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Smurfit-StoneJ O I N I N G F O R C E S TO
1 9 9 8 A N N U A L R E P O R T
Re-energize theBUSINESS
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I V S M U R F I T - STO N E 1 9 9 8 A N N U A L R E P O R T
C O M P A N Y P R O F I L ESmurfit-Stone Container Corporation (Nasdaq: SSCC) is the industry’spremier paper-based packaging company. Headquartered in Chicago,with additional corporate functions in St. Louis, Missouri, and Alton,Illinois, the company was formed November 18, 1998, as a result of themerger between Jefferson Smurfit Corporation and Stone ContainerCorporation. Core products include corrugated containers, folding cartons, specialty packaging, and bag packaging, which are supportedby an integrated mill system and significant fiber resources. The companyoperates more than 300 facilities worldwide.
How?T A B L E O F C O N T E N T SIntroduction to Smurfit-Stone 2Smurfit-Stone at a Glance 3Production Statistics 5Letter to Shareholders 6Financial Highlights 8Re-energizing the Business 13Board of Directors and
Corporate Officers 26Annual Report on Form 10-K 27
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S M U R F I T - STO N E 1 9 9 8 A N N U A L R E P O R T 1R E - E N E R G I Z E T H E B U S I N E S S 1 9 9 8 A N N U A L R E P O R T 1
b y C r e a t i n gSHAREHOLDER
VALUE
b y W i d e n i n g t h eCOMPETITIVE
GAP
b y B u i l d i n g aUNIFIED, COHESIVE
ORGANIZATION
Meeting aggressive targets, encouraging flexibility and autonomy at locallevels, and investing in our corporate philosophy, IQS
Establishing strong core values, leadership, staff, and culture
b y M a n a g i n g f o rRESULTS
Leveraging strengths and achieving full potential
Refinancing, aggressively reducing debt, divesting of non-core businesses, and restructuring
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2 1 9 9 8 A N N U A L R E P O R T S M U R F I T - STO N E AT A G L A N C E
Jefferson Smurfit Corporation and
Stone Container Corporation have
joined forces to form Smurfit-Stone
Container Corporation (SSCC),
the world’s largest integrated
producer of paperboard and
paper-based packaging products.
As a result of the merger, Smurfit-
Stone is refocusing on its core busi-
nesses by utilizing and controlling
processes that add customer and
shareholder value.
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3 S M U R F I T - STO N E 1 9 9 8 A N N U A L R E P O R T3 1 9 9 8 A N N U A L R E P O R T S M U R F I T - STO N E AT A G L A N C E
N O R T H A M E R I C A N L E A D E R S H I P
S I Z E A N D S C O P E The merger of Jefferson Smurfit Corporation and StoneContainer Corporation has created the leading paper and paper-based packaging company in North America. The new company’s strategy emphasizes innovation, service, margins, andmarket position. The company has a national network of morethan 300 packaging plants that enables it to provide paper-basedpackaging solutions for any customer, large or small, anywhere in the country.
C R E A T I V I T Y A N DI N N O V A T I O N
Smurfit-Stone is a pioneer in the development of severalconcepts. Among them are using “just enough” packagingmaterial to produce a total-performance packaging system. Thissystem creates multiple packaging products that work togetherto address all customer packaging needs. The company alsofurnishes teams of technical and design specialists to devisepackaging solutions to customers’ problems. Smurfit-Stone’sR&D, creative, and technical capabilities apply new thinking and technology from around the world to its own products and processes.
S E R V I C EC A P A B I L I T I E S
In an industry where retailers are dominating the shape of packaging, Smurfit-Stone has the graphic, structural packaging,and converting capabilities to address this increasingly compet-itive market. By working collaboratively, not only with the company’s direct customers but also with their customers,experts in various disciplines have dramatically reduced the cycle time from concept to completion of packaging solutions,as well as increasing value to customers.
Smurfit-Stone is the leading North American producer of corrugated containers, containerboard, folding cartons, and industrial bags. It also has the largest recycling business in the industry. Together with its international operations and those ofits affiliate, Jefferson Smurfit Group, the company can provideglobal capabilities to its customers. Smurfit-Stone and JeffersonSmurfit Group supply about 11 percent of the world container-board market.
S M U R F I T - S T O N E A T A G L A N C E
C O M P A N Y O V E R V I E W
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C O R R U G A T E D C O N T A I N E R S
C O N T A I N E R B O A R D
4 1 9 9 8 A N N U A L R E P O R T S M U R F I T - STO N E AT A G L A N C E
Corrugated containers represent Smurfit-Stone’slargest business segment, with 61 percent of thecompany’s sales. The division supplies hundreds of national and international manufacturers, as well as thousands of local and regional customers.
Smurfit-Stone is the leading supplier of containerboard to domestic and export markets.
Smurfit-Stone offers a wide range of stylesappropriate to nearly all carton end uses. These cartons are used by consumer-goods producers to package foods, beverages, fast food, soap, paper, pharmaceuticals and cosmetics. Printing capabilities include sheet and web, lithographic, rotogravure, and flexographic.
The specialty packaging business comprises industrial and consumer packaging. Industrial produces tubes and cores, partitions, and a number of specialized products. Consumer meetsthe product needs of a wide variety of marketing,manufacturing, and consumer companies.
The containerboard mill segment produces a fullline of commodity and specialty paperboards for conversion into corrugated containers, bags,and related packaging products. The company produces unbleached kraft linerboard grades andcorrugating medium. This group also suppliesbleached hardwood market pulp for printing and writing papers, bleached paperboard, andphotographic paper.
Smurfit-Stone is unique in the paper and packagingindustry in that it has a strong position in both virgin and recycled fiber. The company has built the largest reclamation business in the industry and now collects and processes approximately 7 million tons of recycled paper every year.
P A P E R B O A R D , P A P E R ,A N D P U L P M I L L S
R E C Y C L E D F I B E R
F O L D I N G C A R T O N S A N D B O X B O A R D M I L L S
S P E C I A L T Y P A C K A G I N G
R E S O U R C E S
Multiwall, consumer, specialty, and flexible bagsare used to ship, store, protect, and promote a wide range of products. Smurfit-Stone offers acoordinated approach to analyzing customer needs and providing both the bag packaging andpackaging equipment system that best suits theproduct, production, and protection requirementsof its customers.
Smurfit-Stone is the leading supplier of kraftpaper to domestic and export markets.
B A G P A C K A G I N G
K R A F T P A P E R
■ Full range of high-quality corrugated containers
■ Innovative packaging solutions and high-qualitygraphics
■ Complete line of retail-ready,point-of-purchase displays
■ Full line of specialty products and custom, die-cut boxes to display packaged merchandise
■ Graphic capabilities includeflexo, preprint, post-print,labels, and substrates
■ Cordeck® corrugated pallets■ Full range of domestic and
export-specific liners, includ-ing mottled white and high-performance grades. Fullrange of semi-chemical andrecycled medium, includinghigh-performance grades
■ Full line of folding cartons and claycoated and uncoatedrecycled boxboard in newsback, kraftback, andwhiteback grades
■ Extensive converting capabilities and support services in structural andgraphic design, mechanical
packaging, engineering services, electronic datainterchange, research and development
■ High-quality, preprinted E-flute and F-flute corrugatedpackaging in a full range of grades in calipers,from .014 to .040
■ Paper tubes and cores■ Labels for decorative
packaging applications■ Solid fiber and paperboard
partitions■ Flexible-packaging
operations with specializedlamination
■ Specialized products, including furniture forms,construction forms, industrial storage tubes, and electrostatic disapativeboard (PROTECH®)
■ Wide range of unbleachedkraft linerboard grades
■ Medium, available in semi-chemical and recycled grades
■ MIST-WITE® II with superiorgraphics capability and printability
■ Solid bleached sulfate (SBS)■ Bleached hardwood pulp
■ Recycling business handlesrecovered paper generated by industrial, commercial, and residential sources.
■ Collected material includes old corrugated containers,newspapers, magazines, aluminum cans, glass, and plastics.
■ Waste Reduction Services provides waste-management solutions to businesses.
■ Multiwall, industrial, consumer, specialty, and flexible bags
■ Full line of flexible, inter-mediate bulk containers
■ Custom-designed bag packaging
■ Packaging equipment and systems that fill, seal, convey, and palletize bag products
■ Technical, graphics, and marketing expertise
■ Full range of kraft papergrades include grocery bagand multiwall sack kraft
P R O D U C T S D E S C R I P T I O N C A P A B I L I T I E S
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■ Largest reclamation business in the industry
■ 32 U.S. collection centers■ 12 U.S. brokerage offices■ 1 brokerage office in
Shanghai, China
■ 5.6 million tons of papercollected in 1998
■ Approximately 45 percent of paper collected used by Smurfit-Stone mills
■ Major fiber supplier to Asia,Europe, and Latin America
■ Largest supplier of corrugated containers
■ Industry’s most complete line of graphic capabilities
■ Major domestic export supplier of containerboard
■ Approximately 120 corrugated container plants in North America
■ Marketing and TechnicalCenter (MTC) in Westmont,Illinois
■ See paper and paperboardmills below.
■ More than 30 plants inEurope, Asia, Australia, and South America
■ Capable of producing 92 billion square feet of corrugated containers and specialty products
■ Capable of converting 6 million tons of containerboard
■ More than 1 million tons of linerboard medium andkraft paper sold to globalmarkets and affiliates
P R O D U C T I O N STAT I ST I C S 1 9 9 8 A N N U A L R E P O R T 5
■ World’s largest producer of containerboard
■ Nation’s leading producer of recycled medium
■ Industry’s largest producer of MIST-WITE® II
■ Major producer of hardwoodpulp
■ 4 linerboard mills■ 9 medium mills■ 1 bag-paper and
linerboard mill■ 1 mottled white machine
at Brewton, Alabama, mill■ Majority owner of semi-chem-
ical mill in Groveton, N.H.■ 1 bleached pulp and
linerboard mill■ 1 bleached pulp mill
■ 4.3 million tons of linerboard capacity
■ 1.7 million tons of corru-gating medium capacity
■ 192,000 tons of solidbleached sulfate capacity
■ 520,000 tons of bleachedhardwood pulp
■ Industry’s largest manufac-turer of multiwall industrialand consumer bags
■ Leading industry manufac-turer of flexible, intermedi-ate bulk containers
■ 13 bag plants in the U.S.■ Technical and Graphics
Center in Cantonment,Florida
■ Bag Packaging EquipmentGroup in Salt Lake City, Utah
■ See paperboard, paper, andpulp mills below.
■ 245,000 tons of kraft paperconverted in 1998
■ 1.1 billion multiwall bagsproduced in 1998
■ More than 1 million tons of kraft paper, linerboard,and medium sold to global markets and affiliates
P R O D U C T I O N S T A T I S T I C S
■ Nation’s largest supplier offolding cartons and clay-coated, recycled boxboard
■ Provider of broadest range of support services in theindustry
■ 19 folding carton plants ■ 4 clay-coated, recycled
boxboard mills
■ Produced 630,000 tons of clay-coated board anduncoated recycled boxboardin 1998
■ Sold 536,000 tons of foldingcartons in 1998
■ Leading producer of paper tubes and cores
■ One of the largest contractpackagers and suppliers oflabels for decorative packag-ing applications in the U.S.
■ Industry leader in litho and heat-transfer labels,flexible films, and contractpackaging
■ 3 uncoated, recycled boxboard mills
■ 17 tube and core plants ■ 3 partition plants■ 10 consumer-packaging
manufacturing facilities
■ 129,000 tons of recycledboxboard produced in 1998
■ 138,000 tons converted toindustrial products in 1998
P R O D U C T S I N D U S T R Y P O S I T I O N F A C I L I T I E S H I G H L I G H T S
C O R R U G A T E D C O N T A I N E R S
C O N T A I N E R B O A R D
P A P E R B O A R D , P A P E R ,A N D P U L P M I L L S
R E C Y C L E D F I B E R
F O L D I N G C A R T O N S A N D B O X B O A R D M I L L S
S P E C I A L T Y P A C K A G I N G
B A G P A C K A G I N G
K R A F T P A P E R
R E S O U R C E S
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6 1 9 9 8 A N N U A L R E P O R T L E T T E R TO S H A R E H O L D E R S
L E T T E R T O S H A R E H O L D E R S
Dear Shareholder,
Jefferson Smurfit Corporation and Stone Container Corporation joined forces in 1998 to becomenot only the largest paper-based packaging company in North America, but the industry leader increating value. The combined company, Smurfit-Stone Container Corporation, is now the largestU.S. producer of corrugated containers and containerboard, folding cartons and boxboard, andindustrial bags. It is also a major producer of other industrial and consumer packaging products,as well as the largest U.S. collector and processor of recovered fiber, a key raw material for its paperboard mills.
More important than the size and scale of the new company are its strategic goals. Smurfit-Stone intends to focus its combined operations on our core packaging businesses. We will build a financially strong company by divesting non-core assets, reducing debt, and achieving significantsynergies. As we succeed, we aim to set a new standard for the way paper and packaging companiesmanage their resources to deliver unmatched quality and service to their customers, while earningimpressive returns for investors.
1 9 9 8 R E S U L T S A N D 1 9 9 9 O U T L O O K The merger, announced in May and completed in the fourth quarter of 1998, generated
significant accounting charges, which should be viewed separately from the operating results of the company. As discussed in greater detail later in the report, the company recorded charges of$310 million ($187 million after tax). These included charges related to the restructuring of thecompany’s mill system, to the transaction itself, and to the settlement of litigation. Including thesecharges, the company reported a loss — before extraordinary item and the cumulative effect of anaccounting change for 1998 — of $184 million, or $1.48 per diluted share, compared to net incomeof $1 million, or $.01 per diluted share, in 1997.
The net loss for the year was $200 million, or $1.61 per diluted share, compared to net income of $1 million, or $.01 per diluted share, in 1997. Sales for the full year were $3.5 billion, compared to$2.9 billion in 1997. Smurfit-Stone’s 1998 results include the results of Jefferson Smurfit Corporationfor the full year and of Stone Container Corporation from November 18, 1998, the date of themerger, through the end of the year and reflect the Newsprint Division as a discontinued operation.
Excluding the charges, the company would have reported income from continuing operationsof $3 million, or $.02 per diluted share, for 1998, before extraordinary item and the cumulativeeffect of an accounting change. From an operational standpoint, the primary negative factors duringthe year were discounted prices in containerboard and market pulp, driven mainly by decliningdemand in export markets, especially those in Asia. The company’s immediate response to thisdeclining demand was to take significant downtime in our mill system in order to manage invento-ries. Unfortunately, this downtime also had a negative impact on operating results.
On the positive side, domestic demand for packaging remained healthy, consistent with a strongU.S. economy. Our core packaging businesses performed reasonably well in this environment, inspite of pressures generated by discounting in board and fiber prices. In corrugated containers,average prices were higher by about 10 percent, compared to 1997. In our folding carton/boxboardbusiness, profits and volume improved over 1997 as a result of new business gains and cost-takeoutefforts. For the full year, carton shipments increased by about 10 percent over 1997.
In the industrial packaging business, recovered fiber prices have been a double-edged sword.Declining fiber prices led to discounting for the uncoated boxboard used to make tubes and cores.On the other hand, lower fiber costs and increased volume partly offset the impact of lower prices.
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L E T T E R T O S H A R E H O L D E R S 1 9 9 8 A N N U A L R E P O R T 7
MICHAEL W. J. SMURFIT, Chairman of the Board
“As we succeed, we aim toset a new standard for theway paper and packagingcompanies manage theirresources to deliverunmatched quality andservice to their customers,while, at the same time,earning impressive returnsfor investors.”
“We believe 1998 likely will be viewed as a watershed year
not only for our company,but for the packaging
industry as well.”
RAYMOND M. CURRAN, President and Chief Executive Officer
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8 1 9 9 8 A N N U A L R E P O R T F I N A N C I A L H I G H L I G H T S
F I N A N C I A L H I G H L I G H T S
Dollars in millions, except per share data 1998 1997 1996
Net sales $ 3,469 $2,936 $3,087
Income (loss) from operations (64) 175 332
Interest expense, net (247) (196) (198)
Income (loss) before extraordinary itemand cumulative effect of accounting change (184) 1 117
Basic earnings per share
Income (loss) before extraordinary itemand cumulative effect of accounting change $ (1.48) $ .01 $ 1.05
Net income (loss) (1.61) .01 1.01
Weighted average shares outstanding (in millions) 124 111 111
Diluted earnings per share
Income (loss) before extraordinary itemand cumulative effect of accounting change $ (1.48) $ .01 $ 1.04
Net income (loss) (1.61) .01 1.00
Weighted average shares outstanding (in millions) 124 111 112
Net cash from operating activities $ 129 $ 88 $ 380
Capital investments and acquisitions 287 191 129
Financial position at year-end
Net working capital $ 635 $ 71 $ 34
Property, plant, equipment, and timberland, net 5,772 1,788 1,720
Total assets 11,631 2,771 2,688
Long-term debt, less current maturities 6,428 2,025 1,934
Stockholders’ equity (deficit) 1,634 (374) (375)
Number of employees 38,000 15,800 15,800
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L E T T E R TO S H A R E H O L D E R S 1 9 9 8 A N N U A L R E P O R T 9
In consumer packaging, the business benefited from a strong performance in lithographic labels and cost-cutting efforts. Combined, the industrial and consumer businesses posted a slight improvement in profits. In newsprint, average prices were up about 8 percent, resulting in profitgains for the full year. Finally, recovered fiber prices remained depressed due to the mill downtime in the industry.
As the new year began, the outlook brightened. Declining containerboard inventories, partly as a result of shutdowns of inefficient capacity, significantly tightened supply. We advised our customers of price increases for linerboard and medium, as well as for corrugated containers,effective during the first quarter. Given continued economic growth in the U.S., we foresee animproved supply/demand balance and improving markets. We are optimistic that the overall market environment for packaging will improve, permitting our management to focus on newopportunities as it implements the strategic agenda.
C R E A T I N G V A L U EOne of the most important objectives of the merger was to capture the full synergy potential
inherent in combining two leading packaging companies. That will result, in part, from optimizingthe combined manufacturing systems of the two companies. The optimization process is complexand will take many months to complete. However, we took the first and most difficult step shortlyafter closing the merger by shutting down four less-efficient containerboard mills, which annuallyproduced 1.1 million tons, or 3 percent of industry capacity. This shutdown, unprecedented in thepaper industry, cut the company’s exposure to the volatile open market for containerboard in halfand significantly increased the internal integration level of the containerboard/corrugated containersystem. We also expect to achieve significant savings by reducing corporate overhead and overlap-ping functions.
The merger serves as a catalyst for focusing all of our resources on our core packaging busi-nesses, working aggressively to divest non-core businesses, and applying the proceeds of divestituresto debt reduction. The businesses targeted for divestiture include valuable assets, such as our woodland holdings in the Southeast and newsprint interests in the Northwest, as well as a pulp mill in Canada.
M A N A G I N G F O R R E S U L T SWe will manage the company toward aggressive targets, including achievement of $350 million
in synergies by year-end 2000. The largest portion — more than $180 million — will come fromoptimizing our manufacturing system. Another $50 million will accrue by reducing administrativeexpenses. Purchasing and logistical leverage should produce another $80 million over the next twoyears. Finally, we should obtain approximately $30 million in interest expense savings related toworking capital reductions, as we put our financial disciplines in place.
By divesting our non-core business holdings, we expect to raise approximately $2 billion overtime, all of which will be applied to reducing the debt of the combined company. We have alreadybegun the process of selling assets and are using the proceeds for debt repayment. These include the sale of a Snowflake, Arizona, newsprint facility, which generated $267 million in net proceeds; partof our stake in Abitibi-Consolidated, which generated $80 million in net proceeds; and other smallnon-core businesses.
We will continue to invest capital in our fixed assets, but at a level below the projected depreci-ation and amortization of about $360 million. Interest expense, as well as total debt, should begin to trend down in 1999 as we apply the proceeds of asset sales. If we complete our asset sales onschedule, interest expense will decline substantially in 1999.
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1 0 1 9 9 8 A N N U A L R E P O R T L E T T E R T O S H A R E H O L D E R S
W I D E N I N G T H E C O M P E T I T I V E G A PFollowing the divestitures, Smurfit-Stone will possess the industry’s largest network of paper-
based packaging plants; a nationwide mill system; and full design, technical, and graphic capabilities.To leverage our competitive advantage in the marketplace, the company intends to achieve excel-lence in innovation, quality, and service, known as the IQS process.
This process requires hands-on management that stays close to customers. To that end, we will actively solicit feedback and ideas and continue to provide customers with customized, cost-effective packaging solutions. Above all, we will strive to understand the needs of our customers’customer, especially in the all-important retail sector, and meet those needs through innovativevehicles, such as our packaging solutions centers.
U N I F Y I N G T H E O R G A N I Z A T I O NTo carry out our agenda as effectively as possible, we must build a unified, cohesive organization
that incorporates and respects the financial disciplines and marketing strengths that defined the two companies before they joined forces. To achieve that goal, transition teams for our operatingunits and staff functions have worked to identify and adopt the best management practices of each company. To retain the best people and reduce costs, we have established a core group ofsenior officers at the Chicago headquarters and St. Louis offices. We are maintaining administrativefunctions in both cities as well, where these operations can most efficiently be carried out.
Since finalizing the merger, we have formed a new management team. Richard W. Graham,president and chief executive officer of Jefferson Smurfit Corporation, who played a key role in the transition process, retired on March 31, following 41 years of service. Mr. Graham will remain a member of the Smurfit-Stone board.
Roger W. Stone, former chairman, president, and chief executive officer of Stone ContainerCorporation, took over as chief executive officer of Smurfit-Stone and managed the companythrough the initial stages of the merger. Mr. Stone elected to retire at the end of March. At the same time, Matthew S. Kaplan, vice president and general manager of Smurfit-Stone’s corrugatedcontainer operations, resigned from the company.
The company owes a debt of gratitude to our employees, whose patience and cooperation havehelped to make the merger process as smooth as possible. While downsizing and mill closures werenecessary to meet important financial goals, we regret the disruption they have caused in the lives of many of our people. We also recognize the impact that moving our headquarters to Chicago hashad on the St. Louis community, but hope that maintaining a sizable presence in St. Louis, Missouri,and Alton, Illinois, will mitigate that loss.
Mergers are often unsettling at the outset; but, ultimately, they are intended to produce greatbenefits for the newly-formed organization. Smurfit-Stone is already reaping some of those benefits.We are optimistic about the future.
Michael W. J. Smurfit Raymond M. CurranChairman of the Board President and Chief Executive Officer
April 1, 1999
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Smurfit-Stone will create value by reducing debtthrough divestiture of non-core assets; rationaliz-ing its manufacturing system; restructuring itscorrugated container and containerboard busi-nesses; eliminating redundancy, while continuing to serve its markets; leveraging its combined purchasing power; lessening exposure to low-margin businesses; reducing expenses; and refinancing debt.
R E - E N E R G I Z E T H E B U S I N E S S C r e a t e SHAREHOLDER
VALUE
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1 2 S M U R F I T - STO N E 1 9 9 8 A N N U A L R E P O R T1 2
S A N TA F E S P R I N G S C O R R U G A T E D C O N T A I N E R P L A N TThe Santa Fe Springs, California, corrugated containerplant is a model of efficiency, quality, and top-notchservice. Catering primarily to the consumer electronicsmarket, the plant prides itself on speedy production and
its ability to exceed the exacting demands of its customers.
S A N T A C L A R A B O X B O A R D M I L LInnovations, such as using office waste instead of pulpsubstitutes to produce topliner, contribute to Smurfit-Stone’s Santa Clara, California, boxboard mill opera-tions, saving more than $1 million a year. Liner operatorGary Smith feeds office waste paper into a hydrapulper to mix with water and eventually make topliner for recycled rolls of boxboard.
R E - E N E R G I Z E T H E B U S I N E S S
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R E - E N E R G I Z E T H E B U S I N E S S 1 9 9 8 A N N U A L R E P O R T 1 3
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1 9 9 8Re-energize the Business
Smurfit-Stone Container
Corporation begins 1999 with
optimism and a strong sense
of purpose. With the merger
completed and a new management
team in place, the company will
focus on strengthening its position
as the industry leader in paper
and paper-based packaging —
known for its financial discipline,
marketing expertise, and creative
approach to solving customers’
packaging problems.
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1 4 1 9 9 8 A N N U A L R E P O R T R E - E N E R G I Z E T H E B U S I N E S S
The key to re-energizing the business
is a four-point strategy that will lead
the company into the next decade.
That strategy incorporates increasing
shareholder value through aggressive
debt reduction and improved financial
performance; strengthening our
leadership position by staying close
to customers; managing for results
by setting and meeting aggressive
targets; and establishing a solid, robust
organization with a single culture
and set of values.
Following the Smurfit-Stone merger,
the new company took immediate
steps, which included restructuring its
manufacturing system by shutting down
overlapping operations for the sake of
trimming the system to the right
competitive size. It will continue to
rationalize its container plant operations.
Ultimately, all of these actions will
produce a new, invigorated, more cost-
efficient organization with a singular
focus and a stronger balance sheet.
This will be accomplished by setting,
pursuing, and achieving very precise
financial targets in terms of debt
reduction, divesting assets, and timing
of key strategies. These targets will
serve as the linchpin for a new
approach to managing the business.
Create Shareholder Value
C O N S O L I D A T I O N A N D R A T I O N A L I Z A T I O N
The merger creates a new company
able to run its integrated corrugated
container/containerboard business
more profitably with a smaller, more
efficient mill system. The merger is also
an important first step in unlocking
value for Smurfit-Stone shareholders.
The next step is the rationalization
of inefficient capacity, a problem that has
plagued the industry for years. To address
it, the company has implemented a
major rationalization that includes the
shutdown of four mills which produced
approximately 1.1 million tons, or about
15 percent, of the company’s North
American containerboard mill capacity.
As a result of the restructuring,
Smurfit-Stone’s annual U.S. container-
board production capacity has been
reduced from approximately 7 million
tons to about 5.9 million tons. This
move increases the company’s level
of integration in containerboard from
about 70 percent to 90 percent. The
rationalization plan is a key element in
generating expected annual synergies
of at least $350 million.
SS11-26 4.6 4/16/99 3:02 PM Page 14
Managing for results means setting aggressivefinancial targets; increasing sales; focusing onprofit-margin performance; leveraging strengthsand best practices; achieving full potential in every business unit; creating a strong, balanced mill system; investing in operations;and selling the company’s full line of productsand services.
R E - E N E R G I Z E T H E B U S I N E S S MANAGE f o rRESULTS
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1 6
W A S T E R E D U C T I O N S E R V I C E SHelping customers manage their entire waste stream is a value-added benefit provided by Smurfit-Stone’s Waste Reduction Services. Thisservice saved customers millions of dollars in solid-waste removal costs in 1998. More than one-fifth of the 100,000 tons extracted was tonnage that previously went to landfills.
R E - E N E R G I Z E T H E B U S I N E S S
C O R D E C K ® C O R R U G A T E D P A L L E T SSmurfit-Stone’s Cordeck® corrugated palletshave proven to be the sound choice for the environment. Competing directly with insect-
prone wood pallets, the corrugated pallet is quicklybecoming the acceptable alternative to wood. Withrecent government regulations and the Asian LonghornBeetle outbreak, the growth potential for this businessis promising.
SS11-26 4.6 4/16/99 3:02 PM Page 16
R E - E N E R G I Z E T H E B U S I N E S S 1 9 9 8 A N N U A L R E P O R T 1 7
Cutting capacity substantially
reduces unscheduled market-related
downtime and associated fixed costs,
which will result in considerable savings.
Following the rationalization, Smurfit-
Stone will have a lower-cost, more
efficient mill system; improved freight
costs; and better margins through
grade-mix rationalization.
At the mill level, the company will
reduce its open-market sales position in
containerboard and kraft paper in the
domestic and export markets, though
it will continue to be a player in both
of these arenas. Several other strategic
initiatives are planned. They include
more efficient scheduling of paper
machines by combining grades and
measuring customers’ needs against
the company’s capabilities.
In order to improve price realization
and profitability on open-market sales
of containerboard, Smurfit-Stone is
analyzing its customer base and
evaluating customers against a number
of factors. Our future customer mix
will be based on meeting long-term,
strategic objectives, including margin,
potential, contracts, and good fit
between customers and the company.
The rationalization has significantly
reduced the company’s exposure to
market pulp, a non-core business. The
shutdown of one of the kraft linerboard
mills, at Port Wentworth, Georgia, also
included 235,000 tons of market pulp.
In addition, about 90,000 tons of market
pulp were shut down at the company’s
Bathurst, New Brunswick, mill in Canada.
That mill will continue to produce
containerboard. The shutdowns were in
addition to Stone’s exit last summer
from its Celgar mill, a joint venture in
British Columbia, which had production
capacity of almost 600,000 tons. Taking
those shutdowns into account, just under
600,000 tons of pulp capacity remain.
This includes the specialty pulp mill at
Pontiac, Quebec, and pulp production
in Panama City, Florida.
At the packaging level, Smurfit-
Stone will create value for packaging
customers by fully utilizing its resources
— plants, people, and creative services
— and widening the competitive gap
between itself and its competitors. It
will achieve this in part through the
development of new products to
meet customers’ changing needs. The
company has already begun evaluating
the plant resources required by its
corrugated container system.
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1 8 1 9 9 8 A N N U A L R E P O R T R E - E N E R G I Z E T H E B U S I N E S S
D I V E S T I T U R E
By divesting non-core assets,
Smurfit-Stone will significantly reduce
debt. The company is aggressively
pursuing that strategy with a focused,
disciplined restructuring effort and is
projecting proceeds of approximately
$2 billion from asset sales. The sale of
Stone’s Snowflake, Arizona, newsprint
facility and part of the stake in Abititi-
Consolidated have already raised
approximately $350 million that has
been applied to debt reduction.
In line with mill rationalizations,
325,000 tons of unprofitable North
American market-pulp operations
have been shut down. Additionally,
the specialty-pulp facility in Pontiac,
Quebec, is expected to be sold in 1999.
The remaining pulp line is a 350,000-
ton plant in Panama City, Florida.
Some of the pulp from Panama City
may be used to expand the company’s
production of mottled white linerboard,
a higher-value product.
The company will continue to
tighten its focus, gradually rationalizing
its corrugated container plants. Smurfit-
Stone’s intention is to maintain its
market leadership in the corrugated
container business, while reducing
redundant facilities. While this process
is likely to continue for up to 18
months, customer needs and future
business potential will be key factors
in all decisions.
The company has begun the process
of selling a number of other assets,
including its West Coast newsprint
operations. It also intends to divest
its woodlands. Smurfit-Stone owns or
leases 1 million acres of woodlands
in Florida, Georgia, and Alabama.
Manage for Results
In order to manage the company for
results, Smurfit-Stone will leverage its
strengths and best practices and seek
to realize the full potential of every
business unit. Operations will improve
profitability by developing sales and
marketing strategies to enhance mix
and margins; improving processes and
efficiencies to reduce costs; and taking
advantage of the size and combined
scale of the new company.
Capacity issues are already being
addressed.The mill closures and plant
consolidation will enable the company to
focus its capital-expenditure program and
thereby limit future capital expenditures.
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To become the best, as well as the market leader,Smurfit-Stone will build stronger relationships withcustomers through innovation, quality, and service;meet and exceed customer expectations; solicit customer feedback and ideas; provide best-possible,low-cost packaging solutions; and understand andmeet the needs of the customers’ customer.
R E - E N E R G I Z E T H E B U S I N E S S W i d e n t h eCOMPETITIVE
GAP
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H E N D E R S O N V I L L E T U B E A N D C O R E F A C I L I T YQuick Grab™ cores are inspected for consistency in catchpoints by Jason Strickland as they come down the winding lineat Smurfit-Stone’s Hendersonville, North Carolina, tube and
core facility. Quick Grab™ is a unique core thatallows non-woven and spun material to cling easily,thus eliminating the cost and use of tape as anadhesive.
2 0
D I S P L A Y G R O U PThe Richmond, Virginia, Display Group creates custom point-of-purchase displays from conceptthrough production. With high-end graphics andinnovative construction, these displays add valueto the line of corrugated products offered to customers. The Display Group enjoys industry-widerecognition, having received numerous awards for its creativity in design, as well as excellence in manufacturing.
R E - E N E R G I Z E T H E B U S I N E S S
SS11-26 4.6 4/16/99 3:02 PM Page 20
The company plans to leverage past
capital investments in the container
business to take it to a new level of
performance. By balancing the
container/containerboard side of the
business, Smurfit-Stone can lead the
industry in a new direction and create
an attractive investment vehicle.
Smurfit-Stone has set clear targets
in three critical financial areas — asset
divestitures, synergy achievements,
and debt reduction. These targets are
viewed by the investment community
as important to the success of the
company, which will be singularly
focused on achieving them over the
next 18-24 months.
Smurfit-Stone is projecting
$350 million in annualized savings.
It is seeking $50 million in SG&A
savings by eliminating redundant
corporate overhead and overlapping
functions. A portion of those savings
has been already realized.
Manufacturing system optimization
should yield more than $180 million,
which will take more time as the
packaging side of the business is
rationalized. Purchasing and logistical
leverage should produce another
$80 million. In addition, Smurfit-Stone
should obtain approximately $30
million in interest expense savings
related to working capital reductions
as financial disciplines are redefined
and implemented.
Headcount is expected to be
reduced by 3,600 of the 38,000
combined employees; it has already
been decreased by 1,500, including
about 300 redundant corporate and
administrative positions.
Widening the Competitive Gap
Smurfit-Stone has a two-fold strategy
for reinforcing its leadership position
in the industry: selling its full line of
products and services and widening
the gap between itself and its
competitors. It will accomplish these
objectives through innovation, quality,
and service, known as IQS. The company
will support IQS by investing in training
and innovation and providing superior
service through such vehicles as the
packaging solution centers, directed
at servicing major retailers.
Smurfit-Stone’s packaging solution
centers are unique to the industry.
Designed to meet the packaging
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R E - E N E R G I Z E T H E B U S I N E S S 1 9 9 8 A N N U A L R E P O R T 2 1
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2 2 1 9 9 8 A N N U A L R E P O R T R E - E N E R G I Z E T H E B U S I N E S S
needs of end-users — such as Wal-Mart
Supercenters and Sam’s Warehouse
Clubs — these centers have dramatically
reduced the gap between packaging
problems and solutions from six weeks
to six hours. Superstore packaging
buyers have expressed a need for
attractive, functional, stackable
packaging in sizes that fulfill their
customers’ requirements. By meeting
with a team of experts, buyers are able
to leave the center, that same day,
with a mock-up of the new packaging.
The success of the IQS program has
led to additional business opportunities
and considerably increased higher-
margin sales.
In business, where satisfying
customers is the goal, the company
will establish benchmarks, set goals
for improvement, measure progress
against those goals, re-evaluate its
progress in terms of continuous
improvement, and continue to survey
customers to validate its actions.
Soliciting customer feedback, needs,
and ideas will strengthen relationships
and further improve margins.
The company recently launched
another packaging solution center in
Seattle, Washington, to serve the pack-
aging needs of Costco, a warehouse club.
Build a Unified,Cohesive Organization
Smurfit-Stone has an exceptional
opportunity to build a solid identity
and culture, based on the strengths
and best practices of the new partners —
Jefferson Smurfit Corporation and
Stone Container. This will require
a number of initiatives, such as
incorporating financial discipline
in order to manage leverage and
spread cost over a greater number
of plants; providing sales incentives,
based on retaining high-margin business
and profit-margin performance; and
investing in the maintenance and
improvement of operations.
One of the most daunting
aspects of any merger is combining
the assets, functions, and corporate
styles of two distinct organizations
in order to create a single, corporate
structure. The first step will be to
eliminate redundancies and apply
corporate resources more efficiently
across all divisions. The company
has already embarked on a number
of actions to achieve this objective.
It has established its corporate
SS11-26 4.6 4/16/99 3:02 PM Page 22
To build an integrated company, Smurfit-Stone will optimize its financial discipline and marketingstrengths; eliminate redundancies and applyresources across all divisions; create an environ-ment in which people can learn, grow, and succeed;and equip employees with appropriate and timelytraining and fair compensation.
R E - E N E R G I Z E T H E B U S I N E S S
B u i l d a u n i f i e d,COHESIVE
ORGANIZATION
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M U L T I W A L L B A G SAcross the company, Smurfit-Stone’s strict quality control
measures ensure that customers will receive consis-tent, superior products each and every time. At theKansas City, Missouri, bag packaging plant, a pressoperator checks the print quality of a multiwall bag toguarantee a flawless image.
W A B A S H , I N D I A N A , B O X B O A R D M I L LMarsha Strickler, a finisher at Smurfit-Stone’s Wabash, Indiana, boxboard mill, moves a roll of coated boxboard from storage to be shipped to a converting plant, where it will be made into folding cartons. The roll was produced under the company’s new stock optimizationsystem, which allows the mill to use old newspapers and residen-tial mixed paper to produce coated boxboard — a more economicalfiber source than pulp substitutes used in the past.
2 4
R E - E N E R G I Z E T H E B U S I N E S S
SS11-26 4.6 4/16/99 3:02 PM Page 24
headquarters in Chicago and, to save
the cost and disruption of a major
relocation, also maintains offices at the
former Jefferson Smurfit Corporation
sites in St. Louis, Missouri, and
Alton, Illinois.
Merging two distinct cultures is
another challenge. To that end, the
company is committed to building
a strong leadership team and to
encouraging every person at every
level of the organization to understand,
adopt, and practice the new organiza-
tion’s core values. Adoption of such
values can only be accomplished
through active engagement in open,
two-way communication, with
information flowing up and down
through easily accessible channels.
Several programs are already in
place to enhance internal and
external communications.
A third critical focus will be on
providing appropriate and timely
training and fair compensation,
based on achievement of corporate
goals. Smurfit-Stone has created
new incentive plans for 1999 and
beyond. Short-term incentives will
be driven by earnings, achievement of
synergies, cost take-out, asset
divestitures, and debt reduction.
Long-term incentives will be based
on creating value.
G U I D I N G S T R A T E G I E S
Smurfit-Stone’s guiding strategy
is to improve the financial performance
of the combined company throughout
the paper cycle by selling non-core
businesses — newsprint, pulp, and
woodlands — and focusing on
packaging. Existing businesses tend
to be balanced between those that
are influenced by large fluctuations
in price, such as corrugated containers,
and those that have had a history
of steady earnings, such as folding
cartons, industrial bags, and specialty
packaging.
The company now has an
opportunity to smooth out the
instability of earnings by managing
the supply side of its business. By
strengthening some of the less cyclical
businesses, avoiding losses during
periods of downturn, and creating a
steadier earnings environment through
balancing the company’s own supply
and demand, Smurfit-Stone should
become very attractive to long-
term investors.
SMU
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2 6 1 9 9 8 A N N U A L R E P O R T B O A R D O F D I R E C TO R S A N D C O R P O R AT E A N D D I V I S I O N O F F I C E R S
B O A R D O F D I R E C T O R SRaymond M. CurranPresident and CEO,Smurfit-Stone ContainerCorporation
Richard A. GiesenChairman and CEO,Continental Glass & Plastics, Inc.
Alan E. GoldbergManaging Director,Morgan Stanley & Co., Inc.
Richard W. GrahamRetired President and CEO,Smurfit-Stone ContainerCorporation
James J. O’ConnorRetired,Unicom/Commonwealth Edison
Jerry K. PearlmanRetired,Zenith Electronics Corporation
Thomas A. Reynolds, IIIPartner,Winston & Strawn
Dermot F. SmurfitJoint Deputy Chairman,Jefferson Smurfit Group plc
Dr. Michael W. J. SmurfitChairman and CEO,Jefferson Smurfit Group plc
C O R P O R A T E O F F I C E R SDr. Michael W. J. SmurfitChairman of the Board
Raymond M. CurranPresident and CEO
Patrick J. MooreVice President and CFO
Peter F. DagesVice President and General Manager,Corrugated Container Division
James D. DuncanVice President and General Manager,Specialty Packaging Division
Gordon L. JonesVice President and General Manager,Containerboard and PulpSales/Marketing and Logistics Division
Jay D. LambVice President and General Manager,Smurfit Newsprint Corporation
F. Scott MacfarlaneVice President and General Manager,Folding Carton and Boxboard Mill Division
John M. RiconosciutoVice President and General Manager,Bag Packaging Division
David C. StevensVice President and General Manager,Smurfit Recycling Company
William N. WandmacherVice President and GeneralManager, North AmericanContainerboard Mill andForestry Resources Division
John D. BenceVice President and General Manager,European Operations
Lorne ParnellVice President,Pacific Operations
Jose A. SantosVice President,Latin American Operations
Michael F. HarringtonVice President,Employee Relations
James A. HayssenVice President,Information Technology
Charles A. HinrichsVice President and Treasurer
Craig A. HuntVice President,Secretary and General Counsel
Paul K. KaufmannVice President and Controller
Allen M. KoleffVice President,Environmental Affairs
Leslie T. LedererVice President, StrategicInvestment Dispositions
Timothy J.P. McKennaVice President, InvestorRelations and Communications
Thomas A. PaganoVice President, Planning
Thomas G. PavliniVice President, Distribution
Gayle M. SparapaniVice President,Compensation and Benefits
John F. AllgoodAssistant Secretary
Richard P. MarraAssistant Treasurer
Ronald J. MegnaAssistant Secretary
D I V I S I O N O F F I C E R S
Corrugated Container DivisionJames P. DavisVice President and Area Manager
William G. EusticeVice President and Area Manager
LeRoy R. CrockerVice President and Regional Manager
John J. Curry, Jr.Vice President and Regional Manager
Stephen P. FolanVice President and Regional Manager
James A. HendersonVice President and Regional Manager
Lane W. HunterVice President and Regional Manager
Jack B. MalloyVice President and Regional Manager
James A. McNeillVice President and Regional Manager
Rodney A. MyersVice President and Regional Manager
Donald A. PetriVice President and Regional Manager
Daniel G. RuthVice President and Regional Manager
James S. WillisVice President and Regional Manager
Roger W. ClingermanVice President and GeneralManager, Corporate Accounts
William J. KlaisleVice President and Managing Director,Smurfit-Stone Global Services
Michael S. RoseVice President,International Sales Development
Jerry D. SuiterVice President, Director of Manufacturing
Emil B. WinogradVice President,Sales and Marketing
Robert A. GuillouVice President,Corporate Sales Group
Containerboard and PulpSales/Marketing and Logistics DivisionPeter Butier, Jr.Vice President,Domestic Sales
Larry L. BurtonVice President,Domestic Sales
Jay D. PolenVice President,Logistics
Hans MatersVice President,Export Sales
Richard KirkVice President,Worldwide Pulp Sales
Containerboard Mill DivisionW.G. StuartVice President,Mill Operations,Central Region
Wayne S. BarlowVice President,Mill Operations,Southern Region
Chuck TimkoVice President,Engineering Services
John E. DavisVice President,Forest Resources
Alain DubucVice President, Mill Operations,Northern Region
Bag Packaging DivisionJohn MoranVice President,Marketing and Specialty Bag Packaging
Victor E. KendallVice President and Manager,Corporate Sales
Jerry RoeskeVice President and Manager,Corporate Sales
Folding Carton and Boxboard Mill DivisionRichard A. BuckmanRetired, Vice President,Sales and Marketing
J. Gregor DomanVice President, Sales
Larry D. FielderVice President and GeneralManager, Paper Can
John E. StrawVice President and RegionalGeneral Manager, Eastern Region
Curtiss M. KomenVice President and RegionalManager, Western Region
David J. PietrowiczVice President and RegionalManager, Central Region
Nathan S. HolmesVice President and GeneralManager, Boxboard Mills
Specialty Packaging DivisionGeorge Q. LangstaffVice President,Converting and Marketing
Recycling DivisionJames M. ClaytonVice President,Mill Fiber Procurement
Michael R. OswaldVice President, Operations
Smurfit Newsprint CorporationGeorge R. Lowe, Jr.Vice President and GeneralManager, Newberg Mill
Michael A. SiebersVice President and GeneralManager, Oregon City Mill
Jon E. MelkersonVice President,Sales and Marketing
Fran J. OstlundController and AssistantSecretary
Research and DevelopmentDivisionJoseph V. LeBlancVice President
S M U R F I T - S T O N E C O N T A I N E R C O R P O R A T I O N
SS11-26 4.6 4/16/99 3:02 PM Page 26
DES
IGN
: P
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PAR
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STOCKHOLDERS’ INFORMATION
Stockholders’ Annual MeetingMay 27, 1999 at 1:00 p.m.Renaissance St. Louis Hotel – Airport9801 Natural Bridge RoadSt. Louis, Missouri 63134
Registrar and Transfer AgentChaseMellon Shareholder Services, L.L.C.Overpeck Centre85 Challenger RoadRidgefield Park, New Jersey 07660www.chasemellon.comTelephone: 888-213-0965
Common StockSmurfit-Stone Container Corporation CommonStock is traded on The Nasdaq Stock Market under the symbol: SSCC
For Investor Information ContactInvestor Relations and CommunicationsSmurfit-Stone Container Corporation8182 Maryland AvenueSt. Louis, Missouri 63105Telephone: 314-746-1223Fax: 314-746-1347
Timothy McKenna,Vice President, Investor Relationsand Communications314-746-1254312-580-4736
Corporate OfficeSmurfit-Stone Container Corporation150 North Michigan AvenueChicago, Illinois 60601-7568Telephone: 312-346-6600
SSCover 4.6 4/16/99 2:26 PM Page V
OUR MISSION IS TO BE THE ACKNOWLEDGED
U.S. LEADER IN PAPER-BASED PACKAGING. AS
SUCH, WE STRIVE TO BE A FINANCIALLY SOUND
AND DYNAMIC ORGANIZATION, KNOWN FOR OUR
INNOVATIVE PACKAGING SOLUTIONS, SUPERIOR
PRODUCTS, CUSTOMER RESPONSIVENESS, AND
QUALIFIED, COMMITTED PEOPLE.
150 North Michigan AvenueChicago, Illinois 60601-7568(312) 346-6600
SMURFIT-STONE ASPIRES TO BE THE ACKNOWLEDGED
U.S. LEADER IN PAPER-BASED PACKAGING. AS SUCH, WE
STRIVE TO BE A FINANCIALLY SOUND AND DYNAMIC
ORGANIZATION KNOWN FOR OUR INNOVATIVE PACKAG-
ING SOLUTIONS; SUPERIOR PRODUCTS; CUSTOMER
RESPONSIVENESS; AND QUALIFIED, COMMITTED PEOPLE.
SSCover 4.6 4/16/99 2:26 PM Page II