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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

Commission file number 0-23340

ROCK-TENN COMPANY

Registrant’s telephone number, including area code: (770) 448-2193

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

      Indicate by check mark if the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes x No o

      The aggregate market value of the common stock held by non-affiliates of the registrant as of March 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter (based on the last reported closing price per share of Class A Common Stock as reported on the New York Stock Exchange on such date), was approximately $523 million.

      As of December 5, 2002, the registrant had 34,334,927 shares of Class A Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on January 24, 2003 are incorporated by reference in Parts III and IV.

Table of Contents

ROCK-TENN COMPANY

INDEX TO FORM 10-K

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PART I

Item 1.     BUSINESS

      Unless the context otherwise requires, “we”, “us”, “our” or “Rock-Tenn” refers to the business of Rock-Tenn Company and its subsidiaries, including RTS Packaging, LLC, which we refer to as RTS, and Seven Hills Paperboard, LLC, which we refer to as Seven Hills. We own 65% of RTS and conduct our interior packaging products business through RTS. We own 49% of Seven Hills, a manufacturer of gypsum paperboard liner.

General

      We are a manufacturer of packaging, merchandising displays and 100% recycled clay-coated and specialty paperboard and corrugating medium. Our packaging operations manufacture folding cartons, solid fiber interior packaging, corrugated packaging and corrugated sheet stock, plastic packaging and extruded plastic roll stock. We also produce laminated paperboard products as well as collect and sell recycled fiber. We operate 65 converting operations, 12 paperboard mills and one distribution facility. These facilities are located in 24 states, Canada, Mexico and Chile.

Products

      We report our results of operations in three industry segments: (1) packaging products, (2) merchandising displays and corrugated packaging, and (3) paperboard. For financial information relating to our segments, please see Item 8, “Financial Statements and Supplementary Data.” For financial information related to our non-U.S. operations, see Note 11, “Segment Information” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      In our packaging segment, we manufacture three lines of packaging products: folding cartons, solid fiber interior packaging, and plastic packaging.

      Folding Cartons. We believe that we are the fifth largest producer of folding cartons in North America. Customers use our folding cartons to package frozen, dry and perishable food items, paper goods and hardware, textile, automotive, apparel and other products. We also manufacture express envelopes for the overnight courier industry. Folding cartons typically serve the dual function of protecting customers’ products during shipment and distribution and promoting them at retail. We manufacture folding cartons from recycled or virgin paperboard, which we print, coat, die-cut and glue in accordance with customer specifications. We then ship finished cartons to customers’ plants for assembling, filling and sealing. By employing a broad range of offset, flexographic and gravure printing technologies, we are able to meet a broad range of folding carton applications. We support our customers in creating new packaging solutions through our product development, graphic design and packaging systems service groups. We operate 16 folding carton plants and one distribution facility. Sales of folding cartons to unaffiliated customers accounted for 41.5%, 41.6% and 40.5% of our net sales in fiscal 2002, 2001 and 2000, respectively.

      Interior Packaging Products. We believe that we are the largest manufacturer of solid fiber partitions in North America. We market our solid fiber partitions principally to glass container manufacturers and producers of beer, food, wine, cosmetics and pharmaceuticals. We also manufacture specialty packaging for specific fruit and vegetable markets and sheeted separation products for various industries. We manufacture solid fiber interior packaging primarily from 100% recycled specialty paperboard. Our solid fiber interior packaging is made from varying thicknesses of single ply and laminated paperboard to meet different structural requirements, including those required for high speed casing, uncasing and filling lines. We focus on developing high quality, value-added interior packaging products for specific applications to meet customers’ packaging needs. We employ primarily proprietary manufacturing equipment developed by our engineering services group. This equipment delivers high-speed production which allows for rapid turnaround on large jobs

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      Plastic Packaging Products. We manufacture custom thermoformed plastic packaging for sale to the food, food service and consumer products markets and our Durafresh® line of rigid plastic trays for sale to meat processors for use in the case-ready meat industry. We use radiant heat thermoforming equipment to manufacture thermoformed products from plastic roll stock in a wide range of thicknesses, enabling us to serve a range of product applications. We also manufacture extruded plastic roll stock in a variety of resins and in many colors for internal use and for sale to other thermoformers. We use virgin and recycled plastic resin purchased from third parties in the extrusion process, including high impact polystyrene, high-density polyethylene, polypropylene, polyethylene terephthalate (PET) and K resin blends. We support the packaging needs of our customers through our product design and field technical services groups. We operate two plastic packaging plants. Sales of plastic packaging products to unaffiliated customers accounted for 4.7%, 5.3% and 4.3% of our net sales in fiscal 2002, 2001 and 2000, respectively.

      In our merchandising displays and corrugated packaging segment, we manufacture three lines of products: temporary and permanent point-of-purchase displays, corrugated packaging, and corrugated sheet stock.

      Merchandising Displays. We believe we are the largest manufacturer of temporary promotional point-of-purchase displays in North America. We design, manufacture and, in most cases, pack temporary displays for sale to consumer products companies. These high impact displays are used as marketing tools to support new product introductions and specific product promotions in mass merchandising stores, supermarkets, convenience stores, home improvement stores and other retail locations. We also design, manufacture and, in some cases, pack permanent displays to the same categories of customers. Temporary displays are constructed primarily from corrugated paperboard and generally are not restocked with products. Permanent displays are restocked and, therefore, are constructed primarily from metal, plastic, wood and other durable materials. We also provide contract packing services such as multi-product promotional packing including “buy one, get one free” and complementary or free product promotions. In March 2002, we acquired Athena Industries, Inc., a manufacturer of permanent point-of-purchase displays made primarily from metal wire. We also manufacture lithographic laminated packaging for sale to our customers that require packaging with high quality graphics and strength characteristics. We operate two facilities that manufacture displays, one of which also manufactures lithographic laminated packaging, and one facility that manufactures primarily lithographic laminated packaging. We also operate twelve contract packing facilities, three of which are co-locations shared with one of our customers or a third party service provider to one of our customers. We also have ten display sales and design centers. Sales of our merchandising displays and lithographic laminated packaging to unaffiliated customers accounted for 15.2%, 12.6% and 10.5% of our net sales in fiscal 2002, 2001 and 2000, respectively.

      Corrugated Packaging. We manufacture corrugated packaging for sale to the industrial products and consumer products markets and corrugated sheet stock for sale to corrugated box manufacturers. These products are manufactured in a range of flute configurations and our packaging includes a wide array of structural designs. We market corrugated packages and corrugated sheet stock products primarily in the Southeastern U.S. To make corrugated sheet stock, we simultaneously feed linerboard and corrugating medium into a corrugator that flutes the medium to specified sizes, glues the linerboard and fluted medium together and slits and cuts the resulting corrugated paperboard into sheets in accordance with customer specifications. We also convert corrugated sheets into corrugated products ranging from one-color protective cartons to graphically brilliant point-of-purchase containers and displays. We assist our customers in developing solutions through our structural design and engineering services groups. We operate one corrugator, three sheet plants and one fulfillment center. Sales of our corrugated packaging products to unaffiliated customers accounted for 4.6%, 5.3% and 5.5% of our net sales in fiscal 2002, 2001 and 2000, respectively.

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      In our paperboard segment, we collect recovered paper and produce four paperboard products: 100% recycled clay-coated paperboard, 100% recycled specialty paperboard, including gypsum paperboard liner, 100% recycled corrugating medium, and laminated paperboard products.

      Clay-Coated and Specialty Paperboard, Corrugating Medium and Gypsum Paperboard Liner. We believe we are the second largest U.S. manufacturer of 100% recycled paperboard (excluding linerboard, medium and gypsum paperboard liner). We market our recycled clay-coated and specialty paperboard to manufacturers of folding cartons, solid fiber interior packaging, book cover and laminated paperboard furniture components, tube and core products, set-up boxes and other paperboard products. We also manufacture recycled corrugating medium, which we market to corrugated sheet manufacturers. Through our Seven Hills joint venture, we manufacture gypsum paperboard liner for sale to Lafarge Corporation, our joint venture partner. We operate 12 paperboard mills. Sales of recycled paperboard (including corrugating medium) to unaffiliated customers accounted for 15.3%, 16.3% and 17.3% of our net sales in fiscal 2002, 2001 and 2000, respectively.

      Laminated Paperboard Products. We believe we are the largest U.S. producer of laminated paperboard products for the furniture market and the second largest U.S. manufacturer of laminated paperboard products for the book cover market. We convert specialty paperboard into laminated paperboard products for use in book covers and binders, furniture, automotive components, fiber drums and other industrial products. We operate five laminated paperboard products plants. Sales of laminated paperboard products to unaffiliated customers accounted for 7.3%, 7.8% and 9.3% of our net sales in fiscal 2002, 2001 and 2000, respectively.

      Recycled Fiber. We operate 12 paper recovery facilities that collect paper from a number of sources including factories, commercial printers, office buildings, retail stores and paper converters as well as from other wastepaper collectors. After sorting and baling, we transfer collected paper to our paperboard mills for processing or sell it principally to other U.S. manufacturers that use recycled fiber as their primary raw material. These customers include, among others, manufacturers of paperboard, tissue, newsprint, roofing products and insulation. Several of our paper recovery facilities are located near our paperboard mills. This helps minimize freight costs and provides an additional source of supply of recovered paper for our operations, which is the principal raw material used to produce recycled paperboard. We also operate a marketing and brokerage group that serves large regional and national accounts. Sales of recovered paper to unaffiliated customers accounted for 2.8%, 2.3% and 3.3% of our net sales in fiscal 2002, 2001 and 2000, respectively.

Raw Materials

      The primary raw material used by our paperboard operations is recycled fiber, including primarily old corrugated containers, office paper, box clippings, newspaper, and print shop scraps. During fiscal 2002, recycled fiber prices fluctuated significantly. The average cost of recycled fiber used by our paperboard mills during fiscal 2002 was $80 per ton, compared to $69 per ton during fiscal 2001. There can be no assurance that we will be able to recoup any future increases in the cost of recycled fiber through price increases for our products.

      The primary raw material used by our converting operations, other than our plastic packaging operations, is recycled and virgin paperboard. There are a limited number of suppliers of virgin paperboard and, in the case of one of the primary grades of virgin paperboard used by our folding carton operations, there are only two suppliers. While management believes that it would be able to obtain adequate replacement supplies in the market should any of our current vendors discontinue supplying us virgin paperboard, the failure to obtain such supplies or the failure to obtain such supplies at market prices could have an adverse effect on our results of operations. We supply substantially all of our internal needs for recycled paperboard. Because there are other suppliers that produce the necessary grades of recycled paperboard used in these converting operations, management believes that it would be able to obtain adequate replacement supplies in the market should we be unable to meet our requirements for recycled paperboard through internal production. In the event that the cost of paperboard used in our converting operations increases, there can be no assurance that we will be able to recoup any such cost increases through price increases of our products.

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      The primary raw materials used by our plastic packaging operations are virgin and recycled plastic resins, including high impact polystyrene, high-density polyethylene, polypropylene, polyethylene terephthalate (PET) and K resin blends. Approximately 75% of the resins we use are purchased pursuant to long-term contractual arrangements. Because a significant number of reliable suppliers produce the plastic resins used in our plastic packaging operations, management believes that it would be able to obtain adequate replacement supplies of these resins in the event that any of our current vendors discontinue supplying us. In the event that the cost of plastic resins increases, there can be no assurance that we will be able to recoup any such cost increases through price increases for our products.

Energy

      Excluding raw materials and labor, energy is one of our most significant manufacturing costs, particularly in our paperboard operations. We use energy, including natural gas, electricity, fuel oil and coal, to generate steam used in the paper making process and to operate our paperboard machines and converting equipment. We generally purchase energy from local suppliers at market rates. Occasionally, we enter into long-term agreements to purchase natural gas. We have entered into a long-term supply contract pursuant to which we purchase steam for our St. Paul mills. Because a significant number of reliable suppliers produce the various sources of energy used in our operations, management believes that it would be able to obtain adequate replacement supplies should any of our current vendors discontinue supplying us. In recent years, the cost of natural gas, which we use in many of our manufacturing operations, including most of our paperboard mills, has fluctuated significantly. There can be no assurance that we will be able to recoup any future increases in the cost of natural gas or other energy through price increases for our products.

Sales and Marketing

      Our top ten external customers represented approximately 28% of consolidated net sales in fiscal 2002, none of which accounted for more than 10% of our consolidated net sales. We generally manufacture our products pursuant to customers’ orders. Some of our products are marketed to key customers. The loss of any key customer could have a material adverse effect on the net income attributable to the applicable segment and, depending on the significance of such product line to our operations, our results of operations. We believe that we have good relationships with our key customers. In fiscal 2002, we sold:

	•	packaging products to approximately 2,900 customers, the top ten of which represented approximately 32% of our external sales of the packaging products segment;
	•	merchandising display products and corrugated packaging products to approximately 350 and 800 customers, respectively, the top ten of which represented approximately 57% of our external sales of the merchandising display and corrugated packaging segment; and
	•	recycled paperboard, corrugating medium, laminated paperboard products and recovered paper to approximately 2,000 customers, the top ten of which represented approximately 49% of our external sales of the paperboard segment.

      Each of our product lines, other than our gypsum paperboard liner, is marketed through its own sales force. Each sales force maintains direct sales relationships with our customers. We also market a number of our product lines, including folding cartons, plastic packaging, interior packaging and book covers, through independent sales representatives and independent distributors. Sales personnel are supervised by regional sales managers, plant general managers or the general manager for the particular product line, who support and coordinate the sales activities within their designated area. We pay our paperboard and laminated paperboard products sales personnel a base salary, and we generally pay our packaging products and merchandising displays and corrugated packaging sales personnel a base salary plus commissions. We pay our independent sales representatives on a commission basis. Under the terms of our Seven Hills joint venture arrangement, Lafarge Corporation is required to purchase all of the gypsum paperboard liner produced by Seven Hills.

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Competition

      The packaging products and paperboard industries are highly competitive, and no single company dominates either industry. Our competitors include large, vertically integrated packaging products and paperboard companies and numerous smaller companies. In the folding carton and corrugated packaging markets, we compete with a significant number of national, regional and local packaging suppliers in North America. In the solid fiber interior packaging, promotional point-of-purchase display, thermoformed plastic packaging and laminated paperboard products markets, we compete with a smaller number of national, regional and local companies offering highly specialized products. We also compete with foreign companies in the book cover market. Our coated paperboard and specialty paperboard operations compete with integrated and non-integrated national and regional companies manufacturing various grades of recycled and recycled content paperboard. Our paperboard also competes with virgin paperboard. Our recycled fiber operations compete with national, regional and local companies.

      Due to the highly competitive nature of all of our businesses, we regularly bid for sales opportunities to customers for new business or for renewal of existing business. The loss of business or the award of new business from our larger customers may have a significant impact on our results of operations. Approximately 30% of our paperboard segment sales are to internal customers, predominantly in our packaging products segment. Our paperboard segment’s sales volumes may therefore be directly impacted by changes in demand for our packaging products.

      The primary competitive factors in the packaging products and paperboard industries are price, design, product innovation, quality and service, with varying emphasis on these factors depending on the product line and customer preferences. We believe that we compete effectively with respect to each of these factors. However, to the extent that any of our competitors becomes more successful with respect to any key competitive factor, our business could be materially adversely affected.

      The packaging products and recycled paperboard industries have undergone significant consolidation in recent years. We believe that current trends within these industries are likely to result in further consolidation. Within the packaging products industry, larger corporate customers with an expanded geographic presence have tended in recent years to seek suppliers who can, because of their broad geographic presence, efficiently and economically supply all or a range of the customers’ packaging needs. In addition, during recent years, purchasers of recycled paperboard and packaging products have demanded higher quality products meeting stricter quality control requirements. These market trends could adversely affect our results of operations or, alternatively, favor our products depending on our competitive position in specific product lines.

      Packaging manufactured from paperboard competes with plastic and corrugated packaging, as well as packaging manufactured from other materials. Customer shifts away from paperboard packaging to packaging from such other substrates could adversely affect our results of operations.

Governmental Regulation

      Our operations are subject to federal, state, local and foreign laws and regulations relating to workplace safety and worker health including the Occupational Safety and Health Act and regulations promulgated thereunder. This Act, among other things, establishes asbestos and noise standards and regulates the use of hazardous chemicals in the work place. Although we do not use asbestos in manufacturing our products, some of our facilities contain asbestos. For those facilities where asbestos is present we have properly contained this asbestos or we have conducted training of our employees to ensure that no federal, state or local rules or regulations are violated in the maintenance of our facilities. We do not believe that future compliance with health and safety laws and regulations will have a material adverse effect on our results of operations, financial condition or cash flows.

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      We are subject to various federal, state, local and foreign environmental laws and regulations, including those regulating the discharge, storage, handling and disposal of a variety of substances. These laws and regulations include, among others, the Comprehensive Environmental Response, Compensation and Liability Act, which we refer to as CERCLA, the Clean Air Act (as amended in 1990), the Clean Water Act, the Resource Conservation and Recovery Act (including amendments relating to underground tanks) and the Toxic Substances Control Act. These environmental regulatory programs are primarily administered by the U.S. Environmental Protection Agency. In addition, some states in which we operate have adopted equivalent or more stringent environmental laws and regulations or have enacted their own parallel environmental programs, which are enforced through various state administrative agencies.

      We do not believe that future compliance with these environmental laws and regulations will have a material adverse effect on our results of operations, financial condition or cash flows. However, environmental laws and regulations are becoming increasingly stringent. Consequently, our compliance and remediation costs could increase materially. In addition, we cannot currently assess with certainty the impact that the future emissions standards and enforcement practices under the 1990 amendments to the Clean Air Act will have on our operations or capital expenditure requirements. However, we believe that any such impact or capital expenditures will not have a material adverse effect on our results of operations, financial condition or cash flows.

      Excluding costs related to wastewater treatment system improvements at a paperboard mill in Otsego, Michigan discussed in the next paragraph, we estimate that we will spend up to $1.0 million for capital expenditures during fiscal year 2003 in connection with matters relating to environmental compliance. We also may be required to upgrade certain waste water treatment equipment at one of our facilities during the next twelve months at a cost ranging from approximately $100,000 to $400,000. In addition, we may need to modify or replace the coal-fired boilers at two of our facilities in order to operate cost effectively while complying with emissions regulations under the Clean Air Act. We estimate these improvements could cost from $4.0 million to $6.0 million. If required, we anticipate those costs to be incurred within the next three years.

      On February 9, 1999, we received a letter from the Michigan Department of Environmental Quality, which we refer to as MDEQ, in which the MDEQ alleged that we were in violation of the Michigan Natural Resources and Environmental Protection Act, as well as the facility’s wastewater discharge permit at one of our Michigan facilities. The letter alleged that we exceeded several numerical limitations for chemical parameters outlined in the wastewater permit and violated other wastewater discharge criteria. The MDEQ further alleged that we are liable for contamination contained on the facility property as well as for contributing contamination to the Kalamazoo River site. The letter requested that we commit, in the form of a binding agreement, to undertake the necessary and appropriate response activities and response actions to address contamination in both areas. We have entered into an administrative consent order pursuant to which improvements are being made to the facility’s wastewater treatment system and we have paid a $75,000 settlement amount. We have also agreed to pay in three equal installments an additional amount of $30,000 for past and future oversight costs incurred by the State of Michigan. The first two installments have been made, with the last installment to be made during fiscal year 2003. The cost of making upgrades to the wastewater treatment systems is estimated to be up to $3.1 million, of which we have incurred $1.0 million as of September 30, 2002. Nothing contained in the order constitutes an admission of liability or any factual finding, allegation or legal conclusion on our part. The order was completed during the first quarter of fiscal 2002. To date, the MDEQ has not made any other demand regarding our alleged liability for contamination at the Kalamazoo River site.

      We have been identified as a potentially responsible party, which we refer to as a PRP, at ten active “superfund” sites pursuant to CERCLA or comparable state statutes. No remediation costs or allocations have been determined with respect to such sites other than costs that were not material to us. Based upon currently available information and the opinions of our environmental compliance managers and general counsel, although there can be no assurance, we believe that any liability we may have at any site will not have a material adverse effect on our results of operations, financial condition or cash flows.

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Patents and Other Intellectual Property

      We hold a substantial number of patents and pending patent applications in the United States and in certain foreign countries. Our patent portfolio consists primarily of utility and design patents relating to our various operations, as well as certain process and methods patent applications relating to our paperboard operations. Certain of our patents and other intellectual property are supported by trademarks such as Durafresh®, MillMask®, Millennium®, AdvantaEdge®, WineGuard® and ProduSaver™. Our patents and other intellectual property, particularly our patents relating to our plastic packaging and folding carton operations, are important to our operations as a whole.

      We have filed suit against four parties seeking to enjoin them from infringing our U.S. patent number 6,430,467 relating to our Durafresh® tray technology and to recover damages suffered by us as a result of such infringements. Another party has filed suit against us seeking to invalidate such patent. We are in the early stages of these lawsuits and no assurances can be made that we will be able to successfully enforce our patent. We have additional patents pending with respect to our Durafresh® tray technology.

Employees

      At November 25, 2002, we had 8,418 employees. Of these employees, 6,520 were hourly and 1,898 were salaried. Approximately 2,900 of our hourly employees are covered by union collective bargaining agreements, which generally have three-year terms. We have not experienced any work stoppages in the past 10 years, and management believes that our relations with our employees are good.

Available Information

      Our Internet address is www.rocktenn.com. Please note that our Internet address is included in this annual report on Form 10-K as an inactive textual reference only. The information contained on our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this report. We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”) and we make available free of charge most of our SEC filings through our Internet website as soon as reasonably practicable after we electronically file these materials with the SEC. You may access these SEC filings via the hyperlink that we provide on our website to a third-party SEC filings website.

Forward-looking Information and Risk Factors

      We, or our executive officers and directors on our behalf, may from time to time make “forward looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements include statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “plans,” “estimates,” or similar expressions. These statements may be contained in reports and other documents that we file with the SEC or may be oral statements made by our executive officers and directors to the press, potential investors, securities analysts and others. These forward looking statements could involve, among other things, statements regarding the Company’s intent, belief or expectation with respect to:

	•	our results of operations and financial condition,
	•	the consummation of acquisitions and financial transactions and their effect on our business, and
	•	our plans and objectives for future operations and expansion.

      Any forward looking statements would be subject to risks and uncertainties that could cause actual results of operations, financial condition, acquisitions, financing transactions, operations, expansion and other events to differ materially from those expressed or implied in such forward looking statements. Any forward looking statements would be subject to a number of assumptions regarding, among other things, future economic, competitive and market conditions generally and could be affected by changes in management’s plans, such as delays or changes in anticipated capital expenditures or changes in our operations. These assumptions would

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      Historically, the cost of recovered paper, virgin paperboard and plastic resins, our principal externally sourced raw materials, have fluctuated significantly due to market and industry conditions. Increasing demand for products packaged in 100% recycled paper and the shift by virgin paperboard, tissue, newsprint and corrugated packaging manufacturers to the production of products with some recycled paper content may increase demand for recovered paper. Furthermore, there has been a substantial increase in demand for U.S. sourced recovered paper by Asian countries. These increasing demands may result in cost increases. In recent years, the cost of natural gas, which we use in many of our manufacturing operations, including most of our paperboard mills, and other energy has also fluctuated significantly. There can be no assurance that we will be able to recoup any future increases in the cost of recovered paper or other raw materials or of natural gas or other energy through price increases for our products. Further, a reduction in supply of recovered paper, virgin paperboard and plastic resins, or other raw materials due to increased demand or other factors could have an adverse effect on our results of operations and financial condition.

      The paperboard and converted products industries historically have experienced significant fluctuations in selling prices. Our inability to maintain the selling prices of products within these industries during periods of weak economic conditions may have a material adverse effect on our results of operations and financial condition. We are not able to predict with certainty market conditions or the selling prices for our products.

      Our operations generally have high fixed operating cost components and therefore our earnings are highly dependent on volumes, which tend to fluctuate. These fluctuations make it difficult to predict our results with any degree of certainty.

      The packaging products and paperboard industries are highly competitive, and no single company dominates either industry. Our competitors include large, vertically integrated packaging products and paperboard companies and numerous smaller companies. In the folding carton and corrugated packaging markets, we compete with a significant number of national, regional and local packaging suppliers in North America. In the solid fiber interior packaging, promotional point-of-purchase display, thermoformed plastic packaging and laminated paperboard products markets, we compete with a smaller number of national, regional and local companies offering highly specialized products. We also compete with foreign companies in the book cover market. Our coated paperboard and specialty paperboard operations compete with integrated and non-integrated national and regional companies manufacturing various grades of recycled and recycled content paperboard. Our paperboard also competes with virgin paperboard. Our recycled fiber operations compete with national, regional and local companies.

      The primary competitive factors in the packaging products and paperboard industries are price, design, product innovation, quality and service, with varying emphasis on these factors depending on the product line and customer preferences. We believe that we compete effectively with respect to each of these factors. However, to the extent that any of our competitors becomes more successful with respect to any key competitive factor, our business could be materially adversely affected.

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      The packaging products and recycled paperboard industries have undergone significant consolidation in recent years. We believe that current trends within these industries will result in further consolidation. Within the packaging products industry, larger corporate customers with an expanded geographic presence have tended in recent years to seek suppliers who can, because of their broad geographic presence, efficiently and economically supply all or a range of the customers’ packaging needs. In addition, during recent years, purchasers of recycled paperboard and packaging products have demanded higher quality products meeting stricter quality control requirements. These market trends could adversely affect our results of operations or, alternatively, favor our products depending on our competitive position in specific product lines.

      We have completed several acquisitions during the past five fiscal years and may seek additional acquisition opportunities. There can be no assurance that we will successfully be able to identify suitable acquisition candidates, complete acquisitions, integrate acquired operations into our existing operations or expand into new markets. There can also be no assurance that future acquisitions will not have an adverse effect upon our operating results. This is particularly true in the fiscal quarters immediately following the completion of such acquisitions while the operations of the acquired business are being integrated into our operations. Once integrated, acquired operations may not achieve levels of revenues, profitability or productivity comparable with those achieved by our existing operations, or otherwise perform as expected. In addition, it is possible that, in connection with acquisitions, our capital expenditures could be higher than we anticipated and that expected benefits of such capital expenditures may not be realized.

      We are subject to various federal, state, local and foreign environmental laws and regulations, including those regulating the discharge, storage, handling and disposal of a variety of substances. We regularly make capital expenditures to maintain compliance with applicable environmental laws and regulations. However, environmental laws and regulations are becoming increasingly stringent. Consequently, our compliance and remediation costs could increase materially. In addition, we cannot currently assess with certainty the impact that the future emissions standards and enforcement practices under the 1990 amendments to the Clean Air Act will have on our operations or capital expenditure requirements. Further, we have been identified as a potentially responsible party at various “superfund” sites pursuant to the Comprehensive Environmental Response, Compensation and Liability Act or comparable state statutes. There can be no assurance that any liability we may incur in connection with these superfund sites will not be material to our results of operations, financial condition or cash flows.

      Each of our divisions has certain key customers, the loss of which could have a material adverse effect on the division’s sales and, depending on the significance of the division to our operations, our results of operations, financial condition or cash flows.

Non-audit Services by Independent Auditors

      During the fourth quarter of fiscal 2002, the audit committee of our board of directors authorized Ernst & Young LLP, our independent auditors, to perform the following non-audit services, provided that the total cost of such services does not exceed $50,000 without the prior approval of the audit committee:

	•	a review of our corporate tax return for the fiscal year ended September 30, 2002, and
	•	to provide general accounting advice relating to accounting issues.

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Item 2.     PROPERTIES

      The following table shows information about our paperboard mills:

*

Reflects the production capacity of one of our two paperboard machines that has been converted to manufacture gypsum paperboard liner and is owned by Seven Hills Paperboard, LLC, an entity in which we own 49% of the equity. During fiscal 2002, we permanently shut down a second paperboard machine at our Lynchburg, Virginia paperboard mill and a specialty paperboard machine at our Dallas, Texas paperboard mill.

      In addition to our paperboard mills set forth above, we also operate 65 converting operations and one distribution facility that are located in 24 states (mainly in the Southwestern, Southeastern, Midwestern and Northeastern U.S.), Canada, Mexico and Chile. Of our converting facilities and mills, we own 63 and lease 14. Our principal executive offices, which we own, are located in Norcross, Georgia. We believe that our existing production capacity is adequate to service existing demand for our products. We consider our plants and equipment to be in good condition.

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      The following is a list of our significant facilities other than our paperboard mills:

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