**JSG Funding plc**

**Form 20-F/A**

**2005**

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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**Amendment No. 1 to**

**FORM 20-F**

**OR**

**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year ended December 31,2005**

**Commission file number 333-125371**

**JSG FUNDING PLC**

**JSG ACQUISITIONS**

(Exact name of registrants as specified in theirrespective charters)

**IRELAND**

(Jurisdiction of incorporation or organization)

**BEECH HILL, CLONSKEAGH,DUBLIN 4, IRELAND**

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) ofthe Act:

**None**

Securities registered or to be registered pursuant to Section 12(g) ofthe Act:

**None**

Securities for which there is a reporting obligationpursuant to Section 15(d) of the Act:

**101**¤8%Senior Notes due 2012

**95**¤8%Senior Notes due 2012

**7.75% Senior SubordinatedNotes due 2015**

Indicatethe number of outstanding shares of each of the JSG Funding’s classes ofcapital or common stock as of December 31, 2005: Ordinary Shares of €0.001 each 40,000,000.

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

o Yes    x No

Ifthis report is an annual or transition report, indicate by check mark if the registrantis not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.

o Yes    x No

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

x Yes    o No

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

o Large acceleratedfiler   o Accelerated filer   x Non-accelerated filer

Indicateby check mark which financial statement item the registrant has elected tofollow.

o Item 17   x Item 18

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes    x No

 

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**TABLEOF CONTENTS**

| Item 3.  |   | Key Information         |   | 4 |
|----------|--------|-------------------------|--------|---|
| Item 15. |   | Controls and Procedures |   | 7 |
| Item 18. |   | Financial Statements    |   | 8 |
| Item 19. |   | Exhibits                |   | 9 |

 

**Explanatory Note**

This Amendment No.1 on Form 20-F/A (this “Amendment”)amends Items 3, 15, 18 and 19 of the annual report on Form 20-F for the fiscalyear ended December 31, 2005, filed on May 1, 2006.  Each of Smurfit Kappa Funding plc (formerlyknown as JSG Funding plc) and SmurfitKappa Acquisitions (formerlyknown as JSG Acquisitions) has filed this Amendment to reflect the Restatementof U.S. GAAP financial information for each of the three years in the periodended December 31, 2005 as presented in Note 35 (Differences Between AccountingPrinciples Generally Accepted in Ireland and in the United States) to theconsolidated financial statements included in the Form 20-F. This Amendmentreflects push-down accounting under U.S. GAAP in respect of an €89million subordinated promissory note issued by Smurfit Kappa Group Limited,primarily to Kappa’s former shareholders, as part of the acquisition of KappaHolding B.V. (“Kappa”) on December 1, 2005. This amendment also reflects the restatementof translation gains and losses originally recorded in other comprehensiveincome to net income. These gains and losses arise on US$ 545 million of thesenior notes 9.625% due 2012. The Group has also restated shareholders’ equitypresented in accordance with US GAAP to correct certain clerical errors inrelation to the fair value adjustments arising on the acquisition of Kappa.These changes had no effect on the Group’s financial statements and relatednotes prepared in accordance with Irish GAAP. This Amendment also addressesmanagement’s re-evaluation of disclosure controls and procedures resulting fromthe US GAAP restatements. Other than as expressly set forth above, thisAmendment does not, and does not purport to, amend, update or restate theinformation in any other item of the Form 20-F filed on May 1, 2006 orreflect any events that have occurred after the Form 20-F was filed on May 1,2006.  Therefore, you should read thisAmendment together with our Quarterly Information Packages on Form 6-K forthe quarters ended March 31, 2006 and June 30, 2006, as well as the otherdocuments that we have filed since December 31, 2005 with the Securities andExchange Commission.  Information in suchreports and documents supersedes certain information contained in thisAmendment. This Amendment also includes (i) our auditors’ signature on updatedReports of Independent Registered Public Accounting Firm, and (ii) newcertifications of our chief executive officer and chief financial officerpursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of1934 and Section 906 of the Sarbanes-Oxley Act of 2002.

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**Introduction**

In this annualreport, unless the context otherwise requires:

·        “JSGFunding” refers to JSG Funding plc, a direct subsidiary of JSL and indirectowner of JSG and Kappa, and issuer of the 95¤8% senior notesdue 2012, the 101¤8%senior notes due 2012 and the 7.75% senior subordinated notes due 2015;

·        “JSGAcquisitions” refers to JSG Acquisitions, a wholly-owned subsidiary ofJSG Funding and guarantor of the 95¤8%Senior Notes due 2012 and the 101¤8%Senior Notes due 2012;

·        “JSL”refers to Jefferson Smurfit Group Limited;

·        “JSG”refers to Smurfit Packaging Corporation Ltd and its consolidated subsidiaries;

·        “SKGL”refers to Smurfit Kappa Group Limited (formerly known as JSG Packaging Limited(“JSG Packaging”), an Irish limited company which from February 6, 2004became the ultimate parent;

·        “JSGHoldings” refers to JSG Holdings plc, a direct subsidiary of SKGL and from February 6,2004, the indirect parent of JSG and from December 1, 2005, the indirectparent of Kappa;

·        “Kappa”refers to Kappa Holding B.V. and its consolidated subsidiaries;

·        “SSCC”refers to Smurfit-Stone Container Corporation; and

·        “SKG,”“Group”, “we,” “us,” and “our” and similar terms refer to the consolidatedbusiness of JSG Funding plc and all of its consolidated subsidiaries and itspredecessors, including JSG and Kappa.

SKG’s 2005 results include 11 months of JSG and onemonth of Kappa and JSG combined. See Item 4 “Information on the Company—Historyand Development of the Company” for more information relating to the merger ofJSG and Kappa and the acquisition of JSG by JSG Acquisitions.

This annual report on Form 20-Fcovers both JSG Funding and JSG Acquisitions. JSG Acquisitions is the whollyowned subsidiary of JSG Funding and guarantor of JSG Funding’s 101¤8%Senior Notes due 2012 and the 95¤8% Senior Notes due 2012. Theoperating earnings, net income and cash flows of both companies are almostidentical. Although the interest expense of both are similar, JSG Funding has agreater third party interest cost while JSG Acquisitions has asubstantial inter company interest expense payable to JSG Funding. This relatesto the advance to JSG Acquisitions of the proceeds from the issuance of thesenior notes, the subordinated notes and the senior subordinated notes by JSGFunding. The balance sheets of both companies are also substantially the samewith the exception of the composition of their debt. The third party debt ofJSG Funding is greater than that of JSG Acquisitions. However, JSG Acquisitionshas substantial inter company debt due to JSG Funding relating to the advanceof the proceeds of the senior notes, subordinated notes and senior subordinatednotes offerings.

**Presentation of ourFinancial Information**

Unless otherwise indicated, financial information inthis annual report has been prepared in accordance with generally acceptedaccounting principles in Ireland (“*IrishGAAP*”). Irish GAAP differs in certain significant respects fromaccounting principles generally accepted in the United States (“*U.S. GAAP*”). For a discussion of thesignificant differences between Irish GAAP and U.S. GAAP as they apply to JSGFunding, see note 35 to the historical audited consolidated financialstatements included elsewhere in this annual report.

The financial statementsin this annual report do not comprise ‘full group accounts’ within the meaningof Regulation 40(1) of the European Communities (Companies: GroupAccounts) Regulations, 1992 of Ireland insofar as such group accounts wouldhave to comply with the disclosure and other requirements of those Regulations.Full group accounts for JSL for the year ended December 31, 2003 and 

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fullgroup accounts for JSG Packaging (now known as SKGL) for the year ended December 31,2004, have received unqualified audit reports and have been filed asappropriate with the Irish Registrar of Companies. Full group accounts for SKGLfor the year ended December 31, 2005, will be filed with the Registrar indue course.

**Exchange RateInformation**

In this annual report: (1) *“IR£”*or *“Irishpunt”* refers to the former currency of Ireland; (2) *“**€”* or *“euro”*refers to the single currency of the participating Member States in the ThirdStage of European Economic and Monetary Union of the Treaty Establishing theEuropean Community, as amended from time to time; (3) “*$*” or “*U.S.dollars*” refers to the lawful currency of the United States ofAmerica; (4) “*£*” or “*sterling*” refers to the lawful currency ofthe United Kingdom; and (5) “*SEK*”or “*Swedish Krona*” refers to thelawful currency of Sweden.

Irelandis a participant in the European Monetary Union. In accordance with theMaastricht Treaty, the euro was launched as the single European currency on January 1,1999. Upon the launch of the euro, the exchange rate for the Irish punt wasirrevocably fixed at IR£0.787564 = €1.00, and on January 1,2002, the Irish punt was replaced by the euro. The following tables show forthe period from January 1, 2001 through December 31, 2005, theperiod-end, average, high and low Noon Buying Rates in the City of New Yorkfor cable transfers of euro as certified for customs purposes by the FederalReserve Bank of New York expressed as U.S. dollars per €1.00,which we refer to as the “*Noon Buying Rate*.”

| ** **                              | ** ** | **U.S. dollar/euro Exchange Rates**                             | ** ** |
|-----------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                              | ** ** | **At and for the Years Ended December 31,** | ** ** |
| ** **                              | ** ** | **2001**                                                                       | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| Exchange rate at  end of period         |       | 0.8822                                                                         |       | 1.0485 |   | 1.2597 |   | 1.3538 |   | 1.1842 |   |
| Average exchange  rate during period(1) |       | 0.8909                                                                         |       | 0.9495 |   | 1.1412 |   | 1.2478 |   | 1.2400 |   |
| Highest exchange  rate during period    |       | 0.9535                                                                         |       | 1.0485 |   | 1.2597 |   | 1.3625 |   | 1.3476 |   |
| Lowest exchange rate  during period     |       | 0.8370                                                                         |       | 0.8594 |   | 1.0361 |   | 1.1801 |   | 1.1667 |   |

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(1)          Theaverage of the Noon Buying Rates on the last business day of each month duringthe applicable period.

| ** **                          | ** ** | **U.S. dollar/euro Exchange Rates** | ** ** |
|-------------------------------------|------------|-------------------------------------|------------|
| ** **                          | ** ** | **At and for the Months Ended**     | ** ** |
| ** **                          | ** ** | **2005**                            | ** ** | **2006** | ** ** |
| ** **                          | ** ** | **Jan**                             | ** ** | **Feb** | ** ** | **Mar** | ** ** | **Apr** | ** ** | **May** | ** ** | **Jun** | ** ** | **Jul** | ** ** | **Aug** | ** ** | **Sep** | ** ** | **Oct** | ** ** | **Nov** | ** ** | **Dec** | ** ** | **Jan** | ** ** | **Feb** | ** ** | **Mar** | ** ** |
| Exchange rate at end of period      |       | 1.30                                |       | 1.33 |   | 1.30 |   | 1.29 |   | 1.21 |   | 1.21 |   | 1.23 |   | 1.23 |   | 1.21 |   | 1.20 |   | 1.18 |   | 1.18 |   | 1.22 |   | 1.19 |   | 1.21 |   |
| Average exchange rate during period |       | 1.31                                |       | 1.30 |   | 1.32 |   | 1.29 |   | 1.27 |   | 1.20 |   | 1.23 |   | 1.23 |   | 1.22 |   | 1.20 |   | 1.18 |   | 1.19 |   | 1.21 |   | 1.19 |   | 1.20 |   |
| Highest exchange rate during period |       | 1.35                                |       | 1.33 |   | 1.35 |   | 1.31 |   | 1.23 |   | 1.22 |   | 1.24 |   | 1.24 |   | 1.25 |   | 1.21 |   | 1.21 |   | 1.20 |   | 1.23 |   | 1.21 |   | 1.22 |   |
| Lowest exchange  rate during period |       | 1.30                                |       | 1.28 |   | 1.28 |   | 1.28 |   | 1.20 |   | 1.19 |   | 1.21 |   | 1.21 |   | 1.20 |   | 1.19 |   | 1.17 |   | 1.17 |   | 1.20 |   | 1.19 |   | 1.19 |   |

 

On April 27, 2006, the Noon Buying Rate was €1.00=$1.2525.

Our inclusion of theseexchange rates is not meant to suggest that the euro amounts actually representsuch U.S. dollar amounts or that such amounts could have been converted intoU.S. dollars at such rate or any other rate. In connection with the preparationof the group profit and loss account and the group cash flow statement,management uses average monthly exchange rates. In connection with thepreparation of the group balance sheet, management uses the closing exchangerate at the balance sheet date. For a 

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discussionof the impact of the exchange fluctuations on our financial condition andresults of operations, see “Operating and Financial Review and Prospects.”

**Market, Ranking AndOther Data**

The data included in thisannual report regarding markets and ranking, including the size of certainmarkets and SKG’s position and the position of SKG’s competitors within thesemarkets, are based on independent industry publications, reports fromgovernment agencies or other published industry sources and estimates based on SKGmanagement’s knowledge and experience in the markets in which it operates. Theestimates have been based on information obtained from SKG’s customers,distributors, suppliers, trade and business organizations and other contacts inthe markets in which it operates. We believe these estimates to be accurate asof the date of this annual report. However, this information may prove to beinaccurate because of the method by which some of the data was obtained orbecause this information cannot always be verified with complete certainty dueto the limits on availability and reliability of raw data, the voluntary natureof the data gathering process and other limitations and uncertainties inherentin a survey of market size. All references to market positions of SKG set forthherein are based on a comparison of volumes sold.

**Disclosure RegardingForward-Looking Statements**

This annual report includes forward-lookingstatements. These forward-looking statements can be identified by the use offorward-looking terminology, including the terms “believes,” “estimates,” “anticipates,”“expects,” “intends,” “may,” “will” or “should” or, in each case, theirnegative, or other variations or comparable terminology. These forward-lookingstatements include all matters that are not historical facts. They appear in anumber of places throughout this annual report and include statements regardingour intentions, beliefs or current expectations concerning, among other things,our results of operations, financial condition, liquidity, prospects, growthstrategies and the industry in which we operate.

By their nature,forward-looking statements involve risks and uncertainties because they relateto events and depend on circumstances that may or may not occur in the future.We caution you that forward-looking statements are not guarantees of futureperformance and that our actual results of operations, financial condition andliquidity, and the development of the industry in which we operate may differmaterially from those made in, or suggested by, the forward-looking statementscontained in this annual report. In addition, even if our results ofoperations, financial condition and liquidity, and the development of theindustry in which we operate are consistent with the forward-lookingstatements contained in this annual report, those results or developments maynot be indicative of results or developments in subsequent periods. Importantfactors that could cause those differences include, but are not limited to:

·        oursubstantial leverage and our ability to meet our debt service obligations;

·        ourability to generate growth or profitable growth;

·        theavailability and price of raw materials;

·        ourability to integrate the JSG operations with the Kappa operations successfully;

·        ourexposure to currency or interest rate fluctuations;

·        ourability to implement our business strategy successfully;

·        ourability to comply with existing or newly implemented environmental regimes inthe countries in which we operate;

·        ourliability for violations, known or unknown, under environmental laws;

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·        increasedcompetition from other companies in our industry and our ability to retain orincrease our market shares;

·        ourability to maximize operating and organizational efficiencies; and

·        generallocal and global economic conditions.

We urge you to read the sections of this annual reportentitled Item 3 “Key Information—Risk Factors” and Item 4 “Information on theCompany—Business Overview” for a more complete discussion of the factors thatcould affect our future performance and the industry in which we operate. Inlight of these risks, uncertainties and assumptions, the forward-looking eventsdescribed in this annual report may not occur.

We undertake no obligationto publicly update or publicly revise any forward-looking statement, whether asa result of new information, future events or otherwise. All subsequent writtenand oral forward-looking statements attributable to us or to persons acting onour behalf are expressly qualified in their entirety by the cautionarystatements referred to above and contained elsewhere in this annual report.

**Item 3.        Key Information**

**Selected HistoricalFinancial Data**

The following table sets forth our selected historicalfinancial data. The periods prior to and including September 2, 2002reflect data of JSG, JSG Funding’s predecessor for financial accountingpurposes. The periods beginning September 3, 2002 reflect data of JSGFunding and its consolidated subsidiaries after the acquisition of JSG. Becauseof the revaluation of certain assets and liabilities acquired and the increasedlevel of debt as part of the acquisition of JSG, and their related impact onthe financial data, the consolidated financial statements of JSG, JSG Funding’spredecessor for the periods prior to September 3, 2002, are not comparableto those of JSG Funding subsequent to that date.

We have derived the selected historical consolidatedfinancial data for the period January 1, 2002 through September 2,2002 and for the fiscal year ended December 31, 2001 from JSG’s auditedconsolidated financial statements, which are not included in this annualreport. We have derived the selected historical consolidated financial data forthe period from September 3, 2002 through December 31, 2002 from JSGFunding’s audited consolidated financial statements, which are not included inthis annual report. We have derived the selected historical consolidatedfinancial data for the years ended December 31, 2003, 2004 and 2005 fromJSG Funding’s audited consolidated financial statements and the related notesincluded elsewhere in this annual report. The selected historical financialdata set forth below is not necessarily indicative of the results of futureoperations and should be read in conjunction with the discussion under theheading “Operating and Financial Review and Prospects,” and the historicalconsolidated financial statements of JSG Funding and accompanying notesincluded elsewhere in this annual report.

Unless otherwiseindicated, this historical financial data has been prepared in accordance withIrish GAAP. Irish GAAP differs in certain significant respects from U.S. GAAP.For a discussion of the most significant differences between Irish GAAP andU.S. GAAP as they apply to JSG Funding, see note 35 to JSG Funding’s historicalfinancial statements included elsewhere in this annual report.

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| ** **                                                   | ** ** | **Predecessor**   | ** ** | ** **                     | ** ** | **Successor** | ** ** |
|--------------------------------------------------------------|------------|-------------------|------------|--------------------------------|------------|---------------|------------|
| ** **                                                   | ** ** | **Year  Ended**   | ** ** | **Jan. 1,  2002 to** | ** ** | ** **    | ** ** | **Sept. 3,  2002 to** | ** ** | **Year  Ended** | ** ** | **Year  Ended** | ** ** | **Year  Ended** | ** ** |
| ** **                                                   | ** ** | **Dec. 31,** | ** ** | **Sept. 2,**              | ** ** | ** **    | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** |
| ** **                                                   | ** ** | **2001**          | ** ** | **2002**                       | ** ** | ** **    | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005**(1) | ** ** |
| **Consolidated  Statement of Income Data:**                  |       |              |       |                           |       |          |       |   |   |   |   |   |   |   |   |
| *Irish  GAAP unless stated otherwise*                        |       |              |       |                           |       |          |       |   |   |   |   |   |   |   |   |
| Net sales                                                    |       | €            | 4,511,650  |                           | €     | 3,134,080     |       |   |   | € | 1,575,575 |   | € | 4,746,315 |   | € | 4,805,082 |   | € | 4,437,329 |   |
| Cost of sales                                                |       | 3,243,372         |       | 2,272,287                      |       |          |       | 1,145,857 |   | 3,419,820 |   | 3,473,299 |   | 3,222,705 |   |
| Impairment of  property, plant and equipment                 |       | 26,642            |       | —                         |       |          |       | — |   | — |   | — |   | 45,214 |   |
| Gross profit                                                 |       | 1,241,636         |       | 861,793                        |       |          |       | 429,718 |   | 1,326,495 |   | 1,331,783 |   | 1,169,410 |   |
| Net operating  expenses                                      |       | 883,964           |       | 656,419                        |       |          |       | 284,005 |   | 982,345 |   | 1,010,564 |   | 977,292 |   |
| Reorganization and  restructuring costs                      |       | 23,763            |       | 12,484                         |       |          |       | 11,978 |   | 35,006 |   | 39,430 |   | 25,090 |   |
| Operating income  subsidiaries—  continuing             |       | 333,909           |       | 192,890                        |       |          |       | 133,735 |   | 309,144 |   | 281,789 |   | 167,028 |   |
| Share of  associates’ operating income             |       | 242,212           |       | 117,473                        |       |          |       | 7,224 |   | 12,155 |   | 12,611 |   | 7,287 |   |
| Share of  associates’ restructuring costs               |       | (10,895           | )          | (7,541                         | )          |          |       | — |   | — |   | — |   | — |   |
| Total operating  income                                      |       | €            | 565,226    |                           | €     | 302,822       |       |   |   | € | 140,959 |   | € | 321,299 |   | € | 294,400 |   | € | 174,315 |   |
| Income on sale of  operations subsidiaries—continuing   |       | —            |       | 20,440                         |       |          |       | — |   | 5,560 |   | 22,173 |   | 52,587 |   |
| Interest income                                              |       | 23,053            |       | 10,286                         |       |          |       | 5,230 |   | 11,631 |   | 8,335 |   | 10,730 |   |
| Interest expense                                             |       | (108,621          | )          | (65,881                        | )          |          |       | (92,718 | ) | (309,368 | ) | (299,338 | ) | (360,009 | ) |
| Share of  associates’ net interest                      |       | (154,654          | )          | (74,387                        | )          |          |       | (386 | ) | (2,062 | ) | (1,301 | ) | (1,336 | ) |
| Other financial  expense(2)                                  |       | —            |       | —                         |       |          |       | (10,775 | ) | (15,266 | ) | (15,718 | ) | (13,259 | ) |
| Income/(loss)  before taxes and equity minority interests    |       | 325,004           |       | 193,280                        |       |          |       | 42,310 |   | 11,794 |   | 8,551 |   | (136,972 | ) |
| Taxes on income,  as  reported                               |       | (137,565          | )          | (77,889                        | )          |          |       | (31,395 | ) | (62,354 | ) | (26,973 | ) | (21,561 | ) |
| Income/(loss)  before equity minority interests              |       | 187,439           |       | 115,391                        |       |          |       | 10,915 |   | (50,560 | ) | (18,422 | ) | (158,533 | ) |
| Equity minority  interests                                   |       | (37,022           | )          | (19,969                        | )          |          |       | (9,061 | ) | (16,768 | ) | (16,067 | ) | (18,813 | ) |
| Net income/(loss)                                            |       | €            | 150,417    |                           | €     | 95,422        |       |   |   | € | 1,854 |   | € | (67,328 | ) | € | (34,489 | ) | € | (177,346 | ) |
| Net income/(loss)  in accordance with US  GAAP (Restated)(4) |       | €            | 151,921    |                           | €     | 95,973        |       |   |   | € | 52,676 |   | € | 79,306 |   | € | 12,556 |   | € | (300,229 | ) |

 

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| ** **                                           | ** ** | **Predecessor**   | ** ** | ** **                     | ** ** | **Successor** | ** ** |
|------------------------------------------------------|------------|-------------------|------------|--------------------------------|------------|---------------|------------|
| ** **                                           | ** ** | **Year  Ended**   | ** ** | **Jan. 1,  2002 to** | ** ** | ** **    | ** ** | **Sept. 3,  2002 to** | ** ** | **Year  Ended** | ** ** | **Year  Ended** | ** ** | **Year  Ended** | ** ** |
| ** **                                           | ** ** | **Dec. 31,** | ** ** | **Sept. 2,**              | ** ** | ** **    | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** |
| ** **                                           | ** ** | **2001**          | ** ** | **2002**                       | ** ** | ** **    | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005**(1) | ** ** |
| **Other Financial Data:**                            |       |              |       |                           |       |          |       |   |   |   |   |   |   |   |   |
| EBITDA:(3)                                           |       | €            | 572,673    |                           | €     | 385,684       |       |   |   | € | 215,621 |   | € | 597,452 |   | € | 591,370 |   | € | 649,371 |   |
| Depreciation, depletion and amortization expense     |       | 238,764           |       | 172,354                        |       |          |       | 92,661 |   | 298,014 |   | 303,126 |   | 443,015 |   |
| Net cash provided by  (used in):                     |       |              |       |                           |       |          |       |   |   |   |   |   |   |   |   |
| Operating activities                                 |       | €            | 584,492    |                           | €     | 356,514       |       |   |   | € | 271,698 |   | € | 690,964 |   | € | 640,929 |   | € | 512,869 |   |
| Capital expenditure and financial investment         |       | (136,627          | )          | (121,206                       | )          |          |       | (90,307 | ) | (161,680 | ) | (166,013 | ) | (166,880 | ) |
| Acquisitions and disposals                           |       | (42,431           | )          | (297,064                       | )          |          |       | (2,516,819 | ) | (180,546 | ) | 5,619 |   | 374,670 |   |
| Financing activities                                 |       | (128,032          | )          | 43,502                         |       |          |       | 2,561,209 |   | (7,421 | ) | (123,548 | ) | 475,449 |   |
| Capital expenditures                                 |       | (177,213          | )          | (119,620                       | )          |          |       | (91,139 | ) | (207,518 | ) | (206,466 | ) | (192,434 | ) |
| **Balance  Sheet Data (at end of period):**          |       |              |       |                           |       |          |       |   |   |   |   |   |   |   |   |
| Cash at bank and in hand                             |       | €            | 440,109    |                           | n/a        |          |       |   | € | 184,331 |   | € | 179,067 |   | € | 248,033 |   | € | 247,807 |   |
| Property, plant and equipment                        |       | 2,088,019         |       | n/a                            |       |          |       | 2,214,254 |   | 2,435,946 |   | 2,334,858 |   | 3,499,084 |   |
| Total assets                                         |       | 5,936,617         |       | n/a                            |       |          |       | 5,842,608 |   | 5,816,927 |   | 5,768,077 |   | 9,375,777 |   |
| Total long term debt and other long term liabilities |       | 1,404,432         |       | n/a                            |       |          |       | 3,027,284 |   | 3,022,350 |   | 2,959,840 |   | 4,537,329 |   |
| Shareholders’ equity                            |       | 2,525,191         |       | n/a                            |       |          |       | 878,099 |   | 895,356 |   | 869,101 |   | 1,418,862 |   |
| **U.S.  GAAP (*Restated*):****(4)**                  |       |              |       |                           |       |          |       |   |   |   |   |   |   |   |   |
| Total assets                                         |       | €            | 5,913,972  |                           | n/a        |          |       |   | € | 6,071,534 |   | € | 5,880,648 |   | € | 5,926,319 |   | € | 9,630,288 |   |
| Shareholders’  equity                           |       | 2,685,847         |       | n/a                            |       |          |       | 691,685 |   | 666,278 |   | 634,016 |   | 776,935 |   |

----

(1)           The financialdata reflects the combination of JSG and Kappa with effect from December 1,2005, incorporating one month’s results for the combined business.

(2)           Other financialexpense represents the difference between the expected return on pension schemeassets and the interest cost of pension scheme liabilities and is disclosed inaccordance with FRS 17—“RetirementBenefits.”

(3)           EBITDArepresents “operating income subsidiaries—continuing” plus “income on sale ofoperations subsidiaries—continuing” plus “depreciation, depletion andamortization” less “other financial expense”. EBITDA is included in this annualreport because it is a basis upon which we assess our financial performance anddebt service capabilities, and because certain covenants in our (and oursubsidiaries’) borrowing arrangements are tied to similar measures. You shouldnot consider EBITDA in isolation from or as a substitute for cash flows fromoperations, net income or other consolidated statement of operations or cashflow statement data prepared in accordance with Irish GAAP or U.S. GAAP or as ameasure of a company’s profitability or liquidity. We understand that whileEBITDA is frequently used by securities analysts, lenders and others in theirevaluation of companies, EBITDA as used herein is not necessarily comparable toother similarly titled captions of other companies due to potentialinconsistencies in the method of calculation. For example, EBITDA does notinclude income or expense relating to associates or equity minority interests.

(4)           The amounts as at December 31, 2005 and for the periodsended December 31, 2005, 2004, 2003 and 2002 have been restated as indicated innote 35 to the consolidated financial statements.

6

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Thefollowing is a reconciliation of net income/(loss) to EBITDA:

| ** **                                            | ** ** | **Predecessor**   | ** ** | ** **                     | ** ** | **Successor** | ** ** |
|-------------------------------------------------------|------------|-------------------|------------|--------------------------------|------------|---------------|------------|
| ** **                                            | ** ** | **Year  Ended**   | ** ** | **Jan. 1,  2002 to** | ** ** | ** **    | ** ** | **Sept. 3,  2002 to** | ** ** | **Year  Ended** | ** ** | **Year  Ended** | ** ** | **Year  Ended** | ** ** |
| ** **                                            | ** ** | **Dec. 31,** | ** ** | **Sept. 2,**              | ** ** | ** **    | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** | **Dec. 31,** | ** ** |
| ** **                                            | ** ** | **2001**          | ** ** | **2002**                       | ** ** | ** **    | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| Net income/(loss)  available to ordinary shareholders |       | €            | 150,417    |                           | €     | 95,422        |       |   |   | € | 1,854 |   | € | (67,328 | ) | € | (34,489 | ) | € | (177,346 | ) |
| Equity minority  interests                            |       | 37,022            |       | 19,969                         |       |          |       | 9,061 |   | 16,768 |   | 16,067 |   | 18,813 |   |
| Taxes on income                                       |       | 137,565           |       | 77,889                         |       |          |       | 31,395 |   | 62,354 |   | 26,973 |   | 21,561 |   |
| Share of  associates income                           |       | (76,663           | )          | (35,545                        | )          |          |       | (6,838 | ) | (10,093 | ) | (11,310 | ) | (5,951 | ) |
| Net interest  expense                                 |       | 85,568            |       | 55,595                         |       |          |       | 87,488 |   | 297,737 |   | 291,003 |   | 349,279 |   |
| Depreciation,  depletion and amortization expense     |       | 238,764           |       | 172,354                        |       |          |       | 92,661 |   | 298,014 |   | 303,126 |   | 443,015 |   |
| EBITDA                                                |       | €            | 572,673    |                           | €     | 385,684       |       |   |   | € | 215,621 |   | € | 597,452 |   | € | 591,370 |   | € | 649,371 |   |

 

**Item 15.**                 Controlsand Procedures

We maintain disclosure controls and procedures (asdefined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934, as amended (the “Exchange Act”)), that are designed to ensure thatinformation we are required to disclose in reports that are filed or submittedunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the rules and forms specified by the Securitiesand Exchange Commission and that such information is accumulated andcommunicated to our management, including the Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

In accordance with regulations issued by the EuropeanUnion and Irish law, certain companies are or will be required to prepare theirfinancial statements in compliance with accounting standards (“IFRS”) issued bythe International Accounting Standards Board (“IASB”). We intend to preparefinancial statements in accordance with IFRS with effect from January 1, 2007.

In preparation for the adoption of IFRS, we employedthird party consultants to assist in reviewing our accounting policies andpractices and in the identification of differences between Irish GAAP and IFRS.We also considered the effect of IFRS adoption on our US GAAP reconciliationprocess as part of this review, due to the IASB and FASB projects forconvergence of IFRS and US GAAP. As a result of this review managementconcluded that its US GAAP accounting treatment for net investment hedgeaccounting using a tandem currency debt instrument was not correct. Inaddition, management concluded that its US GAAP accounting treatment for parentcompany third party debt was not correct. Details of the restatements arisingfrom this review are provided in Note 35 to the consolidated financialstatements (Differences Between Accounting Principles Generally Accepted inIreland and in the United States).

These changes had no effect on the Group’s financialstatements and related notes prepared in accordance with Irish GAAP.Management, including the Chief Executive Officer and Chief Financial Officer,re-evaluated our disclosure controls and procedures in respect of the periodcovered by this report. Arising from the restated items above, management hasdetermined that our US GAAP disclosure controls and procedures at the end ofthe period were not effective in enabling us to meet our Exchange Act reportingobligations. Management has not identified any other control issues that wouldhave led them to conclude that the Group's disclosure controls and procedureswere not effective for the period covered by this annual report. 

We are in the process of implementing improved US GAAPaccounting procedures and controls including the use of outside consultants toprovide enhanced US GAAP technical expertise and additional training ofaccounting staff. We are also implementing enhancements to our procedures toensure full 

7

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compliance with alldisclosure requirements. As previously reported, there were no changes in ourinternal controls over financial reporting that occurred during the periodcovered by this Form 20-F that have materially affected or are reasonablylikely to materially affect our internal controls over financial reporting.However we have subsequently begun to take the remedial actions describedabove.

The Group is currentlyengaged in a project to comply with Section 404 of the Sarbanes Oxley Act. TheGroup is not currently required to report on management's assessment of theeffectiveness of the Group's internal controls over financial reporting and hasnot undertaken the kind of review of such controls that would be required inorder to make such a report. However, management will be required to report oninternal control over financial reporting when it files an annual report for afiscal year ending on or after December 15, 2007. The Group’s Independent RegisteredPublic Accounting Firms attestation report on internal control over financialreporting will be required when the Group files an annual report for a fiscalyear ending on or after December 15, 2008.

**Item 18.**                 FinancialStatements

Thefollowing financial statements and related schedules, together with the reportsthereon of Ernst & Young and PricewaterhouseCoopers, are filed as partof this annual report.
|                                                                                                                               | ** ** |        | **Page** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|--------|----------|------------|
| **JSG Funding**                                                                                                               |       |   |
| Report of Independent Registered Public Accounting  Firm—Ernst & Young                                               |       | F-2    |     |
| Report of Independent Registered Public Accounting  Firm—PricewaterhouseCoopers                                          |       | F-3    |     |
| Consolidated Statements of  Operations for the years ended December 31, 2005, 2004 and 2003                              |       | F-4    |     |
| Consolidated Statements of  Total Recognized Gains and Losses for the years ended  December 31, 2005, 2004 and 2003 |       | F-5    |     |
| Consolidated Balance Sheets as at  December 31, 2005 and 2004                                                            |       | F-6    |     |
| Consolidated Statements of  Changes in Shareholders’ Equity for the years ended December 31, 2005,  2004 and 2003   |       | F-7    |     |
| Consolidated Statements of  Cash Flows for the years ended December 31, 2005, 2004 and 2003                              |       | F-8    |     |
| **JSG  Acquisitions**                                                                                                         |       |   |     |
| Report of Independent Registered Public Accounting  Firm—Ernst & Young                                               |       | F-78   |     |
| Report of Independent Registered Public Accounting  Firm—PricewaterhouseCoopers                                          |       | F-79   |     |
| Consolidated Statements of  Operations for the years ended December 31, 2005 2004 and 2003                               |       | F-80   |     |
| Consolidated Statements of  Total Recognized Gains and Losses for the years ended  December 31, 2005, 2004 and 2003 |       | F-81   |     |
| Consolidated Balance Sheets as at  December 31, 2005 and 2004                                                            |       | F-82   |     |
| Consolidated Statements of  Changes in Shareholders’ Equity for the years ended December 31, 2005,  2004 and 2003   |       | F-83   |     |
| Consolidated Statements of  Cash Flows for the years ended December 31, 2005, 2004 and 2003                              |       | F-84   |     |
| **JSG  Funding**                                                                                                              |       |   |     |
| Schedule  II-I—Valuation and Qualifying Accounts for the years ended  December 31, 2005, 2004 and 2003              |       | S-1    |     |
| **JSG  Acquisitions**                                                                                                         |       |   |     |
| Schedule II-II—Valuation and Qualifying Accounts  for the years ended December 31, 2005, 2004 and 2003              |       | S-2    |     |
|                                                                                                                               |            |        |          |            |  |

 

** **

8

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**Item 19.**                 Exhibits

The following exhibits are filed as part of this annual report:
| 1.1 |   | Memorandum and Articles of Association of  JSG Funding plc (incorporated by reference to Exhibit 1.1 to the  registrant’s annual report on Form 20-F (File No. 333-101456),  filed on April 29, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1 |   | Euro  Indenture, dated January 31, 2005, among JSG Funding plc, Deutsche Bank  Trust Company Americas, as Trustee, Registrar and Paying Agent, Deutsche Bank  Luxembourg S.A., as Paying Agent and Transfer Agent and Deutsche Bank AG  acting through its London Branch, as Principal Paying Agent and Transfer  Agent, relating to the 7.75% euro senior subordinated notes (incorporated by  reference to Exhibit 2.1 to the registrant’s annual report on  Form 20-F (File No. 333-101456), filed on  April 29, 2005).                                                                                              |
| 2.2 |   | Dollar  Indenture, dated January 31, 2005, among JSG Funding plc, Deutsche Bank  Trust Company Americas, as Trustee, Registrar and Paying Agent, and Deutsche  Bank Luxembourg S.A., as Paying Agent and Transfer Agent, relating to the  7.75% dollar senior subordinated notes (incorporated by reference to  Exhibit 2.2 to the registrant’s annual report on Form 20-F  (File No. 333-101456), filed on April 29, 2005)                                                                                                                                                                                             |
| 2.3 |   | Euro Deposit  and Custody Agreement, dated January 31, 2005, among JSG Funding plc,  Deutsche Bank Trust Company Americas, as Book-Entry Depositary and Note  Custodian, relating to the 7.75% euro senior subordinated notes (incorporated  by reference to Exhibit 2.5 to the registrant’s annual report on  Form 20-F (File No. 333-101456), filed on  April 29, 2005)                                                                                                                                                                                                                                               |
| 2.4 |   | Dollar  Deposit and Custody Agreement, dated January 31, 2005, among JSG Funding  plc, Deutsche Bank AG acting through its London Branch, as Book-Entry  Depositary and Note Custodian, relating to the 7.75% dollar senior  subordinated notes (incorporated by reference to Exhibit 2.6 to the  registrant’s annual report on Form 20-F (File No. 333-101456),  filed on April 29, 2005).                                                                                                                                                                                                                             |
| 2.5 |   | Euro  Indenture, dated September 30, 2002, among MDP Acquisitions plc (now  known as JSG Funding plc), MDCP Acquisitions I (now known as JSG  Acquisitions), Deutsche Bank Trust Company Americas, as Trustee, Registrar  and Paying Agent, Deutsche Bank Luxembourg S.A., as Paying Agent and Transfer  Agent, and Deutsche Bank AG London, as Principal Paying Agent and Transfer  Agent, relating to the euro senior notes issued on September 30, 2002  (incorporated by reference to Exhibit 4.3 to the registrant’s  registration statement on Form F-4 (File No. 333-101456),  filed on November 25, 2002). |
| 2.6 |   | Dollar  Indenture, dated September 30, 2002, among MDP Acquisitions plc (now  known as JSG Funding plc), MDCP Acquisitions I (now known as JSG  Acquisitions), Deutsche Bank Trust Company Americas, as Trustee, Registrar  and Paying Agent, and Deutsche Bank Luxembourg S.A., as Paying Agent and  Transfer Agent, relating to the dollar senior notes issued on  September 30, 2002 (incorporated by reference to Exhibit 4.4 to the  registrant’s registration statement on Form F-4 (File No. 333-101456),  filed on November 25, 2002).                                                                     |
| 2.7 |   | Supplemental  Indenture, dated February 14, 2003, among MDP Acquisitions plc (now  known as JSG Funding plc), MDCP Acquisitions I (now known as JSG  Acquisitions) and Deutsche Bank Trust Company Americas, as Trustee, relating  to the euro senior notes (incorporated by reference to Exhibit 4.15 to  the registrant’s registration statement on Form F-4 (File  No. 333-104617), filed on April 17, 2003).                                                                                                                                                                                                        |

 

9

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| 2.8  |   | Supplemental  Indenture, dated February 14, 2003, among MDP Acquisitions plc (now  known as JSG Funding plc), MDCP Acquisitions I (now known as JSG  Acquisitions), and Deutsche Bank Trust Company Americas, as Trustee, relating  to the dollar senior notes (incorporated by reference to Exhibit 4.14 to  the registrant’s registration statement on Form F-4/A (File  No. 333-101456), filed on March 5, 2003).                                                                                                                                                                                                                          |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.9  |   | Euro Deposit  and Custody Agreement, dated September 30, 2002, between MDP  Acquisitions plc (now known as JSG Funding plc) and Deutsche Bank AG London  as the Euro Book-entry Depositary and the Euro Custodian, relating to the  euro senior notes (incorporated by reference to Exhibit 4.5 to the  registrant’s registration statement on Form F-4 (File No. 333-101456),  filed on November 25, 2002).                                                                                                                                                                                                                                  |
| 2.10 |   | Dollar  Deposit and Custody Agreement, dated September 30, 2002, between MDP  Acquisitions plc (now known as JSG Funding plc) and Deutsche Bank Trust  Company Americas as the Dollar Book-entry Depositary and the Dollar  Custodian, relating to the dollar senior notes (incorporated by reference to  Exhibit 4.6 to the registrant’s registration statement on Form F-4  (File No. 333-101456), filed on November 25, 2002).                                                                                                                                                                                                             |
| 4.1  |   | Share  Purchase Agreement, dated November 23, 2005, among JSG Packaging Limited,  JSG Acquisitions, Smurfit Kappa Feeder G.P. Limited (in its capacity as  general partner of Smurfit Kappa Feeder L.P.), certain investment funds  managed or advised by Cinven Limited and certain investment funds managed or  advised by CVC Capital Partners Limited, which are the controlling  shareholders of Kappa Holding B.V. (“Kappa”), and the other Kappa  shareholders (incorporated by reference to Exhibit 1 to the registrant’s  report of foreign private issuer on Form 6-K (File No. 333-101456),  filed on December 6, 2005). |
| 4.2  |   | Purchase  Agreement, dated January 12, 2005, among JSG Funding plc and Deutsche  Bank AG London and Citigroup Global Markets Limited, as initial purchasers,  relating to the 7.75% senior subordinated notes (incorporated by reference to  the registrant’s report of foreign private issuer on Form 6-K  (File No. 333-101456), filed on January 18, 2005).                                                                                                                                                                                                                                                                                     |
| 4.3  |   | Senior Credit  Facility, dated November 30, 2005, among Jefferson Smurfit Group  Limited, JSG Acquisitions, certain other subsidiaries of Jefferson Smurfit  Group Limited as borrowers or guarantors, Deutsche Bank AG, London Branch,  Citigroup Global Markets Limited, Credit Suisse First Boston International  and JP Morgan PLC, as arrangers, certain lenders named therein, and Deutsche  Bank AG, London Branch, as issuing bank, facility agent and security agent  (incorporated by reference to Exhibit 2 to the registrant’s report of  foreign private issuer on Form 6-K (File No. 333-101456),  filed on December 6, 2005).  |
| 4.4  |   | Bridge  Facility dated September 10, 2002 by and among MDP Acquisitions plc (now  known as JSG Funding plc), Deutsche Bank AG London, Merrill Lynch Capital  Corporation, JPMorgan Chase Bank, Lehman Commercial Paper Inc. and ABN  AMRO Bank N.V. (incorporated by reference to Exhibit 99(b)(2) to the  Schedule TO/A filed by Jefferson Smurfit Group plc on September 16, 2002  (File No. 005-78329)).                                                                                                                                                                                                                                   |
| 4.5  |   | Priority  Agreement, dated November 30, 2005, among Jefferson Smurfit Group  Limited, the companies named therein as obligors, the banks and financial institutions  named therein as senior creditors, Deutsche Bank Trust Company Americas, as  bond trustee, Adavale (Netherlands) B.V., as junior creditor, the banks and  financial institutions named therein as hedging banks, and Deutsche Bank AG,  London Branch, as senior agent and security agent (incorporated by reference  to Exhibit 3 to the registrant’s report of foreign private issuer on  Form 6-K (File No. 333-101456), filed on  December 6, 2005).                 |

 

10

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| 4.6  |   | Intercompany Loan Agreement, entered into  on September 16, 2002, as amended September 27, 2002, between MDP  Acquisitions plc (now known as JSG Funding plc) and MDCP Acquisitions I (now  known as JSG Acquisitions) (incorporated by reference to Exhibit 10.5 of  the registrant’s registration statement on Form F-4 (File  No. 333-101456), filed on November 25, 2002). |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.7  |   | Intercompany Loan Agreement, dated  February 14, 2003, between MDP Acquisitions plc (now known as JSG  Funding plc) and MDCP Acquisitions I (now known as JSG Acquisitions)  (incorporated by reference to Exhibit 4.6 to the registrant’s annual  report on Form 20-F (File No. 333-101456), filed on  April 29, 2005).                                                            |
| 4.8  |   | Intercompany Loan Agreement, dated  January 31, 2005, between JSG Funding plc, as Lender, and JSG  Acquisitions, as Borrower (incorporated by reference to Exhibit 4.8 to  the registrant’s annual report on Form 20-F (File No. 333-101456),  filed on April 29, 2005).                                                                                                            |
| 4.9  |   | Amended and Restated Management Equity  Agreement dated as of December 1, 2005 among JSG Packaging Limited  (now known as Smurfit Kappa Group Limited) and each of Gary McGann, Anthony P.J.  Smurfit, Ian J. Curley and Sir Michael W.J. Smurfit.*                                                                                                                                 |
| 4.10 |   | Registration Rights Agreement dated as of  December 1, 2005 among Smurfit Kappa Group Limited, each of the MDCP  co-investors, the CVC/Cinven Partnership and each of the other investors  listed on the schedule thereto.*                                                                                                                                                                                  |
| 4.11 |   | Shareholders and Corporate Governance  Agreement dated as of December 1, 2005 among Smurfit Kappa Group  Limited, each of the MDCP co-investors, the CVC/Cinven Partnership and each  of the investors listed on the schedule thereto.*                                                                                                                                                                      |
| 4.12 |   | JSG Packaging Limited 2004 Management  Equity Plan, adopted by the board of directors of JSG Packaging Ltd on  February 6, 2004 (incorporated by reference to Exhibit 4.13 to the  reigstrant’s annual report on Form 20-F (File No. 333-101456),  filed on April 29, 2005).                                                                                                   |
| 4.13 |   | Letter  Agreement dated October 31, 2003 between Jefferson Smurfit Group Limited  and Dr. Michael W.J. Smurfit.*                                                                                                                                                                                                                                                                                        |
| 4.14 |   | Letter  Agreement dated October 31, 2003 between S.I. Holdings Limited and Dr.  Michael W.J. Smurfit.*                                                                                                                                                                                                                                                                                                  |
| 4.15 |   | Letter  Agreement dated as of February 6, 2004 between JSG Packaging Limited  (now known as Smurfit Kappa Group Limited), Jefferson Smurfit Group Limited  and Anthony P.J. Smurifit.*                                                                                                                                                                                                                       |
| 4.16 |   | Letter  Agreement dated as of February 6, 2004 between JSG Packaging Limited  (now known as Smurfit Kappa Group Limited), Jefferson Smurfit Group Limited  and Gary McGann.*                                                                                                                                                                                                                                 |
| 4.17 |   | Letter  Agreement dated as of February 6, 2004 between JSG Packaging Limited  (now known as Smurfit Kappa Group Limited), Jefferson Smurfit Group Limited  and Ian Curley.*                                                                                                                                                                                                                                  |
| 4.18 |   | Directorship  Agreement dated as of December 1, 2005 between JSC Packaging Limited  (now known as Smurfit Kappa Group Limited) and Frits Beurskens.*                                                                                                                                                                                                                                                         |
| 8.1  |   | List of Subsidiaries.*                                                                                                                                                                                                                                                                                                                                                                                            |
| 11.1 |   | Code of Ethics (incorporated by reference  to Exhibit 11.1 to the registrant’s annual report on Form 20-F  (File No. 333-101456), filed on April 19, 2004).                                                                                                                                                                                                                                   |
| 12.1 |   | Certifications of Chief Executive Officer  and Chief Financial Officer pursuant to Rules 13a-14(a) or  15d-14(a) of the Exchange Act.                                                                                                                                                                                                                                                              |
| 13.1 |   | Certifications of Chief Executive Officer  and Chief Financial Officer pursuant to Rules 13a-14(b) or  15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the  United States Code.                                                                                                                                                                                                       |

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*       Previouslyfiled.

11

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**Signatures**

Theregistrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersignedto sign this annual report on its behalf.
| JSG FUNDING  PLC         |
|--------------------------|
| /s/ I. J. CURLEY         |   |
| I. J. Curley             |
| Chief Financial Officer  |
| Date: November 24, 2006. |

 

12

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**INDEX TO FINANCIALSTATEMENTS**

**JSG FUNDING**

**AuditedConsolidated Financial Statements of JSG Funding plc and Subsidiary Companiesas of December 31, 2005 and 2004 and for the years ended December 31,2005, 2004 and 2003:**
|                                                                                      | ** ** |        | **Page** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------|----------|------------|
| Report of Independent Registered Public Accounting  Firm—Ernst & Young      |       |   | F-2      |       |
| Report of Independent Registered Public Accounting  Firm—PricewaterhouseCoopers |       |   | F-3      |       |
| Consolidated Statements of Operations                                                |       |   | F-4      |       |
| Consolidated Statements of Total Recognized Gains and  Losses                        |       |   | F-5      |       |
| Consolidated  Balance Sheets                                                         |       |   | F-6      |       |
| Consolidated Statements of Changes in Shareholders’  Equity                     |       |   | F-7      |       |
| Consolidated Statements of Cash Flows                                                |       |   | F-8      |       |
| Notes to the Consolidated Financial Statements                                       |       |   | F-9      |       |
|                                                                                      |            |        |          |            |  |  |

 

**JSG ACQUISITIONS**

**AuditedConsolidated Financial Statements of JSG Acquisitions and Subsidiary Companiesas of December 31, 2005 and 2004 and for the years ended December 31,2005, 2004 and 2003:**
|                                                                                      | ** ** | **Page** |
|--------------------------------------------------------------------------------------|------------|----------|
| Report of Independent Registered Public Accounting  Firm—Ernst & Young      |       |     | F-78 |   |
| Report of Independent Registered Public Accounting  Firm—PricewaterhouseCoopers |       |     | F-79 |   |
| Consolidated Statements of Operations                                                |       |     | F-80 |   |
| Consolidated Statements of Total Recognized Gains and  Losses                        |       |     | F-81 |   |
| Consolidated  Balance Sheets                                                         |       |     | F-82 |   |
| Consolidated Statements of Changes in Shareholders’  Equity                     |       |     | F-83 |   |
| Consolidated Statements of Cash Flows                                                |       |     | F-84 |   |
| Notes  to the Consolidated Financial Statements                                      |       |     | F-85 |   |

 

 

F-1

----

**JSGFunding plc and Subsidiary Companies**

**Reportof Independent Registered Public Accounting Firm**

To the Board of DirectorsJSG Funding plc

We have audited theaccompanying consolidated balance sheets of JSG Funding plc and subsidiarycompanies (the “Company”) as of December 31, 2005 and 2004, and therelated consolidated statements of operations, total recognized gains andlosses, changes in shareholders’ equity, and cash flows for each of the threeyears in the period ended December 31, 2005. Our audits also included thefinancial statement schedule listed in the Index at Item 18. These financialstatements and schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits. We did not audit the financial statements ofKappa Holding B.V., a wholly-owned subsidiary, which statements reflect totalassets constituting 35.5% as of December 31, 2005 and total revenuesconstituting 4.5% for the year then ended of the related consolidated totals.Those statements were audited by other auditors whose report has been furnishedto us, and our opinion, insofar as it relates to the amounts included for KappaHolding B.V., is based solely on the report of the other auditors.

We conducted our audits inaccordance with International Standards on Auditing (UK and Ireland) and thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits and the report of otherauditors provide a reasonable basis for our opinion.

In our opinion, based onour audits and the report of other auditors, the financial statements referredto above present fairly, in all material respects, the consolidated financialposition of JSG Funding plc and subsidiary companies at December 31, 2005and 2004, and the consolidated results of their operations and their cash flowsfor each of the three years in the period ended December 31, 2005, inconformity with accounting principles generally accepted in Ireland, whichdiffer in certain respects from U.S. generally accepted accounting principles (“U.S.GAAP”) (see Note 35 of the Notes to the Consolidated Financial Statements).Also, in our opinion, the related financial statement schedule, when consideredin relation to the basic financial statements taken as a whole, presents fairlyin all material respects the information set forth therein.

Asdiscussed in Note 35 of the Notes to the Consolidated Financial Statements,certain amounts reported in accordance with generally accepted accountingprinciples in the United States have been restated.

/s/ Ernst & Young

Ernst & YoungDublin, Ireland

April 30, 2006, except forNote 35 “U.S. GAAP Restatement Items”, as to which the date is November 24, 2006.

 

 

F-2

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directorsof JSG Funding plc

We have audited the combined balance sheet of Kappa Holding B.V. and itssubsidiaries (the “Company”) as of December 31, 2005 and the related combinedstatement of operations, combined statement of cash flows, total recognizedgains and losses and changes in shareholders’ equity for the one month endedDecember 31, 2005 (not presented separately herein). These combined financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these combined financial statementsbased on our audit.

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. We were not engagedto perform an audit of the Company’s internal control over financial reporting.Our audit included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordinglywe express no such opinion. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.

In our opinion, the combined financial statements referred to abovepresent fairly, in all material respects, the financial position of the Companyat December 31, 2005 and the results of its operations and cash flows for theone month ended December 31, 2005, in conformity with accounting principlesgenerally accepted in Ireland.

Accounting principles generally accepted in Ireland vary in certainsignificant respects from accounting principles generally accepted in theUnited States of America. Information relating to the nature and effect of suchdifferences is presented in Note 31 to the combined financial statements.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopersDublin, IrelandApril 30, 2006

F-3

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**JSG Funding plc and Subsidiary CompaniesConsolidated Statements of Operations**

| ** **                                                | ** ** | **Note**   | ** ** | **2005**      | ** ** | **2004**      | ** **   | **2003**      | ** ** |
|-----------------------------------------------------------|------------|------------|------------|---------------|------------|---------------|--------------|---------------|------------|
| ** **                                                | ** ** | ** ** | ** ** | **€000** | ** ** | **€000** | ** **   | **€000** | ** ** |
| Net Sales                                                 |       |       | 3          |          |       |          |         |          |       |   |   |
| Continuing operations                                     |       |       |       |          |       | 4,212,514     |         | 4,278,439     |       | 4,146,061 |   |
| Continuing operations—acquisitions                   |       |       |       |          |       | 199,611       |         | —        |       | — |   |
| Discontinued operations                                   |       |       |       |          |       | 25,204        |         | 526,643       |       | 600,254 |   |
|                                                      |       |       |       |          |       | 4,437,329     |         | 4,805,082     |       | 4,746,315 |   |
| Cost of sales                                             |       |       |       |          |       | 3,222,705     |         | 3,473,299     |       | 3,419,820 |   |
| Impairment of  property, plant and equipment              |       |       | 5          |          |       | 45,214        |         | —        |       | — |   |
| Gross profit                                              |       |       |       |          |       | 1,169,410     |         | 1,331,783     |       | 1,326,495 |   |
| Net operating  expenses                                   |       |       | 4          |          |       | 977,292       |         | 1,010,564     |       | 982,345 |   |
| Reorganization  and restructuring costs                   |       |       | 5          |          |       | 25,090        |         | 39,430        |       | 35,006 |   |
| Operating income  subsidiaries                            |       |       |       |          |       |          |         |          |       |   |   |
| Continuing operations                                     |       |       |       |          |       | 174,297       |         | 226,029       |       | 243,675 |   |
| Acquired operations                                       |       |       |       |          |       | (5,425        | )            | —        |       | — |   |
| Discontinued operations                                   |       |       |       |          |       | (1,844        | )            | 55,760        |       | 65,469 |   |
|                                                      |       |       |       |          |       | 167,028       |         | 281,789       |       | 309,144 |   |
| Share of  associates’ operating income               |       |       |       |          |       | 7,287         |         | 12,611        |       | 12,155 |   |
| Total operating  income                                   |       |       |       |          |       | 174,315       |         | 294,400       |       | 321,299 |   |
| Income on sale of  assets and businesses                  |       |       | 5          |          |       | 52,587        |         | 22,173        |       | 5,560 |   |
| Interest income                                           |       |       |       |          |       | 10,730        |         | 8,335         |       | 11,631 |   |
| Interest expense                                          |       |       | 7          |          |       | (255,351      | )            | (293,641      | )          | (309,368 | ) |
| Loss from early  extinguishment of debt                   |       |       | 7          |          |       | (104,658      | )            | (5,697        | )          | — |   |
| Other financial  expense                                  |       |       | 24         |          |       | (13,259       | )            | (15,718       | )          | (15,266 | ) |
| Share of  associates’ net interest                   |       |       |       |          |       | (1,336        | )            | (1,301        | )          | (2,062 | ) |
| (Loss)/income  before taxes and equity minority interests |       |       | 8          |          |       | (136,972      | )            | 8,551         |       | 11,794 |   |
| Taxes on income                                           |       |       | 9          |          |       | 21,561        |         | 26,973        |       | 62,354 |   |
| (Loss) before  equity minority interests                  |       |       |       |          |       | (158,533      | )            | (18,422       | )          | (50,560 | ) |
| Equity minority  interests                                |       |       |       |          |       | 18,813        |         | 16,067        |       | 16,768 |   |
| **Net (loss) for the year****(1)**                        |       |       |       |          | ** ** | **€**    | **(177,346** | **)**         | **€** | **(34,489** | **)** | **€** | **(67,328** | **)** |
|                                                           |            |            |            |               |            |               |              |               |            |  |  |  |  |  |

----

(1)          A summary of thesignificant adjustments to net (loss) which would be required if accountingprinciples generally accepted in the United States had been applied instead ofthose generally accepted in Ireland is given in Note 35.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-4

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**JSG Funding plc and Subsidiary CompaniesConsolidated Statements of Total Recognized Gains and Losses**

| ** **                                                        | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                        | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| (Loss) / income for the year                                      |       |          |         |          |       |          |       |
| Group                                                             |       | (179,515      | )            | (38,433       | )          | (71,927       | )          |
| Associates                                                        |       | 2,169         |         | 3,944         |       | 4,599         |       |
|                                                              |       | (177,346      | )            | (34,489       | )          | (67,328       | )          |
| Translation  adjustments on foreign currency net investments      |       |          |         |          |       |          |       |
| Group                                                             |       | 5,529         |         | 15,222        |       | 58,982        |       |
| Actuarial (loss) / gain recognized in retirement  benefit schemes |       | (17,281       | )            | (6,988        | )          | 25,603        |       |
| Minority share of  actuarial (loss)                               |       | (94           | )            | —        |       | —        |       |
| Total recognized  gains and losses                                |       |          |         |          |       |          |       |
| Group                                                             |       | (191,361      | )            | (30,199       | )          | 12,658        |       |
| Associates                                                        |       | 2,169         |         | 3,944         |       | 4,599         |       |
|                                                              | ** ** | **€**    | **(189,192** | **)**         | **€** | **(26,255**   | **)**      | **€** | **17,257** | ** ** |
|                                                                   |            |               |              |               |            |               |            |  |  |  |

 

**Note of HistoricalCost Profits and Losses**

The results disclosed in the Consolidated Statementsof Operations are not materially different to the results based on anunmodified historical basis.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-5

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** JSG Funding plcand Subsidiary CompaniesConsolidated Balance Sheets**

| ** **                                                               | ** ** | **Note**   | ** ** | **2005**      | ** ** | **2004**      | ** **    |
|--------------------------------------------------------------------------|------------|------------|------------|---------------|------------|---------------|---------------|
| ** **                                                               | ** ** | ** ** | ** ** | **€000** | ** ** | **€000** | ** **    |
| **Assets**                                                               |       |       |       |          |       |          |          |   |   |
| **Current assets**                                                       |       |       |       |          |       |          |          |   |   |
| Cash                                                                     |       |       | 10         |          |       | 247,807       |          | 248,033 |   |
| Restricted cash                                                          |       |       | 10         |          |       | 755,575       |          | — |   |
| Accounts receivable and  prepayments                                     |       |       | 11         |          |       | 1,314,728     |          | 925,048 |   |
| Assets held for sale and  inter-company balances                         |       |       |       |          |       | 54,404        |          | — |   |
| Amounts due by  affiliates                                               |       |       |       |          |       | 107           |          | 395 |   |
| Amounts due by  affiliates after more than one year                      |       |       |       |          |       | 262,936       |          | 270,552 |   |
| Inventories                                                              |       |       | 12         |          |       | 663,131       |          | 452,166 |   |
| **Total  current assets**                                                |       |       |       |          | ** ** | **3,298,688** | ** **    | **1,896,194** | ** ** |
| **Fixed assets**                                                         |       |       |       |          |       |          |          |   |   |
| Investments                                                              |       |       | 13         |          |       | 87,746        |          | 81,895 |   |
| Property, plant and  equipment                                           |       |       | 14         |          |       | 3,499,084     |          | 2,334,858 |   |
| Intangible assets                                                        |       |       | 15         |          |       | 2,490,259     |          | 1,455,130 |   |
| **Total  fixed assets**                                                  |       |       |       |          | ** ** | **6,077,089** | ** **    | **3,871,883** | ** ** |
| **Total  assets**                                                        |       |       |       |          | ** ** | **€**    | **9,375,777** | ** ** | **€** | **5,768,077** | ** ** |
| **Liabilities, minority interests and  shareholders’ equity**       |       |       |       |          |       |          |          |   |   |
| **Current liabilities**                                                  |       |       |       |          |       |          |          |   |   |
| Bank loans, overdrafts  and other borrowing                              |       |       | 19         |          |       | 103,777       |          | 104,841 |   |
| Kappa bonds outstanding                                                  |       |       | 19         |          |       | 755,575       |          | — |   |
| Accounts payable and  accrued liabilities                                |       |       | 16         |          |       | 1,500,413     |          | 1,064,831 |   |
| **Total  current liabilities**                                           |       |       |       |          | ** ** | **2,359,765** | ** **    | **1,169,672** | ** ** |
| **Non current liabilities**                                              |       |       |       |          |       |          |          |   |   |
| Long term debt and other  long term liabilities                          |       |       | 18         |          |       | 4,537,329     |          | 2,959,840 |   |
| Amounts due to  affiliates                                               |       |       |       |          |       | 10,876        |          | 7,372 |   |
| Provisions for  liabilities and charges                                  |       |       | 20         |          |       | 247,733       |          | 221,403 |   |
| Pension liabilities                                                      |       |       | 24         |          |       | 655,368       |          | 411,237 |   |
| Capital grants deferred                                                  |       |       |       |          |       | 14,460        |          | 14,260 |   |
| Minority interests  (equity interests)                                   |       |       |       |          |       | 131,384       |          | 115,192 |   |
| **Total  liabitilites and minority interests**                           |       |       |       |          | ** ** | **7,956,915** | ** **    | **4,898,976** | ** ** |
| **Shareholders equity****(1)**                                           |       |       |       |          |       |          |          |   |   |
| Share capital                                                            |       |       |       |          |       | 40            |          | 40 |   |
| Other reserves                                                           |       |       | 26         |          |       | 1,690,484     |          | 946,002 |   |
| Retained deficit                                                         |       |       |       |          |       | (271,662      | )             | (76,941 | ) |
| **Shareholders’  equity**                                           |       |       |       |          | ** ** | **1,418,862** | ** **    | **869,101** | ** ** |
| **Total liabilities, minority interests and  shareholders’ equity** |       |       |       |          | ** ** | **€**    | **9,375,777** | ** ** | **€** | **5,768,077** | ** ** |

----

(1)          A summary of thesignificant adjustments to shareholders’ equity which would be required ifaccounting principles generally accepted in the United States had been appliedinstead of those generally accepted in Ireland is given in Note 35.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-6

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**JSG Funding plc and Subsidiary CompaniesConsolidated Statements of Changes in Shareholders’ Equity**

| ** **                                               | ** ** | **Share  capital** | ** ** | **Other  reserves** | ** ** | **Retained  earnings** | ** **          | **Total  shareholders’  equity** | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|---------------------|------------|------------------------|---------------------|---------------------------------------|------------|
| ** **                                               | ** ** | **€000**      | ** ** | **€000**(1)    | ** ** | **€000**          | ** **          | **€000**                         | ** ** |
| Balance at  December 31, 2002                       |       |               | 40         |                |       | 871,798                |                | 6,261                                 |       |   | 878,099 |   |   |
| Loss                                                     |       |               | —     |                |       | —                 |                | (67,328                               | )          |   | (67,328 | ) |   |
| Actuarial gain  recognized in retirement benefit schemes |       |               | —     |                |       | —                 |                | 25,603                                |       |   | 25,603 |   |   |
| Currency  translation adjustments                        |       |               | —     |                |       | 58,982                 |                | —                                |       |   | 58,982 |   |   |
| **Balance  at December 31, 2003**                   | ** ** | ** **         | **40**     |                | ** ** | **930,780**            | ** **          | **(35,464**                           | **)**      | ** ** | **895,356** |   |   |
| Loss                                                     |       |               | —     |                |       | —                 |                | (34,489                               | )          |   | (34,489 | ) |   |
| Actuarial loss  recognized in retirement benefit schemes |       |               | —     |                |       | —                 |                | (6,988                                | )          |   | (6,988 | ) |   |
| Currency  translation adjustments                        |       |               | —     |                |       | 15,222                 |                | —                                |       |   | 15,222 |   |   |
| **Balance  at December 31, 2004**                   | ** ** | ** **         | **40**     |                | ** ** | **946,002**            | ** **          | **(76,941**                           | **)**      | ** ** | **869,101** |   |   |
| Capital contribution                                     |       |               | —     |                |       | 738,953                |                | —                                |       |   | 738,953 |   |   |
| Loss                                                     |       |               | —     |                |       | —                 |                | (177,346                              | )          |   | (177,346 | ) |   |
| Actuarial loss  recognized in retirement benefit schemes |       |               | —     |                |       | —                 |                | (17,281                               | )          |   | (17,281 | ) |   |
| Minority share of  actuarial (loss)                      |       |               | —     |                |       | —                 |                | (94                                   | )          |   | (94 | ) |   |
| Currency  translation adjustments                        |       |               | —     |                |       | 5,529                  |                | —                                |       |   | 5,529 |   |   |
| **Balance at December 31,  2005**                   | ** ** | ** **         | **€** | **40**              |       | ** **             | **€1,690,484** | ** **                            | **€** | **(271,662** | **)** | ** ** | **€** | **1,418,862** |   |   |
|                                                          |            |                    |            |                     |            |                        |                     |                                       |            |  |  |  |  |  |  |  |

----

(1)   See Note 26for further detail.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-7

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**JSG Funding plc and Subsidiary CompaniesConsolidated Statements of Cash Flows**

| ** **                                                     | ** ** | **Note**   | ** ** | **2005**      | ** ** | **2004**      | ** **  | **2003**      | ** ** |
|----------------------------------------------------------------|------------|------------|------------|---------------|------------|---------------|-------------|---------------|------------|
| ** **                                                     | ** ** | ** ** | ** ** | **€000** | ** ** | **€000** | ** **  | **€000** | ** ** |
| **Net cash flow from operating activities**                    |       |       | 27         |          |       | 512,869       |        | 640,929       |       | 690,964 |   |
| **Dividends received from associates**                         |       |       |       |          |       | 3,062         |        | 2,989         |       | 1,258 |   |
| **Returns  on investments and servicing of finance**           |       |       |       |          |       |          |        |          |       |   |   |
| Interest received                                              |       |       |       |          |       | 10,730        |        | 8,370         |       | 11,689 |   |
| Interest paid                                                  |       |       |       |          |       | (281,114      | )           | (234,540      | )          | (252,382 | ) |
| Interest paid on finance leases                                |       |       |       |          |       | (1,138        | )           | (1,962        | )          | (2,164 | ) |
| Other financial interest paid                                  |       |       |       |          |       | (13,259       | )           | (15,718       | )          | (15,266 | ) |
| Dividends to minority interests                                |       |       |       |          |       | (6,152        | )           | (5,707        | )          | (7,496 | ) |
| Deferred debt issue costs                                      |       |       |       |          |       | (98,055       | )           | (5,814        | )          | (7,558 | ) |
|                                                           |       |       |       |          |       | (388,988      | )           | (255,371      | )          | (273,177 | ) |
| **Taxation**                                                   | ** ** |       |       |          | ** ** | ** **    | ** **  | ** **    | ** ** | ** ** | ** ** |
| Irish corporation tax paid                                     |       |       |       |          |       | (3,480        | )           | (8,515        | )          | 2,616 |   |
| Overseas tax paid                                              |       |       |       |          |       | (39,274       | )           | (50,249       | )          | (61,589 | ) |
| Overseas tax refunded                                          |       |       |       |          |       | —        |        | 21,433        |       | — |   |
|                                                           |       |       |       |          |       | (42,754       | )           | (37,331       | )          | (58,973 | ) |
| **Capital expenditure and financial investment**               | ** ** |       |       |          | ** ** | ** **    | ** **  | ** **    | ** ** | ** ** | ** ** |
| Purchase of tangible fixed assets                              |       |       |       |          |       | (192,434      | )           | (206,466      | )          | (207,518 | ) |
| Less new finance leases                                        |       |       |       |          |       | 4,053         |        | 2,963         |       | — |   |
|                                                           |       |       |       |          |       | (188,381      | )           | (203,503      | )          | (207,518 | ) |
| Capital grants received                                        |       |       |       |          |       | 3,390         |        | 1,874         |       | 1,995 |   |
| Purchase of other investments                                  |       |       |       |          |       | (87           | )           | (772          | )          | (1,052 | ) |
| Retirement of fixed assets                                     |       |       | 28         |          |       | 18,198        |        | 36,388        |       | 44,895 |   |
|                                                           |       |       |       |          |       | (166,880      | )           | (166,013      | )          | (161,680 | ) |
| **Acquisitions and disposals**                                 | ** ** |       |       |          | ** ** | ** **    | ** **  | ** **    | ** ** | ** ** | ** ** |
| Purchase of subsidiaries and minorities                        |       |       | 31         |          |       | (205,532      | )           | (2,731        | )          | (102,081 | ) |
| Deferred acquisition consideration                             |       |       |       |          |       | (1,520        | )           | (2,390        | )          | (54,773 | ) |
| Business disposals                                             |       |       |       |          |       | 572,174       |        | —        |       | 4,596 |   |
| Receipts / (advances) from / to affiliates                     |       |       |       |          |       | 9,899         |        | 11,934        |       | (28,206 | ) |
| Investments in and advances to associates                      |       |       |       |          |       | (351          | )           | (1,194        | )          | (82 | ) |
|                                                           |       |       |       |          |       | 374,670       |        | 5,619         |       | (180,546 | ) |
| **Cash inflow before use of  liquid resources and  financing** |       |       |       |          |       | 291,979       |        | 190,822       |       | 17,846 |   |
| **Management of liquid resources**                             |       |       |       |          |       | (789,791      | )           | (16,989       | )          | 18,889 |   |
| **Financing**                                                  | ** ** |       |       |          | ** ** | ** **    | ** **  | ** **    | ** ** | ** ** | ** ** |
| Issue of shares including minorities                           |       |       |       |          |       | 5             |        | 27            |       | — |   |
| Increase / (decrease) in term debt                             |       |       | 29         |          |       | 475,449       |        | (111,101      | )          | (2,142 | ) |
| Advances from affiliates                                       |       |       |       |          |       | 125           |        | 1,102         |       | 410 |   |
| Capital elements of finance leases repaid                      |       |       |       |          |       | (4,812        | )           | (13,576       | )          | (5,689 | ) |
|                                                           |       |       |       |          |       | 470,767       |        | (123,548      | )          | (7,421 | ) |
| **(Decrease)  / increase in cash**                             | ** ** |       | 29         |          | ** ** | **€**    | **(27,045** | **)**         | **€** | **50,285** | ** ** | **€** | **29,314** | ** ** |
|                                                                |            |            |            |               |            |               |             |               |            |  |  |  |  |  |

 

The significant differences between the cash flowstatement prepared under accounting principles generally accepted in the UnitedStates and that prepared under accounting principles generally accepted inIreland are given in Note 35.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-8

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**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements**

**1**   Basisof Preparation

JSG Funding plc (“JSGFunding” or the “Group”) was incorporated on June 12, 2002. On October 2, 2002, JSG Acquisitions (“JSGAcquisitions”), a wholly owned subsidiary of JSG Funding acquired all of theordinary shares of Jefferson Smurfit Group plc in a take private transaction.Prior to this acquisition, JSG Funding had no operations. As part of theacquisition Jefferson Smurfit Group plc distributed its 29.3% interest inSmurfit-Stone Container Corporation (‘SSCC’), its U.S. affiliate, to itsshareholders.

On March 31, 2003 the Groupcompleted the acquisition of SSCC’s European Packaging assets. In thistransaction, which we refer to as the “SSCC Asset Swap”, JSG Funding exchangedits 50% ownership in Smurfit MBI, Canada and approximately €185 million incash for SSCC’s European assets.

On March 1, 2005 the Groupcompleted the sale of our Munksjö specialty paper business for approximately €450 million. On May 18,2005 we completed the sale of our Munksjö tissue business for approximately €28 million. Theproceeds from these disposals were used to pay down part of the term portion ofour senior credit facility. Together, theoperations sold had net sales of approximately €512 million forthe year to December 31, 2004 (2003: €483 million).

On June 16, 2005 the Group completed the sale ofThe Kildare Hotel & Country Club (The K Club), additional land nearThe K Club and surplus land near our Dublin head office for €115million to a company controlled by Sir Michael Smurfit. The proceeds fromthe sale were applied to debt reduction.

The Munksjö specialty businesses and The K Clubtogether with Smurfit MBI, which was sold as part of the SSCC Asset Swap in2003, are reported as discontinued operations in the Consolidated Statements of Operations.

On December 1, 2005 Smurfit Kappa Group Limited (“SKGL”),(formerly known as JSG Packaging Limited), the ultimate parent of JSG Funding,JSG Acquisitions and the shareholders of Kappa Holding BV (‘Kappa’) concludedan agreement resulting in a merger of the operations of both groups ofcompanies. The merger was completed through the issue of shares by SKGL and thepayment of consideration comprising cash of approximately €238 millionand an €89million subordinated promissory note, primarily to Kappa’s former shareholders.The ownership structure results in the existing shareholders of SKGL owningapproximately 58.3% of the combination while Kappa’s existing shareholders ownapproximately 41.7%. The transaction involved financing the cash considerationand refinancing the entire existing Kappa Packaging debt and the existing JSGAcquisitions senior credit facility by way of a new senior credit facility. Themerger required European Commission approval which was granted subject to thefulfilment of an agreed schedule of commitments to dispose of a number ofbusinesses. The financial statements reflect the combination with effect from December 1,2005 incorporating one month’s results for the enlarged business. Thecombination is accounted for as a purchase.

Under Irish GAAP fair value exercises are required tobe completed as soon as practicable after the date of acquisition with thefinal fair value adjustments incorporated in the financial statements for thefirst full financial year following the acquisition. The fair value exerciserelating to the acquisition of Kappa is preliminary. The significantadjustments expected were in respect of the fair value of land and buildings,plant and equipment, post retirement benefits, goodwill and deferred taxation.The actuarial valuations of the various post retirement plans have beensubstantially completed and we do not expect the vaulation result to bematerially different from the figures included in the 2005 Form 20-F. We have alsosubstantially completed the exercise in relation to land and buildings andplant and equipment, which has 

F-9

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**1**   Basis of Preparation—(continued)

resultedin an increase in fixed assets of €23 million. Theacquisition of Kappa resulted in a net increase in goodwill of €1.2 billion.

**2**   AccountingPolicies

***(a) Basis ofaccounting:***

The financial statementsare prepared under the historical cost convention and in accordance withgenerally accepted accounting principles in Ireland (Irish GAAP). They areprepared and presented in euro (€). In preparing thesefinancial statements, certain items have been included in order to comply withaccounting presentation and disclosure requirements applicable in the UnitedStates in respect of foreign registrants. An explanation of the significantdifferences between Irish and US GAAP as they apply to the Group and areconciliation to US GAAP are set out in Note 35. The financial statements donot constitute full group accounts within the meaning of Regulation 40(1) ofthe European Communities (Companies: Group Accounts) Regulations, 1992 ofIreland insofar as such group accounts would have to comply with all of thedisclosure and other requirements of those Regulations. The auditors have madereports without qualification and without reference to an emphasis of matterunder Section 193 of the Companies Act, 1990, in respect of theconsolidated financial statements for the years ended December 31, 2005and 2004.

***(b) Groupconsolidation:***

The financial statementscomprise a consolidation of the financial statements of JSG Funding and itssubsidiaries. Associates are accounted for under the equity method ofaccounting. Where accounting policies followed by subsidiaries and associatesdiffer significantly from those adopted for the purpose of the consolidatedfinancial statements, appropriate adjustments are made in order to achieve aconsistent basis of accounting. The results of subsidiaries acquired or soldare consolidated and the Group’s share of the results of associates areincluded for the periods from their effective date of acquisition until theireffective date of sale.

***(c) Net salesand revenue recognition:***

Net sales consist of salesto third parties after trade discounts and exclude sales taxes. Revenue isrecognized at the time products are delivered or services rendered to externalcustomers.

***(d) Goodwilland other intangible assets:***

Goodwill represents theexcess of the cost of shares in subsidiaries over the fair value of their netassets acquired based on Group accounting policies. It is capitalized andamortized over a period of 40 years as the directors believe that thedurability of the business can be demonstrated and the value of goodwill iscapable of being continually reassessed. The carrying value of goodwill issubject to an impairment review at the end of the first full year following theyear of acquisition and annually thereafter.

Other intangible assets,namely the value of the Kappa brand name, are stated at fair value and amortizedover an estimated useful life of 10 years.

***(e) Property,plant and equipment:***

Property, plant andequipment is carried at cost less accumulated depreciation.

F-10

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**2**   Accounting Policies—(continued)

***(f) Depreciation:***

Freehold and longleasehold land are not depreciated. Short leasehold land and buildings aredepreciated over the remaining period of the lease, adjusted for estimatedresidual value. In the main, other tangible fixed assets are depreciated byequal annual installments over their estimated useful lives at the followingrates:

| Freehold and long  leasehold buildings |   | 1 - 5   | % |
|----------------------------------------|--------|---------|---|
| Fixtures and  fittings                 |   | 10 - 25 | % |
| Plant and  machinery                   |   | 3 - 33  | % |
| Motor vehicles                         |   | 20 - 25 | % |

 

***(g) Timberlands:***

The cost of acquiring,establishing and maintaining forestry plantations are classified astimberlands. Depletion of timberlands represents the charge to income relatingto the timber extracted in the year.

***(h) Leasing:***

Assets acquired underfinance leases are capitalized and included in property, plant and equipmentand depreciated in accordance with Group depreciation policy. Payments underoperating leases are expensed over the period of the lease.

***(i) Inventory valuation:***

Inventory is valued at thelower of cost on a first in first out basis or net realizable value. Costincludes direct costs plus applicable factory and other overheads. Netrealizable value is the actual or estimated selling price less all applicablecosts incurred or likely to be incurred in the realization of the sellingprice. Full provision is made for all damaged, deteriorated, obsolete andunusable materials.

***(j) Debt instruments:***

The finance costs of debtinstruments, which is the difference between the net proceeds and the totalamount payable under the instrument, are accounted for over the life of theinstrument at a constant rate of interest on the outstanding balance. Theproceeds of debt instruments, net of issue costs, are shown as liabilities onthe balance sheet.

***(k) Derivative instruments:***

The Group uses forwardcurrency contracts to reduce exposure to foreign exchange rates. The Group alsouses interest rate swaps to adjust interest rate exposures. The Group considersits derivative instruments qualify for hedge accounting when certain criteriaare met.

F-11

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**2**   Accounting Policies—(continued)

*Forward foreigncurrency contracts*

The criteria forforward foreign currency contracts are:

·       Theinstrument must be related to a foreign currency asset or liability that isprobable and whose characteristics have been identified; and

·       Itmust reduce the risk of foreign currency exchange movements on our operations.

The rates under suchcontracts are used to record the hedged item. As a result, gains and losses areoffset against the foreign exchange gains and losses on the related financialassets and liabilities, or where the instrument is used to hedge a committed,or probable, future transaction, are deferred until the transaction occurs. Gains/losseson hedges of anticipated transactions are recorded in the ConsolidatedStatements of Operations when such anticipated transactions are no longerlikely to occur.

*Interest rate swaps*

The Group’scriteria for interest rate swaps are:

·       Theinstrument must be related to an asset or a liability; and

·       Itmust change the character of the interest rate by converting a variable rate toa fixed rate or vice versa.

Interest differentials are recognized and included ininterest payable or receivable as appropriate.

Interest rate swaps arenot revalued to fair value and are not shown on the Group Balance Sheets.

*Currency swaps*

The Group enters currencyswap agreements to reduce the impact of foreign currency rate fluctuationsarising from unmatched foreign currency assets and liabilities. Related foreigncurrency assets and liabilities are accounted for in the currency of theunderlying swap agreement and translated at the closing rate.

***(l) Foreign Currencies:***

Foreign currency transactions are translated at therate of exchange ruling at the date of the transaction or, if hedged forward,at the rate of exchange under the related forward currency contract. Monetary assetsand liabilities denominated in foreign currencies are translated at the closingrate or, if hedged forward, at the rate of exchange under the related forwardcurrency contract. The resulting profits or losses are dealt with in theConsolidated Statements of Operations.

The balance sheets ofsubsidiaries are translated using the closing rate method. The statements ofoperations and cash flow statements are translated at average rates ruling forthe relevant period. Resulting currency differences, together with thosearising on hedging activities, are dealt with in reserves. The transactions ofoperations in hyper-inflationary economies are reported using a relativelystable currency as the functional currency. The translation gains and lossesarising are recognized in the Consolidated Statements of Operations.

F-12

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**2**   Accounting Policies—(continued)

***(m) Post Retirement Benefits:***

JSG Funding accounts forpost retirement benefits in accordance with FRS 17—“Retirement Benefits”. FRS17 applies to all types of benefits that an employer provides after employeeshave completed their service, including pensions and other post retirementbenefits. The expected increase in the present value of scheme liabilitiesarising from employee service in the current or prior periods is chargedagainst operating income. The expected returns on the schemes’ assets and theincrease during the period in the present value of the schemes’ liabilitiesarising from the passage of time are included in the Consolidated Statements ofOperations as “Other Financial Expense”. Differences between the expected andthe actual return on plan assets, together with the effect of changes in thecurrent or prior assumptions underlying the liabilities are recognized in theConsolidated Statements of Total Recognized Gains and Losses. Scheme assets arevalued at fair value and scheme liabilities are measured using the projectedunit credit method. Net scheme assets and liabilities, reduced by deferred taxamounts, are recorded on the Balance Sheets as a pension surplus or deficit asappropriate.

***(n) Deferred taxation:***

The Group providesdeferred tax in accordance with FRS 19—“Deferred Tax”. Under this standard fullprovision is made for deferred tax arising from timing differences between therecognition of gains and losses in the financial statements and their recognitionin tax computations. We have chosen not to discount deferred tax assets andliabilities.

***(o) Research and development:***

Research and developmentexpenditure is written off as incurred.

***(p) Use of estimates:***

The preparation offinancial statements requires management to make estimates that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the balance sheet date and the reported amounts of revenuesand expenses for the reporting period. Actual results could differ from thoseestimates.

**3**   SegmentalAnalyses

The Group is an integrated paper and boardmanufacturer and converter. The Group has identified reportable segments on ageographic basis. In Europe, the Group has two reportable segments: (1) Packagingand (2) Specialties. The Packaging segment is highly integrated. Itincludes a system of mills and plants that produces a full line ofcontainerboard that is converted into corrugated containers. Our specialtiessegment, prior to the Munksjö Specialties disposal, was principally comprisedof décor base paper, other specialty papers and graphicboard production.Additionally, there are central costs which represent corporate governancecosts, including executive costs, and costs of the Group’s legal, companysecretarial, pension administration, tax, treasury and controlling functionsand other administrative costs.

Set out below aresegmental analyses of sales (by source), income before taxes and equityminority interests, total assets, long lived assets, net operating assets,capital expenditure, depreciation, depletion and amortization expense andinvestments in equity method investees. Sales by destination are not 

F-13

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**3**   Segmental Analyses—(continued)

materiallydifferent from sales by source. The analysis of income includes the Group’sshare of the income before exceptional items, interest and taxes of associates.A geographical analysis of employees can be found in Note 6 and of income taxesin Note 9.

**Sales—third party (external net sales)**

| ** **                      | ** ** | **2005**      | ** **    | **2004**      | ** ** | **2003**      | ** ** |
|---------------------------------|------------|---------------|---------------|---------------|------------|---------------|------------|
| ** **                      | ** ** | **€000** | ** **    | **€000** | ** ** | **€000** | ** ** |
| Packaging                       |       | 3,117,403     |          | 3,093,484     |       | 2,972,383     |       |
| Specialties                     |       | 530,629       |          | 1,009,038     |       | 988,275       |       |
| Europe                          |       | 3,648,032     |          | 4,102,522     |       | 3,960,658     |       |
| United States & Canada |       | —        |          | —        |       | 104,355       |       |
| Latin America                   |       | 789,297       |          | 702,560       |       | 681,302       |       |
|                            | ** ** | **€**    | **4,437,329** | ** **    | **€** | **4,805,082** | ** ** | **€** | **4,746,315** | ** ** |
|                                 |            |               |               |               |            |               |            |  |  |  |

 

Third party sales in Ireland were: €189,244,000for the year ended December 31, 2005; €196,346,000 for the yearended December 31, 2004 and €201,530,000 for the yearended December 31, 2003.

**Sales—Group and third party**

| ** **                 | ** ** | **2005**      | ** **    | **2004**      | ** ** | **2003**      | ** ** |
|----------------------------|------------|---------------|---------------|---------------|------------|---------------|------------|
| ** **                 | ** ** | **€000** | ** **    | **€000** | ** ** | **€000** | ** ** |
| Packaging                  |       | 4,338,640     |          | 4,255,869     |       | 3,969,405     |       |
| Specialties                |       | 651,972       |          | 1,138,767     |       | 1,108,017     |       |
| Europe                     |       | 4,990,612     |          | 5,394,636     |       | 5,077,422     |       |
| United States & Canada |       | —        |          | —        |       | 104,355       |       |
| Latin America              |       | 1,221,240     |          | 1,090,229     |       | 1,067,021     |       |
|                       | ** ** | **€**    | **6,211,852** | ** **    | **€** | **6,484,865** | ** ** | **€** | **6,248,798** | ** ** |
|                            |            |               |               |               |            |               |            |  |  |  |

 

F-14

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**3**   Segmental Analyses—(continued)

**Income before taxes and equityminority interests**

| ** **                                                                 | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|----------------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                                 | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| Packaging                                                                  |       | 129,461       |         | 152,000       |       | 206,446       |       |
| Specialties                                                                |       | 33,154        |         | 98,256        |       | 95,136        |       |
| Associates                                                                 |       | 6,420         |         | 10,064        |       | 9,447         |       |
| Europe                                                                     |       | 169,035       |         | 260,320       |       | 311,029       |       |
| United States and Canada                                                   |       | —        |         | —        |       | 7,775         |       |
| Packaging                                                                  |       | 113,996       |         | 118,443       |       | 86,536        |       |
| Associates                                                                 |       | 867           |         | 2,546         |       | 506           |       |
| Latin America                                                              |       | 114,863       |         | 120,989       |       | 87,042        |       |
| Asia (Associates)                                                          |       | —        |         | —        |       | 2,202         |       |
| Unallocated centre costs                                                   |       | (23,335       | )            | (25,272       | )          | (22,461       | )          |
| Income before intangible amortization, interest and exceptional items |       | 260,563       |         | 356,037       |       | 385,587       |       |
| Amortization of intangible  assets                                         |       | (29,203       | )            | (37,925       | )          | (44,548       | )          |
| Group net interest                                                         |       | (244,621      | )            | (285,306      | )          | (297,737      | )          |
| Loss from early extinguishment of debt                                     |       | (104,658      | )            | (5,697        | )          | —        |       |
| Share of associates’ net interest                                     |       | (1,336        | )            | (1,301        | )          | (2,062        | )          |
| (Loss)/income before exceptional items                                     |       | (119,255      | )            | 25,808        |       | 41,240        |       |
| Reorganization and restructuring costs                                     |       | (25,090       | )            | (39,430       | )          | (35,006       | )          |
| Impairment of property, plant and equipment                                |       | (45,214       | )            | —        |       | —        |       |
| Income on sale of assets and businesses                                    |       | 52,587        |         | 22,173        |       | 5,560         |       |
|                                                                       | ** ** | **€**    | **(136,972** | **)**         | **€** | **8,551**     | ** ** | **€** | **11,794** | ** ** |
|                                                                            |            |               |              |               |            |               |            |  |  |  |

 

**Total assets**

| ** **                | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|---------------------------|------------|---------------|---------------|---------------|------------|
| ** **                | ** ** | **€000** | ** **    | **€000** | ** ** |
| Packaging                 |       | 5,065,437     |          | 2,404,855     |       |
| Specialties               |       | 654,357       |          | 805,023       |       |
| Europe                    |       | 5,719,794     |          | 3,209,878     |       |
| Latin America             |       | 774,708       |          | 669,743       |       |
| Group centre              |       | 127,973       |          | 162,379       |       |
|                      |       | 6,622,475     |          | 4,042,000     |       |
| Intangible assets         |       | 2,490,259     |          | 1,455,130     |       |
| Amounts due by affiliates |       | 263,043       |          | 270,947       |       |
|                      | ** ** | **€**    | **9,375,777** | ** **    | **€** | **5,768,077** | ** ** |
|                           |            |               |               |               |            |  |  |

 

F-15

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**3**   SegmentalAnalyses—(continued)

**Long lived assets**

| ** **        | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|-------------------|------------|---------------|---------------|---------------|------------|
| ** **        | ** ** | **€000** | ** **    | **€000** | ** ** |
| Packaging         |       | 2,647,603     |          | 1,403,645     |       |
| Specialties       |       | 375,213       |          | 512,959       |       |
| Europe            |       | 3,022,816     |          | 1,916,604     |       |
| Latin America     |       | 475,323       |          | 413,257       |       |
| Group centre      |       | 945           |          | 4,997         |       |
|              |       | 3,499,084     |          | 2,334,858     |       |
| Intangible assets |       | 2,490,259     |          | 1,455,130     |       |
|              | ** ** | **€**    | **5,989,343** | ** **    | **€** | **3,789,988** | ** ** |
|                   |            |               |               |               |            |  |  |

 

Long lived assets inIreland were €82,952,000 and €203,058,000 at December 31,2005 and 2004 respectively.

**Net operating assets**

| ** **                     | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|--------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                     | ** ** | **€000** | ** **    | **€000** | ** ** |
| Packaging                      |       | 3,091,799     |          | 1,630,279     |       |
| Specialities                   |       | 479,235       |          | 624,296       |       |
| Europe                         |       | 3,571,034     |          | 2,254,575     |       |
| Latin America                  |       | 627,697       |          | 520,224       |       |
| Group centre                   |       | (69,969       | )             | (12,152       | )          |
| Net operating assets           |       | 4,128,762     |          | 2,762,647     |       |
| Intangible assets              |       | 2,490,259     |          | 1,455,130     |       |
| Amounts due by affiliates      |       | 263,043       |          | 269,793       |       |
| Unallocated net liabilities    |       | (5,463,202    | )             | (3,618,469    | )          |
| **Shareholders’  equity** | ** ** | **€**    | **1,418,862** | ** **    | **€** | **869,101** | ** ** |
|                                |            |               |               |               |            |  |  |

 

F-16

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**3**   Segmental Analyses—(continued)

**A reconciliation of netoperating assets above to shareholders’ equity is as follows:**

| ** **                                     | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|------------------------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                                     | ** ** | **€000** | ** **    | **€000** | ** ** |
| Per segmental analysis of net operating assets |       | 4,128,762     |          | 2,762,647     |       |
| Intangible assets                              |       | 2,490,259     |          | 1,455,130     |       |
| Amounts due by affiliates                      |       | 263,043       |          | 269,793       |       |
| Unallocated assets                             |       | 2,753,302     |          | 1,724,923     |       |
| Net borrowing                                  |       | (4,506,742    | )             | (2,895,346    | )          |
| Deferred debt issuance costs                   |       | 132,860       |          | 91,628        |       |
| Amounts due to affiliates                      |       | (10,876       | )             | (7,372        | )          |
| Corporation tax                                |       | (20,410       | )             | (42,147       | )          |
| Capital lease creditors                        |       | (23,549       | )             | (17,400       | )          |
| Provisions for liabilities and charges         |       | (247,733      | )             | (221,403      | )          |
| Pension liabilities                            |       | (655,368      | )             | (411,237      | )          |
| Minority interests (equity interests)          |       | (131,384      | )             | (115,192      | )          |
| Unallocated net liabilities                    |       | (5,463,202    | )             | (3,618,469    | )          |
| **Shareholders’  equity**                 | ** ** | **€**    | **1,418,862** | ** **    | **€** | **869,101** | ** ** |
|                                                |            |               |               |               |            |  |  |

 

Totalassets comprise fixed assets and current assets. Long lived assets compriseproperty, plant and equipment and intangible assets. Net operating assetscomprise total assets less total liabilities but excluding all assets andliabilities of a financing nature.

**Capital expenditure**

| ** **               | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **               | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Packaging                |       | 121,300       |        | 114,803       |       | 128,937       |       |
| Specialities             |       | 28,296        |        | 54,565        |       | 46,902        |       |
| Europe                   |       | 149,596       |        | 169,368       |       | 175,839       |       |
| United States and Canada |       | —        |        | —        |       | 1,365         |       |
| Latin America            |       | 42,432        |        | 36,689        |       | 30,308        |       |
| Group centre             |       | 406           |        | 409           |       | 6             |       |
|                     | ** ** | **€**    | **192,434** | ** **    | **€** | **206,466**   | ** ** | **€** | **207,518** | ** ** |
|                          |            |               |             |               |            |               |            |  |  |  |

 

F-17

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**3**   Segmental Analyses—(continued)

**Depreciation, depletion and amortization expense**

| ** **                            | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|---------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                            | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Packaging                             |       | 177,587       |        | 178,218       |       | 163,753       |       |
| Specialities                          |       | 21,907        |        | 43,375        |       | 44,709        |       |
| Europe                                |       | 199,494       |        | 221,593       |       | 208,462       |       |
| United States and Canada              |       | —        |        | —        |       | 2,244         |       |
| Latin America                         |       | 40,527        |        | 40,806        |       | 42,490        |       |
| Group centre                          |       | 155           |        | 218           |       | 270           |       |
| Depreciation and depletion            |       | 240,176       |        | 262,617       |       | 253,466       |       |
| Amortization of intangible  assets(1) |       | 29,203        |        | 37,925        |       | 44,548        |       |
|                                  | ** ** | **€**    | **269,379** | ** **    | **€** | **300,542**   | ** ** | **€** | **298,014** | ** ** |
|                                       |            |               |             |               |            |               |            |  |  |  |

----

(1)          2005excludes goodwill written off of €128,422,000 in relation tobusinesses disposed (2004: €2,586,000).These have been included within income on sale of assets and operations (Note5).

**Investments in equity method investees**

| ** **    | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|---------------|------------|---------------|------------|---------------|------------|
| ** **    | ** ** | **€000** | ** ** | **€000** | ** ** |
| Europe        |       | 62,264        |       | 60,051        |       |
| Latin America |       | 14,049        |       | 12,244        |       |
|          | ** ** | **€**    | **76,313** | ** **    | **€** | **72,295** | ** ** |
|               |            |               |            |               |            |  |  |

 

**4**   NetOperating Expenses

| ** **              | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **              | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Distribution  costs     |       | 366,515       |        | 349,047       |       | 337,489       |       |
| Administrative expenses |       | 613,789       |        | 664,303       |       | 647,734       |       |
| Other operating  income |       | (3,012        | )           | (2,786        | )          | (2,878        | )          |
|                    | ** ** | **€**    | **977,292** | ** **    | **€** | **1,010,564** | ** ** | **€** | **982,345** | ** ** |
|                         |            |               |             |               |            |               |            |  |  |  |

 

In 2003, a gain of €18million on the sale of development land at The K Club was netted againstadministrative expenses.

F-18

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**5**   ExceptionalItems

| ** **                                                            | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                                            | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Reorganization  and restructuring costs                               |       | (25,090       | )           | (39,430       | )          | (35,006       | )          |
| Income on sale of  assets and operations                              |       | 13,458        | ** **  | 22,173        | ** ** | 5,560         |       |
| Income on sale of  assets and operations—discontinued operations |       | 39,129        | ** **  | —        | ** ** | —        |       |
| Impairment of  property, plant and equipment                          |       | (45,214       | )           | —        |       | —        |       |
| ** **                                                            | ** ** | **€**    | **(17,717** | **)**         | **€** | **(17,257**   | **)**      | **€** | **(29,446** | **)** |
|                                                                       |            |               |             |               |            |               |            |  |  |  |

 

The Group has recorded costs of €25,090,000in 2005 representing reorganization and restructuring costs mainly in theEuropean Packaging segment. This figure includes redundancy, closure andreorganization costs. The main closure costs relate to our Clonskeagh Mill inIreland, which was permanently closed in the first quarter of 2005, and to ourGravelines corrugated plant and Cevennes corrugated plant in France, for whichclosures were announced in the final quarter of 2005. The related tax relief of€5,360,000is included in Taxes on income.

The Group has also recorded costs of €45,214,000primarily in the European Packaging segment representing provisions forimpairment of property, plant and equipment. In measuring the value in use ofthe related assets a discount rate of 7.6% was applied to future cash flows.

The Group has reported a net gain of €52,587,000in respect of the sale of assets and operations. The main profit was inrelation to the sale of Munksjo in the first quarter of 2005, partially offsetby a loss on the sale of our Tissues operation in the second quarter of 2005,in addition to the profit on the sale of The K Club in the second quarter of2005. The related tax charge of €156,000 is included inTaxes on income.

In 2004, the Group recorded costs of €39,430,000representing reorganization and restructuring costs mainly in the EuropeanPackaging segment. This figure included redundancy, closure and reorganizationcosts. The main closure costs related to our Cordoba mill in Spain, which waspermanently closed in the third quarter of 2004, and to our Tamworth corrugatedplant and Witham cartons plant in the United Kingdom, for which closures wereannounced in the final quarter of 2004. The related tax relief of €4,048,000was included in Taxes on income.

The Group reported a gain of €22,173,000in respect of the sale of the Botanic Road property in Dublin, the sale ofsurplus property in Italy and Spain and the disposal of our investment inCartonnerie de Valois. The related tax charge of €1,939,000 was included inTaxes on income.

In 2003, the Group recorded costs of €35,006,000representing reorganization and restructuring costs mainly in the EuropeanPackaging segment. This figure included redundancy, closure and reorganizationcosts. The main closure costs related to our Lestrem mill in France, which waspermanently closed in October 2003. The related tax relief of €9,367,000is included in Taxes on income.

The Group has reported again of €5,560,000 in respect of the disposal of itsMaltese box plant and the sale of land at Orsenigo and Asti in Italy. Therelated tax charge of €2,086,000 is included in Taxes on income.

F-19

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**6**   Employeesand Remuneration

The average number of persons employed by the Group bygeographical area in the financial year was:

| ** **               | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------|------------|------------|------------|------------|------------|------------|------------|
| Europe                   |       | 21,384     |       | 22,931     |       | 22,348     |       |
| United States and Canada |       | —     |       | —     |       | 639        |       |
| Latin America            |       | 7,828      |       | 7,440      |       | 7,318      |       |
|                     |       | **29,212** | ** ** | **30,371** | ** ** | **30,305** |       |

 

| ** **                     | ** ** | **2005**      | ** **    | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------------|------------|---------------|---------------|---------------|------------|---------------|------------|
| ** **                     | ** ** | **€000** | ** **    | **€000** | ** ** | **€000** | ** ** |
| **The staff  costs comprise:** |       |          |          |          |       |          |       |
| Wages and salaries             |       | 859,131       |          | 890,748       |       | 873,702       |       |
| Social welfare                 |       | 188,543       |          | 194,858       |       | 190,586       |       |
| Pensions                       |       | 66,204        |          | 71,623        |       | 73,200        |       |
|                           | ** ** | **€**    | **1,113,878** | ** **    | **€** | **1,157,229** | ** ** | **€** | **1,137,488** | ** ** |
|                                |            |               |               |               |            |               |            |  |  |  |

 

**7**   InterestExpense

| ** **                                                | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                                | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Interest payable  and similar charges:                    |       |          |        |          |       |          |       |
| On bank loans and  overdrafts                             |       |          |        |          |       |          |       |
| —repayable within 5 years, by installment            |       | 41,857        |        | 25,123        |       | 26,614        |       |
| —repayable within 5 years, other than by installment |       | 17,277        |        | 2,965         |       | 3,207         |       |
|                                                      |       | 59,134        |        | 28,088        |       | 29,821        |       |
| On all other  loans                                       |       | 196,217       |        | 265,553       |       | 279,547       |       |
| ** **                                                | ** ** | **€**    | **255,351** | ** **    | **€** | **293,641**   | ** ** | **€** | **309,368** | ** ** |
|                                                           |            |               |             |               |            |               |            |  |  |  |

 

The loss of €105 million from the earlyextinguishment of debt arose mainly as a result of our refinancing and debtreduction activities during 2005. The early pay down of the original PIK debt,following the February 2005 refinancing, resulted in the write-off of €14 millionin debt issue and other costs as well as cash costs of €53 million,primarily the cash premium paid for early redemption. In addition, the Groupwrote off debt issue costs of €10 million in respectof the debt repaid with the Munksjö proceeds. The Group wrote off a further €4 million in respect ofthe debt repaid with The K Club proceeds and €24 million as a result ofthe early pay down of some debt in the former JSG as part of the financing ofthe merger with Kappa.

F-20

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**8**   IncomeBefore Taxes

| ** **                                                   | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------------------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                                                   | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Income before  taxes is stated after charging / (crediting): |       |          |       |          |       |          |       |
| Depreciation,  depletion and amortization expense            |       | 269,379       |       | 300,542       |       | 298,014       | ** ** |
| Auditors’ remuneration  (including expenses)            |       | 4,472         |       | 4,073         |       | 3,675         | ** ** |
| Operating lease  rentals plant and machinery                 |       | 12,456        |       | 13,042        |       | 10,404        | ** ** |
| Operating lease  rentals other                               |       | 9,672         |       | 9,171         |       | 6,110         | ** ** |
| Loss / (gain) on  foreign currency borrowing less deposits   |       | 1,174         |       | (376          | )          | 6,401         | ** ** |
| Research and  development costs                              |       | 4,292         |       | 4,924         |       | 4,979         | ** ** |
| Government grants                                            |       | (3,012        | )          | (2,786        | )          | (2,878        | **)**      |

 

Directors’ emoluments, including pension contributionsamounted to €3,563,000 (2004: €4,894,000; 2003: €3,250,000)

The following amountsrelating to acquired/discontinued operations are included in arriving at Costof sales and Net operating expenses in the Consolidated Statements ofOperations.

| ** **                   | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                   | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Cost of  sales:**          |       |          |       |          |       |          |       |
| Acquired  operations         |       | 158,358       |       | —        |       | —        |       |
| Discontinued  operations     |       | 22,737        |       | 398,061       |       | 468,553       |       |
| **Net  operating expenses:** |       |          |       |          |       |          |       |
| Acquired  operations         |       | 45,452        |       | —        |       | —        |       |
| Discontinued operations      |       | 4,311         |       | 72,822        |       | 66,232        |       |

 

F-21

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**9**   Taxeson income

| ** **                                | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| **Current  Taxation**                     |       |          |        |          |       |          |       |
| Europe                                    |       | 18,801        |        | (7,219        | )          | 32,463        |       |
| United States and  Canada                 |       | (5,378        | )           | —        |       | (686          | )          |
| Latin America                             |       | 25,556        |        | 26,975        |       | 25,547        |       |
|                                      |       | 38,979        |        | 19,756        |       | 57,324        |       |
| **Deferred  Taxation**                    |       |          |        |          |       |          |       |
| Europe                                    |       | (13,924       | )           | 3,354         |       | 4,769         |       |
| United States and  Canada                 |       | —        |        | 8             |       | 5             |       |
| Latin America                             |       | (5,406        | )           | 1,257         |       | (2,811        | )          |
|                                      |       | (19,330       | )           | 4,619         |       | 1,963         |       |
| **Taxes  on income**                      |       |          |        |          |       |          |       |
| Holding Company  and subsidiaries         |       | 19,649        |        | 24,375        |       | 59,287        |       |
| Share of  associates                      |       | 1,912         |        | 2,598         |       | 3,067         |       |
|                                      | ** ** | **€**    | **21,561**  | ** **    | **€** | **26,973**    | ** ** | **€** | **62,354** | ** ** |
| **Deferred  taxation arises as follows:** |       |          |        |          |       |          |       |
| Capital  allowances                       |       | 788           |        | 3,873         |       | 1,068         |       |
| Other                                     |       | (20,118       | )           | 746           |       | 895           |       |
|                                      | ** ** | **€**    | **(19,330** | **)**         | **€** | **4,619**     | ** ** | **€** | **1,963** | ** ** |

 

Current taxation represents corporation tax or itsequivalent on the taxable income in each jurisdiction and unrelieved overseastax on dividends. In 2005, unrelieved overseas tax on dividends amounted to €559,000(2004: €486,000;2003: €474,000).In 2005, the amount of current taxation relating to Ireland was €1,593,000(2004: nil; 2003: a credit of €3,295,000). In 2005, theamount of deferred taxation relating to Ireland was a credit of €1,658,000(2004: a credit of €3,630,000;2003: a charge of €5,225,000).

The deferred taxation credit of €19,330,000for 2005 includes a charge of €2,172,000 (2004: €635,000;2003: €251,000)in respect of pensions. The balance of €21,502,000 (2004: €3,984,000;2003: €1,712,000)is shown as a movement in the liability for Deferred Income Taxes.

The Group has availed of areduced taxation rate of 10%, which applies to certain manufacturing andfinancial service operations in Ireland. This reduced rate expired at the endof 2005 for financial services operations and is due to expire formanufacturing operations at the end of 2010.

F-22

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**9**   Taxes on income —(continued)

**(Loss)/income before tax is analyzed as follows:**

| ** **                                     | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                     | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| Ireland                                        |       | (102,679      | )            | (30,709       | )          | (35,622       | )          |
| Foreign                                        |       | 6,676         |         | 83,132        |       | 111,317       |       |
| Associates                                     |       | 5,951         |         | 11,310        |       | 10,093        |       |
| Unallocated  amortization of intangible assets |       | (29,203       | )            | (37,925       | )          | (44,548       | )          |
| Exceptional items  (Note 5)                    |       | (17,717       | )            | (17,257       | )          | (29,446       | )          |
|                                           | ** ** | **€**    | **(136,972** | **)**         | **€** | **8,551**     | ** ** | **€** | **11,794** | ** ** |
|                                                |            |               |              |               |            |               |            |  |  |  |

 

The total tax charge in future periods will beaffected by any changes to the corporation tax rates in force in the countriesin which the Group operates. The current tax charges will also be affected bychanges in the excess of tax depreciation over book depreciation and the use oftax credits. The total tax  charge for2004 included €12,771,000 in respect ofthe discontinued Munksjö specialties and tissue businesses.

No deferred taxation is recognized on the unremittedearnings of overseas subsidiaries, joint venture and associates; as earningsare continually reinvested by the Group, no taxation is expected to be payableon them in the foreseeable future.

Thefollowing table relates the applicable Republic of Ireland statutory tax rateto the effective tax rate of the Group, obtained by computing the tax charge asa percentage of income before taxes and minority shareholders’ interest:

| ** **                                                        | ** **   | **2005**  | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|-------------------------------------------------------------------|--------------|-----------|------------|-----------|------------|-----------|------------|
| ** **                                                        | ** **   | **%**     | ** ** | **%**     | ** ** | **%**     | ** ** |
| Corporation tax  at Irish statutory rate                          | * *     | 12.5      |       | 12.5      |       | 12.5      |       |
| Adjusted for:                                                     | * *     |      |       |      |       |      |       |
| Income subject to a higher rate of tax than Irish  statutory rate | * *     | (21.6     | )          | 639.6     |       | 387.6     |       |
| Expenditure not  deductible for tax purposes                      | * *     | 7.9       |       | 170.1     |       | 268.8     |       |
| Tax losses (utilised)/unutilised                                  | * *     | (4.4      | )          | 101.3     |       | (139.1    | )          |
| Adjustments to tax charge in respect of previous  periods         | * *     | (7.5      | )          | (485.3    | )          | 2.8       |       |
| Profits arising  not subject to tax                               | * *     | (2.6      | )          | (122.8    | )          | (3.9      | )          |
|                                                              | *** *** | **(15.7** | **)**      | **315.4** | ** ** | **528.7** | ** ** |

 

F-23

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**10**   NetBorrowing

| ** **                 | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|----------------------------|------------|---------------|---------------|---------------|------------|
| ** **                 | ** ** | **€000** | ** **    | **€000** | ** ** |
| Cash at bank and  in hand  |       | 247,807       |          | 248,033       |       |
| Restricted cash            |       | 755,575       |          | —        |       |
| Total borrowing  (Note 19) |       | 5,510,124     |          | 3,143,379     |       |
|                       | ** ** | **€**    | **4,506,742** | ** **    | **€** | **2,895,346** | ** ** |
|                            |            |               |               |               |            |  |  |

 

**11**   AccountsReceivable and Prepayments

| ** **                                     | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|------------------------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                                     | ** ** | **€000** | ** **    | **€000** | ** ** |
| Amounts falling due  within one year:          |       |          |          |          |       |
| Trade receivables                              |       | 1,228,689     |          | 896,874       |       |
| Less: Provision  for bad and doubtful debts    |       | 45,831        |          | 52,910        |       |
|                                           |       | 1,182,858     |          | 843,964       |       |
| Amounts owed by associates                     |       | 8,089         |          | 5,764         |       |
| Other receivables                              |       | 79,763        |          | 37,740        |       |
| Prepayments and  accrued income                |       | 28,748        |          | 31,317        |       |
|                                           |       | 1,299,458     |          | 918,785       |       |
| Amounts falling  due after more than one year: |       |          |          |          |       |
| Other receivables                              |       | 15,270        |          | 6,263         |       |
| ** **                                     | ** ** | **€**    | **1,314,728** | ** **    | **€** | **925,048** | ** ** |
|                                                |            |               |               |               |            |  |  |

 

**12**   Inventories

| ** **       | ** ** | **2005**      | ** **  | **2004**      | ** ** |
|------------------|------------|---------------|-------------|---------------|------------|
| ** **       | ** ** | **€000** | ** **  | **€000** | ** ** |
| Raw materials    |       | 186,625       |        | 114,264       |       |
| Work in progress |       | 38,911        |        | 22,283        |       |
| Finished goods   |       | 297,029       |        | 184,060       |       |
| Other            |       | 140,566       |        | 131,559       |       |
|             | ** ** | **€**    | **663,131** | ** **    | **€** | **452,166** | ** ** |
|                  |            |               |             |               |            |  |  |

 

**13**   Investments

| ** **                        | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|-----------------------------------|------------|---------------|------------|---------------|------------|
| ** **                        | ** ** | **€000** | ** ** | **€000** | ** ** |
| Associates (Note  13 (i))         |       | 76,313        |       | 72,295        |       |
| Other investments  (Note 13 (ii)) |       | 11,433        |       | 9,600         |       |
|                              | ** ** | **€**    | **87,746** | ** **    | **€** | **81,895** | ** ** |
|                                   |            |               |            |               |            |  |  |

 

F-24

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**13**   Investments—(continued)

**13**   (i): Associates

| ** **                       | ** ** | **Share of  net assets** | ** ** | **Loans**     | ** ** | **Total**     | ** ** |
|----------------------------------|------------|------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                       | ** ** | **€000**                      | ** ** | **€000** | ** ** | **€000** | ** ** |
| December 31,  2002          |       | 144,003                            |       | 7,036         |       | 151,039       |       |
| Fair value  adjustment           |       | (5,646                             | )          | —        |       | (5,646        | )          |
| Additions                        |       | 4,089                              |       | —        |       | 4,089         |       |
| Acquisitions                     |       | 763                                |       | —        |       | 763           |       |
| Retained earnings                |       | 4,603                              |       | —        |       | 4,603         |       |
| Sales                            |       | (41,656                            | )          | —        |       | (41,656       | )          |
| Repayment                        |       | —                             |       | (6,728        | )          | (6,728        | )          |
| Reclassification  on acquisition |       | (35,030                            | )          | —        |       | (35,030       | )          |
| Currency  adjustment             |       | (2,153                             | )          | 4             |       | (2,149        | )          |
| **December 31,  2003**      | ** ** | **68,973**                         | ** ** | **312**       | ** ** | **69,285**    | ** ** |
| Additions                        |       | 441                                |       | —        |       | 441           |       |
| Retained earnings                |       | 3,944                              |       | —        |       | 3,944         |       |
| Sales                            |       | (124                               | )          | —        |       | (124          | )          |
| Reclassification                 |       | (414                               | )          | —        |       | (414          | )          |
| Currency  adjustment             |       | (837                               | )          | —        |       | (837          | )          |
| **December 31,  2004**      | ** ** | **71,983**                         | ** ** | **312**       | ** ** | **72,295**    | ** ** |
| Additions                        |       | 305                                |       | —        |       | 305           |       |
| Acquisitions                     |       | 2,643                              |       | —        |       | 2,643         |       |
| Retained earnings                |       | 2,169                              |       | —        |       | 2,169         |       |
| Sales                            |       | (873                               | )          | —        |       | (873          | )          |
| Reclassification                 |       | (1,899                             | )          | (145          | )          | (2,044        | )          |
| Currency  adjustment             |       | 1,814                              |       | 4             |       | 1,818         |       |
| **December 31, 2005**       | ** ** | **€**                         | **76,142** | ** **    | **€** | **171**       | ** ** | **€** | **76,313** | ** ** |
|                                  |            |                                    |            |               |            |               |            |  |  |  |

 

We have one remainingsignificant associate—Duropack AG in Austria, of which we own 40%.

F-25

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**13**   Investments—(continued)

**13   (ii): Other Investments**

| ** **                            | ** ** | **Listed*  Cost** | ** ** | **Unlisted  Cost** | ** ** | **Total**     | ** ** |
|---------------------------------------|------------|-------------------|------------|--------------------|------------|---------------|------------|
| ** **                            | ** ** | **€000**     | ** ** | **€000**      | ** ** | **€000** | ** ** |
| December 31,  2002               |       | 6,926             |       | 7,278              |       | 14,204        |       |
| Additions                             |       | 392               |       | 269                |       | 661           |       |
| Acquisitions                          |       | 19                |       | 2,834              |       | 2,853         |       |
| Reclassification                      |       | 38                |       | (5,260             | )          | (5,222        | )          |
| Sales                                 |       | (787              | )          | (16                | )          | (803          | )          |
| Currency  adjustment                  |       | (15               | )          | (321               | )          | (336          | )          |
| **December 31,  2003**           | ** ** | **6,573**         | ** ** | **4,784**          | ** ** | **11,357**    | ** ** |
| Additions                             |       | 231               |       | 541                |       | 772           |       |
| Transfers                             |       | —            |       | (14                | )          | (14           | )          |
| Reclassification                      |       | —            |       | (1,426             | )          | (1,426        | )          |
| Sales                                 |       | (509              | )          | (465               | )          | (974          | )          |
| Currency  adjustment                  |       | 8                 |       | (123               | )          | (115          | )          |
| **December 31,  2004**           | ** ** | **6,303**         | ** ** | **3,297**          | ** ** | **9,600**     | ** ** |
| Additions                             |       | 75                |       | 12                 |       | 87            |       |
| Acquisitions                          |       | —            |       | 890                |       | 890           |       |
| Reclassification                      |       | —            |       | 921                |       | 921           |       |
| Sales                                 |       | (17               | )          | (219               | )          | (236          | )          |
| Write off to  statement of operations |       | —            |       | (56                | )          | (56           | )          |
| Currency  adjustment                  |       | —            |       | 227                |       | 227           |       |
| **December 31, 2005**            | ** ** | **€**        | **6,361**  | ** **         | **€** | **5,072**     | ** ** | **€** | **11,433** | ** ** |
|                                       |            |                   |            |                    |            |               |            |  |  |  |

----

*                    Listed on arecognized stock exchange

Other investments arestated at cost. The market value of the listed investments at December 31,2005 was €6,371,000 (2004: €6,304,000; 2003: €6,545,000).

F-26

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**14**   Property,Plant and Equipment 

| ** **                                  | ** ** | **Land & Buildings** | ** **    | **Plant and** | ** ** | ** **    | ** ** |
|---------------------------------------------|------------|------------------------------------|---------------|--------------------|------------|---------------|------------|
| ** **                                  | ** ** | **Freehold**                       | ** **    | **Leasehold**      | ** ** | **Equipment** | ** ** | **Total** | ** ** |
| ** **                                  | ** ** | **€000**                      | ** **    | **€000**      | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Cost**                                    | ** ** | ** **                         | ** **    |               | ** ** | ** **    |       | ** ** | ** ** | ** ** | ** ** |
| December 31, 2002                      |       | 861,294                            |          |               | 33,716     |          |       | 2,913,998 |   | 3,809,008 |   |
| Fair value adjustment                       |       | 97,459                             |          |               | —     |          |       | 97,670 |   | 195,129 |   |
| Reclassification                            |       | 8,404                              |          |               | (329       | )             |       | (46,191 | ) | (38,116 | ) |
| Acquisitions                                |       | 93,412                             |          |               | 6,562      |          |       | 169,411 |   | 269,385 |   |
| Additions                                   |       | 21,354                             |          |               | —     |          |       | 179,652 |   | 201,006 |   |
| Businesses sold                             |       | —                             |          |               | —     |          |       | (165,386 | ) | (165,386 | ) |
| Retirements                                 |       | (16,217                            | )             |               | (302       | )             |       | (82,874 | ) | (99,393 | ) |
| Currency adjustment                         |       | (47,025                            | )             |               | (1,494     | )             |       | (153,406 | ) | (201,925 | ) |
| **December 31, 2003**                  | ** ** | **1,018,681**                      | ** **    |               | **38,153** | ** **    |       | **2,912,874** | ** ** | **3,969,708** | ** ** |
| Fair value adjustment                       |       | —                             |          |               | —     |          |       | 1,195 |   | 1,195 |   |
| Reclassification                            |       | 8,849                              |          |               | (8,305     | )             |       | (17,952 | ) | (17,408 | ) |
| Additions                                   |       | 27,076                             |          |               | 2,950      |          |       | 167,634 |   | 197,660 |   |
| Retirements                                 |       | (10,567                            | )             |               | (2,726     | )             |       | (66,863 | ) | (80,156 | ) |
| Currency adjustment                         |       | (14,254                            | )             |               | 158        |          |       | (44,416 | ) | (58,512 | ) |
| **December 31, 2004**                  | ** ** | **1,029,785**                      | ** **    |               | **30,230** | ** **    |       | **2,952,472** | ** ** | **4,012,487** | ** ** |
| Fair value adjustment                       |       | 40,438                             |          |               | —     |          |       | (17,449 | ) | 22,989 |   |
| Reclassification                            |       | 21,567                             |          |               | (2,659     | )             |       | (42,064 | ) | (23,156 | ) |
| Acquisitions                                |       | 525,146                            |          |               | —     |          |       | 1,031,986 |   | 1,557,132 |   |
| Additions                                   |       | 7,964                              |          |               | 2,315      |          |       | 173,314 |   | 183,593 |   |
| Businesses sold                             |       | (185,169                           | )             |               | (5,457     | )             |       | (301,857 | ) | (492,483 | ) |
| Retirements                                 |       | (30,506                            | )             |               | —     |          |       | (146,029 | ) | (176,535 | ) |
| Currency adjustment                         |       | 29,750                             |          |               | (288       | )             |       | 36,479 |   | 65,941 |   |
| **December 31, 2005**                  | ** ** | **1,438,975**                      | ** **    |               | **24,141** | ** **    |       | **3,686,852** | ** ** | **5,149,968** | ** ** |
| **Depreciation**                            | ** ** | ** **                         | ** **    |               | ** ** | ** **    |       | ** ** | ** ** | ** ** | ** ** |
| December 31, 2002                      |       | 141,917                            |          |               | 8,145      |          |       | 1,506,640 |   | 1,656,702 |   |
| Reclassification                            |       | (1,159                             | )             |               | (92        | )             |       | (43,525 | ) | (44,776 | ) |
| Charged                                     |       | 25,141                             |          |               | 1,231      |          |       | 220,438 |   | 246,810 |   |
| Businesses sold                             |       | —                             |          |               | —     |          |       | (96,144 | ) | (96,144 | ) |
| Retirements                                 |       | (4,494                             | )             |               | (316       | )             |       | (72,059 | ) | (76,869 | ) |
| Currency adjustment                         |       | (9,542                             | )             |               | (84        | )             |       | (91,825 | ) | (101,451 | ) |
| **December 31, 2003**                  | ** ** | **151,863**                        | ** **    |               | **8,884**  | ** **    |       | **1,423,525** | ** ** | **1,584,272** | ** ** |
| Reclassification                            |       | (4,787                             | )             |               | (2,621     | )             |       | (6,473 | ) | (13,881 | ) |
| Charged                                     |       | 27,895                             |          |               | 1,141      |          |       | 227,503 |   | 256,539 |   |
| Retirements                                 |       | (1,882                             | )             |               | (713       | )             |       | (64,287 | ) | (66,882 | ) |
| Currency adjustment                         |       | (3,487                             | )             |               | 141        |          |       | (29,731 | ) | (33,077 | ) |
| **December 31, 2004**                  | ** ** | **169,602**                        | ** **    |               | **6,832**  | ** **    |       | **1,550,537** | ** ** | **1,726,971** | ** ** |
| Impairment provision                        |       | 2,256                              |          |               | —     |          |       | 42,958 |   | 45,214 |   |
| Reclassification                            |       | 525                                |          |               | (1,027     | )             |       | (18,930 | ) | (19,432 | ) |
| Charged                                     |       | 31,596                             |          |               | 1,428      |          |       | 201,622 |   | 234,646 |   |
| Businesses sold                             |       | (17,020                            | )             |               | —     |          |       | (121,533 | ) | (138,553 | ) |
| Retirements                                 |       | (11,354                            | )             |               | —     |          |       | (128,297 | ) | (139,651 | ) |
| Currency adjustment                         |       | (48                                | )             |               | (306       | )             |       | 2,476 |   | 2,122 |   |
| **December 31, 2005**                  | ** ** | **175,557**                        | ** **    |               | **6,927**  | ** **    |       | **1,528,833** | ** ** | **1,711,317** | ** ** |
| **Net book amount  December 31, 2005** | ** ** | **€**                         | **1,263,420** | ** **         |       | **€**    | **17,214** | ** ** |   | **€** | **2,158,017** | ** ** | **€** | **3,438,651** | ** ** |
| **Net book amount  December 31, 2004** | ** ** | **€**                         | **860,183**   | ** **         |       | **€**    | **23,398** | ** ** |   | **€** | **1,401,935** | ** ** | **€** | **2,285,516** | ** ** |
| **Net book amount December 31, 2003**  | ** ** | **€**                         | **866,818**   | ** **         |       | **€**    | **29,269** | ** ** |   | **€** | **1,489,349** | ** ** | **€** | **2,385,436** | ** ** |

 

F-27

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**14**   Property, Plant andEquipment—(continued)

| ** **                                  | ** ** | **Timberland** | ** **    |
|---------------------------------------------|------------|----------------|---------------|
| ** **                                  | ** ** | **€000**  | ** **    |
| December 31,  2002                     |       | 61,948         |          |
| Additions                                   |       | 6,512          |          |
| Fair value  adjustment                      |       | (945           | )             |
| Depletion                                   |       | (6,656         | )             |
| Currency  adjustment                        |       | (10,349        | )             |
| **December 31,  2003**                 |       | **50,510**     |          |
| Additions                                   |       | 8,806          |          |
| Depletion                                   |       | (6,078         | )             |
| Currency adjustment                         |       | (3,896         | )             |
| **December 31,  2004**                 | ** ** | **49,342**     | ** **    |
| Additions                                   |       | 8,841          |          |
| Disposals                                   |       | (12            | )             |
| Depletion                                   |       | (5,530         | )             |
| Currency  adjustment                        |       | 7,792          |          |
| **December 31,  2005**                 | ** ** | **€**     | **60,433**    | ** ** |
| **Net book amount December 31, 2005**  | ** ** | **€**     | **3,499,084** | ** ** |
| **Net  book amount December 31, 2004** | ** ** | **€**     | **2,334,858** | ** ** |
| **Net book amount  December 31, 2003** | ** ** | **€**     | **2,435,946** | ** ** |

 

**Land and Buildings**

Included in tangibleassets is an amount for land of €410,140,000 (2004: €282,021,000;2003: €288,434,000)

**Capitalized leasedproperty, plant and equipment**

Included in the net bookamount of tangible assets is an amount for capitalized leased assets of €42,704,000(2004: €50,355,000;2003: €65,687,000).The depreciation charge for capitalized leased assets for 2005 was €6,832,000and the related finance charges amounted to €1,138,000 (2004: €10,139,000and €1,962,000; 2003: €10,794,000 and €2,164,000).

F-28

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**15**   IntangibleAssets

| ** **                  | ** ** | ** **    | ** **    | **Other**      | ** ** | **Total**      | ** ** |
|-----------------------------|------------|---------------|---------------|----------------|------------|----------------|------------|
| ** **                  | ** ** | ** **    | ** **    | **Intangible** | ** ** | **Intangible** | ** ** |
| ** **                  | ** ** | **Goodwill**  | ** **    | **Assets**     | ** ** | **Assets**     | ** ** |
| ** **                  | ** ** | **€000** | ** **    | **€000**  | ** ** | **€000**  | ** ** |
| December 31,  2002     |       | 1,543,545     |          |           | —     |           |       | 1,543,545 |   |
| Acquisitions                |       | 174,659       |          |           | —     |           |       | 174,659 |   |
| Disposals                   |       | (80,543       | )             |           | —     |           |       | (80,543 | ) |
| Fair value  adjustments     |       | (142,723      | )             |           | —     |           |       | (142,723 | ) |
| Amortization                |       | (44,548       | )             |           | —     |           |       | (44,548 | ) |
| Currency  adjustment        |       | 4,743         |          |           | —     |           |       | 4,743 |   |
| **December 31,  2003** | ** ** | **1,455,133** | ** **    | ** **     | **—** |           | ** ** | **1,455,133** | ** ** |
| Acquisitions                |       | 2,731         |          |           | —     |           |       | 2,731 |   |
| Disposals                   |       | (2,586        | )             |           | —     |           |       | (2,586 | ) |
| Fair value  adjustments     |       | 40,457        |          |           | —     |           |       | 40,457 |   |
| Amortization                |       | (37,925       | )             |           | —     |           |       | (37,925 | ) |
| Currency  adjustment        |       | (2,680        | )             |           | —     |           |       | (2,680 | ) |
| **December 31,  2004** | ** ** | **1,455,130** | ** **    | ** **     | **—** |           | ** ** | **1,455,130** | ** ** |
| Acquisitions                |       | 1,185,705     |          |           | 35,000     |           |       | 1,220,705 |   |
| Disposals                   |       | (128,422      | )             |           | —     |           |       | (128,422 | ) |
| Reclassification            |       | (31,247       | )             |           | —     |           |       | (31,247 | ) |
| Amortization                |       | (28,914       | )             |           | (289       | )              |       | (29,203 | ) |
| Currency  adjustment        |       | 3,296         |          |           | —     |           |       | 3,296 |   |
| **December 31, 2005**  | ** ** | **€**    | **2,455,548** | ** **     | ** ** | **€**     | **34,711** |   | ** ** | **€** | **2,490,259** | ** ** |
|                             |            |               |               |                |            |                |            |  |  |  |  |  |

 

Accumulated amortizationat December 31, 2005 and 2004 was €94,588,000and €75,110,000respectively.

**16**   Accounts Payableand Accrued Liabilities

| ** **                                        | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|---------------------------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                                        | ** ** | **€000** | ** **    | **€000** | ** ** |
| Trade payables                                    |       | 905,697       |          | 652,744       |       |
| Amounts owed to  associates—trading balances |       | 3,289         |          | 3,683         |       |
| Amounts due to  affiliates                        |       | —        |          | 1,154         |       |
| Taxation  creditors (Note 17)                     |       | 72,859        |          | 70,829        |       |
| Deferred  acquisition consideration               |       | 33,713        |          | 2,330         |       |
| Social welfare                                    |       | 51,574        |          | 48,740        |       |
| Accruals                                          |       | 323,315       |          | 189,079       |       |
| Capital payables                                  |       | 50,261        |          | 29,305        |       |
| Other payables                                    |       | 55,573        |          | 62,497        |       |
| Capitalized lease  obligations                    |       | 4,132         |          | 4,470         |       |
|                                              | ** ** | **€**    | **1,500,413** | ** **    | **€** | **1,064,831** | ** ** |
|                                                   |            |               |               |               |            |  |  |

 

F-29

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**17**   TaxationCreditors

| ** **                 | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|----------------------------|------------|---------------|------------|---------------|------------|
| ** **                 | ** ** | **€000** | ** ** | **€000** | ** ** |
| Current taxation           |       | 20,410        | ** ** | 42,147        |       |
| Payroll taxes              |       | 41,020        | ** ** | 29,256        |       |
| VAT and other  sales taxes |       | 11,429        | ** ** | (574          | )          |
|                       | ** ** | **€**    | **72,859** | ** **    | **€** | **70,829** | ** ** |
|                            |            |               |            |               |            |  |  |

 

**18**   Long TermDebt and Other Long Term Liabilities

| ** **                                             | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|--------------------------------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                                             | ** ** | **€000** | ** **    | **€000** | ** ** |
| Borrowing—due  after more than one year (Note 19) |       | 4,650,772     |          | 3,038,538     |       |
| Deferred debt  issuance costs                          |       | (132,860      | )             | (91,628       | )          |
| Capitalized lease  obligations                         |       | 19,417        |          | 12,930        |       |
|                                                   | ** ** | **€**    | **4,537,329** | ** **    | **€** | **2,959,840** | ** ** |
|                                                        |            |               |               |               |            |  |  |

 

**19**   Borrowing

**Analysis of Net Debt**

| ** **                                                                       | ** ** | **2005**            | ** **    | **2004**            | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------|---------------|---------------------|------------|
| ** **                                                                       | ** ** | **€’000** | ** **    | **€’000** | ** ** |
| Senior credit facility:                                                          |       |                |          |                |       |
| Revolving credit facility(1)—interest at relevant  interbank rate + 2.25%   |       | 9,210               |          | —              |       |
| Tranche A Term loan(2a)—interest at relevant  interbank rate + 2.25%        |       | 475,856             |          | 275,090             |       |
| Tranche B Term loan(2b)—interest at relevant  interbank rate + 2.75%(2d)    |       | 1,165,518           |          | 444,068             |       |
| Tranche C Term loan(2c)—interest at relevant  interbank rate + 3.25%(2d)    |       | 1,165,518           |          | 450,262             |       |
| Yankee bonds  including accrued interest(3)                                      |       | 251,497             |          | 416,245             |       |
| Kappa bonds(4)                                                                   |       | 755,575             |          | —              |       |
| Bank loans and  overdrafts / (cash)(5)                                           |       | (925,752            | )             | (155,812            | )          |
| 2011 Receivables  securitization floating rate notes (incl. accrued interest)(6) |       | 210,214             |          | 210,000             |       |
|                                                                             |       | 3,107,636           |          | 1,639,853           |       |
| 2012 Bonds  (including accrued interest)(7)                                      |       | 1,021,347           |          | 965,645             |       |
| 2015 Cash pay  subordinated notes (including accrued interest)(8)                |       | 377,759             |          | —              |       |
|                                                                             |       | 4,506,742           |          | 2,605,498           |       |
| 2013 PIK units  (including accrued interest)(9)                                  |       | —              |          | 289,848             |       |
| **Net debt**                                                                     | ** ** | **4,506,742**       | ** **    | **2,895,346**       | ** ** |
| Leases                                                                           |       | 23,549              |          | 17,400              |       |
| **Net debt including leases**                                                    | ** ** | **€**          | **4,530,291** | ** **          | **€** | **2,912,746** | ** ** |
|                                                                                  |            |                     |               |                     |            |  |  |

----

(1)          Revolving creditfacility of €600million (available under the senior credit facility) to be repaid in full in2012. Includes amounts drawn under ancillary facilities and amounts drawn underfacilities covered by letters of credit.

(2a)    Term loan A due to be repaidin certain instalments up to 2012.

F-30

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

(2b)   Term loan B due to be repaid infull in 2013.

(2c)    Term loan C due to be repaidin full in 2014.

(2d)   Margin on Tranches B &C reduced by 0.25% on euro term loans and by 0.375% on US Dollar term loans inFebruary 2006.

(3)          7.50% senior debenturesdue 2025 of $292.3 million (6.75% senior notes of $234 million due 2005 wererepaid in November 2005).

(4)          Various Kappa bondsrepaid on January 3, 2006.

(5)          Cash at December 31,2005 includes €756million which is placed as defeasance deposit with Kappa bond trustee.

(6)          Receivablessecuritization floating rate notes mature September 2011.

(7)          10.125% senior notes due2012 of €350million and 9.625% senior notes due 2012 of $750 million.

(8)          €217.5million of 7.75% senior subordinated notes due 2015 and US$200.0 million of7.75% senior subordinated notes due 2015.

(9)          100,000€units of 15.5% subordinated notes due 2013 and 150,000 US$ units of 15.5%subordinated notes due 2013.

| ** **                                 | ** ** | **2005**           | ** **    | **2004**      | ** ** |
|--------------------------------------------|------------|--------------------|---------------|---------------|------------|
| ** **                                 | ** ** | **Bank**           | ** **    | ** **    | ** ** | ** ** | ** ** | **Bank** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Loans and** | ** **    | **Other**     | ** ** | ** ** | ** ** | **Loans and** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Overdrafts**     | ** **    | **Borrowing** | ** ** | **Total** | ** ** | **Overdrafts** | ** ** | **Borrowing** | ** ** | **Total** | ** ** |
| ** **                                 | ** ** | **€000**      | ** **    | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Analysis by year of repayment**          | ** ** | ** **         | ** **    | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Bank loans, overdrafts and other borrowing |       | 67,609             |          | 36,168        |       | 103,777 |   | 78,283 |   | 26,558 |   | 104,841 |   |
| Kappa bonds outstanding                    |       | —             |          | 755,575       |       | 755,575 |   | — |   | — |   | — |   |
| Within one year                            |       | 67,609             |          | 791,743       |       | 859,352 |   | 78,283 |   | 26,558 |   | 104,841 |   |
| Between 1 and 2 years                      |       | 79,819             |          | 6,254         |       | 86,073 |   | 75,515 |   | 6,277 |   | 81,792 |   |
| Between 2 and 3  years                     |       | 56,270             |          | 2,172         |       | 58,442 |   | 171,966 |   | 2,429 |   | 174,395 |   |
| Between 3 and 4  years                     |       | 65,669             |          | 1,972         |       | 67,641 |   | 118,411 |   | 1,938 |   | 120,349 |   |
| Between 4 and 5  years                     |       | 67,397             |          | 1,761         |       | 69,158 |   | 163,427 |   | 1,738 |   | 165,165 |   |
| Thereafter                                 |       |               |          |          |       |   |   |   |   |   |   |   |   |
| By instalment                              |       | 218,874            |          | 2,928         |       | 221,802 |   | — |   | 3,970 |   | 3,970 |   |
| Other than by instalment                   |       | 2,316,851          |          | 1,830,805     |       | 4,147,656 |   | 837,491 |   | 1,655,376 |   | 2,492,867 |   |
| Due after more  than one year              |       | 2,804,880          |          | 1,845,892     |       | 4,650,772 |   | 1,366,810 |   | 1,671,728 |   | 3,038,538 |   |
| Total borrowing                            | ** ** | **€**         | **2,872,489** | ** **    | **€** | **2,637,635** | ** ** | **€** | **5,510,124** | ** ** | **€** | **1,445,093** | ** ** | **€** | **1,698,286** | ** ** | **€** | **3,143,379** | ** ** |
|                                            |            |                    |               |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-31

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

| ** **                            | ** ** | **2005**          | ** **  | **2004**          | ** ** |
|---------------------------------------|------------|-------------------|-------------|-------------------|------------|
| ** **                            | ** ** | **Within**        | ** **  | **After**         | ** ** | **Within** | ** ** | **After** | ** ** |
| ** **                            | ** ** | **One Year** | ** **  | **One Year** | ** ** | **One Year** | ** ** | **One Year** | ** ** |
| ** **                            | ** ** | **€000**     | ** **  | **€000**     | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Analysis  of borrowing**            |       |              |        |              |       |   |   |   |   |
| Secured bank loans and overdrafts:    |       |              |        |              |       |   |   |   |   |
| Overseas loans                        |       | 14,074            |        | 804,382           |       | 7,453 |   | 7,496 |   |
| Domestic loans                        |       | 12,150            |        | 1,996,648         |       | 29,514 |   | 1,355,521 |   |
|                                  |       | 26,224            |        | 2,801,030         |       | 36,967 |   | 1,363,017 |   |
| Unsecured bank  loans and overdrafts: |       |              |        |              |       |   |   |   |   |
| Overseas loans                        |       | 30,974            |        | 3,850             |       | 24,855 |   | 3,793 |   |
| Domestic loans                        |       | 10,411            |        | —            |       | 16,461 |   | — |   |
|                                  |       | 41,385            |        | 3,850             |       | 41,316 |   | 3,793 |   |
| Total bank loans and overdrafts       |       | 67,609            |        | 2,804,880         |       | 78,283 |   | 1,366,810 |   |
| Secured other loans                   |       | 384               |        | 455,581           |       | — |   | 462,912 |   |
| Unsecured other  loans                |       | 35,784            |        | 1,390,311         |       | 26,558 |   | 1,208,816 |   |
| Kappa bonds  outstanding              |       | 755,575           |        | —            |       | — |   | — |   |
| Total other loans                     |       | 791,743           |        | 1,845,892         |       | 26,558 |   | 1,671,728 |   |
| **Total  borrowing**                  | ** ** | **€**        | **859,352** | ** **        | **€** | **4,650,772** | ** ** | **€** | **104,841** | ** ** | **€** | **3,038,538** | ** ** |
|                                       |            |                   |             |                   |            |  |  |  |  |  |  |  |  |

 

Security comprises fixed and floating charges over theassets of certain subsidiaries and pledges over the Group’s shareholding incertain of its subsidiaries. The gross amount of receivables collateralizingthe receivables securitization at December 31, 2005 was €262,046,000(2004: €261,225,000).At December 31, 2005 cash of €14,085,000 (2004: €12,655,000)was in securitization bank accounts which was not available for transfer toother group subsidiaries.

Includedin secured other loans are the following long term obligations:

| ** **                                               | ** ** | **000** | ** ** |
|----------------------------------------------------------|------------|---------|------------|
| Guaranteed debentures  7.50% due 2025                    |       | $       | 292,300    |   |
| Receivables  securitization floating rate notes due 2011 |       | €  | 210,000    |   |

 

Included in unsecured other loans are the followinglong term obligations:

| ** **                                | ** ** | **000** | ** ** |
|-------------------------------------------|------------|---------|------------|
| Senior Notes  10.125% due 2012            |       | €  | 350,000    |   |
| Senior Notes  9.625% due 2012             |       | $       | 750,000    |   |
| Senior  Subordinated Notes 7.75% due 2015 |       | €  | 217,500    |   |
| Senior Subordinated  Notes 7.75% due 2015 |       | $       | 200,000    |   |

 

Committed facilitiesamounted to €5,577,642,000(2004: €3,497,533,000)of which €4,656,306,000(2004: €3,069,466,000)were utilized at December 31, 2005. The weighted average period untilmaturity of undrawn committed facilities is 5.3 years (2004: 4.6 years).

F-32

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

***Maturity of UndrawnCommitted Facilities***

| ** **            | ** ** | **2005**      | ** **  | **2004**      | ** ** |
|-----------------------|------------|---------------|-------------|---------------|------------|
| ** **            | ** ** | **€000** | ** **  | **€000** | ** ** |
| Within 1 year         |       | 55,546        |        | 3,067         |       |
| Between 1 and 2 years |       | —        |        | —        |       |
| More than 2 years     |       | 865,790       |        | 425,000       |       |
|                  | ** ** | **€**    | **921,336** | ** **    | **€** | **428,067** | ** ** |
|                       |            |               |             |               |            |  |  |

 

**Financialinstruments and risk management**

The operating parameters and policies of treasurymanagement are established under board authority. The formal treasury policycovers the areas of funding, counterparty risk, foreign exchange, controls andderivatives. Risk arising on counterparty default is controlled within a frameworkof dealing with high quality institutions that meet certain minimum criteria. TheGroup uses derivative instruments in the management of interest rate andcurrency risk.

The Group’s financialinstruments, other than derivatives, comprise borrowing, cash and liquidresources, and various items, such as trade debtors, trade creditors etc, thatarise directly from its operations. The Group uses derivative financialinstruments primarily to manage its exposure to market risks from changes ininterest and foreign exchange rates. The Group does not enter into or issuederivative financial instruments for trading purposes. The Group’s policy is tocentrally manage interest rate and currency exposure.

**(a) Interestrate risk management**

The Group manages interest rate exposure to achieve anappropriate balance of fixed and variable rate funding. To achieve thisobjective, the Group enters into interest rate swaps, options and forward rateagreements. Interest rate swap agreements are used to change the interest receivableor payable on the Group’s underlying cash and borrowing from variable to fixedrates or from fixed to variable rates. At the year end, 72% (2004: 73%) of theGroup’s borrowing was at fixed rates after taking account of interest rateswaps. The weighted average interest rate on borrowing outstanding at the yearend was 6.87% (2004: 7.91%). The weighted average interest rate on shortterm borrowing was 5.48% (2004: 6.11%).

Outstandinginterest rate swap agreements at December 31, 2005 are summarized asfollows:

| **Currency** | ** ** | ** ** | ** ** | **Notional  Principal  (Millions)** | ** ** | **Termination  Dates** | ** ** | **% Fixed  Payable** | ** ** | **% Variable  Receivable** | ** ** | **% Fixed  Receivable** | ** ** | **% Variable  Payable** | ** ** |
|--------------|------------|------------|------------|-------------------------------------|------------|------------------------|------------|---------------------------|------------|---------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EUR          |       |       | 175        |                                |       |                   | 2006       |                      |       | 3.4775 - 3.67                   |       | Euribor(1)                   |       |                         | —     |   |   |   | — |   |   |
| EUR          |       |       | 425        |                                |       |                   | 2007       |                      |       | 3.455 - 3.67                    |       | Euribor                      |       |                         | —     |   |   |   | — |   |   |
| EUR          |       |       | 480        |                                |       |                   | 2008       |                      |       | 3.165 - 3.615                   |       | Euribor                      |       |                         | —     |   |   |   | — |   |   |
| EUR          |       |       | 1,100      |                                |       |                   | 2009       |                      |       | 3.035 - 3.62                    |       | Euribor                      |       |                         | —     |   |   |   | — |   |   |

----

(1)          European InterbankOffered Rate

F-33

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

Outstanding interest rateswap agreements at December 31, 2004 are summarized as follows:

| **Currency** | ** ** | ** ** | ** ** | **Notional  Principal  (Millions)** | ** ** | **Termination  Dates** | ** ** | **% Fixed  Payable** | ** ** | **% Variable  Receivable** | ** ** | **% Fixed  Receivable** | ** ** | **% Variable  Payable** | ** ** |
|--------------|------------|------------|------------|-------------------------------------|------------|------------------------|------------|---------------------------|------------|---------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EUR          |       |       | 200        |                                |       |                   | 2005       |                      |       | 3.43 - 3.485                    |       |                         | Euribor    |                         |       |   | — |   |   | — |   |
| EUR          |       |       | 110        |                                |       |                   | 2006       |                      |       | 3.49 - 4.37                     |       |                         | Euribor    |                         |       |   | — |   |   | — |   |
| SEK          |       |       | 94         |                                |       |                   | 2006       |                      |       | —                          |       |                         | —     |                         |       |   | 5.24 |   |   | Stibor | (2) |
| EUR          |       |       | 700        |                                |       |                   | 2007       |                      |       | 3.39 - 3.62                     |       |                         | Euribor    |                         |       |   | — |   |   | — |   |

----

(2)          Stockholm InterbankOffered Rate

After takinginto account the various interest rate swaps and currency swaps entered into bythe Group, the interest rate profile of the Group’s financial liabilities at December 31,2005 was:

| ** **    | ** ** | ** ** | ** ** | ** **                                     | ** ** | ** **                                  | ** ** | **Fixed Rate financial liabilities** | ** ** |
|---------------|------------|------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **    | ** ** | **Total**  | ** ** | **Floating rate  financial  liabilities** | ** ** | **Fixed rate  financial  liabilities** | ** ** | **Weighted  average  interest rate**           | ** ** | **Weighted average  period until  maturity** | ** ** |
| **Currency**  | ** ** | ** ** | ** ** | **€ Million**                        | ** ** | **€ Million**                     | ** ** | **€ Million**                             | ** ** | **%** | ** ** | **Years** | ** ** |
| Euro          |       |       | 4,098      |                                           |       |                                        | 1,154      |                                                |       |   | 2,944 |   |   |   | 7.05 |   |   |   | 4.2 |   |   |
| Sterling      |       |       | 84         |                                           |       |                                        | 84         |                                                |       |   | — |   |   |   |   |   |   |   |   |   |   |
| US Dollar     |       |       | 480        |                                           |       |                                        | 1          |                                                |       |   | 479 |   |   |   | 9.62 |   |   |   | 8.6 |   |   |
| Polish Zloty  |       |       | 12         |                                           |       |                                        | 11         |                                                |       |   | 1 |   |   |   | 6.17 |   |   |   | 2.4 |   |   |
| Swedish Krona |       |       | 82         |                                           |       |                                        | 82         |                                                |       |   | — |   |   |   |   |   |   |   |   |   |   |
| Other         |       |       | 22         |                                           |       |                                        | 18         |                                                |       |   | 4 |   |   |   |   |   |   |   |   |   |   |
| **Total**     | ** ** | ** ** | **€** | **4,778**                                      |       | ** **                                  | ** ** | **€**                                          | **1,350**  |   | ** ** | ** ** | **€** | **3,428** |   |   |   |   |   |   |   |   |   |   |
|               |            |            |            |                                                |            |                                             |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(b) Foreignexchange risk management**

The Group manages its balance sheet having regard tothe currency exposures arising from its assets being denominated in a widerange of currencies. To this end, where foreign currency assets are funded byborrowing, such borrowing is generally sourced in the currency of the relatedassets. The Group also hedges a portion of its currency exposure through theuse of currency swaps and forward contracts. At December 31, 2005 theGroup had entered into €278 million (2004: €163million) currency equivalent of forward contracts and there were no optionscontracts outstanding (2004: €66 million)  in respect of its day to day trading.

Outstandingcurrency swap agreements at December 31, 2005 are summarized as follows:

| **Currency swapped  (Millions)** | ** ** | ** ** | ** **    | **Currency received  (Millions)** | ** ** | **Maturity date** | ** ** | **Interest rate paid** | ** ** | **Interest rate received** | ** ** |
|---------------------------------------|------------|------------|---------------|----------------------------------------|------------|------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| USD 176                               |       |       | EUR 172       |                                   |       |                   | 2007       |                             |       | Euribor + 332                        |       |   | Libor(1) + 300 |   |   |
| USD 222                               |       |       | EUR 190       |                                   |       |                   | 2007       |                             |       | Euribor + 259                        |       |   | 7.50 |   |   |
| USD 70                                |       |       | SEK  574 |                                   |       |                   | 2007       |                             |       | Stibor + 260                         |       |   | 7.50 |   |   |
| USD 200                               |       |       | EUR 153       |                                   |       |                   | 2010       |                             |       | 6.61                                 |       |   | 7.75 |   |   |
| USD 204                               |       |       | EUR 183       |                                   |       |                   | 2012       |                             |       | 9.98                                 |       |   | 9.65 |   |   |

----

(1)          London Interbank OfferedRate

F-34

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

Outstanding currency swap agreements at December 31, 2004 are summarized as follows:

| **Currency swapped  (Millions)** | ** ** | ** ** | ** **   | **Currency received  (Millions)** | ** ** | **Maturity date** | ** ** | **Interest rate paid** | ** ** | **Interest rate received** | ** ** |
|---------------------------------------|------------|------------|--------------|----------------------------------------|------------|------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| USD 195                               |       |       | EUR 200      |                                   |       |                   | 2007       |                             |       | Euribor + 318                        |       |   | Libor + 300 |   |   |
| USD 204                               |       |       | EUR 190      |                                   |       |                   | 2012       |                             |       | 9.6481                               |       |   | 9.6491 |   |   |
| USD 231                               |       |       | EUR 199      |                                   |       |                   | 2005       |                             |       | Euribor + 464                        |       |   | 6.8238 |   |   |
| USD 136                               |       |       | EUR 101      |                                   |       |                   | 2005       |                             |       | Euribor + 81                         |       |   | Libor + 93 |   |   |
| USD 35                           |       |       | EUR  25 |                                   |       |                   | 2005       |                             |       | Euribor + 708                        |       |   | 7.55 |   |   |
| USD 113                               |       |       | SEK 749 |                                   |       |                   | 2005       |                             |       | Stibor + 597                         |       |   | 7.55 |   |   |
| USD 5                            |       |       | SEK 33  |                                   |       |                   | 2005       |                             |       | Stibor + 110                         |       |   | Libor + 93 |   |   |

 

At December 31, 2005 the Group had also enteredinto currency swaps of €374 million equivalent(2004: €90million) as part of its short term liquidity management.

Excluding the Group’sLatin American operations, there were no significant transactional currencyexposures at December 31, 2005, that gave rise to net currency gains andlosses recognized in the statement of operations. Such exposures comprise the monetaryassets and liabilities of the Group that are not denominated in the operating(or ‘functional’) currency of the operating unit involved. As at December 31,2005, transactional currency exposures in the Group’s Latin American operationsamounted to €35 million (2004: €19 million).

**(c) Fair valueof financial instruments**

Thecarrying amounts and estimated fair values of the material financialinstruments of the Group are as follows:

| ** **                                        | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|---------------------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                                        | ** ** | **Carrying**  | ** ** | **Fair**      | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                                        | ** ** | **Amount**    | ** ** | **Value**     | ** ** | **Amount** | ** ** | **Value** | ** ** |
| ** **                                        | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Assets**                                        | ** ** | ** **    | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash, short term  deposits and liquid investments |       | 247,807       |       | 247,807       |       | 248,033 |   | 248,033 |   |
| Restricted cash                                   |       | 755,575       |       | 755,575       |       | — |   | — |   |
| Accounts  receivable and prepayments              |       | 1,299,458     |       | 1,299,458     |       | 918,785 |   | 918,785 |   |
| Publicly traded  investments                      |       | 6,361         |       | 6,371         |       | 6,303 |   | 6,304 |   |
| **Liabilities**                                   | ** ** | ** **    | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Short term debt                                   |       | 103,777       |       | 103,777       |       | 104,841 |   | 104,841 |   |
| Kappa bonds  outstanding                          |       | 755,575       |       | 755,575       |       | — |   | — |   |
| Accounts payable  and accrued liabilities         |       | 1,500,413     |       | 1,500,413     |       | 1,064,831 |   | 1,064,831 |   |
| Medium and long  term debt                        |       | 4,650,772     |       | 4,591,030     |       | 3,038,538 |   | 3,196,014 |   |
| **Derivative financial instruments**              | ** ** | ** **    | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest rate  swap agreements                    |       |          |       | (45,800       | )          |   |   | (57,397 | ) |
| Currency swap  agreements                         |       |          |       | (21,895       | )          |   |   | (125,743 | ) |
| Foreign exchange  contracts                       |       |          |       | 1,063         |       |   |   | 12,068 |   |
| Energy/Pulp hedging  contracts                    |       |          |       | 990           |       |   |   | (6,024 | ) |

 

F-35

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

The following methods andassumptions were used by the Group in estimating its fair value disclosures forfinancial instruments:

**Cash, short termdeposits and liquid investments, debtors and creditors:**

The carrying amountreported in the balance sheet approximates fair value because of the shortmaturity of these instruments.

**Listed investments:**

These are valued based onquoted prices.

**Short term debt andmedium and long term debt:**

The fair value of theGroup’s debt is estimated using either the replacement cost of equivalentinstruments or discounted cash flow analysis, based on the Group’s currentincremental borrowing rates for similar types of borrowing arrangements andmaturities.

**Interest rate swapagreements:**

The fair value of theGroup’s interest rate swap agreements is estimated using discounted cash flowanalysis. In addition the fair value amount includes the interest ratecomponent of currency swaps.

**Currency swapagreements and foreign exchange contracts:**

The fair value of theseinstruments is based on the estimated replacement cost of equivalentinstruments at the balance sheet date.

Gains and losses on instruments used for hedging are notrecognized until the exposure that is being hedged is itself recognized. Unrecognisedgains and losses on instruments used for hedging, and the movement therein, areas follows:

| ** **                                                                               | ** ** | **Gains**               | ** ** | **Losses**              | ** ** | **Total net  gains/(losses)** | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|------------------------------------|------------|
| ** **                                                                               | ** ** | **€ Million** | ** ** | **€ Million** | ** ** | **€ Million**            | ** ** |
| Unrecognized  gains and losses on hedges at December 31, 2004                       |       |                    | 6          |                    |       |                               | 64         |   |   |   | (58 | ) |   |
| Gains and losses arising in previous years that were  recognized in 2005                 |       |                    | 5          |                    |       |                               | 22         |   |   |   | (17 | ) |   |
| Gains and losses arising before December 31,  2004 that were not recognized in 2005 |       |                    | 1          |                    |       |                               | 42         |   |   |   | (41 | ) |   |
| Gains and losses arising in 2005 that were not  recognized in 2005                       |       |                    | 2          |                    |       |                               | (5         | ) |   |   | 7 |   |   |
| **Unrecognized gains and losses on hedges at  December 31, 2005**                   | ** ** | ** **              | **€** | **3**                   |       | ** **                         | ** ** | **€** | **37** |   | ** ** | ** ** | **€** | **(34** | **)** | ** ** |
| Of which:                                                                                |       |                    |       |                    |       |                               |       |   |   |   |   |   |   |
| Gains and losses expected to be recognized in 2006                                       |       |                    | 1          |                    |       |                               | 9          |   |   |   | (8 | ) |   |
| Gains and losses  expected to be recognized in 2007  or later                            |       |                    | 2          |                    |       |                               | 28         |   |   |   | (26 | ) |   |
|                                                                                          |            |                         |            |                         |            |                                    |            |  |  |  |  |  |  |  |  |  |

 

F-36

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

**(d) CreditRisk**

Potential concentrationsof credit risk to the Group consist principally of cash deposits, short terminvestments and trade debtors. The Group only deposits cash surpluses withquality credit rated banks and institutions that meet certain criteria and bypolicy limits the amount of credit exposure to any one bank or institution. Tradedebtors comprise a large, widespread customer base. The Group mitigates therisk that counterparties to derivatives will fail to perform by contracting withmajor financial institutions having high credit ratings and considers thelikelihood of counterparty failure to be remote. At December 31, 2005 theGroup did not consider there to be any significant concentration of creditrisk.

**20   Provisionfor Liabilities and Charges**

| ** **                                     | ** ** | **Deferred**  | ** **  | **Other**      | ** ** | ** **    | ** ** |
|------------------------------------------------|------------|---------------|-------------|----------------|------------|---------------|------------|
| ** **                                     | ** ** | **Income**    | ** **  | **Deferred**   | ** ** | ** **    | ** ** |
| ** **                                     | ** ** | **Taxes**     | ** **  | **Provisions** | ** ** | **Total**     | ** ** |
| ** **                                     | ** ** | **€000** | ** **  | **€000**  | ** ** | **€000** | ** ** |
| December 31,  2002                        |       | 158,896       |        | 63,957         |       | 222,853       |       |
| Charge to  statement of operations(1)          |       | 1,712         |        | 5,628          |       | 7,340         |       |
| Paid in year                                   |       | —        |        | 3,253          |       | 3,253         |       |
| Acquisitions                                   |       | 3,626         |        | 2,571          |       | 6,197         |       |
| Reclassification                               |       | 18,001        |        | (14,787        | )          | 3,214         |       |
| Fair value  adjustments                        |       | 674           |        | —         |       | 674           |       |
| Currency  adjustment                           |       | (6,083        | )           | (2,496         | )          | (8,579        | )          |
| **December 31,  2003**                    | ** ** | **176,826**   | ** **  | **58,126**     | ** ** | **234,952**   | ** ** |
| Charge/(credit)  to statement of operations(1) |       | 3,984         |        | (42            | )          | 3,942         |       |
| Paid in year                                   |       | —        |        | (9,769         | )          | (9,769        | )          |
| Acquisitions                                   |       | 1             |        | —         |       | 1             |       |
| Fair value  adjustments                        |       | (7,134        | )           | —         |       | (7,134        | )          |
| Reclassification                               |       | 4,406         |        | (2,592         | )          | 1,814         |       |
| Currency  adjustment                           |       | (1,647        | )           | (756           | )          | (2,403        | )          |
| **December 31,  2004**                    | ** ** | **176,436**   | ** **  | **44,967**     | ** ** | **221,403**   | ** ** |
| (Credit)/charge  to statement of operations(1) |       | (21,502       | )           | 14,084         |       | (7,418        | )          |
| Paid in year                                   |       | —        |        | (5,512         | )          | (5,512        | )          |
| Acquisitions                                   |       | 65,729        |        | 2,392          |       | 68,121        |       |
| Subsidiaries  disposed                         |       | (26,269       | )           | —         |       | (26,269       | )          |
| Reclassification                               |       | (1,877        | )           | (5,924         | )          | (7,801        | )          |
| Currency  adjustment                           |       | 3,674         |        | 1,535          |       | 5,209         |       |
| **December 31,  2005**                    | ** ** | **€**    | **196,191** | ** **     | **€** | **51,542**    | ** ** | **€** | **247,733** | ** ** |
|                                                |            |               |             |                |            |               |            |  |  |  |

 

 

F-37

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**20   Provisionfor Liabilities and Charges—(continued)**

| ** **                               | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                               | ** ** | **€**000 | ** **  | **€**000 | ** ** | **€**000 | ** ** |
| **Deferred taxation arises as follows:** | ** ** |          |        |          |       |          |       |
| Accelerated  capital allowances          | ** ** | 260,686       |        | 158,246       |       | 112,672       |       |
| Other timing differences                 | ** ** | (64,495       | )           | 18,190        |       | 64,154        |       |
|                                     | ** ** | **€**    | **196,191** | ** **    | **€** | **176,436**   | ** ** | **€** | **176,826** | ** ** |
|                                          |            |               |             |               |            |               |            |  |  |  |

----

(1)          The 2005 deferred taxcredit to income of €21,502,000excludes the deferred tax charge relating to pensions of €2,172,000(2004: €635,000;2003:€251,000).The 2005 deferred tax credit to income in Note 9 ‘Taxes on income’ includesthis amount. The 2004 deferred tax charge to income of €3,984,000(2003:€1,712,000)excludes the deferred tax charge relating to pensions of €635,000(2003:€251,000).The 2004 and 2003 deferred tax charge to income in Note 9 “Taxes on Income”includes this amount.

At December 31, 2005, we had net operating losscarryforwards of €1,057 million, (2004: €200million), which are available indefinitely. These loss carryforwards have a taxvalue of €294million (2004: €61million). Valuation allowances of €167 million (2004: €30million) have been established for a portion of these deferred tax assets. Therealization of these deferred tax assets is dependent on future taxable income.Based upon recent levels of taxable income, we expect that our deferred taxassets, net of valuation allowances, will be fully utilized.

Other deferred provisionsincludes a number of items including deferred employee profit sharingprovisions in certain of the countries in which we operate.

**21**   ContingentLiabilities

In addition to litigation arising in the ordinarycourse of business, we are involved in certain civil and criminal proceedingsin Spain arising out of a past acquisition. In November 1988, a subsidiaryof JSG acquired Industrial Cartonera, S.A., or ICSA, a Spanish incorporatedcompany, from a subsidiary of Torras Hostench S.A., or Torras. In early 1989,JSG acquired a 35% interest in another Spanish company called Industrias delPapel y de la Celulosa, S.A., or INPACSA, a former parent of ICSA. A number ofindividuals associated with Torras were charged by the public prosecutor inMadrid with diverting, for their own use, a substantial part of the purchaseconsideration paid by JSG for ICSA. The public prosecutor, on behalf of the minorityshareholders of INPACSA, also claimed that certain transactions, including thetransfer of ICSA by INPACSA which took place prior to JSG’s acquisition ofICSA, caused damage to the minority shareholders of INPACSA. In 1998, thepublic prosecutor also charged JSG’s Chairman, Sir Michael W.J. Smurfit,as the representative of JSG, in these proceedings with respect to the allegeddamage to the minority shareholders of INPACSA and Torras. A JSG subsidiary isalso one of a number of parties against whom secondary civil liability has beenclaimed.

JSG and Smurfit International B.V. have eachindemnified Sir Michael Smurfit against loss or liability due to suchproceedings. Bonds were posted with the Spanish court in the amount of €47million, which equals the amount of alleged damages, excluding interest. Themaximum estimated current total exposure relating to the liabilities, includinginterest through December 31, 2002, is approximately €118million, for which no reserve has been taken and which amount will accrueinterest until payment of any final judgment. Preliminary proceedings commencedin late March 2003 and on April 11, 2003, the court dismissed theproceedings against Sir Michael Smurfit, the JSG subsidiary and others. Thebonds 

F-38

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**21**   Contingent Liabilities—(continued)

previously posted werereleased and the Spanish court has taken a lien over certain Spanish assetspending final resolution of the case. The final decision of the court washanded down in March 2004 and confirmed the earlier dismissal with respectto Sir Michael Smurfit and the JSG subsidiary. The decision is beingappealed to a higher court by two private complainants but not by the publicprosecutor. We cannot provide any assurances, however, that the consequences ofany adverse findings, if any, will not have a material adverse effect on ourfinancial position or results of operations.

We are also the subject of litigation in the DominicanRepublic arising from our acquisition in 1998 of a controlling interest in asmall local corrugator owned by Industria Cartonera Dominicana. The lawsuits,alleging damages in excess of $300 million, are brought by a local competitorwho is claiming loss of potential profits as a consequence of our entry to themarket. He is also alleging breach of contract. In June 2004 we receivedan adverse ruling in our main lawsuit, which found for the original plaintiffbut which made no determination as to damages. The damage amount has been leftfor another court to decide. We have appealed this ruling and are challenging anumber of due process irregularities surrounding the ruling.

We believe the foregoing lawsuits are without meritand are defending them vigorously.

In May 2004, Kappa Packaging’s subsidiary KappaZülpich was visited by the German “Bundes Kartellamt” regarding a suspicionabout possible price co-ordination of recovered paper purchases by paper andboard producers. We are cooperating fully with the investigation.

In July 2004, representatives of the Office ofFair Trading visited the Jefferson Smurfit UK operations in West Auckland andNorwich. We understand that the investigation, which centers on the sheetfeeding business, was prompted by consumer complaints, which were filed duringthe UK Competition Commission’s investigation of the March 2004acquisition proposal by David S. Smith Limited for Linpac Limited, a competitorof our sheet feeding business. The investigation is looking into high levels ofpricing transparency which exist in the sector and which are a function of, interalia, vertical integration, SWAPs and market concentration. We are co-operatingfully with the ongoing investigation.

We are subject to a widerange of environmental, health and safety laws and regulations in all thejurisdictions where we operate. These requirements are complex, frequentlychanging and have tended to become more stringent over time. In the event weincur unforeseen significant containment and clean-up expenses, our operatingresults could be adversely affected.

F-39

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**22**   LeaseObligations

Obligationsunder finance leases:

| ** **                                       | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|--------------------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                                       | ** ** | **€000** | ** ** | **€000** | ** ** |
| Payable within one year                          |       | 4,832         |       | 5,283         |       |
| Payable in one to two  years                     |       | 6,323         |       | 3,902         |       |
| Payable in two to three  years                   |       | 4,197         |       | 3,406         |       |
| Payable in three to four  years                  |       | 3,456         |       | 2,884         |       |
| Payable in four to five  years                   |       | 1,289         |       | 2,475         |       |
| Payable thereafter                               |       | 5,947         |       | 1,974         |       |
| Total minimum lease payments                     |       | 26,044        |       | 19,924        |       |
| Less amount representing interest                |       | (2,495        | )          | (2,524        | )          |
| Present value of minimum lease payments          | ** ** | **€**    | **23,549** | ** **    | **€** | **17,400** | ** ** |
| Current portion of capital lease obligations     |       | 4,132         |       | 4,470         |       |
| Non-current portion of capital lease obligations |       | 19,417        |       | 12,930        |       |
|                                             | ** ** | **€**    | **23,549** | ** **    | **€** | **17,400** | ** ** |

 

Commitmentsunder operating leases, payable in the coming year, relate to leases expiringin the following periods:

| ** **                          | ** ** | **Land and** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------|------------|-------------------|------------|---------------|------------|---------------|------------|
| ** **                          | ** ** | **Buildings**     | ** ** | **Other**     | ** ** | **Total**     | ** ** |
| ** **                          | ** ** | **€000**     | ** ** | **€000** | ** ** | **€000** | ** ** |
| Within one year                     |       |              | 1,044      |          |       | 6,911         |       | 7,955 |   |
| Within two to five years  inclusive |       |              | 8,365      |          |       | 13,109        |       | 21,474 |   |
| Over five years                     |       |              | 9,170      |          |       | 2,279         |       | 11,449 |   |
|                                |       | ** **        | **€** | **18,579**    |       | ** **    | **€** | **22,299** |   | **€** | **40,878** |   |
|                                     |            |                   |            |               |            |               |            |  |  |  |  |  |

 

The total commitmentsunder non-cancellable operating leases at December 31, 2005 are asfollows:

| ** **                      | ** ** | **2005**      | ** **  |
|---------------------------------|------------|---------------|-------------|
| ** **                      | ** ** | **€000** | ** **  |
| Payable within one year         |       | 40,878        |        |
| Payable in one to two  years    |       | 32,031        |        |
| Payable in two to three  years  |       | 26,105        |        |
| Payable in three to four  years |       | 20,456        |        |
| Payable in four to five  years  |       | 16,655        |        |
| Payable thereafter              |       | 53,999        |        |
|                            |       | **€**    | **190,124** |   |
|                                 |            |               |             |  |

 

F-40

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**23   CapitalCommitments**

Thefollowing capital commitments authorized by the directors had not been providedfor in the Group financial statements:

| ** **         | ** ** | **2005**      | ** **  | **2004**      | ** ** |
|--------------------|------------|---------------|-------------|---------------|------------|
| ** **         | ** ** | **€000** | ** **  | **€000** | ** ** |
| Contracted for     |       | 124,280       |        | 41,813        |       |
| Not contracted for |       | 143,035       |        | 76,172        |       |
|               | ** ** | **€**    | **267,315** | ** **    | **€** | **117,985** | ** ** |
|                    |            |               |             |               |            |  |  |

 

**24**   EmployeePension Plans and Similar Obligations

The Group has pension plans forits employees in many of the countries in which it operates. The majoroccupational pension plans are of the defined benefit type. The Group’s pensionplans are accounted for in accordance with Financial Reporting Standard (FRS)17—“Retirement Benefits”. FRS 17 applies to all types of benefitsthat an employer provides after employees have completed their service,including pensions and other post retirement benefits. The pension cost for the Group's major occupational pension plans hasbeen determined using the projected unit credit method. The currentagreed rates of contribution for future years are comparable to current levels.

Periodic actuarial valuations were performed on all ofthe major plans, by independent professionally qualified actuaries, betweenJanuary 1, 2003 and December 31, 2005.

In general, actuarial valuations are not available forpublic inspection; however, the results of valuations are advised to members ofthe various schemes.

The Group also operates plans inthe U.S., which provide certain employees with post retirement health carebenefits. Actuarial valuations of these plans were performed as atDecember 31, 2005 using the projected unit credit method. The principal assumption made by the actuarieswas that the per capita weighted average assumed rate of increase in coveredbenefits was 9% (2004: 10%), reducing by 1% per annum until reaching theultimate of 5% in 2009. The effect of a 1% increase or decrease in thehealth care trend rate would not materially increase the accumulated postretirement benefit obligation as at December 31, 2005.

The main financialassumptions used to calculate scheme liabilities under FRS 17 are set outbelow:

***Major Assumptions***

| ** **                               | ** ** | **Europe**  | ** ** | **USA**     | ** ** | **Latin America** | ** **   |
|------------------------------------------|------------|-------------|------------|-------------|------------|------------------------|--------------|
| ** **                               | ** ** | **%**       | ** ** | **%**       | ** ** | **%**                  | ** **   |
| **December 2005**                        |       |        |       |        |       |                   |         |   |   |
| Rate of increase  in salaries            |       | 1.50 - 4.00 |       | 3.50 - 3.75 |       |                   | 3.25 - 6.08  |   |   |
| Rate of increase  to pensions in payment |       | Nil - 3.00  |       | Nil         |       |                   | Nil          |   |   |
| Discount rate for  scheme liabilities    |       | 4.25 - 5.00 |       | 5.50        |       |                   | 5.25 - 11.17 |   |   |
| Inflation                                |       | 1.25 - 2.75 |       | 1.75        |       |                   | 2.50 - 3.50  |   |   |

** **

F-41

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

                                                                                                                                                

| ** **                               | ** ** | **Europe**  | ** ** | **USA**     | ** ** | **Latin America** | ** **   |
|------------------------------------------|------------|-------------|------------|-------------|------------|------------------------|--------------|
| ** **                               | ** ** | **%**       | ** ** | **%**       | ** ** | **%**                  | ** **   |
| **December 2004**                        |       |        |       |        |       |                   |         |   |   |
| Rate of increase  in salaries            |       | 1.50 - 4.00 |       | 3.75 - 4.00 |       |                   | 3.50 - 6.85  |   |   |
| Rate of increase  to pensions in payment |       | Nil - 4.00  |       | Nil         |       |                   | Nil          |   |   |
| Discount rate for  scheme liabilities    |       | 4.50 - 6.50 |       | 6.00 - 6.25 |       |                   | 5.25 - 12.00 |   |   |
| Inflation                                |       | 1.25 - 4.00 |       | 2.00        |       |                   | 2.75 - 3.50  |   |   |

 

| ** **                               | ** ** | **Europe**  | ** ** | **USA** | ** ** | **Latin America** | ** **   |
|------------------------------------------|------------|-------------|------------|---------|------------|------------------------|--------------|
| ** **                               | ** ** | **%**       | ** ** | **%**   | ** ** | **%**                  | ** **   |
| **December 2003**                        |       |        |       |    |       |                   |         |   |   |
| Rate of increase in  salaries            |       | 1.50 - 4.00 |       | 4.00    |       |                   | 2.00 - 7.50  |   |   |
| Rate of increase to  pensions in payment |       | Nil - 4.00  |       | Nil     |       |                   | Nil          |   |   |
| Discount rate for scheme  liabilities    |       | 5.00 - 6.50 |       | 6.25    |       |                   | 6.25 - 12.66 |   |   |
| Inflation                                |       | 1.00 - 4.00 |       | 2.25    |       |                   | 2.75 - 4.00  |   |   |

 

Theexpected long term rates of return on the assets of the significant plans wereas follows:

| ** **        | ** ** | **Europe**  | ** ** | **USA**    | ** ** | **Latin America** | ** **  |
|-------------------|------------|-------------|------------|------------|------------|------------------------|-------------|
| ** **        | ** ** | **%**       | ** ** | **%**      | ** ** | **%**                  | ** **  |
| **December 2005** | ** ** | ** **  | ** ** | ** ** | ** ** |                   | ** **  | ** ** |   |
| Equities          |       | 7.25 - 8.00 |       | 8.50       |       |                   | 8.25 -10.50 | ** ** |   |
| Bonds             |       | 3.25 - 7.00 |       | 4.50       |       |                   | 4.25 - 5.25 | ** ** |   |
| Property          |       | 6.50 - 7.00 |       | n/a        |       |                   | n/a         | ** ** |   |
| Other             |       | 2.50 - 7.14 |       | 3.50       |       |                   | 3.25 - 3.50 | ** ** |   |

 

| ** **        | ** ** | **Europe**  | ** ** | **USA** | ** ** | **Latin America** | ** **  |
|-------------------|------------|-------------|------------|---------|------------|------------------------|-------------|
| ** **        | ** ** | **%**       | ** ** | **%**   | ** ** | **%**                  | ** **  |
| **December 2004** |       |        |       |    |       |                   |        |   |   |
| Equities          |       | 7.50 - 8.00 |       | 8.50    |       |                   | 8.25 -10.50 |   |   |
| Bonds             |       | 3.75 - 7.00 |       | 4.50    |       |                   | 4.25 - 5.25 |   |   |
| Property          |       | 6.50 - 7.00 |       | n/a     |       |                   | n/a         |   |   |
| Other             |       | 2.75 - 7.36 |       | 3.50    |       |                   | 3.25 - 3.50 |   |   |

 

| ** **        | ** ** | **Europe**  | ** ** | **USA**    | ** ** | **Latin America** | ** **   |
|-------------------|------------|-------------|------------|------------|------------|------------------------|--------------|
| ** **        | ** ** | **%**       | ** ** | **%**      | ** ** | **%**                  | ** **   |
| **December 2003** | ** ** | ** **  | ** ** | ** ** | ** ** |                   | ** **   | ** ** |   |
| Equities          |       | 8.00        |       | 8.50       |       |                   | 8.50 - 13.00 | ** ** |   |
| Bonds             |       | 4.51 - 7.00 |       | 4.50       |       |                   | 4.50 - 10.00 | ** ** |   |
| Other             |       | 3.00 - 7.00 |       | 3.50       |       |                   | Nil - 3.50   | ** ** |   |

 

F-42

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

The market values of theassets of the schemes were as follows:

| ** **                           | ** ** | **Europe**    | ** **   | **USA**       | ** ** | **Latin America** | ** ** | **Total**     | ** ** |
|--------------------------------------|------------|---------------|--------------|---------------|------------|------------------------|------------|---------------|------------|
| ** **                           | ** ** | **€000** | ** **   | **€000** | ** ** | **€000**          | ** ** | **€000** | ** ** |
| **December 2005**                    |       |          |         |          |       |                   |       |          |       |   |   |
| Equities                             |       | 628,843       |         | 15,717        |       |                   | 10,018     |          |       | 654,578 |   |
| Bonds                                |       | 487,089       |         | 9,118         |       |                   | 9,822      |          |       | 506,029 |   |
| Property                             |       | 77,451        |         | —        |       |                   | —     |          |       | 77,451 |   |
| Other                                |       | 78,622        |         | 1,016         |       |                   | 531        |          |       | 80,169 |   |
| Total market  value                  |       | 1,272,005     |         | 25,851        |       |                   | 20,371     |          |       | 1,318,227 |   |
| Present value of  scheme liabilities |       | 1,929,671     |         | 46,506        |       |                   | 50,194     |          |       | 2,026,371 |   |
| (Deficit) in the  plans              |       | (657,666      | )            | (20,655       | )          |                   | (29,823    | )             |       | (708,144 | ) |
| Deferred tax  asset                  |       | 51,483        |         | —        |       |                   | 1,293      |          |       | 52,776 |   |
| **Net pension (liability)**          | ** ** | **€**    | **(606,183** | **)**         | **€** | **(20,655**            | **)**      | ** **    | **€** | **(28,530** | **)** | ** ** | **€** | **(655,368** | **)** |
|                                      |            |               |              |               |            |                        |            |               |            |  |  |  |  |  |  |

 

| ** **                           | ** ** | **Europe**    | ** **   | **USA**       | ** ** | **Latin America** | ** ** | **Total**     | ** ** |
|--------------------------------------|------------|---------------|--------------|---------------|------------|------------------------|------------|---------------|------------|
| ** **                           | ** ** | **€000** | ** **   | **€000** | ** ** | **€000**          | ** ** | **€000** | ** ** |
| **December 2004**                    |       |          |         |          |       |                   |       |          |       |   |   |
| Equities                             |       | 299,530       |         | 16,391        |       |                   | 8,006      |          |       | 323,927 |   |
| Bonds                                |       | 237,519       |         | 8,890         |       |                   | 5,999      |          |       | 252,408 |   |
| Property                             |       | 40,117        |         | —        |       |                   | —     |          |       | 40,117 |   |
| Other                                |       | 36,536        |         | 737           |       |                   | 1,380      |          |       | 38,653 |   |
| Total market  value                  |       | 613,702       |         | 26,018        |       |                   | 15,385     |          |       | 655,105 |   |
| Present value of  scheme liabilities |       | 1,027,593     |         | 42,844        |       |                   | 40,224     |          |       | 1,110,661 |   |
| (Deficit) in the  plans              |       | (413,891      | )            | (16,826       | )          |                   | (24,839    | )             |       | (455,556 | ) |
| Deferred tax  asset                  |       | 42,835        |         | —        |       |                   | 1,484      |          |       | 44,319 |   |
| **Net pension (liability)**          | ** ** | **€**    | **(371,056** | **)**         | **€** | **(16,826**            | **)**      | ** **    | **€** | **(23,355** | **)** | ** ** | **€** | **(411,237** | **)** |
|                                      |            |               |              |               |            |                        |            |               |            |  |  |  |  |  |  |

 

| ** **                           | ** ** | **Europe**    | ** **   | **USA**       | ** ** | **Latin America** | ** ** | **Total**     | ** ** |
|--------------------------------------|------------|---------------|--------------|---------------|------------|------------------------|------------|---------------|------------|
| ** **                           | ** ** | **€000** | ** **   | **€000** | ** ** | **€000**          | ** ** | **€000** | ** ** |
| **December 2003**                    |       |          |         |          |       |                   |       |          |       |   |   |
| Equities                             |       | 294,891       |         | 14,208        |       |                   | 11,641     |          |       | 320,740 |   |
| Bonds                                |       | 220,760       |         | 7,932         |       |                   | 10,195     |          |       | 238,887 |   |
| Other                                |       | 60,599        |         | 1,049         |       |                   | 557        |          |       | 62,205 |   |
| Total market  value                  |       | 576,250       |         | 23,189        |       |                   | 22,393     |          |       | 621,832 |   |
| Present value of  scheme liabilities |       | 977,308       |         | 45,437        |       |                   | 45,627     |          |       | 1,068,372 |   |
| (Deficit) in the  plans              |       | (401,058      | )            | (22,248       | )          |                   | (23,234    | )             |       | (446,540 | ) |
| Deferred tax  asset                  |       | 83,285        |         | —        |       |                   | 7,946      |          |       | 91,231 |   |
| **Net pension (liability)**          | ** ** | **€**    | **(317,773** | **)**         | **€** | **(22,248**            | **)**      | ** **    | **€** | **(15,288** | **)** | ** ** | **€** | **(355,309** | **)** |
|                                      |            |               |              |               |            |                        |            |               |            |  |  |  |  |  |  |

 

F-43

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

Thefollowing tables set out the components of the defined benefit cost:

***Analysis of the amount charged to operating income***

| ** **                            | ** ** | **€000** | ** ** |
|---------------------------------------|------------|---------------|------------|
| **Year  ended December 31, 2005**     | ** ** | ** **    | ** ** |
| Current service cost                  |       | 36,697        |       |
| Past service cost                     |       | 1,527         |       |
| Gain on  settlements and curtailments |       | (6,129        | )          |
| **Total  operating charge**           | ** ** | **€**    | **32,095** | ** ** |
|                                       |            |               |            |  |

 

| ** **                            | ** ** | **€000** | ** ** |
|---------------------------------------|------------|---------------|------------|
| **Year  ended December 31, 2004**     | ** ** | ** **    | ** ** |
| Current service cost                  |       | 37,163        |       |
| Past service benefit                  |       | (1,793        | )          |
| Gain on  settlements and curtailments |       | (542          | )          |
| **Total  operating charge**           | ** ** | **€**    | **34,828** | ** ** |
|                                       |            |               |            |  |

 

| ** **                        | ** ** | **€000** | ** ** |
|-----------------------------------|------------|---------------|------------|
| **Year  ended December 31, 2003** | ** ** | ** **    | ** ** |
| Current service cost              |       | 36,593        |       |
| Past service cost                 |       | 655           |       |
| **Total  operating charge**       | ** ** | **€**    | **37,248** | ** ** |
|                                   |            |               |            |  |

 

***Analysis of theamount charged to other financial expense***

| ** **                                   | ** ** | **€000** | ** ** |
|----------------------------------------------|------------|---------------|------------|
| **Year ended December 31, 2005**             |       |          |       |
| Expected  return on pension scheme assets    |       | (43,974       | )          |
| Interest  cost on pension scheme liabilities |       | 57,233        |       |
| **Net  charge**                              | ** ** | **€**    | **13,259** | ** ** |
|                                              |            |               |            |  |

 

| ** **                                  | ** ** | **€000** | ** ** |
|---------------------------------------------|------------|---------------|------------|
| **Year ended December 31, 2004**            |       |          |       |
| Expected return on pension scheme assets    |       | (40,137       | )          |
| Interest cost on pension scheme liabilities |       | 55,855        |       |
| **Net  charge**                             | ** ** | **€**    | **15,718** | ** ** |
|                                             |            |               |            |  |

 

| ** **                                  | ** ** | **€000** | ** ** |
|---------------------------------------------|------------|---------------|------------|
| **Year ended December 31, 2003**            |       |          |       |
| Expected return on pension scheme assets    |       | (39,460       | )          |
| Interest cost on pension scheme liabilities |       | 54,726        |       |
| **Net  charge**                             | ** ** | **€**    | **15,266** | ** ** |
|                                             |            |               |            |  |

 

F-44

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

***Analysis of theamount recognized in the statement of total recognized gains and losses***

| ** **                                                                     | ** ** | **€000** | ** **  |
|--------------------------------------------------------------------------------|------------|---------------|-------------|
| **Year ended December 31, 2005**                                               | ** ** | ** **    | ** **  |
| Actual return less expected return on pension scheme assets                    |       | 78,779        |        |
| Net experience gains on scheme liabilities                                     |       | 4,440         |        |
| Changes in financial assumptions underlying the scheme liabilities             |       | (98,104       | )           |
| **Actuarial  loss recognized in the statement of recognized gains and losses** | ** ** | **€**    | **(14,885** | **)** |
|                                                                                |            |               |             |  |

 

| ** **                                                                     | ** ** | **€000** | ** **  |
|--------------------------------------------------------------------------------|------------|---------------|-------------|
| **Year ended December 31, 2004**                                               | ** ** | ** **    | ** **  |
| Actual return less expected return on pension scheme assets                    |       | 9,573         |        |
| Net experience (losses) on scheme liabilities                                  |       | (5,901        | )           |
| Changes in financial assumptions underlying the scheme liabilities             |       | (13,963       | )           |
| **Actuarial  loss recognized in the statement of recognized gains and losses** | ** ** | **€**    | **(10,291** | **)** |
|                                                                                |            |               |             |  |

 

| ** **                                                                     | ** ** | **€000** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------|------------|
| **Year ended December 31, 2003**                                               | ** ** | ** **    | ** ** |
| Actual return less expected return on pension scheme assets                    |       | 20,475        |       |
| Net experience gains on scheme liabilities                                     |       | 8,901         |       |
| Changes in financial assumptions underlying the scheme liabilities             |       | (1,576        | )          |
| **Actuarial  gain recognized in the statement of recognized gains and losses** | ** ** | **€**    | **27,800** | ** ** |
|                                                                                |            |               |            |  |

 

The analysis of the amount recognized in the statementof recognized gains and losses above excludes deferred tax.

F-45

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

***Movement in pensionliability***

| ** **                                           | ** ** | **€000** | ** **  |
|------------------------------------------------------|------------|---------------|-------------|
| Deficit in scheme at December 31, 2002               |       | 352,037       |        |
| Current service cost                                 |       | 36,593        |        |
| Past service cost                                    |       | 655           |        |
| Contributions                                        |       | (52,253       | )           |
| Other finance expense                                |       | 15,266        |        |
| Actuarial gain                                       |       | (27,800       | )           |
| Fair value adjustment                                |       | 68,431        |        |
| Acquisitions                                         |       | 133,137       |        |
| Disposals                                            |       | (59,614       | )           |
| Currency adjustment                                  |       | (19,912       | )           |
| **Deficit in scheme at December 31, 2003**           | ** ** | **446,540**   | ** **  |
| Current service cost                                 |       | 37,163        |        |
| Past service benefit                                 |       | (1,793        | )           |
| Recognition of  gain on settlement and curtailments  |       | (542          | )           |
| Contributions                                        |       | (51,921       | )           |
| Other finance expense                                |       | 15,718        |        |
| Actuarial loss                                       |       | 10,291        |        |
| Reclassification                                     |       | 2,291         |        |
| Disposals                                            |       | (101          | )           |
| Currency adjustment                                  |       | (2,090        | )           |
| **Deficit  in scheme at December 31, 2004**          | ** ** | **455,556**   | ** **  |
| Current service  cost                                |       | 36,697        |        |
| Past service cost                                    |       | 1,527         |        |
| Recognition of  gain on settlements and curtailments |       | (6,129        | )           |
| Contributions                                        |       | (51,309       | )           |
| Other finance  expense                               |       | 13,259        |        |
| Actuarial loss                                       |       | 14,885        |        |
| Acquisitions                                         |       | 256,680       |        |
| Disposals                                            |       | (22,040       | )           |
| Currency  adjustment                                 |       | 9,018         |        |
| **Deficit in scheme at December,  31 2005**          | ** ** | **€**    | **708,144** | ** ** |
|                                                      |            |               |             |  |

 

F-46

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**24**   EmployeePension Plans and Similar Obligations—(continued)

***History of amounts recognized in the statement ofrecognized gains and losses***

*Difference between actual and expected return onpension scheme assets*

| **Year ended December 31,  2005**                                |       |       |       |
|-----------------------------------------------------------------------|------------|------------|------------|
| Amount                                                                |       | 78,779,000 |       |
| Percentage of scheme assets                                           |       | 6          | %          |
| **Year  ended December 31, 2004**                                | ** ** | ** ** | ** ** |
| Amount                                                                |       | 9,573,000  |       |
| Percentage of scheme assets                                           |       | 1          | %          |
| **Year  ended December 31, 2003**                                | ** ** | ** ** | ** ** |
| Amount                                                                |       | 20,475,000 |       |
| Percentage of scheme assets                                           |       | 3          | %          |
| **Period from September 3, 2002 through December 31, 2002** | ** ** | ** ** | ** ** |
| Amount                                                                |       | 7,218,000  |       |
| Percentage  of scheme assets                                          |       | 1          | %          |

 

*Experience gains and losses on scheme liabilities*

| **Year ended December 31,  2005**                                | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|
| Amount                                                                |       | 4,440,000  |       |
| Percentage of the present value of scheme liabilities                 |       | 0          | %          |
| **Year ended  December 31, 2004**                                | ** ** | ** ** | ** ** |
| Amount                                                                |       | 5,901,000  |       |
| Percentage of the present value of scheme liabilities                 |       | 1          | %          |
| **Year  ended December 31, 2003**                                | ** ** | ** ** | ** ** |
| Amount                                                                |       | 8,901,000  |       |
| Percentage of the present value of scheme liabilities                 |       | 1          | %          |
| **Period from September 3, 2002 through December 31, 2002** | ** ** | ** ** | ** ** |
| Amount                                                                |       | 27,515,000 |       |
| Percentage of the  present value of scheme liabilities                |       | 3          | %          |

 

F-47

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

*Total actuarial gains and losses recognized in thestatement of recognized gains and losses*

| **Year  ended December 31, 2005**                                |       |       |       |
|-----------------------------------------------------------------------|------------|------------|------------|
| Amount                                                                |       | 14,885,000 |       |
| Percentage of the present value of scheme liabilities                 |       | 1          | %          |
| **Year ended December 31, 2004**                                 |       |       |       |
| Amount                                                                |       | 10,291,000 |       |
| Percentage of the present value of scheme liabilities                 |       | 1          | %          |
| **Year ended December 31, 2003**                                 |       |       |       |
| Amount                                                                |       | 27,800,000 |       |
| Percentage of the present value of scheme liabilities                 |       | 3          | %          |
| **Period from September 3, 2002 through December 31, 2002** | ** ** | ** ** | ** ** |
| Amount                                                                |       | 12,507,000 |       |
| Percentage  of the present value of scheme liabilities                |       | 1          | %          |

 

Some of the schemes are closed schemes and thereforeunder the projected unit method the current service cost would be expected toincrease as the members of the scheme approach retirement and reduce as membersretire or leave service.

In certain countries, in accordance with localpractice, plans are financed internally and the provisions relating to suchcases are included in pension liabilities. At December 31, 2005 theseamount to €431,862,000 (2004: €277,274,000;2003: €263,165,000).

Thedefined contribution pension scheme expense for the year ended December 31,2005 was €20,850,000 (2004: €21,077,000; 2003: €20,686,000).

**25**   RelatedParty Transactions

**Transactions withassociates**

We conduct certain transactions with associates in thenormal course of business.

Thetransactions with associates for each period are summarized below.

| ** **             | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **             | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Sale of goods          |       | 31,277        |       | 28,725        |       | 41,612        |       |
| Purchase of goods      |       | 13,813        |       | 9,930         |       | 11,484        |       |
| Receiving of  services |       | 633           |       | 922           |       | 265           |       |
| Rendering of services  |       | 1,544         |       | 776           |       | 697           |       |

 

F-48

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**25**   Related Party Transactions—(continued)

**Transactions withrelated parties**

Inconnection with the acquisition, certain non-operating assets and non-coreoperating assets of JSG were transferred to the newcos, in exchange forintercompany notes.

| ** **                                 | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                                 | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Rendering and  receiving of services (net) |       | —        |       | —        |       | 679           |       |
| Transfer of cash from  business disposals  |       | 9,899         |       | 11,934        |       | 28,206        |       |

 

**On June 16, 2005, assets comprisingThe K Club, additional land near The K Club and the site of the former Clonskeaghpaper mill were disposed for an amount of**€115million to a group of investors which included Sir Michael Smurfit, ourChairman.

In 2005 the Grouppurchased in the normal course of business approximately 28,000 metric tonnesof  paper amounting to approximately €11million from Savon Sellu, a company controlled by Dr. Dermot Smurfit togetherwith his brothers Sir Michael Smurfit, our Chairman, and Dr. Alan Smurfit. AtDecember 31, 2005, an amount of €3.2 million was owing bySKG to Savon Sellu.

**26.**   Shareholders’ Equity

**Other reserves include thefollowing:**

A capital contribution in 2002 of €864,354,000which is comprised of an investment of €731,960,000 by MadisonDearborn Partners LLC and its affiliates, certain other co-investors andcertain members of management by way of capital contributions; a capitalcontribution by JSL of €125,000,000. JSL obtained the funds for this contribution by way of a loan from thenewcos which they borrowed under a bank credit facility. The newcos borrowingwas non recourse to JSG Funding and was fully paid in December 2003; theremaining €7,394,000represents the value ascribed to the warrants to purchase shares in JSL issuedas part of the PIK units (see Note 19).

Investments in 2005 by SKGL of €738,953,000by way of capital contribution.

JSG Funding has an authorized share capital of 100,000shares of €1 each, of which 40,000 were issued. OnSeptember 2, 2002, the shares were redesignated as 100,000,000 ordinaryshares of €0.001each.

Certain members ofmanagement subscribed cash for convertible shares of JSL at nominal value.Pursuant to the completion of the exchange offer on February 6, 2004, thesewere exchanged for convertible shares of JSG Packaging (the ‘UnvestedConvertible Equity’). Subject to the terms and conditions of the ManagementEquity Agreement, the Unvested Convertible Equity will, upon vesting, beconvertible into ordinary shares of JSG Packaging upon payment in cash of afurther amount equal to the fair market value of an ordinary share of JSGPackaging on the date of grant adjusted to reflect the capital reduction inFebruary 2005 and interest as it accrues on the inter company debt with JSGHoldings. In the case of the initially allocated Unvested Convertible Equitythe additional cash payment is equal to the subscription price plus capitalcontributions per ordinary share paid by Madison Dearborn Partners LLC andaffiliates prior to the offer becoming or being declared unconditional,adjusted to reflect the capital reduction in February 2005 and interest as itaccrues on the inter company debt with JSG Holdings, net of the nominal subscriptionprice previously paid by the holder. The ordinary shares into which Unvested 

F-49

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**26.**   Shareholders’ Equity—(continued)

Convertible Equity can,subject to vesting, be converted will represent a maximum of approximately 7per cent. of JSG Packaging’s outstanding ordinary shares.

Pursuant to the terms of the Management EquityAgreement, the Unvested Convertible Equity will vest as follows:

·  Time vesting.  40 per cent. of the Unvested Convertible Equity will vest in three equaltranches as of December 31 in each of 2005, 2006 and 2007, provided that theholder remains actively employed by JSG Packaging or any of its subsidiaries onthe relevant date.

·  Performance vesting.   40 per cent. of the Unvested ConvertibleEquity will vest in one, two or three tranches as of December 31 in each of2005, 2006 and 2007, provided that the holder remains actively employed by JSGPackaging or any of its subsidiaries as of such date, subject to the attainmentas of each such date of specified performance criteria, which criteria will becumulative, such that attainment of criteria with respect to any of theforegoing dates will trigger vesting in respect of all previous such dates. Theperformance criteria will be based on the achievement of a valuation of JSGPackaging measured by notional return on investment achieved by MadisonDearborn Partners LLC from the date of its investments in JSL, calculated byreference to the price paid for JSL and expressed as a compounded percentagerate per annum.

·  Time/performance vesting.   20 per cent. of the Unvested ConvertibleEquity will vest on December 31, 2007 if return on investment of 30 percent. or more is achieved up to such date, provided the holder remains activelyemployed by JSG Packaging or any of its subsidiaries on the relevant date.

·  Early vesting. The board of directors of JSGPackaging will have discretion as to early vesting in certain circumstances.

The Unvested ConvertibleEquity will vest immediately upon the closing of an initial public offering ofJSG Packaging’s equity. However, the convertible shares are subject to certaincontractual restrictions on transfer following their acquisition upon exerciseof the underlying convertible equity. At December 31, 2005, JSG Packaging hadissued 10,404,610 convertible shares.

**27**   Net Cash Flow from Operating Activities andMovement in Working Capital

| ** **                                                      | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                                      | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Operating income                                                |       | 167,028       |        | 281,789       |       | 309,144       |       |
| Reorganization and restructuring costs                          |       | 8,421         |        | 23,231        |       | 16,357        |       |
| Depreciation and depletion (net of government grants amortized) |       | 282,378       |        | 259,831       |       | 250,590       |       |
| Amortizations of intangible assets                              |       | 29,203        |        | 37,925        |       | 44,548        |       |
| Finance lease interest paid                                     |       | 1,138         |        | 1,962         |       | 2,164         |       |
| (Decrease) / increase in other payables and provisions          |       | (14,291       | )           | (12,891       | )          | 6,451         |       |
| Decrease in working capital                                     |       | 40,252        |        | 47,419        |       | 62,832        |       |
| Currency adjustment                                             |       | (1,260        | )           | 1,663         |       | (1,122        | )          |
|                                                            | ** ** | **€**    | **512,869** | ** **    | **€** | **640,929**   | ** ** | **€** | **690,964** | ** ** |
|                                                                 |            |               |             |               |            |               |            |  |  |  |

 

F-50

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**27**   Net Cash Flow fromOperating Activities and Movement in Working Capital—(continued)

| ** **                         | ** ** | **Inventories** | ** ** | **Receivables** | ** ** | **Payables*** | ** ** | **Total**     | ** ** |
|------------------------------------|------------|-----------------|------------|-----------------|------------|---------------|------------|---------------|------------|
| ** **                         | ** ** | **€000**   | ** ** | **€000**   | ** ** | **€000** | ** ** | **€000** | ** ** |
| December 31, 2004             |       |            | 452,166    |            |       | 925,048       |       | (1,017,060    | )          | 360,154 |   |
| Acquisitions                       |       |            | 275,804    |            |       | 572,415       |       | (535,081      | )          | 313,138 |   |
| Disposed                           |       |            | (68,698    | )               |       | (62,196       | )          | 69,217        |       | (61,677 | ) |
| Reclassification                   |       |            | (5,282     | )               |       | 16,328        |       | (16,486       | )          | (5,440 | ) |
| Assets held for sale               |       |            | —     |            |       | (79,810       | )          | 25,406        |       | (54,404 | ) |
| Deferred acquisition consideration |       |            | —     |            |       | —        |       | (31,384       | )          | (31,384 | ) |
| Decrease in working capital        |       |            | (7,051     | )               |       | (76,262       | )          | 43,061        |       | (40,252 | ) |
| Currency adjustment                |       |            | 16,192     |            |       | 19,205        |       | (13,544       | )          | 21,853 |   |
| **December 31,  2005**        | ** ** | ** **      | **€** | **663,131**     |       | ** **    | **€** | **1,314,728** | ** ** | **€** | **(1,475,871** | **)** | **€** | **501,988** | ** ** |
|                                    |            |                 |            |                 |            |               |            |               |            |  |  |  |  |  |  |

 

| ** **                         | ** ** | **Inventories** | ** ** | **Receivables** | ** ** | **Payables*** | ** ** | **Total**     | ** **  |
|------------------------------------|------------|-----------------|------------|-----------------|------------|---------------|------------|---------------|-------------|
| ** **                         | ** ** | **€000**   | ** ** | **€000**   | ** ** | **€000** | ** ** | **€000** | ** **  |
| December 31, 2003             |       |            | 477,432    |            |       |          | 911,443    |          |        | (967,141 | ) | 421,734 |   |
| Reclassification                   |       |            | 4,151      |            |       |          | (15,903    | )             |        | 3,202 |   | (8,550 | ) |
| Deferred acquisition consideration |       |            | —     |            |       |          | —     |          |        | 854 |   | 854 |   |
| Decrease in working capital        |       |            | (22,434    | )               |       |          | 38,291     |          |        | (63,276 | ) | (47,419 | ) |
| Currency adjustment                |       |            | (6,983     | )               |       |          | (8,783     | )             |        | 9,301 |   | (6,465 | ) |
| **December 31,  2004**        | ** ** | ** **      | **€** | **452,166**     |       | ** **    | ** ** | **€**    | **925,048** |   | ** ** | **€** | **(1,017,060** | **)** | **€** | **360,154** | ** ** |
|                                    |            |                 |            |                 |            |               |            |               |             |  |  |  |  |  |  |  |  |

 

| ** **                         | ** ** | **Inventories** | ** ** | **Receivables** | ** ** | **Payables*** | ** ** | **Total**     | ** ** |
|------------------------------------|------------|-----------------|------------|-----------------|------------|---------------|------------|---------------|------------|
| ** **                         | ** ** | **€000**   | ** ** | **€000**   | ** ** | **€000** | ** ** | **€000** | ** ** |
| December 31, 2002             |       |            | 470,207    |            |       | 1,016,181     |       | (1,018,286    | )          | 468,102 |   |
| Acquisitions                       |       |            | 59,724     |            |       | 115,628       |       | (109,936      | )          | 65,416 |   |
| Disposed                           |       |            | (33,890    | )               |       | (72,899       | )          | 44,173        |       | (62,616 | ) |
| Reclassification                   |       |            | (1,267     | )               |       | (12,566       | )          | 57,676        |       | 43,843 |   |
| Deferred acquisition consideration |       |            | —     |            |       | —        |       | (3,178        | )          | (3,178 | ) |
| Decrease in working capital        |       |            | 4,638      |            |       | (102,680      | )          | 35,210        |       | (62,832 | ) |
| Currency adjustment                |       |            | (21,980    | )               |       | (32,221       | )          | 27,200        |       | (27,001 | ) |
| **December 31,  2003**        | ** ** | ** **      | **€** | **477,432**     |       | ** **    | **€** | **911,443**   | ** ** | **€** | **(967,141** | **)** | **€** | **421,734** | ** ** |
|                                    |            |                 |            |                 |            |               |            |               |            |  |  |  |  |  |  |

----

*                    Amounts falling due within one year not includingborrowing due within one year, corporation tax, capitalized lease obligationsand amounts due to affiliates.

**28**   Retirementof Fixed Assets

| ** **                    | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                    | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Property, plant and equipment |       | 17,756        |       | 33,860        |       | 12,351        |       |
| Investments                   |       | 442           |       | 2,528         |       | 32,544        |       |
|                          | ** ** | **€**    | **18,198** | ** **    | **€** | **36,388**    | ** ** | **€** | **44,895** | ** ** |
|                               |            |               |            |               |            |               |            |  |  |  |

 

F-51

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**29   Reconciliationof Net Cash Flow to Movement in Net Debt**

| ** **                                   | ** ** | **2005**      | ** **     | **2004**      | ** ** | **2003**       | ** ** |
|----------------------------------------------|------------|---------------|----------------|---------------|------------|----------------|------------|
| ** **                                   | ** ** | **€000** | ** **     | **€000** | ** ** | **€000**  | ** ** |
| (Decrease) / increase in cash                |       | (27,045       | )              | 50,285        |       | 29,314         |       |
| (Increase) / decrease in term debt           |       | (475,449      | )              | 111,101       |       | 2,142          |       |
| Increase / (decrease) in liquid resources    |       | 789,791       |           | 16,989        |       | (18,889        | )          |
| Capital elements of finance leases repaid    |       | 4,812         |           | 13,576        |       | 5,689          |       |
| Change in net debt resulting from cash flows |       | 292,109       |           | 191,951       |       | 18,256         |       |
| New finance leases                           |       | (4,053        | )              | (2,963        | )          | —         |       |
| Loans and finance leases acquired            |       | (1,814,470    | )              | —        |       | (122,952       | )          |
| Loans and finance leases disposed            |       | 1,471         |           | —        |       | 23,695         |       |
| Other non cash movements                     |       | (19,665       | )              | (40,876       | )          | (38,537        | )          |
| Currency adjustment                          |       | (72,937       | )              | 40,244        |       | 153,282        |       |
| Movement in net debt                         |       | (1,617,545    | )              | 188,356       |       | 33,744         |       |
| Net debt at beginning of period              |       | (2,912,746    | )              | (3,101,102    | )          | (3,134,846     | )          |
| **Net debt  at end of period**               | ** ** | **€**    | **(4,530,291** | **)**         | **€** | **(2,912,746** | **)**      | **€** | **(3,101,102** | **)** |
|                                              |            |               |                |               |            |                |            |  |  |  |

 

**30**   Analysis of Net Debt

| ** **                               | ** ** | **December  2004** | ** **     | **Cash Flow** | ** ** | **Acquisitions  and  Disposals** | ** ** | **Non Cash** | ** **     | **Currency**  | ** ** | **December  2005** | ** ** |
|------------------------------------------|------------|--------------------|----------------|--------------------|------------|----------------------------------|------------|-------------------|----------------|---------------|------------|--------------------|------------|
| ** **                               | ** ** | **€000**      | ** **     | **€000**      | ** ** | **€000**                    | ** ** | **€000**     | ** **     | **€000** | ** ** | **€000**      | ** ** |
| Cash                                     |       | 140,149            |           | (44,246            | )          | —                           |       | —            |           | 3,639         |       | 99,542             |       |
| Short term deposits and liquid resources |       | 107,884            |           | 34,216             |       | —                           |       | —            |           | 6,165         |       | 148,265            |       |
| Restricted cash                          |       | —             |           | 755,575            |       | —                           |       | —            |           | —        |       | 755,575            |       |
| Cash and investments                     |       | 248,033            |           | 745,545            |       | —                           |       | —            |           | 9,804         |       | 1,003,382          |       |
| Bank overdrafts and demand  loans        |       | (28,668            | )              | 17,201             |       | —                           |       | —            |           | (8,551        | )          | (20,018            | )          |
| Loans repayable within one year          |       | (76,173            | )              | (21,548            | )          | —                           |       | (8,911            | )              | 22,873        |       | (83,759            | )          |
| Kappa bonds outstanding                  |       | —             |           | (755,575           | )          | —                           |       | —            |           | —        |       | (755,575           | )          |
| Short term borrowing                     |       | (104,841           | )              | (759,922           | )          | —                           |       | (8,911            | )              | 14,322        |       | (859,352           | )          |
| Long and medium term borrowing           |       | (3,038,538         | )              | 301,674            |       | (1,805,992                       | )          | (10,754           | )              | (97,162       | )          | (4,650,772         | )          |
| Net borrowing                            |       | (2,895,346         | )              | 287,297            |       | (1,805,992                       | )          | (19,665           | )              | (73,036       | )          | (4,506,742         | )          |
| Finance leases                           |       | (17,400            | )              | 4,812              |       | (7,007                           | )          | (4,053            | )              | 99            |       | (23,549            | )          |
| **Net debt**                             | ** ** | **€**         | **(2,912,746** | **)**              | **€** | **292,109**                      | ** ** | **€**        | **(1,812,999** | **)**         | **€** | **(23,718**        | **)**      | **€** | **(72,937** | **)** | **€** | **(4,530,291** | **)** |
|                                          |            |                    |                |                    |            |                                  |            |                   |                |               |            |                    |            |  |  |  |  |  |  |

 

F-52

----

**JSG Funding plc and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**30**   Analysis of Net Debt—(continued)

| ** **                               | ** ** | **December  2003** | ** **     | **Cash Flow** | ** ** | **Acquisitions  and  Disposals** | ** ** | **Non Cash** | ** ** | **Currency**  | ** ** | **December  2004** | ** **  |
|------------------------------------------|------------|--------------------|----------------|--------------------|------------|----------------------------------|------------|-------------------|------------|---------------|------------|--------------------|-------------|
| ** **                               | ** ** | **€000**      | ** **     | **€000**      | ** ** | **€000**                    | ** ** | **€000**     | ** ** | **€000** | ** ** | **€000**      | ** **  |
| Cash                                     |       | 86,137             |           | 55,623             |       |                             | —     |              |       | —        |       | (1,611             | )           | 140,149 |   |
| Short term deposits and liquid resources |       | 92,930             |           | 16,989             |       |                             | —     |              |       | (35           | )          | (2,000             | )           | 107,884 |   |
| Cash and investments                     |       | 179,067            |           | 72,612             |       |                             | —     |              |       | (35           | )          | (3,611             | )           | 248,033 |   |
| Bank overdrafts and demand  loans        |       | (22,368            | )              | (5,338             | )          |                             | —     |              |       | —        |       | (962               | )           | (28,668 | ) |
| Loans repayable within one  year         |       | (111,447           | )              | 54,348             |       |                             | —     |              |       | 3,698         |       | (22,772            | )           | (76,173 | ) |
| Short term borrowing                     |       | (133,815           | )              | 49,010             |       |                             | —     |              |       | 3,698         |       | (23,734            | )           | (104,841 | ) |
| Long and medium term borrowing           |       | (3,118,074         | )              | 56,753             |       |                             | —     |              |       | (44,539       | )          | 67,322             |        | (3,038,538 | ) |
| Net borrowing                            |       | (3,072,822         | )              | 178,375            |       |                             | —     |              |       | (40,876       | )          | 39,977             |        | (2,895,346 | ) |
| Finance leases                           |       | (28,280            | )              | 13,576             |       |                             | —     |              |       | (2,963        | )          | 267                |        | (17,400 | ) |
| **Net debt**                             | ** ** | **€**         | **(3,101,102** | )                  | **€** | **191,951**                      | ** ** | ** **        | **—** |          | ** ** | **€**         | **(43,839** | **)** | **€** | **40,244** | ** ** | **€** | **(2,912,746** | ) |
|                                          |            |                    |                |                    |            |                                  |            |                   |            |               |            |                    |             |  |  |  |  |  |  |  |

 

| ** **                               | ** ** | **December  2002** | ** **     | **Cash Flow** | ** ** | **Acquisitions  and  Disposals** | ** ** | **Non Cash** | ** ** | **Currency**  | ** ** | **December  2003** | ** ** |
|------------------------------------------|------------|--------------------|----------------|--------------------|------------|----------------------------------|------------|-------------------|------------|---------------|------------|--------------------|------------|
| ** **                               | ** ** | **€000**      | ** **     | **€000**      | ** ** | **€000**                    | ** ** | **€000**     | ** ** | **€000** | ** ** | **€000**      | ** ** |
| Cash                                     |       | 69,224             |           | 22,493             |       |                             | —     |              |       | —        |       | (5,580             | )          | 86,137 |   |
| Short term deposits and liquid resources |       | 115,107            |           | (18,889            | )          |                             | —     |              |       | (58           | )          | (3,230             | )          | 92,930 |   |
| Cash and investments                     |       | 184,331            |           | 3,604              |       |                             | —     |              |       | (58           | )          | (8,810             | )          | 179,067 |   |
| Bank overdrafts and demand  loans        |       | (51,378            | )              | 6,821              |       |                             | —     |              |       | —        |       | 22,189             |       | (22,368 | ) |
| Loans repayable within one year          |       | (110,776           | )              | 36,206             |       |                             | —     |              |       | 2,279         |       | (39,156            | )          | (111,447 | ) |
| Short term borrowing                     |       | (162,154           | )              | 43,027             |       |                             | —     |              |       | 2,279         |       | (16,967            | )          | (133,815 | ) |
| Long and medium term borrowing           |       | (3,134,436         | )              | (34,064            | )          |                             | (86,119    | )                 |       | (40,758       | )          | 177,303            |       | (3,118,074 | ) |
| Net borrowing                            |       | (3,112,259         | )              | 12,567             |       |                             | (86,119    | )                 |       | (38,537       | )          | 151,526            |       | (3,072,822 | ) |
| Finance leases                           |       | (22,587            | )              | 5,689              |       |                             | (13,138    | )                 |       | —        |       | 1,756              |       | (28,280 | ) |
| **Net debt**                             | ** ** | **€**         | **(3,134,846** | **)**              | **€** | **18,256**                       | ** ** | ** **        | **€** | **(99,257**   | **)**      | ** **         | **€** | **(38,537** | **)** | **€** | **153,282** | ** ** | **€** | **(3,101,102** | **)** |
|                                          |            |                    |                |                    |            |                                  |            |                   |            |               |            |                    |            |  |  |  |  |  |  |  |  |

 

Cashcomprises cash in hand and overnight deposits. The movement in liquid resourcesrepresents movement in all monetary assets (excluding cash, short term depositsand overnight borrowing) which are convertible into cash at, or close to, theircarrying value in the balance sheet. These specifically comprise governmentgilts, commercial paper and deposits, with maturities of less than one yearwhen acquired. They are categorized as held-to-maturity because the Group hasboth the intent and the ability to hold these investments until maturity.

F-53

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**31**   Acquisitionsand Disposals

| ** **                                       | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                       | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Net (liabilities)  / assets acquired (see below) |       | (203,598      | )           | —        |       | 6,180         |       |
| Reclassification  from associates                |       | —        |        | —        |       | (35,030       | )          |
| Goodwill                                         |       | 1,185,705     |        | 2,731         |       | 174,659       |       |
|                                             | ** ** | **€**    | **982,107** | ** **    | **€** | **2,731**     | ** ** | **€** | **145,809** | ** ** |
| **Satisfied by:**                                | ** ** | ** **    | ** **  | ** **    | ** ** | ** **    | ** ** |
| Shareholders loan  contributed                   |       | 738,953       |        | —        |       | —        |       |
| Cash payments                                    |       | 209,608       |        | 2,731         |       | 145,809       |       |
| Deferred  consideration                          |       | 33,546        |        | —        |       | —        |       |
|                                             | ** ** | **€**    | **982,107** | ** **    | **€** | **2,731**     | ** ** | **€** | **145,809** | ** ** |
| **Net cash outflows**                            | ** ** | ** **    | ** **  | ** **    | ** ** | ** **    | ** ** |
| Cash payments                                    |       | 209,608       |        | 2,731         |       | 145,809       |       |
| Cash acquired                                    |       | (48,887       | )           | —        |       | (52,683       | )          |
| Bank overdrafts  acquired                        |       | 44,811        |        | —        |       | 8,955         |       |
| ** **                                       | ** ** | **€**    | **205,532** | ** **    | **€** | **2,731**     | ** ** | **€** | **102,081** | ** ** |

 

Summary of net(liabilities) / assets acquired:

| ** **                                                          | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|---------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                          | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| Net assets acquired:                                                | ** ** | ** **    | ** **   |          | ** ** | ** **    |       | ** ** | ** ** |
| Fixed assets:                                                       | ** ** | ** **    | ** **   |          | ** ** | ** **    |       | ** ** | ** ** |
| Property, plant  and equipment                                      |       | 1,557,132     |         |          | —     | ** **    |       | 269,385 |   |
| Investments                                                         |       | 3,533         |         |          | —     | ** **    |       | 3,616 |   |
| Current assets:                                                     | ** ** | ** **    |         |          |       | ** **    |       | ** ** | ** ** |
| Inventories                                                         |       | 275,804       |         |          | —     | ** **    |       | 59,724 |   |
| Accounts receivable and prepayments                                 |       | 572,415       |         |          | —     | ** **    |       | 115,628 |   |
| Cash and  investments held as current assets                        |       | 48,887        |         |          | —     | ** **    |       | 52,683 |   |
| Total assets                                                        |       | 2,457,771     |         |          | —     | ** **    |       | 501,036 |   |
| Accounts payable  and accrued liabilities                           |       | (587,196      | )            |          | —     | ** **    |       | (135,268 | ) |
| Long term debt  and other payables                                  |       | (1,805,992    | )            |          | —     | ** **    |       | (113,896 | ) |
| Provisions for  liabilities and charges                             |       | (312,151      | )            |          | —     | ** **    |       | (6,197 | ) |
| Fair value  adjustment                                              |       | 45,467        |         |          | —     | ** **    |       | (239,495 | ) |
| Minority  interests                                                 |       | (1,497        | )            |          | —     | ** **    |       | — |   |
| **Net (liabilities) / assets  acquired at fair value to the Group** | ** ** | **€**    | **(203,598** | **)**         |       | **€**    | **—** | ** ** |   | **€** | **6,180** | ** ** |
|                                                                     |            |               |              |               |            |               |            |  |  |  |  |  |

 

F-54

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**31**   Acquisitions and Disposals—(continued)

**Summary of effectsof the acquisition of Kappa**

The acquisition of Kappawas completed on December 1, 2005. The fair value exercise relating to theacquisition is preliminary and is reflected in the schedule below although thefair value exercise on fixed and intangible assets has been substantiallycompleted and the fair value exercise on pensions has also been substantiallycompleted, and no significant adjustment is expected in relation to these amounts.

| ** **                                      | ** ** | **Book Value**      | ** ** | **Policy   Alignment** | ** ** | **Revaluations**        | ** ** | **Fair Value**     | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                      | ** ** | **€ millions** | ** ** | **€ millions**    | ** ** | **€ million** | ** ** | **€ million** | ** ** |
| Cash                                            |       |                     | 49         |                        |       |                    | —     |                    |       |   | — |   |   |   | 49 |   |   |
| Accounts receivable and  prepayments            |       |                     | 575        |                        |       |                    | (2         | )                       |       |   | (1 | ) |   |   | 572 |   |   |
| Inventories                                     |       |                     | 258        |                        |       |                    | 18         |                    |       |   | — |   |   |   | 276 |   |   |
| Financial assets                                |       |                     | 3          |                        |       |                    | —     |                    |       |   | — |   |   |   | 3 |   |   |
| Property, plant and  equipment                  |       |                     | 1,574      |                        |       |                    | (17        | )                       |       |   | 23 |   |   |   | 1,580 |   |   |
| Intangible assets                               |       |                     | —     |                        |       |                    | —     |                    |       |   | 35 |   |   |   | 35 |   |   |
| Total assets                                    |       |                     | 2,459      |                        |       |                    | (1         | )                       |       |   | 57 |   |   |   | 2,515 |   |   |
|                                            |       |                     |       |                        |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Accounts payable and  accruals                  |       |                     | (581       | )                           |       |                    | (6         | )                       |       |   | (8 | ) |   |   | (595 | ) |   |
| Long term debt and other  long term liabilities |       |                     | (1,806     | )                           |       |                    | —     |                    |       |   | (4 | ) |   |   | (1,810 | ) |   |
| Provisions for  liabilities and charges         |       |                     | (385       | )                           |       |                    | 73         |                    |       |   | — |   |   |   | (312 | ) |   |
| Minorities                                      |       |                     | (2         | )                           |       |                    | —     |                    |       |   | — |   |   |   | (2 | ) |   |
| Net (liabilities)/assets  acquired              |       |                     | (315       | )                           |       |                    | 66         |                    |       |   | 45 |   |   |   | (204 | ) |   |
| Shareholders loans  acquired                    |       |                     |       |                        |       |                    |       |                    |       |   |   |   |   |   | (739 | ) |   |
| Goodwill                                        |       |                     |       |                        |       |                    |       |                    |       |   |   |   |   |   | 1,186 |   |   |
| **Total consideration**                         | ** ** |                     |       |                        |       |                    |       |                    |       |   |   |   | ** ** | ** ** | **243** |   |   |
| Deferred consideration                          |       |                     |       |                        |       |                    |       |                    |       |   |   |   |   |   | (33 | ) |   |
| **Cash payments**                               | ** ** | ** **               | ** ** | ** **                  | ** ** | ** **              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **€** | **210** | ** ** | ** ** |
|                                                 |            |                          |            |                             |            |                         |            |                         |            |  |  |  |  |  |  |  |  |  |

 

The consolidated financial statements of cash flows for2005 includes the following significant cash flows in relation to Kappa

| ** **                               | ** ** | **€ million** | ** ** |
|------------------------------------------|------------|--------------------|------------|
| Net cash flow from operating  activities |       |               | 71         |   |   |
| Interest paid                            |       |               | (20        | ) |   |
| Purchase of tangible fixed assets        |       |               | (25        | ) |   |

 

The summarized statements of operations and statements of totalrecognized gains and losses for Kappa from the beginning of its financial yearon January 1, 2005 to November 30, 2005 are set out below. These figures arereported in accordance with accounting standards generally accepted in TheNetherlands and are unaudited.

F-55

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**31**   Acquisitions and Disposals—(continued)

**Summarized statements of operations**

| ** **                  | ** ** | **Jan. 1, 2005  through  Nov. 30, 2005** | ** ** |
|-----------------------------|------------|------------------------------------------|------------|
| ** **                  | ** ** | **€ millions**                      | ** ** |
| Net Sales                   |       |                                     | 2,585      |   |   |
| Operating Income            |       |                                     | 154        |   |   |
| Exceptional items           |       |                                     | (11        | ) |   |
| Profit before  interest     |       |                                     | 143        |   |   |
| Net interest                |       |                                     | (208       | ) |   |
| Loss before taxes           |       |                                     | (65        | ) |   |
| Tax                         |       |                                     | (11        | ) |   |
| **Net loss for the period** | ** ** | ** **                               | **€** | **(76** | **)** | ** ** |
|                             |            |                                          |            |  |  |  |

 

**Statements of total recognized gains and losses**

| ** **                                                  | ** ** | **Jan. 1, 2005  through  Nov. 30, 2005** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **€ **millions                                     | ** ** |
| Net loss for the  period                                    |       |                                                         | (76        | ) |   |
| Translation  adjustment on foreign currency net investments |       |                                                         | (8         | ) |   |
| **Total recognized gains and  losses**                      | ** ** | ** **                                                   | **€** | **(84** | **)** | ** ** |
|                                                             |            |                                                              |            |  |  |  |

 

The net loss for Kappa for the year ended December 31, 2004 was €79 million.

**Summary of effects of theacquisition of the SSCC European assets in 2003**

| ** **                                     | ** ** | **Book Value**      | ** ** | **Revaluations**         | ** ** | **Fair Value**      | ** ** |
|------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                     | ** ** | **€ millions** | ** ** | **€ millions** | ** ** | **€ millions** | ** ** |
| Cash                                           |       |                     | 29         |                     |       |                     | —     |   |   |   | 29 |   |   |
| Accounts receivable and prepayments            |       |                     | 103        |                     |       |                     | —     |   |   |   | 103 |   |   |
| Inventories                                    |       |                     | 49         |                     |       |                     | —     |   |   |   | 49 |   |   |
| Property, plant and equipment                  |       |                     | 103        |                     |       |                     | 115        |   |   |   | 218 |   |   |
| Accounts payable and accruals                  |       |                     | (98        | )                        |       |                     | —     |   |   |   | (98 | ) |   |
| Long term debt and other long term liabilities |       |                     | (115       | )                        |       |                     | —     |   |   |   | (115 | ) |   |
| Other liabilities                              |       |                     | (95        | )                        |       |                     | (59        | ) |   |   | (154 | ) |   |
| Net assets acquired                            |       |                     | €     | (24                      | )          |                     |       | € | 56 |   |   |   | 32 |   |   |
| Goodwill                                       |       |                     |       |                     |       |                     |       |   |   |   | 174 |   |   |
| **Consideration**                              |       |                     |       |                     |       |                     |       |   | ** ** | ** ** | **€** | **206** | ** ** | ** ** |
|                                                |            |                          |            |                          |            |                          |            |  |  |  |  |  |  |  |  |  |

 

**32**   Parent Undertakings and Controlling Parties

The immediate parent ofthe company is JSL. The ultimate controlling party and parent undertaking ofthe largest group of which the company is a member, and for which groupfinancial statements are 

F-56

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**32**   Parent Undertakings and Controlling Parties—(continued)

prepared,is SKGL. The parent undertaking of the smallest group of which the company is amember, and for which group financial statements are prepared, is JSG Holdings.SKGL, JSG Holdings and JSL are companies incorporated in Ireland.

We are subject to the reporting requirements of theSecurities Exchange Act of 1934, as amended, and file reports, including AnnualReports on Form 20-F, and other information with the SEC. You mayread and copy any document we file with the SEC at its public reference roomsat 100 F Street, N.E. Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330for more information on the public reference rooms and their copy charges. Inaddition, the SEC maintains an Internet site at *http://www.sec.gov*that contains reports and otherinformation regarding issuers that file electronically with the SEC. Thesefilings are also available to the public from commercial document retrieval services.

JSG Funding’s annualreport on Form 20-F, current reports on Form 6-K, and allamendments to those reports are made available free of charge through ourwebsite (www.smurfitkappa.com) as soon as practicable after such material iselectronically filed with or furnished to the Securities and ExchangeCommission.

**33**   Companies (Amendment) Act, 1963 to 2005

The financial statementsin this report do not comprise ‘full group accounts’ within the meaning ofRegulation 40(1) of the European Communities (Companies: Group Accounts)Regulations, 1992 of Ireland in so far as such group accounts would have tocomply with the disclosure and other requirements of those Regulations. Theauditors have made reports without qualification and without reference to an emphasisof matter under Section 193 of the Companies Act, 1990, in respect of theconsolidated financial statements for the years ended December 31, 2004 and2003. Full group accounts for JSL for theyear ended December 31, 2003 have been filed with the Irish Registrar ofCompanies. Full accounts for SKGL for the year ended December 31,2004 have also been filed with the Registrar of Companies. Full accounts forSKGL for the year ended December 31, 2005 will be filed with the Registrarin due course.

**34**   Comparative Figures

Certain figures for theprior years have been adjusted to conform with 2005 classifications anddisclosure requirements.

**35**   Differences Between Accounting Principles GenerallyAccepted in Ireland and in the United States 

The Group’s consolidatedfinancial statements are prepared in accordance with accounting principlesgenerally accepted in Ireland (“Irish GAAP”), which differ in certain respectsfrom accounting principles generally accepted in the United States (“US GAAP”).The significant differences as they apply to the Group and the necessaryadjustments are summarized below.

**Goodwill**

Irish GAAP, FRS 10—“Goodwilland Intangible Assets,” requires goodwill to be capitalized as an intangiblefixed asset and amortized in the statement of operations over its estimateduseful life. For US GAAP, the Group applies SFAS No. 142 “Goodwilland Other Intangible Assets”. Under SFAS No. 142, goodwill is nolonger amortized, but is tested for impairment on an annual basis and 

F-57

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

wheneverindicators of impairment arise. The Group’s identified indicators of impairmentunder SFAS No. 142 are the same as under SAB No. 100, “Restructuringand Impairment Charges”.

The goodwill impairmenttest, which is based on fair value, is to be performed on a reporting unitlevel using a two-step impairment test. A reporting unit is an operatingsegment as defined by SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information”, or one level lower. In the first step, thefair value of a reporting unit is compared with its carrying amount, includinggoodwill. If the fair value of the reporting unit exceeds its carrying value,goodwill is not deemed to be impaired and step two of the impairment test isnot required. If the fair value of the reporting unit is lower than thecarrying value of long term assets and net working capital, step two needs tobe performed to measure the amount of impairment. The second step of thegoodwill impairment test, used to measure the amount of impairment loss,compares the implied fair value of reporting unit goodwill with the carryingamount of that goodwill. If the carrying amount of reporting unit goodwillexceeds the implied fair value of that goodwill, an impairment loss shall berecognized in an amount equal to that excess. The loss recognized cannot exceedthe carrying amount of goodwill.

The fair value of eachreporting unit was determined based upon JSG’s segment reporting. According tothese calculations, the fair value of the reporting units exceeded the carryingvalue of their net assets. Therefore, the additional analysis was not requiredand there was no impairment of goodwill upon adoption of SFAS No. 142. TheGroup performed an annual impairment test in the last quarter of 2003, 2004 and2005. No indicators of impairment were identified.

Under Irish GAAP, theGroup accounts for goodwill arising on the acquisition of a foreign entity as aeuro functional asset. Under U.S. GAAP, SFAS No. 52 requires goodwill andany fair value adjustments arising out of the purchase of a foreign entity tobe treated as currency assets and liabilities of the foreign operation andtranslated at the closing rates with differences taken to the currencytranslation adjustment recorded in other comprehensive income as a component ofshareholders’ equity.

**Intangible Assets**

Under US GAAP, €141 million representing the allocated value for customerrelationships has been accounted for as intangible assets under US GAAP. IrishGAAP does not permit the separate recognition of such assets and thus hasincluded the €141 millionamount in goodwill. Such goodwill is amortized under Irish GAAP on astraight-line basis over 40 years. The separately identified intangible assetshave been amortized on a straight-line basis over 5 - 8 years under US GAAP.

**Deferred taxation**

Irish GAAP, FRS 19—“DeferredTax” requires full provision to be made for deferred tax arising from timingdifferences between the recognition of gains and losses in the financialstatements and their recognition in tax computations. In adopting FRS 19, wehave chosen not to discount deferred tax assets and liabilities. This standardeliminated a number of the differences between accounting for deferred taxunder Irish and US GAAP. However, under SFAS No. 109—“Accounting forIncome Taxes”, deferred taxation would also be provided under US GAAP on thedifference between the accounting and taxation bases of assetsand liabilities of subsidiaries acquired. Deferred income taxes on the taxableUS GAAP adjustments are included within the reconciliations.

F-58

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**Retirement benefits**

Under Irish GAAP, FRS 17—“Retirement Benefits”requires that scheme assets are valued at fair value and scheme liabilities aremeasured using the Projected Unit Credit method. Net scheme assets andliabilities, reduced by deferred tax amounts, are required to be shown on theface of the balance sheet as a pension asset or liability as appropriate. JSGFunding has also adopted Urgent Issues Task Force abstract 35—“Death-in-serviceand incapacity benefits” (“UITF 35”). Under US GAAP the main differences withIrish GAAP arise in relation to the recognition of actuarial gains and lossesand the treatment of death-in-service and incapacity benefits. Under US GAAP,net scheme assets and liabilities are required to be shown gross of deferredtax amounts.

**Hyper-inflationaryeconomies**

The Group accounts for the activities of itssubsidiaries in Mexico, Colombia, Venezuela and Argentina, which historicallyhave high rates of inflation, using the US dollar as the functional currency. 

Under US GAAP for each ofthe periods presented, Mexico, Colombia, Argentina and Venezuela would not beregarded as hyper-inflationary and the Mexican Peso, the Colombian Peso, theArgentinean Peso and the Venezuelan Bolivar respectively would have been usedas the functional currency. The application of US GAAP has no materialeffect on the reported net income of these subsidiaries.

**Stock-basedemployee compensation expense**

SFAS No. 123—“Accounting for Stock-BasedCompensation” encourages, but does not require, compensation expense foremployee stock options to be measured based on their fair value at the date ofgrant, determined using option valuation models. JSG Funding elected tocontinue to account for stock based employee compensation in accordance withAPB Opinion No. 25—“Accounting for Stock Issued to Employees” (“APB 25”)and related interpretations and to provide the pro forma information requiredby SFAS No. 123.

UnderUS GAAP, following the measurement principles of APB 25, compensation expensewould be accrued and booked to income over the vesting period. The vestingperiod commences when it becomes probable that theunderlying targets attaching to the options will be achieved and the number ofshares will be known and ends with the date when thegranting of the shares is not contingent upon the performance of additionalservices or other conditions. Compensation expense would be booked on a periodby period basis to reflect the difference between the price an employee mustpay to acquire the shares underlying the option and the market price of theshares, at the end of each accounting period until the final vesting date.

**Debt instrumentsissue costs**

Under Irish GAAP debtissue costs are deducted from the proceeds of the relevant debt instruments.Under US GAAP such costs would be shown as deferred charges in the balancesheet. In both cases the amount of such costs are expensed at a constant rateof interest on the outstanding balance of the debt.

F-59

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**Accounting forassociates**

Irish GAAP requiresseparate disclosure of operating earnings, net interest, exceptional items andthe taxation charge arising in associates. Under US GAAP earnings ofassociates, net of taxation would be shown as a single line item in arriving atnet income.

**Financialinstruments**

Under Irish GAAP all hedging instruments are matchedwith their underlying hedged item. Each instrument’s gain or loss is broughtinto the profit and loss account and its fair value into the balance sheet atthe same time as is the matched underlying asset, liability, income or cost.

Under SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities” all derivative instruments are recognizedon the balance sheet at their fair values. Changes in fair value are eitherrecognized periodically in income or in shareholders’ equity as a component ofcomprehensive income depending on whether the derivative qualifies for hedgeaccounting in accordance with the requirements of SFAS No. 133, and if so,whether it qualifies as a fair value hedge or cash flow hedge. Changes in fairvalue of derivatives accounted for as fair value hedges are recorded in incomealong with the corresponding portions of the changes in the fair value of thehedged items, to the extent they are effective as hedges. Changes in fair valueof derivatives accounted for as cash flow hedges, to the extent they areeffective as hedges, are recorded in other comprehensive income net of deferredtaxes. Changes in fair values of derivatives not qualifying as hedges arereported in net income.

Under Irish GAAP the functional currency of theGroup’s operations in Latin America is the US$. The Group’s investment in theseoperations is financed by US$ borrowing. The carrying amounts of theseoperations are translated at the end of each accounting period at the closingrates of exchange. The resulting exchange differences are taken directly toreserves. Exchange gains or losses on the related US$ borrowing are then offsetas a reserve movement against the exchange differences.

Under U.S. GAAP thefunctional currency of our Latin American operations is the local currency ofeach of the countries in which we operate. While net investment hedgeaccounting is permitted, the use of a different functional currency for ourLatin American operations results in our US$ debt not directly matching thelocal currency net assets. The Group does not meet the US GAAP criteria for netinvestment hedge accounting using a tandem currency debt instrument and as aresult the translation gains and losses on the debt instrument are recorded inthe statement of operations rather than in other comprehensive income.

**Currency swaps**

Under Irish GAAP, the fairvalue of currency swaps relating to outstanding debt is an adjustment to thecarrying value of debt. Under US GAAP, it would be separately recorded as partof other assets or liabilities.

**Impairment writedowns**

Under Irish GAAP, impairment writedowns are includedin accumulated depreciation. Under US GAAP they would be deducted from thecost of the assets identified as being impaired. 

F-60

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between AccountingPrinciples Generally Accepted in Ireland and in the United States—(continued)

Under US GAAP, SFASNo. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” establishes a singleaccounting model for long-lived assets to be disposed of by sale consistentwith the fundamental provisions of SFAS No. 121, “Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to beDisposed of”. While it supersedes portions of APB Opinion 30, “Reporting the Resultsof Operations-Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions”, itretains the discontinued operations presentation, yet it broadens thatpresentation to include a component of an entity (rather than a segment of abusiness). However, discontinued operations are no longer recorded at netrealizable value and future operating losses are no longer recognized beforethey occur. Under SFAS No. 144, it is no longer necessary to allocategoodwill to long-lived assets and then perform impairment testing. Furthermore,it has been stipulated that in situations where it is expected that certainflows of capital will be accumulated in areas subject to impairment testing,these can be calculated on the basis of a probability-weighted cash flow estimate. SFAS No. 144 alsoestablishes criteria for determining when an asset should be treated as heldfor sale.

**Insurance Receipts**

Under Irish GAAP insurance receipts related to theinterruption of business are deferred and released to income against therelated costs.

Under US GAAP, FIN 30, SOP96-1 and EITF 01-13 require insurance receipts to be recognized on receipt.

**Restructuring andintegration costs**

Therules for recognizing restructuring and integration costs in the statementof operations are generally consistent between Irish and US GAAP. However,under Irish GAAP, on the acquisition of a business, costs in connection withrestructuring would not be recorded in purchase accounting but would beexpensed as incurred post acquisition. Under US GAAP, a purchase accountingliability would be recorded for qualifying costs and goodwill increased ifcertain requirements are satisfied as prescribed by EITF 95-3.

**Leveraged buyouttransactions**

Under US GAAP, because ofthe application of the EITF issue 88-16, “Basis in Leveraged BuyoutTransactions”, only partial purchase accounting applied to the acquisition ofJSG in 2002. The approximate 8% rollover investment by senior management shareholderswould be valued at their predecessor basis in JSG as opposed to the inherentnew basis in successor. The primary effect of that adjustment was to reducegoodwill and shareholders’ equity. Under Irish GAAP, no such adjustment isrequired. 

**Composition of JSGFunding Group—consolidation of companies sold to affiliates**

As part of the MDPacquisition, certain assets were transferred to newcos, wholly ownedsubsidiaries of JSL. The newcos borrowed **€**125million which was lent to JSL to fund a **€**125 millioncapital contribution in JSG Funding. Under US GAAP, the newcos would beconsolidated in JSG Funding’s 

F-61

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

financialstatements, causing debt of JSG Funding to increase and equity of JSG Fundingto decrease. Even though JSG Funding under US GAAP wouldconsolidate the newcos, JSG Funding had no repayment obligations relating tothe newco debt, which was recourse only to the assets of the newcos. The newcosfacility was fully paid before December 31, 2003.

**Consolidation ofassets held for sale**

The European Commission approval of the Kappa mergerrequired the divestment by the Group of certain Kappa and Smurfit plants. UnderIrish GAAP the Smurfit plants continue to be consolidated until they are soldand the Kappa plants are included as available for sale and are shown ascurrent assets recorded at the lower of cost or net realizable value.

Under US GAAP both the Kappa and the Smurfit plantsare consolidated but treated as held for sale under SFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets”. The assetsand liabilities are included at fair value less costs to sell and are shown ascurrent assets and liabilities. Any fair value adjustment on the Kappa plantsis treated as part of purchase price accounting but any subsequent adjustmentsto fair value will be taken to the income statement. Assets held for saleincludes assets of €92,901,000 and liabilitiesof €38,497,000which are included in the European Specialties segment.

Under US GAAP, the resultsfrom operations for assets held for sale are included in the consolidatedstatement of operations whereas they are excluded under Irish GAAP.  

**Inventory valuation—fairvalue**

Under Irish GAAP the fair value of inventory in anacquisition would be based either, on the current cost to the acquired entityof reproducing the inventory or on the historical cost of the inventory(including the interest cost of holding the inventory) where it is difficult tofind replacement cost as replacement would be impossible. 

Under US GAAP, inventoryacquired in a transaction accounted for under the purchase method is asfollows: (a) finished are valued at estimated selling prices less the sum ofthe costs of disposal and a normal profit; (b) work in process inventories arevalued at estimated selling prices less the sum of the costs of completion,costs of disposal, and a normal profit; and (c) raw material inventories arevalued at current replacement cost. The differences in valuation of inventoryacquired in the Kappa transaction under Irish GAAP and US GAAP will result inan adjustment to goodwill in the reconciliations.

**Long termreceivables**

Under Irish GAAP, certainlong term receivables are included in current assets. Under US GAAP, they areincluded in long term assets. 

F-62

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted in Ireland and in the United States—(continued)

**CurrencyTranslation Adjustment**

Adjustments arising ontranslation of the results of non-euro entities operations at average rates andon restatement of the opening net assets at closing rates into the consolidatedfinancial statements are dealt with in the consolidated statement of totalrecognized gains and losses under Irish GAAP and in the statement of othercomprehensive income under US GAAP.  Thecurrency translation adjustment included in other comprehensive income includesthe translation impact of the adjustments to net loss under US GAAP for eachyear.  Furthermore, the currencytranslation adjustment for each Irish GAAP to US GAAP reconciling item has beenincluded in their respective line items in the shareholders’ reconciliationitself.

**Scopeof Consolidation—push-down of PIK notes**

On December 1, 2005 SKGL, JSG Acquisitions andthe shareholders of Kappa Holding B.V. (“Kappa”) concluded an agreementresulting in the merger of the operations of both groups of companies. Themerger was completed through the issue of shares by SKGL and the payment ofconsideration comprising cash of approximately €238million and an €89million subordinated promissory note, primarily to Kappa’s former shareholders.These 9% shareholder PIK notes mature on December 31, 2016.

In January 2005, JSG Holdings plc (“JSG Holdings”)completed an offering of €325 million in aggregateprinciple amount of 11.5% senior PIK notes due 2015, through a series oftransactions substantially all of the net proceeds were paid to shareholders bymeans of a capital reduction under Irish law.

Under Irish GAAP, transactions of both SKGL and JSGHoldings are not consolidated in the Group’s consolidated financial statements.

Under US GAAP in certain circumstances, parent companythird party debt and associated costs would be pushed-down to the reportingentity.

Effectively, the Group isdeemed to absorb a majority of the risk of certain of the debt transactions ofJSG Holdings and SKGL. As such, these aforementioned debt transactions havebeen pushed down into the consolidated financial statements as of December 31,2005. The JSG Holdings transaction would be reflected as an increase ofoutstanding debt with the resulting proceeds, net of issue costs, treated as adistribution to shareholders. The SKGL transaction would also be reflected asan increase of outstanding debt with an equal reduction in equity. The accruedinterest associated with these notes would be recorded in the statement ofoperations.

The fair value of the11.5% senior PIK notes due 2015 and of the 9% subordinated promissory notes asat December 31, 2005 was €322.4 million and €89.6 millionrespectively.

**Gain on Munksjo Disposal**

The Company disposed of its Munksjo pulp, specialtypaper and tissue operations during the year ended December 31, 2005.  As the carrying value of these entitiesdiffered under Irish GAAP and US GAAP, the reconciliation of income includes anadjustment to the gain on disposal accordingly.

F-63

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

The following is a summaryof the significant adjustments to net loss and shareholders’ equity which wouldbe required if US GAAP were to be applied instead of Irish GAAP.

| ** **                                                                                     | ** ** | **Restated**  | ** **   | **Restated**  | ** ** | **Restated**  | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                                                     | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
| ** **                                                                                     | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| **Income**                                                                                     |       |          |         |          |       |          |       |
| Net  loss reported in the consolidated statement of operations                                 |       | (177,346      | )            | (34,489       | )          | (67,328       | )          |
| Adjustments:                                                                                   |       |          |         |          |       |          |       |
| Goodwill  amortization                                                                         |       | 28,914        |         | 37,925        |       | 33,817        |       |
| Other  intangibles amortization                                                                |       | (2,038        | )            | —        |       | —        |       |
| Retirement  benefits                                                                           |       | (8,118        | )            | (3,061        | )          | (3,999        | )          |
| Deferred  taxation                                                                             |       | 4,936         |         | 9,309         |       | 22,699        |       |
| Stock  based compensation expense                                                              |       | (17,696       | )            | (330          | )          | (493          | )          |
| Inventory  valuation—fair value                                                           |       | (5,451        | )            | —        |       | (5,264        | )          |
| Management  rollover investment                                                                |       | 614           |         | 616           |       | 894           |       |
| Financial  instruments—fair value                                                         |       | 11,414        |         | (33,275       | )          | (13,779       | )          |
| Translation  gains/(losses) arising on net investment hedging                                  |       | (66,808       | )            | 44,056        |       | 116,054       |       |
| Consolidation  of companies sold to affiliates                                                 |       | (34,053       | )            | (8,195        | )          | (3,295        | )          |
| Adjustment  to gain on Munksjö disposal                                                   |       | 2,597         |         | —        |       | —        |       |
| Consolidation  of assets held for sale                                                         |       | 163           |         | —        |       | —        |       |
| Insurance  receipts                                                                            |       | (398          | )            | —        |       | —        |       |
| Push  down of PIK notes                                                                        |       | (36,959       | )            | —        |       | —        |       |
|                                                                                           |       | (122,883      | )            | 47,045        |       | 146,634       |       |
| **Net (loss) / income as adjusted to accord with US GAAP**                                     | ** ** | **€**    | **(300,229** | **)**         | **€** | **12,556**    | ** ** | **€** | **79,306** | ** ** |
| Arising from:                                                                                  |       |          |         |          |       |          |       |
| Continuing operations                                                                          |       | (271,804      | )            | (21,332       | )          | 33,348        |       |
| Acquired  activities                                                                           |       | (26,181       | )            | —        |       | —        |       |
| Discontinued  activities                                                                       |       | (2,244        | )            | 33,888        |       | 45,958        |       |
| **Net (loss) / income  available to ordinary shareholders as adjusted to accord with US GAAP** | ** ** | **€**    | **(300,229** | **)**         | **€** | **12,556**    | ** ** | **€** | **79,306** | ** ** |

 

**Total Comprehensive Income**

| ** **                                                                                       | ** ** | **Restated**  | ** **   | **Restated**  | ** ** | **Restated**  | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                                                       | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
| ** **                                                                                       | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| **Net (loss) / income****available to ordinary shareholders as adjusted to accord with US GAAP** | ** ** | **(300,229**  | **)**        | **12,556**    | ** ** | **79,306**    | ** ** |
| Other comprehensive income /  (loss):                                                            |       | ** **    | ** **   |          |       |          |       |
| Financial instruments—fair value(1)                                                         |       | 7,268         |         | (19,365       | )          | (1,757        | )          |
| Unrealized foreign currency translation adjustments                                              |       | 84,931        |         | (20,965       | )          | (109,982      | )          |
| Retirement benefits                                                                              |       | (77           | )            | (4,824        | )          | 6,533         |       |
| **Comprehensive loss**                                                                           | ** ** | **€**    | **(208,107** | **)**         | **€** | **(32,598**   | **)**      | **€** | **(25,900** | **)** |
|                                                                                                  |            |               |              |               |            |               |            |  |  |  |

----

(1)   Financial instruments—fairvalue of €7,268,000 in 2005 is net of the tax benefit of €773,000.

F-64

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   DifferencesBetween Accounting Principles Generally Accepted in Ireland and in the UnitedStates—(continued)

Netlosses of €3,075,000 of the accumulated adjustments to totalcomprehensive income in respect of the fair value of financial instruments are expectedto be reclassified into earnings in the next twelve months. These instrumentsderive from gains and losses on derivatives hedging cash flows on forecastedtransactions (the maximum period for which is two years) and on interest rateswaps qualifying as cash flow hedges.

**Shareholders’ Equity**

| ** **                                                              | ** ** | **Restated**  | ** **  | **Restated**  | ** ** |
|-------------------------------------------------------------------------|------------|---------------|-------------|---------------|------------|
| ** **                                                              | ** ** | **2005**      | ** **  | **2004**      | ** ** |
| ** **                                                              | ** ** | **€000** | ** **  | **€000** | ** ** |
| Shareholders’ equity as reported in the consolidated balance sheet |       | 1,418,862     |        | 869,101       |       |
| Adjustments:                                                            |       |          |        |          |       |
| Goodwill—Gross                                                     |       | 112,436       |        | 44,005        |       |
| —Aggregate amortization                                            |       | 101,606       |        | 81,695        |       |
| Other intangibles amortization                                          |       | (2,038        | )           | —        |       |
| Hyper-inflationary  economies—property, plant and equipment        |       |          |        |          |       |
| —Cost                                                              |       | 103,026       |        | 140,133       |       |
| —Aggregate depreciation                                            |       | (49,707       | )           | (63,141       | )          |
| Hyper-inflationary economies—investments                           |       | 310           |        | 3,013         |       |
| Retirement benefits                                                     |       | (30,597       | )           | (34,147       | )          |
| Deferred taxation                                                       |       | (137,896      | )           | (127,194      | )          |
| Financial instruments—fair value                                   |       | (30,059       | )           | (48,741       | )          |
| Minority share of US GAAP adjustments                                   |       | (6,376        | )           | (8,615        | )          |
| Consolidation of companies sold to affiliates                           |       | (176,859      | )           | (146,519      | )          |
| Rollover investment by JSG management                                   |       | (74,961       | )           | (75,574       | )          |
| Insurance receipts                                                      |       | 540           |        | —        |       |
| Provisions                                                              |       | (8,770        | )           | —        |       |
| Push down of PIK notes                                                  |       | (442,582      | )           | —        |       |
|                                                                    |       | (641,927      | )           | (235,085      | )          |
| **Shareholders’ equity as  adjusted to accord with US GAAP**       | ** ** | **€**    | **776,935** | ** **    | **€** | **634,016** | ** ** |
|                                                                         |            |               |             |               |            |  |  |

 

Shareholders’ equity underUS GAAP includes assets amounting to €157,285,000 andliabilities amounting to €57,403,000 held for sale at December 31,2005.

**U.S. GAAP Restatement Items**

SFAS No. 52 requires goodwill and any fair valueadjustments arising out of the purchase of a foreign entity to be treated ascurrency assets and liabilities of the foreign operation and translated at theclosing rates with differences taken to the currency translation adjustmentrecorded in other comprehensive income as a component of shareholders’ equity.Accordingly, in performing this goodwill allocation to subsidiaries andapplicable currency translation, the Group has restated financial statementamounts presented in accordance with US GAAP to reflect the currency movementassociated with goodwill in the years 2003 and 2004. This resulted in acumulative increase in currency translation adjustment of €93,533,000as of December 31, 2004 leading to a reduction in both goodwill andshareholders’ equity 

F-65

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

reported under US GAAP foran identical amount. Consequently, the currency translation adjustment in othercomprehensive loss for the years ended December 31, 2004 and 2003 increased by €8,409,000and €85,124,000,respectively, thereby increasing other comprehensive loss by identical amountsin both years. This restatement did not impact the consolidated statement ofoperations or cash flows for the years ended December 31, 2004 and 2003 aspresented in accordance with US GAAP.

US GAAP requires parent company third party debt andassociated issue costs to be pushed down to the reporting entity under certaincircumstances. Accordingly, on analysis of parent company third party debt, theGroup considers it appropriate to adopt push-down accounting in respect of theissuance of PIK notes by SKGL with regard to the Kappa acquisition. Thisresulted in a cumulative increase in third party debt of €89,620,000as of December 31, 2005 leading to a reduction in income of €667,000and a reduction in shareholders’ equity reported under US GAAP of €89,620,000.The Group has also pushed down debt issue costs of €8,330,000 related to the €325,000,000PIK notes issued by JSG Holdings which leads to an increase in net loss of €751,000 forthe year ended December 31, 2005 and an increase in deferreddebt issue costs and an increase in shareholders’ equity reported under US GAAPof €7,579,000.  These restatements did not impact theconsolidated statement of operations, balance sheet or cash flows for the yearsended December 31, 2004 and 2003 as presented in accordance with US GAAP. 

Under U.S. GAAP the functional currency of the Group’sLatin American operations is the local currency of each of the countries inwhich it operates. The Group did not meet the criteria for net investment hedgeaccounting using a tandem currency debt instrument under US GAAP and as aresult the Group has restated the statements of operations and othercomprehensive income reclassifying the translation gains and losses on the debtinstrument. For 2003 and 2004 net income under US GAAP increased by €116,054,000and €44,056,000with a corresponding decrease in other comprehensive income. For 2005 netincome under US GAAP decreased by €66,808,000 with acorresponding increase in other comprehensive income. These restatements do notimpact the shareholders’ equity or cash flows reported under US GAAP forany of the years presented.

The Group hasrestated shareholders’ equity presented in accordance with US GAAP tocorrect certain clerical errors in relation to the fair value adjustmentsarising on the acquisition of Kappa. These restatements decreased shareholders’equity reported under US GAAP by €2,544,000at December 31, 2005. They did not impact the consolidated statement ofoperations or cash flows for the years ended December 31, 2005, 2004 and2003 as presented in accordance with US GAAP. 

F-66

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**Accumulated OtherComprehensive Income Amounts—Restated**

| ** **                             | ** ** | **Currency  Translation  Adjustments** | ** ** | **Financial  Instruments  (Losses)/Gains** | ** ** | **Retirement   Benefits** | ** ** | **Total**     | ** **  |
|----------------------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|--------------------------------|------------|---------------|-------------|
| ** **                             | ** ** | **€000**                          | ** ** | **€000**                              | ** ** | **€000**                  | ** ** | **€000** | ** **  |
| Balance at December 31, 2002      |       |                                   | (25,509    | )                                          |       |                           | (4,534     | )             |        |   | 3,773 |   |   | (26,270 | ) |
| Movement in the year                   |       |                                   | (109,982   | )                                          |       |                           | (1,757     | )             |        |   | 6,533 |   |   | (105,206 | ) |
| Balance at  December 31, 2003     |       |                                   | (135,491   | )                                          |       |                           | (6,291     | )             |        |   | 10,306 |   |   | (131,476 | ) |
| Movement in the  year                  |       |                                   | (20,965    | )                                          |       |                           | (19,365    | )             |        |   | (4,824 | ) |   | (45,154 | ) |
| Balance at  December 31, 2004     |       |                                   | (156,456   | )                                          |       |                           | (25,656    | )             |        |   | 5,482 |   |   | (176,630 | ) |
| Movement in the  year                  |       |                                   | 84,931     |                                       |       |                           | 7,268      |          |        |   | (77 | ) |   | 92,122 |   |
| **Balance at December 31,  2005** | ** ** | ** **                             | **€** | **(71,525**                                | )          | ** **                     | ** ** | **€**    | **(18,388** | **)** | ** ** | ** ** | **€** | **5,405** |   | ** ** | € | **(84,508** | **)** |
|                                        |            |                                        |            |                                            |            |                                |            |               |             |  |  |  |  |  |  |  |  |  |  |

 

**Cash Flows**

The consolidated statement of cash flows preparedunder Irish GAAP presents substantially the same information as that requiredunder US GAAP by SFAS No. 95—“Statement of Cash Flows”. This standarddiffers, however, with regard to the classification of items within thestatements and as regards the definition of cash and cash equivalents. Under USGAAP, cash would not include bank overdrafts. The movements on such bankoverdrafts are required to be included in financing activities under SFAS No. 95.Under US GAAP only short term investments with a maturity of three months orless at the date of acquisition are included in cash equivalents. Under USGAAP, movements on restricted cash are included as investing activities. UnderIrish GAAP movements in short term maturity investments and restricted cash areclassified as management of liquid resources. Under Irish GAAP, cash flows arepresented separately for operating activities, dividends received fromassociates, returns on investments and servicing of finance, taxation, capitalexpenditure and financial investment, acquisitions and disposals, equitydividends paid, management of liquid resources and financing. US GAAP, however,requires only three categories of cash flow activity to be reported: operating,investing and financing.

Cash flows from taxationand returns on investments and servicing of finance shown under Irish GAAPwould be included as operating activities under US GAAP. Cash flows fromcapital expenditure, financial investment and acquisitions and disposals wouldbe included as investing activities under US GAAP. The payment ofdividends would be included as a financing activity under US GAAP. Under USGAAP, capitalized interest is treated as part of the cost of the asset to whichit relates and is thus included as part of investing cash flows; under IrishGAAP all interest is treated as part of returns on investments and servicing offinance.

F-67

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

The categories of cashflow activity under US GAAP are summarized as follows:

| ** **                                        | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|---------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                        | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Cash inflow from operating activities             |       | 188,396       |        | 362,737       |       | 375,126       |       |
| Cash (outflow) on investing activities            |       | (530,701      | )           | (174,770      | )          | (333,626      | )          |
| Cash inflow / (outflow) from financing activities |       | 349,360       |        | (129,731      | )          | (29,296       | )          |
| Increase in cash and cash equivalents             |       | 7,055         |        | 58,236        |       | 12,204        |       |
| Currency adjustment on cash and cash equivalents  |       | 9,804         |        | (3,611        | )          | (8,810        | )          |
| Cash and cash equivalents at beginning of period  |       | 230,948       |        | 176,323       |       | 172,929       |       |
| **Cash and  cash equivalents at end of period**   | ** ** | **€**    | **247,807** | ** **    | **€** | **230,948**   | ** ** | **€** | **176,323** | ** ** |
|                                                   |            |               |             |               |            |               |            |  |  |  |

 

**BusinessCombinations—Additional Information Required**

Pro-forma sales and net income/(loss) for Group underUS GAAP for the year ended December 31, 2005 were €7,022million (unaudited) and (€209.1) million (unaudited), respectively (2004:€7,649million (unaudited) and net income of €107.8 million (unaudited),respectively). Pro forma net income for 2005 includes early debt extinguishmentcosts of €104.7million (unaudited) which are not expected to reoccur.

Other intangiblesamortization charge is projected to be approximately €24million annually for the next 5 years.

**Deferred taxation—additionalinformation required by SFAS No. 109**

The analysis of the USGAAP deferred taxation liability required by SFAS No. 109 is as follows:

| ** **                                           | ** ** | **2005**      | ** **  | **2004**      | ** ** |
|------------------------------------------------------|------------|---------------|-------------|---------------|------------|
| ** **                                           | ** ** | **€000** | ** **  | **€000** | ** ** |
| **Deferred  taxation liabilities:**                  |       |          |        |          |       |
| Excess  of book value over tax value of fixed assets |       | 386,203       |        | 295,702       |       |
| Other  timing differences                            |       | 81,974        |        | 83,526        |       |
|                                                 |       | 468,177       |        | 379,228       |       |
| **Deferred  taxation assets:**                       |       |          |        |          |       |
| Net  operating loss carry forwards                   |       | (293,035      | )           | (61,422       | )          |
| Valuation  allowances                                |       | 167,005       |        | 29,631        |       |
| Retirement  benefits                                 |       | (58,264       | )           | (45,679       | )(1)       |
| Other  timing differences                            |       | (2,573        | )           | (42,447       | )          |
|                                                 |       | (186,867      | )           | (119,917      | )          |
|                                                 |       | **€**    | **281,310** | ** **    | **€** | **259,311** | ** ** |
| **Split as  follows:**                               |       |          |        |          |       |
| Current                                              |       | (14,418       | )           | (20,177       | )          |
| Non  current                                         |       | 295,728       |        | 279,488       |       |
|                                                 |       | **€**    | **281,310** | ** **    | **€** | **259,311** | ** ** |

----

(1)          Retirement benefitsincludes €52,776,000(2004: €44,319,000)in relation to deferred tax which has been recorded within ‘Pensionliabilities’ (note 24).

Valuation allowances areset up for losses carried forward in those jurisdictions in which it is morelikely than not that the losses carried forward will not be utilized to offsetfuture taxable income or in which there is no deferred tax liability againstwhich the related asset can be offset prior to expiry.

F-68

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**Share optionschemes—additional information required by SFAS No. 123**

As permitted by SFAS No. 123, “Accounting forStock-Based Compensation” and amended by SFAS No. 148, “Accountingfor Stock-Based Compensation—Transition and Disclosure,” the Group has electedto account for shares to be issued under the Management Participation Agreementunder Accounting Principles Board (“APB”) Opinion No. 25, “Accounting forStock Issued to Employees,” and adopt the disclosure only provisions of SFAS No. 123and SFAS No. 148. Under SFAS No. 123, options are valued at the grantdate using the Black-Scholes valuation model and compensation expenses arerecognized ratably over the vesting period. Had compensation expenses beendetermined as prescribed by SFAS No. 123, the Group’s net loss for theperiod presented would have been as shown in the table below.

The Black-Scholes optionvaluation model was developed for use in estimating the fair value of tradedoptions which have no vesting restrictions and are fully transferable. Inaddition, option valuation models require the input of highly subjectiveassumptions including the expected share price volatility. Because the Group’semployees share options have characteristics significantly different from thoseof traded options and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management’s opinion, theexisting models do not necessarily provide a reliable single measure of thefair value of its employee share options. For purposes of pro formadisclosures, the estimated fair value of the options is amortized to expenseover the options’ vesting period (see “Stock based employee compensationexpense” above for a description of the vesting period).

| ** **                                                                                                       | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                                                                       | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| Net loss attributable to common shareholders  under US GAAP                                                      |       |          |         |          |       |          |       |
| As reported (Restated)                                                                                           |       | (300,229      | )            | 12,556        |       | 79,306        |       |
| Add: Stock-based employee compensation expense included in reported net  loss                                    |       | 17,696        |         | 259           |       | 394           |       |
| Deduct: Total stock-based employee compensation expense determined  under fair value based method for all awards |       | (1,316        | )            | (1,073        | )          | (769          | )          |
| **Pro forma** (Restated)                                                                                         | ** ** | **€**    | **(283,849** | **)**         | **€** | **11,742**    | ** ** | **€** | **78,931** | ** ** |
|                                                                                                                  |            |               |              |               |            |               |            |  |  |  |

 

In September 2002, Jefferson Smurfit Group Ltd.(f/k/a MDCP Acquisitions plc) (“JSGL”) adopted the 2002 Management Equity Plan(the “2002 Plan”). The Plan provides for the issuance of equity purchase rightsfor a nominal value of €0.001 each throughlong-term equity incentive awards to our eligible employees, officers, anddirectors (“Participants”). Each award is comprised of Series A,Series B and Series C convertible shares in JSGL and is proportionedas 40%, 40% and 20%, respectively. Series A convertible shares vest over athree year period ending on December 31, 2007. Series B andSeries C convertible shares will convert over the same time period ifcertain Internal Rate of Return performance requirements are met. Each seriesof convertible share would automatically convert into Series D convertibleshares upon vesting. Subject to certain criteria, these Series Dconvertible shares then could be converted into Ordinary Shares of JSGL uponpayments of an agreed upon conversion price, usually fair market value of JSGLshares at the date of the original award grant. Each award has a life of tenyears from the date of grant. Also, there are certain restrictions ontransferring convertible or ordinary shares. 

F-69

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

When a Participantterminates employment from JSGL, JSGL reserves the right to redeem or purchasethe convertible shares and any Ordinary Shares acquired as a result of theconversion thereof.

In February 2004, the 2002 Plan was amended (the“2004 Plan”) and restated to, among other things, to provide a clause thatprovides variability in the exercise price for the aforementioned equity awardsbased upon accrued interest for the senior PIK notes in JSG Holdings plc.Furthermore, the awards were exchanged for an identical number of shares in JSGPackaging Ltd. (subsequently renamed to Smurfit Kappa Group Ltd. (“SKG”) in2005). These changes to the 2002 Plan did not take affect untilFebruary 2005 when a corporate restructuring occurred. All othersignificant terms and conditions of the 2002 Plan remained unchanged with theamendment.

In December 2005, the 2004 Plan was amended (the“2005 Plan”) in which SKG gave Participants the opportunity to exchange theirawards of Series A, Series B and Series C convertible sharesinto an equal number of Series E, Series F and Series Gconvertible shares having basically the same terms and conditions. Participantshad to exchange their entire award, not just a particular series of convertibleshares. The main changes to the convertible shares were that vesting dates werechanged to the three years ended December 31, 2010 and the performancecriteria for the Series F and Series G convertible shares wereslightly different to those for the Series B and Series C convertibleshares, which they replaced. Additionally, SKG introduced Series Hconvertible shares, which automatically convert into Series I convertibleshares upon vesting then can be converted into Ordinary Shares of SKG. Thevesting provisions for Series H convertible shares are similar toSeries F convertible shares except that once converted into Series Iconvertible shares, they are not subject to the variable exercise price thatthe other series of convertible shares possess. All other significant terms andconditions of the 2004 Plan remained unchanged with the amendment.

The opportunity to exchange the convertible sharesunder the 2005 Plan did not occur until the first quarter of 2006. Accordingly,as of December 31, 2005, no Series E, Series F or Series Gconvertible shares were outstanding.

Asummary of the activity under the 2002 Plan, as amended, for the three yearsended December 31, 2005 is presented below:

| ** **                                 | ** ** | **A Convertible** | ** **    | **B Convertible** | ** ** | **C Convertible** | ** **    | **H Convertible** | ** ** | **Total**  | ** **    |
|--------------------------------------------|------------|------------------------|---------------|------------------------|------------|------------------------|---------------|------------------------|------------|------------|---------------|
| April 16, 2003 Shares  allotted            |       |                   | 3,118,907     |                   |       |                   | 3,118,907     |                   |       |       | 1,559,449     |   |   |   | — |   |   | 7,797,263 |   |
| October 21, 2003 Shares  allotted          |       |                   | 176,253       |                   |       |                   | 176,253       |                   |       |       | 88,126        |   |   |   | — |   |   | 440,632 |   |
| **Balance  at December 31, 2003**          | ** ** | ** **             | **3,295,160** |                   | ** ** | ** **             | **3,295,160** |                   | ** ** | ** ** | **1,647,575** |   |   |   | — |   | ** ** | **8,237,895** | ** ** |
| March 5, 2004 Shares  allotted             |       |                   | 41,534        |                   |       |                   | 41,534        |                   |       |       | 20,767        |   |   |   | — |   |   | 103,835 |   |
| **Balance  at December 31, 2004**          | ** ** | ** **             | **3,336,694** |                   | ** ** | ** **             | **3,336,694** |                   | ** ** | ** ** | **1,668,342** |   |   |   | — |   | ** ** | **8,341,730** | ** ** |
| December 5, 2005 Shares  allotted          |       |                   | —        |                   |       |                   | —        |                   |       |       | —        |   |   |   | 2,062,880 |   |   | 2,062,880 |   |
| **Balance at December 31, 2005**           | ** ** | ** **             | **3,336,694** |                   | ** ** | ** **             | **3,336,694** |                   | ** ** | ** ** | **1,668,342** |   | ** ** | ** ** | **2,062,880** |   | ** ** | **10,414,610** | ** ** |
| **Exercisable at  December 31, 2005** | ** ** | ** **             | **1,112,231** |                   | ** ** | ** **             | **—**    |                   | ** ** | ** ** | **—**    |   | ** ** | ** ** | **—** |   | ** ** | **1,112,231** | ** ** |

 

**Theexercise price for all convertible shares at December 31, 2005 was**€5.12.

F-70

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted in Ireland and in the United States—(continued)

**Pension costs andtermination indemnities—information required by SFAS No. 87 and SFAS No. 132**

The components of thedefined benefit net pension expense for the Group’s defined benefit plans,termination indemnities and post retirement healthcare defined benefit plansfor the years ended December 31, 2005, 2004 and 2003 under SFAS No. 87amended by SFAS No. 132 are estimated to be as follows:

| ** **                                                   | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------------------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                                                   | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Service  cost                                                |       | 37,450        |       | 38,470        |       | 36,885        |       |
| Interest  cost                                               |       | 57,731        |       | 56,282        |       | 55,573        |       |
| Expected  return on plan assets                              |       | (44,259       | )          | (40,627       | )          | (39,669       | )          |
| Amortization of unrecognized  transition obligation or asset |       | 112           |       | —        |       | —        |       |
| Recognized  gains and losses                                 |       | 5,453         |       | 61            |       | 4,118         |       |
| Recognized  prior service cost                               |       | (451          | )          | 57            |       | 655           |       |
| Loss  due to settlement or curtailment                       |       | (2,564        | )          | (636          | )          | —        |       |
|                                                         |       | **€**    | **53,472** | ** **    | **€** | **53,607**    | ** ** | **€** | **57,562** | ** ** |
|                                                              |            |               |            |               |            |               |            |  |  |  |

 

F-71

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

The estimated fund statusof the Group’s defined benefit plans, termination indemnities and postretirement healthcare defined benefit schemes under SFAS No. 87 amended bySFAS No. 132 was as follows:

| ** **                                                                             | ** ** | **2005**      | ** **   | **2004**      | ** ** |
|----------------------------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|
| ** **                                                                             | ** ** | **€000** | ** **   | **€000** | ** ** |
| **Change in benefit obligation**                                                       | ** ** | ** **    | ** **   | ** **    | ** ** |
| Benefit  obligation at beginning of period                                             |       | 1,123,272     |         | 1,081,891     |       |
| Service  cost                                                                          |       | 37,450        |         | 38,470        |       |
| Interest  cost                                                                         |       | 57,731        |         | 56,282        |       |
| Contributions  by plan participants                                                    |       | 7,180         |         | 7,908         |       |
| Actuarial  gains and losses                                                            |       | 89,686        |         | 8,486         |       |
| Benefits  paid                                                                         |       | (58,201       | )            | (60,748       | )          |
| Divestitures,  curtailments or settlements                                             |       | (8,997        | )            | (542          | )          |
| Plan  amendments                                                                       |       | (61           | )            | (1,793        | )          |
| Reclassification                                                                       |       | —        |         | 2,291         |       |
| Acquisitions                                                                           |       | 799,806       |         | —        |       |
| Disposals                                                                              |       | (29,741       | )            | (101          | )          |
| Currency  adjustments                                                                  |       | 25,249        |         | (8,872        | )          |
| Benefit  obligation at end of period                                                   |       | 2,043,374     |         | 1,123,272     |       |
| **Change in  plan assets**                                                             | ** ** | ** **    | ** **   | ** **    | ** ** |
| Fair  value of plan assets at beginning of period                                      |       | 655,105       |         | 621,833       |       |
| Actual  return on assets                                                               |       | 121,834       |         | 40,999        |       |
| Contributions  by employer                                                             |       | 51,077        |         | 51,921        |       |
| Contributions  by plan participants                                                    |       | 7,180         |         | 7,908         |       |
| Benefits  paid                                                                         |       | (58,201       | )            | (60,748       | )          |
| Divestitures,  curtailments or settlements                                             |       | (3,048        | )            | —        |       |
| Acquisitions                                                                           |       | 536,793       |         | —        |       |
| Disposals                                                                              |       | (7,705        | )            | —        |       |
| Currency  adjustment                                                                   |       | 16,156        |         | (6,808        | )          |
| Fair  value of plan assets at end of period                                            |       | 1,319,191     |         | 655,105       |       |
| Funded  status of the plans                                                            |       | (724,183      | )            | (468,167      | )          |
| Amounts  available to be applied as an increase / (reduction) of future pension costs: |       |          |         |          |       |
| Unrecognized  actuarial gains or losses                                                |       | (7,003        | )            | (13,162       | )          |
| Unrecognized  prior service cost                                                       |       | (1,535        | )            | (1,680        | )          |
| Minimum pension liability                                                              |       | (6,020        | )            | (6,694        | )          |
| **(Accrued)  pension costs**                                                           | ** ** | **€**    | **(738,741** | **)**         | **€** | **(489,703** | **)** |
|                                                                                        |            |               |              |               |            |  |  |

 

The Group’s postretirementhealthcare defined benefit schemes are in the US. The estimated fund status ofthese schemes at December 31, 2005 were €2,412,000(2004: €2,245,000).

F-72

----

**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

Plan assets less thanprojected benefit obligations include overfunded plans at December 31,2005, €3,200,000(2004: nil) and underfunded plans at December 31, 2005 of €727,383,000(2004: €468,167,000).Thefollowing assumptions were used to determine the defined benefit expense forthe Group.

| ** **                                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Weighted  average assumed discount rate                              |       |     | 4.9        | %        |       |     | 5.5        | % |   |   | 5.4 | % |   |
| Weighted  average rates of compensation increase                     |       |     | 3.1        | %        |       |     | 3.3        | % |   |   | 3.2 | % |   |
| Weighted  average expected long term rates of return  on plan assets |       |     | 6.1        | %        |       |     | 6.7        | % |   |   | 6.5 | % |   |

 

The calculation of the projected benefit obligation atDecember 31, 2005 assumed a discount rate of approximately 4.6% (2004:5.1%).

The assets of the plans are invested primarily inequities, fixed interest securities, insurance contracts and real estate.

Theweighted-average asset allocations at December 31, 2005 and 2004 by assetcategory of the defined benefit pension schemes is shown below:

| ** **        | ** ** | **Plan assets**   | ** ** |
|-------------------|------------|------------------------|------------|
| ** **        | ** ** | **Target  Allocation** | ** ** | **Percentage of Plan  Assets at December 31,** | ** ** |
| ** **        | ** ** | ** **             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Equity securities |       | 15 - 80%               |       |   | 50 | % |   |   | 49 | % |   |
| Debt securities   |       | 20 - 85%               |       |   | 38 | % |   |   | 39 | % |   |
| Real Estate       |       | 0 - 10%                |       |   | 6 | % |   |   | 6 | % |   |
| Other             |       | 0 - 10%                |       |   | 6 | % |   |   | 6 | % |   |
| Total             |       |                   |       |   | 100 | % |   |   | 100 | % |   |

 

The Group maintains target allocation percentagesamong various asset classes based on an investment policy established for thepension plans which is designed to achieve long term rate of return objectives,while mitigating against downside risk and considering expected cash flows. Ourinvestment policy is reviewed from time to time to ensure consistency with ourlong term objective of funding 100% of the projected benefit obligation.

The expected long term rate of return on plan assetsreflects the average return rates expected on the funds invested or to be investedto provide for the benefits included in the projected benefit obligation. Inestimating those rates, appropriate consideration is given to the currentreturns being earned by the plan assets in the fund and the rates of returnexpected to be available for reinvestment.

The Group’s expected return on assets of the definedbenefit schemes is based on recommendations from the plan actuary, havingconsidered anticipated future long term performance of individual assetclasses. Consideration is also given to the appropriate asset allocationstrategy, given the anticipated requirements of the plan to determine theaverage rate of return expected on the funds invested to provide for thepension plan benefits. While appropriate consideration is given to recent fundperformance and 

F-73

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

historical returns, theassumption is primarily a long-term, prospective rate. Based on our most recentstudy, the expected long term return assumption effective January 1, 2006will be 6.1%.

The expected contributions to the defined benefitplans is anticipated to be €80,330,000 in the yearended December 31, 2006. The accumulated benefit obligation of all schemesat December 31, 2005 is €1,819,813,000.

Expected future benefitpayments for each of the next five fiscal years and in the aggregate for thefive fiscal years thereafter are shown below:

| **Year**     | ** ** | ** **    | ** ** | **Benefit Payments** | ** ** |
|--------------|------------|---------------|------------|---------------------------|------------|
| ** **   | ** ** | **€000** | ** ** |
| 2006         |       |          | 80,748     |                      |       |
| 2007         |       |          | 82,077     |                      |       |
| 2008         |       |          | 83,584     |                      |       |
| 2009         |       |          | 88,015     |                      |       |
| 2010         |       |          | 91,278     |                      |       |
| 2011  - 2015 |       |          | 514,856    |                      |       |

 

**36   New AccountingStandards**

**U.S. GAAP**

In November 2004, the FASBissued SFAS 151, “Inventory Costs—An Amendment of ARB No. 43, Chapter 4.”SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,”to clarify the accounting for abnormal amounts of idle facility expense,freight, handling costs, and wasted material. Among other provisions, the new rule requiresthat items such as idle facility expense, excessive spoilage, double freightand rehandling costs be recognized as current-period charges. Additionally,SFAS 151 requires that the allocation of fixed production overheads to thecosts of conversion be based on the normal capacity of the productionfacilities. SFAS 151 is effective for fiscal years beginning after June 15,2005 and we are required to adopt it in the first quarter of fiscal year 2006.We do not expect that the adoption of SFAS 151 will have a material impacton our consolidated results of operations and financial condition.

In December 2004, the FASB issued SFAS 123(revised 2004), “Share-Based Payment” which replaces SFAS 123, “Accounting forStock-Based Compensation,” and supercedes APB Opinion 25, “Accounting for StockIssued to Employees.” SFAS 123R requires all share-based payments toemployees, including grants of employee stock options, to be recognized in thefinancial statements based on their fair values. This statement is effectivefor accounting periods starting January 1, 2006. We are currentlyevaluating the effect that the adoption of SFAS 123R will have on ourconsolidated results of operations and financial condition.

In December 2004,the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets—An Amendment of APBOpinion No. 29, Accounting for Nonmonetary Transactions.” SFAS 153eliminates the exception from fair value measurement for nonmonetary exchangesof similar productive assets in paragraph 21(b) of APB Opinion 29, “Accountingfor Nonmonetary Transactions,” and replaces it with an exception for exchangesthat do not have commercial substance. SFAS 153 specifies that a nonmonetaryexchange has 

F-74

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**36**   New Accounting Standards—(continued)

commercialsubstance if the future cash flows of the entity are expected to changesignificantly as a result of the exchange. SFAS 153 is effective for the fiscalperiods beginning after June 15, 2005 and is required to be adopted by usin the first quarter of fiscal year 2006. We are currently evaluating theeffect that the adoption of SFAS 153 will have on our consolidated results ofoperations and financial condition but we do not expect that it will have amaterial impact.

In May 2005, the FASBissued SFAS 154, “Accounting Changes and Error Corrections” (“SFAS 154”)which replaces Accounting Principles Board Opinions 20 “Accounting Changes” andSFAS 3, “Reporting Accounting Changes in Interim Financial Statements—AnAmendment of APB Opinion No. 28.” SFAS 154 provides guidance on theaccounting for and reporting of accounting changes and error corrections. Itrequires retrospective application for changes in accounting principle and thecorrection of errors. SFAS 154 is effective for fiscal years beginning after December 15,2005. The adoption of this standard is not expected to have a material effecton our results of operations or financial position.

In February 2006, theFASB issued SFAS 155, “Accounting for Certain Hybrid Financial Instruments”(“SFAS 155”), an amendment of SFAS 140 and SFAS 133. SFAS 155 permits electionto measure any hybrid financial instrument at fair value (with changes in fairvalue recognised in earnings) if the hybrid instruments contains an embeddedderivative that would otherwise be required to be bifurcated and accounted forseparately under SFAS 133. The election to measure the hybrid instrument atfair value is made on an instrument-by-instrument basis and is irreversible. TheStatement is effective for all instruments acquired, issued, or subject to aremeasurement event after the beginning of fiscal years begin after September 15,2006 provided that financial statements for any interim period of that fiscalyear have not been issued. We are currently evaluating the effect that theadoption of SFAS 155 will have on our consolidated results of operations andfinancial condition.

In April 2006, the FASBissued SFAS No. 156, “Accounting for Servicing of Financial Assets, anAmendment to FASB Statement No. 140.”  SFASNo. 156 amends SFAS No. 140, “Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities,” to permit servicingrights to either be: (1) measured at fair value with changes in fair valuereported through earnings; or, (2) amortise servicing rights in proportion toand over the estimated net servicing income or loss and assess the rights forimpairment or the need for an increased obligation.  SFAS No. 156 is effective for fiscal yearsbeginning after September 15, 2006.  TheCompany is currently evaluating the impact of adopting SFAS No. 156, but doesnot expect that the adoption will have a material impact on our consolidatedresults of operations or financial condition.

**International Financial Reporting Standards**

In 2002 the European Unionissued regulations requiring all companies with securities admitted to tradingon a regulated market in any European Economic Area (EEA) State to preparetheir financial statements in accordance with accounting standards issued bythe International Accounting Standards Board (‘‘*IASB*’’). For Irish public limited companies with equitysecurities publicly traded, the regulations apply for accounting periodsstarting on or after January 1, 2005. For Irish public limitedcompanies whose debt securities only are publicly traded the regulations may beapplied for accounting periods starting on or after January 1, 2007. Ourequity and debt securities are not admitted to trading on a regulated market ofany EEA Member State, however we intend to prepare financial statements inaccordance with standards issued by the IASB with effect from January 1,2007.

F-75

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**37**   OrganizationalStructure

Eachof SKGL, JSG Holdings, JSL, JSG Funding, JSG Acquisitions and JSG are holdingcompanies with no operations of their own. A listing of SKG’s principalsubsidiaries is set out below.

| **Subsidiaries**                                                                                                                           | ** ** | ** **                                                                                                                                                   | ** ** | **Principal Activities** | ** ** | **Country of   Incorporation** | ** ** | **Holding %** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------------|------------|---------------|------------|
| **Carton de Colombia, S.A.******Apartado Aereo 219, Cali,   Colombia                                                                       |       | Manufacture of   paperboard and packaging products                                                                                                           | ** ** | **Colombia**             |       |                           | 70         |          |       |
| **Carton de Venezuela, S.A******Apartado Aereo 609, Caracas,   Venezuela                                                                   |       | Manufacture of   paperboard and packaging products                                                                                                           | ** ** | **Venezuela**            |       |                           | 88         |          |       |
| **Grupo Smurfit Mexico, S.A. de C.V.******Jaime Balmes, No. 11   Torre D. 7 Piso, Col. Los Morales Polanco 11510, Mexico D.F., Mexico |       | Manufacture of   paperboard and packaging products                                                                                                           | ** ** | **Mexico**               |       |                           | 100        |          |       |
| **Kappa Kraftliner********AB******SE-941 86, Piteå,   Sweden                                                                          |       | Manufacture of   containerboard and holding company for operations in Sweden and other   countries which manufacture specialty papers and packaging products | ** ** | **Sweden**               |       |                           | 100        |          |       |
| **Smurfit****Kappa   Nederland B.V.******Dr. Holtroplaan 5,   5652 Eindhoven The Netherlands                                          |       | Holding company   for Dutch operations which manufacture containerboard, solid board and   packaging products                                                | ** ** | **The Netherlands**      |       |                           | 100        |          |       |
| **Nettingsdorfer   Papierfabrik AG & Co KG******A-4054   Nettingsdorf-Fabrik, Austria                                                  |       | Manufacture of   containerboard and holding company for Austrian operations which manufacture   corrugated board                                             | ** ** | **Austria**              |       |                           | 100        |          |       |
| **Smurfit,   S.A.******Paque Saenz Pena 308—8th Floor, Buenos Aires, Argentina                                                        |       | Manufacture of   paperboard and packaging products                                                                                                           | ** ** | **Argentina**            |       |                           | 100        |          |       |
| **Smurfit   Capital Funding Limited******Beech Hill, Clonskeagh, Dublin 4, Ireland                                                         |       | Finance company                                                                                                                                              | ** ** | **Ireland**              |       |                           | 100        |          |       |
| **Smurfit Deutschland GmbH & Co KG******Tilsiter Strasse 144, 22047   Hamburg, Germany                                                 |       | Holding company   for German operations which manufacture paperboard and packaging products                                                                  | ** ** | **Germany**              |       |                           | 100        |          |       |
| **Smurfit   International B.V.******Fred Roeskestraat 123,1076   EE Amsterdam, The Netherlands                                             |       | Principal   international holding company                                                                                                                    | ** ** | **The Netherlands**      |       |                           | 100        |          |       |

 

F-76

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**JSG Funding plc and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**37**   Organizational Structure—(continued)

| **Subsidiaries**                                                                                                                    | ** ** | ** **                                                                                                                                                                                                 | ** ** | **Principal Activities** | ** ** | **Country of   Incorporation** | ** ** | **Holding %** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------------|------------|---------------|------------|
| **Smurfit   International France S.A.******2 rue Goethe, 75116 Paris, France                                                        |       | Holding company for   French operations whose activities are the manufacture of paperboard and packaging   products                                                                                        | ** ** | **France**               |       |                           | 100        |          |       |
| **Smurfit   Investments UK Limited******Darlington Road, West Auckland,   Bishop Auckland, Co. Durham   DL14****9PE, United Kingdom |       | Holding company   for UK operations whose principal activities are the manufacture of   paperboard and packaging products                                                                                  | ** ** | **United Kingdom**       |       |                           | 100        |          |       |
| **Smurfit   Kappa Ireland Limited******Beech Hill, Clonskeagh, Dublin 4,   Ireland                                                  |       | Manufacture of   paperboard and packaging products and printing                                                                                                                                            | ** ** | **Ireland**              |       |                           | 100        |          |       |
| **Smurfit   Nervion, S.A.******B Arriandi s/n, 48215 lurreta, Vizcaya, Spain                                                        |       | Manufacture of   sack paper and holding company for Spanish, Portuguese and sack converting   operations whose principal activities are the manufacture of paperboard,   packaging and paper sack products | ** ** | **Spain**                |       |                           | 99         |          |       |
| **Smurfit   SISA, S.p.A******Strada Serravalle 30, 15067   Novi Ligure (AL), Italy                                                  |       | Manufacture of   paperboard and packaging products                                                                                                                                                         | ** ** | **Italy**                |       |                           | 90         |          |       |

 

F-77

----

**JSG Acquisitions and Subsidiary Companies**

**Reportof Independent Registered Public Accounting Firm**

To the Board of DirectorsJSG Acquisitions

We have audited theaccompanying consolidated balance sheets of JSG Acquisitions and subsidiarycompanies (the “Company”) as of December 31, 2005 and 2004, and therelated consolidated statements of operations, total recognized gains andlosses, changes in shareholders’ equity, and cash flows for each of the threeyears in the period ended December 31, 2005. Our audits also included thefinancial statement schedule listed in the Index at Item 18. These financialstatements and schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements and schedulebased on our audits. We did not audit the financial statements of Kappa HoldingB.V., a wholly-owned subsidiary, which statements reflect total assetsconstituting 35.5% as of December 31, 2005 and total revenues constituting4.5% for the year then ended of the related consolidated totals. Thosestatements were audited by other auditors whose report has been furnished tous, and our opinion, insofar as it relates to the amounts included for KappaHolding B.V., is based solely on the report of the other auditors.

We conducted our audits inaccordance with International Standards on Auditing (UK and Ireland) and thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits and the report of otherauditors provide a reasonable basis for our opinion.

In our opinion, based onour audits and the report of other auditors, the financial statements referredto above present fairly, in all material respects, the consolidated financialposition of JSG Acquisitions and subsidiary companies at December 31, 2005and 2004, and the consolidated results of their operations and their cash flowsfor each of the three years in the period ended December 31, 2005, inconformity with accounting principles generally accepted in Ireland, whichdiffer in certain respects from U.S. generally accepted accounting principles (“U.S.GAAP”) (see Note 35 of the Notes to the Consolidated Financial Statements).Also, in our opinion, the related financial statement schedule, when consideredin relation to the basic financial statements taken as a whole, presents fairlyin all material respects the information set forth therein.

Asdiscussed in Note 35 of the Notes to the Consolidated Financial Statements,certain amounts reported in accordance with generally accepted accountingprinciples in the United States have been restated.

/s/ Ernst & Young

Ernst &YoungDublin, Ireland

April 30, 2006, except forNote 35 “U.S.  GAAP Restatement Items”,as to which the date is November 24, 2006.

 

F-78

----

** **

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directorsof JSG Acquisitions

We have audited the combined balance sheet of KappaHolding B.V. and its subsidiaries (the “Company”) as of December 31, 2005and the related combined statement of operations, combined statement of cashflows, total recognized gains and losses and changes in shareholders’ equityfor the one month ended December 31, 2005 (not presented separatelyherein). These combined financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these combinedfinancial statements based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly we express no such opinion. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

In our opinion, the combined financial statementsreferred to above present fairly, in all material respects, the financialposition of the Company at December 31, 2005 and the results of itsoperations and cash flows for the one month ended December 31, 2005, inconformity with accounting principles generally accepted in Ireland.

Accounting principlesgenerally accepted in Ireland vary in certain significant respects fromaccounting principles generally accepted in the United States of America.Information relating to the nature and effect of such differences is presentedin Note 31 to the combined financial statements.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopersDublin, IrelandApril 30, 2006 

F-79

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**JSG Acquisitions and Subsidiary CompaniesConsolidated Statements of Operations**

| ** **                                                | ** ** | **Note**   | ** ** | **2005**      | ** ** | **2004**      | ** **   | **2003**      | ** ** |
|-----------------------------------------------------------|------------|------------|------------|---------------|------------|---------------|--------------|---------------|------------|
| ** **                                                | ** ** | ** ** | ** ** | **€000** | ** ** | **€000** | ** **   | **€000** | ** ** |
| Net Sales                                                 |       |       | 3          | ** **    |       | ** **    | ** **   | ** **    | ** ** | ** ** | ** ** |
| Continuing  operations                                    |       |       |       | ** **    |       | 4,212,514     |         | 4,278,439     |       | 4,146,061 |   |
| Continuing operations—acquisitions                   |       |       |       | ** **    |       | 199,611       |         | —        |       | — |   |
| Discontinued  operations                                  |       |       |       | ** **    |       | 25,204        |         | 526,643       |       | 600,254 |   |
|                                                      |       |       |       | ** **    |       | 4,437,329     |         | 4,805,082     |       | 4,746,315 |   |
| Cost of sales                                             |       |       |       | ** **    |       | 3,222,705     |         | 3,473,299     |       | 3,419,820 |   |
| Impairment of property,  plant and equipment              |       |       | 5          | ** **    |       | 45,214        |         | —        |       | — |   |
| Gross profit                                              |       |       |       | ** **    |       | 1,169,410     |         | 1,331,783     |       | 1,326,495 |   |
| Net operating  expenses                                   |       |       | 4          | ** **    |       | 977,292       |         | 1,010,565     |       | 982,296 |   |
| Reorganization  and restructuring costs                   |       |       | 5          | ** **    |       | 25,090        |         | 39,430        |       | 35,006 |   |
| Operating income  subsidiaries                            |       |       |       | ** **    |       |          |         |          |       |   |   |
| Continuing  operations                                    |       |       |       | ** **    |       | 174,297       |         | 226,028       |       | 243,724 |   |
| Acquired  operations                                      |       |       |       | ** **    |       | (5,425        | )            | —        |       | — |   |
| Discontinued  operations                                  |       |       |       | ** **    |       | (1,844        | )            | 55,760        |       | 65,469 |   |
|                                                      |       |       |       | ** **    |       | 167,028       |         | 281,788       |       | 309,193 |   |
| Share of  associates’ operating income               |       |       |       | ** **    |       | 7,287         |         | 12,611        |       | 12,155 |   |
| Total operating  income                                   |       |       |       | ** **    |       | 174,315       |         | 294,399       |       | 321,348 |   |
| Income on sale of  assets and businesses                  |       |       | 5          | ** **    |       | 52,587        |         | 22,173        |       | 5,560 |   |
| Interest income                                           |       |       |       | ** **    |       | 10,730        |         | 8,335         |       | 11,631 |   |
| Interest expense                                          |       |       | 7          | ** **    |       | (249,475      | )            | (293,009      | )          | (308,754 | ) |
| Loss from early  extinguishment of debt                   |       |       | 7          | ** **    |       | (104,658      | )            | (5,697        | )          | — |   |
| Other financial  expense                                  |       |       | 24         | ** **    |       | (13,259       | )            | (15,718       | )          | (15,266 | ) |
| Share of  associates’ net interest                   |       |       |       | ** **    |       | (1,336        | )            | (1,301        | )          | (2,062 | ) |
| (Loss)/income  before taxes and equity minority interests |       |       | 8          | ** **    |       | (131,096      | )            | 9,182         |       | 12,457 |   |
| Taxes on income                                           |       |       | 9          | ** **    |       | 21,561        |         | 26,973        |       | 62,354 |   |
| (Loss) before  equity minority interests                  |       |       |       | ** **    |       | (152,657      | )            | (17,791       | )          | (49,897 | ) |
| Equity minority  interests                                |       |       |       | ** **    |       | 18,813        |         | 16,067        |       | 16,768 |   |
| **Net (loss) for the year****(1)**                        | ** ** | ** ** | ** ** | ** **    | ** ** | **€**    | **(171,470** | **)**         | **€** | **(33,858** | **)** | **€** | **(66,665** | **)** |
|                                                           |            |            |            |               |            |               |              |               |            |  |  |  |  |  |

 

----

(1)          A summary of thesignificant adjustments to net (loss) which would be required if accountingprinciples generally accepted in the United States had been applied instead ofthose generally accepted in Ireland is given in Note 35.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-80

----

**JSG Acquisitions and Subsidiary CompaniesConsolidated Statements of Total Recognized Gains and Losses**

| ** **                                                        | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                        | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| (Loss) / income for the year                                      |       |          |         |          |       |          |       |
| Group                                                             |       | (173,639      | )            | (37,802       | )          | (71,264       | )          |
| Associates                                                        |       | 2,169         |         | 3,944         |       | 4,599         |       |
|                                                              |       | (171,470      | )            | (33,858       | )          | (66,665       | )          |
| Translation  adjustments on foreign currency net investments      |       |          |         |          |       |          |       |
| Group                                                             |       | 5,529         |         | 15,222        |       | 58,982        |       |
| Actuarial (loss) / gain recognized in retirement  benefit schemes |       | (17,281       | )            | (6,988        | )          | 25,603        |       |
| Minority share of  actuarial (loss)                               |       | (94           | )            | —        |       |          |       |
| Total recognized  gains and losses                                |       |          |         |          |       |          |       |
| Group                                                             |       | (185,485      | )            | (29,569       | )          | 13,321        |       |
| Associates                                                        |       | 2,169         |         | 3,945         |       | 4,599         |       |
|                                                              | ** ** | **€**    | **(183,316** | **)**         | **€** | **(25,624**   | **)**      | **€** | **17,920** | ** ** |
|                                                                   |            |               |              |               |            |               |            |  |  |  |

 

**Note of HistoricalCost Profits and Losses**

The results disclosed in the Consolidated Statementsof Operations are not materially different to the results based on anunmodified historical basis.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-81

----

**JSG Acquistions and Subsidiary CompaniesConsolidated Balance Sheets**

| ** **                                                               | ** ** | **Note**   | ** ** | **2005**      | ** ** | **2004**      | ** **    |
|--------------------------------------------------------------------------|------------|------------|------------|---------------|------------|---------------|---------------|
| ** **                                                               | ** ** | ** ** | ** ** | **€000** | ** ** | **€000** | ** **    |
| **Assets**                                                               |       |       |       |          |       |          |          |   |   |
| **Current assets**                                                       |       |       |       |          |       |          |          |   |   |
| Cash                                                                     |       |       | 10         |          |       | 247,727       |          | 247,958 |   |
| Restricted cash                                                          |       |       | 10         |          |       | 755,575       |          | — |   |
| Accounts receivable and  prepayments                                     |       |       | 11         |          |       | 1,314,728     |          | 925,048 |   |
| Assets held for sale and  inter-company balances                         |       |       |       |          |       | 54,404        |          | — |   |
| Amounts due by  affiliates                                               |       |       |       |          |       | 107           |          | 395 |   |
| Amounts due by  affiliates after more than one year                      |       |       |       |          |       | 263,115       |          | 270,698 |   |
| Inventories                                                              |       |       | 12         |          |       | 663,131       |          | 452,166 |   |
| **Total  current assets**                                                |       |       |       |          | ** ** | **3,298,787** | ** **    | **1,896,265** | ** ** |
| **Fixed assets**                                                         |       |       |       |          |       |          |          |   |   |
| Investments                                                              |       |       | 13         |          |       | 87,746        |          | 81,895 |   |
| Property, plant and  equipment                                           |       |       | 14         |          |       | 3,499,084     |          | 2,334,858 |   |
| Intangible assets                                                        |       |       | 15         |          |       | 2,490,245     |          | 1,455,116 |   |
| **Total  fixed assets**                                                  |       |       |       |          | ** ** | **6,077,075** | ** **    | **3,871,869** | ** ** |
| **Total  assets**                                                        |       |       |       |          | ** ** | **€**    | **9,375,862** | ** ** | **€** | **5,768,134** | ** ** |
| **Liabilities,  minority interests and shareholders’ equity**       |       |       |       |          |       |          |          |   |   |
| **Current  liabilities**                                                 |       |       |       |          |       |          |          |   |   |
| Bank loans, overdrafts  and other borrowing                              |       |       | 19         |          |       | 72,555        |          | 82,550 |   |
| Kappa bonds outstanding                                                  |       |       | 19         |          |       | 755,575       |          | — |   |
| Accounts payable and  accrued liabilities                                |       |       | 16         |          |       | 1,500,413     |          | 1,064,831 |   |
| **Total  current liabilities**                                           |       |       |       |          | ** ** | **2,328,543** | ** **    | **1,147,381** | ** ** |
| **Non current liabilities**                                              |       |       |       |          |       |          |          |   |   |
| Long term debt and other  long term liabilities                          |       |       | 18         |          |       | 3,164,540     |          | 1,769,376 |   |
| Amounts due to  affiliates                                               |       |       |       |          |       | 1,414,925     |          | 1,226,013 |   |
| Provisions for  liabilities and charges                                  |       |       | 20         |          |       | 247,733       |          | 221,403 |   |
| Pension liabilities                                                      |       |       | 24         |          |       | 655,368       |          | 411,237 |   |
| Capital grants deferred                                                  |       |       |       |          |       | 14,460        |          | 14,260 |   |
| Minority interests  (equity interests)                                   |       |       |       |          |       | 131,384       |          | 115,192 |   |
| **Total  liabitilites and minority interests**                           |       |       |       |          | ** ** | **7,956,953** | ** **    | **4,904,862** | ** ** |
| **Shareholders equity****(1)**                                           |       |       |       |          |       |          |          |   |   |
| Share capital                                                            |       |       |       |          |       | 40            |          | 40 |   |
| Other reserves                                                           |       |       | 26         |          |       | 1,683,090     |          | 938,608 |   |
| Retained deficit                                                         |       |       |       |          |       | (264,221      | )             | (75,376 | ) |
| **Shareholders’ equity**                                            |       |       |       |          | ** ** | **1,418,909** | ** **    | **863,272** | ** ** |
| **Total liabilities, minority interests and  shareholders’ equity** |       |       |       |          | ** ** | **€**    | **9,375,862** | ** ** | **€** | **5,768,134** | ** ** |

----

(1)          A summary of thesignificant adjustments to shareholder’s equity which would be required ifaccounting principles generally accepted in the United States had been appliedinstead of those generally accepted in Ireland is given in Note 35.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-82

----

**JSG Acquistions and Subsidiary CompaniesConsolidated Statements of Changes in Shareholders’ Equity**

| ** **                                               | ** ** | **Share  capital** | ** ** | **Other  reserves** | ** ** | **Retained  earnings** | ** ** | **Total  shareholders’  equity** | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|---------------------|------------|------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **€000**(1)   | ** ** | **€000**(1)    | ** ** | **€000**          | ** ** | **€000**                         | ** ** |
| **Balance  at December 31, 2002**                   | ** ** |               | **40**     | ** **          |       | **864,404**            | ** ** | **6,532**                             |       |   | **870,976** | ** ** |   |
| Loss                                                     |       |               | —     | ** **          |       | —                 | ** ** | (66,665                               | )          |   | (66,665 | ) |   |
| Actuarial gain  recognized in retirement benefit schemes |       |               | —     | ** **          |       | —                 | ** ** | 25,603                                |       |   | 25,603 |   |   |
| Currency  translation adjustments                        |       |               | —     | ** **          |       | 58,982                 | ** ** | —                                |       |   | 58,982 |   |   |
| **Balance  at December 31, 2003**                   | ** ** |               | **40**     | ** **          |       | **923,386**            | ** ** | **(34,530**                           | **)**      |   | **888,896** | ** ** |   |
| Loss                                                     |       |               | —     | ** **          |       | —                 | ** ** | (33,858                               | )          |   | (33,858 | ) |   |
| Actuarial loss  recognized in retirement benefit schemes |       |               | —     | ** **          |       | —                 | ** ** | (6,988                                | )          |   | (6,988 | ) |   |
| Currency  translation adjustments                        |       |               | —     | ** **          |       | 15,222                 | ** ** | —                                |       |   | 15,222 |   |   |
| **Balance  at December 31, 2004**                   | ** ** |               | **40**     | ** **          |       | **938,608**            | ** ** | **(75,376**                           | **)**      |   | **863,272** | ** ** |   |
| Capital contribution                                     |       |               |       | ** **          |       | 738,953                | ** ** |                                  |       |   | 738,953 |   |   |
| Loss                                                     |       |               | —     | ** **          |       | —                 | ** ** | (171,470                              | )          |   | (171,470 | ) |   |
| Actuarial loss  recognized in retirement benefit schemes |       |               | —     | ** **          |       | —                 | ** ** | (17,281                               | )          |   | (17,281 | ) |   |
| Minority share of  actuarial (loss)                      |       |               |       | ** **          |       | ** **             | ** ** | (94                                   | )          |   | (94 | ) |   |
| Currency  translation adjustments                        |       |               | —     | ** **          |       | 5,529                  | ** ** | —                                |       |   | 5,529 |   |   |
| **Balance at December 31,  2005**                   | ** ** |               | **€** | **40**              | ** ** |                   | **€** | **1,683,090**                         | ** ** | **€** | **(264,221** | ) |   | **€** | **1,418,909** | ** ** |   |
|                                                          |            |                    |            |                     |            |                        |            |                                       |            |  |  |  |  |  |  |  |  |

----

(1)   See Note 26for further detail.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-83

----

**JSG Acquisitions and Subsidiary CompaniesConsolidated Statements of Cash Flows**

| ** **                                                   | ** ** | **Note**   | ** ** | **2005**      | ** ** | **2004**      | ** **  | **2003**      | ** ** |
|--------------------------------------------------------------|------------|------------|------------|---------------|------------|---------------|-------------|---------------|------------|
| ** **                                                   | ** ** | ** ** | ** ** | **€000** | ** ** | **€000** | ** **  | **€000** | ** ** |
| **Net cash  flow from operating activities**                 |       |       | 27         |          |       | 512,871       |        | 640,928       |       | 691,027 |   |
| **Dividends  received from associates**                      | ** ** |       |       |          |       | 3,062         |        | 2,989         |       | 1,258 |   |
| **Returns on investments and servicing of finance**          |       |       |       |          |       |          |        |          |       |   |   |
| Interest  received                                           |       |       |       |          |       | 10,730        |        | 8,370         |       | 11,687 |   |
| Interest  paid                                               |       |       |       |          |       | (286,814      | )           | (278,449      | )          | (292,701 | ) |
| Interest  paid on finance leases                             |       |       |       |          |       | (1,138        | )           | (1,962        | )          | (2,164 | ) |
| Other  financial interest paid                               |       |       |       |          |       | (13,259       | )           | (15,718       | )          | (15,266 | ) |
| Dividends  to minority interests                             |       |       |       |          |       | (6,152        | )           | (5,707        | )          | (7,496 | ) |
| Deferred  debt issue costs                                   |       |       |       |          |       | (98,055       | )           | (5,814        | )          | (7,558 | ) |
|                                                         |       |       |       |          |       | (394,688      | )           | (299,280      | )          | (313,498 | ) |
| **Taxation**                                                 | ** ** |       |       |          |       |          |        |          |       |   |   |
| Irish  corporation tax (paid) / refunded                     |       |       |       |          |       | (3,480        | )           | (8,515        | )          | 2,616 |   |
| Overseas  tax paid                                           |       |       |       |          |       | (39,274       | )           | (50,249       | )          | (61,589 | ) |
| Overseas  tax refunded                                       |       |       |       |          |       | —        |        | 21,433        |       | — |   |
|                                                         |       |       |       |          |       | (42,754       | )           | (37,331       | )          | (58,973 | ) |
| **Capital expenditure and financial investment**             |       |       |       |          |       |          |        |          |       |   |   |
| Purchase  of tangible fixed assets                           |       |       |       |          |       | (192,434      | )           | (206,466      | )          | (207,518 | ) |
| Less  new finance leases                                     |       |       |       |          |       | 4,053         |        | 2,963         |       | — |   |
|                                                         |       |       |       |          |       | (188,381      | )           | (203,503      | )          | (207,518 | ) |
| Capital  grants received                                     |       |       |       |          |       | 3,390         |        | 1,874         |       | 1,995 |   |
| Purchase  of other investments                               |       |       |       |          |       | (87           | )           | (772          | )          | (1,052 | ) |
| Purchase  of fixed assets                                    |       |       | 28         |          |       | 18,198        |        | 36,388        |       | 44,895 |   |
|                                                         |       |       |       |          |       | (166,880      | )           | (166,013      | )          | (161,680 | ) |
| **Acquisitions and disposals**                               | ** ** |       |       |          |       |          |        |          |       |   |   |
| Purchase  of subsidiaries and minorities                     |       |       | 31         |          |       | (205,532      | )           | (2,731        | )          | (102,081 | ) |
| Deferred  acquisition consideration                          |       |       |       |          |       | (1,520        | )           | (2,390        | )          | (54,773 | ) |
| Business  disposals                                          |       |       |       |          |       | 572,174       |        | —        |       | 4,596 |   |
| Receipts  / (advances) from / to affiliates                  |       |       |       |          |       | 9,899         |        | 11,934        |       | (28,206 | ) |
| Investments  in and advances to associates                   |       |       |       |          |       | (351          | )           | (1,194        | )          | (82 | ) |
|                                                         |       |       |       |          |       | 374,670       |        | 5,619         |       | (180,546 | ) |
| **Cash inflow before use of liquid resources and financing** | ** ** |       |       |          |       | 286,281       |        | 146,912       |       | (22,412 | ) |
| **Management  of liquid resources**                          | ** ** |       |       |          |       | (789,786      | )           | (16,914       | )          | 18,812 |   |
| **Financing**                                                | ** ** |       |       |          |       |          |        |          |       |   |   |
| Issue  of shares including minorities                        |       |       |       |          |       | 5             |        | 27            |       | — |   |
| Increase/(decrease)  in term debt                            |       |       | 29         |          |       | 481,142       |        | (67,266       | )          | (49,789 | ) |
| Advances  from affiliates                                    |       |       |       |          |       | 125           |        | 1,102         |       | 88,392 |   |
| Capital  elements of finance leases repaid                   |       |       |       |          |       | (4,812        | )           | (13,576       | )          | (5,689 | ) |
|                                                         |       |       |       |          |       | 476,460       |        | (79,713       | )          | 32,914 |   |
| **(Decrease) / increase in  cash**                           |       |       | 29         |          | ** ** | **€**    | **(27,045** | **)**         | **€** | **50,285** | ** ** | **€** | **29,314** | ** ** |
|                                                              |            |            |            |               |            |               |             |               |            |  |  |  |  |  |

 

The significant differences between the cash flowstatement prepared under accounting principles generally accepted in the UnitedStates and that prepared under accounting principles generally accepted inIreland are given in Note 35.

The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-84

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements**

**1   Basisof Preparation**

JSG Acquisitions (“JSGAcquisitions”) is a wholly owned subsidiary of JSG Funding plc. On October 2, 2002, JSG Acquisitions acquiredall of the ordinary shares of Jefferson Smurfit Group plc in a take privatetransaction. Prior to this acquisition, JSG Acquisitions had no operations. 

On March 31, 2003 the Groupcompleted the acquisition of SSCC’s European Packaging assets. In thistransaction, which we refer to as the “SSCC Asset Swap”, JSG Funding exchangedits 50% ownership in Smurfit MBI, Canada and approximately €185 million incash for SSCC’s European assets.

On March 1, 2005 the Groupcompleted the sale of our Munksjö specialty paper business for approximately €450 million. On May 18,2005 we completed the sale of our Munksjö tissue business for approximately €28 million. Theproceeds from these disposals were used to pay down part of the term portion ofour senior credit facility. Together, theoperations sold had net sales of approximately €512 million forthe year to December 31, 2004 (2003: €483 million). 

On June 16, 2005 the Group completed the sale ofThe Kildare Hotel & Country Club (The K Club), additional land nearThe K Club and surplus land near our Dublin head office for €115million to a company controlled by Sir Michael Smurfit. The proceeds fromthe sale were applied to debt reduction.

The Munksjö specialty businesses and The K Clubtogether with Smurfit MBI, which was sold as part of the SSCC Asset Swap in2003, are reported as discontinued operations in the Consolidated Statements of Operations.  

On December 1, 2005 Smurfit Kappa Group Limited (“SKGL”),(formerly known as JSG Packaging Limited), the ultimate parent of JSG Funding,JSG Acquisitions and the shareholders of Kappa Holding BV (‘Kappa’) concludedan agreement resulting in a merger of the operations of both groups ofcompanies. The merger was completed through the issue of shares by SKGL and thepayment of consideration comprising cash of approximately €238 millionand an €89million subordinated promissory note, primarily to Kappa’s former shareholders.The ownership structure results in the existing shareholders of SKGL owningapproximately 58.3% of the combination while Kappa’s existing shareholders ownapproximately 41.7%. The transaction involved financing the cash considerationand refinancing the entire existing Kappa Packaging debt and the existing JSGAcquisitions senior credit facility by way of a new senior credit facility. Themerger required European Commission approval, which was granted subject to thefulfilment of an agreed schedule of commitments to dispose of a number ofbusinesses. The financial statements reflect the combination with effect from December 1,2005 incorporating one month’s results for the enlarged business. Thecombination is accounted for as a purchase. 

Under Irish GAAP fairvalue exercises are required to be completed as soon as practicable after thedate of acquisition with the final fair value adjustments incorporated in thefinancial statements for the first full financial year following the acquisition.The fair value exercise relating to the acquisition of Kappa is preliminary.The significant adjustments expected were in respect of the fair value of landand buildings, plant and equipment, post retirement benefits, goodwill anddeferred taxation. The actuarial valuations of the various post retirementplans have been substantially completed and we do not expect the valuationresult to be materially different from the figures included in the 2005 Form 20-F.We have also substantially completed the exercise in relation to land andbuildings and plant and equipment, which has resulted in an increase in fixedassets of €23 million. The acquisition of Kapparesulted in a net increase in goodwill of €1.2 billion.

F-85

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**2   AccountingPolicies**

***(a) Basis of accounting:***

The financial statementsare prepared under the historical cost convention and in accordance withgenerally accepted accounting principles in Ireland (Irish GAAP). They areprepared and presented in euro (€). In preparing thesefinancial statements, certain items have been included in order to comply withaccounting presentation and disclosure requirements applicable in the UnitedStates in respect of foreign registrants. An explanation of the significantdifferences between Irish and US GAAP as they apply to the Group and areconciliation to US GAAP are set out in Note 35. The financial statements donot constitute full group accounts within the meaning of Regulation 40(1) ofthe European Communities (Companies: Group Accounts) Regulations, 1992 ofIreland insofar as such group accounts would have to comply with all of thedisclosure and other requirements of those Regulations. The auditors have madereports without qualification and without reference to an emphasis of matterunder Section 193 of the Companies Act, 1990, in respect of the consolidated financialstatements for the years ended December 31, 2005 and 2004.

***(b) Group consolidation:***

The financial statementscomprise a consolidation of the financial statements of JSG Acquisitions and itsrespective subsidiaries. Associates are accounted for under the equity methodof accounting. Where accounting policies followed by subsidiaries andassociates differ significantly from those adopted for the purpose of theconsolidated financial statements, appropriate adjustments are made in order toachieve a consistent basis of accounting. The results of subsidiaries acquiredor sold are consolidated and the Group’s share of the results of associates areincluded for the periods from their effective date of acquisition until theireffective date of sale.

***(c) Net sales and revenue recognition:***

Net sales consist of salesto third parties after trade discounts and exclude sales taxes. Revenue isrecognized at the time products are delivered or services rendered to externalcustomers.

***(d) Goodwill and other intangible assets:***

Goodwill represents the excess of the cost of sharesin subsidiaries over the fair value of their net assets acquired based on Groupaccounting policies. It is capitalized and amortized over a period of 40 yearsas the directors believe that the durability of the business can bedemonstrated and the value of goodwill is capable of being continuallyreassessed. The carrying value of goodwill is subject to an impairment reviewat the end of the first full year following the year of acquisition andannually thereafter. 

Other intangible assets, namelythe value of the Kappa brand name, are stated at fair value and amortised over anestimated useful life of 10 years.

***(e) Property, plant and equipment:***

Property, plant andequipment is carried at cost less accumulated depreciation. 

F-86

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**2**   Accounting Policies—(continued)

***(f) Depreciation:***

Freehold and longleasehold land are not depreciated. Short leasehold land and buildings aredepreciated over the remaining period of the lease, adjusted for estimatedresidual value. In the main, other tangible fixed assets are depreciated byequal annual installments over their estimated useful lives at the followingrates:

| Freehold and long  leasehold buildings |   | 1 - 5   | % |
|----------------------------------------|--------|---------|---|
| Fixtures and  fittings                 |   | 10 - 25 | % |
| Plant and  machinery                   |   | 3 - 33  | % |
| Motor vehicles                         |   | 20 - 25 | % |

 

***(g) Timberlands:***

The cost of acquiring,establishing and maintaining forestry plantations are classified as timberlands.Depletion of timberlands represents the charge to income relating to the timberextracted in the year.

***(h) Leasing:***

Assets acquired underfinance leases are capitalized and included in property, plant and equipmentand depreciated in accordance with Group depreciation policy. Payments underoperating leases are expensed over the period of the lease.

***(i) Inventory valuation:***

Inventory is valued at thelower of cost on a first in first out basis or net realizable value. Costincludes direct costs plus applicable factory and other overheads. Netrealizable value is the actual or estimated selling price less all applicablecosts incurred or likely to be incurred in the realization of the sellingprice. Full provision is made for all damaged, deteriorated, obsolete andunusable materials.

***(j) Debt instruments:***

The finance costs of debtinstruments, which is the difference between the net proceeds and the totalamount payable under the instrument, are accounted for over the life of theinstrument at a constant rate of interest on the outstanding balance. Theproceeds of debt instruments, net of issue costs, are shown as liabilities onthe balance sheet.

***(k) Derivative instruments:***

The Group uses forwardcurrency contracts to reduce exposure to foreign exchange rates. The Group alsouses interest rate swaps to adjust interest rate exposures. The Group considersits derivative instruments qualify for hedge accounting when certain criteriaare met.

F-87

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**2**   Accounting Policies—(continued)

*Forward foreigncurrency contracts*

The criteria forforward foreign currency contracts are:

·       Theinstrument must be related to a foreign currency asset or liability that isprobable and whose characteristics have been identified; and

·       Itmust reduce the risk of foreign currency exchange movements on our operations.

The rates under suchcontracts are used to record the hedged item. As a result, gains and losses areoffset against the foreign exchange gains and losses on the related financialassets and liabilities, or where the instrument is used to hedge a committed,or probable, future transaction, are deferred until the transaction occurs. Gains/losseson hedges of anticipated transactions are recorded in the ConsolidatedStatements of Operations when such anticipated transactions are no longerlikely to occur.

*Interest rate swaps*

The Group’scriteria for interest rate swaps are:

·       Theinstrument must be related to an asset or a liability; and

·       Itmust change the character of the interest rate by converting a variable rate toa fixed rate or vice versa.

Interest differentials are recognized and included ininterest payable or receivable as appropriate.

Interest rate swaps arenot revalued to fair value and are not shown on the Group Balance Sheets.

*Currency swaps*

The Group enters currencyswap agreements to reduce the impact of foreign currency rate fluctuationsarising from unmatched foreign currency assets and liabilities. Related foreigncurrency assets and liabilities are accounted for in the currency of theunderlying swap agreement and translated at the closing rate.

***(l) Foreign Currencies:***

Foreign currency transactions are translated at therate of exchange ruling at the date of the transaction or, if hedged forward,at the rate of exchange under the related forward currency contract. Monetary assetsand liabilities denominated in foreign currencies are translated at the closingrate or, if hedged forward, at the rate of exchange under the related forwardcurrency contract. The resulting profits or losses are dealt with in theConsolidated Statements of Operations.

The balance sheets ofsubsidiaries are translated using the closing rate method. The statements ofoperations and cash flow statements are translated at average rates ruling forthe relevant period. Resulting currency differences, together with thosearising on hedging activities, are dealt with in reserves. The transactions ofoperations in hyper-inflationary economies are reported using a relativelystable currency as the functional currency. The translation gains and lossesarising are recognized in the Consolidated Statements of Operations.

F-88

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**2**   Accounting Policies—(continued)

***(m) Post Retirement Benefits:***

JSG Acquisitions accountsfor post retirement benefits in accordance with FRS 17—“Retirement Benefits”.FRS 17 applies to all types of benefits that an employer provides afteremployees have completed their service, including pensions and other postretirement benefits. The expected increase in the present value of schemeliabilities arising from employee service in the current or prior periods ischarged against operating income. The expected returns on the schemes’ assetsand the increase during the period in the present value of the schemes’liabilities arising from the passage of time are included in the ConsolidatedStatements of Operations as “Other Financial Expense”. Differences between theexpected and the actual return on plan assets, together with the effect ofchanges in the current or prior assumptions underlying the liabilities arerecognized in the Consolidated Statements of Total Recognized Gains and Losses.Scheme assets are valued at fair value and scheme liabilities are measuredusing the projected unit credit method. Net scheme assets and liabilities,reduced by deferred tax amounts, are recorded on the Balance Sheets as apension surplus or deficit as appropriate.

***(n) Deferred taxation:***

The Group providesdeferred tax in accordance with FRS 19—“Deferred Tax”. Under this standard fullprovision is made for deferred tax arising from timing differences between therecognition of gains and losses in the financial statements and theirrecognition in tax computations. We have chosen not to discount deferred taxassets and liabilities. 

***(o) Research and development:***

Research and developmentexpenditure is written off as incurred.

***(p) Use of estimates:***

The preparation offinancial statements requires management to make estimates that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the balance sheet date and the reported amounts of revenuesand expenses for the reporting period. Actual results could differ from thoseestimates.

**3   Segmental Analyses**

The Group is an integrated paper and boardmanufacturer and converter. The Group has identified reportable segments on ageographic basis. In Europe, the Group has two reportable segments: (1) Packagingand (2) Specialties. The Packaging segment is highly integrated. Itincludes a system of mills and plants that produces a full line ofcontainerboard that is converted into corrugated containers. Our specialtiessegment, prior to the Munksjö Specialties disposal, was principally comprisedof décor base paper, other specialty papers and graphicboard production.Additionally, there are central costs which represent corporate governancecosts, including executive costs, and costs of the Group’s legal, companysecretarial, pension administration, tax, treasury and controlling functionsand other administrative costs.

Set out below aresegmental analyses of sales (by source), income before taxes and equityminority interests, total assets, long lived assets, net operating assets,capital expenditure, depreciation, depletion and amortization expense andinvestments in equity method investees. Sales by destination are not 

F-89

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**3**   Segmental Analyses—(continued)

materiallydifferent from sales by source. The analysis of income includes the Group’sshare of the income before exceptional items, interest and taxes of associates.A geographical analysis of employees can be found in Note 6 and of income taxesin Note 9.

**Sales—third party (external net sales)**

| ** **                       | ** ** | **2005**      | ** **    | **2004**      | ** ** | **2003**      | ** ** |
|----------------------------------|------------|---------------|---------------|---------------|------------|---------------|------------|
| ** **                       | ** ** | **€000** | ** **    | **€000** | ** ** | **€000** | ** ** |
| Packaging                        |       | 3,117,403     |          | 3,093,484     |       | 2,972,383     |       |
| Specialties                      |       | 530,629       |          | 1,009,038     |       | 988,275       |       |
| Europe                           |       | 3,648,032     |          | 4,102,522     |       | 3,960,658     |       |
| United States &  Canada |       | —        |          | —        |       | 104,355       |       |
| Latin America                    |       | 789,297       |          | 702,560       |       | 681,302       |       |
|                             | ** ** | **€**    | **4,437,329** | ** **    | **€** | **4,805,082** | ** ** | **€** | **4,746,315** | ** ** |
|                                  |            |               |               |               |            |               |            |  |  |  |

 

Third party sales inIreland were: €189,244,000 for the yearended December 31, 2005; €196,346,000 for the yearended December 31, 2004 and €201,530,000 for the yearended December 31, 2003.

**Sales—Group and third party**

| ** **                      | ** ** | **2005**      | ** **    | **2004**      | ** ** | **2003**      | ** ** |
|---------------------------------|------------|---------------|---------------|---------------|------------|---------------|------------|
| ** **                      | ** ** | **€000** | ** **    | **€000** | ** ** | **€000** | ** ** |
| Packaging                       |       | 4,338,640     |          | 4,255,869     |       | 3,969,405     |       |
| Specialties                     |       | 651,972       |          | 1,138,767     |       | 1,108,017     |       |
| Europe                          |       | 4,990,612     |          | 5,394,636     |       | 5,077,422     |       |
| United States & Canada |       | —        |          | —        |       | 104,355       |       |
| Latin America                   |       | 1,221,240     |          | 1,090,229     |       | 1,067,021     |       |
|                            | ** ** | **€**    | **6,211,852** | ** **    | **€** | **6,484,865** | ** ** | **€** | **6,248,798** | ** ** |
|                                 |            |               |               |               |            |               |            |  |  |  |

 

F-90

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**3**   Segmental Analyses—(continued)

**Income before taxes and equityminority interests**

| ** **                                                            | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                            | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| Packaging                                                             |       | 129,461       |         | 152,000       |       | 206,446       |       |
| Specialties                                                           |       | 33,154        |         | 98,256        |       | 95,136        |       |
| Associates                                                            |       | 6,420         |         | 10,064        |       | 9,447         |       |
| Europe                                                                |       | 169,035       |         | 260,320       |       | 311,029       |       |
| United States and Canada                                              |       | —        |         | —        |       | 7,775         |       |
| Packaging                                                             |       | 113,996       |         | 118,443       |       | 86,536        |       |
| Associates                                                            |       | 867           |         | 2,546         |       | 506           |       |
| Latin America                                                         |       | 114,863       |         | 120,989       |       | 87,042        |       |
| Asia (Associates)                                                     |       | —        |         | —        |       | 2,202         |       |
| Unallocated centre costs                                              |       | (23,335       | )            | (25,273       | )          | (22,412       | )          |
| Income before intangible amortization, interest and exceptional items |       | 260,563       |         | 356,036       |       | 385,636       |       |
| Amortization of intangible  assets                                    |       | (29,203       | )            | (37,925       | )          | (44,548       | )          |
| Group net interest                                                    |       | (238,745      | )            | (284,674      | )          | (297,123      | )          |
| Loss from early extinguishment of debt                                |       | (104,658      | )            | (5,697        | )          | —        |       |
| Share of associates’ net interest                                |       | (1,336        | )            | (1,301        | )          | (2,062        | )          |
| (Loss)/income before exceptional items                                |       | (113,379      | )            | 26,439        |       | 41,903        |       |
| Reorganization and restructuring costs                                |       | (25,090       | )            | (39,430       | )          | (35,006       | )          |
| Impairment of property, plant and equipment                           |       | (45,214       | )            | —        |       | —        |       |
| Income on sale of assets and businesses                               |       | 52,587        |         | 22,173        |       | 5,560         |       |
|                                                                  | ** ** | **€**    | **(131,096** | **)**         | **€** | **9,182**     | ** ** | **€** | **12,457** | ** ** |
|                                                                       |            |               |              |               |            |               |            |  |  |  |

 

**Total assets**

| ** **                | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|---------------------------|------------|---------------|---------------|---------------|------------|
| ** **                | ** ** | **€000** | ** **    | **€000** | ** ** |
| Packaging                 |       | 5,065,437     |          | 2,404,855     |       |
| Specialties               |       | 654,357       |          | 805,023       |       |
| Europe                    |       | 5,719,794     |          | 3,209,878     |       |
| Latin America             |       | 774,708       |          | 669,743       |       |
| Group centre              |       | 127,893       |          | 162,304       |       |
|                      |       | 6,622,395     |          | 4,041,925     |       |
| Intangible assets         |       | 2,490,245     |          | 1,455,116     |       |
| Amounts due by affiliates |       | 263,222       |          | 271,093       |       |
|                      | ** ** | **€**    | **9,375,862** | ** **    | **€** | **5,768,134** | ** ** |
|                           |            |               |               |               |            |  |  |

 

F-91

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**3**   SegmentalAnalyses—(continued)

**Long lived assets**

| ** **        | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|-------------------|------------|---------------|---------------|---------------|------------|
| ** **        | ** ** | **€000** | ** **    | **€000** | ** ** |
| Packaging         |       | 2,647,603     |          | 1,403,645     |       |
| Specialties       |       | 375,213       |          | 512,959       |       |
| Europe            |       | 3,022,816     |          | 1,916,604     |       |
| Latin America     |       | 475,323       |          | 413,257       |       |
| Group centre      |       | 945           |          | 4,997         |       |
|              |       | 3,499,084     |          | 2,334,858     |       |
| Intangible assets |       | 2,490,245     |          | 1,455,116     |       |
|              | ** ** | **€**    | **5,989,329** | ** **    | **€** | **3,789,974** | ** ** |
|                   |            |               |               |               |            |  |  |

 

Long lived assets inIreland were €82,952,000 and €203,058,000 at December 312005 and 2004 respectively.

**Net operating assets**

| ** **                    | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|-------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                    | ** ** | **€000** | ** **    | **€000** | ** ** |
| Packaging                     |       | 3,091,799     |          | 1,630,279     |       |
| Specialities                  |       | 479,235       |          | 624,296       |       |
| Europe                        |       | 3,571,034     |          | 2,254,575     |       |
| Latin America                 |       | 627,697       |          | 520,224       |       |
| Group centre                  |       | (69,969       | )             | (12,152       | )          |
| Net operating assets          |       | 4,128,762     |          | 2,762,647     |       |
| Intangible assets             |       | 2,490,245     |          | 1,455,116     |       |
| Amounts due by affiliates     |       | 263,222       |          | 269,939       |       |
| Unallocated net liabilities   |       | (5,463,320    | )             | (3,624,430    | )          |
| **Shareholders’ equity** | ** ** | **€**    | **1,418,909** | ** **    | **€** | **863,272** | ** ** |
|                               |            |               |               |               |            |  |  |

 

F-92

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**3**   Segmental Analyses—(continued)

**A reconciliation of netoperating assets above to shareholders’ equity is as follows:**

| ** **                                     | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|------------------------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                                     | ** ** | **€000** | ** **    | **€000** | ** ** |
| Per segmental analysis of net operating assets |       | 4,128,762     |          | 2,762,647     |       |
| Intangible assets                              |       | 2,490,245     |          | 1,455,116     |       |
| Amounts due by affiliates                      |       | 263,222       |          | 269,939       |       |
| Unallocated assets                             |       | 2,753,467     |          | 1,725,055     |       |
| Net borrowing                                  |       | (3,102,811    | )             | (1,682,666    | )          |
| Deferred debt issuance costs                   |       | 132,860       |          | 91,628        |       |
| Amounts due to affiliates                      |       | (1,414,925    | )             | (1,226,013    | )          |
| Corporation tax                                |       | (20,410       | )             | (42,147       | )          |
| Capital lease creditors                        |       | (23,549       | )             | (17,400       | )          |
| Provisions for liabilities and charges         |       | (247,733      | )             | (221,403      | )          |
| Pension liabilities                            |       | (655,368      | )             | (411,237      | )          |
| Minority interests (equity interests)          |       | (131,384      | )             | (115,192      | )          |
| Unallocated net liabilities                    |       | (5,463,320    | )             | (3,624,430    | )          |
| **Shareholders’  equity**                 | ** ** | **€**    | **1,418,909** | ** **    | **€** | **863,272** | ** ** |
|                                                |            |               |               |               |            |  |  |

 

Total assets comprisefixed assets and current assets. Long lived assets comprise property, plant andequipment and intangible assets. Net operating assets comprise total assetsless total liabilities but excluding all assets and liabilities of a financingnature.

**Capital expenditure**

| ** **               | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **               | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Packaging                |       | 121,300       |        | 114,803       |       | 128,937       |       |
| Specialities             |       | 28,296        |        | 54,565        |       | 46,902        |       |
| Europe                   |       | 149,596       |        | 169,368       |       | 175,839       |       |
| United States and Canada |       | —        |        | —        |       | 1,365         |       |
| Latin America            |       | 42,432        |        | 36,689        |       | 30,308        |       |
| Group centre             |       | 406           |        | 409           |       | 6             |       |
|                     | ** ** | **€**    | **192,434** | ** **    | **€** | **206,466**   | ** ** | **€** | **207,518** | ** ** |
|                          |            |               |             |               |            |               |            |  |  |  |

 

F-93

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**3**   Segmental Analyses—(continued)

**Depreciation, depletion and amortization expense**

| ** **                            | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|---------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                            | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Packaging                             |       | 177,587       |        | 178,218       |       | 163,753       |       |
| Specialities                          |       | 21,907        |        | 43,375        |       | 44,709        |       |
| Europe                                |       | 199,494       |        | 221,593       |       | 208,462       |       |
| United States and Canada              |       | —        |        | —        |       | 2,244         |       |
| Latin America                         |       | 40,527        |        | 40,806        |       | 42,490        |       |
| Group centre                          |       | 155           |        | 218           |       | 270           |       |
| Depreciation and depletion            |       | 240,176       |        | 262,617       |       | 253,466       |       |
| Amortization of intangible  assets(1) |       | 29,203        |        | 37,925        |       | 44,548        |       |
|                                  | ** ** | **€**    | **269,379** | ** **    | **€** | **300,542**   | ** ** | **€** | **298,014** | ** ** |
|                                       |            |               |             |               |            |               |            |  |  |  |

----

(1)          2005excludes goodwill written off of €128,422,000 in relation tobusinesses disposed (2004: €2,586,000). These havebeen included within income on sale of assets and operations (Note 5).

**Investments in equity method investees**

| ** **    | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|---------------|------------|---------------|------------|---------------|------------|
| ** **    | ** ** | **€000** | ** ** | **€000** | ** ** |
| Europe        |       | 62,264        |       | 60,051        |       |
| Latin America |       | 14,049        |       | 12,244        |       |
|          | ** ** | **€**    | **76,313** | ** **    | **€** | **72,295** | ** ** |
|               |            |               |            |               |            |  |  |

 

**4**   NetOperating Expenses

| ** **              | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **              | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Distribution costs      |       | 366,515       |        | 349,047       |       | 337,489       |       |
| Administrative expenses |       | 613,789       |        | 664,304       |       | 647,685       |       |
| Other operating income  |       | (3,012        | )           | (2,786        | )          | (2,878        | )          |
|                    | ** ** | **€**    | **977,292** | ** **    | **€** | **1,010,565** | ** ** | **€** | **982,296** | ** ** |
|                         |            |               |             |               |            |               |            |  |  |  |

 

In 2003, a gain of €18million on the sale of development land at The K Club was netted againstadministrative expenses.

F-94

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**5**   ExceptionalItems

| ** **                                                            | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                                            | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| *Group*                                                               | * *   | * *      | * *    | * *      | * *   | * *      | * *   |
| Reorganization and restructuring costs                                |       | (25,090       | )           | (39,430       | )          | (35,006       | )          |
| Income on sale of operations                                          |       | 13,458        |        | 22,173        |       | 5,560         |       |
| Income on sale of assets and operations—discontinued  operations |       | 39,129        |        | —        |       | —        |       |
| Impairment of property, plant and equipment                           |       | (45,214       | )           | —        |       | —        |       |
|                                                                  | ** ** | **€**    | **(17,717** | **)**         | **€** | **(17,257**   | **)**      | **€** | **(29,446** | **)** |
|                                                                       |            |               |             |               |            |               |            |  |  |  |

 

***Group***

The Group has recorded costs of €25,090,000in 2005 representing reorganization and restructuring costs mainly in theEuropean Packaging segment. This figure includes redundancy, closure andreorganization costs. The main closure costs relate to our Clonskeagh Mill inIreland, which was permanently closed in the first quarter of 2005, and to ourGravelines corrugated plant and Cevennes corrugated plant in France, for whichclosures were announced in the final quarter of 2005. The related tax relief of€5,360,000is included in Taxes on income.

The Group has also recorded costs of €45,214,000mainly in the European Packaging segment primarily representing provisions forimpairment of property, plant and equipment. In measuring the value in use ofthe related assets a discount rate of 7.6% was applied to future cash flows.

The Group has reported a net gain of €52,587,000in respect of the sale of assets and operations. The main profit was inrelation to the sale of Munksjo in the first quarter of 2005, partially offsetby a loss on the sale of our Tissues operation in the second quarter of 2005,in addition to the profit on the sale of The K Club in the second quarter of2005. The related tax charge of €156,000 is included inTaxes on income.

In 2004, the Group recorded costs of €39,430,000representing reorganization and restructuring costs mainly in the EuropeanPackaging segment. This figure included redundancy, closure and reorganizationcosts. The main closure costs related to our Cordoba mill in Spain, which waspermanently closed in the third quarter of 2004, and to our Tamworth corrugatedplant and Witham cartons plant in the United Kingdom, for which closures wereannounced in the final quarter of 2004. The related tax relief of €4,048,000was included in Taxes on income.

The Group reported a gain of €22,173,000in respect of the sale of the Botanic Road property in Dublin, the sale ofsurplus property in Italy and Spain and the disposal of our investment inCartonnerie de Valois. The related tax charge of €1,939,000 was included inTaxes on income.

In 2003, the Group recorded costs of €35,006,000representing reorganization and restructuring costs mainly in the EuropeanPackaging segment. This figure included redundancy, closure and reorganizationcosts. The main closure costs related to our Lestrem mill in France, which waspermanently closed in October 2003. The related tax relief of €9,367,000is included in Taxes on income. 

The Group has reported a gain of €5,560,000in respect of the disposal of its Maltese box plant and the sale of land atOrsenigo and Asti in Italy. The related tax charge of €2,086,000is included in Taxes on income.

F-95

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**6**   Employeesand Remuneration

Theaverage number of persons employed by the Group by geographical area in thefinancial year was:

| ** **    | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|---------------|------------|------------|------------|------------|------------|------------|------------|
| Europe        |       | 21,384     |       | 22,931     |       | 22,348     |       |
| United States |       | —     |       | —     |       | 639        |       |
| Latin America |       | 7,828      |       | 7,440      |       | 7,318      |       |
|          | ** ** | **29,212** | ** ** | **30,371** | ** ** | **30,305** | ** ** |

 

| ** **                     | ** ** | **2005**      | ** **    | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------------|------------|---------------|---------------|---------------|------------|---------------|------------|
| ** **                     | ** ** | **€000** | ** **    | **€000** | ** ** | **€000** | ** ** |
| **The staff  costs comprise:** |       |          |          |          |       |          |       |
| Wages and salaries             |       | 859,131       |          | 890,748       |       | 873,702       |       |
| Social welfare                 |       | 188,543       |          | 194,858       |       | 190,586       |       |
| Pensions                       |       | 66,204        |          | 71,623        |       | 73,200        |       |
|                           | ** ** | **€**    | **1,113,878** | ** **    | **€** | **1,157,229** | ** ** | **€** | **1,137,488** | ** ** |
|                                |            |               |               |               |            |               |            |  |  |  |

 

**7**   InterestExpense

| ** **                                                | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                                | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Interest payable and similar charges:                     |       |          |        |          |       |          |       |
| On bank loans and overdrafts                              |       |          |        |          |       |          |       |
| —repayable within 5  years, by instalment            |       | 41,857        |        | 25,123        |       | 26,614        |       |
| —repayable within 5  years, other than by instalment |       | 17,277        |        | 2,965         |       | 3,207         |       |
|                                                      |       | 59,134        |        | 28,088        |       | 29,821        |       |
| Payable to affiliates                                     |       | 125,204       |        | 137,730       |       | 136,941       |       |
| On all other loans                                        |       | 65,137        |        | 127,191       |       | 141,992       |       |
| ** **                                                | ** ** | **€**    | **249,475** | ** **    | **€** | **293,009**   | ** ** | **€** | **308,754** | ** ** |
|                                                           |            |               |             |               |            |               |            |  |  |  |

 

**The loss of**€105 million from theearly extinguishment of debt arose mainly as a result of our refinancing anddebt reduction activities during 2005. The early pay down of the original PIKdebt, following the February refinancing, resulted in the write-off of €14 million in debtissue and other costs as well as cash costs of €53 million, primarilythe cash premium paid for early redemption. In addition, the Group wrote offdebt issue costs of €10 million in respect of the debt repaid with the Munksjöproceeds.  The Group wrote off a further €4 million in respect ofthe debt repaid with The K Club proceeds and €24 million as a result of the early pay down ofsome debt in the former JSG as part of the financing of the merger. 

F-96

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**8**   IncomeBefore Taxes

| ** **                                                 | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|------------------------------------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                                                 | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Income before taxes is stated after charging/(crediting):  | ** ** | ** **    | ** ** | ** **    | ** ** | ** **    | ** ** |
| Depreciation, depletion  and amortization expense          |       | 269,379       |       | 300,542       |       | 298,014       |       |
| Auditors’ remuneration  (including expenses)          |       | 4,388         |       | 4,059         |       | 3,654         |       |
| Operating lease rentals  plant and machinery               |       | 12,456        |       | 13,042        |       | 10,404        |       |
| Operating lease rentals  other                             |       | 9,672         |       | 9,171         |       | 6,110         |       |
| Loss / (gain) on foreign  currency borrowing less deposits |       | 1,174         |       | (376          | )          | 6,401         |       |
| Research and development  costs                            |       | 4,292         |       | 4,924         |       | 4,979         |       |
| Government grants                                          |       | (3,012        | )          | (2,786        | )          | (2,878        | )          |

 

Directors’ emoluments,including pension contributions amounted to €7,757,000(2004: €10,005,000;2003: €7,048,000).

The following amountsrelating to acquired/discontinued operations and acquired operations areincluded in arriving at Cost of sales and Net operating expenses in theConsolidated Statements of Operations.

| ** **                  | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                  | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Cost of sales:**          |       |          |       |          |       |          |       |
| Acquisitons                 |       | 160,685       |       | —        |       | —        |       |
| Disposals                   |       | 22,737        |       | 398,061       |       | 468,553       |       |
| **Net operating expenses:** |       |          |       |          |       |          |       |
| Acquisitons                 |       | 45,452        |       | —        |       | —        |       |
| Disposals                   |       | 4,311         |       | 72,822        |       | 66,232        |       |

 

F-97

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**9**   Taxeson income

| ** **                               | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                               | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| **Current Taxation**                     |       |          |        |          |       |          |       |
| Europe                                   |       | 18,801        |        | (7,219        | )          | 32,463        |       |
| United States and Canada                 |       | (5,378        | )           | —        |       | (686          | )          |
| Latin America                            |       | 25,556        |        | 26,975        |       | 25,547        |       |
|                                     |       | 38,979        |        | 19,756        |       | 57,324        |       |
| **Deferred Taxation**                    |       |          |        |          |       |          |       |
| Europe                                   |       | (13,924       | )           | 3,354         |       | 4,769         |       |
| United States and Canada                 |       | —        |        | 8             |       | 5             |       |
| Latin America                            |       | (5,406        | )           | 1,257         |       | (2,811        | )          |
|                                     |       | (19,330       | )           | 4,619         |       | 1,963         |       |
| **Taxes on income**                      |       |          |        |          |       |          |       |
| Holding Company and  subsidiaries        |       | 19,649        |        | 24,375        |       | 59,287        |       |
| Share of associates                      |       | 1,912         |        | 2,598         |       | 3,067         |       |
|                                     | ** ** | **€**    | **21,561**  | ** **    | **€** | **26,973**    | ** ** | **€** | **62,354** | ** ** |
| **Deferred taxation arises as follows:** |       |          |        |          |       |          |       |
| Capital allowances                       |       | 788           |        | 3,873         |       | 1,068         |       |
| Other                                    |       | (20,118       | )           | 746           |       | 895           |       |
|                                     | ** ** | **€**    | **(19,330** | **)**         | **€** | **4,619**     | ** ** | **€** | **1,963** | ** ** |

 

Current taxation represents corporation tax or itsequivalent on the taxable income in each jurisdiction and unrelieved overseastax on dividends. In 2005, unrelieved overseas tax on dividends amounted to €559,000(2004: €486,000;2003: €474,000).In 2005, the amount of current taxation relating to Ireland was €1,593,000(2004: nil; 2003: a credit of €3,295,000). In 2005, theamount of deferred taxation relating to Ireland was a credit of €1,658,000(2004: a credit of €3,630,000;2003: a charge of €5,225,000).

The deferred taxation credit of €19,330,000for 2005 includes a charge of €2,172,000 (2004: €635,000;2003: €251,000)in respect of pensions. The balance of €21,502,000 (2004: €3,984,000;2003: €1,712,000)is shown as a movement in the liability for Deferred Income Taxes.

The Group has availed of areduced taxation rate of 10%, which applies to certain manufacturing andfinancial service operations in Ireland. This reduced rate expired at the endof 2005 for financial services operations and is due to expire formanufacturing operations at the end of 2010.

**(Loss)/income before tax is analyzed as follows:**

| ** **                                     | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                     | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| Ireland                                        |       | (96,803       | )            | (30,078       | )          | (34,959       | )          |
| Foreign                                        |       | 6,676         |         | 83,132        |       | 111,317       |       |
| Associates                                     |       | 5,951         |         | 11,310        |       | 10,093        |       |
| Unallocated  amortization of intangible assets |       | (29,203       | )            | (37,925       | )          | (44,548       | )          |
| Exceptional items  (Note 5)                    |       | (17,717       | )            | (17,257       | )          | (29,446       | )          |
|                                           | ** ** | **€**    | **(131,096** | **)**         | **€** | **9,182**     | ** ** | **€** | **12,457** | ** ** |
|                                                |            |               |              |               |            |               |            |  |  |  |

 

F-98

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**9**   Taxes on income—(continued)

The total tax charge in future periods will beaffected by any changes to the corporation tax rates in force in the countriesin which the Group operates. The current tax charges will also be affected bychanges in the excess of tax depreciation over book depreciation and the use oftax credits. The total tax charge for 2004 included €12,771,000in respect of discontinued Munksjö specialtiesand tissue businesses.

No deferred taxation is recognized on the unremittedearnings of overseas subsidiaries, joint venture and associates; as earningsare continually reinvested by the Group, no taxation is expected to be payableon them in the foreseeable future.

Thefollowing table relates the applicable Republic of Ireland statutory tax rateto the effective tax rate of the Group, obtained by computing the tax charge asa percentage of income before taxes and minority shareholders’ interest:

| ** **                                                        | ** **   | **2005**  | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|-------------------------------------------------------------------|--------------|-----------|------------|-----------|------------|-----------|------------|
| ** **                                                        | ** **   | **%**     | ** ** | **%**     | ** ** | **%**     | ** ** |
| Corporation tax at Irish  statutory rate                          | * *     | 12.5      |       | 12.5      |       | 12.5      |       |
| Adjusted for:                                                     | * *     |      |       |      |       |      |       |
| Income subject to a  higher rate of tax than Irish statutory rate | * *     | (22.5     | )          | 595.6     |       | 367.4     |       |
| Expenditure not  deductible for tax purposes                      | * *     | 8.2       |       | 157.6     |       | 253.2     |       |
| Tax losses (utilised)/unutilised                                  | * *     | (4.0      | )          | 94.3      |       | (131.5    | )          |
| Adjustments to tax  charge in respect of previous periods         | * *     | (7.9      | )          | (451.9    | )          | 2.7       |       |
| Profits arising not  subject to tax                               | * *     | (2.7      | )          | (114.3    | )          | (3.7      | )          |
|                                                              | *** *** | **(16.4** | **)**      | **293.8** | ** ** | **500.6** | ** ** |

 

**10**   NetBorrowing

| ** **                 | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|----------------------------|------------|---------------|---------------|---------------|------------|
| ** **                 | ** ** | **€000** | ** **    | **€000** | ** ** |
| Cash at bank and in hand   |       | 247,727       |          | 247,958       |       |
| Restricted cash            |       | 755,575       |          | —        |       |
| Total borrowing (Note  19) |       | 4,106,113     |          | 1,930,624     |       |
|                       | ** ** | **€**    | **3,102,811** | ** **    | **€** | **1,682,666** | ** ** |
|                            |            |               |               |               |            |  |  |

 

F-99

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**11**   AccountsReceivable and Prepayments

| ** **                                     | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|------------------------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                                     | ** ** | **€000** | ** **    | **€000** | ** ** |
| Amounts falling due  within one year:          | ** ** | ** **    | ** **    | ** **    |       |
| Trade receivables                              |       | 1,228,689     | ** **    | 896,874       |       |
| Less: Provision  for bad and doubtful debts    |       | 45,831        |          | 52,910        |       |
|                                           |       | 1,182,858     | ** **    | 843,964       |       |
| Amounts owed by  associates                    |       | 8,089         | ** **    | 5,764         |       |
| Other receivables                              |       | 79,763        | ** **    | 37,740        |       |
| Prepayments and  accrued income                |       | 28,748        |          | 31,317        |       |
|                                           |       | 1,299,458     | ** **    | 918,785       |       |
| Amounts falling due  after more than one year: |       |          | ** **    | ** **    |       |
| Other receivables                              |       | 15,270        |          | 6,263         |       |
| ** **                                     |       | **€**    | **1,314,728** |          | **€** | **925,048** |   |
|                                                |            |               |               |               |            |  |  |

 

**12**   Inventories

| ** **       | ** ** | **2005**      | ** **  | **2004**      | ** ** |
|------------------|------------|---------------|-------------|---------------|------------|
| ** **       | ** ** | **€000** | ** **  | **€000** | ** ** |
| Raw materials    |       | 186,625       | ** **  | 114,264       |       |
| Work in progress |       | 38,911        | ** **  | 22,283        |       |
| Finished goods   |       | 297,029       | ** **  | 184,060       |       |
| Other            |       | 140,566       | ** **  | 131,559       |       |
| ** **       | ** ** | **€**    | **663,131** | ** **    | **€** | **452,166** | ** ** |
|                  |            |               |             |               |            |  |  |

 

**13**   Investments

| ** **                        | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|-----------------------------------|------------|---------------|------------|---------------|------------|
| ** **                        | ** ** | **€000** | ** ** | **€000** | ** ** |
| Associates (Note  13 (i))         |       | 76,313        |       | 72,295        |       |
| Other investments  (Note 13 (ii)) |       | 11,433        |       | 9,600         |       |
|                              | ** ** | **€**    | **87,746** | ** **    | **€** | **81,895** | ** ** |
|                                   |            |               |            |               |            |  |  |

 

F-100

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**13**   Investments—(continued)

**13**   (i): Associates

| ** **                       | ** ** | **Share of**   | ** ** | ** **    | ** ** | ** **    | ** ** |
|----------------------------------|------------|---------------------|------------|---------------|------------|---------------|------------|
| ** **                       | ** ** | **net assets** | ** ** | **Loans**     | ** ** | **Total**     | ** ** |
| ** **                       | ** ** | **€000**       | ** ** | **€000** | ** ** | **€000** | ** ** |
| December 31, 2002           |       | 144,003             |       | 7,036         |       | 151,039       |       |
| Fair value adjustment            |       | (5,646              | )          | —        |       | (5,646        | )          |
| Additions                        |       | 4,089               |       | —        |       | 4,089         |       |
| Acquisitions                     |       | 763                 |       | —        |       | 763           |       |
| Retained earnings                |       | 4,603               |       | —        |       | 4,603         |       |
| Sales                            |       | (41,656             | )          | —        |       | (41,656       | )          |
| Repayment                        |       | —              |       | (6,728        | )          | (6,728        | )          |
| Reclassification on  acquisition |       | (35,030             | )          | —        |       | (35,030       | )          |
| Currency adjustment              |       | (2,153              | )          | 4             |       | (2,149        | )          |
| **December 31, 2003**       | ** ** | **68,973**          | ** ** | **312**       | ** ** | **69,285**    | ** ** |
| Additions                        |       | 441                 |       | —        |       | 441           |       |
| Retained earnings                |       | 3,944               |       | —        |       | 3,944         |       |
| Sales                            |       | (124                | )          | —        |       | (124          | )          |
| Reclassification                 |       | (414                | )          | —        |       | (414          | )          |
| Currency adjustment              |       | (837                | )          | —        |       | (837          | )          |
| **December 31, 2004**       | ** ** | **71,983**          | ** ** | **312**       | ** ** | **72,295**    | ** ** |
| Additions                        |       | 305                 |       | —        |       | 305           |       |
| Acquisitions                     |       | 2,643               |       | —        |       | 2,643         |       |
| Retained earnings                |       | 2,169               |       | —        |       | 2,169         |       |
| Sales                            |       | (873                | )          | —        |       | (873          | )          |
| Reclassification                 |       | (1,899              | )          | (145          | )          | (2,044        | )          |
| Currency adjustment              |       | 1,814               |       | 4             |       | 1,818         |       |
| **December 31, 2005**       | ** ** | **€**          | **76,142** | ** **    | **€** | **171**       | ** ** | **€** | **76,313** | ** ** |
|                                  |            |                     |            |               |            |               |            |  |  |  |

 

We have one remainingsignificant associate—Duropack AG in Austria, of which we own 40%.

F-101

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**13**   Investments—(continued)

**13**   (ii): OtherInvestments

| ** **                            | ** ** | **Listed***   | ** ** | **Unlisted**  | ** ** | ** **    | ** ** |
|---------------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                            | ** ** | **Cost**      | ** ** | **Cost**      | ** ** | **Total**     | ** ** |
| ** **                            | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| December 31,  2002               |       | 6,926         |       | 7,278         |       | 14,204        |       |
| Additions                             |       | 392           |       | 269           |       | 661           |       |
| Acquisitions                          |       | 19            |       | 2,834         |       | 2,853         |       |
| Reclassification                      |       | 38            |       | (5,260        | )          | (5,222        | )          |
| Sales                                 |       | (787          | )          | (16           | )          | (803          | )          |
| Currency  adjustment                  |       | (15           | )          | (321          | )          | (336          | )          |
| **December 31,  2003**           | ** ** | **6,573**     | ** ** | **4,784**     | ** ** | **11,357**    | ** ** |
| Additions                             |       | 231           |       | 541           |       | 772           |       |
| Transfers                             |       | —        |       | (14           | )          | (14           | )          |
| Reclassification                      |       | —        |       | (1,426        | )          | (1,426        | )          |
| Sales                                 |       | (509          | )          | (465          | )          | (974          | )          |
| Currency  adjustment                  |       | 8             |       | (123          | )          | (115          | )          |
| **December 31,  2004**           | ** ** | **6,303**     | ** ** | **3,297**     | ** ** | **9,600**     | ** ** |
| Additions                             |       | 75            |       | 12            |       | 87            |       |
| Acquisitions                          |       | —        |       | 890           |       | 890           |       |
| Reclassification                      |       | —        |       | 921           |       | 921           |       |
| Sales                                 |       | (17           | )          | (219          | )          | (236          | )          |
| Write off to  statement of operations |       | —        |       | (56           | )          | (56           | )          |
| Currency  adjustment                  |       | —        |       | 227           |       | 227           |       |
| **December 31, 2005**            | ** ** | **€**    | **6,361**  | ** **    | **€** | **5,072**     | ** ** | **€** | **11,433** | ** ** |
|                                       |            |               |            |               |            |               |            |  |  |  |

----

*                    Listed on arecognized stock exchange

Other investments are stated at cost. The market valueof the listed investments at December 31, 2005 was €6,371,000  (2004: €6,304,000; 2003: €6,545,000).

F-102

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**14**   Property,Plant and Equipment

| ** **                                  | ** ** | **Land & Buildings** | ** **    | **Plant and** | ** ** | ** **    | ** ** |
|---------------------------------------------|------------|------------------------------------|---------------|--------------------|------------|---------------|------------|
| ** **                                  | ** ** | **Freehold**                       | ** **    | **Leasehold**      | ** ** | **Equipment** | ** ** | **Total** | ** ** |
| ** **                                  | ** ** | **€000**                      | ** **    | **€000**      | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Cost**                                    | ** ** | ** **                         | ** **    |               | ** ** | ** **    |       | ** ** | ** ** | ** ** | ** ** |
| December 31,  2002                     |       | 861,294                            | ** **    | ** **         | 33,716     | ** **    | ** ** | 2,913,998 | ** ** | 3,809,008 |   |
| Fair value  adjustment                      |       | 97,459                             |          |               | —     |          |       | 97,670 |   | 195,129 |   |
| Reclassification                            |       | 8,404                              |          |               | (329       | )             |       | (46,191 | ) | (38,116 | ) |
| Acquisitions                                |       | 93,412                             |          |               | 6,562      |          |       | 169,411 |   | 269,385 |   |
| Additions                                   |       | 21,354                             |          |               | —     |          |       | 179,652 |   | 201,006 |   |
| Businesses sold                             |       | —                             |          |               | —     |          |       | (165,386 | ) | (165,386 | ) |
| Retirements                                 |       | (16,217                            | )             |               | (302       | )             |       | (82,874 | ) | (99,393 | ) |
| Currency  adjustment                        |       | (47,025                            | )             |               | (1,494     | )             |       | (153,406 | ) | (201,925 | ) |
| **December 31,  2003**                 | ** ** | **1,018,681**                      | ** **    |               | **38,153** | ** **    |       | **2,912,874** | ** ** | **3,969,708** | ** ** |
| Fair value  adjustment                      |       | —                             |          |               | —     |          |       | 1,195 |   | 1,195 |   |
| Reclassification                            |       | 8,849                              |          |               | (8,305     | )             |       | (17,952 | ) | (17,408 | ) |
| Additions                                   |       | 27,076                             |          |               | 2,950      |          |       | 167,634 |   | 197,660 |   |
| Retirements                                 |       | (10,567                            | )             |               | (2,726     | )             |       | (66,863 | ) | (80,156 | ) |
| Currency  adjustment                        |       | (14,254                            | )             |               | 158        |          |       | (44,416 | ) | (58,512 | ) |
| **December 31,  2004**                 | ** ** | **1,029,785**                      | ** **    |               | **30,230** | ** **    |       | **2,952,472** | ** ** | **4,012,487** | ** ** |
| Fair value  adjustment                      |       | 40,438                             |          |               | —     |          |       | (17,449 | ) | 22,989 |   |
| Reclassification                            |       | 21,567                             |          |               | (2,659     | )             |       | (42,064 | ) | (23,156 | ) |
| Acquisitions                                |       | 525,146                            |          |               | —     |          |       | 1,031,986 |   | 1,557,132 |   |
| Additions                                   |       | 7,964                              |          |               | 2,315      |          |       | 173,314 |   | 183,593 |   |
| Businesses sold                             |       | (185,169                           | )             |               | (5,457     | )             |       | (301,857 | ) | (492,483 | ) |
| Retirements                                 |       | (30,506                            | )             |               | —     |          |       | (146,029 | ) | (176,535 | ) |
| Currency  adjustment                        |       | 29,750                             |          |               | (288       | )             |       | 36,479 |   | 65,941 |   |
| **December 31,  2005**                 | ** ** | **1,438,975**                      | ** **    |               | **24,141** | ** **    |       | **3,686,852** | ** ** | **5,149,968** | ** ** |
| **Depreciation**                            | ** ** | ** **                         | ** **    |               | ** ** | ** **    |       | ** ** | ** ** | ** ** | ** ** |
| December 31,  2002                     |       | 141,917                            |          |               | 8,145      |          |       | 1,506,640 |   | 1,656,702 |   |
| Reclassification                            |       | (1,159                             | )             |               | (92        | )             |       | (43,525 | ) | (44,776 | ) |
| Charged                                     |       | 25,141                             |          |               | 1,231      |          |       | 220,438 |   | 246,810 |   |
| Businesses sold                             |       | —                             |          |               | —     |          |       | (96,144 | ) | (96,144 | ) |
| Retirements                                 |       | (4,494                             | )             |               | (316       | )             |       | (72,059 | ) | (76,869 | ) |
| Currency  adjustment                        |       | (9,542                             | )             |               | (84        | )             |       | (91,825 | ) | (101,451 | ) |
| **December 31,  2003**                 | ** ** | **151,863**                        | ** **    |               | **8,884**  | ** **    |       | **1,423,525** | ** ** | **1,584,272** | ** ** |
| Reclassification                            |       | (4,787                             | )             |               | (2,621     | )             |       | (6,473 | ) | (13,881 | ) |
| Charged                                     |       | 27,895                             |          |               | 1,141      |          |       | 227,503 |   | 256,539 |   |
| Retirements                                 |       | (1,882                             | )             |               | (713       | )             |       | (64,287 | ) | (66,882 | ) |
| Currency  adjustment                        |       | (3,487                             | )             |               | 141        |          |       | (29,731 | ) | (33,077 | ) |
| **December 31,  2004**                 | ** ** | **169,602**                        | ** **    |               | **6,832**  | ** **    |       | **1,550,537** | ** ** | **1,726,971** | ** ** |
| Impairment  provision                       |       | 2,256                              |          |               | —     |          |       | 42,958 |   | 45,214 |   |
| Reclassification                            |       | 525                                |          |               | (1,027     | )             |       | (18,930 | ) | (19,432 | ) |
| Charged                                     |       | 31,596                             |          |               | 1,428      |          |       | 201,622 |   | 234,646 |   |
| Businesses sold                             |       | (17,020                            | )             |               | —     |          |       | (121,533 | ) | (138,553 | ) |
| Retirements                                 |       | (11,354                            | )             |               | —     |          |       | (128,297 | ) | (139,651 | ) |
| Currency  adjustment                        |       | (48                                | )             |               | (306       | )             |       | 2,476 |   | 2,122 |   |
| **December 31,  2005**                 | ** ** | **175,557**                        | ** **    |               | **6,927**  | ** **    |       | **1,528,833** | ** ** | **1,711,317** | ** ** |
| **Net book  amount December 31, 2005** | ** ** | **€**                         | **1,263,420** | ** **         |       | **€**    | **17,214** | ** ** |   | **€** | **2,158,017** | ** ** | **€** | **3,438,651** | ** ** |
| **Net book  amount December 31, 2004** | ** ** | **€**                         | **860,183**   | ** **         |       | **€**    | **23,398** | ** ** |   | **€** | **1,401,935** | ** ** | **€** | **2,285,516** | ** ** |
| **Net book  amount December 31, 2003** | ** ** | **€**                         | **866,818**   | ** **         |       | **€**    | **29,269** | ** ** |   | **€** | **1,489,349** | ** ** | **€** | **2,385,436** | ** ** |

 

F-103

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**14**   Property, Plant and Equipment—(continued)

| ** **                                  | ** ** | **Timberland** | ** **    |
|---------------------------------------------|------------|----------------|---------------|
| ** **                                  | ** ** | **€000**  | ** **    |
| December 31,  2002                     |       | 61,948         |          |
| Additions                                   |       | 6,512          |          |
| Fair value  adjustment                      |       | (945           | )             |
| Depletion                                   |       | (6,656         | )             |
| Currency  adjustment                        |       | (10,349        | )             |
| **December 31,  2003**                 |       | **50,510**     |          |
| Additions                                   |       | 8,806          |          |
| Depletion                                   |       | (6,078         | )             |
| Currency  adjustment                        |       | (3,896         | )             |
| **December 31,  2004**                 | ** ** | **49,342**     | ** **    |
| Additions                                   |       | 8,841          |          |
| Disposals                                   |       | (12            | )             |
| Depletion                                   |       | (5,530         | )             |
| Currency  adjustment                        |       | 7,792          |          |
| **December 31,  2005**                 | ** ** | **€**     | **60,433**    | ** ** |
| **Net book amount December 31, 2005**  | ** ** | **€**     | **3,499,084** | ** ** |
| **Net book amount December 31, 2004**  | ** ** | **€**     | **2,334,858** | ** ** |
| **Net  book amount December 31, 2003** | ** ** | **€**     | **2,435,946** | ** ** |

 

**Land and Buildings**

Included in tangibleassets is an amount for land of €410,140,000 (2004: €282,021,000;2003: €288,434,000).

**Capitalized leasedproperty, plant and equipment**

Included in the net bookamount of tangible assets is an amount for capitalized leased assets of €42,704,000(2004: €50,355,000;2003: €65,687,000).The depreciation charge for capitalized leased assets for 2005 was €6,832,000and the related finance charges amounted to €1,138,000 (2004: €10,139,000and €1,962,000;2003: €10,794,000and €2,164,000).

F-104

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**15**   IntangibleAssets

| ** **                  | ** ** | ** **    | ** **    | **Other**      | ** ** | **Total**        | ** ** |
|-----------------------------|------------|---------------|---------------|----------------|------------|------------------|------------|
| ** **                  | ** ** | ** **    | ** **    | **Intangible** | ** ** | **Intangible**   | ** ** |
| ** **                  | ** ** | **Goodwill**  | ** **    | **Assets**     | ** ** | **Assets**       | ** ** |
| ** **                  | ** ** | **€000** | ** **    | **€000**  | ** ** | **€000**    | ** ** |
| December 31,  2002     |       | 1,543,531     |          |           | —     |             |       | 1,543,531 |   |
| Acquisitions                |       | 174,659       |          |           | —     |             |       | 174,659 |   |
| Disposals                   |       | (80,543       | )             |           | —     |             |       | (80,543 | ) |
| Fair value  adjustments     |       | (142,723      | )             |           | —     |             |       | (142,723 | ) |
| Amortization                |       | (44,548       | )             |           | —     |             |       | (44,548 | ) |
| Currency  adjustment        |       | 4,743         |          |           | —     |             |       | 4,743 |   |
| **December 31, 2003**  | ** ** | **1,455,119** | ** **    | ** **     | —     |             | ** ** | **1,455,119** | ** ** |
| Acquisitions                |       | 2,731         |          |           | —     |             |       | 2,731 |   |
| Disposals                   |       | (2,586        | )             |           | —     |             |       | (2,586 | ) |
| Fair value  adjustments     |       | 40,457        |          |           | —     |             |       | 40,457 |   |
| Amortization                |       | (37,925       | )             |           | —     |             |       | (37,925 | ) |
| Currency  adjustment        |       | (2,680        | )             |           | —     |             |       | (2,680 | ) |
| **December 31, 2004**  | ** ** | **1,455,116** | ** **    | ** **     | —     |             | ** ** | **1,455,116** | ** ** |
| Acquisitions                |       | 1,185,705     |          |           | 35,000     |             |       | 1,220,705 |   |
| Disposals                   |       | (128,422      | )             |           | —     |             |       | (128,422 | ) |
| Reclassification            |       | (31,247       | )             |           | —     |             |       | (31,247 | ) |
| Amortization                |       | (28,914       | )             |           | (289       | )                |       | (29,203 | ) |
| Currency  adjustment        |       | 3,296         |          |           | —     |             |       | 3,296 |   |
| **December 31,  2005** | ** ** | **€**    | **2,455,534** | ** **     | ** ** | **€34,711** |       | ** ** | **€** | **2,490,245** | ** ** |
|                             |            |               |               |                |            |                  |            |  |  |  |  |

 

Accumulated amortization at December 31, 2005 and2004 was €94,588,000 and €75,110,000 respectively.

 

**16**   AccountsPayable and Accrued Liabilities

| ** **                                        | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|---------------------------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                                        | ** ** | **€000** | ** **    | **€000** | ** ** |
| Trade payables                                    |       | 905,697       |          | 652,744       |       |
| Amounts owed to  associates—trading balances |       | 3,289         |          | 3,683         |       |
| Amounts due to  affiliates                        |       | —        |          | 1,154         |       |
| Taxation  creditors (Note 17)                     |       | 72,859        |          | 70,829        |       |
| Deferred  acquisition consideration               |       | 33,713        |          | 2,330         |       |
| Social welfare                                    |       | 51,574        |          | 48,740        |       |
| Accruals                                          |       | 323,315       |          | 189,079       |       |
| Capital payables                                  |       | 50,261        |          | 29,305        |       |
| Other payables                                    |       | 55,573        |          | 62,497        |       |
| Capitalized lease  obligations                    |       | 4,132         |          | 4,470         |       |
|                                              | ** ** | **€**    | **1,500,413** | ** **    | **€** | **1,064,831** | ** ** |
|                                                   |            |               |               |               |            |  |  |

 

F-105

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**17**   TaxationCreditors

| ** **                 | ** ** | **2005**         | ** ** | **2004**      | ** ** |
|----------------------------|------------|------------------|------------|---------------|------------|
| ** **                 | ** ** | **€000**    | ** ** | **€000** | ** ** |
| Current taxation           |       | 20,410           |       | 42,147        |       |
| Payroll taxes              |       | 41,020           |       | 29,256        |       |
| VAT and other  sales taxes |       | 11,429           |       | (574          | )          |
|                       | ** ** | **€72,859** | ** ** | **€**    | **70,829** | ** ** |
|                            |            |                  |            |               |            |  |

 

**18**   LongTerm Debt and Other Long Term Liabilities

| ** **                                             | ** ** | **2005**            | ** ** | **2004**      | ** **    |
|--------------------------------------------------------|------------|---------------------|------------|---------------|---------------|
| ** **                                             | ** ** | **€000**       | ** ** | **€000** | ** **    |
| Borrowing—due  after more than one year (Note 19) |       | 3,277,983           |       | 1,848,074     |          |
| Deferred debt  issuance costs                          |       | (132,860            | )          | (91,628       | )             |
| Capitalized lease  obligations                         |       | 19,417              |       | 12,930        |          |
|                                                   | ** ** | **€3,164,540** | ** ** | **€**    | **1,769,376** | ** ** |
|                                                        |            |                     |            |               |               |  |

 

**19**   Borrowing

**Analysis of Net Debt**

| ** **                                                                                | ** ** | **2005**      | ** **    | **2004**      | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------|---------------|---------------|------------|
| ** **                                                                                | ** ** | **€000** | ** **    | **€000** | ** ** |
| Senior credit facility:                                                                   |       |          |          |          |       |
| Revolving credit  facility(1)—interest  at relevant interbank rate + 2.25% |       | 9,210         |          | —        |       |
| Tranche A Term loan(2a)—interest at relevant  inter bank  rate + 2.25%          |       | 475,856       |          | 275,090       |       |
| Tranche B Term loan(2b)—interest at relevant  inter bank rate +  2.75%(2d)      |       | 1,165,518     |          | 444,068       |       |
| Tranche C Term loan(2c)—interest at relevant  inter bank rate +  3.25%(2d)           |       | 1,165,518     |          | 450,262       |       |
| Yankee bonds including  accrued interest(3)                                               |       | 251,497       |          | 416,245       |       |
| Kappa bonds(4)                                                                            |       | 755,575       |          | —        |       |
| Bank loans and  overdrafts / (cash)(5)                                                    |       | (930,577      | )             | (112,999      | )          |
| 2011 Receivables  securitization floating rate notes (incl. accrued  interest)(6)         |       | 210,214       |          | 210,000       |       |
| **Net debt**                                                                              | ** ** | **3,102,811** | ** **    | **1,682,666** | ** ** |
| Leases                                                                                    |       | 23,549        |          | 17,400        |       |
| **Net debt including leases**                                                             | ** ** | **€**    | **3,126,360** | ** **    | **€** | **1,700,066** | ** ** |
|                                                                                           |            |               |               |               |            |  |  |

----

(1)                Revolvingcredit facility of **€**600 million (availableunder the senior credit facility) to be repaid in full in 2012. Includes amounts drawn under ancillaryfacilities and amounts drawn under facilities covered by letters of credit.

(2a)          Term loan A due to berepaid in certain instalments up to 2012.

(2b)         Termloan B due to be repaid in full in 2013.

(2c)          Termloan C due to be repaid in full in 2014.

F-106

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

(2d)         Margin on Tranches B& C reduced by 0.25% on euro term loans and by 0.375% on US Dollar term loansin February 2006.

(3)                7.50% seniordebentures due 2025 of $292.3 million (6.75% senior notes of $234 million due2005 were repaid in November 2005).

(4)                Various Kappa bondsrepaid on January 3, 2006.

(5)                Cash at December 31,2005 includes **€**756 million which isplaced as defeasance deposit with Kappa bond trustee.

(6)                Receivablessecuritization floating rate notes mature September 2011

| ** **                                 | ** ** | **2005**           | ** **    | **2004**      | ** ** |
|--------------------------------------------|------------|--------------------|---------------|---------------|------------|
| ** **                                 | ** ** | **Bank**           | ** **    | ** **    | ** ** | ** ** | ** ** | **Bank** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Loans and** | ** **    | **Other**     | ** ** | ** ** | ** ** | **Loans and** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Overdrafts**     | ** **    | **Borrowing** | ** ** | **Total** | ** ** | **Overdrafts** | ** ** | **Borrowing** | ** ** | **Total** | ** ** |
| ** **                                 | ** ** | **€000**      | ** **    | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Analysis  by year of repayment**         | ** ** | ** **         | ** **    | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Bank loans, overdrafts and other borrowing |       | 67,609             |          | 4,946         |       | 72,555 |   | 78,283 |   | 4,267 |   | 82,550 |   |
| Kappa bonds  outstanding                   |       | —             |          | 755,575       |       | 755,575 |   | — |   | — |   | — |   |
| Within one year                            |       | 67,609             |          | 760,521       |       | 828,130 |   | 78,283 |   | 4,267 |   | 82,550 |   |
| Between 1 and 2  years                     |       | 79,819             |          | 6,254         |       | 86,073 |   | 75,515 |   | 6,277 |   | 81,792 |   |
| Between 2 and 3  years                     |       | 56,270             |          | 2,172         |       | 58,442 |   | 171,966 |   | 2,429 |   | 174,395 |   |
| Between 3 and 4  years                     |       | 65,669             |          | 1,972         |       | 67,641 |   | 118,411 |   | 1,938 |   | 120,349 |   |
| Between 4 and 5  years                     |       | 67,397             |          | 1,761         |       | 69,158 |   | 163,427 |   | 1,738 |   | 165,165 |   |
| Thereafter                                 |       |               |          |          |       |   |   |   |   |   |   |   |   |
| By instalment                              |       | 218,874            |          | 2,928         |       | 221,802 |   | — |   | 3,970 |   | 3,970 |   |
| Other than by instalment                   |       | 2,316,851          |          | 458,016       |       | 2,774,867 |   | 837,491 |   | 464,912 |   | 1,302,403 |   |
| Due after more  than one year              |       | 2,804,880          |          | 473,103       |       | 3,277,983 |   | 1,366,810 |   | 481,264 |   | 1,848,074 |   |
| Total borrowing                            | ** ** | **€**         | **2,872,489** | ** **    | **€** | **1,233,624** | ** ** | **€** | **4,106,113** | ** ** | **€** | **1,445,093** |   | **€** | **485,531** |   | **€** | **1,930,624** |   |
|                                            |            |                    |               |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                            | ** ** | **2005**          | ** **  | **2004**          | ** ** |
|---------------------------------------|------------|-------------------|-------------|-------------------|------------|
| ** **                            | ** ** | **Within**        | ** **  | **After**         | ** ** | **Within** | ** ** | **After** | ** ** |
| ** **                            | ** ** | **One Year** | ** **  | **One Year** | ** ** | **One Year** | ** ** | **One Year** | ** ** |
| ** **                            | ** ** | **€000**     | ** **  | **€000**     | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Analysis of borrowing**   |       |              |        |              |       |   |   |   |   |
| Secured bank loans and  overdrafts:   |       |              |        |              |       |   |   |   |   |
| Overseas loans                        |       | 14,074            |        | 804,382           |       | 7,453 |   | 7,496 |   |
| Domestic loans                        |       | 12,150            |        | 1,996,648         |       | 29,514 |   | 1,355,521 |   |
|                                  |       | 26,224            |        | 2,801,030         |       | 36,967 |   | 1,363,017 |   |
| Unsecured bank loans and  overdrafts: |       |              |        |              |       |   |   |   |   |
| Overseas loans                        |       | 30,974            |        | 3,850             |       | 24,855 |   | 3,793 |   |
| Domestic loans                        |       | 10,411            |        | —            |       | 16,461 |   | — |   |
|                                  |       | 41,385            |        | 3,850             |       | 41,316 |   | 3,793 |   |
| Total bank loans and  overdrafts      |       | 67,609            |        | 2,804,880         |       | 78,283 |   | 1,366,810 |   |
| Secured other loans                   |       | 384               |        | 455,581           |       | — |   | 462,912 |   |
| Unsecured other loans                 |       | 4,562             |        | 17,522            |       | 4,267 |   | 18,352 |   |
| Kappa bonds outstanding               |       | 755,575           |        | —            |       | — |   | — |   |
| Total other loans                     |       | 760,521           |        | 473,103           |       | 4,267 |   | 481,264 |   |
| **Total borrowing**                   | ** ** | **€**        | **828,130** | ** **        | **€** | **3,277,983** | ** ** | **€** | **82,550** | ** ** | **€** | **1,848,074** | ** ** |
|                                       |            |                   |             |                   |            |  |  |  |  |  |  |  |  |

 

F-107

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

Security comprises fixedand floating charges over the assets of certain subsidiaries and pledges overthe Group’s shareholding in certain of its subsidiaries. The gross amount ofreceivables collateralizing the receivables securitization at December 31, 2005was €262,046,000(2004: €261,225,000).At December 31, 2005 cash of €14,085,000 (2004: €12,655,000)was in securitization bank accounts which was not available for transfer toother group subsidiaries.

Includedin secured other loans are the following long term obligations:

| ** **                                               | ** ** | **000** | ** ** |
|----------------------------------------------------------|------------|---------|------------|
| Guaranteed debentures 7.50% due 2025                     |       | $       | 292,300    |   |
| Receivables  securitization floating rate notes due 2011 |       | €  | 210,000    |   |

 

Committed facilitiesamounted to €4,204,853,000 (2004: €2,307,064,000)of which €3,283,517,000(2004: €1,878,997,000)were utilized at December 31, 2005. The weighted average period until maturityof undrawn committed facilities is 5.3 years (2004: 4.6 years).

***Maturity of UndrawnCommitted Facilities***

| ** **            | ** ** | **2005**      | ** **  | **2004**      | ** ** |
|-----------------------|------------|---------------|-------------|---------------|------------|
| ** **            | ** ** | **€000** | ** **  | **€000** | ** ** |
| Within 1 year         |       | 55,546        |        | 3,067         |       |
| Between 1 and 2 years |       | —        |        | —        |       |
| More than 2 years     |       | 865,790       |        | 425,000       |       |
|                  | ** ** | **€**    | **921,336** | ** **    | **€** | **428,067** | ** ** |
|                       |            |               |             |               |            |  |  |

 

**Financial instruments and risk management**

The operating parameters and policies of treasurymanagement are established under board authority.  The formal treasury policy covers the areasof funding, counterparty risk, foreign exchange, controls and derivatives.  Risk arising on counterparty default iscontrolled within a framework of dealing with high quality institutions thatmeet certain minimum criteria.  The Groupuses derivative instruments in the management of interest rate and currencyrisk.

The Group’s financialinstruments, other than derivatives, comprise borrowing, cash and liquidresources, and various items, such as trade debtors, trade creditors etc, thatarise directly from its operations. The Group uses derivative financialinstruments primarily to manage its exposure to market risks from changes ininterest and foreign exchange rates. The Group does not enter into or issuederivative financial instruments for trading purposes. The Group’s policy is tocentrally manage interest rate and currency exposure.

**(a) Interest raterisk management**

The Group manages interest rate exposure to achieve anappropriate balance of fixed and variable rate funding. To achieve thisobjective, the Group enters into interest rate swaps, options and forward rateagreements. Interest rate swap agreements are used to change the interestreceivable or payable on the Group’s underlying cash and borrowing fromvariable to fixed rates or from fixed to variable rates. At the year end, 60%(2004: 55%) of the Group’s borrowing was at fixed rates after taking account ofinterest rate 

F-108

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

swaps. The weightedaverage interest rate on borrowing outstanding at the year end was 6.0% (2004: 6.1%).The weighted average interest rate on short term borrowing was 5.48% (2004:6.11%).

Outstanding interest rateswap agreements at December 31, 2005 are summarized as follows:

| **Currency** | ** ** | ** ** | ** ** | **Notional  Principal  (Millions)** | ** ** | **Termination  Dates** | ** ** | **% Fixed  Payable** | ** ** | **% Variable  Receivable** | ** ** | **% Fixed  Receivable** | ** ** | **% Variable  Payable** | ** ** |
|--------------|------------|------------|------------|-------------------------------------|------------|------------------------|------------|---------------------------|------------|---------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EUR          |       |       | 175        |                                |       |                   | 2006       |                      |       | 3.4775 - 3.67                   |       |                         | Euribor    | (1)                          |       |   | — |   |   |   | — |   |   |
| EUR          |       |       | 425        |                                |       |                   | 2007       |                      |       | 3.455 - 3.67                    |       |                         | Euribor    |                         |       |   | — |   |   |   | — |   |   |
| EUR          |       |       | 480        |                                |       |                   | 2008       |                      |       | 3.165 - 3.615                   |       |                         | Euribor    |                         |       |   | — |   |   |   | — |   |   |
| EUR          |       |       | 1,100      |                                |       |                   | 2009       |                      |       | 3.035 - 3.62                    |       |                         | Euribor    |                         |       |   | — |   |   |   | — |   |   |

----

(1)          European InterbankOffered Rate

Outstandinginterest rate swap agreements at December 31, 2004 are summarized as follows:

| **Currency** | ** ** | ** ** | ** ** | **Notional  Principal  (Millions)** | ** ** | **Termination  Dates** | ** ** | **% Fixed  Payable** | ** ** | **% Variable  Receivable** | ** ** | **% Fixed  Receivable** | ** ** | **% Variable  Payable** | ** ** |
|--------------|------------|------------|------------|-------------------------------------|------------|------------------------|------------|---------------------------|------------|---------------------------------|------------|------------------------------|------------|------------------------------|------------|
| EUR          |       |       | 200        |                                |       |                   | 2005       |                      |       | 3.43 - 3.485                    |       |                         | Euribor    |                         |       |   | — |   |   |   | — |   |   |
| EUR          |       |       | 110        |                                |       |                   | 2006       |                      |       | 3.49 - 4.37                     |       |                         | Euribor    |                         |       |   | — |   |   |   | — |   |   |
| SEK          |       |       | 94         |                                |       |                   | 2006       |                      |       | —                          |       |                         | —     |                         |       |   | 5.24 |   |   |   | Stibor | (2) |   |
| EUR          |       |       | 700        |                                |       |                   | 2007       |                      |       | 3.39 - 3.62                     |       |                         | Euribor    |                         |       |   | — |   |   |   | — |   |   |

----

(2)          Stockholm InterbankOffered Rate

**Aftertaking into account the various interest rate swaps and currency swaps enteredinto by the Group, the interest rate profile of the Group’s financialliabilities at December 31, 2005 was:**

| ** **    | ** ** | ** **                   | ** ** | ** **                                                        | ** ** | ** **                                                     | ** ** | **Fixed Rate financial liabilities** | ** ** |
|---------------|------------|------------------------------|------------|-------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **    | ** ** | **Total**€ Million | ** ** | **Floating rate  financial  liabilities**€ Million | ** ** | **Fixed rate  financial  liabilities**€ Million | ** ** | **Weighted  average  interest rate  %**        | ** ** | **Weighted average  period until  maturity  Years** | ** ** |
| **Currency**  | ** ** | ** **                   | ** ** | ** **                                                        | ** ** | ** **                                                     | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Euro          |       |                         | 3,518      |                                                              |       |                                                           | 1,154      |                                                |       |   | 2,364 |   |   |   | 6.53 |   |   |   | 3.3 |   |   |
| Sterling      |       |                         | 84         |                                                              |       |                                                           | 84         |                                                |       |   | — |   |   |   |   |   |   |   |   |   |   |
| US Dollar     |       |                         | (344       | )                                                                 |       |                                                           | 1          |                                                |       |   | (345 | ) |   |   | 8.71 |   |   |   | 5.5 |   |   |
| Polish Zloty  |       |                         | 12         |                                                              |       |                                                           | 11         |                                                |       |   | 1 |   |   |   | 6.17 |   |   |   | 2.4 |   |   |
| Swedish Krona |       |                         | 82         |                                                              |       |                                                           | 82         |                                                |       |   | — |   |   |   |   |   |   |   |   |   |   |
| Other         |       |                         | 22         |                                                              |       |                                                           | 18         |                                                |       |   | 4 |   |   |   |   |   |   |   |   |   |   |
| **Total**     | ** ** | ** **                   | **€** | **3,374**                                                         |       | ** **                                                     | ** ** | **€**                                          | **1,350**  |   | ** ** | ** ** | **€** | **2,024** |   |   |   |   |   |   |   |   |   |   |
|               |            |                              |            |                                                                   |            |                                                                |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-109

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

**(b) **Foreign exchangerisk management****

The Group manages its balance sheet having regard tothe currency exposures arising from its assets being denominated in a widerange of currencies. To this end, where foreign currency assets are funded byborrowing, such borrowing is generally sourced in the currency of the relatedassets. The Group also hedges a portion of its currency exposure through theuse of currency swaps and forward contracts. At December 31, 2005 theGroup had entered into €278 million (2004: €163million) currency equivalent of forward contracts and there were no optionscontracts outstanding (2004: €66 million)  in respect of its day to day trading.

Outstandingcurrency swap agreements at December 31, 2005 are summarized as follows:

| **Currency swapped**

**(Millions)** | ** ** | ** ** | ** **   | **Currency received  (Millions)** | ** ** | **Maturity date** | ** ** | **Interest rate paid** | ** ** | **Interest rate received** | ** ** |
|-------------------------------------------|------------|------------|--------------|----------------------------------------|------------|------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| USD 176                              |       |       | EUR 172 |                                   |       |                   | 2007       |                             |       | Euribor + 332                        |       |   | Libor(1) + 300 |   |   |
| USD 222                              |       |       | EUR 190 |                                   |       |                   | 2007       |                             |       | Euribor + 259                        |       |   | 7.50 |   |   |
| USD 70                               |       |       | SEK 574 |                                   |       |                   | 2007       |                             |       | Stibor + 260                         |       |   | 7.50 |   |   |
| USD 200                              |       |       | EUR 153 |                                   |       |                   | 2010       |                             |       | 6.61                                 |       |   | 7.75 |   |   |
| USD 204                              |       |       | EUR 183 |                                   |       |                   | 2012       |                             |       | 9.98                                 |       |   | 9.65 |   |   |

----

(1)             London InterbankOffered Rate

Outstanding currency swapagreements at December 31, 2004 are summarized as follows:

| **Currency swapped  (Millions)** | ** ** | ** ** | ** **   | **Currency received  (Millions)** | ** ** | **Maturity date** | ** ** | **Interest rate paid** | ** ** | **Interest rate received** | ** ** |
|---------------------------------------|------------|------------|--------------|----------------------------------------|------------|------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| USD 195                          |       |       | EUR 200 |                                   |       |                   | 2007       |                             |       | Euribor + 318                        |       |   | Libor + 300 |   |   |
| USD 204                          |       |       | EUR 190 |                                   |       |                   | 2012       |                             |       | 9.6481                               |       |   | 9.6491 |   |   |
| USD 231                          |       |       | EUR 199 |                                   |       |                   | 2005       |                             |       | Euribor + 464                        |       |   | 6.8238 |   |   |
| USD 136                          |       |       | EUR 101 |                                   |       |                   | 2005       |                             |       | Euribor +81                          |       |   | Libor + 93 |   |   |
| USD 35                           |       |       | EUR 25  |                                   |       |                   | 2005       |                             |       | Euribor + 708                        |       |   | 7.55 |   |   |
| USD 113                          |       |       | SEK 749 |                                   |       |                   | 2005       |                             |       | Stibor + 597                         |       |   | 7.55 |   |   |
| USD 5                            |       |       | SEK 33  |                                   |       |                   | 2005       |                             |       | Stibor + 110                         |       |   | Libor + 93 |   |   |

 

At December 31, 2005 the Group had also enteredinto currency swaps of €374 million equivalent(2004: €90million) as part of its short term liquidity management.

Excluding the Group’sLatin American operations, there were no significant transactional currencyexposures at December 31, 2005, that gave rise to net currency gains andlosses recognised in the profit and loss account. Such exposures comprise themonetary assets and liabilities of the Group that are not denominated in theoperating (or ‘functional’) currency of the operating unit involved. As at December 31,2005, transactional currency exposures in the Group’s Latin American operationsamounted to €35 million (2004: €19 million).

F-110

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

**(c) Fair valueof financial instruments**

Thecarrying amounts and estimated fair values of the material financialinstruments of the Group are as follows:

| ** **                                        | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|---------------------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                                        | ** ** | **Carrying**  | ** ** | **Fair**      | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                                        | ** ** | **Amount**    | ** ** | **Value**     | ** ** | **Amount** | ** ** | **Value** | ** ** |
| ** **                                        | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| **Assets**                                        | ** ** | ** **    |       |          |       |   |   |   |   |
| Cash, short term  deposits and liquid investments |       | 247,727       |       | 247,727       |       | 247,958 |   | 247,958 |   |
| Restricted cash                                   |       | 755,575       |       | 755,575       |       | — |   | — |   |
| Accounts  receivable and prepayments              |       | 1,299,458     |       | 1,299,458     |       | 918,785 |   | 918,785 |   |
| Publicly traded  investments                      |       | 6,361         |       | 6,371         |       | 6,303 |   | 6,304 |   |
| **Liabilities**                                   |       |          |       |          |       |   |   |   |   |
| Short term debt                                   |       | 72,555        |       | 72,555        |       | 82,550 |   | 82,550 |   |
| Kappa bonds  outstanding                          |       | 755,575       |       | 755,575       |       | — |   | — |   |
| Accounts payable  and accrued liabilities         |       | 1,500,413     |       | 1,500,413     |       | 1,064,831 |   | 1,064,831 |   |
| Medium and long  term debt                        |       | 3,277,983     |       | 3,218,241     |       | 1,848,074 |   | 1,846,788 |   |
| **Derivative  financial instruments**             |       |          |       |          |       |   |   |   |   |
| Interest rate  swap agreements                    |       |          |       | (45,800       | )          |   |   | (57,397 | ) |
| Currency swap  agreements                         |       |          |       | (21,895       | )          |   |   | (125,743 | ) |
| Foreign exchange  contracts                       |       |          |       | 1,063         |       |   |   | 12,068 |   |
| Energy/Pulp hedging  contracts                    |       |          | ** ** | 990           | ** ** |   |   | (6,024 | ) |

 

The following methods andassumptions were used by the Group in estimating its fair value disclosures forfinancial instruments:

**Cash, short termdeposits and liquid investments, debtors and creditors:**

The carrying amountreported in the balance sheet approximates fair value because of the shortmaturity of these instruments.

**Listed investments:**

These are valued based onquoted prices.

**Short term debt andmedium and long term debt:**

The fair value of theGroup’s debt is estimated using either the replacement cost of equivalentinstruments or discounted cash flow analysis, based on the Group’s currentincremental borrowing rates for similar types of borrowing arrangements andmaturities.

**Interest rate swapagreements:**

The fair value of theGroup’s interest rate swap agreements is estimated using discounted cash flowanalysis. In addition the fair value amount includes the interest ratecomponent of currency swaps.

F-111

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**19**   Borrowing—(continued)

**Currency swapagreements and foreign exchange contracts:**

The fair value of theseinstruments is based on the estimated replacement cost of equivalentinstruments at the balance sheet date.

Gains and losses on instrumentsused for hedging are not recognized until the exposure that is being hedged isitself recognized. Unrecognised gains and losses on instruments used forhedging, and the movement therein, are as follows:

| ** **                                                                               | ** ** | **Gains**               | ** ** | **Losses**              | ** ** | **Total net  gains/(losses)** | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|------------------------------------|------------|
| ** **                                                                               | ** ** | **€ Million** | ** ** | **€ Million** | ** ** | **€ Million**            | ** ** |
| Unrecognized  gains and losses on hedges at December 31, 2004                       |       |                    | 6          |                    |       |                               | 64         |   |   |   | (58 | ) |   |
| Gains and losses  arising in previous years that were recognized in 2005                 |       |                    | 5          |                    |       |                               | 22         |   |   |   | (17 | ) |   |
| Gains and losses  arising before December 31, 2004 that were not recognized in 2005 |       |                    | 1          |                    |       |                               | 42         |   |   |   | (41 | ) |   |
| Gains and losses  arising in 2005 that were not recognized in 2005                       |       |                    | 2          |                    |       |                               | (5         | ) |   |   | 7 |   |   |
| **Unrecognized  gains and losses on hedges at December 31, 2005**                   | ** ** | ** **              | **€** | **3**                   |       | ** **                         | ** ** | **€** | **37** |   | ** ** | ** ** | **€** | **(34** | **)** | ** ** |
| Of which:                                                                                |       |                    |       |                    |       |                               |       |   |   |   |   |   |   |
| Gains and losses  expected to be recognized in 2006                                      |       |                    | 1          |                    |       |                               | 9          |   |   |   | (8 | ) |   |
| Gains and losses  expected to be recognized in 2007 or later                             |       |                    | 2          |                    |       |                               | 28         |   |   |   | (26 | ) |   |
|                                                                                          |            |                         |            |                         |            |                                    |            |  |  |  |  |  |  |  |  |  |

 

**(d) CreditRisk**

Potential concentrationsof credit risk to the Group consist principally of cash deposits, short terminvestments and trade debtors. The Group only deposits cash surpluses withquality credit rated banks and institutions that meet certain criteria and bypolicy limits the amount of credit exposure to any one bank or institution. Tradedebtors comprise a large, widespread customer base. The Group mitigates therisk that counterparties to derivatives will fail to perform by contractingwith major financial institutions having high credit ratings and considers thelikelihood of counterparty failure to be remote. At December 31, 2005 theGroup did not consider there to be any significant concentration of creditrisk.

F-112

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**20**   Provisionfor Liabilities and Charges

| ** **                                     | ** ** | **Deferred**  | ** **  | **Other**      | ** ** | ** **    | ** ** |
|------------------------------------------------|------------|---------------|-------------|----------------|------------|---------------|------------|
| ** **                                     | ** ** | **Income**    | ** **  | **Deferred**   | ** ** | ** **    | ** ** |
| ** **                                     | ** ** | **Taxes**     | ** **  | **Provisions** | ** ** | **Total**     | ** ** |
| ** **                                     | ** ** | **€000** | ** **  | **€000**  | ** ** | **€000** | ** ** |
| December 31, 2002                         |       | 158,896       |        | 63,957         |       | 222,853       |       |
| Charge to statement of  operations(1)          |       | 1,712         |        | 5,628          |       | 7,340         |       |
| Paid in year                                   |       | —        |        | 3,253          |       | 3,253         |       |
| Acquisitions                                   |       | 3,626         |        | 2,571          |       | 6,197         |       |
| Reclassification                               |       | 18,001        |        | (14,787        | )          | 3,214         |       |
| Fair value adjustments                         |       | 674           |        | —         |       | 674           |       |
| Currency adjustment                            |       | (6,083        | )           | (2,496         | )          | (8,579        | )          |
| **December 31, 2003**                     | ** ** | **176,826**   | ** **  | **58,126**     | ** ** | **234,952**   | ** ** |
| Charge/(credit) to statement  of operations(1) |       | 3,984         |        | (42            | )          | 3,942         |       |
| Paid in year                                   |       | —        |        | (9,769         | )          | (9,769        | )          |
| Acquisitions                                   |       | 1             |        | —         |       | 1             |       |
| Fair value adjustments                         |       | (7,134        | )           | —         |       | (7,134        | )          |
| Reclassification                               |       | 4,406         |        | (2,592         | )          | 1,814         |       |
| Currency adjustment                            |       | (1,647        | )           | (756           | )          | (2,403        | )          |
| **December 31, 2004**                     | ** ** | **176,436**   | ** **  | **44,967**     | ** ** | **221,403**   | ** ** |
| (Credit)/charge to  statement of operations(1) |       | (21,502       | )           | 14,084         |       | (7,418        | )          |
| Paid in year                                   |       | —        |        | (5,512         | )          | (5,512        | )          |
| Acquisitions                                   |       | 65,729        |        | 2,392          |       | 68,121        |       |
| Subsidiaries disposed                          |       | (26,269       | )           | —         |       | (26,269       | )          |
| Reclassification                               |       | (1,877        | )           | (5,924         | )          | (7,801        | )          |
| Currency adjustment                            |       | 3,674         |        | 1,535          |       | 5,209         |       |
| **December 31, 2005**                     | ** ** | **€**    | **196,191** | ** **     | **€** | **51,542**    | ** ** | **€** | **247,733** | ** ** |
|                                                |            |               |             |                |            |               |            |  |  |  |

 

| ** **                                | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| **Deferred  taxation arises as follows:** |       |          |        |          |       |          |       |
| Accelerated capital allowances            |       | 260,686       |        | 158,246       |       | 112,672       |       |
| Other timing differences                  |       | (64,495       | )           | 18,190        |       | 64,154        |       |
| ** **                                | ** ** | **€**    | **196,191** | ** **    | **€** | **176,436**   | ** ** | **€** | **176,826** | ** ** |
|                                           |            |               |             |               |            |               |            |  |  |  |

----

(1)          The2005 deferred tax credit to income of €21,502,000 excludes thedeferred tax charge relating to pensions of €2,172,000 (2004: €635,000;2003:€251,000).The 2005 deferred tax credit to income in Note 9 ‘Taxes on income’ includes thisamount. The 2004 deferred tax charge to income of €3,984,000 (2003:€1,712,000)excludes the deferred tax charge relating to pensions of €635,000(2003:€251,000).The 2004 and 2003 deferred tax charge to income in Note 9 “Taxes on Income”includes this amount.

At December 31, 2005,we had net operating loss carryforwards of €1,057million (2004: €200million), which are available indefinitely. These loss carryforwards have a taxvalue of €294million (2004: €61 million).Valuation allowances of €167 million (2004: €30million) have been established for a portion of these deferred tax assets. Therealization of these deferred tax assets is dependent on future taxable income.Based upon recent levels of taxable income, we expect that our deferred taxassets, net of valuation allowances, will be fully utilized.

Other deferred provisionsincludes a number of items including deferred employee profit sharingprovisions in certain of the countries in which we operate.

F-113

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**21**   ContingentLiabilities

In addition to litigation arising in the ordinarycourse of business, we are involved in certain civil and criminal proceedingsin Spain arising out of a past acquisition. In November 1988, a subsidiaryof JSG acquired Industrial Cartonera, S.A., or ICSA, a Spanish incorporatedcompany, from a subsidiary of Torras Hostench S.A., or Torras. In early 1989,JSG acquired a 35% interest in another Spanish company called Industrias delPapel y de la Celulosa, S.A., or INPACSA, a former parent of ICSA. A number ofindividuals associated with Torras were charged by the public prosecutor inMadrid with diverting, for their own use, a substantial part of the purchaseconsideration paid by JSG for ICSA. The public prosecutor, on behalf of theminority shareholders of INPACSA, also claimed that certain transactions,including the transfer of ICSA by INPACSA which took place prior to JSG’sacquisition of ICSA, caused damage to the minority shareholders of INPACSA. In1998, the public prosecutor also charged JSG’s Chairman, Sir Michael W.J.Smurfit, as the representative of JSG, in these proceedings with respect to thealleged damage to the minority shareholders of INPACSA and Torras. A JSGsubsidiary is also one of a number of parties against whom secondary civilliability has been claimed.

JSG and Smurfit International B.V. have eachindemnified Sir Michael Smurfit against loss or liability due to suchproceedings. Bonds were posted with the Spanish court in the amount of €47million, which equals the amount of alleged damages, excluding interest. Themaximum estimated current total exposure relating to the liabilities, includinginterest through December 31, 2002, is approximately €118million, for which no reserve has been taken and which amount will accrueinterest until payment of any final judgment. Preliminary proceedings commencedin late March 2003 and on April 11, 2003, the court dismissed theproceedings against Sir Michael Smurfit, the JSG subsidiary and others. Thebonds previously posted were released and the Spanish court has taken a lienover certain Spanish assets pending final resolution of the case. The finaldecision of the court was handed down in March 2004 and confirmed theearlier dismissal with respect to Sir Michael Smurfit and the JSGsubsidiary. The decision is being appealed to a higher court by two privatecomplainants but not by the public prosecutor. We cannot provide any assurances,however, that the consequences of any adverse findings, if any, will not have amaterial adverse effect on our financial position or results of operations.

We are also the subject of litigation in the DominicanRepublic arising from our acquisition in 1998 of a controlling interest in asmall local corrugator owned by Industria Cartonera Dominicana. The lawsuits,alleging damages in excess of $300 million, are brought by a local competitorwho is claiming loss of potential profits as a consequence of our entry to themarket. He is also alleging breach of contract. In June 2004 we receivedan adverse ruling in our main lawsuit, which found for the original plaintiffbut which made no determination as to damages. The damage amount has been leftfor another court to decide. We have appealed this ruling and are challenging anumber of due process irregularities surrounding the ruling.

We believe the foregoing lawsuits are without meritand are defending them vigorously.

In May 2004, Kappa Packaging’s subsidiary KappaZülpich was visited by the German “Bundes Kartellamt” regarding a suspicionabout possible price co-ordination of recovered paper purchases by paper andboard producers. We are cooperating fully with the investigation.

In July 2004,representatives of the Office of Fair Trading visited the Jefferson Smurfit UKoperations in West Auckland and Norwich. We understand that the investigation,which centers on the sheet feeding business, was prompted by consumercomplaints, which were filed during the UK Competition Commission’sinvestigation of the March 2004 acquisition proposal by David S. SmithLimited for Linpac 

F-114

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**21**   Contingent Liabilities—(continued)

Limited, a competitor ofour sheet feeding business. The investigation is looking into high levels ofpricing transparency which exist in the sector and which are a function of,inter alia, vertical integration, SWAPs and market concentration. We areco-operating fully with the ongoing investigation.

We are subject to a wide range of environmental,health and safety laws and regulations in all the jurisdictions where weoperate. These requirements are complex, frequently changing and have tended tobecome more stringent over time. In the event we incur unforeseen significantcontainment and clean-up expenses, our operating results could be adverselyaffected.

**22**   LeaseObligations

Obligationsunder finance leases:

| ** **                                       | ** ** | **2005**      | ** ** | **2004**      | ** ** |
|--------------------------------------------------|------------|---------------|------------|---------------|------------|
| ** **                                       | ** ** | **€000** | ** ** | **€000** | ** ** |
| Payable within  one year                         |       | 4,832         |       | 5,283         |       |
| Payable in one to  two years                     |       | 6,323         |       | 3,902         |       |
| Payable in two to  three years                   |       | 4,197         |       | 3,406         |       |
| Payable in three  to four years                  |       | 3,456         |       | 2,884         |       |
| Payable in four  to five years                   |       | 1,289         |       | 2,475         |       |
| Payable  thereafter                              |       | 5,947         |       | 1,974         |       |
| Total minimum lease payments                     |       | **26,044**    | ** ** | **19,924**    | ** ** |
| Less amount representing interest                |       | (2,495        | )          | (2,524        | )          |
| Present value of minimum lease payments          |       | **€**    | **23,549** | ** **    | **€** | **17,400** | ** ** |
| Current portion of capital lease obligations     |       | 4,132         |       | 4,470         |       |
| Non-current portion of capital lease obligations |       | 19,417        |       | 12,930        |       |
|                                             |       | **€**    | **23,549** | ** **    | **€** | **17,400** | ** ** |

 

Commitmentsunder operating leases, payable in the coming year, relate to leases expiringin the following periods:

| ** **                          | ** ** | **Land and** | ** ** | ** **    | ** ** | ** **    | ** ** |
|-------------------------------------|------------|-------------------|------------|---------------|------------|---------------|------------|
| ** **                          | ** ** | **Buildings**     | ** ** | **Other**     | ** ** | **Total**     | ** ** |
| ** **                          | ** ** | **€000**     | ** ** | **€000** | ** ** | **€000** | ** ** |
| Within one year                     |       |              | 1,044      |          |       | 6,911         |       | 7,955 |   |
| Within two to  five years inclusive |       |              | 8,365      |          |       | 13,109        |       | 21,474 |   |
| Over five years                     |       |              | 9,170      |          |       | 2,279         |       | 11,449 |   |
|                                |       |              | **€** | **18,579**    | ** ** | ** **    | **€** | **22,299** | ** ** | **€** | **40,878** |   |
|                                     |            |                   |            |               |            |               |            |  |  |  |  |  |

 

F-115

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**21**   Contingent Liabilities—(continued)

The total commitmentsunder non-cancellable operating leases at December 31, 2005 are asfollows:

| ** **                      | ** ** | **2005**      | ** **  |
|---------------------------------|------------|---------------|-------------|
| ** **                      | ** ** | **€000** | ** **  |
| Payable within  one year        |       | 40,878        |        |
| Payable in one to  two years    |       | 32,031        |        |
| Payable in two to  three years  |       | 26,105        |        |
| Payable in three  to four years |       | 20,456        |        |
| Payable in four  to five years  |       | 16,655        |        |
| Payable thereafter              |       | 53,999        |        |
|                            |       | **€**    | **190,124** |   |
|                                 |            |               |             |  |

 

**23**   CapitalCommitments

Thefollowing capital commitments authorized by the directors had not been providedfor in the Group financial statements:

| ** **          | ** ** | **2005**      | ** **  | **2004**      | ** ** |
|---------------------|------------|---------------|-------------|---------------|------------|
| ** **          | ** ** | **€000** | ** **  | **€000** | ** ** |
| Contracted for      |       | 124,280       |        | 41,813        |       |   |
| Not contracted  for |       | 143,035       |        | 76,172        |       |   |
|                | ** ** | **€**    | **267,315** | ** **    | **€** | **117,985** | ** ** |   |
|                     |            |               |             |               |            |  |  |  |  |  |  |

 

**24**   EmployeePension Plans and Similar Obligations

The Group has pension plans forits employees in many of the countries in which it operates. The majoroccupational pension plans are of the defined benefit type. The Group’s pensionplans are accounted for in accordance with Financial Reporting Standard (FRS)17—“Retirement Benefits”. FRS 17 applies to all types of benefitsthat an employer provides after employees have completed their service,including pensions and other post retirement benefits. The pension cost for the Group’s major occupational pension plans hasbeen determined using the projected unit credit method. The currentagreed rates of contribution for future years are comparable to current levels.

Periodic actuarial valuations were performed on all ofthe major plans, by independent professionally qualified actuaries, between January 1,2003 and December 31, 2005.

In general, actuarial valuations are not available forpublic inspection; however, the results of valuations are advised to members ofthe various schemes.

The Group also operates plans inthe U.S., which provide certain employees with post retirement health carebenefits. Actuarial valuations of these plans were performed as at December 31,2005 using the projected unit credit method. The principal assumption made by the actuaries was that the per capitaweighted average assumed rate of increase in covered benefits was 9% (2004:10%), reducing by 1% per annum until reaching the ultimate of 5% in 2009. Theeffect of a 1% increase or decrease in the health care trend rate would notmaterially increase the accumulated post retirement benefit obligation as at December 31,2005.

F-116

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

The main financialassumptions used to calculate scheme liabilities under FRS 17 are set outbelow:

***Major Assumptions***

| ** **                               | ** ** | **Europe**  | ** ** | **USA**     | ** ** | **Latin America** | ** **   |
|------------------------------------------|------------|-------------|------------|-------------|------------|------------------------|--------------|
| ** **                               | ** ** | **%**       | ** ** | **%**       | ** ** | **%**                  | ** **   |
| **December  2005**                       |       |        |       |        |       |                   |         |   |   |
| Rate of increase  in salaries            |       | 1.50 - 4.00 |       | 3.50 - 3.75 |       |                   | 3.25 - 6.08  |   |   |
| Rate of increase  to pensions in payment |       | Nil - 3.00  |       | Nil         |       |                   | Nil          |   |   |
| Discount rate for  scheme liabilities    |       | 4.25 - 5.00 |       | 5.50        |       |                   | 5.25 - 11.17 |   |   |
| Inflation                                |       | 1.25 - 2.75 |       | 1.75        |       |                   | 2.50 - 3.50  |   |   |

 

| ** **                               | ** ** | **Europe**  | ** ** | **USA**     | ** ** | **Latin America** | ** **   |
|------------------------------------------|------------|-------------|------------|-------------|------------|------------------------|--------------|
| ** **                               | ** ** | **%**       | ** ** | **%**       | ** ** | **%**                  | ** **   |
| **December  2004**                       |       |        |       |        |       |                   |         |   |   |
| Rate of increase  in salaries            |       | 1.50 - 4.00 |       | 3.75 - 4.00 |       |                   | 3.50 - 6.85  |   |   |
| Rate of increase  to pensions in payment |       | Nil - 4.00  |       | Nil         |       |                   | Nil          |   |   |
| Discount rate for  scheme liabilities    |       | 4.50 - 6.50 |       | 6.00 - 6.25 |       |                   | 5.25 - 12.00 |   |   |
| Inflation                                |       | 1.25 - 4.00 |       | 2.00        |       |                   | 2.75 - 3.50  |   |   |

 

| ** **                               | ** ** | **Europe**  | ** ** | **USA** | ** ** | **Latin America** | ** **   |
|------------------------------------------|------------|-------------|------------|---------|------------|------------------------|--------------|
| ** **                               | ** ** | **%**       | ** ** | **%**   | ** ** | **%**                  | ** **   |
| **December  2003**                       |       |        |       |    |       |                   |         |   |   |
| Rate of increase  in salaries            |       | 1.50 - 4.00 |       | 4.00    |       |                   | 2.00 - 7.50  |   |   |
| Rate of increase  to pensions in payment |       | Nil - 4.00  |       | Nil     |       |                   | Nil          |   |   |
| Discount rate for  scheme liabilities    |       | 5.00 - 6.50 |       | 6.25    |       |                   | 6.25 - 12.66 |   |   |
| Inflation                                |       | 1.00 - 4.00 |       | 2.25    |       |                   | 2.75 - 4.00  |   |   |

 

Theexpected long term rates of return on the assets of the significant plans wereas follows:

| ** **         | ** ** | **Europe**  | ** ** | **USA** | ** ** | **Latin America** | ** **   |
|--------------------|------------|-------------|------------|---------|------------|------------------------|--------------|
| ** **         | ** ** | **%**       | ** ** | **%**   | ** ** | **%**                  | ** **   |
| **December  2005** |       |        |       |    |       |                   |         |   |   |
| Equities           |       | 7.25 - 8.00 |       | 8.50    |       |                   | 8.25 - 10.50 |   |   |
| Bonds              |       | 3.25 - 7.00 |       | 4.50    |       |                   | 4.25 - 5.25  |   |   |
| Property           |       | 6.50 - 7.00 |       | n/a     |       |                   | n/a          |   |   |
| Other              |       | 2.50 - 7.14 |       | 3.50    |       |                   | 3.25 - 3.50  |   |   |

 

| ** **         | ** ** | **Europe**  | ** ** | **USA** | ** ** | **Latin America** | ** **  |
|--------------------|------------|-------------|------------|---------|------------|------------------------|-------------|
| ** **         | ** ** | **%**       | ** ** | **%**   | ** ** | **%**                  | ** **  |
| **December  2004** |       |        |       |    |       |                   |        |   |   |
| Equities           |       | 7.50 - 8.00 |       | 8.50    |       |                   | 8.25 -10.50 |   |   |
| Bonds              |       | 3.75 - 7.00 |       | 4.50    |       |                   | 4.25 - 5.25 |   |   |
| Property           |       | 6.50 - 7.00 |       | n/a     |       |                   | n/a         |   |   |
| Other              |       | 2.75 - 7.36 |       | 3.50    |       |                   | 3.25 - 3.50 |   |   |

 

F-117

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**24**   EmployeePension Plans and Similar Obligations—(continued)

| ** **         | ** ** | **Europe**  | ** ** | **USA** | ** ** | **Latin America** | ** **   |
|--------------------|------------|-------------|------------|---------|------------|------------------------|--------------|
| ** **         | ** ** | **%**       | ** ** | **%**   | ** ** | **%**                  | ** **   |
| **December  2003** |       |        |       |    |       |                   |         |   |   |
| Equities           |       | 8.00        |       | 8.50    |       |                   | 8.50 - 13.00 |   |   |
| Bonds              |       | 4.51 - 7.00 |       | 4.50    |       |                   | 4.50 - 10.00 |   |   |
| Other              |       | 3.00 - 7.00 |       | 3.50    |       |                   | Nil - 3.50   |   |   |

 

The market values of the assets of the schemes were asfollows:

| ** **                           | ** ** | **Europe**    | ** **   | **USA**       | ** ** | **Latin America** | ** ** | **Total**     | ** ** |
|--------------------------------------|------------|---------------|--------------|---------------|------------|------------------------|------------|---------------|------------|
| ** **                           | ** ** | **€000** | ** **   | **€000** | ** ** | **€000**          | ** ** | **€000** | ** ** |
| **December 2005**               |       |          |         |          |       |                   |       |          |       |   |   |
| Equities                             |       | 628,843       |         | 15,717        |       |                   | 10,018     |          |       | 654,578 |   |
| Bonds                                |       | 487,089       |         | 9,118         |       |                   | 9,822      |          |       | 506,029 |   |
| Property                             |       | 77,451        |         | —        |       |                   | —     |          |       | 77,451 |   |
| Other                                |       | 78,622        |         | 1,016         |       |                   | 531        |          |       | 80,169 |   |
| Total market  value                  |       | 1,272,005     |         | 25,851        |       |                   | 20,371     |          |       | 1,318,227 |   |
| Present value of  scheme liabilities |       | 1,929,671     |         | 46,506        |       |                   | 50,194     |          |       | 2,026,371 |   |
| (Deficit) in the  plans              |       | (657,666      | )            | (20,655       | )          |                   | (29,823    | )             |       | (708,144 | ) |
| Deferred tax  asset                  |       | 51,483        |         | —        |       |                   | 1,293      |          |       | 52,776 |   |
| **Net pension (liability)**          | ** ** | **€**    | **(606,183** | **)**         | **€** | **(20,655**            | **)**      | ** **    | **€** | **(28,530** | **)** | ** ** | **€** | **(655,368** | **)** |
|                                      |            |               |              |               |            |                        |            |               |            |  |  |  |  |  |  |

 

| ** **                           | ** ** | **Europe**    | ** **   | **USA**       | ** ** | **Latin America** | ** ** | **Total**     | ** ** |
|--------------------------------------|------------|---------------|--------------|---------------|------------|------------------------|------------|---------------|------------|
| ** **                           | ** ** | **€000** | ** **   | **€000** | ** ** | **€000**          | ** ** | **€000** | ** ** |
| **December 2004**               |       |          |         |          |       |                   |       |          |       |   |   |
| Equities                             |       | 299,530       |         | 16,391        |       |                   | 8,006      |          |       | 323,927 |   |
| Bonds                                |       | 237,519       |         | 8,890         |       |                   | 5,999      |          |       | 252,408 |   |
| Property                             |       | 40,117        |         | —        |       |                   | —     |          |       | 40,117 |   |
| Other                                |       | 36,536        |         | 737           |       |                   | 1,380      |          |       | 38,653 |   |
| Total market  value                  |       | 613,702       |         | 26,018        |       |                   | 15,385     |          |       | 655,105 |   |
| Present value of  scheme liabilities |       | 1,027,593     |         | 42,844        |       |                   | 40,224     |          |       | 1,110,661 |   |
| (Deficit) in the  plans              |       | (413,891      | )            | (16,826       | )          |                   | (24,839    | )             |       | (455,556 | ) |
| Deferred tax  asset                  |       | 42,835        |         | —        |       |                   | 1,484      |          |       | 44,319 |   |
| **Net pension (liability)**          | ** ** | **€**    | **(371,056** | **)**         | **€** | **(16,826**            | **)**      | ** **    | **€** | **(23,355** | **)** | ** ** | **€** | **(411,237** | **)** |
|                                      |            |               |              |               |            |                        |            |               |            |  |  |  |  |  |  |

 

| ** **                           | ** ** | **Europe**    | ** **   | **USA**       | ** ** | **Latin America** | ** ** | **Total**     | ** ** |
|--------------------------------------|------------|---------------|--------------|---------------|------------|------------------------|------------|---------------|------------|
| ** **                           | ** ** | **€000** | ** **   | **€000** | ** ** | **€000**          | ** ** | **€000** | ** ** |
| **December 2003**               |       |          |         |          |       |                   |       |          |       |   |   |
| Equities                             |       | 294,891       |         | 14,208        |       |                   | 11,641     |          |       | 320,740 |   |
| Bonds                                |       | 220,760       |         | 7,932         |       |                   | 10,195     |          |       | 238,887 |   |
| Other                                |       | 60,599        |         | 1,049         |       |                   | 557        |          |       | 62,205 |   |
| Total market  value                  |       | 576,250       |         | 23,189        |       |                   | 22,393     |          |       | 621,832 |   |
| Present value of  scheme liabilities |       | 977,308       |         | 45,437        |       |                   | 45,627     |          |       | 1,068,372 |   |
| (Deficit) in the  plans              |       | (401,058      | )            | (22,248       | )          |                   | (23,234    | )             |       | (446,540 | ) |
| Deferred tax  asset                  |       | 83,285        |         | —        |       |                   | 7,946      |          |       | 91,231 |   |
| **Net pension (liability)**          | ** ** | **€**    | **(317,773** | **)**         | **€** | **(22,248**            | **)**      | ** **    | **€** | **(15,288** | **)** | ** ** | **€** | **(355,309** | **)** |
|                                      |            |               |              |               |            |                        |            |               |            |  |  |  |  |  |  |

** **

F-118

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans andSimilar Obligations—(continued)

The following tables set out thecomponents of the defined benefit cost:

***Analysis of the amount charged to operating income***

| ** **                             | ** ** | **€000** | ** ** |
|----------------------------------------|------------|---------------|------------|
| **Year  ended December 31, 2005** |       |          |       |
| Current service cost                   |       | 36,697        |       |
| Past service cost                      |       | 1,527         |       |
| Gain on  settlements and curtailments  |       | (6,129        | )          |
| **Total  operating charge**            | ** ** | **€**    | **32,095** | ** ** |
|                                        |            |               |            |  |

 

| ** **                             | ** ** | **€000** | ** ** |
|----------------------------------------|------------|---------------|------------|
| **Year  ended December 31, 2004** |       |          |       |
| Current service cost                   |       | 37,163        |       |
| Past service benefit                   |       | (1,793        | )          |
| Gain on  settlements and curtailments  |       | (542          | )          |
| **Total  operating charge**            | ** ** | **€**    | **34,828** | ** ** |
|                                        |            |               |            |  |

 

| ** **                             | ** ** | **€000** | ** ** |
|----------------------------------------|------------|---------------|------------|
| **Year  ended December 31, 2003** |       |          |       |
| Current service cost                   |       | 36,593        |       |
| Past service cost                      |       | 655           |       |
| **Total  operating charge**            | ** ** | **€**    | **37,248** | ** ** |
|                                        |            |               |            |  |

 

***Analysis of theamount charged to other financial expense***

| ** **                                  | ** ** | **€000** | ** ** |
|---------------------------------------------|------------|---------------|------------|
| **Year ended December 31,  2005**      |       |          |       |
| Expected return on pension scheme assets    |       | (43,974       | )          |
| Interest cost on pension scheme liabilities |       | 57,233        |       |
| **Net  charge**                             | ** ** | **€**    | **13,259** | ** ** |
|                                             |            |               |            |  |

 

| ** **                                  | ** ** | **€000** | ** ** |
|---------------------------------------------|------------|---------------|------------|
| **Year ended December 31,  2004**      |       |          |       |
| Expected return on pension scheme assets    |       | (40,137       | )          |
| Interest cost on pension scheme liabilities |       | 55,855        |       |
| **Net  charge**                             | ** ** | **€**    | **15,718** | ** ** |
|                                             |            |               |            |  |

 

| ** **                                  | ** ** | **€000** | ** ** |
|---------------------------------------------|------------|---------------|------------|
| **Year ended December 31,  2003**      |       |          |       |
| Expected return on pension scheme assets    |       | (39,460       | )          |
| Interest cost on pension scheme liabilities |       | 54,726        |       |
| **Net  charge**                             | ** ** | **€**    | **15,266** | ** ** |
|                                             |            |               |            |  |

 

F-119

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

***Analysis of theamount recognized in the statement of total recognized gains and losses***

| ** **                                                                     | ** ** | **€000** | ** **  |
|--------------------------------------------------------------------------------|------------|---------------|-------------|
| **Year ended December 31, 2005**                                          |       |          |        |
| Actual  return less expected return on pension scheme assets                   |       | 78,779        |        |
| Net  experience gains on scheme liabilities                                    |       | 4,440         |        |
| Changes  in financial assumptions underlying the scheme liabilities            |       | (98,104       | )           |
| **Actuarial loss recognized  in the statement of recognized gains and losses** | ** ** | **€**    | **(14,885** | **)** |
|                                                                                |            |               |             |  |

 

| ** **                                                                     | ** ** | **€000** | ** **  |
|--------------------------------------------------------------------------------|------------|---------------|-------------|
| **Year ended December 31, 2004**                                          |       |          |        |
| Actual  return less expected return on pension scheme assets                   |       | 9,573         |        |
| Net  experience (losses) on scheme liabilities                                 |       | (5,901        | )           |
| Changes  in financial assumptions underlying the scheme liabilities            |       | (13,963       | )           |
| **Actuarial loss recognized  in the statement of recognized gains and losses** | ** ** | **€**    | **(10,291** | **)** |
|                                                                                |            |               |             |  |

 

| ** **                                                                     | ** ** | **€000** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------|------------|
| **Year ended December 31, 2003**                                          |       |          |       |
| Actual  return less expected return on pension scheme assets                   |       | 20,475        |       |
| Net  experience gains on scheme liabilities                                    |       | 8,901         |       |
| Changes  in financial assumptions underlying the scheme liabilities            |       | (1,576        | )          |
| **Actuarial gain recognized  in the statement of recognized gains and losses** | ** ** | **€**    | **27,800** | ** ** |
|                                                                                |            |               |            |  |

 

The analysis of the amount recognized in the statementof recognized gains and losses excludes deferred tax.

F-120

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

***Movement in pensionliability***

| ** **                                           | ** ** | **€000** | ** **  |
|------------------------------------------------------|------------|---------------|-------------|
| Deficit in scheme at December 31, 2002               |       | 352,037       |        |
| Current service cost                                 |       | 36,593        |        |
| Past service cost                                    |       | 655           |        |
| Contributions                                        |       | (52,253       | )           |
| Other finance expense                                |       | 15,266        |        |
| Actuarial gain                                       |       | (27,800       | )           |
| Fair value adjustment                                |       | 68,431        |        |
| Acquisitions                                         |       | 133,137       |        |
| Disposals                                            |       | (59,614       | )           |
| Currency adjustment                                  |       | (19,912       | )           |
| **Deficit in scheme at December 31, 2003**           | ** ** | **446,540**   | ** **  |
| Current service cost                                 |       | 37,163        |        |
| Past service benefit                                 |       | (1,793        | )           |
| Recognition of  gain on settlement and curtailments  |       | (542          | )           |
| Contributions                                        |       | (51,921       | )           |
| Other finance expense                                |       | 15,718        |        |
| Actuarial loss                                       |       | 10,291        |        |
| Reclassification                                     |       | 2,291         |        |
| Disposals                                            |       | (101          | )           |
| Currency adjustment                                  |       | (2,090        | )           |
| **Deficit  in scheme at December 31, 2004**          | ** ** | **455,556**   | ** **  |
| Current service  cost                                |       | 36,697        |        |
| Past service cost                                    |       | 1,527         |        |
| Recognition of  gain on settlements and curtailments |       | (6,129        | )           |
| Contributions                                        |       | (51,309       | )           |
| Other finance  expense                               |       | 13,259        |        |
| Actuarial loss                                       |       | 14,885        |        |
| Acquisitions                                         |       | 256,680       |        |
| Disposals                                            |       | (22,040       | )           |
| Currency  adjustment                                 |       | 9,018         |        |
| **Deficit in scheme at December,  31 2005**          | ** ** | **€**    | **708,144** | ** ** |
|                                                      |            |               |             |  |

 

F-121

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

***History of amounts recognized in the statement ofrecognized gains and losses***

*Difference between actual and expected return onpension scheme assets*

| **Year ended December 31,  2005**                                |       |       |       |
|-----------------------------------------------------------------------|------------|------------|------------|
| Amount                                                                |       | 78,779,000 |       |
| Percentage of scheme assets                                           |       | 6          | %          |
| **Year  ended December 31, 2004**                                |       |       |       |
| Amount                                                                |       | 9,573,000  |       |
| Percentage of scheme assets                                           |       | 1          | %          |
| **Year  ended December 31, 2003**                                |       |       |       |
| Amount                                                                |       | 20,475,000 |       |
| Percentage of scheme assets                                           |       | 3          | %          |
| **Period from September 3, 2002 through December 31, 2002** | ** ** | ** ** | ** ** |
| Amount                                                                |       | 7,218,000  |       |
| Percentage  of scheme assets                                          |       | 1          | %          |

 

*Experience gains and losses on scheme liabilities*

| **Year ended December 31,  2005**                                |   |       |   |
|-----------------------------------------------------------------------|--------|------------|--------|
| Amount                                                                |   | 4,440,000  |   |
| Percentage of the present value of scheme liabilities                 |   | 0          | %      |
| **Year  ended December 31, 2004**                                |   |       |   |
| Amount                                                                |   | 5,901,000  |   |
| Percentage of the present value of scheme liabilities                 |   | 1          | %      |
| **Year  ended December 31, 2003**                                |   |       |   |
| Amount                                                                |   | 8,901,000  |   |
| Percentage of the present value of scheme liabilities                 |   | 1          | %      |
| **Period from September 3, 2002 through December 31, 2002** |   |       |   |
| Amount                                                                |   | 27,515,000 |   |
| Percentage of the  present value of scheme liabilities                |   | 3          | %      |

 

F-122

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**24**   Employee Pension Plans and Similar Obligations—(continued)

*Total actuarial gains and lossesrecognized in the statement of recognized gains and losses*

| **Year  ended December 31, 2005**                                |   |       |   |
|-----------------------------------------------------------------------|--------|------------|--------|
| Amount                                                                |   | 14,885,000 |   |
| Percentage of the present value of scheme liabilities                 |   | 1          | %      |
| **Year ended December 31, 2004**                                 |   |       |   |
| Amount                                                                |   | 10,291,000 |   |
| Percentage of the present value of scheme liabilities                 |   | 1          | %      |
| **Year ended December 31, 2003**                                 |   |       |   |
| Amount                                                                |   | 27,800,000 |   |
| Percentage of the present value of scheme liabilities                 |   | 3          | %      |
| **Period from September 3, 2002 through December 31, 2002** |   |       |   |
| Amount                                                                |   | 12,507,000 |   |
| Percentage  of the present value of scheme liabilities                |   | 1          | %      |

 

Some of the schemes are closed schemes and thereforeunder the projected unit method the current service cost would be expected toincrease as the members of the scheme approach retirement and reduce as membersretire or leave service.

In certain countries, in accordance with localpractice, plans are financed internally and the provisions relating to suchcases are included in pension liabilities. At December 31, 2005 theseamount to €431,862,000 (2004: €277,274,000;2003: €263,165,000).

The defined contributionpension scheme expense for the year ended December 31, 2005 was €20,850,000(2004: €21,077,000;2003: €20,686,000).

**25**   RelatedParty Transactions

**Transactions withassociates**

We conduct certain transactions with associates in thenormal course of business.

The transactions with associates for each period aresummarized as follows:

| ** **             | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **             | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Sale of goods          |       | 31,277        | ** ** | 28,725        |       | 41,612        |       |
| Purchase of goods      |       | 13,813        | ** ** | 9,930         |       | 11,484        |       |
| Receiving of  services |       | 633           | ** ** | 922           |       | 265           |       |
| Rendering of services  |       | 1,544         | ** ** | 776           |       | 697           |       |

 

F-123

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**25**   Related Party Transactions—(continued)

**Transactions with related parties**

In connection withthe acquisition, certain non-operating assets and non-core operating assets ofJSG were transferred to the newcos, in exchange for intercompany notes.

| ** **                                 | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                                 | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Rendering and  receiving of services (net) |       | —        |       | —        |       | 679           |       |
| Transfer of cash from  business disposals  |       | 9,899         | ** ** | 11,934        |       | 28,206        |       |

 

**On June 16, 2005, assets comprisingThe K Club, additional land near The K Club and the site of the former Clonskeaghpaper mill were disposed for an amount of**€115 million to a group of investors which included Sir Michael Smurfit,our Chairman.

In 2005 the Group purchased in the normal course of businessapproximately 28,000 metric tons of****paperamounting to approximately €11 million from Savon Sellu**,** a company controlled by Dr**.**Dermot Smurfit together with his****brothers****Sir Michael Smurfit**,** our Chairman**,** and Dr**.** Alan Smurfit.At December 31,** **2005, anamount of **€**3.2 million was owing by SKG toSavon Sellu.

**26**   Shareholders’ Equity

Other reserves include the following:

JSG Acquisitions has an authorized share capital of100,000 shares of €1 each, of which 40,000were issued.

Other reserves includes €856,960,000of investments by JSG Funding by way of capital contributions in 2002 andinvestments by SKGL of €738,953,000 by way of capital contributionsin 2005.

Certain members of management subscribed cash forconvertible shares of JSL at nominal value. Pursuant to the completion of theexchange offer on February 6, 2004, these were exchanged for convertible sharesof JSG Packaging (the ‘Unvested Convertible Equity’). Subject to the terms andconditions of the Management Equity Agreement, the Unvested Convertible Equitywill, upon vesting, be convertible into ordinary shares of JSG Packaging uponpayment in cash of a further amount equal to the fair market value of anordinary share of JSG Packaging on the date of grant adjusted to reflect thecapital reduction in February 2005 and interest as it accrues on the intercompany debt with JSG Holdings. In the case of the initially allocated UnvestedConvertible Equity the additional cash payment is equal to the subscriptionprice plus capital contributions per ordinary share paid by Madison DearbornPartners LLC and affiliates prior to the offer becoming or being declaredunconditional, adjusted to reflect the capital reduction in February 2005 andinterest as it accrues on the inter company debt with JSG Holdings, net of thenominal subscription price previously paid by the holder. The ordinary sharesinto which Unvested Convertible Equity can, subject to vesting, be convertedwill represent a maximum of approximately 7 per cent. of JSG Packaging’soutstanding ordinary shares.

Pursuant to the terms of the Management EquityAgreement, the Unvested Convertible Equity will vest as follows:

·  Time vesting. 40 per cent. of the Unvested Convertible Equity will vest in three equaltranches as of December 31 in each of 2005, 2006 and 2007, provided that theholder remains actively employed by JSG Packaging or any of its subsidiaries onthe relevant date.

F-124

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**26**   Shareholders’ Equity—(continued)

·  Performance vesting.  40 per cent. of the Unvested ConvertibleEquity will vest in one, two or three tranches as of December 31 in each of2005, 2006 and 2007, provided that the holder remains actively employed by JSGPackaging or any of its subsidiaries as of such date, subject to the attainmentas of each such date of specified performance criteria, which criteria will becumulative, such that attainment of criteria with respect to any of theforegoing dates will trigger vesting in respect of all previous such dates. Theperformance criteria will be based on the achievement of a valuation of JSGPackaging measured by notional return on investment achieved by MadisonDearborn Partners LLC from the date of its investments in JSL, calculated byreference to the price paid for JSL and expressed as a compounded percentagerate per annum.

·  Time/performance vesting.   20 per cent. of the Unvested ConvertibleEquity will vest on December 31, 2007 if return on investment of 30 percent. or more is achieved up to such date, provided the holder remains activelyemployed by JSG Packaging or any of its subsidiaries on the relevant date.

·  Early vesting. The board of directors of JSGPackaging will have discretion as to early vesting in certain circumstances.

The Unvested Convertible Equity will vest immediatelyupon the closing of an initial public offering of JSG Packaging’s equity.However, the convertible shares are subject to certain contractual restrictionson transfer following their acquisition upon exercise of the underlyingconvertible equity. At December 31, 2005, JSG Packaging had issued 10,404,610convertible shares.

**27**   Net Cash Flowfrom Operating Activitiesand Movement in Working Capital

| ** **                                                      | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|-----------------------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                                      | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Operating income                                                |       | 167,028       |        | 281,788       |       | 309,193       |       |
| Reorganization and restructuring costs                          |       | 8,421         |        | 23,231        |       | 16,357        |       |
| Depreciation and depletion (net of government grants amortized) |       | 282,378       |        | 259,831       |       | 250,590       |       |
| Amortization of intangible assets                               |       | 29,203        |        | 37,925        |       | 44,548        |       |
| Finance lease interest paid                                     |       | 1,138         |        | 1,962         |       | 2,164         |       |
| Decrease / (increase) in other payables and provisions          |       | (14,291       | )           | (12,891       | )          | 6,451         |       |
| Decrease / (increase) in working capital                        |       | 40,252        |        | 47,419        |       | 62,848        |       |
| Currency adjustment                                             |       | (1,258        | )           | 1,663         |       | (1,124        | )          |
|                                                            | ** ** | **€**    | **512,871** | ** **    | **€** | **640,928**   | ** ** | **€** | **691,027** | ** ** |
|                                                                 |            |               |             |               |            |               |            |  |  |  |

 

| ** **                          | ** ** | **Inventories** | ** ** | **Receivables** | ** ** | **Payables*** | ** **          | **Total**     | ** ** |
|-------------------------------------|------------|-----------------|------------|-----------------|------------|---------------|---------------------|---------------|------------|
| ** **                          | ** ** | **€000**   | ** ** | **€000**   | ** ** | **€000** | ** **          | **€000** | ** ** |
| December 31,  2004             |       |            | 452,166    |            |       | 925,048       |                | (1,017,060    | )          | 360,154 |   |
| Acquisitions                        |       |            | 275,804    |            |       | 572,415       |                | (535,081      | )          | 313,138 |   |
| Disposed                            |       |            | (68,698    | )               |       | (62,196       | )                   | 69,217        |       | (61,677 | ) |
| Reclassification                    |       |            | (5,282     | )               |       | 16,328        |                | (16,486       | )          | (5,440 | ) |
| Assets  held for sale               |       |            | —     |            |       | (79,810       | )                   | 25,406        |       | (54,404 | ) |
| Deferred  acquisition consideration |       |            | —     |            |       | —        |                | (31,384       | )          | (31,384 | ) |
| Decrease  in working capital        |       |            | (7,051     | )               |       | (76,262       | )                   | 43,061        |       | (40,252 | ) |
| Currency  adjustment                |       |            | 16,192     |            |       | 19,205        |                | (13,544       | )          | 21,853 |   |
| **December 31,  2005**         | ** ** | ** **      | **€** | **663,131**     |       | ** **    | **€1,314,728** |          | **€** | **(1,475,871** | **)** | **€** | **501,988** | ** ** |
|                                     |            |                 |            |                 |            |               |                     |               |            |  |  |  |  |  |

 

F-125

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**27   Net Cash Flow from Operating Activities and Movementin Working Capital—(continued)**

| ** **                         | ** ** | **Inventories** | ** ** | **Receivables** | ** ** | **Payables*** | ** ** | **Total**     | ** **  |     |
|------------------------------------|------------|-----------------|------------|-----------------|------------|---------------|------------|---------------|-------------|----------|
| ** **                         | ** ** | **€000**   | ** ** | **€000**   | ** ** | **€000** | ** ** | **€000** | ** **  |     |
| December 31, 2003             |       |            | 477,432    |            |       |          | 911,443    |          |        | (967,141 | ) | 421,734 |   |
| Reclassification                   |       |            | 4,151      |            |       |          | (15,903    | )             |        | 3,202    |   | (8,550 | ) |
| Deferred acquisition consideration |       |            | —     |            |       |          | —     |          |        | 854      |   | 854 |   |
| Decrease in working capital        |       |            | (22,434    | )               |       |          | 38,291     |          |        | (63,276  | ) | (47,419 | ) |
| Currency adjustment                |       |            | (6,983     | )               |       |          | (8,783     | )             |        | 9,301    |   | (6,465 | ) |
| **December 31,  2004**        | ** ** | ** **      | **€** | **452,166**     |       | ** **    | ** ** | **€**    | **925,048** |     | ** ** | **€** | **(1,017,060** | **)** | **€** | **360,154** | ** ** |
|                                    |            |                 |            |                 |            |               |            |               |             |          |  |  |  |  |  |  |  |  |  |

 

| ** **                         | ** ** | **Inventories** | ** ** | **Receivables** | ** ** | **Payables*** | ** ** | **Total**     | ** ** |
|------------------------------------|------------|-----------------|------------|-----------------|------------|---------------|------------|---------------|------------|
| ** **                         | ** ** | **€000**   | ** ** | **€000**   | ** ** | **€000** | ** ** | **€000** | ** ** |
| December 31, 2002             |       |            | 470,207    |            |       | 1,016,181     |       | (1,018,286    | )          | 468,102 |   |
| Acquisitions                       |       |            | 59,724     |            |       | 115,628       |       | (109,936      | )          | 65,416 |   |
| Disposed                           |       |            | (33,890    | )               |       | (72,899       | )          | 44,173        |       | (62,616 | ) |
| Reclassification                   |       |            | (1,267     | )               |       | (12,566       | )          | 57,676        |       | 43,843 |   |
| Deferred acquisition consideration |       |            | —     |            |       | —        |       | (3,178        | )          | (3,178 | ) |
| Decrease in working capital        |       |            | 4,638      |            |       | (102,680      | )          | 35,194        |       | (62,848 | ) |
| Currency adjustment                |       |            | (21,980    | )               |       | (32,221       | )          | 27,216        |       | (26,985 | ) |
| **December 31,  2003**        | ** ** | ** **      | **€** | **477,432**     |       | ** **    | **€** | **911,443**   |       | **€** | **(967,141** | **)** | **€** | **421,734** | ** ** |
|                                    |            |                 |            |                 |            |               |            |               |            |  |  |  |  |  |  |

----

*                    Amounts falling due within one year not includingborrowing due within one year, corporation tax, capitalized lease obligationsand amounts due to affiliates.

**28   Retirement of Fixed Assets**

| ** **                    | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                    | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Property, plant and equipment |       | 17,756        |       | 33,860        |       | 12,351        |       |
| Investments                   |       | 442           |       | 2,528         |       | 32,544        |       |
|                          | ** ** | **€**    | **18,198** | ** **    | **€** | **36,388**    | ** ** | **€** | **44,895** | ** ** |
|                               |            |               |            |               |            |               |            |  |  |  |

 

F-126

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**29   Reconciliationof Net Cash Flow to Movement in Net Debt**

| ** **                                   | ** ** | **2005**      | ** **     | **2004**      | ** ** | **2003**       | ** ** |
|----------------------------------------------|------------|---------------|----------------|---------------|------------|----------------|------------|
| ** **                                   | ** ** | **€000** | ** **     | **€000** | ** ** | **€000**  | ** ** |
| (Decrease) / increase in cash                |       | (27,045       | )              | 50,285        |       | 29,314         |       |
| (Increase) / decrease term debt              |       | (481,142      | )              | 67,266        |       | 49,789         |       |
| Increase / (decrease) in liquid resources    |       | 789,786       |           | 16,914        |       | (18,812        | )          |
| Capital elements of finance leases repaid    |       | 4,812         |           | 13,576        |       | 5,689          |       |
| Change in net debt resulting from cash flows |       | 286,411       |           | 148,041       |       | 65,980         |       |
| New finance leases                           |       | (4,053        | )              | (2,963        | )          | —         |       |
| Loans and finance leases acquired            |       | (1,814,470    | )              | —        |       | (122,952       | )          |
| Loans and finance leases disposed            |       | 1,471         |           | —        |       | 23,695         |       |
| Other non cash movements                     |       | (8,088        | )              | 3,663         |       | 2,221          |       |
| Currency adjustment                          |       | 112,435       |           | 27,265        |       | 153,216        |       |
| Movement in net debt                         |       | (1,426,294    | )              | 176,006       |       | 122,160        |       |
| Net debt at beginning of period              |       | (1,700,066    | )              | (1,876,072    | )          | (1,998,232     | )          |
| **Net debt  at end of period**               | ** ** | **€**    | **(3,126,360** | **)**         | **€** | **(1,700,066** | **)**      | **€** | **(1,876,072** | **)** |
|                                              |            |               |                |               |            |                |            |  |  |  |

 

**30   Analysis of Net Debt**

| ** **                                | ** ** | **December**  | ** **     | **Cash**      | ** ** | **Acquisitions**       | ** ** | ** **        | ** **     | ** **    | ** ** | **December**  | ** ** |
|-------------------------------------------|------------|---------------|----------------|---------------|------------|------------------------|------------|-------------------|----------------|---------------|------------|---------------|------------|
| ** **                                | ** ** | **2004**      | ** **     | **Flow**      | ** ** | **and Disposals** | ** ** | **Non Cash** | ** **     | **Currency**  | ** ** | **2005**      | ** ** |
| ** **                                | ** ** | **€000** | ** **     | **€000** | ** ** | **€000**          | ** ** | **€000**     | ** **     | **€000** | ** ** | **€000** | ** ** |
| Cash                                      |       | 140,149       |           | (44,246       | )          | —                 |       | —            |           | 3,639         |       | 99,542        |       |
| Short term deposits  and liquid resources |       | 107,809       |           | 34,211        |       | —                 |       | —            |           | 6,165         |       | 148,185       |       |
| Restricted cash                           |       | —        |           | 755,575       |       | —                 |       | —            |           | —        |       | 755,575       |       |
| Cash and  investments                     |       | 247,958       |           | 745,540       |       | —                 |       | —            |           | 9,804         |       | 1,003,302     |       |
| Bank overdrafts and demand loans          |       | (28,673       | )              | 17,201        |       | —                 |       | —            |           | (8,551        | )          | (20,023       | )          |
| Loans repayable within one year           |       | (53,877       | )              | (14,511       | )          | —                 |       | (8,911            | )              | 24,767        |       | (52,532       | )          |
| Kappa bonds  outstanding                  |       | —        |           | (755,575      | )          | —                 |       | —            |           | —        |       | (755,575      | )          |
| Short term  borrowing                     |       | (82,550       | )              | (752,885      | )          | —                 |       | (8,911            | )              | 16,216        |       | (828,130      | )          |
| Long and medium term borrowing            |       | (1,848,074    | )              | 288,944       |       | (1,805,992             | )          | 823               |           | 86,316        |       | (3,277,983    | )          |
| Net borrowing                             |       | (1,682,666    | )              | 281,599       |       | (1,805,992             | )          | (8,088            | )              | 112,336       |       | (3,102,811    | )          |
| Finance leases                            |       | (17,400       | )              | 4,812         |       | (7,007                 | )          | (4,053            | )              | 99            |       | (23,549       | )          |
| **Net debt**                              | ** ** | **€**    | **(1,700,066** | **)**         | **€** | **286,411**            | ** ** | **€**        | **(1,812,999** | **)**         | **€** | **(12,141**   | **)**      | **€** | **112,435** | ** ** | **€** | **(3,126,360** | **)** |
|                                           |            |               |                |               |            |                        |            |                   |                |               |            |               |            |  |  |  |  |  |  |

 

F-127

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**30**   Analysis of Net Debt—(continued)

| ** **                               | ** ** | ** **    | ** **     | **December  2003** | ** ** | **Cash Flow** | ** ** | **Acquisitions  and  disposals** | ** ** | **Non Cash** | ** ** | **Currency**  | ** ** | **December  2004** | ** ** |
|------------------------------------------|------------|---------------|----------------|--------------------|------------|--------------------|------------|----------------------------------|------------|-------------------|------------|---------------|------------|--------------------|------------|
| ** **                               | ** ** | **€**000 | ** **     | **€**000      | ** ** | **€000**      | ** ** | **€**000                    | ** ** | **€**000     | ** ** | **€**000 | ** ** |
| Cash                                     |       | 86,137        |           | 55,623             |       |               | —     | ** **                       |       | —            |       | (1,611        | )          | 140,149            |       |
| Short term deposits and liquid resources |       | 92,930        |           | 16,914             |       |               | —     | ** **                       |       | (35               | )          | (2,000        | )          | 107,809            |       |
| Cash and investments                     |       | 179,067       |           | 72,537             |       |               | —     | ** **                       |       | (35               | )          | (3,611        | )          | 247,958            |       |
| Bank overdrafts and demand  loans        |       | (22,373       | )              | (5,338             | )          |               | —     | ** **                       |       | —            |       | (962          | )          | (28,673            | )          |
| Loans repayable within one year          |       | (88,138       | )              | 54,280             |       |               | —     | ** **                       |       | 3,698             |       | (23,717       | )          | (53,877            | )          |
| Short term borrowing                     |       | (110,511      | )              | 48,942             |       |               | —     | ** **                       |       | 3,698             |       | (24,679       | )          | (82,550            | )          |
| Long and medium term borrowing           |       | (1,916,348    | )              | 12,986             |       |               | —     | ** **                       |       |              |       | 55,288        |       | (1,848,074         | )          |
| Net borrowing                            |       | (1,847,792    | )              | 134,465            |       |               | —     | ** **                       |       | 3,663             |       | 26,998        |       | (1,682,666         | )          |
| Finance leases                           |       | (28,280       | )              | 13,576             |       |               | —     | ** **                       |       | (2,963            | )          | 267           |       | (17,400            | )          |
| **Net debt**                             | ** ** | **€**    | **(1,876,072** | **)**              | **€** | **148,041**        | ** ** |                             | **—** | ** **        |       | **€**    | **700**    | ** **         | **€** | **27,265** | ** ** | **€** | **(1,700,066** | **)** |
|                                          |            |               |                |                    |            |                    |            |                                  |            |                   |            |               |            |                    |            |  |  |  |  |  |  |  |

 

| ** **                               | ** ** | **December  2002** | ** **     | **Cash Flow** | ** ** | **Acquisitions  and  Disposals** | ** ** | **Non Cash** | ** ** | **Currency**  | ** ** | **December  2003** | ** ** |
|------------------------------------------|------------|--------------------|----------------|--------------------|------------|----------------------------------|------------|-------------------|------------|---------------|------------|--------------------|------------|
| ** **                               | ** ** | **€000**      | ** **     | **€000**      | ** ** | **€000**                    | ** ** | **€000**     | ** ** | **€000** | ** ** | **€000**      | ** ** |
| Cash                                     |       | 69,224             |           | 22,493             |       |                             | —     |              |       | —        |       | (5,580             | )          | 86,137 |   |
| Short term deposits and liquid resources |       | 115,031            |           | (18,812            | )          |                             | —     |              |       | (58           | )          | (3,231             | )          | 92,930 |   |
| Cash and investments                     |       | 184,255            |           | 3,681              |       |                             | —     |              |       | (58           | )          | (8,811             | )          | 179,067 |   |
| Bank overdrafts and demand loans    |       | (51,379            | )              | 6,821              |       |                             | —     |              |       | —        |       | 22,185             |       | (22,373 | ) |
| Loans repayable within one year          |       | (79,584            | )              | 31,085             |       |                             | —     |              |       | 2,279         |       | (41,918            | )          | (88,138 | ) |
| Short term borrowing                     |       | (130,963           | )              | 37,906             |       |                             | —     |              |       | 2,279         |       | (19,733            | )          | (110,511 | ) |
| Long and medium term borrowing           |       | (2,028,937         | )              | 18,704             |       |                             | (86,119    | )                 |       | —        |       | 180,004            |       | (1,916,348 | ) |
| Net borrowing                            |       | (1,975,645         | )              | 60,291             |       |                             | (86,119    | )                 |       | 2,221         |       | 151,460            |       | (1,847,792 | ) |
| Finance leases                           |       | (22,587            | )              | 5,689              |       |                             | (13,138    | )                 |       | —        |       | 1,756              |       | (28,280 | ) |
| **Net debt**                             | ** ** | **€**         | **(1,998,232** | **)**              | **€** | **65,980**                       | ** ** | ** **        | **€** | **(99,257**   | **)**      | ** **         | **€** | **2,221** | ** ** | **€153,216** | ** ** | **€** | **(1,876,072** | **)** |
|                                          |            |                    |                |                    |            |                                  |            |                   |            |               |            |                    |            |  |  |  |  |  |  |  |

 

F-128

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**30**   Analysis of Net Debt—(continued)

Cashcomprises cash in hand and overnight deposits. The movement in liquid resourcesrepresents movement in all monetary assets (excluding cash, short term depositsand overnight borrowing) which are convertible into cash at, or close to, theircarrying value in the balance sheet. These specifically comprise governmentgilts, commercial paper and deposits, with maturities of less than one yearwhen acquired. They are categorized as held-to-maturity because the Group hasboth the intent and the ability to hold these investments until maturity.

**31**   Acquisitions and Disposals

| ** **                                       | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|--------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                       | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Net (liabilities)  / assets acquired (see below) |       | (203,598      | )           | —        |       | 6,180         |       |
| Reclassification  from associates                |       | —        |        | —        |       | (35,030       | )          |
| Goodwill                                         |       | 1,185,705     |        | 2,731         |       | 174,659       |       |
|                                             | ** ** | **€**    | **982,107** | ** **    | **€** | **2,731**     | ** ** | **€** | **145,809** | ** ** |
| **Satisfied by:**                                | ** ** | ** **    | ** **  | ** **    | ** ** | ** **    | ** ** |
| Shareholders loan  contributed                   |       | 738,953       |        | —        |       | —        |       |
| Cash payments                                    |       | 209,608       |        | 2,731         |       | 145,809       |       |
| Deferred  consideration                          |       | 33,546        |        | —        |       | —        |       |
|                                             | ** ** | **€**    | **982,107** | ** **    | **€** | **2,731**     | ** ** | **€** | **145,809** | ** ** |
| **Net cash outflows**                            | ** ** | ** **    | ** **  | ** **    | ** ** | ** **    | ** ** |
| Cash payments                                    |       | 209,608       |        | 2,731         |       | 145,809       |       |
| Cash acquired                                    |       | (48,887       | )           | —        |       | (52,683       | )          |
| Bank overdrafts  acquired                        |       | 44,811        |        | —        |       | 8,955         |       |
| ** **                                       | ** ** | **€**    | **205,532** | ** **    | **€** | **2,731**     | ** ** | **€** | **102,081** | ** ** |

 

Summaryof net (liabilities) / assets acquired:

| ** **                                                          | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|---------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                          | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| Net assets acquired:                                                | ** ** | ** **    | ** **   |          | ** ** | ** **    |       | ** ** | ** ** |
| Fixed assets:                                                       | ** ** | ** **    | ** **   |          | ** ** | ** **    |       | ** ** | ** ** |
| Property, plant  and equipment                                      |       | 1,557,132     |         |          | —     | ** **    |       | 269,385 |   |
| Investments                                                         |       | 3,533         |         |          | —     | ** **    |       | 3,616 |   |
| Current assets:                                                     | ** ** | ** **    |         |          |       | ** **    |       | ** ** | ** ** |
| Inventories                                                         |       | 275,804       |         |          | —     | ** **    |       | 59,724 |   |
| Accounts receivable and prepayments                                 |       | 572,415       |         |          | —     | ** **    |       | 115,628 |   |
| Cash and  investments held as current assets                        |       | 48,887        |         |          | —     | ** **    |       | 52,683 |   |
| Total assets                                                        |       | 2,457,771     |         |          | —     | ** **    |       | 501,036 |   |
| Accounts payable  and accrued liabilities                           |       | (587,196      | )            |          | —     | ** **    |       | (135,268 | ) |
| Long term debt  and other payables                                  |       | (1,805,992    | )            |          | —     | ** **    |       | (113,896 | ) |
| Provisions for  liabilities and charges                             |       | (312,151      | )            |          | —     | ** **    |       | (6,197 | ) |
| Fair value  adjustment                                              |       | 45,467        |         |          | —     | ** **    |       | (239,495 | ) |
| Minority  interests                                                 |       | (1,497        | )            |          | —     | ** **    |       | — |   |
| **Net (liabilities) / assets  acquired at fair value to the Group** | ** ** | **€**    | **(203,598** | **)**         |       | **€**    | **—** | ** ** |   | **€** | **6,180** | ** ** |
|                                                                     |            |               |              |               |            |               |            |  |  |  |  |  |

** **

F-129

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**31**   Acquisitionsand disposals—(continued)

**Summary of effects of theacquisition of Kappa**

**The acquisition of Kappa was completed on December 1,2005. The fair value exercise relating to the acquisition is preliminary and isreflected in the schedule below although the fair value exercise on fixed andintangible assets has been substantially completed. The fair value exercise onpensions has also been substantially completed, and no significant adjustmentis expected in relation to these amounts.**

| ** **                                     | ** ** | **Book Value**      | ** ** | **Policy Alignment** | ** ** | **Revaluation**          | ** ** | **Fair Value**      | ** ** |
|------------------------------------------------|------------|--------------------------|------------|---------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                     | ** ** | **€ millions** | ** ** | **€ millions**  | ** ** | **€ millions** | ** ** | **€ millions** | ** ** |
| Cash                                           |       |                     | 49         |                      |       |                     | —     |                     |       |   | — |   |   |   | 49 |   |   |
| Accounts receivable and prepayments            |       |                     | 575        |                      |       |                     | (2         | )                        |       |   | (1 | ) |   |   | 572 |   |   |
| Inventories                                    |       |                     | 258        |                      |       |                     | 18         |                     |       |   | — |   |   |   | 276 |   |   |
| Financial assets                               |       |                     | 3          |                      |       |                     | —     |                     |       |   | — |   |   |   | 3 |   |   |
| Property, plant and equipment                  |       |                     | 1,574      |                      |       |                     | (17        | )                        |       |   | 23 |   |   |   | 1,580 |   |   |
| Intangible assets                              |       |                     | —     |                      |       |                     | —     |                     |       |   | 35 |   |   |   | 35 |   |   |
| Total assets                                   |       |                     | 2,459      |                      |       |                     | (1         | )                        |       |   | 57 |   |   |   | 2,515 |   |   |
| Accounts payable and accruals                  |       |                     | (581       | )                         |       |                     | (6         | )                        |       |   | (8 | ) |   |   | (595 | ) |   |
| Long term debt and other long term liabilities |       |                     | (1,806     | )                         |       |                     | —     |                     |       |   | (4 | ) |   |   | (1,810 | ) |   |
| Provisions for liabilities and charges         |       |                     | (385       | )                         |       |                     | 73         |                     |       |   | — |   |   |   | (312 | ) |   |
| Minorities                                     |       |                     | (2         | )                         |       |                     | —     |                     |       |   | — |   |   |   | (2 | ) |   |
| Net (liabilities) / assets acquired            |       |                     | (315       | )                         |       |                     | 66         |                     |       |   | 45 |   |   |   | (204 | ) |   |
| Shareholders loans acquired                    |       |                     |       |                      |       |                     |       |                     |       |   |   |   |   |   | (739 | ) |   |
| Goodwill                                       |       |                     |       |                      |       |                     |       |                     |       |   |   |   |   |   | 1,186 |   |   |
| **Total consideration**                        |       |                     |       |                      |       |                     |       |                     |       |   |   |   | ** ** | ** ** | **243** |   |   |
| Deferred consideration                         |       |                     |       |                      |       |                     |       |                     |       |   |   |   | ** ** | ** ** | (33 | ) |   |
| **Cash  payments**                             |       |                     |       |                      |       |                     |       |                     |       |   |   |   | ** ** | ** ** | **€** | **210** |   |   |
|                                                |            |                          |            |                           |            |                          |            |                          |            |  |  |  |  |  |  |  |  |  |

 

The consolidated financial statements of cash flows for2005 includes the following significant cash flows in relation to Kappa.

| ** **                              | ** ** | **€ millions** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|
| Net cash flow from operating activities |       |                     | 71         |   |   |
| Interest paid                           |       |                     | (20        | ) |   |
| Purchase  of tangible fixed assets      |       |                     | (25        | ) |   |

 

F-130

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**31**   Acquisitionsand disposals—(continued)

The summarized statementsof operations and statements of total recognized gains and losses for Kappafrom the beginning of its financial year on January 1, 2005 toNovember 30, 2005 are set out below. These figures are reported inaccordance with accounting standards generally accepted in The Netherlands andare unaudited.

**Summarizedstatements of operations**

| ** **                  | ** ** | **Jan. 1, 2005 through  Nov. 30, 2005** | ** ** |
|-----------------------------|------------|------------------------------------------------------------------|------------|
| ** **                  | ** ** | **€ millions**                                         | ** ** |
| Net Sales                   |       |                                                             | 2,585      |   |   |
| Operating Income            |       |                                                             | 154        |   |   |
| Exceptional items           |       |                                                             | (11        | ) |   |
| Profit before interest      |       |                                                             | 143        |   |   |
| Net interest                |       |                                                             | (208       | ) |   |
| Loss before taxes           |       |                                                             | (65        | ) |   |
| Tax                         |       |                                                             | (11        | ) |   |
| **Net loss for the period** | ** ** | ** **                                                       | **€** | **(76** | **)** | ** ** |
|                             |            |                                                                  |            |  |  |  |

 

**Statements of total recognized gains and losses**

| ** **                                                  | ** ** | **Jan. 1, 2005 through  Nov. 30, 2005** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **€ millions**                                         | ** ** |
| Net loss for the period                                     |       |                                                             | (76        | ) |   |
| Translation adjustment  on foreign currency net investments |       |                                                             | (8         | ) |   |
| **Total recognized gains and losses**                       | ** ** | ** **                                                       | **€** | **(84** | **)** | ** ** |
|                                                             |            |                                                                  |            |  |  |  |

 

The net loss for Kappa forthe year ended December 31, 2004 was €79million.

**Summary of effects of theacquisition of the SSCC European assets in 2003**

| ** **                                      | ** ** | **Book Value**      | ** ** | **Revaluations**         | ** ** | **Fair Value**      | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                      | ** ** | **€ millions** | ** ** | **€ millions** | ** ** | **€ millions** | ** ** |
| Cash                                            |       |                     | 29         |                     |       |                     |       |   |   |   | 29 |   |   |
| Accounts  receivable and prepayments            |       |                     | 103        |                     |       |                     |       |   |   |   | 103 |   |   |
| Inventories                                     |       |                     | 49         |                     |       |                     |       |   |   |   | 49 |   |   |
| Property,  plant and equipment                  |       |                     | 103        |                     |       |                     | 115        |   |   |   | 218 |   |   |
| Accounts  payable and accruals                  |       |                     | (98        | )                        |       |                     |       |   |   |   | (98 | ) |   |
| Long  term debt and other long term liabilities |       |                     | (115       | )                        |       |                     |       |   |   |   | (115 | ) |   |
| Other  liabilities                              |       |                     | (95        | )                        |       |                     | (59        | ) |   |   | (154 | ) |   |
| Net  assets acquired                            |       |                     | €     | (24                      | )          |                     |       | € | 56 |   |   |   | 32 |   |   |
| Goodwill                                        |       |                     |       |                     |       |                     |       |   |   |   | 174 |   |   |
| **Consideration**                               | ** ** |                     |       |                     |       |                     |       |   | ** ** | ** ** | **€** | **206** | ** ** | ** ** |
|                                                 |            |                          |            |                          |            |                          |            |  |  |  |  |  |  |  |  |  |

 

**32**   ParentUndertakings and Controlling Parties

The immediate controlling party and the parentundertaking of the smallest group of which the company is a member, and forwhich group financial statements are prepared, is JSG Funding, a companyincorporated in Ireland. The ultimate controlling party and the parentundertaking of the largest group of 

F-131

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**32**   Parent Undertakings and Controlling Parties—(continued)

which the company is amember, and for which group financial statements are prepared, is SKGL, acompany incorporated in Ireland.

We are subject to the reporting requirements of theSecurities Exchange Act of 1934, as amended, and file reports, including AnnualReports on Form 20-F, and other information with the SEC. You mayread and copy any document we file with the SEC at its public reference roomsat 100 F Street, N.E. Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330for more information on the public reference rooms and their copy charges. Inaddition, the SEC maintains an Internet site at http://www.sec.gov thatcontains reports and other information regarding issuers that fileelectronically with the SEC. These filings are also available to the publicfrom commercial document retrieval services.

JSG Funding’s annual reporton Form 20-F, current reports on Form 6-K, and allamendments to those reports are made available free of charge through ourwebsite (www.smurfitkappa.com) as soon as practicable after such material iselectronically filed with or furnished to the Securities and ExchangeCommission.

**33**   Companies(Amendment) Act, 1963 to 2005

The financial statementsin this report do not comprise ‘full group accounts’ within the meaning ofRegulation 40(1) of the European Communities (Companies: Group Accounts)Regulations, 1992 of Ireland in so far as such group accounts would have tocomply with the disclosure and other requirements of those Regulations. Fullgroup accounts for JSL for the year ended December 31,2003 have been filed with the Irish Registrar of Companies. The auditors havemade reports without qualification and without reference to an emphasis ofmatter under Section 193 of the Companies Act, 1990, in respect of theconsolidated financial statements for the years ended December 31, 2004and 2003. Full accounts for SKGL for the year ended December 31,2004 have also been filed with the Registrar of Companies. Full accounts forSKGL for the year ended December 31, 2005 will be filed with the Registrarin due course.

**34   ComparativeFigures**

Certain figures for theprior years have been adjusted to conform with 2005 classifications anddisclosure requirements

**35**   DifferencesBetween Accounting Principles Generally Accepted in Ireland and in the UnitedStates

The Group’s consolidatedfinancial statements are prepared in accordance with accounting principlesgenerally accepted in Ireland (“Irish GAAP”), which differ in certain respectsfrom accounting principles generally accepted in the United States (“US GAAP”).The significant differences as they apply to the Group and the necessaryadjustments are summarized below.

**Goodwill**

Irish GAAP, FRS 10—“Goodwill and Intangible Assets,”requires goodwill to be capitalized as an intangible fixed asset and amortizedin the statement of operations over its estimated useful live. For US GAAP, theGroup applies SFAS No. 142 “Goodwill and Other Intangible Assets”. UnderSFAS No. 142, goodwill is no longer amortized, but is tested forimpairment on an annual basis and whenever indicators of impairment arise. TheGroup’s identified indicators of impairment under SFAS No. 142 are thesame as under SAB No. 100, “Restructuring and Impairment Charges”.

F-132

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35   DifferencesBetween Accounting Principles Generally Accepted in Ireland and in the UnitedStates—(continued)**

The goodwill impairment test, which is based on fairvalue, is to be performed on a reporting unit level using a two-step impairmenttest. A reporting unit is an operating segment as defined by SFAS No. 131,‘‘Disclosures about Segments of an Enterprise and Related Information’’, or onelevel lower. In the first step, the fair value of a reporting unit is comparedwith its carrying amount, including goodwill. If the fair value of thereporting unit exceeds its carrying value, goodwill is not deemed to beimpaired and step two of the impairment test is not required. If the fair valueof the reporting unit is lower than the carrying value of long term assets andnet working capital, step two needs to be performed to measure the amount ofimpairment. The second step of the goodwill impairment test, used to measurethe amount of impairment loss, compares the implied fair value of reportingunit goodwill with the carrying amount of that goodwill. If the carrying amountof reporting unit goodwill exceeds the implied fair value of that goodwill, animpairment loss shall be recognized in an amount equal to that excess. The lossrecognized cannot exceed the carrying amount of goodwill.

The fair value of eachreporting unit was determined based upon JSG’s segment reporting. According tothese calculations, the fair value of the reporting units exceeded the carryingvalue of their net assets. Therefore, the additional analysis was not requiredand there was no impairment of goodwill upon adoption of SFAS No. 142. TheGroup performed an annual impairment test in the last quarter of 2003, 2004 and2005. No indicators of impairment were identified.

Under Irish GAAP, the Group accounts for goodwillarising on the acquisition of a foreign entity as a euro functional asset.Under U.S. GAAP, SFAS No. 52 requires goodwill and any fair valueadjustments arising out of the purchase of a foreign entity to be treated ascurrency assets and liabilities of the foreign operation and translated at theclosing rates with differences taken to the currency translation adjustmentrecorded in other comprehensive income as a component of shareholders’ equity.

**Intangible Assets**

Under US GAAP, €141million representing the allocated value for customer relationships has beenaccounted for as intangible assets under US GAAP. Irish GAAP does not permitthe separate recognition of such assets and thus has included the €141 millionamount in goodwill under Irish GAAP. Such goodwill is amortized under IrishGAAP on a straight-line basis over 40 years. The separately identifiedintangible assets have been amortized on a straight-line basis over 5 - 8 yearsunder US GAAP.

**Deferred taxation**

Irish GAAP, FRS 19—’’DeferredTax’’ requires full provision to be made for deferred tax arising from timingdifferences between the recognition of gains and losses in the financialstatements and their recognition in tax computations. In adopting FRS 19, wehave chosen not to discount deferred tax assets and liabilities. This standardeliminated a number of the differences between accounting for deferred taxunder Irish and US GAAP. However, under SFAS No. 109—’’Accounting forIncome Taxes’’, deferred taxation would also be provided under US GAAP on thedifference between the accounting and taxation bases of assets and liabilitiesof subsidiaries acquired. Deferred income taxes on the taxable US GAAPadjustments are included within the reconciliations.

F-133

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**Retirement benefits**

Under Irish GAAP, FRS 17—“RetirementBenefits” requires that scheme assets are valued at fair value and schemeliabilities are measured using the Projected Unit Credit method. Net schemeassets and liabilities, reduced by deferred tax amounts, are required to beshown on the face of the balance sheet as a pension asset or liability asappropriate. JSG Acquisitions has also adopted Urgent Issues Task Forceabstract 35—“Death-in-service and incapacity benefits’’ (‘‘UITF 35’’). Under USGAAP the main differences with Irish GAAP arise in relation to the recognitionof actuarial gains and losses and the treatment of death-in-service andincapacity benefits. Under US GAAP, net scheme assets and liabilities arerequired to be shown gross of deferred tax amounts.

**Hyper-inflationaryeconomies**

The Group accounts for theactivities of its subsidiaries in Mexico, Colombia, Venezuela and Argentina,which historically have high rates of inflation, using the US dollar as thefunctional currency.

Under US GAAP for each ofthe periods presented, Mexico, Colombia, Argentina and Venezuela would not beregarded as hyper-inflationary and the Mexican Peso, the Colombian Peso, theArgentinean Peso and the Venezuelan Bolivar respectively would have been usedas the functional currency. The application of US GAAP has no material effecton the reported net income of these subsidiaries.

**Stock-based employee compensation expense**

SFAS No. 123—“Accountingfor Stock-Based Compensation’’ encourages, but does not require, compensationexpense for employee stock options to be measured based on their fair value atthe date of grant, determined using option valuation models. JSG Acquisitions haselected to continue to account for stock based employee compensation inaccordance with APB Opinion No. 25—“Accounting for Stock Issued toEmployees’’ (‘‘APB 25’’) and related interpretations and to provide the proforma information required by SFAS No. 123.

Under US GAAP, followingthe measurement principles of APB 25, compensation expense would be accrued andbooked to income over the vesting period. The vesting period commences when itbecomes probable that the underlying targets attaching to the options will beachieved and the number of shares will be known and ends with the date when thegranting of the shares is not contingent upon the performance of additionalservices or other conditions. Compensation expense would be booked on a periodby period basis to reflect the difference between the price an employee mustpay to acquire the shares underlying the option and the market price of theshares, at the end of each accounting period until the final vesting date.

**Debt instruments issue costs**

Under Irish GAAP debtissue costs are deducted from the proceeds of the relevant debt instruments.Under US GAAP such costs would be shown as deferred charges in the balancesheet. In both cases the amount of such costs are expensed at a constant rateof interest on the outstanding balance of the debt.

F-134

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted in Ireland and in the United States—(continued)

**Accounting for associates**

Irish GAAP requiresseparate disclosure of operating earnings, net interest, exceptional items andthe taxation charge arising in associates. Under US GAAP earnings ofassociates, net of taxation would be shown as a single line item in arriving atnet income.

**Financial instruments**

Under Irish GAAP allhedging instruments are matched with their underlying hedged item. Each instrument’sgain or loss is brought into the profit and loss account and its fair valueinto the balance sheet at the same time as is the matched underlying asset,liability, income or cost.

Under SFAS No. 133, ‘‘Accounting for DerivativeInstruments and Hedging Activities’’ all derivative instruments are recognizedon the balance sheet at their fair values. Changes in fair value are eitherrecognized periodically in income or in shareholders’ equity as a component ofcomprehensive income depending on whether the derivative qualifies for hedgeaccounting in accordance with the requirements of SFAS No. 133, and if so,whether it qualifies as a fair value hedge or cash flow hedge. Changes in fairvalue of derivatives accounted for as fair value hedges are recorded in incomealong with the corresponding portions of the changes in the fair value of thehedged items, to the extent they are effective as hedges. Changes in fair valueof derivatives accounted for as cash flow hedges, to the extent they areeffective as hedges, are recorded in other comprehensive income net of deferredtaxes. Changes in fair values of derivatives not qualifying as hedges arereported in net income.

Under Irish GAAP the functional currency of theGroup’s operations in Latin America is the US$. The Group’s investment in theseoperations is financed by US$ borrowing. The carrying amounts of theseoperations are translated at the end of each accounting period at the closingrates of exchange. The resulting exchange differences are taken directly toreserves. Exchange gains or losses on the related US$ borrowing are then offsetas a reserve movement against the exchange differences.

Under U.S. GAAP thefunctional currency of our Latin American operations is the local currency ofeach of the countries in which we operate. While net investment hedgeaccounting is permitted, the use of a different functional currency for ourLatin American operations results in our US$ debt not directly matching thelocal currency net assets. The Group does not meet the US GAAP criteria for netinvestment hedge accounting using a tandem currency debt instrument and as aresult the translation gains and losses on the debt instrument are recorded inthe statement of operations rather than in other comprehensive income.

**Currency swaps**

Under Irish GAAP, the fairvalue of currency swaps relating to outstanding debt is an adjustment to thecarrying value of debt. Under US GAAP, it would be separately recorded as partof other assets or liabilities.

**Impairment writedowns**

Under Irish GAAP,impairment writedowns are included in accumulated depreciation. Under US GAAPthey would be deducted from the cost of the assets identified as beingimpaired.

F-135

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

Under US GAAP, SFAS No. 144,‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’ establishesa single accounting model for long-lived assets to be disposed of by saleconsistent with the fundamental provisions of SFAS No. 121, ‘‘Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to beDisposed of’’. While it supersedes portions of APB Opinion 30, ‘‘Reporting theResults of Operations-Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions’’, it retains the discontinued operations presentation, yet itbroadens that presentation to include a component of an entity (rather than asegment of a business). However, discontinued operations are no longer recordedat net realizable value and future operating losses are no longer recognizedbefore they occur. Under SFAS No. 144, it is no longer necessary toallocate goodwill to long-lived assets and then perform impairment testing.Furthermore, it has been stipulated that in situations where it is expectedthat certain flows of capital will be accumulated in areas subject toimpairment testing, these can be calculated on the basis of aprobability-weighted cash flow estimate. SFAS No. 144 also establishescriteria for determining when an asset should be treated as held for sale.

**Insurance receipts**

Under Irish GAAP insurance receipts related to theinterruption of business are deferred and released to income against therelated costs.

Under US GAAP,FIN 30, SOP 96-1 and EITF******01-13require insurance receipts to be recognized on receipt.

**Restructuring andintegration costs**

The rules for recognizingrestructuring and integration costs in the statement of operations aregenerally consistent between Irish and US GAAP. However, under Irish GAAP, onthe acquisition of a business, costs in connection with restructuring would notbe recorded in purchase accounting but would be expensed as incurred postacquisition. Under US GAAP, a purchase accounting liability would be recordedfor qualifying costs and goodwill increased if certain requirements aresatisfied as prescribed by EITF 95-3.

**Leveraged buyouttransactions**

Under US GAAP, because ofthe application of the EITF issue 88-16, ‘‘Basis in Leveraged BuyoutTransactions’’, only partial purchase accounting applied to the acquisition ofJSG in 2002. The approximate 8% rollover investment by senior managementshareholders would be valued at their predecessor basis in JSG as opposed tothe inherent new basis in successor. The primary effect of that adjustment wasto reduce goodwill and shareholders’ equity. Under Irish GAAP, no suchadjustment is required.

**Composition of JSGFunding Group—consolidation of companies sold to affiliates**

As part of the MDPacquisition, certain assets were transferred to newcos, wholly ownedsubsidiaries of JSL. The newcos borrowed €125million which was lent to JSL to fund a €125 million capitalcontribution in JSG Funding. Under US GAAP, the newcos would be consolidated inJSG Acquisitions’s 

F-136

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

financialstatements, causing debt of JSG Acquisitions to increase and equity of JSGAcquisitions to decrease. Even though JSG Aquisitions under US GAAP wouldconsolidate the newcos, JSG Acquisitions had no repayment obligations relatingto the newco debt, which was recourse only to the assets of the newcos. Thenewcos facility was fully paid before December 31, 2003.

**Consolidation ofassets held for sale**

The European Commission approval of the Kappa mergerrequired the divestment by the group of certain Kappa and Smurfit plants. UnderIrish GAAP the Smurfit plants continue to be consolidated until they are soldand the Kappa plants are included as available for sale and are shown ascurrent assets recorded at the lower of cost or net realizable value.

Under US GAAP both the Kappa and the Smurfit plantsare consolidated but treated as held for sale under SFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets”. The assetsand liabilities are included at fair value less costs to sell and are shown ascurrent assets and liabilities. Any fair value adjustment on the Kappa plantsis treated as part of purchase price accounting but any subsequent adjustmentsto fair value will be taken to the income statement. Assets held for saleincludes assets of €92,901,000 and liabilitiesof €38,497,000which are included in the European Specialties segment.

Under US GAAP, the resultsfrom operations for assets held for sale are included in the consolidatedstatement of operations whereas they are excluded under Irish GAAP.

**Inventory valuation—fairvalue**

Under Irish GAAP the fair value of inventory in anacquisition would be based either, on the current cost to the acquired entityof reproducing the inventory or on the historical cost of the inventory(including the interest cost of holding the inventory) where it is difficult tofind replacement cost as replacement would be impossible.

Under US GAAP, inventoryacquired in a transaction accounted for under the purchase method is asfollows: (a) finished are valued at estimated selling prices less the sum ofthe costs of disposal and a normal profit; (b) work in process inventories arevalued at estimated selling prices less the sum of the costs of completion,costs of disposal, and a normal profit; and (c) raw material inventories arevalued at current replacement cost. The differences in valuation of inventoryacquired in the Kappa transaction under Irish GAAP and US GAAP will result inan adjustment to goodwill in the reconciliations.

**Long-termreceivables**

Under Irish GAAP, certainlong-term receivables are included in current assets. Under US GAAP, they areincluded in long term assets

F-137

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**CurrencyTranslation Adjustment**

Adjustments arising ontranslation of the results of non-euro entities operations at average rates andon restatement of the opening net assets at closing rates into the consolidatedfinancial statements are dealt with in the consolidated statement of totalrecognized gains and losses under Irish GAAP and in the statement of othercomprehensive income under US GAAP. The currency translation adjustmentincluded in other comprehensive income includes the translation impact of theadjustments to net loss under US GAAP for each year. Furthermore, the currencytranslation adjustment for each Irish GAAP to US GAAP reconciling item has beenincluded in their respective line items in the shareholders’ reconciliationitself.

**Scope ofConsolidation—push-down of PIK notes**

**On December 1, 2005 SKGL, JSGAcquisitions and the shareholders of Kappa Holding B.V. (“Kappa”) concluded anagreement resulting in the merger of the operations of both groups ofcompanies. The merger was completed through the issue of shares by SKGL and thepayment of consideration comprising cash of approximately**€238million and an €89 million subordinated promissory note, primarilyto Kappa’s former shareholders. These 9% shareholder PIK notes mature onDecember 31, 2016.

**In January 2005, JSG Holdings plc(“JSG Holdings”) completed an offering of**€325million in aggregate principle amount of 11.5% senior PIK notes due 2015,through a series of transactions substantially all of the net proceeds werepaid to shareholders by means of a capital reduction under Irish law. 

**Under Irish GAAP, transactions ofboth SKGL and JSG Holdings are not consolidated in the Group’s consolidatedfinancial statements.**

**Under US GAAP in certaincircumstances, parent company third party debt and associated costs would bepushed-down to the reporting entity.**

**Effectively,the Group is deemed to absorb a majority of the risk of certain of the debttransactions of JSG Holdings and SKGL. As such, these aforementioned debttransactions have been pushed down into the consolidated financial statementsas of December 31, 2005. The JSG Holdings transaction would be reflected as anincrease of outstanding debt with the resulting proceeds treated as adistribution to shareholders. The SKGL transaction would also be reflected asan increase of outstanding debt with an equal reduction in equity. The accruedinterest associated with these notes would be recorded in the statement ofoperations.**

The fair value of the11.5% senior PIK notes due 2015 and of the 9% subordinated promissory notes asat December 31, 2005 was €322.4 million and €89.6 millionrespectively.

**Gain on Munksjödisposal**

The Company disposed of its Munksjö pulp, specialtypaper and tissue operations during the year ended December 31, 2005. As thecarrying value of these entities differed under Irish GAAP and US GAAP, thereconciliation of income includes an adjustment to the gain on disposalaccordingly.

F-138

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**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

The following is a summaryof the significant adjustments to net loss and shareholders’ equity which wouldbe required if US GAAP were to be applied instead of Irish GAAP.

| **Income**                                                                                    | ** ** | ** **         | ** ** | **Restated  2005** | ** ** | **Restated  2004** | ** ** | **Restated  2003** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                                                    | ** ** | **€000**      | ** ** | **€000**      | ** ** | **€000**      | ** ** |
| Net loss reported in the consolidated statement of operations                                 |       | (171,470           | )          | (33,858            | )          | (66,665            | )          |
| Adjustments:                                                                                  |       |               |       |               |       |               |       |
| Goodwill amortization                                                                         |       | 28,914             |       | 37,925             |       | 33,817             |       |
| Other intangible amortization                                                                 |       | (2,038             | )          | —             |       | —             |       |
| Retirement benefits                                                                           |       | (8,118             | )          | (3,061             | )          | (3,999             | )          |
| Deferred taxation                                                                             |       | 4,936              |       | 9,309              |       | 22,699             |       |
| Stock based compensation expense                                                              |       | (17,696            | )          | (330               | )          | (493               | )          |
| Inventory valuation—fair value                                                           |       | (5,451             | )          | —             |       | (5,264             | )          |
| Management rollover investment                                                                |       | 614                |       | 616                |       | 894                |       |
| Financial instruments—fair value                                                         |       | 11,414             |       | (33,275            | )          | (13,779            | )          |
| Translation gains/(losses) arising on net investment hedging                                  |       | (66,808            | )          | 44,056             |       | 116,054            |       |
| Consolidation of companies  sold to affiliates                                                |       | (34,053            | )          | (8,195             | )          | (3,295             | )          |
| Adjustment to gain on Munksjö  disposal                                                  |       | 2,597              |       | —             |       | —             |       |
| Consolidation of assets held  for sale                                                        |       | 163                |       | —             |       | —             |       |
| Insurance receipts                                                                            |       | (398               | )          | —             |       | —             |       |
| Push down of PIK notes                                                                        |       | (36,959            | )          | —             |       | —             |       |
|                                                                                          |       | (122,883           | )          | 47,045             |       | 146,634            |       |
| **Net (loss)/income as adjusted  to accord with US GAAP**                                     |       | **€(294,353** | **)**      | **€13,187**   | ** ** | **€79,969**   | ** ** |
| Arising  from:                                                                                |       |               |       |               |       |               |       |
| Continuing operations                                                                         |       | (265,928           | )          | (20,701            | )          | 34,011             |       |
| Acquired activities                                                                           |       | (26,181            | )          | —             |       | —             |       |
| Discontinued activities                                                                       |       | (2,244             | )          | 33,888             |       | 45,958             |       |
| **Net (loss)/income  available to ordinary shareholders  as adjusted to accord with US GAAP** |       | **€(294,353** | **)**      | **€13,187**   | ** ** | **€79,969**   | ** ** |

 

F-139

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**Total Comprehensive Income**

| ** **                                                                                        | ** ** | **Restated**  | ** **   | **Restated**  | ** ** | **Restated**  | ** ** |
|---------------------------------------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                                                        | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
| ** **                                                                                        | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| **Net (loss)/income  available to ordinary shareholders as adjusted to accord with US GAAP** | ** ** | **(294,353**  | **)**        | **13,187**    | ** ** | **79,969**    | ** ** |
| Other  comprehensive income / (loss):                                                             |       |          |         |          |       |          |       |
| Financial  instruments—fair value(1)                                                         |       | 7,268         |         | (19,365       | )          | (1,757        | )          |
| Unrealized  foreign currency translation adjustments                                              |       | 84,931        |         | (20,965       | )          | (109,982      | )          |
| Retirement  benefits                                                                              |       | (77           | )            | (4,824        | )          | 6,533         |       |
| **Total  Comprehensive loss**                                                                     | ** ** | **€**    | **(202,231** | **)**         | **€** | **(31,967**   | **)**      | **€** | **(25,237** | **)** |
|                                                                                                   |            |               |              |               |            |               |            |  |  |  |

----

(1)   Financialinstruments—fair value of €7,268,000 in 2005 is net of the tax benefit of €773,000.

Net losses of €3,075,000of the accumulated adjustments to total comprehensive income in respect of thefair value of financial instruments are expected to be reclassified intoearnings in the next twelve months. These instruments derive from gains andlosses on derivatives hedging cash flows on forecasted transactions (themaximum period for which is two years) and on interest rate swaps qualifying ascash flow hedges.

F-140

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**Shareholders’ Equity**

| ** **                                                              | ** **                   | **Restated**      | ** ** | **Restated**  | ** **  |
|-------------------------------------------------------------------------|------------------------------|-------------------|------------|---------------|-------------|
| ** **                                                              | ** **                   | **2005**          | ** ** | **2004**      | ** **  |
| ** **                                                              | ** **                   | **€000**     | ** ** | **€000** | ** **  |
| Shareholders’ equity as reported in the consolidated balance sheet |                         | 1,418,909         |       | 863,272       |        |
| Adjustments:                                                            |                         |              |       |          |        |
| Goodwill                                                                | —Gross                  |              | 112,436    |          | 44,005      |   |
|                                                                    | —Aggregate amortization |              | 101,606    |          | 81,695      |   |
| Other intangibles amortization                                          |                         | (2,038            | )          | —        |        |
| Hyper-inflationary  economies—property, plant and equipment        |                         |              |       |          |        |
|                                                                    | —Cost                   |              | 103,026    |          | 140,133     |   |
|                                                                    | —Aggregate depreciation |              | (49,707    | )             | (63,141     | ) |
| Hyper-inflationary economies—investments                           |                         | 310               |       | 3,013         |        |
| Retirement benefits                                                     |                         | (30,597           | )          | (34,147       | )           |
| Deferred taxation                                                       |                         | (137,896          | )          | (127,194      | )           |
| Financial instruments—fair value                                   |                         | (30,059           | )          | (48,741       | )           |
| Minority share of US GAAP adjustments                                   |                         | (6,376            | )          | (8,615        | )           |
| Consolidation of companies sold to affiliates                           |                         | (176,859          | )          | (146,519      | )           |
| Rollover investment by JSG management                                   |                         | (74,961           | )          | (75,574       | )           |
| Insurance receipts                                                      |                         | 540               |       | —        |        |
| Provisions                                                              |                         | (8,770            | )          | —        |        |
| Push down of PIK notes                                                  |                         | (442,582          | )          | —        |        |
|                                                                    |                         | (641,927          | )          | (235,085      | )           |
| **Shareholders’ equity as  adjusted to accord with US GAAP**       | ** **                   | **€776,982** | ** ** | **€**    | **628,187** | ** ** |
|                                                                         |                              |                   |            |               |             |  |  |  |

 

Shareholders’ equity underUS GAAP includes assets amounting to €157,285,000 andliabilities amounting €57,443,000, held for sale atDecember 31, 2005.

**U.S.GAAP Restatement Items**

SFAS No. 52 requires goodwill and any fair valueadjustments arising out of the purchase of a foreign entity to be treated ascurrency assets and liabilities of the foreign operation and translated at theclosing rates with differences taken to the currency translation adjustmentrecorded in other comprehensive income as a component of shareholders’ equity.Accordingly, in performing this goodwill allocation to subsidiaries and applicablecurrency translation, the Group has restated financial statement amountspresented in accordance with US GAAP to reflect the currency movementassociated with goodwill in the years 2003 and 2004. This resulted in acumulative increase in currency translation adjustment of €93,533,000as of December 31, 2004 leading to a reduction in both goodwill andshareholders’ equity reported under US GAAP for an identical amount.Consequently, the currency translation adjustment in other comprehensive lossfor the years ended December 31, 2004 and 2003 increased by €8,409,000and €85,124,000,respectively, thereby increasing other comprehensive loss by identical amountsin both years. This restatement did not impact the consolidated statement ofoperations or cash flows for the years ended December 31, 2004 and 2003 aspresented in accordance with US GAAP.

F-141

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted in Ireland and in the United States—(continued)

US GAAP requires parent company third party debt andassociated issue costs to be pushed down to the reporting entity under certaincircumstances. Accordingly, on analysis of parent company third party debt, theGroup considers it appropriate to adopt push-down accounting in respect of theissuance of PIK notes by SKGL with regard to the Kappa acquisition. Thisresulted in a cumulative increase in third party debt of €89,620,000as of December 31, 2005 leading to a reduction in income of €667,000and a reduction in shareholders’ equity reported under US GAAP of €89,620,000.The Group has also pushed down debt issue costs of €8,330,000 related to the €325,000,000PIK notes issued by JSG Holdings which leads to an increase in net loss of €751,000for the year ended December 31, 2005, an increase in deferred debt issuecosts and an increase in shareholders’ equity reported under US GAAP of €7,579,000.  These restatements did not impact theconsolidated statement of operations, balance sheet or cash flows for the yearsended December 31, 2004 and 2003 as presented in accordance with US GAAP. 

Under U.S. GAAP the functional currency of the Group’sLatin American operations is the local currency of each of the countries inwhich it operates. The Group did not meet the criteria for net investment hedgeaccounting using a tandem currency debt instrument under US GAAP and as aresult the Group has restated the statements of operations and othercomprehensive income reclassifying the translation gains and losses on the debtinstrument. For 2003 and 2004 net income under US GAAP increased by €116,054,000and €44,056,000with a corresponding decrease in other comprehensive income. For 2005 netincome under US GAAP decreased by €66,808,000 with acorresponding increase in other comprehensive income. These restatements do notimpact the shareholders’ equity or cash flows reported under US GAAP forany of the years presented.

**The Group has restatedshareholders’ equity presented in accordance with US GAAP to correct certainclerical errors in relation to the fair value adjustments arising on theacquisition of Kappa. These restatements decreased shareholders’ equityreported under US GAAP by**€2,544,000 at December 31, 2005. They did not impact theconsolidated statement of operations or cash flows for the years endedDecember 31, 2005, 2004 and 2003 as presented in accordance with US GAAP.

F-142

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

**Accumulated Other Comprehensive Income Amounts-Restated**

| ** **                             | ** ** | **Currency  Translation  Adjustments** | ** ** | **Financial  Instruments  (Losses)** | ** ** | **Retirement  Benefits** | ** ** | **Total**     | ** **  |
|----------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|--------------------------|------------|---------------|-------------|
| ** **                             | ** ** | **€000**                          | ** ** | **€000**                        | ** ** | **€000**            | ** ** | **€000** | ** **  |
| Balance  at December 31, 2002     |       |                                   | (25,509    | )                                    |       |                     | (4,534     | )             |        |   | 3,773 |   |   | (26,270 | ) |
| Movement  in the year                  |       |                                   | (109,982   | )                                    |       |                     | (1,757     | )             |        |   | 6,533 |   |   | (105,206 | ) |
| Balance at  December 31, 2003     |       |                                   | (135,491   | )                                    |       |                     | (6,291     | )             |        |   | 10,306 |   |   | (131,476 | ) |
| Movement in the year                   |       |                                   | (20,965    | )                                    |       |                     | (19,365    | )             |        |   | (4,824 | ) |   | (45,154 | ) |
| Balance at  December 31, 2004     |       |                                   | (156,456   | )                                    |       |                     | (25,656    | )             |        |   | 5,482 |   |   | (176,630 | ) |
| Movement in the year                   |       |                                   | 84,931     |                                 |       |                     | 7,268      |          |        |   | (77 | ) |   | 92,122 |   |
| **Balance at December 31,  2005** | ** ** | ** **                             | **€** | **(71,525**                          | )          | ** **               | ** ** | **€**    | **(18,388** | **)** | ** ** | ** ** | **€** | **5,405** |   | ** ** | **€** | **(84,508** | **)** |
|                                        |            |                                        |            |                                      |            |                          |            |               |             |  |  |  |  |  |  |  |  |  |  |

 

**Cash Flows**

Theconsolidated statement of cash flows prepared under Irish GAAP presentssubstantially the same information as that required under US GAAP by SFAS No. 95—“Statementof Cash Flows”. This standard differs, however, with regard to theclassification of items within the statements and as regards the definition ofcash and cash equivalents. Under US GAAP, cash would not include bankoverdrafts. The movements on such bank overdrafts are required to be includedin financing activities under SFAS No. 95. Under US GAAP only short terminvestments with a maturity of three months or less at the date of acquisitionare included in cash equivalents. Under Irish GAAP movements in short terminvestments are classified as management of liquid resources. Under Irish GAAP,cash flows are presented separately for operating activities, dividendsreceived from associates, returns on investments and servicing of finance,taxation, capital expenditure and financial investment, acquisitions anddisposals, equity dividends paid, management of liquid resources and financing.US GAAP, however, requires only three categories of cash flow activity to bereported: operating, investing and financing.

Cash flows from taxationand returns on investments and servicing of finance shown under Irish GAAPwould be included as operating activities under US GAAP. Cash flows fromcapital expenditure, financial investment and acquisitions and disposals wouldbe included as investing activities under US GAAP. The payment of dividendswould be included as a financing activity under US GAAP. Under US GAAP,capitalized interest is treated as part of the cost of the asset to which itrelates and is thus included as part of investing cash flows; under Irish GAAPall interest is treated as part of returns on investments and servicing offinance.

The categories of cashflow activity under US GAAP are summarized as follows:

| ** **                                         | ** ** | **2005**      | ** **  | **2004**      | ** ** | **2003**      | ** ** |
|----------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                         | ** ** | **€000** | ** **  | **€000** | ** ** | **€000** | ** ** |
| Cash  inflow from operating activities             |       | 182,698       |        | 318,827       |       | 334,868       |       |
| Cash  (outflow) on investing activities            |       | (530,701      | )           | (174,770      | )          | (333,626      | )          |
| Cash  inflow / (outflow) from financing activities |       | 355,052       |        | (85,896       | )          | 11,039        |       |
| Increase  in cash and cash equivalents             |       | 7,049         |        | 58,161        |       | 12,281        |       |
| Currency  adjustment on cash and cash equivalents  |       | 9,804         |        | (3,611        | )          | (8,810        | )          |
| Cash  and cash equivalents at beginning of period  |       | 230,873       |        | 176,323       |       | 172,852       |       |
| **Cash and cash equivalents  at end of period**    | ** ** | **€**    | **247,726** | ** **    | **€** | **230,873**   | ** ** | **€** | **176,323** | ** ** |
|                                                    |            |               |             |               |            |               |            |  |  |  |

 

F-143

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted in Ireland and in the United States—(continued)

**Business Combinations—Additional Information Required**

Pro-forma sales and netincome/loss for Group under US GAAP for the year ended December 31, 2005were €7,022million (unaudited) and a loss (€209.1) million (unaudited),respectively (2004: €7,649 million(unaudited) and net income of €107.8 million (unaudited),respectively). Pro forma net income for 2005 includes early debt extinguishmentcosts of €104.7million (unaudited) which are not expected to reoccur.

Other intangiblesamortization charge is projected to be approximately €24 millionannually for the next 5 years.

**Deferred taxation—additional information required bySFAS No. 109**

Theanalysis of the US GAAP deferred taxation liability required by SFAS No. 109is as follows:

| ** **                                           | ** ** | **2005**      | ** **  | **2004**      | ** ** |
|------------------------------------------------------|------------|---------------|-------------|---------------|------------|
| ** **                                           | ** ** | **€000** | ** **  | **€000** | ** ** |
| **Deferred  taxation liabilities:**                  |       |          |        |          |       |
| Excess  of book value over tax value of fixed assets |       | 386,203       |        | 295,702       |       |
| Other  timing differences                            |       | 81,974        |        | 83,526        |       |
|                                                 |       | 468,177       |        | 379,228       |       |
| **Deferred taxation assets:**                        | ** ** | ** **    | ** **  | ** **    | ** ** |
| Net  operating loss carry forwards                   |       | (293,035      | )           | (61,422       | )          |
| Valuation  allowances                                |       | 167,005       |        | 29,631        |       |
| Retirement  benefits                                 |       | (58,264       | )           | (45,679       | )(1)       |
| Other  timing differences                            |       | (2,573        | )           | (42,447       | )          |
|                                                 |       | (186,867      | )           | (119,917      | )          |
|                                                 | ** ** | **€**    | **281,310** | ** **    | **€** | **259,311** | ** ** |
| **Split as follows:**                                | ** ** | ** **    | ** **  | ** **    | ** ** |
| Current                                              |       | (14,418       | )           | (20,177       | )          |
| Non  current                                         |       | 295,728       |        | 279,488       |       |
|                                                 | ** ** | **€**    | **281,310** | ** **    | **€** | **259,311** | ** ** |

----

(1)          Retirementbenefits includes €52,776,000(2004: €44,319,000)in relation to deferred tax which has been recorded within ‘Pensionliabilities’ (note 24).

Valuation allowances areset up for losses carried forward in those jurisdictions in which it is morelikely than not that the losses carried forward will not be utilized to offsetfuture taxable income or in which there is no deferred tax liability againstwhich the related asset can be offset prior to expiry.

**Share option schemes—additional information requiredby SFAS No. 123**

As permitted by SFASNo. 123, “Accounting for Stock-Based Compensation” and amended by SFASNo. 148, “Accounting for Stock-Based Compensation—Transition andDisclosure”, the Group has elected to account for shares to be issued under theManagement Participation Agreement under Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees,” and adopt thedisclosure only provisions of SFAS No. 123 and SFAS No. 148. UnderSFAS No. 123, options are valued at the grant date using the Black-Scholesvaluation model and compensation expenses are recognized ratably over thevesting period. Had compensation expenses been determined as prescribed by SFASNo. 123, the Group’s net loss for the period presented would have been asshown in the table below.

F-144

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**35   DifferencesBetween Accounting Principles Generally Accepted in Ireland and in the United States—(continued)**

The Black-Scholes optionvaluation model was developed for use in estimating the fair value of tradedoptions which have no vesting restrictions and are fully transferable. Inaddition, option valuation models require the input of highly subjectiveassumptions including the expected share price volatility. Because the Group’semployees share options have characteristics significantly different from thoseof traded options and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management’s opinion, theexisting models do not necessarily provide a reliable single measure of thefair value of its employee share options. For purposes of pro formadisclosures, the estimated fair value of the options is amortized to expenseover the options’ vesting period (see “Stock based employee compensationexpense” above for a description of the vesting period).

| ** **                                                                                                       | ** ** | **2005**      | ** **   | **2004**      | ** ** | **2003**      | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|---------------|------------|
| ** **                                                                                                       | ** ** | **€000** | ** **   | **€000** | ** ** | **€000** | ** ** |
| Net loss attributable to common shareholders under  US GAAP                                                      |       |          |         |          |       |          |       |
| As reported (restated)                                                                                           |       | (294,353      | )            | 13,187        |       | 79,969        |       |
| Add: Stock-based employee compensation expense included in reported net  loss                                    |       | 17,696        |         | 259           |       | 394           |       |
| Deduct: Total stock-based employee compensation expense determined  under fair value based method for all awards |       | (1,316        | )            | (1,073        | )          | (769          | )          |
| **Pro forma**(restated)                                                                                          | ** ** | **€**    | **(277,973** | **)**         | **€** | **12,373**    | ** ** | **€** | **79,594** | ** ** |
|                                                                                                                  |            |               |              |               |            |               |            |  |  |  |

 

In September 2002, Jefferson Smurfit Group Ltd.(f/k/a MDCP Acquisitions plc) (“JSGL”) adopted the 2002 Management Equity Plan(the “2002 Plan”). The Plan provides for the issuance of equity purchase rightsfor a nominal value of €0.001 each throughlong-term equity incentive awards to our eligible employees, officers, anddirectors (“Participants”). Each award is comprised of Series A,Series B and Series C convertible shares in JSGL and is proportionedas 40%, 40% and 20%, respectively. Series A convertible shares vest over athree year period ending on December 31, 2007. Series B andSeries C convertible shares will convert over the same time period ifcertain Internal Rate of Return performance requirements are met. Each seriesof convertible share would automatically convert into Series D convertibleshares upon vesting. Subject to certain criteria, these Series Dconvertible shares then could be converted into Ordinary Shares of JSGL uponpayments of an agreed upon conversion price, usually fair market value of JSGLshares at the date of the original award grant. Each award has a life of tenyears from the date of grant. Also, there are certain restrictions ontransferring convertible or ordinary shares. When a Participant terminatesemployment from JSGL, JSGL reserves the right to redeem or purchase theconvertible shares and any Ordinary Shares acquired as a result of theconversion thereof.

In February 2004, the 2002 Plan was amended (the“2004 Plan”) and restated to, among other things, to provide a clause thatprovides variability in the exercise price for the aforementioned equity awardsbased upon accrued interest for the senior PIK notes in JSG Holdings plc.Furthermore, the awards were exchanged for an identical number of shares in JSGPackaging Ltd. (subsequently renamed to Smurfit Kappa Group Ltd. (“SKG”) in2005). These changes to the 2002 Plan did not take affect untilFebruary 2005 when a corporate restructuring occurred. All othersignificant terms and conditions of the 2002 Plan remained unchanged with theamendment.

F-145

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

In December 2005, the 2004 Plan was amended (the“2005 Plan”) in which SKG gave Participants the opportunity to exchange theirawards of Series A, Series B and Series C convertible sharesinto an equal number of Series E, Series F and Series Gconvertible shares having basically the same terms and conditions. Participantshad to exchange their entire award, not just a particular series of convertibleshares. The main changes to the convertible shares were that vesting dates werechanged to the three years ended December 31, 2010 and the performancecriteria for the Series F and Series G convertible shares wereslightly different to those for the Series B and Series C convertibleshares, which they replaced. Additionally, SKG introduced Series Hconvertible shares, which automatically convert into Series I convertibleshares upon vesting then can be converted into Ordinary Shares of SKG. Thevesting provisions for Series H convertible shares are similar toSeries F convertible shares except that once converted into Series Iconvertible shares, they are not subject to the variable exercise price thatthe other series of convertible shares possess. All other significant terms andconditions of the 2004 Plan remained unchanged with the amendment.

The opportunity to exchange the convertible sharesunder the 2005 Plan did not occur until the first quarter of 2006. Accordingly,as of December 31, 2005, no Series E, Series F or Series Gconvertible shares were outstanding.

A summary of the activity under the 2002 Plan, asamended, for the three years ended December 31, 2005 is presented below:

| ** **                             | ** ** | **A Convertible** | ** **    | **B Convertible** | ** ** | **C Convertible** | ** **    | **H Convertible** | ** ** | **Total**  | ** **    |
|----------------------------------------|------------|------------------------|---------------|------------------------|------------|------------------------|---------------|------------------------|------------|------------|---------------|
| April 16,  2003 Shares allotted   |       |                   | 3,118,907     |                   |       |                   | 3,118,907     |                   |       |       | 1,559,449     |   |   |   | **—** |   |   | 7,797,263 |   |
| October 21,  2003 Shares allotted |       |                   | 176,253       |                   |       |                   | 176,253       |                   |       |       | 88,126        |   |   |   | **—** |   |   | 440,632 |   |
| **Balance at December 31, 2003**  | ** ** | ** **             | **3,295,160** |                   | ** ** | ** **             | **3,295,160** |                   | ** ** | ** ** | **1,647,575** |   | ** ** | ** ** | **—** |   |   | 8,237,895 |   |
| March 5,  2004 Shares allotted    |       |                   | 41,534        |                   |       |                   | 41,534        |                   |       |       | 20,767        |   |   |   | **—** |   |   | 103,835 |   |
| **Balance at December 31, 2004**  | ** ** | ** **             | **3,336,694** |                   | ** ** | ** **             | **3,336,694** |                   | ** ** | ** ** | **1,668,342** |   | ** ** | ** ** | **—** |   |   | 8,341,730 |   |
| December 5,  2005 Shares allotted |       |                   | —        |                   |       |                   | —        |                   |       |       | —        |   |   |   | 2,062,880 |   |   | 2,062,880 |   |
| **Balance at December 31, 2005**  | ** ** | ** **             | **3,336,694** |                   | ** ** | ** **             | **3,336,694** |                   | ** ** | ** ** | **1,668,342** |   | ** ** | ** ** | **2,062,880** |   | ** ** | **10,404,610** | ** ** |
| **Exercisable  at December 31, 2005**  | ** ** | ** **             | **1,112,231** |                   | ** ** | ** **             | **—**    |                   | ** ** | ** ** | **—**    |   | ** ** | ** ** | **—** |   | ** ** | **1,112,231** | ** ** |

 

**Theexercisable price for all convertible shares at December 31, 2005 was**€5.12.

**Pension costs andtermination indemnities—information required by SFAS No. 87 and SFAS No. 132**

The components of thedefined benefit net pension expense for the Group’s defined benefit plans,termination indemnities and post retirement healthcare defined benefit plansfor the years ended December 31, 2005, 2004 and 2003 under SFAS No. 87amended by SFAS No. 132 are estimated to be as follows:

F-146

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted in Ireland and in the United States—(continued)

| ** **                                                  | ** ** | **2005**      | ** ** | **2004**      | ** ** | **2003**      | ** ** |
|-------------------------------------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                                                  | ** ** | **€000** | ** ** | **€000** | ** ** | **€000** | ** ** |
| Service cost                                                |       | 37,450        |       | 38,470        |       | 36,885        |       |
| Interest cost                                               |       | 57,731        |       | 56,282        |       | 55,573        |       |
| Expected return on plan assets                              |       | (44,259       | )          | (40,627       | )          | (39,669       | )          |
| Amortization of unrecognized transition obligation or asset |       | 112           |       | —        |       | —        |       |
| Recognized gains and losses                                 |       | 5,453         |       | 61            |       | 4,118         |       |
| Recognized prior service cost                               |       | (451          | )          | 57            |       | 655           |       |
| Loss due to settlement or curtailment                       |       | (2,564        | )          | (636          | )          | —        |       |
|                                                        | ** ** | **€**    | **53,472** | ** **    | **€** | **53,607**    | ** ** | **€** | **57,562** | ** ** |
|                                                             |            |               |            |               |            |               |            |  |  |  |

 

F-147

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

The estimated fund statusof the Group’s defined benefit plans, termination indemnities and postretirement healthcare defined benefit schemes under SFAS No. 87 amended bySFAS No. 132 was as follows:

| ** **                                                                             | ** ** | **2005**      | ** **   | **2004**      | ** ** |
|----------------------------------------------------------------------------------------|------------|---------------|--------------|---------------|------------|
| ** **                                                                             | ** ** | **€000** | ** **   | **€000** | ** ** |
| **Change in benefit obligation**                                                       |       |          |         |          |       |
| Benefit  obligation at beginning of period                                             |       | 1,123,272     |         | 1,081,891     |       |
| Service  cost                                                                          |       | 37,450        |         | 38,470        |       |
| Interest  cost                                                                         |       | 57,731        |         | 56,282        |       |
| Contributions  by plan participants                                                    |       | 7,180         |         | 7,908         |       |
| Actuarial  gains and losses                                                            |       | 89,686        |         | 8,486         |       |
| Benefits  paid                                                                         |       | (58,201       | )            | (60,748       | )          |
| Divestitures,  curtailments or settlements                                             |       | (8,997        | )            | (542          | )          |
| Plan amendments                                                                        |       | (61           | )            | (1,793        | )          |
| Reclassification                                                                       |       | —        |         | 2,291         |       |
| Acquisitions                                                                           |       | 799,806       |         | —        |       |
| Disposals                                                                              |       | (29,741       | )            | (101          | )          |
| Currency adjustments                                                                   |       | 25,249        |         | (8,872        | )          |
| Benefit obligation at end of period                                                    |       | 2,043,374     |         | 1,123,272     |       |
| **Change in plan assets**                                                              | ** ** | ** **    | ** **   | ** **    | ** ** |
| Fair value of plan assets at beginning of period                                       |       | 655,105       |         | 621,833       |       |
| Actual return on assets                                                                |       | 121,834       |         | 40,999        |       |
| Contributions by employer                                                              |       | 51,077        |         | 51,921        |       |
| Contributions by plan participants                                                     |       | 7,180         |         | 7,908         |       |
| Benefits paid                                                                          |       | (58,201       | )            | (60,748       | )          |
| Divestitures, curtailments or settlements                                              |       | (3,048        | )            | —        |       |
| Acquisitions                                                                           |       | 536,793       |         | —        |       |
| Disposals                                                                              |       | (7,705        | )            | —        |       |
| Currency adjustment                                                                    |       | 16,156        |         | (6,808        | )          |
| Fair value of plan assets at end of period                                             |       | 1,319,191     |         | 655,105       |       |
| Funded status of the plans                                                             |       | (724,183      | )            | (468,167      | )          |
| Amounts available to be  applied as an increase / (reduction) of future pension costs: |       |          |         |          |       |
| Unrecognized actuarial gains or losses                                                 |       | (7,003        | )            | (13,162       | )          |
| Unrecognized prior service cost                                                        |       | (1,535        | )            | (1,680        | )          |
| Minimum pension liability                                                              |       | (6,020        | )            | (6,694        | )          |
| **(Accrued) pension costs**                                                            | ** ** | **€**    | **(738,741** | **)**         | **€** | **(489,703** | **)** |
|                                                                                        |            |               |              |               |            |  |  |

 

The Group’s postretirement healthcare defined benefitschemes are in the US. The estimated fund status of these schemes at December 31,2005 were €2,412,000 (2004: €2,245,000).

F-148

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between Accounting Principles Generally Accepted inIreland and in the United States—(continued)

Plan assets less thanprojected benefit obligations include overfunded plans at December 31,2005, €3,200,000(2004: nil) and underfunded plans at December 31, 2005 of €727,383,000(2004: €468,167,000).

Thefollowing assumptions were used to determine the defined benefit expense forthe Group.

| ** **                                                          | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Weighted average assumed discount rate                              |       |     | 4.9        | %        |       |     | 5.5        | % |   |   | 5.4 | % |   |
| Weighted average rates of compensation increase                     |       |     | 3.1        | %        |       |     | 3.3        | % |   |   | 3.2 | % |   |
| Weighted  average expected long term rates of return on plan assets |       |     | 6.1        | %        |       |     | 6.7        | % |   |   | 6.5 | % |   |

 

The calculation of theprojected benefit obligation at December 31, 2005 assumed a discount rateof approximately 4.6% (2004: 5.1%).

The assets of the plansare invested primarily in equities, fixed interest securities, insurancecontracts and real estate.

Theweighted-average asset allocations at December 31, 2005 and 2004 by assetcategory of the defined benefit pension schemes is shown below:

| ** **        | ** ** | **Plan assets**   | ** ** |
|-------------------|------------|------------------------|------------|
| ** **        | ** ** | **Target  Allocation** | ** ** | **Percentage of Plan  Assets at December 31,** | ** ** |
| ** **        | ** ** | ** **             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Equity securities |       | 15 - 80%               | ** ** |   | 50 | % |   |   | 49 | % |   |
| Debt securities   |       | 20 - 85%               | ** ** |   | 38 | % |   |   | 39 | % |   |
| Real Estate       |       | 0 - 10%                | ** ** |   | 6 | % |   |   | 6 | % |   |
| Other             |       | 0 - 10%                | ** ** |   | 6 | % |   |   | 6 | % |   |
| Total             |       | ** **             | ** ** |   | 100 | % |   |   | 100 | % |   |

 

The Group maintains target allocation percentagesamong various asset classes based on an investment policy established for thepension plans which is designed to achieve long term rate of return objectives,while mitigating against downside risk and considering expected cash flows. Ourinvestment policy is reviewed from time to time to ensure consistency with ourlong term objective of funding 100% of the projected benefit obligation.

The expected long term rate of return on plan assetsreflects the average return rates expected on the funds invested or to beinvested to provide for the benefits included in the projected benefitobligation. In estimating those rates, appropriate consideration is given tothe current returns being earned by the plan assets in the fund and the ratesof return expected to be available for reinvestment.

The Group’s expected return on assets of the definedbenefit schemes is based on recommendations from the plan actuary, havingconsidered anticipated future long term performance of individual assetclasses. Consideration is also given to the appropriate asset allocationstrategy, given the anticipated requirements of the plan to determine theaverage rate of return expected on the funds invested to provide for thepension plan benefits. While appropriate consideration is given to recent fundperformance and 

F-149

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**35**   Differences Between AccountingPrinciples Generally Accepted in Ireland and in the United States—(continued)

historicalreturns, the assumption is primarily a long-term, prospective rate. Based onour most recent study, the expected long term return assumption effective January 1,2006 will be 6.1%.

The expected contributionsto the defined benefit plans is anticipated to be €80,330,000in the year ending December 31, 2006. The accumulated benefit obligationof all schemes at December 31, 2005 is €1,819,813,000.

Expectedfuture benefit payments for each of the next five fiscal years and in theaggregate for the five fiscal years thereafter are shown below:

| **Year**     | ** ** | ** **    | ** ** | **Benefit Payments** | ** ** |
|--------------|------------|---------------|------------|---------------------------|------------|
| ** **   | ** ** | **€000** | ** ** |
| 2006         |       |          | 80,748     |                      |       |
| 2007         |       |          | 82,077     |                      |       |
| 2008         |       |          | 83,584     |                      |       |
| 2009         |       |          | 88,015     |                      |       |
| 2010         |       |          | 91,278     |                      |       |
| 2011  - 2015 |       |          | 514,856    |                      |       |

 

**36   New AccountingStandards**

**U.S. GAAP**

In November 2004,the FASB issued SFAS 151, ‘‘Inventory Costs—An Amendment of ARB No. 43,Chapter 4’’. SFAS 151 amends the guidance in ARB No. 43, Chapter 4, ‘‘InventoryPricing’’, to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material. Among other provisions,the new rule requires that items such as idle facility expense, excessivespoilage, double freight and rehandling costs be recognized as current-periodcharges. Additionally, SFAS 151 requires that the allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity ofthe production facilities. SFAS 151 is effective for fiscal years beginningafter June 15, 2005 and we are required to adopt it in the first quarterof fiscal year 2006. We do not expect that the adoption of SFAS 151 willhave a material impact on our consolidated results of operations and financialcondition.

In December 2004, theFASB issued SFAS 123 (revised 2004), ‘‘Share-Based Payment’’ which replacesSFAS 123, ‘‘Accounting for Stock-Based Compensation’’, and supercedes APBOpinion 25, ‘‘Accounting for Stock Issued to Employees’’. SFAS 123Rrequires all share-based payments to employees, including grants of employeestock options, to be recognized in the financial statements based on their fairvalues. This statement is effective for accounting periods starting January 1,2006. We are currently evaluating the effect that the adoption of SFAS 123Rwill have on our consolidated results of operations and financial condition.

In December 2004, theFASB issued SFAS 153, ‘‘Exchanges of Nonmonetary Assets—An Amendment of APBOpinion No. 29, Accounting for Nonmonetary Transactions’’. SFAS 153eliminates the exception from fair value measurement for nonmonetary exchangesof similar productive assets in paragraph 21(b) of APB Opinion 29, ‘‘Accountingfor Nonmonetary Transactions’’, and replaces it with an exception for exchangesthat do not have commercial substance. SFAS 153 specifies that a nonmonetary 

F-150

----

**JSG Acquisitions and Subsidiary Companies  Notes to the Consolidated Financial Statements—(continued)**

**36**   New Accounting Standards—(continued)

exchange has commercialsubstance if the future cash flows of the entity are expected to changesignificantly as a result of the exchange. SFAS 153 is effective for the fiscalperiods beginning after June 15, 2005 and is required to be adoptedby us in the first quarter of fiscal year 2006. We are currently evaluating theeffect that the adoption of SFAS 153 will have on our consolidated results ofoperations and financial condition but we do not expect that it will have amaterial impact.

In May 2005, the FASB issued SFAS 154, “AccountingChanges and Error Corrections” (“SFAS 154”) which replaces AccountingPrinciples Board Opinions 20 “Accounting Changes” and SFAS 3, “ReportingAccounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.”SFAS 154 provides guidance on the accounting for and reporting of accountingchanges and error corrections. It requires retrospective application forchanges in accounting principle and the correction of errors. SFAS 154 iseffective for fiscal years beginning after December 15, 2005. The adoptionof this standard is not expected to have a material effect on our results ofoperations or financial position.

In February 2006, the FASB issued SFAS 155, ‘Accountingfor Certain Hybrid Financial Instruments’ (SFAS 155), an amendment of SFAS 140and SFAS 133. SFAS 155 permits election to measure any hybrid financialinstrument at fair value (with changes in fair value recognised in earnings) ifthe hybrid instruments contains an embedded derivative that would otherwise berequired to be bifurcated and accounted for separately under SFAS 133. Theelection to measure the hybrid instrument at fair value is made on aninstrument-by-instrument basis and is irreversible. The Statement is effectivefor all instruments acquired, issued, or subject to a remeasurement event afterthe beginning of fiscal years begin after September 15, 2006 provided thatfinancial statements for any interim period of that fiscal year have not beenissued. We are currently evaluating the effect that the adoption of SFAS 155will have on our consolidated results of operations and financial condition.

In April 2006, the FASBissued SFAS No. 156, “Accounting for Servicing of Financial Assets, anAmendment to FASB Statement No. 140.” SFAS No. 156 amends SFAS No. 140, “Accounting for Transfers andServicing of Financial Assets and Extinguishments of Liabilities,” to permitservicing rights to either be: (1) measured at fair value with changes in fairvalue reported through earnings; or, (2) amortise servicing rights inproportion to and over the estimated net servicing income or loss and assessthe rights for impairment or the need for an increased obligation.  SFAS No. 156 is effective for fiscal yearsbeginning after September 15, 2006.  TheCompany is currently evaluating the impact of adopting SFAS No. 156, but doesnot expect that the adoption will have a material impact on our consolidated resultsof operations or financial condition.

**InternationalFinancial Reporting Standards**

In 2002 the European Union issued regulationsrequiring all companies with securities admitted to trading on a regulatedmarket in any European Economic Area (EEA) State to prepare their financialstatements in accordance with accounting standards issued by the InternationalAccounting Standards Board (‘‘*IASB*’’).For Irish public limited companies with equity securities publicly traded, theregulations apply for accounting periods starting on or after January 1, 2005.For Irish public limited companies whose debt securities only are publiclytraded the regulations may be applied for accounting periods starting on orafter January 1, 2007. Our equity and debt securities are not admitted totrading on a regulated market of any EEA Member State, however we intend toprepare financial statements in accordance with standards issued by the IASBwith effect from January 1, 2007.

F-151

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**37**   OrganizationalStructure

Eachof SKGL, JSG Holdings, JSL, JSG Funding, JSG Acquisitions and JSG are holdingcompanies with no operations of their own. A listing of SKG’s principalsubsidiaries is set out below.
| Subsidiaries                                                                                                                             | ** ** | ** **                                                                                                                                                 | ** ** | **Principal Activities** | ** ** | **Country of  Incorporation** | ** ** | **Holding %** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|------------------------------------|------------|--------------------|------------|
| **Carton  de Colombia, S.A.**

Apartado Aereo  219, Cali, Colombia                                                                       |       | Manufacture  of paperboard and packaging products                                                                                                          | ** ** | **Colombia**                  |       |                               | 70         |               |       |
| **Carton de Venezuela, S.A**

Apartado Aereo 609, Caracas, Venezuela                                                                     |       | Manufacture of paperboard and packaging products                                                                                                           | ** ** | **Venezuela**                 |       |                               | 88         |               |       |
| **Grupo Smurfit Mexico, S.A. de C.V.**

Jaime Balmes, No. 11 Torre D. 7 Piso,

Col. Los Morales Polanco 11510,

Mexico D.F., Mexico |       | Manufacture of paperboard and packaging products                                                                                                           | ** ** | **Mexico**                    |       |                               | 100        |               |       |
| **Kappa Kraftliner****AB**

SE-941 86, Piteå, Sweden                                                                                |       | Manufacture of containerboard and holding company  for operations in Sweden and other countries which manufacture specialty  papers and packaging products | ** ** | **Sweden**                    |       |                               | 100        |               |       |
| **Smurfit****Kappa Nederland B.V.**

**Dr. Holtroplaan 5, 5652 Eindhoven**

**The Netherlands**                                     |       | Holding company for Dutch operations which  manufacture containerboard, solid board and packaging products                                                 | ** ** | **The Netherlands**           |       |                               | 100        |               |       |
| **Nettingsdorfer Papierfabrik AG & Co KG**

A-4054 Nettingsdorf-Fabrik, Austria                                                 |       | Manufacture of containerboard and holding company  for Austrian operations which manufacture corrugated board                                              | ** ** | **Austria**                   |       |                               | 100        |               |       |
| **Smurfit, S.A.**

Paque Saenz Pena 308—8th Floor,

Buenos Aires, Argentina                                                         |       | Manufacture of paperboard and packaging products                                                                                                           | ** ** | **Argentina**                 |       |                               | 100        |               |       |
| **Smurfit Capital Funding Limited******Beech Hill, Clonskeagh, Dublin 4, Ireland                                                         |       | Finance company                                                                                                                                            | ** ** | **Ireland**                   |       |                               | 100        |               |       |
| **Smurfit Deutschland GmbH &  Co KG**

Tilsiter Strasse 144,

22047 Hamburg, Germany                                            |       | Holding company for German operations which  manufacture paperboard and packaging products                                                                 | ** ** | **Germany**                   |       |                               | 100        |               |       |
| **Smurfit  International B.V.**

Fred Roeskestraat  123,

1076 EE  Amsterdam, The Netherlands                                            |       | Principal  international holding company                                                                                                                   | ** ** | **The  Netherlands**          |       |                               | 100        |               |       |

 

F-152

----

**JSG Acquisitions and Subsidiary Companies Notes to the Consolidated Financial Statements—(continued)**

**37**   Organizational Structure—(continued)
| Subsidiaries                                                                                                                | ** ** | ** **                                                                                                                                                                                             | ** ** | **Principal Activities** | ** ** | **Country of  Incorporation** | ** ** | **Holding %** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|------------------------------------|------------|--------------------|------------|
| **Smurfit  International France S.A.**

2 rue Goethe,

75116 Paris, France                                                  |       | Holding  company for French operations whose activities are the manufacture of paperboard  and packaging products                                                                                      | ** ** | **France**                    |       |                               | 100        |               |       |
| **Smurfit  Investments UK Limited**

Darlington Road, West Auckland,

Bishop Auckland, Co. Durham

DL14 9PE, United Kingdom |       | Holding  company for UK operations whose principal activities are the manufacture of  paperboard and packaging  products                                                                               | ** ** | **United Kingdom**            |       |                               | 100        |               |       |
| **Smurfit Kappa Ireland Limited**

Beech Hill,  Clonskeagh, Dublin 4, Ireland                                               |       | Manufacture of paperboard and packaging products and  printing                                                                                                                                         | ** ** | **Ireland**                   |       |                               | 100        |               |       |
| **Smurfit Nervion, S.A.**

B Arriandi s/n, 48215 lurreta,

Vizcaya, Spain                                                   |       | Manufacture of sack paper and holding company for  Spanish, Portuguese and sack converting operations whose principal activities  are the manufacture of paperboard, packaging and paper sack products | ** ** | **Spain**                     |       |                               | 99         |               |       |
| **Smurfit  SISA, S.p.A**

Strada Serravalle  30,

15067 Novi Ligure  (AL), Italy                                            |       | Manufacture of  paperboard and packaging products                                                                                                                                                      | ** ** | **Italy**                     |       |                               | 90         |               |       |

 

 

F-153

----

**JSG Funding and Subsidiary Companies Valuation and Qualifying Accounts**

**Schedule II-I**

**Description**

| ** **                             | ** ** | ** **            | ** ** | **Additions**       | ** ** | ** **      | ** ** | ** **       | ** ** | ** **          | ** ** |
|----------------------------------------|------------|-----------------------|------------|---------------------|------------|-----------------|------------|------------------|------------|---------------------|------------|
| ** **                             | ** ** | **Balance at**   | ** ** | **charged to** | ** ** | ** **      | ** ** | **Acquisitions** | ** ** | **Balance at** | ** ** |
| ** **                             | ** ** | **beginning of** | ** ** | **costs and**  | ** ** | **Exchange**    | ** ** | **and**          | ** ** | **end of**     | ** ** |
| ** **                             | ** ** | **year**              | ** ** | **expenses**        | ** ** | **differences** | ** ** | **Deductions**   | ** ** | **year**            | ** ** |
| ** **                             | ** ** | **€000**         | ** ** | **€000**       | ** ** | **€000**   | ** ** | **€000**    | ** ** | **€000**       | ** ** |
| **Year ended December 31,  2003** |       |                  |       |                |       |            |       |             |       |                |       |   |   |   |   |   |   |   |   |   |   |
| Provision for  bad and doubtful debts  |       |                  | €     | 42,657              |       |            |       | €           | 10,493     |                |       |   | € | (1,408 | ) |   |   | € | 3,098 |   |   |   | € | 54,840 |   |   |
|                                        |            |                       |            |                     |            |                 |            |                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                             | ** ** | ** **            | ** ** | **Additions**       | ** ** | ** **      | ** ** | ** **       | ** ** | ** **          | ** ** |
|----------------------------------------|------------|-----------------------|------------|---------------------|------------|-----------------|------------|------------------|------------|---------------------|------------|
| ** **                             | ** ** | **Balance at**   | ** ** | **charged to** | ** ** | ** **      | ** ** | **Acquisitions** | ** ** | **Balance at** | ** ** |
| ** **                             | ** ** | **beginning of** | ** ** | **costs and**  | ** ** | **Exchange**    | ** ** | **and**          | ** ** | **end of**     | ** ** |
| ** **                             | ** ** | **year**              | ** ** | **expenses**        | ** ** | **differences** | ** ** | **Deductions**   | ** ** | **year**            | ** ** |
| ** **                             | ** ** | **€000**         | ** ** | **€000**       | ** ** | **€000**   | ** ** | **€000**    | ** ** | **€000**       | ** ** |
| **Year ended  December 31, 2004** |       |                  |       |                |       |            |       |             |       |                |       |   |   |   |   |   |   |   |   |   |   |
| Provision for  bad and doubtful debts  |       |                  | €     | 54,840              |       |            |       | €           | 4,048      |                |       |   | € | (385 | ) |   |   | € | (5,593 | ) |   |   | € | 52,910 |   |   |
|                                        |            |                       |            |                     |            |                 |            |                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                             | ** ** | ** **            | ** ** | **Additions**       | ** ** | ** **      | ** ** | ** **       | ** ** | ** **          | ** ** |
|----------------------------------------|------------|-----------------------|------------|---------------------|------------|-----------------|------------|------------------|------------|---------------------|------------|
| ** **                             | ** ** | **Balance at**   | ** ** | **charged to** | ** ** | ** **      | ** ** | **Acquisitions** | ** ** | **Balance at** | ** ** |
| ** **                             | ** ** | **beginning of** | ** ** | **costs and**  | ** ** | **Exchange**    | ** ** | **and**          | ** ** | **end of**     | ** ** |
| ** **                             | ** ** | **year**              | ** ** | **expenses**        | ** ** | **differences** | ** ** | **Deductions**   | ** ** | **year**            | ** ** |
| ** **                             | ** ** | **€000**         | ** ** | **€000**       | ** ** | **€000**   | ** ** | **€000**    | ** ** | **€000**       | ** ** |
| **Year ended  December 31, 2005** |       |                  |       |                |       |            |       |             |       |                |       |   |   |   |   |   |   |   |   |   |   |
| Provision for  bad and doubtful debts  |       |                  | €     | 52,910              |       |            |       | €           | (7,146     | )                   |       |   | € | 959 |   |   |   | € | (892 | ) |   |   | € | 45,831 |   |   |
|                                        |            |                       |            |                     |            |                 |            |                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

S-1

----

**JSG Acquisitions and Subsidiary Companies Valuation and Qualifying Accounts—(continued)**

**Schedule II-II**

**Description**

| ** **                                           | ** ** | ** **            | ** ** | **Additions**       | ** ** | ** **      | ** ** | ** **       | ** ** | ** **          | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|---------------------|------------|-----------------|------------|------------------|------------|---------------------|------------|
| ** **                                           | ** ** | **Balance at**   | ** ** | **charged to** | ** ** | ** **      | ** ** | **Acquisitions** | ** ** | **Balance at** | ** ** |
| ** **                                           | ** ** | **beginning of** | ** ** | **costs and**  | ** ** | **Exchange**    | ** ** | **and**          | ** ** | **end of**     | ** ** |
| ** **                                           | ** ** | **year**              | ** ** | **expenses**        | ** ** | **differences** | ** ** | **Deductions**   | ** ** | **year**            | ** ** |
| ** **                                           | ** ** | **€000**         | ** ** | **€000**       | ** ** | **€000**   | ** ** | **€000**    | ** ** | **€000**       | ** ** |
| **Year ended December 31, 2003** | ** ** | ** **            | ** ** | ** **          | ** ** | ** **      | ** ** | ** **       | ** ** | ** **          | ** ** |
| Provision  for bad and doubtful debts                |       |                  | €     | 42,657              |       |            |       | €           | 10,493     |                |       |   | € | (1,408 | ) |   |   | € | 3,098 |   |   |   | € | 54,840 |   |   |
|                                                      |            |                       |            |                     |            |                 |            |                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                             | ** ** | ** **            | ** ** | **Additions**       | ** ** | ** **      | ** ** | ** **       | ** ** | ** **          | ** ** |
|----------------------------------------|------------|-----------------------|------------|---------------------|------------|-----------------|------------|------------------|------------|---------------------|------------|
| ** **                             | ** ** | **Balance at**   | ** ** | **charged to** | ** ** | ** **      | ** ** | **Acquisitions** | ** ** | **Balance at** | ** ** |
| ** **                             | ** ** | **beginning of** | ** ** | **costs and**  | ** ** | **Exchange**    | ** ** | **and**          | ** ** | **end of**     | ** ** |
| ** **                             | ** ** | **year**              | ** ** | **expenses**        | ** ** | **differences** | ** ** | **Deductions**   | ** ** | **year**            | ** ** |
| ** **                             | ** ** | **€000**         | ** ** | **€000**       | ** ** | **€000**   | ** ** | **€000**    | ** ** | **€000**       | ** ** |
| **Year ended  December 31, 2004** |       |                  |       |                |       |            |       |             |       |                |       |   |   |   |   |   |   |   |   |   |   |
| Provision for  bad and doubtful debts  |       |                  | €     | 54,840              |       |            |       | €           | 4,048      |                |       |   | € | (385 | ) |   |   | € | (5,593 | ) |   |   | € | 52,910 |   |   |
|                                        |            |                       |            |                     |            |                 |            |                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                             | ** ** | ** **            | ** ** | **Additions**       | ** ** | ** **      | ** ** | ** **       | ** ** | ** **          | ** ** |
|----------------------------------------|------------|-----------------------|------------|---------------------|------------|-----------------|------------|------------------|------------|---------------------|------------|
| ** **                             | ** ** | **Balance at**   | ** ** | **charged to** | ** ** | ** **      | ** ** | **Acquisitions** | ** ** | **Balance at** | ** ** |
| ** **                             | ** ** | **beginning of** | ** ** | **costs and**  | ** ** | **Exchange**    | ** ** | **and**          | ** ** | **end of**     | ** ** |
| ** **                             | ** ** | **year**              | ** ** | **expenses**        | ** ** | **differences** | ** ** | **Deductions**   | ** ** | **year**            | ** ** |
| ** **                             | ** ** | **€000**         | ** ** | **€000**       | ** ** | **€000**   | ** ** | **€000**    | ** ** | **€000**       | ** ** |
| **Year ended  December 31, 2005** |       |                  |       |                |       |            |       |             |       |                |       |   |   |   |   |   |   |   |   |   |   |
| Provision for  bad and doubtful debts  |       |                  | €     | 52,910              |       |            |       | €           | (7,146     | )                   |       |   | € | 959 |   |   |   | € | (892 | ) |   |   | € | 45,831 |   |   |
|                                        |            |                       |            |                     |            |                 |            |                  |            |                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

S-2

----

 

**Merrill Corporation Ltd, London**06-24226-1

----