John L. Knudsen SVP, Supply Chain & Board Sales TAPPI Conference October 6, 2010 1
Today s Agenda Company Overview Business Transformation The New Smurfit-Stone 2
Smurfit-Stone Overview 3
Smurfit-Stone Overview NYSE : SSCC ;100MM shares Integrated manufacturer of paperboard and paper-based packaging Major products: containerboard, corrugated containers, market pulp, recycled fiber and kraft paper Our mill operations supply paper to our corrugated container converting operations. The products of our converting operations, as well as the mill and recycling tonnage in excess of what is consumed internally, are the main products sold to third parties Headquartered in St. Louis and Chicago Operating facilities and customers located primarily in U.S., Mexico and Canada 4
Smurfit-Stone Overview 2009 sales: $5.6 billion 18,000 employees New York Stock Exchange: SSCC; 100 million shares 12 Mills Liner 3.3MM tons Medium 2.0MM tons White Top 1.0MM tons Pulp 0.3MM tons Kraft 0.1MM tons SBL 0.1MM tons Total 6.8MM tons Third-Party Containerboard Sales Domestic 1.1MM tons Export (L,M,WT) 0.8MM tons Packaging 103 Converting Plants Sales of 67.2 BSF or 4.1MM tons Consumption of 4.5MM tons Recycling 30 plants, 14 sales offices 2.4MM tons internal consumption, 3.7MM tons External Sales Containerboard Mill Channel Mix Domestic Household Light Mfg./ distribution 17% Packaging Customers Durables 15% Export 11% 17% 12% 4% 71% Other non-durables 53% Internal/Integration Food/Bev. 5
Leading Market Positions Containerboard Capacity Corrugated Production Recycled Fiber Other 23% 7% PKG 12% 12% TIN GP 28% 18% IP Smurfit-Stone Other 29% 7% 10% PKG TIN 10% GP 28% 16% IP Smurfit-Stone Other 36% 5% 7% Caraustar ACN IP 14% Smurfit-Stone 13% 12% 13% GP Waste Mgmt #2 North American containerboard producer #2 North American corrugated container producer #2 U.S. paper recycler #1 industry safety record 8 consecutive years Source: Equity Research, RISI, Company estimates. 6
Business Transformation 2006-2009 7
Business Transformation SSCC operations are highly competitive as a result of the multi-year transformation program (2006-2009) to improve scale, throughput and productivity, resulting in significant reductions in operating facilities, headcount and manufacturing cost structure. Invested more than $592M in modernizing equipment Closed 52 plants through Q310 Opened 2 greenfield Alpha plants Reduced headcount by 41% through Q310 Implemented Operational Excellence 8
Invested $592MM in more than 600 capital events to improve and upgrade our manufacturing base. 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 Headcount Reduction vs. Goal % Project Completion % 2006 2007 2008 2009 Q110 366 converting upgrades 176 corrugator upgrades 59 material handling upgrades Reduced headcount by 7198 through Q310 Closed 52 facilities through Q310 Corrugating capacity will exceed 90 BSF versus original goal of 85 BSF 9
New Corrugator Installations Nine full-line corrugator installations, including 2 greenfield facility start-ups; all exceeded original plan and past start-up performance. 50 Cerritos (Greenfield) MLF/MH Guelph MLF/MH Philly W MLF/MH 90's Standard MLF/MH Cincinnati MLF/MH New Lenox (Greenfield) MLF/MH Winston-Salem MLF/MH 40 30 20 90s Standard 10 0 Month 1 Month 2 Month 3 Month 6 Year 1 Year 2 Year 3 Year 4 Year 5 10
Business Transformation Converting productivity through 3Q10 Actual Increased converting capacity and throughput Reduced facilities Reduced headcount Lower converting cost Closed 52 Plants Reduced 34% 155 to 103 Reduced Flexos 35% 324 to 211 Reduced Die Cutters 38% 285 to 178 Reduced Headcount 41% 17,704 to 10,506 Reduced Corrugators 29% 112 to 80 11
Operational Excellence (OPX) focuses on creating and managing a best practice manufacturing organization through a customer-centric, performance-based culture. Standardized set of practices and procedures OPX Operating System OPX Management System Standardized set of performance expectations to support continuous improvement Performance Culture Creating a performancebased Creating culture a performance thorough training based and culture capability through training building and capability building 12
Financial Restructuring Completed Positioned for Long-Term Growth Maintained share in a declining market Closed 2 mills and 13 container facilities Strengthened financial profile: Reduced total debt to $1.2 billion from $4.1 billion Secured flexible long-term capital structure Enhanced liquidity position; over $800 million at end 2Q10 Improved working capital by $100MM Resolved environmental liabilities, litigation and other liabilities and claims Restructured Logistics and Supply Chain Sustained and improved supplier relationships 13
The New Smurfit-Stone 14
Improvements Over Time 12/31/08 6/30/10 Total debt $4.1 billion $1.2 billion Cash on hand $126 million $340 million Total # employees 21,000 18,000 Total # facilities 161 146 15
Positioned for Long-Term Growth New highly engaged Board with high expectations Clear plan to further optimize production while maintaining operational and investment discipline Strong focus on improving margins while driving profitable growth, earnings and free cash flow generation Operating in an industry with structural improvement 16
Strategic Priorities Reduce costs Maintain conservative leverage Achieve investment-grade profile Aggressively manage cash flow Manage the company s pension liability Continue to invest in Mill, Container and Recycling businesses Implement Operational Excellence in Mill and Recycling businesses Focus on Talent Management 17