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Annual Report
                                                      >
Smurfit-Stone Container Corporation


                                        2000
Look again.
Table of Contents

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




We are.
Smurfit-Stone’s leadership role in the paper and packaging industry is no illusion.
To improve that position, we are taking another look at how we manage our
business, satisfy our customers, and deliver value to all stakeholders. In today’s
economic environment, we hope our business fundamentals and track record
of financial discipline will encourage you to take another look at Smurfit-Stone.
1




     Look again.
                        >



            1 leadership
                 perspective
We’ve adopted the following principles to run our business:
    empowered employees,                            ongoing learning
s                                               s


    teamwork, and consensus
                                                    continuous process improvement
                                                s


    shared leadership
s
                                                    data-based decisions
                                                s


    open, two-way communication
s




                                                                                People
2




      Look again.
                       >



              2 customer
                  perspective
    Smurfit-Stone is the best positioned paper-based packaging company to anticipate and
    respond to rapidly changing conditions in the packaging market. As a customer-led company,
    we listen to our customers in order to deliver the types of products and services they
    and their customers will need in the short- and long-term. In other words, we make the
    products they want, rather than merely selling the products we make.



                                                                                   Products
Products



operational
               perspective
In 2000, we continued to refine the benchmarking process we began at the time of
the merger of Jefferson Smurfit Corporation and Stone Container. We identified the best
operations within our manufacturing system and throughout the industry and challenged
our operations to close the gap between where they are and where



                                                                                  3
they ought to be. The results produced higher operating efficiencies
and lower costs.




                                                                       >
                                                                           Look again.



                                                                                         3
4




       Look again.
                         >



              4 financial
                  perspective
    Our number one financial goal for 2001 is to reduce debt and continue to increase our
    financial flexibility. We are focused on cost containment, cost reduction, and cash generation
    to pay down debt. Smurfit-Stone’s plan is to conduct business with a unified packaging focus,
    have better assets in play, and complete our strategy of exiting businesses that do not meet
    our strategic objectives.



                                                                                  Performance
Performance



accountability
                perspective
Our challenge at the start of the 21st century is to examine the practices of our predecessor
companies and adopt only the very best. As a company that employs approximately 40,000
people, operates more than 300 manufacturing facilities throughout North America, and holds
a leadership position in our industry, we take seriously our obligations



                                                                                     5
to all stakeholders.




                                                                           >
                                                                               Look again.



                                                                                                5
FINANCIAL HIGHLIGHTS

                                                                                                                                                                        2000             1999             1998
    Dollars in millions, except per share data


          Summary of operations
          Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    $ 7,423         $ 3,612
                                                                                                                                                                    $ 8,796
          Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                        423             (93)
                                                                                                                                                                        933
          Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               (563)           (247)
                                                                                                                                                                       (527)
          Income (loss) from continuing operations before extraordinary item
              and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                      163             (211)
                                                                                                                                                                         219
          Net income (loss) available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                            157             (200)
                                                                                                                                                                         224


          Basic earnings per share
          Income (loss) from continuing operations before extraordinary item
              and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                 $    .75        $ (1.70)
                                                                                                                                                                    $    .94
          Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               .72          (1.61)
                                                                                                                                                                          .96
          Weighted average shares outstanding (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                       217           124
                                                                                                                                                                         233


          Diluted earnings per share
          Income (loss) from continuing operations before extraordinary item
                 and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                  $    .74        $ (1.70)
                                                                                                                                                                    $    .93
          Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               .71          (1.61)
                                                                                                                                                                          .96
          Weighted average shares outstanding (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                      220            124
                                                                                                                                                                         234


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




                                                                                                         Sales per Product Segment




    Containerboard and                                       68%                                                                                                            12%          Consumer Packaging
    Corrugated Containers
                                                                                                                                                                                8%       Specialty Packaging


                                                                                                                                                                                5%       Recycled Fiber

                                                                                                                                                                                7%       International
                                                                                                                                                                                         and Other
Smurfit-Stone Container Corporation



                                  LETTER TO SHAREHOLDERS




Dear Shareholder,                                                                             Significant Improvement in



F
      or Smurfit-Stone,                                                                        Operating Performance
      2000 was a year of                                                                      A key measure of our progress
      financial and operating                                                                  is improvement in operating
accomplishments tempered by                                                                   performance.
market challenges. It brought                                                                        For the full year 2000, the
the acquisition of St. Laurent                                                                company reported net income
Paperboard Inc. — which                                                                       available to common share-
accelerated our strategic                                                                     holders of $224 million, or $0.96
development as a full-service,                                                                per diluted share, compared
paper-based packaging                                                                         with net income of $157 million
company — as well as                                                                          in 1999, or $0.71 per diluted
economic conditions that forced                                                               share. The 1999 results included
us to schedule mill downtime                                                                  after-tax gains on the sale of
                                                                                                                                   7
equal to about 10 percent of our                                                              non-core assets of $268 million,
                                      > Michael W. J. Smurfit, Chairman of the
                                          Board (left), and Ray M. Curran, President
containerboard capacity.                                                                      or $1.22 per diluted share. In
                                          and Chief Executive Officer.
       We began 2000 with our                                                                 2000, higher product prices and
role as industry leader firmly                                                                 the addition of St. Laurent’s
established. The merger of Jefferson Smurfit                        higher-value product mix contributed to an 18 percent
Corporation (JSC) and Stone Container Corporation                  increase in sales to $8.8 billion compared with 1999.
 in 1998 made us the largest paper-based packaging                 The operations of St. Laurent, included in the com-
company in North America and provided                              pany’s results for the last seven months of the year,
unparalleled opportunities to improve service                      added $96 million in operating profits.
to customers, rationalize operating systems,                              These favorable results were achieved despite
and enhance operating efficiencies.                                higher energy costs of about $88 million and the need
       We immediately acted on these opportunities.                to take 758,000 tons of economic downtime to manage
Even so, the path from packaging manufacturer to                   inventory levels and conserve working capital in the
packaging solutions provider demands new skills,                   containerboard mill system.
 sometimes difficult production decisions, and a                          We continued to make progress in strengthening
 willingness to accept new kinds of challenges. As we              our financial position. The St. Laurent acquisition added
 build these skills, we are becoming a stronger company            $1 billion in debt without weakening the credit profile of
 with a more efficient integrated system and greater               the company. Operating profits and synergies from the
 flexibility to meet these challenges.                              acquisition supplemented our operating cash flow and
                                                                   enabled us to reduce debt by approximately $370 million
                                                                   during the second half of 2000. Total debt was $5.3 billion
                                                                   at the end of the year. Interest expense in 2000 was
                                                                   $527 million, a $36 million decrease from the prior year.
In January 2001, we simplified our balance sheet                      Average prices for most paperboard and packaging
    with a $1.05 billion bond offering by Stone Container.               products showed significant improvement in 2000.
    The bond offering replaced several higher-coupon                     Containerboard prices posted the greatest improvement,
    issues with lower-interest debt and extended our                     increasing about 20 percent on average and partially
    maturities, improving our credit profile and                          restoring profit margins lost in the second half of the
    financial flexibility.                                                 1990s. The company successfully implemented price
           Capital expenditures for the year were $363 mil-              increases on corrugated containers, boxboard, and
    lion, a substantial increase from the $156 million spent             folding cartons, as well as multiwall bags.
    in 1999. This was primarily                                                                                Our packaging
    driven by heavy environ-                                                                            businesses continued to
    mental compliance spending                                                                          enhance their positions
    in our mill system. We                                                                              with customers seeking
    expect capital spending to                                                                          additional graphics and
    stay well below depreciation                                                                        specialized service. In a
    and amortization levels for                                                                         difficult year for the industry,
    the foreseeable future.                                                                             our folding carton business
           Smurfit-Stone has                                                                             increased market share and
    benefited from more than                                                                             profitability as a result of our
    $350 million in annualized                                                                          demonstrated commitment
    synergy savings from the                                                                            to consistent customer
    integration of the JSC and                                                                          service and production
    Stone manufacturing and                                                                             quality. This helps to
    corporate systems. These                                                                            provide a stable profit base.
8
    savings, a major priority in       > In addition to Ray Curran, the company’s Executive
                                          Committee members are (sitting, left to right)
    1999, were fully implemented
                                          Patrick J. Moore, vice president and chief financial
    by the second quarter                                                                               Positive Trends and
                                          officer; Peter F. Dages, vice president and general
    of 2000.                                                                                            Continued Progress
                                          manager, corrugated container division; and
                                          (standing, left to right) John M. Riconosciuto,
           A strong economy                                                                             The achievements recorded
                                          vice president and general manager, specialty
    from most vantage points                                                                            and challenges faced in 2000
                                          packaging division; William N. Wandmacher, vice
    nevertheless brought special                                                                        signal changes afoot in our
                                          president and general manager, North American
                                          containerboard mill and forest resources division;
    challenges for the packaging                                                                        industry. We believe the
                                          and F. Scott Macfarlane, vice president and general
    industry. Because of the                                                                            industry trends bode well
                                          manager, consumer packaging division.
    strength of the dollar,                                                                             for Smurfit-Stone. Here are
    U.S. consumers bought                                                                               some reasons for optimism.
    an increased level of goods manufactured and packaged                       Customers continue to embrace high-end
    abroad. Additionally, the dollar’s strength impaired                 packaging, including boxes that combine corrugated
    U.S. manufacturers’ ability to export their goods in U.S.-           packaging’s structural features with the customer
    made boxes, and U.S. linerboard producers found their                appeal of high-impact graphics. Evolving customer
    prices uncompetitive in export markets. Despite the                  preferences will give us opportunities to grow, although
    impressive performance overall from the U.S. economy,                change also carries the potential to reduce demand in
    domestic shipments of corrugated containers declined                 other parts of our business. We believe the net benefit of
    roughly one percent in 2000.                                         these changes can increase revenues and profit margins.
           In this environment, Smurfit-Stone worked hard                        The acquisition of St. Laurent expands our
    to manage our production to meet demand. As a result,                capabilities and positions us well to meet customers’
    we benefited from stable to improving prices and better               changing needs. St. Laurent’s outstanding capabilities
    margins compared with the prior year.                                in developing and producing high-end containerboard
                                                                         complement Smurfit-Stone’s existing product lines.
With St. Laurent, we also acquired additional marketing            We are reviewing our methods for reducing
resources, which support our aim of being a market-         production as necessary to manage inventory.
driven company rather than an operations-driven one.        Unscheduled downtime is costly — in increased
      We now have approximately 7.8 million tons of         manufacturing costs as well as disruptions to employees
containerboard capacity in the combined Smurfit-Stone        and customer schedules — and is prompting a thorough
and St. Laurent system. We consume more than five            assessment of the best approach. Our options include
million tons in our corrugated container operations.        extending scheduled maintenance downtime, slowing
We have been improving the market mix of this business      the rate at which machines run, and temporarily
for the past two years, taking advantage of opportunities   shutting down high-cost machines in certain cases.
to substitute higher-margin, high-impact packaging          Our goal is to make our system more cost efficient and
for products with lower margins. Adding St. Laurent’s       better positioned to respond to customer demand.
packaging and marketing skills has aided that process.             In the near term we expect economic challenges
      About 20 percent of our containerboard mill           to continue. There are signs that the U.S. dollar may
production is higher-value containerboard. This             weaken. This may stimulate packaging demand later
includes one million tons of white top linerboard           in 2001 and thereafter. We plan to hold capital spending
as well as lightweight medium and coated white              below 2000 levels now that the bulk of the environ-
linerboard. These constitute the most consistently          mental compliance spending is behind us. We also
profitable grades in a changing packaging environment.       plan to use cash flow to further reduce debt, which is
      Integrating the JSC, Stone, and St. Laurent           our number one financial priority. We have achieved
production facilities into a single system gave us more     $20 million in annualized synergy savings from the
manufacturing flexibility. Soon after the acquisition of     St. Laurent acquisition, and we expect to realize the
St. Laurent, we shut down one of the smaller Smurfit-        total $50 million targeted by the end of 2001.
Stone mills, eliminating 130,000 tons of medium                    Smurfit-Stone aims to be recognized as a company
                                                                                                                       9
capacity. With this closing, we have permanently            that delivers value to customers and shareholders. To do
shuttered 1.8 million tons of containerboard capacity       that on a consistent basis requires a customer-focused
since 1998.                                                 organization with motivated and committed employees
                                                            and effective operations. Our company culture must
                                                            mirror our position as the industry leader. We are on
                                                            course to become the preeminent packaging solutions
Providing Packaging Solutions
Our strategic aim is to be the supplier of choice for       provider, which is Smurfit-Stone’s strategic goal and one
two significant groups of customers: those who seek          that recognizes the interests of customers, employees,
a broad-based source for efficient packaging solutions,     and shareholders.
and independent packaging producers who buy our                    We are encouraged by our accomplishments and
containerboard products.                                    we look forward to continued progress in 2001.
       For packaging customers, we now have a rich
pool of resources to provide the service and high-impact
packaging increasingly in demand. We have initiated
a comprehensive review aimed at better serving our
customers and focusing on where we can expand and
enhance these resources to meet market needs.                    Michael W. J. Smurfit
       The independent packaging producer is seeking             Chairman of the Board
 a reliable supply of high-quality containerboard. We
are working to address this need by dedicating a large
portion of our tonnage to this sector and are exploring
other ideas related to the independent market.
                                                                 Ray M. Curran
                                                                 President and Chief Executive Officer
S M U R F I T- S T O N E AT A G L A N C E


     DESCRIPTION                                                                            C A PA B I L I T I E S
     Containerboard and Corrugated Containers

     Containerboard and corrugated                                                             Full range of high-quality              Graphic capabilities include
     containers represent Smurfit-Stone’s                                                       corrugated containers                   preprint and post-print flexography,
     largest business segment, with                                                                                                    and label applications.
                                                                                               Innovative packaging solutions and
     68 percent of the company’s sales. This
                                                                                               high-quality graphics                   Full range of domestic and export-
     segment supplies hundreds of national
                                                                                                                                       specific liners, including solid
                                                                                               Complete line of retail-ready,
     and international manufacturers, as well
                                                                                                                                       bleached sulfate, white top and
                                                                                               point-of-purchase displays
     as thousands of local and regional
                                                                                                                                       high-performance grades
     customers.                                                                                Full line of specialty products and
                                                                                                                                       Full range of semi-chemical and
                                                                                               custom, die-cut boxes to display
                                                                                                                                       recycled medium, including high-
                                                                                               packaged merchandise
                                                                                                                                       performance grades


     Consumer Packaging

     Smurfit-Stone’s consumer packaging                                                                                                 Clay-coated and uncoated recycled
     products and services business                                                                                                    boxboard in newsback, kraftback,
     includes boxboard, folding cartons,                                                                                               and whiteback grades
     printed paper, foil and heat-transfer                                                                                             Folding carton converting
     labels, rotogravure cylinders, color                                                                                              capabilities include sheet and
     separations, engineering services,                                                                                                web lithographic printing,
     and full-service design.                                                                                                          laminating, gluing, tray forming,
                                                                                                                                       and windowing.
10                                                                                                                                     Labels for decorative packaging
                                                                                                                                       applications


     Specialty Packaging

     Smurfit-Stone’s specialty packaging          manufacturing, flexible packaging, and         Multiwall industrial and consumer,
     business includes bag packaging             contract packaging services. Multiwall,       specialty, and flexible bags
     operations, industrial tube and core        consumer, specialty, and flexible bags         Paper tubes and cores
                                                 are used to ship, store, protect and
                                                                                               Solid fiber and paperboard
                                                 promote a wide range of products.
                                                                                               partitions
                                                 Tubes and cores are used by the textile,
                                                 paper, film and carpet industries.             Full line of flexible, intermediate
                                                 Flexible packaging supplies products for      bulk containers
                                                 detergent, fabric softeners, and liquid       Packaging equipment and systems
                                                 chemicals, among others.                      that fill, seal, convey, and palletize
                                                                                               bag products
                                                                                               Contract packaging services




     Recycled Fiber

     Smurfit-Stone is unique in the paper         and now collects and processes                Recycling business handles              Waste Reduction Services
     and packaging industry in that it has       approximately 7 million tons of               recovered paper generated by            provides waste-management
     a strong position in recycled fiber.         recycled paper every year.                    industrial, commercial, and             solutions to businesses.
     The company has built the largest                                                         residential sources.
     reclamation business in the industry                                                      Collected material includes old
                                                                                               corrugated containers, newspapers,
                                                                                               office waste, magazines, aluminum
                                                                                               cans, glass, and plastics.
I N D U STRY POS ITI O N                             FA C I L I T I E S                                       ACCOM PLISH M E NTS



  Largest producer of containerboard                    Approximately 150 container                            Improved segment profit
                                                        facilities worldwide                                   by $441 million
  Largest producer of high-value
  white top linerboard                                                    21 paper and paperboard mills        Optimized mill operations
  Largest supplier of                                                     5 strategically located Packaging
  corrugated containers                                                   Solution Centers
  Industry’s most
  complete line
  of graphic
  capabilities




                                                                                                               Record safety performance
  No. 1 producer of clay-coated recycled boxboard         18 folding carton plants
                                                                                                               Increased folding carton market share
  A leading supplier of folding cartons                   4 clay-coated recycled boxboard mills
                                                                                                               Improved segment profit by 8 percent
                                                          4 label plants
                                                                                                               Successfully combined existing folding carton
                                                          3 lamination facilities
                                                                                                               and boxboard mill businesses with other
                                                          2 prepress operations
                                                                                                               consumer packaging operations
                                                          1 PaperCan™ plant
                                                          3 uncoated, recycled board mills
                                                                                                                                                                   11




  Largest manufacturer of multiwall industrial and      18 tube and core plants                                Significant improvement in operational areas,
  consumer bags                                                                                                especially safety
                                                        11 bag plants
  A leading supplier of flexible intermediate bulk                                                              Improved cash flow from working capital
                                                        4 flexible packaging facilities
  containers                                                                                                                   Integrated tube and core,
                                                        3 partition plants
  A leading producer of paper tubes and cores                                                                                  partition, contract packaging,
                                                        1 technical and graphics center                                        and flexible packaging operations
                                                        1 bag packaging equipment                                              resulting in shared services and
                                                        facility                                                               multi-product sales opportunities




  World’s largest paper recycler                        25 U.S. collection centers                             Record volume year
                                                        10 brokerage offices                                   Record export sales
                                                        1 brokerage office in Shanghai, China                  Division reorganization reduced SG&A
                                                                                                               costs 7.5 percent
                                                        1 waste reduction services office
> Smurfit-Stone’s acquisition of
   St. Laurent Paperboard Inc. in May
   2000 made the company the lead-
   ing manufacturer of high-quality
   white top linerboard. Here,
   Isabelle Dussault inspects a
   sample sheet at the La Tuque,
   Quebec, containerboard mill.

   La Tuque, Quebec
Smurfit-Stone Container Corporation



                                           BRINGING


       new perspective
                      T O A N E S TA B L I S H E D I N D U S T RY




              T
                       he paper-based packaging industry, like most manufacturing-
                       based industries, has been operations driven for most of its
                       history. Big paperboard mills, at their best when the machinery
              was fully engaged, delivered product into inventory until buyers wanted
              it. In sluggish economic times, warehouses bulged and prices fell. Those
              circumstances gave rise to an inefficient and disruptive cycle.
                   Conditions began to change in 1998 with the combination of Jefferson
              Smurfit Corporation (JSC) and Stone Container Corporation. As Smurfit-                                 13

              Stone, we set out to be a customer-driven company in which decisions
              start with the marketplace and work back through production. The
              evolving market also played a significant role in our decision to acquire
              St. Laurent Paperboard Inc. and its high-end containerboard capabilities.




1
                                     Leadership
    People
                                    The combination of JSC and Stone Container gave Smurfit-Stone the No. 1
    Leadership perspective          ranking by size in the paper-based packaging industry. The larger com-
            pany became a platform on which to build a new business model.
                   Greater size brought increased flexibility in operating our mill system. Our challenge was
            to align the mill system more closely with market priorities and make it more efficient. Within the
            first 15 months after the merger, we shuttered five mills, eliminating 1.6 million tons of inefficient
            containerboard production capacity.
                   To add capabilities that better reflected the evolving packaging market, we acted on the
            opportunity to acquire St. Laurent Paperboard. Its white top linerboard provides the substrate
            for packaging customers who require colorful, marketing-oriented, high-impact graphic design.
            Expanding these capabilities within Smurfit-Stone accelerated our development as a provider of
            packaging solutions.
The acquisition further expanded our mill system, offering additional opportunities to
     optimize production, achieve cost savings, and better match production to customer orders.
            Smurfit-Stone’s new business model contains two key aspects. One is structural — a more
     efficient mill system. The other addresses the marketplace — a product line more attuned to
     customer priorities. For Smurfit-Stone, this business model laid a foundation for better inventory
     management. A more predictable market environment mitigates price swings and allows man-
     agers to concentrate on other aspects of the business, such as a corporate culture that reflects our
     leadership position.
            The vehicle through which we intend to implement the business model is CustomerONE.
     More than a corporate quality program, it is a comprehensive operating philosophy and work
     process that is designed to provide focus and, where necessary, change our attitude about what
     it takes to succeed in the marketplace.
            We are transforming how we define “customer”. In the CustomerONE environment,
     a customer is any stakeholder — someone who buys our products, works at our company,
     invests in us, or partners with us. Our stakeholders include the communities in which we do
     business. Defining all of these relationships in the customer sense leads to a different attitude
     about how we conduct our business. It focuses us on solutions.
            Over the years, JSC and Stone Container had developed their
     own quality programs and operating philosophies. CustomerONE
                                                                                     Houston, Texas
     integrates their best features. More important, it provides a sense of
     identity that is unique to Smurfit-Stone, at a time when our vision is       > Len Murphy (left) and
                                                                                     Greg Traylor carry out
     to be a top-tier company, not just in packaging but among all leading
                                                                                     a quality check at the
     North American companies.                                                       Houston, Texas, corru-
14
                                                                                      gated container plant.
The changing economy gives
                         <
Smurfit-Stone’s
research, develop-                                                             more urgency to adopting this approach.
ment, and product
                                                                               Today’s business environment presents
testing capabilities
                                                                               employees with unprecedented choices.
are part of providing
total solutions to our                                                         Companies in established industries like
customers’ packaging
                                                                               paper and packaging compete against
needs. Sue Ann
                                                                               employers perceived to offer more
Daniels performs a
structural strength                                                            appealing career prospects.
test at the corrugated
                                                                                      As we apply the concept of customer
container division’s
                                                                               to the workplace, we expand employees’
Westmont, Illinois,
marketing and tech-                                                            skill sets, foster management training,
nical center.
                                                                               and generally enrich the work process.
                                                                               CustomerONE promotes open, two-way
                                                                               communications, solicits employees’ ideas
Westmont, Illinois
                                                                               and creativity, and facilitates teamwork
                                                                               and consensus building. Smurfit-Stone
                         empowers employees to engage in natural work teams, pool knowledge and talent to create
                         new ideas, and deal with operational challenges.
                                The work teams have been an important factor in improving plant safety, a top priority
                         at Smurfit-Stone. The safety initiative also demonstrates the value of training, and we are using
                         it as a model for other career and quality training programs.
                                We have a comprehensive safety process — Smurfit-Stone Accident Free Environment, or
                         SAFE — which has helped position us as an industry leader in safety practices and measurement.
                                                                                                                            15
                         The name of the process speaks to its goal — to create an accident-free work environment. Since
                         its inception in 1994, safety performance has improved 68 percent as measured by the number
                         of incidents involving injuries requiring medical attention, logged according to rules of the
                         Occupational Safety and Health Administration. We continued to make progress in safety in
                         2000, solidifying our ranking in the top quartile of our industry.




    2
                                               Understanding Our Customers’ Perspective
            Products
                                           In the marketplace, CustomerONE encourages us to focus on packaging
            Customer perspective           solutions, not just manufacturing efficiency. We recognize that a highly
                    competitive retail environment forces merchants to look to packaging to display, promote, and
                    safely transport products. We have responded by working closely with our customers to develop
                    appropriate packaging solutions and expand our high-end, higher-margin capabilities. In
                    addition, we respect the intense competitive cost pressures faced by our customers. To respond,
                    we have invested heavily to improve our supply chain operations.
                          Our goals are clear. We aim to:
                          Anticipate customers’ packaging needs.
                          Exceed customers’ expectations with value-added services.
                          Be the supplier of choice for a wide range of products.
                          Be cost competitive without compromising innovation or quality.

                               We start production decisions at the point of package content and end-user expectations,
                         rather than at the mill. Working with our customers, our sales force may recognize the need for
                         a nontraditional packaging solution: lighter substrates than the mills have typically produced,
Missoula, Montana
     larger semi-bulk packages, protective packaging, or a
     different type of packaging altogether. Smurfit-Stone’s       >   Smurfit-Stone achieved significant
                                                                      cost reductions at our Missoula,
     integrated system makes it possible to deliver the best
                                                                      Montana, mill by concentrating its pro-
     solutions, whether they are boxes, folding cartons,              duction on brown board and moving
     multiwall bags, or industrial packaging.                         its white top production to Brewton,
                                                                      Alabama. Missoula employees such as
            We constantly are analyzing efforts to improve
                                                                      Mark Snead, right, helped implement
     delivery of our products and services and to build               the change. In addition, the Missoula
     new business without sacrificing profit margins.                   mill continues its role as an environ-
                                                                      mental steward. The wastewater
     A company-wide assessment is underway to examine
                                                                      holding ponds that dominate 800 acres
     services, capabilities, and technical resources, as well         alongside the mill provide refuge for
     as initiatives such as e-commerce and cross selling.             196 species of birds, migrants, and
                                                                      resident breeders. Volunteers such as
            During 2000, we reorganized three non-corrugated
                                                                      Larry Weeks (inset) have helped put up
     container packaging businesses into two businesses               fences to keep cows away and planted
     concentrating on consumer packaging and specialty pack-          cottonwoods to improve the stream-
                                                                      side vegetation.
     aging. This action streamlined management, enhanced
     our ability to identify opportunities for cross selling to
     large customers, and generated synergy savings.
            E-commerce initiatives quickly are becoming
     necessities, not merely opportunities. The largest
     packaging users — the customers Smurfit-Stone is
     uniquely positioned to serve by virtue of our size and
     product scope — have determined that competitiveness
     increasingly rests on driving down cost and speeding
16
     up transactions by carrying out more processes over
     the Internet. Smurfit-Stone is building electronic
     procurement capabilities to compete in this environment.
            We have implemented forecasting, inventory
     management, and replenishment applications. Improve-
     ments in these transactional tasks allow us to redeploy
     employee efforts to focus on more value-added activities
     on behalf of customers.
            Driving many of these initiatives is an enterprise
     transformation process with the basic premise that
     improving how we do business delivers a better value
     proposition to our customers. We are analyzing how we
     do business within and across our operating divisions,
     as well as general and administrative functions, to best
     determine how to better serve customers. The better we
     comprehend both aspects of the customer relationship —
     their expectations of us and how we are organized to
     deliver on those expectations — the better our decisions
     regarding investments in technology, organizational
     initiatives, and product development.
            Smurfit-Stone serves a broad range of customers,
     from those who buy our packaging to those who buy our
     products as their raw materials. As we have closed mills
smurfit stone container  2000_AR
and consolidated production, some independent corrugated customers have expressed concern
                    about dependability of their supply. Smurfit-Stone is dedicating a part of our mill system to
                    meet the needs of these key customers and has committed a minimum of one million tons of
                    containerboard products annually to the independent marketplace.




     3
                                          Optimizing Production Capabilities
         Products
                                          Our primary operational focus since the merger of Smurfit-Stone has
         Operational perspective          been higher manufacturing efficiencies and lower costs. Six mills in a pilot
                  program focused on improving existing processes increased efficiencies up to five percent and
                  reduced costs by as much as 10 percent by the end of 2000. The program will be extended to
                  our other mills.
                        Our objectives are to lower the cost per ton and balance production with current demand.
                  To accomplish that, Smurfit-Stone is evaluating more efficient ways to reduce operating rates
                  through a combination of running the mills more slowly and taking periodic shutdowns.
                        In the second half of 2000, we launched an incremental-cost measurement process that
                  focuses on the cost of the last ton made rather than average price per ton. This analysis aims to
                  capture total production costs, including incremental energy and transportation expenses that
                  are often incurred by the single-minded focus on meeting production goals. Average-cost-per-ton
                  calculations tend to ignore these expenses.
                        Our larger mill system provides opportunities to schedule production at facilities best
                  equipped to deliver the products most in demand. We achieved significant cost reductions at our
                  Missoula, Montana, mill by concentrating its production on brown linerboard and moving its
18
                  white top production to Brewton, Alabama. Brewton, along with the West Point, Virginia, and
                  La Tuque, Quebec, mills added in the St. Laurent merger, now produce the same high-quality
                  white top linerboard. The flexibility to shift production among the mills means customers’
                  orders are filled expeditiously and the mills operate more cost-effectively. The result: increased
                  customer focus and improved profitability at the mill level.
                        We are in the process of introducing uniform computer-based purchasing and maintenance
                  management systems. Over time that approach will become standard procedure. The supply
                                                                    chain operations group is focused on signifi-
                                                                    cantly improving service to integrated and
                                       Jacksonville, Arkansas
                                                                    independent customers, reducing order cycle
                                                                    time, and improving inventory levels. Supply
                                   > Smurfit-Stone is
                                       the industry’s leading       chain improvements by themselves reduced
                                       bag packaging manu-
                                                                    corrugated containerboard inventories more
                                       facturer. Employees
                                                                    than 15 percent in 2000.
                                       such as Wendy
                                       Hadlock at our                     Being a demand-driven producer enables
                                       Jacksonville,
                                                                    Smurfit-Stone to maintain the all-important
                                       Arkansas, bag pack-
                                                                    customer focus while keeping inventories in
                                       aging facility pay
                                       great attention to           balance. The company and our workforce
                                       production detail
                                                                    benefit from steadier production that mitigates
                                       and customer service.
                                                                    downtime taken to reduce excess inventories.
4
                                    Strong Financial Management                              > Smurfit-Stone spent
    Performance                                                                                  about $204 million
                                    Enhances Performance
                                                                                                 in 1999-2000 on
    Financial perspective            Smurfit-Stone has a well-established reputation              environmental
             for strong financial management based on setting aggressive perform-                 improvements at
                                                                                                 nine mills, including
             ance objectives and then achieving — if not exceeding — those goals.
                                                                                                 the Panama City,
                    In the merger that created Smurfit-Stone, our goal was to achieve             Florida, mill, where
             $350 million in annual savings within a two-year period. We reached the             Jeremy Odom is
                                                                                                 part of the team
             $350 million goal in mid-year 2000, six months ahead of the target date.
                                                                                                 that helped the mill
             By the end of the year, we realized synergy savings from the St. Laurent            comply with the
             acquisition of $20 million on an annual basis. We expect to reach our               EPA’s Cluster Rule.
             $50 million goal in total synergy savings in 2001.
                                                                                                Panama City, Florida
                    Our history of growth through acquisitions produced a high level
             of debt. Our top financial objective is to reduce that debt to help lower
             interest expense and improve earnings. As important as that is, we also remain committed to
             maintaining financial flexibility so that we are well positioned to take advantage of strategic
             and operating opportunities.
                    In 1999, we reduced total debt by $1.8 billion, principally from the proceeds of sales of
             non-core assets. Debt reduction remained our top financial priority for 2000, but we also took
             advantage of our financial flexibility and reputation for strong financial management to
             acquire St. Laurent when that opportunity presented itself. The transaction represented an
important strategic transaction for Smurfit-Stone even though it meant $1 billion in additional
                                debt. In the second half of 2000, following the acquisition, we reduced debt by approximately
                                $370 million.
                                      Early in 2001, we announced plans to issue $500 million of new bonds at Stone Container,
                                with the proceeds to be used to redeem bonds maturing in 2002. Strong market interest, signaling
                                an acceptance of our strategies, allowed Stone Container to increase the issue to $1.05 billion
                                of new bonds and redeem existing bonds with higher interest rates. This refinancing helped
                                us increase financial flexibility by lengthening the maturities of our bonds and lowering our
                                interest expense.




           5
                                                         Accepting the Accountability of Leadership
                    Performance
                                                          Accountability improves performance. The management processes in
                    Accountability perspective            place recognize the contributions of employees throughout the organi-
                                zation by giving them responsibility in their spheres of influence, within corporate guidelines
                                designed to promote best practices and reach common goals.
                                      Measurement is routine in the corporate culture at Smurfit-Stone. Line managers are
                                accountable for customer satisfaction and for managing the business to increase both sales and
                                profit margins. Executive management is measured on corporate performance including cash
                                flow, debt reduction, and overall profitability.
                                      Smurfit-Stone also is accountable to the communities in which we operate and to the
                                environment in and around our plants. Realizing that employees not only work but also live
                                in the areas in which we do business, we strive to be a good corporate citizen and encourage
20
                                employees to become involved in their communities. One way we demonstrate commitment
                                to environmental protection is a rigorous, companywide audit program. Internal teams made
                                up of corporate and operating staff and legal counsel routinely inspect company facilities for
                                environmental compliance.
                                      As the world’s largest paper recycler, we not only provide our mills with a secure recycled
                                fiber source, but our efforts help divert materials from landfills.
                                      In 1999 and 2000, we spent approximately $204 million on environmental improvements
                                at nine mills to comply with the Cluster Rule, a collection of federal air and water regulations
                                that affect U.S. paper mills. The company is dedicated to improving water and air quality by
                                                                                                 actively pursuing treatment
                                                                                                 systems that remove undesirable
         Panama City, Florida
                                                                                                 particles from our manufacturing
                                                                                                 discharges.
     >   Smurfit-Stone takes
         a leadership role                                                                             We recognize that leadership
         in environmental
                                                                                                 requires accountability to
         stewardship and
                                                                                                 customers, employees and com-
         conducts rigorous
         testing and auditing                                                                    munities, as well as to share-
         programs. Bunky
                                                                                                 holders. From our perspective
         Jones, a chemist
                                                                                                 as North America’s leading paper-
         at the Panama City
         containerboard mill,                                                                    based packaging solutions
         gathers a water
                                                                                                 provider, constantly taking another
         sample for testing.
                                                                                                 look at the way we do business
                                                                                                 ensures our accountability to all.
>   Paul Napier checks for color
    accuracy at Smurfit-Stone’s Solon,
    Ohio, folding carton manufacturing
    facility, which converts boxboard
    from several of Smurfit-Stone’s
    mills and has a tradition of strong
    customer relationships.

    Solon, Ohio
Smurfit-Stone Container Corporation


                                                         BOARD OF DIRECTORS AND
                                        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



                          Board Members                                                                                    Corporate Officers

     Michael W.J. Smurfit          Jerry K. Pearlman              Michael W.J. Smurfit                James P. Davis                  Paul K. Kaufmann              Lorne Parnell
     Chairman and CEO,             Retired,                       Chairman of the Board               Vice President and              Vice President,               Vice President,
     Jefferson Smurfit Group plc   Zenith Electronics                                                 Area Manager,                   Controller                    Pacific Operations
                                                                  Ray M. Curran
                                   Corporation                                                        Corrugated Container Division
                                                                  President and
     Ray M. Curran                                                                                                                    Leslie T. Lederer             John M. Riconosciuto
     President and CEO,                                           Chief Executive Officer                                             Vice President,               Vice President and
                                   Thomas A. Reynolds, III                                            James D. Duncan
     Smurfit-Stone Container       Partner,                                                           Vice President,                 Strategic Investment          General Manager,
                                                                  Patrick J. Moore
     Corporation                   Winston & Strawn                                                   Corporate Sales and Marketing   Dispositions                  Specialty Packaging Division
                                                                  Vice President and
                                                                  Chief Financial Officer
     Richard A. Giesen             Anthony P. J. Smurfit                                              William G. Eustice              F. Scott Macfarlane           Jose A. Santos
     Chairman and CEO,             Chief Executive Officer,                                           Vice President and              Vice President and            Vice President,
                                                                  John F. Allgood
     Continere Corporation         Smurfit Europe                                                     Area Manager,                   General Manager,              Latin American Operations
                                                                  Assistant Secretary
                                                                                                      Corrugated Container Division   Consumer Packaging Division
     Alan E. Goldberg              Dermot F. Smurfit                                                                                                                David C. Stevens
                                                                  Curtis A. Barton
     Former Managing Director,     Deputy Chairman,                                                                                                                 Vice President and
                                                                                                      Daniel J. Garand                Richard P. Marra
                                                                  Vice President,
     Morgan Stanley & Co., Inc.    Jefferson Smurfit Group plc                                        Vice President,                 Assistant Treasurer           General Manager,
                                                                  Environmental Affairs
                                                                                                      Supply Chain Operations                                       Recycling Division
     Howard E. Kilroy                                                                                                                 Timothy J. P. McKenna
                                                                  Mathew J. Blanchard
     Retired,                                                                                                                         Vice President,
                                                                                                      Michael F. Harrington                                         Gayle M. Sparapani
                                                                  Vice President and
     Jefferson Smurfit Group plc                                                                      Vice President,                 Investor Relations and        Vice President,
                                                                  General Manager,
                                                                                                      Employee Relations              Communications                Benefits
                                                                  Containerboard Sales and
     James J. O’Connor
     Retired,                                                     Marketing                           James A. Hayssen                Ronald J. Megna               William N. Wandmacher
     Unicom/Commonwealth                                                                              Vice President,                 Assistant Secretary           Vice President and
                                                                  Cynthia S. Bowers
     Edison                                                                                           Information Technology                                        General Manager,
                                                                  Vice President,                                                     Mark R. O’Bryan
                                                                                                                                                                    North American
                                                                  Compensation and                                                    Vice President,
                                                                                                      Charles A. Hinrichs
                                                                                                                                                                    Containerboard Mill and
                                                                  Administration                      Vice President,                 Procurement
                                                                                                                                                                    Forest Resources Division
                                                                                                      Treasurer
                                                                  Peter F. Dages                                                      Thomas A. Pagano
                                                                  Vice President and                                                  Vice President,
                                                                                                      Craig A. Hunt
                                                                  General Manager,                    Vice President,                 Planning
                                                                  Corrugated Container Division       Secretary and General Counsel
22


                                                                                            Division Officers

     Corrugated Container          Rodney A. Myers                Donald C. Wyatt                     Consumer Packaging              Specialty Packaging           Michael R. Oswald
                                   Vice President and             Vice President,                                                                                   Vice President,
     Division                                                                                         Division                        Division
                                   Regional Manager               North American                                                                                    Operations
     LeRoy R. Crocker                                                                                 J. Gregor Doman                 L. David Fielder
                                                                  Containerboard & Kraft
     Vice President and                                                                               Vice President,                 Vice President,
                                   Robert D. Nelson                                                                                                                 James W. Pope
                                                                  Sales, Board Sales
     Regional Manager              Vice President and                                                 Sales                           PaperCan                      Vice President,
                                   Regional Manager                                                                                                                 International / Western Sales
     John J. Curry, Jr.                                                                               Nathan S. Holmes                Fred W. Klatt
     Vice President and                                                                               Vice President and              Vice President of
                                   James S. Nolan                 North American                                                                                    Tom E. Squires
     Regional Manager              Vice President,                                                    General Manager                 Manufacturing                 Vice President,
                                                                  Containerboard Mill
                                   Corporate Accounts                                                                                                               Southeast Region
                                                                  and Forest Resources
     Stephen P. Folan                                                                                 Gary R. Huston                  George Q. Langstaff
                                                                  Division
     Vice President and                                                                               Vice President,                 Vice President and
                                   Donald A. Petri                                                                                                                  Edward V. Tucciarone
     Regional Manager              Vice President and                                                 Boxboard Sales                  General Manager,              Vice President,
                                                                  Alain Boivin
                                   Regional Manager               Vice President,                                                     Industrial Group              Eastern Sales
     Roland F. Hauser                                                                                 Steven L. Kelchen
                                                                  Mill Operations,
     Vice President and                                                                               Vice President and
                                   Jerry D. Suiter                                                                                    James B. Laurence
                                                                  Central Region
     Regional Manager              Vice President and                                                 Regional Manager                Vice President of Sales       Research and
                                   Director of Manufacturing      John E. Davis
     James A. Henderson                                                                               Curtiss M. Komen                Gary D. McDaniel              Development Division
                                                                  Vice President,
     Vice President and                                                                               Vice President and              Vice President and
                                   Donald A. Tinkoff                                                                                                                Joseph V. LeBlanc
                                                                  Forest Resources
     Regional Manager              Vice President and                                                 Regional Manager                General Manager,              Vice President
                                   Regional Manager                                                                                   Flexible Group
                                                                  Alain Dubuc
     Lane W. Hunter                                                                                   David J. Pietrowicz
                                                                  Vice President,
     Vice President and                                                                               Vice President and              John J. Moran                 Supply Chain/
                                                                  Mill Operations,
     Regional Manager                                                                                 Regional Manager                Vice President,
                                   Containerboard Sales                                                                                                             Transportation
                                                                  Northern Region                                                     Marketing, and
     Stephen E. Jevyak             and Marketing Division                                                                                                           William Wanner
                                                                                                                                      General Manager,
                                                                  W. G. Stuart
     Vice President and                                                                                                                                             Vice President,
                                   Larry L. Burton                Vice President,                                                     Specialty Group
     Regional Manager              Vice President,                                                                                                                  Supply / Demand Operations
                                                                  Mill Operations,
                                   Sales & Marketing
     John L. Knudsen                                              Southern Region                                                                                   Terence J. Brown
     Vice President and                                                                                                               Recycling Division            Vice President,
                                   Michael L. Butler
     Regional Manager              Vice President,                                                                                                                  Transportation
                                                                                                                                      Mark C. Brantley
                                   Graphic and Specialty Sales,                                                                       Vice President,
     John B. Malloy
     Vice President and            Board Sales                                                                                        North Central Region
     Regional Manager              Andrew J. Woodroffe                                                                                Steve A. Miller
                                   Vice President,                                                                                    Vice President,
                                   Technical Services & Product                                                                       West Region
                                   Management, Board Sales
SHAREHOLDERS’ INFORMATION


Stockholders’ Annual Meeting                                                         For Investor Information Contact
May 17, 2001 at 1:00 pm                                                              Investor Relations and Communications
The Sheraton Chicago Hotel & Towers                                                  Smurfit-Stone Container Corporation
City Front Center                                                                    8182 Maryland Avenue
301 E. North Water Street                                                            St. Louis, MO 63105
Chicago, IL 60611                                                                    Telephone: 314-746-1223
                                                                                     Fax:        314-746-1347
                                                                                     www.smurfit-stone.com
Registrar and Transfer Agent
Mellon Investor Services LLC
Overpeck Centre                                                                      Timothy McKenna
85 Challenger Road                                                                   Vice President,
Ridgefield Park, NJ 07660                                                            Investor Relations and Communications
www.mellon-investor.com                                                              St. Louis: 314-746-1254
Telephone: 888-213-0965                                                              Chicago: 312-580-4637

Common Stock                                                                         Corporate Office
Smurfit-Stone Container Corporation                                                  Smurfit-Stone Container Corporation
common stock is traded on The Nasdaq                                                 150 North Michigan Avenue
Stock Market under the symbol: SSCC                                                  Chicago, IL 60601-7568
                                                                                     Telephone: 312-346-6600
Preferred Stock
Smurfit-Stone’s 7% Series A Cumulative
Exchangeable Redeemable Convertible
Preferred Stock is traded on The Nasdaq
under the symbol SSCCP




Design: ProWolfe Partners; St. Louis, MO   Photography: Studio — Bruton/Stroube; St. Louis, MO   Location — Mark Green; Houston, TX
150 North Michigan Avenue
Chicago, IL 60601-7568
(312) 346-6600
www.smurfit-stone.com




      Company Profile

                                Smurfit-Stone Container Corporation (Nasdaq: SSCC) is
                                the industry’s leading integrated manufacturer of paper
                                and paper-based packaging, including containerboard,
                                corrugated containers, multiwall bags, and clay-coated
                                recycled boxboard, and is the world’s largest paper recy-
    cler. In addition, we are a leading producer of solid bleached sulfate, folding car-
    tons, paper tubes and cores, and labels.

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smurfit stone container 2000_AR

  • 1. Annual Report > Smurfit-Stone Container Corporation 2000 Look again.
  • 2. Table of Contents Financial Highlights 6 Letter to Shareholders 7 Smurfit-Stone at a Glance 10 Bringing New Perspective to an Established Industry 13 Board of Directors and Officers 22 Smurfit-Stone Form 10-K 23 We are. Smurfit-Stone’s leadership role in the paper and packaging industry is no illusion. To improve that position, we are taking another look at how we manage our business, satisfy our customers, and deliver value to all stakeholders. In today’s economic environment, we hope our business fundamentals and track record of financial discipline will encourage you to take another look at Smurfit-Stone.
  • 3. 1 Look again. > 1 leadership perspective We’ve adopted the following principles to run our business: empowered employees, ongoing learning s s teamwork, and consensus continuous process improvement s shared leadership s data-based decisions s open, two-way communication s People
  • 4. 2 Look again. > 2 customer perspective Smurfit-Stone is the best positioned paper-based packaging company to anticipate and respond to rapidly changing conditions in the packaging market. As a customer-led company, we listen to our customers in order to deliver the types of products and services they and their customers will need in the short- and long-term. In other words, we make the products they want, rather than merely selling the products we make. Products
  • 5. Products operational perspective In 2000, we continued to refine the benchmarking process we began at the time of the merger of Jefferson Smurfit Corporation and Stone Container. We identified the best operations within our manufacturing system and throughout the industry and challenged our operations to close the gap between where they are and where 3 they ought to be. The results produced higher operating efficiencies and lower costs. > Look again. 3
  • 6. 4 Look again. > 4 financial perspective Our number one financial goal for 2001 is to reduce debt and continue to increase our financial flexibility. We are focused on cost containment, cost reduction, and cash generation to pay down debt. Smurfit-Stone’s plan is to conduct business with a unified packaging focus, have better assets in play, and complete our strategy of exiting businesses that do not meet our strategic objectives. Performance
  • 7. Performance accountability perspective Our challenge at the start of the 21st century is to examine the practices of our predecessor companies and adopt only the very best. As a company that employs approximately 40,000 people, operates more than 300 manufacturing facilities throughout North America, and holds a leadership position in our industry, we take seriously our obligations 5 to all stakeholders. > Look again. 5
  • 8. FINANCIAL HIGHLIGHTS 2000 1999 1998 Dollars in millions, except per share data Summary of operations Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,423 $ 3,612 $ 8,796 Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 (93) 933 Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (563) (247) (527) Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 (211) 219 Net income (loss) available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 (200) 224 Basic earnings per share Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .75 $ (1.70) $ .94 Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 (1.61) .96 Weighted average shares outstanding (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 124 233 Diluted earnings per share Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .74 $ (1.70) $ .93 Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 (1.61) .96 Weighted average shares outstanding (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 124 234 Other financial data Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 183 $ 129 $ 807 6 Capital investments and acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 287 994 Net working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 635 470 Property, plant, equipment and timberland, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,419 5,772 5,670 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,859 11,631 11,280 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,793 6,633 5,342 Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,847 1,634 2,528 Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,300 38,000 39,700 Sales per Product Segment Containerboard and 68% 12% Consumer Packaging Corrugated Containers 8% Specialty Packaging 5% Recycled Fiber 7% International and Other
  • 9. Smurfit-Stone Container Corporation LETTER TO SHAREHOLDERS Dear Shareholder, Significant Improvement in F or Smurfit-Stone, Operating Performance 2000 was a year of A key measure of our progress financial and operating is improvement in operating accomplishments tempered by performance. market challenges. It brought For the full year 2000, the the acquisition of St. Laurent company reported net income Paperboard Inc. — which available to common share- accelerated our strategic holders of $224 million, or $0.96 development as a full-service, per diluted share, compared paper-based packaging with net income of $157 million company — as well as in 1999, or $0.71 per diluted economic conditions that forced share. The 1999 results included us to schedule mill downtime after-tax gains on the sale of 7 equal to about 10 percent of our non-core assets of $268 million, > Michael W. J. Smurfit, Chairman of the Board (left), and Ray M. Curran, President containerboard capacity. or $1.22 per diluted share. In and Chief Executive Officer. We began 2000 with our 2000, higher product prices and role as industry leader firmly the addition of St. Laurent’s established. The merger of Jefferson Smurfit higher-value product mix contributed to an 18 percent Corporation (JSC) and Stone Container Corporation increase in sales to $8.8 billion compared with 1999. in 1998 made us the largest paper-based packaging The operations of St. Laurent, included in the com- company in North America and provided pany’s results for the last seven months of the year, unparalleled opportunities to improve service added $96 million in operating profits. to customers, rationalize operating systems, These favorable results were achieved despite and enhance operating efficiencies. higher energy costs of about $88 million and the need We immediately acted on these opportunities. to take 758,000 tons of economic downtime to manage Even so, the path from packaging manufacturer to inventory levels and conserve working capital in the packaging solutions provider demands new skills, containerboard mill system. sometimes difficult production decisions, and a We continued to make progress in strengthening willingness to accept new kinds of challenges. As we our financial position. The St. Laurent acquisition added build these skills, we are becoming a stronger company $1 billion in debt without weakening the credit profile of with a more efficient integrated system and greater the company. Operating profits and synergies from the flexibility to meet these challenges. acquisition supplemented our operating cash flow and enabled us to reduce debt by approximately $370 million during the second half of 2000. Total debt was $5.3 billion at the end of the year. Interest expense in 2000 was $527 million, a $36 million decrease from the prior year.
  • 10. In January 2001, we simplified our balance sheet Average prices for most paperboard and packaging with a $1.05 billion bond offering by Stone Container. products showed significant improvement in 2000. The bond offering replaced several higher-coupon Containerboard prices posted the greatest improvement, issues with lower-interest debt and extended our increasing about 20 percent on average and partially maturities, improving our credit profile and restoring profit margins lost in the second half of the financial flexibility. 1990s. The company successfully implemented price Capital expenditures for the year were $363 mil- increases on corrugated containers, boxboard, and lion, a substantial increase from the $156 million spent folding cartons, as well as multiwall bags. in 1999. This was primarily Our packaging driven by heavy environ- businesses continued to mental compliance spending enhance their positions in our mill system. We with customers seeking expect capital spending to additional graphics and stay well below depreciation specialized service. In a and amortization levels for difficult year for the industry, the foreseeable future. our folding carton business Smurfit-Stone has increased market share and benefited from more than profitability as a result of our $350 million in annualized demonstrated commitment synergy savings from the to consistent customer integration of the JSC and service and production Stone manufacturing and quality. This helps to corporate systems. These provide a stable profit base. 8 savings, a major priority in > In addition to Ray Curran, the company’s Executive Committee members are (sitting, left to right) 1999, were fully implemented Patrick J. Moore, vice president and chief financial by the second quarter Positive Trends and officer; Peter F. Dages, vice president and general of 2000. Continued Progress manager, corrugated container division; and (standing, left to right) John M. Riconosciuto, A strong economy The achievements recorded vice president and general manager, specialty from most vantage points and challenges faced in 2000 packaging division; William N. Wandmacher, vice nevertheless brought special signal changes afoot in our president and general manager, North American containerboard mill and forest resources division; challenges for the packaging industry. We believe the and F. Scott Macfarlane, vice president and general industry. Because of the industry trends bode well manager, consumer packaging division. strength of the dollar, for Smurfit-Stone. Here are U.S. consumers bought some reasons for optimism. an increased level of goods manufactured and packaged Customers continue to embrace high-end abroad. Additionally, the dollar’s strength impaired packaging, including boxes that combine corrugated U.S. manufacturers’ ability to export their goods in U.S.- packaging’s structural features with the customer made boxes, and U.S. linerboard producers found their appeal of high-impact graphics. Evolving customer prices uncompetitive in export markets. Despite the preferences will give us opportunities to grow, although impressive performance overall from the U.S. economy, change also carries the potential to reduce demand in domestic shipments of corrugated containers declined other parts of our business. We believe the net benefit of roughly one percent in 2000. these changes can increase revenues and profit margins. In this environment, Smurfit-Stone worked hard The acquisition of St. Laurent expands our to manage our production to meet demand. As a result, capabilities and positions us well to meet customers’ we benefited from stable to improving prices and better changing needs. St. Laurent’s outstanding capabilities margins compared with the prior year. in developing and producing high-end containerboard complement Smurfit-Stone’s existing product lines.
  • 11. With St. Laurent, we also acquired additional marketing We are reviewing our methods for reducing resources, which support our aim of being a market- production as necessary to manage inventory. driven company rather than an operations-driven one. Unscheduled downtime is costly — in increased We now have approximately 7.8 million tons of manufacturing costs as well as disruptions to employees containerboard capacity in the combined Smurfit-Stone and customer schedules — and is prompting a thorough and St. Laurent system. We consume more than five assessment of the best approach. Our options include million tons in our corrugated container operations. extending scheduled maintenance downtime, slowing We have been improving the market mix of this business the rate at which machines run, and temporarily for the past two years, taking advantage of opportunities shutting down high-cost machines in certain cases. to substitute higher-margin, high-impact packaging Our goal is to make our system more cost efficient and for products with lower margins. Adding St. Laurent’s better positioned to respond to customer demand. packaging and marketing skills has aided that process. In the near term we expect economic challenges About 20 percent of our containerboard mill to continue. There are signs that the U.S. dollar may production is higher-value containerboard. This weaken. This may stimulate packaging demand later includes one million tons of white top linerboard in 2001 and thereafter. We plan to hold capital spending as well as lightweight medium and coated white below 2000 levels now that the bulk of the environ- linerboard. These constitute the most consistently mental compliance spending is behind us. We also profitable grades in a changing packaging environment. plan to use cash flow to further reduce debt, which is Integrating the JSC, Stone, and St. Laurent our number one financial priority. We have achieved production facilities into a single system gave us more $20 million in annualized synergy savings from the manufacturing flexibility. Soon after the acquisition of St. Laurent acquisition, and we expect to realize the St. Laurent, we shut down one of the smaller Smurfit- total $50 million targeted by the end of 2001. Stone mills, eliminating 130,000 tons of medium Smurfit-Stone aims to be recognized as a company 9 capacity. With this closing, we have permanently that delivers value to customers and shareholders. To do shuttered 1.8 million tons of containerboard capacity that on a consistent basis requires a customer-focused since 1998. organization with motivated and committed employees and effective operations. Our company culture must mirror our position as the industry leader. We are on course to become the preeminent packaging solutions Providing Packaging Solutions Our strategic aim is to be the supplier of choice for provider, which is Smurfit-Stone’s strategic goal and one two significant groups of customers: those who seek that recognizes the interests of customers, employees, a broad-based source for efficient packaging solutions, and shareholders. and independent packaging producers who buy our We are encouraged by our accomplishments and containerboard products. we look forward to continued progress in 2001. For packaging customers, we now have a rich pool of resources to provide the service and high-impact packaging increasingly in demand. We have initiated a comprehensive review aimed at better serving our customers and focusing on where we can expand and enhance these resources to meet market needs. Michael W. J. Smurfit The independent packaging producer is seeking Chairman of the Board a reliable supply of high-quality containerboard. We are working to address this need by dedicating a large portion of our tonnage to this sector and are exploring other ideas related to the independent market. Ray M. Curran President and Chief Executive Officer
  • 12. S M U R F I T- S T O N E AT A G L A N C E DESCRIPTION C A PA B I L I T I E S Containerboard and Corrugated Containers Containerboard and corrugated Full range of high-quality Graphic capabilities include containers represent Smurfit-Stone’s corrugated containers preprint and post-print flexography, largest business segment, with and label applications. Innovative packaging solutions and 68 percent of the company’s sales. This high-quality graphics Full range of domestic and export- segment supplies hundreds of national specific liners, including solid Complete line of retail-ready, and international manufacturers, as well bleached sulfate, white top and point-of-purchase displays as thousands of local and regional high-performance grades customers. Full line of specialty products and Full range of semi-chemical and custom, die-cut boxes to display recycled medium, including high- packaged merchandise performance grades Consumer Packaging Smurfit-Stone’s consumer packaging Clay-coated and uncoated recycled products and services business boxboard in newsback, kraftback, includes boxboard, folding cartons, and whiteback grades printed paper, foil and heat-transfer Folding carton converting labels, rotogravure cylinders, color capabilities include sheet and separations, engineering services, web lithographic printing, and full-service design. laminating, gluing, tray forming, and windowing. 10 Labels for decorative packaging applications Specialty Packaging Smurfit-Stone’s specialty packaging manufacturing, flexible packaging, and Multiwall industrial and consumer, business includes bag packaging contract packaging services. Multiwall, specialty, and flexible bags operations, industrial tube and core consumer, specialty, and flexible bags Paper tubes and cores are used to ship, store, protect and Solid fiber and paperboard promote a wide range of products. partitions Tubes and cores are used by the textile, paper, film and carpet industries. Full line of flexible, intermediate Flexible packaging supplies products for bulk containers detergent, fabric softeners, and liquid Packaging equipment and systems chemicals, among others. that fill, seal, convey, and palletize bag products Contract packaging services Recycled Fiber Smurfit-Stone is unique in the paper and now collects and processes Recycling business handles Waste Reduction Services and packaging industry in that it has approximately 7 million tons of recovered paper generated by provides waste-management a strong position in recycled fiber. recycled paper every year. industrial, commercial, and solutions to businesses. The company has built the largest residential sources. reclamation business in the industry Collected material includes old corrugated containers, newspapers, office waste, magazines, aluminum cans, glass, and plastics.
  • 13. I N D U STRY POS ITI O N FA C I L I T I E S ACCOM PLISH M E NTS Largest producer of containerboard Approximately 150 container Improved segment profit facilities worldwide by $441 million Largest producer of high-value white top linerboard 21 paper and paperboard mills Optimized mill operations Largest supplier of 5 strategically located Packaging corrugated containers Solution Centers Industry’s most complete line of graphic capabilities Record safety performance No. 1 producer of clay-coated recycled boxboard 18 folding carton plants Increased folding carton market share A leading supplier of folding cartons 4 clay-coated recycled boxboard mills Improved segment profit by 8 percent 4 label plants Successfully combined existing folding carton 3 lamination facilities and boxboard mill businesses with other 2 prepress operations consumer packaging operations 1 PaperCan™ plant 3 uncoated, recycled board mills 11 Largest manufacturer of multiwall industrial and 18 tube and core plants Significant improvement in operational areas, consumer bags especially safety 11 bag plants A leading supplier of flexible intermediate bulk Improved cash flow from working capital 4 flexible packaging facilities containers Integrated tube and core, 3 partition plants A leading producer of paper tubes and cores partition, contract packaging, 1 technical and graphics center and flexible packaging operations 1 bag packaging equipment resulting in shared services and facility multi-product sales opportunities World’s largest paper recycler 25 U.S. collection centers Record volume year 10 brokerage offices Record export sales 1 brokerage office in Shanghai, China Division reorganization reduced SG&A costs 7.5 percent 1 waste reduction services office
  • 14. > Smurfit-Stone’s acquisition of St. Laurent Paperboard Inc. in May 2000 made the company the lead- ing manufacturer of high-quality white top linerboard. Here, Isabelle Dussault inspects a sample sheet at the La Tuque, Quebec, containerboard mill. La Tuque, Quebec
  • 15. Smurfit-Stone Container Corporation BRINGING new perspective T O A N E S TA B L I S H E D I N D U S T RY T he paper-based packaging industry, like most manufacturing- based industries, has been operations driven for most of its history. Big paperboard mills, at their best when the machinery was fully engaged, delivered product into inventory until buyers wanted it. In sluggish economic times, warehouses bulged and prices fell. Those circumstances gave rise to an inefficient and disruptive cycle. Conditions began to change in 1998 with the combination of Jefferson Smurfit Corporation (JSC) and Stone Container Corporation. As Smurfit- 13 Stone, we set out to be a customer-driven company in which decisions start with the marketplace and work back through production. The evolving market also played a significant role in our decision to acquire St. Laurent Paperboard Inc. and its high-end containerboard capabilities. 1 Leadership People The combination of JSC and Stone Container gave Smurfit-Stone the No. 1 Leadership perspective ranking by size in the paper-based packaging industry. The larger com- pany became a platform on which to build a new business model. Greater size brought increased flexibility in operating our mill system. Our challenge was to align the mill system more closely with market priorities and make it more efficient. Within the first 15 months after the merger, we shuttered five mills, eliminating 1.6 million tons of inefficient containerboard production capacity. To add capabilities that better reflected the evolving packaging market, we acted on the opportunity to acquire St. Laurent Paperboard. Its white top linerboard provides the substrate for packaging customers who require colorful, marketing-oriented, high-impact graphic design. Expanding these capabilities within Smurfit-Stone accelerated our development as a provider of packaging solutions.
  • 16. The acquisition further expanded our mill system, offering additional opportunities to optimize production, achieve cost savings, and better match production to customer orders. Smurfit-Stone’s new business model contains two key aspects. One is structural — a more efficient mill system. The other addresses the marketplace — a product line more attuned to customer priorities. For Smurfit-Stone, this business model laid a foundation for better inventory management. A more predictable market environment mitigates price swings and allows man- agers to concentrate on other aspects of the business, such as a corporate culture that reflects our leadership position. The vehicle through which we intend to implement the business model is CustomerONE. More than a corporate quality program, it is a comprehensive operating philosophy and work process that is designed to provide focus and, where necessary, change our attitude about what it takes to succeed in the marketplace. We are transforming how we define “customer”. In the CustomerONE environment, a customer is any stakeholder — someone who buys our products, works at our company, invests in us, or partners with us. Our stakeholders include the communities in which we do business. Defining all of these relationships in the customer sense leads to a different attitude about how we conduct our business. It focuses us on solutions. Over the years, JSC and Stone Container had developed their own quality programs and operating philosophies. CustomerONE Houston, Texas integrates their best features. More important, it provides a sense of identity that is unique to Smurfit-Stone, at a time when our vision is > Len Murphy (left) and Greg Traylor carry out to be a top-tier company, not just in packaging but among all leading a quality check at the North American companies. Houston, Texas, corru- 14 gated container plant.
  • 17. The changing economy gives < Smurfit-Stone’s research, develop- more urgency to adopting this approach. ment, and product Today’s business environment presents testing capabilities employees with unprecedented choices. are part of providing total solutions to our Companies in established industries like customers’ packaging paper and packaging compete against needs. Sue Ann employers perceived to offer more Daniels performs a structural strength appealing career prospects. test at the corrugated As we apply the concept of customer container division’s to the workplace, we expand employees’ Westmont, Illinois, marketing and tech- skill sets, foster management training, nical center. and generally enrich the work process. CustomerONE promotes open, two-way communications, solicits employees’ ideas Westmont, Illinois and creativity, and facilitates teamwork and consensus building. Smurfit-Stone empowers employees to engage in natural work teams, pool knowledge and talent to create new ideas, and deal with operational challenges. The work teams have been an important factor in improving plant safety, a top priority at Smurfit-Stone. The safety initiative also demonstrates the value of training, and we are using it as a model for other career and quality training programs. We have a comprehensive safety process — Smurfit-Stone Accident Free Environment, or SAFE — which has helped position us as an industry leader in safety practices and measurement. 15 The name of the process speaks to its goal — to create an accident-free work environment. Since its inception in 1994, safety performance has improved 68 percent as measured by the number of incidents involving injuries requiring medical attention, logged according to rules of the Occupational Safety and Health Administration. We continued to make progress in safety in 2000, solidifying our ranking in the top quartile of our industry. 2 Understanding Our Customers’ Perspective Products In the marketplace, CustomerONE encourages us to focus on packaging Customer perspective solutions, not just manufacturing efficiency. We recognize that a highly competitive retail environment forces merchants to look to packaging to display, promote, and safely transport products. We have responded by working closely with our customers to develop appropriate packaging solutions and expand our high-end, higher-margin capabilities. In addition, we respect the intense competitive cost pressures faced by our customers. To respond, we have invested heavily to improve our supply chain operations. Our goals are clear. We aim to: Anticipate customers’ packaging needs. Exceed customers’ expectations with value-added services. Be the supplier of choice for a wide range of products. Be cost competitive without compromising innovation or quality. We start production decisions at the point of package content and end-user expectations, rather than at the mill. Working with our customers, our sales force may recognize the need for a nontraditional packaging solution: lighter substrates than the mills have typically produced,
  • 18. Missoula, Montana larger semi-bulk packages, protective packaging, or a different type of packaging altogether. Smurfit-Stone’s > Smurfit-Stone achieved significant cost reductions at our Missoula, integrated system makes it possible to deliver the best Montana, mill by concentrating its pro- solutions, whether they are boxes, folding cartons, duction on brown board and moving multiwall bags, or industrial packaging. its white top production to Brewton, Alabama. Missoula employees such as We constantly are analyzing efforts to improve Mark Snead, right, helped implement delivery of our products and services and to build the change. In addition, the Missoula new business without sacrificing profit margins. mill continues its role as an environ- mental steward. The wastewater A company-wide assessment is underway to examine holding ponds that dominate 800 acres services, capabilities, and technical resources, as well alongside the mill provide refuge for as initiatives such as e-commerce and cross selling. 196 species of birds, migrants, and resident breeders. Volunteers such as During 2000, we reorganized three non-corrugated Larry Weeks (inset) have helped put up container packaging businesses into two businesses fences to keep cows away and planted concentrating on consumer packaging and specialty pack- cottonwoods to improve the stream- side vegetation. aging. This action streamlined management, enhanced our ability to identify opportunities for cross selling to large customers, and generated synergy savings. E-commerce initiatives quickly are becoming necessities, not merely opportunities. The largest packaging users — the customers Smurfit-Stone is uniquely positioned to serve by virtue of our size and product scope — have determined that competitiveness increasingly rests on driving down cost and speeding 16 up transactions by carrying out more processes over the Internet. Smurfit-Stone is building electronic procurement capabilities to compete in this environment. We have implemented forecasting, inventory management, and replenishment applications. Improve- ments in these transactional tasks allow us to redeploy employee efforts to focus on more value-added activities on behalf of customers. Driving many of these initiatives is an enterprise transformation process with the basic premise that improving how we do business delivers a better value proposition to our customers. We are analyzing how we do business within and across our operating divisions, as well as general and administrative functions, to best determine how to better serve customers. The better we comprehend both aspects of the customer relationship — their expectations of us and how we are organized to deliver on those expectations — the better our decisions regarding investments in technology, organizational initiatives, and product development. Smurfit-Stone serves a broad range of customers, from those who buy our packaging to those who buy our products as their raw materials. As we have closed mills
  • 20. and consolidated production, some independent corrugated customers have expressed concern about dependability of their supply. Smurfit-Stone is dedicating a part of our mill system to meet the needs of these key customers and has committed a minimum of one million tons of containerboard products annually to the independent marketplace. 3 Optimizing Production Capabilities Products Our primary operational focus since the merger of Smurfit-Stone has Operational perspective been higher manufacturing efficiencies and lower costs. Six mills in a pilot program focused on improving existing processes increased efficiencies up to five percent and reduced costs by as much as 10 percent by the end of 2000. The program will be extended to our other mills. Our objectives are to lower the cost per ton and balance production with current demand. To accomplish that, Smurfit-Stone is evaluating more efficient ways to reduce operating rates through a combination of running the mills more slowly and taking periodic shutdowns. In the second half of 2000, we launched an incremental-cost measurement process that focuses on the cost of the last ton made rather than average price per ton. This analysis aims to capture total production costs, including incremental energy and transportation expenses that are often incurred by the single-minded focus on meeting production goals. Average-cost-per-ton calculations tend to ignore these expenses. Our larger mill system provides opportunities to schedule production at facilities best equipped to deliver the products most in demand. We achieved significant cost reductions at our Missoula, Montana, mill by concentrating its production on brown linerboard and moving its 18 white top production to Brewton, Alabama. Brewton, along with the West Point, Virginia, and La Tuque, Quebec, mills added in the St. Laurent merger, now produce the same high-quality white top linerboard. The flexibility to shift production among the mills means customers’ orders are filled expeditiously and the mills operate more cost-effectively. The result: increased customer focus and improved profitability at the mill level. We are in the process of introducing uniform computer-based purchasing and maintenance management systems. Over time that approach will become standard procedure. The supply chain operations group is focused on signifi- cantly improving service to integrated and Jacksonville, Arkansas independent customers, reducing order cycle time, and improving inventory levels. Supply > Smurfit-Stone is the industry’s leading chain improvements by themselves reduced bag packaging manu- corrugated containerboard inventories more facturer. Employees than 15 percent in 2000. such as Wendy Hadlock at our Being a demand-driven producer enables Jacksonville, Smurfit-Stone to maintain the all-important Arkansas, bag pack- customer focus while keeping inventories in aging facility pay great attention to balance. The company and our workforce production detail benefit from steadier production that mitigates and customer service. downtime taken to reduce excess inventories.
  • 21. 4 Strong Financial Management > Smurfit-Stone spent Performance about $204 million Enhances Performance in 1999-2000 on Financial perspective Smurfit-Stone has a well-established reputation environmental for strong financial management based on setting aggressive perform- improvements at nine mills, including ance objectives and then achieving — if not exceeding — those goals. the Panama City, In the merger that created Smurfit-Stone, our goal was to achieve Florida, mill, where $350 million in annual savings within a two-year period. We reached the Jeremy Odom is part of the team $350 million goal in mid-year 2000, six months ahead of the target date. that helped the mill By the end of the year, we realized synergy savings from the St. Laurent comply with the acquisition of $20 million on an annual basis. We expect to reach our EPA’s Cluster Rule. $50 million goal in total synergy savings in 2001. Panama City, Florida Our history of growth through acquisitions produced a high level of debt. Our top financial objective is to reduce that debt to help lower interest expense and improve earnings. As important as that is, we also remain committed to maintaining financial flexibility so that we are well positioned to take advantage of strategic and operating opportunities. In 1999, we reduced total debt by $1.8 billion, principally from the proceeds of sales of non-core assets. Debt reduction remained our top financial priority for 2000, but we also took advantage of our financial flexibility and reputation for strong financial management to acquire St. Laurent when that opportunity presented itself. The transaction represented an
  • 22. important strategic transaction for Smurfit-Stone even though it meant $1 billion in additional debt. In the second half of 2000, following the acquisition, we reduced debt by approximately $370 million. Early in 2001, we announced plans to issue $500 million of new bonds at Stone Container, with the proceeds to be used to redeem bonds maturing in 2002. Strong market interest, signaling an acceptance of our strategies, allowed Stone Container to increase the issue to $1.05 billion of new bonds and redeem existing bonds with higher interest rates. This refinancing helped us increase financial flexibility by lengthening the maturities of our bonds and lowering our interest expense. 5 Accepting the Accountability of Leadership Performance Accountability improves performance. The management processes in Accountability perspective place recognize the contributions of employees throughout the organi- zation by giving them responsibility in their spheres of influence, within corporate guidelines designed to promote best practices and reach common goals. Measurement is routine in the corporate culture at Smurfit-Stone. Line managers are accountable for customer satisfaction and for managing the business to increase both sales and profit margins. Executive management is measured on corporate performance including cash flow, debt reduction, and overall profitability. Smurfit-Stone also is accountable to the communities in which we operate and to the environment in and around our plants. Realizing that employees not only work but also live in the areas in which we do business, we strive to be a good corporate citizen and encourage 20 employees to become involved in their communities. One way we demonstrate commitment to environmental protection is a rigorous, companywide audit program. Internal teams made up of corporate and operating staff and legal counsel routinely inspect company facilities for environmental compliance. As the world’s largest paper recycler, we not only provide our mills with a secure recycled fiber source, but our efforts help divert materials from landfills. In 1999 and 2000, we spent approximately $204 million on environmental improvements at nine mills to comply with the Cluster Rule, a collection of federal air and water regulations that affect U.S. paper mills. The company is dedicated to improving water and air quality by actively pursuing treatment systems that remove undesirable Panama City, Florida particles from our manufacturing discharges. > Smurfit-Stone takes a leadership role We recognize that leadership in environmental requires accountability to stewardship and customers, employees and com- conducts rigorous testing and auditing munities, as well as to share- programs. Bunky holders. From our perspective Jones, a chemist as North America’s leading paper- at the Panama City containerboard mill, based packaging solutions gathers a water provider, constantly taking another sample for testing. look at the way we do business ensures our accountability to all.
  • 23. > Paul Napier checks for color accuracy at Smurfit-Stone’s Solon, Ohio, folding carton manufacturing facility, which converts boxboard from several of Smurfit-Stone’s mills and has a tradition of strong customer relationships. Solon, Ohio
  • 24. Smurfit-Stone Container Corporation BOARD OF DIRECTORS AND 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 Board Members Corporate Officers Michael W.J. Smurfit Jerry K. Pearlman Michael W.J. Smurfit James P. Davis Paul K. Kaufmann Lorne Parnell Chairman and CEO, Retired, Chairman of the Board Vice President and Vice President, Vice President, Jefferson Smurfit Group plc Zenith Electronics Area Manager, Controller Pacific Operations Ray M. Curran Corporation Corrugated Container Division President and Ray M. Curran Leslie T. Lederer John M. Riconosciuto President and CEO, Chief Executive Officer Vice President, Vice President and Thomas A. Reynolds, III James D. Duncan Smurfit-Stone Container Partner, Vice President, Strategic Investment General Manager, Patrick J. Moore Corporation Winston & Strawn Corporate Sales and Marketing Dispositions Specialty Packaging Division Vice President and Chief Financial Officer Richard A. Giesen Anthony P. J. Smurfit William G. Eustice F. Scott Macfarlane Jose A. Santos Chairman and CEO, Chief Executive Officer, Vice President and Vice President and Vice President, John F. Allgood Continere Corporation Smurfit Europe Area Manager, General Manager, Latin American Operations Assistant Secretary Corrugated Container Division Consumer Packaging Division Alan E. Goldberg Dermot F. Smurfit David C. Stevens Curtis A. Barton Former Managing Director, Deputy Chairman, Vice President and Daniel J. Garand Richard P. Marra Vice President, Morgan Stanley & Co., Inc. Jefferson Smurfit Group plc Vice President, Assistant Treasurer General Manager, Environmental Affairs Supply Chain Operations Recycling Division Howard E. Kilroy Timothy J. P. McKenna Mathew J. Blanchard Retired, Vice President, Michael F. Harrington Gayle M. Sparapani Vice President and Jefferson Smurfit Group plc Vice President, Investor Relations and Vice President, General Manager, Employee Relations Communications Benefits Containerboard Sales and James J. O’Connor Retired, Marketing James A. Hayssen Ronald J. Megna William N. Wandmacher Unicom/Commonwealth Vice President, Assistant Secretary Vice President and Cynthia S. Bowers Edison Information Technology General Manager, Vice President, Mark R. O’Bryan North American Compensation and Vice President, Charles A. Hinrichs Containerboard Mill and Administration Vice President, Procurement Forest Resources Division Treasurer Peter F. Dages Thomas A. Pagano Vice President and Vice President, Craig A. Hunt General Manager, Vice President, Planning Corrugated Container Division Secretary and General Counsel 22 Division Officers Corrugated Container Rodney A. Myers Donald C. Wyatt Consumer Packaging Specialty Packaging Michael R. Oswald Vice President and Vice President, Vice President, Division Division Division Regional Manager North American Operations LeRoy R. Crocker J. Gregor Doman L. David Fielder Containerboard & Kraft Vice President and Vice President, Vice President, Robert D. Nelson James W. Pope Sales, Board Sales Regional Manager Vice President and Sales PaperCan Vice President, Regional Manager International / Western Sales John J. Curry, Jr. Nathan S. Holmes Fred W. Klatt Vice President and Vice President and Vice President of James S. Nolan North American Tom E. Squires Regional Manager Vice President, General Manager Manufacturing Vice President, Containerboard Mill Corporate Accounts Southeast Region and Forest Resources Stephen P. Folan Gary R. Huston George Q. Langstaff Division Vice President and Vice President, Vice President and Donald A. Petri Edward V. Tucciarone Regional Manager Vice President and Boxboard Sales General Manager, Vice President, Alain Boivin Regional Manager Vice President, Industrial Group Eastern Sales Roland F. Hauser Steven L. Kelchen Mill Operations, Vice President and Vice President and Jerry D. Suiter James B. Laurence Central Region Regional Manager Vice President and Regional Manager Vice President of Sales Research and Director of Manufacturing John E. Davis James A. Henderson Curtiss M. Komen Gary D. McDaniel Development Division Vice President, Vice President and Vice President and Vice President and Donald A. Tinkoff Joseph V. LeBlanc Forest Resources Regional Manager Vice President and Regional Manager General Manager, Vice President Regional Manager Flexible Group Alain Dubuc Lane W. Hunter David J. Pietrowicz Vice President, Vice President and Vice President and John J. Moran Supply Chain/ Mill Operations, Regional Manager Regional Manager Vice President, Containerboard Sales Transportation Northern Region Marketing, and Stephen E. Jevyak and Marketing Division William Wanner General Manager, W. G. Stuart Vice President and Vice President, Larry L. Burton Vice President, Specialty Group Regional Manager Vice President, Supply / Demand Operations Mill Operations, Sales & Marketing John L. Knudsen Southern Region Terence J. Brown Vice President and Recycling Division Vice President, Michael L. Butler Regional Manager Vice President, Transportation Mark C. Brantley Graphic and Specialty Sales, Vice President, John B. Malloy Vice President and Board Sales North Central Region Regional Manager Andrew J. Woodroffe Steve A. Miller Vice President, Vice President, Technical Services & Product West Region Management, Board Sales
  • 25. SHAREHOLDERS’ INFORMATION Stockholders’ Annual Meeting For Investor Information Contact May 17, 2001 at 1:00 pm Investor Relations and Communications The Sheraton Chicago Hotel & Towers Smurfit-Stone Container Corporation City Front Center 8182 Maryland Avenue 301 E. North Water Street St. Louis, MO 63105 Chicago, IL 60611 Telephone: 314-746-1223 Fax: 314-746-1347 www.smurfit-stone.com Registrar and Transfer Agent Mellon Investor Services LLC Overpeck Centre Timothy McKenna 85 Challenger Road Vice President, Ridgefield Park, NJ 07660 Investor Relations and Communications www.mellon-investor.com St. Louis: 314-746-1254 Telephone: 888-213-0965 Chicago: 312-580-4637 Common Stock Corporate Office Smurfit-Stone Container Corporation Smurfit-Stone Container Corporation common stock is traded on The Nasdaq 150 North Michigan Avenue Stock Market under the symbol: SSCC Chicago, IL 60601-7568 Telephone: 312-346-6600 Preferred Stock Smurfit-Stone’s 7% Series A Cumulative Exchangeable Redeemable Convertible Preferred Stock is traded on The Nasdaq under the symbol SSCCP Design: ProWolfe Partners; St. Louis, MO Photography: Studio — Bruton/Stroube; St. Louis, MO Location — Mark Green; Houston, TX
  • 26. 150 North Michigan Avenue Chicago, IL 60601-7568 (312) 346-6600 www.smurfit-stone.com Company Profile Smurfit-Stone Container Corporation (Nasdaq: SSCC) is the industry’s leading integrated manufacturer of paper and paper-based packaging, including containerboard, corrugated containers, multiwall bags, and clay-coated recycled boxboard, and is the world’s largest paper recy- cler. In addition, we are a leading producer of solid bleached sulfate, folding car- tons, paper tubes and cores, and labels.