Special Note of Caution Regarding
Forward-Looking Statements
The following information contains
forward-looking statements. Forward-looking statements
include statements regarding our goals, beliefs, plans, estimates, outlook or current expectations
about future events, taking into account the information currently available to our
management.
Forward-looking statements are not statements of historical fact. For example, when we use words
such as “believe,” “anticipate,” “expect,” “estimate,” “assume,”
“intend,” “should,” “would,”
“could,” or “may,” or other words, expressions, charts or graphs that address future events or
outcomes, we are making forward-looking statements.
Our forward-looking statements are subject to
risks and uncertainties that could cause actual results
to differ materially depending on a variety of important factors, including, but not limited to,
fluctuations in raw material prices and energy costs, increases in pension and insurance
costs,
downturns in industrial production, housing and construction and the consumption of durable and
nondurable goods, the degree and nature of competition, demand for our products, the degree of
success achieved by our new
product initiatives, changes in government regulations, our ability to
complete and successfully integrate the operations of acquired businesses and our ability to service
our substantial indebtedness. Additional relevant risk factors that
could cause actual results to differ
materially are discussed in the company’s registration statements and reports filed with the
Securities and Exchange Commission, which are available from the company. With respect to such
forward-looking statements, we claim protection under the Private Securities Litigation Reform Act
of 1995. We do not undertake any obligation to update our forward-looking statements.
CARAUSTAR
Who is Caraustar?
Carolina
Paperboard
(1938)
Star
Paper Tube
(1958)
Austell
Boxboard
(1948)
IPO: October 8, 1992 (NASDAQ: CSAR)
1
Estimated 2003 capacities(1)
(1) Source: American Forest and Paper Association, Bank of America and UBS Warburg <670m tons or <8.8%
w/New Newark Mill <570m tons or <7.5%
*+ ~100 tons of O.S. @ New Mill
Who is Caraustar?
The largest U.S. recycled boxboard producer
2
Rank
Company
Tube & Core
Stock
Gypsum
Facings
CCN &
Other
Capacity
Market
Share
1
Caraustar Industries
400
380
640
1,420
21%
2
Rock
-
Tenn
75
735
810
12%
3
Sonoco Products
700
700
10%
4
Newark Group
100
580*
680
10%
5
Smurfit
-
Stone
640
640
9%
6
U
.S. Gypsum
550
550
8%
7
Graphic Packaging
355
355
5%
8
National Gypsum
280
280
4%
8
Georgia Pacific
240
240
3%
10
Simkins Industries
200
200
3%
Others
180
150
700
1,030
15%
Total U.S. Capacity
1380
1,675
3,850
6,905
100%
Folding Cartons
462,000 tons
40%
CPG
Consumer
Nondurable
Consumption
86%
Industrial
Production
14%
Other Specialty
214,000 tons
19%
Mill Group
Consumer
Nondurable
Consumption
88%
Consumer
Durable Goods
12%
Commercial
Construction
20%
Repair and
Remodeling
40%
Single and
Multifamily
Construction
40%
Gypsum Facing
Paper
178,000 tons
16%
Mill Group
Construction
17%
Industrial
Production
75%
Consumer
Nondurable
Consumption
8%
Tubes, Cores and
Composite Cans
280,000 tons
25%
ICPG
Who is Caraustar?
Leadership positions in each of the four principal
recycled paperboard product markets
(Caraustar 2002 tonnage and demand drivers)
#2
#1
#3
#3
3
Recovered Fiber Group
Mill Group
Industrial & Consumer Products Group
Custom Packaging Group
Who is Caraustar?
Four Operating Groups:
4
Business and Industry
Update
Industry Overview
Market conditions and overcapacity continue to hurt the recycled boxboard
industry; however, we have demonstrated an ability to increase our market
share, reduce costs and generate cash in this
environment.
Second quarter ’03 was slower for Caraustar in most segments vs. Q1 ‘03.
Slight improvement in mill selling
prices year-over-year offset by fiber cost
increases; energy has eased vs. Q1 ’03. On the converting side, lack of
domestic demand for packaging and a slowly recovering industrial economy have
led to continued softness in
volumes, particularly in the folding carton market.
Most analysts
continue to project that industrial output of nondurable goods will
recover slowly but steadily in the second half of 2003.
During the last five years, 1,500,000 tons of capacity have been removed from
the industry.
We have accounted for 375,000 tons; 5 mills have been shut down and
another recently idled (Rittman).
5
Business and Industry Update
Boxboard Shipments (tons in thousands)
*Includes outside purchases
**Includes gypsum facing volume from our 50% owned PBL joint venture
6
Industry
Caraustar
Industry
2001
2002
% Change
% Change
Caraustar
% Change
% Change
Recycled
Folding
409.8
462.2
12.7%
-0.7%
220.5
2.9%
-2.1%
Tube Can &
Drum
246.2
279.6
13.6%
3.2%
169.2
35.4%
3.1%
Gypsum
Facings**
178.8
178.1
0.0%
-6.8%
88.0
-0.3%
5.5%
Other
Specialty
207.9
214.6
3.2%
-6.3%
112.2
-1.4%
3.6%
Total
1042.7
1134.5
8.8%
-2.3%
589.9
9.0%
1.4%
(000) tons
Full Year 2002 vs. 2001
Caraustar*
First Half 2003 vs. 2002
(000) tons
Business and Industry Update
Mill Capacity Utilization
Source: American Forest and Paper Association.
Caraustar typically maintains higher utilization rates than industry averages
7
New products in strong markets taking off
New gypsum technology gaining market acceptance
Integrating acquisitions and consolidating operations
Q4 2002 restructuring and business initiatives for 2003
will provide a
springboard for Caraustar into an
anticipated economic recovery
Balance of 2003 likely to reflect continued transition to a
leaner, more focused Caraustar
Management understands that restructuring/business
initiatives must translate into improved financial results
Business and Industry Update
Company Overview – Where We are Now
8
Funded $80 million purchase price with $38
million
revolver draw (repaid in November), $31 million of
cash on hand and $11 million in operating lease
facility; also infused $15.3 million in working capital
in Q4 as Caraustar did not purchase accounts
receivable
Caraustar has achieved its stated objective of
internalizing the uncoated paperboard that Smurfit
bought on the outside; we have also closed 8 tube
and core plants as of 8/30/03
Estimated annual run rate of synergies achieved:
Mills - $ 3.0 million
Converting - $ 5.0 million
Profit Improvement Initiatives
Smurfit Acquisition Status
9
Profit Improvement Initiatives
Recent Operating Results - 2003
10
($ in millions)
YTD
YTD
June 30, 2002
June 30, 2003
Tons sold* (in thousands)
479
525
Sales
$448.0
$499.7
Gross Profit
$87.6
$89.3
+ $ 7.2 million ***
S,G&A Expenses
$70.4
$88.8
- $ 6.5 million ***
EBITDA**
$52.6
$17.8
+ $ 5.8 million ***
Capital Expenditures
$10.7
$10.8
Gross Profit Margin
19.6%
17.9%
+1.4% ***
EBITDA Margin
11.7%
3.6%
+3.9% ***
* Includes PBL Gypsum volume
** As defined by Caraustar's Senior Credit Facility dated June 24, 2003
Profit Improvement
Initiatives
Restructuring/Transition
11
Estimated
$MM (Pre-tax)
Ongoing Annual
Status
Cash
Non-Cash
Total
Cash Benefit
at 6/30/03
Restructuring
Halifax Closure - Q4 '02
(0.4)
(3.0)
(3.4)
1.0
0.5
Ashland Carton - Q4 '02
(1.2)
(1.3)
(2.5)
3.8
0.4
- Q2 '03
(2.0)
(1.6)
(3.6)
-
Carolina Converting, Inc. - Q4 '02
(3.6)
(2.4)
(6.0)
3.6
0.2
Buffalo Closure - Q1 '03
(0.8)
(3.5)
(4.3)
3.5
1.1
Totals
(8.0)
(11.8)
(19.8)
11.9
2.2
Transitional
Eight Tube & Core Facilities
(4.1)
0.1
(4.2)
5.0
2.5
Rittman #2 Paper Machine (Idle)
(1.1)
(1.3)
(2.4)
5.0
0.7
Totals
(5.2)
(1.2)
(6.6)
10.0
3.2
One-Time Estimated Cost
Estimated
Profit Improvement
Initiatives
Selling, General and Administrative (S,G&A) Expense
Reduction
Company’s “bolt on” acquisition strategy of the 1990’s,
Sarbanes-Oxley legislation as well as facility rationalization
provides a significant opportunity to reduce S,G&A costs
(total S,G&A cost for 2002 was approximately $150 million)
“Thirty $30 million companies versus one $billion company”
Internal benchmarking versus a universe of 20 papermakers
indicates that
Caraustar S,G&A expense in 2002 was 16% of
sales compared to 11% average for the group
Management has a commitment to achieve a $20 million
annual S,G&A reduction (run rate) by May 2004; (assisted by
Big Four advisors)
Potential EPS impact of $.45 on an annual basis
12
Profit Improvement
Initiatives
Procurement Leverage
The Three “F’s”: Fiber, Freight, Fuel constitute a total
Caraustar expenditure of approximately $60 million each,
total of $180 million
Historically, Caraustar has not leveraged its buying power:
Company’s own recovered fiber group supplies only
about 50% of the
mill system’s fiber requirements – the
balance is purchased independently by the mills
The eight largest freight vendors constitute only $24
million of the total freight cost of $60 million – the balance
is purchased on a fragmented local basis
Opportunities exist to better manage fuel costs through
consolidated risk
management strategies
Significant opportunity to improve gross
profit margins
through leveraged buying
13
Management has a commitment to extract a
minimum of $30
million from working capital to be achieved through inventory
reduction, more aggressive accounts
receivable collection
and disbursements management
Company
has made significant progress since beginning of
Q2 2003 (inception date) and expects to meet its goal by
May 2004
Working Capital and Liquidity
“Cash is King”
MM$
14
Working Capital and
Liquidity
Bank Revolver/Hedge Strategy
New 3 year $75 million revolving credit facility secured primarily by
accounts receivable and inventory closed June 24, 2003
Pricing: LIBOR (currently 1.1%) plus 2.5% spread through 12/31/03
(Previous
spread was 3.25%; pricing improves with Fixed Charge
Coverage improvement)
Unused Line Fee: 0.5% (previous was 1.25%)
Minimal covenants
Availability is approximately $15 million after taking into consideration
outstanding letter of credit obligations ($47 million) and minimum
borrowing availability requirements
In July, the company hedged $50 million of its fixed rate debt to floating
rate
at a current benefit of approximately 300 basis points; we expect to
opportunistically move further toward a more balanced fixed/floating
ratio
15
Base
Business
Operational “backdrop” — Midyear 2003
Although there appears to be both technical support and
anecdotal evidence of a recovering economy, Caraustar’s
volumes across all business
units were soft
Pricing remains cost driven versus demand driven;
Caraustar
mill selling prices up about 1.5% since beginning of the year
Fiber prices peaked in the third quarter last year due to
Chinese export demand, abated during Q4 of 2002 and
moved back up in Q2 of 2003. Midyear average fiber cost
per ton has
increased from about $80 at the beginning of
2003 to the low $90 range and is holding there
Energy prices moved up 8-10% during the first quarter of
2003 and declined to around $60 per ton at midyear and are
stable
16
Base
Business
Midyear 2003
Mill System
Tube
and core grades were up about 34% in terms of
volume for the first 6 months of 2003 versus 2002
(including SIPD)
Folding carton grades were relatively flat year-over-year
but declined significantly (18%) from Q1 ’03 to Q2 ’03
Gypsum was flat on a tonnage basis; however, we are
growing our PBL business
with a lighter basis weight
Specialty grade board down versus
prior year due to
migration of business to Asia but acquired partition
business should offset
Folding Carton
Shut down of Ashland plant in Q2; key business retained
and relocated to 4 other Caraustar Midwest carton plants
17
Base
Business
Midyear 2003
Folding Carton (continued)
Price pressure continues led by reverse auctions that
squeeze margins
Caraustar will continue to match supply versus demand,
realign assets and take cost out of the system to compete
in a “Walmart World”
Tube and Core
SIPD consolidation ahead of schedule
Margins are relatively flat versus same 6 month period
last
year
Overall volumes impacted by slow economy
18
Base Business
Joint Ventures:
* Actual through 8/31/03 plus forecast for remainder of 2003
**Offset by decrease in medium prices and soft demand for medium
19
Standard Gypsum (Wallboard)
2002
vs. 2001
2003 *
vs. 2002
Volume
+ 70 MM Sq. ft.
+ 21 MM Sq. ft.
Board Price/msf
+ $25/msf
-
$1.5/msf
Operating Inc.
+ $16.8 MM
-
$5.6 MM
Premier Boxboard Limited (Gypsum Paper)
2003
vs. 2002
Volume
+ 26,000 Tons
Sales Price
+ $12/Ton
Operating Inc.
+ $11.3 MM**
Caraustar is positioning itself to be successful
regardless of
external factors
Near Term Agenda
Execute SIPD integration – drive synergies
Execute rationalizations of under-performing businesses
Extract cash from working capital
Reduce SG&A / back office costs – in conjunction with
Sarbanes-Oxley control initiatives, streamline processes
Real Estate Sales – Chicago, Camden, Chesapeake,
Buffalo …
Debt Reduction
Strategy / Outlook
20
Preliminary Note Regarding Non-GAAP Financial Measures
This presentation includes the following financial measures: “EBITDA” (as defined the Company’s senior credit facility) and “EBITDA Margin.” These items are not financial measures under generally accepted accounting principles in the United States. Because these items are not GAAP financial measures, other companies may present similarly titled items determined with differing adjustments. Accordingly, these measures as presented herein should not be used to evaluate the Company’s performance by comparison to any similarly titled measures presented by other companies. The Company believes these measures provide useful information in evaluating the Company’s performance and its ability to comply with its debt covenants. The following tables include reconciliations of these non-GAAP financial measures with the most comparable GAAP measurement. Investors are strongly urged to review these reconciliations.
Caraustar Industries, Inc.
Calculations of Consolidated Earnings
Before Interest, Taxes, Depreciation and
Amortization (EBITDA) for the Six Months
Ended June 30, 2002 and 2003
(In Thousands, Except Share Data)
| Six months Ended June 30, 2002 |
Six months Ended June 30, 2003 |
|||||||
| Net loss per common share as reported |
$ | 0.00 | $ | (0.61 | ) | |||
| Net loss as reported |
$ | (82 | ) | $ | (16,963 | ) | ||
| Benefit from income taxes |
$ | (132 | ) | $ | (9,913 | ) | ||
| Interest expense |
$ | 18,679 | $ | 21,581 | ||||
| Depreciation and amortization |
$ | 30,896 | $ | 14,924 | ||||
| Unconsolidated affiliates: |
||||||||
| Less: Equity in income from unconsolidated affiliates |
$ | (1,035 | ) | $ | (1,464 | ) | ||
| Plus: Cash distributions from unconsolidated affiliates |
$ | 2,955 | $ | 2,150 | ||||
| Noncash restructuring: |
||||||||
| Camden and Chicago |
$ | 985 | $ | 0 | ||||
| Ashland |
$ | 0 | $ | 1,563 | ||||
| Buffalo |
$ | 0 | $ | 3,436 | ||||
| Write-off of deferred debt costs |
$ | 0 | $ | 1,812 | ||||
| Noncash disposal of property, plant and equipment |
$ | 326 | $ | 687 | ||||
| Adjusted EBITDA as reported to the banks |
$ | 52,592 | $ | 17,813 | ||||
| EBITDA Margin - Comparable GAAP Margin |
||||||||
| Net Loss |
$ | (82 | ) | $ | (16,963 | ) | ||
| Sales |
$ | 448,024 | $ | 499,745 | ||||
| Net Loss Margin |
0.0 | % | -3.4 | % | ||||