SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý                                                   | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    
|--------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2003        
|or                                                 
|o                                                   | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|For the transition period
from                   to

Commission file number 0-11951

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

Delaware(State of incorporation or organization)

37-1337160(I.R.S. Employer Identification No.)150 North Michigan Avenue
Chicago, Illinois(Address of principal executive offices)

60601(Zip Code)


Registrant's Telephone Number:(312) 346-6600

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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 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

As of February 27, 2004, none of the registrant's voting stock was held by non-affiliates.

The
number of shares outstanding of the registrant's common stock as of February 27, 2004:1,000

DOCUMENTS INCORPORATED BY REFERENCE: None

The registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this form with the
reduced disclosure format permitted thereby.



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JSCE, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 2003

TABLE OF CONTENTS

|         |  |                                                                                       |  | Page No.
|-------- |  | ------------------------------------------------------------------------------------- |  | --------
|PART I   |  |                                                                                      
|Item 1.  |  | Business                                                                              |  | 2       
|Item 2.  |  | Properties                                                                            |  | 7       
|Item 3.  |  | Legal Proceedings                                                                     |  | 8       
|PART II  |  |                                                                                      
|Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 9       
|Item 6.  |  | Selected Financial Data                                                               |  | 10      
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 11      
|Item 7a. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 22      
|Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 24      
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  |  | 55      
|Item 9a. |  | Controls and Procedures                                                               |  | 55      
|PART III |  |                                                                                      
|Item 14. |  | Principal Accounting Fees and Services                                                |  | 55      
|PART IV  |  |                                                                                      
|Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 55      

FORWARD-LOOKING STATEMENTS

Except for the historical information contained in this Annual Report on Form 10-K, certain matters discussed herein, including (without limitation) under Part I,
Item 1, "BusinessEnvironmental Compliance," under Part I, Item 3, "Legal Proceedings" and under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," contain forward-looking statements within the meaning of Section 21E 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 statements 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:



Our
actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. 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

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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.

PART I

ITEM 1.    BUSINESS

Unless the context otherwise requires, "we," "us," "our," "Company" or "JSCE" refers to the business of JSCE, Inc. and its subsidiaries.

GENERAL

JSCE, Inc., a Delaware corporation, is an integrated producer of containerboard, corrugated containers and other packaging products. We conduct our
business operations through our wholly-owned subsidiary Jefferson Smurfit Corporation (U.S.), a Delaware corporation (Jefferson Smurfit (U.S.) or JSC (U.S.)). Jefferson Smurfit (U.S.) has extensive
operations located primarily in the United States. For the year ended December 31, 2003, our net sales were $3,651 million and net income was $17 million.

JSCE, Inc.
is a wholly-owned subsidiary of Smurfit-Stone Container Corporation, a Delaware corporation. Smurfit-Stone is a holding company with no business operations of its own.
Smurfit-Stone conducts its business operations through two wholly-owned subsidiaries: JSCE and Stone Container Corporation, a Delaware corporation.

FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS

We have three reportable segments: 1) Containerboard and Corrugated Containers, 2) Consumer Packaging and 3) Reclamation. For financial
information relating to our segments, including our net sales to external customers by country of origin, see the information set forth in Note 20 of the Notes to Consolidated Financial
Statements.

PRODUCTS

CONTAINERBOARD AND CORRUGATED CONTAINERS SEGMENT

The Containerboard and Corrugated Containers segment includes five paper mills, 49 container plants and one wood products plant located in the United States, one
container plant located in Mexico and one container plant located in Puerto Rico. The primary products of our Containerboard and Corrugated Containers segment include:



We
produce a full range of high quality corrugated containers designed to protect, ship, store and display products made to our customers' merchandising and distribution specifications.
Corrugated containers are sold to a broad range of manufacturers of consumer goods. Corrugated containers are used to ship such diverse products as home appliances, electric motors, small machinery,
grocery products, produce, computers, books, furniture and many other products. We provide customers with innovative packaging solutions to advertise and sell their products. In addition, we
manufacture and sell a variety of retail ready, point of purchase displays and a full line of specialty products, including pizza boxes, corrugated clamshells for the food industry,
Cordeck® recyclable pallets and custom die-cut boxes to display packaged merchandise on the sales floor. Our container plants serve local customers and large national accounts. Net sales
of corrugated containers for 2003, 2002 and 2001 represent 41%, 41% and 42%, respectively, of the Company's total net sales.

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Our
containerboard mills produce a full line of containerboard, which is used primarily in the production of corrugated packaging. In 2003, we produced 770,000 tons of unbleached kraft
linerboard, 305,000 tons of white top linerboard and 972,000 tons of medium. Our containerboard mills and corrugated container operations are highly integrated, with the majority of our containerboard
used internally by our corrugated container operations or by Stone Container's corrugated container operations. In 2003, our container plants consumed 1,929,000 tons of containerboard, representing an
integration level of approximately 83%. Net sales of containerboard for 2003, 2002 and 2001 represent 15%, 12% and 10%, respectively, of the Company's total net sales.

Our
paper mills also produce solid bleached sulfate (SBS), specializing in high-quality grades of SBS, which are designed to meet the demanding print requirements of folding carton and
carded packaging customers in the food, pharmaceutical, cosmetics and other niche markets. A portion of our SBS is consumed internally by our folding carton plants.

Production
for our paper mills and sales volume for our corrugated container facilities for the last three years were:

|                                                |                        | 2003 |       | 2002 |       | 2001
|----------------------------------------------- | ---------------------- | ---- | ----- | ---- | ----- | ----
|Tons produced (in thousands)                    |                        |      |       |      |       |     
|                                                | Containerboard         |      | 2,047 |      | 1,504 |     
|                                                | Solid bleached sulfate |      | 180   |      | 179   |     
|Corrugated containers sold (in billion sq. ft.) |                        | 30.4 |       | 28.6 |       | 27.1

CONSUMER PACKAGING SEGMENT

The Consumer Packaging segment includes four paper mills, 18 folding carton plants and 13 other converting plants. Our Consumer Packaging operations are located
in the United States. The primary products of our Consumer Packaging segment include:



Folding
cartons are used primarily to protect customers' products, while providing point of purchase advertising. We produce a full range of carton styles appropriate to nearly all
carton end uses. The folding carton plants offer extensive converting capabilities, including sheet and web lithographic, rotogravure and flexographic printing and laminating. In addition, we provide
Lithoflute packaging for a number of applications. The folding carton plants also provide a full line of structural and graphic design services tailored to specific technical
requirements, as well as photography for packaging, sales promotion concepts and point of purchase displays. Converting capabilities include gluing, tray forming, windowing, waxing and laminating,
plus other specialties. Our customer base is made up primarily of producers of packaged foods, beverages, fast food, detergents, paper, pharmaceuticals and cosmetics. Our customers range from local
accounts to large national accounts. Net sales of folding cartons for 2003, 2002 and 2001 represent 20%, 21% and 23%, respectively, of the Company's total net sales.

Our
coated recycled boxboard mills produce a broad range of recycled grades, including clay-coated newsback, kraftback and whiteback, as well as waxable and laminated grades. Our coated
boxboard mills and folding carton operations are highly integrated, with the majority of our coated boxboard used internally by our folding carton operations. In 2003, our folding carton plants
consumed 356,000 tons of recycled boxboard, representing an integration level of approximately 62%.

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Production
for our coated recycled boxboard mills and sales volume for the folding carton facilities for the last three years were:

|                  |                                   | 2003 |     | 2002 |     | 2001
|----------------- | --------------------------------- | ---- | --- | ---- | --- | ----
|Tons in thousands |                                   |      |     |      |     |     
|                  | Coated recycled boxboard produced |      | 577 |      | 582 |     
|                  | Folding cartons sold              |      | 514 |      | 504 |     

We
also produce printed paper, foil and DI-NA-CAL® heat transfer labels, which are used in a wide range of industrial and consumer product applications.
DI-NA-CAL® is a proprietary labeling system that applies high-speed heat transfer labels to plastic containers. We also produce specialized laminations of film, foil and paper. We have a
full-service organization experienced in the production of color separations and lithographic film for the commercial printing, advertising and packaging industries.

RECLAMATION SEGMENT

Our reclamation operations procure fiber resources for Smurfit-Stone's paper mills as well as for other producers. We operate 23 reclamation facilities in the
United States that collect, sort, grade and bale recovered paper. We also collect aluminum and glass for resale to manufacturers of these products. In addition, we operate a nationwide brokerage
system whereby we purchase and resell recovered paper to Smurfit-Stone's recycled paper mills and other producers on a regional and national contract basis. Brokerage contracts provide bulk
purchasing, often resulting in lower prices and cleaner recovered paper. Many of our reclamation facilities are located close to Smurfit-Stone's recycled paper mills, ensuring availability of supply
with minimal shipping costs. Domestic tons of fiber reclaimed and brokered for 2003, 2002 and 2001 were 6,549,000, 6,582,000 and 6,714,000, respectively. In 2003, our paper mills consumed 1,239,000
tons of fiber reclaimed and brokered, representing an integration level of approximately 19%. Net sales of reclaimed fiber for 2003, 2002 and 2001 represent 12%, 14% and 11%, respectively, of the
Company's total net sales.

RAW MATERIALS

Wood fiber and reclaimed fiber are the principal raw materials used in the manufacture of our paper products. We satisfy the majority of our need for wood fiber
through purchases on the open market or under supply agreements. We satisfy essentially all of our need for reclaimed fiber through our reclamation operations and nationwide brokerage system.

Wood
fiber and reclaimed fiber are purchased in highly competitive, price-sensitive markets, which have historically exhibited price and demand cyclicality. Adverse weather, conservation
regulations and the shutdown of a number of sawmills have caused, and will likely continue to cause, a decrease in the supply of wood fiber and higher wood fiber costs in some of the regions in which
we procure wood fiber. Fluctuations in supply and demand for reclaimed fiber have occasionally caused tight supplies of reclaimed fiber. At those times, we have experienced an increase in the cost of
such fiber.

MARKETING

Our marketing strategy is to sell a broad range of paper-based packaging products to manufacturers of industrial and consumer products. We seek to meet the
quality and service needs of the customers of our converting plants at the most efficient cost, while balancing those needs against the demands of our open market paperboard customers. Our converting
plants focus on supplying both specialized packaging with high value graphics that enhance a product's market appeal and high-volume commodity products.

We
serve a broad customer base for each of our industry segments. As a result, we serve thousands of accounts from our plants. Each plant has its own sales force and many have product
design engineers and other service professionals who are in close contact with customers to respond to their specific needs. We complement our local plants' marketing and service capabilities with
regional and national design and service capabilities, as well as national sales offices for customers who purchase through a centralized purchasing

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office.
National account business may be allocated to more than one plant due to production capacity, logistics and equipment requirements. Marketing of containerboard to third parties is centralized
in Smurfit-Stone's board sales group, which sells approximately three million tons of pulp and paperboard annually.

Our
business is not dependent upon a single customer or upon a small number of major customers. We do not believe the loss of any one customer would have a material adverse effect on our
business.

COMPETITION

The markets in which we sell our principal products are highly competitive and comprised of many participants. Although no single company is dominant, we do face
significant competitors in each of our businesses. Our competitors include large vertically integrated companies as well as numerous smaller companies. The industries in which we compete have
historically been sensitive to price fluctuations brought about by shifts in industry capacity and other cyclical industry conditions. While we compete primarily on the basis of price in many of our
product lines, other competitive factors include design, quality and service, with varying emphasis depending on product line.

BACKLOG

Demand for our major product lines is relatively constant throughout the year and seasonal fluctuations in marketing, production, shipments and inventories are
not significant. Backlogs are not a significant factor in the industry. We do not have a significant backlog of orders as most orders are placed for delivery within 30 days.

RESEARCH AND DEVELOPMENT

Our research and development center, located in Carol Stream, Illinois, uses advanced technology to assist all levels of the manufacturing and sales processes,
from raw material supply through finished packaging performance. Research programs have provided improvements in coatings and barriers, stiffeners, inks and printing. Our technical staff conducts
basic, applied and diagnostic research, develops processes and products and provides a wide range of other technical services.

We
actively pursue applications for patents on new inventions and designs and attempt to protect our patents against infringement. Nevertheless, we believe our success and growth are
more dependent on the quality of our products and our relationships with customers than on the extent of our patent protection. We hold or are licensed to use certain patents, licenses, trademarks and
trade names on products, but do not consider the successful continuation of any material aspect of our business to be dependent upon such intellectual property.

EMPLOYEES

We had approximately 13,100 employees at December 31, 2003, of which approximately 12,900 were employees of U.S. operations. Approximately 7,800 (60%) of our U.S.
employees are represented by collective bargaining units. The expiration dates of union contracts for our major paper mill facilities are as follows:



We
believe our employee relations are generally good. We are currently in the process of bargaining with unions representing production employees at a number of our operations. There
were no significant or material work stoppages during 2003. While the terms of our collective bargaining agreements may vary, we believe the material terms of the agreements are customary for the
industry, the type of facility, the classification of the employees and the geographic location covered thereby.

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ENVIRONMENTAL COMPLIANCE

Our operations are subject to extensive environmental regulation by federal, state and local authorities. In the past, we have made significant capital
expenditures to comply with water, air, solid and hazardous waste and other environmental laws and regulations. We expect to make significant expenditures in the future for environmental compliance.
Because various environmental standards are subject to change, it is difficult to predict with certainty the amount of capital expenditures that will ultimately be required to comply with future
standards.

In
particular, the United States Environmental Protection Agency (EPA) has finalized significant portions of its comprehensive rule governing air emissions (Maximum Achievable Control
Technology (MACT)) and water discharges (Effluent Limitation Guidelines) from the pulp, paper and paperboard industry, known as the "Cluster Rule."



In
recent years, the EPA has undertaken significant air quality initiatives associated with nitrogen oxide emissions, regional haze and national ambient air quality standards. Several of
our mills are located in states affected by these EPA initiatives. The EPA is also currently proposing to limit particulate emissions from industrial boilers in a new Boiler MACT regulation. Several
of our mills will be subject to the Boiler MACT regulation when it is finalized. When regulatory requirements for new and changing standards are finalized, we will add any resulting future cost
projections to our expenditure forecast.

In
addition to Cluster Rule compliance, we anticipate additional capital expenditures related to environmental compliance. Excluding the spending on Cluster Rule projects described
above, for the past three years, we have spent an average of approximately $2 million annually on capital expenditures for environmental purposes. Since our principal competitors are subject to
comparable environmental standards, including the Cluster Rule, it is our opinion, based on current information, that compliance with environmental standards should not adversely affect our
competitive position. However, we could incur significant expenditures due to changes in law or the discovery of new information, which could have a material adverse effect on our operating results.

AVAILABLE INFORMATION

We make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished as required by Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 through Smurfit-Stone's Internet Website (www.smurfit-stone.com) as soon as
reasonably practicable after we electronically file such information with, or furnish it to,

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the
Securities and Exchange Commission (SEC). You may access these SEC filings via the hyperlink provided on Smurfit-Stone's Internet Website to a third-party SEC filings website. We have adopted a
Code of Ethics for senior officers (including our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer), which is also available on Smurfit-Stone's Internet
Website.

ITEM 2.    PROPERTIES

Our manufacturing facilities are located primarily in the United States. We believe that our facilities are adequately insured, properly maintained and equipped
with machinery suitable for their use. Our manufacturing facilities as of December 31, 2003 are summarized below.

|                                                  |                                | Number of Facilities |     |   
|------------------------------------------------- | ------------------------------ | -------------------- | --- | --
|
|
|United States                                     |                                |                      |     |   
|Containerboard and Corrugated Containers Segment: |                                |                      |     |   
|                                                  | Paper mills                    |                      | 5   |   
|                                                  | Corrugated container plants    |                      | 49  |   
|                                                  | Wood products plant            |                      | 1   |   
|Consumer Packaging Segment:                       |                                |                      |     |   
|                                                  | Coated recycled boxboard mills |                      | 4   |   
|                                                  | Consumer packaging plants      |                      | 31  |   
|Reclamation Segment                               |                                | 23                   |     | 16
|                                                  |                                |                      |     |   
|                                                  | Subtotal                       |                      | 113 |   
|Other North America                               |                                |                      |     |   
|Containerboard and Corrugated Containers Segment: |                                |                      |     |   
|                                                  | Corrugated container plants    |                      | 2   |   
|                                                  |                                |                      |     |   
|                                                  | Total                          |                      | 115 |   
|                                                  |                                |                      |     |   

Our
paper mills represent approximately 60% of our investment in property, plant and equipment. The approximate annual tons of productive capacity of our paper mills at December 31, 2003
were:

|                         |       | Annual Capacity
|------------------------ | ----- | ---------------
|
|Containerboard           |       | 2,321          
|Solid bleached sulfate   |       | 186            
|Coated recycled boxboard |       | 541            
|                         |       |                
|                         | Total |                
|                         |       |                

Substantially
all of our operating facilities have been pledged as collateral under Jefferson Smurfit (U.S.)'s credit agreement. See Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesNet Cash Provided By (Used For) Financing Activities."

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ITEM 3.    LEGAL PROCEEDINGS

LITIGATION

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 Jefferson Smurfit (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 Jefferson Smurfit (U.S.). Jefferson Smurfit (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. The settlement is subject to final court approval following a fairness hearing to be held on March 26, 2004. 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 but one of the opt-out 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 December 31, 2003.

We
are a defendant in a number of lawsuits and claims arising out of the conduct of our business, including those related to environmental matters. While the ultimate results of such
suits or other proceedings against us cannot be predicted with certainty, we believe the resolution of these matters will not have a material adverse effect on our consolidated financial condition or
results of operations.

ENVIRONMENTAL MATTERS

Federal, state and local environmental requirements are a significant factor in our business. We employ processes in the manufacture of paperboard and other
products, which result in various discharges, emissions and wastes. These processes are subject to numerous federal, state and local environmental laws and regulations, including reporting and
disclosure obligations. We operate and expect to continue to operate under permits and similar authorizations from various governmental authorities that regulate such discharges, emissions and wastes.

In
May 2003, we received a Violation Notice from the Illinois Environmental Protection Agency (IEPA) alleging that our flexible packaging facility in Schaumburg, Illinois violated
various provisions of the Illinois Environmental Protection Act and various conditions of the applicable Clean Air Act permit issued to the facility. In June 2003, we received a Notice of Violation
and Finding of Violation from the EPA containing similar allegations. The allegations primarily relate to the alleged failure of two afterburner systems designed to capture and reduce certain
emissions from printing presses below required levels and the potential impact of such failure on past and future regulatory standards, permitting requirements, emission credit requirements,
recordkeeping and reporting. We discovered and corrected a problem with one of the systems and subsequently replaced certain components of the second system to ensure that it operates as designed and
to reduce the potential for any future failure. We responded to the IEPA Violation Notice and the EPA Notice of Violation and Finding of Violation and are attempting to reach an acceptable resolution
with the IEPA and the EPA. Based on discussions to date with the two agencies, we believe the costs to resolve this matter will not be material and will not exceed established reserves.

We
also face potential liability as a result of releases, or threatened releases, of hazardous substances into the environment from various sites owned and operated by third parties at
which Company-generated wastes have allegedly been deposited. Generators of hazardous substances sent to off-site disposal locations at which environmental problems exist, as well as the owners of
those sites and certain other classes of persons

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(generally referred to as "potentially responsible parties" or PRPs), are, in most instances, subject to joint and several liability for response costs for the investigation and remediation of such
sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and analogous state laws, regardless of fault or the lawfulness of the original disposal. We have
received notice that we are or may be a PRP at a number of federal and/or state sites where response action may be required and as a result may have joint and several liability for cleanup costs at
such sites. However, liability for CERCLA sites is typically shared with other PRPs and costs are commonly allocated according to relative amounts of waste deposited. Our relative percentage of waste
deposited at these sites ranges from 1% to 6%. In addition to participating in the remediation of sites owned by third parties, we have entered into consent orders for the investigation and/or
remediation of certain of our owned properties.

Based
on current information, we believe the probable costs of the potential environmental enforcement matters discussed above, response costs under CERCLA and similar state laws, and
the remediation of owned property will not have a material adverse effect on our financial condition or results of operations. As of December 31, 2003, we had approximately $12 million reserved for
environmental liabilities. We believe our liability for these matters was adequately reserved at December 31, 2003.

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

We are a wholly-owned subsidiary of Smurfit-Stone. Therefore, all of our outstanding common stock is owned by Smurfit-Stone. As a result, there is no established
public market for our common stock.

DIVIDENDS ON COMMON STOCK

We paid dividends to Smurfit-Stone in the aggregate amount of approximately $8 million in 2003 to fund the dividend obligations of Smurfit-Stone to the holders of
the 7% Series A Cumulative Exchangeable Redeemable Convertible Preferred Stock of Smurfit-Stone. Our ability to pay dividends in the future is restricted by certain provisions contained in Jefferson
Smurfit (U.S.)'s credit agreement and the indentures relating to Jefferson Smurfit (U.S.)'s outstanding indebtedness, which we guarantee. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital ResourcesNet Cash Provided By (Used For) Financing Activities."

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ITEM 6.    SELECTED FINANCIAL DATA (g)

|(In millions, except statistical data)                                          |  | 2003(a) |        | 2002(b) |   | 2001   |   | 2000 |        | 1999 |  
|------------------------------------------------------------------------------- |  | ------- | ------ | ------- | - | ------ | - | ---- | ------ | ---- | -
|Summary of Operations                                                           |  |         |        |         |   |        |   |      |        |      |  
|Net sales                                                                       |  | $       | 3,651  |         | $ | 3,456  |   | $    | 3,344  |      | $
|Income from operations (c) (d)                                                  |  |         | 48     |         |   | 177    |   |      | 236    |      |  
|Income from continuing operations before cumulative effect of accounting change |  |         | 20     |         |   | 84     |   |      | 104    |      |  
|Discontinued operations, net of income tax provision (e)                        |  |         |        |         |   | 27     |   |      | 4      |      |  
|Net income                                                                      |  |         | 17     |         |   | 111    |   |      | 108    |      |  
|Other Financial Data                                                            |  |         |        |         |   |        |   |      |        |      |  
|Net income, adjusted to exclude goodwill amortization (f)                       |  | $       | 17     |         | $ | 111    |   | $    | 115    |      | $
|Net cash provided by operating activities                                       |  |         | 50     |         |   | 238    |   |      | 183    |      |  
|Net cash provided by (used for) investing activities                            |  |         | (44    | )       |   | (353   | ) |      | (75    | )    |  
|Net cash provided by (used for) financing activities                            |  |         | (3     | )       |   | 109    |   |      | (118   | )    |  
|Depreciation, depletion and amortization (f)                                    |  |         | 136    |         |   | 123    |   |      | 124    |      |  
|Capital investments and acquisitions                                            |  |         | 122    |         |   | 442    |   |      | 86     |      |  
|Working capital, net                                                            |  |         | (7     | )       |   | 65     |   |      | (12    | )    |  
|Property, plant, equipment and timberland, net                                  |  |         | 1,370  |         |   | 1,477  |   |      | 1,223  |      |  
|Total assets                                                                    |  |         | 2,851  |         |   | 2,918  |   |      | 2,544  |      |  
|Long-term debt                                                                  |  |         | 1,579  |         |   | 1,601  |   |      | 1,427  |      |  
|Stockholder's equity (deficit)                                                  |  |         | (11    | )       |   | (95    | ) |      | (44    | )    |  
|Statistical Data (tons in thousands)                                            |  |         |        |         |   |        |   |      |        |      |  
|Containerboard production (tons)                                                |  |         | 2,047  |         |   | 1,504  |   |      | 1,334  |      |  
|Solid bleached sulfate production (tons)                                        |  |         | 180    |         |   | 179    |   |      | 187    |      |  
|Coated boxboard production (tons)                                               |  |         | 577    |         |   | 582    |   |      | 569    |      |  
|Corrugated containers sold (billion sq. ft.)                                    |  |         | 30.4   |         |   | 28.6   |   |      | 27.1   |      |  
|Folding cartons sold (tons)                                                     |  |         | 514    |         |   | 504    |   |      | 523    |      |  
|Fiber reclaimed and brokered (tons)                                             |  |         | 6,549  |         |   | 6,582  |   |      | 6,714  |      |  
|Number of employees                                                             |  |         | 13,100 |         |   | 13,900 |   |      | 13,800 |      |  

Notes to Selected Financial Data

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND                  RESULTS OF OPERATIONS

OVERVIEW

Jefferson Smurfit Corporation (U.S.) is an integrated producer of paperboard and paper-based packaging. Our major products are containerboard, solid bleached
sulfate (SBS), recycled fiber, corrugated containers, coated recycled boxboard and folding cartons. We operate in three reportable industry segments. Approximately 60% of our 2003 net sales were
generated by the Containerboard and Corrugated Containers segment, 28% were generated by the Consumer Packaging segment and 12% were generated by the Reclamation segment. Our mill operations supply
paper to our corrugated container and folding carton converting operations. The products of our converting operations, as well as the mill and reclamation tonnage in excess of what is consumed
internally, are the main products sold to third parties. Our operating facilities and customers are located primarily in the United States.

Market
conditions and demand for the products of our segments are subject to cyclical changes in the economy and changes in industry capacity, both of which can significantly impact
selling prices and our profitability. In recent years, the continued loss of domestic manufacturing to offshore competition and the changing retail environment in the U.S. have also played a key role.
The influence of superstores and discount retailing giants, as well as the impacts from online shopping, has resulted in growing demand for packaging which is more condensed, lighter weight and less
expensive. These factors have greatly influenced the corrugated industry. Demand for corrugated products has declined approximately 6% since 1999 and prices have fallen approximately 15% from their
peak in 2000.

Many
of these same issues are impacting our Consumer Packaging businesses, and, in particular, our folding carton business. This industry has seen moderate growth in the last few years,
but has come under considerable pricing pressures. This, coupled with increasing cost pressures, has resulted in a decline in earnings for our Consumer Packaging segment.

We
have responded to this challenging demand environment by 1) taking extensive market related downtime in recent years in our mill operations in order to maintain an internal balance
between supply and demand, 2) restructuring our operations thereby reducing excess productive capacity and fixed costs, 3) using an area-
management approach at our converting operations that provides added value to customers through focused and unified sales and manufacturing teams, 4) expanding our core capabilities to serve the
evolving needs of packaging customers in North America and 5) making strategic acquisitions that can provide competitive advantages.

Growth
in the manufacturing sector of the U.S. economy continued to be slow through most of 2003, resulting in sluggish demand for our products and lower profitability compared to 2002.
Prices for many of our products declined compared to 2002 and profits declined due to lower pricing, restructuring activities and higher costs, including energy, fiber and employee benefits.

The
economic recovery that has recently begun in the United States is expected to have a positive impact on packaging demand. In January 2004, we advised our customers of a $40 per ton
price increase for liner and medium, with corresponding increases for corrugated containers. While we anticipate that 2004 will be a stronger year, we cannot predict whether the U.S. economic recovery
will continue, the rate of such recovery or the success of our planned price increase implementation.

ACQUISITIONS

On May 31, 2003, Jefferson Smurfit (U.S.) acquired the operations of Arko Paper Products Co., Inc. (the Arko Acquisition), a folding carton producer, for $30
million. Arko's results of operations are included in the consolidated statement of operations after May 31, 2003. The cost to acquire the operations has been allocated to the assets acquired and
liabilities assumed according to fair values. The purchase price

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allocation,
completed in the fourth quarter of 2003, has resulted in acquired goodwill of $12 million and intangible assets of $3 million, which were allocated to the Consumer Packaging segment.

RESULTS OF OPERATIONS

Segment Data

|                                                                                                 |                          | 2003 |       | 2002  |   | 2001 |    
|------------------------------------------------------------------------------------------------ | ------------------------ | ---- | ----- | ----- | - | ---- | ---
|
|Containerboard and corrugated containers                                                         |                          | $    | 2,175 |       | $ | 88   |    
|Consumer packaging                                                                               |                          |      | 1,030 |       |   | 44   |    
|Reclamation                                                                                      |                          |      | 446   |       |   | 22   |    
|Other operations                                                                                 |                          |      |       |       |   |      |    
|                                                                                                 |                          |      |       |       |   |      |    
|                                                                                                 | Total segment operations |      | $     | 3,651 |   |      | 154
|                                                                                                 |                          |      |       |       |   |      |    
|Restructuring charges                                                                            |                          |      |       |       |   | (21  | )  
|Gain (loss) on sale of assets                                                                    |                          |      |       |       |   | (5   | )  
|Goodwill amortization (1)                                                                        |                          |      |       |       |   |      |    
|Interest income from Smurfit-Stone                                                               |                          |      |       |       |   | 80   |    
|Interest expense                                                                                 |                          |      |       |       |   | (104 | )  
|Loss on early extinguishment of debt                                                             |                          |      |       |       |   | (2   | )  
|Litigation charges                                                                               |                          |      |       |       |   | (44  | )  
|Corporate expenses and other (2)                                                                 |                          |      |       |       |   | (33  | )  
|                                                                                                 |                          |      |       |       |   |      |    
|Income from continuing operations before income taxes and cumulative effect of accounting change |                          |      |       |       | $ | 25   |    
|                                                                                                 |                          |      |       |       |   |      |    

2003 COMPARED TO 2002

The decline in our income from continuing operations before income taxes and cumulative effect of accounting change was due primarily to lower segment profits and
higher restructuring and litigation charges. Total segment operating profit was lower due primarily to higher costs of energy, fiber and employee benefits, but benefited from the acquisition of the
Stevenson, Alabama containerboard mill and related corrugated container assets on September 30, 2002 (the Stevenson Mill Acquisition). Annualized synergy savings from the Stevenson Mill Acquisition
achieved in 2003, including administrative cost reductions, system optimization and purchasing savings, exceeded our targeted annual savings of $40 million.

Net
sales of $3,651 million in 2003 were 6% higher due primarily to additional sales attributable to the Stevenson Mill Acquisition. The increase in sales volume was partially offset by
lower sales prices. The change in net sales for each of our segments is summarized in the chart below:

|(In millions)                |       | Containerboard
& Corrugated
Containers |     | Consumer
Packaging |   | Reclamation |   | Other
Operations |     | Total |  
|---------------------------- | ----- | -------------------------------------- | --- | ------------------ | - | ----------- | - | ---------------- | --- | ----- | -
|Sales prices and product mix |       | $                                      | (20 | )                  | $ | (16         | ) | $                | (2  | )     | $
|Sales volume                 |       |                                        | (13 | )                  |   | 25          |   |                  | (21 | )     |  
|Stevenson Mill Acquisition   |       |                                        | 253 |                    |   |             |   |                  |     |       |  
|                             |       |                                        |     |                    |   |             |   |                  |     |       |  
|                             | Total |                                        | $   | 220                |   | $           | 9 |                  | $   | (23   | )
|                             |       |                                        |     |                    |   |             |   |                  |     |       |  

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Cost
of goods sold increased due primarily to the Stevenson Mill Acquisition and higher energy cost ($20 million) and employee benefits. Cost of goods sold as a percent of net sales in
2003 was 88% compared to 86% in 2002 due primarily to higher costs of energy and employee benefits and the effects of our lower average sales prices.

Selling
and administrative expenses increased due primarily to the litigation charges of $44 million, the Stevenson Mill Acquisition and higher employee benefits. On November 10, 2003,
Smurfit-Stone reached an agreement to settle the antitrust class action cases pending against Smurfit-Stone, Stone Container and Jefferson Smurfit (U.S.), which were based on allegations of a
conspiracy among containerboard manufacturers in 1993-95. Jefferson-Smurfit (U.S.) will make a settlement payment of $36 million, one-half of which was paid in December 2003 and the remainder will be
paid in January 2005. The settlement is subject to final court approval following a fairness hearing to be held on March 26, 2004. All of the other defendants previously entered into agreements to
settle these class actions; however, all of the defendants in the class actions continue to be defendants in 12 unresolved lawsuits brought on behalf of parties that have opted out of the class
actions to seek their own recovery. Jefferson-Smurfit (U.S.) recorded pretax charges of $44 million in 2003, to accrue for the antitrust settlement and the estimated liability of the opt-out cases.
See Part 1, Item 3, "Legal Proceedings."

During
2003, we recorded restructuring charges of $21 million, including $17 million in the fourth quarter, related to rationalization and cost reduction plans. We permanently closed one
of two paper machines at our Philadelphia, Pennsylvania coated recycled boxboard mill, closed three converting facilities and reduced the salaried workforce, primarily in the corrugated containers
operations. As a result, our annual production capacity of boxboard will be reduced by about 70,000 tons (approximately 12%). We expect to record additional restructuring charges in 2004 for further
rationalizations, including consolidation of facilities and additional reductions in workforce. The rationalization process, when completed, will result in an overall workforce reduction in
Smurfit-Stone's subsidiaries of approximately 1,400 positions. Jefferson Smurfit (U.S.) expects to realize annual savings of approximately $40 million as a result of these actions.

Interest
expense increased $10 million due to the impact of $12 million from higher average borrowings, offset by $2 million due to lower overall average interest rates. The overall
average effective interest rate in 2003 was lower than 2002 by approximately 10 basis points. Interest income from Smurfit-Stone increased $7 million due to a higher average balance for the notes
receivable in 2003.

Provision
for income taxes in 2003 differed from the amount computed by applying the statutory U.S. tax rate to income from continuing operations before income taxes and cumulative
effect of accounting change primarily due to a $6 million benefit related to the resolution of certain prior year tax matters, state income taxes and the effects of other permanent differences. For
information concerning income taxes, see Note 12 of the Notes to Consolidated Financial Statements.

Containerboard and Corrugated Containers Segment

Net sales increased by 11% due primarily to higher shipments resulting from the Stevenson Mill Acquisition. Prices for corrugated containers and containerboard
were lower due to the poor market conditions.

Production
of containerboard increased 36% due primarily to the Stevenson Mill Acquisition. Our containerboard mills operated at an average rate of 87.3% of capacity in 2003 compared to
85.4% in 2002. Shipments of corrugated containers increased 6% due primarily to the Stevenson Mill Acquisition. SBS production was higher by 1%.

Profits
decreased by $36 million due primarily to the lower average sales prices and higher costs, including energy ($11 million) and employee benefits. Profits were favorably impacted
by the Stevenson Mill Acquisition.

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Consumer Packaging Segment

Net sales increased by 1%. Folding carton shipments increased 2% due primarily to the Arko Acquisition and shipments of flexible packaging increased by 11%. The
increases in sales volume were partially offset by lower sales prices, particularly for folding cartons. Production of coated boxboard was comparable to 2002.

Profits
declined $32 million due primarily to lower prices, product mix and higher cost for energy ($8 million) and employee benefits.

Reclamation Segment

Net sales decreased 5% compared to 2002 due primarily to lower sales volume. Shipments were lower in 2003 due to higher internal consumption as a result of the
Stevenson Mill Acquisition. The average price of old corrugated containers (OCC) in 2003 was comparable to 2002 and the average price of old newsprint was higher by approximately $10 per ton. Profits
increased $3 million due primarily to a shift from lower margin brokerage sales to higher margin plant sales.

2002 COMPARED TO 2001

Income from continuing operations before income taxes and cumulative effect of accounting change in 2002 was $140 million, a decrease of $35 million compared to
2001. The decline was due primarily to lower segment profit as a result of lower average sales prices for containerboard and corrugated containers. Lower interest expense partially offset the decline
in earnings.

Net
sales of $3,456 million in 2002 were 3% higher compared to 2001 due primarily to higher shipments of containerboard and corrugated containers, the majority of which was due to the
Stevenson Mill Acquisition. Sales prices, primarily for containerboard and corrugated containers, were lower compared to 2001. The change in net sales for each of our segments is summarized in the
chart below:

|(In millions)                |       | Containerboard
& Corrugated
Containers |     | Consumer
Packaging |   | Reclamation |     | Other
Operations |     | Total
|---------------------------- | ----- | -------------------------------------- | --- | ------------------ | - | ----------- | --- | ---------------- | --- | -----
|Sales prices and product mix |       | $                                      | (88 | )                  | $ | (12         | )   | $                | 103 |      
|Sales volume                 |       |                                        | 47  |                    |   | (14         | )   |                  | (9  | )    
|Stevenson Mill Acquisition   |       |                                        | 91  |                    |   |             |     |                  |     |      
|                             |       |                                        |     |                    |   |             |     |                  |     |      
|                             | Total |                                        | $   | 50                 |   | $           | (26 | )                | $   | 94   
|                             |       |                                        |     |                    |   |             |     |                  |     |      

Cost
of goods sold increased due primarily to the Stevenson Mill Acquisition, higher sales volumes for containerboard and corrugated containers and higher reclaimed fiber cost ($124
million). Cost of goods sold was favorably impacted by lower energy cost ($16 million) and the elimination of goodwill amortization ($7 million). Cost of goods sold as a percent of net sales in 2002
was 86% compared to 85% in 2001 due primarily to the effects of our lower average sales prices.

Selling
and administrative expenses increased 6% due primarily to the impact of costs associated with the Stevenson Mill Acquisition.

During
2002, we recorded restructuring charges of $4 million related to the shutdown and sale of our Cladwood® operations.

Interest
expense declined $31 million due to the favorable impacts of overall average interest rates ($25 million) and from lower average borrowings ($6 million). The overall average
effective interest rate in 2002 was lower than 2001 by approximately 180 basis points. Interest income from Smurfit-Stone increased $8 million due to a higher average balance for the notes receivable
in 2002.

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The
effective income tax rate for 2002 was 40%, compared to 41% in 2001. Provision for income taxes in 2002 differed from the federal statutory tax rate due to several factors, the most
significant of which was state income taxes. For information concerning income taxes, see Note 12 of the Notes to Consolidated Financial Statements.

Containerboard and Corrugated Containers Segment

Net sales increased by 3% due primarily to higher shipments of containerboard and corrugated containers, the majority of which was due to the Stevenson Mill
Acquisition. Shipments of corrugated containers increased 6%.

Production
of containerboard increased 13% due primarily to the Stevenson Mill Acquisition. Our containerboard mills operated at an average rate of 85.4% in 2002 compared to 81.5% in
2001. SBS production was lower by 4%.

Profits
decreased by $46 million due primarily to the lower average sales prices. Profits were favorably impacted by the Stevenson Mill Acquisition and lower energy cost compared to
2001. Cost of goods sold as a percent of net sales increased to 88% in 2002 compared to 86% in 2001 due primarily to the lower average sales prices.

Consumer Packaging Segment

Net sales decreased by 2% due primarily to lower sales volumes and lower average sales prices. Folding carton shipments decreased 4%. Production of coated
boxboard in 2002 was 2% higher compared to 2001. The average sales price for flexible packaging products was lower than 2001 by 17% due primarily to product mix changes.

Profits
declined $18 million due primarily to lower prices, lower sales volume and higher reclaimed fiber cost. Reclaimed fiber cost was higher than 2001 by approximately $7 million.
Profits were favorably impacted by lower energy cost. Cost of goods sold as a percent of net sales in 2002 was 84% compared to 83% in 2001 due primarily to the lower average sales prices.

Reclamation Segment

Net sales in 2002 increased 25% compared to 2001 due primarily to higher average sales prices. Higher demand and tight supplies in the second and third quarters
of 2002 caused OCC prices to temporarily escalate. The average price of OCC in 2002 increased approximately $30 per ton compared to 2001 and the average price of old newsprint was higher by
approximately $10 per ton. Total tons of fiber reclaimed and brokered decreased 2%. Profits increased $13 million due primarily to the higher average sales prices. Cost of goods sold as a percent of
net sales decreased from 91% in 2001 to 90% in 2002 due primarily to the higher average sales prices.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents a summary of our cash flows for the years ended December 31,:

|(In millions)                    |                      | 2003 |   | 2002 |   | 2001 |     
|-------------------------------- | -------------------- | ---- | - | ---- | - | ---- | ----
|Net cash provided by (used for): |                      |      |   |      |   |      |     
|                                 | Operating activities |      | $ | 50   |   | $    | 238 
|                                 | Investing activities |      |   | (44  | ) |      | (353
|                                 | Financing activities |      |   | (3   | ) |      | 109 
|                                 |                      |      |   |      |   |      |     
|Net increase (decrease) in cash  |                      | $    | 3 |      | $ | (6   | )   
|                                 |                      |      |   |      |   |      |     

Net Cash Provided By Operating Activities

Net cash provided by operating activities for the year ended December 31, 2003 decreased $188 million, or 79%, compared to 2002. The decrease was due primarily to
lower segment profits, higher contributions to pension plans and litigation payments. Segment profits decreased $66 million compared to 2002 due primarily

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to
higher costs of wood fiber, energy and employee benefits. Contributions to our pension plans were $72 million in 2003 compared to $2 million in 2002 and $2 million in 2001. In addition, we paid $18
million in 2003 related to the settlement of the antitrust class action litigation.

Reductions
in accounts receivable, due primarily to lower product prices, and lower inventory levels favorably impacted operating cash flow in 2003. The decline in accounts payable had
an unfavorable impact on operating cash flow. In addition, we had higher payments for severance and restructuring costs in 2003.

Net Cash Used For Investing Activities

Net cash used for investing activities was $44 million for the year ended December 31, 2003. The decrease compared to 2002 was due primarily to lower payments for
acquisitions. Acquisitions in 2002 included $350 million for the Stevenson Mill Acquisition.

In
May 2003, Jefferson Smurfit (U.S.) sold approximately 81,000 acres of timberland located in Alabama and Tennessee and a hardwood sawmill, acquired as part of the Stevenson Mill
Acquisition, to a third party for $38.5 million. The proceeds were used for general corporate purposes.

As
of December 31, 2003, our wholly-owned subsidiary, JSC Capital Corporation, had unsecured intercompany notes receivable from Smurfit-Stone totaling $582 million. JSC Capital
Corporation received a total of $34 million from Smurfit-Stone in 2003 in repayment of the loan. The loans arose primarily in connection with the Smurfit-Stone merger and include interest accrued from
November 18, 1998, the date of the merger. With the exception of a note issued November 15, 2000, the notes bear interest at the rate of 14.21% per annum. The note issued on November 15, 2000 was in
the amount of $30 million and bears interest at the rate of 15.39% per annum. Smurfit-Stone has the option of paying the interest in cash or compounding the interest into the principal amount of the
notes. Interest income since inception has been added to the principal amount of the notes. All of the notes have a maturity date of November 18, 2004.

Our
2003 expenditures for property, plant and equipment were comparable to 2002. The $96 million expended for property, plant and equipment included $7 million for environmental
projects, $10 million to maintain competitiveness and $79 million for upgrades, modernization and expansion.

Net Cash Provided By (Used For) Financing Activities

Net cash provided by (used for) financing activities for the year ended December 31, 2003 decreased $112 million compared to 2002. A capital contribution from
Smurfit-Stone of $31 million and net cash provided by operating and investing activities were used to repay debt, pay dividends and fund deferred debt issuance cost.

In
May 2003, Jefferson Smurfit (U.S.) issued $300 million of 7.50% unsecured senior notes due 2013 (the New Senior Notes). Jefferson Smurfit (U.S.) used the proceeds of this issuance to
repay the $175 million Tranche A term loan due March 31, 2005, and $122 million of its outstanding Tranche B term loan due March 31, 2007 and to pay $3 million of fees and other expenses. On July 30,
2003, Jefferson Smurfit (U.S.) completed a registered exchange offer of all of the then outstanding New Senior Notes for a like principal amount of senior notes which have been registered under the
Securities Act of 1933. Jefferson Smurfit (U.S.) did not receive any proceeds from the exchange offer.

On
June 30, 2003, Jefferson Smurfit (U.S.) obtained an amendment from its lender group easing certain financial covenant requirements under its bank credit agreement as of June 30, 2003
and for future periods through December 31, 2004.

Jefferson
Smurfit (U.S.) has a bank credit facility consisting of a $550 million revolving credit facility, of which up to $290 million may consist of letters of credit and a senior
secured term loan aggregating $151 million (Tranche B) at December 31, 2003. Loans under Jefferson Smurfit (U.S.)'s revolving credit facility bear interest at variable rates selected at the option of
Jefferson Smurfit (U.S.) equal to adjusted LIBOR plus a margin ranging from 1.5% to 2.5% or the alternate base rate (ABR) plus a margin ranging from 0.5% to 1.5%.

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Outstanding
loans under Jefferson Smurfit (U.S.)'s Tranche B term loan bear interest at variable rates equal to adjusted LIBOR plus a margin ranging from 2.0% to 3.25% or the ABR plus a margin ranging
from 1.0% to 2.25%. A commitment fee of 0.5% is assessed on the unused portion of the Jefferson Smurfit (U.S.) revolving credit facility. The margins and fees are determined by the ratio of total
indebtedness to EBITDA, as defined in the Jefferson Smurfit (U.S.) credit agreement.

The
obligations under the Jefferson Smurfit (U.S.) credit agreement are unconditionally guaranteed by JSCE, Smurfit-Stone 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 the assets of its material
subsidiaries, a pledge of all of the capital stock of JSCE, 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
Jefferson Smurfit (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 Jefferson Smurfit (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. We expect to remain in compliance with all of the financial covenants contained in the Jefferson Smurfit (U.S.)
credit agreement. However, if the difficult business conditions we experienced in 2003 continue to persist in 2004, Jefferson Smurfit (U.S.) may need to seek an amendment or waiver to avoid violating
certain financial covenants contained in its credit agreement. We believe that Jefferson Smurfit (U.S.) 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.

FUTURE CASH FLOWS

Obligations and Commitments

At December 31, our contractual obligations and commitments were as follows:

|                                         |                               |   |       | Amounts Payable During
|---------------------------------------- | ----------------------------- | - | ----- | ----------------------
|
|Long-term debt, including capital leases |                               | $ | 1,579 |                       
|Operating leases                         |                               |   | 140   |                       
|Purchase obligations (1)                 |                               |   | 244   |                       
|Commitments for capital expenditures (2) |                               |   | 39    |                       
|Other long-term liabilities (3)          |                               |   | 61    |                       
|                                         |                               |   |       |                       
|                                         | Total contractual obligations |   | $     | 2,063                 
|                                         |                               |   |       |                       

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As
previously discussed, our cash flow from operations declined significantly in 2003 as a result of the challenging operating conditions within our industry. We expect an improvement in
our cash flow from operations in 2004, provided the economic expansion continues and we are successful in implementing our planned price increases. As of December 31, 2003, Jefferson Smurfit (U.S.)
had $281 million of unused borrowing capacity under its revolving credit facility.

Scheduled
debt payments, including capital lease payments, for 2004 and 2005 total $180 million and $215 million, respectively. Jefferson Smurfit (U.S.)'s Accounts Receivable
Securitization Program, which has an outstanding balance of $177 million at December 31, 2003, expires in December 2004. Jefferson Smurfit (U.S.) intends to enter into a new accounts receivable
program during 2004 to refinance this debt. Jefferson Smurfit (U.S.)'s revolving credit facility matures in 2005. Smurfit-Stone is currently evaluating refinancing alternatives, including a
combination of Jefferson Smurfit (U.S.) with Stone Container, and as part of such combination, the separate senior secured bank financings of each of Jefferson Smurfit (U.S.) and Stone Container may
be combined into a new single senior secured bank facility. Also, we will continue to pursue opportunities to reduce interest costs by refinancing certain of Jefferson Smurfit (U.S.)'s debt
obligations. Jefferson Smurfit (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
Jefferson Smurfit (U.S.) believes it will have access to the capital markets in the future, these markets are volatile and Jefferson Smurfit (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, Jefferson Smurfit (U.S.) would explore additional options, including, but not limited to, the sale or monetization of assets.

We
expect that all of our cash sources detailed above, in combination, will be sufficient for the next several years to meet our obligations and commitments, including debt service,
pension funding, the antitrust settlement, severance costs and other rationalization expenditures, expenditures related to environmental compliance and other capital expenditures.

Contingent Obligations

We issue standby letters of credit for performance bonds and self-insurance. Letters of credit are issued under the Jefferson Smurfit (U.S.) revolving credit
facility, generally have a one-year maturity and are renewed annually. As of December 31, 2003, Jefferson Smurfit (U.S.) had $175 million of letters of credit outstanding.

We
have certain woodchip processing contracts, which provide for guarantees of third party contractors' debt outstanding, with a security interest in the chipping equipment. Guarantee
payments would be triggered in the event of a loan default by any of the contractors. The maximum potential amount of future payments related to
all of such arrangements as of December 31, 2003 would be $24 million. Cash proceeds received from the liquidation of the chipping equipment would be based on market conditions at the time of sale,
and we may not recover in full the guarantee payments made.

Pension Obligations

As of December 31, 2003, our pension benefit obligations exceeded the fair value of pension plan assets by $335 million, down from $425 million at the end of
2002. The decrease in the under-funded status was due primarily to higher contributions and actual returns on plan assets in excess of the assumed returns. In 2003, we recorded a decrease to the
minimum pension liability of $74 million and an increase to other comprehensive income of $45 million, net of tax of $29 million.

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Exit Liabilities

We recorded restructuring charges of $21 million in 2003, including $10 million for exit liabilities, which were principally for severance and benefit cost and
facility closure cost. In 2003, we incurred cash expenditures of $3 million for these exit liabilities.

As
explained in our 2002 Annual Report on Form 10-K, we had $25 million of exit liabilities as of December 31, 2002 related to the Smurfit-Stone merger and from our restructuring
activities. During 2003, we incurred approximately $8 million of cash expenditures for exit liabilities. The exit liabilities remaining as of December 31, 2003 total $24 million, including the 2003
restructuring activities. Future cash outlays, principally for severance, long-term lease commitments and facility closure costs, are expected to be $9 million in 2004, $2 million in 2005 and $13
million thereafter. We intend to continue funding the remaining exit liabilities through operations as originally planned.

Environmental Matters

As discussed in Item 1, "Business, Environmental Compliance," we will spend approximately $1 million in 2004 on MACT II of the Cluster Rule, which will
substantially complete all of the projects to bring us into compliance with MACT II of the Cluster Rule. We continue to study possible means of compliance with Phase II of MACT I of the Cluster Rule.
Based on currently available information, we estimate that the aggregate compliance cost of Phase II of MACT I of the Cluster Rule will be approximately $10 million and that such cost will be spent in
2005 and 2006. In addition to Cluster Rule compliance, we anticipate additional capital expenditures related to environmental compliance. Excluding the spending on the Cluster Rule projects, we have
spent an average of approximately $2 million in each of the last three years on capital expenditures for environmental purposes. We
anticipate that environmental capital expenditures, exclusive of the Cluster Rule projects, will be approximately $7 million in 2004.

OFF-BALANCE SHEET FINANCING ARRANGEMENT

At December 31, 2003 and 2002, we had an off-balance sheet financing arrangement with a qualified special purpose entity. Jefferson Smurfit (U.S.) sold 980,000
acres of owned and leased timberland in October 1999. The final purchase price, after adjustments, was $710 million. Jefferson Smurfit (U.S.) received $225 million in cash and $485 million in the form
of installment notes, which mature from December 31, 2007 to December 31, 2014. Under our program to monetize the installment notes receivable, the notes were sold, without recourse, to Timber Notes
Holdings LLC (TNH), a wholly-owned subsidiary of Jefferson Smurfit (U.S.) and a qualified special purpose entity under the provisions of SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," for $430 million in cash proceeds and a residual interest in the notes. The residual interest in the accompanying consolidated balance sheet was
$43 million at December 31, 2003. TNH and its creditors have no recourse to us in the event of default on the installment notes.

EFFECTS OF INFLATION

With the exception of energy, fiber and employee benefits, inflationary increases in operating costs have been moderate during the past three years. Energy and
fiber cost increases are strongly influenced by supply and demand factors, and when supplies become tight, we have experienced temporary increases in the cost of these items. We continue to seek ways
to mitigate the impact of such cost increases and, to the extent permitted by competition, pass the increased cost on to customers by increasing sales prices over time.

We
use the last-in, first-out method of accounting for approximately 80% of our inventories. Under this method, the cost of goods sold reported in the financial statements approximates
current cost and thus provides a closer matching of revenue and expenses in periods of increasing costs. On the other hand, depreciation charges represent the allocation of historical costs incurred
over past years and are significantly less than if they were based on the current cost of productive capacity being consumed.

19

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CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

Certain accounting issues require management estimates and judgments for the preparation of financial statements. Our most significant policies requiring the use
of estimates and judgments are listed below.

Long-Lived Assets and Goodwill

We conduct impairment reviews of long-lived assets and goodwill in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
and SFAS No. 142, respectively. Such reviews require us to make estimates of future cash flows and fair values. Our cash flow projections include significant assumptions about economic conditions,
demand and pricing for our products and cost. Our estimates of fair value are determined using a variety of valuation techniques, including pricing of recent industry acquisitions. While significant
judgment is required, we believe that our estimates of future cash flows and fair value are reasonable. However, should our assumptions change in future years, our fair value models could result in
lower fair values for long-lived assets and goodwill, which could materially affect the value of property, plant and equipment and goodwill and results of operations.

Idle Paper Machines and Restructurings

Smurfit-Stone has excess capacity in its containerboard system due to its policy of producing to meet demand. As a result, Smurfit-Stone has temporarily shut down
two of its paper machines, one located in Fernandina Beach, Florida and the other in Jacksonville, Florida. The Fernandina Beach machine is owned by Jefferson Smurfit (U.S.). Smurfit-Stone's decision
to shut down these machines was based upon anticipated supply and demand factors, their locations and operating cost. The Fernandina Beach machine has the capacity to produce approximately 200,000
tons of lightweight linerboard. No decision has been made to permanently shut down the Fernandina Beach machine, as it may be restarted, subject to future demand and industry conditions. As of
December 31, 2003, the Fernandina Beach machine had a net book value of approximately $118 million. For accounting purposes, the machine is classified as held and used and continues to be depreciated.

In
recent years, we have closed a number of operating facilities and exited non-core businesses. Identifying and calculating the cost to exit these businesses requires certain
assumptions to be made, the most significant of which are anticipated future liabilities, including leases and other contractual obligations, and the net realizable value of assets held for sale. We
believe our estimates are reasonable, considering our knowledge of the paper industry, previous experience in exiting activities and valuations received from independent third parties in the
calculation of such estimates. Although our estimates have been reasonably accurate in the past, significant judgment is required and these estimates and assumptions may change as additional
information becomes available and facts or circumstances change.

Allowance for Doubtful Accounts

We evaluate the collectibility of accounts receivable on a case-by-case basis and make adjustments to the bad debt reserve for expected losses. We also estimate
reserves for bad debts based on historical experience and past due status of the accounts. We perform credit evaluations and adjust credit limits based upon each customer's payment history and credit
worthiness. While credit losses have historically been within our expectations and the provisions established, actual bad debt write-offs may differ from our estimates, resulting in higher or lower
charges in the future for our allowance for doubtful accounts.

Pension

The determination of pension obligations and pension expense is dependent upon our selection of certain assumptions, the most significant of which are the
expected long-term rate of return on plan assets and the discount rates applied to plan liabilities. Consulting actuaries assist us in determining these assumptions, which are described in Note 13 of
the Notes to Consolidated Financial Statements. In 2003, we adjusted the expected long-term rate of return on plan assets to 9.0%, down from 9.5%, which increased retirement plan expense approximately
$4 million. The discount rate at December 31, 2003 was 6.25%. The assumed rate for the long-term return on plan assets has been determined based upon target asset allocations and expected long-term
rates of return by asset class. We regularly review our asset allocation, periodically

20

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rebalance
our investments to the targeted allocation and evaluate our actuarial assumptions. Our assumed discount rate is developed using Moody's Average Aa-Rated Corporate Bonds index as a benchmark.
A decrease in the assumed rate of return of 0.50% would increase pension expense by approximately $5 million. A decrease in the discount rate of 0.50% would increase our pension obligations by
approximately $73 million.

Income Taxes

Deferred tax assets and liabilities reflect our assessment of future taxes to be paid in the jurisdictions in which we operate. These assessments involve
temporary differences resulting from differing treatment of items for tax and accounting purposes, as well as estimates of our current tax exposure. Based on our evaluation of our tax positions, we
believe we are adequately reserved for these matters at December 31, 2003.

At
December 31, 2003, we had net operating loss and alternative minimum tax credit carryforwards in the amount of $86 million. Valuation allowances of $10 million have been established
for a portion of these deferred tax assets. For additional information, see Note 12 of the Notes to Consolidated Financial Statements. The realization of these deferred tax assets is dependent upon
future taxable income and we expect that our deferred tax assets, net of valuation allowances, will be fully realized. Should additional valuation allowances be necessary because of changes in
economic circumstances, those allowances would be established through a charge to income tax expense.

We
frequently face challenges from domestic tax authorities regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the
allocation of income among various tax jurisdictions. In June 2003, we settled the examination by the Internal Revenue Service (IRS) for the years 1995 through 1998, resulting in a payment of tax and
interest of $50 million. Adequate reserves were available to cover the payment. The IRS is currently examining the years 1999 through 2001. To the extent we prevail in matters for which accruals have
been established or are required to pay amounts in excess of our reserves, our effective tax rate in a given financial statement may be materially impacted. While the ultimate results cannot be
predicted with certainty, we believe that the examination will not have a material adverse effect on our consolidated financial condition or results of operations.

Legal and Environmental Contingencies

Accruals for legal and environmental matters are recorded when it is probable that a liability has been incurred and the amount of loss can be reasonably
estimated. Such liabilities are developed based on currently available information and require judgments as to probable outcomes. Assumptions are based on historical experience and recommendations of
legal counsel. Environmental estimates include assumptions and judgments about particular sites, remediation alternatives and environmental regulations. We believe our accruals are adequate. However,
due to uncertainties associated with these assumptions and judgments, as well as potential changes to governmental regulations and environmental technologies, actual costs could differ materially from
the estimated amounts.

Self-Insurance

We self-insure a majority of our workers' compensation and general liability costs subject to specific retention levels for certain policies and coverage. Losses
above these retention levels are transferred to insurance companies. In addition, we self-insure 100% of our group health care costs. All of the health care, workers' compensation and general
liability claims are handled by third party administrators. Consulting actuaries and administrators assist us in determining our liability for self-insured claims. Losses are accrued based upon the
aggregate self-insured claims determined by the third party administrators, actuarial assumptions and our historical experience. While we believe that our assumptions are appropriate, significant
differences in our actual experience or significant changes in our assumptions may materially affect our workers' compensation, general liability and group health care costs.

21

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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 FASB Staff
Position 106-1, issued in January 2004, related to the Act, we elected to defer recognizing the effects of the Act on our accumulated postretirement benefit obligation and net periodic postretirement
benefit costs until pending authoritative guidance on the accounting for the federal subsidy is issued, which could require a change to previously reported information.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including interest rate risk and commodity price 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 December 31, 2003, we have monthly futures contracts to hedge approximately 50% to 60% of our expected natural gas requirements through March 2004. We have monthly futures contracts
to hedge approximately 15% of our expected natural gas requirements for the remainder of 2004. Our objective is to fix the price of a portion of our forecasted purchases of natural gas used in the
manufacturing process. Excluding the impact of future contracts, the potential change in our expected 2004 natural gas cost, based upon our expected annual usage and unit cost, resulting from a
hypothetical 10% change, would be approximately $7 million. The change in energy cost discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"
include the impact of the natural gas futures contracts. See Note 8 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 financing arrangements include both fixed and variable
rate debt in which changes in interest rates will impact the fixed and variable debt differently. A change in the interest rate of fixed rate debt will impact the fair value of the debt, whereas a
change in the interest rate on the variable rate debt will impact interest expense and cash flows. Our objective is to protect JSCE 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. We do not utilize
derivatives for speculative or trading purposes. 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 derivative contracts outstanding at December 31, 2003.

We
have performed a sensitivity analysis as of December 31, 2003 and 2002 that measures the change in interest expense on our variable rate debt arising from a hypothetical 100 basis
point adverse movement in interest rates. Based on our outstanding variable rate debt as of December 31, 2003 and 2002, a hypothetical 100 basis point change in interest rates would impact interest
expense by approximately $6 million and $8 million, respectively.

The
table below presents principal amounts by year of anticipated maturity for our debt obligations and related average interest rates based on the weighted average interest rates at the
end of the period. Variable interest rates disclosed do not attempt to project future interest rates. This information should be read in conjunction with Note 7 of the Notes to Consolidated Financial
Statements.

22

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Short and Long-Term Debt

|Outstanding as of December 31, 2003
(in millions)                            |  | 2004 |     | 2005 |   | 2006 |  | 2007 |    | 2008 |   | Thereafter |  | Total |   | Fair
Value
|---------------------------------------------------------------------------- |  | ---- | --- | ---- | - | ---- |  | ---- | -- | ---- | - | ---------- |  | ----- | - | ----------
|Bank term loans and revolver
    4.4% average interest rate (variable)       |  | $    |     |      | $ | 94   |  | $    | 17 |      | $ | 134        |  | $     |   |           
|Accounts receivable securitization
    1.2% average interest rate (variable) |  |      | 177 |      |   |      |  |      |    |      |   |            |  |       |   |           
|Senior notes
    8.0% average interest rate (fixed)                          |  |      |     |      |   |      |  |      |    |      |   |            |  |       |   |           
|Industrial revenue bonds
    7.2% average interest rate (fixed)              |  |      |     |      |   |      |  |      | 9  |      |   |            |  |       |   |           
|Industrial revenue bonds
    3.4% average interest rate (variable)           |  |      |     |      |   | 120  |  |      |    |      |   |            |  |       |   |           
|Other                                                                        |  |      | 3   |      |   | 1    |  |      | 3  |      |   | 3          |  |       | 2 |           
|                                                                             |  |      |     |      |   |      |  |      |    |      |   |            |  |       |   |           
|Total debt                                                                   |  | $    | 180 |      | $ | 215  |  | $    | 29 |      | $ | 137        |  | $     | 2 |           
|                                                                             |  |      |     |      |   |      |  |      |    |      |   |            |  |       |   |           

23

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|                                                                                   |                                                        | Page No.                                                 
|---------------------------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------------------------------------
|Index to Financial Statements:                                                     |                                                        |                                                          
|                                                                                   | Management's Responsibility for Financial Statements   |                                                          
|                                                                                   | Report of Independent Auditors                         |                                                          
|                                                                                   | Consolidated Balance SheetsDecember 31, 2003 and 2002 |                                                          
|                                                                                   | For the years ended December 31, 2003, 2002 and 2001:  |                                                          
|                                                                                   |                                                        | Consolidated Statements of Operations                    
|                                                                                   |                                                        | Consolidated Statements of Stockholder's Equity (Deficit)
|                                                                                   |                                                        | Consolidated Statements of Cash Flows                    
|                                                                                   | Notes to Consolidated Financial Statements             |                                                          
|The following consolidated financial statement schedule is included in Item 15(a): |                                                        |                                                          
|                                                                                   | II. Valuation and Qualifying Accounts and Reserves     |                                                          

All
other schedules specified under Regulation S-X have been omitted because they are not applicable, because they are not required or because the information required is included in the
financial statements or notes thereto.

24

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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of JSCE, Inc. is responsible for the information contained in the consolidated financial statements. The consolidated financial statements have
been prepared by us in accordance with accounting principles generally accepted in the United States appropriate in the circumstances and necessarily include certain amounts based on management's best
estimate and judgment.

We
maintain a system of internal accounting control, which we believe is sufficient to provide reasonable assurance that in all material respects transactions are properly authorized and
recorded, financial reporting responsibilities are met and accountability for assets is maintained. In establishing and maintaining any system of internal control, judgment is required to assess and
balance the relative costs and expected benefits. Management believes that through the careful selection of employees, the division of responsibilities and the application of formal policies and
procedures JSCE has an effective and responsive system of internal accounting controls. The system is monitored by our staff of internal auditors, who evaluate and report to management on the
effectiveness of the system. In addition, our business ethics policy requires employees to maintain a high level of ethical standards in the conduct of the company's business.

|/s/PATRICK J. MOORE                                            |  | 
|-------------------------------------------------------------- |  | 
|Patrick J. Moore President and Chief Executive Officer         |  | 
|/s/CHARLES A. HINRICHS                                         |  | 
|Charles A. Hinrichs Vice President and Chief Financial Officer |  | 
|/s/PAUL K. KAUFMANN                                            |  | 
|Paul K. Kaufmann Vice President and Corporate Controller       |  | 

25

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REPORT OF INDEPENDENT AUDITORS

Board
of Directors
JSCE, Inc.

We
have audited the accompanying consolidated balance sheets of JSCE, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholder's equity
(deficit) and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of JSCE, Inc. at December 31, 2003 and 2002, and
the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

As
discussed in Note 1 to the financial statements, in 2003 the Company changed its method of accounting for asset retirement obligations and for stock-based compensation, and in 2002
the Company changed its method of accounting for goodwill and other intangible assets.

| |  | /s/ERNST & YOUNG LLP
| |  | --------------------
| |  | Ernst & Young LLP   

St. Louis, Missouri
January 27, 2004

26

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JSCE, INC.

CONSOLIDATED BALANCE SHEETS

|December 31, (In millions, except share data)  |                                                                                         | 2003                               |                                      | 2002   |    
|---------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------------------ | ------ | ---
|Assets                                         |                                                                                         |                                    |                                      |        |    
|Current assets                                 |                                                                                         |                                    |                                      |        |    
|                                               | Cash and cash equivalents                                                               |                                    | $                                    | 8      |    
|                                               | Receivables, less allowances of $13 in 2003 and $11 in 2002                             |                                    |                                      | 319    |    
|                                               | Inventories                                                                             |                                    |                                      |        |    
|                                               |                                                                                         | Work-in-process and finished goods |                                      |        | 92 
|                                               |                                                                                         | Materials and supplies             |                                      |        | 121
|                                               |                                                                                         |                                    |                                      |        |    
|                                               |                                                                                         |                                    | 213                                  |        |    
|                                               | Refundable income taxes                                                                 |                                    |                                      | 8      |    
|                                               | Deferred income taxes                                                                   |                                    |                                      | 10     |    
|                                               | Prepaid expenses and other current assets                                               |                                    |                                      | 9      |    
|                                               |                                                                                         |                                    |                                      |        |    
|                                               |                                                                                         |                                    | Total current assets                 |        |    
|Net property, plant and equipment              |                                                                                         |                                    | 1,368                                |        |    
|Timberland, less timber depletion              |                                                                                         |                                    | 2                                    |        |    
|Goodwill                                       |                                                                                         |                                    | 184                                  |        |    
|Notes receivable from SSCC                     |                                                                                         |                                    | 582                                  |        |    
|Other assets                                   |                                                                                         |                                    | 148                                  |        |    
|                                               |                                                                                         |                                    |                                      |        |    
|                                               |                                                                                         | $                                  | 2,851                                |        | $  
|                                               |                                                                                         |                                    |                                      |        |    
|Liabilities and Stockholder's Equity (Deficit) |                                                                                         |                                    |                                      |        |    
|Current liabilities                            |                                                                                         |                                    |                                      |        |    
|                                               | Current maturities of long-term debt                                                    |                                    | $                                    | 180    |    
|                                               | Accounts payable                                                                        |                                    |                                      | 229    |    
|                                               | Accrued compensation and payroll taxes                                                  |                                    |                                      | 84     |    
|                                               | Interest payable                                                                        |                                    |                                      | 21     |    
|                                               | Income taxes payable                                                                    |                                    |                                      |        |    
|                                               | Other current liabilities                                                               |                                    |                                      | 60     |    
|                                               |                                                                                         |                                    |                                      |        |    
|                                               |                                                                                         |                                    | Total current liabilities            |        |    
|Long-term debt, less current maturities        |                                                                                         |                                    | 1,399                                |        |    
|Other long-term liabilities                    |                                                                                         |                                    | 429                                  |        |    
|Deferred income taxes                          |                                                                                         |                                    | 460                                  |        |    
|Stockholder's equity (deficit)                 |                                                                                         |                                    |                                      |        |    
|                                               | Common stock, par value $.01 per share; 1,000 shares authorized, issued and outstanding |                                    |                                      |        |    
|                                               | Additional paid-in capital                                                              |                                    |                                      | 1,160  |    
|                                               | Retained earnings (deficit)                                                             |                                    |                                      | (1,001 | )  
|                                               | Accumulated other comprehensive income (loss)                                           |                                    |                                      | (170   | )  
|                                               |                                                                                         |                                    |                                      |        |    
|                                               |                                                                                         |                                    | Total stockholder's equity (deficit) |        |    
|                                               |                                                                                         |                                    |                                      |        |    
|                                               |                                                                                         | $                                  | 2,851                                |        | $  
|                                               |                                                                                         |                                    |                                      |        |    

See
notes to consolidated financial statements.

27

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JSCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

|Year Ended December 31, (In millions)  |                                                                                               | 2003                                                                                             |       | 2002  |    | 2001  |      
|-------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ----- | ----- | -- | ----- | -----
|Net sales                              |                                                                                               | $                                                                                                | 3,651 |       | $  | 3,456 |      
|Costs and expenses                     |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       | Cost of goods sold                                                                            |                                                                                                  |       | 3,222 |    |       | 2,987
|                                       | Selling and administrative expenses                                                           |                                                                                                  |       | 355   |    |       | 289  
|                                       | Restructuring charges                                                                         |                                                                                                  |       | 21    |    |       | 4    
|                                       | Loss (gain) on sale of assets                                                                 |                                                                                                  |       | 5     |    |       | (1   
|                                       |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       |                                                                                               | Income from operations                                                                           |       |       | 48 |       |      
|Other income (expense)                 |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       | Interest income from SSCC                                                                     |                                                                                                  |       | 80    |    |       | 73   
|                                       | Interest expense                                                                              |                                                                                                  |       | (104  | )  |       | (94  
|                                       | Loss from early extinguishment of debt                                                        |                                                                                                  |       | (2    | )  |       | (19  
|                                       | Other, net                                                                                    |                                                                                                  |       | 3     |    |       | 3    
|                                       |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       |                                                                                               | Income from continuing operations before income taxes and cumulative effect of accounting change |       |       | 25 |       |      
|Provision for income taxes             |                                                                                               |                                                                                                  | (5    | )     |    | (56   | )    
|                                       |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       |                                                                                               | Income from continuing operations before cumulative effect of accounting change                  |       |       | 20 |       |      
|Discontinued operations                |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       | Income from discontinued operations net of income tax provisions of $3 in 2002 and $3 in 2001 |                                                                                                  |       |       |    |       | 5    
|                                       | Gain on disposition of discontinued operations net of income tax provision of $17             |                                                                                                  |       |       |    |       | 22   
|                                       |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       |                                                                                               | Income before cumulative effect of accounting change                                             |       |       | 20 |       |      
|Cumulative effect of accounting change |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       | Asset retirement obligations, net of income tax benefit of $2                                 |                                                                                                  |       | (3    | )  |       |      
|                                       |                                                                                               |                                                                                                  |       |       |    |       |      
|                                       |                                                                                               | Net income                                                                                       |       | $     | 17 |       | $    
|                                       |                                                                                               |                                                                                                  |       |       |    |       |      

See
notes to consolidated financial statements.

28

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JSCE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)

|                               |                                   | Common Stock                                                     |                             |   |  |  |   |       |  |   |       
|------------------------------ | --------------------------------- | ---------------------------------------------------------------- | --------------------------- | - |  |  | - | ----- |  | - | ------
|
|Balance at January 1, 2001     |                                   | 1,000                                                            |                             | $ |  |  | $ | 1,129 |  | $ | (1,213
|Comprehensive income (loss)    |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|                               | Net income                        |                                                                  |                             |   |  |  |   |       |  |   |       
|                               | Other comprehensive income (loss) |                                                                  |                             |   |  |  |   |       |  |   |       
|                               |                                   | Minimum pension liability adjustment, net of tax benefit of $36. |                             |   |  |  |   |       |  |   |       
|                               |                                   | Cumulative effect of accounting change, net of tax expense of $2 |                             |   |  |  |   |       |  |   |       
|                               |                                   | Deferred hedge loss, net of tax benefit of $4                    |                             |   |  |  |   |       |  |   |       
|                               |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|                               |                                   |                                                                  | Comprehensive income (loss) |   |  |  |   |       |  |   |       
|Dividends paid                 |                                   |                                                                  |                             |   |  |  |   |       |  |   | (8    
|                               |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|Balance at December 31, 2001   |                                   | 1,000                                                            |                             |   |  |  |   | 1,129 |  |   | (1,113
|Comprehensive income (loss)    |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|                               | Net income                        |                                                                  |                             |   |  |  |   |       |  |   |       
|                               | Other comprehensive income (loss) |                                                                  |                             |   |  |  |   |       |  |   |       
|                               |                                   | Minimum pension liability adjustment, net of tax benefit of $102 |                             |   |  |  |   |       |  |   |       
|                               |                                   | Deferred hedge gain, net of tax expense of $3                    |                             |   |  |  |   |       |  |   |       
|                               |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|                               |                                   |                                                                  | Comprehensive income (loss) |   |  |  |   |       |  |   |       
|Dividends paid                 |                                   |                                                                  |                             |   |  |  |   |       |  |   | (8    
|                               |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|Balance at December 31, 2002   |                                   | 1,000                                                            |                             |   |  |  |   | 1,129 |  |   | (1,010
|Comprehensive income (loss)    |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|                               | Net income                        |                                                                  |                             |   |  |  |   |       |  |   |       
|                               | Other comprehensive income (loss) |                                                                  |                             |   |  |  |   |       |  |   |       
|                               |                                   | Minimum pension liability adjustment, net of tax expense of $29  |                             |   |  |  |   |       |  |   |       
|                               |                                   | Deferred hedge loss, net of tax of $0                            |                             |   |  |  |   |       |  |   |       
|                               |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|                               |                                   |                                                                  | Comprehensive income (loss) |   |  |  |   |       |  |   |       
|Capital contribution from SSCC |                                   |                                                                  |                             |   |  |  |   | 31    |  |   |       
|Dividends paid                 |                                   |                                                                  |                             |   |  |  |   |       |  |   | (8    
|                               |                                   |                                                                  |                             |   |  |  |   |       |  |   |       
|Balance at December 31, 2003   |                                   | 1,000                                                            |                             | $ |  |  | $ | 1,160 |  | $ | (1,001
|                               |                                   |                                                                  |                             |   |  |  |   |       |  |   |       

See
notes to consolidated financial statements.

29

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JSCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|Year Ended December 31, (In millions)                                            |                                                                        | 2003                                                                    |                                           | 2002 |     | 2001 |     
|-------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------- | ---- | --- | ---- | ----
|Cash flows from operating activities                                             |                                                                        |                                                                         |                                           |      |     |      |     
|Net income                                                                       |                                                                        | $                                                                       | 17                                        |      | $   | 111  |     
|Adjustments to reconcile net income to net cash provided by operating activities |                                                                        |                                                                         |                                           |      |     |      |     
|                                                                                 |                                                                        | Gain on disposition of discontinued operations                          |                                           |      |     |      |     
|                                                                                 |                                                                        | Loss from early extinguishment of debt                                  |                                           |      | 2   |      |     
|                                                                                 |                                                                        | Cumulative effect of accounting change for asset retirement obligations |                                           |      | 5   |      |     
|                                                                                 |                                                                        | Depreciation, depletion and amortization                                |                                           |      | 136 |      |     
|                                                                                 |                                                                        | Amortization of deferred debt issuance costs                            |                                           |      | 4   |      |     
|                                                                                 |                                                                        | Deferred income taxes                                                   |                                           |      | (48 | )    |     
|                                                                                 |                                                                        | Pension and post-retirement benefits                                    |                                           |      | (30 | )    |     
|                                                                                 |                                                                        | Loss (gain) on sale of assets                                           |                                           |      | 5   |      |     
|                                                                                 |                                                                        | Non-cash restructuring charges                                          |                                           |      | 11  |      |     
|                                                                                 |                                                                        | Non-cash interest income from SSCC                                      |                                           |      | (80 | )    |     
|                                                                                 |                                                                        | Change in current assets and liabilities                                |                                           |      |     |      |     
|                                                                                 |                                                                        |                                                                         | Receivables                               |      |     | 35   |     
|                                                                                 |                                                                        |                                                                         | Inventories                               |      |     | 13   |     
|                                                                                 |                                                                        |                                                                         | Prepaid expenses and other current assets |      |     |      |     
|                                                                                 |                                                                        |                                                                         | Accounts payable and accrued liabilities  |      |     | (29  | )   
|                                                                                 |                                                                        |                                                                         | Interest payable                          |      |     |      |     
|                                                                                 |                                                                        | Other, net                                                              |                                           |      | 9   |      |     
|                                                                                 |                                                                        |                                                                         |                                           |      |     |      |     
|                                                                                 | Net cash provided by operating activities                              |                                                                         |                                           | 50   |     |      | 238 
|                                                                                 |                                                                        |                                                                         |                                           |      |     |      |     
|Cash flows from investing activities                                             |                                                                        |                                                                         |                                           |      |     |      |     
|                                                                                 | Expenditures for property, plant and equipment                         |                                                                         |                                           | (96  | )   |      | (92 
|                                                                                 | Payments on acquisitions                                               |                                                                         |                                           | (26  | )   |      | (350
|                                                                                 | Notes receivable from SSCC                                             |                                                                         |                                           | 34   |     |      | 6   
|                                                                                 | Proceeds from property and timberland disposals and sale of businesses |                                                                         |                                           | 44   |     |      | 83  
|                                                                                 |                                                                        |                                                                         |                                           |      |     |      |     
|                                                                                 | Net cash used for investing activities                                 |                                                                         |                                           | (44  | )   |      | (353
|                                                                                 |                                                                        |                                                                         |                                           |      |     |      |     
|Cash flows from financing activities                                             |                                                                        |                                                                         |                                           |      |     |      |     
|                                                                                 | Proceeds from long-term debt                                           |                                                                         |                                           | 300  |     |      | 820 
|                                                                                 | Net repayments under the accounts receivable securitization program    |                                                                         |                                           | (10  | )   |      | (13 
|                                                                                 | Net repayments of debt                                                 |                                                                         |                                           | (312 | )   |      | (633
|                                                                                 | Capital contribution from SSCC                                         |                                                                         |                                           | 31   |     |      |     
|                                                                                 | Dividends paid                                                         |                                                                         |                                           | (8   | )   |      | (8  
|                                                                                 | Debt repurchase premiums paid                                          |                                                                         |                                           |      |     |      | (18 
|                                                                                 | Deferred debt issuance costs                                           |                                                                         |                                           | (4   | )   |      | (39 
|                                                                                 |                                                                        |                                                                         |                                           |      |     |      |     
|                                                                                 | Net cash provided by (used for) financing activities                   |                                                                         |                                           | (3   | )   |      | 109 
|                                                                                 |                                                                        |                                                                         |                                           |      |     |      |     
|Increase (decrease) in cash and cash equivalents                                 |                                                                        |                                                                         | 3                                         |      |     | (6   | )   
|Cash and cash equivalents                                                        |                                                                        |                                                                         |                                           |      |     |      |     
|                                                                                 | Beginning of year                                                      |                                                                         |                                           | 5    |     |      | 11  
|                                                                                 |                                                                        |                                                                         |                                           |      |     |      |     
|                                                                                 | End of year                                                            |                                                                         | $                                         | 8    |     | $    | 5   
|                                                                                 |                                                                        |                                                                         |                                           |      |     |      |     

See
notes to consolidated financial statements.

30

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JSCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions)

1.     Significant Accounting Policies

Basis of Presentation: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 unsecured indebtedness of JSC(U.S.).
The Company has no operations other than its investment in JSC(U.S.).

Nature of Operations:The Company's major operations are in containerboard and corrugated containers, consumer packaging and
reclamation. The Company's paperboard mills procure virgin and reclaimed fiber and produce paperboard for conversion into corrugated containers and folding cartons at Company-owned facilities and
third-party converting operations. Paper product customers represent a diverse range of industries including paperboard packaging and a broad range of manufacturers of consumer goods. Recycling
operations collect or broker wastepaper for sale to Company-owned and third-party paper mills. Customers and operations are located principally in the United States. Credit is extended to customers
based on an evaluation of their financial condition.

Principles of Consolidation:The consolidated financial statements include the accounts of the Company and majority-owned and
controlled subsidiaries. Investments in majority owned affiliates where control does not exist and non-majority owned affiliates are accounted for using the equity method. Significant intercompany
accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents:The Company considers all highly liquid investments with an original maturity of three months or
less to be cash equivalents. Cash and cash equivalents of $5 million were pledged at December 31, 2003 and 2002, as collateral for obligations associated with the accounts receivable securitization
program (See Note 7).

Revenue Recognition:The Company recognizes revenue at the time persuasive evidence of an agreement exists, price is fixed
and determinable, products are shipped to external customers and collectibility is reasonably assured. Shipping and handling costs are included in cost of goods sold.

Receivables, Less Allowances:The Company evaluates the collectibility of accounts receivable on a case-by-case basis and
makes adjustments to the bad debt reserve for expected losses, considering such things as ability to pay, bankruptcy, credit ratings and payment history. The Company also estimates reserves for bad
debts based on historical experience and past due status of the accounts.

Inventories:Inventories are valued at the lower of cost or market under the last-in, first-out ("LIFO") method, except for
$42 million in 2003 and $44 million in 2002, which are valued at the lower of average cost or market. First-in, first-out ("FIFO") costs (which approximate replacement costs) exceed the LIFO value by
$68 million and $62 million at December 31, 2003 and 2002, respectively.

Net Property, Plant and Equipment:Property, plant and equipment are carried at cost. The costs of additions, improvements
and major replacements are capitalized, while maintenance and repairs are charged to expense as incurred. Provisions for depreciation and amortization are made using straight-line rates over the
estimated useful lives of the related assets and the terms of the applicable leases for leasehold improvements. Papermill machines have been assigned a useful life of 18 to 23 years, while major
converting equipment and folding carton presses have been assigned useful lives ranging from 12 to 20 years (See Note 5).

31

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Timberland, Less Timber Depletion:Timberland is stated at cost less accumulated cost of timber harvested. The portion of the
costs of timberland attributed to standing timber is charged against income as timber is cut, at rates determined annually, based on the relationship of unamortized timber costs to the estimated
volume of recoverable timber. The costs of seedlings and reforestation of timberland are capitalized.

Goodwill and Other Intangible Assets:Effective January 1, 2002, goodwill is no longer amortized, but instead is tested for
impairment at least annually in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." For purposes of measuring goodwill impairment, the
Company's reporting units are its business segments. Other intangible assets represent the fair value of identifiable intangible assets acquired in purchase business combinations. Other intangible
assets are amortized over their expected useful life, unless the assets are deemed to have an indefinite life. Other intangible assets are included in other assets in the Company's December 31, 2003
consolidated balance sheet (See Note 16).

Deferred Debt Issuance Costs and Losses From Extinguishment of Debt:Deferred debt issuance costs included in other assets
are amortized over the terms of the respective debt obligations using the interest method. In accordance with SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB No. 13,
and Technical Corrections," the Company records losses due to early extinguishment as a component of income from continuing operations rather than as an extraordinary item. Prior periods have been
restated in order to conform to 2003 presentation.

Long-Lived Assets:In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

A
component of the Company, as defined in SFAS No. 144, is classified as a discontinued operation if the operations and cash flows of the component will be (or have been) eliminated from
the ongoing operations of the Company.

Income Taxes:The Company accounts for income taxes in accordance with the liability method of accounting for income taxes.
Under the liability method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases (See Note 12).

Derivatives and Hedging Activities:Effective January 1, 2001, the Company adopted SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149, and recognizes all derivatives on the balance sheet at fair value. Derivatives that are not hedges are
adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value
of the hedged assets, liabilities, or firm commitments through earnings or recognized in other accumulated comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective
portion of a derivative's change in fair value is immediately recognized in earnings (See Note 8).

Transfers of Financial Assets:Financial assets transferred to qualifying special-purpose entities and the liabilities of
such entities are not reflected in the consolidated financial statements of the Company. Gains or losses on sale of financial assets depend in part on the previous carrying amount of the financial
assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. Quoted market prices are not available for
retained interests, so the Company estimates fair value based on the present value of expected cash flows estimated by using management's best estimates of key assumptions (See Note 6).

32

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Stock-Based Compensation:At December 31, 2003, the Company has stock-based employee compensation plans, including stock
options and restricted stock units ("RSUs") (See Note 14).

Stock
Options:    In the second quarter of 2003, the Company adopted the fair value recognition provisions of 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 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.

Prior
to 2003, the Company accounted for stock options under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee compensation cost was reflected in 2001 or 2002 net income, 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 if the fair value based method had been applied to all outstanding and unvested awards in each period.

|                                                                                                                                            |  | 2003 |    | 2002 |   | 2001 |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | ---- | - | ---- | -
|Net income, as reported                                                                                                                     |  | $    | 17 |      | $ | 111  |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |      | 1  |      |   |      |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |      | (5 | )    |   | (5   | )
|                                                                                                                                            |  |      |    |      |   |      |  
|Pro forma net income                                                                                                                        |  | $    | 13 |      | $ | 106  |  
|                                                                                                                                            |  |      |    |      |   |      |  

RSUs:    Amounts
earned under the Company's annual management incentive plan, which are deferred and paid in the form of SSCC RSUs, immediately
vest and are expensed by the Company in the year earned. RSUs related to the Company matching program and non-vested RSUs are expensed over the vesting period.

Environmental Matters:The Company expenses environmental expenditures related to existing conditions resulting from past or
current operations from which no current or future benefit is discernible. Expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are
capitalized. Reserves for environmental liabilities are established in accordance with the American Institute of Certified Public Accountants Statement of Position 96-1, "Environmental Remediation
Liabilities." The Company records a liability at the time when it is probable and can be reasonably estimated. Such liabilities are not discounted or reduced for potential recoveries from insurance
carriers.

Asset Retirement Obligations: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 (See Note 11).

33

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Restructuring:Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." Costs associated with exit or disposal activities are recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan (See Note 4).

Guarantees:Effective January 1, 2003, the Company adopted 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 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 (See Note 10).

Use of Estimates:The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications:Certain reclassifications of prior year presentations have been made to conform to the 2003 presentation.

2.     Discontinued Operations

On September 30, 2002, the Company sold the industrial packaging division included in the Consumer Packaging segment to a third party for approximately $80
million and retained $12 million of accounts receivable. The sale resulted in a gain on disposition of discontinued operations of $22 million, net of tax of $17 million. The assets sold include 17
tube and core manufacturing facilities, three fiber partition plants and three uncoated recycled boxboard mills. Net sales for these operations were $96 million for the nine months ended September 30,
2002 and $122 million in 2001. These facilities employed approximately 850 hourly and salaried employees. The results of operations from the industrial packaging division have been reclassified as
discontinued operations for all periods presented.

3.     Acquisitions

On May 31, 2003, the Company acquired the operations of Arko Paper Products Co., Inc. ("Arko"), a folding carton producer, for $30 million. The results of
operations have been included in the consolidated statement of operations after May 31, 2003. The cost to acquire the operations has been allocated to the assets acquired and liabilities assumed
according to fair values. The purchase price allocation, completed during the fourth quarter of 2003, resulted in acquired goodwill of $12 million and intangible assets of $3 million, which has been
allocated to the Consumer Packaging segment.

On
September 30, 2002, the Company acquired a corrugating medium mill and related assets from MeadWestvaco Corporation (the "Stevenson Mill Acquisition"). The Stevenson Mill Acquisition
included the purchase of a corrugating medium mill, seven corrugated container plants, one hardwood sawmill and woodland operations consisting of approximately 82,000 acres of timberland. The related
results of operations have been included in the consolidated statements of operations after September 30, 2002. The Company paid $350 million for the assets and an additional $25 million in connection
with certain financing arrangements (See Note 7).

34

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The
purchase price allocation was completed during the first quarter of 2003 and the Company did not record any goodwill related to the transaction. Included in the allocation of the
cost of the Stevenson Mill Acquisition is the adjustment to fair value of property and equipment associated with the permanent shutdown of three corrugated container plants, liabilities for the
termination of certain employees and liabilities for lease commitments and facility closure costs.

The
following is a summary of the exit liabilities recorded in the allocation of the purchase price:

|                             |          | Severance |   | Lease
Commitments |   | Facility Closure |    | Total |  
|---------------------------- | -------- | --------- | - | ----------------- | - | ---------------- | -- | ----- | -
|Opening Balance              |          | $         | 5 |                   | $ | 1                |    | $     | 1
|                             |          |           |   |                   |   |                  |    |       |  
|Balance at December 31, 2002 |          |           | 5 |                   |   | 1                |    |       | 1
|                             | Payments |           |   | (5                | ) |                  | (1 | )     |  
|                             |          |           |   |                   |   |                  |    |       |  
|Balance at December 31, 2003 |          | $         |   |                   | $ |                  |    | $     | 1
|                             |          |           |   |                   |   |                  |    |       |  

Future
cash outlays under the exit liabilities are anticipated to be $1 million in 2004.

4.     Restructurings

On November 18, 1998, a subsidiary of SSCC merged with Stone Container Corporation ("Stone"), an action hereafter referred to as the "Merger," and Stone became a
subsidiary of SSCC. Since the Merger, the Company has recorded various restructuring charges related to the rationalization of its containerboard mill and converting operations, including the
termination of employees and liabilities for lease commitments at the closed facilities.

During
2003, the Company recorded restructuring charges of $21 million related to the permanent closure of one of two paper machines at its Philadelphia, Pennsylvania, coated recycled
boxboard mill, the closure of three converting facilities and reduction of the salaried work force primarily in its corrugated containers operations. The assets of the shutdown operations were
adjusted to the estimated net realizable value resulting in a non-cash write-down of $11 million. The shutdowns and other rationalization efforts resulted in approximately 350 employees being
terminated. The net sales and operating losses of the shutdown operations in 2003 prior to closure were $34 million and $8 million, respectively. The net sales and operating losses of the shutdown
operations for the year ended December 31, 2002 were $69 million and $9 million, respectively. The net sales and operating losses of the shutdown operations for the year ended December 31, 2001 were
$74 million and $9 million, respectively. No significant additional charges related to these shutdown operations are expected.

During
2002, the Company recorded restructuring charges of $4 million related to the shutdown and sale of its Cladwood® operations. The assets of these closed operations were
adjusted to the estimated fair value less cost to sell resulting in a $3 million non-cash write-down. These shutdowns resulted in approximately 110 employees being terminated. The net sales and
operating income of these facilities in 2002 prior to closure were $11 million and $1 million, respectively. The net sales and operating income of these facilities in 2001 were $17 million and $1
million, respectively.

During
2001, the Company recorded restructuring charges of $4 million related to the shutdown of a boxboard paper machine and related operation and the closure of a trucking operation.
The assets of these closed operations were adjusted to their estimated fair value less cost to sell resulting in a $2 million non-cash write-down. These shutdowns resulted in approximately 75
employees being terminated. The net sales and operating loss of these facilities in 2001 prior to closure were $4 million and $2 million, respectively.

35

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The
following is a summary of the restructuring liabilities recorded:

|                             |                    | Write-down of Property and
Equipment to Fair Value |  | Severance
and
Benefits |   | Lease Commitments |    | Facility
Closure Costs |    | Other |   | Total |   
|---------------------------- | ------------------ | -------------------------------------------------- |  | ---------------------- | - | ----------------- | -- | ---------------------- | -- | ----- | - | ----- | --
|Balance at January 1, 2001   |                    | $                                                  |  |                        | $ |                   |    | $                      | 14 |       | $ | 8     |   
|                             | Charge             |                                                    |  | 2                      |   |                   | 1  |                        |    |       |   |       | 1 
|                             | Payments           |                                                    |  |                        |   |                   | (1 | )                      |    | (2    | ) |       | (1
|                             | Non-cash reduction |                                                    |  | (2                     | ) |                   |    |                        |    |       |   |       |   
|                             |                    |                                                    |  |                        |   |                   |    |                        |    |       |   |       |   
|Balance at December 31, 2001 |                    |                                                    |  |                        |   |                   |    |                        | 12 |       |   | 8     |   
|                             | Charge             |                                                    |  | 3                      |   |                   | 1  |                        |    |       |   |       |   
|                             | Payments           |                                                    |  |                        |   |                   | (1 | )                      |    | (2    | ) |       |   
|                             | Non-cash reduction |                                                    |  | (3                     | ) |                   |    |                        |    |       |   |       |   
|                             |                    |                                                    |  |                        |   |                   |    |                        |    |       |   |       |   
|Balance at December 31, 2002 |                    |                                                    |  |                        |   |                   |    |                        | 10 |       |   | 8     |   
|                             | Charge             |                                                    |  | 11                     |   |                   | 8  |                        |    | 1     |   |       | 1 
|                             | Payments           |                                                    |  |                        |   |                   | (2 | )                      |    | (2    | ) |       | (1
|                             | Non-cash reduction |                                                    |  | (11                    | ) |                   |    |                        |    |       |   |       |   
|                             |                    |                                                    |  |                        |   |                   |    |                        |    |       |   |       |   
|Balance at December 31, 2003 |                    | $                                                  |  |                        | $ | 6                 |    | $                      | 9  |       | $ | 8     |   
|                             |                    |                                                    |  |                        |   |                   |    |                        |    |       |   |       |   

Future
cash outlays are anticipated to be $8 million in 2004, $2 million in 2005, $2 million in 2006, and $11 million thereafter.

5.     Net Property, Plant and Equipment

Net property, plant and equipment at December 31 consist of:

|                                     |  | 2003 |        | 2002 |  
|------------------------------------ |  | ---- | ------ | ---- | -
|Land                                 |  | $    | 56     |      | $
|Buildings and leasehold improvements |  |      | 275    |      |  
|Machinery, fixtures and equipment    |  |      | 2,074  |      |  
|Construction in progress             |  |      | 44     |      |  
|                                     |  |      |        |      |  
|                                     |  |      | 2,449  |      |  
|Less accumulated depreciation        |  |      | (1,081 | )    |  
|                                     |  |      |        |      |  
|Net property, plant and equipment    |  | $    | 1,368  |      | $
|                                     |  |      |        |      |  

Depreciation
expense was $136 million, $121 million and $114 million for 2003, 2002 and 2001, respectively, excluding depreciation expense related to discontinued operations of $2
million in 2002 and $3 million in 2001. Property, plant and equipment include capitalized leases of $21 million and $42 million and related accumulated amortization of $14 million and $32 million at
December 31, 2003 and 2002, respectively.

36

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6.     Timberland Sale and Note Monetization

The Company sold approximately 980,000 acres of owned and leased timberland in Florida, Georgia and Alabama in October 1999. The final purchase price, after
adjustments, was $710 million. The Company received $225 million in cash, with the balance of $485 million in the form of installment notes.

The
Company entered into a program to monetize the installment notes receivable. The notes were sold without recourse to Timber Notes Holdings LLC, a qualified special-purpose entity
under the provisions of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," for $430 million cash proceeds and a residual interest in the
notes. The transaction was accounted for as a sale under SFAS No. 140. The cash proceeds from the sale and monetization transactions were used to prepay borrowings under the JSC(U.S.) Credit
Agreement. The residual interest was $43 million and $41 million at December 31, 2003 and 2002, respectively. The key economic assumption used in measuring the residual interest at the date of the
monetization was the rate at which the residual cash flows were discounted (9%). At December 31, 2003, the sensitivity on the current fair value of the residual cash flows to immediate 10% and 20%
adverse changes in the assumed rate at which the residual cash flows were discounted (9%) was $2 million and $4 million, respectively.

7.     Long-Term Debt

Long-term debt as of December 31 is as follows:

|                                                                                                                              |  | 2003 |       | 2002 |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | -
|Bank Credit Facilities                                                                                                        |  |      |       |      |  
|Tranche A term loan                                                                                                           |  | $    |       |      | $
|Tranche B term loan (4.4% weighted average variable rate), payable in various installments through March 31, 2007             |  |      | 151   |      |  
|Revolving Credit Facility (4.2% weighted average variable rate), due March 31, 2005                                           |  |      | 94    |      |  
|Accounts Receivable Securitization Program Borrowings                                                                         |  |      |       |      |  
|Accounts receivable securitization program borrowings (1.2% weighted average variable rate), due in December 2004             |  |      | 177   |      |  
|Senior Notes                                                                                                                  |  |      |       |      |  
|9.75% unsecured senior notes, due April 1, 2003                                                                               |  |      |       |      |  
|8.25% unsecured senior notes, due October 1, 2012                                                                             |  |      | 700   |      |  
|7.50% unsecured senior notes, due June 1, 2013                                                                                |  |      | 300   |      |  
|Other Debt                                                                                                                    |  |      |       |      |  
|Variable rate industrial revenue bonds (3.4% weighted average variable rate), payable in varying annual payments through 2035 |  |      | 120   |      |  
|Other (including obligations under capitalized leases of $10 million and $14 million)                                         |  |      | 37    |      |  
|                                                                                                                              |  |      |       |      |  
|Total debt                                                                                                                    |  |      | 1,579 |      |  
|Less current maturities                                                                                                       |  |      | (180  | )    |  
|                                                                                                                              |  |      |       |      |  
|Long-term debt                                                                                                                |  | $    | 1,399 |      | $
|                                                                                                                              |  |      |       |      |  

37

---

The
amounts of total debt outstanding at December 31, 2003 maturing during the next five years are as follows:

|2004       |  | $ | 180  
|---------- |  | - | -----
|2005       |  |   | 215  
|2006       |  |   | 29   
|2007       |  |   | 137  
|2008       |  |   | 2    
|Thereafter |  |   | 1,016

Bond Offerings

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. In addition, JSC(U.S.) used the proceeds to pay
fees and expenses of $3 million related to this transaction. A loss of $2 million was recorded due to early extinguishment of debt.

In
September 2002, JSC(U.S.) completed an offering of $700 million of 8.25% unsecured senior notes due 2012. JSC(U.S.) used the proceeds of this issuance in part to repurchase $474
million of the 9.75% unsecured senior notes due 2003, pay related call premiums of $18 million and pay issuance costs of $12 million. The remaining portion of the 8.25% unsecured senior note proceeds
was subsequently used to fund a portion of the purchase price of the Stevenson Mill Acquisition. A loss of $19 million was recorded due to the early extinguishment of debt.

Bank Credit Facilities

JSC(U.S.) has a bank credit facility (the "JSC(U.S.) Credit Agreement") consisting of a $550 million revolving credit facility ("Revolving Credit Facility"), of
which up to $290 million may consist of letters of credit, and one senior secured term loan (Tranche B) aggregating $151 million at December 31, 2003. A commitment fee of 0.5% per annum is assessed on
the unused portion of the Revolving Credit Facility. At December 31, 2003, the unused portion of the Revolving Credit Facility, after giving consideration to outstanding letters of credit, was $281
million.

On
June 30, 2003, the Company obtained an amendment from its lender group easing certain financial covenant requirements under its bank credit agreement as of June 30, 2003 and for
future periods through December 31, 2004.

In
December 2002, JSC(U.S.) completed the assumption of the industrial revenue bonds associated with the Stevenson Mill Acquisition, including the payment of $25 million to MeadWestvaco
Corporation. All rights and obligations under the indentures and lease agreements have been assumed by JSC(U.S.). The revenue bonds were remarketed on December 19, 2002, with a variable rate of
interest with proceeds of $120 million. The revenue bonds are secured by letters of credit in the amount of $122 million issued under the JSC(U.S.) Credit Agreement. Because the maturity of the
JSC(U.S.) Credit Agreement is 2005, the $120 million has been classified as a 2005 maturity. However, it is the Company's intent to maintain the JSC(U.S.) Credit Agreement and therefore to maintain
the stated maturity of the bonds through 2035.

In
September 2002, JSC(U.S.) amended and restated its credit agreement to permit (i) the incurrence of the indebtedness represented by the 8.25% unsecured senior notes due 2012 in excess
of the amount necessary for refinancing the 9.75% unsecured senior notes due 2003 and (ii) the use of a portion of the proceeds from the sale of the 8.25% unsecured senior notes due 2012 to fund the
Stevenson Mill

38

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Acquisition.
In addition, the amended and restated bank credit agreement permits JSC(U.S.) to obtain an incremental loan facility of up to $140 million, to be used for the issuance of letters of
credit to secure the industrial revenue bonds related to the Stevenson Mill Acquisition. The amended and restated credit agreement also permits the merger of Stone and JSC(U.S.) under certain
circumstances.

In
August 2002, JSC(U.S.) amended its credit agreement to permit the distribution of approximately 71.6 million shares of SSCC common stock (approximately 29.3% of the total shares
outstanding) by Jefferson Smurfit Group ("JS Group"), formerly SSCC's largest stockholder, to its stockholders, which otherwise would have constituted a change of control event of default. In
addition, this amendment permitted JSC(U.S.) to refinance all or any portion of the 9.75% unsecured senior notes due 2003 with the 8.25% unsecured senior notes due 2012.

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 if JSC(U.S.) has excess cash flows, as defined, or receives proceeds from certain asset sales, insurance or incurrence of certain indebtedness.

The
obligations under the JSC(U.S.) Credit Agreement are unconditionally guaranteed by SSCC, the Company and the 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 the Company, 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.

Accounts Receivable Securitization Program Borrowings

JSC(U.S.) currently has a $255 million accounts receivable securitization program (the "Securitization Program"). The Securitization Program provides for the sale
of certain of the Company's trade receivables to a wholly owned, bankruptcy remote, limited purpose subsidiary, Jefferson Smurfit Finance Corporation ("JS Finance"). The accounts receivable purchases
are financed through the issuance of commercial paper or through borrowings under a liquidity loan facility. Under the Securitization Program, JS Finance has granted a security interest in all its
assets, principally cash and cash equivalents and trade accounts receivable. The Company has $78 million available for additional borrowing at December 31, 2003, subject to eligible accounts
receivable.

The
Securitization Program expires in December 2004. As a result, borrowings under the Securitization Program are classified as current maturities. It is the Company's intent to enter
into a new accounts receivable securitization program during 2004 to refinance this debt on a long-term basis.

Senior Notes

The JSC(U.S.) 8.25% unsecured senior notes of $700 million at December 31, 2003 are redeemable in whole or in part at the option of JSC(U.S.) beginning on October
1, 2007 at a price of 104.125% plus accrued interest. The redemption price will decline each year after 2007 and beginning on October 1, 2010 will be 100% of the principal amount, plus accrued
interest.

The
JSC(U.S.) 7.50% unsecured senior notes of $300 million at December 31, 2003 are redeemable in whole or in part at the option of JSC(U.S.) beginning on June 1, 2008 at a price of
103.75% plus accrued interest. The redemption price will decline each year after 2008 and beginning on June 1, 2011 will be 100% of the principal amount, plus accrued interest.

In
April 2003, JSC(U.S.) repaid its $26 million 9.75% unsecured senior notes at maturity with borrowings under the Revolving Credit Facility.

39

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The senior notes, which are unconditionally guaranteed on a senior basis by the Company, rankpari passuwith the JSC(U.S.) Credit
Agreement and contain business and financial covenants which are less restrictive than those contained in the JSC(U.S.) Credit Agreement.

Other

Interest costs capitalized on construction projects in 2003, 2002 and 2001 totaled $3 million, $2 million and $2 million, respectively. Interest payments on all
debt instruments for 2003, 2002 and 2001 were $104 million, $90 million and $130 million, respectively.

8.     Derivative Instruments and Hedging Activities

SFAS No. 133, as amended by SFAS No. 137, 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 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.

Upon
adoption of SFAS No. 133 in 2001, the Company recorded a cumulative effect of an accounting change gain of approximately $2 million (net of tax of $2 million) in OCI.

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 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 December 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 one year. For the years ended December 31, 2003 and 2002, the Company reclassified a $2 million
gain (net of tax) and a $3 million loss (net of tax), respectively, from OCI to cost of goods sold when the hedged items were recognized. The fair value of the Company's futures contracts at December
31, 2003 and 2002 is a $1 million gain included in other current assets. At December 31, 2003 and 2002, the Company recorded a $1 million loss and an immaterial amount, respectively, in cost of goods
sold on commodity futures contracts, related to the ineffective portion of the change in fair value of certain contracts and contracts not qualifying for hedge accounting.

For
the years ended December 31, 2003 and 2002, the Company recorded a $1 million loss and an immaterial amount, respectively, in cost of goods sold on settled commodity futures
contracts, related to the ineffective portion of hedges and contracts not qualifying for hedge accounting.

The
cumulative deferred hedge is an immaterial amount and a $1 million gain (net of tax) at December 31, 2003 and 2002, respectively.

40

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9.     Leases

The Company leases certain facilities and equipment for production, selling and administrative purposes under operating leases. Certain leases contain renewal
options for varying periods, and others include options to purchase the leased property during or at the end of the lease term. Future minimum rental commitments (exclusive of real estate taxes and
other expenses) under operating leases having initial or remaining noncancelable terms in excess of one year, excluding lease commitments on closed facilities, are reflected below:

|2004       |                              | $ | 38
|---------- | ---------------------------- | - | --
|2005       |                              |   | 30
|2006       |                              |   | 25
|2007       |                              |   | 20
|2008       |                              |   | 10
|Thereafter |                              |   | 17
|           |                              |  
|           | Total minimum lease payments |   | $ 
|           |                              |  

Net
rental expense for operating leases, including leases having a duration of less than one year, was approximately $56 million, $56 million and $53 million for 2003, 2002 and 2001,
respectively.

10.   Guarantees

The Company has certain woodchip 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 December 31, 2003 and 2002, the maximum
potential amount of future payments related to these guarantees was approximately $24 million and $29 million, respectively, which decreases ratably over the life of the contracts. Proceeds from the
liquidation of the chipping equipment would be based on current market conditions and the Company may not recover in full the guarantee payments made.

41

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11.   Asset Retirement Obligations

Upon adoption of SFAS No. 143 in 2003, 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. The net effect of SFAS No. 143 on the current year statement of
operations is immaterial. The pro forma effect of adoption on the statements of operation for
the years ended December 31, 2002 and 2001 was also immaterial. The balance of the asset retirement obligation at December 31, 2003 was $6 million.

12.   Income Taxes

Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:

|                         |                                                                          | 2003 |   | 2002 |  
|------------------------ | ------------------------------------------------------------------------ | ---- | - | ---- | -
|Deferred tax liabilities |                                                                          |      |   |      |  
|                         | Property, plant and equipment and timberland                             |      | $ | (401 | )
|                         | Inventory                                                                |      |   | (21  | )
|                         | Timber installment sale                                                  |      |   | (134 | )
|                         | Other                                                                    |      |   | (109 | )
|                         |                                                                          |      |   |      |  
|                         | Total deferred tax liabilities                                           |      |   | (665 | )
|                         |                                                                          |      |   |      |  
|Deferred tax assets      |                                                                          |      |   |      |  
|                         | Employee benefit plans                                                   |      |   | 91   |  
|                         | Net operating loss, alternative minimum tax and tax credit carryforwards |      |   | 86   |  
|                         | Restructuring                                                            |      |   | 9    |  
|                         | Other                                                                    |      |   | 39   |  
|                         |                                                                          |      |   |      |  
|                         | Total deferred tax assets                                                |      |   | 225  |  
|                         | Valuation allowance for deferred tax assets                              |      |   | (10  | )
|                         |                                                                          |      |   |      |  
|                         | Net deferred tax assets                                                  |      |   | 215  |  
|                         |                                                                          |      |   |      |  
|                         | Net deferred tax liabilities                                             |      | $ | (450 | )
|                         |                                                                          |      |   |      |  

At
December 31, 2003, the Company had net operating loss carryforwards for state purposes with a tax value of $25 million, which expire from 2004 through 2023. A valuation allowance of
$10 million has been established for a portion of these deferred tax assets. The Company had approximately $61 million of alternative minimum tax credit carryforwards for U.S. federal income tax
purposes, which are available indefinitely.

42

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Provision
for income taxes on income from continuing operations before income taxes and cumulative effect of accounting change is as follows:

|         |                                  | 2003 |   | 2002 |   | 2001 |    
|-------- | -------------------------------- | ---- | - | ---- | - | ---- | ---
|Current  |                                  |      |   |      |   |      |    
|         | Federal                          |      | $ |      |   | $    |    
|         | State and local                  |      |   |      |   |      | (3 
|         |                                  |      |   |      |   |      |    
|         | Total current expense            |      |   |      |   |      | (3 
|Deferred |                                  |      |   |      |   |      |    
|         | Federal                          |      |   | (7   | ) |      | (49
|         | State and local                  |      |   | 2    |   |      | (4 
|         |                                  |      |   |      |   |      |    
|         | Total deferred expense           |      |   | (5   | ) |      | (53
|         |                                  |      |   |      |   |      |    
|         | Total provision for income taxes |      | $ | (5   | ) | $    | (56
|         |                                  |      |   |      |   |      |    

The
Company's provision for income taxes differed from the amount computed by applying the statutory U.S. federal income tax rate to income from continuing operations before income taxes
and cumulative effect of accounting change as follows:

|                                                            |  | 2003 |    | 2002 |   | 2001 |  
|----------------------------------------------------------- |  | ---- | -- | ---- | - | ---- | -
|U.S. federal income tax provision at federal statutory rate |  | $    | (9 | )    | $ | (49  | )
|Permanent differences from applying purchase accounting     |  |      |    |      |   |      |  
|Other permanent differences                                 |  |      | 3  |      |   | (2   | )
|State income taxes, net of federal income tax effect        |  |      | 1  |      |   | (5   | )
|                                                            |  |      |    |      |   |      |  
|Total provision for income taxes                            |  | $    | (5 | )    | $ | (56  | )
|                                                            |  |      |    |      |   |      |  

Other
permanent differences in 2003 include a $6 million benefit related to the resolution of certain prior year tax matters.

The
Internal Revenue Service is currently examining the years 1999 through 2001. While the ultimate results cannot be predicted with certainty, the Company's management believes that the
examination will not have a material adverse effect on its consolidated financial condition or results of operations. The Company has settled the examination for the years 1995 through 1998, resulting
in the payment of tax and interest of $50 million. Adequate reserves were available to cover the payment.

The
Company made income tax payments of $53 million, $19 million and $8 million in 2003, 2002 and 2001, respectively.

13.   Employee Benefit Plans

Defined Benefit Plans

The Company participates in the SSCC sponsored noncontributory defined benefit pension plans covering substantially all employees. On December 31, 1998, the
defined benefit plans of the Company were merged with the domestic defined benefit plans of Stone, and the assets of these plans are available to meet the funding requirements of the combined plans.
The Company intends to fund its proportionate share of the future contributions based on the funded status of the Company's plan determined on an actuarial basis. Therefore, the plan asset information
provided below is based on an actuarial estimate of assets and liabilities, excluding the effect of the plan merger, in order to be consistent with the presentation of the consolidated statements of
operations and the consolidated balance sheets.

43

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The
benefit obligation, fair value of plan assets and the under funded status of the Stone domestic merged defined benefit plans at December 31, 2003 were $940 million, $611 million and
$329 million, respectively.

The
SSCC U.S. pension plans' weighted-average asset allocations at December 31, by asset category are as follows:

|                  |       | 2003 |     | 2002 |    
|----------------- | ----- | ---- | --- | ---- | ---
|Cash equivalents  |       | 7    | %   | 8    | %  
|Debt securities   |       | 28   | %   | 32   | %  
|Equity securities |       | 63   | %   | 58   | %  
|Other             |       | 2    | %   | 2    | %  
|                  |       |      |     |      |    
|                  | Total |      | 100 | %    | 100
|                  |       |      |     |      |    

Equity
securities at December 31, 2003 and 2002 include 2.7 million shares of SSCC common stock with a market value of approximately $49 million and $41 million, respectively (3% of
total plan assets).

The
primary objective of the Company's U.S. investment policy is to provide eligible employees with scheduled pension benefits. The basic strategy of this investment policy is to earn
the highest risk adjusted rate of return on assets consistent with prudent investor standards identified in the Employee Retirement Income Security Act of 1974. In identifying the target asset
allocation that would best meet the above policy, consideration is given to a number of factors including the various pension plans' demographic characteristics, the long-term nature of the
liabilities, the sensitivity of the liabilities to interest rates and inflation, the long-term return expectations and risks associated with key asset classes as well as their return relationship with
each other, diversification among asset classes and other practical considerations for investing in certain asset classes. The target asset allocation for the U.S. pension plans during a complete
market cycle is as follows:

|Equity securities         |  | 60 | %
|------------------------- |  | -- | -
|Debt securities           |  | 35 | %
|Alternative asset classes |  | 5  | %

Postretirement Health Care and Life Insurance Benefits

The Company provides certain health care and life insurance benefits for all salaried as well as certain hourly employees. The assumed health care cost trend
rates used in measuring the accumulated postretirement benefit obligation ("APBO") at December 31 are as follows:

|                                                                                  |  | 2003  |   | 2002  |  
|--------------------------------------------------------------------------------- |  | ----- | - | ----- | -
|Health care cost trend rate assumed for next year                                 |  | 12.00 | % | 11.00 | %
|Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |  | 5.00  | % | 5.00  | %
|Year the rate reaches the ultimate trend rate                                     |  | 2011  |   | 2009  |  

The
effect of a 1% change in the assumed health care cost trend rate would increase/(decrease) the APBO as of December 31, 2003 by $5 million and $4 million, respectively, and have an
immaterial effect on the annual net periodic postretirement benefit cost for 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 Staff Position 106-1, issued
in January 2004, related to the Act, the Company elected to defer recognizing the effects of the Act on its APBO and net periodic postretirement benefit costs until pending authoritative guidance on
the accounting for the federal subsidy is issued, which could require a change to previously reported information.

44

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The
following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans:

|                                              |  | Defined Benefit Plans |       | Postretirement Plans |  
|--------------------------------------------- |  | --------------------- | ----- | -------------------- | -
|
|Change in benefit obligation:                 |  |                       |       |                      |  
|Benefit obligation at January 1               |  | $                     | 1,264 |                      | $
|Service cost                                  |  |                       | 26    |                      |  
|Interest cost                                 |  |                       | 82    |                      |  
|Amendments                                    |  |                       | 11    |                      |  
|Plan participants' contributions              |  |                       |       |                      |  
|Curtailments                                  |  |                       | (3    | )                    |  
|Actuarial loss                                |  |                       | 57    |                      |  
|Benefits paid and expected expenses           |  |                       | (74   | )                    |  
|                                              |  |                       |       |                      |  
|Benefit obligation at December 31             |  | $                     | 1,363 |                      | $
|                                              |  |                       |       |                      |  
|Change in plan assets:                        |  |                       |       |                      |  
|Fair value of plan assets at January 1        |  | $                     | 839   |                      | $
|Actual return on plan assets                  |  |                       | 188   |                      |  
|Employer contributions                        |  |                       | 72    |                      |  
|Plan participants' contributions              |  |                       |       |                      |  
|Benefits paid                                 |  |                       | (71   | )                    |  
|                                              |  |                       |       |                      |  
|Fair value of plan assets at December 31      |  | $                     | 1,028 |                      | $
|                                              |  |                       |       |                      |  
|Over (under) funded status:                   |  | $                     | (335  | )                    | $
|Unrecognized actuarial loss                   |  |                       | 367   |                      |  
|Unrecognized prior service cost (benefit)     |  |                       | 46    |                      |  
|                                              |  |                       |       |                      |  
|Net amount recognized                         |  | $                     | 78    |                      | $
|                                              |  |                       |       |                      |  
|Amounts recognized in the balance sheets:     |  |                       |       |                      |  
|Accrued benefit liability                     |  | $                     | (247  | )                    | $
|Intangible asset                              |  |                       | 46    |                      |  
|Accumulated other comprehensive (income) loss |  |                       | 279   |                      |  
|                                              |  |                       |       |                      |  
|Net amount recognized                         |  | $                     | 78    |                      | $
|                                              |  |                       |       |                      |  

The
increase/(decrease) in the minimum liability included in other comprehensive (income) loss is ($74) million and $261 million for the years ended December 31, 2003 and 2002,
respectively.

The
accumulated benefit obligation for all defined benefit pension plans was $1,275 million and $1,182 million at December 31, 2003 and 2002, respectively.

The
projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were
$1,363 million, $1,275 million and $1,028 million, respectively, as of December 31, 2003 and $1,264 million, $1,182 million and $839 million as of December 31, 2002.

45

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

|                                   |  | Defined Benefit Plans |     | Postretirement Plans
|---------------------------------- |  | --------------------- | --- | --------------------
|
|Service cost                       |  | $                     | 26  |                     
|Interest cost                      |  |                       | 82  |                     
|Expected return on plan assets     |  |                       | (90 | )                   
|Amortization of prior service cost |  |                       | 6   |                     
|Amortization of net (gain) loss    |  |                       | 20  |                     
|                                   |  |                       |     |                     
|Net periodic benefit cost          |  | $                     | 44  |                     
|                                   |  |                       |     |                     

The
weighted average assumptions used to determine the benefit obligations at December 31 are as follows:

|                              |  | Defined Benefit Plans |   | Postretirement Plans |  
|----------------------------- |  | --------------------- | - | -------------------- | -
|
|Discount rate                 |  | 6.25                  | % | 6.75                 | %
|Rate of compensation increase |  | 4.00                  | % | 4.00                 | %

The
weighted average assumptions used to determine net periodic benefit cost for the years ended December 31 are as follows:

|                                         |  | Defined Benefit Plans |   | Postretirement Plans |  
|---------------------------------------- |  | --------------------- | - | -------------------- | -
|
|Discount rate                            |  | 6.75                  | % | 7.25                 | %
|Expected long-term return on plan assets |  | 9.00                  | % | 9.50                 | %
|Rate of compensation increase            |  | 4.00                  | % | 4.00                 | %

The
expected long-term rate of return using the current target asset allocation for the U.S. pension plans is 9%. The fundamental assumptions behind the expected rate of return are the
cumulative effect of several estimates, including the anticipated yield on high quality debt securities, the equity risk premium earned by investing in equity securities over a long-term time horizon
and active investment management.

The
Company expects to contribute $66 million to its qualified defined benefit plans in 2004. The Company expects to pay benefits of $15 million to its non-qualified defined benefit
plans and postretirement plans in 2004.

Savings Plans

The Company sponsors voluntary savings plans covering substantially all salaried and certain hourly employees. The Company match is paid in SSCC common stock, up
to an annual maximum. The Company's expense for the savings plans totaled $11 million, $11 million and $10 million in 2003, 2002 and 2001, respectively.

14.   Stock Option and Incentive Plans

SSCC maintains the 1992 Jefferson Smurfit Corporation stock option plan (the "1992 Plan") for selected employees of the Company. The 1992 Plan includes
non-qualified stock options, issued at prices equal to the fair market value of SSCC's common stock at the date of grant, which expire upon the earlier of twelve years from the date of grant or
termination of employment, death or disability. In November 1998, effective with the Merger, all outstanding options for the 1992 Plan became exercisable and fully vested.

In
November 1998, SSCC adopted the 1998 Long-Term Incentive Plan (the "1998 Plan"), which reserved 8.5 million shares of SSCC common stock for non-qualified stock options and performance
awards. In

46

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2001,
an additional 8 million shares of SSCC common stock were reserved for issuance under the 1998 Plan. Certain employees of the Company are covered under the 1998 Plan. The stock options are
exercisable at a price equal to the fair market value of SSCC's common stock on the date of grant. The vesting schedule and other terms and conditions of options granted under the 1998 Plan are
established separately for each grant. The number of options that become vested and exercisable in any one year may not exceed one-third of the options granted for certain participants and may not
exceed one-fourth of the options granted for other participants. In general, these options expire ten years from the date of grant.

Certain
grants under the 1998 Plan contain change in control provisions which provide for immediate vesting and exercisability in the event that specific SSCC ownership conditions are
met. These grants also allow for immediate vesting and exercisability in the event of retirement. Upon retirement, these options remain exercisable until the earlier of five years from retirement or
ten years from the initial grant date. The stock options granted prior to April 2001 vest and become exercisable eight years after the date of grant subject to acceleration based upon the attainment
of pre-established stock price targets. Beginning in April 2001, the options granted vest and become exercisable at the rate of 25% each year for four years.

During
2001, the Company revised its annual management incentive plan so that a portion of annual employee bonuses is paid in the form of RSUs under the 1998 Plan. The RSUs are
non-transferable and do not have voting rights. These RSUs vest immediately, but the restrictions do not lapse until the third anniversary of the award date. The Company pays a premium on the employee
bonuses in the form of RSUs ("Premium RSUs") to certain employees. Premium RSUs vest at the earlier of a change in control, death, disability or three years after the award date. In addition,
non-vested RSUs were issued in 2002 which vest in three to five years.

15.   Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss), net of tax is as follows:

|                             |                                                   | Minimum
Pension
Liability |      | Deferred
Hedge
Gain (Loss) |   | Accumulated
Other
Comprehensive
Income (Loss) |   
|---------------------------- | ------------------------------------------------- | ------------------------- | ---- | -------------------------- | - | --------------------------------------------- | --
|Balance at January 1, 2001   |                                                   | $                         |      |                            | $ |                                               |   
|                             | Cumulative effect of accounting change            |                           |      |                            |   |                                               | 2 
|                             | Net changes in fair value of hedging transactions |                           |      |                            |   |                                               | (8
|                             | Net loss reclassified into earnings               |                           |      |                            |   |                                               | 2 
|                             | Current period change                             |                           |      | (56                        | ) |                                               |   
|                             |                                                   |                           |      |                            |   |                                               |   
|Balance at December 31, 2001 |                                                   |                           | (56  | )                          |   | (4                                            | ) 
|                             | Net changes in fair value of hedging transactions |                           |      |                            |   |                                               | 2 
|                             | Net loss reclassified into earnings               |                           |      |                            |   |                                               | 3 
|                             | Current period change                             |                           |      | (159                       | ) |                                               |   
|                             |                                                   |                           |      |                            |   |                                               |   
|Balance at December 31, 2002 |                                                   |                           | (215 | )                          |   | 1                                             |   
|                             |                                                   |                           |      |                            |   |                                               |   
|                             | Net changes in fair value of hedging transactions |                           |      |                            |   |                                               | 1 
|                             | Net gain reclassified into earnings               |                           |      |                            |   |                                               | (2
|                             | Current period change                             |                           |      | 45                         |   |                                               |   
|                             |                                                   |                           |      |                            |   |                                               |   
|Balance at December 31, 2003 |                                                   | $                         | (170 | )                          | $ |                                               |   
|                             |                                                   |                           |      |                            |   |                                               |   

47

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16.   Goodwill and Other Intangible Assets

Effective January 1, 2002, the Company adopted SFAS No. 142. SFAS No. 142 requires that goodwill no longer be amortized, but instead tested for impairment at
least annually. The Company has completed the required transitional and annual impairment tests and determined there to be no goodwill impairment.

The
following table summarizes the activity of goodwill by segment:

|                                                                                           |  | Containerboard
& Corrugated
Containers |     | Consumer
Packaging |   | Total |  
|------------------------------------------------------------------------------------------ |  | -------------------------------------- | --- | ------------------ | - | ----- | -
|Balance at January 1, 2002                                                                 |  | $                                      | 119 |                    | $ | 72    |  
|Goodwill included in gain on disposition of discontinued operations                        |  |                                        |     |                    |   | (6    | )
|Goodwill reduced as a result of settlement of purchase accounting income tax contingencies |  |                                        | (8  | )                  |   | (5    | )
|                                                                                           |  |                                        |     |                    |   |       |  
|Balance at December 31, 2002                                                               |  |                                        | 111 |                    |   | 61    |  
|Goodwill acquired                                                                          |  |                                        |     |                    |   | 12    |  
|                                                                                           |  |                                        |     |                    |   |       |  
|Balance at December 31, 2003                                                               |  | $                                      | 111 |                    | $ | 73    |  
|                                                                                           |  |                                        |     |                    |   |       |  

Goodwill
of $12 million and other intangible assets of $3 million were acquired in connection with the acquisition of the operations of Arko (See Note 3). The other intangible asset is
included in other assets on the Company's consolidated financial statements and is being amortized over 8 years.

Income
from continuing operations before cumulative effect of accounting change and net income for the year ended December 31, 2001, adjusted to exclude goodwill amortization expense,
are as follows:

|Reported income from continuing operations before cumulative effect of accounting change |                                                                                          | $ | 104
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | - | ---
|Goodwill amortization                                                                    |                                                                                          |   | 7  
|                                                                                         |                                                                                          |  
|                                                                                         | Adjusted income from continuing operations before cumulative effect of accounting change |   | $  
|                                                                                         |                                                                                          |  
|Reported net income                                                                      |                                                                                          | $ | 108
|Goodwill amortization                                                                    |                                                                                          |   | 7  
|                                                                                         |                                                                                          |  
|                                                                                         | Adjusted net income                                                                      |   | $  
|                                                                                         |                                                                                          |  

48

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17.   Related Party Transactions

Transactions with Stone

The Company sold and purchased containerboard and recycling products at market prices from Stone as follows:

|                                   |  | 2003 |     | 2002 |   | 2001
|---------------------------------- |  | ---- | --- | ---- | - | ----
|Product sales                      |  | $    | 422 |      | $ | 370 
|Product and raw material purchases |  |      | 558 |      |   | 574 
|Net receivables at December 31     |  |      | 23  |      |   | 19  

Corporate
shared expenses are allocated between the Company and Stone based on an established formula using a weighted average rate based on net book value of fixed assets, number of
employees and sales. Net receivables are settled in cash.

Transactions with JS Group

JS Group, formerly SSCC's largest stockholder, was a related party of the Company until May 8, 2003 when Michael W. J. Smurfit, Anthony P. J. Smurfit, Dermot F.
Smurfit, and Howard E. Kilroy, each of whom were current or former directors or executive officers of JS Group, retired from SSCC's Board of Directors. Previously, in September 2002, JS Group
distributed to its stockholders substantially all of its 71.6 million shares of SSCC common stock, which represented approximately 29.3% of the outstanding SSCC common stock.

Product
sales to/from JS Group, its subsidiaries and affiliated companies through May 8, 2003 were as follows:

|                                            |  | 2003 |    | 2002 |   | 2001
|------------------------------------------- |  | ---- | -- | ---- | - | ----
|Product sales                               |  | $    | 14 |      | $ | 33  
|Product and raw material purchases          |  |      | 2  |      |   | 10  
|Management services income                  |  |      | 1  |      |   | 1   
|Charges from JS Group for services provided |  |      |    |      |   | 1   
|Receivables at December 31                  |  |      |    |      |   | 6   
|Payables at December 31                     |  |      |    |      |   |     

Product
sales to and purchases from JS Group, its subsidiaries and affiliates are consummated on terms generally similar to those prevailing with unrelated parties.

The
Company provided certain subsidiaries and affiliates of JS Group with general management and elective management services under separate Management Services Agreements. In
consideration for general management services, the Company was paid a fee up to 2% of the subsidiaries' or affiliates' gross sales. In consideration for elective services, the Company was reimbursed
for its direct cost of providing such services. All such management services were terminated on or prior to December 31, 2003.

Transactions with SSCC

During 2003, SSCC contributed $31 million to the Company, increasing additional paid-in capital.

In
connection with the Merger, a $300 million intercompany loan was made to SSCC, which was contributed to Stone as additional paid-in capital. In addition, a $36 million intercompany
loan was made to SSCC to pay certain Merger costs. These notes bear interest at the rate of 14.21% per annum, are payable semi-annually on December 1 and June 1 of each year and have a maturity date
of November 18, 2004.

49

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SSCC
has the option, in lieu of paying accrued interest in cash, to pay the accrued interest by adding the amount of accrued interest to the principal amount of the notes. Interest
income of $80 million, $73 million and $65 million in 2003, 2002 and 2001, respectively, has been added to the principal amount of the notes. In addition, the note balance fluctuates due to stock
option proceeds received by the Company on behalf of SSCC and other stock compensation related items. The notes are unsecured obligations of SSCC.

On
November 15, 2000, pursuant to an Agreement and Plan of Merger among SSCC, SCC Merger Co. and Stone, approximately 4.6 million shares of $1.75 Series E Preferred Stock of Stone (the
"Stone Preferred Stock") were converted into approximately 4.6 million shares of Series A Cumulative Exchangeable Redeemable Convertible Preferred Stock of SSCC (the "SSCC Preferred Stock"). In
addition, a cash payment of $6.4425 per share, totaling approximately $30 million, was made to the holders of the Stone Preferred Stock. The cash payment was equal to the accrued and unpaid dividends
on each share of Stone Preferred Stock less $0.12 per share to cover certain transaction related expenses. The Company made a $30 million intercompany loan to SSCC to accommodate the completion of the
merger transaction. This note bears interest at the rate of 15.39% per annum, is payable on December 1 and June 1 of each year and has a maturity date of November 18, 2004.

The
holders of the SSCC Preferred Stock are entitled to cumulative dividends of $0.4375 per quarter, payable in cash except in certain circumstances. These dividends of approximately $2
million per quarter are funded by dividends from JSC(U.S.) through the Company to SSCC.

Other Transactions

Leigh J. Abramson, a member of the Company's Board of Directors until May 8, 2003, is a Managing Director of Morgan Stanley & Co. Incorporated, which has
provided, and continues to provide, various financial services to the Company, including investment banking, investment management, financial advisory and commodity hedging. Payments made to Morgan
Stanley & Co. Incorporated, representing commissions earned, were approximately $3 million during 2002, an immaterial amount in 2001 and an immaterial amount in 2003 through May 8, 2003. Mr. Abramson
resigned from SSCC's Board of Directors effective May 8, 2003.

Thomas
A. Reynolds, III, a member of the Company's Board of Directors, is a member of the Executive Committee of the law firm of Winston & Strawn LLP, which has provided, and continues
to provide, legal services to the Company and its subsidiaries.

18.   Fair Value of Financial Instruments

The carrying amounts and fair values of the Company's financial instruments are as follows:

|                                             |  | 2003 |       | 2002
|-------------------------------------------- |  | ---- | ----- | ----
|
|Cash and cash equivalents                    |  | $    | 8     |     
|Notes receivable from SSCC                   |  |      | 582   |     
|Residual interest in timber notes            |  |      | 43    |     
|Derivative assets                            |  |      | 1     |     
|Long-term debt, including current maturities |  |      | 1,579 |     

The
carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. The fair values of notes receivable from SSCC and the residual
interest in timber notes are based on discounted future cash flows. The fair value of the Company's derivatives is based on prevailing market rates at December 31, 2003. The fair value of the
Company's debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.

50

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19.   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 will 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. The settlement is subject to final court approval following a fairness hearing to be held on March 26, 2004. 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 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 settlement and estimated liability of the opt-out cases. The Company believes the
liability for these matters was adequately reserved at December 31, 2003.

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 liabilities 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. The
Company's relative percentage of waste deposited at these sites range from less than 1% to 6%. 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 relative percentage of waste deposited at each site, the number of other PRPs, the identity and financial condition of
such parties and experience regarding similar matters. As of December 31, 2003, the Company had approximately $12 million reserved for environmental liabilities included in other long-term liabilities
in the consolidated balance sheet. The Company believes the liability for these matters was adequately reserved at December 31, 2003.

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.

20. 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 prior periods has been restated in order to conform to the 2003 presentation.

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 produces 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

51

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providing
point of purchase advertising. Flexible packaging, paper and metalized paper and heat transfer labels are 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 for 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 leases. The
accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. 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, goodwill
amortization (prior to 2002) and interest expense.

A
summary by business segment follows:

|                                         |  | Container-
board &
Corrugated
Containers |       | Consumer
Packaging |   | Reclamation |  | Other |     | Total
|---------------------------------------- |  | ---------------------------------------- | ----- | ------------------ | - | ----------- |  | ----- | --- | -----
|Year ended December 31, 2003             |  |                                          |       |                    |   |             |  |       |     |      
|Revenues from external customers         |  | $                                        | 2,175 |                    | $ | 1,030       |  | $     | 446 |      
|Intersegment revenues                    |  |                                          | 46    |                    |   |             |  |       | 112 |      
|Depreciation, depletion and amortization |  |                                          | 78    |                    |   | 30          |  |       | 3   |      
|Segment profit (loss)                    |  |                                          | 88    |                    |   | 44          |  |       | 22  |      
|Total assets                             |  |                                          | 1,229 |                    |   | 472         |  |       | 73  |      
|Expenditures for long-lived assets       |  |                                          | 34    |                    |   | 27          |  |       | 2   |      
|Year ended December 31, 2002             |  |                                          |       |                    |   |             |  |       |     |      
|Revenues from external customers         |  | $                                        | 1,955 |                    | $ | 1,021       |  | $     | 469 |      
|Intersegment revenues                    |  |                                          | 45    |                    |   |             |  |       | 94  |      
|Depreciation, depletion and amortization |  |                                          | 67    |                    |   | 29          |  |       | 3   |      
|Segment profit (loss)                    |  |                                          | 124   |                    |   | 76          |  |       | 19  |      
|Total assets                             |  |                                          | 1,382 |                    |   | 484         |  |       | 69  |      
|Expenditures for long-lived assets       |  |                                          | 45    |                    |   | 30          |  |       | 1   |      
|Year ended December 31, 2001             |  |                                          |       |                    |   |             |  |       |     |      
|Revenues from external customers         |  | $                                        | 1,905 |                    | $ | 1,047       |  | $     | 375 |      
|Intersegment revenues                    |  |                                          | 44    |                    |   |             |  |       | 63  |      
|Depreciation, depletion and amortization |  |                                          | 63    |                    |   | 29          |  |       | 3   |      
|Segment profit (loss)                    |  |                                          | 170   |                    |   | 94          |  |       | 6   |      
|Total assets                             |  |                                          | 1,028 |                    |   | 468         |  |       | 68  |      
|Expenditures for long-lived assets       |  |                                          | 30    |                    |   | 23          |  |       | 3   |      

The
following table presents net sales to external customers by country of origin:

|              |                 | 2003 |       | 2002  |   | 2001 
|------------- | --------------- | ---- | ----- | ----- | - | -----
|United States |                 | $    | 3,621 |       | $ | 3,425
|Foreign       |                 |      | 30    |       |   | 31   
|              |                 |      |       |       |   |      
|              | Total net sales |      | $     | 3,651 |   | $    
|              |                 |      |       |       |   |      

52

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21.   Quarterly Results (Unaudited)

The following is a summary of the unaudited quarterly results of operations:

|                                                                                       |  | First
Quarter |     | Second
Quarter |   | Third
Quarter |  | Fourth
Quarter |    
|-------------------------------------------------------------------------------------- |  | ------------- | --- | -------------- | - | ------------- |  | -------------- | ---
|2003                                                                                   |  |               |     |                |   |               |  |                |    
|Net sales                                                                              |  | $             | 899 |                | $ | 930           |  | $              | 928
|Gross profit                                                                           |  |               | 100 |                |   | 116           |  |                | 110
|Income (loss) from continuing operations before cumulative effect of accounting change |  |               | 6   |                |   | 19            |  |                | (2 
|Cumulative effect of accounting change                                                 |  |               | (3  | )              |   |               |  |                |    
|Net income (loss)                                                                      |  |               | 3   |                |   | 19            |  |                | (2 
|2002                                                                                   |  |               |     |                |   |               |  |                |    
|Net sales                                                                              |  | $             | 772 |                | $ | 846           |  | $              | 914
|Gross profit                                                                           |  |               | 104 |                |   | 124           |  |                | 113
|Income from continuing operations before cumulative effect of accounting change        |  |               | 16  |                |   | 33            |  |                | 8  
|Discontinued operations                                                                |  |               | 1   |                |   | 2             |  |                | 2  
|Gain on disposition of discontinued operations                                         |  |               |     |                |   |               |  |                | 22 
|Net income                                                                             |  |               | 17  |                |   | 35            |  |                | 32 

22.   Subsequent Event

During January 2004, as part of the Company's overall strategy to rationalize operations and cut costs in response to market conditions, the Company announced the
closure of an additional converting facility. This shutdown will result in work force reduction of approximately 140 employees. The Company expects to take a pretax charge of approximately $5 million
in 2004 related to this closure, approximately $2 million of which is a non-cash charge to write-down fixed assets. The charge is an estimate that will be finalized in 2004.

53

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JSCE, INC.

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(In millions)

|Column A                                                          |                              | Column B |   | Column C |  | Column D |    | Column E |   | Column F
|----------------------------------------------------------------- | ---------------------------- | -------- | - | -------- |  | -------- | -- | -------- | - | --------
|
|Allowance for doubtful accounts and sales returns and allowances: |                              |          |   |          |  |          |    |          |   |         
|                                                                  | Year ended December 31, 2003 |          | $ | 11       |  | $        | 9  |          | $ |         
|                                                                  | Year ended December 31, 2002 |          | $ | 11       |  | $        | 4  |          | $ |         
|                                                                  | Year ended December 31, 2001 |          | $ | 9        |  | $        | 4  |          | $ |         
|Exit Liabilities:                                                 |                              |          |   |          |  |          |    |          |   |         
|                                                                  | Year ended December 31, 2003 |          | $ | 7        |  | $        |    |          | $ |         
|                                                                  | Year ended December 31, 2002 |          | $ |          |  | $        |    |          | $ | 7(c)    
|Restructuring:                                                    |                              |          |   |          |  |          |    |          |   |         
|                                                                  | Year ended December 31, 2003 |          | $ | 18       |  | $        | 21 |          | $ |         
|                                                                  | Year ended December 31, 2002 |          | $ | 20       |  | $        | 4  |          | $ |         
|                                                                  | Year ended December 31, 2001 |          | $ | 23       |  | $        | 4  |          | $ |         

54

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE

None.

ITEM 9a.    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 have 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 III

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

Ernst & Young LLP was appointed by the Audit Committee of Smurfit-Stone's Board of Directors as our independent auditors. During 2003 and 2002, Smurfit-Stone paid
Ernst & Young LLP a total of $3.5 million and $3.9 million, respectively, with such amounts allocated between Jefferson Smurfit (U.S.) and Stone Container based on Smurfit-Stone's customary allocation
formula. Amounts expensed by Jefferson Smurfit (U.S.) were as follows:

|(In millions)                   |       | 2003 |     | 2002
|------------------------------- | ----- | ---- | --- | ----
|Audit fees and expenses         |       | $    | 0.8 |     
|Audit related fees and expenses |       |      | 0.3 |     
|Tax related fees and expenses   |       |      | 0.3 |     
|All other fees and expenses     |       |      | 0.0 |     
|                                |       |      |     |     
|                                | Total |      | $   | 1.4 
|                                |       |      |     |     

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

|(a) |  | (1) and (2) The list of Financial Statements and Financial Statement Schedules required by this item is included in Item 8.                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | (3) Exhibits                                                                                                                                                                    
|3.1 |  | Certificate of Incorporation of JSCE, Inc. ("JSCE") (incorporated by reference to Exhibit 3.1 to JSCE's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
|3.2 |  | By-laws of JSCE (incorporated by reference to Exhibit 3.2 to JSCE's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).                                    
|    |  |                                                                                                                                                                                 

55

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|Indentures and other debt instruments with respect to long-term debt that do not exceed 10 percent of the total assets of JSCE and its subsidiaries on a consolidated basis are not filed herewith. (The
Registrant agrees to furnish a copy of such documents to the Commission upon request).
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1                                                                                                                                                                                                                                                                                            
|4.2                                                                                                                                                                                                                                                                                            
|10.1*                                                                                                                                                                                                                                                                                          
|10.2*                                                                                                                                                                                                                                                                                          
|10.3(a)*                                                                                                                                                                                                                                                                                       
|10.3(b)*                                                                                                                                                                                                                                                                                       
|10.4(a)                                                                                                                                                                                                                                                                                        
|10.4(b)                                                                                                                                                                                                                                                                                        
|10.5(a)                                                                                                                                                                                                                                                                                        
|10.5(b)                                                                                                                                                                                                                                                                                        
|10.5(c)                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                               

56

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|10.5(d) |  | Receivables Purchase and Sale Agreement, dated as of February 23, 1995, among JSC(U.S.), as Initial Servicer, and JS Finance, as Purchaser (incorporated by reference to Exhibit 10.4 to SSCC's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995).                                                                                                                                       
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5(e) |  | Liquidity Agreement, dated as of February 23, 1995, among JS Finance, the financial institutions party thereto as Banks, Bankers Trust Company as Facility Agent and Bankers Trust Company as Collateral Agent (incorporated by reference to Exhibit 10.6
to SSCC's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).                                                                   
|10.5(f) |  | Commercial Paper Dealer Agreement, dated as of February 23, 1995, among BT Securities Corporation, Morgan Stanley & Co., JSC(U.S.) and JS Finance (incorporated by reference to Exhibit 10.7 to SSCC's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).                                                                                                                                
|10.5(g) |  | Addendum, dated March 6, 1995, to Commercial Paper Dealer Agreement (incorporated by reference to Exhibit 10.8 to SSCC's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).                                                                                                                                                                                                              
|10.5(h) |  | First Omnibus Amendment, dated as of March 31, 1996, to the Receivables Purchase and Sale Agreement among JSC(U.S.), JS Finance and the banks party thereto (incorporated by reference to Exhibit 10.3 to SSCC's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).                                                                                                                       
|10.5(i) |  | Amendment No. 2, dated as of August 19, 1997, to the Term Loan Agreement among JS Finance and Bank Brussels Lambert, New York Branch and JSC(U.S.) as Servicer (incorporated by reference to Exhibit 10.12(j) to SSCC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).                                                                                                           
|10.5(j) |  | Amendment No. 2, dated as of August 19, 1997, to the Receivables Purchase and Sale Agreement among JSC(U.S.) as the Seller and Servicer, JS Finance as the Purchaser, Bankers Trust Company as Facility Agent and Bank Brussels Lambert, New York Branch
as the Term Bank (incorporated by reference to Exhibit 10.12(k) to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
|10.5(k) |  | Amendment No. 2, dated as of August 19, 1997, to the Liquidity Agreement among JS Finance, Bankers Trust Company as Facility Agent, JSC(U.S.) as Servicer, Bank Brussels Lambert, New York Branch as Term Bank and the financial institutions party
thereto as Banks (incorporated by reference to Exhibit 10.12(l) to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).     
|10.5(l) |  | Amendment No. 3, dated as of March 9, 2001, to the Liquidity Agreement among JS Finance, Bankers Trust Company as Facility Agent, JSC(U.S.) as Servicer, Bank Brussels Lambert, New York Branch as Term Bank and the financial institutions party thereto
as Banks (incorporated by reference to Exhibit 10.1 to SSCC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001).               
|10.5(m) |  | Amendment No. 4, dated as of December 20, 2002, to the Liquidity Agreement and Annex among JS Finance, Societe Generale as Facility Agent and Collateral Agent, JSC(U.S.) as Seller and Servicer and the financial institutions party thereto as Banks
(incorporated by reference to Exhibit 10.5(m) to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                            

57

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|10.6*     |  | Consulting Agreement, dated as of October 24, 1996, by and between James E. Terrill and JSC(U.S.) (incorporated by reference to Exhibit 10.15 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).  
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7(a)*  |  | Smurfit-Stone Container Corporation 1998 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.14 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).                                  
|10.7(b)*  |  | First Amendment of the Smurfit-Stone Container Corporation 1998 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to SSCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).            
|10.7(c)*  |  | Second Amendment of the Smurfit-Stone Container Corporation 1998 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to SSCC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).                
|10.7(d)*  |  | Third Amendment of the Smurfit-Stone Container Corporation 1998 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to SSCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).            
|10.8*     |  | Forms of Employment Security Agreements (incorporated by reference to Exhibit 10(h) to SSCC's Registration Statement on Form S-4 (Registration Number No. 333-65431)).                                                            
|10.9(a)   |  | Purchase and Sale Agreement, effective as of July 28, 1999, between Rayonier, Inc. and JSC(U.S.) (incorporated by reference to Exhibit 2.1 to JSCE's Current Report on Form 8-K dated October 25, 1999).                          
|10.9(b)   |  | First Amendment to Purchase and Sale Agreement, dated October 21, 1999, between Rayonier, Inc. and JSC(U.S.) (incorporated by reference to Exhibit 2.2 to JSCE's Current Report on Form 8-K dated October 25, 1999).              
|10.10*    |  | Consulting Agreement, dated as of January 4, 2002, by and between Ray M. Curran and SSCC (incorporated by reference to Exhibit 10.25 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 2001).           
|10.11*    |  | Letter Agreement dated January 4, 2002 by and between Ray M. Curran and SSCC (incorporated by reference to Exhibit 10.26 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 2001).                       
|10.12(a)* |  | Employment Agreement of Patrick J. Moore (incorporated by reference to Exhibit 10.27 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).                                                           
|10.12(b)* |  | First Amendment of Employment Agreement of Patrick J. Moore (incorporated by reference to Exhibit 10.2 to SSCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).                                         
|10.13*    |  | Restricted Stock Unit Agreement dated as of January 4, 2002 by and between SSCC and Patrick J. Moore (incorporated by reference to Exhibit 10.3 to SSCC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
|10.14*    |  | Employment Agreement of William N. Wandmacher (incorporated by reference to Exhibit 10.31 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).                                                      
|          |  |                                                                                                                                                                                                                                   

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|10.15* |  | Employment Agreement of F. Scott Macfarlane (incorporated by reference to Exhibit 10.32 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16* |  | Employment Agreement of James P. Davis (incorporated by reference to Exhibit 10.22 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 2002).     
|10.17* |  | Employment Agreement of Charles A. Hinrichs (incorporated by reference to Exhibit 10.22 to SSCC's Annual Report on Form 10-K for the fiscal year ended December 31, 2003).
|31.1   |  | Certification Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.        
|31.2   |  | Certification Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.        
|32.1   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                   
|32.2   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                   

Form
8-K dated February 3, 2004 was furnished to the Securities and Exchange Commission in connection with the announcement of JSCE's earnings for the fourth quarter of 2003 and the full
year ended December 31, 2003 and the disclosure of EBITDA for the full year ended December 31, 2003.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

|                      |  |    | JSCE, INC. (Registrant)                                       
|--------------------- |  | -- | --------------------------------------------------------------
|Date    March 3, 2004 |  | By | /s/ CHARLES A. HINRICHS                                       
|                      |  |    | Charles A. Hinrichs Vice President and Chief Financial Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the
date indicated.

|Signature                                 |  | Title                                                                                 |  | Date         
|----------------------------------------- |  | ------------------------------------------------------------------------------------- |  | -------------
|/s/PATRICK J. MOOREPatrick J. Moore       |  | President and Chief Executive Officer and Director (Principal Executive Officer)      |  | March 3, 2004
|/s/CHARLES A. HINRICHSCharles A. Hinrichs |  | Vice President and Chief Financial Officer and Director (Principal Financial Officer) |  | March 3, 2004
|/s/PAUL K. KAUFMANNPaul K. Kaufmann       |  | Vice President and Corporate Controller (Principal Accounting Officer)                |  | March 3, 2004

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