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smurfit stone container  2005_AR smurfit stone container 2005_AR Document Transcript

  • S M U R F I T - S TO N E C O N TA I N E R C O R P O R AT I O N 2005 ANNUAL REPORT 05 *
  • Financial Highlights (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 2005 2004 2003 Summary of Operations Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,396 $ 8,291 $ 7,722 Net loss available to common stockholders . . . . . . . . . . . . . . (339) (57) (208) Basic and Diluted Earnings per Share Net loss available to common stockholders . . . . . . . . . . . . . . $ (1.33) $ (.23) $ (.85) Weighted average shares outstanding (in millions) . . . . . . . . 255 253 246 Other Financial Data Net cash provided by operating activities . . . . . . . . . . . . . . . . $ 221 $ 273 $ 162 Capital investments and acquisitions . . . . . . . . . . . . . . . . . . . 285 232 238 Working capital, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) 148 136 Property, plant, equipment and timberland, net . . . . . . . . . . . 4,289 4,682 4,974 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,114 9,583 9,956 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,571 4,498 4,807 Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,882 2,259 2,270 Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,500 35,300 36,700 Company Profile Smurfit-Stone Container Corporation (Nasdaq: SSCC) is the industry’s leading integrated manufacturer of paperboard and paper-based packaging. Smurfit-Stone is a leading producer of containerboard, including white top linerboard and recycled medium; corrugated containers; point-of-purchase displays; multiwall and specialty bags; and clay-coated recycled boxboard; and is one of the world’s largest collectors and marketers of recovered fiber. In addition, Smurfit-Stone is a leading producer of solid bleached sulfate, folding cartons, flexible packaging, and labels. The company operates approximately 240 facilities, located primarily in the U.S., Canada and Mexico, and employs approximately 33,500 people.
  • Smurfit-Stone Container Corporation 2005 Annual Report Strategies and Goals * In 2005, Smurfit-Stone launched bold, strategic initiatives designed to lower costs, drive revenue growth, and implement a new organizational structure that better leverages our position as North America’s largest paperboard and packaging company. Smurfit-Stone’s strategies and goals include: Lowering our cost profile to improve operating margins, create a more competitive manufacturing system, and sustain a leading market position. Expanding our service offerings and developing strategic partnerships to help drive sales growth through innovation. Implementing a new organizational structure to drive our cost and revenue objectives. Creating greater financial flexibility and delivering improved value to our stockholders. Goals and Timeline (IN MILLIONS, COMPARED TO 2005) 2006 2007 2008 Annual cost-savings targets $280 $480 $600 Revenue growth above market $100 $325 $650 1
  • Letter to Stockholders Fellow Stockholders: 2008. In 2005, we made the following major organizational changes. Smurfit-Stone redefined its strategy in 2005 to improve our position as the industry’s leading We realigned the executive management paperboard and packaging provider. The results team to include a chief operating officer of our strategic reassessment, announced in the and named veteran Smurfit-Stone executive fourth quarter, are designed to make the most John Riconosciuto to that position. effective use of our resources in a marketplace that continues to undergo extensive change. We reorganized the management structure in our corrugated container division to more A significant portion of the industry’s traditional effectively take advantage of our integrated customer base has moved manufacturing business model, separating the sales and operations offshore, taking along major product marketing functions from manufacturing. segments of the box market. The domestic This approach allows us to deploy our assets retail environment has come to be dominated on an enterprise-wide basis to better meet by mega-retailers, who are using their influence our customers’ needs. to drive private label growth, and large consumer products manufacturers. Leveraging our Emphasizing our commitment to meeting strengths for these market realities demands the cost-savings and revenue-growth goals, a more centralized and functionally focused we established an initiatives management organization, unrelenting emphasis on organization, reporting to me, focused on cost-effective operations, and new sales and driving the strategic initiatives. marketing approaches to help fuel growth. 2005 Results The continuing commoditization of packaging, Sales of $8.4 billion were up slightly from the pricing pressures, and cost inflation led us to previous year’s $8.3 billion. For the full year, systematically reassess our business model. Smurfit-Stone reported a net loss available to We recognized that despite the company’s capa- common stockholders of $339 million, or bilities, the structure we had in place could not $1.33 per diluted share, compared with 2004’s take full advantage of our potential in the new net loss of $57 million, or $0.23 per diluted market environment. To capitalize on evolving share. The 2005 results included $321 million market opportunities, we are implementing a in restructuring charges related to closures series of strategic initiatives to optimize our of mills and packaging facilities. system and redesign our operating structure. Until the market for containerboard and corru- This is a three-year plan designed to deliver cost gated containers began to improve late in the savings and revenue growth, with the full benefit year, demand fell short of expectations for most of the strategic initiatives realized by the end of of 2005, causing prices to trend down. Cost increases, including energy, freight, and fiber 2
  • Smurfit-Stone Container Corporation 2005 Annual Report “Smurfit-Stone’s challenge now is to better align the size and scope of our converting operations with today’s market. Lowering our cost structure is the first priority. Our target is to produce annual cost savings of $600 million by 2008.” Patrick J. Moore Chairman, President, and Chief Executive Officer offset the improvement from better mix a self-service environment that has led to and pricing. a dramatic increase in the importance of packaging’s point-of-purchase appeal. Market-Driven Decisions The determination and urgency we have brought Smurfit-Stone responded with stronger, to our strategic initiatives is motivated by the lighter weight packaging, and developed dramatic shift in the packaging market. hybrid packaging that combined the traditional strength of corrugated with high-end graphics As American manufacturers moved production appeal. We expanded our offering of white top offshore, they also sourced their packaging linerboard, which provides the best substrate requirements offshore. We saw the big-box for printing colorful, attention-getting packaging retailers increasingly pushing their influence graphics. Our strategic plan continues this further along the supply chain in their persistent evolution and further enhances our ability to focus on driving costs out of production and capitalize on market trends. distribution. These trends resulted in reduced domestic packaging demand. At the same time, domestic retail markets were emphasizing 3
  • Redefining the packaging experience Smurfit-Stone’s EnviroShell™ package combines brand and environmental awareness. EnviroShell™ is packaging that enhances the appeal of our customers’ environmentally friendly products. EnviroShell™ is adaptable to specialty printing while eliminating the glare caused by more traditional plastic clamshell packaging, giving products more shelf appeal at retail. EnviroShell™ is made from 65 percent recycled material and is easy to separate for disposal and recycling purposes. 4
  • Smurfit-Stone Container Corporation 2005 Annual Report Lowering the Cost Structure division organization by separating the sales Smurfit-Stone’s challenge now is to better align from the manufacturing teams. As a result, the size and scope of our converting operations our production managers now are focused on with today’s market. Lowering our cost structure producing packaging at the lowest possible cost is the first priority. Our target is to produce annual while still providing exceptional solutions and cost savings of $600 million by 2008, compared to services to our customers. 2005 when we launched our strategic initiatives. Driving improved productivity in our corrugated In August, we eliminated an additional 700,000 container operations started with a rigorous tons of capacity by closing two high-cost mills “best in class” assessment which focused on in Canada and permanently closing one of three addressing gaps between optimum and actual paper machines at our Fernandina Beach, Florida, performance and configuration at each site, mill. These steps brought our mill system in based on the reassessment findings. We identi- balance with current market demand. There fied many opportunities including eliminating are additional mill savings still to be achieved redundant machinery, improving labor efficiency, through productivity initiatives such as energy and making select capital investments to reduction programs and further staff optimization. increase the productivity of key assets. The corrugated container business is very scale In our corrugated container system, we are sensitive. We plan to establish high-volume improving productivity and increasing facility plants in a number of strategic geographic scale to bring our overall cost profile in line markets to further reduce our cost profile with our best performing plants. To support through economies of scale, investment in this, we restructured our corrugated container high-speed corrugators, improved specialization, Private label partners Smurfit-Stone helped Office Depot launch a new branding strategy for its private label products that included an updated graphic look for the company, and included approximately 5,000 items. Smurfit-Stone is well known as the industry’s premier packaging producer. Smurfit-Stone helps customers brand their products, with a network of service partners, offering merchandising solutions to retailers and consumer packaging goods companies. 5
  • Investing in the future Smurfit-Stone opened a new corrugated container manufacturing facility in Milton, Ontario, in 2005. The plant, showing a view from the control room, is equipped with a state-of-the-art corrugator that produces a consistent, high-quality product and can rapidly manufacture several different flutes with very short setup times. The 250,000-square-foot facility well positions Smurfit-Stone to serve the expanding Ontario and northeastern U.S. markets.
  • Smurfit-Stone Container Corporation 2005 Annual Report RecyclaCorr™ is safe for direct and indirect food contact and is recyclable Smurfit-Stone’s RecyclaCorr™ wax replacement medium leads the way in an emerging market. Wax frequently is used to provide boxes with additional strength when they are exposed directly to water or placed in a humid environment. Waxed packaging is troublesome in the retail supply chain because waxed board cannot be recycled, thus driving up retailers’ disposal and labor costs. Smurfit-Stone’s RecyclaCorr™ is safe for direct and indirect food contact and is compliant with recyclability requirements adopted by the American Forest & Paper Association. The product is manufactured at the company’s West Point, Virginia, mill. and closure of smaller, outdated facilities. Capital investment is required to achieve our Collectively, our productivity and scaling cost reduction targets. Smurfit-Stone anticipates efforts could lead to the rationalization of spending $300 to $400 million in additional up to 20 percent of our corrugated container capital by 2008 to drive a lower cost profile plants over the next three years. through energy reduction programs, improving the productivity of existing corrugating and Significant opportunities exist to improve the converting equipment, and investing in larger, integration between our mill and corrugated scaled facilities. container systems. We have a number of initia- tives to reduce our overall system costs while Revenue Growth maintaining the performance specifications of Just as important as lowering our cost profile the finished box. These efforts are reducing is our ability to serve and win customers who the number of grade combinations, roll sizes, require value-added products and services. inventory levels, and waste, as well as improving In the past, we focused our sales and marketing mill productivity. Additional efforts will focus efforts on leveraging the widest packaging on better leveraging our purchasing spend with product array and our strong geographic our suppliers, centralizing our transportation coverage in North America. In addition to this, management process and various administrative we will now focus our attention on promising functions currently performed at the plant level. target markets — new and existing customers in segments that exhibit attractive growth potential 8
  • Smurfit-Stone Container Corporation 2005 Annual Report and who require value-added packaging services. now channeled through those retailers. Often, We will employ many tools, including innovative these customers operate on a global scale, packaging solutions tailored to address changing requiring Smurfit-Stone to further expand its packaging needs, our unique “agency service” reach beyond North America. approach to deliver a wider complement of products and services, and leveraging a Our Innovation to Implementation (i2i) concept more cost-competitive operation to improve incorporates the “agency service” model. This margins and open new markets previously allows Smurfit-Stone to serve as our customer’s considered unattractive. agent in obtaining branding and related services to provide fresh approaches to customers’ As with our cost initiatives, separating our packaging challenges. We are building strategic corrugated container organization between sales alliances to provide these offerings. One of our and manufacturing teams is the first step to partners is Daymon Worldwide, a private-label drive profitable revenue growth. Instead of each brand management and market research firm. plant having a sales force working on behalf We formed a joint venture with Winterborne, Inc., of the individual plant, sales teams report into to help address packaging needs with hybrid a central sales organization with units focused paper and plastic solutions. In Asia, we have on local, regional and national accounts, as well joint ventures in place with Pacific Millennium as key targeted segments. This change allows and Hang Yick, broadening our relationships us to remain focused on improving revenue with our North American customers who source growth and assigning the right resources to products domestically and in Asia, and who the best opportunities. benefit from a globally coordinated branding, packaging design, and fulfillment process. We will achieve growth by targeting key markets such as protein, frozen specialty foods, and Many of our customers continue to have tradi- pharmaceuticals, and similar high-growth tional packaging requirements. We will leverage potential markets. With specific teams focused our low-cost converting and mill operations to on attractive market segments, we will better improve our margins in these segments. understand our customers’ needs. This focus will allow us to continue to deliver innovative Financial Flexibility products such as RecyclaCorr™ and EnviroShell™, As part of our strategic reassessment, we and our META™ and Value Proposition Solutions evaluated each of our business segments for (VPS) packaging systems. strategic fit as well as prospects for growth and margin improvement. We are working with a We will create opportunities from the point-of- financial advisor to explore selling some or purchase retail environment and the growing all of our consumer packaging business in order influence of private labels. This applies to retailers to focus our resources on the containerboard interested in extending their private label lines and corrugated container businesses. as well as manufacturers whose products are 9
  • Smurfit-Stone Container Corporation 2005 Annual Report “We will create opportunities from the point-of-purchase retail environment and the growing influence of private labels.” Proceeds from any asset sales will be used ment utilized by the Occupational Safety and to pay down debt. The pressure on financial Health Administration (OSHA). performance from high energy costs, disruptions in wood fiber supplies, and fiercely competitive Creating Value markets inhibited our financial flexibility and We began 2006 on an encouraging note. Year- stalled our deleveraging initiatives. Paying end inventories were at their lowest levels in down debt remains our top financial priority, 10 years. Our mills and packaging plants were and the strategic initiatives are designed to help running at high utilization levels. We are well achieve that goal. positioned in the near term to benefit from an improving price environment. Safety While Smurfit-Stone has initiated changes to The initiatives in place are beginning to deliver the way we conduct our business, one area that the intended benefits. We have a timeline in place remains unchanged is our unwavering commit- to accomplish far-reaching changes. We have ment to safety as the company’s top operating begun to put the organizational structure in priority. A core value of our CustomerONE® place to execute the plan. And, we have taken operating philosophy, safety at all of our the critical steps to assess each component facilities embraces five key beliefs: of the organization and realign operations as needed. We must improve the returns on All injuries are preventable; Smurfit-Stone’s resources to make the Safety is everyone’s responsibility; company an increasingly valuable investment Working safely is a condition of employment; for customers, employees, and stockholders. Training employees to work safely is essential; and, Safety is good business. Smurfit-Stone’s 1.16 domestic recordable case Patrick J. Moore rate (RCR) in 2005 was the best in company Chairman, President, and Chief Executive Officer history and led our industry, according to preliminary data made available by the Pulp & Paper Safety Association, a major trade organization. RCR is the major measure- 10
  • Growing our presence in key markets Smurfit-Stone’s META™ and Value Proposition Solution strength with boxes up to eight sides, which also (VPS) packaging systems are part of a broader growth provides high-impact merchandising capabilities. strategy that provides value beyond the package. META™ META™ packaging equipment provides high-speed and VPS are proprietary packaging systems that provide auto-erect capabilities up to 65 cases a minute with customers with a unique way to differentiate their quick changeovers and flexibility. packaging, while adding value to their marketing mix. VPS boxes, such as the Ocean Mist salad spinach META™ and VPS target U.S. meat and produce markets, package, are designed to maximize packaging strength respectively, segments which have demonstrated while minimizing material use, all in a one piece design. growth and stability. VPS packaging equipment provides versatility on the Among their many benefits, META™ boxes, such as manufacturing line, and the superior strength of VPS the Boar’s Head package, offer improved stacking designs maximizes customers’ packaging graphics. 11
  • Smurfit-Stone Container Corporation 2005 Annual Report Board of Directors Patrick J. Moore Alan E. Goldberg Jerry K. Pearlman Chairman Emeritus Chairman, President Co-Managing Partner Retired Chairman Dr. Michael W.J. Smurfit and Chief Executive Officer Lindsay Goldberg & and CEO Smurfit-Stone Container Bessemer GP LLC Zenith Electronics Corporation William T. Lynch, Jr. Thomas A. Reynolds, III James R. Boris Retired President and CEO Partner Retired Leo Burnett Company Winston & Strawn LLP Chairman and CEO James J. O’Connor Eugene C. Sit EVEREN Securities, Inc. Retired Chairman and CEO Chairman, CEO, Connie K. Duckworth UNICOM and Chief Investment Officer Founding Partner Commonwealth Edison Sit Investment Associates 8Wings Enterprises, LLC William D. Smithburg Retired Chairman, President and CEO The Quaker Oats Company Corporate Officers Patrick J. Moore Craig A. Hunt Mark R. O’Bryan Mathew J. Blanchard Chairman, President Senior Vice President Senior Vice President Vice President and Chief Executive Officer Secretary Strategic Initiatives and General Manager John M. Riconosciuto and General Counsel Michael R. Oswald Board Sales Chief Operating Officer M.C. (Sonny) Jackson Senior Vice President Cynthia S. Bowers Charles A. Hinrichs Senior Vice President and General Manager Vice President Senior Vice President and General Manager Recycling Division Compensation, Benefits and Chief Financial Officer Containerboard Mill Division Thomas A. Pagano and HR Services James E. Burdiss Paul K. Kaufmann Senior Vice President Regina G. (Jean) Wyse Senior Vice President and Senior Vice President and Corporate Development Vice President Chief Information Officer Corporate Controller Curtis A. Barton Enterprise Process John L. Knudsen Vice President Integration James D. Duncan Senior Vice President Senior Vice President Environmental Affairs Ronald J. Megna Sales and Marketing Manufacturing Roger P. Becker Assistant Secretary Corrugated Container Vice President Daniel J. Garand Division Senior Vice President Taxes Supply Chain Management Timothy J. P. McKenna Jeffrey S. Beyersdorfer Senior Vice President Vice President and Ronald D. Hackney Investor Relations Senior Vice President Treasurer and Communications Human Resources 12
  • Smurfit-Stone Container Corporation 2005 Annual Report Division Officers Corrugated Container Containerboard Mill Consumer Packaging Thomas J. Pastorino Division Division Division Vice President and Regional General Manager Daniel J. Burger Alain L.M. Boivin Curtiss M. Komen Folding Cartons Vice President Vice President Senior Vice President Strategic Planning Mill Operations Sales David J. Pietrowicz Northern Region Vice President John P. Crimmin John P. Antonucci and General Manager Regional Vice President Larry L. Burton Vice President Folding Cartons Sales Vice President Sales and Marketing Sales and Marketing Label Products Michael L. Weisheit Richard E. Flamm Vice President Regional Vice President Michael L. Butler Edward A. Byczynski Strategic Initiatives Manufacturing Vice President Vice President Folding Cartons Containerboard Sales and General Manager James A. Henderson Bag Packaging Group Regional Vice President James S. Chou Recycling Manufacturing Vice President Jeffrey Deitch Division and Division Controller Vice President Stephen E. Jevyak Mark C. Brantley Technology Regional Vice President John E. Davis Vice President Flexible Packaging Group Sales Vice President Eastern Region Forest Resources Michael L. Hempstead George Q. Langstaff Robert J. Curran Vice President Vice President Roger M. Jansen Vice President Sales and Product Development Operational Excellence Vice President Business Development Folding Cartons SBS Sales Robert A. Miller Delmar C. Jones Nathan S. Holmes Vice President Larry T. Price Vice President Vice President International Sales Vice President Western Region and General Manager and Marketing Mill Operations Boxboard Mills and Lamination James W. Pope Rodney A. Myers Eve K. Rae Vice President Gary R. Huston Regional Vice President Vice President International Sales Vice President Manufacturing Pulp Sales Sales Tom E. Squires Robert D. Nelson W. G. Stuart Boxboard Mills Vice President Regional Vice President Vice President Operational Excellence James B. Laurence Sales Mill Operations Vice President of Sales Edward V. Tucciarone Southern Region James S. Nolan Bag Packaging Group Vice President Vice President Andrew J. Woodroffe Domestic Sales Robert E. Lewis Corporate Sales, Strategic Vice President Vice President Merchandising Solutions Product Management and Other and Regional Manager and Graphics Technical Services Folding Cartons John J. Caplice Donald A. Petri Donald C. Wyatt Vice President Fred W. Klatt Vice President and Vice President Corporate Accounts Vice President General Manager Kraft Sales and and Regional Manager Specialty/Hybrid Plants National Accounts David F. Koster Bag Packaging Group Vice President Thomas A. Piggott Transportation and Distribution Kenneth E. Kushibab Regional Vice President Vice President Sales Joseph V. LeBlanc and Division Controller Vice President E. Lawrence Quatmann Research and Development Donald W. McCalla Vice President Vice President and Division Controller Mark A. Polivka Marketing Vice President Donald Roy Procurement Gary D. McDaniel Regional Vice President Vice President Sales William C. Wanner and General Manager Vice President Stephen J. Strang Flexible Packaging and Labels Supply/Demand Operations Vice President John J. Moran and General Manager Vice President Smurfit MBI Strategic Services John Yoder Regional Vice President Manufacturing 13
  • Smurfit-Stone Container Corporation 2005 Annual Report Stockholder Information Stockholders’ Annual Meeting Investor Information May 10, 2006 at 11 a.m. Investor Relations and Communications University of Chicago Smurfit-Stone Container Corporation Gleacher Center 8182 Maryland Avenue 450 N. Cityfront Plaza Drive St. Louis, MO 63105 Chicago, IL 60611 Telephone: (314) 746-1223 Registrar and Transfer Agent Fax: (314) 746-1347 Mellon Investor Services LLC www.smurfit-stone.com 480 Washington Boulevard Jersey City, NJ 07310-1900 Timothy McKenna (800) 676-0896 Senior Vice President, Investor Relations and Communications TDD for Hearing Impaired: (800) 231-5469 Chicago: (312) 580-4637 Foreign Stockholders: (201) 680-6578 St. Louis: (314) 746-1254 TDD Foreign Stockholders: (201) 680-6610 Corporate Headquarters www.melloninvestor.com/isd Smurfit-Stone Container Corporation 150 North Michigan Avenue Common Stock Chicago, IL 60601 Smurfit-Stone Container Corporation Common Telephone: (312) 346-6600 Stock is traded on The Nasdaq National Market under the symbol: SSCC Preferred Stock Smurfit-Stone’s 7% Series A Cumulative Exchangeable Redeemable Convertible Preferred Stock is traded on Nasdaq under the symbol: SSCCP 14
  • 150 NORTH MICHIGAN AVENUE CHICAGO, IL 60601-7568 (312) 346-6600 WWW.SMURFIT-STONE.COM