Capacity Utilization
Capacity utilization has decreased over several years from a reduction in demand driven by the general economic downturn and the continuing trend of U.S. manufacturing moving offshore. To help restore the balance, Caraustar and the industry have reduced capacity by closing facilities. We call this difficult process "right-sizing."

Mill Rationalization
Over the past five years, 37 recycled boxboard paper machines, representing more than 1.7 million tons, or 20 percent, of total industry capacity, have been shut down. Caraustar shut down six machines with a combined capacity of 370,000 tons. In 2003 alone, Caraustar permanently closed machines in Halifax, VA, and Lockport, NY, and indefinitely idled another machine in Rittman, OH.

Converting Rationalization
Following the acquisition in September 2002 of Smurfit-Stone Container Corporation's Industrial Products Division, Caraustar had 51 tube and core converting facilities. Through 2003, eight of those facilities have been shut. Also in 2003, the Ashland, OH folding carton operation was closed.

Rationalization Costs and Opportunities
The company incurred $6.2 million in cash costs in 2003 and $8.0 million in 2002 ($14.2 million in total) associated with the mill and converting rationalization. The cash benefit to Caraustar at the close of 2003 was $15.7 million and the ongoing cash benefit is expected to be $22 million. In aggregate, the company managed to transfer approximately 95 percent of the business of these closed facilities to other Caraustar operations.