ITEM 1. BUSINESS
GENERAL Jefferson Smurfit Corporation, hereinafter referred to as the "Company" or "JSC", owns 100% of the equity interest in JSCE, Inc., hereinafter referred to as "JSCE". The Company 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.).
The Company operates in two business segments, Paperboard/Packaging Products and Newsprint. The Company believes it is one of the nation's largest producers of paperboard and packaging products and is the largest producer of recycled paperboard and recycled packaging products and the largest processor of wastepaper. In addition, the Company believes it is one of the nation's largest producers of recycled newsprint.
The Company's Paperboard/Packaging Products segment includes a system of paperboard mills that, in 1995, produced 1,905,000 tons of virgin and recycled containerboard, 773,000 tons of coated and uncoated recycled boxboard and solid bleached sulfate ("SBS") and 192,000 tons of recycled cylinderboard, 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, 18 folding carton plants, and 22 industrial packaging plants located across the country, with three plants located outside the U.S. In 1995, the Company's container plants converted 1,925,000 tons of containerboard, an amount equal to approximately 101.1% of the amount it produced, its folding carton plants converted 529,000 tons of SBS, recycled boxboard and coated natural kraft, an amount equal to approximately 68.3% of the amount it produced, and its industrial packaging plants converted 148,000 tons of recycled cylinderboard, an amount equal to approximately 77.2% of the amount it produced. The paperboard/packaging products operations also include 14 consumer packaging plants. The Company's Paperboard/Packaging Products segment contributed 90.5% of the Company's net sales in 1995.
The Company's paperboard operations are supported by its reclamation division, which processed or brokered 4.3 million tons of wastepaper in 1995, and by its timber division which manages approximately one million acres of owned or leased timberland located in close proximity to its virgin fiber mills.
The Company's Newsprint segment includes two newsprint mills in Oregon, which produced 620,000 tons of recycled newsprint in 1995, and two facilities that produce Cladwood, a construction material produced from newsprint and wood by-products. The Company's newsprint mills are also supported by the Company's reclamation division.
Except for the historical information contained in this Annual Report on Form 10-K, certain matters discussed herein, including (without limitation) in particular under Part I, Item 3, "Legal Proceedings" and under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward looking statements. 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, the level and volatility of interest rates and currency values, wastepaper prices, costs related to environmental matters, and the impact of current or pending legislation and regulation.
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:
The Company's mills produce a full line of containerboard, including unbleached kraft linerboard, mottled white linerboard and recycled medium. Unbleached kraft linerboard is produced at the Company's mills located in Fernandina Beach and Jacksonville, Florida and mottled white linerboard is produced at its Brewton, Alabama mill. Recycled medium is produced at the Company's mills located in Alton, Illinois, Carthage, Indiana, Circleville, Ohio and Los Angeles, California. In 1995, the Company produced 1,057,000, 316,000 and 532,000 tons of unbleached kraft linerboard, mottled white linerboard and recycled medium, respectively. The Company's sales of containerboard in 1995 were $1,054 million (including $559 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 total sales of corrugated shipping containers in 1995 were $1,570 million (including $109 million of intracompany sales). Total corrugated shipping container sales volumes for 1993, 1994 and 1995 were 29,394, 30,822 and 29,382 million square feet, respectively.
RECYCLED BOXBOARD, SBS 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:
The Company's mill produce recycled coated and uncoated boxboard and SBS. Coated recycled boxboard is produced at the Company's 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. The table above excludes production of approximately 85,000 tons in 1993 from the Lockland, Ohio boxboard mill that was closed in January 1994. In 1995, the Company produced 595,000 and 178,000 tons of recycled boxboard and SBS, respectively. The Company's total sales of recycled boxboard and SBS in 1995 were $461 million (including $231 million of intracompany sales).
The Company's folding carton plants offer a broad range of converting capabilities, including web and sheet litho, rotogravure and flexo printing and a full line of structural and design graphics services. The Company's 18 facilities convert recycled boxboard and SBS into folding cartons. Folding cartons are used primarily to protect customers' products while providing point of purchase advertising. The Company makes folding cartons for a wide variety of applications, including food and fast foods, detergents, paper products, beverages, health and beauty aids and other consumer products. Customers range from small local accounts to large national and multinational accounts. The Company's folding carton plants are located nationwide, generally in or near large metropolitan areas. The Company's sales of folding cartons in 1995 were $686 million (none of which were intracompany sales). Folding carton sales volumes for 1993, 1994 and 1995 were 475,000, 486,000 and 469,000 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.
RECYCLED CYLINDERBOARD AND INDUSTRIAL PACKAGING The Company's recycled cylinderboard and industrial packaging operations are also integrated. Tons of recycled cylinderboard produced and converted for the last three years were:
The Company's recycled cylinderboard mills are located in Tacoma, Washington, Monroe, Michigan, Lafayette, Indiana, and Cedartown, Georgia. The table above excludes production of approximately 49,000, 43,000 and 28,000 tons in 1993, 1994 and 1995 from a cylinderboard mill located in Monroe, Michigan that was closed in September 1995. In 1995, total sales of recycled cylinderboard were $80 million (including $34 million of intracompany sales).
The Company's 22 industrial packaging plants convert recycled cylinderboard, including a portion of the recycled cylinderboard produced by the Company, 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. Also, the Company 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 1995 were $114 million (including $5 million in intracompany sales).
CONSUMER PACKAGING The Company manufactures a wide variety of products at its 14 consumer products facilities. These products include flexible packaging, paper and metallized paper labels and labels that are heat transferred to plastic containers for a wide range of industrial and consumer product applications. The contract packaging plants provide a wide variety of custom contract packaging services including cartoning, bagging, liquid- or powder- filling and high-speed overwrapping. Fragranced advertising products and related specialty items are produced by the scented products facility. 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. Total sales of consumer packaging products and services in 1995 were $191 million (including $15 million of intracompany sales).
RECLAMATION OPERATIONS; 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 mills use primarily wood fibers, while the other paperboard mills use reclaimed fiber exclusively. The newsprint mills use approximately 47% wood fiber and 53% reclaimed fiber.
The use of recycled products in the Company's operations begins with its reclamation division which operates 27 facilities that collect, sort, grade and bale wastepaper, as well as collect aluminum and glass. The reclamation division also operates a nationwide brokerage system whereby it purchases and resells wastepaper (including wastepaper for use in its recycled fiber mills) on a regional and national contract basis. Such contracts provide bulk purchasing, resulting in lower prices and cleaner wastepaper. The reclamation division provides valuable fiber resources to both the paperboard and newsprint segments of the Company as well as to other producers. Many of the reclamation facilities are located in close proximity to the Company's recycled paperboard and newsprint mills, assuring availability of supply, when needed, with minimal shipping costs. Total sales of recycled materials in 1995 were $736 million (including $292 million of intracompany sales).
In 1995, the Company processed 4.3 million tons of wastepaper. The amount of wastepaper collected and the proportions sold internally and externally by the Company's reclamation division for the last three years were:
While there has been unprecedented demand for reclaimed fiber during 1994 and 1995, the Company does not, however, anticipate any significant problems satisfying its need for this material in the foreseeable future. During 1995, the wastepaper which was reclaimed by the Company's reclamation plants and brokerage operations satisfied all of the Company's mill requirements for reclaimed fiber.
The Company's timber division manages approximately one million acres of owned and leased timberland. In 1995, approximately 59% of the timber harvested by the Company was used in its Jacksonville, Fernandina and Brewton Mills. The Company harvested 893,000 cords of timber which would satisfy approximately 35% of the Company's requirements for wood fibers. The Company's wood fiber requirements not satisfied internally are purchased on the open market or under long-term contracts. In the past, the Company has not experienced difficulty obtaining an adequate supply of wood through its own operations or open market purchases. The Company is not aware of any circumstances that would adversely affect its ability to satisfy its wood requirements in the foreseeable future. In recent years, a shortage of wood fiber in the spotted owl regions in the Northwest has resulted in increases in the cost of virgin wood fiber. In 1995, the Company's total sales of timber products were $260 million (including $201 million of intracompany sales).
NEWSPRINT SEGMENT
NEWSPRINT MILLS The Company's newsprint mills are located in Newberg and Oregon City, Oregon. During 1993, 1994 and 1995, the Company produced 615,000, 615,000 and 620,000 tons of newsprint, respectively. In 1995, total sales of newsprint were $361 million (none of which were intracompany sales).
For the past three years, an average of approximately 55% of the Company's newsprint production has been sold to The Times Mirror Company ("Times Mirror") pursuant to a long-term newsprint agreement (the "Newsprint Agreement") entered into in connection with the Company's acquisition of Smurfit Newsprint Corporation ("SNC") stock in February 1986. Under the terms of the Newsprint Agreement, the Company supplies newsprint to Times Mirror generally at prevailing West Coast market prices. Sales of newsprint to Times Mirror in 1995 amounted to $189 million.
CLADWOOD Cladwood is a wood composite panel used by the housing industry, manufactured from sawmill shavings and other wood residuals and overlaid with recycled newsprint. The Company has two Cladwood plants located in Oregon. Total sales for Cladwood in 1995 were $26 million (none of which were intracompany sales).
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 process 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 16,200 employees at December 31, 1995, of which approximately 10,900 employees (67%), are represented by collective bargaining units. The expiration date of union contracts for the Company's major facilities are as follows: the Oregon City mill, expiring March 1997; the Brewton mill, expiring October 1997; the Fernandina mill, expiring June 1998; a group of 11 properties, including 4 paper mills and 7 corrugated container plants, expiring June 1998; the Jacksonville mill, expiring June 1999; the Alton mill, expiring June 2000 and the Newberg mill, expiring March 2002. The Company believes that its employee relations are generally good and is currently in the process of bargaining with unions representing production employees at a number of its other operations.
ITEM 2.

ITEM 2. PROPERTIES
The Company's properties at December 31, 1995 are summarized in the table below. Approximately 58% 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 and leases approximately 758,000 acres and 226,000 acres of timberland, respectively, and also operates wood harvesting facilities.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
Litigation In June 1993, the Company filed suit against Otis B. Ingram, as executor of the estate of Naomi M. Ingram, and Ingram-LeGrand Lumber Company in the United States District Court, Middle District of Georgia, seeking declaratory and injunctive relief and damages in excess of $3 million arising out of the defendants' alleged breach and anticipatory repudiation of certain timber purchase agreements and timber management agreements between the Company and such parties dated November 22, 1967 pertaining to approximately 30,000 acres of property in Georgia (the "Agreements"). The defendants filed an answer and counterclaim seeking damages in excess of $14 million based on allegations that the Company breached the Agreements and failed to pay for timber allegedly stolen or otherwise removed from the property by the Company or third parties. A jury trial commenced in October 1995 and the case was subsequently settled before completion of the trial.
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, particularly relating to air and water quality, 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 and emissions 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 and emissions.
Occasional violations of permit terms 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 United States Environmental Protection Agency ("EPA") executed a search warrant at the Sweet Home, Oregon manufacturing facility of SNC, at which Cladwood, a wood composite panel manufactured from sawmill shavings, is produced. According to the search warrant, the U.S. Attorney's office for the District of Oregon and the EPA are investigating whether this facility violated the Clean Water Act or other federal laws in connection with its waste water discharges. The Company has been advised that the government has presented, or intends to present, evidence to a grand jury in connection with the investigation. SNC and certain of its employees could be charged, and SNC could be assessed significant fines and penalties if an indictment and conviction follows as a result of the grand jury proceeding.
Duval County, Florida In March 1992, the Company entered into an administrative consent order with the Florida Department of Environmental Regulation to carry out any necessary assessment and remediation of Company- owned property in Duval County, Florida that was formerly the site of a sawmill that dipped lumber into a chemical solution. Assessment data with respect to this site indicates soil and groundwater contamination that will likely require nonroutine remediation. Management believes that the probable costs of this site, taken alone or with potential costs at other Company-owned properties where some contamination has been found, will not have a material adverse effect on its financial condition or results of operations.
Jacksonville, Florida In October 1994, the Company voluntarily reported possible noncompliance with certain provisions of its construction/operation permit at its D-Graphics labels plant located in Jacksonville, Florida to state and local environmental authorities, and subsequently entered into a settlement agreement with such authorities to resolve all civil and administrative issues regarding this matter. The Company has recently been advised by the United States Department of Justice that it will not pursue any criminal action against the Company in connection with this matter.
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 the Comprehensive Environmental Response, Compensation and Liability Act ("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:
Miami County, Ohio Site In 1995, pursuant to a consent decree previously entered into with the United States, the Company paid $3.1 million in satisfaction of its alleged and/or potential liability for past and future response costs under CERCLA in connection with a site in Miami County, Ohio and, pursuant to a second consent decree with the United States, paid $1.2 million in settlement of a cause of action previously commenced by the government against the Company for alleged failures to properly respond to document and information requests by the EPA with respect to such site. A criminal inquiry was commenced in 1993 relating to the Company's responses to the EPA's document and information requests, and it is uncertain whether any criminal action will be forthcoming.
Monterey Park, California Site The Company has paid approximately $768,000 pursuant to two partial consent decrees entered into in 1990 and 1991 with respect to cleanup obligations at the Operating Industries site in Monterey Park, California. It is anticipated that there will be further remedial measures beyond those covered by these partial settlements.
Baltimore, Maryland Site The Company entered into a consent decree and settlement agreement in full settlement of its obligations in connection with a superfund site in Baltimore, Maryland. The Company paid approximately $171,000 in 1995 as part of this settlement, and may be required to pay an additional amount up to approximately $80,000 for future cleanup costs.
In addition to other Federal and State laws regarding hazardous substance contamination at sites owned or operated by the Company, the New Jersey Industrial Site Recovery Act ("ISRA") requires that a "Negative Declaration" or a "Cleanup Plan" be filed and approved by the New Jersey Department of Environmental Protection and Energy ("DEPE") as a precondition to the "transfer" of an "industrial establishment". The ISRA regulations provide that a transferor may close a transaction prior to the DEPE's approval of a negative declaration if the transferor enters into an administrative consent order with the DEPE. The Company is currently a signatory to administrative consent orders with respect to two formerly leased or owned industrial establishments and to a facility that was sold in 1995 and received a negative declaration with respect thereto. Management believes that any requirements that may be imposed by the DEPE with respect to these sites will not have a materially adverse effect on the financial condition or results of operations of the Company.
The Company's paperboard and newsprint mills are large consumers of energy, using either natural gas or coal. Approximately 68% of the Company's total paperboard tonnage is produced by mills which have coal-fired boilers. The cost of energy is dependent, in part, on environmental regulations concerning sulfur dioxide and particulate emissions.
Because various pollution control standards are subject to change, it is not possible at this time to predict the amount of capital expenditures that will ultimately be required to comply with future standards. In particular, the EPA has proposed a comprehensive rule governing the pulp, paper and paperboard industry, which could require substantial expenditures to achieve compliance on the part of the Company. For the past three years, the Company has spent an average of approximately $10 million annually on capital expenditures for environmental purposes. Further sums may be required in the future, although, in the opinion of management, such expenditures will not have a material effect on its financial condition or results of operations. The anticipated spending for such capital projects for fiscal 1996 is approximately $30 million. Since the Company's competitors are, or will be, subject to comparable pollution control standards, including the proposed rule discussed above, if implemented, management is of the opinion that compliance with future pollution standards will not adversely affect the Company's competitive position.
ITEM 4.

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 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION At December 31, 1995 the Company's common stock was held by approximately 12,000 stockholders, including stockholders of record and shares owned beneficially through nominee or street name accounts with brokers. The Company's common stock trades on The Nasdaq Stock Market under the symbol "JJSC". The high and low trading prices of the stock for 1995 were:
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.

ITEM 6. SELECTED FINANCIAL DATA (In millions, except per share and statistical data)
ITEM 7.

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 markets, which were depressed in the early 1990's, began to recover in late 1993 and the strong growth in the U.S. economy in the second half of 1994 and the first half of 1995 propelled containerboard prices through a series of rapid increases. Linerboard prices in 1993 were at a low of $280/ton prior to the recovery and, by April of 1995, had reached a record high of $535/ton. Market conditions were strong until the third quarter of 1995, when the economy began to weaken, causing excess inventories in the industry. Many paper companies, including the Company, took downtime at paper mills during the fourth quarter of 1995 in response to the slowdown in the economy. Linerboard prices softened by the end of 1995 to $490/ton, but were still high compared to historical levels.
Newsprint markets were also depressed in the early 1990's. Demand for newsprint began to improve in the second half of 1994 and prices steadily increased during the second half of 1994 and 1995.
Increases in demand for recycled paperboard products and recycled newsprint during 1994 and 1995 created unprecedented demand for reclaimed fiber, causing shortages of this material and prices escalated at a dramatic rate. While the effect of the reclaimed fiber price increases is favorable to the Company's reclamation products division, it is unfavorable to the Company overall because reclaimed fiber is a key raw material for certain of its paper mills. The demand for and price of reclaimed fiber dropped dramatically in the fourth quarter of 1995 as a result of the significant downtime taken by containerboard mills throughout the country. Although reclaimed fiber prices are currently low in comparison to the record highs reached earlier in 1995, the Company believes it is likely that the cost of reclaimed fiber will increase again in 1996. The Company does not, however, anticipate any significant problems satisfying its need for this material in the foreseeable future. Results of Operations
1995 Compared to 1994 Price recovery coupled with productivity gains and cost reduction programs implemented in recent years provided record sales and earnings for the Company in 1995. Net sales were $4.1 billion, an increase of 26.6% over 1994 and income from operations was $630 million, more than double the 1994 amount. Increases (decreases) in sales for each of the Company's segments are discussed below.
Paperboard/Packaging Products Segment Sales Net sales of the Paperboard/Packaging Products segment increased 24.6% compared to 1994, to $3.71 billion, primarily as a result of sales prices and product mix.
Net sales of containerboard and corrugated shipping containers increased 25.9% compared to 1994, to $1.96 billion. Corrugated shipping container prices increased 28.0% on average compared to 1994. In view of the reduced demand in the second half of 1995, several of the Company's containerboard mills took downtime in order to reduce inventories. As a result of this downtime, shipments of containerboard in 1995 were down 2.0% compared to 1994. Shipments of corrugated shipping containers were down 4.2% compared to 1994.
Net sales of recycled boxboard, SBS and folding cartons increased 9.6% compared to 1994, to $916 million. Recycled boxboard prices were increased during the first half of 1995 to cover higher reclaimed fiber cost, but declined later in the year in response to lower reclaimed fiber cost. On average, prices of recycled boxboard and SBS rose 19.4% and 18.9%, respectively, compared to 1994. Folding carton prices increased 9.4% on average compared to 1994. Shipments of recycled boxboard and SBS decreased 2.1% and shipments of folding cartons decreased by 2.8% compared to 1994.
Net sales for the reclamation and timber products operations increased 74.7% compared to 1994, to $503 million, due primarily to escalating prices of reclaimed fiber. Reclaimed fiber prices were higher by 62.0% on average compared to 1994 and shipments increased 4.1% compared to 1994.
Net sales of recycled cylinderboard and industrial packaging increased 18.3% compared to 1994, to $155 million, due primarily to higher prices. Net sales of consumer packaging increased 6.0% compared to 1994, to $176 million.
Newsprint Segment Sales Net sales of the Newsprint segment increased 49.4% compared to 1994, to $387 million, primarily as a result of sales prices and product mix.
Costs and Expenses Cost of goods sold as a percent of net sales declined from 82.5% in 1994 to 77.6% in 1995 in the Paperboard/Packaging Products segment and declined from 102.2% in 1994 to 89.5% in 1995 in the Newsprint segment. Selling and administrative expenses as a percent of net sales declined for both segments from 6.9% in 1994 to 5.9% in 1995. The sales price increases implemented during 1995 were the primary reason for the improvements in each of cost of goods sold and selling and administrative expenses as a percent of net sales.
In 1993, the Company recorded a pretax charge of $96 million for a restructuring program (the "Restructuring Program") to improve its long- term competitive position. The Restructuring Program provided for plant closures, asset write-downs, reductions in workforce, relocation of employees and consolidation of certain plant operations, expected to be completed over an approximate three year period. Major activities relating to the Restructuring Program in 1995 included the sale of a corrugated shipping container plant in August and the shutdown in September of the East mill in Monroe, Michigan, which produced approximately 50,000 tons per year of recycled cylinderboard. Since 1993, the Company has written down the assets of closed facilities and other nonproductive assets totalling $35 million and made cash expenditures of $33 million relating to the Restructuring Program. Proceeds of $5 million from sale of fixed assets and asset transfers to other plants of $2 million were used to offset additional expenses and anticipated expenses related to shutdowns. The remaining balance of the restructuring liability, the majority of which is for anticipated cash expenditures in 1996, will continue to be funded through operations. Based on expenditures to date and those anticipated by the original plan, no significant adjustment to the reserve balance is expected at this time.
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% at December 31, 1995. The net effect of changing these assumptions was the primary reason for the increase in projected benefit obligations. 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 these changes is expected to increase pension cost in 1996 by approximately $14 million.
In the fourth quarter of 1995, the Company recorded a pretax charge totalling $25 million related to product quality matters and failure to follow proper manufacturing and internal procedures in an immaterial non-core product line. The Company is continuing to further evaluate this issue and expects to conclude its review during the second fiscal quarter. Based upon the information currently available to management, the Company believes the reserve is adequate but intends to reevaluate the adequacy of the reserve at the conclusion of its review.
Interest expense for 1995 declined $35 million compared to 1994 due primarily to lower average debt levels outstanding and lower effective interest rates. The lower average interest rate in 1995 resulted primarily from the retirement in December 1994 of the Company's high yield subordinated debt in conjunction with the Company's 1994 Recapitalization as defined in the JSC 1994 Annual Report on Form 10-K (the "1994 Recapitalization").
The Company will adopt 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. Based on current circumstances, the Company does not believe the effect of such adoption will be material.
The provision for income taxes in 1995 was $156 million compared to $16 million in 1994. The Company's effective tax rate of 38.7% in 1995 was substantially lower than the 1994 effective tax rate of 57.1%, primarily due to the effect of permanent differences from applying purchase accounting. The Company has net operating loss carryforwards for federal income tax purposes of approximately $98 million (expiring in the year 2009), none of which are available for utilization against alternative minimum taxes. Federal income tax returns for 1989 through 1991 are currently under examination. While the ultimate results of such examination cannot be predicted with certainty, the Company's management believes that the examination will not have a material adverse effect on its consolidated financial condition or results of operations.
1994 Compared to 1993 Results for 1994 reflected increased demand for the Company's products. Net sales of $3.2 billion for 1994 were up 9.7% compared to 1993. Increases (decreases) in sales for each of the Company's segments are discussed below.
Paperboard/Packaging Products Segment Sales Net sales in the Paperboard/Packaging Products segment for 1994 increased 10.2% compared to 1993, to $2.97 billion. The increase was due to higher sales prices and increased sales volume. Sales growth for this segment was mitigated by the shutdown of several operating facilities in late 1993 and early 1994, including a coated recycled boxboard mill, five converting plants and two reclamation products facilities in connection with the Company's Restructuring Program.
Net sales of containerboard and corrugated shipping containers increased 12.5% compared to 1993, to $1.55 billion. Containerboard prices increased from approximately $300/ton at the end of 1993 to $435/ton in October 1994. Corrugated shipping container prices increased 4.7% on average compared to 1993. Shipments of containerboard and corrugated shipping containers were higher in 1994 compared to 1993 by 3.9% and 4.7%, respectively.
Net sales of recycled boxboard, SBS and folding cartons decreased 2.6% compared to 1993, to $836 million. On average, recycled boxboard prices were comparable to 1993, but SBS prices, although rising in the second half of 1994, were 4.8% lower on average compared to 1993. Folding carton prices were lower on average by 2.2% in 1994 compared to 1993. Shipments of folding cartons increased by 1.8% compared to 1993, but shipments of recycled boxboard decreased 10.0%, due primarily to the recycled boxboard mill shutdown referred to above. Shipments of SBS increased 6.8% compared to 1993.
Net sales for the reclamation and timber products operations increased 74.5% compared to 1993, to $288 million, due primarily to higher prices for reclaimed fiber. Reclaimed fiber prices in 1994 were higher by 62.9% on average compared to 1993 and shipments increased 5.8% compared to 1993.
Net sales of recycled cylinderboard and industrial packaging increased .8% compared to 1993, to $131 million and net sales of consumer packaging increased .6% compared to 1993, to $166 million.
Newsprint Segment Sales Net sales in the Newsprint segment for 1994 increased $11 million, up 4.4% compared to 1993, to $259 million. The increase was due primarily to higher sales prices in the second half of 1994.
Costs and Expenses Costs and expenses in both segments in 1994 were favorably impacted by cost reduction initiatives and by the Restructuring Program. Cost of goods sold as a percent of net sales in the Paperboard/Packaging Products segment declined from 85.6% in 1993 to 82.5% in 1994, primarily as a result of higher sales prices and improved capacity utilization. Cost of goods sold as a percent of net sales in the Newsprint segment improved modestly from 102.8% in 1993 to 102.2% in 1994, primarily as a result of higher sales prices. Selling and administrative expenses as a percent of net sales declined from 8.1% in 1993 to 6.9% in 1994 as a result of higher sales prices.
The Company increased its weighted average discount rate in measuring its pension obligations from 7.6% to 8.5% and its rate of increase in compensation levels from 4.0% to 5.0% at December 31, 1994. The net effect of changing these assumptions was the primary reason for the decrease in projected benefit obligations and the changes decreased pension cost in 1995 by approximately $5 million.
Average debt levels outstanding decreased in 1994 as a result of the 1994 Recapitalization, however, interest expense of $269 million for 1994 increased 5.9% compared to 1993 due to the impact of higher effective interest rates in 1994.
The tax provision for 1994 was $16 million compared to a tax benefit for 1993 of $83 million. The Company's effective tax rate for 1994 was higher than the U.S. Federal statutory tax rate due to several factors, the most significant of which was the effect of permanent differences between book and tax accounting.
The Company recorded an extraordinary loss from the early extinguishment of debt (net of income tax benefits) amounting to $55 million ($.55 per share) in 1994 and $38 million ($.59 per share) in 1993. The Company adopted SFAS No. 112 "Employers' Accounting for Postemployment Benefits" in 1994, the effect of which was not material.
Liquidity and Capital Resources Net cash provided by operating activities was significantly higher in 1995 compared to 1994 due primarily to the higher earnings level. Net cash provided by operating activities of $411 million and excess cash at the end of 1994 was used primarily to fund capital investments and acquisitions of $188 million and to reduce debt by $264 million.
The ratio of current assets to current liabilities was 1.1 at December 31, 1995 compared to 1.0 at December 31, 1994. Accounts receivable were higher at December 31, 1995, primarily as a result of significantly higher product pricing. Accounts payable were lower at December 31, 1995, primarily as a result of lower fiber cost at the end of 1995 compared to 1994.
In February 1995, JSC (U.S.) entered into a $315 million accounts receivable securitization program (the "1995 Securitization") consisting of a $300 million trade receivables-backed commercial paper program and a $15 million term loan, which matures in December 1999. Proceeds of the 1995 Securitization were used to extinguish JSC (U.S.)'s borrowings under its previous accounts receivable securitization program and for general corporate purposes. Interest rates on borrowings under the 1995 Securitization are at a variable rate (5.78% at December 31, 1995).
In conjunction with the Company's 1994 Recapitalization, the Company entered into a new bank credit facility (the "1994 Credit Agreement") consisting of a $450 million revolving credit facility, a $900 million Tranche A Term Loan and a $300 million Tranche B Term Loan. In October 1995, the 1994 Credit Agreement was amended to reduce the interest rates payable on the revolving credit facility and the Tranche A Term Loan. Net debt reduction for 1995 included $64 million of mandatory and $192 million of optional payments in respect of the Tranche A and Tranche B Term Loans. The Company recorded an extraordinary loss from the early extinguishment of debt (net of income tax benefits) amounting to $4 million ($.04 per share) in 1995. In January 1996, the 1994 Credit Agreement was amended to give greater flexibility to the Company in applying optional prepayments toward installments due within the next twelve months.
The 1994 Credit Agreement contains various business and financial covenants including, among other things, (i) limitations on dividends, redemptions and repurchases of capital stock, (ii) limitations on the incurrence of indebtedness, liens, leases and sale-leaseback transactions, (iii) limitations on capital expenditures, (iv) maintenance of minimum levels of consolidated earnings before depreciation, interest, taxes and amortization and (v) maintenance of minimum interest coverage ratios. Such restrictions, together with the highly leveraged position of the Company, could restrict corporate activities, including the Company's ability to respond to market conditions, to provide for unanticipated capital expenditures or to take advantage of business opportunities.
The 1994 Credit Agreement imposes an annual limit on future capital expenditures of $150 million. The capital spending limit is subject to increase in any year by an amount equal to the Company's portion of 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 $66 million for 1996. Because the Company has invested heavily in its core businesses in prior years, management believes the annual limitation for capital expenditures does not impair its plans for maintenance, expansion and continued modernization of its facilities.
Capital investments and acquisitions in 1995 include $154 million of property and timberland additions and $34 million of investments in affiliates and acquisitions. The investments in affiliates primarily include (i) the purchase of the 20% minority interest of Smurfit Newsprint Corporation previously owned by Times Mirror, the primary assets of which are two mills located near Portland, Oregon producing approximately 620,000 tons of newsprint annually, and (ii) a joint venture, the primary asset of which is a linerboard mill near Shanghai, China.
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, amortize term loans and fund capital expenditures. Scheduled payments due in 1996 and 1997 under the 1994 Credit Agreement are $62 million and $133 million, with increasing amounts thereafter. Capital expenditures for 1996 are estimated to be comparable to 1995. The Company expects to use any excess cash provided by operations to make further debt reductions. At December 31, 1995, the Company had $301 million of unused borrowing capacity under its 1994 Credit Agreement and $95 million of unused borrowing capacity under the 1995 Securitization subject to JSC (U.S.)'s level of eligible accounts receivable.
The Company's earnings are significantly affected by the amount of interest on its indebtedness. The Company enters into interest rate swap, cap and option 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. 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. The Company amends existing agreements or enters into agreements with offsetting effects when necessary to change its net position. In 1995, interest rate swap agreements with a notional value of $925 million expired and a cap agreement with a notional amount of $100 million was terminated. Also in 1995, the Company entered into an interest rate swap agreement with a notional amount of $100 million. The table below shows interest rate swap agreements outstanding at December 31, 1995, the related maturities for the years thereafter and the contracted pay and receive rates for such agreements.
The Company has a cap agreement with a notional amount of $100 million, which matures in 1996, on variable rate debt which limits the Company's interest payments to a range of 5.5-7.0% on the notional amount.
Environmental Matters
In 1993, the Company recorded a provision of $54 million, of which $39 million relates to environmental matters, representing asbestos and PCB removal, solid waste cleanup at existing and former operating sites, and expenses for response costs at various sites where the Company has received notice that it is a potentially responsible party ("PRP"). The Company made payments of $9 million and $4 million related to PRP sites and other environmental cleanup in 1995 and 1994, respectively. The Company, as well as other companies in the industry, faces potential environmental liability related to various sites at which wastes have allegedly been deposited. The Company has received notice that it is or may be a PRP at a number of federal and state sites (the "Sites") where remedial action may be required. Because the laws that govern the cleanup of waste disposal sites have been construed to authorize joint and several liability, government agencies or other parties could seek to recover all response costs for any Site from any one of the PRPs for such Site, including the Company, despite the involvement of other PRPs. Although the Company is unable to estimate the aggregate response costs in connection with the remediation of all Sites, if the Company were held jointly and severally liable for all response costs at some or all of the Sites, it would have a material adverse effect on the financial condition and results of operations of the Company. However, joint and several liability generally has not in the past been imposed on PRPs, and, based on such past practice, the Company's past experience and the financial conditions of other PRPs with respect to the Sites, the Company does not expect to be held jointly and severally liable for all response costs at any Site. Liability at waste disposal sites is typically shared with other PRPs and costs generally are allocated according to relative volumes of waste deposited. At 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 ten Sites where final settlement has not been reached and where the Company's potential liability is expected to exceed de minimis levels. Accordingly, the Company believes that its estimated total probable liability for response costs at the Sites was adequately reserved at December 31, 1995. 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.
Effects of Inflation
With the exception of recycled fiber, the moderate level of inflation during the past few years has not had a material impact on the Company's financial position or operating results. The Company uses the last-in, first-out method of accounting for approximately 80% of its inventories. Under this method, the cost of products sold reported in the financial statements approximates current cost and thus reduces the distortion in reported income due to increasing costs.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page No.
The following consolidated financial statements of Jefferson Smurfit Corporation are included in this report:
Consolidated balance sheets - December 31, 1995 and 1994. . . . . .25 For the years ended December 31, 1995, 1994 and 1993: Consolidated statements of operations. . . . . . .. . . . . . .26 Consolidated statements of stockholders' deficit . . . . . . .27 Consolidated statements of cash flows . . . . . . . . . . . . .28 Notes to consolidated financial statements . . . . . . . . . . . . .29
The following consolidated financial statement schedule of Jefferson Smurfit Corporation is included in Item 14(a):
II: Valuation and Qualifying Accounts . . . . . . . . . . . . .54
All other schedules specified under Regulation S-X for Jefferson Smurfit Corporation have been omitted because they are either not applicable, 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 three 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.
James E. Terrill President, Chief Executive Officer
John R. Funke 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, 1995 and 1994, and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 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.
As discussed in Note 5 and Note 6 to the financial statements, in 1993, the Company changed its method of accounting for income taxes and postretirement benefits.
Ernst & Young LLP
St. Louis, Missouri January 24, 1996
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
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 (formerly SIBV/MS Holdings, Inc.) hereafter referred to as the "Company" owns 100% of the equity interest in JSCE, Inc. The Company has no operations other than its investment in JSCE, Inc. On December 31, 1994 Jefferson Smurfit Corporation (U.S.), a wholly-owned subsidiary of the Company, merged into its wholly-owned subsidiary, Container Corporation of America ("CCA"), with CCA surviving and changing its name to Jefferson Smurfit Corporation (U.S.) ("JSC (U.S.)"). JSCE, Inc. owns 100% of the equity interest in JSC (U.S.). JSCE, Inc. has no operations other than its investment in JSC (U.S.). Prior to May 4, 1994, 50% of the voting stock of the Company was owned by Smurfit Packaging Corporation ("SPC") and Smurfit Holdings B.V. ("SHBV"), indirect wholly-owned subsidiaries of Jefferson Smurfit Group plc ("JS Group"), a public corporation organized under the laws of the Republic of Ireland. The remaining 50% was owned by The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") and certain other investors.
In 1994, the Company completed a recapitalization plan (the "Recapitalization") to repay and refinance a substantial portion of its indebtedness. In connection with the Recapitalization, (i) the Company issued and sold 19,250,000 shares of common stock pursuant to a registered public offering at an initial public offering price of $13.00 per share, (ii) JS Group, through its wholly-owned subsidiary Smurfit International B.V. ("SIBV"), purchased an additional 11,538,462 shares of common stock for $150 million, and (iii) JSC (U.S.) issued and sold $300 million aggregate principal amount of unsecured 11.25% Series A Senior Notes due 2004 and $100 million aggregate principal amount of unsecured 10.75% Series B Senior Notes due 2002 (the "1994 Senior Notes") pursuant to a registered public offering.
Immediately prior to the consummation of the 1994 initial public offerings, the Company effected a reclassification (the "Reclassification") whereby the Company's previous five classes of common stock were converted into one class on a basis of ten shares of common stock for each outstanding share of each of the old classes. The effect of the Reclassification was to transfer $1 million from the additional paid-in capital account to the common stock account.
The deficit in stockholders' equity is primarily due to the Company's 1989 purchase of JSC (U.S.)'s common equity owned by JS Group and the acquisition by JSC (U.S.) of its common equity owned by MSLEF I, which were accounted for as purchases of treasury stock.
2. -- Significant Accounting Policies
Nature of Operations: The Company's major operations are in paper products, newsprint production, recycling, and consumer packaging. Paper product operations procure virgin or recycled fiber and produce paperboard for conversion into corrugated containers at the Company's own facilities and third party converting operations. Paper product operations customers represent a diverse range of industries including paperboard and paperboard packaging, wholesale trade, retailing and agri-business. The Company's newsprint operations produce newsprint
from virgin or recycled fiber primarily for the newspaper industry. Recycling collects wastepaper which is then resold to paper product operations of the Company and third parties for conversion into boxboard, corrugated containers, and other paper products. Consumer packaging produces labels and flexible packaging for use in industrial, medical, and consumer product applications. Customers and operations are principally located in the United States. Credit is extended to customers based on an evaluation of their financial condition. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. Significant intercompany accounts and transactions are eliminated in consolidation.
Cash Equivalents: The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 1995, cash and cash equivalents of $27 million are pledged as collateral for obligations associated with the accounts receivable securitization program (See Note 4).
Revenue Recognition: Revenue is recognized at the time products are shipped.
Inventories: Inventories are valued at the lower of cost or market, principally under the last-in, first-out ("LIFO") method except for $54 million in 1995 and $55 million in 1994 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 $84 million and $58 million at December 31, 1995 and 1994, 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.
Timberland: The portion of the costs of timberland attributed to standing timber is charged against income as timber is cut, at rates determined annually, based on the relationship of unamortized timber costs to the estimated volume of recoverable timber. The costs of seedlings and reforestation of timberland are capitalized.
Deferred Debt Issuance Costs: Deferred debt issuance costs are amortized over the terms of the respective debt obligations using the interest method.
Goodwill: The excess of cost over the fair value assigned to the net assets acquired is recorded as goodwill and is being amortized using the straight-line method over 40 years.
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.
Interest Rate Swap and Cap Agreements: The Company enters into interest rate swap and cap agreements to reduce the impact of interest rate fluctuations. Swap agreements involve the exchange of fixed and floating rate interest payments without the exchange of the underlying principal amount. Cap agreements provide that the Company will receive a certain amount when short-term interest rates exceed a threshold rate. Periodic amounts to be paid or received under interest rate swap and cap agreements are accrued and recognized as adjustments to interest expense. Premiums paid on cap agreements are included in interest payable and amortized to interest expense over the life of the agreements. Gains and losses realized upon settlement of these agreements are deferred and amortized to interest expense over a period relevant to the agreement if the underlying hedged instrument remains outstanding, or immediately if the underlying hedged instrument is settled.
Earnings (Loss) Per Common Share: The computations of earnings (loss) per common share are based on the weighted average number of common shares outstanding during the periods presented. Outstanding stock options are common equivalent shares but are not included since the dilutive effect is not material.
Fully diluted earnings per share amounts are not applicable because the effect of the conversion of the stock options is not dilutive in 1995 and 1994 and antidilutive in 1993.
Had the Recapitalization occurred on January 1, 1994, the income before extraordinary item would have been $42 million or $.38 per common share, and the net loss would have been $15 million or $.13 per common share, for 1994.
Earnings per share amounts and weighted average shares outstanding have been restated to reflect the results of the Reclassification.
Employee Stock Options: The Company accounts for its stock-based compensation awards under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, because the exercise price of the Company's employee stock options equal the market price of the underlying stock on the date of grant, no compensation expense is recognized.
2. -- Significant Accounting Policies (cont)
Recently Issued Accounting Standards: In March 1995, the Financial Accounting Standards Board issued 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 Company will adopt SFAS No. 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material.
Reclassifications: Certain reclassifications of prior year presentations have been made to conform to the 1995 presentation.
3. -- Property, Plant and Equipment
4. -- Long-Term Debt
Aggregate annual maturities of long-term debt at December 31, 1995, for the next five years are $81 million in 1996, $142 million in 1997, $146 million in 1998, $154 million in 1999, and $397 million in 2000.
4. -- Long-Term Debt (cont)
1994 Credit Agreement In connection with the Recapitalization, JSC (U.S.) entered into a bank credit facility (the "1994 Credit Agreement") which consists of a $450 million revolving credit facility (the "Revolving Credit Facility") of which up to $150 million may consist of letters of credit, a $900 million Tranche A Term Loan and a $300 million Tranche B Term Loan. The Revolving Credit Facility matures in 2001. The Tranche A Term Loan matures in various installments through 2001. The Tranche B Term Loan matures in various installments through 2002.
Outstanding loans under the Tranche A Term Loan and the Revolving Credit Facility bear interest at rates selected at the option of JSC (U.S.) equal to the alternate base rate ("ABR") plus .75% per annum or the adjusted LIBOR Rate plus 1.75% per annum (7.82% at December 31, 1995). Interest on outstanding loans under the Tranche B Term Loan is payable at a rate per annum selected at the option of JSC (U.S.), equal to the prime rate plus 2% per annum or the adjusted LIBOR Rate plus 3% per annum (8.91% at December 31, 1995). ABR is defined as the highest of Chemical 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 and Tranche B 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 .375% per annum is assessed on the unused portion of the Revolving Credit Facility. At December 31, 1995, the unused portion of this facility, after giving consideration to outstanding letters of credit, was $301 million.
The obligations under the 1994 Credit Agreement are unconditionally guaranteed by the Company, JSCE, Inc. and its subsidiaries and are secured by a security interest in substantially all of the assets of JSC (U.S.) and its material subsidiaries, with the exception of cash, cash equivalents and trade receivables. The 1994 Credit Agreement is also secured by a pledge of all the capital stock of each material subsidiary of the Company and by certain intercompany notes.
The 1994 Credit Agreement contains various business and financial covenants including, among other things, (i) limitations on dividends, redemptions and repurchases of capital stock, (ii) limitations on the incurrence of indebtedness, liens, leases and sale-leaseback transactions, (iii) limitations on capital expenditures, (iv) maintenance of minimum levels of consolidated earnings before depreciation, interest, taxes and amortization and (v) maintenance of minimum interest coverage ratios. The 1994 Credit Agreement also requires prepayments if JSC (U.S.) has excess cash flows, as defined, or receives proceeds from: certain asset sales, insurance, issuance of equity securities, or incurrence of certain indebtedness.
4. -- Long-Term Debt (cont)
Accounts Receivable Securitization Program Loans During 1995, JSC (U.S.) entered into a $315 million accounts receivable securitization program (the "1995 Securitization"). The proceeds of the 1995 Securitization were used to extinguish JSC (U.S.)'s borrowings of $230 million under the 1991 Securitization Program. The 1995 Securitization provides for the sale of certain of the Company's trade receivables to a wholly-owned, bankruptcy remote, limited purpose subsidiary, Jefferson Smurfit Finance Corporation ("JS Finance"), which finances its purchases of eligible JSC (U.S.) receivables through the issuance of commercial paper or the proceeds of borrowings under a revolving liquidity facility and a term loan. 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 1995 Securitization, JS Finance has granted a security interest in all its assets, principally cash and cash equivalents of $27 million and trade accounts receivable of $217 million at December 31, 1995. Interest rates on borrowings under the 1995 Securitization are at a variable rate (5.78% at December 31, 1995). At December 31, 1995, $95 million was available for additional borrowing, subject to JSC (U.S.)'s level of eligible accounts receivable. Borrowings under the Securitization Program, which expires December 1999, have been classified as long-term debt because of the Company's intent to refinance this debt on a long-term basis and the availability of such financing under the terms of the program.
1994 Senior Notes In connection with the Recapitalization, JSC (U.S.) issued and sold $300 million aggregate principal amount of unsecured 11.25% Series A Senior Notes due 2004 and $100 million aggregate principal amount of unsecured 10.75% Series B Senior Notes due 2002. The Series A Senior Notes are redeemable in whole or in part at the option of JSC (U.S.), at any time on or after May 1, 1999 with premiums of 5.625% and 2.813% of the principal amount if redeemed during the 12-month periods commencing May 1, 1999 and 2000, respectively. In addition, up to $100 million aggregate principal amount of Series A Senior Notes are redeemable at 110% of the principal amount prior to May 1, 1997 in connection with certain stock issuances. The Series B Senior Notes are not redeemable prior to maturity.
The 1994 Senior Notes, which are unconditionally guaranteed on a senior basis by JSCE, Inc., rank pari passu with the 1994 Credit Agreement and the 1993 Senior Notes. The 1994 Senior Notes agreement contains business and financial covenants which are less restrictive than those contained in the 1994 Credit Agreement.
Holders of the 1994 Senior Notes have the right, subject to certain limitations, to require JSC (U.S.) to repurchase their securities at 101% of the principal amount plus accrued and unpaid interest, upon the occurrence of a change of control or in certain events from proceeds of major asset sales, as defined.
4. -- Long-Term Debt (cont)
1993 Senior Notes In April 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, 1995, is payable in varying installments through the year 2029. Interest rates on these obligations averaged approximately 8.81% at December 31, 1995.
Interest Rate Swap and Cap Agreements The Company utilizes interest rate swap and cap agreements to manage its interest rate exposure on long-term debt. At December 31, 1995, the Company has interest rate swap agreements with a notional amount of $483 million which effectively fix (for remaining periods up to 2 years) the interest rate on variable rate borrowings. The Company is currently paying a weighted average fixed interest rate of 6.52% and receiving a weighted average variable interest rate of 5.80%, calculated on the notional amount. In addition, the Company has a cap agreement with a notional amount of $100 million (through 1996) on variable rate debt which limits the Company's interest payments to a range of 5.5-7.0% on the notional amount.
The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreements. However, the Company does not anticipate non-performance by the counterparties.
Other Interest costs capitalized on construction projects in 1995, 1994, and 1993 totalled $4 million, $4 million, and $3 million, respectively. Interest payments on all debt instruments for 1995, 1994, and 1993 were $228 million, $247 million, and $226 million, respectively.
5. -- Income Taxes
At December 31, 1995, the Company has net operating loss carryforwards for federal income tax purposes of approximately $98 million (expiring in the year 2009), none of which are available for utilization against alternative minimum taxes.
The Company increased its deferred tax assets and liabilities in 1993 as a result of legislation enacted during 1993 increasing the corporate federal statutory tax rate from 34% to 35% effective January 1, 1993.
5. -- Income Taxes (cont)
The federal income tax returns for 1989 through 1991 are currently under examination. While the ultimate results of such examination cannot be predicted with certainty, the Company's management believes that the examination will not have a material adverse effect on its consolidated financial condition or results of operations.
A reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate as a percentage of income (loss) before income taxes, extraordinary item, and cumulative effect of accounting changes is as follows:
The Company made income tax payments of $41 million, $3 million, and $33 million, in 1995, 1994, and 1993, respectively.
Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by SFAS No. 109, "Accounting for Income Taxes".
The cumulative effect of adopting SFAS No. 109 as of January 1, 1993 was to increase net income by $21 million. For 1993, application of SFAS No. 109 increased the pretax loss by $14 million because of increased depreciation expense as a result of the requirement to report assets acquired in prior business combinations at pretax amounts.
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:
The components of net pension income for the defined benefit plans and the total contributions charged to pension expense for the multi- employer plans follow:
The following table sets forth the funded status and amounts recognized in the consolidated balance sheets at December 31 for the Company's and its subsidiaries' defined benefit pension plans:
6. -- Employee Benefit Plans (cont)
Approximately 41% of plan assets at December 31, 1995 are invested in cash equivalents or debt securities and 59% are invested in equity securities, including common stock of JS Group having a market value of $78 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 stock, is 50% of each participant's contributions up to an annual maximum. The Company's expense for the savings plans totalled $6 million, $5 million, and $5 million in 1995, 1994, and 1993, respectively.
Postretirement Health Care and Life Insurance Benefits The Company provides certain health care and life insurance benefits for all salaried and certain hourly employees. The Company has various plans under which the cost may be borne either by the Company, the employee or partially by each party. The Company does not currently fund these plans. These benefits are discretionary and are not a commitment to long-term benefit payments. The plans were amended effective January 1, 1993 to 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.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", which requires companies to accrue the expected cost of retiree benefit payments, other than pensions, during employees' active service period. The Company elected to immediately recognize the accumulated liability, measured as of January 1, 1993. The cumulative effect of this change in accounting principle resulted in a charge of $37 million (net of income tax benefits of $22 million). The Company had previously recorded an obligation of $36 million in connection with prior business combinations.
The following table sets forth the accumulated postretirement benefit obligation ("APBO") with respect to these benefits as of December 31:
Net periodic postretirement benefit cost included the following components:
6. -- Employee Benefit Plans (cont)
A weighted-average discount rate of 7.25% and 8.5% was used in determining the APBO at December 31, 1995 and 1994, respectively. The weighted-average annual assumed rate of increase in the per capita cost of covered benefits ("health care cost trend rate") was 9.5%, 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, 1995 by $2 million and have no effect on the annual net periodic postretirement benefit cost for 1995.
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 twelve years from the date of grant or termination of employment, death or disability. At December 31, 1995, 8,049,306 shares of common stock were reserved for issuance under the Plan, including 2,417,838 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 eleven years from the date of grant. At December 31, 1995, 486,103 options were exercisable, and no options were exercisable at December 31, 1994.
Additional information relating to the Plan restated to reflect the results of the Reclassification is as follows:
7. -- Related Party Transactions
Transactions with JS Group Transactions with JS Group, its subsidiaries and affiliated companies were as follows:
Product sales to and purchases from JS Group, its subsidiaries, and affiliates are consummated on terms generally similar to those prevailing with unrelated parties.
The Company provides certain subsidiaries and affiliates of JS Group with general management and elective management services under separate Management Services Agreements. In consideration for general management services, the Company is paid a fee up to 2% of the subsidiaries' or affiliates' gross sales. In consideration for elective services, the Company is reimbursed for its direct cost of providing such services.
An affiliate of JS Group owns the No. 2 paperboard machine that is located in the Company's Fernandina Beach, Florida paperboard mill (the "Fernandina Mill"). Pursuant to an operating agreement between the Company and the affiliate, the Company operates and manages the No. 2 paperboard machine and is compensated for its direct production and manufacturing costs and indirect manufacturing, selling and administrative costs incurred by the Company for the entire Fernandina Mill. The compensation is determined by applying various formulas and agreed upon amounts to the subject costs. The amounts reimbursed to the Company are reflected as reductions of cost of goods sold and selling and administrative expenses in the accompanying consolidated statements of operations.
Transactions with Times Mirror In July 1995, under the terms of a shareholder agreement, JSC (U.S.) acquired the remaining 20% minority interest of Smurfit Newsprint Corporation ("SNC") from The Times Mirror Company ("Times Mirror"). SNC supplies newsprint to Times Mirror at amounts which approximate prevailing market prices under the terms of a long-term agreement. The obligations of the Company and Times Mirror to supply and purchase newsprint are wholly or partially terminable upon the occurrence of certain defined events. Sales to Times Mirror for 1995, 1994, and 1993 were $189 million, $113 million, and $115 million, respectively.
Transactions with Morgan Stanley & Co. In connection with the Recapitalization, Morgan Stanley & Co., in its capacity as underwriter of public equity and debt securities, received fees from the Company of $16 million in 1994.
8. -- Leases
The Company leases certain facilities and equipment for production, selling and administrative purposes under operating leases. Future minimum lease payments at December 31, 1995, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year are $29 million in 1996, $22 million in 1997, $15 million in 1998, $11 million in 1999, $9 million in 2000 and $20 million thereafter.
Net rental expense was $48 million, $46 million, and $45 million, for 1995, 1994, and 1993, respectively.
9. -- Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as follows:
The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair value of the interest rate swap agreements is the estimated amount the Company would pay or receive, net of accrued interest expense, to terminate the agreements at December 31, 1995 and 1994, taking into account current interest rates and the current creditworthiness of the swap counterparties.
10. -- Restructuring Charge
During 1993, the Company recorded a pretax charge of $96 million to recognize the effects of a restructuring program designed to improve the Company's long-term competitive position. Since 1993, the Company has written down the assets of closed facilities and other nonproductive assets totalling $35 million, and made cash expenditures of $33 million relating to direct expenses associated with plant closures, reductions in workforce, realignment and consolidation of various manufacturing operations. The remaining balance of the restructuring liability at December 31, 1995 was $28 million, the majority of which is expected to be paid in 1996. The restructuring program is proceeding as originally planned, and no significant adjustment to the reserve is anticipated at this time.
11. -- Contingencies
The Company's past and present operations include activities which are subject to federal, state and local environmental requirements, particularly relating to air and water quality. The Company faces potential environmental liability as a result of violations of permit terms and similar authorizations that have occurred from time to time at its facilities. The Company faces potential liability for response costs at various sites with respect to which the Company has received notice that it may be a potentially responsible party ("PRP") as well as contamination of certain Company-owned properties, under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") concerning hazardous substance contamination. In estimating its reserves for environmental remediation and future costs, the Company's estimated liability reflects only the Company's expected share. In determining the liability, the estimate takes into consideration the number of other PRP's at each site, the identity and financial condition of such parties and experience regarding similar matters. No amounts have been recorded for potential recoveries from insurance carriers.
During 1993, the Company recorded a pretax charge of $54 million of which $39 million represents 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 potentially responsible party. The Company made payments of $9 million and $4 million related to PRP sites and other environmental cleanup in 1995 and 1994, respectively.
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 operation.
In the fourth quarter of 1995, the Company recorded a pretax charge totalling $25 million related to product quality matters and failure to follow proper manufacturing and internal procedures in an immaterial non-core product line. The Company is continuing to further evaluate this issue and expects to conclude its review during the second fiscal quarter. Based upon the information currently available to management, the Company believes the reserve is adequate but intends to reevaluate the adequacy of the reserve at the conclusion of its review.
12. -- 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 cylinderboard, corrugated containers, folding cartons, fiber partitions, spiral cores and tubes, labels and flexible packaging. The newsprint segment includes the manufacture and distribution of newsprint. A summary by business segment of net sales, income (loss) from operations, identifiable assets, capital expenditures and depreciation, depletion and amortization follows:
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.
13. -- Quarterly Results (Unaudited)
The following is a summary of the unaudited quarterly results of operations:
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.

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 Michael W.J. Smurfit 59 Howard E. Kilroy 60 James E. Terrill 62 James R. Thompson 59 Donald P. Brennan 55 Alan E. Goldberg 41 David R. Ramsay 32 G. Thompson Hutton 40
The Board of Directors currently consists of eight directors. The directors are classified into three groups: three directors having terms expiring in 1996 (Messrs. Kilroy, Goldberg and Thompson), two directors having terms expiring in 1997 (Messrs. Smurfit and Brennan) and three directors having terms expiring in 1998 (Messrs. Terrill, Ramsay and Hutton).
Executive Officers
The following table sets forth the names, ages and positions of the executive officers of the Company.
Biographies
Donald P. Brennan has been a Director of the Company since 1989. Mr. Brennan is an Advisory Director of Morgan Stanley & Co. Inc. ("MS&Co."). He was Managing Director of MS&Co. from 1984 to February 1996, responsible for MS&Co.'s Merchant Banking Division. He is Chairman and President of Morgan Stanley Leveraged Equity Fund II, Inc. ("MSLEF II, Inc.") and Morgan Stanley Capital Partners III, Inc. ("MSCP III, Inc."). Mr. Brennan serves as Director of Fort Howard Corporation, PSF Finance Holdings, Inc. and SITA Telecommunications Holdings N.V.
James P. Davis was appointed Vice President and General Manager - Consumer Packaging Division in November 1995. He served as Division Director of Operations from August 1995 to November 1995. Prior to that time, he held various management positions in the Container Division since joining the Company in 1977.
Raymond G. Duffy has been Vice President - Planning since July 1983 and served as Director of Corporate Planning from 1980 to 1983.
John R. Funke has been Vice President and Chief Financial Officer since April 1989 and was Corporate Controller and Secretary from 1982 to April 1989.
Alan E. Goldberg has been a Director of the Company since 1989. Mr. Goldberg joined MS&Co. in 1979 and has been a member of MS&Co.'s Merchant Banking Division since its formation in 1985 and a Managing Director of MS&Co. since 1988. Mr. Goldberg is a Director and a Vice Chairman of MSCP III, Inc. and MSLEF II, Inc. Mr. Goldberg also serves as Director of Amerin Guaranty Corporation, CIMIC Holdings Limited, Centre Cat Limited, Hamilton Services Limited and Risk Management Solutions, Inc.
Richard J. Golden has been Vice President - Purchasing since January 1985 and was Director of Corporate Purchasing from October 1981 to January 1985. In January 1994, he was assigned responsibility for world-wide purchasing for Jefferson Smurfit Group plc ("JS Group"), a public company organized under the laws of the Republic of Ireland.
Richard W. Graham was appointed Senior Vice President in February 1994. He served as Vice President and General Manager - Folding Carton and Boxboard Mill Division from February 1991 to January 1994. Mr. Graham was Vice President and General Manager - Folding Carton Division from October 1986 to February 1991.
Michael F. Harrington was appointed Vice President - Personnel and Human Resources in 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 was appointed Vice President and Treasurer in 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.
G. Thompson Hutton was elected to the Board of Directors in December 1994. Mr. Hutton has been President and Chief Executive Officer of Risk Management Solutions, Inc., an information services company based in Menlo Park, California, since 1991. Prior to that he was a management consultant with McKinsey & Company, Inc. from 1986 to 1991. He also serves as a Trustee of Colorado Outward Bound School.
Howard E. Kilroy has been a Director of the Company since 1989. Mr. Kilroy was Chief Operations Director of JS Group from 1978 until March 1995 and President of JS Group from October 1986 until March 1995. He was a member of the Supervisory Board of Smurfit International B.V. ("SIBV") from January 1978 to January 1992. He was Senior Vice President of the Company for over 5 years. He retired from his executive positions with JS Group and the Company at the end of March 1995, but remains a Director of JS Group and the Company. In addition, he is Governor (Chairman) of Bank of Ireland and a Director of CRH plc.
F. Scott Macfarlane was appointed Vice President and General Manager - Folding Carton and Boxboard Mill Division in November 1995. He served as Vice President and General Manager of the Folding Carton Division from December 1993 to November 1995. Since joining the Company in 1971, he has held increasingly responsible positions within the Folding Carton Division.
Edward F. McCallum has been Vice President and General Manager - Container Division since October 1992. He served as Vice President and General Manager of the Industrial Packaging Division from January 1991 to October 1992. Prior to that time, he served in various positions in the Container Division since joining the Company in 1971.
Lyle L. Meyer has been Vice President since April 1989. He served as President of Smurfit Pension and Insurance Services Company ("SPISCO") from 1982 until 1992, when SPISCO was merged into the Company.
Patrick J. Moore has been Vice President and General Manager - Industrial Packaging Division since December 1994. He served as Vice President and Treasurer from February 1993 to December 1994 and was Treasurer from October 1990 to February 1993. Prior to joining the Company in 1987 as Assistant Treasurer, Mr. Moore was with Continental Bank in Chicago where he served in various corporate lending, international banking and administrative capacities.
David R. Ramsay has been a Director of the Company since 1989. Mr. Ramsay joined MS&Co. in 1989 and is a Vice President of MS&Co.'s Merchant Banking Division. Mr. Ramsay also serves as a Director of ARM Financial Group Inc., Integrity Life Insurance Company, National Integrity Life Insurance Company, Consolidated Hydro, Inc., Hamilton Services Limited, Risk Management Solutions, Inc. and PSF Finance Holdings, Inc.
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 - Reclamation Division since January 1993. He joined the Company in 1987 as General Sales Manager and was named Vice President later that year. He held various management positions with International Paper and was President of Mead Container Division prior to joining the Company.
Truman L. Sturdevant has been Vice President and General Manager of SNC since August 1990. Mr. Sturdevant joined the Company in 1984 as Vice President and General Manager of the Oregon City newsprint mill.
James E. Terrill was named a Director and President and Chief Executive Officer in February 1994. He served as Executive Vice President - Operations from August 1990 to February 1994. He also served as Executive Vice President of SNC from February 1993 to February 1994 and was President of SNC from February 1986 to February 1993.
James R. Thompson was elected to the Board of Directors in July 1994. He is Chairman of Winston & Strawn, a law firm that regularly represents the Company on numerous matters. He served as Governor of the State of Illinois from 1977 to 1991. Mr. Thompson also serves as a Director of FMC Corporation, the Chicago Board of Trade, International Advisory Council of the Bank of Montreal, Prime Retail, Inc., Pechiney International, Wackenhut Corrections Corporation, Hollinger International, Inc. and Union Pacific Resources, Inc.
Michael E. Tierney has been Vice President, General Counsel and Secretary since January 1993. He served previously as Senior Counsel and Assistant Secretary since joining the Company in 1987.
Richard K. Volland has been Vice President - Physical Distribution since 1978.
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. Since joining the Company in 1966, he has held increasingly responsible positions in production, plant management and planning, both domestic and foreign.
Gary L. West has been Vice President - Sales and Marketing since December 1994. He was Vice President and General Manager - Industrial Packaging Division from October 1992 to December 1994. He served as Vice President - Converting and Marketing for the Industrial Packaging Division from January 1991 to October 1992. Prior to that time, he held various management positions in the Container and Consumer Packaging divisions since joining the Company in 1980.
ITEM 11.

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 9, 1996, which will be filed with the Securities and Exchange Commission on or before April 30, 1996 (the "Proxy Statement"), and is incorporated herein by reference.
ITEM 12.

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 JSC's Proxy Statement and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is set forth under the caption "Certain Transactions" in JSC's Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14.

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 are included in Item 8 on page 22. (3) Exhibits. 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (File No. 33-57085)). 3.2 By-laws of the Company (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (File No. 33-57085)). 4.1 Certificate for the Company's Common Stock (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 (File No. 33-57085)). 10.1 Second Amended and Restated Organization Agreement, as of August 26, 1992, among JSC (U.S.), Container Corporation of America ("CCA"), MSLEF II, Inc., SIBV, the Company and The Morgan Stanley Leveraged Equity Fund II, L.P). ("MSLEF II") (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 Stockholders Agreement among the Company, SIBV, MSLEF II and certain related entities (incorporated by reference to Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1994). 10.3 Registration Rights Agreement among the Company, MSLEF II and SIBV (incorporated by reference to Exhibit 10.3 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1994). 10.4 Subscription Agreement among the Company, JSC (U.S.), CCA and SIBV (incorporated by reference to Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1994). 10.5(a) Restated Newsprint Agreement, dated January 1, 1990, by and between SNC and The Times Mirror Company (incorporated by reference to Exhibit 10.39 to JSC (U.S.)'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990). Portions of this exhibit have been excluded pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 10.5(b) Amendment No. 1 to the Restated Newsprint Agreement (incorporated by reference to Exhibit 10.6(b) to the Company's Registration Statement on Form S-1 (File No. 33- 75520)). 10.6 Operating Agreement, dated as of April 30, 1992, by and between CCA and Smurfit Paperboard, Inc. (incorporated by reference to Exhibit 10.42 to JSC (U.S.)'s quarterly report on Form 10-Q for the quarter ended March 31, 1992). 10.7 Deferred Compensation Agreement, dated January 1, 1979, between JSC (U.S.) and James B. Malloy, as amended and effective November 10, 1983 (incorporated by reference to Exhibit 10(m) to JSC (U.S.)'s Registration Statement on Form S-1 (File No. 2-86554)).
10.8(a) JSC (U.S.) Deferred Compensation Capital Enhancement Plan (incorporated by reference to Exhibit 10(r) to JSC (U.S.)'s quarterly report on Form 10-Q for the quarter ended September 30, 1985). 10.8(b) Amendment No. 1 to the Deferred Compensation Capital Enhancement Plan (incorporated by reference to Exhibit 10.37 to JSC (U.S.)/CCA's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.9(a) JSC (U.S.) Deferred Director's Fee Plan (incorporated by reference to Exhibit 10.33 to JSC (U.S.)/CCA's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.9(b) Amendment No. 1 to JSC (U.S.) Deferred Director's Fee Plan (incorporated by reference to Exhibit 10.34 to JSC (U.S.)/CCA's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.10 Jefferson Smurfit Corporation (U.S.) Management Incentive Plan. 10.11 Jefferson Smurfit Corporation (U.S.) 1994 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1 (File No. 33- 75520)). 10.12 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). 10.13(a) 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.48 to JSC (U.S.)'s quarterly report on Form 10-Q for the quarter ended September 30, 1992). 10.13(b) Amendment No. 1 to 1992 SIBV/MS Holdings, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.16(b) to the Company's Registration Statement on Form S-1 (File No. 33-75520)). 10.14 Credit Agreement, among JSCE, JSC (U.S.) and the banks parties thereto (incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1994). 10.14(a) Consent and Amendment No. 1 dated as of February 23, 1995 to the Credit Agreement among JSCE, JSC (U.S.) and the banks parties thereto. 10.14(b) Waiver and Amendment No. 2 dated as of June 9, 1995 to the Credit Agreement among JSCE, JSC (U.S.) and the banks parties thereto. 10.14(c) Waiver and Amendment No. 3 dated as of July 14, 1995 to the Credit Agreement among JSCE, JSC (U.S.) and the banks parties thereto. 10.14(d) Amendment No. 4 dated as of October 16, 1995 to the Credit Agreement among JSCE, JSC (U.S.) and the banks parties thereto. 10.14(e) Amendment No. 5 dated as of January 31, 1996 to the Credit Agreement among JSCE, JSC (U.S.) and the banks parties thereto. 11.1 Calculation of Historical Per Share Earnings. 18.1 Letter regarding change in accounting for pension plans (incorporated by reference to Exhibit 18.1 to JSC (U.S.)'s quarterly report on Form 10-Q for the quarter ended September 30, 1993). 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Auditors. 24.1 Powers of Attorney. 27.1 Financial Data Schedule.
(b) Report on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended December 31, 1995.
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 8, 1996 JEFFERSON SMURFIT CORPORATION (Registrant)
BY /s/ John R. Funke John R. Funke Vice-President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.
SIGNATURE TITLE DATE
* Chairman of the Board Michael W. J. Smurfit and Director
* President, Chief Executive Officer James E. Terrill and Director (Principal Executive Officer)
/s/ John R. Funke Vice-President and Chief March 8, 1996 John R. Funke Financial Officer (Principal Accounting Officer)
* Director Howard E. Kilroy
* Director Donald P. Brennan
* Director Alan E. Goldberg
* Director David R. Ramsay
* Director James R. Thompson
* Director G. Thompson Hutton
* By /s/ John R. Funke , pursuant to Powers of Attorney John R. Funke filed as part of the Form 10-K. As Attorney in Fact