1. FOCU SI NGSMURFIT-STONE CONTAINER CORPORATION2002 ANNUAL REPORT

2. FINANCIAL HIGHLIGHTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)2002 2001 2000SUMMARY OF OPERATIONS Net sales $ 7,483$ 7,691$ 8,113 Income from operations462583892 Interest expense, net(355)(455)(527) Income from continuing operations beforeextraordinary item79 59195 Net income available to common stockholders54 66224 BASIC EARNINGS PER SHARE Income from continuing operations beforeextraordinary item $.28 $.20 $.83 Net income available to common stockholders.22.27.96 Weighted average shares outstanding (in millions) 244244233 DILUTED EARNINGS PER SHARE Income from continuing operations beforeextraordinary item $.28 $.20 $.83 Net income available to common stockholders.22.27.96 Weighted average shares outstanding (in millions) 246245234 OTHER FINANCIAL DATA Net cash provided by operating activities $ 503$597 $811 Capital investments and acquisitions570 232994 Net working capital 590 465470 Property, plant, equipment and timberland, net5,182 5,1665,670 Total assets 10,80510,652 11,195 Long-term debt4,990 4,9435,342 Stockholders equity2,320 2,4852,528 Number of employees38,60038,500 39,700 CONTENTSCustomerONE SM Letter to Shareholders 1Smurfit-Stones CustomerONESM operating philosophy Michael W.J. Smurfit 5represents a commitment from both SSCC and our Smurfit-Stone at a Glance 6 employees to one company, one culture, one set Value-added Products and Services 8 of values and one operating philosophy. Through The Changing Packaging Market 11CustomerONESM employees strive to create and live a , Board of Directors and Officers 22culture that embraces quality, safety, customer satisfac- Smurfit-Stone Form 10-K 23tion, value creation, ethical behavior, productivity, and Stockholder Information Inside Back Cover environmental responsibility. ABOUT THE COVER Smurfit-Stone has been able to establish its industry leadership role by focusing on market demand, customer needs, and outperforming the competition. Here, Walter Rivers from our Cantonment, FL, bag packaging facility inspects a film negative used in the making of a photopolymer printing plate. ~2~ 3. FOCU SI NG ON MAR KET DEMAN D, CUSTOMER NEEDS, AND OUTPERFORMING TH E COM P ETITION. Dear Shareholder:During a period of strategic acquisitions, integration, management changes, and sales of non-core assets, the company continued to deliver on the founding principles from the 1998 merger that created Smurfit-Stone: to manufacture our products to meet demand rather than production capability, to match our capabilities in manufacturing and services to provide packaging solutions to our customers, and to outperform the competition.These fundamental principles support our goal of being profitable through the economic cycle and earning recognition as a leader in paper-based packaging.We have been profitable each year since forming Smurfit-Stone, and our strategy was validated by our 2002 performance. In a weak economy, we reported net income available to common stockholders of $54 million, or $0.22 per diluted share. Although total U.S. corrugated container shipments were flat, our shipments increased. And we continued to strengthen our capabilities in high-end packaging, positioning Smurfit-Stone to be the supplier of choice for more customers than ever. STRATEGIC FOCUStransaction allowed us to reconfigure our mill systemMaintaining our strategic focus provided the for more efficient operation and quicker delivery to platform for our accomplishments in 2002. our customers.In our containerboard mill system, the acquisition We are the industrys largest containerboard pro- of MeadWestvacos Stevenson, AL, mill and related ducer, and we continue to build our portfolio. We are operations enhanced our position as the largest and the leading manufacturer of white top linerboard, the most geographically diverse containerboard system inproduct of choice for packaging that displays high- North America. The Stevenson mill has a well-deserved impact graphics. By adding the Stevenson mill to our reputation as an outstanding medium producer. The containerboard system and reconfiguring our mill ~1~ 4. system, we expanded our medium capacity andto look for opportunities that increasingly position strengthened our number-one position in that grade.Smurfit-Stone as more than simply a supplier of Smurfit-Stone corrugated container plants consumechoice, but as a business partner. In addition to about two-thirds of our containerboard capacity. Since developing new products and providing value-added Smurfit-Stones formation in 1998, the combination ofservices, we will continue to seek appropriate acquisi- an unsettled economy, merger- and acquisition-relatedtions to complement our product line and strengthen integration, and rationalization of our operations created existing capabilities. some market share erosion for our corrugated container We have divested assets when they no longer fit business. In 2002, our new corrugated containerwith our core business. Such was the case with the management team focused on rebuilding market sale of our tube and core manufacturing facilities share with an emphasis on profitable revenue growthand uncoated boxboard mills, which were operating by improving our sales, manufacturing, and customeras part of our consumer packaging segment. Those service processes. operations had limited growth potential and few shared The success of that effort was evident as ourcustomer relationships. The proceeds from that trans- corrugated container business outperformed industryaction helped finance the Stevenson acquisition. shipment statistics each quarter in 2002. On a per-day basis, excluding the MeadWestvaco corrugated con- TRANSITION IN OWNERSHIP STRUCTURE, tainer plants, our shipments increased 1.6 percentJEFFERSON SMURFIT GROUP RELATIONSHIP over 2001 levels. Including these plants, shipmentsAs part of its privatization, Dublin-based were up 2.4 percent. Jefferson Smurfit Group (JSG) distributed its stake Smurfit-Stone now annually produces nearly in Smurfit-Stone to its stockholders in September three million tons of containerboard to sell on the2002. In February 2003, Michael W.J. Smurfit, open market. We are committed to being a leader in Howard E. Kilroy, Dermot F. Smurfit, and Anthony providing products to independent converters, andP.J. Smurfit announced their decisions to retire from have supply agreements in place to support thatthe Smurfit-Stone board of directors effective with commitment. Our board sales group continues to our stockholder meeting May 8, 2003. Smurfit-Stone implement customer service initiatives to create has always operated separately from JSG, with our additional value and distinguish Smurfit-Stone inown strategy and balance sheet, so this transition the independent marketplace. does not affect our focus or competitive position. Smurfit-Stones consumer packaging division beganIn February 2003, Smurfit-Stone signed agreements 2002 with a new configuration, bringing together our with JSG under which Smurfit-Stone will exchange our folding carton, bag packaging, flexible packaging, and European packaging operations for JSGs 50 percent label operations under one management team. Theownership in Smurfit-MBI, a leading Canadian corru- operations comprising this business group share high-gated container business, and a payment from JSG of impact graphics capabilities to focus on customers approximately $190 million. Smurfit-Stone owns the requiring primary, or consumer-facing, packaging.other 50 percent of Smurfit-MBI. These transactions Our consumer packaging business is a leading end our European manufacturing presence and further producer of coated recycled boxboard, folding cartons, our strategy of focusing on North America. We are bag packaging products, flexible packaging and labels. concentrating our primary asset base in the United Larger customers seek to streamline suppliers andStates and Canada, enabling us to continue to look to those suppliers to reduce costs. We continue broaden our capability to serve our customers. ~2~ 5. PATRICK J. MOORE, PRESIDENT & CEORESULTS AND FINANCIAL PROGRESS Results for the Stevenson mill and related opera- Smurfit-Stone reported net income available totions, which were acquired September 30, 2002, common shareholders of $54 million, or $0.22 perexceeded expectations and were accretive to earnings diluted share, for 2002 compared with the prior in the fourth quarter 2002. We have targeted annual years $66 million, or $0.27 per share. Income from synergy savings of $40 million from this acquisition. operations was $462 million, compared with $583 mil-Energy costs were lower than 2001, but this was lion in 2001. Sales were $7.5 billion compared with largely offset by higher fiber costs. Tight supplies and $7.7 billion in 2001. increased demand for old corrugated containers (OCC) Weak market conditions and lower prices, particu- in the second and third quarters of 2002 caused prices to larly for corrugated containers and containerboard, led temporarily escalate. OCC prices receded in the fourth to the decline in net sales and income from operations. quarter, though energy prices began moving higher. Throughout the year, we saw positive effects from We benefited from lower interest rates and lower our corrugated container divisions effort to rebuild average debt levels, thereby reducing interest expense market share through targeted selling initiatives.by $100 million compared to 2001. We have completed Market demand resulted in pricing pressure in 2001several refinancing initiatives in the last two years to and 2002. A gradual improvement in demand allowed take advantage of the interest rate environment. In so us some pricing restoration in corrugated containersdoing, we have improved our capital structure and and containerboard in the second half of 2002.eliminated significant debt maturities until 2005.~3~ 6. 2003 FOCUS vice president of operations for our consumer packaging Safety continues to be Smurfit-Stones topdivision, will succeed Scott. operating priority, and we continue to be a leader in The economic environment is still difficult. safety within the paperboard packaging industry, basedCompetition is fierce, within our industry and from on data supplied to the American Forest & Paper emerging alternative packaging. We face challenges in Association (AF&PA) by member companies. Throughfinding growth in an industry that, for the most part, our Smurfit-Stone Accident-Free Environment (SAFE)is mature and under pressure to rationalize and con- process, we recognize that we must continue to renewsolidate. We enter 2003 with a clear understanding of our safety efforts and improve our safety processes our core strengths, validation that our strategies work, if we are to achieve our ultimate objective of an disciplined financial practices, and a more focused accident-free workplace.product line than at any time in our history. As a Safety, quality, customer satisfaction, value result, we are well positioned to continue to offer creation, ethical behavior, productivity, and environ-value for our customers. mental responsibility are the core values of ourWe are turning our businesses into customer- CustomerONE operating philosophy. Through SM driven enterprises. This may sound like an obvious CustomerONE, we deliver value to our four key SM strategy on which to build. In an industry that for constituencies our customers and business decades focused on its own manufacturing capacity partners, our employees, our shareholders, and therather than marketplace demands, this strategy has communities in which we live and work.at times been difficult to execute, but has proven to We apply the CustomerONE philosophySM be successful. We have remained profitable in light of through our key financial goals, which continue some of the toughest industry market conditions in to be generating profitable growth, paying down more than two decades, and we have put ourselves debt, and maintaining financial flexibility to take in a better position to take charge of our future. advantage of strategic opportunities. Together, these initiatives lead to enhanced shareholder value. Despite the challenges of 2002 and continuing pricing pressure on the packaging market, we made significant progress toward our goals of consistentPATRICK J. MOORE profitability, customer focus, and packaging leader- President and Chief Executive Officer ship. We are strengthening our market presence by concentrating on North America, expanding capabilities in specific product lines, and emphasizing manufacturing performance and profitable growth while seeking to reduce costs. Scott Macfarlane, vice president and general manager of our consumer packaging division, has played an important role in helping develop our strategic focus. Scott has elected to retire December 31, 2003. He has been instrumental in leading our folding carton business and building strong relationships with our customers. John Riconosciuto, currently~4~ 7. MICHAEL W.J. SMURFIT TO RETIRE AS CHAIRMAN AND DIRECTOR AFTER THREE DECADES OF LEADERSHIP Dr. Michael W.J. Smurfits vision transformed Jeffersonreorganized into Jefferson Smurfit Corporation (JSC). Its Smurfit Corporation, the predecessor to Smurfit-Stone, 1986 acquisition of 50 percent of Container Corporation from a regional paper-based packaging producer into an of America (CCA) established JSC as a major force in established and respected industry leader. Smurfit-Stone the U.S. paper and packaging industry. will continue to benefit from his vision. Dr. Smurfit will The 1998 merger between JSC and Stone Container serve the company as chairman emeritus upon retiring Corporation created what is todays industry leader. as chairman and director at Smurfit-Stones annual Patrick J. Moore, Smurfit-Stone president and chief stockholder meeting May 8. executive officer, has been elected by the board to He was the original architect of the Smurfit-Stone succeed Dr. Smurfit as chairman. transaction, which is widely perceived as the defining Michael Smurfit succeeded in this industry with a moment of industry change. At the time, Dr. Smurfitunique strategic vision of growing through acquisitions described the transaction as a courageous and auda- rather than heavy capital spending, Moore said. That cious first step in the industrys consolidation process. vision set this company on a path of steady growth, and Dr. Smurfit continues as chairman of Dublin-basedtoday we are the largest paper-based packaging company Jefferson Smurfit Group (JSG), a position he has heldin North America. For his achievements in our industry, since 1977. Under his leadership, JSG established ahe was awarded the inaugural global CEO of the year major presence in the United States with the 1981award in 1999 by the financial community. We thank him acquisition of the Alton Box Board Company and the for his contributions and leadership and are confident 1982 acquisition of Diamond Internationals packagingwe can remain on the growth path he established. operations. In 1983, most of JSGs U.S. operations were~5~ 8. S M U R F I T- STO N E AT A G L A N C ESmurfit-Stone Container Corporation is the industrys leading integrated manufacturerof paperboard and paper-based packaging. Smurfit-Stone is the leading producer ofcontainerboard, including white top linerboard; corrugated containers; multiwall andspecialty bags; and clay-coated recycled boxboard. We are the worlds largest paper recycler,annually processing and selling more than 6.5 million tons. Smurfit-Stone is a leadingproducer of solid bleached sulfate, folding cartons, flexible packaging, labels, and point-of-purchase displays. The company operates about 275 facilities and employs approximately38,600 people.74%22 % CONTAINERBOARD ANDCONSUMER CORRUGATED CONTAINERS PACKAGINGContainerboard and corrugated containers represent Smurfit- The consumer packaging division offers a wide portfolio of Stones largest business segment. This segment supplies primary packaging products and solutions that includes folding hundreds of national and international manufacturers, as well cartons, multiwall and specialty bags, flexible packaging, Lithoflute,TM as thousands of local and regional customers. and labels. The various operations within this business segment share many of the same customers and serve the same consumer product markets, with high-graphics printing as a core manufacturing PRODUCT LINES competency. With cross-trained sales teams supported by creativeUnbleached kraft linerboard Export-specific linerboard,and technical resources, the consumer packaging division deliversincluding SBS, white top, andWhite top linerboard added value to its customers.high-performance gradesCoated white topSemi-chemical and recycledBleached paperboard PRODUCT LINESmedium, including high-Solid bleached sulfateperformance gradesFolding cartons Lithoflute TMKraft paperBag packaging Clay-coated recycled boxboardMarket pulpFlexible packagingUncoated recycled boxboardLabels C A PA B I L I T I E SLaminationsFull range of high-qualityFull line of specialty productscorrugated containers and custom, die-cut boxes to C A PA B I L I T I E Sdisplay packaged merchandiseInnovative packaging solutionsand high-quality graphics Pre-print and post-printFolding carton: convertingFlexible packaging:flexography and labelPoint-of-purchase display capabilities include gluing, tray polyethylene bags, pouches,applicationsdesign and manufacturingforming, windowing, waxing, and sheeting and tubingand laminatingLithoflute : combines corru-TM Labels: foil, printed paper and gated strength with foldingheat-transfer labels, including carton graphics printabilityhigh-speed heat-transfer labels Bag packaging: multiwall,4 % RECYCLED FIBERfor plastic containersconsumer, and specialty bags AND OTHERLaminations: film, foil,and paper Smurfit-Stones recycling division provides a secure source of recovered fiber for the companys mills and has a broad product line that includes all grades of recovered paper. Smurfit-Stone Waste Reduction Services (SWRS) provides single-source waste management and recycling solutions to businesses. 9. GEORGE MacGREGOR, QUALITY ASSURANCE MANAGER UNCASVILLE, CT CONTAINERBOARD MILL Smurfit-Stones Uncasville, CT, recycled medium mill continues to manufacture high-quality products while maximizing operational efficiency. The mill is the sole supplier to a large number of its customers, and Uncasvilles northeastern location plays an important part in Smurfit-Stones overall containerboard mill system. 10. CONTAINERBOARD ANDVALUE-ADDED CORRUGATED CONTAINERSPRODUCTS AND When it comes to pizza boxes, Smurfit-SERVICES Stones lightweight linerboard options, combined with innovative box designs and high-end graphics, make us the supplier of choice for national and regional customers. CONTAINERBOARD Smurfit-Stone has North Americas largest containerboard mill system and is a leading producer of high-quality products such as kraft linerboard, coated and uncoated white top linerboard, kraft paper, corrugating medium, solid bleached sulfate, and bleached linerboard.DISPLAY GROUPWith nationwide manufacturing and servicecenters, Smurfit-Stones display groupspecializes in supply chain management.Our display group is a full-service opera-tion that understands the complexity andservice needs of consumer productscompanies. Smurfit-Stone provides brand-building solutions from our creative centersstaffed with experienced personnel whoare supported by the latest technology. CORRUGATED CONTAINERS Smurfit-Stones Meta corrugated packaging system is designed to erect cases in four-, six- and eight-sided configurations. Advantages the system brings to customers include increased stacking strength and improved size consistency while using less raw material. 11. LABELSSome of the worlds best-known brandslook to Smurfit-Stone for label solutions.We manufacture heat-transfer, paper litho,and rotogravure labels to meet customersspecific needs, and our order managementprocess assures customers of on-timeand on-budget product delivery. BAG PACKAGING FLEXIBLE PACKAGING Smurfit-Stone is the industrys leading We build flexible packaging solutions bag packaging manufacturer, including around key structural elements that multiwall and specialty bags. We deliverenhance shelf appeal and customer bag packaging solutions that capture theconvenience. Smurfit-Stones flexible customers interest while efficiently packaging capabilities cover a world protecting the packages contents.of needs, including institutional food packaging, consumer food packaging, and horticultural, medical and pharmaceutical packaging. LITHOFLUTE Lithoflute delivers the eye-catching graphics of folding cartons with the packaging strength of a corrugated container. This unique combination brands and protects products, and its high-impact graphics attract consumers to products such as dry and frozen foods, beverages, sporting goods, consumerelectronics, computer software, toys, shoes, and more. FOLDING CARTONS Smurfit-Stones folding cartons are used to package a wide array of consumer products, from food and beverages to soap and shoes. Our combination of strategically located folding carton plants, paperboard mills, and network of struc- tural and graphic design experts allows Smurfit-Stone to deliver packaging solutions to customers large and small across North America. 12. MARK SLOCUM, FLEXO OPERATORNEW HARTFORD, NYCORRUGATEDCONTAINER PLANT Quality products and customer service have been hallmarks of Smurfit-Stones New Hartford, NY, corrugated container plant. The facility has relationships of 40 years or more with several customers. One of those customers is the Matt/Saranac Brewing Co., a regional brewer that our New Hartford facility has served since 1950. ~ 10 ~ 13. TH E CHANGI NG PACK AGI NG MAR KET The packaging market is changing faster than at In 2002, the industry saw flat growth in corrugated any time in its recent history. Several key factors have container shipments. This slight stabilization can be dramatically affected the packaging industry and largely attributed to the correction of the strength of specifically the paper-based packaging market: the dollar, and to the view that the manufacturingManufacturing continues to move offshore; sector may be emerging from its multi-year slump.A change in the relationship between growth in Consumers have more product choices than ever,the overall economy and the packaging industry; with packaging playing an important role in buyingThe continued evolution of the use of packaging decisions. In todays growing self-service retail envi-in the supply chain and marketplace, especially ronment, packaging is being used as never before toamong big-box retailers; and, promote, market, and sell products, particularly inEven in a global marketplace, packaging continues big-box warehouse stores.to become more of a regional business. Add direct-mail and online selling to the equation The sustained strength of the dollar over the last and the way people shop is quite different today than it several years led to an increase in offshore manufac-was less than a decade ago. Translated into the packag- turing, changing the landscape for a North American- ing perspective, these trends create three major effects: focused company such as Smurfit-Stone. An increase in the demand for white top From the early 1970s to the mid-1990s, industrylinerboard for high-impact graphics; corrugated container shipments tracked well with the More demand for lightweight grades of overall rate of economic growth. The same could be saidcontainerboard that can still provide protection for boxboard production, which is a proxy for foldingto a packages contents; and carton shipments. From 1996 to 2001, the container Growing emphasis on tailoring the package to industrys growth rate slowed from the previous 10-yearbe used in retail environments and simplifying period. Just as important, the rate of growth for thethe role of packaging in the supply chain. paper packaging industry almost came to a halt. Smurfit-Stone has recognized that even in a global Near-term projections show a slight recovery in themarketplace, packaging continues to be more of a rate of growth, but end markets in the U.S. are stillregional business. This is a result of growing regional- flat to declining. These trends resulted in back-to-back ization of containerboard supply in Europe and partic- declines in corrugated container and folding cartonularly in Asia. The European and Asian markets, as industry shipments in 2000 and 2001, the first consec- a result, are less dependent upon North American utive years of negative growth in 25 years.containerboard suppliers. ~ 11 ~ 14. JOHN HENRY, CREW LEADER STEVENSON, AL CONTAINERBOARD MILL 15. Smurfit-Stone acquired the Stevenson mill in September 2002. The mills capacity is being used more efficiently and effectively in Smurfit-Stones large, integrated system. Smurfit-Stone increased its medium capacity with the Stevenson mill acquisition and subsequent mill system reconfiguration, while simultaneously creating a greater amount of flexibility within the companys 22-mill system. The acquisition of the Stevenson mill and related properties represents the type of transaction Smurfit-Stone seeks: the mill was accretive to earnings within a relatively short time, added expanded core capabilities, retained Smurfit-Stones credit rating, and fit well with helping Smurfit- Stone achieve its vision of being North Americas premier paperboard and paper- based packaging company. 16. Implemented our CustomerONE operatingSMINDUSTRY LEADERSHIP philosophy. Smurfit-Stone is the industrys leading integrated These accomplishments, which directly reflect manufacturer of paperboard and paper-based packag-our business strategy, are helping us break out of the ing. We are the leading producer of containerboard, traditional boom-and-bust cycle of our industry. including white top linerboard, corrugated containers, OPERATIONS multiwall and specialty bags, and clay-coated recycled boxboard. We are the worlds largest paper recycler, annually processing and selling more than 6.5 million SAFETY Safety remains Smurfit-Stones top operating tons. In addition, Smurfit-Stone is a leading producerpriority. Our well-established Smurfit-Stone Accident- of solid bleached sulfate, folding cartons, flexibleFree Environment (SAFE) process has created a culture packaging, labels, and point-of-purchase displays.that believes working safely isnt just something Our focus, ultimately, is on the end user ofemployees should do, its something they must do. Each packaging and our company is structured to serveyear, we establish more challenging goals as we work the packaging market from two directions: through toward the ultimate objective of creating an accident- our own internal integration, with our box plants free workplace, and we are constantly looking for designing and producing packaging solutions for our ways to improve safety at every location, every day. corrugated container customers; and containerboardBUSINESS SEGMENTS Smurfit-Stone today is a supply to our open-market customers.company of two major segments our container- While approximately two-thirds of the container-board and corrugated container business, and our board we produce goes into packaging manufactured consumer packaging operations. in our own plants, we still have about three millionCONTAINERBOARD AND CORRUGATED CONTAINERS The tons to sell on the open market, making Smurfit-Stone containerboard and corrugated container segment the leading supplier to independent converters andaccounts for approximately 74 percent of Smurfit- others who rely on our containerboard products. Stones total revenues. Our accomplishments are many since creating We have the largest and most geographically diverse Smurfit-Stone in 1998. Among them, we have: mill system in North America. Our aim has been to Changed our thinking, and our mill operations,make our system more flexible and, therefore, better to produce to demand rather than manufacturingprepared to capitalize on new market opportunities, and capacity; we have made significant accomplishments along those Permanently shuttered more than two million lines. The decision to produce to customer demand annual tons of less efficient, high-cost container- rather than maximize manufacturing capacity has led board capacity; to shutting down or idling our less efficient capacity. Refined our focus paper-based packaging;In the past four years, we have added capabilities, Made strategic acquisitions to assemble the notably in white top linerboard and medium- and broadest range of substrates of any packaging lightweight containerboard, and reconfigured mills company, giving us a distinct competitive and machines to match output to market demand. advantage;In the second half of 2002, we bought the Significantly reduced debt while making two Stevenson, AL, medium mill and related operations. large acquisitions and a series of smaller, yet The mill is widely regarded as one of the worlds important, purchases; most efficient medium producers. The mills capacity Made the organizational changes necessary tois being used even more efficiently and effectively in capitalize on our strengths; andour large, integrated system. ~ 14 ~ 17. IRENE McDONALD, LEAD PERSON TAMPA, FL RECYCLING PLANTSmurfit-Stones Tampa recycling facility has validated the adage that information is power. The Tampa steering team sponsors quarterly plant-wide meetings for every key workforce activity including safety, major projects, market trends, customer feedback, quality, productivity, and financial performance. With no recordable accidents for the past four years, Tampa has one of the best safety records among all Smurfit-Stone facilities.~ 15 ~ 18. (FROM LEFT TO RIGHT) MARK GRUNDER, PRODUCTION MANAGER; KATHLEEN SAIZ, CUSTOMER SERVICE REPRESENTATIVE; DANIEL HART, FLEXO ROTARY DIE CUTTER OPERATOR GALESBURG, IL CORRUGATED CONTAINER PLANTGaining repeat business has been a cornerstone of success for Smurfit-Stones Galesburg corrugated container plant. Whether its a new account or a new item for an existing customer, Galesburgs First Run Team follows the order from start to finish to ensure customer satisfaction. First Run Team members typically include employees representing plant management, sales, production, and/or design departments. Those members make a run to the customers facility as the product is being delivered. The face-to-face interaction results in real-time solutions for future product modifications, if they are necessary.~ 16 ~ 19. We bolstered our own medium capacity withued integration of our system even beyond the scope of the Stevenson mill acquisition while simultaneouslythe Smurfit-Stone merger. We recognized the need to creating a greater amount of flexibility within ourrationalize our corrugated container business as part overall mill system. of a successful integration and closed 19 U.S. plants Smurfit-Stones recycling and wood procurement since the merger, which represents approximately operations provide our containerboard mill system40 percent of total industry closures during that time. with its fiber requirements. Our recycling facilitiesConsistent with our growth strategy, Smurfit-Stone provide a direct line of fiber supply to our network strengthened its corrugated container position with of recycled paper mills, while our wood procurementseveral transactions. In August 2002, we acquired operations provide a solid base of virgin fiber. Packaging Services Group, expanding our capabilities Our corrugated container plants annually convert in the value-added areas of graphics, litho labels and about five million tons of containerboard. Two years specialty products. As planned, the two plants were ago, the corrugated container division adopted whatconsolidated into a single operation in Pennsylvania. We it labeled its balanced strategy: profitable revenue acquired seven corrugated container plants as part of growth, operational excellence, and meeting bench- the MeadWestvaco transaction completed in September mark measures in specific areas of the manufacturing 2002, and we closed three facilities where we identified process. With new management leadership in place significant overlap with existing operations. In in 2002, the balanced strategy produced positive and November, we opened our first corrugated container measurable results, with year-over-year improvementoperation in Las Vegas as part of a joint venture. in shipments despite flat growth in the market overall.In early 2003, Smurfit-Stone moved to further Smurfit-Stones performance was directly related strengthen our North American corrugated container to our reinvigorated sales effort. With an overall goalbusiness by agreeing to acquire the remaining of profitable sales growth, we analyzed existing 50 percent of Smurfit-MBI, a leading Canadian corrugated container customers and prospects tocorrugated container business. We entered into identify potential opportunities. On a plant-by-plantagreements with Jefferson Smurfit Group (JSG) to basis, we identified market opportunities and barriers exchange our European packaging operations for to growth. Specific plans were developed to reachJSGs 50 percent ownership of Smurfit-MBI and a key customers and target accounts. payment from JSG of approximately $190 million. Staying close to the customer has built the frame- Smurfit-Stone already owns 50 percent of Smurfit- work for continued sales success. It also has made MBI and will own 100 percent upon completion of our corrugated container division more aware ofthe transaction. This will end Smurfit-Stones manu- customer needs and how to deliver the best value facturing presence in Europe, allowing us to further proposition to each customer, another aspect ofour stated strategy of focusing on North America. strengthening Smurfit-Stones competitive edge.Smurfit-MBI operates 15 converting facilities in Staying with its balanced strategy effort, the container Canada. The transaction was slated to close in the division is also focusing on a quality assurance first quarter 2003. process that is aimed at improving customer serviceCONSUMER PACKAGING The products made by and satisfaction as well as delivering manufacturing Smurfit-Stones consumer packaging division gener- cost reductions. ally can be classified as primary packaging: folding By design, much of the activity to reinvent Smurfit- cartons, bag packaging, flexible packaging, labels, Stone during the past four years was concentrated in and specialty applications that come in direct contact the containerboard and corrugated container segment. with consumers, engage their attention, and commu- Additional acquisitions required us to focus on contin-nicate necessary information about the products inside. ~ 17 ~ 20. KEITH DYSON, PRODUCTION SUPERVISOR PACIFIC, MO FOLDING CARTON PLANTThe Pacific plant helps make Smurfit-Stoneone of the industrys leading folding cartonmanufacturers. Pacific provides top-qualityproducts and services to a wide array ofconsumer packaging customers, rangingfrom large-volume national accounts toregional and local customers. Pacificcelebrated its 50th anniversary in 2002. 21. This segment represents approximately 22 percent of Smurfit-Stone vision of being the premier paper- our total revenues and has tremendous potential.and paperboard-based packaging company in North We can offer creative combinations of packaging America; enhance or expand existing capabilities; materials to suit almost any marketing strategy. As the provide an attractive return on capital; and be earnings retail environment changes, the definitions of packagingaccretive to Smurfit-Stone within a relatively short time. categories blur. The concept of packaging has expandedWe look for synergies in each acquisition. With the from boxes to bags and specialty products that combineStevenson mill and related properties, we targeted the best features of corrugated, folding cartons, and annual synergy savings of $40 million. We have a well- multiwall bags. As the largest integrated paper-based established track record of successfully achieving our packaging company in North America, Smurfit-Stone synergy targets. For example, we gained $60 million has one of the broadest product lines and capabilitiesin synergies with the 2000 St. Laurent Paperboard Inc. to provide total packaging solutions. acquisition, in addition to more than $350 million in One example: In late 2001, we purchased a plant savings from the merger that created Smurfit-Stone. in Brampton, Ontario, from AT Plastics that expandedAligning resources to achieve our vision of leader- our capabilities in flexible packaging. The facilityship in packaging in North America means that some- manufactures plastic valve bags and co-extruded filmtimes we shut down or divest operations. During 2002, liners for the food, chemical, horticultural and building we sold our industrial packaging group 17 tube and products markets. A familiar application is cereal boxescore manufacturing facilities, three uncoated recycled with plastic liners to keep cereal fresh and dry. Beforeboxboard mills and three fiber partition plants to a Brampton became part of the Smurfit-Stone system, leading tube and core manufacturer. Within Smurfit- our customers purchased the cartons from us and the Stone it was a small and increasingly isolated product liners from another supplier. line. The proceeds from the sale helped partially Adding these kinds of capabilities is important tofinance our purchase of the Stevenson mill. Smurfit-Stones strategy. They enhance our ability to Also in 2002, we exited from a joint venture at the provide customers with the convenience of a single- Groveton, NH, containerboard mill, as part of our mill source supplier. These expanded capabilities allow us system reconfiguration. to offer customers more packaging solutions than ever.Nearly five years ago, Smurfit-Stone made a commitment to become a disciplined, market-STRATEGIES directed, integrated packaging solutions provider. The strategy has worked during extremely difficultSince forming Smurfit-Stone in November 1998,market conditions. We have remained profitable in we have been focused on three key strategies: the trough of the economic cycle. We have increased Produce to customer demand; container shipments in an overall shrinking market. Match our capabilities to the marketplace; andWe have purchased assets that complement our Outperform the competition. core competencies and divested product lines thatThese are the three primary components of our bus- no longer fit well. iness model that have positioned us to remain profitableSmurfit-Stones vision is to be North Americas throughout the economic cycle, and, moreover, havepremier packaging company. That means being the made the rest of our industry stand up and take notice. supplier of choice for our customers, the employer We do not intend to stray from these strategies.of choice for workers, the investment of choice forWe continue to maintain an interest in strategic investors, and a valued corporate citizen in the acquisitions. The criteria are demanding but straight-communities where we operate. We will continue forward: the operations must help us achieve theto focus on our key strategies to achieve our vision.~ 20 ~ 22. FLORIDA DEL ROSARIO, BAG HANDLER CANTONMENT, FL BAG PACKAGING PLANT AND TECHNICAL & GRAPHICS CENTER Smurfit-Stones Cantonment location not only manufactures bags for its customers, but operates a full-service technical center and a graphics center to bring value beyond the actual bag packaging. The Cantonment facility hosts a number of bag packaging customer workshops, focusing on educational opportunities for customers to learn about Smurfit-Stones bag packaging solutions process. Among the topics covered are papermaking processes, packaging equipment and systems, barrier properties, and quality processes.~ 21 ~ 23. B OA R D O F D I R EC TO R S A N D CO R P O R AT E A N D D I V I S I O N O F F I C E R SBOARD MEMBERS CORPORATE OFFICERSMichael W. J. SmurfitJames J. OConnorMichael W. J. SmurfitJames E. BurdissPaul K. KaufmannThomas A. Pagano Chairman RetiredChairman of the BoardVice President andVice President and Controller Vice President Jefferson Smurfit GroupUnicom Corporation/ Chief Information Officer Planning Patrick J. Moore Leslie T. LedererCommonwealth Edison Patrick J. MoorePresident andJames P. DavisVice PresidentLorne E. ParnellCompany President and CEO Chief Executive OfficerVice President andStrategic InvestmentVice President Smurfit-Stone ContainerJerry K. Pearlman General Manager DispositionsPacific Operations Charles A. Hinrichs CorporationRetired Corrugated Container Division Vice President and F. Scott Macfarlane John M. RiconosciutoZenith Electronics Corporation Leigh J. Abramson Chief Financial OfficerJames D. Duncan Vice President andVice President of Operations Managing DirectorThomas A. Reynolds, III Vice PresidentGeneral Manager Consumer Packaging Division Curtis A. Barton Morgan Stanley & Co. Partner Corporate Sales and Marketing Consumer Packaging Division Vice President David C. StevensWinston & Strawn Alan E. GoldbergEnvironmental AffairsDaniel J. GarandRichard P. MarraVice President and Co-Managing PartnerAnthony P.J. SmurfitVice PresidentAssistant Treasurer General Manager Jeffrey S. Beyersdorfer Goldberg, Lindsay & Co. LLCChief Operating Officer Supply Chain Operations Recycling Division Vice President and Treasurer Timothy J.P. McKennaJefferson Smurfit Group Howard E. Kilroy Michael F. Harrington Vice PresidentWilliam N. Wandmacher Mathew J. Blanchard RetiredDermot F. Smurfit Vice PresidentInvestor Relations andVice President and Vice President and Jefferson Smurfit GroupRetired Human Resources CommunicationsGeneral Manager General ManagerJefferson Smurfit Group Containerboard Mill and Board Sales Division Craig A. Hunt Ronald J. MegnaForest Resources DivisionVice PresidentAssistant Secretary Cynthia S. BowersSecretary and Vice President Mark R. OBryanGeneral Counsel Compensation and BenefitsVice PresidentProcurementCORRUGATED CONTAINER DIVISION CONSUMER PACKAGING DIVISIONCONTAINERBOARD MILL DIVISION Alain L.M. Boivin Mack C. Jackson Daniel J. Burger John L. KnudsenEdward A. ByczynskiCurtiss M. KomenVice PresidentVice President Vice President and Vice President and Vice President Vice PresidentMill Operations,Mill Operations Regional Manager Regional Manager and Area Manager CPD SalesCentral Region Multiwall/SpecialtyRoger M. Jansen LeRoy R. Crocker Rodney A. Myers George Q. LangstaffLarry L. Burton Vice President Vice President and Vice President and L. David Fielder Vice PresidentVice PresidentSBS Sales Regional Manager Regional Manager Vice President Operation ImprovementSales & Marketing PaperCanTM Eve K. Rae John J. Curry, Jr. Robert D. NelsonJames B. LaurenceJohn E. Davis Vice President Vice President and Vice President and Michael L. Hempstead Vice President of SalesVice PresidentPulp Sales Regional Manager Regional Manager Vice President and Multiwall/SpecialtyForest Resources Regional Manager W. G. Stuart William G. Eustice James S. NolanDonald W. McCalla Folding CartonsAlain Dubuc Vice President Vice President Vice PresidentVice President and Labels Vice PresidentMill Operations,Corporate Sales CPD Marketing Stephen P. Folan Mill Operations,Southern Region Nathan S. Holmes Vice President Donald A. Petri Gary D. McDanielNorthern Region Vice President and Sales and MarketingVice President andVice President and General ManagerRegional ManagerGeneral Manager Roland F. HauserBoxboard Mills and LaminationFlexible Packaging Group Vice President and Jerry D. Suiter Gary R. HustonRECYCLING DIVISION Regional Manager Vice President andJohn J. Moran Vice PresidentDirector of Manufacturing Vice President and James A. HendersonBoxboard Sales Michael R. Oswald Tom E. SquiresGeneral Manager Vice President and Donald A. Tinkoff Vice PresidentVice President Steven L. KelchenMultiwall Bags Regional Manager Vice President andOperationsSoutheast Region Vice President andRegional ManagerDavid J. Pietrowicz Lane W. HunterRegional Manager Mark C. BrantleyJames W. PopeVice President and Vice President andFolding CartonsVice PresidentVice PresidentGeneral Manager Regional Managerand Labels North Central RegionInternational/Western SalesFolding Cartons and Labels Stephen E. Jevyak Fred W. KlattSteve A. Miller Edward V. TucciaroneMichael L. Weisheit Vice President andVice President and Vice PresidentVice PresidentVice President and Regional ManagerArea Manager West Region Eastern SalesRegional Manager Multiwall/SpecialtyFolding Cartons and Labels OTHER Joseph V. LeBlanc William C. WannerVice PresidentVice PresidentResearch and DevelopmentSupply/Demand Operations~ 22 ~ 24. STO C K H O L D E R I N F O R M AT I O N STOCKHOLDERS ANNUAL MEETING May 8, 2003 at 1:00 pm The Sheraton Chicago Hotel & Towers City Front Center 301 E. North Water Street Chicago, IL 60611 REGISTRAR AND TRANSFER AGENT Mellon Investor Services LLC Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Telephone: (888) 213-0965 www.mellon-investor.com COMMON STOCK Smurfit-Stone Container Corporation Common Stock is traded on The Nasdaq Stock Market under the symbol: SSCC. PREFERRED STOCK Smurfit-Stones 7% Series A Cumulative Exchangeable Redeemable Convertible Preferred Stock is traded on the Nasdaq under the symbol: SSCCP. INVESTOR INFORMATION Investor Relations and Communications Smurfit-Stone Container Corporation 8182 Maryland Avenue St. Louis, MO 63105 Telephone: (314) 746-1223 Fax: (314) 746-1347 www.smurfit-stone.com Timothy McKenna Vice President, Investor Relations and Communications St. Louis, MO: (314) 746-1254 Chicago, IL: (312) 580-4637 CORPORATE HEADQUARTERS Smurfit-Stone Container Corporation 150 North Michigan Avenue Chicago, IL 60601-7568 Telephone: (312) 346-6600 25. 150 North Michigan Avenue Chicago, IL 60601-7568 (312) 346-6600 www.smurfit-stone.com