**United States**

**Securities and ExchangeCommission**

## **Washington,D.C. 20549**

## ** **

**Form 10-K/A**

### ** **

**Amendment No. 1**

 
| **x** | **Annual  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934** |
|-------|------------------------------------------------------------------------------------------------------|

 

**For thefiscal year ended December 31, 2008**

 

**or**

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

 

**For thetransition period from                 to                  **

 

**Commissionfile number 0-23876**

 

**Smurfit-Stone ContainerCorporation**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                              | ** ** | **43-1531401**                        |
|-------------------------------------------|------------|---------------------------------------|
| (State of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                      |       |                                  |
| **150  North Michigan Avenue**            |       |                                  |
| **Chicago,  Illinois**                    | ** ** | **60601**                             |
| (Address of  principal executive offices) |       | (Zip Code)                            |

## ** **

## **Registrant’sTelephone Number:**(312) 346-6600

 

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| Securities registered  pursuant to Section 12(b) of the Act: | **None**                                                                                              |
|------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|
|                                                                   | ** **                                                                                            |
| Securities registered  pursuant to Section 12(g) of the Act: | **Common Stock, $0.01 Par Value**                                                                     |
|                                                                   | **7% Series A Cumulative  Exchangeable Redeemable Convertible Preferred Stock, $0.01 Par Value** |

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.  Yes  o   No  x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes  o  No  x

 

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

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter)during the preceeding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes oNo o

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K.   x

 

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company. See the definitions of “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 
| Large accelerated filer   x |   | Accelerated filer   o          |
|---------------------------------------|--------|------------------------------------------|
|                                  |   |                                     |
| Non-accelerated filer   o   |   | Smaller Reporting  Company   o |

 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes  o  No  x

 

The aggregate market value of the votingstock held by non-affiliates of the registrant as of the last business day ofthe registrant’s most recently completed second fiscal quarter wasapproximately $1.0 billion, based on the closing sales price of $4.07 per shareof such stock on The NASDAQ Global Select Market on June 30, 2008.

 

The number of sharesoutstanding of the registrant’s common stock as of February 27, 2009:256,178,274.

 

**DOCUMENTS INCORPORATED BYREFERENCE:**

 
| ** **   | ** ** | **Part of Form 10-K Into Which** |
|--------------|------------|--------------------------------------------|
| **Document** | ** ** | **Document Is Incorporated**               |
|         |       |                                       |
| None         |       |                                       |

 

 

 

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**EXPLANATORY NOTE**

 

ThisAnnual Report on Form 10-K/A constitutes Amendment No. 1 (Amendment No. 1)to our Annual Report on Form 10-K for the year ended December 31,2008, as filed by us on March 17, 2009 (the Original Report). We arefiling this Amendment No. 1 solely to: (1) amend the cover page toindicate that the Company is not a well-known seasoned issuer; (2) amendand restate our disclosure in Part II Item 7, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” relating to our useof certain non-GAAP financial measures; (3) amend and restate the list ofexhibits in Part IV Item 15, “Exhibits and Financial Statement Schedules,”to correct a reference to the document incorporated by reference in Exhibit 10.1(a);and (4) file as exhibits currently dated certifications required by Rules 13a-14(a) and15d-14(a) by each of our principal executive officer and principalfinancial officer.

 

ThisAmendment No.1 does not include any restatement of our financial statementspreviously filed in the Original Report. Other than as set forth in thisAmendment No.1, no information included in the Original Report has been amendedby this Amendment No. 1. This Amendment No. 1 does not reflect eventsoccurring after the filing of the Original Report, and does not modify orupdate the disclosures therein in any other way than as required to reflectthis Amendment No. 1.

 

**PART II**

 

**ITEM 7.****            ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION****AND RESULTSOF OPERATIONS**

 

**Non-GAAP Financial Measures**

 

Inthe accompanying analysis of financial information, we use the financialmeasures “adjusted net income (loss) attributable to common stockholders”(adjusted net income (loss)) and “adjusted net income (loss) per diluted shareattributable to common stockholders” (adjusted net income (loss) per dilutedshare) which are derived from our consolidated financial information but arenot presented in our financial statements prepared in accordance with U.S.generally accepted accounting principles (GAAP). These measures are considered “non-GAAPfinancial measures” under the U.S. Securities and Exchange Commission (SEC)rules.  Adjusted net income (loss) andadjusted net income (loss) per diluted share are non-GAAP financial measuresthat exclude from net income (loss) attributable to common stockholders theeffects of goodwill and other intangible assets impairment charges, losses onearly extinguishment of debt, non-cash foreign currency exchange gains orlosses, gains or losses on disposal of assets, restructuring charges,litigation charges, losses on ineffective interest rate swaps marked-to-market,the resolution of certain income tax matters and reduction in Canadianstatutory income tax rates.

 

Weuse these supplemental non-GAAP measures to evaluate performance period overperiod, to analyze the underlying trends in our business, to assess ourperformance relative to our competitors and to establish operational goals andforecasts that are used in allocating resources. These non-GAAP measures of operatingresults are reported to our board of directors, chief executive officer and ourchief operating officer and are used to make strategic and operating decisionsand assess performance.  These non-GAAPmeasures are presented to enhance an understanding of our operating results andare not intended to represent cash flow or results of operations.  We also believe these non-GAAP measures arebeneficial to investors, potential investors and other key stakeholders,including analysts and creditors who use these measures in their evaluations ofour performance from period to period and against the performance of othercompanies in our industry. Our creditors also use these measures to evaluateour ability to service our debt. The use of these non-GAAP financial measuresis beneficial to these stakeholders because they exclude certain unusual ornon-recurring items that management believes are not indicative of the ongoingoperating performance of our business, and including them would distortcomparisons to our past operating performance. Accordingly, we have excluded the adjustments, as detailed below, forthe purpose of calculating these non-GAAP measures.

 

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Thefollowing is an explanation of each of the adjustments that we have excluded toarrive at these non-GAAP measures for the years ended December 31, 2008,2007 and 2006, as well as the reasons management believes each of these itemsis non-recurring and not indicative of operating performance:

 

·                  Goodwill and OtherIntangible Assets Impairment Charges — As the result of the significant declinein value of our equity securities and our debt instruments and downwardpressure placed on earnings by the weakening U.S. economy, we recognizedimpairment charges on goodwill and other intangible assets of $2,757 million,net of income taxes, in the fourth quarter of 2008.  These charges were not considered indicativeof future operating performance and were not used by us to assess our operatingperformance.

 

·                  Loss on EarlyExtinguishment of Debt —  These lossesrepresent unamortized deferred debt issuance cost and call premiums charged toexpense in connection with our financing activities in 2007 and 2006.  These losses were not considered indicativeof future operating performance because they related to specific financingactivities and were not used by us to assess our operating performance.

 

·                  Non-Cash Foreign CurrencyGain or Loss —The functional currency for our Canadian operations is the U.S.dollar.  Fluctuations in Canadiandollar-denominated monetary assets and liabilities result in non-cash gains orlosses.  We excluded the impact offoreign currency exchange gains in 2008 and losses in 2007 because the impactof foreign exchange is highly variable and difficult to predict from period toperiod and is not tied to our operating performance.  These gains or losses are not consideredindicative of future operating performance and are not used by us to assess ouroperating performance.

 

·                  Gain or Loss on Sale ofAssets —These amounts represent gains and losses, and related tax impacts,which we recognized related to the sale of non-strategic assets.  In connection with the sale of a mill in2007, we recorded a loss of $97 million, net of income tax. These gains andlosses were not considered indicative of future operating performance and weredisregarded by management in assessing operating performance.

 

·                  Restructuring Charges —These adjustments represent the write-down of assets, primarily property, plantand equipment to estimated net realizable values, the acceleration ofdepreciation for equipment to be abandoned or taken out of service, severancecosts and other costs associated with our restructuring initiatives. Theseexpenses were not considered indicative of our on-going operating performanceand were excluded by management in assessing our operating performance.

 

·                  Litigation Charges - Thesecharges are attributable to certain litigation matters. These amounts representsignificant charges during 2008 and do not reflect expected on-going operatingexpenses.

 

·                  Loss on IneffectiveInterest Rate Swaps Marked-to-Market — This represents a loss recorded ininterest expense as a result of our intention to refinance the underlying debtprior to its maturity.  This representeda significant charge to interest expense in the fourth quarter of 2008 and wasnot considered indicative of expected on-going interest expense.

 

·                  Pension Curtailment — Inthe third quarter of 2007, we announced the freeze of our defined benefitpension plans and recorded a curtailment gain of $2 million, net of incometaxes. This gain was not considered indicative of our on-going operatingperformance and thus was excluded by us in assessing our current operatingperformance and for comparison to our past operating performance.

 

·                  Resolution of Income TaxMatters — These amounts represent the resolution of certain income taxmatters.  During 2008, we were informedby a foreign taxing authority that certain matters related to our acquisitionof a company had been resolved in our favor. Primarily as a result of this

 

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favorableruling, we reduced our liability for unrecognized tax benefits and recorded anincome tax benefit of approximately $84 million during 2008. These income taxbenefits were not related to the current or past years being presented and werenot considered indicative of our on-going operating performance.

 

·                  Reduction in CanadianStatutory Income Tax Rates — In 2007, we recorded an income tax benefit as aresult of the reduction in Canadian statutory income tax rates.  This income tax benefit was not related tothe current or past years being presented and was not considered indicative ofour on-going operating performance.

 

Adjustednet income (loss) and adjusted net income (loss) per diluted share have certainmaterial limitations associated with their use as compared to net income (loss).  These limitations are primarily due to theexclusion of certain amounts that are material to our consolidated results ofoperations, as discussed above.  Inaddition, these adjusted net income (loss) measures may differ from adjustednet income (loss) calculations of other companies in our industry, limitingtheir usefulness as comparative measures. Because of these limitations,adjusted net income (loss) and adjusted net income (loss) per diluted shareshould be read in conjunction with our consolidated financial statementsprepared in accordance with GAAP.  Wecompensate for these limitations by relying primarily on our GAAP results andusing adjusted net income (loss) and adjusted net income (loss) per dilutedshare only as supplemental measures of our operating performance.  The presentation of this additionalinformation is not meant to be considered in isolation or as a substitute forfinancial statements prepared in accordance with GAAP.

 

Webelieve that providing these non-GAAP measures in addition to the related GAAPmeasures provides investors greater transparency to the information ourmanagement uses for financial and operational decision-making and allowsinvestors to see our results as management sees them. We also believe thatproviding this information better enables investors to understand our operatingperformance and to evaluate the methodology used by our management to evaluateand measure our operating performance, and the methodology and financialmeasures used by our board of directors to assess management’s performance.

 

Thefinancial presentation below includes a reconciliation of net income (loss)attributable to common stockholders and net income (loss) per diluted shareattributable to common stockholders, the most directly comparable GAAPfinancial measures, to adjusted net income (loss) and adjusted net income(loss) per diluted share, respectively.

 

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**Reconciliation to GAAP FinancialMeasures**

(In millions, except pershare data)

 
| ** **                                                                          | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Net income (loss) attributable to common  stockholders (GAAP)**                   |       | $        | (2,830     | )        | $          | (115     | )          | $ | (71 | ) |
| Goodwill  and other intangible assets impairment charges, net of income taxes       |       | 2,757    |       |     |       |     |       |
| Loss  on early extinguishment of debt, net of income taxes                          |       |     |       | 17       |       | 17       |       |
| Non-cash  foreign currency exchange (gains) losses                                  |       | (36      | )          | 52       |       | (1       | )          |
| (Gain)  loss on disposal of assets, net of income taxes                             |       | (1       | )          | 97       |       | (10      | )          |
| Restructuring  charges, net of income taxes                                         |       | 45       |       | 4        |       | 26       |       |
| Litigation  charges, net of income taxes                                            |       | 5        |       |     |       |     |       |
| Loss  on ineffective interest rate swaps marked-to-market, net of income taxes      |       | 7        |       |     |       |     |       |
| Pension  curtailment, net of income taxes                                           |       |     |       | (2       | )          |     |       |
| Resolution  of prior years’ income tax matters                                 |       | (84      | )          | (4       | )          |     |       |
| Reduction  in Canadian statutory income tax rates                                   |       |     |       | (5       | )          |     |       |
| Adjusted  net income (loss) attributable to common stockholders                     |       | $        | (137       | )        | $          | 44       |       | $ | (39 | ) |
|                                                                                |       |     |       |     |       |     |       |
| **Net income (loss) per diluted share attributable  to common stockholders (GAAP)** |       | $        | (11.01     | )        | $          | (0.45    | )          | $ | (0.28 | ) |
| Goodwill  and other intangible assets impairment charges, net of income taxes       |       | 10.73    |       |     |       |     |       |
| Loss  on early extinguishment of debt, net of income taxes                          |       |     |       | 0.07     |       | 0.07     |       |
| Non-cash  foreign currency exchange (gains) losses                                  |       | (0.14    | )          | 0.20     |       |     |       |
| (Gain)  loss on disposal of assets, net of income taxes                             |       |     |       | 0.38     |       | (0.04    | )          |
| Restructuring  charges, net of income taxes                                         |       | 0.17     |       | 0.02     |       | 0.10     |       |
| Litigation  charges, net of income taxes                                            |       | 0.02     |       |     |       |     |       |
| Loss  on ineffective interest rate swaps marked-to-market, net of income taxes      |       | 0.03     |       |     |       |     |       |
| Pension  curtailment, net of income taxes                                           |       |     |       | (0.01    | )          |     |       |
| Resolution  of income tax matters                                                   |       | (0.33    | )          | (0.02    | )          |     |       |
| Reduction  in Canadian statutory income tax rates                                   |       |     |       | (0.02    | )          |     |       |
| Adjusted  net income (loss) per diluted share attributable to common stockholders   |       | $        | (0.53      | )        | $          | 0.17     |       | $ | (0.15 | ) |

** **

**OVERVIEW**

** **

On January 26, 2009,Smurfit-Stone and its U.S. and Canadian subsidiaries filed for relief underChapter 11 of the Bankruptcy Code in the United States Bankruptcy Court inWilmington, Delaware.  On the same day,our Canadian subsidiaries also filed to reorganize under the Companies’Creditors Arrangement Act in the Ontario Superior Court of Justice inCanada.  Our operations in Mexico and Asia were not included inthe filing and will continue to operate outside of the Chapter 11 process. See Part I,Item 1, “Business, Bankruptcy Proceedings.”

 

Smurfit-Stone ContainerCorporation is an integrated manufacturer of paperboard and paper-basedpackaging.  Our major products arecontainerboard, corrugated containers, market pulp, recycled fiber and kraftpaper. We operate in one reportable industry segment.  Our mill operations supply paper to ourcorrugated container converting operations. The products of our converting operations, as well as the mill andreclamation tonnage in excess of what is consumed internally, are the mainproducts sold to third parties.  Ouroperating facilities and customers are located primarily in the United Statesand Canada.

 

Market conditions anddemand for our products are subject to cyclical changes in the economy andchanges in industry capacity, both of which can significantly impact selling pricesand our profitability.  In

 

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recent years, thecontinued loss of domestic manufacturing to offshore competition and thechanging retail environment in the U.S. have played a key role in reducinggrowth in domestic packaging demand.  Theinfluence of superstores and discount retailing giants, as well as the impactsfrom online shopping, has resulted in a shifting of demand to packaging which ismore condensed, lighter weight and less expensive.  These factors have greatly influenced thecorrugated industry.

 

In 2008, our operations weresignificantly impacted by higher key input costs and lower sales volume.  While we were able to implement a priceincrease for containerboard and corrugated containers in the second half of theyear, we were unable to offset the impact of our higher costs and lower volumesand our profitability declined in 2008 as a result.

 

Throughout most of 2008, weexperienced higher costs for energy, freight, fiber and chemicals due to risingprices for those items.  Due to theweakening U.S. economy and global recession, sales volumes for domestic andexport containerboard declined significantly in the fourth quarter of 2008compared to the prior year and prior quarters. Sales volumes for corrugated containers also declined.  In response to the weakening marketconditions in the fourth quarter of 2008, we took approximately 245,000 tons ofcontainerboard market related downtime. In October of 2008, we permanently ceased operations of ourcontainerboard machine at the Snowflake, Arizona mill.  In addition, as a result of weakening marketconditions, we permanently closed our Pontiac pulp mill.  In 2008, U.S. industry per day shipments ofcorrugated containers decreased 4.2%. Our North American per day shipments of corrugated containers decreased4.7% compared to 2007 due primarily to container plant closures, weaker marketconditions and continued efforts to improve margins by exiting unprofitablebusiness.

 

For 2008, we had a netloss attributable to common stockholders of $2,830 million, or $11.01 pershare, compared to a net loss of $115 million, or $0.45 per share, for2007.  The higher loss in 2008 comparedto 2007 was due primarily to goodwill and other intangible assets impairmentcharges of $2,761 million, or $10.74 per share, lower segment operatingprofits, and higher restructuring charges.  The 2008 results benefited $84 million, or$0.33 per share, from the resolution of Canadian income tax examination mattersand from $36 million of foreign currency exchange gains.  The 2007 results were negatively impacted byan after-tax loss on the sale of our Brewton, Alabama mill of $97 million, or$0.38 per share, and from $52 million of foreign currency exchange losses.

 

For 2008, we had adjustednet loss attributable to common stockholders of $137 million, or $0.53 perdiluted share, compared to adjusted net income attributable to commonstockholders of $44 million, or $0.17 per diluted share, for 2007.  Theresults for 2008 were negatively impacted by lower sales volume forcontainerboard and corrugated containers and higher costs for energy, fiber,freight and chemicals.  These items werepartially offset by higher average selling prices for containerboard andcorrugated containers and lower interest expense compared to last year.

 

In 2009, we anticipateour financial performance will be negatively impacted by weak economicconditions and a stronger U.S. dollar, which could adversely impact ourcontainerboard export sales.  We expectour sales volume to decline compared to 2008 as a reduction in demand for ourproducts experienced in the fourth quarter of 2008 continues into 2009.  As a result of lower demand, we expect continuedpressure on our sales prices.  We haveincurred and will continue to incur significant costs associated with ourbankruptcy proceedings, which could adversely affect our results of operations.

 

**GoingConcern Matters**

 

The consolidatedfinancial statements and related notes have been prepared assuming that we willcontinue as a going concern, although our Chapter 11 bankruptcy filings raisesubstantial doubt about our ability to continue as a going concern.  The consolidated financial statements do notinclude any adjustments related to the recoverability and classification ofrecorded assets or to the amounts and classification of liabilities or anyother adjustments that might be necessary should we be unable to continue as agoing concern. Our ability to continue as a going concern is dependent onmarket conditions and our ability to improve profitability, obtain alternativefinancing to replace the DIP Credit Agreement and

 

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prepetition CreditAgreement and restructure our obligations in a manner that allows us to obtainconfirmation of a plan of reorganization by the Bankruptcy Court.

 

In order to improve profitability, management istaking actions to further reduce corporate and operational expenses and iscontinuing to align converting capacity to meet market demands and standardizemanufacturing processes throughout all operations. These actions will result inthe closure of additional converting facilities and further headcountreductions during 2009.

 

**GOODWILL AND OTHER INTANGIBLEASSETS IMPAIRMENT CHARGES**

 

As the result of thesignificant decline in value of our equity securities and our debt instrumentsand downward pressure placed on earnings by the weakening U.S. economy, weevaluated the carrying amount of our goodwill and other intangible assets forpotential impairment in the fourth quarter of 2008.  We obtained third-party valuation reports asof December 31, 2008 that indicated the carrying amounts of our goodwilland other intangible assets were fully impaired based on declines in currentand projected operating results and cash flows due to the current economicconditions. As a result, we recognized pretax impairment charges on goodwilland other intangible assets of $2,727 million and $34 million, respectively, inthe fourth quarter of 2008.  The goodwillconsisted primarily of amounts recorded in connection with our merger withStone Container Corporation in November of 1998.  See Critical Accounting Policies and Use ofEstimates, “Goodwill and Other Intangible Assets.”

 

# **STRATEGICINITIATIVES**

#  

During 2005, we announceda three year strategic initiative plan to improve performance and betterposition us for long-term growth.  Theplan focused on cost reduction and productivity initiatives, includingreinvestment in our operations.  Through December 31,2008, we closed three medium mills, one linerboard mill, one pulp mill andpermanently ceased operations of two of our containerboard machines.  In addition, we have closed 36 convertingfacilities and have announced the closure of two additional convertingfacilities.  The majority of the netsales related to these closures were transferred to other operatingfacilities.  Through December 31,2008, as a result of plant closures and other initiatives, we reduced ourheadcount by approximately 6,580 employees.

 

We expected to achieve$525 million in savings and productivity improvements, net of transition costs,from our strategic initiatives, compared to levels prior to the start of ourplan as adjusted for the impact of inflation. Through the third quarter of 2008, we were on target to achieve the $525million in savings and productivity improvements.  However, due to the weakening of the U.S.economy, we took market related downtime of 245,000 tons of containerboard inthe fourth quarter of 2008 in order to balance supply with available demand.This unplanned market related downtime negatively impacted our earnings and, asa result, we did not fully achieve the $525 million target.

 

During 2006, we closed 14converting facilities and permanently shutdown four corrugators, resulting inthe termination of approximately 1,400 employees.  In addition, another 700 employees wereterminated as part of the strategic initiative plan.  We recorded restructuring charges of $43million, net of gains of $18 million from the sale of three shutdown facilitiesand the No. 2 paper machine at the Fernandina Beach, Florida linerboardmill.  Restructuring charges includenon-cash charges of $23 million related to the write-down of assets, primarilyproperty, plant and equipment, to estimated net realizable values and theacceleration of depreciation for equipment expected to be abandoned or takenout of service.  The remaining charges of$38 million were primarily for severance and benefits, including pensionsettlement costs of $6 million.  The netsales of these facilities in 2006 prior to closure were $169 million.

 

In 2007, we closed 12converting facilities and the Carthage, Indiana and Los Angeles, California mediummills and reduced our headcount by approximately 1,750 employees.  We recorded restructuring charges of $16million, net of gains of $69 million from the sale of properties related topreviously closed facilities. Restructuring charges include non-cash charges of $48 million related tothe write-down of assets,

 

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primarily property, plantand equipment, to estimated net realizable values and the acceleration ofdepreciation for equipment expected to be abandoned or taken out ofservice.  The remaining charges of $37million were primarily for severance and benefits.  The net sales of the closed convertingfacilities in 2007 prior to closure and for the year ended December 31,2006 were $65 million and $192 million, respectively.  The production of the two medium mills, whichhad combined annual capacity of 200,000 tons, was partially offset byrestarting the previously idled machine at the Jacksonville, Florida mill withannual capacity to produce 170,000 tons of medium.

 

In 2008, we closed eightconverting facilities, announced the closure of two additional convertingfacilities and permanently ceased operations of our containerboard machine atthe Snowflake, Arizona mill and production at the Pontiac pulp mill located inPortage-du-Fort, Quebec.  As a result ofthese closures and other ongoing strategic initiatives, the Company reduced itsheadcount by approximately 1,230 employees. We recorded restructuring charges of $67 million, net of a gain of $2 millionfrom the sale of a previously closed facility. Restructuring charges included non-cash charges of $23 million relatedto the write-down of assets, primarily property, plant and equipment, toestimated net realizable values and the acceleration of depreciation for milland converting equipment expected to be abandoned or taken out of service.  The remaining charges of $46 million wereprimarily for severance and benefits. The net sales of the announced and closed converting facilities in 2008prior to closure and for the years ended December 31, 2007 and 2006 were$264 million, $393 million and $397 million, respectively.  The majority of these net sales are expectedto be transferred to other operating facilities.  The Snowflake, Arizona containerboard machinehad the capacity to produce 135,000 tons of medium annually.  The Pontiac pulp mill had annual productioncapacity of 253,000 tons of northern bleached hardwood kraft paper-grade pulp,which was non-core to our primary business. Additional charges of up to $8 million are expected to be recorded infuture periods for severance and benefits related to the closure of thesefacilities.

 

**SALE OF ASSETS**

 

InSeptember 2007, wecompleted the sale of the Brewton, Alabama, mill assets for $355 million.  We received cash proceeds of $338 million,which excluded $16 million of accounts receivable previously sold to StoneReceivables Corporation under the accounts receivable securitization programand was net of $1 million of other closing adjustments.  The Brewton mill had annual productioncapacity of approximately 300,000 tons of white top linerboard and 190,000 tonsof solid bleached sulfate (SBS).  Wecontinue to produce white top linerboard at two of our mills.  Substantially all of the proceeds wereapplied directly to debt reduction.   Werecorded a pretax loss of $65 million, and a $32 million income tax provision,resulting in a net loss of $97 million. The after-tax loss was the result of a provision for income taxes thatwas higher than the statutory income tax rate due to non-deductible goodwill of$146 million.

 

**RESULTS OF OPERATIONS**

 

**Discontinued Operations**

 

Our Consumer Packagingsegment, which was sold on June 30, 2006, has been classified asdiscontinued operations and is excluded from the segment results for allperiods presented.  See Part I, Item1, “Business, Discontinued Operations.”

 

**Recently Adopted AccountingStandards**

 

Effective January 1,2008, we adopted the provisions of SFAS No. 157, “Fair Value Measurements”(SFAS No. 157) for financial assets and liabilities.  SFAS No. 157 defines fair value,establishes a framework for measuring fair value and expands disclosures aboutfair value measurements (See Note 23 of the Notes to the Consolidated FinancialStatements).  SFAS No. 157 appliesunder other accounting pronouncements that require or permit fair valuemeasurements and, accordingly, SFAS No. 157 does not require any new fairvalue measurements.

 

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**Financial Data**

** **
| ** **                                                        | ** ** | **2008**       | ** ** | **2007**            | ** ** | **2006**       | ** ** |
|-------------------------------------------------------------------|------------|----------------|------------|---------------------|------------|----------------|------------|
| **(In millions)**                                                 | ** ** | **Net  Sales** | ** ** | **Profit/  (Loss)** | ** ** | **Net  Sales** | ** ** | **Profit/  (Loss)** | ** ** | **Net  Sales** | ** ** | **Profit/  (Loss)** | ** ** |
| Containerboard,  corrugated containers and reclamation operations |       | $              | 7,042      |                | $          | 317            |       | $ | 7,420 |   | $ | 604 |   | $ | 7,157 |   | $ | 522 |   |
|                                                              |       |           |       |                |       |           |       |   |   |   |   |   |   |
| Goodwill  and other intangible assets impairment charges          |       |           |       | (2,761              | )          |           |       |   |   |   |   |   |   |
| Restructuring  charges                                            |       |           |       | (67                 | )          |           |       | (16 | ) |   |   | (43 | ) |
| Gain  (loss) on sale of assets                                    |       |           |       | 5                   |       |           |       | (62 | ) |   |   | 24 |   |
| Interest  expense, net                                            |       |           |       | (262                | )          |           |       | (285 | ) |   |   | (341 | ) |
| Loss  on early extinguishment of debt                             |       |           |       |                |       |           |       | (29 | ) |   |   | (28 | ) |
| Foreign  currency exchange gains (losses)                         |       |           |       | 36                  |       |           |       | (52 | ) |   |   | 1 |   |
| Litigation  charges and settlements, net                          |       |           |       | (8                  | )          |           |       |   |   |   |   |   |   |
| Corporate  expenses and other (Note 1)                            |       |           |       | (255                | )          |           |       | (236 | ) |   |   | (245 | ) |
| Loss  from continuing operations before income taxes              |       |           |       | $                   | (2,995     | )              |       |   | $ | (76 | ) |   |   | $ | (110 | ) |
|                                                                   |            |                |            |                     |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Note 1: Corporateexpenses and other include corporate expenses and other expenses not allocatedto operations.

 

**2008 COMPARED TO 2007**

 

We had a net lossattributable to common stockholders of $2,830 million, or $11.01 per dilutedshare, for 2008 compared to a net loss of $115 million, or $0.45 per dilutedshare, for 2007.  The higher loss in 2008compared to 2007 was due primarily to the goodwill and other intangible assetsimpairment charges of $2,761 million, lower segment operating profits of $287million and higher restructuring charges of $51 million. The 2008 resultsbenefited $84 million from the resolution of certain Canadian income taxexamination matters and from $36 million of foreign currency exchangegains.  The 2007 results were negativelyimpacted by an after-tax loss on the sale of our Brewton, Alabama mill of $97million and from $52 million of foreign currency exchange losses.

 

Net sales decreased 5.1%in 2008 compared to last year.  Net saleswere negatively impacted by $623 million in 2008 as a result of the sale of theBrewton, Alabama mill in September of 2007, lower corrugated containersales volume and lower third-party sales of containerboard.  Net sales were favorably impacted by higheraverage selling prices ($245 million) for corrugated containers andcontainerboard.  Average domesticlinerboard prices for 2008 were 7.1% higher compared to 2007.  Our average North American selling price forcorrugated containers increased by 3.6% compared to 2007.  Our average sales prices for market pulp,SBS/SBL and kraft paper increased 2.4%, 1.8% and 6.2%, respectively, comparedto last year.  The average price for oldcorrugated containers (OCC) decreased approximately $10 per ton compared tolast year. Third party shipments of containerboard decreased 8.8% compared tolast year.  North American shipments ofcorrugated containers on a total and a per day basis were 4.3% and 4.7% lower,respectively, compared to last year due primarily to container plant closures,actions to improve margins by exiting unprofitable accounts and weaker marketconditions.

 

Our containerboard millsoperated at 95.5% of capacity in 2008, while containerboard production was 6.6%lower compared to last year due primarily to the sale of the Brewton, Alabamamill, other mill closures and the market related downtime taken by our mills inthe fourth quarter of 2008.  In thefourth quarter of 2008, our containerboard mill operating rate declined to83.6% due to lower demand.  Production ofmarket pulp decreased by 18.1% compared to last year due primarily to theclosure of the Pontiac pulp mill in October 2008 and market relateddowntime taken in the fourth quarter of 2008. Production of kraft paperdecreased 18.1% compared to last year.** **Production of SBS/SBL****decreased by

 

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53.5% compared to lastyear due primarily to the sale of the Brewton, Alabama mill.** **Total tons of fiberreclaimed and brokered decreased 5.6% compared to last year due to weakeningexport market conditions.

 

Cost of goods soldas a percent of net sales in 2008 was 90.0%, compared to 86.3% last year.  The increase was due primarily to highercosts for our major inputs and the negative impact of lower sales volume andmarket related downtime.  Cost of goodssold decreased from $6,404 million in 2007 to $6,338 million in 2008 dueprimarily to cost reductions resulting from the sale of the Brewton, Alabamamill and the market related downtime taken at our mills in the fourth quarterof 2008,  and lower costs of reclaimedmaterial ($26 million), which was offset by higher costs of energy ($142million), freight ($63 million), wood fiber ($77 million), and chemicals ($41million).

 

Selling andadministrative expense increased $2 million in 2008 compared to 2007.  Selling and administrative expense as apercent of net sales increased from 8.7% in 2007 to 9.2% in 2008 due primarilyto the lower sales volume.

 

Interest expense, net was$262 million in 2008.  The $23 milliondecrease compared to 2007 was positively impacted by lower average borrowings($7 million) and lower average interest rates ($28 million).  The lower average borrowings were primarilydue to debt reduction from the sale of the Brewton, Alabama mill.  Our overall average effective interest ratein 2008 was lower than 2007 by 0.85%. Our Tranche B and Tranche C term loans are expected to be refinancedprior to their current maturity.  As aresult, a portion of our interest rate swap contracts were deemed to beineffective and were marked-to-market, resulting in $12 million of additionalinterest expense for the year ended December 31, 2008.

 

In 2007, we recorded aloss on early extinguishment of debt of $29 million including $23 million fortender premiums and $6 million for the non-cash write-off of deferred debtissuance cost.

 

In 2008, we recordednon-cash foreign currency exchange gains of $36 million compared to losses of$52 million for the same period in 2007.

 

Thebenefit from income taxes for the year ended December 31, 2008 differedfrom the amount computed by applying the statutory U.S. federal income tax rateto loss before income taxes due primarily to the non-deductibility of goodwilland other intangible assets impairment charges, the $84 million benefit relatedto the favorable resolution of the Canadian income tax examination matters,non-cash foreign currency exchange gains, state income taxes, lower effectivetax rates in certain foreign jurisdictions and the effect of other permanentdifferences.

 

**2007 COMPARED TO 2006**

 

We had a net lossattributable to common stockholders of $115 million, or $0.45 per dilutedshare, for 2007 compared to a net loss of $71 million, or $0.28 per dilutedshare, for 2006.  The higher loss in 2007compared to 2006 was due primarily to the after-tax loss on the sale of theBrewton, Alabama mill and higher non-cash foreign currency exchange losses.  In 2007, the containerboard, corrugatedcontainers and reclamation operating profit of $604 million was $82 millionhigher compared to 2006 due primarily to higher average selling prices for ourproducts and benefits from our strategic initiatives.  Operating profits in 2007 were negativelyimpacted by higher costs for fiber and freight compared to 2006.

 

Net sales increased 3.7%in 2007 compared to 2006 due primarily to higher average selling prices ($476million) for containerboard, corrugated containers, market pulp and reclaimedfiber.  Net sales were negatively impactedby $161 million in 2007 as a result of the sale of the Brewton, Alabama mill onSeptember 28, 2007 and a change in the mix of our sales.  As a result of lower corrugated containersales volume, more of our containerboard tons were sold directly to thirdparties.  In addition, net sales were reducedas a result of the adoption of EITF No. 04-13 ($52 million).  Average domestic linerboard prices for 2007were 4.9% higher compared to 2006.  Ouraverage North American selling price for corrugated

 

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containers increased 3.5%compared to 2006. Third party shipments of containerboard increased 11.9%compared to the same period in 2006. Shipments of corrugated containers on a total and per day basis werelower 6.5% and 7.2%, respectively, compared to 2006 due primarily to containerplant closure efforts, actions to improve the profitability of marginalaccounts and market conditions.  Ouraverage sales prices for market pulp, SBS/SBL and kraft paper increased 13.8%,2.4% and 5.5%, respectively, compared to 2006. The average price for old corrugated containers (OCC) increasedapproximately $45 per ton compared to 2006.

 

Our containerboardmills operated at 99.2% of capacity in 2007, while containerboard productionwas 0.9% lower compared to 2006. The lower containerboard production wasprimarily due to the impact of the mill closures and the sale of the Brewton,Alabama mill, which were partially offset by the restarting of the previouslyidled machine at the Jacksonville, Florida mill.  Production of SBS decreased by 14.1% comparedto 2006 due to the sale of the Brewton, Alabama mill. Production of market pulpincreased 1.8%, while kraft paper decreased 11.1%.  Total tons of fiber reclaimed and brokeredincreased 3.4%.

 

Cost of goods soldincreased from $6,185 million in 2006 to $6,404 million in 2007 due primarilyto higher costs of reclaimed material purchased by our reclamation operations($275 million), wood fiber ($17 million), freight ($37 million) and othermaterials ($81 million).  Cost of goodssold in 2007 was favorably impacted by the adoption of EITF No. 04-13 ($52million) and lower sales volume ($139 million). Cost of goods sold as a percent of net sales in 2007 was 86.3%,comparable to 2006.

 

Selling andadministrative expense decreased $34 million in 2007 compared to 2006 dueprimarily to lower employee benefits cost and savings achieved from ourstrategic initiatives plan.  Selling andadministrative expense as a percent of net sales decreased from 9.5% in 2006 to8.7% in 2007 due primarily to the lower employee benefits costs and the higheraverage sales prices.

 

We recorded a pretax lossof $65 million in the third quarter of 2007 related to the sale of our Brewton,AL mill.  We recorded a gain on sale ofassets of $23 million in 2006 related to the divestiture of our Port St. Joe,Florida joint venture interest and related real estate.

 

Interest expense, net was$285 million in 2007.  The $56 milliondecrease compared to 2006 was the result of lower average borrowings ($46million) and lower average interest rates ($10 million).  The lower average borrowings were primarilydue to debt reduction from the sales of the Consumer Packaging division and theBrewton, Alabama mill.  Our overallaverage effective interest rate in 2007 was lower than 2006 by approximately0.27%.

 

In 2007, we recorded aloss on early extinguishment of debt of $29 million, including $23 million fortender premiums and a $6 million non-cash write-off of deferred debt issuancecost.

 

We recorded non-cashforeign currency exchange losses of $52 million in 2007 compared to gains of $1million in 2006 due to the strengthening of the Canadian dollar.

 

The provision for income taxes differed from the amount computed byapplying the statutory U.S. federal income tax rate to loss before income taxesdue primarily to the non-deductibility of goodwill on the sale of the Brewton,Alabama mill and non-cash foreign currency translation losses, state incometaxes and the effect of other permanent differences.

 

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**LIQUIDITYAND CAPITAL RESOURCES**

 

The following tablepresents a summary of our cash flows for the years ended December 31:

** **
| **(In millions)**                 | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net  cash provided by (used for): |       |     |       |     |       |     |       |
| Operating  activities             |       | $        | 198        |     | $          | 243      |       | $ | 265 |   |
| Investing  activities             |       | (385     | )          | 68       |       | 706      |       |
| Financing  activities             |       | 306      |       | (313     | )          | (967     | )          |
| Net  increase (decrease) in cash  |       | $        | 119        |     | $          | (2       | )          | $ | 4 |   |

 

**Net Cash Provided By (Used For)Operating Activities**

The net cash provided byoperating activities for the year ended December 31, 2008 was lower then2007 due primarily to lower segment profits. The impact of the lower segmentprofits was partially offset by lower working capital requirements.

 

**Net Cash Provided By (Used For)Investing Activities**

Net cash used forinvesting activities was $385 million for the year ended December 31,2008.  Expenditures for property, plantand equipment were $394 million for 2008, compared to $384 million for2007.  The amount expended for property,plant and equipment in 2008 included $386 million for projects related toupgrades, cost reductions and strategic initiatives and $8 million forenvironmental projects.  For 2008, wereceived proceeds of $9 million from the sale of properties primarily relatedto previously closed facilities.  For2007, we received proceeds of $452 million from property disposals and sale ofbusinesses including $338 million from the sale of the Brewton, Alabama milland $114 million from properties at previously closed facilities.

 

**Net Cash Provided By (Used For)Financing Activities**

Net cash provided byfinancing activities for 2008 of $306 million included a net increase of debtof $314 million. The net increase in debt primarily funded our capitalinvestments.  In December 2008, we drew down substantially all the remainingavailability on our revolving credit facility and invested the proceeds incommercial paper with a daily maturity and a variable interest rate.  As of December 31, 2008, the remainingbalance invested in commercial paper, which is included in cash and cashequivalents, was $101 million at a variable interest rate of 0.1%.Preferred dividends paid were $8 million for 2008.  We are prohibited from paying futuredividends under the DIP Credit Agreement.

 

We as guarantor, and SSCEand its subsidiary, Smurfit-Stone Container Canada Inc. (SSC Canada), asborrowers, entered into a credit agreement, as amended (the Credit Agreement)on November 1, 2004.   The CreditAgreement provides for (i) a revolving credit facility of $600 million toSSCE, of which $461 million was borrowed as of December 31, 2008 and (ii) arevolving credit facility of $200 million to SSCE and SSC Canada, of which $172million was borrowed as of December 31, 2008.  The revolving credit facilities includesub-limits for the issuance of letters of credit and swingline loans.  Each of these revolving credit facilitiesmatures on November 1, 2009.  As of December 31,2008, subject to the above limitations, we have unused borrowing capacity underSSCE’s revolving credit facilities of $1 million, after giving consideration tooutstanding letters of credit.  TheCredit Agreement provided for a Tranche B term loan to SSCE in the aggregateprincipal amount of $975 million, with an outstanding balance of $137 millionat December 31, 2008.  The CreditAgreement also provided to SSC Canada a Tranche C term loan in the aggregateprincipal amount of $300 million and a Trance C-1 term loan in the aggregateprincipal amount of $90 million, with outstanding balances of $258 million and$78 million, respectively, at December 31, 2008.  The term loans are payable in quarterlyinstallments ending on November 1, 2011. In addition, the Credit Agreement provides for a deposit funded letterof credit facility to us, related to our variable rate industrial revenuebonds, for approximately $122 million that matures on November 1,2010.  See “Future Cash Flows —Contingent Obligations.”

 

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We have the option toborrow at a rate equal to LIBOR plus 2.00% or alternate base rate (ABR) plus1.00% for the term loan facilities and LIBOR plus 2.25% or ABR plus 1.25% forthe revolving credit facilities (the Applicable Rate).  The Applicable Rate will increase by 0.25% ifat any time the Company’s senior secured indebtedness is rated lower than BB-by Standard & Poor’s and Ba3 by Moody’s Investors Service.  On January 15, 2009 our credit ratingswere lowered, increasing the Applicable Rate by 0.25%.

 

In June 2006, we, asguarantor, and SSCE and its subsidiary, SSC Canada, as borrowers, entered intoan amendment to the senior credit facility with our lending group permitting usto use a portion of the net cash proceeds to be received from the sale of ourConsumer Packaging division and additional borrowings, if necessary, to prepaycertain unsecured debt.  In addition, theamendment provided for the release of the lien on the assets of the ConsumerPackaging division.  The amendment (i) requiredthe use of $240 million of the proceeds to prepay Tranche B term loans, (ii) permittedthe use of up to $400 million of the proceeds to prepay the unsecured seniornotes and (iii) permitted the reinvestment of up to $250 million of thebalance of the proceeds in the business of the Company and its subsidiaries.

 

The obligations of SSCEunder the Credit Agreement are unconditionally guaranteed by us and thematerial U.S. subsidiaries of SSCE.  Theobligations of SSC Canada under the Credit Agreement are unconditionallyguaranteed by us, SSCE, the material U.S. subsidiaries of SSCE and the materialCanadian subsidiaries of SSC Canada.  Theobligations of SSCE under the Credit Agreement are secured by a securityinterest in substantially all of our assets and properties, and those of SSCEand the material U.S. subsidiaries of SSCE, by a pledge of all of the capitalstock of SSCE and the material U.S. subsidiaries of SSCE and by a pledge of 65%of the capital stock of SSC Canada that is directly owned by SSCE.  The security interests securing SSCE’sobligation under the Credit Agreement exclude cash, cash equivalents, certaintrade receivables, three paper mills and the land and buildings of certaincorrugated container facilities.  Theobligations of SSC Canada under the Credit Agreement are secured by a securityinterest in substantially all of the assets and properties of SSC Canada andthe material Canadian subsidiaries of SSC Canada, by a pledge of all of thecapital stock of the material Canadian subsidiaries of SSC Canada and by thesame U.S. assets, properties and capital stock that secure SSCE’s obligationsunder the Credit Agreement.  The securityinterests securing SSC Canada’s obligation under the Credit Agreement excludethree mills and property related thereto and certain other real propertylocated in New Brunswick and Quebec.

 

The Credit Agreementcontains various covenants and restrictions including (i) limitations ondividends, redemptions and repurchases of capital stock, (ii) limitationson the incurrence of indebtedness, liens, leases and sale-leasebacktransactions, (iii) limitations on capital expenditures and (iv) maintenanceof certain financial covenants.  TheCredit Agreement also requires prepayments if we have excess cash flows, asdefined therein, or receive proceeds from certain asset sales, insurance or incurrenceof certain indebtedness.  The filing ofthe Chapter 11 Petition and the Canadian Petition constituted an event ofdefault under our Credit Agreement, and the debt obligations becameautomatically and immediately due and payable, although any actions to enforcesuch payment obligations are stayed as a result of the filing of the Chapter 11Petition and the Canadian Petition.  See “Liquidityafter Chapter 11 Bankruptcy Filings” for a discussion of the impact of theChapter 11 Petition and the Canadian Petition filings on the Credit Agreement.

 

**Calpine Corrugated Transaction**

 

In July 2008,we acquired a 90 percent ownership interest in Calpine Corrugated.  In conjunction with the acquisition, weguaranteed approximately $45 million of Calpine Corrugated’s third partyoutstanding debt.  There was no cashconsideration paid.  The transaction wasaccounted for as a purchase business combination and results of operations ofCalpine Corrugated are included in the consolidated statements of operationsbeginning July 29, 2008.  Thepurchase price allocation completed in the fourth quarter of 2008 resulted inassets and liabilities of approximately $50 million, including approximately$45 million of debt.  No goodwill wasrecorded for the transaction.  The acquisitionof Calpine Corrugated’s operations enabled us to

 

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accelerate theoptimization of our Northern California business unit and improve its positionin the agricultural market segment.

 

**Liquidity after Chapter 11Bankruptcy Filings**

 

The filing of theChapter 11 Petition and the Canadian Petition constituted an event ofdefault under our debt obligations, and those debt obligations becameautomatically and immediately due and payable, although any actions to enforcesuch payment obligations are stayed as a result of the filing of the Chapter 11Petition and the Canadian Petition.  As aresult, the accompanying Consolidated Balance Sheet as of December 31,2008 includes a reclassification of $3,032 million to current maturities oflong-term debt from long-term debt.

 

In connection with filing the Chapter 11 Petitionand the Canadian Petition, on January 26, 2009 we and certain of ouraffiliates filed a motion with the Bankruptcy Courts seeking approval to enterinto a DIP Credit Agreement.  On January 27,2009, the Bankruptcy Courts granted interim approval of the DIP CreditAgreement.  Based on such interimapproval, on January 28, 2009 we entered into the DIP Credit Agreement,subject to final approval of the Bankruptcy Courts.  Final approval of the DIP Credit Agreementwas granted by the U.S. Court on February 23, 2009 and by the CanadianCourt on February 24, 2009. Amendments to the DIP Credit Agreement were entered into on February 25and 27, 2009.

 

The DIP Credit Agreement, as amended, provides forborrowings up to an aggregate committed amount of $750 million, consisting of a$400 million U.S. term loan for borrowings by SSCE; a $35 million Canadian termloan for borrowings by SSC Canada; a $250 million U.S. revolving loan forborrowings by SSCE and/or SSC Canada; and a $65 million Canadian revolving loanfor borrowings by SSCE and/or SSC Canada.

 

The use of proceeds under the DIP Credit Agreementis limited to (i) working capital, letters of credit and capitalexpenditures; (ii) other general corporate purposes of ours and certain ofour subsidiaries (including certain intercompany loans); (iii) therefinancing in full of indebtedness outstanding under our receivablessecuritization programs; (iv) payment of any related transaction costs,fees and expenses; and (v) the costs of administration of the casesarising out of the Chapter 11 Petition and the Canadian Petition.

 

In accordance with the terms of the DIP CreditAgreement, on January 28, 2009, we used U.S. term loan proceeds of $360million, net of lenders fees of $40 million, and Canadian term loan proceeds of$30 million, net of lenders fees of $5 million, to terminate the receivablessecuritization programs and repay all indebtedness outstanding of $385 millionand to pay other expenses of $1 million. The remaining proceeds of $4 million were deposited into our primarycash operating account.

 

We have the option to borrow under the DIP CreditAgreement at a rate of: (i) Alternate Base Rate (ABR) Loans bear interestat a rate per annum equal to the applicable margin (Applicable Margin) plus theABR; (ii) Eurodollar loans bear interest at a rate per annum equal to theApplicable Margin plus the Adjusted LIBO Rate; (iii) Canadian prime rateloans bear interest at a rate per annum equal to the Applicable Margin plus theCanadian prime rate; and (iv) discount rate loans bear interest at a rateper annum equal tothe ApplicableMargin plus the discount rate.  The DIPCredit Agreement provides that the Applicable Margin adjusts upon extensions ofthe maturity date.** **As of February 28, 2009, theweighted average interest rate on outstanding borrowings under the DIP CreditAgreement was 10%.

 

Under the DIP Credit Agreement,****interest and fees are payable in arrearson each interest payment date as defined in the DIP Credit Agreement.  If we default on our obligations under theDIP Credit Agreement, the default rate of interest in most cases will be therate otherwise in effect plus 2.0% per annum. In addition to interest, a commitment fee of 1.0% per annum is requiredin respect of the unutilized commitments under the DIP Credit Agreement. TheDIP Credit Agreement also imposes letter of credit fees.

 

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The outstanding principal amount of the loans underthe DIP Credit Agreement, plus interest accrued and unpaid, will be due andpayable in full at maturity, which is January 28, 2010 (subject to anearlier maturity date under certain circumstances); provided, that the maturitydate may be extended through April 28, 2010 and subsequently through July 28,2010, upon the satisfaction of certain conditions precedent (including thepayment of specified fees).

 

U.S. and Canadian borrowings are each subject to aborrowing base derived from a formula based on certain eligible accountsreceivable and inventory, and an amount attributable to real property andequipment, less certain reserves.  As of February 28,2009, the applicable borrowing base was $729 million and the amount availablefor borrowings under the DIP Credit Agreement was $289 million.  In addition, as of February 28, 2009, wehad cash and cash equivalents of $210 million.

 

Borrowings under the DIP Credit Agreement areguaranteed by us and certain of our affiliates, and are secured by firstpriority liens in the collateral accounts and all presently owned and hereafteracquired assets of ours and each of our subsidiaries party to the DIP CreditAgreement, subject to certain permitted prior liens.  Subject to certain exceptions, the DIP CreditAgreement requires certain mandatory prepayments of borrowings from the netproceeds of certain asset dispositions, and casualty or condemnationpayments.  The only Canadian entity thatguarantees U.S. obligations is SSC Canada.

 

The DIP Credit Agreement includes affirmative,negative and financial covenants that impose substantial restrictions on ourfinancial and business operations and those of certain of our subsidiaries,including their ability to incur or secure debt, make investments, sell assets,pay dividends or make acquisitions. The DIP Credit Agreement contains events ofdefault customary for debtor-in-possession financings of this type.

 

**FUTURE CASH FLOWS**

 

**Contractual Obligations andCommitments**

In addition to our debtcommitments at December 31, 2008, we had other commitments and contractualobligations that require us to make specified payments in the future. Thefiling of the Chapter 11 Petition and Canadian Petition constituted anevent of default under our debt obligations, and those debt obligations becameautomatically and immediately due and payable, subject to an automatic stay ofany action to collect, assert, or recover a claim against us and theapplication of applicable bankruptcy law. The following table summarizes thetotal amounts due as of December 31, 2008 under all debt agreements,commitments and other contractual obligations. We are in the process of evaluating our executory contracts in order todetermine which contracts will be assumed in our bankruptcy proceedings.Therefore, obligations as currently quantified in the table below and in thefootnotes to the table are expected to change. The table indicates the years inwhich payments are due under the contractual obligations.

 
| ** **                                    | ** ** | ** ** | ** ** | **Amounts Payable During** | ** ** |
|-----------------------------------------------|------------|------------|------------|----------------------------|------------|
| **(In millions)**                             | ** ** | **Total**  | ** ** | **2009**                   | ** ** | **2010-11** | ** ** | **2012-13** | ** ** | **2014 &  Beyond** | ** ** |
|                                          |       |       |       |                       |       |   |   |   |   |   |   |
| Long-term  debt, including capital leases (1) |       | $          | 3,718      |                       | $          | 3,718 |   | $ |   | $ |   |   | $ |   |
| Operating  leases                             |       | 385        |       | 75                         |       | 95 |   | 59 |   | 156 |   |
| Purchase  obligations (2)                     |       | 874        |       | 287                        |       | 381 |   | 111 |   | 95 |   |
| Commitments  for capital expenditures (3)     |       | 176        |       | 129                        |       | 47 |   |   |   |   |   |
| Net  unrecognized tax benefits (4)            |       |       |       |                       |       |   |   |   |   |   |   |
| Other  long-term liabilities (5)              |       | 57         |       | 24                         |       | 13 |   | 4 |   | 16 |   |
| Total  contractual obligations                |       | $          | 5,210      |                       | $          | 4,233 |   | $ | 536 |   | $ | 174 |   | $ | 267 |   |
|                                               |            |            |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)        Projected contractual interest paymentsare excluded.  Based on interest rates ineffect and long-term debt balances outstanding as of December 31, 2008,hypothetical projected contractual interest payments would be approximately$256 million in 2009 and for each future year.

 

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However, due tothe bankruptcy proceedings, we do not expect to pay interest beginning after January 26,2009, the date of the bankruptcy filings, on our unsecured senior notes ($170million) and certain other unsecured debt ($10 million).  For the purpose of this disclosure, ourvariable and fixed rate long-term debt would be replaced at maturity withsimilar long-term debt. This disclosure does not attempt to predict future cashflows or changes in interest rates.  SeeItem 7A, “Quantitative and Qualitative Disclosures About Market Risk, InterestRate Risk.”

(2)        Amounts shown consist primarily ofnational supply contracts to purchase containerboard, wood, reclaimed fiber,natural gas and other energy resources for which value is received.  We do not aggregate open purchase ordersexecuted in the normal course of business by each of our operating locationsand such purchase orders are therefore excluded from the table.

(3)        Amounts shown are estimates of futurespending on capital projects which were committed to prior to December 31,2008, but were not completed by December 31, 2008.  Under the DIP Credit Agreement, capitalexpenditures for the 11 month period ended December 31, 2009 can notexceed $205 million.

(4)        As of December 31, 2008, our FIN No. 48net unrecognized tax benefits totaled $38 million, which are excluded from thetable since we cannot make a reasonably reliable estimate of the timing offuture payments.

(5)        Amounts shown consist primarily ofseverance costs and other rationalization expenditures and environmentalliabilities which have been recorded in our December 31, 2008 consolidatedbalance sheet.  Future minimum pensioncontributions after 2009 are excluded from the table due to the uncertainty ofthe timing of such contributions as a result of the status of our plans and theuncertainty created by the bankruptcy filings. The table does not include our deferred income tax liability andaccruals for self-insured losses because it is not certain when theseliabilities will become due.  Wecontributed $69 million to our pension plans and $15 million to otherpostretirement plans in 2008.  Futurecontributions to our pension and other postretirement plans will be dependenton future regulatory changes, future changes in discount rates, the earningsperformance of our plan assets and the impact of the bankruptcy filings.  We expect to contribute approximately $15million and $15 million, respectively, to such plans in 2009.

 

**ContingentObligations**

We issue standby lettersof credit primarily for performance bonds and for self-insurance.  Letters of credit are issued under SSCE’srevolving credit facilities, generally have a one-year maturity and are renewedannually.  As of December 31, 2008,SSCE had $166 million of letters of credit outstanding.  As of the date of this filing, we had $68million, inclusive of $18 million below, drawn on these outstanding letters ofcredit, which increased borrowings under our Credit Agreement by $68 million.  In addition, we had a deposit funded letterof credit facility, related to our variable rate industrial revenue bonds, forapproximately $122 million that matures on November 1, 2010. In February 2009,due to an event of default under the bond indentures, this credit facility wasdrawn on to fully repay the industrial revenue bonds in the principal amount of$120 million.

 

We have certain woodchipprocessing contracts, which provide for guarantees of third party contractors’debt outstanding, with a security interest in the chipping equipment.  Guarantee payments would be triggered in theevent of a loan default by any of the contractors.  The maximum potential amount of future paymentsrelated to all of such arrangements as of December 31, 2008 was $28 million.  Cash proceeds received from liquidation ofthe chipping equipment would be based on market conditions at the time of sale,and we may not recover in full the guarantee payments made.

 

At December 31,2008, we were contingently liable for $18 million under a one year letter ofcredit which expires in April 2009 to support borrowings of one of ournon-consolidated affiliates.  On March 4,2009, this letter of credit was drawn on, which increased borrowings under ourCredit Agreement by $18 million.

 

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**Pension Obligations**

Asof December 31, 2008, our pension benefit obligations exceeded the fairvalue of pension plan assets by $1,006 million, up from $407 million at the endof 2007.  The majority of the increasewas due to losses of $625 million on plan assets during 2008.

 

In August 2007, we announced thefreeze of our defined benefit pension plans for salaried employees. As aresult, effective January 1, 2009, U.S. and Canadian salaried employees nolonger accrue additional years of service and U.S. salaried employees no longerrecognize future increases in compensation under the existing defined benefitpension plans for benefit purposes.  Inaccordance with SFAS No. 88, “Employers Accounting for Settlements andCurtailments of Defined Benefit Pension Plans and for Termination Benefits,” weaccounted for this freeze as a plan curtailment, remeasured our assets andobligation as of August 31, 2007 and recognized a curtailment gain ofapproximately $3 million during the third quarter of 2007.  See the information set forth in Note 15 ofthe Notes to Consolidated Financial Statements.

 

#### **ExitLiabilities**

We recorded restructuringcharges of $67 million in 2008, net of gains of $2 million from sale ofproperties related to previously closed facilities.  Restructuring charges include $46 million forexit liabilities, which were principally for severance and benefits.  In 2008, we incurred cash expenditures of $29million for these exit liabilities.

 

We had $29 million ofexit liabilities as of December 31, 2007, related to the restructuring ofour operations.  During 2008, we incurredcash expenditures of $12 million for these exit liabilities.  The exit liabilities remaining as of December 31,2008, including the 2008 restructuring activities, totaled $33 million. Inaddition, we have a remaining exit liability of $1 million related to mergersand acquisitions.  Future cash outlays,principally for severance and benefits cost and long-term lease commitments andfacility closure cost, are expected to be $24 million in 2009, $6 million in2010 and $4 million thereafter.  Weintend to continue funding exit liabilities through operations as originallyplanned.

 

**EnvironmentalMatters**

As discussed in Part I,Item 1, “Business, Environmental Compliance,” we completed all projectsrequired to bring us into compliance with the now vacated Boiler MACT.  However, we could incur significantexpenditures due to changes in law or discovery of new information.  Excluding the spending on the Boiler MACTprojects and other one-time compliance costs, we have spent an average ofapproximately $6 million in each of the last three years on capitalexpenditures for environmental purposes. We anticipate that environmental capital expenditures will beapproximately $6 million in 2009.

 

#### **OFF-BALANCESHEET ARRANGEMENTS**

####  

At December 31,2008, we had three off-balance sheet financing arrangements.

 

SSCE had a $475 millionaccounts receivable securitization program whereby it sold, without recourse,on an ongoing basis, certain of its accounts receivable to SRC.  SRC is a wholly-owned non-consolidatedsubsidiary of SSCE and a qualified special-purpose entity under the provisionsof SFAS No. 140, “Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities.” Accordingly, accounts receivable sold to SRC for which we do not retainan interest are not included in our consolidated balance sheets.  SRC transfers the receivables to a non-consolidatedsubsidiary, a limited liability company, which has issued notes to third-partyinvestors.  At December 31, 2008,$465 million of accounts receivable had been sold under the program, of which$97 million was retained by SSCE as a subordinated interest and recorded inretained interest in receivables sold in the accompanying consolidated balancesheet.  We recognized a loss on sales ofreceivables to SRC of $14 million and $25 million in 2008 and 2007,respectively, which is included in other, net in the consolidated statements ofoperations.  The off-balance sheet SRCdebt at December 31, 2008 and 2007 was $365 million and $379

 

17

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million,respectively.  The investors and thelimited liability company have no recourse to SSCE for failure of debtors topay when due.

 

On January 28, 2009,the accounts receivable securitization program was terminated and all accountsreceivable in the program were repurchased with proceeds of $353 million fromborrowings under the DIP Credit Agreement.

 

SSCE, throughSmurfit-MBI, had a $70 million Canadian (approximately $57 million U.S.)accounts receivable securitization program whereby it sold, without recourse,on an ongoing basis, certain of its Canadian accounts receivable to a trust inwhich SSCE holds a variable interest, but is not the primary beneficiary.  Accordingly, under Financial AccountingStandards Board (FASB) Interpretation No. 46, “Consolidation of VariableInterest Entities,” accounts receivable sold to the trust, for which SSCE isnot the primary beneficiary, are not included in the accompanying consolidatedbalance sheets.  At December 31,2008, $58 million of accounts receivable had been sold under the program, ofwhich $23 million was retained by SSCE as a subordinated interest and recordedin retained interest in receivables sold in the accompanying consolidatedbalance sheet.  We recognized a loss onsales of receivables to the trust of $3 million and $2 million in 2008 and2007, respectively, which is included in other, net in the consolidatedstatements of operations.  The amountfunded to us at December 31, 2008 and 2007, was $33 million and $43million, respectively.  The investors andthe securitization trust have no recourse to SSCE for failure of debtors to paywhen due.

 

On January 28, 2009,the Canadian accounts receivable securitization program was terminated and allaccounts receivable in the program were repurchased with proceeds of $32million from borrowings under the DIP Credit Agreement.

 

We sold 980,000 acres ofowned and leased timberland in October 1999.  The final purchase price, after adjustments,was $710 million. We received $225 million in cash and $485 million in the formof installment notes.  Under our programto monetize the installment notes receivable, the notes were sold, withoutrecourse, to Timber Note Holdings LLC (TNH), a qualified special purpose entityunder the provisions of SFAS No. 140, for $430 million in cash proceedsand a residual interest in the notes. The residual interest included in other assets in the accompanyingconsolidated balance sheet was $34 million at December 31, 2008.  TNH and its creditors have no recourse to usin the event of a default on the installment notes.

 

###### **EFFECTSOF INFLATION**

###### ** **

Increases in costs forfiber, energy, freight and other materials including corn starch and ink havehad an adverse impact on our operating results during the past three years.Fiber, energy and freight cost increases are strongly influenced by supply anddemand factors including competition in global markets and from hurricanes orother natural disasters in certain regions of the United States, and whensupplies become tight, we have experienced increases in the cost of theseitems.  We continue to seek ways tomitigate the impact of such cost increases and, to the extent permitted bycompetition, pass the increased cost on to customers by increasing sales pricesover time.

 

We used the last-in,first-out method of accounting for approximately 42% of our inventories at December 31,2008.  Under this method, the cost ofgoods sold reported in the financial statements approximates current cost andthus provides a closer matching of revenue and expenses in periods ofincreasing costs.

 

Replacement of existingfixed assets in future years will be at higher costs, but this will take placeover many years.  New assets will resultin higher depreciation charges; but, in many cases, due to technologicalimprovements, there may be operating cost savings as well.

 

18

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###### ** **

###### **CRITICALACCOUNTING POLICIES AND USE OF ESTIMATES**

###### ** **

Our consolidatedfinancial statements have been prepared in accordance with U.S. generallyaccepted accounting principles (GAAP). The preparation of financial statements in accordance with U.S. GAAPrequires our management to make estimates and assumptions that affect theamounts reported in the consolidated financial statements and accompanyingnotes.  Our estimates and assumptions arebased on historical experiences and changes in the business environment.  However, actual results may differ from theseestimates.  Critical accounting policiesand estimates are defined as those that are both most important to theportrayal of our financial condition and results and require management’s mostsubjective judgments.  Our most criticalaccounting policies and use of estimates are described below.

 

**Going Concern**

The consolidatedfinancial statements and related notes have been prepared assuming that we willcontinue as a going concern, although our Chapter 11 bankruptcy filings raisesubstantial doubt about our ability to continue as a going concern.  The consolidated financial statements do notinclude any adjustments related to the recoverability and classification of recordedassets or to the amounts and classification of liabilities or any otheradjustments that might be necessary should we be unable to continue as a goingconcern.

 

**Goodwill and Other Intangible Assets**

We evaluate goodwill and other intangible assets forimpairment in accordance with SFAS No. 142 “Accounting for Goodwill andOther Intangible Assets” annually or at other times when events andcircumstances indicate the carrying value of this asset may no longer be fullyrecoverable.  In the fourth quarter of2008, as the result of the significant decline in value of our equitysecurities and debt instruments and the downward pressure placed on earnings bythe weakening U.S. economy, we determined that goodwill and other intangibleassets were potentially impaired.

 

We engaged a third-party to assist with our impairmentreview.  As outlined in SFAS 142, theamount of the goodwill impairment, if any, is measured by comparing the impliedfair value of goodwill to its book value, or carrying amount.  The third-party valuation report as ofDecember 31, 2008, indicated that the carrying amount of goodwill wasfully impaired based on declines in current and projected operating results andcash flows due to the current economic conditions.  At December 31, 2008, we recognized animpairment charge of $2,723 million, net of an income tax benefit of $4million, which eliminated all goodwill.  The goodwill consisted primarily of amounts recorded in connection withour merger with Stone Container Corporation in November of 1998.

 

In addition, we also determined that the carryingvalue of our other intangible assets was fully impaired.  The other intangible assets atDecember 31, 2008 consisted of definite life customer relationships of $22million and $12 million of an indefinite life trade name, which were primarilyrecorded in connection with our acquisition of the remaining 50% ownership inSmurfit-MBI in 2003.  As a result, werecognized a pretax impairment charge on other intangible assets of $34 millionin the fourth quarter of 2008.

 

# **Long-LivedAssets Excluding Goodwill**

We conduct impairment reviews of long-lived assets inaccordance with SFAS No. 144 “Accounting for the Impairment or Disposal ofLong-Lived Assets.”  Based upon ourreview as of December 31, 2008, we determined that there was no impairmentof long-lived assets.  Such reviewsrequire us to make estimates of future cash flows and fair values.  Our cash flow projections include significantassumptions about economic conditions, demand and pricing for our products andcosts. Our estimates of fair value are determined using a variety of valuationtechniques, including cash flows. While significant judgment is required, webelieve that our estimates of future cash flows and fair value arereasonable.  However, should ourassumptions change in future years, our fair value models could indicate lowerfair values for long-lived assets, which could materially affect the carryingvalue of property, plant and equipment and results of operations.

 

19

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## ** **

## **Restructurings**

In recent years, we haveclosed a number of operating facilities and exited non-core businesses.  Identifying and calculating the cost to exitthese businesses requires certain assumptions to be made, the most significantof which are anticipated future liabilities, including leases and othercontractual obligations, and the adjustment of property, plant and equipment tonet realizable value.  We believe ourestimates are reasonable, considering our knowledge of the paper industry,previous experience in exiting activities and valuations received fromindependent third parties in the calculation of such estimates.  Although our estimates have been reasonablyaccurate in the past, significant judgment is required, and these estimates andassumptions may change as additional information becomes available and facts orcircumstances change.

 

## **Allowance for Doubtful Accounts**

Weevaluate the collectibility of accounts receivable on a case-by-case basis andmake adjustments to the bad debt reserve for expected losses.  We also estimate reserves for bad debts basedon historical experience and past due status of the accounts.  We perform credit evaluations and adjustcredit limits based upon each customer’s payment history and creditworthiness.  While credit losses havehistorically been within our expectations and the provisions established,actual bad debt write-offs may differ from our estimates, resulting in higheror lower charges in the future for our allowance for doubtful accounts.

 

## **Pension and Postretirement Benefits**

We have significantlong-term liabilities related to our defined benefit pension and postretirementbenefit plans.

 

The determination ofpension obligations and expense is dependent upon our selection of certainassumptions, the most significant of which are the expected long-term rate ofreturn on plan assets and the discount rates applied to plan liabilities.  Consulting actuaries assist us in determiningthese assumptions, which are described in Note 14 of the Notes to ConsolidatedFinancial Statements.  In 2008, theexpected long-term rates of return on our U.S. plan assets and foreign planassets were 8.50% and 7.50%, respectively, which were consistent with2007.  The weighted average discountrates used to determine the benefit obligations for the U.S. and foreignretirement plans at December 31, 2008 were 6.25% and 7.45%,respectively.  The assumed rate for thelong-term return on plan assets was determined based upon target asset allocationsand expected long-term rates of return by asset class. For determination of thediscount rate, the present value of the cash flows as of the measurement dateis determined using the spot rates from the Mercer Yield Curve, and based onthe present values, a single equivalent discount rate is developed. This rateis the single uniform discount rate that, when applied to the same cash flows,results in the same present value of the cash flows as of the measurementdate.  A decrease in the assumed rate ofreturn of 0.50% would increase pension expense by approximately $14million.  A decrease in the discount rateof 0.50% would increase our pension expense by approximately $17 million andour pension benefit obligations by approximately $162 million.

 

Related to ourpostretirement benefit plans, we make assumptions for future trends for medicalcare costs.  The effect of a 1% change inthe assumed health care cost trend rate would increase our accumulatedpostretirement benefit obligation as of December 31, 2008 by $10 millionand would increase the annual net periodic postretirement benefits cost by $1million for 2008.

 

## **Income Taxes**

FIN No. 48 creates asingle model to address accounting for uncertainty in tax positions andclarifies the accounting for income taxes by prescribing a minimum recognitionthreshold a tax position is required to meet before being recognized in thefinancial statements.  Upon adoption ofFIN No. 48, we elected to classify interest and penalties related tounrecognized tax benefits in our income tax provision, consistent with ourprevious accounting policy (See Note 14 of the Notes to Consolidated FinancialStatements).

 

20

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At December 31,2008, we had $38 million of net unrecognized tax benefits.  All net unrecognized tax benefits, ifrecognized, would affect our effective tax rate. The primary differencesbetween gross unrecognized tax benefits and net unrecognized tax benefits areassociated with offsetting benefits in other jurisdictions related to transferpricing and the U.S. federal tax benefit from state tax deductions.  See Note 14 of Notes to ConsolidatedFinancial Statements for a reconciliation of 2008 activity.

 

For the year endedDecember 31, 2008, $6 million of interest was recorded related to taxpositions taken during the current and prior years.  During 2008, $12 million of interest wasreleased due to settlements with taxing authorities.  The interest was computed on the differencebetween the tax position recognized in accordance with FIN No. 48 and theamount previously taken or expected to be taken in our tax returns, adjusted toreflect the impact of net operating loss and other tax carryforward items.  During 2008, $3 million of penalties wererecorded related to current and prior year tax positions.  At December 31, 2008, $22 million ofinterest and penalties are recognized in the consolidated balance sheet.  All net unrecognized tax benefits, ifrecognized, would affect our effective tax rate.

 

Deferred tax assets andliabilities reflect our assessment of future taxes to be paid in thejurisdictions in which we operate.  Theseassessments involve temporary differences resulting from differing treatment ofitems for tax and accounting purposes. In addition, unrecognized tax benefits under the provisions of FINNo. 48 reflect estimates of our current tax exposures.  Based on our evaluation of our tax positions,we believe we were adequately reserved for these matters at December 31,2008.

 

At December 31,2008, we had deferred tax assets related to net operating loss, alternativeminimum tax and other tax credit carryforwards in the amount of $479million.  A valuation allowance of$42 million has been established for a portion of these deferred taxassets based on the expected timing of deferred tax liability reversals and theexpiration dates of these carryforwards. See Note 14 of the Notes to Consolidated Financial Statements.  We expect our deferred tax assets, net of thevaluation allowance, will be fully realized through the reversal of net taxabletemporary differences at December 31, 2008.

 

As previously disclosed,the Canada Revenue Agency (CRA) is examining our income tax returns for taxyears 1999 through 2005.  In connectionwith the examination, the CRA was considering certain significant adjustmentsrelated principally to taxable income related to our acquisition of a Canadiancompany and to transfer prices of inventory sold by our Canadian subsidiariesto our U.S. subsidiaries.  During 2008,we were informed by the CRA that certain matters related to our acquisition ofa Canadian company had been resolved in our favor.  Primarily as a result of this favorableruling, we reduced our liability for unrecognized tax benefits and recorded anincome tax benefit of approximately $84 million during 2008.

 

With respect to thetransfer price issue, the CRA has issued assessments of additional incometaxes, interest and penalties related to transfer prices of inventory sold byour Canadian subsidiaries to our U.S. subsidiaries.  We have appealed the assessments.  In order to appeal the assessments, we madepayments of $25 million to the CRA in 2008. As a result of these payments, future interest charges will be reduced.

 

The remaining matters maybe resolved at the examination level or subsequently upon appeal within thenext twelve months.  While the finaloutcome of the remaining CRA examination matters, including an estimate of therange of the reasonably possible changes to unrecognized tax benefits, is notyet determinable, we believe that the examination or subsequent appeals willnot have a material adverse effect on our consolidated financial condition orresults of operations.

 

We have settled theInternal Revenue Service examinations of our income tax returns for tax yearsthrough 2003.  The federal statute oflimitations is closed through 2003, except for any potential correlativeadjustments for the years 1999 through 2003 relating to the CRA examinationsnoted above.  There are currently nofederal examinations in progress.  Inaddition, we file tax returns in numerous states.  The states’ statutes of limitations aregenerally open for the same years as the federal statute of limitations.

 

21

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Federal income taxes havenot been provided on undistributed earnings of our foreign subsidiaries during2006 through 2008, as we intend to indefinitely reinvest such earnings into itsforeign subsidiaries.

 

## **Legal and Environmental Contingencies**

Accruals for legal andenvironmental matters are recorded when it is probable that a liability hasbeen incurred and the amount of loss can be reasonably estimated.  Such liabilities are developed based oncurrently available information and require judgments as to probable outcomes.  Assumptions are based on historical experienceand recommendations of legal counsel. Environmental estimates include assumptions and judgments aboutparticular sites, remediation alternatives and environmental regulations.  We believe our accruals are adequate.  However, due to uncertainties associated withthese assumptions and judgments, as well as potential changes to governmentalregulations and environmental technologies, and the impact of our bankruptcy onthese matters, actual costs could differ materially from the estimated amounts.

 

### **Self-Insurance**

We self-insure a majorityof our workers’ compensation costs. Other workers’ compensation and general liability costs are subject tospecific retention levels for certain policies and coverage.  Losses above these retention levels aretransferred to insurance companies.  Inaddition, we self-insure the majority of our group health care costs.  All of the workers’ compensation, generalliability and group health care claims are handled by third-partyadministrators. Consulting actuaries and administrators assist us indetermining our liability for self-insured claims.  Losses are accrued based upon the aggregateself-insured claims determined by the third-party administrators, actuarialassumptions and our historical experience. While we believe that our assumptions are appropriate, significantdifferences in our actual experience or significant changes in our assumptionsmay materially affect our workers’ compensation, general liability and grouphealth care costs.

 

**PROSPECTIVE ACCOUNTING STANDARDS**

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFASNo. 141(R)), effective for fiscal years beginning after December 15,2008.  SFAS No. 141(R) expandsthe definition of a business and changes the accounting for businesscombinations, including how an acquirer recognizes and measures theidentifiable assets acquired, the cost of the acquisition, the liabilitiesassumed, any noncontrolling interest in the acquiree and the goodwill acquired.  SFAS No. 141(R) will be applicableto future business combinations and will not have a material effect on ourconsolidated financial statements prior to such acquisitions.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements - An Amendment of ARB No. 51” (SFAS No. 160),effective for fiscal years beginning after December 15, 2008.  SFAS No. 160 changes the accounting fornon-controlling (minority) interests in consolidated financial statements,requires non-controlling interests to be reported as part of equity and changesthe income statement presentation of income or losses attributable tonon-controlling interests.  We do notexpect SFAS No. 160 to have a material impact on our consolidatedfinancial statements.

 

In March 2008, theFASB issued SFAS No. 161, “Disclosures about Derivative Instruments andHedging Activities — An Amendment of FASB Statement No. 133” (SFASNo. 161), effective for fiscal years beginning after November 15,2008.  SFAS No. 161 requiresenhanced disclosures about how and why an entity uses derivative instruments,how derivative instruments are accounted for and how derivative instrumentsaffect an entity’s financial position, financial performance and cashflows.  We expect SFAS No. 161 toexpand our derivative instrument disclosures in our financial statements.

 

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**PART IV**

 

**ITEM 15.****         ****EXHIBITS AND FINANCIALSTATEMENT SCHEDULES**

 
| (a)    |   | (1) and  (2) The list of Financial Statements and Financial Statement Schedules  required by this item is included in Item 8.                                                                                                                                                                                                                                                                           |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | (3) Exhibits.                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.1(a) |   | Asset Purchase  Agreement, dated May 11, 2006, by and among Smurfit-Stone Container  Enterprises, Inc.(“SSCE”), Smurfit-Stone Container Canada Inc. and  Bluegrass Container Company, LLC (incorporated by reference to  Exhibit 2.1 to Smurfit-Stone Container Corporation’s (“SSCC”) Current  Report on Form 8-K dated July 6, 2006 (File No. 0-23876)). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.1(b) |   | Amendment No. 1 to  Asset Purchase Agreement, dated June 30, 2006, by and among  Smurfit-Stone Container Enterprises, Inc., Smurfit-Stone Container  Canada Inc. and Bluegrass Container Company, LLC (incorporated by reference  to Exhibit 2.2 to SSCC’s Current Report on Form 8-K dated  July 6, 2006 (File No. 0-23876)).                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.2    |   | Asset Purchase  Agreement, dated August 8, 2007, by and among SSCE, Georgia-Pacific  Brewton LLC and Georgia-Pacific LLC (incorporated by reference to  Exhibit 2.1 to SSCC’s Current Report on Form 8-K filed  August 10, 2007 (File No. 0-23876)).                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.1    |   | Restated Certificate of  Incorporation of SSCC (incorporated by reference to Exhibit 3(a) to  SSCC’s Registration Statement on Form S-4 (File No. 333-65431)).                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.2(a) |   | Second Amended and  Restated Bylaws of Smurfit-Stone Container Corporation (incorporated by  reference to Exhibit 3.2 to SSCC’s Annual Report on Form 10-K for  the fiscal year ended December 31, 2002 (File No. 0-23876)).                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.2(b) |   | Amendment to Second  Amended and Restated Bylaws of SSCC (incorporated by reference to  Exhibit 3.1 to SSCC’s Current Report on Form 8-K filed  March 2, 2007 (File No. 0-23876)).                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.2(c) |   | Amendment to Second  Amended and Restated Bylaws of SSCC (incorporated by reference to  Exhibit 3.1 to SSCC’s Current Report on Form 8-K filed  March 4, 2008 (File No. 0-23876)).                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.1    |   | Certificate for  Smurfit-Stone Container Corporation’s Common Stock (incorporated by reference  to Exhibit 4.3 to SSCC’s Registration Statement on Form S-8 (File  No. 33-57085)).                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.2    |   | Form of  Certificate of Designation establishing the terms of Smurfit-Stone Container  Corporation’s Series A Preferred Stock (incorporated by reference to  Exhibit 4.2 to SSCC’s Registration Statement on Form S-4 (File  No. 333-43656)).                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.3    |   | Certificate for  Smurfit-Stone Container Corporation’s Series A Preferred Stock  (incorporated by reference to Exhibit 4.4 to SSCC’s Registration  Statement on Form S-4 (File No. 333-43656)).                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.4    |   | Certificate of  Designation of Series B Junior Participating Preferred Stock  (incorporated by reference to Exhibit 4.1 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 2002 (File  No. 0-23876)).                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.5    |   | Rights Agreement dated  as of September 9, 2002 by and between SSCC and Mellon Investor  Services, as Rights Agent. The Rights Agreement includes as Exhibit B  the form of Rights Certificate and as Exhibit C the form of Certificate  of Designations (incorporated by reference to                                                                                                             |

 

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|                                                                                                                                                                                                                                                                                       |   | Exhibit 4.1 to  SSCC’s Current Report on Form 8-K dated September 10, 2002 (File No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Indentures and other  debt instruments with respect to long-term debt that do not exceed 10% of the  total assets of SSCC and its subsidiaries on a consolidated basis are not  filed herewith. The Registrant agrees to furnish a copy of such documents to  the Commission upon request. |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.6(a)                                                                                                                                                                                                                                                                                     |   | Master Indenture dated  as of November 23, 2004 between SSCE Funding, LLC, as Issuer, and  Deutsche Bank Trust Company Americas, as Indenture Trustee (incorporated by  reference to Exhibit 4.1 to SSCE Current Report on Form 8-K dated  November 24, 2004 (File No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.6(b)                                                                                                                                                                                                                                                                                     |   | Series 2004-1  Indenture Supplement to Master Indenture dated as of November 23, 2004  between SSCE Funding, LLC, as Issuer, and Deutsche Bank Trust Company  Americas, as Indenture Trustee (incorporated by reference to Exhibit 4.2  to SSCE’s Current Report on Form 8-K dated November 24, 2004 (File No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.6(c)                                                                                                                                                                                                                                                                                     |   | Series 2004-2  Indenture Supplement to Master Indenture dated as of November 23, 2004  between SSCE Funding, LLC, as Issuer, and Deutsche Bank Trust Company  Americas, as Indenture Trustee (incorporated by reference to Exhibit 4.3  to SSCE’s Current Report on Form 8-K dated November 24, 2004 (File  No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.7(a)                                                                                                                                                                                                                                                                                     |   | Form of 8.000%  Senior Notes due 2017 of Smurfit-Stone Container Enterprises, Inc.  (incorporated by reference to Exhibit 4.1 to SSCE’s Registration  Statement on Form S-4, Registration Number 333-141630 (the “SSCE  Form S-4”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.7(b)                                                                                                                                                                                                                                                                                     |   | Indenture dated as of  March 26, 2007, between Smurfit-Stone Container Enterprises, Inc.  and The Bank of New York Trust Company, N.A., as Trustee, relating to SSCE’s  8.000% Senior Notes due 2017 (incorporated by reference to Exhibit 4.2  to the SSCE Form S-4).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.7(c)                                                                                                                                                                                                                                                                                     |   | Form of 8.25%  Senior Notes due 2012 of Jefferson Smurfit Corporation (U.S.) (JSC(U.S.)).  (incorporated by reference to Exhibit 4.1 to JSCE, Inc.’s (JSCE)  Registration Statement on Form S-4, Registration Number 333-101419 (the  “JSCE Form S-4”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.7(d)                                                                                                                                                                                                                                                                                     |   | Indenture dated as of  September 26, 2002, among JSC(U.S.), JSCE and the Bank of New York, as  Trustee, relating to JSC(U.S.)’s 8.25% Senior Notes due 2012 (incorporated by  reference to Exhibit 4.2 to JSCE’s Quarterly Report on Form 10-Q  for the quarter ended September 20, 2002 (File No. 0-11951)).                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.1(a)                                                                                                                                                                                                                                                                                    |   | Credit Agreement, dated  November 1, 2004, by and among SSCC, as guarantor, SSCE and  Smurfit-Stone Container Canada Inc., as borrowers, JPMorgan Chase Bank, N.A.,  as Senior Agent, Deposit Account Agent and Deposit Funded Facility Facing  Agent, Deutsche Bank and Trust Company Americas, as Senior Agent,  Administrative Agent, Collateral Agent, Swingline Lender and Revolving  Facility Facing Agent, Deutsche Bank AG, as Canadian Administrative Agent and  Revolving (Canadian) Facility Facing Agent, and the other financial  institutions party thereto, as lenders (incorporated by reference to  Exhibit 10.1 to SSCC’s Current Report on Form 8-K/A dated  November 1, 2004, filed with the Commission on April 17, 2009 (File  No. 0-23876)). |
|                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.1(b)                                                                                                                                                                                                                                                                                    |   | Amendment No. 1,  dated as of September 30, 2005, to the Credit Agreement, dated as of  November 1, 2004, among SSCC, as Guarantor, SSCE and Smurfit-Stone  Container Canada Inc., as Borrowers, the Lenders party thereto, Deutsche Bank  Trust Company Americas, as Senior Agent, Administrative Agent, Collateral  Agent, Swingline Lender and Revolving Facility Facing Agent, Deutsche Bank  AG, as Canadian Administrative Agent and Revolving                                                                                                                                                                                                                                                                                                                               |

 

24

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|    |   | (Canadian) Facility  Facing Agent, and JPMorgan Chase Bank, N.A., as Senior Agent, Deposit Account  Agent and Deposit Funded Facility Facing Agent (incorporated by reference to  Exhibit 10.1 to SSCC’s Current Report on Form 8-K dated  October 5, 2005 (File No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1(c) |   | Incremental Term Loan  Assumption and Amendment No. 2, dated as of December 20, 2005,  related to the Credit Agreement, dated as of November 1, 2004, as  amended by Amendment No. 1 dated as of September 30, 2005, among  SSCC, as Guarantor, SSCE and Smurfit-Stone Container Canada Inc., as  Borrowers, the Lenders party thereto, Deutsche Bank Trust Company Americas,  as Senior Agent, Administrative Agent, Collateral Agent, Swingline Lender and  Revolving Facility Facing Agent, Deutsche Bank AG, as Canadian Administrative  Agent and Revolving (Canadian) Facility Facing Agent, and JPMorgan Chase  Bank, N.A., as Senior Agent, Deposit Account Agent and Deposit Funded  Facility Facing Agent (incorporated by reference to Exhibit 10.1 to  SSCC’s Current Report on Form 8-K dated December 20, 2005 (File  No. 0-23876)).                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1(d) |   | Amendment No. 3  dated as of June 9, 2006, to the Credit Agreement dated as of November 1,  2004, as amended by Amendment No. 1 dated as of September 30, 2005,  and Incremental Term Loan Assumption Agreement and Amendment No. 2 dated  as of December 20, 2005, among Smurfit-Stone Container Corporation, as  Guarantor; Smurfit-Stone Container Enterprises, Inc. and Smurfit-Stone  Container Canada Inc., as Borrowers; the Lenders from time to time party  thereto; Deutsche Bank Trust Company Americas, as Senior Agent,  Administrative Agent, Collateral Agent, Swingline Lender and Revolving Facility  Facing Agent; Deutsche Bank AG, as Canadian Administrative Agent and  Revolving (Canadian) Facility Facing Agent; and JPMorgan Chase Bank, N.A., as  Senior Agent, Deposit Account Agent and Deposit Funded Facility Facing Agent  (incorporated by reference to Exhibit 10.1 to SSCC’s Current Report on  Form 8-K dated June 13, 2006 (File No. 0-23876)). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2    |   | Sale Agreement dated as  of November 23, 2004 by and between SSCE, as Seller, and Stone  Receivables Corporation (“SRC”) (incorporated by reference to Exhibit 10.1  to SSCE’s Current Report on Form 8-K dated November 24, 2004 (File  No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3    |   | Transfer and Servicing  Agreement dated as of November 23, 2004 by and among SRC, SSCE Funding,  LLC and SSCE, as Servicer (incorporated by reference to Exhibit 10.2 to  SSCE’s Current Report on Form 8-K dated November 24, 2004 (File  No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4    |   | Variable Funding Note  Purchase Agreement dated as of November 23, 2004 by and among SSCE  Funding, LLC, as issuer, Barton Capital LLC, as conduit purchaser, certain  financial institutions, as committed purchasers, and Societe Generale, as  agent for the purchasers (incorporated by reference to Exhibit 10.3 to  SSCE’s Current Report on Form 8-K dated November 24, 2004 (File  No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5    |   | Receivables Purchase  Agreement, dated March 30, 2004, among MBI Limited/Limitee, in its  capacity as General Partner of Smurfit-MBI, an Ontario Limited Partnership  and Computershare Trust Company of Canada, in its capacity as Trustee of King  Street Funding Trust and Scotia Capital Inc. (incorporated by reference to  Exhibit 10.2(a) to Stone Container’s Quarterly Report on  Form 10-Q for the quarter ended March 31, 2004 (File  No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6    |   | Support Agreement,  dated March 30, 2004, between Stone Container Corporation (“Stone  Container”) and Computershare Trust Company of Canada, in its capacity as  Trustee of King Street Funding Trust, by its Administrator, Scotia Capital  Inc. (incorporated by reference to Exhibit 10.2(b) to Stone  Container’s Quarterly Report on Form 10-Q for the quarter ended  March 31, 2004 (File No. 0-23876)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

25

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| 10.7      |   | Amended and Restated  Guaranty dated as of July 28, 2008, made by SSCE in favor of The CIT  Group/Equipment Financing, Inc., as the initial lender and as  Administrative Agent for the benefit of the Lenders (incorporated by  reference to Exhibit 10.1 to SSCE’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2008 (File No. 1-3439)). |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.8      |   | Continuing Guaranty,  dated as of July 28, 2008, made by and between SSCE and Union Bank of  California, N.A. (incorporated by reference to Exhibit 10.2 to SSCE’s  Quarterly Report on Form 10-Q for the quarter ended September 30,  2008 (File No. 1-3439)).                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.9(a)*  |   | Jefferson Smurfit  Corporation Amended and Restated 1992 Stock Option Plan, dated as of  May 1, 1997 (incorporated by reference to Exhibit 10.10 to SSCC’s  Annual Report on Form 10-K for the fiscal year ended December 31,  1997 (File No. 0-23876)).                                                                                                              |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.9(b)*  |   | Amendment of the  Jefferson Smurfit Corporation Amended and Restated 1992 Stock Option Plan  (incorporated by reference to Exhibit 10.3 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 1999 (File  No. 0-23876)).                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.10*    |   | Jefferson Smurfit Corporation  Deferred Compensation Plan as amended (incorporated by reference to  Exhibit 10.7 to SSCC’s Annual Report on Form 10-K for the fiscal  year ended December 31, 1996 (File No. 0-23876)).                                                                                                                                                    |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.11*    |   | Jefferson Smurfit  Corporation Management Incentive Plan (incorporated by reference to  Exhibit 10.10 to SSCC’s Annual Report on Form 10-K for the fiscal  year ended December 31, 1995 (File No. 0-23876)).                                                                                                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.12(a)* |   | Stone Container  Corporation 1995 Long-Term Incentive Plan (incorporated by reference to Exhibit A  to Stone Container’s Proxy Statement dated as of April 7, 1995 (File  No. 0-23876)).                                                                                                                                                                                        |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.12(b)* |   | Amendment of the 1995  Long-Term Incentive Plan of Stone Container Corporation (incorporated by  reference to Exhibit 10.2 to Stone Container’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 1999 (File No. 0-23876)).                                                                                                                                    |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.13(a)* |   | Smurfit-Stone Container  Corporation 1998 Long-Term Incentive Plan (incorporated by reference to  Exhibit 10.14 to SSCC’s Annual Report on Form 10-K for the fiscal  year ended December 31, 1998 (File No. 0-23876)).                                                                                                                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.13(b)* |   | First Amendment of the  Smurfit-Stone Container Corporation 1998 Long-Term Incentive Plan  (incorporated by reference to Exhibit 10.2 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 1999 (File  No. 0-23876)).                                                                                                                              |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.13(c)* |   | Second Amendment of the  Smurfit-Stone Container Corporation 1998 Long-Term Incentive Plan  (incorporated by reference to Exhibit 10.1 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2001 (File  No. 0-23876)).                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.13(d)* |   | Third Amendment of the  Smurfit-Stone Container Corporation 1998 Long-Term Incentive Plan  (incorporated by reference to Exhibit 10.1 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 2001 (File  No. 0-23876)).                                                                                                                              |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.14(a)* |   | Smurfit-Stone Container  Corporation 2004 Long-Term Incentive Plan (incorporated by reference to  Appendix I to SSCC’s Proxy Statement dated April 5, 2004 (File  No. 0-23876)).                                                                                                                                                                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.14(b)* |   | First Amendment of the  Smurfit-Stone Container Corporation 2004 Long-Term Incentive Plan  (incorporated by reference to Exhibit 10.1 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2004 (File  No. 0-23876)).                                                                                                                                   |

 

26

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| 10.15*    |   | Jefferson Smurfit  Corporation Supplemental Income Pension Plan II (incorporated by reference to  Exhibit 10.1 to SSCC’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2006 (File No. 0-23876)).                                                                                                           |
|-----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.16*    |   | Form of Employment  Security Agreements (incorporated by reference to Exhibit 10(h) to  SSCC’s Registration Statement on Form S-4 (File No. 333-65431)).                                                                                                                                                                   |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.17(a)* |   | Employment Agreement  for Patrick J. Moore (incorporated by reference to Exhibit 10.28 to  SSCC’s Annual Report on Form 10-K for the fiscal year ended  December 31, 1999 (File No. 0-23876)).                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.17(b)* |   | First Amendment of  Employment Agreement of Patrick J. Moore (incorporated by reference to  Exhibit 10.2 to SSCC’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2002 (File No. 0-23876)).                                                                                                                 |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.17(c)* |   | Second Amendment of  Employment Agreement of Patrick J. Moore effective as of July 25, 2006,  between SSCC and Patrick J. Moore (incorporated by reference to  Exhibit 10.1 to SSCC’s Quarterly Report on Form 10-Q for the  quarter ended June 30, 2006 (File No. 0-23876)).                                              |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.17(d)* |   | Third Amendment to  Employment Agreement of Patrick J. Moore entered into December 31, 2008  (incorporated by reference to Exhibit 10.1 to SSCC’s Current Report on  Form 8-K filed December 31, 2008 (File No. 0-23876)).                                                                                                 |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.18(a)* |   | Restricted Stock Unit  Agreement dated as of January 4, 2002 by and between SSCC and Patrick J.  Moore (incorporated by reference to Exhibit 10.3 to SSCC’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2002 (File  No. 0-23876)).                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.18(b)* |   | Amendment, dated  June 1, 2004, of Restricted Stock Unit Agreement dated as of  January 4, 2002 by and between SSCC and Patrick J. Moore (incorporated  by reference to Exhibit 10.2 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2004 (File  No. 0-23876)).                               |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.18(c)* |   | Amendment No. 2,  dated December 31, 2004, of Restricted Stock Unit Agreement dated as of  January 4, 2002 by and between SSCC and Patrick J. Moore (incorporated  by reference to Exhibit 10.20(c) to SSCC’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2004 (File  No. 0-23876)). |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.19(a)* |   | Offer Letter dated as  of May 11, 2006 between the Company and Steven J. Klinger (incorporated  by reference to Exhibit 10.1 to SSCC’s Current Report on Form 8-K  dated May 12, 2006 (File No. 0-23876)).                                                                                                                 |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.19(b)* |   | Employment Agreement  dated as of May 11, 2006 between the Company and Steven J. Klinger  (incorporated by reference to Exhibit 10.2 to SSCC’s Current Report on  Form 8-K dated May 12, 2006 (File No. 0-23876)).                                                                                                         |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.19(c)* |   | First Amendment of  Employment Agreement of Steven J. Klinger, incorporated by reference to  Exhibit 10.1 to SSCC’s Quarterly Report on Form 10-Q for the  quarter ended June 30, 2008 (File No. 0-23876)).                                                                                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                                                     |
| 10.19(d)* |   | Amendment to Employment  Agreement of Steven J. Klinger, entered into December 31, 2008  (incorporated by reference to Exhibit 10.3 to SSCC’s Current Report on  Form 8-K filed December 31, 2008 (File No. 0-23876)).                                                                                                     |

 

27

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| 10.19(e)* |   | Executive Retirement  Agreement, dated as of October 2, 2006, between SSCC and Steven J.  Klinger (incorporated by reference to Exhibit 10.1 to SSCC’s Current  Report on Form 8-K dated October 5, 2006 (File No. 0-23876)).                                                                                      |
|-----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.19(f)* |   | Amendment to Executive  Retirement Agreement of Steven J. Klinger, entered into December 31,  2008 (incorporated by reference to Exhibit 10.4 to SSCC’s Current Report  on Form 8-K filed December 31, 2008 (File No. 0-23876)).                                                                                   |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.20(a)* |   | Employment Agreement of  Charles A. Hinrichs (incorporated by reference to Exhibit 10.22 to  SSCC’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003 (File No. 0-23876)).                                                                                                                        |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.20(b)* |   | First Amendment of  Employment Agreement of Charles A. Hinrichs effective as of July 25,  2006, between Smurfit-Stone Container Corporation and Charles A. Hinrichs  (incorporated by reference to Exhibit 10.2 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006 (File  No. 0-23876)). |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.20(c)* |   | Second Amendment to  Employment Agreement of Charles A. Hinrichs, entered into December 31,  2008 (incorporated by reference to Exhibit 10.2 to SSCC’s Current Report  on Form 8-K filed December 31, 2008 (File No. 0-23876)).                                                                                    |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.21*    |   | Employment Security  Agreement, dated November 4, 2008, between SSCC and Craig A. Hunt  (incorporated by reference to Exhibit 10.3 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 2008 (File  No. 0-23876)).                                                                         |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.22*    |   | Employment Security  Agreement, dated November 4, 2008, between SSCC and Mack C. Jackson  (incorporated by reference to Exhibit 10.4 to SSCC’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 2008 (File  No. 0-23876)).                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.23*    |   | Employment Security  Agreement, dated November 16, 2006, between SSCC and Steven C.  Strickland.                                                                                                                                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 10.24*    |   | Smurfit-Stone Container  Corporation Executive Deferred Compensation Plan (incorporated by reference  to Exhibit 10.25 to SSCC’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2004 (File No. 0-23876)).                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 21.1**    |   | Subsidiaries of  Smurfit-Stone Container Corporation.                                                                                                                                                                                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 23.1**    |   | Consent of Independent  Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 24.1**    |   | Powers of Attorney.                                                                                                                                                                                                                                                                                                                              |
|      |   |                                                                                                                                                                                                                                                                                                                                             |
| 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.                                                                                                                                                                                                              |

 

28

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| (b)    |   | Exhibits filed with  this annual report are included under Item (a) (3). |
|--------|--------|-------------------------------------------------------------------------------|
|   |   |                                                                          |
| (c)    |   | None.                                                                         |

 

----

| *   |   | Indicates a management  contract or compensation plan or arrangement.                                                                                                        |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **  |   | Filed with the Annual  Report on Form 10-K for the fiscal year ended December 31, 2008,  filed with the Commission on March 17, 2009 (File No. 0-23876). |
| *** |   | Filed herewith.                                                                                                                                                              |

 

29

----

 

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
| DATE   | June 12, 2009 |         | SMURFIT-STONE CONTAINER  CORPORATION  |
|--------|--------------------|--------------|---------------------------------------|
|   |               | (Registrant) |
|   |               |         |                                  |
|   |               |         |                                  |
|   |               | By           | /s/ Patrick J.  Moore                 |
|   |               |         | Patrick J. Moore                      |
|   |               |         | Chairman and Chief  Executive Officer |

 

30

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