smurfit stone container 1998_AR

Smurﬁt-Stone
J O I N I N G F O R C E S TO

Re-energize the
BUSINESS

19 9 8 A N N U A L R E P O R T

How?
COMPANY PROFILE TABLE OF CONTENTS
Smurfit-Stone Container Corporation (Nasdaq: SSCC) is the industry’s Introduction to Smurfit-Stone 2
premier paper-based packaging company. Headquartered in Chicago, Smurfit-Stone at a Glance 3
with additional corporate functions in St. Louis, Missouri, and Alton, Production Statistics 5
Illinois, the company was formed November 18, 1998, as a result of the Letter to Shareholders 6
merger between Jefferson Smurfit Corporation and Stone Container Financial Highlights 8
Corporation. Core products include corrugated containers, folding Re-energizing the Business 13
cartons, specialty packaging, and bag packaging, which are supported Board of Directors and
by an integrated mill system and significant fiber resources. The company Corporate Officers 26
operates more than 300 facilities worldwide. Annual Report on Form 10-K 27

IV SMU RF IT -STONE 1998 A N N UA L R EPOR T

by Creating
SHAREHOLDER
VALUE
Refinancing, aggressively reducing debt, divesting of non-core
businesses, and restructuring

by Managing for
RESULTS
Leveraging strengths and achieving full potential

by Widening the
COMPETITIVE
GAP
Meeting aggressive targets, encouraging flexibility and autonomy at local
levels, and investing in our corporate philosophy, IQS

by Building a
UNIFIED, COHESIVE
ORGANIZATION Establishing strong core values, leadership, staff, and culture

1
RE-ENERGIZE T HE T-STONE 1998 ANNUAL R EPOR T T
SMUR FI BUSINESS 1998 ANNUAL R EPOR

Jefferson Smurfit Corporation and
Stone Container Corporation have
joined forces to form Smurfit-Stone
Container Corporation (SSCC ),
the world’s largest integrated
producer of paperboard and
paper-based packaging products.
As a result of the merger, Smurfit-
Stone is refocusing on its core busi-
nesses by utilizing and controlling
processes that add customer and
shareholder value.

2 1998 A N N U A L REP OR T SMUR FIT -STONE AT A GLANCE

SMURFIT-STONE AT A GLANCE

COMPANY OVERVIEW

The merger of Jefferson Smurfit Corporation and Stone
SIZE AND SCOPE
Container Corporation has created the leading paper and
paper-based packaging company in North America. The new
company’s strategy emphasizes innovation, service, margins, and
market position. The company has a national network of more
than 300 packaging plants that enables it to provide paper-based
packaging solutions for any customer, large or small, anywhere
in the country.

Smurfit-Stone is a pioneer in the development of several
CREATIVITY AND
concepts. Among them are using “just enough” packaging
INNOVATION
material to produce a total-performance packaging system. This
system creates multiple packaging products that work together
to address all customer packaging needs. The company also
furnishes teams of technical and design specialists to devise
packaging solutions to customers’ problems. Smurfit-Stone’s
R&D, creative, and technical capabilities apply new thinking
and technology from around the world to its own products
and processes.

In an industry where retailers are dominating the shape of
SERVICE
packaging, Smurfit-Stone has the graphic, structural packaging,
CAPABILITIES
and converting capabilities to address this increasingly compet-
itive market. By working collaboratively, not only with the
company’s direct customers but also with their customers,
experts in various disciplines have dramatically reduced the
cycle time from concept to completion of packaging solutions,
as well as increasing value to customers.

Smurfit-Stone is the leading North American producer of
NORTH AMERICAN
corrugated containers, containerboard, folding cartons, and
LEADERSHIP
industrial bags. It also has the largest recycling business in the
industry. Together with its international operations and those of
its affiliate, Jefferson Smurfit Group, the company can provide
global capabilities to its customers. Smurfit-Stone and Jefferson
Smurfit Group supply about 11 percent of the world container-
board market.

3 1 9 9 RF N -STONE 1998 N N UA L R EP OR T
SMU8 AITN U A L REP OR T ASMUR FIT -STONE AT A G LA NCE

PRODUCTS DESCRIPTION CAPABILITIES
CORRUGATED Corrugated containers represent Smurfit-Stone’s Full range of high-quality Graphic capabilities include
s s

largest business segment, with 61 percent of the corrugated containers flexo, preprint, post-print,
CONTAINERS
company’s sales. The division supplies hundreds s Innovative packaging labels, and substrates
®
of national and international manufacturers, as solutions and high-quality s Cordeck corrugated pallets
CONTAINERBOARD
well as thousands of local and regional customers. graphics s Full range of domestic and

s Complete line of retail-ready, export-specific liners, includ-
Smurfit-Stone is the leading supplier of point-of-purchase displays ing mottled white and high-
containerboard to domestic and export markets. s Full line of specialty performance grades. Full
products and custom, range of semi-chemical and
die-cut boxes to display recycled medium, including
packaged merchandise high-performance grades

FOLDING CARTONS Smurfit-Stone offers a wide range of styles Full line of folding cartons packaging, engineering
s

appropriate to nearly all carton end uses. and claycoated and uncoated services, electronic data
AND BOXBOARD MILLS
These cartons are used by consumer-goods recycled boxboard in interchange, research
producers to package foods, beverages, newsback, kraftback, and and development
fast food, soap, paper, pharmaceuticals whiteback grades s High-quality, preprinted

and cosmetics. Printing capabilities include s Extensive converting E-flute and F-flute corrugated
sheet and web, lithographic, rotogravure, and capabilities and support packaging in a full
flexographic. services in structural and range of grades in calipers,
graphic design, mechanical from .014 to .040

S P E C I A LT Y PA C K A G I N G The specialty packaging business comprises Paper tubes and cores Specialized products,
s s

industrial and consumer packaging. Industrial Labels for decorative including furniture forms,
s

produces tubes and cores, partitions, and a packaging applications construction forms,
number of specialized products. Consumer meets s Solid fiber and paperboard industrial storage tubes,
the product needs of a wide variety of marketing, partitions and electrostatic disapative
board (PROTECH®)
manufacturing, and consumer companies. s Flexible-packaging

operations with specialized
lamination

BAG PACKAGING Multiwall, consumer, specialty, and flexible bags Multiwall, industrial, Packaging equipment and
s s

are used to ship, store, protect, and promote a consumer, specialty, systems that fill, seal, convey,
KRAFT PAPER wide range of products. Smurfit-Stone offers a and flexible bags and palletize bag products
coordinated approach to analyzing customer s Full line of flexible, inter- s Technical, graphics, and

needs and providing both the bag packaging and mediate bulk containers marketing expertise
packaging equipment system that best suits the s Custom-designed bag s Full range of kraft paper

product, production, and protection requirements packaging grades include grocery bag
of its customers. and multiwall sack kraft
Smurfit-Stone is the leading supplier of kraft
paper to domestic and export markets.

RESOURCES
RECYCLED FIBER Smurfit-Stone is unique in the paper and packaging Recycling business handles Waste Reduction Services
s s

industry in that it has a strong position in both recovered paper generated provides waste-management
virgin and recycled fiber. The company has built by industrial, commercial, solutions to businesses.
the largest reclamation business in the industry and residential sources.
and now collects and processes approximately s Collected material includes

7 million tons of recycled paper every year. old corrugated containers,
newspapers, magazines,
aluminum cans, glass,
and plastics.

MIST-WITE® II with superior
Wide range of unbleached
PAPERBOARD, PAPER, The containerboard mill segment produces a full s s

kraft linerboard grades graphics capability and
line of commodity and specialty paperboards
AND PULP MILLS s Medium, available in printability
for conversion into corrugated containers, bags,
semi-chemical and s Solid bleached sulfate (SBS)
and related packaging products. The company
recycled grades s Bleached hardwood pulp
produces unbleached kraft linerboard grades and
corrugating medium. This group also supplies
bleached hardwood market pulp for printing
and writing papers, bleached paperboard, and
photographic paper.

4 1 9 9 8 A N N U A L REP ORT SMU R F IT-STONE AT A G LA NCE

PRODUCTION STATISTICS

PRODUCTS INDUSTRY POSITION FACILITIES HIGHLIGHTS
CORRUGATED Largest supplier of Approximately 120 Capable of producing
s s s

corrugated containers corrugated container 92 billion square feet of
CONTAINERS
s Industry’s most complete plants in North America corrugated containers
line of graphic capabilities s Marketing and Technical and specialty products
CONTAINERBOARD
s Major domestic export Center (MTC) in Westmont, s Capable of converting

supplier of containerboard Illinois 6 million tons of
s See paper and paperboard containerboard
mills below. s More than 1 million tons

s More than 30 plants in of linerboard medium and
Europe, Asia, Australia, kraft paper sold to global
and South America markets and affiliates

FOLDING CARTONS Nation’s largest supplier of 19 folding carton plants Produced 630,000 tons
s s s

folding cartons and clay- 4 clay-coated, recycled of clay-coated board and
s
AND BOXBOARD MILLS
coated, recycled boxboard boxboard mills uncoated recycled boxboard
s Provider of broadest range in 1998
of support services in the s Sold 536,000 tons of folding

industry cartons in 1998

S P E C I A LT Y PA C K A G I N G Leading producer of paper 3 uncoated, recycled 129,000 tons of recycled
s s s

tubes and cores boxboard mills boxboard produced in 1998
s One of the largest contract s 17 tube and core plants s 138,000 tons converted to

packagers and suppliers of s 3 partition plants industrial products in 1998
labels for decorative packag- s 10 consumer-packaging

ing applications in the U.S. manufacturing facilities
s Industry leader in litho

and heat-transfer labels,
flexible films, and contract
packaging

BAG PACKAGING Industry’s largest manufac- 245,000 tons of kraft paper
s s
13 bag plants in the U.S.
s

turer of multiwall industrial converted in 1998
Technical and Graphics
s

KRAFT PAPER and consumer bags s 1.1 billion multiwall bags
Center in Cantonment,
s Leading industry manufac- produced in 1998
Florida
turer of flexible, intermedi- s More than 1 million tons
s Bag Packaging Equipment

ate bulk containers of kraft paper, linerboard,
Group in Salt Lake City, Utah
and medium sold to global
s See paperboard, paper, and

markets and affiliates
pulp mills below.

RESOURCES
RECYCLED FIBER Largest reclamation 32 U.S. collection centers 5.6 million tons of paper
s s s

business in the industry 12 U.S. brokerage offices collected in 1998
s

s 1 brokerage office in s Approximately 45 percent

Shanghai, China of paper collected used
by Smurfit-Stone mills
s Major fiber supplier to Asia,

Europe, and Latin America

PAPERBOARD, PAPER, World’s largest producer 4 linerboard mills 4.3 million tons of
s s s

of containerboard 9 medium mills linerboard capacity
s
AND PULP MILLS
s Nation’s leading producer s 1 bag-paper and s 1.7 million tons of corru-

of recycled medium linerboard mill gating medium capacity
s Industry’s largest producer s 1 mottled white machine s 192,000 tons of solid

of MIST-WITE® II at Brewton, Alabama, mill bleached sulfate capacity
s Major producer of hardwood s Majority owner of semi-chem- s 520,000 tons of bleached

pulp ical mill in Groveton, N.H. hardwood pulp
s 1 bleached pulp and

linerboard mill
s 1 bleached pulp mill

5
PRODUCT ION STAT IST ICS 1998 ANNUAL R EPOR T

LETTER TO SHAREHOLDERS

Dear Shareholder,
Jefferson Smurfit Corporation and Stone Container Corporation joined forces in 1998 to become
not only the largest paper-based packaging company in North America, but the industry leader in
creating value. The combined company, Smurfit-Stone Container Corporation, is now the largest
U.S. producer of corrugated containers and containerboard, folding cartons and boxboard, and
industrial bags. It is also a major producer of other industrial and consumer packaging products,
as well as the largest U.S. collector and processor of recovered fiber, a key raw material for its
paperboard mills.
More important than the size and scale of the new company are its strategic goals. Smurfit-
Stone intends to focus its combined operations on our core packaging businesses. We will build a
financially strong company by divesting non-core assets, reducing debt, and achieving significant
synergies. As we succeed, we aim to set a new standard for the way paper and packaging companies
manage their resources to deliver unmatched quality and service to their customers, while earning
impressive returns for investors.

1 9 9 8 R E S U LT S A N D 1 9 9 9 O U T LO O K
The merger, announced in May and completed in the fourth quarter of 1998, generated
significant accounting charges, which should be viewed separately from the operating results of
the company. As discussed in greater detail later in the report, the company recorded charges of
$310 million ($187 million after tax). These included charges related to the restructuring of the
company’s mill system, to the transaction itself, and to the settlement of litigation. Including these
charges, the company reported a loss — before extraordinary item and the cumulative effect of an
accounting change for 1998 — of $184 million, or $1.48 per diluted share, compared to net income
of $1 million, or $.01 per diluted share, in 1997.
The net loss for the year was $200 million, or $1.61 per diluted share, compared to net income
of $1 million, or $.01 per diluted share, in 1997. Sales for the full year were $3.5 billion, compared to
$2.9 billion in 1997. Smurfit-Stone’s 1998 results include the results of Jefferson Smurfit Corporation
for the full year and of Stone Container Corporation from November 18, 1998, the date of the
merger, through the end of the year and reflect the Newsprint Division as a discontinued operation.
Excluding the charges, the company would have reported income from continuing operations
of $3 million, or $.02 per diluted share, for 1998, before extraordinary item and the cumulative
effect of an accounting change. From an operational standpoint, the primary negative factors during
the year were discounted prices in containerboard and market pulp, driven mainly by declining
demand in export markets, especially those in Asia. The company’s immediate response to this
declining demand was to take significant downtime in our mill system in order to manage invento-
ries. Unfortunately, this downtime also had a negative impact on operating results.
On the positive side, domestic demand for packaging remained healthy, consistent with a strong
U.S. economy. Our core packaging businesses performed reasonably well in this environment, in
spite of pressures generated by discounting in board and fiber prices. In corrugated containers,
average prices were higher by about 10 percent, compared to 1997. In our folding carton/boxboard
business, profits and volume improved over 1997 as a result of new business gains and cost-takeout
efforts. For the full year, carton shipments increased by about 10 percent over 1997.
In the industrial packaging business, recovered fiber prices have been a double-edged sword.
Declining fiber prices led to discounting for the uncoated boxboard used to make tubes and cores.
On the other hand, lower fiber costs and increased volume partly offset the impact of lower prices.

6 1998 A N N U A L REP OR T LET T ER TO SHAREHOLDERS

“As we succeed, we aim to
set a new standard for the
way paper and packaging
companies manage their
resources to deliver
unmatched quality and
service to their customers,
while, at the same time,
earning impressive returns
for investors.”

MICHAEL W. J. SMURFIT, Chairman of the Board RAYMOND M.CURRAN, President and Chief Executive Officer

“We believe 1998
likely will be viewed
as a watershed year
not only for our company,
but for the packaging
industry as well.”

7
LET T ER TO SHAREHOLDERS 1998 ANNUAL R EPOR T

F I N AN CIAL HIGHLIGHTS

Dollars in millions, except per share data 1998 1997 1996
Net sales $ 3,469 $2,936 $3,087
Income (loss) from operations (64) 175 332
Interest expense, net (247) (196) (198)
Income (loss) before extraordinary item
and cumulative effect of accounting change (184) 1 117

Basic earnings per share
and cumulative effect of accounting change $ (1.48) $ .01 $ 1.05
Net income (loss) (1.61) .01 1.01
Weighted average shares outstanding (in millions) 124 111 111

Diluted earnings per share
and cumulative effect of accounting change $ (1.48) $ .01 $ 1.04
Net income (loss) (1.61) .01 1.00
Weighted average shares outstanding (in millions) 124 111 112

Net cash from operating activities $ 129 $ 88 $ 380
Capital investments and acquisitions 287 191 129

Financial position at year-end
Net working capital $ 635 $ 71 $ 34
Property, plant, equipment, and timberland, net 5,772 1,788 1,720
Total assets 11,631 2,771 2,688
Long-term debt, less current maturities 6,428 2,025 1,934
Stockholders’ equity (deficit) 1,634 (374) (375)
Number of employees 38,000 15,800 15,800

8 1 9 9 8 A N N U A L REP OR T FI N A NCIA L HIG HLIG HTS

In consumer packaging, the business benefited from a strong performance in lithographic labels
and cost-cutting efforts. Combined, the industrial and consumer businesses posted a slight
improvement in profits. In newsprint, average prices were up about 8 percent, resulting in profit
gains for the full year. Finally, recovered fiber prices remained depressed due to the mill downtime
in the industry.
As the new year began, the outlook brightened. Declining containerboard inventories, partly
as a result of shutdowns of inefficient capacity, significantly tightened supply. We advised our
customers of price increases for linerboard and medium, as well as for corrugated containers,
effective during the first quarter. Given continued economic growth in the U.S., we foresee an
improved supply/demand balance and improving markets. We are optimistic that the overall
market environment for packaging will improve, permitting our management to focus on new
opportunities as it implements the strategic agenda.

CREATING VALUE
One of the most important objectives of the merger was to capture the full synergy potential
inherent in combining two leading packaging companies. That will result, in part, from optimizing
the combined manufacturing systems of the two companies. The optimization process is complex
and will take many months to complete. However, we took the first and most difficult step shortly
after closing the merger by shutting down four less-efficient containerboard mills, which annually
produced 1.1 million tons, or 3 percent of industry capacity. This shutdown, unprecedented in the
paper industry, cut the company’s exposure to the volatile open market for containerboard in half
and significantly increased the internal integration level of the containerboard/corrugated container
system. We also expect to achieve significant savings by reducing corporate overhead and overlap-
ping functions.
The merger serves as a catalyst for focusing all of our resources on our core packaging busi-
nesses, working aggressively to divest non-core businesses, and applying the proceeds of divestitures
to debt reduction. The businesses targeted for divestiture include valuable assets, such as our
woodland holdings in the Southeast and newsprint interests in the Northwest, as well as a pulp
mill in Canada.

M A N A G I N G F O R R E S U LT S
We will manage the company toward aggressive targets, including achievement of $350 million
in synergies by year-end 2000. The largest portion — more than $180 million — will come from
optimizing our manufacturing system. Another $50 million will accrue by reducing administrative
expenses. Purchasing and logistical leverage should produce another $80 million over the next two
years. Finally, we should obtain approximately $30 million in interest expense savings related to
working capital reductions, as we put our financial disciplines in place.
By divesting our non-core business holdings, we expect to raise approximately $2 billion over
time, all of which will be applied to reducing the debt of the combined company. We have already
begun the process of selling assets and are using the proceeds for debt repayment. These include the
sale of a Snowflake, Arizona, newsprint facility, which generated $267 million in net proceeds; part
of our stake in Abitibi-Consolidated, which generated $80 million in net proceeds; and other small
non-core businesses.
We will continue to invest capital in our fixed assets, but at a level below the projected depreci-
ation and amortization of about $360 million. Interest expense, as well as total debt, should begin
to trend down in 1999 as we apply the proceeds of asset sales. If we complete our asset sales on
schedule, interest expense will decline substantially in 1999.

9
LET T ER TO SHAREHOLDERS 1998 ANNUAL R EPOR T

WIDENING THE COMPETITIVE GAP
Following the divestitures, Smurfit-Stone will possess the industry’s largest network of paper-
based packaging plants; a nationwide mill system; and full design, technical, and graphic capabilities.
To leverage our competitive advantage in the marketplace, the company intends to achieve excel-
lence in innovation, quality, and service, known as the IQS process.
This process requires hands-on management that stays close to customers. To that end, we
will actively solicit feedback and ideas and continue to provide customers with customized, cost-
effective packaging solutions. Above all, we will strive to understand the needs of our customers’
customer, especially in the all-important retail sector, and meet those needs through innovative
vehicles, such as our packaging solutions centers.

UNIFYING THE ORGANIZATION
To carry out our agenda as effectively as possible, we must build a unified, cohesive organization
that incorporates and respects the financial disciplines and marketing strengths that defined the
two companies before they joined forces. To achieve that goal, transition teams for our operating
units and staff functions have worked to identify and adopt the best management practices of
each company. To retain the best people and reduce costs, we have established a core group of
senior officers at the Chicago headquarters and St. Louis offices. We are maintaining administrative
functions in both cities as well, where these operations can most efficiently be carried out.
Since finalizing the merger, we have formed a new management team. Richard W. Graham,
president and chief executive officer of Jefferson Smurfit Corporation, who played a key role in
the transition process, retired on March 31, following 41 years of service. Mr. Graham will remain
a member of the Smurfit-Stone board.
Roger W. Stone, former chairman, president, and chief executive officer of Stone Container
Corporation, took over as chief executive officer of Smurfit-Stone and managed the company
through the initial stages of the merger. Mr. Stone elected to retire at the end of March. At the
same time, Matthew S. Kaplan, vice president and general manager of Smurfit-Stone’s corrugated
container operations, resigned from the company.
The company owes a debt of gratitude to our employees, whose patience and cooperation have
helped to make the merger process as smooth as possible. While downsizing and mill closures were
necessary to meet important financial goals, we regret the disruption they have caused in the lives
of many of our people. We also recognize the impact that moving our headquarters to Chicago has
had on the St. Louis community, but hope that maintaining a sizable presence in St. Louis, Missouri,
and Alton, Illinois, will mitigate that loss.
Mergers are often unsettling at the outset; but, ultimately, they are intended to produce great
benefits for the newly-formed organization. Smurfit-Stone is already reaping some of those benefits.
We are optimistic about the future.

Michael W. J. Smurfit Raymond M. Curran
Chairman of the Board President and Chief Executive Officer

April 1, 1999

10 1998 A N N U A L REP OR T LET T ER TO SHAREHOLDERS

Create
RE-ENERGIZE THE BUSINESS

SHAREHOLDER
VALUE
Smurfit-Stone will create value by reducing debt
through divestiture of non-core assets; rationaliz-
ing its manufacturing system; restructuring its
corrugated container and containerboard busi-
nesses; eliminating redundancy, while continuing
to serve its markets; leveraging its combined
purchasing power; lessening exposure to low-
margin businesses; reducing expenses; and
refinancing debt.

SANTA FE SPRINGS CORRUGA TED CONTAINER PLANT
The Santa Fe Springs, California, corrugated container
plant is a model of efficiency, quality, and top-notch
service. Catering primarily to the consumer electronics
market, the plant prides itself on speedy production and
its ability to exceed the exacting demands of
its customers.

SANTA CLARA BOXBOARD MILL
Innovations, such as using office waste instead of pulp
substitutes to produce topliner, contribute to Smurfit-
Stone’s Santa Clara, California, boxboard mill opera-
tions, saving more than $1 million a year. Liner operator
Gary Smith feeds office waste paper into a
hydrapulper to mix with water and eventually
make topliner for recycled rolls of boxboard.

1 2 1 2 SMU RF IT - STONE 1 9 98 A N N UA L R EP OR T

Re-energize the Business 1998

LAST YEAR, SMURFIT-STONE PRODUCED 77 BILLION LINEAR FEET OF

OF BOXES PLACED, END-TO-END, AROUND THE WORLD 233 TIMES.
CORRUGATED CONTAINERBOARD. THIS IS ENOUGH TO WRAP A LINE
Smurﬁt-Stone Container
Corporation begins 1999 with
optimism and a strong sense
of purpose. With the merger
completed and a new management
team in place, the company will
focus on strengthening its position
as the industry leader in paper
and paper-based packaging —
known for its ﬁnancial discipline,
marketing expertise, and creative
approach to solving customers’
packaging problems.
13
RE-ENERGIZE T HE BUSINESS 1998 ANNUAL R EPOR T

Create Shareholder Value

CONSOLIDATION AND RATIONALIZATION
The merger creates a new company
The key to re-energizing the business able to run its integrated corrugated
is a four-point strategy that will lead container/containerboard business
the company into the next decade. more profitably with a smaller, more
That strategy incorporates increasing efficient mill system. The merger is also
shareholder value through aggressive an important first step in unlocking
debt reduction and improved financial value for Smurfit-Stone shareholders.
performance; strengthening our The next step is the rationalization
leadership position by staying close of inefficient capacity, a problem that has
to customers; managing for results plagued the industry for years. To address
by setting and meeting aggressive it, the company has implemented a
targets; and establishing a solid, robust major rationalization that includes the
organization with a single culture shutdown of four mills which produced
and set of values. approximately 1.1 million tons, or about
Following the Smurfit-Stone merger, 15 percent, of the company’s North
the new company took immediate American containerboard mill capacity.
steps, which included restructuring its As a result of the restructuring,
manufacturing system by shutting down Smurfit-Stone’s annual U.S. container-
overlapping operations for the sake of board production capacity has been
trimming the system to the right reduced from approximately 7 million
competitive size. It will continue to tons to about 5.9 million tons. This
rationalize its container plant operations. move increases the company’s level
Ultimately, all of these actions will of integration in containerboard from
produce a new, invigorated, more cost- about 70 percent to 90 percent. The
efficient organization with a singular rationalization plan is a key element in
focus and a stronger balance sheet. generating expected annual synergies
This will be accomplished by setting, of at least $350 million.
pursuing, and achieving very precise
financial targets in terms of debt
reduction, divesting assets, and timing
of key strategies. These targets will
serve as the linchpin for a new
approach to managing the business.

14 1998 A N N U A L REP OR T R E-ENER G IZE T HE BUSINESS

MANAGE for

RESULTS Managing for results means setting aggressive
financial targets; increasing sales; focusing on
profit-margin performance; leveraging strengths
and best practices; achieving full potential
in every business unit; creating a strong,
balanced mill system; investing in operations;
and selling the company’s full line of products
and services.

WASTE REDUCTION SERVICES
Helping customers manage their entire waste
stream is a value-added benefit provided by
Smurfit-Stone’s Waste Reduction Services. This
service saved customers millions of dollars in solid-
waste removal costs in 1998. More than one-fifth
of the 100,000 tons extracted was tonnage that
previously went to landfills.


C O R D E C K® C O R R U G A T E D PA L L E T S
Smurfit-Stone’s Cordeck® corrugated pallets
have proven to be the sound choice for the
environment. Competing directly with insect-
prone wood pallets, the corrugated pallet is quickly
becoming the acceptable alternative to wood. With
recent government regulations and the Asian Longhorn
Beetle outbreak, the growth potential for this business
is promising.

16

Cutting capacity substantially
reduces unscheduled market-related
downtime and associated fixed costs,
which will result in considerable savings.
The rationalization has significantly
Following the rationalization, Smurfit- 1998
reduced the company’s exposure to
Stone will have a lower-cost, more

S M U R F I T - STO N E ’ S ST. LO U I S R E C YC L I N G FA C I L I T Y P R O C E S S E S
ABOUT 9,000 TONS OF FIBER PER MONTH — ENOUGH TO
CREATE A STACK TWICE AS HIGH AS THE GATEWAY ARCH.
market pulp, a non-core business. The
efficient mill system; improved freight
shutdown of one of the kraft linerboard
costs; and better margins through
mills, at Port Wentworth, Georgia, also
grade-mix rationalization.
included 235,000 tons of market pulp.
At the mill level, the company will
In addition, about 90,000 tons of market
reduce its open-market sales position in
pulp were shut down at the company’s
containerboard and kraft paper in the
Bathurst, New Brunswick, mill in Canada.
domestic and export markets, though
That mill will continue to produce
it will continue to be a player in both
containerboard. The shutdowns were in
of these arenas. Several other strategic
addition to Stone’s exit last summer
initiatives are planned. They include
from its Celgar mill, a joint venture in
more efficient scheduling of paper
British Columbia, which had production
machines by combining grades and
capacity of almost 600,000 tons. Taking
measuring customers’ needs against
those shutdowns into account, just under
the company’s capabilities.
600,000 tons of pulp capacity remain.
In order to improve price realization
This includes the specialty pulp mill at
and profitability on open-market sales
Pontiac, Quebec, and pulp production
of containerboard, Smurfit-Stone is
in Panama City, Florida.
analyzing its customer base and
At the packaging level, Smurfit-
evaluating customers against a number
Stone will create value for packaging
of factors. Our future customer mix
customers by fully utilizing its resources
will be based on meeting long-term,
— plants, people, and creative services
strategic objectives, including margin,
— and widening the competitive gap
potential, contracts, and good fit
between itself and its competitors. It
between customers and the company.
will achieve this in part through the
development of new products to
meet customers’ changing needs. The
company has already begun evaluating
the plant resources required by its
corrugated container system.

17

is likely to continue for up to 18
months, customer needs and future
business potential will be key factors
in all decisions.
The company has begun the process
DIVESTITURE
of selling a number of other assets,
By divesting non-core assets,
including its West Coast newsprint
Smurfit-Stone will significantly reduce
operations. It also intends to divest
debt. The company is aggressively
its woodlands. Smurfit-Stone owns or
pursuing that strategy with a focused,
leases 1 million acres of woodlands
disciplined restructuring effort and is
in Florida, Georgia, and Alabama.
projecting proceeds of approximately
$2 billion from asset sales. The sale of
Manage for Results
Stone’s Snowflake, Arizona, newsprint
facility and part of the stake in Abititi-
Consolidated have already raised In order to manage the company for
approximately $350 million that has results, Smurfit-Stone will leverage its
been applied to debt reduction. strengths and best practices and seek
In line with mill rationalizations, to realize the full potential of every
325,000 tons of unprofitable North business unit. Operations will improve
American market-pulp operations profitability by developing sales and
have been shut down. Additionally, marketing strategies to enhance mix
the specialty-pulp facility in Pontiac, and margins; improving processes and
Quebec, is expected to be sold in 1999. efficiencies to reduce costs; and taking
The remaining pulp line is a 350,000- advantage of the size and combined
ton plant in Panama City, Florida. scale of the new company.
Some of the pulp from Panama City Capacity issues are already being
may be used to expand the company’s addressed. The mill closures and plant
production of mottled white linerboard, consolidation will enable the company to
a higher-value product. focus its capital-expenditure program and
The company will continue to thereby limit future capital expenditures.
tighten its focus, gradually rationalizing
its corrugated container plants. Smurfit-
Stone’s intention is to maintain its
market leadership in the corrugated
container business, while reducing
redundant facilities. While this process


Widen the

COMPETITIVE
GAP
To become the best, as well as the market leader,
Smurfit-Stone will build stronger relationships with
customers through innovation, quality, and service;
meet and exceed customer expectations; solicit
customer feedback and ideas; provide best-possible,
low-cost packaging solutions; and understand and
meet the needs of the customers’ customer.

DISPLAY GROUP
The Richmond, Virginia, Display Group creates
custom point-of-purchase displays from concept
through production. With high-end graphics and
innovative construction, these displays add value
to the line of corrugated products offered to
customers. The Display Group enjoys industry-wide
recognition, having received numerous
awards for its creativity in design, as
well as excellence in manufacturing.

HENDERSONVILLE TUBE AND CORE FACILITY
Quick Grab™ cores are inspected for consistency in catch
points by Jason Strickland as they come down the winding line
at Smurfit-Stone’s Hendersonville, North Carolina, tube and
core facility. Quick Grab™ is a unique core that
allows non-woven and spun material to cling easily,
thus eliminating the cost and use of tape as an
adhesive.

20

The company plans to leverage past
capital investments in the container
business to take it to a new level of
performance. By balancing the
$80 million. In addition, Smurfit-Stone
container/containerboard side of the 1998
should obtain approximately $30
business, Smurfit-Stone can lead the

STONE CORPORATE BUILDING IN CHICAGO MORE THAN 8 TIMES. MORE THAN 3.7 BILLION
SSCC MANUFACTURED ENOUGH MICROWAVE POPCORN BAGS IN 1998 TO FILL THE SMURFIT-

M U LT I W A L L A N D 6 B I L L I O N C O N S U M E R B A G S W E R E PA C K E D I N T H E U . S . I N 1 9 9 8 .
million in interest expense savings
industry in a new direction and create
related to working capital reductions
an attractive investment vehicle.
as financial disciplines are redefined
Smurfit-Stone has set clear targets
and implemented.
in three critical financial areas — asset
Headcount is expected to be
divestitures, synergy achievements,
reduced by 3,600 of the 38,000
and debt reduction. These targets are
combined employees; it has already
viewed by the investment community
been decreased by 1,500, including
as important to the success of the
about 300 redundant corporate and
company, which will be singularly
administrative positions.
focused on achieving them over the
next 18-24 months.
Widening the
Smurfit-Stone is projecting
Competitive Gap
$350 million in annualized savings.
It is seeking $50 million in SG&A
savings by eliminating redundant Smurfit-Stone has a two-fold strategy
corporate overhead and overlapping for reinforcing its leadership position
functions. A portion of those savings in the industry: selling its full line of
has been already realized. products and services and widening
Manufacturing system optimization the gap between itself and its
should yield more than $180 million, competitors. It will accomplish these
which will take more time as the objectives through innovation, quality,
packaging side of the business is and service, known as IQS. The company
rationalized. Purchasing and logistical will support IQS by investing in training
leverage should produce another and innovation and providing superior
service through such vehicles as the
packaging solution centers, directed
at servicing major retailers.
Smurfit-Stone’s packaging solution
centers are unique to the industry.
Designed to meet the packaging

21

Build a Unified,
Cohesive Organization

Smurfit-Stone has an exceptional
needs of end-users — such as Wal-Mart opportunity to build a solid identity
Supercenters and Sam’s Warehouse and culture, based on the strengths
Clubs — these centers have dramatically and best practices of the new partners —
reduced the gap between packaging Jefferson Smurfit Corporation and
problems and solutions from six weeks Stone Container. This will require
to six hours. Superstore packaging a number of initiatives, such as
buyers have expressed a need for incorporating financial discipline
attractive, functional, stackable in order to manage leverage and
packaging in sizes that fulfill their spread cost over a greater number
customers’ requirements. By meeting of plants; providing sales incentives,
with a team of experts, buyers are able based on retaining high-margin business
to leave the center, that same day, and profit-margin performance; and
with a mock-up of the new packaging. investing in the maintenance and
The success of the IQS program has improvement of operations.
led to additional business opportunities One of the most daunting
and considerably increased higher- aspects of any merger is combining
margin sales. the assets, functions, and corporate
In business, where satisfying styles of two distinct organizations
customers is the goal, the company in order to create a single, corporate
will establish benchmarks, set goals structure. The first step will be to
for improvement, measure progress eliminate redundancies and apply
against those goals, re-evaluate its corporate resources more efficiently
progress in terms of continuous across all divisions. The company
improvement, and continue to survey has already embarked on a number
customers to validate its actions. of actions to achieve this objective.
Soliciting customer feedback, needs, It has established its corporate
and ideas will strengthen relationships
and further improve margins.
The company recently launched
another packaging solution center in
Seattle, Washington, to serve the pack-
aging needs of Costco, a warehouse club.


B u i l d a u n i f i e d,
COHESIVE

ORGANIZATION To build an integrated company, Smurfit-Stone
will optimize its financial discipline and marketing
strengths; eliminate redundancies and apply
resources across all divisions; create an environ-
ment in which people can learn, grow, and succeed;
and equip employees with appropriate and timely
training and fair compensation.

WABASH, INDIANA, BOXBOARD MILL
Marsha Strickler, a finisher at Smurfit-Stone’s
Wabash, Indiana, boxboard mill, moves a roll of
coated boxboard from storage to be shipped to
a converting plant, where it will be made into folding cartons.
The roll was produced under the company’s new stock optimization
system, which allows the mill to use old newspapers and residen-
tial mixed paper to produce coated boxboard — a more economical
fiber source than pulp substitutes used in the past.

M U LT I W A L L B A G S
Across the company, Smurfit-
Stone’s strict quality control
measures ensure that customers will receive consis-
tent, superior products each and every time. At the
Kansas City, Missouri, bag packaging plant, a press
operator checks the print quality of a multiwall bag to
guarantee a flawless image.

24

headquarters in Chicago and, to save
the cost and disruption of a major
relocation, also maintains offices at the
former Jefferson Smurfit Corporation
synergies, cost take-out, asset
sites in St. Louis, Missouri, and 1998
divestitures, and debt reduction.
Alton, Illinois.

SMURFIT-STONE MANUFACTURED ENOUGH
KITTY LITTER BAGS TO CARE FOR THE NEEDS
OF 4.4 MILLION CATS FOR A YEAR.
Long-term incentives will be based
Merging two distinct cultures is
on creating value.
another challenge. To that end, the
company is committed to building
a strong leadership team and to GUIDING STRATEGIES
encouraging every person at every Smurfit-Stone’s guiding strategy
level of the organization to understand, is to improve the financial performance
adopt, and practice the new organiza- of the combined company throughout
tion’s core values. Adoption of such the paper cycle by selling non-core
values can only be accomplished businesses — newsprint, pulp, and
through active engagement in open, woodlands — and focusing on
two-way communication, with packaging. Existing businesses tend
information flowing up and down to be balanced between those that
through easily accessible channels. are influenced by large fluctuations
Several programs are already in in price, such as corrugated containers,
place to enhance internal and and those that have had a history
external communications. of steady earnings, such as folding
A third critical focus will be on cartons, industrial bags, and specialty
providing appropriate and timely packaging.
training and fair compensation, The company now has an
based on achievement of corporate opportunity to smooth out the
goals. Smurfit-Stone has created instability of earnings by managing
new incentive plans for 1999 and the supply side of its business. By
beyond. Short-term incentives will strengthening some of the less cyclical
be driven by earnings, achievement of businesses, avoiding losses during
periods of downturn, and creating a
steadier earnings environment through
balancing the company’s own supply
and demand, Smurfit-Stone should
become very attractive to long-
term investors.

25

SMURFIT-STONE CONTAINER CORPORATION

BOARD OF DIRECTORS Lane W. Hunter John E. Davis
William N. Wandmacher
Vice President and Vice President,
Vice President and General
Raymond M. Curran
Regional Manager Forest Resources
Manager, North American
President and CEO,
Containerboard Mill and
Smurfit-Stone Container Jack B. Malloy Alain Dubuc
Forestry Resources Division
Corporation Vice President and Vice President, Mill Operations,
Regional Manager Northern Region
John D. Bence
Richard A. Giesen
Vice President and
Chairman and CEO, James A. McNeill
General Manager, Bag Packaging Division
Continental Glass & Plastics, Inc. Vice President and
European Operations
Regional Manager John Moran
Alan E. Goldberg
Vice President,
Lorne Parnell
Managing Director, Rodney A. Myers
Marketing and
Vice President,
Morgan Stanley & Co., Inc. Vice President and
Specialty Bag Packaging
Pacific Operations
Regional Manager
Richard W. Graham
Victor E. Kendall
Jose A. Santos
Retired President and CEO, Donald A. Petri
Vice President and Manager,
Vice President,
Smurfit-Stone Container Vice President and
Corporate Sales
Latin American Operations
Corporation Regional Manager
Jerry Roeske
Michael F. Harrington
James J. O’Connor Daniel G. Ruth
Vice President and Manager,
Vice President,
Retired, Vice President and
Corporate Sales
Employee Relations
Unicom/Commonwealth Edison Regional Manager
James A. Hayssen
Jerry K. Pearlman James S. Willis Folding Carton and
Vice President,
Retired, Vice President and Boxboard Mill Division
Information Technology
Zenith Electronics Corporation Regional Manager
Richard A. Buckman
Charles A. Hinrichs
Thomas A. Reynolds, III Roger W. Clingerman Retired, Vice President,
Vice President and Treasurer
Partner, Vice President and General Sales and Marketing
Winston & Strawn Manager, Corporate Accounts
Craig A. Hunt
J. Gregor Doman
Vice President,
Dermot F. Smurfit William J. Klaisle Vice President, Sales
Secretary and General Counsel
Joint Deputy Chairman, Vice President and
Larry D. Fielder
Jefferson Smurfit Group plc Managing Director,
Paul K. Kaufmann
Smurfit-Stone Global Services
Vice President and Controller
Dr. Michael W. J. Smurfit Manager, Paper Can
Chairman and CEO, Michael S. Rose
Allen M. Koleff
John E. Straw
Jefferson Smurfit Group plc Vice President,
Vice President,
Vice President and Regional
International Sales Development
Environmental Affairs
General Manager, Eastern Region
CORPORATE OFFICERS Jerry D. Suiter
Leslie T. Lederer
Curtiss M. Komen
Vice President, Director
Vice President, Strategic
Dr. Michael W. J. Smurfit Vice President and Regional
of Manufacturing
Investment Dispositions
Chairman of the Board Manager, Western Region
Emil B. Winograd
Timothy J.P. McKenna
Raymond M. Curran David J. Pietrowicz
Vice President,
Vice President, Investor
President and CEO Vice President and Regional
Sales and Marketing
Relations and Communications
Manager, Central Region
Patrick J. Moore
Robert A. Guillou
Thomas A. Pagano
Vice President and CFO Nathan S. Holmes
Vice President,
Vice President, Planning
Corporate Sales Group
Peter F. Dages
Thomas G. Pavlini Manager, Boxboard Mills
Vice President and
Vice President, Distribution
General Manager, Containerboard and Pulp
Corrugated Container Division Specialty Packaging Division
Gayle M. Sparapani Sales/Marketing and
Vice President, Logistics Division George Q. Langstaff
James D. Duncan
Compensation and Benefits
Vice President,
Vice President and Peter Butier, Jr.
Converting and Marketing
General Manager, John F. Allgood Vice President,
Specialty Packaging Division Assistant Secretary Domestic Sales
Recycling Division
Gordon L. Jones Richard P. Marra Larry L. Burton
Vice President and Assistant Treasurer Vice President, James M. Clayton
General Manager, Domestic Sales Vice President,
Ronald J. Megna
Containerboard and Pulp Mill Fiber Procurement
Assistant Secretary Jay D. Polen
Sales/Marketing and
Vice President, Michael R. Oswald
Logistics Division
Logistics Vice President, Operations
DIVISION OFFICERS
Jay D. Lamb
Hans Maters
Vice President and
Smurfit Newsprint Corporation
Vice President,
General Manager, Corrugated Container Division
Export Sales
Smurfit Newsprint Corporation George R. Lowe, Jr.
James P. Davis
Richard Kirk
Vice President and Area Manager
F. Scott Macfarlane
Manager, Newberg Mill
Vice President,
Vice President and
William G. Eustice Worldwide Pulp Sales
General Manager, Michael A. Siebers
Vice President and Area Manager
Folding Carton and
Manager, Oregon City Mill
Boxboard Mill Division Containerboard Mill Division
LeRoy R. Crocker
Vice President and
W.G. Stuart Jon E. Melkerson
John M. Riconosciuto
Regional Manager
Vice President, Vice President,
Vice President and
Mill Operations, Sales and Marketing
General Manager, John J. Curry, Jr.
Vice President and Central Region
Bag Packaging Division
Fran J. Ostlund
Regional Manager
Controller and Assistant
Wayne S. Barlow
David C. Stevens
Vice President, Secretary
Vice President and Stephen P. Folan
Vice President and Mill Operations,
General Manager,
Regional Manager Southern Region
Smurfit Recycling Company Research and Development
Division
James A. Henderson Chuck Timko
Vice President and Vice President, Joseph V. LeBlanc
Vice President
Regional Manager Engineering Services

26 1 9 9 8 A N N U A L REP ORT B OAR D OF D IR ECTOR S A ND CORPORAT E AND DIVISION OFFICERS

STOCKHOLDERS’ INFORMATION

Stockholders’ Annual Meeting
May 27, 1999 at 1:00 p.m.
Renaissance St. Louis Hotel – Airport
9801 Natural Bridge Road
St. Louis, Missouri 63134

Registrar and Transfer Agent
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
www.chasemellon.com
Telephone: 888-213-0965

Common Stock
Smurfit-Stone Container Corporation Common
Stock is traded on The Nasdaq Stock Market
under the symbol: SSCC

For Investor Information Contact
Investor Relations and Communications
Smurfit-Stone Container Corporation
8182 Maryland Avenue
St. Louis, Missouri 63105
Telephone: 314-746-1223
Fax: 314-746-1347
Timothy McKenna,
Vice President, Investor Relations
and Communications
314-746-1254
312-580-4736

Corporate Office
Smurfit-Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601-7568
Telephone: 312-346-6600
D E S I G N : P R O W O L F E PA R T N E R S , ST. LO U I S , M I S S O U R I

150 North Michigan Avenue
Chicago, Illinois 60601-7568
(312) 346-6600

SMURFIT- STONE ASPIRES TO BE THE ACKNOWLEDGED

U.S. LEADER IN PAPER - BASED THE ACKNOWLEDGED
OUR MISSION IS TO BE PACKAGING. AS SUCH, WE

STRIVE TO BE A FINANCIALLY SOUND AND DYNAMIC
U.S. LEADER IN PAPER-BASED PACKAGING. AS
ORGANIZATION KNOWN FOR OUR INNOVATIVE PACKAG-

ING SOLUTIONS; SUPERIOR FINANCIALLY SOUND
SUCH, WE STRIVE TO BE A PRODUCTS; CUSTOMER
RESPONSIVENESS; AND QUALIFIED, COMMITTED PEOPLE.
AND DYNAMIC ORGANIZATION, KNOWN FOR OUR

INNOVATIVE PACKAGING SOLUTIONS, SUPERIOR

PRODUCTS, CUSTOMER RESPONSIVENESS, AND

Q UALI F I ED, CO M M I T T E D P E OP L E .

smurfit stone container 1998_AR

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