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  • 1. S M U R F I T- S T O N E C O N TA I N E R C O R P O R AT I O N 2001 ANNUAL REPORT one
  • 2. one Commitment 7 one Focus 9 one Company 11 one Strategy 15 Smurfit-Stone Smurfit-Stone at a Glance Foldout 2001 Financial Highlights 1 Letter to Shareholders 2 Board of Directors and Officers 17 Smurfit-Stone Form 10-K 18 Stockholder Information Inside back cover
  • 3. Smurfit-Stone Container Corporation Smurfit-Stone’s folding cartons are used to package everything from food is the industry’s leading integrated products to pharmaceuticals. We also offer a full range manufacturer of paperboard and of services for creating the perfect packaging solution. packaging. Smurfit-Stone is a leading producer of containerboard, including white top linerboard and recycled medium; corrugated containers; multiwall bags; clay-coated recycled boxboard; solid bleached sulfate; Brand messages don’t stop with packaging. They folding cartons; paper tubes and cores; are carried through on the shipper trays, countertop, and labels. In addition, Smurfit-Stone end-aisle, and retail-ready displays. Our design group specializes in display is the world’s largest paper recycler. solutions. TM Lithoflute, bag packaging, labels, laminations and The company operates about 300 flexible packaging are just some of the product lines that comprise our consumer facilities worldwide and employs packaging division, which can deliver an unmatched approximately 38,500 people. portfolio of primary packaging solutions to customers. A sense of pride and ownership by employees helps Smurfit-Stone achieve unparalleled levels of quality and service. We partner with customers to provide all the resources to help build brand awareness and meet market objectives. In today’s retail environment, packaging must have aesthetic appeal. Smurfit- Stone delivers high-impact packaging that creates added marketing value.
  • 4. S M U R F I T- S TO N E AT A G L A N C E CONTAINERBOARD AND CORRUGATED CONTAINERS CONSUMER PACKAGING RECYCLED FIBER 2001 Revenues . . . . . . . . . . . . . . . . . . . . . $5,744 million 2001 Revenues . . . . . . . . . . . . . . . . . . . . . $1,767 million 2001 Revenues . . . . . . . . . . . . . . . . . . . . . $274 million 2001 North American Production (Units in M Tons) 2001 Shipments and Production (Units in M Tons) 2001 Volume (Units in M Tons) Containerboard . . . . . . . . . . . . . . . . . . . . 6,640 Folding cartons sold . . . . . . . . . . . . . . . . . 523 Recovered fiber collected . . . . . . . . . . . . . 6,714 Solid bleached sulfate (SBS) Multiwall bags sold . . . . . . . . . . . . . . . . . 256 and bleached paperboard . . . . . . . . . . . 306 Tubes and cores sold . . . . . . . . . . . . . . . . 141 DESCRIPTION Market pulp . . . . . . . . . . . . . . . . . . . . . . . 545 Clay-coated recycled boxboard Smurfit-Stone’s recycling division provides a secure source of recovered fiber for the Kraft paper . . . . . . . . . . . . . . . . . . . . . . . . 287 produced . . . . . . . . . . . . . . . . . . . . . . . . 569 company’s mills and has a broad product line that includes all grades of recovered Uncoated recycled boxboard produced . . 118 Corrugated containers sold . . . . . . . . . . . 79.1 billion square feet paper. Smurfit-Stone waste reduction services provides single-source waste manage- ment and recycling solutions to businesses. DESCRIPTION DESCRIPTION The consumer packaging division offers a wide portfolio of primary packaging Containerboard and corrugated containers represent Smurfit-Stone’s largest PRODUCT LINES products and solutions that includes folding cartons, multiwall and specialty bags, business segment, with 69 percent of the company’s sales. This segment supplies Old corrugated containers Coated book stock flexible packaging, LithofluteTM labels, and industrial packaging products. The various , hundreds of national and international manufacturers, as well as thousands of operations within this business segment share many of the same customers and serve Old newspapers Double-lined kraft corrugated cuttings local and regional customers. the same consumer product markets, with high-graphics printing as a core manufactur- Mixed papers Sorted white ledger ing competency. With cross-trained sales teams supported by creative and technical PRODUCT LINES Magazines Hard white shavings resources, the consumer packaging division delivers added value to its customers. Sorted office paper Aluminum cans, glass, and plastic Unbleached kraft linerboard Market pulp PRODUCT LINES White top linerboard Export-specific linerboard, INDUSTRY POSITION including SBS, white top, and Coated white top PaperCanTM Folding cartons high-performance grades World’s largest paper recycler Bleached paperboard Bag packaging Clay-coated recycled boxboard Semi-chemical and recycled medium, Solid bleached sulfate Flexible packaging Uncoated recycled boxboard including high-performance grades FACILITIES Kraft paper Labels Tubes and cores 23 reclamation plants Laminations Partitions CAPABILITIES 1 waste reduction services office TM Lithoflute 9 brokerage offices Full range of high-quality Full line of specialty products and CAPABILITIES corrugated containers custom, die-cut boxes to display packaged merchandise Innovative packaging solutions and LithofluteTM: combines corrugated Folding carton converting capabilities high-quality graphics Graphic capabilities include include gluing, tray forming, windowing, strength with folding carton graphics pre-print and post-print flexography, waxing, and laminating printability Point-of-purchase display design label applications and manufacturing Labels: foil, printed paper and heat- Bag packaging: multiwall, consumer, transfer labels, including high-speed specialty, and flexible intermediate heat-transfer labels for plastic containers bulk containers INTERNATIONAL AND OTHER INDUSTRY POSITION Laminations: film, foil, and paper Plastic sacks and coextruded 2001 Revenues . . . . . . . . . . . . . . . . . . . . . $592 million Largest containerboard producer performance films Flexible packaging: polyethylene bags, 2001 Production (Units in M Tons) Largest white top linerboard producer pouches, and sheeting and tubing Containerboard . . . . . . . . . . . . . . . . . . . . 411 Largest corrugated container supplier Coated recycled boxboard . . . . . . . . . . . . 78 INDUSTRY POSITION Corrugated containers sold . . . . . . . . . . . 12.3 billion square feet FACILITIES A leading supplier of folding cartons 5 strategically located CustomerONETM 21 paper and paperboard mills DESCRIPTION Largest manufacturer of multiwall bags Packaging Centers 1.1 million acres of Canadian timberland Largest producer of clay-coated recycled boxboard Our international operations, which produce containerboard, coated recycled boxboard, 144 corrugated container plants and corrugated containers, are located predominantly in Europe. A leading producer of paper tubes and cores Smurfit-Stone owns 50 percent of Smurfit-MBI, Canada’s second-largest corrugated container producer. Jefferson Smurfit Group plc owns the other 50 percent. FACILITIES 18 tube and core facilities 3 lamination facilities 17 folding carton plants 3 partition plants 12 bag packaging plants 3 uncoated, recycled board mills 5 flexible packaging facilities 2 pre-press operations 4 label plants 2 contract packaging plants 1 PaperCanTM plant 4 clay-coated recycled boxboard mills 4 technical and graphics centers 1 bag packaging equipment facility
  • 5. S M U R F I T- S TO N E 20 01 F I N A N C I A L HIGHLIGHTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000 1999 Summary of Operations Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,377 $ 8,796 $ 7,423 Income from operations . . . . . . . . . . . . . . . . . . . . . . . 623 939 869 Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . (455) (527) (563) Income from continuing operations before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . 83 219 163 Net income available to common stockholders . . . . . 66 224 157 Basic Earnings per Share Income from continuing operations before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . $ .30 $ .94 $ .75 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 .96 .72 Weighted average shares outstanding (in millions) . . 244 233 217 Diluted Earnings per Share Income from continuing operations before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . $ .29 $ .93 $ .74 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 .96 .71 Weighted average shares outstanding (in millions) . . 245 234 220 Other Financial Data Net cash provided by operating activities . . . . . . . . . . $ 598 $ 807 $ 183 Capital investments and acquisitions . . . . . . . . . . . . . 232 994 156 Net working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 470 73 Property, plants, equipment and timberland, net . . . . 5,426 5,670 4,419 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,652 11,195 9,859 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,966 5,342 4,793 Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . 2,485 2,528 1,847 Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . 38,500 39,700 36,300 S M U R F I T- S T O N E 2001 PAG E N O . 1 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 6. L E T T E R TO SHAREHOLDERS Dear Shareholder, Our accomplishments in 2001 mark a turning point for our relatively young but highly experienced company. In the nearly three-and-a-half years since Jefferson Smurfit Corporation and Stone Container Corporation merged, we have staked a claim to leadership in paper-based packaging. We developed a new operating model that emphasizes profitability throughout the economic cycle and focuses on leadership qualities such as disciplined operating and financial management, safety, customer satisfaction, and shareholder value. The validity of that strategy is evident in Smurfit-Stone’s An important source of earnings has been synergies performance. We maintained profitability in 2001 in from integrating major acquisitions. We achieved approx- the face of an almost 6 percent drop in demand for the imately $60 million in synergies after the acquisition corrugated container industry — the worst performance of St. Laurent Paperboard Inc. on top of the $350 million in 20 years and the first time in 25 years that demand targeted and realized in the combination of Jefferson declined two years in a row. From the 1998 merger Smurfit Corporation and Stone Container. through year-end 2001, our stock value increased In 2001, we benefited from declining interest rates 23.4 percent compared with a 10.8 percent rise in the and refinancings undertaken early in the year to simplify Dow Jones Industrial Average and a slight decline for our balance sheet and reduce interest costs. The refi- peer companies. nancings resulted in annualized interest savings of In the face of substantial economic and market $25 million. Continued debt reduction also contributed to challenges, we remain intent on fully integrating our the $72 million decrease in interest expense. We have no operations and wringing additional costs from our significant maturities until 2003, but will continue to seek structure. The continuing strength of the dollar and the ways to refinance our debt and build financial flexibility. persistent manufacturing recession provide even more We continue to maintain capital expenditures at reason for this focus. By managing our resources as an reduced levels while pursuing growth-related business integrated system and capitalizing on the strengths that initiatives. Capital expenditures in 2001, excluding we have assembled, we are positioning Smurfit-Stone acquisitions, totaled $189 million. The 2000 amount, to improve growth when the economy and our markets excluding acquisitions, was $363 million, which reflected turn upward. a higher-than-usual level of environmental compliance spending in our mill system. We expect to keep capital expenditures well below depreciation levels in 2002. CA P I TA L I Z I N G O N S T R E N G T H S As a result of this cost and capital discipline, we By any measure, 2001 was a difficult year for our continued to generate significant free cash flow to business. Even so, Smurfit-Stone’s commitment to reduce debt. At December 31, 2001, outstanding debt achieving profitability throughout the economic cycle was just under $5 billion, a reduction of $376 million delivered earnings of $66 million, or $0.27 per diluted from the prior year. share, on sales of $8.4 billion. In 2000, income available to common shareholders was $224 million, or $0.96 per diluted share, and sales were $8.8 billion. PAG E N O . 2001 S M U R F I T- S T O N E 2 A N N UA L R E P O R T C O N TA I N E R C O R P O R AT I O N
  • 7. PATRICK J. MOORE President and Chief Executive Officer MICHAEL W. J. SMURFIT Chairman of the Board Underlying the difficult conditions in our business Despite the economic downturn and shrinking was a 3.9 percent decline in U.S. industrial production demand, prices have remained relatively stable compared in 2001, also the worst in 20 years. These conditions to past downturns. Our corrugated container prices caused us to shift our approach to managing downtime. declined 3 percent on average in 2001 compared to We now select paper machines for indefinite closure 2000. Prices for folding cartons rose 3 percent, reflecting based on market conditions and cost structure, rather an improved product mix. than following the traditional practice of taking recurring outages in response to market challenges. TRANSITIONS In the past three-and-one-half years we have shut In January 2002, Ray Curran retired as chief executive down 1.8 million tons of inefficient production capacity, officer and a member of the board of directors. Patrick J. including closing six mills representing almost 19 percent Moore, who as Smurfit-Stone’s chief financial officer of our total 1998 capacity. We also closed more than a took a leadership role in cost reduction programs and dozen container facilities, focusing primarily on markets efforts to strengthen the balance sheet, succeeded him. where we had overlapping operations following the Charles A. Hinrichs, who had been vice president and merger. These actions have helped us produce to orders treasurer, succeeded Pat as vice president and CFO. In rather than build inventory and have contributed sig- addition, James P. Davis, who had been an area manager nificant cost savings. in the corrugated container division, was promoted to Our North American containerboard production in vice president and general manager. 2001 was 6.6 million tons, or about 85 percent of present William N. Wandmacher continues to run our capacity. We consume about three-fourths of that pro- containerboard mill and forest resources business and duction in our own converting operations and sell the in 2001 added the containerboard sales function to rest on the open market. We are the largest supplier to his responsibilities. Our recycling operations provide independent corrugated container producers in North necessary raw materials for our mills, and David C. America and remain committed to that market. The Stevens continues to lead our recycling business. acquisition of St. Laurent Paperboard in 2000 enhanced our ability to deliver higher-grade, higher-margin paper- board and packaging. S M U R F I T- S T O N E 2001 PAG E N O . 3 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 8. In addition to Patrick J. Moore, (facing page) the company’s Executive Committee CHARLES A. HINRICHS members are (left to right): Vice President and Chief Financial Officer JOHN M. RICONOSCIUTO Vice President of Operations, WILLIAM N. WANDMACHER Consumer Packaging Division Vice President and General Manager, Containerboard Mill and F. SCOTT MACFARLANE Vice President and Forest Resources Division General Manager, Consumer Packaging Division JAMES P. DAVIS Vice President and General Manager, Corrugated Container Division We combined several product groups early in 2002 PRIORITIES FOR 2002 to form a new division that includes our folding carton, Smurfit-Stone has made exceptional progress in the multiwall bag, flexible packaging, label, lamination, most demanding business environment in more than tube and core, and partition operations. These businesses two decades. 2002 promises further economic challenges. produce high-graphics packaging as a core manufacturing We will continue to pursue leadership strategies. competency and share many of the same customers. Along with making sure we have the capabilities F. Scott Macfarlane heads up this consumer packaging to meet our customers’ expectations, we are focused division, with John M. Riconosciuto managing the on leveraging the system we have built to maximize the manufacturing processes in this portion of our business. efficiency of our asset base. The scale of our container- The reorganization streamlines our operations and gives board operations allows us to manufacture the right customers one point of contact across all packaging products, on machines best suited to that process, in product lines. the best location. This gives us an advantage in applying Corrugated containers, or secondary packaging, our system’s flexibility and improving supply chain satisfy a wide range of customer needs such as package management. We will pursue additional opportunities strength, cost, efficiency, and point-of-purchase appeal. to leverage the system. Since the 1998 merger, we have created and fine tuned Economic conditions are likely to force continued the industry’s largest containerboard and corrugated mill downtime, as we remain committed to producing container system. Pat Moore has assembled the team to customer demand. We will continue to make these that will direct the entire system — mills, board sales, decisions with an eye on meeting customers’ needs and and corrugated production and marketing. The aim is to an ability to grow when the business climate improves. increase market share around the needs of our customers. Although we are cautious about macroeconomic factors in the near term, we have set aggressive sales targets and are encouraging rational growth initiatives across our businesses even as we push for greater efficiency and lower costs. PAG E N O . 2001 S M U R F I T- S T O N E 4 A N N UA L R E P O R T C O N TA I N E R C O R P O R AT I O N
  • 9. Safety remains our top operating priority. By following Smurfit-Stone’s considerable strengths and our the precepts of our Smurfit-Stone Accident-Free Environ- commitment to making our organization even better ment, or SAFE process, we achieved the industry’s top give us confidence that we can cope effectively with ranking among major paperboard packaging companies significant challenges. We continue to deliver higher in 2001 in terms of incidents reported under guidelines customer value. That, along with the commitment of of the Occupational Safety and Health Administration. our employees and our disciplined approach to financial We are proud of our No. 1 ranking, but we continue to and operational management, represents the foundation strive to meet the goal of eliminating accidents. for increasing shareholder value. We are encouraged The SAFE process of shared goals and responsibility by the accomplishments of 2001 and look forward to offers a prototype for building a workplace in which continued progress in 2002. continuous improvement is normal operating procedure, supported by comprehensive employee training. The process puts into practice the values of quality, safety, customer satisfaction, value creation, ethical behavior, productivity, and environmental responsibility that express CustomerONE, our operating philosophy. Michael W.J. Smurfit TM Our major financial goals continue to be debt reduction, Chairman of the Board maintaining financial flexibility, and enhancing share- holder value. The market environment will continue to be tough. The United States and substantial portions of the global economy have been in a recession, exacerbated by global tensions and the events of September 11. Patrick J. Moore We remain committed to the strategic direction we President and Chief Executive Officer adopted in 1998 when we combined Jefferson Smurfit Corporation and Stone Container. S M U R F I T- S T O N E 2001 PAG E N O . 5 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 10. Smurfit-Stone has a proven track record for bringing better packaging value to customers. For example, our corrugated container division manages packaging for Home Depot’s imported private label brands across several categories, includ- ing indoor/outdoor lighting, ceiling fans, bathroom fixtures, and vinyl floor tile. We worked with Home Depot to develop the right packaging solution for its private label floor tile. Sales for Home Depot’s private label floor tile have increased more than 200 percent since the new packaging was implemented. At left: Smurfit-Stone’s Duane Luckie (sitting), director of operations, Bentonville, Arkansas, and Home Depot’s Ed Smith, global support packaging and graphics manager.
  • 11. { one Commitment Not since the early 1980s has the packaging industry In that spirit, we are implementing a long-term vision faced an economic environment as difficult as the that positions our business for accelerated profitable downturn that started in the second half of 2000. growth and an increased presence among top-tier North U.S. manufacturing, Smurfit-Stone’s key market for American manufacturers. We aim to emerge from these corrugated containers, slid into negative growth difficult times a stronger company, well-positioned to months before the recession’s official start and has capitalize on opportunities, setting the pace in an industry yet to pick up. The sustained strength of the dollar where market expectations quickly change. against other currencies continues to make domestic We are committed to being not only the premier paper products less competitive in the global market. One and packaging company but also one of the best large measure of how these trends affect our industry: box industrial companies in North America. We are convinced shipments declined 5.8 percent in 2001, the biggest that our commitment to quality, customer satisfaction, year-over-year decrease in 20 years and the only and operating excellence will fulfill the expectations of two-year slide in annual shipments in 25 years. our customers, who demand exceptional value in products Just maintaining a steady stream of business could and services. We believe that our commitment to provide be deemed acceptable in these tough times. That’s employees with a stimulating working environment, safe not good enough for Smurfit-Stone. We believe it is surroundings, and fair compensation in exchange for our responsibility to help shape the future in ways their talents will help us recruit and retain the best in that deliver value for customers and shareholders, and our industry. We trust that our commitment to be a good make ourselves a supplier and employer of choice. corporate citizen and environmental steward will help guide us in continuing to bring value to the communities in which we operate. We further believe that our commit- ment to maintaining financial discipline will deliver value to investors, who press for continuing growth, sustained profitability, and superior returns. { Our North Chicago corrugated container plant consistently is among our highest volume facilities while utilizing minimal equipment capital expenditures. The reason? Continuous innovation and process improvement by all employees. In the large photo at left, Cesar Rosario helps ensure that the bundling process operates smoothly. S M U R F I T- S T O N E 2001 PAG E N O . 7 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 12. We combined several product groups early in 2002 in a new division that includes our folding carton, multiwall bag, flexible packaging, label, lami- nation, tube and core, and partition operations. Many of these businesses produce high-graphics packaging as a core manufacturing competency and share many of the same customers.
  • 13. { one Focus Throughout Smurfit-Stone, we are assessing strengths The ability to assess acquisition fit and achieve and sharpening our understanding of the most effective related synergies represents a core competency for ways to apply our capabilities. In a sector of the economy Smurfit-Stone. Acquisitions, both large and small, are that saw the recession coming earlier than most, our evaluated on their ability to strengthen product lines, strategy has been tested and proven solid as we main- extend operating flexibility, improve scale, and achieve tained profitability in the worst demand year in 20 for cost savings. the paper and packaging industry. That tells us that we Smurfit-Stone has built a solid track record of cash are not just surviving but moving forward. Our progress and financial management capabilities. This expertise rests on a number of strengths. has enabled us to take advantage of refinancing opportu- Smurfit-Stone is the leading producer of corrugated nities, reduce overall interest expense, and accelerate debt containers, containerboard, and multiwall bags; the reduction. We will continue to build financial flexibility world’s largest paper recycler; and a leader in folding car- and maximize our competitive advantage in these areas. tons. With our focus on growth, we intend to strengthen To succeed as a top-tier company, we must control our leadership in packaging product lines where we set costs, particularly in these challenging economic times. the market pace as well as those in which we are not No. 1. We are constantly assessing internal processes to keep We measure our success against this initiative in part pace with technological advances and reduce admin- through customer service and product quality, as well as istrative costs. We are streamlining processes and order volume and margin. To that end we have implemented management to make it easier for customers to do performance excellence standards across our operations. business with Smurfit-Stone. And we are leveraging Our extensive capabilities in primary and secondary our purchasing scale to maximize supply chain efficiency. packaging mean we can serve large national customers As we work to implement these strategies, we will as well as broaden local and regional relationships. continue to focus on safety as our top operating priority. We are dedicating resources to capture market niches through product development and add-on acquisitions. { Providing total packaging solutions and adding value to our customers’ products set Smurfit-Stone apart from our competitors. Our Stone Mountain, Georgia, folding carton facility is renowned for its high level of customer service and satisfaction. In the large photo at left, Shawn Newman inspects cartons as they come off the diecutter. S M U R F I T- S T O N E 2001 PAG E N O . 9 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 14. Smurfit-Stone’s board sales group is dedicated to serving the independent corrugated container market. Our board sales technical services team brings together a wide range of packaging experts who work with containerboard mill personnel and field sales managers to aggressively seek out ways to support customers by phone, e-mail, or on site.
  • 15. { one Company Our CustomerONE philosophy ties internal processes Looking at our business from the customers’ per- TM to market realities. CustomerONE focuses on delivering spective led us to combine our consumer packaging TM value to all four of our key constituencies: customers and specialty packaging divisions, a transition begun in and business partners, employees, shareholders, and early 2002. This single operating unit better positions the the communities in which we live and work. group to serve customers who increasingly want to do CustomerONE recognizes that each task or trans- business with one provider capable of delivering a broad TM action represents an opportunity to deliver an excellent array of packaging products. Combining these operations customer experience. Meeting customer service goals delivers a more effective sales process, reduces control- requires a market-driven mindset of adding value for lable costs, and enhances manufacturing efficiencies by customers, not just delivering product, and making having one management team responsible for leveraging products customers want, not just trying to sell them the division’s core competencies in high-graphics printing. what we make. Smurfit-Stone has the broadest range of packaging substrates in the industry, including kraft AC Q U I S I T I O N S and white top linerboard, solid bleached sulfate, bleached Product innovations, add-on acquisitions to complement paperboard, coated white top, coated and uncoated recy- existing manufacturing capabilities, and sales and market- cled boxboard, and multiwall bag papers. These product ing synergies are other ways Smurfit-Stone builds on our lines likewise allow us to offer the industry’s broadest leadership role while focusing on providing packaging range of packaging alternatives to our customers. solutions to our customers. During 2001, we enhanced our graphics capabilities by purchasing a pre-print facility in Atlanta. Corrugated containers — part of our largest business segment — also expanded its bulk laminating capabilities. { Our Florence, South Carolina, containerboard mill has the highest operating efficiency of the 21 mill facilities in our system. Employees such as Linda Freeman (large photo at left) constantly review their processes as they work toward the objective of overall machine efficiency to deliver the highest quality product to our customers. S M U R F I T- S T O N E 2001 PAG E N O . 11 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 16. INNOVATIVE MANUFACTURING KIRBY DALEY Foreman IN BATHURST, NEW BRUNSWICK Electrical and The strong dollar, combined Instrumentation Dept. with an extended manufacturing Bathurst Mill recession, has created capacity management challenges for ANNE HECKBERT Personnel Clerk Smurfit-Stone’s containerboard Bathurst Mill mills. Since the 1998 merger of Jefferson Smurfit Corporation and Stone Container Corporation, and the subsequent 2000 acquisition of St. Laurent Paperboard, We purchased a rotogravure press for our Another way Smurfit-Stone reaches out to customers DI-NA-CAL® heat transfer label operations to add is through our recently expanded and enhanced web site. production capacity and improve turnaround time At www.smurfit-stone.com, visitors can click on direct for our customers. DI-NA-CAL® also introduced label links to our extensive collection of packaging resources. design technology that virtually eliminates product The site helps customers find solutions and information counterfeiting. In 2001, we acquired a multiwall bag on packaging options that they may not have considered. packaging operation in Eastman, Georgia. The plant integrated quickly within the Smurfit-Stone system and M A N U F AC T U R I N G P R O C E S S E S expanded our geographic reach. In the second half of Just as CustomerONE is bringing a unified mindset TM 2001, we extended our flexible packaging capabilities to our sales and marketing efforts, it is fostering creative with the addition of the Toronto plastic bag manufac- thinking in our operating decisions. turing facility of A.T. Plastics, which manufactures The strategic shift in our containerboard mill system plastic sacks and coextruded performance films. from a traditional volume orientation to one which We have renewed our focus on sales and marketing focuses on overall machine efficiency and lower produc- to promote Smurfit-Stone’s full complement of packaging tion costs is helping meet the challenge of managing sub- solutions capabilities, generate new sales leads, and stantial downtime brought about by the weak economy. cultivate cross-selling opportunities. One example of Our downtime strategy has proven effective on a system- cross-selling is the cooperative effort among the corru- wide basis. This was especially true when energy costs gated container division’s pre-print and display group spiked up and made a particular paper machine too operations and consumer packaging’s Lithoflute group TM expensive to operate. That machine was quickly shut that has created our Fluted High Graphics team. This down and production shifted to a more cost-effective team specializes in innovative packaging and promotion machine in the system. solutions that use advanced graphics and printing We use sophisticated supply chain management tools techniques. to improve efficiency. Our supply chain is improving the entire scope of mill product manufacturing, including coordinated internal and external containerboard orders, raw material procurement and delivery, and finished product distribution. PAG E N O . 2001 S M U R F I T- S T O N E 12 A N N UA L R E P O R T C O N TA I N E R C O R P O R AT I O N
  • 17. Smurfit-Stone has been committed to producing containerboard to orders, rather than building inventory. Our Bathurst, New Brunswick, mill has been among ALBAN ST. PIERRE Technical Assistant our most innovative in dealing Utility Group with the challenges of market Bathurst Mill BRYAN SCOTT constraints and achieving overall Mechanical Foreman machine efficiency. Bathurst Mill We constantly evaluate our manufacturing processes. F I S CA L S T R U C T U R E For example, the Bathurst and Matane mills revised We are targeting reductions in selling, general and the method of scheduling machine downtime for administrative expenses as a percentage of sales through maintenance from typical 12-hour blocks to variable streamlining processes and creating greater efficiencies periods based on how long it takes to complete the without sacrificing effectiveness or inhibiting growth task. The conventional approach often delayed standard initiatives. We are investing in technology to improve maintenance items because they couldn’t be completed internal and external transaction processes. Besides in the time allotted. Now we plan for 36 to 48 hours delivering savings, the process concentrates on putting of downtime to minimize the maintenance carryover. resources to use in ways that affirm Smurfit-Stone’s As a result, machines come back on line more efficiently, market leadership position and generates profitable manufacturing quality is more consistent, and more of growth as the market improves. the maintenance is completed by our employees rather The budget process is another tool we are using than contract labor. to align the strengths of the expanded Smurfit-Stone Being the world’s largest paper recycler gives system. We are moving toward a business improvement Smurfit-Stone the advantage of a guaranteed recycled process directly related to value creation by more quickly fiber supply for our mills. Similarly, a large proportion recognizing target variances, potential pricing deteriora- of the linerboard we manufacture is converted in our tion, and opportunities to manage controllable costs. own corrugated container plants. Our goal is to be Smurfit-Stone brings together the legacies of a number the supplier of choice for the sizable independent of companies and cultures. Through the principles of corrugated container market. We supply independents CustomerONE we are creating a common culture in TM about 2 million tons of product each year. Our board which everyone is treated like a customer, we are respon- sales group is adding value for those customers by sive to opportunities, and we embrace new and better providing consulting and technical advice through a ways of doing business. newly formed technical group in West Point, Virginia. S M U R F I T- S T O N E 2001 PAG E N O . 13 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 18. Smurfit-Stone is a market leader in bag packaging products, including multiwall, consumer, specialty and flexible bags; flexible intermediate bulk containers; and bag packaging equipment. Smurfit-Stone provides a coordinated approach to analyze customer needs and provide both the packaging and packaging equipment systems that best suit the product and production.
  • 19. { one Strategy Customers expect their suppliers to work as partners. Our strategic decision to depart from the industry’s Packaging has to sell products in addition to protecting traditional production-centered orientation, which them. At the same time, investors are becoming impatient magnifies cyclical peaks and valleys, has made Smurfit- with the paper and packaging industry’s historical cyclical- Stone a more nimble player in the packaging market. ity. Smurfit-Stone’s strategic goals take these realities into As logical as that strategic shift appears, it is a challenge account and point the company toward top-tier status. to execute. Gearing production to customer demand Our first steps were to combine Jefferson Smurfit Cor- holds far-reaching implications for operating decisions. poration and Stone Container and to reinforce our capa- bilities in high-end, higher-margin product lines with the FINANCIAL FLEXIBILITY addition of St. Laurent. Those actions made us the largest As a mature industry in a rapidly changing marketplace, paper-based packaging producer and opened up more consolidation is likely to continue. The situation may opportunities to match production to market demand. offer opportunities for Smurfit-Stone to acquire and Scale is a key aspect of our packaging leadership. integrate companies and business units. Financial flex- We aim to increase market share in our corrugated ibility is a necessary component of being able to respond container business, even as we expand our range and to these opportunities. Strategically, we will continue to presence in higher-margin specialty packaging. The manage our finances to maximize cash flow by expanding mere size of our company makes Smurfit-Stone a revenues, achieving operating and administrative cost more attractive partner for the kinds of customers savings, paying down debt, and refinancing debt to who themselves are consolidators in their industries. reduce interest expense. These customers increasingly seek single-source providers with a broad range of packaging products, the ability to handle technology-based order management and the resources to help develop packaging solutions. { Product innovations, acquisitions to complement existing manufacturing capabilities, and sales and marketing synergies are ways we build on our leadership role while focusing on providing packaging solutions to our customers. In 2001, Smurfit-Stone grew our bag packaging capabilities by acquiring a plant in Eastman, Georgia. The plant integrated quickly into the Smurfit-Stone system. In the large photo at left, Allan Hon oversees the finishing process during a production run in Eastman. S M U R F I T- S T O N E 2001 PAG E N O . 15 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 20. FOCUS ON SAFETY DAVE NEILL Bakersfield Recycling Safety is Smurfit-Stone’s top operating priority, and in Plant Superintendent 2001 we became the safest company in our industry. Since implementing the Smurfit-Stone Accident-Free Environment (SAFE) process in 1995, we have experienced a 79 percent drop in accidents. Our Bakersfield, California, recycling facility has gone seven years without an OSHA recordable accident, tops in the entire division. Bakersfield utilizes the team approach to safety, which means total participation from employees in the office to the loading dock. MARIANNE SANDERS Bakersfield Recycling Accounts Payable Clerk The second part of the strategy relates to operational BA L A N C E D S T R AT E G Y excellence, realigning production methods to provide Executing our growth strategy requires our operating consistently higher-quality products to customers, and divisions to improve returns quickly to offset the negative managing manufacturing processes more efficiently by impact of a weak economy. At the same time, managers paying closer attention to areas such as waste reduction, are positioning our operations for greater growth as the starch usage, and one-box setups. These steps recognize economy improves. An example of how we tackle that customers’ preferences for fast service, consistent quality, challenge is the balanced strategy, the three-part plan and shorter order-fill times, which translate to a high being pursued in our corrugated container division. comfort level with Smurfit-Stone’s ability to deliver The first component of the division’s balanced strategy as promised. is achieving profitable revenue growth. For national The third prong focuses on developing and equipping accounts, this involves identifying the major companies our people to be able to profitably grow our revenue. that fit well with our strategies and resources. On a local We intend to further develop the leadership skills of level, it involves understanding the market and targeting our existing employees while dramatically improving the accounts that move us closer to realizing our sales our recruiting process. Most importantly, we are making plans. We will look beyond the problems of the day and it clear to every employee what his or her specific role is find ways to emerge from these difficult market conditions in the balanced strategy execution. as a stronger, more competitive selling machine. T H E PAC K AG I N G S O L U T I O N S C O M PA N Y Our corporate and division initiatives can be expressed in a single phrase that identifies Smurfit-Stone’s goals and identity — the packaging solutions company. This phrase incorporates market and industry trends that drove the creation of the company, and it continues to point to opportunities for profitable growth. PAG E N O . 2001 S M U R F I T- S T O N E 16 A N N UA L R E P O R T C O N TA I N E R C O R P O R AT I O N
  • 21. B OA R D O F D I R E C TO R S A N D C O R P O R AT E A N D DIVISION OFFICERS B OA R D M E M B E R S C O R P O R AT E O F F I C E R S Michael W. J. Smurfit James J. O’Connor Michael W. J. Smurfit James E. Burdiss Craig A. Hunt Mark R. O’Bryan Chairman and CEO Retired Chairman of the Board Vice President and Vice President Vice President Jefferson Smurfit Group plc Unicom Corporation/ Chief Information Officer Secretary and Procurement Patrick J. Moore Commonwealth Edison General Counsel Patrick J. Moore President and James P. Davis Thomas A. Pagano Company President and CEO Chief Executive Officer Vice President and Paul K. Kaufmann Vice President Smurfit-Stone Container Jerry K. Pearlman General Manager Vice President and Controller Planning Charles A. Hinrichs Corporation Retired Corrugated Container Vice President and Leslie T. Lederer Lorne E. Parnell Zenith Electronics Division Leigh J. Abramson Chief Financial Officer Vice President Vice President Corporation Managing Director James D. Duncan Strategic Investment Pacific Operations Robert A. Balke Morgan Stanley & Co. Thomas A. Reynolds, III Vice President Dispositions Vice President John M. Riconosciuto Partner Corporate Sales Alan E. Goldberg Corporate Sales and F. Scott Macfarlane Vice President of Operations Winston & Strawn Co-Managing Partner Marketing William G. Eustice Vice President and Consumer Packaging Goldberg, Lindsay & Co. LLC Anthony P.J. Smurfit Vice President General Manager Division Curtis A. Barton Chief Executive Officer Corrugated Container Consumer Packaging Howard E. Kilroy Vice President David C. Stevens Smurfit Europe Division Division Division Retired Environmental Affairs Vice President and Jefferson Smurfit Group plc Jefferson Smurfit Group plc Daniel J. Garand Richard P. Marra General Manager Mathew J. Blanchard Dermot F. Smurfit Vice President Assistant Treasurer Recycling Division Vice President and Deputy Chairman Supply Chain Operations General Manager Timothy J. P. McKenna William N. Wandmacher Jefferson Smurfit Group plc Board Sales Division Edwin C. Goffard Vice President Vice President and President Investor Relations and General Manager Cynthia S. Bowers Europa Carton Communications Containerboard Mill and Vice President Forest Resources Division Compensation and Benefits Michael F. Harrington Ronald J. Megna Vice President Assistant Secretary Human Resources C O R R U G AT E D C O N TA I N E R D I V I S I O N C O N S U M E R PAC K AG I N G D I V I S I O N C O N TA I N E R B OA R D M I L L D I V I S I O N Daniel J. Burger John L. Knudsen Edward A. Byczynski Curtiss M. Komen Alain L.M. Boivin Roger M. Jansen Vice President and Vice President and Vice President Vice President Vice President Vice President Regional Manager Regional Manager and Area Manager CPD Sales Mill Operations, SBS Sales Multiwall/Specialty Central Region LeRoy R. Crocker Rodney A. Myers George Q. Langstaff Eve K. Rae Vice President and Vice President and J. Gregor Doman Vice President and Larry L. Burton Vice President Regional Manager Regional Manager Vice President of Sales General Manager Vice President Pulp Sales Folding Cartons Industrial Group Sales & Marketing John J. Curry, Jr. Robert D. Nelson W. G. Stuart Vice President and Vice President and L. David Fielder James B. Laurence John E. Davis Vice President Regional Manager Regional Manager Vice President Vice President of Sales Vice President Mill Operations, PaperCanTM Multiwall/Specialty Forest Resources Southern Region Stephen P. Folan James S. Nolan Vice President Vice President Michael L. Hempstead Donald W. McCalla Alain Dubuc Sales and Marketing Corporate Sales Vice President and Vice President Vice President Regional Manager CPD Marketing Mill Operations, Roland F. Hauser Donald A. Petri Folding Cartons Northern Region Vice President and Vice President and Gary D. McDaniel and Labels Regional Manager Regional Manager Vice President and Nathan S. Holmes General Manager James A. Henderson Jerry D. Suiter RECYCLING DIVISION Vice President and Flexible Packaging Group Vice President and Vice President and General Manager Michael R. Oswald Tom E. Squires Regional Manager Director of Manufacturing John J. Moran Boxboard Mills and Vice President Vice President Vice President and Lane W. Hunter Donald A. Tinkoff Lamination Operations Southeast Region General Manager Vice President and Vice President and Gary R. Huston Multiwall Bags Mark C. Brantley James W. Pope Regional Manager Regional Manager Vice President Vice President Vice President David J. Pietrowicz Stephen E. Jevyak Boxboard Sales North Central Region International/Western Sales Vice President and Vice President and Steven L. Kelchen General Manager Steve A. Miller Edward V. Tucciarone Regional Manager Vice President and Folding Cartons and Labels Vice President Vice President Regional Manager West Region Eastern Sales Michael L. Weisheit Folding Cartons Vice President and and Labels Regional Manager RESEARCH AND DEVELOPMENT Fred W. Klatt Folding Cartons and Labels DIVISION Vice President and Area Manager Joseph V. LeBlanc Multiwall/Specialty Vice President T R A N S P O R TAT I O N / S U P P LY C H A I N Terence J. Brown William C. Wanner Vice President Vice President Transportation Supply/Demand Operations S M U R F I T- S T O N E 2001 PAG E N O . 17 C O N TA I N E R A N N UA L R E P O R T C O R P O R AT I O N
  • 22. S TO C K H O L D E R I N F O R M AT I O N STOCKHOLDERS’ A N N UA L M E E T I N G May 9, 2002 at 1:00 pm The Sheraton Chicago Hotel & Towers City Front Center 301 E. North Water Street Chicago, IL 60611 REGISTRAR AND T R A N S F E R AG E N T Mellon Investor Services LLC Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 www.mellon-investor.com Telephone: 888-213-0965 COMMON STOCK Smurfit-Stone Container Corporation Common Stock is traded on The Nasdaq Stock Market under the symbol: SSCC. PREFERRED STOCK Smurfit-Stone’s 7% Series A Cumulative Exchangeable Redeemable Convertible Preferred Stock is traded on the Nasdaq under the symbol: SSCCP. I N V E S T O R I N F O R M AT I O N Investor Relations and Communications Smurfit-Stone Container Corporation 8182 Maryland Avenue St. Louis, MO 63105 Telephone: 314-746-1223 Fax: 314-746-1347 www.smurfit-stone.com Timothy McKenna Vice President, Investor Relations and Communications St. Louis: 314-746-1254 Chicago: 312-580-4637 C O R P O R AT E H E A D Q UA R T E R S Smurfit-Stone Container Corporation 150 North Michigan Avenue Chicago, IL 60601-7568 Telephone: 312-346-6600
  • 23. 150 North Michigan Avenue Chicago, IL 60601-7568 (312) 346-6600 www.smurfit-stone.com