Shorewood Packaging Corporation

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Shorewood Packaging Corporation

277 Park Avenue
New York, New York 10172
U.S.A.
(212) 371-1500
Fax: (212) 752-5610
Web site: http://www.shorepak.com

Public Company
Incorporated : 1967
Employees : 2,700
Sales : $415.4 million (1998)
Stock Exchanges : New York
Ticker Symbol : SWD
NAIC : 322211 Corrugated & Solid Fiber Box Manufacturing; 322222 Coated & Laminated Paper Manufacturing; 322299 All Other Converted Paper Product Manufacturing; 323110 Commercial Lithographic Printing

Shorewood Packaging Corporation and its subsidiaries print and manufacture high-quality paperboard packaging for the cosmetics, home video, music, software, tobacco, toiletries, and general consumer markets in the United States, Canada, and China. Its specialized packaging consists principally of folding cartons and setup boxes for customers requiring sophisticated precision graphics.

Innovative Packager: 1967-89

Paul Bernard Shore and his brother Sam started Shorewood Press in New York City in 1948. This was a printing company that produced album covers for the music industry throughout the 1950s. In the 1960s Paul Shore invented the Shorepak, a record jacket printed directly on bleached paperboard instead of by gluing the album cover to the board. After the appearance of the Beatles’ Abbey Road in 1968, the one-piece album jacket became the standard for the music industry.

Shorewood Packaging Corporation was founded in 1966 and incorporated in 1967, the year the firm opened a plant in Farmingdale, New York. Soon after, Shorewood formed a joint venture with CBS Records to package records in the United States and Canada. Shore purchased the CBS share of the U.S. company in the 1970s and opened a plant in LaGrange, Georgia, in 1979. Packaging for the music industry—including cassettes and, later, compact discs—accounted for almost all Shorewood’s revenues until the 1980s. In 1980, however, Shore responded to slowing sales growth by entering other consumer products packaging. By 1986, when the firm went public, it also was producing packaging for several other industries, including vidéocassettes, foods, hosiery, tobacco, and cosmetics and toiletries. Shorewood acquired the CBS stake in its Canadian and British subsidiaries in 1985. It ended British operations in early 1992.

Shorewood claimed to be the largest manufacturer of packaging for the music industry when it went public. It owned plants in LaGrange and Roanoke, Virginia, and leased two in Farmingdale, New York, and one each in Los Angeles and Chicago, plus factories in Montreal and Toronto and in London and two other U.K. sites. Headquarters were in Farmingdale. Net sales had grown from $31.8 million in fiscal 1982 (the year ended July 28, 1982)—in which the company had net earnings of $1.2 million—to $77.9 million in fiscal 1987 (the year ended April 30, 1987), when net income reached $5.7 million. The long-term debt was $14.8 million at the end of fiscal 1987. In 1988 the company acquired another plant, in Andalusia, Alabama, with the purchase of Southeastern Box Corp. Shorewood’s sales came to a record $139.3 million and its net earnings amounted to a record $16.2 million in fiscal 1990.

Shorewood Packaging enjoyed, at this time, a 40 to 45 percent market share of U.S. LP record, cassette, and compact disc packages. It also was the largest U.S. producer of packages for prerecorded vidéocassettes. In addition, it was providing high-quality, specialized packaging for an array of other customers, including Estee Foods, Pepperidge Farms, Liz Claiborne, Polaroid, and Turtle Wax. Its cigarette pack clients included Philip Morris and Brown & Williamson. Among the goods it was packaging were Close-Up toothpaste, Hanes hosiery, Capri cigarettes, Kodacolor film, and Old Spice deodorant.

Essential to Shorewood Packaging’s success in the 1980s was its development of the JOSH system for printing many combinations of offset lithographic and gravure colors on both sides of paperboard on an integrated in-line web press system. Among “companies whose products have to be slick—with clean colors and interesting graphics—Shorewood has the edge,” said an executive for the firm’s largest shareholder in 1989, according to the Wall Street Journal. The company was a favorite on Wall Street at this time. Its stock, which traded at $4.50 a share (after a stock split) following the initial public offering, reached nearly $26 a share in 1989.

Diversification and Expansion in the 1990s

Shorewood Packaging’s fiscal 1990 net income was not surpassed, however, until five years later. Although it remained the largest company for the music industry’s album jacket and paper display needs in 1992, stock analysts saw a less promising future because of industry plans to replace the disposable long box for compact disks with a much smaller package. The firm’s stock was trading as low as $7 a share. Sales to CBS Records had dropped from 38 to 18 percent of company revenues between fiscal 1987 and 1993, but the long box business still accounted for as much as $20 million of Shorewood’s revenues of $184.1 million in the latter year.

In 1994 Shorewood Packaging shut down manufacturing operations at its original Farmingdale plant and the following year moved its headquarters from this Long Island community to midtown Manhattan. An official of the union local, which had had a contract with Shorewood since the company’s inception, said Shorewood had asked workers to take a 65 percent cut in wages and benefits.

To maintain its position as the nation’s largest folding carton company, Shorewood Packaging began acquiring rival firms, including Somerville Packaging Group, a unit of Cascade Paperboard International, for which it paid about $100 million in 1994. The appointment of Shore’s son Marc as president of the firm in 1991 was credited with the transition to a more aggressive growth strategy. The Somerville acquisition enabled Shorewood’s revenues to rise from $216.5 million in fiscal 1994 to $357 million in fiscal 1995, while its net income increased from $6.3 million to $22.5 million, although the long-term debt reached a record $160 million in early 1995. Securities analysts also praised the company for just-in-time delivery and improved engineering and proprietary technology. One recommended the stock because Shorewood “can print several different types of processes on the same line. You eliminate set-up times and it’s cheaper, more accurate and a lot faster.”

Somerville was an important supplier of cigarette packaging in the United States and also in Canada, where smoking was increasing after a large cut in cigarette taxes. Somerville also had increased its sales abroad, in part because of strong demand for hard flip-top packaging. With its acquisition the tobacco industry became Shorewood’s main market, accounting for about 37 percent of its annual sales. The music industry now was accounting for less than 25 percent but included as important customers were three of the six major record companies: BMG, Sony, and PolyGram. Another 1994 acquisition, Hemingway Packaging, put the parent company in a strong position in the production of cosmetic boxes. In addition, Shorewood began providing cigarette hard-pack boxes and cartons directly to China in 1995.

The production of sleeves for CD-ROM computer software also was a growing business for Shorewood. In 1995 the company opened a plant in Springfield, Oregon to produce these packages, with the objective of enhancing its service capabilities in both the software and home entertainment industries. The location of the plant reflected the fact that the Pacific Northwest was home to many of the leading software manufacturers. By 1998, through effective cross-selling, this facility also had generated increased production and sales of packaging for CD-ROM computer software and games at several of the company’s East Coast facilities.

Paul Shore died in December 1995 and was succeeded as chairman and chief executive officer of Shorewood Packaging by his son Marc. Revenues and profits continued to be strong, with net income reaching $24.9 million and $26.3 million in fiscal 1997 and 1998, respectively. Operations in Canada accounted for 40 percent of the company’s $415 million in revenue in fiscal 1998. Philip Morris was the leading customer that year, accounting for 25 percent of net sales. The long-term debt was $126.4 million at the end of the fiscal year.

In 1998 Shorewood Packaging completed a $45 million, 125,000-square-foot folding carton manufacturing plant in Guangzhou, China, to serve the Chinese market for cigarettes. The company then sold a 45 percent stake in the operation to Westvaco Corp., which paid about $25 million. Also in 1998, but late in the year, Shorewood purchased Queens Group, Inc. for about $129 million in cash and stock. This rival producer of high-quality printing and packaging for the home entertainment markets had annual sales of $148 million. Its acquisition raised Shorewood’s manufacturing facilities to 16, employing about 3,700 people.

Shorewood Packaging in Fiscal 1998

Shorewood Packaging was, in fiscal 1998, supplying printed packaging products for many of the leading tobacco brands, including those ultimately sold in non-U.S. markets. The company believed itself to be the primary carton supplier to the Canadian tobacco industry, and tobacco customers accounted for 37 percent of net sales in the fiscal year. For its customers in the music and home entertainment industries, Shorewood was manufacturing compact disc packaging (including folders, booklets, and liners), prerecorded cassette packaging (including folders and sleeves), and other printed material and paperboard packaging. It had longstanding relationships with many of the major music production and distribution companies in the United States and in certain cases also had agreements, typically for five-year terms, to supply their packaging products. Shorewood also was manufacturing rigid setup boxes, principally for customers in the cosmetics and entertainment industries.

Although Shorewood Packaging generally was producing packaging from specifications, artwork, or film supplied by its customers, from time to time it was designing and developing new packaging concepts and structures requested by its customers. It was maintaining a research and development center located on the grounds of its Williamsburg, Virginia plant. The company also owned office and manufacturing space at Danville, Virginia, and Smiths Falls, Scarborough, and Brockville, Ontario, in addition to the aforementioned LaGrange, Roanoke, Andalusia, Springfield, and Guangzhou facilities. Leased facilities consisted of the Manhattan headquarters and office, manufacturing, and warehousing space in Redwood City, Los Angeles, and Santa Monica, California; Fairfield, Waterbury, and Watertown, Connecticut; LaGrange and Farmingdale; Chicago; Charlotte, North Carolina; and Brockville, Montreal, and Toronto, Canada.

Marc Shore owned nearly 19 percent of Shorewood Packaging’s common stock in mid-1998, either outright or through estate or family-instrument partnerships. Ariel Capital Management, a shareholder since 1988, held 14 percent of the stock.

Principal Subsidiaries

Shorewood Acquisition Corp. of Delaware; Shorewood Asia Ventures Ltd. (Bermuda); Shorewood Corporation of Canada Limited (Canada); Shorewood Holographic Patterns, Inc.; Shorewood Packaging China Ventures Ltd. (Mauritius); Shorewood Packaging Company (Guangzhou) Ltd. (China); Shorewood Packaging Company of Illinois, Inc.; Shorewood Packaging Corp. of Canada, Ltd. (Canada); Shorewood Packaging Corporation of Alabama; Shorewood Packaging Corporation of Connecticut; Shorewood Packaging Corporation of Georgia; Shorewood Packaging Corporation of New York; Shorewood Packaging Corporation of Oregon; Shorewood Packaging Corporation of Virginia; Shorewood Packaging of California, Inc.; Shorewood Packaging of Delaware, Inc.; Shorewood Packaging of North Carolina, Inc.; Shorewood Technologies, Inc.; Shorewood Transport, Inc.; Shor-Wrap, Inc.; Shor-Wrap Packages of Canada, Ltd. (Canada); SPC Asia, Ltd. (Bermuda); SPC (Bermuda) Ltd. (Bermuda); SPC Company of New York, Inc.; SPC Company of Virginia, Inc.; SPC Corporation Limited (Canada); Toronto Carton Corporation Limited (Canada).