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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

For Quarter Ended March 31, 2003

Commission File Number 0-23876

SMURFIT-STONE CONTAINER CORPORATION
(Exact name of registrant as specified in its charter)

(312) 346-6600
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

        As of March 31, 2003, the registrant had outstanding 245,390,286 shares of common stock, $.01 par value per share.

PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

SMURFIT-STONE CONTAINER CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See notes to consolidated financial statements.

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SMURFIT-STONE CONTAINER CORPORATION

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

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SMURFIT-STONE CONTAINER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to consolidated financial statements.

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SMURFIT-STONE CONTAINER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except share data)

1.    Significant Accounting Policies

        The accompanying consolidated financial statements and notes thereto of Smurfit-Stone Container Corporation ("SSCC" or the "Company") have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals) to present fairly the financial position, results of operations and cash flows. These statements, however, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Interim results may not necessarily be indicative of results that may be expected for any other interim period or for the year as a whole. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the SSCC Annual Report on Form 10-K for the year ended December 31, 2002, filed March 10, 2003 with the Securities and Exchange Commission.

        SSCC owns 100% of the common equity interest in JSCE, Inc. and Stone Container Corporation ("Stone"). The Company has no operations other than its investments in JSCE, Inc. and Stone. JSCE, Inc. owns 100% of the equity interest in Jefferson Smurfit Corporation (U.S.) ("JSC(U.S.)") and is the guarantor of the senior indebtedness of JSC(U.S.). JSCE, Inc. has no operations other than its investment in JSC(U.S.). JSC(U.S.) has operations throughout the United States. Stone has domestic and international operations.

2.     Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation.

3.     Stock-Based Compensation

        The Company accounts for stock option plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost is reflected in net income (loss), as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

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4.     Discontinued Operations

        In December 2002, the Company reached agreements with an affiliate of Jefferson Smurfit Group ("JS Group"), formerly SSCC's largest stockholder, to exchange, in two separate transactions, its European packaging operations for JS Group's 50% ownership in Smurfit-MBI, a Canadian packaging business, and approximately $189 million. The Company recorded a loss on disposition of discontinued European operations of $40 million arising from a provision for taxes on the disposition during the fourth quarter of 2002.

        On March 31, 2003, the Company completed these exchange transactions. Previously, the Company owned 50% of Smurfit-MBI, and as a result of the completed transactions now owns 100% of Smurfit-MBI. No additional adjustments to the loss on disposition of discontinued European operations were recorded during the first quarter of 2003. The Company will finalize its accounting for the disposition of the European operations during the second quarter of 2003 subject to working capital adjustments, which are not expected to have a material impact on the Company's results of operations.

        Smurfit-MBI operates 15 converting facilities in Canada and employs approximately 2,500 hourly and salaried employees. The acquisition of the remaining 50% of Smurfit-MBI was accounted for as a purchase business combination, and accordingly, the assets and liabilities of Smurfit-MBI were included in the     March 31, 2003 consolidated balance sheet and the related results of operations will be included in the consolidated statement of operations after March 31, 2003. The cost to acquire the remaining 50% of Smurfit-MBI of $111 million has been preliminarily allocated to the assets acquired and liabilities assumed according to estimated fair values and is subject to adjustment when additional information concerning asset and liability valuations is finalized. The preliminary allocation has resulted in acquired goodwill of $123 million, including a reclassification of $52 million associated with the Company's original investment, which has been allocated to the Containerboard and Corrugated Containers segment.

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5.     Asset Retirement Obligation

        In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for fiscal years beginning after June 15, 2002. SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. The Company has adopted the new accounting for asset retirement obligations effective January 1, 2003. Application of the new rules has resulted in an increase in net property, plant and equipment of $2 million, recognition of an asset retirement obligation of $10 million and a charge for the cumulative effect of an accounting change of $5 million, net of taxes of $3 million, to recognize asset retirement obligations incurred as of the adoption date. Certain of the Company's facilities have indeterminate lives because they are expected to remain in operation for the foreseeable future. Consequently, the asset retirement obligations related to these facilities cannot be reasonably estimated.

6.     Stevenson Mill Acquisition

        On September 30, 2002, the Company through JSC(U.S.) acquired a corrugating medium mill and related assets from MeadWestvaco Corporation. The purchase price allocation was completed during the first quarter of 2003. The final allocation was a result of the completion of the property, plant and equipment and timberland valuations. The Company has not recorded any goodwill related to this transaction.

7.     Restructuring and Exit Liabilities

        In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The Company adopted SFAS No. 146 effective January 1, 2003.

        The Company recorded restructuring charges of $5 million during the first quarter of 2003 related to the closure of three converting facilities. No significant additional charges related to these shutdown facilities are expected. The assets of these closed operations were adjusted to the estimated fair value less cost to sell resulting in a $1 million non-cash write-down. These shutdowns resulted in approximately 330 employees being terminated. The net sales and operating losses of these facilities in 2003 prior to closure were $10 million and $2 million, respectively. The net sales and operating losses of these facilities in 2002 were $60 million and $7 million, respectively.

        At December 31, 2002, the Company had $52 million of exit liabilities related to the restructuring of operations. During the first quarter, the Company had $3 million of cash disbursements related to these exit liabilities and an $8 million reduction to the environmental exit liabilities.

8.     Other, Net

        For the three months ended March 31, 2003, the Company recorded non-cash foreign currency exchange losses of approximately $16 million related to its operations in Canada.

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9.     Long-Term Debt

        In March 2003, Stone repaid $190 million of the Tranche C term loan due October 1, 2003 and $7 million of the Tranche B term loan due June 30, 2009 from proceeds received from the sale of the European operations (See Note 4) and other asset sales. A loss of $1 million was recorded due to the early extinguishments of debt. In accordance with SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB Statement No. 13, and Technical Corrections," the loss was not recorded as an extraordinary item, but rather a component of income (loss) from continuing operations.

10.   Guarantees

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," which clarifies and expands on existing disclosure requirements for guarantees and requires the Company to recognize a liability for the fair value of its obligations under that guarantee. The initial measurement and recognition provisions are prospective for guarantees issued after December 31, 2002. Disclosure requirements are effective for guarantees issued prior to January 1, 2003.

        The Company has certain woodchip processing contracts, entered into prior to January 1, 2003, extending from 2004 through 2018 with minimum purchase commitments. As part of the agreements, the Company guarantees the third party contractor's debt outstanding and has a security interest in the chipping equipment. At March 31, 2003, the maximum potential amount of future payments related to these guarantees is approximately $55 million and decreases ratably over the life of the contracts. Proceeds from the liquidation of the chipping equipment would be based on current market conditions and may not recover in full the guarantee payments made.

11.   Non-Consolidated Affiliates

        The Company has several non-consolidated affiliates that are engaged in paper and packaging operations. Investments in majority-owned affiliates where control does not exist and non-majority owned affiliates are accounted for under the equity method.

        The Company's only significant non-consolidated affiliate was Smurfit-MBI, in which the Company owned a 50% interest. Upon closing of the exchange transactions, on March 31, 2003, the Company acquired the remaining 50% interest from JS Group (See Note 4). Smurfit-MBI was accounted for as an equity affiliate through March 31, 2003 and as such, is included in the summarized financial information below. Smurfit-MBI had net sales of $110 million and $102 million for the three months ended March 31, 2003 and 2002, respectively.

        Combined summarized financial information for all of the Company's non-consolidated affiliates that are accounted for under the equity method of accounting is presented below:

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12.   Derivative Instruments and Hedging Activities

        SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138 requires that all derivatives be recorded on the consolidated balance sheets at fair value. Changes in the fair value of derivatives not qualifying as hedges are recorded each period in earnings. Changes in the fair value of derivatives qualifying as hedges are either offset against the change in fair value of the hedged item through earnings or recognized in Other Comprehensive Income ("OCI") until the hedged item is recognized in earnings, depending on the nature of the hedge. The ineffective portion of the change in fair value of all derivatives is recognized in earnings. Hedges related to anticipated transactions are designated and documented at hedge inception as cash flow hedges and evaluated for hedge effectiveness quarterly.

        The Company's derivative instruments and hedging activities relate to minimizing exposures to fluctuations in the price of commodities used in its operations and the movement in foreign currency exchange rates.

Commodity Futures Contracts

        The Company uses exchange traded futures contracts to manage fluctuations in cash flows resulting from commodity price risk in the procurement of natural gas. The objective is to fix the price of a portion of the Company's forecasted purchases of natural gas used in the manufacturing process. The changes in the market value of such contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price of the hedged item. As of March 31, 2003, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows associated with natural gas forecasted transactions is nine months. For the three months ended March 31, 2003, the Company reclassified a $2 million gain from OCI to cost of goods sold when the hedged items were recognized. The fair value of the Company's futures contracts at March 31, 2003 is a $4 million gain included in other current assets. At March 31, 2003, the Company recorded an immaterial amount in cost of goods sold on commodity futures contracts, related to the ineffective portion of the change in fair value of certain contracts not qualifying as hedges.

        For the three months ended March 31, 2003, the Company recorded an immaterial amount in cost of goods sold on settled commodity futures contracts, related to the ineffective portion of hedges and contracts not qualifying as hedges.

Foreign Currency Forward Contracts

        The Company enters into foreign currency forward contracts with financial institutions to purchase Canadian dollars, primarily to protect against currency exchange risk associated with expected future cash flows. Contracts typically have maturities of approximately one year or less. The fair value of the Company's foreign currency forward contracts at March 31, 2003 is a $7 million gain included in other current assets. The change in fair value of these contracts is recorded in OCI until the underlying transaction is recorded.

        The cumulative deferred hedge gain on all commodity and foreign currency contracts is $7 million (net of tax of $4 million) at March 31, 2003. The Company expects to reclassify $7 million into earnings over the remainder of 2003.

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13.   Comprehensive Income (Loss)

        Comprehensive income (loss) is as follows:

14.   Earnings Per Share

        The following table sets forth the computation of basic and diluted earnings per share:

        SSCC preferred stock that is convertible into three million shares of common stock with an earnings effect of $3 million are excluded from the diluted earnings per share computation because they are antidilutive.

        Employee stock options are excluded from the diluted earnings per share calculation because they are antidilutive.

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15.   Restricted Stock

        In February 2003, the Company issued approximately 350,000 vested restricted stock units and approximately 75,000 related premium restricted stock units in accordance with its 2002 management incentive plan to settle its 2002 incentive plan liability.

        The premium restricted stock units vest in three years, in accordance with the 2002 management incentive plan. When these non-vested premium restricted stock units are issued, unamortized restricted stock compensation is recorded as a reduction of shareholder equity, and charged to expense over the vesting period.

16.   Business Segment Information

        On January 1, 2003, the Company began reporting the elimination of intercompany profit and the adjustment to record inventory at LIFO at the segment level for management reporting purposes. The information for 2002 has been restated in order to conform to the 2003 presentation.

        The Company has two reportable segments: (1) Containerboard and Corrugated Containers and (2) Consumer Packaging. The Containerboard and Corrugated Containers segment is highly integrated. It includes a system of mills and plants that produces a full line of containerboard that is converted into corrugated containers. Corrugated containers are used to transport such diverse products as home appliances, electric motors, small machinery, grocery products, produce, books, tobacco and furniture. The Consumer Packaging segment is also highly integrated. It includes a system of mills and plants that produce a broad range of coated recycled boxboard that is converted into folding cartons. In addition, the Consumer Packaging segment converts kraft and specialty paper into multiwall bags, consumer bags and intermediate bulk containers. Folding cartons are used primarily to protect products, such as food, fast food, detergents, paper products, beverages, health and beauty aids and other consumer products, while providing point of purchase advertising. Flexible packaging, paper and metalized paper labels and heat transfer labels are used in a wide range of consumer applications. The bags and intermediate containers are designed to ship and protect a wide range of industrial and consumer products including fertilizers, chemicals, concrete and pet and food products.

        Other includes corporate related items and two nonreportable segments, including Reclamation and International. Corporate related items include income and expense not allocated to reportable segments including corporate expenses, restructuring charges and interest expense.

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17.   Contingencies

        The Company's past and present operations include activities which are subject to federal, state and local environmental requirements, particularly relating to air and water quality. The Company faces potential environmental liability as a result of violations of permit terms and similar authorizations that have occurred from time to time at its facilities. In addition, the Company faces potential liability for response costs at various sites for which it has received notice as being a potentially responsible party ("PRP") concerning hazardous substance contamination. In estimating its reserves for environmental remediation and future costs, the Company's estimated liability reflects only the Company's expected share after consideration for the number of other PRPs at each site, the identity and financial condition of such parties and experience regarding similar matters.

        If all or most of the other PRPs are unable to satisfy their portion of the clean up costs at one or more of the significant sites in which the Company is involved or the Company's expected share increases, the resulting liability could have a material adverse effect on the Company's consolidated financial condition or results of operations.

        The Company is a defendant in a number of lawsuits and claims arising out of the conduct of its business, including those related to environmental matters. While the ultimate results of such suits or other proceedings against the Company cannot be predicted with certainty, the management of the Company believes that the resolution of these matters will not have a material adverse effect on its consolidated financial condition or results of operations.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

        Some information included in this report may contain forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in this document, the words "anticipates," "believes," "expects," "intends" and similar expressions as they relate to Smurfit-Stone Container Corporation or its management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control. These factors, risks and uncertainties include the following:

•

the impact of general economic conditions in North America and in other locations in which we currently do business;



•

general industry conditions, including competition and product and raw material prices;



•

fluctuations in interest rates, exchange rates and currency values;



•

unanticipated capital expenditure requirements;



•

legislative or regulatory requirements, particularly concerning environmental matters;



•

access to capital markets;



•

fluctuations in energy prices; and



•

obtaining required consents or waivers of creditors in the event we are unable to satisfy covenants in our debt instruments.

        Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our results of operations or financial condition. We expressly decline any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof.

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RESULTS OF OPERATIONS

        In December 2002, Stone Container reached agreements with an affiliate of Jefferson Smurfit Group (JS Group) to exchange, in two separate transactions, its European packaging operations for JS Group's 50% ownership in Smurfit MBI, a Canadian packaging business, and a payment from JS Group of approximately $189 million. On March 31, 2003, Stone Container completed these exchange transactions. Stone Container previously owned 50% of Smurfit-MBI and as a result of the completed transactions now owns 100% of Smurfit-MBI. Smurfit-MBI operates 15 converting facilities in Canada and employs approximately 2,500 hourly and salaried employees. The acquisition was accounted for as a purchase business combination, and accordingly, the related assets and liabilities of Smurfit-MBI were included in the March 31, 2003 consolidated balance sheet and the results of operations will be included in the consolidated statement of operations after March 31, 2003. The cost to acquire the remaining 50% of Smurfit-MBI of $111 million has been preliminarily allocated to the assets acquired and liabilities assumed according to estimated fair values and is subject to adjustment when additional information concerning asset and liability valuations is finalized. Preliminary goodwill of $123 million, including a reclassification of $52 million associated with Stone Container's original investment, was recorded and allocated to the Containerboard and Corrugated Containers segment.

First Quarter 2003 Compared to First Quarter 2002

        Consolidated net sales of $1,877 million in 2003 increased by 7% compared to 2002 due primarily to the acquisition of the Stevenson, Alabama, containerboard mill and related corrugated container assets, which were acquired on September 30, 2002 (the Stevenson Mill Acquisition), and higher average sales prices for most of our major products. Harsh winter weather conditions in much of the country and uncertainty created by the geopolitical situation resulted in demand weakness and some packaging price erosion during the first quarter of 2003. Compared to the fourth quarter of 2002, our containerboard and corrugated container shipments declined more sharply than expected in what is a seasonally softer quarter. The increase or decrease in net sales for each of our segments is summarized in the chart below:

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        Cost of goods sold increased compared to 2002 due to the Stevenson Mill Acquisition ($58 million), and the higher cost of energy ($29 million) and reclaimed fiber ($26 million). Cost of goods sold, as a percent of net sales increased from 84% in 2002 to 86% in 2003 due primarily to the higher cost of energy and reclaimed fiber.

        Selling and administrative expenses increased due primarily to higher fringe benefit costs and certain litigation costs. Selling and administrative expenses as a percent of net sales was 11% in 2003, comparable to last year.

        We recorded a restructuring charge of $5 million in 2003 related to the closure of three converting facilities.

        Interest expense, net decreased by $6 million due primarily to lower interest rates. Our overall average effective interest rate in 2003 was lower than 2002 by approximately 44 basis points.

        Other, net for 2003 includes non-cash foreign currency exchange losses totaling $16 million compared to zero in 2002.

        Loss from continuing operations before income taxes and cumulative effect of accounting change was $50 million in 2003. The decline in segment earnings was due primarily to higher costs, including energy, employee benefits and fiber, as well as non-cash foreign currency exchange losses. The decline in interest expense partially offset the earnings decline.

        Targeted annual synergy savings from the Stevenson Mill Acquisition totaling $40 million are expected to be achieved through a combination of administrative cost reductions, system optimization and purchasing savings. Synergy savings of approximately $11 million were achieved in the quarter.

        Benefit from income taxes differed from the federal statutory rate due primarily to state income taxes.

Containerboard and Corrugated Containers Segment

        Net sales increased by 8% due primarily to the Stevenson Mill Acquisition, higher containerboard sales volume and an increase in the average sales prices for corrugated containers, market pulp and containerboard. Corrugated container sales prices were higher by 1%. Despite a decrease in containerboard prices of $10 to $15 per ton in February 2003, prices for the quarter were higher than last year by approximately 3%. We announced a $35 per ton price increase for containerboard effective April 14, 2003 and will begin to implement price increases on corrugated containers in the second quarter. The average sales price for market pulp increased by 15%.

        Production of containerboard increased by 13% due primarily to the Stevenson Mill Acquisition. During the first quarter, our containerboard mills ran at an average of 90.2% of capacity. Shipments of corrugated containers increased 3% compared to last year. Solid bleached sulfate production increased 8%. Production of market pulp decreased by 9% and kraft paper production decreased by 2% compared to last year.

        Profits decreased by $36 million due primarily to higher costs, including energy ($25 million), employee benefits and fiber ($9 million). Profits were favorably impacted by higher pricing and higher sales volume, including the Stevenson Mill Acquisition. Cost of goods sold as a percent of net sales increased to 87% for 2003 compared to 83% for 2002 due primarily to the higher reclaimed fiber and energy cost.

Consumer Packaging Segment

        Net sales for 2003 increased by 2% compared to last year due primarily to higher sales volume for folding cartons and multiwall bags. Folding carton shipments increased 6% and multiwall bag shipments were higher by 2%. Production of coated boxboard was 1% lower compared to last year. Folding carton sales prices were 1% lower than last year, while coated boxboard sales prices were 1% higher than last year. We announced a $40 per ton price increase for coated recycled boxboard effective April 2, 2003 and will begin

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to implement price increases on folding cartons in the second quarter. Sales prices for flexible products were higher than last year by 18%, while sales prices for multiwall bags were comparable to last year.

        Profits decreased by $9 million compared to last year due primarily to higher energy cost ($4 million) and higher reclaimed fiber cost ($3 million). Cost of goods sold as a percent of net sales increased to 87% for 2003 compared to 84% for 2002 due primarily to the higher reclaimed fiber and energy cost.

Other Operations

        Net sales increased 7% due primarily to higher sales prices for reclamation products. Tight supplies resulting from higher export demand and reduced collection due to weather related conditions caused prices for old corrugated containers (OCC) to increase. The average price of OCC increased by approximately $20 per ton compared to last year. Total tons of fiber reclaimed and brokered increased 3% compared to last year. Profits of the reclamation operations increased $5 million compared to last year due to the higher average sales prices.

Statistical Data

a)

Excludes discontinued operations.

RESTRUCTURING AND EXIT LIABILITIES

        We recorded restructuring charges of $5 million during 2003 related to the closure of three converting facilities. No additional significant charges are expected for these closures. The assets of these closed operations were adjusted to the estimated fair value less cost to sell resulting in a $1 million non-cash write-down. The cash portion of the restructuring charges was approximately $4 million, primarily for severance costs, which will be paid in 2003. There were no material cash disbursements related to these charges for the three months ended March 31, 2003. These shutdowns resulted in approximately 330 employees being terminated.

        At December 31, 2002, we had $52 million of exit liabilities related primarily to the restructuring of operations in connection with the merger with Stone Container, the acquisition of St. Laurent Paperboard Inc., the Stevenson Mill Acquisition and our restructuring activities. During the three months ended March 31, 2003, we incurred cash expenditures of $3 million for these exit liabilities and reduced environmental exit liabilities by $8 million. The remaining cash expenditures in connection with our restructuring activities will continue to be funded through operations as originally planned.

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LIQUIDITY AND CAPITAL RESOURCES

General

        For the three months ended March 31, 2003, net cash provided by operating activities of $11 million, proceeds from property and timberland disposals and sale of businesses of $199 million and proceeds from exercise of stock options of $4 million were used to fund net debt payments of $144 million, expenditures for property, plant and equipment of $54 million, and preferred stock dividends of $2 million.

        In March 2003, as explained in Results of Operations above, the exchange transactions with JS Group were completed. The $189 million of cash proceeds were used to reduce borrowings outstanding under the Stone Container credit facility. The net impact of the transactions on our future results of operations and liquidity are not expected to be material.

        On April 23, 2003, Jefferson Smurfit (U.S.) announced an agreement to sell approximately 81,000 acres of timberland in Alabama and Tennessee, acquired as part of the Stevenson Mill Acquisition, to a third party for $37.5 million. The transaction is expected to close in the second quarter of 2003. The proceeds will be used to reduce borrowings outstanding under the Jefferson Smurfit (U.S.) credit facility.

        We expect internally generated cash flows, available borrowing capacity under the Jefferson Smurfit (U.S.) and Stone Container revolving credit facilities and future financing activities will be sufficient for the next two years to meet our obligations, including debt service, pension funding, preferred stock dividends, expenditures related to environmental compliance and other capital expenditures. Scheduled debt payments for the remainder of 2003 and for 2004 are $49 million and $331 million, respectively, with varying amounts thereafter. Jefferson Smurfit (U.S), which has $282 million of the 2004 debt payments, has historically had good access to capital markets and expects to be able to repay or refinance its debt maturities on or before their maturity dates. Although we believe that we will have access to the capital markets in the future, these markets are volatile and we cannot predict the condition of the markets or the timing of any related transactions. Access to the capital markets may be limited or unavailable due to an unpredictable material adverse event unrelated to our operational or financial performance. In such an event, we would explore additional options, including, but not limited to, the sale or monetization of assets.

        We intend to hold capital expenditures for 2003 significantly below our anticipated annual depreciation level of $415 million. As of March 31, 2003, we had authorized commitments for capital expenditures of $152 million, including $37 million for environmental projects, $21 million to maintain competitiveness and $94 million for upgrades, modernization and expansion.

        We expect to use any excess cash flows provided by operations to make further debt reductions. As of March 31, 2003, Jefferson Smurfit (U.S.) had $289 million of unused borrowing capacity under its credit agreement and Stone Container and Smurfit-Stone Container Canada Inc. collectively, had $394 million of unused borrowing capacity under the Stone Container credit agreement.

        The obligations under the Jefferson Smurfit (U.S.) credit agreement are unconditionally guaranteed by Smurfit-Stone, JSCE, Inc. and the material subsidiaries of Jefferson Smurfit (U.S.). The obligations under the Jefferson Smurfit (U.S.) credit agreement are secured by a security interest in substantially all of the assets of Jefferson Smurfit (U.S.) and its material subsidiaries, a pledge of all of the capital stock of JSCE, Inc., Jefferson Smurfit (U.S.) and the material U.S. subsidiaries of Jefferson Smurfit (U.S.) and a pledge of 65% of the capital stock of certain foreign subsidiaries of Jefferson Smurfit (U.S.). The security interest under the Jefferson Smurfit (U.S.) credit agreement excludes certain trade receivables and proceeds thereof.

        The obligations of Stone Container under the Stone Container credit agreement are unconditionally guaranteed by the material U.S. subsidiaries of Stone Container. The obligations of Smurfit-Stone Container Canada Inc. under the Stone Container credit agreement are unconditionally guaranteed by Stone Container, the material U.S. subsidiaries of Stone Container and the material Canadian

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subsidiaries of Smurfit-Stone Container Canada Inc. The obligations of Stone Container under the Stone Container credit agreement are secured by a security interest in substantially all of the assets of Stone Container and its material U.S. subsidiaries, 100% of the capital stock of Stone Container's material U.S. subsidiaries and 65% of the capital stock of Smurfit-Stone Container Canada Inc. The security interests securing Stone Container's obligations under the Stone Container credit agreement exclude cash, cash equivalents, certain trade receivables, three paper mills and the land and buildings of certain corrugated container facilities. The obligations of Smurfit-Stone Container Canada Inc. under the Stone Container credit agreement are secured by a security interest in substantially all of the assets of Smurfit-Stone Container Canada Inc. and its material Canadian subsidiaries, the same U.S. assets and capital stock that secure Stone Container's obligations under the Stone Container credit agreement and all of the capital stock of the material Canadian subsidiaries of Smurfit-Stone Container Canada Inc. The security interests securing Smurfit-Stone Container Canada Inc.'s obligations under the Stone Container credit agreement exclude three mills and property related thereto and certain other real property located in New Brunswick and Quebec.

        The credit agreements contain various covenants and restrictions including, among other things, (i) limitations on dividends, redemptions and repurchases of capital stock, (ii) limitations on the incurrence of indebtedness, liens, leases and sale-leaseback transactions, (iii) limitations on capital expenditures, and (iv) maintenance of certain financial covenants. The credit agreements also require prepayments of the term loans from excess cash flow, as defined, and proceeds from certain asset sales, insurance, and incurrence of certain indebtedness. These restrictions, together with our highly leveraged position, could restrict our corporate activities, including our ability to respond to market conditions, to provide for unanticipated capital expenditures or to take advantage of business opportunities. We expect to remain in compliance with all of the financial covenants contained in our credit agreements. However, if the difficult business conditions we experienced in the first quarter of 2003 continue to persist for the remainder of the year, we may need to seek an amendment or waiver to avoid violating certain financial covenants contained in the Jefferson Smurfit (U.S.) credit agreement. We believe that we could obtain such an amendment or waiver, if necessary. However, if there is a violation of any of the financial covenants and we are not successful in obtaining an amendment or waiver, a default would occur under the Jefferson Smurfit (U.S.) credit agreement, which could result in a material adverse impact on our financial condition.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to various market risks, including commodity price risk, foreign currency risk and interest rate risk. To manage the volatility related to these risks, we enter into various derivative contracts. The majority of these contracts are settled in cash. However, such settlements have not had a significant effect on our liquidity in the past, nor are they expected to be significant in the future. We do not use derivatives for speculative or trading purposes.

Commodity Price Risk

        We periodically enter into exchange traded futures contracts to manage fluctuations in cash flows resulting from commodity price risk in the procurement of natural gas. As of March 31, 2003, we had futures contracts to hedge approximately 20% to 25% of our expected natural gas requirements for the months of April through June 2003 and approximately 11% of our requirements for July through December 2003. Our objective is to fix the price of a portion of our forecasted purchases of natural gas used in the manufacturing process. The change in energy cost discussed in Part 1, Item 2—Managements Discussion and Analysis of Financial Condition and results of Operations above includes the impact of the natural gas futures contracts. See Note 12 of the Notes to Consolidated Financial Statements.

Foreign Currency Risk

        Our principal foreign exchange exposure is the Canadian dollar. The functional currency for our operations in Canada is the U.S. dollar. Our investments in foreign subsidiaries with a functional currency other than the U.S. dollar are not hedged.

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        We periodically enter into foreign exchange forward contracts with financial institutions to purchase Canadian dollars in order to protect against currency exchange risk associated with expected future cash flows. Contracts typically have maturities of approximately one year or less. As of March 31, 2003, we had Canadian dollar forward purchase contracts to hedge generally 40% to 60% of our Canadian dollar requirements for the months of April 2003 through September 2003.

        The exchange rate for the Canadian dollar as of March 31, 2003 compared to December 31, 2002 strengthened against the U.S. dollar by 7%. We recognized non-cash foreign currency exchange losses of $16 million for the three months ended March 31, 2003 due to the strengthening of the Canadian dollar. There were no foreign currency exchange gains or losses recognized for the same period last year.

Interest Rate Risk

        Our earnings and cash flows are significantly affected by the amount of interest on our indebtedness. Our objective is to protect Smurfit-Stone from interest rate volatility and reduce or cap interest expense within acceptable levels of market risk. We may periodically enter into interest rate swaps, caps or options to hedge interest rate exposure and manage risk within company policy. Any derivative would be specific to the debt instrument, contract or transaction, which would determine the specifics of the hedge. There were no interest rate derivatives outstanding at March 31, 2003.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within ninety days before the filing date of this report, have concluded that, as of such date our disclosure controls and procedures were adequate and effective to ensure that material information relating to Smurfit-Stone would be made known to them by others within the company.

Changes In Internal Controls

        There were no significant changes in our internal controls or in other factors that could significantly affect Smurfit-Stone's disclosure controls and procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in Smurfit-Stone's internal controls. As a result, no corrective actions were required or undertaken.

PART II—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        In 1998, seven putative class action complaints were filed in the United States District Court for the Northern District of Illinois and in the United States District Court for the Eastern District of Pennsylvania. These complaints alleged that Stone Container reached agreements in restraint of trade that affected the manufacture, sale and pricing of corrugated products in violation of antitrust laws. The complaints have been amended to name several other defendants, including Jefferson Smurfit (U.S.) and Smurfit-Stone. The suits seek an unspecified amount of damages arising out of the sale of corrugated products for the period from October 1, 1993 through March 31, 1995. Under the provisions of the applicable statutes, any award of actual damages could be trebled. The complaints have been transferred to and consolidated in the United States District Court for the Eastern District of Pennsylvania, which has certified two plaintiff classes. The defendants' appeal of the class certification rulings has been denied. We continue to vigorously defend these cases.

        In September 1997, Stone Container received a Notice of Violation and a Compliance Order from the United States EPA alleging non-compliance with air emissions limitations for the smelt dissolving tank at

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our Hopewell, Virginia mill and for failure to comply with New Source Performance Standards applicable to certain other equipment at the mill. In cooperation with the EPA, Stone Container responded to information requests, conducted tests and took measures to ensure continued compliance with applicable emission limits. In December 1997 and November 1998, Stone Container received additional requests from the EPA for information about past capital projects at the mill. In April 1999, the EPA issued a Notice of Violation alleging that Stone Container "modified" the recovery boiler and increased nitrogen oxide emissions without obtaining a required construction permit. Stone Container responded to this notice and indicated the EPA's allegations were without merit. Stone Container entered into a tolling agreement with the EPA to allow us to continue settlement discussions without litigation, which tolls the statute of limitations in this matter until at least September 8, 2003. The tolling agreement does not restrict the EPA from bringing suit against Stone Container.

        In April 1999, the EPA and the Virginia Department of Environmental Quality (Virginia DEQ) each issued a Notice of Violation under the Clean Air Act to St. Laurent's mill located in West Point, Virginia, which St. Laurent acquired from Chesapeake Corporation in May 1997. In general, the Notices of Violation allege that, from 1984 to the present, the West Point mill installed certain equipment and modified certain production processes without obtaining the required permits. St. Laurent made a claim for indemnification from Chesapeake for its costs relating to these Notices of Violation pursuant to the purchase agreement between St. Laurent and Chesapeake, and the parties appointed a third-party arbitrator to resolve the issues relating to the indemnification claim. The arbitrator has established a binding cost-sharing formula between the parties as to the cost of any capital expenditures that might be required to resolve the Notices of Violation, as well as any fines and penalties imposed in connection therewith. St. Laurent and Chesapeake are attempting to reach agreement with the EPA and Virginia DEQ on a capital expenditure plan to remedy these Notices of Violation, and based on the information developed to date and discussions with the EPA and Virginia DEQ, we believe our share of the costs to resolve this matter will not be material and will not exceed established reserves. St. Laurent entered into a tolling agreement with the EPA to allow us to continue settlement discussions without litigation, which tolls the statute of limitations in this matter until at least September 8, 2003. The tolling agreement does not restrict the EPA from bringing suit against St. Laurent. St. Laurent and Chesapeake are continuing to participate in settlement discussions with the EPA.

ITEM 2.    CHANGES IN SECURITIES

        None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

        None

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the first quarter ended March 31, 2003.

ITEM 5.    OTHER INFORMATION

        None

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ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

a)

The following exhibits are included in this Form 10-Q:

b)

Reports on Form 8-K:

        Form 8-K dated January 3, 2003 was filed with the Securities and Exchange Commission ("SEC") in connection with the announcement that Stone Container Finance Company of Canada's tender offer to purchase any and all of its outstanding 11.5% Senior Notes due 2006 ("Notes") had expired and that all Notes tendered were accepted for purchase.

        Form 8-K dated January 29, 2003 was filed with the SEC in connection with the announcement that Smurfit-Stone Container Corporation ("SSCC") had signed a letter of intent with Jefferson Smurfit Group plc ("JS Group") to exchange its European packaging operations and receive JS Group's 50% ownership in Smurfit-MBI and a payment of approximately $190 million. SSCC also announced its earnings for the fourth quarter of 2002 and the full year ended December 31, 2002.

        Form 8-K dated February 21, 2003 was filed with the SEC in connection with the announcement that Dr. Michael W.J. Smurfit will retire as a member and Chairman of SSCC's Board of Directors effective as of May 8, 2003, and upon his retirement, Patrick J. Moore will succeed Dr. Smurfit as Chairman. In addition, SSCC announced that three other members of its Board of Directors, Howard E. Kilroy, Dermot F. Smurfit and Anthony P.J. Smurfit will retire from the Board, effective May 8, 2003.

        Form 8-K dated April 2, 2003 was filed with the SEC in connection with the announcement that Stone Container had consummated the previously announced transaction with JS Group, involving the exchange of its European operations for JS Group's 50% ownership in Smurfit-MBI and a payment from JS Group of approximately $190 million. SSCC also announced that it estimated a loss for the first quarter of 2003 of approximately $.10 per share before restructuring charges and the cumulative effect of an accounting change.

        Form 8-K dated April 24, 2003 was filed with the SEC in connection with the announcement of earnings for the first quarter of 2003.

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Signature

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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Certifications

I, Patrick J. Moore, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Smurfit-Stone Container Corporation;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 7, 2003

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I, Charles A. Hinrichs, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Smurfit-Stone Container Corporation;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 7, 2003

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QuickLinks

ITEM 1. FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES

ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K