Look again.Smurfit-Stone Container Corporation

Annual Report

2000

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We are.

Table of Contents

Financial Highlights 6Letter to Shareholders 7Smurfit-Stone at a Glance 10Bringing New Perspective to an Established Industry 13Board of Directors and Officers 22Smurfit-Stone Form 10-K 23

Smurfit-Stone’s leadership role in the paper and packaging industry is no illusion.

To improve that position, we are taking another look at how we manage our

business, satisfy our customers, and deliver value to all stakeholders. In today’s

economic environment, we hope our business fundamentals and track record

of financial discipline will encourage you to take another look at Smurfit-Stone.

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1

Look again.

We’ve adopted the following principles to run our business:

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People

leadershipperspective

■ empowered employees, teamwork, and consensus

■ shared leadership

■ open, two-way communication

■ ongoing learning

■ continuous process improvement

■ data-based decisions

2Look again.

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Smurfit-Stone is the best positioned paper-based packaging company to anticipate and

respond to rapidly changing conditions in the packaging market. As a customer-led company,

we listen to our customers in order to deliver the types of products and services they

and their customers will need in the short- and long-term. In other words, we make the

products they want, rather than merely selling the products we make.

Products

customerperspective

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3

Look again.

In 2000, we continued to refine the benchmarking process we began at the time of

the merger of Jefferson Smurfit Corporation and Stone Container. We identified the best

operations within our manufacturing system and throughout the industry and challenged

our operations to close the gap between where they are and where

they ought to be. The results produced higher operating efficiencies

and lower costs. 3

Products

operationalperspective

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4

Look again.

Our number one financial goal for 2001 is to reduce debt and continue to increase our

financial flexibility. We are focused on cost containment, cost reduction, and cash generation

to pay down debt. Smurfit-Stone’s plan is to conduct business with a unified packaging focus,

have better assets in play, and complete our strategy of exiting businesses that do not meet

our strategic objectives.

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Performance

financialperspective

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5

Look again.

Our challenge at the start of the 21st century is to examine the practices of our predecessor

companies and adopt only the very best. As a company that employs approximately 40,000

people, operates more than 300 manufacturing facilities throughout North America, and holds

a leadership position in our industry, we take seriously our obligations

to all stakeholders. 5

Performance

accountabilityperspective

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Containerboard and 68%Corrugated Containers

2000 1999 1998Dollars in millions, except per share data

Summary of operationsNet sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,796 $ 7,423 $ 3,612Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 933 423 (93)Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (527) (563) (247)Income (loss) from continuing operations before extraordinary item

and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 163 (211)Net income (loss) available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 157 (200)

Basic earnings per shareIncome (loss) from continuing operations before extraordinary item

and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .94 $ .75 $ (1.70)Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96 .72 (1.61)Weighted average shares outstanding (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 217 124

Diluted earnings per shareIncome (loss) from continuing operations before extraordinary item

and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .93 $ .74 $ (1.70)Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96 .71 (1.61)Weighted average shares outstanding (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 220 124

Other financial dataNet cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 807 $ 183 $ 129Capital investments and acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 994 156 287Net working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470 73 635Property, plant, equipment and timberland, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,670 4,419 5,772Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,280 9,859 11,631Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,342 4,793 6,633Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,528 1,847 1,634Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,700 36,300 38,000

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

Sales per Product Segment

12% Consumer Packaging

8% Specialty Packaging

5% Recycled Fiber

7% International and Other

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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

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

Dear Shareholder,

For Smurfit-Stone, 2000 was a year offinancial and operating

accomplishments tempered bymarket challenges. It broughtthe acquisition of St. LaurentPaperboard Inc. — whichaccelerated our strategicdevelopment as a full-service,paper-based packagingcompany — as well aseconomic conditions that forcedus to schedule mill downtimeequal to about 10 percent of ourcontainerboard capacity.

We began 2000 with ourrole as industry leader firmlyestablished. The merger of Jefferson SmurfitCorporation (JSC) and Stone Container Corporation in 1998 made us the largest paper-based packagingcompany in North America and provided unparalleled opportunities to improve serviceto customers, rationalize operating systems, and enhance operating efficiencies.

We immediately acted on these opportunities.Even so, the path from packaging manufacturer topackaging solutions provider demands new skills,sometimes difficult production decisions, and awillingness to accept new kinds of challenges. As webuild these skills, we are becoming a stronger companywith a more efficient integrated system and greaterflexibility to meet these challenges.

Significant Improvement in

Operating Performance

A key measure of our progressis improvement in operatingperformance.

For the full year 2000, thecompany reported net incomeavailable to common share-holders of $224 million, or $0.96per diluted share, comparedwith net income of $157 millionin 1999, or $0.71 per dilutedshare. The 1999 results includedafter-tax gains on the sale ofnon-core assets of $268 million,or $1.22 per diluted share. In2000, higher product prices andthe addition of St. Laurent’s

higher-value product mix contributed to an 18 percentincrease in sales to $8.8 billion compared with 1999. The operations of St. Laurent, included in the com-pany’s results for the last seven months of the year,added $96 million in operating profits.

These favorable results were achieved despitehigher energy costs of about $88 million and the need to take 758,000 tons of economic downtime to manageinventory levels and conserve working capital in thecontainerboard mill system.

We continued to make progress in strengtheningour financial position. The St. Laurent acquisition added$1 billion in debt without weakening the credit profile ofthe company. Operating profits and synergies from theacquisition supplemented our operating cash flow andenabled us to reduce debt by approximately $370 millionduring the second half of 2000. Total debt was $5.3 billionat the end of the year. Interest expense in 2000 was $527 million, a $36 million decrease from the prior year.

Michael W. J. Smurfit, Chairman of theBoard (left), and Ray M. Curran, Presidentand Chief Executive Officer.

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In January 2001, we simplified our balance sheetwith a $1.05 billion bond offering by Stone Container.The bond offering replaced several higher-couponissues with lower-interest debt and extended ourmaturities, improving our credit profile and financial flexibility.

Capital expenditures for the year were $363 mil-lion, a substantial increase from the $156 million spent in 1999. This was primarilydriven by heavy environ-mental compliance spendingin our mill system. Weexpect capital spending tostay well below depreciationand amortization levels forthe foreseeable future.

Smurfit-Stone hasbenefited from more than$350 million in annualizedsynergy savings from theintegration of the JSC andStone manufacturing andcorporate systems. Thesesavings, a major priority in1999, were fully implementedby the second quarter of 2000.

A strong economyfrom most vantage pointsnevertheless brought specialchallenges for the packagingindustry. Because of thestrength of the dollar, U.S. consumers bought an increased level of goods manufactured and packagedabroad. Additionally, the dollar’s strength impaired U.S. manufacturers’ ability to export their goods in U.S.-made boxes, and U.S. linerboard producers found theirprices uncompetitive in export markets. Despite theimpressive performance overall from the U.S. economy,domestic shipments of corrugated containers declinedroughly one percent in 2000.

In this environment, Smurfit-Stone worked hard to manage our production to meet demand. As a result,we benefited from stable to improving prices and bettermargins compared with the prior year.

Average prices for most paperboard and packagingproducts showed significant improvement in 2000.Containerboard prices posted the greatest improvement,increasing about 20 percent on average and partiallyrestoring profit margins lost in the second half of the1990s. The company successfully implemented priceincreases on corrugated containers, boxboard, andfolding cartons, as well as multiwall bags.

Our packagingbusinesses continued toenhance their positionswith customers seekingadditional graphics andspecialized service. In adifficult year for the industry,our folding carton businessincreased market share andprofitability as a result of ourdemonstrated commitmentto consistent customerservice and productionquality. This helps to provide a stable profit base.

Positive Trends and

Continued Progress

The achievements recordedand challenges faced in 2000signal changes afoot in ourindustry. We believe theindustry trends bode wellfor Smurfit-Stone. Here aresome reasons for optimism.

Customers continue to embrace high-endpackaging, including boxes that combine corrugatedpackaging’s structural features with the customerappeal of high-impact graphics. Evolving customerpreferences will give us opportunities to grow, althoughchange also carries the potential to reduce demand inother parts of our business. We believe the net benefit ofthese changes can increase revenues and profit margins.

The acquisition of St. Laurent expands ourcapabilities and positions us well to meet customers’changing needs. St. Laurent’s outstanding capabilities in developing and producing high-end containerboardcomplement Smurfit-Stone’s existing product lines.

In addition to Ray Curran, the company’s ExecutiveCommittee members are (sitting, left to right)Patrick J. Moore, vice president and chief financialofficer; Peter F. Dages, vice president and generalmanager, corrugated container division; and (standing, left to right) John M. Riconosciuto, vice president and general manager, specialty packaging division; William N. Wandmacher, vicepresident and general manager, North Americancontainerboard mill and forest resources division;and F. Scott Macfarlane, vice president and general manager, consumer packaging division.

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With St. Laurent, we also acquired additional marketingresources, which support our aim of being a market-driven company rather than an operations-driven one.

We now have approximately 7.8 million tons ofcontainerboard capacity in the combined Smurfit-Stoneand St. Laurent system. We consume more than fivemillion tons in our corrugated container operations. We have been improving the market mix of this businessfor the past two years, taking advantage of opportunitiesto substitute higher-margin, high-impact packaging for products with lower margins. Adding St. Laurent’spackaging and marketing skills has aided that process.

About 20 percent of our containerboard millproduction is higher-value containerboard. Thisincludes one million tons of white top linerboard as well as lightweight medium and coated whitelinerboard. These constitute the most consistentlyprofitable grades in a changing packaging environment.

Integrating the JSC, Stone, and St. Laurentproduction facilities into a single system gave us moremanufacturing flexibility. Soon after the acquisition ofSt. Laurent, we shut down one of the smaller Smurfit-Stone mills, eliminating 130,000 tons of mediumcapacity. With this closing, we have permanentlyshuttered 1.8 million tons of containerboard capacitysince 1998.

Providing Packaging Solutions

Our strategic aim is to be the supplier of choice for two significant groups of customers: those who seek a broad-based source for efficient packaging solutions,and independent packaging producers who buy ourcontainerboard products.

For packaging customers, we now have a rich pool of resources to provide the service and high-impactpackaging increasingly in demand. We have initiated a comprehensive review aimed at better serving ourcustomers and focusing on where we can expand andenhance these resources to meet market needs.

The independent packaging producer is seeking a reliable supply of high-quality containerboard. We are working to address this need by dedicating a largeportion of our tonnage to this sector and are exploringother ideas related to the independent market.

We are reviewing our methods for reducingproduction as necessary to manage inventory.Unscheduled downtime is costly — in increasedmanufacturing costs as well as disruptions to employeesand customer schedules — and is prompting a thoroughassessment of the best approach. Our options includeextending scheduled maintenance downtime, slowingthe rate at which machines run, and temporarilyshutting down high-cost machines in certain cases. Our goal is to make our system more cost efficient andbetter positioned to respond to customer demand.

In the near term we expect economic challenges to continue. There are signs that the U.S. dollar mayweaken. This may stimulate packaging demand later in 2001 and thereafter. We plan to hold capital spendingbelow 2000 levels now that the bulk of the environ-mental compliance spending is behind us. We also plan to use cash flow to further reduce debt, which isour number one financial priority. We have achieved $20 million in annualized synergy savings from the St. Laurent acquisition, and we expect to realize the total $50 million targeted by the end of 2001.

Smurfit-Stone aims to be recognized as a companythat delivers value to customers and shareholders. To dothat on a consistent basis requires a customer-focusedorganization with motivated and committed employeesand effective operations. Our company culture mustmirror our position as the industry leader. We are oncourse to become the preeminent packaging solutionsprovider, which is Smurfit-Stone’s strategic goal and onethat recognizes the interests of customers, employees, and shareholders.

We are encouraged by our accomplishments andwe look forward to continued progress in 2001.

Michael W. J. SmurfitChairman of the Board

Ray M. CurranPresident and Chief Executive Officer

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Smurfit-Stone is unique in the paperand packaging industry in that it has a strong position in recycled fiber. The company has built the largestreclamation business in the industry

and now collects and processesapproximately 7 million tons of recycled paper every year.

Recycling business handlesrecovered paper generated byindustrial, commercial, andresidential sources.

Collected material includes oldcorrugated containers, newspapers,office waste, magazines, aluminumcans, glass, and plastics.

Waste Reduction Services provides waste-management solutions to businesses.

Multiwall industrial and consumer,specialty, and flexible bags

Paper tubes and cores

Solid fiber and paperboardpartitions

Full line of flexible, intermediatebulk containers

Packaging equipment and systemsthat fill, seal, convey, and palletizebag products

Contract packaging services

Smurfit-Stone’s specialty packagingbusiness includes bag packagingoperations, industrial tube and core

manufacturing, flexible packaging, andcontract packaging services. Multiwall,consumer, specialty, and flexible bagsare used to ship, store, protect andpromote a wide range of products.Tubes and cores are used by the textile,paper, film and carpet industries.Flexible packaging supplies products fordetergent, fabric softeners, and liquidchemicals, among others.

Full range of high-quality corrugated containers

Innovative packaging solutions andhigh-quality graphics

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

Full line of specialty products andcustom, die-cut boxes to displaypackaged merchandise

Graphic capabilities include preprint and post-print flexography,and label applications.

Full range of domestic and export-specific liners, including solidbleached sulfate, white top andhigh-performance grades

Full range of semi-chemical andrecycled medium, including high-performance grades

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

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

Containerboard and corrugated containers represent Smurfit-Stone’slargest business segment, with 68 percent of the company’s sales. Thissegment supplies hundreds of nationaland international manufacturers, as wellas thousands of local and regionalcustomers.

Smurfit-Stone’s consumer packagingproducts and services businessincludes boxboard, folding cartons,printed paper, foil and heat-transferlabels, rotogravure cylinders, colorseparations, engineering services, and full-service design.

Clay-coated and uncoated recycledboxboard in newsback, kraftback,and whiteback grades

Folding carton convertingcapabilities include sheet and web lithographic printing,laminating, gluing, tray forming, and windowing.

Labels for decorative packagingapplications

Specialty Packaging

Consumer Packaging

Containerboard and Corrugated Containers

Recycled Fiber

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Record volume year

Record export sales

Division reorganization reduced SG&A costs 7.5 percent

Largest producer of containerboard

Largest producer of high-value white top linerboard

Largest supplier ofcorrugated containers

Industry’s mostcomplete line of graphiccapabilities

Approximately 150 container facilities worldwide

21 paper and paperboard mills

5 strategically located PackagingSolution Centers

No. 1 producer of clay-coated recycled boxboard

A leading supplier of folding cartons

18 folding carton plants

4 clay-coated recycled boxboard mills

4 label plants

3 lamination facilities

2 prepress operations

1 PaperCan™ plant

3 uncoated, recycled board mills

Significant improvement in operational areas,especially safety

Improved cash flow from working capital

Integrated tube and core,partition, contract packaging, and flexible packaging operationsresulting in shared services andmulti-product sales opportunities

World’s largest paper recycler 25 U.S. collection centers

10 brokerage offices

1 brokerage office in Shanghai, China

1 waste reduction services office

Record safety performance

Increased folding carton market share

Improved segment profit by 8 percent

Successfully combined existing folding carton and boxboard mill businesses with otherconsumer packaging operations

Improved segment profit by $441 million

Optimized mill operations

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

Largest manufacturer of multiwall industrial andconsumer bags

A leading supplier of flexible intermediate bulkcontainers

A leading producer of paper tubes and cores

18 tube and core plants

11 bag plants

4 flexible packaging facilities

3 partition plants

1 technical and graphics center

1 bag packaging equipment facility

La Tuque, Quebec

Smurfit-Stone’s acquisition of St. Laurent Paperboard Inc. in May2000 made the company the lead-ing manufacturer of high-qualitywhite top linerboard. Here, Isabelle Dussault inspects a sample sheet at the La Tuque,Quebec, containerboard mill.

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The paper-based packaging industry, like most manufacturing-

based industries, has been operations driven for most of its

history. Big paperboard mills, at their best when the machinery

was fully engaged, delivered product into inventory until buyers wanted

it. In sluggish economic times, warehouses bulged and prices fell. Those

circumstances gave rise to an inefficient and disruptive cycle.

Conditions began to change in 1998 with the combination of Jefferson

Smurfit Corporation (JSC) and Stone Container Corporation. As Smurfit-

Stone, we set out to be a customer-driven company in which decisions

start with the marketplace and work back through production. The

evolving market also played a significant role in our decision to acquire

St. Laurent Paperboard Inc. and its high-end containerboard capabilities.

Leadership

The combination of JSC and Stone Container gave Smurfit-Stone the No. 1ranking by size in the paper-based packaging industry. The larger com-

pany became a platform on which to build a new business model. Greater size brought increased flexibility in operating our mill system. Our challenge was

to align the mill system more closely with market priorities and make it more efficient. Within thefirst 15 months after the merger, we shuttered five mills, eliminating 1.6 million tons of inefficientcontainerboard production capacity.

To add capabilities that better reflected the evolving packaging market, we acted on theopportunity to acquire St. Laurent Paperboard. Its white top linerboard provides the substrate for packaging customers who require colorful, marketing-oriented, high-impact graphic design.Expanding these capabilities within Smurfit-Stone accelerated our development as a provider ofpackaging solutions.

People

Leadership perspective1

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

B R I N G I N G

new perspectiveT O A N E S T A B L I S H E D I N D U S T R Y

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The acquisition further expanded our mill system, offering additional opportunities tooptimize production, achieve cost savings, and better match production to customer orders.

Smurfit-Stone’s new business model contains two key aspects. One is structural — a moreefficient mill system. The other addresses the marketplace — a product line more attuned tocustomer priorities. For Smurfit-Stone, this business model laid a foundation for better inventorymanagement. A more predictable market environment mitigates price swings and allows man-agers to concentrate on other aspects of the business, such as a corporate culture that reflects ourleadership position.

The vehicle through which we intend to implement the business model is CustomerONE.More than a corporate quality program, it is a comprehensive operating philosophy and workprocess that is designed to provide focus and, where necessary, change our attitude about what it takes to succeed in the marketplace.

We are transforming how we define “customer”. In the CustomerONE environment, a customer is any stakeholder — someone who buys our products, works at our company, invests in us, or partners with us. Our stakeholders include the communities in which we dobusiness. Defining all of these relationships in the customer sense leads to a different attitudeabout how we conduct our business. It focuses us on solutions.

Over the years, JSC and Stone Container had developed theirown quality programs and operating philosophies. CustomerONEintegrates their best features. More important, it provides a sense ofidentity that is unique to Smurfit-Stone, at a time when our vision isto be a top-tier company, not just in packaging but among all leadingNorth American companies.

Houston, Texas

Len Murphy (left) andGreg Traylor carry out a quality check at theHouston, Texas, corru-gated container plant.

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Westmont, Illinois

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The changing economy gives more urgency to adopting this approach.Today’s business environment presentsemployees with unprecedented choices.Companies in established industries likepaper and packaging compete againstemployers perceived to offer more appealing career prospects.

As we apply the concept of customerto the workplace, we expand employees’skill sets, foster management training, and generally enrich the work process.CustomerONE promotes open, two-waycommunications, solicits employees’ ideasand creativity, and facilitates teamwork and consensus building. Smurfit-Stone

empowers employees to engage in natural work teams, pool knowledge and talent to create new ideas, and deal with operational challenges.

The work teams have been an important factor in improving plant safety, a top priority at Smurfit-Stone. The safety initiative also demonstrates the value of training, and we are using it as a model for other career and quality training programs.

We have a comprehensive safety process — Smurfit-Stone Accident Free Environment, orSAFE — which has helped position us as an industry leader in safety practices and measurement.The name of the process speaks to its goal — to create an accident-free work environment. Sinceits inception in 1994, safety performance has improved 68 percent as measured by the number of incidents involving injuries requiring medical attention, logged according to rules of theOccupational Safety and Health Administration. We continued to make progress in safety in2000, solidifying our ranking in the top quartile of our industry.

Understanding Our Customers’ Perspective

In the marketplace, CustomerONE encourages us to focus on packagingsolutions, not just manufacturing efficiency. We recognize that a highly

competitive retail environment forces merchants to look to packaging to display, promote, andsafely transport products. We have responded by working closely with our customers to developappropriate packaging solutions and expand our high-end, higher-margin capabilities. Inaddition, we respect the intense competitive cost pressures faced by our customers. To respond, we have invested heavily to improve our supply chain operations.

Our goals are clear. We aim to:Anticipate customers’ packaging needs. Exceed customers’ expectations with value-added services. Be the supplier of choice for a wide range of products.Be cost competitive without compromising innovation or quality.

We start production decisions at the point of package content and end-user expectations,rather than at the mill. Working with our customers, our sales force may recognize the need for a nontraditional packaging solution: lighter substrates than the mills have typically produced,

Products

Customer perspective2

Smurfit-Stone’sresearch, develop-ment, and producttesting capabilitiesare part of providingtotal solutions to ourcustomers’ packagingneeds. Sue AnnDaniels performs astructural strengthtest at the corrugatedcontainer division’sWestmont, Illinois,marketing and tech-nical center.

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larger semi-bulk packages, protective packaging, or adifferent type of packaging altogether. Smurfit-Stone’sintegrated system makes it possible to deliver the bestsolutions, whether they are boxes, folding cartons,multiwall bags, or industrial packaging.

We constantly are analyzing efforts to improvedelivery of our products and services and to build new business without sacrificing profit margins. A company-wide assessment is underway to examineservices, capabilities, and technical resources, as well as initiatives such as e-commerce and cross selling.

During 2000, we reorganized three non-corrugatedcontainer packaging businesses into two businessesconcentrating on consumer packaging and specialty pack-aging. This action streamlined management, enhancedour ability to identify opportunities for cross selling tolarge customers, and generated synergy savings.

E-commerce initiatives quickly are becomingnecessities, not merely opportunities. The largestpackaging users — the customers Smurfit-Stone isuniquely positioned to serve by virtue of our size andproduct scope — have determined that competitivenessincreasingly rests on driving down cost and speeding up transactions by carrying out more processes over the Internet. Smurfit-Stone is building electronicprocurement capabilities to compete in this environment.

We have implemented forecasting, inventorymanagement, and replenishment applications. Improve-ments in these transactional tasks allow us to redeployemployee efforts to focus on more value-added activitieson behalf of customers.

Driving many of these initiatives is an enterprisetransformation process with the basic premise thatimproving how we do business delivers a better valueproposition to our customers. We are analyzing how wedo business within and across our operating divisions, as well as general and administrative functions, to bestdetermine how to better serve customers. The better wecomprehend both aspects of the customer relationship —their expectations of us and how we are organized todeliver on those expectations — the better our decisionsregarding investments in technology, organizationalinitiatives, and product development.

Smurfit-Stone serves a broad range of customers,from those who buy our packaging to those who buy ourproducts as their raw materials. As we have closed mills

Smurfit-Stone achieved significantcost reductions at our Missoula,Montana, mill by concentrating its pro-duction on brown board and movingits white top production to Brewton,Alabama. Missoula employees such asMark Snead, right, helped implementthe change. In addition, the Missoulamill continues its role as an environ-mental steward. The wastewaterholding ponds that dominate 800 acresalongside the mill provide refuge for196 species of birds, migrants, andresident breeders. Volunteers such asLarry Weeks (inset) have helped put upfences to keep cows away and plantedcottonwoods to improve the stream-side vegetation.

Missoula, Montana

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and consolidated production, some independent corrugated customers have expressed concernabout dependability of their supply. Smurfit-Stone is dedicating a part of our mill system to meet the needs of these key customers and has committed a minimum of one million tons ofcontainerboard products annually to the independent marketplace.

Optimizing Production Capabilities

Our primary operational focus since the merger of Smurfit-Stone has been higher manufacturing efficiencies and lower costs. Six mills in a pilot

program focused on improving existing processes increased efficiencies up to five percent andreduced costs by as much as 10 percent by the end of 2000. The program will be extended to our other mills.

Our objectives are to lower the cost per ton and balance production with current demand.To accomplish that, Smurfit-Stone is evaluating more efficient ways to reduce operating ratesthrough a combination of running the mills more slowly and taking periodic shutdowns.

In the second half of 2000, we launched an incremental-cost measurement process thatfocuses on the cost of the last ton made rather than average price per ton. This analysis aims tocapture total production costs, including incremental energy and transportation expenses that are often incurred by the single-minded focus on meeting production goals. Average-cost-per-toncalculations tend to ignore these expenses.

Our larger mill system provides opportunities to schedule production at facilities bestequipped to deliver the products most in demand. We achieved significant cost reductions at ourMissoula, Montana, mill by concentrating its production on brown linerboard and moving itswhite top production to Brewton, Alabama. Brewton, along with the West Point, Virginia, and La Tuque, Quebec, mills added in the St. Laurent merger, now produce the same high-qualitywhite top linerboard. The flexibility to shift production among the mills means customers’ orders are filled expeditiously and the mills operate more cost-effectively. The result: increasedcustomer focus and improved profitability at the mill level.

We are in the process of introducing uniform computer-based purchasing and maintenancemanagement systems. Over time that approach will become standard procedure. The supply

chain operations group is focused on signifi-cantly improving service to integrated andindependent customers, reducing order cycletime, and improving inventory levels. Supplychain improvements by themselves reducedcorrugated containerboard inventories more than 15 percent in 2000.

Being a demand-driven producer enablesSmurfit-Stone to maintain the all-importantcustomer focus while keeping inventories inbalance. The company and our workforce benefit from steadier production that mitigatesdowntime taken to reduce excess inventories.

Products

Operational perspective3

Smurfit-Stone is the industry’s leadingbag packaging manu-facturer. Employeessuch as WendyHadlock at ourJacksonville,Arkansas, bag pack-aging facility paygreat attention toproduction detail and customer service.

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Jacksonville, Arkansas

Strong Financial Management

Enhances Performance

Smurfit-Stone has a well-established reputationfor strong financial management based on setting aggressive perform-ance objectives and then achieving — if not exceeding — those goals.

In the merger that created Smurfit-Stone, our goal was to achieve$350 million in annual savings within a two-year period. We reached the$350 million goal in mid-year 2000, six months ahead of the target date.By the end of the year, we realized synergy savings from the St. Laurentacquisition of $20 million on an annual basis. We expect to reach our $50 million goal in total synergy savings in 2001.

Our history of growth through acquisitions produced a high levelof debt. Our top financial objective is to reduce that debt to help lowerinterest expense and improve earnings. As important as that is, we also remain committed tomaintaining financial flexibility so that we are well positioned to take advantage of strategic and operating opportunities.

In 1999, we reduced total debt by $1.8 billion, principally from the proceeds of sales of non-core assets. Debt reduction remained our top financial priority for 2000, but we also tookadvantage of our financial flexibility and reputation for strong financial management to acquire St. Laurent when that opportunity presented itself. The transaction represented an

Performance

Financial perspective4 Smurfit-Stone spentabout $204 millionin 1999-2000 onenvironmentalimprovements atnine mills, includingthe Panama City,Florida, mill, whereJeremy Odom is part of the team that helped the mill comply with theEPA’s Cluster Rule.

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Panama City, Florida

20

important strategic transaction for Smurfit-Stone even though it meant $1 billion in additionaldebt. In the second half of 2000, following the acquisition, we reduced debt by approximately$370 million.

Early in 2001, we announced plans to issue $500 million of new bonds at Stone Container,with the proceeds to be used to redeem bonds maturing in 2002. Strong market interest, signalingan acceptance of our strategies, allowed Stone Container to increase the issue to $1.05 billion of new bonds and redeem existing bonds with higher interest rates. This refinancing helped us increase financial flexibility by lengthening the maturities of our bonds and lowering our interest expense.

Accepting the Accountability of Leadership

Accountability improves performance. The management processes inplace recognize the contributions of employees throughout the organi-

zation by giving them responsibility in their spheres of influence, within corporate guidelinesdesigned to promote best practices and reach common goals.

Measurement is routine in the corporate culture at Smurfit-Stone. Line managers areaccountable for customer satisfaction and for managing the business to increase both sales andprofit margins. Executive management is measured on corporate performance including cashflow, debt reduction, and overall profitability.

Smurfit-Stone also is accountable to the communities in which we operate and to theenvironment in and around our plants. Realizing that employees not only work but also live in the areas in which we do business, we strive to be a good corporate citizen and encourageemployees to become involved in their communities. One way we demonstrate commitment to environmental protection is a rigorous, companywide audit program. Internal teams made up of corporate and operating staff and legal counsel routinely inspect company facilities forenvironmental compliance.

As the world’s largest paper recycler, we not only provide our mills with a secure recycledfiber source, but our efforts help divert materials from landfills.

In 1999 and 2000, we spent approximately $204 million on environmental improvements at nine mills to comply with the Cluster Rule, a collection of federal air and water regulations that affect U.S. paper mills. The company is dedicated to improving water and air quality by

actively pursuing treatment systems that remove undesirableparticles from our manufacturingdischarges.

We recognize that leadershiprequires accountability tocustomers, employees and com-munities, as well as to share-holders. From our perspective as North America’s leading paper-based packaging solutionsprovider, constantly taking anotherlook at the way we do businessensures our accountability to all.

Performance

Accountability perspective5

Smurfit-Stone takes a leadership role in environmentalstewardship and conducts rigoroustesting and auditingprograms. BunkyJones, a chemist at the Panama Citycontainerboard mill,gathers a watersample for testing.

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Panama City, Florida

Solon, Ohio

Paul Napier checks for color accuracy at Smurfit-Stone’s Solon,Ohio, folding carton manufacturingfacility, which converts boxboardfrom several of Smurfit-Stone’smills and has a tradition of strongcustomer relationships.

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Michael W.J. SmurfitChairman of the Board

Ray M. CurranPresident and Chief Executive Officer

Patrick J. MooreVice President and Chief Financial Officer

John F. AllgoodAssistant Secretary

Curtis A. BartonVice President, Environmental Affairs

Mathew J. BlanchardVice President and General Manager, Containerboard Sales andMarketing

Cynthia S. BowersVice President, Compensation andAdministration

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

James P. DavisVice President and Area Manager, Corrugated Container Division

James D. DuncanVice President, Corporate Sales and Marketing

William G. EusticeVice President and Area Manager, Corrugated Container Division

Daniel J. GarandVice President, Supply Chain Operations

Michael F. HarringtonVice President, Employee Relations

James A. HayssenVice President, Information Technology

Charles A. HinrichsVice President, Treasurer

Craig A. HuntVice President, Secretary and General Counsel

Paul K. KaufmannVice President, Controller

Leslie T. LedererVice President, Strategic InvestmentDispositions

F. Scott MacfarlaneVice President and General Manager, Consumer Packaging Division

Richard P. MarraAssistant Treasurer

Timothy J. P. McKennaVice President, Investor Relations andCommunications

Ronald J. MegnaAssistant Secretary

Mark R. O’BryanVice President, Procurement

Thomas A. PaganoVice President, Planning

Lorne ParnellVice President, Pacific Operations

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

Jose A. SantosVice President, Latin American Operations

David C. StevensVice President and General Manager, Recycling Division

Gayle M. SparapaniVice President, Benefits

William N. WandmacherVice President and General Manager, North AmericanContainerboard Mill andForest Resources Division

Corrugated ContainerDivision

LeRoy R. CrockerVice President and Regional Manager

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

Stephen P. FolanVice President and Regional Manager

Roland F. HauserVice President and Regional Manager

James A. HendersonVice President and Regional Manager

Lane W. HunterVice President and Regional Manager

Stephen E. JevyakVice President and Regional Manager

John L. KnudsenVice President and Regional Manager

John B. MalloyVice President and Regional Manager

Rodney A. MyersVice President and Regional Manager

Robert D. NelsonVice President and Regional Manager

James S. NolanVice President, Corporate Accounts

Donald A. PetriVice President and Regional Manager

Jerry D. SuiterVice President and Director of Manufacturing

Donald A. TinkoffVice President and Regional Manager

Containerboard Salesand Marketing Division

Larry L. BurtonVice President, Sales & Marketing

Michael L. ButlerVice President, Graphic and Specialty Sales,Board Sales

Andrew J. WoodroffeVice President, Technical Services & ProductManagement, Board Sales

Donald C. WyattVice President, North AmericanContainerboard & Kraft Sales, Board Sales

North AmericanContainerboard Milland Forest ResourcesDivision

Alain BoivinVice President, Mill Operations, Central Region

John E. DavisVice President, Forest Resources

Alain DubucVice President, Mill Operations, Northern Region

W. G. StuartVice President, Mill Operations, Southern Region

Consumer PackagingDivision

J. Gregor DomanVice President, Sales

Nathan S. HolmesVice President and General Manager

Gary R. HustonVice President, Boxboard Sales

Steven L. KelchenVice President and Regional Manager

Curtiss M. KomenVice President and Regional Manager

David J. PietrowiczVice President and Regional Manager

Specialty PackagingDivision

L. David FielderVice President, PaperCan

Fred W. KlattVice President ofManufacturing

George Q. Langstaff Vice President and General Manager, Industrial Group

James B. LaurenceVice President of Sales

Gary D. McDanielVice President and General Manager, Flexible Group

John J. MoranVice President, Marketing, and General Manager,Specialty Group

Recycling Division

Mark C. BrantleyVice President, North Central Region

Steve A. MillerVice President, West Region

Michael R. OswaldVice President, Operations

James W. PopeVice President,International / Western Sales

Tom E. SquiresVice President, Southeast Region

Edward V. TucciaroneVice President, Eastern Sales

Research andDevelopment Division

Joseph V. LeBlancVice President

Supply Chain/Transportation

William WannerVice President,Supply / Demand Operations

Terence J. BrownVice President, Transportation

Corporate OfficersBoard Members

Division Officers

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

Ray M. CurranPresident and CEO,Smurfit-Stone ContainerCorporation

Richard A. GiesenChairman and CEO,Continere Corporation

Alan E. GoldbergFormer Managing Director,Morgan Stanley & Co., Inc.

Howard E. KilroyRetired,Jefferson Smurfit Group plc

James J. O’ConnorRetired,Unicom/CommonwealthEdison

Jerry K. PearlmanRetired,Zenith ElectronicsCorporation

Thomas A. Reynolds, IIIPartner,Winston & Strawn

Anthony P. J. SmurfitChief Executive Officer,Smurfit Europe

Dermot F. SmurfitDeputy Chairman,Jefferson Smurfit Group plc

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

C O R P O R A T E A N D D I V I S I O N O F F I C E R S

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

SHAREHOLDERS’ INFORMATION

Stockholders’ Annual Meeting

May 17, 2001 at 1:00 pmThe Sheraton Chicago Hotel & TowersCity Front Center301 E. North Water StreetChicago, IL 60611

Registrar and Transfer Agent

Mellon Investor Services LLCOverpeck Centre85 Challenger RoadRidgefield Park, NJ 07660www.mellon-investor.com Telephone: 888-213-0965

Common Stock

Smurfit-Stone Container Corporation common stock is traded on The Nasdaq Stock Market under the symbol: SSCC

Preferred Stock

Smurfit-Stone’s 7% Series A Cumulative Exchangeable Redeemable ConvertiblePreferred Stock is traded on The Nasdaq under the symbol SSCCP

For Investor Information Contact

Investor Relations and CommunicationsSmurfit-Stone Container Corporation8182 Maryland AvenueSt. Louis, MO 63105Telephone: 314-746-1223Fax: 314-746-1347www.smurfit-stone.com

Timothy McKennaVice President, Investor Relations and CommunicationsSt. Louis: 314-746-1254Chicago: 312-580-4637

Corporate Office

Smurfit-Stone Container Corporation150 North Michigan AvenueChicago, IL 60601-7568Telephone: 312-346-6600

Design: ProWolfe Partners; St. Louis, MO Photography: Studio — Bruton/Stroube; St. Louis, MO Location — Mark Green; Houston, TX

Smurfit-Stone Container Corporation (Nasdaq: SSCC) is

the industry’s leading integrated manufacturer of paper

and paper-based packaging, including containerboard,

corrugated containers, multiwall bags, and clay-coated

recycled boxboard, and is the world’s largest paper recy-

cler. In addition, we are a leading producer of solid bleached sulfate, folding car-

tons, paper tubes and cores, and labels.

Company Profile

150 North Michigan AvenueChicago, IL 60601-7568(312) 346-6600www.smurfit-stone.com