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Caraustar Industries Reports Third Quarter Results

Nov. 5, 2007 - Caraustar Industries, Inc. today announced that sales from continuing operations for the third quarter ended September 30, 2007 were $209.6 million, a decrease of 10.7 percent compared to sales of $234.7 million for the same quarter in 2006. The cessation of production at four paper mills accounted for $9.3 million of the decrease in sales. Income from continuing operations for the third quarter of 2007 was $1.1 million, or $0.04 per share, compared to 2006 third quarter loss from continuing operations of $3.8 million, or $0.13 per share. Also included in income from continuing operations for the third quarter 2007 was approximately $500 thousand ($0.01 per share) for expenses related to a transformer failure at the company's Austell Boxboard Mill Two. In the third quarter 2006 the company incurred accelerated depreciation and other divestiture costs of $2.7 million ($0.06 per share). The third quarter 2007 and 2006 results included pretax restructuring and impairment costs of approximately $157 thousand and $4.8 million, or $0.00 and $0.11 per share, respectively.

On October 2, 2007, Caraustar completed the sale of the assets of its composite can and plastics businesses to the Sonoco Products Company (Sonoco) for $20.2 million dollars. The company recognized a pretax impairment loss of $10.3 million in the third quarter 2007 and reflected the results of these operations in the accompanying financial statements as discontinued operations for all periods presented. Proceeds from the sale of the assets were used to reduce the company's debt.

Total paperboard controlled volume (Caraustar mill tons sold plus outside paperboard purchased) for the third quarter of 2007 decreased approximately 47.6 thousand tons, or 16.9 percent, compared to the same quarter last year. The volume decrease was in part attributable to the company's exit of the Sprague, CT mill, the cessation of CRB operations at the Rittman, OH mill, and the closures of the Lafayette, IN and Reading, PA mills. In the aggregate, those four mills contributed 31.1 thousand tons to overall reported volume for the third quarter 2006. Excluding these mills, total paperboard controlled in the third quarter 2007 compared to prior year decreased 16.5 thousand tons, or 6.6 percent, versus an industry decline of 3.0 percent. The rationalization of six converting facilities (two folding carton and four tube and core) over the same time period also adversely impacted volume. Mill margins decreased $7.8 per ton in the third quarter of 2007 compared to third quarter 2006, as a fiber increase of $38.4 per ton more than offset higher selling prices of $25.8 per ton and lower fuel and energy costs of $4.8 per ton. Tube and core margins decreased $2.6 per ton compared to the same period last year.

Gypsum facing paper volume, including volume at the company's Sweetwater paperboard mill, declined 15.9 percent compared to the same quarter last year. Offsetting this shortfall, overall production at the gypsum facing paper mills exceeded prior year as the company leveraged its flexibility in producing other paperboard grades. Caraustar's 50-percent interest in the Premier Boxboard Limited (PBL) mill contributed $425 thousand in equity in income of unconsolidated affiliates for the third quarter 2007 compared to $1.5 million for the same period a year ago. This reduction is due to a decline in demand in the wallboard business, the result of a weaker housing market.

Nine-Month Period Ended September 30, 2007
Sales from continuing operations for the nine-month period ended September 30, 2007 were $650.3 million, a decrease of 10.9 percent compared to sales of $730.0 million for the same period in 2006. Loss from continuing operations for the nine-month period in 2007 was $10.6 million, or a loss of $0.37 per share, compared to income from continuing operations for the nine-month period in 2006 of $62.6 million, or $2.19 per share. Loss from continuing operations for the first nine months of 2007 included restructuring charges of $9.7 million. Income from continuing operations for the first nine months of 2006 included restructuring charges of $25.4 million, a gain of $135.2 million resulting from the sale of the company's 50-percent interest in its Standard Gypsum joint venture, and a charge of $18.8 million associated with the redemption of the senior subordinated notes ($10.3 million loss on redemption and $8.5 million interest expense). Loss from operations decreased from a loss of $14.2 million for the nine-month period ended September 30, 2006 to a loss of $2.0 million for the same period in 2007. The primary factors for this decrease in loss from operations were lower restructuring and impairment costs of $15.7 million and a reduction in selling, general and administrative (SG&A) expenses from 13.2 percent of sales for the nine months ended September 30, 2006 to 11.9 percent of sales for the same period in 2007. Lower restructuring and impairment costs, as well as lower SG&A expenses, were partially offset by higher energy prices and higher recovered fiber costs. For the nine months ended September 30, 2007, Caraustar's 50-percent share of PBL's income was $932 thousand compared to $5.1 million for the same period last year. Year-to-date, Caraustar received $1.0 million in cash distributions in 2007 and $8.0 million in 2006.

Michael J. Keough, president and chief executive officer of Caraustar, commented, "Results for the third quarter 2007 were improved both sequentially and year-over-year against a challenging market backdrop. Market demand has softened across all grades. Our mill tons sold decreased 6.6 percent after considering exited facilities. Mill operating capacity was 91.8 percent for third quarter 2007 compared to 92.1 percent for the third quarter 2006, and versus industry operating rates of 93.8 and 90.3 percent, respectively. Rising fiber costs pressured margins in the third quarter. Energy has been relatively flat but recent increases in oil prices could impact fourth quarter results.

"We completed the sale of certain non-core assets during the third quarter, which were funded on October 3 and, thus, the cash impact is not reflected in our third quarter financials. Our liquidity position subsequent to quarter end improved significantly as more fully discussed below.

"We have nearly completed our transformation activities and continue to focus and to invest in our core businesses. I am pleased to report that our two new presses in Charlotte and Grand Rapids are running well and have given us state-of-the-art printing capabilities in our folding carton group while lowering our overall cost structure. Our three new high-speed tube and core winders will also lower costs and offer innovative packaging and paperboard products to our customers. This past quarter we introduced StaSquare 32, an exceptional recycled paperboard grade used in the manufacture of hardbound trade books, juvenile books, library binding books, game boards and point-of- purchase displays.

"PBL, our joint venture mill in Indiana, is sold out, and we expect it to remain so through the balance of the year. We are running a mix of roughly 50-percent gypsum and 50-percent containerboard. The product mix at PBL has changed in that we are running less gypsum facing as a result of the housing downturn, but the flexibility of the PBL model and concerted marketing efforts are paying off. We expect to see price improvement this fall in the containerboard segment of about $40 per ton.

"Our SG&A costs were down both as a percent of sales and on a dollar basis sequentially, and when compared to third quarter last year. We continue to aggressively pursue further SG&A reduction with disciplined cost-take-out activities addressing operations and our corporate headquarters."

Liquidity
The company ended the quarter with a cash balance of $780 thousand compared to $1.0 million at December 31, 2006. For the nine-month periods ended September 30, 2007 and 2006, the company used $5.5 million and provided $3.8 million of cash in operating activities, respectively. The increase in cash used from operations versus 2006 was primarily due to lower operating results. Capital expenditures decreased nine months year-to-date to $20.7 million in 2007 from $27.9 million in 2006.

As of September 30, 2007, the company had $49.4 million in borrowings outstanding under its $135.0 million senior secured credit facility and had $15.4 million in letters of credit outstanding. As of September 30, 2007, the company had availability under the revolving portion of the Senior Credit Facility of $31.7 million. Subsequent to the end of the quarter, asset sale proceeds reduced borrowings outstanding under the senior secured credit facility by approximately $19.9 million. Also, subsequent to the end of the quarter, the company received a $1.0 million distribution from PBL.

Cash restructuring costs related to the closure of facilities were $2.4 million in the third quarter of 2007 compared to $1.5 million in the same quarter in 2006.

SOURCE: Caraustar Industries, Inc.




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