Rock-Tenn Company - Company Profile, Information, Business Description, History, Background Information on Rock-Tenn Company

504 Thrasher Street
Norcross, Georgia 30071

History of Rock-Tenn Company

Rock-Tenn Company is one of the largest U.S. manufacturers of 100 percent recycled paperboard, a product that comprised almost all of Rock-Tenn's paperboard output in 1994. The company also ranked fourth in the United States in the manufacture of the more printable clay-coated recycled paperboard, also made from recovered wastepaper. In the mid-1990s Rock-Tenn was using 69 percent of its paperboard production to make paperboard products. Ranking fourth in the United States in the production of folding cartons, it was the largest U.S. producer of laminated paperboard for the book-cover and furniture markets. Rock-Tenn also was the largest producer of solid-fiber partitions in North America, and also engaged in the manufacture of corrugated sheets and boxes and thermoformed plastic products. Long a privately held company, Rock-Tenn made its first public offering of stock in 1994.

The Rock-Tenn Co. was formed in 1973, the product of a merger between Tennessee Paper Mills Inc. and Rock City Packaging, Inc. Its origins date back to 1898, when the Rock City Box Co. of Nashville, Tennessee, was founded. Among its customers in the mid-1940s were a local boot factory, a local candy manufacturer, a hosiery company, and several shirt manufacturers. The owners, Joe McHenry and A. E. Saxon, who also operated several other business ventures, wanted to sell out and retire. Rock City was attractive to Arthur Newth Morris, owner of the Southern Box Corp., not least for its bank account of $60,000. Morris purchased the company in 1945 for $200,000, making a cash down payment of $50,000.

The 25-year-old Morris had been a printer and part-time Presbyterian minister when he went to work in 1926 for Edwin J. Schoettle, a Philadelphia industrialist who owned a group of box and printing companies that bore his name. For a monthly salary of $350 Morris was expected to manage several hundred employees, some of them more than twice his age. He also traveled along the eastern seaboard, explaining to meatpackers his discovery that they could avoid shrinkage of their hot dogs by putting them in Schoettle's boxes instead of stringing them up like bananas.

By 1935 Morris was making a salary on which he could comfortably support his wife and four children, but he wanted to go into business for himself. Armed with life savings of $5,000 and a $7,500 investment by his boss, he moved to Baltimore. There he managed the J. E. Smith Box & Printing Co. during the day, while running the Southern Box Corp., a company he founded in 1936, at night. Using Smith's presses, die-cutters, and other boxmaking equipment during the evening, Morris began servicing two anchor customers who knew him from his Philadelphia days.

Only six months after Morris had left Philadelphia, Schoettle came to Baltimore to offer him a promotion and a $25,000 salary. When Morris refused, Schoettle offered to sell Morris his own majority share of Southern Box for $25,000. A bank loan helped Morris come up with the money and truly become his own boss. He moved to new quarters for $200 a month, left day-to-day management to one of his employees, and devoted himself to finding new accounts. In its first year the company made a few thousand dollars on sales of $60,000.

By 1942 Morris was doing well enough to open a corrugated box plant and to buy another Baltimore enterprise, the King Folding Box Co., where he installed a corrugated sheet cutter. Morris sold corrugated partitions to major glass companies, which needed them to separate the bottles and glasses they shipped. The following year the name of his enterprise was changed to The Newth-Morris Box Co. In 1944 another branch was opened in Jacksonville, Florida, where the company produced cardboard anti-radar devices for World War II's Army Air Force and popcorn boxes for movie-theater owners.

Morris's purchase of the Rock City Box Co. in 1945 put him in contact with one of its suppliers and his future merger partner: Tennessee Paper Mills. A. L. Tomlinson and John Stagmaier, two of Tennessee Paper's three founders, were Athens, Tennessee, businessmen who already owned box factories. The company's third founder was A. M. Sheperd of Vincennes, Indiana, a boxboard manufacturer. Tennessee Paper Mills was incorporated in 1917 with Stagmaier as president, Tomlinson as vice-president, and Sheperd as general manager. With $300,000 raised from stock offerings, the three men established a paperboard factory in Chattanooga, where operation began in July 1918. By the end of the year the new company had made a handsome net profit of $23,367 on sales of $165,799.

Although the founders originally planned to make board from wheat straw, they turned instead to wastepaper as the primary raw material; thus Tennessee Paper became the first recycled paperboard mill in the South. To reduce its electric bill, the company installed its own steam generating plant in 1926. Paperboard production averaged 20 tons a day in the early years, reaching an average of 56.77 tons in 1930, the same year that the company produced a record 15,557 tons of product. This figure would not be matched for some time due to the advent of the Great Depression; production dropped to 11,995 tons in 1934. The company remained profitable, however, although only modestly so. As the nation's economy slowly recovered, Tennessee Paper's volume of business increased to meet renewed demand. During 1939 the factory operated at 85 percent capacity, compared to the industry average of 71 percent. In 1941 it operated a record 305 days. Sales volume exceeded $1.7 million in 1945. A second papermaking machine doubled the mill's capacity in 1949.

Beginning in 1954, however, Tennessee Paper began losing customers to lower-cost folding cartons and corrugated and plastic containers. The trend in the business was toward vertical integration. Many paperboard companies acquired--or merged with--their customers. Typically profits were made at the mill level, by selling boxes virtually at cost. The effect on boxmakers was so severe that by 1957 Tennessee Paper was extending credit and loans to its customers in order to keep their accounts.

One of these customers was Rock City. Its consumption of Tennessee Paper's board grew from about 1,000 tons in 1944 to about 37,000 tons in 1972, when it took 44 percent of Tennessee Paper's total boxboard production. Between 1965 and 1968 Tennessee Paper bought 29.5 percent of Rock City's common stock, preparing the way for the eventual merger of the two companies. By then Rock City owed Tennessee Paper more than $4 million in loans.

Morris's burgeoning industrial empire grew both by acquisitions and by establishing new companies. Among the former was the Parks Box & Printing Co., located on a leased 11-acre tract in Norcross, Georgia. This land was purchased in 1957 and gradually became the focal point for management of all the Morris companies. A new 30,000-square-foot warehouse was added to the Norcross facility in 1960.

Each of the Morris companies operated as a separate and virtually autonomous profit center. Rock City opened not only small set-up and folding-carton plants but also facilities in Livingston and Milan, Tennessee, to meet the packaging needs of shirtmakers. A set-up-box division was established in 1955. Rock City Waste Paper Co. collected, sorted, and baled wastepaper for sale to paper mills. Other Morris companies and plants sprouted throughout the South. Sales grew from $8 million in 1959 to $12.9 million in 1967, when all the companies were consolidated into Rock City Packaging, Inc. Morris became chairman of the board and a son-in-law, Worley Brown, became president. Sales volume reached $23 million in 1972.

Meanwhile, in order to meet the competition, Tennessee Paper began buying customers to assure continued markets for its paperboard products. In 1964 it acquired Knoxville Paper Box Co., Inc., a manufacturer of folding and set-up boxes, for about $1 million. In 1969 Tennessee Paper acquired wastepaper factories in Knoxville and Atlanta, and in 1972 it built another wastepaper plant in Chattanooga.

The merger of Rock City Packaging and Tennessee Paper Mills in 1973 gave Morris, Brown, and others who held stock in the former companies a controlling interest in the new corporation, Rock-Tenn Co. Most Tennessee Paper common stockholders received preferred stock in the new company that earned them triple the dividends they had been receiving. Some shareholders, however, opted for cash instead. The president of Tennessee Paper, W. Max Finley, and his immediately family, received common stock in the new company. Finley was elected chairman of the board and Brown became president and chief executive officer.

Reorganization did nothing to slow down expansion. The Crescent Box & Printing Co. of Tullahoma, Tennessee, was acquired in 1973 and Clevepak Corp.'s Conway, Arkansas, folding-carton plant in 1974. By 1976 the company had 29 divisions. Sales in 1974, the first fiscal year after the merger, reached $47.7 million. In 1978 Bradley Currey, Jr., a veteran officer of the Trust Co. of Georgia who had helped effect the merger, became president and chief operating officer of Rock-Tenn. Brown became chairman of the board while remaining chief executive officer. Finley moved to senior chairman of the board. Morris remained chairman of the executive committee until his death in January 1985. Currey later became Rock-Tenn's chairman and chief executive officer as well as its president, posts he still held in 1995.

In 1982 Rock-Tenn's sales volume reached $133 million and its production of recycled paperboard peaked at 180,000 tons, most of which it used itself in the manufacture of folding cartons and containers and corrugated boxes. Its many customers included Coca-Cola, DuPont, and Kentucky Fried Chicken, which it serviced from facilities in Alabama, Arkansas, Georgia, Maryland, Massachusetts, North Carolina, Ohio, Tennessee, and Texas with a work force of 1,700 people. In a 1983 Atlanta Constitution interview, Currey attributed the decade-old company's growth to "luck, chance, and circumstance ... but the success of any company depends on its people." He added that the company had gone to great lengths "to make sure the workers know that we care"--a group of senior executives took a month each year to travel to each of the company's facilities in order to talk to employees and present service awards.

Rock-Tenn made its biggest acquisition ever in 1983, when it paid $40 million to buy 11 Clevepak Corp. plants, seven of which were making partitions to protect glass and plastic containers. Currey said the acquisition would allow Rock-Tenn to capture about one-fourth of the partition market, raise annual revenue to more than $200 million, and increase production of recycled paperboard to 235,000 tons. In 1989 net sales had reached $515.9 million, and net income was $31.1 million. The following year the company dedicated to chairman of the board Finley a 33,000-square-foot office building behind its headquarters in Norcross.

In 1990 Rock-Tenn acquired Allforms Packaging Corp. of Long Island and Box Innards Inc. of Orange, California. The following year it purchased the former Specialty Paperboard Inc. mill in Sheldon Springs, Vermont, and Ellis Paperboard Products Inc. of Scarborough, Maine, a manufacturer of folding cartons and solid-fiber partitions. The Ellis purchase included its Canadian subsidiary, Dominion Paperboard Products Ltd. With these additions Rock-Tenn controlled 60 manufacturing and distribution operations, including eight mills with a total annual production capacity of 607,000 tons of recycled paperboard products. Rock-Tenn now ranked sixth among U.S. producers of recycled paperboard, with market share of 5.7 percent.

Net sales rose from $564.1 million in fiscal 1991, ending September 30, 1991, to $655.5 million in 1992, but dipped to $650.7 million in 1993. Net income rose from $25 million in 1991 to $33.2 million in 1992 before dipping to $25.5 million in 1993. The 1993 figure included unusual after-tax expenses of $5.8 million. Production in fiscal 1994 was 700,000 tons of recycled paperboard, of which 182,000 tons was clay-coated recycled paperboard.

The first public offering of Rock-Tenn stock, amounting to about 14 percent of the shares outstanding, was made in March 1994. A handful of shareholders offered about 3.6 million shares of Class A common stock, while the company itself offered about 900,000 shares. An analysis in Barron's described Rock-Tenn's balance sheet as "attractive" and said the company was "more soundly financed than many in its field," noting that long-term debt of $51.6 million was only one year's cash flow. Although calling the offering somewhat pricey at $16.50 a share, it noted that "Rock-Tenn's emphasis on recycling makes it well-suited to customers wishing to appear environmentally responsible, and could also prove profitable if use of woodlands is restricted." Officers and directors of Rock-Tenn still controlled about 71 percent of the combined voting power of Class A and B common stock after the offering. Class A stock was selling at $16.75 a share at the end of March 1995.

In December 1993 Rock-Tenn paid $35 million for Les Industries Ling, a Canadian company that used recycled paperboard to make folding cartons. The newly acquired plant, which was to serve as the principal supplier of recycled clay-coated paperboard for Rock-Tenn's Vermont mill, became the company's second-largest folding-carton facility. A year later, Rock-Tenn agreed to acquire Olympic Packaging, an Illinois-based manufacturer of folding cartons, and Alliance Packaging of Winston-Salem, North Carolina. The purchases, which boosted Rock-Tenn's acquisitions of manufacturing operations to 17 in a decade, cost about $75 million.

Questioned by an Atlanta Constitution reporter about Rock-Tenn's stock offering, a J. P. Morgan Securities analyst replied, "They've got a bulletproof balance sheet ... and are better positioned both financially and strategically than their major peers." The same analyst also favored the two 1994 acquisitions, declaring that they would take Rock-Tenn "to $800 million practically overnight, and the businesses fit extremely well."

By the middle of the 1990s, Rock-Tenn had 59 facilities in 19 states and Canada. Eight were mills making recycled paperboard, eight were paper-recovery facilities, 39 were converting facilities, and two were distribution facilities. There were seven manufacturing divisions.

Net sales reached $705.8 million during fiscal 1994, constituting an 11.8 percent compounded annual growth rate for the past decade. Net income came to a record $37.5 million. During the fiscal year Rock-Tenn generated over $74 million in cash and invested over $106 million in capital expenditures and acquisitions. Some 86 percent of net sales, but only 39 percent of operating income, came from products converted from paperboard. Of converted-products sales, folding cartons accounted for 52 percent; laminated paperboard, 19 percent; solid-fiber partitions, 17 percent; and corrugated sheets and boxes and plastics, 12 percent.

Principal Subsidiaries: Concord Industries, Inc.; Dominion Paperboard Products, Ltd. (Quebec); Rock-Tenn Co. of Arkansas; Rock-Tenn Co. of Texas; Rock-Tenn Co. Converting Co.; Rock-Tenn Co., Mill Division, Inc.

Additional Details

Further Reference

Cochran, Thomas N., "Offerings in the Offing," Barron's, February 21, 1994, p. 50.Harte, Susan, "Rock-Tenn's Public Stock Offering Finances Expansion, Acquisitions," Atlanta Constitution, December 1, 1994, p. F7.------, "Rock-Tenn Plans Another Acquisition," Atlanta Constitution, December 16, 1994, p. G2.Herndon, Keith, "Rock-Tenn Seeks Knockout Punch," Atlanta Constitution, July 11, 1983, p. C12.The Rock-Tenn Story, Norcross, Ga.: The Rock-Tenn Company.

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