UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission file number 0-23340

ROCK-TENN COMPANY

(Exact Name of Registrant as Specified in Its Charter)

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o     No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o     No þ

      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 þ     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.     þ

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

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o     No þ

      The aggregate market value of the common equity held by non-affiliates of the registrant as of March 31, 2005, the last business day of the registrant’s most recently completed second fiscal quarter (based on the last reported closing price of $13.30 per share of Class A Common Stock as reported on the New York Stock Exchange on such date), was approximately $380 million.

      As of December 8, 2005, the registrant had 36,417,342 shares of Class A Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on January 27, 2006, are incorporated by reference in Parts II and III.

ROCK-TENN COMPANY

INDEX TO FORM 10-K

PART I

      Unless the context otherwise requires, “we,” “us,” “our” or “Rock-Tenn” refers to the business of Rock-Tenn Company and its consolidated subsidiaries, including RTS Packaging, LLC, which we refer to as “RTS” and GSD Packaging, LLC, which we refer to as “GSD.” We own 65% of RTS and conduct our interior packaging business through RTS. We own 60% of GSD and conduct some folding carton operations through GSD. These terms do not include Seven Hills Paperboard, LLC, which we refer to as “Seven Hills.” We own 49% of Seven Hills, a manufacturer of gypsum paperboard liner, which we do not consolidate for purposes of our financial statements. All references in the accompanying financial statements and this Annual Report on Form 10-K to aggregated data regarding sales price per ton and fiber, energy, chemical and freight costs with respect to our recycled paperboard mills excludes that data with respect to our Aurora, Illinois, recycled paperboard mill. We exclude that data because the Aurora operation sells only converted products. All other references herein to operating data with respect to our recycled paperboard mills, including tons data and capacity utilization rates, includes operating data from our Aurora recycled paperboard mill.

General

      We are primarily a manufacturer of packaging, merchandising displays, and paperboard. We operate a total of 93 facilities located in 26 states, Canada, Mexico, Chile and Argentina.

      On June 6, 2005, we acquired from Gulf States Paper Corporation and certain of its related entities (which we refer to collectively as “Gulf States”) substantially all of the assets of Gulf States’ Paperboard and Packaging operations (which we refer to as “GSPP”) and assumed certain of Gulf States’ related liabilities for an aggregate purchase price of $552.2 million, net of cash received of $0.7 million, including expenses. We refer to this acquisition as the “GSPP Acquisition”. Pursuant to the GSPP Acquisition we acquired a bleached paperboard mill in Demopolis, Alabama, which includes a pulp mill and a chip mill (which we refer to collectively as the “bleached paperboard mill”) and 11 folding carton plants.

Products

      We report our results of operations in three segments: (1) the Packaging Products segment, (2) the Merchandising Displays and Corrugated Packaging segment, and (3) the Paperboard segment. For financial information relating to our segments, please see Item 8, “Financial Statements and Supplementary Data.” For financial information related to our non-US operations, see “Note 16. Segment Information” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      In our Packaging Products segment, we manufacture folding cartons and solid fiber interior packaging.

      Folding Cartons. We believe that we are the second largest producer of folding cartons in North America. Customers use our folding cartons to package frozen, dry and perishable food items for the retail sale and quick-serve markets; beverages; paper goods; automotive products; hardware; health care and nutritional food supplement products; household goods; healthcare and beauty aids; recreational products; textiles; apparel; and other products. We also manufacture express envelopes for the overnight courier industry. Folding cartons typically protect customers’ products during shipment and distribution and employ graphics to promote them at retail. We manufacture folding cartons from recycled or virgin paperboard, including high strength paperboard, laminated paperboard and various substrates with specialty characteristics such as grease masking and microwaveability. We print, coat, die-cut and glue the paperboard 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, gravure, backside printing, and double coating 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. Sales of folding cartons to unaffiliated customers accounted for 49.1%, 48.8%, and 46.5% of our net sales in fiscal 2005, 2004, and 2003, respectively.

      We believe that the GSPP Acquisition gives us increased geographic and technical coverage of the North American markets with a more diversified customer base, and the folding carton converting operations have complementary end markets, paper substrates and customers. The GSPP folding carton plants serve primarily the food and food service markets and the pharmaceutical and health and beauty markets. Three of the GSPP plants are part of a joint venture with Dopaco, Inc., in which we have a 60% interest and which manufactures take-out food pail products.

      Interior Packaging. Our subsidiary, RTS, specializes in the design and manufacture of fiber partitions and die-cut paperboard components. 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 agricultural packaging for specific fruit and vegetable markets and sheeted separation products for various industries. We also manufacture partitioned shipping cases to include stand-alone point-of-purchase display systems. 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, de-casing 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 that allows for rapid turnaround on large jobs and specialized capabilities for short-run, custom applications. RTS operates in North America, Mexico, Chile, and Argentina. Sales of interior packaging products to unaffiliated customers accounted for 8.0%, 8.4%, and 9.1% of our net sales in fiscal 2005, 2004, and 2003, respectively.

      In our Merchandising Displays and Corrugated Packaging segment, we manufacture temporary and permanent point-of-purchase displays, corrugated packaging, and corrugated sheet stock.

      Merchandising Displays. We believe that we are one of the largest manufacturers 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 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, pre-assemble permanent displays for 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. We also manufacture lithographic laminated packaging for sale to our customers that require packaging with high quality graphics and strength characteristics. Sales of our merchandising displays and lithographic laminated packaging to unaffiliated customers accounted for 13.1%, 15.0%, and 15.4% of our net sales in fiscal 2005, 2004, and 2003, 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 United States. To make corrugated sheet stock, we 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. Sales of our corrugated packaging products to unaffiliated customers accounted for 6.0%, 4.8%, and 4.6% of our net sales in fiscal 2005, 2004, and 2003, respectively.

      In our Paperboard segment, we collect recovered paper and produce paperboard products.

      Paperboard. We believe we are one of the largest U.S. manufacturers of 100% recycled paperboard. We market our coated recycled 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 sell to corrugated sheet manufacturers. Through our Seven Hills joint venture with Lafarge North America, Inc. (“Lafarge”), we manufacture gypsum paperboard liner for sale to Lafarge.

      Our bleached paperboard mill manufactures bleached paperboard and southern bleached softwood kraft pulp. Based on a study by Jaakko Pöyry Consulting conducted for us during our due diligence process for the GSPP Acquisition, we believe our bleached paperboard mill is one of the lowest cost solid bleached sulphate paperboard mills in North America because of cost advantages achieved through original design, process flow, replacement of its recovery boiler and hardwood pulp line in the early 1990s and access to hardwood and softwood fiber.

      We also believe we are a leading U.S. producer of laminated paperboard products for the ready-to-assemble furniture market. We convert specialty paperboard into laminated paperboard products for use in furniture, automotive components, storage, and other industrial products. We also convert specialty paperboard into book covers.

      Sales of pulp, paperboard, recycled medium, and laminated paperboard products to unaffiliated customers accounted for 19.7%, 19.0%, and 20.8% of our net sales in fiscal 2005, 2004, and 2003, respectively.

      Recycled Fiber. Our paper recovery facilities collect primarily waste paper from a number of sources including factories, warehouses, commercial printers, office complexes, retail stores, document storage facilities, and paper converters as well as from other wastepaper collectors. We handle a wide variety of grades of recovered paper, including old corrugated containers, office paper, box clippings, newspaper and print shop scraps. After sorting and baling, we transfer collected paper to our paperboard mills for processing, or sell it, principally to other U.S. manufacturers. These customers include, among others, manufacturers of paperboard, tissue, newsprint, roofing products and insulation. We also operate a fiber marketing and brokerage group that serves large regional and national accounts. Sales of recovered paper to unaffiliated customers accounted for 4.1%, 4.0%, and 3.6% of our net sales in fiscal 2005, 2004, and 2003, respectively.

Raw Materials

      The primary raw materials that our paperboard operations use is recycled fiber at our recycled paperboard mills and virgin fibers from hardwoods and softwoods at our bleached paperboard mill. The average cost of recycled fiber that our recycled paperboard mills used during fiscal 2005, fiscal 2004, and fiscal 2003 was $102 per ton, $98 per ton, and $83 per ton, respectively. During fiscal 2005 recycled fiber prices were relatively stable. During fiscal 2004, recycled fiber prices fluctuated significantly. While virgin fiber prices are generally more stable than recycled fiber prices, they are subject to fluctuation, particularly during prolonged periods of heavy rain. As part of the GSPP Acquisition, we entered into a five year chip supply agreement with Gulf States pursuant to which Gulf States has essentially agreed to continue to make available to our bleached paperboard mill the supply of soft wood chips that it made available to the mill before the acquisition, which represents approximately 75% to 80% of the mill’s historical soft wood chip supply requirements.

      There can be no assurance that we will be able to recoup any future increases in the cost of recycled and virgin fiber through price increases for our products, in part due to competitive factors and contractual limitations. See “Business — Competition” below.

      Recycled and virgin paperboard are the primary raw materials that our paperboard converting operations use. One of the primary grades of virgin paperboard, coated unbleached kraft, used by our folding carton operations, has only two domestic suppliers. While management believes that it would be able to obtain adequate replacement supplies in the market should either of our current vendors discontinue supplying us coated unbleached kraft, the failure to obtain such supplies or the failure to obtain such supplies at reasonable market prices could have an adverse effect on our results of operations. We supply substantially all of our internal needs for recycled paperboard and consume approximately 50% of our bleached paperboard production, although we have the capacity to consume it all. Because there are other suppliers that produce the necessary grades of paperboard used in our 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 or bleached paperboard through internal production. If the cost of paperboard that we use in our converting operations increases, there can be no assurance that we will be able to recoup any such cost increases through price increases for our products.

Energy

      Energy is one of the most significant manufacturing costs of our paperboard operations. We use natural gas, electricity, fuel oil and coal to generate steam used in the paper making process and to operate our recycled paperboard machines and primarily electricity for our converting equipment. Our bleached paperboard mill uses wood by-products for most of its energy. We generally purchase these products from suppliers at market rates. Occasionally, we enter into long-term agreements to purchase natural gas. The average cost of energy used by our recycled paperboard mills during fiscal 2005 was $73 per ton, compared to $67 per ton during fiscal 2004 and $58 per ton in fiscal 2003. Our bleached paperboard mill’s recovery boiler is able to produce substantially all of the mill’s energy needs.

      In recent years, the cost of natural gas, which we use in many of our manufacturing operations, including most of our recycled paperboard mills, has fluctuated significantly, while increasing significantly. The cost of natural gas can also affect the cost of electricity, which we also use in our manufacturing operations. 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, in part due to competitive factors and contractual limitations. See “Business — Competition” below.

      We are a party to a long-term supply contract pursuant to which we purchase steam from a nearby power plant for our St. Paul, Minnesota mills. The supply contract currently expires in June 2007. The steam supplier has advised us that by September 2007 it expects to replace the power plant with a facility that will not have the capability to provide steam to the St. Paul mills. We are currently evaluating replacement energy supply alternatives. We currently anticipate that, subject to necessary regulatory approval, we may incur aggregate capital expenditures of approximately $5 to $15 million during fiscal years 2006 and 2007 to repair and restart an existing on-site power plant, depending upon the scope of the project selected. The power plant could be powered by burning natural gas or fuel oil. We believe that the cost of operating the on-site power plant may be more expensive than the cost of our current steam supply.

Sales and Marketing

      Our top 10 external customers represented approximately 26% of consolidated net sales in fiscal 2005, none of which individually 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 2005, we sold:

      During fiscal 2005, we sold approximately 33% of our Paperboard segment sales to internal customers, primarily to our Packaging Products segment. During fiscal 2005, we sold approximately 50% of our recycled paperboard to our converting facilities. During fiscal 2006, we expect to sell approximately one-half of our bleached paperboard to our converting operations. Our Paperboard segment’s sales volumes may therefore be directly impacted by changes in demand for our packaging products. Under the terms of our Seven Hills joint venture arrangement, Lafarge is required to purchase all of the qualifying gypsum paperboard liner produced by Seven Hills.

      We market each of our product lines, other than our gypsum paperboard liner, through separate sales forces. Each sales force maintains direct sales relationships with our customers. We also market a number of our products through either independent sales representatives or independent distributors, or both. We pay our 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.

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, and converted paperboard products markets, we compete with a smaller number of national, regional and local companies offering highly specialized products. Our paperboard operations compete with integrated and non-integrated national and regional companies operating in North America that manufacture various grades of paperboard and, to a limited extent, manufacturers outside of North America.

      Because all of our businesses operate in highly competitive industry segments, 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.

      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 and we evaluate our performance with annual customer service surveys. 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.

      Our ability to fully pass through cost increases can be limited based on competitive market conditions for various products that we sell and by the actions of our competitors. In addition, we sell a significant portion of our paperboard and paperboard-based converted products pursuant to term contracts that provide that prices are either fixed for specified terms or provide for price adjustments based on negotiated terms, including changes in specified paperboard index prices. The effect of these contractual provisions generally is to either limit the amount of the increase or delay our ability to recover announced price increases for our paperboard and paperboard-based converted products.

      The packaging products and recycled paperboard industries have undergone significant consolidation in recent years. 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 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 products manufactured from paperboard compete 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 (which we refer to as “OSHA”) and related regulations. OSHA, among other things, establishes asbestos and noise standards and regulates the use of hazardous chemicals in the workplace. Although we do not use asbestos in manufacturing our products, some of our facilities contain asbestos. For those facilities where asbestos is present, we believe we have properly contained this asbestos and/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.

      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 (which we refer to as “US EPA”). 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 associated with changes to regulations promulgated under 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.

      We estimate that we will spend approximately $4.0 million for capital expenditures during fiscal 2006 in connection with matters relating to environmental compliance. Additionally, to comply with emissions regulations under the Clean Air Act, we may be required to modify or replace a coal-fired boiler at one of our facilities, the cost of which we estimate would be approximately $2.0 to $3.0 million. If necessary, we anticipate that we will incur those costs before the end of fiscal 2007.

      We have been identified as a potentially responsible party (“PRP”) at 10 active “superfund” sites pursuant to CERCLA or comparable state statutes (“Superfund legislation”). Based upon currently available information and the opinions of our environmental compliance managers and general counsel, although there can be no assurance, we have reached the following conclusions with respect to these ten sites:

      Except as stated above, we can make no assessment of any potential for our liability with respect to any such site. Further, there can be no assurance that we will not be required to conduct some remediation in the future at any such site and that such remediation will not have a material adverse effect on our results of operations, financial condition or cash flows. We believe that we can assert claims for indemnification pursuant to existing rights we have under settlement and purchase agreements in connection with certain of these sites. If any party brings an environmental claim or action against us involving any such site, we intend to assert claims for indemnification in connection with such site. There can be no assurance that we will be successful with respect to any claim regarding such indemnification rights or that, if we are successful, that any amounts paid pursuant to such indemnification rights will be sufficient to cover all costs and expenses.

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 patents and patent applications relating to our paperboard operations. Certain of our patents and other intellectual property are supported by trademarks such as MillMask®, Millennium Board®, AdvantaEdge®, BlueCuda®, BillBoard®, CitruSaver®, Duraframe®, DuraFreeze^tm, ProduSaver®, WineGuard®, MAX PDQ^tm, and MAXLite PDQ^tm. Our patents and other intellectual property, particularly our patents relating to our interior packaging, retail displays and folding carton operations, are important to our operations as a whole.

      One of our patents (U.S. Patent Number 6,430,467) and several pending patent applications relate to centralized packaging of case-ready meat. We previously disclosed that there was a legal proceeding pending pursuant to which, among other things, we were seeking to enjoin certain parties from infringing our U.S. Patent Number 6,430,467 and to recover damages suffered by us as a result of the infringement. On March 30, 2005, the Court granted the defendants’ motion for Summary Judgment of patent invalidity with respect to certain claims of U.S. Patent Number 6,430,467. There are currently pending defendants’ counterclaims of patent unenforceability. In addition, one of the other opposing parties has pending claims of alleged patent unenforceability and tortious interference.

      We can make no assurances concerning any pending legal or administrative proceedings with respect to U.S. Patent Number 6,430,467 and pending patent applications related to centralized packaging of case-ready meat or with respect to any of the proceedings thereto. We do not believe that any such proceedings will have a material adverse effect on our results of operations, financial condition or cash flows.

Employees

      At September 30, 2005, we had approximately 9,600 employees. Of these employees, approximately 7,400 were hourly and approximately 2,200 were salaried. Approximately 3,150 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 other than a three-week work stoppage at our Aurora, Illinois, laminated paperboard products manufacturing facility during fiscal 2004. 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. We also make available on our website the charters of our audit committee, our compensation committee, and our nominating and corporate governance committee, as well as the corporate governance guidelines adopted by our board of directors, our Code of Business Conduct for employees, our Code of Business Conduct and Ethics for directors and our Code of Ethical Conduct for CEO and senior financial officers. We will also provide copies of these documents, without charge, at the written request of any shareholder of record. Requests for copies should be mailed to: Rock-Tenn Company, 504 Thrasher Street, Norcross, Georgia 30071, Attention: Corporate Secretary.

Forward-Looking Information

      We, or our executive officers and directors on our behalf, may from time to time make “forward-looking statements” within the meaning of the federal securities laws. 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 any of the following: our results of operations, financial condition, cash flows, liquidity or capital resources, including expectations regarding sales growth, our production capacities, our ability to achieve operating efficiencies, and our ability to fund our capital expenditures, interest payments, stock repurchases, dividends, working capital needs, and repayments of debt; the consummation of acquisitions and financial transactions, the effect of these transactions on our business and the valuation of assets acquired in these transactions; our competitive position and competitive conditions; our ability to obtain adequate replacement supplies of raw materials or energy; our relationships with our customers; our relationships with our employees; our plans and objectives for future operations and expansion; amounts and timing of capital expenditures and the impact of such capital expenditures on our results of operations, financial condition, or cash flows; our compliance obligations with respect to health and safety laws and environmental laws, the cost of such compliance, the timing of such costs, or the impact of any liability under such laws on our results of operations, financial condition or cash flows, and our right to indemnification with respect to any such cost or liability; the impact of any gain or loss of a customer’s business; the impact of announced price increases; the scope, costs, timing and impact of any restructuring of our operations and corporate and tax structure; the scope and timing of any litigation or other dispute resolutions and the impact of any such litigation or other dispute resolutions on our results of operations, financial condition or cash flows; factors considered in connection with any impairment analysis, the outcome of any such analysis and the anticipated impact of any such analysis on our results of operations, financial condition or cash flows; pension and retirement plan obligations, contribution expenses, the factors used to evaluate and estimate such obligations and expenses, the impact of amendments to our pension and retirement plans, and pension and retirement plan asset investment strategies; the financial condition of our insurers and the impact on our results of operations, financial condition or cash flows in the event of an insurer’s default on their obligations; the impact of any market risks, such as interest rate risk, pension plan risk, foreign currency risk, commodity price risks, energy price risk, rates of return, the risk of investments in derivative instruments, and the risk of counterparty nonperformance, and factors affecting such risks; the amount of contractual obligations based on variable price provisions and variable timing and the effect of contractual obligations on liquidity and cash flow in future periods; the implementation of accounting standards and the impact of such standards once implemented; factors used to calculate the fair value of options, including expected term and stock price volatility; our assumptions and expectations regarding critical accounting policies and estimates; the adequacy of our system of internal

controls over financial reporting; and the effectiveness of any actions we may take with respect to our system of internal controls over financial reporting.

      Any forward-looking statements are based on our current expectations and beliefs at the time of such statements and 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 these forward-looking statements. With respect to these statements, we make a number of assumptions regarding, among other things, expected economic, competitive and market conditions generally; expected volumes and price levels of purchases by customers; competitive conditions in our businesses; possible adverse actions of our customers, our competitors and suppliers; labor costs; the amount and timing of expected capital expenditures, including installation costs, project development and implementation costs, severance and other shutdown costs; restructuring costs; the expected utilization of real property that is subject to the restructurings due to realizable values from the sale of that property; anticipated earnings that will be available for offset against net operating loss carry-forwards; expected credit availability; raw material and energy costs; replacement energy supply alternatives and related capital expenditures; and expected year-end inventory levels and costs. These assumptions also could be affected by changes in management’s plans, such as delays or changes in anticipated capital expenditures or changes in our operations. We believe that our assumptions are reasonable; however, undue reliance should not be placed on these assumptions, which are based on current expectations. These forward-looking statements are subject to certain risks including, among others, that our assumptions will prove to be inaccurate. There are many factors that impact these forward-looking statements that we cannot predict accurately. Actual results may vary materially from current expectations, in part because we manufacture most of our products against customer orders with short lead times and small backlogs, while our earnings are dependent on volume due to price levels and our generally high fixed operating costs. Forward-looking statements speak only as of the date they are made, and we, and our executive officers and directors, have no duty under the federal securities laws and undertake no obligation to update any such information as future events unfold.

      Further, our business is subject to a number of general risks that would affect any such forward-looking statements, including the risks discussed under “Item 1A. — Risk Factors.”

      Historically, the cost of recovered paper and virgin paperboard, 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 have and may continue to 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 costs (including energy generated by burning natural gas) have also fluctuated significantly, while increasing significantly. There can be no assurance that we will be able to recoup any past or 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 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. If we are unable to maintain the selling prices of products within these industries, that inability 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.

      Our businesses are in industries that are highly competitive, and no single company dominates an 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 and converted paperboard products markets, we compete with a smaller number of national, regional and local companies offering highly specialized products. Our paperboard operations compete with integrated and non-integrated national and regional companies operating in North America manufacturing various grades of paperboard and, to a limited extent, manufacturers outside of North America. Because all of our businesses operate in highly competitive industry segments, 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. Further, competitive conditions have prevented us from fully recovering our increased costs and may continue to inhibit our ability to pass on cost increases to our customers. Our paperboard segment’s sales volumes may be directly impacted by changes in demand for our packaging products and our laminated paperboard products. See “Business — Competition.”

      We have completed several acquisitions in recent 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 we are integrating the operations of the acquired business into our operations. Once integrated, acquired operations may not achieve levels of revenues, profitability or productivity comparable with those our existing operations achieve, 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 we may not realize the expected benefits of such capital expenditures.

      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 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 CERCLA or comparable state statutes. See “Business — Governmental Regulation — Environmental Regulation.” 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 segments has certain key customers, the loss of which could have a material adverse effect on the segment’s sales and, depending on the significance of the loss, our results of operations, financial condition or cash flows.

      We have restructured a portion of our operations from time to time in recent years and it is possible that we may engage in additional restructuring opportunities. Because we are not able to predict with certainty market conditions, the loss of key customers, or the selling prices for our products, we also may not able to predict with certainty when it will be appropriate to undertake such restructuring opportunities. It is also possible, in connection with such restructuring efforts, that our costs could be higher than we anticipate and that we may not realize the expected benefits of such restructuring efforts.

      Not applicable — there are no unresolved staff comments.

      We operate at a total of 93 locations. These facilities are located in 26 states (mainly in the Eastern and Midwestern U.S.), Canada, Mexico, Chile and Argentina. We own our principal executive offices in Norcross, Georgia. There are 31 owned and 11 leased facilities used by operations in our Packaging Products segment, 6 owned and 19 leased facilities used by operations in our Merchandising Displays and Corrugated Packaging segment, and 24 owned and 1 leased facility used by operations in our Paperboard segment. We believe that our existing production capacity is adequate to serve existing demand for our products. We consider our plants and equipment to be in good condition.

      The following table shows information about our paperboard mills. We own all of our mills.

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

      We agreed with Lafarge, our partner in the Seven Hills joint venture, to enter into arbitration with respect to the price of gypsum plasterboard liner that Seven Hills is entitled to charge Lafarge from November 2002 going forward, as well as our right to recover amounts for certain services that we rendered to Seven Hills. On December 8, 2005, the arbitrator issued a final ruling. Consistent with our previous disclosure, we expect the arbitrator’s final ruling to reduce our future annual pre-tax income from 2004 levels by approximately $0.8 million. We previously disclosed that we had recorded a charge of $1.5 million at June 30, 2005 in connection with the arbitration.

      We are a party to litigation incidental to our business from time to time. We are not currently a party to any litigation that management believes, if determined adversely to us, would have a material adverse effect on our results of operations, financial condition or cash flows. For additional information regarding litigation to which we are a party, which is incorporated by reference into this item, please see Item 1, “Business — Governmental Regulation — Environmental Regulation” and “Business — Patents and Other Intellectual Property.”

      Not applicable — there were no matters submitted to a vote of security holders in our fourth fiscal quarter.

PART II

Common Stock

      Our Class A common stock, par value $0.01 per share (which we refer to as our “Common Stock”), trades on the New York Stock Exchange under the symbol RKT. As of December 8, 2005, there were approximately 379 shareholders of record of our Common Stock.

Price Range of Common Stock

Dividends

      During fiscal 2005, we paid a quarterly dividend on our Common Stock of $0.09 per share ($0.36 per share annually). During fiscal 2004, we paid a quarterly dividend on our Common Stock of $0.085 per share ($0.34 per share annually).

      For additional dividend information, please see “Item 6. Selected Financial Data.”

Securities Authorized for Issuance Under Equity Compensation Plans

      The section under the heading “Executive Compensation” entitled “Equity Compensation Plan Information” in the Proxy Statement for the Annual Meeting of Shareholders to be held on January 27, 2006, is incorporated herein by reference.

      For additional information concerning our capitalization, please see “Note 13. Shareholders’ Equity” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this report. We derived the consolidated statements of income and consolidated statements of cash flows data for the years ended September 30, 2005, 2004, and 2003, and the consolidated balance sheet data as of September 30, 2005 and 2004, from the Consolidated Financial Statements included elsewhere in this report. We also derived the consolidated statements of income and consolidated statements of cash flows data for the years ended September 30, 2002 and 2001, and the consolidated balance sheet data as of September 30, 2003, 2002, and 2001, from audited Consolidated Financial Statements not included in this report. We reclassified our plastic packaging operations, which we sold in October 2003, as a discontinued operation on the consolidated statements of income for all periods presented. We have also presented the assets and liabilities of our plastic packaging operations as assets and liabilities held for sale for all periods presented on our consolidated balance sheets. The table that follows is consistent with those presentations.

      On June 6, 2005, we acquired from Gulf States substantially all of the GSPP assets. The acquisition was the primary reason for the fiscal 2005 increases in net sales; income and diluted earnings per common share from continuing operations before the cumulative effect of a change in accounting principle; income and diluted earnings per common share before the cumulative effect of a change in accounting principle; net income and diluted earnings per common share; book value per common share; total assets, total current maturities of debt, total long-term debt, less current maturities, and total debt; shareholders’ equity, net cash provided by operating activities, and cash paid for purchase of businesses, net of cash received. The results of operations shown below may not be indicative of future results.

Notes (in thousands):

Critical Accounting Policies and Estimates

      We have prepared our accompanying consolidated financial statements in conformity with U.S. generally accepted accounting principles (which we refer to as “GAAP”), which require management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported. The following are critical accounting matters that are both important to the portrayal of our financial condition and results and that require some of management’s most subjective and complex judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions that, in management’s judgment, could change in a manner that would materially affect management’s future estimates with respect to such matters and, accordingly, could cause our future reported financial condition and results to differ materially from those that we are currently reporting based on management’s current estimates. For additional information, see “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      We have an allowance for doubtful accounts that serves to reduce the value of our gross accounts receivable to the amount we estimate we will ultimately collect. The allowance for doubtful account contains uncertainties because the calculation requires management to make assumptions and apply judgment regarding the customer’s credit worthiness. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon our customers’ financial condition, our collection experience and any other relevant customer specific credit information. Our assessment of this information forms the basis of our allowances. We have not made any material changes in the accounting methodology used to establish the allowance during the past three years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to estimate the allowance. However, while these credit losses have historically been within our expectations and the provisions we established, it is possible that our credit loss rates could be higher or lower in the future depending on changes in business conditions. At September 30, 2005, our allowances were $5.1 million; a 5% change in credit worthiness of our customers would change our reserve by approximately $0.3 million.

      We carry our inventories at the lower of cost or market. Cost includes materials, labor and overhead. Market, with respect to all inventories, is replacement cost or net realizable value. Management frequently reviews inventory to determine the necessity to markdown excess, obsolete or unsaleable inventory. Judgment and uncertainty exists with respect to this estimate because it requires management to assess customer and market demand. These estimates may prove to be inaccurate, in which case we may have overstated or understated the markdown required for excess, obsolete or unsaleable inventory. We have not made any material changes in the accounting methodology used to markdown inventory during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate inventory markdowns. While these markdowns have historically been within our expectations and the markdowns we established, it is possible that our reserves could be higher or lower in the future if our estimates are inaccurate. At September 30, 2005, our inventory reserves were $1.4 million; a 5% change in credit worthiness of our customers would change our reserve by approximately $0.1 million.

      We account for our goodwill under the goodwill impairment model set forth in Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). We review the

recorded value of our goodwill annually during the fourth quarter of each fiscal year, or sooner if events or changes in circumstances indicate that the carrying amount may exceed fair value. We determine recoverability by comparing the estimated fair value of the reporting unit to which the goodwill applies to the carrying value, including goodwill, of that reporting unit. Estimating the fair value of the reporting unit involves uncertainties because it requires management to develop numerous assumptions about the reporting unit including assumptions about the future growth in revenue and costs, capital expenditures, industry economic factors and future business strategy.

      The variability of the factors that management uses to perform the goodwill impairment test depends on a number of conditions, including uncertainty about future events and cash flows. All such factors are interdependent and, therefore, do not change in isolation. Accordingly, our accounting estimates may change from period to period due to changing market factors. If we had used other assumptions and estimates or if different conditions occurred in future periods, future operating results could be materially impacted. For example, based on available information as of our most recent review during the fourth quarter of fiscal 2005, if our pre-tax earnings were to have decreased by 10% with respect to the pre-tax earnings we used in our forecasts, the enterprise value of each of our divisions would have continued to exceed their respective net book values. Also, based on the same information, if we had concluded that it was appropriate to increase by 100 basis points the discount rate we used to estimate the fair value of each reporting unit, the fair value for each of our reporting units would have continued to exceed its carrying value, except for the paperboard division. Under circumstances where the fair value of a reporting unit was less than its carrying value, we would have completed the second step of the impairment analysis for that reporting unit. We do not believe that such a change in the discount rate was appropriate at the beginning of the fourth quarter of fiscal 2005 and no facts have come to our attention that would require us to perform an interim impairment analysis under SFAS 142. We completed the annual test of the goodwill associated with each of our reporting units during the fourth quarter of fiscal 2005 and we identified no indicators of impairment.

      We follow Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), in determining whether the carrying value of any of our long-lived assets is impaired. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance. Future events could cause us to conclude that impairment indicators exist and that assets associated with a particular operation are impaired. Evaluating the impairment also requires us to estimate future operating results and cash flows, which also require judgment by management. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. We believe no impairment indicators currently exist.

      Other intangible assets are amortized based on the pattern in which the economic benefits are consumed over their estimated useful lives ranging from 1 to 40 years. We identify the weighted average lives of our intangible assets by category in “Note 7. Other Intangible Assets” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      We have not made any material changes to our impairment loss assessment methodology during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in future assumptions or estimates we use to calculate impairment losses. However, if actual results are not consistent with our assumptions and estimates, we may be exposed to additional impairment losses that could be material.

      We are self-insured for the majority of our group health insurance costs, subject to specific retention levels. Our self-insurance liabilities contain uncertainties because the calculation requires management to make assumptions regarding and apply judgment to estimate the ultimate cost to settle reported claims and claims incurred buy not reported as of the balance sheet date. We utilize historical claims lag data provided by our claims administrators to compute the required estimated reserve rate per carrier. We calculate our average monthly claims paid utilizing the actual monthly payments during the trailing 12-month period. At that time, we also calculate our required reserve utilizing the reserve rates discussed above. During fiscal 2005, the

average monthly claims paid fluctuated between $2.7 million and $2.9 million and our average claims lag fluctuated between 1.5 and 1.7 times the average monthly claims paid. Our accrual at September 30, 2005, represents approximately 1.7 times the average monthly claims paid. Health insurance costs have risen in recent years, but our reserves have historically been within our expectations. We have not made any material changes in the accounting methodology used to establish our self-insured liabilities during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the future assumptions or estimates we use to calculate our self-insured liabilities. However, if actual results are not consistent with our assumptions, we may be exposed to losses or gains that could be material. A 5% change in the average claims lag would change our reserve by approximately $0.2 million.

      We purchase large risk deductible workers’ compensation policies for the majority of our workers’ compensation liabilities that are subject to various deductibles. We calculate our workers’ compensation reserves based on estimated actuarially calculated development factors which are applied to total reserves as provided by the insurance companies we do business with. Our workers’ compensation liabilities contain uncertainties because the calculation requires management to make assumptions regarding the injury. We rely on expertise and advice from our third party administrator, and development factors to form the basis of our reserve. We have not made any material changes in the accounting methodology used to establish our workers’ compensation liabilities during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the future assumptions or estimates we use to calculate our workers’ compensation liabilities. However, if actual results are not consistent with our assumptions, we may be exposed to losses or gains that could be material. Although the cost of individual claims may vary over the life of the claim, the population taken as a whole has not changed significantly from our expectations A 5% change in our development factors at September 30, 2005 would have resulted in an additional $0.3 million of expense for the year.

      As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. We estimate our actual current tax exposure and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. Certain judgments, assumptions and estimates may affect the carrying value of the valuation allowances and deferred income tax expense in our Consolidated Financial Statements. We periodically review our estimates and assumptions of our estimated tax obligations using historical experience in the jurisdictions we do business in, and informed judgments. A 1% increase in our effective tax rate would increase tax expense from continuing operations by approximately $0.2 million for fiscal 2005. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our income tax exposure.

      We have five defined benefit pension plans (“U.S. Qualified Plans”) with approximately 60% of our employees in the United States currently accruing benefits. In addition, under several labor contracts, we make payments based on hours worked into multi-employer pension plan trusts established for the benefit of certain collective bargaining employees in facilities both inside and outside the United States. The determination of our obligation and expense for pension is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. We describe these assumptions in “Note 11. Retirement Plans” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein, which include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation levels. Although there is authoritative guidance on how to select most of these assumptions, management must exercise some degree of judgment when selecting these assumptions.

      The amounts necessary to fund future payouts under these plans are subject to numerous assumptions and variables. Certain significant variables require us to make assumptions that are within our control such as an anticipated discount rate, expected rate of return on plan assets and future compensation levels. We evaluate these assumptions with our actuarial advisors on an annual basis and we believe they are within accepted industry ranges, although an increase or decrease in the assumptions or economic events outside our control could have a direct impact on reported net earnings.

      Our discount rate for each plan used for determining future net periodic benefit cost is based on the Moody’s AA Utility Bond Index. We believe the timing and amount of cash flows related to this bond index is expected to match the estimated defined benefit payment streams of our Plans. In determining the appropriateness of utilizing the Moody’s AA Utility Bond Index, we compared the average age and time to retirement for the participants in our plans and the maturity characteristics of the index. For calculating net periodic pension cost for September 30, 2004 and September 30, 2005 we employed a discount rate of 6.0% and 5.5%, respectively. The 50 basis point reduction in our discount rate was the primary reason for the $20 million reduction in funded status compared to the prior year. In determining the long-term rate of return for a plan, we consider the historical rates of return, the nature of the plan’s investments and an expectation for the plan’s investment strategies. For fiscal 2005, we used an expected return on plan assets of 9.0%. The plan assets were divided among various investment managers. As of September 30, 2005, approximately 66% of plan assets were invested with equity managers, approximately 29% of plan assets were invested with fixed income managers, approximately 3% of plan assets were invested with managers of alternative investments and approximately 2% of the plan assets were held in a cash account. The difference between actual and expected returns on plan assets is accumulated and amortized over future periods and, therefore, affects our recorded obligations and recognized expenses in such future periods. For fiscal 2005, our pension plans had actual returns on assets of $21.4 million as compared with expected returns on assets of $19.0 million, which resulted in a net deferred gain of $2.4 million. At September 30, 2005 we had an unrecognized loss of $121.1 million. In fiscal 2006, we expect to charge to net periodic pension cost approximately $8.1 million of this unrecognized loss. The amount of this unrecognized loss charged to pension cost in future years is dependent upon future interest rates and pension investment results. A 25 basis-point change in the discount rate, expected increase in compensation levels, or the expected long-term rate of return on plan assets would have had the following effect on fiscal 2005 pension expense (in millions):

      Several factors influence our annual funding requirements. For the U.S. Qualified Plans, our funding policy consists of annual contributions at a rate that provides for future plan benefits and maintains appropriate funded percentages. Such contribution is not less than the minimum required by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and subsequent pension legislation and is not more than the maximum amount deductible for income tax purposes. Amounts necessary to fund future obligations under these plans could vary depending on estimated assumptions. The effect on operating results in the future of pension plan funding will depend in part on investment performance, funding decisions and employee demographics.

      For fiscal 2005 and 2004, there was no minimum contribution to the U.S. Qualified Plans required by ERISA. However, at management’s discretion, we made cash contributions to the U.S. Qualified Plans of $7.3 million and $19.6 million during fiscal 2005 and 2004, respectively. During fiscal 2006, we do not have a minimum contribution to make to the U.S. Qualified Plans. Based on current expectations, we anticipate contributing approximately $35 million to the U.S. Qualified Plans over the next two years.

Segment and Market Information

      We report our results in three segments: (1) the Packaging Products segment, (2) the Merchandising Displays and Corrugated Packaging segment, and (3) the Paperboard segment.

      The following table shows certain operating data for our three segments. We do not allocate certain of our income and expenses to our segments and, thus, the information that management uses to make operating decisions and assess performance does not reflect such amounts. We report these items as non-allocated expenses. These items include restructuring and other costs and certain corporate expenses.

Overview

      Fiscal 2005 was a watershed year for Rock-Tenn as a result of the acquisition on June 6, 2005 of the GSPP folding carton and bleached paperboard operations. Through the acquisition, we greatly improved our business mix with the very low cost bleached paperboard mill and the 11 GSPP folding carton plants. The supply/demand characteristics of the bleached paperboard markets, and hence margins for bleached paperboard, have been superior to recycled paperboard over at least the last business cycle. Also, the addition of bleached paperboard, which is made from virgin fiber and requires less purchased fossil fuels for energy, reduces the percentage of our paperboard operations dependent on those inputs, both of which are characterized by highly volatile prices and have seen significant increases in prevailing prices in the last few

years. In addition, the GSPP folding carton plants broaden our already very broad customer base, increasing our geographic and technological capabilities and provide significant opportunities to reduce our unit costs through administrative and operational synergies. The GSPP assets added $176.2 million of net sales in the four months in fiscal 2005 we owned them, on $519.6 million of pro forma annual net sales, and significantly increased our operating income and earnings per share. Our year-end fiscal 2005 net debt, as defined (see “Non-GAAP Measures” below), increased by $467.3 million from September 30, 2004, although we paid $552.2 in cash to fund the acquisition and related expenses. This implied reduction of net debt resulted from increased cash flow from operations, which was $154.7 million in fiscal 2005 and $91.4 million in fiscal 2004. We believe we achieved an annualized run rate of acquisition synergies of $18 million in the fourth fiscal quarter of 2005 and we expect to realize at least $25 million in annualized synergies from the acquisition. For additional information regarding the acquisition see “Note 6. Acquisitions, Restructuring and Other Matters” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      Our legacy operations posted mixed results during fiscal 2005. Packaging Products segment operating margins declined from 4.2% of sales to 3.4% as the contribution of the GSPP folding carton plants was offset primarily by delays in board cost pass throughs, higher freight and other costs and the losses incurred in plants in the process of closure. During the year we took steps to address margin issues in two of our poorest performing folding carton plants, closing one and raising prices and cutting costs in the other. We expect that these actions, further recovery of board cost increases, and the contribution of the GSPP assets including synergies will cause packaging segment margins to improve in fiscal 2006.

      Sales of merchandising displays and corrugated packaging increased in fiscal 2005 as a result of the corrugator we acquired in August 2004, however, segment operating margins declined to 6.3% of sales from 9.1%, as we were unable to fully recover higher costs through price increases or volume.

      Paperboard segment operating income increased to $31.6 million in fiscal 2005 from $15.7 million in fiscal 2004 due to the operating income generated from the bleached paperboard mill and higher pricing for recycled paperboard partly recovering much higher energy, chemical and freight costs increases in the past two fiscal years. Our specialty paperboard mills performed very well and benefited from high operating rates due in part to our closure in fiscal 2004 of a specialty paperboard mill. Our coated recycled tons sold decreased in fiscal 2005 as demand weakened early in fiscal 2005. We expect to realize higher prices in fiscal 2006 for recycled paperboard, including corrugated medium. However, much higher winter 2005/2006 energy pricing will adversely affect operating results.

      During fiscal 2005, management engaged in an ongoing process of evaluating and improving the effectiveness of our internal control over financial reporting and to comply with Section 404 of the Sarbanes-Oxley Act (which we refer to as “Sarbanes-Oxley Act”). These efforts required that we commit significant financial and managerial resources. Our third party costs to comply with the Sarbanes-Oxley Act were approximately $3.4 million during fiscal 2005. These costs are included in our non-allocated expenses. In addition, we expect to incur approximately $1 million during the first quarter of fiscal 2006 to complete our first year of compliance with the Sarbanes-Oxley Act. We will incur third party costs during fiscal 2006 to continue our efforts, including our evaluation of the internal control over financial reporting in our GSPP operations; however, we currently expect these costs to be less than the costs we incurred with respect to fiscal 2005.

Results of Operations

      We provide quarterly information in the following tables to reflect trends in our results of operations. For additional discussion of quarterly information, see our quarterly reports on Form 10-Q filed with the SEC.

      Net sales for fiscal 2005 increased 9.6% to $1,733.5 million compared to $1,581.3 million in fiscal 2004 due to net sales increases in each of our segments.

      Net sales for fiscal 2004 increased 10.3% to $1,581.3 million compared to $1,433.3 million in fiscal 2003.

      The 9.5% increase in Packaging Products segment net sales before intersegment eliminations in fiscal 2005 compared to fiscal 2004 was primarily due to net sales from the acquired GSPP folding carton facilities, which accounted for net sales of $119.6 million. This increase was partially offset by reductions in other folding carton sales, primarily from facilities that we have either closed or are in the process of closing. In the early part of fiscal 2006, we will have the challenge of flowing through board cost increases across our Packaging Products segment. For the most part, we are not limited by contract in our ability to pass through board cost increases, although contracts may impact the timing of our recovery of published board price increases. For much of the rest of our packaging business, market forces will determine the timing and extent of our recovery of board price increases.

      The 13.3% increase in Packaging Products segment net sales before intersegment eliminations in fiscal 2004 compared to fiscal 2003 was primarily due to sales growth in our folding carton division where sales were up 15.5% from the prior year period. Approximately $41.5 million of the $106.7 million increase in segment net sales was attributable to our fiscal 2003 acquisitions and the remainder was primarily due to internal growth. Competitive pricing significantly offset the contribution from increased net sales.

      The 4.9% increase in Merchandising Displays and Corrugated Packaging segment net sales before intersegment eliminations for fiscal 2005 compared to fiscal 2004 resulted primarily from our acquisition of the Athens corrugator in August 2004 (which we refer to as “Athens Acquisition”), which had net sales of $30.5 million in fiscal 2005. Net sales of merchandising displays declined for the year primarily due to lower sales in our fourth fiscal quarter. We continue to seek to broaden our permanent and multi-material display capabilities as well as developing theft deterrent solutions for high theft products that are sold by various classes of retailers. We have made significant progress in the marketplace with our MAX PDQ^tm display. We expect revenues to grow from our brand management group that joined us in fiscal 2005.

      The 9.3% increase in Merchandising Displays and Corrugated Packaging segment net sales before intersegment eliminations for fiscal 2004 compared to fiscal 2003 resulted primarily from an increase in net sales of merchandising displays due to strong demand and sales to new customers as we expanded our presence in the North American display business. Net sales of corrugated packaging and sheets increased 14.6% or $10.3 million due to increased volume and the Athens Acquisition, which contributed $3.7 million in net sales in the fourth fiscal quarter of 2004.

      The 14.0% increase in Paperboard segment net sales before intersegment eliminations in fiscal 2005 compared to fiscal 2004 was primarily due to the combination of bleached paperboard and southern bleached softwood kraft pulp sales from our GSPP Acquisition and higher selling prices for recycled paperboard. The effect of the higher sales price during the period was more than offset by a decrease in tons shipped by our coated recycled and specialty paperboard mills. We expect to see some further price increases in the early part of fiscal 2006 as a result of price increases we previously announced. However, the impact of announced board price increases will be dictated, in part, by market forces that determine the timing and extent of our recovery of the increases in a market that currently is subject to overcapacity. Our announced price increases were necessary primarily due to significantly increasing energy costs. During fiscal 2005, our recycled mills operated at 93% of capacity compared to 96% in fiscal 2004. Recycled paperboard tons shipped in fiscal 2005 for the segment were 1,019,139 tons compared to 1,130,004 tons shipped in fiscal 2004. As a result of the GSPP Acquisition we sold 110,882 tons of bleached paperboard and 30,037 tons of southern bleached softwood kraft pulp, respectively. Laminated paperboard product net sales declined $21.2 million primarily due to the actions we took in fiscal 2004 to exit certain laminated paperboard operations.

      The 5.9% increase in Paperboard segment net sales before intersegment eliminations in fiscal 2004 compared to fiscal 2003 was primarily due to a 2.6% increase in paperboard tons shipped and an $18 per ton increase in our average selling price for all tons shipped. During fiscal 2004, our recycled mills operated at 96% of capacity compared to 94% in fiscal 2003. Total tons shipped in fiscal 2004 for the segment increased to 1,130,004 tons from 1,100,832 tons shipped in fiscal 2003. Net sales of recycled fiber increased primarily due to increased fiber prices and volume. Sales of laminated paperboard products continued to decline as we continued to experience a decrease in demand for our products by customers in the ready-to-assemble furniture and book and binder industries, which during fiscal 2004 continued to be our primary laminated paperboard products markets, as well as continued competitive pricing. Net sales also decreased due to closures of our laminated plant facilities at the end of fiscal 2003 and second quarter of fiscal 2004.

      Cost of goods sold increased to $1,459.2 million (84.2% of net sales) in fiscal 2005 from $1,313.9 million (83.1% of net sales) in fiscal 2004 primarily due to the GSPP Acquisition, and fiber, energy, chemical and freight costs at our recycled paperboard mills increased $4.1 million, $6.6 million, $2.2 million and $8.4 million, respectively on a volume adjusted basis. Excluding amounts attributable to the GSPP Acquisition, group insurance expense increased $1.1 million, and workers’ compensation expense and pension expense decreased $2.3 million and $1.3 million, respectively, during fiscal 2005 compared to fiscal 2004. We have foreign currency transaction risk primarily due to our operations in Canada. See “Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency” below. The impact of foreign currency transaction risk in fiscal 2005 compared to fiscal 2004 increased costs of goods sold by $0.8 million.

      Cost of goods sold increased to $1,313.9 million (83.1% of net sales) in fiscal 2004 from $1,171.0 million (81.7% of net sales) in fiscal 2003 primarily due to $28.6 million (1.8% of net sales) of increased fiber, energy, chemical and freight costs at our recycled paperboard mills. Fiber, energy, chemical and freight costs at our recycled paperboard mills increased $16.3 million, $9.2 million, $1.3 million and $1.8 million, respectively, on a volume adjusted basis. In fiscal 2003, we covered most of our winter requirements for natural gas purchases at a NYMEX equivalent price of less than $3.50 per MMBtu (million British thermal units). In fiscal 2004, we covered approximately two-thirds of our winter energy purchases at a NYMEX equivalent price of approximately $5.20 per MMBtu that resulted in a small benefit compared to the winter NYMEX contract close prices. Across our businesses we also experienced increased freight costs of $4.4 million, excluding the $1.8 million of recycled paperboard freight costs referred to above, increased group insurance expense of $3.6 million, increased pension expense of $3.3 million (0.2% of net sales), and increased workers’ compensation expense of $2.0 million during fiscal 2004 compared to fiscal 2003. The increase in freight costs was primarily due to increased volumes associated with our increased net sales and, to a lesser degree, increased fuel surcharges. Partially offsetting these higher costs were lower expenses for maintenance and repairs of $0.6 million. We also partially offset the effect of these increased costs by leveraging certain fixed costs at our higher operating rates. We have foreign currency transaction risk primarily due to our operations

in Canada. See “Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency” below. The impact of foreign currency transaction risk in fiscal 2004 compared to fiscal 2003 reduced costs of goods sold by $0.5 million.

      We value the majority of our U.S. inventories at the lower of cost or market with cost determined on the last-in, first-out, or “LIFO,” inventory valuation method, which we believe generally results in a better matching of current costs and revenues than under the first-in, first-out, or “FIFO,” inventory valuation method. In periods of increasing costs, the LIFO method generally results in higher cost of goods sold than under the FIFO method. In periods of decreasing costs, the results are generally the opposite.

      The following table illustrates the comparative effect of LIFO and FIFO accounting on our results of operations. These supplemental FIFO earnings reflect the after-tax effect of eliminating the LIFO adjustment each year.

      Net income is higher in fiscal 2005 under the LIFO method than the FIFO method. Generally accepted accounting principles requires that inventory acquired in an acquisition be valued at selling price less costs to sell, dispose and complete. This value is generally higher than the cost to manufacture inventory. For the GSPP Acquisition, the inventory value computed in this manner was $7.3 million higher than the cost to manufacture. During fiscal 2005, this step-up would have been expensed under the FIFO method. Under our LIFO inventory method, this higher cost remains in inventory until the inventory layer represented by this inventory is consumed. To the extent inventory levels acquired in the GSPP Acquisition are lowered in the future, cost of goods sold could be higher than the normal cost to manufacture.

      Selling, general and administrative expenses (“SG&A”) decreased as a percentage of net sales to 11.8% in fiscal 2005 from 12.5% in fiscal 2004 primarily as a result of the synergies we realized following the GSPP Acquisition and our continued focus on cost reductions and efficiency. SG&A expenses were $7.8 million higher than fiscal 2004 primarily as a result of SG&A from the GSPP locations we acquired, the third party costs we incurred to comply with the Sarbanes-Oxley Act, which were approximately $3.4 million, and increased amortization expense of $1.1 million from the GSPP Acquisition. Bad debt expense decreased $2.5 million, and bonus expense and commission expense, excluding the impact of the GSPP Acquisition, decreased $2.9 million and $2.0 million, respectively.

      SG&A expenses decreased as a percentage of net sales to 12.5% in fiscal 2004 from 12.7% in fiscal 2003. SG&A expenses were $14.3 million higher than fiscal 2003 primarily as a result of increases in bad debt expense, pension expense, sales commissions, bonuses and stock compensation expense, and the amortization of certain identifiable intangible assets, which were $3.6 million, $3.5 million, $2.0 million, $1.5 million and $1.2 million, respectively, higher than fiscal 2003. Travel and entertainment expenses were $1.8 million lower than the prior fiscal year. Commission expense increased because of increased sales primarily of folding cartons. Bonuses and stock compensation expense increased due to the attainment of certain performance targets. Amortization of identifiable intangible assets increased primarily due to the fiscal 2003 acquisitions. Travel and entertainment expenses decreased primarily as a result of our continued focus on controlling costs.

      At September 30, 2005, certain group insurance costs related to the indirect plant personnel were reclassified from SG&A to cost of goods sold. The prior year amounts were reclassified as well. In addition, franchise taxes were reclassified from provision for income taxes to SG&A. For additional information, see “Note 17. Financial Results by Quarter (Unaudited)” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      On June 6, 2005, we acquired from Gulf States substantially all of the GSPP assets and operations and assumed certain of Gulf States’ related liabilities. We have included the results of GSPP’s operations in our consolidated financial statements since that date. The aggregate purchase price for the GSPP Acquisition was $552.2 million, net of cash received of $0.7 million, including various expenses. We assigned the goodwill to our Paperboard and Packaging Products segments in the amounts of $37.2 million and $13.8 million, respectively. We expect all $51.0 million of the goodwill to be deductible for tax purposes.

      In fiscal 2004, cash paid for purchase of businesses was $15.0 million, which consisted primarily of the $13.7 purchase price for the Athens Acquisition, in August 2004. The purchase price did not exceed the fair value of the assets and liabilities acquired; therefore, we recorded no goodwill. We included the results of operations of the Athens operations in our consolidated statements of income from the date of acquisition. Included in the assets acquired were $2.2 million of intangible assets. We are amortizing the customer relationships over 10 years and the non-compete agreement over five years. The pro forma impact of the Athens Acquisition was not material to our consolidated financial results for fiscal 2004.

      For additional information, see “Note 6. Acquisitions, Restructuring and Other Matters” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      We recorded pre-tax restructuring and other costs of $7.5 million, $32.7 million, and $1.5 million for fiscal 2005, 2004, and 2003, respectively. These amounts are not comparable since the timing and scope of the individual actions associated with a restructuring can vary. The pre-tax charges recorded in fiscal 2005 were primarily $2.5 million from the announced closure of our Marshville folding carton plant, $2.8 million from our St. Paul folding carton plant and $1.6 million from our Otsego paperboard mill from previously announced closures, and $1.6 million for our folding division restructuring.

      In fiscal 2004, the pre-tax charges consisted primarily of $16.6 million, $7.9 million, and $3.0 million, respectively, from the announced closure of our Otsego paperboard mill, Wright City laminated paperboard products facility, and St. Paul folding carton facility, $4.2 million from the announced the closure of the laminated paperboard products converting lines at our Aurora facility, and $1.1 million incurred to review our corporate structure and reorganized our subsidiaries, reducing the number of corporate entities and the complexity of the organizational structure.

      In fiscal 2003, we incurred pre-tax charges of $1.5 million for various initiatives.

      For additional information, see “Note 6. Acquisitions, Restructuring and Other Matters” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

Segment Operating Income

      Operating income attributable to the Packaging Products segment decreased to $33.4 million in fiscal 2005 from $38.0 million in fiscal 2004. Our operating margin for fiscal 2005 was 3.4% compared to 4.2% in fiscal 2004. The GSPP folding plants were net contributors to folding operating profit, but, the decrease in operating income for the segment was primarily due to lower folding sales in plants owned for the full year, lower volume, higher operating costs, and operating losses of $3.0 million at plants in the process of being closed. Additionally, excluding amounts attributable to the GSPP Acquisition, freight expense increased $1.3 million primarily due to increased fuel surcharges, and group insurance expense increased $0.7 million. Bad debt expense decreased $1.5 million, workers’ compensation expense decreased $1.3 million, and sales commissions decreased $0.9 million due to the mix of commissionable sales.

      Operating income attributable to the Packaging Products segment for fiscal 2004 was $38.0 million, relatively flat compared to $38.5 million in fiscal 2003. Our operating margin for fiscal 2004 was 4.2% compared to 4.8% in fiscal 2003. The decrease in operating income for the segment was primarily due to competitive pressures, a $1.4 million increase in bad debt expense, increased sales commissions of $1.0 million due to increased net sales, increased workers’ compensation expense of $1.2 million, increased group insurance of $2.8 million, increased freight expense of $3.6 million primarily due to increased volumes associated with our increased net sales and, to a lesser degree, increased fuel surcharges, increased pension expense of $2.6 million, increased intangible asset amortization of $0.9 million due to the amortization associated with the fiscal 2003 acquisitions in our folding carton division.

      Operating income attributable to the Merchandising Displays and Corrugated Packaging segment in fiscal 2005 decreased to $21.1 million from $29.1 million in fiscal 2004. Our operating margin for fiscal 2005 decreased to 6.3% from 9.1% in fiscal 2004. The decline in the operating margin was the result of higher material costs, a $1.1 million pre-tax loss at our Athens facility, increased sales of corrugated packaging and sheets which have lower margins than merchandising displays, and weaker than expected sales in the first fiscal quarter. Freight expense increased $1.7 million, primarily due to increased fuel surcharges, sales commissions decreased $1.1 million due to the mix of commissionable sales, and bonus expense decreased $1.9 million.

      Operating income attributable to the Merchandising Displays and Corrugated Packaging segment in fiscal 2004 increased 1.8% to $29.1 million compared to $28.6 million in fiscal 2003. Our operating margin for fiscal 2004 decreased to 9.1% from 9.8% in fiscal 2003. The segment’s increase in gross profit from our 9.3% increase in net sales was almost completely offset by increased bad debt expense of $1.0 million due to a change in the credit quality of several customers. Sales commissions increased $1.2 million due to increased net sales, workers’ compensation expense increased $0.3 million, pension expense increased $1.3 million and selling, general and administrative salaries increased $0.8 million to support our increased sales levels. The $1.2 million we invested in developing theft deterrent solutions in fiscal 2004 also reduced segment operating income.

      Operating income attributable to the Paperboard segment for fiscal 2005 increased to $31.6 million compared to $15.7 million in fiscal 2004 due to the GSPP Acquisition and higher selling prices for recycled paperboard. Our operating margin for fiscal 2005 increased to 5.1% from 2.9% in fiscal 2004 as a result of higher margin sales from the GSPP Acquisition and increased selling prices. In our recycled mills, sales price increases were significantly offset by the aggregate increase of $21 per ton in fiber, energy, chemical and freight costs compared to the prior fiscal year. Operating income also benefited from the elimination of $3.8 million of fiscal year 2004 losses at a portion of our laminated paperboard products operations and $2.7 million from our Otsego paperboard mill, both of which we closed in fiscal 2004. In our recycled paperboard mills, fiber costs increased $4.1 million, energy costs increased $6.6 million, chemical costs increased $2.2 million, and freight costs increased $8.4 million on a volume adjusted basis. Additionally, adjusted for the GSPP Acquisition, bad debt expense decreased $0.9 million, and bonus expense increased $0.8 million.

      Operating income attributable to the Paperboard segment for fiscal 2004 decreased 27.6% to $15.7 million compared to $21.8 million in fiscal 2003 despite the increase in paperboard tons shipped and average selling price. Our operating margin for fiscal 2004 decreased to 2.9% from 4.3% in fiscal 2003. Operating income in our recycled fiber division increased 143.4% as a result of higher fiber prices and increased volume. The operating loss generated by our laminated paperboard products operations increased $0.7 million due to lower sales, continued pricing pressure, and rising material costs. In our recycled paperboard mills, on a volume adjusted basis, fiber costs increased $16.3 million, energy costs increased $9.2 million, chemical costs

increased $1.3 million, and freight costs increased $1.8 million, which more than offset the increased sales of $19.6 million attributable to increased average selling prices. The net impact of the increased average selling price and the increased fiber, energy, chemical and freight costs was a reduction in segment income of $8.9 million. Other Paperboard segment freight costs increased $0.3 million. Additionally, group insurance expense increased $0.9 million, pension expense increased $1.9 million, inventory write-downs related to closed plants increased $0.8 million, bad debt expense increased $1.3 million due to the change in credit quality of several customers, and workers’ compensation expense increased $0.5 million.

      Interest expense for fiscal 2005 increased 55.5%, or $13.1 million, to $36.6 million from $23.6 million for fiscal 2004. The increase was primarily attributable to our increased debt to finance the GSPP Acquisition. The increase in our average outstanding borrowings increased interest expense by approximately $7.6 million. An increase in our effective interest rates, net of swaps, resulted in increased interest expense of approximately $5.5 million.

      Interest expense for fiscal 2004 decreased 12.3%, or $3.3 million, to $23.6 million from $26.9 million for fiscal 2003. The decrease in our effective interest rates, net of swaps, resulted in decreased interest expense of approximately $2.9 million. The decrease in our average outstanding borrowings decreased interest expense by approximately $0.4 million.

      Minority interest in income of our consolidated subsidiary for fiscal 2005 increased 41.3% to $4.8 million from $3.4 million in 2004. The increase was primarily due our acquisition of our 60% ownership share in GSD as part of the GSPP Acquisition.

      Minority interest in income of our consolidated subsidiary for fiscal 2004 increased 5.3% to $3.4 million from $3.2 million in 2003. The increase was primarily due to higher volumes.

      We recorded a provision for income taxes of $2.2 million for fiscal 2005 compared to a provision of $0.9 million for fiscal 2004. Fiscal 2005 included a $4.1 million benefit resulting from the resolution of historical federal and state tax deductions that we had previously reserved. Other adjustments to the statutory federal tax rate are more fully described in Note 10 to the consolidated financial statements. We estimate our marginal effective income tax rate for fiscal 2005 to be approximately 39%.

      In fiscal 2004, we reviewed our corporate structure and reorganized our corporate subsidiaries, reducing the number of corporate entities and the complexity of our organizational structure. The changes we implemented as a result of this review resulted in a one-time income tax benefit of $3.2 million. Approximately $1.2 million of the benefit related to the filing of amended tax returns for fiscal years 2001 and 2002 and comparable adjustments made to the fiscal 2003 tax returns. The changes related to certain income apportionment factors and a correction of an allocation of intercompany charges. The impact of these changes was not material to our net income for any of the fiscal years in question; therefore, we recorded the cumulative impact in the current period. The remaining $2.0 million tax benefit relates to a reduction in the deferred tax valuation allowance for net operating loss carry-forwards (which we refer to as “NOLs”) and credits that we had previously concluded were not realizable. We anticipate that the restructuring will allow us to realize the benefit of these NOLs in future years. Due to these one-time tax benefits, our fiscal 2005 and fiscal 2004 effective income tax rates of 11.3% and 24.4%, respectively are not comparable.

      The American Jobs Creation Act of 2004 creates a temporary incentive for United States corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. We plan to repatriate $30.9 million in extraordinary dividends, as defined in the Jobs Creation Act, during the quarter ending December 31, 2005. Accordingly, we recorded a tax liability of $0.8 million as of September 30, 2005.

      Provision for income taxes for fiscal 2004 decreased to $0.9 million from $18.1 million for fiscal 2003. The $0.9 million provision for income taxes in fiscal 2004 does not include $4.8 million for taxes related to our discontinued operations in fiscal 2004. Our effective tax rate for fiscal 2004 decreased to 24.4% from 38.1% for fiscal 2003. These rates are not comparable due to the reorganization of our corporate subsidiaries in fiscal 2004, as discussed above.

      Income from discontinued operations, net of tax, was $8.0 million in fiscal 2004 compared to $0.04 million for fiscal 2003.

      In the first quarter of fiscal 2004, we completed the sale of our plastic packaging division and the sale of certain assets and liabilities that we acquired in the January 2003 acquisition of Groupe Cartem Wilco Inc. (which we refer to as “Cartem Wilco”) that were associated with a folding carton plant in Quebec. We received cash proceeds of approximately $59.0 million from the sale of the plastic packaging division and we recorded an after-tax gain of approximately $7.3 million. The sale of certain Cartem Wilco assets and liabilities resulted in no gain or loss and we received cash proceeds of approximately $2.9 million. We have reclassified the results of operations for these components as income from discontinued operations, net of tax, on the consolidated statements of income for all periods presented.

      Income from discontinued operations in fiscal 2003 was $0.04 million due to declining sales prices of case ready meat packaging, higher raw material costs, primarily resin, and a shift toward lower margin extruded roll stock sales.

      Net income for fiscal 2005 was $17.6 million and included pre-tax expenses of $7.5 million for restructuring and other costs, and a one-time income tax benefit of $6.7 million. Net income for fiscal 2004 was $17.6 million and included income from discontinued operations of $8.0 million, pre-tax expenses of $32.7 million for restructuring and other costs, and a one-time income tax benefit of $3.2 million. Net income as a percentage of net sales was 1.0% for fiscal 2005 compared to 1.1% for fiscal 2004. Net income for fiscal 2003 was $29.6 million and included income from discontinued operations of $0.04 million and pre-tax expense of $1.5 million for restructuring and other costs. Net income as a percentage of net sales was 2.1% for fiscal 2003.

Liquidity and Capital Resources

      We fund our working capital requirements, capital expenditures and acquisitions from net cash provided by operating activities; borrowings under term notes, our receivables-backed financing facility and bank credit facilities; proceeds from the sale of our discontinued and closed operations, and proceeds received in connection with the issuance of industrial development revenue bonds as well as other debt and equity securities.

      The sum of cash and cash equivalents and investment in marketable securities was $26.8 million at September 30, 2005, compared to $56.9 million at September 30, 2004, an aggregate decrease of $30.1 million. Our debt balance at September 30, 2005, was $915.1 million compared with $484.1 million on September 30, 2004, an increase of $431.0 million, which primarily reflects the debt incurred to finance the GSPP Acquisition. Our debt exposes us to changes in interest rates. We use swap instruments to manage the interest rate characteristics of our outstanding debt. In May 2005, we paid $4.2 million to terminate $200 million of long-term fixed-to-floating interest rate swaps. In June and September 2005, we entered into $350 million notional amount and $75 million notional amount of floating-to-fixed interest rate swaps, respectively, and designated them as cash flow hedges of forecasted interest payments for a like amount of our floating rate debt. The start date of the $75 million is effective September 1, 2006. We financed the GSPP Acquisition of $552.2 million, including related costs, with $420.0 million in financing from a new secured

credit facility (which we refer to as the “Senior Credit Facility”) that we entered into contemporaneously with the closing of the GSPP Acquisition, $70.1 million in financing from our existing $75.0 million receivables-backed financing facility and cash on hand. We have established a goal to reduce our debt by $180 million by September 2007. For this goal, we assumed our debt would equal our March 31, 2005, net debt (as defined) of $396.3 million plus the purchase price of $552.2 million and that we would reduce our net debt to $768.5 million by September 2007. Our actual net debt at the end of September 30, 2005 was $876.0 million, implying that we reduced pro forma net debt by $72.5 million. We are ahead of our expectations for debt reduction after the GSPP Acquisition. The Senior Credit Facility includes revolving credit, swing, and term loan facilities in the aggregate principal amount of $700.0 million. The Senior Credit Facility is pre-payable at any time and is scheduled to expire on June 6, 2010, and includes certain restrictive covenants. We had $250.0 million outstanding under the term loan facility at September 30, 2005. We have aggregate outstanding letters of credit under this facility of approximately $41 million. At September 30, 2005, due to the covenants in the Senior Credit Facility, maximum available borrowings under this facility were approximately $126 million. We also had a 364-day receivables-backed financing facility under which we had aggregate borrowing capacity of $75.0 million through May 1, 2006. Borrowing availability under this facility is based on the eligible underlying secured assets. At September 30, 2005, this facility was fully drawn. On October 26, 2005, the facility was increased to $100.0 million and is scheduled to expire on October 25, 2006. At September 30, 2005 and September 30, 2004, we had $55.0 million and no borrowings, respectively outstanding under our receivables-backed financing facility. At September 30, 2005, we had $216.0 million outstanding under our revolving credit facility that is part of our Senior Credit Facility. At September 30, 2004, we had no borrowings on the terminated revolving credit facility. On August 1, 2005, we retired the outstanding balance of $74.0 million of our $100.0 million in aggregate principal amount of our 7.25% notes (which we refer to as the “2005 Notes”). We retired the 2005 Notes with $14.0 million cash on hand and $60.0 million of borrowings under our Senior Credit Facility. For additional information regarding our outstanding debt, our credit facilities and their securitization, see “Note 8. Debt” of the Notes to Condensed Consolidated Financial Statements section of the Financial Statements included herein.

      Net cash provided by operating activities for fiscal 2005 was $154.7 million and $91.4 million in fiscal 2004. The increase was primarily due to higher income from continuing operations, increased depreciation and amortization, and net decreases in working capital. The net decreases in working capital were primarily due to a reduction in accounts receivable and inventories. Net cash provided by operating activities for fiscal 2004 was $91.4 million compared to $114.8 million for fiscal 2003. Net cash provided by operating activities for fiscal 2004 was reduced by $9.9 million of cash taxes paid on the sale of our plastic packaging division, which we are required to record as a reduction of net cash provided by operating activities. The remaining decrease is primarily the result of working capital changes to support our increased sales levels and decreased earnings from continuing operations.

      Net cash used for investing activities was $572.4 million in fiscal 2005 compared to $36.3 million in fiscal 2004. Net cash used for investing activities consisted primarily of the $552.2 million purchase price of the GSPP Acquisition, $54.3 million of capital expenditures that were partially offset by net sales of $28.2 million of marketable securities, and proceeds from the sale of property, plant and equipment of $6.1 million, primarily from previously idled facilities and equipment. Fiscal 2004 consisted primarily of capital expenditures of $60.8 million, and net purchases of $28.2 million of marketable securities, and our Athens Acquisition for which the purchase price was $13.7 million, and were largely offset by the $59.0 million that we received from the sale of the plastic packaging division and $2.9 million that we received from the sale of certain Cartem Wilco assets and liabilities. Net cash used for investing activities for fiscal 2003 was $156.7 million, consisting primarily of capital expenditures of $57.4 million, $65.3 million paid for the January 2003 purchase of Cartem Wilco, $15.4 million paid for the August 2003 purchase of Pacific Coast Packaging, and the buyout of our synthetic lease for $21.9 million. Partially offsetting these cash outflows were $6.8 million of proceeds from the sale of property, plant and equipment, primarily from closed facilities, and $1.5 million that we received for the sale of our Montreal, Quebec, recycled fiber collection facility.

      Net cash provided by financing activities was $415.1 million in fiscal 2005 and net cash used for financing activities was $41.1 million in fiscal 2004. In fiscal 2005, net cash provided consisted primarily of net additions

to debt to finance the GSPP Acquisition and the issuance of Common Stock, which were partially offset by cash dividends paid to shareholders, distributions to minority interest partners, payment on termination of swap contracts, and debt issuance costs. Fiscal 2004 consisted primarily of net repayments of debt, cash dividend payments to shareholders, and distributions to the minority interest partner in our RTS joint venture that were partially offset by proceeds from monetizing swap contracts and the issuance of Common Stock. Net cash provided by financing activities aggregated $50.4 million for fiscal 2003 and consisted primarily of proceeds from the issuance of $100.0 million in aggregate principal amount of our 5.625% notes due March 15, 2013 which we used to pay down the balances on our revolving credit facility, our receivables-backed financing facility and the debt that we incurred as part of the acquisition of Cartem Wilco; additions to debt; the issuance of Common Stock; and proceeds from monetizing swap contracts. Partially offsetting these sources of cash were repayments of debt, cash dividends paid to shareholders, and distributions to the minority interest partner in our RTS joint venture, debt issuance costs, and the repurchase of Common Stock.

      Our capital expenditures aggregated $54.3 million in fiscal 2005. We used these expenditures primarily for the purchase and upgrading of machinery and equipment. We estimate that our capital expenditures will aggregate approximately $70 million in fiscal 2006 and we are obligated to purchase $14.4 million of fixed assets at September 30, 2005. We intend to use these expenditures for the purchase and upgrading of machinery and equipment, including growth and efficiency capital focused on our folding carton business, and maintenance capital. We believe that our financial position would support higher levels of capital expenditures, if justified by opportunities to increase revenues or reduce costs, and we continuously review new investment opportunities. Accordingly, it is possible that our capital expenditures in fiscal 2006 could be higher than currently anticipated.

      As a result of the step up in basis related to the acquisition of the Gulf States fixed assets and the future tax depreciation from these assets, we do not anticipate paying any Federal income taxes over the next two fiscal years.

      We anticipate that we will be able to fund our capital expenditures, interest payments, stock repurchases, dividends, pension payments, working capital needs, and repayments of current portion of long term debt for the foreseeable future from cash generated from operations, borrowings under our Senior Credit Facility and receivables-backed financing facility, proceeds from the issuance of debt or equity securities or other additional long-term debt financing.

      In November 2005, our board of directors approved a resolution to pay our quarterly dividend of $0.09 per share, indicating an annualized dividend of $0.36 per year, on our Common Stock.

      We summarize in the following table our enforceable and legally binding contractual obligations at September 30, 2005, and the effect such obligations are expected to have on our liquidity and cash flow in future periods. We based some of the amounts in this table on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are subjective, the enforceable and legally binding obligations we actually pay in future periods may vary from those we have summarized in the table.

      In addition to the enforceable and legally binding obligations quantified in the table above, we have other obligations for goods and services and raw materials entered into in the normal course of business. These contracts, however, either are not enforceable or legally binding or are subject to change based on our business decisions.

      For information concerning certain related party transactions, please see “Note 14. Related Party Transactions” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      We own 49% of the Seven Hills joint venture with Lafarge, and account for it under the equity method. During fiscal 2005 and 2003 our share of operating losses incurred at Seven Hills amounted to $1.0 million and $0.4 million, respectively. During fiscal 2004, our share of operating income at Seven Hills was $0.1 million. The loss in fiscal 2005 included approximately $1.5 million that we recorded in our third fiscal quarter due to arbitration with Lafarge. Our pre-tax income from the Seven Hills joint venture, including the fees we charge the venture and our share of the joint venture’s net income, was $0.7 million, $2.8 million, and $1.3 million for fiscal 2005, 2004, and 2003, respectively.

      For additional information, see “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      Our board of directors has approved a stock repurchase plan that allows for the repurchase from time to time of shares of Common Stock over an indefinite period of time. As of September 30, 2005, we had 2.0 million shares of Common Stock available for repurchase under the amended repurchase plan. Pursuant to our repurchase plan, during fiscal 2005 and fiscal 2004, we did not repurchase any shares of Common Stock. During fiscal 2003, we repurchased 0.1 million shares of Common Stock.

Expenditures for Environmental Compliance

      For a discussion of our expenditures for environmental compliance, please see Item 1, “Business — Governmental Regulation — Environmental Regulation.”

New Accounting Standards

      See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on results of operations and financial condition.

Non-GAAP Measures

      We have included in the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” above a financial measure that is not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Below, we define the non-GAAP financial measure, provide a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP, and discuss the reasons that we believe this information is useful to management and may be useful to investors.

      We have defined the non-GAAP measure net debt to include the aggregate debt obligations reflected in our balance sheet, less the hedge adjustments resulting from terminated and existing interest rate derivatives or swaps, the balance of our cash and cash equivalents and certain other investments that we consider to be readily available to satisfy such debt obligations.

      Our management uses net debt, along with other factors, to evaluate our financial condition. We believe that net debt is an appropriate supplemental measure of financial condition because it provides a more

complete understanding of our financial condition before the impact of our decisions regarding the appropriate use of cash and liquid investments. Set forth below is a reconciliation of net debt to the most directly comparable GAAP measures, Total Current Portion of Debt and Total Long-term Debt, Less Current Portion, in thousands:

Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are exposed to market risk from changes in interest rates, foreign exchange rates and commodity prices. Our objective is to identify and understand these risks and then implement strategies to manage them. When evaluating these strategies, we evaluate the fundamentals of each market, our sensitivity to movement in commodity pricing, and underlying accounting and business implications. To implement these strategies, we periodically enter into various hedging transactions. The sensitivity analyses we present below do not consider the effect of possible adverse changes in the general economy, nor do they consider additional actions we may take to mitigate our exposure to such changes. There can be no assurance that we will manage or continue to manage any such risks in the future or that any such efforts will be successful.

Derivative Instruments

      We enter into a variety of derivative transactions. We use interest rate swap agreements to manage the interest rate characteristics on a portion of our outstanding debt. We evaluate market conditions and our leverage ratio in order to determine our tolerance for potential increases in interest expense that could result from floating interest rates. We use forward contracts to limit our exposure to fluctuations in non-functional foreign currency rates with respect to our operating units’ receivables. We also use commodity swap agreements to limit our exposure to falling sales prices and rising raw material costs.

      We account for derivative instruments and transactions based on whether the derivative instrument is designated as a fair value hedge or a cash flow hedge as more fully described in “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

      In fiscal 2005, we paid $4.2 million to terminate $200 million notional amount of long-term fixed-to-floating interest rate swaps. During fiscal 2004, we realized cash proceeds of $4.4 million by terminating interest rate swaps that were designated as fair value hedges of our fixed rate debt and entering into comparable replacement interest rate swaps at then-current market levels. We do not expect any material impact on net income or change in interest rate risk from these transactions relative to our position before we entered into these transactions.

Interest Rates

      We are exposed to changes in interest rates, primarily as a result of our short-term and long-term debt. We use swap agreements to manage the interest rate characteristics of a portion of our outstanding debt. Based on the amounts and mix of our fixed and floating rate debt at September 30, 2005 and September 30, 2004, if market interest rates increase an average of 100 basis points, after considering the effects of our swaps, our interest expense would have increased by $2.0 million and $3.1 million, respectively. We determined these amounts by considering the impact of the hypothetical interest rates on our borrowing costs and interest rate swap agreements. These analyses do not consider the effects of changes in the level of overall economic activity that could exist in such an environment.

Market Risks Impacting Pension Plans

      Our pension plans are influenced by trends in the financial markets and the regulatory environment. Adverse general stock market trends and falling interest rates increase plan costs and liabilities. During fiscal 2005 and 2004, the effect of a 0.25% change in the discount rate would have impacted income from continuing operations before income taxes by approximately $1.3 million and $1.2 million, respectively.

Foreign Currency

      We are exposed to changes in foreign currency rates with respect to our foreign currency denominated operating revenues and expenses. Our principal foreign exchange exposure is the Canadian dollar. The Canadian dollar is the functional currency of our Canadian operations.

      We have transaction gains or losses that result from changes in our operating units’ non-functional currency. For example, we have non-functional currency exposure at our Canadian operations because they have purchases and sales denominated in U.S. dollars. We record these gains or losses in foreign exchange gains and losses in the income statement. From time to time, we enter into currency forward or option contracts to mitigate a portion of our foreign currency transaction exposure. We recorded losses of $0.7 million and $0.5 million in fiscal 2005 and fiscal 2003, respectively, and a gain of $0.01 million in fiscal 2004. To mitigate potential foreign currency transaction losses, we may use offsetting internal exposures or forward contracts.

      We also have translation gains or losses that result from translation of the results of operations of an operating unit’s foreign functional currency into U.S. dollars for consolidated financial statement purposes. As a result of the Canadian dollar strengthening in relation to the U.S. dollar, our translated, before tax earnings from our Canadian operations were increased. Translated earnings were also $0.6 million higher in fiscal 2005 than if we translated the same earnings using fiscal 2004 exchange rates. Translated earnings were $0.8 million higher in fiscal 2004 than if we translated the same earnings using fiscal 2003 exchange rates.

Commodities

      The principal raw material we use in the production of recycled paperboard and corrugating medium is recycled fiber. Our purchases of old corrugated containers and double-lined kraft clippings account for our largest fiber costs and approximately 54% of our fiscal year 2005 fiber purchases. The remaining 46% of our fiber purchases consists of a number of other grades of recycled paper.

      From time to time we make use of financial swap agreements to limit our exposure to changes in OCC prices. With the effect of our OCC swaps, a hypothetical 10% increase in total fiber prices would have increased our costs by $10 million in fiscal 2005 and 2004, respectively. In times of higher fiber prices, we may have the ability to pass a portion of the increased costs on to our customers in the form of higher finished product pricing; however, there can be no assurance that we will be able to do so.

      We purchase Coated Unbleached Kraft (which we refer to as “CUK”) from external sources to use in our folding carton converting business. A hypothetical 10% increase in CUK prices would have increased our costs by approximately $6 million during fiscal 2005 and by approximately $5 million during fiscal 2004. In times of

higher CUK prices, we may have the ability to pass a portion of our increased costs on to our customers in the form of higher finished product pricing; however, there can be no assurance that we will be able to do so.

      We have the capacity to produce approximately 180,000 tons per year of corrugating medium at our St. Paul, Minnesota operation. From time to time, we make use of swap agreements to limit our exposure to falling corrugating medium prices at our St. Paul operation. We estimate market risk as a hypothetical 10% decrease in selling price. With the effect of our medium swaps, such a decrease would have resulted in lower sales of approximately $6 million during both fiscal 2005 and fiscal 2004.

      We convert approximately 86,000 tons per year of corrugating medium and linerboard in our corrugated box converting operations. A hypothetical 10% increase in linerboard and corrugating medium pricing would have resulted in increased costs of approximately $4 million during both fiscal 2005 and fiscal 2004. We may have the ability to pass a portion of our increased costs on to our customers in the form of higher finished product pricing; however, there can be no assurance that we will be able to do so.

Energy

      Energy is one of the most significant manufacturing costs of our paperboard operations. We use natural gas, electricity, fuel oil and coal to generate steam used in the paper making process and to operate our recycled paperboard machines and primarily electricity for our converting equipment. Our bleached paperboard mill uses wood by-products for most of its energy. We generally purchase these products from suppliers at market rates. Occasionally, we enter into long-term agreements to purchase natural gas.

      We spent approximately $87 million on all energy sources in fiscal 2005. Natural gas accounted for approximately 53% (5.0 million MMBtu) of our total purchases in fiscal 2005. Without the effect of fixed price natural gas forward contracts, a hypothetical 10% change in the price of energy would have increased our cost of energy by $8.7 million.

      We spent approximately $86 million on energy in fiscal 2004. Natural gas accounted for approximately 50% (5.7 million MMBtu) of our total energy purchases in fiscal 2004. Without the effect of fixed price natural gas forward contracts, a hypothetical 10% change in the price of energy would have increased our cost of energy by $8.6 million during fiscal 2004.

      We may have the ability to pass a portion of our increased costs on to our customers in the form of higher finished product pricing; however, there can be no assurance that we will be able to do so. We periodically evaluate alternative scenarios to manage these risks.

Index to Financial Statements

      For supplemental quarterly financial information, please see “Note 17. Financial Results by Quarter (Unaudited)” of the Notes to Consolidated Financial Statements section of the Financial Statements included herein.

ROCK-TENN COMPANY

CONSOLIDATED STATEMENTS OF INCOME