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

FORM 10-Q

JSCE, Inc.
(Exact name of registrant as specified in its charter)

        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 o    No ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

        As of June 30, 2004, the registrant had outstanding 1,000 shares of common stock, $.01 par value per share, all of which are owned by Smurfit-Stone Container Corporation.

PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

JSCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See notes to consolidated financial statements.

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JSCE, INC.

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

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JSCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to consolidated financial statements.

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JSCE, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions)

1.     Significant Accounting Policies

        The accompanying consolidated financial statements and notes thereto of JSCE, Inc. 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 which 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 JSCE, Inc. Annual Report on Form 10-K for the year ended December 31, 2003 ("10-K"), filed March 3, 2004 with the Securities and Exchange Commission.

        JSCE, Inc., hereafter referred to as the "Company," is a wholly-owned subsidiary of Smurfit-Stone Container Corporation ("SSCC"). The Company owns 100% of the equity interest in Jefferson Smurfit Corporation (U.S.) ("JSC(U.S.)") and is a guarantor of the senior indebtedness of JSC(U.S.). The Company has no other operations other than its investment in JSC(U.S.). JSC(U.S.) has operations throughout the United States.

2.     Reclassifications

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

3.     Stock-Based Compensation

        Employees of the Company participate in SSCC's 1998 Long-Term Incentive Plan which reserves shares of SSCC common stock for non-qualified stock options, restricted stock units and performance awards.

        In the second quarter of 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," effective as of January 1, 2003. The Company selected the prospective transition method as allowed in SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which requires expensing options prospectively, beginning in the year of adoption. Because the prospective method was used and awards vest over three to eight years, the 2003 and 2004 expense is less than what would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.

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        The following table illustrates the effect on net income if the fair value based method had been applied to all outstanding and unvested awards under the SSCC 1998 Long-Term Incentive Plan in each period.

4.     Asset Retirement Obligation

        Effective January 1, 2003, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations." 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's asset retirement obligations relate primarily to environmental requirements upon closure of an operating facility. 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.

        Upon adoption of SFAS No. 143, the Company recorded an increase in net property, plant and equipment of $1 million, an asset retirement obligation liability of $6 million and a charge for the cumulative effect of an accounting change of $3 million, net of income taxes of $2 million.

5.     Restructuring and Exit Liabilities

        As part of the Company's continued overall strategy to rationalize operations and cut costs in response to market conditions, the Company closed four converting facilities and recorded restructuring charges of $2 million and $7 million during the three and six months ended June 30, 2004, respectively. The assets of these facilities were adjusted to their estimated net realizable value resulting in a $2 million non-cash write down. The remaining charges are primarily for severance and benefits resulting from approximately 415 employees being terminated. The net sales and operating losses of these facilities in 2004 prior to closure were $27 million and $3 million, respectively. The net sales and operating losses of these facilities in 2003 were $83 million and $5 million, respectively. The Company had $1 million of cash disbursements related to these charges for the three and six months ended June 30, 2004.

        At December 31, 2003, the Company had $24 million of exit liabilities related to the restructuring of operations. The Company had $2 million and $7 million of cash disbursements related to these exit liabilities for the three and six months ended June 30, 2004, respectively.

        The Company recorded restructuring charges of $1 million and $4 million in the three and six months ended June 30, 2003, respectively, related to the closure of two converting facilities.

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6.     Long-Term Debt

        In April 2004, JSC(U.S.) obtained an amendment from its lender group easing certain financial covenant requirements under its bank credit agreement as of March 31, 2004, and for future periods through December 31, 2004. The Company expects to remain in compliance with all of the covenants in its credit agreement.

        In May 2003, JSC(U.S.) completed an offering of $300 million of 7.50% unsecured senior notes due 2013. The Company used the proceeds of this issuance to repay the $175 million Tranche A term loan borrowings and $122 million of the outstanding Tranche B term loan borrowings under the JSC(U.S.) credit agreement. A loss of $2 million was recorded due to early extinguishment of debt.

7.     Guarantees

        Effective January 1, 2003, the Company adopted Financial Accounting Standards Board ("FASB") 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 Company has certain wood chip processing contracts, entered into prior to January 1, 2003, extending from 2010 through 2012 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 June 30, 2004, the maximum potential amount of future payments related to these guarantees is approximately $23 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.

8.     Employee Benefit Plans

        The Company participates in the SSCC sponsored noncontributory defined benefit pension plans covering substantially all employees. The defined benefit plans of the Company are combined with defined benefit plans of Stone Container Corporation ("Stone").

        The Company's postretirement plans provide certain health care and life insurance benefits for all salaried as well as certain hourly employees.

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        The components of net periodic benefit costs for the defined benefit plans and the components of the postretirement benefit costs are as follows:

        The Company's 2004 expected contributions to its qualified defined benefit plans, non-qualified defined benefit plans and postretirement plans are not expected to be materially different from the amounts disclosed at December 31, 2003.

        In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (the "Act") was enacted. The Act introduced a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Under FASB Financial Staff Position ("FSP") 106-1, issued in January 2004, related to the Act, the Company elected to defer recognizing the effects of the Act on its accumulated postretirement benefit obligation ("APBO") and net periodic postretirement benefit costs until pending authoritative guidance on the accounting for the federal subsidy is issued.

        In February 2004, the FASB proposed FSP No. FAS 106-b, which provides guidance on the accounting for the effects of the Act and also requires employers to provide certain disclosures provided by the Act. Under FSP No. FAS 106-b, the Company would be required to determine by the end of the first interim period beginning after June 15, 2004, whether its retiree drug coverage is actuarially equivalent to the Medicare Part D coverage. If its plans are actuarially equivalent to Medicare Part D, the Company must reflect the value of the subsidy in the APBO, service cost and amortization of gains and losses, retroactive to January 1, 2004. The Company has determined that certain of its plans are actuarially equivalent to Medicare Part D and estimates the impact of the Act would reduce its APBO as of December 31, 2003 by approximately $4 million. The Company's postretirement benefit costs would be reduced by approximately $1 million in 2004. The Company will recognize the effects of adopting the Act during the third quarter of 2004.

9.     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 and SFAS No. 149, 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

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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 are designated as cash flow hedges.

Commodity Futures Contracts

        The Company uses exchange traded futures and other derivative contracts to manage fluctuations in cash flows resulting from commodity price risk in the procurement of natural gas. The objective is to fix or cap 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 June 30, 2004, 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 30 months. For the three and six months ended June 30, 2004, the Company reclassified an immaterial amount from OCI to cost of goods sold when the hedged items were recognized. The fair value of the Company's contracts at June 30, 2004 is a $3 million gain included in other current assets. At June 30, 2004, the Company recorded an immaterial amount in cost of goods sold on commodity contracts, related to the ineffective portion of the change in fair value of certain contracts and contracts not qualifying as hedges.

        The cumulative deferred hedge is zero at June 30, 2004.

10.   Income Taxes

        In the second quarter of 2003, the Company recorded an income tax benefit of $6 million related to the resolution of certain prior year tax matters.

11.   Comprehensive Income (Loss)

        Comprehensive income (loss) is as follows:

12.   Related Party Transactions

        During the three and six months ended June 30, 2004, SSCC contributed $12 million and $45 million, respectively, to the Company, resulting in increases in additional paid-in capital.

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13.   Business Segment Information

        The Company has three reportable segments: (1) Containerboard and Corrugated Containers, (2) Consumer Packaging and (3) Reclamation. 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 and packaging labels. 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. The Consumer Packaging segment also produces flexible packaging, paper and metalized paper and heat transfer labels used in a wide range of consumer applications. The Reclamation segment collects recovered paper generated by industrial, commercial and residential sources which is used as raw material for the Company's containerboard and boxboard mills as well as sales to external third party mills.

        The Company evaluates performance and allocates resources based on profit or loss from operations before income taxes, interest expense and other non-operating gains and losses. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the Company's 10-K. Intersegment sales and transfers are recorded at market prices.

        The Company's reportable segments are strategic business units that offer different products. The reportable segments are each managed separately because they manufacture distinct products. Other includes corporate related items. Corporate related items include expenses not allocated to reportable segments including corporate expenses, restructuring charges and interest expense.

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        A summary by business segment follows:

14.   Contingencies

        In November 2003, the Company reached an agreement to settle the antitrust class action cases pending against the Company which were based on allegations of a conspiracy among containerboard manufacturers in 1993-95. The Company agreed to make aggregate settlement payments of $36 million, one-half of which was paid in December 2003 and the remainder of which will be paid in January 2005. All of the other defendants have also entered into agreements to settle these class actions; however, most of the defendants in the class actions continue to be defendants in twelve lawsuits brought on behalf of numerous parties that have opted out of the class actions to seek their own recovery. The Company recorded pretax charges of $44 million in 2003 to accrue for the class action settlement and estimated liability of the opt-out cases. The Company believes the liability for these matters was adequately reserved at June 30, 2004.

        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

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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. As of June 30, 2004, the Company had approximately $12 million reserved for environmental liabilities included primarily in other long-term liabilities in the consolidated balance sheet. The Company believes the liability recorded for these matters was adequately reserved at June 30, 2004.

        If all or most of the other PRPs are unable to satisfy their portion of the cleanup 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.

15.   Subsequent Event

        In July 2004, Stone, a wholly-owned subsidiary of SSCC, completed an offering of $200 million of 7.375% unsecured senior notes due 2014. In connection with this new offering, the Company announced its plans to merge the operations of JSC(U.S.) into Stone in the near future, principally to simplify and consolidate debt financing activities. The Company expects that JSCE, Inc. will merge with and into JSC(U.S.), with JSC(U.S.) as the surviving company, prior to the planned merger of Stone and JSC(U.S.). The Company and Stone are direct or indirect wholly-owned subsidiaries of SSCC and, therefore, the historical cost basis of the acquired entity, JSC(U.S.), will carry over into the combined entity. The planned merger will not occur unless JSC(U.S.) and Stone are able to obtain a new combined bank credit agreement that would replace their current bank credit agreements.

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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 JSCE, Inc. 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:

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the impact of general economic conditions in North America where we currently do business;



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



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fluctuations in interest rates, exchange rates and currency values;



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unanticipated capital expenditure requirements;



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legislative or regulatory requirements, particularly concerning environmental matters;



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access to capital markets;



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assumptions related to pension and other postretirement costs;



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assumptions relating to cost savings expected from rationalization;



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fluctuations in energy cost;



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fluctuations in wood fiber and reclaimed fiber costs;



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our substantial leverage; and



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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 achievement 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

Overview

        For the second quarter of 2004, we had net income of $13 million compared to net income of $19 million for same period of 2003.

        The second quarter results improved compared to the net loss of $6 million in the first quarter of 2004, reflecting several favorable trends. The economic recovery in the United States is having a positive effect on the packaging industry. Although markets remain highly competitive, containerboard and corrugated container prices have improved. In addition, the fundamentals for our business are improving: shipments have increased, mill operating rates were high, inventories remained lean and key costs have stabilized. Cost reduction initiatives also contributed to our improved results.

        For the six months ended June 30, 2004, we had net income of $7 million compared to net income of $22 million for the same period of 2003. The $15 million decline compared to last year was due primarily to lower pricing for corrugated containers and higher fiber cost.

Second Quarter 2004 Compared to Second Quarter 2003

(1)

Amounts include corporate expenses, corporate charges to segments for working capital interest and other expenses not allocated to segments.

        Consolidated net sales of $958 million in 2004 were 3% higher compared to 2003 due primarily to higher sales prices for reclaimed fiber. The change in net sales for each of our segments is summarized in the chart below:

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        Cost of goods sold increased due primarily to the higher cost of reclaimed fiber ($28 million). Cost of goods sold as a percent of net sales increased from 88% in 2003 to 89% in 2004 due primarily to the higher cost of reclaimed fiber.

        Selling and administrative expenses in 2004 were comparable to 2003. Selling and administrative expenses as a percent of net sales were 8% in 2004 compared to 9% in 2003.

        We recorded restructuring charges of $2 million during the second quarter of 2004 related to the closure of three converting facilities. The charges were primarily for severance and benefits resulting from approximately 260 employees being terminated.

        Interest expense increased $2 million due to the impact of higher overall average interest rates. The overall average effective interest rate in 2004 was higher than 2003 by approximately 50 basis points.

        Provision for income taxes differed from the amount computed by applying the statutory U.S. federal tax rate to income before income taxes and cumulative effect of accounting change due primarily to state income taxes.

Containerboard and Corrugated Containers Segment

        Net sales increased by 1% due primarily to the increased demand for corrugated packaging. The price increases we announced in March and June of 2004 are taking hold, and containerboard and corrugated container prices have increased compared to the first quarter of 2004. Our prices were lower than the second quarter of 2003, however. The average domestic linerboard price decreased 2.0% compared to 2003. The average corrugated container price per thousand square feet (MSF) decreased by 2.5%. On a per ton basis, average corrugated container prices were flat compared to last year due to a reduction in basis weight. Price increases were also implemented for solid bleached sulfate (SBS), which increased the average price by 0.7% compared to 2003. Shipments of corrugated containers increased by approximately 4% compared to 2003 despite the shutdown of four converting facilities since June 2003.

        Production of containerboard was comparable to last year. Our containerboard mills operated at an average rate of 93.4% of capacity in 2004 compared to 91.8% in 2003. Production of SBS increased by 2% due primarily to the timing of maintenance shutdowns.

        Profits decreased by $13 million due primarily to the lower average sales prices and the higher costs of reclaimed fiber and employee benefits. Improvements in our mill operating rates and savings from our restructuring activities announced in the fourth quarter of 2003, partially offset the increases in costs.

Consumer Packaging Segment

        Net sales decreased by 1% in 2004 primarily as a result of lower shipments of folding cartons and flexible packaging. Shipments of folding cartons were 3% lower than last year. The decline in folding carton shipments was partially offset by the addition of Arko Paper Products, Inc., which was acquired on May 31, 2003. The coated recycled boxboard mills operated at near 100% capacity in 2004 as compared to 94.8% in 2003, but production in 2004 was 4% lower due to the permanent closure of a paper machine. The average price of folding cartons was flat compared to last year. Profits increased by $2 million as a result of the improvements in the boxboard mill operating rates and benefits from cost control efforts.

Reclamation Segment

        Net sales in 2004 increased by 19% compared to 2003 due to higher sales prices. The average price of old corrugated containers (OCC), our predominant grade of recycled fiber, was higher by approximately $20 per ton. Total tons of fiber reclaimed and brokered decreased 3% compared to last year as a result of the shutdown of a coated recycled boxboard paper machine and two of Stone Container Corporation's paper machines in the fourth quarter of 2003. Profits of the reclamation operations increased $2 million compared to last year due to higher average sales prices.

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Six Months 2004 Compared to Six Months 2003

        The decline in our results was due primarily to lower profits in the Containerboard and Corrugated Containers segment, primarily as a result of lower average sales prices and higher cost of fiber. Consolidated net sales of $1,865 million in 2004 were 2% higher compared to 2003 due primarily to higher sales prices for reclamation products and higher sales volume. The change in net sales for each of our segments is summarized in the chart below:

        Cost of goods sold increased in 2004 due to the higher cost of reclaimed fiber ($54 million). Cost of goods sold as a percent of net sales increased from 88% in 2003 to 90% in 2004 due primarily to the higher costs of reclaimed fiber.

        Selling and administrative expenses decreased slightly in 2004 due primarily to the litigation settlement recorded in 2003. Selling and administrative expense as a percent of net sales was 9% in 2004, comparable to 2003.

        We recorded restructuring charges of $7 million in 2004 related to the closure of four converting facilities. The assets of these facilities were adjusted to the estimated net realizable value resulting in a $2 million non-cash write down. The remaining charges were primarily for severance and benefits resulting from approximately 415 employees being terminated.

        The 2004 restructuring activities are a continuation of Smurfit-Stone's restructuring strategy announced in the fourth quarter of 2003 to rationalize operations and cut costs in response to expected future market conditions. Smurfit-Stone's rationalization process, when completed, is expected to result in annual

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savings of approximately $140 million, a portion of which will be realized by us. Smurfit-Stone has achieved the planned reduction of 1,400 positions in its workforce and, for the six months ended June 30, 2004, has realized approximately $80 million of savings from headcount reductions, reduced fixed costs and process improvements.

        Interest expense increased $4 million due to the impact of higher overall average interest rates. The overall average effective interest rate in 2004 was higher than 2003 by approximately 50 basis points.

        Provision for income taxes differed from the amount computed by applying the statutory U.S. federal tax rate to income before income taxes and cumulative effect of accounting change due primarily to state income taxes.

Containerboard and Corrugated Containers Segment

        Net sales in 2004 were comparable to 2003. Increases in sales volumes, primarily corrugated containers, were offset by decreases in the average sales price for corrugated containers The average domestic linerboard price decreased 5.5%. The average price per MSF for corrugated containers declined 3.7%. The average price of SBS was comparable to last year. Shipments of corrugated containers increased 4% compared to 2003. The increase in shipments of corrugated containers was negatively impacted by the shutdown of five operating facilities since January 2003.

        Production of containerboard increased 2.6%. Our containerboard mills operated at an average rate of 89.4% of capacity in 2004 compared to 86.5% in 2003. Production of SBS decreased by 7% due primarily to the timing of maintenance shutdowns.

        Profits decreased by $25 million due primarily to lower average sales prices and higher costs of reclaimed fiber and employee benefits. Improvements in our mill operating rates and savings from our restructuring activities, partially offset the lower average sales prices and the increases in costs.

Consumer Packaging Segment

        Net sales declined by 1% due primarily to lower sales volumes for folding cartons, coated recycled boxboard, laminated products and flexible packaging. The coated recycled boxboard mills operated at an average rate of 100% of capacity in 2004 as compared to 95.4% in 2003, but production of coated recycled boxboard in 2004 was 4% lower due to the permanent closure of a paper machine. Shipments of laminated products declined as a result of a plant sale. The average price for folding cartons was 1% lower compared to last year. Profits increased by $2 million as a result of the improvements in the boxboard mill operating rates and benefits from cost control efforts.

Reclamation Segment

        Net sales in 2004 increased by 18% compared to 2003 due primarily to higher sales prices. The average price of OCC increased approximately $25 per ton compared to last year. Total tons of fiber reclaimed and brokered decreased 3% compared to last year as a result of the shutdown of a coated recycled boxboard paper machine and two of Stone Container's paper machines in the fourth quarter of 2003. Profits of the reclamation operations increased $2 million compared to last year due to the higher average sales prices.

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Statistical Data

LIQUIDITY AND CAPITAL RESOURCES

        The following table summarizes our cash flows for the six months ended June 30,:

Net Cash Used For Operating Activities

        Net cash used for operating activities for the six months ended June 30, 2004 was $55 million. The decrease of $41 million compared to 2003 was due primarily to lower segment profits and higher working capital levels. Segment profits declined due primarily as a result of lower average selling prices for corrugated containers and higher costs of fiber. Working capital increased $62 million in the first six months of 2004, as compared to an increase of $54 million for the same period last year. The higher level of working capital was primarily the result of an increase in accounts receivable, which was impacted by the increases in product pricing.

Net Cash Used For Investing Activities

        Net cash used for investing activities was $26 million for the six months ended June 30, 2004. Expenditures for property, plant and equipment were $35 million in 2004 compared to $56 million in 2003. The $35 million expended for property, plant and equipment included $3 million for environmental projects and $32 million for upgrades, modernization and expansion. Last year also included a $26 million payment for the Arko Paper Products, Inc. acquisition.

Net Cash Provided By Financing Activities

        Net cash provided by financing activities for the six months ended June 30, 2004 was $79 million, including net borrowings of $38 million and capital contributions from Smurfit-Stone totaling $45 million. The cash provided by financing activities was used to fund operating and investing activities.

        On April 21, 2004, Jefferson Smurfit Corporation (U.S.) (JSC(U.S.)) obtained an amendment from its lender group easing certain financial covenant requirements under its bank credit agreement as of March 31, 2004 and for future periods through December 31, 2004. We expect to remain in compliance with all of the financial covenants contained in the JSC(U.S.) credit agreement.

        In July 2004, Stone Container Corporation, a wholly-owned subsidiary of Smurfit-Stone, completed an offering of $200 million of 7.375% unsecured senior notes due 2014. In connection with this new offering, we announced our plans to merge the operations of JSC(U.S.) into Stone Container in the near future, principally to simplify and consolidate debt financing activities. JSCE, Inc. will merge with and into JSC(U.S.), with JSC(U.S.) as the surviving company, prior to the proposed merger of Stone Container and JSC(U.S.). JSCE, Inc. and Stone Container are direct or indirect wholly-owned subsidiaries of

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Smurfit-Stone and, therefore, the historical cost basis of the acquired entity, JSC(U.S.), will carry into the combined entity. The planned merger will not occur unless we are able to obtain a new combined bank credit agreement that would replace the current bank credit agreements of Stone Container and JSC(U.S.).

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

        The JSC(U.S.) credit agreement contains 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 JSC(U.S.) credit agreement also requires prepayments of the term loans from excess cash flows, 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.

Future Cash Flows

        Scheduled debt payments, including capital lease payments, for the remainder of 2004 and for 2005 total $225 million and $212 million, respectively. JSC(U.S.)'s Accounts Receivable Securitization Program, which has an outstanding balance of $223 million at June 30, 2004, expires in December 2004. JSC(U.S.) intends to enter into a new accounts receivable program during 2004 to refinance this debt. JSC(U.S.)'s revolving credit facility matures in 2005. Smurfit-Stone is currently evaluating refinancing alternatives, including a new combined bank credit agreement that would replace the current bank credit agreements of Stone Container and JSC(U.S.). Also, we will continue to pursue opportunities to reduce interest costs by refinancing certain of JSC(U.S.)'s debt obligations. JSC(U.S.) has historically had good access to capital markets and expects to be able to repay or refinance its debt maturities on or before the maturity dates. Although JSC(U.S.) believes it will have access to the capital markets in the future, these markets are volatile and JSC(U.S.) 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 event, JSC(U.S.) would explore additional options such as the sale or monetization of assets.

        As of June 30, 2004, we had authorized commitments for capital expenditures of approximately $61 million. We intend to hold capital expenditures for 2004 to approximately $79 million.

        We recorded restructuring charges of $7 million in 2004, which included $5 million for exit liabilities. The exit liabilities were principally for severance cost and will be paid in 2004. During the six months ended June 30, 2004, we incurred cash expenditures of $1 million for these exit liabilities.

        As of December 31, 2003, we had $24 million of exit liabilities related to the November 1998 Smurfit-Stone merger, the acquisition of the Stevenson mill and related assets and other restructuring activities. During the six months ended June 30, 2004, we incurred cash expenditures of approximately $7 million for these exit liabilities. The remaining cash expenditures in connection with our restructuring activities will continue to be funded through operations as originally planned.

        As described in our 2003 Annual Report on Form 10-K, our pension obligations exceeded the fair value of pension plan assets by $335 million as of December 31, 2003. For the six months ended June 30, 2004, we contributed $68 million to the pension plans, and expect to contribute a total of approximately $70

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million in 2004. Future contributions to our pension and other postretirement plans will be dependent upon future changes in discount rates and the earnings performance of our plan assets.

        We expect an improvement in our profitability and cash flow from operations for the remainder of 2004. As of June 30, 2004, JSC(U.S.) had $290 million of unused borrowing capacity under its bank credit facility. We expect these cash sources and our anticipated financing activities will be sufficient for the next several years to meet our obligations and commitments, including debt service, pension funding, the litigation settlement, severance costs and other rationalization expenditures, expenditures related to environmental compliance and other capital expenditures.

PROSPECTIVE ACCOUNTING STANDARD

        In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (the Act) was enacted. The Act introduced a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Under Financial Accounting Standards Board (FASB) Financial Staff Position (FSP) 106-1, issued in January 2004, related to the Act, we elected to defer recognizing the effect of the Act on our accumulated postretirement benefit obligation (APBO) and net periodic postretirement benefit costs until pending authoritative guidance on the accounting for the federal subsidy is issued.

        In February 2004, the FASB proposed FSP No. FAS 106-b, which provides guidance on the accounting for the effects of the Act and also requires employers to provide certain disclosures provided by the Act. Under FSP No. FAS 106-b, we would be required to determine by the end of the first interim period beginning after June 15, 2004, whether our retiree drug coverage is actuarially equivalent to the Medicare Part D coverage. If our plans are actuarially equivalent to Medicare Part D, we must reflect the value of the subsidy in the APBO, service cost and amortization of gains and losses, retroactive to January 1, 2004. We have determined that certain of our plans are actuarially equivalent to Medicare Part D and estimate the impact of the Act would reduce our APBO as of December 31, 2003 by approximately $4 million. Our postretirement benefit costs would be reduced by approximately $1 million in 2004. We will recognize the effects of adopting the Act during the third quarter of 2004.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to various market risks, including commodity price 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 and other derivative contracts to manage fluctuations in cash flows resulting from commodity price risk in the procurement of natural gas. As of June 30, 2004, we had futures contracts to hedge up to 50% of our expected natural gas requirements through December 2005. Our objective is to fix or cap the price of a portion of our forecasted purchases of natural gas used in the manufacturing process. The changes in energy cost described in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" above include the impact of the natural gas futures contracts. See Note 9 of the Notes to Consolidated Financial Statements.

Interest Rate Risk

        Our earnings and cash flows are significantly affected by the amount of interest on our indebtedness. Our objective is to protect JSCE, Inc. 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

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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 June 30, 2004.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report and concluded that, as of such date, our disclosure controls and procedures were adequate and effective.

Changes in Internal Controls

        We are in the process of implementing a new company-wide financial system. As a result, we have updated our internal controls as necessary to accommodate the modifications to our business processes and accounting procedures. There have not been any other significant changes in our internal controls over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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 were amended to name several other defendants, including JSC(U.S.) and Smurfit-Stone. The suits sought an unspecified amount of damages arising out of the sale of corrugated products for a period during 1993-95. The complaints were transferred to and consolidated in the United States District Court for the Eastern District of Pennsylvania, which certified two plaintiff classes. In November 2003, Smurfit-Stone reached an agreement to settle the antitrust class action cases pending against Smurfit-Stone, Stone Container and JSC(U.S.). JSC(U.S.) will make a settlement payment of $36 million, one-half of which was paid in December 2003 and the remainder of which will be paid in January 2005. All of the other defendants have also entered into agreements to settle these class actions; however, all of the defendants in the class actions continue to be defendants in 12 lawsuits brought on behalf of numerous parties that have opted out of the class actions to seek their own recovery. All of these cases have been transferred to the same United States District Court for the Eastern District of Pennsylvania for pretrial proceedings. We continue to vigorously defend these opt-out cases. We believe our liability for these matters was adequately reserved at June 30, 2004.

ITEM 2.    CHANGES IN SECURITIES

        None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

        None

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

        None

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ITEM 5.    OTHER INFORMATION

        None

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 July 14, 2004 was furnished with the Securities and Exchange Commission in connection with the announcement that JSCE, Inc. expects to merge its operations with the operations of Stone Container Corporation in the near future.

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Signatures

        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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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