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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
|- | ----------------------------------------------------------------------------------------

|o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
|- | -----------------------------------------------------------------------------------------

For Quarter Ended June 30, 2003
Commission File Number 1-3439

STONE CONTAINER CORPORATION(Exact name of registrant 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 fiscal year, if changed since last report)

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of June 30, 2003, the registrant had outstanding 1,000 shares of common stock, $.01 par value per share, all of which are owned by Smurfit-Stone
Container Corporation.

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PART IFINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

STONE CONTAINER CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|                                       |                                                                                                                                                                               | Three months ended
June 30,                                                                    |       | Six months ended
June 30, |    
|-------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----- | ------------------------- | ---
|
|
|Net sales                              |                                                                                                                                                                               | $                                                                                              | 1,303 |                           | $  
|Costs and expenses                     |                                                                                                                                                                               |                                                                                                |       |                           |    
|                                       | Cost of goods sold                                                                                                                                                            |                                                                                                |       | 1,148                     |    
|                                       | Selling and administrative expenses                                                                                                                                           |                                                                                                |       | 110                       |    
|                                       | Restructuring charges                                                                                                                                                         |                                                                                                |       |                           |    
|                                       | Loss on sale of assets                                                                                                                                                        |                                                                                                |       | 2                         |    
|                                       |                                                                                                                                                                               |                                                                                                |       |                           |    
|                                       |                                                                                                                                                                               | Income from operations                                                                         |       |                           | 43 
|Other income (expense)                 |                                                                                                                                                                               |                                                                                                |       |                           |    
|                                       | Interest expense, net                                                                                                                                                         |                                                                                                |       | (58                       | )  
|                                       | Loss from early extinquishment of debt                                                                                                                                        |                                                                                                |       |                           |    
|                                       | Equity income of affiliates                                                                                                                                                   |                                                                                                |       |                           |    
|                                       | Other, net                                                                                                                                                                    |                                                                                                |       | (20                       | )  
|                                       |                                                                                                                                                                               |                                                                                                |       |                           |    
|                                       |                                                                                                                                                                               | Loss from continuing operations before income taxes and cumulative effect of accounting change |       |                           | (35
|Benefit from income taxes              |                                                                                                                                                                               |                                                                                                | 22    |                           |    
|                                       |                                                                                                                                                                               |                                                                                                |       |                           |    
|                                       | Loss from continuing operations before cumulative effect of accounting change                                                                                                 |                                                                                                |       | (13                       | )  
|Discontinued operations                |                                                                                                                                                                               |                                                                                                |       |                           |    
|                                       | Income from discontinued operations, net of income tax provisions of $4 for the six months ended June 30, 2003 and $3 and $6 for the three and six months ended June 30, 2002 |                                                                                                |       |                           |    
|                                       |                                                                                                                                                                               |                                                                                                |       |                           |    
|                                       |                                                                                                                                                                               | Income (loss) before cumulative effect of accounting change                                    |       |                           | (13
|Cumulative effect of accounting change |                                                                                                                                                                               |                                                                                                |       |                           |    
|                                       | Asset retirement obligations, net of income tax benefit of $1                                                                                                                 |                                                                                                |       |                           |    
|                                       |                                                                                                                                                                               |                                                                                                |       |                           |    
|Net income (loss)                      |                                                                                                                                                                               | $                                                                                              | (13   | )                         | $  
|                                       |                                                                                                                                                                               |                                                                                                |       |                           |    

See
notes to consolidated financial statements.

1

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STONE CONTAINER CORPORATION

CONSOLIDATED BALANCE SHEETS

|(In millions, except share data)                    |                                                                                         | June 30,
2003                      |                            | December 31,
2002 |    
|--------------------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------------------- | -------------------------- | ----------------- | ---
|
|Assets                                              |                                                                                         |                                    |                            |                   |    
|Current assets                                      |                                                                                         |                                    |                            |                   |    
|                                                    | Cash and cash equivalents                                                               |                                    | $                          | 13                |    
|                                                    | Accounts receivable, less allowances of $28 in 2003 and $27 in 2002                     |                                    |                            | 263               |    
|                                                    | Inventories                                                                             |                                    |                            |                   |    
|                                                    |                                                                                         | Work-in-process and finished goods |                            |                   | 156
|                                                    |                                                                                         | Materials and supplies             |                            |                   | 349
|                                                    |                                                                                         |                                    |                            |                   |    
|                                                    |                                                                                         |                                    | 505                        |                   |    
|                                                    | Deferred income taxes                                                                   |                                    |                            | 126               |    
|                                                    | Assets held for sale                                                                    |                                    |                            |                   |    
|                                                    | Prepaid expenses and other current assets                                               |                                    |                            | 64                |    
|                                                    |                                                                                         |                                    |                            |                   |    
|                                                    |                                                                                         |                                    | Total current assets       |                   |    
|Net property, plant and equipment                   |                                                                                         |                                    | 3,723                      |                   |    
|Timberland, less timber depletion                   |                                                                                         |                                    | 46                         |                   |    
|Goodwill                                            |                                                                                         |                                    | 3,146                      |                   |    
|Investment in equity of non-consolidated affiliates |                                                                                         |                                    | 19                         |                   |    
|Other assets                                        |                                                                                         |                                    | 181                        |                   |    
|                                                    |                                                                                         |                                    |                            |                   |    
|                                                    |                                                                                         | $                                  | 8,086                      |                   | $  
|                                                    |                                                                                         |                                    |                            |                   |    
|Liabilities and Stockholder's Equity                |                                                                                         |                                    |                            |                   |    
|Current liabilities                                 |                                                                                         |                                    |                            |                   |    
|                                                    | Current maturities of long-term debt                                                    |                                    | $                          | 25                |    
|                                                    | Accounts payable                                                                        |                                    |                            | 355               |    
|                                                    | Accrued compensation and payroll taxes                                                  |                                    |                            | 108               |    
|                                                    | Interest payable                                                                        |                                    |                            | 75                |    
|                                                    | Liabilities held for sale                                                               |                                    |                            |                   |    
|                                                    | Other current liabilities                                                               |                                    |                            | 111               |    
|                                                    |                                                                                         |                                    |                            |                   |    
|                                                    |                                                                                         |                                    | Total current liabilities  |                   |    
|Long-term debt, less current maturities             |                                                                                         |                                    | 3,121                      |                   |    
|Other long-term liabilities                         |                                                                                         |                                    | 753                        |                   |    
|Deferred income taxes                               |                                                                                         |                                    | 659                        |                   |    
|Stockholder's equity                                |                                                                                         |                                    |                            |                   |    
|                                                    | Common stock, par value $.01 per share; 1,000 shares authorized, issued and outstanding |                                    |                            |                   |    
|                                                    | Additional paid-in capital                                                              |                                    |                            | 3,016             |    
|                                                    | Retained earnings (deficit)                                                             |                                    |                            | (19               | )  
|                                                    | Accumulated other comprehensive income (loss)                                           |                                    |                            | (118              | )  
|                                                    |                                                                                         |                                    |                            |                   |    
|                                                    |                                                                                         |                                    | Total stockholder's equity |                   |    
|                                                    |                                                                                         |                                    |                            |                   |    
|                                                    |                                                                                         | $                                  | 8,086                      |                   | $  
|                                                    |                                                                                         |                                    |                            |                   |    

See
notes to consolidated financial statements.

2

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STONE CONTAINER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                 |                                                                                          | Six months ended
June 30,                                                                   |                                               
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------
|
|
|Cash flows from operating activities             |                                                                                          |                                                                                             |                                               
|                                                 | Net income (loss)                                                                        |                                                                                             | $                                             
|                                                 | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                                             |                                               
|                                                 |                                                                                          | Loss from early extinquishment of debt                                                      |                                               
|                                                 |                                                                                          | Cumulative effect of accounting change for asset retirement obligations                     |                                               
|                                                 |                                                                                          | Depreciation and amortization                                                               |                                               
|                                                 |                                                                                          | Amortization of deferred debt issuance costs                                                |                                               
|                                                 |                                                                                          | Deferred income taxes                                                                       |                                               
|                                                 |                                                                                          | Pension and post-retirement benefits                                                        |                                               
|                                                 |                                                                                          | Foreign currency exchange losses                                                            |                                               
|                                                 |                                                                                          | Equity income of affiliates                                                                 |                                               
|                                                 |                                                                                          | Change in current assets and liabilities, net of effects from acquisitions and dispositions |                                               
|                                                 |                                                                                          |                                                                                             | Accounts receivable                           
|                                                 |                                                                                          |                                                                                             | Inventories                                   
|                                                 |                                                                                          |                                                                                             | Prepaid expenses and other current assets     
|                                                 |                                                                                          |                                                                                             | Accounts payable and other current liabilities
|                                                 |                                                                                          |                                                                                             | Interest payable                              
|                                                 |                                                                                          |                                                                                             | Income taxes                                  
|                                                 |                                                                                          | Other, net                                                                                  |                                               
|                                                 |                                                                                          |                                                                                             |                                               
|                                                 | Net cash provided by operating activities                                                |                                                                                             |                                               
|                                                 |                                                                                          |                                                                                             |                                               
|Cash flows from investing activities             |                                                                                          |                                                                                             |                                               
|                                                 | Expenditures for property, plant and equipment                                           |                                                                                             |                                               
|                                                 | Proceeds from sales of assets                                                            |                                                                                             |                                               
|                                                 |                                                                                          |                                                                                             |                                               
|                                                 | Net cash provided by (used for) investing activities                                     |                                                                                             |                                               
|                                                 |                                                                                          |                                                                                             |                                               
|Cash flows from financing activities             |                                                                                          |                                                                                             |                                               
|                                                 | Proceeds from long-term debt                                                             |                                                                                             |                                               
|                                                 | Net repayments of debt                                                                   |                                                                                             |                                               
|                                                 | Debt repurchase premiums                                                                 |                                                                                             |                                               
|                                                 | Deferred debt issuance costs                                                             |                                                                                             |                                               
|                                                 |                                                                                          |                                                                                             |                                               
|                                                 | Net cash used for financing activities                                                   |                                                                                             |                                               
|                                                 |                                                                                          |                                                                                             |                                               
|                                                 | Effect of exchange rate changes on cash                                                  |                                                                                             |                                               
|                                                 |                                                                                          |                                                                                             |                                               
|Increase (decrease) in cash and cash equivalents |                                                                                          |                                                                                             | 10                                            
|Cash and cash equivalents                        |                                                                                          |                                                                                             |                                               
|                                                 | Beginning of period                                                                      |                                                                                             |                                               
|                                                 |                                                                                          |                                                                                             |                                               
|                                                 | End of period                                                                            |                                                                                             | $                                             
|                                                 |                                                                                          |                                                                                             |                                               

See
notes to consolidated financial statements.

3

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STONE CONTAINER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions)

1.     Significant Accounting Policies

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

The
Company is a wholly-owned subsidiary of Smurfit-Stone Container Corporation ("SSCC").

2.     Reclassifications

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

3.     Stock-Based Compensation

In the second quarter of 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," effective as of January 1, 2003. The Company selected the prospective transition method as allowed in SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which requires expensing options prospectively, beginning in the year of adoption. Because the prospective method was used and awards vest over three to eight
years, the 2003 expense is less than what would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123. The Company
expensed $1 million, net of tax, in the three and six month periods ended June 30, 2003 representing a pro rata portion of all employee awards granted, modified or settled after
January 1, 2003.

Prior
to 2003, the Company accounted for stock options under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. No stock-based employee compensation cost was reflected in 2002 net income, as all options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of grant.

4

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The
following table illustrates the effect on net income if the fair value based method had been applied to all outstanding and unvested awards in each period.

|                                                                                                                                            |  | Three months ended
June 30, |     | Six months ended
June 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --- | ------------------------- | -
|
|Net income (loss), as reported                                                                                                              |  | $                           | (13 | )                         | $
|Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects                           |  |                             | 1   |                           |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |                             | (1  | )                         |  
|                                                                                                                                            |  |                             |     |                           |  
|Pro forma net loss                                                                                                                          |  | $                           | (13 | )                         | $
|                                                                                                                                            |  |                             |     |                           |  

4.     Discontinued Operations

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

On
March 31, 2003, the Company completed these exchange transactions. Previously, the Company owned 50% of Smurfit-MBI and, as a result of the completed transactions,
now owns 100% of Smurfit-MBI. The Company finalized its accounting for the disposition of the European operations during the second quarter of 2003, resulting in no additional adjustments
to the Company's results of operations.

Smurfit-MBI
operates 15 converting facilities in Canada and employs approximately 2,500 hourly and salaried employees. The acquisition of the remaining 50% of
Smurfit-MBI was accounted for as a purchase business combination and, accordingly, the assets and liabilities of Smurfit-MBI are included in the June 30, 2003
consolidated balance sheet, and the related results of operations have been included in the consolidated statement of operations after March 31, 2003. The cost to acquire the remaining 50% of
Smurfit-MBI of $137 million, including $26 million of debt assumed, has been preliminarily allocated to the assets acquired and liabilities assumed according to estimated
fair values and are subject to adjustment when the long-lived asset valuations and employee benefit obligations are finalized. The preliminary allocation has resulted in goodwill of
$123 million, including a reclassification of $52 million associated with the Company's original investment, which has been allocated to the Containerboard and Corrugated Containers
segment.

5.     Asset Retirement Obligations

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for
fiscal years beginning after June 15, 2002. SFAS No. 143 established accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. The Company has adopted the new accounting for
asset retirement obligations effective January 1, 2003. Application of the new rules resulted in an increase in net property, plant and equipment of $1 million, recognition of an asset
retirement obligation liability of $4 million and a cumulative

5

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effect
of an accounting change of $2 million, net of income taxes of $1 million, to recognize asset retirement obligations incurred as of the adoption date. Certain of the Company's
facilities have indeterminate lives because they are expected to remain in operation for the foreseeable future. Consequently, the asset retirement obligations related to these facilities cannot be
reasonably estimated.

6.     Restructuring and Exit Liabilities

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

The
Company recorded a restructuring charge of $2 million during the first quarter of 2003 related to the closure of a converting facility. No significant additional charges
related to this shutdown facility are expected. The assets of the closed operation were adjusted to the estimated fair value less cost to sell resulting in a $1 million non-cash
write-down. The shutdown resulted in approximately 110 employees being terminated. The net sales and operating loss of the facility in 2003 prior to closure were $3 million and
$1 million, respectively. The net sales and operating loss of the facility in 2002 were $17 million and $4 million, respectively. The Company had $1 million of cash
disbursements related to this charge for the three and six months ended June 30, 2003.

At
December 31, 2002, the Company had $27 million of exit liabilities related to the restructuring of operations. The Company had $1 million of cash disbursements
related to these exit liabilities for the three and six months ended June 30, 2003, respectively. During the first quarter of 2003, the Company recorded an $8 million reduction to the
environmental exit liabilities.

7.     Other, Net

For the three and six months ended June 30, 2003, the Company recorded non-cash foreign currency exchange losses of approximately
$20 million and $36 million, respectively, related to its operations in Canada. For the three and six months ended June 30, 2002, the Company recorded non-cash foreign
currency exchange losses of approximately $10 million.

8.     Long-Term Debt

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

9.     Guarantees

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

6

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provisions
are prospective for guarantees issued after December 31, 2002. Disclosure requirements are effective for guarantees issued prior to January 1, 2003.

The
Company has certain wood chip processing contracts, entered into prior to January 1, 2003, extending from 2004 through 2018 with minimum purchase commitments. As part of the
agreements, the Company guarantees the third party contractor's debt outstanding and has a security interest in the chipping equipment. At June 30, 2003, the maximum potential amount of future
payment related to these guarantees is approximately $28 million and decreases ratably over the life of the contracts. Proceeds from the liquidation of the chipping equipment would be based on
current market conditions and may not recover in full the guarantee payments made.

10.   Non-Consolidated Affiliates

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

At
December 31, 2002, the Company's only significant non-consolidated affiliate was Smurfit-MBI, in which the Company owned a 50% interest. Upon closing of
the exchange transactions, on March 31, 2003, the Company acquired the remaining 50% interest from JS Group (See Note 4). Smurfit-MBI was accounted for as an equity affiliate
through March 31, 2003 and, as such, is included in the summarized financial information below for all periods through March 31, 2003. Smurfit-MBI had net sales of
$110 million for the three months ended March 31, 2003. Smurfit-MBI had net sales of $113 million and $215 million for the three and six months ended
June 30, 2002, respectively.

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

|                      |                                                                         | Three months ended
June 30, |   | Six months ended
June 30,
|--------------------- | ----------------------------------------------------------------------- | --------------------------- | - | -------------------------
|
|Results of operations |                                                                         |                             |   |                          
|                      | Net sales                                                               |                             | $ | 42                       
|                      | Cost of sales                                                           |                             |   | 39                       
|                      | Income before income taxes, minority interest and extraordinary charges |                             |   |                          
|                      | Net income                                                              |                             |   |                          

11.   Derivative Instruments and Hedging Activities

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

The
Company's derivative instruments and hedging activities relate to minimizing exposure to fluctuations in the price of commodities used in its operations and the movement in foreign
currency exchange rates and are designated as cash flow hedges.

7

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Commodity Futures Contracts

The Company uses exchange traded futures and other derivative contracts to manage fluctuations in cash flows resulting from commodity price risk in the
procurement of natural gas. The objective is to fix or cap the price of a portion of the Company's forecasted purchases of natural gas used in the manufacturing process. The changes in the market
value of such contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price of the hedged item. The Company is hedging its exposure to the
variability in future cash flows associated with natural gas with contracts typically having maturities of one year or less. For the three and six months ended June 30, 2003, the Company
reclassified an immaterial amount and a $1 million gain, respectively, from OCI to cost of goods sold when the hedged items were recognized. The fair value of the Company's contracts at
June 30, 2003 is a $2 million gain included in other current assets. At June 30, 2003, the Company recorded a $1 million loss in cost of goods sold on commodity contracts
related to the ineffective portion of the change in fair value of certain contracts and contracts not qualifying as hedges.

For
the three and six months ended June 30, 2003, the Company recorded an immaterial amount in cost of goods sold on settled commodity futures contracts related to the ineffective
portion of hedges and contracts not qualifying as hedges.

Foreign Currency Forward Contracts

The Company enters into foreign currency forward contracts with financial institutions to purchase Canadian dollars and euros, primarily to protect against
currency exchange risk associated with expected future cash flows. Contracts typically have maturities of one year or less. The fair value of the Company's foreign currency forward contracts at
June 30, 2003 is a $7 million gain included in other current assets. The change in fair value of these contracts is recorded in OCI until the underlying transaction is recorded.

The
cumulative deferred hedge gain on all commodity and foreign currency contracts is $5 million (net of tax of $3 million) at June 30, 2003. The Company expects to
reclassify $5 million into cost of goods sold during the remainder of 2003.

12.   Income Taxes

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

The
Internal Revenue Service is currently examining the years 1999 through 2001. While the ultimate results cannot be predicted with certainty, the Company's management believes that the
examination will not have a material adverse effect on its consolidated financial condition or the results of operations.

13.   Comprehensive Income (Loss)

Comprehensive income (loss) is as follows:

|                                               |                                                  | Three months ended
June 30, |     | Six months ended
June 30,
|---------------------------------------------- | ------------------------------------------------ | --------------------------- | --- | -------------------------
|
|Net income (loss)                              |                                                  | $                           | (13 | )                        
|Other comprehensive income (loss), net of tax: |                                                  |                             |     |                          
|                                               | Net changes in fair value of hedging instruments |                             |     |                          
|                                               | Net loss (gain) reclassified into earnings       |                             |     |                          
|                                               | Foreign currency translation adjustment          |                             |     | 1                        
|                                               |                                                  |                             |     |                          
|Comprehensive income (loss)                    |                                                  | $                           | (12 | )                        
|                                               |                                                  |                             |     |                          

8

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14.   Business Segment Information

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

The
Company has two reportable segments: (1) Containerboard and Corrugated Containers and (2) Consumer Packaging. The Containerboard and Corrugated Containers segment is
highly integrated. It includes a system of mills and plants that produces a full line of containerboard that is converted into corrugated containers. Corrugated containers are used to transport such
diverse products as home appliances, electric motors, small machinery, grocery products, produce, books, tobacco and furniture. The Consumer Packaging segment converts kraft and specialty paper into
multiwall bags, consumer bags, and intermediate bulk containers. These bags and intermediate bulk containers are designed to ship and protect a wide range of industrial and consumer products,
including fertilizers, chemicals, concrete and pet and food products.

Other
includes one non-reportable segment, International, and corporate related items. Corporate related items include income and expense not allocated to reportable segments
including corporate expenses, restructuring charges and interest expense.

A
summary by business segment follows:

|Three months ended June 30, |                                  | Container-
board &
Corrugated
Containers |   | Consumer
Packaging |  | Other |     | Total |  
|--------------------------- | -------------------------------- | ---------------------------------------- | - | ------------------ |  | ----- | --- | ----- | -
|                            | 2003                             |                                          |   |                    |  |       |     |       |  
|                            | Revenues from external customers |                                          | $ | 1,142              |  | $     | 159 |       | $
|                            | Intersegment revenues            |                                          |   | 17                 |  |       |     |       |  
|                            | Segment profit (loss)            |                                          |   | 40                 |  |       | 9   |       |  
|                            | 2002                             |                                          |   |                    |  |       |     |       |  
|                            | Revenues from external customers |                                          | $ | 1,083              |  | $     | 161 |       | $
|                            | Intersegment revenues            |                                          |   | 21                 |  |       |     |       |  
|                            | Segment profit (loss)            |                                          |   | 79                 |  |       | 13  |       |  
|
|                            | 2003                             |                                          |   |                    |  |       |     |       |  
|                            | Revenues from external customers |                                          | $ | 2,208              |  | $     | 313 |       | $
|                            | Intersegment revenues            |                                          |   | 44                 |  |       |     |       |  
|                            | Segment profit (loss)            |                                          |   | 86                 |  |       | 17  |       |  
|                            | 2002                             |                                          |   |                    |  |       |     |       |  
|                            | Revenues from external customers |                                          | $ | 2,108              |  | $     | 315 |       | $
|                            | Intersegment revenues            |                                          |   | 45                 |  |       |     |       |  
|                            | Segment profit (loss)            |                                          |   | 151                |  |       | 22  |       |  

9

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15.   Contingencies

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

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

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

10

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

FORWARD-LOOKING STATEMENTS

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



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

11

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RESULTS OF OPERATIONS

General

Growth in the U.S. economy in the second quarter, particularly manufacturing activity, continued to be slow, resulting in sluggish demand for containerboard and
corrugated containers. We had a loss from continuing operations before income taxes and cumulative effect of accounting change of $35 million in the second quarter of 2003. Our results improved
compared to the first quarter of 2003, but declined compared to last year. The improvement over the first quarter of 2003 was due to seasonal volume increases, the Smurfit-MBI Acquisition
(see Acquisitions) and lower energy cost. Prices remained stable in the second quarter. Our announced April 2003 price increase of $35 per ton for liner and medium, with a corresponding
increase for corrugated containers, was not implemented as a result of the continued sluggish demand for corrugated products during this period. Unless there is a meaningful improvement in business
activity, we do not expect to see any significant price improvement for containerboard and corrugated containers in the second half of 2003.

Acquisition

In December 2002, we reached agreements with an affiliate of Jefferson Smurfit Group (JS Group) to exchange, in two separate transactions, our European
packaging operations for JS Group's 50% ownership in Smurfit-MBI, a Canadian corrugated producer, and a payment from JS Group of approximately $189 million. On March 31,
2003, we completed these exchange transactions (the Smurfit-MBI Acquisition). We previously owned 50% of Smurfit-MBI and, as a result of the completed transactions, now own
100% of Smurfit-MBI. Smurfit-MBI operates 15 converting facilities in Canada and employs approximately 2,500 hourly and salaried employees. The acquisition was accounted
for as a purchase business combination, and accordingly, the related assets and liabilities of Smurfit-MBI are included in the June 30, 2003 consolidated balance sheet and the
related results of operations are included in the consolidated statement of operations after March 31, 2003. The cost to acquire the remaining 50% of Smurfit-MBI of
$137 million, including $26 million of debt assumed, was preliminarily allocated to the assets acquired and liabilities assumed according to estimated fair values and are subject to
adjustment when additional information concerning asset and liability valuations is finalized. Preliminary goodwill of $123 million, including a reclassification of $52 million
associated with our original investment, was recorded and allocated to the Containerboard and Corrugated Containers segment.

Second Quarter 2003 Compared to Second Quarter 2002

|                                         |                                                                                                | Three months ended June 30, |      
|---------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------- | -----
|
|
|Containerboard and corrugated containers |                                                                                                | $                           | 1,142
|Consumer packaging                       |                                                                                                |                             | 159  
|Other operations                         |                                                                                                |                             | 2    
|                                         |                                                                                                |                             |      
|                                         | Total operations                                                                               |                             | $    
|                                         |                                                                                                |                             |      
|Loss on sale of assets                   |                                                                                                |                             |      
|Interest expense, net                    |                                                                                                |                             |      
|Loss from early extinguishment of debt   |                                                                                                |                             |      
|Corporate expenses and other             |                                                                                                |                             |      
|                                         |                                                                                                |                             |      
|                                         | Loss from continuing operations before income taxes and cumulative effect of accounting change |                             |      
|                                         |                                                                                                |                             |      

Compared
to last year, our second quarter results declined due primarily to higher energy, fiber and employee benefits costs, as well as non-cash foreign currency exchange
losses related to the

12

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strengthening
of the Canadian dollar. The increases in cost compared to last year were partially offset by the results of our Smurfit-MBI Acquisition. The decline in interest expense
partially offset the earnings decline.

Consolidated
net sales of $1,303 million in 2003 increased by 5% compared to 2002 due primarily to the Smurfit-MBI Acquisition. The increase or decrease in net sales
for each of our segments is summarized in the chart below:

|(In millions)                        |       | Container-
board &
Corrugated
Containers |    | Consumer
Packaging |   | Other
Operations |    | Total |  
|------------------------------------ | ----- | ---------------------------------------- | -- | ------------------ | - | ---------------- | -- | ----- | -
|Sales price and product mix          |       | $                                        | 24 |                    | $ | 1                |    | $     |  
|Sales volume, including acquisitions |       |                                          | 40 |                    |   | (3               | )  |       |  
|Closed facilities                    |       |                                          | (5 | )                  |   |                  |    |       |  
|                                     |       |                                          |    |                    |   |                  |    |       |  
|                                     | Total |                                          | $  | 59                 |   | $                | (2 | )     | $
|                                     |       |                                          |    |                    |   |                  |    |       |  

Cost
of goods sold increased compared to 2002 due primarily to the Smurfit-MBI Acquisition and the higher cost of energy ($10 million) and fiber ($13 million).
Cost of goods sold as a percent of net sales increased from 85% in 2002 to 88% in 2003 due primarily to the higher cost of energy and fiber.

Selling
and administrative expenses as a percent of net sales was 8.4% in 2003 compared to 9.5% last year. Selling and administrative expenses decreased compared to last year due to
income of $11 million, which was recorded in June 2003, for settlement of litigation with respect to Chesapeake Corporation's environmental indemnification obligation regarding our West
Point, Virginia containerboard mill (the West Point Litigation); see Part II-Other Information, Item 1, Legal Proceedings. Increases in cost due to the Smurfit-MBI
Acquisition and higher employee benefits costs partially offset the West Point Litigation.

Interest
expense, net decreased by $7 million due primarily to the favorable impacts of lower average borrowings ($6 million) and lower interest rates ($1 million).
Our overall average effective interest rate in 2003 was lower than 2002 by approximately 10 basis points.

Other,
net for 2003 included non-cash foreign currency exchange losses totaling $20 million compared to $10 million in 2002.

Benefit
from income taxes in the second quarter of 2003 included a $6 million benefit related to the resolution of certain prior year tax matters. Exclusive of the
$6 million benefit, the benefit from income taxes differed from the federal statutory rate due primarily to state income taxes and the effects of non-deductible items.

Containerboard and Corrugated Containers Segment

Net sales increased by 5% due primarily to the Smurfit-MBI Acquisition. Corrugated container prices were higher than last year by approximately 1% and
liner prices were higher by approximately 1%. The average sales price for market pulp increased by 18%.

Containerboard
production decreased by 2%. During the second quarter of 2003, our containerboard mills ran at an average of 89.9% of capacity. Shipments of corrugated containers
increased 4% compared to last year due primarily to the Smurfit-MBI Acquisition. Wet weather conditions in the Southeast hampered our ability to source wood fiber, resulting in lower
production at our market pulp mill in that area. Our production of SBS decreased 16% and market pulp production decreased by 6%.

Profits
decreased by $39 million due primarily to higher costs, including energy ($10 million), fiber ($13 million) and employee benefits, and the impact of a
stronger Canadian dollar. Profits were favorably impacted by higher pricing and the Smurfit-MBI Acquisition.

13

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Consumer Packaging Segment

Net sales for 2003 decreased by 1% compared to last year due primarily to lower sales volume. Sales prices for multiwall bags were 1% lower and shipments were 3%
lower compared to last year. The decrease was partially offset by a 14% increase in the average sales prices for consumer bags and a 13% increase in flexible packaging volume. Profits decreased by
$4 million compared to last year due primarily to the lower multiwall sales volume, higher employee benefits cost, and the impact of a stronger Canadian dollar.

Six Months 2003 Compared to Six Months 2002

|                                         |                                                                                                | Six months ended June 30, |      
|---------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------- | -----
|
|
|Containerboard and corrugated containers |                                                                                                | $                         | 2,208
|Consumer packaging                       |                                                                                                |                           | 313  
|Other operations                         |                                                                                                |                           | 3    
|                                         |                                                                                                |                           |      
|                                         | Total operations                                                                               |                           | $    
|                                         |                                                                                                |                           |      
|Restructuring charges                    |                                                                                                |                           |      
|Loss on sale of assets                   |                                                                                                |                           |      
|Interest expense, net                    |                                                                                                |                           |      
|Loss from early extinguishment of debt   |                                                                                                |                           |      
|Corporate expenses and other             |                                                                                                |                           |      
|                                         |                                                                                                |                           |      
|                                         | Loss from continuing operations before income taxes and cumulative effect of accounting change |                           |      
|                                         |                                                                                                |                           |      

We
had a loss from continuing operations before income taxes and cumulative effect of accounting change for the six months ended June 30, 2003 of $75 million. The decline
from last year was due primarily to higher energy, fiber and employee benefits costs, as well as non-cash foreign currency exchange losses related to the strengthening of the Canadian
dollar. The increases in cost were partially offset by the operating results of the Smurfit-MBI Acquisition. The decline in interest expense partially offset the earnings decline.

Consolidated
net sales of $2,524 million in 2003 increased by 4% compared to 2002 due primarily to the Smurfit-MBI Acquisition and higher average sales prices for most
of our major products. The increase or decrease in net sales for each of our segments is summarized in the chart below:

|(In millions)                        |       | Container-
board &
Corrugated
Containers |     | Consumer
Packaging |   | Other
Operations |    | Total |  
|------------------------------------ | ----- | ---------------------------------------- | --- | ------------------ | - | ---------------- | -- | ----- | -
|Sales price and product mix          |       | $                                        | 51  |                    | $ | 6                |    | $     |  
|Sales volume, including acquisitions |       |                                          | 59  |                    |   | (5               | )  |       |  
|Closed facilities                    |       |                                          | (10 | )                  |   | (3               | )  |       |  
|                                     |       |                                          |     |                    |   |                  |    |       |  
|                                     | Total |                                          | $   | 100                |   | $                | (2 | )     | $
|                                     |       |                                          |     |                    |   |                  |    |       |  

Cost
of goods sold increased compared to 2002 due to the Smurfit-MBI Acquisition and the higher cost of energy ($29 million) and fiber ($23 million). Cost of
goods sold as a percent of net sales increased from 85% in 2002 to 88% in 2003 due primarily to the higher cost of energy and fiber.

Selling
and administrative expenses as a percent of net sales was 9.2% in 2003 compared to 9.7% last year. Selling and administrative expenses decreased due to the settlement of the West
Point Litigation.

14

---

Increases
in cost due to the Smurfit-MBI Acquisition and higher employee benefits costs partially offset the West Point Litigation.

Interest
expense, net decreased by $13 million due primarily to the favorable impacts of lower interest rates ($4 million) and lower average borrowings ($9 million).
Our overall average effective interest rate in 2003 was lower than 2002 by approximately 20 basis points.

Other,
net for 2003 included non-cash foreign currency exchange losses totaling $36 million compared to $10 million in 2002.

Benefit
from income taxes in 2003 included a $6 million benefit related to the resolution of certain prior year tax matters. Exclusive of the $6 million benefit, the
benefit from income taxes differed from the federal statutory rate due primarily to state income taxes and the effects of non-deductible items.

Containerboard and Corrugated Containers Segment

Net sales increased by 5% due primarily to the Smurfit-MBI Acquisition and an increase in average sales prices. Corrugated container sales prices were
higher by 1% and liner pricing was higher by approximately 1%. The average sales price for market pulp increased by 16%.

Production
of containerboard increased by 1%. During the first half of 2003, our containerboard mills ran at an average of 91.8% of capacity. Shipments of corrugated containers increased
1% compared to last year due primarily to the Smurfit-MBI Acquisition. Our production of market pulp decreased by 8%.

Profits
decreased by $65 million due primarily to higher costs, including energy ($29 million), fiber ($23 million) and employee benefits, and the impact of a
stronger Canadian dollar.

Consumer Packaging Segment

Net sales for 2003 decreased by 1% compared to last year due to lower sales volume and the closure of a converting facility. Sales prices for multiwall bags were
1% lower compared to last year. Multiwall bag shipments were lower by 1%. The decrease was partially offset by favorable increases in the average sales prices for our consumer and flexible packaging
products, which increased by 18% and 9%, respectively. Profits decreased by $5 million compared to last year due primarily to the lower multiwall sales volume, higher employee benefits cost,
and the impact of a stronger Canadian dollar.

Statistical Data

|                                                 |                        | Three months ended
June 30, |       | Six months ended
June 30,
|------------------------------------------------ | ---------------------- | --------------------------- | ----- | -------------------------
|
|
|Mill production                                  |                        |                             |       |                          
|                                                 | Containerboard (a)     |                             | 1,296 |                          
|                                                 | Kraft paper            |                             | 71    |                          
|                                                 | Market pulp            |                             | 127   |                          
|                                                 | Solid bleached sulfate |                             | 26    |                          
|Corrugated containers sold (billion sq. ft.) (a) |                        | 14.1                        |       | 13.6                     
|Multiwall bags sold (million bags)               |                        | 290                         |       | 300                      

---

RESTRUCTURING CHARGES AND EXIT LIABILITIES

We recorded restructuring charges of $2 million during the first quarter of 2003 related to the closure of a converting facility. No significant additional
charges are expected for this closure. The assets of the closed operation were adjusted to the estimated fair value less cost to sell resulting in a $1 million non-cash
write-down. The cash portion of the restructuring charges was approximately $1 million, primarily for severance

15

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costs,
was paid during the second quarter of 2003. The shutdown resulted in approximately 110 employees being terminated.

At
December 31, 2002, we had $27 million of exit liabilities related primarily to the restructuring of operations in connection with the merger with Smurfit-Stone, the
acquisition of St. Laurent Paperboard Inc. and our restructuring activities. During the six months ended June 30, 2003, we incurred $1 million of cash expenditures for these exit
liabilities and we reduced environmental exit liabilities by
$8 million. The remaining cash expenditures in connection with our restructuring activities will continue to be funded through operations as originally planned.

LIQUIDITY AND CAPITAL RESOURCES

General

For the six months ended June 30, 2003, net cash provided by operating activities of $138 million and proceeds from property and timberland
disposals and sale of businesses of $204 million were used to fund net debt payments of $270 million and expenditures for property, plant and equipment of $60 million.

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

We
expect internally generated cash flows, available borrowing capacity under our credit agreements and future financing activities will be sufficient for the next several years to meet
our obligations, including debt service, pension funding, expenditures related to environmental compliance and other capital expenditures. Scheduled debt payments for the remainder of 2003 and for
2004 are $8 million and $44 million, respectively, with varying amounts thereafter.

We
intend to hold capital expenditures for 2003 significantly below our anticipated annual depreciation level of $282 million. As of June 30, 2003, we had authorized
commitments for capital expenditures of $109 million, including $31 million for environmental projects, $18 million to maintain competitiveness and $60 million for
upgrades, modernization and expansion.

We
expect to use any excess cash flows provided by operations to make further debt reductions. As of June 30, 2003, we had $491 million of unused borrowing capacity under
our credit agreement.

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

The
credit agreements contain various covenants and restrictions including, among other things: (i) limitations on dividends, redemptions and repurchases of capital stock,
(ii) limitations on the incurrence of indebtedness, liens, leases and sale-leaseback transactions, (iii) limitations on capital expenditures,

16

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and
(iv) maintenance of certain financial covenants. The credit agreement also requires prepayments of the term loans from excess cash flow, as defined, and proceeds from certain asset sales,
insurance, and incurrence of certain indebtedness. These restrictions, together with our highly leveraged position, could restrict our corporate activities, including our ability to respond to market
conditions, to provide for unanticipated capital expenditures or to take advantage of business opportunities. We believe the risk of our breaching the debt covenants in 2003 is unlikely absent any
material adverse event affecting the U.S. economy as a whole. However, our expectations of future operating results and continued compliance with our debt covenants cannot be assured and we cannot
control our lenders' actions. If our debt is placed in default, we would experience a material adverse impact on our financial condition.

Pension Obligations

As discussed in our 2002 Annual Report on Form 10-K, our pension obligations exceeded the fair value of pension plan assets by
$621 million as of December 31, 2002. For the six months ended June 30, 2003 we contributed $8 million to the pension plans, and expect to contribute approximately
$85 million in the second half of 2003. Contributions to our plans in 2004 are expected to be significant, but will be dependent upon future changes in discount rates, the earnings performance
of our plan assets and the outcome of proposed pension reform legislation. A decrease in the discount rate of 0.25% would increase our pension obligations by approximately $24 million.

NEW ACCOUNTING STANDARD FOR STOCK-BASED COMPENSATION ADOPTED

In the second quarter of 2003, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," effective as of January 1, 2003. We selected the prospective transition method as allowed in SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which requires expensing options prospectively, beginning in the year of adoption. Because the prospective method was used and awards vest over three to
eight years, the 2003 expense is less than what would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS
No. 123. We expensed $1 million, net of tax, in the three and six month periods ended June 30, 2003, representing a pro rata portion of all employee awards granted, modified or
settled after January 1, 2003.

Prior
to 2003, we accounted for stock options under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee compensation cost was reflected in 2002 net income, as all options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Commodity Price Risk

We periodically enter into exchange traded futures and other derivative contracts to manage fluctuations in cash flows resulting from commodity price risk in the
procurement of natural gas. As of June 30, 2003, we had futures contracts to hedge approximately 30% of our expected natural gas requirements for the months of July through October 2003
and approximately 50% to 65% for the months of November 2003 through March 2004. Our objective is to fix or cap the price of a portion of our forecasted purchases of natural gas used in
the manufacturing process. Our objective is to fix the price of a portion of our forecasted purchases of natural gas used in the manufacturing process. The changes in energy cost discussed in
Part 1-Item 2,

17

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Management's Discussion and Analysis of Financial Condition and Results of Operations above include the impact of the natural gas futures contracts. See Note 11 of the Notes to Consolidated
Financial Statements.

Foreign Currency Risk

Our principal foreign exchange exposure is the Canadian dollar. The functional currency for our operations in Canada is the U.S. dollar. As a result of completing
the exchange transaction with JS Group, we no longer have any significant foreign exchange exposure with the euro.

The
exchange rate for the Canadian dollar as of June 30, 2003 compared to December 31, 2002 strengthened against the U.S. dollar by 14.2%. We recognized
non-cash foreign currency exchange losses of $36 million for the six months ended June 30, 2003 compared to $10 million last year due to the strengthening of the
Canadian dollar.

We
periodically enter into foreign exchange forward contracts with financial institutions to purchase Canadian dollars in order to protect against currency exchange risk associated with
expected future cash flows. Contracts typically have maturities of approximately one year or less. As of June 30, 2003, we had Canadian dollar forward purchase contracts to hedge generally 40%
to 60% of our Canadian dollar requirements for the months of April 2003 through September 2003.

Interest Rate Risk

Our earnings and cash flows are significantly affected by the amount of interest on our indebtedness. Our objective is to protect Stone Container from interest
rate volatility and reduce or cap interest expense within acceptable levels of market risk. We may periodically enter into interest rate swaps, caps or options to hedge interest rate exposure and
manage risk within company policy. Any derivative would be specific to the debt instrument, contract or transaction, which would determine the specifics of the hedge. There were no interest rate
derivatives outstanding at June 30, 2003.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control

There have been no changes in our internal controls over financial reporting during the most recent quarter that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.

18

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PART IIOTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

In 1998, seven putative class action complaints were filed in the United States District Court for the Northern District of Illinois and in the United States
District Court for the Eastern District of Pennsylvania. These complaints alleged that Stone Container reached agreements in restraint of trade that affected the manufacture, sale and pricing of
corrugated products in violation of antitrust laws.
The complaints have been amended to name several other defendants, including Jefferson Smurfit (U.S.) and Smurfit-Stone. The suits seek an unspecified amount of damages arising out of the sale of
corrugated products for the period from October 1, 1993 through March 31, 1995. Under the provisions of the applicable statutes, any award of actual damages could be trebled. The
complaints have been transferred to and consolidated in the United States District Court for the Eastern District of Pennsylvania, which has certified two plaintiff classes. The defendants' appeal of
the class certification rulings has been denied. In June 2003, ten complaints were filed in various federal district courts on behalf of numerous purported class members that have opted out of
the certified plaintiff classes. We continue to vigorously defend these cases.

In
April 1999, the United States Environmental Protection Agency (EPA) and the Virginia Department of Environmental Quality (Virginia DEQ) each issued a Notice of Violation under
the Clean Air Act to St. Laurent's mill located in West Point, Virginia, which St. Laurent acquired from Chesapeake Corporation in May 1997. In general, the Notices of Violation allege that,
from 1984 to the present, the West Point mill installed certain equipment and modified certain production processes without obtaining the required permits. St. Laurent made a claim for indemnification
from Chesapeake for its costs relating to these Notices of Violation pursuant to the purchase agreement between St. Laurent and Chesapeake, and in June 2003, St. Laurent and Chesapeake
concluded a settlement with respect to Chesapeake's indemnification obligation. St. Laurent is attempting to reach agreement with the EPA and Virginia DEQ on a capital expenditure plan to remedy the
Notices of Violation and, based on the information developed to date and discussions with the EPA and Virginia DEQ, we believe the costs to resolve this matter will not be material and will not exceed
established reserves. We entered into a tolling agreement with the EPA to allow us to continue settlement discussions without litigation, which tolls the statute of limitations in this matter until at
least September 8, 2003. The tolling agreement does not restrict the EPA from bringing suit against St. Laurent. St. Laurent is continuing to participate in settlement discussions with the EPA.

ITEM 2.    CHANGES IN SECURITIES

None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5.    OTHER INFORMATION

None

19

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ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

|31.1 |  | Certification Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Certification Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           
|32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           
|     |  |                                                                                                                                                                   

Form 8-K dated April 2, 2003 was filed with the Securities and Exchange Commission in connection with the announcement that Stone
Container had consummated the previously announced transaction with JS Group, involving the exchange of its European operations for JS Group's 50% ownership in Smurfit-MBI and a payment
from JS Group of approximately $189 million.

20

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Signatures

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

|                         |  |  | STONE CONTAINER CORPORATION (Registrant)                                                                   
|------------------------ |  |  | -----------------------------------------------------------------------------------------------------------
|Date:    August 12, 2003 |  |  | /s/ Paul K. KaufmannPaul K. Kaufmann Vice President and
Corporate Controller
(Principal Accounting Officer)

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