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.

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

~~For~~o Transition ~~Quarter~~Report ~~Ended~~Pursuant ~~September~~to Section ~~30, 2010~~13 or 15(d) of the Securities Exchange Act of 1934.

For Quarter Ended March 31, 2011

Commission File Number 1-03439

SMURFIT-STONE CONTAINER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		36-2041256
(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)

222 North LaSalle Street, Chicago, Illinois		60601
(Address of principal executive offices)		(Zip Code)

(312) 346-6600

(Registrant’s telephone number, including area code)

Not Applicable

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

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 ox 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 ox Accelerated filer o Non-accelerated filer o Smaller Reporting Company xo (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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of ~~November~~April 427, ~~2010~~2011, the registrant had outstanding 9197,~~628~~541,~~552~~131 shares of common stock, $.001 par value per share.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SMURFIT-STONE CONTAINER CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Successor			Predecessor
	Three Months Ended			Three Months Ended			Six Months Ended			Nine Months Ended
Three Months Ended March 31, (In millions, except per share data)	2011			2010
	September 30,			September 30,			June 30,			September 30,
Net sales	$	1,581		$	1,461
(In millions, except per share data)	2010			2009			2010			2009
Costs and expenses
Net sales	$	1,634		$	1,417		$	3,024		$	4,195
Cost of goods sold	1,363			1,356
Costs and expenses
Selling and administrative expenses	122			151
Cost of goods sold	1,344			1,284			2,763			3,757
Restructuring (income) expense	4			(4		)
Selling and administrative expenses	141			137			294			428
Other operating income				(11		)
Restructuring expenses	7			14			15			38
Operating income (loss)	92			(31		)
Loss on disposal of assets				2						3
Other income (expense)
Other operating income				(179		)	(11		)	(455		)
Interest expense, net	(22		)	(13		)
Operating income (loss)	142			159			(37		)	424
Foreign currency exchange losses				(6		)
Other income (expense)
Other, net	(4		)	2
Interest expense, net	(23		)	(72		)	(23		)	(217		)
Income (loss) before reorganization items and income taxes	66			(48		)
Debtor-in-possession debt issuance costs										(63		)
Reorganization items	(1		)	(41		)
Loss on early extinguishment of debt										(20		)
Income (loss) before income taxes	65			(89		)
Foreign currency exchange gains (losses)				(11		)	3			(10		)
Provision for income taxes	(11		)
Other, net	2			6			4			10
Net income (loss)	54			(89		)
Income (loss) before reorganization items and income taxes	121			82			(53		)	124
Preferred stock dividends and accretion				(2		)
Reorganization items income (expense), net	(7		)	(16		)	1,178			(109		)
Net income (loss) attributable to common stockholders	$	54		$	(91	)
Income before income taxes	114			66			1,125			15
Basic earnings per common share
(Provision for) benefit from income taxes	(49		)	2			199			(3		)
Net income (loss) attributable to common stockholders	$	0.54		$	(0.35	)
Net income	65			68			1,324			12
Weighted average shares outstanding	100			258
Preferred stock dividends and accretion				(3		)	(4		)	(9		)
Diluted earnings per common share
Net income attributable to common stockholders	$	65		$	65		$	1,320		$	3
Net income (loss) attributable to common stockholders	$	0.54		$	(0.35	)
Basic earnings per common share
Weighted average shares outstanding	101			258
Net income attributable to common stockholders	$	0.65		$	0.25		$	5.12		$	0.01
Weighted average shares outstanding	100			257			258			257
Diluted earnings per common share
Net income attributable to common stockholders	$	0.65		$	0.25		$	5.07		$	0.01
Weighted average shares outstanding	100			257			261			257

See notes to consolidated financial statements.

SMURFIT-STONE CONTAINER CORPORATION

CONSOLIDATED BALANCE SHEETS

	Successor		~~Predecessor~~
	September 30,		December 31,
	March 31,		December 31,
(In millions, except share data)	~~2010~~2011		~~2009~~2010
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	~~464~~446	$	~~704~~449
Restricted cash			9
Receivables, less allowances of $16 in 2011 and 2010	825		765
Receivables, less allowance of $13 in 2010 and $24 in 2009	750		615
Receivable for alternative energy tax credits	11		11
Receivable for alternative energy tax credits	11		59
Inventories
Work-in-process and finished goods	~~153~~167		~~105~~140
Materials and supplies	~~376~~383		~~347~~356
	529		452
	550		496
Refundable income taxes	164		236
Prepaid expenses and other current assets	3532		4324
Total current assets	1,~~805~~868		1,~~905~~751
Net property, plant and equipment	4,~~370~~334		34,~~081~~374
Deferred income taxes			23
Goodwill	102		100
Goodwill	96
Intangible assets, net	74		75
Intangible assets, net	76
Other assets	156		159
Other assets	162		68
	$	6,534	$	6,459
	$	6,509	$	5,077
Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity (Deficit)
Liabilities not subject to compromise
Current liabilities
Current maturities of long-term debt	$	1618	$	~~1,354~~39
Accounts payable	~~519~~561		~~387~~503
Accrued compensation and payroll taxes	~~165~~147		~~145~~180
Interest payable	23		123
Other current liabilities	8380		~~164~~86
Total current liabilities	~~785~~809		~~2,062~~811
Long-term debt, less current maturities	1,~~176~~151		1,155
Pension and postretirement benefits, net of current portion	1,~~632~~308		1,300
Other long-term liabilities	~~138~~129		~~117~~129
Deferred income taxes	~~352~~465		453
Total liabilities not subject to compromise	4,083		2,179
Total liabilities	3,862		3,848
Liabilities subject to compromise			4,272
Total liabilities	4,083		6,451
Stockholders’ equity
Successor preferred stock, par value $.001 per share; 10,000,000 shares authorized; none issued and outstanding in 2010
Preferred stock, par value $.001 per share; 10,000,000 shares authorized; none issued and outstanding in 2011 and 2010
Successor common stock, par value $.001 per share; 150,000,000 shares authorized; 91,062,636 issued and outstanding in 2010
Common stock, par value $.001 per share; 150,000,000 shares authorized; 94,490,158 and 91,793,836 issued and outstanding in 2011 and 2010, respectively
Predecessor preferred stock, aggregate liquidation preference of $126; 25,000,000 shares authorized; 4,599,300 issued and outstanding in 2009			104
Additional paid-in capital	2,369		2,366
Predecessor common stock, par value $.01 per share; 400,000,000 shares authorized; 257,482,839 issued and outstanding in 2009			3
Retained earnings	168		114
Additional paid-in capital	2,357		4,081
Accumulated other comprehensive income	135		131
Retained earnings (deficit)	65		(4,883		)
Total stockholders’ equity	2,672		2,611
Accumulated other comprehensive income (loss)	4		(679		)
	$	6,534	$	6,459
Total stockholders’ equity (deficit)	2,426		(1,374		)
	$	6,509	$	5,077

See notes to consolidated financial statements.

SMURFIT-STONE CONTAINER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Successor			Predecessor
	Three Months Ended			Six Months Ended			Nine Months Ended
Three Months Ended March 31, (In millions)	2011			2010
	September 30,			June 30,			September 30,
Cash flows from operating activities
(In millions)	2010			2010			2009
Net income (loss)	$	54		$	(89	)
Cash flows from operating activities
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Net income	$	65		$	1,324		$	12
Depreciation, depletion and amortization	87			85
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Amortization of deferred debt issuance costs and original issue discount	3
Loss on early extinguishment of debt							20
Deferred income taxes	12			(2		)
Depreciation, depletion and amortization	84			168			273
Pension and postretirement benefits	3			28
Debtor-in-possession debt issuance costs							63
Non-cash restructuring income				(3		)
Amortization of deferred debt issuance costs and original issue discount	3						5
Non-cash stock-based compensation	3			1
Deferred income taxes	58			(201		)	1
Non-cash foreign currency exchange losses				6
Pension and postretirement benefits	(16		)	50			49
Non-cash reorganization items				26
Loss on disposal of assets							3
Change in restricted cash for utility deposits				2
Non-cash restructuring expense				7			6
Change in operating assets and liabilities, net of effects from acquisitions and dispositions
Non-cash stock-based compensation	5			3			7
Receivables	(60		)	(93		)
Non-cash foreign currency exchange (gains) losses				(3		)	10
Receivable for alternative energy tax credits				48
Gain due to plan effects				(580		)
Inventories	(51		)	(19		)
Gain due to fresh start accounting adjustments				(742		)
Prepaid expenses and other current assets	(6		)	(3		)
Payments to settle pre-petition liabilities excluding debt				(202		)
Accounts payable and accrued liabilities	18			46
Non-cash reorganization items				101			65
Interest payable				3
Change in restricted cash for utility deposits	7			2			(9		)
Other, net	(6		)	14
Change in operating assets and liabilities, net of effects from acquisitions and dispositions
Net cash provided by operating activities	57			50
Receivables and retained interest in receivables sold	(7		)	(129		)	(50		)
Cash flows from investing activities
Receivable for alternative energy tax credits				48			(58		)
Expenditures for property, plant and equipment	(35		)	(34		)
Inventories	(30		)	1			35
Proceeds from property disposals	1			6
Prepaid expenses and other current assets	12			1			(13		)
Net cash used for investing activities	(34		)	(28		)
Accounts payable and accrued liabilities	(9		)	57			200
Cash flows from financing activities
Interest payable	(2		)	2			128
Net repayments of long-term debt	(26		)	(1		)
Other, net	(9		)	8			46
Debt issuance costs on exit credit facilities and other financing costs				(9		)
Net cash provided by (used for) operating activities	161			(85		)	793
Change in restricted cash for collateralizing outstanding letters of credit				(15		)
Cash flows from investing activities
Net cash used for financing activities	(26		)	(25		)
Expenditures for property, plant and equipment	(39		)	(83		)	(112		)
Effect of exchange rate changes on cash				1
Proceeds from property disposals	5			10			16
Decrease in cash and cash equivalents	(3		)	(2		)
Advances to affiliates, net							(15		)
Cash and cash equivalents
Net cash used for investing activities	(34		)	(73		)	(111		)
Beginning of period	449			704
Cash flows from financing activities
End of period	$	446		$	702
Proceeds from exit credit facilities				1,200
Original issue discount				(12		)
Net borrowings of debtor-in-possession financing							130
Net borrowings (repayments) of long-term debt	(3		)	(1,347		)	71
Repurchase of receivables							(385		)
Debtor-in-possession debt issuance costs							(63		)
Debt issuance costs on exit credit facilities and other financing costs				(47		)
Net cash used for financing activities	(3		)	(206		)	(247		)
Increase (decrease) in cash and cash equivalents	124			(364		)	435
Cash and cash equivalents
Beginning of period	340			704			126
End of period	$	464		$	340		$	561

See notes to consolidated financial statements.

SMURFIT-STONE CONTAINER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share data)

1. ~~Bankruptcy Proceedings~~Rock-Tenn Merger Agreement

On January 23, 2011, Smurfit-Stone Container Corporation (“SSCC” or the “Company”) and Rock-Tenn Company (“Rock-Tenn”) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which the Company will merge with and into a subsidiary of Rock-Tenn (the “Merger”). This Merger, unanimously approved by the Boards of Directors of both companies, will create a leader in the North American paperboard packaging market with combined revenues of approximately $9 billion.

For each share of the Company’s common stock, the Company’s stockholders will be entitled to receive 0.30605 shares of Rock-Tenn common stock and $17.50 in cash, representing 50% cash and 50% stock on the date of the signing of the Merger Agreement. On January 23, 2011, the equity consideration was $35 per the Company’s common share or approximately $3.5 billion, consisting of approximately $1.8 billion of cash and the issuance of approximately 30.9 million shares of Rock-Tenn common stock. In addition, Rock-Tenn will assume the Company’s liabilities, including debt and underfunded pension liabilities, which were $1,169 million and $1,152 million, respectively, in the Company’s consolidated balance sheet at March 31, 2011. Following the acquisition, Rock-Tenn stockholders will own approximately 56% and the Company’s stockholders will own 44% of the combined company.

The transaction is expected to close in the second quarter of 2011 and is subject to customary closing conditions, regulatory approvals, as well as approval by both Rock-Tenn and the Company’s stockholders.

2. 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 filings and continued to operate outside of the Chapter 11 and CCAA processes. AsOn ~~described below, on~~ June 21, 2010, the U.S. Court entered an order (“Confirmation Order”) approving and confirming the Joint Plan of Reorganization for Smurfit-Stone Container Corporation and its Debtor Subsidiaries and Plan of Compromise and Arrangement for Smurfit-Stone Container Canada Inc. and Affiliated Canadian Debtors (“Plan of Reorganization”). The Company emerged from its Chapter 11 and CCAA bankruptcy proceedings on June 30, 2010 (“Effective Date”). As of the Effective Date and pursuant to the Plan of Reorganization, the Company merged with and into its wholly-owned subsidiary, Smurfit-Stone Container Enterprises, Inc. (“SSCE”). SSCE changed its name to Smurfit-Stone Container Corporation and became the Reorganized Smurfit-Stone Container Corporation (“Reorganized Smurfit-Stone”).

The term “Predecessor” refers only to the Company and its subsidiaries prior to the Effective Date, and the term “Successor” refers only to the Reorganized Smurfit-Stone and its subsidiaries subsequent to the Effective Date. Unless the context indicates otherwise, the terms “SSCC” and the “Company” are used interchangeably in this Quarterly Report on Form 10-Q to refer to both the Predecessor and Successor Company.

Until its emergence on the Effective Date, the Debtors were operating as debtors-in-possession under the jurisdiction of the U.S. Court and the Canadian Court (the “Bankruptcy Courts”) and in accordance with the applicable provisions of the Bankruptcy Code and the CCAA. In general, as debtors-in-possession, the Debtors were authorized to continue to operate as ongoing businesses, but could 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”). Based on interim approval, the Company and certain affiliates entered into the DIP Credit Agreement on January 28, 2009. 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~~Common ~~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 $5Preferred 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.Stock

~~The~~Under ~~outstanding~~the ~~principal amount~~Plan of Reorganization, Reorganized Smurfit-Stone filed the ~~loans~~Amended ~~under~~and Restated Certificate of Incorporation of the ~~DIP~~Company, ~~Credit~~which ~~Agreement~~authorized Reorganized Smurfit-Stone to issue 160,000,000 ~~plus~~shares, ~~interest~~consisting ~~accrued~~of ~~and unpaid~~150,000,000 ~~were~~shares ~~due~~of ~~and~~common ~~payable~~stock, inpar ~~full~~value at$.001 ~~maturity~~per share (“Common Stock”) and 10,000,000 ~~which~~shares ~~was~~of ~~January 28~~preferred stock, ~~2010~~ par value $.001 per share (“Preferred Stock”). AsReorganized ~~all~~Smurfit-Stone ~~borrowings~~issued ~~under~~or ~~the DIP~~reserved ~~Credit~~for ~~Agreement~~issuance ~~were~~100,000,000 ~~paid~~shares inof ~~full~~Common asStock for distribution to creditors and interest holders pursuant to the Plan of ~~December 31,~~Reorganization. In ~~2009~~addition, the Company ~~allowed~~adopted the ~~DIP~~Equity ~~Credit~~Incentive ~~Agreement~~Plan, pursuant to ~~expire~~which, onamong ~~the~~other ~~maturity~~things, ~~date~~it ofreserved ~~January 28~~for issuance 8, ~~2010. Prior~~695,652 toshares ~~the~~of ~~maturity~~Common Stock representing eight percent of the ~~DIP Credit~~fully ~~Agreement~~diluted onnew ~~January~~Common Stock. As of December 2831, 2010, ~~the~~91,793,836 ~~Company~~shares ~~transferred~~of ~~$15~~Common Stock were issued and outstanding and approximately 8.4 million shares of ~~available~~Common ~~cash~~Stock towere aheld ~~restricted~~in ~~cash~~reserve ~~account~~pursuant to ~~secure~~the ~~letters~~Plan of ~~credit under~~Reorganization. None of the ~~DIP~~Preferred ~~Credit~~Stock ~~Agreement~~was issued and outstanding as of December 31, 2010.

Pursuant to the Plan of Reorganization ~~Process~~, the Company issued 2,535,506 shares of Common Stock in the three months ended March 31, 2011. As of March 31, 2011, 94,490,158 shares of Common Stock were issued and outstanding, including 160,816 shares issued under the Equity Incentive Plan in the three months ended March 31, 2011.

~~The Bankruptcy~~Subsequent ~~Courts~~to ~~approved~~March 31, ~~payment~~2011, ofan ~~certain~~additional of3,206,829 ~~the~~shares ~~Company’s~~of ~~pre-petition obligations,~~Common ~~including~~Stock ~~employee~~were ~~wages~~issued, ~~salaries~~leaving ~~and~~approximately ~~benefits,~~2.6 ~~and~~million ~~the~~shares ~~payment~~ of ~~vendors~~Common ~~and~~Stock ~~other providers~~ in ~~the~~reserve ~~ordinary~~for ~~course~~claims ~~for~~that ~~goods~~are ~~received~~still ~~and services~~unliquidated ~~rendered~~or ~~subsequent~~subject to dispute in the ~~filing~~bankruptcy ofproceedings. These ~~the~~shares ~~Chapter~~will 11be ~~Petition~~distributed ~~and Canadian~~as ~~Petition~~these ~~and~~claims ~~other~~are ~~business-related~~liquidated ~~payments~~or ~~necessary~~resolved, toin ~~maintain the operation~~accordance ofwith the ~~Company’s~~Plan ~~business~~of Reorganization. ~~The Company~~To ~~retained~~the ~~legal~~extent ~~and~~shares ~~financial~~remain ~~professionals~~after toresolution ~~advise~~of itthese claims, these excess shares will be re-distributed on a pro-rata basis to the ~~bankruptcy~~ ~~proceedings~~holders of claims who had previously received distributions.

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 were enjoined unless and until the Bankruptcy Courts lifted 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 had a right to be heard on all matters that came before the U.S. Court with respect to the Debtors. A monitor was appointed by the Canadian Court with respect to proceedings before the Canadian Court.

Under the Bankruptcy Code, the Debtors either assumed or rejected pre-petition executory contracts, including real property leases, subject to the approval of the Bankruptcy Courts and certain other conditions. In this context, “assumption” meant that the Company agreed to perform its obligations and cure all existing defaults under the contract or lease, and “rejection” meant that it was relieved from its obligations to perform further under the contract or lease, but was subject to a pre-petition claim for damages for the breach thereof, subject to certain limitations. Any damages resulting from 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, that were permitted to be recovered under the Bankruptcy Code were treated as liabilities subject to compromise unless such claims were secured prior to the Petition Date.

Plan of Reorganization and Exit Credit Facilities

In order for the Debtors to successfully emerge from bankruptcy, the Bankruptcy Courts had to first confirm a plan of reorganization that satisfied the requirements of the Bankruptcy Code and the CCAA. A plan of reorganization was required to, among other things, resolve the Debtor’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.

Plan of Reorganization

On December 1, 2009, the Debtors filed their Plan of Reorganization and Disclosure Statement (“Disclosure Statement”) with the U.S. Court. On December 22, 2009, January 27, 2010, and February 4, 2010, the Debtors filed amendments to the Plan of Reorganization and the Disclosure Statement. On March 19, 2010, the Debtors filed a supplement to the Plan of Reorganization, and on May 27, 2010, the Debtors filed the final Plan of Reorganization reflecting the resolution of certain objections by equity security holders and other non-material modifications.

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 were entitled to vote to accept or reject the Plan of Reorganization.

The 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 of Canada II. Stone Container Finance Company of Canada II was removed from the Plan of Reorganization. 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 Plan of Reorganization by all requisite classes of creditors other than Stone Container Finance Company of Canada II.

The Bankruptcy Code required the U.S. Court, after appropriate notice, to hold a hearing on confirmation of a plan of reorganization. The confirmation hearing on the Plan of Reorganization began 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. On May 13, 2010, the Canadian Court issued an order approving the Plan of Reorganization in the CCAA proceedings in Canada.

On May 24, 2010, the Debtors announced that they reached a resolution with certain holders of the Company’s preferred and common stock that had filed objections to the confirmation of the Plan of Reorganization. On May 28, 2010, the U.S. Court approved notice procedures with respect to this resolution. On June 21, 2010, the U.S. Court entered the Confirmation Order which approved and confirmed the Plan of Reorganization. The Company emerged from its Chapter 11 and CCAA bankruptcy proceedings on June 30, 2010, the Effective Date.

As of the Effective Date, the Company substantially consummated the various transactions contemplated under the Plan of Reorganization and the Confirmation Order, including the following:

· the Company merged with and into SSCE, with SSCE being the survivor entity and renaming itself Smurfit-Stone Container Corporation, and becoming the Reorganized Smurfit-Stone. Reorganized Smurfit-Stone is governed by a board of directors that includes Patrick J. Moore, the Company’s Chief Executive Officer, Steven J. Klinger, the Company’s President and Chief Operating Officer, and nine independent directors, including a non-executive chairman selected by the Creditors’ Committee in consultation with the Debtors;

· Reorganized Smurfit-Stone filed the Amended and Restated Certificate of Incorporation of the Company, which authorized Reorganized Smurfit-Stone to issue 160,000,000 shares, consisting of 150,000,000 shares of common stock, par value $.001 per share (“Common Stock”) and 10,000,000 shares of preferred stock, par value $.001 per share (“Preferred Stock”). Reorganized Smurfit-Stone issued or reserved for issuance 100,000,000 shares of Common Stock for distribution to creditors and interest holders pursuant to the Plan of Reorganization;

Under the Plan of Reorganization, the Company issued an aggregate of 91,014,189 shares of Common Stock. None of the Preferred Stock was issued or outstanding as of the Effective Date;

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

· substantially all of the general unsecured claims against SSCE, and the Company, including all of the outstanding unsecured senior notes, were exchanged for Common Stock;

· holders of unsecured claims against SSCE of less than or equal to $10,000 received payment of 100% of such claims in cash, and eligible cash-out participants who so indicated on their ballot received the percentage amount of their allowed claim they elected to receive in cash in lieu of Common Stock;

· holders of the Company’s 7% Series A Cumulative Exchangeable Redeemable Convertible preferred stock received a pro-rata distribution of 2,172,166 shares of Common Stock and holders of the Company’s common stock received a pro-rata distribution of 2,171,935 shares. All shares of common stock and preferred stock of the Predecessor Company were cancelled;

· Reorganized Smurfit-Stone adopted the Equity Incentive Plan, pursuant to which, among other things, it reserved for issuance 8,695,652 shares of Common Stock representing eight percent of the fully diluted new Common Stock. In accordance with the terms of the Equity Incentive Plan, 2,895,909 stock options and 914,498 Restricted Stock Units (“RSU’s”) were granted to executive officers and other key employees of Reorganized Smurfit-Stone on the Effective Date;

· the assets of the Canadian Debtors, other than Stone Container Finance Company of Canada II, were 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 and (iii) the assumption of certain liabilities and obligations of the Canadian Debtors;

· Reorganized Smurfit-Stone and its newly-formed Canadian subsidiary assumed 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;

· Pursuant to the Plan of Reorganization and after the initial distribution, the Company reserved approximately 9.0 million shares of Common Stock for future distribution to holders of unsecured non-priority claims that were unliquidated or subject to dispute. On or about October 29, 2010, the Company issued an additional 648,363 shares and cancelled 34,000 shares previously issued in the first distribution, leaving approximately 8.4 million shares of Common Stock held in reserve. These shares will be distributed as these claims are liquidated or resolved, in accordance with the Plan of Reorganization and Confirmation Order. To the extent that such unliquidated or disputed claims are settled for less than the number of shares reserved, additional distributions may also be made with respect to previously allowed claims under the terms and conditions of the Plan of Reorganization and Confirmation Order.

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 the 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 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 June 30, 2010, the Term Loan Facility was funded and borrowings became available under the ABL Revolving Facility. The proceeds of the borrowings under the Term Loan Facility of $1,200 million, together with available cash, were 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 Plan of Reorganization. See “Fresh Start Accounting” below for sources and uses of funds. On September 30, 2010, the Company had no borrowings under the ABL Revolving Facility. Borrowings under the ABL Revolving Facility are available for working capital purposes, capital expenditures, permitted acquisitions and general corporate purposes. As of September 30, 2010, the Company’s borrowing base under the ABL Revolving Facility was $625 million and the amount available for borrowings after considering outstanding letters of credit was $528 million.

As of September 30, 2010, the Company also had available unrestricted cash and cash equivalents of $464 million primarily invested in money market funds at a variable interest rate of 0.18%.

The term loan (the “Term Loan”) is repayable in equal quarterly installments of $3 million beginning on September 30, 2010, with the balance payable at maturity on June 30, 2016. 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 also requires 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 bears 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 interest rate at September 30, 2010 was 6.75%

The ABL revolver loan (the “ABL Revolver”) matures on June 30, 2014. The Company has 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, which is the applicable margin as of September 30, 2010. The applicable margin can 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 will 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 are guaranteed by the Company and certain of its subsidiaries, and are 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.

Financial Reporting Considerations

Subsequent to the Petition Date, through the Effective Date, the Company 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~~were ~~been~~ recorded in reorganization items in the consolidated statements of operations. In addition, pre-petition obligations that were impacted by the bankruptcy reorganization process were classified on the consolidated balance sheet at December 31, 2009 in liabilities subject to compromise.

Reorganization Items

The Company’s reorganization items directly related to the process of reorganizing the Company under Chapter 11 and the CCAA, and its emergence on June 30, 2010, as recorded in its consolidated statements of operations, consist of the following:

	Successor			Predecessor
	Three Months Ended September 30,			Three Months Ended September 30,			Six Months Ended June 30,			Nine Months Ended September 30,
	Three Months Ended March 31,			Three Months Ended March 31,
	2010			2009			2010			2009
	2011			2010
Income (Expense)
Provision for rejected/settled executory contracts and leases	$			$	(929	)	$	~~(106~~	)	$	~~(73~~	)
Professional fees	(71		)	(1215		)	~~(43~~		)	~~(44~~		)
Accounts payable settlement gains				53			5			8
Gain due to plan effects							580
Total reorganization items	$	(1	)	$	(41	)
Gain due to fresh start accounting adjustments							742
Total reorganization items	$	(7	)	$	(16	)	$	1,178		$	(109	)

~~In addition,~~Professional anfees ~~income~~directly ~~tax~~related ~~benefit~~to ofthe ~~$200~~reorganization ~~million~~include ~~related~~fees associated with advisors to ~~plan~~the ~~effect adjustments~~Company, ~~was~~the ~~recorded~~official incommittee of unsecured creditors and certain secured creditors. During the ~~six~~three months ended ~~June~~March 3031, ~~2010~~2011, the Company continued to incur costs related to professional fees that are directly attributable to the reorganization.

Professional fees directly related to the reorganization include fees associated with advisors to the Company, the Creditors’ Committee and certain secured creditors. During the three months ended September 30, 2010, the Company continued to incur costs related to professional fees that are directly attributable to the reorganization.5

Net cash paid for reorganization items related to professional fees for the three months ended ~~September~~March 3031, ~~2010~~2011 and ~~six months ended June 30,~~ 2010 totaled $302 million and $3216 million, respectively~~, and $9 million and $26 million for the three and nine months ended September 30, 2009, respectively~~.

Reorganization items exclude employee severance and other restructuring charges recorded during ~~2009~~2011 and 2010.

Interest expense recorded on the Predecessor unsecured debt was zero for the six months ended June 30, 2010, and $49 million and $147 million for the three and nine months ended September 30, 2009, respectively. Contractual interest expense on unsecured debt was $9847 million for the ~~six~~three months ended ~~June~~March 3031, 2010. Under the Plan of Reorganization, interest expense on the unsecured ~~senior~~debt ~~notes~~ subsequent to the Petition Date was not paid~~. In~~ ~~the~~and ~~fourth~~no ~~quarter of 2009, the Company concluded it was not probable that~~ interest expense onwas ~~the Predecessor unsecured senior notes subsequent to the Petition Date would be an allowed claim. As a result, during the fourth quarter of 2009, the Company~~ recorded ~~income in reorganization items~~ for the ~~reversal~~ ofthree ~~accrued~~months ~~post-petition~~ended ~~unsecured~~March 31, ~~interest expense and discontinued recording unsecured interest expense~~2010.

~~In addition,~~The ~~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. Preferred Stock dividends in~~ arrears ~~were $13 million at the Effective Date and $9 million as of December 31, 2009. The Preferred Stock dividends in arrears~~ since the Petition Date are presented in the Predecessor consolidated statements of operations only to reflect preferred stockholders’ rights to dividends over common stockholders. Under ~~and~~the ~~are~~Plan ~~not~~of ~~reflected~~Reorganization, ~~in the~~ Preferred Stock ~~value~~ dividends in arrears subsequent to the ~~December 31,~~Petition ~~2009~~Date ~~consolidated~~were ~~balance~~not ~~sheet~~paid.

Other Bankruptcy Related Costs

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 represent pre-petition unsecured obligations that were settled under the Plan of Reorganization. These liabilities represented the amounts expected to be allowed on known or potential claims to be resolved through the Chapter 11 and CCAA process. Liabilities subject to compromise also included certain items, such as qualified defined benefit pension and retiree medical obligations that were assumed under the Plan of Reorganization, and as such, have been recorded in liabilities under the Reorganized Smurfit-Stone.

The Company 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 were classified as liabilities subject to compromise.

Liabilities subject to compromise at December 31, 2009 consisted of the following:

	Predecessor
	December 31, 2009
Unsecured debt	$	2,439
Accounts payable	339
Interest payable	47
Retiree medical obligations	176
Pension obligations	1,136
Unrecognized tax benefits	46
Executory contracts and leases	72
Other	17
Liabilities subject to compromise	$	4,272

For information regarding the discharge of liabilities subject to compromise, see “Fresh Start Accounting” below.

Fresh Start Accounting

~~The~~Upon ~~Company,~~adoption inof ~~accordance with ASC 852, adopted~~ fresh start accounting as of the close of business on June 30, 2010, ~~because~~ ~~the~~in ~~reorganization~~accordance ~~value~~with ofASC ~~the assets of the Predecessor Company immediately before the date of confirmation of the Plan of Reorganization was less than the total of all post-petition liabilities and allowed claims~~852, ~~and~~ the ~~holders of the Predecessor~~ Company’s voting shares immediately before confirmation of the Plan of Reorganization received less than 50 percent of the voting shares of the Successor Company. Upon adoption of fresh start accounting, the Company became a new entity for financial reporting purposes, reflecting the Successor capital structure. As such, a new accounting basis in the identifiable assets and liabilities assumed was established with no retained earnings or accumulated other comprehensive income (loss) (“OCI”).

The Successor reorganized consolidated balance sheet as of June 30, 2010, included herein, reflects the implementation of the Plan of Reorganization, including the discharge of liabilities subject to compromise and the adoption of fresh start accounting3. ~~The~~ Significant ~~Predecessor~~Accounting results of operations of the Company for the six months ended June 30, 2010 include $1,178 million of reorganization items, net, including a pre-tax emergence gain on plan effects of $580 million, a gain related to fresh start accounting adjustments of $742 million, and other reorganization expenses of $144 million. In addition, the benefit from income taxes includes a $200 million benefit related to the plan effect adjustments.Policies

Fresh start accounting provides, among other things, for a determination of the value to be assigned to the equity of the emerging company as of a date selected for financial reporting purposes. In conjunction with the bankruptcy proceedings, a third party financial advisor provided an enterprise value of the Company of approximately $3,145 million to $3,445 million with a midpoint of $3,295 million. The preliminary equity value set forth by the third party was $2,360 million, using the midpoint enterprise value of $3,295 million and adjusting for expected cash and debt balances upon emergence and expected cash proceeds from the sale of non-operating assets.

The final equity value of $2,352 was determined consistent with the third party methodology using the midpoint enterprise value of $3,295 million. See reconciliation of the enterprise value to the final equity value below in Note 10 of the Explanatory Notes to the reorganized consolidated balance sheet. Reorganization value, comprised of equity and debt, represents the amount of resources available for the satisfaction of post-petition liabilities and allowed claims, as negotiated between the Debtors and creditors. Reorganization value is intended to approximate the amount a willing buyer would pay for the assets of the Company immediately after reorganization.

Enterprise value of the Company was estimated using various valuation methods including: (i) comparable public company analysis, (ii) discounted cash flow analysis (“DCF”) and (iii) precedent transaction analysis. Due to the Company’s significant pension obligations, the comparable company and DCF valuations included scenarios designed to account for the Company’s pension liabilities and expense.

The comparable public company analysis identified a group of comparable companies giving considerations to lines of business, markets, similar business risks, growth prospects, maturity of business and size and scale of business. This analysis involved the selection of the appropriate earnings before interest, taxes, depreciation and amortization (“EBITDA”) market multiples to be the most relevant when analyzing the peer group. A range of valuation multiples was then identified and applied to the Company’s projections to derive a range of implied enterprise value.

The basis of the discounted cash flow analysis used in developing the enterprise value was based on Company prepared projections which included a variety of estimates and assumptions. While the Company considers such estimates and assumptions reasonable, they are inherently subject to significant business, economic and competitive uncertainties, many of which are beyond the Company’s control and, therefore, may not be realized. Changes in these estimates and assumptions may have had a significant effect on the determination of the Company’s enterprise value. The assumptions used in the calculations for the discounted cash flow analysis included projected revenue, cost and cash flows for the years ending December 31, 2010 through 2014 and represented the Company’s best estimates at the time the analysis was prepared. The DCF analysis was completed using discount rates of 9.0% through 11.0%. There can be no assurance that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially.

The precedent transactions analysis identified relevant merger and acquisition transactions in the paperboard and containerboard industry. This analysis involved calculating the total enterprise value of the acquired company as a multiple of EBITDA for the last twelve months prior to announcement. A range of valuation multiples was then identified and applied to the Company’s projected EBITDA for the 12 month period ended April 30, 2010, to determine an estimate of enterprise values.

The Company’s reorganization value was allocated to its assets and liabilities in conformity with the procedures specified by ASC 805, “Business Combinations.” The significant assumptions related to the valuation of the Company’s assets and liabilities in connection with fresh start accounting include the following:

Inventories — Raw materials were valued at current replacement cost. Work-in-process was valued at estimated selling prices of finished goods less the sum of costs to complete, selling costs, shipping costs and a reasonable profit allowance for completing and selling effort based on profit for similar finished

goods. Finished goods were valued at estimated selling prices less the sum of selling costs, shipping costs and a reasonable profit allowance for the selling effort.

Prior to emerging from bankruptcy, the Company recorded long-lived storeroom supplies as an inventory item and charged expense when the storeroom item was issued from the storeroom into production. Under fresh start accounting, the Company determined the long-lived storeroom supplies principally represent critical spares which have the physical characteristics of property, plant, and equipment. As a result, new purchases of long-lived storeroom supplies will be classified as property, plant and equipment on the consolidated balance sheet and depreciated over 12 years. Upon emergence, the Company included long-lived storeroom supplies with a fair value of approximately $36 million in property, plant and equipment with a depreciable life of 7 years.

Property, plant and equipment — Property, plant and equipment was valued at fair value of $4,405 million as of June 30, 2010 based on a third party valuation. In establishing fair value for the vast majority of the Company’s property, plant and equipment, the cost approach was utilized. The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility, adjusted for depreciation as of the appraisal date as described below:

· Physical depreciation — the loss in value or usefulness attributable solely to the use of the asset and physical causes such as wear and tear and exposure to the elements.

· Functional obsolescence — the loss in value due to changes in technology, discovery of new materials and improved manufacturing processes.

· Economic obsolescence — the loss in value caused by external forces such as legislative enactments, overcapacity in the industry, low commodity pricing, changes in the supply and demand relationships in the marketplace and other market inadequacies.

The cost approach relies on management’s assumptions regarding current material and labor costs required to rebuild and repurchase significant components of the Company’s property, plant and equipment along with assumptions regarding the age and estimated useful lives of the Company’s property, plant and equipment.

For property, plant and equipment existing at June 30, 2010, the depreciable lives were revised to reflect the estimated remaining useful lives as follows:

Buildings and leasehold improvements		20 years
Papermill machines		14 years
Major converting equipment		10 – 15 years

Intangible Assets — The Company identified the following intangible assets to be valued based upon a third party valuation: (i) trade name, (ii) proprietary technology and (iii) non-compete agreements.

Trade name and proprietary technology were valued using the relief from royalty method under the income approach. Under this method, the asset value was determined by estimating the royalty income that could be generated if it was licensed to a third party in an arm’s-length transaction. The royalty income rate was selected based on consideration of several factors, including recent prevailing royalty rates used by companies in similar industries, profit margins and independent research of comparable royalty agreements, among other considerations. The Company’s trade name was valued at $56 million under this approach using a discount rate of 12% and assigned an indefinite life. The Company’s proprietary technology was valued at $15 million under this approach using a discount rate of 12% and assigned a life of 8 years.

Non-compete agreements were valued using the lost profit method under the income approach which seeks to measure the profit that would be lost if the non-compete agreement did not exist. The Company’s non-compete agreements were valued at $5 million under this approach using a 10.5% discount rate and assigned a definite life of two years.

Equity Investments — Equity investments were valued, based upon a third party valuation, at fair value of approximately $34 million as of June 30, 2010, using the guideline transaction and guideline public companies methods under the market approach. Under these approaches, valuation multiples were determined based on capital market data and market capitalization of peer companies and acquisition transactions within the industry. The step-up in fair value over the Company’s current carrying value will be amortized over 10 years.

Long-Term Debt — Long-term debt was valued at fair value using quoted market prices.

Pension and postretirement benefits — Pension and post-retirement benefits were fair valued based on plan assets and employee benefit obligations at June 30, 2010. The benefit obligations were computed using the applicable June 30, 2010 discount rate. In conjunction with fresh start accounting, the Company updated its mortality rate table assumptions which increased its employer benefit liabilities by approximately $58 million.

As a result of adopting fresh start accounting, the Company recorded goodwill of $93 million which represents the excess of reorganization value over amounts assigned to the other assets. Goodwill allocated to the Company’s Canadian operations is adjusted quarterly to record the effect of currency translation adjustments.

The adjustments presented below relate to the Company’s June 30, 2010 balance sheet. The balance sheet reorganization adjustments presented below summarize the impact of the Plan of Reorganization and the adoption of fresh start accounting as of the Effective Date.

SMURFIT-STONE CONTAINER CORPORATION

REORGANIZED CONSOLIDATED BALANCE SHEET

	June 30, 2010
(In millions)	Predecessor			Plan Effect Adjustments (1)			Fresh Start Adjustments			Successor
Assets
Current assets
Cash and cash equivalents	$	721		$	(381	)(2)	$			$	340
Restricted cash	18			(11		)(2)				7
Receivables	739									739
Receivable for alternative energy tax credits	11									11
Inventories	449						47		(12)	496
Refundable income taxes	24			7		(3)				31
Prepaid expenses and other current assets	42						5		(12)	47
Total current assets	2,004			(385		)	52			1,671
Net property, plant and equipment	2,979						1,426		(12)	4,405
Deferred income taxes	22			148		(3)	(170		)(12)
Goodwill							93		(12)	93
Intangible assets, net							77		(12)	77
Other assets	75			31		(4)	57		(12)	163
	$	5,080		$	(206	)	$	1,535		$	6,409
Liabilities and Stockholders’ Equity (Deficit)
Liabilities not subject to compromise
Current liabilities
Current maturities of long-term debt	$	1,352		$	(1,334	)(5)	$			$	18
Accounts payable	488			27		(6)				515
Accrued compensation and payroll taxes	139			34		(7)	3		(12)	176
Interest payable	12			(7		)(2)				5
Other current liabilities	141			(59		)(2)	(1		)(12)	81
Total current liabilities	2,132			(1,339		)	2			795
Long-term debt, less current maturities				1,176		(5)				1,176
Pension and postretirement benefits, net of current portion				1,179		(8)	460		(12)	1,639
Other long-term liabilities	116					(3)	24		(12)	140
Deferred income taxes							307		(12)	307
Total liabilities not subject to compromise	2,248			1,016			793			4,057
Liabilities subject to compromise	4,354			(4,354		)(9)
Total liabilities	6,602			(3,338		)	793			4,057
Stockholders’ equity
Preferred stock successor						(10)
Common stock successor						(10)
Preferred stock predecessor	104			(104		)(11)
Common stock predecessor	3			(3		)(11)
Additional paid-in capital	4,084			(1,732		)(10)(11)				2,352		(10)
Retained earnings (deficit)	(5,081		)	4,971		(11)	110		(13)
Accumulated other comprehensive income (loss)	(632		)				632		(13)
Total stockholders’ equity (deficit)	(1,522		)	3,132			742		(13)	2,352
	$	5,080		$	(206	)	$	1,535		$	6,409

Explanatory Notes

(1) Represents amounts recorded on the Effective Date for the implementation of the Plan of Reorganization, including the settlement of liabilities subject to compromise and related payments, the issuance of new debt and repayment of old debt, distribution of cash and new shares of common stock, and the cancellation of Predecessor Company’s common and preferred stock.

(2) Cash effects of the Plan of Reorganization:

Amounts borrowed under the Exit Credit Facilities	$	1,200
Less: original issue discount	(12		)
Net proceeds from borrowings	1,188
Repayment of secured Bank Credit Facilities	(1,139		)
Repayment of other secured debt	(207		)
Repayment of interest on secured debt	(7		)
Payment of derivative contract termination liabilities	(59		)
Payment of liabilities subject to compromise claims	(136		)
Payment of debt issuance costs on Exit Credit Facilities and other financing costs	(32		)
Net change in cash and cash equivalents	$	(392	)

On June 30, 2010, $11 million of restricted cash for collateralizing outstanding letters of credit was released to the Company’s operating cash funds.

(3) Represents income tax adjustments resulting from the Plan of Reorganization. Unrecognized tax benefits of $45 million were reclassified from liabilities subject to compromise to other long-term liabilities and were subsequently eliminated as part of the income tax adjustments from plan effects (See Note 11 — Income Taxes).

(4) Represents payment of debt issuance costs on the Exit Credit Facilities and other financing costs at emergence of $32 million, net of write-off of remaining deferred debt issuance costs on Predecessor secured debt of $1 million.

(5) Represents the repayment of Predecessor secured debt and borrowings under the Exit Credit Facilities.

Repayment of secured term loan debt	$	(503	)
Repayment of secured revolver debt	(636		)
Repayment of drawn letters of credit	(44		)
Repayment of Stevenson IRB	(120		)
Repayment of other secured debt	(43		)
Borrowings under Exit Credit Facilities	1,200
Original issue discount	(12		)
	$	(158	)

(6) Primarily represents accrued professional fees.

(7) Represents accrual under the Company’s 2009 long-term incentive plan and other employee compensation benefits of $19 million and the reclassification of the current portion of pension and postretirement benefits of $15 million from liabilities subject to compromise.

(8) Reinstatement of pension and postretirement obligations, net of settlement.

Reclassification from liabilities subject to compromise	$	1,306
Settlement of non-qualified pension liabilities upon emergence	(112		)
Successor pension and postretirement benefits	1,194
Less current portion	(15		)
Successor pension and postretirement benefits, net of current portion	$	1,179

(9) Represents the disposition of liabilities subject to compromise:

Liabilities subject to compromise discharged at emergence
Unsecured debt	$	(2,439	)
Accounts payable	(184		)
Interest payable	(47		)
Non-qualified pension obligations	(110		)
Executory contracts and leases and other	(196		)
	(2,976		)
Liabilities subject to compromise paid in cash or reinstated at emergence
Accounts payable	(130		)
Retiree medical obligations	(176		)
Pension obligations	(1,027		)
Unrecognized tax benefits	(45		)
	(1,378		)
	$	(4,354	)

(10) Reconciliation of enterprise value to determination of equity:

Total enterprise value		$	3,295
Plus:	Cash	347
	Expected net proceeds from sale of non-operating assets	10
Less:	Fair value of debt	(1,206		)
	Accrued emergence fees and expenses	(94		)
Common stock and additional paid-in-capital		$	2,352

(11) As a result of the Plan of Reorganization, the adjustment to retained earnings (deficit) reflects the elimination of the Predecessor Company’s preferred stock, common stock, and additional paid-in-capital, in addition to the after-tax gain due to plan effects.

Pre-tax gain due to plan effects	$	580
Tax benefit due to plan effects	200
Gain due to plan effects, net of tax	780
Elimination of Predecessor preferred stock	104
Elimination of Predecessor common stock	3
Elimination of Predecessor additional paid-in-capital	4,084
	$	4,971

(12) The following table summarizes the allocation of the reorganization value to the Company’s assets at the date of emergence as shown in the reorganized consolidated balance sheet as of June 30, 2010.

Enterprise value		$	3,295
Add:	Cash	347
	Expected net proceeds from sale of non-operating assets	10
Less:	Accrued emergence fees and expenses	(94		)
Reorganization value		3,558
Add fair value of non-debt liabilities		2,851
Less fair value of:
Property, plant and equipment		4,405
Intangibles		77
Current assets		1,671
Other non-current assets		163
		6,316
Reorganization value of assets in excess of fair value (goodwill)		$	93

Liabilities were also adjusted to fair value in the application of fresh start accounting resulting in an increase in liabilities of $793 million.

(13) The adjustments required to report assets and liabilities at fair value under fresh start accounting resulted in a gain of $742 million, which was reported in reorganization items income (expense), net in the consolidated statements of operations for the six months ended June 30, 2010. The gain includes the write-off of OCI losses of $632 million, resulting in a net impact on retained earnings (deficit) of $110 million.

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~~2010 (“~~2009~~2010 Form 10-K”) filed ~~March~~February 215, 2011 and Form 10-K/A for the year ended December 31, 2010 filed on March 29, 2011 with the Securities and Exchange Commission.

As of the Effective Date, the Company merged with and into SSCE, with SSCE being the survivor entity and renaming itself Smurfit-Stone Container Corporation, and becoming the Reorganized Smurfit-Stone. The Company has domestic and international operations.

~~Recently Adopted Accounting Standards~~4. Reclassifications

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.

Foreign Currency

Prior to emerging from bankruptcy, the Company’s functional currency for its Canadian operations was the U.S. dollar. Fluctuations in Canadian dollar monetary assets and liabilities resulted in gains or losses which were credited or charged to income. Upon emergence, the Company reviewed the primary economic indicators for its Canadian operations under the Reorganized Smurfit-Stone, including cash flow indicators, sales price indicators, sales market indicators, expense indicators, financing indicators and intercompany transactions as required by ASC 830, “Foreign Currency Matters.” Based on its analysis, including current operations and financing availability within Canada, the Company determined the functional currency for its Canadian operations to be the local currency. As a result, effective July 1, 2010, the assets and liabilities for the Canadian operations are translated at the exchange rate in effect at the balance sheet date and income and expenses are translated at average exchange rates prevailing during the year. Translation gains or losses are included within stockholders’ equity as part of OCI.

Stock-Based Compensation

Prior to emerging from bankruptcy, the Company used a lattice option pricing model to estimate the fair value of stock options. The Company elected to use the Black-Scholes valuation method for stock option grants issued during the third quarter 2010 under the Equity Incentive Plan, as it provided a better estimate of fair value because historical patterns for the Successor Company’s common stock have not yet been established, as required for the assumptions used by the lattice model.

3. Reclassifications

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

~~4. Restructuring Activities~~6

5. 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 ~~third~~first quarter of ~~2010~~2011, the Company announced the closure of two converting facilities and sold two previously closed facilities. In addition, the Company initiated a plan to reduce its selling, general and administrative costs, primarily through reductions in its workforce in these functions. The Company recorded restructuring charges of $74 million, primarily for severance and benefits and ~~reduced~~facility ~~its headcount by approximately 460 employees. The net sales of the announced converting facilities in 2010 prior to~~ closure ~~and for the year ended December 31~~costs, ~~2009~~ ~~were $48 million~~ and ~~$44~~reduced ~~million,~~its ~~respectively. The~~headcount ~~majority~~by ~~of these net sales are expected to be transferred to other operating facilities. Additional charges of~~ approximately ~~$20 million~~170 are expected to be recorded in the fourth quarter of 2010, primarily for severance and benefits related to the closure of these facilities and the reductions in the selling and administrative workforce, including charges related to the October 27, 2010 announced resignation of Steven Jemployees. ~~Klinger, the Company’s President and Chief Operating Officer, which is effective December 31, 2010.~~

~~For~~ During the ~~six~~first ~~months~~quarter ~~ended~~of ~~June 30,~~ 2010, the Company closed ~~four~~one converting ~~facilities~~ ~~and~~facility, ~~sold~~announced ~~five~~the ~~previously~~closure ~~closed facilities. As a result~~ of ~~these~~two ~~closure~~additional ~~activities~~converting facilities and ~~other~~ ~~ongoing~~sold ~~initiatives,~~four ~~the~~previously ~~Company~~closed ~~reduced its headcount by approximately 900 employees~~facilities. The Company recorded restructuring ~~charges~~income of $154 million, ~~including~~net aof an $1211 million gain related to the sale of previously closed facilities, of which $8 million resulted from the legal release of environmental liability obligations. ~~Restructuring charges included non-cash charges of $11 million related to the acceleration of depreciation for converting equipment abandoned or taken out of service.~~ The remaining charges of $167 million were primarily for severance and benefits~~, lease commitments and facility closure costs~~. The net sales of these closed converting facilities in 2010 prior to closure and for the year ended December 31, 2009 were $21 million and $97 million, respectively. The majority of these net sales are expected to be transferred to other operating facilities.

The Company recorded restructuring charges of $14 million and $38 million for the three and nine months ended September 30, 2009, respectively, which were net of a $2 million gain on the sale of previously closed facilities in the third quarter of 2009. Restructuring charges included non-cash charges of $4 million and $8 million for the three and nine months ended September 30, 2009, respectively, related to the write-down of assets, primarily property, plant and equipment, to estimated net realizable values and the acceleration of depreciation for converting equipment expected to be abandoned or taken out of service. The remaining charges were primarily for severance and benefits, including pension settlement costs of $3 million.

The following is a summary of the restructuring liabilities, including the termination of employees and liabilities for environmental and lease commitments at the closed facilities.

	Write-down of Property, Equipment and Inventory to Net Realizable Value			Severance and Benefits			Lease Commitments			Facility Closure Costs			Other		Total
	Severance and Benefits			Lease Commitments			Facility Closure Costs			Total
Balance at January 1, 2010 (Predecessor)	$			$	34		$	1		$	19		$		$	54
Balance at January 1, 2011	$	18		$	4		$	5		$	27
(Income) expense	11			7			4			5			(12	)	15
Expense	2						2			4
Payments	(11		)	~~(28~~		)	(12		)	(513		)			~~(34~~		)
Non-cash reduction	(11		)	(3		)				(8		)			(22		)
Balance at March 31, 2011	$	9		$	4		$	5		$	18
Net gain on sale of assets													12		12
Balance at June 30, 2010 (Successor)				10			4			11					25
Expense				7											7
Payments				(7		)	(1		)	(2		)			(10		)
Balance at September 30, 2010 (Successor)	$			$	10		$	3		$	9		$		$	22

~~The $3~~6. Alternative ~~million~~Fuel ~~non-cash~~Mixture ~~reduction~~Tax ~~to severance and benefits is due to the Predecessor Company reclassification of multi-employer pension plan liabilities to liabilities subject to compromise.~~Credits

5The U. ~~Alternative Energy~~S. ~~Tax~~Internal ~~Credits~~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, the Company 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. 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 $11 million refund claim during the second quarter of 2011.

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, the Company 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 the three and nine months ended September 30, 2009, the Company recorded other operating income of $179 million and $455 million, respectively, 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 $11 million refund claim adjustment in the fourth quarter of 2010.7

67. ~~(Gain) Loss~~Guarantees onand ~~Disposal of Assets~~Commitments

~~In September 2009~~The Company has certain wood chip processing contracts extending from 2012 through 2018 with minimum purchase commitments. As part of the agreements, the Company ~~completed~~guarantees the ~~sale~~third ofparty ~~its~~contractors’ ~~Canadian timberlands~~debt outstanding and has a security interest in the chipping equipment. ~~The~~At ~~net~~March 31, ~~proceeds~~2011, ~~from~~ the ~~sale~~ maximum potential amount of future payments related to these guarantees was approximately $2820 million, which decreases ratably over the life of the contracts. In the event the guarantees on these contracts were ~~used~~called, toproceeds ~~prepay~~from athe ~~portion~~liquidation of the ~~Canadian DIP~~chipping ~~Term~~equipment ~~Loan. The~~would be based on current market conditions and the Company ~~recorded~~may ~~a pretax~~not ~~loss~~recover ofin $2full ~~million~~the guarantee payments made.

218. Long-term Debt

7The Company’s credit facilities include a $1,200 million term loan commitment (the “Term Loan Facility”) and an asset-based revolving credit facility (the “ABL Revolving Facility”) with aggregate commitments of $650 million (including a $100 million Canadian Tranche). ~~Accounts Receivable~~ The ~~Securitization~~ABL ~~Programs~~Revolving Facility includes a $150 million sub-limit for letters of credit.

~~On January~~As of March 2831, ~~2009~~2011, inthe ~~conjunction~~Company ~~with~~had ~~the~~borrowings ~~filing~~ of $1,168 million under the ~~Chapter~~Term ~~11 Petition~~Loan Facility and ~~the~~no ~~Canadian~~borrowings ~~Petition,~~under the ~~accounts~~ABL ~~receivable~~Revolving ~~securitization programs~~Facility. As ~~were~~a ~~terminated~~result ~~and~~of ~~all~~Excess ~~outstanding~~Cash ~~receivables~~Flows, ~~previously~~as ~~sold~~defined toin the ~~non-consolidated~~ ~~financing~~Term ~~entities~~Loan ~~were~~Facility, ~~repurchased~~for ~~with~~the ~~proceeds~~six ~~from borrowings~~months ~~under~~ended December 31, 2010, the ~~DIP~~Company ~~Credit~~was ~~Agreement~~required ~~(See~~to ~~Note~~repay 1)$23 million in March 2011 on the Term Loan Facility. ~~The~~As ~~repurchase~~ of ~~receivables~~March 31, of2011, ~~$385~~the ~~million was~~Company’s ~~included~~borrowing inbase under the ~~cash~~ABL ~~flows~~Revolving ~~from~~Facility ~~financing~~was ~~activities~~$650 inmillion and the ~~consolidated statement~~amount ofavailable ~~cash~~for ~~flows~~borrowings ~~for~~after ~~the~~considering ~~nine~~outstanding ~~months~~letters ~~ended~~of ~~September 30,~~credit ~~2009~~was $572 million.

~~8. Guarantees~~ The credit facilities contain affirmative and ~~Commitments~~negative covenants that impose restrictions on the Company’s financial and business operations and those of certain of the Company’s subsidiaries, including the Company’s ability to incur indebtedness, incur liens, make investments, sell assets, pay dividends or make acquisitions. The credit facilities contain events of default customary for financings of this type. At March 31, 2011, the Company was in compliance with its debt covenants.

~~The Company has certain wood chip processing contracts extending from 2012 through 2018 with minimum purchase commitments.~~ As ~~part~~ of ~~the~~March 31, ~~agreements~~2011, the Company ~~guarantees~~also ~~the~~had ~~third~~available ~~party contractors’~~unrestricted ~~debt~~cash ~~outstanding~~ and ~~has~~cash aequivalents ~~security interest in the chipping equipment. At September 30, 2010, the maximum potential amount~~ of ~~future payments related to these guarantees was approximately~~ $23446 million, ~~which~~primarily ~~decreases~~invested ~~ratably~~in ~~over~~money ~~the~~market ~~life~~funds ofat ~~the contracts. In~~a ~~the~~variable ~~event~~interest ~~the~~rate ~~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~~0.13%.

9. 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 benefit 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.

AtThe ~~June 30,~~components ~~2010, the qualified defined benefit plans, which were assumed under the Plan~~ of ~~Reorganization,~~net ~~were~~pension ~~underfunded~~expense ~~by approximately $1,450 million based on actual asset values and the discount rates effective on June 30, 2010. The weighted average discount rates used at June 30, 2010~~ for the ~~U.S.~~ ~~and Canadian qualified~~ defined benefit ~~plans were 5.31% and 5.23%, respectively. The Company currently estimates that its minimum required cash contributions under the U.S. and Canadian qualified~~ pension plans ~~will be approximately $100 million in 2010, of which $31 million~~ and ~~$12 million were paid during~~ the ~~three~~components ~~months ended~~of ~~September 30, 2010 and six months ended June 30, 2010, respectively; and an additional $57 million, which is expected to be paid in~~ the ~~fourth~~postretirement ~~quarter~~benefit ofcosts ~~2010. Contributions~~ are ~~expected~~as to be in the range of $235 million to $305 million annually in 2011 through 2015. Projected pension contributions assume the Company elects funding relief under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, enacted in June 2010. 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.follows:

	Defined Benefit Pension Plans						Postretirement Plans
	Successor			Predecessor			Successor		Predecessor
	Three Months Ended March 31,			Three Months Ended March 31,			Three Months Ended March 31,		Three Months Ended March 31,
	2011			2010			2011		2010
Service cost	$	9		$	7		$	1	$	1
Interest cost	50			51			2		2
Expected return on plan assets	(49		)	(51		)
Amortization of prior service cost (benefit)				1					(1		)
Amortization of net loss				23
Multi-employer plans	2			1
Net periodic benefit cost	$	12		$	32		$	3	$	2

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

	Successor			Predecessor
Defined Benefit Plans	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009			Six Months Ended June 30, 2010			Nine Months Ended September 30, 2009
Service cost	$	10		$	8		$	15		$	19
Interest cost	50			52			106			153
Expected return on plan assets	(46		)	(51		)	(105		)	(150		)
Amortization of prior service cost				1			1			2
Amortization of net loss				22			48			64
Special termination benefits charge										9
Settlements				3			1			3
Multi-employer plans				1			3			3
Multi-employer plan adjustments	4						3
Net periodic benefit cost	$	18		$	36		$	72		$	103

	Successor		Predecessor
Post Retirement Plans	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009			Six Months Ended June 30, 2010			Nine Months Ended September 30, 2009
Service cost	$	1	$	1		$	1		$	2
Interest cost	2		2			5			7
Amortization of prior service benefit			(1		)	(2		)	(2		)
Amortization of net gain			(1		)	(1		)	(3		)
Net periodic benefit cost	$	3	$	1		$	3		$	4

The 2009 special termination benefits charge is due to funding obligations related to certain non-qualified pension plans and is included in reorganization items in the consolidated statements of operations (See Note 1).

The 2010 and 2009 settlement losses are related to closed facilities and are included as part of restructuring charges (See Note 4).

The 2010 multi-employer plan adjustments for the three months ended September 30, 2010, include a $4 million charge related to the withdrawal from a multi-employer pension plan through a collective bargaining agreement. The 2010 multi-employer plan adjustments for the six months ended June 30, 2010, include a $3 million charge related to settlements of various multi-employer pension plans in connection with the Company’s bankruptcy proceedings and is included in reorganization items in the consolidated statements of operations (See Note 1).

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 has analyzed this legislation to determine the impact of the required plan standard changes on its employee healthcare plans and the resulting costs. The Company does not expect this legislation to have a material impact on the Company’s consolidated financial statements through 2013.

10. Derivative Instruments and Hedging Activities

~~Successor~~During the three months ended March 31, 2011, the Company entered into foreign currency exchange derivative contracts to minimize the exposure to currency exchange rate fluctuations on a $255 million Canadian dollar denominated inter-company note established upon emergence between a U.S. subsidiary and a Canadian subsidiary, whereby the U.S subsidiary is the lender. The inter-company note matures on June 29, 2015 and the interest is payable quarterly. The derivative contracts are monthly or quarterly instruments with a notional amount equal to the inter-company note principal, plus accrued interest. The derivative contracts are marked-to-market through earnings on a monthly or quarterly basis.

~~During~~ For the three months ended ~~September~~March 3031, ~~2010~~2011, the Company’s ~~entered~~U.S ~~into foreign~~subsidiary ~~currency~~recorded ~~exchange derivative contracts to minimize the exposure to currency exchange rate fluctuations on~~ a $~~255~~4 million ~~Canadian~~foreign ~~dollar denominated~~currency ~~inter-company~~gain ~~note~~(net ~~established~~of ~~upon~~tax) ~~emergence~~in ~~between~~other, anet ~~U.S. subsidiary~~in ~~and~~the aconsolidated ~~Canadian~~statements ~~subsidiary,~~of ~~whereby~~operations ~~the~~related ~~U.S~~to ~~subsidiary~~the isrevaluation of the ~~lender. The~~ inter-company note ~~matures on June 29, 2015 and the interest is payable quarterly~~. The ~~derivative~~Company ~~contracts~~recorded ~~are~~a ~~monthly~~$4 ~~or quarterly~~million ~~instruments~~loss ~~with~~(net aof ~~notional~~tax) ~~amount~~in ~~equal~~other, tonet in the ~~inter-company~~consolidated ~~note principal,~~statements ~~plus~~of ~~accrued~~operations ~~interest. The derivative~~on ~~contracts~~the ~~are~~settlement ~~marked-to-market~~of ~~through~~the ~~earnings~~derivative ~~on a quarterly basis~~contracts.

For the three months ended September 30, 2010, the Company’s U.S subsidiary recorded a $4 million foreign currency gain (net of tax) in other, net in the consolidated statements of operations related to the revaluation of the inter-company note.9

For the three months ended September 30, 2010, the Company recorded a $4 million loss (net of tax) in other, net in the consolidated statements of operations on the settlement of the derivative contracts.

For the three months ended September 30, 2010, the Company recorded an immaterial amount in other, net in the consolidated statements of operations related to the change in fair value of the derivative contracts.

Predecessor Company

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 $59 million. 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 during the period when the underlying transaction was recognized or when the underlying transaction was no longer expected to occur. As of June 30, 2010, all amounts in OCI were recognized through earnings. On June 30, 2010, the derivative contract termination liabilities of $59 million were paid in connection with the Company’s emergence from its Chapter 11 and CCAA bankruptcy proceedings (See Note 1 — Fresh Start Accounting).

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 derivative instruments and hedging activities for all periods presented below relate to the Predecessor Company.

Commodity Derivative Instruments

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 six months ended June 30, 2010, the Company reclassified an immaterial amount from OCI to cost of goods sold when the hedged items were recognized. For the three and nine months ended September 30, 2009, the Company reclassified a $5 million loss (net of tax) and a $24 million loss (net of tax), respectively, from OCI to cost of goods sold when the hedged items were recognized.

For the nine months ended September 30, 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 nine months ended September 30, 2009, the Company recorded a $3 million loss (net of tax) in cost of goods sold on commodity derivative instruments, settled prior to the Petition Date, not qualifying for hedge accounting.

Foreign Currency Derivative Instruments

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 nine months ended September 30, 2009, the Company reclassified a $4 million loss (net of tax) from OCI to cost of goods sold when the hedged items were recognized. Additionally, the Company reclassified the remaining foreign currency derivative instruments from OCI to cost of goods sold since the underlying transactions were no longer expected to occur, resulting in an additional loss of $2 million (net of tax).

Interest Rate Swap Contracts

The Company used interest rate swap contracts to manage interest rate exposure on $300 million of the Tranche B and Tranche C floating rate bank term debt which was paid on June 30, 2010 in connection with the Company’s emergence from Chapter 11 and CCAA bankruptcy proceedings. The accounting for the cash flow impact of the swap contracts was recorded as an adjustment to interest expense each period.

For the six months ended June 30, 2010, the Company reclassified a $1 million loss (net of tax) from OCI to interest expense when the hedged items were recognized. For the three and nine months ended September 30, 2009, the Company reclassified a $1 million loss (net of tax) and a $3 million loss (net of tax), respectively, from OCI to interest expense when the hedged items were recognized.

11. Income Taxes

~~Successor~~On March 17, 2011, the Company received Internal Revenue Service approval to be recognized as a registered cellulosic biofuel producer. As a result, the Company plans to amend its 2009 tax return to claim a federal income tax credit for cellulosic biofuel production. This relates to the production of fuel that did not otherwise qualify for the alternative fuel mixture tax credit. Under the current law, this tax credit can be utilized to offset income taxes through December 31, 2015. For the three months ended March 31, 2011, the Company recorded a benefit for income taxes of $14 million related to the cellulosic biofuel production income tax credit.

~~The Company~~For ~~recorded~~the anthree ~~income~~months ~~tax~~ended ~~provision~~March 31, of2011, ~~$49~~the ~~million~~Company recorded a provision for ~~the~~income ~~three~~taxes ~~months ended~~of ~~September 30,~~$11 ~~2010~~million. The provision for income taxes differed from the amount computed by applying the statutory U.S. federal income tax rate to income before income taxes ~~due~~ primarily due to ~~adjustments~~the ~~resulting~~cellulosic ~~from~~biofuel ~~reconciling~~production ~~filed~~income tax ~~returns to recorded tax provision~~credit, state income taxes, lower effective tax rates in certain foreign jurisdictions and the ~~effects~~effect of ~~foreign~~other ~~tax rates~~permanent differences.

~~Predecessor~~As ~~Company~~of March 31, 2011, the amount of gross unrecognized tax benefits was approximately $295 million, exclusive of interest and penalties. Of this balance, approximately $283 million of net unrecognized tax benefits, if recognized, would impact the effective tax rate.

~~The Company recorded a net tax benefit of $199 million for the six months ended June 30, 2010~~12. ~~This~~ Comprehensive ~~included~~Income ~~$200 million of net benefit related to the effects of the Plan of Reorganization, which included adjustments for valuation allowance~~ (~~$427 million benefit~~Loss)~~, unrecognized tax benefits ($39 million benefit) and cancellation of indebtedness and other plan effects ($266 million provision).~~

~~Certain debt~~Comprehensive obligations of the Company were discharged upon emergence from bankruptcy. Discharge of a debt obligation for an amount less than the adjusted issue price generally creates cancellation of indebtedness income (~~“CODI”~~loss), ~~which must be included in taxable income. However, CODI~~ is ~~excluded~~as from taxable income for a taxpayer that is a debtor in a reorganization case if the discharge is granted by the court or pursuant to a plan of reorganization approved by the court. The Plan of Reorganization filed follows:

	Successor		Predecessor
	Three Months Ended March 31,		Three Months Ended March 31,
	2011		2010
Net income (loss)	$	54	$	(89	)
Other comprehensive income (loss), net of tax:
Net hedging loss reclassified into earnings			1
Net deferred employee benefit plan expense reclassified into earnings			23
Foreign currency translation adjustment	4		2
Comprehensive income (loss)	$	58	$	(63	)

by the Company enabled it and its debtor subsidiaries to qualify for this bankruptcy exclusion rule. Based upon current projections, the CODI triggered by discharge of debt under the Plan of Reorganization will not create current taxable income, but will reduce the Company’s net operating losses (“NOLs”) for the year of discharge and net operating loss carryforwards. None of the Company’s other U.S. income tax attributes are expected to be reduced.

Pursuant to the Plan of Reorganization, the assets of all Canadian subsidiaries were sold to a new wholly-owned Canadian subsidiary for fair value. All pre-emergence Canadian subsidiaries will be liquidated in accordance with the Plan of Reorganization and all pre-emergence Canadian income tax attributes will be eliminated following their dissolution.

Due to the effects of the Plan of Reorganization, the Company concluded it is more likely than not that the majority of deferred income tax assets will be realized. Management considered the reversal of deferred tax liabilities in making this assessment. As a result, the Company recognized an income tax benefit for release of pre-emergence valuation allowance on its net deferred tax assets in the U.S. and Canada. At September 30, 2010, a valuation allowance remains in place related to certain state NOLs.

As previously reported, the Company entered into an agreement with the Canada Revenue Agency and other provincial tax authorities that took effect upon the Company’s emergence from bankruptcy. This agreement settled the open Canadian income tax matters through January 26, 2009. As a result of this agreement, the Company reported a $39 million net income tax benefit for the six months ended June 30, 2010 related to the final settlement of the Canadian tax claims and the release of the previously accrued unrecognized tax benefits related to the Canadian audit.

Based on the Company’s current tax position that the alternative fuel mixture credits are not taxable, the Company increased the tax value of its federal NOL carryforwards by $254 million during the six months ended June 30, 2010. A reserve of $254 million was recorded related to this unrecognized tax benefit.

Deferred Income Tax Assets and Liabilities

At June 30, 2010, the Company had federal NOL carryforwards net of unrecognized tax benefits of $722 million, with a tax value of $253 million. The Company had NOL carryforwards for state purposes with a tax value of $61 million. Additionally, the Company had $68 million of alternative minimum tax credit carryforwards and $6 million of other federal and state tax credit carryforwards available.

As a result of the issuance of new common shares upon emergence from bankruptcy, the Company realized a change of ownership for purposes of Section 382 of the U.S. Internal Revenue Code, which can impose annual limitations on utilization of NOLs and tax credits. The Company does not expect the provisions of Section 382 to significantly limit its ability to utilize NOLs or tax credits in the carryforward periods.

12. Comprehensive Income

Comprehensive income is as follows:

	Successor		Predecessor
	Three Months Ended September 30,		Three Months Ended September 30,		Six Months Ended June 30,		Nine Months Ended September 30,
	2010		2009		2010		2009
Net income	$	65	$	68	$	1,324	$	12
Other comprehensive income, net of tax:
Net changes in fair value of hedging instruments							(1		)
Net hedging loss reclassified into earnings			6		1		33
Net deferred employee benefit plan expense reclassified into earnings			11		46		35
Foreign currency translation adjustment	4						1
Fresh start accounting adjustments					632
Comprehensive income	$	69	$	85	$	2,003	$	80

13. Earnings Per Share

~~As discussed in Note 1, “Bankruptcy Proceedings”,~~ Predecessor Company preferred and common stock were cancelled as a result of the Company’s emergence from Chapter 11 and CCAA bankruptcy proceedings on the Effective Date. The Successor Company common stock was issued on June 30, 2010. As such, the earnings per share information for the Predecessor Company is not meaningful to shareholders of the Successor Company’s common shares, or to potential investors in such common shares.

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

	Successor		Predecessor
	Three Months Ended September 30,		Three Months Ended September 30,			Six Months Ended June 30,			Nine Months Ended September 30,
	Three Months Ended March 31,		Three Months Ended March 31,
	2010		2009			2010			2009
	2011		2010
Numerator:
Net income	$	65	$	68		$	1,324		$	12
Income (loss) from continuing operations	$	54	$	(89	)
Preferred stock dividends and accretion			(32		)	(4		)	(9		)
Net income attributable to common stockholders	65		65			1,320			3
Net income (loss) from continuing operations attributable to common stockholders before allocation of earnings to participating securities	54		(91		)
Effect of dilutive securities: Preferred stock dividends						4
Earnings allocated to participating securities
Net income attributable to common stockholders and assumed conversion	$	65	$	65		$	1,324		$	3
Net income (loss) from continuing operations attributable to common stockholders and assumed conversion	$	54	$	(91	)
Denominator:
Denominator for basic earnings per share - weighted average shares	100		257			258			257
Denominator for basic earnings per share — weighted average shares	100		258
Effect of dilutive securities: Preferred Stock						3
Effect of dilutive securities: employee stock options	1
Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversion	100		257			261			257
Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversion	101		258
Basic earnings per share	$	0.65	$	0.25		$	5.12		$	0.01
Basic earnings per share from continuing operations	$	0.54	$	(0.35	)
Diluted earnings per share	$	0.65	$	0.25		$	5.07		$	0.01
Diluted earnings per share from continuing operations	$	0.54	$	(0.35	)

Total weighted average shares of 100 million for the Successor Company include reserved, but unissued shares of approximately 95.8 million at March 31, 2011. These reserved shares will be distributed as claims are liquidated or resolved in accordance with the Plan of Reorganization and Confirmation Order.

~~Shares of~~In ~~SSCC~~accordance ~~preferred~~with ~~stock~~ASC ~~convertible~~260, ~~into~~“Earnings ~~three~~Per ~~million~~Share”, ~~shares~~the ofCompany ~~common~~uses ~~stock with~~the two-class method to compute basic and diluted earnings per share. The two-class method is an earnings ~~effect~~allocation formula that determines earnings per share for each class of $3common ~~million~~stock and $9participating ~~million~~security ~~were~~according ~~excluded~~to ~~from~~dividends ~~the Predecessor~~declared ~~Company~~(or ~~diluted~~accumulated) and participation rights in undistributed earnings. The ~~per~~Successor ~~share~~Company’s ~~computations~~unvested ~~for~~RSUs are considered participating securities because they entitle holders to receive nonforfeitable dividends during the ~~three~~vesting ~~and nine~~term. For the three months ended ~~September~~March 3031, ~~2009~~2011, ~~because~~the ~~they~~earnings allocated to participating securities were ~~antidilutive~~immaterial.

~~Employee~~ Convertible preferred stock to acquire three million shares of common stock with an effect of $2 million on net income (loss) from continuing operations attributable to common stockholders for the three months ended March 31, 2010 is excluded from the Predecessor Company diluted earnings per share computations because they were antidilutive. Predecessor Company employee stock options and non-vested ~~restricted~~RSUs ~~stock~~ were excluded from the diluted earnings per share calculations for ~~all~~the ~~periods~~three ~~presented~~months ended March 31, 2010 because they were antidilutive.

ASC 260, “Earnings Per Share” (“ASC 260”), addresses whether instruments granted in share-based payment awards that entitle their holders to receive nonforfeitable dividends or dividend equivalents before vesting should be considered participating securities, and as a result, included in the earnings allocation in computing earnings per share under the “two-class method.” The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In accordance with ASC 260, the Successor Company’s unvested RSU’s are considered participating securities because they entitle holders to receive nonforfeitable dividends during the vesting term. In applying the two-class method, undistributed earnings are allocated between common shares and unvested RSU’s. ASC 260 did not have a material impact on the Company’s earnings per share calculation for the three months ended September 30, 2010.

14. 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 9) and~~ the Company’s residual interest in ~~the~~its Timber Note Holdings (“TNH”) investment.

~~As discussed~~Fair invalue ~~Note~~is 1,defined ~~“Bankruptcy~~as ~~Proceedings~~the —price ~~Fresh~~that ~~Start~~would ~~Accounting”,~~be ~~all~~received ~~of the~~to ~~Company’s~~sell ~~assets~~an ~~and~~asset ~~liabilities~~or ~~were~~paid ~~fair~~to ~~valued~~transfer asa ofliability ~~June 30, 2010~~ in ~~connection~~an ~~with~~orderly ~~the~~transaction ~~Company’s~~between ~~adoption~~market ofparticipants ~~fresh~~at ~~start~~the ~~accounting~~measurement date. ~~The~~In ~~gains~~determining ~~and losses related to these~~ fair value, ~~adjustments were recorded in~~ the ~~statements of operations of the Predecessor Company.~~

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:11

Company uses various valuation approaches, including market, income and/or cost approaches. ASC 820, “Fair Value Measurements and Disclosures”, 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 material 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.

	Successor
	March 31, 2011
	September 30, 2010
	Level 1	Level 2	Level 3		Total
Residual interest in TNH investment	$	$	$	21	$	21

The following table presents the changes in Level 3 assets (liabilities) measured at fair value on a recurring basis for the three months ended ~~September~~March 3031, ~~2010~~ ~~and the six months ended June 30, 2010:~~2011.

	Residual Interest in TNH Investment
Balance at January 1, 2010 (Predecessor)	$	36
Balance at January 1, 2011	$	21
Dividend received	~~(15~~		)
Balance at March 31, 2010 (Predecessor)	21
Realized gains
Realized gains (losses)
Balance at March 31, 2011	$	21
Balance at June 30, 2010 (Successor)	21
Realized gains (losses)
Balance at September 30, 2010 (Successor)	$	21

Dividends received and realized gains were immaterial for the three months ended March 31, 2011.

Financial Instruments Not Measured At Fair Value

~~Some~~Certain 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 carrying amount of cost method investments of $12 million, included in other assets in the consolidated balance sheet at March 31, 2011, approximates fair value.

Prior to emergence, the Predecessor Company’s borrowings were recorded at historical amounts. On the Effective Date, the Successor Company’s debt was adjusted to fair value of $1,194 million, net of original issue discount of $12 million, using quoted market prices which is consistent with par value (Level 1) (See Note 1, “Bankruptcy Proceedings — Fresh Start Accounting”). At September 30, 2010, the carrying value and fair value of the Company’s borrowings were $1,192 million and $1,201 million, respectively.

Prior to emergence, the Predecessor Company’s borrowings were recorded at historical amounts. On the Effective Date, the Successor Company’s debt was adjusted to fair value of $1,194 million, net of original issue discount of $12 million, using quoted market prices which is consistent with par value (Level 1). The fair value 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, 2011, the carrying value and fair value of the Company’s borrowings were $1,169 million and $1,171 million, respectively.

15. 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 ~~faced~~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 ~~faced~~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. The Company matters relating to the third party PRP sites and certain formerly owned facilities have been or will be satisfied ~~as unsecured~~ claims in the Company’s bankruptcy proceedings. As of ~~September~~March 3031, ~~2010~~ 2011, the Company had approximately $128 million reserved for environmental liabilities, of which $54 million is included in other long-term liabilities and $74 million in other current liabilities in the consolidated balance sheets. The Company believes the liability for these matters was adequately reserved at ~~September 30~~March 31, ~~2010~~2011.

30In May 2009, a lawsuit was filed in the United States District Court for the Northern District of Illinois against four individual committee members of the Administrative Committee (“Administrative Committee”) of the Company’s savings plans (the “Savings Plans”) and Patrick Moore, the Company’s Chief Executive Officer (together, the “Defendants”). During the first quarter of 2010, two additional Employee Retirement Income Security Act (“ERISA”) class action lawsuits were filed in the United States District Court for the Western District of Missouri and one in the United States District Court for the District of Delaware. The defendants in these cases are individual committee members of the Administrative Committee, several other of the Company’s current and former executives and individual members of the Predecessor Company’s Board of Directors. The suits were consolidated into one matter in January 2011 in the Northern District of Illinois. The consolidated complaint alleges certain ERISA violations between January 1, 2008 and January 26, 2009. The plaintiffs 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 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. During April 2011, the parties reached an agreement in principle to settle the case. The Company believes the liability for this matter was adequately reserved at March 31, 2011.

In ~~May~~September ~~2009~~2010, afour ~~lawsuit was~~putative class action complaints (the “Complaints”) were filed in the United States District Court for the Northern District of Illinois against the ~~four~~Company ~~individual~~and ~~committee~~several ~~members~~other ofpaper ~~the Administrative Committee (“Administrative Committee”) of the Company’s savings plans~~ and ~~Patrick~~ ~~Moore,~~packaging ~~the~~companies ~~Company’s~~(collectively ~~Chief~~referred ~~Executive~~to ~~Officer~~as ~~(together,~~ the “Class Action Defendants”). The ~~suit~~Complaints ~~alleges~~allege ~~violations~~that of the ~~Employee Retirement~~Company ~~Income~~and ~~Security~~the ~~Act~~Class Action ~~(“ERISA”)~~Defendants ~~(the~~engaged ~~“2009~~in ~~ERISA~~anti-competitive ~~Case”)~~activities ~~between January 2008~~ and ~~the~~violation ~~date~~of itantitrust ~~was~~laws ~~filed. The plaintiffs~~by reaching agreements in ~~the~~restraint ~~2009~~of ~~ERISA~~trade ~~Case~~that ~~brought~~affected the ~~complaint~~manufacture, onsale ~~behalf of themselves~~ and apricing ~~class~~ of ~~similarly~~corrugated ~~situated~~products. The ~~participants~~Complaints ~~and~~seek ~~beneficiaries~~an ofunspecified ~~four~~amount of ~~the Company’s~~damages ~~savings~~arising ~~plans~~from (the ~~“Savings~~sale ~~Plans”). The~~of ~~plaintiffs~~corrugated ~~assert~~products ~~that~~from 2005 to the ~~Defendants~~date ~~breached~~the ~~their~~lawsuit ~~fiduciary duties~~was tofiled. A ~~the~~consolidated ~~Savings~~complaint ~~Plans’~~was ~~participants~~filed ~~and~~on ~~beneficiaries~~November 8, 2010 by ~~allegedly~~the ~~making imprudent~~Complainants ~~investments~~which ~~with~~contains ~~the~~allegations ~~Savings~~that ~~Plans~~limit the Company’s ~~assets,~~liability ~~making~~to ~~misrepresentations and~~conduct ~~failing~~that arose subsequent to ~~disclose~~the ~~material~~bankruptcy ~~adverse~~Effective ~~facts~~Date. The ~~concerning~~Class Action ~~the~~Defendants ~~Company’s business~~filed ~~conditions,~~motions ~~debt~~to ~~management~~dismiss ~~and~~the ~~viability~~Complaints, ~~and~~which ~~not~~were ~~taking~~denied ~~appropriate action~~by tothe ~~protect~~Court on April 8, 2011. Given the ~~Savings~~limited ~~Plans’~~time ~~assets. Even~~period ~~though~~for potential liability, the Company isbelieves ~~not~~the aresolution ~~named~~of ~~defendant~~these inmatters ~~the~~will ~~2009~~not ~~ERISA~~have ~~Case, management~~a ~~believes~~material ~~that~~adverse ~~any~~effect ~~indemnification~~on ~~obligations~~its toconsolidated ~~the~~financial ~~Defendants would~~condition, beresults ~~covered~~of byoperations ~~applicable~~or ~~insurance~~cash flows.

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 one in the United States District Court for the District of Delaware. 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 the Predecessor Company 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 continues to 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 and any of the Company’s indemnification obligations would be covered by applicable insurance.13

~~The~~ Three complaints on behalf of the same putative class of the Company’s isstockholders ahave ~~defendant~~been filed in athe ~~number~~Circuit ofCourt ~~other~~for ~~lawsuits~~Cook County, Illinois challenging the Merger Agreement: (i) Roseman v. Smurfit-Stone Container Corp.; (ii) Findley v. Smurfit-Stone Container Corp.; and ~~claims~~(iii) Czech ~~arising~~v. ~~out~~Smurfit-Stone Container Corp. (collectively, the “Illinois-Cook County Complaints”). On March 4, 2011, the plaintiffs in the consolidated action filed an amended complaint which names as defendants the Company, Rock-Tenn and the individual members of the ~~conduct~~Company’s Board of ~~its~~Directors ~~business~~(the “Merger Defendants”). ~~All litigation~~The amended complaint alleges, among other things, that ~~arose~~the ~~out~~consideration ofagreed ~~pre-petition~~to ~~conduct~~in orthe ~~acts~~Merger ~~was~~Agreement ~~subject~~is inadequate and unfair to the ~~automatic~~ ~~stay~~Company’s ~~provision~~stockholders, ofthat the ~~bankruptcy~~February 24, ~~laws~~2011 ~~and~~preliminary ~~any~~joint ~~recovery~~proxy bystatement/prospectus ~~plaintiffs in~~contained ~~those~~misleading ~~matters~~or ~~was~~inadequate ~~paid~~disclosures ~~consistent~~regarding ~~with~~the ~~all~~proposed ~~other~~merger, ~~general~~that ~~unsecured~~the ~~claims~~individual defendants breached their fiduciary duties in approving the ~~bankruptcy~~Merger Agreement and that those breaches were aided and abetted by Rock-Tenn and the Company. AsThe aamended ~~result~~complaint seeks equitable relief, ~~the~~including ~~Company believes~~an ~~that~~injunction ~~these~~prohibiting ~~matters~~consummation ~~will~~of ~~not~~the ~~have~~Merger aAgreement. On ~~material~~April 21, ~~adverse~~2011, ~~effect~~the onCourt ~~its~~ stayed this consolidated ~~financial~~matter ~~condition,~~pending ~~results~~resolution of ~~operations~~the Delaware plaintiffs’ motion for preliminary injunction or ~~cash~~until ~~flows~~further order of the Court.

On February 17, 2011, a putative class action complaint asserting similar claims was filed against the same defendants and a Rock-Tenn merger subsidiary, in the United States District Court for the Northern District of Illinois under the caption of Dabrowski v. Smurfit-Stone Container Corp. (the “Illinois-Northern District Complaint”). On April 21, 2011, the plaintiff filed an amended complaint alleging, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to the Company’s stockholders, that the Company and the individual defendants breached their fiduciary duties in approving the Merger Agreement and that those breaches were aided and abetted by Rock-Tenn and its merger subsidiary. The plaintiff also alleges that the March 31, 2011 amended joint proxy statement/prospectus contained misleading or inadequate disclosures constituting violations of Section 14(a) of the Securities Exchange Act of 1934. The plaintiff seeks equitable relief, including an injunction prohibiting consummation of the Merger Agreement.

Three complaints on behalf of the same putative class of the Company’s stockholders have been filed in the Delaware Court of Chancery challenging the Merger Agreement: (i) Marks v. Smurfit-Stone Container Corp.; (ii) Spencer v. Smurfit-Stone Container Corp.; and (iii) Gould v. Smurfit-Stone Container Corp. On March 24, 2011, these cases were consolidated (the “Delaware Complaints”). The plaintiffs allege, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to the Company’s stockholders, that the February 24, 2011 preliminary joint proxy statement/prospectus contained misleading or inadequate disclosures regarding the proposed merger, that the individual defendants breached their fiduciary duties in approving the Merger Agreement and that those breaches were aided and abetted by Rock-Tenn and its merger subsidiary. On March 24, 2011, the plaintiffs moved for class certification. The court has set a schedule for expedited proceedings in the consolidated matter, including expedited discovery, and has scheduled a hearing on May 18, 2011 for the plaintiffs’ anticipated motion for preliminary injunction.

The Company believes the Illinois-Cook County Complaints, Illinois-Northern District Complaint and Delaware Complaints are without merit and will vigorously defend against the allegations.

All litigation that arose or may arise out of pre-petition or pre-discharge conduct or acts is subject to the Bankruptcy Discharge Order and is either resolved consistent with all other general unsecured claims in the bankruptcy or subject to dismissal based on failure to properly file a claim. 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.

The Company is a defendant in a number of lawsuits and claims arising out of the conduct of its business. While the ultimate results of such suits or other proceedings against the Company cannot be predicted with certainty, the management of the Company believes the resolution of 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~~2010 (~~2009~~“2010 Form 10-K”) filed February 15, 2011 and Form 10-K/A for the year ended December 31, 2010 (“2010 Form 10-K/A) filed March 29, 2011 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.

GENERAL

Smurfit-Stone Container Corporation (“SSCC” or the “Company”), incorporated in Delaware in ~~1989~~1987, was a holding company with no business operations of its own. SSCC conducted its business operations through its wholly-owned subsidiary, Smurfit-Stone Container Enterprises, Inc. (“SSCE”), a Delaware corporation. On June 30, 2010 (“Effective Date”), SSCC emerged from its Chapter 11 and Companies’ Creditors Arrangement Act (“CCAA”) bankruptcy proceedings. As of the Effective Date and pursuant to the Plan of Reorganization (as hereafter defined), the Company merged with and into SSCE. SSCE changed its name to Smurfit-Stone Container Corporation and became the Reorganized Smurfit-Stone Container Corporation (“Reorganized Smurfit-Stone”).

~~RECENTLY ADOPTED~~ROCK-TENN ~~ACCOUNTING~~MERGER ~~STANDARDS~~AGREEMENT

~~Effective~~ On January 123, ~~2010~~2011, ~~we adopted~~ the ~~amendments~~Company toand ~~Accounting~~Rock-Tenn ~~Standards Codification~~Company (~~ASC~~“Rock-Tenn”) ~~860,~~entered ~~“Transfers~~into an Agreement and ~~Servicing”~~Plan of Merger (~~ASC~~the ~~860~~“Merger Agreement”)~~. The~~, ~~amendments~~pursuant ~~removed~~to which the ~~concept~~Company ofwill merge with and into a ~~qualifying~~ ~~special-purpose~~subsidiary ~~entity~~of ~~and~~Rock-Tenn (the ~~related~~“Merger”). This ~~impact~~Merger, onunanimously ~~consolidation, thereby~~approved ~~potentially~~by ~~requiring~~the ~~consolidation~~Boards of ~~such~~Directors ~~special-purpose~~of ~~entities previously~~both ~~excluded~~companies, ~~from~~will ~~the~~create ~~consolidated~~a ~~financial~~leader ~~statements. The~~in ~~amendments~~the toNorth ~~ASC~~American ~~860~~paperboard ~~did~~packaging ~~not~~market ~~impact~~with ~~our consolidated~~combined ~~financial~~revenues ~~statements~~of approximately $9 billion.

~~Effective January 1,~~For ~~2010,~~each weshare ~~adopted~~of ~~the~~our ~~amendments~~common tostock, ~~ASC~~our ~~820,~~stockholders ~~“Fair~~will ~~Value Measurements~~be ~~and~~entitled ~~Disclosures”~~to ~~(ASC~~receive ~~820)~~0. ~~The~~30605 ~~amendments~~shares ~~require~~of ~~new~~Rock-Tenn ~~disclosures~~common ~~for~~stock ~~transfers~~and $17.50 in cash, representing 50% cash and ~~out~~50% stock on the date of ~~fair value~~the ~~hierarchy~~signing ~~Levels~~of 1the ~~and~~Merger 2Agreement. On ~~and~~January 23, ~~activity~~2011, ~~within~~the ~~fair~~equity ~~value~~consideration ~~hierarchy~~was ~~Level~~ $35 per our common share or approximately $3. ~~The~~5 ~~amendments~~billion, ~~also~~consisting ~~clarify~~of ~~existing disclosures~~approximately ~~regarding~~$1.8 billion of cash and the ~~disaggregation~~issuance ~~for~~of ~~each~~approximately ~~class~~30.9 million shares of ~~assets~~Rock-Tenn ~~and~~ common stock. In addition, Rock-Tenn will assume our liabilities, including debt and ~~the~~underfunded ~~disclosures~~pension ~~about~~liabilities, ~~inputs~~which were $1,169 million and ~~valuation~~$1,152 ~~techniques~~million, respectively, in our consolidated balance sheet at March 31, 2011. ~~The~~Following ~~amendments~~the toacquisition, ~~ASC~~Rock-Tenn ~~820~~stockholders ~~did~~will ~~not~~own ~~have~~approximately ~~a material~~56% ~~impact~~and on our ~~consolidated~~stockholders ~~financial~~will ~~statements~~own 44% of the combined company.

3215

The transaction is expected to close in the second quarter of 2011 and is subject to customary closing conditions, regulatory approvals, as well as approval by both Rock-Tenn and our stockholders.

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 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 filings and continued to operate outside of the Chapter 11 and CCAA processes. On ~~As described below, on~~ June 21, 2010, the U.S. Court entered an order (“Confirmation Order”) approving and confirming the Joint Plan of Reorganization for Smurfit-Stone Container Corporation and its Debtor Subsidiaries and Plan of Compromise and Arrangement for Smurfit-Stone Container Canada Inc. and Affiliated Canadian Debtors (“Plan of Reorganization”). We emerged from our Chapter 11 and CCAA bankruptcy proceedings on June 30, 2010, (the Effective Date). As of the Effective Date and pursuant to the Plan of Reorganization, we merged with and into our wholly-owned subsidiary, SSCE. SSCE changed its name to Smurfit-Stone Container Corporation and became the Reorganized Smurfit-Stone.

The term “Predecessor” refers only to us and our subsidiaries prior to the Effective Date, and the term “Successor” refers only to the Reorganized Smurfit-Stone and our subsidiaries subsequent to the Effective Date. Unless the context indicates otherwise, the terms “we”, “us”, “SSCC” and the “Company” are used interchangeably in this Quarterly Report on Form 10-Q to refer to both the Predecessor and Successor Company.

~~Until~~Common ~~emergence from bankruptcy on the Effective Date, the Debtors were operating as debtors-in-possession under the jurisdiction of the U.S. Court~~ and ~~the~~Preferred Canadian Court (the Bankruptcy Courts) and in accordance with the applicable provisions of the Bankruptcy Code and the CCAA. In general, as debtors-in-possession, the Debtors were authorized to continue to operate as ongoing businesses, but could not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Courts.Stock

~~Debtor~~Under the Plan of Reorganization, Reorganized Smurfit-InStone filed the Amended and Restated Certificate of Incorporation of the Company, which authorized Reorganized Smurfit-~~Possession~~Stone to issue 160,000,000 shares, consisting of 150,000,000 shares of common stock, par value $.001 per share (~~DIP~~“Common Stock”) ~~Financing~~and 10,000,000 shares of preferred stock, par value $.001 per share (“Preferred Stock”). Reorganized Smurfit-Stone issued or reserved for issuance 100,000,000 shares of Common Stock for distribution to creditors and interest holders pursuant to the Plan of Reorganization. In addition, we adopted the Equity Incentive Plan, pursuant to which, among other things, it reserved for issuance 8,695,652 shares of Common Stock representing eight percent of the fully diluted new Common Stock. As of December 31, 2010, 91,793,836 shares of Common Stock were issued and outstanding and approximately 8.4 million shares of Common Stock were held in reserve pursuant to the Plan of Reorganization. None of the Preferred Stock was issued and outstanding as of December 31, 2010.

InPursuant ~~connection~~to ~~with filing~~ the ~~Chapter~~ 11Plan ~~Petition~~of ~~and~~Reorganization, ~~the~~we ~~Canadian~~issued ~~Petition on the Petition Date~~2,535,506 weshares ~~and certain~~ of ~~our~~Common ~~affiliates~~Stock ~~filed~~in ~~a motion with~~ the ~~Bankruptcy~~three ~~Courts~~months ~~seeking approval~~ended toMarch 31, ~~enter into a Post-Petition Credit Agreement (the DIP Credit Agreement)~~2011. ~~Based~~ As onof ~~interim~~March 31, ~~approval~~2011, we ~~and~~94,490,158 ~~certain~~shares of ~~our~~Common ~~affiliates~~Stock ~~entered~~were ~~into~~issued ~~the~~and ~~DIP Credit Agreement on January 28~~outstanding, ~~2009. Final~~ ~~approval~~including ~~of the DIP Credit Agreement was granted by the U.S. Court on February 23~~160,816 ~~2009~~shares ~~and~~issued byunder the ~~Canadian~~ ~~Court~~Equity onIncentive ~~February 24,~~Plan ~~2009. Amendments~~in to the ~~DIP~~three ~~Credit~~months ~~Agreement~~ended ~~were entered into on February~~March ~~25 and 27~~31, ~~2009~~2011.

~~The~~Subsequent ~~DIP~~to ~~Credit Agreement~~March 31, ~~as amended~~2011, ~~provided~~an ~~for~~additional ~~borrowings~~3,206,829 upshares toof anCommon ~~aggregate~~Stock ~~committed~~were ~~amount~~issued, ofleaving ~~$750~~ approximately 2.6 million, ~~consisting~~shares of aCommon ~~$400~~Stock ~~million~~in ~~U.S.~~reserve ~~term~~for ~~loan~~claims ~~(U.S.~~that ~~DIP~~are ~~Term~~still ~~Loan)~~unliquidated ~~for borrowings~~or bysubject ~~SSCE;~~to adispute ~~$35~~in ~~million~~the ~~Canadian~~bankruptcy ~~term~~proceedings. These ~~loan~~shares ~~(Canadian~~will ~~DIP~~be ~~Term~~distributed ~~Loan) for~~as ~~borrowings~~these byclaims ~~Smurfit-Stone~~are ~~Container~~liquidated ~~Canada~~or ~~Inc.~~resolved, ~~(SSC~~in ~~Canada);~~accordance awith ~~$250 million~~the UPlan of Reorganization.S. To ~~revolving~~the ~~loan~~extent ~~(U.S.~~shares ~~DIP~~remain ~~Revolver)~~after ~~for~~resolution ~~borrowings~~of bythese ~~SSCE~~claims, ~~and/or SSC~~these ~~Canada;~~excess ~~and~~shares awill ~~$65~~be ~~million~~re-distributed ~~Canadian~~on ~~revolving~~a ~~loan~~pro-rata ~~(Canadian~~basis ~~DIP~~to ~~Revolver) for~~the ~~borrowings~~holders byof ~~SSCE~~claims ~~and/or~~who ~~SSC~~had ~~Canada.~~previously received distributions

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 our 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 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 were enjoined unless and until the Bankruptcy Courts lifted 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 had a right to be heard on all matters that came 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 either assumed or rejected pre-petition executory contracts, including real property leases, subject to the approval of the Bankruptcy Courts and certain other conditions. In this context, “assumption” meant that we agreed to perform our obligations and cure all existing defaults under the contract or lease, and “rejection” meant that we were relieved from our obligations to perform further under the contract or lease, but were subject to a pre-petition claim for damages for the breach thereof, subject to certain limitations. Any damages resulting from rejection of executory contracts and unexpired leases, and from the determination of the U.S. Court (or agreement by parties of interest) of allowed claims for contingencies and other disputed amounts, that were permitted to be recovered under the Bankruptcy Code were treated as liabilities subject to compromise unless such claims were secured prior to the Petition Date.

Plan of Reorganization and Exit Credit Facilities

Plan of Reorganization

On December 1, 2009, the Debtors filed their Plan of Reorganization and Disclosure Statement (Disclosure Statement) with the U.S. Court. On December 22, 2009, January 27, 2010, and February 4, 2010, the Debtors filed amendments to the Plan of Reorganization and the Disclosure Statement. On March 19, 2010, the Debtors filed a supplement to the Plan of Reorganization, and on May 27, 2010, the Debtors filed the final Plan of Reorganization reflecting the resolution of certain objections by equity security holders and other non-material modifications.

On May 24, 2010, the Debtors announced that they reached a resolution with certain holders of the Company’s preferred and common stock that had filed objections to the confirmation of the Plan of Reorganization. On May 28, 2010, the U.S. Court approved notice procedures with respect to this resolution. On June 21, 2010, the U.S. Court entered the Confirmation Order which approved and confirmed the Plan of Reorganization. We emerged from our Chapter 11 and CCAA bankruptcy proceedings on June 30, 2010, the Effective Date.

As of the Effective Date, we substantially consummated the various transactions contemplated under the Plan of Reorganization and the Confirmation Order, including the following:

· we merged with and into SSCE, with SSCE being the survivor entity and renaming itself Smurfit-Stone Container Corporation, and becoming the Reorganized Smurfit-Stone. Reorganized Smurfit-Stone is governed by a board of directors that includes Patrick J. Moore, our Chief Executive Officer, Steven J. Klinger, our President and Chief Operating Officer, and nine independent directors, including a non-executive chairman selected by the Creditors’ Committee in consultation with the Debtors;

· Reorganized Smurfit-Stone filed the Amended and Restated Certificate of Incorporation of the Company, which authorized Reorganized Smurfit-Stone to issue 160,000,000 shares, consisting of 150,000,000 shares of common stock, par value $.001 per share (Common Stock) and 10,000,000 shares of preferred stock, par value $.001 per share (Preferred Stock). Reorganized Smurfit-Stone issued or reserved for issuance 100,000,000 shares of Common Stock for distribution to creditors and interest holders pursuant to the Plan of Reorganization. Under the Plan of Reorganization, we issued an aggregate of 91,014,189 shares of Common Stock. None of the Preferred Stock was issued or outstanding as of the Effective Date;

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

· substantially all of the general unsecured claims against SSCE, and us, including all of the outstanding unsecured senior notes, were exchanged for Common Stock;

· holders of our 7% Series A Cumulative Exchangeable Redeemable Convertible preferred stock received a pro-rata distribution of 2,172,166 shares of Common Stock and holders of our common stock received a pro-rata distribution of 2,171,935 shares. All shares of common stock and preferred stock of the Predecessor Company were cancelled;

· Reorganized Smurfit-Stone adopted the Equity Incentive Plan, pursuant to which, among other things, it reserved for issuance 8,695,652 shares of Common Stock representing eight percent of the fully diluted new Common Stock. In accordance with the terms of the Equity Incentive Plan, 2,895,909 stock options and 914,498 Restricted Stock Units (RSU’s) were granted to executive officers and other key employees of Reorganized Smurfit-Stone on the Effective Date;

· Pursuant to the Plan of Reorganization and after the initial distribution, we reserved approximately 9.0 million shares of Common Stock for future distribution to holders of unsecured non-priority claims that were unliquidated or subject to dispute. On or about October 29, 2010, we issued an additional 648,363 shares and cancelled 34,000 shares previously issued in the first distribution, leaving approximately 8.4 million shares of Common Stock held in reserve. These shares will be distributed as these claims are liquidated or resolved, in accordance with the Plan of Reorganization and Confirmation Order. To the extent that such unliquidated or disputed claims are settled for less than the number of shares reserved, additional distributions may also be made with respect to previously allowed claims under the terms and conditions of the Plan of Reorganization and Confirmation Order.

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 the 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.

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 June 30, 2010, the Term Loan Facility was funded and borrowings became available under the ABL Revolving Facility. The proceeds of the borrowings under the Term Loan Facility of $1,200 million, together with available cash, were 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 Plan of Reorganization. See Note 1 of the Notes to Consolidated Financial Statements - Fresh Start Accounting. On September 30, 2010 we had no borrowings under the ABL Revolving Facility. Borrowings under the ABL Revolving Facility are available for working capital purposes, capital expenditures, permitted acquisitions and general corporate purposes. As of September 30, 2010, our borrowing base under the ABL Revolving Facility was $625 million and the amount available for borrowings after considering outstanding letters of credit was $528 million.

As of September 30, 2010, we also had available unrestricted cash and cash equivalents of $464 million primarily invested in money market funds at a variable interest rate of 0.18%.

The term loan (Term Loan) is repayable in equal quarterly installments of $3 million beginning on September 30, 2010, with the balance payable at maturity on June 30, 2016. 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 also requires 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 bears 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 interest rate at September 30, 2010 was 6.75%.

The ABL revolver loan (ABL Revolver) matures on June 30, 2014. We 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, which is the applicable margin as of September 30, 2010. The applicable margin can 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 will 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 are guaranteed by us and certain of our subsidiaries, and are 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.

Financial Reporting Considerations

Subsequent to the Petition Date, through the Effective Date, we 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 were impacted by the bankruptcy reorganization process were classified on the consolidated balance sheet at December 31, 2009 in liabilities subject to compromise.

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 were recorded in reorganization items in the consolidated statements of operations.

Reorganization Items

Our reorganization items directly related to the process of our reorganizing under Chapter 11 and the CCAA, and ~~our~~its emergence on June 30, 2010, as recorded in ~~our~~ its consolidated statements of operations, consist of the following:

	Successor			Predecessor
	Three Months Ended September 30,			Three Months Ended September 30,			Six Months Ended June 30,			Nine Months Ended September 30,
	Three Months Ended March 31,			Three Months Ended March 31,
	2010			2009			2010			2009
	2011			2010
Income (Expense)
Provision for rejected/settled executory contracts and leases	$			$	(929	)	$	~~(106~~	)	$	~~(73~~	)
Professional fees	(71		)	(1215		)	~~(43~~		)	~~(44~~		)
Accounts payable settlement gains				53			5			8
Gain due to plan effects							580
Total reorganization items	$	(1	)	$	(41	)
Gain due to fresh start accounting adjustments							742
Total reorganization items	$	(7	)	$	(16	)	$	1,178		$	(109	)

~~In addition,~~Professional anfees ~~income~~directly ~~tax~~related ~~benefit~~to ofthe ~~$200~~reorganization ~~million~~include ~~related~~fees associated with advisors to ~~plan~~the ~~effect adjustments~~Company, ~~was~~the ~~recorded~~official incommittee of unsecured creditors and certain secured creditors. During the ~~six~~three months ended ~~June~~March 31, 302011, ~~2010~~we continued to incur costs related to professional fees that were directly attributable to the reorganization.

~~Professional fees~~Net ~~directly~~cash ~~related~~paid tofor ~~the~~ reorganization ~~include~~items ~~fees~~related ~~associated with advisors~~ to ~~us,~~professional ~~the~~fees ~~Creditors’~~for ~~Committee and certain secured creditors. During~~ the three months ended ~~September 30~~March 31, ~~2010,~~ ~~the~~2011 ~~Company~~and ~~continued~~2010 tototaled ~~incur~~$2 ~~costs~~million ~~related~~and to$16 ~~professional~~million, ~~fees that are directly attributable to the reorganization~~respectively.

38Reorganization items exclude employee severance and other restructuring expenses recorded during 2011 and 2010.

~~Net cash~~Contractual ~~paid~~interest ~~for~~expense ~~reorganization~~on ~~items~~unsecured ~~related~~debt towas ~~professional~~$47 ~~fees~~million for the three months ended ~~September 30~~March 31, 2010. Under ~~and~~the ~~six~~Plan ~~months~~of ~~ended~~Reorganization, ~~June~~interest ~~30,~~expense ~~2010~~on ~~totaled~~the ~~$30 million~~unsecured ~~and~~debt ~~$32~~subsequent ~~million,~~to ~~respectively,~~the ~~and~~Petition $9Date ~~million~~was not paid and ~~$26~~no ~~million~~interest expense was recorded for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2009, respectively~~2010.

The Preferred Stock dividends in arrears since the Petition Date are presented in the Predecessor consolidated statements of operations only to reflect preferred stockholders’ rights to dividends over common stockholders. Under the Plan of Reorganization ~~items~~ ~~exclude~~Preferred ~~employee~~Stock ~~severance~~dividends ~~and~~in ~~other~~arrears ~~restructuring~~subsequent ~~charges~~to ~~recorded during~~the ~~2009~~Petition ~~and~~Date ~~2010~~were not paid.

Interest expense recorded on the Predecessor unsecured debt was zero for the six months ended June 30, 2010, and $49 million and $147 million for the three and nine months ended September 30, 2009, respectively. Contractual interest expense on unsecured debt was $98 million for the six months ended June 30, 2010. Under the Plan of Reorganization, interest expense on the Predecessor unsecured senior notes subsequent to the Petition Date was not paid. In the fourth quarter of 2009, we concluded it was not probable that interest expense on the Predecessor unsecured senior notes subsequent to the Petition Date would be an allowed claim. As a result, 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.

In addition, 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. Preferred Stock dividends in arrears were $13 million at the Effective Date and $9 million as of December 31, 2009. The Preferred Stock dividends in arrears since the Petition Date are presented in the Predecessor consolidated statements of operations only to reflect preferred stockholders’ rights to dividends over common stockholders and are not reflected in the Preferred Stock value in the December 31, 2009 consolidated balance sheet.

Other Bankruptcy Related Costs

Liabilities Subject to Compromise

We 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 were classified as liabilities subject to compromise.

Liabilities subject to compromise at December 31, 2009 consisted of the following:

	Predecessor
	December 31, 2009
Unsecured debt	$	2,439
Accounts payable	339
Interest payable	47
Retiree medical obligations	176
Pension obligations	1,136
Unrecognized tax benefits	46
Executory contracts and leases	72
Other	17
Liabilities subject to compromise	$	4,272

For information regarding the discharge of liabilities subject to compromise, see Note 1 of the Notes to Consolidated Financial Statements - Fresh Start Accounting.

Fresh Start Accounting

~~In accordance~~Upon ~~with~~adoption ~~ASC~~of ~~852, we adopted~~ fresh start accounting as of the close of business on June 30, 2010, ~~because~~in ~~the~~accordance ~~reorganization~~with ~~value~~ASC ~~of the assets of the Predecessor Company immediately before the date of confirmation of the Plan of Reorganization was less than the total of all post-petition liabilities and allowed claims~~852, ~~and~~ the ~~holders of the Predecessor~~ Company’s voting shares immediately before confirmation of the Plan of Reorganization received less than 50 percent of the voting shares of the Successor Company. Upon adoption of fresh start accounting, the Company became a new entity for financial reporting purposes, reflecting the Successor capital structure. As such, a new accounting basis in the identifiable assets and liabilities assumed was established with no retained earnings or accumulated other comprehensive income (loss) (“OCI”).

4017

RESULTS OF OPERATIONS

Non-GAAP Financial Measures

In the accompanying analysis of financial information, we use the financial measures “adjusted net income (loss) attributable to common stockholders” (“adjusted net income (loss)”), “adjusted net income (loss) per diluted share attributable to common stockholders” (“adjusted net income (loss) per diluted share”), “EBITDA” and “adjusted EBITDA” which are derived from our consolidated financial information but are not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). These measures are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission ~~(SEC)~~ rules. Adjusted net income (loss) and adjusted net income (loss) per diluted share are non-GAAP financial measures that exclude from net income (loss) attributable to common stockholders the effects of reorganization items, restructuring (income) expense, ~~debtor-in-possession financing costs,~~ alternative fuel mixture tax credits, ~~loss on early extinguishment of debt,~~ non-cash foreign currency exchange ~~(gains)~~ losses, ~~interest~~ onbankruptcy ~~Predecessor~~claims ~~unsecured~~settlement ~~debt~~gain, ~~restructuring~~Rock-Tenn ~~charges,~~merger ~~loss~~transaction onexpense ~~disposal of assets~~ and acellulosic ~~multi-employer~~biofuel ~~pension~~production ~~plan~~tax ~~withdrawal charge~~credit. EBITDA is defined as net income ~~before~~ (~~provision for~~loss) ~~benefit~~before ~~from~~provision for income taxes, interest expense, net and depreciation, depletion and amortization. Adjusted EBITDA is defined as EBITDA adjusted for reorganization items , restructuring (income) expense, ~~debtor-in-possession financing costs,~~ alternative fuel mixture tax credits, ~~loss on early extinguishment of debt,~~ non-cash foreign currency exchange ~~(gains)~~ losses, ~~restructuring~~bankruptcy ~~charges,~~claims ~~loss~~settlement ~~on disposal of assets~~gain, ~~a multi~~Rock-~~employer~~Tenn ~~pension~~merger ~~plan~~transaction ~~withdrawal~~expense ~~charge~~ and other adjustments.

We use these supplemental non-GAAP measures to evaluate performance period over period, to analyze the underlying trends in our business, to assess our performance relative to our competitors and to establish operational goals and forecasts that are used in allocating resources. These non-GAAP measures of operating results are reported to our board of directors, ~~chief executive officer~~ and ~~our president and~~ chief ~~operating~~executive officer and are used to make strategic and operating decisions and assess performance. These non-GAAP measures are presented to enhance an understanding of our operating results and are not intended to represent cash flows or results of operations. We also believe these non-GAAP measures are beneficial to investors, potential investors and other key stakeholders, including analysts and creditors who use these measures in their evaluations of our performance from period to period and against the performance of other companies in our industry. ~~Our creditors also use these measures to evaluate our ability to service our debt.~~ The use of these non-GAAP financial measures is beneficial to these stakeholders because they exclude certain items that management believes are not indicative of the ongoing operating performance of our business, and including them would distort comparisons to our past operating performance. Accordingly, we have excluded the adjustments, as detailed below, for the purpose of calculating these non-GAAP measures.

The following is an explanation of each of the adjustments that we have made to arrive at these non-GAAP measures for ~~(1)~~ the three months ended ~~September 30~~March 31, ~~2010~~ 2011 of the Successor, ~~(2) the six months ended June 30, 2010 of the Predecessor~~ and ~~(3)~~ the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2009~~2010 of the Predecessor, as well as the reasons management believes each of these items is not indicative of operating performance:

· Reorganization items ~~(income)~~ ~~expense, net of income taxes~~ - These ~~income and~~ expense items are directly related to the process of our reorganizing under Chapter 11 and the CCAA. The items include ~~gain~~a ~~due to plan effects, gain due to fresh start accounting adjustments,~~ provision for rejected/settled executory contracts and leases, accounts payable settlement gains and professional fees. These ~~income~~ ~~and expense~~ items are not considered indicative of ongoing operating performance and are not used by us to assess our operating performance.

· ~~Debtor-in-possession financing~~Restructuring ~~costs~~(income) expense - These ~~expenses~~adjustments ~~were~~primarily ~~incurred~~represent severance costs and ~~paid~~other ~~during~~costs ~~the~~associated ~~first quarter~~with ofour ~~2009~~restructuring inactivities, ~~connection~~net ~~with~~of ~~entering~~gains ~~into~~related to the ~~DIP~~sale ~~Credit~~of ~~Agreement~~previously closed facilities. These income and expense items are not considered indicative of ongoing operating performance and are not used by us to assess our operating performance.

· Alternative fuel mixture tax credits - These amounts represent 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. These items are not considered indicative of ongoing operating performance and are not used by us to assess our operating performance.

· ~~Loss~~Non-cash onforeign ~~early~~currency ~~extinguishment of~~exchange ~~debt - These~~ losses ~~represent~~— ~~unamortized~~Through ~~deferred~~June 30, ~~debt~~2010, ~~issuance~~the ~~cost~~functional ~~and call~~currency ~~premiums~~for ~~charged~~our toCanadian ~~expense~~operations inwas ~~connection~~the ~~with~~U.S. ~~our financing activities~~dollar. ~~These~~Fluctuations ~~losses~~in ~~were~~Canadian ~~not considered indicative of ongoing operating performance because they related to specific financing activities and were not used by us to assess our operating performance.~~dollar-denominated

· Non-cash foreign currency (gains) losses - Through June 30, 2010, the functional currency for our Canadian operations was the U.S. dollar. Fluctuations in Canadian dollar-denominated monetary assets and liabilities resulted in non-cash gains or losses. We excluded the impact of foreign currency exchange gains and losses because the impact of foreign exchange is highly variable and difficult to predict from period to period and is not tied to our operating performance. These gains or losses are not considered indicative of ongoing operating performance and are not used by us to assess our operating performance.18

~~· Interest~~monetary onassets ~~Predecessor unsecured~~and ~~debt~~liabilities -resulted ~~These~~in ~~amounts represent the post~~non-~~petition~~cash ~~interest~~losses. We ~~accrued~~excluded ~~on unsecured debt from~~ the ~~time~~impact of ~~our~~foreign ~~bankruptcy~~currency ~~filing,~~exchange ~~which~~losses ~~was~~because ~~stayed and not paid as a result of~~ the ~~bankruptcy~~impact ~~proceedings. In the fourth quarter~~ of ~~2009,~~foreign weexchange ~~concluded~~is ithighly ~~was~~variable ~~not~~and ~~probable~~difficult ~~that interest~~to ~~expense~~predict ~~that was accrued~~ from ~~the~~period ~~Petition~~to ~~Date~~period ~~through~~and ~~November~~is ~~30, 2009,~~not ~~would~~tied beto anour ~~allowed~~operating ~~claim~~performance. ~~This expense~~These ~~was~~losses are not considered indicative of ~~our~~ ongoing operating performance and ~~was~~ ~~excluded~~are not used by ~~management~~us into ~~assessing~~assess our operating performance.

· ~~Restructuring~~Bankruptcy ~~charges~~claims - settlement gain — These ~~adjustments~~amounts represent the ~~write-down~~return of ~~assets,~~reserved ~~primarily~~funds ~~property,~~due ~~plant and equipment,~~ to ~~estimated net realizable values,~~ the ~~acceleration~~favorable ~~of depreciation~~resolution ~~for equipment to be abandoned or taken out~~ of ~~service,~~bankruptcy ~~severance costs and other costs associated with our restructuring activities~~claims. These ~~income and expense~~ items ~~were~~are not considered indicative of ~~our~~ ongoing operating performance and ~~were~~are ~~excluded~~not used by ~~management~~us into ~~assessing~~assess our operating performance.

· ~~Loss~~Rock-Tenn onmerger ~~disposal~~transaction ofexpense ~~assets~~ - These amounts represent ~~losses~~charges wefor ~~recognized~~legal, consulting and other direct expenses related to the ~~sale~~announced ~~of non-strategic~~merger ~~assets~~with Rock-Tenn. These ~~losses~~items ~~were~~ are not considered indicative of ongoing operating performance and ~~were~~are ~~excluded~~not used by ~~management~~ inus ~~assessing~~to assess our operating ~~profit~~performance.

· ~~Multi-employer~~Cellulosic ~~pension~~biofuel ~~plan withdrawal~~production ~~charge~~income -tax ~~This~~credit ~~amount~~— ~~represents~~These ~~the~~amounts ~~charge~~represent ~~associated~~an ~~with~~income tax credit for registered cellulosic biofuel producers which did not otherwise qualify for the ~~withdrawal~~ ~~from~~alternative afuel ~~multi-employer~~mixture ~~pension~~tax ~~plan~~credit. Under current law, this tax credit can be utilized to offset income taxes through December ~~This~~31, ~~expense~~2015. These ~~item~~items ~~was~~are not considered indicative of ~~our~~ ongoing operating performance and ~~was~~are ~~excluded~~not used by ~~management~~us into ~~assessing~~assess our operating performance.

· Other - These adjustments principally represent amounts accrued under our 2009 long-term incentive plan. These income and expense items ~~were~~ are not considered indicative of our ongoing operating performance and ~~were~~are ~~excluded~~ not used by ~~management~~us into ~~assessing~~assess our operating performance.

Adjusted net income (loss), adjusted net income (loss) per diluted share, EBITDA and adjusted EBITDA have certain material limitations associated with their use as compared to net income (loss). These limitations are primarily due to the exclusion of certain amounts that are material to our consolidated results of operations, as discussed above. In addition, these adjusted net income (loss) and EBITDA measures may differ from adjusted net income (loss) and EBITDA calculations of other companies in our industry, limiting their usefulness as comparative measures. Because of these limitations, adjusted net income (loss), adjusted net income (loss) per diluted share, EBITDA and adjusted EBITDA should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using adjusted net income (loss), adjusted net income (loss) per diluted share, EBITDA and adjusted EBITDA only as supplemental measures of our operating performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with GAAP.

measures of our operating performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial statements prepared in accordance with GAAP.

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

The following financial presentation includes a reconciliation of net income (loss) attributable to common stockholders and net income (loss) per diluted share attributable to common stockholders, the most directly comparable GAAP financial measures, to adjusted net income (loss) attributable to common stockholders and adjusted net income (loss) per diluted share attributable to common stockholders, respectively. The adjustments to GAAP net income (loss) attributable to common stockholders for the Predecessor ~~periods,~~period ~~other~~for ~~than~~the ~~reorganization~~three ~~items~~months ~~(income)~~ended ~~expense~~March 31, 2010 were not tax effected because it was more likely than not that substantially all of the deferred tax assets that were generated during bankruptcy would not be realized ~~and we did not record any additional tax benefit for 2009 and the six months ended June 30, 2010~~. Due to the effects of the Plan of Reorganization, we concluded that it was more likely than not that substantially all of the deferred tax assets would be realized and we recognized an income tax benefit related to reorganization items in the six months ended June 30, 2010. For the three months ended ~~September 30~~March 31, ~~2010~~2011, we recorded a provision for income taxes related to the Successor statement of operations. As a result, the Successor period adjustments to net income (loss) attributable to common stockholders are presented on a net of tax basis.

~~A reconciliation of net income to EBITDA and adjusted EBITDA is also presented.~~19

43A reconciliation of net income (loss) to EBITDA and adjusted EBITDA is also presented.

Reconciliation to GAAP Financial Measures

	Successor			Predecessor
	Three Months Ended September 30,			Three Months Ended September 30,			Six Months Ended June 30,			Nine Months Ended September 30,
(In millions, except per share data)	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
(In millions, except per share data)	2010			2009			2010			2009
Net income (loss) attributable to common stockholders (GAAP)	$	54		$	(91	)
Net income attributable to common stockholders (GAAP)	$	65		$	65		$	1,320		$	3
Reorganization items, net of income taxes	1			41
Reorganization items (income) expense, net of income taxes	4			16			(1,378		)	109
Restructuring (income) expense, net of income taxes	2			(4		)
Debtor-in-possession financing costs										63
Alternative fuel mixture tax credits				(11		)
Alternative fuel mixture tax credits				(179		)	(11		)	(455		)
Non-cash foreign currency exchange losses				6
Loss on early extinguishment of debt										20
Bankruptcy claims settlement gain, net of income taxes	(2		)
Non-cash foreign currency exchange (gains) losses				11			(3		)	10
Rock-Tenn merger transaction expense, net of income taxes	2
Interest on Predecessor unsecured debt				48						131
Cellulosic biofuel production income tax credit	(14		)
Restructuring charges, net of income taxes	4			14			15			38
Adjusted net income (loss) attributable to common stockholders	$	43		$	(59	)
Loss on disposal of assets				2						2
Net income (loss) per diluted share attributable to common stockholders (GAAP)	$	0.54		$	(0.35	)
Multi-employer pension plan withdrawal charge, net of income taxes	3
Reorganization items, net of income taxes	0.01			0.16
Adjusted net income (loss) attributable to common stockholders	$	76		$	(23	)	$	(57	)	$	(79	)
Restructuring (income) expense, net of income taxes	0.02			(0.02		)
Net income per diluted share attributable to common stockholders (GAAP)	$	0.65		$	0.25		$	5.07		$	0.01
Alternative fuel mixture tax credits				(0.04		)
Reorganization items (income) expense, net of income taxes	0.04			0.06			(5.28		)	0.42
Non-cash foreign currency exchange losses				0.02
Debtor-in-possession financing costs										0.24
Bankruptcy claims settlement gain, net of income taxes	(0.02		)
Alternative fuel mixture tax credits				(0.70		)	(0.04		)	(1.77		)
Rock-Tenn merger transaction expense, net of income taxes	0.02
Loss on early extinguishment of debt										0.08
Cellulosic biofuel production income tax credit	(0.14		)
Non-cash foreign currency exchange (gains) losses				0.04			(0.01		)	0.04
Adjusted net income (loss) per diluted share attributable to common stockholders	$	0.43		$	(0.23	)
Interest on Predecessor unsecured debt				0.19						0.51
Net income (loss) (GAAP)	$	54		$	(89	)
Restructuring charges, net of income taxes	0.04			0.06			0.06			0.15
Provision for income taxes (a)	11
Loss on disposal of assets				0.01						0.01
Interest expense net	22			13
Multi-employer pension plan withdrawal charge, net of income taxes	0.03
Depreciation, depletion and amortization	87			85
Adjusted net income (loss) per diluted share attributable to common stockholders	$	0.76		$	(0.09	)	$	(0.20	)	$	(0.31	)
EBITDA	174			9
Net income (GAAP)	$	65		$	68		$	1,324		$	12
Reorganization items	1			41
(Benefit from) provision for income taxes	49			(2		)	(199		)	3
Restructuring (income) expense	4			(4		)
Interest expense net	23			72			23			217
Alternative fuel mixture tax credits				(11		)
Depreciation, depletion and amortization	84			91			168			273
Non-cash foreign currency exchange losses				6
EBITDA	221			229			1,316			505
Bankruptcy claims settlement gain	(3		)
Reorganization items (income) expense	7			16			(1,178		)	109
Rock-Tenn merger transaction expense	3
Debtor-in-possession financing costs										63
Other				5
Alternative fuel mixture tax credits				(179		)	(11		)	(455		)
Adjusted EBITDA	$	179		$	46
Loss on early extinguishment of debt										20
Non-cash foreign currency exchange (gains) losses				11			(3		)	10
Restructuring charges	7			14			15			38
Loss on disposal of assets				2						3
Multi-employer pension plan withdrawal charge	4
Other				1			9			2
Adjusted EBITDA	$	239		$	94		$	148		$	295

44(a) Provision for income taxes for the three months ended March 31, 2011 is net of cellulosic biofuel production income tax credit of $14 million.

~~Combined Financial Results of the Predecessor and Successor~~20

~~In connection~~Effect ~~with our emergence from Chapter 11 and CCAA bankruptcy proceedings and the adoption~~ of ~~fresh~~Fresh ~~start~~Start accounting on June 30, 2010, the accompanying consolidated statements of operations include the results of operations for (1) the three months ended September 30, 2010 of the Successor, (2) the six months ended June 30, 2010 of the Predecessor and (3) the three and nine months ended September 30, 2009 of the Predecessor.Accounting

~~Although the~~The ~~2010~~application ~~Successor~~of ~~and~~fresh ~~Predecessor~~start ~~Periods~~accounting ~~are~~affected ~~distinct~~certain ~~reporting~~assets, ~~periods~~liabilities, ~~for purposes of Management’s Discussion~~ and ~~Analysis~~expenses. ofAs ~~the~~a ~~results of operations for the nine months ended September 30~~result, ~~2010~~financial ininformation ~~this~~of ~~Form 10-Q, we combined~~ the ~~results~~Successor ~~of operations~~ for the ~~six~~period ~~months~~after ~~ended~~ June 30, 2010 of ~~the~~is ~~Predecessor~~not ~~with~~comparable ~~the~~to ~~three~~Predecessor ~~months~~financial ~~ended September 30, 2010 of the Successor~~information. WeRefer ~~then~~to ~~compared~~Note 2 ~~the~~to ~~combined results~~our ofNotes ~~operations~~to ~~for~~Consolidated ~~the~~Financial ~~nine~~Statements ~~months~~for ~~ended~~additional ~~September 30,~~information ~~2010~~on ~~with the~~fresh ~~corresponding~~start ~~period in the prior year of the Predecessor~~accounting.

We believe that combining the results of operations for the nine months ended September 30, 2010 enhances the comparability for management and investors of Smurfit-Stone’s ongoing financial and operational performance and trends than if we did not combine the results of operations of the Predecessor and Successor in this manner. Similarly, we combined the financial results of the Predecessor and Successor when discussing our liquidity and capital resources for the nine months ended September 30, 2010.

Overview

~~We had~~For ~~net~~the ~~income~~three ofmonths ~~$65~~ended ~~million~~March 31, or2011 ~~$0.65~~and ~~per diluted share~~March 31, ~~for the third quarter of~~ 2010, ~~compared~~we tohad ~~net~~operating income ~~attributable~~(loss) ~~to common stockholders~~ of $6592 million, orand $~~0.25~~(31) ~~per diluted share~~million, ~~for the third quarter of 2009~~respectively. ~~The~~Operating ~~2010~~income ~~results~~for ~~compared~~the tothree ~~the~~months ~~third quarter~~ended ofMarch 31, ~~2009~~2011 ~~were~~was positively impacted by higher segment profits ofprincipally ~~$156 million,~~due ~~lower~~to ~~interest~~higher ~~expense~~average ofselling ~~$49~~prices ~~million,~~for ~~lower~~containerboard ~~restructuring~~and ~~expenses~~corrugated ~~of $7~~containers ~~million~~ and ~~lower~~reduced ~~reorganization~~selling ~~items, net of $9 million. The 2010 segment profits benefited from a decrease in pension~~ and ~~postretirement~~administrative ~~benefit~~expenses, ~~expense of~~which ~~$16 million due primarily to elimination of the amortization of net losses associated with the plans’ underfunded levels upon emergence. These benefits~~ were partially offset by ~~lower other~~inflation ~~operating~~on ~~income~~input ~~related~~costs, toincluding ~~the~~reclaimed ~~alternative~~fiber, ~~fuel~~freight ~~tax~~and ~~credit of $179 million recorded in 2009~~chemicals. The Weoperating ~~recorded~~loss anfor ~~income~~the ~~tax~~three ~~provision~~months ofended ~~$49~~March 31, ~~million in~~ 2010 ~~compared~~was tonegatively animpacted ~~income~~by ~~tax~~lower ~~benefit~~average ofsales $2prices ~~million~~for incontainerboard ~~2009~~and corrugated containers.

We ~~had~~ ~~operating~~expect ~~income~~sequentially oflower ~~$142~~earnings ~~million~~in ~~for~~ the ~~third~~second quarter ofas ~~2010, compared to~~ operating ~~income~~efficiencies ofand ~~$159~~seasonal ~~million~~volume inimprovements ~~the~~will ~~third~~be ~~quarter~~more ofthan ~~2009. The~~offset ~~third quarter of 2010 operating income was positively impacted~~ by ~~higher~~continued ~~segment~~cost ~~profits~~inflation ~~principally~~and ~~due to~~ higher ~~average~~ ~~selling~~maintenance ~~prices for containerboard and corrugated containers and reduced market-related~~ downtime, ~~which were partially offset by higher~~ costs ~~for reclaimed fiber~~. ~~The third quarter of 2009 was positively impacted by other operating income of $179 million related to the alternative fuel tax credits.~~

We had adjusted net income of $76 million, or $0.76 per diluted share, for the third quarter of 2010 compared to an adjusted net loss attributable to common stockholders of $23 million, or $0.09 per diluted share, for the third quarter of 2009. Adjusted EBITDA for the third quarter of 2010 was $239 million compared with $94 million in the third quarter of 2009.

We had combined operating income of $105 million for the nine months ended September 30, 2010, compared to operating income of $424 million for the same period last year. The 2010 operating income was positively impacted by higher segment profits principally due to higher average selling prices for containerboard, higher third-party sales volume of containerboard and corrugated containers and reduced market-related downtime, which were offset by higher costs for reclaimed fiber and slightly lower average sales prices for corrugated containers. The 2009 operating profit was positively impacted by other operating income of $455 million related to the alternative fuel tax credits.

For the nine months ended September 30, 2010, we had adjusted net income attributable to common stockholders of $19 million compared to an adjusted net loss attributable to common stockholders of $79

million for the nine months ended September 30, 2009. Adjusted EBITDA for the nine months ended September 30, 2010 was $387 million compared with $295 million for the nine months ended September 30, 2009.

We expect moderately lower sequential earnings in the fourth quarter from the third quarter, as continued price improvement will be more than offset by additional mill maintenance costs, normal seasonal demand declines and higher energy usage. We also expect higher recycled fiber costs in the fourth quarter.

Reorganization Items Income (Expense), Net

For the three months ended September 30, 2010, we recorded reorganization items expense of $7 million as we continued to incur costs related to professional fees that are directly attributable to the reorganization.

Reorganization items income of $1,178 million for the six months ended June 30, 2010, include a gain from the bankruptcy emergence plan effects of $580 million and a gain on fresh start accounting adjustments of $742 million, which were partially offset by other reorganization charges including provision for rejected/settled executory contracts and leases and professional fees. The gain due to plan effects represents the net gains recorded as a result of implementing the Plan of Reorganization, including eliminating approximately $2,439 million of debt. The gain due to fresh start accounting represents the net gains recognized as a result of adjusting all assets and liabilities to fair value. See Note 1 of the Notes to Consolidated Financial Statements.

Alternative Fuel Tax Credit

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 the three and nine months ended September 30, 2009, we recorded other operating income of $179 million and $455 million, respectively, 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 $11 million refund claim adjustment in the fourth quarter of 2010.

Restructuring Activities

We continue to review and evaluate various restructuring and other alternatives to streamline our operations, improve efficiencies and reduce ~~cost~~costs. These actions ~~will~~ subject us 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 ~~third~~first quarter of ~~2010~~2011, we announced the closure of two converting facilities and sold two previously closed facilities. In addition, we initiated a plan to reduce our selling, general and administrative costs, primarily through reductions in our workforce in these functions. We recorded restructuring ~~charges~~expense of $74 million, primarily for severance and benefits and ~~reduced~~facility ~~our headcount by approximately 460 employees. The net sales of the announced converting facilities in 2010 prior to~~ closure ~~and for the year ended December 31~~costs, ~~2009~~ ~~were $48 million~~ and ~~$44~~reduced ~~million,~~our ~~respectively. The~~headcount ~~majority~~by ~~of these net sales are expected to be transferred to other operating facilities. Additional charges of~~ approximately ~~$20 million~~170 are expected to be recorded in the fourth quarter of 2010, primarily for severance and benefits related to the closure of these facilities and the reductions in the selling and administrative workforce, including charges related to the October 27, 2010 announced resignation of Steven Jemployees. ~~Klinger, the Company’s President and Chief Operating Officer, which is effective December 31,~~

46During 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, net of 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 charges of $7 million were primarily for severance and benefits.

~~2010. We~~Alternative ~~expect~~Fuel toMixture ~~realize~~Tax ~~net savings of more than $50 million in our selling, general and administrative costs in 2011 compared to 2010 and have identified opportunities for additional savings impacting 2012.~~Credit

~~For the~~The ~~six~~U.S. ~~months~~Internal ~~ended~~Revenue ~~June 30,~~Code ~~2010,~~allowed wean ~~closed~~excise ~~four~~tax ~~converting~~credit ~~facilities and~~for ~~sold~~alternative ~~five~~fuel ~~previously~~mixtures ~~closed~~produced ~~facilities. As~~by a ~~result~~taxpayer offor ~~these~~sale, ~~closure~~or ~~activities~~for ~~and~~use ~~other~~as ~~ongoing~~a ~~initiatives, we~~fuel ~~reduced~~in ~~our~~a ~~headcount~~taxpayer’s bytrade ~~approximately~~or ~~900~~business ~~employees. We~~through ~~recorded~~December 31, ~~restructuring~~2009, ~~charges~~at ofwhich ~~$15 million,~~time ~~including~~the acredit ~~$12~~expired. In ~~million~~May 2009, ~~gain~~we ~~related~~were tonotified ~~the~~that ~~sale~~our ofregistration ~~previously~~as ~~closed facilities,~~an ofalternative ~~which~~fuel $8mixer ~~million~~was ~~resulted~~approved ~~from~~by the ~~legal~~Internal ~~release~~Revenue ~~of environmental liability obligations~~Service. ~~Restructuring~~ We ~~charges~~subsequently ~~included~~submitted ~~non-cash~~refund ~~charges~~claims of approximately $11654 million ~~related to~~for ~~the~~2009 ~~acceleration~~related ofto ~~depreciation~~production ~~for~~at ~~converting~~ten ~~equipment~~of ~~abandoned~~our orU.S. ~~taken out of service~~mills. ~~The~~We ~~remaining~~received ~~charges~~refund claims of $16595 million ~~were~~in ~~for~~2009 ~~severance~~ and ~~benefits,~~$59 ~~lease~~million ~~commitments~~during ~~and~~the ~~facility closure~~first ~~costs. The~~quarter ~~net sales~~ of ~~these closed~~2010. In ~~converting~~March 2010, ~~facilities~~we inrecorded ~~2010~~other ~~prior~~operating toincome ~~closure~~of ~~and~~$11 ~~for~~million ~~the~~relating ~~year~~to ~~ended~~an ~~December 31, 2009~~adjustment ~~were~~of ~~$21~~refund ~~million~~claims ~~and~~submitted ~~$97~~in ~~million, respectively~~2009. ~~The~~We ~~majority~~expect ofto ~~these~~receive ~~net~~the ~~sales~~$11 ~~are~~million ~~expected to~~refund beclaim ~~transferred~~during tothe ~~other~~second ~~operating~~quarter ~~facilities~~of 2011.

~~We recorded~~Reorganization restructuring charges of $14 million and $38 million for the three and nine months ended September 30, 2009, respectively, which were net of a $2 million gain on the sale of previously closed facilities in the third quarter of 2009. Restructuring charges included non-cash charges of $4 million and $8 million for the three and nine months ended September 30, 2009, respectively, related to the write-down of assets, primarily property, plant and equipment, to estimated net realizable values and the acceleration of depreciation for converting equipment expected to be abandoned or taken out of service. The remaining charges were primarily for severance and benefits, including pension settlement costs of $3 million.Items

47For the three months ended March 31, 2011, we recorded reorganization items of $1 million as we continued to incur costs related to professional fees that were directly attributable to the reorganization.

~~Third~~For ~~Quarter~~the three months ended March 31, 2010, ~~Compared~~we recorded reorganization items of $41 million including a provision for rejected/settled executory contracts and leases and professional fees, which were partially offset by accounts payable settlement gains. See Note 2 of the Notes to ~~Third~~Consolidated ~~Quarter~~Financial ~~2009~~Statements.

	Successor					Predecessor
	Three Months Ended September 30, 2010					Three Months Ended September 30, 2009
(In millions)	Net Sales		Profit/ (Loss)			Net Sales		Profit/ (Loss)
Containerboard, corrugated containers and reclamation operations	$	1,634	$	216		$	1,417	$	60
Restructuring expenses			(7		)			(14		)
Loss on disposal of assets								(2		)
Other operating income								179
Interest expense, net			(23		)			(72		)
Non-cash foreign currency exchange losses								(11		)
Reorganization items expense, net			(7		)			(16		)
Corporate expenses and other (Note 1)			(65		)			(58		)
Income before income taxes			$	114				$	66

Cellulosic Biofuel Production Income Tax Credit

On March 17, 2011, we received Internal Revenue Service approval to be recognized as a registered cellulosic biofuel producer. As a result, we plan to amend our 2009 tax return to claim a federal income tax credit for cellulosic biofuel production. This relates to the production of fuel that did not otherwise qualify for the alternative fuel mixture tax credit. Under the current law, this tax credit can be utilized to offset income taxes through December 31, 2015. For the three months ended March 31, 2011, we recorded an income tax benefit of $14 million related to the cellulosic biofuel production income tax credit.

First Quarter 2011 Compared to First Quarter 2010

	Successor					Predecessor
	Three Months Ended March 31, 2011					Three Months Ended March 31, 2010
(In millions)	Net Sales		Profit/ (Loss)			Net Sales		Profit/ (Loss)

Containerboard, corrugated containers and recycling operations	$	1,581	$	141		$	1,461	$	34

Restructuring income (expense)			(4		)			4
Other operating income								11
Interest expense, net			(22		)			(13		)
Non-cash foreign currency exchange losses								(6		)
Reorganization items			(1		)			(41		)
Rock-Tenn merger transaction expense			(3		)
Corporate expenses and other (Note 1)			(46		)			(78		)
Income (loss) before income taxes			$	65				$	(89	)

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

Net ~~sales~~ increased 15.3% in the third quarter of 2010 compared to last year. Net sales were positively impacted by higher average selling prices ($178 million) for containerboard, corrugated containers and reclaimed material. The average price for old corrugated containers (OCC) increased approximately $50 per ton compared to last year. Net sales were also favorably impacted by $39 million in 2010 as a result of higher third-party sales volume of containerboard and corrugated containers.Sales

~~Our containerboard~~Net ~~mills~~sales ~~operated~~increased ~~at 99~~8.72% offor ~~capacity in~~ the ~~third~~three ~~quarter~~months ~~of 2010~~ended March 31, 2011 compared to 87the same period last year.2% Net ofsales ~~capacity~~were inpositively ~~the~~impacted ~~third~~by ~~quarter~~higher ofaverage ~~2009~~selling prices ($164 million) for containerboard, corrugated containers and reclaimed material in 2011. AsThe aaverage ~~result~~price offor ~~less~~old ~~market~~corrugated ~~related~~containers ~~downtime, containerboard~~(“OCC”) ~~production~~increased ~~was~~approximately ~~3.4%~~$10 ~~higher~~per ton compared to last year. Net ~~despite~~sales ~~the closure~~were ofnegatively ~~two~~impacted ~~containerboard~~by ~~mills~~$44 million in ~~December 2009. Total~~2011 ~~tons~~primarily ofas ~~fiber~~a ~~reclaimed~~result ~~and~~of ~~brokered increased~~lower ~~13.4%~~third-party ~~compared~~sales tovolume ~~last~~of ~~year~~containerboard ~~due~~and tocorrugated ~~higher demand~~containers.

Cost of goods sold as a percent of net sales in the third quarter of 2010 was 82.3%, compared to 90.6% for the same period last year due primarily to the impact of higher average selling prices. Cost of goods sold increased from $1,284 million in the third quarter of 2009 to $1,344 million in third quarter of 2010 due primarily to higher costs of reclaimed material ($62 million).22

~~Selling and~~Cost ~~administrative expenses increased $4 million in the third quarter~~ of ~~2010 compared~~Goods ~~to the third quarter of 2009 primarily due to an increase in outside services and stock compensation expense recorded for the newly issued shares under the Equity Incentive Plan.~~Sold

In the third quarter of 2009, we recorded other operating income of $179 million, net of expected fees, related to the alternative fuel tax credit.

	Successor				Predecessor
	Three Months Ended		Percentage		Three Months Ended		Percentage
	March 31,		of		March 31,		of
(In millions)	2011		Net Sales		2010		Net Sales

Cost of goods sold	$	1,363	86.2	%	$	1,356	92.8	%

~~Interest expense,~~Our ~~net~~cost ~~was~~of ~~$23~~goods ~~million~~sold inas ~~the~~a ~~third~~percentage ~~quarter~~ of ~~2010. The~~net ~~$49~~sales ~~million~~for ~~decrease~~the ~~compared~~three tomonths ~~the third~~ended ~~quarter~~March 31, of2011 ~~2009~~ was ~~due~~positively toimpacted ~~lower~~by ~~average~~higher ~~borrowings. The lower~~ average ~~borrowings~~selling ~~were primarily due to the repayment of our secured borrowings and the DIP Credit Facility, and discharge of our unsecured debt upon emergence~~prices. Our ~~overall~~containerboard ~~average~~mills ~~effective~~operated ~~interest~~at ~~rate~~97.1% inand ~~the~~100% ~~third quarter~~ of ~~2010 was~~capacity ~~higher~~for ~~than~~ the ~~third~~three ~~quarter~~months ofended ~~2009~~March 31, ~~excluding~~2011 ~~the~~and ~~Predecessor unsecured debt~~2010, ~~by 1~~respectively.~~6%.~~

48Selling and Administrative Expenses

In the third quarter of 2009, we recorded non-cash foreign currency exchange losses of $11 million. Upon emergence from bankruptcy, we reviewed the primary economic indicators as defined by ASC 830, “Foreign Currency Matters” and determined the functional currency for our Canadian operations to be the local currency. Beginning in third quarter of 2010, translation gains or losses are included in stockholders’ equity as part of OCI. For additional information on the change in functional currency for our Canadian operations, see Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk — “Foreign Currency Risk.”

	Successor				Predecessor
	Three Months Ended		Percentage		Three Months Ended		Percentage
	March 31,		of		March 31,		of
(In millions)	2011		Net Sales		2010		Net Sales

Selling and administrative expenses	$	122	7.7	%	$	151	10.3	%

~~We recorded~~Selling anand ~~income~~administrative ~~tax~~expenses ~~provision of $49 million~~ for the three months ended ~~September~~March 3031, ~~2010. The~~ ~~provision~~2011 ~~for~~were ~~income~~favorably ~~taxes differed~~impacted ~~from~~by ~~the~~our ~~amount~~initiative ~~computed~~in by2010 ~~applying~~to ~~the~~reduce ~~statutory~~our ~~U.S.~~selling ~~federal~~and ~~income tax~~administrative ~~rate~~costs, toprimarily ~~income~~through ~~before~~reductions ~~income~~in ~~taxes~~our ~~due~~workforce. Selling ~~primarily~~and toadministrative ~~adjustments~~expenses ~~resulting from~~for ~~reconciling~~the ~~filed~~three ~~tax~~months ~~returns~~ended toMarch 31, ~~recorded~~2010 ~~tax~~were ~~provision,~~unfavorably ~~state~~impacted ~~income taxes,~~by ~~and~~$6 ~~the~~million ~~effects~~accrued ofunder ~~foreign~~our ~~tax~~2009 ~~rates~~long-term incentive plan.

~~Nine Months 2010 Compared to Nine Months 2009~~Other

	Successor					Predecessor
	Three Months Ended September 30, 2010					Six Months Ended June 30, 2010					Nine Months Ended September 30, 2009
(In millions)	Net Sales		Profit/ (Loss)			Net Sales		Profit/ (Loss)			Net Sales		Profit/ (Loss)
Containerboard, corrugated containers and reclamation operations	$	1,634	$	216		$	3,024	$	116		$	4,195	$	202
Restructuring expenses			(7		)			(15		)			(38		)
Loss on disposal of assets													(3		)
Other operating income								11					455
Interest expense, net			(23		)			(23		)			(217		)
Debtor-in-possession debt issuance costs													(63		)
Loss on early extinguishment of debt													(20		)
Non-cash foreign currency exchange gains (losses)								3					(10		)
Reorganization items income (expense), net			(7		)			1,178					(109		)
Corporate expenses and other (Note 1)			(65		)			(145		)			(182		)
Income before income taxes			$	114				$	1,125				$	15

Interest expense, net was $22 million for the three months ended March 31, 2011, including amortization of deferred debt issuance costs and original issue discount of $3 million. Average borrowings under the Successor credit facilities were $1,168 million, with an overall average effective interest rate of approximately 6.75%.

~~Note~~ Interest expense, net was $13 million for the three months ended March 31, 2010. Average secured borrowings were $1:,377 ~~Amounts~~million ~~include~~with ~~corporate~~an ~~expenses~~overall ~~and~~average ~~other~~effective ~~expenses~~interest ~~not~~rate ~~allocated~~of approximately 3.75% for the three months ended March 31, 2010. Contractual interest expense on unsecured debt was $47 million for the three months ended March 31, 2010. Under the Plan of Reorganization, interest expense on the unsecured debt subsequent to ~~operations~~ the Petition Date was not paid and no interest expense was recorded for the three months ended March 31, 2010.

~~Net sales~~We ~~increased~~recorded ~~11.0%~~non-cash inforeign ~~the~~currency ~~first~~exchange ~~nine~~losses ~~months~~ of ~~2010 compared to last year. Net sales were positively impacted by higher average selling prices (~~$~~267~~6 million) for ~~containerboard~~the ~~and reclaimed~~three ~~material. The~~months ~~average~~ended ~~price for~~March 31, ~~old~~2010. Upon ~~corrugated~~emergence, ~~containers~~we ~~(OCC)~~reviewed ~~increased~~the ~~approximately~~primary ~~$80~~economic ~~per~~indicators ~~ton compared~~for toour ~~last~~Canadian ~~year. Net~~operations ~~sales~~under ~~were also~~the ~~favorably~~Reorganized ~~impacted~~Smurfit-Stone byand ~~$196~~determined ~~million in~~ the ~~first~~functional ~~nine~~currency ~~months~~for ofour ~~2010~~Canadian asoperations ~~a result~~to ofbe ~~higher~~the ~~third-party~~local ~~sales~~currency. As ~~volume~~a ofresult, ~~containerboard~~effective ~~and~~July 1, ~~corrugated containers.~~2010, ~~Third~~translation ~~party~~gains ~~shipments~~or oflosses ~~containerboard~~are ~~were~~included ~~higher~~with ~~due~~stockholders’ ~~primarily to~~equity ~~stronger~~as ~~demand~~part inof ~~the domestic market~~OCI.

~~Our containerboard~~For ~~mills~~the ~~operated~~three atmonths ~~99.2%~~ended ofMarch 31, ~~capacity~~2011, inwe ~~the~~recorded ~~first~~a ~~nine~~provision ~~months~~for ~~of 2010,~~income ~~compared~~taxes toof 84$11 million.9% The inprovision for income taxes differed from the ~~first~~amount ~~nine~~computed ~~months~~by ofapplying ~~2009. As~~the astatutory ~~result~~U.S. offederal ~~less~~income ~~market~~tax ~~related~~rate ~~downtime, containerboard~~to ~~production~~income ~~was~~before ~~5.6%~~income ~~higher~~taxes ~~compared~~primarily due to ~~last~~the ~~year~~cellulosic ~~despite~~biofuel ~~the~~production ~~closure of~~income ~~two~~tax ~~containerboard~~credit, ~~mills~~state inincome ~~December 2009. Total~~taxes, ~~tons~~lower ofeffective ~~fiber~~tax ~~reclaimed~~rates ~~and~~in ~~brokered increased~~certain ~~14.3%~~foreign ~~compared~~jurisdictions toand ~~last~~the ~~year~~effect ~~due~~of toother ~~higher~~permanent ~~demand~~differences.

Cost of goods sold as a percent of net sales in the first nine months of 2010 was 88.2%, compared to 89.6% for the first nine months of 2009. Cost of goods sold increased from $3,757 million in 2009 to23

49As of March 31, 2011, the amount of gross unrecognized tax benefits was approximately $295 million, exclusive of interest and penalties. Of this balance, approximately $283 million of net unrecognized tax benefits, if recognized, would impact the effective tax rate.

$4,107 million in 2010 due primarily to higher costs of reclaimed material ($308 million) in the first nine months of 2010.

Selling and administrative expenses increased $7 million in the first nine months of 2010 compared to the first nine months of 2009 primarily due to an increase in outside services and amounts accrued under our 2009 long-term incentive plan.

During the nine months ended September 30, 2010, we recorded other operating income of $11 million related to the alternative fuel tax credit compared to $455 million for the same period last year.

Interest expense, net was $46 million in the first nine months of 2010. The $171 million decrease compared to the first nine months of 2009 was impacted by the discontinuation of recording interest on unsecured debt ($98 million) of the Predecessor Company, lower average borrowings ($66 million), lower average interest rates ($2 million) and $5 million in other interest expense reductions, including negotiated settlements on default interest rates. During bankruptcy, we discontinued interest payments on our unsecured notes and certain other unsecured debt. The lower average borrowings were primarily due to the repayment of our secured borrowings and the DIP Credit Facility, and discharge of our unsecured debt upon emergence. Our overall average effective interest rate in the first nine months of 2010 was lower than the first nine months of 2009, excluding the Predecessor unsecured debt, by 0.76%. For additional information on the discontinuation of recording 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 nine months of 2009, we recorded debtor-in-possession debt issuance costs of $63 million in connection with entering into the DIP Credit Agreement. We also recorded a loss on early extinguishment of debt of $20 million for the non-cash write-off of deferred debt issuance costs related to the Stevenson, Alabama mill industrial revenue bonds, which were repaid.

In the first nine months of 2010, we recorded non-cash foreign currency exchange gains of $3 million compared to losses of $10 million for the same period in 2009. Upon emergence from bankruptcy, we reviewed the primary economic indicators as defined by ASC 830, “Foreign Currency Matters” and determined the functional currency for our Canadian operations to be the local currency. Beginning in third quarter of 2010, translation gains or losses are included in stockholders’ equity as part of OCI.

During the nine months ended September 30, 2010, we recorded a $150 million income tax benefit primarily due to the $200 million income tax benefit related to the effects of the plan of reorganization which principally includes adjustments for cancellation of indebtedness, valuation allowances and unrecognized tax benefits. During the nine months ended September 30, 2009, we recorded a provision for income taxes of $3 million related to Canadian withholding taxes and interest on unrecognized tax benefits previously recorded. For additional information on income taxes see Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Income Taxes.”

Statistical Data

	Successor	Predecessor
	Three Months Ended September 30,	Three Months Ended September 30,	Six Months Ended June 30,	Nine Months Ended September 30,
(In thousands of tons, except as noted)	Three Months Ended March 31, 2011	Three Months Ended March 31, 2010
(In thousands of tons, except as noted)	2010	2009	2010	2009
Mill Production
Mill Production
Containerboard (1)	1,576	1,585
Containerboard (1)	1,603	1,551	3,130	4,483
Kraft paper	28	29
Kraft paper	26	34	55	81
Market pulp	59	62
Market pulp	73	78	134	220
SBL	33	35
SBL	32	29	66	94
North American corrugated containers sold (billion sq. ft.)	16.2	16.4
North American corrugated containers sold (billion sq. ft.)	17.1	16.7	33.7	50.0
Fiber reclaimed and brokered	1,501	1,423
Fiber reclaimed and brokered	1,494	1,317	2,891	3,838

(1) For the three months ended ~~September~~March 3031, ~~2010~~ 2011 and ~~2009~~2010, our corrugated container plants consumed 1,~~150~~108,000 tons and 1,~~107~~116,000 tons of containerboard, respectively. ~~For the nine months ended September 30, 2010 and 2009, our corrugated container plants consumed 3,415,000 tons and 3,354,000 tons of containerboard, respectively.~~

5124

LIQUIDITY AND CAPITAL RESOURCES

At ~~September~~March 3031, ~~2010~~2011, we had cash and cash equivalents of $~~464~~446 million compared to $~~704~~449 million at December 31, ~~2009~~ ~~and $340 million at June 30,~~ 2010. ~~Related to our Plan of Reorganization, our long~~ Long-term debt ~~was reduced from $3,793 million~~ at ~~December~~March 31, ~~2009~~2011 ~~to $1,194 million upon emergence at June 30, 2010. Long-term debt at September 30, 2010~~ was $1,~~192~~169 million. As of ~~September~~March 3031, ~~2010~~2011, the amount available for borrowings under the asset-based revolving credit facility (the “ABL Revolving Facility”) after considering outstanding letters of credit was $~~528~~572 million.

The following table summarizes our cash flows:

	Successor			Predecessor
	Three Months Ended September 30,			Six Months Ended June 30,			Nine Months Ended September 30,
	Three Months Ended March 31,			Three Months Ended March 31,
(In millions)	~~2010~~2011			2010			~~2009~~
Net cash provided by (used for):
Operating activities	$	~~161~~57		$	~~(85~~50	)	$	~~793~~
Investing activities	(34		)	(7328		)	~~(111~~		)
Financing activities	(326		)	(~~206~~25		)	~~(247~~		)
Net increase (decrease) in cash	$	124		$	(364	)	$	435
Effect of exchange rate changes on cash				1
Net decrease in cash	$	(3	)	$	(2	)

Net Cash Provided By (Used For) Operating Activities

The net cash provided by operating activities was $161 million for the three months ended September 30, 2010 as a result of operating income of $142 million. The net cash provided by operating activities for the nine months ended September 30, 2010 was lower compared to the same period in 2009 due primarily to lower alternative fuel tax credit receipts of $356 million, operating cash payments under the Plan of Reorganization of $202 million and unfavorable working capital changes of $63 million, which were partially offset by higher segment profits of $130 million. The unfavorable working capital change in 2010 was due to an increase in accounts receivable principally caused by the increase in selling prices and was partially offset by a reduction of $48 million in the receivable for alternative fuel tax credit. Working capital, principally accounts payable, was favorably impacted in the first nine months of 2009 by the stay of payment of liabilities subject to compromise resulting from the bankruptcy filings.Successor

The net cash provided by operating activities for the three months ended March 31, 2011 of $57 million benefited from higher selling prices and operating income. Operating cash flows were unfavorably impacted by working capital changes of $99 million. The unfavorable working capital change for the three months ended March 31, 2011 was principally due to higher sales volume and inventory levels. These increases were partially offset by increased accounts payable.

Predecessor

The net cash provided by operating activities for the three months ended March 31, 2010 of $50 million was favorably impacted by a reduction of $48 million in the receivable for alternative fuel tax credits.

Net Cash Used For Investing Activities

Net cash used for investing activities was $107 million for the nine months ended September 30, 2010. Expenditures for property, plant and equipment were $122 million for the first nine months of 2010, compared to $112 million for the same period last year. The amount expended for property, plant and equipment in the first nine 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 $15 million in the first nine months of 2010 compared to $16 million in the first nine months of 2009. Advances to affiliates, net in the first nine months of 2009 of $15 million is principally related to funding an obligation pertaining to a guarantee for a previously non-consolidated affiliate.Successor

Net cash used for investing activities was $34 million for the three months ended March 31, 2011. Expenditures for property, plant and equipment were $35 million. The amount expended for property, plant and equipment was principally for projects related to upgrades, cost reductions and ongoing initiatives.

Predecessor

For the three months ended March 31, 2010, net cash used for investing activities was $28 million including expenditures for property, plant and equipment of $34 million, which was partially offset by net proceeds of $6 million from sales of previously closed facilities.

Net Cash Used For Financing Activities

Net cash used for financing activities for the nine months ended September 30, 2010 was $209 million. During the third quarter 2010, we paid $3 million on the Term Loan as required under the Term Loan Facility. At emergence from bankruptcy on June 30, 2010, we obtained proceeds of $1,188 million (net of $12 million original issue discount) under the Term Loan Facility, which together with available cash, were 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 Plan of Reorganization, including $32 million for debt issuance costs related to our Exit Credit Facilities. The net cash used for financing activities also included an additional $15 million for debt issuance costs which were paid prior to emergence.Successor

52Net cash used for financing activities for the three months ended March 31, 2011 was $26 million. During the three months ended March 31, 2011, we repaid $3 million on the term loan as required under the term loan commitment (the “Term Loan Facility”). In addition, as a result of Excess Cash Flows, as defined in the Term Loan Facility, during the six months ended December 31, 2010, we were required to repay $23 million in March 2011 on the Term Loan Facility.

Net cash used for financing activities for the nine months ended September 30, 2009 was $247 million, including proceeds from the DIP Credit Agreement of $440 million which were used to terminate our receivables securitization programs and repay all indebtedness outstanding under the programs of $385 million. During the nine months ended September 30, 2009, we made $310 million of voluntary prepayments on the DIP credit agreement with available cash provided by operating activities. Debt issuance costs of $63 million were incurred and paid with the DIP proceeds and available cash. 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.25

~~Exit Credit Facilities~~Predecessor

OnNet ~~February 16,~~cash ~~2010,~~used ~~the~~for ~~U.S.~~financing ~~Court~~activities 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~~three ~~Revolving~~months ~~Facility)~~ended ~~(together with the Term Loan Facility, the Exit Credit Facilities).~~March ~~Based on such approvals~~31, ~~on February 22,~~ 2010, wewas ~~and~~$25 ~~certain~~million ~~of our~~which ~~subsidiaries~~included ~~entered into the Term Loan Facility that provides for an aggregate term loan commitment of~~ $~~1,200~~9 million~~. In~~ ~~addition,~~for wedebt ~~entered~~issuance ~~into~~cost ~~the~~related ~~ABL Revolving~~to ~~Facility~~our ~~with~~credit ~~aggregate~~facilities ~~commitments~~and of $~~650~~15 million ~~(including~~transferred ato ~~$100 million~~restricted ~~Canadian~~cash ~~Tranche),~~to oncollateralize ~~April 15,~~outstanding ~~2010. The ABL Revolving Facility includes a $150 million sub-limit for~~ letters of credit.

WeCredit 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.Facilities

WeUpon ~~are~~emergence ~~permitted,~~from ~~subject to obtaining lender commitments~~bankruptcy, ~~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)~~June ~~any new lender providing an incremental commitment shall require the consent of the Administrative Agent~~30, ~~each~~ ~~Issuing Lender~~2010, ~~the~~our ~~Swingline~~credit ~~Lender~~facilities ~~and~~include ~~the~~a ~~Fronting Lender~~$1,200 ~~(c) the minimum amount of any increase must be at least $25~~ million, ~~(d) we~~Term ~~shall not~~Loan ~~increase~~Facility ~~the commitments more than three times in the aggregate, (e) if the interest rate margins~~ and ~~commitment~~an ~~fees with respect to the incremental commitments are higher than those applicable to the existing commitments under the~~ ABL Revolving Facility, ~~then~~with ~~the~~aggregate ~~interest~~commitments ~~rate~~of ~~margins~~$650 ~~and~~million ~~commitment~~(including ~~fees for~~a ~~the~~$100 ~~existing~~million ~~commitments~~Canadian ~~under~~Tranche). The ~~the~~ ABL Revolving Facility ~~will~~includes bea ~~increased to~~$150 ~~match~~million ~~those~~sub-limit for ~~the~~letters ~~incremental commitments, and (f) the satisfaction~~ of ~~other customary closing conditions~~credit.

OnAs ~~June~~of March 3031, ~~2010,~~2011 ~~the Term~~we ~~Loan~~had ~~Facility~~no ~~was funded and~~ borrowings ~~became available~~ under the ABL Revolving Facility~~. The~~ ~~proceeds~~and ~~of the borrowings under the Term Loan Facility of~~ $1,~~200~~168 million, ~~together with available cash, were 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~~Term ~~Credit~~Loan ~~Facilities and the Plan of Reorganization. On September 30, 2010 we had no borrowings under the ABL Revolving~~ Facility. Borrowings under the ABL Revolving Facility are available for working capital purposes, capital expenditures, permitted acquisitions and general corporate purposes. As of ~~September~~March 3031, ~~2010~~2011, our borrowing base under the ABL Revolving Facility was $~~625~~650 million and the amount available for borrowings after considering outstanding letters of credit was $~~528~~572 million.

~~For additional~~The ~~information~~credit facilities contain affirmative and negative covenants that impose restrictions on ~~the~~our ~~Exit~~financial ~~Credit~~and ~~Facilities~~business operations and those of certain of our subsidiaries, ~~see~~including ~~Part I~~our ability to incur indebtedness, ~~Item 2.~~ ~~Management’s~~incur ~~Discussion~~liens, ~~and~~make ~~Analysis~~investments, ofsell ~~Financial~~assets, ~~Condition~~pay ~~and~~dividends ~~Results~~or ~~of Operations~~make —acquisitions. The ~~Bankruptcy~~credit ~~Proceedings~~facilities —contain ~~Plan~~events of ~~Reorganization~~default ~~and~~customary ~~Exit~~for ~~Credit Facilities~~financings —of ~~“Exit~~this ~~Credit~~type. At ~~Facilities~~March 31, 2011, we were in compliance with our debt covenants.”

Future Cash Flows

We recorded restructuring ~~charges~~expense of $224 million during the ~~first~~three ~~nine~~ months ofended ~~2010~~March 31, ~~including~~2011 aprimarily ~~$12 million gain~~ related to ~~the~~ ~~sale~~severance ofand ~~previously~~benefits ~~closed~~and ~~facilities,~~facility ofclosure ~~which $8 million resulted from the legal release of environmental liability obligations~~costs. Restructuring charges included non-cash charges of $11 million related to the acceleration of depreciation for converting equipment abandoned or taken out of service. The remaining charges of $23 million were principally for severance and benefits. During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, we incurred cash expenditures of $172 million for these exit liabilities. The remaining exit liabilities are expected to be paid principally in the fourth quarter of 2010. At December 31, 2009, we had $54 million of exit liabilities related principally to restructuring activities. During the nine months ended September 30, 2010, we incurred cash expenditures of $27 million for these exit liabilities. In addition, these exit liabilities decreased by ~~$8 million resulting from~~ the ~~release~~end of ~~environmental liability obligations upon the sale of previously closed facilities and $3 million due to the reclassification of multi-employer pension liabilities to liabilities subject to compromise~~2011. ~~The cash expenditures in connection with our remaining exit liabilities will continue to be funded through operations as originally planned.~~

~~In March~~At December 31, 2010, we ~~recorded~~had ~~other~~$27 ~~operating~~million ~~income~~of exit liabilities related principally to restructuring activities. During the three months ended March 31, 2011, we incurred cash expenditures of $11 million ~~relating~~for ~~to an~~these ~~adjustment~~exit ofliabilities. The ~~refund~~cash ~~claims~~expenditures ~~for~~in ~~the~~connection ~~alternative~~with ~~fuel~~our ~~tax~~remaining ~~credit~~exit ~~submitted~~liabilities ~~in 2009. We~~are ~~expect~~expected to ~~receive~~be ~~the~~funded ~~refund claim~~by inour ~~the~~cash ~~fourth~~flows ~~quarter~~from ofoperating ~~2010~~activities.

~~Upon emergence~~In ~~from bankruptcy~~March 2010, we ~~had~~recorded ~~$94 million accrued for professional fees and~~ other ~~emergence~~operating ~~fees~~income ~~and~~of ~~expenses~~$11 ~~related~~million relating to ~~our reorganization. During the third quarter 2010, we incurred~~ an ~~additional~~adjustment ~~$7 million~~ of ~~expense~~refund ~~and~~claims ~~paid $75~~for ~~million~~the ~~related~~alternative tofuel ~~these~~tax ~~fees~~credit ~~and~~submitted ~~expenses~~in 2009. As We ofexpect ~~September 30,~~to ~~2010,~~receive ~~our~~the ~~remaining accrual was~~ $2611 million~~, which~~ werefund ~~expect~~claim toadjustment ~~pay~~ in the ~~fourth~~second quarter of ~~2010 and first quarter of~~ 2011.

Pension Plan Contributions

At June 30, 2010, the qualified defined benefit plans, which were assumed under the Plan of Reorganization, were underfunded by approximately $1,450 million based on actual asset values and the discount rates effective on June 30, 2010. The weighted average discount rates used at June 30, 2010 for the U.S. and Canadian qualified defined benefit plans were 5.31% and 5.23%, respectively. We currently estimate that our ~~minimum required~~ cash contributions under the U.S. and Canadian qualified pension plans will be approximately $~~100~~103 million in ~~2010~~2011, of which $317 million ~~and~~was ~~$12 million were~~ paid during the three months ended ~~September~~March 3031, ~~2010~~ ~~and six months ended June 30, 2010, respectively; and an additional $57 million, which is expected to paid in the fourth quarter of 2010~~2011. Contributions are expected to be in the range of $~~235~~250 million to $~~305~~340 million annually in ~~2011~~2012 through 2015. Projected pension contributions ~~assume~~reflect that we ~~elect~~ have elected funding relief under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, ~~enacted~~and also reflect our election of Canada’s funding relief measures made in ~~June~~ 2009 and 2010. 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.

~~INCOME~~Income ~~TAXES~~Taxes

~~Successor~~On ~~Company~~March 17, 2011, we received Internal Revenue Service approval to be recognized as a registered cellulosic biofuel producer. As a result, we plan to amend our 2009 tax return to claim a federal income tax credit for cellulosic biofuel production. This relates to the production of fuel that did not otherwise qualify for the alternative fuel mixture tax credit. Under the current law, this tax credit can be utilized to offset income taxes through December 31, 2015. For the three months ended March 31, 2011, we

We recorded an income tax provision of $49 million for the three months ended September 30, 2010. The provision for income taxes differed from the amount computed by applying the statutory U.S. federal income tax rate to income before income taxes due primarily to adjustments resulting from reconciling filed tax returns to recorded tax provision, state income taxes and the effects of foreign tax rates.26

~~Predecessor~~recorded ~~Company~~a benefit for income taxes of $14 million related to the cellulosic biofuel production income tax credit.

We For the three months ended March 31, 2011, we recorded a ~~net~~provision ~~tax~~for ~~benefit~~income taxes of $~~199~~11 million. The provision for income taxes differed from the ~~six~~amount ~~months~~computed ~~ended~~by ~~June 30, 2010. This~~applying ~~included~~the ~~$200~~statutory ~~million~~U.S. offederal ~~net benefit~~income ~~related~~tax rate to ~~the~~income ~~effects~~before ofincome ~~the~~taxes ~~Plan~~primarily ofdue ~~Reorganization,~~to ~~which~~the ~~included adjustments~~cellulosic ~~for~~biofuel ~~valuation~~production ~~allowance~~income ~~($427~~tax ~~million benefit)~~credit, ~~unrecognized~~state ~~tax benefits~~income ~~($39~~taxes, ~~million~~lower ~~benefit)~~effective ~~and~~tax ~~cancellation~~rates ofin ~~indebtedness~~certain foreign jurisdictions and ~~other~~the ~~plan effects~~effect ~~($266~~of ~~million~~other ~~provision)~~permanent differences.

54As of March 31, 2011, the amount of gross unrecognized tax benefits was approximately $295 million, exclusive of interest and penalties. Of this balance, approximately $283 million of net unrecognized tax benefits, if recognized, would impact the effective tax rate.

Certain debt obligations of ours were discharged upon emergence from bankruptcy. Discharge of a debt obligation for an amount less than the adjusted issue price generally creates cancellation of indebtedness income (CODI), which must be included in taxable income. However, CODI is excluded from taxable income for a taxpayer that is a debtor in a reorganization case if the discharge is granted by the court or pursuant to a plan of reorganization approved by the court. The Plan of Reorganization filed by us enabled us and our debtor subsidiaries to qualify for this bankruptcy exclusion rule. Based upon current projections, the CODI triggered by discharge of debt under the Plan of Reorganization will not create current taxable income, but will reduce our net operating losses (NOLs) for the year of discharge and net operating loss carryforwards. None of our other U.S. income tax attributes are expected to be reduced.

Due to the effects of the Plan of Reorganization, we concluded it is more likely than not that the majority of deferred income tax assets will be realized. Management considered the reversal of deferred tax liabilities in making this assessment. As a result, we recognized an income tax benefit for release of pre-emergence valuation allowance on its net deferred tax assets in the U.S. and Canada. At September 30, 2010, a valuation allowance remains in place related to certain state NOLs.

As previously reported, we entered into an agreement with the Canada Revenue Agency and other provincial tax authorities that took effect upon our emergence from bankruptcy. This agreement settled the open Canadian income tax matters through January 26, 2009. As a result of this agreement, we reported a $39 million net income tax benefit for the six months ended June 30, 2010 related to the final settlement of the Canadian tax claims and the release of the previously accrued unrecognized tax benefits related to the Canadian audit.

Based on our current tax position that the alternative fuel mixture credits are not taxable, we increased the tax value of its federal NOL carryforwards by $254 million during the six months ended June 30, 2010. A reserve of $254 million was recorded related to this unrecognized tax benefit.

Deferred Income Tax Assets and Liabilities

At June 30, 2010, we had federal NOL carryforwards net of unrecognized tax benefits of $722 million, with a tax value of $253 million. We had NOL carryforwards for state purposes with a tax value of $61 million. Additionally, we had $68 million of alternative minimum tax credit carryforwards and $6 million of other federal and state tax credit carryforwards available.

As a result of the issuance of new common shares upon emergence from bankruptcy, we realized a change of ownership for purposes of Section 382 of the U.S. Internal Revenue Code, which can impose annual limitations on utilization of NOLs and tax credits. We do not expect the provisions of Section 382 to significantly limit its ability to utilize NOLs or tax credits in the carryforward periods.

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 $59 million. 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 June 30, 2010, all amounts in OCI were recognized through earnings. On June 30, 2010, the derivative contract termination liabilities of $59 million were paid in connection with our emergence from our Chapter 11 and CCAA bankruptcy proceedings. See Note 10 of the Notes to Consolidated Financial Statements.

Commodity Price Risk

We Prior to filing for bankruptcy, we used financial 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~~Our 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. ~~Our investments in foreign subsidiaries with a functional currency other than the U.S. dollar are not hedged.~~

Prior to emerging from bankruptcy, the functional currency for our Canadian operations was the U.S. dollar. Fluctuations in Canadian dollar monetary assets and liabilities resulted in gains or losses which were credited or charged to income. Upon emergence, we reviewed the primary economic indicators for our Canadian operations under the Reorganized Smurfit-Stone, including cash flow indicators, sales price indicators, sales market indicators, expense indicators, financing indicators and intercompany transactions as required by ASC 830, “Foreign Currency Matters”.” Based on our analysis, including current operations and financing availability within Canada, we determined the functional currency for our Canadian operations to be the local currency. As a result, effective July 1, 2010, the assets and liabilities for the Canadian operations are translated at the exchange rate in effect at the balance sheet date and income and expenses are translated at average exchange rates prevailing during the year. Translation gains or losses are included within stockholders’ equity as part of OCI.

We For the Predecessor period, 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 ~~June~~March 3031, 2010, compared to December 31, 2009, ~~weakened 1.~~strengthened 3.0% against the U.S. dollar. Under the Predecessor ~~periods~~period, we recognized non-cash foreign currency exchange ~~gains~~losses of $36 million for the ~~six~~three month period ended ~~June~~March 3031, 2010~~, and a loss of $11 million and $10 million for the three and nine months ended September 30, 2009, respectively~~. The Canadian dollar as of September 30, 2010 compared to June 30, 2010 strengthened 2.9% against the U.S. dollar, and as a result, we recorded a $4 million gain in OCI related to the translation of our Canadian operations for the three months ended September 30, 2010.

During the Successor three ~~months~~month period ended ~~September~~March 3031, ~~2010~~2011, ~~we entered into foreign currency exchange derivative contracts to minimize~~ the ~~exposure to currency exchange rate fluctuations on a $255 million~~ Canadian dollar ~~denominated inter-company~~as ~~note~~of ~~established~~March 31, ~~upon~~2011 ~~emergence~~compared ~~between~~to aDecember 31, ~~U.S.~~2010 ~~subsidiary~~strengthened ~~and~~2.3% ~~a Canadian~~against ~~subsidiary, whereby~~ the U.S ~~subsidiary is the lender~~. ~~The~~ ~~inter-company note matures on June 29~~dollar, ~~2015~~ and ~~interest~~as isa ~~payable~~result, ~~quarterly. The~~we ~~derivative~~recorded ~~contracts~~a ~~are~~$3 ~~monthly~~million orgain ~~quarterly~~(net ~~instruments~~of ~~with~~tax) ~~a notional~~in ~~amount~~OCI ~~equal~~related to the ~~inter-company~~translation ~~note~~of ~~principal,~~our ~~plus~~Canadian ~~accrued interest. The~~operations ~~derivative~~for ~~contracts~~the ~~are marked-to-market~~three ~~through~~months ~~earnings~~ended onMarch 31, ~~a quarterly basis~~2011.

For the three months ended September 30, 2010, our U.S subsidiary recorded a $4 million foreign currency gain (net of tax) in other, net in the consolidated statements of operations related to the revaluation of the inter-company note.27

~~For~~ We use foreign currency exchange derivative contracts to minimize the ~~three~~exposure ~~months~~to ~~ended~~currency ~~September 30,~~exchange ~~2010,~~rate wefluctuations ~~recorded~~on a $4255 million ~~loss (net~~Canadian ofdollar ~~tax)~~denominated ininter-company ~~other~~note established upon emergence between a U.S. subsidiary and a Canadian subsidiary, ~~net~~whereby inthe U.S subsidiary is the ~~consolidated~~lender. The ~~statements~~inter-company ofnote ~~operations~~matures on ~~the settlement~~June 29, of2015 and interest is payable quarterly. The derivative contracts are monthly or quarterly instruments with a notional amount equal to the inter-company note principal, plus accrued interest. The derivative contracts are marked-to-market through earnings on a quarterly basis.

56For the three months ended March 31, 2011, our U.S subsidiary recorded a $4 million foreign currency gain (net of tax) in other, net in the consolidated statements of operations related to the revaluation of the inter-company note. We recorded a $4 million loss (net of tax) in other, net in the consolidated statements of operations on the settlement of the derivative contracts.

For the three months ended September 30, 2010, we recorded an immaterial amount in other, net in the consolidated statements of operations related to the change in fair value of the derivative contracts.

Interest Rate Risk

Our earnings and cash flow are significantly affected by the amount of interest on our indebtedness. Upon emergence, our financing arrangements include variable rate debt. 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 may 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.

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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 and certain ~~Non~~ non-~~Debtor~~debtor subsidiaries were not included in the filings and continued to operate outside of the Chapter 11 and CCAA processes. On June 21, 2010, the U.S. Court entered the Findings of Fact, Conclusions of Law and Order Confirming the Joint Plan for Smurfit-Stone Container Corporation and its Debtor Subsidiaries and Plan of Compromise and Arrangement for Smurfit-Stone Container Canada Inc. and Affiliated Canadian Debtors (the “Confirmation Order”), which approved and confirmed the Plan of Reorganization. On June 30, 2010 (the “Effective Date”), the Plan of Reorganization became effective and the Debtors consummated their reorganization through a series of transactions contemplated by the Plan of Reorganization and emerged from Chapter 11 bankruptcy proceedings. See Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Bankruptcy Proceedings.”

In ~~September~~May ~~2010~~2009, ~~four putative~~a ~~class~~lawsuit ~~action~~was ~~complaints (the Complaints) were~~ filed in the United States District Court for the Northern District of Illinois against usfour ~~and several~~individual ~~other~~committee ~~paper~~members ~~and~~of ~~packaging~~the ~~companies~~Administrative Committee (~~collectively~~“Administrative ~~referred~~Committee”) toof asour Savings Plans (the “Savings Plans”) and Patrick Moore, our Chief Executive Officer (together, the “Defendants”). ~~The~~During ~~Complaints~~the ~~allege~~first ~~that we~~quarter ~~and~~of ~~the~~2010, ~~Defendants~~two ~~engaged~~additional inEmployee ~~anti-competitive~~Retirement ~~activities~~Income ~~and~~Security ~~violation~~Act ~~of antitrust~~(“ERISA”) ~~laws~~class byaction ~~reaching~~lawsuits ~~agreements~~were filed in ~~restraint~~the ofUnited ~~trade~~States ~~that~~District ~~affected~~Court for the ~~manufacture,~~ ~~sale~~Western District of Missouri and ~~pricing~~one ofin ~~corrugated~~the ~~products~~United States District Court for the District of Delaware. The ~~Complaints~~defendants ~~seek~~in anthese ~~unspecified~~cases ~~amount~~are ~~of damages~~individual ~~arising~~committee ~~from~~members of the ~~sale~~Administrative Committee, several other of ~~corrugated~~our ~~products~~current ~~from~~and ~~2005~~former toexecutives ~~present~~and individual members of the predecessor Company’s Board of Directors. WeThe ~~have~~suits ~~filed~~were anconsolidated ~~adversary~~into ~~proceeding~~one matter in January 2011 in the U Northern District of Illinois.S The consolidated complaint alleges certain ERISA violations between January 1, 2008 and January 26, 2009. The ~~Bankruptcy~~plaintiffs ~~Court~~brought ~~seeking~~the complaint on behalf of themselves and a ~~determination~~class of similarly situated participants and beneficiaries of four of our Savings Plans. The plaintiffs assert that the ~~filing~~Defendants ofbreached ~~these Complaints~~their ~~violates~~fiduciary duties to the ~~Confirmation~~Savings ~~Order,~~Plans’ ~~along~~participants and beneficiaries by allegedly making imprudent investments with athe ~~motion~~Savings ~~for~~Plans’ ~~a preliminary~~assets, ~~injunction~~making misrepresentations and failing to ~~prevent~~disclose ~~prosecution~~material ofadverse facts concerning our business conditions, debt management and viability, and not taking appropriate action to protect the ~~Complaints~~Savings Plans’ assets. During April 2011, the parties reached an agreement in principle to settle the case. We believe the liability for this matter was adequately reserved at March 31, 2011.

In September 2010, four putative class action complaints (the “Complaints”) were filed in the United States District Court for the Northern District of Illinois against us and several other paper and packaging companies (collectively referred to as the “Class Action Defendants”). The Complaints allege that we and the Class Action Defendants engaged in anti-competitive activities and violation of antitrust laws by reaching agreements in restraint of trade that affected the manufacture, sale and pricing of corrugated products. The Complaints seek an unspecified amount of damages arising from the sale of corrugated products from 2005 to the date the lawsuit was filed. A consolidated complaint was filed on November 8, 2010 by the Complainants which contains allegations that limit our liability to conduct that arose subsequent to the bankruptcy Effective Date. The Class Action Defendants filed motions to dismiss the Complaints, which were denied by the Court on April 8, 2011. Given the limited time period for potential liability, we believe the resolution of these matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Three complaints on behalf of the same putative class of Smurfit-Stone stockholders have been filed in the Circuit Court for Cook County, Illinois challenging the Merger Agreement: (i) Roseman v. Smurfit-Stone Container Corp.; (ii) Findley v. Smurfit-Stone Container Corp.; and (iii) Czech v. Smurfit-Stone Container Corp. (collectively, the “Illinois-Cook County Complaints”). On March 4, 2011, the plaintiffs in the consolidated action filed an amended complaint,

which names as defendants Smurfit-Stone, Rock-Tenn, and the individual members of our Board of Directors (the “Merger Defendants”). The amended complaint alleges, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to our stockholders, that the February 24, 2011 preliminary joint proxy statement/prospectus contained misleading or inadequate disclosures regarding the proposed merger, that the individual defendants breached their fiduciary duties in approving the Merger Agreement and that those breaches were aided and abetted by Rock-Tenn and us. The amended complaint seeks equitable relief, including an injunction prohibiting consummation of the Merger Agreement. On April 21, 2011, the Court stayed this consolidated matter pending resolution of the Delaware plaintiffs’ motion for preliminary injunction or until further order of the Court.

On February 17, 2011, a putative class action complaint asserting similar claims was filed against the same defendants and a Rock-Tenn merger subsidiary, in the United States District Court for the Northern District of Illinois under the caption of Dabrowski v. Smurfit-Stone Container Corp. (the “Illinois-Northern District Complaint”). On April 21, 2011, the plaintiff filed an amended complaint alleging, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to Smurfit-Stone stockholders, that Smurfit-Stone and the individual defendants breached their fiduciary duties in approving the Merger Agreement and that those breaches were aided and abetted by Rock-Tenn and its merger subsidiary. The plaintiff also alleges that the March 31, 2011 amended joint proxy statement/prospectus contained misleading or inadequate disclosures constituting violations of Section 14(a) of the Securities Exchange Act of 1934. The plaintiff seeks equitable relief, including an injunction prohibiting consummation of the Merger Agreement.

Three complaints on behalf of the same putative class of Smurfit-Stone stockholders have been filed in the Delaware Court of Chancery challenging the Merger Agreement: (i) Marks v. Smurfit-Stone Container Corp.; (ii) Spencer v. Smurfit-Stone Container Corp.; and (iii) Gould v. Smurfit-Stone Container Corp. On March 24, 2011, these cases were consolidated (the “Delaware Complaints”). The plaintiffs allege, among other things, that the consideration agreed to in the Merger Agreement is inadequate and unfair to our stockholders, that the February 24, 2011 preliminary joint proxy statement/prospectus contained misleading or inadequate disclosures regarding the proposed merger, that the individual defendants breached their fiduciary duties in approving the Merger Agreement and that those breaches were aided and abetted by Rock-Tenn and its merger subsidiary. On March 24, 2011, the plaintiffs moved for class certification. The court has set a schedule for expedited proceedings in the consolidated matter, including expedited discovery, and has scheduled a hearing on May 18, 2011 for the plaintiffs’ anticipated motion for preliminary injunction.

We believe the Illinois-Cook County Complaints, Illinois-Northern District Complaint, and Delaware Complaints are without merit and will vigorously defend against the allegations.

All litigation that arose or may arise out of pre-petition or pre-discharge conduct or acts is subject to the Bankruptcy Discharge Order and is either resolved consistent with all other general unsecured claims in the bankruptcy or subject to dismissal based on failure to properly file a claim. As a result, we believe that these matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

We are a defendant in a number of lawsuits and claims arising out of the conduct of our business. While the ultimate results of such suits or other proceedings against us cannot be predicted with certainty, we believe the resolution of these matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

~~The “Bankruptcy Related Risk Factors” as disclosed in our 2009 Form 10-K are no longer applicable upon our emergence from bankruptcy proceedings.~~ There are no material changes to the ~~“Other Risk~~risk ~~Factors”~~factors as disclosed in our ~~2009~~2010 Form 10-K filed on February 15, 2011 and 2010 Form 10-K/A filed March 29, 2011.

~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~30

~~Pursuant~~ITEM ~~to the Plan of Reorganization, the Company issued an aggregate of 91,014,189 shares of Common Stock in its initial distribution~~2. On UNREGISTERED ~~or about~~SALES ~~October 29,~~OF ~~2010,~~EQUITY ~~the~~SECURITIES ~~Company~~AND ~~issued~~USE anOF additional 648,363 shares and cancelled 34,000 shares previously issued in the first distribution. Approximately 8.4 million shares of Common Stock continue to be held in reserve for future distribution to holders of unsecured non-priority claims that are unliquidated or subject to dispute. These shares will be distributed as these claims are liquidated or resolved, in accordance with the Plan of Reorganization and Confirmation Order. To the extent that such unliquidated or disputed claims are settled for less than the number of shares reserved, additional distributions may also be made with respect to previously allowed claims under the terms and conditions of the Plan of Reorganization and Confirmation Order.PROCEEDS

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~None

~~None~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES

~~ITEM 4. RESERVED~~None

58ITEM 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 ~~Quarterly~~Annual Report on Form 10-QK for the ~~quarter~~year ended ~~June~~December 3031, 2010 filed February 15, 2011 and Form 10-K/A for the year ended December 31, 2010 filed March 29, 2011.

ITEM 6. EXHIBITS

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

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.

~~99.1 Agreement~~101 The ~~and General~~following ~~Release~~materials offrom ~~Claims~~Smurfit-Stone’s ~~dated~~Quarterly asReport ofon ~~October~~Form 2710-Q for the quarter ended March 31, ~~2010~~2011, byformatted ~~and~~in ~~between Steven~~XBRL J.(Extensible ~~Klinger~~Business ~~and~~Reporting ~~Smurfit-Stone~~Language): ~~Container~~(i) the ~~Corporation~~Consolidated ~~and~~Statements ~~its~~of ~~subsidiaries~~ Operations, (~~incorporated~~ii) the byConsolidated ~~reference~~Balance toSheets, ~~Exhibit~~(iii) ~~10.1~~the toConsolidated ~~Smurfit-Stone’s~~Statements ~~Current Report~~of onCash ~~Form 8-K~~Flows, ~~filed~~and ~~November~~(iv) 1Notes to Consolidated Financial Statements, ~~2010~~tagged ~~(file~~as Noblocks of text. ~~1-03439)).~~

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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: November 5, 2010	/s/ Paul K. Kaufmann
Date: April 29, 2011	/s/ Paul K. Kaufmann
	Paul K. Kaufmann
	Senior Vice President and Corporate Controller
	(Principal Accounting Officer)
	(Principal Financial and Accounting Officer)

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