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, 1997
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 or (I.R.S. Employer Identification)
organization)
Jefferson Smurfit Centre
8182 Maryland Avenue
St. Louis, MO 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:
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, 1998:
approximately $300 million
The number of shares outstanding of the registrant's common stock
as of January 31, 1998: 110,996,794
DOCUMENTS INCORPORATED BY REFERENCE: Part of
Form 10-K
Into Which
Document is
Document Incorporated
Sections of the Registrant's Proxy Statement III
for the Annual Meeting of Stockholders to be
held on May 7, 1998
JEFFERSON SMURFIT CORPORATION
Annual Report on Form 10-K
December 31, 1997
TABLE OF CONTENTS
PART I
Page
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 50
PART III
Item 10. Directors and Executive Officers of the Registrant 50
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management 54
Item 13. Certain Relationships and Related Transactions 54
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 55
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 recovered paper.
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 1997, produced 1,933,000 tons
of virgin and recycled containerboard, 823,000 tons of recycled
boxboard and solid bleached sulfate ("SBS") and 125,000 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 51 corrugated container plants,
19 folding carton plants and 22 industrial packaging plants
located across the country, with three plants located outside the
U.S. In 1997, the Company's container plants converted 2,047,000
tons of containerboard, an amount equal to approximately 106% of
the amount the Company produced, its folding carton plants
converted 547,000 tons of SBS, recycled boxboard and coated
natural kraft, an amount equal to approximately 66% of the amount
it produced, and its industrial packaging plants converted
149,000 tons of uncoated recycled boxboard, an amount equal to
approximately 119% of the amount it produced. The
Paperboard/Packaging Products segment also includes the Company's
reclamation facilities, which processed or brokered approximately
4.8 million tons of recovered paper in 1997, its timber
operations, which manage approximately one million acres of owned
or leased timberland located close to its virgin fiber mills and
10 consumer packaging plants. The Company's Paperboard/Packaging
Products segment contributed 91% of the Company's net sales in
1997.
The Company's Newsprint segment includes two newsprint mills in
Oregon, which produced 574,000 metric tons of recycled newsprint
in 1997, 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) under Part I, Item 1, "Business -
Environmental Compliance", under Part 1, 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,
recovered paper prices, costs related to environmental matters
and the impact of current or pending legislation and regulation.
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:
1997 1996 1995
(Tons in thousands)
Containerboard
Production 1,933 1,973 1,905
Consumption 2,047 1,991 1,925
The Company's mills produce a full line of containerboard,
including unbleached kraft linerboard, mottled white linerboard
and recycled and semi-chemical 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, and Los Angeles, California and
semi-chemical medium is produced in Circleville, Ohio. In 1997,
the Company produced 1,127,000, 265,000, 423,000 and 118,000 tons
of unbleached kraft linerboard, mottled white linerboard,
recycled medium and semi-chemical medium, respectively. The
Company's sales of containerboard in 1997 were $648 million
(including $382 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 51 container plants serve local customers and large
national accounts and are located nationwide, generally in or
near large metropolitan areas. The Company's sales of corrugated
shipping containers in 1997 were $1,236 million (including $97
million of intracompany sales). Total corrugated shipping
container sales volumes for 1997, 1996 and 1995 were 31,702,
30,022 and 29,382 million square feet, respectively.
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:
1997 1996 1995
(Tons in thousands)
Recycled Boxboard and SBS
Production 823 774 773
Consumption 547 521 529
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 1997, the Company
produced 633,000 and 190,000 tons of recycled boxboard and SBS,
respectively. The Company's sales of recycled boxboard and SBS
in 1997 were $418 million (including $173 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, laminating and a full line
of structural and design graphics services. The Company's 19
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 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
1997 were $659 million (including $3 million of intracompany
sales). Folding carton sales volumes for 1997, 1996 and 1995
were 488,000, 474,000 and 476,000 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:
1997 1996 1995
(Tons in thousands)
Uncoated Recycled Boxboard
Production 125 128 120
Consumption 149 153 148
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 and
Tacoma, Washington. In 1997, the Company's sales of uncoated
recycled boxboard were $49 million (including $29 million of
intracompany sales).
The Company's 22 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 1997 were $115 million (including
$6 million of intracompany sales).
CONSUMER PACKAGING
The Company manufactures a wide variety of products at its 10
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 plant provides 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 1997, sales of consumer packaging
products and services were $152 million (including $7 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 1997, the newsprint mills used approximately 44%
wood fiber and 56% reclaimed fiber.
The Company operates 29 facilities that collect, sort, grade and
bale recovered paper, as well as collect aluminum and glass. The
Company also operates a nationwide brokerage system whereby it
purchases and resells recovered paper (including recovered paper
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 recovered paper. The
reclamation operations provide 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 1997, the Company's reclamation plants
and brokerage operations satisfied all of the Company's mill
requirements for reclaimed fiber. The Company's sales of
recycled materials in 1997 were $446 million (including $155
million of intracompany sales).
The amount of recovered paper collected and the proportions sold
internally and externally by the Company for the last three years
were:
1997 1996 1995
(Tons in thousands)
Recovered paper collected 4,832 4,464 4,293
Percent sold internally 38.0% 39.8% 43.1%
Percent sold to third parties 62.0% 60.2% 56.9%
The Company manages approximately one million acres of owned and
leased timberland in the southeastern United States. In 1997, the
Company harvested 1,015,000 cords of timber, which would satisfy
approximately 43% of the wood fiber requirements for its
Jacksonville, Fernandina Beach and Brewton mills. The
Company's wood fiber requirements not satisfied internally are
purchased on the open market or under long-term contracts. In
1997, the Company's sales of timber products were $269 million
(including $204 million of intracompany sales).
NEWSPRINT SEGMENT
NEWSPRINT MILLS
The Company's Newsprint segment is operated by Smurfit Newsprint
Corporation, a wholly-owned subsidiary of the Company ("SNC").
SNC newsprint mills are located in Newberg and Oregon City,
Oregon. SNC produced 574,000, 522,000 and 563,000 metric tons
of newsprint during 1997, 1996 and 1995, respectively. In 1997,
sales of newsprint were $283 million (including $2 million of
intracompany sales).
For the past three years, an average of approximately 50% of
SNC'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 SNC from Times Mirror in
February 1986. Under the terms of the Newsprint Agreement, SNC
supplies newsprint to Times Mirror generally at prevailing market
prices. Sales of newsprint to Times Mirror in 1997 amounted to
$140 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. SNC has two Cladwood plants
located in Oregon. Sales for Cladwood in 1997 were $22 million
(including $1 million of intracompany sales). See also Part 1,
Item 3, "Legal Proceedings."
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,
1997, of which approximately 10,600 employees (67%) were
represented by collective bargaining units. The expiration dates
of union contracts for the Company's major facilities are as
follows: the Jacksonville mill, expiring June 1999; the Alton
mill, expiring June 2000; SNC's Newberg mill, expiring March
2002; the Brewton mill, expiring October 2002; the Fernandina
mill, expiring June 2003; a group of 11 properties, including 4
paper mills and 7 corrugated container plants, expiring June
2003; and SNC's Oregon City mill, expiring March 2004. 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.
ENVIRONMENTAL COMPLIANCE
The Company's paperboard and newsprint mills are large consumers
of energy, using either natural gas or coal. A majority 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 finalized significant
parts of its 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 these parts of the Cluster Rule, the Company
estimates that, based on preliminary engineering studies done to
date, it may require approximately $175 million in capital
expenditures over the next three to five years. The ultimate
cost of complying with the regulations cannot be predicted with
certainty until further engineering studies are completed and
additional regulations are finalized.
In addition to Cluster Rule compliance, the Company also
anticipates additional capital expenditures related to
environmental compliance, although in the opinion of management,
such compliance will not adversely affect the Company's
competitive position. For the past three years, the Company has
spent an average of approximately $15 million annually on capital
expenditures for environmental purposes. The anticipated
spending for such capital projects for fiscal 1998 is
approximately $34 million. A significant amount of the increased
expenditures in 1998 will be due to compliance with the Cluster
Rule and is included in the $175 million estimate referenced
above. Since the Company's competitors are, or will be, subject
to comparable pollution standards, including the Cluster Rule,
management is of the opinion that compliance with the pollution
standards will not adversely affect the Company's competitive
position.
ITEM 2. PROPERTIES
The Company's properties at December 31, 1997 are summarized in
the table below. Approximately 62% of the Company's investment
in property, plant and equipment is represented by its paperboard
and newsprint mills. In addition to its manufacturing
facilities, the Company owns aproximately 820,000 acres and
leases approximately 163,000 acres of timberland in the
southeastern United States and also operates wood harvesting
facilities.
Number of Facilities State
Total Owned Leased Locations
Paperboard mills:
Containerboard mills 7 7 0 6
Boxboard mills 4 4 0 4
Uncoated recycled boxboard mills 3 3 0 3
Newsprint mills 2 2 0 1
Reclamation plants 29 21 8 13
Converting facilities:
Corrugated container plants 51 39 12 21
Folding carton plants 19 16 3 10
Industrial packaging plants 22 7 15 15
Consumer packaging plants 10 5 5 6
Cladwood plants 2 2 0 1
Wood product plants 1 1 0 1
Total 150 107 43 28
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
On January 3, 1997, SNC was served in an action styled John and
Peggy Woolum, et ano. v. Fleetwood Homes of Georgia, Inc. et al.,
No. 96-CP-08-2029 (South Carolina Court of Common Pleas). The
suit, which purports to be a class action on behalf of 5,000 or
more present and past owners or Cladwood-containing mobile homes
in South Carolina, alleges that Cladwood siding deteriorates when
exposed to climate conditions found there. The complaint seeks
an unspecified amount of actual, statutory and punitive damages,
which, in the aggregate, may exceed $100,000. The Court has
dismissed the Company from the action for lack of personal
jurisdiction, which the other litigants may seek to appeal.
On July 1, 1997, SNC was served in an action entitled John
Sechler and Hazel Sechler, et ano. v. Smurfit Newsprint
Corporation, No. 1 97-CV-1870 (United States District Court,
Northern District of Georgia). The complaint alleges that
Cladwood siding deteriorates under normal conditions and
exposure. The suit purports to be a nationwide class action on
behalf of owners of Cladwood-containing manufactured homes or
mobile homes. The complaint alleges causes of action for breach
of warranty and negligence and seeks an unspecified amount of
actual, consequential and punitive damages, which, in the
aggregate, may exceed $100,000. On September 24, 1997,
Plaintiffs voluntarily dismissed the action. On October 15,
1997, Plaintiffs refiled their action in state court, naming
Fleetwood Homes of Georgia, Inc. and Fleetwood Enterprises, Inc.
(mobile home manufacturers) as additional defendants. On October
24, 1997, the Company removed the state court action to federal
court. The second federal court action is styled John Sechler
and Hazel Sechler, et ano. v. Smurfit Newsprint Corporation, et
al., No. 1:97-CV-3201 (United States District Court, Northern
District of Georgia). On November 4, 1997, the Company filed a
motion to dismiss the negligence and punitive damages claims.
Plaintiffs have moved to add additional parties, amend the
complaint, and remand the action back to state court. The
motions are currently before the court for its consideration.
SNC intends to defend the action vigorously.
On August 8, 1997, JSC and SNC were served in an action entitled
Carolyn Cave-Woods, et ano. v. Jefferson Smurfit Corporation, et
al., No. 97-2-19958-1SEA (Washington Superior Court). The suit,
which purports to be a class action on behalf of all persons who
own or have purchased or used Cladwood siding, alleges that
Cladwood siding used in prefabricated or manufactured homes,
deteriorates when exposed to moisture. The complaint alleges
unfair trade practices and breach of express warranty, and seeks
an unspecified amount of actual and punitive damages, which, in
the aggregate, may exceed $100,000. The complaint also seeks
declaratory and injunctive relief. On January 2, 1998,
Plaintiffs filed a motion seeking certification of a nationwide
class. The Company intends to oppose the class certification
motion and defend the action vigorously.
On February 6, 1998, SNC was served in an action styled Jeffrey
A. and Deborah Pross, et ano. v. Smurfit Newsprint Corporation et
al., No. 9810069-24 (Georgia Superior Court). The complaint
alleges that Cladwood siding deteriorates under normal conditions
and exposure. The suit purports to be a class action on behalf
of persons in the State of South Carolina whose manufactured
homes or mobile homes have Cladwood siding. The complaint
alleges causes of action for breach of warranty and negligence
and seeks an unspecified amount of actual, consequential and
punitive damages, which in the aggregate may exceed $100,000.
SNC intends to defend the action vigorously.
Management is unable to predict at this time the final outcome of
these suits relating to Cladwood siding or whether the resolution
of the matters could materially affect the Company's results of
operations, cash flows or financial position.
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 control 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.
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 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 follows 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. It is
uncertain whether an investigation will 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 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 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 cleanup costs at such sites. However, liability of 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:
Operating Industries Site, Monterey Park, California
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.
Kane & Lombard Site, Baltimore, Maryland
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.
Fisher-Calo Site, Kingsbury, Indiana
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.
Lenz Oil Site, Lemont, Illinois
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 $80,000 toward
this investigation and initial remediation. It is
anticipated that further remedial measures will be required
beyond those covered in these consent decrees.
Augustine Mill Site, Wilmington, Delaware
In 1994, the Company entered into a consent decree with the
State of Delaware regarding remedial investigation of the
Augustine Mill site. In 1997, the Company constructed a
landfill cap to close the site in cooperation with the State.
To date, the Company has spent approximately $2 million on
the remediation, which is nearly completed. The Delaware
Parks Department will eventually assume responsibility for
maintenance of the site as part of its Delaware Greenways
program.
Jones Industrial Services Site, South Brunswick, New Jersey
The Company entered into an administrative consent order in
1997 with the State of New Jersey for the remediation of the
Jones Industrial Services Site in South Brunswick, New
Jersey. To date, the Company has paid approximately $21,000
toward the remedial investigation of this site. The Company
anticipates that it will pay additional investigation costs
and cleanup costs at this site.
In addition to participating in remediation of sites owned by
third parties, the Company has entered consent orders for
remediation of two Company-owned properties.
Duval, County, Florida
In 1992, the Company entered into an administrative consent
order with the Florida Department of Environmental Regulation
("FDER") to carry out any necessary assessment and
remediation of Company-owned property in Duval County,
Florida. The property was formerly the site of a sawmill
that dipped lumber into a chemical solution. To date, the
Company has spent approximately $744,000 on remediating the
site. It is currently in a monitoring-only stage.
Jacksonville, Florida
In 1987, the Company entered into an administrative consent
order with the FDER to conduct an assessment of the
Jacksonville, Florida property site for potential impacts
caused by previous industrial activity. To date, the Company
has paid approximately $2 million for remediation and
investigation, and may incur some additional expense before
closure of the site.
New Jersey Industrial Site Recovery Act
The New Jersey Industrial Site Recovery Act ("ISRA") requires
owners or operators of "industrial establishments" to notify the
New Jersey Department of Environmental Protection ("NJDEP") upon
the closing of operations, or upon the transfer of ownership or
operations of an industrial establishment. As a precondition to
the transfer of ownership or operations, an owner or operator of
an industrial establishment is required to obtain a no further
action letter from NJDEP, or NJDEP approval of a remedial action
workplan or remediation agreement. The Company currently is a
signatory to a consent order with NJDEP with respect to an
industrial establishment. Management believes that any
requirements that may be imposed by NJDEP with respect to the
site will not have a material adverse effect on the financial
condition or results of operations to the Company.
Management believes that the probable costs of the potential
environmental enforcement matters discussed above, CERCLA
response costs, remediation of owned property, and its New Jersey
ISRA obligation will not have a material adverse effect on the
Company's financial condition or results of operations.
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 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
At December 31, 1997 the Company's common stock was held by
approximately 13,000 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:
1997 1996
High Low High Low
First Quarter $16.38 $11.88 $12.38 $ 9.38
Second Quarter $18.63 $11.88 $14.13 $10.25
Third Quarter $21.63 $15.50 $12.25 $10.50
Fourth Quarter $20.50 $13.25 $16.13 $11.88
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.
ITEM 6. SELECTED FINANCIAL DATA
(In millions, except per share and statistical data)
1997 1996 1995 1994 199
Summary of Operations
Net sales $3,238 $3,410 $4,093 $3,233 $2,947
Cost of goods sold 2,776 2,754 3,222 2,719 2,567
Gross profit 462 656 871 514 380
Selling and administrative expenses 258 265 241 223 239
Restructuring charge 96
Environmental and other charges 54
Income (loss) from operations 204 391 630 291 (9)
Interest expense, net (190) (194) (234) (266) (253)
Other, net (2) (3) 7 3 4
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting changes 12 194 403 28 (258)
Provision for (benefit from)
income taxes 11 77 156 16 (83)
Income (loss) before
extraordinary item and cumulative
effect of accounting changes 1 117 247 12 (175)
Extraordinary item
Loss from early extinguishment
of debt, net of income tax benefit (5) (4) (55) (38)
Cumulative effect of accounting changes (16)
Net income (loss) $ 1 $ 112 $ 243 $ (43) $ (229)
Basic earnings per share of common stock (a)
Income (loss) before extraordinary
item and cumulative effect of
accounting changes $ .01 $ 1.05 $ 2.23 $ .12 $(2.75)
Net income (loss) .01 1.01 2.19 (.43) (3.60)
Weighted average shares outstanding 111 111 111 101 64
Diluted earnings per share of common stock (a)
Income (loss) before extraordinary
item and cumulative effect of
accounting changes $ .01 $ 1.04 $ 2.21 $ .12 $(2.75)
Net income (loss) .01 1.00 2.17 (.43) (3.60)
Weighted average shares outstanding 113 112 112 101 64
ITEM 6. SELECTED FINANCIAL DATA (cont'd)
(In millions, except per share and statistical data)
1997 1996 1995 1994 1993
Other Financial Data
Net cash provided by operating
activities $ 88 $ 380 $ 393 $ 134 $ 63
Depreciation, depletion and
amortization 127 125 122 116 117
Capital investments and acquisitions 191 129 170 152 102
Working capital 71 34 51 15 44
Property, plant, equipment and
timberland, net 1,788 1,720 1,709 1,681 1,631
Total assets 2,771 2,688 2,783 2,759 2,597
Long-term debt, less
current maturities 2,025 1,934 2,111 2,392 2,619
Deferred income tax liability 362 363 328 208 232
Stockholders' deficit (374) (375) (487) (730) (1,058)
Statistical Data (tons in thousands)
Containerboard production (tons) 1,933 1,973 1,905 1,932 1,840
Boxboard and SBS production (tons) 823 774 773 767 744
Newsprint production (metric tons) 574 522 563 558 558
Corrugated shipments
(billion sq. ft.) 31.7 30.0 29.4 30.8 29.4
Folding carton shipments (tons) 488 474 476 493 483
Fiber reclaimed and
brokered (tons) 4,832 4,464 4,293 4,134 3,907
Timberland owned or leased
(thousand acres) 983 987 984 985 984
Number of employees 15,800 15,800 16,200 16,600 17,300
(a) Gives effect to the ten-for-one stock conversion pursuant to a
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.
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.
Containerboard market conditions were weak from the second half
of 1995 to early 1997 due to new capacity added within the
industry. The added capacity resulted in excess inventories and
lower selling prices for containerboard and corrugated shipping
containers. While demand for containerboard improved during this
time, many paper companies, including the Company, took economic
downtime at their containerboard mills to reduce inventories.
Linerboard prices, which had reached a record high of $535 per
ton in April 1995, dropped rapidly thereafter, declining to below
$300 per ton in April 1997. Improvements in market conditions
during 1997, however, resulted in increases in containerboard
prices in the second half of 1997. In December 1997, the price
of linerboard had risen to approximately $390 per ton.
Demand for newsprint was strong throughout 1995, but was weaker
in 1996 due to reductions in ad lineage and conservation measures
taken by newspaper publishers. Strong demand for newsprint
during 1995 resulted in an all-time record price of approximately
$760 per metric ton in October 1995. As market conditions
weakened in 1996, excess inventories developed and selling prices
for newsprint fell to below $500 per metric ton in the first
quarter of 1997. Many newsprint producers, including the
Company, took economic downtime at their newsprint mills during
1996 to reduce inventories. Improvement in newsprint demand in
1997, coupled with an extended strike at a competitor's mills,
resulted in a reduction in the excess inventory levels and
provided an opportunity to raise prices. Two attempts to raise
prices during 1997 were successful and by December 1997,
newsprint prices had risen to approximately $605 per metric ton.
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 the early part of 1995, resulting in higher
costs at the Company's recycled paper mills. However, the price
of this material was lower in the second half of 1995 and
remained relatively stable in 1996 due to lower demand as a
result of significant downtime taken by recycled paper mills
throughout the country. The lower prices in 1996 had a
beneficial effect on fiber cost at the Company's recycled paper
mills as compared to 1995. Reclaimed fiber prices were higher in
1997, but were still well below the record highs set in 1995.
Results of Operations
Segment data
(In millions) 1997 1996 1995
Income Income Income
Net from Net from Net from
sales operations sales operations sales operations
Paperboard/
Packaging
Products $2,936 $177 $3,087 $335 $3,706 $604
Newsprint 302 27 323 56 387 26
Total $3,238 $204 $3,410 $391 $4,093 $630
1997 COMPARED TO 1996
Net sales and income from operations declined in 1997 compared to 1996, due
primarily to lower sales prices. Net sales were $3,238 million, a decrease of
5% compared to 1996 and income from operations was $204 million, a decrease of
48% compared to 1996.
(In millions) 1997 Compared to 1996
Paperboard/
Packaging
Products Newsprint Total
Increase (decrease) due to:
Sales prices and product mix $(234) $ (59) $ (293)
Sales volume 85 38 123
Acquisitions and new facilities 28 28
Sold or closed facilities (30) (30)
Total net sales decrease $(151) $ (21) $(172)
Paperboard/Packaging Products Segment
Net sales of the Paperboard/Packaging Products segment decreased
5% compared to 1996 to $2,936 million, and income from operations
decreased $158 million compared to 1996 to $177 million. The
decrease in net sales of this segment was primarily a result of
significant reductions in sales prices for containerboard and
corrugated shipping containers. Increases in sales volume
partially offset the decline due to price. Profitability for this
segment declined in 1997 compared to 1996 also due primarily to
the sales price declines. Income from operations as a percent of
net sales for the Paperboard/Packaging Products segment decreased
from 11% in 1996 to 6% in 1997. 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 $192 million to $1,405 million, a decrease of 12%
compared to 1996. The decrease was due primarily to lower
prices. On average, corrugated shipping container prices
decreased 13% and containerboard prices decreased 13% compared to
1996. Demand for corrugated shipping containers was strong
throughout 1997 and shipments of corrugated shipping containers
increased 6% compared to 1996. As market conditions improved, the
Company successfully implemented two price increases for
linerboard, the first in August for $40 per ton and the second in
October for $50 per ton. Containerboard sales volume in 1997
decreased 2% compared to 1996 due to economic downtime taken to
reduce inventories in 1997 and a shutdown at the Company's
Brewton, Alabama mill associated with a rebuild and upgrade of
its mottled white paper machine.
Net sales for the reclamation and timber products operations
increased $75 million to $356 million, an increase of 27%
compared to 1996. On average, prices for reclaimed fiber were
17% higher in 1997 compared to 1996 and shipments of reclaimed
fiber increased 8% compared to 1996.
Net sales of recycled boxboard, SBS and folding cartons of $901
million were equal to 1996. On average, recycled boxboard and
SBS prices decreased 5% and 2%, respectively, and folding carton
prices decreased 5% compared to 1996. Strengthening demand
during 1997 enabled the Company to implement a $40 per ton price
increase in the fourth quarter of 1997. Shipments of recycled
boxboard and SBS increased 6% and 2%, respectively, and folding
carton shipments increased 3% compared to 1996.
Net sales of $129 million for uncoated recycled boxboard and
industrial packaging products were 10% lower compared to 1996,
primarily due to lower prices and plant closures. Net sales of
$145 million for consumer packaging products declined 12%
compared to 1996 due to lower prices, reduced sales volume and
the sale of a facility.
Newsprint Segment
Net sales of the Newsprint segment decreased 7% compared to 1996
to $302 million, and income from operations decreased $29 million
compared to 1996 to $27 million. Strengthening demand for
newsprint enabled SNC to successfully implement two price
increases totaling $115 per metric ton in 1997. Despite the
increases, the average sales price for 1997 was 15% lower when
compared to 1996. Sales volume increased 12% compared to 1996
primarily as a result of reduced mill downtime. Income from
operations as a percent of net sales decreased from 17% in 1996
to 9% in 1997 due primarily to the decline in the average sales
price of newsprint.
Costs and Expenses
Cost of goods sold as a percent of net sales increased from 81%
in 1996 to 86% in 1997 due primarily to the lower sales prices
explained above, and, to a lesser extent, higher recycled fiber
cost and downtime taken at containerboard mills. Selling and
administrative expenses as a percent of net sales was comparable
to 1996 due to a decline in expenses, which resulted primarily
from lower employee benefit costs.
During 1997, the Company completed its 1993 restructuring
program. All major activity related to plant closures, workforce
reductions, severance payments and asset sales were completed
without significant adjustment to the reserve. Cash payments for
restructuring activity in 1997 were not significant to cash
flows.
In the fourth quarter of 1995, SNC recorded a pre-tax charge
totalling $25 million related to a corrective action program 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. The program was
substantially completed in 1997. The Company believes the
remaining reserve is adequate to address expenditures
contemplated under the corrective action program.
Interest expense for 1997 declined $4 million compared to 1996
due primarily to lower average debt levels outstanding and lower
effective interest rates.
The provision for income taxes in 1997 was $11 million. The
effective tax rate for 1997 exceeded the federal statutory tax
rate due to several factors, the most significant of which was
the effect of permanent differences from applying purchase
accounting. The tax values of remaining net operating loss
carryforwards for state income tax purposes of approximately $45
million expire in years 1998 through 2012. Federal income tax
returns for 1989 through 1994 are currently under examination.
While the ultimate results of such examinations cannot be
predicted with certainty, the Company's management believes that
the examinations will not have a material adverse effect on its
financial condition or results of operations.
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 $3,410 million, a decrease of 17% compared to 1995 and
income from operations was $391 million, a decrease of 38%
compared to 1995.
(In millions) 1996 Compared to 1995
Paperboard/
Packaging
Products Newsprint Total
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)
Paperboard/Packaging Products Segment
Net sales of the Paperboard/Packaging Products segment decreased
17% compared to 1995 to $3,087 million, 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 $1,597 million, 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 $901
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 $164 million.
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 above. 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 1996, major activities relating to the 1993 restructuring
program included payments of plant closure expenditures and
severance of $6 million, offset by proceeds from sales of fixed
assets of $3 million. Proceeds from sales of fixed assets were
used to offset additional expenses and other unanticipated
expenses related to shutdowns.
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.
Interest expense for 1996 declined $40 million compared to 1995
due primarily to lower average debt levels outstanding and lower
effective interest rates.
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 was 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. As of December
31, 1996, the Company had net operating loss carryforwards for
state income tax purposes of approximately $44 million which
expire in years 1997 through 2009.
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 also adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" in 1996. 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.
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 1997 of
$88 million and net borrowings of $87 million were used primarily
to fund capital investments and acquisitions totaling $191
million. Acquisitions in 1997 included a corrugated shipping
container plant and three recycling plants. In addition, the
Company purchased a 50,000 acre woodlands tract that complements
its southern holdings.
As of December 31, 1997, JSC (U.S.)'s bank credit facility (the
"1994 Credit Agreement") consisted of a Tranche A Term Loan of
$312 million, a Tranche B Term Loan of $283 million, a Tranche C
Term Loan of $141 million and a $450 million revolving credit
facility. The revolving credit facility may include letters of
credit of up to $150 million. 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. In view of the economic downturn
within the Company's business in the early part of 1997, the
Company sought an amendment to the 1994 Credit Agreement to ease
certain of its financial covenants. The amendment to the 1994
Credit Agreement was granted in June 1997. 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. 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.
As referenced above, 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 $41 million for 1998. The Company does not believe
the annual limitation for capital expenditures impairs 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, pay debt
maturities and fund capital expenditures. Scheduled debt
payments in 1998 and 1999 are $15 million and $101 million,
respectively, with increasing amounts thereafter. Capital
expenditures for 1998 are estimated to be lower, comparable to
the levels in 1996 and 1995. The Company expects to use any
excess cash provided by operations to make further debt
reductions. At December 31, 1997, the Company had $270 million
of unused borrowing capacity under its 1994 Credit Agreement and
$103 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 has received a commitment letter dated February 16,
1998 from certain of its senior lenders and their affiliates to
provide, structure, arrange and syndicate $1.3 billion of new
senior secured facilities to refinance all of the outstanding
indebtedness under the 1994 Credit Agreement. The refinancing is
expected to reduce interest expense, extend debt maturities and
improve financial flexibility of the Company. The refinancing is
expected to close in the first half of 1998 and will result in a
non-cash extraordinary write-off consisting primarily of deferred
debt issuance costs related to the 1994 Credit Agreement.
The Company's earnings are significantly affected by the amount
of interest on its indebtedness. The Company periodically 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. As of
December 31, 1997, the Company had no interest rate swaps or cap
agreements outstanding.
JSC and SNC have been served with complaints alleging that
Cladwood exterior siding, produced by SNC and used in
prefabricated or manufactured homes, deteriorates under normal
conditions and exposure. The suits purport to be class actions
on behalf of persons who own or have purchased or used Cladwood,
a non-core product line of SNC. The complaints allege either
negligence, unfair trade practices or breach of warranty, and
seek unspecified amounts of damages and in one case declaratory
and injunctive relief. Management is unable to predict at this
time the final outcome of these suits or whether the resolution
of the matters could materially affect the Company's results of
operations, cash flows or financial position. The Company and
SNC intend to defend the actions vigorously.
The Company has conducted a review of its computer systems to
identify areas that could be affected by the "Year 2000" issue.
Based on this review, the Company has established a plan and has
begun to modify or replace certain portions of its existing
software so that the systems will function properly with respect
to dates in the year 2000 and thereafter. The modifications to
existing software are expected to be completed by the end of
1998. The Company believes that the cost of such modifications
will be immaterial to its results of operations and cash flows.
The Company, in the ordinary course of business, continually
seeks to upgrade its computer systems and software when
economically practical and benefits can be achieved. Appropriate
cost associated with such systems are normally capitalized when
purchased and depreciated over five years. The Company has
reviewed the systems that it is currently in the process of
installing and believes these new systems will be Year 2000
compliant. The Company expects to do extensive testing of these
new systems during 1998 and 1999.
The Company believes that, in general, it does not have a
material exposure to the Year 2000 issue, either operationally or
financially, and that its plan to modify or replace its software
will address the Year 2000 issue on a timely basis.
Environmental Matters
In 1993, the Company recorded a provision of $54 million, of
which $39 million related 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 $5 million, $3 million
and $9 million related to PRP sites, environmental cleanup and
other environmental compliance related measures in 1997, 1996 and
1995, 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 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 six 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 a
discussion of the environmental exposure at the six 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, 1997. 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.
In 1997, the EPA finalized significant parts of the Cluster Rule,
which will require substantial expenditures to achieve
compliance. In order to comply with these parts of the Cluster
Rule, the Company estimates that, based on preliminary
engineering studies done to date, it may require approximately
$175 million in capital expenditures over the next three to five
years. The ultimate cost of complying with the regulations
cannot be predicted with certainty until further engineering
studies are completed, and additional regulations are finalized.
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 $15 million annually
in capital expenditures related to environmental compliance over
the last three years and estimates spending approximately $34
million in capital expenditures related to environmental
compliance in 1998. A significant amount of the increased
expenditures in 1998 will be due to compliance with the Cluster
Rule and is included in the $175 million estimate referenced
above. 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
The Company uses the last-in, first-out method of accounting for
approximately 83% 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. In 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 cost of such base raw materials declined and has remained
relatively stable through 1996 and 1997. Inflationary increases
in other operating costs were moderate, and did not have a
material impact on the Company's financial position or operating
results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page No.
Index to Financial Statements:
Management's Responsibility for Financial Statements 25
Report of Independent Auditors 26
Consolidated balance sheets - December 31, 1997 and 1996 27
For the years ended December 31, 1997, 1996 and 1995:
Consolidated statements of operations 28
Consolidated statements of stockholders' deficit 29
Consolidated statements of cash flows 30
Notes to consolidated financial statements 31
The following consolidated financial statement schedule of
Jefferson Smurfit Corporation is included in Item 14(a):
II: Valuation and Qualifying Accounts 59
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.
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.
Richard W. Graham
President and Chief Executive Officer
Patrick J. Moore
Vice President and Chief Financial Officer
(Principal Accounting Officer)
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, 1997 and 1996,
and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years
in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 1997 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.
Ernst & Young LLP
St. Louis, Missouri
January 22, 1998
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
December 31, 1997 1996
ASSETS
Current assets
Cash and cash equivalents $ 12 $ 12
Receivables, less allowances
of $10 in 1997 and $9 in 1996 302 279
Inventories
Work-in-process and finished goods 89 81
Materials and supplies 151 126
240 207
Deferred income taxes 32 46
Prepaid expenses and other current assets 16 15
Total current assets 602 559
Net property, plant and equipment 1,523 1,466
Timberland, less timber depletion 265 254
Goodwill, less accumulated amortization of
$58 in 1997 and $50 in 1996 237 246
Other assets 144 163
$ 2,771 $ 2,688
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 15 $ 10
Accounts payable 334 290
Accrued compensation and payroll taxes 88 92
Interest payable 25 30
Other accrued liabilities 69 103
Total current liabilities 531 525
Long-term debt, less current maturities 2,025 1,934
Other long-term liabilities 227 241
Deferred income taxes 362 363
Stockholders' deficit
Preferred stock, par value $.01
per share; 50,000,000
shares authorized; none
issued and outstanding
Common stock, par value $.01
per share; 250,000,000
shares authorized; 110,996,794
and 110,989,156 issued
and outstanding in 1997 and
1996, respectively 1 1
Additional paid-in capital 1,168 1,168
Retained earnings (deficit) (1,543) (1,544)
Total stockholders' deficit (374) (375)
$ 2,771 $ 2,688
See notes to consolidated financial statements.
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Year Ended December 31, 1997 1996 1995
Net sales $ 3,238 $ 3,410 $ 4,093
Costs and expenses
Cost of goods sold 2,776 2,754 3,222
Selling and administrative expenses 258 265 241
Income from operations 204 391 630
Other income (expense)
Interest expense, net (190) (194) (234)
Other, net (2) (3) 7
Income before income taxes and
extraordinary item 12 194 403
Provision for income taxes 11 77 156
Income before extraordinary item 1 117 247
Extraordinary item
Loss from early extinguishment of debt,
net of income tax benefit of $3 in
1996 and $2 in 1995 (5) (4)
Net income $ 1 $ 112 $ 243
Basic earnings per common share
Income before extraordinary item $ .01 $ 1.05 $ 2.23
Extraordinary item (.04) (.04)
Net income $ .01 $ 1.01 $ 2.19
Weighted average shares outstanding 111 111 111
Diluted earnings per common share
Income before extraordinary item $ .01 $ 1.04 $ 2.21
Extraordinary item (.04) (.04)
Net income $ .01 $ 1.00 $ 2.17
Weighted average shares outstanding 113 112 112
See notes to consolidated financial statements.
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)
Balance at January 1, 1995 $ 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)
Net income 1
Issuance of common stock under
stock option plan 7,638
Balance at December 31, 1997 $ 1 110,996,794 $1,168 $(1,543)
See notes to consolidated financial statements.
JEFFERSON SMURFIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Year Ended December 31, 1997 1996 1995
Cash flows from operating activities
Net income $ 1 $ 112 $ 243
Adjustments to reconcile net income to net
cash provided by operating activities
Extraordinary loss from early
extinguishment of debt 8 7
Depreciation, depletion and amortization 127 125 122
Amortization of deferred debt issuance costs 11 13 14
Deferred income taxes 13 34 113
Non-cash employee benefit expense (income) 4 17 (7)
Change in current assets and liabilities,
net of effects from acquisitions
Receivables (24) 60 (22)
Inventories (32) 17 (4)
Prepaid expenses and other current assets 3 (1)
Accounts payable and accrued liabilities (4) (61)
Interest payable (5) (4) (7)
Income taxes (6) 2 (1)
Other, net (4) (3)
Net cash provided by operating activities 88 380 393
Cash flows from investing activities
Property additions (166) (120) (130)
Timberland additions (16) (9) (6)
Investments in affiliates and acquisitions (9) (34)
Construction funds held in escrow 9 (10)
Proceeds from property and timberland
disposals and sale of businesses 7 6 10
Net cash used for investing activities (175) (133) (160)
Cash flows from financing activities
Borrowings under bank credit facilities 250
Net borrowings (repayments) under accounts
receivable securitization program 30 (38)
Payments of long-term debt (7) (481) (284)
Other increases in long-term debt 64 13 20
Deferred debt issuance costs (6) (4)
Net cash provided by (used for)
financing activities 87 (262) (268)
Decrease in cash and cash equivalents (15) (35)
Cash and cash equivalents
Beginning of year 12 27 62
End of year $ 12 $ 12 $ 27
See notes to consolidated financial statements.
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.
JSCE, Inc. owns 100% of the equity interest in JSC (U.S.) and is
the guarantor of the senior unsecured indebtedness of JSC (U.S.).
JSCE, Inc. has no operations other than its investment in JSC
(U.S.). JSC (U.S.) has extensive operations throughout the United
States.
The deficit in stockholders' equity is primarily due to the
Company's 1989 purchase of JSC (U.S.)'s common equity owned by
Jefferson Smurfit Group plc ("JS Group") and the acquisition by
JSC (U.S.) of its common equity owned by The Morgan Stanley
Leveraged Equity Fund I, L.P., which were accounted for as
purchases of treasury stock.
2. Significant Accounting Policies
Nature of Operations: The Company's major operations are in
paper products, recycled and renewable fiber resources, newsprint
production, and consumer and specialty 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 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. Cash and cash equivalents of $9 million and
$8 million are pledged at December 31, 1997 and 1996 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.
Significant Accounting Policies (cont)
Inventories: Inventories are valued at the lower of cost or
market, principally under the last-in, first-out ("LIFO") method
except for $51 million in 1997 and $53 million in 1996 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 $62 million and $59 million at December 31, 1997 and
1996, 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
paper 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.
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
included in other assets 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).
2. Significant Accounting Policies (cont)
Interest Rate Swap and Cap Agreements: The Company periodically
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.
At December 31, 1997, the Company had no interest rate swaps or
cap agreements outstanding.
Earnings per Common Share: Effective December 31, 1997, the
Company adopted SFAS No. 128 "Earnings per Share." SFAS No. 128
replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Basic
earnings per share excludes any dilutive effects of options.
Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements
(see Note 8).
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, no compensation expense is
recognized because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on
the date of grant. The Company has, however, adopted the
disclosure-only provisions of SFAS No. 123 (see 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.
2. Significant Accounting Policies (cont)
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.
Prospective Accounting Pronouncements: In 1997, the Financial
Accounting Standards Board issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS
No. 131 specifies the computation, presentation, and disclosure
requirements for business segment information. This statement is
required to be adopted in 1998. The Company is currently
evaluating SFAS 131 and has not yet determined its impact on the
Company's consolidated financial statements.
Reclassifications: Prior to 1997, timberdeeds were included with
timberland on the Consolidated Balance Sheets, and as depletion
and timberland additions on the Consolidated Statements of Cash
Flows. Effective December 31, 1997, the Company has reclassified
timberdeed activity as cash flows from operating activities. The
effect of the reclassification on the Consolidated Statements of
Cash Flows was to reduce depletion by $17 million, $14 million
and $17 million in 1997, 1996 and 1995, respectively, with
offsetting effects to timberland additions and other current
assets. There was no effect on the Consolidated Statements of
Operations.
Certain other reclassifications of prior year presentations have
been made to conform to the 1997 presentation.
3. Property, Plant and Equipment
Property, plant and equipment at December 31 consists of:
1997 1996
Land $ 63 $ 61
Buildings and leasehold improvements 304 280
Machinery, fixtures and equipment 2,024 1,908
2,391 2,249
Less accumulated depreciation and amortization 934 849
1,457 1,400
Construction in progress 66 66
Net property, plant and equipment $1,523 $1,466
4. Long-Term Debt
Long-term debt at December 31 consists of:
1997 1996
Tranche A term loan $ 312 $ 312
Tranche B term loan 283 283
Tranche C term loan 141 141
Revolving loans 120 55
Accounts receivable securitization program loans 210 179
1994 series A senior notes 300 300
1994 series B senior notes 100 100
1993 senior notes 500 500
Other 74 74
2,040 1,944
Less current portion 15 10
$2,025 $1,934
Aggregate annual maturities of long-term debt at December 31,
1997 for the next five years are $15 million in 1998, $101
million in 1999, $170 million in 2000, $347 million in 2001 and
$568 million in 2002.
1994 Credit Agreement
In 1994, JSC (U.S.) entered into a bank credit facility (the
"1994 Credit Agreement") consisting of a $450 million revolving
credit facility (the "Revolving Credit Facility") of which up to
$150 million may consist of letters of credit, a Tranche A Term
Loan and a 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 1.50%
per annum or the adjusted LIBOR Rate plus 2.50% per annum (8.66%
at December 31, 1997). 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 (9.0% at
December 31, 1997). Interest on the Tranche C Term Loan is
payable at a rate per annum selected at the option of JSC (U.S.),
equal to the prime rate plus 2.25% per annum or the adjusted
LIBOR Rate plus 3.25% per annum (9.25% at December 31, 1997).
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.).
A commitment fee of .50% per annum is assessed on the unused
portion of the Revolving Credit Facility. At December 31, 1997,
the unused portion of this facility, after giving consideration
to outstanding letters of credit, was $270 million.
4. Long-Term Debt (cont)
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"). JS Finance 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 $9 million and trade accounts receivable of $231
million at December 31, 1997. Interest rates on borrowings under
the Securitization Program are at a variable rate (5.96% at
December 31, 1997). At December 31, 1997, $103 million was
available for additional borrowing, subject to JSC (U.S.)'s level
of eligible accounts receivable. Borrowings under the
Securitization Program, which expires February 2002, have been
classified as long-term debt because of the Company's intent to
refinance this debt on a long-term basis and the availability of
such financing under the terms of the program.
1994 Senior Notes
In 1994, 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. The
Series B Senior Notes are not redeemable prior to maturity.
4. Long-Term Debt (cont)
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, 1997 is payable in varying
installments through the year 2029. Interest rates on these
obligations averaged approximately 8.31% at December 31, 1997.
Other
Interest costs capitalized on construction projects in 1997, 1996
and 1995 totaled $5 million, $3 million and $4 million,
respectively. Interest payments on all debt instruments for
1997, 1996 and 1995 were $188 million, $186 million and $228
million, respectively.
5. Income Taxes
Significant components of the Company's deferred tax assets and
liabilities at December 31 are as follows:
1997 1996
Deferred tax liabilities
Property, plant and equipment and timberland $414 $396
Inventory 13 13
Prepaid pension costs 31 31
Other 114 104
Total deferred tax liabilities 572 544
Deferred tax assets
Employee benefit plans 96 102
Net operating loss, alternative minimum tax and
tax credit carryforwards 99 90
Other 58 53
Total deferred tax assets 253 245
Valuation allowance for deferred tax assets (11) (18)
Net deferred tax assets 242 227
Net deferred tax liabilities $330 $317
Provision for income taxes before extraordinary item was as follows:
Year Ended December 31,
1997 1996 1995
Current
Federal $ (3) $ 41 $ 38
State and local 2 4
(3) 43 42
Deferred
Federal 10 (1) (12)
State and local 4 (5) 2
Net operating loss carryforwards 40 124
14 34 114
$ 11 $ 77 $ 156
At December 31, 1997, the Company has net operating loss
carryforwards for state income tax purposes with a tax value of
approximately $45 million which expire in years 1998 through
2012.
The federal income tax returns for 1989 through 1994 are
currently under examination. While the ultimate results of such
examination cannot be predicted with certainty, the Company's
management believes that the examination will not have a material
adverse effect on its consolidated financial condition or results
of operations.
5. Income Taxes (cont)
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:
Year Ended December 31,
1997 1996 1995
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local taxes, net
of federal tax benefit (2.8) (1.5) 3.9
Permanent differences from applying
purchase accounting 116.1 4.1 3.2
Effect of valuation allowances on
deferred tax assets, net of
federal benefit (58.0) 2.1 (3.4)
Other, net 1.4
91.7% 39.7% 38.7%
The Company made income tax payments of $8 million, $39 million
and $41 million in 1997, 1996 and 1995, 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.
Assumptions used in the accounting for the defined benefit plans
were:
1997 1996 1995
Weighted average discount rate 7.25% 7.75% 7.25%
Rate of increase in compensation levels 4.0% 4.5% 4.0%
Expected long-term rate of return on assets 9.5% 9.5% 9.5%
6. Employee Benefit Plans (cont)
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:
Year Ended December 31,
1997 1996 1995
Defined benefit plans
Service cost-benefits earned during the period $ 16 $ 16 $ 13
Interest cost on projected benefit obligations 63 60 59
Actual return on plan assets (140) (131) (155)
Net amortization and deferral 61 62 75
Multi-employer plans 2 2 2
Net pension expense (income) $ 2 $ 9 $ (6)
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:
1997 1996
Actuarial present value of benefit obligations
Vested benefit obligations $ 821 $759
Accumulated benefit obligations $ 873 $802
Projected benefit obligations $ 919 $838
Plan assets at fair value 1,013 926
Plan assets in excess of
projected benefit obligations 94 88
Unrecognized net (gain) loss (2) 8
Unrecognized net asset at December 31,
being recognized over 14 to 15 years (13) (17)
Net pension asset $ 79 $ 79
Approximately 31% of plan assets at December 31, 1997 are
invested in cash equivalents or debt securities and 69% are
invested in equity securities. Equity securities at December 31,
1997 include 754,500 shares of common stock of the Company with a
market value of approximately $11 million and 26,526,260 shares
of JS Group common stock having a market value of approximately
$75 million. Dividends paid on JS Group common stock during 1997
were approximately $1.7 million.
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
1997 and 1996 and 50% in 1995 of each participant's contributions
up to an annual maximum. The Company's expense for the savings
plans totaled $9 million, $8 million and $6 million in 1997, 1996
and 1995, respectively.
6. Employee Benefit Plans (cont)
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:
1997 1996
Retirees $ 60 $ 63
Active employees 43 35
Total accumulated postretirement benefit obligation 103 98
Unrecognized net (gain) loss (1) 3
Accrued postretirement benefit cost $102 $101
Net periodic postretirement benefit cost included the following components:
1997 1996 1995
Service cost-benefits earned during the period $ 2 $ 1 $ 1
Interest cost on accumulated postretirement
benefit obligation 7 7 7
Net amortization (1) (1) (1)
Net periodic postretirement benefit cost $ 8 $ 7 $ 7
A weighted-average discount rate of 7.25% and 7.75% was used in
determining the APBO at December 31, 1997 and 1996, respectively.
The weighted-average annual assumed rate of increase in the per
capita cost of covered benefits ("health care cost trend rate")
was 7.5%, 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, 1997 by $2 million and have no effect on the annual
net periodic postretirement benefit cost for 1997.
Supplemental Income Plan
The Company maintains an unfunded, non-qualified supplemental
income pension plan (the "SIP") for certain key executives.
Benefits are determined by final average earnings and years of
credited service and are offset by a certain portion of social
security benefits.
At December 31, 1997 and 1996, the projected benefit obligation
was $31 million and $26 million, respectively, and the net
unrecognized SIP cost was $11 million and $9 million. The
amounts included in other long-term liabilities in the
Consolidated Balance Sheets were $20 million and $17 million as
of December 31, 1997 and 1996, respectively. During 1997, 1996
and 1995 the Company incurred SIP expenses of $2 million, $9
million, and $3 million, respectively.
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, 1997, 13,041,668 shares of
common stock were reserved for issuance under the Plan, including
4,873,895 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:
1997 1996 1995
Expected option life (years) 5 6 7
Risk-free weighted average
interest rate 6.49% 6.22% 7.36%
Stock price volatility 44.20% 42.10% 42.10%
Dividend yield 0.0% 0.0% 0.0%
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.
7. 1992 Stock Option Plan (cont)
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):
As Reported 1997 1996 1995
Net income $ 1 $ 112 $ 243
Basic earnings per share .01 1.01 2.19
Diluted earnings per share .01 1.00 2.17
Pro Forma
Net income $ (1) $ 111 $ 243
Basic earnings per share (.01) 1.00 2.19
Diluted earnings per share (.01) 1.00 2.19
The weighted average fair values of options granted during 1997,
1996 and 1995 were $6.63, $6.38 and $9.60 per share,
respectively.
Additional information relating to the Plan is as follows:
Weighted
Average
Shares Under Option Exercise
Option Price Range Price
Outstanding at January 1, 1995 5,531,255 $10.00 - 12.50
Granted 141,750 14.31 - 17.63
Exercised 925 10.00
Cancelled 40,612 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
Granted 1,238,500 13.13 - 15.81 13.43
Exercised 23,825 10.00 10.00
Cancelled 164,375 10.00 - 15.81 12.98
Outstanding at December 31, 1997 8,167,773 $10.00 - 17.63 $11.25
The following table summarizes information about stock options outstanding at
December 31, 1997:
Options Outstanding Options Exercisable
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Exercise Contractual Exercise
Exercise Prices 12/31/97 Price Life (Years) 12/31/97 Price
$10.00 - 12.50 5,736,023 $10.33 6.98 483,100 $10.00
13.00 - 14.31 2,207,750 13.11 11.02
15.81 - 17.63 224,000 16.51 10.03
8,167,773 483,100
The number of options exercisable at December 31, 1996 and 1995
were 506,925 and 508,770, respectively.
8. Earnings per Share
The following table sets forth the computation of basic and
diluted earnings per share:
1997 1996 1995
Numerator
Income before extraordinary item $ 1 $ 117 $ 247
Denominator
Denominator for basic earnings per
share - weighted average shares 111 111 111
Effect of dilutive securities:
Employee stock options 2 1 1
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 113 112 112
Basic earnings per share before
extraordinary item $ .01 $1.05 $2.23
Diluted earnings per share before
extraordinary item $ .01 $1.04 $2.21
An immaterial number of options to purchase shares of common
stock were outstanding but not included in the computation of
diluted earnings per share because the option exercise price was
greater than the average market price of the common shares.
9. Related Party Transactions
Transactions with JS Group
Transactions with JS Group, its subsidiaries and affiliated
companies were as follows:
Year Ended December 31, 1997 1996 1995
Product sales $ 34 $ 34 $ 44
Product and raw material purchases 51 64 108
Management services income 4 5 4
Charges from JS Group for services provided 1 1
Charges to JS Group for costs pertaining to
the Fernandina No. 2 paperboard machine 53 54 57
Receivables at December 31 3 3 3
Payables at December 31 11 10 13
Product sales to and purchases from JS Group, its subsidiaries
and affiliates are consummated on terms generally similar to
those prevailing with unrelated parties.
9. Related Party Transactions (cont)
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 1997, 1996 and 1995 were $140
million, $165 million and $189 million, respectively.
10. Leases
The Company leases certain facilities and equipment for
production, selling and administrative purposes under operating
leases. Future minimum lease payments at December 31, 1997
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year are $36 million
in 1998, $29 million in 1999, $23 million in 2000, $19 million in
2001, $17 million in 2002 and $73 million thereafter.
Net rental expense was $50 million, $50 million and $48 million
for 1997, 1996 and 1995, respectively.
11. Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments
are as follows:
December 31,
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets
Cash and cash equivalents $ 12 $ 12 $ 12 $ 12
Liabilities
Long-term debt, including
current maturities 2,040 2,105 1,944 2,005
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.
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 PRPs 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, SNC recorded a pretax charge
totaling $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. As of December
31, 1997 this program was substantially complete and the Company
believes the remaining reserve is adequate to address
expenditures contemplated under the corrective action program.
12. Contingencies (cont)
JSC and SNC have been served with complaints alleging that
Cladwood exterior siding, produced by SNC and used in
prefabricated or manufactured homes, deteriorates under normal
conditions and exposure. The suits purport to be class actions
on behalf of persons who own or have purchased or used Cladwood,
a non-core product line of SNC. The complaints allege either
negligence, unfair trade practices or breach of warranty, and
seek unspecified amounts of damages and in one case declaratory
and injunctive relief. Management is unable to predict at this
time the final outcome of these suits or whether the resolution
of the matters could materially affect the Company's results of
operations, cash flows or financial position. The Company and
SNC intend to defend the actions vigorously.
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:
Year Ended December 31,
1997 1996 1995
Net sales
Paperboard/packaging products $2,936 $3,087 $3,706
Newsprint 302 323 387
$3,238 $3,410 $4,093
Income from operations
Paperboard/packaging products $ 177 $ 335 $ 604
Newsprint 27 56 26
Total income from operations 204 391 630
Interest expense, net (190) (194) (234)
Other, net (2) (3) 7
Income before income taxes and
extraordinary item $ 12 $ 194 $ 403
Identifiable assets
Paperboard/packaging products $2,287 $2,189 $2,246
Newsprint 290 284 296
Corporate assets 194 215 241
$2,771 $2,688 $2,783
Capital expenditures
Paperboard/packaging products $ 166 $ 112 $ 119
Newsprint 16 17 17
$ 182 $ 129 $ 136
Depreciation, depletion and amortization
Paperboard/packaging products $ 113 $ 112 $ 105
Newsprint 14 13 17
$ 127 $ 125 $ 122
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.
14. Quarterly Results (Unaudited)
The following is a summary of the unaudited quarterly results of
operations:
First Second Third Fourth
Quarter Quarter Quarter Quarter
1997
Net sales $778 $785 $832 $843
Gross profit 103 109 129 121
Income from operations 39 44 65 56
Net income (loss) (7) (4) 8 4
Basic earnings (loss) per share:
Net income (loss) per share (.06) (.04) .07 .04
Diluted earnings (loss) per share:
Net income (loss) per share (.06) (.04) .07 .04
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
Basic earnings per share:
Income per share before
extraordinary item .48 .24 .20 .13
Net income per share .48 .20 .20 .13
Diluted earnings per share:
Income per share before
extraordinary item .48 .24 .20 .13
Net income per share .48 .20 .20 .13
The 1996 and first three quarters of 1997 earnings per share
amounts have been restated to comply with SFAS No. 128, "Earnings
per Share."
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 29
Alan E. Goldberg 43
Richard W. Graham 63
Michael C. Hoffman 35
G. Thompson Hutton 42
Michael M. Janson 50
Howard E. Kilroy 62
Thomas A. Reynolds, III 45
Michael W.J. Smurfit 61
James E. Terrill 64
The Board of Directors currently consists of ten directors. The
directors are classified into three groups: three directors
having terms expiring in 1998, including Messrs. Abramson, Graham
and Hutton; three directors having terms expiring in 1999,
including Messrs. Goldberg, Kilroy and Reynolds; and four
directors having terms expiring in 2000, including Messrs.
Hoffman, Janson, Smurfit and Terrill.
Executive Officers
The following table sets forth the names, ages and positions of
the executive officers of the Company.
Name Age Position
Robert P. Breimeier 54 Vice President - Transportation and
Logistics
Janet R. Carl 37 Vice President - Environmental
Affairs
James P. Davis 42 Vice President and General Manager
Consumer Packaging Division
James D. Duncan 56 Vice President and General Manager
- Industrial Packaging Division
Richard J. Golden 55 Vice President - Purchasing
Richard W. Graham 63 President and Chief Executive
Officer and Director
Michael F. Harrington 57 Vice President - Human Resources
Charles A. Hinrichs 44 Vice President and Treasurer
Jay D. Lamb 50 Vice President and General Manager
- SNC
F. Scott Macfarlane 52 Vice President and General Manager
- Folding Carton and Boxboard Mill
Division
Timothy McKenna 49 Vice President - Investor Relations
and Communications
Patrick J. Moore 43 Vice President and Chief Financial
Officer
Thomas A. Pagano 51 Vice President - Planning
Michael W.J. Smurfit 61 Chairman of the Board and Director
David C. Stevens 63 Vice President and General Manager
- Smurfit Recycling Company
John E. Straw 55 Vice President - Corporate Sales
and Marketing
Michael E. Tierney 49 Vice President, General Counsel and
Secretary
William N. Wandmacher 55 Vice President and General Manager
- Containerboard Mill Division
Gary L. West 55 Vice President and General Manager
- Container Division
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 Vice President 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
Director of PageMart Wireless, 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.
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
environmental 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.
Alan E. Goldberg has been a Director of the Company since 1989.
He is head of MS&Co.'s Private Equity Group and has been a
Managing Director of MS&Co. since 1988. Mr. Goldberg is a
Managing Director of MSLEF II, Inc. and MSCP III, Inc. Mr.
Goldberg also serves as Director of CIMIC Holdings Limited, CAT
Limited, Catalytica, Inc., 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
1985. In January 1994, he was assigned responsibility for world-
wide purchasing for JS Group.
Richard W. Graham has been a Director of the Company since
January 1997. He has been President and Chief Executive Officer
of the Company since January 1997 and 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. Mr. Graham also serves as
Director of Mercantile Bank of St. Louis N.A.
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.
Michael C. Hoffman was named to the Board of Directors of the
Company in February 1998. Mr. Hoffman joined MS&Co. in 1986 and
is a Principal of MS&Co., MSLEF II, Inc. and MSCP III, Inc. Mr.
Hoffman has been a member of the MS Private Equity Group since
1989 and is a member of MS&Co.'s bank steering committee.
G. Thompson Hutton has been a Director of the Company since 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.
Michael M. Janson was named to the Board of Directors of the
Company in October 1997. Mr. Janson joined MS&Co. in 1987 and is
a Managing Director of MS&Co. and MSCP III. Before joining
MS&Co.'s Merchant Banking Division in 1997, he was a Managing
Director of MS&Co.'s High Yield Capital Markets Department. Mr.
Janson also serves as Director of American Color Graphics, Inc.
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.
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.
Timothy McKenna was named Vice President - Investor Relations and
Communications in July 1997. He joined the Company in October
1995 as Director of Investor Relations and Communications. Prior
to joining the Company, he was employed by Union Camp Corporation
for 14 years where most recently he was Director of Investor
Relations.
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.
Thomas A. Reynolds, III was named to the Board of Directors of
the Company in August 1997. He has been a Partner since 1984
with Winston & Strawn, a law firm that regularly represents the
Company on numerous matters. Mr. Reynolds is an adjunct faculty
member in trial advocacy at Northwestern University School of
Law. He also serves as Director of Georgetown University.
Michael W.J. Smurfit has been Chairman and Chief Executive
Officer of JS Group since 1977. Dr. Smurfit 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 the Reclamation Division, 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.
James E. Terrill has been Vice Chairman of the Board of the
Company 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. Mr. Terrill also served as
President of SNC from February 1986 to February 1993.
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.
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 7, 1998, which will be filed with
the Securities and Exchange Commission on or before March 31,
1998 (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.
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 JSC'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 JSC's Registration Statement on Form S-8
(File No. 33-57085)).
4.1 Certificate for JSC's Common Stock (incorporated by
reference to Exhibit 4.3 to JSC'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 JSC'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 (incorporated by reference to
Exhibit 10.2(b) to JSC's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996).
10.3 Registration Rights Agreement among JSC, MSLEF II and
SIBV (incorporated by reference to Exhibit 10.3 to JSC's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1994).
10.4 Subscription Agreement among JSC, JSC (U.S.), CCA and
SIBV (incorporated by reference to Exhibit 10.4 to JSC'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 Times Mirror (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 JSC'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
(incorporated by reference to Exhibit 10.7 to JSC's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996).
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 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).
10.10 Jefferson Smurfit Corporation Amended and Restated 1992
Stock Option Plan dated as of May 1, 1997.
10.11(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).
10.11(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).
10.11(c) Amendment No. 2, dated as of June 15, 1997, to the
Amended and Restated Credit Agreement among JSC, JSC
(U.S.), JSCE, Inc. and the financial institutions party
thereto (incorporated by reference to Exhibit 10.1 to
JSC's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997).
10.12(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).
10.12(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).
10.12(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).
10.12(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).
10.12(e) 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).
10.12(f) Commercial Paper Dealer Agreement dated as of February
23, 1995 among BT Securities Corporation, MS&Co., JSC
(U.S.) and JS Finance (incorporated by reference to
Exhibit 10.7 to JSC's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995).
10.12(g) 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).
10.12(h) 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).
10.12(i) 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).
10.12(j) Amendment No. 2 dated as of August 19, 1997 to the Term
Loan Agreement among JS Finance and Bank Brussels
Lambert, New York Branch and JSC (U.S.) as Servicer.
10.12(k) Amendment No. 2 dated as of August 19, 1997 to the
Receivables Purchase and Sale Agreement among JSC (U.S.)
as the Seller and Servicer and JS Finance as the
Purchaser, Bankers Trust Company as Facility Agent and
Bank Brussels Lambert, New York Branch as the Term Bank.
10.12(l) Amendment No. 2 dated as of August 19, 1997 to the
Liquidity Agreement among JS Finance, Bankers Trust
Company as Facility Agent, JSC (U.S.) as Servicer, Bank
Brussels Lambert, New York Branch as Term Bank and the
Financial Institutions parties thereto as Banks.
10.13 Consulting Agreement dated as of October 24, 1996 by and
between James E. Terrill and JSC (U.S.)(incorporated by
reference to Exhibit 10.15 to JSC's Annual Report on Form
10-K for the fiscal year ended December 31, 1996).
18.1 Letter regarding change to 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, 1997.
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 March 2, 1998 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 and Chief Executive Officer
Richard W. Graham and Director (Principal Executive
Officer)
/s/Patrick J. Moore Vice-President and Chief March 2,1998
Patrick J. Moore Financial Officer (Principal
Accounting Officer)
* Director
Leigh J. Abramson
* Director
Alan E. Goldberg
* Director
Michael C. Hoffman
* Director
G. Thompson Hutton
* Director
Michael M. Janson
* Director
Howard E. Kilroy
* Director
Thomas A. Reynolds, III
* Director
James E. Terrill
* By /s/ Patrick J. Moore , pursuant to Powers of
Patrick J. Moore Attorney filed as a part of
As Attorney in Fact the Form 10-K.
JEFFERSON SMURFIT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Millions)
<TABLE>
<CAPTION>
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, 1997
Allowance for doubtful accounts $ 9 $ 2 $ $ 1 $ 10
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
<FN>
<fn1> Uncollectible amounts written off, net of recoveries.
</FN>
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
State of
Jurisdiciton 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%
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000919226
<NAME> JEFFERSON SMURFIT CORPORATION
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 312
<ALLOWANCES> 10
<INVENTORY> 240
<CURRENT-ASSETS> 602
<PP&E> 2457
<DEPRECIATION> 934
<TOTAL-ASSETS> 2771
<CURRENT-LIABILITIES> 531
<BONDS> 2025
0
0
<COMMON> 1
<OTHER-SE> (374)
<TOTAL-LIABILITY-AND-EQUITY> 2771
<SALES> 3238
<TOTAL-REVENUES> 3238
<CGS> 2776
<TOTAL-COSTS> 2776
<OTHER-EXPENSES> 258
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190
<INCOME-PRETAX> 12
<INCOME-TAX> 11
<INCOME-CONTINUING> 1
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
EXHIBIT 10.10
JEFFERSON SMURFIT CORPORATION
AMENDED AND RESTATED
1992 STOCK OPTION PLAN
(As Amended and Restated effective as of May 1, 1997)
1. Purpose; Types of Awards.
The name of this plan is the Jefferson Smurfit
Corporation Amended and Restated 1992 Stock Option Plan (the
"Plan"). The purpose of the Plan is to advance the
interests of Jefferson Smurfit Corporation ("JSC"),
Jefferson Smurfit Corporation (U.S.) (the "Company"), the
Company's Subsidiaries and affiliates and their respective
stockholders by providing certain eligible employees of the
Company and its Subsidiaries and affiliates with an
opportunity to acquire a proprietary interest in JSC. The
Committee may grant options which shall constitute
"nonqualified stock options" for federal income tax
purposes.
2. Definitions.
As used in this Plan, the following words and phrases
shall have the meanings indicated:
(a) "Asset Sale" shall mean the sale of all or
substantially all of the assets of JSC.
(b) "Board" shall mean the Board of Directors of JSC.
(c) "Cause" shall mean termination of an Optionee's
employment in connection with (1) the Optionee's conviction
for a felony or plea of guilty or nolo contendere with
respect to a felony, (2) the Board's determination that the
Optionee has committed a common law fraud against JSC, the
Company, a Subsidiary or an affiliate of the Company or (3)
action by the Optionee involving willful malfeasance or
gross negligence in connection with the Optionee's
employment, which is materially injurious to the Company, a
Subsidiary or an affiliate of the Company, monetarily or
otherwise.
(d) "Committee" shall mean the Compensation Committee
appointed by the Board, from time to time, in accordance
with JSC's By-Laws.
(e) "Common Equity" shall mean, collectively: the Class
A common stock of JSC, par value $.01 per share; the Class B
common stock of JSC, par value $.01 per share; the Class C
common stock of JSC, par value $.01 per share; the Class D
common stock of JSC, par value $.01 per share; and the Class
E common stock of JSC, par value $.01 per share; in each
case, prior to the Reclassification.
(f) "Common Stock" shall mean JSC's common stock, par
value $.01 per share.
(g) "Company" shall mean Jefferson Smurfit Corporation
(U.S.), a Delaware corporation.
(h) "Disability" shall mean incapacity due to physical
or mental illness as a result of which the Optionee becomes
eligible for benefits under the applicable long-term
disability plan or policy of the Company or a Subsidiary or
other affiliate of the Company.
(i) "Effective Date" shall mean August 26, 1992.
(j) "Effective Date Options" shall mean Options granted
upon or in connection with the Effective Date of the Plan.
(k) "Employee" shall mean an employee, including
officers, of the Company or a Subsidiary or other affiliate
of the Company or any other individual designated by the
Committee with the approval of the Board.
(l) "Early Retirement" shall mean the termination of
employment of an Optionee for any reason other than for
Cause on or after the earlier of (i) the attainment of age
fifty-five (55) with five years of service with the Company
and (ii) twenty-five years of service with the Company.
(m) "Event of Default" shall mean an event of default or
an event which, with due notice or lapse of time or both,
would constitute an event of default under any instrument or
agreement relating to any Indebtedness (as defined in the
Amended and Restated Credit Agreement, dated as of May 17,
1996, among JSC, the Company, JSCE, Inc., the lenders listed
therein, Bankers Trust Company and Chemical Bank, as Senior
Managing Agents (the "Credit Agreement")), of the Company or
any Subsidiary, including, without limitation, the Credit
Agreement, the Company's 9.75% Senior Notes due 2003, its
11.25% Series A Senior Notes due 2004, and its 10.75% Series
B Senior Notes due 2002 and any amendments, modifications,
renewals, extensions or refinancings thereof of the Company.
(n) "Fair Market Value" per share of Common Stock, as of
any particular date, shall mean (1) the closing sales price
per share of Common Stock on the national securities
exchange on which the Common Stock is principally traded,
for the last preceding date on which there was a sale of
such Common Stock on such exchange, or (2) if the shares of
Common Stock are then traded in an over-the-counter market,
the average of the closing bid and asked prices for the
shares of Common Stock in such over-the-counter market for
the last preceding date on which there was a sale of such
Common Stock in such market, or (3) if the shares of Common
Stock are not then listed on a national securities exchange
or traded in an over-the-counter market, (A) for purposes of
Sections 6(f), 6(g), and 11 hereof, the value determined by
the Committee and (B) for purposes of Section 7(a)(4)
hereof, (i) if the Fair Market Value of Common Stock has
been determined pursuant to the Stockholders Agreement in
connection with the Asset Sale or Merger resulting in the
application of Section 7(a)(4), the value of Common Stock
pursuant to such valuation, (ii) if clause (i) has not been
complied with, the value determined by the Board or (iii) if
clause (i) has not been complied with and the Board cannot
agree upon Fair Market Value, the value of Common Stock
determined pursuant to the valuation procedures of the
Stockholders Agreement.
(o) "JSC" shall mean Jefferson Smurfit Corporation, a
Delaware corporation.
(p) "Merger" shall mean the merger or consolidation of
JSC with or into another corporation.
(q) "Morgan Percentage" shall mean as of any particular
date the percentage determined from the quotient of (i) the
total number of shares of Common Equity held as of the
Effective Date, or Shares of Common Stock into which such
Common Equity was converted pursuant to the
Reclassification, which have been transferred by the MS
Holders as of such date; divided by (ii) the total number of
shares of Common Equity or, Common Stock, as the case may
be, outstanding as of such date.
(r) "Morgan Threshold Date" shall mean the earlier of
(i) the date that the MS Holders shall have collectively
received $200,000,000 in cash or Value of Other Property (as
defined in the Stockholders Agreement), or a combination
thereof as a return of their investment in the Company, as a
result of sales of shares of Common Equity or shares of
Common Stock into which such Common Equity was converted
pursuant to the Reclassification; or (ii) the date that the
MS Holders shall have transferred, in the aggregate, at
least 30% of the Common Equity owned by the MS Holders as of
the Effective Date, including transfers of the Common Stock
into which such Common Equity was converted pursuant to the
Reclassification.
(s) "MS Holders" shall have the meaning ascribed to such
term in the Stockholders Agreement.
(t) "MSLEF II Public Offering" shall mean the initial
sale of Common Stock by the MS Holders to the public
pursuant to a registration statement under the Securities
Act filed with the Securities and Exchange Commission.
(u) "MSLEF II" shall mean The Morgan Stanley Leveraged
Equity Fund II, L.P., a Delaware limited partnership.
(v) "MSLEF II Transfer Date" shall mean the first to
occur of (1) the date MSLEF II transfers all of the Common
Stock held by it pursuant to the Stockholders Agreement, or
(2) if MSLEF II distributes its shares of Common Stock to
its partners pursuant to its dissolution, the date which
such partners have transferred pursuant to the Stockholders
Agreement at least fifty percent (50%) of the aggregate
shares of the Common Stock distributed to them by MSLEF II.
(w) "Nonqualified Stock Option" shall mean an option not
qualified under the Internal Revenue Code of 1986, as
amended.
(x) "Option" or "Options" shall mean a grant to an
Optionee of an option or options to purchase shares of
Common Stock. Options granted by the Committee pursuant to
the Plan shall constitute Nonqualified Stock Options.
(y) "Option Agreement" shall mean a written agreement
between JSC and the Optionee evidencing the grant of an
Option or Options in such form as the Committee shall
approve.
(z) "Option Price" shall mean the purchase price of each
share of Common Stock subject to an Option.
(aa) "Optionee" shall mean those persons who are granted
Options under the Plan and, where the context so requires,
any successor to the Optionee with respect to the Option.
(bb) "Plan" shall mean the Jefferson Smurfit Corporation
Amended and Restated 1992 Stock Option Plan, as amended
effective as of May 1, 1997, as it may be subsequently
amended from time to time.
(cc) "Reclassification" shall mean the reclassification
of shares of Common Equity into shares of Common Stock which
occurred on or about May 11, 1994.
(dd) "Retirement" shall mean the termination of
employment of an Optionee for any reason other than for
Cause on or after the attainment of age sixty-five (65) with
three years of participation aggregating the years of
participation in the Plan and the Company's 1990 Long-Term
Management Incentive Plan.
(ee) "Stockholders Agreement" means the Stockholders
Agreement, dated as of May 3, 1994 (and as subsequently
amended) among Smurfit International B.V., MSLEF II, JSC,
and certain other parties identified therein.
(ff) "Subsidiary" shall mean any corporation of which 50%
or more of the voting stock is owned directly or indirectly
by the Company.
(gg) "Trigger Date" shall mean the first to occur of (1)
the MSLEF II Transfer Date, (2) the eleventh anniversary of
the date of grant of an Option, (3) the MSLEF II Public
Offering or (4) the discretionary acceleration of
exercisability of an Option by the Committee with the
consent of the Board.
3. Administration.
Notwithstanding anything to the contrary contained in
the Plan, the Plan shall be administered by the Committee.
The Committee shall have the authority in its
discretion, subject to and not inconsistent with the express
provisions of the Plan, to administer the Plan and to
exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in
the administration of the Plan, including, without
limitation, the authority to grant Options; to determine the
Option Price; to determine, upon the recommendation of
management of the Company, the persons to whom, and the time
or times at which Options shall be granted and the number of
shares to be covered by each Option granted; to interpret
the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and
provisions of the Option Agreements (which need not be
identical) entered into in connection with Options granted
under the Plan; and to make all other determinations deemed
necessary or advisable for the administration of the Plan;
provided, however, the Committee may not adversely affect
any right of any Optionee without either (i) the consent of
the Board or (ii) the Optionee's written consent. The
Committee may delegate to one or more of its members or to
one or more agents such administrative duties as it may deem
advisable, and the Committee or any person to whom it has
delegated duties as aforesaid may employ one or more persons
to render advice with respect to any responsibility the
Committee or such person may have under the Plan. All
decisions, determinations and interpretations of the
Committee shall be final and binding on all Optionees.
The Board shall fill all vacancies, however caused, in
the Committee. The Board may from time to time appoint
additional members to the Committee, and may at any time
remove one or more Committee members and substitute others.
The Committee shall hold its meetings at such times and
places as it shall deem advisable. All determinations of
the Committee shall be made by a majority of its members
either present in person or participating by conference
telephone at a meeting or by written consent. The Committee
may appoint a chairman and a secretary and make such rules
and regulations for the conduct of its business as it shall
deem advisable, and shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for
any action taken or omitted or any determination made in
good faith with respect to the Plan or any award granted
hereunder.
4. Eligibility.
Any Employee shall be eligible to be an Optionee.
5. Common Stock Subject to the Plan.
The maximum number of shares of Common Stock reserved
for the grant of Options shall be 13,049,306 subject to
adjustment as provided in Section 7 hereof. Such shares
may, in whole or in part, be authorized but unissued shares
or shares that shall have been or may be reacquired by JSC.
If any outstanding Option under the Plan should for any
reason expire, be canceled or be terminated, without having
been exercised in full, the shares of Common Stock allocable
to the unexercised, canceled or terminated portion of such
Option shall (unless the Plan shall have been terminated)
become available for subsequent grants of Options under the
Plan.
6. Nonqualified Stock Options.
Options granted pursuant to the Plan are intended to
constitute Nonqualified Stock Options. Each Option granted
pursuant to the Plan shall be evidenced by an Option
Agreement, which Option Agreement shall be subject to and
set forth the following terms and conditions:
(a) Number of Shares. Each Option Agreement shall
state the number of shares of Common Stock to which the
Option relates.
(b) Type of Option. Each Option Agreement shall
specifically state that the Option constitutes a
Nonqualified Stock Option.
(c) Vesting. Options shall vest and become
nonforfeitable pursuant to the schedule set forth in
each Option Agreement; provided, however, that the
Committee, with the consent of the Board, shall have the
authority to accelerate the vesting of any outstanding
Option at such time and under such circumstances as it,
in its sole discretion, deems appropriate. Except as
otherwise provided in an Option Agreement, upon an
Optionee's termination of employment with the Company
and all of its Subsidiaries and affiliates for any
reason other than death, Disability or Retirement, all
outstanding and nonvested Options awarded to such
Optionee shall be forfeited. Upon an Optionee's death,
Disability or Retirement, each outstanding and nonvested
Option shall become fully vested and nonforfeitable.
Vested Options are not exercisable until the conditions
set forth in Section 6(d) hereof are satisfied.
(d) Exercisability. Upon the occurrence of the Trigger
Date as described in Sections 2(gg)(1) and (2), all
vested Options shall become fully exercisable and all
Options which vest subsequent to either such Trigger
Date shall be exercisable upon vesting. Upon the
occurrence of the Trigger Date described in Section
2(gg)(3) and prior to the Morgan Threshold Date, all
then vested Options and all Options which vest
subsequent to such Trigger Date and prior to the Morgan
Threshold Date shall be exercisable (or upon vesting
shall become exercisable) in an amount (which may be
periodically determined) equal to the product of (i) the
number of shares of Common Stock vested pursuant to the
Option plus the shares of Common Stock previously vested
and exercised pursuant to the Option, all as of the
relevant determination date multiplied by (ii) the
Morgan Percentage as of the relevant determination date.
Upon the occurrence of the Trigger Date described in
Section 2(gg)(3) and after the Morgan Threshold Date,
all vested Options shall become fully exercisable and
all Options which vest subsequent to such Trigger Date
and after the Morgan Threshold Date shall be exercisable
upon vesting, without regard to the limitation set forth
in the immediately preceding sentence. Notwithstanding
anything to the contrary otherwise contained in this
Section 6(d), (i) ten percent (10%) of the Options
granted to each Optionee with an effective date prior to
1993 became exercisable on January 1, 1995, and (ii)
upon vesting, the Options of each Optionee shall become
exercisable in an amount (which may be periodically
determined) equal to the percentage that the number of
shares of Common Stock sold or distributed to its
partners by MSLEF II represents of its aggregate
ownership of shares of Common Stock on May 11, 1994,
less any number of Options that previously became
exercisable on January 1, 1995, as set forth in clause
(i) of this sentence, or by reason of prior applications
of this clause (ii). The Committee, with the consent of
the Board, shall have the authority to accelerate the
exercisability of any outstanding Option at such times
and under such circumstances as it, in its sole
discretion, deems appropriate.
(e) Term. Except as specifically provided in Section
6(h) hereof, an Option shall expire upon the earlier of
(1) twelve (12) years from the date of grant of such
Option or such earlier date as may be prescribed by the
Committee and set forth in the Option Agreement or (2)
the Optionee's termination of employment with the
Company and all of its Subsidiaries and affiliates.
(f) Option Price. Each Option Agreement shall state
the Option Price. Effective Date Options shall be
granted at an Option Price of $100. The Option Price
for all other Options shall be the Fair Market Value of
the Common Stock on the date the Option is granted. The
Option Price shall be subject to adjustment as provided
in Section 7 hereof.
(g) Method and Time of Payment. An Option may be
exercised, as to any or all full shares of Common Stock
as to which the Option has become exercisable, by giving
written notice of such exercise to the Committee or its
designated agent; provided, however, that an Option may
not be exercised at any time as to fewer than 100 shares
(or such number of shares as to which the Option is then
exercisable if such number of shares is less than 100).
Each Option Agreement shall require that the Option
Price be paid in full, at the time of exercise of an
Option, in cash, by certified or cashier's check or in
shares of Common Stock (whether previously owned by, or
issuable upon the exercise of such Option to, the
Optionee) having a Fair Market Value equal to such
Option Price, or in a combination of cash and Common
Stock. In its discretion, the Committee may permit an
Optionee to use a "cashless exercise" procedure to
provide for payment of the Option Price.
(h) Termination of Employment and/or Options.
(1) General. Except as otherwise provided in this
Section 6(h), each Option granted hereunder may,
unless earlier terminated in accordance with its
terms, be exercised (to the extent otherwise vested
upon termination of employment in accordance with the
provisions of Section 6(c) hereof) at any time within
ninety (90) days following the later to occur of (A)
termination of the Optionee's employment with the
Company and all Subsidiaries and affiliates of the
Company for any reason other than for Cause, death,
Disability or Retirement or (B) a Trigger Date;
provided, however, that if the employment of an
Optionee shall be terminated for Cause, all Options
theretofore granted to such Optionee shall, to the
extent not theretofore exercised, expire on the date
of such termination. The Committee may in its
discretion extend the time periods set forth in this
Section 6(h) for exercise of an Option. If the
Committee determines in its sole discretion that an
Optionee has at any time committed a common law fraud
against JSC, the Company, any Subsidiary or any
affiliate of the Company, all Options held by such
Optionee shall immediately terminate and be of no
further force or effect.
(2) Death, Disability, Early Retirement or Retirement
of Options. If an Optionee shall die while employed
by the Company, a Subsidiary or an affiliate of the
Company, or if an Optionee shall die within ninety
(90) days after the date of termination of such
Optionee's employment other than as a result of his
termination for Cause, or if an Optionee's employment
shall terminate by reason of Disability, Early
Retirement or Retirement, all Options theretofore
granted to such Optionee may, unless earlier
terminated in accordance with their terms, be
exercised (to the extent otherwise vested upon
termination of employment in accordance with
provisions of Section 6(c) hereof) by the Optionee or
by the Optionee's estate or by a person who acquired
the right to exercise such Options by bequest or
inheritance or otherwise by reason of the death or
Disability of the Optionee, at any time within five
(5) years after the later to occur of (A) the date of
death, Disability, Early Retirement or Retirement of
the Optionee or (B) a Trigger Date. In the event that
an Option granted hereunder shall be exercised by the
legal representatives of a deceased or former
Optionee, written notice of such exercise shall be
accompanied by a certified copy of letters
testamentary or equivalent proof of the right of such
legal representative to exercise such Option. If the
Committee determines in its sole discretion that an
Optionee has at any time committed a common law fraud
against JSC, the Company, any Subsidiary or any
affiliate of the Company, all Options held by such
Optionee shall immediately terminate and be of no
further force or effect.
(i) Other Provisions. The Option Agreements evidencing
Options under the Plan shall contain such other terms
and conditions, not inconsistent with the Plan, as the
Committee may determine.
7. Effect of Certain Changes.
(a) If, after the Effective Date, there is any
increase, reduction, change or exchange of the shares of
Common Stock for a different number or kind of shares or
other securities by reason of a reclassification,
recapitalization, reorganization, declaration of
extraordinary dividend, spin-off, stock dividend, stock
split, combination or exchange of shares, repurchase of
shares, or in the event of an Asset Sale or Merger, or in
the event of other similar transactions, the Committee shall
provide for at least one of the following, provided such act
does not cause an Event of Default:
(1) all outstanding Options shall be immediately and
fully exercisable as of the date immediately prior to
the effective date of any such transaction;
(2) the number of shares of Common Stock available
for Options, the number of such shares covered by
outstanding Options, and the Option Price per share of
such Options, shall be proportionately adjusted by the
Committee to reflect any such increase, reduction,
change or exchange of the shares of Common Stock of the
Company, provided that any such adjustment shall
preserve the value inherent in outstanding Options;
(3) each Option shall be converted into an Option
entitling the holder thereof upon exercise (at its then
Option Price) to receive the kind and amount of shares
of stock and other securities, property, cash or any
combination thereof receivable by a holder of the number
of shares of Common Stock which would be receivable by
such holder upon the exercise of such Option
immediately prior to the effective date of such
transaction; and/or
(4) each outstanding Option whether or not then
exercisable shall be canceled in connection with such
transaction in exchange for a cash payment in an amount
per share subject to such Option equal to the excess of
(A) the greater of (i) the highest Fair Market Value of
the shares of Common Stock during the sixty-day period
ending on the date of such transaction or (ii) the
highest price paid per share of Common Stock to holders
of such shares in any such transaction, over (B) the
Option Price of such Option; provided, however, that
this Section 7(a)(4) shall be applicable only in the
event of an Asset Sale or Merger.
(b) As an alternative to the discretion provided to the
Committee in Section 7(a), in the event of the dissolution
or liquidation of JSC, any corporate separation or division,
including, but not by way of limitation, split-up, split-
off, spin-off or other similar transaction, or in the event
of an Asset Sale or Merger, the Committee may provide that
any or all outstanding Options shall become immediately and
fully exercisable and that:
(1) Optionees shall have the right to exercise such
Options; and/or
(2) each Option granted under the Plan shall
terminate as of the date to be fixed by the Committee,
and that not less than thirty (30) days' written notice
of the date so fixed shall be given to each Optionee,
who shall have the right, during the period of thirty
(30) days preceding such termination, to exercise (to
the extent exercisable) with respect to such Option all
or any part of the shares of Common Stock covered
thereby.
8. Period During Which Options May Be Granted.
Options may be granted pursuant to the Plan from time to
time within a period of twelve (12) years from the Effective
Date.
9. Nontransferability of Options.
Options granted under the Plan shall not be transferable
otherwise than by will or by the laws of descent and
distribution, and Options may be exercised or otherwise
realized, during the lifetime of the
Optionee, only by the Optionee or by his guardian or legal
representative.
10. Beneficiary.
An Optionee may file with the Committee a written
designation of a beneficiary on such form as may be
prescribed by the Committee and may, from time to time,
amend or revoke such designation. If no designated
beneficiary survives the Optionee, the executor or
administrator of the Optionee's estate shall be deemed to be
the Optionee's beneficiary.
11. Agreement by Optionee Regarding Withholding Taxes.
If the Committee shall so require, as a condition of
exercise of an Option or other realization of an award
granted hereunder, each Optionee shall agree that no later
than the date of exercise or other realization of such
award, the Optionee will pay to JSC or make arrangement
satisfactory to the Committee regarding payment of any
federal, state or local taxes of any kind required by law to
be withheld upon the exercise of an Option. To the extent
provided in the applicable Option Agreement, such payment
may be made by the Optionee with shares of Common Stock
(whether previously owned by, or issuable upon the exercise
of such Option to, such Optionee) having a Fair Market Value
equal to the amount of such taxes. Alternatively, the
Committee may provide that an Optionee may elect, to the
extent permitted or required by law, to have JSC deduct
federal, state and local taxes of any kind required by law
to be withheld upon the exercise of an Option or realization
of any award from any payment of any kind due to the
Optionee. In the event an Optionee does not pay to JSC, or
make arrangements satisfactory to the Committee regarding
the payment of, any such taxes, the Committee shall be
permitted to deduct any such taxes required to be withheld
upon the exercise of an Option or realization of any award
from any payment of any kind due to the Optionee.
12. Rights as a Stockholder.
An Optionee or a transferee of an Option shall have no
rights as a stockholder with respect to any shares covered
by the award until the date of the issuance of a stock
certificate to him for such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distribution of other
rights for which the record date is prior to the date such
stock certificate is issued, except as provided in Section 7
hereof.
13. No Rights to Employment.
Nothing in the Plan or in any Option granted or Option
Agreement entered into pursuant hereto shall confer upon any
Optionee the right to continue in the employ of the Company,
any Subsidiary or any affiliate of the Company or to be
entitled to any remuneration or benefits not set forth in
the Plan or such Option Agreement or to interfere with or
limit in any way the right of the Company, any Subsidiary or
any affiliate of the Company to terminate such Optionee's
employment.
14. Plan Expenses and Payments.
The expenses (including administrative expenses, but
excluding payments to Optionees) due under the Plan shall be
equitably apportioned in such manner as the Board deems
appropriate among the Company and each Subsidiary or other
affiliate of the Company whose employees participate in the
Plan. Each entity set forth in the preceding sentence shall
be responsible for making any necessary cash payments to
Optionees employed by such entity and shall make such
payments directly to such Employees. This payment
obligation will be an obligation solely of the entity
employing the Optionee, and not of any other entity whose
Employees participate in the Plan.
15. Event of Default.
Notwithstanding anything else contained in this Plan, no
payment shall be made hereunder until the first date as of
which no Event of Default exists and no Event of Default or
violation of applicable law would be caused by the making of
such payment.
16. Amendment and Termination of the Plan.
(a) The Plan may be amended at any time and from time
to time by the Board; provided, however, that approval of
such amendment is given by such vote required by JSC's
Certificate of Incorporation or By-Laws and that no
amendment shall adversely affect any right of any Optionee
with respect to any Option theretofore granted without such
Optionee's written consent; and provided further, if and to
the extent stockholder approval is required as a matter of
law or to secure an exemption from otherwise applicable law,
any amendment that would materially increase the aggregate
number of shares of Common Stock as to which awards may be
granted under the Plan, materially increase the benefits
accruing to Optionees under the Plan, or materially modify
the requirements as to eligibility for participation in the
Plan shall be subject to the approval of the holders of a
majority of the Common Stock, except that any such increase
or modification that may result from adjustments authorized
by Section 7 hereof shall not require such approval.
(b) The Board may in its discretion terminate this Plan
at any time, provided that approval of such termination is
given, by such vote required by JSC' Certificate of
Incorporation or By-Laws. The Plan shall also terminate
upon a liquidation of JSC.
17. Governing Law.
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State
of Delaware without giving effect to the conflict of laws
principles thereof.
18. Effective Date and Duration of the Plan.
This Plan shall be effective as of the Effective Date
and shall terminate on the later of (a) the twelfth
anniversary of the Effective Date and (b) the expiration of
all Options granted hereunder.
19. Restrictions on Public Sale.
In the event of any underwritten public offering of
securities, the Optionee agrees not to effect any public
sale or distribution including any sale pursuant to Rule 144
of any of the Company's common equity securities for such
period as the underwriters of such offering shall determine.
Exhibit 10.12(j)
AMENDMENT NO. 2 TO TERM LOAN AGREEMENT
AND
EXTENSION REQUEST
This AMENDMENT NO. 2 dated as of August 19, 1997 (this
"Amendment"), to that certain Term Loan Agreement (as hereinafter
defined) is made among Jefferson Smurfit Finance Corporation
("Finco"), Bank Brussels Lambert, New York Branch as the Term Bank
(the "Term Bank") and Jefferson Smurfit Corporation (U.S.) as the
Servicer (the "Servicer").
W I T N E S S E T H:
WHEREAS, on February 23, 1995, Finco and the Term Bank entered
into that certain Term Loan Agreement, as amended by the First
Omnibus Amendment, dated as of March 31, 1996 (as amended, the
"Term Loan Agreement");
WHEREAS, the Term Loan Agreement currently provides that Finco
must give notice to the Term Bank no more than ninety days and no
less than sixty days prior to any anniversary of the Effective Date
of its desire to extend the Scheduled Term Loan Payout Commencement
Date ("Extension Request");
WHEREAS, Finco desires to amend the Term Loan Agreement to
provide that Finco may make an Extension Request not less than
thirty days prior to any anniversary of the Effective Date;
WHEREAS, Finco desires to make an Extension Request pursuant
to this Amendment to extend the Scheduled Term Loan Payout
Commencement Date by twenty-four (24) additional months.
NOW THEREFORE, in consideration of the premises and the terms
and covenants contained herein, the receipt and sufficiency of
which consideration is hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Term
Loan Agreement.
2. Amendment to Term Loan Agreement. The parties hereto
agree to amend the Term Loan Agreement as set forth in this Section
2.
2.06 Termination, Reduction and Renewal of Commitments.
Section 2.06(a) is hereby amended as follows:
Not less than thirty days prior to the fourth
anniversary of the Effective Date, and (if and when
applicable) not less than thirty days prior to any
successive anniversary of the Effective Date, Finco may
notify the Term Bank in writing of its request (each such
request, an "Extension Request") to extend the then
effective Scheduled Term Loan Payout Commencement Date by
one additional year (provided that Finco may make an
Extension Request for two additional years pursuant to
this Amendment), and the Term Bank shall notify Finco in
writing whether it agrees to such extension not later
than thirty days after the receipt of such Extension
Request. If the Term Bank fails to respond to an
Extension Request, it shall be deemed to constitute a
denial of such Extension Request and the Scheduled Term
Loan Payout Commencement Date shall not be extended.
3. Extension Request. Pursuant to Section 2.06(a) of the
Term Loan Agreement, Finco hereby notifies the Term Bank of its
request to extend the Scheduled Term Loan Payout Commencement Date
by two additional years so that the Scheduled Term Loan Payout
Commencement Date will be the Settlement Date which occurs not more
than three calendar months nor less than two calendar months before
the eighty-fourth (84th) month following the Effective Date, as
such date may be extended pursuant to Section 2.06 of the Term Loan
Agreement; provided, however, the Scheduled Term Loan Payout
Commencement Date shall in no event be extended beyond the
Scheduled Liquidation Commencement Date.
4. Representations and Warranties of Finco. In order to
induce the Term Bank and the Servicer to enter into this Amendment
and to amend the Term Loan Agreement in the manner provided herein,
Finco represents and warrants to the Term Bank and the Servicer
that (i) all of the representations and warranties contained in the
Term Loan Agreement are true and correct in all material respects
as of the date hereof except to the extent such representations and
warranties relate to an earlier date, in which case they are true
as of such date, (ii) no Liquidation Event or Unmatured Liquidation
Event exists, (iii) Finco has all requisite corporate power and
authority to enter into this Amendment and the Term Loan Agreement
as amended hereby and to perform its obligations thereunder, (iv)
the execution, delivery and performance of this Amendment and the
Term Loan Agreement as amended hereby have been duly and
effectively authorized by all necessary corporate action on the
part of Finco, (v) the execution, delivery and performance of this
Amendment and the Term Loan Agreement as amended hereby will not
violate any charter, by-law or contract provision, or any license,
franchise or permit, law, statute, regulation order or decree
applicable to Finco, (vi) the execution, delivery and performance
of this Amendment and the Term Loan Agreement as amended hereby
will not conflict with, result in a breach of the Term Loan
Agreement or constitute (with due notice or lapse of time or both)
a default by Finco under the Term Loan or result or require the
creation of or imposition of any lien upon any of the properties or
assets of Finco (other than liens created pursuant to the Liquidity
Agreement), (vii) no order, decree or judgment of or in any court
of competent jurisdiction makes the execution, delivery or
performance of this Amendment or the Term Loan Agreement as amended
hereby illegal and no action, suit, or proceeding shall be pending,
or threatened or any investigation by any governmental or
regulatory authority shall have been commenced which could result
in any such order, decree or judgment. and (viii) no authorization,
consent, or approval of, or filing with, any public body or
authority of the United States or any State thereof which has not
already been made or obtained is required for the execution,
delivery or performance of this Amendment or the Term Loan
Agreement as amended hereby and no authorization, consent or
approval of any third party, which has not been obtained, is
required with respect thereto.
5. Additional Deliveries. As conditions precedent to the
effectiveness of this Amendment, Finco shall deliver to the Term
Bank and the Servicer a copy of the resolutions duly adopted by the
Board of Directors of Finco, certified by the Secretary or
Assistant Secretary of Finco, authorizing the matters contemplated
hereby and execution of this Amendment.
6. Effect of Amendment. Execution of this Amendment by the
Term Bank and the Servicer shall not operate as a waiver of (i) any
other right, power or remedy of the Term Bank or the Servicer under
the Term Loan Agreement, or (ii) any Liquidation Event under the
Liquidity Agreement, or (iii) any default of Finco under the Term
Loan Agreement.
7. Fees, Costs and Expenses. The provisions of subsection
9.07 of the Term Loan Agreement are hereby incorporated by
reference as if fully set forth herein and made applicable to this
Amendment.
8. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. This Amendment shall
become effective as of the date first above written upon receipt by
the Term Bank and the Servicer of counterparts hereof duly executed
by Finco, the Term Bank and the Servicer.
9. Headings. Headings used in this Amendment are for
convenience of reference only and shall not affect the construction
of this Amendment.
10. Reaffirmation of Term Loan Agreement. The parties hereto
agree and acknowledge that nothing contained in this Amendment in
any manner or respect limits or terminates any of the provisions of
the Term Loan Agreement other than as expressly set forth herein
and further agree and acknowledge that the Term Loan Agreement
remains and continues in full force and effect and is hereby
ratified and reaffirmed in all respects. No delay on the part of
the Term Bank or the Servicer in exercising any of their respective
rights, remedies, powers and privileges under the Term Loan
Agreement or partial or single exercise thereof, shall constitute
a waiver thereof. None of the terms and conditions of this
Amendment may be changed, waived, modified or varied in any manner,
whatsoever, except in accordance with the Term Loan Agreement.
11. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, BUT
OTHERWISE WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PROVISIONS
OF THE STATE OF NEW YORK).
[Balance of page intentionally left blank. Signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written by
their duly authorized representatives.
JEFFERSON SMURFIT FINANCE CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
JEFFERSON SMURFIT CORPORATION (U.S.),
as Servicer
By:______________________________________
Name:___________________________________
Title:___________________________________
BANK BRUSSELS LAMBERT, NEW YORK
BRANCH, as Term Bank
By:______________________________________
Name:____________________________________
Title:___________________________________
Exhibit 10.12(k)
AMENDMENT NO. 2 TO RECEIVABLES PURCHASE AND SALE AGREEMENT
This AMENDMENT NO. 2, dated as of August 19, 1997 (this
"Amendment"), to that certain Receivables Purchase and Sale
Agreement (as hereinafter defined) is made among Jefferson Smurfit
Corporation (U.S.) ("JSC") as the Seller and as the Servicer,
Jefferson Smurfit Finance Corporation, a Delaware corporation, as
the Purchaser ("Finco"), Bankers Trust Company as Facility Agent
(the "Facility Agent") and Banks Brussels Lambert, New York Branch
as the Term Bank (the "Term Bank").
W I T N E S S E T H:
WHEREAS, on February 23, 1995, JSC and Finco entered into that
certain Receivables Purchase and Sale Agreement, as amended by the
First Omnibus Amendment, dated as of March 31, 1996 (as amended,
the "Receivables Purchase and Sale Agreement");
WHEREAS, the Receivables Purchase and Sale Agreement currently
does not provide for an adjustment of the Purchase Price reflecting
discounts relating to the Receivables;
WHEREAS, Finco has requested that the Receivables Purchase and
Sale Agreement be amended to require the Purchase Price to be
reduced on each Business Day by the Discount Adjustment (as defined
below);
WHEREAS, Finco has agreed to pay the Banks an amount equal to
.05% times the Commitments;
NOW THEREFORE, in consideration of the premises and the terms
and covenants contained herein, the receipt and sufficiency of
which consideration is hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the
Receivables Purchase and Sale Agreement. The parties hereto agree
to amend Section 1.01 of the Receivables Purchase and Sale
Agreement by adding terms as follows:
"Discount" shall mean, with respect to any Receivable, the
actual reduction in the Outstanding Balance of that Receivable as
a result of any cash discount granted by the Seller, Indirect
Seller or Servicer to an Obligor of that Receivable.
"Discount Adjustment" shall mean, on any date, amounts owed by
the Seller to Finco pursuant to Section 2.02(f) of the Receivables
Purchase and Sale Agreement on account of Discount reported for
such date with respect to the Receivables, which payments shall
equal the sum of (i) the aggregate amount of Discount, and (ii) an
amount equal to .125 % of the Purchase Price of the Receivables.
2. Amendment to Receivables Purchase and Sale Agreement.
The parties hereto agree to amend Section 2.02(f) of the
Receivables Purchase and Sale Agreement as set forth in this
Section 2.
2.02(f) Adjustments to Purchase Price. Section 2.02(f) is
hereby amended as follows:
On each Business Day after the Initial Purchase
Date and prior to December 31, 1996, the Seller shall (or
shall cause the Servicer to) report the amount of
Dilution which occurred with respect to such Seller's
Receivables on the prior Business Day, and the Dilution
Adjustment owing on account of such Dilution, and the
Dilution Adjustment shall be deducted from the applicable
Purchase Price which would, but for this Section 2.02(f),
otherwise be payable to such Seller on such date. On
each Business Day on or after January 1, 1997, the Seller
shall (or shall cause the Servicer to) report the amount
of Dilution and Discount which occurred with respect to
such Seller's Receivables on the prior Business Day, and
the Dilution Adjustment and Discount Adjustment owing on
account of such Dilution and Discount, respectively, and
the sum of the (A) the Dilution Adjustment, plus (B) the
Discount Adjustment shall be deducted from the applicable
Purchase Price which would, but for this Section 2.02(f),
otherwise be payable to such Seller on such date. If any
Dilution on any Business Day relates to goods which are
returned to a Seller or repossessed by a Seller, then,
concurrently with payment of such Dilution Adjustment
(whether through offset or otherwise), Finco shall assign
and transfer to the Seller, without any further action or
consideration, all of Finco's right, title and interest
in and to such returned or repossessed goods. In
addition, if, on the Business Day immediately preceding
any date that the Seller reports the amount of Dilution
and/or Discount, Finco has (a) notified the Seller that
any Receivables previously sold to Finco under this
Agreement have been discovered to have been Noncomplying
Receivables at the time of sale and (b) requested that
the Seller pay to Finco a Noncomplying Receivables
Adjustment on account of such Noncomplying Receivables,
then any such Noncomplying Receivables Adjustment payable
by the Seller shall also be credited against the
applicable Purchase Price which would, but for this
Section 2.02(f), otherwise be payable to the Seller on
such date. If the sum of the applicable (i) Dilution
Adjustment, plus (ii) on or after January 1, 1997,
Discount Adjustment, plus (iii) any Noncomplying
Receivables Adjustment payable by the Seller on any date
exceeds the applicable Purchase Price otherwise owing to
the Seller, Finco shall apply such excess to reduce the
principal amount outstanding under the applicable Short-
Term Note and, in the event the principal outstanding
under such Short-Term Note has been reduced to zero, as
a credit against the Purchase Price otherwise payable for
future purchases of Receivables from the Seller;
provided, however, that if any such credit is not fully
utilized within five Business Days, the Seller shall pay
to Finco the remaining amount of any such credit on the
next following Business Day in cash.
3. Representations and Warranties of Finco. In order to
induce JSC, the Facility Agent and the Term Bank to enter into this
Amendment and to amend the Receivables Purchase and Sale Agreement
in the manner provided herein, Finco represents and warrants to
JSC, the Facility Agent and the Term Bank that (i) all of the
representations and warranties contained in the Receivables
Purchase and Sale Agreement are true and correct in all material
respects as of the date hereof except to the extent such
representations and warranties relate to an earlier date, in which
case they are true as of such date, (ii) Finco has all requisite
corporate power and authority to enter into this Amendment and the
Receivables Purchase and Sale Agreement as amended hereby and to
perform its obligations thereunder, (iii) the execution, delivery
and performance of this Amendment and the Receivables Purchase and
Sale Agreement as amended hereby have been duly and effectively
authorized by all necessary corporate action on the part of Finco,
(iv) the execution, delivery and performance of this Amendment and
the Receivables Purchase and Sale Agreement as amended hereby will
not violate any charter, by-law or contract provision, or any
license, franchise or permit, law, statute, regulation order or
decree applicable to Finco, (v) the execution, delivery and
performance of this Amendment and the Receivables Purchase and Sale
Agreement as amended hereby will not conflict with, result in a
breach of or constitute (with due notice or lapse of time or both)
a default under the Receivables Purchase and Sale Agreement, (vi)
no order, decree or judgment of or in any court of competent
jurisdiction makes the execution, delivery or performance of this
Amendment or the Receivables Purchase and Sale Agreement as amended
hereby illegal and no action, suit, or proceeding shall be pending
or threatened or any investigation by any governmental or
regulatory authority shall have been commenced which could result
in any such order, decree or judgment, and (vii) no authorization,
consent, or approval of, or filing with, any public body or
authority of the United States or any State thereof which has not
already been made or obtained is required for the execution,
delivery or performance of this Amendment or the Receivables
Purchase and Sale Agreement as amended hereby and no authorization,
consent or approval of any third party, which has not been
obtained, is required with respect thereto.
4. Additional Deliveries. As conditions precedent to the
effectiveness of this Amendment, Finco shall deliver to JSC, the
Facility Agent and the Term Bank a copy of the resolutions duly
adopted by the Board of Directors of Finco, certified by the
Secretary or Assistant Secretary of Finco, authorizing the matters
contemplated hereby and execution of this Amendment.
5. Effect of Amendment. Execution of this Amendment by JSC
shall not operate as a waiver of (i) any other right, power or
remedy of JSC, the Facility Agent and the Term Bank under the
Receivables Purchase and Sale Agreement or (ii) any default of
Finco under the Receivables Purchase and Sale Agreement
6. Fees, Costs and Expenses. The provisions of subsection
7.06 of the Receivables Purchase and Sale Agreement are hereby
incorporated by reference as if fully set forth herein and made
applicable to this Amendment.
7. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. This Amendment shall
become retroactively effective as of January 1, 1997 upon receipt
by JSC, the Facility Agent and the Term Bank of counterparts hereof
duly executed by Finco, the Facility Agent, the Term Bank and JSC.
8. Headings. Headings used in this Amendment are for
convenience of reference only and shall not affect the construction
of this Amendment.
9. Reaffirmation of Receivables Purchase and Sale Agreement.
The parties hereto agree and acknowledge that nothing contained in
this Amendment in any manner or respect limits or terminates any of
the provisions of the Receivables Purchase and Sale Agreement other
than as expressly set forth herein and further agree and
acknowledge that the Receivables Purchase and Sale Agreement
remains and continues in full force and effect and is hereby
ratified and reaffirmed in all respects. No delay on the part of
JSC in exercising any of their respective rights, remedies, powers
and privileges under the Receivables Purchase and Sale Agreement or
partial or single exercise thereof, shall constitute a waiver
thereof. None of the terms and conditions of this Amendment may be
changed, waived, modified or varied in any manner, whatsoever,
except in accordance with the Receivables Purchase and Sale
Agreement.
10. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, BUT
OTHERWISE WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PROVISIONS
OF THE STATE OF NEW YORK).
[Balance of page intentionally left blank. Signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written by
their duly authorized representatives.
JEFFERSON SMURFIT CORPORATION (U.S.),
as the Seller
By: _____________________________________
Name: ___________________________________
Title:___________________________________
JEFFERSON SMURFIT CORPORATION (U.S.),
as the Servicer
By: _____________________________________
Name: ___________________________________
Title:___________________________________
JEFFERSON SMURFIT FINANCE CORPORATION,
as the Purchaser
By:______________________________________
Name:____________________________________
Title:___________________________________
BANKS BRUSSELS LAMBERT, NEW YORK
BRANCH, as Term Bank
By:______________________________________
Name:____________________________________
Title:___________________________________
BANKERS TRUST COMPANY,
as Facility Agent
By:______________________________________
Name:____________________________________
Title:___________________________________
Exhibit 10.12(l)
AMENDMENT NO. 2 TO LIQUIDITY AGREEMENT
AND EXTENSION REQUEST
This AMENDMENT NO. 2, dated as of August 19, 1997 (this
"Amendment"), to the Liquidity Agreement (as hereinafter defined)
is made by and among (i) Jefferson Smurfit Finance Corporation
("Finco"), (ii) Bankers Trust Company as Facility Agent (the
"Facility Agent"), (iii) Jefferson Smurfit Corporation (U.S.) as
the Servicer (the "Servicer"), (iv) Banks Brussels Lambert, New
York Branch as Term Bank (the "Term Bank"), and (v) the undersigned
financial institutions in their capacities as banks under the
Liquidity Agreement (each, a "Bank"; collectively, the "Banks").
W I T N E S S E T H:
WHEREAS, Finco, the Banks, the Facility Agent and the
Collateral Agent entered into that certain Liquidity Agreement,
dated as of February 23, 1995, as amended by the First Omnibus
Amendment, dated as of March 31, 1996 (as so amended, the
"Liquidity Agreement");
WHEREAS, the Liquidity Agreement currently provides that Finco
must give notice to the Facility Agent and the Banks no more than
ninety days and no less than sixty days prior to any anniversary of
the Effective Date of its desire to extend the Scheduled
Liquidation Commencement Date ("Extension Request");
WHEREAS, Finco desires to amend the Liquidity Agreement to
provide that Finco may make an Extension Request not less than
thirty days prior to any anniversary of the Effective Date;
WHEREAS, Finco desires to make an Extension Request pursuant
to this Amendment to extend the Scheduled Liquidation Commencement
Date by twenty four (24) additional months;
WHEREAS, the Liquidity Agreement currently provides that Finco
shall direct the Collateral Agent to pay to the Facility Agent, for
the benefit of the Banks, a Facility Fee for the period from and
including the Effective Date until the Termination Date, equal to
.25% per annum times the Facility Amount;
WHEREAS, Finco has requested approval and consent from the
Banks and the Term Bank to amend the Liquidity Agreement to provide
that the Facility Fee will be reduced to an amount equal to .200%
per annum times the Facility Amount;
WHEREAS, Finco has agreed to pay the Banks an amendment fee in
an amount equal to .05% times the Commitments (the "Liquidity Banks
Amendment Fee");
NOW THEREFORE, in consideration of the premises and the terms
and covenants contained herein, the receipt and sufficiency of
which consideration is hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the
Liquidity Agreement.
2. Amendment to Liquidity Agreement. The parties hereto
agree to amend Section 2.06(c) of the Liquidity Agreement as set
forth in this Section 2.
2.06 Termination, Reduction and Renewal of Commitments. The
first paragraph of Section 2.06(c) is hereby amended as follows:
Not less than thirty days prior to the fourth
anniversary of the Effective Date, and (if and when
applicable) not less than thirty days prior to any
successive anniversary of the Effective Date, Finco may
notify the Facility Agent and the Banks (including any
Bank which is then a Dissenting Bank) in writing of its
request (each such request, an "Extension Request") to
extend the then effective Scheduled Liquidation
Commencement Date by one additional year (provided that
Finco may make an Extension Request for two additional
years pursuant to this Amendment), and each Bank shall
notify Finco and the Facility Agent in writing whether it
agrees to such extension not later than thirty days after
such Bank's receipt of such Extension Request. If Finco
desires to extend the then effective Scheduled Term Loan
Payout Commencement Date, it shall deliver the Extension
Request pursuant to the Term Loan Agreement concurrently
with the delivery of any Extension Request hereunder.
3. Amendment to Liquidity Agreement. The parties hereto
agree to amend Section 4.02 of the Liquidity Agreement as set forth
in this Section 3.
4.02 Fees. Section 4.02 is hereby amended as follows:
Pursuant to Section 9.07 or Section 9.08, Finco
shall direct the Collateral Agent to pay to the Facility
Agent, for the benefit of the Banks, a facility fee (the
"Facility Fee") (i) for the period from and including the
Effective Date until the Termination Date, equal to
three-eighths of one percent (0.375%) per annum on any
date prior to April 1, 1996, one-quarter of one percent
(0.25%) per annum on any date on or after April 1, 1996
and prior to July 31, 1997 and one-fifth of one percent
(0.2000%) per annum on any date on or after July 31, 1997
(in each case, the "Facility Fee Rate") times the
Facility Amount, computed on the basis of the actual
number of days elapsed (including the first but excluding
the day of payment) over a year of 365 or 366 days and
(ii) for the period from the Termination Date until the
Collection Date, equal to the Facility Fee Rate
multiplied by the sum of the Aggregate Loan Amounts plus
the Aggregate CP Amount for each day during any
Collection Period for which the Facility Fee is being
calculated, divided by 365 or 366, as the case may be.
The Facility Fee shall be payable monthly in arrears on
each Settlement Date with respect to the prior Collection
Period and shall be forwarded by the Facility Agent to
(i) the Series A Bank based on the available Series A
Commitment and the Facility Fee Rate applicable to the
Series A Bank's Commitment, and (ii) ratably to the
Series B Banks according to their Pro Rata Shares of the
available Series B Commitment and the Facility Fee Rate
applicable to each Series B Bank's Commitment.
4. Extension Request. Finco hereby notifies the Facility
Agent and the Banks of its request to extend the Scheduled
Liquidation Commencement Date by two additional years so that the
Scheduled Liquidation Commencement Date will be the earlier of (i)
the Settlement Date which occurs not more than three calendar
months nor less than two calendar months before the eighty-fourth
(84th) month following the Effective Date, as such date may be
extended pursuant to Section 2.06 of the Liquidity Agreement, and
(ii) the date the Commitments are reduced to zero in accordance
with Section 2.06(b) of the Liquidity Agreement.
5. Representations and Warranties of Finco. In order to
induce the Facility Agent, the Term Bank, the Servicer and the
Banks to enter into this Amendment and to amend the Liquidity
Agreement in the manner provided herein, Finco represents and
warrants to the Facility Agent, the Term Bank, the Servicer and the
Banks that (i) all of the representations and warranties contained
in the Liquidity Agreement are true and correct in all respects as
of the date hereof except to the extent such representations and
warranties specify that they relate only to an earlier date, in
which case they are true as of such date, (ii) no Liquidation Event
or Unmatured Liquidation Event exists, (iii) Finco has all
requisite corporate power and authority to enter into this
Amendment and the Liquidity Agreement as amended hereby and to
perform its obligations thereunder, (iv) the execution, delivery
and performance of this Amendment and the Liquidity Agreement as
amended hereby have been duly and effectively authorized by all
necessary corporate action on the part of Finco, (v) the execution,
delivery and performance of this Amendment and the Liquidity
Agreement as amended hereby will not violate any charter, by-law or
contract provision, or any license, franchise or permit, law,
statute, regulation order or decree applicable to Finco, (vi) the
execution, delivery and performance of this Amendment and the
Liquidity Agreement as amended hereby will not conflict with,
result in a breach of or constitute (with due notice or lapse of
time or both) a default under any of the Obligations of Finco or
result or require the creation of or imposition of any lien upon
any of the properties or assets of Finco (other than liens created
pursuant to the Liquidity Agreement), (vii) no order, decree or
judgment of or in any court of competent jurisdiction makes the
execution, delivery or performance of this Amendment or the
Liquidity Agreement as amended hereby illegal and no action, suit,
or proceeding shall be pending or threatened or any investigation
by any governmental or regulatory authority shall have been
commenced which could result in any such order, decree or judgment,
and (viii) no authorization, consent, or approval of, or filing
with, any public body or authority of the United States or any
State thereof which has not already been made or obtained is
required for the execution, delivery or performance of this
Amendment or the Liquidity Agreement as amended hereby and no
authorization, consent or approval of any third party, which has
not been obtained, is required with respect thereto.
6. Additional Deliveries. As conditions precedent to the
effectiveness of this Amendment, Finco shall deliver to the
Facility Agent, the Term Bank and the Servicer a copy of the
resolutions duly adopted by the Board of Directors of Finco,
certified by the Secretary or Assistant Secretary of Finco,
authorizing the matters contemplated hereby and execution of this
Amendment.
7. Effect of Amendment. Execution of this Amendment by the
Facility Agent, the Term Bank and the Servicer shall not operate as
a waiver of (i) any other right, power or remedy of the Facility
Agent, the Term Bank or the Servicer under the Liquidity Agreement,
or (ii) any Liquidation Event under the Liquidity Agreement, or
(iii) any default of Finco under the Liquidity Agreement.
8. Fees, Costs and Expenses. The provisions of Section
12.07 of the Liquidity Agreement are hereby incorporated by
reference as if fully set forth herein and made applicable to this
Amendment.
9. Execution in Counterparts; Effectiveness of Amendment.
This Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. This
Amendment shall become effective as of the date first above written
(except for Section 3 which shall become retroactively effective as
of July 31, 1997) upon (i) receipt by the Facility Agent, the Term
Bank and the Servicer of counterparts hereof duly executed by
Finco, the Facility Agent, the Term Bank and the Servicer;
provided, that Section 3 hereof will not become retroactively
effective until each of the Banks executes and delivers a
counterpart hereof; provided, further, that Section 4 hereof will
not become effective until the Majority Banks execute and deliver
counterparts hereof; and (ii) payment by Finco to the Facility
Agent, on behalf of each Bank executing and delivering a
counterpart hereof, of the Liquidity Banks Amendment Fee.
10. Headings. Headings used in this Amendment are for
convenience of reference only and shall not affect the construction
of this Amendment.
11. Reaffirmation of Liquidity Agreement. The parties hereto
agree and acknowledge that nothing contained in this Amendment in
any manner or respect limits or terminates any of the provisions of
the Liquidity Agreement other than as expressly set forth herein
and further agree and acknowledge that the Liquidity Agreement
remains and continues in full force and effect and is hereby
ratified and reaffirmed in all respects. No delay on the part of
the Facility Agent, the Term Bank or the Servicer in exercising any
of their respective rights, remedies, powers and privileges under
the Liquidity Agreement or partial or single exercise thereof,
shall constitute a waiver thereof. None of the terms and
conditions of this Amendment may be changed, waived, modified or
varied in any manner, whatsoever, except in accordance with the
Liquidity Agreement.
12. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, BUT
OTHERWISE WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PROVISIONS
OF THE STATE OF NEW YORK).
[Balance of page intentionally left blank. Signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written by
their duly authorized representatives.
JEFFERSON SMURFIT FINANCE CORPORATION
By:______________________________________
Name:___________________________________
Title:___________________________________
JEFFERSON SMURFIT CORPORATION (U.S.),
as Servicer
By: __________________________________
Name: _______________________________
Title: _________________________________
BANKERS TRUST COMPANY, individually,
as the Series A Bank and as Facility
Agent
By: ____________________________________
Name: _________________________________
Title: __________________________________
Consented and Agreed to:
BANK BRUSSELS LAMBERT, NEW YORK
BRANCH,
as the Term Bank
By: ____________________________________
Name: _________________________________
Title: __________________________________
ABBEY NATIONAL TREASURY SERVICES plc,
as a Series B Bank
By: _____________________________________
Name: __________________________________
Title:___________________________________
ABN AMRO BANK,
as a Series B Bank
By: _____________________________________
Name: ___________________________________
Title: _________________________________
BANCO BILBAO VIZCAYA, S.A.
as a Series B Bank
By:______________________________________
Name: ___________________________________
Title: __________________________________
THE GOVERNOR & COMPANY OF THE
BANK OF IRELAND, as a Series B Bank
By:______________________________________
Name:____________________________________
Title: __________________________________
BANK OF MONTREAL,
as a Series B Bank
By:______________________________________
Name:____________________________________
Title:___________________________________
THE BANK OF NEW YORK,
as a Series B Bank
By:______________________________________
Name: ___________________________________
Title:___________________________________
THE BANK OF NOVA SCOTIA,
as a Series B Bank
By: ____________________________________
Name: ___________________________________
Title: __________________________________
CAISSE NATIONALE DE CREDIT AGRICOLE,
as a Series B Bank
By: ____________________________________
Name: ___________________________________
Title: __________________________________
THE CHASE MANHATTAN BANK, N.A.,
as a Series B Bank
By: _____________________________________
Name: ___________________________________
Title: __________________________________
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES,
as a Series B Bank
By: _____________________________________
Name:____________________________________
Title: __________________________________
By: _____________________________________
Name: ___________________________________
Title: __________________________________
THE FIRST NATIONAL BANK OF CHICAGO,
as a Series B Bank
By:______________________________________
Name:____________________________________
Title:___________________________________
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH, as a Series B Bank
By:______________________________________
Name: ___________________________________
Title: __________________________________
ING BANK N.V.
as a Series B Bank
By: _____________________________________
Name:____________________________________
Title: __________________________________
KREDIETBANK N.V., as a Series B Bank
By:______________________________________
Name:____________________________________
Title: __________________________________
NATIONSBANK, N.A. (CAROLINAS),
as a Series B Bank
By:______________________________________
Name: ___________________________________
Title: __________________________________
RAIFFEISEN ZENTRALBANK OSTERREICH AG,
as a Series B Bank
By:______________________________________
Name: ___________________________________
Title:___________________________________
THE TORONTO-DOMINION BANK,
as a Series B Bank
By:______________________________________
Name: ___________________________________
Title: __________________________________
WESTDEUTSCHE LANDESBANK GIROZENTRALE-NEW
YORK AND CAYMAN ISLANDS BRANCHES,
as a Series B Bank
By:______________________________________
Name: ___________________________________
Title: __________________________________
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, 1998, 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, 1997.
Ernst & Young LLP
St. Louis, Missouri
February 25, 1998
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
Patrick J. Moore Financial Officer
(Principal Accounting Officer)
and (Principal Financial
Officer)
/s/ Leigh J. Abramson Director
Leigh J. Abramson
/s/ Alan E. Goldberg Director
Alan E. Goldberg
/s/ Michael C. Hoffman Director
Michael C. Hoffman
/s/ Michael M. Janson Director
Michael M. Janson
/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/ Thomas A. Reynolds, III Director
Thomas A. Reynolds, III
Date: February 27, 1998
