UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For Quarter Ended September 30, 1997
Commission File Number 0-23876
JEFFERSON SMURFIT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 43-1531401
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8182 Maryland Avenue, St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
(314) 746-1100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1997, the registrant had outstanding 110,993,015
shares of common stock, $.01 par value per share.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 832 $ 834 $ 2,395 $ 2,594
Costs and expenses
Cost of goods sold 703 683 2,054 2,083
Selling and administrative expenses 64 65 193 195
Income from operations 65 86 148 316
Interest expense, net (48) (48) (142) (147)
Income before income taxes and
extraordinary item 17 38 6 169
Provision for income taxes 9 16 9 67
Income (loss) before extraordinary item 8 22 (3) 102
Extraordinary item
Loss from early extinguishment of debt,
net of income tax benefits (4)
Net income (loss) $ 8 $ 22 $ (3) $ 98
Per share of common stock:
Income (loss) before extraordinary item $ .07 $ .20 $ (.03) $ .92
Extraordinary item (.04)
Net income (loss) $ .07 $ .20 $ (.03) $ .88
Weighted average shares outstanding 111 111 111 111
</TABLE>
See note to consolidated financial statements.
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
<CAPTION>
September 30, December 31,
1997 1996
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 12 $ 12
Receivables, less allowances of
$10 in 1997 and $9 in 1996 316 279
Inventories
Work-in-process and finished goods 92 81
Materials and supplies 132 126
224 207
Deferred income taxes 41 46
Prepaid expenses and other current assets 8 8
Total current assets 601 552
Net property, plant and equipment 1,497 1,466
Timberland, less timber depletion 266 263
Goodwill, less accumulated amortization of
$56 in 1997 and $50 in 1996 241 246
Other assets 147 161
$ 2,752 $ 2,688
Liabilities and Stockholders' Deficit
Current liabilities
Current maturities of long-term debt $ 9 $ 10
Accounts payable 311 290
Accrued compensation and payroll taxes 85 92
Interest payable 48 30
Other accrued liabilities 95 103
Total current liabilities 548 525
Long-term debt, less current maturities 1,986 1,934
Other long-term liabilities 231 241
Deferred income taxes 365 363
Stockholders' deficit
Preferred stock, par value $.01 per share;
50,000,000 shares authorized; none issued
and outstanding
Common stock, par value $.01 per share;
250,000,000 shares authorized; 110,993,015 and
110,989,156 issued and outstanding in 1997
and 1996, respectively 1 1
Additional paid-in capital 1,168 1,168
Retained earnings (deficit) (1,547) (1,544)
Total stockholders' deficit (378) (375)
$ 2,752 $ 2,688
</TABLE>
See note to consolidated financial statements.
<PAGE>
<TABLE>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<CAPTION>
Nine months ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (3) $ 98
Adjustments to reconcile net income to
net cash provided by operating activities
Extraordinary loss from early extinguishment of debt 7
Depreciation, depletion and amortization 106 101
Amortization of deferred debt issuance costs 8 10
Deferred income taxes 7 25
Non-cash employee benefit expense 5 12
Change in current assets and liabilities,
net of effects from acquisitions
Receivables (38) 39
Inventories (16) 28
Accounts payable and accrued liabilities (4) 10
Interest payable 18 16
Income taxes payable (2) 1
Other, net (2) (3)
Net cash provided by operating activities 79 344
Cash flows from investing activities
Property additions (109) (88)
Timberland additions (18) (14)
Construction funds held in escrow 8 (8)
Investment in affiliates and acquisitions (9)
Proceeds from property and timberland disposals 5 5
Net cash used for investing activities (123) (105)
Cash flows from financing activities
Net borrowings (repayments) under Accounts
Receivable Securitization Program 26 (25)
Proceeds from long-term borrowings 261
Net borrowings (repayments) of long-term
debt and related premiums 18 (486)
Deferred debt issuance costs (6)
Net cash provided by (used for) financing activities 44 (256)
Decrease in cash and cash equivalents 0 (17)
Cash and cash equivalents
Beginning of period 12 27
End of period $ 12 $ 10
</TABLE>
See note to consolidated financial statements.
<PAGE>
JEFFERSON SMURFIT CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions, except share data)
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements of Jefferson Smurfit
Corporation ("JSC" or the "Company") have been prepared in accordance
with the instructions to Form 10-Q and reflect all adjustments which
management believes necessary (which include only normal recurring
accruals) to present fairly the financial position and results of
operations. These statements, however, do not include all information
and footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with
generally accepted accounting principles. Interim results may not
necessarily be indicative of results which may be expected for any other
interim period or for the year as a whole. For further information
refer to the consolidated financial statements and footnotes included
in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, filed on February 26, 1997 with the Securities and Exchange
Commission.
JSC owns 100% of the equity interest in JSCE, Inc. JSC has no
operations other than its investment in JSCE, Inc. JSCE, Inc. owns 100%
of the equity interest in Jefferson Smurfit Corporation (U.S.) ("JSC
(U.S.)"). JSC (U.S.) has extensive operations throughout the United
States. JSCE, Inc. has no operations other than its investment in JSC
(U.S.).
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
Results of Operations
<CAPTION>
(In millions) Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales
Paperboard/Packaging Products $ 753 $ 755 $2,173 $2,346
Newsprint 79 79 222 248
Total net sales $ 832 $ 834 $2,395 $2,594
Income from operations
Paperboard/Packaging Products $ 56 $ 78 $ 132 $ 263
Newsprint 9 8 16 53
Total income from operations $ 65 $ 86 $ 148 $ 316
</TABLE>
The Company's net sales and income from operations for the three months
and nine months ended September 30, 1997 declined compared to last year
due primarily to product pricing. For the three months ended September
30, 1997, the Company's net sales were comparable and income from
operations declined 24% compared to last year. For the nine months ended
September 30, 1997, the Company's net sales declined 8% and income from
operations declined 53% compared to last year. The decline in net sales
due to sales price and product mix for the three months ended September
30, 1997 was nearly offset by higher sales volumes. The net sales impact
of changes in price and product mix, shipment volumes, new plants and
closed operations are shown in the chart below.
<TABLE>
<CAPTION>
(In millions) Change in net sales analysis
Three months Nine months
1997 compared to 1996 1997 compared to 1996
<S> <C> <C>
Sales price and product mix
Paperboard/Packaging Products $ (25) $(219)
Newsprint (1) (73)
(26) (292)
Sales volume
Paperboard/Packaging Products 23 52
Newsprint 1 47
24 99
Acquisitions and new facilities
Paperboard/Packaging Products 8 19
Closed or sold facilities
Paperboard/Packaging Products (8) (25)
Total net sales decrease $ (2) $(199)
</TABLE>
<PAGE>
Paperboard/Packaging Products Segment
For the three months ended September 30, 1997, net sales of the
Paperboard/ Packaging Products segment were $753 million, a decrease of
$2 million compared to last year and income from operations was $56
million, a decrease of $22 million compared to last year. The net sales
decline was due primarily to lower product prices for many of the
Company's major products, particularly for containerboard and corrugated
shipping containers. Increases in shipment volume for many of the
Company's major products partially offset the declines due to the lower
product prices. The major changes in net sales price and shipments within
the product groups of the Paperboard/Packaging Products segment are
discussed below.
For the three months ended September 30, 1997, net sales of
containerboard and corrugated shipping containers were $352 million, a
decline of $24 million compared to last year. Strong demand for
containerboard and corrugated shipping containers enabled the Company to
successfully implement price increases for these products. Liner and
medium prices were increased by $40 per ton and $30 per ton,
respectively, during the quarter and corrugated shipping container prices
were increased beginning September 1, 1997 and will be fully implemented
in the fourth quarter. Despite the increases, average prices for
containerboard and corrugated shipping containers during the quarter were
lower than last year by 4% and 9%, respectively. Pricing of corrugated
shipping containers was flat, however, when compared to the second
quarter of 1997. An additional containerboard price increase of $50 per
ton was implemented by the Company on October 1, 1997, and a 12% price
increase for corrugated shipping containers effective November 17, 1997
was announced. No assurance can be given however, that the announced
increase will be successful. Shipments of corrugated shipping containers
during the third quarter increased by 5% compared to last year.
<PAGE>
Net sales of reclaimed fiber and virgin wood fiber for the third quarter
were $99 million, an increase of $27 million compared to last year.
Reclaimed fiber shipments were also strong during the third quarter,
increasing 6% compared to last year. Reclaimed fiber prices during the
third quarter were approximately $30 per ton higher, on average, compared
to last year.
Net sales of the other products in this segment for the third quarter
were lower than last year by 2% overall, due primarily to lower prices
and plant closures.
For the nine months ended September 30, 1997, net sales of the
Paperboard/ Packaging Products segment decreased $173 million to $2,173
million, a 7% drop compared to the same period in 1996 and income from
operations decreased to $132 million, a 50% drop compared to the same
period last year. The decreases in net sales and income from operations
were primarily a result of the significant price reductions in
containerboard and corrugated shipping containers, particularly as
compared to the first half of 1996.
Net sales of containerboard and corrugated shipping containers for the
year-to-date period were $1,042 million, a decline of $186 million
compared to last year. Average prices for containerboard and corrugated
shipping containers were lower than last year by 18% and 16%,
respectively, for the year-to-date period. Demand for corrugated
shipping containers has been strong throughout 1997, with sales volume
increasing by 7% compared to last year. The Company took downtime,
amounting to 23,000 tons, at two of its containerboard mills in the
second quarter of 1997. Additional downtime is expected in the fourth
quarter of 1997, including a ten-day shutdown of three containerboard
mills in December and a 21-day shutdown of the Company's mottled white
paper machine in the Brewton, AL mill for a major machine upgrade. The
downtime will have a negative effect on fourth quarter profits.
Net sales of reclaimed fiber and virgin wood fiber for the year-to-date
period were $257 million, an increase of $53 million compared to last
year. Reclaimed fiber prices for the nine months ended September 30,
1997 were 15% higher, on average, compared to last year. Reclaimed fiber
shipments increased 9% for the year-to-date period.
Net sales of the other products in this segment for the year-to-date
period were lower than last year by 4% overall, due primarily to lower
prices and plant closures.
Newsprint Segment
Net sales for the Newsprint segment for the three months ended September
30, 1997, were $79 million, the same as last year. Strengthening demand for
newsprint enabled the Company to implement a $75 per metric ton increase
in the price of newsprint during the second quarter of 1997. Despite the
increase, the average sales price during the third quarter was lower than
last year by approximately $30 per metric ton. The impact of the price
decline was offset by increased sales volume. Sales volume was 5% higher
than last year during the third quarter. Income from operations for the
third quarter was $9 million, an increase of $1 million compared to last
year.
For the nine months ended September 30, 1997 net sales for the newsprint
segment were $222 million, a decline of $26 million compared to last year,
and income from operations was $16 million, a decline of $37 million
compared to last year. The declines were due to lower average newsprint
prices, which, on average, were lower than last year by $155 per metric
ton, or 23%. Sales volume for the nine months ended September 30, 1997,
increased 29%, due in part to the downtime taken at the mills in 1996.
Costs and Expenses
The Company's cost of goods sold as a percent of net sales increased
compared to last year for the three months and nine months ended September
30, 1997 due primarily to overall lower sales prices and, to a lesser
extent, higher recycled fiber cost in 1997. In the Paperboard/Packaging
Products segment the percentage increased from 81% in 1996 to 85% in 1997
for the three months ended September 30 and increased from 81% in 1996 to
86% in 1997 for the nine months ended September 30. For the newsprint
segment, the percentage decreased from 86% in 1996 to 84% in 1997 for the
three month period and increased from 76% in 1996 to 89% in 1997 for the
nine month period.
Selling and administrative expenses as a percent of net sales were
comparable to last year for the three months and were higher than last year
for the nine months ended September 30, 1997. Overall lower sales prices
were the primary reason for the increase in the percentage of selling and
administrative expenses to net sales for the nine months ended
September 30, 1997, compared to last year. The modest decline in selling
and administrative expenses was due primarily to lower employee benefits
cost.
Interest expense was comparable to last year for the three months ended
September 30, 1997, but declined $5 million for the nine months ended
September 30, 1997. The decrease for the year-to-date period was due
primarily to lower average debt levels outstanding. The average effective
interest rate for the Company's outstanding debt was comparable for the
1997 and 1996 periods.
<PAGE>
The provision for income taxes was $9 million for the three months ended
September 30, 1997 and $9 million for the nine months ended September 30,
1997. The effective tax rates for the stated periods differed from the
Federal statutory tax rate due to several factors, the most significant of
which was the effect of permanent differences from applying purchase
accounting.
The Company will be required to adopt Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", in the fourth
quarter of 1997. The effect of the adoption of the new rules is
expected to be immaterial to reported earnings per share for the
three months and nine months ended September 30, 1997.
<TABLE>
<CAPTION>
Statistical Data Three months ended Nine months ended
(In thousands of tons, September 30, September 30,
except as noted) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Mill production:
Containerboard 512 510 1,464 1,463
Recycled boxboard and
solid bleached sulfate 207 198 615 579
Newsprint 159 142 474 417
Sales volume:
Corrugated shipping containers 531 505 1,563 1,461
Corrugated shipping containers
(billion square feet) 8.2 7.8 24.0 22.5
Folding cartons 124 118 351 350
Fiber reclaimed and brokered 1,208 1,135 3,562 3,270
</TABLE>
Liquidity and Capital Resources
Operating activities have historically been the major source of
cash to fund the Company's capital expenditures and debt payments.
Net cash provided by operating activities for the nine months
ended September 30, 1997 of $79 million and net borrowings of $44
million were used primarily to fund capital investments and
acquisitions totaling $136 million. During 1997, the Company
acquired a corrugated shipping container plant in Florida and
three Chicago-area recycling plants. The Company shut down and
sold a small uncoated recycled paperboard mill in Monroe, MI,
which was unprofitable in recent years. The Company also sold its
plant in Farmingdale, NY, which produced fragranced advertising
products. During the third quarter, the Company purchased a
50,000 acre woodlands tract that complements its southern
holdings.
The Company's credit agreement (the "Credit Agreement") contains
various business and financial covenants including, among other
things, maintenance of minimum levels of consolidated earnings
before depreciation, interest, taxes and amortization and
maintenance of minimum interest coverage ratios. In view of the
economic downturn within the Company's business segments,
particularly in the early part of 1997, the Company sought an
amendment to the Credit Agreement to ease certain of its financial
covenants. The amendment to the Credit Agreement was granted in
June 1997. The 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.
<PAGE>
Such restrictions, together with the highly leveraged position of
the Company, could restrict corporate activities including the
Company's ability to respond to market conditions, to provide for
unanticipated capital expenditures or to take advantage of
business opportunities.
At September 30, 1997, the Company had $299 million of unused
borrowing capacity under its Credit Agreement and $109 million of
unused borrowing capacity under its $315 million accounts
receivable securitization program, subject to JSC (U.S.)'s level
of eligible accounts receivable. The Company believes that cash
provided by operating activities and available financing sources
will be sufficient for the next several years to pay interest on
the Company's obligations, amortize its term loans and fund
capital expenditures.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, in January 1997, Smurfit Newsprint Corporation,
a wholly owned subsidiary of the Company ("SNC") was sued in state court
in South Carolina on a purported class-action basis, over an exterior
siding product manufactured by SNC and known as Cladwood. In June 1997,
SNC was dismissed from the case for lack of jurisdiction.
As previously reported, in July 1997, SNC was sued in federal court in
Georgia on a purported class-action basis, over Cladwood. Subsequently,
Plaintiffs voluntarily dismissed the case in federal court and, in
October 1997, filed a similar case in state court in Georgia, naming as
defendants SNC and certain manufacturers and distributors of
premanufactured homes in Georgia. The newly-filed complaint alleges the
same causes of action as were set forth in the federal court matter;
namely, breach of warranty and negligence. Plaintiffs seek an
unspecified aggregate amount of actual, statutory and punitive damages.
SNC intends to vigorously defend the action.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
In August 1997, Mr. James R. Thompson resigned from the Board of
Directors of the Company and Mr. Thomas A. Reynolds III was appointed to
the Company's Board of Directors. Mr. Reynolds is a partner in the law
firm of Winston & Strawn. Mr. Reynolds joined Winston & Strawn in 1983.
He is an adjunct facilty member at Northwestern University School of Law
and is a member of the Board of Directors of Georgetown University.
In October 1997, Mr. James Hoch resigned from the Board of Directors of
the Company and Mr. Michael M. Janson was appointed to the Company's
Board of Directors. Mr. Janson is a Managing Director of Morgan Stanley
Capital Partners III, Inc. and Morgan Stanley & Co. Inc. ("MS&CO"). Mr.
Janson joined MS&Co in 1987 and MS&CO's Merchant Banking Division in
1997. He was previously a Managing Director in MS&CO's High Yield
Capital Markets Department.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included in this Form 10-Q.
11.1 Calculation of Per Share Earnings.
27.1 Financial Data Schedule.
b) Reports on Form 8-K
Form 8-K regarding a complaint filed against a subsidiary of the
Company was filed with the Securities and Exchange Commission on
September 2, 1997.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JEFFERSON SMURFIT CORPORATION
(Registrant)
Date October 31, 1997 /s/ Patrick J. Moore
Patrick J. Moore
Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000919226
<NAME> JEFFERSON SMURFIT CORPORATION
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 317
<ALLOWANCES> 10
<INVENTORY> 224
<CURRENT-ASSETS> 601
<PP&E> 2413
<DEPRECIATION> 916
<TOTAL-ASSETS> 2752
<CURRENT-LIABILITIES> 548
<BONDS> 1986
0
0
<COMMON> 1
<OTHER-SE> (378)
<TOTAL-LIABILITY-AND-EQUITY> 2752
<SALES> 2395
<TOTAL-REVENUES> 2395
<CGS> 2054
<TOTAL-COSTS> 2054
<OTHER-EXPENSES> 193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> 6
<INCOME-TAX> 9
<INCOME-CONTINUING> (3)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
<TABLE>
EXHIBIT 11.1
JEFFERSON SMURFIT CORPORATION
CALCULATION OF PER SHARE EARNINGS
(In millions, except per share data)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997<F2> 1996<F2> 1997<F1> 1996<F2>
<S> <C> <C> <C> <C>
Primary earnings per share
Weighted average shares outstanding 111 111 111 111
Income (loss) applicable to common
shares before extraordinary item $ 8 $ 22 $ (3) $ 102
Extraordinary item (4)
Net income (loss) applicable to common
shares $ 8 $ 22 $ (3) $ 98
Per share amounts
Income (loss) before extraordinary item $ .07 $ .20 $(.03) $ .92
Extraordinary item (.04)
Net income (loss) applicable to common
shares $ .07 $ .20 $(.03) $ .88
Fully diluted earnings per share
Weighted average shares outstanding 111 111 111 111
Income (loss) applicable to common
shares before extraordinary item $ 8 $ 22 $ (3) $ 102
Extraordinary item (4)
Net income (loss) applicable to common
shares $ 8 $ 22 $ (3) $ 98
Per share amounts
Income (loss) before extraordinary item $ .07 $ .20 $(.03) $ .92
Extraordinary item (.04)
Net income (loss) applicable to common
shares $ .07 $ .20 $(.03) $ .88
<FN>
<F1> The computations do not include common stock equivalents associated
with stock options which would have been antidilutive.
<F2> The computations do not include common stock equivalents associated
with stock options since the dilutive effect on earnings per share
is not material.
</FN>
</TABLE>
