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Caraustar has elevated cash management to one of our highest priorities. At the 2003 annual shareholders'
meeting, a commitment was made to extract $30 million from working capital and to reduce the annual selling, general and administration expense (SG&A) rate by $20 million within twelve months.
Working capital is the cash that the company has tied up in running the business, consisting primarily of
inventories and accounts receivable, less accounts payable. At the beginning of 2003, these components of working capital were $153.8 million, and at the end of the year were $106.5 million. This reduction of $47.3 million was ahead of our commitment in magnitude and timing and generated a corresponding increase to cash on the balance sheet.
In 2002, Caraustar SG&A was 16.5 percent of revenue, nineteenth out of twenty "peer" companies. While running very lean operations, our decentralized structure generated the unfavorable cost comparison. A comprehensive analysis resulted in a series of decisions to realign the organization, including the consolidation and centralization of all finance and accounting functions. At year end, the company had reduced SG&A by $23 million on an annualized basis*.
Caraustar has already exceeded the $30 million commitment to working capital improvement and the $20 million commitment to SG&A reduction. There is more to be done and we will continue to set the bar higher as new targets and initiatives are developed to foster continuous improvement. Working capital improvement generated significant reductions
*sentence corrected from typographical error in printed annual report
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