smurfit stone container 2005_ar
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S M U R F I T - S T O N E C O N T A I N E R C O R P O R A T I O N
2 0 0 5 A N N U A L R E P O R T
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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.
Financial Highlights
((DDOOLLLLAARRSS IINN MMIILLLLIIOONNSS,, EEXXCCEEPPTT PPEERR SSHHAARREE DDAATTAA)) 22000055 22000044 22000033
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
Strategies and Goals
In 2005, Smurfit-Stone launched bold, strategicinitiatives designed to lower costs, drive revenuegrowth, and implement a new organizational
structure that better leverages our position as North America’slargest 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 strategicpartnerships 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 improvedvalue to our stockholders.
Goals and Timeline
(IN MILLIONS, COMPARED TO 2005) 2006 2007 2008
$650$325$100Revenue growth above market
$600$480$280Annual cost-savings targets
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Smurfit-StoneContainer Corporation2005 Annual Report
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Letter to Stockholders
Fellow Stockholders:
Smurfit-Stone redefined its strategy in 2005 to
improve our position as the industry’s leading
paperboard and packaging provider. The results
of our strategic reassessment, announced in the
fourth quarter, are designed to make the most
effective use of our resources in a marketplace
that continues to undergo extensive change.
A significant portion of the industry’s traditional
customer base has moved manufacturing
operations offshore, taking along major product
segments of the box market. The domestic
retail environment has come to be dominated
by mega-retailers, who are using their influence
to drive private label growth, and large consumer
products manufacturers. Leveraging our
strengths for these market realities demands
a more centralized and functionally focused
organization, unrelenting emphasis on
cost-effective operations, and new sales and
marketing approaches to help fuel growth.
The continuing commoditization of packaging,
pricing pressures, and cost inflation led us to
systematically reassess our business model.
We recognized that despite the company’s capa-
bilities, the structure we had in place could not
take full advantage of our potential in the new
market environment. To capitalize on evolving
market opportunities, we are implementing a
series of strategic initiatives to optimize our
system and redesign our operating structure.
This is a three-year plan designed to deliver cost
savings and revenue growth, with the full benefit
of the strategic initiatives realized by the end of
2008. In 2005, we made the following major
organizational changes.
We realigned the executive management
team to include a chief operating officer
and named veteran Smurfit-Stone executive
John Riconosciuto to that position.
We reorganized the management structure
in our corrugated container division to more
effectively take advantage of our integrated
business model, separating the sales and
marketing functions from manufacturing.
This approach allows us to deploy our assets
on an enterprise-wide basis to better meet
our customers’ needs.
Emphasizing our commitment to meeting
the cost-savings and revenue-growth goals,
we established an initiatives management
organization, reporting to me, focused on
driving the strategic initiatives.
2005 Results
Sales of $8.4 billion were up slightly from the
previous year’s $8.3 billion. For the full year,
Smurfit-Stone reported a net loss available to
common stockholders of $339 million, or
$1.33 per diluted share, compared with 2004’s
net loss of $57 million, or $0.23 per diluted
share. The 2005 results included $321 million
in restructuring charges related to closures
of mills and packaging facilities.
Until the market for containerboard and corru-
gated containers began to improve late in the
year, demand fell short of expectations for most
of 2005, causing prices to trend down. Cost
increases, including energy, freight, and fiber
3
Smurfit-StoneContainer Corporation2005 Annual Report
offset the improvement from better mix
and pricing.
Market-Driven Decisions
The determination and urgency we have brought
to our strategic initiatives is motivated by the
dramatic shift in the packaging market.
As American manufacturers moved production
offshore, they also sourced their packaging
requirements offshore. We saw the big-box
retailers increasingly pushing their influence
further along the supply chain in their persistent
focus on driving costs out of production and
distribution. These trends resulted in reduced
domestic packaging demand. At the same time,
domestic retail markets were emphasizing
a self-service environment that has led to
a dramatic increase in the importance of
packaging’s point-of-purchase appeal.
Smurfit-Stone responded with stronger,
lighter weight packaging, and developed
hybrid packaging that combined the traditional
strength of corrugated with high-end graphics
appeal. We expanded our offering of white top
linerboard, which provides the best substrate
for printing colorful, attention-getting packaging
graphics. Our strategic plan continues this
evolution and further enhances our ability to
capitalize on market trends.
Patrick J. Moore
Chairman, President, and
Chief Executive Officer
“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.”
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Redefining the packagingexperienceSmurfit-Stone’s EnviroShell™
package combines brand andenvironmental awareness.EnviroShell™ is packaging thatenhances the appeal of ourcustomers’ environmentally friendly products. EnviroShell™
is adaptable to specialty printingwhile eliminating the glarecaused by more traditionalplastic clamshell packaging,giving products more shelfappeal at retail. EnviroShell™
is made from 65 percent recycled material and is easy to separate for disposal andrecycling purposes.
Lowering the Cost Structure
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, compared to
2005 when we launched our strategic initiatives.
In August, we eliminated an additional 700,000
tons of capacity by closing two high-cost mills
in Canada and permanently closing one of three
paper machines at our Fernandina Beach, Florida,
mill. These steps brought our mill system in
balance with current market demand. There
are additional mill savings still to be achieved
through productivity initiatives such as energy
reduction programs and further staff optimization.
In our corrugated container system, we are
improving productivity and increasing facility
scale to bring our overall cost profile in line
with our best performing plants. To support
this, we restructured our corrugated container
division organization by separating the sales
from the manufacturing teams. As a result,
our production managers now are focused on
producing packaging at the lowest possible cost
while still providing exceptional solutions and
services to our customers.
Driving improved productivity in our corrugated
container operations started with a rigorous
“best in class” assessment which focused on
addressing gaps between optimum and actual
performance and configuration at each site,
based on the reassessment findings. We identi-
fied many opportunities including eliminating
redundant machinery, improving labor efficiency,
and making select capital investments to
increase the productivity of key assets. The
corrugated container business is very scale
sensitive. We plan to establish high-volume
plants in a number of strategic geographic
markets to further reduce our cost profile
through economies of scale, investment in
high-speed corrugators, improved specialization,
Smurfit-StoneContainer Corporation2005 Annual Report
Private label partnersSmurfit-Stone helped Office Depot launch a newbranding strategy for its private label products that included an updated graphic look for thecompany, and included approximately 5,000 items.Smurfit-Stone is well known as the industry’spremier packaging producer. Smurfit-Stone helpscustomers brand their products, with a network of service partners, offering merchandisingsolutions to retailers and consumer packaginggoods companies.
5
Investing in the futureSmurfit-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.
and closure of smaller, outdated facilities.
Collectively, our productivity and scaling
efforts could lead to the rationalization of
up to 20 percent of our corrugated container
plants over the next three years.
Significant opportunities exist to improve the
integration between our mill and corrugated
container systems. We have a number of initia-
tives to reduce our overall system costs while
maintaining the performance specifications of
the finished box. These efforts are reducing
the number of grade combinations, roll sizes,
inventory levels, and waste, as well as improving
mill productivity. Additional efforts will focus
on better leveraging our purchasing spend with
our suppliers, centralizing our transportation
management process and various administrative
functions currently performed at the plant level.
Capital investment is required to achieve our
cost reduction targets. Smurfit-Stone anticipates
spending $300 to $400 million in additional
capital by 2008 to drive a lower cost profile
through energy reduction programs, improving
the productivity of existing corrugating and
converting equipment, and investing in larger,
scaled facilities.
Revenue Growth
Just as important as lowering our cost profile
is our ability to serve and win customers who
require value-added products and services.
In the past, we focused our sales and marketing
efforts on leveraging the widest packaging
product array and our strong geographic
coverage in North America. In addition to this,
we will now focus our attention on promising
target markets — new and existing customers in
segments that exhibit attractive growth potential
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Smurfit-StoneContainer Corporation2005 Annual Report
RecyclaCorr™ is safe fordirect and indirect foodcontact and is recyclableSmurfit-Stone’s RecyclaCorr™ wax replacement medium leads the way in an emerging market. Waxfrequently is used to provide boxes with additionalstrength 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 upretailers’ disposal and labor costs. Smurfit-Stone’sRecyclaCorr™ is safe for direct and indirect foodcontact and is compliant with recyclabilityrequirements adopted by the American Forest & Paper Association. The product is manufactured at the company’s West Point, Virginia, mill.
and who require value-added packaging services.
We will employ many tools, including innovative
packaging solutions tailored to address changing
packaging needs, our unique “agency service”
approach to deliver a wider complement of
products and services, and leveraging a
more cost-competitive operation to improve
margins and open new markets previously
considered unattractive.
As with our cost initiatives, separating our
corrugated container organization between sales
and manufacturing teams is the first step to
drive profitable revenue growth. Instead of each
plant having a sales force working on behalf
of the individual plant, sales teams report into
a central sales organization with units focused
on local, regional and national accounts, as well
as key targeted segments. This change allows
us to remain focused on improving revenue
growth and assigning the right resources to
the best opportunities.
We will achieve growth by targeting key markets
such as protein, frozen specialty foods, and
pharmaceuticals, and similar high-growth
potential markets. With specific teams focused
on attractive market segments, we will better
understand our customers’ needs. This focus
will allow us to continue to deliver innovative
products such as RecyclaCorr™ and EnviroShell™,
and our META™ and Value Proposition Solutions
(VPS) packaging systems.
We will create opportunities from the point-of-
purchase retail environment and the growing
influence of private labels. This applies to retailers
interested in extending their private label lines
as well as manufacturers whose products are
now channeled through those retailers. Often,
these customers operate on a global scale,
requiring Smurfit-Stone to further expand its
reach beyond North America.
Our Innovation to Implementation (i2i) concept
incorporates the “agency service” model. This
allows Smurfit-Stone to serve as our customer’s
agent in obtaining branding and related services
to provide fresh approaches to customers’
packaging challenges. We are building strategic
alliances to provide these offerings. One of our
partners is Daymon Worldwide, a private-label
brand management and market research firm.
We formed a joint venture with Winterborne, Inc.,
to help address packaging needs with hybrid
paper and plastic solutions. In Asia, we have
joint ventures in place with Pacific Millennium
and Hang Yick, broadening our relationships
with our North American customers who source
products domestically and in Asia, and who
benefit from a globally coordinated branding,
packaging design, and fulfillment process.
Many of our customers continue to have tradi-
tional packaging requirements. We will leverage
our low-cost converting and mill operations to
improve our margins in these segments.
Financial Flexibility
As part of our strategic reassessment, we
evaluated each of our business segments for
strategic fit as well as prospects for growth and
margin improvement. We are working with a
financial advisor to explore selling some or
all of our consumer packaging business in order
to focus our resources on the containerboard
and corrugated container businesses.
9
Smurfit-StoneContainer Corporation2005 Annual Report
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Smurfit-StoneContainer Corporation2005 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
to pay down debt. The pressure on financial
performance from high energy costs, disruptions
in wood fiber supplies, and fiercely competitive
markets inhibited our financial flexibility and
stalled our deleveraging initiatives. Paying
down debt remains our top financial priority,
and the strategic initiatives are designed to help
achieve that goal.
Safety
While Smurfit-Stone has initiated changes to
the way we conduct our business, one area that
remains unchanged is our unwavering commit-
ment to safety as the company’s top operating
priority. A core value of our CustomerONE®
operating philosophy, safety at all of our
facilities embraces five key beliefs:
All injuries are preventable;
Safety is everyone’s responsibility;
Working safely is a condition of employment;
Training employees to work safely
is essential; and,
Safety is good business.
Smurfit-Stone’s 1.16 domestic recordable case
rate (RCR) in 2005 was the best in company
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-
ment utilized by the Occupational Safety and
Health Administration (OSHA).
Creating Value
We began 2006 on an encouraging note. Year-
end inventories were at their lowest levels in
10 years. Our mills and packaging plants were
running at high utilization levels. We are well
positioned in the near term to benefit from an
improving price environment.
The initiatives in place are beginning to deliver
the intended benefits. We have a timeline in place
to accomplish far-reaching changes. We have
begun to put the organizational structure in
place to execute the plan. And, we have taken
the critical steps to assess each component
of the organization and realign operations as
needed. We must improve the returns on
Smurfit-Stone’s resources to make the
company an increasingly valuable investment
for customers, employees, and stockholders.
Patrick J. Moore
Chairman, President, and Chief Executive Officer
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Smurfit-Stone’s META™ and Value Proposition Solution(VPS) packaging systems are part of a broader growthstrategy that provides value beyond the package. META™
and VPS are proprietary packaging systems that providecustomers with a unique way to differentiate theirpackaging, while adding value to their marketing mix.META™ and VPS target U.S. meat and produce markets,respectively, segments which have demonstrated growth and stability.
Among their many benefits, META™ boxes, such as the Boar’s Head package, offer improved stacking
strength with boxes up to eight sides, which also provides high-impact merchandising capabilities. META™ packaging equipment provides high-speed auto-erect capabilities up to 65 cases a minute with quick changeovers and flexibility.
VPS boxes, such as the Ocean Mist salad spinachpackage, are designed to maximize packaging strengthwhile minimizing material use, all in a one piece design.VPS packaging equipment provides versatility on themanufacturing line, and the superior strength of VPSdesigns maximizes customers’ packaging graphics.
Growing our presence in key markets
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Board of Directors
Patrick J. MooreChairman, President and Chief Executive Officer
John M. RiconosciutoChief Operating Officer
Charles A. HinrichsSenior Vice President and Chief Financial Officer
James E. BurdissSenior Vice President andChief Information Officer
James D. DuncanSenior Vice President Sales and Marketing
Daniel J. GarandSenior Vice PresidentSupply Chain Management
Ronald D. HackneySenior Vice President Human Resources
Craig A. HuntSenior Vice President Secretary and General Counsel
M.C. (Sonny) JacksonSenior Vice President and General Manager Containerboard Mill Division
Paul K. KaufmannSenior Vice President andCorporate Controller
John L. KnudsenSenior Vice PresidentManufacturingCorrugated ContainerDivision
Timothy J. P. McKennaSenior Vice President Investor Relations and Communications
Mark R. O’BryanSenior Vice President Strategic Initiatives
Michael R. OswaldSenior Vice President and General Manager Recycling Division
Thomas A. PaganoSenior Vice President Corporate Development
Curtis A. BartonVice President Environmental Affairs
Roger P. BeckerVice President Taxes
Jeffrey S. BeyersdorferVice President andTreasurer
Mathew J. BlanchardVice President and General Manager Board Sales
Cynthia S. BowersVice President Compensation, Benefits and HR Services
Regina G. (Jean) WyseVice President Enterprise ProcessIntegration
Ronald J. MegnaAssistant Secretary
Corporate Officers
Patrick J. MooreChairman, President and Chief Executive OfficerSmurfit-Stone ContainerCorporation
James R. BorisRetiredChairman and CEOEVEREN Securities, Inc.
Connie K. DuckworthFounding Partner8Wings Enterprises, LLC
Alan E. GoldbergCo-Managing PartnerLindsay Goldberg &Bessemer GP LLC
William T. Lynch, Jr.Retired President and CEOLeo Burnett Company
James J. O’ConnorRetired Chairman and CEOUNICOM Commonwealth Edison
Jerry K. PearlmanRetired Chairman and CEO Zenith Electronics
Thomas A. Reynolds, IIIPartnerWinston & Strawn LLP
Eugene C. SitChairman, CEO, and Chief Investment OfficerSit Investment Associates
William D. SmithburgRetired Chairman, President and CEOThe Quaker Oats Company
Chairman Emeritus
Dr. Michael W.J. Smurfit
Smurfit-StoneContainer Corporation2005 Annual Report
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Smurfit-StoneContainer Corporation2005 Annual Report
Corrugated ContainerDivision
Daniel J. BurgerVice President Strategic Planning
John P. CrimminRegional Vice PresidentSales
Richard E. FlammRegional Vice PresidentManufacturing
James A. HendersonRegional Vice PresidentManufacturing
Stephen E. JevyakRegional Vice PresidentSales
George Q. LangstaffVice PresidentOperational Excellence
Robert A. MillerVice PresidentInternational Sales and Marketing
Rodney A. MyersRegional Vice PresidentManufacturing
Robert D. NelsonRegional Vice PresidentSales
James S. NolanVice President Corporate Sales, StrategicMerchandising Solutions and Graphics
Donald A. PetriVice President and General Manager Specialty/Hybrid Plants
Thomas A. PiggottRegional Vice PresidentSales
E. Lawrence QuatmannVice President and Division Controller
Donald RoyRegional Vice President Sales
Stephen J. StrangVice President and General Manager Smurfit MBI
John YoderRegional Vice PresidentManufacturing
Containerboard MillDivision
Alain L.M. BoivinVice PresidentMill OperationsNorthern Region
Larry L. BurtonVice PresidentSales and Marketing
Michael L. ButlerVice PresidentContainerboard Sales
James S. ChouVice President and Division Controller
John E. DavisVice PresidentForest Resources
Roger M. JansenVice PresidentSBS Sales
Larry T. PriceVice PresidentMill Operations
Eve K. RaeVice PresidentPulp Sales
W. G. StuartVice PresidentMill OperationsSouthern Region
Andrew J. WoodroffeVice PresidentProduct Management and Technical Services
Donald C. Wyatt Vice PresidentKraft Sales and National Accounts
Consumer PackagingDivision
Curtiss M. KomenSenior Vice President Sales
John P. AntonucciVice PresidentSales and MarketingLabel Products
Edward A. ByczynskiVice President and General ManagerBag Packaging Group
Jeffrey DeitchVice PresidentTechnology Flexible Packaging Group
Michael L. HempsteadVice President Sales and Product Development Folding Cartons
Nathan S. HolmesVice President and General Manager Boxboard Mills and Lamination
Gary R. HustonVice PresidentSales Boxboard Mills
James B. LaurenceVice President of SalesBag Packaging Group
Robert E. LewisVice President and Regional ManagerFolding Cartons
Fred W. KlattVice President and Regional ManagerBag Packaging Group
Kenneth E. KushibabVice President and Division Controller
Donald W. McCallaVice PresidentMarketing
Gary D. McDanielVice President and General Manager Flexible Packaging and Labels
John J. MoranVice President Strategic Services
Thomas J. PastorinoVice President and Regional General ManagerFolding Cartons
David J. PietrowiczVice President and General ManagerFolding Cartons
Michael L. WeisheitVice PresidentStrategic InitiativesFolding Cartons
Recycling Division
Mark C. BrantleyVice PresidentEastern Region
Robert J. CurranVice President Business Development
Delmar C. JonesVice President Western Region
James W. PopeVice President International Sales
Tom E. SquiresVice President Operational Excellence
Edward V. TucciaroneVice President Domestic Sales
Other
John J. CapliceVice PresidentCorporate Accounts
David F. KosterVice PresidentTransportation and Distribution
Joseph V. LeBlancVice PresidentResearch and Development
Mark A. PolivkaVice PresidentProcurement
William C. WannerVice PresidentSupply/Demand Operations
Division Officers
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Smurfit-StoneContainer Corporation2005 Annual Report
Stockholder Information
Stockholders’ Annual Meeting
May 10, 2006 at 11 a.m.
University of Chicago
Gleacher Center
450 N. Cityfront Plaza Drive
Chicago, IL 60611
Registrar and Transfer Agent
Mellon Investor Services LLC
480 Washington Boulevard
Jersey City, NJ 07310-1900
(800) 676-0896
TDD for Hearing Impaired: (800) 231-5469
Foreign Stockholders: (201) 680-6578
TDD Foreign Stockholders: (201) 680-6610
www.melloninvestor.com/isd
Common Stock
Smurfit-Stone Container Corporation Common
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
Investor Information
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
Senior Vice President,
Investor Relations and Communications
Chicago: (312) 580-4637
St. Louis: (314) 746-1254
Corporate Headquarters
Smurfit-Stone Container Corporation
150 North Michigan Avenue
Chicago, IL 60601
Telephone: (312) 346-6600
150 NORTH MICHIGAN AVENUE
CHICAGO, IL 60601-7568
(312) 346-6600
WWW.SMURFIT-STONE.COM
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