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Caraustar Industries Reports Fourth Quarter Loss on Charges

Feb. 10, 2006 - Caraustar Industries, Inc. today announced that sales from continuing operations for the fourth quarter ended December 31, 2005 were $211.0 million compared to sales of $211.7 million for the same quarter in 2004. Loss from continuing operations for the fourth quarter of 2005 was $35.6 million, or $1.24 per share, compared to 2004 fourth quarter net income from continuing operations of $8.4 million, or $0.29 per share.

The fourth quarter 2005 and 2004 results from continuing operations included restructuring and impairment costs of approximately $40.3 million and $2.2 million, respectively. Also included in the fourth quarter 2004 was a $10.3 million gain from the sale of real estate. The fourth quarter 2005 included an impairment charge of approximately $39.3 million related to impairment of goodwill in the Custom Packaging Group resulting from the exit of the coated recycled paperboard business. The effect of restructuring and impairment costs (net of the gain on sale of real estate) on earnings per share from continuing operations was approximately ($1.25) negative and $0.20 positive for the fourth quarters of 2005 and 2004, respectively. See Unaudited Supplemental Data for Non-GAAP Reconciliation of the Statement of Operations.

The $52.8 million decline in pre-tax operating results was primarily attributable to higher restructuring and impairment costs, higher energy and freight costs, partially offset by lower fiber costs and a $1.1 million increase in equity in income of unconsolidated affiliates.

Mill volume, excluding joint ventures and discontinued operations, for the fourth quarter of 2005 decreased approximately 2.6 thousand tons compared to the same quarter last year, as demand was relatively comparable across all paperboard grades. Gypsum facing paper at the company's 50-percent owned unconsolidated Premier Boxboard Limited LLC (PBL) joint venture increased in volume by 22.5 percent over fourth quarter 2004.

Year ended December 31, 2005

For the year ended December 31, 2005, sales from continuing operations were $862.4 million, a decrease of 1.0 percent from sales of $871.5 million in 2004. Loss per share from continuing operations was $1.09 for the year ended December 31, 2005, including approximately $1.33 in restructuring and impairment costs. Income from continuing operations for the year ended December 31, 2004 was $0.25 per share, including $0.04 in restructuring and impairment costs, net of gain on sale of real estate.

The $41.4 million decline in pre-tax operating results was primarily attributable to higher restructuring and impairment costs, higher energy and freight costs, partially offset by higher mill selling prices and an $11.8 million increase in equity in income of unconsolidated affiliates. Strong pricing and volume growth in the two joint ventures were more than offset by lower sales, higher energy, freight and selling, general and administrative costs in the consolidated group for the year ended December 31, 2005.

Michael J. Keough, president and chief executive officer of Caraustar, commented, "We reported positive results for both fourth quarter and the full- year 2005 after considering restructuring costs and discontinued operations. While volumes continued reasonably strong in the seasonally lower fourth quarter, we are still challenged by high fuel and energy costs which were up about $18 per mill ton versus the same quarter last year and $10 per mill ton when compared to the third quarter of 2005. As a result of the continued high energy costs, we recently announced a $40 per ton price increase on uncoated recycled boxboard, which includes the conversion of a previously implemented $25 per ton energy surcharge. Our mill group operated at 92.7 percent in the fourth quarter while the industry operated at 91.8 percent of capacity.

"As announced in January, we continue to transform Caraustar into a leaner, more focused company with emphasis on gypsum facing paper and uncoated recycled boxboard and converted products. We see Caraustar and the industry in a state of major consolidation and restructuring that we believe will ultimately have a positive effect on our business."

Joint Ventures

Caraustar's 50-percent interest in the PBL mill and the two Standard Gypsum wallboard manufacturing facilities contributed $9.5 million and $37.0 million of equity in income of unconsolidated affiliates for the three-month period and year ended December 31, 2005, an increase of 12.7 percent and 46.7 percent, respectively. Cash distributions to Caraustar were $39.5 million for the year ended December 31, 2005, versus $20.3 million for the same period in 2004.

Subsequent to year end, the company sold its fifty-percent partnership interest in Standard Gypsum to Temple-Inland, its joint venture partner, for $150 million plus the assumption of Caraustar's portion of Standard's debt in the amount of $28.1 million. The transaction also eliminated $29.5 million in letters of credit that guaranteed Caraustar's portion of Standard's debt and which had reduced availability under Caraustar's revolving credit facility.

Liquidity

The company ended the year with a cash balance of $95.2 million as compared to $89.8 million at the end of 2004. For the year, Caraustar generated $23.9 million of cash from operating activities compared to $33.4 million the previous year. This decrease was mainly attributable to a pension payment of $13.1 million made September 15, 2005. Capital expenditures increased year-over-year from $20.9 million to $24.3 million in 2005. The company had no borrowings outstanding under its $75.0 million revolving credit facility but did have $37.5 million of letters of credit outstanding (approximately $8.0 million after the sale of its fifty-percent interest in Standard Gypsum subsequent to year end) that reduced availability. During 2005, the company repurchased $7.5 million of its 9.875 percent Senior Subordinated Notes. Interest expense was essentially unchanged year over year, as the reduction of interest expense related to the repurchase of notes was offset by lower benefits from interest rate swaps.

Caraustar, a recycled packaging company, is one of the world's largest integrated manufacturers of converted recycled paperboard. Caraustar has developed its leadership position in the industry through diversification and integration from raw materials to finished products. Caraustar serves the four principal recycled boxboard product end-use markets: tubes, cores and composite cans; folding cartons; gypsum facing paper and specialty paperboard products.

SOURCE: Caraustar Industries, Inc.




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