A Senior Notes due 2004
$100,000,000 10 3/4% Series B Senior Notes due 2002
$500,000,000 9 3/4% 1993 Senior Notes due 2003
-----------
JSCE, Inc. has unconditionally guaranteed the senior notes. The senior notes
and the guarantee of the senior notes are senior unsecured obligations of
Jefferson Smurfit Corporation (U.S.) and JSCE, Inc., respectively.
Jefferson Smurfit Corporation (U.S.) may redeem the Series A Senior Notes at
its option at any time. Neither the Series B Senior Notes nor the 1993 Senior
Notes are redeemable prior to maturity. Interest on the Series A and Series B
Senior Notes is paid on May 1 and November 1 of each year. Interest on the 1993
Senior Notes is paid on April 1 and October 1 of each year.
-----------
Investing in these notes involves risk. See "Risk Factors" beginning on page 3.
-----------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
-----------
Morgan Stanley & Co. Incorporated and Dean Witter Reynolds Inc. will use this
prospectus in connection with sales in market-making transactions. Morgan
Stanley & Co. Incorporated and Dean Witter Reynolds Inc. may act as principal
or agent in such transactions.
-----------
MORGAN STANLEY DEAN WITTER
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Incorporation of Certain Documents by Reference........................... 1
Available Information..................................................... 1
Forward-Looking Statements................................................ 2
Risk Factors.............................................................. 3
Ratio of Earnings to Fixed Charges........................................ 8
Use of Proceeds........................................................... 8
Selected Consolidated Historical Financial Data........................... 9
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 10
Business.................................................................. 19
Description of Notes...................................................... 25
Market-Making Activities.................................................. 62
Legal Matters............................................................. 62
Experts................................................................... 62
Index To Financial Statements............................................. F-1
</TABLE>
-i-
<PAGE>
All references in this prospectus to "Company," "we," "us" or "our" mean
JSCE, Inc. ("JSCE") and its consolidated subsidiaries, including Jefferson
Smurfit Corporation (U.S.) ("JSC (U.S.)").
In this prospectus, references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. All tons referenced are short tons, unless otherwise
indicated.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and
Exchange Commission are hereby incorporated by reference in this prospectus:
. JSCE's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed with the Commission on March 14, 2000 (which incorporates by
reference certain information from Smurfit-Stone Container Corporation's
Proxy Statement relating to the Annual Meeting of Stockholders to be
held on May 18, 2000), and
. All other reports filed by JSCE pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
since December 31, 1999 and prior to the termination of the offering of
the securities offered hereby.
Information incorporated by reference is considered to be part of this
prospectus. Any statement contained in a document incorporated by reference
will be modified or superseded to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated by
reference modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address: Jefferson Smurfit Corporation (U.S.),
Attention: Treasury Department, 8182 Maryland Avenue, St. Louis, Missouri
63105; telephone (314) 746-1200.
AVAILABLE INFORMATION
JSCE files annual, quarterly and current reports and other information with
the Securities and Exchange Commission. You may read and copy any reports,
statements or other information on file at the Commission's public reference
room in Washington, D.C. You can request copies of those documents upon payment
of a duplicating fee, by writing to the Commission.
We have filed a registration statement on Form S-2 with the Commission. This
prospectus, which forms a part of that registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. With respect to references made in this prospectus to any of our
contracts or other documents, such references are not necessarily complete and
you should refer to the exhibits attached to the registration statement for
copies of the actual contract or document. You may review a copy of the
registration statement at the Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. and at the Commission's regional offices in
Chicago, Illinois and New York, New York. Please call the Commission at 1-800-
SEC-0330 for further information on the operation of the public reference
rooms. JSCE's Commission filings and the registration statement can also be
reviewed by accessing the Commission's Internet site at http://www.sec.gov.
1
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
Section 17A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Exchange Act. When used in this prospectus, the words
"anticipates," "believes," "expects," "intends" and similar expressions
identify such forward-looking statements. Although we believe that such
statements are based on reasonable assumptions, these forward-looking
statements are subject to numerous factors, risks and uncertainties that could
cause actual outcomes and results to be materially different from those
projected. These factors, risks and uncertainties include, among others, the
following:
. the impact of general economic conditions where we do business,
including interest rates;
. general industry conditions, including competition and product and raw
material prices;
. fluctuations in exchange rates and currency values;
. capital expenditure requirements;
. legislative or regulatory requirements;
. access to capital markets; and
. other factors described in this prospectus.
Our actual results, performance or achievement could differ materially from
those expressed in, or implied by, the forward-looking statements. No
assurances can be given that any of the events anticipated by the forward-
looking statements will occur or, if any of them do, what impact they will have
on our results of operations and financial condition.
2
<PAGE>
RISK FACTORS
This prospectus includes "forward-looking statements" within the meaning of
Section 17A of the Securities Act and Section 21E of the Exchange Act
including, in particular, the statements about our plans, strategies and
prospects under the headings "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Although we believe that
our plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, we can give no assurance that such
plans, intentions or expectations will be achieved. Important factors that
could cause actual results to differ materially from the forward-looking
statements we make in this prospectus are set forth below and elsewhere in this
prospectus. All forward-looking statements attributable to us or persons acting
on our behalf are qualified by the following cautionary statements.
Substantial Leverage--Our substantial indebtedness could adversely affect our
financial condition and prevent us from fulfilling our obligations under the
notes.
The following chart shows certain important credit statistics as of the date
or at the beginning of the period specified below.
<TABLE>
<CAPTION>
At December
31, 1999
--------------
<S> <C>
Total indebtedness........................................ $1,636 million
Stockholders' deficit..................................... $(235) million
Debt to total capitalization ratio........................ 1.17:1.0
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to perform our obligations with respect to
these notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing amounts
available for working capital, capital expenditures and other general
corporate purposes;
. limit our flexibility in planning for, or reacting to changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt; and
. limit, along with the financial and other restrictive covenants in our
debt instruments, among other things, our ability to borrow additional
funds.
Ability to Service Debt and Liquidity--We require a significant amount of cash
to service our indebtedness. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and to comply with the financial covenants
contained in our debt instruments, including these notes, will depend on our
future performance in general and more specifically on our ability to generate
cash. Our ability to generate cash is subject to general economic, financial,
legislative, competitive, regulatory and other factors that are beyond our
control. For example, we have little or no control over the state of the
economy, demand for and selling prices of our products, costs of our raw
materials and legislation and other factors relating to our industry generally
or to specific competitors.
We generally expect to fund our debt service obligations (and the debt
service obligations of our subsidiaries), capital expenditures and working
capital requirements through funds generated from operations and additional
borrowings under our credit facilities and securitization program. We cannot
assure you that we will generate sufficient cash flow to meet our obligations
under our indebtedness. Future borrowings may not
3
<PAGE>
be available to us under our credit facilities or otherwise in an amount
sufficient to enable us to pay our debt instruments, including these notes, or
to fund our other liquidity needs. If we are unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required payments on our
indebtedness, or if we fail to comply with various covenants contained in our
debt instruments, we would be in default under the terms of our indebtedness.
If we default under our indebtedness, the holders of the indebtedness could
accelerate the maturity of the defaulted indebtedness which could cause
defaults under other indebtedness or result in our bankruptcy.
Additional Borrowings Available--Despite current indebtedness levels, we may
still be able to incur substantially more debt. This could further exacerbate
the risks described above.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indentures for these notes do not fully prohibit us from doing
so. As of December 31, 1999, our credit facility and securitization program
permitted additional borrowings of up to approximately $576 million. If new
debt is added to our current debt levels, the related risks that we now face
could intensify. See "Selected Consolidated Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Notes" for a further description of our
additional borrowing ability.
Refinancing; Financing a Change in Control Offer--Upon a change of control, you
have a right to be repaid. We may not have the ability to raise the funds
necessary to finance the change of control offer required by the indenture.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes. However, it
is possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of these notes or that restrictions in
our other indebtedness will not allow such repurchase. In addition, certain
important corporate events, such as leveraged recapitalizations that would
increase the level of our indebtedness, would not constitute a "change of
control" under the indenture. See "Description of Notes--Repurchase of Notes
Upon Change of Control" for a further discussion of our obligation to
repurchase these notes upon a change of control.
Effective Subordination--Although your notes are referred to as "senior notes,"
they are effectively subordinated to our secured indebtedness.
Our secured indebtedness has priority over these notes with respect to the
assets securing the secured indebtedness. Although these notes, the guarantee
and the indebtedness under our credit facility all constitute senior
indebtedness, the notes and guarantee are unsecured and are effectively
subordinated to the indebtedness under our secured credit facility. In the
event of a liquidation, reorganization, bankruptcy or similar proceeding
involving us, our assets which serve as collateral will be available to satisfy
the obligations under any secured indebtedness before any payments are made on
these notes. As of December 31, 1999, we had approximately $1,636 million of
indebtedness outstanding, of which approximately $709 million constituted
secured indebtedness.
Terms of the Notes--Restrictive covenants in various agreements including the
indentures pursuant to which the notes were issued may restrict our ability to
pursue our business strategies. Our ability to comply with these restrictions
depends on many factors beyond our control.
Various agreements, including the indentures pursuant to which these notes
were issued, contain covenants that restrict, among other things, our ability
to:
. incur indebtedness;
. pay dividends;
. engage in transactions with stockholders and affiliates,
4
<PAGE>
. issue capital stock;
. create liens;
. sell assets;
. engage in mergers and consolidations; and
. make investments in unrestricted subsidiaries.
Although the covenants in the indentures are generally designed to protect
you from actions that could result in significant credit deterioration, the
covenants are subject to various exceptions. These exceptions generally allow
us to continue to operate our business without undue restraint and, therefore,
are not total prohibitions with respect to the proscribed activities. For
example, we could incur additional indebtedness that is secured or that is
equal in rank to the notes in the future if we are able to satisfy the
financial ratios required by the covenant restricting debt issuance. See
"Description of Notes" for a further description of such exceptions.
Fraudulent Conveyance Matters--Federal and state statutes allow courts, under
specific circumstances, to void indebtedness and guarantees thereof and require
noteholders to return payments received from debtors and guarantors.
Under federal bankruptcy and comparable provisions of state fraudulent
transfer laws, the notes and the guarantees could be voided or subordinated if,
at the time the indebtedness under the notes and the guarantees were incurred,
among other things, JSC (U.S.) or JSCE, as the case may be:
. was insolvent or was rendered insolvent by reason of the indebtedness
incurred and payments made in connection herewith;
. was engaged in a business or transaction for which our remaining assets
constituted unreasonably small capital; or
. intended to, or believed that we would, incur debts beyond our ability
to pay such debts as they matured.
The measure of insolvency for purposes of the fraudulent transfer laws vary
depending upon the law of the jurisdiction being applied. Generally, however, a
company would be considered insolvent if:
. the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
. if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
. it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that the issuance of the notes and the guarantees
will not constitute fraudulent transfers. However, we cannot assure you that a
court passing on such issue would agree with our conclusions.
Product Pricing--Any future decreases in prices for our products would
adversely affect our operating results and would adversely impact our ability
to respond to competition or otherwise take advantage of business
opportunities.
The paperboard and packaging products industries are subject to cyclical
changes in the economy and industry capacity. These changes can significantly
impact the selling prices of our products and our profitability. The vast
majority of our products are commodities which are subject to substantial price
competition and
5
<PAGE>
volatility. Our sales and profitability have historically been more sensitive
to price changes than changes in volume. Future decreases in prices for our
products would adversely affect our operating results and, coupled with our
highly leveraged financial position, would adversely impact our ability to
respond to competition and to other conditions or to otherwise take advantage
of business opportunities.
Raw Materials--We may be adversely affected by increases in costs of raw
materials used in our industries.
Wood fiber and recycled fiber, the principal raw materials used in the
manufacture of our products, are purchased in highly competitive, price
sensitive markets. The prices of and demand for these raw materials have
historically been volatile. In addition, the supply and price of wood fiber in
particular is dependent upon a variety of factors over which we have no
control, such as environmental and conservation regulations, natural disasters
and weather. A decrease in supply of wood fiber has caused higher wood fiber
costs in some of the regions in which we purchase wood. In addition, the
increase in demand of products manufactured from recycled fiber periodically
has caused a significant increase in the cost of recycled fiber. Our cost of
raw materials is likely to continue to fluctuate based upon supply and demand.
An increase in such costs could have a material adverse effect on our financial
condition and results of operation.
Competition--We could be adversely affected by competition.
The paperboard and packaging products industries are highly competitive. Our
competitors include large, vertically integrated paperboard and packaging
products companies and numerous smaller companies. Certain of our competitors
have significantly greater financial resources than us, and other large
competitors may enter the market. In recent years, the paperboard and packaging
products industries have each been consolidating, and we believe that this
trend is likely to continue.
The primary competitive factors in the paperboard and packaging products
industries are price, design, quality and service. To the extent that one or
more of our competitors becomes more successful with respect to any key
competitive factor, our business could be materially adversely affected.
Environmental Matters--Our business is subject to various environmental
regulations. Violations and costs of compliance with these regulations could
adversely affect our business.
Federal, state and local environmental requirements, particularly those
relating to air and water quality, are a significant factor in our business. We
face potential environmental liability:
. as a result of violations of permits or similar authorizations that have
occurred from time to time at our facilities;
. for response costs at various sites with respect to which we have
received notice that we may be a "potentially responsible party"; and
. for contamination of certain properties we own, under the Comprehensive
Environmental Response, Compensation and Liability Act, analogous state
laws and other laws concerning hazardous substance contamination.
Compliance with federal, state and local environmental requirements is a
significant, on-going factor in our business. We have recorded charges for
expenses relating to our potential liability for environmental compliance.
While we believe that the recorded charges are adequate to cover our
environmental liability, we cannot assure you that our actual expenditures
relating to environmental matters will not exceed the recorded charges.
Similarly, while we believe we are currently in material compliance with all
applicable environmental laws and have adequately budgeted for future
expenditures required to maintain such compliance, unforeseen significant
expenditures in connection with compliance could have an adverse effect on our
financial condition.
6
<PAGE>
The United States Environmental Protection Agency ("EPA") has finalized
significant parts of a comprehensive rule governing the pulp, paper and
paperboard industry (the "Cluster Rule"), which will require substantial
capital expenditures to achieve compliance. We estimate, based on engineering
studies done to date, that compliance with the Cluster Rule could require up to
$130 million in capital expenditures over the next several years. However, we
cannot predict the ultimate cost of complying with the regulations until
further engineering studies are completed and additional regulations are
finalized. We cannot predict the amount of capital expenditures that will be
required to comply with future standards. Over the last three years we have
averaged $17 million annually in capital expenditures related to environmental
compliance and we estimate spending approximately $70 million in capital
expenditures related to environmental compliance in 2000. A significant amount
of the increased expenditures in 2000 will be due to compliance with the
Cluster Rule and is included in the estimate of up to $130 million referenced
above.
Significant Stockholders--Significant stockholders of our parent are able to
significantly influence the vote on matters submitted to a vote of holders of
its common stock. Their interests may conflict with your interests.
Approximately 33% of the common stock of our parent company, Smurfit-Stone
Container Corporation ("SSCC"), is owned by Smurfit International B.V.
("SIBV"), an affiliate of Jefferson Smurfit Group plc ("JS Group"), and certain
other entities. These entities are able to significantly influence the vote on
all matters submitted to a vote of SSCC's stockholders. The interests of these
entities could conflict with your interests. The presence of the significant
stockholders may also deter a potential acquiror from making a tender offer or
otherwise attempting to obtain control of SSCC.
Liquidity or Trading Market for Notes--The notes are not listed for trading on
any securities exchange and we cannot assure you that a trading market for the
notes will continue.
The notes are not listed for trading on any securities exchange or on any
automated dealer quotation system. Morgan Stanley & Co. Incorporated currently
makes a market in the notes. However, Morgan Stanley is not obligated to make a
market for the notes and may discontinue or suspend such market-making at any
time without notice at its sole discretion. Accordingly, no assurance can be
given as to the liquidity of, or the trading market for, the notes. Further,
the liquidity of, and trading market for, the notes may be adversely affected
by declines and volatility in the market for debt securities generally as well
as any changes in our financial performance or prospects.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..................... 2.89 (a) (a) 1.60 2.49
</TABLE>
- --------
(a) For the years ended December 31, 1998 and 1997, respectively, earnings were
inadequate to cover fixed charges by $281 million and $27 million,
respectively.
For purposes of these calculations, earnings consist of income (loss) from
continuing operations before income taxes, minority interests and extraordinary
items and cumulative effect of accounting changes, plus fixed charges. Fixed
charges consist of interest on indebtedness, amortization of deferred debt
issuance costs and that portion of lease rental expense considered to be
representative of the interest factors therein (deemed to be one-fourth of
lease rental expense). Amounts exclude the discontinued operations of our
Newsprint division.
Statements describing the computation of the above ratios are exhibits to
the registration statement of which this prospectus is a part.
USE OF PROCEEDS
We will not receive any proceeds from sales by Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and Dean Witter Reynolds Inc. ("Dean Witter,"
and together with Morgan Stanley, "Morgan Stanley Dean Witter") of the notes.
8
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated financial data as of
and for the years ended December 31, 1995, 1996, 1997, 1998 and 1999. This data
should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and our consolidated financial
statements and the related notes included elsewhere in this prospectus. The
selected consolidated financial data presented under the captions "Summary of
Operations" and "Other Financial Data" was derived from our consolidated
financial statements, which were audited by independent auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999(a) 1998(b) 1997 1996 1995
------- ------- ------- ------- -------
(in millions, except statistical data)
<S> <C> <C> <C> <C> <C>
Summary of Operations (c)
Net sales......................... $ 3,295 $ 3,043 $ 2,957 $ 3,109 $ 3,704
Income (loss) from operations..... 226 (78) 176 333 598
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting change................ 276 (171) (19) 80 227
Discontinued operations, net of
income tax provision............. 6 27 20 37 20
Net income (loss)................. 272 (160) 1 112 243
Other Financial Data
Net cash provided by operating
activities....................... $ 103 $ 117 $ 88 $ 380 $ 393
Net cash provided by (used for)
investing activities............. 829 (595) (175) (133) (160)
Net cash provided by (used for)
financing activities............. (939) 484 87 (262) (268)
Depreciation, depletion and
amortization..................... 134 134 127 125 122
Capital investments and
acquisitions..................... 69 265 191 129 170
Working capital................... 41 145 71 34 51
Property, plant, equipment and
timberland, net.................. 1,309 1,760 1,788 1,720 1,709
Total assets...................... 2,736 3,174 2,771 2,688 2,783
Long-term debt.................... 1,636 2,570 2,040 1,944 2,192
Stockholder's deficit............. (235) (538) (374) (375) (487)
Statistical Data (tons in
thousands)
Containerboard and solid bleached
sulfate production (tons)........ 1,781 2,163 2,214 2,250 2,176
Recycled boxboard production
(tons)........................... 746 757 758 713 714
Corrugated shipments (billion sq.
ft.)............................. 29.1 29.9 31.7 30.0 29.4
Folding carton shipments (tons)... 582 536 488 474 476
Fiber reclaimed and brokered
(tons)........................... 6,560 5,155 4,832 4,464 4,293
Number of employees............... 14,400 15,000 15,800 15,800 16,200
</TABLE>
- --------
(a) We recorded a pretax gain of $407 million on the sale of our timberlands in
1999.
(b) We recorded pretax charges of $310 million ($187 million after tax) in the
fourth quarter of 1998, including $257 million of restructuring charges in
connection with the merger of Stone Container Corporation ("Stone") with
JSC Acquisition Corporation, a wholly-owned subsidiary of SSCC (the
"Merger"), $30 million for settlement of our Cladwood(R) litigation and $23
million of Merger related costs. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a further description
of such litigation and costs.
(c) The newsprint operations of Smurfit Newsprint Corporation, a wholly-owned
subsidiary of JSC (U.S.) ("SNC"), are presented as a discontinued operation
for all periods.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Market conditions and demand for containerboard and corrugated containers,
our primary products, have historically been subject to cyclical changes in the
economy and changes in industry capacity, both of which can significantly
impact selling prices and our profitability.
Containerboard market conditions were generally weak from 1996 to 1998 due
primarily to excess capacity within the industry. Linerboard prices, which
peaked in 1995 at approximately $535 per ton, declined dramatically thereafter,
reaching a low of $310 per ton in April 1997. Corrugated container prices
followed this same pricing trend during the period with somewhat less
fluctuation. Prices remained at reduced levels through the end of 1998.
During the second half of 1998, the containerboard industry took extensive
economic downtime, resulting in a significant reduction in inventory levels. In
addition, several paper companies, including us, permanently shut down paper
mill operations approximating 6% of industry capacity. The balance between
supply and demand improved as a result of the shutdowns, and inventories
remained low throughout 1999. Corrugated container shipments for the industry
were strong in 1999, increasing approximately 2% compared to 1998. Based on
these developments, we implemented two price increases during 1999, totaling
$90 per ton for linerboard, bringing the price at the end of 1999 to $430 per
ton. In addition, we implemented a $50 per ton price increase in February 2000
for linerboard.
Market conditions in the folding carton and boxboard mill industry, which
were weak in 1998, began to strengthen in the second half of 1999. Demand for
recycled boxboard and solid bleached sulfate improved gradually and we were
able to implement price increases in the fourth quarter of 1999. On average,
prices were lower in 1999 as compared to 1998. Shipments of folding cartons for
the industry increased 2% compared to 1998 and mill operating rates were
higher.
Wood fiber and recycled fiber are the principal raw materials used in the
manufacture of our products. Fiber supplies can vary widely at times and are
highly dependent upon the demand of paper mills. Wood fiber and reclaimed fiber
prices declined in 1998 due primarily to the lower demand brought about by
extensive economic downtime taken by the containerboard industry in 1998. The
price of old corrugated containers, the principal grade used in recycled
containerboard mills, declined in 1998 to its lowest level in five years. Our
average wood fiber cost in 1999 declined approximately 6% compared to 1998 due
primarily to the number of permanent mill closures in those areas where we
compete for wood. Recycled fiber prices increased approximately 11% compared to
1998, primarily as a result of stronger export demand.
Restructuring and Merger
As previously discussed, a wholly-owned subsidiary of SSCC merged with Stone
on November 18, 1998 (the "Merger"). In connection with the Merger, SSCC
restructured its operations. The restructuring included the shutdown of
approximately 1.1 million tons, or 15%, of SSCC's North American containerboard
mill capacity and approximately 400,000 tons of SSCC's market pulp capacity.
During the fourth quarter of 1998, we recorded a pretax charge of $257 million
for restructuring costs related to the permanent shutdown on December 1, 1998
of certain JSC (U.S.) mill operations and related facilities in connection with
the Merger. Three JSC (U.S.) containerboard mills with capacity of
approximately 700,000 tons were closed. The restructuring charge of $257
million included provisions for costs for JSC (U.S.) associated with (1)
adjustment of property, plant and equipment of closed facilities to fair value
less costs to sell of $179 million, (2) facility closure costs of $42 million,
(3) severance related costs of $27 million and (4) other Merger-related costs
of $9 million. As part of our continuing evaluation of all areas of our
business in connection with our Merger integration, we recorded a $9 million
restructuring charge in 1999 related to the permanent shutdown of eight
10
<PAGE>
additional JSC (U.S.) facilities. The 1999 restructuring charge included
restructuring expense of $14 million related to the closures and a reduction in
1998 exit liabilities of $5 million.
The exit liabilities remaining for us as of December 31, 1999 consisted of
approximately $29 million of anticipated cash expenditures. Since the Merger,
through December 31, 1999, approximately $42 million (59%) of the cash
expenditures were incurred, the majority of which related to severance and
facility closure cost. Future cash outlays for restructuring are anticipated to
be $9 million in 2000, $4 million in 2001 and $16 million thereafter. The
remaining cash expenditures will continue to be funded through operations as
originally planned. Additional restructuring charges are expected in 2000 as
management finalizes its plans.
Results of Operations
Segment Data
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
Net Profit/ Net Profit/ Net Profit/
Sales (Loss) Sales (Loss) Sales (Loss)
------ ------- ------ ------- ------ -------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Containerboard & corrugated
containers....................... $1,734 $ 177 $1,696 $ 113 $1,607 $ 56
Boxboard and folding cartons...... 836 62 784 67 752 68
Reclamation....................... 437 13 265 (1) 292 6
Other operations.................. 288 29 298 33 306 33
------ ----- ------ ----- ------ -----
Total operations................ $3,295 281 $3,043 212 $2,957 163
====== ====== ======
Restructuring charge.............. (9) (257)
Interest expense, net............. (175) (196) (196)
Other, net........................ 365 (38) 11
----- ----- -----
Income (loss) from continuing
operations before income taxes,
extraordinary item and cumulative
effect of accounting change...... $ 462 $(279) $ (22)
===== ===== =====
</TABLE>
- --------
Other, net includes, among other things, corporate expenses and gains or losses
on asset sales.
1999 Compared to 1998
Net sales of $3,295 million for 1999 were higher than 1998 by 8% due
primarily to higher sales volumes and improvements in sales prices. Operating
profits of $281 million for 1999 were $69 million higher than 1998 due
primarily to higher sales prices. Other, net in 1999 improved $403 million
compared to 1998 due primarily to gain on sale of assets in 1999. Income from
continuing operations before income taxes, extraordinary item and cumulative
effect of accounting change was $462 million in 1999 as compared to a loss of
$279 million in 1998. The increases (decreases) in net sales for each of our
segments is shown in the chart below.
<TABLE>
<CAPTION>
1999 Compared to 1998
-----------------------------------------------------
Containerboard Boxboard
& Corrugated & Folding Other
Containers Cartons Reclamation Operations Total
-------------- --------- ----------- ---------- -----
(in millions)
<S> <C> <C> <C> <C> <C>
Increase (decrease) due
to:
Sales prices and
product mix.......... $ 83 $(9) $ 38 $ 1 $ 113
Sales volume.......... 35 61 152 (11) 237
1998 acquisition...... 26 26
Sold or closed
facilities........... (106) (18) (124)
----- --- ---- ---- -----
Net increase
(decrease)............. $ 38 $52 $172 $(10) $ 252
===== === ==== ==== =====
</TABLE>
11
<PAGE>
Containerboard and Corrugated Containers Segment
Net sales of $1,734 million for 1999 increased by 2% compared to 1998. The
benefit from the improvement in sales prices was partially offset by plant
closures resulting from the Merger. Profits improved by $64 million compared to
1998 to $177 million in 1999 due primarily to the higher sales prices and the
effects of the Merger. We were able to implement two price increases for
containerboard in 1999, totaling $90 per ton for linerboard and $130 per ton
for medium. On average, linerboard and corrugated container prices increased 8%
and 9%, respectively, compared to 1998. The increase in corrugated prices
reflects the price increases implemented and our strategy to rationalize
customer mix. Solid bleached sulfate prices were lower than 1998 by 3%.
Containerboard production of 1,592,000 tons in 1999 declined as compared to
1998 due primarily to the permanent shutdown of three JSC (U.S.) containerboard
mills. Production for 1999 was favorably impacted by the acquisition of a
containerboard machine from JS Group in November 1998 (the "Fernandina No. 2
Paper Machine"). Solid bleached sulfate shipments were higher than 1998 by 2%.
Corrugated container sales volume declined compared to 1998 by 4% due primarily
to plant closures and the rationalization of customer mix. Cost of goods sold
as a percent of net sales decreased from 85% in 1998 to 81% in 1999 due
primarily to higher sales prices, plant shutdowns and cost saving initiatives
undertaken in connection with the Merger.
Boxboard and Folding Cartons Segment
Net sales for 1999 increased by 7% compared to 1998 while profits decreased
by $5 million to $62 million. The sales increase was due primarily to higher
sales volume of folding cartons, which increased by 9% compared to 1998.
Boxboard shipments increased by 1% compared to 1998. On average, boxboard
prices were lower than 1998 by 9% and folding carton prices were comparable to
1998. Cost of goods sold as a percent of net sales increased from 83% in 1998
to 84% in 1999 due primarily to the effect of lower sales prices and higher
reclaimed fiber costs.
Reclamation Segment
Net sales for 1999 increased 65% compared to 1998 due primarily to higher
sales volume resulting from the Merger and higher sales prices. Compared to
1998, the average price of old corrugated containers increased approximately
11% and the total tons of fiber reclaimed and brokered increased 27% due to the
additional fiber requirements resulting from the Merger. Profits increased $14
million compared to 1998 due primarily to higher sales prices. Cost of goods
sold as a percent of net sales for 1999 was comparable to 1998.
Other Operations
Other operations include specialty packaging and Cladwood(R) operations. Net
sales and profits in 1999 were comparable to 1998.
Costs and Expenses
Cost of goods sold for 1999 in our Consolidated Statements of Operations
increased compared to 1998 due primarily to costs associated with the increase
in sales of the reclamation segment, the addition of the Fernandina No. 2 Paper
Machine and higher LIFO expense. Cost of goods sold in 1999 was favorably
impacted by the plant closures in 1998. Our overall cost of goods sold as a
percent of net sales in 1999 was comparable to 1998.
Selling and administrative expenses as a percent of net sales decreased from
11% in 1998 to 9% in 1999. Selling and administrative expenses for 1999
included expenses of $26 million related to the cashless exercise of SSCC stock
options under the Jefferson Smurfit Corporation stock option plan. In 1998, we
expensed $30 million for the class action settlement of certain litigation and
$23 million of other Merger-related cost.
12
<PAGE>
Interest expense, net in 1999 declined compared to 1998. Interest expense,
net includes interest income, which consists primarily of interest earned on
our intercompany loan made to SSCC in November 1998 in connection with the
Merger. Interest income was $52 million for 1999 compared to $6 million in
1998. While our average debt level for 1999 was higher compared to 1998 due
primarily to borrowings related to the Merger, the higher level of interest
income more than offset the increase in interest expense. Our overall average
effective interest rate in 1999 was comparable to 1998.
Other, net in our Consolidated Statements of Operations for 1999 included a
gain on the sale of our timberlands of $407 million.
We recorded income tax expense of $186 million in 1999. The effective rate
for the period differed from the federal statutory tax rate due to several
factors, the most significant of which was state income taxes. At December 31,
1999 we had approximately $95 million of net operating loss carryforwards for
U.S. federal income tax purposes that expire in 2018, with a tax value of $33
million. At December 31, 1999, we had approximately $43 million of net
operating loss carryforwards for state purposes that expire in the years 2000
through 2019. A valuation allowance of $10 million has been established for a
portion of these deferred tax assets. For information concerning income taxes
as well as information regarding the differences between effective tax rates
and statutory rates, see Note 7 of the Notes to Consolidated Financial
Statements included in this prospectus.
Discontinued Operations
In February 1999, we adopted a formal plan to sell the operating assets of
our subsidiary, SNC. We subsequently decided to continue to operate our
Cladwood(R) business. Accordingly, SNC's newsprint results are accounted for as
a discontinued operation for all periods presented in our Consolidated
Statements of Operations. In November 1999, we sold our Newberg, Oregon
newsprint mill for approximately $211 million (see "Liquidity and Capital
Resources"). We are in negotiations to transfer ownership of the Oregon City
mill and do not expect to realize any significant proceeds from the
transaction. Transfer of the Oregon City mill will complete the disposition of
our newsprint business.
The 1999 results for the discontinued operations included the realized gain
on the sale of the Newberg mill, an expected loss on the transfer of the Oregon
City mill, the actual results from the measurement date through December 31,
1999 and the estimated losses on the Oregon City mill through the expected
disposition date.
1998 Compared to 1997
Net sales of $3,043 million and operating profits of $212 million were
higher than 1997 by 3% and 30%, respectively, due primarily to higher sales
prices. The increases (decreases) in net sales for our segments are shown in
the chart below.
<TABLE>
<CAPTION>
1998 Compared to 1997
-----------------------------------------------------
Containerboard Boxboard
& Corrugated & Folding Other
Containers Cartons Reclamation Operations Total
-------------- --------- ----------- ---------- -----
(in millions)
<S> <C> <C> <C> <C> <C>
Increase (decrease) due
to:
Sales prices and
product mix........... $146 $(13) $(59) $11 $85
Sales volume........... (63) 45 34 (12) 4
Acquisitions........... 9 9
Sold or closed
facilities............ (3) (2) (7) (12)
---- ---- ---- --- ---
Net increase (decrease).. $ 89 $ 32 $(27) $(8) $86
==== ==== ==== === ===
</TABLE>
13
<PAGE>
Containerboard and Corrugated Containers Segment
Net sales of the Containerboard and Corrugated Containers segment increased
6% compared to 1997 to $1,696 million and segment profits increased $57 million
compared to 1997 to $113 million. The increases in net sales and profits were
primarily the result of increased sales prices. Containerboard and corrugated
container prices were higher in 1998 by 16% and 11%, respectively, compared to
1997. SBS prices declined 2% during the period. Containerboard sales volume in
1998 declined 2% compared to 1997 due primarily to the closure of three
containerboard mills, effective December 1, 1998 and higher levels of economic
downtime. We also had 28 days of downtime in 1997 at our Brewton, Alabama mill
associated with a rebuild and upgrade of our mottled white paper machine. Sales
volume for corrugated containers declined 6% compared to 1997 due to our
strategy to rationalize customer mix. Cost of goods sold as a percent of net
sales decreased from 88% in 1997 to 85% in 1998 due primarily to the higher
sales prices in 1998.
Boxboard and Folding Cartons Segment
Net sales of the Boxboard and Folding Cartons segment increased 4% compared
to 1997 to $784 million and segment profits declined $1 million compared to
1997 to $67 million. The increase in net sales was due primarily to increased
sales volume of folding cartons. Folding carton sales volume increased 10%
compared to 1997, reflecting growth in new business acquired near the end of
1997. Sales volume for the boxboard mills declined 1% compared to 1997.
Boxboard prices were higher in 1998 on average, increasing 3% compared to 1997.
Folding carton prices declined 3%, reflecting the change in product mix related
to the new business acquired. Cost of goods sold as a percent of net sales for
1998 was comparable to 1997.
Reclamation Segment
Net sales of the Reclamation segment declined 9% compared to 1997 to $265
million and segment profit decreased $7 million compared to 1997 to a loss of
$1 million. The decreases were due to lower prices. On average, sales prices
for reclaimed fiber were 16% lower in 1998 compared to 1997. The decline in
price was due to the reduced demand for fiber. In spite of the downturn in
domestic demand, we were able to increase overall sales volume nearly 7% over
1997 by increasing foreign sales and supply positions with major domestic
customers. Cost of goods sold as a percent of net sales increased from 87% in
1997 to 89% in 1998 due to the lower sales prices in 1998.
Costs and Expenses
Cost of goods sold as a percent of net sales declined from 86% in 1997 to
84% in 1998 due primarily to the effects of the Merger and lower LIFO expense.
Selling and administrative expenses as a percent of net sales increased from 8%
in 1997 to 11% in 1998. Selling and administrative expenses in 1998 included a
$30 million pretax charge for the class action settlement of certain litigation
and $23 million of Merger-related costs.
Subsequent to an understanding reached in December 1998, we and SNC entered
into a Settlement Agreement in January 1999 to implement a nationwide class
action settlement of claims involving Cladwood(R). We recorded a $30 million
pretax charge in 1998 for amounts SNC agreed to pay into a settlement fund for
administrative costs, plaintiffs' attorneys' fees, class representative
payments and other costs. We believe our reserve is adequate to pay eligible
claims. However, the number of claims, and the number of potential claimants
who choose not to participate in the settlement, could cause us to re-evaluate
whether the liabilities in connection with the Cladwood(R) cases could exceed
established reserves.
Interest expense, net for 1998 was $196 million, the same as for 1997. The
average effective interest rate for our outstanding debt was lower in 1998,
offsetting the impact of higher average debt levels outstanding.
We recorded an income tax benefit of $108 million in 1998. The effective tax
rate for the period differed from the federal statutory tax rate due to several
factors, the most significant of which was state income taxes.
14
<PAGE>
Discontinued Operations
As explained above, SNC's newsprint results are reflected as discontinued
operations for all periods presented in our Consolidated Statements of
Operations. We had income from discontinued operations, net of tax, for 1998
of $27 million compared to $20 million in 1997. Net sales for discontinued
operations amounted to $303 million and $281 million for 1998 and 1997,
respectively.
Liquidity and Capital Resources
In 1999, proceeds from the sale of assets of $873 million, net cash
provided by operating activities of $103 million and proceeds of $25 million
received from SSCC in partial repayment of its intercompany loan were used to
fund property additions of $69 million and net debt payments of $939 million.
In October 1999, we sold 820,000 acres of owned timberland and assigned our
rights to 160,000 acres of leased timberlands to a third party for $710
million, comprised of $225 million of cash and $485 million of installment
notes. The installment notes were monetized in a financing transaction
completed in November 1999, resulting in proceeds of $430 million. The
proceeds from the sale were used to pay down borrowings under the credit
facility entered into by JSC (U.S.) in March 1998 (the "1998 Credit
Agreement"). A bankruptcy remote qualified special purpose entity holds the
installment notes. The monetization transaction was accounted for under
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." Accordingly, the financial assets transferred to this qualifying
special purpose entity and the liabilities of that entity are not included in
our consolidated financial statements (see Note 4 of the Notes to Consolidated
Financial Statements included in this prospectus).
In November 1999, we sold the Newberg, Oregon newsprint mill. Proceeds of
approximately $211 million were used to pay down borrowings under the 1998
Credit Agreement.
Financing Activities
In October 1999, JSC (U.S.) amended the 1998 Credit Agreement to, among
other things:
. permit the sale of the timberlands operations and the Newberg mill;
. permit the cash proceeds from these asset sales to be applied as
prepayments against the 1998 Credit Agreement;
. ease certain quarterly financial covenants for 1999 and 2000; and
. permit certain prepayments of other indebtedness.
The 1998 Credit Agreement contains various business and financial covenants
including, among other things:
. limitations on dividends, redemptions and repurchases of capital stock;
. limitations on the incurrence of indebtedness;
. limitations on capital expenditures; and
. maintenance of certain financial covenants.
The 1998 Credit Agreement also requires prepayments if JSC (U.S.) has
excess cash flows, as defined, or receives proceeds from certain asset sales,
insurance, issuance of equity securities or incurrence of certain
indebtedness. The obligations under the 1998 Credit Agreement are
unconditionally guaranteed by us and certain of our subsidiaries. The
obligations under the 1998 Credit Agreement are secured by a security interest
in substantially all of the assets of JSC (U.S.). Such restrictions, together
with our highly leveraged position, could restrict corporate activities,
including our ability to respond to market conditions, to provide for
unanticipated capital expenditures or to take advantage of business
opportunities.
15
<PAGE>
We expect internally generated cash flows and existing financing resources
will be sufficient for the next several years to meet our obligations,
including debt service, restructuring payments, expenditures under the Cluster
Rule and capital expenditures. Scheduled debt payments in 2000 and 2001 are $12
million and $9 million, respectively, with increasing amounts thereafter.
Capital expenditures for 2000 are expected to be approximately $85 million. We
expect to use any excess cash provided by operations to make further debt
reductions. As of December 31, 1999, we had $485 million of unused borrowing
capacity under the 1998 Credit Agreement and $91 million of unused borrowing
capacity under our $315 million accounts receivable securitization program,
subject to JSC (U.S.)'s level of eligible accounts receivable.
Year 2000
The year 2000 problem concerned the inability of computer systems and
devices to properly recognize and process date-sensitive information when the
year changed to 2000. We depend upon our information technology ("IT") and non-
IT (used to run manufacturing equipment that contain embedded hardware or
software that must handle dates) to conduct and manage our business.
We utilized both internal and external resources to evaluate the potential
impact of the year 2000 problem and established a year 2000 program management
office to guide and coordinate the efforts of our operating units in developing
and executing our plan. The year 2000 program management office instituted a
seven-phase approach, which enabled us to identify all systems and devices that
were determined to be susceptible to the year 2000 problem. Corrective actions
were initiated and affected systems or devices were replaced, repaired or
upgraded. Through December 31, 1999, we spent approximately $39 million to
correct the year 2000 problem. We do not expect to spend any significant
amounts in the future on year 2000 related problems.
Subsequent to midnight on December 31, 1999, the rollover date, our
financial and administrative systems, communication links, and process control
systems, which control and monitor production, power, emissions and safety,
were verified for operational capability. Only minor issues relating to these
systems were noted. We have conducted and managed normal business operations as
planned since the rollover date and have not experienced any loss of production
at any mill or converting facility as a result of the year 2000 problem. Minor
issues, which surfaced at mills and converting facilities, were addressed and
resolved typically within one day. We were able to provide customers, upon
request, verification of operational capability on January 1, 2000.
Furthermore, we are not adversely impacted by any disruption of raw materials,
supplies or services provided by key vendors or suppliers.
Our year 2000 program management office continues to check for year 2000
issues. However, given the amount of system activity since the rollover date,
we do not expect any major problems related to the year 2000 problem.
Environmental Matters
Our operations are subject to extensive environmental regulation by federal,
state and local authorities in the United States and regulatory authorities
with jurisdiction over our foreign operations. We have made, and expect to
continue to make, significant capital expenditures to comply with water, air
and solid and hazardous waste regulations. Capital expenditures for
environmental control equipment and facilities were approximately $15 million
in 1999 and $10 million in 1998. We anticipate that environmental capital
expenditures will approximate $70 million in 2000. The majority of the
expenditures after 1999 relate to amounts that we currently anticipate will be
required to comply with the Cluster Rule. In November 1997, the EPA issued the
Cluster Rule, which made existing requirements for discharge of wastewaters
under the Clean Water Act more stringent and imposed new requirements on air
emissions under the Clean Air Act for the pulp and paper industry. Though the
final rule is still not fully promulgated, we currently believe we will be
required to make capital expenditures of up to $120 million during the next
several years in order to meet the requirements of the new regulations. Also,
additional operating expenses will be incurred as capital installations
required by the Cluster Rule are put into service.
16
<PAGE>
In addition, we are subject to litigation and governmental proceedings
regarding environmental matters in which compliance action and injunctive
and/or monetary relief is sought. We have been named as a potentially
responsible party at a number of sites which are the subject of remedial
activity under the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") or comparable state laws. Although we are subject to
joint and several liability imposed under CERCLA, at most of the multi-
potentially responsible party sites there are organized groups of potentially
responsible parties and costs are being shared among potentially responsible
parties. Payments related to clean-up at existing and former operating sites
and CERCLA sites were not material to our liquidity during 1999. Future
environmental regulations may have an unpredictable adverse effect on our
operations and earnings, but they are not expected to adversely affect our
competitive position.
Although capital expenditures for environmental control equipment and
facilities and compliance costs in future years will depend on engineering
studies and legislative and technological developments which cannot be
predicted at this time, such costs could increase as environmental regulations
become more stringent. Environmental expenditures include projects which, in
addition to meeting environmental concerns, may yield benefits to us in the
form of increased capacity and production cost savings. In addition to capital
expenditures for environmental control equipment and facilities, other
expenditures incurred to maintain environmental regulatory compliance,
including any remediation, represent ongoing costs to us.
Effects of Inflation
Although inflation has slowed in recent years, it is still a factor in the
economy and we continue to seek ways to mitigate its impact to the extent
permitted by competition. Inflationary increases in operating costs have been
moderate since 1996, and have not had a material impact on our financial
position or operating results during the last three years. We use the last-in,
first-out method of accounting for approximately 83% of our inventories. Under
this method, the cost of products sold reported in the financial statements
approximates current costs and thus provides a closer matching of revenue and
expenses in periods of increasing costs. On the other hand, depreciation
charges represent the allocation of historical costs incurred over past years
and are significantly less than if they were based on the current cost of
productive capacity being consumed.
Prospective Accounting Standards
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
fair value. SFAS No. 133 is effective for all quarters of fiscal years
beginning after June 15, 2000. We are currently assessing what the impact of
SFAS No. 133 will be on our future earnings and financial position.
Quantitative and Qualitative Disclosures About Market Risk
Our earnings and cash flows are significantly affected by the amount of
interest on our indebtedness. Our financing arrangements include both fixed and
variable rate debt in which changes in interest rates will impact the fixed and
variable debt differently. A change in the interest rate of fixed rate debt
will impact the fair value of the debt whereas a change in the interest rate on
the variable rate debt will impact interest expense and cash flows.
Management's objective is to protect us from interest rate volatility and
reduce or limit interest expense within acceptable levels of market risk. To
mitigate the impact of fluctuations in interest rates, we periodically enter
into interest rate swaps, caps or options to hedge interest rate exposure. We
do not utilize derivatives for speculative or trading purposes. Any derivative
would be specific to the debt instrument, contract or transaction, which would
determine the specifics of the hedge. At December 31, 1999 there were no
derivative contracts outstanding.
17
<PAGE>
The table below presents principal amounts by year of anticipated maturity
for our debt obligations and related average interest rates base on the
weighted average interest rates at the end of the period. Variable interest
rates disclosed do not attempt to project future interest rates. This
information should be read in conjunction with Note 5 to the Notes to
Consolidated Financial Statements which are included in this prospectus.
Short and Long-Term Debt Outstanding as of December 31, 1999
<TABLE>
<CAPTION>
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank term loans and
revolver--
8.9% average interest rate
(variable)................ $ $ $ 51 $ 51 $ 76 $262 $ 440 $ 441
U.S. accounts receivable
securitization--
5.94% average interest rate
(variable)................ 224 224 224
Senior notes--
10.36% average interest
rate (fixed).............. 100 500 300 900 927
U.S. industrial revenue
bonds--
7.28% average interest rate
(fixed)................... 3 4 24 31 31
Other........................ 9 9 11 5 2 5 41 41
--- --- ---- ---- ---- ---- ------ ------
Total Debt................. $12 $ 9 $386 $560 $378 $291 $1,636 $1,664
=== === ==== ==== ==== ==== ====== ======
</TABLE>
18
<PAGE>
BUSINESS
General
JSCE is a wholly-owned subsidiary of SSCC. On November 18, 1998, JSC
Acquisition Corporation, a wholly-owned subsidiary of SSCC, was merged with and
into Stone. As a result of the merger, Stone became a 100% owned subsidiary of
SSCC. SSCC continues to own 100% of the equity interest of JSCE. SSCC has no
operations other than its investment in JSCE and Stone. JSCE owns 100% of the
equity interest in JSC (U.S.). JSCE has no operations other than its investment
in JSC (U.S.). JSC (U.S.) has extensive operations throughout the United
States.
We are a large, integrated producer of containerboard, corrugated containers
and other packaging products. We believe our high level of integration enhances
our ability to respond quickly and efficiently to customers and to fill orders
on short lead times. We operate in three major business segments:
. Containerboard and Corrugated Containers;
. Boxboard and Folding Cartons; and
. Reclamation.
For the year ended December 31, 1999, we had net sales of $3,295 million and
net income of $272 million. For a summary of revenues, profits, identifiable
assets, capital expenditures and depreciation, depletion and amortization for
each of our segments, see Note 14, "Business Segment Information" of the Notes
to Consolidated Financial Statements contained in this prospectus.
Containerboard and Corrugated Containers Segment
The primary products of our Containerboard and Corrugated Containers segment
include corrugated containers, containerboard and solid bleached sulfate. This
segment includes four paper mills and 48 container plants located in the United
States. Sales for the Containerboard and Corrugated Containers segment in 1999
were $1,774 million (including $40 million of intersegment sales). Production
of our containerboard mills and sales of our corrugated container facilities
for the last three years were:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Tons produced (in thousands)
Containerboard........................................ 1,592 1,978 2,024
Solid bleached sulfate................................ 189 185 190
Corrugated containers sold (in billion sq. ft).......... 29.1 29.9 31.7
</TABLE>
Our containerboard mills produce a full line of containerboard, which for
1999 included 985,000 tons of unbleached kraft linerboard, 324,000 tons of
mottled white linerboard and 283,000 tons of recycled medium. Our
containerboard mills and corrugated container operations are highly integrated,
with the majority of containerboard produced by us used internally by our
corrugated container operations. In 1999, our container plants consumed
1,930,000 tons of containerboard.
Corrugated containers are used to ship diverse products such as home
appliances, electric motors, small machinery, grocery products, produce, books,
tobacco and furniture and for many other applications, including point of
purchase displays. We provide innovative packaging solutions, stressing the
value-added aspects of our corrugated containers, including labeling and multi-
color graphics to differentiate our products and respond to customer
requirements. Our container plants are located nationwide, serving local
customers and large national accounts.
We also produce SBS, a portion of which is consumed internally by our
folding carton plants.
19
<PAGE>
Boxboard and Folding Cartons Segment
The Boxboard and Folding Cartons segment's primary products are coated
recycled boxboard and folding cartons. Sales for this segment in 1999 were $836
million.
Production of coated recycled boxboard in 1999, 1998 and 1997 by our
boxboard mills was 581,000, 582,000, and 585,000 tons, respectively. Our
boxboard and folding carton operations are integrated, with the majority of
tons produced by our boxboard mills used internally by our folding carton
operations. In 1999, our folding carton plants consumed 637,000 tons of
recycled boxboard, solid bleached sulfate and coated natural kraft representing
an integration level of approximately 78%.
Folding cartons are sold to manufacturers of consumable goods, especially
food, beverage, detergents, paper products and other consumer products. Our
folding carton plants offer extensive converting capabilities, including web
and sheet lithographic, rotogravure and flexographic printing, laminating and a
full line of structural and graphic design services tailored to specific
technical requirements, as well as photography for packaging, sales promotion
concepts, and point of purchase displays. Folding cartons are used primarily to
provide point of purchase advertising while protecting customers' products. We
make 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 accounts. Our folding carton plants are located nationwide. Folding
carton sales volumes for 1999, 1998 and 1997 were 582,000, 536,000 and 488,000
tons, respectively.
We have focused our capital expenditures and our marketing activities in
this segment to support a strategy of enhancing product quality as it relates
to packaging graphics, increasing flexibility while reducing customer lead time
and assisting customers in innovative package designs.
Reclamation Segment
Our reclamation operations procure fiber resources for our paper mills as
well as those of other producers. We operate reclamation facilities that
collect, sort, grade and bale recovered paper. We also collect aluminum and
glass. In addition, we operate a nationwide brokerage system whereby we
purchase and resell recovered paper to our recycled paper mills and other
producers on a regional and national contract basis. Brokerage contracts
provide bulk purchasing, resulting in lower prices and cleaner recovered paper.
Many of the reclamation facilities are located close to our recycled paper
mills, ensuring availability of supply with minimal shipping costs. Tons of
recovered paper collected for 1999, 1998 and 1997 were 6,560,000, 5,155,000 and
4,832,000, respectively. Our sales of recycled materials in 1999 were $563
million (including $126 million of intersegment sales).
Other Products
Specialty Packaging
We produce a wide variety of specialty packaging products including uncoated
recycled boxboard, papertubes and cores, solid fiber partitions and consumer
packaging. Papertubes and cores are used primarily for paper, film and foil,
yarn carriers and other textile products and furniture components. Flexible
packaging, paper and metallized paper labels and heat transfer labels are used
in a wide range of consumer product applications. In addition, a contract
packaging plant provides custom contract packaging services including
cartoning, bagging, liquid-filling or powder-filling and high-speed
overwrapping. We produce high-quality rotogravure cylinders and have a full-
service organization experienced in the production of color separations and
lithographic film for the commercial printing, advertising and packaging
industries. In 1999, our sales of specialty packaging products were $286
million (including $19 million of intersegment sales).
20
<PAGE>
Cladwood(R)
Cladwood(R) is a wood composite panel used by the housing industry,
manufactured from sawmill shavings and other wood residuals and overlaid with
recycled newsprint. SNC has two Cladwood(R) plants located in Oregon. Sales for
Cladwood(R) in 1999 were $21 million.
Newsprint
We are in the process of divesting the newsprint mills owned by SNC, and
accordingly, its newsprint operations located in Newberg and Oregon City,
Oregon have been accounted for as a discontinued operation. The Newberg mill
was sold in November 1999.
We are in negotiations to transfer ownership of the Oregon City mill and do
not expect to realize any significant proceeds from the transaction.
In 1999, SNC produced approximately 510,000 metric tons and sold $235
million of newsprint. For the past three years, an average of approximately 42%
of SNC's newsprint production was sold to the Times Mirror Company pursuant to
a long-term newsprint agreement.
Fiber Resources
Wood fiber and recycled fiber are the principal raw materials used in the
manufacture of our paper products. We satisfy virtually all of our needs for
wood fiber through purchases on the open market or under supply agreements and
essentially all of our needs for recycled fiber through the operation of our
reclamation facilities and nationwide brokerage system.
Wood fiber and recycled fiber are purchased in highly competitive, price-
sensitive markets, which have historically exhibited price and demand
cyclicality. A decrease in the supply of wood fiber due to conservation
regulation has caused, and will likely continue to cause, higher wood fiber
costs in some of the regions in which we procure wood fiber. Fluctuations in
supply and demand for recycled fiber have from time to time caused tight
supplies of recycled fiber, and at those times we have experienced an increase
in the cost of such fiber. While we have not experienced any significant
difficulty in obtaining wood fiber and recycled fiber in proximity to our
mills, we cannot assure you that this will continue to be the case for any or
all of our mills.
In October 1999, we sold 820,000 acres of owned timberland and assigned our
rights to 160,000 acres of leased timberland in the southeastern United States.
As part of the sales agreement, JSC (U.S.) entered into a two-year supply
contract with the buyer to purchase 1.4 million tons of timber during 2000 and
2001 at prevailing market prices.
Marketing
Our marketing strategy is to sell a broad range of paper-based packaging
products to marketers of industrial and consumer products. In managing the
marketing activities of our paperboard mills, we seek to meet the quality and
service needs of the customers of our package converting plants at the most
efficient cost, while balancing those needs against the demands of our open
market customers. Our converting plants focus on supplying both specialized
packaging with high value graphics that enhance a product's market appeal and
high volume sales of commodity products. We also seek to serve a broad customer
base for each of our segments and as a result serve thousands of accounts from
our plants. Each plant has its own sales force, and many have product design
engineers and other service professionals who are in close contact with
customers to respond to their specific needs. We complement the local plants'
marketing and service capabilities with regional and national design and
service capabilities, as well as national sales offices 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.
21
<PAGE>
Our business is not dependent upon a single customer or upon a small number
of major customers. We do not believe that the loss of any one customer would
have a material adverse effect on our profitability.
Competition
The markets in which we sell our principal products are highly competitive
and comprised of many participants. Although no single company is dominant, we
do face significant competitors in each of our businesses. Our competitors
include large vertically integrated companies as well as numerous smaller
companies. The industries in which we compete have historically been sensitive
to price fluctuations brought about by shifts in industry capacity and other
cyclical industry conditions. Other competitive factors include design, quality
and service, with varying emphasis depending on product line.
Backlog
Demand for our major product lines is relatively constant throughout the
year and seasonal fluctuations in marketing, production, shipments and
inventories are not significant. Backlogs are not a significant factor in the
industry. We do not have a significant backlog of orders, as most orders are
placed for delivery within 30 days.
Research and Development
Our research and development center uses state-of-the-art technology to
assist all levels of the manufacturing and sales processes 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.
We actively pursue applications for patents on new inventions and designs and
attempt to protect our patents against infringement. Nevertheless, we believe
that our success and growth are more dependent on the quality of our products
and our relationships with our customers than on the extent of our patent
protection. We hold or are licensed to use certain patents, licenses,
trademarks and tradenames on products, but do not consider that the successful
continuation of any material aspect of our business is dependent upon such
patents.
Employees
We had approximately 14,400 employees at December 31, 1999, of whom
approximately 8,900 (62%) are represented by collective bargaining units. The
expiration dates of union contracts for our major paper mill facilities are as
follows: the Brewton, Alabama mill, expiring in October 2002 and the Fernandina
Beach, Florida mill, expiring in June 2003. We believe that our employee
relations are generally good and are currently in the process of bargaining
with unions representing production employees at a number of our facilities.
While the terms of these agreements may vary, we believe that the material
terms of our collective bargaining agreements are customary for the industry
and the type of facility, the classification of the employees and the
geographic location covered thereby.
Litigation
Subsequent to an understanding reached in December 1998, SSCC and SNC
entered into a settlement agreement in January 1999 to implement a nationwide
class action settlement of claims involving Cladwood(R), a composite wood
siding product manufactured by SNC that has been used primarily in the
construction of manufactured or mobile homes. The settlement was reached in
connection with a class action pending in King County, Washington and also
resolved all other pending class actions. Pursuant to the settlement, SNC paid
$20 million into a settlement fund plus up to approximately $6.5 million of
administrative costs, attorneys' fees and class representative payments. We
believe our reserve is adequate to pay eligible claims. However, the number of
claims, and the number of potential claimants who choose not to participate in
the settlement, could cause us to re-evaluate whether the liabilities in
connection with the Cladwood(R) cases could exceed established reserves.
22
<PAGE>
In 1998, seven putative class action complaints were filed in the United
States District Court for the Northern District of Illinois and the United
States District Court for the Eastern District of Pennsylvania alleging that
Stone reached agreements in restraint of trade that affected the manufacture,
sale and pricing of corrugated products in violation of antitrust laws. The
complaints have been amended to name several other defendants, including JSC
(U.S.) and SSCC. The suits seek an unspecified amount of damages arising out of
the sale of corrugated products for the period from October 1, 1993 through
March 31, 1995. Under the provisions of the applicable statutes, any award of
actual damages could be trebled. The Federal Multidistrict Litigation Panel has
ordered all of the complaints to be transferred to and consolidated in the
United States District Court for the Eastern District of Pennsylvania. Stone,
JSC (U.S.) and SSCC believe they have meritorious defenses and intend to
vigorously defend these cases.
We are a defendant in a number of lawsuits and claims arising out of the
conduct of our business including those related to environmental matters. While
the ultimate results of such suits or other claims cannot be predicted with
certainty, we believe that the resolution of these matters will not have a
material adverse effect on our consolidated financial condition or results of
operations.
Environmental Matters
In March 1999, management of SNC's Oregon City, Oregon newsprint mill became
aware of possible alterations by one of its employees of data utilized in
determining compliance with the mill's National Pollutant Discharge Elimination
System ("NPDES") permit. SNC conducted a thorough internal investigation of
this matter and, based on this investigation, concluded that such alterations
did occur and that as a result, the mill may have violated its NPDES permit
limits on suspended solids on several occasions. SNC provided both the EPA and
the Oregon Department of Environmental Quality with a detailed report of its
investigation and the agencies are conducting an additional investigation based
on this report. SNC is fully cooperating with the investigation. SNC is unable
to predict the potential consequences of this matter.
Federal, state and local environmental requirements are a significant factor
in our business. We employ processes in the manufacture of paperboard and other
products which result in various discharges, emissions, and wastes and which
are subject to numerous federal, state and local environmental laws and
regulations, including reporting and disclosure obligations. We operate and
expect to operate under permits and similar authorizations from various
governmental authorities that regulate such discharges, emissions, and wastes.
We also face 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 JSCE-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 CERCLA and analogous state laws, regardless of
fault or the lawfulness of the original disposal. We have received notice that
we are or may be a PRP at a number of federal and/or state sites where response
action may be required and as a result may have joint and several liability for
cleanup costs at such sites. However, liability for CERCLA sites is typically
shared with other PRPs and costs are commonly allocated according to relative
amounts of waste deposited. Our relative percentage of wastes deposited at a
majority of these sites is quite small. In addition to participating in
remediation of sites owned by third parties, we have entered into consent
orders for investigation and/or remediation of certain JSCE-owned properties.
Based on current information, we believe that the probable costs of the
potential environmental enforcement matters discussed above, response costs
under CERCLA and similar state laws, and remediation of owned property will not
have a material adverse effect on our financial condition or results of
operations. We believe that our liability for these matters was adequately
reserved at December 31, 1999.
23
<PAGE>
Environmental Compliance
Our operations are subject to extensive environmental regulation by federal,
state, and local authorities. In the past, we have made significant capital
expenditures to comply with water, air, solid and hazardous waste, and other
environmental laws and regulations, and expect to make significant expenditures
in the future for environmental compliance. Because various environmental
standards are subject to change, we cannot predict the amount of capital
expenditures that will ultimately be required to comply with future standards.
In particular, the EPA has finalized significant parts of the Cluster Rule,
which will require substantial expenditures to achieve compliance. We estimate,
based on engineering studies done to date, that compliance with these portions
of the Cluster Rule could require up to $130 million in capital expenditures
over the next several years. However, we cannot predict the ultimate cost of
complying with the regulations until further engineering studies are completed
and additional regulations are finalized.
In addition to Cluster Rule compliance, we anticipate additional capital
expenditures related to environmental compliance. For the past three years, we
have spent an average of approximately $17 million annually on capital
expenditures for environmental purposes. The anticipated spending for such
capital projects for fiscal 2000 is approximately $70 million. A significant
amount of the increased expenditures in 2000 will be due to compliance with the
Cluster Rule and is included in the estimate of up to $130 million referenced
above. Since our competitors are, or will be, subject to comparable
environmental standards, including the Cluster Rule, management is of the
opinion, based on current information, that compliance with environmental
standards will not adversely affect our competitive position.
24
<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, "CCA" refers to
Container Corporation of America (the predecessor entity to JSC (U.S.)); "Old
JSC (U.S.)" refers to Jefferson Smurfit Corporation (U.S.) prior to its merger
with and into CCA; and "JSC" refers to Jefferson Smurfit Corporation, now known
as "SSCC."
The Series A Senior Notes were issued under an Indenture (the "Series A
Senior Note Indenture") among Old JSC (U.S.), CCA and NationsBank of Georgia,
National Association, as trustee ("NationsBank"). The Series B Senior Notes
were issued under an Indenture (the "Series B Senior Note Indenture") among Old
JSC (U.S.), CCA and NationsBank, as trustee. The 1993 Senior Notes were issued
under an Indenture (the "1993 Senior Note Indenture" and together with the
Series A Senior Note Indenture and Series B Senior Note Indenture, the
"Indentures") among Old JSC (U.S.), CCA and NationsBank, as trustee. On
December 31, 1995, The Bank of New York (the "Series A Senior Note Trustee,"
the "Series B Senior Note Trustee" and the "1993 Senior Note Trustee") replaced
NationsBank, as trustee under the Indentures. Except as described under "--
Optional Redemption" below or as otherwise indicated, this description applies
to each Indenture, and references to the "notes" shall be to the Series A
Senior Notes, the Series B Senior Notes or the 1993 Senior Notes, as the case
may be, or, if the context requires, to all three.
The following description is a summary of the material provisions of the
Indentures. It does not restate those agreements in their entirety. We urge you
to read the Indentures because they, and not this description, define your
rights as holders of the notes. We have filed copies of the Indentures as
exhibits to the registration statement which includes this prospectus. Wherever
particular sections or defined terms of the Indentures not otherwise defined
herein are referred to, such sections or defined terms shall be incorporated
herein by reference.
General
Principal of, premium, if any, and interest on the notes is payable, and the
notes may be exchanged or transferred, at the office or agency of JSC (U.S.) in
the Borough of Manhattan, The City of New York (which, for the Series A Senior
Notes, shall be the office or agency of the Series A Senior Note Trustee at 61
Broadway, Suite 1412, New York, New York 10006, for the Series B Senior Notes,
shall be the office or agency of the Series B Senior Note Trustee at 61
Broadway, Suite 1412, New York, New York 10006, and for the 1993 Senior Notes,
shall be the office or agency of the 1993 Senior Note Trustee at 61 Broadway,
Suite 1412, New York, New York 10006); provided that, at our option, payment of
interest may be made by check mailed to the address of the Holders as such
address appears in the Senior Notes Register. (Sections 2.01, 2.03 and 2.06)
The notes were issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. (Section 2.02) No
service charge was made for any registration of transfer or exchange of notes,
but we may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith. (Section
2.05)
Terms of the Notes
The Series A Senior Notes and Series B Senior Notes are unsecured senior
obligations of JSC (U.S.), limited to $300 million aggregate principal amount
of Series A Senior Notes, and $100 million aggregate principal amount of Series
B Senior Notes, and will mature on May 1, 2004, and May 1, 2002, respectively.
Each note bears interest at the rate per annum shown on the front cover of this
prospectus from the most recent Interest Payment Date to which interest has
been paid or provided for, payable semi-annually (to the Holders of record at
the close of business on the April 15 or October 15 immediately preceding the
Interest Payment Date) on May 1 and November 1 of each year.
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<PAGE>
The 1993 Senior Notes are unsecured senior obligations of JSC (U.S.),
limited to $500 million aggregate principal amount, and will mature on April 1,
2003. Each 1993 Senior Note bears interest at the rate per annum shown on the
front cover of this prospectus from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semi-annually (to the
Holders of record at the close of business on the March 15 or September 15
immediately preceding the Interest Payment Date) on April 1 and October 1 of
each year.
Optional Redemption
JSC (U.S.) may not redeem the Series B Senior Notes or the 1993 Senior Notes
prior to maturity.
The Series A Senior Notes are redeemable, at JSC (U.S.)'s option, in whole
or in part, at any time on or after May 1, 1999 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first class mail to
each Holder's last address as it appears in the Senior Notes Register, at the
following Redemption Prices (expressed as percentages of principal amount),
plus accrued interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due
on an Interest Payment Date that is on or prior to the Redemption Date), if
redeemed during the 12-month period commencing on May 1 of the years set forth
below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2000..................................................... 102.813%
2001 and thereafter...................................... 100.0%
</TABLE>
In the case of any partial redemption, selection of the Series A Senior
Notes for redemption will be made by the Series A Senior Note Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Series A Senior Notes are listed or, if the Series A
Senior Notes are not listed on a national securities exchange, on a pro rata
basis, by lot or by such other method as the Series A Senior Note Trustee in
its sole discretion shall deem to be fair and appropriate; provided that no
Series A Senior Note of $1,000 in principal amount at maturity or less shall be
redeemed in part. If any Series A Senior Note is to be redeemed in part only,
the notice of redemption relating to such Series A Senior Note shall state the
portion of the principal amount thereof to be redeemed. A new Series A Senior
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Series A
Senior Note.
The 1998 Credit Agreement contains covenants limiting the optional
redemption of the notes.
Ranking
The Indebtedness evidenced by the notes ranks pari passu in right of payment
with all other senior indebtedness of JSC (U.S.), including, without
limitation, JSC (U.S.)'s obligations under the 1998 Credit Agreement. JSCE's
guarantee of the notes ranks pari passu in right of payment with all other
unsubordinated indebtedness of JSCE, including, without limitation, JSCE's
obligations under the 1998 Credit Agreement.
JSC (U.S.)'s obligations under the 1998 Credit Agreement and JSCE's
guarantees of such obligations are secured by pledges of substantially all of
our assets with the exception of cash and cash equivalents and trade
receivables. JSC (U.S.)'s obligations under the 1998 Credit Agreement, but not
the notes, are guaranteed by JSC, JSCE and certain of JSC's subsidiaries, and
the obligations of JSCE and each such guaranteeing subsidiary are secured,
among other things, by substantially all of the assets of JSCE and such
guaranteeing subsidiary, as the case may be. The notes and JSCE's guarantee of
the notes will be effectively subordinated to such security interests and
guarantees to the extent of such security interests and guarantees. As of
December 31, 1999, JSC (U.S.) had outstanding approximately $1,636 million of
senior indebtedness (excluding intercompany indebtedness), of which
approximately $709 million was secured indebtedness. The secured indebtedness
will have priority over the notes with respect to the assets securing such
indebtedness. See "Risk Factors--Effective Subordination" for a further
discussion of security for the notes.
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<PAGE>
Guarantee
JSC (U.S.)'s obligations under the notes are unconditionally guaranteed by
JSCE.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indentures. Some definitions appear in
the 1993 Senior Note Indenture that do not appear in the other Indentures, and
vice versa. Reference is made to the Indentures for the full definition of all
terms as well as any other capitalized term used herein for which no definition
is provided.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person existing
at the time such Person became a Subsidiary and not Incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary.
"Adjusted Consolidated Net Income" is defined to mean, for any period, the
aggregate net income (or loss) of any Person and its consolidated Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication):
(1) the net income (or loss) of such Person (other than net income (or
loss) attributable to a Subsidiary of such Person) in which any other
Person (other than such Person or any of its Subsidiaries) has a joint
interest, except to the extent of the amount of dividends or other
distributions actually paid to such Person or any of its Subsidiaries
by such other Person during such period;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph
of the "Limitation on Restricted Payments" covenant described below
(and in such case, except to the extent includable pursuant to clause
(1) above), the net income (or loss) of such Person accrued prior to
the date it becomes a Subsidiary of any other Person or is merged into
or consolidated with such other Person or any of its Subsidiaries or
all or substantially all of the property and assets of such Person are
acquired by such other Person or any of its Subsidiaries;
(3) the net income (or loss) of any Subsidiary (other than CCA) of any
Person to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary of such net income is not at
the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary;
(4) any gains or losses (on an after-tax basis) attributable to Asset
Sales;
(5) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any
amounts paid or accrued as dividends on Preferred Stock of such Person
or Preferred Stock of any Subsidiary of such Person owned by Persons
other than such Person and any of its Subsidiaries;
(6) all extraordinary gains and extraordinary losses; and
(7) all non-cash charges reducing net income of such Person that relate to
stock options or stock appreciation rights and all cash payments
reducing net income of such Person that relate to stock options or
stock appreciation rights, to the extent such cash payments are not
made pursuant to clause (11) of the "Limitation on Restricted Payments"
covenant; provided that, solely for the purposes of calculating the
Interest Coverage Ratio (and in such case, except to the extent
includable pursuant to clause (1) above), "Adjusted Consolidated Net
Income" of JSCE shall include the amount of all cash dividends received
by JSCE or any Subsidiary of JSCE from an Unrestricted Subsidiary.
"Adjusted Consolidated Net Tangible Assets" is defined to mean the total
amount of assets of JSCE and its Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent
27
<PAGE>
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom:
(1) all current liabilities of JSCE and its Subsidiaries (excluding
intercompany items); and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth on
the most recently available consolidated balance sheet of JSCE and its
Subsidiaries, prepared in conformity with GAAP.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled
by", and "under common control with"), as applied to any Person, is defined to
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise. For purposes of
this definition, no Bank nor any affiliate of any Bank shall be deemed to be an
Affiliate of JSCE or any of its Subsidiaries nor shall Morgan Stanley (or any
affiliate thereof) be deemed an Affiliate of JSCE or any of its Subsidiaries
solely by reason of its ownership of or right to vote any Indebtedness of JSCE
or any of its Subsidiaries.
"Asset Acquisition" is defined to mean:
(1) an investment by JSCE or any of its Subsidiaries in any other Person
pursuant to which such Person shall become a Subsidiary of JSCE or any
of its Subsidiaries or shall be merged into or consolidated with JSCE
or any of its Subsidiaries; or
(2) an acquisition by JSCE or any of its Subsidiaries of the assets of any
Person other than JSCE or any of its Subsidiaries that constitute
substantially all of a division or line of business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by JSCE
or any of its Subsidiaries (other than to JSCE or another Subsidiary of JSCE)
of:
(1) all or substantially all of the Capital Stock of any Subsidiary of
JSCE; or
(2) all or substantially all of the assets that constitute a division or
line of business of JSCE or any of its Subsidiaries.
"Asset Sale" is defined to mean, with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other than
JSCE or any of its Subsidiaries of:
(1) all or any of the Capital Stock of any Subsidiary of such Person (other
than pursuant to a public offering of the Capital Stock of CCA or JSCE
pursuant to which at least 15% of the total issued and outstanding
Capital Stock of CCA or JSCE has been sold by means of an effective
registration statement under the Securities Act or sales, transfers or
other dispositions of Capital Stock of CCA or JSCE substantially
concurrently with or following such a public offering);
(2) all or substantially all of the property and assets of an operating
unit or business of such Person or any of its Subsidiaries; or
(3) any other property and assets of such Person or any of its Subsidiaries
outside the ordinary course of business of such Person or such
Subsidiary and, in each case, that is not governed by the provisions of
the Indenture applicable to Mergers, Consolidations and Sales of Assets
(it being acknowledged that JSCE and its Subsidiaries may dispose of
equipment in the ordinary course of their respective businesses);
provided that sales or other dispositions of inventory, receivables and
other current assets shall not be included within the meaning of "Asset
Sale."
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"Attributable Indebtedness" is defined to mean, when used in connection with
a sale-leaseback transaction referred to in the "Limitation on Sale--Leaseback
Transactions" covenant, at any date of determination, the product of:
(1) the net proceeds from such sale-leaseback transaction; and
(2) a fraction, the numerator of which is the number of full years of the
term of the lease relating to the property involved in such sale-
leaseback transaction (without regard to any options to renew or extend
such term) remaining at the date of the making of such computation and
the denominator of which is the number of full years of the term of
such lease (without regard to any options to renew or extend such term)
measured from the first day of such term.
"Average Life" is defined to mean, at any date of determination with respect
to any debt security, the quotient obtained by dividing:
(1) the sum of the product of (a) the number of years from such date of
determination to the dates of each successive scheduled principal
payment of such debt security, and (b) the amount of such principal
payment by,
(2) the sum of all such principal payments.
"Banks" is defined to mean the lenders who are from time to time parties to
any Credit Agreement.
"Board of Directors" is defined to mean the Board of Directors of JSCE or
CCA, as the case may be, or any committee of such Board of Directors duly
authorized to act under the Indenture.
"Business Day" is defined to mean any day except a Saturday, Sunday or other
day on which commercial banks in The City of New York, or in the city of the
Corporate Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's capital stock, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations,
as aforesaid, under such lease.
"Change of Control" is defined to mean such time as:
(1)(a)a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Original Stockholders,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the then
outstanding Voting Stock of JSC or a JSC Parent; and
(b)the Original Stockholders beneficially own, directly or indirectly,
less than the then outstanding Voting Stock of JSC or a JSC Parent
beneficially owned by such "person" or "group"; or
(2)(a)a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Original Stockholders,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the then
outstanding Voting Stock of JSCE;
(b)the Original Stockholders beneficially own, directly or indirectly,
less than the then outstanding Voting Stock of JSCE beneficially
owned by such "person" or "group"; and
(c)CCA is a Subsidiary of JSCE at the time that the later of (a) and
(b) above occurs.
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"Closing Date" is defined to mean the date on which the respective series of
notes were originally issued under the Indentures.
"Common Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" is defined to mean, with respect to any Person for any
period, the sum of the amounts for such period of:
(1) Adjusted Consolidated Net Income;
(2) Consolidated Interest Expense;
(3) income taxes (other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or
sales of assets);
(4) depreciation expense;
(5) amortization expense; and
(6) all other non-cash items reducing Adjusted Consolidated Net Income,
less all non-cash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for such Person and its
Subsidiaries in conformity with GAAP;
provided that, if a Person has any Subsidiary that is not a Wholly Owned
Subsidiary of such Person, Consolidated EBITDA of such Person shall be reduced
(to the extent not otherwise reduced by GAAP) by an amount equal to:
(1) the Adjusted Consolidated Net Income of such Subsidiary multiplied by
(2) the quotient of:
(a) the number of shares of outstanding Common Stock of such Subsidiary
not owned on the last day of such period by such Person or any
Subsidiary of such Person divided by
(b) the total number of shares of outstanding Common Stock of such
Subsidiary on the last day of such period.
"Consolidated Interest Expense" is defined to mean, with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; the net costs associated with
Interest Rate Agreements; and Indebtedness that is Guaranteed by such Person)
and all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by such
Person and its consolidated subsidiaries during such period; excluding,
however,
(1) any amount of such interest of any Subsidiary of such Person if the net
income (or loss) of such Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income for such person pursuant to clause
(iii) of the definition thereof (but only in the same proportion as the
net income (or loss) of such Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income for such Person
pursuant to clause (iii) of the definition thereof); and
(2) any premiums, fees and expenses (and any amortization thereof) payable
in connection with the 1989 Transaction, the 1992 Transaction, the 1993
Transaction (i.e., the Refinancing), the issuance of the New
Subordinated Notes and the applications of the proceeds thereof or the
Recapitalization Plan, all as determined on a consolidated basis in
conformity with GAAP.
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"Consolidated Net Worth" is defined to mean, at any date of determination,
shareholders' equity as set forth on the most recently available consolidated
balance sheet of JSCE and its Subsidiaries (which shall be as of a date not
more than 60 days prior to the date of such computation), less any amounts
attributable to Redeemable Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of the Capital Stock of
JSCE or any Subsidiary of JSCE, each item to be determined in accordance with
GAAP (excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 52).
"Credit Agreement" is defined to mean either:
(1) the Credit Agreement, dated as of May 11, 1994, amended and restated as
of November 18, 1998, among JSC, JSCE, JSC (U.S.), The Chase Manhattan
Bank, Bankers Trust Company and the other lenders, as amended from time
to time (the "1998 Credit Agreement"); or
(2) any Credit Agreement which amends, supplements, extends, renews,
replaces, or otherwise modifies from time to time, including, without
limitation, any agreement increasing the amount of, extending the
maturity of, refinancing or otherwise restructuring all or any portion
of such agreement or agreements, provided that such agreement will be a
Credit Agreement under the Indenture only if a notice to that effect is
delivered to the Trustee and there shall be at any time no more than
two instruments that are Credit Agreements.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect JSCE or any of its Subsidiaries against fluctuations in currency values
to or under which JSCE or any of its Subsidiaries is a party or a beneficiary
on the date of the Indenture or becomes a party or a beneficiary thereafter.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Existing Subordinated Debt Refinancing" is defined to mean the refinancing
of any or all of the Indebtedness represented by the Junior Accrued Debentures,
Senior Subordinated Notes and the Subordinated Debentures, including pursuant
to any Credit Agreement.
"Foreign Subsidiary" is defined to mean any Subsidiary of JSCE that:
(1) derives more than 80% of its sales or net income from; or
(2) has more than 80% of its assets located in, territories and
jurisdictions outside the United States of America (in each case
determined on a consolidated basis in conformity with GAAP).
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to:
(1) the amortization of any expenses incurred in connection with the 1989
Transaction, the 1992 Transaction, the 1993 Transaction (i.e., the
Refinancing), the issuance of the New Subordinated Notes and the
application of the proceeds thereof or the Recapitalization Plan;
(2) except as otherwise provided, the amortization of any amounts required
or permitted by Accounting Principles Board Opinion Nos. 16 and 17; and
(3) any charges associated with the adoption of Financial Accounting
Standard Nos. 106 and 109.
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"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or
otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness or other obligation of the payment thereof or to
protect such obligation or the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided
that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" or "Noteholder" or "Securityholder" or "Senior Notes Holder" is
defined to mean the registered holder of any Series A Senior Note, Series B
Senior Note or 1993 Senior Note, as the case may be.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that neither the accrual of interest (whether such
interest is payable in cash or kind) nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date of
determination (without duplication):
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments (other than, in the case of JSCE and its
Subsidiaries, any non-negotiable notes of JSCE or its Subsidiaries
issued to its insurance carriers in lieu of maintenance of policy
reserves in connection with its workers' compensation and liability
insurance programs);
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto);
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except
Trade Payables;
(5) all obligations of such Person as lessee under Capitalized Leases;
(6) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the
lesser of:
(a) the fair market value of such asset at such date of determination;
and
(b) the amount of such Indebtedness;
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person;
(8) all obligations in respect of borrowed money under any Credit
Agreement, the Secured Notes and any Guarantees thereof; and
(9) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance
at such date of all unconditional obligations as described above and
the
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maximum liability determined by such Person's board of directors, in
good faith, as reasonably likely to occur, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations
at such date, provided that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the original
issue discount of such Indebtedness at such time as determined in
conformity with GAAP; and provided further that Indebtedness shall not
include:
(a) any liability for federal, state, local or other taxes; or
(b) obligations of JSCE or its Restricted Subsidiaries pursuant to
Receivables Programs.
"Interest Coverage Ratio" is defined to mean, with respect to any Person on
any Transaction Date, the ratio of:
(1) the aggregate amount of Consolidated EBITDA of such Person for the four
fiscal quarters for which financial information in respect thereof is
available immediately prior to such Transaction Date to
(2) the aggregate Consolidated Interest Expense of such Person during such
four fiscal quarters. In making the foregoing calculation,
(a) pro forma effect shall be given to:
(i) any Indebtedness Incurred subsequent to the end of the four-
fiscal-quarter period referred to in clause (1) and prior to the
Transaction Date (other than Indebtedness Incurred under a
revolving credit or similar arrangement to the extent of the
commitment thereunder (or under any predecessor revolving credit
or similar arrangement) on the last day of such period);
(ii) any Indebtedness Incurred during such period to the extent such
Indebtedness is outstanding at the Transaction Date; and
(iii) any Indebtedness to be Incurred on the Transaction Date, in
each case as if such Indebtedness had been Incurred on the
first day of such four-fiscal-quarter period and after giving
pro forma effect to the application of the proceeds thereof
as if such application had occurred on such first day;
(b) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro
forma basis and bearing a floating interest rate shall be computed
as if the rate in effect on the date of computation (taking into
account any Interest Rate Agreement applicable to such Indebtedness
if such Interest Rate Agreement has a remaining term in excess of 12
months) had been the applicable rate for the entire period;
(c) there shall be excluded from Consolidated Interest Expense any
Consolidated Interest Expense related to any amount of Indebtedness
that was outstanding during such four-fiscal-quarter period or
thereafter but that is not outstanding or is to be repaid on the
Transaction Date, except for Consolidated Interest Expense accrued
(as adjusted pursuant to clause (b)) during such four-fiscal-quarter
period under a revolving credit or similar arrangement to the extent
of the commitment thereunder (or under any successor revolving
credit or similar arrangement) on the Transaction Date;
(d) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application
of proceeds of any Asset Disposition) that occur during such four-
fiscal-quarter period or thereafter and prior to the Transaction
Date as if they had occurred and such proceeds had been applied on
the first day of such four-fiscal-quarter period;
(e) with respect to any such four-fiscal-quarter period commencing prior
to the Refinancing, the Refinancing shall be deemed to have taken
place on the first day of such period; and
(f) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application
of proceeds of any asset disposition) that have been made by any
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Person that has become a Subsidiary of JSC or has been merged with
or into JSCE or any Subsidiary of JSCE during the four-fiscal-
quarter period referred to above or subsequent to such period and
prior to the Transaction Date and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred
when such Person was a Subsidiary of JSCE as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such period; provided
that to the extent that clause (d) or (f) of this sentence requires
that pro forma effect be given to an Asset Acquisition or an asset
acquisition, such pro forma calculation shall be based upon the four
full fiscal quarters immediately preceding the Transaction Date of
the Person, or division or line of business of the Person, that is
acquired for which financial information is available.
"Interest Rate Agreement" is defined to mean any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect JSCE or any of its Subsidiaries against
fluctuations in interest rates or obtain the benefits of floating interest
rates to or under which JSCE or any of its Subsidiaries is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
"Investment" is defined to mean any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of any Person or its Subsidiaries)
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by
any other Person. For purposes of the definition of "Unrestricted Subsidiary"
and the "Limitation on Restricted Payments" covenant described below:
(1) "Investment" shall include the fair market value of the net assets of
any Subsidiary of JSCE at the time that such Subsidiary of JSCE is
designated an Unrestricted Subsidiary and shall exclude the fair market
value of the net assets of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary of
JSCE and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case as determined by the Board of Directors in good faith.
"JSC" is defined to mean Jefferson Smurfit Corporation, a Delaware
corporation, now known as Smurfit-Stone Container Corporation.
"JSC Parent" is defined to mean any entity of which JSC is a direct or
indirect Subsidiary.
"Junior Accrual Debentures" is defined to mean CCA's 15 1/2% Junior
Subordinated Accrual Debentures due 2004.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to JSCE or any Subsidiary of
JSCE) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of:
(1) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale;
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(2) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to
the consolidated results of operations of JSCE and its Subsidiaries,
taken as a whole;
(3) payments made to repay Indebtedness or any other obligation outstanding
at the time of such Asset Sale that either:
(a) is secured by a Lien on the property or assets sold; or
(b) is required to be paid as a result of such sale; and
(4) appropriate amounts to be provided by JSCE or any Subsidiary of JSCE as
a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as determined in conformity with GAAP.
"New Senior Notes", when used in reference to the 1993 Senior Notes, is
defined to mean the Series A Senior Notes and Series B Senior Notes and such
other debt securities that may be issued in substitution therefor (in whole or
in part) pursuant to clause (1) of the definition of "Recapitalization Plan",
in each case issued in connection with the Recapitalization Plan.
"New Subordinated Notes" is defined to mean the 11 1/2% Junior Subordinated
Notes maturing 2005, in an aggregate amount not to exceed $200 million, of CCA
which SIBV had committed to purchase (which commitment terminates on the
Closing Date without any of such notes having been issued).
"1989 Transaction" is defined to mean the transaction in which:
(1) JSC acquired the entire equity interest in Old JSC (U.S.);
(2) Old JSC (U.S.) (through its ownership of JSC Enterprises) acquired the
entire equity interest in CCA;
(3) the MSLEF I Group received $500 million in respect of its shares of CCA
common stock;
(4) SIBV received $41.75 per share, or an aggregate of approximately $1.25
billion, in respect of its shares of Old JSC (U.S.) stock; and
(5) the public stockholders received $43 per share of Old JSC (U.S.) stock.
"1993 Transaction" is defined to mean the issuance and sale of the 1993
Senior Notes, the repayment of Indebtedness with the proceeds of such sale and
the amendments (and consent payments in respect thereof) to certain debt
instruments, and the agreements related thereto, that were effected in April
1993 (also referred to as the Refinancing).
"1992 Stock Option Plan" is defined to mean the JSC 1992 Stock Option Plan,
as the same may be amended, supplemented or otherwise modified from time to
time.
"1992 Transaction" is defined to mean the purchase, in August 1992, by
certain stockholders of JSC of $232 million of Common Stock of JSC, the
contribution by JSC of such $232 million to CCA and the application by CCA of
such $232 million to repurchase Junior Accrual Debentures and repay other
subordinated Indebtedness of CCA.
"Original Stockholders" is defined to mean, collectively, MSLEF II, Morgan
Stanley Group, SIBV, JS Group and any Affiliate of any such Person.
"Permitted Liens" is defined to mean:
(1) Liens for taxes, assessments, governmental charges or claims that are
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made;
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(2) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other similar Liens arising in the
ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which
a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(4) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance
and return-of-money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of obligations
for the payment of borrowed money);
(5) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of JSCE
or any of its Subsidiaries;
(6) Liens (including extensions and renewals thereof) upon real or tangible
personal property acquired after the Closing Date; provided that:
(a) such Lien is created solely for the purpose of securing
Indebtedness Incurred:
(i) to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within six
months after the later of the acquisition, the completion of
construction or the commencement of full operation of such
property; or
(ii) to refinance any Indebtedness previously so secured;
(b) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost; and
(c) any such Lien shall not extend to or cover any property or assets
other than such item of property or assets and any improvements on
such item;
(7) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of JSCE or any of its
Subsidiaries;
(8) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of JSCE or any of its
Subsidiaries relating to such property or assets;
(9) any interest or title of a lessor in the property subject to any
Capitalized Lease or Operating Lease; provided that any sale-leaseback
transaction related thereto complies with the "Limitation on Sale-
Leaseback Transactions" covenant;
(10) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(11) Liens on property of, or on shares of stock or Indebtedness of, any
corporation existing at the time such corporation becomes, or becomes
a part of, any Restricted Subsidiary;
(12) Liens in favor of JSCE or any Restricted Subsidiary;
(13) Liens arising from the rendering of a final judgment or order against
JSCE or any Subsidiary of JSCE that does not give rise to an Event of
Default;
(14) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(15) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
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(16) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are either within the general parameters customary in
the industry and incurred in the ordinary course of business or
otherwise permitted under the terms of any Credit Agreement, in each
case securing Indebtedness under Interest Rate Agreements, Currency
Agreements and forward contracts, options, futures contracts, futures
options or similar agreements or arrangements designed to protect JSCE
or any of its Subsidiaries from fluctuations in the price of
commodities;
(17) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by JSCE or any
of its Subsidiaries in the ordinary course of business in accordance
with the past practices of JSCE and its Subsidiaries prior to the
Closing Date;
(18) Liens on or sales of receivables; and
(19) Liens securing any real property or other assets of JSCE or any
Restricted Subsidiary in favor of the United States of America or any
State thereof, or any department, agency, instrumentality or political
subdivision thereof, in connection with the financing of industrial
revenue bond facilities or any equipment or other property designed
primarily for the purpose of air or water pollution control; provided
that any such Lien on such facilities, equipment or other property
shall not apply to any other assets of JSCE or any Restricted
Subsidiary.
"Person" is defined to mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now outstanding or issued after the date of the Indenture, including,
without limitation, all series and classes of such preferred or preference
stock.
"Principal Property" is defined to mean any manufacturing or processing
plant, warehouse or other building used by JSCE or any Restricted Subsidiary,
other than a plant, warehouse or other building that, in the good faith opinion
of the Board of Directors of JSCE as reflected in a Board Resolution, is not of
material importance to the business conducted by JSCE and its Restricted
Subsidiaries taken as a whole as of the date such Board Resolution is adopted.
"Recapitalization Closing Date" is defined to mean the date on which the
transactions described in clauses (1) through (4) of the definition of
"Recapitalization Plan" are consummated; provided that if such transactions do
not occur on the same date, "Recapitalization Closing Date" shall be defined to
mean the date designated as such by the Company.
"Recapitalization Plan" is defined to mean, collectively, the following
transactions:
(1) the sale of the Series A and Series B Senior Notes;
(2) the sale by JSC of JSC Common Stock substantially concurrently with the
transaction described in clause (1);
(3) the SIBV Investment substantially concurrently with the transaction
described in clause (1);
(4) the execution and delivery of the 1994 Credit Agreement;
(5) the application of the proceeds of the transactions described in
clauses (1) through (4);
(6) the Existing Subordinated Debt Refinancing;
(7) the obtaining of all consents and waivers necessary or determined by
CCA, Old JSC (U.S.) or JSC to be appropriate in connection with the
foregoing;
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(8) all other transactions related to, or entered into in connection with,
the foregoing unless CCA determines that any such transaction should
not be considered part of the Recapitalization Plan; and
(9) the payment and accrual of all fees and expenses related to the
foregoing.
"Receivables Programs" is defined to mean, with respect to any Person,
obligations of such Person or its Subsidiaries pursuant to accounts receivable
securitization programs, to the extent that the proceeds received pursuant to
a pledge, sale or other encumbrance of accounts receivable pursuant to such
programs do not exceed 91% of the total book value of such accounts receivable
(determined on a consolidated basis in accordance with GAAP as of the end of
the most recent fiscal quarter for which financial information is available),
and any extension, renewal, modification or replacement of such programs,
including, without limitation, any agreement increasing the amount of,
extending the maturity of, refinancing or otherwise restructuring all or any
portion of the obligations under such programs or any successor agreement or
agreements.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the notes;
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the notes; or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity
prior to the Stated Maturity of the notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated
Maturity of the notes shall not constitute Redeemable Stock if the
"asset sale" or "change of control" provisions applicable to such
Capital Stock are no more favorable (except with respect to any premium
payable) to the holders of such Capital Stock than the provisions
contained in "Limitation on Asset Sales" and "Repurchase of Notes upon
Change of Control" covenants described below and such Capital Stock
specifically provides that such Person will not repurchase or redeem
any such stock pursuant to such provisions prior to such Person's
repurchase of such notes, as are required to be repurchased pursuant to
the "Limitation on Asset Sales" and "Repurchase of Notes upon Change of
Control" covenants described below.
"Refinancing" is defined to mean the issuance and sale of the 1993 Senior
Notes, the repayment of Indebtedness under the credit agreements in effect in
1993 with the proceeds of such sale and the amendments (and consent payments
in respect thereof) to the credit agreements in effect in 1993 and the Secured
Notes, and the agreements related thereto, that were effected prior to, or at
approximately the same time as, the issuance and sale of the 1993 Senior
Notes.
"Restricted Subsidiary" is defined to mean any Subsidiary of JSCE other
than an Unrestricted Subsidiary.
"Secured Notes" is defined to mean CCA's Senior Secured Floating Rate
Senior Notes due 1998 and the note purchase agreement relating thereto, as the
foregoing may be amended from time to time.
"Senior Subordinated Notes" is defined to mean CCA's 13 1/2% Senior
Subordinated Notes due 1999.
"SIBV Investment" is defined to mean the purchase by SIBV (or a corporate
affiliate thereof) of shares of JSC Common Stock, substantially concurrently
with the sale by CCA of the Series A and Series B Senior Notes.
"Significant Subsidiary" is defined to mean, at any date of determination,
any Subsidiary of JSCE that, together with its Subsidiaries:
(1) for the most recent fiscal year of JSCE, accounted for more than 10% of
the consolidated revenues of JSCE; or
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(2) as of the end of such fiscal year, was the owner of more than 10% of
the consolidated assets of JSCE, all as set forth on the most recently
available consolidated financial statements of JSCE for such fiscal
year.
"Smurfit Newsprint" is defined to mean Smurfit Newsprint Corporation, a
Delaware corporation.
"Stated Maturity" is defined to mean:
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal
of such debt security is due and payable; and
(2) with respect to any scheduled installment of principal of or interest
on any debt security, the date specified in such debt security as the
fixed date on which such installment is due and payable.
"Subordinated Debentures" is defined to mean CCA's 14% Subordinated
Debentures due 2001.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by JSCE or by one or
more other Subsidiaries of JSCE, or by such Person and one or more other
Subsidiaries of such Person; provided that, except as the term "Subsidiary" is
used in the definition of "Unrestricted Subsidiary" set forth below, an
Unrestricted Subsidiary shall not be deemed to be a Subsidiary of JSCE for
purposes of the Indenture.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" is defined to mean, with respect to the Incurrence of any
Indebtedness by JSCE or any of its Subsidiaries, the date such Indebtedness is
to be Incurred and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean:
(1) any Subsidiary of JSCE that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors of JSCE
in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
JSCE may designate any Subsidiary of JSCE (including any newly acquired
or newly formed Subsidiary of JSCE) other than CCA to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock
of, or owns or holds any Lien on any property of, JSCE or any other
Subsidiary of JSCE that is not a Subsidiary of the Subsidiary to be so
designated; provided that either:
(a) the Subsidiary to be so designated has total assets of $1,000 or
less; or
(b) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under the "Limitation on Restricted
Payments" covenant described below. The Board of Directors of JSCE
may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of JSCE; provided that immediately after giving effect
to such designation (x) JSCE could Incur $1.00 of additional
Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described below and (y) no Default or Event
of Default shall have occurred and be continuing. Any such
designation by the Board of Directors of JSCE shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the
foregoing provisions. Any Subsidiary of JSCE may be designated as
an Unrestricted Subsidiary (or not so designated) for purposes of
the Indenture without regard to whether such Subsidiary is so
designated (or not so designated) for purposes of any other
agreement relating to Indebtedness of JSCE or any of its
Subsidiaries.
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"Voting Stock" is defined to mean Capital Stock of any class or kind
ordinarily having the power to vote for the election of directors.
"Wholly Owned Subsidiary" is defined to mean, with respect to any Person,
any Subsidiary of such Person if all of the Common Stock or other similar
equity ownership interests (but not including Preferred Stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly
by such Person.
Covenants
Limitation On Indebtedness
Under the terms of the Indentures, JSCE shall not, and shall not permit any
Restricted Subsidiary to, Incur any Indebtedness unless, after giving effect to
the Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, the Interest Coverage Ratio of JSCE would be greater than
2.00:1.
Notwithstanding the foregoing, JSCE and any Restricted Subsidiary (except as
expressly provided below) may Incur each and all of the following:
(1) Indebtedness:
(a) of JSCE and CCA outstanding at any time in an aggregate principal
amount not to exceed the amount of outstanding Indebtedness and
unused commitments under the 1994 Credit Agreement on the Closing
Date less any Indebtedness Incurred pursuant to clause (3) below to
refinance or refund the Junior Accrual Debentures, the Senior
Subordinated Notes or the Subordinated Debentures (or, in the case
of the 1993 Senior Note Indenture, Indebtedness of JSCE and CCA
outstanding at any time in an aggregate principal amount not to
exceed the sum of (x) the amount of outstanding Indebtedness and
unused commitments under the 1994 Credit Agreement on the
Recapitalization Closing Date less any Indebtedness Incurred
pursuant to clause (3) below to refinance or refund the Junior
Accrual Debentures, the Senior Subordinated Notes or the
Subordinated Debentures and (y) the Indebtedness represented by the
New Senior Notes);
(b) of JSCE and CCA outstanding at any time in an aggregate principal
amount not to exceed $275 million;
(c) of JSC Enterprises, CCA Enterprises and Smurfit Newsprint under any
Credit Agreement outstanding at any time in an aggregate principal
amount not to exceed the amount of outstanding Indebtedness and
unused commitments under the 1994 Credit Agreement on the Closing
Date less, for purposes of determining cash borrowings under any
Credit Agreement by JSC Enterprises, CCA Enterprises and Smurfit
Newsprint:
(i) any Indebtedness Incurred pursuant to clause (3) below to
refinance or refund the Junior Accrual Debentures, the Senior
Subordinated Notes or the Subordinated Debentures; and
(ii) the amount of Indebtedness Incurred under clause (1)(a) of this
paragraph (or, in the case of the 1993 Senior Note Indenture,
of JSC Enterprises, CCA Enterprises and Smurfit Newsprint under
any Credit Agreement);
(d) of Restricted Subsidiaries of JSCE (other than CCA) in an aggregate
principal amount not to exceed $50 million at any one time
outstanding; and
(e) consisting of Guarantees by Restricted Subsidiaries of JSCE (other
than CCA) of Indebtedness of JSCE and its Restricted Subsidiaries
under any Credit Agreement or any other Indebtedness of such
Persons for borrowed money; provided that any such Restricted
Subsidiary that Guarantees such Indebtedness under any Credit
Agreement or any such other Indebtedness for borrowed money shall
fully and unconditionally Guarantee the notes on a senior basis (to
the
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same extent and for only so long as such Indebtedness under any
Credit Agreement or such other Indebtedness for borrowed money is
Guaranteed by such Restricted Subsidiary); provided further that (x)
any such Guarantees of Indebtedness subordinated to the notes will
be subordinated to such Subsidiary's Guarantee of the notes, if any,
in a like manner and (y) for purposes of this covenant, a Guarantee
by a Restricted Subsidiary shall not be deemed to exist, and
Indebtedness shall not be deemed to have been Incurred by a
Restricted Subsidiary, solely by reason of one or more security
interests in assets of such Restricted Subsidiary having been
granted pursuant to any Credit Agreement (or, in the case of the
1993 Senior Note Indenture, having been granted to any Person);
(2) Indebtedness:
(a) of JSCE to any of its Restricted Subsidiaries that is a Wholly
Owned Subsidiary of JSCE, or of a Restricted Subsidiary to JSCE or
to any other Restricted Subsidiary that is a Wholly Owned
Subsidiary of JSCE;
(b) of JSCE or any Restricted Subsidiary to Smurfit Newsprint; or
(c) of JSCE or any Restricted Subsidiary to any Foreign Subsidiary in
an aggregate principal amount not to exceed $20 million at any one
time outstanding;
(3) Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, outstanding Indebtedness of JSCE or any of
its Restricted Subsidiaries, other than Indebtedness Incurred under
clauses (1)(a), (b) or (d), (2)(c), (4) or (9) of this paragraph and
any refinancings thereof, in an amount (or, if such new Indebtedness
provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration thereof, with an
original issue price) not to exceed the amount so exchanged, refinanced
or refunded (plus premiums, accrued interest, fees and expenses);
provided that Indebtedness issued in exchange for, or the proceeds of
which are used to refinance or refund, the notes or JSCE's Guarantee
thereof or other Indebtedness of CCA or JSCE that is pari passu with,
or subordinated in right of payment to, the notes or JSCE's Guarantee
thereof, as the case may be (other than the Junior Accrual Debentures,
Senior Subordinated Notes and the Subordinated Debentures), shall only
be permitted under this clause (3) if:
(a) in case the Indebtedness to be refinanced is subordinated in right
of payment to the notes or JSCE's Guarantee thereof, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or
remains outstanding, is expressly made subordinate in right of
payment to the notes or JSCE's Guarantee thereof, as the case may
be, at least to the extent that the Indebtedness to be refinanced
is subordinated to the notes or JSCE's Guarantee thereof, as the
case may be;
(b) in case the notes are refinanced in part or the Indebtedness to be
refinanced is pari passu with, or subordinated in right of payment
to, the notes or JSCE's Guarantee thereof, such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness,
does not mature prior to six months after the Stated Maturity of
the Indebtedness to be refinanced (or, if earlier, six months after
the Stated Maturity of the notes) and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced plus six months (or, if less, the
remaining Average Life of the notes plus six months); and
(c) if the Indebtedness to be refinanced is Indebtedness of JSCE or
CCA, such new Indebtedness Incurred pursuant to this clause (3) may
not be Indebtedness of any Restricted Subsidiary of JSCE other than
CCA;
(4) Indebtedness:
(a) in respect of performance, surety or appeal bonds provided in the
ordinary course of business;
(b) under Currency Agreements and Interest Rate Agreements; provided
that, in the case of Currency Agreements that relate to other
Indebtedness, such Currency Agreements do not
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increase the Indebtedness of JSCE or its Restricted Subsidiaries
outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder; and
(c) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters
of credit, surety bonds or performance bonds securing any
obligations of JSC or any Restricted Subsidiary of JSCE pursuant to
such agreements, in any case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of
JSCE, other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary of JSCE for the purpose of financing such acquisition;
(5) Indebtedness in respect of letters of credit and bankers' acceptances
Incurred in the ordinary course of business consistent with past
practice;
(6) Indebtedness of JSCE or CCA in an aggregate amount not to exceed $100
million at any one time outstanding; provided that such Indebtedness,
by its terms or by the terms of any agreement or instrument pursuant to
which such Indebtedness is issued or remains outstanding;
(a) is expressly made subordinate in right of payment to the notes or
JSCE's Guarantee thereof, as the case may be;
(b) provides that no required payments of principal of such Indebtedness
by way of sinking fund, mandatory redemption or otherwise shall be
made by JSCE or CCA (including, without limitation, at the option of
the holder thereof other than an option given to a holder pursuant
to an "asset sale" or "change of control" provision that is no more
favorable (except with respect to any premium payable) to the
holders of such Indebtedness than the provisions contained in the
"Limitation on Asset Sales" and "Repurchase of Notes upon Change of
Control" covenants and such Indebtedness specifically provides that
JSCE and CCA will not repurchase or redeem such Indebtedness
pursuant to such provisions prior to CCA's repurchase of the notes
required to be repurchased by CCA under the "Limitation on Asset
Sales" and "Repurchase of Notes upon Change of Control" covenants)
at any time prior to the Stated Maturity of the notes; and
(c) after giving effect to the Incurrence of such Indebtedness and the
application of the proceeds therefrom, JSCE's Interest Coverage
Ratio would be at least 1.25:1;
(7) Indebtedness of CCA or JSCE Incurred on or before December 1, 1994, the
proceeds of which are used to pay cash interest on the Junior Accrual
Debentures;
(8) Acquired Indebtedness, provided that, at the time of the Incurrence
thereof, JSCE could Incur at least $1.00 of Indebtedness under the
first paragraph of this "Limitation on Indebtedness" covenant, and
refinancings thereof; provided that such refinancing Indebtedness may
not be Incurred by any Person other than JSCE, CCA or the Restricted
Subsidiary that is the obligor on such Acquired Indebtedness;
(9) Indebtedness of JSCE or CCA Incurred to finance, directly or
indirectly, capital expenditures of JSCE and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $75 million
in each fiscal year of JSCE, and any refinancing of such Indebtedness
(including pursuant to any Capitalized Lease); provided that the amount
of Indebtedness which may be Incurred in any fiscal year of JSCE
pursuant to this clause (9) shall be increased by the amount of
Indebtedness (other than refinancing Indebtedness) which could have
been Incurred in the prior fiscal year (including by reason of this
proviso) of JSCE pursuant to this clause (9) but which was not so
Incurred; and
(10) Indebtedness represented by the obligations of JSCE or CCA to
repurchase shares, or cancel or repurchase options to purchase shares,
of JSC's, a JSC Parent's, JSCE's or CCA's Common Stock held by
employees of JSC, JSCE or any of its Restricted Subsidiaries (or, in
the case of the 1993 Senior Note Indenture, employees of JSCE and its
Restricted Subsidiaries) as set forth in the agreements under which
such employees purchase or hold shares of JSC's, a JSC Parent's,
JSCE's or
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CCA's Common Stock, as such agreements may be amended; provided that
such Indebtedness is subordinated to the notes and JSCE's Guarantee
thereof, as the case may be, and that no payment of principal of such
Indebtedness may be made while any notes are outstanding.
In the case of the Series A Senior Note Indenture and the Series B Senior
Note Indenture, notwithstanding any other provision of this "Limitation on
Indebtedness" covenant:
(1) the maximum amount of Indebtedness that JSCE or any Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded due solely to fluctuations
in the exchange rates of currencies;
(2) Indebtedness Incurred pursuant to the 1994 Credit Agreement on the
Closing Date (and after repaying the Indebtedness to be repaid pursuant
to the Recapitalization Plan (other than the Existing Subordinated Debt
Refinancing) and without giving effect to any exercise of any
overallotment option granted in connection with sales of JSC Common
Stock pursuant to clause (2) of the definition of "Recapitalization
Plan" and the application of any proceeds thereof), shall be treated as
Incurred immediately after the Closing Date pursuant to clause (1)(a)
or (1)(c), as the case may be, of the second paragraph of this
"Limitation on Indebtedness" covenant;
(3) for purposes of calculating the amount of Indebtedness outstanding at
any time under clause (1) of the second paragraph of this "Limitation
on Indebtedness" covenant, no amount of Indebtedness of JSCE or any
Restricted Subsidiary outstanding on the Closing Date, including the
notes, shall be considered to be outstanding; and
(4) neither JSCE nor CCA may Incur any Indebtedness that is expressly
subordinated to any other Indebtedness of JSCE or CCA, as the case may
be, unless such Indebtedness, by its terms or the terms of any
agreement or instrument pursuant to which such Indebtedness is issued,
is also expressly made subordinate to the notes or JSCE's Guarantee of
the notes, as the case may be, at least to the extent that such
Indebtedness is subordinated to such other Indebtedness; provided that
the limitation in clause (4) above shall not apply to distinctions
between categories of unsubordinated Indebtedness which exist by reason
of:
(a) any liens or other encumbrances arising or created in respect of
some but not all unsubordinated Indebtedness;
(b) intercreditor agreements between holders of different classes of
unsubordinated Indebtedness; or
(c) different maturities or prepayment provisions.
In the case of the 1993 Senior Note Indenture, notwithstanding any other
provision of this "Limitation on Indebtedness" convenant,
(1) the maximum amount of Indebtedness that JSCE or any Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
convenant shall not be deemed to be exceeded due solely to fluctuations
in the exchange rates of currencies;
(2) Indebtedness Incurred pursuant to the 1994 Credit Agreement, or
represented by the New Senior Notes, on the Recapitalization Closing
Date (and after repaying the Indebtedness to be repaid pursuant to the
Recapitalization Plan (other than the Existing Subordinated Debt
Refinancing) and without giving effect to any exercise of any
overallotment option granted in connection with sales of Common Stock
of JSC pursuant to clause (2) of the definition of "Recapitalization
Plan" and the application of any proceeds thereof) shall be treated as
Incurred immediately after the Recapitalization Closing Date pursuant
to clause (1)(a) of the second paragraph of this "Limitation on
Indebtedness" covenant;
(3) for purposes of calculating the amount of Indebtedness outstanding at
any time under clauses (1)(b) and (1)(d) of the second paragraph of
this "Limitation on Indebtedness" covenant, no amount of
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Indebtedness of JSCE or any Restricted Subsidiary outstanding on the
Closing Date shall be considered to be outstanding and neither JSCE nor
CCA may Incur any Indebtedness that is expressly subordinated to any
other Indebtedness of JSCE or CCA, as the case may be, unless such
Indebtedness, by its terms or the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is also expressly made
subordinate to JSCE's Guarantee of the 1993 Senior Notes or the New
Senior Notes, as the case may be, at least to the extent that such
Indebtedness is subordinated to such other Indebtedness; provided that
the limitation in clause (4) above shall not apply to distinctions
between categories of unsubordinated Indebtedness which exist by reason
of:
(a) any liens or other encumbrances arising or created in respect of
some but not all unsubordinated Indebtedness;
(b) intercreditor agreements between holders of different classes of
unsubordinated Indebtedness; or
(c) different maturities or prepayment provisions.
For purposes of determining any particular amount of Indebtedness under this
"Limitation on Indebtedness" covenant:
(1) Indebtedness resulting from security interests granted with respect to
Indebtedness of JSCE or any Restricted Subsidiary otherwise included in
the determination of such particular amount, and Guarantees (and
security interests in respect thereof) of, or obligations with respect
to letters of credit supporting, Indebtedness otherwise included in the
determination of such particular amount shall not be included;
(2) any Liens granted pursuant to the equal and ratable provisions referred
to in the first paragraph of clause (1) of the second paragraph of the
"Limitation on Liens" covenant shall not be treated as Indebtedness;
and
(3) Indebtedness permitted under this "Limitation of Indebtedness" covenant
need not be permitted solely by reference to one provision permitting
such Indebtedness but may be permitted in part by reference to one such
provision and in part by reference to one or more other provisions of
this covenant permitting such Indebtedness. For purposes of determining
compliance with this "Limitation on Indebtedness" covenant, (x) in the
event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described in the above clauses, JSCE, in
its sole discretion, shall classify such item of Indebtedness and only
be required to include the amount and type of such Indebtedness in one
of such clauses and (y) the amount of Indebtedness issued at a price
that is less than the principal amount thereof shall be equal to the
amount of the liability in respect thereof determined in conformity
with GAAP. (Section 3.03)
Limitation On Restricted Payments
So long as any of the notes are outstanding, JSCE will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on its Capital
Stock (other than dividends or distributions payable solely in shares
of its or such Restricted Subsidiary's Capital Stock (other than
Redeemable Stock) of the same class held by such holders or in options,
warrants or other rights to acquire such shares of Capital Stock) held
by Persons other than JSCE or any Restricted Subsidiary that is a
Wholly Owned Subsidiary of JSCE;
(2) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of JSC, a JSC Parent, JSCE or CCA (including options,
warrants or other rights to acquire such shares of Capital Stock) held
by Persons other than JSCE or any Restricted Subsidiary that is a
Wholly Owned Subsidiary of JSCE;
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(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other voluntary
acquisition or retirement for value of:
(a) Indebtedness of JSC or a JSC Parent;
(b) Indebtedness of CCA that is subordinated in right of payment to the
notes (other than the Senior Subordinated Notes, the Subordinated
Debentures and the Junior Accrual Debentures); or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the notes (other than the Guarantees of JSCE
with respect to the Senior Subordinated Notes, the Subordinated
Debentures and the Junior Accrual Debentures); or
(4) make any Investment in any Unrestricted Subsidiary (such payments or
any other actions described in clauses (1) through (4) being
collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment:
(a) a Default or Event of Default shall have occurred and be
continuing;
(b) JSCE could not Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; or
(c) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good
faith by the Board of Directors of JSCE, whose determination shall
be conclusive and evidenced by a Board Resolution) after the date
of the Indenture shall exceed the sum of:
(i) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss,
minus 100% of such amount) of JSCE (determined by excluding
income resulting from the transfers of assets received by JSCE
or a Restricted Subsidiary from an Unrestricted Subsidiary)
accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the month
immediately following the Closing Date and ending on the last
day of the last fiscal quarter preceding the Transaction Date;
plus
(ii) the aggregate net proceeds (including the fair market value of
noncash proceeds as determined in good faith by the Board of
Directors of JSCE) received by JSCE or CCA from the issuance
and sale permitted by the Indenture of the Capital Stock of
JSCE or CCA (other than Redeemable Stock) to a Person who is
not a Restricted Subsidiary of JSCE or an Unrestricted
Subsidiary of JSCE, including an issuance or sale permitted by
the Indenture for cash or other property upon the conversion of
any Indebtedness of JSCE or CCA subsequent to the Closing Date,
or from the issuance of any options, warrants or other rights
to acquire Capital Stock of JSCE or CCA (in each case,
exclusive of any Redeemable Stock or any options, warrants or
other rights that are redeemable at the option of the holder,
or are required to be redeemed, prior to the Stated Maturity of
the notes) plus all amounts contributed to the capital of JSCE
by JSC; plus
(iii) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries (other than such Investments made
pursuant to clause (5) of the second paragraph of this
"Limitation on Restricted Payments" covenant) resulting from
payments of interest on Indebtedness, dividends, repayments
of loans or advances, or other transfers of assets, in each
case to JSCE or any Restricted Subsidiary from Unrestricted
Subsidiaries, or from redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investments"), not to
exceed in the case of any Unrestricted Subsidiary the amount
of Investments previously made by JSCE or any Restricted
Subsidiary in such Unrestricted Subsidiary; plus
(iv) $25 million.
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The foregoing provision shall not take into account, and shall not be
violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of:
(a) Indebtedness of JSC or a JSC Parent;
(b) Indebtedness of CCA that is subordinated in right of payment to the
notes; or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the notes, including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange
for, Indebtedness Incurred under clause (3) or (4) of the second
paragraph of the "Limitation on Indebtedness" covenant;
(3) the payment of dividends on the Capital Stock of JSCE or CCA, following
any initial public offering of Capital Stock of JSC provided for in the
Recapitalization Plan, of up to 6% per annum of the net proceeds
received by JSCE or CCA, as the case may be, from JSC out of the
proceeds of:
(a) such public offering; and
(b) the SIBV Investment (and, in the case of the 1993 Senior Note
Indenture, any other sale of Capital Stock of JSC, JSCE or CCA
which is substantially concurrent with the public offering referred
to in (a)) (net of underwriting discounts and commissions, if any,
but without deducting other fees or expenses therefrom);
(4) the repurchase, redemption or other acquisition of Capital Stock of
JSC, a JSC Parent, JSCE or CCA in exchange for, or out of the proceeds
of a substantially concurrent offering of, shares of Capital Stock
(other than Redeemable Stock) of JSC, a JSC Parent, JSCE or CCA;
(5) the making of Investments in Unrestricted Subsidiaries in an aggregate
amount not to exceed $25 million in each fiscal year of JSCE;
(6) the acquisition of:
(a) Indebtedness of JSC or a JSC Parent;
(b) Indebtedness of CCA which is subordinated in right of payment to
the notes; or
(c) Indebtedness of JSCE that is subordinated in right of payment to
JSCE's Guarantee of the notes in exchange for, or out of the
proceeds of, a substantially concurrent offering of, shares of the
Capital Stock of JSC, a JSC Parent, JSCE or CCA (other than
Redeemable Stock);
(7) payments or distributions pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of
JSCE or CCA;
(8) payments to JSC:
(a) in an aggregate amount not to exceed $2 million per annum to cover
the reasonable expenses of JSC incurred in the ordinary course of
business; and
(b) in an amount not to exceed the amount believed in good faith by the
Board of Directors of JSCE or CCA, as the case may be, to be
necessary or advisable for the payment of any liability of JSC,
JSCE and CCA in connection with federal, state, local or foreign
taxes;
(9) payments to JSC or any Restricted Subsidiary of JSCE in respect of
Indebtedness of JSCE or any Restricted Subsidiary of JSCE owed to JSCE
or another Restricted Subsidiary of JSCE;
(10) payments to Persons who are no longer Employees (as defined in the
1992 Stock Option Plan) or the beneficiaries or estates of such
Persons, as a result of the purchase by JSC of options issued pursuant
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to the 1992 Stock Option Plan (or Common Stock issued upon the exercise
of such options) held by such Persons in accordance with the 1992 Stock
Option Plan; provided that such payments do not exceed $4 million in any
fiscal year; or payments or distributions to JSC to enable JSC to make
any such payments; or
(11) the payment of pro rata dividends to holders of Capital Stock of
Smurfit Newsprint; provided that, in the case of clauses (2) through
(7), (11) and (12), no Default or Event of Default shall have occurred
and be continuing or occur as a consequence of the actions or payments
set forth therein. In connection with any purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value of
any security which is not Capital Stock but which is convertible into
or exchangeable for Capital Stock (including options, warrants or
other rights to purchase Capital Stock), such purchase, repurchase,
redemption, defeasance or other acquisition or retirement shall be
deemed covered by clause (3) and not by clause (2) of the first
paragraph of this "Limitation on Restricted Payments" covenant if the
Board of Directors of JSCE makes a good faith determination that the
value of the underlying Capital Stock, less any consideration payable
by the holder of such security in connection with such conversion or
exchange, is less than the value of the referenced security.
Notwithstanding the foregoing, any amounts paid pursuant to clause (3)
of this second paragraph of this "Limitation on Restricted Payments"
covenant shall reduce the amount available for Restricted Payments
under clause (4)(c) of the first paragraph of this "Limitation on
Restricted Payments" covenant.
Notwithstanding the foregoing, in the event of an issuance of Capital Stock
of CCA or JSCE (or JSC or a JSC Parent to the extent that the proceeds
therefrom are contributed to CCA) and:
(1) the repurchase, redemption or other acquisition of Capital Stock out of
the proceeds of such issuance as permitted by clause (4) above; or
(2) the acquisition of Indebtedness that is subordinated in right of
payment to the notes, as permitted by clause (6) above, then, in
calculating whether the conditions of clause (c) of the first paragraph
of this "Limitation on Restricted Payments" covenant have been met with
respect to any subsequent Restricted Payments, both the proceeds of
such issuance and the application of such proceeds shall be included
under clause (c) of the first paragraph of this "Limitation on
Restricted Payments" covenant. (Section 3.04)
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the notes are outstanding, JSCE will not, and will not
permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary (other than CCA) to:
(1) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by JSCE or
any other Restricted Subsidiary;
(2) pay any Indebtedness owed to JSCE or any other Restricted Subsidiary;
(3) make loans or advances to JSCE or any other Restricted Subsidiary; or
(4) transfer, subject to certain exceptions, any of its property or assets
to JSCE or any other Restricted Subsidiary.
The foregoing provision shall not restrict or prohibit any encumbrances or
restrictions:
(1) existing in any Credit Agreement;
(2) existing under the notes, the Senior Subordinated Notes, the
Subordinated Debentures, the Junior Accrual Debentures, any indenture
or agreement related to any of the foregoing or any agreements in
effect on the Closing Date or in any Indebtedness containing any such
encumbrance or restriction that is permitted pursuant to clause (5)
below or in any extensions, refinancings, renewals or replacements
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of any of the foregoing; provided that the encumbrances and restrictions
in any such extensions, refinancings, renewals or replacements are not
materially less favorable taken as a whole to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced;
(3) existing under any Receivables Program or any other agreement providing
for the Incurrence of Indebtedness (or any exhibit, appendix or
schedule to such agreement or other agreement executed as a condition
to the execution of, funding under or pursuant to such agreement);
provided that the encumbrances and restrictions in any such agreement
are not materially less favorable taken as a whole to the Holders than
those encumbrances and restrictions contained in any Credit Agreement
as of the Closing Date (or the Recapitalization Closing Date);
(4) existing under or by reason of applicable law;
(5) existing with respect to any Person or the property or assets of such
Person acquired by JSCE or any Restricted Subsidiary and existing at
the time of such acquisition, which encumbrances or restrictions are
not applicable to any Person or the property or assets of any Person
other than such Person or the property or assets of such Person so
acquired;
(6) in the case of clause (4) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant:
(a) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset;
(b) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets
of JSCE or any Restricted Subsidiary not otherwise prohibited by
the Indenture; or
(c) arising or agreed to in the ordinary course of business and that do
not, individually or in the aggregate, detract from the value of
property or assets of JSCE or any Restricted Subsidiary in any
manner material to JSCE and its Restricted Subsidiaries taken as a
whole; or
(7) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets
of, such Restricted Subsidiary. Nothing contained in this "Limitation
on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent JSCE or any Restricted Subsidiary
from:
(a) entering into any agreement permitting or providing for the
incurrence of Liens otherwise permitted in the "Limitation on
Liens" covenant; or
(b) restricting the sale or other disposition of property or assets of
JSCE or any of its Subsidiaries that secure Indebtedness of JSCE or
any of its Subsidiaries. (Section 3.05)
Limitation On the Issuance of Capital Stock of JSCE and Restricted Subsidiaries
Under the terms of the Indentures, JSCE will not and will not permit any
Restricted Subsidiary (other than CCA), directly or indirectly, to issue or
sell any shares of its Capital Stock (including options, warrants or other
rights to purchase shares of such Capital Stock) except:
(1) to JSCE or another Restricted Subsidiary that is a Wholly Owned
Subsidiary of JSCE;
(2) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary for purposes of the Indenture;
(3) if the Net Cash Proceeds from such issuance or sale are applied, to the
extent required to be applied, pursuant to the "Limitation on Asset
Sales" covenant or if such issuance or sale does not constitute an
"Asset Sale;"
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(4) issuances or sales to foreign nationals of shares of the Capital Stock
of Foreign Subsidiaries, to the extent mandated by applicable foreign
law; or
(5) issuances or sales of Capital Stock by JSCE to JSC. (Section 3.06)
Limitation On Transactions With Shareholders and Affiliates
Under the terms of the Indentures, JSCE will not, and will not permit any
Restricted Subsidiary of JSCE to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale,
lease or exchange of property or assets, or the rendering of any service) with
any holder (or any Affiliate of such holder) of 5% or more of any class of
Capital Stock of JSC or with any Affiliate of JSCE, except upon fair and
reasonable terms no less favorable to JSCE or such Restricted Subsidiary of
JSCE than could be obtained, at the time of such transaction or at the time of
the execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions:
(a) approved by a majority of the disinterested members of the Board of
Directors; or
(b) for which JSCE or a Restricted Subsidiary delivers to the Trustee a
written opinion of a nationally recognized investment banking firm
or a nationally recognized accounting firm stating that the
transaction is fair or, in the case of an opinion of a nationally
recognized accounting firm, reasonable or fair to JSCE or such
Restricted Subsidiary from a financial point of view;
(2) any transaction among JSCE and any Restricted Subsidiaries or among
Restricted Subsidiaries;
(3) the payment of reasonable and customary regular fees to directors of
JSCE or any Restricted Subsidiary who are not employees of JSCE or any
Restricted Subsidiary;
(4) any payments or other transactions pursuant to any tax-sharing
agreement between JSCE, CCA and JSC or any other Person with which JSCE
is required or permitted to file a consolidated tax return or with
which JSCE is or could be part of a consolidated group for tax
purposes;
(5) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant;
(6) the provision of management, financial and operational services by JSCE
and its Subsidiaries to Affiliates of JSCE in which JSCE or its
Subsidiaries have Investments and the payment of compensation for such
services; provided, that the Board of Directors of JSCE has determined
that the provision of such services is in the best interests of JSCE
and its Subsidiaries; or
(7) any transaction contemplated by the terms of the Recapitalization Plan.
(Section 3.07)
Limitation On Liens
Under the terms of the Indentures, JSCE will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on
any Principal Property, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the notes
and all other amounts due under the Indenture to be directly secured equally
and ratably with (or prior to) the obligation or liability secured by such Lien
for so long as such Lien affects such Principal Property, shares of Capital
Stock or Indebtedness unless, after giving effect thereto, the aggregate amount
of any Indebtedness so secured, plus, the Attributable Indebtedness for all
sale-leaseback transactions restricted as described in the "Limitation on Sale-
Leaseback Transactions" covenant, does not exceed 10% of Adjusted Consolidated
Net Tangible Assets.
The foregoing limitation does not apply to, and any computation of secured
Indebtedness under such limitation shall exclude:
(1) Liens securing obligations under:
(a) any Credit Agreement; and
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(b) any Receivables Programs (and, in the case of the 1993 Senior Note
Indenture, the Secured Notes for so long as they remain
outstanding);
(2) other Liens existing on the Closing Date;
(3) Liens securing Indebtedness of Restricted Subsidiaries (other than
Acquired Indebtedness and refinancings thereof);
(4) Liens securing Indebtedness Incurred under clause (4) or (5) of the
second paragraph of the "Limitation on Indebtedness" covenant;
(5) Liens granted in connection with the extension, renewal or refinancing,
in whole or in part, of any Indebtedness described in clauses (1)
through (4) above; provided that with respect to clauses (2) and (3)
the amount of Indebtedness secured by such Lien is not increased
thereby; and provided further that the extension, renewal or
refinancing of Indebtedness of JSCE may not be secured by Liens on
assets of any Restricted Subsidiary (other than CCA) other than to the
extent the Indebtedness being extended, renewed or refinanced was at
any time previously secured by Liens on assets of such Restricted
Subsidiary;
(6) Liens with respect to Acquired Indebtedness permitted under clause (7)
of the second paragraph of the "Limitation on Indebtedness" covenant
and permitted refinancings thereof; provided that such Liens do not
extend to or cover any property or assets of JSCE or any Subsidiary of
JSCE other than the property or assets of the Subsidiary acquired;
(7) Liens securing the Senior Subordinated Notes, the Subordinated
Debentures, the Junior Accrual Debentures or the other notes, in each
case to the extent required to be incurred pursuant to the terms of the
indentures governing such Indebtedness; or
(8) Permitted Liens. (Section 3.08)
Limitation On Sale-Leaseback Transactions
Under the terms of the Indentures, JSCE will not, and will not permit any
Restricted Subsidiary to, enter into any sale-leaseback transaction involving
any Principal Property, unless the aggregate amount of all Attributable
Indebtedness with respect to such transactions, plus all Indebtedness secured
by Liens on Principal Properties (excluding secured Indebtedness that is
excluded as described in the "Limitation on Liens" covenant), does not exceed
10% of Adjusted Consolidated Net Tangible Assets.
The foregoing restriction does not apply to, and any computation of
Attributable Indebtedness under such limitation shall exclude, any sale-
leaseback transaction if:
(1) the lease is for a period, including renewal rights, of not in excess
of three years;
(2) the sale or transfer of the Principal Property is entered into prior
to, at the time of, or within 12 months after the later of the
acquisition of the Principal Property or the completion of construction
thereof;
(3) the lease secures or relates to industrial revenue or pollution control
bonds;
(4) the transaction is between JSCE and any Restricted Subsidiary or
between Restricted Subsidiaries; or
(5) JSCE or such Restricted Subsidiary, within 12 months after the sale of
any Principal Property is completed, applies an amount not less than
the net proceeds received from such sale to the retirement of
unsubordinated Indebtedness, to Indebtedness of a Restricted Subsidiary
(other than CCA) or to the purchase of other property that will
constitute Principal Property or improvements thereto. (Section 3.09)
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Limitation On Asset Sales
Under the terms of the Indentures, in the event and to the extent that the
Net Cash Proceeds received by JSC, JSCE or any of its Restricted Subsidiaries
from one or more Asset Sales occurring on or after the Closing Date in any
period of 12 consecutive months (other than Asset Sales by JSC, JSCE or any
Restricted Subsidiary to JSCE or another Restricted Subsidiary) exceed 10% of
Adjusted Consolidated Net Tangible Assets in any one fiscal year (determined as
of the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of JSCE has been prepared), then JSCE shall or shall
cause the relevant Restricted Subsidiary to:
(1) within 12 months (or, in the case of Asset Sales of plants or
facilities, 24 months) after the date Net Cash Proceeds so received
exceed 10% of Adjusted Consolidated Net Tangible Assets in any one
fiscal year (determined as of the date closest to the commencement of
such 12-month period for which a balance sheet of JSCE and its
Subsidiaries has been prepared);
(a) apply an amount equal to such excess Net Cash Proceeds to repay
unsubordinated Indebtedness of CCA or JSCE, make a dividend or
distribution to JSCE for application by JSCE to repay
unsubordinated Indebtedness of JSCE, or repay Indebtedness of any
Restricted Subsidiary of JSCE, in each case owing to a Person other
than JSCE or any of its Restricted Subsidiaries; or
(b) invest an equal amount, or the amount not so applied pursuant to
clause (a) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in
property or assets of a nature or type or which will be used in a
business (or in a company having property and assets of a nature or
type, or engaged in a business) similar or related to the nature or
type of the property and assets of, or the business of, JSCE and
its Restricted Subsidiaries existing on the date of such Investment
(as determined in good faith by the Board of Directors of JSCE,
whose determination shall be conclusive and evidenced by a Board
Resolution); and
(2) apply (no later than the end of such 12-month period or 24-month
period, as the case may be, referred to in clause (1)) such excess Net
Cash Proceeds (to the extent not applied pursuant to clause (1)) as
provided in the following paragraphs of this "Limitation on Asset
Sales" covenant. The amount of such excess Net Cash Proceeds required
to be applied (or to be committed to be applied) during such 12-month
period or 24-month period, as the case may be, as set forth in clause
(a) or (b) of the preceding paragraph and neither applied nor committed
to be applied as set forth above by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10 million, CCA must, not later than the fifteenth
Business Day of such month, make an offer (an "Excess Proceeds Offer") to
purchase from the Holders of the notes on a pro rata basis an aggregate
principal amount of notes equal to the Excess Proceeds on such date, at a
purchase price equal to 101% of the principal amount of such notes, plus, in
each case, accrued interest (if any) to the date of purchase (the "Excess
Proceeds Payment").
Notwithstanding the foregoing:
(1) to the extent that any or all of the Net Cash Proceeds of any Asset
Sale are prohibited or delayed by applicable local law from being
repatriated to the United States of America, the portion of such Net
Cash Proceeds so affected will not be required to be applied pursuant
to this "Limitation on Asset Sales" covenant but may be retained for so
long, but only for so long, as the applicable local law will not permit
repatriation to the United States of America (under the Indenture JSCE
will agree to promptly take or cause the relevant Restricted Subsidiary
to promptly take all reasonable actions required by the applicable
local law and within JSCE's control to permit such repatriation) and
once such repatriation of any such affected Net Cash Proceeds is
permitted under the applicable local law, such repatriation will be
immediately effected and such repatriated Net Cash Proceeds will be
applied
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in the manner set forth in this "Limitation on Asset Sales" covenant as
if such Asset Sale had occurred on the date of repatriation; and
(2) to the extent that the Board of Directors of JSCE has determined in
good faith that repatriation of any or all of the Net Cash Proceeds
would have an adverse tax or other consequence to JSCE, the Net Cash
Proceeds so affected may be retained outside the United States of
America for so long as such adverse tax or other consequence would
continue.
CCA shall commence an Excess Proceeds Offer by mailing a notice to the
Trustee and each Holder stating:
(1) that the Excess Proceeds Offer is being made pursuant to this
"Limitation on Asset Sales" covenant and that all notes validly
tendered will be accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Excess Proceeds Payment Date");
(3) that any Senior Note not tendered will continue to accrue interest;
(4) that, unless CCA defaults in the payment of the Excess Proceeds
Payment, any Senior Note accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest after the Excess Proceeds
Payment Date;
(5) that Holders electing to have a Senior Note purchased pursuant to the
Excess Proceeds Offer will be required to surrender the Senior Note
together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the Senior Note completed, to the
Paying Agent at the address specified in the notice prior to the close
of business on the Business Day immediately preceding the Excess
Proceeds Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of notes delivered for
purchase and a statement that such Holder is withdrawing his election
to have such notes purchased; and
(7) that Holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion
of the notes surrendered; provided that each Senior Note purchased and
each new Senior Note issued shall be in an original principal amount of
$1,000 or integral multiples thereof.
On the Excess Proceeds Payment Date, CCA shall:
(1) accept for payment on a pro rata basis notes or portions thereof
tendered pursuant to the Excess Proceeds Offer;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the relevant Trustee all notes or
portions thereof so accepted together with an Officers' Certificate
specifying the notes or portions thereof accepted for payment by CCA.
The Paying Agent shall promptly mail to the Holders of notes so
accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new
Senior Note equal in principal amount to any unpurchased portion of the
notes surrendered; provided that each note purchased and each new note
issued shall be in an original principal amount of $1,000 or integral
multiples thereof. CCA will publicly announce the results of the Excess
Proceeds Offer as soon as practicable after the Excess Proceeds Payment
Date. For purposes of this "Limitation on Asset Sales" covenant, the
Trustee shall act as the Paying Agent.
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CCA will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by CCA under this "Limitation on Asset Sales" covenant and CCA is required to
repurchase notes as described above and CCA may modify any of the foregoing
provisions of this "Limitation on Asset Sales" covenant to the extent it is
advised by independent counsel that such modification is necessary or
appropriate in order to ensure such compliance. (Section 3.10)
Repurchase of Notes upon Change of Control
(1) In the event of a Change of Control, each Holder shall have the right
to require the repurchase of its notes by CCA in cash pursuant to the
offer described below (the "Change of Control Offer") at a purchase
price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the date of purchase (the "Change of Control
Payment"). Prior to the mailing of the notice to Holders provided for
in the succeeding paragraph, but in any event within 30 days following
any Change of Control, CCA covenants to:
(a)(i)repay in full all unsubordinated Indebtedness of CCA or make a
dividend or distribution to JSCE for application by JSCE to
repay in full all unsubordinated Indebtedness of JSCE; or
(ii) offer to repay in full all such unsubordinated Indebtedness of
either JSCE or CCA and to repay such unsubordinated
Indebtedness of each holder of such unsubordinated Indebtedness
who has accepted such offer; or
(b) obtain the requisite consents, if any, under the instruments
governing any such unsubordinated Indebtedness of JSCE or CCA to
permit the repurchase of the notes as provided for in the
succeeding paragraph. CCA shall first comply with the covenant in
the preceding sentence before it shall be required to repurchase
notes pursuant to this "Repurchase of Notes upon Change of Control"
covenant.
(2) Within 30 days of the Change of Control, CCA shall mail a notice to the
Trustee and each Holder stating:
(a) that a Change of Control has occurred, that the Change of Control
Offer is being made pursuant to this "Repurchase of Notes upon
Change of Control" covenant and that all notes validly tendered
will be accepted for payment;
(b) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed) (the "Change of Control Payment
Date");
(c) that any notes not tendered will continue to accrue interest;
(d) that, unless CCA defaults in the payment of the Change of Control
Payment, any notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(e) that Holders electing to have any notes or portion thereof
purchased pursuant to the Change of Control Offer will be required
to surrender such notes, together with the form entitled "Option of
the Holder to Elect Purchase" on the reverse side of such notes
completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day
immediately preceding the Change of Control Payment Date;
(f) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the
third Business Day immediately preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of
notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such notes purchased; and
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(g) that Holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased
portion of the notes surrendered; provided that each Senior Note
purchased and each new Senior Note issued shall be in an original
principal amount of $1,000 or integral multiples thereof.
(3) On the Change of Control Payment Date, CCA shall:
(a) accept for payment notes or portions thereof tendered pursuant to
the Change of Control Offer;
(b) deposit with the Paying Agent money sufficient to pay the purchase
price of all notes or portions thereof so accepted; and
(c) deliver, or cause to be delivered, to the Trustee, all notes or
portions thereof so accepted together with an Officers' Certificate
specifying the notes or portions thereof accepted for payment by
CCA. The Paying Agent shall promptly mail, to the Holders of notes
so accepted, payment in an amount equal to the purchase price, and
the Trustee shall promptly authenticate and mail to such Holders a
new note equal in principal amount to any unpurchased portion of
the notes surrendered; provided that each note purchased and each
new Senior Note issued shall be in an original principal amount of
$1,000 or integral multiples thereof. CCA will publicly announce
the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes
of this "Repurchase of Notes upon Change of Control" covenant, the
Trustee shall act as Paying Agent. CCA will comply with Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are
applicable in the event that a Change of Control occurs under this
"Repurchase of Notes upon Change of Control" covenant and CCA is
required to repurchase notes as described above and CCA may modify
any of the foregoing provisions of this "Repurchase of Notes upon
Change of Control" covenant to the extent it is advised by
independent counsel that such modification is necessary or
appropriate in order to ensure such compliance. (Section 3.18)
If CCA is unable to repay all of its unsubordinated Indebtedness and is also
unable to obtain the consents of its unsubordinated creditors (and/or of the
holders of other Indebtedness, if any, of CCA or JSCE outstanding at the time
of a Change of Control whose consent would be so required) to permit the
repurchase of notes either pursuant to clause (1)(b) or clause (2) of the
foregoing covenant, then CCA will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a period
of 30 consecutive days after written notice is given to CCA by the Trustee or
the holders of at least 25% in aggregate principal amount of the notes
outstanding. See "--Events of Default." In addition, the failure by CCA to
repurchase notes at the conclusion of the Change of Control Offer will
constitute an Event of Default without any waiting period or notice
requirements. JSCE has guaranteed all payments due on the notes, including
those due by reason of the acceleration thereof following the occurrence of an
Event of Default. This obligation of JSCE is not subject to any waiting period
or notice requirement once such an acceleration has occurred; as discussed
above, however, in certain circumstances there are notice and waiting period
requirements that must be satisfied before CCA's breach of the above covenant
constitutes an Event of Default.
There can be no assurances that CCA (or JSCE) will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of the notes) required by the foregoing covenant and
similar provisions contained in the Senior Subordinated Notes, the Subordinated
Debentures, the Junior Accrual Debentures, any Credit Agreement and the Secured
Notes (as well as in any other indebtedness which might be outstanding at the
time). Although there is some variation in the definition of "Change of
Control" among such different classes of debt, there is substantial overlap. In
any event, the above covenant requiring CCA to repurchase the notes will,
unless the consents referred to above are obtained, require CCA and JSCE to
offer to repay or repay all indebtedness outstanding under any Credit Agreement
and the Secured Notes, and any other indebtedness then outstanding which by its
terms prohibits such repurchases of the notes, either prior to or concurrently
with such repurchases.
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Events of Default
The following events are defined as "Events of Default" in the Indenture:
(1) CCA defaults in the payment of principal of (or premium, if any, on)
any notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(2) CCA defaults in the payment of interest on any notes when the same
becomes due and payable, and such default continues for a period of 30
days;
(3) JSCE or CCA defaults in the performance of or breaches any other
covenant or agreement of JSCE or CCA in the Indenture or under the
notes and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of
25% or more in aggregate principal amount of the Series A Senior Notes
and the Series B Senior Notes then outstanding taken together as one
class or, in the case of any such default or breach under only one
Indenture, 25% or more in aggregate principal amount of the Series A
Senior Notes or the Series B Senior Notes, as the case may be, then
outstanding, or, in the case of the 1993 Senior Notes, written notice
by the Trustee or Holders of 25% or more in the aggregate principal
amount of the 1993 Senior Notes;
(4) there occurs with respect to any issue or issues of Indebtedness of
JSCE, CCA and/or one or more of their Significant Subsidiaries having
an outstanding principal amount of $50 million or more individually or
$100 million or more in the aggregate for all such issues of all such
Persons, whether such Indebtedness now exists or shall hereafter be
created, an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration;
(5) any final judgment or order (not covered by insurance) for the payment
of money in excess of $50 million individually or $100 million in the
aggregate for all such final judgments or orders against all such
Persons (treating any deductibles, self-insurance or retention as not
so covered) shall be rendered against JSCE, CCA or any of their
Significant Subsidiaries and shall not be paid or discharged, and there
shall be any period of 30 consecutive days following entry of the final
judgment or order in excess of $50 million individually or that causes
the aggregate amount for all such final judgments or orders outstanding
and not paid or discharged against all such Persons to exceed $100
million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect;
(6) a court having jurisdiction in the premises enters a decree or order
for:
(a) relief in respect of JSCE, CCA or any of their Significant
Subsidiaries in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect;
(b) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of JSCE, CCA or any of
their Significant Subsidiaries or for all or substantially all of
the property and assets of JSCE, CCA or any of their Significant
Subsidiaries; or
(c) the winding up or liquidation of the affairs of JSCE, CCA or any of
their Significant Subsidiaries and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60
consecutive days;
(7) JSCE, CCA or any of their Significant Subsidiaries:
(a) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case
under any such law;
(b) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of JSCE, CCA or any of their Significant Subsidiaries or
for all or substantially all of the property and assets of JSCE,
CCA or any of their Significant Subsidiaries; or
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(c) effects any general assignment for the benefit of creditors;
(8) JSCE, CCA and/or one or more of their Significant Subsidiaries fails to
make:
(a) at the final (but not any interim) fixed maturity of any issue of
Indebtedness a principal payment of $50 million or more; or
(b) at the final (but not any interim) fixed maturity of more than one
issue of such Indebtedness principal payments aggregating $100
million or more and, in the case of clause (a), such defaulted
payment shall not have been made, waived or extended within 30 days
of the payment default and, in the case of clause (b), all such
defaulted payments shall not have been made, waived or extended
within 30 days of the payment default that causes the amount
described in clause (b) to exceed $100 million; or
(9) the non-payment of any two or more items of Indebtedness of JSCE, CCA
and/or one or more of their Significant Subsidiaries that would
constitute at the time of such nonpayments, but for the individual
amounts of such Indebtedness, an Event of Default under clause (4) or
clause (8) above, or both, and which items of Indebtedness aggregate
$100 million or more. (Section 5.01)
If an Event of Default (other than an Event of Default specified in clause
(6) or (7) above that occurs with respect to JSCE or CCA) occurs and is
continuing under both the Series A Senior Note Indenture and the Series B
Senior Note Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Series A Senior Notes and Series B Senior Notes then
outstanding taken together as one class or, in the case of any such Event of
Default which occurs and is continuing under only one Indenture, 25% in
aggregate principal amount of the Series A Senior Notes or the Series B Senior
Notes, as the case may be, then outstanding, by written notice to CCA (and to
the Trustee if such notice is given by the Holders) (or, in the case of the
1993 Senior Note Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the 1993 Senior Notes, then outstanding, by
written notice to CCA (and to the Trustee if such notice is given by the
Holders)) (the "Acceleration Notice"), may, and the Trustee at the request of
the Holders shall, declare the entire unpaid principal of, premium, if any, and
accrued interest on the Senior Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (4), (8) or (9)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (4), (8) or (9) shall be remedied, cured by
JSCE or CCA or waived by the holders of the relevant Indebtedness within 60
days after the declaration of acceleration with respect thereto. If an Event of
Default specified in clause (6) or (7) above occurs with respect to JSCE or
CCA, all unpaid principal of, premium, if any, and accrued interest on the
notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. The Holders of at least a majority in principal amount of the
outstanding Series A Senior Notes and Series B Senior Notes taken together as
one class (or, in the case of any default under the respective Indenture
relating to the Series A Senior Notes or the Series B Senior Notes, then a
majority in principal amount of the outstanding Series A Senior Notes or Series
B Senior Notes, as the case may be) (or, in the case of the 1993 Senior Note
Indenture, the Holders of at least a majority in aggregate principal amount of
the 1993 Senior Notes then outstanding), by written notice to JSCE, CCA and to
the Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if:
(1) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the notes that have
become due solely by such declaration of acceleration, have been cured
or waived; and
(2) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction. (Section 5.02) For information as to
the waiver of defaults, see "--Modification and Waiver."
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As a result of the foregoing voting provisions relating to Events of Default
under the Series B Senior Note Indenture, Holders of Series B Senior Notes even
if acting unanimously may not be able to
(1) declare a default under the Series B Senior Note Indenture following a
default in the performance of or any breach of covenants or agreements
of JSCE or CCA as set forth in clause (3) above; or
(2) request acceleration of the principal of, premium, if any, and accrued
interest on, the Series B Senior Notes if an Event of Default occurs.
The Holders of at least a majority in aggregate principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith may
be unduly prejudicial to the rights of Holders of notes not joining in the
giving of such direction. (Section 5.05) A Holder may not pursue any remedy
with respect to the Indenture or the notes unless:
(1) the Holder gives the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of
outstanding notes make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding notes do not give the Trustee a
direction that is inconsistent with the request. (Section 5.06).
However, such limitations do not apply to the right of any Holder of a
Senior Note to receive payment of the principal of, premium, if any, or
interest on, such Senior Note or to bring suit for the enforcement of any such
payment, on or after the due date expressed in the notes which right shall not
be impaired or affected without the consent of the Holder. (Section 5.07) For
purposes of the foregoing paragraph, actions that may be taken by Holders of at
least a majority or 25% in aggregate principal amount of the outstanding notes
may only be taken by Holders of at least a majority or 25% (as the case may be)
in aggregate principal amount of the Series A Senior Notes and the Series B
Senior Notes taken together as one class or, in the case of any remedy which
relates solely to one Indenture or one class of notes, by Holders of at least a
majority or 25% (as the case may be) in aggregate principal amount of the
Series A Senior Notes, the Series B Senior Notes or the 1993 Senior Notes as
the case may be. (Sections 5.04, 5.05 and 5.06)
The Indentures require certain officers of JSCE and CCA to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of JSCE and CCA and their
Subsidiaries and JSCE's and CCA's and their Subsidiaries' performance under the
Indenture and that JSCE and CCA have fulfilled all obligations thereunder, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default and the nature and status thereof. JSCE and CCA
will also be obligated to notify the Trustee of any default or defaults in the
performance of any covenants or agreements under the Indenture. (Section 3.15)
Consolidation, Merger and Sale of Assets
Neither JSCE nor CCA shall consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than a
Restricted Subsidiary that is a Wholly Owned Subsidiary of JSCE with a positive
net worth; provided that, in connection with any merger of
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JSCE or CCA with a Restricted Subsidiary that is a Wholly Owned Subsidiary of
JSCE, no consideration (other than common stock in the surviving Person, JSCE
or CCA) shall be issued or distributed to the stockholders of JSCE) unless:
(1) JSCE or CCA shall be the continuing Person, or the Person (if other
than JSCE or CCA) formed by such consolidation or into which JSCE or
CCA is merged or that acquired or leased such property and assets of
JSCE or CCA shall be a corporation organized and validly existing under
the laws of the United States of America or any jurisdiction thereof
and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of JSCE or CCA, as the
case may be, on all of the notes and under the Indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, the Interest Coverage Ratio of the continuing Person continuing
as, or becoming the successor obligor on the notes or the Guarantee is
at least 1:1, or, if less, equal to the Interest Coverage Ratio of JSCE
or CCA, as the case may be, immediately prior to such transaction;
provided that, if the Interest Coverage Ratio of JSCE or CCA, as the
case may be, before giving effect to such transaction is within the
range set forth in column (A) below, then the pro forma Interest
Coverage Ratio of the continuing Person becoming the successor obligor
of the notes shall be at least equal to the lesser of:
(a) the ratio determined by multiplying the percentage set forth in
column (B) below by the Interest Coverage Ratio of JSCE or CCA, as
the case may be, prior to such transaction; and
(b) the ratio set forth in column (C) below:
<TABLE>
<CAPTION>
(A) (B) (C)
---------------------------------- --- -----
<S> <C> <C>
1.11:1 to 1.99:1.................. 90% 1.5:1
2.00:1 to 2.99:1.................. 80% 2.1:1
3.00:1 to 3.99:1.................. 70% 2.4:1
4.00:1 or more.................... 60% 2.5:1
</TABLE>
and provided further that, if the pro forma Interest Coverage Ratio of
JSCE, CCA or any Person becoming the successor obligor of the notes, as
the case may be, is 3:1 or more, the calculation in the preceding
proviso shall be inapplicable and such transaction shall be deemed to
have complied with the requirements of this clause (3);
(4) immediately after giving effect to such transaction on a pro forma
basis, JSCE, CCA or any Person becoming the successor obligor of the
notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of JSCE or CCA, as the case may be, immediately
prior to such transaction; and
(5) JSCE or CCA, as the case may be, delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (3) and (4)) and Opinion of Counsel, in each
case stating that such consolidation, merger or transfer and such
supplemental indenture comply with this provision and that all
conditions precedent provided for herein relating to such transaction
have been complied with (in no event, however, shall such Opinion of
Counsel cover financial ratios, the solvency of any Person or any other
financial or statistical data or information); provided, however, that
clauses (3) and (4) above do not apply if, in the good faith
determination of the Board of Directors of JSCE or CCA, as the case may
be, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state of
incorporation of JSCE or CCA, as the case may be; and provided further
that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
JSCE shall be released from all of its obligations under its Guarantee of
the notes and the Indenture if the purchaser of Capital Stock of CCA having a
majority of the voting rights thereunder, or the parent of CCA
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(other than JSCE) following a consolidation or merger of CCA, satisfies the
requirements of clauses (3) and (4) of the preceding sentence with respect to
JSCE.
Notwithstanding the foregoing, nothing in clause (2), (3), (4) or (5) above
shall prevent the occurrence of:
(1) a merger or consolidation of JSCE and CCA, or either of their
respective successors;
(2) the sale of all or substantially all of the assets of CCA to JSCE;
(3) the sale of all or substantially all of the assets of JSCE to CCA; or
(4) the assumption by JSCE of the Indebtedness represented by the notes.
(Section 4.01)
In the event:
(1) JSCE merges into CCA; and
(2) in connection therewith a direct or indirect Wholly Owned Subsidiary of
JSC ("Interco"), of which CCA is at such time a direct or indirect
Wholly Owned Subsidiary, (x) guarantees the obligations of CCA on the
notes on the same terms and to the same extent as JSCE had guaranteed
such obligations prior to the aforesaid merger, and (y) assumes all
obligations of JSCE set forth in the Indenture (without giving effect
to the effect of the aforesaid merger on such obligations)
(collectively, the "Substitution Transaction");
then, notwithstanding anything to the contrary in the Indenture, upon delivery
of an Officers' Certificate to the effect that the foregoing has occurred and
the execution and delivery by CCA and Interco of a supplemental indenture
evidencing such merger and guarantee and assumption, and without regard to the
requirements set forth in clauses (1) through (5) of the first paragraph under
"Consolidation, Merger and Sale of Assets":
(1) all references in the Indenture to "CCA" shall continue to refer to
CCA, as the survivor in such merger;
(2) all references to "JSCE" and to "JSCE's guarantee" shall refer to
Interco and to Interco's guarantee contemplated by clause (2) above,
respectively; and
(3) no breach or default under the Indenture shall be deemed to have
occurred solely by reason of the Substitution Transaction. (Section
4.03)
Defeasance
Defeasance and Discharge. The Indentures provide that JSCE and CCA will be
deemed to have paid and will be discharged from any and all obligations in
respect of the notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to
the notes or JSCE's Guarantee of the notes (except for, among other matters,
certain obligations to register the transfer or exchange of the notes, to
replace stolen, lost or mutilated notes to maintain paying agencies and to
hold monies for payment in trust) if, among other things:
(1) CCA has deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium,
if any, and accrued interest on the outstanding notes on the Stated
Maturity of such payments in accordance with the terms of the Indenture
and the notes;
(2) JSCE or CCA has delivered to the Trustee:
(a) either an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of CCA's exercise of its option under this "Defeasance"
provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have
been the case if such deposit, defeasance and
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discharge had not occurred, which Opinion of Counsel must be
accompanied by a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income
tax law after the date of the Indenture such that a ruling is no
longer required or a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned
Opinion of Counsel; and
(b) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940
and after the passage of 123 days following the deposit, the trust
fund will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15.6-A of the New York Debtor and
Creditor Law;
(3) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse
of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period
ending on the 123rd day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which JSCE or CCA
is a party or by which JSCE or CCA is bound; and
(4) if at such time the notes are listed on a national securities exchange,
CCA has delivered to the Trustee an Opinion of Counsel to the effect
that the notes will not be delisted as a result of such deposit,
defeasance and discharge. (Section 7.02)
Defeasance of Certain Covenants and Certain Events of Default. The
Indentures further provide that the provisions of the Indentures will no longer
be in effect with respect to clauses (3) and (4) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Covenants,"
clause (3) under "Events of Default" with respect to such covenants and clauses
(3) and (4) under "Consolidation, Merger and Sale of Assets," and clauses (4),
(5), (8) and (9) under "Events of Default" shall be deemed not to be Events of
Default, upon, among other things, the deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the outstanding notes on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the notes, the
satisfaction of the provisions described in clauses (2)(b), (3), and (4) of the
preceding paragraph and the delivery by CCA to the Trustee of an Opinion of
Counsel to the effect that, among other things, the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance of certain obligations and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred.
(Section 7.03)
Defeasance and Certain Other Events of Default. In the event CCA exercises
its option to omit compliance with certain covenants and provisions of the
Indenture with respect to the notes as described in the immediately preceding
paragraph and the notes are declared due and payable because of the occurrence
of an Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on the notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the notes at the time of the acceleration
resulting from such Event of Default. However, CCA will remain liable for such
payments and JSCE's Guarantee with respect to such payments will remain in
effect.
The 1998 Credit Agreement contains a covenant prohibiting defeasance of the
notes.
Modification and Waiver
Modifications and amendments of the Indentures may be made by JSCE, CCA and
the Trustee with (x) in the case of the 1993 Senior Notes, the consent of the
Holders of not less than a majority in aggregate principal amount of the
outstanding 1993 Senior Notes, and (y) in the case of the Series A Senior Notes
and the Series B
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Senior Notes, the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Series A Senior Notes and Series
B Senior Notes taken together as one class or, in the case of any such
modification or amendment which affects only one class of notes, a majority in
aggregate principal amount of the outstanding Series A Senior Notes or Series B
Senior Notes, as the case may be, provided, however, that no such modification
or amendment may, without the consent of each Holder affected thereby:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Senior Note;
(2) reduce the principal amount of, or premium, if any, or interest on, any
Senior Note;
(3) change the place or currency of payment of principal of, or premium, if
any, or interest on, any Senior Note;
(4) impair the right to institute suit for the enforcement of any payment
on or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any Senior Note;
(5) reduce the above-stated percentage of outstanding notes, the consent of
whose Holders is necessary to modify or amend the Indenture;
(6) waive a default in the payment of principal of, premium, if any, or
interest on the notes; or
(7) reduce the percentage of aggregate principal amount of outstanding
notes, the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of
certain defaults, (or, in the case of the Series A and Series B Senior
Notes, release JSCE from its Guarantee of the notes).
The provisions requiring the consent or approval of specified percentages of
Holders of either class of the Series A and Series B Senior Notes or both
classes of the Series A and Series B Senior Notes jointly cannot be modified or
amended without the consent of a majority in aggregate principal amount of the
Holders of such class of the Series A and Series B Senior Notes or such two
classes of the Series A and Series B Senior Notes jointly, as the case may be.
(Section 8.02)
To the extent that modifications and amendments of the Indenture may be made
with the consent of a majority in aggregate principal amount of the outstanding
Series A Senior Notes and Series B Senior Notes taken together as one class,
modifications and amendments of the Series B Senior Note Indenture could be
made without the consent of any Holder of Series B Senior Notes.
The 1998 Credit Agreement contains a covenant prohibiting JSCE or CCA from
consenting to any modification of the Indenture or waiver of any provision
thereof without the consent of a specified percentage of the lenders under the
1998 Credit Agreement.
No Personal Liability of Incorporators, Shareholders, Officers, Directors or
Employees
The Indentures provide that no recourse for the payment of the principal of,
premium, if any, or interest on any of the notes or for any claim based thereon
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of JSCE or CCA in the Indentures, or in any of the notes
or because of the creation of any Indebtedness represented thereby, shall be
had against any incorporator, shareholder, officer, director, employee or
controlling person of JSCE or CCA or of any successor Person thereof. Each
Holder, by accepting the notes, waives and releases all such liability.
(Section 9.09)
Concerning The Trustee
The Indentures provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in each such Indenture. If an Event of Default has occurred and is
continuing, the Trustee will exercise such rights and powers vested in it under
the Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs. (Section 6.01)
61
<PAGE>
The Indentures and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of CCA or JSCE, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
MARKET-MAKING ACTIVITIES
Morgan Stanley Dean Witter will use this prospectus in connection with sales
of the notes in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. Morgan Stanley Dean Witter may
act as principal or agent in such transactions. Morgan Stanley Dean Witter has
no obligation to make a market for the notes and may discontinue or suspend its
market-making activities at any time without notice at its sole discretion.
Morgan Stanley acted as underwriter in connection with the original
offerings of the notes and received an underwriting discount of $23 million in
connection therewith.
As of December 31, 1999, affiliates of Morgan Stanley Dean Witter owned
approximately 7.3% of the outstanding shares of common stock of SSCC. Alan E.
Goldberg is a director of SSCC and is a designee of an affiliate of Morgan
Stanley Dean Witter. See "Risk Factors--Significant Stockholders" and JSCE's
Annual Report on Form 10-K for further information regarding Mr. Goldberg and
the equity ownership of the affiliates of Morgan Stanley Dean Witter.
Although there are no agreements to do so, Morgan Stanley Dean Witter, as
well as others, may act as broker or dealer in connection with the sale of the
notes contemplated by this prospectus and may receive fees or commissions in
connection therewith.
We will receive no portion of the proceeds from the sales of the notes in
market-making transactions.
We have agreed to indemnify Morgan Stanley Dean Witter against certain
liabilities, including civil liabilities under the Securities Act or to
contribute to payments Morgan Stanley Dean Witter may be required to make in
respect thereof.
LEGAL MATTERS
The validity of the notes and the guarantees thereof have been passed upon
for us by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The consolidated financial statements of JSCE at December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999,
appearing in this prospectus and the registration statements of which this
prospectus forms a part, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of JSCE, appearing in its Annual
Report on Form 10-K for the year ended December 31, 1999, incorporated by
reference into this prospectus and the registration statements of which this
prospectus forms a part, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Index to Financial Statements: Page No.
- ------------------------------ --------
<S> <C>
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets--December 31, 1999 and 1998................ F-3
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Operations................................ F-4
Consolidated Statements of Stockholder's Equity (Deficit)............ F-5
Consolidated Statements of Cash Flows................................ F-6
Notes to Consolidated Financial Statements............................. F-7
</TABLE>
All other schedules specified under Regulation S-X for JSCE, Inc. have been
omitted because they are not applicable, because they are not required or
because the information required is included in the financial statements or
notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
JSCE, Inc.
We have audited the accompanying consolidated balance sheets of JSCE, Inc.
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholder's equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in Item 16(b) of the Registration
Statement. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 JSCE, Inc. at
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, in 1998 the Company
changed its method of accounting for start-up costs.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 24, 2000
F-2
<PAGE>
JSCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
--------- ---------
(In Millions,
Except Share Data)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents.............................. $ 11 $ 18
Receivables, less allowances of $9 in 1999 and $9 in
1998.................................................. 396 294
Inventories
Work-in-process and finished goods................... 95 104
Materials and supplies............................... 139 124
--------- ---------
234 228
Refundable income taxes................................ 7 22
Deferred income taxes.................................. 42 122
Prepaid expenses and other current assets.............. 22 10
--------- ---------
Total current assets............................... 712 694
Net property, plant and equipment........................ 1,307 1,499
Timberland, less timber depletion........................ 2 261
Goodwill, less accumulated amortization of $72 in 1999
and $65 in 1998......................................... 205 226
Notes receivable from SSCC............................... 364 342
Other assets............................................. 146 152
--------- ---------
$ 2,736 $ 3,174
========= =========
Liabilities and Stockholder's Deficit
Current liabilities
Current maturities of long-term debt................... $ 12 $ 44
Accounts payable....................................... 389 276
Accrued compensation and payroll taxes................. 88 75
Interest payable....................................... 30 28
Other current liabilities.............................. 152 126
--------- ---------
Total current liabilities.......................... 671 549
Long-term debt, less current maturities.................. 1,624 2,526
Other long-term liabilities.............................. 253 278
Deferred income taxes.................................... 423 359
Stockholder's equity (deficit)
Common stock, par, value $.01 per share; 1,000 shares
authorized and outstanding............................
Additional paid-in capital............................. 1,129 1,102
Retained earnings (deficit)............................ (1,364) (1,636)
Accumulated other comprehensive income (loss).......... (4)
--------- ---------
Total stockholder's equity (deficit)............... (235) (538)
--------- ---------
$ 2,736 $ 3,174
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
JSCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1999 1998 1997
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Net sales.............................................. $3,295 $3,043 $2,957
Costs and expenses
Cost of goods sold................................... 2,753 2,542 2,532
Selling and administrative expenses.................. 307 322 249
Restructuring charge................................. 9 257
------ ------ ------
Income (loss) from operations...................... 226 (78) 176
Other income (expense)
Interest expense, net................................ (175) (196) (196)
Other, net........................................... 411 (5) (2)
------ ------ ------
Income (loss) from continuing operations before
income taxes, extraordinary item and cumulative
effect of accounting change....................... 462 (279) (22)
Benefit from (provision for) income taxes.............. (186) 108 3
------ ------ ------
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change................................. 276 (171) (19)
Discontinued operations
Income from discontinued operations, net of income
taxes of $(1) in 1999, $(17) in 1998 and $(14) in
1997................................................ 2 27 20
Gain on disposition of discontinued operations net of
income taxes of $2 in 1999.......................... 4
------ ------ ------
Income (loss) before extraordinary item and
cumulative effect of accounting change............ 282 (144) 1
Extraordinary item
Loss from early extinguishment of debt, net of income
tax benefit of $6 in 1999 and $9 in 1998............ (10) (13)
Cumulative effect of accounting change
Start-up costs, net of income tax benefit of $2...... (3)
------ ------ ------
Net income (loss).................................... $ 272 $ (160) $ 1
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
JSCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
----------------
Accumulated
Par Additional Retained Other
Number Value, Paid-in Earnings Comprehensive
of Shares $.01 Capital (Deficit) Income (Loss) Total
--------- ------ ---------- --------- ------------- -----
(In Millions, Except Share Data)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 1,000 $ $1,102 $(1,477) $ $(375)
Comprehensive income
Net income............ 1 1
Other comprehensive
income,
net of tax
----- ---- ------ ------- ---- -----
Comprehensive
income............. 1 1
----- ---- ------ ------- ---- -----
Balance at December 31,
1997................... 1,000 1,102 (1,476) (374)
Comprehensive income
Net loss.............. (160) (160)
Other comprehensive
income (loss),
net of tax
Minimum pension
liability
adjustment.......... (4) (4)
----- ---- ------ ------- ---- -----
Comprehensive
income............. (160) (4) (164)
----- ---- ------ ------- ---- -----
Balance at December 31,
1998................... 1,000 1,102 (1,636) (4) (538)
SSCC stock option
exercises............ 26 26
SSCC capital
contribution......... 1 1
Comprehensive income
Net income............ 272 272
Other comprehensive
income,
net of tax
Minimum pension
liability
adjustment.......... 4 4
----- ---- ------ ------- ---- -----
Comprehensive
income............. 272 4 276
----- ---- ------ ------- ---- -----
Balance at December 31,
1999................... 1,000 $ $1,129 $(1,364) $ $(235)
===== ==== ====== ======= ==== =====
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
JSCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------- -------- -------
(In Millions)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)................................ $ 272 $ (160) $ 1
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Gain on disposition of discontinued
operations.................................... (2)
Extraordinary loss from early extinguishment of
debt.......................................... 16 22
Cumulative effect of accounting change for
start-up costs................................ 5
Depreciation, depletion and amortization....... 134 134 127
Amortization of deferred debt issuance costs... 10 8 11
Deferred income taxes.......................... 154 (92) 13
Gain on sale of assets......................... (407)
Non-cash employee benefit expense.............. 30 5 4
Non-cash restructuring charge.................. 4 179
Change in current assets and liabilities,
Receivables.................................. (100) 8 (24)
Inventories.................................. (15) 3 (32)
Prepaid expenses and other current assets.... (13) (1) 3
Accounts payable and accrued liabilities..... 64 (16) (4)
Interest payable............................. (46) (4) (5)
Income taxes................................. 12 (16) (6)
Other, net..................................... (10) 42
------- -------- -------
Net cash provided by operating activities........ 103 117 88
------- -------- -------
Cash flows from investing activities
Property additions............................... (69) (263) (166)
Timberland additions............................. (2) (16)
Investments in affiliates and acquisitions....... (9)
Notes receivable from SSCC....................... 25 (336)
Construction funds held in escrow................ 9
Proceeds from property and timberland disposals
and sale of businesses.......................... 873 6 7
------- -------- -------
Net cash provided by (used for) investing
activities...................................... 829 (595) (175)
------- -------- -------
Cash flows from financing activities
Borrowings under bank credit facilities.......... 1,441
Net borrowings (repayments) under accounts
receivable securitization program............... 15 (1) 30
Payments of long-term debt....................... (954) (921) (7)
Other increases in long-term debt................ 64
Deferred debt issuance costs..................... (35)
------- -------- -------
Net cash provided by (used for) financing
activities...................................... (939) 484 87
------- -------- -------
Increase (decrease) in cash and cash equivalents... (7) 6
Cash and cash equivalents
Beginning of year.............................. 18 12 12
------- -------- -------
End of year.................................... $ 11 $ 18 $ 12
======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions)
1. Significant Accounting Policies
Basis of Presentation: JSCE, Inc., hereafter referred to as the "Company,"
is a wholly-owned subsidiary of Smurfit-Stone Container Corporation ("SSCC"),
formerly known as Jefferson Smurfit Corporation ("JSC"). On November 18, 1998 a
subsidiary of JSC was merged with Stone Container Corporation ("Stone"), an
action hereafter referred to as the "Merger," and Stone became a subsidiary of
SSCC. The Company owns 100% of the equity interest in Jefferson Smurfit
Corporation (U.S.) ("JSC (U.S.)") and is a guarantor of the senior unsecured
indebtedness of JSC (U.S.). The Company has no operations other than its
investment in JSC (U.S.). JSC (U.S.) has extensive operations throughout the
United States.
The deficit in stockholder's equity is primarily due to SSCC's 1989 purchase
of JSC (U.S.)'s common equity owned by Jefferson Smurfit Group plc ("JS Group")
and the acquisition by JSC (U.S.) of its common equity owned by the Morgan
Stanley Leveraged Equity Fund I, L.P., which were accounted for as purchases of
treasury stock.
Nature of Operations: The Company's major operations are in paper products,
recycled and renewable fiber resources, and consumer and specialty packaging.
In February 1999, the Company announced its intention to divest its newsprint
subsidiary, and accordingly, its newsprint segment is accounted for as a
discontinued operation (See Note 9). The Company's paperboard mills procure
virgin and recycled fiber and produce paperboard for conversion into corrugated
containers, folding cartons and specialty packaging at Company-owned facilities
and third-party converting operations. Paper product customers represent a
diverse range of industries including paperboard and paperboard packaging,
wholesale trade, retailing and agri-business. Recycling operations collect or
broker wastepaper for sale to Company-owned and third-party paper mills.
Specialty packaging produces labels and flexible packaging for use in
industrial, medical and consumer product applications. Customers and operations
are principally located in the United States. Credit is extended to customers
based on an evaluation of their financial condition.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and majority-owned and controlled subsidiaries.
Significant intercompany accounts and transactions are eliminated in
consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents of $3 million and $14 million were
pledged at December 31, 1999 and 1998 as collateral for obligations associated
with the accounts receivable securitization program (See Note 5).
Revenue Recognition: Revenue is recognized at the time products are shipped
to external customers.
Inventories: Inventories are valued at the lower of cost or market,
principally under the last-in, first-out ("LIFO") method except for $39 million
in 1999 and $42 million in 1998 which are valued at the lower of average cost
or market. First-in, first-out ("FIFO") costs (which approximate replacement
costs) exceed the LIFO value by $52 million and $47 million at December 31,
1999 and 1998, respectively.
Net Property, Plant and Equipment: Property, plant and equipment are carried
at cost. The costs of additions, improvements and major replacements are
capitalized, while maintenance and repairs are charged to expense as incurred.
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. Estimated useful lives of
papermill machines average 23 years, while major converting equipment and
folding carton presses have an estimated useful life ranging from 12 to 20
years.
F-7
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
Timberland, less Timber Depletion: Timberland is stated at cost less
accumulated cost of timber harvested. 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. The Company sold approximately
980,000 acres of owned and leased timberlands in 1999 (See Note 4).
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.
Deferred Debt Issuance Costs: Deferred debt issuance costs included in other
assets are amortized over the terms of the respective debt obligations using
the interest method.
Long-Lived Assets: In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," long-lived assets held and used
by the Company and the related goodwill are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
Income Taxes: The Company accounts for income taxes in accordance with the
liability method of accounting for income taxes. Under the liability method,
deferred assets and liabilities are recognized based upon anticipated future
tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases (See
Note 7).
Financial Instruments: The Company periodically enters into interest rate
swap agreements that involve the exchange of fixed and floating rate interest
payments without the exchange of the underlying principal amount. For interest
rate instruments that effectively hedge interest rate exposures, the net cash
amounts paid or received on the agreements are accrued and recognized as an
adjustment to interest expense. If an arrangement is replaced by another
instrument and no longer qualifies as a hedge instrument, then it is marked to
market and carried on the balance sheet at fair value. Gains and losses
realized upon settlement of these agreements are deferred and amortized to
interest expense over a period relevant to the agreement if the underlying
hedged instrument remains outstanding, or immediately if the underlying hedged
instrument is settled.
Transfers of Financial Assets: The Company accounts for transfers of
financial assets in accordance with SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Accordingly,
financial assets transferred to qualifying special purpose entities and the
liabilities of such entities are not reflected in the consolidated financial
statements of the Company (See Note 4).
Environmental Matters: The Company expenses environmental expenditures
related to existing conditions resulting from past or current operations from
which no current or future benefit is discernible. Expenditures that extend the
life of the related property or mitigate or prevent future environmental
contamination are capitalized. Reserves for environmental liabilities are
established in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." The Company records a liability at the time when it
is probable and can be reasonably estimated. Such liabilities are not
discounted or reduced for potential recoveries from insurance carriers.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
Reclassifications: Certain reclassifications of prior year presentations
have been made to conform to the 1999 presentation.
Start-up Costs: In April 1998, the AICPA issued SOP 98-5, "Reporting the
Costs of Start-Up Activities," which requires that costs related to start-up
activities be expensed as incurred. Prior to 1998, the Company capitalized
certain costs to open new plants or to start new production processes. The
Company adopted the provisions of the SOP in its financial statements as of the
beginning of 1998. The Company recorded a charge for the cumulative effect of
an accounting change of $3 million, net of taxes of $2 million, to expense
costs that had been capitalized prior to 1998.
Computer Software-Internal Use: In March 1998, the AICPA issued SOP 98-1,
"Accounting for Computer Software Developed or Obtained for Internal Use." SOP
98-1 is effective beginning on January 1, 1999 and requires that certain costs
incurred after the date of adoption in connection with developing or obtaining
software for internal use must be capitalized. The adoption of SOP 98-1 did not
have a material effect on the 1999 financial statements.
Prospective Accounting Pronouncements: In 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company is
currently assessing what the impact of SFAS No. 133 will be on the Company's
future earnings and financial position.
2. Merger and Restructurings
During the fourth quarter of 1998, in connection with SSCC's Merger with
Stone, the Company recorded a pretax restructuring charge of $257 million
related to the permanent shutdown of certain containerboard mill operations and
related facilities formerly operated by JSC (U.S.), the termination of certain
JSC (U.S.) employees, and liabilities for lease commitments at the closed JSC
(U.S.) facilities. The containerboard mill facilities were permanently shut
down on December 1, 1998 and the Company is in various stages of dismantling
these facilities. The assets at these facilities were adjusted to their
estimated fair value less cost to sell based upon appraisals. The sales and
operating income of these mill facilities in 1998 prior to closure were $209
million and $9 million, respectively. The terminated employees included
approximately 700 employees at these mills and 50 employees in the Company's
corporate office. These employees were terminated in December 1998.
During 1999, the Company permanently closed eight additional facilities,
which resulted in approximately 400 employees being terminated. A $14 million
restructuring charge was recorded related to these closures. The 1999
adjustments include a reduction to 1998 exit liabilities of $5 million and a
reclassification of pension liabilities of $12 million.
F-9
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
The following is a summary of the restructuring liabilities recorded:
<TABLE>
<CAPTION>
Balance at Balance at
Opening December 31, December 31,
Balance Payments Adjustments 1998 Charge Payments Adjustments 1999
------- -------- ----------- ------------ ------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Write-down of property
and equipment to fair
value.................. $179 $ $(179) $ $ 4 $ $ (4) $
Severance............... 27 (3) 24 4 (26) 2
Lease commitments....... 21 (1) 20 (3) 17
Pension curtailments.... 9 9 3 (12)
Facility closure costs.. 13 (3) 10 1 (3) 8
Other................... 8 8 2 (3) (5) 2
---- --- ----- --- --- ---- ---- ---
$257 $(7) $(179) $71 $14 $(35) $(21) $29
==== === ===== === === ==== ==== ===
</TABLE>
Future cash outlays are anticipated to be $9 million in 2000, $4 million in
2001, $4 million in 2002, and $12 million thereafter. The Company is continuing
to evaluate all areas of its business in connection with its merger
integration, including the identification of additional converting facilities
that might be closed.
In addition, the Company recorded $23 million of Merger-related charges as
selling and administrative expenses during the fourth quarter of 1998. These
charges pertained to professional management fees to achieve operating
efficiencies from the Merger, fees for management personnel changes and other
Merger costs.
3. Net Property, Plant and Equipment
Net property, plant and equipment at December 31 consists of:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Land...................................................... $ 55 $ 61
Buildings and leasehold improvements...................... 247 281
Machinery, fixtures and equipment......................... 1,762 1,943
Construction in progress.................................. 40 51
------ ------
2,104 2,336
Less accumulated depreciation and amortization............ (797) (837)
------ ------
Net property, plant and equipment......................... $1,307 $1,499
====== ======
</TABLE>
Depreciation and depletion expense was $127 million, $127 million and $119
million for 1999, 1998 and 1997, respectively. Property, plant and equipment
include capitalized leases of $58 million and $54 million and related
accumulated amortization of $30 million and $23 million at December 31, 1999
and 1998, respectively.
4. Timberland Sale and Note Monetization
The Company sold approximately 980,000 acres of owned and leased timberland
in Florida, Georgia and Alabama in October 1999. The final purchase price,
after adjustments, was $710 million. The Company received $225 million in cash,
with the balance $485 million in the form of installment notes.
The Company entered into a program to monetize the installment notes
receivable. The notes were sold to Timber Notes Holdings, a qualified special
purpose entity under the provisions of SFAS No. 125, for $430 million cash
proceeds and a residual interest in the notes. The transaction has been
accounted for as a sale
F-10
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
under SFAS No. 125. The cash proceeds from the sale and the monetization
transactions were used to prepay borrowings under the 1998 Credit Agreement. At
December 31, 1999, the residual interest of $33 million was included in the
other assets.
The pretax gain of $407 million on the timberland sale and the related note
monetization program is included in other, net in the consolidated statements
of operations.
5. Long-Term Debt
Long-term debt as of December 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Bank Credit Facilities
Tranche A Term Loan (8.7% weighted average variable
rate), payable in various installments through March 31,
2005.................................................... $ 275 $ 400
Tranche B Term Loan (9.4% weighted average variable
rate), payable in various installments through March 31,
2006.................................................... 115 900
Revolving Credit Facility (9.0% weighted average variable
rate), due March 31, 2005............................... 50 85
Accounts Receivable Securitization Program Borrowings
Accounts receivable securitization program borrowings
(5.9% weighted average variable rate), due in February
2002.................................................... 224 209
Senior Unsecured Notes
11.25% Series A Senior Unsecured Notes, due May 1, 2004.. 300 300
10.75% Series B Senior Unsecured Notes, due May 1, 2002.. 100 100
9.75% Senior Notes due April 1, 2003..................... 500 500
Other Debt
Other (including obligations under capitalized leases of
$34 million and $37 million)............................ 72 76
------ ------
Total debt............................................... 1,636 2,570
Less current maturities.................................. (12) (44)
------ ------
Long-term debt........................................... $1,624 $2,526
====== ======
</TABLE>
The amounts of total debt outstanding at December 31, 1999 maturing during
the next five years are as follows:
<TABLE>
<S> <C>
2000................................................................. $ 12
2001................................................................. 9
2002................................................................. 386
2003................................................................. 560
2004................................................................. 378
Thereafter........................................................... 291
</TABLE>
F-11
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
Bank Credit Facilities
In March 1998, JSC (U.S.) entered into a bank credit facility (the "1998
Credit Agreement") consisting of a $550 million revolving credit facility
("Revolving Credit Facility") of which up to $150 million may consist of
letters of credit, a $400 million Tranche A Term Loan and a $350 million
Tranche B Term Loan. Net proceeds from the offering were used to repay the 1994
JSC (U.S.) Tranche A, Tranche B, Tranche C Term Loans and Revolving Credit
Facility. The write-off of related deferred debt issuance costs, totaling $13
million (net of income tax benefits of $9 million) for 1998, is reflected in
the accompanying consolidated statement of operations as an extraordinary item.
A commitment fee of .5% per annum is assessed on the unused portion of the
Revolving Credit Facility. At December 31, 1999, the unused portion of this
facility, after giving consideration to outstanding letters of credit, was $485
million.
On November 18, 1998, JSC (U.S.) and its bank group amended and restated the
1998 Credit Agreement to, among other things, (i) allow an additional $550
million borrowing on the Tranche B Term Loan, (ii) allow the purchase of a
paper machine from an affiliate (See Note 11), (iii) make a $300 million
intercompany loan to SSCC, which was contributed to Stone as additional paid-in
capital, (iv) permit the Merger, and (v) ease certain financial covenants.
On October 15, 1999 JSC (U.S.) and its bank group amended the 1998 Credit
Agreement to (i) permit the sale of the timberlands and the Newberg newsprint
mill, (ii) permit the cash proceeds from these asset sales to be applied as
prepayments against the 1998 Credit Agreement, (iii) permit certain prepayments
of other indebtedness, and (iv) ease certain quarterly financial covenants for
1999 and 2000. The proceeds from the timberland sale and the Newberg newsprint
mill were used to reduce the balance of the Tranche A and Tranche B Term Loans.
The write-off of related deferred debt issuance costs, totaling $10 million
(net of income tax benefits of $6 million) for 1999 is reflected in the
accompanying consolidated statements of operations as an extraordinary item.
The 1998 Credit Agreement contains various covenants and restrictions
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, and (iv) maintenance of certain financial covenants.
The 1998 Credit Agreement also requires prepayments if JSC (U.S.) has excess
cash flows, as defined, or receives proceeds from certain asset sales,
insurance, issuance of equity securities or incurrence of certain indebtedness.
The obligations under the 1998 Credit Agreement are unconditionally
guaranteed by SSCC, the Company and its subsidiaries and are secured by a
security interest in substantially all of the assets of JSC (U.S.) and its
material subsidiaries, with the exception of cash, cash equivalents and trade
receivables. The 1998 Credit Agreement is also secured by a pledge of all the
capital stock of the Company and each of its material subsidiaries and by
certain intercompany notes.
Accounts Receivable Securitization Program Borrowings
JSC (U.S.) has a $315 million accounts receivable securitization program
(the "Securitization Program") which 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"). The
accounts receivable purchases are financed through the issuance of commercial
paper or through borrowings under a revolving liquidity facility and a $15
million term loan. Under the Securitization Program, JS Finance has
F-12
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
granted a security interest in all its assets, principally cash and cash
equivalents and trade accounts receivable. The Company has $91 million
available for additional borrowing at December 31, 1999, subject to eligible
accounts receivable. Borrowings under the Securitization Program, which expire
February 2002, 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.
Senior Unsecured Notes
The 11.25% Series A Senior Unsecured Notes are redeemable in whole or in
part at the option of JSC (U.S.), at any time on or after May 1, 1999 with
premiums of 5.625% and after May 1, 2000 with a premium of 2.813% of the
principal amount. The 10.75% Series B Senior Unsecured Notes and the 9.75%
Senior Notes are not redeemable prior to maturity. Holders of the JSC (U.S.)
Senior Notes have the right, subject to certain limitations, to require JSC
(U.S.) to repurchase their securities at 101% of the principal amount plus
accrued and unpaid interest, upon the occurrence of a change in control or, in
certain events, from proceeds of major asset sales, as defined.
The Senior Notes, which are unconditionally guaranteed on a senior basis by
the Company, rank pari passu with the 1998 Credit Agreement and contain
business and financial covenants which are less restrictive than those
contained in the 1998 Credit Agreement.
Other
Interest costs capitalized on construction projects in 1999, 1998 and 1997
totaled $3 million, $2 million and $5 million, respectively. Interest payments
on all debt instruments for 1999, 1998 and 1997 were $214 million, $184 million
and $188 million, respectively.
6. Leases
The Company leases certain facilities and equipment for production, selling
and administrative purposes under operating leases. Future minimum rental
commitments (exclusive of real estate taxes and other expense) under operating
leases having initial or remaining non-cancelable terms in excess of one year,
excluding lease commitments on closed facilities, are reflected below:
<TABLE>
<S> <C>
2000................................................................ $ 29
2001................................................................ 25
2002................................................................ 21
2003................................................................ 18
2004................................................................ 16
Thereafter.......................................................... 43
----
Total minimum lease payments...................................... $152
====
</TABLE>
Net rental expense for operating leases, including leases having a duration
of less than one year, was approximately $50 million, $54 million and $50
million for 1999, 1998 and 1997, respectively.
F-13
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
7. Income Taxes
Significant components of the Company's deferred tax assets and liabilities
at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment and timberland............ $(399) $(335)
Inventory............................................... (20) (17)
Prepaid pension costs................................... (31) (30)
Timberland installment sale............................. (129)
Other................................................... (82) (124)
----- -----
Total deferred tax liabilities........................ (661) (506)
----- -----
Deferred tax assets
Employee benefit plans.................................. 91 89
Net operating loss, alternative minimum tax and tax
credit carryforwards................................... 148 103
Minimum pension liability............................... 2 2
Restructuring........................................... 7 49
Other................................................... 42 36
----- -----
Total deferred tax assets............................. 290 279
Valuation allowance for deferred tax assets............. (10) (10)
----- -----
Net deferred tax assets............................... 280 269
----- -----
Net deferred tax liabilities.......................... $(381) $(237)
===== =====
</TABLE>
At December 31, 1999, the Company had approximately $95 million of net
operating loss carryforwards for U.S. federal income tax purposes that expire
in 2018, with a tax value of $33 million. At December 31, 1999, the Company had
approximately $43 million of net operating loss carryforwards for state
purposes that expire in the years 2000 through 2019. A valuation allowance of
$10 million has been established for a portion these deferred tax assets. The
Company had approximately $72 million of alternative minimum tax credit
carryforwards for U.S. federal income tax purposes, which are available
indefinitely.
The benefit from (provision for) income taxes from continuing operations
before income taxes, extraordinary item and cumulative effect of accounting
change is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Current
Federal.............................................. $ (10) $ 9 $10
State and local...................................... 3
----- ---- ---
Total current benefit (expense).................... (10) 12 10
Deferred
Federal.............................................. (147) 88 (5)
State and local...................................... (29) 8 (2)
Net operating loss carryforwards.....................
----- ---- ---
Total deferred benefit (expense)................... (176) 96 (7)
----- ---- ---
Total benefit from (provision for) income taxes.... $(186) $108 $ 3
===== ==== ===
</TABLE>
F-14
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
The Company's benefit from (provision for) income taxes differed from the
amount computed by applying the statutory U.S. federal income tax rate to
income (loss) from continuing operations before income taxes, extraordinary
item and cumulative effect of accounting change is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
U.S. federal income tax benefit (provision) at federal
statutory rate....................................... $(162) $ 99 $ 8
Permanent differences from applying purchase
accounting........................................... (3) (3) (3)
Permanently non-deductible expenses................... (2) (2) (8)
State income taxes, net of federal income tax effect.. (19) 12 2
Effect of valuation allowances on deferred tax assets,
net of federal benefit............................... 1 7
Other................................................. 1 (3)
----- ---- ---
Benefit from (provision for) income taxes............. $(186) $108 $ 3
===== ==== ===
</TABLE>
The IRS has examined the Company tax returns for all years through 1991, and
the years have been closed through 1988. The years 1992 through 1994 are
currently under examination. While the ultimate results of such examination
cannot be predicted with certainty, the Company's management believes that the
examination will not have a material adverse effect on its consolidated
financial condition or results of operations.
The Company made income tax payments of $33 million, $16 million and $8
million in 1999, 1998 and 1997, respectively.
8. Employee Benefit Plans
Defined Benefit Plans
The Company participates in the SSCC sponsored noncontributory defined
benefit pension plans covering substantially all employees. On December 31,
1998, the defined benefit plans of the Company were merged with the domestic
defined benefit plans of Stone and the assets of these plans are available to
meet the funding requirements of the combined plans. The Company intends to
fund its proportionate share of the future contributions based on the funded
status of the Company's plan determined on an actuarial basis. Therefore, the
plan asset information provided below is based on an actuarial estimate of
assets and liabilities, excluding the effect of the plan merger, in order to be
consistent with the presentation of the consolidated statements of operations
and the consolidated balance sheets.
The benefit obligation, fair value of plan assets and the under funded
status of the Stone domestic merged defined benefit plans at December 31, 1999
were $459 million, $360 million and $(99) million, respectively.
Approximately 29% of SSCC's domestic pension plan assets at December 31,
1999 are invested in cash equivalents or debt securities and 71% are invested
in equity securities. Equity securities at December 31, 1999 include .7 million
shares of SSCC common stock with a market value of approximately $18 million
and 26 million shares of JS Group common stock having a market value of
approximately $79 million. Dividends paid on JS Group common stock during 1999
and 1998 were approximately $2 million in each year.
Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits for all
salaried as well as certain hourly employees. The assumed health care cost
trend rate used in measuring the accumulated postretirement
F-15
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
benefit obligation ("APBO") was 6.5% at December 31, 1999 decreasing to the
ultimate rate of 5.25%. The effect of a 1% increase in the assumed health care
cost trend rate would increase the APBO as of December 31, 1999 by $2 million
and have an immaterial effect on the annual net periodic postretirement
benefit cost for 1999.
The following provides a reconciliation of benefit obligations, plan
assets, and funded status of the plans.
<TABLE>
<CAPTION>
Defined Postretirement
Benefit Plans Plans
-------------- ---------------
1999 1998 1999 1998
------ ------ ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1........ $1,011 $ 950 $ 105 $ 103
Service cost........................... 21 18 2 1
Interest cost.......................... 69 68 7 7
Amendments............................. 5 8
Plan participants' contributions....... 4 4
Curtailments........................... (2)
Actuarial (gain) loss.................. (90) 22 (7) 3
Benefits paid.......................... (59) (55) (15) (13)
------ ------ ------ -------
Benefit obligation at December 31...... $ 957 $1,011 $ 94 $ 105
------ ------ ------ -------
Change in plan assets:
Fair value of plan assets at January
1..................................... $1,008 $1,013 $ $
Actual return on plan assets........... 205 49
Employer contributions................. 1 1 11 9
Plan participants' contributions....... 4 4
Benefits paid.......................... (59) (55) (15) (13)
------ ------ ------ -------
Fair value of plan assets at December
31.................................... $1,155 $1,008 $ $
------ ------ ------ -------
Over (under) funded status:............ $ 198 $ (3) $ (94) $ (105)
Unrecognized actuarial (gain) loss..... (189) 20 (3) 6
Unrecognized prior service cost........ 40 44 (2) (2)
Net transition asset................... (6) (9)
------ ------ ------ -------
Net amount recognized.................. $ 43 $ 52 $(99) $(101)
------ ------ ------ -------
Amounts recognized in the balance
sheets:
Prepaid benefit cost................... $ 71 $ 52 $ $
Accrued benefit liability.............. (28) (99) (101)
Additional minimum liability........... (3) (16)
Intangible asset....................... 3 10
Accumulated other comprehensive
income................................ 4
Deferred tax........................... 2
------ ------ ------ -------
Net amount recognized.................. $ 43 $ 52 $ (99) $ (101)
------ ------ ------ -------
</TABLE>
F-16
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
The weighted-average assumptions used in the accounting for the defined
benefit plans and postretirement plans were:
<TABLE>
<CAPTION>
Defined
Benefit Postretirement
Plans Plans
---------- ----------------
1999 1998 1999 1998
---- ---- ------- -------
<S> <C> <C> <C> <C>
Weighted discount rate.. 8.00% 7.00% 8.00% 7.00%
Rate of compensation
increase............... 4.50% 3.75% N/A N/A
Expected return on
assets................. 9.50% 9.50% N/A N/A
Health care cost trend
on covered charges..... N/A N/A 6.50% 6.50%
</TABLE>
The components of net pension expense for the defined benefit plans and the
components of the postretirement benefit costs follow:
<TABLE>
<CAPTION>
Defined Benefit Plans Postretirement Plans
------------------------- ----------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 26 $ 24 $ 19 $ 1 $ 1 $ 1
Interest cost........... 69 68 65 7 7 7
Expected return on plan
assets................. (91) (85) (80)
Amortization of
transitional asset..... (4) (4)
Recognized actuarial
loss................... 4 4
Curtailment cost........ 6 2
------- ------- ------- ------ ------ ------
Net periodic benefit
cost................... $ 10 $ 9 $ 4 $ 8 $ 8 $ 8
======= ======= ======= ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $33 million, $31 million and zero, respectively,
as of December 31, 1999 and $72 million, $70 million and $36 million as of
December 31, 1998.
Savings Plans
The Company sponsors voluntary savings plans covering substantially all
salaried and certain hourly employees. The Company match is paid in SSCC common
stock, up to an annual maximum. The Company's expense for the savings plans
totaled $9 million in each of 1999, 1998 and 1997.
9. Discontinued Operations
During February 1999, the Company adopted a formal plan to sell the
operating assets of its subsidiary, Smurfit Newsprint Corporation ("SNC").
Accordingly, SNC was accounted for as a discontinued operation in the prior
consolidated financial statements. SNC consists of two newsprint mills in
Oregon, and its Cladwood(R) operation, which consists of two plants which
manufacture a wood composite panel used in the housing industry. The Company
subsequently decided to continue to operate its Cladwood(R) business and
therefore, Cladwood's(R) operating income (loss) of $1 million in 1999, $(29)
million in 1998 and $1 million in 1997 was reclassified to continuing
operations. Cladwood's(R) operating loss in 1998 includes a $30 million charge
related to a class action settlement agreement (see Note 13). The revenues and
net assets of Cladwood(R) were not material to the consolidated financial
statements in any of the periods presented.
In November 1999, the Company sold its Newberg, Oregon newsprint mill for
proceeds of approximately $211 million. The Company is in negotiations to
transfer ownership of the Oregon City, Oregon newsprint mill
F-17
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
and does not expect to realize any significant proceeds from the transaction.
Net gain on disposition of discontinued operations of $4 million includes the
realized gain on the sale of the Newberg, Oregon newsprint mill, an expected
loss on the sale of the Oregon City, Oregon newsprint mill, actual results
from the measurement date through December 31, 1999 and the estimated losses
on the Oregon City, Oregon newsprint mill through the expected disposition
date.
SNC newsprint revenues were $235 million, $303 million and $281 million for
1999, 1998 and 1997, respectively. The net assets of SNC newsprint included in
the accompanying consolidated balance sheets as of December 31, 1999 and 1998
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Inventories and current assets................................ $ 34 $ 36
Net property, plant and equipment............................. 48 183
Other assets.................................................. 11 7
Accounts payable and other current liabilities................ (94) (63)
Other liabilities............................................. (4) (42)
---- ----
Net assets (liabilities) of discontinued operations......... $ (5) $121
==== ====
</TABLE>
10. Employee Stock Options
Prior to the Merger, the Company's parent, SSCC, maintained the 1992
Jefferson Smurfit Corporation stock option plan (the "1992 Plan") for selected
employees of the Company. The 1992 Plan included non-qualified stock options,
issued at prices equal to the fair market value of SSCC's common stock at the
date of grant, which expire upon the earlier of twelve years from the date of
grant or termination of employment, death or disability. Effective with the
Merger, all outstanding options became exercisable and fully vested.
In November 1998, SSCC adopted the 1998 Long-term Incentive Plan (the "1998
Plan") and reserved 8.5 million shares of SSCC common stock for non-qualified
stock options and performance awards. Certain employees of the Company are
covered under the 1998 Plan as are certain employees of Stone. The options are
exercisable at a price equal to the fair market value of SSCC's common stock
at the date of the grant and vest eight years after the date of grant subject
to accelerations based upon the attainment of pre-established stock price
targets. The options expire ten years after the date of grant.
The Company and its parent have elected to continue to follow APB Opinion
No. 25 to account for stock awards granted to employees. If the Company
adopted SFAS No. 123 to account for stock awards granted to employees, the
Company's net income for the three years in the period ended December 31,
1999, based on a Black-Scholes option pricing method, would not have been
materially different. The effects of applying SFAS No. 123 as described above
may not be representative of the effects on reported income for future years.
During the second quarter of 1999, the Company recorded a $26 million
charge in selling and administrative expenses, related to the cashless
exercise of SSCC stock options under the 1992 Plan. The charge was reflected
in the consolidated financial statements because the options were exercised by
JSC (U.S.) employees. No future stock option expense is expected.
F-18
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
11. Related Party Transactions
Transactions With JS Group
Transactions with JS Group, a significant shareholder of the Company, its
subsidiaries and affiliated companies were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Product sales............................................. $33 $39 $34
Product and raw material purchases........................ 16 54 51
Management services income................................ 3 4 4
Charges from JS Group for services provided............... 1 1
Charges to JS Group for costs pertaining to the Fernandina
No. 2 paperboard machine through November 18, 1998....... 50 53
Receivables at December 31................................ 1 5 3
Payables at December 31................................... 13 4 11
</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 affiliates' gross sales.
In consideration for elective services, the Company is reimbursed for its
direct cost of providing such services.
On November 18, 1998, the Company purchased the No. 2 paperboard machine
located in the Company's Fernandina Beach, Florida, paperboard mill (the
"Fernandina Mill") for $175 million from an affiliate of JS Group. Until that
date the Company and the affiliate were parties to an operating agreement
whereby the Company operated and managed the No. 2 paperboard machine. The
Company was compensated for its direct production and manufacturing costs and
indirect manufacturing, selling and administrative costs incurred for the
entire Fernandina Mill. The compensation was determined by applying various
formulas and agreed-upon amounts to the subject costs. The amounts reimbursed
to the Company are reflected as reductions of cost of goods sold and selling
and administrative expenses in the accompanying consolidated statements of
operations.
Transactions With Stone
Transactions with Stone after November 18, 1998 are included in related
party transactions. The Company sold and purchased containerboard paper from
Stone, primarily at market prices, as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Product sales................................................... $248 $14
Product and raw material purchases.............................. 237 8
Receivables at December 31...................................... 60 8
Payables at December 31......................................... 32 4
</TABLE>
Corporate shared expenses are allocated between the Company and Stone based
on an established formula using a weighted average rate based on net book value
of fixed assets, number of employees and sales.
F-19
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
Transactions With SSCC
In connection with the Merger, a $300 million intercompany loan was made to
SSCC, which was contributed to Stone as additional paid-in capital. In
addition, a $36 million intercompany loan was made to SSCC to pay certain
Merger costs. These notes bear interest at the rate of 14.21% per annum, are
payable semi-annually on December 1 and June 1 of each year commencing June 1,
1999, and have a maturity date of November 18, 2004. SSCC has the option, in
lieu of paying accrued interest in cash, to pay the accrued interest by adding
the amount of accrued interest to the principal amount of the notes. Interest
income of $48 million was recorded in 1999 and $6 million was recorded in 1998.
12. Fair Value of Financial Instruments
The carrying values and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ 11 $ 11 $ 18 $ 18
Notes receivable from SSCC.............. 364 364 342 342
Residual interest in timber notes....... 33 33
Long-term debt, including current
maturities............................. 1,636 1,664 2,570 2,600
</TABLE>
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments. The fair values of notes receivable
are based on discounted future cash flows. The fair value of the Company's 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 residual interest is based on discounted
future cash flows.
13. Contingencies
The Company's past and present operations include activities which are
subject to federal, state and local environmental requirements, particularly
relating to air and water quality. The Company faces potential environmental
liability as a result of violations of permit terms and similar authorizations
that have occurred from time to time at its facilities. In addition, the
Company faces potential liability for response costs at various sites with
respect to which the Company has received notice that it may be a potentially
responsible party ("PRP"), concerning hazardous substance contamination. In
estimating its reserves for environmental remediation and future costs, the
Company's estimated liability reflects only the Company's expected share after
consideration for the number of other PRPs at each site, the identity and
financial condition of such parties and experience regarding similar matters.
Subsequent to an understanding reached in December 1998, the Company and SNC
entered into a Settlement Agreement in January 1999 to implement a nationwide
class action settlement of claims involving Cladwood(R), a composite wood
siding product manufactured by SNC that has been used primarily in the
construction of manufactured or mobile homes. In 1998, the Company recorded a
$30 million pre-tax charge to reflect amounts SNC paid into a settlement fund,
administrative costs, plaintiffs' attorneys' fees, class representative
payments and other costs. The Company believes its reserve is adequate to pay
eligible claims. However, the number of claims, and the number of potential
claimants who choose not to participate in the settlement, could cause the
Company to re-evaluate whether the liabilities in connection with the
Cladwood(R) cases could exceed established reserves.
F-20
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
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 operations.
14. Business Segment Information
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1998 which changes the way operating
segment information is presented. The information for 1998 and 1997 has been
restated from the prior year's presentation in order to conform to the 1999
presentation.
The Company has three reportable segments: (1) Containerboard and Corrugated
Containers, (2) Boxboard and Folding Cartons and (3) Reclamation. The
Containerboard and Corrugated Containers segment is highly integrated. It
includes a system of mills and plants that produces a full line of
containerboard that is converted into corrugated containers. Corrugated
containers are used to transport such diverse products as home appliances,
electric motors, small machinery, grocery products, produce, books, tobacco and
furniture. The Boxboard and Folding Cartons segment is also highly integrated.
It includes a system of mills and plants that produces a broad range of coated
recycled boxboard that is converted into folding cartons. Folding cartons are
used primarily to protect products such as food, fast food, detergents, paper
products, beverages, health and beauty aids and other consumer products, while
providing point of purchase advertising. The Reclamation segment collects
recovered paper generated by industrial, commercial and residential sources
which is used as raw material for the Company's containerboard and boxboard
mills as well as sales to external third party mills.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies except that the Company accounts for inventory
on a FIFO basis at the segment level compared to a LIFO basis at the
consolidated level. Intersegment sales and transfers are recorded at market
prices. Intercompany profit is eliminated at the corporate division level.
The Company's reportable segments are strategic business units that offer
different products. The reportable segments are each managed separately because
they manufacture distinct products. Other includes specialty packaging business
unit and corporate related items. Corporate related items include goodwill,
equity investments, income and expense not allocated to reportable segments
(goodwill amortization and interest expense), the adjustment to record
inventory at LIFO, and the elimination of intercompany assets and intercompany
profit.
In 1998, corporate related items also included a $257 million restructuring
charge (See Note 2). The restructuring charge included $179 million for the
write-down of property, plant and equipment of the Containerboard and
Corrugated Containers segment. In 1999, corporate related items included a $407
million gain on the timberland sale and related note monetization program (See
Note 4).
F-21
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
A summary by business segment follows:
<TABLE>
<CAPTION>
Container-
board & Boxboard
Corrugated & Folding Recla-
Containers Cartons mation Other Total
---------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
1999
Revenues from external customers.. $1,734 $836 $437 $ 288 $3,295
Intersegment revenues............. 40 126 19 185
Depreciation, depletion and
amortization..................... 68 24 3 28 123
Segment profit.................... 177 62 13 210 462
Total assets at December 31....... 1,195 449 110 982 2,736
Capital expenditures.............. 30 15 2 22 69
1998
Revenues from external customers.. $1,696 $784 $265 $ 298 $3,043
Intersegment revenues............. 39 132 17 188
Depreciation, depletion and
amortization..................... 70 22 3 26 121
Segment profit (loss)............. 113 67 (1) (458) (279)
Total assets at December 31....... 1,410 450 78 1,236 3,174
Capital expenditures.............. 208 26 6 25 265
1997
Revenues from external customers.. $1,607 $752 $292 $ 306 $2,957
Intersegment revenues............. 35 154 13 202
Depreciation, depletion and
amortization..................... 67 21 3 24 115
Segment profit (loss)............. 56 68 6 (152) (22)
Total assets at December 31....... 1,467 435 93 776 2,771
Capital expenditures.............. 101 37 7 37 182
</TABLE>
The following table presents net sales to external customers by country of
origin:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
United States.............................................. $3,289 $3,038 $2,952
Foreign.................................................... 6 5 5
------ ------ ------
Total net sales.......................................... $3,295 $3,043 $2,957
====== ====== ======
</TABLE>
F-22
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular amounts in millions)
15. Summarized Financial Information JSC (U.S.)
The following summarized financial information is presented for JSC (U.S.),
a wholly owned subsidiary of the Company. Other wholly owned subsidiaries of
the Company, established in the third quarter of 1999, are not presented
separately due to their insignificance to the Company as a whole.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Current assets................................................ $ 716 $ 694
Property, plant and equipment and timberlands, net............ 1,309 1,760
Goodwill...................................................... 205 226
Other assets.................................................. 430 494
------- -------
Total assets.............................................. $ 2,660 $ 3,174
======= =======
Current liabilities........................................... $ 671 $ 549
Long-term debt................................................ 1,624 2,526
Other liabilities............................................. 605 637
Stockholder's deficit
Common stock................................................
Additional paid-in capital.................................. 1,124 1,102
Retained earnings (deficit)................................. (1,364) (1,636)
Accumulated other comprehensive income...................... (4)
------- -------
Total stockholder's deficit............................... (240) (538)
------- -------
Total liabilities and stockholder's deficit............... $ 2,660 $ 3,174
======= =======
</TABLE>
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales............................................. $3,295 $3,043 $2,957
Cost and expenses..................................... 3,064 3,121 2,781
Interest expense, net................................. 180 196 196
Other income (expense), net........................... 411 (5) (2)
Income (loss) from continuing operations before income
taxes, extraordinary item, and cumulative effect of
accounting change.................................... 462 (279) (22)
Benefit from (provision for) income taxes............. (186) 108 3
Discontinued operations............................... 2 27 20
Gain on disposition of discontinued operations........ 4
Extraordinary item
Loss from early extinguishment of debt, net of
income tax benefits................................ (10) (13)
Cumulative effect of accounting change................ (3)
------ ------ ------
Net income (loss)..................................... $ 272 $ (160) $ 1
====== ====== ======
</TABLE>
F-23
<PAGE>
JSCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(Tabular amounts in millions)
16. 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
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
Net sales...................................... $ 729 $ 786 $ 855 $ 925
Gross profit................................... 95 141 140 166
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change............................. (17) (2) 9 286
Discontinued operations........................ 4 (1) (4) 3
Gain on disposition of discontinued
operations.................................... 4
Extraordinary item............................. (10)
Cumulative effect of accounting change.........
Net income (loss).............................. (13) (3) 5 283
1998
Net sales...................................... $ 769 $ 769 $ 763 $ 742
Gross profit................................... 127 125 125 92
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting change............................. 3 2 3 (179)
Discontinued operations........................ 8 9 5 5
Extraordinary item............................. (13)
Cumulative effect of accounting change......... (3)
Net income (loss).............................. (5) 11 8 (174)
</TABLE>
F-24
<PAGE>
[COMPANY LOGO APPEARS HERE]
<PAGE>
Jefferson Smurfit Corporation (U.S.)
JSCE, Inc.
PART II
INFORMATION NOT REQUIRED IN THIS PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses paid in connection with
the original offerings of the notes, other than underwriting discounts and
commissions. All of such expenses, except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fees, have been estimated.
<TABLE>
<CAPTION>
Expenses Amount
- -------- ----------
<S> <C>
Securities and Exchange Commission registration fee................. $ 363,147
National Association of Securities Dealers, Inc. filing fee......... 61,000
Blue Sky fees and expenses.......................................... 55,000
Printing and engraving expenses..................................... 825,000
Legal fees and expenses............................................. 1,300,000
Accounting fees and expenses........................................ 450,000
Miscellaneous....................................................... 27,603
----------
Total............................................................. $3,081,750
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws of the co-registrants provide the co-registrants with the
authority to indemnify their directors, officers, employees and agents to the
full extent allowed by Delaware law. Smurfit-Stone Container Corporation
maintains an insurance policy which provides directors and officers of the co-
registrants with coverage in connection with certain events.
See Item 17 for the co-registrants' undertaking with respect to
indemnification.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The Exhibits to this registration statement are listed in the Index to
Exhibits.
(b) Financial Statement Schedules--"Schedule II--Valuation and Qualifying
Accounts and Reserves" of JSCE, Inc. is immediately following the
Index to Exhibits.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the co-registrants pursuant to the
foregoing provisions, or otherwise, the co-registrants have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the co-registrants of expenses incurred
or paid by a director, officer or controlling person of the co-registrants in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the co-registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-1
<PAGE>
The co-registrants hereby undertake:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the co-registrants pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(d) If the co-registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of
Regulation S-X at the start of any delayed offering or
throughout a continuous offering.
(4) For purposes of determining any liability under the Securities Act,
each filing of the co-registrants' annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (and where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act), that
is incorporated by reference into these Post-Effective Amendments shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused these Post-Effective
Amendments Nos. 6 and 7 to the Registration Statements to be signed on its
behalf by the undersigned, thereunto duly authorized, on May 9, 2000.
Jefferson Smurfit Corporation (U.S.)
/s/ Patrick J. Moore
By: _________________________________
Patrick J. Moore
Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, these Post-
Effective Amendments Nos. 6 and 7 to the Registration Statements have been
signed below by the following persons in the capacities and on the dates
indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Moore and Craig A. Hunt as 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 any and all post-effective amendments to the Registration
Statements, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent 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 each said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ray M. Curran Director, President and May 9, 2000
______________________________________ Chief Executive Officer
Ray M. Curran (Principal Executive
Officer)
/s/ Patrick J. Moore Vice President and Chief May 9, 2000
______________________________________ Financial Officer
Patrick J. Moore (Principal Financial and
Accounting Officer)
</TABLE>
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Co-
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused these Post-
Effective Amendments Nos. 6 and 7 to the Registration Statements to be signed
on its behalf by the undersigned, thereunto duly authorized, on May 9, 2000.
JSCE, Inc.
/s/ Patrick J. Moore
By: _________________________________
Patrick J. Moore
Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, these Post-
Effective Amendments Nos. 6 and 7 to the Registration Statements have been
signed below by the following persons in the capacities and on the dates
indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Moore and Craig A. Hunt as 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 any and all post-effective amendments to the Registration
Statements, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent 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 each said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ray M. Curran Director, President and May 9, 2000
______________________________________ Chief Executive Officer
Ray M. Curran (Principal Executive
Officer)
/s/ Patrick J. Moore Vice President and Chief May 9, 2000
______________________________________ Financial Officer
Patrick J. Moore (Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------- ---
<C> <S> <C>
1.1(a)* Underwriting Agreement relating to the Series A and Series B
Senior Notes, previously filed as Exhibit 1.1 to the Company's
Registration Statement on Form S-2 (No. 33-2383).
1.1(b)* Underwriting Agreement relating to the 1993 Senior Notes,
previously filed as Exhibit 1.1 to the Company's Registration
Statement on Form S-2 (No. 33-58348).
1.2* Agreements, dated April 4, 1994, between JSC (U.S.) and A.G.
Edwards & Sons, Inc., the qualified independent underwriter.
2.1 Agreement and Plan of Merger dated as of May 10, 1998, as
amended, among SSCC, Stone and JSC Acquisition (incorporated by
reference to Exhibit 2(a) to SSCC's Registration Statement on
Form S-4 (File No. 333-65431)).
2.2 Stock Purchase Agreement dated as of May 10, 1998 among SIBV,
JSG, MSLEF, SSCC and certain other shareholders of SSCC
(incorporated by reference to Exhibit 2(b) to SSCC's
Registration Statement on Form S-4 (File No. 333-65431)).
2.3 Asset Purchase Agreement dated as of May 10, 1998 between SSCC
and Smurfit Packaging Corporation (incorporated by reference to
Exhibit 2(c) to SSCC's Registration Statement on Form S-4 (File
No. 333-65431)).
3.1* Restated Certificate of Incorporation of JSC (U.S.).
3.2* Certificate of Incorporation of JSCE.
3.3* By-laws of JSC (U.S.).
3.4* By-laws of JSCE.
4.1 Indenture for the Series A Senior Notes (incorporated by
reference to Exhibit 4.1 to JSC's Quarterly report on Form 10-Q
for the quarter ended March 31, 1994).
4.2 Indenture for the Series B Senior Notes (incorporated by
reference to Exhibit 4.2 to JSC's Quarterly report on Form 10-Q
for the quarter ended March 31, 1994).
4.3 Indenture for the 1993 Senior Notes (incorporated by reference
to Exhibit 4.4 to JSC's Registration Statement on Form S-1
(File No. 33-75520)).
4.4 First Supplemental Indenture to the 1993 Senior Note Indenture
(incorporated by reference to Exhibit 4.5 to JSC's Registration
Statement on Form S-1 (File No. 33-75520)).
4.5* Second Supplemental Indenture to the 1993 Senior Note
Indenture.
5.1(a)* Opinion of Skadden, Arps, Slate, Meagher & Flom relating to the
Series A and Series B Senior Notes, previously filed as Exhibit
5.1 to the Company's Registration Statement on Form S-2
(No. 33-52383).
5.1(b)* Opinion of Skadden, Arps, Slate, Meagher & Flom relating to the
1993 Senior Notes, previously filed as Exhibit 5.1 to the
Company's Registration Statement on Form S-2 (No. 33-58348).
10.1 Subscription Agreement among SSCC, JSC (U.S.), CCA and SIBV
(incorporated by reference to Exhibit 10.4 to SSCC's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994).
10.2 JSC (U.S.) Deferred Compensation Plan, as amended (incorporated
by reference to Exhibit 10.7 to SSCC's Annual Report on Form
10-K for the fiscal year ended December 31, 1996).
10.3 JSC (U.S.) Management Incentive Plan (incorporated by reference
to Exhibit 10.10 to SSCC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.4 Jefferson Smurfit Corporation Amended and Restated 1992 Stock
Option Plan dated as of May 1, 1997 (incorporated by reference
to Exhibit 10.10 to SSCC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------- ---
<C> <S> <C>
10.5(a) Amended and Restated Credit Agreement, dated as of November 18,
1998, among SSCC, JSCE, JSC (U.S.) and the Banks party thereto
(incorporated by reference to Exhibit 10.6 to SSCC's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998).
10.5(b) First Amendment of Amended and Restated Credit Agreement, dated
as of June 30, 1999, among SSCC, JSCE, JSC (U.S.) and the banks
party thereto (incorporated by reference to Exhibit 10.1 to
SSCC's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999).
10.5(c) Second Amendment of Amended and Restated Credit Agreement, dated
as of October 15, 1999, among SSCC, JSCE, JSC (U.S.) and the
banks party thereto (incorporated by reference to Exhibit 10.1
to SSCC's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.5(d) 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 SSCC's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
10.5(e) Depositary and Issuing and Paying Agent Agreement (Series A
Commercial Paper) dated as of February 23, 1995 (incorporated by
reference to Exhibit 10.2 to SSCC's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1995).
10.5(f) Depositary and Issuing and Paying Agent Agreement (Series B
Commercial Paper) dated as of February 23, 1995 (incorporated by
reference to Exhibit 10.3 to SSCC's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1995).
10.5(g) Receivables Purchase and Sale Agreement dated as of February 23,
1995 among JSC (U.S.), as the Initial Servicer and JS Finance,
as the Purchaser (incorporated by reference to Exhibit 10.4 to
SSCC's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995).
10.5(h) Liquidity Agreement dated as of February 23, 1995 among JS
Finance, the Financial Institutions party thereto as Banks,
Bankers Trust Company as Facility Agent and Bankers Trust
Company as Collateral Agent (incorporated by reference to
Exhibit 10.6 to SSCC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.5(i) Commercial Paper Dealer Agreement dated as of February 23, 1995
among BT Securities Corporation, MS&Co., JSC (U.S.) and JS
Finance (incorporated by reference to Exhibit 10.7 to SSCC's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1995).
10.5(j) Addendum dated March 6, 1995 to Commercial Paper Dealer
Agreement (incorporated by reference to Exhibit 10.8 to SSCC's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1995).
10.5(k) First Omnibus Amendment dated as of March 31, 1996 to the
Receivables Purchase and Sale Agreement among JSC (U.S.), JS
Finance and the Banks party thereto (incorporated by reference
to Exhibit 10.3 to SSCC's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
10.5(l) Affiliate Receivables Sale Agreement dated as of March 31, 1996
between SNC and SSCC (incorporated by reference to Exhibit 10.4
to SSCC's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
10.5(m) Amendment No. 2 dated as of August 19, 1997 to the Term Loan
Agreement among JS Finance and Bank Brussels Lambert, New York
Branch and JSC (U.S.) as Servicer (incorporated by reference to
Exhibit 10.12(j) to SSCC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
10.5(n) Amendment No. 2 dated as of August 19, 1997 to the Receivables
Purchase and Sale Agreement among JSC (U.S.) as the Seller and
Servicer, JS Finance as the Purchaser, Bankers Trust Company as
Facility Agent and Bank Brussels Lambert, New York Branch as the
Term Bank (incorporated by reference to Exhibit 10.12(k) to
SSCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------- ---
<C> <S> <C>
10.5(o) Amendment No. 2 dated as of August 19, 1997 to the Liquidity
Agreement among JS Finance, Bankers Trust Company as Facility
Agent, JSC (U.S.) as Servicer, Bank Brussels Lambert, New York
Branch as Term Bank and the Financial Institutions party
thereto as Banks (incorporated by reference to Exhibit 10.12(1)
to SSCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
10.6 Consulting Agreement dated as of October 24, 1996 by and
between James S. Terrill and JSC (U.S.) (incorporated by
reference to Exhibit 10.15 to SSCC's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.7 Registration Rights Agreement dated as of May 10, 1998 among
MSLEF, SIBV, SSCC and the other parties identified on the
signature pages thereto (incorporated by reference to Exhibit
10(e) to SSCC's Registration Statement on Form S-4 (File No.
333-65431)).
10.8 Voting Agreement dated as of May 10, 1998, as amended, among
SIBV, MSLEF and Mr. Roger W. Stone (incorporated by reference
to Exhibit 10(f) to SSCC's Registration Statement on Form S-4
(File No. 333-65431)).
10.9(a) SSCC 1998 Long Term Incentive Plan (incorporated by reference
to Exhibit 10.14 to SSCC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998).
10.9(b) First Amendment of the SSCC 1998 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to SSCC's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999).
10.10 Forms of Employment Security Agreements (incorporated by
reference to Exhibit 10(h) to SSCC's Registration Statement on
Form S-4 (File No. 333-65431)).
10.11 Stone Container Corporation Directors' Deferred Compensation
Plan (incorporated by reference to Exhibit 10(b) to Stone
Container Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
10.12 Stone Container Corporation 1982 Incentive Stock Option Plan
(incorporated by reference to Appendix A to the Prospectus
included in Stone Container Corporation's Form S-8 Registration
Statement, Registration Number 2-79221, effective September 27,
1982).
10.13 Stone Container Corporation 1993 Stock Option Plan
(incorporated by reference to Appendix A to Stone Container
Corporation's Proxy Statement dated as of April 10, 1992).
10.14 Stone Container Corporation 1992 Long-Term Incentive Program
(incorporated by reference to Exhibit A to Stone Container
Corporation's Proxy Statement dated as of April 11, 1991).
10.15 Stone Container Corporation 1995 Long-Term Incentive Plan
(incorporated by reference to Exhibit A to Stone Container
Corporation's Proxy Statement dated as of April 7, 1995).
10.16(a) Purchase and Sale Agreement, effective as of July 28, 1999,
between Rayonier, Inc. and JSC (U.S.) (incorporated by
reference to Exhibit 2.1 to JSCE's Current Report on Form 8-K
dated October 25, 1999).
10.16(b) First Amendment to Purchase and Sale Agreement, dated October
21, 1999, between Rayonier, Inc. and JSC (U.S.) (incorporated
by reference to Exhibit 2.2 to JSCE's Current Report on
Form 8-K dated October 25, 1999).
10.17 Employment Agreement of Ray M. Curran (incorporated by
reference to Exhibit 10.27 to SSCC's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999).
10.18 Employment Agreement of Patrick J. Moore (incorporated by
reference to Exhibit 10.27 to SSCC's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999).
12.1 Calculation of Historical Ratios of Earnings to Fixed Charges
for JSCE.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------- ---
<C> <S> <C>
12.2 Calculation of Historical Ratios of Earnings to Fixed Charges
for JSC (U.S.).
23.1(a)* Consent of Skadden, Arps, Slate, Meagher & Flom (included in
Exhibit 5.1(a)).
23.1(b)* Consent of Skadden, Arps, Slate, Meagher & Flom (included in
Exhibit 5.1(b)).
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (included on signature page hereto).
25.1(a)* Statement on Form T-1 of the eligibility of NationsBank of
Georgia, National Association, as Trustee under the Series A
Senior Note Indenture and the Series B Senior Note Indenture,
previously filed as Exhibit 25.1 to the Company's Registration
Statement on Form S-2 (No. 33-52383).
25.1(b)* Statement on Form T-1 of the eligibility of NationsBank of
Georgia, National Association, as Trustee under the 1993 Senior
Note Indenture, previously filed as Exhibit 25.1 to the
Company's Registration.
</TABLE>
- --------
* Previously filed.
II-8
<PAGE>
JSCE, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ---------- ---------- ----------
Additions
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Description of Period Expenses Describe Period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
and sales returns and allowances:
Year ended December 31, 1999.... $ 9 $ 1 $ 1(a) $ 9
Year ended December 31, 1998.... $10 $ 2 $ 3(a) $ 9
Year ended December 31, 1997.... $ 9 $ 2 $ 1(a) $10
Restructuring:
Year ended December 31, 1999.... $71 $ 14 $ 56(b) $29
Year ended December 31, 1998.... $ $257 $186(b) $71
</TABLE>
- --------
(a) Uncollectible amounts written off, net of recoveries.
(b) Charges against the restructuring reserves and adjustments to 1998 exit
liabilities.
II-9
<PAGE>
EXHIBIT 12.1
JSCE, INC.
CALCULATION OF HISTORICAL RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before
income taxes, extraordinary item and
cumulative effect of accounting change $ 462 $ (279) $ (22) $ 132 $ 370
Add (deduct):
Minority interest share of income (loss) 2
Equity in loss of affiliate (1)
Interest expense (a) 227 196 196 198 235
Interest component of rental expense 12 13 12 12 12
--------------------------------------------------
Earnings available for fixed charges $ 700 $ (70) $ 186 $ 342 $ 619
==================================================
Fixed Charges:
Interest expense (a) $ 227 $ 196 $ 196 $ 198 $ 235
Capitalized interest 3 2 5 3 3
Interest component of rental expense 12 13 12 12 12
--------------------------------------------------
Total fixed charges $ 242 $ 211 $ 213 $ 213 $ 250
==================================================
Ratio of earnings to fixed charges 2.89 (b) (b) 1.60 2.49
==================================================
</TABLE>
(a) Interest expense includes amortization of debt issuance cost of $10 million
in 1999, $8 million in 1998, $11 million in 1997, $13 million in 1996 and
$14 million in 1995.
(b) For the years ended December 31, 1998 and 1997, earnings were inadequate to
cover fixed charges by $281 million and $27 million, respectively.
<PAGE>
EXHIBIT 12.2
JEFFERSON SMURFIT CORPORATION (U.S.)
CALCULATION OF HISTORICAL RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before
income taxes, extraordinary item and
cumulative effect of accounting change $ 462 $ (279) $ (22) $ 132 $ 370
Add (deduct):
Minority interest share of income (loss) 2
Equity in loss of affiliate (1)
Interest expense (a) 227 196 196 198 235
Interest component of rental expense 12 13 12 12 12
------- ------- ------- ------- -------
Earnings available for fixed charges $ 700 $ (70) $ 186 $ 342 $ 619
======= ======= ======= ======= =======
Fixed Charges:
Interest expense (a) $ 227 $ 196 $ 196 $ 198 $ 235
Capitalized interest 3 2 5 3 3
Interest component of rental expense 12 13 12 12 12
------- ------- ------- ------- -------
Total fixed charges $ 242 $ 211 $ 213 $ 213 $ 250
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 2.89 (b) (b) 1.60 2.49
======= ======= ======= ======= =======
</TABLE>
(a) Interest expense includes amortization of debt issuance cost of $10 million
in 1999, $8 million in 1998, $11 million in 1997, $13 million in 1996 and
$14 million in 1995.
(b) For the years ended December 31, 1998 and 1997, earnings were inadequate to
cover fixed charges by $281 million and $27 million, respectively.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and in the
headnotes to "Selected Consolidated Historical Financial Data" and to the use of
our report dated January 24, 2000, with respect to the consolidated financial
statements and schedule of JSCE, Inc. included in the Post-Effective Amendment
No. 6 to the Registration Statement (Form S-2 to Form S-3, No. 33-52383) and the
Post-Effective Amendment No. 7 to the Registration Statement (Form S-2 to Form
S-3, 33-58348), and the related Prospectus of Jefferson Smurfit Corporation
(U.S.), for the registration of $300 million aggregate principal amount of
11 1/4% Series A Senior Notes due 2004, $100 million aggregate principal amount
of 10 3/4% Series B Senior Notes due 2002, and $500 million aggregate principal
amount of 9 3/4% 1993 Senior Notes due 2003, all of which are unconditionally
guaranteed on a senior basis by JSCE, Inc. and to the incorporation by reference
therein of our report dated January 24, 2000, with respect to the consolidated
financial statements and schedule of JSCE, Inc. included in its Annual Report on
Form 10-K for the year ended December 31, 1999 filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
St. Louis, Missouri
May 5, 2000
