Smurfit-StoneJ O I N I N G F O R C E S TO

1 9 9 8 A N N U A L R E P O R T

Re-energize theBUSINESS

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I V S M U R F I T - STO N E 1 9 9 8 A N N U A L R E P O R T

C O M P A N Y P R O F I L ESmurfit-Stone Container Corporation (Nasdaq: SSCC) is the industry’spremier paper-based packaging company. Headquartered in Chicago,with additional corporate functions in St. Louis, Missouri, and Alton,Illinois, the company was formed November 18, 1998, as a result of themerger between Jefferson Smurfit Corporation and Stone ContainerCorporation. Core products include corrugated containers, folding cartons, specialty packaging, and bag packaging, which are supportedby an integrated mill system and significant fiber resources. The companyoperates more than 300 facilities worldwide.

How?T A B L E O F C O N T E N T SIntroduction to Smurfit-Stone 2Smurfit-Stone at a Glance 3Production Statistics 5Letter to Shareholders 6Financial Highlights 8Re-energizing the Business 13Board of Directors and

Corporate Officers 26Annual Report on Form 10-K 27

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S M U R F I T - STO N E 1 9 9 8 A N N U A L R E P O R T 1R E - E N E R G I Z E T H E B U S I N E S S 1 9 9 8 A N N U A L R E P O R T 1

b y C r e a t i n gSHAREHOLDER

VALUE

b y W i d e n i n g t h eCOMPETITIVE

GAP

b y B u i l d i n g aUNIFIED, COHESIVE

ORGANIZATION

Meeting aggressive targets, encouraging flexibility and autonomy at locallevels, and investing in our corporate philosophy, IQS

Establishing strong core values, leadership, staff, and culture

b y M a n a g i n g f o rRESULTS

Leveraging strengths and achieving full potential

Refinancing, aggressively reducing debt, divesting of non-core businesses, and restructuring

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2 1 9 9 8 A N N U A L R E P O R T S M U R F I T - STO N E AT A G L A N C E

Jefferson Smurfit Corporation and

Stone Container Corporation have

joined forces to form Smurfit-Stone

Container Corporation (SSCC),

the world’s largest integrated

producer of paperboard and

paper-based packaging products.

As a result of the merger, Smurfit-

Stone is refocusing on its core busi-

nesses by utilizing and controlling

processes that add customer and

shareholder value.

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3 S M U R F I T - STO N E 1 9 9 8 A N N U A L R E P O R T3 1 9 9 8 A N N U A L R E P O R T S M U R F I T - STO N E AT A G L A N C E

N O R T H A M E R I C A N L E A D E R S H I P

S I Z E A N D S C O P E The merger of Jefferson Smurfit Corporation and StoneContainer Corporation has created the leading paper and paper-based packaging company in North America. The new company’s strategy emphasizes innovation, service, margins, andmarket position. The company has a national network of morethan 300 packaging plants that enables it to provide paper-basedpackaging solutions for any customer, large or small, anywhere in the country.

C R E A T I V I T Y A N DI N N O V A T I O N

Smurfit-Stone is a pioneer in the development of severalconcepts. Among them are using “just enough” packagingmaterial to produce a total-performance packaging system. Thissystem creates multiple packaging products that work togetherto address all customer packaging needs. The company alsofurnishes teams of technical and design specialists to devisepackaging solutions to customers’ problems. Smurfit-Stone’sR&D, creative, and technical capabilities apply new thinking and technology from around the world to its own products and processes.

S E R V I C EC A P A B I L I T I E S

In an industry where retailers are dominating the shape of packaging, Smurfit-Stone has the graphic, structural packaging,and converting capabilities to address this increasingly compet-itive market. By working collaboratively, not only with the company’s direct customers but also with their customers,experts in various disciplines have dramatically reduced the cycle time from concept to completion of packaging solutions,as well as increasing value to customers.

Smurfit-Stone is the leading North American producer of corrugated containers, containerboard, folding cartons, and industrial bags. It also has the largest recycling business in the industry. Together with its international operations and those ofits affiliate, Jefferson Smurfit Group, the company can provideglobal capabilities to its customers. Smurfit-Stone and JeffersonSmurfit Group supply about 11 percent of the world container-board market.

S M U R F I T - S T O N E A T A G L A N C E

C O M P A N Y O V E R V I E W

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C O R R U G A T E D C O N T A I N E R S

C O N T A I N E R B O A R D

4 1 9 9 8 A N N U A L R E P O R T S M U R F I T - STO N E AT A G L A N C E

Corrugated containers represent Smurfit-Stone’slargest business segment, with 61 percent of thecompany’s sales. The division supplies hundreds of national and international manufacturers, as well as thousands of local and regional customers.

Smurfit-Stone is the leading supplier of containerboard to domestic and export markets.

Smurfit-Stone offers a wide range of stylesappropriate to nearly all carton end uses. These cartons are used by consumer-goods producers to package foods, beverages, fast food, soap, paper, pharmaceuticals and cosmetics. Printing capabilities include sheet and web, lithographic, rotogravure, and flexographic.

The specialty packaging business comprises industrial and consumer packaging. Industrial produces tubes and cores, partitions, and a number of specialized products. Consumer meetsthe product needs of a wide variety of marketing,manufacturing, and consumer companies.

The containerboard mill segment produces a fullline of commodity and specialty paperboards for conversion into corrugated containers, bags,and related packaging products. The company produces unbleached kraft linerboard grades andcorrugating medium. This group also suppliesbleached hardwood market pulp for printing and writing papers, bleached paperboard, andphotographic paper.

Smurfit-Stone is unique in the paper and packagingindustry in that it has a strong position in both virgin and recycled fiber. The company has built the largest reclamation business in the industry and now collects and processes approximately 7 million tons of recycled paper every year.

P A P E R B O A R D , P A P E R ,A N D P U L P M I L L S

R E C Y C L E D F I B E R

F O L D I N G C A R T O N S A N D B O X B O A R D M I L L S

S P E C I A L T Y P A C K A G I N G

R E S O U R C E S

Multiwall, consumer, specialty, and flexible bagsare used to ship, store, protect, and promote a wide range of products. Smurfit-Stone offers acoordinated approach to analyzing customer needs and providing both the bag packaging andpackaging equipment system that best suits theproduct, production, and protection requirementsof its customers.

Smurfit-Stone is the leading supplier of kraftpaper to domestic and export markets.

B A G P A C K A G I N G

K R A F T P A P E R

■ Full range of high-quality corrugated containers

■ Innovative packaging solutions and high-qualitygraphics

■ Complete line of retail-ready,point-of-purchase displays

■ Full line of specialty products and custom, die-cut boxes to display packaged merchandise

■ Graphic capabilities includeflexo, preprint, post-print,labels, and substrates

■ Cordeck® corrugated pallets■ Full range of domestic and

export-specific liners, includ-ing mottled white and high-performance grades. Fullrange of semi-chemical andrecycled medium, includinghigh-performance grades

■ Full line of folding cartons and claycoated and uncoatedrecycled boxboard in newsback, kraftback, andwhiteback grades

■ Extensive converting capabilities and support services in structural andgraphic design, mechanical

packaging, engineering services, electronic datainterchange, research and development

■ High-quality, preprinted E-flute and F-flute corrugatedpackaging in a full range of grades in calipers,from .014 to .040

■ Paper tubes and cores■ Labels for decorative

packaging applications■ Solid fiber and paperboard

partitions■ Flexible-packaging

operations with specializedlamination

■ Specialized products, including furniture forms,construction forms, industrial storage tubes, and electrostatic disapativeboard (PROTECH®)

■ Wide range of unbleachedkraft linerboard grades

■ Medium, available in semi-chemical and recycled grades

■ MIST-WITE® II with superiorgraphics capability and printability

■ Solid bleached sulfate (SBS)■ Bleached hardwood pulp

■ Recycling business handlesrecovered paper generated by industrial, commercial, and residential sources.

■ Collected material includes old corrugated containers,newspapers, magazines, aluminum cans, glass, and plastics.

■ Waste Reduction Services provides waste-management solutions to businesses.

■ Multiwall, industrial, consumer, specialty, and flexible bags

■ Full line of flexible, inter-mediate bulk containers

■ Custom-designed bag packaging

■ Packaging equipment and systems that fill, seal, convey, and palletize bag products

■ Technical, graphics, and marketing expertise

■ Full range of kraft papergrades include grocery bagand multiwall sack kraft

P R O D U C T S D E S C R I P T I O N C A P A B I L I T I E S

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■ Largest reclamation business in the industry

■ 32 U.S. collection centers■ 12 U.S. brokerage offices■ 1 brokerage office in

Shanghai, China

■ 5.6 million tons of papercollected in 1998

■ Approximately 45 percent of paper collected used by Smurfit-Stone mills

■ Major fiber supplier to Asia,Europe, and Latin America

■ Largest supplier of corrugated containers

■ Industry’s most complete line of graphic capabilities

■ Major domestic export supplier of containerboard

■ Approximately 120 corrugated container plants in North America

■ Marketing and TechnicalCenter (MTC) in Westmont,Illinois

■ See paper and paperboardmills below.

■ More than 30 plants inEurope, Asia, Australia, and South America

■ Capable of producing 92 billion square feet of corrugated containers and specialty products

■ Capable of converting 6 million tons of containerboard

■ More than 1 million tons of linerboard medium andkraft paper sold to globalmarkets and affiliates

P R O D U C T I O N STAT I ST I C S 1 9 9 8 A N N U A L R E P O R T 5

■ World’s largest producer of containerboard

■ Nation’s leading producer of recycled medium

■ Industry’s largest producer of MIST-WITE® II

■ Major producer of hardwoodpulp

■ 4 linerboard mills■ 9 medium mills■ 1 bag-paper and

linerboard mill■ 1 mottled white machine

at Brewton, Alabama, mill■ Majority owner of semi-chem-

ical mill in Groveton, N.H.■ 1 bleached pulp and

linerboard mill■ 1 bleached pulp mill

■ 4.3 million tons of linerboard capacity

■ 1.7 million tons of corru-gating medium capacity

■ 192,000 tons of solidbleached sulfate capacity

■ 520,000 tons of bleachedhardwood pulp

■ Industry’s largest manufac-turer of multiwall industrialand consumer bags

■ Leading industry manufac-turer of flexible, intermedi-ate bulk containers

■ 13 bag plants in the U.S.■ Technical and Graphics

Center in Cantonment,Florida

■ Bag Packaging EquipmentGroup in Salt Lake City, Utah

■ See paperboard, paper, andpulp mills below.

■ 245,000 tons of kraft paperconverted in 1998

■ 1.1 billion multiwall bagsproduced in 1998

■ More than 1 million tons of kraft paper, linerboard,and medium sold to global markets and affiliates

P R O D U C T I O N S T A T I S T I C S

■ Nation’s largest supplier offolding cartons and clay-coated, recycled boxboard

■ Provider of broadest range of support services in theindustry

■ 19 folding carton plants ■ 4 clay-coated, recycled

boxboard mills

■ Produced 630,000 tons of clay-coated board anduncoated recycled boxboardin 1998

■ Sold 536,000 tons of foldingcartons in 1998

■ Leading producer of paper tubes and cores

■ One of the largest contractpackagers and suppliers oflabels for decorative packag-ing applications in the U.S.

■ Industry leader in litho and heat-transfer labels,flexible films, and contractpackaging

■ 3 uncoated, recycled boxboard mills

■ 17 tube and core plants ■ 3 partition plants■ 10 consumer-packaging

manufacturing facilities

■ 129,000 tons of recycledboxboard produced in 1998

■ 138,000 tons converted toindustrial products in 1998

P R O D U C T S I N D U S T R Y P O S I T I O N F A C I L I T I E S H I G H L I G H T S

C O R R U G A T E D C O N T A I N E R S

C O N T A I N E R B O A R D

P A P E R B O A R D , P A P E R ,A N D P U L P M I L L S

R E C Y C L E D F I B E R

F O L D I N G C A R T O N S A N D B O X B O A R D M I L L S

S P E C I A L T Y P A C K A G I N G

B A G P A C K A G I N G

K R A F T P A P E R

R E S O U R C E S

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6 1 9 9 8 A N N U A L R E P O R T L E T T E R TO S H A R E H O L D E R S

L E T T E R T O S H A R E H O L D E R S

Dear Shareholder,

Jefferson Smurfit Corporation and Stone Container Corporation joined forces in 1998 to becomenot only the largest paper-based packaging company in North America, but the industry leader increating value. The combined company, Smurfit-Stone Container Corporation, is now the largestU.S. producer of corrugated containers and containerboard, folding cartons and boxboard, andindustrial bags. It is also a major producer of other industrial and consumer packaging products,as well as the largest U.S. collector and processor of recovered fiber, a key raw material for its paperboard mills.

More important than the size and scale of the new company are its strategic goals. Smurfit-Stone intends to focus its combined operations on our core packaging businesses. We will build a financially strong company by divesting non-core assets, reducing debt, and achieving significantsynergies. As we succeed, we aim to set a new standard for the way paper and packaging companiesmanage their resources to deliver unmatched quality and service to their customers, while earningimpressive returns for investors.

1 9 9 8 R E S U L T S A N D 1 9 9 9 O U T L O O K The merger, announced in May and completed in the fourth quarter of 1998, generated

significant accounting charges, which should be viewed separately from the operating results of the company. As discussed in greater detail later in the report, the company recorded charges of$310 million ($187 million after tax). These included charges related to the restructuring of thecompany’s mill system, to the transaction itself, and to the settlement of litigation. Including thesecharges, the company reported a loss — before extraordinary item and the cumulative effect of anaccounting change for 1998 — of $184 million, or $1.48 per diluted share, compared to net incomeof $1 million, or $.01 per diluted share, in 1997.

The net loss for the year was $200 million, or $1.61 per diluted share, compared to net income of $1 million, or $.01 per diluted share, in 1997. Sales for the full year were $3.5 billion, compared to$2.9 billion in 1997. Smurfit-Stone’s 1998 results include the results of Jefferson Smurfit Corporationfor the full year and of Stone Container Corporation from November 18, 1998, the date of themerger, through the end of the year and reflect the Newsprint Division as a discontinued operation.

Excluding the charges, the company would have reported income from continuing operationsof $3 million, or $.02 per diluted share, for 1998, before extraordinary item and the cumulativeeffect of an accounting change. From an operational standpoint, the primary negative factors duringthe year were discounted prices in containerboard and market pulp, driven mainly by decliningdemand in export markets, especially those in Asia. The company’s immediate response to thisdeclining demand was to take significant downtime in our mill system in order to manage invento-ries. Unfortunately, this downtime also had a negative impact on operating results.

On the positive side, domestic demand for packaging remained healthy, consistent with a strongU.S. economy. Our core packaging businesses performed reasonably well in this environment, inspite of pressures generated by discounting in board and fiber prices. In corrugated containers,average prices were higher by about 10 percent, compared to 1997. In our folding carton/boxboardbusiness, profits and volume improved over 1997 as a result of new business gains and cost-takeoutefforts. For the full year, carton shipments increased by about 10 percent over 1997.

In the industrial packaging business, recovered fiber prices have been a double-edged sword.Declining fiber prices led to discounting for the uncoated boxboard used to make tubes and cores.On the other hand, lower fiber costs and increased volume partly offset the impact of lower prices.

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L E T T E R T O S H A R E H O L D E R S 1 9 9 8 A N N U A L R E P O R T 7

MICHAEL W. J. SMURFIT, Chairman of the Board

“As we succeed, we aim toset a new standard for theway paper and packagingcompanies manage theirresources to deliverunmatched quality andservice to their customers,while, at the same time,earning impressive returnsfor investors.”

“We believe 1998 likely will be viewed as a watershed year

not only for our company,but for the packaging

industry as well.”

RAYMOND M. CURRAN, President and Chief Executive Officer

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8 1 9 9 8 A N N U A L R E P O R T F I N A N C I A L H I G H L I G H T S

F I N A N C I A L H I G H L I G H T S

Dollars in millions, except per share data 1998 1997 1996

Net sales $ 3,469 $2,936 $3,087

Income (loss) from operations (64) 175 332

Interest expense, net (247) (196) (198)

Income (loss) before extraordinary itemand cumulative effect of accounting change (184) 1 117

Basic earnings per share

Income (loss) before extraordinary itemand cumulative effect of accounting change $ (1.48) $ .01 $ 1.05

Net income (loss) (1.61) .01 1.01

Weighted average shares outstanding (in millions) 124 111 111

Diluted earnings per share

Income (loss) before extraordinary itemand cumulative effect of accounting change $ (1.48) $ .01 $ 1.04

Net income (loss) (1.61) .01 1.00

Weighted average shares outstanding (in millions) 124 111 112

Net cash from operating activities $ 129 $ 88 $ 380

Capital investments and acquisitions 287 191 129

Financial position at year-end

Net working capital $ 635 $ 71 $ 34

Property, plant, equipment, and timberland, net 5,772 1,788 1,720

Total assets 11,631 2,771 2,688

Long-term debt, less current maturities 6,428 2,025 1,934

Stockholders’ equity (deficit) 1,634 (374) (375)

Number of employees 38,000 15,800 15,800

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L E T T E R TO S H A R E H O L D E R S 1 9 9 8 A N N U A L R E P O R T 9

In consumer packaging, the business benefited from a strong performance in lithographic labels and cost-cutting efforts. Combined, the industrial and consumer businesses posted a slight improvement in profits. In newsprint, average prices were up about 8 percent, resulting in profitgains for the full year. Finally, recovered fiber prices remained depressed due to the mill downtime in the industry.

As the new year began, the outlook brightened. Declining containerboard inventories, partly as a result of shutdowns of inefficient capacity, significantly tightened supply. We advised our customers of price increases for linerboard and medium, as well as for corrugated containers,effective during the first quarter. Given continued economic growth in the U.S., we foresee animproved supply/demand balance and improving markets. We are optimistic that the overall market environment for packaging will improve, permitting our management to focus on newopportunities as it implements the strategic agenda.

C R E A T I N G V A L U EOne of the most important objectives of the merger was to capture the full synergy potential

inherent in combining two leading packaging companies. That will result, in part, from optimizingthe combined manufacturing systems of the two companies. The optimization process is complexand will take many months to complete. However, we took the first and most difficult step shortlyafter closing the merger by shutting down four less-efficient containerboard mills, which annuallyproduced 1.1 million tons, or 3 percent of industry capacity. This shutdown, unprecedented in thepaper industry, cut the company’s exposure to the volatile open market for containerboard in halfand significantly increased the internal integration level of the containerboard/corrugated containersystem. We also expect to achieve significant savings by reducing corporate overhead and overlap-ping functions.

The merger serves as a catalyst for focusing all of our resources on our core packaging busi-nesses, working aggressively to divest non-core businesses, and applying the proceeds of divestituresto debt reduction. The businesses targeted for divestiture include valuable assets, such as our woodland holdings in the Southeast and newsprint interests in the Northwest, as well as a pulp mill in Canada.

M A N A G I N G F O R R E S U L T SWe will manage the company toward aggressive targets, including achievement of $350 million

in synergies by year-end 2000. The largest portion — more than $180 million — will come fromoptimizing our manufacturing system. Another $50 million will accrue by reducing administrativeexpenses. Purchasing and logistical leverage should produce another $80 million over the next twoyears. Finally, we should obtain approximately $30 million in interest expense savings related toworking capital reductions, as we put our financial disciplines in place.

By divesting our non-core business holdings, we expect to raise approximately $2 billion overtime, all of which will be applied to reducing the debt of the combined company. We have alreadybegun the process of selling assets and are using the proceeds for debt repayment. These include the sale of a Snowflake, Arizona, newsprint facility, which generated $267 million in net proceeds; partof our stake in Abitibi-Consolidated, which generated $80 million in net proceeds; and other smallnon-core businesses.

We will continue to invest capital in our fixed assets, but at a level below the projected depreci-ation and amortization of about $360 million. Interest expense, as well as total debt, should begin to trend down in 1999 as we apply the proceeds of asset sales. If we complete our asset sales onschedule, interest expense will decline substantially in 1999.

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W I D E N I N G T H E C O M P E T I T I V E G A PFollowing the divestitures, Smurfit-Stone will possess the industry’s largest network of paper-

based packaging plants; a nationwide mill system; and full design, technical, and graphic capabilities.To leverage our competitive advantage in the marketplace, the company intends to achieve excel-lence in innovation, quality, and service, known as the IQS process.

This process requires hands-on management that stays close to customers. To that end, we will actively solicit feedback and ideas and continue to provide customers with customized, cost-effective packaging solutions. Above all, we will strive to understand the needs of our customers’customer, especially in the all-important retail sector, and meet those needs through innovativevehicles, such as our packaging solutions centers.

U N I F Y I N G T H E O R G A N I Z A T I O NTo carry out our agenda as effectively as possible, we must build a unified, cohesive organization

that incorporates and respects the financial disciplines and marketing strengths that defined the two companies before they joined forces. To achieve that goal, transition teams for our operatingunits and staff functions have worked to identify and adopt the best management practices of each company. To retain the best people and reduce costs, we have established a core group ofsenior officers at the Chicago headquarters and St. Louis offices. We are maintaining administrativefunctions in both cities as well, where these operations can most efficiently be carried out.

Since finalizing the merger, we have formed a new management team. Richard W. Graham,president and chief executive officer of Jefferson Smurfit Corporation, who played a key role in the transition process, retired on March 31, following 41 years of service. Mr. Graham will remain a member of the Smurfit-Stone board.

Roger W. Stone, former chairman, president, and chief executive officer of Stone ContainerCorporation, took over as chief executive officer of Smurfit-Stone and managed the companythrough the initial stages of the merger. Mr. Stone elected to retire at the end of March. At the same time, Matthew S. Kaplan, vice president and general manager of Smurfit-Stone’s corrugatedcontainer operations, resigned from the company.

The company owes a debt of gratitude to our employees, whose patience and cooperation havehelped to make the merger process as smooth as possible. While downsizing and mill closures werenecessary to meet important financial goals, we regret the disruption they have caused in the lives of many of our people. We also recognize the impact that moving our headquarters to Chicago hashad on the St. Louis community, but hope that maintaining a sizable presence in St. Louis, Missouri,and Alton, Illinois, will mitigate that loss.

Mergers are often unsettling at the outset; but, ultimately, they are intended to produce greatbenefits for the newly-formed organization. Smurfit-Stone is already reaping some of those benefits.We are optimistic about the future.

Michael W. J. Smurfit Raymond M. CurranChairman of the Board President and Chief Executive Officer

April 1, 1999

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Smurfit-Stone will create value by reducing debtthrough divestiture of non-core assets; rationaliz-ing its manufacturing system; restructuring itscorrugated container and containerboard busi-nesses; eliminating redundancy, while continuing to serve its markets; leveraging its combined purchasing power; lessening exposure to low-margin businesses; reducing expenses; and refinancing debt.

R E - E N E R G I Z E T H E B U S I N E S S C r e a t e SHAREHOLDER

VALUE

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1 2 S M U R F I T - STO N E 1 9 9 8 A N N U A L R E P O R T1 2

S A N TA F E S P R I N G S C O R R U G A T E D C O N T A I N E R P L A N TThe Santa Fe Springs, California, corrugated containerplant is a model of efficiency, quality, and top-notchservice. Catering primarily to the consumer electronicsmarket, the plant prides itself on speedy production and

its ability to exceed the exacting demands of its customers.

S A N T A C L A R A B O X B O A R D M I L LInnovations, such as using office waste instead of pulpsubstitutes to produce topliner, contribute to Smurfit-Stone’s Santa Clara, California, boxboard mill opera-tions, saving more than $1 million a year. Liner operatorGary Smith feeds office waste paper into a hydrapulper to mix with water and eventually make topliner for recycled rolls of boxboard.

R E - E N E R G I Z E T H E B U S I N E S S

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R E - E N E R G I Z E T H E B U S I N E S S 1 9 9 8 A N N U A L R E P O R T 1 3

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1 9 9 8Re-energize the Business

Smurfit-Stone Container

Corporation begins 1999 with

optimism and a strong sense

of purpose. With the merger

completed and a new management

team in place, the company will

focus on strengthening its position

as the industry leader in paper

and paper-based packaging —

known for its financial discipline,

marketing expertise, and creative

approach to solving customers’

packaging problems.

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1 4 1 9 9 8 A N N U A L R E P O R T R E - E N E R G I Z E T H E B U S I N E S S

The key to re-energizing the business

is a four-point strategy that will lead

the company into the next decade.

That strategy incorporates increasing

shareholder value through aggressive

debt reduction and improved financial

performance; strengthening our

leadership position by staying close

to customers; managing for results

by setting and meeting aggressive

targets; and establishing a solid, robust

organization with a single culture

and set of values.

Following the Smurfit-Stone merger,

the new company took immediate

steps, which included restructuring its

manufacturing system by shutting down

overlapping operations for the sake of

trimming the system to the right

competitive size. It will continue to

rationalize its container plant operations.

Ultimately, all of these actions will

produce a new, invigorated, more cost-

efficient organization with a singular

focus and a stronger balance sheet.

This will be accomplished by setting,

pursuing, and achieving very precise

financial targets in terms of debt

reduction, divesting assets, and timing

of key strategies. These targets will

serve as the linchpin for a new

approach to managing the business.

Create Shareholder Value

C O N S O L I D A T I O N A N D R A T I O N A L I Z A T I O N

The merger creates a new company

able to run its integrated corrugated

container/containerboard business

more profitably with a smaller, more

efficient mill system. The merger is also

an important first step in unlocking

value for Smurfit-Stone shareholders.

The next step is the rationalization

of inefficient capacity, a problem that has

plagued the industry for years. To address

it, the company has implemented a

major rationalization that includes the

shutdown of four mills which produced

approximately 1.1 million tons, or about

15 percent, of the company’s North

American containerboard mill capacity.

As a result of the restructuring,

Smurfit-Stone’s annual U.S. container-

board production capacity has been

reduced from approximately 7 million

tons to about 5.9 million tons. This

move increases the company’s level

of integration in containerboard from

about 70 percent to 90 percent. The

rationalization plan is a key element in

generating expected annual synergies

of at least $350 million.

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Managing for results means setting aggressivefinancial targets; increasing sales; focusing onprofit-margin performance; leveraging strengthsand best practices; achieving full potential in every business unit; creating a strong, balanced mill system; investing in operations;and selling the company’s full line of productsand services.

R E - E N E R G I Z E T H E B U S I N E S S MANAGE f o rRESULTS

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1 6

W A S T E R E D U C T I O N S E R V I C E SHelping customers manage their entire waste stream is a value-added benefit provided by Smurfit-Stone’s Waste Reduction Services. Thisservice saved customers millions of dollars in solid-waste removal costs in 1998. More than one-fifth of the 100,000 tons extracted was tonnage that previously went to landfills.

R E - E N E R G I Z E T H E B U S I N E S S

C O R D E C K ® C O R R U G A T E D P A L L E T SSmurfit-Stone’s Cordeck® corrugated palletshave proven to be the sound choice for the environment. Competing directly with insect-

prone wood pallets, the corrugated pallet is quicklybecoming the acceptable alternative to wood. Withrecent government regulations and the Asian LonghornBeetle outbreak, the growth potential for this businessis promising.

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R E - E N E R G I Z E T H E B U S I N E S S 1 9 9 8 A N N U A L R E P O R T 1 7

Cutting capacity substantially

reduces unscheduled market-related

downtime and associated fixed costs,

which will result in considerable savings.

Following the rationalization, Smurfit-

Stone will have a lower-cost, more

efficient mill system; improved freight

costs; and better margins through

grade-mix rationalization.

At the mill level, the company will

reduce its open-market sales position in

containerboard and kraft paper in the

domestic and export markets, though

it will continue to be a player in both

of these arenas. Several other strategic

initiatives are planned. They include

more efficient scheduling of paper

machines by combining grades and

measuring customers’ needs against

the company’s capabilities.

In order to improve price realization

and profitability on open-market sales

of containerboard, Smurfit-Stone is

analyzing its customer base and

evaluating customers against a number

of factors. Our future customer mix

will be based on meeting long-term,

strategic objectives, including margin,

potential, contracts, and good fit

between customers and the company.

The rationalization has significantly

reduced the company’s exposure to

market pulp, a non-core business. The

shutdown of one of the kraft linerboard

mills, at Port Wentworth, Georgia, also

included 235,000 tons of market pulp.

In addition, about 90,000 tons of market

pulp were shut down at the company’s

Bathurst, New Brunswick, mill in Canada.

That mill will continue to produce

containerboard. The shutdowns were in

addition to Stone’s exit last summer

from its Celgar mill, a joint venture in

British Columbia, which had production

capacity of almost 600,000 tons. Taking

those shutdowns into account, just under

600,000 tons of pulp capacity remain.

This includes the specialty pulp mill at

Pontiac, Quebec, and pulp production

in Panama City, Florida.

At the packaging level, Smurfit-

Stone will create value for packaging

customers by fully utilizing its resources

— plants, people, and creative services

— and widening the competitive gap

between itself and its competitors. It

will achieve this in part through the

development of new products to

meet customers’ changing needs. The

company has already begun evaluating

the plant resources required by its

corrugated container system.

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1 8 1 9 9 8 A N N U A L R E P O R T R E - E N E R G I Z E T H E B U S I N E S S

D I V E S T I T U R E

By divesting non-core assets,

Smurfit-Stone will significantly reduce

debt. The company is aggressively

pursuing that strategy with a focused,

disciplined restructuring effort and is

projecting proceeds of approximately

$2 billion from asset sales. The sale of

Stone’s Snowflake, Arizona, newsprint

facility and part of the stake in Abititi-

Consolidated have already raised

approximately $350 million that has

been applied to debt reduction.

In line with mill rationalizations,

325,000 tons of unprofitable North

American market-pulp operations

have been shut down. Additionally,

the specialty-pulp facility in Pontiac,

Quebec, is expected to be sold in 1999.

The remaining pulp line is a 350,000-

ton plant in Panama City, Florida.

Some of the pulp from Panama City

may be used to expand the company’s

production of mottled white linerboard,

a higher-value product.

The company will continue to

tighten its focus, gradually rationalizing

its corrugated container plants. Smurfit-

Stone’s intention is to maintain its

market leadership in the corrugated

container business, while reducing

redundant facilities. While this process

is likely to continue for up to 18

months, customer needs and future

business potential will be key factors

in all decisions.

The company has begun the process

of selling a number of other assets,

including its West Coast newsprint

operations. It also intends to divest

its woodlands. Smurfit-Stone owns or

leases 1 million acres of woodlands

in Florida, Georgia, and Alabama.

Manage for Results

In order to manage the company for

results, Smurfit-Stone will leverage its

strengths and best practices and seek

to realize the full potential of every

business unit. Operations will improve

profitability by developing sales and

marketing strategies to enhance mix

and margins; improving processes and

efficiencies to reduce costs; and taking

advantage of the size and combined

scale of the new company.

Capacity issues are already being

addressed.The mill closures and plant

consolidation will enable the company to

focus its capital-expenditure program and

thereby limit future capital expenditures.

SS11-26 4.6 4/16/99 3:02 PM Page 18

To become the best, as well as the market leader,Smurfit-Stone will build stronger relationships withcustomers through innovation, quality, and service;meet and exceed customer expectations; solicit customer feedback and ideas; provide best-possible,low-cost packaging solutions; and understand andmeet the needs of the customers’ customer.

R E - E N E R G I Z E T H E B U S I N E S S W i d e n t h eCOMPETITIVE

GAP

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H E N D E R S O N V I L L E T U B E A N D C O R E F A C I L I T YQuick Grab™ cores are inspected for consistency in catchpoints by Jason Strickland as they come down the winding lineat Smurfit-Stone’s Hendersonville, North Carolina, tube and

core facility. Quick Grab™ is a unique core thatallows non-woven and spun material to cling easily,thus eliminating the cost and use of tape as anadhesive.

2 0

D I S P L A Y G R O U PThe Richmond, Virginia, Display Group creates custom point-of-purchase displays from conceptthrough production. With high-end graphics andinnovative construction, these displays add valueto the line of corrugated products offered to customers. The Display Group enjoys industry-widerecognition, having received numerous awards for its creativity in design, as well as excellence in manufacturing.

R E - E N E R G I Z E T H E B U S I N E S S

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The company plans to leverage past

capital investments in the container

business to take it to a new level of

performance. By balancing the

container/containerboard side of the

business, Smurfit-Stone can lead the

industry in a new direction and create

an attractive investment vehicle.

Smurfit-Stone has set clear targets

in three critical financial areas — asset

divestitures, synergy achievements,

and debt reduction. These targets are

viewed by the investment community

as important to the success of the

company, which will be singularly

focused on achieving them over the

next 18-24 months.

Smurfit-Stone is projecting

$350 million in annualized savings.

It is seeking $50 million in SG&A

savings by eliminating redundant

corporate overhead and overlapping

functions. A portion of those savings

has been already realized.

Manufacturing system optimization

should yield more than $180 million,

which will take more time as the

packaging side of the business is

rationalized. Purchasing and logistical

leverage should produce another

$80 million. In addition, Smurfit-Stone

should obtain approximately $30

million in interest expense savings

related to working capital reductions

as financial disciplines are redefined

and implemented.

Headcount is expected to be

reduced by 3,600 of the 38,000

combined employees; it has already

been decreased by 1,500, including

about 300 redundant corporate and

administrative positions.

Widening the Competitive Gap

Smurfit-Stone has a two-fold strategy

for reinforcing its leadership position

in the industry: selling its full line of

products and services and widening

the gap between itself and its

competitors. It will accomplish these

objectives through innovation, quality,

and service, known as IQS. The company

will support IQS by investing in training

and innovation and providing superior

service through such vehicles as the

packaging solution centers, directed

at servicing major retailers.

Smurfit-Stone’s packaging solution

centers are unique to the industry.

Designed to meet the packaging

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R E - E N E R G I Z E T H E B U S I N E S S 1 9 9 8 A N N U A L R E P O R T 2 1

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needs of end-users — such as Wal-Mart

Supercenters and Sam’s Warehouse

Clubs — these centers have dramatically

reduced the gap between packaging

problems and solutions from six weeks

to six hours. Superstore packaging

buyers have expressed a need for

attractive, functional, stackable

packaging in sizes that fulfill their

customers’ requirements. By meeting

with a team of experts, buyers are able

to leave the center, that same day,

with a mock-up of the new packaging.

The success of the IQS program has

led to additional business opportunities

and considerably increased higher-

margin sales.

In business, where satisfying

customers is the goal, the company

will establish benchmarks, set goals

for improvement, measure progress

against those goals, re-evaluate its

progress in terms of continuous

improvement, and continue to survey

customers to validate its actions.

Soliciting customer feedback, needs,

and ideas will strengthen relationships

and further improve margins.

The company recently launched

another packaging solution center in

Seattle, Washington, to serve the pack-

aging needs of Costco, a warehouse club.

Build a Unified,Cohesive Organization

Smurfit-Stone has an exceptional

opportunity to build a solid identity

and culture, based on the strengths

and best practices of the new partners —

Jefferson Smurfit Corporation and

Stone Container. This will require

a number of initiatives, such as

incorporating financial discipline

in order to manage leverage and

spread cost over a greater number

of plants; providing sales incentives,

based on retaining high-margin business

and profit-margin performance; and

investing in the maintenance and

improvement of operations.

One of the most daunting

aspects of any merger is combining

the assets, functions, and corporate

styles of two distinct organizations

in order to create a single, corporate

structure. The first step will be to

eliminate redundancies and apply

corporate resources more efficiently

across all divisions. The company

has already embarked on a number

of actions to achieve this objective.

It has established its corporate

SS11-26 4.6 4/16/99 3:02 PM Page 22

To build an integrated company, Smurfit-Stone will optimize its financial discipline and marketingstrengths; eliminate redundancies and applyresources across all divisions; create an environ-ment in which people can learn, grow, and succeed;and equip employees with appropriate and timelytraining and fair compensation.

R E - E N E R G I Z E T H E B U S I N E S S

B u i l d a u n i f i e d,COHESIVE

ORGANIZATION

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M U L T I W A L L B A G SAcross the company, Smurfit-Stone’s strict quality control

measures ensure that customers will receive consis-tent, superior products each and every time. At theKansas City, Missouri, bag packaging plant, a pressoperator checks the print quality of a multiwall bag toguarantee a flawless image.

W A B A S H , I N D I A N A , B O X B O A R D M I L LMarsha Strickler, a finisher at Smurfit-Stone’s Wabash, Indiana, boxboard mill, moves a roll of coated boxboard from storage to be shipped to a converting plant, where it will be made into folding cartons. The roll was produced under the company’s new stock optimizationsystem, which allows the mill to use old newspapers and residen-tial mixed paper to produce coated boxboard — a more economicalfiber source than pulp substitutes used in the past.

2 4

R E - E N E R G I Z E T H E B U S I N E S S

SS11-26 4.6 4/16/99 3:02 PM Page 24

headquarters in Chicago and, to save

the cost and disruption of a major

relocation, also maintains offices at the

former Jefferson Smurfit Corporation

sites in St. Louis, Missouri, and

Alton, Illinois.

Merging two distinct cultures is

another challenge. To that end, the

company is committed to building

a strong leadership team and to

encouraging every person at every

level of the organization to understand,

adopt, and practice the new organiza-

tion’s core values. Adoption of such

values can only be accomplished

through active engagement in open,

two-way communication, with

information flowing up and down

through easily accessible channels.

Several programs are already in

place to enhance internal and

external communications.

A third critical focus will be on

providing appropriate and timely

training and fair compensation,

based on achievement of corporate

goals. Smurfit-Stone has created

new incentive plans for 1999 and

beyond. Short-term incentives will

be driven by earnings, achievement of

synergies, cost take-out, asset

divestitures, and debt reduction.

Long-term incentives will be based

on creating value.

G U I D I N G S T R A T E G I E S

Smurfit-Stone’s guiding strategy

is to improve the financial performance

of the combined company throughout

the paper cycle by selling non-core

businesses — newsprint, pulp, and

woodlands — and focusing on

packaging. Existing businesses tend

to be balanced between those that

are influenced by large fluctuations

in price, such as corrugated containers,

and those that have had a history

of steady earnings, such as folding

cartons, industrial bags, and specialty

packaging.

The company now has an

opportunity to smooth out the

instability of earnings by managing

the supply side of its business. By

strengthening some of the less cyclical

businesses, avoiding losses during

periods of downturn, and creating a

steadier earnings environment through

balancing the company’s own supply

and demand, Smurfit-Stone should

become very attractive to long-

term investors.

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2 6 1 9 9 8 A N N U A L R E P O R T B O A R D O F D I R E C TO R S A N D C O R P O R AT E A N D D I V I S I O N O F F I C E R S

B O A R D O F D I R E C T O R SRaymond M. CurranPresident and CEO,Smurfit-Stone ContainerCorporation

Richard A. GiesenChairman and CEO,Continental Glass & Plastics, Inc.

Alan E. GoldbergManaging Director,Morgan Stanley & Co., Inc.

Richard W. GrahamRetired President and CEO,Smurfit-Stone ContainerCorporation

James J. O’ConnorRetired,Unicom/Commonwealth Edison

Jerry K. PearlmanRetired,Zenith Electronics Corporation

Thomas A. Reynolds, IIIPartner,Winston & Strawn

Dermot F. SmurfitJoint Deputy Chairman,Jefferson Smurfit Group plc

Dr. Michael W. J. SmurfitChairman and CEO,Jefferson Smurfit Group plc

C O R P O R A T E O F F I C E R SDr. Michael W. J. SmurfitChairman of the Board

Raymond M. CurranPresident and CEO

Patrick J. MooreVice President and CFO

Peter F. DagesVice President and General Manager,Corrugated Container Division

James D. DuncanVice President and General Manager,Specialty Packaging Division

Gordon L. JonesVice President and General Manager,Containerboard and PulpSales/Marketing and Logistics Division

Jay D. LambVice President and General Manager,Smurfit Newsprint Corporation

F. Scott MacfarlaneVice President and General Manager,Folding Carton and Boxboard Mill Division

John M. RiconosciutoVice President and General Manager,Bag Packaging Division

David C. StevensVice President and General Manager,Smurfit Recycling Company

William N. WandmacherVice President and GeneralManager, North AmericanContainerboard Mill andForestry Resources Division

John D. BenceVice President and General Manager,European Operations

Lorne ParnellVice President,Pacific Operations

Jose A. SantosVice President,Latin American Operations

Michael F. HarringtonVice President,Employee Relations

James A. HayssenVice President,Information Technology

Charles A. HinrichsVice President and Treasurer

Craig A. HuntVice President,Secretary and General Counsel

Paul K. KaufmannVice President and Controller

Allen M. KoleffVice President,Environmental Affairs

Leslie T. LedererVice President, StrategicInvestment Dispositions

Timothy J.P. McKennaVice President, InvestorRelations and Communications

Thomas A. PaganoVice President, Planning

Thomas G. PavliniVice President, Distribution

Gayle M. SparapaniVice President,Compensation and Benefits

John F. AllgoodAssistant Secretary

Richard P. MarraAssistant Treasurer

Ronald J. MegnaAssistant Secretary

D I V I S I O N O F F I C E R S

Corrugated Container DivisionJames P. DavisVice President and Area Manager

William G. EusticeVice President and Area Manager

LeRoy R. CrockerVice President and Regional Manager

John J. Curry, Jr.Vice President and Regional Manager

Stephen P. FolanVice President and Regional Manager

James A. HendersonVice President and Regional Manager

Lane W. HunterVice President and Regional Manager

Jack B. MalloyVice President and Regional Manager

James A. McNeillVice President and Regional Manager

Rodney A. MyersVice President and Regional Manager

Donald A. PetriVice President and Regional Manager

Daniel G. RuthVice President and Regional Manager

James S. WillisVice President and Regional Manager

Roger W. ClingermanVice President and GeneralManager, Corporate Accounts

William J. KlaisleVice President and Managing Director,Smurfit-Stone Global Services

Michael S. RoseVice President,International Sales Development

Jerry D. SuiterVice President, Director of Manufacturing

Emil B. WinogradVice President,Sales and Marketing

Robert A. GuillouVice President,Corporate Sales Group

Containerboard and PulpSales/Marketing and Logistics DivisionPeter Butier, Jr.Vice President,Domestic Sales

Larry L. BurtonVice President,Domestic Sales

Jay D. PolenVice President,Logistics

Hans MatersVice President,Export Sales

Richard KirkVice President,Worldwide Pulp Sales

Containerboard Mill DivisionW.G. StuartVice President,Mill Operations,Central Region

Wayne S. BarlowVice President,Mill Operations,Southern Region

Chuck TimkoVice President,Engineering Services

John E. DavisVice President,Forest Resources

Alain DubucVice President, Mill Operations,Northern Region

Bag Packaging DivisionJohn MoranVice President,Marketing and Specialty Bag Packaging

Victor E. KendallVice President and Manager,Corporate Sales

Jerry RoeskeVice President and Manager,Corporate Sales

Folding Carton and Boxboard Mill DivisionRichard A. BuckmanRetired, Vice President,Sales and Marketing

J. Gregor DomanVice President, Sales

Larry D. FielderVice President and GeneralManager, Paper Can

John E. StrawVice President and RegionalGeneral Manager, Eastern Region

Curtiss M. KomenVice President and RegionalManager, Western Region

David J. PietrowiczVice President and RegionalManager, Central Region

Nathan S. HolmesVice President and GeneralManager, Boxboard Mills

Specialty Packaging DivisionGeorge Q. LangstaffVice President,Converting and Marketing

Recycling DivisionJames M. ClaytonVice President,Mill Fiber Procurement

Michael R. OswaldVice President, Operations

Smurfit Newsprint CorporationGeorge R. Lowe, Jr.Vice President and GeneralManager, Newberg Mill

Michael A. SiebersVice President and GeneralManager, Oregon City Mill

Jon E. MelkersonVice President,Sales and Marketing

Fran J. OstlundController and AssistantSecretary

Research and DevelopmentDivisionJoseph V. LeBlancVice President

S M U R F I T - S T O N E C O N T A I N E R C O R P O R A T I O N

SS11-26 4.6 4/16/99 3:02 PM Page 26

DES

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STOCKHOLDERS’ INFORMATION

Stockholders’ Annual MeetingMay 27, 1999 at 1:00 p.m.Renaissance St. Louis Hotel – Airport9801 Natural Bridge RoadSt. Louis, Missouri 63134

Registrar and Transfer AgentChaseMellon Shareholder Services, L.L.C.Overpeck Centre85 Challenger RoadRidgefield Park, New Jersey 07660www.chasemellon.comTelephone: 888-213-0965

Common StockSmurfit-Stone Container Corporation CommonStock is traded on The Nasdaq Stock Market under the symbol: SSCC

For Investor Information ContactInvestor Relations and CommunicationsSmurfit-Stone Container Corporation8182 Maryland AvenueSt. Louis, Missouri 63105Telephone: 314-746-1223Fax: 314-746-1347

Timothy McKenna,Vice President, Investor Relationsand Communications314-746-1254312-580-4736

Corporate OfficeSmurfit-Stone Container Corporation150 North Michigan AvenueChicago, Illinois 60601-7568Telephone: 312-346-6600

SSCover 4.6 4/16/99 2:26 PM Page V

OUR MISSION IS TO BE THE ACKNOWLEDGED

U.S. LEADER IN PAPER-BASED PACKAGING. AS

SUCH, WE STRIVE TO BE A FINANCIALLY SOUND

AND DYNAMIC ORGANIZATION, KNOWN FOR OUR

INNOVATIVE PACKAGING SOLUTIONS, SUPERIOR

PRODUCTS, CUSTOMER RESPONSIVENESS, AND

QUALIFIED, COMMITTED PEOPLE.

150 North Michigan AvenueChicago, Illinois 60601-7568(312) 346-6600

SMURFIT-STONE ASPIRES TO BE THE ACKNOWLEDGED

U.S. LEADER IN PAPER-BASED PACKAGING. AS SUCH, WE

STRIVE TO BE A FINANCIALLY SOUND AND DYNAMIC

ORGANIZATION KNOWN FOR OUR INNOVATIVE PACKAG-

ING SOLUTIONS; SUPERIOR PRODUCTS; CUSTOMER

RESPONSIVENESS; AND QUALIFIED, COMMITTED PEOPLE.

SSCover 4.6 4/16/99 2:26 PM Page II