2. 1999:
We promised.
We delivered.
Smurfit-Stone at a Glance 2 Financial Highlights 4 Letter to Shareholders 5
1999: We Promised. We Delivered. 8 2000: Setting a New Agenda. We Will Deliver Again. 16
Board of Directors and Corporate Officers 26 Annual Report Form 10-k 27
3. Building a Strong Foundation
S
murfit-Stone Container Corporation began life with an optimistic,
yet realistic, business plan. Our confidence in our ability to meet the
challenges ahead and to achieve our ambitious goals has been more
than justified by 1999’s results. We promised to rationalize and integrate
our container/containerboard mill system; to divest ourselves of non-core
businesses and unprofitable joint ventures; to reduce debt, deliver on
synergies, and continue to develop our people. At the end of the first year
of a two-year plan, we not only delivered on those promises, we did it
ahead of our own projected schedule.
GOAL STATUS
Rationalize Capacity Reduce containerboard capacity to Achieved
meet internal needs and real, open Completed within first
market demand month following merger
Divest Non-core Assets $2 billion within 24 months Ahead of schedule
$1.8 billion within
13 months — 90% of goal
Reduce Debt Reduce debt by $2.0 billion from Ahead of schedule
$6.8 billion within 24 months $1.8 billion debt reduction
to $4.8 billion at year-end
Realize Synergies $220 million steady-state run rate Ahead of schedule
in 1999; $350 million by mid-year Achieved $284 million
2000 in 1999
Integrate Operations Achieve full rationalization of On schedule
the container/containerboard mill
system by the end of 24 months
Unify Organization Establish strong core values, Ongoing
leadership, staff, and culture
1
4. Smurfit-Stone at a Glance
Smurfit-Stone at a Glance
Description Capabilities
Containerboard and Containerboard and corrugated containers represent Full range of high-quality corrugated containers
s
Smurfit-Stone’s largest business segment, with 65 percent Innovative packaging solutions and high-quality graphics
s
Corrugated Containers of the company’s sales. The division s Complete line of retail-ready, point-of-purchase displays
supplies hundreds of national and s Full line of specialty products and custom, die-cut boxes
international manufacturers,
to display packaged merchandise
as well as thousands
s Graphic capabilities include flexo, preprint, post-print,
of local and regional
labels, and substrates
customers.
s Cordeck® corrugated pallets
Smurfit-Stone is
the leading supplier of s Full range of domestic and export-specific liners, including
containerboard to domestic mottled white and high-performance grades. Full range
and export markets. of semi-chemical and recycled medium, including
high-performance grades
Fo l d i n g C a r t o n Smurfit-Stone offers a wide range of styles appropriate Full line of folding cartons and clay-coated and uncoated
s
and Boxboard to nearly all carton end uses. These cartons are used by recycled boxboard in newsback, kraftback, and
consumer-goods producers to package foods, beverages, whiteback grades
fast food, soap, paper, pharmaceuticals, and cosmetics. s Extensive converting capabilities and support
Printing capabilities include sheet and web, lithographic, services in structural and graphic design,
rotogravure, and flexographic. mechanical packaging, engineering services,
electronic data interchange, research and
development
s High-quality, preprinted E-flute and F-flute
corrugated packaging in a full range of
grades in calipers, from .014 to .040
S p e c i a l t y Pa c k a g i n g The specialty-packaging business comprises Paper tubes and cores
s
industrial and consumer packaging. s Labels for decorative packaging applications
B a g Pa c k a g i n g Industrial produces tubes and cores, s Solid fiber and paperboard partitions
partitions, and a number of specialized s Flexible-packaging operations with specialized
products. Consumer meets the
Recycled Fiber lamination
product needs of a wide variety
s Specialized products, including
of marketing, manufacturing,
furniture forms, construction forms,
and consumer companies.
industrial dissipative storage tubes,
and electrostatic board (PROTECH®)
Multiwall, consumer, specialty, and flexible bags are used to Multiwall, industrial, consumer, specialty, and flexible bags
s
ship, store, protect, and promote a wide range of products. Full line of flexible, intermediate bulk containers
s
Smurfit-Stone offers a coordinated s Custom-designed bag packaging
approach to analyzing customer needs s Packaging equipment and systems that fill,
and providing both the bag-packaging
seal, convey, and palletize bag products
and packaging equipment system
s Technical, graphics, and marketing
that best suits the product, production,
expertise
and protection requirements of its
customers.
Smurfit-Stone is unique in the paper and packaging industry Recycling business handles recovered paper generated
s
in that it has a strong position in recycled fiber. The company by industrial, commercial, and residential sources.
has built the largest reclamation business in the industry and s Collected material includes old corrugated containers,
now collects and processes approximately 7 million tons of newspapers, magazines, aluminum cans, glass,
recycled paper every year. and plastics.
s Waste Reduction Services provides waste-management
solutions to businesses.
2
5. I n d u s t r y P o s i t i o n / Fa c i l i t i e s 1999 Status 2000 Agenda
Largest supplier of corrugated containers Eliminated 1.5 million tons of inefficient capacity Complete optimization of mill system
s s s
Industry’s most complete line of graphic Implemented two price increases Continue plant-by-plant, full-potential program
s s s
capabilities s Improved segment profit by $361 million
s Major domestic export supplier of s Initiated a full-potential program
containerboard
s Approximately 150 container facilities
worldwide
s 18 paper and paperboard mills
s Marketing and Technical Center (MTC) in
Westmont, IL
A leading supplier of folding cartons and Continued to grow the business Emphasize margin improvement and cost take out
s s s
clay-coated recycled boxboard Outperformed the industry by fivefold Evaluate acquisition opportunities
s s
s Provider of broadest range of support s Folding carton side posted record earnings
services in the industry s Asitrade machine in Cleveland sold out
s 19 folding carton facilities
s 4 clay-coated, recycled boxboard mills
s 1 paper can plant in Conyers, GA
A leading producer of paper tubes and cores Tubes, cores and, partition business close to plan Mill system improvement
s s s
and ahead of 1998
One of the nation’s largest contract packagers Take advantage of strong outlook for consumer
s s
and suppliers of labels for decorative packaging s Major consumer business ahead packaging
applications of 1998 status and close to s Adding a new product (stand-up pouch)
1999 plan
s Industry leader in litho and heat-transfer to flexible packaging business
labels, flexible films, and contract packaging s Increased prices
on converting
s 3 uncoated, recycled boxboard mills
business
s 17 tube and core plants
s 3 partition plants
s 9 consumer-packaging plants
Industry’s largest manufacturer of multiwall Retained a leading position in marketplace Improve profit margins by managing inventory,
s s s
industrial and consumer bags lowering waste rates, focusing on quality, and
Solidified market share gains in a changing
s
maximizing efficiency of existing system
s A leading industry manufacturer of flexible, industry
intermediate bulk containers s Improve safety record through
awareness and training
s 13 bag plants in the U.S.
programs
s Technical and Graphics Center in
Cantonment, FL
s Bag Packaging Equipment Group
in Salt Lake City, UT
Largest reclamation business in the industry Grew at three times the industry average Continue implementation of productivity-
s s s
improvement process
26 U.S. collection centers Best safety year on record
s s
s Evaluate acquisition candidates to support
s 11 U.S. brokerage offices s Closed three marginal plants
mill system
s 1 brokerage office in Shanghai, China s Reduced salaried headcount by 9%
3
6. Financial Highlights
Dollars in millions, except per share data 1999 1998 1997
Summary of operations
Net sales $ 7,151 $ 3,485 $2,957
Income (loss) from operations 423 (93) 176
Interest expense, net (563) (247) (196)
Income (loss) from continuing operations before extraordinary item
and cumulative effect of accounting change 163 (211) (19)
Net income (loss) 157 (200) 1
Basic earnings per share
Income (loss) from continuing operations before extraordinary item
and cumulative effect of accounting change $ .75 $ (1.70) $ (.17)
Net income (loss) .72 (1.61) .01
Weighted average shares outstanding (in millions) 217 124 111
Diluted earnings per share
Income (loss) from continuing operations before extraordinary item
and cumulative effect of accounting change $ .74 $ (1.70) $ (.17)
Net income (loss) .71 (1.61) .01
Weighted average shares outstanding (in millions) 220 124 111
Other financial data
Net cash provided by operating activities $ 183 $ 129 $ 88
Capital investments and acquisitions 156 287 191
Net working capital 42 635 71
Property, plant, equipment and timberland, net 4,419 5,772 1,788
Total assets 9,859 11,631 2,771
Long-term debt 4,793 6,633 2,040
Stockholders’ equity (deficit) 1,847 1,634 (374)
Number of employees 36,300 38,000 15,800
Sales per product segment
Containerboard and 18%
Corrugated Containers 47%
Folding Cartons and Boxboard 12%
Other:
Bag Packaging 7%
Recycled Fiber 4%
Specialty Packaging 4%
International and Other 8%
4
7. Letter to Shareholders
Michael W.J. Smurfit,
Chairman of the Board, left,
and Ray M. Curran,
President and Chief Executive Officer
Dear Shareholder,
O
ur first full year as Smurfit-Stone was a year of integration, change, and
constant challenge. Ultimately, we cleared each hurdle and ended the year
with a record of accomplishment. We have achieved our initial objectives
— among them, advancing our position as a leader in the industry. We have laid a
foundation for future growth and are now building upon it, as we will detail later
in this report.
At the outset, we outlined an ambitious transition issues created by the merger of two large companies and
agenda for the 24-month period following the completion devoted substantial management time to extricating our-
of the merger of Jefferson Smurfit Corporation ( JSC) selves from unprofitable joint ventures and investments
and Stone Container Corporation. Our goals were clearly that drained resources.
defined: divest non-core assets and exit unprofitable No merger process is easy, and ours was no exception.
ventures, reduce debt, generate synergy savings, rational- The inevitable headcount reductions, as well as the deci-
ize manufacturing capacity, and integrate our operations sion to sell or exit certain businesses, forced us to part
— especially the container and containerboard business — company with good employees. We invested time and
into one efficient system. We also pledged to follow an money in assisting our employees with the transition
operating strategy of producing for demand, rather than in their careers.
building inventory, and a capital strategy of managing When Roger Stone opted to retire early in 1999, the
investments to real change in demand, rather than Board of Directors elected Ray Curran president and CEO.
anticipated demand. By blending existing talent with external recruitment,
Now, halfway through the transition period, we are we strengthened our management team. We will continue
on schedule. We quickly rationalized major operations, to develop and recruit talent to achieve our ambitious
sold assets and businesses that did not fit our focused performance objectives.
packaging strategy, improved operating cash flow, and We are fully committed to completing our 24-month
strengthened our balance sheet. Despite the heavy debt agenda: building on the achievements of the first year;
level at the merger date, we were generating positive improving all our businesses; and continuing to deliver
cash flow by the second quarter. We paid attention to on our promises. We will create stockholder value; provide
our customers and our operations, as well as to financial a safe and satisfying work environment for our employees;
discipline. Operating results improved each quarter, and provide innovation, service, value, and quality for our
Smurfit-Stone reported a profit by the final quarter of customers; and commit to the communities in which we
the year. We also resolved many complex organizational conduct business.
5
8. Letter to Shareholders
1999 Results and 2000 Outlook The primary merger-related expenses that impacted
profit negatively during the year were severance and
Smurfit-Stone posted net income in 1999 of $157 million
shutdown costs related to our ongoing rationalization
or $.71 per diluted share compared to a net loss of
program. In addition, in the second half we recorded
$200 million or $1.61 per diluted share in 1998. The
charges in excess of $20 million, resulting from mill
1999 results included after-tax gains of $268 million, or
downtime related to Hurricane Floyd, as well as downtime
$1.22 per diluted share, related to the sale of non-core
to manage containerboard mill inventories at year end.
assets. Excluding the gains from asset sales, the company
Recycled fiber costs, a raw material for the company’s
posted a loss of $.48 per diluted share from continuing
mills, were, on average, considerably higher than in
operations, before extraordinary item. Sales for 1999 were
1998. The impact of higher recycled fiber costs was
$7.2 billion, compared to $3.5 billion the previous year.
partly offset by more favorable virgin fiber costs.
Smurfit-Stone’s results for 1998 included the results
The primary drivers of earnings improvement
of JSC, the predecessor of Smurfit-Stone, for the full year,
through the year were our cost-reduction efforts; our
and the results of Stone Container from November 18,
divestiture program, which lowered debt and interest
1998, the date of the merger, through the end of the year.
expense; and the overall improvement in the container-
The best measure of our progress in 1999 was the sequen-
board and corrugated container business. Healthy demand
tial improvement in earnings, rather than comparisons
for corrugated containers, coupled with balanced supply
to 1998. We began 1999 with a first-quarter loss from
of containerboard, stabilized prices in the beginning of
continuing operations of $.43 per diluted share and
the year and eventually supported price restoration.
narrowed that loss each quarter until we reported a profit
Shipment volumes decreased primarily as a result of
from continuing operations, excluding asset sale gains,
our operating plan to focus on margin improvement and
of $.20 per diluted share for the fourth quarter. Our cash
a better business mix, following the sizable shutdown in
flow improved rapidly.
capacity in late 1998. Healthy demand supported price
Proceeds from asset sales and refinancing activities
increases in boxboard and kraft paper.
enabled us to keep our debt reduction program on target. We
With little new capacity anticipated in the container-
reduced debt from $6.6 billion at year-end 1998 to $4.8 bil-
board sector and growing demand for packaging, we hope
lion at year-end 1999. Interest expense was $563 million in
for continued improvement in the supply/demand balance
1999. EBITDA (earnings before interest, taxes, deprecia-
in 2000. Favorable conditions will enable us to further our
tion, and amortization) excluding gain on asset sales of
strategic agenda of capitalizing on new opportunities and
$446 million for the full year was $872 million. In the fourth
continuing to improve our operations in 2000.
quarter it was $311 million. Capital spending for 1999 was
Asset sales and anticipated cash flow from operations
$156 million, substantially below depreciation of $352 million.
will enable us to achieve substantial debt reduction in
2000. This ongoing debt reduction will continue to reduce
our interest expense to more manageable levels. At the
start of 2000 we began the process of extending the Stone
revolving credit agreements. This extends the side-by-
side capital structure of the company, which preserves
the company’s two operating entities, Stone and Jefferson
Smurfit Corporation (U.S.). This postponement of com-
prehensive refinancing of the company saves substantial
financing costs.
In addition to Michael W.J. Smurfit and Raymond M. Curran,
Delivering on Our Promises
the company’s Executive Committee includes (from left to right):
Peter F. Dages, Vice President and General Manager, Corrugated
Our top financial priority has been to reduce debt, thereby
Container Division; William N. Wandmacher, Vice President and
reducing risk in a historically cyclical business. At the
General Manager, North American Containerboard Mill Division;
merger date, Smurfit-Stone had $6.8 billion of debt. We
and Patrick J. Moore, Vice President and Chief Financial Officer.
6
9. $625 million in cash and 25 million shares of Smurfit-
identified an estimated $2 billion in non-core assets — to
Stone common stock. This is a company with high-quality
be divested within the first 24 months, with the proceeds
assets, and it is a strong fit with two Smurfit-Stone strate-
to be applied to debt reduction. By November 1999, we
gies: to grow the company through acquisitions and to
had achieved approximately $1.8 billion in asset sales,
expand our core packaging business, especially in the
90 percent of our original target. The largest asset sale was
higher margin areas. A more detailed account of this
our timberland holdings, which sold for $710 million in
transaction is presented on page 24 in this report.
the fourth quarter. Newsprint assets, such as our stake in
Abitibi Consolidated and our Newberg, OR, mill, were
sold, along with other domestic and foreign assets. Taking a Non-traditional Approach
We achieved $284 million in synergies in 1999,
Our goal is not only to position the company as an industry
surpassing our goal of $220 million. The synergies were
leader but eventually to measure Smurfit-Stone against
primarily driven by containerboard mill and container
the best industrial companies in terms of customer satis-
plant rationalization, grade mix optimization, reduction
faction, growth, opportunity for employees, and returns to
in general and administrative costs, and purchasing sav-
shareholders. That will require a non-traditional approach
ings. The cash cost to achieve these synergies was $95 mil-
to the packaging business, bringing a heavy emphasis on
lion, primarily severance, restructuring, and shutdown
marketing an array of packaging products and providing
costs. The cost to achieve these synergies had an impact
innovative ways to solve fulfillment and supply problems
on the income statement of $41 million, for a net profit
for manufacturers, distributors, and retailers.
improvement from the synergy program of $243 million
We foresee far greater returns from investing in peo-
for 1999. In addition, the synergy program enabled the
ple than from buying new machinery. We are committed
company to avoid cash payments of $44 million during
to training employees under a combined quality manage-
1999. We expect to meet our synergy target of $350 million
ment program. We are striving to achieve an accident-free
on schedule in 2000.
work environment and to retain and recruit the best and
brightest employees to help us create and further develop
Setting a New Agenda a new business model.
We are encouraged and excited about and fulfilling
From an operating standpoint, our focus has been on
our business plan. While our top priority for 1999 was to
retaining customers, as we integrated two large container-
reduce debt and integrate the company, the ultimate goal
board mill and corrugated container systems. The reduc-
for 2000 is to realize the full potential from our operations.
tion in containerboard capacity forced us to cut back sales
With the company now solidly profitable, we are commit-
to the open market. We sacrificed some volume during the
ted to building on our accomplishments of the last year.
year as we consolidated corrugated container operations
and focused on customers who value high levels of service.
Having reached our initial goals, we enter the second
phase of our transition. Our agenda for 2000 will focus
heavily on operations, including: fully realizing synergies;
continuing the optimization of the containerboard, con-
Michael W. J. Smurfit
tainer, and logistics system; developing the full potential
Chairman of the Board
of all of the company’s packaging businesses; and exceed-
ing customer expectations by understanding and antici-
pating their needs and effectively marketing a diversified
product line.
Ray M. Curran
St. Laurent Acquisition President and Chief Executive Officer
In February 2000, we announced the acquisition
of St. Laurent Paperboard Inc., for approximately April 1, 2000
7
10. 1 9 9 9 : We Pr o m i s e d . We D e l i v e r e d .
Building a Strong Foundation
I
n May 1998, when we announced the merger of JSC and
Stone Container, we sketched out two ambitious goals: to
re-energize the business and to create new value for share-
holders in a flagging industry. In 1999, we implemented our
stated business plan — rationalization, divestiture, integration
of container/containerboard operations, synergies, and debt
reduction — for achieving the initial goals of the merger. We
delivered what we promised, and we remain on schedule with
our agenda.
Rationalized Container and Containerboard Mill System
In late 1998, according to plan, we closed four of our 22 containerboard mills. Mill
closings were based on a comparative financial analysis of structures and future operating
costs. Their tonnage was moved to the remaining 18 mills in order to optimize produc-
tion. In the process, we were able to walk away from a substantial amount of unprofitable
business, much of which was overseas; run the remaining mill system at a lower cost;
and direct more of our output to our own container plants.
Our effort at integrating our business enabled us to learn the best practices of each
facility and provided good data for improving the operational excellence process. For
example, at our Missoula, MT, mill, we realized substantial savings on total cash costs.
This was achieved through improved machine speeds and uptime; reduced waste, energy,
and maintenance costs; and an improved grade mix of linerboard produced at the mill.
One of the key ingredients in the rationalization, from a human resources perspec-
tive, was ensuring that we helped employees with the transition in their careers. To that
end, we enhanced our severance programs, provided opportunities for outplacement,
and encouraged employees to bid on available jobs.
While not as extensive as the mill rationalization, roughly half of the box plants
targeted for closing over a 24-month period have been shut down. We had two goals: to
close duplicate, overlapping, or poor-performing plants; and to retain the business of
the closed plants. We have closed 15 plants since the merger.
8
11. > Rationalizing Capacity
GOAL Reduce containerboard
capacity to meet internal
needs and real, open
market demand
STATUS Achieved
Completed within
first month following
merger
Jose Luis Rivera of
Smurfit-Stone’s North
Chicago, IL, corrugated
plant checks the status
of corrugated containers
that are ready to be
shipped. North Chicago
is one of the company’s
most productive and
efficient facilities, thanks
to its creative, hard-
working employees.
12. > Integrating Operations
Achieve full GOAL
rationalization of
mill system in
24 months
On schedule STATUS
Making good progress
Smurfit-Stone’s
Florence, SC, con-
tainerboard mill is
one of the industry’s
best-run mills in terms
of productivity and
use of energy. Lead
Operator Wade Conner
monitors the flame
system from the
control desk at the
mill’s cogeneration
plant. The cogenera-
tion plant burns bark
and coal to produce
electricity.
13. 1 9 9 9 : We Pr o m i s e d . We D e l i v e r e d .
By virtue of the rigorous process we developed for the mill closings, we were able to
retain a major portion of the combined company’s revenues. We are on track in terms of
time and performance. We have a full slate planned for 2000, with indications that we
will achieve all of our rationalization goals by the end of the 24-month period.
In deciding which packaging plants to close, we considered profitability, volume,
size of markets, number of employees, and customer mix. Equipment from closed plants
was transferred within the company, allowing us to reduce capital spending.
Delivered on Asset Sales
We closed on $1.8 billion in asset sales by November, 1999, 90 percent of our $2 billion
target, in about half of our original 24-month time frame. The first asset to be sold was
Stone’s Snowflake, AZ, newsprint facility for $267 million in net proceeds; next, our
stake in Abitibi Consolidated in two separate transactions totaling $494 million. The
sale of other miscellaneous packaging assets, such as Stone Australia, netted an
additional $75 million. The largest asset divested was our timberlands, which were
sold for $710 million. Finally, we completed the sale of our Newberg, OR, newsprint
mill for $211 million in November. We will continue to pursue the sale of the pulp
mill in Port Wentworth, GA, as opportunities arise.
Achieved Debt-reduction Targets
Virtually all of the $1.8 billion in asset sales have been applied to debt reduction, which
was the company’s highest financial priority in 1999. Our total debt at year end was
$4.8 billion. We will reduce debt in the year 2000, as we continue to sell assets and
generate free cash. Given a growing economy and improving prices, we could see
further, substantial debt reduction over the next 24 months.
Delivered on Synergies
Our plan was to achieve a full $350 million in synergies by the end of the first 24 months,
and we are well on our way. We achieved $284 million in synergies in 1999, against a tar-
get of $220 million. The cash cost to achieve these synergies was $95 million, primarily
severance, restructuring, and shutdown costs. The cost to achieve these synergies had an
impact on the income statement of $41 million, for a net profit improvement from the
synergy program of $243 million for 1999.
11
14. 1 9 9 9 : We Pr o m i s e d . We D e l i v e r e d .
The synergies were primarily driven by containerboard mill and container plant
rationalization, as well as administrative and purchasing savings. Manufacturing system
rationalization yielded $178 million, while procurement synergies produced $55 million.
Synergies achieved in administrative expenses were $51 million.
In addition, the synergy program enabled the company to avoid cash payments of
$44 million during 1999. These savings improved cash flow but did not affect the income
statement. We expect to achieve the original synergy target of $350 million in 2000. To date,
we have reduced headcount by about 2,300. This includes about 1,900 manufacturing
positions and 400 staff positions.
Integrating Remaining Operations
Philosophically, JSC and Stone Container approached the packaging business from
different perspectives. In order to blend those approaches and run the business as a
single, unified organization, we have actively reviewed the compensation systems,
manufacturing theory, investment strategy, and sales philosophy of both companies
in an effort to adopt best practices throughout the organization.
We are making good progress. We adopted a new
compensation plan for the container business and
rolled it out in 1999. Our major initiative for 2000
is margin improvement — effectively improving
profitability.
Procurement is a cross-company/cross-divisional
endeavor. Much effort has gone into leveraging our
size to maximize buying power; improve the procure-
ment process; analyze, streamline, and take out costs;
and eliminate duplication across all divisions of the
company.
Graphics Coordinator Dan Walsh, left, and
Digital Imaging Manager Chris Martin use
Exited Joint Ventures
digital files to fine tune a match between
a customer’s proof and press output at
Smurfit-Stone’s Irvine, CA, folding carton A major management focus of the past year was extri-
facility.
cating the company from unprofitable and unpromising
joint venture operations — both domestic and interna-
tional — all of which required the allocation of management time and resources. Having
those resolved will free us up to pursue more promising opportunities.
12
15. > Unify the Organization
Richard Faltynowski,
an operator at Smurfit-
Stone’s bag packaging
plant in Kansas City,
MO, makes a visual
quality check during
the manufacturing
of Ralston Purina’s
O.N.E. metallised bag.
Retain leading position
GOAL
and solidify market
share
STATUS On schedule
Improve profit margin
and safety record
16. > Realizing Synergies
$350 million GOAL
steady-state run rate
by mid-2000
Ahead of schedule STATUS
Achieved $284 million
in 1999, against
first-year goal of
$220 million
John Kuhn, first press
operator, is examining
print quality of a
Kimberly-Clark
“Expressions” sheet.
This job is running
on the company’s
64” KBA offset press
and utilizes the new
Hexachrome (6-color
process) ink system.
Automatic plate
changers, scanning
densitometers, remote
inking capabilities,
and onboard system
diagnostics allow
Irvine to meet the
fast turnaround,
high-quality needs
of its customers.
17. 1 9 9 9 : We Pr o m i s e d . We D e l i v e r e d .
The most time-consuming effort involved the Florida Coast mill, a joint venture
between Stone Container and Four M Corporation. Each had 50 percent ownership.
This mill was closed prior to the merger and filed for bankruptcy protection. Under
the terms of the negotiated settlement, Smurfit-Stone
took control of this facility and was released from all
obligations under the original agreements, in exchange
for a payment to Florida Coast stakeholders.
Domestically, we also negotiated an exit from
S&G Packaging, a joint venture that produced retail
bags. By exiting a business that had been modestly
unprofitable, we are optimizing our mill system to
substitute containerboard or multiwall bag grades
for the retail kraft paper formerly produced.
Internationally, we ended our involvement in a
timbering operation in Costa Rica, shut down a similar
Ralph Blackford, left, a converting
business in Venezuela, and sold our share of a folding specialist and instructor at Smurfit-Stone’s
Crestwood, IL, Container Division Training
carton venture in Europe. We are also reviewing the
Center, demonstrates to John Meisner how
prospects of Stone’s remaining obligations in Asia and printing plate and mounting specifications
influence the finished product. Meisner
South America. is a maintenance supervisor at SSCC’s
Portland, OR, facility.
Reorganized European Management
Late in the year, we agreed to integrate the operating management of Smurfit-Stone’s
European packaging business with the management of the European business of our
affiliate and largest shareholder, Jefferson Smurfit Group plc. Although no ownership
change will take place, the plan permits both companies to present a unified face to
European customers, expand our services and market presence, and benefit from syner-
gies. In unifying the sales and marketing teams for Europe, we eliminate the potential for
customer confusion. Smurfit-Stone will retain economic responsibility for the prof-
itability of its European operations, as well as capital spending and personnel.
Developed People
Our primary human resources goals are to align the whole organization, identify talent
at every level, and develop tomorrow’s leaders. Internally, we are providing training,
ranging from on-the-job skill development to managerial training. We also have
recruited executives from other industries.
15
19. Attaining Operational Excellence
I
n the first half of our 24-month agenda, our focus was on the financial
aspects of our business; during the second half, we will turn our atten-
tion to operations. With the company favorably positioned for 2000,
we began the year with many of the challenges behind us and ambitious
plans for the next stage — re-energizing the business. While we will
continue the programs begun in 1999, we are now free to redirect our
energies toward the fulfillment of two other significant goals: to become
a customer-led, market-driven company; and to create a culture that
fosters empowerment and provides a safe and healthy working environ-
ment for our employees.
GOAL AGENDA
Full Realization of Synergies $350 million in synergies by end of Continue program with the
the first 24 months potential to exceed goal
Achieve Full Potential Develop full earnings potential Process gains, marketing
of all packaging businesses initiatives, SG&A efficiencies
Container/Containerboard System Optimize production, costs, Best practices in
Integration and inventories for combined manufacturing and
mills and corrugated system supply-chain management
Customer Satisfaction Exceed customer expectations Cross-divisional selling,
Anticipate marketplace evolution e-commerce, new products, and
enhanced sales and marketing
Unify the Organization Align the entire organization Succession planning
Identify talent at all levels Employee development
Develop leaders of tomorrow Diversity training
17
20. > Achieve Full Potential
Develop full GOAL
earnings potential
of all businesses
In progress AGENDA
Process gains,
marketing initiatives,
new products,
administrative
efficiencies
Journeyman Cutter
Galaxy Mong
Somsavath loads
strips of labels into
a PMC machine at
Smurfit-Stone’s
St. Charles, IL, litho
label plant. Part of
the company’s unique
Accu-Sort system,
the labels are cut into
individual stacks of
1,000. The PMC is
capable of cutting
up to three strips of
labels at once.
21. 2 0 0 0 : S e t t i n g a N e w A g e n d a . We W i l l D e l i v e r A g a i n .
Attaining Operational Excellence
W
e have favorably positioned the company for 2000
and are now free to focus on our original goal of
re-energizing the business. We will continue to
optimize the container and containerboard system, achieve full
potential of all businesses and functions, and accelerate generation
of cash flow. With the rationalization of our mill system in place, we
can devote our energies to becoming a customer-focused, market-
driven company. With the first-year agenda behind us, we will
continue to build the kind of culture that encourages initiative
and continues to provide a safe environment for our employees.
While we set and achieved aggressive goals in 1999, we still
have considerable work to do to fulfill the promises we made in
connection with the merger. What follows are our strategies for
completing our two-year business plan.
Optimization of the Container and Containerboard System
The container and containerboard system is the engine that drives much of our growth.
In 2000, our primary goal is to be customer-focused. Our second goal is to run our mills
at optimum efficiency and cost. The logistical system is the link between marketing
and the mills. It provides the raw materials and the service necessary to meet both sets
of needs.
We will continue to implement best practices of the combined JSC and Stone mill
systems across all our facilities and to identify means to achieve the most efficient
configuration of grades. If we can successfully move our mills’ blended manufacturing
costs from the second-quartile to the first-quartile cost position, we can realize
significant savings.
We are halfway through the rationalization of our container system. Completing that
process will take the remainder of our 24-month transition period. Our goal will be to
retain the best business at the plants that are best-equipped to meet our customers’ needs.
19
22. 2 0 0 0 : S e t t i n g a N e w A g e n d a . We W i l l D e l i v e r A g a i n .
Achieving Full Potential of Packaging Businesses
Our goals for 2000 include turning our full attention to attaining peak performance from
every aspect of our businesses. We expect to achieve significant profit improvement by
implementing best practices across all of our packaging operations, as we have begun to
do in our corrugated container and containerboard mill operations. This process will
comprise three initiatives:
1.) MARKETING INITIATIVES are those that will position Smurfit-Stone as a customer-
focused company that knows its customers and provides them with predictability
and stability of supply in a cyclical business.
2.) PROCESS INITIATIVES include setting benchmark targets, implementing a philosophy
of continuous improvement, and developing natural work teams that are empow-
ered to make those improvements to achieve the full potential targets.
3.) CORPORATE INITIATIVES involve utilizing our corporate staff to better support
operations and create overall value through process improvement. We will
benchmark our staff functions and seek ways to improve them, in order to
provide better service and support, at lower cost, to our internal customers.
Major targets are to optimize all of our manufacturing systems and to run efficiently
with less inventory. Strategically, we produce for existing demand, never for inventory.
Our goal is to operate with a tighter supply, reducing inventory and working capital. We
see potential in the following actions:
1.) aggressively driving improvement of overall service and delivery performance
2.) reducing operating costs across the supply chain
3.) providing supply-chain value to our customers
Key initiatives are to develop best-in-class process capabilities in the areas of
demand planning and forecasting, master production scheduling for our plants and
mills, inventory management, transportation network optimization, and technology
tools and solutions. The supply-chain origination will play a key role in facilitating the
implementation of a well-integrated and seamless company.
Achieving our Target Synergies
In 2000 we will complete our synergy program, which encompasses rationalization,
procurement, operations optimization, and administrative efficiencies. We achieved
20
23. > Full Potential of Synergies
GOAL $350 million in synergies
by end of 2000
AGENDA In progress
Continue program with
potential to exceed goal
Smurfit-Stone’s blue-
lined Smooth Concrete
Column Form is
unique to the construc-
tion industry. Quality
Assurance Rep Debbie
Choonhaurai uses a
micrometer to measure
the thickness of the
finished form at
the company’s
Vacaville, CA, plant.
24. > Customer Satisfaction
Exceed customer GOAL
expectations
In progress AGENDA
Enhanced cross-
divisional sales/
marketing
Andrew De Guzman,
an employee at the
Wal-Mart store in
Oakland, CA, oversees
bundling of old corru-
gated containers to
be shipped to Smurfit-
Stone’s recycling plant
nearby. New machinery
at the plant efficiently
separates corrugated
from plastic and other
recyclable material,
creating a much
more efficient waste
management process
for Wal-Mart and other
customers.
25. 2 0 0 0 : S e t t i n g a N e w A g e n d a . We W i l l D e l i v e r A g a i n .
80 percent of our two-year target of $350 million in 1999 and have approximately
$70 million remaining. In order to achieve the final 20 percent, we will continue our
synergy program, shifting our emphasis where necessary. Here are our priorities:
1.) Last year’s efforts were primarily driven by mill rationalization.
RATIONALIZATION:
Incremental gains in 2000 will be driven by converting plant rationalization that
began in the latter half of 1999 and is continuing in the current year.
2.) In 1999, our primary activity was to use our leverage on existing
PROCUREMENT:
contracts to lower the unit cost of major chemicals and other commodities needed
for production. In 2000, we will expand our corporate procurement resources
and review opportunities to reduce purchasing costs in goods and services that
traditionally had been bought on a site-specific basis.
3.) In 1999, our emphasis was on optimization of grade mix
OPERATIONS OPTIMIZATION:
within the mill structure and customer mix within containerboard marketing.
We will continue this process in 2000.
Becoming a Customer-focused Company
As a diversified, customer-focused paper packaging company, we are able to offer a
broad portfolio of products to meet our customers’ packaging needs. We are also inves-
tigating ways in which to take full advantage of today’s advanced technology to serve our
customers through effective utilization of the Internet and e-commerce.
In the last couple of years, there has been a changing mentality in our customer base.
Customers are seeking continuous innovation. They want packaging that catches the
customer’s eye and works effectively with their products.
We must now work together to sell a customer’s product. By finding business connec-
tions in which we can perform a function more efficiently and cost effectively for the
customer, we essentially become an extension of that customer’s marketing resources.
We will continue to emphasize high-service business. One example of this philosophy
in action is our Packaging Solution Center (PSC), designed to solve customers’ packaging
problems on the spot. In the PSC, structural designers, mechanical packaging people, and
graphic designers apply a full range of packaging options and creative services to meet
each customer’s unique requirements.
23
26. 2 0 0 0 : S e t t i n g a N e w A g e n d a . We W i l l D e l i v e r A g a i n .
Caring for our Employees
Caring for our employees means creating a safe environment. Endeavoring to become
one of the safest companies in the U.S. sends a powerful message to our employees
that they are valuable to us and that we care about their welfare. We have an active
safety and safety-awards program. Incentive and recognition systems are tied to safety
performance, and we are among the leaders in our industry in safety performance.
Acquisition of St. Laurent Paperboard Inc.
Ultimately, our goal and point-of-pur-
TRANSACTION HIGHLIGHTS:
is to grow our core chase displays. The
ACQUISITION: St.Laurent Paperboard Inc.
packaging businesses combination of these
Leading specialty
through strategic, packaging businesses
packaging company
opportunistic acquisi- with Smurfit-Stone
tions. The first such into one North
s 4 mills
ASSETS:
acquisition since the American unit will
s 16 packaging plants
merger, announced generate an estimated
s 920,000 acres of forest land
early in 2000 and $50 million annually
expected to close in in cost savings. It will
the second quarter, was that of St. Laurent also enhance cash flow, enabling us to service
Paperboard Inc., for approximately $625 million the increased debt, and create significant new
in cash and 25 million shares of Smurfit-Stone opportunities to optimize our containerboard
common stock. manufacturing system.
St. Laurent is a leading North American pro- Under the terms of the agreement, holders
ducer, supplier, and converter of high-quality, of St. Laurent stock will receive $12.50 in cash,
value-added specialty containerboard and high- plus one-half share of Smurfit-Stone common
impact graphics packaging. In addition to its stock for each share of St. Laurent. To finance
four mills and 16 packaging plants, the company the transaction, Smurfit-Stone will raise
owns 920,000 acres of forest land in Quebec. approximately $625 million in new debt and
This acquisition will significantly expand issue approximately 25 million new shares,
our production capabilities in specialty grades increasing the number of fully diluted shares
of containerboard, such as white-top linerboard, outstanding to approximately 250 million.
coated and bleached linerboard, and light- We will also refinance about $400 million of
weight medium. It will afford Smurfit-Stone St. Laurent debt. The transaction is subject to
an unmatched ability to serve customers for approval of St. Laurent shareholders and
microflute, high-impact graphics packaging, various regulatory bodies.
24
27. > Container/Containerboard System Integration
Structural designers
Andre Smith, left,
and Rick Jaraczewski
review a structure for a
display designed and
produced at the Cameo
Container plant in
Cameo, IL. Smurfit-
Stone has greatly bene-
fited from the creativity
and innovation of design
presentations produced
by this affiliate facility.
GOAL Optimize production,
costs, inventories
AGENDA In progress
Implement best practices
28. Smurfit-Stone Container Corporation
Board of Directors and Corporate and Division Officers
David C. Stevens Victor E. Kendall
BOARD OF DIRECTORS DIVISION OFFICERS
Vice President and General Manager, Vice President and Manager,
Ray M. Curran Reclamation Division Corporate Sales
Corrugated Container Division
President and CEO, William N. Wandmacher LeRoy R. Crocker Jerry Roeske
Smurfit-Stone Container Corporation Vice President and General Manager, Vice President and Regional Manager Vice President and Manager,
Richard A. Giesen Containerboard Mill Division Corporate Sales
John J. Curry, Jr.
Chairman and CEO, Lorne Parnell Vice President and Regional Manager Jim Laurence
Continere Corporation Vice President, Vice President, Sales
Stephen P. Folan
Alan E. Goldberg Pacific Operations Vice President and Regional Manager Fred Klatt
Managing Director, Jose A Santos Vice President, Manufacturing
James A. Henderson
Morgan Stanley & Co., Inc. Vice President, Vice President and Regional Manager
Howard E. Kilroy Latin American Operations Folding Carton and
Lane W. Hunter
Retired, Boxboard Mill Division
Cynthia S. Bowers Vice President and Regional Manager
Jefferson Smurfit Group plc Vice President, J. Gregor Doman
John B. Malloy
James J. O’Connor Compensation and Administration Vice President, Sales
Vice President and Regional Manager
Retired, Daniel J. Garand Larry D. Fielder
Unicom/Commonwealth Edison James A. McNeill
Vice President, Vice President, Paper Can
Vice President and Regional Manager
Jerry K. Pearlman Supply Chain Operations John E. Straw
Retired, Rodney A. Myers
Edwin Goffard Vice President and Regional Manager,
Zenith Electronics Corporation Vice President and Regional Manager
Vice President Eastern Region
Thomas A. Reynolds, III James S. Nolan
Michael F. Harrington Curtiss M. Komen
Partner, Vice President and Regional Manager
Vice President, Vice President and Regional Manager,
Winston & Strawn Employee Relations Donald A. Petri Western Region
Dermot F. Smurfit Vice President and Regional Manager
James A. Hayssen David J. Pietrowicz
Deputy Chairman, Vice President, Donald A. Tinkoff Vice President and Regional Manager,
Jefferson Smurfit Group plc Information Technology Vice President and Regional Manager Central Region
Dr. Michael W.J. Smurfit Charles A. Hinrichs James S. Willis Nathan S. Holmes
Chairman and CEO, Vice President and Treasurer Vice President and Regional Manager Vice President and General Manager,
Jefferson Smurfit Group plc Boxboard Mills
Craig A. Hunt Roger W. Clingerman
Vice President, Vice President and General Manager -
CORPORATE OFFICERS Specialty Packaging Division
Secretary and General Counsel Corporate Accounts
George Q. Langstaff
Paul K. Kaufmann Stephen E. Jevyak
Dr. Michael W. J. Smurfit Vice President, Converting and
Vice President and Controller Vice President and Transition
Chairman of the Board Marketing
Team Leader
Allen M. Koleff
Ray M. Curran
Vice President, Michael S. Rose
President and CEO Reclamation Division
Environmental Affairs Vice President,
Patrick J. Moore Michael R. Oswald
International Sales Development
Leslie T. Lederer
Vice President and CFO Vice President, Operations
Vice President, Jerry D. Suiter
Peter F. Dages Mark Brantley
Strategic Investment Dispositions Vice President and Director,
Vice President and General Manager, North Central Operations Manager
Manufacturing
Timothy J.P. McKenna
Corrugated Container Division Steve Miller
Vice President, Robert A. Guillou
James P. Davis West Region Operations Manager
Investor Relations and Vice President, National Accounts
Vice President, Communications Tom Squires
Corrugated Container Division South Region Operations Manager
Containerboard Sales and
Mark R. O’Bryan
James D. Duncan Marketing Division
Vice President, Jim Pope
Vice President and General Manager, Purchasing Larry L. Burton International/West Sales Manager
Specialty Packaging Division Vice President, Sales and Marketing
Thomas A. Pagano Ed Tucciarone
William G. Eustice Vice President, Peter Butier, Jr. National/East Sales Manager
Vice President, Planning Vice President, Containerboard
Corrugated Container Division and Kraft Paper Sales Smurfit Newsprint Corporation
Thomas G. Pavlini
Jay D. Lamb Vice President, Michael A. Siebers
President and General Manager, Containerboard Mill Division
Distribution Vice President and General Manager,
Smurfit Newsprint Corporation John E. Davis Oregon City Mill
Gayle M. Sparapani
F. Scott Macfarlane Vice President, Forest Resources
Vice President, Jon E. Melkerson
Vice President and General Manager, Benefits Alain Dubuc Vice President,
Folding Carton and Vice President, Mill Operations, Sales and Marketing
John F. Allgood
Boxboard Mill Division Northern Region
Assistant Secretary Fran J. Ostlund
John M. Riconosciuto W. G. Stuart Controller and Assistant Secretary
Richard P. Marra
Vice President and General Manager, Vice President, Mill Operations,
Assistant Treasurer
Bag Packaging Division Central Region Research and Development Division
Ronald J. Megna
Joseph V. LeBlanc
Assistant Secretary Bag Packaging Division Vice President
John Moran
Vice President, Marketing and
Specialty Bag Packaging
26
29. Stockholders’ Information
STOCKHOLDERS’ ANNUAL MEETING
May 18, 2000 at 1:00 pm
The Sheraton Chicago Hotel & Towers
City Front Center
301 E. North Water Street
Chicago, IL 60611
REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
www.chasemellon.com
Telephone: 888-213-0965
COMMON STOCK
Smurfit-Stone Container Corporation
common stock is traded on The Nasdaq Stock Market
under the symbol: SSCC
FOR INVESTOR INFORMATION CONTACT
Investor Relations and Communications
Smurfit-Stone Container Corporation
8182 Maryland Avenue
St. Louis, MO 63105
Telephone: 314-746-1223
Fax: 314-746-1347
Timothy McKenna
Vice President, Investor Relations
and Communications
St. Louis: 314-746-1254
Chicago: 312-580-4637
CORPORATE OFFICE
Smurfit-Stone Container Corporation
150 North Michigan Avenue
Chicago, IL 60601-7568
Telephone: 312-346-6600
Design: ProWolfe Partners; St. Louis, MO
Photography: Mark Green; Houston, TX
30. Smurfit-Stone Container Corporation (Nasdaq: SSCC) is the industry’s premier
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 the merger between Jefferson
Smurfit Corporation and Stone Container Corporation. Core products include
corrugated containers, folding cartons, specialty packaging, and bag packaging,
which are supported by an integrated mill system and significant fiber resources.
The company operates approximately 300 facilities worldwide.
150 North Michigan Avenue
Chicago, IL 60601-7568
(312) 346-6600
www.smurfit-stone.com
