GENERAL

Overview

Alternative Fuel Tax Credit

Restructuring Activities

SMURFIT STONE CONTAINER CORP 10-Q

Commodity Derivative Instruments

Foreign Currency Derivative Instruments

Interest Rate Swap Contracts

Statistical Data

LIQUIDITY AND CAPITAL RESOURCES

INCOME TAXES

Not Applicable

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

For Quarter Ended March 31, 2010

Commission File Number 0-23876

SMURFIT-STONE CONTAINER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		43-1531401
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)

222 North LaSalle Street, Chicago, Illinois 60601

(Address of principal executive offices) (Zip Code)

(312) 346-6600

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if
changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller Reporting Company x
(Do not check if a smaller reporting company)

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of May 3, 2010, the registrant had outstanding 257,261,844 shares of common stock, $.01 par value per share.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SMURFIT-STONE CONTAINER CORPORATION

(DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended March 31, (In millions, except per share data)	2010			2009
Net sales	$	1,461		$	1,371
Costs and expenses
Cost of goods sold	1,356			1,217
Selling and administrative expenses	151			145
Restructuring (income) expense	(4		)	13
Loss on disposal of assets				2
Other operating income	(11		)
Operating loss	(31		)	(6		)
Other income (expense)
Interest expense, net	(13		)	(71		)
Debtor-in-possession debt issuance costs				(63		)
Loss on early extinguishment of debt				(20		)
Foreign currency exchange gains (losses)	(6		)	3
Other, net	2			(2		)
Loss before reorganization items and income taxes	(48		)	(159		)
Reorganization items	(41		)	(54		)
Loss before income taxes	(89		)	(213		)
Provision for income taxes				(1		)
Net loss	(89		)	(214		)
Preferred stock dividends and accretion	(2		)	(3		)
Net loss attributable to common stockholders	$	(91	)	$	(217	)

Basic and diluted earnings per common share
Net loss attributable to common stockholders	$	(0.35	)	$	(0.84	)
Weighted average shares outstanding	258			257

See notes to consolidated financial statements.

SMURFIT-STONE CONTAINER CORPORATION

(DEBTOR-IN-POSSESSION)

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
(In millions, except share data)	2010			2009
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	702		$	704
Restricted cash	22			9
Receivables, less allowances of $23 in 2010 and $24 in 2009	711			615
Receivable for alternative energy tax credits	11			59
Inventories
Work-in-process and finished goods	114			105
Materials and supplies	358			347
	472			452
Refundable income taxes	25			23
Prepaid expenses and other current assets	46			43
Total current assets	1,989			1,905
Net property, plant and equipment	3,029			3,081
Timberland, less timber depletion	2			2
Deferred income taxes	23			23
Other assets	60			66
	$	5,103		$	5,077
Liabilities and Stockholders’ Equity (Deficit)

Liabilities not subject to compromise
Current liabilities
Current maturities of long-term debt	$	1,353		$	1,354
Accounts payable	463			387
Accrued compensation and payroll taxes	140			145
Interest payable	14			12
Other current liabilities	143			164
Total current liabilities	2,113			2,062
Other long-term liabilities	119			117
Total liabilities not subject to compromise	2,232			2,179

Liabilities subject to compromise	4,307			4,272
Total liabilities	6,539			6,451

Stockholders’ equity
Preferred stock, aggregate liquidation preference of $126; 25,000,000 shares authorized; 4,599,300 issued and outstanding	104			104
Common stock, par value $.01 per share; 400,000,000 shares authorized; 257,725,167 and 257,482,839 issued and outstanding in 2010 and 2009, respectively	3			3
Additional paid-in capital	4,082			4,081
Retained earnings (deficit)	(4,972		)	(4,883		)
Accumulated other comprehensive income (loss)	(653		)	(679		)
Total stockholders’ equity (deficit)	(1,436		)	(1,374		)
	$	5,103		$	5,077

See notes to consolidated financial statements.

SMURFIT-STONE CONTAINER CORPORATION

(DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31, (In millions)	2010			2009
Cash flows from operating activities
Net loss	$	(89	)	$	(214	)
Adjustments to reconcile net loss to net cash provided by operating activities
Loss on early extinguishment of debt				20
Depreciation, depletion and amortization	85			90
Debtor-in-possession debt issuance costs				63
Amortization of deferred debt issuance costs				2
Deferred income taxes	(2		)	(1		)
Pension and postretirement benefits	28			(7		)
Loss on disposal of assets				2
Non-cash restructuring (income) expense	(3		)	1
Non-cash stock-based compensation	1			2
Non-cash foreign currency exchange (gains) losses	6			(3		)
Non-cash reorganization items	26			38
Change in restricted cash for utility deposits	2
Change in operating assets and liabilities, net of effects from acquisitions and dispositions
Receivables and retained interest in receivables sold	(93		)	(61		)
Receivable for alternative energy tax credits	48
Inventories	(19		)	(15		)
Prepaid expenses and other current assets	(3		)	(3		)
Accounts payable and accrued liabilities	46			159
Interest payable	3			26
Other, net	14			12
Net cash provided by operating activities	50			111
Cash flows from investing activities
Expenditures for property, plant and equipment	(34		)	(39		)
Proceeds from property disposals	6			1
Advances to affiliates, net				(15		)
Net cash used for investing activities	(28		)	(53		)
Cash flows from financing activities
Proceeds from debtor-in-possession financing				440
Net borrowings (repayments) of long-term debt	(1		)	72
Repurchase of receivables				(385		)
Debtor-in-possession debt issuance costs				(63		)
Deferred debt issuance costs	(9		)
Change in restricted cash for collateralizing outstanding letters of credit	(15		)
Net cash provided by (used for) financing activities	(25		)	64

Effect of exchange rate changes on cash	1
Increase (decrease) in cash and cash equivalents	(2		)	122
Cash and cash equivalents
Beginning of period	704			126
End of period	$	702		$	248

See notes to consolidated financial statements.

SMURFIT-STONE CONTAINER CORPORATION

(DEBTOR-IN-POSSESSION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share data)

1. Bankruptcy Proceedings

Chapter 11 Bankruptcy Filings

On January 26, 2009 (the “Petition Date”), Smurfit-Stone Container Corporation (“SSCC” or the “Company”) and its U.S. and Canadian subsidiaries (collectively, the “Debtors”) filed a voluntary petition (the “Chapter 11 Petition”) for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court in Wilmington, Delaware (the “U.S. Court”). On the same day, the Company’s Canadian subsidiaries also filed to reorganize (the “Canadian Petition”) under the Companies’ Creditors Arrangement Act (the “CCAA”) in the Ontario Superior Court of Justice in Canada (the “Canadian Court”). The Company’s operations in Mexico and Asia and certain U.S. and Canadian legal entities (the “Non-Debtor Subsidiaries”) were not included in the filing and will continue to operate outside of the Chapter 11 process.

Effective as of the opening of business on February 4, 2009, the Company’s common stock and its 7% Series A Cumulative Exchangeable Redeemable Convertible Preferred Stock (“Preferred Stock”) were delisted from the NASDAQ Global Select Market and the trading of these securities was suspended. The Company’s common stock and Preferred Stock are now quoted on the Pink Sheets Electronic Quotation Service under the ticker symbols “SSCCQ.PK” and “SSCJQ.PK,” respectively.

The filing of the Chapter 11 Petition and the Canadian Petition constituted an event of default under the Company’s debt obligations, and those debt obligations became automatically and immediately due and payable, although any actions to enforce such payment obligations were stayed as a result of the filing of the Chapter 11 Petition and the Canadian Petition. Since January 26, 2009, the date of the bankruptcy filings, the Company discontinued interest payments on its unsecured senior notes and certain other unsecured debt.

The Company and its U.S. and Canadian subsidiaries are currently operating as “debtors-in-possession” under the jurisdiction of the U.S. Court and Canadian Court (the “Bankruptcy Courts”) and in accordance with the applicable provisions of the Bankruptcy Code and the CCAA. In general, the Debtors are authorized to continue to operate as ongoing businesses, but may not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Courts.

Debtor-In-Possession (“DIP”) Financing

In connection with filing the Chapter 11 Petition and the Canadian Petition on the Petition Date, the Company and certain of its affiliates filed a motion with the Bankruptcy Courts seeking approval to enter into a Post-Petition Credit Agreement (the “DIP Credit Agreement”). Final approval of the DIP Credit Agreement was granted by the U.S. Court on February 23, 2009 and by the Canadian Court on February 24, 2009. Amendments to the DIP Credit Agreement were entered into on February 25 and 27, 2009.

The DIP Credit Agreement, as amended, provided for borrowings up to an aggregate committed amount of $750 million, consisting of a $400 million U.S. term loan (“U.S. DIP Term Loan”) for borrowings by Smurfit-Stone Container Enterprises, Inc. (“SSCE”); a $35 million Canadian term loan (“Canadian DIP Term Loan”) for borrowings by Smurfit-Stone Container Canada Inc. (“SSC Canada”); a $250 million U.S. revolving loan (“U.S. DIP Revolver”) for borrowings by SSCE and/or SSC Canada; and a $65 million Canadian revolving loan (“Canadian DIP Revolver”) for borrowings by SSCE and/or SSC Canada.

Under the DIP Credit Agreement, on January 28, 2009, the Company borrowed $440 million, consisting of a $400 million U.S. DIP Term Loan, a $35 million Canadian DIP Term loan and $5 million from the

Canadian DIP Revolver. In accordance with the terms of the DIP Credit Agreement, in January 2009 the Company used U.S. DIP Term Loan proceeds of $360 million, net of lenders’ fees of $40 million, and Canadian DIP Term Loan proceeds of $30 million, net of lenders’ fees of $5 million, to terminate the receivables securitization programs and repay all indebtedness outstanding under the programs of $385 million and to pay other expenses of $1 million. In addition, other fees and expenses of $17 million related to the DIP Credit Agreement were paid for with proceeds of $5 million from the Canadian DIP Revolver and available cash.

The outstanding principal amount of the loans under the DIP Credit Agreement, plus interest accrued and unpaid, were due and payable in full at maturity, which was January 28, 2010. As all borrowings under the DIP Credit Agreement were paid in full as of December 31, 2009, the Company allowed the DIP Credit Agreement to expire on the maturity date of January 28, 2010. Prior to the maturity of the DIP Credit Agreement on January 28, 2010, the Company transferred $15 million of available cash to a restricted cash account to secure letters of credit under the DIP Credit Agreement.

Reorganization Process

The Bankruptcy Courts approved payment of certain of the Company’s pre-petition obligations, including employee wages, salaries and benefits, and the payment of vendors and other providers in the ordinary course for goods received and services rendered subsequent to the filing of the Chapter 11 Petition and Canadian Petition and other business-related payments necessary to maintain the operation of the Company’s business. The Company retained legal and financial professionals to advise it on the bankruptcy proceedings.

Immediately after filing the Chapter 11 Petition and Canadian Petition, the Company notified all known current or potential creditors of the bankruptcy filings. Subject to certain exceptions under the Bankruptcy Code and the CCAA, the Company’s bankruptcy filings automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against the Company or its property to recover, collect or secure a claim arising prior to the filing of the Chapter 11 Petition and Canadian Petition. Thus, for example, most creditor actions to obtain possession of property from the Company, or to create, perfect or enforce any lien against its property, or to collect on monies owed or otherwise exercise rights or remedies with respect to a pre-petition claim are enjoined unless and until the Bankruptcy Courts lift the automatic stay.

As required by the Bankruptcy Code, the United States Trustee for the District of Delaware (the “U.S. Trustee”) appointed an official committee of unsecured creditors (the “Creditors’ Committee”). The Creditors’ Committee and its legal representatives have a right to be heard on all matters that come before the U.S. Court with respect to the Company. A monitor was appointed by the Canadian Court with respect to proceedings before the Canadian Court.

Under the Bankruptcy Code, the Debtors generally must assume or reject pre-petition executory contracts, including but not limited to real property leases, subject to the approval of the Bankruptcy Courts and certain other conditions. In this context, “assumption” means that the Company agrees to perform its obligations and cure all existing defaults under the contract or lease, and “rejection” means that it is relieved from its obligations to perform further under the contract or lease, but is subject to a pre-petition claim for damages for the breach thereof subject to certain limitations. Any damages resulting from rejection of executory contracts that are permitted to be recovered under the Bankruptcy Code will be treated as liabilities subject to compromise unless such claims were secured prior to the Petition Date.

Since the Petition Date, the Company received approval from the Bankruptcy Courts to reject a number of leases and executory contracts of various types. Liabilities subject to compromise have been recorded related to the rejection of executory contracts and unexpired leases, and from the determination of the U.S. Court (or agreement by parties in interest) of allowed claims for contingencies and other disputed amounts. Due to the uncertain nature of many of the unresolved claims and rejection damages, the Company cannot project the magnitude of such claims and rejection damages with certainty.

On May 4, 2010, the U.S. Court granted the Company’s motion for an order authorizing the assumption of certain executory contracts and unexpired leases and finalizing all but an insignificant amount of the cure amounts related to these assumed executory contracts and unexpired leases. As a result, the Company concluded its review of its executory contracts and unexpired leases and does not expect to reject any additional executory contracts or unexpired leases. The Company expects that the assumption of the executory contracts and unexpired leases in the May 4, 2010 court order will convert certain of the liabilities shown on the accompanying consolidated balance sheets as liabilities subject to compromise to liabilities not subject to compromise.

In June 2009, the Bankruptcy Courts entered an order establishing August 28, 2009, as the bar date for potential creditors to file claims. The bar date is the date by which certain claims against the Company must be filed if the claimants wish to receive any distribution in the bankruptcy cases. Proof of claim forms received after the bar date are typically not eligible for consideration of recovery as part of the Company’s bankruptcy cases. Creditors were notified of the bar date and the requirement to file a proof of claim with the Bankruptcy Courts. Differences between liability amounts estimated by the Company and claims filed by creditors are being investigated and, if necessary, the Bankruptcy Courts will make a final determination of the allowable claim. The determination of how liabilities will ultimately be treated cannot be made until the Bankruptcy Courts approve a plan of reorganization. Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time.

In September 2009, the U.S. Trustee denied a request by certain holders of the Company’s common stock and Preferred Stock to form an official equity committee to represent the interests of equity holders on matters before the U.S. Court. The equity holders subsequently filed a motion for the appointment of an equity committee with the U.S. Court. In December 2009, the U.S. Court entered an order denying the motion for an order appointing an official committee of equity security holders.

Proposed Plan of Reorganization and Exit Credit Facilities

In order to successfully emerge from bankruptcy, the Company must propose and obtain confirmation by the Bankruptcy Courts of a plan of reorganization that satisfies the requirements of the Bankruptcy Code and the CCAA. A plan of reorganization would resolve the Company’s pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to the Company’s exit from bankruptcy.

Under the priority scheme established by the Bankruptcy Code and the CCAA, unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or stockholders, if any, will not be determined until confirmation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed to each of these constituencies or what types or amounts of distributions, if any, they would receive. Because of such possibilities, the value of the Company’s liabilities and securities, including its common stock, is highly speculative. Appropriate caution should be exercised with respect to existing and future investments in any of the Company’s liabilities and/or securities.

The Proposed Plan of Reorganization

On December 1, 2009, the Debtors filed their Joint Plan of Reorganization and Plan of Compromise and Arrangement and Disclosure Statement with the U.S. Court. On December 22, 2009, January 27, 2010 and February 4, 2010, the Debtors filed amendments to the proposed Plan of Reorganization (the “Proposed Plan of Reorganization”) and to the Disclosure Statement (the “Disclosure Statement”). Also, on March 19, 2010, the Debtors filed a Supplement to the Proposed Plan of Reorganization. Key elements of the Proposed Plan of Reorganization were as follows:

· the Company and its subsidiary, SSCE, would merge and become the Reorganized Smurfit-Stone that would be governed by a board of directors that will include Patrick J. Moore, the Company’s current Chairman and Chief Executive Officer, Steven J. Klinger, the Company’s current President and Chief Operating Officer, and a number of independent directors, including a non-executive chairman selected by the Creditors’ Committee in consultation with the Debtors;

· all of the existing secured debt of the Debtors would be fully repaid with cash;

· substantially all of the existing unsecured debt and claims against SSCE, including all of the outstanding unsecured senior notes, would be exchanged for common stock of the Reorganized Smurfit-Stone, which is expected to be traded on the New York Stock Exchange, with holders of unsecured claims against SSCE of less than or equal to $10,000 entitled to receive payment of 100% of such claims in cash, and eligible cash-out participants having the opportunity to indicate on their ballot the percentage amount of their allowed claim they would be willing to receive in cash in lieu of common stock;

· all of the Company’s existing equity securities would be cancelled and existing shareholders of the Company’s common and Preferred Stock would receive no distribution on account of their shares;

· the assets of the Canadian Debtors, other than Stone Container Finance Company II, would be sold to a newly-formed Canadian subsidiary of Reorganized Smurfit-Stone free and clear of existing claims, liens and interests in exchange for (i) the repayment in cash of the secured debt obligations of the Canadian Debtors, (ii) cash to the Canadian Debtors’ unsecured creditors if they vote to accept the Proposed Plan of Reorganization and (iii) the assumption of certain liabilities and obligations of the Canadian Debtors; and

· Reorganized Smurfit-Stone and its newly-formed Canadian subsidiary would assume all of the existing obligations under the qualified defined benefit pension plans in the United States and Canada sponsored by the Debtors, as well as all of the collective bargaining agreements in the United States and Canada between the Debtors and their labor unions.

The Proposed Plan of Reorganization will not become effective until certain conditions are satisfied or waived, including: (i) entry of an order by the Bankruptcy Courts confirming the Proposed Plan of Reorganization, (ii) all actions, documents and agreements necessary to implement the Proposed Plan of Reorganization having been effected or executed, (iii) access of the Debtors to funding under the exit credit facility and (iv) specified claims of the Debtors’ secured lenders having been paid in full pursuant to the Proposed Plan of Reorganization.

On January 14, 2010, the U.S. Court granted approval to extend the Debtors’ exclusive right to file a plan of reorganization to July 21, 2010, and granted the Debtors approval to solicit acceptance of a plan of reorganization until May 21, 2011. If the Debtors’ exclusivity period lapses, any party in interest would be able to file a plan of reorganization. In addition to being voted on by holders of impaired claims and equity interests, a plan of reorganization must satisfy certain requirements of the Bankruptcy Code and the CCAA and must be approved, or confirmed, by the Bankruptcy Courts in order to become effective.

On January 29, 2010, the U.S. Court approved the Debtors’ Disclosure Statement as containing adequate information for the holders of impaired claims and equity interests, who are entitled to vote to accept or reject the Proposed Plan of Reorganization.

The deadline for voting and objections to the Proposed Plan of Reorganization was March 29, 2010. The Proposed Plan of Reorganization was overwhelmingly approved by number and dollar amount of the required classes of creditors of each of the Debtors, with the exception of Stone Container Finance Company II. Stone Container Finance Company II will be removed from the Proposed Plan of Reorganization. The failure to confirm the Proposed Plan of Reorganization of Stone Container Finance Company II will not impact the ability of the Debtors to confirm the Proposed Plan of Reorganization for all other Debtors. A meeting of creditors was held for the Canadian debtor subsidiaries on April 6, 2010, at which the necessary votes were received to confirm the Proposed Plan of Reorganization by all requisite classes of creditors other than Stone Container Finance Company II.

The Bankruptcy Code requires the U.S. Court, after appropriate notice, to hold a hearing on confirmation of a plan of reorganization. The confirmation hearing with respect to the Proposed Plan of

Reorganization commenced in the U.S. Court on April 15, 2010, and concluded on May 4, 2010, and a hearing was conducted in the Canadian Court on May 3, 2010. The Company anticipates that rulings from the U.S. Court and the Canadian Court on the confirmation will be issued and the Debtors will emerge from Chapter 11 and CCAA proceedings during the second quarter of 2010, following the issuance of orders confirming the Proposed Plan of Reorganization. There can be no assurance at this time that the Proposed Plan of Reorganization will be confirmed by the Bankruptcy Courts or that any such plan will be implemented successfully.

Exit Credit Facilities

On January 14, 2010, the U.S. Court entered an order authorizing the Debtors to (i) enter into an exit term loan facility engagement and arrangement letter and fee letters, (ii) pay associated fees and expenses and (iii) furnish related indemnities. On February 1, 2010, the Company filed a motion with the U.S. Court seeking approval to enter into a senior secured term loan exit facility (the “Term Loan Facility”).

On February 16, 2010, the U.S. Court granted the motion and authorized the Company and certain of its affiliates to enter into the Term Loan Facility. On the same date, the U.S. Court also granted the Company’s February 3, 2010 motion seeking approval to enter into a commitment letter and fee letters for an asset-based revolving credit facility (the “ABL Revolving Facility”) (together with the Term Loan Facility, the “Exit Credit Facilities”). Based on such approvals, on February 22, 2010, the Company and certain of its subsidiaries entered into the Term Loan Facility that provides for an aggregate term loan commitment of $1,200 million. In addition, the Company entered into an ABL Revolving Facility with aggregate commitments of $650 million (including a $100 million Canadian Tranche) on April 15, 2010. The ABL Revolving Facility includes a $150 million sub-limit for letters of credit. The commitments for the Term Loan Facility and the ABL Revolving Facility will terminate on July 16, 2010 unless the Company’s emergence from bankruptcy and satisfaction of certain funding date conditions under the Term Loan Facility and the ABL Revolving Facility occur on or prior to such date.

The Company is permitted, subject to obtaining lender commitments, to add one or more incremental facilities to the Term Loan Facility in an aggregate amount up to $400 million. Each incremental facility is conditioned on (a) there existing no defaults, (b) in the case of incremental term loans, such loans have a final maturity no earlier than, and a weighted average life no shorter than, the Term Loan Facility, and (c) after giving effect to one or more incremental facilities, the consolidated senior secured leverage ratio shall be less than 3.00 to 1.00. If the interest rate spread applicable to any incremental facility exceeds the interest rate spread applicable to the Term Loan Facility by more than 0.25%, then the interest rate spread applicable to the Term Loan Facility will be increased to equal the interest rate spread applicable to the incremental facility.

The Company is permitted, subject to obtaining lender commitments, to add incremental commitments under the ABL Revolving Facility in an aggregate amount up to $150 million. Each incremental commitment is conditioned on (a) there existing no defaults, (b) any new lender providing an incremental commitment shall require the consent of the Administrative Agent, each Issuing Lender, the Swingline Lender and the Fronting Lender, (c) the minimum amount of any increase must be at least $25 million, (d) the Company shall not increase the commitments more than three times in the aggregate, (e) if the interest rate margins and commitment fees with respect to the incremental commitments are higher than those applicable to the existing commitments under the ABL Revolving facility, then the interest rate margins and commitment fees for the existing commitments under the ABL Revolving Facility will be increased to match those for the incremental commitments, and (f) the satisfaction of other customary closing conditions.

On the date the Company emerges from bankruptcy, the Term Loan will be funded and borrowings will be available under the ABL Revolving Facility. The proceeds of the borrowings under the Term Loan Facility, together with available cash, will be used to repay the Company’s outstanding secured indebtedness under its pre-petition Credit Facility and pay remaining fees, costs and expenses related to

and contemplated by the Exit Credit Facilities and the Proposed Plan of Reorganization. Total fees, costs and expenses related to the Exit Credit Facilities are estimated to be approximately $50 million, of which $9 million was paid during the first quarter of 2010. Borrowings under the ABL Revolver Facility will be available for working capital purposes, capital expenditures, permitted acquisitions and general corporate purposes.

The term loan (the “Term Loan”) matures six years from the funding date of the Term Loan Facility and is repayable in equal quarterly installments of $3 million beginning on September 30, 2010, with the balance payable at maturity. Additionally, following the end of each fiscal year, varying percentages of the Company’s excess cash flow, as defined in the Term Loan Facility, based on certain agreed levels of secured leverage ratios, must be used to repay outstanding principal amounts under the Term Loan. Subject to specified exceptions, the Term Loan Facility will also require the Company to use the net proceeds of asset sales and the net proceeds of the incurrence of indebtedness to repay outstanding borrowings under the Term Loan Facility.

The Term Loan will bear interest at the Company’s option at a rate equal to: (A) 3.75% plus the alternate base rate (the “Term Loan ABR”) defined as the greater of: (i) the U.S. prime rate, (ii) the overnight federal funds rate plus 0.50%, or (iii) the one month adjusted LIBOR rate plus 1.0%, provided that the Term Loan ABR shall never be lower than 3.00% per annum, or (B) the adjusted LIBOR rate plus 4.75%, provided that the adjusted LIBOR rate shall never be lower than 2.00% per annum.

The ABL revolver loan (the “ABL Revolver”) will mature four years from the funding date of the ABL Revolving Facility. The Company will have the option to borrow at a rate equal to: (A) the base rate, defined as the greater of 2.50% plus:(i) the US Prime Rate, (ii) the overnight federal funds rate plus 0.50% or (iii) LIBOR rate plus 1.0%, or (B) the LIBOR rate plus 3.50% for the first 90 days then 3.25% thereafter. The applicable margin could be adjusted in the future from 2.25% to a rate as high as 2.75% for base loans and 3.25% to a rate as high as 3.75% for LIBOR loans based on the average historical utilization under the ABL Revolving Facility. The Company would also pay either a 0.50% or 0.75% per annum unused commitment fee based on the average historical utilization under the ABL Revolving Facility. The ABL Revolving Facility borrowings are subject to a borrowing base derived from a formula based on certain eligible accounts receivable and inventory, less certain reserves.

Borrowings under the Exit Credit Facilities will be guaranteed by the Company and certain of its subsidiaries, and would be secured by first priority liens and second priority liens on substantially all its presently owned and hereafter acquired assets and those of each of its subsidiaries party to the Exit Credit Facilities, subject to certain exceptions and permitted liens.

The Exit Credit Facilities contain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations and those of certain of its subsidiaries, including their ability to incur indebtedness, incur liens, make investments, sell assets, pay dividends or make acquisitions. The Exit Credit Facilities contain events of default customary for financings of this type.

Going Concern Matters

The consolidated financial statements and related notes have been prepared assuming that the Company will continue as a going concern, although its bankruptcy filings raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on restructuring its obligations in a manner that allows it to obtain confirmation of the Proposed Plan of Reorganization by the Bankruptcy Courts. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or to the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

Financial Reporting Considerations

For periods subsequent to the bankruptcy filings, the Company has applied the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations” (“ASC 852”), in preparing the consolidated financial statements. ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings have been recorded in reorganization items in the consolidated statements of operations. In addition, pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified on the consolidated balance sheets in liabilities subject to compromise. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Courts, even if they may be settled for lesser or greater amounts.

Reorganization Items

The Company’s reorganization items directly related to the process of reorganizing the Company under Chapter 11 and the CCAA, as recorded in its consolidated statements of operations, consist of the following:

	Three months ended March 31,
(Income) Expense	2010			2009
Provision for rejected/settled executory contracts and leases	$	29		$	39
Professional fees	15			16
Accounts payable settlement gains	(3		)	(1		)
Total reorganization items	$	41		$	54

Professional fees directly related to the reorganization include fees associated with advisors to the Company, the Creditors’ Committee and certain secured creditors.

Net cash paid for reorganization items related to professional fees totaled $16 million and $6 million, respectively, for the three months ended March 31, 2010 and 2009.

Reorganization items exclude employee severance and other restructuring charges recorded during 2009 and 2010.

Under the Proposed Plan of Reorganization, interest expense on the unsecured senior notes subsequent to the Petition Date would not be paid. As a result, in the fourth quarter of 2009, the Company concluded it was not probable that interest expense on the unsecured senior notes subsequent to the Petition Date would be an allowed claim. During the fourth quarter of 2009, the Company recorded income in reorganization items for the reversal of accrued post-petition unsecured interest expense and discontinued recording unsecured interest expense. Interest expense recorded on unsecured debt was zero and $48 million for the first quarter of 2010 and 2009, respectively.

In addition, holders of the Company’s Preferred Stock would not be entitled to receive any amounts under the Proposed Plan of Reorganization. As a result, in the fourth quarter of 2009, the Company concluded it was not probable that Preferred Stock dividends that were accrued subsequent to the Petition Date would be allowed claims. Preferred Stock dividends that were accrued post-petition and included in liabilities subject to compromise were reversed in the fourth quarter of 2009. ASC 505-10-50-5, “Equity,” requires entities to disclose in the financial statements the aggregate amount of cumulative preferred dividends in arrears. Preferred Stock dividends in arrears were $11 million as of March 31, 2010, and $9 million as of December 31, 2009. The Preferred Stock dividends in arrears since the Petition Date are

presented only to reflect preferred stockholders’ rights to dividends over common stockholders and are not reflected in the Preferred Stock value in the consolidated balance sheets.

Other Bankruptcy Related Costs

During the first quarter of 2010, the Company recorded $6 million in selling and administrative expenses related to amounts accrued under the Company’s 2009 long-term incentive plan.

Debtor-in-possession debt issuance costs of $63 million were incurred and paid during the first quarter of 2009 in connection with entering into the DIP Credit Agreement, and are separately presented in the 2009 consolidated statements of operations.

Liabilities Subject to Compromise

Liabilities subject to compromise consist of the following:

	March 31, 2010		December 31, 2009

Unsecured debt	$	2,439	$	2,439
Accounts payable	325		339
Interest payable	47		47
Retiree medical obligations	178		176
Pension obligations	1,146		1,136
Unrecognized tax benefits	47		46
Executory contracts and leases	102		72
Other	23		17
Liabilities subject to compromise	$	4,307	$	4,272

Liabilities subject to compromise represent pre-petition unsecured obligations that will be settled under the Proposed Plan of Reorganization. Generally, actions to enforce or otherwise effect payment of pre-Chapter 11 or CCAA liabilities are stayed. Pre-petition liabilities that are subject to compromise are reported at the amounts expected to be allowed, even if they may be settled for lesser or greater amounts. These liabilities represent the amounts expected to be allowed on known or potential claims to be resolved through the Chapter 11 and CCAA process, and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Courts, rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim, or other events. Liabilities subject to compromise also include certain items, such as qualified defined benefit pension and retiree medical obligations that may be assumed under the Proposed Plan of Reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise.

The Bankruptcy Courts approved payment of certain pre-petition obligations, including employee wages, salaries and benefits, and the payment of vendors and other providers in the ordinary course for goods and services received after the filing of the Chapter 11 Petition and the Canadian Petition and other business-related payments necessary to maintain the operation of the Company’s business. Obligations associated with these matters are not classified as liabilities subject to compromise.

The Company has rejected certain executory contracts and unexpired leases with respect to the Company’s operations with the approval of the Bankruptcy Courts. Damages resulting from rejection of executory contracts and unexpired leases are generally treated as general unsecured claims and are classified as liabilities subject to compromise.

Debtor Financial Statements

The following condensed combined financial statements represent the financial statements for the Debtors only. The Company’s Non-Debtor Subsidiaries are accounted for as non-consolidated subsidiaries in these financial statements and, as such, their net loss is included in “equity in losses of Non-Debtor Subsidiaries,” in the condensed combined statements of operations and their net assets are included as “Investments in and advances to Non-Debtor Subsidiaries” in the condensed combined balance sheets. The Debtor’s financial statements have been prepared in accordance with the guidance in ASC 852.

Intercompany transactions between the Debtors have been eliminated in the financial statements. Intercompany transactions between the Debtors and Non-Debtor Subsidiaries have not been eliminated in the Debtors’ financial statements.

SMURFIT-STONE CONTAINER CORPORATION

CONDENSED COMBINED STATEMENTS OF OPERATIONS — DEBTORS

(Unaudited)

Three Months Ended March 31, (In millions)	2010			2009
Net sales	$	1,436		$	1,338
Costs and expenses
Cost of goods sold	1,336			1,186
Selling and administrative expenses	146			141
Restructuring (income) expense	(4		)	12
Loss on disposal of assets				2
Other operating income	(11		)
Operating loss	(31		)	(3		)
Other income (expense)
Interest expense, net	(12		)	(71		)
Debtor-in-possession debt issuance costs				(63		)
Loss on early extinguishment of debt				(20		)
Foreign currency exchange gains (losses)	(6		)	3
Equity in losses of non-debtor subsidiaries				(4		)
Other, net	1			(1		)
Loss before reorganization items and income taxes	(48		)	(159		)
Reorganization items	(41		)	(54		)
Loss before income taxes	(89		)	(213		)
Provision for income taxes				(1		)
Net loss	(89		)	(214		)
Preferred stock dividends and accretion	(2		)	(3		)
Net loss attributable to common stockholders	$	(91	)	$	(217	)

SMURFIT-STONE CONTAINER CORPORATION

CONDENSED COMBINED BALANCE SHEETS — DEBTORS

	March 31,			December 31,
(In millions)	2010			2009
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	684		$	683
Restricted cash	22			9
Receivables	677			583
Receivable for alternative energy tax credits	11			59
Inventories	452			436
Refundable income taxes	24			23
Prepaid expenses and other current assets	44			41
Total current assets	1,914			1,834
Net property, plant and equipment	2,997			3,049
Timberland, less timber depletion	2			2
Deferred income taxes	22			21
Investments in and advances to non-debtor subsidiaries	80			76
Other assets	60			66
	$	5,075		$	5,048
Liabilities and Stockholders’ Equity (Deficit)

Liabilities not subject to compromise
Current liabilities
Current maturities of long-term debt	$	1,348		$	1,350
Accounts payable	446			370
Accrued compensation and payroll taxes	138			142
Interest payable	14			12
Other current liabilities	139			159
Total current liabilities	2,085			2,033
Other long-term liabilities	119			117
Total liabilities not subject to compromise	2,204			2,150

Liabilities subject to compromise	4,307			4,272
Total liabilities	6,511			6,422

Total equity (deficit)	(1,436		)	(1,374		)
	$	5,075		$	5,048

SMURFIT-STONE CONTAINER CORPORATION

CONDENSED COMBINED STATEMENTS OF CASH FLOWS — DEBTORS

(Unaudited)

Three Months Ended March 31, (In millions)	2010			2009
Cash flows from operating activities
Net loss	$	(89	)	$	(214	)
Adjustments to reconcile net loss to net cash provided by operating activities
Loss on early extinguishment of debt				20
Depreciation, depletion and amortization	83			89
Debtor-in-possession debt issuance costs				63
Amortization of deferred debt issuance costs				2
Deferred income taxes	(2		)
Pension and postretirement benefits	28			(7		)
Loss on disposal of assets				2
Non-cash restructuring (income) expense	(3		)	1
Non-cash stock-based compensation	1			2
Non-cash foreign currency exchange (gains) losses	6			(3		)
Non-cash reorganization items	26			38
Change in restricted cash for utility deposits	2
Change in operating assets and liabilities, net of effects from acquisitions and dispositions
Receivables and retained interest in receivables sold	(91		)	(65		)
Receivable for alternative energy tax credit	48
Inventories	(15		)	(12		)
Prepaid expenses and other current assets	(3		)	(5		)
Accounts payable and accrued liabilities	47			166
Intercompany receivable with non-debtors	(1		)	(21		)
Interest payable	3			26
Other, net	13			15
Net cash provided by operating activities	53			97
Cash flows from investing activities
Expenditures for property, plant and equipment	(33		)	(38		)
Proceeds from property disposals	6			1
Advances to affiliates				(18		)
Net cash used for investing activities	(27		)	(55		)
Cash flows from financing activities
Proceeds from debtor-in-possession financing				440
Net borrowings (repayments) of long-term debt	(1		)	72
Repurchase of receivables				(385		)
Debtor-in-possession debt issuance costs				(63		)
Deferred debt issuance costs	(9		)
Change in restricted cash for collateralizing outstanding letters of credit	(15		)
Net cash provided by (used for) financing activities	(25		)	64

Increase in cash and cash equivalents	1			106
Cash and cash equivalents
Beginning of period	683			120
End of period	$	684		$	226

2. Significant Accounting Policies

Basis of Presentation: The accompanying consolidated financial statements and notes of the Company have been prepared in accordance with the instructions to Form 10-Q and reflect all adjustments which management believes necessary (which include only normal recurring accruals) to present fairly the Company’s financial position, results of operations and cash flows. These statements, however, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. Interim results may not necessarily be indicative of results that may be expected for any other interim period or for the year as a whole. These financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the SSCC Annual Report on Form 10-K for the year ended December 31, 2009 (“2009 Form 10-K”) filed March 2, 2010 with the Securities and Exchange Commission.

SSCC is a holding company that owns 100% of the equity interest in SSCE. The Company has no operations other than its investment in SSCE. SSCE has domestic and international operations.

Recently Adopted Accounting Standards: Effective January 1, 2010, the Company adopted the amendments to ASC 860, “Transfers and Servicing” (“ASC 860”). The amendments removed the concept of a qualifying special-purpose entity and the related impact on consolidation, thereby potentially requiring consolidation of such special-purpose entities previously excluded from the consolidated financial statements. The amendments to ASC 860 did not impact the Company’s consolidated financial statements.

Effective January 1, 2010, the Company adopted the amendments to ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). The amendments require new disclosures for transfers in and out of fair value hierarchy Levels 1 and 2 and activity within fair value hierarchy Level 3. The amendments also clarify existing disclosures regarding the disaggregation for each class of assets and liabilities, and the disclosures about inputs and valuation techniques. The amendments to ASC 820 did not have a material impact on the Company’s consolidated financial statements.

3. Reclassifications

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

4. Restructuring Activities

The Company continues to review and evaluate various restructuring and other alternatives to streamline operations, improve efficiencies and reduce costs. These actions subject the Company to additional short-term costs, which may include facility shutdown costs, asset impairment charges, lease commitment costs, severance costs and other closing costs.

During the first quarter of 2010, the Company closed one converting facility, announced the closure of two additional converting facilities and sold four previously closed facilities. The Company recorded restructuring income of $4 million, including an $11 million gain related to the sale of previously closed facilities, of which $8 million resulted from the legal release of environmental liability obligations. The remaining offsetting charges of $7 million were primarily for severance and benefits. As a result of the closure activities in the first quarter of 2010 and other ongoing initiatives, the Company reduced its headcount by approximately 760 employees. The net sales of the announced and closed converting facilities in 2010 prior to closure and for the year ended December 31, 2009 were $16 million and $92 million, respectively. The majority of these net sales are expected to be transferred to other operating facilities. Additional charges of up to $3 million are expected to be recorded in future periods for severance and benefits related to the closure of these and previously closed facilities.

During the first quarter of 2009, the Company recorded restructuring charges of $13 million, including non-cash charges of $1 million related to the acceleration of depreciation for converting equipment expected to be abandoned or taken out of service. The remaining charges of $12 million were primarily for severance and benefits.

At December 31, 2009, the Company had $54 million of accrued exit liabilities related to the restructuring of operations. For the three months ended March 31, 2010, the Company incurred $20 million of cash disbursements, primarily severance and benefits, related to these exit liabilities. In addition, these exit liabilities decreased by $8 million resulting from the release of environmental liability obligations upon the sale of previously closed facilities. During the three months ended March 31, 2010, the Company incurred $4 million of cash disbursements, primarily severance and benefits, related to exit liabilities established during 2010.

5. Alternative Energy Tax Credits

The U.S. Internal Revenue Code allowed an excise tax credit for alternative fuel mixtures produced by a taxpayer for sale, or for use as a fuel in a taxpayer’s trade or business through December 31, 2009, at which time the credit expired. In May 2009, SSCE was notified that its registration as an alternative fuel mixer was approved by the Internal Revenue Service. The Company subsequently submitted refund claims of approximately $654 million for 2009 related to production at ten of its U.S. mills. The Company received refund claims of $595 million in 2009 and $59 million during the first quarter of 2010. During 2009, the Company recorded other operating income of $633 million, net of fees and expenses, in its consolidated statements of operations related to this matter. In March 2010, the Company recorded other operating income of $11 million relating to an adjustment of refund claims submitted in 2009. The Company expects to receive the refund claim in the fourth quarter of 2010.

6. Restricted Cash

At March 31, 2010, the Company had restricted cash of $22 million as approved by the U.S. Court, including $7 million to provide financial assurance to certain utility vendors and $15 million to collateralize outstanding letters of credit.

7. Accounts Receivable Securitization Programs

On January 28, 2009, in conjunction with the filing of the Chapter 11 Petition and the Canadian Petition, the accounts receivable securitization programs were terminated and all outstanding receivables previously sold to the non-consolidated financing entities were repurchased with proceeds from borrowings under the DIP Credit Agreement (See Note 1). The repurchase of receivables of $385 million was included in the cash flows from financing activities in the consolidated statement of cash flows for the three months ended March 31, 2009.

8. Guarantees and Commitments

The Company has certain wood chip processing contracts extending from 2012 through 2018 with minimum purchase commitments. As part of the agreements, the Company guarantees the third party contractors’ debt outstanding and has a security interest in the chipping equipment. At March 31, 2010, the maximum potential amount of future payments related to these guarantees was approximately $24 million, which decreases ratably over the life of the contracts. In the event the guarantees on these contracts are called, proceeds from the liquidation of the chipping equipment would be based on current market conditions and the Company may not recover in full the guarantee payments made.

The Company was contingently liable for $18 million under a one year letter of credit, which was to expire in April 2009, which supported the borrowings of a previously non-consolidated affiliate. On March 4, 2009, this letter of credit was drawn on, which increased borrowings under the Company’s pre-petition credit facilities by $18 million.

9. Long-Term Debt

As of March 31, 2010, as a result of the Company’s default, the Company had no availability for borrowings under SSCE’s revolving credit facilities, after giving consideration to outstanding letters of credit of $87 million. As of March 31, 2010, the Company had available unrestricted cash and cash equivalents of $702 million primarily invested in money market funds at a variable interest rate of 0.10%.

10. Employee Benefit Plans

The Company sponsors noncontributory defined benefit pension plans for its U.S. employees and also sponsors noncontributory and contributory defined benefit pension plans for its Canadian employees. The Company’s defined benefit pension plans cover substantially all hourly employees, as well as salaried employees hired prior to January 1, 2006. The U.S. and Canadian defined benefit pension plans for salaried employees were frozen effective January 1, 2009 and March 1, 2009, respectively.

The Company’s postretirement plans provide certain health care and life insurance benefits for all retired salaried and certain retired hourly employees, and for salaried and certain hourly employees who reached the age of 60 with ten years of service as of January 1, 2007.

The components of net periodic costs for the defined benefit plans and the components of the postretirement benefit costs are as follows:

	Three months ended March 31,
	Defined Benefit Plans						Postretirement Plans
	2010			2009			2010			2009
Service cost	$	7		$	6		$	1		$	1
Interest cost	51			50			2			3
Expected return on plan assets	(51		)	(50		)
Amortization of prior service cost (benefit)	1			1			(1		)	(1		)
Amortization of net (gain) loss	23			20						(1		)
Multi-employer plans	1			1
Net periodic benefit cost	$	32		$	28		$	2		$	2

Patient Protection and Affordable Care Act

In March 2010, the Patient Protection and Affordable Care Act (“PPACA”) was enacted, potentially impacting the Company’s cost to provide healthcare benefits to its eligible active and retired employees. The PPACA has both short-term and long-term implications on benefit plan standards. Implementation of this legislation is planned to occur in phases, beginning in 2010, but to a greater extent with the 2011 benefit plan year and extending through 2018.

The Company is currently analyzing this legislation to determine the full extent of the impact of the required plan standard changes on its employee healthcare plans and the resulting costs. While the Company anticipates that costs to provide healthcare to eligible active employees and certain retired employees will increase in future years, it is uncertain at this time, how significant the increase will be.

11. Derivative Instruments and Hedging Activities

On January 26, 2009, the Chapter 11 Petition and the Canadian Petition effectively terminated all existing derivative instruments. Termination fair values were calculated based on the potential settlement value. The Company’s termination value related to its remaining derivative liabilities was approximately $60 million, recorded in other current liabilities in the consolidated balance sheet at March 31, 2010. These derivative liabilities were stayed due to the filing of the Chapter 11 Petition and the Canadian Petition, at which time, these liabilities were adjusted through other comprehensive income (loss) (“OCI”) for derivative instruments qualifying for hedge accounting and cost of goods sold for derivative instruments not qualifying for hedge accounting. Subsequently, the amounts adjusted through OCI were recorded in earnings during the period when the underlying transaction was recognized or when the underlying transaction was no longer expected to occur. As of March 31, 2010, all amounts in OCI have been recognized through earnings.

The Company’s derivative instruments previously used for its hedging activities were designed as cash flow hedges and related to minimizing exposures to fluctuations in the price of commodities used in its operations, the movement in foreign currency exchange rates and the fluctuations in the interest rate on variable rate debt. All cash flows associated with the Company’s derivative instruments were classified as operating activities in the consolidated statements of cash flows.

The Company used derivative instruments, including fixed price swaps, to manage fluctuations in cash flows resulting from commodity price risk in the procurement of natural gas and other commodities, including fuel oil and diesel fuel. The objective was to fix the price of a portion of the Company’s purchases of these commodities used in the manufacturing process. The changes in the market value of such derivative instruments historically offset the changes in the price of the hedged item.

For the three months ended March 31, 2010 and 2009, the Company reclassified an immaterial amount and an $11 million loss (net of tax), respectively, from OCI to cost of goods sold when the hedged items were recognized.

For the three months ended March 31, 2009, the Company recorded a $3 million gain (net of tax) in cost of goods sold related to the change in fair value, prior to the Petition Date, of certain commodity derivative instruments not qualifying for hedge accounting.

For the three months ended March 31, 2009, the Company recorded a $3 million loss (net of tax) in cost of goods sold, prior to the Petition Date, on settled commodity derivative instruments not qualifying for hedge accounting.

The Company’s principal foreign exchange exposure is the Canadian dollar. The Company used foreign currency derivative instruments, including forward contracts and options, primarily to protect against Canadian currency exchange risk associated with expected future cash flows.

For the three months ended March 31, 2009, the Company reclassified a $2 million loss (net of tax) from OCI to cost of goods sold when the hedged items were recognized.

The Company used interest rate swap contracts to manage interest rate exposure on $300 million of the current Tranche B and Tranche C floating rate bank term debt. The accounting for the cash flow impact of the swap contracts is recorded as an adjustment to interest expense each period.

For each of the three months ended March 31, 2010 and 2009, the Company reclassified a $1 million loss (net of tax) from OCI to interest expense when the hedged items were recognized.

12. Income Taxes

During the first quarter of 2009, the Company recorded a $1 million income tax provision for Canadian withholding taxes and interest on unrecognized tax benefits. The Company has recorded valuation allowances related to the tax benefits generated for the three months ended March 31, 2010 and 2009 because it is more likely than not that substantially all of the deferred tax assets generated in 2010 and 2009 may not be realized.

As previously disclosed in the Company’s 2009 Form 10-K, the Canada Revenue Agency (“CRA”) examined the Company’s income tax returns for tax years 1999 through 2005. In connection with the examination, the CRA issued assessments of additional income taxes, interest and penalties related to transfer prices of inventory sold by the Company’s Canadian subsidiaries to its U.S. subsidiaries. Additionally, the CRA considered certain significant adjustments related principally to taxable income related to the Company’s acquisition of a Canadian company.

In April 2010, the Company entered into an agreement with the CRA and other provincial tax authorities to settle all Canadian income tax matters through January 26, 2009. As a result of this agreement, the CRA will retain approximately $20 million of a tax deposit made by the Company in 2008 to appeal the transfer price assessments. The remainder of the tax deposit, approximately $10 million, will be refunded to the Company. In addition, the Company will pay the Province of Quebec approximately $3 million to settle their claims. GST and QST tax withholdings subsequent to January 26, 2009 will be refunded to the Company. The settlement agreement will become effective at the time the Canadian subsidiaries emerge from CCAA proceedings, and transfers of funds are expected to take place as soon as possible thereafter. Upon emergence from bankruptcy, the Company expects to record an income tax benefit of approximately $17 million to reflect the outcome of this agreement.

13. Comprehensive Income (Loss)

Comprehensive income (loss) is as follows:

	Three months ended March 31,
	2010			2009
Net loss	$	(89	)	$	(214	)
Other comprehensive income (loss), net of tax:
Net changes in fair value of hedging instruments				(1		)
Net hedging loss reclassified into earnings	1			14
Net deferred employee benefit plan expense reclassified into earnings	23			11
Foreign currency translation adjustment	2
Comprehensive loss	$	(63	)	$	(190	)

14. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three months ended March 31,
	2010			2009
Numerator:
Net loss	$	(89	)	$	(214	)
Preferred stock dividends and accretion	(2		)	(3		)
Net loss attributable to common stockholders	$	(91	)	$	(217	)

Denominator:
Denominator for basic and diluted earnings per share — adjusted weighted average shares	258			257

Basic and diluted earnings per share	$	(0.35	)	$	(0.84	)

Shares of SSCC preferred stock convertible into three million shares of common stock with an earnings effect of $2 million and $3 million are excluded from the diluted earnings per share computations for the three months ended March 31, 2010 and 2009, respectively, because they are antidilutive. The Preferred Stock dividends in arrears since the Petition Date are presented only to reflect preferred stockholders’ rights to dividends over common stockholders (See Note 1 - Financial Reporting Considerations).

Employee stock options and non-vested restricted stock are excluded from the diluted earnings per share calculations for the three months ended March 31, 2010 and 2009, respectively, because they are antidilutive.

15. Fair Value Measurements

Certain financial assets and liabilities are recorded at fair value on a recurring basis, including derivative instruments prior to termination (See Note 11) and the Company’s residual interest in the Timber Note Holdings (“TNH”) investment.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including market, income and/or cost approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy for inputs is broken down into three levels based on their reliability as follows:

Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. The Company has no assets or liabilities measured at fair value on a recurring basis utilizing Level 1 inputs.

Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. The Company has no assets or liabilities measured at fair value on a recurring basis utilizing Level 2 inputs.

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The Company’s assets and liabilities utilizing Level 3 inputs include the residual interest in the TNH investment. The fair value of the residual interest in the TNH investment is estimated using discounted residual cash flows.

Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are categorized in the table below based upon the level of input to the valuations.

The following table presents the changes in Level 3 assets (liabilities) measured at fair value on a recurring basis for the three months ended March 31, 2010:

	Residual Interest in TNH Investment
Balance at January 1, 2010	$	36
Dividend received	(15		)
Balance at March 31, 2010	$	21

Financial Instruments Not Measured At Fair Value

Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. The fair values of notes receivable are based on discounted future cash flows or the applicable quoted market price.

The Company’s borrowings are recorded at historical amounts. The fair value of the Company’s debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. At March 31, 2010, the carrying value and fair value of the Company’s secured borrowings were $1,353 million and $1,349 million, respectively. At March 31, 2010, the carrying value and the fair value of the Company’s unsecured borrowings, included in liabilities subject to compromise, were $2,439 and $2,193, respectively.

16. Contingencies

The Company’s past and present operations include activities which are subject to federal, state and local environmental requirements, particularly relating to air and water quality. The Company faces potential environmental liability as a result of violations of these environmental requirements, environmental permit terms and similar authorizations that have occurred from time to time at its facilities. In addition, the Company faces potential liability for remediation at certain owned and formerly owned facilities, as well as response costs at various sites for which it has received notice as being a potentially responsible party (“PRP”) concerning hazardous substance contamination. In estimating its reserves for

environmental remediation and future costs, the Company’s estimated liability of $6 million reflects the Company’s expected share of costs after consideration for the relative percentage of waste deposited at each site, the number of other PRPs, the identity and financial condition of such parties and experience regarding similar matters. As of March 31, 2010, the Company had approximately $20 million reserved for environmental liabilities, of which $5 million is included in other long-term liabilities, $9 million in other current liabilities and $6 million in liabilities subject to compromise in the consolidated balance sheets. The Company believes the liability for these matters was adequately reserved at March 31, 2010.

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

In January 2009, the Company settled two putative class action cases filed in California state court on behalf of current and former hourly employees at the Company’s California corrugated container facilities. These cases alleged violations of the California on-duty meal break and rest period statutes. The court approved a settlement for a total of $9 million for both cases on January 21, 2009. The cases were automatically stayed due to the filing of the Chapter 11 Petition on January 26, 2009 (See Note 1). The Company established reserves of $9 million during 2008 related to these matters. It is anticipated that the Company’s liability for the settlement of these cases will be satisfied as an unsecured claim in the U.S. bankruptcy proceedings.

In May 2009, a lawsuit was filed in the United States District Court for the Northern District of Illinois against the four individual committee members of the Administrative Committee (“Administrative Committee”) of the Company’s savings plans and Patrick Moore, the Company’s Chief Executive Officer (together, the “Defendants”). The suit alleges violations of the Employee Retirement Income Security Act (“ERISA”) (the “2009 ERISA Case”) between January 2008 and the date it was filed. The plaintiffs in the 2009 ERISA Case brought the complaint on behalf of themselves and a class of similarly situated participants and beneficiaries of four of the Company’s savings plans (the “Savings Plans”). The plaintiffs assert that the Defendants breached their fiduciary duties to the Savings Plans’ participants and beneficiaries by allegedly making imprudent investments with the Savings Plans’ assets, making misrepresentations and failing to disclose material adverse facts concerning the Company’s business conditions, debt management and viability, and not taking appropriate action to protect the Savings Plans’ assets. Even though the Company is not a named defendant in the 2009 ERISA Case, management believes that any indemnification obligations to the Defendants would be covered by applicable insurance.

During the first quarter of 2010, two additional ERISA class action lawsuits were filed in the United States District Court for the Western District of Missouri and the United States District Court for the District of Delaware, respectively. The defendants in these cases are the individual committee members of the Administrative Committee, several other of the Company’s executives and the individual members of its Board of Directors. The suits have similar allegations as the 2009 ERISA Case described above, with the addition of breach of fiduciary duty claims related to the Company’s pension plans. The Company expects that all of these matters will be consolidated in some manner as they purport to represent a similar class of employees and former employees and seek recovery under similar allegations and any of the Company’s indemnification obligations would be covered by applicable insurance.

The Company is a defendant in a number of other lawsuits and claims arising out of the conduct of its business. All litigation that arose or may arise out of pre-petition conduct or acts is subject to the automatic stay provision of the bankruptcy laws and any recovery by plaintiffs in those matters will be paid consistent with all other general unsecured claims in the bankruptcy. As a result, the Company believes that these matters will not have a material adverse effect on its consolidated financial condition, results of operations or cash flows.

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

FORWARD-LOOKING STATEMENTS

Some information included in this report may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in this document, the words “anticipates,” “believes,” “expects,” “intends” and similar expressions as they relate to Smurfit-Stone Container Corporation or its management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control. These factors, risks and uncertainties are discussed in our Annual Report on Form 10-K for the year ended December 31, 2009 (2009 Form 10-K) filed with the Securities and Exchange Commission.

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

Smurfit-Stone Container Corporation, incorporated in Delaware in 1989, is a holding company with no business operations of its own. We conduct our business operations through our wholly-owned subsidiary Smurfit-Stone Container Enterprises, Inc. (SSCE), a Delaware corporation.

RECENTLY ADOPTED ACCOUNTING STANDARDS

Effective January 1, 2010, we adopted the amendments to ASC 860, “Transfers and Servicing” (ASC 860). The amendments removed the concept of a qualifying special-purpose entity and the related impact on consolidation, thereby potentially requiring consolidation of such special-purpose entities previously excluded from the consolidated financial statements. The amendments to ASC 860 did not impact our consolidated financial statements.

Effective January 1, 2010, we adopted the amendments to ASC 820, “Fair Value Measurements and Disclosures” (ASC 820). The amendments require new disclosures for transfers in and out of fair value hierarchy Levels 1 and 2 and activity within fair value hierarchy Level 3. The amendments also clarify existing disclosures regarding the disaggregation for each class of assets and liabilities, and the disclosures about inputs and valuation techniques. The amendments to ASC 820 did not have a material impact on our consolidated financial statements.

BANKRUPTCY PROCEEDINGS

Chapter 11 Bankruptcy Filings

On January 26, 2009 (the Petition Date), we and our U.S. and Canadian subsidiaries (collectively, the Debtors) filed a voluntary petition (the Chapter 11 Petition) for relief under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court in Wilmington, Delaware (the U.S. Court). On the same day, our Canadian subsidiaries also filed to reorganize (the Canadian Petition) under the Companies’ Creditors Arrangement Act (the CCAA) in the Ontario Superior Court of Justice in Canada (the Canadian Court). Our operations in Mexico and Asia and certain U.S.

and Canadian legal entities (the Non-Debtor Subsidiaries) were not included in the filing and will continue to operate outside of the Chapter 11 process.

Effective as of the opening of business on February 4, 2009, our common stock and our 7% Series A Cumulative Exchangeable Redeemable Convertible Preferred Stock (Preferred Stock) were delisted from the NASDAQ Global Select Market and the trading of these securities was suspended. Our common stock and Preferred Stock are now quoted on the Pink Sheets Electronic Quotation Service (Pink Sheets) under the ticker symbols “SSCCQ.PK” and “SSCJQ.PK,” respectively.

The filing of the Chapter 11 Petition and the Canadian Petition constituted an event of default under our debt obligations, and those debt obligations became automatically and immediately due and payable, although any actions to enforce such payment obligations were stayed as a result of the filing of the Chapter 11 Petition and the Canadian Petition. Since January 26, 2009, the date of the bankruptcy filings, we discontinued interest payments on our unsecured senior notes and certain other unsecured debt.

We and our U.S. and Canadian subsidiaries are currently operating as “debtors-in-possession” under the jurisdiction of the U.S. Court and Canadian Court (the Bankruptcy Courts) and in accordance with the applicable provisions of the Bankruptcy Code and the CCAA. In general, the Debtors are authorized to continue to operate as ongoing businesses, but may not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Courts.

Debtor-In-Possession (DIP) Financing

In connection with filing the Chapter 11 Petition and the Canadian Petition on the Petition Date, we and certain of our affiliates filed a motion with the Bankruptcy Courts seeking approval to enter into a Post-Petition Credit Agreement (the DIP Credit Agreement). Final approval of the DIP Credit Agreement was granted by the U.S. Court on February 23, 2009 and by the Canadian Court on February 24, 2009. Amendments to the DIP Credit Agreement were entered into on February 25 and 27, 2009.

The DIP Credit Agreement, as amended, provided for borrowings up to an aggregate committed amount of $750 million, consisting of a $400 million U.S. term loan (U.S. DIP Term Loan) for borrowings by SSCE; a $35 million Canadian term loan (Canadian DIP Term Loan) for borrowings by Smurfit-Stone Container Canada Inc. (SSC Canada); a $250 million U.S. revolving loan (U.S. DIP Revolver) for borrowings by SSCE and/or SSC Canada; and a $65 million Canadian revolving loan (Canadian DIP Revolver) for borrowings by SSCE and/or SSC Canada.

Under the DIP Credit Agreement, on January 28, 2009, we borrowed $440 million, consisting of a $400 million U.S. DIP Term Loan, a $35 million Canadian DIP Term loan and $5 million from the Canadian DIP Revolver. In accordance with the terms of the DIP Credit Agreement, in January 2009, we used U.S. DIP Term Loan proceeds of $360 million, net of lenders’ fees of $40 million, and Canadian DIP Term Loan proceeds of $30 million, net of lenders’ fees of $5 million, to terminate the receivables securitization programs and repay all indebtedness outstanding of $385 million and to pay other expenses of $1 million. In addition, other fees and expenses of $17 million related to the DIP Credit Agreement were paid for with proceeds of $5 million from the Canadian DIP Revolver and available cash.

The outstanding principal amount of the loans under the DIP Credit Agreement, plus interest accrued and unpaid, were due and payable in full at maturity, which was January 28, 2010. As all borrowings under the DIP Credit Agreement were paid in full as of December 31, 2009, we allowed the DIP Credit Agreement to expire on the maturity date of January 28, 2010. Prior to the maturity of the DIP Credit Agreement on January 28, 2010, we transferred $15 million of available cash to a restricted cash account to secure letters of credit under the DIP Credit Agreement.

Reorganization Process

The Bankruptcy Courts approved payment of certain of our pre-petition obligations, including employee wages, salaries and benefits, and the payment of vendors and other providers in the ordinary course for goods received and services rendered subsequent to the filing of the Chapter 11 Petition and Canadian Petition and other business-related payments necessary to maintain the operation of our business. We have retained legal and financial professionals to advise us on the bankruptcy proceedings.

Immediately after filing the Chapter 11 Petition and Canadian Petition, we notified all known current or potential creditors of the bankruptcy filings. Subject to certain exceptions under the Bankruptcy Code and the CCAA, our bankruptcy filings automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against us or our property to recover, collect or secure a claim arising prior to the filing of the Chapter 11 Petition and Canadian Petition. Thus, for example, most creditor actions to obtain possession of property from us, or to create, perfect or enforce any lien against our property, or to collect on monies owed or otherwise exercise rights or remedies with respect to a pre-petition claim are enjoined unless and until the Bankruptcy Courts lift the automatic stay.

As required by the Bankruptcy Code, the United States Trustee for the District of Delaware (the U.S. Trustee) appointed an official committee of unsecured creditors (the Creditors’ Committee). The Creditors’ Committee and its legal representatives have a right to be heard on all matters that come before the U.S. Court with respect to us. A monitor was appointed by the Canadian Court with respect to proceedings before the Canadian Court.

Under the Bankruptcy Code, the Debtors generally must assume or reject pre-petition executory contracts, including but not limited to real property leases, subject to the approval of the Bankruptcy Courts and certain other conditions. In this context, “assumption” means that we agree to perform our obligations and cure all existing defaults under the contract or lease, and “rejection” means that we are relieved from our obligations to perform further under the contract or lease, but are subject to a pre-petition claim for damages for the breach thereof subject to certain limitations. Any damages resulting from rejection of executory contracts that are permitted to be recovered under the Bankruptcy Code will be treated as liabilities subject to compromise unless such claims were secured prior to the Petition Date.

Since the Petition Date, we received approval from the Bankruptcy Courts to reject a number of leases and executory contracts of various types. Liabilities subject to compromise have been recorded related to the rejection of executory contracts and unexpired leases, and from the determination of the U.S. Court (or agreement by parties in interest) of allowed claims for contingencies and other disputed amounts. Due to the uncertain nature of many of the unresolved claims and rejection damages, we cannot project the magnitude of such claims and rejection damages with certainty.

On May 4, 2010, the U.S. Court granted our motion for an order authorizing the assumption of certain executory contracts and unexpired leases and finalizing all but an insignificant amount of the cure amounts related to these assumed executory contracts and unexpired leases. As a result, we concluded our review of our executory contracts and unexpired leases and do not expect to reject any additional executory contracts or unexpired leases. We expect that the assumption of the executory contracts and unexpired leases in the May 4, 2010 court order will convert certain of the liabilities shown on the accompanying consolidated balance sheets as liabilities subject to compromise to liabilities not subject to compromise.

In June 2009, the Bankruptcy Courts entered an order establishing August 28, 2009, as the bar date for potential creditors to file claims. The bar date is the date by which certain claims against us must be filed if the claimants wish to receive any distribution in the bankruptcy cases. Proof of claim forms received after the bar date are typically not eligible for consideration of recovery as part of our bankruptcy cases. Creditors were notified of the bar date and the requirement to file a proof of claim with the Bankruptcy Courts. Differences between liability amounts estimated by us and claims filed by creditors are being investigated and, if necessary, the Bankruptcy Courts will make a final determination of the allowable claim. The determination of how liabilities will ultimately be treated cannot be made until the Bankruptcy Courts approve a plan of reorganization. Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time.

In September 2009, the U.S. Trustee denied a request by certain holders of our common stock and Preferred Stock to form an official equity committee to represent the interests of equity holders on matters before the U.S. Court. The equity holders subsequently filed a motion for the appointment of an equity committee with the U.S. Court. In December 2009, the U.S. Court entered an order denying the motion for an order appointing an official committee of equity security holders.

Proposed Plan of Reorganization and Exit Credit Facilities

In order to successfully emerge from bankruptcy, we must propose and obtain confirmation by the Bankruptcy Courts of a plan of reorganization that satisfies the requirements of the Bankruptcy Code and the CCAA. A plan of reorganization would resolve our pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to our exit from bankruptcy.

Under the priority scheme established by the Bankruptcy Code and the CCAA, unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or stockholders, if any, will not be determined until confirmation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed to each of these constituencies or what types or amounts of distributions, if any, they would receive. Because of such possibilities, the value of our liabilities and securities, including our common stock, is highly speculative. Appropriate caution should be exercised with respect to existing and future investments in any of our liabilities and/or securities.

The Proposed Plan of Reorganization

On December 1, 2009, the Debtors filed their Joint Plan of Reorganization and Plan of Compromise and Arrangement and Disclosure Statement with the U.S. Court. On December 22, 2009, January 27, 2010 and February 4, 2010, the Debtors filed amendments to the proposed Plan of Reorganization (the Proposed Plan of Reorganization) and to the Disclosure Statement (the Disclosure Statement). Also, on March 19, 2010, the Debtors filed a Supplement to the Proposed Plan of Reorganization. Key elements of the Proposed Plan of Reorganization were as follows:

· we and our subsidiary, SSCE, would merge and become the Reorganized Smurfit-Stone that would be governed by a board of directors that will include Patrick J. Moore, our current Chairman and Chief Executive Officer, Steven J. Klinger, our current President and Chief Operating Officer, and a number of independent directors, including a non-executive chairman selected by the Creditors’ Committee in consultation with the Debtors;

· all of the existing secured debt of the Debtors would be fully repaid with cash;

· substantially all of the existing unsecured debt and claims against SSCE, including all of the outstanding unsecured senior notes, would be exchanged for common stock of the Reorganized Smurfit-Stone, which is expected to be traded on the New York Stock Exchange with holders of unsecured claims against SSCE of less than or equal to $10,000 entitled to receive payment of 100% of such claims in cash, and eligible cash-out participants having the opportunity to indicate on their ballot the percentage amount of their allowed claim they would be willing to receive in cash in lieu of common stock;

· all of our existing equity securities would be cancelled and existing shareholders of our common and Preferred Stock would receive no distribution on account of their shares;

· Reorganized Smurfit-Stone and our newly-formed Canadian subsidiary would assume all of the existing obligations under the qualified defined benefit pension plans in the United States and Canada sponsored by the Debtors, as well as all of the collective bargaining agreements in the United States and Canada between the Debtors and their labor unions.

On January 14, 2010, the U.S. Court granted approval to extend the Debtors’ exclusive right to file a plan of reorganization to July 21, 2010, and granted the Debtors’ approval to solicit acceptance of a plan of reorganization until May 21, 2011. If the Debtors’ exclusivity period lapses, any party in interest would be able to file a plan of reorganization. In addition to being voted on by holders of impaired claims and equity interests, a plan of reorganization must satisfy certain requirements of the Bankruptcy Code and the CCAA and must be approved, or confirmed, by the Bankruptcy Courts in order to become effective.

The Bankruptcy Code requires the U.S. Court, after appropriate notice, to hold a hearing on confirmation of a plan of reorganization. The confirmation hearing with respect to the Proposed Plan of Reorganization commenced in the U.S Court on April 15, 2010, and concluded on May 4, 2010, and a hearing was conducted in the Canadian Court on May 3, 2010. We anticipate that rulings from the U.S. Court and the Canadian Court on the confirmation will be issued and the Debtors will emerge from Chapter 11 and CCAA proceedings during the second quarter of 2010, following the issuance of orders confirming the Proposed Plan of Reorganization. There can be no assurance at this time that the Proposed Plan of Reorganization will be confirmed by the Bankruptcy Courts or that any such plan will be implemented successfully.

Exit Credit Facilities

On January 14, 2010, the U.S. Court entered an order authorizing the Debtors to (i) enter into an exit term loan facility engagement and arrangement letter and fee letters, (ii) pay associated fees and expenses and (iii) furnish related indemnities. On February 1, 2010, we filed a motion with the U.S. Court seeking approval to enter into a senior secured term loan exit facility (Term Loan Facility).

On February 16, 2010, the U.S. Court granted the motion and authorized us and certain of our affiliates to enter into the Term Loan Facility. On the same date, the U.S. Court also granted our February 3, 2010 motion seeking approval to enter into a commitment letter and fee letters for an asset-based revolving credit facility (the ABL Revolving Facility) (together with the Term Loan Facility, the Exit Credit Facilities). Based on such approvals, on February 22, 2010, we and certain of our subsidiaries entered into the Term Loan Facility that provides for an aggregate term loan commitment of $1,200 million. In addition, we entered into an ABL Revolving Facility with aggregate commitments of $650 million (including a $100 million Canadian Tranche), on April 15, 2010. The ABL Revolving Facility includes a $150 million sub-limit for letters of credit. The commitments for the Term Loan Facility and the ABL Revolving Facility will terminate on July 16, 2010 unless our emergence from bankruptcy and satisfaction of certain funding date conditions under the Term Loan Facility and the ABL Revolving Facility occur on or prior to such date.

We are permitted, subject to obtaining lender commitments, to add one or more incremental facilities to the Term Loan Facility in an aggregate amount up to $400 million. Each incremental facility is conditioned on (a) there existing no defaults, (b) in the case of incremental term loans, such loans have a final maturity no earlier than, and a weighted average life no shorter than, the Term Loan Facility, and (c) after giving effect to one or more incremental facilities, the consolidated senior secured leverage ratio shall be less than 3.00 to 1.00. If the interest rate spread applicable to any incremental facility exceeds the interest rate spread applicable to the Term Loan Facility by more than 0.25%, then the interest rate spread applicable to the Term Loan Facility will be increased to equal the interest rate spread applicable to the incremental facility.

We are permitted, subject to obtaining lender commitments, to add incremental commitments under the ABL Revolving Facility in an aggregate amount up to $150 million. Each incremental commitment is conditioned on (a) there existing no defaults, (b) any new lender providing an incremental commitment shall require the consent of the Administrative Agent, each Issuing Lender, the Swingline Lender and the Fronting Lender, (c) the minimum amount of any increase must be at least $25 million, (d) we shall not increase the commitments more than three times in the aggregate, (e) if the interest rate margins and commitment fees with respect to the incremental commitments are higher than those applicable to the existing commitments under the ABL Revolving Facility, then the interest rate margins and commitment fees for the existing commitments under the ABL Revolving Facility will be increased to match those for the incremental commitments, and (f) the satisfaction of other customary closing conditions.

On the date we emerge from bankruptcy, the Term Loan will be funded and borrowings will be available under the ABL Revolving Facility. The proceeds of the borrowings under the Term Loan Facility, together with available cash, will be used to repay our outstanding secured indebtedness under our pre-petition Credit Facility and pay remaining fees, costs and expenses related to and contemplated by the Exit Credit Facilities and the Proposed Plan of Reorganization. Total fees, costs and expenses related to the Exit Credit Facilities are estimated to be approximately $50 million, of which $9 million was paid during the first quarter of 2010. Borrowings under the ABL Revolver Facility will be available for working capital purposes, capital expenditures, permitted acquisitions and general corporate purposes.

The term loan (Term Loan) matures six years from the funding date of the Term Loan Facility and is repayable in equal quarterly installments of $3 million beginning on September 30, 2010, with the balance payable at maturity. Additionally, following the end of each fiscal year, varying percentages of our excess cash flow, as defined in the Term Loan Facility, based on certain agreed levels of secured leverage ratios, must be used to repay outstanding principal amounts under the Term Loan. Subject to specified exceptions, the Term Loan Facility will also require us to use the net proceeds of asset sales and the net proceeds of the incurrence of indebtedness to repay outstanding borrowings under the Term Loan Facility.

The Term Loan will bear interest at our option at a rate equal to: (A) 3.75% plus the alternate base rate (Term Loan ABR) defined as the greater of: (i) the U.S. prime rate, (ii) the overnight federal funds rate plus 0.50%, or (iii) the one month adjusted LIBOR rate plus 1.0%, provided that the Term Loan ABR shall never be lower than 3.00% per annum, or (B) the adjusted LIBOR rate plus 4.75%, provided that the adjusted LIBOR rate shall never be lower than 2.00% per annum.

The ABL revolver loan (ABL Revolver) will mature four years from the funding date of the ABL Revolving Facility. We will have the option to borrow at a rate equal to: (A) the base rate, defined as the greater of 2.50% plus: (i) the US Prime Rate, (ii) the overnight federal funds rate plus 0.50% or (iii) LIBOR rate plus 1.0%, or (B) the LIBOR rate plus 3.50% for the first 90 days then 3.25% thereafter. The applicable margin could be adjusted in the future from 2.25% to a rate as high as 2.75% for base loans and 3.25% to a rate as high as 3.75% for LIBOR loans based on the average historical utilization under the ABL Revolving Facility. We would also pay either a 0.50% or 0.75% per annum unused commitment fee based on the average historical utilization under the ABL Revolving Facility. The ABL Revolving Facility borrowings are subject to a borrowing base derived from a formula based on certain eligible accounts receivable and inventory, less certain reserves.

Borrowings under the Exit Credit Facilities will be guaranteed by us and certain of our subsidiaries, and would be secured by first priority liens and second priority liens on substantially all our presently owned and hereafter acquired assets and those of each of our subsidiaries party to the Exit Credit Facilities, subject to certain exceptions and permitted liens.

The Exit Credit Facilities contain affirmative and negative covenants that impose restrictions on our financial and business operations and those of certain of our subsidiaries, including their ability to incur indebtedness, incur liens, make investments, sell assets, pay dividends or make acquisitions. The Exit Credit Facilities contain events of default customary for financings of this type.

Going Concern Matters

The consolidated financial statements and related notes have been prepared assuming that we will continue as a going concern, although our bankruptcy filings raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to restructure our obligations in a manner that allows us to obtain confirmation of the Proposed Plan of Reorganization by the Bankruptcy Courts. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or to the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern.

Financial Reporting Considerations

For periods subsequent to the bankruptcy filings, we have applied the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 852, Reorganizations (ASC 852), in preparing the consolidated financial statements. ASC 852 requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred in the bankruptcy proceedings have been recorded in reorganization items in the consolidated statements of operations. In addition, pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified on the consolidated balance sheets in liabilities subject to compromise. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Courts, even if they may be settled for lesser or greater amounts.

Reorganization Items

Our reorganization items directly related to the process of our reorganizing under Chapter 11 and the CCAA, as recorded in our consolidated statements of operations, consist of the following:

	Three months ended March 31,
(Income) Expense	2010			2009
Provision for rejected/settled executory contracts and leases	$	29		$	39
Professional fees	15			16
Accounts payable settlement gains	(3		)	(1		)
Total reorganization items	$	41		$	54

Professional fees directly related to the reorganization include fees associated with advisors to us, the Creditors’ Committee and certain secured creditors.

Net cash paid for reorganization items related to professional fees totaled $16 million and $6 million, respectively, for the three months ended March 31, 2010 and 2009.

Reorganization items exclude employee severance and other restructuring charges recorded during 2009 and 2010.

Under the Proposed Plan of Reorganization, interest expense on the unsecured senior notes subsequent to the Petition Date would not be paid. As a result, in the fourth quarter of 2009, we concluded it was not probable that interest expense on the unsecured senior notes subsequent to the Petition Date would be an allowed claim. During the fourth quarter of 2009, we recorded income in reorganization items for the reversal of accrued post-petition unsecured interest expense and discontinued recording unsecured interest expense. Interest expense recorded on unsecured debt was zero and $48 million for the first quarter of 2010 and 2009, respectively.

In addition, holders of our Preferred Stock would not be entitled to receive any amounts under the Proposed Plan of Reorganization. As a result, in the fourth quarter of 2009 we concluded it was not probable that Preferred Stock dividends that were accrued subsequent to the Petition Date would be allowed claims. Preferred Stock dividends that were accrued post-petition and included in liabilities subject to compromise were reversed in the fourth quarter of 2009. ASC 505-10-50-5, “Equity,” requires entities to disclose in the financial statements the aggregate amount of cumulative preferred dividends in arrears. Preferred Stock dividends in arrears were $11 million as of March 31, 2010, and $9 million as of December 31, 2009. The Preferred Stock dividends in arrears since the Petition Date are presented only to reflect preferred stockholders’ rights to dividends over common stockholders and are not reflected in the Preferred Stock value in the consolidated balance sheets.

Other Bankruptcy Related Costs

During the first quarter of 2010, we recorded $6 million in selling and administrative expenses related to amounts accrued under our 2009 long-term incentive plan.

Liabilities Subject to Compromise

Liabilities subject to compromise consist of the following:

	March 31, 2010		December 31, 2009

Unsecured debt	$	2,439	$	2,439
Accounts payable	325		339
Interest payable	47		47
Retiree medical obligations	178		176
Pension obligations	1,146		1,136
Unrecognized tax benefits	47		46
Executory contracts and leases	102		72
Other	23		17
Liabilities subject to compromise	$	4,307	$	4,272

The Bankruptcy Courts approved payment of certain pre-petition obligations, including employee wages, salaries and benefits, and the payment of vendors and other providers in the ordinary course for goods and services received after the filing of the Chapter 11 Petition and the Canadian Petition and other business-related payments necessary to maintain the operation of our business. Obligations associated with these matters are not classified as liabilities subject to compromise.

We have rejected certain executory contracts and unexpired leases with respect to our operations with the approval of the Bankruptcy Courts. Damages resulting from rejection of executory contracts and unexpired leases are generally treated as general unsecured claims and are classified as liabilities subject to compromise.

RESULTS OF OPERATIONS

We had a net loss attributable to common stockholders of $91 million, or $0.35 per diluted share, for the first quarter of 2010 compared to a net loss of $217 million, or $0.84 per diluted share, for the first quarter of 2009. The 2010 results were favorably impacted by lower interest expense ($58 million), lower restructuring charges ($17 million), lower reorganization cost ($13 million) and higher other operating income related to the alternative fuel tax credit ($11 million). The 2009 results included debtor-in-possession debt issuance cost of $63 million and a loss on early extinguishment of debt of $20 million. The 2010 segment profits decreased $32 million compared to 2009. The segment operating results for 2010 were negatively impacted by lower average sales prices for containerboard and corrugated containers and higher costs for reclaimed fiber, which were partially offset by operating improvements and reduced market related downtime.

In the second quarter of 2010, we expect to emerge from bankruptcy. We expect our operating performance to improve compared to the first quarter of 2010 levels due to higher selling prices for containerboard and corrugated containers, which are expected to be partially offset by higher costs, including reclaimed fiber. In the second quarter of 2010, we project slightly higher shipments of corrugated containers while projecting slightly lower production of containerboard, due to planned maintenance downtime. Assuming our Proposed Plan of Reorganization is confirmed and we emerge from bankruptcy, our second quarter 2010 results will be significantly impacted by the accounting for the effects of the Proposed Plan of Reorganization and adoption of fresh start accounting.

The U.S. Internal Revenue Code allowed an excise tax credit for alternative fuel mixtures produced by a taxpayer for sale, or for use as a fuel in a taxpayer’s trade or business through December 31, 2009, at which time the credit expired. In May 2009, we were notified that our registration as an alternative fuel mixer was approved by the Internal Revenue Service. We subsequently submitted refund claims of approximately $654 million for 2009 related to production at ten of our U.S. mills. We received refund claims of $595 million in 2009 and $59 million during the first quarter of 2010. During 2009, we recorded other operating income of $633 million, net of fees and expenses, in our consolidated statements of operations related to this matter. In March 2010, we recorded other operating income of $11 million relating to an adjustment of refund claims submitted in 2009. We expect to receive the refund claim in the fourth quarter of 2010.

We continue to review and evaluate various restructuring and other alternatives to streamline our operations, improve efficiencies and reduce cost. These actions will subject us to additional short-term costs, which may include facility shutdown costs, asset impairment charges, lease commitment costs, employee retention and severance costs and other closing costs.

During the first quarter of 2010, we closed one converting facility, announced the closure of two additional converting facilities and sold four previously closed facilities. We recorded restructuring income of $4 million, including an $11 million gain related to the sale of previously closed facilities, of which $8 million resulted from the legal release of environmental liability obligations. The remaining offsetting charges of $7 million were primarily for severance and benefits. As a result of the closures in the first quarter of 2010 and other ongoing initiatives, we reduced our headcount by approximately 760 employees. The net sales of the announced and closed converting facilities as of March 31, 2010 prior to closure and for the year ended December 31, 2009 were $16 million and $92 million, respectively. The majority of these net sales are expected to be transferred to other operating facilities. Additional charges of up to $3 million are expected to be recorded in future periods for severance and benefits related to the closure of these and previously closed facilities.

First Quarter 2010 Compared to First Quarter 2009

	Three months ended March 31,
	2010					2009
(In millions)	Net Sales		Profit/ (Loss)			Net Sales		Profit/ (Loss)

Containerboard, corrugated containers and reclamation operations	$	1,461	$	34		$	1,371	$	66

Restructuring income (charges)			4					(13		)
Loss on sale of assets								(2		)
Other operating income			11
Interest expense, net			(13		)			(71		)
Loss on early extinguishment of debt								(20		)
Non-cash foreign currency exchange gains (losses)			(6		)			3
Debtor-in-possession debt issuance costs								(63		)
Reorganization items			(41		)			(54		)
Corporate expenses and other (Note 1)			(78		)			(59		)
Loss before income taxes			$	(89	)			$	(213	)

Note 1: Amounts include corporate expenses and other expenses not allocated to operations.

Net sales increased 6.6% in the first quarter of 2010 compared to last year. Net sales were positively impacted by $112 million in 2010 as a result of higher third-party sales volume of containerboard and corrugated containers. Third party shipments of containerboard were higher due primarily to stronger demand in both the domestic and export market. Net sales were negatively impacted by lower average selling prices ($99 million) primarily for containerboard and corrugated containers, which were partially offset by higher average selling prices for reclaimed material ($77 million). The average price for old corrugated containers (OCC) increased approximately $110 per ton compared to last year.

Our containerboard mills operated at 100% of capacity in the first quarter of 2010, compared to 82.4% of capacity in the first quarter of 2009. As a result of less market related downtime, containerboard production was 10.5% higher compared to last year despite the closure of two containerboard mills in December 2009. Production of market pulp decreased by 6.1% compared to last year due primarily to maintenance downtime taken in the first quarter of 2010. Production of kraft paper increased 52.6% compared to last year due primarily to higher demand and no market related downtime in 2010. Total tons of fiber reclaimed and brokered increased 14.7% compared to last year due to higher demand.

Cost of goods sold as a percent of net sales in the first quarter of 2010 was 92.8%, compared to 88.8% last year. Cost of goods sold increased from $1,217 million in 2009 to $1,356 million in 2010 due primarily to higher costs of reclaimed material ($132 million) in 2010.

Selling and administrative expense increased $6 million in the first quarter of 2010 compared to the first quarter of 2009 primarily due to amounts accrued under our 2009 long-term incentive plan.

Interest expense, net was $13 million in the first quarter of 2010. The $58 million decrease compared to the first quarter of 2009 was impacted by the discontinuation of accrued interest on unsecured debt ($48 million), lower average borrowings ($7 million) and lower average interest rates ($3 million). Since the Petition Date, we discontinued interest payments on our unsecured notes and certain other unsecured debt. The lower average borrowings were primarily due to the repayment of the DIP Credit Facility. Our overall average effective interest rate in the first quarter of 2010 was lower than the first quarter of 2009 by 1.75%. For additional information on the discontinuation of accrued interest on unsecured debt, see Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Bankruptcy Proceedings — Financial Reporting Considerations — “Reorganization Items.”

In the first quarter of 2009, we recorded debtor-in-possession debt issuance costs of $63 million in connection with entering into the DIP Credit Agreement.

In the first quarter of 2009, we recorded a loss on early extinguishment of debt of $20 million for the non-cash write-off of deferred debt issuance cost related to the Stevenson, Alabama mill industrial revenue bonds, which were repaid.

In the first quarter of 2010, we recorded non-cash foreign currency exchange losses of $6 million compared to gains of $3 million for the same period in 2009.

Reorganization items expense decreased $13 million in the first quarter of 2010 compared to the first quarter of 2009 due primarily to a lower provision for rejected/settled executory contracts and leases.

In the first quarter of 2009, we recorded a $1 million income tax provision for Canadian withholding taxes and interest on unrecognized tax benefits. We recorded valuation allowances related to the tax benefits generated for the three months ended March 31, 2010 and 2009 because it is more likely than not that substantially all of the deferred tax assets generated in 2010 and 2009 may not be realized.

	Three months ended March 31,
(In thousands of tons, except as noted)	2010	2009
Mill production
Containerboard (1)	1,585	1,435
Market pulp	62	66
SBL	35	33
Kraft paper	29	19
North American corrugated containers sold (billion sq. ft.)	16.4	16.6
Fiber reclaimed and brokered	1,423	1,241

(1) For the three months ended March 31, 2010 and 2009, our corrugated container plants consumed 1,116,000 tons and 1,135,000 tons of containerboard, respectively.

At March 31, 2010, we had unrestricted cash and cash equivalents of $702 million compared to $704 million at December 31, 2009.

The following table summarizes our cash flows for the three months ended March 31:

(In millions)	2010			2009
Net cash provided by (used for):
Operating activities	$	50		$	111
Investing activities	(28		)	(53		)
Financing activities	(25		)	64
Effect of exchange rate changes on cash	1
Net increase (decrease) in cash	$	(2	)	$	122

Net Cash Provided By (Used For) Operating Activities

The net cash provided by operating activities for the three months ended March 31, 2010 was lower compared to the same period in 2009 due primarily to lower segment profits and less favorable working capital changes. Working capital, principally accounts payable, was favorably impacted in the first quarter of 2009 by the stay of payment of liabilities subject to compromise resulting from the bankruptcy filings. The first quarter of 2010 was favorably impacted by a reduction of $48 million in the receivable for alternative fuel tax credits.

Net Cash Provided By (Used For) Investing Activities

Net cash used for investing activities was $28 million for the three months ended March 31, 2010. Expenditures for property, plant and equipment were $34 million for the first three months of 2010, compared to $39 million for the same period last year. The amount expended for property, plant and equipment in the first three months of 2010 was principally for projects related to upgrades, cost reductions and ongoing initiatives. The net proceeds from sales of previously closed facilities were $6 million in the first quarter of 2010 compared to $1 million in the first quarter of 2009. Advances to affiliates, net in the first quarter of 2009 of $15 million is principally related to funding an obligation pertaining to a guarantee for a previously non-consolidated affiliate. See Note 8 of the Notes to Consolidated Financial Statements.

Net Cash Provided By (Used For) Financing Activities

Net cash used for financing activities for the three months ended March 31, 2010 of $25 million included $9 million for debt issuance cost related to our Exit Credit Facilities and $15 million transferred to restricted cash to collateralize outstanding letters of credit. Net cash provided by financing activities for the three months ended March 31, 2009 was $64 million. Proceeds from the DIP Credit Agreement of $440 million were used to terminate our receivables securitization programs and repay all indebtedness outstanding under the programs of $385 million. Debt issuance cost of $63 million was incurred and paid with the proceeds and available cash. In addition, letters of credit in the amount of $71 million were drawn on to fund obligations principally related to non-qualified pension plans, commodity derivative instruments and a guarantee for a previously non-consolidated affiliate which increased borrowings under our credit agreement.

Bank Credit Facilities

We as guarantor, and SSCE and its subsidiary, SSC Canada, as borrowers, entered into a credit agreement, as amended (the Credit Agreement) on November 1, 2004. The obligations of SSCE under the Credit Agreement are unconditionally guaranteed by us and the material U.S. subsidiaries of SSCE. The obligations of SSC Canada under the Credit Agreement are unconditionally guaranteed by us, SSCE, the material U.S. subsidiaries of SSCE and the material Canadian subsidiaries of SSC Canada. The obligations of SSCE under the Credit Agreement are secured by a security interest in substantially all of our assets and properties, and those of SSCE and the material U.S. subsidiaries of SSCE, by a pledge

of all of the capital stock of SSCE and the material U.S. subsidiaries of SSCE and by a pledge of 65% of the capital stock of SSC Canada that is directly owned by SSCE. The security interests securing SSCE’s obligation under the Credit Agreement exclude cash, cash equivalents, certain trade receivables and the land and buildings of certain corrugated container facilities. The obligations of SSC Canada under the Credit Agreement are secured by a security interest in substantially all of the assets and properties of SSC Canada and the material Canadian subsidiaries of SSC Canada, by a pledge of all of the capital stock of the material Canadian subsidiaries of SSC Canada and by the same U.S. assets, properties and capital stock that secure SSCE’s obligations under the Credit Agreement. The security interests securing SSC Canada’s obligation under the Credit Agreement excluded certain other real properties located in New Brunswick and Quebec, which were sold during the first quarter of 2010.

The Credit Agreement contains various covenants and restrictions including (i) limitations on dividends, redemptions and repurchases of capital stock, (ii) limitations on the incurrence of indebtedness, liens, leases and sale-leaseback transactions, (iii) limitations on capital expenditures and (iv) maintenance of certain financial covenants. The Credit Agreement also requires prepayments if we have excess cash flows, as defined therein, or receive proceeds from certain asset sales, insurance or incurrence of certain indebtedness.

As of March 31, 2010, as a result of our default, we had no availability for borrowings under SSCE’s revolving credit facilities after giving consideration to outstanding letters of credit of $87 million. As of March 31, 2010, we had available unrestricted cash and cash equivalents of $702 million primarily invested in money market funds at a variable interest rate of 0.10%.

DIP Credit Agreement

In connection with filing the Chapter 11 Petition and the Canadian Petition, on January 26, 2009 we and certain of our affiliates filed a motion with the Bankruptcy Courts seeking approval to enter into a DIP Credit Agreement. Final approval of the DIP Credit Agreement was granted by the U.S. Court on February 23, 2009 and by the Canadian Court on February 24, 2009. Amendments to the DIP Credit Agreement were entered into on February 25 and 27, 2009.

The DIP Credit Agreement, as amended, provided for borrowings up to an aggregate committed amount of $750 million, consisting of a $400 million U.S. DIP Term Loan for borrowings by SSCE; a $35 million Canadian DIP Term Loan for borrowings by SSC Canada; a $250 million U.S. DIP Revolver for borrowings by SSCE and/or SSC Canada; and a $65 million Canadian DIP Revolver for borrowings by SSCE and/or SSC Canada.

As of December 31, 2009, no borrowings were outstanding under the U.S. DIP Term Loan, the U.S. DIP Revolver, the Canadian DIP Term Loan or the Canadian DIP Revolver. As all borrowings under the DIP Credit Agreement were paid in full as of December 31, 2009, we allowed the DIP Credit Agreement to expire on the maturity date of January 28, 2010.

Exit Credit Facilities

For additional information on the Exit Credit Facilities, see Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Bankruptcy Proceedings — Proposed Plan of Reorganization and Exit Credit Facilities — “Exit Credit Facilities.”

Future Cash Flows

We recorded restructuring income of $4 million during the first quarter of 2010, including an $11 million gain related to the sale of previously closed facilities of which $8 million resulted from the release of legal environmental liability obligations. The remaining offsetting charges of $7 million were principally for severance and benefits. During the three months ended March 31, 2010, we incurred cash expenditures of $4 million for these exit liabilities. The remaining exit liabilities are expected to be paid principally in the second quarter of 2010.

At December 31, 2009, we had $54 million of exit liabilities related principally to restructuring activities. During the three months ended March 31, 2010, we incurred cash expenditures of $20 million for these exit liabilities. The remaining cash expenditures in connection with our restructuring activities will continue to be funded through operations as originally planned.

In March 2010, we recorded other operating income of $11 million relating to an adjustment of refund claims for the alternative fuel tax credit submitted in 2009. We expect to receive the refund claim in the fourth quarter of 2010.

In the first quarter of 2010, we contributed approximately $2 million to our defined benefit plans.

Pension Plan Contributions

At December 31, 2009, the qualified defined benefit plans, which are expected to be assumed under the Proposed Plan of Reorganization, were underfunded by approximately $1,020 million. We estimate that this level of under funding increased by approximately $40 million during the three months ended March 31, 2010, due primarily to a decrease in the Canadian discount rate assumption used to determine the amount of benefit obligations, which was partially offset by positive returns on plan assets. We currently estimate that cash contributions under the U.S. and Canadian qualified pension plans will be approximately $82 million in 2010, and potentially up to approximately $112 million depending upon how unpaid Canadian contributions for 2009 are impacted by the Proposed Plan of Reorganization. We currently estimate that contributions will be in the range of approximately $300 million to $330 million annually in 2011 through 2013, and will then decrease to approximately $280 million in 2014, approximately $230 million in 2015 and $130 million in 2016, at which point almost all of the shortfall would be funded. The actual required amounts and timing of such future cash contributions will be highly sensitive to changes in the applicable discount rates and returns on plan assets, and could also be impacted by future changes in the laws and regulations applicable to plan funding.

During the first quarter of 2009, we recorded a $1 million income tax provision for Canadian withholding taxes and interest on unrecognized tax benefits. We recorded valuation allowances related to the tax benefits generated for the three months ended March 31, 2010 and 2009 because it is more likely than not that substantially all of the deferred tax assets generated in 2010 and 2009 may not be realized.

As previously disclosed in our 2009 Form 10-K, the Canada Revenue Agency (CRA) examined our income tax returns for tax years 1999 through 2005. In connection with the examination, the CRA issued assessments of additional income taxes, interest and penalties related to transfer prices of inventory sold by our Canadian subsidiaries to our U.S. subsidiaries. Additionally, the CRA considered certain significant adjustments related principally to taxable income related to our acquisition of a Canadian company.

In April 2010, we entered into an agreement with the CRA and other provincial tax authorities to settle all Canadian income tax matters through January 26, 2009. As a result of this agreement, the CRA will retain approximately $20 million of a tax deposit made by us in 2008 to appeal the transfer price assessments. The remainder of the tax deposit, approximately $10 million, will be refunded to us. In addition, we will pay the Province of Quebec approximately $3 million to settle their claims. GST and QST tax withholdings subsequent to January 26, 2009 will be refunded to us. The settlement agreement will become effective at the time the Canadian subsidiaries emerge from CCAA proceedings, and transfers of funds are expected to take place as soon as possible thereafter. Upon emergence from bankruptcy, we expect to record an income tax benefit of approximately $17 million to reflect the outcome of this agreement.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

In January 2009, the Chapter 11 Petition and the Canadian Petition effectively terminated all existing derivative instruments. Termination fair values were calculated based on the potential settlement value. Our termination value related to our remaining derivative liabilities was approximately $60 million, recorded in other current liabilities in the consolidated balance sheet at March 31, 2010. These derivative liabilities were stayed due to the filing of the Chapter 11 Petition and the Canadian Petition at which time,

these liabilities were adjusted through OCI for derivative instruments qualifying for hedge accounting and cost of goods sold for derivative instruments not qualifying for hedge accounting. Subsequently, the amounts adjusted through OCI were recorded in earnings when the underlying transaction was recognized or when the underlying transaction was no longer expected to occur. As of March 31, 2010, all amounts in OCI have been recognized through earnings. See Note 11 of the Notes to Consolidated Financial Statements.

Commodity Price Risk

We used derivative instruments, including fixed price swaps, to manage fluctuations in cash flows resulting from commodity price risk in the procurement of natural gas and other commodities, including fuel oil and diesel fuel. The objective was to fix the price of a portion of our purchases of these commodities used in the manufacturing process. The changes in the market value of such derivative instruments historically offset the changes in the price of the hedged item.

Foreign Currency Risk

Our principal foreign exchange exposure is the Canadian dollar. Assets and liabilities outside the United States are primarily located in Canada. The functional currency for our Canadian operations is the U.S. dollar. Our investments in foreign subsidiaries with a functional currency other than the U.S. dollar are not hedged.

We used financial derivative instruments, including forward contracts and options, primarily to protect against Canadian currency exchange risk associated with expected future cash flows. The Canadian dollar as of March 31, 2010, compared to December 31, 2009, strengthened 2.96% against the U.S. dollar. We recognized non-cash foreign currency exchange losses of $6 million for the three month period ended March 31, 2010 compared to gains of $3 million for the same period in 2009.

Interest Rate Risk

Our earnings and cash flow are significantly affected by the amount of interest on our indebtedness. Our financing arrangements include both fixed and variable rate debt in which changes in interest rates will impact the fixed and variable rate debt differently. A change in the market interest rate of fixed rate debt will impact the fair value of the debt, whereas a change in the interest rate on the variable rate debt will impact interest expense and cash flows. Our objective is to mitigate interest rate volatility and reduce or cap interest expense within acceptable levels of market risk. We periodically enter into interest rate swaps, caps or options to hedge interest rate exposure and manage risk within Company policy. Any derivative would be specific to the debt instrument, contract or transaction, which would determine the specifics of the hedge.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control

There have not been any changes in our internal control over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On January 26, 2009, we and our U.S. and Canadian subsidiaries filed the Chapter 11 Petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Court. On the same day, our Canadian subsidiaries also filed the Canadian Petition under the CCAA in the Canadian Court. Our operations in Mexico and Asia were not included in the filing and will continue to operate outside of the Chapter 11 process. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Bankruptcy Proceedings.”

During the first quarter of 2010, an Employee Retirement Income Security Act (ERISA) class action lawsuit was filed in the United States District Court for the District of Delaware. Two other such ERISA cases were previously disclosed in our 2009 Form 10-K. The defendants in this case are the individual committee members of the Administrative Committee of our savings plans, several of our other executives and the individual members of our Board of Directors. The suit has similar allegations as the two other ERISA class action lawsuits. We expect that all of these matters will be consolidated in some manner as they purport to represent a similar class of employees and former employees and seek recovery under similar allegations. Even though we are not a named defendant in these cases, management believes that any indemnification obligations to the named defendants would be covered by applicable insurance.

ITEM 1A.

RISK FACTORS

There are no material changes to the risk factors as disclosed in our 2009 Form 10-K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

The filing of the Chapter 11 Petition and the Canadian Petition constituted an event of default under our debt obligations, and those debt obligations became automatically and immediately due and payable. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Bankruptcy Proceedings — “Chapter 11 Bankruptcy Filings.”

ITEM 4.	RESERVED

ITEM 5.	OTHER INFORMATION

(b)	There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors implemented since the filing of our 2009 Form 10-K.

ITEM 6.	EXHIBITS

	The following exhibits are included in this Form 10-Q:

10.1	Credit Agreement dated as of February 22, 2010 among Smurfit-Stone Container Corporation and Smurfit-Stone Container Enterprises, Inc., as Borrowers, J.P. Morgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. (DBSI) and Banc of America Securities LLC (BAS) as Joint Bookrunners and Co-Lead Arrangers, DBSI as syndication agent, BAS as documentation agent, and other lenders party thereto (incorporated by reference to Exhibit 10.1 to SSCC’s Current Report on Form 8-K filed February 25, 2010 (File No. 0-23876)).

31.1	Certification pursuant to Rules 13a—14(a) and 15d—14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification pursuant to Rules 13a—14(a) and 15d—14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Signature

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

	SMURFIT-STONE CONTAINER CORPORATION
	(Registrant)


Date: May 5, 2010	/s/ Paul K. Kaufmann
	Paul K. Kaufmann
	Senior Vice President and Corporate Controller
	(Principal Accounting Officer)

March 31, 2010

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Residual interest in TNH investment