American Pad & Paper Company

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American Pad & Paper Company

17304 Preston Road
Dallas, Texas 75252
U.S.A.
(972) 733-6200
Fax: (972) 733-6298

Public Company
Incorporated: 1992
Employees: 4,105
Sales: $583.86 million (1996)
Stock Exchanges: New York
SICs: 2600 Paper and Allied Products

American Pad & Paper Company manufactures and markets paper-based office products, excluding copier paper. An industry leader in North America, the company daily manufactures more than fifty tons of paper every hour. American Pad & Paper is also a market leader in the largest and fastest-growing office-products channels. The company offers a broad assortment of high-quality products. American Pad & Paper’s product line comprises nationally recognized brand names and private label writing pads, file folders, envelopes, machine papers, and other paper-based office supplies. Its major brands in 1996 included Ampad, Century, Embassy, Evidence, Gold Fibre, Huxley, Karolton, Kent, Peel & Seel, SCM, Williamhouse, and World Fibre.

The company’s Ampad Division is one of the largest suppliers of pads and paper-based writing products, filing supplies, machine papers, and retail envelopes serving large office-product distributors. The Williamhouse Division, also a leading supplier, provides paper merchants and distributors with mill-branded, specialty, and commodity business envelopes and machine papers.

As one of the larger participants in the highly competitive paper-based office products industry, American Pad & Paper vies with many regional and local companies for customers. Its sheer size, however, allows the company to be a national presence that benefits from economies of scale, a diverse product line, strategic acquisitions, consolidating distribution channels, and a strong management team.

A Century Ago

The current company formed in June 1992. Formerly the Ampad Holding Corporation, American Pad & Paper was created as a holding company to purchase Ampad Corporation. Originally established in the 19th century, Ampad invented the legal pad in 1888. Since then, it has been a prominent supplier of pads and paper-based writing products. In 1986, Ampad found itself a subsidiary of Mead Corporation. It remained so until July 1992 when Bain Capital, Inc. and the management of newly formed American Pad & Paper Company purchased the subsidiary from Mead. Since its inception in 1992, the new company has seen net sales grow at nearly a 53 percent compound annual rate through 1996, increasing from $8.8 million in 1992 to $200.5 million in 1996. In July 1996 American Pad & Paper became a public company, a surprising move for such a well-established private enterprise.

National Scale and Service Capabilities

Upon its formation, American Pad & Paper consolidated its 13 manufacturing and distribution facilities into six in 21 locations in the United States. It maintained more than 3.7 million square feet of production and warehouse facilities in California, Colorado, Georgia, Illinois, Massachusetts, Mississippi, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin. This network of strategically located manufacturing and distribution centers provided the company with the means for rapid and efficient order fulfillment and advanced EDI capabilities for executing automated transactions.

The company’s national reach and service capabilities ensured its purchasing advantages and economies of scale. For more than 30 years, American Pad & Paper maintained strong, long-term relationships with paper mills. It consistently ranked as one of the larger buyers of principal paper grades used in manufacturing and continued designated mill relationships with recognized paper mill brands, including Hammermill, Hopper, Neenah, and Strathmore. The relationships helped the company to achieve consistently a broad price point coverage.

Paper Prices

Paper, the principal raw material for American Pad & Paper, influenced the direction of the company perhaps more than any other external factor. Since 1989, the average paper prices increased less than 1 percent annually. Nevertheless, the prices of some commodity papers were much more volatile than that. In 1994 paper costs and supplies required that American Pad & Paper modify the prices on some product lines without prior notice to customers. Beginning in 1995, the company instituted new pricing policies that set product prices consistent with the cost of paper at the time of shipment.

These paper purchasing and distribution advantages—in addition to modern, efficient manufacturing technology and a high-quality work force—allowed American Pad & Paper to achieve low-cost operations. From 1992 to 1996, for example, the company’s fixed marketing costs decreased from 7.4 percent to 5 percent of its net sales. Similarly, American Pad & Paper’s selling, general, and administrative expenses fell from 10 percent to 8.2 percent of net sales during the same time period.

Innovation and New Products

American Pad & Paper offered customers an extensive product line and a multitude of brand names, notably the Ampad and private-label brands. The company quickly became one of the largest manufacturers of pads and paper-based writing products. By 1996 American Pad & Paper offered more than 2,400 SKUs (store-keeping units) of writing pads, notebooks, and specialty papers. Its products appeared in multiple sizes, paper grades, colors, and bindings (for example, glued, perforated, or wire bound).

New products also differentiated American Pad & Paper from other suppliers and increased its profitability. During 1992 to 1996, new products accounted for $155 million of the net sales for 1996. Some new items introduced included Gold Fibre classic and designer notebooks, Papers with a Purpose, World Fibre ground-wood writing pads, and Peel & Seel envelopes. Since 1994, American Pad & Paper also initiated innovative packaging for its customers, including bulk and crate packaging for warehouse clubs.

Growth Through Acquisitions

In July 1994, American Pad & Paper acquired SCM, a hanging folder and writing products company. Though this acquisition brought increased potential to the company, it also brought some strife. When American Pad & Paper attempted to bring work rules and costs at the newly acquired plant in Indiana in line with market labor agreements, workers there balked. In September, plant employees initiated a strike, resulting in American Pad & Paper’s closing of the Indiana plant in February 1995. By the following July, all machinery and equipment moved from the plant to another production facility.

Undaunted by these events, American Pad & Paper pursued a second acquisition about a month later in August 1995. The company purchased selected file folders and products from the Globe-Weis office products division of American Trading and Production Corporation. The acquisition of these brand names bolstered American Pad & Paper’s position in filing supplies, making the company one of three large filing supply manufacturers in North America. By 1996, American Pad & Paper offered its customers more than 800 SKUs of filing supplies, including file folders, hanging files, index cards, and expandable folders. American Pad & Paper focused on large retail customers and contract stationers to expand its market share until it achieved status as the leader in filing supplies. Although the company’s right to use the Globe-Weis trademark on a nonexclusive basis would expire in 1998, American Pad & Paper expected no adverse effects from the loss of the name.

American Pad & Paper’s $300-million acquisition of WR Acquisition and Williamhouse-Regency Division of Delaware, Inc., a wholly owned subsidiary, in October 1995 positioned the paper company as the largest manufacturer of envelopes for paper merchants and distributors and for office products superstores. In particular, American Pad & Paper established a specialization in envelopes manufactured from mill-branded paper; that is, paper unique in color and texture to a mill with an identifying watermark.

When the company acquired Williamhouse, a leader in mill-branded, specialty, and commodity business envelopes and machine papers, it greatly enhanced its role as an envelope manufacturer and supplier. Williamhouse historically sold materials to paper merchants and distributors. After the acquisition, American Pad & Paper became the designated manufacturer for 33 mill brands—double that of its closest competitor— including Hammermill, Strathmore & Beckett, Hopper, Neenah, and Gilbert.

American Pad & Paper sold the Regency Division of the newly acquired Williamhouse for close to $48 million in gross proceeds in 1996, the year that the company acquired Niagra Envelope Company, Inc., for $53 million. Niagra Envelope Company supplied mill-branded, specialty, and commodity envelopes to paper merchants and distributors through four manufacturing facilities in Buffalo, Chicago, Dallas, and Denver. In 1995 Niagra’s net sales totaled $106 million, and its operating income was $8.5 million. The acquisition of this company strengthened American Pad & Paper’s distribution in the Midwest and added to its manufacturing capabilities.

Company Perspectives:

American Pad & Paper’s mission is to create a company uniquely and ideally suited to supply those giant consolidating companies who redistribute a broad array of our paper-based products to end users in homes and offices throughout America.

After buying Williamhouse and Niagra Envelope, American Pad & Paper offered approximately 30,000 SKUs of envelopes. Important envelope products included standard-size and specialty envelopes from commodity paper, pressure-sensitive Peel & Seel envelopes, and giant, X-ray, and remittance envelopes. American Pad & Paper also supplied Tyvek envelope products, such as those used in booklet and catalog mailers and metal-clasp or button-and-string envelopes. (Tyvek—a high-density, polyurethane-based substance—is manufactured by DuPont.)

In February 1997 American Pad & Paper acquired Shade/ Allied, Inc., for nearly $50 million. Based in Green Bay, Wisconsin, Shade/Allied supplied continuous forms to paper manufacturers and distributors and to retail customers. It maintained manufacturing facilities in Green Bay, Seattle, Atlanta, and Philadelphia. In 1996, Shade/Allied earned $90 million in net sales.

The purchase of Shade/Allied established American Pad & Paper in its fourth major product category. The acquisition made American Pad & Paper one of the leading manufacturers of machine papers such as ink-jet papers, printed formats, fine papers (including cotton-content and laid papers) and continuous forms. American Pad & Paper also became one of the larger manufacturers of invitations, announcements, Christmas and holiday cards, and presentation folders in 1997. The company sold this product line to paper merchants and distributors, to personalizing businesses such as the former Regency Division of Williamhouse, and to wholesale outlets throughout the United States.

Consolidation in Distribution Channels

The mid-1980s brought major changes in channels of distribution for office products. New channels of distribution emerged, notably national superstore chains, national contract stationers, and mass merchandisers. Since approximately 1994 national superstores such as Office Depot and Office Max presented a new avenue for paper-based office products. Much consolidation also occurred within distribution channels. For example, in 1987 there were more than 13,000 office products distributors. By 1994 the number dropped to 6,800. The remaining paper merchants—companies accounting for 30 percent of the envelope market—grew larger through the consolidations. National contract stationers—Boise Cascade Office Products, for instance—likewise enjoyed rapid growth from the acquisition of smaller companies.

Together these events caused American Pad & Paper to target its customers carefully, concentrating on those entities that drive consolidation in retail, commercial, and paper-merchant distribution channels. The company also sought customers that needed a supplier with a broad product line and with innovative, value-added merchandise. American Pad & Paper further capitalized on its national distribution capabilities, its low-cost manufacturing, and its reputation for reliable service when courting potential customers. With this strategy, the company maintained a well-positioned and diversified customer base since its establishment.

American Pad & Paper built a strong relationship with Wal-Mart and other mass merchandisers, warehouse clubs— including Sam’s Warehouse Club—office products wholesalers such as S. P. Richards and United Stationers, and independent dealers. As Charles G. Hanson III, American Pad & Paper’s chairman of the board and chief executive officer, explained in an April 1997 news release: “Our ability to offer broad product lines, higher value-added products, national distribution capabilities, low costs, and reliable service gives us a competitive advantage and strengthens our position as supplier of choice to giant customers. The validity of our offering is clearly demonstrated at Wal-Mart. Two years ago we became their legal pad supplier. In June we will significantly expand our distribution by becoming their supplier of home and office envelopes, filing products, and certain machine papers in 50 percent of their locations.”

American Pad & Paper became attractive to other large customers as well, particularly office products superstores. Key customers in this segment in the 1990s included Office Depot, Office Max, and Staples. In fact, Staples alone accounted for 10.8 percent of net sales in 1996.

Sales to the four largest paper merchants and distributors also increased in the first four years of American Pad & Paper’s existence. In 1992, the company sold about $75.6 million worth of products to Nationwide, ResourceNet, Unisource, and Zellerbach. By 1996 the total sales to these paper merchants and distributors increased to $118.4 million. In addition, American Pad & Paper’s sales through its Williamhouse Division to large contract stationers—notably Boise Cascade Office Products, BT Office Products, Corporate Express, and U.S. Office Products—remained strong.

A Team Built

The success of American Pad & Paper has been attributed to the strength of its management team. Headed by president and chief operating officer Russell M. Gard, the team had more than 85 years of experience in management in the paper industry in 1996. Gard worked in the paper industry for more than 26 years, in the past managing some of the largest paper-products facilities. Executive vice president Tim Needham joined American Pad & Paper with the Williamhouse acquisition, bringing 14 years of experience in paper products, and chief financial officer Kevin McAleer worked as an executive at public companies for 15 years before joining American Pad & Paper. According to a statement by Charles G. Hanson III, chairman of the board and chief executive officer of American Pad & Paper, in the 1996 annual report: “Together this team is tough to beat. We have shown that we can make tough decisions in a tough business. We have become tough to beat because we perform. We will continue to focus on accretive acquisitions, the development of new products through acquisition and innovation, and on maximizing efficiencies at all levels of the company. These efforts make it tough to deny the bright future of American Pad & Paper.”

Speculation about the Future

In 1997, the team’s strategy for the future was to maintain and strengthen the company’s leadership position. First, American Pad & Paper would continue its expansion by concentrating on the largest, fastest-growing distribution channels for office products. In 1996 the company expected its business with large customers to grow 15 to 35 percent in the upcoming five years. The plan also focused on serving industry leaders as American Pad & Paper’s customers by increasing the importance of the company’s national scope and broad product line as its customers consolidate further. The executive team envisioned new products that would offer greater selection for customers, as well as improved profitability of those product lines.

American Pad & Paper anticipated future acquisitions of companies that would expand or complement its product lines. The company also expected to enter new markets by acquiring established companies. “Our acquisition pipeline is full,” explained Hanson in 1997. “We will continue to drive growth through accretive acquisitions and are evaluating opportunities in both new product lines and add-ons to our existing product lines. We will pursue companies that fit our acquisition strategy of strong distribution channels, a strong product base, and the workforce and facilities necessary to serve our existing customers.”

Hanson also revealed a desire to broaden American Pad & Paper’s product distribution through the sale of newly acquired product lines. In the past, the company successfully sold the envelope product lines acquired in the Williamhouse and Niagra mergers under the Ampad and private-label brand names using Ampad’s distribution channels instead of paper merchants and distributors. Another such arrangement would be highly desirable for the company, as would maintaining American Pad & Paper’s position as a low-cost manufacturer. In all, “we remain confident in our business strategy going forward,” said Hanson, “and believe we are strategically positioned to achieve our long-term goals.”