Caraustar Reports Loss for Quarter

Caraustar Industries announced that revenues for the first quarter were $253 million, an increase of 15.5 percent from revenues of $219 million for the same quarter of 2002. The company also announced a net loss for the quarter of $7.1 million, compared to first quarter 2002 net income of $499,000.

Thomas V. Brown, president and CEO of Caraustar, stated, "Included in the loss for the quarter is a combination of various non- restructuring charges associated with consolidation and business migration activities in every business group. The Industrial & Consumer Products Group is ahead of schedule in consolidating its business following the acquisition of Smurfit-Stone Container Corporation's industrial packaging operations, which includes the recently announced closure of five tube and core facilities.

“Of the planned closures, the consolidation of another facility remains to be completed this summer. We had previously projected the process to take the entire year to complete. Although the more aggressive approach will lessen the overall cost and improve business retention expectations, the early costs of added sales and administrative responsibilities, as well as training and qualifying expenses, represent costs in pursuit of this objective that are not permitted to be characterized as restructuring costs.

"In the Mill Group, we have shuttered the mill in the Buffalo, NY area and idled one of two paper machines in Rittman, OH. The primary costs of closing the Buffalo mill are identified as restructuring charges, but the cost of idling the Rittman machine is an operating cost, primarily an increase in SG&A costs. The shutdown of these two machines results in additional operating costs as volume and product experience are reallocated across all mills.

"In the Custom Packaging Group and in the mill Specialty Packaging Division, similar short-term business migration costs were incurred with the reconfiguration of the Ashland, OH carton plant and the consolidation of our specialty products facility in Fayetteville, NC into our Mooresville, NC plant. In both cases equipment and capabilities were transferred to optimize cost and ensure the retention of business and the satisfaction of the customer base.

"In spite of the closure or reconfiguration of 11 mills and converting plants and the related disruption of continuing operations, our business volume grew significantly. Mill volume increased to 271,000 tons, an increase of 17 percent, or 40,000 tons, compared to the first quarter of 2002.“

"One of the more encouraging business developments for the recycled boxboard industry was a 4.7 percent quarter-over-quarter increase in volume. As important as overall market growth is the fact that volume in each of the four business segments improved between two percent and six percent. Although this growth is encouraging, it is too early to consider this volume gain a reversal of the downward trend of the last three years.

"Offsetting the volume gains for Caraustar and the industry were raw material costs and energy costs, which have increased over the comparable period last year. For Caraustar's mills, raw material costs increased $24 per ton while energy costs increased $15 per ton. Mill sales prices, which had improved in the latter half of 2002, were $18 per ton higher than the first quarter of 2002. Considering both cost increases, the net effect on variable margins was a decline of $21 per ton, or $5.7 million across the mill system."