Caraustar Industries, Inc.

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Caraustar Industries, Inc.

3100 Washington Street
Austell, Georgia 30001
U.S.A.
(770) 948-3101
Fax: 770-732-3401

Public Company
Incorporated: 1938 as Carolina Paper Board Corp.
Employees: 4,114
Sales: $602.69 million (1996)
Stock Exchanges: NASDAQ
SICs: 2652 Setup Paperboard Boxes; 2655 Fiber Cans Tubes Drums; 2657 Folding Paperboard Boxes Including Sanitary; 6719 Holding Companies, Not Elsewhere Classified

Caraustar Industries, Inc. is a leading manufacturer of recycled paperboard and converted paperboard products with more than 70 facilities in the United States and Mexico. Caraustar’s position as a diversified, low-cost producer and supplier of paperboard and paperboard products has allowed the company to capture a strong share of each of four key paperboard markets: tubes, cores, and drums; folding cartons; gypsum wall-board facing paper; and other specialty and converted paper-board products. Caraustar is the only major paperboard producer to serve each of these four markets, providing the company both stability and flexibility in a traditionally cyclical, commodity-based industry. The company also produces extruded and injection-molded plastic products to complement its paperboard product lines. Since the early 1980s, Caraustar has pursued an aggressive growth plan through acquisition and internal expansion, raising net sales (after freight costs) from $94 million in 1980 to more than $600 million in 1996. Caraustar has a nearly unbroken record of sales and income growth.

Caraustar operates 14 paperboard mills in North Carolina, South Carolina, Georgia, New Jersey, Virginia, Illinois, Ohio, Iowa, Tennessee, New York, and Pennsylvania. Caraustar’s paperboard mills recycle paperstock, reducing this stock to pulp, then cleaning, refining, and processing the pulp into various grades of uncoated and clay-coated paperboard. Each of Caraustar’s mills has the flexibility of producing paperboard for two or more of the company’s four key markets, allowing the company to react quickly to market conditions and maintain high plant productivity rates. Approximately 33 percent of the resulting paperboard is used internally by Caraustar; the remaining 67 percent is sold to other manufacturers of paperboard and related products. External sales of paperboard typically account for 36 percent of Caraustar’s annual sales.

The company and its subsidiaries operate some 40 converting facilities directly serving Caraustar’s primary markets. The company’s largest and oldest subsidiary, Star Paper Tube, Inc., operates 28 tube, core, and can converting plants, providing cores for the carpeting, textile, paper, plastic film, and other industries. In 1996, Caraustar produced some 268 thousand tons of tube and core products, which, together with sales of unconverted paperboard to other tube and core manufacturers, represented 36 percent of the company’s net sales.

Folding carton operations, produced at ten plants in North Carolina, Ohio, and Tennessee, provided 27 percent of Caraustar’s net sales in 1996. In that year, Caraustar’s 13 gypsum wallboard facing paper plants shipped 263 thousand tons, capturing roughly 17 percent of the North American market, for 17 percent of the company’s net sales. The company’s sales of specialty paperboard products—for the bookbinding, printing, games, puzzleboard, furniture, and other industries—accounted for 14 percent of Caraustar’s net sales. Caraustar operates five specialty converting plants in Georgia, North and South Carolina, and Texas. Sales of injection-molded and extruded plastics and external sales of paperstock each accounted for approximately three percent of the company’s net sales in 1996.

A Recycling Pioneer in the 1930s

Caraustar was formed as the Carolina Paper Board Corporation in Charlotte, North Carolina in 1938 by Ross Puette and other investors. Puette already had more than a decade of experience in the paperboard industry, beginning his career in the 1920s at Richmond, Virginia-based Manchester Board and Paper Co. (which became a subsidiary of Caraustar in 1994). With $25,000 in startup funds, Puette and his partners built North Carolina’s first paper recycling plant, with 45 employees producing 25 tons of folding carton per day. The company’s operations grew quickly: by 1940, more than 60 employees produced some 8,000 tons of paperboard, generating sales of $374,000. The choice of location—a major urban market with a ready supply of waste paper—would become a key element of the company’s growth strategy.

During the 1940s, Carolina Paper Board branched out, forming affiliated companies in Charlotte and in Greenville, South Carolina and building two recycled paper processing plants to supply the company’s Charlotte paperboard mill. This move toward vertical integration, which assured the company a ready supply of low-cost fiber, would also become a company hall-mark. In 1947, the company added forward integration capacity, when it built a second paperboard mill in Austell, Georgia. In addition to the paperboard mill, the Austell site featured a converting facility, serving the folding carton market, and a recycled fiber processing plant, tapping the low-cost supply of waste paper in nearby Atlanta. By the end of the decade, Carolina Paper Board’s two mills were producing 125 tons per day. The company’s sales grew to $2.3 million on a total volume of 30,000 tons, and its payroll had swelled to 140 employees.

The first of the company’s strategic acquisitions occurred in the early 1950s, when Carolina Paper Board purchased a minority interest in Star Paper Tube, which operated a tube and core converting plant in Rock Hill, South Carolina. By 1958, Carolina Paper Board had gained a majority share of Star Paper Tube and had expanded the subsidiary by building two additional tube and core converting plants, in Danville, Virginia and in Austell, Georgia, serving the textile industry. At the end of the 1950s, Carolina Paper Board’s operations had grown to eight facilities, and sales had tripled to $6.4 million on more than 50,000 tons. The company was now represented in three key markets: folding carton, other specialty products, and tube and core.

Steady Growth in the 1960s and 1970s

The booming economy of the 1960s helped Carolina Paper Board increase its production more than 150 percent over the decade to an annual capacity of 128,000 tons. The company opened a third paper mill in 1964 in Greenville, South Carolina. Three years later, spurred by growth in the tube and core market, the company opened a fourth tube and core plant, which in turn prompted the opening of the company’s fourth paper mill. In the mid-1960s, Carolina Paper Board also increased its folding carton capacity with the acquisition of Charlotte-based Atlantic Coast Carton Company. With 870 employees, Carolina Paper Board’s sales quadrupled to $24.5 million, producing operating profits of more than $3 million. The company’s push toward integration was already nearing a 30 percent integration level among its paper mills and converting plants.

The Atlantic Coast Carton acquisition marked a new era of growth strategy for the company. During the 1970s, acquisitions played a major role in Carolina Paper Board’s expansion. Between 1970 and 1980, the company acquired one folding carton plant, two recycled fiber processing plants, and eight tube and core converting plants. At the same time, the company continued its internal growth, building five new tube and core converting plants, a recycled fiber processing plant, and a fifth paperboard mill. The new mill also enabled the company to move into a new paper market, the gypsum facing paper market, completing the company’s target market areas. Meanwhile, the company was also expanding within the tube and core market, moving beyond its reliance on the textile industry to supply the paper, construction, metal, and film industries. The company already exhibited another ingredient to its later growth, that of achieving a reasonable balance among its target markets. Many of the company’s plants were already capable of converting quickly from one market to another, helping to buffer the company during cyclical downturns in any of its core markets. As the 1970s ended, Carolina Paper Board had continued its strong growth, reaching revenues of $93.8 million and operating pro-fits of $12.8 million. The company’s 1,650 employees produced more than 264,000 tons.

Company Perspectives:

“At Caraustar we are committed to excellence and continuous improvement in every facet of our operation. Employee and Customer relationships will be built on mutual respect and concern for each other’s well-being. We will conduct our business guided by high ethical standards in accordance with all laws and regulations and will constantly strive to be responsible corporate citizens in the communities in which we are located. Caraustar Industries will produce and sell products and services that will earn a level of profits that enhances shareholder value, fairly rewards our employees for their contributions, and provides the capital necessary to maintain a leadership position in the recycled paperboard and packaging industry. To achieve these results we recognize we must provide quality goods and services that are superior to competition and that consistently meet customer requirements.”

Converting to Caraustar in the 1980s

Until 1980, the company had operated as six affiliated corporations, with common management and ownership. In that year, the company consolidated its operations under the holding company, Caraustar Industries, and relocated its headquarters to its 150-acre Austell site. The newly incorporated company continued the internal and external expansion set during the previous decade. Between 1981 and 1986, the company built three tube and core converting plants and acquired two folding carton plants, a plastic extrusion and injection molding plant, three tube and core converting plants, and four recycled paperboard mills. In 1986, however, the company expansion slowed after a leveraged recapitalization added some $300 million to the company’s debt. In the late 1980s, Caraustar acquired only one recycled paperboard mill in Camden, New Jersey. The company also backed into another acquisition, that of Standard Gypsum Corp., a maker of gypsum wallboard, after that company was unable to pay its paperboard bill. In 1996, however, Caraustar sold 50 percent of its interest in Standard Gypsum and relinquished the directorship of that business.

Despite the slowdown in the company’s growth, Caraustar managed to post a 187 percent increase in revenues during the 1980s, raising net sales to $141 million by 1990. Operating profits grew still more strongly, gaining 272 percent to reach $47.6 million. The company’s 2,567 employees, meanwhile, had increased mill production to 565,000 tons.

Public in the 1990s

At the start of the 1990s, Caraustar’s holdings had swelled to 44 facilities, including 11 paperboard mills located in Texas, North and South Carolina, Illinois, Ohio, New Jersey, and Tennessee. The company had grown to become one of the top ten recycling companies in the United States. The company’s Star Paper Tube subsidiary had grown to become the second largest tube and core producer in the country. As the recession of the early 1990s took hold, Caraustar formulated a newly aggressive strategic plan, which called for the company to step up its vertical integration and diversification in its key market areas. Part of that plan included taking the company public, to alleviate the debt load incurred during the 1980s. The company made an initial public offering (IPO) of 11.1 million common shares in December 1992, raising some $90 million.

Part of the funds raised in the company’s IPO was earmarked for stepping up the company’s acquisition program. Between 1991 and early 1997, Caraustar added some 30 facilities to its recycling empire. During 1992 and 1993, the company acquired two recycled paperboard mills, Buffalo Paperboard and Manchester Board and Paper, which was renamed Richmond Paperboard Corp. Caraustar bought two tube and core converting plants in Salt Lake City and Phoenix and acquired Federal Packaging Corp., a maker of composite containers using paperboard and injection-molded plastics. The following year, the company added to its folding cartons capacity with the acquisition of Mid-Packaging Group Inc. and that company’s two Tennessee-based folding carton plants. While investing in upgrades and maintenance of its existing facilities, Caraustar also built two new tube and core converting plants, in Lancaster, Pennsylvania and in Mexico City, as well as a new production facility for the company’s Star-Guard product in Lancaster, South Carolina.

In 1995, the company added GAR Holdings, with two specialty products plants and a folding carton plant, and Summer Paper Tube of Kernersville, North Carolina, with two core manufacturing plants. Summer also manufactured specialty adhesives used in the tube and core and paperboard lamination production processes, helping the company further solidify its diverse operations and integration within the paperboard industry. Toward that end, also, Caraustar entered a joint venture with Tenneco Packaging Co., which involved a $114.5 million purchase of an 80 percent interest in Tenneco’s clay-coated paperboard mills in Rittman, Ohio and Tama, Iowa, expanding Caraustar’s capacity in that high-growth area of the paperboard industry.

By 1996, the company’s revenues had more than doubled, reaching $629.67 million and generating nearly $58 million in net income. The company’s flexibility and diversity enabled the company to outpace its competitors, many of which struggled through industry downturns and booming paperstock costs. Caraustar promised to continue its expansion drive. In April 1997, the company reached agreement to acquire General Packing Service, Inc. of Clifton, New Jersey, adding that company’s lines of pharmaceutical, medical, and health, beauty, and personal care packaging products.

Principal Subsidiaries

ACC Services, Inc. (North Carolina); Mid Packaging Group—Alabama, Inc. (Alabama); Atlantic Coast Carton Company (North Carolina); Austell Box Board Corporation (Georgia); Buffalo Paperboard Corporation (New York); Camden Paper-board Corporation (New Jersey); Caraustar Paper Sales, Inc. (Georgia); Caraustar Paper Sales South; Caraustar Paperboard Corporation (Ohio); Carolina Paper Board Corporation (North Carolina); Carolina Paper Box Co., Inc. (North Carolina); Carolina Recycling, Inc. (North Carolina); Carotell Paper Board Corporation (South Carolina); Chattanooga Paperboard Corporation (Tennessee); Chicago Paperboard Corporation (Illinois); Cincinnati Paperboard Corporation( Ohio); Columbus Recycling, Inc. (Georgia); Federal Packaging Corporation (Delaware); Federal Transport, Inc. (Ohio); GAR Holding Company (Delaware); Macon Recycling, Inc. (Georgia); Mid-State Paper Box Company, Inc. (North Carolina); Packrite Packaging, Inc. (North Carolina); Paper Recycling, Inc. ( Georgia); Paragon Plastics, Inc. (South Carolina; 80%); Quality Design Products, Inc. (Georgia); Reading Paperboard Corporation (Pennsylvania); Richmond Paperboard Corporation (Virginia); Special Packaging, Inc. (Delaware); Standard Gypsum Corporation (Texas); Star Paper Tube de Mexico, S.A. de C.V. (Mexico; 65%); Star Paper Tube, Inc. (South Carolina); Star Recycling Incorporated (Georgia); Sweetwater Paper Board Company, Inc. (Georgia); The Garber Company (Delaware); The Mid/Packaging Group, Inc. (Tennessee).