**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

**FORM 10-Q**

| **x**                               | ** ** | **Quarterly Report Pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934.**  |
|-------------------------------------|------------|------------------------------------------------------------------------------------------------|
| **For Quarter Ended June 30, 2007** |
| **o**                               | ** ** | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934.** |
| **Commission File Number 1-3439**   |

 

**SMURFIT-STONE CONTAINER ENTERPRISES,INC.**

(Exact name ofregistrant as specified in its charter)

| **Delaware**                                                      | ** ** | **36-2041256**                     |
|-------------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of   incorporation or organization) |       | (IRS Employer  Identification No.) |

 

| **150 North Michigan Avenue, Chicago, Illinois** |   | **60601**  |
|--------------------------------------------------|--------|------------|
| (Address of  principal executive offices)        |   | (Zip Code) |

 

**(312) 346-6600**

(Registrant’s telephone number, including area code)

###### **Not Applicable**

 (Former name, former address and former fiscalyear, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.  Yes x   No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12(b) of the Exchange Act. (Checkone):
| Large accelerated  filer o | Accelerated  filer o | Non-accelerated  filer x |
|---------------------------------|---------------------------|-------------------------------|

 

Indicateby check mark if the registrant is a shell company (as defined in Rule 12b-2 ofthe Act).  Yes o     No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August 3, 2007, the registrant had outstanding 770 shares ofcommon stock, $.01 par value per share, all of which are owned by Smurfit-StoneContainer Corporation.

**Theregistrant meets the conditions set forth in General Instruction (H) (1) (a)and (b) of Form 10-Q and is therefore filing this form with the reduceddisclosure format permitted thereby.**

 

 

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**PART 1-FINANCIAL INFORMATION**

** **

**Item1. Financial Statements**

**SMURFIT-STONE CONTAINER ENTERPRISES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**
| ** **                                                                                                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                       | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In millions)**                                                                                                           | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                                                       | ** ** | ** **                       | ** ** | **(Restated)**                 | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net sales                                                                                                                        | ** ** | **$**                            | **1,870**  |                           | $          | 1,765 | ** ** | **$** | **3,694** |   | $ | 3,494 |   |
| Costs and expenses                                                                                                               |       |                             |       |                           |       |   |   |   |   |
| Cost of goods  sold                                                                                                              | ** ** | **1,609**                        |       | 1,513                          | ** ** | **3,219** |   | 3,103 |   |
| Selling and  administrative expenses                                                                                             | ** ** | **161**                          |       | 170                            | ** ** | **328** |   | 343 |   |
| Restructuring  charges                                                                                                           | ** ** | **10**                           |       | 13                             | ** ** | **34** |   | 22 |   |
| Gain on disposal  of assets                                                                                                      |       |                             |       | (1                             | )          |   |   | (24 | ) |
| Income from  operations                                                                                                          | ** ** | **90**                           |       | 70                             | ** ** | **113** |   | 50 |   |
| Other income (expense)                                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Interest  expense, net                                                                                                           | ** ** | **(73**                          | **)**      | (96                            | )          | **(147** | **)** | (188 | ) |
| Loss on early  extinguishment of debt                                                                                            | ** ** | **(5**                           | **)**      | (28                            | )          | **(28** | **)** | (28 | ) |
| Other, net                                                                                                                       | ** ** | **(16**                          | **)**      | (20                            | )          | **(28** | **)** | (23 | ) |
| Loss from  continuing operations before income taxes                                                                             | ** ** | **(4**                           | **)**      | (74                            | )          | **(90** | **)** | (189 | ) |
| Benefit from income  taxes                                                                                                       | ** ** | **2**                            |       | 24                             | ** ** | **36** |   | 68 |   |
| Loss from  continuing operations                                                                                                 | ** ** | **(2**                           | **)**      | (50                            | )          | **(54** | **)** | (121 | ) |
| Discontinued operations                                                                                                          |       |                             |       |                           |       |   |   |   |   |
| Income from  discontinued operations, net of income tax provision of $3 and $9 for the  three and six months ended June 30, 2006 |       |                             |       | 4                              |       |   |   | 14 |   |
| Loss on sale of  discontinued operations, net of income tax provision of $175                                                    |       |                             |       | (1                             | )          |   |   | (1 | ) |
| Net loss                                                                                                                         | ** ** | **$**                            | **(2**     | **)**                          | $          | (47 | ) | **$** | **(54** | **)** | $ | (108 | ) |

 

See notes to consolidatedfinancial statements.

 

1

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**SMURFIT-STONECONTAINER ENTERPRISES, INC.**

**CONSOLIDATEDBALANCE SHEETS**
| ** **                                                                                                                   | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In millions, except share data)**                                                                     | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ** **                                                                                                                   | ** ** | **(Unaudited)**   | ** ** | **(Restated)**        | ** ** |
| **Assets**                                                                                                                   |       |              |       |                  |       |
|                                                                                                                         |       |              |       |                  |       |
| Current assets                                                                                                               |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                   | ** ** | **$**             | **12**     |                  | $          | 9 |   |
| Receivables,  less allowances of $7 in 2007 and 2006                                                                         | ** ** | **181**           |       | 166                   |       |
| Retained  interest in receivables sold                                                                                       | ** ** | **218**           |       | 179                   |       |
| Inventories,  including amounts valued under LIFO method                                                                     |       |              |       |                  |       |
| Work-in-process  and finished goods                                                                                          | ** ** | **154**           |       | 155                   |       |
| Materials and  supplies                                                                                                      | ** ** | **399**           |       | 383                   |       |
|                                                                                                                         | ** ** | **553**           |       | 538                   |       |
| Prepaid expenses  and other current assets                                                                                   | ** ** | **40**            |       | 34                    |       |
| Total current  assets                                                                                                        | ** ** | **1,004**         |       | 926                   |       |
| Net property, plant and  equipment                                                                                           | ** ** | **3,682**         |       | 3,731                 |       |
| Timberland, less timber  depletion                                                                                           | ** ** | **43**            |       | 43                    |       |
| Goodwill                                                                                                                     | ** ** | **2,873**         |       | 2,873                 |       |
| Other assets                                                                                                                 | ** ** | **191**           |       | 203                   |       |
|                                                                                                                         | ** ** | **$**             | **7,793**  |                  | $          | 7,776 |   |
| **Liabilities and Stockholder’s  Equity**                                                                               |       |              |       |                  |       |
|                                                                                                                              |       |              |       |                  |       |
| Current liabilities                                                                                                          |       |              |       |                  |       |
| Current  maturities of long-term debt                                                                                        | ** ** | **$**             | **10**     |                  | $          | 84 |   |
| Accounts payable                                                                                                             | ** ** | **589**           |       | 542                   |       |
| Accrued  compensation and payroll taxes                                                                                      | ** ** | **170**           |       | 211                   |       |
| Interest payable                                                                                                             | ** ** | **67**            |       | 79                    |       |
| Income taxes  payable                                                                                                        | ** ** | **8**             |       | 2                     |       |
| Current deferred  income taxes                                                                                               | ** ** | **2**             |       | 2                     |       |
| Other current  liabilities                                                                                                   | ** ** | **130**           |       | 145                   |       |
| Total current  liabilities                                                                                                   | ** ** | **976**           |       | 1,065                 |       |
| Long-term debt, less  current maturities                                                                                     | ** ** | **3,724**         |       | 3,550                 |       |
| Other long-term  liabilities                                                                                                 | ** ** | **1,104**         |       | 1,010                 |       |
| Deferred income taxes                                                                                                        | ** ** | **378**           |       | 515                   |       |
| Stockholder’s equity                                                                                                    |       |              |       |                  |       |
| Common stock,  par value $.01 per share; 1,000 shares authorized, 770 issued and outstanding  in 2007 and 2006, respectively |       |              |       |                  |       |
| Additional  paid-in capital                                                                                                  | ** ** | **3,652**         |       | 3,635                 |       |
| Retained  earnings (deficit)                                                                                                 | ** ** | **(1,643**        | **)**      | (1,587                | )          |
| Accumulated  other comprehensive income (loss)                                                                               | ** ** | **(398**          | **)**      | (412                  | )          |
| Total  stockholder’s equity                                                                                             | ** ** | **1,611**         |       | 1,636                 |       |
|                                                                                                                         | ** ** | **$**             | **7,793**  |                  | $          | 7,776 |   |

 

See notes to consolidatedfinancial statements.

 

2

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**SMURFIT-STONECONTAINER ENTERPRISES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| **Six Months Ended June 30, (In millions)**                     | ** ** | **2007**   | ** ** | **2006**       | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                                                                    | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| **Cash flows from operating  activities**                                                     | ** ** | ** ** |       |           |       |
| Net loss                                                                                      | ** ** | **$**      | **(54**    | **)**          | $          | (108 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used for) operating activities    |       |       |       |           |       |
| Gain on  disposition of discontinued operations                                               | ** ** | ** ** |       | (174           | )          |
| Loss on early  extinguishment of debt                                                         | ** ** | **28**     |       | 28             |       |
| Depreciation,  depletion and amortization                                                     | ** ** | **181**    |       | 199            |       |
| Amortization of deferred  debt issuance costs                                                 | ** ** | **4**      |       | 5              |       |
| Deferred income  taxes                                                                        | ** ** | **(46**    | **)**      | 96             |       |
| Pension and  postretirement benefits                                                          | ** ** | **(24**    | **)**      | 17             |       |
| Gain on disposal  of assets                                                                   |       |       |       | (24            | )          |
| Non-cash  restructuring charges                                                               | ** ** | **4**      |       | 10             |       |
| Non-cash  stock-based compensation                                                            | ** ** | **12**     |       | 12             |       |
| Non-cash foreign  currency translation losses                                                 | ** ** | **25**     |       | 12             |       |
| Change in  current assets and liabilities, net of effects from acquisitions and  dispositions |       |       |       |           |       |
| Receivables and  retained interest in receivables sold                                        | ** ** | **(51**    | **)**      | (61            | )          |
| Inventories                                                                                   | ** ** | **(6**     | **)**      | 33             |       |
| Prepaid expenses  and other current assets                                                    | ** ** | **2**      |       | (1             | )          |
| Accounts payable  and accrued liabilities                                                     | ** ** | **1**      |       | (61            | )          |
| Interest payable                                                                              | ** ** | **(12**    | **)**      | (18            | )          |
| Other, net                                                                                    | ** ** | **7**      |       | 11             |       |
| Net cash  provided by (used for) operating activities                                         | ** ** | **71**     |       | (24            | )          |
| **Cash flows from investing  activities**                                                     |       |       |       |           |       |
| Expenditures for  property, plant and equipment                                               | ** ** | **(171**   | **)**      | (139           | )          |
| Proceeds from  property disposals and sale of businesses                                      | ** ** | **37**     |       | 949            |       |
| Net cash  provided by (used for) investing activities                                         | ** ** | **(134**   | **)**      | 810            |       |
| **Cash flows from financing  activities**                                                     |       |       |       |           |       |
| Proceeds from  long-term debt                                                                 | ** ** | **675**    |       |           |       |
| Net repayments  of long-term debt                                                             | ** ** | **(576**   | **)**      | (756           | )          |
| Debt repurchase  premiums                                                                     | ** ** | **(23**    | **)**      | (24            | )          |
| Dividends paid                                                                                | ** ** | **(4**     | **)**      | (4             | )          |
| Capital  contribution from SSCC                                                               | ** ** | **1**      |       | 2              |       |
| Deferred debt  issuance costs                                                                 | ** ** | **(7**     | **)**      | ** **     | ** ** |
| Net cash  provided by (used for) financing activities                                         | ** ** | **66**     |       | (782           | )          |
|                                                                                          | ** ** | ** ** |       |           |       |
| **Increase in cash and cash  equivalents**                                                    | ** ** | **3**      |       | 4              |       |
| Cash and cash  equivalents                                                                    |       |       |       |           |       |
| Beginning of  period                                                                          | ** ** | **9**      |       | 5              |       |
| End of period                                                                                 | ** ** | **$**      | **12**     |           | $          | 9 |   |

 

See notes to consolidatedfinancial statements.

3

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**SMURFIT-STONE CONTAINERENTERPRISES, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

(Tabular amounts in millions)

**1.****              SignificantAccounting Policies**

**Basis of Presentation:**  The accompanying consolidated financialstatements and notes thereto of Smurfit-Stone Container Enterprises, Inc. (“SSCE”or the “Company”) have been prepared in accordance with the instructions toForm 10-Q and reflect all adjustments which management believes necessary(which include only normal recurring accruals) to present fairly the Company’sfinancial position, results of operations and cash flows.  These statements, however, do not include allinformation and footnotes necessary for a complete presentation of financialposition, results of operations and cash flows in conformity with U.S.generally accepted accounting principles. Interim results may not necessarily be indicative of results that may beexpected for any other interim period or for the year as a whole.  These financial statements should be read inconjunction with the audited consolidated financial statements and footnotesincluded in the SSCE Annual Report on Form 10-K for the year ended December 31,2006 (“2006 10-K”) filed February 28, 2007 with the Securities and ExchangeCommission (See Note 2).

SSCE is a wholly-owned subsidiary of Smurfit-StoneContainer Corporation (“SSCC”).  SSCE hasdomestic and international operations.

**Recently Adopted AccountingStandards:** Effective January 1, 2007, the Company adoptedthe Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No.AUG AIR-1, “Accounting for Planned Major Maintenance Activities.”  This FSP prohibits the use of theaccrue-in-advance method of accounting for planned major maintenance activitiesin annual and interim financial reporting periods.  The FSP requires retrospective application toall financial statements presented.  Thenew standard does not impact the Company’s annual 2006 financial statements;however the impact on the Company’s previously reported net loss fromcontinuing operations and net loss for the three and six months ended June 30,2006, is expense of an immaterial amount and $1 million, respectively, which isreflected in cost of goods sold.

EffectiveJanuary 1, 2007, the Company adopted the provisions of FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), aninterpretation of Statement of Financial Accounting Standards (“SFAS”) No. 109,“Accounting for Income Taxes.”  FIN No.48 creates a single model to address accounting for uncertainty in taxpositions and clarifies the accounting for income taxes by prescribing aminimum recognition threshold a tax position is required to meet before beingrecognized in the financial statements. FIN No. 48 also provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition.  Uponadoption, the Company reduced its existing reserves for uncertain tax positionsby $2 million.  This reduction wasrecorded as a cumulative effect adjustment to the retained deficit.  As of January 1, 2007, the Company had $134million of unrecognized tax benefits, of which $38 million was classified as areduction to the amount of the Company’s net operating loss carryforwards and$96 million was classified as a liability for unrecognized tax benefits andincluded in other long-term liabilities. All unrecognized tax benefits, if recognized, would affect the Company’seffective tax rate.

Uponadoption of FIN No. 48, the Company elected to classify interest and penaltiesrelated to unrecognized tax benefits in the Company’s income tax provision,consistent with the Company’s previous accounting policy.  Unrecognized tax benefits of $14 million forinterest and penalties are included as a component of the $134 million ofunrecognized tax benefits noted above. The interest was computed on the difference between the tax positionrecognized in accordance with FIN No. 48 and the amount previously taken orexpected to be taken in the Company’s tax returns, adjusted to reflect theimpact of net operating loss and other tax carryforward items  (See Note 13).

4

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EffectiveApril 1, 2006, the Company adopted Emerging Issues Task Force (“EITF”) IssueNo. 04-13, “Accounting for Purchases and Sales of Inventory With the SameCounterparty,” for new arrangements and modifications or renewals of existingarrangements.  EITF No. 04-13 requirescertain inventory buy/sell transactions between counterparties within the sameline of business to be viewed as a single exchange transaction.   EITF No. 04-13 required the Company toprospectively report, beginning in the second quarter of 2006, certaininventory buy/sell transactions of similar containerboard types on a net basisin the consolidated statements of operations. Had EITF No. 04-13 previously been in effect, net sales and cost ofgoods sold would have been reduced by $58 million for the six months ended June30, 2006.

**2.****              Restatementof Prior Period Financial Statements**

During the second quarter of 2007, the Company determined that $28million of net benefits from income taxes previously recognized on non-cashforeign currency translation losses from 2000 to 2006 should not have beenrecognized under SFAS No. 109, “Accounting for Income Taxes.”  Because the Company is indefinitelyreinvested in the foreign operations, the losses should have been treated aspermanent differences when determining taxable income for financial accountingpurposes.

The Company performed an evaluation to determine if the errorsresulting from recognizing the deferred tax impact of the non-cash foreigncurrency translation losses were material to any individual prior period,taking into account the requirements of SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements” (“SABNo.108”), which was adopted in 2006. Based on this analysis, the Company concluded the errors were notmaterial to any individual period from 2000 to 2006 and, therefore, as providedfor by SAB No. 108, the correction of the error does not require previouslyfiled reports to be amended.  The Companyrestated the 2006 financial statements included in this filing.  Financial statements for the years endedDecember 31, 2005 and 2006 will be restated in the December 31, 2007 Annual Reporton Form 10-K.

The tables below present the effect of the financial statementadjustments related to the restatement of the Company’s previously reportedfinancial statements for the fiscal years ended December 31, 2006, 2005 and2004, and for the three and six month periods ended June 30, 2006. In addition,the 2004 consolidated balance sheet adjustment includes the cumulative effectof the income (loss) adjustments for the fiscal years ended December 31, 2003,2002, 2001 and 2000 of $(19) million, $(1) million, $3 million and $1 million,respectively.

5

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** **

The effect of therestatement on the consolidated balance sheets as of December 31, 2006, 2005and 2004 is as follows:
| ** **                                       | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|--------------------------------------------------|------------|----------------------|------------|-----------------|------------|----------------------|------------|
| 2006                                             | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
|                                             | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Total assets                                     |       | $                    | 7,776      |            | $          |                 |       | $ | 7,776 |   |
| Deferred income taxes                            |       | 487                  |       | 28              |       | 515                  |       |
| Retained earnings (deficit)                      |       | (1,559               | )          | (28             | )          | (1,587               | )          |
| Total stockholder’s equity                  |       | 1,664                |       | (28             | )          | 1,636                |       |
| Total liabilities and stockholder’s equity  |       | 7,776                |       |            |       | 7,776                |       |
|                                             |       |                 |       |            |       |                 |       |
| 2005                                             |       |                 |       |            |       |                 |       |
|                                             | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Total assets                                     |       | $                    | 9,114      |            | $          |                 |       | $ | 9,114 |   |
| Deferred income taxes                            |       | 529                  |       | 28              |       | 557                  |       |
| Retained earnings (deficit)                      |       | (1,492               | )          | (28             | )          | (1,520               | )          |
| Total stockholder’s equity                  |       | 1,739                |       | (28             | )          | 1,711                |       |
| Total liabilities and stockholder’s equity  |       | 9,114                |       |            |       | 9,114                |       |
|                                             |       |                 |       |            |       |                 |       |
| 2004                                             |       |                 |       |            |       |                 |       |
|                                             |       |                 |       |            |       |                 |       |
| Total assets                                     |       | $                    | 9,583      |            | $          |                 |       | $ | 9,583 |   |
| Deferred income taxes                            |       | 824                  |       | 25              |       | 849                  |       |
| Retained earnings (deficit)                      |       | (1,157               | )          | (25             | )          | (1,182               | )          |
| Total stockholder’s equity                  |       | 2,116                |       | (25             | )          | 2,091                |       |
| Total  liabilities and stockholder’s equity |       | 9,583                |       |            |       | 9,583                |       |

 

6

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The effect of therestatement on the 2006, 2005 and 2004 consolidated statements of operations isas follows:
| ** **                                           | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|------------------------------------------------------|------------|----------------------|------------|-----------------|------------|----------------------|------------|
| 2006                                                 | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
|                                                 |       |                 |       |            |       |                 |       |
| Loss from  continuing operations before income taxes |       | $                    | (110       | )               | $          |                 |       | $ | (110 | ) |
| Benefit from  income taxes                           |       | 40                   |       |            |       | 40                   |       |
| Loss from  continuing operations                     |       | (70                  | )          |            |       | (70                  | )          |
| Net loss                                             |       | (59                  | )          |            |       | (59                  | )          |
|                                                 |       |                 |       |            |       |                 |       |
| 2005                                                 |       |                 |       |            |       |                 |       |
|                                                 | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Loss from  continuing operations before income taxes |       | $                    | (619       | )               | $          |                 |       | $ | (619 | ) |
| Benefit from  income taxes                           |       | 241                  |       | (3              | )          | 238                  |       |
| Loss from  continuing operations                     |       | (378                 | )          | (3              | )          | (381                 | )          |
| Net loss                                             |       | (327                 | )          | (3              | )          | (330                 | )          |
|                                                 |       |                 |       |            |       |                 |       |
| 2004                                                 |       |                 |       |            |       |                 |       |
|                                                 | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Loss from  continuing operations before income taxes |       | $                    | (126       | )               | $          |                 |       | $ | (126 | ) |
| Benefit from  income taxes                           |       | 73                   |       | (9              | )          | 64                   |       |
| Loss from  continuing operations                     |       | (53                  | )          | (9              | )          | (62                  | )          |
| Net income (loss)                                    |       | 1                    |       | (9              | )          | (8                   | )          |

 

The effect of therestatement on the 2006, 2005 and 2004 consolidated statements of cash flows isas follows:
| ** **                                 | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|--------------------------------------------|------------|----------------------|------------|-----------------|------------|----------------------|------------|
| 2006                                       | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
|                                       |       |                 |       |            |       |                 |       |
| Net loss                                   |       | $                    | (59        | )               | $          |                 |       | $ | (59 | ) |
| Deferred income  taxes                     |       | 108                  |       |            |       | 108                  |       |
| Net cash  provided by operating activities |       | 265                  |       |            |       | 265                  |       |
|                                       |       |                 |       |            |       |                 |       |
| 2005                                       |       |                 |       |            |       |                 |       |
|                                       | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Net loss                                   |       | $                    | (327       | )               | $          | (3                   | )          | $ | (330 | ) |
| Deferred income  taxes                     |       | (233                 | )          | 3               |       | (230                 | )          |
| Net cash  provided by operating activities |       | 221                  |       |            |       | 221                  |       |
|                                       |       |                 |       |            |       |                 |       |
|  2004                                 |       |                 |       |            |       |                 |       |
|                                       | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Net income  (loss)                         |       | $                    | 1          |            | $          | (9                   | )          | $ | (8 | ) |
| Deferred income  taxes                     |       | (54                  | )          | 9               |       | (45                  | )          |
| Net cash provided by  operating activities |       | 265                  |       |            |       | 265                  |       |

 

7

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The effect of therestatement on the consolidated statements of operations for the three and sixmonths ended June 30, 2006 is as follows:
| ** **                                          | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|-----------------|------------|----------------------|------------|
| Three months  ended June 30, 2006                   |       |                 |       |            |       |                 |       |
|                                                | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Loss from continuing operations before income taxes |       | $                    | (74        | )               | $          |                 |       | $ | (74 | ) |
| Benefit from income taxes                           |       | 30                   |       | (6              | )          | 24                   |       |
| Loss from continuing operations                     |       | (44                  | )          | (6              | )          | (50                  | )          |
| Net loss                                            |       | (41                  | )          | (6              | )          | (47                  | )          |
|                                                |       |                 |       |            |       |                 |       |
| Six months ended  June 30, 2006 (Note A)            |       |                 |       |            |       |                 |       |
|                                                | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Cost of goods sold                                  |       | $                    | 3,102      |            | $          | 1                    |       | $ | 3,103 |   |
| Income from operations                              |       | 51                   |       | (1              | )          | 50                   |       |
| Loss from continuing operations before income taxes |       | (188                 | )          | (1              | )          | (189                 | )          |
| Benefit from income taxes                           |       | 73                   |       | (5              | )          | 68                   |       |
| Loss from continuing operations                     |       | (115                 | )          | (6              | )          | (121                 | )          |
| Net loss                                            |       | (102                 | )          | (6              | )          | (108                 | )          |
|                                                |       |                 |       |            |       |                 |       |

 

The effect of therestatement on the consolidated statement of cash flows for the six monthsended June 30, 2006, is as follows (Note A):
| ** **                               | ** ** | **As Reported** | ** ** | **Adjustments** | ** ** | **As Restated** | ** ** |
|------------------------------------------|------------|----------------------|------------|-----------------|------------|----------------------|------------|
|                                     | ** ** | ** **           | ** ** | ** **      | ** ** | ** **           | ** ** |
| Net loss                                 |       | $                    | (102       | )               | $          | (6                   | )          | $ | (108 | ) |
| Deferred income taxes                    |       | 91                   |       | 5               |       | 96                   |       |
| Accounts payable and accrued liabilities |       | (62                  | )          | 1               |       | (61                  | )          |
| Net cash used in  operating activities   |       | (24                  | )          |            |       | (24                  | )          |
|                                          |            |                      |            |                 |            |                      |            |  |  |  |

 

Notes to financialstatement tables:

Note A — The adjustmentsfor the six months ended June 30, 2006, include the effect of the adoptionof FSP No. AUG AIR-1 of an additional expense of $1 million (See Note 1).

**3.****              Reclassifications**

Certainprior year amounts have been reclassified to conform to the current yearpresentation.

**4.****             ****Strategic Initiatives and Restructuring Activities**

During 2005, the Companyannounced a strategic initiatives plan to improve performance and betterposition the Company for long-term growth. The plan focused on cost reduction and productivity initiatives fromwhich the Company expects to achieve $525 million in annual savings by the endof 2008.

During the second quarterof 2007, in conjunction with the strategic initiatives plan, the Company closedseven converting facilities and the Carthage, Indiana and Los Angeles, Californiamedium mills.  As a result of these plantclosures and other strategic initiatives, the Company reduced its headcount by 

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approximately 400employees.  The second quarterrestructuring charges of $10 million, which were net of a gain of $33 millionon the sale of properties related to previously closed facilities, includednon-cash charges of $25 million. The non-cash charges related to the write-downof equipment and the acceleration of depreciation over the revised useful lifeof equipment expected to be abandoned or taken out of service.  Other restructuring charges were primarilyfor severance and benefits.

For the six months endedJune 30, 2007, the Company closed ten converting facilities and two mediummills and reduced its headcount by approximately 1,100 employees.  The restructuring charges of $34 millionincluded non-cash charges of $37 million related to the write-down of equipmentand the acceleration of depreciation for equipment expected to be abandoned ortaken out of service.  The restructuringcharges were net of gains on the sale of properties related to previouslyclosed facilities.  Other restructuringcharges were primarily for severance and benefits.  The net sales of the closed convertingfacilities as of June 30, 2007 prior to closure and for the year ended December31, 2006 were $28 million and $137 million, respectively.  The majority of these net sales are expectedto be transferred to other operating facilities.  The production of the two medium mills, whichhad combined annual capacity of 200,000 tons, will be partially offset byrestarting the previously idled machine at the Jacksonville, Florida mill withannual capacity to produce 170,000 tons of medium.

TheCompany recorded restructuring charges of $13 million and $22 million for thethree and six months ended June 30, 2006, respectively, including non-cashcharges of $5 million and $10 million, respectively, related to thewrite-down of assets, primarily property, plant and equipment, to estimated netrealizable value related to the closure of converting facilities.  The remaining charges were primarily forseverance and benefits.

At December 31, 2006, theCompany had $47 million of accrued exit liabilities related to therestructuring of operations.  For thethree and six months ended June 30, 2007, the Company incurred $10 million and$21 million, respectively, of cash disbursements related to these exitliabilities.  In addition, for the threeand six months ended June 30, 2007, the Company incurred $8 million and $12million, respectively, of cash disbursements related to exit liabilitiesestablished during 2007.

**5.****              DiscontinuedOperations**

OnJune 30, 2006, the Company completed the sale of substantially all of theassets of its Consumer Packaging division for $1.04 billion.  The Company recorded a pretax gain of $174million, offset by a $175 million income tax provision, resulting in a net losson sale of discontinued operations of $1 million, subject to post-closingadjustments, which were finalized in the third quarter of 2006, resulting in anadditional pretax loss of $3 million, offset by a $1 million income taxbenefit.  The after-tax loss was theresult of a provision for income taxes that was higher than the statutoryincome tax rate due to non-deductible goodwill of $273 million.

The Consumer Packagingdivision was a reportable segment of the Company comprised of four coatedrecycled boxboard mills, 39 consumer packaging operations in the United States,including folding carton, multiwall and specialty bag, flexible packaging,label, contract packaging and lamination businesses and one consumer packagingplant in Brampton, Ontario.   Net salesfor these operations were $391 million and $787 million, respectively, for thethree and six months ended June 30, 2006. These facilities employed approximately 6,600 hourly and salariedemployees.  The results of operations forthe Consumer Packaging segment have been reclassified as discontinuedoperations for the three and six months ended June 30, 2006.

**6.****              Gainon Sale of Assets**

The Company recorded again of $23 million in the first quarter of 2006 related to the divestiture ofits Port St. Joe, Florida joint venture interest and related real estate.

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**7.****              Other,Net**

For the three and sixmonths ended June 30, 2007, the Company recorded non-cash foreign currencytranslation losses of $20 million and $25 million, respectively, related to itsoperations in Canada.  For the three andsix months ended June 30, 2006, the Company recorded non-cash foreign currencytranslation losses of $14 million and $12 million, respectively, related to itsoperations in Canada.

During the second quarter2007, the Company recorded a $15 million gain on the sale of emission creditsand water rights associated with the Los Angeles, California mill.

**8.****              Accounts Receivable Securitization Programs**

AtJune 30, 2007 and December 31, 2006, $655 million and $590 million,respectively, of receivables had been sold under two accounts receivablesecuritization programs, of which the Company retained a subordinatedinterest.  The off-balance sheet debtrelated to the two accounts receivable programs totaled $444 million and $448million, respectively, as of those dates.

**9.****              Guarantees and Commitments**

The Company has certain wood chipprocessing contracts extending from 2012 through 2018 with minimum purchasecommitments.  As part of the agreements,the Company guarantees the third party contractors’ debt outstanding and has asecurity interest in the chipping equipment. At June 30, 2007, the maximum potential amount of future paymentsrelated to these guarantees was approximately $32 million and decreases ratablyover the life of the contracts.  In theevent the guarantees on these contracts were called, proceeds from theliquidation of the chipping equipment would be based on current marketconditions and the Company may not recover in full the guarantee payments made.

In 2006, the Companyentered into an agreement to guarantee a portion of a third party’s debt indecreasing amounts through January 2010. The guarantee was entered into in connection with the third party’sprogress payment financing for the purchase and installation of machinery andequipment for the conversion of corrugated containerboard.  The Company and the third party are partiesto a supply agreement through 2021, whereby the Company sells containerboard tothe third party, and a purchase agreement through 2014, whereby the third partysells corrugated sheets to the Company. At June 30, 2007, the maximum potential amount of the future paymentsrelated to this guarantee was approximately $12 million, and decreases as thethird party’s contractual financial targets are met.  The Company has no recourse to the assets ofthe third party, other than that of a general unsecured creditor.  The fair value of this guarantee at June 30,2007 was an immaterial amount and is included in other assets, with an offsetin other long-term liabilities in the accompanying consolidated balance sheets.

The Company iscontingently liable for $18 million under a one year letter of credit issued inApril 2007 to support borrowings of one of the Company’s non-consolidatedaffiliates.  The letter of credit iscollateralized by a pledge of affiliate stock owned by the other shareholder inthe event the letter of credit is drawn upon and the other shareholder isunable to reimburse the Company for their 50% share of the letter of creditobligation.

**10.****       Long-Term Debt**

On March 26, 2007, theCompany completed an offering of $675 million of 8.00% unsecured senior notesdue March 15, 2017 (the “8.00% Senior Notes”). The Company used the proceeds of this issuance to repay $546 million of9.75% Senior Notes due 2011, which were purchased in connection with a cash 

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tender offer, pay relatedtender premiums and accrued interest of $19 million and $8 million,respectively, and repay $95 million of the Company’s revolving creditfacility.  In addition, the Company usedthe proceeds to pay fees and expenses of $7 million related to thistransaction.  A loss on earlyextinguishment of debt of $23 million was recorded in the first quarter of2007, including $19 million for tender premiums and a $4 million write-off ofunamortized deferred debt issuance costs.

On May 9, 2007, theCompany redeemed the remaining $102 million of the 9.75% Senior Notes at aredemption price of 103.25% plus accrued interest.  Borrowings under the Company’s revolvingcredit facility were used to redeem the notes and pay related call premiums andaccrued interest.  A loss on earlyextinguishment of debt of $5 million was recorded in the second quarter of2007, including $4 million for tender premiums and a $1 million write-off ofunamortized deferred debt issuance costs.

The 8.00% Senior Notes areredeemable in whole or in part at the option of the Company beginning onMarch 15, 2012 at a price of 104.0% of their principal amount, plusaccrued interest. The redemption price will decline each year after 2012 and,beginning on March 15, 2015, will be 100% of their principal amount plusaccrued interest.

In June 2007, the Companyused $33 million of net proceeds received from the sale of properties relatedto previously closed facilities to pay down a portion of its revolving creditfacility.  In connection with the assetsale, in July 2007, the Company prepaid $25 million of its Tranche C term loanand $8 million of its Tranche C-1 term loan with borrowings under its revolvingcredit facility (See Note 4).

On March 30, 2007,the Company used approximately $66 million in borrowings against the revolvingcredit facility, together with an escrow balance of $3 million, to prepay the$69 million outstanding aggregate principal balance of the Company’s 8.45%mortgage notes, which were payable on September 1, 2007.

In the second quarter of 2006, the Company recorded aloss on early extinguishment of debt of $28 million related to the repayment ofborrowings with net proceeds from the sale of its Consumer Packagingdivision.  The loss included $24 millionfor tender premiums and fees for the unsecured senior notes called and a $4million non-cash write-off of related unamortized deferred debt issuance costs.

**11.  Employee Benefit Plans**

The Company sponsorsnoncontributory defined benefit pension plans for its U.S. employees and alsosponsors noncontributory and contributory defined benefit pension plans for itsCanadian employees.  The Company’sdefined benefit pension plans cover substantially all hourly employees, as wellas salaried employees hired prior to January 1, 2006.

The Company’spostretirement plans provide certain health care and life insurance benefitsfor all retired salaried and certain retired hourly employees, and for salariedand certain hourly employees who have reached the age of 60 with 10 years ofservice as of January 1, 2007.

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The components of netperiodic benefit costs for the defined benefit plans and the components of thepostretirement benefit costs, including the discontinued operations of theConsumer Packaging division during 2006 (See Note 5) are as follows:
| ** **                                    | ** ** | **Three months ended June 30,**     | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------|------------|-------------------------------|------------|
| ** **                                    | ** ** | **Defined Benefit Plans** | ** ** | **Postretirement Plans** | ** ** | **Defined Benefit Plans** | ** ** | **Postretirement Plans** | ** ** |
| ** **                                    | ** ** | **2007**                            | ** ** | **2006**                      | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                  |       | $                                   | 12         |                          | $          | 19 |   | $ | 1 |   | $ | 2 |   | $ | 26 |   | $ | 39 |   | $ | 2 |   | $ | 3 |   |
| Interest cost                                 |       | 49                                  |       | 48                            |       | 2 |   | 3 |   | 98 |   | 96 |   | 5 |   | 7 |   |
| Expected return  on plan assets               |       | (59                                 | )          | (56                           | )          |   |   |   |   | (117 | ) | (111 | ) |   |   |   |   |
| Amortization of  prior service cost (benefit) |       | 2                                   |       | 3                             |       |   |   | (1 | ) | 4 |   | 5 |   | (1 | ) | (2 | ) |
| Amortization of  net (gain) loss              |       | 14                                  |       | 22                            |       | (2 | ) | 1 |   | 29 |   | 43 |   | (1 | ) | 2 |   |
| Curtailment  (gain) loss                      |       | 2                                   |       |                          |       | (1 | ) |   |   | 2 |   |   |   | (1 | ) |   |   |
| Settlements                                   |       | 1                                   |       |                          |       |   |   |   |   | 2 |   | 2 |   |   |   |   |   |
| Multi-employer  plans                         |       | 1                                   |       | 1                             |       |   |   |   |   | 2 |   | 3 |   |   |   |   |   |
| Net periodic benefit  cost                    |       | $                                   | 22         |                          | $          | 37 |   | $ |   |   | $ | 5 |   | $ | 46 |   | $ | 77 |   | $ | 4 |   | $ | 10 |   |

 

The Company’s 2007 expectedcontributions to its qualified defined benefit plans and benefit payments toits non-qualified defined benefit plans and postretirement plans are notexpected to be materially different from the amounts disclosed at December 31,2006.

The 2007 curtailment(gain) loss and the 2007 and 2006 settlement charges are related to the closedfacilities and included as part of the restructuring charges (See Note 4).

**12.  Derivative Instruments and Hedging Activities**

The Company’s derivativeinstruments used for its hedging activities are designed as cash flow hedgesand relate to minimizing exposures to fluctuations in the price of commoditiesused in its operations, the movement in foreign currency exchange rates and thefluctuations in the interest rate on variable rate debt.

#### **Commodity DerivativeInstruments**

The Company uses derivative instruments, including fixed price swaps andoptions, to manage fluctuations in cash flows resulting from commodity pricerisk in the procurement of natural gas and other commodities, including fueland heating oil.  The objective is to fixthe price of a portion of the Company’s purchases of these commodities used inthe manufacturing process.  The changesin the market value of such derivative instruments have historically offset,and are expected to continue to offset, the changes in price of the hedgeditem.  As of June 30, 2007, the maximumlength of time over which the Company was hedging its exposure to thevariability in future cash flows associated with the commodities’ forecastedtransactions was 18 months.

For the three and six months ended June 30, 2007, the Companyreclassified a $1 million loss (net of tax) and a $6 million loss (net of tax),respectively, from other comprehensive income (“OCI”) to cost of goods sold whenthe hedged items were recognized.  Forthe three and six months ended June 30, 2006, the Company reclassified a $1million loss (net of tax) and an immaterial amount, respectively, from OCI tocost of goods sold when the hedged items were recognized.  The fair value of these commodity derivative 

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instruments at June 30, 2007 was an $11 million liability, of which $10million was included in other current liabilities, and $1 million was includedin other long-term liabilities.

For the three and six months ended June 30, 2007, the Company recordedan immaterial amount and a $3 million gain (net of tax), respectively, in costof goods sold related to the change in fair value of certain commodityderivative instruments not qualifying for hedge accounting.  For the three and six months ended June 30,2006, the Company recorded a $3 million loss (net of tax) and an $8 millionloss (net of tax), respectively, in cost of goods sold related to the change infair value of certain commodity derivative instruments not qualifying for hedgeaccounting.

For the three and six months ended June 30, 2007, the Company recorded a$1 million loss (net of tax) and a $5 million loss (net of tax), respectively,in cost of goods sold on settled commodity derivative instruments related tocommodity derivative instruments not qualifying for hedge accounting.  For the three and six months ended June 30,2006, the Company recorded a $1 million loss (net of tax) and a $2 million loss(net of tax), respectively, in cost of goods sold on settled commodityderivative instruments related to commodity derivative instruments notqualifying for hedge accounting.

#### **Foreign CurrencyDerivative Instruments**

The Company’s principalforeign exchange exposure is the Canadian dollar.  The Company uses foreign currency derivativeinstruments, including forward contracts and options, primarily to protectagainst Canadian currency exchange risk associated with expected future cashflows.  As of June 30, 2007, the maximumlength of time over which the Company was hedging its exposure to thevariability in future cash flows associated with foreign currency was 16months.  For the three and six monthsended June 30, 2007, the Company reclassified an immaterial amount and a $1million loss (net of tax), respectively, from OCI to cost of goods sold relatedto the recognition of the foreign currency derivative instruments.  For the three and six months ended June 30,2006, the Company reclassified a $1 million gain (net of tax) and a $2 milliongain (net of tax), respectively, from OCI to cost of goods sold related to therecognition of the foreign currency derivative instruments.  The change in fair value of these derivativeinstruments is recorded in OCI until the underlying transaction isrecorded.  The fair value of the Company’sforeign currency derivative instruments at June 30, 2007 was a $7 millionasset, included in prepaid expenses and other current assets.

#### **Interest Rate SwapContracts**

The Company uses interest rate swap contracts to manageinterest rate exposure on $300 million of the current Tranche B and Tranche Cfloating rate bank term debt, effectively fixing the interest rate at4.3%.  These contracts extend until 2011,consistent with the maturity of the Company’s Tranche B and Tranche C termloans.  Changes in the fair value of theinterest rate swap contracts are expected to be highly effective in offsettingthe fluctuations in the floating interest rate and are recorded in OCI untilthe underlying transaction is recorded. The accounting for the cash flow impact of the swap contracts isrecorded as an adjustment to interest expense each period.  For the three and six months ended June 30,2007, the Company reclassified an immaterial amount and a $1 million gain (netof tax), respectively, from OCI to interest expense when the hedged items wererecognized.  For the three and six monthsended June 30, 2006, the Company reclassified an immaterial amount from OCI tointerest expense when the hedged items were recognized.  The fair value of the Company’s interest rateswap contracts at June 30, 2007 was a $13 million asset included in otherassets.

**Deferred Hedge Gain (Loss)**

The cumulative deferred hedge gain on all derivativeinstruments was $6 million (net of tax) at June 30, 2007, including a $6million loss (net of tax) on commodity derivative instruments, a $4 milliongain (net of tax) on foreign currency derivative instruments and an $8 milliongain (net of tax) on interest rate swap contracts.  The Company expects to reclassify a $2million loss (net of tax) into cost of goods sold within the next 12 months,related to the commodity and foreign currency derivative instruments.

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**13**     **Income Taxes**

Duringthe three and six months ended June 30, 2007, an additional $1 million and $3million, respectively, of unrecognized tax benefits was recorded related to atax position taken during the current year and for interest on unrecognized taxbenefits previously recorded.

Duringthe second quarter of 2007, the Company recorded a $5 million income taxbenefit related to the resolution of a prior year tax matter.

TheCanada Revenue Agency (“CRA”) is currently examining the tax years 1999 through2005.  In connection with the examinationof the Company’s 1999 and 2000 Canadian income tax returns, the CRA hasproposed certain significant adjustments to taxable income related to theacquisition of a Canadian company and to transfer prices of inventory sold bythe Company’s Canadian subsidiaries to its U.S. subsidiaries.  These matters may be resolved at theexamination level or subsequently upon appeal within the next twelvemonths.  While the final outcome of theexamination or subsequent appeal, including an estimate of the range of thereasonably possible changes to unrecognized tax benefits, is not yetdeterminable, the Company believes that the examination will not have amaterial adverse effect on its consolidated financial condition or results ofoperations.

TheCompany has settled the Internal Revenue Service examinations of tax yearsthrough 2003.  However, the statute oflimitations has not yet expired for the tax years 1999 through 2003.  There are currently no federal examinationsin progress.  In addition, the Companyfiles tax returns in numerous states. The states’ statutes of limitations are generally open for the sameyears as the federal statute of limitations.

**14.    ComprehensiveIncome (Loss)**

Comprehensiveincome (loss) is as follows: 
| ** **                                         | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                         | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                         | ** ** | ** **                                      | ** ** | **(Restated)**                                | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net loss                                           |       | $                                               | (2         | )                                             | $          | (47 | ) | $ | (54 | ) | $ | (108 | ) |
| Other  comprehensive income (loss), net of tax:    |       |                                            |       |                                          |       |   |   |   |   |
| Net changes in fair value of hedging instruments   |       | 5                                               |       |                                          |       | 8 |   | (9 | ) |
| Net hedging loss (gain) reclassified into earnings |       | 1                                               |       |                                          |       | 6 |   | (2 | ) |
| Foreign currency translation adjustment            |       |                                            |       |                                          |       |   |   | (1 | ) |
| Comprehensive income  (loss)                       |       | $                                               | 4          |                                          | $          | (47 | ) | $ | (40 | ) | $ | (120 | ) |

 

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**15.    Stock-Based Compensation**

Certainofficers and key managers of the Company participate in various stock-basedcompensation plans sponsored by SSCC, which issues stock option and restrictedstock units (“RSUs”).  During the secondquarter of 2007, the Company granted 3,000 SSCC stock options with aweighted-average exercise price and grant date fair value of $12.16 and $4.67,respectively.  For the six months endedJune 30, 2007, the Company granted 823,000 SSCC stock options with aweighted-average exercise price and grant date fair value of $12.64 and $4.67,respectively.  These options vest andbecome exercisable on the third anniversary of the award date.  Compensation expense is being recorded overthe three-year period on a straight-line basis. For the six months ended June 30, 2007, the Company also granted 110,000SSCC performance-based stock options to certain management level employeesresponsible for implementing the strategic initiatives plan with aweighted-average exercise price and grant date fair value of $11.70 and $3.99,respectively.  Vesting of theperformance-based options is dependent upon the financial performance of theCompany and the attainment of the strategic initiatives savings through2008.  Compensation expense is beingrecorded over the remaining strategic intiatives period based on theachievement of the performance criteria.

Duringthe second quarter of 2007, the Company also issued approximately 40,000non-vested SSCC RSUs to certain employees and non-employee directors with aweighted average grant date fair value of $12.75 per RSU.  For the six months ended June 30, 2007, theCompany issued approximately 335,000 non-vested SSCC RSUs to certain employeeswith a weighted average grant date fair value of $12.61 per RSU. In addition,the Company issued approximately 334,000 vested SSCC RSUs and approximately67,000 related premium non-vested SSCC RSUs at $10.83 per RSU to settle its2007 management incentive plan liability, which had been accrued for in theprior year.  The non-vested SSCC RSUsvest in three years, in accordance with the Company’s applicable managementincentive plan and long-term incentive plan.

**16.  Business Segment Information**

TheCompany’s Consumer Packaging segment, which was sold as of June 30, 2006 (SeeNote 5), is classified as discontinued operations and is excluded from thesegment results.

Duringthe second quarter of 2007, the Company combined the Reclamation operations,previously considered a separate, non-reportable segment, into theContainerboard and Corrugated Containers segment and therefore, now operates asone segment.  The change to one segmentwas driven by changes to the Company’s management structure and furtherintegration resulting from the strategic initiatives plan, including the saleof the Consumer Packaging division.  Thecombined operating segment includes a system of mills and plants that producesa full line of containerboard that is converted into corrugated containers andrecycling operations that procure fiber resources for the Company’s paper millsas well as other producers.  Corrugatedcontainers are used to transport such diverse products as home appliances,electric motors, small machinery, grocery products, produce, books, tobacco andfurniture.

**17. Contingencies**

The Company’s past andpresent operations include activities which are subject to federal, state andlocal environmental requirements, particularly relating to air and waterquality.  The Company faces potentialenvironmental liability as a result of violations of permit terms and similarauthorizations that have occurred from time to time at its facilities.  In addition, the Company faces potentialliability for response costs at various sites for which it has received noticeas being a potentially responsible party (“PRP”) concerning hazardous substancecontamination.  In estimating itsreserves for environmental remediation and future costs, the Company’sestimated liability of $5 million reflects the Company’s expected share of 

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costs after considerationfor the relative percentage of waste deposited at each site, the number ofother PRPs, the identity and financial condition of such parties and experienceregarding similar matters.  As of June30, 2007, the Company had approximately $19 million reserved for environmentalliabilities included primarily in other long-term liabilities in theconsolidated balance sheet.  The Companybelieves the liability for these matters was adequately reserved at June 30,2007.

If all or most of theother PRPs are unable to satisfy their portion of the clean-up costs at one ormore of the significant sites in which the Company is involved or the Company’sexpected share increases, the resulting liability could have a material adverseeffect on the Company’s consolidated financial condition or results ofoperations.

The Company is adefendant in a number of lawsuits and claims arising out of the conduct of itsbusiness. While the ultimate results of such suits or other proceedings againstthe Company cannot be predicted with certainty, management of the Companybelieves that the resolution of these matters will not have a material adverseeffect on its consolidated financial condition, results of operations, or cashflows.

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**ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**FORWARD-LOOKING STATEMENTS**

Some information includedin this report may contain forward-looking statements within the meaning ofSection 21E of the Securities Exchange Act of 1934, as amended.  Although we believe that, in making any suchstatements, our expectations are based on reasonable assumptions, any suchstatement may be influenced by factors that could cause actual outcomes andresults to be materially different from those projected.  When used in this document, the words “anticipates,”“believes,” “expects,” “intends” and similar expressions as they relate toSmurfit-Stone Container Enterprises, Inc. or its management, are intended toidentify such forward-looking statements. These forward-looking statements are subject to numerous risks anduncertainties.  There are importantfactors that could cause actual results to differ materially from those inforward-looking statements, certain of which are beyond our control.  These factors, risks and uncertainties arediscussed in our 2006 Annual Report on Form 10-K (2006 Form 10-K).

Our actual results, performance or achievements coulddiffer materially from those expressed in, or implied by, these forward-lookingstatements.  Accordingly, we can give noassurances that any of the events anticipated by the forward-looking statementswill occur, or if any of them do, what impact they will have on our results ofoperations or financial condition.  Weexpressly decline any obligation to publicly revise any forward-lookingstatements that have been made to reflect the occurrence of events after thedate hereof.

# **GENERAL**

# We meet the conditions set forthin General Instruction (H) (1) (a) and (b) of Form 10-Q and are thereforefiling this form with the reduced disclosure format permitted thereby.  The omitted information is substantiallysimilar to the disclosures contained in Smurfit-Stone Container Corporation’sQuarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed withthe Securities and Exchange Commission on the date hereof.  In accordance with General Instruction (H)(2) (a), the discussion of our results of operations below includes only anarrative analysis of the most recent fiscal year-to-date period presented andthe corresponding year-to-date period in the preceding fiscal year.

# We are a wholly-owned subsidiaryof Smurfit-Stone Container Corporation (Smurfit-Stone), a holding company withno business operations of its own. Smurfit-Stone conducts its business operations through us.

Our Consumer Packagingsegment, which was sold as of June 30, 2006 (see “Discontinued Operations”), isclassified as discontinued operations and is excluded from the segment resultsin 2006.

Duringthe second quarter of 2007, the Company combined the Reclamation operationsinto the Containerboard and Corrugated Containers segment and therefore, nowoperates as one segment.  The change toone segment was driven by changes to our management structure and furtherintegration resulting from the strategic initiatives plan, including the saleof the Consumer Packaging division.  TheReclamation segment was previously a non-reportable segment. The 2006financial information has been restated to conform to the current year presentation.

**RESTATEMENT OF PRIOR PERIODFINANCIAL STATEMENTS**

During the second quarter of 2007, we determined that $28 million ofnet benefits from income taxes previously recognized on non-cash foreigncurrency translation losses from 2000 to 2006 should not have been recognizedunder SFAS No. 109, “Accounting for Income Taxes.”  Because we are indefinitely reinvested in theforeign operations, the losses should have been treated as permanentdifferences when determining taxable income for financial accounting purposes.

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We performed an evaluation to determine if the errors resulting fromrecognizing the deferred tax impact of the non-cash foreign currencytranslation losses were material to any individual prior period, taking intoaccount the requirements of SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements” (SAB No.108), which was adopted in 2006.  Based on this analysis, we concluded theerrors were not material to any individual period from 2000 to 2006 and,therefore as provided by SAB No. 108, the correction of the error does notrequire previously filed reports to be amended. We have restated the 2006 financial statements included in this filing.  Financial statements for the years endedDecember 31, 2005 and 2006 will be restated in the December 31, 2007 AnnualReport on Form 10-K.

In Note 2 of the Notes toConsolidated Financial Statements, we have provided tables that show the impactof the financial statement adjustments related to the restatement of theCompany’s previously reported financial statements for the fiscal years endedDecember 31, 2006, 2005 and 2004, and for the three and six month periods endedJune 30, 2006.

**DISCONTINUED OPERATIONS**

On June 30, 2006, wecompleted the sale of substantially all of the assets of our Consumer Packagingdivision for $1.04 billion.  We recorded a pretax gain of $174 million, offset bya $175 million income tax provision, resulting in a net loss on sale ofdiscontinued operations of $1 million, subject to post-closing adjustments,which were finalized in the third quarter of 2006, resulting in an additionalpretax loss of $3 million, offset by a $1 million income tax benefit.  The after-tax loss was the result of aprovision for income taxes that was higher than the statutory income tax ratedue to non-deductible goodwill of $273 million.

The Consumer Packagingdivision was a reportable segment comprised of four coated recycled boxboardmills, 39 consumer packaging operations in the United States, including foldingcarton, multiwall and specialty bag, flexible packaging, label, contractpackaging and lamination businesses and one consumer packaging plant inBrampton, Ontario.  Net sales for theseoperations were $787 million for the six months ended June 30, 2006.  These facilities employed approximately 6,600hourly and salaried employees.

# **RESULTS OF OPERATIONS**

# **Strategic Initiatives and Restructuring Activities**

During the second quarterof 2007, in conjunction with the strategic initiatives plan, we closed sevenconverting facilities and the Carthage, Indiana and Los Angeles, Californiamedium mills.  As a result of these plantclosures and other strategic initiatives, we reduced our headcount byapproximately 400 employees.  The secondquarter restructuring charges of $10 million, which were net of a gain of $33million on the sale of properties related to previously closed facilities,included non-cash charges of $25 million. The non-cash charges related to thewrite-down of equipment and the acceleration of depreciation over the reviseduseful life of equipment expected to be abandoned or taken out of service.  Other restructuring charges were primarily forseverance and benefits.

For the six months endedJune 30, 2007, we closed ten converting facilities and two medium mills andreduced our headcount by approximately 1,100 employees.  The restructuring charges of $34 millionincluded non-cash charges of $37 million related to the write-down of equipmentand the acceleration of depreciation for equipment expected to be abandoned ortaken out of service.  The restructuringcharges were net of gains on the sale of properties related to previouslyclosed facilities.  Other restructuringcharges were primarily for severance and benefits.  The net sales of the closed convertingfacilities as of June 30, 2007 prior to closure and for the year ended December31, 2006, were $28 million and $137 million, respectively.  The majority of these net sales are expectedto be transferred to other operating facilities.  The production of the two medium mills, whichhad combined annual capacity of 200,000 tons, will be partially offset byrestarting the previously idled machine at the Jacksonville, Florida mill with annualcapacity to produce 170,000 tons of medium.

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For 2007, we aretargeting $420 million in savings and productivity improvements from ourstrategic initiatives, compared to levels prior to the start of our plan asadjusted for the impact of inflation.  During the six months ended June 30, 2007, werealized estimated savings of $185 million from these initiatives. The benefitswere driven by headcount reductions, productivity improvements and the closuresof the converting facilities and two medium mills.

**RecentlyAdopted Accounting Standards**

EffectiveJanuary 1, 2007, we adopted the Financial Accounting Standards Board (FASB)Staff Position (FSP) No. AUG AIR-1 “Accounting for Planned Major MaintenanceActivities.” This FSP prohibits the use of the accrue-in-advance method ofaccounting for planned major maintenance activities in annual and interimfinancial reporting periods.  The FSPrequires retrospective application to all financial statements presented.  The new standard does not impact our annual2006 financial statements; however the impact on our previously reported netloss from continuing operations and net loss for the three and six months endedJune 30, 2006, is expense of an immaterial amount and $1 million, respectively,which is reflected in cost of goods sold.

EffectiveJanuary 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” (FIN No. 48), an interpretation of Statementof Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.”  FIN No. 48 creates a single model to addressaccounting for uncertainty in tax positions and clarifies the accounting forincome taxes by prescribing a minimum recognition threshold a tax position isrequired to meet before being recognized in the financial statements.  FIN No. 48 also provides guidance onderecognition, measurement, classification, interest and penalties, accountingin interim periods, disclosure and transition. Upon adoption, we reduced our existing reserves for uncertain taxpositions by $2 million.  This reductionwas recorded as a cumulative effect adjustment to the retained deficit.  As of January 1, 2007, we had $134 million ofunrecognized tax benefits, of which $38 million was classified as a reductionto the amount of our net operating loss carryforwards and $96 million wasclassified as a liability for unrecognized tax benefits and included in otherlong-term liabilities.  All unrecognizedtax benefits, if recognized, would affect our effective tax rate.

Uponadoption of FIN No. 48, we elected to classify interest and penalties relatedto unrecognized tax benefits in our income tax provision, consistent with ourprevious accounting policy.  Unrecognizedtax benefits of $14 million for interest and penalties are included as acomponent of the $134 million of unrecognized tax benefits noted above.  The interest was computed on the differencebetween the tax position recognized in accordance with FIN No. 48 and theamount previously taken or expected to be taken in our tax returns, adjusted toreflect the impact of net operating loss and other tax carryforward items  (See Note 13 of the Notes to the ConsolidatedFinancial Statements).

Effective April 1, 2006,we adopted Emerging Issues Task Force (EITF) Issue No. 04-13, “Accounting forPurchases and Sales of Inventory With the Same Counterparty” (EITF No. 04-13),for new arrangements and modifications or renewals of existingarrangements.  EITF No. 04-13 requirescertain inventory buy/sell transactions between counterparties within the sameline of business to be viewed as a single exchange transaction.   EITF No. 04-13 required us to prospectivelyreport, beginning in the second quarter of 2006, certain inventory buy/selltransactions of similar containerboard types on a net basis in the consolidatedstatements of operations.  Had EITF No.04-13 been in effect, net sales and cost of goods sold would have been reducedby $58 million for the six months ended June 30, 2006.

# **Overview**

We had a net loss of $2million for the second quarter of 2007 compared to a net loss of $54 millionfor the same period in 2006.  In thesecond quarter of 2007, the containerboard, corrugated Containers andreclamation operating profit of $162 million was $22 million higher compared tothe same period last year 

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due primarily to higheraverage selling prices for containerboard and corrugated containers andbenefits from our strategic initiatives. The 2007 results were favorably impacted by lower interest expense and alower loss on early extinguishment of debt. Net sales increased by 5.9% compared to the second quarter of 2006 dueprimarily to higher average selling prices for most of our products.

We had a net loss of $47million for the first half of 2007 compared to a net loss of $108 million for2006.  In the first half of 2007, thecontainerboard, corrugated Containers and reclamation operating profit of $264million was $95 million higher compared to the same period last year dueprimarily to higher average selling prices for containerboard and corrugatedcontainers and benefits from our strategic initiatives.  The 2007 results were also favorably impactedby lower interest expense.  Net salesincreased 5.7% in the first half of 2007 compared to the first half of 2006 dueprimarily to higher average sales prices for corrugated containers,containerboard and reclaimed fiber.

We expect improvedoperating results in the third quarter of 2007. Additional benefits from our strategic initiatives and higher millproduction should contribute to the earnings improvement.  Incremental initiative savings should bedriven by improved box plant productivity in the third quarter.  Production of containerboard is expected to increasedue to less maintenance downtime and one additional day of mill production.  While most input costs should remain flat, weanticipate higher reclaimed and wood fiber prices.

**Six Months 2007 Compared to Six Months 2006**
| ** **                                                                   | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| **(In millions)**                                                       | ** ** | **Net  Sales**                | ** ** | **Profit/  (Loss)** | ** ** | **Net  Sales** | ** ** | **Profit/  (Loss)** | ** ** |
|                                                                         |       |                          |       |   |   |   |   |   |   |
| Containerboard,  corrugated containers and reclamation operations (Note 1,2) |       | $                             | 3,694      |   | $ | 264 |   | $ | 3,494 |   | $ | 169 |   |
|                                                                         |       |                          |       |   |   |   |   |   |   |
| Restructuring  charges                                                       |       |                          |       | (34 | ) |   |   | (22 | ) |
| Gain on sale of  assets                                                      |       |                          |       |   |   |   |   | 24 |   |
| Interest  expense, net                                                       |       |                          |       | (147 | ) |   |   | (188 | ) |
| Loss on early  extinguishment of debt                                        |       |                          |       | (28 | ) |   |   | (28 | ) |
| Non-cash foreign  currency translation losses                                |       |                          |       | (25 | ) |   |   | (12 | ) |
| Corporate  expenses and other (Note 1, 3)                                    |       |                          |       | (120 | ) |   |   | (132 | ) |
| Loss from  continuing operations before income taxes                         |       |                          |       | $ | (90 | ) |   |   | $ | (189 | ) |
|                                                                              |            |                               |            |  |  |  |  |  |  |  |  |  |  |

 

Note 1:  Effective January 1,2007, working capital interest is no longer charged to the operations. The 2006financial information has been restated to conform to the current yearpresentation.

Note 2:  Effective April 1, 2007,results for the reclamation operations have been combined with theContainerboard and Corrugated Containers segment.  The 2006 financial information has beenrestated to conform to the current year presentation.

Note 3:  Amounts include corporate expenses and otherexpenses not allocated to the operations.

The increase in net salesin the first half of 2007 was due primarily to higher average selling prices($300 million) for containerboard, corrugated containers and reclaimed fiberpartially offset by lower sales volume ($48 million) and the impact of adoptingEITF No. 04-13 ($52 million), as described in “Recently Adopted AccountingStandards.”

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Cost of goods soldincreased from $3,103 million in 2006 to $3,219 million in 2007 due primarilyto higher costs of reclaimed material ($133 million), wood fiber ($16 million)and freight ($14 million).  Cost of goodssold in 2007 was favorably impacted by the adoption of EITF No. 04-13 ($52million), lower sales volume ($43 million) and lower cost for energy ($18 million).  Cost of goods sold as a percent of net salesdecreased from 88.8% in 2006 to 87.1% in 2007 due primarily to the impact ofthe higher average sales prices and adopting EITF No. 04-13.

Selling andadministrative expense decreased $15 million in 2007 compared to 2006 dueprimarily to  lower employee benefitscost and savings achieved from our strategic initiatives plan.  Selling and administrative expense as apercent of net sales decreased from 9.8% in 2006 to 8.9% in 2007 due primarilyto the lower employee benefits costs and the higher average sales prices.

Interest expense, net was$147 million in 2007.  The $41 milliondecrease compared to 2006 was the result of lower average borrowings ($39million) and higher interest income ($2 million).  The lower average borrowings were primarilydue to the sale of the Consumer Packaging division and the resulting debtreduction.  Our overall average effectiveinterest rate in 2007 was comparable to 2006.

For the six months endedJune 30, 2007, we recorded a loss on early extinguishment of debt of $28million, including $23 million for tender premiums and a $5 million non-cashwrite-off of deferred debt issuance cost.

Other, net for 2007included non-cash foreign currency translation losses of $25 million comparedto losses of $12 million in 2006.  In2007 we recorded a $15 million gain on the sale of emission credits and waterrights associated with the Los Angeles, California mill.

The benefit forincome taxes differed from the amount computed by applying the statutory U.S.federal income tax rate to loss before income taxes due primarily to stateincome taxes and the effect of other permanent differences (see Note 13 of the Notes to the ConsolidatedFinancial Statements).

**Containerboard, Corrugated Containers and Reclamation Operations**

Net sales increased 5.7%in 2007 compared to last year primarily as a result of higher average sellingprices for containerboard, corrugated containers and reclaimed fiber partiallyoffset by lower sales volume for corrugated containers.  Net sales were unfavorably impacted by theadoption of EITF 04-13.  Average domesticlinerboard prices in the first half of 2007 were 7.0% higher compared to 2006.  Our average North American selling price forcorrugated containers increased 5.1% compared to 2006. Third party shipments ofcontainerboard increased 12.1% compared to the same period last year.  Shipments of corrugated containers on a totaland per day basis were 6.3% lower compared to last year due primarily tocontainer plant closure efforts, actions to improve the profitability ofmarginal accounts and market conditions. Our average sales prices for market pulp, solid bleached sulfate (SBS)and kraft paper increased 16.3%, 2.4% and 7.4%, respectively, compared to thefirst half last year.  The average pricefor old corrugated containers (OCC) increased approximately $40 per toncompared to last year.

Our containerboard millsoperated at 97.0% of capacity in the first half of 2007, while containerboardproduction was 0.9% higher compared to last year.  Production of SBS increased by 7.4% comparedto last year, while production of market pulp and kraft paper decreased 0.7%and 7.9**%,**respectively. Total tons of fiberreclaimed and brokered increased 3.2%.

Profitsincreased $95 million due primarily to the higher average sales prices,benefits from our strategic initiatives and lower energy costs ($18 million),which were partially offset by higher costs of reclaimed and wood fiber ($68million) and freight ($14 million).

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#### **StatisticalData**

| **(In thousands of tons, except as noted)** | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Mill production                                                           |       |                                            |       |                                          |       |   |   |   |   |
| Containerboard  (1)                                                       |       | 1,851                                           |       | 1,860                                         |       | 3,664 |   | 3,631 |   |
| Kraft paper                                                               |       | 47                                              |       | 47                                            |       | 93 |   | 101 |   |
| Market pulp                                                               |       | 134                                             |       | 136                                           |       | 279 |   | 281 |   |
| SBS                                                                       |       | 82                                              |       | 77                                            |       | 160 |   | 149 |   |
| North American  corrugated containers sold (billion sq. ft.)              |       | 18.9                                            |       | 20.2                                          |       | 37.9 |   | 40.4 |   |
| Fiber reclaimed and brokered                                              |       | 1,679                                           |       | 1,630                                         |       | 3,400 |   | 3,296 |   |

 

(1)          For the three monthsended June 30, 2007 and 2006, our corrugated container plants consumed1,247,000 tons and 1,346,000 tons of containerboard, respectively.  For the six months ended June 30, 2007 and2006, our corrugated container plants consumed 2,511,000 tons and 2,701,000tons of containerboard, respectively.

**CRITICALACCOUNTING POLICIES AND USE OF ESTIMATES**

Effective January 1, 2007, weadopted the provisions of FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes” (FIN No. 48), an interpretation of SFAS No. 109, “Accountingfor Income Taxes.” FINNo. 48 addresses the determination of how tax benefits claimed or expected tobe claimed on a tax return should be recorded in the financial statements.  Under FIN No. 48, we must recognize the taxbenefit from an uncertain tax position only if it is more likely than not thatthe tax position will be sustained on examination by the taxing authorities,based on the technical merits of the position. The tax benefits recognized in the financial statements from such aposition are measured based on the largest benefit that has a greater thanfifty percent likelihood of being realized upon ultimate resolution.  Upon adoption, we reduced our existingreserves for uncertain tax positions by $2 million.  This reduction was recorded as a cumulativeeffect adjustment to the retained deficit. For additional information regarding the adoption of FIN No. 48, see “Resultsof Operations - Recently Adopted Accounting Standards.”

**ITEM 3.**          **QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Intentionally omitted in accordance with General Instruction (H) of Form10-Q.

**ITEM 4.          CONTROLS AND PROCEDURES**

**Evaluation of Disclosure Controls and Procedures**

Our management, with theparticipation of our principal executive officer and our principal financialofficer, 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 theperiod covered by this report and concluded that, as of such date, ourdisclosure controls and procedures were adequate and effective.

**Changes in Internal Control**

There have not been anychanges in our internal control over financial reporting during the most recentquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II - OTHER INFORMATION**

**ITEM 1.**                    LEGALPROCEEDINGS

None

**ITEM 1A.**           RISK FACTORS

There are no material changes to the risk factors as disclosed in our2006 Annual Report on Form 10-K.

**ITEM 2.**                    UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Intentionally omitted in accordance with General Instruction (H) of Form10-Q.

**ITEM 3.**                    DEFAULTSUPON SENIOR SECURITIES

Intentionally omitted in accordance with General Instruction (H) of Form10-Q.

**ITEM 4.**                    SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

Intentionally omitted in accordance with General Instruction (H) of Form10-Q.

**ITEM 5.**                    OTHERINFORMATION

(a)             None

(b)            There have been no material changes to theprocedures by which security holders may recommend nominees to the Company’sBoard of Directors implemented since the filing of the Company’s QuarterlyReport on Form 10-Q for the quarter ended March 31, 2007.

**ITEM 6.**                    EXHIBITS

The following exhibitsare included in this Form 10-Q:

31.1                                              Certificationpursuant to Rules 13a—14(a) and 15d—14(a) under the Securities Exchange Act of1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2                                              Certificationpursuant to Rules 13a—14(a) and 15d—14(a) under the Securities Exchange Act of1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1                                              Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

32.2                                              Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

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Signature

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

 
|                      |   | SMURFIT-STONE CONTAINER ENTERPRISES, INC.       |
|----------------------|--------|-------------------------------------------------|
|                 |   | (Registrant)                                    |
|                 |   |                                            |
|                 |   |                                            |
| Date: August 7, 2007 |   | /s/ Paul K.  Kaufmann                           |
|                 |   | Paul K. Kaufmann                                |
|                 |   | Senior Vice  President and Corporate Controller |
|                 |   | (Principal  Accounting Officer)                 |

 

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