Stone Container's Cardboard Dreams



Stone Container looks to new horizons

With environmentalists angry, the state shuffling its feet over air emissions, Missoula County watching closely and a private consultant at their behest, managers at the Frenchtown Mill await the future

For decades, the jagged peaks and larch-lined hillsides surrounding Missoula Valley have competed with Frenchtown Mill's towering smoke stacks for prominence in this classic western landscape. But even without such obvious reminders, most Garden City residents have a keen awareness of the powerful presence of Chicago-based Stone Container Corporation, which runs the mill several miles west of Missoula along the southern banks of the Clark Fork River.

More than 650 employees drive to the Frenchtown Mill every weekday to produce an average of 2,000 tons of cardboard, incorporating as much as 500 tons of recycled product. Every week millions of wood chips, trucked from sawmills across Western Montana, are crushed into paste and combined with chlorine to create white liner board to coat cardboard containers, from pizza boxes to fruit crates to TV dinner cartons.

The mill's presence is almost inescapable even for Missoula denizens who have never seen the buildings, stacks and settling ponds, as it is for those who have no concept of the work that goes into boxing piping hot pizza to go. Stone's products are shipped thousands of miles to hundreds of destinations to be used by packaging companies around the world. It comes as no surprise that Stone Container is among the region's top employers and Missoula County's top payer of property taxes.

The proximity to town of such a large mill, throbbing with productivity like an oversized beehive or anthill, draws the attention of the media which monitor the company's ups and downs. Add to that the seasonal outcry of Missoula's environmental community, which lambastes Stone for everything from airborne cancer agents to nutrient loading in the Clark Fork, and you've got a news story at least once a month on average.

In fact, since May of this year, Stone Container has landed in local newspapers more than a dozen times and has been mentioned in the national news several more.

The most recent events at the Frenchtown Mill-including the layoff of more than 500 workers-has meant no one who cares about the environment or local economics can take their eyes off the Missoula Valley's western skyline.

In addition to the layoffs, which should conclude in the rehiring of all workers by Wednesday, November 18 (just in time for Thanksgiving), ongoing environmental hearings concerning air pollution and an upcoming merger between Stone Container Corp. and the Missouri-based Jefferson Smurfit Corp. have splashed across headlines and the evening news. And, with a court-mandated plan stemming from an environmental lawsuit, being prepared for release later this month, operations at the mill are taking on an unprecedented shape.

What most people want to know is what the future holds for the Frenchtown Mill-a shrouded mystery from the standpoint of many Missoula residents-as corporate officials in Chicago make decisions about consolidating operations, capital investment at the mill and debt repayment. But with environmentalists and government agents calling for operational reforms, and business decisions being influenced by the global demand for paper products, there remains little doubt that changes are in store for Stone Container's Missoula operation.

Think globally, lay off locally

On Friday, October 23, Stone Container laid off nearly 515 hourly employees at the Frenchtown Mill. Company spokespeople predominantly cite a paper glut and the failing economy in Southeast Asia, where about 6 percent of Frenchtown products are shipped. As paper continued to be produced and the demand for product decreased, Stone Container was forced to cut its losses and halt production for a few weeks at a variety of facilites nationwide.

As for the slowdown in Missoula, Bob Boschee, general manager of the Frenchtown Mill, explains: "The entire pulp and paper industry lost 33 percent of their exports to Asia. Even though the domestic market is solid and steady, there isn't the business in the United States to absorb the products that would normally go to Southeast Asia."

The layoff at the Frenchtown Mill affects other companies locally. Montana Rail Link moves the giant rolls of paper from the mill to other paper plants across the entire country. According to Rick Zimmer of Montana Rail Link, trains ship 20 carloads of Stone Container paper every day.

The mill purchases wood chips from local sawmills as well, and transports them by truck to the Frenchtown plant. In turn, businesses ranging from wood product mills to gas stations to restaurants frequented by truckers and millworkers nearby Stone Container are all feeling the slowdown.

Meanwhile, the Frenchtown Mill wasn't the only plant to suffer in the face of the Asian meltdown. Five of Stone's 16 mills in North America experienced "economic downtime," as the company calls it. While this season's shutdowns have been more widespread than in recent years, Stone says it's not uncommon for a handful of mills to close for a while because the pulp and paper industry constantly deals with fluctuations in supply and demand.

"As an industry, regardless of Southeast Asia, we need to look at how we balance production capabilities and the demand for the product," Boschee says.

According to Fitch IBCA, an international rating agency, if pulp and paper companies want to stay competitive, they will soon take a closer look in the mirror, not only when it comes to supply and demand, but also at their role within the entire industry. The excess supply of products within the industry this year has forced mergers between some major companies-including Stone-and left others searching for ways to remain profitable and productive.

Red tape and wedding bells

In its 1998 third-quarter financial results, Stone reported costs of about $23 million for downtime at paper mills to balance inventories.

Such deficits must have eased the decision to merge the Chicago-based Stone Container Corp., which has 218 facilities and 20,000 employees around the world, with Missouri-based Jefferson Smurfit Corp., a company of 150 mills and 16,000 employees predominately based in North America.

At the end of 1997, the combined debt of Stone Container and Jefferson Smurfit, equaled $6.4 billion. But company officials say the new company, which will continue manufacturing such pulp and paper standards as folding cartons, cardboard boxes, paper bags and frozen dinner cartons, should average $8 billion in annual sales. As a merged company, Smurfit-Stone can also reduce expenses and increase efficiencies within the manufacturing system, and eliminate redundant overhead costs.

Smurfit-Stone Corp. will end up as one of the world's largest manufacturers of paperboard and packaging products. In addition, Stone stockholders and managers hope the merger and the subsequent consolidation of resources will alleviate some of the $4.4 billion debt the company carries. Much of that was accrued by the company when it purchased Consolidated-Bathurst, a newsprint manufacturer, in 1989.

John Simley, Stone's manager of corporate relations based in Chicago, admits Stone's debt is excessive. "We grew quickly in the 1980s through acquisition," Simley says. "We bought assets when they were undervalued and then paid off debts quickly. This happened in 1983, 1985 and 1987.

"In 1989, we tried again with Consolidated-Bathurst but conditions weren't quite as favorable. We were never able to recover from the debt."

Simley says that in the first nine months of this year, Stone lost $500 million, about $80 million more than Stone lost during all of 1997. Last Wednesday, November 4, Stone reported continued losses totalling $275.5 million for the third quarter of 1998. "This has been a very, very poor year," Simley says.

In the meantime, Stone has begun selling some of its assets to reduce its debt load. Last month, a newsprint manufacturing operation in Snowflake, Arizona, was sold for $250 million. With the sale of other mills on the horizon, locals worry that Frenchtown may be the next to go.

Bryony Schwan, a member of Stone's Citizen Advisory Panel-a 12-member group that acts as a community sounding board for Stone-says that the reorganization of the new company creates a lot of questions for this local plant. As the director of an environmental justice organization, Women's Voices for the Earth, Schwan has long been a critic of practices at the Frenchtown Mill-especially when it comes to pollution issues.

"I think this mill is not sure where it is going," Schwan says. "Decisions are not necessarily being made locally. I don't think the guys here would necessarily know about the Frenchtown Mill closing."

Schwan adds that as she sees it, there are two major issues with the local mill. She says that workers have indicated a problem with the supply of wood chips, which make up 75 percent of Stone's product, and she notes that the equipment at the mill is fairly old, potentially costing the company more money to maintain and operate than it would at a different plant.

A longtime Frenchtown employee and member of the local Pulp and Paperworkers Union, Don Serba is one of the workers worried about wood chips.

Serba says the timber supply could be a problem for the mill within the next five years. In particular, he raises concerns that the federal government owns about 65 percent of the timber lands in the West and that national logging practices could tank the Frenchtown operation. "At our mill, about 45 percent of the wood chips come from private property," Serba says. "That wood basket is going to dry up, and if we don't find a common-sense approach to logging then we are going to lose jobs."

Another possibility Serba raises is that the company will move production to the Southeast, where 80 percent of timberland is privately held and many areas are set aside for growing trees for the paper industry. "We tell our people that they better prepare themselves," Serba says, "because these problems could come up pretty quick."

According to Boschee, the mill's head honcho, however, no major policy changes currently linger beyond the horizon-especially when it comes to moving the mill. "I believe the Missoula mill will be a key factor in the new organization," he says. "I don't believe there will be any substantial change in the mill or with employees. As time goes by, there may be changes in philosophies as a corporation, like where we pursue business, but I don't see any initial changes."

Still, even people far from the Missoula Valley are raising questions about the merger. Some preferred Stone Container Corp. stockholders say they want to have a say in the upcoming vote, and last month filed a complaint against the company. This group wants the right to name two members to the board in order to influence an upcoming vote on the merger, as well as have the chance to vote themselves.

Preferred stockholders, unlike common stockholders, own bonds, not shares in the company. Thus, they do not get an active say in management decisions. Simley in Chicago acknowledges the preferred stockholders' lawsuit and explains that Stone has not been paying dividends on their bonds, because of terms in a loan agreement with a bank. The plaintiffs also want an opportunity to buy common stocks so that they can vote on the merger.

If the judge in the Delaware Chancery Court, where the motion has been filed, issues the injunction the plaintiffs are looking for, this month's scheduled vote on the merger will be postponed.

The not quite Green Machine

Last Friday, November 6, in a last-ditch effort to decrease the damage the Frenchtown Mill does to the Missoula airshed, about a half-dozen eco-activists traveled to Helena for a meeting with the state. That trip was part of an ongoing campaign on the part of area environmentalists to make sure Stone is a responsible corporate neighbor.

Almost everyone who lives in Missoula has seen the gray haze sitting below the mountain tops, a wet blanket enveloping the valley. Particulates and other pollutants get trapped in that air as local weather patterns often sit over the city instead of blowing east. Air masses are more often trapped in the winter because colder air sinks into the valley and gets caught.

Environmentalists, particularly those represented by Montana CHEER, have been pressuring the state to force Stone to abide by strict environmental standards for emissions from their three recovery boilers. Recovery boilers burn byproducts from the paper-making process and emit particulates that are measured by opacity, a technical term for how much sunlight can pass through the emission plume.

Currently, Stone claims that it must maintain levels of 30 percent opacity for two of the Frenchtown recovery boilers and 35 percent opacity for its third recovery boiler. Opacity readings are taken in six-minute intervals, although some of the company's critics charge that when the sun doesn't shine, managers of the Frenchtown facility allow extra emissions into the airshed. Stone officials deny that this is the case.

Others argue that because the opacity limits stem from a decision that was made without public input, they are invalid.

In an effort to deflate a pending lawsuit and such criticism, the Montana Board of Environmental Review discussed four proposals for opacity limits at a meeting in Helena last Friday. In 1994, opacity limits were raised during a closed-door deal between Stone and the Montana Board of Health and Environmental Sciences, known today as the Board of Environmental Review.

In 1995, though, Missoula County Deputy Attorney Marti McClain filed a lawsuit on behalf of the Missoula Health Department against the state because the opacity deal violated rules for administrative procedures. At Friday's meeting, the BER eliminated the environmentalists' opacity proposal, narrowing the choice to three, including Stone's for a 35 percent limit and at the other end of the spectrum the Missoula Air Pollution Control Board's request to lower that to 20 percent.

While the opacity debate continues, the outcome may very well be influenced by a lawsuit that Stone settled out of court with environmental organizations. The agreement Stone reached a little more than a year ago requires the company to draft a pollution prevention plan every year for the next five years. This month, Stone plans to put out its first plan, with the help of independent consultant, Bob Pojasek, considered by many an expert in the field of paper-making technology.

Pojasek, who is being paid by Stone Container, says that this year's plan chronicles past practices, sets guidelines for reducing waste or being more efficient, and outlines 11 items the plant plans to do to streamline operations in terms of waste and pollution over the next year.

Most of the $650,000 lawsuit settlement will be used to find better environmental practices for Stone, including protecting air and water quality. The plan is scheduled for release Thursday, November 19.

"I'm not teaching Stone anything they don't know," Projasek says. "I'm a facilitator. I audit the plan. If it were my plan, I wouldn't be able to audit it, and if Stone creates the plan, they will be more likely to follow it."

Meanwhile, the county's lawsuit has been set aside as the state deals with the new public rule-making process. Stone's proposal, the least stringent of the three still being considered, calls for 35 percent opacity, with six percent of their violations within a 6-month period being excused. This means that if Stone were to exceed its limits 12,000 times in a 3-month period, the mill would still be in compliance.

Ed Scott, Stone's director of environmental affairs, says that the company's proposal mirrors current federal standards. Scott complains, however, those standards are difficult to comply with because Stone's boilers are old. The three recovery boilers were installed in 1966, 1972 and 1980.

Scott adds that even though Stone gets a bad rap for pollution emissions, the company is working to protect the environment. "We are for clean air and the protection of the environment," Scott says. "In the last 10 years, emissions from the recovery boilers were reduced by 50 percent."

By contrast, Darrell Geist of Cold Mountain, Cold Rivers and other enviros were disappointed that the state shot down their proposal for a 10 percent opacity limit on one recovery boiler and a 20 percent limit for the other two boilers. Geist says the petition for stricter standards was signed by 11,017 residents, 204 businesses and 17 citizen groups, and claims the BER is beholden to corporate rather than citizen interests.

For the conclusion to this week's Feature, please pick up a copy of the Missoula Independent at one of more than 500 locations around Western Montana.

A birdwatcher does some spotting behind Stone Container Corporation's Frenchtown Mill this summer. The mill laid off about 515 workers last month, but managers expect them to be back at work by Wednesday, November 18.

Ed Scott, the environmental liaison for the Frenchtown Mill, shows where the paper is made. Scott says the mill's practices are up to industry standards.
Photo by Loren Moulton

Tony Tweedale, Jim Olsen, Darrell Geist and other environmentalists traveled to Helena last week to argue for stricter pollution controls. Their proposal aimed to limit the opacity, or amount of visible emissions, coming from the Frenchtown stacks.
Photo by Loren Moulton

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