1. Nature of Business and Summary of Significant Accounting Policies
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| Nature of Business |
| Caraustar Industries, Inc. (the "Parent Company") and subsidiaries (collectively, the "Company") are engaged in manufacturing, converting, and marketing paperboard and related products. |
| Principles of Consolidation |
| The consolidated financial statements include the accounts of the Parent Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. |
| Reclassifications |
| Certain prior year balances have been reclassified to conform with the current year presentation. |
| Cash and Cash Equivalents |
| The Company considers cash on deposit and investments with an original maturity of three months or less to be cash equivalents. |
| Inventories |
| During the second quarter of 2001, the Company completed a restructuring within the carton and custom packaging segment whereby certain subsidiaries were merged into an existing subsidiary in that segment. The restructuring was completed to simplify reporting and facilitate the management of segment operations. In connection with this restructuring, the Company changed, effective June 30, 2001, its inventory costing method of accounting for one of the merged subsidiaries from LIFO to FIFO in order to conform with the methodologies of the surviving subsidiary and all other Company-owned subsidiaries. The accompanying financial statements have been restated for this change. The effect of the change was to increase net assets as of June 30, 2001 and December 31, 2000 by $794,000 and $758,000, respectively. The effect on net income for the years ended December 31, 2001, 2000 and 1999, was $36,000, $33,000 and ($122,000), respectively.
Inventories are carried at the lower of cost or market. Cost includes materials, labor and overhead. Market, with respect to all inventories, is replacement cost or net realizable value. As described above, all inventories are valued using the first-in, first-out method.
Inventories at December 31, 2001 and 2000 were as follows (in thousands):
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2001 |
2000 |
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| Raw materials and supplies |
$ 40,357 |
$ 44,240 |
| Finished goods and work in process |
61,466 |
67,320 |
| Total inventory |
$101,823 |
$111,560 |
| Property, Plant and Equipment |
| Property, plant and equipment are stated at cost. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Expenditures for repairs and maintenance not considered to substantially lengthen the asset lives or increase capacity or efficiency are charged to expense as incurred. |
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| For financial reporting purposes, depreciation is computed using the straight-line method over the following estimated useful lives of the assets: |
| Buildings and improvements |
10-45 years |
| Machinery and equipment |
3-20 years |
| Furniture and fixtures |
5-10 years |
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| Use of Estimates |
| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For example, significant management judgment is required in determining: the credit worthiness of customers and collectibility of accounts receivable; excess, obsolete or unsaleable inventory reserves; the potential impairment of goodwill; the accounting for income taxes; the liability for self-insured claims; and the Company's obligation and expense for pension and other postretirement benefits. Actual results could differ from the Company's estimates. |
| Revenue Recognition |
| The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," ("SAB 101") issued by the Securities and Exchange Commission. The Company recognizes revenue when the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (4) is based on management's judgments regarding the collectibility of the Company's accounts receivable. |
| Self-Insurance |
| The Company is self-insured for the majority of its workers' compensation costs and group health insurance costs, subject to specific retention levels. Consulting actuaries and administrators assist the Company in determining its liability for self-insured claims, and such liabilities are not discounted. |
| Foreign Currency Translation |
| The financial statements of the Company's non-U.S. subsidiaries are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Net assets of the non-U.S. subsidiaries are translated at current rates of exchange. Income and expense items are translated at the average exchange rate for the year. The resulting translation adjustments are recorded in accumulated other comprehensive loss. Certain other translation adjustments and transaction gains and losses continue to be reported in net income and were not material in any year. |
| Goodwill |
| Goodwill is amortized using the straight-line method over periods ranging up to 40 years. The Company has periodically evaluated goodwill for impairment. In completing this evaluation, the Company estimated the future undiscounted cash flows of the businesses to which goodwill related in order to determine whether the carrying amount of goodwill had been impaired.
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Under this pronouncement, goodwill will no longer be amortized to earnings, but instead will be reviewed periodically (at least annually) for impairment.
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