Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-23876
Jefferson Smurfit Corporation
(Exact name of registrant as specified in its charter)
Delaware 43-1531401
(State of incorporation (I.R.S. Employer
or organization) Identification)
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: (314) 746-1100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Common Stock $.01 par value
Title of Class
Indicate by check mark whether 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of January 31, 1997:
approximately $300 million
The number of shares outstanding of the registrant's common stock as of
January 31, 1997: 110,989,156
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K
into Which
Document is
Document Incorporated
Sections of the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 1, 1997 III
<PAGE>
JEFFERSON SMURFIT CORPORATION
Annual Report on Form 10-K
December 31, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I
Page
<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . .11
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . .14
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . .22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . .47
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . .47
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . .52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Jefferson Smurfit Corporation, together with its direct and
indirect subsidiaries, hereinafter, referred to as the "Company" or
"JSC," operates in two business segments, Paperboard/Packaging
Products and Newsprint. The Company believes it is one of the
nation's largest producers of paperboard and packaging products and
is the largest producer of recycled paperboard and recycled
packaging products and the largest processor of wastepaper. In
addition, the Company believes it is one of the nation's largest
producers of recycled newsprint.
The Company's Paperboard/Packaging Products segment includes a
system of paperboard mills that, in 1996, produced 1,973,000 tons
of virgin and recycled containerboard, 774,000 tons of recycled
boxboard and solid bleached sulfate ("SBS") and 166,000 tons of
uncoated recycled boxboard, which were sold to the Company's own
converting operations and to third parties. The Company's
converting operations consist of 50 corrugated container plants, 18
folding carton plants and 20 industrial packaging plants located
across the country, with three plants located outside the U.S. In
1996, the Company's container plants converted 1,991,000 tons of
containerboard, an amount equal to approximately 101% of the amount
it produced, its folding carton plants converted 521,000 tons of
SBS, recycled boxboard and coated natural kraft, an amount equal to
approximately 67% of the amount it produced, and its industrial
packaging plants converted 153,000 tons of uncoated recycled
boxboard, an amount equal to approximately 92% of the amount it
produced. The Paperboard/Packaging Products segment also includes
the Company's reclamation division, which processed or brokered
approximately 4.5 million tons of wastepaper in 1996, its timber
division, which manages approximately one million acres of owned or
leased timberland located close to its virgin fiber mills, and 14
consumer packaging plants. The Company's Paperboard/Packaging
Products segment contributed 91% of the Company's net sales in
1996.
The Company's Newsprint segment includes two newsprint mills in
Oregon, which produced 576,000 tons of recycled newsprint in 1996,
and two facilities that produce Cladwood, a wood composite exterior
siding, manufactured from sawmill shavings and newsprint.
For a summary of net sales, income from operations, identifiable
assets, capital expenditures and depreciation, depletion and
amortization for the Company's segments, see Note 13, "Business
Segment Information," of the Notes to Consolidated Financial
Statements contained in Part II, Item 8, "Financial Statements and
Supplementary Data."
Except for the historical information contained in this Annual
Report on Form 10-K, certain matters discussed herein, including
(without limitation) in particular under Part I, Item 1, "Business
- - Environmental Compliance," under Part I, Item 3, "Legal
Proceedings," and under Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
contain forward looking statements, as that term is defined in the
Private Securities Reform Act of 1995. The matters referred to in
such statements could be affected by the risks and uncertainties
involved in the Company's business, including (without limitation)
the effect of economic and market conditions, continued pricing
pressures in key product lines, the level and volatility of
interest rates and currency values, wastepaper prices, costs
related to environmental matters and the impact of current or
pending legislation and regulations.
<PAGE>
Jefferson Smurfit Corporation owns 100% of the equity interest in
JSCE, Inc., hereinafter referred to as "JSCE." Jefferson Smurfit
Corporation has no operations other than its investment in JSCE.
JSCE owns a 100% equity interest in Jefferson Smurfit Corporation
(U.S.) ("JSC (U.S.)"). JSC (U.S.) has extensive operations
throughout the United States. JSCE has no operations other than
its investment in JSC (U.S.).
PRODUCTS
PAPERBOARD/PACKAGING PRODUCTS SEGMENT
CONTAINERBOARD AND CORRUGATED SHIPPING CONTAINERS
The Company's containerboard operations are highly integrated.
Tons of containerboard produced and converted for the last three
years were:
<TABLE>
<CAPTION>
1996 1995 1994
(Tons in thousands)
<S> <C> <C> <C>
Containerboard
Production 1,973 1,905 1,932
Consumption 1,991 1,925 2,018
</TABLE>
The Company's mills produce a full line of containerboard,
including unbleached kraft linerboard, mottled white linerboard and
recycled medium. Unbleached kraft linerboard is produced at the
Company's mills located in Fernandina Beach and Jacksonville,
Florida, and mottled white linerboard is produced at its Brewton,
Alabama mill. Recycled medium is produced at the Company's mills
located in Alton, Illinois, Carthage, Indiana, Circleville, Ohio
and Los Angeles, California. In 1996, the Company produced
1,095,000, 336,000 and 542,000 tons of unbleached kraft linerboard,
mottled white linerboard and recycled medium, respectively. The
Company's sales of containerboard in 1996 were $772 million
(including $434 million of intracompany sales). Sales of
containerboard to the Company's container plants are at market
prices.
Corrugated shipping containers, manufactured from containerboard in
converting plants, are used to ship such diverse products as home
appliances, electric motors, small machinery, grocery products,
produce, books, tobacco and furniture and for many other
applications, including point of purchase displays. The Company
stresses the value added aspects of its corrugated containers, such
as labeling and multi-color graphics, to differentiate its products
and respond to customer requirements. The Company's 50 container
plants serve local customers and large national accounts and are
located nationwide, generally in or near large metropolitan areas.
The Company's total sales of corrugated shipping containers in 1996
were $1,345 million (including $90 million of intracompany sales).
Total corrugated shipping container sales volumes for 1996, 1995
and 1994 were 30,022, 29,382 and 30,822 million square feet,
respectively.
<PAGE>
RECYCLED BOXBOARD, SOLID BLEACHED SULFATE AND FOLDING CARTONS
The Company's recycled boxboard, SBS and folding carton operations
are also integrated. Tons of recycled boxboard and SBS produced
and converted for the last three years were:
<TABLE>
1996 1995 1994
(Tons in thousands)
<S> <C> <C> <C>
Recycled Boxboard and SBS
Production 774 773 767
Consumption 521 529 543
</TABLE>
The Company produces coated recycled boxboard at its mills located
in Middletown, Ohio, Philadelphia, Pennsylvania, Santa Clara,
California and Wabash, Indiana. The Company produces uncoated
recycled boxboard at its Los Angeles, California mill and SBS at
its Brewton, Alabama mill. In 1996, the Company produced 585,000
and 189,000 tons of recycled boxboard and SBS, respectively. The
Company's total sales of recycled boxboard and SBS in 1996 were
$420 million (including $191 million of intracompany sales).
The Company's folding carton plants offer a broad range of
converting capabilities, including web and sheet lithographic,
rotogravure and flexographic printing and a full line of structural
and design graphics services. The Company's 18 facilities convert
recycled boxboard and SBS into folding cartons. Folding cartons
are used primarily to protect customers' products while providing
point of purchase advertising. The Company makes 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 and multinational accounts. The Company's
folding carton plants are located nationwide, generally in or near
large metropolitan areas. The Company's sales of folding cartons
in 1996 were $666 million (none of which were intracompany sales).
Folding carton sales volumes for 1996, 1995 and 1994 were 467,000,
469,000 and 486,000 tons, respectively.
The Company has focused its capital expenditures in these
operations and its marketing activities 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.
The Company provides marketing consultation and research activities
through its Design and Market Research (DMR) center. It provides
customers with graphic and product design tailored to the specific
technical requirements of lithographic, rotogravure and
flexographic printing, as well as photography for packaging, sales
promotion concepts and point of purchase displays.
UNCOATED RECYCLED BOXBOARD AND INDUSTRIAL PACKAGING
The Company's uncoated recycled boxboard and industrial packaging
operations are also integrated. Tons of uncoated recycled boxboard
produced and converted for the last three years were:
<TABLE>
<CAPTION>
1996 1995 1994
(Tons in thousands)
<S> <C> <C> <C>
Uncoated Recycled Boxboard
Production 166 164 166
Consumption 153 148 128
</TABLE>
<PAGE>
Uncoated recycled boxboard, a portion of which is used by the
Company's industrial packaging operations, is produced at its mills
located in Cedartown, Georgia, Lafayette, Indiana, Monroe, Michigan
and Tacoma, Washington. In January 1997, the Company announced its
intention to discontinue operations at its Monroe, Michigan mill.
The Monroe mill produced 38,000, 44,000 and 47,000 tons of uncoated
recycled boxboard in 1996, 1995 and 1994, respectively. In 1996,
the Company's total sales of uncoated recycled boxboard were $63
million (including $28 million of intracompany sales).
The Company's 20 industrial packaging plants convert uncoated
recycled boxboard into papertubes and cores. Papertubes and cores
are used primarily for paper, film and foil, yarn carriers and
other textile products and furniture components. The Company also
produces solid fiber partitions for the pharmaceutical,
electronics, glass, cosmetics and plastics industries. In
addition, the Company produces a patented self-locking partition
especially suited for automated packaging and product protection.
The Company also manufactures corrugated pallets that are made
entirely from corrugated components and are lightweight yet
extremely strong and are fully recyclable. The Company's
industrial packaging sales in 1996 were $115 million (including $6
million in intracompany sales).
CONSUMER PACKAGING
The Company manufactures a wide variety of products at its 14
consumer products facilities. These products include flexible
packaging, paper and metallized paper labels and labels that are
heat transferred to plastic containers for a wide range of
industrial and consumer product applications. The contract
packaging plants provide a wide variety of custom contract
packaging services including cartoning, bagging, liquid- or powder-
filling and high-speed overwrapping. The Company produces high-
quality rotogravure cylinders and has a full-service organization
experienced in the production of color separations and lithographic
film for the commercial printing, advertising and packaging
industries. In January 1997, the Company sold its Farmingdale, New
York plant, which produced fragranced advertising products. The
Company's total sales of consumer packaging products and services
in 1996 were $187 million (including $13 million of intracompany
sales).
FIBER RESOURCES AND TIMBER PRODUCTS
The raw materials essential to the Company's business are reclaimed
fiber and virgin wood fiber. The Brewton, Circleville,
Jacksonville and Fernandina Beach mills use primarily wood fibers,
while the other paperboard mills use reclaimed fiber exclusively.
In 1996, the newsprint mills used approximately 46% wood fiber and
54% reclaimed fiber.
The use of recycled products in the Company's operations begins
with its reclamation division which operates 27 facilities that
collect, sort, grade and bale wastepaper, as well as collect
aluminum and glass. The reclamation division also operates a
nationwide brokerage system whereby it purchases and resells
wastepaper (including wastepaper for use in its recycled fiber
mills) on a regional and national contract basis. Such contracts
provide bulk purchasing, resulting in lower prices and cleaner
wastepaper. The reclamation division provides valuable fiber
resources to both the paperboard and newsprint segments of the
Company as well as to other producers. Many of the reclamation
facilities are located close to the Company's recycled paperboard
and newsprint mills, assuring availability of supply, when needed,
with minimal shipping costs. During 1996, the Company's reclamation
plants and brokerage operations satisfied all of the Company's mill
requirements for reclaimed fiber. The Company's total sales of
recycled materials in 1996 were $351 million (including $133
million of intracompany sales).
<PAGE>
The amount of wastepaper collected and the proportions sold
internally and externally by the Company's reclamation division for
the last three years were:
<TABLE>
<CAPTION>
1996 1995 1994
(Tons in thousands)
<S> <C> <C> <C>
Wastepaper collected by Reclamation Division 4,464 4,293 4,134
Percent sold internally 39.8% 43.1% 45.5%
Percent sold to third parties 60.2% 56.9% 54.5%
</TABLE>
The Company's timber division manages approximately one million
acres of owned and leased timberland. In 1996, approximately 56%
of the timber harvested by the Company was used in its
Jacksonville, Fernandina Beach and Brewton mills. The Company
harvested 1,020,000 cords of timber, which would satisfy
approximately 39% of the Company's requirements for wood fibers.
The Company's wood fiber requirements not satisfied internally are
purchased on the open market or under long-term contracts. In
1996, the Company's total sales of timber products were $269
million (including $206 million of intracompany sales).
NEWSPRINT SEGMENT
NEWSPRINT MILLS
The Company's newsprint mills are located in Newberg and Oregon
City, Oregon. During 1996, 1995 and 1994, the Company produced
576,000, 620,000 and 615,000 tons of newsprint, respectively. In
1996, total sales of newsprint were $301 million (none of which
were intracompany sales).
For the past three years, an average of approximately 53% of the
Company's newsprint production has been sold to The Times Mirror
Company ("Times Mirror") pursuant to a long-term newsprint
agreement (the "Newsprint Agreement") entered into in connection
with the Company's acquisition of Smurfit Newsprint Corporation
("SNC") stock in February 1986. Under the terms of the Newsprint
Agreement, the Company supplies newsprint to Times Mirror generally
at prevailing West Coast market prices. Sales of newsprint to
Times Mirror in 1996 amounted to $165 million.
CLADWOOD
Cladwood is a wood composite panel used by the housing industry,
manufactured from sawmill shavings and other wood residuals and
overlaid with recycled newsprint. The Company has two Cladwood
plants located in Oregon. Total sales for Cladwood in 1996 were
$23 million (including $1 million of intracompany sales). See also
Part I, Item 3, "Legal Proceedings."
<PAGE>
MARKETING
The marketing strategy for the Company's mills is to maximize sales
of products to manufacturers located within an economical shipping
area. The strategy in the converting plants focuses on both
specialty products tailored to fit customers' needs and high volume
sales of commodity products. The Company also seeks to broaden the
customer base for each of its segments rather than to concentrate
on only a few accounts for each plant. These objectives have led
to decentralization of marketing efforts, such that each plant has
its own sales force, and many have product design engineers, who
are in close contact with customers to respond to their specific
needs. National sales offices are also maintained 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.
COMPETITION
The paperboard and packaging products markets as well as the
newsprint markets are highly competitive and are comprised of many
participants. Although no single company is dominant, the Company
does face significant competitors in each of its businesses. The
Company's competitors include large vertically integrated companies
as well as numerous smaller companies. The industries in which the
Company competes are particularly sensitive to price fluctuations
as well as other competitive factors including design, quality and
service, with varying emphasis on these factors depending on
product line.
BACKLOG
Demand for the Company's major product lines is relatively constant
throughout the year and seasonal fluctuations in marketing,
production, shipments and inventories are not significant. The
Company does not have a significant backlog of orders, as most
orders are placed for delivery within 30 days.
RESEARCH AND DEVELOPMENT
The Company's 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.
The Company actively pursues applications for patents on new
inventions and designs and attempts to protect its patents against
infringement. Nevertheless, the Company believes that its success
and growth are dependent on the quality of its products and its
relationships with its customers, rather than on the extent of its
patent protection. The Company holds or is licensed to use certain
patents, but does not consider that the successful continuation of
any important phase of its business is dependent upon such patents.
EMPLOYEES
The Company had approximately 15,800 employees at December 31,
1996, of which approximately 10,700 employees (68%) were
represented by collective bargaining units. The expiration dates
of union contracts for the Company's major facilities are as
follows: the Oregon City mill, expiring March 1997; the
Fernandina Beach mill, expiring June 1998; a group of 11
properties, including 4 paper mills and 7 corrugated container
plants, expiring June 1998; the Jacksonville mill, expiring June
1999; the Alton mill, expiring June 2000; the Newberg mill,
expiring March 2002; and the Brewton mill, expiring October 2002.
The Company believes that its employee relations are generally good
and is currently in the process of bargaining with unions
representing production employees at a number of its other
operations.
<PAGE>
ENVIRONMENTAL COMPLIANCE
The Company's paperboard and newsprint mills are large consumers of
energy, using either natural gas or coal. Approximately 68% of the
Company's total paperboard tonnage is produced by mills which have
coal-fired boilers. The cost of energy is dependent, in part, on
environmental regulations governing air emissions.
Because various pollution control standards are subject to change,
it is difficult to predict with certainty the amount of capital
expenditures that will ultimately be required to comply with future
standards. In particular, the United States Environmental
Protection Agency ("EPA") has proposed a comprehensive rule
governing the pulp, paper and paperboard industry (the "Cluster
Rule") which will require substantial expenditures to achieve
compliance. In order to comply with the Cluster Rule as currently
proposed, the Company estimates that it may require approximately
$125 million to $150 million in capital expenditures over the next
three to five years. The ultimate financial impact of the
regulations cannot be predicted with certainty and will depend on
several factors including the actual requirements imposed under the
final rules, new developments in control process technology and
cost inflation. Since the Company's competitors are, or will be,
subject to comparable pollution standards, including the proposed
Cluster Rule, management is of the opinion that compliance with
future pollution standards will not adversely affect the Company's
competitive position.
In addition to Cluster Rule compliance, the Company also
anticipates additional capital expenditures related to
environmental compliance, although in the opinion of management,
such expenditures will not have a material effect on the financial
condition or results of operations of the Company. For the past
three years, the Company has spent an average of approximately $10
million annually on capital expenditures for environmental
purposes. The anticipated spending for such capital projects for
fiscal 1997 is approximately $25 million. A significant amount of
the increased expenditures in 1997 will be due to compliance with
Clean Air Act requirements.
<PAGE>
ITEM 2. PROPERTIES
The Company's properties at December 31, 1996 are summarized in the
table below. Approximately 63% of the Company's investment in
property, plant and equipment is represented by its paperboard and
newsprint mills.
<TABLE>
<CAPTION>
State
Number of Facilities Locations
Total Owned Leased
<S> <C> <C> <C> <C>
Paperboard mills:
Containerboard mills 7 7 0 6
Boxboard mills 4 4 0 4
Uncoated recycled boxboard mills 4 4 0 4
Newsprint mills 2 2 0 1
Reclamation plants 27 19 8 12
Converting facilities:
Corrugated container plants 50 40 10 21
Folding carton plants 18 16 2 10
Industrial packaging plants 20 6 14 14
Consumer packaging plants 14 5 9 8
Cladwood plants 2 2 0 1
Wood product plants 1 1 0 1
Total 149 106 43 28
</TABLE>
In addition to its manufacturing facilities, the Company owns and
leases approximately 763,000 acres and 224,000 acres of timberland,
respectively, and also operates wood harvesting facilities.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
On January 3, 1997, SNC was served with a complaint alleging that
Cladwood, produced by SNC and used in mobile homes, deteriorates
when exposed to climate conditions found in South Carolina. The
suit, which purports to be a class action on behalf of present and
past owners of Cladwood-containing mobile homes in South Carolina,
also names as defendants certain manufacturers and distributors of
mobile homes in South Carolina. The complaint alleges causes of
action for breach of warranty, strict liability, negligence and
violation of the South Carolina Unfair Trade Practices Act and
seeks an unspecified aggregate amount of actual, statutory and
punitive damages. The Company intends to vigorously defend the
action. The litigation is currently in the discovery stage and, at
this time, the Company is unable to estimate its potential
liability, if any, in connection with the matter.
The Company is a defendant in a number of other lawsuits which have
arisen in the normal course of business. While any litigation has
an element of uncertainty, the management of the Company believes
that the outcome of such suits will not have a material adverse
effect on its financial condition or results of operations.
ENVIRONMENTAL MATTERS
Federal, state and local environmental requirements are a
significant factor in the Company's business. The Company employs
processes in the manufacture of pulp, paperboard and other
products, resulting in various discharges, emissions and reporting
and disclosure obligations that are subject to numerous federal,
state and local environmental statutes, regulations and ordinances.
The Company operates and expects to operate under permits and
similar authorizations from various governmental authorities that
regulate such discharges, emissions and reporting and disclosure
obligations.
<PAGE>
Occasional violations have occurred from time to time at the
Company's facilities, resulting in administrative actions, legal
proceedings or consent decrees and similar arrangements. Pending
proceedings include the following:
Sweet Home, Oregon
On May 11, 1995, the EPA executed a search warrant at the Sweet
Home, Oregon Cladwood manufacturing facility of SNC. According
to the search warrant, the U.S. Attorney's office for the
District of Oregon and the EPA are investigating whether this
facility violated the Clean Water Act or other federal laws in
connection with its waste water discharges. The Company has
been advised that the government has presented, or intends to
present, evidence to a grand jury in connection with the
investigation. SNC and certain of its employees could be
charged, and SNC could be assessed significant fines and
penalties if an indictment and conviction follow as a result of
the grand jury proceeding.
Philomath, Oregon
On May 13, 1996, SNC voluntarily self reported to the EPA and
the Oregon Department of Environmental Quality ("ODEQ") possible
violations of the Clean Water Act and other federal laws in
connection with waste water discharges at its Cladwood facility
located in Philomath, Oregon. An investigation may be
undertaken by ODEQ.
Miami County, Ohio Site
A criminal inquiry was commenced by the United States in 1993
relating to the Company's responses to the EPA's document and
information requests in connection with a Comprehensive
Environmental Response, Compensation and Liability Act
("CERCLA") site located in Miami County, Ohio. It is uncertain
whether any criminal action will be forthcoming.
The Company also faces 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 Company-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 legality of the original disposal. The Company has
received notice that it is or may be a PRP at a number of federal
and/or state sites where remedial action may be required and, as a
result, may have joint and several liability for CERCLA cleanup
costs at such sites. However, liability at CERCLA sites is
typically shared with the other PRPs and costs are commonly
allocated according to relative amounts of waste deposited.
Because the Company's relative percentage of waste deposited at a
majority of these sites is quite small, management of the Company
believes that its probable liability under CERCLA, taken on a case
by case basis or in the aggregate, will not have a material adverse
effect on its financial condition or operations. Pending CERCLA
proceedings include the following:
<PAGE>
Monterey Park, California Site
The Company has paid approximately $768,000 pursuant to two
partial consent decrees entered into in 1991 and 1992 with the
U.S. and the State of California with respect to cleanup
obligations at the Operating Industries site in Monterey Park,
California. It is anticipated that there will be further
remedial measures beyond those covered by these partial
settlements.
Baltimore, Maryland Site
The Company entered into a consent decree with the U.S. and the
State of Maryland in settlement of its obligations in connection
with the Kane & Lombard Superfund Site in Baltimore, Maryland.
The Company paid approximately $171,500 in 1995 as part of this
settlement and may be required to pay additional cleanup costs.
Kingsbury, Indiana Site
The Company entered into a consent decree in 1991 with the U.S.
and the State of Indiana for the remediation of the Fisher-Calo
Superfund Site in Kingsbury, Indiana. To date, the Company has
paid approximately $140,000 toward cleaning up the site. The
Company anticipates that some additional remediation of the site
will be required.
Lemont, Illinois Site
The Company has entered into consent decrees in 1988 and 1993
with the EPA and the Illinois EPA for the investigation and
initial remediation of the Lenz Oil Superfund Site in Lemont,
Illinois. The Company has paid approximately $79,000 toward
this investigation and initial remediation. It is anticipated
that further remedial measures will be required beyond those
covered in these consent decrees.
Wilmington, Delaware Site
The Company entered into a consent decree in 1994 with the State
of Delaware regarding the remedial investigation and feasibility
study regarding the Wilmington, Delaware site, and anticipates
entering into a consent decree to perform cleanup of the site.
Duval County, Florida
In addition to participating in remediation of sites owned by third
parties, the Company in 1992 entered into an administrative consent
order with the Florida Department of Environmental Regulation to
carry out any necessary assessment and remediation of Company-owned
property in Duval County, Florida that was formerly the site of a
sawmill that dipped lumber into a chemical solution. Remediation
of the site has begun. Management believes that the probable costs
of this site, taken alone or with potential costs at other Company-
owned properties where some contamination has been found, will not
have a material adverse effect on its financial condition or
results of operations.
New Jersey Industrial Site Recovery Act
In addition to other federal and state laws regarding hazardous
substance contamination at sites owned or operated by the Company,
the New Jersey Industrial Site Recovery Act ("ISRA") requires that
a "Negative Declaration" or a "Cleanup Plan" be filed and approved
by the New Jersey Department of Environmental Protection ("DEP") as
a precondition to the "transfer" of an "industrial establishment."
The ISRA regulations provide that a transferor may close a
transaction prior to the DEP's approval of a negative declaration
if the transferor enters into an administrative consent order with
the DEP. The Company is currently a signatory to administrative
consent orders with respect to two formerly leased or owned
industrial establishments. Management believes that any
requirements that may be imposed by the DEP with respect to these
sites will not have a material adverse effect on the financial
condition or results of operations of the Company.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the
registrant during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER
MATTERS
MARKET INFORMATION
At December 31, 1996 the Company's common stock was held by
approximately 14,000 stockholders. The Company's common stock
trades on The Nasdaq Stock Market under the symbol "JJSC." The
high and low trading prices of the stock were:
<TABLE>
<CAPTION>
1996 1995
High Low High Low
<S> <C> <C> <C> <C>
First quarter $12.38 $ 9.38 $20.38 $14.38
Second quarter $14.13 $10.25 $16.50 $11.88
Third quarter $12.25 $10.50 $16.75 $13.00
Fourth quarter $16.13 $11.88 $15.63 $ 9.00
</TABLE>
DIVIDENDS
The Company has not paid cash dividends on its common stock and
does not intend to pay dividends on its common stock in the
foreseeable future. The ability of the Company to pay dividends in
the future is restricted by certain provisions contained in the
1994 Credit Agreement and the indentures relating to JSC (U.S.)'s
outstanding indebtedness.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In millions, except per share and statistical data)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $3,410 $4,093 $3,233 $2,947 $2,998
Cost of goods sold 2,754 3,222 2,719 2,567 2,495
Gross profit 656 871 514 380 503
Selling and administrative expenses 265 241 223 239 231
Restructuring charge 96
Environmental and other charges 54
Income (loss) from operations 391 630 291 (9) 272
Interest expense, net (194) (234) (266) (253) (298)
Other, net (3) 7 3 4 2
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting changes 194 403 28 (258) (24)
Provision for (benefit from)
income taxes 77 156 16 (83) 10
Income (loss) before
extraordinary item and cumulative
effect of accounting changes 117 247 12 (175) (34)
Extraordinary item
Loss from early extinguishment
of debt, net of income tax benefit (5) (4) (55) (38) (50)
Cumulative effect of accounting
changes (16)
Net income (loss) $ 112 $ 243 $ (43) $ (229) $ (84)
Per share of common stock <fn1>
Income (loss) before extraordinary
item and cumulative effect of
accounting changes $ 1.05 $ 2.23 $ .12 $(2.75) $(1.16)
Net income (loss) 1.01 2.19 (.43) (3.60) (2.19)
Weighted average shares outstanding 111 111 101 64 48
Other Financial Data
Net cash provided by operating
activities $ 397 $ 411 $ 149 $ 78 $ 146
Depreciation, depletion and
amortization 139 139 131 131 135
Capital investments and acquisitions 146 188 166 117 104
Working capital 27 47 11 40 106
Property, plant, equipment and
timberland, net 1,729 1,714 1,686 1,636 1,497
Total assets 2,688 2,783 2,759 2,597 2,436
Long-term debt, less current
maturities 1,934 2,111 2,392 2,619 2,503
Deferred income tax liability 363 328 208 232 160
Stockholders' deficit (375) (487) (730) (1,058) (829)
Statistical Data (tons in thousands)
Containerboard production (tons) 1,973 1,905 1,932 1,840 1,918
Boxboard and SBS production (tons) 774 773 767 744 745
Newsprint production (tons) 576 620 615 615 615
Corrugated shipments (billion sq. ft.) 30.0 29.4 30.8 29.4 28.1
Folding carton shipments (tons) 467 469 486 475 487
Fiber reclaimed and brokered (tons) 4,464 4,293 4,134 3,907 3,846
Timberland owned or leased
(thousand acres) 987 984 985 984 978
Number of employees 15,800 16,200 16,600 17,300 17,800
<FN>
<fn1> Gives effect to the ten-for-one stock conversion pursuant to a
reclassification (the "Reclassification") in 1994, whereby the Company's
five classes of common stock were converted into one class on a basis of
ten shares of common stock for each outstanding share of each of the old
classes.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Market conditions and demand for containerboard, corrugated
shipping containers and newsprint, three of the Company's most
important products, are generally subject to cyclical changes in
the economy and changes in industry capacity, both of which can
significantly impact selling prices and the Company's
profitability.
Market conditions weakened in the second half of 1995 and early
1996 due to new capacity added within the industry, resulting in
excess inventories and lower selling prices for containerboard and
corrugated shipping containers. Many paper companies, including
the Company, took downtime at their containerboard mills in the
fourth quarter of 1995 and the first half of 1996 to reduce
inventories. Linerboard prices, which had reached a record high of
$535 per ton in 1995, dropped rapidly during this period, declining
to approximately $330 per ton by July 1996. Improving demand in
the second half of 1996, however, resulted in linerboard prices
stabilizing by the end of 1996.
Increasing demand in newsprint markets during 1994 and 1995
resulted in an all-time record high level for prices of
approximately $760 per metric ton in October 1995. Demand for
newsprint began to decline in late 1995, however, as ad lineage
dropped and conservation measures taken by newspaper publishers
were implemented. As a result, excess inventories developed and
selling prices for newsprint fell during 1996. Many newsprint
producers, including the Company, took downtime at their newsprint
mills during 1996 to reduce inventories. Although increases in
newsprint consumption during the second half of 1996 slowed the
decline, newsprint prices dropped to approximately $500 per metric
ton by the end of 1996.
Reclaimed fiber is a major product of the Company and an important
raw material of the Company's recycled paper mills. Due to
increases in demand, the price of recycled fiber increased
dramatically during 1994 and the early part of 1995, resulting in
higher costs at the Company's recycled paper mills. However, the
price of this material dropped in the second half of 1995 due to
lower demand resulting from the significant amount of downtime
taken by recycled paper mills throughout the country. Prices have
remained relatively constant during 1996, having a beneficial
effect on fiber cost at the Company's recycled paper mills as
compared to 1995.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SEGMENT DATA
(In millions) 1996 1995 1994
Income
Income Income (loss)
Net from Net from Net from
sales operations sales operations sales operations
<S> <C> <C> <C> <C> <C> <C>
Paperboard/
Packaging
Products $3,087 $335 $3,706 $604 $2,974 $308
Newsprint 323 56 387 26 259 (17)
Total $3,410 $391 $4,093 $630 $3,233 $291
</TABLE>
<PAGE>
1996 COMPARED TO 1995
Net sales and income from operations declined in 1996 compared to
record levels in 1995 due primarily to lower sales prices. Net
sales were $3.4 billion, a decrease of 17% compared to 1995, and
income from operations was $391 million, a decrease of 38% compared
to 1995. Increases (decreases) in results for each of the
Company's segments are discussed below.
<TABLE>
<CAPTION>
(In millions) 1996 Compared to 1995
Paperboard/
Packaging
Products Newsprint Total
<S> <C> <C> <C>
Increase (decrease) due to:
Sales prices and product mix $(699) $ (30) $(729)
Sales volume 117 (34) 83
Acquisitions and new facilities 4 4
Sold or closed facilities (41) (41)
Total net sales decrease $(619) $ (64) $(683)
</TABLE>
Paperboard/Packaging Products Segment
Net sales of the Paperboard/Packaging Products segment decreased
17% compared to 1995 to $3.09 billion, and income from operations
decreased $269 million compared to 1995 to $335 million. The
decrease in net sales of this segment was primarily a result of
significant reductions in sales prices for containerboard,
corrugated shipping containers and reclamation products. Increases
in volume partially offset the decline in net sales.
Profitability for this segment declined in 1996 compared to 1995
primarily due to the sales price declines, although the lower fiber
prices resulted in lower cost in the Company's paperboard mills.
Income from operations as a percent of net sales for the
Paperboard/Packaging Products segment decreased from 16% in 1995 to
11% in 1996. The changes in net sales price and shipments within
the major product groups of the Paperboard/Packaging Products
segment are discussed below.
Net sales of containerboard and corrugated shipping containers
declined $363 million to $1.59 billion, a decrease of 19% compared
to 1995. On average, corrugated shipping container prices
decreased 16% and containerboard prices decreased 28%, compared to
1995. On the other hand, shipments of corrugated shipping
containers increased 2% and shipments of containerboard increased
4%, compared to 1995. Shipments of containerboard were higher
primarily as a result of reduced mill downtime in 1996, as compared
to 1995.
Net sales for the reclamation and timber products operations
decreased $222 million to $281 million, a decrease of 44% compared
to 1995. The decrease was due primarily to lower average prices
for reclaimed fiber, which declined 54% compared to 1995.
Shipments of reclaimed fiber increased 4% compared to 1995.
Net sales of recycled boxboard, SBS and folding cartons were $895
million, a decrease of 2% compared to 1995. On average, recycled
boxboard and SBS prices decreased 14% and 7%, respectively, and
folding carton prices decreased 3% compared to 1995. Shipments of
recycled boxboard and SBS increased 3% and 5%, respectively, and
folding carton shipments decreased 1% compared to 1995.
Net sales of $144 million for uncoated recycled boxboard and
industrial packaging products were 7% lower compared to 1995,
primarily due to lower prices. Net sales of consumer packaging
products declined 1% compared to 1995 to $174 million.
<PAGE>
Newsprint Segment
Net sales of the Newsprint segment decreased 17% compared to 1995
to $323 million, and income from operations increased $30 million
compared to 1995 to $56 million. The decrease in net sales was a
result of sales prices, which, on average, dropped 8% compared to
1995, and lower shipments due to production curtailment. Shipments
of newsprint were lower in 1996 by 8% compared to 1995. The impact
of reduced sales prices and lower sales volume on profitability of
the segment was partially offset by lower fiber cost. This
segment's 1995 profitability was also impacted by a $25 million
pretax charge for anticipated cost related to the exterior siding
issue discussed below. Income from operations as a percent of net
sales increased from 7% in 1995 to 17% in 1996.
Costs and Expenses
Cost of goods sold as a percent of net sales increased from 79% in
1995 to 81% in 1996 for the reasons explained above. Selling and
administrative expenses as a percent of net sales increased from 6%
in 1995 to 8% in 1996 due primarily to overall lower sales prices,
higher personnel costs and inflationary increases in other costs.
In 1993, the Company recorded a pretax charge of $96 million for a
restructuring program (the "Restructuring Program") to improve its
long-term competitive position. The Restructuring Program provided
for plant closures, asset write-downs, reductions in workforce,
relocation of employees and consolidation of certain plant
operations, expected to be completed over an approximate three year
period. Major activities relating to the Restructuring Program in
1996 included payments of plant closure expenditures and severance
of $6 million, offset by proceeds from sales of fixed assets of $3
million. Since 1993, the Company has written down the assets of
closed facilities and other nonproductive assets totalling $39
million and made cash expenditures of $39 million relating to the
Restructuring Program. Proceeds of $8 million from sales of fixed
assets were used to offset additional expenses and anticipated
expenses related to shutdowns. The remaining restructuring
liability relates to closures and sales of certain facilities which
were originally anticipated to be completed as of December 31, 1996
and are now expected to be completed during 1997. No significant
adjustment to the reserve is anticipated at this time.
In the fourth quarter of 1995, the Company recorded a pretax charge
totalling $25 million to implement a program of corrective action
to address product quality matters and failure to follow proper
manufacturing and internal procedures relating to production of
exterior siding, a non-core product line of SNC. Based upon the
experience to date, the Company believes the reserve is adequate.
Separately, in January 1997, SNC and certain manufacturers and
distributors of mobile homes were named as defendants in a class
action complaint filed in the state of South Carolina. The
complaint alleges that exterior siding produced by SNC and used in
mobile homes deteriorates when exposed to climate conditions found
in South Carolina. The Company intends to vigorously defend the
action. The litigation is currently in the discovery stage and, at
this time, the Company is unable to estimate its potential
liability, if any, in connection with the matter.
At December 31, 1995, the Company decreased its weighted average
discount rate in measuring its pension obligations from 8.5% to
7.25% and its rate of increase in compensation levels from 5.0% to
4.0%. In addition, the Company changed its expected long-term rate
of return on assets from 10.0% to 9.5% at December 31, 1995. The
net effect of changing these assumptions increased the projected
benefit obligation at December 31, 1995 and increased pension cost
in 1996 by approximately $14 million.
<PAGE>
Interest expense for 1996 declined $40 million compared to 1995 due
primarily to lower average debt levels outstanding and lower
effective interest rates.
The Company adopted 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," in the first
quarter of 1996. The effect of such adoption was not material to
the Company's financial statements. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation," as shown in Note 7 of its consolidated
financial statements included under Item 8 of this report. During
1996, the Company elected to early adopt the provisions of the
American Institute of Certified Public Accountants Statement of
Position ("SOP") 96-1, "Environmental Remediation Liabilities."
The effect of adopting the provisions of SOP 96-1 was immaterial to
the Company's financial statements.
The provision for income taxes in 1996 was $77 million compared to
$156 million in 1995. The Company's effective tax rate of 39.7% in
1996 is comparable to the 1995 effective tax rate of 38.7%. In
1996, the Company utilized its net operating loss carryforwards for
federal income tax purposes. Remaining net operating loss
carryforwards for state income tax purposes of approximately $44
million expire in the years 1997 through 2009. Federal income tax
returns for 1989 through 1991 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
financial condition or results of operations.
1995 COMPARED TO 1994
Price recovery coupled with productivity gains and cost reduction
programs implemented in recent years provided record sales and
earnings for the Company in 1995. Net sales were $4.1 billion, an
increase of 27% over 1994 and income from operations was $630
million, more than double the 1994 amount. Increases (decreases)
in sales for each of the Company's segments are discussed below.
<TABLE>
<CAPTION>
(In millions) 1995 Compared to 1994
Paperboard/
Packaging
Products Newsprint Total
<S> <C> <C> <C>
Increase (decrease) due to:
Sales prices and product mix $749 $130 $879
Sales volume (22) (2) (24)
Acquisitions and new facilities 9 9
Sold or closed facilities (4) (4)
Total net sales increase $732 $128 $860
</TABLE>
Paperboard/Packaging Products Segment
Net sales of the Paperboard/Packaging Products segment increased
25% compared to 1994 to $3.71 billion, primarily as a result of
sales prices and product mix.
<PAGE>
Net sales of containerboard and corrugated shipping containers
increased 26% compared to 1994, to $1.96 billion. Corrugated
shipping container prices increased 28% on average compared to
1994. In view of the reduced demand in the second half of 1995,
several of the Company's containerboard mills took downtime in
order to reduce inventories. As a result of this downtime,
shipments of containerboard in 1995 were down 2% compared to 1994.
Shipments of corrugated shipping containers were down 4% compared
to 1994.
Net sales of recycled boxboard, SBS and folding cartons increased
10% compared to 1994, to $916 million. Recycled boxboard prices
increased during the first half of 1995 to cover higher reclaimed
fiber cost, but declined later in the year in response to lower
reclaimed fiber cost. On average, prices of recycled boxboard and
SBS each rose 19% compared to 1994. Folding carton prices
increased 9% on average compared to 1994. Shipments of recycled
boxboard and SBS decreased 2% and shipments of folding cartons
decreased by 3% compared to 1994.
Net sales for the reclamation and timber products operations
increased 75% compared to 1994, to $503 million, due primarily to
escalating prices of reclaimed fiber. Reclaimed fiber prices were
higher by 62% on average compared to 1994 and shipments increased
4% compared to 1994.
Net sales of uncoated recycled boxboard and industrial packaging
increased 18% compared to 1994, to $155 million, due primarily to
higher prices. Net sales of consumer packaging increased 6%
compared to 1994, to $176 million.
Newsprint Segment
Net sales of the Newsprint segment increased 49% compared to 1994,
to $387 million, primarily as a result of sales prices and product
mix.
Costs and Expenses
Cost of goods sold as a percent of net sales declined from 84% in
1994 to 79% in 1995. Selling and administrative expenses as a
percent of net sales declined from 7% in 1994 to 6% in 1995. The
sales price increases implemented during 1995 were the primary
reason for the improvements in each of cost of goods sold and
selling and administrative expenses as a percent of net sales.
Interest expense for 1995 declined $35 million compared to 1994 due
primarily to lower average debt levels outstanding and lower
effective interest rates. The lower average interest rate in 1995
resulted primarily from the retirement in December 1994 of the
Company's high-yield subordinated debt in conjunction with the
Company's 1994 Recapitalization.
The provision for income taxes in 1995 was $156 million compared to
$16 million in 1994. The Company's effective tax rate of 38.7% in
1995 was substantially lower than the 1994 effective tax rate of
57.1%, primarily due to the effect of permanent differences from
applying purchase accounting. As of December 31, 1995, the Company
had net operating loss carryforwards for federal income tax
purposes of approximately $98 million (expiring in the year 2009),
none of which were available for utilization against alternative
minimum taxes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
General
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 1996 of $397 million
and excess cash at the end of 1995 were used primarily to fund
capital expenditures of $146 million and to reduce debt by $256
million.
JSC (U.S.) entered into a bank credit facility (the "1994 Credit
Agreement") which consists of a $450 million revolving credit
facility, of which up to $150 million may consist of letters of
credit, a $900 million Tranche A Term Loan and a $300 million
Tranche B Term Loan. In May 1996, the 1994 Credit Agreement was
amended to allow an additional $100 million borrowing under the
Tranche B Term Loan and $150 million borrowing under a newly
created Tranche C Term Loan. The $250 million in new proceeds from
these term loans was used to reduce scheduled installment payments
of the Tranche A Term Loan. The 1994 Credit Agreement contains
various business and financial covenants including, among other
things, (i) limitations on dividends, redemptions and repurchases
of capital stock, (ii) limitations on the incurrence of
indebtedness, liens, leases and sale-leaseback transactions, (iii)
limitations on capital expenditures, (iv) maintenance of minimum
levels of consolidated earnings before depreciation, interest,
taxes and amortization, and (v) maintenance of minimum interest
coverage ratios. Such restrictions, together with the highly
leveraged position of the Company, could restrict corporate
activities, including the Company's ability to respond to market
conditions, to provide for unanticipated capital expenditures or to
take advantage of business opportunities.
The 1994 Credit Agreement imposes an annual limit on future capital
expenditures of $150 million. The capital spending limit is
subject to increase in any year by an amount equal to a portion of
the Company's excess cash flow and an amount up to $75 million if
the prior year's spending was less than the maximum amount allowed.
The Company has a carryover of approximately $75 million for 1997.
Because the Company has invested heavily in its core businesses in
prior years, management believes the annual limitation for capital
expenditures does not impair its plans for maintenance, expansion
and continued modernization of its facilities.
The Company expects internally generated cash flows and existing
financing resources will be sufficient for the next several years
to meet its needs to pay interest, pay income taxes, amortize term
loans and fund capital expenditures. Scheduled debt payments due
in 1997 and 1998 are $10 million and $14 million, respectively,
with increasing amounts thereafter. Capital expenditures for 1997
are estimated to be comparable to 1996. The Company expects to use
any excess cash provided by operations to make further debt
reductions. At December 31, 1996, the Company had $322 million of
unused borrowing capacity under its 1994 Credit Agreement and $133
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's earnings are significantly affected by the amount of
interest on its indebtedness. The Company enters into interest
rate swap and cap agreements to manage interest rate exposure on
its indebtedness. Management's objective is to protect the Company
from interest rate volatility and reduce or cap interest expense
within acceptable levels of risk. In 1996, interest rate swap
agreements with a notional value of $250 million and a cap
agreement with a notional amount of $100 million expired. The
table below shows interest rate swap agreements outstanding at
December 31, 1996, the related maturities for the years thereafter
and the contracted pay and receive rates for such agreements.
<PAGE>
<TABLE>
<CAPTION>
Interest rate
swaps at Interest rate
December 31, swaps maturing in
(In millions) 1996 1997
<S> <C> <C>
Pay fixed interest rate swaps $ 233 $ (233)
Pay rate 7.157% 7.157%
Receive rate 5.659%
</TABLE>
Environmental Matters
In 1993, the Company recorded a provision of $54 million, of which
$39 million relates to environmental matters, representing asbestos
and PCB removal, solid waste cleanup at existing and former
operating sites and expenses for response costs at various sites
where the Company has received notice that it is a PRP. The
Company made payments of approximately $3 million, $9 million and
$4 million related to PRP sites and other environmental cleanups in
1996, 1995 and 1994, respectively. The Company, as well as other
companies in the industry, faces potential environmental liability
related to various sites at which hazardous wastes have allegedly
been deposited. The Company has received notice that it is or may
be a PRP at a number of federal and state sites (the "Sites") where
remedial action may be required. Because the laws that govern the
cleanup of waste disposal sites have been construed to authorize
joint and several liability, government agencies or other parties
could seek to recover all response costs for any Site from any one
of the PRPs for such Site, including the Company, despite the
involvement of other PRPs. Although the Company is unable to
estimate the aggregate response costs in connection with the
remediation of all Sites, if the Company were held jointly and
severally liable for all response costs at some or all of the
Sites, it would have a material adverse effect on the financial
condition and results of operations of the Company. However, joint
and several liability generally has not in the past been imposed on
PRPs, and based on such past practice, the Company's past
experience and the financial conditions of other PRPs with respect
to the Sites, the Company does not expect to be held jointly and
severally liable for all response costs at any Site. Liability at
waste disposal sites is typically shared with other PRPs, and costs
generally are allocated according to relative volumes of waste
deposited at a given Site. At most Sites, the waste attributed to
the Company is a very small portion of the total waste deposited at
the Site (generally significantly less than 1%). There are
approximately seven Sites where final settlement has not been
reached and where the Company's potential liability is expected to
exceed de minimis levels. See Part I, Item 3, "Legal Proceedings -
Environmental Matters" for discussion of the environmental
exposure at the five Sites subject to pending CERCLA proceedings.
Accordingly, the Company believes that its estimated total probable
liability for response costs at the Sites was adequately reserved
at December 31, 1996. Further, the estimate takes into
consideration the number of other PRPs at each site, the identity,
and financial position of such parties, in light of the joint and
several nature of the liability, but does not take into account
possible insurance coverage or other similar reimbursement.
<PAGE>
Compliance with federal, state and local environmental requirements
is a significant, on-going factor in the Company's business. It is
difficult to predict with certainty the amount of capital
expenditures that will be required to comply with future standards.
The Company has averaged $10 million annually in capital
expenditures related to environmental compliance over the last
three years and estimates spending approximately $25 million in
capital expenditures related to environmental compliance in 1997.
A significant amount of the increased expenditures in 1997 will be
due to compliance with Clean Air Act requirements. In addition,
the EPA's Cluster Rule, although not yet finalized, will require
substantial expenditures to achieve compliance. In order to comply
with the Cluster Rule as currently proposed, the Company estimates
that it may require approximately $125 million to $150 million in
capital expenditures over the next three to five years. The
ultimate financial impact of the regulations cannot be predicted
with certainty and will depend on several factors including the
actual requirements imposed under the final rules, new developments
in control process technology and cost inflation. Since the
Company's competitors are, or will be, subject to comparable
pollution standards, including the proposed Cluster Rule,
management is of the opinion that compliance with future pollution
standards will not adversely affect the Company's competitive
position.
Effects of Inflation
In late 1994 and early 1995, the cost of many of the Company's base
raw materials increased significantly due to strong demand and
tight supply factors. During this period, the Company was able to
increase selling prices, effectively offsetting the effects of the
increased cost. During the latter part of 1995 and early 1996 the
costs of such base raw materials declined and have remained
relatively stable through the end of 1996. The Company uses the
last-in, first-out method of accounting for approximately 80% of
its 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. Inflationary increases in other operating
costs were moderate and did not have a material impact on the
Company's financial position or operating results.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
<S> <C>
Index to Financial Statements: Page No.
Management's responsibility for financial statements. . . . . . . . . . . . . . . 23
Report of independent auditors. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated balance sheets - December 31, 1996 and 1995 . . . . . . . . . . . . 25
For the years ended December 31, 1996, 1995 and 1994:
Consolidated statements of operations . . . . . . . . . . . . . . . . . . . . 26
Consolidated statements of stockholders' deficit. . . . . . . . . . . . . . . 27
Consolidated statements of cash flows . . . . . . . . . . . . . . . . . . . . 28
Notes to consolidated financial statements. . . . . . . . . . . . . . . . . . . . 29
The following consolidated financial statement schedule of
Jefferson Smurfit Corporation is included in Item 14(a):
Schedule II: Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . 57
</TABLE>
All other schedules specified under Regulation S-X for Jefferson
Smurfit Corporation 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.
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of the Company is responsible for the information
contained in the consolidated financial statements and in other
parts of this report. The consolidated financial statements have
been prepared by the Company in accordance with generally accepted
accounting principles appropriate in the circumstances and
necessarily include certain amounts based on management's best
estimate and judgment.
The Company maintains a system of internal accounting control,
which it believes is sufficient to provide reasonable assurance
that in all material respects transactions are properly authorized
and recorded, financial reporting responsibilities are met and
accountability for assets is maintained. In establishing and
maintaining any system of internal control, judgment is required to
assess and balance the relative costs and expected benefits.
Management believes that through the careful selection of
employees, the division of responsibilities and the application of
formal policies and procedures, the Company has an effective and
responsive system of internal accounting controls. The system is
monitored by the Company's staff of internal auditors, who evaluate
and report to management on the effectiveness of the system.
The Audit Committee of the Board of Directors is composed of four
directors who meet with the independent auditors, internal auditors
and management to discuss specific accounting, reporting and
internal control matters. Both the independent auditors and
internal auditors have full and free access to the Audit Committee.
/s/ Richard W. Graham
Richard W. Graham
President and Chief Executive Officer
/s/ Patrick J. Moore
Patrick J. Moore
Vice President and Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Jefferson Smurfit Corporation
We have audited the accompanying consolidated balance sheets of
Jefferson Smurfit Corporation as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). 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 generally accepted
auditing standards. 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 Jefferson Smurfit Corporation at December 31, 1996 and
1995, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
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.
/s/Ernst & Young LLP
Ernst & Young LLP
St. Louis, Missouri
January 22, 1997
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
December 31, 1996 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 12 $ 27
Receivables, less allowances
of $9 in 1996 and 1995 279 339
Inventories
Work-in-process and finished goods 81 85
Materials and supplies 126 139
207 224
Deferred income taxes 46 45
Prepaid expenses and other current assets 8 9
Total current assets 552 644
Net property, plant and equipment 1,466 1,456
Timberland, less timber depletion 263 258
Goodwill, less accumulated amortization of
$50 in 1996 and $42 in 1995 246 253
Other assets 161 172
$ 2,688 $ 2,783
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 10 $ 81
Accounts payable 290 290
Accrued compensation and payroll taxes 92 101
Interest payable 30 37
Other accrued liabilities 103 88
Total current liabilities 525 597
Long-term debt, less current maturities 1,934 2,111
Other long-term liabilities 241 234
Deferred income taxes 363 328
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; 110,989,156 issued and
outstanding in 1996 and 1995 1 1
Additional paid-in capital 1,168 1,168
Retained earnings (deficit) (1,544) (1,656)
Total stockholders' deficit (375) (487)
$ 2,688 $ 2,783
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Year Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Net sales $ 3,410 $ 4,093 $ 3,233
Costs and expenses
Cost of goods sold 2,754 3,222 2,719
Selling and administrative expenses 265 241 223
Income from operations 391 630 291
Other income (expense)
Interest expense, net (194) (234) (266)
Other, net (3) 7 3
Income before income taxes and
extraordinary item 194 403 28
Provision for income taxes 77 156 16
Income before extraordinary item 117 247 12
Extraordinary item
Loss from early extinguishment of debt,
net of income tax benefit of $3 in 1996,
$2 in 1995 and $34 in 1994 (5) (4) (55)
Net income (loss) $ 112 $ 243 $ (43)
Per share of common stock
Income before extraordinary item $ 1.05 $ 2.23 $ .12
Extraordinary item (.04) (.04) (.55)
Net income (loss) $ 1.01 $ 2.19 $ (.43)
Weighted average shares outstanding 111 111 101
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(In millions, except share data)
Common Stock
Par Number Additional Retained
Value, of Paid-In Earnings
$.01 Shares Capital (Deficit)
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $ 8,020,000 $ 799 $(1,856)
Net loss (43)
Reclassification of common stock 1 72,180,000 (1)
Issuance of common stock,
net of related expenses 30,788,462 370
Balance at December 31, 1994 1 110,988,462 1,168 (1,899)
Net income 243
Issuance of common stock under
stock option plan 694
Balance at December 31, 1995 1 110,989,156 1,168 (1,656)
Net income 112
Balance at December 31, 1996 $ 1 110,989,156 $1,168 $(1,544)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Year Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 112 $ 243 $ (43)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Extraordinary loss from early
extinguishment of debt 8 7 89
Depreciation, depletion and amortization 139 139 131
Amortization of deferred debt issuance costs 13 14 10
Deferred income taxes 34 113 (21)
Non-cash interest 19
Non-cash employee benefit expense (income) 17 (7) (9)
Change in current assets and liabilities,
net of effects from acquisitions
Receivables 60 (22) (73)
Inventories 17 (4) 10
Prepaid expenses and other current assets 2 (1) (1)
Accounts payable and accrued liabilities (61) 42
Interest payable (4) (7) (7)
Income taxes 2 (1) 1
Other, net (3) (2) 1
Net cash provided by operating activities 397 411 149
Cash flows from investing activities
Property additions (120) (130) (144)
Timberland additions (26) (24) (19)
Investments in affiliates and acquisitions (34) (3)
Construction funds held in escrow (10)
Proceeds from property and timberland
disposals and sale of businesses 6 10 4
Net cash used for investing activities (150) (178) (162)
Cash flows from financing activities
Issuance of common stock, net of related expenses 370
Borrowings under bank credit facilities 250 1,372
Borrowings under senior notes 400
Net borrowings (repayments) under accounts
receivable securitization program (38) 35
Payments of long-term debt and related premiums (481) (284) (2,073)
Other increases in long-term debt 13 20 4
Deferred debt issuance costs (6) (4) (77)
Net cash provided by (used for) financing activities (262) (268) 31
Increase (decrease) in cash and cash equivalents (15) (35) 18
Cash and cash equivalents
Beginning of year 27 62 44
End of year $ 12 $ 27 $ 62
</TABLE>
See notes to consolidated financial statements.
<PAGE>
JEFFERSON SMURFIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in millions, except share data)
1. Basis of Presentation
Jefferson Smurfit Corporation, hereafter referred to as the
"Company," owns 100% of the equity interest in JSCE, Inc. The
Company has no operations other than its investment in JSCE, Inc.
On December 31, 1994, Jefferson Smurfit Corporation (U.S.), a
wholly-owned subsidiary of the Company, merged into its wholly-
owned subsidiary, Container Corporation of America ("CCA"), with
CCA surviving and changing its name to Jefferson Smurfit
Corporation (U.S.) ("JSC (U.S.)"). JSCE, Inc. owns 100% of the
equity interest in JSC (U.S.). JSCE, Inc. has no operations other
than its investment in JSC (U.S.). Prior to May 4, 1994, 50% of
the voting stock of the Company was owned by Smurfit Packaging
Corporation ("SPC") and Smurfit Holdings B.V. ("SHBV"), indirect
wholly-owned subsidiaries of Jefferson Smurfit Group plc ("JS
Group"), a public corporation organized under the laws of the
Republic of Ireland. The remaining 50% was owned by The Morgan
Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") and certain
other investors.
In 1994, the Company completed a recapitalization plan (the
"Recapitalization") to repay and refinance a substantial portion of
its indebtedness. In connection with the Recapitalization, (i) the
Company issued and sold 19,250,000 shares of common stock pursuant
to a registered public offering at an initial public offering price
of $13.00 per share, (ii) JS Group, through its wholly-owned
subsidiary Smurfit International B.V. ("SIBV"), purchased an
additional 11,538,462 shares of common stock for $150 million and
(iii) JSC (U.S.) issued and sold $300 million aggregate principal
amount of unsecured 11.25% Series A Senior Notes due 2004 and $100
million aggregate principal amount of unsecured 10.75% Series B
Senior Notes due 2002 (the "1994 Senior Notes") pursuant to a
registered public offering.
Immediately prior to the consummation of the 1994 initial public
offerings, the Company effected a reclassification (the
"Reclassification") whereby the Company's previous five classes of
common stock were converted into one class on a basis of ten shares
of common stock for each outstanding share of each of the old
classes. The effect of the Reclassification was to transfer $1
million from the additional paid-in capital account to the common
stock account.
The deficit in stockholders' equity is primarily due to the
Company's 1989 purchase of JSC (U.S.)'s common equity owned by JS
Group and the acquisition by JSC (U.S.) of its common equity owned
by MSLEF I, which were accounted for as purchases of treasury
stock.
<PAGE>
2. Significant Accounting Policies
Nature of Operations: The Company's major operations are in paper
products, newsprint production, recycling and consumer packaging.
The Company's paperboard mills procure virgin and recycled fiber
and produce paperboard for conversion into corrugated containers,
folding cartons and industrial packaging at Company-owned
facilities and third-party converting operations. Paper product
operations customers represent a diverse range of industries
including paperboard and paperboard packaging, wholesale trade,
retailing and agri-business. The Company's newsprint operations
produce newsprint from virgin and recycled fiber primarily for the
newspaper industry. Recycling operations collect or broker
wastepaper for sale to Company-owned and third-party paper mills.
Consumer 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 its majority-owned
subsidiaries. Significant intercompany accounts and transactions
are eliminated in consolidation.
Cash Equivalents: The Company considers all highly liquid
investments with an original maturity of three months or less to be
cash equivalents. At December 31, 1996, cash and cash equivalents
of $8 million are pledged as collateral for obligations associated
with the accounts receivable securitization program (see Note 4).
Revenue Recognition: Revenue is recognized at the time products
are shipped.
Inventories: Inventories are valued at the lower of cost or
market, principally under the last-in, first-out ("LIFO") method
except for $53 million in 1996 and $54 million in 1995 which are
valued at the lower of average cost or market. First-in, first-out
costs (which approximate replacement costs) exceed the LIFO value
by $59 million and $84 million at December 31, 1996 and 1995,
respectively.
Property, Plant and Equipment: Property, plant and equipment are
carried at cost. 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 estimated useful lives of 20 years.
In the first quarter of 1996, the Company adopted 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," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying
amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The effect of adoption
was immaterial to the Company's consolidated financial statements.
<PAGE>
2. Significant Accounting Policies (cont)
Timberland: 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.
Deferred Debt Issuance Costs: Deferred debt issuance costs are
amortized over the terms of the respective debt obligations using
the interest method.
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.
Income Taxes: The Company accounts for income taxes under the
provisions of SFAS No. 109, "Accounting for Income Taxes," which
provides for an asset and liability approach for accounting for
income taxes. Under this approach, 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 5).
Interest Rate Swap and Cap Agreements: The Company enters into
interest rate swap and cap agreements to reduce the impact of
interest rate fluctuations. Swap agreements involve the exchange
of fixed and floating rate interest payments without the exchange
of the underlying principal amount. Cap agreements provide that
the Company will receive a certain amount when short-term interest
rates exceed a threshold rate. Periodic amounts to be paid or
received under interest rate swap and cap agreements are accrued
and recognized as adjustments to interest expense. Premiums paid
on cap agreements are included in interest payable and amortized to
interest expense over the life of the agreements. 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.
Earnings (Loss) per Common Share: The computations of earnings
(loss) per common share are based on the weighted average number of
common shares outstanding during the periods presented.
Outstanding stock options are common equivalent shares but are not
included since the dilutive effect is not material.
Fully diluted earnings per share amounts are not applicable because
the effect of the conversion of the stock options is not dilutive.
Had the Recapitalization occurred on January 1, 1994, the income
before extraordinary item would have been $42 million, or $.38 per
common share, and the net loss would have been $15 million, or $.13
per common share, for 1994.
Earnings per share amounts and weighted average shares outstanding
have been restated to reflect the results of the Reclassification.
<PAGE>
2. Significant Accounting Policies (cont)
Employee Stock Options: SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages but does not require companies to record
compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized. The Company has, however, adopted the disclosure-only
provisions of SFAS No. 123 as shown in Note 7.
Environmental Matters: The Company expenses environmental
expenditures related to existing conditions resulting from past or
current operations and from which no current or future benefit is
discernible. Expenditures which extend the life of the related
property or mitigate or prevent future environmental contamination
are capitalized. 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.
During 1996, the Company elected to early adopt the provisions of
the American Institute of Certified Public Accountants Statement of
Position ("SOP") 96-1, "Environmental Remediation Liabilities,"
which provides authoritative guidance on the recognition,
measurement and disclosures of environmental remediation
liabilities. The effect of adopting the provisions of SOP 96-1 was
immaterial to the Company's financial statements.
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.
Reclassifications: Certain reclassifications of prior year
presentations have been made to conform to the 1996 presentation.
3. Property, Plant and Equipment
<TABLE>
<CAPTION>
Property, plant and equipment at December 31 consists of:
1996 1995
<S> <C> <C>
Land $ 61 $ 60
Buildings and leasehold improvements 280 268
Machinery, fixtures and equipment 1,908 1,815
2,249 2,143
Less accumulated depreciation and amortization 849 753
1,400 1,390
Construction in progress 66 66
Net property, plant and equipment $1,466 $1,456
</TABLE>
<PAGE>
4. Long-Term Debt
<TABLE>
Long-term debt at December 31 consists of:
1996 1995
<S> <C> <C>
Tranche A term loan $ 312 $ 708
Tranche B term loan 283 236
Tranche C term loan 141
Revolving loans 55 55
Accounts receivable securitization program loans 179 217
1994 series A senior notes 300 300
1994 series B senior notes 100 100
1993 senior notes 500 500
Other 74 76
1,944 2,192
Less current portion 10 81
$1,934 $2,111
</TABLE>
Aggregate annual maturities of long-term debt at December 31, 1996
for the next five years are $10 million in 1997, $14 million in
1998, $100 million in 1999, $348 million in 2000 and $281 million
in 2001.
1994 Credit Agreement
In connection with the Recapitalization, JSC (U.S.) entered into a
bank credit facility (the "1994 Credit Agreement") which consists
of a $450 million revolving credit facility (the "Revolving Credit
Facility") of which up to $150 million may consist of letters of
credit, a $900 million Tranche A Term Loan and a $300 million
Tranche B Term Loan. During 1996, the 1994 Credit Agreement was
amended to allow an additional $100 million borrowing under the
Tranche B Term Loan and $150 million borrowing under a newly
created Tranche C Term Loan. The $250 million in new proceeds from
these term loans was used to reduce scheduled installment payments
of the Tranche A Term Loan. The Tranche A Term Loan matures in
various installments through 2001. The Tranche B and Tranche C
Term Loans mature in various installments through 2002. The
Revolving Credit Facility matures in 2001.
Outstanding loans under the Tranche A Term Loan and the Revolving
Credit Facility bear interest at rates selected at the option of
JSC (U.S.) equal to the alternate base rate ("ABR") plus .75% per
annum or the adjusted LIBOR Rate plus 1.75% per annum (7.56% at
December 31, 1996). Interest on outstanding loans under the
Tranche B Term Loan is payable at a rate per annum selected at the
option of JSC (U.S.), equal to the prime rate plus 2% per annum or
the adjusted LIBOR Rate plus 3% per annum (8.89% at December 31,
1996). Interest on the Tranche C Term Loan is payable at a rate
per annum selected at the option of the Company, equal to the prime
rate plus 2.25% per annum or the adjusted LIBOR Rate plus 3.25% per
annum (9.14% at December 31, 1996). ABR is defined as the highest
of Chase Manhattan Bank's prime lending rate, 1/2 of 1% in excess
of the Federal Funds Rate or 1% in excess of the base certificate
of deposit rate. The Tranche A, B and C Term Loans and the
Revolving Credit Facility may be prepaid at any time, in whole or
in part, at the option of JSC (U.S.).
<PAGE>
4. Long-Term Debt (cont)
A commitment fee of .375% per annum is assessed on the unused
portion of the Revolving Credit Facility. At December 31, 1996,
the unused portion of this facility, after giving consideration to
outstanding letters of credit, was $322 million.
The obligations under the 1994 Credit Agreement are unconditionally
guaranteed by the Company, JSCE, Inc. 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 1994 Credit
Agreement is also secured by a pledge of all the capital stock of
each material subsidiary of the Company and by certain intercompany
notes.
The 1994 Credit Agreement contains various business and financial
covenants including, among other things, (i) limitations on
dividends, redemptions and repurchases of capital stock, (ii)
limitations on the incurrence of indebtedness, liens, leases and
sale-leaseback transactions, (iii) limitations on capital
expenditures, (iv) maintenance of minimum levels of consolidated
earnings before depreciation, interest, taxes and amortization and
(v) maintenance of minimum interest coverage ratios. The 1994
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.
Accounts Receivable Securitization Program Loans
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"), which finances its purchases of
eligible JSC (U.S.) receivables through the issuance of commercial
paper or the proceeds of borrowings under a revolving liquidity
facility and a term loan. In 1995, JS Finance borrowed $15 million
under the term loan and may issue up to $300 million trade
receivables-backed commercial paper or borrow up to $300 million
under a revolving liquidity facility.
Under the Securitization Program, JS Finance has granted a security
interest in all its assets, principally cash and cash equivalents
of $8 million and trade accounts receivable of $210 million at
December 31, 1996. Interest rates on borrowings under the
Securitization Program are at a variable rate (5.72% at December
31, 1996). At December 31, 1996, $133 million was available for
additional borrowing, subject to JSC (U.S.)'s level of eligible
accounts receivable. Borrowings under the Securitization Program,
which expires December 1999, 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.
<PAGE>
4. Long-Term Debt (cont)
1994 Senior Notes
In connection with the Recapitalization, JSC (U.S.) issued and sold
$300 million aggregate principal amount of unsecured 11.25% Series
A Senior Notes due 2004 and $100 million aggregate principal amount
of unsecured 10.75% Series B Senior Notes due 2002. The Series A
Senior 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 2.813% of the principal amount if redeemed during the
12-month periods commencing May 1, 1999 and 2000, respectively. In
addition, up to $100 million aggregate principal amount of Series
A Senior Notes is redeemable at 110% of the principal amount prior
to May 1, 1997 in connection with certain stock issuances. The
Series B Senior Notes are not redeemable prior to maturity.
The 1994 Senior Notes, which are unconditionally guaranteed on a
senior basis by JSCE, Inc., rank pari passu with the 1994 Credit
Agreement and the 1993 Senior Notes. The 1994 Senior Notes
agreement contains business and financial covenants which are less
restrictive than those contained in the 1994 Credit Agreement.
Holders of the 1994 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 of control or in certain events,
from proceeds of major asset sales, as defined.
1993 Senior Notes
In 1993, JSC (U.S.) issued $500 million of unsecured 9.75% Senior
Notes (the "1993 Senior Notes") due 2003 which are not redeemable
prior to maturity. The 1993 Senior Notes, which are
unconditionally guaranteed on a senior basis by JSCE, Inc., rank
pari passu with the 1994 Credit Agreement and the 1994 Senior
Notes. The 1993 Senior Notes agreement contains business and
financial covenants which are substantially less restrictive than
those contained in the 1994 Credit Agreement and substantially
similar to those contained in the 1994 Senior Notes agreement.
Holders of the 1993 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.
Other Debt
Other long-term debt at December 31, 1996 is payable in varying
installments through the year 2029. Interest rates on these
obligations averaged approximately 8.39% at December 31, 1996.
Interest Rate Swap Agreements
The Company utilizes interest rate swap agreements to manage its
interest rate exposure on long-term debt. At December 31, 1996,
the Company has interest rate swap agreements with a notional
amount of $233 million which effectively fix (for remaining periods
up to one year) the interest rate on variable rate borrowings. The
Company is currently paying a weighted average fixed interest rate
of 7.16% and receiving a weighted average variable interest rate of
5.66%, calculated on the notional amount.
<PAGE>
4. Long-Term Debt (cont)
The Company is exposed to credit loss in the event of non-
performance by the other parties to the interest rate swap
agreements. However, the Company does not anticipate non-
performance by the counterparties.
Other
Interest costs capitalized on construction projects in 1996, 1995
and 1994 totalled $3 million, $4 million and $4 million,
respectively. Interest payments on all debt instruments for 1996,
1995 and 1994 were $186 million, $228 million and $247 million,
respectively.
5. Income Taxes
Significant components of the Company's deferred tax assets and
liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment and timberland $396 $386
Inventory 13 11
Prepaid pension costs 31 36
Other 104 101
Total deferred tax liabilities 544 534
Deferred tax assets:
Employee benefit plans 102 100
Net operating loss, alternative minimum tax and
tax credit carryforwards 90 113
Other 53 49
Total deferred tax assets 245 262
Valuation allowance for deferred tax assets (18) (11)
Net deferred tax assets 227 251
Net deferred tax liabilities $317 $283
</TABLE>
Provision for income taxes before extraordinary item was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Current
Federal $ 41 $ 38 $ 1
State and local 2 4 2
43 42 3
Deferred
Federal (1) (12) 39
State and local (5) 2 4
Net operating loss carryforwards 40 124 (30)
34 114 13
$ 77 $ 156 $ 16
</TABLE>
<PAGE>
5. Income Taxes (cont)
At December 31, 1996, the Company has net operating loss
carryforwards for state income tax purposes of approximately $44
million which expire in the years 1997 through 2009.
The federal income tax returns for 1989 through 1991 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.
A reconciliation of the difference between the statutory federal
income tax rate and the effective income tax rate as a percentage
of income before income taxes and extraordinary item is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local taxes, net
of federal tax benefit (1.5) 3.9 (4.8)
Permanent differences from applying
purchase accounting 4.1 3.2 23.7
Effect of valuation allowances on
deferred tax assets, net of
federal benefit 2.1 (3.4) 1.1
Other, net 2.1
39.7% 38.7% 57.1%
</TABLE>
The Company made income tax payments of $39 million, $41 million
and $3 million in 1996, 1995 and 1994, respectively.
6. Employee Benefit Plans
Pension Plans
The Company sponsors noncontributory defined benefit pension plans
covering substantially all employees not covered by multi-employer
plans. Plans that cover salaried and management employees provide
pension benefits that are based on the employee's five highest
consecutive calendar years' compensation during the last ten years
of service. Plans covering non-salaried employees generally
provide benefits of stated amounts for each year of service. These
plans provide reduced benefits for early retirement. The Company's
funding policy is to make minimum annual contributions required by
applicable regulations. The Company also participates in several
multi-employer pension plans, which provide defined benefits to
certain union employees.
<PAGE>
6. Employee Benefit Plans (cont)
Assumptions used in the accounting for the defined benefit plans
were:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate 7.75% 7.25% 8.5%
Rate of increase in compensation levels 4.5% 4.0% 5.0%
Expected long-term rate of return on assets 9.5% 9.5% 10.0%
</TABLE>
The components of net pension expense (income) for the defined
benefit plans and the total contributions charged to pension
expense for the multi-employer plans follow:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during the period $ 16 $ 13 $ 14
Interest cost on projected benefit obligations 60 59 54
Actual return on plan assets (131) (155) (8)
Net amortization and deferral 62 75 (71)
Multi-employer plans 2 2 2
Net pension expense (income) $ 9 $ (6) $ (9)
</TABLE>
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheets at December 31 for
the Company's defined benefit pension plans:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations $759 $781
Accumulated benefit obligations $802 $820
Projected benefit obligations $838 $857
Plan assets at fair value 926 845
Plan assets in excess of (less than)
projected benefit obligations 88 (12)
Unrecognized net loss 8 119
Unrecognized net asset at December 31,
being recognized over 14 to 15 years (17) (21)
Net pension asset $ 79 $ 86
</TABLE>
Approximately 33% of plan assets at December 31, 1996 are invested
in cash equivalents or debt securities and 67% are invested in
equity securities. Equity securities at December 31, 1996 include
736,807 shares of common stock of the Company with a market value
of approximately $12 million and 25,904,227 shares of JS Group
common stock having a market value of approximately $78 million.
Dividends paid on JS Group common stock during 1996 were
approximately $2 million.
<PAGE>
6. Employee Benefit Plans (cont)
Savings Plans
The Company sponsors voluntary savings plans covering substantially
all salaried and certain hourly employees. The Company match,
which is paid in Company common stock, was 60% in 1996 and 50% in
1995 and 1994 of each participant's contributions up to an annual
maximum. The Company's expense for the savings plans totalled $8
million, $6 million and $5 million in 1996, 1995 and 1994,
respectively.
Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance
benefits for all salaried and certain hourly employees. The
Company has various plans under which the cost may be borne either
by the Company, the employee or partially by each party. The
Company does not currently fund these plans. These benefits are
discretionary and are not a commitment to long-term benefit
payments. The plans allow employees who retire on or after January
1, 1994 to become eligible for these benefits only if they retire
after age 60 while working for the Company.
The following table sets forth the accumulated postretirement
benefit obligation ("APBO") with respect to these benefits as of
December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Retirees $ 63 $ 56
Active employees 35 38
Total accumulated postretirement benefit obligation 98 94
Unrecognized net gain 3 6
Accrued postretirement benefit cost $101 $100
</TABLE>
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Service cost-benefits earned during the period $ 1 $ 1
Interest cost on accumulated postretirement
benefit obligation 7 7
Net amortization (1) (1)
Net periodic postretirement benefit cost $ 7 $ 7
</TABLE>
A weighted-average discount rate of 7.75% and 7.25% was used in
determining the APBO at December 31, 1996 and 1995, respectively.
The weighted-average annual assumed rate of increase in the per
capita cost of covered benefits ("health care cost trend rate") was
8.5%, with an annual decline of 1% until the rate reaches 4.25% in
the year 2001. The effect of a 1% increase in the assumed health
care cost trend rate would increase the APBO as of December 31,
1996 by $2 million and have no effect on the annual net periodic
postretirement benefit cost for 1996.
<PAGE>
7. 1992 Stock Option Plan
Under the 1992 Stock Option Plan (the "Plan"), selected employees
of the Company and its affiliates and subsidiaries are granted non-
qualified stock options to acquire shares of common stock of the
Company. The stock options are exercisable at a price equal to the
fair market value, as defined, of the Company's common stock on the
date of grant. The options vest pursuant to the schedule set forth
for each option and expire upon the earlier of 12 years from the
date of grant or termination of employment, death or disability.
At December 31, 1996, 8,049,306 shares of common stock were
reserved for issuance under the Plan, including 931,833 shares
available for the granting of options. The stock options become
exercisable upon the earlier of the occurrence of certain trigger
dates, as defined, or 11 years from the date of grant.
Pro forma information regarding net income and earnings per share
is required by SFAS No. 123 and has been determined as if the
Company had accounted for its employee stock options issued
subsequent to December 31, 1994 under the fair value method of that
statement. The pro forma net income information required by SFAS
No. 123 is not likely to be representative of the effects on
reported net income for future years. The fair value for these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Expected option life (years) 7 8
Risk-free weighted average interest rate 6.34% 7.44%
Stock price volatility 42.10% 42.10%
Dividend yield 0.0% 0.0%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of
its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting
period. The Company's pro forma information follows (in millions,
except per share data):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net income - as reported $ 112 $ 243
Net income - pro forma 111 243
Earnings per share - as reported 1.01 2.19
Earnings per share - pro forma 1.00 2.19
</TABLE>
<PAGE>
7. 1992 Stock Option Plan (cont)
The weighted-average fair values of options granted during 1996 and
1995 were $6.91 and $10.20 per share, respectively.
Since SFAS No. 123 is applicable only to options granted subsequent
to December 31, 1994, the additional option expense, due to the
fair value method of accounting required by the statement, will not
be fully reflected in the pro forma information until 1997.
Additional information relating to the Plan, restated to reflect
the results of the Reclassification, is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Under Option Exercise
Option Price Range Price
<S> <C> <C> <C>
Outstanding at December 31, 1993 4,942,150 $10.00
Granted 640,250 12.50
Cancelled 51,145 10.00 - 12.50
Outstanding at December 31, 1994 5,531,255 $10.00 - 12.50
Granted 141,750 14.31 - 17.63
Exercised 694 10.00
Cancelled 40,843 10.00 - 17.63
Outstanding at December 31, 1995 5,631,468 $10.00 - 17.63 $10.44
Granted 1,497,500 11.13 - 13.38 12.67
Cancelled 11,495 10.00 - 17.63 11.13
Outstanding at December 31, 1996 7,117,473 $10.00 - 17.63 $10.91
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Exercise Contractual Exercise
Exercise Prices 12/31/96 Price Life (Years) 12/31/96 Price
<S> <C> <C> <C> <C> <C>
$10.00 - $12.50 5,485,473 $10.29 8 485,429 $10.00
14.31 - 17.63 136,500 16.41 10
11.13 - 13.38 1,495,500 12.67 12
7,117,473 485,429
</TABLE>
<PAGE>
8. Related Party Transactions
Transactions with JS Group
Transactions with JS Group, its subsidiaries and affiliated
companies were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Product sales $ 34 $ 44 $36
Product and raw material purchases 64 108 71
Management services income 5 4 4
Charges from JS Group for services provided 1 1
Charges from JS Group for letter of credit,
commitment fees and related expenses 3
Charges to JS Group for costs pertaining to
the Fernandina No. 2 paperboard machine 54 57 54
Receivables at December 31 3 3 4
Payables at December 31 10 13 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.
An affiliate of JS Group owns the No. 2 paperboard machine that is
located in the Company's Fernandina Beach, Florida, paperboard mill
(the "Fernandina Mill"). Pursuant to an operating agreement
between the Company and the affiliate, the Company operates and
manages the No. 2 paperboard machine and is compensated for its
direct production and manufacturing costs and indirect
manufacturing, selling and administrative costs incurred by the
Company for the entire Fernandina Mill. The compensation is
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 Times Mirror
In July 1995, under the terms of a shareholder agreement, JSC
(U.S.) acquired the remaining 20% minority interest of Smurfit
Newsprint Corporation ("SNC") from The Times Mirror Company ("Times
Mirror"). SNC supplies newsprint to Times Mirror at amounts which
approximate prevailing market prices under the terms of a long-term
agreement. The obligations of the Company and Times Mirror to
supply and purchase newsprint are wholly or partially terminable
upon the occurrence of certain defined events. Sales to Times
Mirror for 1996, 1995 and 1994 were $165 million, $189 million and
$113 million, respectively.
<PAGE>
8. Related Party Transactions (cont)
Transactions with Morgan Stanley & Co. Incorporated
In connection with the Recapitalization, Morgan Stanley & Co.
Incorporated in its capacity as underwriter of public equity and
debt securities, received fees from the Company of $16 million in
1994.
9. Leases
The Company leases certain facilities and equipment for production,
selling and administrative purposes under operating leases. Future
minimum lease payments at December 31, 1996 required under
operating leases that have initial or remaining noncancelable lease
terms in excess of one year are $33 million in 1997, $25 million in
1998, $19 million in 1999, $14 million in 2000, $14 million in 2001
and $22 million thereafter.
Net rental expense was $50 million, $48 million and $46 million for
1996, 1995 and 1994, respectively.
10. Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 12 $ 12 $ 27 $ 27
Liabilities
Long-term debt, including
current maturities 1,944 2,005 2,192 2,184
Unrealized loss on interest
rate swap agreements - - - 5
</TABLE>
The carrying amount of cash equivalents approximates fair value
because of the short maturity of those instruments. The fair value
of the Company's long-term 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 interest rate swap agreements is
the estimated amount the Company would pay or receive, net of
accrued interest expense, to terminate the agreements at December
31, 1996 and 1995, taking into account current interest rates and
the current creditworthiness of the swap counterparties.
<PAGE>
11. Restructuring Program
During 1993, the Company initiated a restructuring program designed
to improve its long-term competitive position. Since 1993, the
Company has written down the assets of closed facilities and other
nonproductive assets totalling $39 million and made cash
expenditures of $39 million relating to direct expenses associated
with plant closures, reductions in workforce, realignment and
consolidation of various manufacturing operations. The remaining
restructuring liability relates to closures and sales of certain
facilities which were originally anticipated to be completed as of
December 31, 1996 and are now expected to be completed during 1997.
No significant adjustment to the reserve is anticipated at this
time.
12. 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.
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") as well as
contamination of certain Company-owned properties, under the
Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") 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. In determining the liability, the
estimate takes into consideration the number of other PRP's at each
site, the identity and financial condition of such parties and
experience regarding similar matters.
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.
In the fourth quarter of 1995, the Company recorded a pretax charge
totalling $25 million to implement a program of corrective action
to address product quality matters and failure to follow proper
manufacturing and internal procedures relating to production of
exterior siding, a non-core product line of SNC. Based upon the
experience to date, the Company believes the reserve is adequate.
Separately, in January 1997, SNC and certain manufacturers and
distributors of mobile homes were named as defendants in a class
action complaint filed in the state of South Carolina. The
complaint alleges that exterior siding produced by SNC and used in
mobile homes deteriorates when exposed to climate conditions found
in South Carolina. The Company intends to vigorously defend the
action. The litigation is currently in the discovery stage and, at
this time, the Company is unable to estimate its potential
liability, if any, in connection with the matter.
<PAGE>
13. Business Segment Information
The Company's principal lines of business are paperboard/packaging
products and newsprint. The paperboard/packaging products segment
includes the manufacture and distribution of containerboard,
boxboard and solid bleached sulfate, corrugated containers, folding
cartons, fiber partitions, papertubes and cores, labels and
flexible packaging. The newsprint segment includes the manufacture
and distribution of newsprint. A summary by business segment of
net sales, income from operations, identifiable assets, capital
expenditures and depreciation, depletion and amortization follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales
Paperboard/packaging products $3,087 $3,706 $2,974
Newsprint 323 387 259
$3,410 $4,093 $3,233
Income (loss) from operations
Paperboard/packaging products $ 335 $ 604 $ 308
Newsprint 56 26 (17)
Total income from operations 391 630 291
Interest expense, net (194) (234) (266)
Other, net (3) 7 3
Income before income taxes and
extraordinary item $ 194 $ 403 $ 28
Identifiable assets
Paperboard/packaging products $2,189 $2,246 $2,211
Newsprint 284 296 276
Corporate assets 215 241 272
$2,688 $2,783 $2,759
Capital expenditures
Paperboard/packaging products $ 129 $ 137 $ 146
Newsprint 17 17 17
$ 146 $ 154 $ 163
Depreciation, depletion and amortization
Paperboard/packaging products $ 126 $ 122 $ 115
Newsprint 13 17 16
$ 139 $ 139 $ 131
</TABLE>
Sales and transfers between segments are not material. Export
sales are less than 10% of total sales. Corporate assets consist
principally of cash and cash equivalents, deferred income taxes,
deferred debt issuance costs and other assets which are not
specific to a segment.
<PAGE>
14. 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
<C> <C> <C> <C> <C>
1996
Net sales $916 $844 $834 $816
Gross profit 205 155 151 145
Income from operations 138 92 86 75
Income before extraordinary item 53 27 22 15
Loss from early extinguishment
of debt (4) (1)
Net income 53 23 22 14
Income per share before
extraordinary item .48 .24 .20 .13
Net income per share .48 .20 .20 .13
1995
Net sales $986 $1,083 $1,051 $973
Gross profit 187 228 245 211
Income from operations 126 165 185 154
Income before extraordinary item 39 66 77 65
Loss from early extinguishment
of debt (3) (1)
Net income 39 66 74 64
Income per share before
extraordinary item .35 .60 .70 .58
Net income per share .35 .60 .67 .57
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The following table sets forth the names and ages of the directors
of the Company.
Name Age
Leigh J. Abramson 28
Donald P. Brennan 56
Alan E. Goldberg 42
Richard W. Graham 62
James S. Hoch 36
G. Thompson Hutton 41
Howard E. Kilroy 61
Michael W.J. Smurfit 60
James E. Terrill 63
James R. Thompson 60
The Board of Directors currently consists of ten directors. The
directors are classified into three groups: four directors having
terms expiring in 1997, including Messrs. Brennan, Hoch, Smurfit
and Terrill; three directors having terms expiring in 1998,
including Messrs. Abramson, Graham and Hutton; and three directors
having terms expiring in 1999, including Messrs. Goldberg, Kilroy
and Thompson.
Executive Officers
The following table sets forth the names, ages and positions of the
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert P. Breimeier 53 Vice President - Transportation and Logistics
Janet R. Carl 36 Vice President - Environmental Affairs
James P. Davis 41 Vice President and General Manager - Consumer
Packaging Division
James D. Duncan 55 Vice President and General Manager - Industrial
Packaging Division
John R. Funke 55 Vice President
Richard J. Golden 54 Vice President - Purchasing
Richard W. Graham 62 President and Chief Executive Officer
Michael F. Harrington 56 Vice President - Human Resources
Charles A. Hinrichs 43 Vice President and Treasurer
Jay D. Lamb 49 Vice President and General Manager - SNC
F. Scott Macfarlane 51 Vice President and General Manager - Folding
Carton and Boxboard Mill Division
Lyle L. Meyer 60 Vice President - Pension and Group Benefits
Patrick J. Moore 42 Vice President and Chief Financial Officer
Thomas A. Pagano 50 Vice President - Planning
Eric Priestley 54 Executive Vice President and Chief Operating
Officer
Name Age Position
Michael W.J. Smurfit 60 Chairman of the Board and Director
David C. Stevens 62 Vice President and General Manager - Smurfit
Recycling Company
John E. Straw 54 Vice President - Corporate Sales and Marketing
Michael E. Tierney 48 Vice President, General Counsel and Secretary
William N. Wandmacher 54 Vice President and General Manager -
Containerboard Mill Division
Gary L. West 54 Vice President and General Manager - Container
Division
</TABLE>
<PAGE>
Biographies
Leigh J. Abramson was named to the Board of Directors of the
Company in January 1997. Mr. Abramson joined Morgan Stanley & Co.
Incorporated ("MS&Co.") in 1990 and is a Senior Associate in
MS&Co.'s Merchant Banking Division. He is a Vice President of
Morgan Stanley Capital Partners III, Inc. ("MSCP III, Inc.") and
Morgan Stanley Leveraged Equity Fund II, Inc. ("MSLEF II, Inc."),
which is the general partner of The Morgan Stanley Leveraged Equity
Fund, L.P. ("MSLEF II"). Mr. Abramson also serves as a director of
PageMart Wireless, Inc., PageMart, Inc. and Silgan Holdings Inc.
Robert P. Breimeier was appointed Vice President - Transportation
and Logistics in December 1996. He was Director of Operations -
Transportation and Logistics from September 1995 to December 1996
and Director of Corporate Planning from December 1994 to September
1995. Prior to that, he held various managerial positions since
joining the Company in 1966, including Vice President and General
Manager of Coated Recycled Boxboard Mills from April 1989 until
reassignment to Corporate Planning.
Donald P. Brennan has been a Director of the Company since 1989.
Mr. Brennan is an Advisory Director of MS&Co. He was a Managing
Director of MS&Co. from 1984 to February 1996, responsible for
MS&Co.'s Merchant Banking Division. Mr. Brennan also serves as
Director of Fort Howard Corporation, ICT Group, Inc. and SITA
Telecommunications Holdings N.V.
Janet R. Carl was named Vice President - Environmental Affairs in
August 1996. She joined the Company in August 1995 as
environmental counsel. Previously, she was employed as an attorney
with Mayor, Day, Caldwell and Keeton in Houston, Texas.
James P. Davis has been Vice President and General Manager -
Consumer Packaging Division since November 1995. He served as
Division Director of Operations from August 1995 to November 1995.
Prior to that, he held various management positions in the
Container Division since joining the Company in 1977.
James D. Duncan was appointed Vice President and General Manager -
Industrial Packaging Division in October 1996. He was Vice
President and General Manager, Converting Operations - Industrial
Packaging Division from April 1994 to October 1996 and served as
General Manager, Converting Operations - Industrial Packaging
Division from February 1993 to April 1994. Prior to that, he was
President and Chief Executive Officer of Sequoia Pacific Systems,
an affiliate of the Company, that he joined in August 1989.
<PAGE>
John R. Funke has been a Vice President since April 1989. He was
Chief Financial Officer from April 1989 to October 1996. Mr. Funke
will retire from the Company at the end of April 1997.
Alan E. Goldberg has been a Director of the Company since 1989. He
has been a Managing Director of MS&Co. since January 1988, is co-
head of MS&Co.'s Merchant Banking Division and is a Vice Chairman
of MSLEF II, Inc. which is the general partner of MSLEF II, and of
MSCP III, Inc. Mr. Goldberg also serves as Director of CIMIC
Holdings Limited, Cat Limited, Hamilton Services Limited, Amerin
Corporation and Amerin Guaranty Corporation, Direct Response
Corporation and several private companies.
Richard J. Golden has been Vice President - Purchasing since
January 1985 and was Director of Corporate Purchasing from October
1981 to January 1985. In January 1994, he was assigned
responsibility for world-wide purchasing for JS Group.
Richard W. Graham was named President and Chief Executive Officer
of the Company in January 1997. He was President of the Company
from July 1996 to December 1996. He served as Senior Vice
President from February 1994 to July 1996. Prior to that, he held
various positions in the Folding Carton and Boxboard Mill Division,
including Vice President and General Manager from February 1991 to
January 1994.
Michael F. Harrington has been Vice President - Human Resources
since January 1992. Prior to joining the Company, he was Corporate
Director of Labor Relations/Safety and Health with Boise Cascade
Corporation for more than 5 years.
Charles A. Hinrichs has been Vice President and Treasurer since
April 1995. Prior to joining the Company, he was employed by The
Boatmen's National Bank of St. Louis for 13 years, where most
recently he was Senior Vice President and Chief Credit Officer.
James S. Hoch was named to the Board of Directors of the Company in
February 1997. Mr. Hoch joined MS&Co. in 1986 and is a Principal
in MS&Co.'s Merchant Banking Division. He is a Vice President of
MSCP III, Inc. and MSLEF II, Inc., which is the general partner of
MSLEF II. He also serves as a director of Kabelmedia Holding GmbH,
Nordic Aluminum, Inc., SITA Telecommunications Holdings, N.V. and
Shuttleway.
G. Thompson Hutton was elected to the Board of Directors in
December 1994. Mr. Hutton has been President and Chief Executive
Officer of Risk Management Solutions, Inc., an information services
company based in Menlo Park, California, since 1991. Prior to
that, he was a management consultant with McKinsey & Company, Inc.
from 1986 to 1991. He also serves as a Trustee of Colorado Outward
Bound School.
Howard E. Kilroy has been a Director of the Company since 1989.
Mr. Kilroy was Chief Operations Director of JS Group from 1978
until March 1995 and President of JS Group from October 1986 until
March 1995. He was a member of the Supervisory Board of Smurfit
International B.V. ("SIBV") from January 1978 to January 1992. He
was Senior Vice President of the Company for over 5 years. He
retired from his executive positions with JS Group and the Company
at the end of March 1995, but remains a Director of JS Group and
the Company. In addition, he is Governor (Chairman) of Bank of
Ireland and a Director of CRH plc.
<PAGE>
Jay D. Lamb was appointed Vice President and General Manager of SNC
in May 1996. He was Director of Operations of SNC from May 1995 to
May 1996. Prior to that, he held various accounting and managerial
positions with SNC since joining the Company in 1970.
F. Scott Macfarlane has been Vice President and General Manager -
Folding Carton and Boxboard Mill Division since November 1995. He
served as Vice President and General Manager of the Folding Carton
Division from December 1993 to November 1995. Prior to that, he
held various managerial positions within the Folding Carton
Division since joining the Company in 1971.
Lyle L. Meyer has been Vice President - Pension and Group Benefits
since April 1989. He served as President of Smurfit Pension and
Insurance Services Company ("SPISCO") from 1982 until 1992, when
SPISCO was merged into the Company.
Patrick J. Moore was named Vice President and Chief Financial
Officer of the Company in October 1996. He was Vice President and
General Manager - Industrial Packaging Division from December 1994
to October 1996. He served as Vice President and Treasurer from
February 1993 to December 1994 and was Treasurer from October 1990
to February 1993. He joined the Company in 1987 as Assistant
Treasurer.
Thomas A. Pagano was named Vice President - Planning in May 1996.
He was Director of Corporate Planning from September 1995 to May
1996. Prior to that, Mr. Pagano held various managerial positions
within the Company's Container Division, including Area Regional
General Manager from January 1994 to September 1995.
Eric Priestley joined the Company in August 1996 as Executive Vice
President and Chief Operating Officer. Prior to that, he was
President and Chief Executive Officer of Rexam, Inc., a U.S.
producer of packaging, print and coated products and a subsidiary
of Rexam plc.
Michael W.J. Smurfit has been Chairman and Chief Executive Officer
of JS Group since 1977 and has been Chairman of the Board of the
Company since 1989. He was Chief Executive Officer of the Company
prior to July 1990.
David C. Stevens has been Vice President and General Manager -
Smurfit Recycling Company since January 1993. Prior to that, he
was General Sales Manager for Smurfit Recycling Company since
joining the Company in 1987.
John E. Straw has been Vice President - Corporate Sales and
Marketing since May 1996. Mr. Straw has held various managerial
positions in the Folding Carton and Boxboard Mill Division since
joining the Company in 1969, including General Manager, National
Account Sales from May 1995 to May 1996.
<PAGE>
James E. Terrill has been Vice Chairman of the Board since February
1997 and a Director of the Company since 1994. He was Chief
Executive Officer from July 1996 to December 1996 and President and
Chief Executive Officer from February 1994 to July 1996. He served
as Executive Vice President - Operations from August 1990 to
February 1994. He also served as President of SNC from February
1986 to February 1993.
James R. Thompson was elected to the Board of Directors in July
1994. He is Chairman of the Executive Committee and a Partner of
Winston & Strawn, a law firm that regularly represents the Company
on numerous matters. He served as Governor of the State of
Illinois from 1977 to 1991. Mr. Thompson also serves as a Director
of FMC Corporation, the Chicago Board of Trade, International
Advisory Council of the Bank of Montreal, Prime Retail, Inc.,
American National Can Corporation, National Council on Compensation
Insurance, Hollinger International, Inc., Union Pacific Resources,
Inc. and The Japan Society (N.Y.).
Michael E. Tierney has been Vice President, General Counsel and
Secretary since January 1993. Prior to that he served as Senior
Counsel and Assistant Secretary since joining the Company in 1987.
William N. Wandmacher has been Vice President and General Manager -
Containerboard Mill Division since January 1993. He served as
Division Vice President - Medium Mills from October 1986 to January
1993. Prior to that, he held various positions in production,
plant management and planning since joining the Company in 1966.
Gary L. West was named Vice President and General Manager -
Container Division in October 1996. He was Vice President of
Operations for Container Division from May 1996 to October 1996.
Mr. West was Vice President - Sales and Marketing from December
1994 to May 1996. Prior to that, he held various management
positions in the Container, Consumer Packaging and Industrial
Packaging Divisions since joining the Company in 1980, including
Vice President and General Manager - Industrial Packaging Division
from October 1992 to December 1994.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is set forth
under the captions "Executive Compensation," "Report of the
Compensation Committee on Executive Compensation" and "Appointment
Committee Interlocks and Insider Participation" in JSC's proxy
statement in connection with the Annual Meeting of Stockholders to
be held on May 1, 1997, which will be filed with the Securities and
Exchange Commission on or before March 31, 1997 (the "JSC Proxy
Statement"), and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required in response to this item is set forth
under the caption "Principal Stockholders" in the JSC Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is set forth
under the caption "Certain Transactions" in the JSC Proxy Statement
and is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) and (2) The list of Financial Statements and Financial
Statement Schedules required by this item is included in Item
8.
(3) Exhibits.
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (File No. 33-57085)).
3.2 By-laws of the Company (incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-8 (File
No. 33-57085)).
4.1 Certificate for the Company's Common Stock (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-8 (File No. 33-57085)).
10.1 Second Amended and Restated Organization Agreement, as of
August 26, 1992, among SIBV, MSLEF II, SIBV/MS Holdings,
Inc., JSC, Container Corporation of America ("CCA") and MSLEF
II, Inc. (incorporated by reference to Exhibit 10.1(d) to JSC
(U.S.)'s quarterly report on Form 10-Q for the quarter
ended September 30, 1992).
10.2(a) Stockholders Agreement among JSC, SIBV, MSLEF II and certain
related entities (incorporated by reference to Exhibit 10.2
to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1994).
10.2(b) First Amendment to Stockholders Agreement, dated as of
January 13, 1997, by and among SIBV, MSLEF II, JSC and
certain related entities.
10.3 Registration Rights Agreement among the Company, MSLEF II and
SIBV (incorporated by reference to Exhibit 10.3 to the
Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1994).
10.4 Subscription Agreement among the Company, JSC (U.S.), CCA and
SIBV (incorporated by reference to Exhibit 10.4 to the
Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1994).
10.5(a) Restated Newsprint Agreement, dated January 1, 1990, by and
between SNC and The Times Mirror Company (incorporated by
reference to Exhibit 10.39 to JSC (U.S.)'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
Portions of this exhibit have been excluded pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
10.5(b) Amendment No. 1 to the Restated Newsprint Agreement
(incorporated by reference to Exhibit 10.6(b) to the
Company's Registration Statement on Form S-1 (File No. 33-
75520)).
10.6 Operating Agreement, dated as of April 30, 1992, by and
between CCA and Smurfit Paperboard, Inc. (incorporated by
reference to Exhibit 10.42 to JSC (U.S.)'s quarterly report
on Form 10-Q for the quarter ended March 31, 1992).
10.7 JSC (U.S.) Deferred Compensation Plan, as amended.
10.8 JSC (U.S.) Management Incentive Plan (incorporated by
reference to Exhibit 10.10 to JSC's Annual Report on Form 10-
K for the fiscal year ended December 31, 1995).
10.9 Jefferson Smurfit Corporation (U.S.) 1994 Long-Term Incentive
Plan (incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (File No. 33-
75520)).
10.10 Rights Agreement, dated as of April 30, 1992, among CCA,
Smurfit Paperboard, Inc. and Bankers Trust Company, as
collateral trustee (incorporated by reference to Exhibit
10.43 to JSC (U.S.)'s quarterly report on Form 10-Q for the
quarter ended March 31, 1992).
<PAGE>
10.11(a) 1992 SIBV/MS Holdings, Inc. Stock Option Plan
(incorporated by reference to Exhibit 10.48 to JSC (U.S.)'s
quarterly report on Form 10-Q for the quarter ended September
30, 1992).
10.11(b) Amendment No. 1 to 1992 SIBV/MS Holdings, Inc. Stock
Option Plan (incorporated by reference to Exhibit 10.16(b) to
the Company's Registration Statement on Form S-1 (File No.
33-75520)).
10.12(a) Credit Agreement, amended and restated as of May 17, 1996,
among JSC, JSCE, JSC (U.S.) and the banks parties thereto
(incorporated by reference to Exhibit 10.1 to JSC's quarterly
report on Form 10-Q for the quarter ended June 30, 1996).
10.12(b) Amendment Agreement dated as of May 17, 1996 among JSC,
JSCE, JSC (U.S.), SNC and the banks parties thereto
(incorporated by reference to Exhibit 10.2 to JSC's quarterly
report on Form 10-Q for the quarter ended June 30, 1996).
10.13(a) Term Loan Agreement dated as of February 23, 1995 among
JSC Finance and Bank Brussels Lambert, New York Branch
(incorporated by reference to Exhibit 10.1 to JSC's quarterly
report on Form 10-Q for the quarter ended March 31, 1995).
10.13(b) Depositary and Issuing and Paying Agent Agreement (Series
A Commercial Paper) as of February 23, 1995 (incorporated by
reference to Exhibit 10.2 to JSC's quarterly report on Form
10-Q for the quarter ended March 31, 1995).
10.13(c) Depositary and Issuing and Paying Agent Agreement (Series
B Commercial Paper) as of February 23, 1995 (incorporated by
reference to Exhibit 10.3 to JSC's quarterly report on Form
10-Q for the quarter ended March 31, 1995).
10.13(d) 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 JSC's quarterly report on Form 10-Q for
the quarter ended March 31, 1995).
10.13(e) Termination and Reassignment Agreement dated as of March
3, 1995 among JS Finance, JSC (U.S.), Emerald Funding
Corporation and Bankers Trust Company (incorporated by
reference to Exhibit 10.5 to JSC's quarterly report on Form
10-Q for the quarter ended March 31, 1995).
10.13(f) Liquidity Agreement dated as of February 23, 1995 among
JS Finance, the Financial Institutions parties hereto as
Banks, Bankers Trust Company, as Facility Agent and Bankers
Trust Company as Collateral Agent (incorporated by reference
to Exhibit 10.6 to JSC's quarterly report on Form 10-Q for
the quarter ended March 31, 1995).
10.13(g) Commercial Paper Dealer Agreement dated as of February 23,
1995 among BT Securities Corporation, Morgan Stanley & Co.
Incorporated, JSC (U.S.) and JS Finance (incorporated by
reference to Exhibit 10.7 to JSC's quarterly report on Form
10-Q for the quarter ended March 31, 1995).
10.13(h) Addendum dated March 6, 1995 to Commercial Paper Dealer
Agreement (incorporated by reference to Exhibit 10.8 to JSC's
quarterly report on Form 10-Q for the quarter ended March 31,
1995).
<PAGE>
10.14(a) First Omnibus Amendment dated as of March 31, 1996 among
JSC (U.S.), JSFC and the banks parties thereto (incorporated
by reference to Exhibit 10.3 to JSC's quarterly report on
Form 10-Q for the quarter ended June 30, 1996).
10.14(b) Affiliate Receivables Sale Agreement dated as of March 31,
1996 between SNC and JSC (incorporated by reference to
Exhibit 10.4 to JSC's quarterly report on Form 10-Q for the
quarter ended June 30, 1996).
10.15 Consulting Agreement dated as of October 24, 1996 by and
between James E. Terrill and JSC (U.S.).
10.16 Engagement letter dated August 1, 1996 between Mr. Eric
Priestley and JSC.
11.1 Calculation of Historical Per Share Earnings.
18.1 Letter regarding change in accounting for pension plans
(incorporated by reference to Exhibit 18.1 to JSC (U.S.)'s
quarterly report on Form 10-Q for the quarter ended September
30, 1993).
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Auditors.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
(b) Report on Form 8-K.
The Company did not file any reports on Form 8-K during the three
months ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE February 26, 1997 JEFFERSON SMURFIT CORPORATION
(Registrant)
BY /s/ Patrick J. Moore
Patrick J. Moore
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant in the capacities and on the date indicated.
SIGNATURE TITLE DATE
* Chairman of the Board
Michael W. J. Smurfit and Director
* President, Chief Executive Officer
Richard W. Graham and Director (Principal
Executive Officer)
/s/ Patrick J. Moore Vice President and February 26, 1997
Patrick J. Moore Chief Financial Officer
(Principal Accounting Officer)
* Director
Leigh J. Abramson
* Director
Donald P. Brennan
* Director
Alan E. Goldberg
* Director
James S. Hoch
* Director
G. Thompson Hutton
* Director
Howard E. Kilroy
* Director
James E. Terrill
* Director
James R. Thompson
* By /s/ Patrick J. Moore , pursuant to Powers of Attorney
Patrick J. Moore filed as a part of the Form 10-K.
As Attorney in Fact
<PAGE>
<TABLE>
<CAPTION>
JEFFERSON SMURFIT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Column A Column B Column C Column D Column E
Balance at
Beginning of Charged
Period, as Charged to to Other Deductions Balance
Previously Costs and Accounts Describe at End
Description Reported Expenses Describe <fn1> of Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts $ 9 $ 5 $ $ 5 $ 9
Year ended December 31, 1995
Allowance for doubtful accounts $ 9 $ 1 $ $ 1 $ 9
Year ended December 31, 1994
Allowance for doubtful accounts $ 9 $ 1 $ $ 1 $ 9
<FN>
<fn1> Uncollectible amounts written off, net of recoveries.
</FN>
</TABLE>
Exhibit 10.2(b)
FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT
This First Amendment to Stockholders Agreement, dated as
of January 13, 1997 (this "Amendment"), among SMURFIT INTERNATIONAL
B.V., a corporation organized under the laws of The Netherlands
("SIBV"), THE MORGAN STANLEY LEVERAGED EQUITY FUND II, L.P., a
Delaware limited partnership ("MSLEF II"), JEFFERSON SMURFIT
CORPORATION (formerly known as "SIBV/MS HOLDINGS, INC."), a
Delaware corporation (the "Company") and the other parties
identified on the signature pages hereto.
WHEREAS, the parties to this Amendment are parties to
that certain Stockholders Agreement dated as of May 3, 1994
("Stockholders Agreement");
WHEREAS, the parties hereto desire to amend the
Stockholders Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration the
parties hereto agree as follows:
1. Section 1.1 of the Stockholders Agreement is hereby
amended as follows:
(a) The definition of "CCA" shall be deleted in its
entirety;
(b) The following definitions are hereby added:
"JSCE" shall mean JSCE, Inc., a Delaware
corporation, which is a wholly-owned subsidiary of the
Company.
"JSC" shall mean Jefferson Smurfit Corporation
(U.S.), a Delaware corporation, which is a wholly-owned
subsidiary of JSCE.
2. The Stockholders Agreement is hereby amended to
substitute "JSCE" for "CCA" wherever it appears in the Stockholders
Agreement.
3. Section 2.2(a) of the Stockholders Agreement through
clause (4) thereof is hereby amended to read in its entirety as
follows:
"2.2 Election of Directors.
(a) From and after the Closing Date, each Investor shall
vote all shares of Common Stock subject to this Agreement which it
owns and all shares of Common Stock subject to this Agreement as to
which it has the right to exercise sole voting power, at any
regular or special meeting of the stockholders called for the
purpose of filling positions on the Board of Directors of the
Company, and shall take all actions necessary and within their
control, to ensure the election to the Board of Directors of the
Company of the following ten individuals (and no greater number
unless SIBV, MSLEF II and the Company agree otherwise):
(1) In the event that (A) (x) the MS Holders
collectively own more than 10% of the outstanding Common Stock
or SIBV owns less than 25% of the outstanding Common Stock and
(y) MSLEF II, MSLEF II, Inc., Equity Investors and Equity
Investors, Inc., and any Affiliate of any of the foregoing,
shall not have collectively received, without duplication, at
least $320 million in cash or in Value of Other Property (as
such terms are defined below), including for purposes of this
provision amounts received by partners of MSLEF II or Equity
Investors by reason of Partnership Distributions (as defined
below) whether or not such partners are MS Holders, or a
combination thereof (the "Initial Return"), either as
dividends or as a result of sales of shares of Common Stock
subject to this Agreement or Partnership Distributions by
MSLEF II or Equity Investors ("Tier 1") or (B) (x) the MS
Holders collectively own 30% or more of the outstanding Common
Stock or shall, regardless of MSLEF II's ownership percentage,
collectively own a greater number of voting shares than SIBV
and (y) the MS Holders shall have collectively received the
Initial Return ("Tier 2"): (i) five individuals selected by
SIBV (the "SIBV Nominees"), one of whom shall be the Chief
Executive Officer of the Company and one of whom shall not be
affiliated with SIBV, the Company, JSC or JSCE in accordance
with, and as defined by, the rules of the New York Stock
Exchange, Inc. (a "SIBV Unaffiliated Director"), such SIBV
Unaffiliated Director to be reasonably acceptable to MSLEF II;
and (ii) five individuals selected by MSLEF II (the "MSLEF II
Nominees" and collectively with the SIBV Nominees, the
"Nominees"), one of whom shall not be affiliated with MSLEF
II, the Company, JSC or JSCE in accordance with, and as
defined by, the rules of the New York Stock Exchange, Inc. (a
"MSLEF II Unaffiliated Director"), such MSLEF II Unaffiliated
Director to be reasonably acceptable to SIBV;
(2) In the event that (x) the MS Holders
collectively own 20% or more and less than 30% of the
outstanding Common Stock and (y) the MS Holders shall have
collectively received the Initial Return ("Tier 3"): (i) five
SIBV Nominees, one of whom shall be the Chief Executive
Officer of the Company and (ii) five MSLEF II Nominees, two of
whom shall be MSLEF II Unaffiliated Directors reasonably
acceptable to SIBV;
(3) In the event that (x) the MS Holders
collectively own 7 1/2% or more and less than 20% of the
outstanding Common Stock and (y) the MS Holders shall have
collectively received the Initial Return ("Tier 4"): (i) five
SIBV Nominees, one of whom shall be the Chief Executive
Officer of the Company, and (ii) five MSLEF II Nominees, two
of whom shall be MSLEF II Unaffiliated Directors reasonably
acceptable to SIBV; and
(4) In the event that (x) the MS Holders
collectively own 6% or more and less than 7 1/2% of the
outstanding Common Stock and (y) the MS Holders shall have
collectively received the Initial Return ("Tier 5"): (i) five
SIBV Nominees, one of whom shall be the Chief Executive
Officer of the Company, (ii) two MSLEF II Nominees (who need
not be MSLEF II Unaffiliated Directors), and (iii) three
persons (not affiliated with SIBV or MSLEF II in accordance
with, and as defined by, the rules of the New York Stock
Exchange, Inc.) nominated by the Board of Directors of the
Company, each of whom shall be reasonably acceptable to MSLEF
II and SIBV."
The last two paragraphs of Section 2.2(a) of the
Stockholders Agreement are not amended by this Amendment.
4. Section 2.2(g) of the Stockholders Agreement is
hereby amended to read in its entirety as follows:
"(g) The initial six directors of the Company, and their
respective classes, are set forth on Schedule II attached hereto.
As soon as practicable after the Closing, but in any event within
six months thereafter, SIBV shall designate the SIBV Unaffiliated
Director and MSLEF II shall designate the MSLEF II Unaffiliated
Director and the Investors shall use their best efforts to cause
their respective Nominees on the Company's Board of Directors to
appoint such designees to such board. The two directors of the
Company to be nominated after execution of the First Amendment to
the Stockholders Agreement increasing the total number of directors
from eight to ten shall become Class III directors."
5. The addresses set forth in Section 8.2 of the
Stockholders Agreement for MSLEF II, Equity Investors, MSLEF II,
Inc., Equity Investors, Inc. and the Company, JSC or JSCE is hereby
amended as follows:
If to MSLEF II,
Equity Investors,
MSLEF II, Inc. or
Equity Investors,
Inc.
c/o Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
Attention:_______________________
If to the Company,
JSC or JSCE
c/o Jefferson Smurfit Corporation
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, Missouri 63105
Attention: Richard W. Graham,
President and Chief Executive
Officer
6. Counterparts. This Amendment may be executed in any number
of counterparts with the same effect as if all of the parties had signed the
same document. All counterparts shall be construed together and shall
constitute one and the same instrument.
7. Full Force and Effect. Except as specifically amended by
this Amendment all other terms and provisions of the Stockholders Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first above written.
SMURFIT INTERNATIONAL B.V.
By: Rokin Corporate Services B.V.
(Managing Director)
By:_______________________________ and
Name:
Title:
By:____________________________________
Name:
Title:
THE MORGAN STANLEY LEVERAGED
EQUITY FUND, II, L.P.
By: Morgan Stanley Leveraged
Equity Fund II, Inc.
(General Partner)
By:____________________________________
Name:
Title:
SIBV/MS EQUITY INVESTORS, L.P.
By: Morgan Stanley Equity Investors,Inc.
(General Partner)
By:____________________________________
Name:
Title:
MORGAN STANLEY LEVERAGED
EQUITY FUND II, INC.
By:____________________________________
Name:
Title:
MORGAN STANLEY EQUITY
INVESTORS, INC.
By:____________________________________
Name:
Title:
FIRST PLAZA GROUP TRUST
By: Mellon Bank, N.A., as trustee (as
directed by General Motors
Investment Management
Corporation)
By:____________________________________
Name:
Title:
LEEWAY & CO.
By:____________________________________
Name:
Title:
JEFFERSON SMURFIT CORPORATION
By:____________________________________
Name:
Title:
JEFFERSON SMURFIT CORPORATION (U.S.)
By:____________________________________
Name:
Title:
JSCE, INC.
By:____________________________________
Name:
Title:
Exhibit 10.7
JEFFERSON SMURFIT CORPORATION (U.S.)
DEFERRED COMPENSATION PLAN
Jefferson Smurfit Corporation (U.S.)
Deferred Compensation Plan
1. Statement of Purpose
The purpose of the Jefferson Smurfit Corporation (U.S.)
("JSC") Deferred Compensation Plan (the "Plan") is to aid JSC
(the "Company") in attracting and retaining key employees by
providing a non-qualified compensation deferral vehicle.
2. Definitions
2.1 Beneficiary - "Beneficiary" means the person or persons
designated as such in accordance with Section 8.
2.2 Committee - "Committee" means the Committee which will
administer the Plan pursuant to the provisions of Section
3 of the Plan. Until and unless changed by the Board of
Directors of the Company, the committee shall be The
Administrative Committee of the Jefferson Smurfit
Corporation Retirement Plans.
2.3 Compensation - "Compensation" means the Participant's
base salary, corporate bonus, incentive compensation
awards under the Long-Term Incentive Plan, or other
remuneration specified in the Election Form.
2.4 Cycle - "Cycle" means the twelve month pay-in period for
each deferral; provided, however, that the initial Cycle
shall commence on August 1, 1996 and end on December 31,
1996, and subsequent Cycles shall commence on January 1
and end on December 31 of each calendar year.
2.5. Declining Balance Installments - "Declining Balance
Installments" means a series of annual payments such that
each payment is determined by taking that portion of the
Participant's Deferred Compensation Account in the Equity
Index Account as of the Distribution Date and dividing by
the number of years of distributions remaining.
2.6 Deferral Amount - "Deferral Amount" means the amount of
Elective Deferred Compensation or Non-Elective Deferred
Compensation actually deferred by the Participant.
2.7 Deferred Compensation Account - "Deferred Compensation
Account" means the account maintained on the books of
account of the Company for each Participant pursuant to
Section 6.
2.8 Disability - "Disability" means the Participant is
eligible to receive benefits under a long term disability
plan maintained by the Company.
2.9 Distribution Date - "Distribution Date" means the date on
which the Company makes distributions from the
Participant's Deferred Compensation Account.
2.10 Election Form - "Election Form" means the form or forms
attached to this Plan and filed with the Committee by the
Participant in order to participate in the Plan. The
terms and conditions specified in the Election Form(s)
are incorporated by reference herein and form a part of
the Plan.
2.11 Elective Deferred Compensation - "Elective Deferred
Compensation" means the amount elected to be deferred by
an Eligible Employee in his Election Form, subject to
approval by the Committee.
2.12 Eligible Employee - "Eligible Employee" means those
employees and directors of the Company and its affiliates
who have been selected by the Committee.
2.13 Equity Index Account - "Equity Index Account" means an
investment option providing for a return based upon the
hypothetical investment of the Deferral Amount, or a
portion thereof, in the S&P 500 Index.
2.14 Fixed Account - "Fixed Account" means an investment
option providing for a stated amount of interest to be
credited to the Deferral Amount, or a portion thereof,
based on Moody's.
2.15 Moody's - "Moody's" means the annual average composite
yield on Moody's Seasoned Corporate Bond Yield Index for
the twelve (12) months ending the October 31st
immediately preceding the Valuation Date, as determined
from Moody's Bond Record published by Moody's Investors
Service, Inc. (or any successors thereto), or, if such
yield is no longer published, a substantially similar
average selected by the Company.
2.16 Non-Elective Deferred Compensation - "Non-Elective
Deferred Compensation" means the amount awarded to a
Participant by the Committee pursuant to Section 4.2.
2.17 Participant - "Participant" means an Eligible Employee
participating in the Plan in accordance with the
provisions of Section 4.
2.18 Plan Year - "Plan Year" means the twelve month period
beginning on the first day of the first Cycle in which
the Eligible Employee elects to participate in the Plan;
provided, however, that the initial Plan Year shall end
on December 31, 1996.
2.19 Related Employment - "Related Employment" means the
employment of a Participant by an employer which is not
the Company provided (i) such employment is undertaken by
the Participant at the request of the Company; (ii)
immediately prior to undertaking such employment the
Participant was an officer or employee of the Company, or
was engaged in Related Employment as herein defined; and
(iii) such employment is recognized by the Committee, in
its sole discretion, as Related Employment.
2.20 S&P 500 Investment Return - "S&P 500 Investment Return"
means the return used to determine the amount of gain or
loss credited to that portion of a Participant's Deferred
Compensation Account in the Equity Index Account under
Sections 6.5 and 6.6. The return for a Class Year shall
be determined by using a hypothetical investment in the
Standard & Poor's 500 Composite Stock Index inclusive of
reinvested dividends less management fees (currently 25
basis points a year, but may be changed by the Committee
to no more than 50 basis points) for the twelve (12)
months ending the October 31st immediately preceding the
Valuation Date.
2.21 Substantially Equal Installments - "Substantially
Equal Installments" means a series of annual payments
such that equal payments over the remaining payment
period would exactly amortize the Deferred Compensation
Account balance in the Fixed Account as of the
Distribution Date if the credited interest rate remained
constant at the level credited as of the Valuation Date
immediately preceding the Distribution Date for the
remainder of the payment period.
2.22 Termination of Employment - "Termination of Employment"
means the termination of a Participant's employment with
the Company for any reason other than Related Employment,
or the termination of a Participant's Related Employment.
2.23 Valuation Date - "Valuation Date" means the date on which
the value of a Participant's Deferred Compensation
Account for each Cycle is determined as provided in
Section 6 hereof. Unless and until changed by the
Committee, the Valuation Date for each Cycle shall be the
last day of the Cycle.
2.24 Years of Service - "Years of Service" means being in the
employ of the Company for a minimum of 1,000 hours during
a calendar year before or after adoption of the Plan.
3. Administration of the Plan
The Committee shall be the sole administrator of the Plan and
will administer the Plan. The Committee shall have full power
to formulate additional details and regulations for carrying
out this Plan. The Committee shall also be empowered to make
any and all of the determinations not herein specifically
authorized which may be necessary or desirable for the
effective administration of the Plan. Any decision or
interpretation of any provision of this Plan adopted by the
Committee shall be final and conclusive.
4. Participation
4.1 Elective Participation
a. Any Eligible Employee may elect to participate in
the Plan for a given Cycle by filing a completed
Election Form for the Cycle with the Committee.
With regard to an election to participate, the
Election Form must be filed with the Committee
prior to the commencement of the Cycle to which the
Election Form pertains. Notwithstanding the
foregoing, an employee who first becomes an
Eligible Employee during any Cycle may elect to
participate in the Plan for such Cycle by filing an
Election Form within thirty (30) days of becoming
an Eligible employee.
b. A Participant's election to defer future
Compensation is irrevocable upon the filing of his
Election Form with the Committee, provided,
however, that the election may be terminated with
respect to Compensation not yet earned by mutual
agreement in writing between the Participant and
the Committee. Such termination if approved shall
be effective immediately.
4.2 Non-Elective Participation. The Committee can, in its
discretion, award to an Eligible Employee Non-Elective
Deferred Compensation. Any such award shall, except as
otherwise provided, be subject to the same terms,
conditions, and benefits as Elective Deferred
Compensation for the Cycle.
5. Vesting of Deferred Compensation Account
A Participant's interest in his Deferred Compensation Account
shall vest immediately.
6. Accounts and Valuations
6.1 Deferred Compensation Accounts. The Committee shall
establish and maintain a separate Deferred Compensation
Account for each Participant for each Cycle. Any
Elective Deferred Compensation shall be credited to the
Participant's Deferred Compensation Account when
deferred. Any Non-Elective Deferred Compensation awarded
to a Participant shall be credited to the Participant's
Deferred Compensation Account on such date as specified
by the Committee.
6.2 Investment Allocation of Deferred Compensation Account.
The Participant's Deferral Amount shall be deemed to be
invested in either the Fixed Account or the Equity Index
Account in accordance with the Participant's election.
6.3 Interest Rate Credited. That portion of the
Participant's Deferred Compensation Account in the Fixed
Account shall be credited with interest on each Valuation
Date, as provided hereinafter, at an annual rate equal to
Moody's plus 2%.
6.4 Timing of Crediting of Interest. That portion of the
Participant's Deferred Compensation Account in the Fixed
Account shall be revalued and credited with interest as
of each Valuation Date. As of each Valuation Date, the
value of that portion of the Participant's Deferred
Compensation Account in the Fixed Account shall consist
of the balance of such Deferred Compensation Account as
of the immediately preceding Valuation Date, plus any
Elective and Non-Elective Deferred Compensation credited
to the Fixed Account and any transfers from the Equity
Index Account, if any, made to such Deferred Compensation
Account since the preceding Valuation Date, minus the
amount of all distributions and transfers to the Equity
Index Account, if any, made from such Deferred
Compensation Account since the preceding Valuation Date.
As of each Valuation Date, interest shall be credited on
that portion of the Participant's Deferred Compensation
Account in the Fixed Account since the immediately
preceding Valuation Date after adjustment for any
additions thereto or distributions or transfers
therefrom. Normal benefit distributions (under Section
7.1) from the Fixed Account made on or before February 15
of the year of payment will be considered to have been
made from the account and deducted from the account
balance as of January 1 of such year for the purpose of
crediting interest under this Section 6.4. Interest on
Hardship Benefits distributed from the Fixed Account will
be prorated to the date of distribution for the purpose
of crediting interest under this Section 6.4.
6.5 Investment Return Credited. That portion of the
Participant's Deferred Compensation Account in the Equity
Index Account shall be credited annually with an
investment return at a rate equal to the S&P 500
Investment Return
6.6 Timing of Crediting of Investment Return. That portion
of the Participant's Deferred Compensation Account in the
Equity Index Account shall be revalued and credited with
investment return as of each Valuation Date. As of each
Valuation Date, the value of that portion of the
Participant's Deferred Compensation Account in the Equity
Index Account shall consist of the balance of such Equity
Index Account as of the immediately preceding Valuation
Date, plus any Elective and Non-Elective Deferred
Compensation credited to the Equity Index Account and any
transfers from the Fixed Account since the preceding
Valuation Date, minus the amount of all distributions and
transfers to the Fixed Account, if any, made from such
Equity Index Account since the preceding Valuation Date.
As of each Valuation Date, the investment return shall be
credited on that portion of the Participant's Deferred
Compensation Account in the Equity Index Account since
the immediately preceding Valuation Date after adjustment
for any additions thereto or distributions or transfers
therefrom. Benefit distributions (under Section 7) from
the Equity Index Account made on or before February 15 of
the year of payment will be considered to have been made
and deducted from the account balance as of January 1 of
such year for the purpose of crediting investment return
under this Section 6.6. The investment return on
Hardship Benefits distributed from the Equity Index
Account will be calculated to the date of distribution
for the purpose of crediting the investment return under
this Section 6.6.
6.7 Change of Investment Allocation by a Participant. A
Participant may make different investment allocations for
each Class Year, and may change a Class Year's investment
allocation once a year. Any change will be effective as
of January 1 of the next year if the Participant submits
an Investment Allocation Change Form to the Committee by
December 15 of any Plan year.
7. Benefits
7.1 Normal Benefit
a. A Participant's Deferred Compensation Account shall
be paid to the Participant in accordance with the
terms of the Participant's Election Form, subject
to the terms and conditions specified in the
Election Form. If a Participant elects to receive
payment of his Deferred Compensation Account in
installments, the amount of each installment will
be determined by dividing the Participant's
Deferred Compensation Account as of the Valuation
Date preceding the payment by the number of
remaining installments (inclusive of the one being
calculated). Unless the Committee determines
otherwise, and subject to the provisions of Section
7.5 as to when payments shall commence,
installments shall be paid on or about the first
day of February of each year.
b. Notwithstanding the provisions of Section 7.1a, and
notwithstanding any contrary election made by the
Participant on his Election Form, if a Participant
terminates his employment for any reason other than
death or Disability, and if, at the time of his
Termination or Employment, the Participant has not
completed five (5) Years of Service with the
Company and attained age 55, then the Participant's
Deferred Compensation Account balance will be paid
to the Participant in a lump sum in the year
following the Participant's Termination of
Employment. However, upon the written request of
the Participant, the Committee, in its sole
discretion, may allow payments to be made to the
Participant in up to five (5) annual installments.
7.2 Hardship Benefit. In the event that the Committee, upon
written petition of the Participant, determines in its
sole discretion, that the Participant has suffered an
unforeseeable financial emergency, the Company may pay to
the Participant, as soon as practicable following such
determination, an amount appropriate under the
circumstances, not in excess of the Deferred Compensation
Account credited to the Participant. The Deferred
Compensation Account of the Participant shall thereafter
be reduced to reflect the payment of a Hardship Benefit.
7.3 Request to Committee for Delay in Payment. A Participant
shall have no right to modify in any way the schedule for
the distribution of amounts from his Deferred
Compensation Account which he has specified in his
Election Form. However, upon a written request submitted
by the Participant to the Committee, the Committee may,
in its sole discretion:
a. Postpone one time the date on which payment shall
commence; and
b. Increase one time the number of installments, to a
number not to exceed ten (10).
Any such request(s) must be made at least ninety (90)
days prior to the earlier of (1) the beginning of the
year which the Participant has elected for distributions
to commence, or (2) the Participant's Termination of
Employment.
7.4 Taxes; Withholding. To the extent required by law, the
Company shall withhold from payments made hereunder an
amount equal to at least the minimum taxes required to be
withheld by the federal or any state or local government.
7.5 Date of Payments. Except as otherwise provided in this
Plan, payments under this Plan shall begin on or before
the first (1st) day of February of the calendar year
following receipt of notice by the Committee of an event
which entitles a Participant (or Beneficiary) to payments
under the Plan, or at such earlier date as may be
determined by the Committee.
8. Beneficiary Designation
A Participant shall have the right at any time, and from time
to time, to designate and/or change or cancel any person,
persons, or entity as his Beneficiary or Beneficiaries (both
principal and contingent) to whom payment under this Plan
shall be paid in the event of his death prior to complete
distribution to Participant of the benefits due him under the
Plan. Each beneficiary designation shall become effective
only when filed in writing with the Committee during the
Participant's lifetime on a form provided by the Committee.
The filing of a new beneficiary designation form will cancel
all beneficiary designations previously filed. Any finalized
divorce of a Participant subsequent to the date of filing of
a beneficiary designation form in favor of the Participant's
spouse shall revoke such designation. The spouse of a married
Participant domiciled in a community property jurisdiction
shall join in any designation of Beneficiary or Beneficiaries
other than the spouse.
If a Participant fails to designate a Beneficiary as provided
above, or if his beneficiary designation is revoked by
divorce, or otherwise, without execution of a new designation,
or if all designated Beneficiaries predecease the Participant
or die prior to complete distribution of the Participant's
benefits, then the distribution of such benefits shall be made
to the Participant's estate.
If the Company is unable to determine a Participant's
Beneficiary or if any dispute arises concerning a
Participant's Beneficiary, the Company may pay benefits to the
Participant's estate. Upon such payment, the Company shall
have no further liability hereunder.
If any distribution to a Beneficiary is to be made in
installments, and the primary Beneficiary dies before
receiving all installments, the remaining installments, if
any, shall be paid to the estate of the primary Beneficiary.
9. Amendment and Termination of Plan
9.1 Amendment. The Committee may at any time amend the Plan
in whole or in part, provided, however, that except as
provided in 9.2, no amendment shall be effective to
decrease the benefits under the Plan payable to any
Participant or Beneficiary with respect to any Elective
or Non-Elective Deferred Compensation deferred prior to
the date of the amendment. Written notice of any
amendments shall be given to each individual then
participating in the Plan.
9.2 Termination of Plan
a. Company's Right to Terminate. The Committee may at
any time terminate the Plan, if, in exercising good
faith business judgment, it determines that the
economic viability of the Plan has been
substantially impaired or eliminated.
b. Payments Upon Termination. Upon any termination of
the Plan under this section, Compensation shall
prospectively cease to be deferred and, with
respect to Compensation previously deferred, the
Company will pay to the Participant, in a lump-sum,
the value of his Deferred Compensation Account.
10. Miscellaneous
10.1 Unsecured General Creditor. Participants and their
beneficiaries, heirs, successors and assignees shall have
no legal or equitable rights, interests, or other claims
in any property or assets of the Company, nor shall they
be beneficiaries of, or have any rights, claims, or
interests in any life insurance policies, annuity
contracts, or the policies therefrom owned or which may
be acquired by Company ("policies"). Such policies or
other assets of the Company shall not be held under any
trust for the benefit of Participants, their
beneficiaries, heirs, successors, or assigns, or held in
any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. Any and all
of the Company's assets and policies shall be and remain
general, unpledged, unrestricted assets of the Company.
The Company's obligation under the Plan shall be that of
an unfunded and unsecured promise of the Company to pay
money in the future.
10.2 Successors and Mergers, Consolidations or Change in
Control. The terms and conditions of this Plan shall
enure to the benefit of and bind the Company, the
Participants, their successors, assignees, and personal
representatives. If substantially all of the stock or
assets of the Company are acquired by another corporation
or entity or if the Company is merged into, or
consolidated with, another corporation or entity, then
the Company shall obligate the acquirer or successor
corporation or entity to expressly assume and perform the
obligations of the Company hereunder, unless such
obligations become binding upon the acquirer or successor
corporation or entity by operation of law.
10.3 Non-Assignability. Neither a Participant nor any other
person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage, or otherwise
encumber, transfer, hypothecate, or convey in advance of
actual receipt the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are,
expressly declared to be unassignable and
nontransferable. No part of the amounts payable shall,
prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law
in the event of a Participant's or any other person's
bankruptcy or insolvency.
10.4 Employment Or Future Eligibility to Participate Not
Guaranteed. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract
of employment or as giving any Eligible Employee any
right to be retained in the employ of the Company.
Designation as an Eligible Employee may be revoked at
anytime by the Committee with respect to any Compensation
not yet deferred.
10.5 Gender, Singular and Plural. All pronouns and any
variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, as the identity of the
person or persons may require. As the context may
require, the singular may be read as the plural and the
plural as the singular.
10.6 Captions. The captions to the articles, sections, and
paragraphs of this Plan are for convenience only and
shall not control or affect the meaning or construction
of any of its provisions.
10.7 Applicable Law. This Plan shall be governed and
construed in accordance with the laws of the State of
Missouri.
10.8 Validity. In the event any provision of this Plan is
held invalid, void, or unenforceable, the same shall not
affect, in any respect whatsoever, the validity of any
other provision of this Plan.
10.9 Notice. Any notice or filing required or permitted to be
given to the Committee shall be sufficient if in writing
and hand delivered, or sent by registered or certified
mail, to the principal office of the Company at 8182
Maryland Avenue, St. Louis, MO 63105, directed to the
attention of Michael E. Tierney, Vice President and
General Counsel. Such notice shall be deemed given as of
the date of delivery or, if delivery is made by mail, as
of the date shown on the postmark on the receipt for
registration or certification. Any notice to the
Participant shall be addressed to the Participant at the
Participant's residence address as maintained in the
Company's records. Any party may change the address for
such party here set forth by giving notice of such change
to the other parties pursuant to this Section.
1. Claims Procedure
11.1 Named Fiduciary. The Committee is hereby designated as
the named fiduciary under this Plan. The named fiduciary
shall have authority to control and manage the operation
and administration of the Plan.
11.2 Claims Procedure. Any controversy or claim arising out
of or relating to this Plan shall be filed with the
Committee which shall make all determinations concerning
such claim. Any decision by the Committee denying such
claim shall be in writing and shall be delivered to all
parties in interest in accordance with the notice
provisions of Section 10.9 hereof. Such decision shall
set forth the reasons for denial in plain language.
Pertinent provisions of the Plan shall be cited and,
where appropriate, an explanation as to how the
Participant can perfect the claim will be provided. This
notice of denial of benefits will be provided within 90
days of the Committee's receipt of the Participant's
claim for benefits. If the Committee fails to notify the
Participant of its decision regarding the claim, the
claim shall be considered denied, and the Participant
shall then be permitted to proceed with the appeal as
provided in this Section.
A Participant who has been completely or partially denied
a benefit shall be entitled to appeal this denial of his
claim by filing a written statement of his position with
the Committee no later than sixty (60) days after receipt
of the written notification of such claim denial. The
Committee's decision on review shall set forth specific
reasons for the decision, and shall cite specific
references to the pertinent Plan provisions on which the
decision is based.
Following the review of any additional information
submitted by the Participant, either through the hearing
process or otherwise, the Committee shall render a
decisions on the review of the denied claim in the
following manner:
a. The Committee shall make its decision regarding the
merits of the denied claim within 60 days following
receipt of the request for review (or within 120
days after such receipt, in a case where there are
special circumstances requiring extension of time
for reviewing the appealed claim). The Committee
shall deliver the decision to the claimant in
writing. If an extension of time for reviewing the
appealed claim is required because of special
circumstances, written notice of the extension
shall be furnished to the Participant prior to the
commencement of the extension. If the decision on
review is not furnished within the prescribed time,
the claim shall be deemed denied on review.
b. The decision on review shall set forth specific
reasons for the decision, and shall cite specific
references to the pertinent Plan provisions on
which the decision is based.
Jefferson Smurfit Corporation (U.S.)
Deferred Compensation Plan
Election Form
Name:
Social Security No:
Complete Sections A, B, C D and E of this Form.
A. Deferred Compensation
To complete this Section, indicate the total amount you want
to defer (maximum 100%) from your incentive compensation award
under the Long-Term Incentive Plan otherwise payable to you in
1997.
I elect to defer ___________% of my award.
B. Investment Election
With respect to my deferred compensation, I elect to allocate
my deferral amount as follows (use increments of 10 and the
total must equal 100, e.g., 30% Fixed Account and 70% Equity
Index Account, or 100% Fixed Account and 0% Equity Index
Account, etc.)
________ % Fixed Account
________ % Equity Index Account
C. Form of Payment and Timing
Complete Part 1 of this Section to indicate whether you want
to receive payment in a lump sum or annual installments, and
complete Part 2 of this Section to indicate when you would
like to receive your deferred compensation distribution.
1. Form of Distribution
Indicate the form of distribution for your deferred
compensation. You can elect to receive payment in a lump
sum or in up to 10 annual installments.
I elect to receive payment of my deferred compensation as
follows (select a or b):
a. In a lump sum.
b. In _______ (specify number not exceeding 10)
annual installments.
2. Timing of Distribution
Indicate whether you want to receive your first
installment (or your entire amount, if you elect to
receive payment in a lump sum) of your deferred
compensation in a specific year or in the year following
termination of your employment. In general, your first
installment (or your entire account balance, if you elect
a lump sum) will be paid to you in February in the year
following the year in which you terminate your employment
(if you elect to receive payment after your Termination
of Employment), or in February of the year elected (if
you elect to receive payment in a specific year); later
installments will be paid in February of each year.
I elect to receive the first installment (or my entire
account, if I elect a lump sum) of my deferred
compensation (select a or b):
a. in a specific year _______ (specify year,
but must be prior to the year in which
you will attain age 71).
b. following my Termination of Employment.Notwithstanding any
election under Part 1 or Part 2 of
this Section C, in the event of my Termination of
Employment (for any reason other than death or
Disability) prior to completing five Years of Service
with the Company and attaining age 55, I understand that
payment will be made in a lump sum in the year following
my Termination of Employment unless, upon my written
request, the Committee, in its sole discretion,
determines that payments will be made in up to five (5)
annual installments.
D. Death Benefits
In this Section, designate a beneficiary to receive any death
benefits payable from your deferred compensation account.
1. If I die prior to the receipt of all payments to which I
am entitled under the Plan, payments shall be made to
(select one):
a. My estate
b. the following beneficiary or beneficiaries:
If I fail to designate a beneficiary as provided above,
or if my beneficiary designation is revoked by divorce,
or otherwise, without execution of a new designation, or
if all my designated beneficiaries predecease me or die
prior to complete distribution of my benefits, then the
distribution of such benefits shall be made to my estate.
However, if any distribution to a spouse beneficiary is to
be made in installments, and such spouse beneficiary dies
before receiving all installments, the remaining installments
shall be paid to the estate of such spouse beneficiary.
I reserve the right to change this designation of
beneficiary at any time by completing a Change of
Beneficiary Form.
2. As to any death benefits payable to my beneficiary or to
my estate, I elect to have payments made as follows
(select one):
a.In a lump sum in the year following my death.
b.In _____ (specify number, not to exceed 10) annual
installments beginning in the year following my death.
Notwithstanding the foregoing, if installment payments
are elected, and if I have been receiving installment
payments from my account before my death, the number of
installment payments elected in b. shall be reduced, if
necessary, so that the total number of installment
payments to me before my death and to my beneficiary or
estate after my death shall not exceed 10.
E. Acknowledgment
Sign and date in this Section.
I acknowledge that I am a general unsecured creditor of
Jefferson Smurfit Corporation (U.S.) with regard to all
amounts payable to me under the Plan, even if the Company
identifies or purchases any Company assets to informally
finance its unsecured and unfunded promise to pay benefits
under the Plan. I agree to be bound by the terms and
conditions of the Plan and agree that such terms and
conditions shall be binding upon my beneficiaries and personal
representatives. I also acknowledge that any deferred
compensation that I allocate to the Equity Index Fund can
increase or decrease in value.
Signature of Employee
Date
THIS FORM SHOULD BE RETURNED BY DECEMBER 30, 1996 TO THE OFFICE OF:
Mike Tierney
Vice President, General Counsel and Secretary
Jefferson Smurfit Corporation
8182 Maryland Avenue
St. Louis, MO 63105
Exhibit 10.15
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and
entered into this 24th day of October, 1996 by and between James E.
Terrill, ("Consultant") and Jefferson Smurfit Corporation (U.S.),
a Delaware corporation (the "Company").
RECITALS
WHEREAS, Consultant has been a valuable executive employee for
the Company for approximately 25 years and since February, 1994,
has served as President and/or Chief Executive Officer of the
Company; and
WHEREAS, the Board of Directors of the Company desires to be
able, from time to time, to call upon the expertise of Consultant;
COVENANTS
NOW, THEREFORE, the parties agree as follows:
1. Consulting Period. The consulting period shall run from
January 1, 1997 to December 31, 2006 (the "Consulting Period").
2. Duties. During the Consulting Period, Consultant shall
hold himself available for consultation and advice on a stand by
basis and upon request by the Board of Directors to furnish
consultation and advisory services to the Board. The manner, times
and places for the performance of such services shall be mutually
agreed to by the parties.
3. Consulting Fees. The Company shall pay Consultant
$75,000 per year, payable each year in twelve equal monthly
installments of $6,250 each, payable on the first day of each
calendar month during the Consulting Period, commencing on January
1, 1997.
4. Status. It is expressly understood and agreed by the
parties that Consultant is an independent contractor and shall not
for any purpose be considered an employee of the Company. The
Company shall not be required to make any social security, state or
federal unemployment compensation, or similar payments on behalf of
Consultant, and to the extent consistent with applicable law, the
Company will not withhold any amounts from the Consulting Fees as
federal income tax withholding from wages or as employee
contributions under the Federal Insurance Contributions Act or any
other state or federal laws. Consultant shall be solely
responsible for the withholding and/or payment of any federal, <PAGE>
state or local income or payroll taxes with respect to the
Consulting Fees. Nothing contained in this Section 4 shall modify,
change, limit or restrict the benefits Consultant is otherwise
entitled to from the Company for his years of service as an
employee.
5. Death or Disability. In the event Consultant dies or
becomes disabled during the Consulting Period, and is not then in
default of any of his obligations hereunder, the Company shall pay,
in a lump sum, without discount for time value of money, the entire
balance of the ten (10) year Consulting Fee, as follows: to the
Consultant's estate, in the event of his death, or to the
Consultant or his guardian or trustee, in the event of his
disability.
6. Non-Competition. (a) During the Consulting Period, the
Consultant shall not, without prior written consent of the Company,
directly or indirectly engage or participate (as an owner, partner,
shareholder, director, officer, employee, joint venturer, agent,
representative or independent contractor, or in any other capacity
calling for the making of any investment or the rendition of any
personal services or any acts of management, operation or control),
in any Restricted Business (as hereinafter defined) within the
Restricted Area (as hereinafter defined); provided, however, that
the Consultant may own up to three percent (3%) of any class of
securities of a corporation engaged in such a competitive business
if such securities are listed on a national securities exchange or
registered under the Securities Exchange Act of 1934.
(b) "Restricted Business" shall mean the businesses in which
the Company and its affiliates (as defined in Rule 12b-2
promulgated under the Securities and Exchange Act of 1934, as
amended) are engaged on the date hereof.
(c) "Restricted Area" shall mean the United States of
America.
7. Remedies. Each party agrees to give the other written
notice of any breach by the other party of this Agreement. The
breaching party shall have thirty (30) days from the date of such
written notice to cure any such breach. If the breaching party
fails to cure the breach to the other party's reasonable
satisfaction within thirty (30) days of receipt of such notice, the
non-breaching party may terminate this Agreement upon written
notice to the breaching party.
8. Governing Law. The validity and effect of this Agreement
shall be governed exclusively by the laws of the State of Missouri,
excluding the "conflict of laws" rules of that state.
- 2 -
9. Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and assigns of the Company. This
Agreement and the obligations created hereunder may not be assigned
by the Consultant, except for the right to receive the payments
contemplated by Section 3 of this Agreement.
10. Entire Agreement. This Agreement sets forth the entire
agreement of the parties with respect to the subject matter hereof
and supersedes any prior written or oral agreements or
understandings of the parties.
IN WITNESS WHEREOF, this Consulting Agreement has been duly
executed on behalf of the Company, and by the Consultant on the
date first above written.
JEFFERSON SMURFIT CORPORATION (U.S.)
By: ________________________________
Title: _____________________________
____________________________________
James E. Terrill
- 3 -
August 1, 1996
Mr. Eric Priestley
9114 Winged Bourne
Charlotte, NC 28210
Dear Eric:
I am pleased to confirm our offer to you regarding your
joining Jefferson Smurfit Corporation as Executive Vice President-
Chief Operating Officer, effective today.
We have agreed to a salary of $750,000 per year (pro-rated for
1996). The Company will be obligated to pay your annual salary for
two (2) years from the Commencement Date, unless your employment is
terminated because you quit, die (in which case your estate will be
entitled to life insurance proceeds of three times your base
salary), or become permanently disabled (in which case you will be
entitled to benefits under the Company's long term disability plan)
or because your employment is terminated for "Cause", which shall
mean a plea of guilty or nolo contendere by you to a felony or your
conviction for a felony or your willful failure to perform your
assigned duties.
We have agreed to a signing bonus of $1,000,000.00, which you
will defer under the terms of the Jefferson Smurfit Corporation
Deferred Compensation Plan (the "Plan"). The deposit of funds into
the Index Fund, as defined in the Plan, will be made on or before
October 1, 1996. You will be granted stock options, the amount and
terms of which shall be determined in the near future. Your moving
expenses will be reimbursed upon such terms as you and I shall
agree. The Company will also pay initiation fees and dues for a
country club of your choice and will pay for financial consulting
services rendered to you by AYCO.
You will be eligible to participate in the Company's 401(k)
savings plan and the group medical, dental, life, accidental death
and dismemberment, short-term and long-term disability and travel
accident benefit programs for executive officers of the Company now
or hereafter provided by the Company.
Mr. Eric Priestley
August 1, 1996
<PAGE>
You will participate in the Company's 1996 Management
Incentive Plan on a pro-rated basis from the Commencement Date
through December 31, 1996.
We are all looking forward to working with you here at
Jefferson Smurfit. I am confident that you will find the work and
the environment both challenging and rewarding and I wish you many
years of success with the Company.
If you are in agreement with the foregoing, please execute
where indicated below and return one counterpart of this letter to
me.
Sincerely,
James E. Terrill
President and Chief Executive Officer
Acknowledged and Accepted
as of the 1st day of August, 1996
_________________________________
Eric Priestley
EXHIBIT 11.1
<TABLE>
<CAPTION>
JEFFERSON SMURFIT CORPORATION
CALCULATION OF PER SHARE EARNINGS
(In millions except per share data)
Year Ended December 31,
1996<fn1> 1995<fn1> 1994<fn1><fn2>
<S> <C> <C> <C>
Primary earnings per share
Weighted average shares outstanding 111 111 101
Income applicable to common shares
before extraordinary item $ 117 $ 247 $ 12
Extraordinary item (5) (4) (55)
Net income (loss) applicable to common shares $ 112 $ 243 $ (43)
Per share amounts
Net income before extraordinary item $1.05 $ 2.23 $ .12
Extraordinary item (.04) (.04) (.55)
Net income (loss) applicable to common shares $1.01 $ 2.19 $(.43)
Fully diluted earnings per share
Weighted average shares outstanding 111 111 101
Income applicable to common shares
before extraordinary item $ 117 $ 247 $ 12
Extraordinary item (5) (4) (55)
Net income (loss) applicable to common shares $ 112 $ 243 $ (43)
Per share amounts
Net income before extraordinary item $1.05 $ 2.23 $ .12
Extraordinary item (.04) (.04) (.55)
Net income (loss) applicable to common shares $1.01 $ 2.19 $(.43)
<FN>
<fn1> The computation does not include common stock equivalents
associated with stock options since the dilutive effect on earnings
per share is not material.
<fn2> Gives effect to the ten-for-one stock conversion pursuant to the
Reclassification in 1994.
</FN>
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
State or
Jurisdiction of
Incorporation or
Organization % Owned
(1) JSCE, Inc. Delaware 100%
(2) Jefferson Smurfit Corporatin (U.S.) Delaware 100%
(3) Smurfit Newsprint Corporation Delaware 100%
(4) Packaging Unlimited, Inc. Delaware 100%
(5) JSC International Sales, Inc. Barbados 100%
(6) CCA de Baja California, S.A. de C.V. Mexico D.F. 100%
(7) Jefferson Smurfit Finance Corporation Delaware 100%
(8) Groveton Paper Board, Inc. New Hampshire 62.94%
(9) Michigan Can & Tube, Inc. Michigan 100%
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-82578) pertaining to the Jefferson
Smurfit Corporation Savings Plan, the Jefferson Smurfit Corporation
Hourly Savings Plan and the Smurfit Packaging Corporation Savings
Plan and in the Registration Statement (Form S-8 No. 33-57085)
pertaining to the Jefferson Smurfit Corporation 1992 Stock Option
Plan of our report dated January 22, 1997, with respect to the
consolidated financial statements and schedule of Jefferson Smurfit
Corporation included in the Annual Report (Form 10-K) for the year
ended December 31, 1996.
Ernst & Young LLP
St. Louis, Missouri
February 21, 1997
EXHIBIT 24.1
POWER OF ATTORNEY
Each person whose signature appears below constitutes and
appoints Michael W.J. Smurfit, Richard W. Graham, and Patrick J.
Moore, and each of them, 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 Annual Reports on Form 10-K and all required interim reports
and to file the same, with all exhibits thereto, and other
documents in connection therewith, regarding Jefferson Smurfit
Corporation, a Delaware corporation, and JSCE, Inc., a Delaware
corporation with the Securities and Exchange Commission and any
other regulatory authority, granting unto said attorney-in-fact and
agents, 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 said
attorneys-in-fact and agents, or their substitutes, may lawfully do
or cause to be done by virtue hereof.
Signature Title
/s/ Michael W.J. Smurfit Chairman of the Board
Michael W.J. Smurfit and Director
/s/ Richard W. Graham President, Chief Executive
Richard W. Graham Officer and Director
(Principal Executive Officer)
/s/ Patrick J. Moore Vice President and Chief Financial
Patrick J. Moore Officer
(Principal Accounting Officer) and
(Principal Financial Officer)
/s/ Leigh J. Abramson Director
Leigh J. Abramson
/s/ Donald P. Brennan Director
Donald P. Brennan
/s/ Alan E. Goldberg Director
Alan E. Goldberg
/s/ James S. Hoch Director
James S. Hoch
/s/ G. Thompson Hutton Director
G. Thompson Hutton
/s/ Howard E. Kilroy Director
Howard E. Kilroy
/s/ James E. Terrill Director
James E. Terrill
/s/ James R. Thompson Director
James R. Thompson
Date: February 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000919226
<NAME> JEFFERSON SMURFIT CORPORATION
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 288
<ALLOWANCES> 9
<INVENTORY> 207
<CURRENT-ASSETS> 552
<PP&E> 2316
<DEPRECIATION> 850
<TOTAL-ASSETS> 2688
<CURRENT-LIABILITIES> 525
<BONDS> 1934
0
0
<COMMON> 1
<OTHER-SE> (375)
<TOTAL-LIABILITY-AND-EQUITY> 2688
<SALES> 3410
<TOTAL-REVENUES> 3410
<CGS> 2754
<TOTAL-COSTS> 2754
<OTHER-EXPENSES> 265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 194
<INCOME-PRETAX> 194
<INCOME-TAX> 77
<INCOME-CONTINUING> 117
<DISCONTINUED> 0
<EXTRAORDINARY> (5)
<CHANGES> 0
<NET-INCOME> 112
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
