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Containerboard, Packaging and Recycling Our Containerboard, Packaging and Recycling business segment manufactures a wide range of packaging products and services. We also operate an extensive wastepaper collection system through which we collect and broker recovered paper (recycled fiber) to company mills and worldwide customers. What We Do We use a vertically integrated, full fiber-cycle strategy in delivering packaging products and services. This means that we: • produce the material – linerboard and medium – used to manufacture boxes and other packaging; • manufacture boxes and other packaging; and • recycle used packaging and paper in combination with other resource material to create new linerboard and medium. We participate in the fresh produce markets and, as a result, a portion of our business is seasonal. Containerboard, Packaging and Recycling Products  Where We Do It Our plants and facilities are located throughout the U.S. and Mexico near major customer locations and our products are sold globally. Our operations include 106 manufacturing facilities and 10 specialty packaging plants. Information about the locations, capacities and actual production of our manufacturing facilities is included below. Principal Manufacturing Locations Broken out by major products, locations of our principal manufacturing facilities are: • Containerboard – U.S. – Alabama, California, Iowa, Kentucky, Louisiana, Oklahoma and Oregon – Mexico – Xalapa • Packaging – U.S. – Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Tennessee, Texas, Virginia, Washington and Wisconsin – Mexico – Ixtac, Mexico City, Monterrey and Silao, • Specialty Packaging – U.S. – California, Georgia, Illinois, Indiana, Kentucky, North Carolina, Ohio and Oregon • Recycling – U.S. – Arizona, California, Colorado, Illinois, Iowa, Kansas, Maryland, Minnesota, Nebraska, North Carolina, Oregon, Tennessee, Texas, Utah, Virginia and Washington • Kraft Bags and Sacks – U.S. – California, North Carolina, Oregon and Texas Summary of 2007 Containerboard, Packaging and Recycling Capacities 
Five-year Summary of Containerboard, Packaging and Recycling Production(1)  How Much We Sell Our capability, expertise and performance have made us one of the world’s largest developers, producers and suppliers of packaging products and services. In 2007, our net sales were $5.2 billion compared with $4.9 billion in 2006. Five-Year Summary of Net Sales for Containerboard, Packaging and Recycling(1)  Five-Year Trend for Total Net Sales in Containerboard, Packaging and Recycling(1)  Percentage Breakdown of 2007 Net Sales in Containerboard, Packaging and Recycling  Containerboard, Packaging and Recycling Volumes We are the second-largest producer of corrugated packaging products in North America. • We produce approximately 6.1 million short tons of containerboard per year, and we convert the majority to packaging in our manufacturing facilities. • Our manufacturing facilities can produce 101 billion square feet of corrugated packaging annually. • Our recycling operation annually collects nearly 6.7 million tons of used corrugated boxes and paper, and we consume a majority in our manufacturing operations. Factors that affect sales volumes of containerboard, packaging and recycling products and services include: • the level of industrial activity in North America; • growth in retail segments and markets, which is affected by changes in consumer spending; • the level of production of durable and nondurable goods, including fresh produce, fresh protein and processed foods; • growth in demand for high-performance containerboard and packaging in industrial countries; and • growth in demand for high-quality recovered fiber – particularly in China – for use in the manufacture of paper and containerboard. Our volume of containerboard sales increased in 2007 as a result of a rise in export sales, compensating for the decline in packaging volume. Our packaging sales declined in 2007 because of the closure of eight plants and the sale of two others in 2006 and due to the effect of cold weather and E. coli on produce markets during the first quarter of 2007. Our sales volume in the kraft bag market increased in 2007 as the start-up of a new facility in the second quarter of 2007 more than offset the closure of another bag plant in 2006. Five-Year Summary of Sales Volume for Containerboard, Packaging and Recycling(1)  Containerboard, Packaging and Recycling Prices The factors that affect selling prices for our containerboard, packaging and recycling products and services vary. • Containerboard and recycled fiber prices reflect the relative level of supply and demand for these materials in local and international markets. Supply is affected by capacity in the industry and demand is a direct result of economic activity. • Packaging prices are negotiated between buyers and sellers, as each box is generally designed to meet a particular customer’s need. • Packaging prices are also affected by supply and demand dynamics as well as changes in prices for paper and other production raw materials. Five-year Summary of Selected Published Containerboard, Packaging and Recycling Prices – $/TON  Where We're Headed During 2007, this segment continued to refine its business model implemented in 2006: shifting from a plant-focused management model to a customer-focused, integrated supply-chain model. Our strategies for achieving continued success include: • optimizing and aligning the business’ supply chain from a customer-back perspective; • developing and producing innovative, cost-effective solutions to meet our customers’ needs for packaging that both protects their products through the distribution channel and communicates to the people who buy these products; • aligning our asset base to meet customer needs; and • targeting market segments, and customers within those segments, that will increase margins and enable the business to earn the cost of capital. Our research and development activity in this segment is focused in two primary areas; recyclable products that would replace waxed corrugated package products, and radiofrequency identification (RFID) for corrugated packages. We are commercializing our line of recyclable wax-replacement products called Clima Series™ and have demonstrated success in applying RFID tags to corrugated boxes. The proposed banning of plastic grocery bags in several major municipalities offers the potential to further expand the kraft bag market. Strategic Review On May 4, 2007 we announced that our board of directors had authorized a process to consider a broad range of strategic alternatives for our Containerboard, Packaging and Recycling business. Alternatives range from continuing to hold and operate the assets to a possible sale or business combination. As of the date of this filing, this strategic review is ongoing. |