Business News

Caraustar Industries, Inc. Reports Fourth Quarter and Year-End 2007 Results

Friday 29. February 2008 - Caraustar Industries, Inc. (NASDAQ:CSAR) today announced that sales from continuing operations for the fourth quarter ended December 31, 2007 were $203.9 million compared to sales of $203.0 million for the same quarter in 2006. Loss from continuing operations for the fourth quarter of 2007 was $7.0 million, or $0.25 per share, compared to a 2006 fourth quarter loss of $10.8 million, or $0.38 per share.

The fourth quarter 2007 and 2006 results from continuing operations included restructuring and impairment costs of approximately $3.5 million and $12.4 million, of which $3.3 million and $4.1 million were cash charges, respectively. The effect of restructuring and impairment costs on earnings per share from continuing operations was $0.08 per share and $0.27 per share for the fourth quarters of 2007 and 2006, respectively. Also included in the fourth quarter of 2007 loss from operations were pre-tax charges of $1.8 million, or $0.04 per share, related to a customer bankruptcy. The $6.9 million improvement in pre-tax operating loss was primarily attributable to lower restructuring and impairment costs.

Paperboard volume as recorded by the company declined 22.2 thousand tons, or 9.3 percent, in the fourth quarter 2007 versus the fourth quarter 2006. Driving the decline was a reduction in outside paperboard purchased (-9.1 thousand tons), the closure of the Lafayette, IN and Reading, PA mills (-9.4 thousand tons) and lower gypsum facing paper production from our Premier Boxboard Limited (PBL) joint venture (-7.1 thousand tons) attributable to the decline in the housing market. Partly offsetting these reductions was an increase in same-mill uncoated recycled boxboard (URB) volume of 3.2 thousand tons. Containerboard volume sold at our PBL joint venture was up 24.3 thousand tons in the same period but historically has not been included in the company’s volume reporting. Industry volume was down 3.8 percent overall. Caraustar URB mill utilization, however, was 91.0 percent versus industry utilization of 90.3 percent.

For the year ended December 31, 2007, sales from continuing operations were $854.2 million, a decrease of 8.4 percent from sales of $933.0 million in 2006. Loss from continuing operations was $0.62 per share for the year ended December 31, 2007. Income from continuing operations for the year ended December 31, 2006 was $1.82 per share. The following table presents the earnings per share impact of restructuring costs and other significant transactions during 2007 and 2006:

Full Year
2007 2006
Restructuring and Impairment Costs $(0.29) $(0.82)
Gain on Sale of Standard Gypsum – 2.93
Loss on Redemption of Debt – (0.22)
Accelerated Depreciation Expense (0.01) (0.13)





The $106.3 million decrease in pre-tax operating results was primarily attributable to the gain on sale of the company’s 50-percent partnership interest in Standard Gypsum, L.P. in 2006, a loss on redemption of debt in 2006, lower restructuring and impairment costs in 2007 and a decrease in equity in income of unconsolidated affiliates in 2007.

Michael J. Keough, president and chief executive officer of Caraustar, commented, “The company has worked hard to replace volume impacted by a slowing U.S. economy. During the fourth quarter, our gypsum facing paper mills operated near capacity by producing alternate paper grades (tube and core grades at our Sweetwater mill and containerboard grades at our PBL joint venture), and our same-mill URB volume was up slightly over prior year. Capacity utilization for the industry continues in the low 90 percentiles. We are still challenged by high fiber and energy costs, which compressed margins $17 a ton in our mill group in the fourth quarter. As a result of continued cost pressures, we announced price increases for URB ($40/ton) and converted products (8%) in the first quarter 2008.

“We continue to invest in our core businesses, which is exemplified by the upgrade at our Sweetwater mill for tube and core grades, improvements at Austell Mill One for book stock, the new baler and shredder at our RFG facility in Texarkana, four new high-speed tube and core winders, one new edge protector line, two new folding carton presses and the recent acquisition of the assets of Mayers Fibre Tube and Core in Winnipeg, Canada. At our PBL joint venture, we have had a number of successful trials for higher margin white-top linerboard for our partner, Temple-Inland. As we refine production, we expect that this additional product line will complement PBL’s production of gypsum facing paper and other containerboard products. We believe that PBL will provide improved performance in 2008 versus 2007.

“Despite market pressures, we continue to refine and redefine the company to operate in these challenging times.”

Joint Ventures

Caraustar’s 50-percent owned interest in the Premier Boxboard Limited (PBL) mill contributed $0.8 million in equity in income from unconsolidated affiliates in the fourth quarter 2007 versus $0.4 million in the fourth quarter of 2006. Cash distributions were $3.0 million compared to zero for the same period last year. Both the increase in earnings and cash distributions were attributable to increased containerboard volume which offset the decline in gypsum facing paper volume.

Liquidity

The company ended the year with a cash balance of $6.5 million compared to $1.0 million at the end of 2006. During 2007, Caraustar generated $0.4 million of cash in operating activities, compared to cash used from operations of $3.1 million the previous year. This increase was primarily attributable to a $12.6 million decrease in working capital, a $13.8 million reduction in cash payments for interest, partially offset by a decrease in distributions from PBL of $4.0 million, an $11.9 million increase in pension contributions and reduced income from operations before restructuring and impairment costs of $5.9 million. Cash proceeds from asset sales of approximately $28.7 million received in 2007 also supplemented liquidity. Capital expenditures decreased year-over-year from $38.2 million to $26.6 million in 2007. The $11.6 million decrease was primarily due to unusually large investments in 2006 that were completed in 2007. Those major investments that commenced in 2006 included significant machinery and equipment upgrades in our mill and carton systems, development and implementation of ERP (Enterprise Resource Planning) systems, and $1.7 million associated with the buyout of leased equipment precipitated by the sale of the partition business in the first quarter of 2006. Capital expenditures in 2008 are expected to be less than $15 million.

As of December 31, 2007, the company had $10.3 million in borrowings outstanding under the revolving portion of its Senior Credit Facility and $15.0 million of letters of credit outstanding that reduce availability. As of December 31, 2007, the company had availability under the revolving portion of the Senior Credit Facility of $31.3 million.